ATMOS ENERGY CORP - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended March 31, 2005

or

o		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 incorporation or organization)		(IRS employer identification no.)

Three Lincoln Centre, Suite 1800 5430 LBJ Freeway, Dallas, Texas (Address of principal executive offices)		75240 (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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes þ No o

Number of shares outstanding of each of the issuer’s classes of common stock, as of April 25, 2005.


Class		Shares Outstanding

No Par Value		79,939,319

TABLE OF CONTENTS


PART 1. FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF INCOME
		CONDENSED CONSOLIDATED STATEMENTS OF INCOME
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2005
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 6. Exhibits
SIGNATURES
EXHIBITS INDEX Item 6(a)
Amended and Restated Articles of Incorporation
Computation of Ratio of Earnings to Fixed Charges
Letter Regarding Unaudited Interim Financial Information
Rule 13a-14(a)/15d-14(a) Certifications
Section 1350 Certifications

PART 1. FINANCIAL INFORMATION


Item 1.	*Financial Statements*

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


			March 31,			September 30,
			2005			2004

			(Unaudited)
			(In thousands, except
			share data)
ASSETS
Property, plant and equipment			$	4,606,713		$	2,633,651
	Less accumulated depreciation and amortization			1,355,118			911,130

		Net property, plant and equipment		3,251,595			1,722,521
Current assets
	Cash and cash equivalents			247,126			201,932
	Cash held on deposit in margin account			16,990			—
	Accounts receivable, net			527,411			211,810
	Gas stored underground			273,811			200,134
	Other current assets			112,428			63,236

		Total current assets		1,177,766			677,112
Goodwill and intangible assets				722,044			238,272
Deferred charges and other assets				261,039			231,978

			$	5,412,444		$	2,869,883

CAPITALIZATION AND LIABILITIES
Shareholders’ equity
	Common stock, no par value (stated at $.005 per share); 200,000,000 shares authorized; issued and outstanding:
		March 31, 2005 — 79,877,473 shares;
		September 30, 2004 — 62,799,710 shares	$	399		$	314
	Additional paid-in capital			1,408,721			1,005,644
	Retained earnings			240,920			142,030
	Accumulated other comprehensive loss			(17,770	)		(14,529	)

		Shareholders’ equity		1,632,270			1,133,459
Long-term debt				2,254,817			861,311

		Total capitalization		3,887,087			1,994,770
Current liabilities
	Accounts payable and accrued liabilities			533,232			185,295
	Other current liabilities			298,802			223,265
	Current maturities of long-term debt			5,887			5,908

		Total current liabilities		837,921			414,468
Deferred income taxes				245,836			213,930
Regulatory cost of removal obligation				246,285			103,579
Deferred credits and other liabilities				195,315			143,136

			$	5,412,444		$	2,869,883

See accompanying notes to condensed consolidated financial statements

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME


			Three Months Ended
			March 31

			2005			2004

			(Unaudited)
			(In thousands, except per
			share data)
Operating revenues
	Utility segment		$	1,235,377		$	708,282
	Natural gas marketing segment			512,891			517,218
	Pipeline and storage segment			45,546			9,967
	Other nonutility segment			1,278			687
	Intersegment eliminations			(110,007	)		(118,669	)

				1,685,085			1,117,485
Purchased gas cost
	Utility segment			912,309			518,820
	Natural gas marketing segment			501,731			505,356
	Pipeline and storage segment			1,718			5,681
	Other nonutility segment			—			—
	Intersegment eliminations			(109,256	)		(118,498	)

				1,306,502			911,359

	Gross profit			378,583			206,126
Operating expenses
	Operation and maintenance			106,109			59,093
	Depreciation and amortization			45,326			23,138
	Taxes, other than income			54,967			18,481

		Total operating expenses		206,402			100,712

Operating income				172,181			105,414
Miscellaneous income				958			4,456
Interest charges				33,073			16,160

Income before income taxes				140,066			93,710
Income tax expense				51,564			35,405

		Net income	$	88,502		$	58,305

Basic net income per share			$	1.12		$	1.12

Diluted net income per share			$	1.11		$	1.12

Cash dividends per share			$	0.310		$	0.305

Weighted average shares outstanding:
	Basic			79,270			51,850

	Diluted			79,760			52,240

See accompanying notes to condensed consolidated financial statements

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME


			Six Months Ended
			March 31

			2005			2004

			(Unaudited)
			(In thousands, except per
			share data)
Operating revenues
	Utility segment		$	2,149,058		$	1,168,770
	Natural gas marketing segment			1,006,692			891,047
	Pipeline and storage segment			89,236			12,886
	Other nonutility segment			2,637			1,396
	Intersegment eliminations			(193,914	)		(192,998	)

				3,053,709			1,881,101
Purchased gas cost
	Utility segment			1,568,679			840,884
	Natural gas marketing segment			968,688			861,687
	Pipeline and storage segment			5,590			6,008
	Other nonutility segment			—			—
	Intersegment eliminations			(192,283	)		(192,657	)

				2,350,674			1,515,922

	Gross profit			703,035			365,179
Operating expenses
	Operation and maintenance			219,235			116,009
	Depreciation and amortization			89,323			46,611
	Taxes, other than income			93,622			33,604

		Total operating expenses		402,180			196,224

Operating income				300,855			168,955
Miscellaneous income				1,343			5,663
Interest charges				65,615			33,495

Income before income taxes				236,583			141,123
Income tax expense				88,482			53,277

		Net income	$	148,101		$	87,846

Basic net income per share			$	1.92		$	1.70

Diluted net income per share			$	1.90		$	1.69

Cash dividends per share			$	0.62		$	0.61

Weighted average shares outstanding:
	Basic			77,290			51,666

	Diluted			77,769			52,057

See accompanying notes to condensed consolidated financial statements

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


				Six Months Ended
				March 31

				2005			2004

				(Unaudited)
				(In thousands)
Cash Flows From Operating Activities
	Net income			$	148,101		$	87,846
	Adjustments to reconcile net income to net cash provided by operating activities:
		Gain on the sale of assets			—			(4,898	)
		Depreciation and amortization:
			Charged to depreciation and amortization		89,323			46,611
			Charged to other accounts		477			601
		Deferred income taxes			42,605			10,081
		Other			3,315			(944	)
		Net assets/ liabilities from risk management activities			20,247			924
		Net change in operating assets and liabilities			96,025			150,382

			Net cash provided by operating activities		400,093			290,603
Cash Flows From Investing Activities
	Capital expenditures				(137,466	)		(83,729	)
	Acquisitions				(1,912,532	)		(1,950	)
	Proceeds from the sale of assets				—			24,661
	Other				(1,957	)		2,878

			Net cash used in investing activities		(2,051,955	)		(58,140	)
Cash Flows From Financing Activities
	Net decrease in short-term debt				—			(118,595	)
	Net proceeds from issuance of long-term debt				1,385,847			5,000
	Repayment of long-term debt				(3,849	)		(5,546	)
	Settlement of Treasury lock agreements				(43,770	)		—
	Cash dividends paid				(49,211	)		(31,616	)
	Issuance of common stock				26,025			17,594
	Net proceeds from equity offering				382,014			—

			Net cash provided by (used in) financing activities		1,697,056			(133,163	)

Net increase in cash and cash equivalents					45,194			99,300
Cash and cash equivalents at beginning of period					201,932			15,683

Cash and cash equivalents at end of period				$	247,126		$	114,983

See accompanying notes to condensed consolidated financial statements

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

March 31, 2005


1.	Nature of Business

Atmos Energy Corporation (“Atmos” or “the Company”) and its subsidiaries are engaged primarily in the natural gas utility business as well as certain nonutility businesses. Through our natural gas utility business, we distribute natural gas through sales and transportation arrangements to approximately 3.2 million residential, commercial, public-authority and industrial customers through our seven regulated natural gas utility divisions, in the service areas described below:


Division		Service Area

Atmos Energy Colorado-Kansas Division		Colorado, Kansas, Missouri⁽³⁾
Atmos Energy Kentucky Division		Kentucky
Atmos Energy Louisiana Division		Louisiana
Atmos Energy Mid-States Division		Georgia⁽³⁾, Illinois⁽³⁾, Iowa⁽³⁾, Missouri⁽³⁾Tennessee, Virginia⁽³⁾
Atmos Energy Mississippi Division ⁽¹⁾		Mississippi
Atmos Energy Mid-Tex Division⁽²⁾		Texas, including the Dallas/Fort Worth metropolitan area
Atmos Energy West Texas Division		West Texas


⁽¹⁾	The name of this division was changed from the Mississippi Valley Gas Company Division in April 2005.

⁽²⁾	Acquired in October 2004.

⁽³⁾	Denotes locations where we have more limited service areas.

As further described in Note 3, on October 1, 2004, we completed our acquisition of the natural gas distribution and pipeline operations of TXU Gas Company (TXU Gas). The TXU Gas operations we acquired are regulated businesses engaged in the purchase, transmission, storage, distribution and sale of natural gas in the north-central, eastern and western parts of Texas. We also acquired a system consisting of 6,162 miles of gas transmission and gathering lines and five underground storage reservoirs, all within Texas. On October 1, 2004, we created the Atmos Energy Mid-Tex Division, which provides gas distribution services to the approximately 1.5 million residential and business customers in Texas, including the Dallas/ Fort Worth metropolitan area as a result of the TXU Gas acquisition. We also created the Atmos Pipeline — Texas Division to manage the TXU Gas pipeline and storage operations we acquired.

In addition, we transport natural gas for others through our distribution system. Our utility business is subject to federal and state regulation and/or regulation by local authorities in each of the states in which the utility divisions operate. Our shared-services division is located in Dallas, Texas, and our customer support centers are located in Amarillo, Texas, and Metairie, Louisiana. In addition, on April 1, 2005, we assumed the operations of a Waco, Texas call center, and all call center services provided by TXU Gas under a transitional services agreement were terminated. We intend to close the purchase of the related assets on October 1, 2005.

Our nonutility businesses include our natural gas marketing operations, our pipeline and storage operations and our other nonutility operations which are provided in 18 states. These operations are either organized under or managed by Atmos Energy Holdings, Inc. (AEH), which is wholly-owned by Atmos Energy Corporation.

Our natural gas marketing operations are managed by Atmos Energy Marketing, LLC (AEM), which is wholly-owned by AEH. AEM provides a variety of natural gas management services to municipalities, natural gas utility systems and industrial natural gas customers, primarily in the southeastern and midwestern states and to our Colorado-Kansas, Kentucky, Louisiana and Mid-States divisions. These services consist primarily

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

of furnishing natural gas supplies at fixed and market-based prices, contract negotiation and administration, load forecasting, gas storage acquisition and management services, transportation services, peaking sales and balancing services, capacity utilization strategies and gas price hedging through the use of derivative instruments.

Our pipeline and storage operations consist of the operations of the Atmos Pipeline — Texas Division, a division of Atmos Energy Corporation, and of Atmos Pipeline and Storage, LLC (APS), which is wholly-owned by AEH. The Atmos Pipeline — Texas Division was purchased from TXU Gas and supplies natural gas to the Atmos Energy Mid-Tex Division, transports natural gas to third parties and manages five underground storage reservoirs in Texas. Through APS, we own or have an interest in underground storage fields in Kentucky and Louisiana. We also use these storage facilities to reduce the need to contract for additional pipeline capacity to meet customer demand during peak periods.

Our other nonutility businesses consist primarily of the operations of Atmos Energy Services, LLC (AES) and Atmos Power Systems, Inc., which are wholly-owned by AEH. Through AES, we provide natural gas management services to our utility operations. These services, which began April 1, 2004, include aggregating and purchasing gas supply, arranging transportation and storage logistics and ultimately delivering the gas to our utility service areas at competitive prices. Through Atmos Power Systems, Inc., we construct electric peaking power-generating plants and associated facilities and may enter into agreements to either lease or sell these plants.


2.	Unaudited Interim Financial Information

In the opinion of management, all material adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been made to the unaudited consolidated interim-period financial statements. These consolidated interim-period 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 (“Atmos” or “the Company”) in its Annual Report on Form 10-K for the fiscal year ended September 30, 2004. Because of seasonal and other factors, the results of operations for the three and six-month periods ended March 31, 2005 are not indicative of expected results of operations for the fiscal year ending September 30, 2005. Further, the impact of the TXU Gas acquisition on the statement of cash flows is reflected in the acquisitions line item; therefore, the net changes in operating assets and liabilities will not reflect balance sheet changes attributable to the acquisition.


	*Significant accounting policies*

Our accounting policies are described in Note 2 to our Annual Report on Form 10-K for the year ended September 30, 2004. There were no significant changes to our accounting policies during the six months ended March 31, 2005.


	*Stock-based compensation plans*

We have two stock-based compensation plans that provide for the granting of incentive stock options, nonqualified stock options, stock appreciation rights, bonus stock, restricted stock and performance-based restricted stock units to officers and key employees: the 1998 Long-Term Incentive Plan and the Long-Term Stock Plan for the Mid-States Division. Nonemployee directors are also eligible to receive such stock-based compensation under the 1998 Long-Term Incentive Plan. The objectives of these plans include attracting and retaining the best personnel, providing for additional performance incentives and promoting our success by providing employees with the opportunity to acquire common stock.

As permitted by Statement of Financial Accounting Standards (SFAS) 123, Accounting for Stock-Based Compensation, we account for these plans under the intrinsic-value method described in Accounting

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Principles Board (APB) Opinion 25, Accounting for Stock Issued to Employees. Under this method, no compensation cost for stock options is recognized for stock-option awards granted at or above fair-market value. Awards of restricted stock are valued at the market price of the Company’s common stock on the date of grant. The unearned compensation is amortized to operation and maintenance expense over the vesting period of the restricted stock. As discussed below, beginning October 1, 2005 we will account for our stock-based compensation in accordance with SFAS 123 (revised), Share-Based Payment.

Had compensation expense for our stock options issued under the Long-Term Incentive Plan been recognized based on the fair value on the grant date under the methodology prescribed by SFAS 123, our net income and earnings per share for the three and six-months ended March 31, 2005 and 2004 would have been impacted as shown in the following table:


		Three Months Ended						Six Months Ended
		March 31						March 31

		2005			2004			2005			2004

		(In thousands, except per share amounts)
Net income — as reported		$	88,502		$	58,305		$	148,101		$	87,846
Restricted stock compensation expense included in income, net of tax			469			98			962			196
Total stock-based employee compensation expense determined under fair-value-based method for all awards, net of taxes			(684	)		(385	)		(1,427	)		(778	)

Net income — pro forma		$	88,287		$	58,018		$	147,636		$	87,264

Earnings per share:
	Basic earnings per share — as reported	$	1.12		$	1.12		$	1.92		$	1.70

	Basic earnings per share — pro forma	$	1.11		$	1.12		$	1.91		$

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