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 December 31, 2004
 
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 January 31, 2005.

 
     
Class Shares Outstanding


No Par Value
  79,348,039




TABLE OF CONTENTS

PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
ATMOS ENERGY CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) December 31, 2004
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 6. Exhibits
SIGNATURES
EXHIBITS INDEX Item 6(a)
11th Amendment to Credit Agreement
Form of Non-Qualified Stock Option Agreement
Form of Restricted Stock Award Agreement
Form of Award Agreement of Performance-Based Restricted Stock Units
Form of Award Agreement of Restricted Stock with Time-Lapse Vesting
Computation of Ratio of Earnings to Fixed Charges
Letter Re: 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

                     
December 31, September 30,
2004 2004


(Unaudited)
(In thousands, except share data)
ASSETS
Property, plant and equipment
  $ 4,544,069     $ 2,633,651  
 
Less accumulated depreciation and amortization
    1,320,926       911,130  
     
     
 
   
Net property, plant and equipment
    3,223,143       1,722,521  
Current assets
               
 
Cash and cash equivalents
    25,162       201,932  
 
Accounts receivable, net
    640,760       211,810  
 
Gas stored underground
    389,625       200,134  
 
Other current assets
    152,686       63,236  
     
     
 
   
Total current assets
    1,208,233       677,112  
Goodwill and intangible assets
    703,038       238,272  
Deferred charges and other assets
    271,682       231,978  
     
     
 
    $ 5,406,096     $ 2,869,883  
     
     
 
CAPITALIZATION AND LIABILITIES
Shareholders’ equity
               
 
Common stock, no par value (stated at $.005 per share); 100,000,000 shares authorized; issued and outstanding:
               
    December 31, 2004 — 79,257,756 shares;
September 30, 2004 — 62,799,710 shares
  $ 396     $ 314  
 
Additional paid-in capital
    1,393,250       1,005,644  
 
Retained earnings
    177,108       142,030  
 
Accumulated other comprehensive loss
    (31,676 )     (14,529 )
     
     
 
   
Shareholders’ equity
    1,539,078       1,133,459  
Long-term debt
    2,255,173       861,311  
     
     
 
   
Total capitalization
    3,794,251       1,994,770  
Current liabilities
               
 
Accounts payable and accrued liabilities
    653,403       185,295  
 
Other current liabilities
    283,130       223,265  
 
Short-term debt
    28,797        
 
Current maturities of long-term debt
    5,897       5,908  
     
     
 
   
Total current liabilities
    971,227       414,468  
Deferred income taxes
    200,737       213,930  
Regulatory cost of removal obligation
    241,986       103,579  
Deferred credits and other liabilities
    197,895       143,136  
     
     
 
    $ 5,406,096     $ 2,869,883  
     
     
 

See accompanying notes to condensed consolidated financial statements

1


 

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                     
Three Months Ended
December 31

2004 2003


(Unaudited)
(In thousands, except per
share data)
Operating revenues
               
 
Utility segment
  $ 913,681     $ 460,488  
 
Natural gas marketing segment
    493,801       373,829  
 
Pipeline and storage segment
    43,690       2,919  
 
Other nonutility segment
    1,359       709  
 
Intersegment eliminations
    (83,907 )     (74,329 )
     
     
 
      1,368,624       763,616  
Purchased gas cost
               
 
Utility segment
    656,370       322,064  
 
Natural gas marketing segment
    466,957       356,331  
 
Pipeline and storage segment
    3,872       327  
 
Other nonutility segment
           
 
Intersegment eliminations
    (83,027 )     (74,159 )
     
     
 
      1,044,172       604,563  
     
     
 
 
Gross profit
    324,452       159,053  
Operating expenses
               
 
Operation and maintenance
    113,126       56,916  
 
Depreciation and amortization
    43,997       23,473  
 
Taxes, other than income
    38,655       15,123  
     
     
 
   
Total operating expenses
    195,778       95,512  
     
     
 
Operating income
    128,674       63,541  
Miscellaneous income
    385       1,207  
Interest charges
    32,542       17,335  
     
     
 
Income before income taxes
    96,517       47,413  
Income tax expense
    36,918       17,872  
     
     
 
   
Net income
  $ 59,599     $ 29,541  
     
     
 
Basic net income per share
  $ 0.79     $ 0.57  
     
     
 
Diluted net income per share
  $ 0.79     $ 0.57  
     
     
 
Cash dividends per share
  $ 0.310     $ 0.305  
     
     
 
Weighted average shares outstanding:
               
 
Basic
    75,306       51,483  
     
     
 
 
Diluted
    75,725       51,861  
     
     
 

See accompanying notes to condensed consolidated financial statements

2


 

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                       
Three Months Ended
December 31

2004 2003


(Unaudited)
(In thousands)
Cash Flows From Operating Activities
               
 
Net income
  $ 59,599     $ 29,541  
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
   
Depreciation and amortization:
               
     
Charged to depreciation and amortization
    43,997       23,473  
     
Charged to other accounts
    254       672  
   
Deferred income taxes
    8,308       19,347  
   
Other
    977       (476 )
   
Net assets/liabilities from risk management activities
    22,088       (4,564 )
   
Net change in operating assets and liabilities
    (67,319 )     (56,490 )
     
     
 
     
Net cash provided by operating activities
    67,904       11,503  
Cash Flows From Investing Activities
               
 
Capital expenditures
    (67,201 )     (45,471 )
 
Acquisitions
    (1,912,532 )      
 
Other
    (1,051 )     489  
     
     
 
     
Net cash used in investing activities
    (1,980,784 )     (44,982 )
Cash Flows From Financing Activities
               
 
Net increase in short-term debt
    28,797       73,200  
 
Net proceeds from issuance of long-term debt
    1,385,847        
 
Repayment of long-term debt
    (3,373 )     (5,363 )
 
Settlement of Treasury lock agreements
    (43,770 )      
 
Cash dividends paid
    (24,521 )     (15,744 )
 
Issuance of common stock
    11,116       7,413  
 
Net proceeds from equity offering
    382,014        
     
     
 
     
Net cash provided by financing activities
    1,736,110       59,506  
     
     
 
Net increase (decrease) in cash and cash equivalents
    (176,770 )     26,027  
Cash and cash equivalents at beginning of period
    201,932       15,683  
     
     
 
Cash and cash equivalents at end of period
  $ 25,162     $ 41,710  
     
     
 

See accompanying notes to condensed consolidated financial statements

3


ATMOS ENERGY CORPORATION  

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)
December 31, 2004

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, which cover the following service areas:

 
     
Division Service Area


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


(1)   Acquired in October 2004.
 
(2)   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 own and operate 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 to provide gas distribution services to the approximately 1.5 million residential and business customers in Texas, including the Dallas/ Fort Worth metropolitan area we acquired from TXU Gas. 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. However, on November 4, 2004, we entered into an agreement with Capgemini Energy L.P. pursuant to which we will assume the operations of the Waco, Texas call center on April 1, 2005 and will close the purchase of the related assets on October 1, 2005. In connection therewith, all call center services provided by TXU Gas under the transitional services agreement will terminate on April 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

4


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 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. As previously discussed, 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 months ended December 31, 2004 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 three months ended December 31, 2004.

 
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.

5


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      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 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.

      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 months ended December 31, 2004 and 2003 would have been impacted as shown in the following table:

                   
 
Three Months Ended
December 31

2004 2003


(In thousands, except
per share data)
Net income — as reported
  $ 59,599     $ 29,541  
Restricted stock compensation expense included in income, net of tax
    489       98  
Total stock-based employee compensation expense determined under fair value based method for all awards, net of taxes
    (741 )     (393 )
     
     
 
Net income — pro forma
  $ 59,347     $ 29,246  
     
     
 
Earnings per share:
               
 
Basic earnings per share — as reported
  $ 0.79     $ 0.57  
     
     
 
 
Basic earnings per share — pro forma
  $ 0.79     $ 0.57  
     
     
 
 
Diluted earnings per share — as reported
  $ 0.79     $ 0.57  
     
     
 
 
Diluted earnings per share — pro forma
  $ 0.78     $ 0.56  
     
     
 

      At December 31, 2004, there were 300 options outstanding under the Long-Term Stock Plan for the Mid-States Division, all of which were fully vested. Because of the limited activities of this plan, the pro forma effects of applying SFAS 123 would have less than a $0.01 per diluted share effect on earnings per share.

 
Regulatory Assets and Liabilities

      We record certain costs as regulatory assets in accordance with SFAS 71, Accounting for the Effects of Certain Types of Regulation, when future recovery through customer rates is considered probable. Regulatory liabilities are recorded when it is probable that revenues will be reduced for amounts that will be credited to customers through the ratemaking process. Substantially all of our regulatory assets are recorded as a component of deferred charges and substantially all of our regulatory liabilities are recorded as a component of deferred credits and other liabilities. Deferred gas costs are recorded either in other current assets or liabilities

6


 

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and the regulatory cost of removal obligation is separately reported. Significant regulatory assets and liabilities as of December 31, 2004 and September 30, 2004 included the following:

                   
December 31, September 30,
2004 2004


(In thousands)
Regulatory assets:
               
 
Deferred gas costs
  $ 68,253     $  
 
UCG merger and integration costs, net (1)
          1,992  
 
Other merger and integration costs, net
    14,572       14,644  
 
Deferred MVG operating expenses
    377       751  
 
Environmental costs
    2,924       4,057  
 
Rate case costs
    26,182        
 
Other
    7,237       3,289  
     
     
 
    $ 119,545     $ 24,733  
     
     
 
Regulatory liabilities:
               
 
Deferred gas costs
  $     $ 39,097  
 
Regulatory cost of removal obligation
    254,702       111,232  
 
Deferred income taxes, net
    1,962       1,962  
 
Other
    4,192        
     
     
 
    $ 260,856     $ 152,291  
     
     
 


(1)   Fully amortized by December 2004.

      Currently authorized rates do not include a return on our merger and integration costs; however, we recover the amortization of these costs. Merger and integration costs, net, are generally amortized on a straight-line basis over estimated useful lives ranging up to 20 years. Certain environmental costs have been deferred to future rate filings in accordance with rulings received from various regulatory commissions.

 
 
Comprehensive Income

      The following table presents the components of comprehensive income, net of related tax, for the three-month periods ended December 31, 2004 and 2003: