埃特莫斯能源 (ATO) 2002 Q2 法說會逐字稿

Good day, everyone and welcome to the Atmos Energy 2002 second quarter earnings results conference call. Today's call is being recorded. For opening remarks and introductions I'd like to turn this conference over to Ms. Lynn Hord. Ms. Hord, please go ahead.

Good morning, everyone and thank you for joining us. Our conference call this morning is being Webcast live over the Internet and for those of you who would like to access the Webcast please go to our Web site at www.AtmosEnergy.com and click on the conference call link there.

With me today to review our financial results and highlights for the 2002 second quarter and first six months are Bob Best, our Chairman, President and CEO, Pat Reddy, Senior Vice President and CFO, Fred Meisenheimer, Vice President and Controller, and Susan , who will become Vice President of Investor Relations and Corporate Communications on June 1.

And as most of you know, I will be leaving at the end of this month to stay home with my young son and I'm really looking forward to that, although it was a very difficult personal decision for me because of my love for the company and the people that I work with.

As we review these financial results and discuss future expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Exchange Act. Any forward-looking statements are intended to fall within the Safe Harbor rules of the Private Securities Litigation Reform Act of 1995.

To begin this morning Bob Best will review the highlights of our 2002 second quarter and for the six month ended March 31st of 2002. Bob?

Thank you, Lynn and thank you all for joining us this morning.

Yesterday afternoon we did announce our earnings for the 2002 second quarter of $1.01 per diluted share, which was on track with the expectations for the quarter. Our quarterly performance was solid despite the weather in 2002 second quarter that was 12 percent warmer than the same period in 2001, which, as you know, was one of the coldest winters on record.

I might also mention at this point, and many of you who have followed us know that one of our main goals has been to take the volatility out of our earnings, particularly during winters that are much warmer that normal, and I think we feel very good about these results, not just because they met the consensus but because it does show that we are making progress in terms of doing well regardless of the weather, and that will continue to be our focus as we file rate cases to seek weather normalization in states where we do not have it to try to continue to put a solid foundation under our earnings and then combine that with our non-regulated business.

I'll talk now about the factors that impacted our earnings for the second quarter of 2002. First, gross profit for the second quarter increased 11.6 million and that was primarily due to an increase in sales volumes, which was associated with our new LGS assets, which became part of Atmos on July 1st of 2001.

Also making a very strong contribution to our earnings was a reduction of 3.9 million related to the provision for doubtful accounts, as compared to 2001 second quarter. Lower commodity prices, of course, helped us in this reduction but I think the things that helped us most was just the dedication and focus of our employees and the hard work that they put in in showing this dramatic improvement. We feel real good about where we are in terms of uncollectables and we brought that percentage way down. And as I said, lower gas prices obviously were a factor but I think the biggest factor was just the fact that we made this one of our primary priorities in the company and I know feel very good about the results that have been produced, and which has helped our earnings tremendously.

The other thing I might mention in connection with gas prices, our deferred gas costs are in very good shape. We feel good about that. We're out now hedging our gas prices as we did last year, hedging about 50 percent of our sales volumes for next year and also, of course, with our storage, 20 percent goes into storage so we have a hedge of about two-thirds of our gas will be hedged as to price. And no one knows what the prices will be next winter but regardless we'll be in position to take the volatility out of gas prices and that too has been one of our primary goals.

I want to mention also that our non-utility operations positively impacted the second quarter despite a less than favorable trading environment and they added net income of 4.7 million.

The non-utility operations earnings were lower than last year primarily due to warm weather and less volatility in gas commodity prices, but our non-utility operations did contribute over 10 percent of our consolidated net income for the quarter.

I want to mention a fine accomplishment for our non-utility side of the business. During this quarter Atmos Power Systems began construction of an $8 million 21-megawatt natural gas fired electric power plant for one of Woodward's industrial customers and Atmos Power will lease this plant to the customer for ten years or the customer can opt to purchase the plant after five years. And this is another favorable transaction for Woodward because it will provide the gas supply for the plant, which is expected to consume 200 MCF or more of natural gas per hour during the period of operation.

So Woodward continues to do projects that will help its earnings in future periods and we feel very positive about Woodward as we move forward and we still believe that the non-utility segment of our business can contribute about a third of our earnings and help us realize our goal of growing 5 to 7 percent a year. It's going to have to play a very important role in that. That's why we've purchased Woodward and we continue to have the utmost confidence that it will be able to do that.

At this point I'm going to turn it over to Pat Reddy, our Chief Financial Officer, who will cover our 2002 second quarter and the fiscal year results in more detail and the when Pat finishes I'll come back and talk about our pending acquisition of Mississippi Valley Gas. Pat?

Well thanks, Bob, and good morning. We've placed slides on our Web site that summarize our financial results for the second quarter so I'm not going to go over those slides in any detail but we will be pleased to answer any questions you may have at the end of our presentation.

I'd like to begin my remarks by reviewing our financial results for the quarter. Atmos reported net income of 41.4 million for the 2002 second quarter ended March 31, 2002 compared with net income of 44.1 million for the same quarter a year ago.

Earnings per diluted share for the 2002 second quarter were $1.01 compared with $1.13 per diluted share in 2001.

In addition to a reduction in 2002 second quarter gross profit of 10.2 million related to weather that was 12 percent warmer than the same period last year, 2002 earnings were lower due to an additional 2.2 million diluted shares outstanding in 2002 compared with 2001.

Gross profit was 149.9 million for the 2002 second quarter compared with 138.3 million last year, an increase in 2002 of 8 percent.

Volumes delivered were 82.6 BCF this quarter compared with 79.4 BCF a year ago. The increase in throughput resulted mainly from volumes associated with Atmos's purchase of the LGS assets in July of 2001.

Non-utility operations contributed 4.7 million to consolidated net income for the 2002 second quarter compared with 1.8 million for the same period last year.

As Bob mentioned, the results for our non-utility operations were positive for the 2002 quarter but were lower than results for 2001, primarily due to warmer weather in 2002 compared with 2001 and the limited volatility of natural gas commodity prices, which reduced trading opportunities for Atmos Energy marketing. However, despite this environment the non-utility operations contributed 11 percent of Atmos Energy's 2002 second quarter net income.

Our operation and maintenance expenses for the 2002 quarter were 42.3 million compared with 35 million for the same period last year. Excluding additional operating costs for the LGS properties and Woodward Marketing interests, which we acquired since the second quarter of 2001, our core operating and maintenance expense declined 3.8 million.

Additional acquisition related O&M expense in the 2002 second quarter included 6.3 million for the acquired LGS asset and an increase of 4.8 million for the additional interest that we acquired in Woodward Marketing.

O&M for the second quarter was reduced by 3.9 million due to a lower provision for doubtful accounts. As Bob discussed, our employees are responsible for producing this outstanding result. The provision for doubtful accounts decreased from 4.2 million in 2001 to $300,000 in 2002. Also contributing to the reduction in expense were lower gas commodity prices, with the average cost of gas for the 2002 second quarter at $3.65 per MCF compared with $8.53 per MCF during the 2001 second quarter.

Depreciation and amortization expense increased 4.1 million this quarter to 20 million as a result of acquiring the assets of LGS.

Miscellaneous expense was 6.1 million in the 2002 first quarter compared with miscellaneous income of 300,000 in 2001.

The 6.4 million increase in expense was primarily due to 5.9 million related to the premiums on the weather insurance that we purchased to cover our Texas and Louisiana operations. However, weather in those jurisdictions did not meet or exceed the 7 percent warmer than normal threshold required to yield a payout under the weather insurance policy.

Interest expense increased 4.7 million during the 2002 first quarter as a result of Atmos's $350 million debt offering in May of 2001, which was used to finance the balance of our purchase of LGS.

I'd like to turn now to the six months ended March 31, 2002. In that period Atmos Energy had net income of 62 million for the first half of the year compared with net income of 67 million for the same period last year. Earnings per diluted share for 2002 were $1.51 compared with $1.87 per diluted share in 2001.

In addition to a reduction for the six months ended 2002 of 34.5 million related to weather that was 20 percent warmer than the same period last year, 2002 earnings were lower due to an additional 5.1 million diluted shares outstanding in 2002 compared with 2001.

Gross profit was 259.2 million for the 2002 period compared with 248.3 million last year, an increase in 2002 of 4 percent.

Total throughput for 2002 was 139.7 BCF compared with 147.4 BCF a year ago. The decrease in throughput was primarily the result of lower sales volumes as a result of weather in 2002 that was warmer than 2001, however partially offset by sales volumes attributable to our LGS operations.

Non-utility operations contributed 8.5 million to consolidated net income during the six months ended March 31st compared with 8.3 million for the same period last year.

The factors which affected non-utility results for the 2002 second quarter also impacted 2002 year-to-date results; that is warmer weather in 2002 compared to 2001 and a limited volatility in natural gas commodity prices, which reduced the trading opportunities for Atmos Energy marketing. But despite these challenges our non-utility operations contributed 14 percent of consolidated fiscal 2002 year-to-date net income.

Operation and maintenance expense for the first six months of fiscal 2002 were 84.8 million compared with 70.9 million for the same period last year. However, excluding the operating costs associated with the acquired LGS assets and Woodward Marketing interests, core operating and maintenance expense actually declined by 8.9 million for the 2002 period compared to the prior year.

Additional acquisition related O&M expense for the 2002 period was 15.5 million for the acquired LGS assets and a 7.3 million increase for the additional interest that we acquired in Woodward Marketing.

O&M expense for the six month period was reduced by 11.1 million or from 12.6 million in 2001 to 1.5 million in 2002 due to a reduced provision for doubtful accounts, which Bob discussed.

In addition to the successful collection efforts of our employees company-wide the average cost of gas for the 2002 period declined to $3.75 per MCF from $7.50 per MCF in 2001.

Depreciation and amortization expense increased 8.8 million to 40.5 million for the six months ended March 31, 2002 compared to an expense of 31.7 million for the same period a year ago. The increase was a result of acquiring the assets of LGS.

Interest expense was 30.5 million for the first half of fiscal 2002 compared with an expense of 22.1 million in 2001. The 8.4 million increase again is the result of Atmos's 350 million debt offering in May 2001, which we used to finance the balance of the LGS asset purchase.

I'd like to talk for just a minute now about our capital expenditures. Capital expenditures were 60.9 million for the six months ended March 31, 2002 compared with 42.5 million for the same period in 2001. The 18.4 million increase is primarily the result of capital expenditures associated with the LGS asset, the fact that we now have 100 percent ownership of Woodward Marketing and projects undertaken by Atmos Power Systems, the most recent of which Bob discussed.

For fiscal 2002 we are projecting capital expenditures of about 129 to 130 million. In addition, Atmos will have some 2002 capital spending related to the pending acquisition of Mississippi Valley Gas Company.

I'd also like to give you an update on the Shelf Registration Statement filing that we made in December of last year. We now have four of the five required state approvals regarding that 600 million Shelf Registration Statement and we do expect approval from the fifth state sometime during our 2002 third quarter and sufficiently in advance of our Mississippi Valley Gas closing to be able to use the shelf to permanently finance the $75 million cash portion of the total $150 million purchase price for Mississippi Valley and also use the shelf to refinance approximately 45 million of Mississippi Valley's existing debt.

Now I'd like to provide some earnings guidance for the third quarter of our fiscal year and for the full fiscal year.

Our guidance for the 2002 third quarter is break even to a loss of $0.02 per diluted share. As you know, natural gas utilities like Atmos tend to either break even or lose a small amount in the third quarter now that we're out of the heating season. For fiscal 2002 Atmos Energy expects to earn $1.43 per diluted share, which is in line with recent analysts' estimates.

Now once again here's Bob to conclude our remarks.

Thank you, Pat.

I'd now like to, in concluding the remarks, talk about Mississippi Valley and report where we are on the acquisition effort. We have now received approval from the regulatory commissions in six of the seven states in which we need that approval. The final approval, of course, rests with the Mississippi Public Service Commission and we continue to work with them to provide all the information that they need to consider our request.

At the same time, we are working with our own internal integration teams here and at Mississippi Valley to prepare for a smooth transition and we feel very good about where we are in terms of our integration efforts.

We continue to believe that we'll be able to close the transaction by the end of our 2002 fiscal year and that Mississippi Valley will be a welcome addition to our company as we start the 2002/2003 heating season.

And I'd like to summarize where I see Atmos today not only in relation to this quarter but as we look forward.

First of all, we have had a very tightly focused strategy for the last five years. We've stayed the course. We've put in a lot of technology. We've had some warm winters to deal with, but we continue to believe that our strategy is a good one for our company. Our goal is to grow our earnings on a consistent basis regardless of weather or other interruptions that we may incur and we've set that goal at 5 to 7 percent a year.

We will continue to look for good acquisitions. This company can grow and it will grow as it moves forward but we want to grow in a way that is accretive for those who invest in our company.

On the utility side of the business we're going to continue to manage proactively our gas costs. We need to continue to improve our collection efforts, which we feel very good about this year. We're going to be proactive in filing rate cases and of course we're going to be managing our total spending as we have done for a number of years.

We need to grow our non-utility business, either by bringing in assets which support that business or as we make other utility acquisitions it helps the non-utility business either by adding small municipal or industrial customers or being able to do asset management for the utility.

I'd just close by saying many of you were at the financial forum and my spirits were certainly lifted by talking to those who have invested in the company and I think they were lifted because those who have made significant investments in our company have basically said stay the course, manage this company for the long-term, don't be dissuaded by taking courses that don't fit your company, be willing to accept minor inconveniences in the short-term, continue to pay your dividend and be able to raise that dividend some reasonable amount as you go forward, and I guess in summary just know who you are and know who you're not and don't try to be somebody you're not.

And I think maybe that's sort of just the message of what may be happening in our industry, and we know who we are, we know what we can do, what we can do well and what our limitations are and we continue to believe in the strong asset related business that we now run. So that's going to be our goal for the future and as I said at the outset we want to continue to produce good earnings regardless of weather and that's why we feel so good about the second quarter and also the rest of the year.

So with that I will stop. I will just say one last comment is, as Lynn said at the beginning, she will be leaving us and we're going to miss her greatly. Obviously, Susan is going to do a great job but we're going to miss Lynn's passion and her love for her job and I know to many of you she's been a friend.

So with that we'll open it for questions.

Thank you. Our question and answer session will be conducted electronically today. If you do have a question, please press star-1 on your touchtone phone at this time. Once again that is star-1 on your touchtone phone. We'll take your questions in the order that we receive them and we will take as many questions as time permits. Once again that is star-1 on your touchtone phone.

It appears that they are not questions or comments at this time, Mr. Best. I'll turn the call over to you for any closing comments.

Okay, I think that's all. Lynn, do you want to say anything in closing?

No. We really appreciate everyone's time today and give us a call if you have any follow-up questions. And have a good day.

Thank you all. Thank you for joining us.

And that does conclude our conference today. We'd like to thank everyone for their participation and wish everyone a good day.