10-QPeriod: Q2 FY2006

ATMOS ENERGY CORP Quarterly Report for Q2 Ended Mar 31, 2006

Filed May 9, 2006For Securities:ATO

Summary

Atmos Energy Corporation (ATO) reported its financial results for the quarter and six months ended March 31, 2006. The company experienced a slight decrease in net income for the three months ended March 31, 2006, to $88.8 million from $88.5 million in the prior year, while net income for the six months increased to $159.8 million from $148.1 million. Operating revenues saw a notable increase, driven by both the utility and natural gas marketing segments. The utility segment's performance was impacted by warmer weather, which reduced throughput and gross profit margin, alongside increased operating expenses, particularly taxes and the provision for doubtful accounts due to higher natural gas prices. Conversely, the natural gas marketing segment demonstrated significant improvement, with gross profit margin more than tripling year-over-year for the quarter, driven by both realized and unrealized margin gains in storage and marketing activities amid volatile market conditions. Capital expenditures increased significantly, reflecting investments in pipeline expansion projects.

Key Highlights

  • 1Net income for the three months ended March 31, 2006, was $88.8 million, a slight increase from $88.5 million in the prior year. For the six months ended March 31, 2006, net income was $159.8 million, up from $148.1 million in the prior year.
  • 2Total operating revenues increased significantly, reaching $2.03 billion for the three months and $4.32 billion for the six months ended March 31, 2006, compared to $1.69 billion and $3.05 billion, respectively, in the prior year.
  • 3The Natural Gas Marketing segment showed a strong performance, with gross profit margin increasing to $44.0 million for the quarter and $70.3 million for the six months, driven by favorable market volatility and improved storage and marketing activities.
  • 4Capital expenditures increased to $110.8 million for the three months and $213.2 million for the six months ended March 31, 2006, up from $70.3 million and $137.5 million in the prior year periods, respectively, primarily due to pipeline expansion projects.
  • 5Utility segment operating income decreased for both the three-month and six-month periods due to warmer weather, lower throughput, and higher operating expenses, including taxes and bad debt provisions.
  • 6The company's debt-to-capitalization ratio remained stable, at 58.9% as of March 31, 2006, and the company reported compliance with all debt covenants.
  • 7Cash flows from operating activities decreased substantially for the six months ended March 31, 2006 ($148.4 million) compared to the prior year ($400.1 million), primarily due to higher natural gas prices impacting working capital.

Frequently Asked Questions

Atmos Energy reported a significant increase in operating revenues for both the three-month and six-month periods ended March 31, 2006. Total operating revenues grew to $2.03 billion for the quarter and $4.32 billion for the six months, up from $1.69 billion and $3.05 billion, respectively, in the corresponding prior-year periods, driven by growth in both the utility and natural gas marketing segments.

The utility segment's performance was negatively impacted by warmer weather, which led to decreased throughput and a lower gross profit margin. Additionally, operating expenses increased, primarily due to higher taxes and an increased provision for doubtful accounts, the latter being attributed to higher natural gas prices which increase collection risk.

The natural gas marketing segment showed strong performance, with its gross profit margin more than tripling for the quarter and nearly doubling for the six-month period compared to the previous year. This improvement was driven by favorable market volatility, which allowed the company to capture higher margins in its storage and marketing activities, as well as positive unrealized gains on certain financial instruments.

Atmos Energy's cash flows from operating activities decreased significantly in the first six months of fiscal 2006 due to higher natural gas prices impacting working capital. However, the company's debt-to-capitalization ratio remained stable, and it was in compliance with its debt covenants. Capital expenditures increased substantially, reflecting strategic investments in pipeline expansion projects. The company believes its existing credit facilities and operating cash flows will be sufficient to meet its working capital and capital expenditure needs.