10-QPeriod: Q3 FY2006

ATMOS ENERGY CORP Quarterly Report for Q3 Ended Jun 30, 2006

Filed August 9, 2006For Securities:ATO

Summary

Atmos Energy Corporation's (ATO) 10-Q filing for the quarter ended June 30, 2006, reveals a mixed financial performance. The company experienced a net loss of $18.1 million for the three months ended June 30, 2006, a significant downturn compared to a net income of $4.5 million in the same period last year. This loss is primarily attributed to warmer-than-normal weather conditions impacting the utility segment, increased operating expenses, and a substantial unrealized loss in the natural gas marketing segment. Despite the quarterly loss, the nine-month period ending June 30, 2006, shows a net income of $141.7 million, albeit a decrease from $152.6 million in the prior year. Investors should note the contrasting performance between the utility and natural gas marketing segments. The utility segment, while impacted by weather, is seeing efforts towards margin stabilization through mechanisms like Weather Normalization Adjustments (WNA). Conversely, the natural gas marketing segment is grappling with increased unrealized losses due to volatile natural gas prices, impacting its profitability despite higher sales volumes. The company's liquidity remains supported by its credit facilities, but capital expenditures have increased, reflecting ongoing investments in infrastructure.

Key Highlights

  • 1The company reported a net loss of $18.1 million for the three months ended June 30, 2006, a decline from a net income of $4.5 million in the prior year's comparable quarter.
  • 2For the nine months ended June 30, 2006, net income was $141.7 million, down from $152.6 million in the same period of the previous year.
  • 3Utility segment operating income decreased significantly, largely due to warmer weather conditions and increased operating expenses.
  • 4The natural gas marketing segment experienced a net loss for the quarter, primarily driven by substantial unrealized losses from volatile natural gas prices.
  • 5Capital expenditures increased to $322.7 million for the nine months ended June 30, 2006, from $226.9 million in the prior year, reflecting investments in pipeline expansion.
  • 6Total debt as a percentage of total capitalization stood at 59.9% at June 30, 2006, slightly up from 59.3% at September 30, 2005, with plans to reduce this ratio.
  • 7The company maintained compliance with all debt covenants as of June 30, 2006.

Frequently Asked Questions

The net loss of $18.1 million for the three months ended June 30, 2006, was primarily due to significantly warmer-than-normal weather impacting the utility segment, an increase in operating expenses across segments, and substantial unrealized losses in the natural gas marketing segment resulting from volatile commodity prices.

The company utilizes Weather Normalization Adjustments (WNA) in several service areas to partially offset the effects of weather deviations from normal. Additionally, the Mid-Tex Division implemented an interim WNA effective October 1, 2006, and the Louisiana Division's settlement included provisions for partial decoupling to stabilize margins.

The natural gas marketing segment reported a net loss for the quarter due to significant unrealized losses from commodity price volatility. While the company has a strategy to capture margins through arbitrage and hedging, the current market conditions are creating substantial unrealized impacts. The nine-month period shows higher gross profit due to increased volumes and realized margins, but the segment's profitability remains sensitive to market price fluctuations.

The company relies on internally generated funds, borrowings under its credit facilities, and commercial paper program for liquidity. Capital expenditures for fiscal 2006 are expected to be between $400 million and $415 million. The company's debt-to-capitalization ratio was 59.9% as of June 30, 2006, and it plans to reduce this ratio over the next few years through operational cash flow, equity issuance, and reduced capital spending.