10-QPeriod: Q2 FY2007

ATMOS ENERGY CORP Quarterly Report for Q2 Ended Mar 31, 2007

Filed May 3, 2007For Securities:ATO

Summary

Atmos Energy Corporation (ATO) reported solid financial results for the three and six months ended March 31, 2007. Net income increased by 18% for the six-month period compared to the prior year, driven by strong performance in the natural gas marketing and pipeline and storage segments, along with improved utility operations. The company benefited from colder weather, leading to increased throughput in its utility operations, and successfully managed margins in its marketing and pipeline segments. The company also completed an equity offering in December 2006, which strengthened its balance sheet and reduced short-term debt. Atmos Energy continues to invest in its infrastructure, with capital expenditures totaling $172.8 million for the first six months of fiscal year 2007. The company maintains a healthy liquidity position with significant availability under its credit facilities. Despite facing some regulatory challenges and ongoing rate case proceedings, Atmos Energy believes it is well-positioned to meet its financial obligations and continue to serve its customers effectively.

Key Highlights

  • 1Net income for the six months ended March 31, 2007, increased by 18% to $187.8 million compared to $159.8 million in the prior year.
  • 2Diluted earnings per share (EPS) for the six months increased to $2.18 from $1.98 in the prior year.
  • 3The natural gas marketing segment showed significant improvement with net income increasing by $12.6 million, largely due to improved realized storage margins.
  • 4The pipeline and storage segment also saw substantial growth, with net income rising by $10.7 million, driven by increased throughput and margins from infrastructure projects.
  • 5The company successfully reduced its total debt to capitalization ratio to 51.9% as of March 31, 2007, down from 60.9% at September 30, 2006, partly due to an equity offering in December 2006.
  • 6Operating cash flow significantly increased to $511.9 million for the six months ended March 31, 2007, from $148.4 million in the prior year.
  • 7Capital expenditures decreased to $172.8 million for the six months ended March 31, 2007, from $213.2 million in the prior year, reflecting the completion of major projects.

Frequently Asked Questions

For the six months ended March 31, 2007, the utility segment contributed $108.2 million (58% of total) to net income, while the non-utility segments (natural gas marketing, pipeline and storage, and other) contributed $79.6 million (42% of total). The non-utility segments, particularly marketing and pipeline/storage, showed strong growth and significantly improved margins.

In December 2006, Atmos Energy completed a public offering of common stock, raising approximately $192 million in net proceeds. These funds were used to reduce short-term debt, which strengthened the company's balance sheet and contributed to a lower debt-to-capitalization ratio.

The company is involved in several ongoing regulatory proceedings, including rate cases in various divisions (e.g., Mid-Tex, Kentucky) and 'show cause' proceedings in some jurisdictions. Atmos Energy believes that the outcome of these matters will not have a material adverse effect on its financial condition, results of operations, or cash flows. Environmental and other litigation is also ongoing but not expected to be material.

Atmos Energy utilizes risk management activities through both its utility and natural gas marketing segments. For its utility segment, it uses storage, fixed physical, and fixed financial contracts to mitigate exposure to gas price volatility. In the marketing segment, it employs a combination of storage and financial derivatives (futures, options, swaps) to manage price risk and lock in profit margins. These hedging activities aim to protect against market fluctuations.