10-QPeriod: Q3 FY2008

ATMOS ENERGY CORP Quarterly Report for Q3 Ended Jun 30, 2008

Filed August 6, 2008For Securities:ATO

Summary

Atmos Energy Corporation (ATO) reported its financial results for the nine months ended June 30, 2008, a period that saw a net income of $178.7 million, a slight increase from $174.4 million in the prior year. While regulated operations showed a strong increase in net income, contributing 83% of the total, the non-regulated natural gas marketing segment experienced a significant decrease, impacting overall consolidated net income. The company's balance sheet indicates growth in net property, plant, and equipment, alongside an increase in current assets, primarily driven by higher accounts receivable and gas stored underground. Shareholder's equity also saw an increase. Debt levels remained relatively stable, with a slight decrease in long-term debt and short-term debt. The company continues to manage its capital structure effectively, maintaining a debt-to-capitalization ratio within its target range.

Key Highlights

  • 1Net income for the nine months ended June 30, 2008, was $178.7 million, up from $174.4 million in the comparable prior-year period.
  • 2Regulated operations were the primary driver of profitability, accounting for 83% of net income, up from 70% in the prior year, primarily due to rate increases and higher throughput.
  • 3Non-regulated operations saw a decrease in net income, contributing 17% of total net income, down from 30% in the prior year, largely due to lower asset optimization margins in the natural gas marketing segment.
  • 4Operating cash flow for the nine months ended June 30, 2008, was $417.4 million, down from $552.7 million in the prior year, primarily due to increased cash required to collateralize risk management accounts.
  • 5Capital expenditures for the nine months ended June 30, 2008, were $312.9 million, an increase from $263.0 million in the prior year, driven by main replacements and an automated metering initiative.
  • 6The company maintained compliance with all debt covenants as of June 30, 2008.
  • 7Total operating revenues for the nine months increased to $5.78 billion from $4.90 billion in the prior year, driven by growth across most segments, particularly natural gas marketing and distribution.

Frequently Asked Questions

The primary driver was the strong performance of the regulated operations, which saw increased net income due to rate increases across several service areas and higher throughput in the Atmos Pipeline—Texas Division. This segment's contribution to overall net income increased significantly.

The decrease in operating cash flow for the nine months ended June 30, 2008, compared to the prior year, was primarily due to an increase in cash required to collateralize risk management accounts. Changes in accounts receivable and gas stored underground also negatively impacted cash flow.

The natural gas marketing segment's net income decreased significantly compared to the prior year. This was primarily due to a substantial decline in realized asset optimization margins, as the natural gas market was less volatile, creating fewer arbitrage opportunities. The company also elected to defer storage withdrawals to enhance future potential profits, leading to settlement losses in the current period without corresponding storage withdrawal gains.

Atmos Energy's capital expenditures increased for the nine months ended June 30, 2008, driven by main replacements and an automated metering initiative. The company expects total capital expenditures for fiscal 2008 to range between $455 million and $465 million. They believe their credit facilities, combined with operating cash flows, will be sufficient to fund their working capital needs and capital expenditures.