Atmos Energy Corporation (NYSE:ATO) today reported consolidated
results for its fiscal 2007 second quarter and six months ended
March 31, 2007. For the fiscal 2007 second quarter, net income
increased 20 percent to $106.5 million, or $1.20 per diluted share,
compared with net income of $88.8 million, or $1.10 per diluted
share in the prior-year quarter. The utility business contributed
$76.3 million of net income, or $0.86 per diluted share in the
fiscal 2007 second quarter, largely due to increased throughput
from 22 percent colder weather in the current quarter, compared to
the same period last year. Nonutility businesses contributed $30.2
million of net income, or $0.34 per diluted share in the fiscal
2007 second quarter. Natural gas marketing net income for the
current quarter was adversely impacted by temporary unrealized
losses, which should reverse in future periods. For the six months
ended March 31, 2007, net income increased 17 percent to $187.8
million, or $2.18 per diluted share, compared with net income of
$159.8 million, or $1.98 per diluted share for the same period last
year. Diluted earnings per share increased 10 percent year over
year, despite a 6.4 percent increase in weighted average shares
outstanding, primarily associated with the company�s December 2006
equity offering. For the current six-month period, the utility
business contributed $108.2 million of net income, or $1.26 per
diluted share, and the nonutility businesses contributed $79.6
million of net income, or $0.92 per diluted share. �Our unwavering
commitment to redesigning our utility rates is paying off this
winter heating season,� said Bob Best, chairman, president and
chief executive officer of Atmos Energy Corporation. �With the
recent decoupling of our margins from weather in both the Mid-Tex
and Louisiana divisions, we have been better able to stabilize our
utility margins and solidify the earnings potential of our utility
segment going forward.� Best continued: �The nonutility businesses
continue to exceed our expectations. The marketing business is
adding incremental customers and volumes and has been successful in
capturing very favorable arbitrage opportunities in its storage
assets. And, the pipeline and storage businesses have benefited
from increased margins and throughput, including the incremental
margin from the pipeline projects we completed last year. We remain
confident that we are on track to meet our goal of growing
consolidated earnings in the 4 to 6 percent range.� Results for the
2007 Second Quarter Ended March 31, 2007 Consolidated gross profit
for the three months ended March 31, 2007, was $428.7 million,
compared with $405.4 million for the three months ended March 31,
2006. The $23.3 million increase in consolidated gross profit
reflects significantly improved results in the company�s utility
operations, as well as its pipeline and storage operations,
partially offset by lower natural gas marketing margins. Utility
gross profit increased $30.5 million to $346.2 million in the
current quarter, compared with $315.7 million in the same period
last year, before intersegment eliminations. The improvement in
utility gross profit margin was primarily the result of a 21
percent increase in throughput, which increased gross profit margin
by $25.7 million, a $4.3 million increase associated with the
favorable impact of the implementation of Weather Normalization
Adjustment (WNA) in the company�s Mid-Tex and Louisiana divisions
and a $9.6 million increase resulting from the company�s 2004 and
2005 GRIP filings and the Rate Stabilization Clause in the
company�s LGS service area in Louisiana in August 2006. These
increases were partially offset by the $2.3 million GRIP refund
(inclusive of interest) ordered by the Railroad Commission of Texas
(RRC) in March 2007 and a $4.2 million reduction arising from the
Tennessee Regulatory Authority�s decision in October 2006 to reduce
annual rates in Tennessee. Natural gas marketing gross profit
decreased $20.9 million to $23.1 million for the three months ended
March 31, 2007, compared with $44.0 million in the same quarter
last year, before intersegment eliminations. The decrease reflects
an $81.3 million decrease in unrealized margins during the
current-year quarter compared with the prior-year quarter offset by
a $60.4 million increase in realized margins. The increase in
realized margins is primarily attributable to Atmos Energy
Marketing�s (AEM) ability to capture more favorable arbitrage
opportunities in its storage activities, partially offset by
reduced marketing margins earned in a less volatile market during
the current-year quarter. The fiscal 2007 second quarter decrease
in unrealized margins was primarily due to a negative $68.9 million
mark-to-market impact, which resulted from the change in value of
the physical/financial portfolio from December 31, 2006. The fiscal
2006 second quarter gross profit included a positive $12.4 million
mark-to-market impact, which resulted from the change in value of
the physical/financial portfolio from December 31, 2005. As of
March 31, 2007, the physical storage position was 19.6 billion
cubic feet (Bcf) with equal and offsetting financial hedges,
compared to a physical storage position of 23.6 Bcf at March 31,
2006. Pipeline and storage gross profit was $59.1 million for the
three months ended March 31, 2007, compared with $45.3 million for
the three months ended March 31, 2006, before intersegment
eliminations. The $13.8 million increase in gross profit was
primarily attributable to increased margins associated with
increased throughput including $2.9 million of incremental margin
received from the company�s North Side Loop and other compression
projects completed in fiscal 2006 and a $6.8 million increase in
asset management fees earned by Atmos Pipeline & Storage, LLC.
Consolidated operation and maintenance expense for the three months
ended March 31, 2007, was $111.9 million, compared with $112.7
million for the three months ended March 31, 2006. Excluding the
provision for doubtful accounts, operation and maintenance expense
for the three months ended March 31, 2007, increased $2.4 million
compared with the prior-year quarter, primarily due to higher
employee and other administrative costs. The increases were
partially offset by the deferral of $4.3 million of operation and
maintenance expense resulting from the Louisiana Public Service
Commission�s decision to permit the company to recover its
incremental fiscal 2005 and 2006 operation and maintenance expense
incurred in connection with its Hurricane Katrina recovery efforts.
The provision for doubtful accounts decreased from $7.3 million for
the three months ended March 31, 2006, to $4.1 million for the
three months ended March 31, 2007. The $3.2 million decrease was
largely due to reduced collection risk in the company�s utility
segment associated with lower natural gas prices, where the average
cost of natural gas for the three months ended March 31, 2007, was
$8.33 per thousand cubic feet (Mcf), compared with $10.13 per Mcf
for the three months ended March 31, 2006. Taxes, other than income
taxes, for the three months ended March 31, 2007, were $56.7
million, compared with $64.8 million for the prior-year quarter.
The $8.1 million decrease primarily reflects lower franchise fees
and state gross receipts taxes, both of which are calculated as a
percentage of revenue and are paid by utility customers as a
component of their monthly bills. Although these amounts are
included as a component of revenue in accordance with the company�s
tariffs, timing differences between when these amounts are billed
to customers and when the company recognizes the associated expense
may favorably or unfavorably affect net income; however, they
should offset over time with no permanent impact on net income.
Miscellaneous income for the three months ended March 31, 2007, was
$1.8 million compared to miscellaneous expense for the prior-year
quarter of $2.4 million. The $4.2 million increase was primarily
due to the absence in the current-year quarter of a $3.3 million
charge recorded during the prior-year quarter associated with an
adverse regulatory ruling in Tennessee related to the calculation
of a performance-based rate mechanism associated with gas
purchases, coupled with increased interest income on short-term
cash investments. Results for the Six Months Ended March 31, 2007
Consolidated gross profit for the six months ended March 31, 2007,
was $804.3 million, compared with $752.0 million for the same
period last year, reflecting improvements across all business
segments, largely due to weather that was 10 percent colder than
the prior-year period. Utility gross profit increased to $608.8
million for the six months ended March 31, 2007, compared with
$595.9 million in the same period last year, before intersegment
eliminations. The $12.9 million increase in utility gross profit
margin reflects a nine percent increase in throughput, which
increased gross profit margin by $15.1 million, an $11.8 million
increase resulting from the implementation of WNA in the company�s
Mid-Tex and Louisiana divisions and an $18.3 million increase due
to rate adjustments associated with the company�s 2004 and 2005
GRIP filings and its LGS Rate Stabilization Clause compared to the
prior-year six months. These increases were partially offset by the
adverse impacts arising from the Tennessee and Texas rate rulings,
which reduced margins by $8.5 million. Natural gas marketing gross
profit was $86.2 million for the six months ended March 31, 2007,
compared with $70.3 million in the same period last year, before
intersegment eliminations. The $15.9 million improvement reflects
an $18.8 million increase in realized margins due to AEM�s ability
to capture more favorable arbitrage opportunities in its storage
activities coupled with increased sales volumes, partially offset
by reduced marketing margins earned in a less volatile market
during the current-year period. This increase was partially offset
by a $2.9 million reduction in unrealized margin. For the six
months ended March 31, 2007, the storage and marketing margin
included a negative $20.1 million mark-to-market impact, which
resulted from the change in value of the physical/financial
portfolio from September 30, 2006. For the six months ended March
31, 2006, the storage and marketing margin included a negative
$17.2 million mark-to-market impact, which resulted from the change
in value of the physical/financial portfolio from September 30,
2005. Pipeline and storage gross profit was $108.8 million for the
six months ended March 31, 2007, compared with $85.0 million for
the six months ended March 31, 2006, before intersegment
eliminations. The $23.8 million increase in gross profit was
primarily attributable to increased margins associated with
increased throughput and higher demand for storage services,
including $5.9 million of incremental margin received from the
company�s North Side Loop and other compression projects completed
in fiscal 2006, a $9.0 million increase in asset management fees
earned by Atmos Pipeline & Storage, LLC and a $1.4 million
increase due to rate adjustments resulting from the company�s 2005
GRIP filing. Consolidated operation and maintenance expense for the
six months ended March 31, 2007, was $227.2 million, compared with
$220.9 million for the same period last year. Excluding the
provision for doubtful accounts, operation and maintenance expense
for the six months ended March 31, 2007, increased $11.5 million
compared with the same period in 2006. The increase was mostly due
to increased employee and other administrative costs. However,
these increases were partially offset by the $4.3 million deferral
of operation and maintenance expense in the Louisiana division and
the absence of a $2.0 million charge for losses related to
Hurricane Katrina that was recorded in the prior-year period. The
provision for doubtful accounts decreased $5.2 million to $10.8
million for the six months ended March 31, 2007, compared with
$16.0 million in the prior-year period. The decrease was mainly
attributable to reduced collection risk in the utility segment as a
result of lower natural gas prices, where the average cost of
natural gas for the six months ended March 31, 2007, was $8.25 per
Mcf, compared with $10.91 per Mcf for the six months ended March
31, 2006. Taxes, other than income taxes, for the six months ended
March 31, 2007, were $96.8 million, compared with $110.2 million
for the prior-year period. The $13.4 million decrease was primarily
related to franchise fees and state gross receipts taxes, which do
not have a permanent effect on net income, as explained above.
Interest charges for the six months ended March 31, 2007, were
$74.8 million, compared with $71.7 million for the six months ended
March 31, 2006. The $3.1 million increase was primarily
attributable to increased interest rates on the company�s $300
million unsecured floating rate senior notes due October 2007 due
to an increase in the three-month LIBOR rate, partially offset by
reduced interest expense associated with lower average outstanding
short-term debt balances in the current-year period compared with
the prior-year period. Miscellaneous income for the six months
ended March 31, 2007, was $3.4 million, compared with miscellaneous
expense of $2.0 million for the six months ended March 31, 2006.
The $5.4 increase in miscellaneous income was attributable to the
previously mentioned absence of a $3.3 million charge in Tennessee
during the fiscal 2006 second quarter coupled with increased
interest income on short-term cash investments. For the six months
ended March 31, 2007, cash flow generated from operating activities
provided cash of $511.9 million, compared with $148.4 million for
the same period last year. Period over period, operating cash flow
was favorably impacted by increased earnings, increased sales
volumes attributable to colder weather in the current-year period
and significantly lower natural gas prices compared to the
prior-year period. Capital expenditures decreased to $172.8 million
for the six months ended March 31, 2007, from $213.2 million for
the six months ended March 31, 2006. The $40.4 million decrease in
capital spending primarily reflects the absence of capital
expenditures associated with the company�s North Side Loop and
other pipeline compression projects, which were completed in the
third quarter of fiscal 2006. Outlook Atmos Energy said its
leadership remains focused on enhancing shareholder value by
delivering consistent earnings growth and providing a sound and
attractive dividend. As a result of the strong nonutility financial
performance through the six months ended March 31, 2007, Atmos
Energy continues to expect fiscal 2007 earnings to be in the range
of $1.90 to $2.00 per diluted share. However, the mark-to-market
impact on the marketing company�s physical storage inventory at
September 30, 2007, and changes in events or other circumstances
that the company cannot currently anticipate, could result in
earnings for fiscal 2007 that are significantly above or below this
outlook. Capital expenditures for fiscal 2007 are expected to be in
the range of $365 to $385 million. The company�s debt
capitalization ratio improved to 51.9 percent at March 31, 2007,
from 60.9 percent as of September 30, 2006. The improvement was
primarily attributable to increased equity from the successful
public offering completed in December 2006 and strong
period-to-date earnings, as well as the positive effect of using
operating cash flow to repay all outstanding short-term debt as of
March 31, 2007. Atmos Energy remains committed to maintaining the
debt capitalization ratio in a targeted range of 50 to 55 percent.
With its $300 million unsecured floating rate senior notes maturing
in October 2007, the company is evaluating alternatives to
refinance the notes prior to their maturity and expects these
efforts to be successful. In addition, Atmos Energy expects that
internally generated funds, access to its credit facilities,
including its commercial paper program, and access to the public
debt and equity markets will provide the necessary working capital
and liquidity for its operations, capital expenditures and other
cash needs for the remainder of fiscal 2007. Conference Call to be
Webcast May 3, 2007 Atmos Energy will host a conference call with
financial analysts to discuss the financial results for the second
quarter and first six months of fiscal 2007 on Thursday, May 3,
2007, at 10 a.m. EDT. The telephone number is 800-366-7640. The
conference call will be webcast live on the Atmos Energy Web site
at www.atmosenergy.com. A slide presentation and a playback of the
call will be available on the Web site later that day. Atmos Energy
officers who will participate in the conference call include: Bob
Best, chairman, president and chief executive officer; Pat Reddy,
senior vice president and chief financial officer; Kim Cocklin,
senior vice president, utility operations; Mark Johnson, senior
vice president, nonutility operations; Fred Meisenheimer, vice
president and controller; Laurie Sherwood, vice president,
corporate development, and treasurer; and Susan Giles, vice
president, investor relations. Other Highlights and Recent
Developments Mid-Tex Division Rate Case Order Issued In March 2007,
the RRC issued an order in the company�s Mid-Tex Division rate
case, which prospectively increased annual revenues by
approximately $4.8 million and established a permanent WNA based
upon a 10-year average effective for the months of November through
April. However, the order also reduced the Mid-Tex Division�s total
return to 7.903 percent from 8.258 percent and required an
immediate $2.3 million GRIP refund. Gas Gathering Project Update In
May 2006, Atmos Energy announced plans to form a joint venture and
construct a natural gas gathering system in Eastern Kentucky,
referred to as the Straight Creek Project. In order to better serve
the needs of the local producers in the area and to meet the
company�s economic requirements, the original project is currently
being redesigned, and will likely be marginally smaller in both
size and scope. Accordingly, the in-service date is expected to be
delayed into the second half of fiscal 2008. Missouri Rate Case
Finalized In April 2006, Atmos Energy filed a rate case in its
Missouri service area seeking a rate increase of $3.4 million, the
consolidation of rates for its Missouri properties into three sets
of regional rates and the current purchased gas adjustment (PGA)
into one statewide PGA and a WNA mechanism. The Missouri Commission
issued an order in March 2007 approving a settlement with favorable
rate design changes, including revenue decoupling through the
recovery of all non-gas cost revenues through fixed monthly
charges, with no overall increase in rates. Forward-Looking
Statements The matters discussed in this news release may contain
�forward-looking statements� within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of
historical fact included in this news release are forward-looking
statements made in good faith by the company and are intended to
qualify for the safe harbor from liability established by the
Private Securities Litigation Reform Act of 1995. When used in this
news release or in any of the company�s other documents or oral
presentations, the words �anticipate,� �believe,� �estimate,�
�expect,� �forecast,� �goal,� �intend,� �objective,� �plan,�
�projection,� �seek,� �strategy� or similar words are intended to
identify forward-looking statements. Such forward-looking
statements are subject to risks and uncertainties that could cause
actual results to differ materially from those discussed in this
news release, including the risks and uncertainties relating to
regulatory trends and decisions, the company�s ability to continue
to access the capital markets and the other factors discussed in
the company�s SEC filings. These factors include the risks and
uncertainties discussed in the company�s Annual Report on Form 10-K
for the fiscal year ended September 30, 2006. Although the company
believes these forward-looking statements to be reasonable, there
can be no assurance that they will approximate actual experience or
that the expectations derived from them will be realized. The
company undertakes no obligation to update or revise
forward-looking statements, whether as a result of new information,
future events or otherwise. About Atmos Energy Atmos Energy
Corporation, headquartered in Dallas, is the country�s largest
natural gas-only distributor, serving about 3.2 million gas utility
customers. Atmos Energy�s utility operations serve more than 1,500
communities in 12 states from the Blue Ridge Mountains in the East
to the Rocky Mountains in the West. Atmos Energy�s nonutility
operations, organized under Atmos Energy Holdings, Inc., operate in
22 states. They provide natural gas marketing and procurement
services to industrial, commercial and municipal customers and
manage company-owned natural gas pipeline and storage assets,
including one of the largest intrastate natural gas pipeline
systems in Texas. Atmos Energy is a Fortune 500 company. For more
information, visit www.atmosenergy.com. � Atmos Energy Corporation
Financial Highlights (Unaudited) � Statements of Income Three
Months EndedMarch 31 Percentage (000s except per share) 2007� 2006�
Change � Operating revenues: Utility segment $ 1,461,033� $
1,447,620� Natural gas marketing segment 795,041� 818,629� Pipeline
and storage segment 59,362� 45,483� Other nonutility segment 783�
1,595� Intersegment eliminations (240,637) (279,481) 2,075,582�
2,033,846� Purchased gas cost: Utility segment 1,114,787�
1,131,885� Natural gas marketing segment 771,988� 774,652� Pipeline
and storage segment 229� 211� Other nonutility segment �� ��
Intersegment eliminations (240,108) (278,305) 1,646,896� 1,628,443�
Gross profit 428,686� 405,403� 6% � Operation and maintenance
expense 111,862� 112,698� (1)% Depreciation and amortization
51,066� 47,076� 8% Taxes, other than income 56,746� 64,796� (12)%
Total operating expenses 219,674� 224,570� (2)% � Operating income
209,012� 180,833� 16% � Miscellaneous income (expense) 1,838�
(2,439) 175% Interest charges 35,262� 35,492� (1)% � Income before
income taxes 175,588� 142,902� 23% Income tax expense 69,083�
54,106� 28% Net income $ 106,505� $ 88,796� 20% � Basic net income
per share $ 1.21� $ 1.10� Diluted net income per share $ 1.20� $
1.10� � Cash dividends per share $ .320� $ .315� � Weighted average
shares outstanding: Basic 88,078� 80,573� Diluted 88,735� 81,040�
Three Months EndedMarch 31 Percentage Summary Net Income (Loss) by
Segment (000s) 2007� 2006� Change � Utility $ 76,320� $ 54,628� 40%
Natural gas marketing 11,031� 21,932� (50)% Pipeline and storage
19,309� 12,087� 60% Other nonutility (155) 149� (204)% Consolidated
net income $ 106,505� $ 88,796� 20% Atmos Energy Corporation
Financial Highlights, continued (Unaudited) � Statements of Income
Six Months EndedMarch 31 Percentage (000s except per share) 2007�
2006� Change � Operating revenues: Utility segment $ 2,425,277� $
2,852,630� Natural gas marketing segment 1,506,735� 1,920,474�
Pipeline and storage segment 109,214� 85,195� Other nonutility
segment 2,136� 3,087� Intersegment eliminations (365,147) (543,720)
3,678,215� 4,317,666� Purchased gas cost: Utility segment
1,816,463� 2,256,714� Natural gas marketing segment 1,420,548�
1,850,178� Pipeline and storage segment 454� 211� Other nonutility
segment �� �� Intersegment eliminations (363,528) (541,430)
2,873,937� 3,565,673� Gross profit 804,278� 751,993� 7% � Operation
and maintenance expense 227,232� 220,915� 3% Depreciation and
amortization 100,061� 90,336� 11% Taxes, other than income 96,813�
110,212� (12)% Total operating expenses 424,106� 421,463� 1 % �
Operating income 380,172� 330,530� 15% � Miscellaneous income
(expense) 3,417� (1,991) 272% Interest charges 74,794� 71,681� 4% �
Income before income taxes 308,795� 256,858� 20% Income tax expense
121,029� 97,035� 25% Net income $ 187,766� $ 159,823� 17% � Basic
net income per share $ 2.20� $ 1.99� Diluted net income per share $
2.18� $ 1.98� � Cash dividends per share $ .640� $ .630� � Weighted
average shares outstanding: Basic 85,404� 80,444� Diluted 86,061�
80,911� Six Months EndedMarch 31 Percentage Summary Net Income
(Loss) by Segment (000s) 2007� 2006� Change � Utility $ 108,154� $
103,041� 5% Natural gas marketing 45,978� 33,384� 38% Pipeline and
storage 33,909� 23,254� 46% Other nonutility (275) 144� (291)%
Consolidated net income $ 187,766� $ 159,823� 17% Atmos Energy
Corporation Financial Highlights, continued (Unaudited) � �
Condensed Balance Sheets March 31, September 30, (000s) 2007� 2006�
� Net property, plant and equipment $ 3,711,830� $ 3,629,156� �
Cash and cash equivalents 176,280� 75,815� Cash held on deposit in
margin account 40,763� 35,647� Accounts receivable, net 721,058�
374,629� Gas stored underground 364,478� 461,502� Other current
assets 126,838� 169,952� � Total current assets 1,429,417�
1,117,545� � Goodwill and intangible assets 738,217� 738,521�
Deferred charges and other assets 229,634� 234,325� � $ 6,109,098�
$ 5,719,547� � � � Shareholders� equity $ 2,021,953� $ 1,648,098�
Long-term debt 1,878,331� 2,180,362� � Total capitalization
3,900,284� 3,828,460� � Accounts payable and accrued liabilities
665,212� 345,108� Other current liabilities 421,386� 388,451�
Short-term debt �� 382,416� Current maturities of long-term debt
303,232� 3,186� � Total current liabilities 1,389,830� 1,119,161� �
Deferred income taxes 342,328� 306,172� Deferred credits and other
liabilities 476,656� 465,754� � $ 6,109,098� $ 5,719,547� Atmos
Energy Corporation Financial Highlights, continued (Unaudited) �
Condensed Statements of Cash Flows Six Months EndedMarch 31 (000s)
2007� 2006� � Cash flows from operating activities � Net income $
187,766� $ 159,823� Depreciation and amortization 100,179� 90,670�
Deferred income taxes 72,755� 58,199� Changes in assets and
liabilities 141,755� (167,888) Other 9,472� 7,587� Net cash
provided by operating activities 511,927� 148,391� � Cash flows
from investing activities � Capital expenditures (172,792)
(213,230) Other, net (3,749) (2,842) Net cash used in investing
activities (176,541) (216,072) � Cash flows from financing
activities � Net increase (decrease) in short-term debt (382,416)
117,506� Repayment of long-term debt (2,206) (2,162) Cash dividends
paid (54,640) (50,933) Net proceeds from equity offering 191,913�
�� Issuance of common stock 12,428� 12,053� Net cash provided by
(used in) financing activities (234,921) 76,464� � Net increase in
cash and cash equivalents 100,465� 8,783� Cash and cash equivalents
at beginning of period 75,815� 40,116� Cash and cash equivalents at
end of period $ 176,280� $ 48,899� Three Months EndedMarch 31 Six
Months EndedMarch 31 Statistics 2007� 2006� 2007� 2006� Heating
degree days a 1,575� 1,330� 2,710� 2,387� Percent of normal a 100%
84% 101% 88% Consolidated utility gas throughput (MMcf as metered)
173,423� 142,873� 292,517� 268,663� Consolidated natural gas
marketing sales volumes (MMcf) 101,386� 69,450� 178,912� 140,946�
Consolidated pipeline transportation volumes (MMcf) 119,057�
85,957� 238,012� 177,552� Natural gas meters in service 3,218,678�
3,228,708� 3,218,678� 3,228,708� Utility average cost of gas $8.33�
$10.13� $8.25� $10.91� � a Adjusted for weather-normalized
operations.
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