UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended December 31, 2005
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number 1-10042
Atmos Energy Corporation
(Exact name of registrant as specified in its charter)
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Texas and Virginia
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75-1743247
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(State or other jurisdiction of
incorporation or organization)
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(IRS employer
identification no.)
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Three Lincoln Centre, Suite 1800
5430 LBJ Freeway, Dallas, Texas
(Address of principal executive offices)
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75240
(Zip code)
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(972) 934-9227
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes
þ
No
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of Accelerated filer and large
accelerated filer in
Rule
12b-2
of the
Exchange Act. (Check one):
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule
12b-2
of the
Exchange
Act) Yes
o
No
þ
Number of shares outstanding of each of the issuers
classes of common stock, as of January 31, 2006.
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Class
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Shares Outstanding
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No Par Value
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80,922,830
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GLOSSARY OF KEY TERMS
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AEH
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Atmos Energy Holdings, Inc.
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AEM
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Atmos Energy Marketing, LLC
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AES
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Atmos Energy Services, LLC
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APB
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Accounting Principles Board
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APS
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Atmos Pipeline and Storage, LLC
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Bcf
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Billion cubic feet
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FASB
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Financial Accounting Standards Board
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FERC
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Federal Energy Regulatory Commission
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FIN
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FASB Interpretation
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Fitch
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Fitch Ratings, Ltd.
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GPSC
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Georgia Public Service Commission
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GRIP
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Gas Reliability Infrastructure Program
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KPSC
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Kentucky Public Service Commission
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LGS
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Louisiana Gas Service Company and LGS Natural Gas Company, which
were acquired July 1, 2001
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Mcf
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Thousand cubic feet
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MMcf
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Million cubic feet
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Moodys
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Moodys Investor Services, Inc.
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MPSC
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Mississippi Public Service Commission
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NYMEX
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New York Mercantile Exchange, Inc.
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RRC
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Railroad Commission of Texas
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S&P
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Standard & Poors
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SEC
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United States Securities and Exchange Commission
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SFAS
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Statement of Financial Accounting Standards
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TXU Gas
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TXU Gas Company, which was acquired on October 1, 2004
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WNA
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Weather Normalization Adjustment
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PART 1. FINANCIAL INFORMATION
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Item 1.
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Financial Statements
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ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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December 31,
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September 30,
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2005
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2005
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(Unaudited)
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(In thousands, except
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share data)
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ASSETS
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Property, plant and equipment
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$
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4,853,016
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$
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4,765,610
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Less accumulated depreciation and amortization
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1,413,082
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1,391,243
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Net property, plant and equipment
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3,439,934
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3,374,367
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Current assets
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Cash and cash equivalents
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49,451
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40,116
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Cash held on deposit in margin account
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74,076
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80,956
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Accounts receivable, net
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1,229,190
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454,313
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Gas stored underground
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583,572
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450,807
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Other current assets
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239,992
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238,238
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Total current assets
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2,176,281
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1,264,430
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Goodwill and intangible assets
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737,641
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737,787
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Deferred charges and other assets
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265,146
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276,943
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$
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6,619,002
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$
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5,653,527
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CAPITALIZATION AND LIABILITIES
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Shareholders equity
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Common stock, no par value (stated at $.005 per share);
200,000,000 shares authorized; issued and outstanding:
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December 31, 2005 80,852,898 shares;
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September 30, 2005 80,539,401 shares
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$
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404
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$
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403
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Additional paid-in capital
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1,438,917
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1,426,523
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Retained earnings
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224,435
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178,837
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Accumulated other comprehensive loss
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(26,139
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(3,341
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Shareholders equity
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1,637,617
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1,602,422
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Long-term debt
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2,181,497
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2,183,104
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Total capitalization
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3,819,114
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3,785,526
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Current liabilities
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Accounts payable and accrued liabilities
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1,170,402
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461,314
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Other current liabilities
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401,948
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503,368
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Short-term debt
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474,059
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144,809
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Current maturities of long-term debt
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3,286
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3,264
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Total current liabilities
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2,049,695
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1,112,755
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Deferred income taxes
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284,196
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292,207
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Regulatory cost of removal obligation
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268,999
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263,424
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Deferred credits and other liabilities
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196,998
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199,615
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$
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6,619,002
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$
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5,653,527
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See accompanying notes to condensed consolidated financial
statements
2
ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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Three Months Ended
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December 31
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2005
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2004
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(Unaudited)
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(In thousands, except per
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share data)
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Operating revenues
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Utility segment
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$
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1,405,010
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$
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913,681
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Natural gas marketing segment
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1,101,845
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493,801
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Pipeline and storage segment
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39,712
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43,690
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Other nonutility segment
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1,492
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1,359
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Intersegment eliminations
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(264,239
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(83,907
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2,283,820
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1,368,624
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Purchased gas cost
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Utility segment
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1,124,829
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656,370
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Natural gas marketing segment
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1,075,526
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466,957
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Pipeline and storage segment
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6,221
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Other nonutility segment
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Intersegment eliminations
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(263,125
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(83,027
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1,937,230
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1,046,521
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Gross profit
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346,590
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322,103
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Operating expenses
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Operation and maintenance
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108,217
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110,777
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Depreciation and amortization
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43,260
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43,997
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Taxes, other than income
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45,416
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38,655
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Total operating expenses
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196,893
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193,429
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Operating income
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149,697
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128,674
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Miscellaneous income
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448
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385
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Interest charges
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36,189
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32,542
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Income before income taxes
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113,956
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96,517
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Income tax expense
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42,929
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36,918
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Net income
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$
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71,027
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$
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59,599
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Basic net income per share
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$
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0.88
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$
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0.79
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Diluted net income per share
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$
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0.88
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$
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0.79
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Cash dividends per share
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$
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0.315
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$
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0.310
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Weighted average shares outstanding:
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Basic
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80,259
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75,306
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Diluted
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80,722
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75,725
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See accompanying notes to condensed consolidated financial
statements
3
ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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Three Months Ended
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December 31
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2005
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2004
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(Unaudited)
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(In thousands)
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Cash Flows From Operating Activities
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Net income
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$
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71,027
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$
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59,599
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Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
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Depreciation and amortization:
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Charged to depreciation and amortization
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43,260
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43,997
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Charged to other accounts
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147
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254
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Deferred income taxes
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20,448
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8,308
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Other
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3,680
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977
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Net assets/ liabilities from risk management activities
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13,695
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22,088
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Net change in operating assets and liabilities
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(347,626
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)
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(67,319
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)
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Net cash (used in) provided by operating activities
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(195,369
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)
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67,904
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Cash Flows From Investing Activities
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Capital expenditures
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(102,465
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)
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(67,201
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)
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Acquisitions
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(1,912,532
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)
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Other, net
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(1,121
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)
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(1,051
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Net cash used in investing activities
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(103,586
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)
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(1,980,784
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)
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Cash Flows From Financing Activities
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Net increase in short-term debt
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329,250
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28,797
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Net proceeds from issuance of long-term debt
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1,385,847
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Repayment of long-term debt
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(1,695
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)
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(3,373
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)
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Settlement of Treasury lock agreements
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(43,770
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)
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Cash dividends paid
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(25,429
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)
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(24,521
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)
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Issuance of common stock
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6,164
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11,116
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Net proceeds from equity offering
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382,014
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Net cash provided by financing activities
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308,290
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1,736,110
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Net increase (decrease) in cash and cash equivalents
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9,335
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(176,770
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)
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Cash and cash equivalents at beginning of period
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40,116
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201,932
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Cash and cash equivalents at end of period
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$
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49,451
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$
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25,162
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|
See accompanying notes to condensed consolidated financial
statements
4
ATMOS ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 2005
Atmos Energy Corporation (Atmos or the
Company) and its subsidiaries are engaged primarily in the
natural gas utility business as well as other natural gas
nonutility businesses. Our natural gas utility business
distributes natural gas through sales and transportation
arrangements to approximately 3.2 million residential,
commercial, public authority and industrial customers throughout
our seven regulated natural gas utility divisions, in the
service areas described below:
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Division
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Service Area
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|
Atmos Energy Colorado-Kansas Division
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Colorado, Kansas,
Missouri
(1)
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Atmos Energy Kentucky Division
|
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Kentucky
|
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Atmos Energy Louisiana Division
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Louisiana
|
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Atmos Energy Mid-States Division
|
|
Georgia
(1)
,
Illinois
(1)
,
Iowa
(1)
,
Missouri
(1)
,
Tennessee,
Virginia
(1)
|
|
Atmos Energy Mississippi Division
|
|
Mississippi
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|
Atmos Energy Mid-Tex Division
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|
Texas, including the Dallas/Fort Worth metropolitan area
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|
Atmos Energy West Texas Division
|
|
West Texas
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(1)
|
Denotes locations where we have more limited service areas.
|
Our nonutility businesses operate in 22 states and include
our natural gas marketing operations, our pipeline and storage
operations and our other nonutility operations. These operations
are either organized under or managed by Atmos Energy Holdings,
Inc. (AEH), which is wholly-owned by the Company.
Our natural gas marketing operations are managed by Atmos Energy
Marketing, LLC (AEM), which is wholly-owned by AEH. AEM provides
a variety of natural gas management services to municipalities,
natural gas utility systems and industrial natural gas
customers, primarily in the southeastern and midwestern states
and to our Kentucky, Louisiana and Mid-States utility divisions.
These services consist primarily of furnishing natural gas
supplies at fixed and market-based prices, contract negotiation
and administration, load forecasting, gas storage acquisition
and management services, transportation services, peaking sales
and balancing services, capacity utilization strategies and gas
price hedging through the use of derivative instruments.
Our pipeline and storage business includes the regulated
operations of our Atmos Pipeline Texas Division, a
division of Atmos Energy Corporation, and the nonregulated
operations of Atmos Pipeline and Storage, LLC (APS), which is
wholly-owned by AEH. The Atmos Pipeline Texas
Division transports natural gas to our Atmos Energy Mid-Tex
Division, transports natural gas to third parties and manages
five underground storage reservoirs in Texas. Through APS, we
own or have an interest in underground storage fields in
Kentucky and Louisiana. We also use these storage facilities to
reduce the need to contract for additional pipeline capacity to
meet customer demand during peak periods.
Our other nonutility businesses consist primarily of the
operations of Atmos Energy Services, LLC (AES) and Atmos
Power Systems, Inc., which are each wholly-owned by AEH. Through
AES, we provide natural gas management services to our utility
operations, other than the Mid-Tex Division. These services
include aggregating and purchasing gas supply, arranging
transportation and storage logistics and ultimately delivering
the gas to our utility service areas at competitive prices in
exchange for revenues that are equal to the costs incurred to
provide these services. Through Atmos Power Systems, Inc., we
construct gas-fired electric peaking power-generating plants and
associated facilities and may enter into agreements to either
lease or sell these plants.
5
ATMOS ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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|
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|
2.
|
Unaudited Interim Financial Information
|
In the opinion of management, all material adjustments
(consisting of normal recurring accruals) necessary for a fair
presentation have been made to the unaudited consolidated
interim-period financial statements. These consolidated
interim-period financial statements and notes are condensed as
permitted by the instructions to
Form
10-Q
and
should be read in conjunction with the audited consolidated
financial statements of Atmos Energy Corporation in its Annual
Report on
Form
10-K
for the
fiscal year ended September 30, 2005. Because of seasonal
and other factors, the results of operations for the three-month
period ended December 31, 2005 are not indicative of
expected results of operations for the full 2006 fiscal year,
which ends September 30, 2006.
Certain prior-period amounts have been reclassified to conform
with the current years presentation.
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|
|
|
|
Significant accounting policies
|
Our accounting policies are described in Note 2 to our
Annual Report on
Form
10-K
for the
year ended September 30, 2005. Except for the
Companys adoption of Statement of Financial Accounting
Standards (SFAS) 123 (revised),
Share-Based Payment,
discussed below, there were no significant changes to our
accounting policies during the three months ended
December 31, 2005.
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|
|
|
|
Stock-based compensation plans
|
Our 1998 Long-Term Incentive Plan provides for the granting of
incentive stock options, non-qualified stock options, stock
appreciation rights, bonus stock, time-lapse restricted stock,
performance-based restricted stock units and stock units to
officers and key employees. Nonemployee directors are also
eligible to receive stock-based compensation under the 1998
Long-Term Incentive Plan. The objectives of this plan include
attracting and retaining the best personnel, providing for
additional performance incentives and promoting our success by
providing employees with the opportunity to acquire our common
stock.
On October 1, 2005, the Company adopted SFAS 123
(revised),
Share-Based Payment
(SFAS 123(R)). This
standard revises SFAS 123,
Accounting for Stock-Based
Compensation
and supersedes Accounting Principles Board
(APB) Opinion 25,
Accounting for Stock Issued to
Employees.
Under SFAS 123(R), the Company is required
to measure the cost of employee services received in exchange
for stock options and similar awards based on the grant-date
fair value of the award and recognize this cost in the income
statement over the period during which an employee is required
to provide service in exchange for the award.
We adopted SFAS 123(R) using the modified prospective
method. Under this transition method, stock-based compensation
expense for the three months ended December 31, 2005
includes: (i) compensation expense for all stock-based
compensation awards granted prior to, but not yet vested as of
October 1, 2005, based on the grant-date fair value
estimated in accordance with the original provisions of
SFAS 123; and (ii) compensation expense for all
stock-based compensation awards granted subsequent to
October 1, 2005, based on the grant-date fair value
estimated in accordance with the provisions of SFAS 123(R).
We recognize compensation expense on a straight-line basis over
the requisite service period of the award. Total stock-based
compensation expense included in our statement of income for the
three months ended December 31, 2005 was less than
$0.1 million and was recorded as a component of operation
and maintenance expense. In accordance with the modified
prospective method, financial results for prior periods have not
been restated.
Prior to October 1, 2005, we accounted for these plans
under the intrinsic-value method described in APB
Opinion 25, as permitted by SFAS 123. Under this
method, no compensation cost for stock options was recognized
for stock-option awards granted at or above fair-market value.
Awards of restricted stock were
6
ATMOS ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
valued at the market price of the Companys common stock on
the date of grant. The unearned compensation was amortized to
operation and maintenance expense over the vesting period of the
restricted stock.
Had compensation expense for our stock-based awards been
recognized as prescribed by SFAS 123, our net income and
earnings per share for the three months ended December 31,
2004 would have been impacted as shown in the following table:
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|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
December 31, 2004
|
|
|
|
|
|
|
|
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|
(In thousands,
|
|
|
|
|
except
|
|
|
|
|
per share amounts)
|
|
|
Net income as reported
|
|
$
|
59,599
|
|
|
Restricted stock compensation expense included in income, net of
tax
|
|
|
489
|
|
|
Total stock-based employee compensation expense determined under
fair-value-based method for all awards, net of tax
|
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|
(741
|
)
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|
|
|
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|
|
Net income pro forma
|
|
$
|
59,347
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
Basic earnings per share as reported
|
|
$
|
0.79
|
|
|
|
|
|
|
|
|
Basic earnings per share pro forma
|
|
$
|
0.79
|
|
|
|
|
|
|
|
|
Diluted earnings per share as reported
|
|
$
|
0.79
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|
|
|
|
|
|
|
|
Diluted earnings per share pro forma
|
|
$
|
0.78
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory assets and liabilities
|
We record certain costs as regulatory assets in accordance with
SFAS 71,
Accounting for the Effects of Certain Types of
Regulation,
when future recovery through customer rates is
considered probable. Regulatory liabilities are recorded when it
is probable that revenues will be reduced for amounts that will
be credited to customers through the ratemaking process.
Substantially all of our regulatory assets are recorded as a
component of deferred charges and substantially all of our
regulatory liabilities are recorded as a component of deferred
credits and other liabilities. Deferred gas costs are recorded
either in other current assets or liabilities and the regulatory
cost of removal obligation is separately reported.
Significant regulatory assets and liabilities as of
December 31, 2005 and September 30, 2005 included the
following:
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|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
|
2005
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Regulatory assets:
|
|
|
|
|
|
|
|
|
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|
Merger and integration costs, net
|
|
$
|
9,065
|
|
|
$
|
9,150
|
|
|
|
Deferred gas cost
|
|
|
124,269
|
|
|
|
38,173
|
|
|
|
Environmental costs
|
|
|
1,312
|
|
|
|
1,357
|
|
|
|
Rate case costs
|
|
|
10,796
|
|
|
|
11,314
|
|
|
|
Deferred franchise fees
|
|
|
3,208
|
|
|
|
6,710
|
|
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|
Other
|
|
|
9,168
|
|
|
|
9,313
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
157,818
|
|
|
$
|
76,017
|
|
|
|
|
|
|
|
|
|
7
ATMOS ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
|
2005
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Regulatory liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deferred gas costs
|
|
$
|
39,143
|
|
|
$
|
134,048
|
|
|
|
Regulatory cost of removal obligation
|
|
|
280,564
|
|
|
|
274,989
|
|
|
|
Deferred income taxes, net
|
|
|
3,185
|
|
|
|
3,185
|
|
|
|
Other
|
|
|
7,580
|
|
|
|
8,084
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
330,472
|
|
|
$
|
420,306
|
|
|
|
|
|
|
|
|
|
Currently authorized rates do not include a return on certain of
our merger and integration costs; however, we recover the
amortization of these costs. Merger and integration costs, net,
are generally amortized on a straight-line basis over estimated
useful lives ranging up to 20 years. Environmental costs
have been deferred to future rate filings in accordance with
rulings received from various regulatory commissions.
The following table presents the components of comprehensive
income, net of related tax, for the three-month periods ended
December 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
December 31
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Net income
|
|
$
|
71,027
|
|
|
$
|
59,599
|
|
|
Unrealized holding gains on investments, net of tax expense of
$248 and $649
|
|
|
405
|
|
|
|
1,057
|
|
|
Amortization and unrealized losses on interest rate hedging
transactions, net of tax expense (benefit) of $528 and $(3,245)
|
|
|
860
|
|
|
|
(5,296
|
)
|
|
Net unrealized losses on commodity hedging transactions, net of
tax benefit of $14,749 and $7,912
|
|
|
(24,063
|
)
|
|
|
(12,908
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
48,229
|
|
|
$
|
42,452
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss, net of tax, as of
December 31, 2005 and September 30, 2005 consisted of
the following unrealized gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
|
2005
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains on investments
|
|
$
|
1,089
|
|
|
$
|
684
|
|
|
|
Treasury lock agreements
|
|
|
(23,122
|
)
|
|
|
(23,982
|
)
|
|
|
Cash flow hedges
|
|
|
(4,106
|
)
|
|
|
19,957
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(26,139
|
)
|
|
$
|
(3,341
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recent accounting pronouncements
|
In March 2005, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 47,
Accounting for
Conditional Asset Retirement Obligations
(FIN 47),
which clarifies that an entity is required to recognize a
liability for the fair value of a conditional asset retirement
obligation when the obligation is
8
ATMOS ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
incurred generally upon acquisition, construction or
development and/or through the normal operation of the asset, if
the fair value of the liability can be reasonably estimated. A
conditional asset retirement obligation is a legal obligation to
perform an asset retirement activity in which the timing and/or
method of settlement are conditional on a future event that may
or may not be within the control of the entity. Uncertainty
about the timing and/or method of settlement is required to be
factored into the measurement of the liability when sufficient
information exists. FIN 47 also clarifies when an entity
would have sufficient information to reasonably estimate the
fair value of an asset retirement obligation. FIN 47 is
effective for us by the end of the 2006 fiscal year. We are
currently evaluating the impact that FIN 47 may have on our
financial position, results of operations and cash flows.
|
|
|
|
3.
|
Derivative Instruments and Hedging Activities
|
We