ATMOS ENERGY CORP (Form: 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended December 31, 2007
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission File Number 1-10042

Atmos Energy Corporation

(Exact name of registrant as specified in its charter)


Texas and Virginia		75-1743247
(State or other jurisdiction of incorporation or organization)		(IRS employer identification no.)

Three Lincoln Centre, Suite 1800 5430 LBJ Freeway, Dallas, Texas		75240 (Zip code)
(Address of principal executive offices)

(972) 934-9227

(Registrant’s 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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer þ Accelerated Filer o Non-Accelerated Filer o Smaller Reporting Company o

(Do not check if a smaller reporting company)

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 issuer’s classes of common stock, as of January 30, 2007.


Class		Shares Outstanding

No Par Value		89,957,651

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
ATMOS ENERGY CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
ATMOS ENERGY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME
ATMOS ENERGY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
ATMOS ENERGY CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	1. Nature of Business
	2. Unaudited Interim Financial Information
	3. Derivative Instruments and Hedging Activities
	4. Debt
	5. Public Offering
	6. Earnings Per Share
	7. Interim Pension and Other Postretirement Benefit Plan Information
	8. Commitments and Contingencies
	9. Concentration of Credit Risk
	10. Segment Information
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	INTRODUCTION
	OVERVIEW
	CRITICAL ACCOUNTING ESTIMATES AND POLICIES
	RESULTS OF OPERATIONS
	Liquidity and Capital Resources
	Cash Flows
	Credit Facilities
	Shelf Registration
	Credit Ratings
	Debt Covenants
	Capitalization
	Contractual Obligations and Commercial Commitments
	Risk Management Activities
	Pension and Postretirement Benefits Obligations
	OPERATING STATISTICS AND OTHER INFORMATION
	RECENT ACCOUNTING DEVELOPMENTS
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 6. Exhibits
SIGNATURES
EXHIBITS INDEX Item 6(a)
Computation of Ratio of Earning to Fixed Charges
Letter Regarding Unaudited Interim Financial Information
Rule 13a-14(a)/15d-14(a) Certifications
Section 1350 Certifications

GLOSSARY OF KEY TERMS


AEC		Atmos Energy Corporation
AEH		Atmos Energy Holdings, Inc.
AEM		Atmos Energy Marketing, LLC
AES		Atmos Energy Services, LLC
APS		Atmos Pipeline and Storage, LLC
Bcf		Billion cubic feet
EITF		Emerging Issues Task Force
FASB		Financial Accounting Standards Board
FIN		FASB Interpretation
Fitch		Fitch Ratings, Ltd.
GRIP		Gas Reliability Infrastructure Program
KCC		Kansas Corporation Commission
LGS		Louisiana Gas Service Company and LGS Natural Gas Company, which were acquired July 1, 2001
LPSC		Louisiana Public Service Commission
Mcf		Thousand cubic feet
MMcf		Million cubic feet
Moody’s		Moody’s Investors Services, Inc.
NYMEX		New York Mercantile Exchange, Inc.
RRC		Railroad Commission of Texas
RSC		Rate Stabilization Clause
S&P		Standard & Poor’s Corporation
SEC		United States Securities and Exchange Commission
SFAS		Statement of Financial Accounting Standards
TRA		Tennessee Regulatory Authority
WNA		Weather Normalization Adjustment

PART I. FINANCIAL INFORMATION


Item 1.	*Financial Statements*

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


	December 31,			September 30,
	2007			2007
	(Unaudited)
	(In thousands, except
	share data)

ASSETS
Property, plant and equipment	$	5,467,260		$	5,396,070
Less accumulated depreciation and amortization		1,579,134			1,559,234

Net property, plant and equipment		3,888,126			3,836,836
Current assets
Cash and cash equivalents		51,874			60,725
Cash held on deposit in margin account		—			—
Accounts receivable, net		776,866			380,133
Gas stored underground		564,426			515,128
Other current assets		126,855			112,909

Total current assets		1,520,021			1,068,895
Goodwill and intangible assets		737,536			737,692
Deferred charges and other assets		254,080			253,494

	$	6,399,763		$	5,896,917


CAPITALIZATION AND LIABILITIES
Shareholders’ equity
Common stock, no par value (stated at $.005 per share); 200,000,000 shares authorized; issued and outstanding:
December 31, 2007 — 89,906,989 shares;
September 30, 2007 — 89,326,537 shares	$	450		$	447
Additional paid-in capital		1,713,043			1,700,378
Retained earnings		325,183			281,127
Accumulated other comprehensive loss		(6,193	)		(16,198	)

Shareholders’ equity		2,032,483			1,965,754
Long-term debt		2,124,915			2,126,315

Total capitalization		4,157,398			4,092,069
Current liabilities
Accounts payable and accrued liabilities		739,807			355,255
Other current liabilities		389,937			409,993
Short-term debt		202,244			150,599
Current maturities of long-term debt		3,618			3,831

Total current liabilities		1,335,606			919,678
Deferred income taxes		378,425			370,569
Regulatory cost of removal obligation		279,625			271,059
Deferred credits and other liabilities		248,709			243,542

	$	6,399,763		$	5,896,917

See accompanying notes to condensed consolidated financial statements

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended
	December 31
	2007			2006
	(Unaudited)
	(In thousands, except
	per share data)

Operating revenues
Natural gas distribution segment	$	928,177		$	964,244
Regulated transmission and storage segment		45,046			39,872
Natural gas marketing segment		840,717			711,694
Pipeline, storage and other segment		6,727			11,333
Intersegment eliminations		(163,157	)		(124,510	)

		1,657,510			1,602,633
Purchased gas cost
Natural gas distribution segment		654,977			701,676
Regulated transmission and storage segment		—			—
Natural gas marketing segment		794,754			648,560
Pipeline, storage and other segment		729			225
Intersegment eliminations		(162,588	)		(123,420	)

		1,287,872			1,227,041

Gross profit		369,638			375,592
Operating expenses
Operation and maintenance		121,189			115,370
Depreciation and amortization		48,513			48,995
Taxes, other than income		41,427			40,067

Total operating expenses		211,129			204,432

Operating income		158,509			171,160
Miscellaneous income (expense)		(93	)		1,579
Interest charges		36,817			39,532

Income before income taxes		121,599			133,207
Income tax expense		47,796			51,946

Net income	$	73,803		$	81,261

Basic net income per share	$	0.83		$	0.98

Diluted net income per share	$	0.82		$	0.97

Cash dividends per share	$	0.325		$	0.320

Weighted average shares outstanding:
Basic		89,006			82,726

Diluted		89,608			83,350

See accompanying notes to condensed consolidated financial statements

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended
	December 31
	2007			2006
	(Unaudited)
	(In thousands)

Cash Flows From Operating Activities
Net income	$	73,803		$	81,261
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization:
Charged to depreciation and amortization		48,513			48,995
Charged to other accounts		23			83
Deferred income taxes		11,978			13,869
Other		4,406			4,718
Net assets / liabilities from risk management activities		(11,586	)		(34,857	)
Net change in operating assets and liabilities		(65,700	)		50,900

Net cash provided by operating activities		61,437			164,969
Cash Flows From Investing Activities
Capital expenditures		(94,155	)		(86,986	)
Other, net		(1,874	)		(1,324	)

Net cash used in investing activities		(96,029	)		(88,310	)
Cash Flows From Financing Activities
Net increase (decrease) in short-term debt		50,690			(227,945	)
Repayment of long-term debt		(1,741	)		(1,717	)
Cash dividends paid		(29,178	)		(26,261	)
Issuance of common stock		5,970			5,594
Net proceeds from equity offering		—			192,261

Net cash provided by (used in) financing activities		25,741			(58,068	)

Net increase (decrease) in cash and cash equivalents		(8,851	)		18,591
Cash and cash equivalents at beginning of period		60,725			75,815

Cash and cash equivalents at end of period	$	51,874		$	94,406

See accompanying notes to condensed consolidated financial statements

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 31, 2007


1.	Nature of Business

Atmos Energy Corporation (“Atmos” or the “Company”) and our subsidiaries are engaged primarily in the regulated natural gas distribution and transmission and storage businesses as well as certain other nonregulated businesses. Through our natural gas distribution business, we distribute natural gas through sales and transportation arrangements to approximately 3.2 million residential, commercial, public authority and industrial customers through our six regulated natural gas distribution divisions, in the service areas described below:


Division		Service Area

Atmos Energy Colorado-Kansas Division		Colorado, Kansas, Missouri ⁽¹⁾
Atmos Energy Kentucky/Mid-States Division		Georgia ⁽¹⁾ , Illinois ⁽¹⁾ , Iowa ⁽¹⁾ , Kentucky, Missouri ⁽¹⁾ , Tennessee, Virginia ⁽¹⁾
Atmos Energy Louisiana Division		Louisiana
Atmos Energy Mid-Tex Division		Texas, including the Dallas/Fort Worth metropolitan area
Atmos Energy Mississippi Division		Mississippi
Atmos Energy West Texas Division		West Texas


⁽¹⁾		Denotes locations where we have more limited service areas.

In addition, we transport natural gas for others through our distribution system. Our natural gas distribution business is subject to federal and state regulation and/or regulation by local authorities in each of the states in which our natural gas distribution divisions operate. Our corporate headquarters and shared-services function are located in Dallas, Texas, and our customer support centers are located in Amarillo and Waco, Texas.

Our regulated transmission and storage business consists of the regulated operations of our Atmos Pipeline — Texas Division. The Atmos Pipeline — Texas Division transports natural gas to our Mid-Tex Division, transports natural gas for third parties and manages five underground storage reservoirs in Texas. We also provide ancillary services customary to the pipeline industry including parking arrangements, lending and sales of inventory on hand. Parking arrangements provide short-term interruptible storage of gas on our pipeline. Lending services provide short-term interruptible loans of natural gas from our pipeline to meet market demands.

Our nonregulated businesses operate in 22 states and include our natural gas marketing operations and pipeline, storage and other operations. These businesses are operated through various wholly-owned subsidiaries of Atmos Energy Holdings, Inc. (AEH), which is wholly-owned by the Company and based in Houston, Texas.

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 Colorado-Kansas, Kentucky/Mid-States and Louisiana 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.

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Our pipeline, storage and other segment primarily consists of the operations of Atmos Pipeline and Storage, LLC (APS), Atmos Energy Services, LLC (AES) and Atmos Power Systems, Inc., which are each wholly-owned by AEH. APS owns or has an interest in underground storage fields in Kentucky and Louisiana. We use these storage facilities to reduce the need to contract for additional pipeline capacity to meet customer demand during peak periods. Through December 31, 2006, AES provided natural gas management services to our natural gas distribution operations, other than the Mid-Tex Division. These services included aggregating and purchasing gas supply, arranging transportation and storage logistics and ultimately delivering the gas to our utility service areas at competitive prices. Effective January 1, 2007, our shared services function began providing these services to our natural gas distribution operations. AES continues to provide limited services to our natural gas distribution divisions, and the revenues AES receives are equal to the costs incurred to provide those services. Through Atmos Power Systems, Inc., we have constructed electric peaking power-generating plants and associated facilities and lease these plants through lease agreements that are accounted for as sales under generally accepted accounting principles.


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 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 included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2007. Because of seasonal and other factors, the results of operations for the three-month period ended December 31, 2007 are not indicative of expected results of operations for the full 2008 fiscal year, which ends September 30, 2008.

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, 2007. Except for the Company’s adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48), discussed below, there were no significant changes to those accounting policies during the three months ended December 31, 2007.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 . FIN 48 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company may recognize the tax benefit from uncertain tax positions only if it is at least more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the taxing authorities. FIN 48 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

We adopted the provisions of FIN 48 on October 1, 2007. As a result of adopting FIN 48, we determined that we had $6.1 million of liabilities associated with uncertain tax positions. Of this amount, $0.5 million was recognized as a result of adopting FIN 48 with an offsetting reduction to retained earnings. As of December 31, 2007, we had recorded liabilities associated with uncertain tax positions totaling $6.1 million. The realization of all of these tax benefits would reduce our income tax expense by approximately $6.1 million.

Prior to October 1, 2007, the $5.6 million liability previously recorded for uncertain tax positions was reflected on the consolidated balance sheet as a component of deferred income taxes. As a result of adopting FIN 48, we recorded a $3.7 million liability as a component of other current liabilities and $2.4 million as a

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

component of deferred credits and other liabilities, with offsetting decreases to the deferred income tax liability.

We recognize accrued interest related to unrecognized tax benefits as a component of interest expense. We recognize penalties related to unrecognized tax benefits as a component of miscellaneous income (expense) in accordance with regulatory requirements. For the three months ended December 31, 2007 we recognized $0.2 million in penalties and interest.

We file income tax returns in the U.S. federal jurisdiction as well as in various states where we have operations. We have concluded substantially all U.S. federal income tax matters through fiscal year 2001. The Internal Revenue Service is currently conducting a routine examination of our fiscal 2002, 2003 and 2004 tax returns, and we anticipate these examinations will be completed by the end of fiscal 2008. We believe all material tax items which relate to the years under audit have been properly accrued.

Regulatory assets and liabilities

We record certain costs as regulatory assets in accordance with Statement of Financial Accounting Standards (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 other assets 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, 2007 and September 30, 2007 included the following:


	December 31,		September 30,
	2007		2007
	(In thousands)

Regulatory assets:
Pension and postretirement benefit costs	$	56,889	$	59,022
Merger and integration costs, net		7,893		7,996
Deferred gas cost		52,164		14,797
Environmental costs		1,270		1,303
Rate case costs		11,737		10,989
Deferred franchise fees		776		796
Other		10,299		10,719

	$	141,028	$	105,622

Regulatory liabilities:
Deferred gas cost	$	43,162	$	84,043
Regulatory cost of removal obligation		299,401		295,241
Deferred income taxes, net		165		165
Other		7,433		7,503

	$	350,161	$	386,952