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 March 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
(Address of principal executive offices)
  75240
(Zip code)
 
(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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large Accelerated Filer  þ           Accelerated Filer  o           Non-Accelerated Filer  o
 
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 April 25, 2007.
 
         
Class
 
Shares Outstanding
 
No Par Value     88,806,235  
 


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
KPSC
  Kentucky Public Service 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


1


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits
SIGNATURES
Amendment to the Performance-Based Supplemental Executive Benefits Plan
1998 Long-Term Incentive Plan - as Amended and Restated
Annual Incentive Plan for Management - as Amended and Restated
Computation of Ratio of Earnings to Fixed Charges
Letter Regarding Unaudited Interim Financial Information
Rule 13a-14(a)/15d-14(a) Certifications
Section 1350 Certifications


 
PART I. FINANCIAL INFORMATION
 
Item 1.    Financial Statements
 
ATMOS ENERGY CORPORATION
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
                 
    March 31,
    September 30,
 
    2007     2006  
    (Unaudited)        
    (In thousands, except
 
    share data)  
 
ASSETS
Property, plant and equipment
  $ 5,228,334     $ 5,101,308  
Less accumulated depreciation and amortization
    1,516,504       1,472,152  
                 
Net property, plant and equipment
    3,711,830       3,629,156  
Current assets
               
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  
                 
 
CAPITALIZATION AND LIABILITIES
Shareholders’ equity
               
Common stock, no par value (stated at $.005 per share);
200,000,000 shares authorized; issued and outstanding:
               
March 31, 2007 — 88,764,353 shares;
September 30, 2006 — 81,739,516 shares
  $ 444     $ 409  
Additional paid-in capital
    1,679,228       1,467,240  
Retained earnings
    357,425       224,299  
Accumulated other comprehensive loss
    (15,144 )     (43,850 )
                 
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  
Current liabilities
               
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  
Regulatory cost of removal obligation
    261,984       261,376  
Deferred credits and other liabilities
    214,672       204,378  
                 
    $ 6,109,098     $ 5,719,547  
                 
 
See accompanying notes to condensed consolidated financial statements


2


ATMOS ENERGY CORPORATION
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
                 
    Three Months Ended
 
    March 31  
    2007     2006  
    (Unaudited)  
    (In thousands, except
 
    per share data)  
 
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  
Operating expenses
               
Operation and maintenance
    111,862       112,698  
Depreciation and amortization
    51,066       47,076  
Taxes, other than income
    56,746       64,796  
                 
Total operating expenses
    219,674       224,570  
                 
Operating income
    209,012       180,833  
Miscellaneous income (expense)
    1,838       (2,439 )
Interest charges
    35,262       35,492  
                 
Income before income taxes
    175,588       142,902  
Income tax expense
    69,083       54,106  
                 
Net income
  $ 106,505     $ 88,796  
                 
Basic net income per share
  $ 1.21     $ 1.10  
                 
Diluted net income per share
  $ 1.20     $ 1.10  
                 
Cash dividends per share
  $ 0.320     $ 0.315  
                 
Weighted average shares outstanding:
               
Basic
    88,078       80,573  
                 
Diluted
    88,735       81,040  
                 
 
See accompanying notes to condensed consolidated financial statements


3


ATMOS ENERGY CORPORATION
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
                 
    Six Months Ended
 
    March 31  
    2007     2006  
    (Unaudited)
 
    (In thousands, except
 
    per share data)  
 
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  
Operating expenses
               
Operation and maintenance
    227,232       220,915  
Depreciation and amortization
    100,061       90,336  
Taxes, other than income
    96,813       110,212  
                 
Total operating expenses
    424,106       421,463  
                 
Operating income
    380,172       330,530  
Miscellaneous income (expense)
    3,417       (1,991 )
Interest charges
    74,794       71,681  
                 
Income before income taxes
    308,795       256,858  
Income tax expense
    121,029       97,035  
                 
Net income
  $ 187,766     $ 159,823  
                 
Basic net income per share
  $ 2.20     $ 1.99  
                 
Diluted net income per share
  $ 2.18     $ 1.98  
                 
Cash dividends per share
  $ 0.64     $ 0.63  
                 
Weighted average shares outstanding:
               
Basic
    85,404       80,444  
                 
Diluted
    86,061       80,911  
                 
 
See accompanying notes to condensed consolidated financial statements


4


ATMOS ENERGY CORPORATION
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                 
    Six Months Ended
 
    March 31  
    2007     2006  
    (Unaudited)
 
    (In thousands)  
 
Cash Flows From Operating Activities
               
Net income
  $ 187,766     $ 159,823  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization:
               
Charged to depreciation and amortization
    100,061       90,336  
Charged to other accounts
    118       334  
Deferred income taxes
    72,755       58,199  
Other
    9,472       7,587  
Net assets / liabilities from risk management activities
    50,540       (24,041 )
Net change in operating assets and liabilities
    91,215       (143,847 )
                 
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 )
Issuance of common stock
    12,428       12,053  
Net proceeds from equity offering
    191,913        
                 
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  
                 
 
See accompanying notes to condensed consolidated financial statements


5


ATMOS ENERGY CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2007
 
1.   Nature of Business
 
Atmos Energy Corporation (“Atmos” or “the Company”) and our 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 six regulated natural gas utility divisions, in the service areas described below:
 
     
Division   Service Area
 
Atmos Energy Colorado-Kansas Division
  Colorado, Kansas, Missouri (2)
Atmos Energy Kentucky/Mid-States Division (1)
  Georgia (2) , Illinois (2) , Iowa (2) , Kentucky, Missouri (2) , Tennessee, Virginia (2)
Atmos Energy Louisiana Division
  Louisiana
Atmos Energy Mid-Tex Division
  Texas, including the Dallas/Fort Worth Metroplex
Atmos Energy Mississippi Division
  Mississippi
Atmos Energy West Texas Division
  West Texas
 
 
(1) Effective October 1, 2006, the Kentucky and Mid-States Divisions were combined.
 
(2) Denotes locations where we have more limited service areas.
 
In addition, we transport natural gas for others through our distribution system. Our utility business is subject to federal and state regulation and/or regulation by local authorities in each of the states in which the utility divisions operate. Our shared services function is located in Dallas, Texas, and our customer support centers are located in Amarillo and Waco, Texas.
 
Our nonutility businesses operate in 22 states and include our natural gas marketing operations, pipeline and storage operations and other nonutility operations. These operations are either organized under or managed by Atmos Energy Holdings, Inc. (AEH), which is a wholly-owned subsidiary of 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 Louisiana and Kentucky/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 the Company, 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 and to third parties, as well as 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 December 31, 2006, AES provided natural gas management services to our utility operations, other than the Mid-Tex Division. These services included aggregating and purchasing gas supply, arranging transportation and storage logistics and


6


 
ATMOS ENERGY CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 utility operations. AES continues to provide limited services to our utility division, 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 sales-type lease agreements.
 
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, 2006. Because of seasonal and other factors, the results of operations for the three and six-month periods ended March 31, 2007 are not indicative of expected results of operations for the full 2007 fiscal year, which ends September 30, 2007.
 
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, 2006. There were no significant changes to those accounting policies during the six months ended March 31, 2007.
 
Additionally, during the second quarter of fiscal 2007, we completed our annual goodwill impairment assessment. Based on the assessment performed, our goodwill was not impaired.
 
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.


7


 
ATMOS ENERGY CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
Significant regulatory assets and liabilities as of March 31, 2007 and September 30, 2006 included the following:
 
                 
    March 31,
    September 30,
 
    2007     2006  
    (In thousands)  
 
Regulatory assets:
               
Merger and integration costs, net
  $ 8,438     $ 8,644  
Deferred gas costs
    85,244       44,992  
Environmental costs
    1,291       1,234  
Rate case costs
    9,344       10,579  
Deferred franchise fees
    917       1,311  
Other
    12,069       9,055  
                 
    $ 117,303     $ 75,815  
                 
Regulatory liabilities:
               
Deferred gas costs
  $ 27,428     $ 68,959  
Regulatory cost of removal obligation
    282,942       276,490  
Deferred income taxes, net
    235       235  
Other
    9,816       10,825  
                 
    $ 320,421     $ 356,509  
                 
 
Currently, our 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 be included in future rate filings in accordance with rulings received from various state regulatory commissions.


8


 
ATMOS ENERGY CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
Comprehensive income
 
The following table presents the components of comprehensive income, net of related tax, for the three-month and six-month periods ended March 31, 2007 and 2006:
 
                                 
    Three Months Ended
    Six Months Ended
 
    March 31     March 31  
    2007     2006     2007     2006  
    (In thousands)  
 
Net income
  $ 106,505     $ 88,796     $ 187,766     $ 159,823  
Unrealized holding gains (losses) on investments, net of tax expense (benefit) of $(134) and $294 for the three months ended March 31, 2007 and 2006 and of $749 and $542 for the six months ended March 31, 2007 and 2006
    (219 )     479       1,222       884  
Amortization and unrealized gain on interest rate hedging transactions, net of tax expense of $982 and $527 for the three months ended March 31, 2007 and 2006 and $1,510 and $1,055 for the six months ended March 31, 2007 and 2006
    1,602       861       2,462       1,721  
Net unrealized gains (losses) on commodity hedging transactions, net of tax expense (benefit) of $8,117 and $(2,927) for the three months ended March 31, 2007 and 2006 and $15,336 and $(17,676) for the six months ended March 31, 2007 and 2006
    13,244       (4,776 )     25,022       (28,839 )
                                 
Comprehensive income
  $ 121,132     $ 85,360     $ 216,472     $ 133,589  
                                 
 
Accumulated other comprehensive loss, net of tax, as of March 31, 2007 and September 30, 2006 consisted of the following unrealized gains (losses):
 
                 
    March 31,
    September 30,
 
    2007     2006  
    (In thousands)  
 
Accumulated other comprehensive loss:
               
Unrealized holding gains on investments
  $ 2,788     $ 1,566  
Treasury lock agreements
    (18,078 )     (20,540 )
Cash flow hedges
    146       (24,876 )
                 
    $ (15,144 )   $ (43,850 )
                 


9


 
ATMOS ENERGY CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Recent accounting pronouncements
 
In February 2007, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115. The new standard permits an entity to measure certain financial assets and financial liabilities at fair value. The objective of the standard is to improve financial reporting by allowing entities to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by-instrument basis. The fair value option is irrevocable, unless a new election date occurs. The provisions of this standard will be effective October 1, 2008. We are currently evaluating the impact this standard may have on our financial position, results of operations and cash flows.
 
In September 2006, the FASB issued SFAS 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R). The new standard represents a significant change to the existing rules by requiring recognition in the balance sheet of the overfunded or underfunded positions of defined benefit pension and other postretirement plans based upon the projected benefit obligation, along with a corresponding noncash, after-tax adjustment to stockholders’ equity. Additionally, this standard requires that the measurement date must correspond to the fiscal year end balance sheet date but it does not change how net periodic pension and postretirement cost or the projected benefit obligation is determined. The balance sheet recognition guidance of this standard will be effective as of September 30, 2007, while the measurement date provisions of this guidance can be adopted as late as fiscal 2008 for the Company.
 
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes by establishing standards for measurement and recognition in financial statements of positions taken by an entity in its income tax returns. This interpretation also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties, accounting for income taxes in interim periods and income tax disclosures. We will be required to apply the provisions of FIN 48 beginning October 1, 2007. We are currently evaluating the impact this standard may have on our financial position, results of operations and cash flows.
 
3.   Derivative Instruments and Hedging Activities
 
We conduct risk management activities through both our utility and natural gas marketing segments. We record our derivatives as a component of risk management assets and liabilities, which are classified as current or noncurrent other assets or liabilities based upon the anticipated settlement date of the underlying derivative. Our determination of the fair value of these derivative financial instruments reflects the estimated amounts that we would receive or pay to terminate or close the contracts at the reporting date, taking into account the current unrealized gains and losses on open contracts. In our determination of fair value, we consider various factors, including closing exchange and over-the-counter quotations, time value and volatility factors underlying the contracts. These risk management assets and liabilities are subject to continuing market risk until the underlying derivative contracts are settled.


10


 
ATMOS ENERGY CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
The following table shows the fair values of our risk management assets and liabilities by segment at March 31, 2007 and September 30, 2006:
 
                         
          Natural Gas
       
    Utility     Marketing     Total  
    (In thousands)  
 
March 31, 2007:
                       
Assets from risk management activities, current
  $ 3,804     $ 708     $ 4,512  
Assets from risk management activities, noncurrent
          7,105       7,105  
Liabilities from risk management activities, current
    (2 )     (32,369 )     (32,371 )
Liabilities from risk management activities, noncurrent
          (438 )     (438 )
                         
Net assets (liabilities)
  $ 3,802     $ (24,994 )   $ (21,192 )
                         
September 30, 2006:
                       
Assets from risk management activities, current
  $     $ 12,553     $ 12,553  
Assets from risk management activities, noncurrent
          6,186       6,186  
Liabilities from risk management activities, current
    (27,209 )     (3,460 )     (30,669 )
Liabilities from risk management activities, noncurrent
          (276 )     (276 )
                         
Net assets (liabilities)
  $ (27,209 )   $ 15,003     $ (12,206 )
                         
 
Utility Hedging Activities
 
We use a combination of storage, fixed physical contracts and fixed financial contracts to partially insulate us and our customers against gas price volatility during the winter heating season. Because the gains or losses of financial derivatives used in our utility segment ultimately will be recovered through our rates, current period changes in the assets and liabilities from these risk management activities are recorded as a component of deferred gas costs in accordance with SFAS 71, Accounting for the Effects of Certain Types of Regulation. Accordingly, there is no earnings impact to our utility segment as a result of the use of these financial derivatives.
 
Nonutility Hedging Activities
 
Our nonutility hedging activities are subject to various market risks, including risks known as flat price risk, time spread risk and basis risk.
 
Flat price risk arises from maintaining unhedged open positions. Time spread risk arises when we enter into transactions to buy and sell natural gas that over a period of months offset one another but do not offset in any particular month within the overall time period. This risk arises even when we have no unhedged open positions for the overall time period. Finally, basis risk arises when the pricing of a physical contract is based on a pricing location that differs from the Henry Hub, the NYMEX clearing location.
 
We seek to mitigate these risks by continually monitoring our positions to maximize our gains. Additionally, under our risk management policies, we seek to match our financial derivative positions to our physical storage positions as well as our expected current and future sales and purchase obligations to maintain no open positions at the end of each trading day. The determination of our net open position as of any day, however, requires us to make assumptions as to future circumstances, including the use of gas by our customers in relation to our anticipated storage and market positions. Because the flat price risk associated with any net open position at the end of each day may increase if the assumptions are not realized, we review these assumptions as part of our daily monitoring activities. We may also be affected by intraday fluctuations of gas prices, since the price of natural gas purchased or sold for future delivery earlier in the day may not be


11


 
ATMOS ENERGY CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

hedged until later in the day. At times, limited net open positions related to our existing and anticipated commitments may occur. At the close of business on March 31, 2007, AEH had a net open position (including existing storage) of 0.2 Bcf.
 
Finally, AEM manages its exposure to the risk of natural gas price changes through a combination of storage and financial derivatives, including futures, over-the-counter and exchange-traded options and swap contracts with counterparties. Our financial derivative activities include fair value hedges to offset changes in the fair value of our natural gas inventory and cash flow hedges to offset anticipated purchases and sales of gas in the future. AEM also utilizes basis swaps and other non-hedge derivative instruments to manage its exposure to market volatility.
 
For the three and six-month periods ended March 31, 2007, the change in the deferred hedging position in accumulated other comprehensive loss was attributable to decreases in future natural gas prices relative to the natural gas prices stipulated in the derivative contracts. The recognition in net income for the six months ended March 31, 2007 of $27.2 million in net deferred hedging losses ($6.2 million being attributable to the three months ended March 31, 2007) was the result of the maturing of derivative contracts. The net deferred hedging loss associated with open cash flow hedges remains subject to market price fluctuations until the positions are either settled under the terms of the hedge contracts or terminated prior to settlement. The majority of the deferred hedging balance as of March 31, 2007 is expected to be recognized in net income during fiscal 2008 along with the corresponding hedged purchases and sales of natural gas.
 
Gains and losses recognized in the income statement from hedge ineffectiveness primarily result from basis risk and from differences between the timing of the settlement of physical contracts and the settlement of the related hedge, that is referred to below as timing ineffectiveness. The following summarizes the gains and losses recognized in the income statement for the three and six months ended March 31, 2007.
 
                                 
    Three Months Ended March 31     Six Months Ended March 31  
    2007     2006     2007     2006  
    (In thousands)  
 
Basis ineffectiveness:
                               
Fair value basis ineffectiveness
  $ 515     $ 5,635     $ (131 )   $ 13,754  
Cash flow basis ineffectiveness
    (893 )     2,629       (769 )     3,611  
                                 
Total basis ineffectiveness
    (378 )     8,264       (900 )     17,365  
Timing ineffectiveness:
                               
Fair value timing ineffectiveness
    (306 )     764       (1,590 )     325  
                                 
Total hedge ineffectiveness
  $ (684 )   $ 9,028     $ (2,490 )   $ 17,690  
                                 
 
Treasury Activities
 
Effective March 2, 2007, we entered into a Treasury lock agreement to fix the Treasury yield component of the interest cost associated with $100 million of an anticipated financing to repay long-term debt maturing in October 2007. The Treasury lock is scheduled to terminate on June 29, 2007.
 
We have designated this Treasury lock as a cash flow hedge of an anticipated transaction. Accordingly, to the extent effective, unrealized gains and losses associated with the Treasury lock will be recorded as a component of accumulated other comprehensive income. Generally, unrealized gains will be recorded when interest rates increase and unrealized losses will be recorded when interest rates decline relative to the interest rate stipulated in the Treasury lock agreement. Upon termination of the Treasury lock agreement, the unrealized gain or loss will be recognized over the life of the related financing arrangement. Any gains or losses arising from ineffectiveness will be recognized in earnings as incurred. At March 31, 2007, we recorded


12


 
ATMOS ENERGY CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

a deferred hedging gain of $0.7 million, net of tax, as a component of accumulated other comprehensive income related to this treasury lock due to an increase in the 10 year Treasury rates between inception of the Treasury lock and March 31, 2007.
 
4.   Debt
 
Long-term debt
 
Long-term debt at March 31, 2007 and September 30, 2006 consisted of the following:
 
                 
    March 31,
    September 30,
 
    2007     2006  
    (In thousands)  
 
Unsecured floating rate Senior Notes, due October 2007
  $ 300,000     $ 300,000  
Unsecured 4.00% Senior Notes, due 2009
    400,000       400,000  
Unsecured 7.375% Senior Notes, due 2011
    350,000       350,000  
Unsecured 10% Notes, due 2011
    2,303       2,303  
Unsecured 5.125% Senior Notes, due 2013
    250,000       250,000  
Unsecured 4.95% Senior Notes, due 2014
    500,000       500,000  
Unsecured 5.95% Senior Notes, due 2034
    200,000       200,000  
Medium term notes 
               
Series A, 1995-2, 6.27%, due 2010
    10,000       10,000  
Series A, 1995-1, 6.67%, due 2025
    10,000       10,000  
Unsecured 6.75% Debentures, due 2028
    150,000       150,000  
First Mortgage Bonds
               
Series P, 10.43% due 2013
    7,500       8,750  
Other term notes due in installments through 2013
    4,869       5,825  
                 
Total long-term debt
    2,184,672       2,186,878  
Less:
               
Original issue discount on unsecured senior notes and debentures
    (3,109 )     (3,330 )
Current maturities
    (303,232 )     (3,186 )
                 
    $ 1,878,331     $ 2,180,362  
                 
 
Our unsecured floating rate debt bears interest at a rate equal to the three-month LIBOR rate plus 0.375 percent per year. At March 31, 2007, the interest rate on our floating rate debt was 5.735 percent.
 
Short-term debt
 
At March 31, 2007, there were no borrowings outstanding under our commercial paper program or bank credit facilities. At September 30, 2006, there was $379.3 million outstanding under our commercial paper program and $3.1 million outstanding under our bank credit facilities.
 
Shelf Registration
 
On December 4, 2006, we filed a registration statement with the Securities and Exchange Commission (SEC) to issue, from time to time, up to $900 million in new common stock and/or debt securities available for issuance, including approximately $401.5 million of capacity carried over from our prior shelf registration statement filed with the SEC in August 2004. As discussed in Note 5, in December 2006, we sold approximately 6.3 million shares of common stock under the new registration statement, the net proceeds of


13


 
ATMOS ENERGY CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

which were used to reduce short-term debt. As of March 31, 2007, we had approximately $701 million of availability remaining under the registration statement. However, due to certain restrictions placed by one state regulatory commission on our ability to issue securities under the registration statement, we now have remaining and available for issuance a total of approximately $100 million of equity securities, $300 million of senior debt securities and $300 million of subordinated debt securities. In addition, due to restrictions imposed by another state regulatory commission, if the credit ratings on our senior unsecured debt were to fall below investment grade from either Standard & Poor’s Corporation (BBB-), Moody’s Investors Services, Inc. (Baa3) or Fitch Ratings, Ltd. (BBB-), our ability to issue any type of debt securities under the registration statement would be suspended until an investment grade rating from any of the three credit rating agencies was achieved.
 
Credit facilities
 
We maintain both committed and uncommitted credit facilities. Borrowings under our uncommitted credit facilities are made on a when-and-as-needed basis at the discretion of the banks. Our credit capacity and the amount of unused borrowing capacity are affected by the seasonal nature of the natural gas business and our short-term borrowing requirements, which are typically highest during colder winter months. Our working capital needs can vary significantly due to changes in the price of natural gas and the increased gas supplies required to meet customers’ needs during periods of cold weather.
 
Committed credit facilities
 
As of March 31, 2007, we had three short-term committed revolving credit facilities totaling $918 million. The first facility is a five-year unsecured facility for $600 million that we entered into in December 2006, which replaced our previously existing $600 million three-year revolving credit facility. The new facility, expiring December 2011, bears interest at a base rate or at the LIBOR rate plus from 0.30 percent to 0.75 percent, based on the Company’s credit ratings, and serves as a backup liquidity facility for our $600 million commercial paper program. At March 31, 2007, there were no borrowings outstanding under our commercial paper program.
 
The second facility is a $300 million unsecured 364-day facility expiring November 2007, that bears interest at a base rate or at the LIBOR rate plus from 0.30 percent to 0.75 percent, based on the Company’s credit ratings. At March 31, 2007, there were no borrowings under this facility.
 
The third facility is an $18 million unsecured facility that bears interest at the Federal Funds rate plus 0.5 percent. This facility expired on March 31, 2007 and was renewed effective April 1, 2007 for one year with no material changes to the terms and pricing. At March 31, 2007, there were no borrowings under this facility.
 
The availability of funds under our credit facilities is subject to conditions specified in the respective credit agreements, all of which we currently satisfy. These conditions include our compliance with financial covenants and the continued accuracy of representations and warranties contained in these agreements. We are required by the financial covenants in both our $600 million and $300 million credit facilities to maintain, at the end of each fiscal quarter, a ratio of total debt to total capitalization of no greater than 70 percent. At March 31, 2007, our total-debt-to-total-capitalization ratio, as defined, was 55 percent. In addition, the fees that we pay on unused amounts under both the $600 million and $300 million credit facilities are subject to adjustment depending upon our credit ratings.
 
Uncommitted credit facilities
 
AEM has a $580 million uncommitted demand working capital credit facility. On March 30, 2007, AEM and the banks in the facility amended the facility, primarily to extend it to March 31, 2008. Borrowings under


14


 
ATMOS ENERGY CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the credit facility can be made either as revolving loans or offshore rate loans. Revolving loan borrowings will bear interest at a floating rate equal to a base rate defined as the higher of (i) 0.50 percent per annum above the Federal Funds rate or (ii) the lender’s prime rate plus 0.25 percent. Offshore rate loan borrowings will bear interest at a floating rate equal to a base rate based upon LIBOR plus an applicable margin, ranging from 1.25 percent to 1.625 percent per annum, depending on the excess tangible net worth of AEM, as defined in the credit facility. Borrowings drawn down under letters of credit issued by the banks will bear interest at a floating rate equal to the base rate, as defined above, plus an applicable margin, which will range from 1.00 percent to 1.875 percent per annum, depending on the excess tangible net worth of AEM and whether the letters of credit are swap-related standby letters of credit.
 
AEM is required by the financial covenants in the credit facility to maintain a maximum ratio of total liabilities to tangible net worth of 5 to 1, along with minimum levels of net working capital ranging from $20 million to $120 million. Additionally, AEM must maintain a minimum tangible net worth ranging from $21 million to $121 million, and must not have a maximum cumulative loss for the most recent 12 month reporting period exceeding $4 million to $23 million, depending on the total amount of borrowing elected from time to time by AEM. At March 31, 2007, AEM’s ratio of total liabilities to tangible net worth, as defined, was 1.61 to 1.
 
At March 31, 2007, there were no borrowings outstanding under this credit facility. However, at March 31, 2007, AEM letters of credit totaling $130.9 million had been issued under the facility, which reduced the amount available by a corresponding amount. The amount available under this credit facility is also limited by various covenants, including covenants based on working capital. Under the most restrictive covenant, the amount available to AEM under this credit facility was $19.1 million at March 31, 2007. This line of credit is collateralized by substantially all of the assets of AEM and is guaranteed by AEH.
 
The Company also has an unsecured short-term uncommitted credit line of $25 million that is used for working-capital and letter-of-credit purposes. There were no borrowings under this uncommitted credit facility at March 31, 2007, but letters of credit reduced the amount available by $5.4 million. This uncommitted line is renewed or renegotiated at least annually with varying terms, and we pay no fee for the availability of the line. Borrowings under this line are made on a when-and-as-available basis at the discretion of the bank.
 
AEH, the parent company of AEM, has a $100 million intercompany uncommitted demand credit facility with the Company which bears interest at LIBOR plus 2.75 percent. State regulators have approved this facility through December 31, 2007 and have authorized an increase in the intercompany facility to $200 million. At March 31, 2007, there were no borrowings under this facility.
 
In addition, to supplement its $580 million credit facility, AEM has a $120 million intercompany uncommitted demand credit facility with AEH, which bears interest at LIBOR plus 2.75 percent. Any outstanding amounts under this facility are subordinated to AEM’s $580 million uncommitted demand credit facility. At March 31, 2007, there were no borrowings under this facility.
 
Debt Covenants
 
We have other covenants in addition to those described above. Our Series P First Mortgage Bonds contain provisions that allow us to prepay the outstanding balance in whole at any time, after November 2007, subject to a prepayment premium. The First Mortgage Bonds provide for certain cash flow requirements and restrictions on additional indebtedness, sale of assets and payment of dividends. Under the most restrictive of such covenants, cumulative cash dividends paid after December 31, 1985 may not exceed the sum of accumulated net income for periods after that date plus $9 million. At March 31, 2007, approximately $336.5 million of retained earnings was unrestricted with respect to the payment of dividends.
 
We were in compliance with all of our debt covenants as of March 31, 2007. If we were unable to comply with our debt covenants, we could be required to repay our outstanding balances on demand, provide


15


 
ATMOS ENERGY CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

additional collateral or take other corrective actions. Our two public debt indentures relating to our senior notes and debentures, as well as our $600 million and $300 million revolving credit agreements, each contain a default provision that is triggered if outstanding indebtedness arising out of any other credit agreements in amounts ranging from in excess of $15 million to in excess of $100 million becomes due by acceleration or is not paid at maturity. In addition, AEM’s credit agreement contains a cross-default provision whereby AEM would be in default if it defaults on other indebtedness, as defined, by at least $250 thousand in the aggregate. Additionally, this agreement contains a provision that would limit the amount of credit available if Atmos were downgraded below an S&P rating of BBB and a Moody’s rating of Baa2.
 
Except as described above, we have no triggering events in our debt instruments that are tied to changes in specified credit ratings or stock price, nor have we entered into any transactions that would require us to issue equity, based on our credit rating or other triggering events.
 
5.   Public Offering
 
On December 13, 2006, we completed the public offering of 6,325,000 shares of our common stock including the underwriters’ exercise of their overallotment option of 825,000 shares. The offering was priced at $31.50 per share and generated net proceeds of approximately $192 million. We used the net proceeds from this offering to reduce short-term debt.
 
6.   Earnings Per Share
 
Basic and diluted earnings per share for the three and six months ended March 31, 2007 and 2006 are calculated as follows:
 
                                 
    For the Three
    For the Six
 
    Months Ended
    Months Ended
 
    March 31     March 31  
    2007     2006     2007     2006  
    (In thousands, except per share amounts)  
 
Net income
  $ 106,505     $ 88,796     $ 187,766     $ 159,823  
                                 
Denominator for basic income per share — weighted average common shares
    88,078       80,573       85,404       80,444  
Effect of dilutive securities:
                               
Restricted and other shares
    486       369       486       369  
Stock options
    171       98       171       98  
                                 
Denominator for diluted income per share — weighted average common shares
    88,735       81,040       86,061       80,911  
                                 
Income per share — basic
  $ 1.21     $ 1.10     $ 2.20     $ 1.99  
                                 
Income per share — diluted
  $ 1.20     $ 1.10     $ 2.18     $ 1.98  
                                 
 
There were no out-of-the-money options excluded from the computation of diluted earnings per share for the three and six months ended March 31, 2007 and 2006 as their exercise price was less than the average market price of the common stock during that period.


16


 
ATMOS ENERGY CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
7.   Interim Pension and Other Postretirement Benefit Plan Information
 
The components of our net periodic pension cost for our pension and other postretirement benefit plans for the three and six months ended March 31, 2007 and 2006 are presented in the following tables. All of these costs are recoverable through our gas utility rates; however, a portion of these costs is capitalized into our utility rate base. The remaining costs are recorded as a component of operation and maintenance expense.
 
                                 
    Three Months Ended March 31  
    Pension Benefits     Other Benefits  
    2007     2006     2007     2006  
    (In thousands)  
 
Components of net periodic pension cost:
                               
Service cost
  $ 4,018     $ 4,117     $ 2,807     $ 3,271  
Interest cost
    6,495       5,722       2,641       2,210  
Expected return on assets
    (6,089 )     (6,400 )     (597 )     (547 )
Amortization of transition asset
                378       378  
Amortization of prior service cost
    45       16       8       90  
Amortization of actuarial loss
    2,434       3,299             320  
                                 
Net periodic pension cost
  $ 6,903     $ 6,754     $ 5,237     $ 5,722  
                                 
 
                                 
    Six Months Ended March 31  
    Pension Benefits     Other Benefits  
    2007     2006     2007     2006  
    (In thousands)  
 
Components of net periodic pension cost:
                               
Service cost
  $ 8,036     $ 8,234     $ 5,614     $ 6,542  
Interest cost
    12,990       11,444       5,281       4,420  
Expected return on assets
    (12,178 )     (12,800 )     (1,194 )     (1,094 )
Amortization of transition asset
                756       756  
Amortization of prior service cost
    90       32       16       180  
Amortization of actuarial loss
    4,868       6,598             640  
                                 
Net periodic pension cost
  $ 13,806     $ 13,508     $ 10,473     $ 11,444  
                                 
 
The assumptions used to develop our net periodic pension cost for the three and six months ended March 31, 2007 and 2006 are as follows:
 
                                 
    Pension Benefits     Other Benefits  
    2007     2006     2007     2006  
 
Discount rate
    6.30 %     5.00 %     6.30 %     5.00 %
Rate of compensation increase
    4.00 %     4.00 %     4.00 %     4.00 %
Expected return on plan assets
    8.25 %     8.50 %     5.20 %     5.30 %
 
The discount rate used to compute the present value of a plan’s liabilities generally is based on rates of high-grade corporate bonds with maturities similar to the average period over which the benefits will be paid. Generally, our funding policy is to contribute annually an amount in accordance with the requirements of the Employee Retirement Income Security Act of 1974. However, additional voluntary contributions are made to satisfy regulatory requirements in certain of our jurisdictions. During the six months ended March 31, 2007, we contributed $6.0 million to our other postretirement plans, and we expect to contribute a total of approximately $12 million to these plans during fiscal 2007.


17


 
ATMOS ENERGY CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
8.   Commitments and Contingencies
 
Litigation and Environmental Matters
 
With respect to the specific litigation and environmental-related matters or claims that were disclosed in Note 13 to our annual report on Form 10-K for the year ended September 30, 2006, there were no material changes in the status of such litigation and environmental-related matters or claims during the six months ended March 31, 2007. We continue to believe that the final outcome of such litigation and environmental-related matters or claims will not have a material adverse effect on our financial condition, results of operations or cash flows.
 
In addition, we are involved in other litigation and environmental-related matters or claims that arise in the ordinary course of our business. While the ultimate results of such litigation and response actions to such environmental-related matters or claims cannot be predicted with certainty, we believe the final outcome of such litigation and response actions will not have a material adverse effect on our financial condition, results of operations or cash flows.
 
Purchase Commitments
 
AEM has commitments to purchase physical quantities of natural gas under contracts indexed to the forward NYMEX strip or fixed price contracts. At March 31, 2007, AEM was committed to purchase 99.7 Bcf within one year and 49.4 Bcf within one to three years under indexed contracts. AEM is committed to purchase 2.2 Bcf within one year and less than 0.1 Bcf within one to three years under fixed price contracts with prices ranging from $6.27 to $9.96. Purchases under these contracts totaled $563.0 million and $531.8 million for the three months ended March 31, 2007 and 2006 and $983.4 million and $1,319.5 million for the six months ended March 31, 2007 and 2006.
 
Our utility operations, other than the Mid-Tex Division, maintain supply contracts with several vendors that generally cover a period of up to one year. Commitments for estimated base gas volumes are established under these contracts on a monthly basis at contractually negotiated prices. Commitments for incremental daily purchases are made as necessary during the month in accordance with the terms of the individual contract.
 
Our Mid-Tex Division maintains long-term supply contracts to ensure a reliable source of gas for our customers in its service area which obligate it to purchase specified volumes at market prices. The estimated fiscal year commitments under these contracts as of March 31, 2007 are as follows (in thousands):
 
         
2007
  $ 117,811  
2008
    122,199  
2009
    10,789  
2010
    9,940  
2011
    9,559  
Thereafter
    21,927  
         
    $ 292,225  
         
 
Regulatory Matters
 
At March 31, 2007, we were involved in a number of “show cause” proceedings filed by cities in several of our jurisdictions. We are currently providing information to and addressing questions raised by the respective regulatory commissions. We believe we will be able to demonstrate to these regulators that our rates are just and reasonable. Additionally, we have a rate case in progress in our Kentucky service area. These regulatory proceedings are discussed in further detail in Management’s Discussion and Analysis — Recent Ratemaking Developments.


18


 
ATMOS ENERGY CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other
 
In May 2006, we 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 an attempt to better serve the needs of the local producers in the area and to meet the Company’s economic requirements, we are currently redesigning the original project, which 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.
 
9.   Concentration of Credit Risk
 
Information regarding our concentration of credit risk is disclosed in Note 15 to our annual report on Form 10-K for the year ended September 30, 2006. During the six months ended March 31, 2007, there were no material changes in our concentration of credit risk.
 
10.   Segment Information
 
Atmos Energy Corporation and our subsidiaries are engaged primarily in the natural gas utility business as well as certain nonutility businesses. We distribute natural gas through sales and transportation arrangements to approximately 3.2 million residential, commercial, public authority and industrial customers throughout our six regulated utility divisions, which cover service areas located in 12 states. In addition, we transport natural gas for others through our distribution system.
 
Through our nonutility businesses we provide natural gas management and marketing services to industrial customers, municipalities and other local distribution companies located in 22 states. Additionally, we provide natural gas transportation and storage services to certain of our utility operations and to third parties.
 
Our operations are divided into four segments:
 
  •  the utility segment, which includes our regulated natural gas distribution and related sales operations,
 
  •  the natural gas marketing segment, which includes a variety of nonregulated natural gas management services,
 
  •  the pipeline and storage segment, which includes our regulated and nonregulated natural gas transmission and storage services and
 
  •  the other nonutility segment, which includes all of our other nonregulated nonutility operations.
 
Our determination of reportable segments considers the strategic operating units under which we manage sales of various products and services to customers in differing regulatory environments. Although our utility segment operations are geographically dispersed, they are reported as a single segment as each utility division has similar economic characteristics. The accounting policies of the segments are the same as those described in the summary of significant accounting policies found in our annual report on Form 10-K for the fiscal year ended September 30, 2006. We evaluate performance based on net income or loss of the respective operating units.


19


 
ATMOS ENERGY CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
Income statements for the three and six-month periods ended March 31, 2007 and 2006 by segment are presented in the following tables:
 
                                                 
    Three Months Ended March 31, 2007  
                Pipeline
                   
          Natural Gas
    and
    Other
             
    Utility     Marketing     Storage     Nonutility     Eliminations     Consolidated  
    (In thousands)  
 
Operating revenues from external parties
  $ 1,460,861     $ 583,269     $ 31,055     $ 397     $     $ 2,075,582  
Intersegment revenues
    172       211,772       28,307       386       (240,637 )      
                                                 
      1,461,033       795,041       59,362       783       (240,637 )     2,075,582  
Purchased gas cost
    1,114,787       771,988       229             (240,108 )     1,646,896  
                                                 
Gross profit
    346,246       23,053       59,133       783       (529 )     428,686  
Operating expenses
                                               
Operation and maintenance
    92,328       6,590       12,801       758       (615 )     111,862  
Depreciation and amortization
    45,904       448       4,682       32             51,066  
Taxes, other than income
    53,665       407       2,619       55             56,746  
                                                 
Total operating expenses
    191,897       7,445       20,102       845       (615 )     219,674  
                                                 
Operating income (loss)
    154,349       15,608       39,031       (62 )     86       209,012  
Miscellaneous income
    2,621       2,522       829       448       (4,582 )     1,838  
Interest charges
    29,704       379       9,036       639       (4,496 )     35,262  
                                                 
Income (loss) before income taxes
    127,266       17,751       30,824       (253 )           175,588  
Income tax expense (benefit)
    50,946       6,720       11,515       (98 )           69,083  
                                                 
Net income (loss)
  $ 76,320     $ 11,031     $ 19,309     $ (155 )   $     $ 106,505  
                                                 
Capital expenditures
  $ 71,278     $ 312     $ 14,216     $     $     $ 85,806  
                                                 
 


20


ATMOS ENERGY CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

                                                 
    Three Months Ended March 31, 2006  
                Pipeline
                   
          Natural Gas
    and
    Other
             
    Utility     Marketing     Storage     Nonutility     Eliminations     Consolidated  
    (In thousands)  
 
Operating revenues from external parties
  $ 1,447,376     $ 564,737     $ 21,238     $ 495     $     $ 2,033,846  
Intersegment revenues
    244       253,892       24,245       1,100       (279,481 )      
                                                 
      1,447,620       818,629       45,483       1,595       (279,481 )     2,033,846  
Purchased gas cost
    1,131,885       774,652       211             (278,305 )     1,628,443  
                                                 
Gross profit
    315,735       43,977       45,272       1,595       (1,176 )     405,403  
Operating expenses
                                               
Operation and maintenance
    94,363       5,821       12,363       1,361       (1,210 )     112,698  
Depreciation and amortization
    41,907       475       4,669       25             47,076  
Taxes, other than income
    61,701       348       2,654       93             64,796  
                                                 
Total operating expenses
    197,971       6,644       19,686       1,479       (1,210 )     224,570  
                                                 
Operating income
    117,764       37,333       25,586       116       34       180,833  
Miscellaneous income (expense)
    155       608       132       1,183       (4,517 )     (2,439 )
Interest charges
    30,303       1,997       6,621       1,054       (4,483 )     35,492  
                                                 
Income before income taxes
    87,616       35,944       19,097       245             142,902  
Income tax expense
    32,988       14,012       7,010       96             54,106  
                                                 
Net income
  $ 54,628     $ 21,932     $ 12,087     $ 149     $     $ 88,796  
                                                 
Capital expenditures
  $ 83,749     $ 235     $ 26,781     $     $     $ 110,765  
                                                 
 

21


ATMOS ENERGY CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

                                                 
    Six Months Ended March 31, 2007  
                Pipeline
                   
          Natural Gas
    and
    Other
             
    Utility     Marketing     Storage     Nonutility     Eliminations     Consolidated  
    (In thousands)  
 
Operating revenues from external parties
  $ 2,424,944     $ 1,194,638     $ 57,830     $ 803     $     $ 3,678,215  
Intersegment revenues
    333       312,097       51,384       1,333       (365,147 )      
                                                 
      2,425,277       1,506,735       109,214       2,136       (365,147 )     3,678,215  
Purchased gas cost
    1,816,463       1,420,548       454             (363,528 )     2,873,937  
                                                 
Gross profit
    608,814       86,187       108,760       2,136       (1,619 )     804,278  
Operating expenses
                                               
Operation and maintenance
    190,441       12,168       24,417       1,997       (1,791 )     227,232  
Depreciation and amortization
    89,626       777       9,600       58             100,061  
Taxes, other than income
    91,287       656       4,746       124             96,813  
                                                 
Total operating expenses
    371,354       13,601       38,763       2,179       (1,791 )     424,106  
                                                 
Operating income (loss)
    237,460       72,586       69,997       (43 )     172       380,172  
Miscellaneous income
    4,401       4,238       1,605       901       (7,728 )     3,417  
Interest charges
    62,177       1,406       17,457       1,310       (7,556 )     74,794  
                                                 
Income (loss) before income taxes
    179,684       75,418       54,145       (452 )           308,795  
Income tax expense (benefit)
    71,530       29,440       20,236       (177 )           121,029  
                                                 
Net income (loss)
  $ 108,154     $ 45,978     $ 33,909     $ (275 )   $     $ 187,766  
                                                 
Capital expenditures
  $ 143,697     $ 650     $ 28,445     $     $     $ 172,792  
                                                 
 

22


ATMOS ENERGY CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

                                                 
    Six Months Ended March 31, 2006  
          Natural Gas
    Pipeline
    Other
             
    Utility     Marketing     and Storage     Nonutility     Eliminations     Consolidated  
    (In thousands)  
 
Operating revenues from external parties
  $ 2,852,182     $ 1,425,350     $ 39,119     $ 1,015     $     $ 4,317,666  
Intersegment revenues
    448       495,124       46,076       2,072       (543,720 )      
                                                 
      2,852,630       1,920,474       85,195       3,087       (543,720 )     4,317,666  
Purchased gas cost
    2,256,714       1,850,178       211             (541,430 )     3,565,673  
                                                 
Gross profit
    595,916       70,296       84,984       3,087       (2,290 )     751,993  
Operating expenses
                                               
Operation and maintenance
    187,129       10,173       23,361       2,626       (2,374 )     220,915  
Depreciation and amortization
    80,171       945       9,171       49             90,336  
Taxes, other than income
    104,603       591       4,814       204             110,212  
                                                 
Total operating expenses
    371,903       11,709       37,346       2,879       (2,374 )     421,463  
                                                 
Operating income
    224,013       58,587       47,638       208       84       330,530  
Miscellaneous income (expense)
    2,992       1,198       1,537       1,844       (9,562 )     (1,991 )
Interest charges
    61,891       4,859       12,594       1,815       (9,478 )     71,681  
                                                 
Income before income taxes
    165,114       54,926       36,581       237             256,858  
Income tax expense
    62,073       21,542       13,327       93             97,035  
                                                 
Net income
  $ 103,041     $ 33,384     $ 23,254     $ 144     $     $ 159,823  
                                                 
Capital expenditures
  $ 156,164     $ 567     $ 56,499     $     $     $ 213,230  
                                                 

23


 
ATMOS ENERGY CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Balance sheet information at March 31, 2007 and September 30, 2006 by segment is presented in the following tables:
 
                                                 
    March 31, 2007  
          Natural
    Pipeline
                   
          Gas
    and
    Other
             
    Utility     Marketing     Storage     Nonutility     Eliminations     Consolidated  
    (In thousands)  
 
ASSETS
Property, plant and equipment, net
  $ 3,146,950     $ 7,788     $ 555,860     $ 1,232     $     $ 3,711,830  
Investment in subsidiaries
    385,776       (2,106 )                 (383,670 )      
Current assets
                                               
Cash and cash equivalents
    48,611       51,061       80       76,528             176,280  
Cash held on deposit in margin account
          40,763                         40,763  
Assets from risk management activities
    3,804       2,013                   (1,305 )     4,512  
Other current assets
    714,663       489,577       26,510       8,996       (31,884 )     1,207,862  
Intercompany receivables
    572,757                         (572,757 )      
                                                 
Total current assets
    1,339,835       583,414       26,590       85,524       (605,946 )     1,429,417  
Intangible assets
          2,848                         2,848  
Goodwill
    567,221       24,282       143,866                   735,369  
Noncurrent assets from risk management activities
          7,105                         7,105  
Deferred charges and other assets
    200,728       1,327       5,044       15,430             222,529  
                                                 
    $ 5,640,510     $ 624,658     $ 731,360     $ 102,186     $ (989,616 )   $ 6,109,098  
                                                 
CAPITALIZATION AND LIABILITIES
                                               
Shareholders’ equity
  $ 2,021,953     $ 170,055     $ 132,357     $ 83,364     $ (385,776 )   $ 2,021,953  
Long-term debt
    1,875,445                   2,886             1,878,331  
                                                 
Total capitalization
    3,897,398       170,055       132,357       86,250       (385,776 )     3,900,284  
Current liabilities
                                               
Current maturities of long-term debt
    301,250                   1,982             303,232  
Short-term debt
                                   
Liabilities from risk management activities
    2       32,278       1,396             (1,305 )     32,371  
Other current liabilities
    657,611       328,298       98,096             (29,778 )     1,054,227  
Intercompany payables
          97,748       467,660       7,349       (572,757 )      
                                                 
Total current liabilities
    958,863       458,324       567,152       9,331       (603,840 )     1,389,830  
De