Atmos Energy (ATO) Q4 2005 earnings summary

Executive summary

• FY05 net income rose to $135.8M from $86.2M; diluted EPS was $1.72 vs. $1.58, with the TXU Gas acquisition and stronger storage results driving growth.

• Acquisition contribution was partly offset by weather 11% warmer than normal, reducing net income by $22.8M, and Hurricane Katrina, reducing it by $3.8M.

• Acquired Mid-Tex and Texas pipeline operations materially expanded the business; results include those operations from Oct. 1, 2004.

Financial highlights

• Revenue was $4.973B, gross profit $1.129B, and operating income $348.7M in FY05, versus $2.920B, $562.2M, and $193.7M in FY04.

• Net income was $135.8M; interest charges were $132.7M and income tax expense was $82.2M. FY04 included a $5.9M pretax gain on propane-related asset sales.

• Operating cash flow increased to $386.9M from $270.7M; capital expenditures rose to $333.2M from $190.3M.

• Year-end assets were $5.654B, net PP&E $3.374B, and shareholders’ equity $1.602B.

Outlook and guidance

• FY06 pension and postretirement costs expected to increase by ~$15M due to actuarial assumption changes; no minimum pension contribution or voluntary contribution was planned, while postretirement contributions of ~$11.9M were expected.

• Higher natural gas prices following recent disasters were expected to increase FY06 short-term borrowing, accounts receivable, and bad-debt expense.

• Management targeted reducing the capitalization ratio to 50%–55% within 3–5 years through operating cash flow, equity issuance, capital-market access, and lower annual maintenance and capital spending.

• Storage optimization forecast a $13.0M gross margin; net unrealized losses of $14.8M implied a projected $27.8M future margin increase, contingent on execution, weather, and operating conditions.