10-Q 1 0001.txt ATMOS ENERGY CORP 10-Q FOR QE 6/30/2000 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 OR [ ] 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 (IRS Employer incorporation or organization) Identification No.) 1800 Three Lincoln Centre 5430 LBJ Freeway, Dallas, Texas 75240 (Address of principal executive offices) (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 X No Number of shares outstanding of each of the issuer's classes of common stock, as of July 31, 2000. Class Shares Outstanding ----- ------------------ No Par Value 31,794,899 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements ATMOS ENERGY CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands) June 30, September 30, 2000 1999 ----------- ------------- ASSETS Property, plant and equipment $1,585,824 $1,549,258 Less accum. depreciation and amort. 585,350 583,476 ---------- ---------- Net property, plant and equipment 1,000,474 965,782 Current assets Cash and cash equivalents 8,148 8,585 Accounts receivable, net 83,657 70,564 Inventories of supplies and mdse. 8,509 8,209 Gas stored underground 30,576 44,653 Prepayments 2,304 3,142 ---------- ---------- Total current assets 133,194 135,153 Deferred charges and other assets 143,561 129,602 ---------- ---------- $1,277,229 $1,230,537 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Shareholders' equity Common stock $ 159 $ 156 Additional paid-in capital 302,833 293,359 Retained earnings 95,801 83,231 Accumulated other comprehensive income 1,946 917 ---------- ---------- Shareholders' equity 400,739 377,663 Long-term debt 368,781 377,483 ---------- ---------- Total capitalization 769,520 755,146 Current liabilities Current maturities of long-term debt 15,688 17,848 Short-term debt 163,882 168,304 Accounts payable 65,998 64,167 Taxes payable 17,275 848 Customers' deposits 8,471 9,657 Other current liabilities 33,742 25,951 ---------- ---------- Total current liabilities 305,056 286,775 Deferred income taxes 123,741 112,610 Deferred credits and other liabilities 78,912 76,006 ---------- ---------- $1,277,229 $1,230,537 ========== ========== See accompanying notes to condensed consolidated financial statements. ATMOS ENERGY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share data) Three months ended June 30, ------------------------- 2000 1999 -------- -------- Operating revenues $152,362 $109,590 Purchased gas cost 92,332 56,214 -------- -------- Gross profit 60,030 53,376 Operating expenses Operation 38,511 29,796 Maintenance 1,611 2,342 Depreciation and amortization 15,138 14,043 Taxes, other than income 7,114 6,783 -------- -------- Total operating expenses 62,374 52,964 -------- -------- Operating income (loss) (2,344) 412 Other income 4,794 1,126 Interest charges, net 10,164 9,689 -------- -------- Loss before income taxes (7,714) (8,151) Income tax benefit (3,318) (2,856) -------- -------- Net loss $ (4,396) $ (5,295) ======== ======== Basic and diluted net loss per share $ (.14) $ (.17) ======== ======== Cash dividends per share $ .285 $ .275 ======== ======== Weighted average shares outstanding - Basic and diluted 31,501 30,669 ======== ======== See accompanying notes to condensed consolidated financial statements. ATMOS ENERGY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share data) Nine months ended June 30, ------------------------ 2000 1999 -------- -------- Operating revenues $691,017 $581,243 Purchased gas cost 423,310 324,264 -------- -------- Gross profit 267,707 256,979 Operating expenses Operation 106,202 103,236 Maintenance 5,798 6,169 Depreciation and amortization 48,128 41,443 Taxes, other than income 23,795 23,188 -------- -------- Total operating expenses 183,923 174,036 -------- -------- Operating income 83,784 82,943 Other income 10,440 5,201 Interest charges, net 32,408 26,928 -------- -------- Income before income taxes 61,816 61,216 Income taxes 22,315 22,336 -------- -------- Net income $ 39,501 $ 38,880 ======== ======== Basic net income per share $ 1.26 $ 1.28 ======== ======== Diluted net income per share $ 1.25 $ 1.27 ======== ======== Cash dividends per share $ .855 $ .825 ======== ======== Weighted average shares outstanding: Basic 31,363 30,464 ======== ======== Diluted 31,510 30,710 ======== ======== See accompanying notes to condensed consolidated financial statements. ATMOS ENERGY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) Nine months ended June 30, ----------------------- 2000 1999 ------- ------- Cash Flows From Operating Activities Net income $39,501 $38,880 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization: Charged to depreciation and amortization 48,128 41,443 Charged to other accounts 2,296 3,024 Deferred income taxes 10,545 6,270 Net change in operating assets and liabilities 16,947 17,134 ------- -------- Net cash provided by operating activities 117,417 106,751 Cash Flows From Investing Activities Acquisition of Missouri assets of ANG (32,000) - Capital expenditures (54,347) (79,782) Retirements of property, plant and equipment 1,231 4,215 ------- -------- Net cash used in investing activities (85,116) (75,567) Cash Flows From Financing Activities Net increase (decrease) in short-term debt (4,422) 43,828 Cash dividends paid (26,931) (25,327) Repayment of long-term debt (10,862) (56,724) Issuance of common stock 9,477 16,745 ------- -------- Net cash used in financing activities (32,738) (21,478) ------- -------- Net increase (decrease) in cash and cash equivalents (437) 9,706 Cash and cash equivalents at beginning of period 8,585 4,735 ------- -------- Cash and cash equivalents at end of period $ 8,148 $14,441 ======= ======== See accompanying notes to condensed consolidated financial statements. ATMOS ENERGY CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2000 1. Unaudited interim financial information In the opinion of management, all material adjustments necessary for a fair presentation have been made to the unaudited interim period financial statements. Such adjustments consisted only of normal recurring accruals. Because of seasonal and other factors, the results of operations for the nine month period ended June 30, 2000 are not indicative of expected results of operations for the year ending September 30, 2000. These interim financial statements and notes are condensed as permitted by the instructions to Form 10-Q, and should be read in conjunction with the audited consolidated financial statements of Atmos Energy Corporation ("Atmos" or the "Company") in its 1999 Annual Report on Form 10-K. Common stock - As of June 30, 2000, the Company had 100,000,000 shares of common stock, no par value (stated at $.005 per share), authorized and 31,744,953 shares outstanding. At September 30, 1999, the Company had 31,247,800 shares outstanding. Comprehensive income - The following table presents the components of comprehensive income, net of related tax, for the three-month and nine-month periods ended June 30, 2000. Three months ended Nine months ended June 30, 2000 June 30, 2000 ------------------ ---------------- (In thousands) Net income (loss) $(4,396) $39,501 Unrealized holding gains (losses) on investments (807) 1,029 ------- ------- Comprehensive income (loss) $(5,203) $40,530 ======= ======= The only component of accumulated other comprehensive income, net of related tax, at June 30, 2000, relates to unrealized gains and losses associated with certain available for sale investments. Reclassifications - Certain prior year amounts have been reclassified to conform with the current year presentation. 2. Rates The Company's ratemaking activity over the three-year period ended September 30, 1999 was discussed in Note 3 of notes to consolidated financial statements in the Company's Form 10-K for the year ended September 30, 1999. New developments in ratemaking activity since September 30, 1999 are discussed below. In December 1999, the Kentucky Public Service Commission ("KPSC") granted an increase in annual revenues of approximately $9.9 million to the Western Kentucky Division. The new rates were effective for services rendered on or after December 21, 1999. In addition, the KPSC approved a five-year pilot program for weather normalization beginning in November 2000. In August 1999, the Energas Division filed rate cases in its West Texas System cities and Amarillo, Texas, requesting rate increases of approximately $9.8 million and $4.4 million, respectively. The Energas Division received an increase in annual revenues of approximately $2.1 million in base rates plus an increase of $.1 million in service charges in Amarillo, Texas, effective for bills rendered on or after January 1, 2000. The agreement also provided for changes in rate structure to reduce the impact of warmer than normal weather and to improve the recovery of the actual cost of service calls. The Energas Division's request for an annual increase of approximately $9.8 million from the 67 cities served by its West Texas System could not be settled. In March 2000, it was appealed to the Railroad Commission of Texas. Subsequently, 59 cities representing approximately 58% of Energas' customers ratified a non-binding Settlement Agreement. Eight cities, including Lubbock, Texas, declined and a hearing date with the Railroad Commission of Texas has been set for August 28, 2000. The hearing is expected to conclude in September with a final resolution expected in December 2000. The Settlement Agreement caps the rate increase at $3.0 million and entitles the ratifying cities to accept a rate increase below $3.0 million in the event the Commission adopts a lesser increase for the non-ratifying cities. At this time, management cannot predict the outcome of this rate proceeding. In February 2000, the United Cities Gas Division filed a rate case in Illinois with the Illinois Commerce Commission requesting an increase in revenues of approximately $3.1 million. After review by the Illinois Commerce Commission of the original rate increase, the amount requested was revised to approximately $2.1 million. In July 2000, the Staff of the Illinois Commerce Commission entered into a settlement which would grant an increase in annual revenues of approximately $1.4 million. The Commission will address the settlement in September 2000 and, if approved, the new rates would be effective in October 2000. The new rates would be collected primarily through an increase in customer charges. In March 2000, the Company filed a rate case in Virginia with the State Corporation Commission of the Commonweath of Virginia requesting an increase in revenues of approximately $2.3 million. The State Corporation Commission of Virginia has reviewed the filing to determine if it meets the appropriate rules and regulations. In July 2000, the Company refiled the case requesting an increase in revenues of approximately $2.1 million. The Commission accepted the revised filing and will have five months to make the final decision. The Company expects the new rates to be effective in December 2000. At this time, management cannot predict the outcome of this rate proceeding. 3. Contingencies Litigation Greeley Division In Colorado, the Greeley Division has been a defendant in several lawsuits filed as a result of a fire in a building in Steamboat Springs, Colorado on February 3, 1994. The plaintiffs claimed that the fire resulted from a leak in a severed gas service line owned by the Greeley Division. On January 12, 1996, the jury awarded the plaintiffs approximately $2.5 million in compensatory damages and approximately $2.5 million in punitive damages. The jury assessed the Company with liability for all of the damages awarded. The Company appealed the judgment to the Colorado Court of Appeals, which reversed the trial court verdict and ordered a new trial. The Colorado Supreme Court upheld the Court of Appeals reversal and order for a new trial. As previously reported, as a result of mediation, a settlement had been reached with five of the claimants, leaving only three remaining claimants with aggregate claims of approximately $2.0 million. On April 7, 2000, as a result of mediation, the Company agreed to settle with the three remaining claimants for an aggregate total of $1.5 million, which amounts have been paid by the Company's insurance carrier, thus effectively concluding this litigation against the Company. On September 23, 1999, a suit was filed in the District Court of Stevens County, Kansas, by Quinque Operating Company, Tom Boles and Robert Ditto, against more than 200 companies in the natural gas industry, including the Company and the Greeley Gas Division. The plaintiffs, who purport to represent a class consisting of gas producers, royalty owners, overriding royalty owners, working interest owners and state taxing authorities, accuse the defendants of underpaying royalties on gas taken from wells situated on non-federal and non-Indian lands throughout the United States and offshore waters predicated upon allegations that the defendants' gas measurements are simply inaccurate and that the defendants failed to comply with applicable regulations and industry standards over the last 25 years. Although the plaintiffs do not specifically allege an amount of damages, they contend that this suit is brought to recover billions of dollars in revenues that the defendants have allegedly unlawfully diverted from the plaintiffs to themselves. On April 10, 2000, this case was consolidated for pre-trial proceedings with other similar pending litigation in federal court in Wyoming in which the Company is also a defendant along with over 200 other defendants in the case of In Re Natural Gas Royalties Quitam Litigation. The Company believes that the plaintiffs' claims are lacking in merit and intends to vigorously defend this action. However, the Company cannot assess, at this time, the likelihood of whether or not the plaintiffs may prevail on any one or more of their asserted claims. In any event, the Company does not expect the final outcome of this case to have a material adverse effect on the financial condition, the results of operations or the net cash flows of the Company because the Company believes that it has adequate reserves to cover any damages that may ultimately be awarded. United Cities Propane Gas, Inc. United Cities Propane Gas, Inc., a wholly-owned subsidiary of the Company, is a party to an action filed June 19, 2000, styled Michael and Joan Szirovecz vs. Randall E. Ussery d/b/a Ussery Construction Company, et al., pending in the Circuit Court of Sevier County, Tennessee. The Plaintiffs' claims arise out of injuries sustained in September 1999 during the collapse of a cabin down the side of a mountain near Sevierville, Tennessee, that is alleged to have been caused by a low-level propane explosion. The Plaintiffs seek to recover damages of $13.0 million. The Company denies any wrongdoing and intends to vigorously defend against the Plaintiffs' claims. The Company does not expect the final outcome of this case to have a material adverse effect on the financial condition, the results of operations or the net cash flows of the Company because the Company believes that it has adequate insurance coverage for any damages that may be ultimately awarded. The Company is a party to other litigation matters and claims that arise out of the ordinary business of the Company. While the results of these litigation matters and claims cannot be predicted with certainty, the Company does not believe the final outcome of such litigation and claims will have a material adverse effect on the financial condition, the results of operations or the cash flows of the Company because the Company believes that it has adequate insurance and reserves to cover any damages that may ultimately be awarded. Environmental Matters The United Cities Division is the owner or previous owner of manufactured gas plant sites in Keokuk, Iowa; Johnson City and Bristol, Tennessee; and Hannibal, Missouri, which were used to supply gas prior to availability of natural gas. The gas manufacturing process resulted in certain by-products and residual materials including coal tar. The manufacturing process used by the Company was an acceptable and satisfactory process at the time such operations were being conducted. Under current environmental protection laws and regulations, the Company may be responsible for response actions with respect to such materials, if response actions are necessary. As of June 30, 2000, the Company had accrued and deferred for recovery $1.1 million, including $258,000 that was incurred for an insurance recoverability study, and $750,000 for the investigations of the Johnson City and Bristol, Tennessee and Hannibal, Missouri sites. As of June 30, 2000, the Company has incurred costs of approximately $631,000 for these sites. Tennessee sites United Cities Gas Company ("UCGC") and the Tennessee Department of Environment and Conservation ("TDEC") entered into a consent order effective January 23, 1997, for the purpose of facilitating the investigation, removal and remediation of the Johnson City site. UCGC began the implementation of the consent order in the first quarter of 1997, which continued through June 30, 2000. The investigative phase of the work at the site has been completed. The Company is unaware of any information that suggests the Bristol site would give rise to a present health or environmental risk as a result of the manufactured gas process or that any response action will be necessary. The Tennessee Regulatory Authority granted UCGC permission to defer, until its next rate case, all costs incurred in Tennessee in connection with state and federally mandated environmental control requirements. The Company is a party to other environmental matters and claims that arise out of the ordinary business of the Company. While the ultimate results of response actions to these environmental matters and claims cannot be predicted with certainty, the Company does not believe the final outcome of such response actions will have a material adverse effect on the financial condition, the results of operations or the cash flows of the Company because the Company believes that the expenditures related to such response actions will either be recovered through rates, shared with other parties, or covered by adequate insurance or reserves. 4. Short-term debt At June 30, 2000, short-term debt was composed of $148.3 million of commercial paper and $15.6 million outstanding under bank credit facilities. The Company has two short-term committed credit facilities. One short-term unsecured credit facility, which serves as a backup liquidity facility for the Company's commercial paper program, is for $250.0 million. No amounts were outstanding under this facility at June 30, 2000. A second facility is for $15.0 million with $15.0 million outstanding at June 30, 2000. The Company also has unsecured short-term uncommitted credit lines totaling $70.0 million. The Company had $.6 million outstanding under these lines at June 30, 2000. The Company has a $250.0 million commercial paper program that is supported by the $250.0 million committed line of credit as described above. On August 3, 2000, the Company entered into a $485.0 million short-term unsecured credit facility with interest starting at LIBOR plus 75 basis points which will provide $385.0 million of bridge financing for the Louisiana acquisition and $100.0 million for refinancing certain existing debt. On the same date, the Company entered into a $300.0 million credit facility which replaces its $250.0 million short-term unsecured credit facility. 5. Statements of cash flows Supplemental disclosures of cash flow information for the nine- month periods ended June 30, 2000 and 1999 are presented below. Nine months ended June 30, ---------------------- 2000 1999 ------- ------ (In thousands) Cash paid (received) for Interest $35,902 $32,019 Income taxes (6,240) 14,324 6. Earnings per share Basic earnings per share has been computed by dividing net income available to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share has been computed by dividing net income available to common stockholders for the period by the weighted average number of common shares outstanding during the period adjusted for the assumed exercise of restricted stock and other contingently issuable shares of common stock. Net income (loss) for basic and diluted earnings per share are the same, as there are no contingently issuable shares of stock whose issuance would have impacted net income. A reconciliation between basic and diluted weighted average common shares outstanding follows: For the three months ended June 30, -------------------------- 2000 1999 ------ ------ (Thousands of shares) Weighted average common shares - basic 31,501 30,669 Effect of dilutive securities: Restricted stock - - Stock options - - ------ ------ Weighted average common shares - assuming dilution 31,501 30,669 ====== ====== For the nine months ended June 30, -------------------------- 2000 1999 ------ ------ (Thousands of shares) Weighted average common shares - basic 31,363 30,464 Effect of dilutive securities: Restricted stock 138 236 Stock options 9 10 ------ ------ Weighted average common shares - assuming dilution 31,510 30,710 ====== ====== 7. Segment Information In accordance with Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information", the Company has identified the following three segments: Utility, Propane and Energy Services. For a more complete description of these segments, please refer to Note 1 of notes to consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended September 30, 1999. Summarized financial information concerning the Company's reportable segments for the three months and nine months ended June 30, 2000 and 1999 is shown in the following table: Energy Utility Propane Services Total ---------- ------- -------- -------- (In thousands) For the three months ended June 30, 2000: ------------------- Operating revenues $ 127,142 $ 1,954 $25,310 $ 154,406 Intersegment revenues 1,158 - 886 2,044 Net income (loss) (7,023) (1,714) 4,341 (4,396) Energy Utility Propane Services Total ---------- ------- -------- -------- (In thousands) For the three months ended June 30, 1999: ------------------- Operating revenues $ 96,668 $ 1,775 $11,988 $ 110,431 Intersegment revenues 841 - - 841 Net income (loss) (5,074) (1,706) 1,485 (5,295) Energy Utility Propane Services Total ---------- ------- -------- -------- (In thousands) As of and for the nine months ended June 30 2000: ------------------- Operating revenues $ 620,360 $21,395 $54,377 $ 696,132 Intersegment revenues 2,462 - 2,653 5,115 Net income (loss) 30,566 (325) 9,260 39,501 Total assets 1,179,329 14,030 100,429 1,293,788 Energy Utility Propane Services Total ---------- ------- -------- -------- (In thousands) As of and for the nine months ended June 30, 1999: ------------------- Operating revenues $ 533,152 $19,096 $31,084 $ 583,332 Intersegment revenues 2,089 - - 2,089 Net income 34,215 11 4,654 38,880 Total assets 1,098,589 16,592 79,391 1,194,572 The following tables present a reconciliation of the operating revenues by segment to total consolidated revenues for the three months and nine months ended June 30, 2000 and 1999. Three months ended June 30, -------------------- 2000 1999 -------- -------- (In thousands) Total revenues for reportable segments $154,406 $110,431 Elimination of intersegment revenues (2,044) (841) -------- -------- Total consolidated operating revenues $152,362 $109,590 ======== ======== Nine months ended June 30, -------------------- 2000 1999 -------- -------- (In thousands) Total revenues for reportable segments $696,132 $583,332 Elimination of intersegment revenues (5,115) (2,089) -------- -------- Total consolidated operating revenues $691,017 $581,243 ======== ======== A reconciliation of total assets for the reportable segments to total consolidated assets for June 30, 2000 and 1999 is presented below. June 30, ---------------------- 2000 1999 ---------- ---------- (In thousands) Total assets for reportable segments $1,293,788 $1,194,572 Elimination of intercompany receivables (16,559) (16,568) ---------- ---------- Total consolidated assets $1,277,229 $1,178,004 ========== ========== 8. Related party transactions Atmos owns a 45% interest in Woodward Marketing, LLC, a limited liability company headquartered in Houston, Texas, which is engaged in gas marketing and energy services. The Company holds its interest in WMLLC through its ownership of Atmos Energy Marketing, LLC. Included in purchased gas cost were purchases from WMLLC of approximately $55.9 million and $24.8 million for the three-month periods ended June 30, 2000 and 1999, respectively, and approximately $154.6 million and $76.7 million for the nine-month periods ended June 30, 2000 and 1999, respectively. In addition, WMLLC has a revolving credit facility with Atmos Energy Marketing, LLC whereby WMLLC may borrow up to $15.0 million on a revolving credit basis. At June 30, 2000, $1.5 million was outstanding under the credit facility. 9. Acquisition of Missouri assets On May 31, 2000, the Company completed the acquisition of the Missouri natural gas distribution assets of Associated Natural Gas, a division of Arkansas Western Gas, a wholly owned subsidiary of Southwestern Energy Company. The Company paid $32.0 million in cash to acquire this distribution system, which serves approximately 48,000 customers. 10. Subsequent events Subsequent to June 30, 2000, the Company entered into an agreement to purchase weather hedges for its Texas and Louisiana operations effective for the 2000-2001 heating season. The hedges provide protection against weather that is at least seven percent warmer than normal in both Texas and Louisiana while preserving any upside. The hedges also allow for an adjustment in weighting between Louisiana and Texas related to the timing of the closing of the Louisiana acquisition. Subsequent to June 30, 2000, the Company announced that it will acquire from Woodward Marketing, Inc., the remaining 55% interest in Woodward Marketing, LLC in exchange for 1,423,193 shares of the Company's stock, valued at approximately $33.3 million. Of the 1,423,193 shares to be issued, 960,000 shares are subject to adjustment if the Company's share price does not reach $25 per share for any 30 consecutive trading days over a five-year period from the date of closing. This acquisition will require approval in six of the 13 states in which the Company operates. INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors Atmos Energy Corporation We have reviewed the accompanying condensed consolidated balance sheet of Atmos Energy Corporation as of June 30, 2000, and the related condensed consolidated statements of income and cash flows for the three-month and nine-month periods ended June 30, 2000 and 1999. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States. We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of Atmos Energy Corporation as of September 30, 1999, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended (not presented herein) and in our report dated November 9, 1999, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 1999, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. ERNST & YOUNG LLP Dallas, Texas July 27, 2000 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction The following discussion should be read in conjunction with the condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q and Management's Discussion and Analysis contained in the Company's 1999 Annual Report to Shareholders and the Company's Annual Report on Form 10-K for the year ended September 30, 1999. The Company distributes and sells natural gas and propane to residential, commercial, industrial and agricultural customers in thirteen states. Such business is subject to regulation by state and/or local authorities in each of the states in which the Company operates. In addition, the Company's business is affected by seasonal weather patterns, competitive factors within the energy industry, and economic conditions in the areas that the Company serves. Cautionary Statement under the Private Securities Litigation Reform Act of 1995 The matters discussed or incorporated by reference in this Quarterly Report on Form 10-Q may contain "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts included in this Quarterly Report including, but not limited to, those contained in the following sections, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations", and Note 3 to condensed consolidated financial statements, regarding the Company's financial position, business strategy and plans and objectives of management of the Company for future operations, are forward-looking statements made in good faith by the Company and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. When used in this Report or in any of the Company's other documents or oral presentations, the words "anticipate," "expect," "estimate," "plans," "believes," "objective," "forecast," "goal" or similar words are intended to identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the statements relating to the Company's operations, markets, services, rates, recovery of costs, availability of gas supply, and other factors. These risks and uncertainties include, but are not limited to, national, regional and local economic competitive conditions, regulatory and business trends and decisions, technological developments, inflation rates, weather conditions, and other uncertainties, all of which are difficult to predict and many of which are beyond the control of the Company. Accordingly, while the Company believes that the expectations reflected in the forward-looking statements are reasonable, there can be no assurance that such expectations will be realized or will approximate actual results. Ratemaking Activity During the nine months ended June 30, 2000, the Western Kentucky Division received a rate increase in Kentucky of approximately $9.9 million in annual revenues, effective December 21, 1999, and a five-year weather normalization pilot program beginning in November 2000. The Energas Division received an increase in annual revenues of approximately $2.1 million in base rates plus an increase of $.1 million in service charges in Amarillo, Texas, effective for bills rendered on or after January 1, 2000. The agreement also provided for changes in rate structure to reduce the impact of warmer than normal weather and to improve the recovery of the actual cost of service calls. The Energas Division's request for an annual increase of approximately $9.8 million from the 67 cities served by its West Texas System could not be settled. In March 2000, it was appealed to the Railroad Commission of Texas. Subsequently, 59 cities representing approximately 58% of Energas' customers ratified a non-binding Settlement Agreement. Eight cities, including Lubbock, Texas, declined and a hearing date with the Railroad Commission of Texas has been set for August 28, 2000. The hearing is expected to conclude in September with a final resolution expected in December 2000. The Settlement Agreement caps the rate increase at $3.0 million and entitles the ratifying cities to accept a rate increase below $3.0 million in the event the Commission adopts a lesser increase for the non-ratifying cities. In February 2000, the United Cities Gas Division filed a rate case in Illinois for approximately $3.1 million. It was subsequently lowered to approximately $2.1 million and final approval of a settlement with the Commission Staff for $1.4 million is expected in September 2000. It would be collected primarily through an increased customer charge and is expected to be effective October 1, 2000. In March 2000, the Company filed a rate case in Virginia for approximately $2.3 million. Upon completion of review by the Virginia Commission, the Company revised its case to approximately $2.1 million. It was accepted by the Commission in July 2000 and a decision is required within five months. For further information regarding rate activity, see Note 2 of notes to condensed consolidated financial statements. The Company continues to monitor rates in all its service areas for recovery of its service costs and an adequate return on its investment. Weather and Seasonality The Company's natural gas and propane distribution businesses are seasonal due to weather conditions in the Company's service areas. Sales are affected by winter heating season requirements. This generally results in higher operating revenues and net income during the period from October through March of each year and lower operating revenues and either net losses or lower net income during the period from April through September of each year. Sales to agricultural customers (who use natural gas as fuel in the operation of irrigation pumps) during the period from April through September are affected by rainfall amounts. Weather for the nine months ended June 30, 2000 was 19% warmer than normal and 3% warmer than weather in the corresponding period of the prior year. The Company estimates that the decreased sales to weather sensitive customers reduced net income for the nine months ended June 30, 2000 by approximately $28.4 million or $.90 per diluted share less than it would have been had the Company experienced normal temperatures and rainfall in its respective service areas. The Company has weather normalization adjustments ("WNAs") in Georgia and Tennessee, where it serves approximately 186,000 customers or approximately 18% of the Company's total customers and revenues. The WNAs increase the base rate when weather is warmer than normal and decrease the base rate when weather is colder than normal. The effect of the WNAs was to increase revenues by approximately $4.1 million for the nine months ended June 30, 2000, as compared with an increase of approximately $4.4 million for the nine months ended June 30, 1999. The Company did not have WNAs in its other service areas during the nine months ended June 30, 2000. In July 2000, the Company entered into an agreement to purchase weather hedges for its Texas and Louisiana operations effective for the 2000-2001 heating season. The hedges provide protection against weather that is at least seven percent warmer than normal in both Texas and Louisiana while preserving any upside. The hedges also allow for an adjustment in weighting between Louisiana and Texas related to the timing of the closing of the Louisiana acquisition. Status of Pending Acquisitions and Joint Venture On April 13, 2000, the Company announced a definitive agreement to acquire the gas operations of Louisiana Gas Service Company, a division of Citizens Communications Company ("Citizens") and LGS Natural Gas Company, a subsidiary of Citizens, for $375.0 million. This acquisition will add approximately 279,000 customers and will be accounted for as a purchase. The transaction is anticipated to be accretive to earnings in the first full year of operations, excluding one-time charges. The acquisition is anticipated to be completed by early 2001, subject to approval by the Louisiana Public Service Commission and compliance with the Hart-Scott-Rodino Antitrust Improvements Act. Upon closing, Atmos will become the largest natural gas distributor in the state of Louisiana. In February 2000, the Company announced that it had entered into an agreement to form a joint venture which combined its United Cities Propane Gas operations with the propane operations of AGL Resources, Inc., Atlanta, Georgia; Piedmont Natural Gas Company, Inc., Charlotte, North Carolina; and TECO Energy, Tampa, Florida. The combined entity, named US Propane, L.P., is among the 10 largest propane retailers in the nation with nearly 200,000 customers. On May 31, 2000, US Propane, L.P., in which Atmos is a partner, announced that it will combine operations with Heritage Holdings, Inc. to create the fourth largest retail propane distributor in the United States. US Propane will own all of the general partnership interest and approximately 34% of the limited partnership interest in Heritage Propane Partners, the master limited partnership. Shares of the general partner will be held proportionately among Atmos and its three US Propane partners. The transaction is expected to close later this summer. On May 31, 2000, the Company completed the acquisition of the Missouri natural gas distribution assets of Associated Natural Gas, a division of Arkansas Western Gas, a wholly owned subsidiary of Southwestern Energy Company. Atmos paid $32.0 million in cash to acquire approximately 48,000 customers at a cost of approximately $667 per customer. FINANCIAL CONDITION For the nine months ended June 30, 2000 net cash provided by operating activities totaled $117.4 million compared with $106.8 million for the nine months ended June 30, 1999. Net income increased $.6 million to $39.5 million for the nine months ended June 30, 2000 from $38.9 million for the nine months ended June 30, 1999. The $10.6 million increase in cash provided by operating activities is due primarily to increased revenues, partially offset by an increase in operating expenses. The higher revenues reflect new rate designs and revenue increases discussed in Note 2 of notes to condensed consolidated financial statements. Net operating assets and liabilities decreased $16.9 million for the nine months ended June 30, 2000 compared with a decrease of $17.1 million for the nine months ended June 30, 1999. This decrease in net operating assets and liabilities resulted primarily from large fluctuations in accounts receivable, accounts payable and inventories of gas in underground storage that occur when entering and leaving the winter or heating season and when refilling underground storage inventories. It also reflected an increase of $16.4 million in taxes payable related to a large tax refund due at September 30, 1999, and an increase of $7.8 million in other current liabilities related to storage gas inventories. It was partially offset by an increase of $12.3 million in deferred charges related primarily to increases in pension plan assets. Major cash flows used in investing activities for the nine months ended June 30, 2000 included capital expenditures of $54.3 million and the acquisition of ANG's Missouri distribution system for $32.0 million compared with $79.8 million for the nine months ended June 30, 1999. The capital expenditures budget for fiscal 2000, excluding acquisitions, is approximately $75.0 million, as compared with actual capital expenditures of $110.4 million in fiscal 1999. The capital budget and capital expenditures, excluding acquisitions, are lower for 2000 than for 1999 because the Company's major technology projects were completed in 1999. Also, non-essential capital expenditures are being postponed in fiscal 2000 under the Company's warm winter weather plan. Budgeted capital projects for fiscal 2000 include major expenditures for mains, services, meters, vehicles and computer software and equipment. These expenditures will be financed from internally generated funds and financing activities. For the nine months ended June 30, 2000, cash flows used by financing activities amounted to $32.7 million as compared with $21.5 million for the nine months ended June 30, 1999. During the nine-month period ended June 30, 2000, commercial paper and short- term debt outstanding decreased $4.4 million, as compared with an increase of $43.8 million for the nine months ended June 30, 1999, due to seasonal factors, project costs of the Customer Service Initiative and the implementation of Oracle financials in fiscal 1999. Payments of long-term debt totaled $10.9 million for the nine months ended June 30, 2000, as compared with $56.7 million for the nine months ended June 30, 1999. The Company paid $26.9 million in cash dividends during the nine months ended June 30, 2000, compared with dividends of $25.3 million paid during the nine months ended June 30, 1999. This reflects increases in the quarterly dividend rate and in the number of shares outstanding. In the nine months ended June 30, 2000, the Company issued 497,153 shares of common stock. The following table presents the number of shares issued under the various plans for the nine-month periods ended June 30, 2000 and 1999. Nine months ended June 30, --------------------- 2000 1999 ------- ------- Shares issued: Restricted Stock Grant Plan - 56,850 Employee Stock Ownership Plan 191,285 52,738 Direct Stock Purchase Plan 303,979 524,494 Outside Directors Stock-for-Fee Plan 1,889 1,341 United Cities Long-term Stock Plan - 5,550 ------- ------- Total shares issued 497,153 640,973 ======= ======= The Company believes that internally generated funds, its short-term credit facilities, commercial paper program and access to the debt and equity capital markets will provide necessary working capital and liquidity for capital expenditures and other cash needs for the remainder of fiscal 2000. At June 30, 2000 the Company had $265.0 million in committed short-term credit facilities, of which $15.0 million was outstanding and $148.3 million supported commercial paper outstanding. The committed lines of credit are renewed or renegotiated at least annually. At June 30, 2000, the Company also had $70.0 million of uncommitted short-term lines of credit, of which $.6 million was outstanding. The Company financed the $32.0 million Missouri acquisition, which closed on May 31, 2000, from its commercial paper program. On August 3, 2000, the Company entered into a $485.0 million short- term unsecured credit facility with interest starting at LIBOR plus 75 basis points which will provide $385.0 million of bridge financing for the Louisiana acquisition and $100.0 million for refinancing certain existing debt. On the same date, the Company entered into a $300.0 million credit facility which replaces its $250.0 million short-term unsecured credit facility. In December 1999, the Company filed a universal shelf registration statement with the Securities and Exchange Commission ("SEC") to issue, from time to time, up to $500 million in new common stock and/or debt. The Company also filed applications for approval to issue securities with six state utility commissions. The Company has received approvals from five of the six required states and expects to receive the final state approval by September 2000. Once the shelf filing is declared effective by the SEC and is approved by the various state utility commissions, the Company will be authorized to "take securities off the shelf" and issue them to investors and lenders. The proceeds are planned to be used for general corporate purposes, including acquisitions, debt repayment, and other business-related matters. The universal shelf should provide the Company with greater flexibility in its financing options. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2000, COMPARED WITH THREE MONTHS ENDED JUNE 30, 1999 Operating revenues increased by 39% to $152.4 million for the three months ended June 30, 2000 from $109.6 million for the three months ended June 30, 1999. The most significant factor contributing to the increase in operating revenues was a higher average sales price due to rate increases and the pass through of higher gas cost. Rate increases were implemented in Kentucky in December 1999 and in Amarillo, Texas in January 2000. Sales to West Texas irrigation customers also increased, with 3.7 billion cubic feet ("Bcf") sold in the third quarter compared with 2.1 Bcf sold during the same period in 1999. The total volume of gas sold and transported for the three months ended June 30, 2000 increased 7% to 36.8 Bcf compared with 34.5 Bcf for the three months ended June 30, 1999. During the quarter ended June 30, 2000, temperatures were 1% cooler than in the corresponding quarter of the prior year, and were 12% warmer than the 30-year normal weather for the quarter. The average sales price per Mcf sold increased $1.45 to $5.99 due to an increase in the average cost of gas and the rate increases. The average cost of gas per Mcf sold increased 52% to $3.78 for the three months ended June 30, 2000 from $2.48 for the three months ended June 30, 1999 due to generally higher gas supply costs. Changes in cost of gas do not directly affect the Company's gross profit. Gross profit increased 12% to $60.0 million for the three months ended June 30, 2000, from $53.4 million for the three months ended June 30, 1999. The increase in gross profit was primarily due to the positive impact of new rate designs and revenue increases approved in recent regulatory proceedings, as well as the addition of approximately 48,000 customers upon the closing of the acquisition of the ANG Missouri assets in May. Also, transportation revenues increased $.7 million due to an increase of 1.3 Bcf in transportation volumes and an increase of $.01 in average transportation revenue per Mcf. Operating expense increased 18% to $62.4 million for the three months ended June 30, 2000 from $53.0 million for the three months ended June 30, 1999. The major factors contributing to the increase were the $8.7 million increase in operation expense and the $1.1 million increase in depreciation and amortization. The increase in operation expense was due to management separation costs, an increase in the reserve for accounts receivable and expenses associated with the additional Missouri customers. The Company increased its reserves in the third quarter for aged accounts and rising gas costs but believes that its aggressive collection practices and the onset of the winter heating season will result in collecting accounts that have been slow to pay. The increase in depreciation and amortization was due to technology improvements placed in service in 1999. Operating income (loss) decreased to a loss of $2.3 million for the three months ended June 30, 2000 from income of $.4 million for the three months ended June 30, 1999. The decrease in operating income resulted from increased operating expenses, as discussed above. Other income increased $3.7 million for the three months ended June 30, 2000 compared with the three months ended June 30, 1999 primarily due to an increase in the earnings recorded from the Company's 45 percent interest in Woodward Marketing, LLC. Propane statistics for the three months ended June 30, 2000 and 1999 are included in the "Operating Statistics" tables which appear at the end of Management's Discussion and Analysis. Propane sales for the third quarter were unchanged from the corresponding quarter of the prior year at 1.7 million gallons. Likewise, the propane business incurred a loss of $1.7 million for the three months ended June 30, 2000, the same as the loss for the corresponding period of the prior year. The loss for the quarter ended June 30, 2000 was primarily the result of higher propane costs and secondarily due to warmer than normal winter weather. Propane customers at June 30, 2000 increased to 40,564, or 3%, as compared with June 30, 1999. The propane business has entered into agreements to participate in a joint venture with other propane companies, which will be merged into a master limited partnership as discussed above in the "Status of Pending Acquisitions and Joint Venture" section. Interest expense increased $.5 million, or 5%, for the three months ended June 30, 2000 compared with the three months ended June 30, 1999. The increase was primarily due to higher interest rates and average short-term balances outstanding during the three months ended June 30, 2000. The Company reported a loss of $4.4 million, or $.14 per diluted share for the three months ended June 30, 2000 compared with a loss of $5.3 million or $.17 per diluted share for the three months ended June 30, 1999. This improvement resulted primarily from the increase in gross profit discussed above. NINE MONTHS ENDED JUNE 30, 2000, COMPARED WITH NINE MONTHS ENDED JUNE 30, 1999 Operating revenues increased by 19% to $691.0 million for the nine months ended June 30, 2000 from $581.2 million for the nine months ended June 30, 1999. The primary factor contributing to the higher operating revenues was a 22% increase in the average gas sales revenue per Mcf. The higher sales price reflects the new rate designs and revenue increases discussed in Note 2 of notes to condensed consolidated financial statements and a 32% increase in the average cost of gas per Mcf sold. Cost of gas is passed through to the customer and does not affect the Company's gross profit. The increase in revenues due to increased average sales price was partially offset by lower throughput due to warmer winter weather. Total volumes delivered decreased .7 Bcf or .5% for the nine months ended June 30, 2000, as compared with the nine months ended June 30, 1999. The volume transported increased 2.3 Bcf compared with the nine months ended June 30, 1999 due to switching from sales to transportation service by some industrial customers. Sales volumes decreased 3.1 Bcf for the nine months ended June 30, 2000 compared with the corresponding period of the prior year due to warmer weather. Weather in the Company's service areas was 3% warmer than weather in the corresponding nine- month period of the prior fiscal year, and 19% warmer than 30-year normal weather. Sales revenues from all customer classes increased due to higher sales prices. The average sales price per Mcf increased to $5.45 for the nine months ended June 30, 2000 from $4.48 for the nine months ended June 30, 1999. The increase in the average sales price reflects an increase in the average cost of gas and a margin increase due to rate increases. The average cost of gas per Mcf sold increased to $3.45 for the nine months ended June 30, 2000 from $2.62 for the nine months ended June 30, 1999 because of generally higher gas supply costs. The increased cost of gas did not directly affect the Company's gross profit. Gross profit increased 4% to $267.7 million for the nine months ended June 30, 2000, compared with $257.0 million for the nine months ended June 30, 1999. This increase was primarily due to rate increases implemented in Kentucky and Amarillo, Texas. Operating expenses increased 6% to $183.9 million in the nine months ended June 30, 2000, from $174.0 million in the nine months ended June 30, 1999. The increase was primarily due to an increase of $6.7 million in depreciation and amortization and an increase of $3.0 million in operation expense for the nine months ended June 30, 2000. The increase in depreciation related to utility plant additions placed in service during fiscal 1999. The $3.0 million increase in operation expense resulted from an increase in the reserve for doubtful accounts and management severance expenses incurred for the nine months ended June 30, 2000. Operating income increased for the nine months ended June 30, 2000 to $83.8 million from $82.9 million for the nine months ended June 30, 1999. The increase in operating income was primarily related to the increased operating revenues and related gross profit, as discussed above. Other income increased $5.2 million for the nine months ended June 30, 2000 compared with the nine months ended June 30, 1999 primarily due to an increase of $5.5 million in the earnings from the Company's 45 percent interest in Woodward Marketing, LLC ("WMLLC"). This improvement is a result of growth in WMLLC's core pre-tax earnings and net unrealized gains of approximately $2.6 million calculated in accordance with Emerging Issues Task Force 98-10. The propane operation sold 18.2 million gallons of propane for the nine months ended June 30, 2000, as compared with 18.4 million gallons for the nine months ended June 30, 1999. Propane gross profit decreased $.7 million for the nine months ended June 30, 2000 compared with the same period last year due to a combination of factors including a lower average profit margin due to comparatively higher cost of supply. Interest charges increased $5.5 million, or 20%, due to higher average interest rates for the nine months ended June 30, 2000, as well as capitalized interest of $3.7 million recorded on technology projects in process for the nine months ended June 30, 1999. For the nine months ended June 30, 2000, the Company reported net income of $39.5 million or $1.25 per diluted share, compared with $38.9 million or $1.27 per diluted share for the nine months ended June 30, 1999. Net income for the nine months ended June 30, 2000, was above the same period a year ago in spite of lower gas sales volumes resulting from warmer weather and regulatory lag. Earnings per share for the nine months ended decreased slightly due to the increase in the number of shares outstanding. The Company estimates that the impact of the weather being 19% warmer than normal for the nine months ended June 30, 2000 caused net income to be approximately $28.4 million less than it would have been had the Company experienced normal temperatures and rainfall in its respective service areas. Dividends per share increased approximately 4% to $.855 for the nine months ended June 30, 2000. Diluted average shares outstanding increased 3% due primarily to shares issued under the Employee Stock Ownership Plan and the Direct Stock Purchase Plan. Total natural gas meters and propane customers at June 30, 2000 increased 75,486, or 7%, compared with June 30, 1999. June 30, -------------------------- 2000 1999 ---------- ---------- Meters-in-service at end of period Residential 968,308 903,081 Commercial 104,007 94,590 Public authority and other 7,413 6,405 Industrial (including agricultural) 14,401 15,702 --------- ---------- Total meters 1,094,129 1,019,778 Propane customers 40,564 39,429 --------- ---------- Total 1,134,693 1,059,207 ========= ========== UTILITY, PROPANE AND ENERGY SERVICES OPERATING DATA Atmos' Utility business is conducted by the Company's regulated utility divisions: Energas Division, Greeley Gas Division, Trans La Division, United Cities Division, and Western Kentucky Division as well as Shared Services. The Propane business is conducted through United Cities Propane and includes wholesale and retail propane sales to approximately 41,000 customers in four states. As discussed under "Status of Pending Acquisitions and Joint Venture," Atmos has entered into an agreement with three other companies to form a joint venture to combine United Cities Propane Gas with the propane operations of the other companies. The combined entity will be named US Propane, L.P. Subsequently, US Propane is to combine operations with Heritage Holdings, Inc. The transactions are expected to be completed in 2000. The Energy Services business includes non- regulated irrigation sales, energy services to large volume customers, non-regulated underground storage operations, a 45% interest in Woodward Marketing, LLC, leasing of real estate, vehicles and appliances and non-regulated shared services. The following tables of operating statistics by segment summarizes data of the utility, propane, and energy services segments of the Company for the three-month and nine-month periods ended June 30, 2000 and 1999. For further information regarding operating results of the segments, see Note 7 of notes to condensed consolidated financial statements. ATMOS ENERGY CORPORATION CONSOLIDATED OPERATING STATISTICS Three months ended June 30, 2000 1999 Sales volumes -- MMcf(1) -------- -------- Residential 8,608 9,379 Commercial 4,380 4,423 Public authority and other 712 836 Industrial (including agricultural) 9,162 7,252 ------- ------ Total 22,862 21,890 Transportation volumes -- MMcf(1) 13,932 12,631 ------- ------ TOTAL THROUGHPUT - MMcf (1) 36,794 34,521 ======= ====== Propane - Gallons (000's) 1,749 1,681 ======= ====== OPERATING REVENUES (000's) Gas sales revenues Residential $ 66,464 $ 52,452 Commercial 28,525 20,853 Public authority and other 3,809 3,066 Industrial (including agricultural) 38,254 22,962 -------- -------- Total gas sales revenues 137,052 99,333 Transportation revenues 5,831 5,149 Propane revenues 1,954 1,775 Other revenues 7,525 3,333 -------- -------- Total operating revenues $152,362 $109,590 ======== ======== Cost of gas (excluding propane and other) $ 86,312 $ 54,202 ======== ======== Average gas sales revenues per Mcf $ 5.99 $ 4.54 Average transportation revenue per Mcf $ .42 $ .41 Average cost of gas per Mcf sold $ 3.78 $ 2.48 (1) Volumes are reported as metered in million cubic feet ("MMcf"). ATMOS ENERGY CORPORATION CONSOLIDATED OPERATING STATISTICS Nine months ended June 30, 2000 1999 Sales volumes -- MMcf(1) -------- -------- Residential 58,149 61,872 Commercial 27,048 27,618 Public authority and other 5,007 5,304 Industrial (including agricultural) 25,717 24,183 -------- ------- Total 115,921 118,977 Transportation volumes -- MMcf(1) 44,653 42,334 -------- ------- TOTAL THROUGHPUT - MMcf (1) 160,574 161,311 ======== ======= Propane - Gallons (000's) 18,215 18,387 ======== ======= OPERATING REVENUES (000's) Gas sales revenues Residential $352,403 $309,508 Commercial 148,262 124,523 Public authority and other 23,662 20,087 Industrial (including agricultural) 107,269 79,422 -------- -------- Total gas sales revenues 631,596 533,540 Transportation revenues 18,038 17,599 Propane revenues 21,395 19,096 Other revenues 19,988 11,008 -------- -------- Total operating revenues $691,017 $581,243 ======== ======== Cost of gas (excluding propane and other) $399,444 $311,663 ======== ======== Average gas sales revenues per Mcf $ 5.45 $ 4.48 Average transportation revenue per Mcf $ .40 $ .42 Average cost of gas per Mcf sold $ 3.45 $ 2.62 (1) Volumes are reported as metered in million cubic feet ("MMcf"). ATMOS ENERGY CORPORATION OPERATING STATISTICS BY SEGMENT Three months ended June 30, ----------------------- 2000 1999 --------- --------- UTILITY Operating revenues (000's) $ 125,984 $ 95,827 Sales volumes (MMcf) 17,948 18,661 Transportation volumes (MMcf) 13,932 12,631 ------- ------- Total throughput 31,880 31,292 ======= ======= Heating degree days Actual 281 277 30-year normal 318 318 Percent of normal 88% 87% Meters, end of period 1,094,129 1,019,778 PROPANE Operating revenues (000's) $1,954 $1,775 Sales volumes (000 gallons): Retail 1,545 1,507 Wholesale 204 174 ------- ------- Total 1,749 1,681 ======= ======= Propane degree days 320 198 Percent of normal 96% 59% Customers, end of period 40,564 39,429 ENERGY SERVICES Operating revenues (000's) $24,424 $11,988 Gas revenues (000's) $18,120 $ 9,551 Gas sales volumes (MMcf): Irrigation 3,671 2,115 Industrial 1,243 1,114 ------- ------- Total 4,914 3,229 ======= ======= Atmos equity in earnings of WMLLC (000's) $ 4,740 $ 938 NOTE: Segment operating revenues and volumes are net of inter- segment eliminations. See Note 7 for intersegment revenues. ATMOS ENERGY CORPORATION OPERATING STATISTICS BY SEGMENT Nine months ended June 30, ----------------------- 2000 1999 --------- --------- UTILITY Operating revenues (000's) $ 617,898 $ 531,063 Sales volumes (MMcf) 105,951 111,160 Transportation volumes (MMcf) 44,653 42,334 ------- ------- Total throughput 150,604 153,494 ======= ======= Heating degree days Actual 3,228 3,319 30-year normal 3,965 3,965 Percent of normal 81% 84% Meters, end of period 1,094,129 1,019,778 PROPANE Operating revenues (000's) $21,395 $19,096 Sales volumes (000 gallons): Retail 16,378 16,154 Wholesale 1,837 2,233 ------- ------- Total 18,215 18,387 ======= ======= Propane degree days 3,421 3,408 Percent of normal 86% 85% Customers, end of period 40,564 39,429 ENERGY SERVICES Operating revenues (000's) $51,724 $31,084 Gas revenues (000's) $34,598 $23,533 Gas sales volumes (MMcf): Irrigation 5,689 3,791 Industrial 4,281 4,026 ------- ------- Total 9,970 7,817 ======= ======= Atmos equity in earnings of WMLLC (000's) $ 9,127 $ 3,599 NOTE: Segment operating revenues and volumes are net of inter- segment eliminations. See Note 7 for intersegment revenues. Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes from the information provided in Item 7A of the Company's Annual Report on Form 10-K for the year ended September 30, 1999. PART II. OTHER INFORMATION Item 1. Legal Proceedings See Note 3 of notes to condensed consolidated financial statements herein for a description of legal proceedings. Item 5. Other Information In July 2000, Fred E. Meisenheimer was named Vice President and Controller. Mr. Meisenheimer joined the Company from Vartec Telecom, Inc. where he was controller and responsible for all accounting and treasury operations. Prior to that, Mr. Meisenheimer served as assistant controller and general auditor for Oryx Energy Company from 1988 to 1999 and as assistant controller for Sun Exploration and Production Company from 1979 to 1988. Mr. Meisenheimer also served as audit manager at Deloitte & Touche LLP from 1970 to 1979. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits A list of exhibits required by Item 601 of Regulation S-K and filed as part of this report is set forth in the Exhibits Index, which immediately precedes such exhibits. (b) Reports on Form 8-K The Company filed a Form 8-K Current Report, Item 5, Other Events, dated April 13, 2000, announcing that it had entered into a definitive agreement to acquire the Louisiana gas operations of Louisiana Gas Service Company, a division of Citizens Communications Company, and LGS Natural Gas Company, a subsidiary of Citizens Communications Company. The purchase price for the transaction is $375 million, which is being initially financed through a fully underwritten committed bank facility. Under Item 7, Financial Statements and Exhibits, an exhibit was attached: a copy of a related press release dated April 13, 2000. The Company filed a Form 8-K Current Report, Item 5, Other Events, dated April 13, 2000, announcing that J. Charles Goodman had resigned as Executive Vice President, Utility Operations, effective April 28, 2000. In addition, on April 25, 2000, the Company announced that Larry J. Dagley had been named Chief Operating Officer of US Propane, L.P. and had resigned as Executive Vice President and Chief Financial Officer of Atmos Energy Corporation. The Company also announced in the release that J. Patrick Reddy had been appointed Senior Vice President, Chief Financial Officer and Treasurer, all effective immediately. Under Item 7, Financial Statements and Exhibits, an exhibit was attached: a copy of a related press release dated April 13, 2000 and a copy of a related press release dated April 25, 2000. The Company filed a Form 8-K Current Report, Item 5, Other Events, dated May 31, 2000, announcing that it had completed the acquisition of the Missouri natural gas distribution assets of Associated Natural Gas, a division of Arkansas Western Gas Company, which is a wholly-owned subsidiary of Southwestern Energy Company. Under Item 7, Financial Statements and Exhibits, an exhibit was attached: a copy of a related press release dated May 31, 2000 and a copy of the Asset Sale and Purchase Agreement. The Company filed a Form 8-K Current Report, Item 5, Other Events, dated June 15, 2000, announcing that US Propane, L.P. will combine with Heritage Holdings, Inc. the general partner of Heritage Propane Partners, L.P., to create the fourth largest retail propane distributor in the United States. Through a series of transactions, US Propane will be the general partner in a master limited partnership that will distribute propane to over 480,000 customers in 28 states. Under Item 7, Financial Statements and Exhibits, an exhibit was attached: a copy of a related press release dated June 15, 2000. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ATMOS ENERGY CORPORATION (Registrant) Date: August 10, 2000 By: /s/ FRED E. MEISENHEIMER -------------------------------- Fred E. Meisenheimer Vice President and Controller (Chief Accounting Officer and duly authorized signatory) EXHIBITS INDEX Item 6(a) Exhibit Page Number Description Number ------- ----------- ------- 10.1 Term Credit Agreement, dated as of August 3, 2000, among the Company, Bank of America, N.A., BankOne, NA, and Societe Generale New York Branch 15 Letter regarding unaudited interim financial information 27 Financial Data Schedule for Atmos Energy Corporation for the nine months ended June 30, 2000