10-K405 1 d81733e10-k405.txt FORM 10-K FOR FISCAL YEAR END SEPTEMBER 30, 2000 1 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 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.) THREE LINCOLN CENTRE, SUITE 1800 5430 LBJ FREEWAY, DALLAS, TEXAS 75240 (Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (972) 934-9227 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common stock, No Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant was $637,447,560 as of October 26, 2000. On October 26, 2000 the registrant had 31,996,398 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Definitive Proxy Statement to be filed for the Annual Meeting of Shareholders on February 14, 2001 are incorporated by reference into Part III of this report. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS OPERATIONS Atmos Energy Corporation (the "Company" or "Atmos") distributes and sells natural gas to over one million residential, commercial, industrial, agricultural and other customers. Atmos operates through five divisions in over 800 cities, towns and communities in service areas located in Colorado, Georgia, Illinois, Iowa, Kansas, Kentucky, Louisiana, Missouri, South Carolina, Tennessee, Texas and Virginia. As discussed below, the Company has entered into an agreement to sell all of its natural gas utility operations in South Carolina. The Company also transports natural gas for others through its distribution system. Atmos provides natural gas storage services and owns natural gas storage fields in Kansas and Kentucky to supplement natural gas used by customers in Kansas, Kentucky, Tennessee and other states. The Company also owns a 45 percent equity interest, and has agreed to acquire the remaining equity interest, in Woodward Marketing, LLC ("WMLLC"), a privately held company that provides gas marketing and energy management services to industrial customers, municipalities and local distribution companies, including the Company's Trans Louisiana Gas Company, Greeley Gas Company, Western Kentucky Gas Company and United Cities Gas Company divisions. In addition, the Company markets natural gas to industrial and agricultural customers primarily in West Texas and to industrial customers in Louisiana. FORMATION AND STRATEGY Atmos was organized under the laws of Texas in 1983 as Energas Company, a subsidiary of Pioneer Corporation ("Pioneer") for the purposes of owning and operating Pioneer's natural gas distribution business in Texas. Immediately following the transfer by Pioneer to the Company of its gas distribution business, which Pioneer and its predecessors operated since 1906, Pioneer distributed the Company's outstanding stock to its shareholders. In September 1988, the Company changed its name from Energas Company to Atmos Energy Corporation. As a result of the merger with United Cities Gas Company in July 1997, the Company also became incorporated in Virginia. Through the recent transactions outlined below, Atmos has begun implementing a strategy intended to increase its presence in larger service areas, sell smaller, non-strategic natural gas utility operations and restructure other operations. RECENT DEVELOPMENTS In April 2000, the Company entered into an agreement with Citizens Communications Company to acquire the Louisiana natural gas operations of its Louisiana Gas Service Company division ("LGS") and its LGS Natural Gas Company subsidiary for $375.0 million. LGS provides natural gas distribution service through approximately 279,000 residential and commercial meters in approximately 190 communities in southeastern and northern Louisiana, which is an area with a combined population of more than 600,000. Its service territory includes the suburban areas of metropolitan New Orleans (excluding Orleans Parish), the north shore of Lake Pontchartrain and the Monroe/West Monroe metropolitan area. LGS Natural Gas Company provides gas transportation services to industrial customers in Louisiana. Upon closing, Atmos will become the largest natural gas distributor in Louisiana and its national customer base will increase to approximately 1.4 million customers, making Atmos the fifth largest pure natural gas local distribution company in the United States. The acquisition is subject to state and federal regulatory approval. In May 2000, the Company completed the acquisition of the Missouri natural gas distribution assets of Associated Natural Gas from a subsidiary of Southwestern Energy Corporation for $32.0 million. The acquisition increased the Company's presence in Missouri by more than 48,000 customers. As a part of the Company's strategy to restructure its non-natural gas utility operations, in August 2000, Atmos formed US Propane, L.P. ("US Propane"), a joint venture combining the Company's propane operations with the propane operations of three other companies. US Propane then sold its propane business to 1 3 Heritage Propane Partners, L.P. ("Heritage") for approximately $181.0 million in cash and limited partnership units of Heritage and purchased all of the outstanding stock of the general partner of Heritage for approximately $120.0 million. As a result of these transactions, Atmos owns approximately 19 percent of US Propane and US Propane owns all of the general partnership interest and approximately 34 percent of the limited partnership interest in Heritage. Through its interest in US Propane, Atmos indirectly owns approximately 19 percent of the general partnership interest and approximately 6.5 percent of the limited partnership interest in Heritage. Heritage now has approximately 480,000 customers in 28 states making it the fifth largest retail marketer of propane in the United States, based on gallons sold. In August 2000, the Company entered into an agreement with Woodward Marketing, Inc. ("WMI") to acquire the 55 percent interest in WMLLC that it does not own in exchange for 1,423,193 restricted shares of Atmos common stock. The consideration is subject to an upward adjustment if the Company's average share price does not equal $25 per share during a period immediately prior to the fifth anniversary of the completion of the acquisition or an earlier change in control, unless during the period beginning on the first anniversary of the completion of the acquisition and ending on the fifth anniversary or an earlier change in control the Company's share price reaches $25 per share for any 30 consecutive trading-day period. The maximum additional shares that could be issued under the adjustment provision is 232,547 plus an amount to compensate for dividends paid after the completion of the acquisition. Upon the completion of the acquisition, the Company's subsidiary's guaranty of WMLLC's short-term working capital and letter of credit facility of up to $100.0 million, of which $75.0 million was available at September 30, 2000, will increase from 45 percent to 100 percent of any amounts outstanding under this facility. The Company's subsidiary and WMI also act as joint and several guarantors on payables of WMLLC up to $40.0 million of natural gas purchases and transportation services from certain suppliers. Upon the completion of the acquisition, the Company's subsidiary will be the sole guarantor of all of WMLLC's accounts payable. This transaction is subject to state and federal regulatory approval. In October 2000, the Company entered into an agreement to sell all of its natural gas utility operations in South Carolina for approximately $5.8 million, which approximates net book value. This transaction is subject to state regulatory approval. OPERATING STATISTICS The table on the following page reflects the operating statistics of Atmos including the United Cities Gas Company division (the "United Cities Division")for fiscal 2000, 1999 and 1998 and the restated operating statistics for 1997 and 1996 on a pooled basis with United Cities Gas Company ("UCGC"). It is followed by two tables of utility only sales and operating statistics by business unit for 2000 and 1999. Certain prior year amounts have been reclassified to conform with the current year presentation. 2 4 ATMOS ENERGY CORPORATION CONSOLIDATED OPERATING STATISTICS
YEAR ENDED SEPTEMBER 30, -------------------------------------------------------------- 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- METERS IN SERVICE, end of year Residential.............................. 970,873 919,012 889,074 870,747 860,229 Commercial............................... 104,019 98,268 94,302 92,703 91,960 Industrial (including agricultural)...... 14,259 14,329 16,322 17,217 19,403 Public authority and other............... 7,448 6,386 4,834 4,781 4,716 ---------- ---------- ---------- ---------- ---------- Total meters...................... 1,096,599 1,037,995 1,004,532 985,448 976,308 Propane customers........................ -- 39,539 37,400 29,097 26,108 ---------- ---------- ---------- ---------- ---------- Total............................. 1,096,599 1,077,534 1,041,932 1,014,545 1,002,416 ========== ========== ========== ========== ========== HEATING DEGREE DAYS(1) Actual (weighted average)................ 3,302 3,374 3,799 3,909 4,043 Percent of normal........................ 82% 85% 95% 98% 101% SALES VOLUMES -- MMcf(2) Residential.............................. 63,285 67,128 73,472 75,215 77,001 Commercial............................... 30,707 31,457 36,083 37,382 38,247 Industrial(including agricultural)....... 38,687 35,741 44,881 46,416 57,863 Public authority and other............... 5,520 5,793 4,937 5,195 5,182 ---------- ---------- ---------- ---------- ---------- Total sales volumes............... 138,199 140,119 159,373 164,208 178,293 Transportation volumes -- MMcf(2).......... 59,365 55,468 56,224 48,800 44,146 ---------- ---------- ---------- ---------- ---------- TOTAL THROUGHPUT -- MMcf(2)................ 197,564 195,587 215,597 213,008 222,439 ========== ========== ========== ========== ========== PROPANE -- Gallons (000's)................. 19,329 22,291 23,412 25,204 33,637 ========== ========== ========== ========== ========== OPERATING REVENUES (000's) Gas sales revenues Residential.............................. $ 405,552 $ 349,691 $ 410,538 $ 452,864 $ 409,039 Commercial............................... 176,712 144,836 184,046 193,302 186,032 Industrial (including agricultural)...... 171,447 117,382 161,382 168,386 187,693 Public authority and other............... 27,198 22,330 20,504 23,898 21,738 ---------- ---------- ---------- ---------- ---------- Total gas sales revenues.......... 780,909 634,239 776,470 838,450 804,502 Transportation revenues.................... 23,610 23,101 23,971 19,885 18,872 Other gas revenues......................... 4,674 4,500 8,121 6,385 13,751 ---------- ---------- ---------- ---------- ---------- Total gas revenues................ 809,193 661,840 808,562 864,720 837,125 Propane revenues........................... 22,550 22,944 29,091 33,194 38,372 Other revenues............................. 18,409 5,412 10,555 8,921 11,194 ---------- ---------- ---------- ---------- ---------- Total operating revenues.......... $ 850,152 $ 690,196 $ 848,208 $ 906,835 $ 886,691 ========== ========== ========== ========== ========== AVERAGE SALES PRICE/Mcf(3)................. $ 5.65 $ 4.53 $ 4.87 $ 5.11 $ 4.51 AVERAGE COST OF GAS/Mcf SOLD............... 3.79 2.79 3.24 3.51 3.15 AVERAGE TRANSPORTATION REVENUES/Mcf........ .40 .42 .43 .41 .43
See footnotes on page 6. 3 5 ATMOS ENERGY CORPORATION UTILITY SALES AND STATISTICAL DATA BY BUSINESS UNIT(4)
YEAR ENDED SEPTEMBER 30, 2000 ---------------------------------------------------------------- WESTERN UNITED TOTAL ENERGAS TRANS LA KENTUCKY GREELEY CITIES UTILITY -------- -------- -------- -------- -------- --------- METERS IN SERVICE, at end of year Residential................. 273,664 74,943 160,565 187,121 274,580 970,873 Commercial.................. 26,231 5,568 18,466 17,946 35,808 104,019 Industrial.................. 513 -- 407 406 660 1,986 Public authority and other.................... 2,254 908 1,628 1,688 970 7,448 -------- ------- -------- -------- -------- --------- Total............... 302,662 81,419 181,066 207,161 312,018 1,084,326 ======== ======= ======== ======== ======== ========= HEATING DEGREE DAYS(1) Actual...................... 2,875 1,237 3,702 4,678 3,198 3,302 Percent of normal........... 81% 69% 85% 82% 85% 82% SALES VOLUMES -- MMcf(2) Residential................. 19,201 3,070 11,584 14,727 14,703 63,285 Commercial.................. 6,365 1,379 5,032 5,829 12,102 30,707 Industrial.................. 1,651 -- 3,189 1,927 13,191 19,958 Public authority and other.................... 2,026 751 1,299 1,216 228 5,520 -------- ------- -------- -------- -------- --------- Total............... 29,243 5,200 21,104 23,699 40,224 119,470 TRANSPORTATION VOLUMES -- MMcf(2).......... 24,679 2,248 26,025 10,756 16,474 80,182 -------- ------- -------- -------- -------- --------- TOTAL THROUGHPUT -- MMcf(2)... 53,922 7,448 47,129 34,455 56,698 199,652 ======== ======= ======== ======== ======== ========= OTHER STATISTICS Operating revenues (000's).................. $146,100 $45,469 $121,237 $147,116 $280,029 $739,951 Miles of pipe............... 13,169 2,283 3,437 6,000 5,140 30,029 Employees(5)................ 350 123 249 271 495 1,488 Communities served.......... 92 41 163 123 383 802
See footnotes on page 6. 4 6 ATMOS ENERGY CORPORATION UTILITY SALES AND STATISTICAL DATA BY BUSINESS UNIT(4)
YEAR ENDED SEPTEMBER 30, 1999 -------------------------------------------------------------------- WESTERN UNITED ENERGAS TRANS LA KENTUCKY GREELEY CITIES TOTAL UTILITY -------- -------- -------- -------- -------- ------------- METERS IN SERVICE, at end of year Residential................ 274,452 74,890 159,449 181,859 228,362 919,012 Commercial................. 26,300 5,567 18,371 17,736 30,294 98,268 Industrial................. 431 -- 238 339 610 1,618 Public authority and other................... 2,230 893 1,559 1,704 -- 6,386 -------- ------- -------- -------- -------- ---------- Total.............. 303,413 81,350 179,617 201,638 259,266 1,025,284 ======== ======= ======== ======== ======== ========== HEATING DEGREE DAYS(1) Actual..................... 3,083 1,265 3,472 4,992 3,168 3,374 Percent of normal.......... 87% 71% 80% 88% 84% 85% SALES VOLUMES -- MMcf(2) Residential................ 20,871 3,111 11,822 16,748 14,576 67,128 Commercial................. 6,825 1,334 5,122 6,642 11,534 31,457 Industrial................. 1,514 -- 2,973 1,462 14,952 20,901 Public authority and other................... 2,234 769 1,371 1,419 -- 5,793 -------- ------- -------- -------- -------- ---------- Total.............. 31,444 5,214 21,288 26,271 41,062 125,279 TRANSPORTATION VOLUMES -- MMcf(2)......... 17,580 2,162 25,814 10,021 14,300 69,877 -------- ------- -------- -------- -------- ---------- TOTAL THROUGHPUT --MMcf(2)... 49,024 7,376 47,102 36,292 55,362 195,156 ======== ======= ======== ======== ======== ========== OTHER STATISTICS Operating revenues (000's)................. $127,234 $36,964 $100,165 $132,093 $224,755 $ 621,211 Miles of pipe.............. 13,244 2,276 3,668 5,676 5,806 30,670 Employees(5)............... 372 128 258 286 427 1,471 Communities served......... 92 41 163 123 383 802
See footnotes on page 6. 5 7 Notes to preceding tables: --------------- (1) A heating degree day is equivalent to each degree that the average of the high and the low temperatures for a day is below 65 degrees. The greater the number of heating degree days, the colder the climate. Heating degree days are used in the natural gas industry to measure the relative coldness of weather experienced and to compare relative temperatures between one geographic area and another. Normal degree days are based on 30-year average National Weather Service data for selected locations. (2) Volumes are reported as metered in million cubic feet ("MMcf"). Utility sales volumes and revenues reflect utility segment operations, including intercompany sales and transportation amounts. (3) Mcf means thousand cubic feet. (4) These tables present data for Atmos' five utility business units. Their operations include the regulated local distribution companies located in their respective service areas. (5) The number of employees excludes 369 and 427 Atmos shared services and customer support center employees and 28 and 164 non-utility employees in 2000 and 1999. 6 8 SEGMENT OVERVIEW The following table summarizes certain information regarding the operation of the utility, non-regulated and propane segments of the Company for each of the three years as of and for the period ended September 30, 2000. Amounts for the propane segment for 2000 reflect operations for 10 months until its sale to Heritage, effective August 10, 2000. Subsequently, the Company's share of propane results are reflected on an equity basis.
NON- UTILITY REGULATED PROPANE TOTAL ---------- --------- ------- ---------- (IN THOUSANDS) 2000 Operating revenues(1).......................... $ 734,835 $ 92,767 $22,550 $ 850,152 Operating income (loss)(1)..................... 77,207 8,717 (608) 85,316 Net income..................................... 22,459 10,857 2,602 35,918 Identifiable assets(1)......................... 1,246,782 101,277 699 1,348,758 1999 Operating revenues(1).......................... $ 617,313 $ 49,939 $22,944 $ 690,196 Operating income (loss)........................ 49,000 5,782 (543) 54,239 Net income (loss).............................. 10,800 7,813 (869) 17,744 Identifiable assets(1)......................... 1,125,691 71,115 33,731 1,230,537 1998 Operating revenues(1).......................... $ 738,445 $ 80,672 $29,091 $ 848,208 Operating income............................... 100,665 11,595 619 112,879 Net income (loss).............................. 43,332 11,999 (66) 55,265 Identifiable assets(1)......................... 1,052,225 52,616 36,549 1,141,390
--------------- (1) Net of intersegment eliminations The utility segment is composed of the Company's five regulated utility divisions: the Energas Company division which operates in Texas ("Energas Division"), the Greeley Gas Company division which operates in Colorado, Kansas and Missouri ("Greeley Division"), the Trans Louisiana Gas Company division which operates in Louisiana ("Trans La Division"), the United Cities Division which operates in Georgia, Illinois, Iowa, Kansas, Missouri, South Carolina, Tennessee and Virginia and the Western Kentucky Gas Company division which operates in Kentucky ("Western Kentucky Division"). The non-regulated segment is currently composed of four parts. Atmos Storage Inc. owns underground storage fields in Kansas and Kentucky and provides storage services to the United Cities Division and Greeley Division and other non-regulated customers. Atmos Energy Services, Inc. markets gas to irrigation and industrial customers in West Texas through Enermart Energy Services Trust and to industrial customers in Louisiana and is developing plans for marketing various non-regulated services and products. Atmos Energy Marketing, LLC owns the Company's 45 percent investment in WMLLC, a gas marketing and energy management services business. Atmos Leasing, Inc. leases buildings and vehicles to the United Cities Division. WMLLC, which commenced operations on May 1, 1995, is owned by Woodward Marketing, Inc. (55 percent) and Atmos Energy Marketing, LLC (45 percent). With its headquarters in Houston, Texas, WMLLC provides a variety of natural gas management services to natural gas utility systems and industrial natural gas consumers in several states. Such services include natural gas supply acquisition and provision of gas supplies at fixed and market-based prices, load forecasting and management, gas storage and transportation services, peaking sales and balancing services and gas hedging through the use of certain derivative products. The propane segment includes United Cities Propane Gas, Inc., which was primarily engaged in the retail and wholesale distribution of propane gas in Tennessee, Kentucky, North Carolina and Virginia. See the 7 9 discussion above under Item 1 "Business" regarding the combining of the propane operations during fiscal 2000 with Heritage and others. GAS SALES The Company's natural gas distribution business is seasonal and highly dependent on weather conditions in the Company's service areas. Gas sales to residential and commercial customers are greater during the winter months than during the remainder of the year. The volumes of such sales during the winter months will vary with the temperatures during such months. The seasonal nature of the Company's sales to residential and commercial customers is offset partially by the Company's sales in the spring and summer months to its agricultural customers in Texas, Colorado and Kansas who utilize natural gas to operate irrigation equipment. The Company also has Weather Normalization Adjustments ("WNAs") in its rate jurisdictions in Tennessee, Georgia and Kentucky. See "Weather and seasonality" in Management's Discussion and Analysis of Operations. In addition to weather, the Company's revenues are affected by the cost of natural gas and economic conditions in the areas that the Company serves. Higher gas costs, which the Company is generally able to pass through to its customers under purchased gas adjustment clauses, may cause customers to conserve, or, in the case of industrial customers, to use alternative energy sources. In recent years, natural gas market conditions have changed. Natural gas prices have become more volatile and the number of competing marketers of natural gas has increased. The Company's gas marketing subsidiaries purchase gas to address requirements for large volume customers in certain highly competitive markets. Certain industrial customers purchase gas directly from others instead of from the Company and the Company transports such gas through its distribution systems to the customers' facilities for a fee. Although transportation of customer-owned gas reduces the Company's operating revenues and corresponding purchased gas cost, the transportation revenues received by the Company generally offset the loss to gross profit. The Company's distribution systems have experienced aggregate peak day deliveries of approximately 1.6 billion cubic feet per day ("Bcf"). The Company has the ability to curtail deliveries to certain customers under the terms of interruptible contracts and applicable state statutes or regulations which enable it to maintain its deliveries to high priority customers. The Company has not imposed curtailment in its Energas Division since the Company began independent operations in 1983 or in its Trans La Division since the Company acquired Trans Louisiana Gas Company in 1986. The Western Kentucky Division curtailed deliveries to certain interruptible customers during exceptionally cold periods in December 1989, January 1994 and during the winter of 1996. Neither the Greeley Division nor its predecessor, Greeley Gas Company, has curtailed deliveries to its sales customers since prior to 1980. The United Cities Division curtails interruptible service customers from time to time each year in accordance with the interruptible contracts and tariffs. GAS SUPPLY The Company receives gas deliveries through 28 pipeline transportation companies, both interstate and intrastate, to satisfy its firm sales market requirements. The transportation agreements are firm and many of them have pipeline no-notice storage service which provide for daily balancing between system requirements and nominated flowing supplies. These agreements have been negotiated with the shortest term available to maintain the Company's right to roll over the term. The agreements reduce the risk of paying fixed fees to reserve pipeline capacity on a long-term basis which would be unneeded in the event of unbundling or other changes in demand. The Western Kentucky Division's gas supply is delivered primarily by the following pipelines: Williams Pipeline-Texas Gas, Tennessee Gas, Trunkline, Midwestern Pipeline and ANR. During 1998, the Western Kentucky Division sought and was granted approval by the Kentucky Public Service Commission for a performance-based rate program which commenced in July 1998. Under performance-based programs, 8 10 regulators in Georgia, Kentucky and Tennessee allow the Company and its customers to share in purchased gas cost savings when the Company can purchase natural gas supplies below certain predetermined built-in benchmark indices. The Company's actual gas costs are compared to the predetermined benchmark, which reflects the market price of gas. If the Company outperforms the benchmark, it is allowed to retain 50 percent of the savings with the other 50 percent going to ratepayers. The United Cities Division is served by 13 interstate pipelines. The majority of the volumes are transported through East Tennessee Pipeline, Southern Natural Gas, Tennessee Gas Pipeline and Columbia Gulf. Colorado Interstate Gas Company, Williams Pipeline-Central, Public Service Company of Colorado and Northwest Pipeline are the principal transporters of the Greeley Division's requirements. Additionally, the Greeley Division purchases substantial volumes from producers that are connected directly to its distribution system. The Energas Division receives sales and transportation service from various Oneok pipeline affiliates. Also, the Energas Division purchases a significant portion of its supply from Pioneer Natural Resources which is connected directly to the Company's Amarillo, Texas distribution system. Louisiana Intrastate Gas Company, Acadian Pipeline, Koch Gateway and Williams Pipeline-Texas Gas pipelines deliver most of the Trans La Division's requirements. The Company also owns and operates numerous natural gas storage facilities in Kentucky and Kansas which are used to help meet customer requirements during peak demand periods and to reduce the need to contract for additional pipeline capacity to meet such peak demand periods. Additionally, the Company operates two propane plants and a liquified natural gas ("LNG") plant for peak shaving purposes. The Company also contracts for storage service in underground storage facilities on many of the interstate pipelines serving it. See "Item 2. Properties" below for further information regarding the peak shaving facilities. The United Cities and Western Kentucky Gas Divisions normally inject gas into pipeline storage systems and company owned storage facilities during the summer months and withdraw it in the winter months. At the present time, the underground storage facilities of the Company have a maximum daily output capability of approximately 135,000 Mcf. The United Cities Division has the ability to serve approximately 60 percent of its peak day requirements through the use of company-owned storage facilities, storage contracts with its suppliers and peaking facilities throughout the system. The Western Kentucky Gas Division has the ability to serve approximately 50 percent of its peak day requirements through the use of company-owned storage facilities, storage contracts with its suppliers and peaking facilities throughout the system. This ability provides the operational flexibility and security of supply required to meet the needs of the highly weather sensitive residential and commercial markets. During 2000, the Company purchased its gas supply from various producers and marketers. Supply arrangements were contracted on a firm basis with terms generally of one year or less at an index-based price. The firm supply consisted of both base load and swing supply quantities. Base load quantities are those that flow at a constant level throughout the month and swing supply quantities provide the flexibility to change daily quantities to match increases or decreases in requirements related to weather conditions. The suppliers were selected through a bidding process (except for local production purchases) by sending out a request for proposal to suppliers that have demonstrated that they can provide reliable service. These suppliers were selected based on their ability to deliver gas supply to our designated firm pipeline receipt points and the best cost. Major suppliers during 2000 were Reliant Energy, Sonat Marketing, Cinergy, Pioneer Natural Resources, CIG Merchant Company, WMLLC, Oneok Gas Marketing, Barrett Resources, Anadarko and Tenaska Marketing. There is a surplus of natural gas available to the Company's utility systems and the Company does not anticipate problems with securing additional gas supply as needed for its customers. 9 11 REGULATION Energas Division In the Energas Division, the governing body of each municipality served by the Company has original jurisdiction over all utility rates, operations and services within its city limits except with respect to sales of natural gas for vehicle fuel and agricultural use. The Company operates pursuant to non-exclusive franchises granted by the municipalities it serves, which franchises are subject to renewal from time to time. The franchises granted to the Company permit it to conduct natural gas distribution within the municipalities' incorporated limits. The Railroad Commission of Texas has exclusive appellate jurisdiction over all rate and regulatory orders and ordinances of the municipalities and exclusive original jurisdiction over rates and services to customers not located within the limits of a municipality. In Texas, rates for large industrial customers are routinely set by contract negotiation between the Company and its customers pursuant to statutory standards and are filed with, and subject to, the governmental authority of the municipalities or the Railroad Commission, depending on whether the customer is located inside or outside the limits of a municipality. Historically, the Company's rates for large industrial customers have been accepted as filed. Agricultural sales in Texas are not regulated, except that prices for agricultural sales cannot exceed the prices the Company charges the majority of its commercial or other similar large-volume users in Texas. Trans La Division The Trans La Division is regulated by the Louisiana Public Service Commission which regulates utility services, rates and other matters. In most of the parishes and incorporated areas in which the Company operates in Louisiana, it does so pursuant to a non-exclusive franchise granted by the governing authority of each parish or incorporated area. The franchise gives the Company the general privilege to operate its gas distribution business in, as well as the right to install its distribution lines along the roadways of, the parish or the incorporated area. Direct sales of natural gas to industrial customers in Louisiana who utilize the gas for fuel or in manufacturing processes and sales of natural gas for vehicle fuel are exempt from regulation. Western Kentucky Division The Western Kentucky Division is regulated by the Kentucky Public Service Commission which regulates utility services, rates, issuance of securities and other matters. The Company operates in the various incorporated cities served by it in Kentucky pursuant to non-exclusive franchises granted by such cities. The franchises grant to the Company the right to operate its gas distribution business in the city and to install its distribution lines and related equipment in and along the city's public rights-of-way. Sales of natural gas for use as vehicle fuel in Kentucky are not subject to regulation. Greeley Division The Greeley Division is regulated by the Colorado Public Utilities Commission, the Kansas Corporation Commission and the Missouri Public Service Commission with respect to accounting, rates and charges, operating matters and the issuance of securities. The Company operates in the various incorporated cities served by it in the states of Colorado, Kansas and Missouri under terms of non-exclusive franchises granted by the various cities. The franchises grant to the Company, among other things, the right to install and operate its gas distribution system within the city limits. Most of the Greeley Division's wholesale gas suppliers are regulated by various federal and state commissions. United Cities Division In each state in which the United Cities Division operates, its rates, services and operations as a natural gas distribution company are subject to general regulation by the applicable state public service commission. In addition, the issuance of securities by the Company is subject to approval by the state commissions, except in South Carolina and Iowa. Missouri only regulates the issuance of secured debt. The United Cities Division operates in each community, where necessary, under a franchise granted by the municipality for a fixed term of years. 10 12 In most cases, the loss of a franchise would not have a material adverse effect on operations. To date, the Company has been able to renew all franchises that would have a material effect on its business. The Company is also subject to regulation by the United States Department of Transportation with respect to safety requirements in the operation and maintenance of its gas distribution facilities. The Company's distribution operations are also subject to various state and federal laws regulating environmental matters. From time to time the Company receives inquiries regarding various environmental matters. The Company believes that its properties and operations substantially comply with and are operated in substantial conformity with applicable safety and environmental statutes and regulations. There are no administrative or judicial proceedings arising under environmental quality statutes pending or known to be contemplated by governmental agencies which would have a material adverse effect on the Company. RATES The Company's five utility divisions are regulated by various state or local public utility authorities. The method of determining regulated rates varies among the 12 states in which the Company has utility operations. It is the responsibility of the regulators to determine that utilities under their jurisdiction operate in the best interests of customers while providing the utilities the opportunity to earn a reasonable return on investment. In a general rate case, the applicable regulatory authority, which is typically the state public utility commission, establishes a base margin, which is the amount of revenue authorized to be collected from customers to recover authorized operating expense (other than the cost of gas), depreciation, interest, taxes and return on rate base. The Company's utility divisions perform annual deficiency studies for each rate jurisdiction to determine when to file rate cases, which are typically filed every two to five years. Substantially all of the sales rates charged by the Company to its customers fluctuate with the cost of gas purchased by the Company. Rates established by regulatory authorities are adjusted for increases and decreases in the Company's purchased gas cost through automatic purchased gas adjustment mechanisms. Purchased gas adjustment mechanisms provide gas utilities a method of recovering purchased gas costs on an ongoing basis without the necessity of a rate case addressing all of the utilities' non-gas costs. These mechanisms are commonly utilized when regulatory authorities recognize a particular type of expense, such as purchased gas costs, that (i) is subject to significant price fluctuations compared to the utility's other costs, (ii) represents a large component of the utility's cost of service and (iii) is generally outside the control of the gas utility. Such purchased gas adjustment mechanisms are not designed to allow the utility to earn a profit but are designed to allow a dollar-for-dollar recovery of fuel costs. Therefore, while the Company's operating revenues may fluctuate, gross profit (which is defined as operating revenues less purchased gas cost) is generally not eroded or enhanced because of gas cost increases or decreases. Approximately 87 percent of the Company's revenues in fiscal 2000 were derived from sales at rates set by or subject to approval by local or state authorities. As a general rule, the regulatory authority reviews the Company's rate request and establishes a rate structure intended to generate revenue sufficient to cover the Company's costs of doing business and provide a reasonable return on invested capital. 11 13 The following table sets forth the major rate requests made by the Company or other parties during the most recent five years and the action taken on such requests:
EFFECTIVE AMOUNT AMOUNT JURISDICTION DATE REQUESTED RECEIVED ------------ --------- --------- ---------- (IN THOUSANDS) Texas West Texas System................................ 11/01/96 $7,676 $ 5,800(a) Pending 9,827 Pending(b) Amarillo System.................................. 01/01/00 4,354 2,200 Louisiana.......................................... 11/01/99 (c) --(c) Kentucky........................................... 11/01/95 7,665 2,300(d) 03/01/96 1,000(d) 12/21/99 14,127 9,900(e) Colorado........................................... 01/21/98 -- (1,600)(f) Pending 4,200 Pending Missouri........................................... 10/14/95 1,100 903 Tennessee.......................................... 11/15/95 3,951 2,227 Iowa............................................... 05/17/96 750 410 Georgia............................................ 12/02/96 5,003 3,160 Illinois........................................... 07/09/97 1,234 428 10/23/00 2,100 1,367 Virginia........................................... 10/01/98 -- (248)(g) Pending 2,100 Pending(h)
--------------- (a) This increase includes $500,000 applicable to areas outside the city limits which became effective in April 1997. (b) The Energas Division applied for rate increases in August 1999. The West Texas cities rejected the request and in March 2000, the Energas Division appealed to the Texas Railroad Commission. The requested increase includes $1.0 million for customers outside the city limits of the West Texas cities. Final resolution is expected in December 2000. (c) The Louisiana Public Service Commission approved a Rate Stabilization Clause for three years with an allowed return on common equity between 10.5 percent and 11.5 percent. This decision increased the service charge amounts from about 20 percent to about 70 percent of actual costs and increased the monthly customer charges from $6 to $9, both effective November 1, 1999. (d) The Kentucky rate order provided an increase of $2.3 million, lowered depreciation rates effective November 1, 1995 and provided an additional $1.0 million beginning March 1, 1996. The order also included a provision for a pilot demand side management program which could cost up to $.4 million annually. (e) The Kentucky rate order also included a provision for a five-year pilot program for weather normalization beginning in November 2000. (f) Rate reduction as a result of settlement in a case initiated by the Colorado Consumer Counsel. (g) Rate reduction as a result of a settlement with the Virginia State Corporation Commission staff regarding investigation of earnings. (h) The United Cities Division applied for a rate increase in March 2000. The new rates are expected to be effective in December 2000. 12 14 COMPETITION The Company is not currently in significant direct competition with any other distributors of natural gas to residential and commercial customers within its service areas. However, the Company does compete with other natural gas suppliers and suppliers of alternate fuels for sales to industrial and agricultural customers. The Company competes in all aspects of its business with alternative energy sources, including, in particular, electricity. Competition for residential and commercial customers is increasing. Promotional incentives, improved equipment efficiencies and promotional rates all contribute to the acceptability of electric equipment. Electric utilities offer electricity as a rival energy source and compete for the space heating, water heating and cooking markets. The principal means to compete against alternative fuels is lower prices, and natural gas historically has maintained its price advantage in the residential, commercial and industrial markets. In residential markets, generally the average cost of gas is less for the Company's customers than the average cost of gas nationwide and less than the cost of an equivalent amount of electricity. In the United Cities Division, number 2 and number 6 fuel oil are the primary competition for industrial customers. In addition, certain customers, primarily industrial, may have the ability to by-pass the Company's distribution system by connecting directly with a pipeline. Beginning in 1985, changes in the federal regulatory environment through Federal Energy Regulatory Commission ("FERC") orders and conditions related to markets and gas supply in the United States have brought increased competition into the natural gas industry. Certain large commercial or industrial customers located in proximity to the interstate pipeline delivering gas to the Company could attempt to bypass the Company and take delivery of gas directly from the pipeline or from a third party connecting with the pipeline. To date, only minimal bypass activity has been experienced in part because of the Company's ability to negotiate competitive rates and service terms. However, the future level of bypass activity cannot be predicted. FERC policies have not had a direct impact upon the Company's Energas, Greeley and Trans La Divisions which are primarily supplied by intrastate pipelines. However, competition for large volume customers in the United Cities and Western Kentucky Divisions and other service areas has increased as a result of FERC policies. The Company has sought regulatory approvals for competitive pricing on a case by case basis. The United Cities Division has received approval from all the regulatory authorities in the states in which it operates, except Iowa, to place into effect a negotiated tariff rate which allows the United Cities Division to maintain industrial loads at lower margin rates. Iowa has rules which allow for flexible rates which are competitive with the price of alternative fuels. In addition, certain industrial customers have changed from firm to interruptible rate schedules in order to obtain natural gas at a lower cost. Additionally, the United Cities Division has received approval from all state regulatory authorities to provide transportation service of customer-owned gas. Propane operations are in competition with other suppliers of propane, natural gas and electricity with respect to price and service. The wholesale cost of propane is subject to fluctuations primarily based on demand, availability of supply and product transportation costs. Through its 45 percent interest in WMLLC, Atmos Energy Marketing, LLC competes with other natural gas brokers in obtaining natural gas supplies for customers. Atmos Leasing, Inc. also competes with other companies in the leasing of real estate, vehicles and appliances. Atmos Storage, Inc. ("Storage") charges rates to the United Cities Division that are subject to review by the various commissions in the states within which the storage service is provided. Therefore, Storage's rates must be competitive with other storage facilities. Storage also stores natural gas for WMLLC. As a result, Storage is in competition with other companies that store natural gas as to rates charged and deliverability of natural gas. Agreements between Storage and the United Cities Division give the United Cities Division first priority to any storage services. 13 15 EMPLOYEES At September 30, 2000, the Company employed 1,885 persons. See "Utility Sales and Statistical Data by Business Unit" for the number of employees by business unit. ITEM 2. PROPERTIES The Company owns an aggregate of 30,029 miles of underground distribution and transmission mains throughout its gas distribution systems. These mains are located on easements or rights-of-way granted to the Company which generally provide for perpetual use. The Company maintains its mains through a program of continuous inspection and repair and believes that its system of mains is in good condition. The Company also owns and operates two propane peak shaving plants with a total capacity of approximately 330,000 gallons that can produce an equivalent of approximately 4,500 Mcf daily. The Company also owns an LNG storage facility with a capacity of 500,000 Mcf which can inject a daily volume of 30,000 Mcf in the system, as well as underground storage fields which are used to supplement the supply of natural gas in periods of peak demand. It has seven underground gas storage facilities in Kentucky and four in Kansas that have a total storage capacity of approximately 21.1 Bcf. However, approximately 10.0 Bcf of gas in the storage facilities must be retained as cushion gas to maintain reservoir pressure. The maximum daily delivery capability of the storage facilities is approximately 135,000 Mcf. Substantially all of the Company's properties in its Greeley Division and United Cities Division with net values of approximately $176.0 million and $319.7 million are subject to liens under First Mortgage Bonds assumed by the Company in its mergers with Greeley Gas Company and United Cities Gas Company. At September 30, 2000, the liens collateralized $17.0 million of outstanding 9.4 percent Series J First Mortgage Bonds due May 1, 2021, and $97.8 million of outstanding Series P, Q, R, T, U and V First Mortgage Bonds due at various dates from 2004 through 2022. The Company's administrative offices are consolidated in Dallas, Texas under one lease. The Company also maintains field offices throughout its distribution system, the majority of which are located in leased premises. Net property, plant and equipment at September 30, 2000 included approximately $958.4 million for utility, $23.2 million for non-regulated, and $.7 million for propane. The Company holds franchises granted by the incorporated cities and towns that it serves. At September 30, 2000, the Company held 460 such franchises having terms generally ranging from five to 25 years. The Company believes that each of its franchises will be renewed. ITEM 3. LEGAL PROCEEDINGS See Note 5 of notes to consolidated financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2000. 14 16 EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information as of September 30, 2000, regarding the executive officers of the Company. It is followed by a brief description of the business experience of each executive officer.
YEARS OF NAME AGE SERVICE OFFICE CURRENTLY HELD ---- --- -------- --------------------- Robert W. Best............................ 53 3 Chairman, President and Chief Executive Officer John P. Reddy............................. 47 2 Senior Vice President and Chief Financial Officer R. Earl Fischer........................... 61 38 Senior Vice President, Utility Operations Wynn D. McGregor.......................... 47 12 Vice President, Human Resources Louis P. Gregory.......................... 45 -- Senior Vice President and General Counsel
Robert W. Best was named Chairman of the Board, President and Chief Executive Officer in March 1997. He previously served as Senior Vice President -- Regulated Businesses of Consolidated Natural Gas Company (1996-March 1997) and was responsible for its transmission and distribution companies. Prior to that, he served as Senior Vice President of Transco Energy Company and President of Transcontinental Gas Pipe Line Corporation (1992-1995); and President of Texas Gas Transmission Corporation (1985-1995). John P. Reddy was named Senior Vice President and Chief Financial Officer in September 2000. From April 2000 to September 2000, he was Senior Vice President, Chief Financial Officer and Treasurer. Mr. Reddy previously served the Company as Vice President, Corporate Development and Treasurer from December 1998 to March 2000. He joined the Company in August 1998 from Pacific Enterprises, a Los Angeles, California based utility holding company whose principal subsidiary was Southern California Gas Co. where he was Vice President of Planning and Advisory Services responsible for corporate development and merger and acquisition activities. Mr. Reddy was with Pacific Enterprises from 1980 to 1998 in various management and financial positions. R. Earl Fischer was named Senior Vice President, Utility Operations in May 2000. He previously served the Company as President of the Energas Division from January 1999 to April 2000 and as President of the Western Kentucky Division from February 1989 to December 1998. Wynn D. McGregor was named Vice President, Human Resources in January 1994. He previously served the Company as Director of Human Resources from February 1991 to December 1993 and as Manager, Compensation and Employment from December 1987 to January 1991. Louis P. Gregory joined the Company as Senior Vice President and General Counsel in September 2000. Prior to joining the Company, he practiced law from April 1999 to August 2000 with the law firm of McManemin & Smith. Prior to that, he served as a consultant and independent contractor from August 1996 to December 1998 for Nomas Corp. (formerly known as Lomas Mortgage USA, Inc.) and Siena Holdings, Inc. (formerly known as Lomas Financial Corporation). He served in various legal positions with Lomas Financial Corporation, a diversified financial services company, and its affiliates, from August 1988 to June 1996, ultimately as Senior Vice President and General Counsel. 15 17 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's stock trades on the New York Stock Exchange under the trading symbol "ATO." The high and low sale prices and dividends paid per share of the Company's common stock for fiscal 2000 and 1999 are listed below. The high and low prices listed are the actual closing NYSE quotes for Atmos shares.
FISCAL YEAR 2000 -------------------------------- DIVIDENDS HIGH LOW PAID ------ ----- --------- Quarter ended: December 31............................................... $25 $20 $.285 March 31.................................................. 20 3/16 15 9/16 .285 June 30................................................... 20 9/16 14 3/4 .285 September 30.............................................. 23 1/4 18 1/2 .285 ----- $1.14 =====
FISCAL YEAR 1999 -------------------------------- DIVIDENDS HIGH LOW PAID ------ ----- --------- Quarter ended: December 31............................................... $32 1/4 $28 3/8 $.275 March 31.................................................. 32 11/16 23 1/16 .275 June 30................................................... 26 5/16 24 .275 September 30.............................................. 26 3/8 23 7/8 .275 ----- $1.10 =====
See Note 3 of notes to consolidated financial statements for restriction on payment of dividends. The number of record holders of the Company's common stock on September 30, 2000 was 32,394. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data of the Company and should be read in conjunction with the consolidated financial statements included herein.
YEAR ENDED SEPTEMBER 30, -------------------------------------------------------------- 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Operating revenues....... $ 850,152 $ 690,196 $ 848,208 $ 906,835 $ 886,691 ========== ========== ========== ========== ========== Net income............... $ 35,918 $ 17,744 $ 55,265 $ 23,838 $ 41,151 ========== ========== ========== ========== ========== Diluted net income per share.................. $ 1.14 $ .58 $ 1.84 $ .81 $ 1.42 ========== ========== ========== ========== ========== Cash dividends per share.................. $ 1.14 $ 1.10 $ 1.06 $ 1.01 $ .98 ========== ========== ========== ========== ========== Total assets at end of year................... $1,348,758 $1,230,537 $1,141,390 $1,088,311 $1,010,610 ========== ========== ========== ========== ========== Long-term debt at end of year................... $ 363,198 $ 377,483 $ 398,548 $ 302,981 $ 276,162 ========== ========== ========== ========== ==========
16 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION This section provides management's discussion of Atmos Energy Corporation's (the "Company" or "Atmos") financial condition, cash flows and results of operations with specific information on liquidity, capital resources and results of operations. It includes management's interpretation of such financial results, the factors affecting these results, the major factors expected to affect future operating results and future investment and financing plans. This discussion should be read in conjunction with the Company's consolidated financial statements and notes thereto. CAUTIONARY STATEMENT FOR THE PURPOSES OF THE SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The statements contained in this Annual Report on Form 10-K 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 Report 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, any other of the Company's 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 strategy, operations, markets, services, rates, recovery of costs, availability of gas supply and other factors. These risks and uncertainties include the following: national, regional and local economic conditions, including competition from other energy suppliers as well as alternative forms of energy; regulatory and business trends and decisions, including the impact of pending rate proceedings before various state regulatory commissions; successful implementation of new technologies and systems, including any technologies and systems related to the Company's customer support center and billing operations; weather conditions that would be adverse to its business such as the continuation of warmer than normal weather in the Company's service territories; successful completion and integration of pending acquisitions; inflation rates, including their effect on commodity prices for natural gas; hedging and market risk activities; further deregulation or "unbundling" of the natural gas distribution industry 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 these forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. Further, the Company undertakes no obligation to update or revise any of its forward-looking statements whether as a result of new information, future events or otherwise. RATEMAKING ACTIVITY The following is a discussion of the Company's ratemaking activity for rate cases that are currently pending as of September 30, 2000 or rate proceedings completed during the three years ended September 30, 2000. Results of the Company's rate activity for the three years ended September 30, 2000 can be summarized as follows: rate increases totaling $12.1 million implemented in 2000, no rate changes in 1999 and rate reductions of $1.8 million in 1998. In addition, the Illinois Commerce Commission granted the Company an increase of $1.4 million in Illinois effective October 23, 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. 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 with Amarillo also provided for changes in the 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 requests for an annual increase of approximately $9.8 million from the 67 cities served by its West Texas System were denied. In 17 19 March 2000, such decisions were appealed to the Railroad Commission of Texas. Subsequently, 59 cities representing approximately 58 percent of Energas' customers ratified a non-binding Settlement Agreement. 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. Eight cities, including Lubbock, Texas, declined to participate in the settlement and a hearing with the Railroad Commission of Texas was held in August 2000. A final resolution is expected in December 2000. At this time, the Company cannot predict the outcome of this rate proceeding. In June 1999, the Trans La Division appeared before the Louisiana Public Service Commission for a rate investigation and to redesign rates to mitigate the effects of warm winter weather. A decision was rendered by the Louisiana Commission in October 1999 that increased service charges associated with customer service calls and increased the monthly customer charges from $6 to $9, both effective November 1, 1999. While these changes are revenue neutral, they will mitigate the impact of warmer than normal winter weather on earnings. The decision also included a three-year rate stabilization clause which will allow the Trans La Division's rates to be adjusted annually to allow the Company to earn a minimum return on equity of 10.5 percent. In May 1999, the Western Kentucky Division requested from the Kentucky Public Service Commission ("KPSC") an increase in revenues, a weather normalization adjustment ("WNA") and changes in rate design to shift a portion of revenues from commodity charges to fixed rates. In December 1999, the KPSC granted an increase in annual revenues of approximately $9.9 million. 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. On June 9, 1998, the KPSC issued an Order approving an Experimental Performance-based Ratemaking ("PBR") mechanism related to gas procurement and gas transportation activities filed by the Western Kentucky Division. The PBR mechanism is incorporated into the Western Kentucky Division's gas cost adjustment clause. As discussed above, it provides for sharing of purchased gas cost savings between the consumers and the Company. The Company recognized other income of $2.1 million and $2.0 million under the Kentucky PBR in fiscal 2000 and fiscal 1999. On November 3, 2000, the Greeley Division filed a rate case with the Colorado Public Utilities Commission for approximately $4.2 million annually. A decision is expected in the case by July 2001. Effective April 1, 1999, the Tennessee Regulatory Authority approved the United Cities Division's request to continue its PBR mechanism related to gas procurement and gas transportation activities for a three-year period. The Authority revised the mechanism from the original two-year experimental period, by increasing the cap for incentive gains and/or losses to $1.25 million per year. Similar to Tennessee, the Georgia Public Service Commission renewed the Company's PBR program for an additional three years effective May 1, 1999. The gas purchase and capacity release mechanisms of the PBRs are designed to provide the Company incentives to find innovative methods to lower gas costs to its customers. The Company recognized other income of $179,000 and $176,000 in fiscal years 2000 and 1999 for the Georgia and Tennessee PBRs. In February 2000, the United Cities Division filed a rate case in Illinois with the Illinois Commerce Commission requesting an increase in annual revenues of approximately $3.1 million. After review by the Illinois Commerce Commission, the amount requested was revised to approximately $2.1 million. The United Cities Gas Division received an increase in annual revenues of approximately $1.4 million. The new rates went into effect on October 23, 2000 and will be collected primarily through an increase in customer charges. In March 2000, the United Cities Division filed a rate case in Virginia with the State Corporation Commission of the Commonwealth of Virginia requesting an increase in annual revenues of approximately $2.3 million. The State Corporation Commission of Virginia reviewed the filing to determine if it met 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. The Company expects 18 20 the new rates to be effective in December 2000. At this time, the Company cannot predict the outcome of this rate proceeding. WEATHER AND SEASONALITY The Company's natural gas distribution business and irrigation sales business are seasonal and dependent upon weather conditions in the Company's service areas. Natural gas sales to residential, commercial and public authority customers 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 industrial customers are much less weather sensitive. Sales to agricultural customers, who typically use natural gas to power irrigation pumps during the period from March through September, are affected by rainfall amounts. The effects of significantly warmer than normal winter weather in 2000, 1999 and 1998 on the Company's consolidated volumes delivered are illustrated by the following degree day information.
YEAR ENDED SEPTEMBER 30, ------------------------- 2000 1999 1998 ----- ----- ----- Sales volumes -- Bcf...................................... 138.2 140.1 159.4 Transportation volumes -- Bcf............................. 59.4 55.5 56.2 ----- ----- ----- Total........................................... 197.6 195.6 215.6 ===== ===== ===== Degree days: Actual.................................................. 3,302 3,374 3,799 % of normal............................................. 82% 85% 95%
The effects of weather that is above or below normal are offset in the Tennessee and Georgia jurisdictions served by the United Cities Division through WNAs. The Georgia Public Service Commission and the Tennessee Regulatory Authority have approved WNAs. The WNAs, effective October through May each year in Georgia, and November through April each year in Tennessee, allow the United Cities Division to increase the base rate portion of customers' bills when weather is warmer than normal and decrease the base rate when weather is colder than normal. The net effect of the WNAs was an increase in revenues of $4.1 million, $4.4 million and $.7 million in 2000, 1999 and 1998. Approximately 190,000 or 17 percent of the Company's meters in service are located in Georgia and Tennessee. The Company did not have WNAs in its other service areas during the year ended September 30, 2000. In both its rate cases settled in 2000, the Company received approvals to mitigate the effects of weather. The Kentucky Public Service Commission approved a five-year pilot program for weather normalization beginning in November 2000. Also, the Company received approval to change its rate structure in Amarillo, Texas, beginning in January 2000 to help offset some of the negative effects of weather. 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 should mitigate the effects of 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. For further information regarding the impact of weather and seasonality on operating results, see Note 16, "Selected Quarterly Financial Data (unaudited)" in notes to consolidated financial statements herein. 19 21 CAPITAL RESOURCES AND LIQUIDITY (SEE "CONSOLIDATED STATEMENTS OF CASH FLOWS") Fiscal 2000 was a year in which total cash outflows exceeded total cash inflows. This was generally the result of the combination of lower than normal cash flows from operating activities as a result of warmer than normal weather and higher than normal capital expenditures, primarily due to acquisitions. This cash shortfall was financed with short-term debt and sales of common stock through the Company's Employee Stock Ownership Plan ("ESOP") and its Direct Stock Purchase Plan ("DSPP"). CASH FLOWS FROM OPERATING ACTIVITIES Cash flows from operating activities as reported in the consolidated statement of cash flows totaled $54.2 million for 2000 compared with $84.7 million for 1999 and $91.7 million for 1998. The decrease in net cash provided by operating activities from 1999 to 2000 was primarily the result of increases in accounts receivable and gas storage inventories primarily due to higher gas prices, partially offset by higher net income. The increase in net income was primarily due to higher gross profit, reduced operating expenses and increased other income, partially offset by higher interest charges. CASH FLOWS FROM INVESTING ACTIVITIES During the last three years, a substantial portion of the Company's cash resources was used to fund technology improvements, acquisitions and its ongoing construction program to provide natural gas services to a growing customer base. Net cash used in investing activities totaled $100.1 million in 2000 compared with $109.6 million in 1999 and $118.8 million in 1998. Capital expenditures in fiscal 2000 amounted to $75.6 million, compared with $110.4 million in 1999 and $135.0 million in 1998. Completion of technology infrastructure and business process changes, implementation of Oracle enterprise resource planning system and Year 2000 readiness projects in 1999 allowed the Company to significantly reduce its capital expenditures for fiscal 2000. Included in investing activities in 2000 is $32.0 million used to acquire the Missouri natural gas distribution assets of Associated Natural Gas ("ANG") as discussed in Note 2 of notes to consolidated financial statements. Currently budgeted capital expenditures for fiscal 2001 total approximately $81.0 million and include funds for additional mains, services, meters and equipment. In fiscal 2001, the Company also plans to complete the LGS acquisition for $375.0 million and the acquisition of the remaining 55 percent of WMLLC for 1,423,193 restricted shares of Atmos common stock, subject to adjustment, as discussed in Note 2 of the notes to consolidated financial statements. Capital expenditures and acquisitions for fiscal 2001 are planned to be financed from internally generated funds and financing activities as discussed below. In 2000, the Company received net proceeds of $6.5 million in connection with the sale of certain propane assets to Heritage Propane Partners, L.P. as discussed in Note 1 of notes to consolidated financial statements. In 1998, the Company received $16.0 million from the sale of office buildings and an airplane. CASH FLOWS FROM FINANCING ACTIVITIES Net cash provided by financing activities totaled $44.7 million for 2000 compared with $28.7 million for 1999 and $25.9 million for 1998. Financing activities during these periods included issuance of common stock, dividend payments, short-term borrowings from banks under the Company's credit lines and issuance and repayment of long-term debt. The increase in cash provided in 2000 as compared to 1999 is due to lower repayments of long-term debt. Long-term debt payments totaled $14.6 million, $61.0 million and $16.3 million for 2000, 1999 and 1998. Payments of long-term debt in 2000, 1999 and 1998 consisted of annual installments under the various loan documents. During 2000, short-term debt increased $81.7 million due to the effect of warmer weather on net income for 2000, the acquisition of ANG for $32.0 million and increases in accounts receivable, cost of gas stored underground and deferred charges. During 1999, short-term debt increased $101.9 million due largely to lower net income and cash requirements of $61.0 million for repayments of long-term debt and capital expenditures of $110.4 million primarily for technology improvements. In 1998, short-term debt decreased $100.9 million due to the application of a portion of the $150.0 million proceeds from the issuance of 6.75 percent debentures. In July 1998, the Company issued 20 22 $150.0 million of 30-year 6.75 percent debentures. The debentures are rated A3 by Moody's and A- by Standard & Poor's. Issuance of common stock. The Company issued 704,540, 849,481 and 755,882 shares of common stock in 2000, 1999 and 1998 under its various plans. See the Consolidated Statements of Shareholders' Equity and Note 6 of the accompanying notes to consolidated financial statements for the number of shares previously issued and available for future issuance under each of the Company's plans. Cash dividends paid. The Company paid $36.0 million in cash dividends during 2000 compared with $33.9 million in 1999 and $31.8 million in 1998. Atmos raised the dividend $.04 per share during 2000 and 1999 and $.05 per share in 1998. LIQUIDITY The excess of cash outflows over inflows has resulted in an increase in debt as a percentage of total capitalization, including short-term debt, as shown in the table below.
SEPTEMBER 30, ------------------------------------- 2000 1999 ------------------ ---------------- (IN THOUSANDS) Short-term debt................................ $ 250,047 24.4% $168,304 17.9% Long-term debt................................. 380,764 37.2% 395,331 42.0% Shareholders' equity........................... 392,466 38.4% 377,663 40.1% ---------- ----- -------- ----- Total capitalization, including short-term debt......................................... $1,023,277 100.0% $941,298 100.0% ========== ===== ======== =====
The debt as a percentage of total capitalization, including short-term debt, was 61.6 percent and 59.9 percent at September 30, 2000 and 1999. The Company's long-term plans are to decrease the debt to capitalization ratio to nearer its target range of 50-52 percent through cash flow generated from operations, continued issuance of new common stock under its DSPP and ESOP, access to the debt and equity capital markets through its $500.0 million shelf registration statement and reduction of annual capital expenditures to the range of $75.0 million to $85.0 million. However, as discussed above, due to the pending acquisitions of LGS and WMLLC, as well as the effects of higher purchased gas costs, it is likely that the debt to capitalization ratio will be substantially higher in the near term. At September 30, 2000, the Company had short-term committed credit facilities totaling $800.0 million. One short-term unsecured credit facility, which serves as a backup liquidity facility for the Company's commercial paper program, is for $300.0 million. A second facility is for $15.0 million. These credit facilities are negotiated at least annually. In addition, 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 LGS acquisition including related costs and $100.0 million for refinancing certain existing debt. No amounts were outstanding under these facilities at September 30, 2000. At September 30, 2000, the Company also had uncommitted short-term credit lines of $90.0 million, all of which were unused. In October 1998, the Company began a $250.0 million commercial paper program which was increased to $300.0 million in August 2000. The commercial paper program is supported by the $300.0 million committed line of credit discussed above. At September 30, 2000, the Company had $250.0 million of commercial paper outstanding. The loan agreements pursuant to which the Company's Senior Notes and First Mortgage Bonds have been issued contain covenants by the Company with respect to the maintenance of certain debt-to-equity ratios and cash flows and restrictions on the payment of dividends. See Note 3 of the accompanying notes to consolidated financial statements for more information on these covenants. See Note 5 "Contingencies" for information regarding guarantees of certain accounts payable and short-term borrowings of WMLLC. 21 23 FUTURE CAPITAL REQUIREMENTS The Company believes that internally generated funds, its credit facilities, commercial paper program and access to the public debt and equity capital markets will provide necessary working capital and liquidity for capital expenditures and other cash needs for fiscal 2001. As discussed above, the Company has access to $315.0 million under its committed lines of credit and $90.0 million under its uncommitted lines. The Company also has a $485.0 million short-term unsecured credit facility to provide $385.0 million for bridge financing for the LGS acquisition and $100.0 million for refinancing certain existing debt. 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 $500.0 million in new common stock and/or debt. In connection with this filing, the Company also filed applications for approval to issue securities with six state utility commissions. The Company has received approvals from all six required states and the registration statement has been declared effective. No further state or federal regulatory approvals will be required before any debt or equity securities may be issued under the shelf registration statement by the Company from time to time. The universal shelf should provide the Company with greater flexibility in its financing options. RESULTS OF OPERATIONS -- CONSOLIDATED YEAR ENDED SEPTEMBER 30, 2000 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1999 To assist in understanding the results of operations, Item 6, "Selected Financial Data" summarizes trends in major financial statement captions and the following table presents the negative effects of weather on reported consolidated net income for the last three years. Earnings per share amounts presented in this discussion are on a diluted basis.
YEAR ENDED SEPTEMBER 30, --------------------------------------------------- 2000 1999 1998 --------------- --------------- --------------- PER PER PER AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE ------- ----- ------- ----- ------- ----- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net income as reported............ $35,918 $1.14 $17,744 $ .58 $55,265 $1.84 Effects of weather................ 27,900 28,224 3,485 ------- ------- ------- Estimated net income with normal weather......................... $63,818 $2.02 $45,968 $1.49 $58,750 $1.96 ======= ======= =======
NET INCOME AS REPORTED The Company reported net income of $35.9 million, or $1.14 per diluted share, on operating revenues of $850.2 million for the fiscal year ended September 30, 2000. Net income for 1999 was $17.7 million, or $.58 per diluted share, on operating revenues of $690.2 million. Revenues and purchased gas cost increased in 2000 as compared to 1999 due to higher gas costs which are passed through to customers. Gas costs averaged $3.79 per Mcf in 2000 compared to $2.79 per Mcf in 1999. Gross profit increased $25.9 million in 2000 compared to 1999 primarily due to the partial year impact of rate increases in Kentucky and Amarillo, Texas, the addition of approximately 48,000 Missouri customers due to an acquisition and increased volumes associated with the irrigation business. Operation and maintenance expenses decreased $9.3 million in 2000 compared with 1999 primarily due to cost reduction initiatives implemented due to the warm winter weather. However, an increase of $8.8 million in the provision for doubtful accounts in 2000 as compared with 1999 caused a substantial decrease in net cost reductions. The increase in bad debt expense occurred during the transition from local offices to a centralized customer service center and the implementation of a new company-wide customer 22 24 billing system. During this transition, the Company temporarily suspended service cutoffs and its normal efforts to collect past due receivables. In addition, increased depreciation and interest expense related to the cost of the new systems and business practice changes adversely affected financial results. Actions to address these issues were initiated in 2000. Ultimately, the Company expects significant efficiencies to result from the technology and business model changes. Other income for 2000 includes a gain of $5.8 million ($3.7 million after tax) from the sale of non-utility assets. In addition, the Company acquired a 6.5 percent indirect interest in Heritage Propane Partners, L.P., the fifth largest retail propane distributor in the United States. Results for three consecutive years have been negatively impacted by warmer than normal weather. Atmos experienced its warmest winter ever in fiscal 2000. Across the Atmos system, weather was approximately 18 percent warmer than normal and approximately two percent warmer than last year. In response to this trend, the Company has purchased weather hedges to mitigate the effects of warmer than normal weather in fiscal 2001, as previously discussed under "Weather and seasonality". Had the weather hedges been in effect in fiscal 2000, they would have increased net income by approximately $.25 per diluted share. For fiscal year 1999, the Company reported net income of $17.7 million, or $.58 per diluted share, on operating revenues of $690.2 million. The results of operations for 1999 were negatively impacted by weather that was warmer than normal, as well as warmer than 1998. Across the Atmos system, weather was more than 15 percent warmer than normal and more than 11 percent warmer than 1998. Rainfall in West Texas exceeded average rainfall levels for the region by more than 32 percent during the 1999 irrigation season, resulting in a 43 percent decrease in irrigation sales compared to 1998. In addition, increased depreciation and interest expense related to assets placed in service in advance of recognition in rates adversely affected financial results. Earnings were also reduced by a charge of $3.25 million ($2.07 million after tax) in the second quarter for settlement of litigation in Louisiana. Net income for 1999 was also negatively impacted by operating and maintenance expenses that were higher than 1998 as a result of the first full year of operation of the Company's customer support center in Amarillo, process improvement initiatives related to the new customer information and billing system and the accounting and human resource systems placed in service during the year and Year 2000 readiness initiatives. Operation and maintenance expenses also included increased reserves of $6.8 million for the possible write-off of accounts receivable resulting from a temporary suspension in service cutoffs and normal efforts to collect past due receivables in connection with the Company's conversion to the new customer information and billing system. In addition to lower gross profit resulting from adverse weather conditions, gross profit for the year was reduced $4.3 million by reserves established for deferred gas costs that are not expected to be recoverable. Finally, 1999 results were positively impacted by a change in accounting principle adopted by WMLLC, a gas marketing and services company in which Atmos owns a 45 percent interest. WMLLC adopted Emerging Issues Task Force Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities" ("EITF 98-10"), the effect of which added $2.4 million to other income. For fiscal year 1998, the Company reported net income of $55.3 million, or $1.84 per diluted share, on operating revenues of $848.2 million. Although revenues for 1998 were lower as a result of winter weather that was five percent warmer than normal, as well as warmer than 1997, earnings improved due to gains on asset sales totaling $3.3 million ($2.2 million after tax), lower operation and maintenance expenses and increased irrigation sales. Operation and maintenance expenses were lower for 1998 due to a company-wide restructuring of the organization and Atmos' integration of the United Cities Division. Sales of gas in West Texas to farmers for fueling irrigation pumps increased due to hot and dry summer weather in 1998. Irrigation volumes increased 34 percent in 1998 compared with 1997. 23 25 CONSOLIDATED OTHER INCOME, INTEREST CHARGES AND INCOME TAXES Other income Other, net was $7.4 million, $3.0 million and $5.9 million for 2000, 1999 and 1998. The increase in 2000 as compared to 1999 was primarily due to the $5.8 million ($3.7 million after tax) gain resulting from the sale of non-utility assets. The $3.0 million in 1999 was primarily due to income from performance-based rates which were implemented in Kentucky in 1998. The $5.9 million in 1998 was primarily due to the $3.3 million gain from sale of certain assets obtained in the merger with UCGC. Interest charges Interest charges totaled $43.8 million, $37.1 million and $35.6 million in 2000, 1999 and 1998. The increase in 2000 was primarily due to $3.7 million of interest being capitalized in 1999 in connection with the significant technology projects that were placed in service as well as higher average debt outstanding and higher interest rates in 2000. The increases in total debt outstanding in 2000, 1999 and 1998 were related to funding infrastructure, technology, process changes and customer support investments. Also in 2000, total debt increased due to the $32.0 million acquisition of ANG and increased gas costs. Income taxes The provision for income taxes was $20.3 million, $9.6 million and $31.8 million for 2000, 1999 and 1998. Changes in income taxes are primarily related to changes in pre-tax income. For further information regarding income taxes, see Note 4 of notes to consolidated financial statements. Net income by segment The Company operated three business segments in 2000: utility operations, propane operations, which were sold August 10, 2000, and non-regulated operations which include the Company's 45 percent interest in WMLLC. The following table sets forth the net income (loss) of each of these segments for 2000, 1999 and 1998.
YEAR ENDED SEPTEMBER 30, --------------------------- 2000 1999 1998 ------- ------- ------- (IN THOUSANDS) Utility................................................. $22,459 $10,800 $43,332 Propane................................................. 2,602 (869) (66) Non-regulated........................................... 10,857 7,813 11,999 ------- ------- ------- Consolidated net income................................. $35,918 $17,744 $55,265 ======= ======= =======
For additional financial information regarding the Company's segments, see Note 11 of notes to consolidated financial statements and the following discussion of the "Results of Operations" for each segment. 24 26 RESULTS OF OPERATIONS -- UTILITY Key financial and operating data for the Company's utility operations before intercompany eliminations are highlighted in the following table.
YEAR ENDED SEPTEMBER 30, --------------------------------------------- 2000 1999 1998 ------------- ------------- ------------- (DOLLARS IN THOUSANDS, EXCEPT PER MCF DATA) FINANCIAL Operating revenues............................. $ 739,951 $ 621,211 $ 739,930 Purchased gas cost............................. 438,587 343,338 438,920 ---------- ---------- ---------- Gross profit........................... 301,364 277,873 301,010 Operating expenses............................. 225,703 228,873 200,345 ---------- ---------- ---------- Operating income....................... 75,661 49,000 100,665 Other income................................... 3,351 2,763 843 Interest charges............................... 44,156 35,799 33,181 Income taxes................................... 12,397 5,164 24,995 ---------- ---------- ---------- Net income............................. $ 22,459 $ 10,800 $ 43,332 ========== ========== ========== OPERATING Sales volumes (MMcf)........................... 119,470 125,279 136,748 Transportation (MMcf).......................... 80,182 69,877 70,217 ---------- ---------- ---------- Total volumes (MMcf)................... 199,652 195,156 206,965 ========== ========== ========== Meters in service, end of year(1)................ 1,096,599 1,037,995 1,004,532 Average gas sales price/Mcf...................... $ 5.91 $ 4.71 $ 5.17 Average cost of gas/Mcf.......................... $ 3.67 $ 2.74 $ 3.21 Average margin per Mcf sold...................... $ 2.24 $ 1.97 $ 1.96 Average transportation revenue/Mcf............... $ .33 $ .35 $ .37
--------------- (1) Includes 12,273, 12,711, and 14,257 non-regulated irrigation meters for 2000, 1999, and 1998. YEAR ENDED SEPTEMBER 30, 2000 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1999 Operating revenues increased approximately 19 percent to $740.0 million in 2000 from $621.2 million in 1999 due primarily to an increase of 25 percent in sales price per thousand cubic feet ("Mcf") of gas sold. The increase in sales price reflects an increase in the commodity cost of gas, which is passed through to end users, and rate increases implemented in 2000. Sales volumes to all classes of customers decreased approximately 5.8 billion cubic feet ("Bcf") in 2000 while transportation volumes delivered to industrial and agricultural customers increased approximately 10.3 Bcf. Total sales and transportation volumes delivered increased two percent to 199.7 Bcf in 2000, as compared with 195.2 Bcf in 1999. Gross profit increased by approximately eight percent to $301.4 million in 2000 from $277.9 million in 1999. Factors contributing to the increase in gross profit were primarily rate increases totaling approximately $12.1 million implemented in fiscal 2000 and an increase in transportation volumes of 10.3 Bcf. Operating expenses decreased $3.2 million or one percent to $225.7 million in 2000. The decrease in operating expenses was due to cost reduction efforts in response to the warm winter. The cost reductions more than offset increased reserves for the possible write-off of accounts receivable resulting from a temporary suspension in service cutoffs and normal efforts to collect past due receivables in connection with the Company's conversion to the new customer information and billing system. YEAR ENDED SEPTEMBER 30, 1999 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1998 Operating revenues decreased approximately 16 percent to $621.2 million in 1999 from $739.9 million in 1998 due to a decrease of eight percent in sales volumes and a decrease of nine percent in the average sales 25 27 price per Mcf of gas sold. The decrease in sales price reflects a decrease in the commodity cost of gas, which is passed through to end users, and rate decreases implemented in 1998. Sales to weather sensitive residential, commercial and public authority customers decreased approximately 10.1 Bcf in 1999. Total sales and transportation volumes delivered decreased six percent to 195.2 Bcf in 1999, as compared with 207.0 Bcf in 1998. The volume decrease was primarily due to lower demand as a result of weather that was 11 percent warmer in 1999 than in 1998. Gross profit decreased by approximately eight percent to $277.9 million in 1999 from $301.0 million in 1998. Factors contributing to the lower gross profit were a decrease in sales volumes of 11.5 Bcf or eight percent due to the effect of 11 percent warmer weather than in 1998, rate decreases totaling approximately $1.8 million implemented in fiscal 1998 in Colorado and Virginia and a reserve of $4.3 million established for deferred gas costs that are not expected to be recoverable. Operating expenses increased $28.5 million or 14 percent to $228.9 million in 1999. The increase in operating expenses was due to the first full year of operation of the Company's Customer Support Center in Amarillo, process improvement initiatives related to the new customer information and billing system and the accounting and human resource systems placed in service during the year and Year 2000 readiness initiatives. Operation expenses also included increased reserves of $6.8 million for the possible write-off of accounts receivable resulting from a temporary suspension in service cutoffs and normal efforts to collect past due receivables in connection with the Company's conversion to the new customer information and billing system. RESULTS OF OPERATIONS -- PROPANE Key financial and operating data for the propane operations are presented in the following table.
YEAR ENDED SEPTEMBER 30, --------------------------- 2000(1) 1999 1998 ------- ------- ------- (DOLLARS IN THOUSANDS, EXCEPT PER GALLON DATA) FINANCIAL Operating revenues.................................... $22,550 $22,944 $29,091 Purchased gas cost.................................... 13,028 11,155 17,709 ------- ------- ------- Gross profit.................................. 9,522 11,789 11,382 Operating expenses.................................... 10,130 12,332 10,763 ------- ------- ------- Operating income (loss)....................... (608) (543) 619 Other income.......................................... 6,090 482 174 Interest charges...................................... 1,319 1,231 897 Income tax expense (benefit).......................... 1,561 (423) (38) ------- ------- ------- Net income (loss)............................. $ 2,602 $ (869) $ (66) ======= ======= ======= OPERATING Propane heating degree days: Actual............................................. 3,518 3,440 3,799 % of normal........................................ 87% 85% 94% Sales volumes (000 gallons): Retail............................................. 17,349 19,700 17,229 Wholesale.......................................... 1,980 2,591 6,183 ------- ------- ------- Total......................................... 19,329 22,291 23,412 ======= ======= ======= Average selling price/gallon............................ $ 1.03 $ .88 $ .88 Average cost/gallon..................................... $ .62 $ .44 $ .53 Customers, end of year(1)............................... -- 39,539 37,400
26 28 --------------- (1) The amounts for United Cities Propane, Inc. for 2000 represent only 10 months of operations because it was combined with Heritage as discussed in Note 1 of notes to consolidated financial statements, effective August 10, 2000. At that time it had 40,515 customers. YEAR ENDED SEPTEMBER 30, 2000 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1999 Propane revenues decreased $.3 million from $22.9 million in 1999 to $22.6 million in 2000 primarily due to including only 10 months of operations. The propane business was combined with Heritage as discussed in Note 1 of notes to consolidated financial statements, effective August 10, 2000. Subsequently, the Company's share of propane results are reflected on an equity basis. Purchased gas cost increased $1.8 million from $11.2 million in 1999 to $13.0 million in 2000 due primarily to generally higher fuel costs. Additionally, the average cost per gallon increased $.18 per gallon from $.44 per gallon in 1999 to $.62 per gallon in 2000. Operating expenses decreased $2.2 million from $12.3 million in 1999 to $10.1 million in 2000 due primarily to the shorter operating period in 2000. YEAR ENDED SEPTEMBER 30, 1999 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1998 Propane revenues decreased $6.2 million from $29.1 million in 1998 to $22.9 million in 1999 primarily due to decreased wholesale volumes sold as a result of the implementation of the Company's plan to exit the wholesale propane supply and transportation business. Partially offsetting this decrease was an increase in the retail gallons sold as a result of the acquisitions of Ingas, Inc. in May, 1998; Harris Propane Gas Company, Inc. in July 1998; Massey Propane Gas Company and E-Con Gas, Inc. in August 1998 and Shaw LP Gas, Inc. in September 1998. The Company exited the less profitable propane transportation, cylinder exchange and appliance sales and service businesses in 1999. Purchased gas cost decreased $6.5 million from $17.7 million in 1998 to $11.2 million in 1999 due primarily to decreased wholesale volumes sold. Additionally, the average cost per gallon decreased $.09 per gallon from $.53 per gallon in 1998 to $.44 per gallon in 1999. This decrease was partially offset by the cost of increased retail gallons sold due to the acquisitions made during fiscal 1998. Operating expenses increased $1.5 million from $10.8 million in 1998 to $12.3 million in 1999 due primarily to the acquisitions made during fiscal 1998. Interest expense increased $.3 million due to increased debt related to the acquisitions in 1998 and slightly higher interest rates in 1999. 27 29 RESULTS OF OPERATIONS -- NON-REGULATED This segment is currently composed of four parts. Atmos Storage, Inc. owns underground storage fields in Kansas and Kentucky and provides storage services to the United Cities Division and the Greeley Division and other non-regulated customers. Atmos Energy Services, Inc. ("AESI") markets gas to irrigation and industrial customers in West Texas through Enermart Energy Services Trust ("Enermart") and to industrial customers in Louisiana and is developing plans for marketing various non-regulated services and products. Atmos Energy Marketing, LLC, owns the Company's 45 percent investment in WMLLC, a gas marketing and energy management services business. Atmos Leasing, Inc., leases buildings and vehicles to the United Cities Division and gas appliances to residential customers. Key financial data for the non-regulated segment are set forth below.
YEAR ENDED SEPTEMBER 30, --------------------------- 2000 1999 1998 ------- ------- ------- (DOLLARS IN THOUSANDS) Operating revenues...................................... $96,305 $53,416 $80,672 Purchased gas cost...................................... 81,485 43,284 61,228 ------- ------- ------- Gross profit.................................. 14,820 10,132 19,444 Operating expenses...................................... 6,103 4,350 7,849 ------- ------- ------- Operating income.............................. 8,717 5,782 11,595 Other income (loss)..................................... 2,565 (96) 4,834 Equity in earnings of unconsolidated investment......... 7,307 7,156 3,920 Interest charges........................................ 1,371 215 1,501 Income taxes............................................ 6,361 4,814 6,849 ------- ------- ------- Net income.................................... $10,857 $ 7,813 $11,999 ======= ======= ======= Gas Sales (MMcf) Irrigation............................................ 13,174 9,655 17,018 Industrial............................................ 5,555 5,185 5,607 ------- ------- ------- Total......................................... 18,729 14,840 22,625 ======= ======= =======
YEAR ENDED SEPTEMBER 30, 2000 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1999 Operating revenues increased 80 percent from $53.4 million in 1999 to $96.3 million in 2000 due primarily to increased West Texas non-regulated irrigation and industrial sales volumes related to irrigation demand, and secondly, to higher sales prices reflecting higher gas costs. The increase in irrigation revenues was due to decreased rainfall during the growing season in West Texas in 2000. Operating expenses increased $1.8 million in 2000 primarily due to increased irrigation volumes and related activity in West Texas. Other income increased $2.7 million in 2000 from 1999 primarily due to increased intercompany interest income of $2.2 million in 2000. Equity in earnings of unconsolidated investment increased $.2 million in 2000 from 1999, reflecting the Company's 45 percent interest in the earnings of WMLLC. Interest charges increased $1.2 million due primarily to increased short-term debt in 2000 as compared with 1999. YEAR ENDED SEPTEMBER 30, 1999 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1998 Operating revenues decreased 34 percent from $80.7 million in 1998 to $53.4 million in 1999 due primarily to decreased West Texas non-regulated irrigation and industrial revenues. The decrease in irrigation revenues was due to increased rainfall and cooler summer temperatures in West Texas. Storage revenues also decreased due to decreased volumes withdrawn from underground storage as a result of warmer than normal winter weather in Kansas and Tennessee. 28 30 Operating expenses decreased $3.5 million in 1999 due primarily to Enermart entering into an all-inclusive gas transportation service agreement with the Energas Division which resulted in costs which Enermart had previously classified as operation expense being classified as cost of gas in 1999. Decreased irrigation volumes in West Texas and storage withdrawals in Kansas and Tennessee also reduced operating costs. Other income decreased $4.9 million in 1999 from 1998 primarily due to a $3.3 million gain on sale of assets in 1998. Equity in earnings of unconsolidated investment increased $3.2 million in 1999 from 1998 primarily because of the $2.4 million of income resulting from WMLLC's adoption of EITF 98-10 in 1999. Interest charges decreased $1.3 million due primarily to decreased short-term debt in 1999 as compared with 1998. EQUITY IN EARNINGS OF WMLLC The Company accounts for its 45 percent investment in WMLLC using the equity method of accounting. Against the 45 percent of WMLLC's net income before tax, the Company records the amortization of the excess of the purchase price over the value of the net tangible assets, amounting to approximately $5.4 million which was allocated to intangible assets consisting of customer contracts and goodwill, and is being amortized over ten and twenty years, as well as the provision for income taxes. Upon the closing of the acquisition of the remaining 55 percent of WMLLC, intangible assets and the related amortization will increase. The following table presents the WMLLC financial results recorded by Atmos for the years ended September 30, 2000, 1999 and 1998. WMLLC has adopted the calendar year for financial reporting purposes.
YEAR ENDED SEPTEMBER 30, -------------------------- 2000 1999 1998 ------- ------- ------ (IN THOUSANDS) WMLLC net income before taxes............................ $16,238 $15,902 $8,711 ======= ======= ====== Atmos equity in WMLLC earnings at 45%.................... 7,307 7,156 3,920 Less: Amortization of excess purchase price.................. 416 407 400 Provision for taxes.................................... 2,490 2,362 1,337 ------- ------- ------ Net............................................ $ 4,401 $ 4,387 $2,183 ======= ======= ======
The net income before taxes of WMLLC increased from $8.7 million for 1998, to $15.9 million for 1999, to $16.2 million for 2000 due to growth in the number of customers and gas marketing volumes and revenues each year. Additionally, WMLLC adopted EITF 98-10 in 1999, the effect of which added $2.4 million to the Company's equity in earnings of unconsolidated investment. As discussed in the accompanying notes to consolidated financial statements, in fiscal 2001 the Company plans to adopt SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" and to complete the purchase of the remaining 55 percent of WMLLC. See Item 7A. Quantitative and Qualitative Disclosures About Market Risk -- Gas Prices below. FACTORS THAT MAY AFFECT FUTURE PERFORMANCE OF THE COMPANY The performance of the Company in the future will primarily depend on the results of its utility operations since utility operations are expected to continue to be the substantial contributor to the Company's consolidated net income. Because of the ever changing nature of the energy marketplace, several factors exist that could influence Atmos' future financial performance. Some of the most significant factors are described below. They should be considered in connection with evaluating forward-looking statements contained in this report and otherwise made by or on behalf of the Company since these factors could cause actual results and conditions to differ materially from those projected in these forward-looking statements. 29 31 National, regional and local economic conditions The Company's operations will always be affected by the conditions of the national, regional and local economy, including the recent effects of substantially higher commodity costs of natural gas. Such higher costs could lead many customers to conserve in the use of the Company's gas services. In the case of industrial customers, such as manufacturing plants and agricultural customers, adverse economic conditions, including higher gas costs, could cause such customers to use alternative sources of energy such as electricity. Higher gas costs could also cause more natural gas marketers to enter into competition for sales of the commodity to certain of the Company's customers. Regulatory and business trends and decisions The Company's utility business is subject to various regulated returns on its rate base in each of the 12 states in which it operates. The Company monitors the allowed rates of return, its effectiveness in earning such rates, and initiates rate proceedings or operating changes as needed. The Company currently has rate proceedings pending before regulatory commissions in Colorado, Texas and Virginia, the outcome of which cannot be accurately predicted at this time. In addition, in the normal course of the regulatory environment, assets are placed in service and historical test periods are established before rate cases can be filed. Once rate cases are filed, regulatory bodies have the authority to suspend implementation of the new rates while studying the cases. Because of this process, the Company must temporarily suffer the negative financial effects of having placed assets in service without the benefit of rate relief, which is commonly referred to as "regulatory lag". Successful implementation of new technologies and systems In the past two to three years, the Company has made a significant investment in upgrading its customer support center, its billing systems and its financial, accounting and human resources computerized systems. The Company is nearing the completion of the implementation of these technologies and systems across all of its service areas and shared services at its headquarters. In connection with the implementation of its customer support center and its new customer billing system, the Company temporarily suspended its cutoffs and its normal efforts to collect past due receivables. As discussed below, these practices resulted in a substantial increase in bad debt expense. However, the Company has initiated procedures to mitigate such adverse effects of this transition to new technology and expects bad debt expense to improve in the upcoming fiscal year. In addition, recognizing the accelerating pace of technological advances, including the Internet, client server systems, personal computers and telecommunications, the Company is planning to continue to utilize such advances in creative ways to better serve its customers and optimize the efficiency of its operations. Adverse weather conditions The Company's natural gas sales volumes and related revenues are directly correlated with space heating requirements that result from cold winter weather. Its agricultural sales volumes are associated with the rainfall levels during the growing season in its West Texas irrigation market. Weather is one of the most significant factors influencing the Company's performance. However, as was more fully discussed above, the Company has purchased weather hedges to mitigate the effect of warmer than historically normal weather in its Texas and Louisiana service areas. In addition, weather normalized rates are in effect in several of its jurisdictions which should somewhat mitigate the adverse effects of warmer or drier than normal weather on the Company's operating results. Successful completion and integration of pending acquisitions The Company currently has pending two significant acquisitions, the acquisition of the assets of the Louisiana Gas Service division of Citizens Communications Company and LGSN, a wholly-owned subsidiary of Citizens, as well as the pending acquisition of the remaining 55 percent of WMLLC. The completion of each of these acquisitions is subject to state and federal regulatory approval. In addition, the integration of 30 32 these two acquisitions during the next fiscal year will require a substantial commitment of financial resources of the Company. In the LGS and LGSN acquisition, the Company will be required to utilize bridge financing to fund the purchase, which financing is already in place. This borrowing will substantially increase the debt to equity ratio in the Company's balance sheet in the near term. In addition, the acquisition of WMLLC will mean that the Company, through its Atmos Energy Marketing subsidiary, will have significantly greater financial exposure through its guaranty of 100 percent of a $100.0 million credit facility for WMLLC, of which $75.0 million was available at September 30, 2000, up from 45 percent currently. However, over the long term, the LGS and LGSN acquisition should help the Company achieve greater economies of scale, thereby spreading the fixed costs of the utility business over a larger customer base which is a basic tenet in the Company's plan to continue to be a low cost provider among its industry peers. Inflation and increased gas costs The Company believes that inflation has caused, and will continue to cause increases in certain operating expenses and has required and will continue to require assets to be replaced at higher costs. The Company has a process in place to continually review the adequacy of its gas rates in relation to the increasing cost of providing service and the inherent regulatory lag in adjusting those gas rates. Historically, the Company has been able to budget and control operating expenses and investment within the amounts authorized to be collected in rates and intends to continue to do so. The ability to control expenses is an important factor that will influence future results. In addition, the recent rapid increases in the price of purchased gas will most likely cause the Company to experience a significant increase in its short-term debt because the Company must pay suppliers for such gas when it is purchased which is long before such costs may be recovered through the collection of monthly customer bills for gas delivered. Also, the increases in purchased gas costs most likely will mean that more customers will be slow to pay their gas bills, leading to a buildup in accounts receivable that will be higher than normal which in turn could lead to higher short-term debt levels. Hedging and market risk activities To mitigate the financial risks arising from fluctuations in both the market price and transportation costs of natural gas, WMLLC routinely enters into natural gas futures, swaps and options as a method of protecting its margins on the underlying physical transactions. Such contracts are subject to rapid fluctuations in the price of natural gas futures. The instruments used are principally readily marketable exchange-traded futures contracts which are designated as hedges. The changes in market value of such contracts generally have a high correlation to the price change of the hedged commodity. In addition, while not usually material, WMLLC also maintains net open positions from time to time in terms of price, volume and specified delivery point. Deregulation or unbundling The Company is closely monitoring the development of unbundling initiatives in the natural gas industry. Unbundling is the separation of the provision and pricing of local distribution gas services into discrete components. It typically focuses on the separation of the distribution and gas supply components and the resulting opening of the regulated components of sales services to alternative unregulated suppliers of those services. Because of its brand loyalty in its service areas, its enhanced technology and distribution system infrastructures, the Company believes that it is now positively positioned as unbundling evolves. Consequently, the Company does not expect there to be a significant adverse effect on its business should unbundling or further deregulation of the natural gas distribution service business occur. 31 33 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The risk inherent in the Company's market risk sensitive instruments is the potential loss arising from adverse changes in natural gas commodity prices and interest rates as discussed below. The sensitivity analysis does not, however, consider the effects that such adverse changes may have on overall economic activity nor do they consider additional actions the Company may take to mitigate its exposure to such changes. Actual results may differ. GAS PRICES The Company purchases natural gas for its regulated and non-regulated natural gas operations. Substantially all of the cost of gas purchased for regulated operations is recovered through purchased gas adjustment mechanisms. The Company has a limited market risk in gas prices related to gas purchases in the open market at spot prices for sale to non-regulated energy services customers at fixed prices. As a result, the Company's earnings could be affected by changes in the price and availability of such gas. As market conditions dictate, the Company from time to time will lock-in future gas prices using various hedging techniques including swap agreements with suppliers. The Company does not use such financial instruments for trading purposes and is not a party to any leveraged derivatives. Market risk is estimated as a hypothetical 10 percent increase in the portion of the Company's gas cost related to fixed-price non-regulated sales. Based on projected fiscal 2001 non-regulated gas sales at fixed prices, such an increase would result in an increase to cost of gas of approximately $6.2 million in fiscal 2001, before considering the effect of swap agreements outstanding as of September 30, 2000. As of September 30, 2000, the Company had entered into swap agreements to lock in gas costs for certain outstanding fixed-price sales agreements. The Company plans to mitigate the risk of increased gas purchase costs for fixed-price customers by entering into swap agreements to lock in purchased gas cost for estimated sales volumes in fiscal 2001. As discussed in the accompanying notes to consolidated financial statements, in fiscal 2001 the Company plans to adopt SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" and to complete the purchase of the remaining 55 percent of WMLLC. WMLLC is a natural gas services and marketing company which currently follows mark to market accounting under EITF 98-10 for its natural gas commodity and futures positions. The prices of such gas purchases and futures positions are subject to wide fluctuations at times due to unpredictable factors such as weather, government policies and global demand for natural gas and competitive fuels. To reduce price risk caused by market fluctuations, WMLLC generally follows a policy of hedging its inventories and related purchase and sale contracts. The instruments used are principally readily marketable exchange-traded futures contracts which are designated as hedges. The changes in market value of such contracts generally have a high correlation to the price changes of the hedged commodity. In addition to the increased risk exposure due to the completion of the purchase of WMLLC, the adoption of SFAS No. 133 by WMLLC may affect the Company's earnings volatility. INTEREST RATES The Company's earnings are affected by changes in short-term interest rates as a result of its issuance of short-term commercial paper. If market interest rates for commercial paper average two percent more in fiscal 2001 than they did during fiscal 2000, the Company's interest expense would increase by approximately $3.6 million. Market risk for fixed-rate long-term obligations is estimated as the potential increase in fair value resulting from a hypothetical one percent decrease in interest rates and amounts to approximately $29.1 million based on discounted cash flow analyses. As previously discussed, the Company has arranged a $485.0 million short-term variable rate credit facility at LIBOR plus 75 basis points to provide bridge financing for the acquisition of LGS in fiscal 2001. The Company plans to refinance the temporary financing prior to its expiration. As of September 30, 2000, the Company was not engaged in other activities which would cause exposure to the risk of material earnings or cash flow loss due to changes in interest rates, foreign currency exchange rates or market commodity prices. 32 34 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS Management is responsible for the preparation, presentation and integrity of the financial statements and other financial information in this report. The accompanying financial statements have been prepared in accordance with generally accepted accounting principles and include estimates and judgments made by management that were necessary to prepare the statements in accordance with such accounting principles. The Company maintains a system of internal accounting controls designed to provide reasonable assurance that assets are safeguarded from loss and that transactions are executed and recorded in accordance with established procedures. The concept of reasonable assurance is based on the recognition that the cost of maintaining a system of internal accounting controls should not exceed related benefits. The system of internal accounting controls is supported by written policies and guidelines, internal auditing and the careful selection and training of qualified personnel. The financial statements have been audited by the Company's independent auditors. Their audit was made in accordance with auditing standards generally accepted in the United States, as indicated in the Report of Independent Auditors and included a review of the system of internal accounting controls and tests of transactions to the extent they considered necessary to carry out their responsibilities for the audit. Management has considered the internal auditors' and the independent auditors' recommendations concerning the Company's system of internal accounting controls and has taken actions that are believed to be cost-effective in the circumstances to respond appropriately to these recommendations. The Audit Committee of the Board of Directors meets periodically with the internal auditors and the independent auditors to discuss the Company's internal accounting controls, auditing and financial reporting matters. 33 35 REPORT OF INDEPENDENT AUDITORS Board of Directors Atmos Energy Corporation We have audited the accompanying consolidated balance sheets of Atmos Energy Corporation at September 30, 2000 and 1999, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended September 30, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Atmos Energy Corporation as of September 30, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 2000, in conformity with accounting principles generally accepted in the United States. ERNST & YOUNG LLP Dallas, Texas November 8, 2000 34 36 ATMOS ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, ----------------------- 2000 1999 ---------- ---------- (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Property, plant and equipment............................... $1,546,569 $1,526,834 Construction in progress.................................... 33,234 22,424 ---------- ---------- 1,579,803 1,549,258 Less accumulated depreciation and amortization.............. 597,457 583,476 ---------- ---------- Net property, plant and equipment......................... 982,346 965,782 Current assets Cash and cash equivalents................................. 7,379 8,585 Accounts receivable, less allowance for doubtful accounts of $10,589 in 2000 and $9,231 in 1999............................. 114,448 70,564 Inventories............................................... 6,456 8,209 Gas stored underground.................................... 64,222 44,653 Prepayments............................................... 8,101 3,142 ---------- ---------- Total current assets.............................. 200,606 135,153 Deferred charges and other assets........................... 165,806 129,602 ---------- ---------- $1,348,758 $1,230,537 ========== ========== CAPITALIZATION AND LIABILITIES Shareholders' equity Common stock, no par value (stated at $.005 per share); 100,000,000 shares authorized; issued and outstanding: 2000 -- 31,952,340 shares, 1999 -- 31,247,800 shares.............................. $ 160 $ 156 Additional paid-in capital................................ 306,887 293,359 Retained earnings......................................... 83,154 83,231 Accumulated other comprehensive income.................... 2,265 917 ---------- ---------- Shareholders' equity.............................. 392,466 377,663 Long-term debt.............................................. 363,198 377,483 ---------- ---------- Total capitalization.............................. 755,664 755,146 Current liabilities Current maturities of long-term debt...................... 17,566 17,848 Short-term debt........................................... 250,047 168,304 Accounts payable.......................................... 73,031 64,167 Taxes payable............................................. 10,844 848 Customers' deposits....................................... 9,923 9,657 Other current liabilities................................. 21,085 25,951 ---------- ---------- Total current liabilities......................... 382,496 286,775 Deferred income taxes....................................... 131,619 112,610 Deferred credits and other liabilities...................... 78,979 76,006 ---------- ---------- $1,348,758 $1,230,537 ========== ==========
See accompanying notes to consolidated financial statements. 35 37 ATMOS ENERGY CORPORATION CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED SEPTEMBER 30, ------------------------------ 2000 1999 1998 -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Operating revenues.......................................... $850,152 $690,196 $848,208 Purchased gas cost.......................................... 524,446 390,402 516,372 -------- -------- -------- Gross profit................................................ 325,706 299,794 331,836 Operating expenses Operation................................................. 140,249 148,065 131,336 Maintenance............................................... 7,648 9,141 10,278 Depreciation and amortization............................. 63,855 56,874 47,555 Taxes, other than income.................................. 28,638 31,475 29,788 -------- -------- -------- Total operating expenses.......................... 240,390 245,555 218,957 -------- -------- -------- Operating income............................................ 85,316 54,239 112,879 Other income Equity in earnings of unconsolidated investment........... 7,307 7,156 3,920 Other, net................................................ 7,437 2,967 5,851 -------- -------- -------- Total other income................................ 14,744 10,123 9,771 Interest charges, net....................................... 43,823 37,063 35,579 -------- -------- -------- Income before income taxes.................................. 56,237 27,299 87,071 Income taxes................................................ 20,319 9,555 31,806 -------- -------- -------- Net income........................................ $ 35,918 $ 17,744 $ 55,265 ======== ======== ======== Basic net income per share.................................. $ 1.14 $ .58 $ 1.85 ======== ======== ======== Diluted net income per share................................ $ 1.14 $ .58 $ 1.84 ======== ======== ======== Cash dividends per share.................................... $ 1.14 $ 1.10 $ 1.06 ======== ======== ======== Weighted average shares outstanding: Basic..................................................... 31,461 30,566 29,822 ======== ======== ======== Diluted................................................... 31,594 30,819 30,031 ======== ======== ========
See accompanying notes to consolidated financial statements. 36 38 ATMOS ENERGY CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK ACCUMULATED ------------------- ADDITIONAL OTHER NUMBER OF STATED PAID-IN COMPREHENSIVE RETAINED SHARES VALUE CAPITAL INCOME EARNINGS TOTAL ---------- ------ ---------- -------------- -------- -------- (IN THOUSANDS, EXCEPT SHARE DATA) Balance, September 30, 1997....... 29,642,437 $148 $251,174 $ -- $ 75,938 $327,260 Net income........................ -- -- -- -- 55,265 55,265 Cash dividends ($1.06 per share).......................... -- -- -- -- (31,834) (31,834) Common stock issued: Restricted stock grant plan..... 114,250 1 2,898 -- -- 2,899 Direct stock purchase plan...... 531,353 3 14,482 -- -- 14,485 ESOP............................ 52,473 -- 1,485 -- -- 1,485 Long-term stock plan for United Cities Division.............. 55,500 -- 1,533 -- -- 1,533 Outside directors stock-for-fee plan......................... 2,306 -- 65 -- -- 65 ---------- ---- -------- ------ -------- -------- Balance, September 30, 1998....... 30,398,319 152 271,637 -- 99,369 371,158 Comprehensive income: Net income...................... -- -- -- -- 17,744 17,744 Unrealized holding gains on investments, net............. -- -- -- 917 -- 917 Cash dividends ($1.10 per share).......................... -- -- -- -- (33,882) (33,882) Common stock issued: Restricted stock grant plan..... 56,850 -- 1,732 -- -- 1,732 Direct stock purchase plan...... 694,905 4 17,429 -- -- 17,433 ESOP............................ 89,435 -- 2,362 -- -- 2,362 Long-term stock plan for United Cities Division.............. 6,450 -- 150 -- -- 150 Outside directors stock-for-fee plan......................... 1,841 -- 49 -- -- 49 ---------- ---- -------- ------ -------- -------- Balance, September 30, 1999....... 31,247,800 156 293,359 917 83,231 377,663 Comprehensive income: Net income...................... -- -- -- -- 35,918 35,918 Unrealized holding gains on investments, net............. -- -- -- 1,348 -- 1,348 Cash dividends ($1.14 per share).......................... -- -- -- -- (35,995) (35,995) Common stock: Direct stock purchase plan...... 440,990 2 8,588 -- -- 8,590 ESOP............................ 258,049 1 4,842 -- -- 4,843 Long-term stock plan for United Cities Division.............. 4,200 -- 66 -- -- 66 Outside directors stock-for-fee plan......................... 2,601 1 50 -- -- 51 Cancellation of restricted stock........................ (1,300) -- (18) -- -- (18) ---------- ---- -------- ------ -------- -------- Balance, September 30, 2000....... 31,952,340 $160 $306,887 $2,265 $ 83,154 $392,466 ========== ==== ======== ====== ======== ========
See accompanying notes to consolidated financial statements. 37 39 ATMOS ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, --------------------------------- 2000 1999 1998 --------- --------- --------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Net income.............................................. $ 35,918 $ 17,744 $ 55,265 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization: Charged to depreciation and amortization........... 63,855 56,874 47,555 Charged to other accounts.......................... 3,065 4,800 5,861 Deferred income taxes (benefit)...................... 18,251 31,874 (3,968) Gain on sale of non-utility assets................... (5,831) -- (3,335) Changes in assets and liabilities: (Increase) decrease in accounts receivable........... (42,613) (35,677) 36,330 (Increase) decrease in inventories................... 2,037 7,010 (2,886) (Increase) decrease in gas stored underground........ (17,518) 4,256 (787) (Increase) decrease in prepayments................... (4,930) 488 2,387 Increase in deferred charges and other assets........ (13,053) (12,012) (20,671) Increase (decrease) in accounts payable.............. 8,643 19,425 (17,884) Increase (decrease) in taxes payable................. 9,607 (11,888) 8,673 Decrease in customers' deposits...................... (909) (2,372) (3,069) Decrease in other current liabilities................ (4,866) (4,418) (22,213) Increase in deferred credits and other liabilities... 2,540 8,594 10,393 --------- --------- --------- Net cash provided by operating activities.......... 54,196 84,698 91,651 CASH FLOWS USED IN INVESTING ACTIVITIES Capital expenditures.................................... (75,557) (110,353) (134,989) Acquisition of Missouri assets of ANG................... (32,000) -- -- Retirements of property, plant and equipment, net....... 957 757 178 Proceeds from sale of assets, net....................... 6,467 -- 15,997 --------- --------- --------- Net cash used in investing activities........... (100,133) (109,596) (118,814) CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in short-term debt.............. 81,743 101,904 (100,900) Proceeds from issuance of long-term debt................ -- -- 154,445 Repayment of long-term debt............................. (14,567) (61,000) (16,296) Cash dividends paid..................................... (35,995) (33,882) (31,834) Issuance of common stock................................ 13,550 21,726 20,467 --------- --------- --------- Net cash provided by financing activities....... 44,731 28,748 25,882 --------- --------- --------- Net increase (decrease) in cash and cash equivalents...... (1,206) 3,850 (1,281) Cash and cash equivalents at beginning of year............ 8,585 4,735 6,016 --------- --------- --------- Cash and cash equivalents at end of year.................. $ 7,379 $ 8,585 $ 4,735 ========= ========= =========
See accompanying notes to consolidated financial statements. 38 40 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of business -- Atmos Energy Corporation and its subsidiaries ("Atmos" or the "Company") are engaged primarily in the natural gas utility business as well as certain non-regulated businesses. The Company distributes through sales and transportation arrangements natural gas to approximately 1.1 million residential, commercial, public authority and industrial customers through its five regulated utility divisions: Energas Company ("Energas Division") in Texas; Trans Louisiana Gas Company ("Trans La Division") in Louisiana; Western Kentucky Gas Company ("Western Kentucky Division") in Kentucky; Greeley Gas Company ("Greeley Division") in Colorado and Kansas; and United Cities Gas Company ("United Cities Division") in Illinois, Tennessee, Iowa, Virginia, Georgia, South Carolina and Missouri. Such 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. The Company's shared services unit is located in Dallas, Texas and its customer support center is located in Amarillo, Texas. Its non-regulated businesses included propane sales and includes various energy service businesses as described below. The Company was formerly engaged in the retail and wholesale distribution of propane gas through United Cities Propane Gas, Inc. ("Propane"). Propane had operation and storage centers and storefront offices located in Tennessee, Kentucky, Virginia and North Carolina with a total company storage capacity of approximately 2.5 million gallons. On February 15, 2000, the Company entered into an agreement to form a joint venture which combined its propane operations with the propane operations of three other companies. The combined joint venture was named US Propane, L.P. ("US Propane"). On June 15, 2000, US Propane, in which Atmos is a 19 percent partner, entered into an agreement to combine its operations with Heritage Holdings, Inc. Upon closing of this transaction, which occurred in August 2000, US Propane owns all of the general partnership interest and approximately 34 percent of the limited partnership interest in Heritage Propane Partners ("Heritage"), a publicly traded master limited partnership. The Company, through its ownership in US Propane, owns a 6.5 percent interest in Heritage. Through Atmos Storage, Inc. ("Storage"), the Company owns and operates natural gas storage fields in Kentucky and Kansas to supplement natural gas used by customers of the regulated utility divisions in Kentucky, Tennessee and Kansas and to provide storage services to other customers including customers in other states. Through Atmos Energy Services, Inc., the Company markets gas to industrial and irrigation customers in West Texas through Enermart Energy Services Trust ("Enermart") and to industrial customers in Louisiana and is developing plans for marketing various non-regulated services and products. Through Atmos Energy Marketing, LLC's 45 percent interest in Woodward Marketing, LLC ("WMLLC"), a limited liability company formed in Delaware with headquarters in Houston, Texas, the Company is engaged in gas marketing and energy management services. WMLLC provides gas supply management services to industrial customers, municipalities and local distribution companies including the Company's five regulated utility divisions. See Note 2 "Acquisitions" for further discussion on the planned purchase of the remaining 55 percent interest in WMLLC by Atmos. Finally, the Company, through Atmos Leasing Inc. and Atmos Energy Marketing, LLC, leases real estate and vehicles to the United Cities Division and leases appliances to residential customers. Principles of consolidation -- The accompanying consolidated financial statements include the accounts of Atmos Energy Corporation and its subsidiaries. Each subsidiary is wholly-owned and intercompany transactions have been eliminated. Accounting for unconsolidated investments -- The Company accounts for its 45 percent interest in WMLLC using the equity method of accounting for investments. Equity in pre-tax earnings of WMLLC 39 41 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) included in the consolidated statement of income was $7.3 million, $7.2 million and $3.9 million in 2000, 1999 and 1998. The Company amortizes the excess of the purchase price over the value of the net tangible assets, amounting to approximately $5.4 million, which was allocated to intangible assets consisting of customer contracts and goodwill over 10 and 20 years. In 1999, WMLLC adopted Emerging Issues Task Force 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities," ("EITF 98-10"). EITF 98-10 requires that energy trading contracts be marked to market (that is, measured at fair value determined as of the balance sheet date) with the gains and losses included in earnings and separately disclosed. Atmos' 45 percent after-tax share of WMLLC's income from the adoption of EITF 98-10 in 1999 was $2.4 million or $.08 per share. Subsequent to August 10, 2000 the Company has accounted for its interest in US Propane using the equity method of accounting. Regulation -- The Company's utility operations are subject to regulation with respect to rates, service, maintenance of accounting records and various other matters by the respective regulatory authorities in the states in which it operates. Atmos' accounting policies recognize the financial effects of the ratemaking and accounting practices and policies of the various regulatory commissions. Regulated utility operations are accounted for in accordance with Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation." This statement requires cost-based rate regulated entities that meet certain criteria to reflect the authorized recovery of costs due to regulatory decisions in their financial statements. The Company records regulatory assets which represent assets which are being recovered through customer rates or are probable of being recovered through customer rates. Significant regulatory assets as of September 30, 2000 included the following: merger and integration costs of $30.0 million, net of related reserve and accumulated amortization and environmental costs of $3.5 million. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are to be credited to customers through the ratemaking process. As of September 30, 2000, the Company had recorded a regulatory liability of $3.7 million for deferred income taxes. Revenue recognition -- Sales of natural gas are billed on a monthly cycle basis; however, the billing cycle periods for certain classes of customers do not necessarily coincide with accounting periods used for financial reporting purposes. The Company follows the revenue accrual method of accounting for natural gas revenues whereby revenues applicable to gas delivered to customers, but not yet billed under the cycle billing method, are estimated and accrued and the related costs are charged to expense. Estimated losses due to credit risk are reserved at the time revenue is recognized. Utility property, plant and equipment -- Utility property, plant and equipment is stated at original cost net of contributions in aid of construction. The cost of additions includes direct construction costs, payroll related costs (taxes, pensions and other fringe benefits), administrative and general costs and an allowance for funds used during construction (See AFUDC below). Major renewals and betterments are capitalized while the costs of maintenance and repairs are charged to expense as incurred. The costs of large projects are accumulated in construction in progress until the project is completed. When the project is completed, tested and placed in service, the balance is transferred to the utility plant in service account included in the rate base and depreciation begins. Property, plant and equipment is depreciated at various rates on a straight-line basis over the estimated useful lives of the assets. The composite rates were 4.1 percent for 2000 and four percent for 1999 and 1998. At the time property, plant and equipment is retired, the cost, plus removal expenses less salvage, is charged to accumulated depreciation. Allowance for funds used during construction ("AFUDC") -- AFUDC represents the estimated cost of funds used to finance the construction of major projects. Under regulatory practices, the costs are capitalized and included in rate base for ratemaking purposes when the completed projects are placed in service. No 40 42 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) interest expense was capitalized during 2000. Interest expense of $3.7 million and $4.1 million was capitalized in 1999 and 1998. The amounts in 1999 and 1998 were related to the Customer Support Center and customer information, accounting and human resource technology systems that were completed and placed in service in 1999. Non-utility property, plant and equipment -- Balances are stated at cost and depreciation is computed generally on the straight-line method for financial reporting purposes. Inventories -- Inventories consist primarily of materials and supplies and merchandise held for resale. These inventories are stated at the lower of average cost or market. Inventories also included propane inventories of $768,000 at September 30, 1999. Propane is priced at average cost. Gas stored underground -- Net additions of inventory gas to storage and withdrawals of inventory gas from storage are priced using the average cost method for all Atmos utility divisions, except for the United Cities Division, where it is priced on the first-in first-out method. Gas stored underground and owned by Storage is priced on the last-in first-out ("LIFO") method. Per the United Cities Division's purchased gas adjustment ("PGA") clause, the liquidation of a LIFO layer would be reflected in subsequent gas adjustments in customer rates and does not affect the results of operations. Noncurrent gas in storage is classified as property, plant and equipment and is priced at cost. Income taxes -- Income taxes are provided based on the deferred method, resulting in income tax assets and liabilities due to temporary differences. Temporary differences are differences between the tax bases of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. The deferred method requires the effect of tax rate changes on current and accumulated deferred income taxes to be reflected in the period in which the rate change was enacted. The deferred method also requires that deferred tax assets be reduced by a valuation allowance unless it is more likely than not that the assets will be realized. Cash and cash equivalents -- The Company considers all highly liquid debt instruments purchased with an initial maturity of three months or less to be cash equivalents. Deferred charges and other assets -- Deferred charges and other assets at September 30, 2000 and 1999 include merger and integration costs of $30.0 million and $35.9 million in 2000 and 1999, net of the related reserve for possible non-recovery and accumulated amortization; the investment in WMLLC of $17.4 million and $16.0 million in 2000 and 1999; and the indirect investment in Heritage of $25.0 million in 2000. Also included in deferred charges and other assets are assets of the Company's qualified defined benefit retirement plans in excess of the plans' obligations, Company assets related to the nonqualified retirement plans, unamortized debt expense and deferred compensation expense related to non-vested restricted stock grants. Deferred credits and other liabilities -- Deferred credits and other liabilities at September 30, 2000 and 1999 include customer advances for construction of $10.9 million and $12.3 million; obligations under other postretirement benefits of $25.2 million and $19.0 million in 2000 and 1999; and obligations under the Company's nonqualified retirement plans of $31.0 million and $22.6 million in 2000 and 1999. Earnings per share -- The calculation of basic earnings per share is based on net income divided by the weighted average number of common shares outstanding. The calculation of diluted earnings per share is based on net income divided by the weighted average number of shares outstanding plus the dilutive shares related to the United Cities Division's Long-term Stock Plan and Atmos' Restricted Stock Grant Plan. Comprehensive income -- In 1999, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This statement requires reporting of comprehensive income and its components (revenues, expenses, gains and losses) in any complete presentation of general purpose financial statements. Comprehensive income describes all changes, except those resulting from investments by owners and distributions to owners, in the equity of a business enterprise from transactions and other events 41 43 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) including, as applicable, foreign-currency items, minimum pension liability adjustments and unrealized gains and losses on certain investments in debt and equity securities. While the primary component of comprehensive income is the Company's reported net income, the other components of comprehensive income relate to unrealized gains and losses associated with certain investments held as available for sale. Use of estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. Weather hedges -- 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 should mitigate the effects of 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. Collections are limited to a maximum of $25.0 million. The cost of the hedges, which is limited to the premiums paid of $4.9 million, is included in Prepayments and is being amortized over the life of the contracts using the intrinsic value method. At September 30, 2000, the fair value of the agreements cannot be practicably estimated since the potential impact of warmer than normal weather for the 2000-2001 heating season cannot be predicted. The Company has required no collateral from its counterparty under these agreements. Recently issued accounting standards not yet adopted -- The Company has not yet adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement will be adopted effective October 1, 2000. It establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. This Statement does not allow retroactive application to financial statements of prior periods. As a result of this adoption, the Company will record in the first quarter of fiscal 2001 the cumulative effect of the change in accounting to other comprehensive income for derivatives which hedge the variable cash flows of certain forecasted transactions. The cumulative effect of the change in accounting for the adoption of this statement is not considered material to the financial position, results of operations or cash flows of the Company. Upon completion of the purchase of the remaining 55 percent interest in WMLLC which currently follows mark to market accounting under EITF 98-10, WMLLC will be required to adopt SFAS No. 133. The Company and WMLLC are currently in the process of evaluating the impact of adopting this statement on its reported financial condition, results of operations and cash flows. See Note 2 "Acquisitions" for further discussion on the planned purchase of the remaining 55 percent interest in WMLLC by Atmos. Reclassifications -- Certain prior year amounts have been reclassified to conform with the current year presentation. 2. ACQUISITIONS In October 1999, the Company entered into a definitive agreement with Southwestern Energy Company ("Southwestern") to acquire the Missouri natural gas distribution assets of Associated Natural Gas, a division of Arkansas Western Gas, which is a wholly-owned subsidiary of Southwestern. On May 31, 2000, the Company completed the acquisition, which was accounted for as a purchase, of the Missouri natural gas distribution assets of Southwestern and subsequent thereto, its operations were included in the Company's consolidated results. Atmos paid $32.0 million in connection with this acquisition and acquired approximately 48,000 customers. Of the $32.0 million paid in cash, the Company recorded property, plant and equipment of $52.3 million with a related accumulated depreciation of $21.7 million, accounts receivable of $1.3 million, inventories of $.3 million and gas stored underground of $2.0 million. In addition, the Company recorded 42 44 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) accounts payable of $.2 million, taxes payable of $.4 million, customer deposits of $1.2 million and deferred credits of $.4 million. On April 13, 2000, the Company entered into 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 meters and will be accounted for as a purchase. 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. On August 7, 2000, the Company entered into an agreement with Woodward Marketing, Inc. to acquire the 55 percent interest in WMLLC that it does not own in exchange for 1,423,193 restricted shares of Atmos common stock. The consideration is subject to an upward adjustment if the Company's average share price does not equal $25 per share during a period immediately prior to the fifth anniversary of the completion of the acquisition or an earlier change in control, unless during the period beginning on the first anniversary of the completion of the acquisition and ending on the fifth anniversary or an earlier change in control the Company's share price reaches $25 per share for any 30 consecutive trading-day period. The maximum additional shares that could be issued under the adjustment provision is 232,547 plus an amount to compensate for dividends paid after the completion of the acquisition. Upon the completion of the acquisition, the Company's subsidiary's guaranty of WMLLC's short-term working capital and letter of credit facility of up to $100.0 million, of which $75.0 million was available at September 30, 2000, will increase from 45 percent to 100 percent of any amounts outstanding under this facility. This transaction is subject to approval by the regulatory commissions of six states and compliance with the Hart-Scott-Rodino Antitrust Improvements Act. 43 45 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. DEBT Long-term debt at September 30, 2000 and 1999 consists of the following:
2000 1999 -------- -------- (IN THOUSANDS) Unsecured 11.2% Senior Notes, due 2002, payable in annual installments of $2,000.................................... $ 6,000 $ 8,000 Unsecured 9.76% Senior Notes, due 2004, payable in annual installments of $3,000.................................... 15,000 18,000 Unsecured 9.57% Senior Notes, due 2006, payable in annual installments of $2,000.................................... 12,000 14,000 Unsecured 7.95% Senior Notes, due 2006, payable in annual installments of $1,000.................................... 6,000 7,000 Unsecured 10% Notes, due 2011............................... 2,303 2,303 Unsecured 8.07% Senior Notes, due 2006, payable in annual installments of $4,000 beginning 2002..................... 20,000 20,000 Unsecured 8.26% Senior Notes, due 2014, payable in annual installments of $1,818 beginning 2004..................... 20,000 20,000 Medium term notes Series A, 1995-1, 6.67%, due 2025......................... 10,000 10,000 Series A, 1995-2, 6.27%, due 2010......................... 10,000 10,000 Series A, 1995-3, 6.20%, due 2000......................... 2,000 2,000 Unsecured 6.75% Debentures, due 2028........................ 150,000 150,000 First Mortgage Bonds Series J, 9.40% due 2021.................................. 17,000 17,000 Series N, 8.69% due 2000.................................. -- 1,000 Series P, 10.43% due 2017................................. 21,250 22,500 Series Q, 9.75% due 2020.................................. 20,000 20,000 Series R, 11.32% due 2004................................. 8,580 10,720 Series T, 9.32% due 2021.................................. 18,000 18,000 Series U, 8.77% due 2022.................................. 20,000 20,000 Series V, 7.50% due 2007.................................. 10,000 10,000 Rental property, propane and other term notes due in installments through 2013................................. 12,631 14,808 -------- -------- Total long-term debt.............................. 380,764 395,331 Less current maturities..................................... (17,566) (17,848) -------- -------- $363,198 $377,483 ======== ========
Most of the Senior Notes and First Mortgage Bonds contain provisions that allow the Company to prepay the outstanding balance in whole at any time, subject to a prepayment premium. The Senior Note agreements and First Mortgage Bond indentures 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, 1988 may not exceed the sum of accumulated net income for periods after December 31, 1988 plus $15.0 million. At September 30, 2000, approximately $44.7 million of retained earnings was unrestricted. As of September 30, 2000, all of the Greeley Division utility plant assets with a net book value of approximately $176.0 million are subject to a lien under the 9.4 percent Series J First Mortgage Bonds assumed by the Company in the acquisition of Greeley Gas Company. Also, substantially all of the United 44 46 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Cities Division utility plant assets, totaling approximately $319.7 million, are subject to a lien under the Indenture of Mortgage of the Series P through V First Mortgage Bonds. Based on the borrowing rates currently available to the Company for debt with similar terms and remaining average maturities, the fair value of long-term debt at September 30, 2000 and 1999 is estimated, using discounted cash flow analysis, to be $368.8 million and $387.7 million. Maturities of long-term debt at September 30, 2000 are as follows (in thousands): 2001...................................................... $ 17,566 2002...................................................... 15,624 2003...................................................... 21,336 2004...................................................... 18,896 2005...................................................... 17,307 Thereafter................................................ 290,035 -------- $380,764 ========
Short-term debt At September 30, 2000, short-term debt was composed of $250.0 million of commercial paper. At September 30, 1999, it was composed of $152.7 million of commercial paper and $15.6 million outstanding under bank credit facilities. The weighted average interest rate on short-term borrowings outstanding was 7.0 percent and 5.7 percent at September 30, 2000 and 1999. COMMITTED CREDIT FACILITIES The Company has short-term committed credit facilities totaling $800.0 million. One short-term unsecured credit facility, which serves as a backup liquidity facility for the Company's commercial paper program, is for $300.0 million. This replaces its previous $250.0 million short-term unsecured credit facility. A second facility is for $15.0 million. These credit facilities are negotiated at least annually. In addition, 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 discussed above and $100.0 million for refinancing certain existing debt. No amounts were outstanding under these credit facilities at September 30, 2000. At September 30, 1999, $12.0 million was outstanding. UNCOMMITTED CREDIT FACILITIES The Company also has unsecured short-term uncommitted credit lines from three banks totaling $90.0 million. There were no borrowings under these uncommitted credit facilities at September 30, 2000 as compared to $3.6 million at September 30, 1999. These uncommitted lines expire in May, July and August 2001, and are renewed or renegotiated at least annually. The uncommitted lines have varying terms and the Company pays no fee for the availability of the lines. Borrowings under these lines are made on a when- and as-available basis at the discretion of the banks. COMMERCIAL PAPER PROGRAM The Company implemented a $250.0 million commercial paper program in October 1998 which was then increased to $300.0 million in August 2000. It is supported by the $300.0 million committed line of credit described above. The Company's commercial paper was rated A-2 by Standard and Poor's and P-2 by Moody's. A total of $250.0 million and $152.7 million of commercial paper was outstanding at September 30, 2000 and 1999. 45 47 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. INCOME TAXES The components of income tax expense for 2000, 1999 and 1998 are as follows:
2000 1999 1998 ------- -------- ------- (IN THOUSANDS) Current Federal.............................................. $ -- $(18,761) $31,694 State................................................ 2,500 (4,081) 4,503 Deferred Federal.............................................. 18,611 27,370 (3,352) State................................................ (345) 5,321 (616) Investment tax credits................................. (447) (294) (423) ------- -------- ------- $20,319 $ 9,555 $31,806 ======= ======== =======
Deferred income taxes reflect the tax effect of differences between the basis of assets and liabilities for book and tax purposes. The tax effect of temporary differences that give rise to significant components of the deferred tax liabilities and deferred tax assets at September 30, 2000 and 1999 are presented below:
2000 1999 --------- --------- (IN THOUSANDS) Deferred tax assets: Costs expensed for book purposes and capitalized for tax purposes............................................... $ 382 $ 629 Accruals not currently deductible for tax purposes........ 2,403 12,657 Customer advances......................................... 4,159 4,535 Nonqualified benefit plans................................ 5,595 7,947 Postretirement benefits................................... 11,907 10,356 Unamortized investment tax credit......................... 1,303 1,304 Regulatory liabilities.................................... 3,159 3,159 Tax net operating loss and credit carryforwards........... 34,255 12,504 Other, net................................................ 6,356 4,787 --------- --------- Total deferred tax assets......................... 69,519 57,878 Deferred tax liabilities: Difference in net book value and net tax value of assets................................................. (161,290) (139,324) Pension funding........................................... (6,708) (5,480) Gas cost adjustments...................................... (14,130) 3,997 Regulatory assets......................................... (4,462) (4,462) Cost capitalized for book purposes and expensed for tax purposes............................................... (8,864) (19,112) Other, net................................................ (5,684) (6,107) --------- --------- Total deferred tax liabilities.................... (201,138) (170,488) --------- --------- Net deferred tax liabilities................................ $(131,619) $(112,610) ========= ========= SFAS No. 109 deferred accounts for rate regulated entities.................................................. $ 1,085 $ 1,896 ========= =========
46 48 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Reconciliations of the provisions for income taxes computed at the statutory rate to the reported provisions for income taxes for 2000, 1999 and 1998 are set forth below:
2000 1999 1998 ------- ------ ------- (IN THOUSANDS) Tax at statutory rate of 35%............................. $19,683 $9,555 $30,474 Common stock dividends deductible for tax reporting...... (774) (701) (695) State taxes.............................................. 1,677 841 2,526 Other, net............................................... (267) (140) (499) ------- ------ ------- Provision for income taxes............................... $20,319 $9,555 $31,806 ======= ====== =======
The Company has net operating loss carryforwards for federal income tax purposes amounting to $74.0 million which will expire beginning in the year 2019. The Company also has tax credit carryforwards amounting to $4.1 million, the majority of which represent alternative minimum tax credits which do not expire. 5. CONTINGENCIES Litigation GREELEY DIVISION In Colorado, the Greeley Division had been a defendant in several lawsuits filed as a result of a fire in a building in Steamboat Springs, Colorado on February 3, 1994. 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 Colorado Court of Appeals reversal of the trial court verdict and ordering of a new trial was upheld by the Colorado Supreme Court. 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, the Company agreed to settle with the three remaining claimants for $1.5 million which has 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. 47 49 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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, which is pending in the Circuit Court of Sevier County, Tennessee. The plaintiffs' claims arise out of injuries alleged to have been caused by a low-level propane explosion. The plaintiffs seek to recover damages of $13.0 million. Discovery activities have begun in this case. The Company denies any wrongdoing and intends to vigorously defend against the plaintiffs' claims. The Company expects the final outcome of this case to not 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 ultimately be 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 believes the final outcome of such litigation and claims will not 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. Guarantees The Company's wholly-owned subsidiary, Atmos Energy Marketing, LLC ("AEM"), and Woodward Marketing, Inc. ("WMI"), sole members of WMLLC, act as guarantors of balances outstanding under a $100.0 million credit facility, of which $75.0 million was available at September 30, 2000 for WMLLC. AEM guarantees the payment of 45 percent of borrowings under this facility. No borrowing was outstanding under this credit facility at September 30, 2000; however, related letters of credit totaling $42.1 million reduced the amount available under this facility. Upon the closing of the acquisition of WMLLC, AEM's guarantee will increase from 45 percent to 100 percent. AEM and WMI also act as joint and several guarantors on payables of WMLLC up to $40.0 million of natural gas purchases and transportation services from certain suppliers. WMLLC payable balances outstanding that were subject to these guarantees amounted to $9.7 million at September 30, 2000. Upon the completion of the acquisition by the Company of the remaining 55 percent of WMLLC, as discussed above, AEM will be the sole guarantor of all amounts outstanding under the bank facility discussed above as well as the sole guarantor of all payables of WMLLC of natural gas purchases and transportation services from suppliers. 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 September 30, 2000, the Company has a remaining accrual of $0.8 million for the investigations of the Johnson City and Bristol, Tennessee and Hannibal, Missouri sites. As of September 30, 2000, the Company has incurred costs of approximately $0.9 million for these sites. IOWA SITE In June 1995, UCGC entered into an agreement to pay $1.8 million to Union Electric Company, now Ameren, whereby Union Electric agreed to assume responsibility for UCGC's continuing investigation and environmental response action obligations for soil contamination as outlined in the feasibility study related to a 48 50 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) former manufactured gas plant in Keokuk. The $1.8 million was paid in five annual installments, with the last installment being paid in July 1999. In a rate case effective June 1, 1996, UCGC began collecting increased rates, reflecting a 10-year amortization of the $1.8 million payment to Union Electric which will continue until May 31, 2006. TENNESSEE SITES United Cities Gas Company ("UCGC") and the Tennessee Department of Environment and Conservation 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 September 30, 2000. The investigative phase of the work at the site has been completed. The Company is unaware of any information which suggests that the Bristol site gives 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. MISSOURI SITE On July 22, 1998, Atmos entered into an Abatement Order on Consent with the Missouri Department of Natural Resources addressing the former manufactured gas plant located in Hannibal, Missouri. Atmos, through its United Cities Division, agreed in the order to perform a removal action, a subsequent site evaluation and to reimburse the response costs incurred by the state of Missouri in connection with the property. The removal action was conducted and completed in August 1998, and the site evaluation field work was conducted in August 1999. A risk assessment for the site is currently being performed. On March 9, 1999, the Missouri Public Service Commission issued an Order authorizing Atmos to defer the costs associated with this site until March 9, 2001. Atmos plans to seek a renewal of this Order. KANSAS SITES Atmos is currently conducting investigation and remediation activities pursuant to Consent Orders between the Kansas Department of Health and Environment and UCGC. The Orders provide for the investigation and remediation of mercury contamination at gas pipeline sites which utilize or formerly utilized mercury meter equipment in Kansas. As of September 30, 2000, based upon available current information, the Company has a remaining accrual of $280,000 for recovery. In addition, as of September 30, 2000, the Company has incurred costs of $130,000 for these sites. The Kansas Corporation Commission has authorized the Company to defer these costs and seek recovery in a future rate case. 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 management of the Company believes the final outcome of such response actions will not 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. 49 51 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. COMMON STOCK AND STOCK OPTIONS Shareholders' Rights Plan On November 12, 1997, the Board of Directors approved a new Rights Agreement which became effective upon the expiration of the then existing Rights Agreement on May 10, 1998 which was subsequently amended on August 11, 1999. Under the Rights Agreement, each right ("Right") will entitle the holder thereof, until May 10, 2008 or the date of redemption of the Rights, to buy one share of Common Stock of the Company at the exercise price of $80.00, subject to adjustment. At no time will the Rights have any voting rights. The exercise price payable and the number of shares of Common Stock or other securities or property issuable upon exercise of the Rights are subject to adjustment from time to time to prevent dilution. At the date upon which the rights become separate from the Company's Common Stock (the "Distribution Date"), the Company will issue one right with each share of Common Stock that becomes outstanding so that all shares of Common Stock will have attached Rights. After the Distribution Date, the Company may issue Rights when it issues Common Stock if the Board deems such issuance to be necessary or appropriate. The Rights will separate from the Common Stock and a Distribution Date will occur upon the occurrence of certain events specified in the Agreement, including but not limited to, the acquisition by certain persons of at least 15 percent of the beneficial ownership of the Company's Common Stock. The Rights have certain anti-takeover effects and may cause substantial dilution to a person or entity that attempts to acquire the Company on terms not approved by the Board of Directors except pursuant to an offer conditioned upon a substantial number of Rights being acquired. The Rights should not interfere with any merger or other business combination approved by the Board of Directors because, prior to the time that the Rights become exercisable or transferable, the Rights may be redeemed by the Company at $.01 per Right. Shares issued under various plans The following table presents the number of shares issued under various plans in 2000 and 1999, as well as the number of shares available for future issuance at September 30, 2000.
SHARES AVAILABLE SHARES ISSUED FOR ISSUANCE AT ----------------- SEPTEMBER 30, 2000 1999 2000 ------- ------- ---------------- Restricted Stock Grant Plan......................... -- 56,850 732,750 Employee Stock Ownership Plan....................... 258,049 89,435 161,009 Direct Stock Purchase Plan.......................... 440,990 694,905 1,785,897 Outside Directors Stock-For-Fee Plan................ 2,601 1,841 37,937 United Cities Long-Term Stock Plan.................. 4,200 6,450 183,850 Long-Term Incentive Plan............................ -- -- 1,500,000 Equity Incentive and Deferred Compensation Plan for Non-Employee Directors............................ -- -- 150,000
Restricted Stock Grant Plan The Company's Restricted Stock Grant Plan ("Plan") for management and key employees of the Company, which became effective October 1, 1987 and was amended and restated in February 1998, provides for awards of common stock that are subject to certain restrictions. The Plan is administered by the Board of Directors. The members of the Board who are not employees of the Company make the final determinations regarding participation in the Plan, awards under the Plan and restrictions on the restricted stock awarded. The restricted stock may consist of previously issued shares purchased on the open market or shares issued directly from the Company. During 1998, the Company increased the number of shares of its common stock that may be issued under the Plan by 650,000 shares. Compensation expense of $2,348,000, $1,595,000 and 50 52 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) $1,238,000 was recognized in 2000, 1999 and 1998 in connection with the vesting of shares awarded under the Plan. Employee Stock Ownership Plan Prior to January 1, 1999, Atmos had an Employee Stock Ownership Plan ("ESOP") and the United Cities Division had a 401(k) savings plan. The ESOP was amended effective January 1, 1999, as is more fully discussed in Note 7. Direct Stock Purchase Plan The Company also has a Direct Stock Purchase Plan ("DSPP"). Participants in the DSPP may have all or part of their dividends reinvested at a three percent discount from market prices. DSPP participants may purchase additional shares of Company common stock as often as weekly with voluntary cash payments of at least $25, up to an annual maximum of $100,000. Outside Directors Stock-For-Fee Plan In November 1994, the Board adopted the Outside Directors Stock-for-Fee Plan which was approved by the shareholders of the Company in February 1995 and was amended and restated in November 1997. The plan permits non-employee directors to receive all or part of their annual retainer and meeting fees in stock rather than in cash. Equity Incentive and Deferred Compensation Plan for Non-Employee Directors In November 1998, the Board adopted the Equity Incentive and Deferred Compensation Plan for Non-Employee Directors (the "Directors Compensation Plan") which was approved by the shareholders of the Company in February 1999. Such plan represents an amendment to the Atmos Energy Corporation Deferred Compensation Plan for Outside Directors adopted by the Company on May 10, 1990 and replaced the pension payable under the Company's Retirement Plan for Non-Employee Directors. Only non-employee directors of the Company are eligible to participate in the Directors Compensation Plan, the purpose of which is to provide non-employee directors with the opportunity to defer receipt of compensation for services rendered to the Company, invest deferred compensation into either a cash account or a stock account and to receive an annual grant of share units for each year of service on the Board. Stock-Based Compensation Plans The Company has two stock-based compensation plans that provide for the granting of stock options to officers, key employees and non-employee directors. The objectives of these plans include attracting and retaining the best personnel, providing for additional performance incentives and promoting the success of the Company by providing employees the opportunity to acquire common stock. United Cities Long-Term Stock Plan Prior to the merger with Atmos, certain United Cities Gas Company officers and key employees participated in the United Cities Long-Term Stock Plan implemented in 1989. At the time of the merger on July 31, 1997, Atmos adopted this plan by registering a total of 250,000 shares of Atmos stock to be issued under the Long-Term Stock Plan for the United Cities Division. Under this plan, incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock or any combination thereof may be granted to officers and key employees of the United Cities Division. Options granted under the plan become exercisable at a rate of 20 percent per year and expire 10 years after the date of grant. During 2000, 4,200 options were exercised under the plan. At September 30, 2000, there were 34,850 options outstanding, of 51 53 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) which 31,850 options had vested. No incentive stock options, nonqualified stock options, stock appreciation rights or restricted stock have been granted under the plan since 1996. Long-Term Incentive Plan On August 12, 1998, the Board of Directors approved and adopted the 1998 Long-Term Incentive Plan (the "LTIP"), which became effective October 1, 1998 after approval by the shareholders of the Company. The LTIP represents a part of the Company's Total Rewards strategy which the Company developed as a result of a study it conducted of all employee, executive and non-employee director compensation and benefits. The LTIP is a comprehensive, long-term incentive compensation plan providing for discretionary awards of incentive stock options, non-qualified stock options, stock appreciation rights, bonus stock, restricted stock and performance-based stock to help attract, retain and reward employees and non-employee directors of the Company and its subsidiaries. The Company is authorized to grant awards for up to a maximum of 1,500,000 shares of common stock under the LTIP subject to certain adjustment provisions. The option price is equal to the market price of the Company's stock at the date of grant. The stock options expire 10 years from the date of the grant, and options vest annually over a service period ranging from one to three years. During 2000, no options were exercised under the plan. At September 30, 2000, the Company had 658,500 options outstanding under the LTIP at an exercise price ranging from $14.68 to $25.66. In October 1995, Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") was issued. This statement establishes a fair value-based method of accounting for employee stock options or similar equity instruments and encourages, but does not require, all companies to adopt that method of accounting for all of their employee stock compensation plans. SFAS 123 allows companies to continue to measure compensation cost for employee stock options or similar equity instruments using the intrinsic value method of accounting described in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). The Company has elected to continue using the intrinsic value method as prescribed by APB 25. Under this method no compensation cost for stock options is recognized for stock option awards granted at or above fair market value. Because of the limited nature of the Company's stock-based compensation plans, the pro forma effects of applying SFAS 123 would have less than a $.01 per diluted share effect on earnings per share or approximately $241,000 and $84,000 for 2000 and 1999. 7. EMPLOYEE RETIREMENT AND STOCK OWNERSHIP PLANS Defined benefit plans Prior to January 1, 1999, the Company had four defined benefit pension plans covering the Western Kentucky Division employees, the Greeley Division employees, the United Cities Division employees and the fourth covering all other Atmos employees. The plans provided similar benefits to all employees which were based upon years of service and the highest paid five consecutive calendar years of compensation within the last 10 years of employment. Effective January 1, 1999, the plans were merged into the Western Kentucky Gas plan which was amended and restated as the Atmos Pension Account Plan which covers all employees of the Company. Opening account balances were established for participants as of January 1, 1999 equal to the present value of their respective accrued benefits under the pension plans as of December 31, 1998. The Pension Account Plan credits an allocation to each participant's account at the end of each year according to a formula based on the participant's age, service and total pay (excluding incentive pay). 52 54 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Pension Account Plan provides for an additional annual allocation based upon a participant's age as of January 1, 1999 for those participants who were participants in the prior pension plans. The plan will credit this additional allocation each year through December 31, 2008. In addition, at the end of each year, a participant's account will be credited with interest on the employee's prior year account balance. A special grandfather benefit also applies through December 31, 2008, for participants who were at least age 50 as of January 1, 1999, and who were participants in one of the prior plans on December 31, 1998. Participants are fully vested in their account balances after five years of service and may choose to receive their account balances as a lump sum or an annuity. The obligations shown herein reflect the changes which were effective January 1, 1999. The Company's funding policy is to contribute annually an amount in accordance with the requirements of the Employee Retirement Income Security Act of 1974. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. The Company records the accrued pension asset in deferred charges and other assets. The following table sets forth the total for the Pension Account Plan's funded status for 2000 and 1999:
2000 1999 -------- -------- (IN THOUSANDS) Change in benefit obligation: Benefit obligation at beginning of year................... $200,465 $218,245 Service cost.............................................. 2,352 4,232 Interest cost............................................. 14,573 14,696 Actuarial (gain) loss..................................... 5,039 (21,390) Acquisition/merger........................................ 5,156 -- Benefits paid............................................. (17,433) (15,318) -------- -------- Benefit obligation at end of year......................... 210,152 200,465 Change in plan assets: Fair value of plan assets at beginning of year............ 282,498 286,708 Actual return on plan assets.............................. 9,277 11,108 Acquisition/merger........................................ 5,156 -- Benefits paid............................................. (17,433) (15,318) -------- -------- Fair value of plan assets at end of year.................. 279,498 282,498 -------- -------- Funded status............................................... 69,346 82,033 Unrecognized transition asset............................... (362) (625) Unrecognized prior service cost............................. (8,878) (9,680) Unrecognized net gain....................................... (24,004) (48,780) -------- -------- Accrued pension asset....................................... $ 36,102 $ 22,948 ======== ========
2000 1999 1998 ----- ----- ---- Weighted average assumptions for end of year disclosure: Discount rate............................................. 8.0% 7.5% 7.0% Rate of compensation increase............................. 4.0% 4.0% 4.0% Expected return on plan assets............................ 10.0% 10.0% 9.0%
The plan assets consist primarily of investments in common stocks, interest bearing securities and interests in commingled pension trust funds. 53 55 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In the 1998 annual report the defined benefit plans were grouped with the Supplemental Executive Benefits Plans. In the 2000 and 1999 annual report they are presented separately. Net periodic pension cost for the Pension Account Plan for 2000, 1999 and 1998 included the following components:
2000 1999 1998 -------- -------- -------- (IN THOUSANDS) Components of net periodic pension cost: Service cost....................................... $ 2,352 $ 4,232 $ 5,256 Interest cost...................................... 14,573 14,696 15,655 Expected return on assets.......................... (27,403) (27,846) (23,249) Amortization of: Transition obligation(asset).................... (263) (248) (241) Prior service cost.............................. (802) (703) 851 Actuarial (gain)................................ (1,610) (1,487) (1,225) -------- -------- -------- Net periodic pension cost.................. (13,153) (11,356) (2,953) Curtailment (gain) and special termination benefits........................................... -- -- (1,840) -------- -------- -------- Total pension cost accruals................ $(13,153) $(11,356) $ (4,793) ======== ======== ========
Supplemental Executive Benefits Plans The Company has a nonqualified Supplemental Executive Benefits Plan ("Supplemental Plan") which provides additional pension, disability and death benefits to the officers and certain other employees of the Company. The Supplemental Plan was amended and restated in August 1998. In addition, in August 1998, the Company adopted the Performance-Based Supplemental Executive Benefits Plan which covers all employees who become officers or business unit presidents after August 12, 1998. The Company records accrued pension cost in deferred credits and other liabilities. The following table sets forth the total for the Supplemental Plans' funded status for 2000 and 1999:
2000 1999 -------- -------- (IN THOUSANDS) Change in benefit obligation: Benefit obligation at beginning of year................... $ 38,825 $ 36,770 Service cost.............................................. 937 1,151 Interest cost............................................. 2,916 2,488 Actuarial loss............................................ 6,482 331 Benefits paid............................................. (1,734) (1,915) -------- -------- Benefit obligation at end of year......................... 47,426 38,825 Change in plan assets: Fair value of plan assets at beginning of year............ -- -- Employer contribution..................................... 1,734 1,915 Benefits paid............................................. (1,734) (1,915) -------- -------- Fair value of plan assets at end of year.................. -- -- -------- -------- Funded status............................................... (47,426) (38,825) Unrecognized transition asset............................... 388 484 Unrecognized prior service cost............................. 7,815 8,837 Unrecognized net loss....................................... 8,220 6,886 -------- -------- Accrued pension cost........................................ $(31,003) $(22,618) ======== ========
54 56 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2000 1999 1998 ----- ----- ---- Weighted average assumptions for end of year disclosure: Discount rate............................................. 8.0% 7.5% 7.0% Rate of compensation increase............................. 4.0% 4.0% 4.0% Expected return on plan assets............................ 10.0% 10.0% 9.0%
Assets for the Supplemental Plans are held in the Company's rabbi trusts (see Note 12) and consist primarily of investments in equity mutual funds. The market value of the rabbi trusts amounted to $28.6 million and $26.1 million at September 30, 2000 and 1999. The assets in the rabbi trusts are included on the Company's balance sheet under deferred charges and other assets and are not presented above as plan assets. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the Supplemental Plans with accumulated benefit obligations in excess of plan assets were $47.4 million, $41.1 million and none, as of September 30, 2000, and $38.8 million, $32.8 million and none, as of September 30, 1999. Net periodic pension cost for the Supplemental Plans for 2000, 1999 and 1998 included the following components:
2000 1999 1998 ------ ------ ------ (IN THOUSANDS) Components of net periodic pension cost: Service cost............................................. $ 937 $1,151 $ 505 Interest cost............................................ 2,916 2,488 2,246 Amortization of: Transition obligation................................. 96 96 96 Prior service cost.................................... 1,022 1,022 810 Actuarial loss........................................ 215 216 133 ------ ------ ------ Net periodic pension cost........................ $5,186 $4,973 $3,790 ====== ====== ======
Employee Stock Ownership Plan Atmos sponsors an ESOP for all employees of the Company. Effective January 1, 1999 the ESOP was amended to provide for deferral of a portion of a participant's salary of up to 21 percent. In addition, among other changes to the ESOP, participants are provided with automatic matching contributions of 100 percent of each participant's salary reduction up to 4 percent of the participant's salary and are provided the option of taking out loans against their ESOP accounts subject to certain restrictions. Each participant enters into a salary reduction agreement with the Company pursuant to which the participant's salary is reduced by an amount not more than 21 percent. Taxes on the amount by which the participant's salary is reduced are deferred pursuant to Section 401(k) of the Internal Revenue Code. The amount of the salary reduction is contributed by the Company to the ESOP for the account of the participant. Matching contributions to the ESOP were expensed as incurred and amounted to $3.0 million, $2.4 million, and $1.8 million for 2000, 1999 and 1998. The directors may also approve discretionary contributions, subject to the provisions of the Internal Revenue Code of 1986 and applicable regulations of the Internal Revenue Service. No discretionary contributions were made for 2000, 1999, nor 1998. 401(k) Savings plan Prior to January 1, 1999, the Company sponsored a 401(k) savings plan for the United Cities Division employees. The Company made fixed matching contributions of $102,000 for the three months ended 55 57 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) December 31, 1998, $648,000 for the nine months ended September 30, 1998 and $694,000 for the year ended December 31, 1997. In addition, a discretionary matching contribution of $227,000 was made for 1998. The 401(k) savings plan was merged into the ESOP effective January 1, 1999, and the United Cities Division employees have subsequently received the same benefits as other Atmos employees. 8. OTHER POSTRETIREMENT BENEFITS Prior to January 1, 1999, Atmos sponsored two postretirement plans other than pensions. Each provided health care benefits to retired employees. One provided benefits to the United Cities Division retirees and the other provided medical benefits to all other retired Atmos employees. Effective January 1, 1999, the United Cities plan was merged into the Atmos plan and began providing benefits to future retirees that are essentially the same as provided to other Atmos employees. The obligation as of September 30, 1999 reflects this plan change. Substantially all of the Company's employees become eligible for these benefits if they reach retirement age while working for the Company and attain certain specified years of service. In addition, participant contributions are required under the plan. The Company records the accrued postretirement cost primarily in deferred credits and other liabilities. The following table sets forth the total liability currently recognized for the postretirement plan other than pensions:
2000 1999 -------- -------- (IN THOUSANDS) Change in benefit obligation: Benefit obligation at beginning of year................... $ 56,832 $ 64,494 Service cost.............................................. 2,543 2,150 Interest cost............................................. 4,119 4,360 Plan participants' contributions.......................... 653 763 Actuarial (gain) loss..................................... 170 (10,195) Acquisitions/divestitures................................. 2,593 -- Benefits paid............................................. (3,881) (4,740) -------- -------- Benefit obligation at end of year......................... 63,029 56,832 Change in plan assets: Fair value of plan assets at beginning of year............ 9,964 6,380 Actual return on plan assets.............................. 809 377 Employer contribution..................................... 4,118 7,184 Plan participants' contribution........................... 653 763 Acquisitions/divestitures................................. 209 -- Benefits paid............................................. (3,881) (4,740) -------- -------- Fair value of plan assets at end of year.................. 11,872 9,964 -------- -------- Funded status............................................... (51,157) (46,868) Unrecognized transition obligation.......................... 20,221 21,732 Unrecognized prior service cost............................. 2,574 3,094 Unrecognized net (gain)..................................... (2,306) (2,300) -------- -------- Accrued postretirement cost................................. $(30,668) $(24,342) ======== ========
56 58 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2000 1999 1998 ---- ---- ---- Weighted average assumptions for end of year disclosure: Discount rate............................................. 8.0% 7.5% 7.0% Expected return on plan assets............................ 5.3% 5.3% 5.3% Initial trend rate........................................ 8.0% 9.0% 9.0% Ultimate trend rate....................................... 5.0% 5.0% 4.5% Number of years from initial to ultimate trend............ 4 5 6
Net periodic postretirement cost for the combined postretirement benefit plans for 2000, 1999 and 1998 included the following components:
2000 1999 1998 ------ ------ ------- (IN THOUSANDS) Components of net periodic postretirement cost: Service cost............................................ $2,543 $2,150 $ 1,659 Interest cost........................................... 4,119 4,360 3,809 Expected return on assets............................... (540) (349) (235) Amortization of: Transition obligation................................ 1,511 1,511 1,862 Prior service cost................................... 520 520 269 Actuarial (gain) loss................................ (94) 648 (58) ------ ------ ------- Net periodic postretirement cost................ 8,059 8,840 7,306 Curtailment loss and special termination benefits....... -- -- 5,915 ------ ------ ------- Total postretirement cost accruals.............. $8,059 $8,840 $13,221 ====== ====== =======
Assumed health care cost trend rates have a significant effect on the amounts reported for the plans. A one-percentage point change in assumed health care cost trend rates would have the following effects on the latest actuarial calculations:
1-PERCENTAGE 1-PERCENTAGE POINT INCREASE POINT DECREASE -------------- -------------- (IN THOUSANDS) Effect on total of service and interest cost components... $ 999 $ (829) Effect on postretirement benefit obligation............... $6,014 $(5,191)
The Company is currently recovering other postretirement benefits ("OPEB") costs through its regulated rates under SFAS No. 106 accrual accounting in Colorado, Kansas, the majority of its Texas service area and Kentucky. It receives rate treatment as a cost of service item for OPEB costs on the pay-as-you-go basis in Louisiana. OPEB costs have been specifically addressed in rate orders in each jurisdiction served by the United Cities Division or have been included in a rate case and not disallowed. However, the Company was required to recover the portion of the UCGC transition obligation applicable to Virginia operations over 40 years, rather than 20 years, as in other states. Management believes that accrual accounting in accordance with SFAS No. 106 is appropriate and will continue to seek rate recovery of accrual-based expenses in its ratemaking jurisdictions that have not yet approved the recovery of these expenses. 9. EARNINGS PER SHARE Basic earnings per share has been computed by dividing net income 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 for the period by the weighted average number of common shares 57 59 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) outstanding during the period adjusted for restricted stock and other contingently issuable shares of common stock. Net income for the years ended September 30, 2000, 1999 and 1998 for basic and diluted earnings per share are the same, as there were no contingently issuable shares of stock whose issuance would have impacted net income. A reconciliation between basic and diluted weighted average common shares outstanding at September 30 follows:
2000 1999 1998 ------ ------ ------ (IN THOUSANDS) Weighted average common shares -- basic.................... 31,461 30,566 29,822 Effect of dilutive securities: Restricted stock......................................... 125 238 199 Stock options............................................ 8 15 10 ------ ------ ------ Weighted average common shares -- diluted.................. 31,594 30,819 30,031 ====== ====== ======
10. STATEMENT OF CASH FLOWS SUPPLEMENTAL DISCLOSURES Supplemental disclosures of cash flow information for 2000, 1999 and 1998 are presented below.
2000 1999 1998 ------- ------- ------- (IN THOUSANDS) Cash paid (received) for Interest.............................................. $46,243 $40,446 $29,980 Income taxes.......................................... $(7,989) $(7,184) $25,598
In connection with the Company's transaction related to the sale of its propane business (see Note 1 of notes to consolidated financial statements), the Company contributed property, plant and equipment of $38.9 million with a related accumulated depreciation of $17.1 million and deferred charges and other assets of $3.9 million in exchange for an indirect investment in Heritage Propane Partners. In addition, the Company received net proceeds of $6.5 million and recorded a gain on the transaction of $5.8 million. 11. SEGMENT INFORMATION In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. The determination of reportable segments under SFAS No. 131 differs from that required in previous years; therefore, business segment information for 1998 has been restated to comply with the provisions of SFAS No. 131. The Company's determination of reportable segments considers the strategic operating units under which the Company manages sales of various products and services to customers in differing regulatory environments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. All intersegment sales prices are market based. The Company evaluates performance based on net income or loss of the respective operating units. In accordance with SFAS No. 131, the Company has identified the Utility, Propane and Non-regulated segments, as described in Note 1. 58 60 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Summarized financial information concerning the Company's reportable segments is shown in the following table:
NON- UTILITY PROPANE REGULATED TOTAL ---------- ------- --------- ---------- (IN THOUSANDS) As of and for the year ended September 30, 2000: Operating revenues............................... $ 739,951 $22,550 $96,305 $ 858,806 Intersegment revenues............................ 5,116 -- 3,538 8,654 Depreciation and amortization.................... 60,120 2,343 1,392 63,855 Operating income (loss).......................... 77,207 (608) 8,717 85,316 Equity in earnings of unconsolidated investment..................................... -- -- 7,307 7,307 Interest charges, net............................ 42,096 995 732 43,823 Net income....................................... 22,459 2,602 10,857 35,918 Total assets..................................... 1,253,023 17,286 95,008 1,365,317 Equity investment in unconsolidated investees.... -- -- 42,330 42,330 Expenditures for additions to long-lived assets......................................... 105,012 607 521 106,140 As of and for the year ended September 30, 1999: Operating revenues............................... 621,211 22,944 53,416 697,571 Intersegment revenues............................ 3,898 -- 3,477 7,375 Depreciation and amortization.................... 52,503 2,954 1,417 56,874 Operating income (loss).......................... 49,000 (543) 5,782 54,239 Equity in earnings of unconsolidated investment..................................... -- -- 7,156 7,156 Interest charges, net............................ 35,799 1,231 33 37,063 Net income (loss)................................ 10,800 (869) 7,813 17,744 Total assets..................................... 1,152,469 16,694 77,933 1,247,096 Equity investment in unconsolidated investee..... -- -- 15,973 15,973 Expenditures for additions to long-lived assets......................................... 108,454 1,550 349 110,353 As of and for the year ended September 30, 1998: Operating revenues............................... 739,930 29,091 80,672 849,693 Intersegment revenues............................ 1,485 -- -- 1,485 Depreciation and amortization.................... 43,324 2,324 1,907 47,555 Operating income................................. 100,665 619 11,595 112,879 Equity in earnings of unconsolidated investment..................................... -- -- 3,920 3,920 Interest charges, net............................ 33,181 897 1,501 35,579 Net income (loss)................................ 43,332 (66) 11,999 55,265 Total assets..................................... 1,061,496 36,549 68,252 1,166,297 Equity investment in unconsolidated investee..... -- -- 11,914 11,914 Expenditures for additions to long-lived assets......................................... 125,741 8,408 840 134,989
The following table presents a reconciliation of the operating revenues to total consolidated revenues for the years ended September 30, 2000, 1999 and 1998:
2000 1999 1998 -------- -------- -------- (IN THOUSANDS) Total revenues for reportable segments............... $858,806 $697,571 $849,693 Elimination of intersegment revenues................. (8,654) (7,375) (1,485) -------- -------- -------- Total operating revenues................... $850,152 $690,196 $848,208 ======== ======== ========
59 61 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A reconciliation of total assets for the reportable segments to total consolidated assets for September 30, 2000, 1999 and 1998 is presented below:
2000 1999 1998 ---------- ---------- ---------- (IN THOUSANDS) Total assets for reportable segments............. $1,365,317 $1,247,096 $1,166,297 Elimination of intercompany accounts............. (16,559) (16,559) (24,907) ---------- ---------- ---------- Total consolidated assets.............. $1,348,758 $1,230,537 $1,141,390 ========== ========== ==========
The following table summarizes the Company's revenues by products and services for the year ended September 30:
2000 1999 1998 -------- -------- -------- (IN THOUSANDS) Gas sales revenues: Residential........................................ $405,552 $349,691 $410,538 Commercial......................................... 176,712 144,836 184,046 Public authority and other......................... 27,198 22,330 20,504 Industrial......................................... 97,089 73,194 91,972 -------- -------- -------- Total gas sales revenues................... 706,551 590,051 707,060 Transportation revenues.............................. 23,610 23,035 23,883 Other gas revenues................................... 4,674 4,227 7,502 -------- -------- -------- Total utility revenues..................... 734,835 617,313 738,445 Propane revenues..................................... 22,550 22,944 29,091 Non-Regulated revenues............................... 92,767 49,939 80,672 -------- -------- -------- Total operating revenues................... $850,152 $690,196 $848,208 ======== ======== ========
12. MARKETABLE SECURITIES In accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," all marketable securities are classified as available-for-sale and are reported at market value with unrealized gains and losses shown as a component of shareholders' equity labeled "unrealized holding gains on investments, net." All marketable securities are held in rabbi trusts for the Supplemental Executive Benefit Plan ("SEBP"). The cost, unrealized holding gain (loss) and the market value of the marketable securities are as follows:
UNREALIZED HOLDING MARKET COST GAIN (LOSS) VALUE ------- ----------- ------- (IN THOUSANDS) As of September 30, 2000: Available-for-sale securities: Domestic equity mutual funds..................... $22,557 $3,148 $25,705 Foreign equity mutual funds...................... 2,462 398 2,860 ------- ------ ------- $25,019 $3,546 $28,565 ======= ====== ======= As of September 30, 1999: Available-for-sale securities: Domestic equity mutual funds..................... $22,265 $1,041 $23,306 Foreign equity mutual funds...................... 2,359 399 2,758 ------- ------ ------- $24,624 $1,440 $26,064 ======= ====== =======
60 62 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 13. LEASES The Company has entered into non-cancelable operating leases for office and warehouse space used in its operations. The remaining lease terms range from one to 20 years and generally provide for the payment of taxes, insurance and maintenance by the lessee. The Company has also entered into capital leases for division offices and operating facilities. Property, plant and equipment included amounts for capital leases of $4.6 million at both September 30, 2000 and 1999. Accumulated depreciation for these capital leases totaled $1.4 million and $1.2 million at September 30, 2000 and 1999. The related future minimum lease payments at September 30, 2000 were as follows:
CAPITAL OPERATING LEASES LEASES ------- --------- (IN THOUSANDS) 2001........................................................ $ 735 $ 8,789 2002........................................................ 735 8,706 2003........................................................ 735 8,082 2004........................................................ 735 7,922 2005........................................................ 701 7,835 Thereafter.................................................. 2,684 31,965 ------- ------- Total minimum lease payments................................ 6,325 $73,299 ======= Less amount representing interest........................... (3,154) ------- Present value of net minimum lease payments................. $ 3,171 =======
Consolidated lease and rental expense amounted to $9.0 million, $10.6 million and $9.2 million for fiscal 2000, 1999 and 1998. Rents for the regulated business are expensed, and the Company receives rate treatment as a cost of service on a pay-as-you-go basis. 14. RELATED PARTY TRANSACTIONS Included in purchased gas cost were purchases from WMLLC of $228.6 million, $117.4 million and $124.7 million in 2000, 1999 and 1998. Volumes purchased were 74.4 billion cubic feet ("Bcf"), 50.9 Bcf and 53.4 Bcf in 2000, 1999 and 1998. These purchases were made in a competitive open bidding process and reflect market prices. Average prices per thousand cubic feet ("Mcf") for gas purchased from WMLLC were $3.07, $2.31 and $2.33 in 2000, 1999 and 1998. In addition, the Company has entered into contracts with WMLLC to manage a significant portion of the Company's underground storage facilities. 15. SUBSEQUENT EVENT (UNAUDITED) On October 10, 2000, the Company entered into an agreement to sell its natural gas distribution system assets in Gaffney, South Carolina for approximately $5.8 million which approximates net book value. The Company operates its South Carolina assets through its United Cities Division. The transaction is subject to regulatory approval and is expected to close by the end of the year. The United Cities Division serves approximately 5,100 customers in the Gaffney area. 61 63 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized unaudited quarterly financial data is presented below. The sum of net income per share by quarter may not equal the net income per share for the year due to variations in the weighted average shares outstanding used in computing such amounts. The Company's businesses are seasonal due to weather conditions in the Company's service areas. For further information on its effects on quarterly results, please see the "Weather and seasonality" discussion included in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section herein.
FISCAL YEAR 2000 --------------------------------------------------- QUARTER ENDED --------------------------------------------------- DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, ------------ --------- -------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Operating revenues..................... $224,458 $314,197 $152,362 $159,135 Gross profit........................... 89,550 118,127 60,030 57,999 Operating income (loss)................ 30,141 55,987 (2,344) 1,532 Net income (loss)...................... 14,324 29,573 (4,396) (3,583) Net income (loss) per share............ .46 .94 (.14) (.11)
FISCAL YEAR 1999 --------------------------------------------------- QUARTER ENDED --------------------------------------------------- DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, ------------ --------- -------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Operating revenues..................... $210,227 $261,426 $109,590 $108,953 Gross profit........................... 91,208 112,395 53,376 42,815 Operating income (loss)................ 31,688 50,843 412 (28,704) Net income (loss)...................... 15,380 28,795 (5,295) (21,136) Net income (loss) per share............ .50 .94 (.17) (.68)
62 64 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors and compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated herein by reference from the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders on February 14, 2001. Information regarding executive officers is included in Part I of this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION Incorporated herein by reference from the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders on February 14, 2001. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference from the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders on February 14, 2001. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated herein by reference from the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders on February 14, 2001. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. and 2. Financial statements and financial statement schedules. The financial statements and financial statement schedules listed in the accompanying Index to Financial Statements are filed as part of this Form 10-K. 3. Exhibits The exhibits listed in the accompanying Exhibits Index are filed as part of this Form 10-K. The exhibits numbered 10.23(a) through 10.36 are management contracts or compensatory plans or arrangements. (b) Reports on Form 8-K The Company filed a Form 8-K Current Report, Item 5, Other Events, dated August 8, 2000, announcing that it will acquire from Woodward Marketing, Inc. the remaining 55 percent interest in Woodward Marketing, LLC in exchange for 1,423,193 restricted shares of Atmos common stock and that US Propane, L.P., in which Atmos is a partner, has completed a merger of its operations with Heritage Holdings, Inc. Under Item 7, Financial Statements and Exhibits, an exhibit was attached: a copy of a related press release dated August 8, 2000 and a copy of a related press release dated August 10, 2000. 63 65 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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) By /s/ JOHN P. REDDY ----------------------------------- John P. Reddy Senior Vice President and Chief Financial Officer Date: November 14, 2000 64 66 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Robert W. Best and John P. Reddy, or either of them acting alone or together, as his true and lawful attorney-in-fact and agent with full power to act alone, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Form 10-K, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated: /s/ ROBERT W. BEST Chairman, President and November 14, 2000 ----------------------------------------------------- Chief Executive Officer Robert W. Best /s/ JOHN P. REDDY Senior Vice President and November 14, 2000 ----------------------------------------------------- Chief Financial Officer John P. Reddy /s/ F.E. MEISENHEIMER Vice President and November 14, 2000 ----------------------------------------------------- Controller (Principal F.E. Meisenheimer Accounting Officer) /s/ TRAVIS W. BAIN, II Director November 14, 2000 ----------------------------------------------------- Travis W. Bain, II /s/ DAN BUSBEE Director November 14, 2000 ----------------------------------------------------- Dan Busbee /s/ RICHARD W. CARDIN Director November 14, 2000 ----------------------------------------------------- Richard W. Cardin /s/ THOMAS J. GARLAND Director November 14, 2000 ----------------------------------------------------- Thomas J. Garland /s/ GENE C. KOONCE Director November 14, 2000 ----------------------------------------------------- Gene C. Koonce /s/ VINCENT J. LEWIS Director November 14, 2000 ----------------------------------------------------- Vincent J. Lewis /s/ THOMAS C. MEREDITH Director November 14, 2000 ----------------------------------------------------- Thomas C. Meredith /s/ PHILLIP E. NICHOL Director November 14, 2000 ----------------------------------------------------- Phillip E. Nichol /s/ CARL S. QUINN Director November 14, 2000 ----------------------------------------------------- Carl S. Quinn
65 67 /s/ CHARLES K. VAUGHAN Director November 14, 2000 ----------------------------------------------------- Charles K. Vaughan /s/ RICHARD WARE II Director November 14, 2000 ----------------------------------------------------- Richard Ware II
66 68 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (ITEM 8, 14(A) 1 AND 2)
FORM 10-K PAGE NO. --------- Independent auditors' report................................ 34 Financial statements and supplementary data: Consolidated balance sheets at September 30, 2000 and 1999................................................... 35 Consolidated statements of income for the years ended September 30, 2000, 1999 and 1998................................................... 36 Consolidated statements of shareholders' equity for the years ended September 30, 2000, 1999 and 1998.......... 37 Consolidated statements of cash flows for the years ended September 30, 2000, 1999 and 1998...................... 38 Notes to consolidated financial statements................ 39 Supplementary Quarterly Financial Data (unaudited)........ 62 Financial statement schedule for the years ended September 30, 2000, 1999 and 1998: II. Valuation and Qualifying Accounts..................... 68
All other financial statement schedules are omitted because the required information is not present, or not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements and accompanying notes thereto. 67 69 ATMOS ENERGY CORPORATION SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED SEPTEMBER 30, 2000 (IN THOUSANDS)
ADDITIONS ----------------------- BALANCE BALANCE AT CHARGED TO CHARGED TO AT END BEGINNING COSTS & OTHER OF OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ---------- ---------- ---------- ---------- ------- 2000 Allowance for doubtful accounts...... $9,231 $17,724 -- $ 16,366(1) $10,589 1999 Allowance for doubtful accounts...... $1,969 $ 8,899 -- $ 1,637(1) $ 9,231 1998 Allowance for doubtful accounts...... $2,188 $ 2,140 -- $ 2,359(1) $ 1,969
--------------- (1) Uncollectible accounts written off 68 70 EXHIBITS INDEX ITEM 14.(A)(3)
PAGE NUMBER OR EXHIBIT INCORPORATION BY NUMBER DESCRIPTION REFERENCE TO ------- ----------- ---------------- Plan of Reorganization 2.1 -- Agreement and Plan of Reorganization Exhibit 2.1 to Registration Statement dated July 19, 1996, by and between on Form S-4 filed October 4, 1996 the Registrant and United Cities Gas (File No. 333-13429) Company 2.2 -- Amendment No. 1 to Agreement and Plan Exhibit 2.1(a) to Registration of Reorganization dated October 3, Statement on Form S-4 filed October 1996 4, 1996 (File No. 333-13429) 2.3 -- Purchase and Sale Agreement, made as Exhibit 2.1 to Registration Statement of April 13, 2000, by and among on Form S-3/A filed November 6, 2000 Citizens Utilities Company, LGS (File No. 333-73705) Natural Gas Company, and Atmos Energy Corporation Articles of Incorporation and Bylaws 3.1(a) -- Restated Articles of Incorporation of Exhibit 3.1 of Form 10-K for fiscal the Company, as Amended (as of July year ended September 30, 1997 (File 31, 1997) No. 1-10042) 3.1(b) -- Articles of Amendment to the Restated Exhibit 3a of Form 10-Q for quarter Articles of Incorporation of Atmos ended March 31, 1999 (File No. Energy Corporation as Amended (Texas) 1-10042) 3.1(c) -- Articles of Amendment to the Restated Exhibit 3b of Form 10-Q for quarter Articles of Incorporation of Atmos ended March 31, 1999 (File No. Energy Corporation as Amended 1-10042) (Virginia) 3.2 -- Bylaws of the Company (Amended and Exhibit 3.2 of Form 10-K for fiscal Restated as of November 12, 1997) year ended September 30, 1997 (File No. 1-10042) Instruments Defining Rights of Security Holders 4.1 -- Specimen Common Stock Certificate Exhibit (4)(b) of Form 10-K for (Atmos Energy Corporation) fiscal year ended September 30, 1988 (File No. 1-10042) 4.2 -- Rights Agreement, dated as of November Exhibit 4.1 of Form 8-K dated 12, 1997, between the Company and November 12, 1997 (File No. 1-10042) BankBoston, N.A. 4.3 -- First Amendment to Rights Agreement Exhibit 2 of Form 8-A, Amendment No. dated as of August 11, 1999, between 1, dated August 12, 1999 (File the Company and BankBoston, N.A., as No. 1-10042) Rights Agent 9 -- Not Applicable
69 71
PAGE NUMBER OR EXHIBIT INCORPORATION BY NUMBER DESCRIPTION REFERENCE TO ------- ----------- ---------------- Material Contracts 10.1(a) -- Note Purchase Agreement, dated as of Exhibit 10(c) of Form 8-K filed December 21, 1987, by and between the January 7, 1988 (File No. 0-11249) Company and John Hancock Mutual Life Insurance Company Note Purchase Agreement, dated as of December 21, 1987, by and between the Company and John Hancock Charitable Trust I (Agreement is identical to Hancock Agreement listed above except as to the parties thereto.) Note Purchase Agreement dated as of December 21, 1987, by and between the Company and Mellon Bank, N.A., Trustee under Master Trust Agreement of AT&T Corporation, dated January 1, 1984, for Employee Pension Plans -- AT&T -- John Hancock -- Private Placement (Agreement is identical to Hancock Agreement listed above except as to the parties thereto.) 10.1(b) -- Amendment to Note Purchase Agreement, Exhibit (10)(b)(ii) of Form 10-K for dated October 11, 1989, by and between fiscal year ended September 30, 1989 the Company and John Hancock Mutual (File No. 1-10042) Life Insurance Company revising Note Purchase Agreement dated December 21, 1987 Amendment to Note Purchase Agreement, dated October 11, 1989, by and between the Company and John Hancock Charitable Trust I revising Note Purchase Agreement dated December 21, 1987. (Amendment is identical to Hancock amendment listed above except as to the parties thereto.) Amendment to Note Purchase Agreement, dated October 11, 1989, by and between the Company and Mellon Bank, N.A., Trustee under Master Trust Agreement of AT&T Corporation, dated January 1, 1984, for Employee Pension Plans -- AT&T -- John Hancock -- Private Placement revising Note Purchase Agreement dated December 21, 1987 (Amendment is identical to Hancock amendment listed above except as to the parties thereto.)
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PAGE NUMBER OR EXHIBIT INCORPORATION BY NUMBER DESCRIPTION REFERENCE TO ------- ----------- ---------------- 10.1(c) -- Amendment to Note Purchase Agreement, Exhibit 10(b)(iii) of Form 10-K for dated November 12, 1991, by and fiscal year ended September 30, 1991 between the Company and John Hancock (File No. 1-10042) Mutual Life Insurance Company revising Note Purchase Agreement dated December 21, 1987 Amendment to Note Purchase Agreement, dated November 12, 1991, by and between the Company and John Hancock Charitable Trust I revising Note Purchase Agreement dated December 21, 1987. (Amendment is identical to Hancock amendment listed above except as to the parties thereto.) Amendment to Note Purchase Agreement, dated November 12, 1991, by and between the Company and Mellon Bank, N.A., Trustee under Master Trust Agreement of AT&T Corporation, dated January 1, 1984, for Employee Pension Plans -- AT&T -- John Hancock -- Private Placement revising Note Purchase Agreement dated December 21, 1987. (Amendment is identical to Hancock amendment above except as to the parties thereto.) 10.1(d) -- Amendment to Note Purchase Agreement, Exhibit 4.3(d) to Registration dated December 22, 1993, by and Statement on Form S-3 filed April 20, between the Company and John Hancock 1998 (File No. 333-50477) Mutual Life Insurance Company revising Note Purchase Agreement dated December 21, 1987 Amendment to Note Purchase Agreement, dated December 22, 1993, by and between the Company and Mellon Bank, N.A., Trustee under Master Trust Agreement of AT&T Corporation, dated January 1, 1982, for Employee Pension Plans -- AT&T -- John Hancock -- Private Placement revising Note Purchase Agreement dated December 21, 1987 (Amendment is identical to Hancock amendment listed above except as to the parties thereto and the amounts thereof)
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PAGE NUMBER OR EXHIBIT INCORPORATION BY NUMBER DESCRIPTION REFERENCE TO ------- ----------- ---------------- 10.1(e) -- Amendment to Note Purchase Agreement, Exhibit 4.3(e) to Registration dated December 20, 1994, by and Statement on Form S-3 filed April 20, between the Company and John Hancock 1998 (File No. 333-50477) Mutual Life Insurance Company revising Note Purchase Agreement dated December 21, 1987 Amendment to Note Purchase Agreement, dated December 20, 1994, by and between the Company and Mellon Bank, N.A., Trustee under Master Trust Agreement of AT&T Corporation, dated January 1, 1984, for Employee Pension Plans -- AT&T -- John Hancock -- Private Placement revising Note Purchase Agreement dated December 21, 1987 (Amendment is identical to Hancock amendment listed above) 10.1(f) -- Amendment to Note Purchase Agreement, Exhibit 4.3(f) to Registration dated July 29, 1997, by and between Statement on Form S-3 filed April 20, the Company and John Hancock Mutual 1998 (File No. 333-50477) Life Insurance Company revising Note Purchase Agreement dated December 21, 1987 Amendment to Note Purchase Agreement, dated July 29, 1997, by and between the Company and Mellon Bank, N.A., Trustee under Master Trust Agreement of AT&T Corporation, dated January 1, 1984, for Employee Pension Plans -- AT&T -- John Hancock -- Private Placement revising Note Purchase Agreement dated December 21, 1987 (Amendment is identical to Hancock amendment listed above except as to the parties thereto and the amounts thereof) 10.2(a) -- Note Purchase Agreement, dated as of Exhibit 10(c) of Form 10-K for fiscal October 11, 1989, by and between the year ended September 30, 1989 (File Company and John Hancock Mutual Life No. 1-10042) Insurance Company 10.2(b) -- Amendment to Note Purchase Agreement, Exhibit 10(c)(ii) of Form 10-K for dated as of November 12, 1991, by and fiscal year ended September 30, 1991 between the Company and John Hancock (File No. 1-10042) Mutual Life Insurance Company revising Note Purchase Agreement dated October 11, 1989 10.2(c) -- Amendment to Note Purchase Agreement, Exhibit 4.4(c) to Registration dated December 22, 1993, by and Statement on Form S-3 filed April 20, between the Company and John Hancock 1998 (File No. 333-50477) Mutual Life Insurance Company revising Note Purchase Agreement dated October 11, 1989
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PAGE NUMBER OR EXHIBIT INCORPORATION BY NUMBER DESCRIPTION REFERENCE TO ------- ----------- ---------------- 10.2(d) -- Amendment to Note Purchase Agreement, Exhibit 4.4(d) to Registration dated December 20, 1994, by and Statement on Form S-3 filed April 20, between the Company and John Hancock 1998 (File No. 333-50477) Mutual Life Insurance Company revising Note Purchase Agreement dated October 11, 1989 10.2(e) -- Amendment to Note Purchase Agreement, Exhibit 4.4(e) to Registration dated July 29, 1997, by and between Statement on Form S-3 filed April 20, the Company and John Hancock Mutual 1998 (File No. 333-50477) Life Insurance Company revising Note Purchase Agreement dated October 11, 1989 10.3(a) -- Note Purchase Agreement, dated as of Exhibit 10(f)(i) of Form 10-K for August 29, 1991, by and between the fiscal year ended September 30, 1991 Company and The Variable Annuity Life (File No. 1-10042) Insurance Company 10.3(b) -- Amendment to Note Purchase Agreement, Exhibit 10(f)(ii) of Form 10-K for dated November 26, 1991, by and fiscal year ended September 30, 1991 between the Company and The Variable (File No. 1-10042) Annuity Life Insurance Company revising Note Purchase Agreement dated August 29, 1991 10.3(c) -- Amendment to Note Purchase Agreement, Exhibit 4.5(c) to Registration dated December 22, 1993, by and Statement on Form S-3 filed April 20, between the Company and The Variable 1998 (File No. 333-50477) Annuity Life Insurance Company revising Note Purchase Agreement dated August 29, 1991 10.3(d) -- Amendment to Note Purchase Agreement, Exhibit 4.5(d) to Registration dated July 29, 1997, by and between Statement on Form S-3 filed April 20, the Company and The Variable Annuity 1998 (File No. 333-50477) Life Insurance Company revising Note Purchase Agreement dated August 29, 1991 10.4(a) -- Note Purchase Agreement, dated as of Exhibit (10)(f) of Form 10-K for August 31, 1992, by and between the fiscal year ended September 30, 1992 Company and The Variable Annuity Life (File No. 1-10042) Insurance Company 10.4(b) -- Amendment to Note Purchase Agreement, Exhibit 4.6(b) to Registration dated December 22, 1993, by and Statement on Form S-3 filed April 20, between the Company and The Variable 1998 (File No. 333-50477) Annuity Life Insurance Company revising Note Purchase Agreement dated August 31, 1992 10.4(c) -- Amendment to Note Purchase Agreement, Exhibit 4.6(c) to Registration dated July 29, 1997, by and between Statement on Form S-3 filed April 20, the Company and The Variable Annuity 1998 (File No. 333-50477) Life Insurance Company revising Note Purchase Agreement dated August 31, 1992
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PAGE NUMBER OR EXHIBIT INCORPORATION BY NUMBER DESCRIPTION REFERENCE TO ------- ----------- ---------------- 10.5(a) -- Note Purchase Agreement, dated Exhibit 10.1 of Form 10-Q for quarter November 14, 1994, by and among the ended December 31, 1994 (File No. Company and New York Life Insurance 1-10042) Company, New York Life Insurance and Annuity Corporation, The Variable Annuity Life Insurance Company, American General Life Insurance Company, and Merit Life Insurance Company 10.5(b) -- Amendment to Note Purchase Agreement, Exhibit 4.7(b) to Registration dated July 29, 1997 by and among the Statement on Form S-3 filed April 20, Company and New York Life Insurance 1998 (File No. 333-50477) Company, New York Life Insurance and Annuity Corporation, The Variable Annuity Life Insurance Company, American General Life Insurance Company and Merit Life Insurance Company revising Note Purchase Agreement dated November 14, 1994 10.6(a) -- Indenture of Mortgage, dated as of Exhibit to Registration Statement of July 15, 1959, from United Cities Gas United Cities Gas Company on Form S-3 Company to First Trust of Illinois, (File No. 33-56983) National Association, and M.J. Kruger, as Trustees, as amended and supplemented through December 1, 1992 (the Indenture of Mortgage through the 20th Supplemental Indenture) 10.6(b) -- Twenty-First Supplemental Indenture Exhibit 10.7(a) of Form 10-K for dated as of February 5, 1997 by and fiscal year ended September 30, 1997 among United Cities Gas Company and (File No. 1-10042) Bank of America Illinois and First Trust National Association and Russell C. Bergman supplementing Indenture of Mortgage dated as of July 15, 1959 10.6(c) -- Twenty-Second Supplemental Indenture Exhibit 10.7(b) of Form 10-K for dated as of July 29, 1997 by and among fiscal year ended September 30, 1997 the Company and First Trust National (File No. 1-10042) Association and Russell C. Bergman supplementing Indenture of Mortgage dated as of July 15, 1959 10.7(a) -- Form of Indenture between United Exhibit to Registration Statement of Cities Gas Company and First Trust of United Cities Gas Company on Form S-3 Illinois, National Association, as (File No. 33-56983) Trustee dated as of November 15, 1995 10.7(b) -- First Supplemental Indenture between Exhibit 10.8(a) of Form 10-K for the Company and First Trust of fiscal year ended September 30, 1997 Illinois, National Association, as (File No. 1-10042) Trustee dated as of July 29, 1997
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PAGE NUMBER OR EXHIBIT INCORPORATION BY NUMBER DESCRIPTION REFERENCE TO ------- ----------- ---------------- 10.8(a) -- Seventh Supplemental Indenture, dated Exhibit 10.1 of Form 10-Q for quarter as of October 1, 1983 between Greeley ended June 30, 1994 (File No. Gas Company ("Greeley Division") and 1-10042) the Central Bank of Denver, N.A. ("Central Bank") 10.8(b) -- Ninth Supplemental Indenture, dated as Exhibit 10.2 of Form 10-Q for quarter of April 1, 1991, between the Greeley ended June 30, 1994 (File No. Division and Central Bank 1-10042) 10.8(c) -- Bond Purchase Agreement, dated as of Exhibit 10.3 of Form 10-Q for quarter April 1, 1991, between the Greeley ended June 30, 1994 (File No. Division and Central Bank 1-10042) 10.8(d) -- Tenth Supplemental Indenture, dated as Exhibit 10.4 of Form 10-Q for quarter of December 1, 1993, between the ended June 30, 1994 (File No. Company and Colorado National Bank, 1-10042) formerly Central Bank 10.9(a) -- Purchase Agreement for 6 3/4% Exhibit 99.1 of Form 8-K dated July Debentures due 2028 by and among 22, 1998 (File No. 1-10042) Merrill Lynch Co., NationsBanc Montgomery Securities LLC, Edward D. Jones & Co., L.P. and Atmos Energy Corporation dated July 22, 1998 10.9(b) -- Form of Indenture between Atmos Energy Exhibit 4.1 to Registration Statement Corporation and U.S. Bank Trust on Form S-3 filed April 20, 1998 National Association, Trustee (File No. 333-50477) 10.10 -- Term Credit Agreement, dated as of Exhibit 10.1 of Form 10-Q for quarter August 3, 2000, among the Company, ended June 30, 2000 (File No. Bank of America, N.A., BankOne, NA, 1-10042) and Societe Generale New York Branch 10.10(a) -- Revolving Credit Agreement, dated as Exhibit 4.9 to Registration Statement of August 3, 2000, among the Company, on Form S-3/A filed November 6, 2000 Bank of America, N.A., Bank One, NA, (File No. 333-93705) and Societe Generale New York Branch 10.10(b) -- Credit Agreement, dated to be Exhibit 10.2 to Registration effective as of August 9, 2000, among Statement on Form S-3/A filed Woodward Marketing, L.L.C., and Bank November 6, 2000 (File No. 333-93705) of America, N.A. 10.10(c) -- Guaranty, effective as of August 9, Exhibit 10.3 to Registration 2000, by Atmos Energy Marketing, LLC, Statement on Form S-3/A filed in favor of Bank of America, N.A. November 6, 2000 (File No. 333-93705) 10.10(d) -- First Amendment to Credit Agreement Exhibit 10.4 to Registration and Guaranty of Atmos Energy Statement on Form S-3/A filed Marketing, LLC, effective as of November 6, 2000 (File No. 333-93705) September 29, 2000, among Woodward Marketing, L.L.C., Bank of America, N.A., Woodward Marketing, Inc., Atmos Energy Marketing, LLC, J.D. Woodward and James Kifer
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PAGE NUMBER OR EXHIBIT INCORPORATION BY NUMBER DESCRIPTION REFERENCE TO ------- ----------- ---------------- Gas Supply Contracts 10.11(a) -- Firm Gas Transportation Agreement No. Exhibit 10.10(a) of Form 10-K for 123535 dated November 1, 1998 between fiscal year ended September 30, 1999 Greeley Gas and Public Service Company (File No. 1-10042) of Colorado 10.11(b) Transportation Storage Service Agreement Exhibit 10.6(b) of Form 10-K for No. TA-0544 between Greeley Gas and fiscal year ended September 30, 1994 Williams Natural Gas Company dated (File No. 1-10042) October 1, 1993, as amended to extend to October 1, 2003 10.11(c) -- Firm Transportation Service Agreement No. 33182000A, Rate Schedule TF-1, between Colorado Interstate Gas Company and Greeley Gas Company dated October 1, 2000 10.11(d) -- No-Notice Storage and Transportation Delivery Service Agreement No. 31028000B, Rate Schedule NNT-1, between Colorado Interstate Gas Company and Greeley Gas Company dated April 1, 2000 10.11(e) -- Transportation-Storage Contract No. Exhibit 10.6 of Form 10-Q for quarter TA-0614 (Request 0180) between Greeley ended March 31, 1998 (File No. Gas Company (transferred from United 1-10042) Cities Gas Company effective January 1, 2000) and Williams Natural Gas Company dated October 1, 1993, as amended to extend to October 1, 2002 10.11(f) -- Transportation-Storage Contract No. Exhibit 10.7 of Form 10-Q for quarter TA-0611 (Request 0002) between Greeley ended March 31, 1998 (File No. Gas Company (transferred from United 1-10042) Cities Gas Company effective January 1, 2000) and Williams Natural Gas Company dated October 1, 1993, as amended to extend to October 1, 2003 10.12(a) -- Agreement for Firm Intrastate Exhibit 10.1 of Form 10-Q for quarter Transportation of Natural Gas in the ended March 31, 1998 (File No. State of Louisiana between Trans La 1-10042) and Louisiana Intrastate Gas Company L.L.C. (LIG) dated December 22, 1997 and effective July 1, 1997, as amended to extend to December 1, 2004 10.12(b) -- Agreement for Firm 311(a)(2) Exhibit 10.2 of Form 10-Q for quarter Transportation of Natural Gas in the ended March 31, 1998 (File No. State of Louisiana between Trans La 1-10042) and Louisiana Intrastate Gas Company L.L.C. (LIG) dated December 22, 1997 and effective July 1, 1997
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PAGE NUMBER OR EXHIBIT INCORPORATION BY NUMBER DESCRIPTION REFERENCE TO ------- ----------- ---------------- 10.13(a) -- Gas Transportation Agreement between Exhibit 10.3 of Form 10-Q for quarter Texas Gas and Western Kentucky Gas ended December 31, 1993 (File No. dated November 1, 1993 (Contract no. 1-10042) T3355, zone 3), as amended to extend to November 1, 2001 10.13(b) -- Gas Transportation Agreement between Exhibit 10.4 of Form 10-Q for quarter Texas Gas and Western Kentucky Gas ended December 31, 1993 (File No. dated November 1, 1993 (Contract no. 1-10042) T3819, zone 4), as amended to extend to November 1, 2001 10.13(c) -- Gas Transportation Agreement between Exhibit 10.5 of Form 10-Q for quarter Texas Gas and Western Kentucky Gas ended December 31, 1993 (File No. dated November 1, 1993 (Contract no. 1-10042) N0210, zone 2, Contract no. N0340, zone 3, Contract no. N0435, zone 4), as amended to extend to November 1, 2001 10.14(a) -- Gas Transportation Agreement, Contract Exhibit 10.17(a) of Form 10-K for No. 2550, dated September 1, 1993, fiscal year ended September 30, 1993 between Tennessee Gas Pipeline (File No. 1-10042) Company, a division of Tenneco, Inc. ("Tennessee Gas"), and Western Kentucky, Campbellsville Service Area, as amended to extend to November 1, 2002 10.14(b) -- Gas Transportation Agreement, Contract Exhibit 10.17(b) of Form 10-K for No. 2546, dated September 1, 1993, fiscal year ended September 30, 1993 between Tennessee Gas and Western (File No. 1-10042) Kentucky, Danville Service Area, as amended to extend to November 1, 2002 10.14(c) -- Gas Transportation Agreement, Contract Exhibit 10.17(c) of Form 10-K for No. 2385, dated September 1, 1993, fiscal year ended September 30, 1993 between Tennessee Gas and Western (File No. 1-10042) Kentucky, Greensburg et al Service Area, as amended to extend to November 1, 2002 10.14(d) -- Gas Transportation Agreement, Contract Exhibit 10.17(d) of Form 10-K for No. 2551, dated September 1, 1993, fiscal year ended September 30, 1993 between Tennessee Gas and Western (File No. 1-10042) Kentucky, Harrodsburg Service Area, as amended to extend to November 1, 2002 10.14(e) -- Gas Transportation Agreement, Contract Exhibit 10.17(e) of Form 10-K for No. 2548, dated September 1, 1993, fiscal year ended September 30, 1993 between Tennessee Gas and Western (File No. 1-10042) Kentucky, Lebanon Service Area, as amended to extend to November 1, 2002
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PAGE NUMBER OR EXHIBIT INCORPORATION BY NUMBER DESCRIPTION REFERENCE TO ------- ----------- ---------------- 10.15 -- Gas Service Agreement (Service for Exhibit 10.5 of Form 10-Q for quarter Firm Transportation) between Energas ended December 31, 1996 (File No. and Oneok Gas Transmission, Inc., 1-10042) formerly Westar Transmission Company dated January 1, 1996, as assigned by KN to Oneok effective April 6, 2000 10.16 -- Gas Service Agreement (Service for Exhibit 10.7 of Form 10-Q for quarter Firm Transportation) between Oneok Gas ended December 31, 1996 (File No. Transmission, Inc., formerly Westar 1-10042) Transmission Company and EnerMart Trust dated January 1, 1996, as assigned by KN to Oneok effective April 6, 2000 (Irrigation) 10.17 -- Amarillo Supply Agreement dated Exhibit 10.7(a) of Form 10-K for January 2, 1993 between Energas and fiscal year ended September 30, 1994 Pioneer Natural Resources, USA, Inc. (File No. 1-10042) (formerly Mesa Operating Company) 10.18 -- Gas Sales Agreement (Swing) between Exhibit 10.13 of Form 10-Q for Energas and Oneok Energy Trading & quarter ended December 31, 1996 (File Marketing Company, formerly KN No. 1-10042) Marketing, dated January 1, 1996, as assigned by KN to Oneok effective April 6, 2000 10.19 -- Operating Agreement between Energas Exhibit 10.16 of Form 10-Q for and Oneok Gas Transmission, Inc., quarter ended December 31, 1996 (File formerly Westar Transmission Company, No. 1-10042) effective December 1, 1996, as assigned by KN to Oneok effective April 6, 2000 10.20(a) -- Gas Transportation Agreement No. Exhibit 10.1 of Form 10-Q for quarter 30774, Rate Schedules FT-A and FT-GS, ended December 31, 1999 (File No. between United Cities Gas Company and 1-10042) East Tennessee Natural Gas Company dated October 1, 1999 10.20(b) -- Gas Transportation Agreement Service Exhibit 10.5 of Form 10-Q for quarter Package No. 4219 between United Cities ended March 31, 1998 (File No. Gas Company and Tennessee Gas Pipeline 1-10042) Company dated November 1, 1993 and expiring November 1, 2000 10.20(c) -- Gas Transportation Agreement No. 27311 between United Cities Gas Company and Tennessee Gas Pipeline Company dated November 1, 2000 (replaces 10.20(b) Gas Transportation Agreement No. 4219 effective November 1, 2000) 10.20(d) -- Service Agreement No. 867760 Under Exhibit 10.8 of Form 10-Q for quarter Rate Schedule FT between United Cities ended March 31, 1998 (File No. Gas Company and Southern Natural Gas 1-10042) Company dated November 1, 1993, as amended to extend to November 1, 2005
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PAGE NUMBER OR EXHIBIT INCORPORATION BY NUMBER DESCRIPTION REFERENCE TO ------- ----------- ---------------- 10.20(e) -- Service Agreement No. 867761 under Exhibit 10.9 of Form 10-Q for quarter Rate Schedule FT-NN between United ended March 31, 1998 (File No. Cities Gas Company and Southern 1-10042) Natural Gas Company dated November 1, 1993, as amended to extend to November 1, 2005 10.20(f) -- FTS-1 Service Agreement No. 59572 between United Cities Gas Company and Columbia Gulf Transmission Company dated November 1, 1998 10.20(g) -- Gas Transportation Agreement No. 34538 (Rocky Top Expansion) between United Cities Gas Company and East Tennessee Natural Gas Company dated November 1, 2000 Asset Purchase Agreements 10.21 -- Asset Sale and Purchase Agreement by Exhibit 99.2 of Form 8-K dated May and among Southwestern Energy Company, 31, 2000 (File No. 1-10042) Arkansas Western Gas Company and Atmos Energy Corporation dated as of October 15, 1999 10.22 -- Asset Purchase Agreement by and among Exhibit 10.1 to Registration Atmos Energy Corporation, Atmos Energy Statement on Form S-3/A filed Marketing, LLC, Woodward Marketing, November 6, 2000 (File No. 333-93705) Inc., J.D. and Linda Woodward and James and Rita B. Kifer dated as of August 7, 2000 Executive Compensation Plans and Arrangements 10.23(a)* -- Severance Agreement dated April 1, Exhibit 10.3 of Form 10-Q for quarter 1995 between the Company and J. ended June 30, 1995 (File No. Charles Goodman 1-10042) 10.23(b)* -- Form of Atmos Energy Corporation Exhibit 10.21(b) of Form 10-K for Change in Control Severance fiscal year ended September 30, 1998 Agreement -- Tier I (File No. 1-10042) 10.23(c)* -- Form of Atmos Energy Corporation Exhibit 10.21(c) of Form 10-K for Change in Control Severance fiscal year ended September 30, 1998 Agreement -- Tier II (File No. 1-10042) 10.24(a)* -- Atmos Energy Corporation Mini-Med Exhibit 10.22 of Form 10-K for fiscal Plan, as restated effective July 1, year ended September 30, 1996 (File 1995 No. 1-10042) 10.24(b)* -- Amendment No. One to the Atmos Energy Exhibit 10.22(b) of Form 10-K for Corporation Mini-Med Plan fiscal year ended September 30, 1998 (File No. 1-10042)
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PAGE NUMBER OR EXHIBIT INCORPORATION BY NUMBER DESCRIPTION REFERENCE TO ------- ----------- ---------------- 10.25* -- Long Term Stock Plan for the United Exhibit 99.1 of Form S-8 filed July Cities Gas Company Division 29, 1997 (File No. 333-32343) 10.26(a)* -- Atmos Energy Corporation Executive Exhibit 10.31 of Form 10-K for fiscal Retiree Life Plan year ended September 30, 1997 (File No. 1-10042) 10.26(b)* -- Amendment No. 1 to The Atmos Energy Exhibit 10.31(a) of Form 10-K for Corporation Executive Retiree Life fiscal year ended September 30, 1997 Plan (File No. 1-10042) 10.27(a)* -- Description of Financial and Estate Exhibit 10.25(b) of Form 10-K for Planning Program fiscal year ended September 30, 1997 (File No. 1-10042) 10.27(b)* -- Description of Sporting Events Program Exhibit 10.26(c) of Form 10-K for fiscal year ended September 30, 1993 (File No. 1-10042) 10.28(a)* -- Atmos Energy Corporation Supplemental Exhibit 10.26 of Form 10-K for fiscal Executive Benefits Plan, Amended and year ended September 30, 1998 (File Restated in its Entirety August 12, No. 1-10042) 1998 10.28(b)* -- Atmos Energy Corporation Performance- Exhibit 10.32 of Form 10-K for fiscal Based Supplemental Executive Benefits year ended September 30, 1998 (File Plan, Effective Date August 12, 1998 No. 1-10042) 10.29* -- Atmos Energy Corporation Restricted Exhibit 99.1 of Form S-8 filed Stock Grant Plan (Amended and Restated February 13, 1998 (File No. as of February 12, 1998) 333-46337) 10.30* -- Atmos Energy Corporation Annual Exhibit B of Definitive Proxy Incentive Plan for Management, Statement on Schedule 14A filed effective October 1, 1998 December 30, 1998 (File No. 1-10042) 10.31* -- Atmos Energy Corporation Executive Exhibit 10.33 of Form 10-K for fiscal Nonqualified Deferred Compensation year ended September 30, 1998 (File Plan No. 1-10042) 10.32(a)* -- Consulting Agreement between the Exhibit 10.2 of Form 10-Q for quarter Company and Charles K. Vaughan, ended June 30, 1997 (File No. effective October 1, 1994 1-10042) 10.32(b)* -- Amendment No. 1 to Consulting Exhibit 10.3 of Form 10-Q for quarter Agreement between the Company and ended June 30, 1997 (File No. Charles K. Vaughan, dated May 14, 1997 1-10042) 10.32(c)* -- Amendment No. 2 to Consulting Exhibit 10.30(c) of Form 10-K for Agreement between the Company and fiscal year ended September 30, 1998 Charles K. Vaughan, dated August 12, (File No. 1-10042) 1998
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PAGE NUMBER OR EXHIBIT INCORPORATION BY NUMBER DESCRIPTION REFERENCE TO ------- ----------- ---------------- 10.32(d)* -- Amendment No. 3 to Consulting Exhibit 10.30(d) of Form 10-K for Agreement between the Company and fiscal year ended September 30, 1999 Charles K. Vaughan, dated November 10, (File No. 1-10042 1999 10.32(e)* -- Amendment No. 4 to Consulting Agreement between the Company and Charles K. Vaughan, dated November 9, 2000 10.33* -- Atmos Energy Corporation Equity Exhibit C of Definitive Proxy Incentive and Deferred Compensation Statement on Schedule 14A filed Plan for Non-Employee Directors December 30, 1998 (File No. 1-10042) 10.34(a)* -- Atmos Energy Corporation Retirement Exhibit 10(y) of Form 10-K for fiscal Plan for Outside Directors year ended September 30, 1992 (File No. 1-10042) 10.34(b)* -- Amendment No. 1 to the Atmos Energy Exhibit 10.2 of Form 10-Q for quarter Corporation Retirement Plan for ended December 31, 1996 (File No. Outside Directors 1-10042) 10.35* -- Atmos Energy Corporation Outside Exhibit 10.28 of Form 10-K fiscal Directors Stock-for-Fee Plan (Amended year ended September 30, 1997 (File and Restated as of November 12, 1997) No. 1-10042) 10.36* -- Atmos Energy Corporation 1998 Exhibit A of Definitive Proxy Long-Term Incentive Plan Statement on Schedule 14A filed December 30, 1998 (File No. 1-10042) 11 -- Not applicable 12 -- Computation of ratio of earnings to fixed charges 13 -- Not applicable 16 -- Not applicable 18 -- Not applicable Other Exhibits, as indicated 21 -- Subsidiaries of the registrant 22 -- Not applicable 23 -- Consent of independent auditor, Ernst & Young LLP 24 -- Power of Attorney Signature page of Form 10-K for fiscal year ended September 30, 2000 27 -- Financial Data Schedule for Atmos for year ended September 30, 2000
--------------- * This exhibit constitutes a "management contract or compensatory plan, contract, or arrangement." 81