--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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, 2001
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 75240
5430 LBJ FREEWAY, DALLAS, TEXAS (Zip code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(972) 934-9227
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE 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 $816,053,202 as of October 31, 2001. On October 31, 2001 the
registrant had 40,841,501 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 13, 2002 are incorporated by
reference into Part III of this report.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PART I
The terms "we," "our," "us" and "Atmos" refer to Atmos Energy Corporation
and its subsidiaries, unless the context suggests otherwise. The abbreviations
"Mcf," "MMcf" and "Bcf" mean thousand cubic feet, million cubic feet and billion
cubic feet.
ITEM 1. BUSINESS
OPERATIONS
We distribute and sell natural gas to approximately 1.4 million
residential, commercial, industrial, agricultural and other customers. We
operate through five divisions in service areas located in Colorado, Georgia,
Illinois, Iowa, Kansas, Kentucky, Louisiana, Missouri, Tennessee, Texas and
Virginia. In addition, we transport natural gas for others through our
distribution system.
We provide natural gas storage services and own or hold an interest in
natural gas storage fields in Kansas, Kentucky and Louisiana to supplement
natural gas used by customers in Kansas, Kentucky, Tennessee, Louisiana and
other states. We also provide energy management and gas marketing services to
industrial customers, municipalities and other local distribution companies. We
also provide electrical power generation to meet peak load demands for a
municipality regulated by the Tennessee Valley Authority. In addition, we market
natural gas to industrial and agricultural customers primarily in West Texas and
to industrial customers in Louisiana.
FORMATION
We were organized under the laws of Texas in 1983 as Energas Company, a
subsidiary of Pioneer Corporation, for the purposes of owning and operating
Pioneer's natural gas distribution business in Texas. Immediately following the
transfer by Pioneer to Atmos of its gas distribution business, which Pioneer and
its predecessors had operated since 1906, Pioneer distributed our outstanding
stock to its shareholders. In September 1988, we changed our name from Energas
Company to Atmos Energy Corporation. As a result of the merger with United
Cities Gas Company in July 1997, we also became incorporated in Virginia.
RECENT DEVELOPMENTS
Completion of acquisition of remaining equity interest in Woodward
Marketing. We acquired a 45 percent interest in Woodward Marketing, L.L.C. in
1997 as a result of the merger of Atmos and United Cities Gas Company, which had
acquired that interest in 1995. In April 2001, we acquired the 55 percent
interest in Woodward Marketing, L.L.C. that we did not already own in exchange
for 1,423,193 restricted shares of our common stock. The consideration is
subject to an upward adjustment, based on our share price, of up to 232,547
shares plus an amount of shares to compensate for dividends paid after the
completion of the acquisition. As a result of the completion of the acquisition,
the guaranty by one of our subsidiaries of Woodward Marketing's $140.0 million
short-term working capital and letter of credit facility increased from 45
percent to 100 percent of any amounts outstanding. Under the facility, as of
September 30, 2001, $28.0 million was outstanding, and letters of credit
totaling $38.8 million had been issued. Since April 1, 2001, our subsidiary has
been the sole guarantor of all payables, up to $40.0 million, of Woodward
Marketing for natural gas purchases and transportation services.
Completion of acquisition of natural gas operations in Louisiana. In July
2001, we acquired from Citizens Communications Company the natural gas
operations of its Louisiana Gas Service Company division and its subsidiary LGS
Natural Gas Company for $363.4 million in cash. Upon completion of the
acquisition, we became the largest natural gas distributor in Louisiana, and our
national customer base increased to about 1.4 million customers, making us the
fifth largest pure natural gas local distribution company in the United States.
The acquired operations provide natural gas distribution service to
approximately 279,000 residential and commercial meters in communities in
southeastern and northern Louisiana. The service territory includes the suburban
areas of metropolitan New Orleans (excluding Orleans Parish), the north shore of
Lake Pontchar-
1
train and the Monroe/West Monroe metropolitan area. The unregulated operations,
which include an intrastate pipeline company, provides gas transportation
service to industrial customers and to the acquired operations.
Pending acquisition of Mississippi Valley Gas Company. In September 2001,
we entered into a definitive agreement to acquire Mississippi Valley Gas
Company, a privately held natural gas utility, for $75.0 million cash, $75.0
million of Atmos common stock and the assumption of approximately $45.0 million
of long-term debt. Mississippi Valley Gas provides natural gas distribution
service to more than 261,500 residential, commercial, industrial and other
customers located primarily in the northern and central regions of Mississippi.
Mississippi Valley Gas has a 5,500 mile distribution system and 335 miles of
intrastate pipeline. It also has two underground storage facilities with 2.05
Bcf of working gas capacity. The acquisition is subject to state and federal
regulatory approval. It is anticipated that the acquisition will be completed in
fiscal 2002.
Atmos Power Systems, Inc. constructs power plant. In May 2001, our
subsidiary, Atmos Power Systems, Inc., entered into a definitive agreement with
the City of Bolivar, Tennessee Electric Department to construct a 20-megawatt
electric generating plant and associated facilities. Atmos Power Systems leased
the peaking plant to the Electric Department of the City of Bolivar for 10
years, with an option for Bolivar to purchase the plant beginning in the fifth
year of the lease. Because of the success of this first project, Atmos is
considering other opportunities to build and lease power plants. Although
results to date have not been material, we anticipate growth in this type of
business.
Acquisition of Southern Resources, IGS and Kentucky storage
assets. Woodward Marketing completed the purchases of Southern Resources, Inc.
and certain assets of Innovative Gas Services, Incorporated in the fourth
quarter of fiscal year 2001 thereby expanding our gas marketing operations. We
expect to complete the acquisition of certain storage assets in Kentucky in the
first quarter of fiscal year 2002. The acquisition will enable us to provide
additional gas storage capacity. Total cost of the acquisitions is approximately
$16.0 million in cash.
STRATEGY
Our overall strategy is to:
- deliver superior shareholder value,
- continue to manage our utility operations efficiently,
- profitably grow our non-utility operations to complement our utility
operations, and
- profitably grow our business through acquisitions.
We are running our operations efficiently by:
- managing our operating and maintenance expenses,
- leveraging our technology, such as our 24 hour call center, to achieve
more efficient operations,
- focusing on regulatory rate proceedings to increase revenue,
- mitigating weather-related risks through weather normalized rates in some
jurisdictions and purchasing weather insurance in others, and
- disposing of non-growth assets.
We are growing our non-utility operations by:
- completing the purchase of the remaining interest in Woodward Marketing,
- increasing our non-regulated gas sales, and
- entering into new non-utility businesses, such as distributed electrical
power generation.
2
We are growing our utility business by acquiring natural gas operations,
such as Louisiana Gas Service Company and LGS Natural Gas Company in July 2001
and the pending acquisition of Mississippi Valley Gas Company.
Our operations are divided into two segments, a utility operations segment,
which includes our natural gas distribution and sales operations, and our
non-regulated segment, which includes all of our other operations.
UTILITY OPERATIONS SEGMENT OVERVIEW
Our utility operations segment is operated through our five regulated
natural gas divisions:
- Atmos Energy Louisiana Gas Company,
- Energas Company,
- Greeley Gas Company,
- United Cities Gas Company, and
- Western Kentucky Gas Company
Atmos Energy Louisiana. Our Atmos Energy Louisiana Gas division includes
the operations of the assets of Louisiana Gas Service Company acquired in July
2001 and our previously existing Trans Louisiana Gas division. Our Atmos Energy
Louisiana Gas division operates in Louisiana and is regulated by the Louisiana
Public Service Commission, which regulates utility services, rates and other
matters. In most of the areas in which we operate in Louisiana, we do so
pursuant to a non-exclusive franchise granted by the governing authority of each
area. Direct sales of natural gas to industrial customers in Louisiana, who use
gas for fuel or in manufacturing processes, and sales of natural gas for vehicle
fuel are exempt from regulation.
In connection with its review of our acquisition of Louisiana Gas Service,
the Louisiana Public Service Commission has approved a rate structure that
requires us to share any cost savings that result from the acquisition with the
customers of Louisiana Gas Service. The shared cost savings will be the
difference between operation and maintenance expense in any future year and the
1998 normalized expense for Louisiana Gas Service, indexed for inflation, annual
changes in labor costs and customer growth. The customers are not assured any
savings in 2001. In 2002 and in future years, the customers are assured annual
savings, which will be indexed for inflation, annual changes in labor costs and
customer growth. The sharing mechanism will remain in place for 20 years subject
to established modification procedures.
The rates of Louisiana Gas Service are subject to a purchased gas
adjustment clause that allows it to pass changes in gas costs on to its
customers. In addition, on January 29, 2001, the Louisiana Public Service
Commission approved a rate stabilization clause for Louisiana Gas Service for a
three-year period beginning January 1, 2001. Under the rate stabilization
clause, Louisiana Gas Service will be allowed to earn a return on equity within
certain ranges that will be monitored on an annual basis. After the completion
of the acquisition of Louisiana Gas Service, our Atmos Energy Louisiana division
also became subject to the adjustment and stabilization clause.
Louisiana Gas Service is currently involved in a proceeding with the
Louisiana Public Service Commission relating to past costs associated with the
purchase of gas that it charged to its customers. Although, after completion of
the acquisition, we took over the defense of this proceeding and will have
responsibility for any finding of liability on the part of Louisiana Gas
Service, we believe the outcome of this proceeding will not have a material
adverse impact on our operations as Citizens has agreed to fully indemnify us
for any liability as a result of this proceeding.
The Louisiana Public Service Commission approved a Rate Stabilization
Clause for three years for our former Trans La Division 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.
3
At and for the year ended September 30, 2001, we had 368,436 utility meters
in service in Louisiana and total throughput of 12,578 MMcf. At and for the year
ended September 30, 2000, we had 81,419 meters in service and total throughput
of 7,448 MMcf.
Energas. Our Energas division operates in Texas. The governing body of
each municipality we serve 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. We operate pursuant to
non-exclusive franchises granted by the municipalities we serve, which are
subject to renewal from time to time. 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. The
Railroad Commission is currently conducting a gas cost audit of all local
distribution companies in Texas, including Energas, in response to the high gas
costs this past winter. At and for the year ended September 30, 2001, we had
314,734 utility meters in service and total throughput of 53,586 MMcf. At and
for the year ended September 30, 2000, we had 302,662 utility meters in service
and total throughput of 53,922 MMcf.
Greeley Gas. Our Greeley Gas division operates in Colorado, Kansas and
Missouri and is regulated by the respective states' public service commission
with respect to accounting, rates and charges, operating matters and the
issuance of securities. We operate under terms of non-exclusive franchises
granted by the various cities. At and for the year ended September 30, 2001,
Greeley had 212,484 utility meters in service and total throughput of 37,797
MMcf. At and for the year ended September 30, 2000, Greeley had 207,161 meters
in service and total throughput of 34,455 MMcf.
United Cities. Our United Cities Gas division operates in Georgia,
Illinois, Iowa, Missouri, Tennessee and Virginia. In each of these states, our
rates, services and operations as a natural gas distribution company are subject
to general regulation by each state's public service commission. We operate in
each community, where necessary, under a franchise granted by the municipality
for a fixed term of years. In Tennessee and Georgia, we have performance based
rates, which provide incentives for us to find ways to lower costs. Any cost
savings are then shared with our customers. We also have weather normalization
adjustments to our rates in Tennessee and Georgia. At and for the year ended
September 30, 2001, United Cities had 308,394 utility meters in service and
total throughput of 64,924 MMcf. At and for the year ended September 30, 2000,
United Cities had 312,018 meters in service and total throughput of 56,698 MMcf.
Western Kentucky Gas. Our Western Kentucky Gas division operates in
Kentucky and is regulated by the Kentucky Public Service Commission, which
regulates utility services, rates, issuance of securities and other matters. We
operate in the various incorporated cities pursuant to non-exclusive franchises
granted to us by these cities. Sales of natural gas for use as vehicle fuel in
Kentucky are unregulated. We have been operating under a performance based rate
program since July 1998. We also have weather normalization adjustments to our
rates in Kentucky. At and for the year ended September 30, 2001, Western
Kentucky Gas had 182,275 utility meters in service and total throughput of
46,530 MMcf. At and for the year ended September 30, 2000, Western Kentucky Gas
had 181,066 meters in service and total throughput of 47,129 MMcf.
NON-REGULATED SEGMENT OVERVIEW
Our non-regulated segment is primarily composed of the following three
parts:
- Atmos Energy Marketing, LLC. Atmos Energy Marketing provides a variety
of natural gas management services to natural gas utility systems and
industrial natural gas consumers in several states and to our Atmos
Energy Louisiana Gas, Greeley Gas, United Cities Gas and Western Kentucky
Gas divisions. These services consist primarily of acquisition and
provision of natural gas supplies at fixed and market-based prices, load
forecasting and management, gas storage and transportation services,
peaking sales and balancing services and gas price hedging through the
use of derivative products. Woodward Marketing, L.L.C. is a wholly owned
subsidiary of Atmos Energy Marketing.
4
- Atmos Pipeline and Storage, L.L.C. Atmos Pipeline and Storage owns or
has an interest in underground storage fields in Kansas, Kentucky and
Louisiana and provides storage services to our United Cities Gas, Greeley
Gas and Atmos Energy Louisiana Gas divisions and other non-regulated
customers.
- Atmos Power Systems, Inc. Atmos Power Systems constructs and operates
electrical power generating plants and associated facilities. Atmos Power
Systems may also enter into agreements to either lease or sell such
plants.
WOODWARD MARKETING ACTIVITIES
We acquired a 45 percent interest in Woodward Marketing, L.L.C. in 1997 as
a result of the merger of Atmos and United Cities Gas Company, which had
acquired that interest in 1995. In April 2001, we acquired the 55 percent
interest that we did not own from J.D. Woodward and others for 1,423,193
restricted shares of our common stock. Immediately following the acquisition,
Mr. Woodward was elected as a Senior Vice President of Atmos in charge of all
non-regulated business activities, a position he has held since April 2001.
Prior to that time, Mr. Woodward had not been an officer or employee of Atmos.
The principal business of Woodward Marketing, including the activities of
Trans Louisiana Industrial Gas Company, Inc., is the overall management of
natural gas requirements for municipalities, local gas utility companies and
industrial customers located primarily in the Southwestern and Midwestern United
States. This business involves the sale of natural gas by Woodward Marketing to
its customers and the management of storage and transportation contracts for its
customers under contracts generally having one to two-year terms. At September
30, 2001, Woodward Marketing had a total of 78 municipal and local gas utility
customers and 195 industrial customers. Woodward Marketing also sells natural
gas to certain of its industrial customers on a delivered burner tip basis under
contract terms from 30 days to two years. In addition, Woodward Marketing
supplies us with a portion of our natural gas requirements on a competitive bid
basis.
In the management of natural gas requirements for municipal and other local
utilities, Woodward Marketing sells physical natural gas for future delivery and
hedges the associated price risk through the use of gas futures, including
forwards, over-the-counter and exchange-traded options, and swap contracts with
counterparties. These financial contracts are marked-to-market at the daily
close of business. Woodward Marketing links gas futures to physical delivery of
natural gas and balances its futures positions at the end of each trading day.
Over-the-counter swap agreements require Woodward Marketing to receive or make
payments based on the difference between a fixed price and the market price of
natural gas on the settlement date. Woodward Marketing uses these futures and
swaps to manage margins on offsetting fixed-price purchase or sale commitments
for physical quantities of natural gas, which are also carried on a mark to
market basis. Options held to hedge price risk provide the right, but not the
requirement, to buy or sell energy commodities at a fixed price. Woodward
Marketing uses options to manage margins and to limit overall price risk
exposure.
Energy related services provided by Woodward Marketing include the sale of
natural gas to its various customer classes and management of transportation and
storage assets and inventories. More specifically, energy services include
contract negotiation and administration, load forecasting, storage acquisition,
natural gas purchase and delivery and capacity utilization strategies. In
providing these services, Woodward Marketing generates income from its utility,
municipal and industrial customers through negotiated prices based on the volume
of gas supplied to the customer. Woodward Marketing also generates income by
taking advantage of the difference between near-term gas prices and prices for
future delivery as well as the daily movement of gas prices by utilizing storage
and transportation capacity that it controls.
Woodward Marketing also engages in limited speculative natural gas trading
for its own account, subject to a risk management policy established by us which
limits the level of trading loss in any fiscal year to a maximum of 25 percent
of the budgeted annual operating income of Woodward Marketing. Compliance with
such risk management policy is monitored on a daily basis. In addition, Woodward
Marketing's bank credit facility limits trading positions that are not closed at
the end of the day (open positions) to 2.5 Bcf of natural gas. At September 30,
2001, Woodward Marketing's open positions in its trading operations totaled 2.3
Bcf. In its speculative trading, Woodward Marketing's open trading positions are
monitored on a daily basis but are
5
not required to be closed if they remain within the limits set by the bank loan
agreement. Woodward Marketing had an unrealized trading gain of $4.5 million for
the fiscal year ended September 30, 2001, but there can be no assurance that
Woodward Marketing will have any speculative trading gain in the future. In some
prior years, Woodward Marketing has experienced losses in its speculative
trading business. The financial exposure that results from the daily
fluctuations of gas prices and the potential for daily price movements
constitutes a risk of loss since the price of natural gas purchased for future
delivery at the beginning of the day may not be hedged until later in the day.
Financial instruments, which subject Woodward Marketing to counterparty
risk, consist primarily of financial instruments arising from trading and risk
management activities and overnight repurchase agreements that are not insured.
Counterparty risk is the risk of loss from nonperformance by financial
counterparties to a contract. Exchange-traded future and option contracts are
generally guaranteed by the exchanges.
Woodward Marketing's operations are concentrated in the natural gas
industry, and its customers and suppliers may be subject to economic risks
affecting that industry.
OPERATING STATISTICS
The following table shows the operating statistics of Atmos for each of the
five fiscal years from 1997 through 2001. It is followed by two additional
tables that show utility only sales and operating statistics by business unit
for 2001 and 2000. Certain prior year amounts have been reclassified to conform
with the current year presentation.
6
ATMOS ENERGY CORPORATION
CONSOLIDATED OPERATING STATISTICS
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
METERS IN SERVICE, end of year
Residential......................... 1,243,625 970,873 919,012 889,074 870,747
Commercial.......................... 122,274 104,019 98,268 94,302 92,703
Industrial (including
agricultural)..................... 13,020 14,259 14,329 16,322 17,217
Public authority and other.......... 7,404 7,448 6,386 4,834 4,781
---------- ---------- ---------- ---------- ----------
Total meters...................... 1,386,323 1,096,599 1,037,995 1,004,532 985,448
Propane customers(1)................ -- -- 39,539 37,400 29,097
---------- ---------- ---------- ---------- ----------
Total............................. 1,386,323 1,096,599 1,077,534 1,041,932 1,014,545
========== ========== ========== ========== ==========
HEATING DEGREE DAYS(2)
Actual (weighted average)........... 2,753 2,096 3,374 3,799 3,909
Percent of normal................... 107% 82% 85% 95% 98%
SALES VOLUMES -- MMcf
Residential......................... 79,000 63,285 67,128 73,472 75,215
Commercial.......................... 36,922 30,707 31,457 36,083 37,382
Industrial(including
agricultural)..................... 33,730 38,687 35,741 44,881 46,416
Public authority and other.......... 6,892 5,520 5,793 4,937 5,195
---------- ---------- ---------- ---------- ----------
Total sales volumes............... 156,544 138,199 140,119 159,373 164,208
Transportation volumes -- MMcf........ 61,230 59,365 55,468 56,224 48,800
---------- ---------- ---------- ---------- ----------
TOTAL THROUGHPUT -- MMcf.............. 217,774 197,564 195,587 215,597 213,008
========== ========== ========== ========== ==========
PROPANE -- Gallons (000's)(1)......... -- 19,329 22,291 23,412 25,204
========== ========== ========== ========== ==========
OPERATING REVENUES (000's)
Gas sales revenues
Residential......................... $ 788,902 $ 405,552 $ 349,691 $ 410,538 $ 452,864
Commercial.......................... 342,945 176,712 144,836 184,046 193,302
Industrial (including
agricultural)..................... 208,168 171,447 117,382 161,382 168,386
Public authority and other.......... 58,539 27,198 22,330 20,504 23,898
---------- ---------- ---------- ---------- ----------
Total gas sales revenues.......... 1,398,554 780,909 634,239 776,470 838,450
Transportation revenues............... 28,668 23,610 23,101 23,971 19,885
Other gas revenues.................... 10,925 4,674 4,500 8,121 6,385
---------- ---------- ---------- ---------- ----------
Total gas revenues................ 1,438,147 809,193 661,840 808,562 864,720
Propane revenues(1)................... -- 22,550 22,944 29,091 33,194
Other revenues........................ 4,128 18,409 5,412 10,555 8,921
---------- ---------- ---------- ---------- ----------
Total operating revenues.......... $1,442,275 $ 850,152 $ 690,196 $ 848,208 $ 906,835
========== ========== ========== ========== ==========
AVERAGE SALES PRICE/Mcf............... $ 8.93 $ 5.65 $ 4.53 $ 4.87 $ 5.11
AVERAGE COST OF GAS/Mcf SOLD.......... 6.83 3.79 2.79 3.24 3.51
AVERAGE TRANSPORTATION
REVENUES/Mcf...................... .47 .40 .42 .43 .41
See footnotes following these tables.
7
ATMOS ENERGY CORPORATION
UTILITY SALES AND STATISTICAL DATA BY BUSINESS UNIT(3)
YEAR ENDED SEPTEMBER 30, 2001
------------------------------------------------------------------
ATMOS
ENERGY UNITED WESTERN TOTAL
LOUISIANA ENERGAS GREELEY CITIES KENTUCKY UTILITY
--------- -------- -------- -------- -------- ----------
METERS IN SERVICE, at end of
year
Residential............... 344,870 273,850 192,056 271,233 161,616 1,243,625
Commercial................ 22,650 27,128 18,376 35,518 18,602 122,274
Industrial................ -- 11,498 414 711 397 13,020
Public authority and
other.................. 916 2,258 1,638 932 1,660 7,404
-------- -------- -------- -------- -------- ----------
Total.................. 368,436 314,734 212,484 308,394 182,275 1,386,323
======== ======== ======== ======== ======== ==========
HEATING DEGREE DAYS(2)
Actual.................... 2,076 3,782 6,041 1,315 4,534 2,753
Percent of normal......... 117% 107% 106% 104% 104% 107%
SALES VOLUMES -- MMcf(4)
Residential............... 5,257 22,905 18,027 19,978 12,833 79,000
Commercial................ 2,448 7,992 6,845 13,968 5,669 36,922
Industrial................ -- 8,395 1,224 10,473 3,018 23,110
Public authority and
other.................. 919 2,618 1,497 339 1,519 6,892
-------- -------- -------- -------- -------- ----------
Total.................. 8,624 41,910 27,593 44,758 23,039 145,924
TRANSPORTATION
VOLUMES -- MMcf(4)........ 3,954 11,676 10,204 20,166 23,491 69,491
-------- -------- -------- -------- -------- ----------
TOTAL THROUGHPUT --
MMcf(4)................... 12,578 53,586 37,797 64,924 46,530 215,415
======== ======== ======== ======== ======== ==========
OTHER STATISTICS
Operating revenues
(000's)................ $ 96,511 $311,414 $270,678 $464,498 $237,047 $1,380,148
Miles of pipe............. 7,934 13,345 6,344 7,536 3,779 38,938
Employees(5).............. 488 342 272 470 247 1,819
See footnotes following these tables.
8
ATMOS ENERGY CORPORATION
UTILITY SALES AND STATISTICAL DATA BY BUSINESS UNIT(3)
YEAR ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------
ATMOS
ENERGY UNITED WESTERN TOTAL
LOUISIANA ENERGAS GREELEY CITIES KENTUCKY UTILITY
--------- -------- -------- -------- -------- ----------
METERS IN SERVICE, at end of
year
Residential................ 74,943 273,664 187,121 274,580 160,565 970,873
Commercial................. 5,568 26,231 17,946 35,808 18,466 104,019
Industrial................. -- 513 406 660 407 1,986
Public authority and
other................... 908 2,254 1,688 970 1,628 7,448
------- -------- -------- -------- -------- ----------
Total................... 81,419 302,662 207,161 312,018 181,066 1,084,326
======= ======== ======== ======== ======== ==========
HEATING DEGREE DAYS(2)
Actual..................... 1,237 2,875 4,678 1,130 3,702 2,096
Percent of normal.......... 69% 81% 82% 89% 85% 81%
SALES VOLUMES -- MMcf(4)
Residential................ 3,070 19,201 14,727 14,703 11,584 63,285
Commercial................. 1,379 6,365 5,829 12,102 5,032 30,707
Industrial................. -- 1,651 1,927 13,191 3,189 19,958
Public authority and
other................... 751 2,026 1,216 228 1,299 5,520
------- -------- -------- -------- -------- ----------
Total................... 5,200 29,243 23,699 40,224 21,104 119,470
TRANSPORTATION
VOLUMES -- MMcf(4)......... 2,248 24,679 10,756 16,474 26,025 80,182
------- -------- -------- -------- -------- ----------
TOTAL THROUGHPUT
-- MMcf(4)................ 7,448 53,922 34,455 56,698 47,129 199,652
======= ======== ======== ======== ======== ==========
OTHER STATISTICS
Operating revenues
(000's)................. $45,469 $146,100 $147,116 $280,029 $121,237 $ 739,951
Miles of pipe.............. 2,283 13,169 6,000 5,140 3,437 30,029
Employees(5)............... 123 350 271 495 249 1,488
See footnotes following these tables.
Notes to preceding tables:
---------------
(1) Prior to August 2000, propane revenues and expenses were fully consolidated.
Subsequent to August 2000, the results of propane are shown on the equity
basis.
(2) 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 colder the
climate, the greater the number of heating degree days. 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. Degree day information
for 2001 and 2000 are presented excluding service areas with weather
normalized operations. Degree day information for 1999, 1998 and 1997 does
not exclude service areas with weather normalized operations as that
information was not available.
9
(3) These tables present data for our five utility business units. Their
operations include the regulated local distribution companies located in
their respective service areas. The operations of Louisiana Gas are included
in Atmos Energy Louisiana since July 1, 2001, the date of acquisition.
(4) Utility sales volumes and revenues reflect utility segment operations,
including intercompany sales and transportation amounts.
(5) The number of employees excludes 480 and 369 Atmos shared services and
customer support center employees and 62 and 28 non-utility employees in
2001 and 2000.
SEGMENT OVERVIEW
We consider each business unit within our utility segment to be a reporting
unit of the utility segment and not a reportable segment. Our chief executive
officer makes decisions about allocating resources to the utility segment as a
whole and not to individual reporting units.
The following table summarizes certain information regarding the operations
of the utility and non-regulated segments of Atmos as of and for each of the
three years ended September 30, 2001. The information is net of intersegment
eliminations.
NON-
UTILITY REGULATED TOTAL
---------- --------- ----------
(IN THOUSANDS)
2001
Operating revenues.............................. $1,378,159 $ 64,116 $1,442,275
Operating income................................ 127,980 2,301 130,281
Net income...................................... 49,881 6,209 56,090
Identifiable assets............................. 1,732,296 303,884 2,036,180
2000
Operating revenues.............................. $ 734,835 $115,317 $ 850,152
Operating income................................ 77,207 8,109 85,316
Net income...................................... 22,459 13,459 35,918
Identifiable assets............................. 1,246,782 101,976 1,348,758
1999
Operating revenues.............................. $ 617,313 $ 72,883 $ 690,196
Operating income................................ 49,000 5,239 54,239
Net income...................................... 10,800 6,944 17,744
Identifiable assets............................. 1,125,691 104,846 1,230,537
The utility segment is composed of our five regulated utility divisions:
the Atmos Energy Louisiana Gas Division which operates in Louisiana, the Energas
Division which operates in Texas, the Greeley Gas Division which operates in
Colorado, Kansas and Missouri, the United Cities Gas Division which operates in
Georgia, Illinois, Iowa, Missouri, Tennessee and Virginia and the Western
Kentucky Gas Division which operates in Kentucky. For further discussion on the
utility segment operations, see "Utility Operations Segment Overview".
For a further discussion of our non-regulated segment operations see
"Non-Regulated Segment Overview".
GAS SALES
Our natural gas distribution business is seasonal and highly dependent on
weather conditions in our 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 gas sales during the winter months will vary with the
temperatures during these months. The seasonal nature of our sales to
residential and commercial customers is
10
partially offset by our sales in the spring and summer months to our
agricultural customers in Texas, Colorado and Kansas who use natural gas to
operate irrigation equipment.
In addition to weather, our revenues are affected by the cost of natural
gas and economic conditions in the areas that we serve. Higher gas costs, which
we are generally able to pass through to our customers under purchased gas
adjustment clauses, may cause customers to conserve, or, in the case of
industrial customers, to use alternative energy sources.
To protect against volatility in gas prices, we are hedging gas costs for
the 2001-2002 heating season by utilizing a combination of financial tools and
fixed forward physical contracts to stabilize gas prices. For the 2001-2002
heating season, we plan to cover approximately 64 percent of our anticipated
requirements through storage and hedging instruments. The gas hedges should help
moderate the effects of higher customer accounts receivable caused by higher gas
prices.
We also have weather normalization adjustments in our rate jurisdictions in
Tennessee, Georgia and Kentucky. We purchased weather hedges for our Texas and
Louisiana operations effective for the 2000-2001 heating season. We also
purchased a three-year weather insurance policy for our Texas and Louisiana
operations commencing with the 2001-2002 heating season, with an option to
cancel in the third year. The policy covers the entire heating season of October
to March. See "Weather and seasonality" in Management's Discussion and Analysis
of Operations.
Our distribution systems have experienced aggregate peak day deliveries of
approximately 2.0 Bcf per day. We have the ability to curtail deliveries to
certain customers under the terms of interruptible contracts and applicable
state statutes or regulations which enable us to maintain our deliveries to high
priority customers. We have not imposed curtailment in our Energas Division
since we began independent operations in 1983 or in our Atmos Energy Louisiana
Gas Division since we acquired Trans Louisiana Gas Company in 1986 and Louisiana
Gas Service in 2001. The Western Kentucky Gas 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 Gas
Division nor its predecessor, Greeley Gas Company, has curtailed deliveries to
its sales customers since prior to 1980. The United Cities Gas Division curtails
interruptible service customers from time to time each year in accordance with
the interruptible contracts and tariffs.
GAS SUPPLY
We receive gas deliveries through 35 pipeline transportation companies,
both interstate and intrastate, to satisfy our sales market requirements. The
pipeline transportation agreements are firm and many of them have pipeline
no-notice storage service which provides for daily balancing between system
requirements and nominated flowing supplies. These agreements have been
negotiated with the shortest term necessary while still maintaining our right of
first refusal.
The Western Kentucky Gas 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 Gas Division
sought and was granted approval by the Kentucky Public Service Commission for a
performance-based rate program which commenced in July 1998. Under the
performance-based program, we and our customers jointly share in any actual gas
cost savings achieved when compared to pre-determined benchmarks. We also have
similar gas cost performance-based rate mechanisms in Georgia and Tennessee.
The United Cities Gas 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 Gas Division's requirements. Additionally, the Greeley Gas Division
purchases substantial volumes from producers that are connected directly to its
distribution system.
11
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 our Amarillo, Texas distribution system.
Louisiana Intrastate Gas Company, Acadian Pipeline, Gulf South and Williams
Pipeline-Texas Gas pipelines deliver most of the Atmos Energy Louisiana Gas
Division's requirements.
We also own or hold an interest in and operate numerous natural gas storage
facilities in Kentucky, Kansas and Louisiana 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, we operate one propane plant and a liquified natural gas plant for
peak shaving purposes. We also contract for storage service in underground
storage facilities on many of the interstate pipelines serving us. See "Item 2.
Properties" below for further information regarding the peak shaving facilities.
We normally inject gas into pipeline storage systems and company owned
storage facilities during the summer months and withdraw it in the winter
months. Our underground storage facilities in Kansas, Kentucky and Louisiana
have a combined maximum daily output capability of approximately 226,000 Mcf.
We purchase our gas supply from various producers and marketers. Supply
arrangements are contracted on a firm basis with various terms at market prices.
The firm supply consists 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.
Except for local production purchases, we select suppliers through a competitive
bidding process by sending out a request for proposal to suppliers that have
demonstrated that they can provide reliable service. We select these suppliers
based on their ability to deliver gas supply to our designated firm pipeline
receipt points and the best cost. Major suppliers during fiscal 2001 were
Reliant Energy, Sonat Marketing, Cinergy, Pioneer Natural Resources, Texaco,
Woodward Marketing, ONEOK Gas Marketing, Aquila, BP Energy, Enron, Enbridge,
Anadarko and Tenaska Marketing. We do not anticipate problems with securing
additional gas supply as needed for our customers.
REGULATION
Each of our utility divisions is regulated by various state or local public
utility authorities. We are also subject to regulation by the United States
Department of Transportation with respect to safety requirements in the
operation and maintenance of our gas distribution facilities. Our distribution
operations are also subject to various state and federal laws regulating
environmental matters. From time to time we receive inquiries regarding various
environmental matters. We believe that our 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 us or our operations.
RATES
The method of determining regulated rates varies among the states in which
we operate. The regulators have the responsibility of ensuring 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 divisions in our utility operations
segment 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 charged by us to our customers fluctuate
with the cost of gas purchased by us. Rates established by regulatory
authorities are adjusted for increases and decreases in our purchased gas cost
through purchased gas adjustment mechanisms. Purchased gas adjustment mechanisms
provide gas
12
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
our 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 96 percent of our revenues in the fiscal year ended September
30, 2001, and approximately 87 percent of our revenues in fiscal 2000 were
derived from sales at rates set by or subject to approval by local or state
authorities. Generally, the regulatory authority reviews our rate request and
establishes a rate structure intended to generate revenue sufficient to cover
our costs of doing business and provide a reasonable return on invested capital.
The following table sets forth major rate requests made by us or other
parties during the most recent five years and the action taken on such requests:
AMOUNT
EFFECTIVE AMOUNT RECEIVED
JURISDICTION DATE REQUESTED (REDUCED)
------------ --------- --------- ---------
(IN THOUSANDS)
Texas
West Texas System.................................. 11/01/96 $ 7,676 $ 5,800 (a)
12/01/00 9,827 3,011
Amarillo System.................................... 01/01/00 4,354 2,200
Louisiana............................................ 11/01/99 (b) -- (b)
Kentucky............................................. 12/21/99 14,127 9,900 (c)
Colorado............................................. 01/21/98 -- (1,600)(d)
05/04/01 4,200 2,750
Iowa................................................. 03/05/01 (e) (326)(e)
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)(f)
04/01/01 2,100 (534)
---------------
(a) This increase includes $500,000 applicable to areas outside the city limits
which became effective in April 1997.
(b) The Louisiana Public Service Commission approved a Rate Stabilization
Clause for three years for our former Trans La Division 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.
(c) The Kentucky rate order also included a provision for a five-year pilot
program for weather normalization which began in November 2000.
(d) Rate reduction as a result of settlement in a case initiated by the
Colorado Consumer Council.
(e) Rate reduction as a result of an agreement initiated by the Iowa Consumer
Advocate Division of the Department of Justice.
(f) Rate reduction as a result of a settlement with the Virginia State
Corporation Commission staff.
13
COMPETITION
We are not currently in significant direct competition with any other
distributors of natural gas to residential and commercial customers within our
service areas. However, we do compete with other natural gas suppliers and
suppliers of alternate fuels for sales to industrial and agricultural customers.
We compete in all aspects of our 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
electrical 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 addition, through Atmos Energy Marketing,
we compete with other natural gas brokers in obtaining natural gas supplies for
customers.
EMPLOYEES
At September 30, 2001, we had 2,361 employees. See "Utility Sales and
Statistical Data by Business Unit" for the number of employees by business unit.
ITEM 2. PROPERTIES
We own an aggregate of 38,938 miles of underground distribution and
transmission mains throughout our gas distribution systems. These mains are
located on easements or rights-of-way which generally provide for perpetual use.
We maintain our mains through a program of continuous inspection and repair and
believe that our system of mains is in good condition. We also own and operate
one propane peak shaving plant with a total capacity of approximately 180,000
gallons that can produce an equivalent of approximately 3,300 Mcf daily. We also
own a liquefied natural gas storage facility with a capacity of 500,000 Mcf
which can inject a daily volume of 30,000 Mcf into the system, as well as
underground storage fields, as discussed below, that are used to supplement the
supply of natural gas in periods of peak demand.
We have six underground gas storage facilities in Kentucky and four in
Kansas. We own a 25 percent interest in a gas storage facility in Napoleonville,
Louisiana. This gas storage facility is operated by Acadian Gas Pipeline System
who also owns the remaining 75 percent interest. Our 25 percent usable capacity
is 364,782 Mcf. In addition to the usable capacity we maintain 332,917 Mcf of
cushion gas to maintain reservoir pressure. The Napoleonville facility has a
maximum daily delivery capability of approximately 56,000 Mcf. We also have a
contract through March 2003 with Bridgeline Gas Distribution LLC for 250,000 Mcf
of usable storage capacity in a storage facility in Sorrento, Louisiana. The
Sorrento facility has a maximum daily delivery capability of approximately
25,000 Mcf.
Our total storage capacity is approximately 21.9 Bcf. However,
approximately 10.3 Bcf of gas in the storage facilities must be retained as
cushion gas to maintain reservoir pressure. The maximum daily delivery
capability of these storage facilities is approximately 226,000 Mcf.
Substantially all of our properties in our Greeley Gas Division and United
Cities Gas Division with net book values of approximately $174.4 million and
$314.1 million are subject to liens under First Mortgage Bonds assumed in our
mergers with Greeley Gas Company and United Cities Gas Company. At September 30,
2001, the liens collateralized $17.0 million of outstanding 9.4 percent Series J
First Mortgage Bonds due May 1, 2021, and $92.2 million of outstanding Series P,
Q, R, T, U and V First Mortgage Bonds due at various dates from 2004 through
2022.
Our administrative offices are consolidated in Dallas, Texas under one
lease. We also maintain field offices throughout our distribution system, the
majority of which are located in leased premises.
Net property, plant and equipment at September 30, 2001 included
approximately $1,280.6 million for utility and $54.8 million for non-regulated.
14
We hold franchises granted by the incorporated cities and towns that we
serve. At September 30, 2001, we held 544 such franchises having terms generally
ranging from five to 25 years. We believe that each of our 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 2001.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of September 30,
2001, 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................ 54 4 Chairman, President and Chief Executive
Officer
John P. Reddy................. 48 3 Senior Vice President and Chief Financial
Officer
R. Earl Fischer............... 62 39 Senior Vice President, Utility Operations
J. D. Woodward III............ 51 -- Senior Vice President, Non-Utility
Operations
Louis P. Gregory.............. 46 1 Senior Vice President and General Counsel
Wynn D. McGregor.............. 48 13 Vice President, Human Resources
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.
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.
J. D. Woodward was named Senior Vice President, Non-Utility Operations in
April 2001. Prior to joining the Company, Mr. Woodward was President of Woodward
Marketing, LLC from January 1995 to March 2001.
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).
15
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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our 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 our common
stock for fiscal 2001 and 2000 are listed below. The high and low prices listed
are the actual closing NYSE quotes for shares of our common stock.
DIVIDENDS
HIGH LOW PAID
------ ------ ---------
FISCAL YEAR 2001
Quarter ended:
December 31............................................. $26.25 $19.31 $.290
March 31................................................ 25.25 21.50 .290
June 30................................................. 24.46 21.45 .290
September 30............................................ 23.64 19.79 .290
-----
$1.16
=====
DIVIDENDS
HIGH LOW PAID
------ ------ ---------
FISCAL YEAR 2000
Quarter ended:
December 31............................................. $25.00 $20.00 $.285
March 31................................................ 20.19 15.56 .285
June 30................................................. 20.56 14.75 .285
September 30............................................ 23.25 18.50 .285
-----
$1.14
=====
See Note 3 of notes to consolidated financial statements for restriction on
payment of dividends. The number of record holders of our common stock on
September 30, 2001 was 30,524.
16
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
--------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Operating revenues....... $1,442,275 $ 850,152 $ 690,196 $ 848,208 $ 906,835
========== ========== ========== ========== ==========
Net income............... $ 56,090 $ 35,918 $ 17,744 $ 55,265 $ 23,838
========== ========== ========== ========== ==========
Diluted net income per
share.................. $ 1.47 $ 1.14 $ .58 $ 1.84 $ .81
========== ========== ========== ========== ==========
Cash dividends declared
per share.............. $ 1.16 $ 1.14 $ 1.10 $ 1.06 $ 1.01
========== ========== ========== ========== ==========
Total assets at end of
year................... $2,036,180 $1,348,758 $1,230,537 $1,141,390 $1,088,311
========== ========== ========== ========== ==========
Long-term debt at end of
year................... $ 692,399 $ 363,198 $ 377,483 $ 398,548 $ 302,981
========== ========== ========== ========== ==========
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
This section provides management's discussion of the financial condition,
cash flows and results of operations of Atmos Energy Corporation 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 fact
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, or 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:
adverse weather conditions such as warmer than normal weather in the Company's
service territories; national, regional and local economic conditions, including
competition from other energy suppliers as well as alternative forms of energy;
recent national events; regulatory approvals, including the impact of rate
proceedings before various state regulatory commissions; successful completion
and integration of pending acquisition; inflation and increased gas costs,
including their effect on commodity prices for natural gas; increased
competition; further deregulation or "unbundling" of the natural gas
distribution industry; hedging and market risk activities 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
17
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 our ratemaking activity for rate cases
that are currently pending as of September 30, 2001 or rate proceedings
completed during the three years ended September 30, 2001.
Results of our rate activity for the three years ended September 30, 2001
can be summarized as follows: net annual rate increases totaling $6.4 million
implemented in 2001, annual rate increases totaling $12.1 million implemented in
2000 and no rate changes in 1999.
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 request for an annual increase of approximately $9.8 million from the
67 cities served by its West Texas System was denied. In March 2000, this
decision was 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 capped the rate
increase at $3.0 million and entitled the ratifying cities to accept a rate
increase below $3.0 million in the event the Railroad Commission adopted a
lesser increase for the non-ratifying cities. Eight cities declined to
participate in the settlement and a hearing with the Railroad Commission was
held in August 2000. In December 2000, the Railroad Commission approved an
increase in annual revenues of approximately $3.0 million effective December 1,
2000. In addition, the Railroad Commission approved a new rate design providing
more protection from warmer than normal weather for our West Texas System.
In June 1999, the Trans La operations of the Atmos Energy Louisiana Gas
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 have mitigated 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 operations of
Atmos Energy Louisiana Gas Division's rates to be adjusted annually to allow us
to earn a minimum return on equity of 10.5 percent.
In connection with its review of our acquisition of Louisiana Gas Service,
the Louisiana Public Service Commission approved a rate structure that requires
us to share any cost savings that result from the acquisition with the customers
of Louisiana Gas Service. The shared cost savings will be the difference between
operation and maintenance expense in any future year and the 1998 normalized
expense for Louisiana Gas Service, indexed for inflation, annual changes in
labor costs and customer growth. The customers are not assured any savings in
2001. In 2002 and in future years, the customers are assured annual savings,
which will be indexed for inflation, annual changes in labor costs and customer
growth. The sharing mechanism will remain in place for 20 years subject to
established modification procedures.
In May 1999, the Western Kentucky Gas Division requested from the Kentucky
Public Service Commission an increase in revenues, a weather normalization
adjustment and changes in rate design to shift a portion of revenues from
commodity charges to fixed rates. In December 1999, the Kentucky Commission
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 Kentucky Commission approved a five-year pilot program for weather
normalization beginning in November 2000.
On June 9, 1998, the Kentucky Commission issued an Order approving a three
year experimental Performance-based Ratemaking mechanism related to gas
procurement and gas transportation activities filed
18
by the Western Kentucky Gas Division. The Performance-based Ratemaking mechanism
is incorporated into the Western Kentucky Gas Division's gas cost adjustment
clause. As discussed above, it provides for sharing of purchased gas cost
savings between the consumers and us. We recognized other income of $0.2 million
and $2.1 million under the Kentucky Performance-based Ratemaking mechanism in
fiscal 2001 and fiscal 2000. The experimental Performance-based Ratemaking
mechanism expired on June 30, 2001 and the Kentucky Commission has extended it
while it considers the Western Kentucky Gas Division's request for another
mechanism.
In November 2000, the Greeley Gas Division filed a rate case with the
Colorado Public Utilities Commission for approximately $4.2 million in
additional annual revenues. In May 2001, we received an increase in annual
revenues of approximately $2.8 million from the Colorado Public Utilities
Commission. The new rates went into effect on May 4, 2001.
Effective April 1, 1999, the Tennessee Regulatory Authority approved the
United Cities Gas Division's request to continue its Performance-based
Ratemaking mechanism related to gas procurement and gas transportation
activities for a three-year period. The Tennessee Regulatory 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 our Performance-based
Ratemaking program for an additional three years effective May 1, 1999. The gas
purchase and capacity release mechanisms of the Performance-based Ratemaking
mechanism are designed to provide us incentives to find innovative methods to
lower gas costs to our customers. We recognized other income of $1.0 million and
$0.2 million in fiscal years 2001 and 2000 for the Georgia and Tennessee
Performance-based Ratemaking mechanisms.
In February 2000, the United Cities Gas 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 are collected primarily through an increase in monthly customer charges.
In March 2000, the United Cities Gas 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, we refiled the case
requesting an increase in revenues of approximately $2.1 million. The Commission
accepted the revised filing. In April 2001, the United Cities Gas Division
agreed to an annual rate reduction of $0.5 million effective beginning with the
April 2001 billing cycle.
In March 2001, the United Cities Gas Division and the Iowa Consumer
Advocate Division of the Department of Justice reached an agreement for an
annual rate reduction of $0.3 million relating to our Iowa operations. The rate
reduction was effective in March 2001.
We continue to monitor rates in all of our service areas to ensure that
they are adequate for the recovery of service costs and return on investment.
On September 10, 2001, the United Cities Gas Division filed a request for
accounting order related to uncollectable delinquencies associated with
Moratorium Order of Georgia Public Service Commission dated January 17, 2001. In
our request, we asked the Georgia Commission to issue an accounting authority
order authorizing us to defer as a regulatory asset all costs incurred in
connection with the Moratorium on disconnects ordered by the Georgia Commission
which lasted from January 17, 2001 through April 1, 2001. On September 28, 2001,
the Georgia Commission issued an order authorizing us to create a mechanism for
the recovery of uncollectable delinquencies with an effective date of November
1, 2001. The United Cities Gas Division is authorized to recover through the
recovery mechanism up to $500,000.
19
WEATHER AND SEASONALITY
Our natural gas distribution business and irrigation sales business is
seasonal and dependent upon weather conditions in our 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 colder than
normal winter weather in 2001 and the effects of significantly warmer than
normal winter weather in 2000 and 1999 on our consolidated volumes delivered are
illustrated by the following degree day information. The degree day information
for 2001 and 2000 presented below excludes service areas with weather normalized
operations. Information concerning service areas with weather normalized
operations for 1999 was not available; thus, degree day information presented
for 1999 includes service areas having weather normalized operations.
YEAR ENDED SEPTEMBER 30,
------------------------
2001 2000 1999
------ ------ ------
Sales volumes -- Bcf........................................ 156.6 138.2 140.1
Transportation volumes -- Bcf............................... 61.2 59.4 55.5
----- ----- -----
Total.................................................. 217.8 197.6 195.6
===== ===== =====
Degree days:
Actual.................................................... 2,753 2,096 3,374
Percent of normal......................................... 107% 81% 85%
The effects of weather that is above or below normal are partially offset
in the Tennessee and Georgia jurisdictions served by the United Cities Gas
Division and in the Kentucky jurisdiction served by the Western Kentucky Gas
Division through weather normalization adjustments. The Georgia Public Service
Commission, the Tennessee Regulatory Authority and the Kentucky Public Service
Commission have approved weather normalization adjustments. The weather
normalization adjustments, effective October through May each year in Georgia,
and November through April each year in Tennessee and Kentucky, allow the United
Cities Gas Division and the Western Kentucky Gas 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 weather
normalization adjustments was a decrease in revenues of approximately $3.3
million for 2001 compared to an increase in revenues of $4.1 million and $4.4
million in 2000 and 1999. Approximately 375,000 or 26 percent of our meters in
service are located in Georgia, Tennessee and Kentucky. We did not have weather
normalization adjustments in our other service areas during the year ended
September 30, 2001. We also received approval to change our rate structure in
our West Texas System of the Energas Division beginning in December 2000 to help
offset some of the negative effects of weather.
In July 2000, we entered into an agreement to purchase weather hedges for
our Texas and Louisiana operations effective for the 2000 - 2001 heating season.
The hedges were designed to help mitigate the effects of weather that was at
least seven percent warmer than normal in both Texas and Louisiana while
preserving any upside. The cost of the weather hedges was approximately $4.9
million which was amortized over the 2000 - 2001 heating season. The cost of the
weather hedges was more than offset by the positive effects of colder weather on
our gross profit.
In June 2001, we purchased a three year weather insurance policy with an
option to cancel in the third year if we obtain weather protection in our rate
structures. The policy is for our Texas and Louisiana operations and covers the
entire heating season of October to March beginning with the 2001 - 2002 heating
season. The cost of the three year policy was approximately $13.2 million which
was prepaid and will be amortized over the appropriate heating seasons based on
degree days. The insurance is designed to protect against weather that is at
least seven percent warmer than normal.
20
We have historically hedged 20 percent of our gas supply through the use of
our underground storage assets. This hedging process will continue. For the
2001 - 2002 heating season, we plan to cover approximately 64 percent of our
anticipated flowing gas requirements through storage and futures and fixed
forward contracts at a weighted average cost of slightly less than $4.00 per
Mcf. This should provide protection to us and our customers against sharp
increases in the price of natural gas during the 2001 - 2002 heating season.
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.
CAPITAL RESOURCES AND LIQUIDITY
(SEE "CONSOLIDATED STATEMENTS OF CASH FLOWS")
Fiscal 2001 was a year in which total cash inflows exceeded total cash
outflows. This was generally the result of increased cash flows from operating
activities as a result of colder than normal weather partially offset by
increased capital expenditures. Net proceeds from the issuance of long-term debt
were used to finance the Louisiana Gas Service Company and LGS Natural Gas
Company acquisition in 2001. Net proceeds from our equity offering were used to
reduce commercial paper debt. Common stock issued primarily through our Employee
Stock Ownership Plan and our Direct Stock Purchase Plan was also used to finance
operations.
CASH FLOWS FROM OPERATING ACTIVITIES
Items on the Consolidated Statement of Cash Flows for the year ended
September 30, 2001 reflect changes in balances for the year, net of assets
acquired and liabilities assumed in the acquisition of the additional interest
in Woodward Marketing, L.L.C. and the assets of Louisiana Gas Service Company
and LGS Natural Gas Company. See Note 10 of the accompanying notes to
consolidated financial statements.
Cash flows from operating activities as reported in the consolidated
statement of cash flows totaled $83.0 million for 2001 compared to $54.2 million
for 2000 and $84.7 million for 1999. The increase in net cash provided by
operating activities from 2000 to 2001 was primarily the result of increases in
net income and other current liabilities and a decrease in accounts receivable
and deferred gas costs partially offset by an increase in cash held on deposit
in margin accounts and a decrease in accounts payable. Also, the net change in
our assets/liabilities from risk management activities added to the increase in
net cash provided by operating activities in 2001. The increase in net income
was primarily due to higher gross profits due to increased volumes and rate
increases. The increase in gross profits was partially offset by an increase in
operating expenses and an increase in interest expense. Also reducing gross
profit was a decrease in miscellaneous income (expense) as a result of charges
incurred related to our performance based-ratemaking mechanisms and the cost of
weather hedges purchased for our Louisiana and Texas operations. In addition,
miscellaneous income (expense) was reduced in 2001 as the result of a gain
recognized on the sale of certain non-regulated assets in 2000 which did not
occur in 2001.
CASH FLOWS FROM INVESTING ACTIVITIES
During the last three years, a substantial portion of our cash resources
was used to fund technology improvements, acquisitions and our ongoing
construction program to provide natural gas services to a growing customer base.
Net cash used in investing activities totaled $468.1 million in 2001 compared
with $100.1 million in 2000 and $109.6 million in 1999. Capital expenditures in
fiscal 2001 amounted to $113.1 million, compared with $75.6 million in 2000 and
$110.4 million in 1999. The increase in capital expenditures from 2000 to 2001
was primarily the result of additional capital requirements needed due to our
growing customer base. Included in investing activities for 2001 is $363.4
million used to acquire the assets of Louisiana Gas Service Company and LGS
Natural Gas Company as discussed in Note 2 of the notes to consolidated
financial statements. Included in investing activities in 2000 was $32.0 million
used to acquire the Missouri natural gas distribution assets of Associated
Natural Gas. Currently budgeted capital expenditures for fiscal 2002 total
approximately $122.0 million and include funds for additional mains, services,
meters and equipment. In fiscal 2002, we also plan to complete the Mississippi
Valley Gas Company acquisition for $150.0 million plus the assumption of
approximately $45.0 million of long-term debt as discussed in Note 2 of
21
the notes to consolidated financial statements. Capital expenditures and
acquisitions for fiscal 2002 are planned to be financed from internally
generated funds and financing activities as discussed below. In 2001, we had
$5.4 million in expenditures for assets to be used in leasing activities. In
connection with our acquisition of Woodward Marketing, we received $8.6 million
in cash. In 2001, we received net proceeds of $6.6 million in connection with
the sale of certain utility assets. In 2000, we received net proceeds of $6.5
million in connection with the sale of certain propane assets to Heritage
Propane Partners, L.P.
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash provided by financing activities totaled $393.0 million for 2001
compared with $44.7 million for 2000 and $28.7 million for 1999. Financing
activities during these periods included issuance of common stock, dividend
payments, short-term borrowings from banks under our credit facilities and
issuance and repayment of long-term debt. The increase in cash provided by
financing activities in 2001 as compared to 2000 was due primarily to the
issuance of long-term debt and the issuance of common stock during 2001. In 2001
we received $347.1 million in net proceeds from our $350.0 million debt offering
in May 2001. The net proceeds were used to help finance the completion of the
Louisiana Gas Service Company and LGS Natural Gas Company acquisition in July
2001. Long-term debt repayments totaled $17.7 million, $14.6 million and $61.0
million for 2001, 2000 and 1999. Repayments of long-term debt in 2001, 2000 and
1999 consisted of annual installments under the various loan documents. During
2001, short-term debt decreased $48.8 million due primarily to the use of the
net proceeds from our equity offering in December 2000 to reduce commercial
paper debt. During 2000, short-term debt increased $81.7 million due to the
effect of warmer weather on net income for 2000, the acquisition of the Missouri
natural gas distribution assets of Associated Natural Gas 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.
Issuance of common stock. We issued 674,468, 704,540 and 849,481 shares of
common stock in 2001, 2000 and 1999 under our 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 our plans. In addition to
the shares issued under our various plans, we also issued 6,741,500 shares
through our equity offering in December 2000 and 1,423,193 shares of restricted
common stock for the acquisition of the remaining 55 percent of Woodward
Marketing in April 2001. The net proceeds from the equity offering were used to
reduce commercial paper debt as discussed above.
Cash dividends paid. We paid $44.1 million in cash dividends during 2001
compared with $36.0 million in 2000 and $33.9 million in 1999. We raised the
dividend $.02 per share during 2001 and $.04 per share during each of 2000 and
1999. The increase in cash dividends in 2001 over 2000 was also due to the
increase in the number of shares outstanding as discussed above.
LIQUIDITY
The excess of cash inflows over outflows has resulted in a slight decrease
in debt as a percentage of total capitalization, including short-term debt, as
shown in the table below.
SEPTEMBER 30
---------------------------------------
2001 2000
------------------ ------------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
Short-term debt............................... $ 201,247 13.4% $ 250,047 24.4%
Long-term debt................................ 713,094 47.6% 380,764 37.2%
Shareholders' equity.......................... 583,864 39.0% 392,466 38.4%
---------- ----- ---------- -----
Total capitalization, including short-term
debt........................................ $1,498,205 100.0% $1,023,277 100.0%
========== ===== ========== =====
22
The debt as a percentage of total capitalization, including short-term
debt, was 61.0 percent and 61.6 percent at September 30, 2001 and 2000. Our
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 our Direct Stock Purchase Plan and
Employee Stock Ownership Plan, access to the debt and equity capital markets and
limiting annual maintenance capital expenditures. It is likely that the debt to
capitalization ratio will remain in its current range in the near term.
At September 30, 2001, we had short-term committed credit facilities
totaling $318.0 million. One short-term unsecured credit facility is for $300.0
million and serves as a backup liquidity facility for our commercial paper
program. At September 30, 2001, $171.0 million of commercial paper was
outstanding. On August 2, 2001, this facility was renewed for $300.0 million
with an option to increase the amount by $100.0 million. We have a second
facility in place for $18.0 million. At September 30, 2001, $2.2 million was
outstanding under this credit facility. These credit facilities are negotiated
at least annually and are used for working capital purposes.
At September 30, 2001, our Woodward Marketing subsidiary has an uncommitted
credit facility for $140.0 million which is used for its non-regulated business.
Atmos Energy Marketing, LLC, our wholly owned subsidiary, is the sole guarantor
of all amounts outstanding under this facility. At September 30, 2001, $28.0
million was outstanding under this credit facility. Related letters of credit
totaling $38.8 million further reduced the amount available under this facility.
Woodward Marketing also has up to $100.0 million available from Atmos for its
non-regulated business. At September 30, 2001, $100.0 million was outstanding.
At September 30, 2001, we also had uncommitted short-term credit lines of
$40.0 million, all of which were unused. The uncommitted lines are renewed or
renegotiated at least annually with varying terms and we pay 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.
The loan agreements pursuant to which our Senior Notes and First Mortgage
Bonds have been issued contain covenants by us 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.
FUTURE CAPITAL REQUIREMENTS
We believe that internally generated funds, our 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 2002.
RESULTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 2001 COMPARED WITH YEAR ENDED SEPTEMBER 30, 2000
Operating revenues increased by 70 percent to $1.4 billion for 2001 from
$850.2 million for 2000. The most significant factors contributing to the
increase in operating revenues were a 58 percent increase in average sales price
due to the increased cost of gas and a 10 percent increase in sales and
transportation volumes due to colder weather. During 2001, excluding service
areas with weather normalized operations, temperatures were 31 percent colder
than in the corresponding period of the prior year and were seven percent colder
than the 30-year normal. The total volume of gas sold and transported for 2001
was 217.8 Bcf compared with 197.6 Bcf for 2000. The average sales price per Mcf
sold increased $3.28 to $8.93 primarily due to an increase in the average cost
of gas. During the early part of our 2001 fiscal year, natural gas prices
throughout the country began to increase significantly. The average cost of gas
per Mcf sold increased to $6.83 for 2001 from $3.79 for 2000. Although we expect
to recover our purchased gas costs from customers through purchased gas
adjustment mechanisms, generally there is a lag between the time we pay for gas
purchases and the time when regulators allow us to place higher rates in service
and recover those gas costs. As a result, we have from time to time used
short-term borrowings to temporarily finance unrecovered purchased gas costs.
Where permitted, we have increased our purchased gas adjustments to help
mitigate the increased cost of gas.
23
Subsequent to September 30, 2001, gas prices had declined to approximately $2 to
$3 per Mcf. In addition, as a result of the increased gas costs, our accounts
receivable balances during fiscal 2001 increased significantly and,
consequently, we also increased our allowance for doubtful accounts, which we
consider to be adequate. We do not, however, expect this rise in natural gas
prices to have a material adverse effect on our financial condition, results of
operations or net cash flows.
In addition, operating revenues increased due to the impact of rate
increases in Kentucky, Illinois, Colorado, Amarillo, Texas, and West Texas. Also
contributing to the increase in operating revenues was the addition of
approximately 48,000 customers in Missouri due to the Associated Natural Gas
acquisition completed in fiscal 2000 and the addition of approximately 279,000
residential and commercial meters in Louisiana due to the completion of the
Louisiana Gas Service Company acquisition in July 2001. However, operating
revenues were partially offset by a reduction related to our former propane
assets which were placed into a joint venture partnership in August 2000.
Gross profit increased by 15 percent to $374.7 million for 2001 from $325.7
million for 2000. The increase in gross profit was due primarily to the increase
in volumes sold to weather sensitive customers, an increase of $5.1 million in
transportation revenues due to higher average transportation revenue per Mcf and
increased volumes and a $6.7 million non-recurring adjustment to purchased gas
cost to reflect state filings. In addition, gross profit increased due to the
impact of rate increases and additional customers, partially offset by a
reduction related to our former propane operations, as discussed previously.
Changes in the cost of gas do not directly affect gross profit because the
fluctuations in gas prices are passed through to our customers.
On April 1, 2001, we completed our acquisition of the remaining 55 percent
interest in Woodward Marketing, L.L.C. As a result of this acquisition, the
revenues and expenses of Woodward Marketing are now shown on a consolidated
basis.
Operating expenses increased to $244.9 million for 2001 from $240.4 million
for 2000. Operation and maintenance expense decreased due to savings resulting
from the continued cost control initiatives started during fiscal 2000 and
reduced operation and maintenance expenses associated with our former propane
operations which were placed into a joint venture partnership in fiscal 2000. An
increase in the provision for doubtful accounts of $8.5 million and pension
costs of $4.5 million partially offset this decrease. Pension costs will
increase by $4.4 million in fiscal 2002 over fiscal 2001. Depreciation and
amortization expense increased due to the completion of the Louisiana Gas
Service Company and LGS Natural Gas Company acquisition in July 2001. Taxes
other than income increased as a result of increased city franchise taxes and
state gross receipts taxes, which are revenue based. However, these taxes are
paid by our customers; thus, these amounts are offset in revenues through
customer billings and have no effect on net income.
Operating income increased 53 percent for 2001 to $130.3 million from $85.3
million for 2000. The increase in operating income resulted primarily from
increased gross profit described above.
Equity in earnings of Woodward Marketing, L.L.C. was $8.1 million for the
six months ended March 31, 2001 compared with $7.3 million for the year 2000.
Miscellaneous income (expense) decreased $9.3 million to $(1.9) million for
2001 compared to $7.4 million for 2000. This decrease was due primarily to
charges incurred related to our Performance-based Ratemaking mechanisms and the
amortization of $4.9 million related to weather hedges purchased for our
Louisiana and Texas operations. In addition, we recognized a gain of $5.8
million in 2000 resulting from the sale of certain non-utility assets. No such
gain occurred in 2001. Partially offsetting the decrease in miscellaneous income
(expense) during 2001 was an increase of $3.0 million in interest income due
primarily to interest income earned on the proceeds from our $350.0 million debt
offering in May 2001. We invested these proceeds in short-term investments until
the completion of the Louisiana Gas Service Company and LGS Natural Gas Company
acquisition in July 2001.
Interest expense increased $3.2 million to $47.0 million for 2001 compared
to $43.8 million for 2000. This increase was due primarily to interest expense
on the $350.0 million debt offering in May 2001.
24
Net income increased for 2001 by $20.2 million to $56.1 million from $35.9
million for 2000. This increase in net income resulted primarily from the
increase in sales volumes due to the colder than normal weather and the impact
of rate increases discussed above.
YEAR ENDED SEPTEMBER 30, 2000 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1999
Operating revenues increased by 23 percent to $850.2 million in 2000 from
$690.2 million in 1999. The most significant factors contributing to the
increase in operating revenues were a 25 percent increase in average sales price
due to the increased cost of gas and the impact of rate increases in Amarillo,
Texas and Kentucky. The average sales price per Mcf sold increased $1.12 or 25
percent to $5.65 in 2000 primarily due to an increase in the average cost of
gas. The average cost of gas per Mcf sold increased 36 percent to $3.79 for 2000
from $2.79 for 1999. Also contributing to the increase in operating revenues was
an increase in our non-regulated West Texas irrigation sales volumes related to
irrigation demand and, secondly, to higher average 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. Partially offsetting
the increase in operating revenues was a one percent decrease in sales volumes
due to warmer weather. For 2000, excluding service areas with weather normalized
operations, temperatures were five percent warmer than in 1999 and were 18
percent warmer than the 30-year normal. The total volume of gas sold for 2000
was 138.2 Bcf compared with 140.1 Bcf for 1999.
Gross profit increased by nine percent to $325.7 million for 2000 from
$299.8 million for 1999. The increase in gross profit was due primarily to the
impact of rate increases discussed previously. The increase in gross profit was
also due to the addition of approximately 48,000 Missouri customers due to the
acquisition of the Missouri natural gas distribution assets of Associated
Natural Gas and increased volumes associated with the irrigation business. The
increase in gross profit was slightly offset by a decrease in volumes sold to
weather sensitive customers. Changes in the cost of gas do not directly affect
gross profit because the fluctuations in gas prices are passed through to our
customers.
Operating expenses decreased to $240.4 million for 2000 from $245.6 million
for 1999. Operation and maintenance expense decreased due to savings resulting
from the cost control initiatives implemented during 2000 due to the warm winter
weather. However, this decrease was partially offset by an increase in the
provision for doubtful accounts of $8.8 million. The increase in the provision
for doubtful accounts occurred during the transition from local offices to a
centralized customer service center and the implementation of a new company-wide
customer billing system. During this transition, we temporarily suspended
service cutoffs and our normal efforts to collect past due receivables. Actions
to address those issues were initiated in 2000. Depreciation and amortization
expense also increased during 2000 as a result of the first full year of
depreciation being recognized on our process improvement initiatives related to
the new customer information and billing system and the accounting and human
resource systems placed into service during 1999, as well as the acquisition of
the Missouri natural gas distribution assets of Associated Natural Gas in May of
2000.
Operating income increased 57 percent for 2000 to $85.3 million from $54.2
million in 1999. The increase in operating income resulted primarily from
increased gross profit and decreased operating expenses described above.
Miscellaneous income (expense), net increased $4.4 million to $7.4 million
in 2000 compared to $3.0 million in 1999. The increase was primarily due the
$5.8 million ($3.7 million after tax) gain resulting from the sale of certain
non-utility assets.
Interest charges increased $6.7 million to $43.8 million in 2000 from $37.1
million in 1999. The increase in 2000 was primarily due to $3.7 million of
interest being capitalized in 1999 in connection with the significant technology
projects being completed in 1999 and higher average debt outstanding and higher
interest rates for 2000. The increase in average debt outstanding was related to
funding infrastructure, technology, process changes and customer support
investments, as well as additional working capital needed for the increasing gas
costs.
25
Net income increased for 2000 by $18.2 million to $35.9 million from $17.7
million for 1999. The increase in net income for 2000 resulted primarily from
the impact of rate increases in 2000 and the increase in miscellaneous income.
Net income was also improved as a result of lower operating expenses.
FACTORS THAT MAY AFFECT FUTURE PERFORMANCE OF THE COMPANY
Our performance in the future will primarily depend on the results of our
utility operations. Several factors exist that could influence Atmos' future
financial performance, some of which are described below. They should be
considered in connection with evaluating forward-looking statements contained in
this report or otherwise made by or on behalf of us since these factors could
cause actual results and conditions to differ materially from those projected in
these forward-looking statements.
ADVERSE WEATHER CONDITIONS
Our natural gas sales volumes and related revenues are directly correlated
with heating requirements that result from cold winter weather. Our agricultural
sales volumes are associated with the rainfall levels during the growing season
in our West Texas irrigation market. Weather is one of the most significant
factors influencing our performance. However, as was more fully discussed above,
we have purchased weather insurance to mitigate the effect of warmer than
historically normal weather in our Texas and Louisiana service areas. In
addition, weather normalized rates are in effect in several of our
jurisdictions, which should mitigate the adverse effects of warmer or drier than
normal weather on our operating results.
NATIONAL, REGIONAL AND LOCAL ECONOMIC CONDITIONS
Our operations will always be affected by the conditions and overall
strength of the national, regional and local economies, including interest
rates, changes in the capital markets and increases in the costs of our primary
commodity, natural gas. These factors impact the amount of residential,
industrial and commercial growth in our service territories. Higher costs of
natural gas in recent years have already lead many of our customers to conserve
in the use of our gas services and could lead to even more customers utilizing
such conservation methods.
RECENT NATIONAL EVENTS
Our company and our operations have already been indirectly impacted by the
tragic events of September 11, 2001. The terrorist activities on that day have
heightened our awareness of safety and security concerns and have prompted a
company-wide review and assessment of the adequacy of our safety and security
procedures relating to the protection of our customers, employees and our
physical assets. We will continue to monitor and assess our safety and security
procedures and will take all precautions necessary to minimize any adverse
effects on us or our operations. Accordingly, through taking these added
precautions, we believe that we have minimized any potential adverse effects
that any future terrorist activities could have on us or our operations.
REGULATORY APPROVALS
Our utility business is subject to various regulated returns on its rate
base in each of the 11 states in which we operate. We monitor the allowed rates
of return, our effectiveness in earning such rates and initiate rate proceedings
or operating changes as needed. 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, we 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". In
addition, our debt and equity financing programs are also subject to approval by
regulatory bodies in five states, which could limit our ability to take
advantage of favorable market conditions.
26
SUCCESSFUL COMPLETION AND INTEGRATION OF PENDING ACQUISITION
Our acquisition strategy depends on our ability to successfully acquire and
integrate the operations of companies such as Mississippi Valley Gas Company,
which acquisition is currently pending. Acquisitions such as Mississippi Valley
should help us achieve greater economies of scale by spreading the fixed costs
of the utility business over a larger customer base. Completion of this
acquisition is subject to state and federal regulatory approval. In addition,
the integration of this acquisition into our operations during the next fiscal
year will require a substantial commitment of financial resources and management
time.
INFLATION AND INCREASED GAS COSTS
We believe 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. We have a process in place to continually
review the adequacy of our gas rates in relation to the increasing cost of
providing service and the inherent regulatory lag in adjusting those gas rates.
Historically, we have been able to budget and control operating expenses and
investment within the amounts authorized to be collected in rates and intend to
continue to do so. The ability to control expenses is an important factor that
will influence future results.
In addition, the rapid increases in the price of purchased gas during the
past year caused us to experience a significant increase in short-term debt
because we must pay suppliers for such gas when it is purchased long before such
costs may be recovered through the collection of monthly customer bills for gas
delivered. Also, the increases in purchased gas costs caused more customers to
be slow to pay their gas bills, leading to accounts receivable that were higher
than normal which in turn lead to higher short-term debt levels and increased
bad debts in fiscal 2001. Should the price of purchased gas increase
significantly in the upcoming heating season, we would expect similar increases
in our short-term debt and accounts receivable during fiscal 2002.
INCREASED COMPETITION
We are facing increased competition from other energy suppliers as well as
electric companies and from energy marketing and trading companies. 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 or to
bypass our systems in favor of special competitive contracts with lower per-unit
costs.
DEREGULATION OR UNBUNDLING
We are 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 brand loyalty in our service
areas, and our enhanced technology and distribution system infrastructures, we
believe that we are now positively positioned as unbundling evolves.
Consequently, we do not expect there would be a significant adverse effect on
our business should unbundling or further deregulation of the natural gas
distribution service business occur.
HEDGING AND MARKET RISK ACTIVITIES
Utility Hedging Activities
To protect against volatility in gas prices, we are hedging gas costs for
the 2001-2002 heating season by utilizing a combination of financial tools and
fixed forward physical contracts to stabilize gas prices. For the 2001-2002
heating season, we plan to cover approximately 64 percent of our anticipated
requirements through storage and hedging instruments. The gas hedges should help
moderate the effects of higher customer accounts receivable caused by higher gas
prices.
27
WOODWARD MARKETING ACTIVITIES
We acquired a 45 percent interest in Woodward Marketing, L.L.C. in 1997 as
a result of the merger of Atmos and United Cities Gas Company, which had
acquired that interest in 1995. In April 2001, we acquired the 55 percent
interest that we did not own from J.D. Woodward and others for 1,423,193
restricted shares of our common stock. Immediately following the acquisition,
Mr. Woodward was elected as a Senior Vice President of Atmos in charge of all
non-regulated business activities, a position he has held since April 2001.
Prior to that time, Mr. Woodward had not been an officer or employee of Atmos.
The principal business of Woodward Marketing, including the activities of
Trans Louisiana Industrial Gas Company, Inc., is the overall management of
natural gas requirements for municipalities, local gas utility companies and
industrial customers located primarily in the Southwestern and Midwestern United
States. This business involves the sale of natural gas by Woodward Marketing to
its customers and the management of storage and transportation contracts for its
customers under contracts generally having one to two-year terms. At September
30, 2001, Woodward Marketing had a total of 78 municipal and local gas utility
customers and 195 industrial customers. Woodward Marketing also sells natural
gas to certain of its industrial customers on a delivered burner tip basis under
contract terms from 30 days to two years. In addition, Woodward Marketing
supplies us with a portion of our natural gas requirements on a competitive bid
basis.
In the management of natural gas requirements for municipal and other local
utilities, Woodward Marketing sells physical natural gas for future delivery and
hedges the associated price risk through the use of gas futures, including
forwards, over-the-counter and exchange-traded options, and swap contracts with
counterparties. These financial contracts are marked-to-market at the daily
close of business. Woodward Marketing links gas futures to physical delivery of
natural gas and balances its futures positions at the end of each trading day.
Over-the-counter swap agreements require Woodward Marketing to receive or make
payments based on the difference between a fixed price and the market price of
natural gas on the settlement date. Woodward Marketing uses these futures and
swaps to manage margins on offsetting fixed-price purchase or sale commitments
for physical quantities of natural gas, which are also carried on a mark to
market basis. Options held to hedge price risk provide the right, but not the
requirement, to buy or sell energy commodities at a fixed price. Woodward
Marketing uses options to manage margins and to limit overall price risk
exposure.
Energy related services provided by Woodward Marketing include the sale of
natural gas to its various customer classes and management of transportation and
storage assets and inventories. More specifically, energy services include
contract negotiation and administration, load forecasting, storage acquisition,
natural gas purchase and delivery and capacity utilization strategies. In
providing these services, Woodward Marketing generates income from its utility,
municipal and industrial customers through negotiated prices based on the volume
of gas supplied to the customer. Woodward Marketing also generates income by
taking advantage of the difference between near-term gas prices and prices for
future delivery as well as the daily movement of gas prices by utilizing storage
and transportation capacity that it controls.
Woodward Marketing also engages in limited speculative natural gas trading
for its own account, subject to a risk management policy established by us which
limits the level of trading loss in any fiscal year to a maximum of 25 percent
of the budgeted annual operating income of Woodward Marketing. Compliance with
such risk management policy is monitored on a daily basis. In addition, Woodward
Marketing's bank credit facility limits trading positions that are not closed at
the end of the day (open positions) to 2.5 Bcf of natural gas. At September 30,
2001, Woodward Marketing's open positions in its trading operations totaled 2.3
Bcf. In its speculative trading, Woodward Marketing's open trading positions are
monitored on a daily basis but are not required to be closed if they remain
within the limits set by the bank loan agreement. Woodward Marketing had an
unrealized trading gain of $4.5 million for the fiscal year ended September 30,
2001, but there can be no assurance that Woodward Marketing will have any
speculative trading gain in the future. In some prior years, Woodward Marketing
has experienced losses in its speculative trading business. The financial
exposure that results from the daily fluctuations of gas prices and the
potential for daily price movements constitutes a risk of loss since the price
of natural gas purchased for future delivery at the beginning of the day may not
be hedged until later in the day.
28
Financial instruments, which subject Woodward Marketing to counterparty
risk, consist primarily of financial instruments arising from trading and risk
management activities and overnight repurchase agreements that are not insured.
Counterparty risk is the risk of loss from nonperformance by financial
counterparties to a contract. Exchange-traded future and option contracts are
generally guaranteed by the exchanges.
Woodward Marketing's operations are concentrated in the natural gas
industry, and its customers and suppliers may be subject to economic risks
affecting that industry.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The risk inherent in our 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 we may take to mitigate exposure to such
changes. Actual results may differ.
GAS PRICES
We purchase natural gas for our 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. We have 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, our earnings could be affected by changes in the price and
availability of such gas. To protect against volatility in gas prices, we from
time to time hedge our gas costs by purchasing futures contracts. Our utility
segment does not use such financial instruments for trading purposes and we are
not a party to any leveraged derivatives. Market risk is estimated as a
hypothetical 10 percent increase in the portion of our gas cost related to
fixed-price non-regulated sales. Based on projected fiscal 2002 non-regulated
gas sales at fixed prices, such an increase would result in an increase to cost
of gas of approximately $2.7 million in fiscal 2002, before considering the
effect of swap agreements outstanding as of September 30, 2001. As of September
30, 2001, we had entered into swap agreements to lock in gas costs for certain
outstanding fixed-price sales agreements. We plan 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
2002.
In April 2001, we acquired the 55 percent interest in Woodward Marketing
that we did not already own. Woodward Marketing's principal business is the
management of natural gas requirements for municipalities, local gas utility
companies and industrial customers located primarily in the Southwestern and
Midwestern United States. This business involves the sale of natural gas and the
management of storage and transportation contracts for customers under contracts
generally having one to two-year terms. Woodward Marketing also sells natural
gas to industrial customers on a delivered burner tip basis under contract terms
from 30 days to two years. In the management of natural gas requirements for
municipal and other local utilities, Woodward Marketing sells natural gas for
future delivery and hedges price risk through the use of gas futures including
forwards, over-the-counter and exchange-traded options, futures and swap
contracts. Financial contracts are marked-to-market at the daily close of
business.
Woodward Marketing also engages in limited speculative natural gas trading
for its own account, subject to a risk management policy established by us which
limits the level of trading loss in any fiscal year to a maximum of 25 percent
of the budgeted operating income of Woodward Marketing. Compliance with such
risk management policy is monitored on a daily basis. In addition, Woodward
Marketing's bank credit facility limits open trading positions to 2.5 Bcf of
natural gas. At September 30, 2001, Woodward Marketing's open positions in its
trading operations totaled 2.3 Bcf. In its trading, Woodward Marketing's open
trading positions are monitored on a daily basis but are not required to be
closed if within the limits set by the bank credit facility. The financial
exposure that results from the daily fluctuations of gas prices and the
potential for daily price movements have an impact on the net open position.
Based on its open positions at September 30, 2001, a $.50 increase in market
strip would result in a $1.2 million decrease in the speculative trading gain. A
$.50 decrease in market strip would result in a $1.2 million increase in the
speculative trading gain.
29
Woodward Marketing uses gas futures contracts, including but not limited
to, over-the-counter and exchange-traded options and swap agreements, in the
conduct of its business. Woodward Marketing links gas futures to physical
delivery of natural gas and balances its futures positions at the end of each
trading day. Over-the-counter swap agreements require Woodward Marketing to
receive or make payments based on the difference between a fixed price and the
market price of natural gas on the settlement date. Woodward Marketing uses
futures and swaps to manage margins on offsetting fixed-price purchase or sale
commitments for physical quantities of natural gas. Options held to hedge price
risk provide the right, but not the requirement, to buy or sell energy
commodities at a fixed price. Woodward Marketing uses options to manage margins
and to limit overall price risk exposure.
Counterparty risk is the risk of loss from nonperformance by financial
counterparties to a contract. Financial instruments, which subject Woodward
Marketing to counterparty risk, consist primarily of financial instruments
arising from trading and risk management activities and overnight repurchase
agreements that are not insured. Exchange traded future and option contracts are
generally guaranteed by the exchanges.
Woodward Marketing's operations are concentrated in the natural gas
industry, and its customers and suppliers may be subject to economic risks
affecting that industry. Therefore, an economic downturn in the industry could
have an adverse affect on the creditworthiness of Woodward Marketing's
customers. Woodward Marketing manages credit risk to attempt to minimize its
exposure to uncollectible receivables. In compliance with Woodward Marketing's
existing credit policy, prospective and existing customers are reviewed for
creditworthiness and customers not meeting minimum standards, at the discretion
of management, provide security deposits and are subject to various requisite
secured payment terms.
INTEREST RATES
Our earnings are affected by changes in short-term interest rates as a
result of our issuance of short-term commercial paper and our other short-term
borrowings. If market interest rates for short-term borrowings average two
percent more in fiscal 2002 than they did during fiscal 2001, our interest
expense would increase by approximately $4.0 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 $57.5 million based on
discounted cash flow analyses.
As of September 30, 2001, we were 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.
30
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.
31
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Atmos Energy Corporation
We have audited the accompanying consolidated balance sheets of Atmos
Energy Corporation as of September 30, 2001 and 2000, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended September 30, 2001. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Atmos Energy Corporation at September 30, 2001 and 2000, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended September 30, 2001, in conformity with accounting principles
generally accepted in the United States. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
ERNST & YOUNG LLP
Dallas, Texas
November 2, 2001
32
ATMOS ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30
-----------------------
2001 2000
---------- ----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
ASSETS
Property, plant and equipment............................... $2,055,986 $1,546,569
Construction in progress.................................... 53,881 33,234
---------- ----------
2,109,867 1,579,803
Less accumulated depreciation and amortization.............. 774,469 597,457
---------- ----------
Net property, plant and equipment......................... 1,335,398 982,346
Current assets
Cash and cash equivalents................................. 15,263 7,379
Cash held on deposit in margin account.................... 66,666 --
Accounts receivable, less allowance for doubtful accounts
of $16,151 in 2001 and $10,589 in 2000................. 124,046 77,264
Inventories............................................... 6,041 6,456
Gas stored underground.................................... 89,555 64,222
Assets from risk management activities.................... 95,968 --
Deferred gas cost......................................... 10,999 37,184
Other current assets and prepayments...................... 15,713 8,101
---------- ----------
Total current assets................................... 424,251 200,606
Intangible assets........................................... 12,125 878
Goodwill.................................................... 64,745 3,110
Noncurrent assets from risk management activities........... 29,771 --
Deferred charges and other assets........................... 169,890 161,818
---------- ----------
$2,036,180 $1,348,758
========== ==========
CAPITALIZATION AND LIABILITIES
Shareholders' equity
Common stock, no par value (stated at $.005 per share);
100,000,000 shares authorized; issued and outstanding:
2001 -- 40,791,501 shares, 2000 -- 31,952,340 shares... $ 204 $ 160
Additional paid-in capital................................ 489,948 306,887
Retained earnings......................................... 95,132 83,154
Accumulated other comprehensive income (loss)............. (1,420) 2,265
---------- ----------
Shareholders' equity................................... 583,864 392,466
Long-term debt.............................................. 692,399 363,198
---------- ----------
Total capitalization................................... 1,276,263 755,664
Current liabilities
Current maturities of long-term debt...................... 20,695 17,566
Short-term debt........................................... 201,247 250,047
Accounts payable and accrued liabilities.................. 84,471 73,031
Taxes payable............................................. 11,620 10,844
Customers' deposits....................................... 32,351 9,923
Liabilities from risk management activities............... 119,484 --
Other current liabilities................................. 41,161 21,085
---------- ----------
Total current liabilities.............................. 511,029 382,496
Deferred income taxes....................................... 138,934 131,619
Noncurrent liabilities from risk management activities...... 7,412 --
Deferred credits and other liabilities...................... 102,542 78,979
---------- ----------
$2,036,180 $1,348,758
========== ==========
See accompanying notes to consolidated financial statements
33
ATMOS ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED SEPTEMBER 30
--------------------------------------
2001 2000 1999
------------ ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Operating revenues.......................................... $1,442,275 $850,152 $690,196
Purchased gas cost.......................................... 1,067,555 524,446 390,402
---------- -------- --------
Gross profit................................................ 374,720 325,706 299,794
Gas trading margin.......................................... 488 -- --
Operating expenses
Operation................................................. 133,240 140,249 148,065
Maintenance............................................... 6,368 7,648 9,141
Depreciation and amortization............................. 67,664 63,855 56,874
Taxes, other than income.................................. 37,655 28,638 31,475
---------- -------- --------
Total operating expenses............................... 244,927 240,390 245,555
---------- -------- --------
Operating income............................................ 130,281 85,316 54,239
Other income
Equity in earnings of Woodward Marketing, L.L.C. ......... 8,062 7,307 7,156
Miscellaneous income (expense), net....................... (1,874) 7,437 2,967
---------- -------- --------
Total other income..................................... 6,188 14,744 10,123
Interest charges, net....................................... 47,011 43,823 37,063
---------- -------- --------
Income before income taxes.................................. 89,458 56,237 27,299
Income taxes................................................ 33,368 20,319 9,555
---------- -------- --------
Net income............................................. $ 56,090 $ 35,918 $ 17,744
========== ======== ========
Basic net income per share.................................. $ 1.47 $ 1.14 $ .58
========== ======== ========
Diluted net income per share................................ $ 1.47 $ 1.14 $ .58
========== ======== ========
Cash dividends per share.................................... $ 1.16 $ 1.14 $ 1.10
========== ======== ========
Weighted average shares outstanding:
Basic..................................................... 38,156 31,461 30,566
========== ======== ========
Diluted................................................... 38,247 31,594 30,819
========== ======== ========
See accompanying notes to consolidated financial statements
34
ATMOS ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUMULATED
COMMON STOCK OTHER
------------------- ADDITIONAL COMPREHENSIVE
NUMBER OF STATED PAID-IN INCOME RETAINED
SHARES VALUE CAPITAL (LOSS) EARNINGS TOTAL
---------- ------ ---------- ------------- -------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
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
--------
Total comprehensive income.............. 18,661
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
--------
Total comprehensive income.............. 37,266
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
Comprehensive income:
Net income................................ -- -- -- -- 56,090 56,090
Unrealized holding losses on investments,
net..................................... -- -- -- (3,685) -- (3,685)
--------
Total comprehensive income.............. 52,405
Cash dividends ($1.16 per share)............ -- -- -- -- (44,112) (44,112)
Common stock issued:
Direct stock purchase plan................ 411,159 2 8,682 -- -- 8,684
ESOP...................................... 225,945 1 5,098 -- -- 5,099
Long-term stock plan for United Cities
Division................................ 15,300 -- 240 -- -- 240
Long-term incentive plan.................. 17,172 -- 272 -- -- 272
Directors equity incentive compensation
plan.................................... 2,740 -- 60 -- -- 60
Outside directors stock-for-fee plan...... 2,152 -- 50 -- -- 50
Woodward Marketing, L.L.C. acquisition.... 1,423,193 7 26,650 -- -- 26,657
Public offering........................... 6,741,500 34 142,009 -- -- 142,043
---------- ---- -------- ------- -------- --------
Balance, September 30, 2001................. 40,791,501 $204 $489,948 $(1,420) $ 95,132 $583,864
========== ==== ======== ======= ======== ========
See accompanying notes to consolidated financial statements
35
ATMOS ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30,
---------------------------------
2001 2000 1999
--------- --------- ---------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 56,090 $ 35,918 $ 17,744
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization:
Charged to depreciation and amortization.............. 67,664 63,855 56,874
Charged to other accounts............................. 2,806 3,065 4,800
Deferred income taxes................................... 18,501 18,251 31,874
Deferred lease income................................... (979) -- --
Net assets/liabilities from risk management
activities............................................. 13,881 -- --
Gain on sale of non-regulated assets.................... -- (5,831) --
Changes in assets and liabilities:
Increase in cash held on deposit in margin account...... (62,181) -- --
(Increase) decrease in accounts receivable.............. 65,032 (11,260) (29,576)
Decrease in inventories................................. 374 2,037 7,010
(Increase) decrease in gas stored underground........... (3,376) (17,518) 4,256
(Increase) decrease in deferred gas cost................ 15,440 (31,353) (6,101)
(Increase) decrease in other current assets and
prepayments............................................ (6,646) (4,930) 488
Increase in deferred charges and other assets........... (12,143) (13,053) (12,012)
Increase (decrease) in accounts payable................. (94,769) 8,643 19,425
Increase (decrease) in taxes payable.................... 791 9,607 (11,888)
Increase (decrease) in customers' deposits.............. 6,078 (909) (2,372)
Increase (decrease) in other current liabilities........ 9,019 (4,866) (4,418)
Increase in deferred credits and other liabilities...... 7,413 2,540 8,594
--------- --------- ---------
Net cash provided by operating activities.......... 82,995 54,196 84,698
CASH FLOWS USED IN INVESTING ACTIVITIES
Capital expenditures...................................... (113,109) (75,557) (110,353)
Acquisitions.............................................. (363,399) (32,000) --
Retirements of property, plant and equipment, net......... (1,460) 957 757
Assets for leasing activities............................. (5,377) -- --
Increase in cash from acquisition......................... 8,644 -- --
Proceeds from sale of assets, net......................... 6,625 6,467 --
--------- --------- ---------
Net cash used in investing activities.............. (468,076) (100,133) (109,596)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in short-term debt................ (48,800) 81,743 101,904
Net proceeds from issuance of long-term debt.............. 347,099 -- --
Repayment of long-term debt............................... (17,670) (14,567) (61,000)
Cash dividends paid....................................... (44,112) (35,995) (33,882)
Issuance of common stock.................................. 14,405 13,550 21,726
Net proceeds from equity offering......................... 142,043 -- --
--------- --------- ---------
Net cash provided by financing activities.......... 392,965 44,731 28,748
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ 7,884 (1,206) 3,850
Cash and cash equivalents at beginning of year.............. 7,379 8,585 4,735
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 15,263 $ 7,379 $ 8,585
========= ========= =========
See accompanying notes to consolidated financial statements
36
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business -- Atmos Energy Corporation and its subsidiaries
are engaged primarily in the natural gas utility business as well as certain
non-regulated businesses. We distribute through sales and transportation
arrangements natural gas to approximately 1.4 million residential, commercial,
public authority and industrial customers through our five regulated utility
divisions: Atmos Energy Louisiana Gas Division in Louisiana; Energas Division in
Texas; Greeley Gas Division in Colorado, Kansas and Missouri; United Cities Gas
Division in Illinois, Tennessee, Iowa, Virginia, Georgia and Missouri; and
Western Kentucky Gas Division in Kentucky. 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. Our shared services unit is
located in Dallas, Texas and our customer support centers are located in
Amarillo, Texas and Metairie, Louisiana. Our non-regulated businesses include
various energy service businesses as described below.
Through Atmos Energy Marketing, LLC, we are engaged in gas marketing and
energy management services. Atmos Energy Marketing provides gas supply
management services to industrial customers, municipalities and local
distribution companies including our five regulated utility divisions. Woodward
Marketing, L.L.C. is a wholly owned subsidiary of Atmos Energy Marketing.
Through Atmos Pipeline and Storage, L.L.C., we own and operate natural gas
storage fields in Kansas, Kentucky and Louisiana to supplement natural gas used
by customers of the regulated utility divisions in Kansas, Kentucky, Tennessee
and Louisiana and to provide storage services to other customers including
customers in other states.
Through Atmos Power Systems, Inc., we construct and operate electrical
power generating plants and associated facilities. Atmos Power Systems may also
enter into agreements to either lease or sell such plants.
In addition, our non-regulated businesses market gas to industrial
customers in West Texas, provide various retail services and own an indirect
interest in Heritage Propane Partners as described below.
We were formerly engaged in the retail and wholesale distribution of
propane gas through United Cities Propane Gas, Inc. On February 15, 2000, we
entered into an agreement to form a joint venture which combined our propane
operations with the propane operations of three other unrelated companies. The
combined joint venture was named U.S. Propane, L.P. On June 15, 2000, U.S.
Propane, in which we are 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, U.S. Propane owns all of the general
partnership interest and approximately 30 percent of the limited partnership
interest in Heritage Propane Partners, a publicly traded master limited
partnership. Through our ownership in U.S. Propane, we own an approximate 6
percent interest in Heritage Propane Partners.
Principles of consolidation -- The accompanying consolidated financial
statements include the accounts of Atmos Energy Corporation and its
subsidiaries. Each subsidiary is wholly-owned and all material intercompany
transactions have been eliminated.
Prior to April 1, 2001, we owned a 45 percent interest in Woodward
Marketing and accounted for that ownership using the equity method of accounting
for investments. Subsequent to April 1, 2001, we own 100 percent of Woodward
Marketing and account for that ownership on a consolidated basis. See Note 2,
"Acquisitions".
Subsequent to August 10, 2000 we account for our interest in U.S. Propane
using the equity method of accounting.
Intangible assets -- Intangible assets consist of customer contracts. The
weighted average amortization period is 10 years.
37
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Goodwill -- Total goodwill was $64.7 million and $3.1 million at September
30, 2001 and 2000. Goodwill applicable to the utility segment was $49.8 million
and zero at September 30, 2001 and 2000. Goodwill applicable to the
non-regulated segment was $14.9 million and $3.1 million at September 30, 2001
and 2000. Goodwill applicable to the utility segment resulted from the
acquisition of the Louisiana Gas Service Company assets on July 1, 2001 and is
not subject to amortization under the provisions of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets." Goodwill
applicable to the non-regulated segment was amortized over 20 years through
September 30, 2001. Effective October 1, 2001, goodwill applicable to the
non-regulated segment will not be amortized under the provisions of Statement of
Financial Accounting Standards No. 142.
Impairment of Long-Lived Assets -- We periodically evaluate whether events
or circumstances have occurred that indicate that excess of cost over net assets
acquired and other long-lived assets may not be recoverable or that the
remaining useful life may warrant revision. When such events or circumstances
are present, we assess the recoverability of long-lived assets by determining
whether the carrying value will be recovered through the expected future cash
flows. In the event the sum of the expected future cash flows resulting from the
use of the asset is less than the carrying value of the asset, an impairment
loss equal to the excess of the asset's carrying value over its fair value is
recorded. To date, no such impairment has been recognized.
Regulation -- Our 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 we operate. Our
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.
We record regulatory assets which represent assets that are being recovered
through customer rates or are probable of being recovered through customer
rates. Significant regulatory assets as of September 30, 2001 included the
following: merger and integration costs of $24.2 million, net of related
reserves and accumulated amortization and environmental costs of $3.7 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, 2001, we had recorded a regulatory
liability of $3.8 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. We follow 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.
Accounts receivable and allowance for doubtful accounts -- Accounts
receivable consists of natural gas sales to residential, commercial, industrial,
agricultural and other customers. The allowance for doubtful accounts is
computed based on the aging of outstanding accounts receivable and historical
collections experience and represents in management's opinion, an adequate
allowance to provide for probable uncollectable accounts.
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
allowance for funds used during construction below). Major renewals
38
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 3.7 percent for 2001, 4.1 percent for 2000 and 4.0 percent for 1999.
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 -- Allowance for funds used
during construction 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. Interest expense of $1.2 million and $3.7
million were capitalized in 2001 and 1999. No interest expense was capitalized
during 2000.
Non-utility property, plant and equipment -- Balances are stated at cost
and depreciation is generally computed 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.
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 our utility divisions, except for the United Cities Gas Division,
where it is priced on the first-in first-out method. Gas stored underground and
owned by Atmos Pipeline and Storage is priced on the last-in first-out method.
Pursuant to the United Cities Gas Division's purchased gas adjustment 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. Gas in storage
that is retained as cushion gas to maintain reservoir pressure is classified as
property, plant and equipment and is priced at cost.
Risk management assets, non-regulated segment -- We use storage,
transportation and requirements contracts, forwards, over-the-counter and
exchange-traded options, futures and swap contracts to conduct our risk
management activities. We use the mark-to-market method to account for these
activities in accordance with Emerging Issues Task Force Issue No. 98-10,
"Accounting for Energy Trading and Risk Management Activities." Under this
method, the aforementioned contracts are reflected at fair value, inclusive of
future servicing costs and valuation adjustments, with resulting unrealized
gains and losses recorded as assets or liabilities from risk management
activities on the consolidated balance sheet. Current period changes in the
assets and liabilities from risk management activities are recognized as net
gains or losses on the consolidated statement of income. Changes in the assets
and liabilities from risk management activity result primarily from changes in
the valuation of the portfolio of contracts, maturity and settlement of
contracts and newly originated transactions. Market prices and models used to
value these transactions reflect our best estimate considering various factors
including closing exchange and over-the-counter quotations, time value and
volatility factors underlying the contracts. Values are adjusted to reflect the
potential impact of liquidating our positions in an orderly manner over a
reasonable period of time under present market conditions. Changes in market
prices directly affect our estimate of the fair value of these transactions.
At September 30, 2001, we had 3,800 open contracts, representing 2.3 Bcf
notional volumes, that were marked to market with average contract maturities of
less than two years. The $4.5 million mark-to-market gain associated with these
positions was recorded as unrealized trading margin on the consolidated
statement of income.
Effective April 1, 2001, natural gas sales from our natural gas trading
operations are netted against purchased gas costs and shown as gas trading
margin on the consolidated statements of income. For the six months ended
September 30, 2001, our gas trading margin consisted of a $4.0 million realized
trading loss and a $4.5 million unrealized trading gain.
39
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Risk management assets, utility segment -- Our business units have entered
into financial instruments for the 2001-2002 heating season. The purpose of
entering into these financial instruments is to protect us and our customers
from unusually large winter period gas price increases. We use the
mark-to-market method to account for these activities as described above. In
accordance with Financial Accounting Standards No. 71 "Accounting for the
Effects of Certain Types of Regulation", current period changes in the assets
and liabilities from risk management activities are recorded as deferred gas
costs on the consolidated balance sheet. Accordingly, there is no earnings
impact as a result of the use of these financial instruments. See Note 14. Upon
maturity, the contracts are recognized in purchased gas cost.
Income taxes -- Income taxes are provided based on the liability 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 liability 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 liability 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 -- We consider all highly liquid investments with
an initial or remaining maturity of three months or less to be cash equivalents.
Deferred charges and other assets -- Deferred charges and other assets at
September 30, 2001 and 2000 include merger and integration costs of $24.2
million and $30.0 million, net of the related reserve for possible non-recovery
and accumulated amortization; the investment in Woodward Marketing of $17.4
million at September 30, 2000; and the indirect investment in Heritage Propane
Partners of $23.8 million and $25.0 million in 2001 and 2000. Also included in
deferred charges and other assets are assets of our qualified defined benefit
retirement plans in excess of the plans' obligations of $44.4 million and $36.1
million, assets related to the nonqualified retirement plans of $25.1 million
and $28.6 million, unamortized debt expense of $9.7 million and $5.4 million and
deferred asset projects of $12.6 million and $10.9 million in 2001 and 2000.
Deferred credits and other liabilities -- Deferred credits and other
liabilities at September 30, 2001 and 2000 include customer advances for
construction of $11.7 million and $10.9 million; obligations under other
postretirement benefits of $38.1 million and $25.2 million in 2001 and 2000; and
obligations under our nonqualified retirement plans of $34.2 million and $31.0
million in 2001 and 2000.
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 Gas Division's Long-term Stock
Plan, the Long-Term Incentive Plan and Atmos' Restricted Stock Grant Plan.
Comprehensive income -- In 1999, we 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 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 our 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
40
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Weather insurance and hedges -- In June 2001, we purchased a three year
weather insurance policy with an option to cancel in the third year if we obtain
weather protection in our rate structures. The policy is for our Texas and
Louisiana operations and covers the entire heating season of October to March
beginning with the 2001 - 2002 heating season. The cost of the three year policy
was approximately $13.2 million which was prepaid and will be amortized over the
appropriate heating seasons. The insurance is designed to protect against
weather that is warmer than normal.
In July 2000, we entered into an agreement to purchase weather hedges for
our Texas and Louisiana operations effective for the 2000 - 2001 heating season.
The hedges were designed to help mitigate the effects of weather that was at
least seven percent warmer than normal in both Texas and Louisiana while
preserving any upside. The cost of the weather hedges was approximately $4.9
million which was amortized over the 2000 - 2001 heating season. The cost of the
weather hedges was more than offset by the positive effects of colder weather on
our gross profit.
Recently issued accounting standards not yet adopted -- In June 2001, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 141, "Business Combinations." This statement addresses financial
accounting and reporting for business combinations and supersedes APB Opinion
No. 16, "Business Combinations," and Statement of Financial Accounting Standards
No. 38, "Accounting for Pre-acquisition Contingencies of Purchased Enterprises."
All business combinations in the scope of this Statement are to be accounted for
using the purchase method. The provisions of this Statement were applied to the
acquisition of Louisiana Gas Service Company and LGS Natural Gas Company
effective July 1, 2001.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets."
This Statement addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB Opinion No. 17,
"Intangible Assets." This Statement addresses the accounting for goodwill and
other intangible assets after they have been initially recognized in the
financial statements. This Statement requires that goodwill and other intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to impairment tests. This Statement was adopted effective July 1, 2001
with respect to goodwill or other intangible assets acquired in connection with
the Louisiana Gas Service Company and LGS Natural Gas Company acquisition. See
Note 2 "Acquisitions". With respect to our other intangible assets and goodwill,
this Statement was adopted effective October 1, 2001. The proforma effect on
goodwill amortization of adopting Statement of Financial Accounting Standards
No. 142 is not material.
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This Statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. The
provisions of this Statement are effective for financial statements issued for
fiscal years beginning after December 15, 2001. We are currently in the process
of evaluating the impact the adoption of this Statement will have on our
financial condition, results of operations or net cash flows.
Reclassifications -- Certain prior year amounts have been reclassified to
conform with the current year presentation.
41
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS
COMPLETION OF ACQUISITION OF REMAINING EQUITY INTEREST IN WOODWARD MARKETING
In April 2001, we acquired from Woodward Marketing, Inc. the 55 percent
interest in Woodward Marketing, L.L.C. that we did not already own in exchange
for 1,423,193 restricted shares of our common stock. The consideration is
subject to an upward adjustment, based on our share price, of up to 232,547
shares plus an amount of shares to compensate for dividends paid after the
completion of the acquisition. The pro forma effects for the fiscal year ended
September 30, 2001 of combining 100 percent of Woodward Marketing's results of
operations with Atmos' consolidated results of operations are a $17.9 million
increase in gas trading margin to $18.4 million, elimination of the $8.1 million
equity in earnings of Woodward Marketing, a $6.2 million increase in net income
to $62.3 million and a $.13 increase in diluted earnings per share to $1.60.
Such pro forma effects for the fiscal year ended September 30, 2000 are a
$16.2 million increase in gas trading margin to $16.2 million, elimination of
the $7.3 million equity in earnings of Woodward Marketing, a $5.7 million
increase in net income to $41.2 million and a $.12 increase in diluted earnings
per share to $1.26.
The acquisition enabled us to control Woodward Marketing's future direction
and strategies. Results of 100 percent of Woodward Marketing's operations are
consolidated with our results of operations for the third and fourth quarter of
fiscal year 2001.
The following table summarizes the fair market value of the 55 percent of
Woodward Marketing's assets acquired and liabilities assumed as of April 1,
2001, in thousands:
Net property, plant and equipment........................... $ 1,649
Total current assets........................................ 128,386
Other intangible assets..................................... 250
Goodwill.................................................... 12,310
Deferred charges and other assets........................... (12,085)
---------
Total assets acquired.................................. 130,510
Current liabilities......................................... (102,997)
Noncurrent liabilities...................................... (856)
---------
Net assets acquired.................................... $ 26,657
=========
Other intangible assets represent the fair market value of non-compete
contracts. The cost assigned to these contracts is being amortized over 10
years. The value assigned to goodwill was based on our belief that ownership of
100 percent of Woodward Marketing would enable us to exercise greater control
over Woodward Marketing's operation, thereby increasing its value. We expect
that the goodwill amount will not be deductible for tax purposes.
COMPLETION OF ACQUISITION OF NATURAL GAS OPERATIONS IN LOUISIANA
Effective July 1, 2001, we acquired the assets of Louisiana Gas Service
Company and LGS Natural Gas Company for $363.4 million. The acquired assets
provide natural gas distribution service through approximately 279,000
residential and commercial meters in southeastern and northern Louisiana. The
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. The non-regulated operations, which
includes an intrastate pipeline company, provide gas transportation service to
industrial customers in Louisiana and to the acquired assets.
42
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisition increased the size of our operations in Louisiana and
allowed us to achieve certain synergies and cost savings by combining the
acquired operations with our existing Louisiana operations. Results of
operations of the Louisiana Gas Service assets are consolidated with our results
of operations for the fourth quarter of fiscal year 2001.
The following table summarizes the fair market values of the assets
acquired and liabilities assumed as of July 1, 2001, in thousands:
Net property, plant and equipment........................... $313,251
Total current assets........................................ 31,423
Other intangible assets..................................... 11,200
Goodwill.................................................... 49,793
Noncurrent assets from risk management activities........... 5,355
Deferred charges and other assets........................... 958
--------
Total assets acquired.................................. 411,980
Current liabilities......................................... (45,972)
Noncurrent liabilities...................................... (2,609)
--------
Net assets acquired.................................... $363,399
========
Other intangible assets represent the fair market value of industrial
customer contracts and are being amortized over 10 years. The value assigned to
goodwill was based on our belief that the acquisition of the Louisiana Gas
assets will enable us to realize cost savings in the state of Louisiana when
combined with our existing Louisiana operations. We expect that the entire
goodwill amount will be deductible for tax purposes.
The pro forma effects for the fiscal year ended September 30, 2001 of
combining the results of operations of the Louisiana Gas assets with our
consolidated results of operations are a $306.2 million increase in operating
revenues to $1.7 billion, a $24.2 million decrease in net income to $31.9
million and a $.64 decrease in diluted earnings per share to $.83.
Such pro forma effects for the fiscal year ended September 30, 2000 are a
$186.1 million increase in operating revenues to $1.0 billion, a $6.9 million
decrease in net income to $29.0 million and a $.22 decrease in diluted earnings
per share to $.92.
PENDING ACQUISITION OF MISSISSIPPI VALLEY GAS COMPANY
In September 2001, we entered into a definitive agreement to acquire
Mississippi Valley Gas Company, a privately held natural gas utility. This
acquisition will be accounted for as a purchase and will be acquired using $75.0
million in cash and the issuance of $75.0 million in our common stock. We will
also assume Mississippi Valley Gas' outstanding debt, net of working capital, of
approximately $45.0 million. Mississippi Valley Gas provides natural gas
distribution service to more than 261,500 residential, commercial, industrial
and other customers located primarily in the northern and central regions of
Mississippi. Mississippi Valley Gas has two underground storage facilities with
2.05 Bcf of working gas capacity. The acquisition must be approved by the
Mississippi Public Service Commission, the issuance of our stock must be
approved by five of the states in which we operate and the transaction must
comply with the provisions of the Hart-Scott-Rodino Antitrust Improvements Act.
It is anticipated that the acquisition will be completed in fiscal 2002.
43
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. DEBT
Long-term debt at September 30, 2001 and 2000 consists of the following:
2001 2000
-------- --------
(IN THOUSANDS)
Unsecured 11.2% Senior Notes, due 2002, payable in annual
installments of $2,000.................................... $ 4,000 $ 6,000
Unsecured 9.76% Senior Notes, due 2004, payable in annual
installments of $3,000.................................... 12,000 15,000
Unsecured 9.57% Senior Notes, due 2006, payable in annual
installments of $2,000.................................... 10,000 12,000
Unsecured 7.95% Senior Notes, due 2006, payable in annual
installments of $1,000.................................... 5,000 6,000
Unsecured 10% Notes, due 2011............................... 2,303 2,303
Unsecured 7.375% Senior Notes, due 2011..................... 350,000 --
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
Unsecured 6.75% Debentures, due 2028........................ 150,000 150,000
First Mortgage Bonds
Series J, 9.40% due 2021.................................. 17,000 17,000
Series P, 10.43% due 2017................................. 18,750 21,250
Series Q, 9.75% due 2020.................................. 19,000 20,000
Series R, 11.32% due 2004................................. 6,440 8,580
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................................. 10,601 12,631
-------- --------
Total long-term debt................................... 713,094 380,764
Less current maturities..................................... (20,695) (17,566)
-------- --------
$692,399 $363,198
======== ========
Most of the Senior Notes and First Mortgage Bonds contain provisions that
allow us 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, 2001, approximately $56.7 million
of retained earnings was unrestricted.
44
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of September 30, 2001, all of the Greeley Gas Division utility plant
assets with a net book value of approximately $174.4 million are subject to a
lien under the 9.4 percent Series J First Mortgage Bonds assumed by us in the
acquisition of Greeley Gas Company. Also, substantially all of the United Cities
Gas Division utility plant assets, totaling approximately $314.1 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 us for debt with
similar terms and remaining average maturities, the fair value of long-term debt
at September 30, 2001 and 2000 is estimated, using discounted cash flow
analysis, to be $709.9 million and $368.8 million.
Maturities of long-term debt at September 30, 2001 are as follows (in
thousands):
2002........................................................ $ 20,695
2003........................................................ 20,380
2004........................................................ 17,866
2005........................................................ 16,196
2006........................................................ 14,259
Thereafter.................................................. 623,698
--------
$713,094
========
SHORT-TERM DEBT
At September 30, 2001, short-term debt was composed of $171.0 million of
commercial paper and $30.2 million outstanding under two bank credit facilities.
At September 30, 2000, it was composed of $250.0 million of commercial paper.
The weighted average interest rate on short-term borrowings outstanding was 4.0
percent and 7.0 percent at September 30, 2001 and 2000.
Committed credit facilities
We have short-term committed credit facilities totaling $318.0 million. One
short-term unsecured credit facility is for $300.0 million and serves as a
backup liquidity facility for our commercial paper program. Our commercial paper
is rated A-2 by Standard and Poor's and P-2 by Moody's. At September 30, 2001,
$171.0 million of commercial paper was outstanding. On August 2, 2001, this
facility was renewed for $300.0 million with an option to increase the amount by
$100.0 million. We have a second facility in place for $18.0 million. At
September 30, 2001, $2.2 million was outstanding under this credit facility. No
amounts were outstanding under this credit facility at September 30, 2000. These
credit facilities are negotiated at least annually and are used for working
capital purposes.
Uncommitted credit facilities
Our Woodward Marketing subsidiary has an uncommitted credit facility for
$140.0 million which is used for its non-regulated business. Atmos Energy
Marketing, LLC, our wholly-owned subsidiary, is the sole guarantor of all
amounts outstanding under this facility. At September 30, 2001, $28.0 million
was outstanding under this credit facility. Related letters of credit totaling
$38.8 million further reduced the amount available under this facility.
We also have unsecured short-term uncommitted credit lines from two banks
totaling $40.0 million. There were no borrowings under these uncommitted credit
facilities at September 30, 2001 and 2000. The uncommitted lines are renewed or
renegotiated at least annually with varying terms and we pay 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.
45
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, Woodward Marketing has up to $100.0 million available from
Atmos for its non-regulated business. At September 30, 2001, $100.0 million was
outstanding.
4. INCOME TAXES
The components of income tax expense for 2001, 2000 and 1999 are as
follows:
2001 2000 1999
------- ------- --------
(IN THOUSANDS)
Current
Federal.............................................. $13,624 $ -- $(18,761)
State................................................ 2,189 2,500 (4,081)
Deferred
Federal.............................................. 14,971 18,611 27,370
State................................................ 3,013 (345) 5,321
Investment tax credits................................. (429) (447) (294)
------- ------- --------
$33,368 $20,319 $ 9,555
======= ======= ========
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, 2001 and 2000 are
presented below:
2001 2000
--------- ---------
(IN THOUSANDS)
Deferred tax assets:
Costs expensed for book purposes and capitalized for tax
purposes............................................... $ 1,269 $ 382
Accruals not currently deductible for tax purposes........ 4,527 2,403
Customer advances......................................... 4,443 4,159
Nonqualified benefit plans................................ 11,098 5,595
Postretirement benefits................................... 21,638 11,907
Unamortized investment tax credit......................... 1,049 1,303
Regulatory liabilities.................................... 1,396 3,159
Tax net operating loss and credit carryforwards........... 13,154 34,255
Other, net................................................ 9,801 6,356
--------- ---------
Total deferred tax assets.............................. 68,375 69,519
Deferred tax liabilities:
Difference in net book value and net tax value of
assets................................................. (171,734) (161,290)
Pension funding........................................... (16,010) (6,708)
Gas cost adjustments...................................... 4,670 (14,130)
Regulatory assets......................................... (3,153) (4,462)
Cost capitalized for book purposes and expensed for tax
purposes............................................... (8,387) (8,864)
Other, net................................................ (12,695) (5,684)
--------- ---------
Total deferred tax liabilities......................... (207,309) (201,138)
--------- ---------
Net deferred tax liabilities................................ $(138,934) $(131,619)
========= =========
SFAS No. 109 deferred accounts for rate regulated
entities.................................................. $ 1,327 $ 1,085
========= =========
46
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 2001, 2000 and
1999 are set forth below:
2001 2000 1999
------- ------- ------
(IN THOUSANDS)
Tax at statutory rate of 35%............................. $31,310 $19,683 $9,555
Common stock dividends deductible for tax reporting...... (857) (774) (701)
State taxes.............................................. 3,652 1,677 841
Other, net............................................... (737) (267) (140)
------- ------- ------
Provision for income taxes............................... $33,368 $20,319 $9,555
======= ======= ======
We have tax credit carryforwards amounting to $12.4 million, the majority
of which represent alternative minimum tax credits which do not expire. We also
have net operating loss carryforwards for state income tax purposes amounting to
$0.8 million which expire at varying times depending on the jurisdiction in
which the net operating loss was generated.
5. CONTINGENCIES
LITIGATION
Greeley Gas Division
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 us and our
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 we are also a defendant along with over 200
other defendants in the case of In Re Natural Gas Royalties Quitam Litigation.
In January 2001, the federal court elected to remand this case back to the
Kansas state court. A reconsideration of remand was filed, but it was denied.
The state court now has jurisdiction over this proceeding and has issued a
preliminary case management order. We believe that the plaintiffs' claims are
lacking in merit, and we intend to vigorously defend this action. While the
results of this litigation cannot be predicted with certainty, we believe the
final outcome of such litigation will not have a material adverse effect on our
financial condition, results of operations or net cash flows because we believe
that we have adequate insurance and/or reserves to cover any damages that may
ultimately be awarded.
Energas Division
On May 18, 2001, a suit was filed in the 99th District Court of Lubbock
County, Texas, by the City of Lubbock, Texas, and the West Texas Municipal
Agency against Stewart & Stevenson Energy Products, Inc., a division of GE
Packaged Power, Inc. ("GE") and our Energas Division. The action arises out of
(i) the construction and installation of a gas-fired electric generating
facility designed and installed by GE and (ii) the natural gas pipeline, which
provides natural gas to the facility, that was designed and installed by our
Energas Division. The plaintiffs allege that they incurred damages as a result
of certain corrosive products that were introduced into the facility's turbine
that damaged the turbine and necessitated repair costs of
47
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $0.9 million and consequential damages of approximately $4.7
million comprised of electric power purchases made by the plaintiffs from other
sources while the facility was inoperative or operating below specifications.
The causes of action asserted by the plaintiffs against the Energas Division
include breach of contract, breach of warranty and negligence. We have denied
any liability and intend to vigorously defend against the plaintiffs' claims.
While the results of this litigation cannot be predicted with certainty, we
believe the final outcome of such litigation will not have a material adverse
effect on our financial condition, results of operations or net cash flows
because we believe that we have adequate insurance and/or reserves to cover any
damages that may ultimately be awarded.
Atmos Energy Louisiana Gas Division
Prior to our acquisition of the assets of Louisiana Gas Service Company, a
division of Citizens Communications Company on July 1, 2001, Louisiana Gas
Service Company was involved in a proceeding with the Louisiana Public Service
Commission relating to past costs associated with the purchase of gas that it
charged to its customers. Subsequent to our acquisition of the Louisiana Gas
assets on July 1, 2001, we have taken over the defense of this proceeding and
will have responsibility for administering and assuring the payment of refunds
and/or credits to ratepayers that may arise from Citizens Communications' past
activities with respect to the purchased gas costs. However, we believe the
outcome of this proceeding will not have a material adverse impact on our
financial condition, results of operations or net cash flows as Citizens
Communications has agreed to fully indemnify us for any liability that may arise
out of this proceeding.
United Cities Propane Gas, Inc.
United Cities Propane Gas, Inc., one of our wholly-owned subsidiaries, is a
party to an action filed in June 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.
We have denied any liability, and we intend to vigorously defend against the
plaintiffs' claims. While the results of this litigation cannot be predicted
with certainty, we believe the final outcome of such litigation will not have a
material adverse effect on our financial condition, results of operations or net
cash flows because we believe that we have adequate insurance and/or reserves to
cover any damages that may ultimately be awarded.
We are a party to other litigation and claims that arise out of our
ordinary business. While the results of such litigation and claims cannot be
predicted with certainty, we believe the final outcome of such litigation and
claims will not have a material adverse effect on our financial condition,
results of operations or net cash flows because we believe that we have adequate
insurance and reserves to cover any damages that may ultimately be awarded.
ENVIRONMENTAL MATTERS
Manufactured Gas Plant Sites
The United Cities Gas Division is the owner or previous owner of
manufactured gas plant sites in 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 our
predecessors was an acceptable and satisfactory process at the time such
operations were being conducted. Under current environmental protection laws and
regulations, we may be responsible for response actions with respect to such
materials if response actions are necessary.
United Cities Gas Company and the Tennessee Department of Environment and
Conservation entered into a consent order effective January 23, 1997, to
facilitate the investigation, removal and remediation of the Johnson City site.
United Cities Gas Company began the implementation of the consent order in the
first
48
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
quarter of 1997 which continued through September 30, 2001. The investigative
phase of the work at the site has been completed. An interim removal action was
completed in June 2001. The Tennessee Regulatory Authority granted United Cities
Gas Company permission to defer, until its next rate case, all costs incurred in
Tennessee in connection with state and federally mandated environmental control
requirements.
On July 22, 1998, we entered into an Abatement Order on Consent with the
Missouri Department of Natural Resources addressing the former manufactured gas
plant located in Hannibal, Missouri. Through our United Cities Gas Division, we
agreed 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 us to defer the
costs associated with this site until March 9, 2001. A renewal of the Order has
been requested. The matter is still pending before the Commission.
As of September 30, 2001, we had incurred costs of approximately $0.9
million for the investigations of the Johnson City and Bristol, Tennessee and
Hannibal, Missouri sites and had a remaining accrual relating to these sites of
$0.8 million.
Mercury Contamination Sites
We have completed investigation and remediation activities pursuant to
Consent Orders between the Kansas Department of Health and Environment and
United Cities Gas Company. The Orders provided for the investigation and
remediation of mercury contamination at gas pipeline sites which utilize or
formerly utilized mercury meter equipment in Kansas. The Final Interim
Characterization and Remediation Report has been submitted to the Kansas
Department of Health. We are currently in the process of amending the Orders
with the Kansas Department of Health to include all mercury meters that belonged
to our Greeley Gas Division before the merger with Untied Cites Gas Company on
July 31, 1997. These sites will be investigated and any necessary remediation
will be enforced. As of September 30, 2001, we had incurred costs of $0.1
million for these sites and had a remaining accrual of $0.3 million for
recovery. The Kansas Corporation Commission has authorized us to defer these
costs and seek recovery in a future rate case.
We are a party to other environmental matters and claims, including those
discussed above, that arise out of our ordinary business. While the ultimate
results of response actions to these environmental matters and claims cannot be
predicted with certainty, we believe the final outcome of such response actions
will not have a material adverse effect on our financial condition, results of
operations or net cash flows because we believe 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.
6. COMMON STOCK AND STOCK OPTIONS
SHAREHOLDERS' RIGHTS PLAN
We have a Rights Agreement under which 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 Atmos 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 our Common Stock (the "Distribution Date"), we 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, we may issue Rights when we issue Common Stock if the Board deems such
issuance to be necessary or appropriate.
49
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 our 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 us at $.01 per Right.
SHARES ISSUED UNDER VARIOUS PLANS
The following table presents the number of shares issued under our various
plans in 2001 and 2000, as well as the number of shares available for future
issuance at September 30, 2001.
SHARES AVAILABLE
SHARES ISSUED FOR ISSUANCE AT
----------------- SEPTEMBER 30,
2001 2000 2001
------- ------- ----------------
Restricted Stock Grant Plan......................... -- -- 732,750
Employee Stock Ownership Plan....................... 225,945 258,049 935,064
Direct Stock Purchase Plan.......................... 411,159 440,990 1,374,738
Outside Directors Stock-For-Fee Plan................ 2,152 2,601 35,785
United Cities Long-Term Stock Plan.................. 15,300 4,200 168,550
Long-Term Incentive Plan............................ 17,172 -- 1,482,828
Equity Incentive and Deferred Compensation Plan for
Non-Employee Directors............................ 2,740 -- 147,260
RESTRICTED STOCK GRANT PLAN
Our Restricted Stock Grant 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 Restricted Stock Grant Plan is administered by the Board of
Directors. The members of the Board who are not employees of Atmos 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 us. During 1998, we increased the number of shares of our
common stock that may be issued under the Restricted Stock Grant Plan by 650,000
shares. Compensation expense of $1.1 million, $2.3 million and $1.6 million was
recognized in 2001, 2000 and 1999 in connection with the vesting of shares
awarded under the Plan.
EMPLOYEE STOCK OWNERSHIP PLAN
Prior to January 1, 1999, we had an Employee Stock Ownership Plan and the
United Cities Gas Division had a 401(k) savings plan. The Employee Stock
Ownership Plan was amended effective January 1, 1999, as is more fully discussed
in Note 7.
DIRECT STOCK PURCHASE PLAN
We also have a Direct Stock Purchase Plan. Participants in the Direct Stock
Purchase Plan may have all or part of their dividends reinvested at a three
percent discount from market prices. Direct Stock Purchase Plan participants may
purchase additional shares of Atmos common stock as often as weekly with
voluntary cash payments of at least $25, up to an annual maximum of $100,000.
50
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Atmos 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 which was approved by the
shareholders of Atmos 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 Atmos are eligible to participate in the Equity Incentive and
Deferred 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
We have 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
Atmos 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 Gas 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 2001, 15,300 options were exercised under the plan. At
September 30, 2001, there were 19,300 options outstanding, all of which were
fully vested. No incentive stock options, nonqualified stock options, stock
appreciation rights or restricted stock have been granted under the plan since
1996. Because of the limited nature of this plan, the pro forma effects of
applying Statement of Financial Accounting Standards No. 123 would have less
than a $.01 per diluted share effect on earnings per share or approximately
$4,764, $8,580 and $30,852 for 2001, 2000 and 1999.
LONG-TERM INCENTIVE PLAN
On August 12, 1998, the Board of Directors approved and adopted the 1998
Long-Term Incentive Plan, which became effective October 1, 1998 after approval
by the shareholders of Atmos. The Long Term Incentive Plan represents a part of
our Total Rewards strategy which we developed as a result of a study we
conducted of all employee, executive and non-employee director compensation and
benefits. The Long Term Incentive Plan 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 Atmos and its subsidiaries.
51
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
We are authorized to grant awards for up to a maximum of 1,500,000 shares
of common stock under the Long Term Incentive Plan subject to certain adjustment
provisions. The option price is equal to the market price of our 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. At
September 30, 2001, we had 1,009,330 options outstanding under the Long Term
Incentive Plan 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," 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. Statement of Financial Accounting Standards No. 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". We have elected to continue using the intrinsic value
method as prescribed by Accounting Principles Board No. 25. Under this method no
compensation cost for stock options are recognized for stock option awards
granted at or above fair market value.
A summary of activity for grants of stock options follows:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
--------- --------
Outstanding -- September 30, 1998........................... -- $ --
Granted................................................... 341,000 24.43
Exercised................................................. -- --
Forfeited................................................. (16,000) 24.41
---------
Outstanding -- September 30, 1999........................... 325,000 24.43
---------
Granted................................................... 379,500 16.03
Exercised................................................. -- --
Forfeited................................................. (46,000) 22.03
---------
Outstanding -- September 30, 2000........................... 658,500 19.76
---------
Granted................................................... 439,500 23.45
Exercised................................................. (17,172) 15.82
Forfeited................................................. (71,498) 19.86
---------
Outstanding -- September 30, 2001........................... 1,009,330 $21.43
---------
52
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information about outstanding and exercisable options, as of September 30,
2001, follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- --------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
RANGE OF NUMBER OF LIFE EXERCISE NUMBER OF EXERCISE
EXERCISE PRICES OPTIONS (IN YEARS) PRICE OPTIONS PRICE
------------------------- --------- ----------- -------- --------- --------
$14.68 to $17.49.... 280,330 8.4 $15.63 93,445 $15.63
$17.50 to $20.24.... 32,000 8.9 19.84 10,667 19.84
$20.25 to $23.99.... 406,000 9.4 23.40 334 23.94
$24.00 to $25.66.... 291,000 7.6 24.43 181,002 24.43
-------------------------------------------------------------------------------------
$14.68 to $25.66.... 1,009,330 8.6 21.43 285,448 21.37
A summary of outstanding options that are fully exercisable follows:
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------
Exercisable -- September 30, 1999........................... -- --
Exercisable -- September 30, 2000........................... 90,503 $24.43
Exercisable -- September 30, 2001........................... 285,448 $21.37
Pro Forma Fair Value Disclosures:
Had compensation expense for our stock options been recognized based on the
fair value on the grant date under the methodology prescribed by Statement of
Financial Accounting Standards No. 123, our net income and earnings per share
for the three years ended September 30, would have been impacted as shown in the
following table.
2001 2000 1999
----- ----- -----
Net income -- as reported (millions)........................ $56.1 $35.9 $17.7
Net income -- pro forma (millions).......................... $55.7 $35.7 $17.6
Basic earnings per share -- as reported..................... $1.47 $1.14 $0.58
Basic earnings per share -- pro forma....................... $1.46 $1.13 $0.58
Diluted earnings per share -- as reported................... $1.47 $1.14 $0.58
Diluted earnings per share -- pro forma..................... $1.46 $1.13 $0.57
In accordance with the fair value method of determining compensation
expense, the weighted average grant date fair value per share of options granted
was as follows:
- $3.97 in fiscal 2001;
- $2.88 in fiscal 2000; and
- $4.10 in fiscal 1999.
53
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
We used the Black-Scholes pricing model to estimate the fair value of each
option granted with the following weighted average assumptions for the years
ended September 30:
2001 2000 1999
---- ---- ----
Expected Life (years)....................................... 5 5 7
Interest rate............................................... 4.7% 5.8% 5.9%
Volatility.................................................. 25.5% 25.1% 22.2%
Dividend yield.............................................. 4.9% 5.0% 5.2%
7. EMPLOYEE RETIREMENT, STOCK OWNERSHIP AND OTHER PLANS
DEFINED BENEFIT PLANS
Effective January 1, 1999, we established the Atmos Pension Account Plan
which covers substantially all employees of Atmos. 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 which were previously
in effect 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).
The Pension Account Plan also 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.
Our 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.
54
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
We record 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 2001 and 2000:
2001 2000
-------- --------
(IN THOUSANDS)
Change in benefit obligation:
Benefit obligation at beginning of year................... $210,152 $200,465
Service cost.............................................. 3,557 2,352
Interest cost............................................. 16,408 14,573
Actuarial (gain) loss..................................... (875) 5,039
Acquisition/merger........................................ (385) 5,156
Benefits paid............................................. (17,979) (17,433)
-------- --------
Benefit obligation at end of year......................... 210,878 210,152
Change in plan assets:
Fair value of plan assets at beginning of year............ 279,498 282,498
Actual return on plan assets.............................. (14,807) 9,277
Acquisition/merger........................................ (385) 5,156
Benefits paid............................................. (17,979) (17,433)
-------- --------
Fair value of plan assets at end of year.................. 246,327 279,498
-------- --------
Funded status............................................... 35,449 69,346
Unrecognized transition asset............................... (72) (362)
Unrecognized prior service cost............................. (7,995) (8,878)
Unrecognized net (gain) loss................................ 17,021 (24,004)
-------- --------
Accrued pension asset....................................... $ 44,403 $ 36,102
======== ========
2001 2000 1999
---- ---- ----
Weighted average assumptions for end of year disclosure:
Discount rate............................................. 7.5% 8.0% 7.5%
Rate of compensation increase............................. 4.0% 4.0% 4.0%
Expected return on plan assets............................ 10.0% 10.0% 10.0%
The plan assets consist primarily of investments in common stocks, interest
bearing securities and interests in commingled pension trust funds.
55
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension cost, which is recorded as an operation expense, for
the Pension Account Plan for 2001, 2000 and 1999 included the following
components:
2001 2000 1999
-------- -------- --------
(IN THOUSANDS)
Components of net periodic pension cost:
Service cost....................................... $ 3,557 $ 2,352 $ 4,232
Interest cost...................................... 16,408 14,573 14,696
Expected return on assets.......................... (27,093) (27,403) (27,846)
Amortization of:
Transition obligation (asset)...................... (290) (263) (248)
Prior service cost................................. (883) (802) (703)
Actuarial (gain)................................... -- (1,610) (1,487)
-------- -------- --------
Net periodic pension cost....................... $ (8,301) $(13,153) $(11,356)
======== ======== ========
SUPPLEMENTAL EXECUTIVE BENEFITS PLANS
We have a nonqualified Supplemental Executive Benefits Plan which provides
additional pension, disability and death benefits to the officers and certain
other employees of Atmos. The Supplemental Executive Benefits Plan was amended
and restated in August 1998. In addition, in August 1998, we adopted the
Performance-Based Supplemental Executive Benefits Plan which covers all
employees who become officers or business unit presidents after August 12, 1998
or any other employees selected by our Board of Directors in its discretion.
56
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
We record the accrued pension cost in deferred credits and other
liabilities. The following table sets forth the total for the Supplemental
Plans' funded status for 2001 and 2000:
2001 2000
-------- --------
(IN THOUSANDS)
Change in benefit obligation:
Benefit obligation at beginning of year................... $ 47,426 $ 38,825
Service cost.............................................. 832 937
Interest cost............................................. 3,751 2,916
Actuarial loss............................................ 3,642 6,482
Benefits paid............................................. (2,806) (1,734)
-------- --------
Benefit obligation at end of year......................... 52,845 47,426
Change in plan assets:
Fair value of plan assets at beginning of year............ -- --
Employer contribution..................................... 2,806 1,734
Benefits paid............................................. (2,806) (1,734)
-------- --------
Fair value of plan assets at end of year.................. -- --
-------- --------
Funded status............................................... (52,845) (47,426)
Unrecognized transition asset............................... 292 388
Unrecognized prior service cost............................. 6,793 7,815
Unrecognized net loss....................................... 11,538 8,220
-------- --------
Accrued pension cost........................................ $(34,222) $(31,003)
======== ========
2001 2000 1999
---- ---- ----
Weighted average assumptions for end of year disclosure:
Discount rate............................................. 7.5% 8.0% 7.5%
Rate of compensation increase............................. 4.0% 4.0% 4.0%
Expected return on plan assets............................ 10.0% 10.0% 10.0%
Assets for the Supplemental Plans are held in our rabbi trusts (see Note
12) and consist primarily of investments in equity mutual funds. The market
value of the rabbi trusts amounted to $25.1 million and $28.6 million at
September 30, 2001 and 2000. The assets in the rabbi trusts are included on our
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 $52.8 million, $45.5 million and none,
as of September 30, 2001, and $47.4 million, $41.1 million and none, as of
September 30, 2000.
57
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension cost, which is recorded as an operation expense, for
the Supplemental Plans for 2001, 2000 and 1999 included the following
components:
2001 2000 1999
------ ------ ------
(IN THOUSANDS)
Components of net periodic pension cost:
Service cost............................................. $ 832 $ 937 $1,151
Interest cost............................................ 3,751 2,916 2,488
Amortization of:
Transition obligation.................................... 96 96 96
Prior service cost....................................... 1,022 1,022 1,022
Actuarial loss........................................... 325 215 216
------ ------ ------
Net periodic pension cost............................. $6,026 $5,186 $4,973
====== ====== ======
EMPLOYEE STOCK OWNERSHIP PLAN
Atmos sponsors an Employee Stock Ownership Plan for substantially all
employees. Effective January 1, 1999 the Employee Stock Ownership Plan 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 Employee Stock Ownership
Plan, 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 accounts subject to certain restrictions. Each participant enters into a
salary reduction agreement with Atmos 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
us to the Employee Stock Ownership Plan for the account of the participant.
Matching contributions to the Plan were expensed as incurred and amounted to
$3.2 million, $3.0 million, and $2.4 million for 2001, 2000 and 1999. 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 2001,
2000, nor 1999.
VARIABLE PAY PLAN
The Variable Pay Plan was created to give each employee an opportunity to
share in the success of Atmos based on certain criteria. Each fiscal year, we
establish key performance measures for the Variable Pay Plan. These performance
measures are considered critical to achieving business objectives for a given
year and may include such things as growth in earnings, improved cash flows or
crucial customer satisfaction and safety results. Each year a performance
measure is established, and we make accruals during the year of the expected
pay-out based on the best estimates available at that time.
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 Gas 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.
58
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Substantially all of our employees become eligible for these benefits if
they reach retirement age while working for us and attain certain specified
years of service. In addition, participant contributions are required under the
plan.
We record 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 for 2001 and 2000:
2001 2000
-------- --------
(IN THOUSANDS)
Change in benefit obligation:
Benefit obligation at beginning of year................... $ 63,029 $ 56,832
Service cost.............................................. 2,274 2,543
Interest cost............................................. 5,434 4,119
Plan participants' contributions.......................... 649 653
Actuarial loss............................................ 6,023 170
Acquisitions/divestitures................................. 10,402 2,593
Benefits paid............................................. (4,961) (3,881)
-------- --------
Benefit obligation at end of year......................... 82,850 63,029
Change in plan assets:
Fair value of plan assets at beginning of year............ 11,872 9,964
Actual return on plan assets.............................. (463) 809
Employer contributions.................................... 6,757 4,118
Plan participants' contributions.......................... 649 653
Acquisitions/divestitures................................. -- 209
Benefits paid............................................. (4,961) (3,881)
-------- --------
Fair value of plan assets at end of year.................. 13,854 11,872
-------- --------
Funded status............................................... (68,996) (51,157)
Unrecognized transition obligation.......................... 18,709 20,221
Unrecognized prior service cost............................. 2,054 2,574
Unrecognized net (gain) loss................................ 4,834 (2,306)
-------- --------
Accrued postretirement cost................................. $(43,399) $(30,668)
======== ========
2001 2000 1999
---- ---- ----
Weighted average assumptions for end of year disclosure:
Discount rate............................................. 7.5% 8.0% 7.5%
Expected return on plan assets............................ 5.3% 5.3% 5.3%
Initial trend rate........................................ 7.0% 8.0% 9.0%
Ultimate trend rate....................................... 5.0% 5.0% 5.0%
Number of years from initial to ultimate trend............ 3 4 5
59
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic postretirement cost, which is recorded as an operation
expense, for the combined postretirement benefit plans for 2001, 2000 and 1999
included the following components:
2001 2000 1999
------ ------ ------
(IN THOUSANDS)
Components of net periodic postretirement cost:
Service cost............................................. $2,274 $2,543 $2,150
Interest cost............................................ 5,434 4,119 4,360
Expected return on assets................................ (653) (540) (349)
Amortization of:
Transition obligation.................................... 1,511 1,511 1,511
Prior service cost....................................... 520 520 520
Actuarial (gain) loss.................................... -- (94) 648
------ ------ ------
Net periodic postretirement cost...................... $9,086 $8,059 $8,840
====== ====== ======
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... $ 607 $ (448)
Effect on postretirement benefit obligation............... $8,160 $(7,021)
We are currently recovering other postretirement benefits costs through our
regulated rates under Statement of Financial Accounting Standards No. 106
accrual accounting in Colorado, Kansas, the majority of the Texas service area
and Kentucky. We receive rate treatment as a cost of service item for other
postretirement benefits costs on the pay-as-you-go basis in Louisiana. Other
postretirement benefits costs have been specifically addressed in rate orders in
each jurisdiction served by the United Cities Gas Division or have been included
in a rate case and not disallowed. Management believes that accrual accounting
in accordance with Statement of Financial Accounting Standards 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 outstanding during
the period adjusted for restricted stock and other contingently issuable shares
of common stock. Net income for the years ended September 30, 2001, 2000 and
1999 for basic and diluted earnings per share are the same, as there were no
contingently issuable shares of stock whose issuance would have impacted
60
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
net income. A reconciliation between basic and diluted weighted average common
shares outstanding at September 30 follows:
2001 2000 1999
------ ------ ------
(IN THOUSANDS)
Weighted average common shares -- basic.................... 38,156 31,461 30,566
Effect of dilutive securities:
Restricted stock......................................... 79 125 238
Stock options............................................ 12 8 15
------ ------ ------
Weighted average common shares -- diluted.................. 38,247 31,594 30,819
====== ====== ======
10. STATEMENT OF CASH FLOWS SUPPLEMENTAL DISCLOSURES
Supplemental disclosures of cash flow information for 2001, 2000 and 1999
are presented below.
2001 2000 1999
------- ------- -------
(IN THOUSANDS)
Cash paid (received) for
Interest.............................................. $41,042 $46,243 $40,446
Income taxes.......................................... $16,808 $(7,989) $(7,184)
In connection with our transaction related to the sale of our propane
business (see Note 1 of notes to consolidated financial statements), we
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, we received net proceeds of $6.5 million and recorded a
gain on the transaction of $5.8 million.
In May 2000, we completed the acquisition, which was accounted for as a
purchase, of the Missouri natural gas distribution assets of Southwestern Energy
Company and subsequent thereto, its operations were included in our consolidated
results. We paid $32.0 million in connection with this acquisition. Of the $32.0
million paid in cash, we 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 $0.3 million and gas stored underground of $2.0
million. In addition, we recorded accounts payable of $0.2 million, taxes
payable of $0.4 million, customer deposits of $1.2 million and deferred credits
of $0.4 million.
In April 2001, we completed the acquisition, which was accounted for as a
purchase, of the remaining 55 percent of Woodward Marketing that we did not
already own in exchange for 1,423,193 restricted shares of our common stock.
Subsequent to the acquisition, Woodward Marketing's operations were included in
our consolidated results. Consideration given for the stock purchase was $26.7
million. In connection with the issuance of the stock for this acquisition, we
recorded property, plant and equipment of $2.1 million with a related
accumulated depreciation of $0.4 million, accounts receivable of $94.8 million,
gas stored underground of $10.7 million, assets from risk management activities
of $9.8 million, intangible assets of $0.2 million and goodwill of $12.3
million. In addition, we received $8.6 million in cash and $4.5 million of cash
held on deposit in margin accounts. We also reduced deferred charges and other
assets by $12.1 million which related to the net of the amounts received in the
purchase and the removal of the 45 percent equity investment we had in Woodward
Marketing which we had previously owned. Liabilities assumed in the acquisition
included $95.2 million in accounts payable, $0.5 million in customer deposits,
$7.3 million in other current liabilities and $0.8 million in deferred credits
and other liabilities.
In July 2001, we completed the acquisition, which was accounted for as a
purchase, of the natural gas operations of Louisiana Gas Service Company and LGS
Natural Gas Company. Subsequent to the
61
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquisition, the operations of Louisiana Gas Service and LGS Natural Gas were
included in our consolidated results. We paid $363.4 million in cash in
connection with this acquisition. We recorded property, plant and equipment of
$466.5 million with a related accumulated depreciation of $153.2 million,
accounts receivable of $18.1 million, gas stored underground of $12.4 million, a
deferred gas credit of $10.8 million, assets from risk management activities of
$11.7 million, noncurrent assets from risk management activities of $5.3 million
and deferred charges and other assets of $1.0 million. In addition, we recorded
intangible assets of $11.2 million, goodwill of $49.8 million and $9.0 million
in deferred tax assets. Liabilities assumed in the acquisition included $12.8
million in accounts payable, $16.0 million in customer deposits, $14.1 million
in liabilities from risk management activities, $3.1 million in other current
liabilities and $11.6 million in deferred credits and other liabilities.
11. SEGMENT INFORMATION
Our determination of reportable segments considers the strategic operating
units under which we manage sales of various products and services to customers
in differing regulatory environments. 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. We evaluate
performance based on net income or loss of the respective operating units.
In accordance with Statement of Financial Accounting Standards No. 131, we
have identified the Utility and Non-regulated segments, as described in Note 1.
We consider each business unit within our utility segment to be a reporting unit
of the utility segment and not a reportable segment. Our chief executive officer
makes decisions about allocating resources to the utility segment as a whole and
not to individual reporting units. The individual operations that comprise the
non-regulated segment are not currently material to our consolidated financial
position or results of operation and therefore do not require separate
reporting.
Summarized financial information concerning our reportable segments is
shown in the following table:
NON-
UTILITY REGULATED TOTAL
---------- --------- ----------
(IN THOUSANDS)
As of and for the year ended
September 30, 2001:
Operating revenues................................ $1,380,148 $ 67,382 $1,447,530
Intersegment revenues............................. 1,989 3,266 5,255
Depreciation and amortization..................... 65,614 2,050 67,664
Operating income.................................. 127,980 2,301 130,281
Equity in earnings of Woodward Marketing, L.L.C... -- 8,062 8,062
Interest charges, net............................. 45,313 1,698 47,011
Net income........................................ 49,881 6,209 56,090
Total assets...................................... 1,732,697 367,156 2,099,853
Equity investment in unconsolidated investee...... -- 23,840 23,840
Expenditures for additions to long-lived assets... 112,683 426 113,109
62
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NON-
UTILITY REGULATED TOTAL
---------- --------- ----------
(IN THOUSANDS)
As of and for the year ended
September 30, 2000:
Operating revenues................................ 739,951 118,855 858,806
Intersegment revenues............................. 5,116 3,538 8,654
Depreciation and amortization..................... 60,120 3,735 63,855
Operating income.................................. 77,207 8,109 85,316
Equity in earnings of Woodward Marketing, L.L.C... -- 7,307 7,307
Interest charges, net............................. 42,096 1,727 43,823
Net income........................................ 22,459 13,459 35,918
Total assets...................................... 1,253,023 112,294 1,365,317
Equity investment in unconsolidated investee...... -- 42,330 42,330
Expenditures for additions to long-lived assets... 105,012 1,128 106,140
As of and for the year ended
September 30, 1999:
Operating revenues................................ 621,211 76,360 697,571
Intersegment revenues............................. 3,898 3,477 7,375
Depreciation and amortization..................... 52,503 4,371 56,874
Operating income.................................. 49,000 5,239 54,239
Equity in earnings of Woodward Marketing, L.L.C... -- 7,156 7,156
Interest charges, net............................. 35,799 1,264 37,063
Net income........................................ 10,800 6,944 17,744
Total assets...................................... 1,152,469 94,627 1,247,096
Equity investment in unconsolidated investee...... -- 15,973 15,973
Expenditures for additions to long-lived assets... 108,454 1,899 110,353
The following table presents a reconciliation of the operating revenues to
total consolidated revenues for the years ended September 30, 2001, 2000 and
1999:
2001 2000 1999
---------- -------- --------
(IN THOUSANDS)
Total revenues for reportable segments.............. $1,447,530 $858,806 $697,571
Elimination of intersegment revenues................ (5,255) (8,654) (7,375)
---------- -------- --------
Total operating revenues....................... $1,442,275 $850,152 $690,196
========== ======== ========
A reconciliation of total assets for the reportable segments to total
consolidated assets for September 30, 2001, 2000 and 1999 is presented below:
2001 2000 1999
---------- ---------- ----------
(IN THOUSANDS)
Total assets for reportable segments............. $2,099,853 $1,365,317 $1,247,096
Elimination of intercompany accounts............. (63,673) (16,559) (16,559)
---------- ---------- ----------
Total consolidated assets................... $2,036,180 $1,348,758 $1,230,537
========== ========== ==========
63
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes our revenues by products and services for
the year ended September 30:
2001 2000 1999
---------- -------- --------
(IN THOUSANDS)
Gas sales revenues:
Residential....................................... $ 788,902 $405,552 $349,691
Commercial........................................ 342,945 176,712 144,836
Public authority and other........................ 58,539 27,198 22,330
Industrial........................................ 148,180 97,089 73,194
---------- -------- --------
Total gas sales revenues....................... 1,338,566 706,551 590,051
Transportation revenues............................. 28,668 23,610 23,035
Other gas revenues.................................. 10,925 4,674 4,227
---------- -------- --------
Total utility revenues......................... 1,378,159 734,835 617,313
Propane revenues.................................... -- 22,550 22,944
Non-Regulated revenues.............................. 64,116 92,767 49,939
---------- -------- --------
Total operating revenues....................... $1,442,275 $850,152 $690,196
========== ======== ========
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 (losses) on investments,
net." All marketable securities are held in rabbi trusts for the Supplemental
Executive Benefits Plans.
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, 2001:
Available-for-sale securities:
Domestic equity mutual funds..................... $24,565 $(1,496) $23,069
Foreign equity mutual funds...................... 2,845 (804) 2,041
------- ------- -------
$27,410 $(2,300) $25,110
======= ======= =======
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
======= ======= =======
13. LEASES
We have entered into non-cancelable operating leases for office and
warehouse space used in our operations. The remaining lease terms range from one
to 17 years and generally provide for the payment of taxes, insurance and
maintenance by the lessee. We have also entered into capital leases for division
offices
64
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and operating facilities. Property, plant and equipment included amounts for
capital leases of $5.2 million and $4.6 million at September 30, 2001 and 2000.
Accumulated depreciation for these capital leases totaled $1.9 million and $1.4
million at September 30, 2001 and 2000.
The related future minimum lease payments at September 30, 2001 were as
follows:
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
2002........................................................ $ 876 $ 9,127
2003........................................................ 876 8,361
2004........................................................ 876 8,169
2005........................................................ 843 7,992
2006........................................................ 433 7,494
Thereafter.................................................. 2,726 24,880
------- -------
Total minimum lease payments................................ 6,630 $66,023
=======
Less amount representing interest........................... (3,297)
-------
Present value of net minimum lease payments................. $ 3,333
=======
Consolidated lease and rental expense amounted to $5.9 million, $9.0
million and $10.6 million for fiscal 2001, 2000 and 1999. Rents for the
regulated business are expensed, and we receive 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 Woodward Marketing of
$525.6 million, $228.6 million and $117.4 million in 2001, 2000 and 1999.
Volumes purchased were 96.3 Bcf, 74.4 Bcf and 50.9 Bcf in 2001, 2000 and 1999.
These purchases were made in a competitive open bidding process and reflect
market prices. Average prices per Mcf for gas purchased from Woodward Marketing
were $5.46, $3.07 and $2.31 in 2001, 2000 and 1999. In addition, we have entered
into contracts with Woodward Marketing to manage a significant portion of our
underground storage facilities. Woodward Marketing has acted as agent in placing
financial instruments for the various business units that protect us and our
customers from unusually large winter period gas price increases.
15. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Effective October 1, 2000, we adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended. This Statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that all
derivative financial instruments be recognized in the financial statements and
measured at fair value regardless of the purpose or intent for holding them.
Changes in the fair value of derivative financial instruments are either
recognized periodically in income or as deferred gas costs, depending on the
classification of the derivative. Derivative instruments may be classified as
either fair value hedges or cash flow hedges. The cumulative effect of the
change in accounting for the adoption of this Statement did not have a material
impact on our financial position, results of operations or cash flows.
65
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
WEATHER HEDGES AND INSURANCE
In July 2000, we entered into an agreement to purchase weather hedges for
our Texas and Louisiana operations effective for the 2000-2001 heating season.
The hedges were designed to help mitigate the effects of weather that was at
least seven percent warmer than normal in both Texas and Louisiana while
preserving any upside. The cost of the weather hedges was approximately $4.9
million which was amortized over the 2000-2001 heating season.
In June 2001, we purchased a three year weather insurance policy with an
option to cancel in the third year if we obtain weather protection in our rate
structures. The policy is for our Texas and Louisiana operations and covers the
entire heating season of October to March beginning with the 2001-2002 heating
season. The cost of the three year policy was approximately $13.2 million which
was prepaid and will be amortized over the appropriate heating seasons based on
degree days. The insurance is designed to protect against weather that is at
least seven percent warmer than normal.
UTILITY HEDGING ACTIVITIES
We have historically hedged 20 percent of our gas supply through the use of
our underground storage assets. This hedging process will continue. For the
2001-2002 heating season, we plan to cover approximately 64 percent of our
anticipated flowing gas requirements through storage and futures and fixed
forward contracts at a weighted average cost of slightly less than $4.00 per
Mcf. This should provide protection to us and our customers against sharp
increases in the price of natural gas during the 2001-2002 heating season.
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. Our businesses are seasonal due to weather conditions in
our 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.
QUARTER ENDED
------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
----------- -------- -------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR 2001
Operating revenues................... $442,790 $675,113 $164,260 $160,112
Gross profit......................... 109,948 138,324 61,279 65,169
Operating income..................... 48,941 73,891 3,174 4,275
Net income (loss).................... 22,972 44,074 (3,400) (7,556)
Net income (loss) per share.......... .70 1.13 (.08) (.19)
QUARTER ENDED
------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
----------- -------- -------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR 2000
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)
66
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 13, 2002. 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 13, 2002.
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 13, 2002.
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 13, 2002.
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 10.21(a) through 10.32(b) are management
contracts or compensatory plans or arrangements.
(b) Reports on Form 8-K
The Company filed a Form 8-K Current Report, Item 2, Acquisition or
Disposition of Assets, dated July 1, 2001, announcing that it had acquired the
assets of the Louisiana Gas Service Company division of Citizens Communications
Company as well as the assets of LGS Natural Gas Company, a wholly-owned
subsidiary of Citizens, effective July 1, 2001.
Under Item 7, Financial Statements and Exhibits, a description that the
financial statements of the business acquired and pro forma financial
information would be filed within 60 days of the required filing date of this
Form 8-K. Also, an exhibit was attached: a copy of a related press release dated
July 2, 2001.
The Company filed a Form 8-K/A Current Report (Amendment No. 1), Item 7
Financial Statements and Exhibits, dated July 1, 2001, disclosing the required
financial statements of the business acquired and pro forma financial
information relating to the acquisition of the assets of the Louisiana Gas
Service Company division of Citizens Communications Company as well as the
assets of LGS Natural Gas Company, a wholly-owned subsidiary of Citizens.
67
The Company filed a Form 8-K Current Report, Item 5, Other Events, dated
September 24, 2001, announcing that the Company had entered into a definitive
agreement to acquire Mississippi Valley Gas Company, a privately-held natural
gas utility company for $150.0 million in stock and cash as well as the
assumption of approximately $45.0 million of outstanding debt, net of working
capital.
Under Item 7, Financial Statements and Exhibits, an exhibit was attached: a
copy of a related press release dated September 24, 2001.
68
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 20, 2001
69
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 Chief November 20, 2001
--------------------------------------------------- Executive Officer
Robert W. Best
/s/ JOHN P. REDDY Senior Vice President and November 20, 2001
--------------------------------------------------- Chief Financial Officer
John P. Reddy
/s/ F.E. MEISENHEIMER Vice President and Controller November 20, 2001
--------------------------------------------------- (Principal Accounting
F.E. Meisenheimer Officer)
/s/ TRAVIS W. BAIN, II Director November 20, 2001
---------------------------------------------------
Travis W. Bain, II
/s/ DAN BUSBEE Director November 20, 2001
---------------------------------------------------
Dan Busbee
/s/ RICHARD W. CARDIN Director November 20, 2001
---------------------------------------------------
Richard W. Cardin
/s/ THOMAS J. GARLAND Director November 20, 2001
---------------------------------------------------
Thomas J. Garland
/s/ RICHARD K. GORDON Director November 20, 2001
---------------------------------------------------
Richard K. Gordon
/s/ GENE C. KOONCE Director November 20, 2001
---------------------------------------------------
Gene C. Koonce
/s/ THOMAS C. MEREDITH Director November 20, 2001
---------------------------------------------------
Thomas C. Meredith
/s/ PHILLIP E. NICHOL Director November 20, 2001
---------------------------------------------------
Phillip E. Nichol
/s/ CARL S. QUINN Director November 20, 2001
---------------------------------------------------
Carl S. Quinn
70
/s/ CHARLES K. VAUGHAN Director November 20, 2001
---------------------------------------------------
Charles K. Vaughan
/s/ RICHARD WARE II Director November 20, 2001
---------------------------------------------------
Richard Ware II
71
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
(ITEM 8, 14(A) 1 AND 2)
FORM 10-K
PAGE NO.
---------
Report of independent auditors.............................. 32
Financial statements and supplementary data:
Consolidated balance sheets at September 30, 2001 and
2000................................................... 33
Consolidated statements of income for the years ended
September 30, 2001, 2000 and 1999...................... 34
Consolidated statements of shareholders' equity for the
years ended September 30, 2001, 2000 and 1999.......... 35
Consolidated statements of cash flows for the years ended
September 30, 2001, 2000 and 1999...................... 36
Notes to consolidated financial statements................ 37
Supplementary Quarterly Financial Data (unaudited)........ 66
Financial statement schedule for the years ended September
30, 2001, 2000 and 1999
II. Valuation and Qualifying Accounts.................. 73
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.
72
SCHEDULE II
ATMOS ENERGY CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED SEPTEMBER 30, 2001
(IN THOUSANDS)
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COST & OTHER AT END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
---------- ---------- ---------- ---------- ---------
2001
Allowance for doubtful accounts....... $10,589 $26,226 -- $20,664(1) $16,151
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
---------------
(1) Uncollectible accounts written off
73
EXHIBITS INDEX
ITEM 14.(A)(3)
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
------- ----------- ----------------
Plan of Reorganization
2.1 Purchase and Sale Agreement (Louisiana Gas Exhibit 2.1 to Registration
Operations), by and among Citizens Utilities Statement on Form S-3/A filed
Company (now known as Citizens Communications November 6, 2000 (File No.
Company), LGS Natural Gas Company and Atmos Energy 333-73705)
Corporation, dated as of April 13, 2000
2.2 Agreement and Plan of Merger and Reorganization
dated as of September 21, 2001, by and among Atmos
Energy Corporation, Mississippi Valley Gas Company
and the Shareholders Named on the Signature Pages
hereto
Articles of Incorporation and Bylaws
3.1(a) Restated Articles of Incorporation of the Company, Exhibit 3.1 of Form 10-K for
as Amended (as of July 31, 1997) fiscal year ended September
30, 1997 (File No. 1-10042)
3.1(b) Articles of Amendment to the Restated Articles of Exhibit 3a of Form 10-Q for
Incorporation of Atmos Energy Corporation as quarter ended March 31, 1999
Amended (Texas) (File No. 1-10042)
3.1(c) Articles of Amendment to the Restated Articles of Exhibit 3b of Form 10-Q for
Incorporation of Atmos Energy Corporation as quarter ended March 31, 1999
Amended (Virginia) (File No. 1-10042)
3.2(a) Bylaws of the Company (Amended and Restated as of Exhibit 3.2 of Form 10-K for
November 12, 1997) fiscal year ended September
30, 1997 (File No. 1-10042)
3.2(b) Amendment No. 1 to Bylaws of Atmos Energy Exhibit 3.1 of Form 10-Q for
Corporation (Amended and Restated as of November quarter ended March 31, 2001
12, 1997) (File No. 1-10042)
Instruments Defining Rights of Security Holders
4.1 Specimen Common Stock Certificate (Atmos Energy Exhibit (4)(b) of Form 10-K
Corporation) for fiscal year ended
September 30, 1988 (File No.
1-10042)
4.2 Rights Agreement, dated as of November 12, 1997, Exhibit 4.1 of Form 8-K dated
between the Company and BankBoston, N.A., as Rights November 12, 1997 (File No.
Agent 1-10042)
4.3 First Amendment to Rights Agreement dated as of Exhibit 2 of Form 8-A,
August 11, 1999, between the Company and Amendment No. 1, dated August
BankBoston, N.A., as Rights Agent 12, 1999 (File No. 1-10042)
4.4 Form of Indenture between Atmos Energy Corporation Exhibit 4.1 to Registration
and U.S. Bank Trust National Association, Trustee Statement on Form S-3 filed
April 20, 1998 (File No.
333-50477)
4.5 Indenture between Atmos Energy Corporation, as Exhibit 99.3 of Form 8-K
Issuer, and Suntrust Bank, Trustee dated as of May dated May 15, 2001 (File No.
22, 2001 1-10042)
74
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
------- ----------- ----------------
4.6(a) Indenture of Mortgage, dated as of July 15, 1959, Exhibit to Registration
from United Cities Gas Company to First Trust of Statement of United Cities
Illinois, National Association, and M.J. Kruger, as Gas Company on Form S-3 (File
Trustees, as amended and supplemented through No. 33-56983)
December 1, 1992 (the Indenture of Mortgage through
the 20th Supplemental Indenture)
4.6(b) Twenty-First Supplemental Indenture dated as of Exhibit 10.7(a) of Form 10-K
February 5, 1997 by and among United Cities Gas for fiscal year ended
Company and Bank of America Illinois and First September 30, 1997 (File No.
Trust National Association and Russell C. Bergman 1-10042)
supplementing Indenture of Mortgage dated as of
July 15, 1959
4.6(c) Twenty-Second Supplemental Indenture dated as of Exhibit 10.7(b) of Form 10-K
July 29, 1997 by and among the Company and First for fiscal year ended
Trust National Association and Russell C. Bergman September 30, 1997 (File No.
supplementing Indenture of Mortgage dated as of 1-10042)
July 15, 1959
4.7(a) Form of Indenture between United Cities Gas Company Exhibit to Registration
and First Trust of Illinois, National Association, Statement of United Cities
as Trustee dated as of November 15, 1995 Gas Company on Form S-3 (File
No. 33-56983)
4.7(b) First Supplemental Indenture between the Company Exhibit 10.8(a) of Form 10-K
and First Trust of Illinois, National Association, for fiscal year ended
as Trustee dated as of July 29, 1997 September 30, 1997 (File No.
1-10042)
4.8(a) Seventh Supplemental Indenture, dated as of October Exhibit 10.1 of Form 10-Q for
1, 1983 between Greeley Gas Company ("The Greeley quarter ended June 30, 1994
Gas Division") and the Central Bank of Denver, N.A. (File No. 1-10042)
("Central Bank")
4.8(b) Ninth Supplemental Indenture, dated as of April 1, Exhibit 10.2 of Form 10-Q for
1991, between The Greeley Gas Division and Central quarter ended June 30, 1994
Bank (File No. 1-10042)
4.8(c) Tenth Supplemental Indenture, dated as of December Exhibit 10.4 of Form 10-Q for
1, 1993, between the Company and Colorado National quarter ended June 30, 1994
Bank, formerly Central Bank (File No. 1-10042)
9 Not Applicable
Material Contracts
10.1(a) Note Purchase Agreement, dated as of December 21, Exhibit 10(c) of Form 8-K
1987, by and between the Company and John Hancock filed January 7, 1988 (File
Mutual Life Insurance Company No. 0-11249)
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.)
75
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
------- ----------- ----------------
10.1(b) Amendment to Note Purchase Agreement, dated October Exhibit (10)(b)(ii) of Form
11, 1989, by and between the Company and John 10-K for fiscal year ended
Hancock Mutual Life Insurance Company revising Note September 30, 1989 (File No.
Purchase Agreement dated December 21, 1987 1-10042)
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.)
10.1(c) Amendment to Note Purchase Agreement, dated Exhibit 10(b)(iii) of Form
November 12, 1991, by and between the Company and 10-K for fiscal year ended
John Hancock Mutual Life Insurance Company revising September 30, 1991 (File No.
Note Purchase Agreement dated December 21, 1987 1-10042)
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, dated Exhibit 4.3(d) to
December 22, 1993, by and between the Company and Registration Statement on
John Hancock Mutual Life Insurance Company revising Form S-3 filed April 20, 1998
Note Purchase Agreement dated December 21, 1987 (File No. 333-50477)
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,
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)
76
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
------- ----------- ----------------
10.1(e) Amendment to Note Purchase Agreement, dated Exhibit 4.3(e) to
December 20, 1994, by and between the Company and Registration Statement on
John Hancock Mutual Life Insurance Company revising Form S-3 filed April 20, 1998
Note Purchase Agreement dated December 21, 1987 (File No. 333-50477)
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, dated July Exhibit 4.3(f) to
29, 1997, by and between the Company and John Registration Statement on
Hancock Mutual Life Insurance Company revising Note Form S-3 filed April 20, 1998
Purchase Agreement dated December 21, 1987 (File No. 333-50477)
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 October 11, Exhibit 10(c) of Form 10-K
1989, by and between the Company and John Hancock for fiscal year ended
Mutual Life Insurance Company September 30, 1989 (File No.
1-10042)
10.2(b) Amendment to Note Purchase Agreement, dated as of Exhibit 10(c)(ii) of Form
November 12, 1991, by and between the Company and 10-K for fiscal year ended
John Hancock Mutual Life Insurance Company revising September 30, 1991 (File No.
Note Purchase Agreement dated October 11, 1989 1-10042)
10.2(c) Amendment to Note Purchase Agreement, dated Exhibit 4.4(c) to
December 22, 1993, by and between the Company and Registration Statement on
John Hancock Mutual Life Insurance Company revising Form S-3 filed April 20, 1998
Note Purchase Agreement dated October 11, 1989 (File No. 333-50477)
10.2(d) Amendment to Note Purchase Agreement, dated Exhibit 4.4(d) to
December 20, 1994, by and between the Company and Registration Statement on
John Hancock Mutual Life Insurance Company revising Form S-3 filed April 20, 1998
Note Purchase Agreement dated October 11, 1989 (File No. 333-50477)
10.2(e) Amendment to Note Purchase Agreement, dated July Exhibit 4.4(e) to
29, 1997, by and between the Company and John Registration Statement on
Hancock Mutual Life Insurance Company revising Note Form S-3 filed April 20, 1998
Purchase Agreement dated October 11, 1989 (File No. 333-50477)
10.3(a) Note Purchase Agreement, dated as of August 29, Exhibit 10(f)(i) of Form 10-K
1991, by and between the Company and The Variable for fiscal year ended
Annuity Life Insurance Company September 30, 1991 (File No.
1-10042)
77
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
------- ----------- ----------------
10.3(b) Amendment to Note Purchase Agreement, dated Exhibit 10(f)(ii) of Form
November 26, 1991, by and between the Company and 10-K for fiscal year ended
The Variable Annuity Life Insurance Company September 30, 1991 (File No.
revising Note Purchase Agreement dated August 29, 1-10042)
1991
10.3(c) Amendment to Note Purchase Agreement, dated Exhibit 4.5(c) to
December 22, 1993, by and between the Company and Registration Statement on
The Variable Annuity Life Insurance Company Form S-3 filed April 20, 1998
revising Note Purchase Agreement dated August 29, (File No. 333-50477)
1991
10.3(d) Amendment to Note Purchase Agreement, dated July Exhibit 4.5(d) to
29, 1997, by and between the Company and The Registration Statement on
Variable Annuity Life Insurance Company revising Form S-3 filed April 20, 1998
Note Purchase Agreement dated August 29, 1991 (File No. 333-50477)
10.4(a) Note Purchase Agreement, dated as of August 31, Exhibit (10)(f) of Form 10-K
1992, by and between the Company and The Variable for fiscal year ended
Annuity Life Insurance Company September 30, 1992 (File No.
1-10042)
10.4(b) Amendment to Note Purchase Agreement, dated Exhibit 4.6(b) to
December 22, 1993, by and between the Company and Registration Statement on
The Variable Annuity Life Insurance Company Form S-3 filed April 20, 1998
revising Note Purchase Agreement dated August 31, (File No. 333-50477)
1992
10.4(c) Amendment to Note Purchase Agreement, dated July Exhibit 4.6(c) to
29, 1997, by and between the Company and The Registration Statement on
Variable Annuity Life Insurance Company revising Form S-3 filed April 20, 1998
Note Purchase Agreement dated August 31, 1992 (File No. 333-50477)
10.5(a) Note Purchase Agreement, dated November 14, 1994, Exhibit 10.1 of Form 10-Q for
by and among the Company and New York Life quarter ended December 31,
Insurance Company, New York Life Insurance and 1994 (File No. 1-10042)
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, dated July Exhibit 4.7(b) to
29, 1997 by and among the Company and New York Life Registration Statement on
Insurance Company, New York Life Insurance and Form S-3 filed April 20, 1998
Annuity Corporation, The Variable Annuity Life (File No. 333-50477)
Insurance Company, American General Life Insurance
Company and Merit Life Insurance Company revising
Note Purchase Agreement dated November 14, 1994
10.6 Bond Purchase Agreement, dated as of April 1, 1991, Exhibit 10.3 of Form 10-Q for
between the Greeley Division and Central Bank quarter ended June 30, 1994
(File No. 1-10042)
10.7(a) Purchase Agreement for 6 3/4% Debentures due 2028 Exhibit 99.1 of Form 8-K
by and among Merrill Lynch Co., NationsBanc dated July 22, 1998 (File No.
Montgomery Securities LLC, Edward D. Jones & Co., 1-10042)
L.P. and Atmos Energy Corporation dated July 22,
1998
10.7(b) Purchase Agreement for 7 3/8% Senior Notes due 2011 Exhibit 99.1 of Form 8-K
by and among Banc of America Securities LLC, Banc dated May 15, 2001 (File No.
One Capital markets, Inc, First Union Securities, 1-10042)
Inc, Fleet Securities, Inc, SG Cowen Securities
Corporation and Atmos Energy Corporation dated May
15, 2001
78
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
------- ----------- ----------------
10.7(c) Purchase Agreement for 6,741,500 Shares of Common Exhibit 99.1 of Form 8-K
Stock (No Par Value) by and among Merrill Lynch, dated December 14, 2000 (File
Pierce, Fenner & Smith Incorporated, UBS Warburg No. 1-10042)
LLC, A.G. Edwards & Sons, Inc, Edward D. Jones &
Co., L.P. and Atmos Energy Corporation dated
December 14, 2000
10.8(a) Amended and Restated Revolving Credit Agreement,
dated as of August 2, 2001, among Atmos Energy
Corporation, Bank of America, N.A., Bank One, NA,
Societe Generale, First Union National Bank and
Fleet National Bank
10.8(b) Credit Agreement, dated to be effective as of Exhibit 10.2 to Registration
August 9, 2000, among Woodward Marketing, L.L.C., Statement on Form S-3/A filed
and Bank of America, N.A. November 6, 2000 (File No.
333-93705)
10.8(c) Guaranty, effective as of August 9, 2000, by Atmos Exhibit 10.3 to Registration
Energy Marketing, LLC, in favor of Bank of America, Statement on Form S-3/A filed
N.A. November 6, 2000 (File No.
333-93705)
10.8(d) First Amendment to Credit Agreement and Guaranty of Exhibit 10.4 to Registration
Atmos Energy Marketing, LLC, effective as of Statement on Form S-3/A filed
September 29, 2000, among Woodward Marketing, November 6, 2000 (File No.
L.L.C., Bank of America, N.A., Woodward Marketing, 333-93705)
Inc., Atmos Energy Marketing, LLC, J.D. Woodward
and James Kifer
10.8(e) Second Amended and Restated Guaranty of Atmos
Energy Marketing, LLC, effective as of December 22,
2000, among Bank of America, N.A. and Atmos Energy
Marketing, LLC
10.8(f) Second Amendment to Credit Agreement, effective as
of November 3, 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
10.8(g) Third Amendment to Credit Agreement, effective as
of December 7, 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
10.8(h) Fourth Amendment to Credit Agreement, effective as
of December 22, 2000, among Woodward Marketing,
L.L.C., Bank of America, N.A., BNP Paribas,
Woodward Marketing, Inc., Atmos Energy Marketing,
LLC, J.D. Woodward and James Kifer
10.8(i) Fifth Amendment to Credit Agreement, effective as
of December 31, 2000, among Woodward Marketing,
L.L.C., Bank of America, N.A., BNP Paribas and
Atmos Energy Marketing, LLC
10.8(j) Sixth Amendment to Credit Agreement, effective as
of June 29, 2001, among Woodward Marketing, L.L.C.,
Bank of America, N.A., BNP Paribas and Atmos Energy
Marketing, LLC
79
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
------- ----------- ----------------
Gas Supply Contracts
10.9(a) Firm Gas Transportation Agreement No. 123535 dated Exhibit 10.10(a) of Form 10-K
November 1, 1998 between Greeley Gas Company and for fiscal year ended
Public Service Company of Colorado September 30, 1999 (File No.
1-10042)
10.9(b) Transportation Storage Service Agreement No. Exhibit 10.6(b) of Form 10-K
TA-0544 between Greeley Gas Company and Williams for fiscal year ended
Natural Gas Company dated October 1, 1993, as September 30, 1994 (File No.
amended to extend to October 1, 2003 1-10042)
10.9(c) Firm Transportation Service Agreement No.
33182000C, Rate Schedule TF-1, between Colorado
Interstate Gas Company and Greeley Gas Company
dated October 1, 2001
10.9(d) No-Notice Storage and Transportation Delivery
Service Agreement No. 31044000, Rate Schedule
NNT-1, between Colorado Interstate Gas Company and
Greeley Gas Company dated October 1, 2001
10.9(e) Transportation-Storage Contract No. TA-0614 Exhibit 10.6 of Form 10-Q for
(Request 0180) between Greeley Gas Company quarter ended March 31, 1998
(transferred from United Cities Gas Company (File No. 1-10042)
effective January 1, 2000) and Williams Natural Gas
Company dated October 1, 1993, as amended to extend
to October 1, 2002
10.9(f) Transportation-Storage Contract No. TA-0611 Exhibit 10.7 of Form 10-Q for
(Request 0002) between Greeley Gas Company quarter ended March 31, 1998
(transferred from United Cities Gas Company (File No. 1-10042)
effective January 1, 2000) and Williams Natural Gas
Company dated October 1, 1993, as amended to extend
to October 1, 2003
10.10(a) Agreement for Firm Intrastate Transportation of Exhibit 10.1 of Form 10-Q for
Natural Gas in the State of Louisiana between Trans quarter ended March 31, 1998
La (now known as Atmos Energy Louisiana) and (File No. 1-10042)
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
10.10(b) Agreement for Firm 311(a)(2) Transportation of Exhibit 10.2 of Form 10-Q for
Natural Gas in the State of Louisiana between Trans quarter ended March 31, 1998
La (now known as Atmos Energy Louisiana) and (File No. 1-10042)
Louisiana Intrastate Gas Company L.L.C. (LIG) dated
December 22, 1997 and effective July 1, 1997
10.11(a) Gas Transportation Agreement between Texas Gas and Exhibit 10.3 of Form 10-Q for
Western Kentucky Gas dated November 1, 1993 quarter ended December 31,
(Contract no. T3355, zone 3), as amended to extend 1993 (File No. 1-10042)
to November 1, 2004
10.11(b) Gas Transportation Agreement between Texas Gas and Exhibit 10.4 of Form 10-Q for
Western Kentucky Gas dated November 1, 1993 quarter ended December 31,
(Contract no. T3819, zone 4), as amended to extend 1993 (File No. 1-10042)
to November 1, 2004
10.11(c) Gas Transportation Agreement between Texas Gas and Exhibit 10.5 of Form 10-Q for
Western Kentucky Gas dated November 1, 1993 quarter ended December 31,
(Contract no. N0210, zone 2, Contract no. N0340, 1993 (File No. 1-10042)
zone 3, Contract no. N0435, zone 4), as amended to
extend to November 1, 2004
80
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
------- ----------- ----------------
10.12(a) Gas Transportation Agreement, Contract No. 2550, Exhibit 10.17(a) of Form 10-K
dated September 1, 1993, between Tennessee Gas for fiscal year ended
Pipeline Company, a division of Tenneco, Inc. September 30, 1993 (File No.
("Tennessee Gas"), and Western Kentucky, 1-10042)
Campbellsville Service Area, as amended to extend
to November 1, 2002
10.12(b) Gas Transportation Agreement, Contract No. 2546, Exhibit 10.17(b) of Form 10-K
dated September 1, 1993, between Tennessee Gas and for fiscal year ended
Western Kentucky, Danville Service Area, as amended September 30, 1993 (File No.
to extend to November 1, 2002 1-10042)
10.12(c) Gas Transportation Agreement, Contract No. 2385, Exhibit 10.17(c) of Form 10-K
dated September 1, 1993, between Tennessee Gas and for fiscal year ended
Western Kentucky, Greensburg et al Service Area, as September 30, 1993 (File No.
amended to extend to November 1, 2002 1-10042)
10.12(d) Gas Transportation Agreement, Contract No. 2551, Exhibit 10.17(d) of Form 10-K
dated September 1, 1993, between Tennessee Gas and for fiscal year ended
Western Kentucky, Harrodsburg Service Area, as September 30, 1993 (File No.
amended to extend to November 1, 2002 1-10042)
10.12(e) Gas Transportation Agreement, Contract No. 2548, Exhibit 10.17(e) of Form 10-K
dated September 1, 1993, between Tennessee Gas and for fiscal year ended
Western Kentucky, Lebanon Service Area, as amended September 30, 1993 (File No.
to extend to November 1, 2002 1-10042)
10.13 Gas Service Agreement (Service for Firm Exhibit 10.5 of Form 10-Q for
Transportation) between Energas and Oneok Gas quarter ended December 31,
Transmission, Inc., (now known as Oneok WesTex 1996 (File No. 1-10042)
Transmission, Inc.) dated January 1, 1996, as
assigned by KN to Oneok effective April 6, 2000
10.14 Gas Service Agreement (Service for Firm Exhibit 10.7 of Form 10-Q for
Transportation) between Oneok Gas Transmission, quarter ended December 31,
Inc. (now known as Oneok WesTex Transmission, Inc.) 1996 (File No. 1-10042)
and EnerMart Trust (now known as EnerMart Energy
Services Trust) dated January 1, 1996, as assigned
by KN to Oneok effective April 6, 2000 (Irrigation)
10.15 Amarillo Supply Agreement dated January 2, 1993 Exhibit 10.7(a) of Form 10-K
between Energas and Pioneer Natural Resources, USA, for fiscal year ended
Inc. (formerly Mesa Operating Company) September 30, 1994 (File No.
1-10042)
10.16 Gas Sales Agreement (Swing) between Energas and Exhibit 10.13 of Form 10-Q
Oneok Energy Trading & Marketing Company, formerly for quarter ended December
KN Marketing, dated January 1, 1996, as assigned by 31, 1996 (File No. 1-10042)
KN to Oneok effective April 6, 2000
10.17 Operating Agreement between Energas and Oneok Gas Exhibit 10.16 of Form 10-Q
Transmission, Inc. (now known as Oneok WesTex for quarter ended December
Transmission, Inc.), effective December 1, 1996, as 31, 1996 (File No. 1-10042)
assigned by KN to Oneok effective April 6, 2000
10.18(a) Gas Transportation Agreement No. 30774, Rate Exhibit 10.1 of Form 10-Q for
Schedules FT-A and FT-GS, between United Cities Gas quarter ended December 31,
Company and East Tennessee Natural Gas Company 1999 (File No. 1-10042)
dated October 1, 1999
10.18(b) Gas Transportation Agreement No. 27311 between Exhibit 10.20(c) of Form 10-K
United Cities Gas Company and Tennessee Gas for fiscal year ended
Pipeline Company dated November 1, 2000 September 30, 2000 (File No.
1-10042)
81
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
------- ----------- ----------------
10.18(c) Service Agreement No. 867760, under Rate Schedule Exhibit 10.8 of Form 10-Q for
FT, between United Cities Gas Company and Southern quarter ended March 31, 1998
Natural Gas Company dated November 1, 1993, as (File No. 1-10042)
amended to extend to November 1, 2005
10.18(d) Service Agreement No. 867761 under Rate Schedule Exhibit 10.9 of Form 10-Q for
FT-NN between United Cities Gas Company and quarter ended March 31, 1998
Southern Natural Gas Company dated November 1, (File No. 1-10042)
1993, as amended to extend to November 1, 2005
10.18(e) FTS-1 Service Agreement No. 59572 between United Exhibit 10.20(f) of Form 10-K
Cities Gas Company and Columbia Gulf Transmission for fiscal year ended
Company dated November 1, 1998 September 30, 2000 (File No.
1-10042)
10.18(f) Gas Transportation Agreement No. 34538 (Rocky Top Exhibit 10.20(g) of Form 10-K
Expansion) between United Cities Gas Company and for fiscal year ended
East Tennessee Natural Gas Company dated November September 30, 2000 (File No.
1, 2000 1-10042)
Asset Purchase Agreements
10.19 Asset Sale and Purchase Agreement by and among Exhibit 99.2 of Form 8-K
Southwestern Energy Company, Arkansas Western Gas dated May 31, 2000 (File No.
Company and Atmos Energy Corporation dated as of 1-10042)
October 15, 1999
10.20 Asset Purchase Agreement by and among Atmos Energy Exhibit 10.1 to Registration
Corporation, Atmos Energy Marketing, LLC, Woodward Statement on Form S-3/A filed
Marketing, Inc., J.D. and Linda Woodward and James November 6, 2000 (File No.
and Rita B. Kifer dated as of August 7, 2000 333-93705)
Executive Compensation Plans and Arrangements
10.21(a)* Form of Atmos Energy Corporation Change in Control Exhibit 10.21(b) of Form 10-K
Severance Agreement -- Tier I for fiscal year ended
September 30, 1998 (File No.
1-10042)
10.21(b)* Form of Atmos Energy Corporation Change in Control Exhibit 10.21(c) of Form 10-K
Severance Agreement -- Tier II for fiscal year ended
September 30, 1998 (File No.
1-10042)
10.22* Atmos Energy Corporation Long Term Stock Plan for Exhibit 99.1 of Form S-8
the United Cities Gas Company Division filed July 29, 1997 (File No.
333-32343)
10.23(a)* Atmos Energy Corporation Executive Retiree Life Exhibit 10.31 of Form 10-K
Plan for fiscal year ended
September 30, 1997 (File No.
1-10042)
10.23(b)* Amendment No. 1 to The Atmos Energy Corporation Exhibit 10.31(a) of Form 10-K
Executive Retiree Life Plan for fiscal year ended
September 30, 1997 (File No.
1-10042)
10.24(a)* Description of Financial and Estate Planning Exhibit 10.25(b) of Form 10-K
Program for fiscal year ended
September 30, 1997 (File No.
1-10042)
82
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
------- ----------- ----------------
10.24(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)
10.25(a)* Atmos Energy Corporation Supplemental Executive Exhibit 10.26 of Form 10-K
Benefits Plan, Amended and Restated in its Entirety for fiscal year ended
August 12, 1998 September 30, 1998 (File No.
1-10042)
10.25(b)* Atmos Energy Corporation Performance-Based Exhibit 10.32 of Form 10-K
Supplemental Executive Benefits Plan, Effective for fiscal year ended
Date August 12, 1998 September 30, 1998 (File No.
1-10042)
10.25(c)* Amendment Number One to the Atmos Energy Exhibit 10.2 of Form 10-Q for
Corporation Performance-Based Supplemental quarter ended December 31,
Executive Benefits Plan, Effective Date January 1, 2000 (File No. 1-10042)
1999
10.25(d)* Atmos Energy Corporation Performance-Based Exhibit 10.1 of Form 10-Q for
Supplemental Executive Benefits Plan Trust quarter ended December 31,
Agreement, Effective Date December 1, 2000 2000 (File No. 1-10042)
10.25(e)* Form of Individual Trust Agreement for the Exhibit 10.3 of Form 10-Q for
Supplemental Executive Benefits Plan quarter ended December 31,
2000 (File No. 1-10042)
10.26* Atmos Energy Corporation Restricted Stock Grant Exhibit 99.1 of Form S-8
Plan (Amended and Restated as of February 12, 1998) filed February 13, 1998 (File
No. 333-46337)
10.27* Atmos Energy Corporation Executive Nonqualified Exhibit 10.33 of Form 10-K
Deferred Compensation Plan for fiscal year ended
September 30, 1998 (File No.
1-10042)
10.28(a)* Consulting Agreement between the Company and Exhibit 10.2 of Form 10-Q for
Charles K. Vaughan, effective October 1, 1994 quarter ended June 30, 1997
(File No. 1-10042)
10.28(b)* Amendment No. 1 to Consulting Agreement between the Exhibit 10.3 of Form 10-Q for
Company and Charles K. Vaughan, dated May 14, 1997 quarter ended June 30, 1997
(File No. 1-10042)
10.28(c)* Amendment No. 2 to Consulting Agreement between the Exhibit 10.30(c) of Form 10-K
Company and Charles K. Vaughan, dated August 12, for fiscal year ended
1998 September 30, 1998 (File No.
1-10042)
10.28(d)* Amendment No. 3 to Consulting Agreement between the Exhibit 10.30(d) of Form 10-K
Company and Charles K. Vaughan, dated November 10, for fiscal year ended
1999 September 30, 1999 (File No.
1-10042)
10.28(e)* Amendment No. 4 to Consulting Agreement between the Exhibit 10.32(e) of Form 10-K
Company and Charles K. Vaughan, dated November 9, for fiscal year ended
2000 September 30, 2000 (File No.
1-10042)
10.28(f)* Mini-Med/Dental Benefit Extension Agreement dated
October 1, 1994
83
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
------- ----------- ----------------
10.28(g)* Amendment No. 1 to Mini-Med/Dental Benefit
Extension Agreement dated August 14, 2001
10.29* Atmos Energy Corporation Equity Incentive and Exhibit C of Definitive Proxy
Deferred Compensation Plan for Non-Employee Statement on Schedule 14A
Directors filed December 30, 1998 (File
No. 1-10042)
10.30(a)* Atmos Energy Corporation Retirement Plan for Exhibit 10(y) of Form 10-K
Outside Directors for fiscal year ended
September 30, 1992 (File No.
1-10042)
10.30(b)* Amendment No. 1 to the Atmos Energy Corporation Exhibit 10.2 of Form 10-Q for
Retirement Plan for Outside Directors quarter ended December 31,
1996 (File No. 1-10042)
10.31* Atmos Energy Corporation Outside Directors Exhibit 10.28 of Form 10-K
Stock-for-Fee Plan (Amended and Restated as of for fiscal year ended
November 12, 1997) September 30, 1997 (File No.
1-10042)
10.32(a)* Atmos Energy Corporation 1998 Long-Term Incentive Exhibit A of Definitive Proxy
Plan Statement on Schedule 14A
filed December 30, 1998 (File
No. 1-10042)
10.32(b)* Atmos Energy Corporation Annual Incentive Plan for Exhibit B of Definitive Proxy
Management 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, 2001
---------------
* This exhibit constitutes a "management contract or compensatory plan,
contract, or arrangement."
84