UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 1-10042
ATMOS ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS AND VIRGINIA 75-1743247
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1800 Three Lincoln Centre
5430 LBJ Freeway, Dallas, Texas 75240
(Address of principal executive offices) (Zip Code)
(972) 934-9227
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Number of shares outstanding of each of the issuer's classes of
common stock, as of February 1, 2000.
Class Shares Outstanding
----- ------------------
No Par Value 31,532,276
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)
December 31, September 30,
1999 1999
------------- -------------
ASSETS
Property, plant and equipment $1,565,924 $1,549,258
Less accum. depreciation and amort. 601,166 583,476
---------- ----------
Net property, plant and equipment 964,758 965,782
Current assets
Cash and cash equivalents 25,169 8,585
Accounts receivable, net 163,653 70,564
Inventories of supplies and mdse. 7,902 8,209
Gas stored underground 54,936 44,653
Prepayments 2,783 3,142
---------- ----------
Total current assets 254,443 135,153
Deferred charges and other assets 134,934 129,602
---------- ----------
$1,354,135 $1,230,537
LIABILITIES AND SHAREHOLDERS' EQUITY ========== ==========
Shareholders' equity
Common stock $ 157 $ 156
Additional paid-in capital 298,406 293,359
Retained earnings 88,630 83,231
Accumulated other comprehensive
income 2,362 917
---------- ----------
Total shareholders' equity 389,555 377,663
Long-term debt 372,815 377,483
---------- ----------
Total capitalization 762,370 755,146
Current liabilities
Current maturities of long-term debt 15,519 17,848
Short-term debt 249,386 168,304
Accounts payable 95,040 64,167
Taxes payable 529 848
Customers' deposits 8,369 9,657
Other current liabilities 23,230 25,951
---------- ----------
Total current liabilities 392,073 286,775
Deferred income taxes 121,944 112,610
Deferred credits and other liabilities 77,748 76,006
---------- ----------
$1,354,135 $1,230,537
========== ==========
See accompanying notes to condensed consolidated financial
statements.
ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
Three months ended December 31,
-------------------------------
1999 1998
-------- --------
Operating revenues $224,458 $210,227
Purchased gas cost 134,908 119,019
-------- --------
Gross profit 89,550 91,208
Operating expenses
Operation 33,082 35,878
Maintenance 2,342 2,671
Depreciation and amortization 16,500 13,600
Taxes, other than income 7,485 7,371
-------- --------
Total operating expenses 59,409 59,520
-------- --------
Operating income 30,141 31,688
Other income 3,958 1,720
Interest charges, net 11,217 9,073
-------- --------
Income before income taxes 22,882 24,335
Income taxes 8,558 8,955
-------- --------
Net income $ 14,324 $ 15,380
======== ========
Basic net income per share $ .46 $ .51
======== ========
Diluted net income per share $ .46 $ .50
======== ========
Cash dividends per share $ .285 $ .275
======== ========
Weighted average
shares outstanding:
Basic 31,122 30,273
======== ========
Diluted 31,339 30,516
======== ========
See accompanying notes to condensed consolidated financial
statements.
ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Three months ended
December 31,
--------------------
1999 1998
-------- --------
Cash Flows From Operating Activities
Net income $14,324 $ 15,380
Adjustments to reconcile net income
to net cash used by operating
activities:
Depreciation and amortization:
Charged to depreciation and
amortization 16,500 13,600
Charged to other accounts 1,151 1,020
Deferred income taxes 8,511 2,180
Net change in operating assets and
liabilities (77,483) (53,027)
-------- --------
Net cash used by operating activities (36,997) (20,847)
Cash Flows From Investing Activities
Capital expenditures (17,472) (19,900)
Retirements of property, plant and
equipment 845 (1,064)
-------- --------
Net cash used in investing activities (16,627) (20,964)
Cash Flows From Financing Activities
Net increase in short-term debt 81,082 101,594
Cash dividends paid (8,925) (8,392)
Repayment of long-term debt (6,997) (47,944)
Issuance of common stock 5,048 6,538
-------- --------
Net cash provided by
financing activities 70,208 51,796
-------- --------
Net increase in cash and cash equivalents 16,584 9,985
Cash and cash equivalents at beginning
of period 8,585 4,735
-------- --------
Cash and cash equivalents at end
of period $25,169 $ 14,720
======== ========
See accompanying notes to condensed consolidated financial
statements.
ATMOS ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 1999
1. Unaudited interim financial information
In the opinion of management, all material adjustments
necessary for a fair presentation have been made to the unaudited
interim period financial statements. Such adjustments consisted
only of normal recurring accruals. Because of seasonal and other
factors, the results of operations for the three month period
ended December 31, 1999 are not indicative of expected results of
operations for the year ending September 30, 2000. These interim
financial statements and notes are condensed as permitted by the
instructions to Form 10-Q, and should be read in conjunction with
the audited consolidated financial statements of Atmos Energy
Corporation ("Atmos" or the "Company") in its 1999 Annual Report
on Form 10-K.
Common stock - As of December 31, 1999, the Company had
100,000,000 shares of common stock, no par value (stated at $.005
per share), authorized and 31,489,280 shares outstanding. At
September 30, 1999, the Company had 31,247,800 shares
outstanding.
Comprehensive income - In accordance with Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income", the Company is required to report
comprehensive income and its components (revenues, expenses,
gains and losses) in any complete presentation of general purpose
financial statements. Comprehensive income includes all changes,
except those resulting from investments by owners and distribu
tions 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.
The following table presents the components of comprehensive
income, net of related tax, for the three-month period ended
December 31, 1999.
Three months ended
December 31,1999
--------------
(In thousands)
Net income $14,324
Unrealized holding gains on
investments 1,445
-------
Comprehensive income $15,769
=======
The only component of accumulated other comprehensive
income, net of related tax, at December 31, 1999, relates to
unrealized gains and losses associated with certain available for
sale investments. Total accumulated other comprehensive income
at December 31, 1999, was $2.4 million.
2. Rates
The Company's ratemaking activity over the three-year period
ended September 30, 1999 was discussed in Note 3 of notes to
consolidated financial statements in the Company's Form 10-K for
the year ended September 30, 1999. New developments in ratemaking
activity since September 30, 1999 are discussed below.
In May 1999, the Western Kentucky Division requested from th
e Kentucky Public Service Commission ("KPSC") an increase in
revenues of approximately $14.1 million, 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 KPSC granted an increase in annual revenues of
approximately $9.9 million to the Western Kentucky Division. The
new rates were effective for services rendered on or after
December 21, 1999. In addition, the KPSC approved a five-year
pilot program for weather normalization beginning in November
2000. This program will be similar to the Company's program in
Georgia and Tennessee and will be in effect from November through
April. The Western Kentucky Division serves approximately
180,000 customers in Kentucky.
In August 1999, the Energas Division filed rate cases in its
West Texas System cities and Amarillo, Texas, requesting rate
increases of approximately $8.8 million and $4.4 million,
respectively. In December 1999, the City of Amarillo, Texas,
granted an increase in annual revenues of approximately $2.05
million in base rates plus an increase of $.1 million in service
charges to the Energas Division. The new rates became effective
for bills rendered on or after January 1, 2000. The increase in
service charges allows the Energas Division to more nearly
recover the actual cost of service calls. In addition, rate
design was restructured to reduce the impact of warmer than
normal weather and a zero-based gas cost adjustment was
implemented to position the Energas Division for possible future
deregulation. If the Company and the West Texas System cities
cannot agree on the amount of a rate increase, the Company must
appeal to the Railroad Commission of Texas, with a final
resolution expected in September 2000. In January 2000, the
Company requested an increase of approximately $48,000 in the
environs area outside the city limits of Amarillo and will
likewise request an increase of approximately $1.0 million in the
environs of the West Texas System cities when that case is
settled. Rates in areas outside the city limits in Texas are
subject to the jurisdiction of the Railroad Commission of Texas.
At this time, management cannot predict the outcome of this rate
proceeding.
3. Contingencies
Litigation
Greeley Division
In Colorado, the Greeley Division is a defendant in several
lawsuits filed as a result of a fire in a building in Steamboat
Springs, Colorado on February 3, 1994. The plaintiffs claimed
that the fire resulted from a leak in a severed gas service line
owned by the Greeley Division. On January 12, 1996, the jury
awarded the plaintiffs approximately $2.5 million in compensatory
damages and approximately $2.5 million in punitive damages. The
jury assessed the Company with liability for all of the damages
awarded. The Company appealed the judgment to the Colorado Court
of Appeals, which reversed the trial court verdict and ordered a
new trial. The Colorado Supreme Court upheld the Court of Appeals
reversal and order for a new trial. As a result of mediation, a
settlement was reached with five of the claimants, leaving only
three remaining claimants with aggregate claims of approximately
$2 million. The Company does not expect the final outcome of this
case to have a material adverse effect on the financial
condition, the results of operations or the cash flows of the
Company because the Company believes it has adequate insurance
and reserves to cover any damages that may ultimately be awarded.
On September 23, 1999, a suit was filed in the District
Court of Stevens County, Kansas, by Quinque Operating Company,
Tom Boles and Robert Ditto, against more than 200 companies in
the natural gas industry, including the Company and the Greeley
Gas Division. The plaintiffs, who purport to represent a class
consisting of gas producers, royalty owners, overriding royalty
owners, working interest owners and state taxing authorities,
accuse the defendants of underpaying royalties on gas taken from
wells situated on non-federal and non-Indian lands throughout the
United States and offshore waters predicated upon allegations
that the defendants' gas measurements have been inaccurate and
that the defendants have 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 has been brought to recover
billions of dollars in revenues that the defendants have
allegedly unlawfully diverted from the plaintiffs to themselves.
Since the filing of the petition, this case has been removed
to the United States District Court in Wichita, Kansas, where
there are numerous and various motions pending, including a
request for remand by the plaintiffs as well as a notice filed to
consolidate this case with other similar pending litigation in
federal court in Wyoming in which the Company is also a defendant
along with over 200 other defendants, the case of Jack J.
Grynberg, on behalf of the United States of America. The Company
believes that the plaintiffs' claims are lacking in merit and
intends to vigorously defend this action. However, the Company
cannot assess, at this time, the likelihood of whether or not the
plaintiffs may prevail on any one or more of their asserted
claims. In any event, the Company does not expect the final
outcome of this case to have a material adverse effect on the
financial condition, the results of operations or the net cash
flows of the Company because the Company believes that it has
adequate reserves to cover any damages that may ultimately be
awarded.
The Company is a party to other litigation matters and
claims that have arisen out of the ordinary business of the
Company. While the results of these litigation matters and claims
cannot be predicted with certainty, the Company does not believe
the final outcome of such litigation and claims will have a
material adverse effect on the financial condition, the results
of operations or the cash flows of the Company because the
Company believes that it has adequate insurance and reserves to
cover any damages that may ultimately be awarded.
Guarantees
The Company's wholly-owned subsidiary, Atmos Energy
Marketing, LLC ("AEM"), and Woodward Marketing, Inc. ("WMI"),
sole members of Woodward Marketing, LLC ("WMLLC"), act as
guarantors of up to $12.5 million of balances outstanding under a
$30.0 million bank credit facility for WMLLC. AEM guarantees the
payment of up to approximately $5.6 million of borrowings under
this facility. At December 31, 1999, $14.6 million was
outstanding under this credit facility. AEM and WMI also act as
joint and several guarantors on payables of WMLLC up to $40.0
million of natural gas purchases and transportation services from
suppliers. WMLLC payable balances outstanding that were subject
to these guarantees amounted to $31.5 million at December 31,
1999.
Environmental Matters
The United Cities Division is the owner or previous owner of
manufactured gas plant sites in Keokuk, Iowa; Johnson City and
Bristol, Tennessee; and Hannibal, Missouri, which were used to
supply gas prior to availability of natural gas. The gas
manufacturing process resulted in certain by-products and
residual materials including coal tar. The manufacturing process
used by the Company was an acceptable and satisfactory process at
the time such operations were being conducted. Under current
environmental protection laws and regulations, the Company may be
responsible for response actions with respect to such materials,
if response actions are necessary.
As of December 31, 1999, the Company had accrued and
deferred for recovery $1.1 million, including $258,000 that was
incurred for an insurance recoverability study, and $750,000 for
the investigations of the Johnson City and Bristol, Tennessee and
Hannibal, Missouri sites. As of December 31, 1999, the Company
has incurred costs of approximately $492,000 for these sites.
Iowa sites
In June 1995, United Cities Gas Company ("UCGC") entered
into an agreement to pay $1.8 million to Union Electric Company,
now Ameren, whereby Union Electric agreed to assume
responsibility for UCGC's continuing investigation and
environmental response action obligations as outlined in the
feasibility study related to a former manufactured gas plant in
Keokuk. The $1.8 million was paid in five annual installments,
with the last installment being paid in July 1999. In a rate case
effective June 1, 1996, UCGC began collecting increased rates,
which included a 10-year amortization of the $1.8 million payment
to Union Electric.
Tennessee sites
UCGC and the Tennessee Department of Environment and
Conservation entered into a consent order effective January 23,
1997, for the purpose of facilitating the investigation, removal
and remediation of the Johnson City site. UCGC began the
implementation of the consent order in the first quarter of 1997,
which continued through December 31, 1999.
The Company is unaware of any information that suggests the
Bristol site would give rise to a present health or environmental
risk as a result of the manufactured gas process or that any
response action will be necessary.
The Tennessee Regulatory Authority granted UCGC permission
to defer, until its next rate case, all costs incurred in
Tennessee in connection with state and federally mandated
environmental control requirements.
Missouri sites
On July 22, 1998, Atmos entered into an Abatement Order on
Consent with the Missouri Department of Natural Resources
addressing the former manufactured gas plant located in Hannibal,
Missouri. Atmos, through its United Cities Division, agreed in
the order to perform a removal action, a subsequent site
evaluation and to reimburse the response costs incurred by the
state of Missouri in connection with the property. The removal
action was conducted and completed in August 1998 and the site
evaluation fieldwork was conducted in August 1999. On March 9,
1999, the Missouri Public Service Commission issued an order
authorizing Atmos to defer the costs associated with this site
until the next rate increase, which must be proposed before
March 9, 2001.
Kansas sites
Atmos is currently conducting investigation and remediation
activities pursuant to Consent Orders between the Kansas
Department of Health and Environment ("KDHE") and UCGC. The
Orders provide for the investigation and remediation of mercury
contamination at gas pipeline sites, which utilize or formerly
utilized mercury meter equipment in Kansas. As of December 31,
1999, the Company had identified approximately 720 sites where
mercury may have been used and had incurred $100,000 for
recovery. In addition, based upon available current information,
the Company accrued and deferred for recovery an additional
$280,000 for the investigation of these sites. The Kansas
Corporation Commission has authorized the Company to defer these
costs and seek recovery in a future rate case.
The Company is a party to other environmental matters and
claims that arise out of the ordinary business of the Company.
While the ultimate results of response actions to these
environmental matters and claims cannot be predicted with
certainty, the Company does not believe the final outcome of such
response actions will have a material adverse effect on the
financial condition, the results of operations or the cash flows
of the Company because the Company believes that the expenditures
related to such response actions will either be recovered through
rates, shared with other parties, or covered by adequate
insurance or reserves.
4. Short-term debt
At December 31, 1999, short-term debt was composed of $124.4
million of commercial paper and $125.0 million outstanding under
bank credit facilities.
The Company has two short-term committed credit facilities.
One short-term unsecured credit facility is for $250.0 million
with $125.0 million outstanding at December 31, 1999. A second
facility is for $12.0 million. No amounts were outstanding under
this facility at December 31, 1999.
The Company also has unsecured short-term uncommitted credit
lines totaling $74.0 million. No borrowings were outstanding
under these lines at December 31, 1999.
The Company implemented a $250.0 million commercial paper
program in October 1998. It is supported by the $250.0 million
committed line of credit described above. The Company's
commercial paper is rated A-2 by Standard and Poor's and P-2 by
Moody's.
5. Statements of cash flows
Supplemental disclosures of cash flow information for the
three-month periods ended December 31, 1999 and 1998 are
presented below.
Three months ended
December 31,
---------------------
1999 1998
-------- ------
(In thousands)
Cash paid (received) for
Interest $12,993 $12,275
Income taxes (116) 3,983
6. Earnings per share
Basic earnings per share has been computed by dividing net
income available to common stockholders for the period by the
weighted average number of common shares outstanding during the
period. Diluted earnings per share has been computed by dividing
net income available to common stockholders for the period by the
weighted average number of common shares outstanding during the
period adjusted for the assumed exercise of restricted stock and
other contingently issuable shares of common stock. Net income
for basic and diluted earnings per share are the same, as there
are no contingently issuable shares of stock whose issuance would
have impacted net income. A reconciliation between basic and
diluted weighted average common shares outstanding follows:
For the three months ended
December 31,
----------------------
1999 1998
------ ------
Weighted average common
shares - basic 31,122 30,273
Effect of dilutive securities:
Restricted stock 207 228
Stock options 10 15
------ ------
Weighted average common
shares - assuming dilution 31,339 30,516
====== ======
7. Segment Information
In accordance with SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information", the Company has
identified the following three segments: Utility, Propane and
Energy Services. For a more complete description of these
segments, please refer to Note 1 of notes to consolidated
financial statements in the Company's Annual Report on Form 10-K
for the year ended September 30, 1999.
Summarized financial information concerning the Company's
reportable segments for the three months ended December 31, 1999
and 1998 is shown in the following table:
Energy
Utility Propane Services Total
---------- ------- -------- --------
(In thousands)
As of and for the
three months ended
December 31, 1999:
- -------------------
Operating revenues $ 209,295 $ 7,839 $ 8,791 $ 225,925
Intersegment revenues 596 - 871 1,467
Net income 11,104 422 2,798 14,324
Total assets 1,279,138 15,897 75,659 1,370,694
Energy
Utility Propane Services Total
---------- ------- -------- --------
As of and for the (In thousands)
three months ended
December 31, 1998:
- -------------------
Operating revenues $ 196,982 $ 7,295 $ 6,414 $ 210,691
Intersegment revenues 464 - - 464
Net income 14,372 410 598 15,380
Total assets 1,168,866 22,867 68,876 1,260,609
The following table presents a reconciliation of the
operating revenues to total consolidated revenues for the three
months ended December 31, 1999 and 1998.
Three months ended
December 31,
-------------------
1999 1998
-------- --------
(In thousands)
Total revenues for
reportable segments $225,925 $210,691
Elimination of
intersegment revenues (1,467) (464)
-------- --------
Total operating revenues $224,458 $210,227
======== ========
A reconciliation of total assets for the reportable segments
to total consolidated assets for December 31, 1999 and 1998 is
presented below.
December 31,
----------------------
1999 1998
---------- ----------
(In thousands)
Total assets for
reportable segments $1,370,694 $1,260,609
Elimination of
intercompany receivables (16,559) (14,556)
---------- ----------
Total consolidated
assets $1,354,135 $1,246,053
========== ==========
8. Related party transactions
Atmos owns a 45% interest through its ownership of Atmos
Energy Marketing, LLC, in Woodward Marketing, LLC, a limited
liability company headquartered in Houston, Texas, which is
engaged in gas marketing and energy services. Included in
purchased gas cost were purchases from WMLLC of approximately
$48.4 million and $20.7 million for the three-month periods ended
December 31, 1999 and 1998, respectively.
9. Recently issued accounting standards not yet adopted
The Company has not yet adopted Statement of Financial
Accounting Standards No. 133 " Accounting for Derivative
Instruments and Hedging Activities." The Statement will be
effective for the Company's fiscal year 2001. It establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other
contracts, and for hedging activities. The Statement does not
allow retroactive application to financial statements of prior
periods. The Company's management is currently in the process of
evaluating the impact of adopting this statement on its reported
financial condition, results of operations and cash flows.
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors
Atmos Energy Corporation
We have reviewed the accompanying condensed consolidated
balance sheet of Atmos Energy Corporation as of December 31,
1999, and the related condensed consolidated statements of income
and cash flows for the three-month periods ended December 31,
1999 and 1998. These financial statements are the responsibility
of the Company's management.
We conducted our reviews in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data,
and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing
standards in the United States, which will be performed for the
full year with the objective of expressing an opinion regarding
the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the accompanying condensed
consolidated financial statements at December 31, 1999, and for
the three-month periods ended December 31, 1999 and 1998 for them
to be in conformity with generally accepted accounting principles
in the United States.
We have previously audited, in accordance with generally
accepted auditing standards in the United States, the
consolidated balance sheet of Atmos Energy Corporation as of
September 30, 1999, and the related consolidated statements of
income, shareholders' equity, and cash flows for the year then
ended (not presented herein) and in our report dated November 9,
1999, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of
September 30, 1999, is fairly stated, in all material respects,
in relation to the consolidated balance sheet from which it has
been derived.
ERNST & YOUNG LLP
January 31, 2000
Dallas, Texas
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Introduction
The following discussion should be read in conjunction with
the condensed consolidated financial statements contained in this
Quarterly Report on Form 10-Q and Management's Discussion and
Analysis contained in the Company's 1999 Annual Report to
Shareholders and the Company's Annual Report on Form 10-K for the
year ended September 30, 1999.
The Company distributes and sells natural gas and propane to
residential, commercial, industrial and agricultural customers in
thirteen states. Such business is subject to regulation by state
and/or local authorities in each of the states in which the
Company operates. In addition, the Company's business is
affected by seasonal weather patterns, competitive factors within
the energy industry, and economic conditions in the areas that
the Company serves.
Cautionary Statement under the Private Securities Litigation
Reform Act of 1995
The matters discussed or incorporated by reference in this
Quarterly Report on Form 10-Q may contain "forward-looking
statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of
historical facts included in this Quarterly Report including, but
not limited to, those contained in the following sections, Item
2, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 3 to condensed consolidated
financial statements, regarding the Company's financial position,
business strategy and plans and objectives of management of the
Company for future operations, are forward-looking statements
made in good faith by the Company and are intended to qualify for
the safe harbor from liability established by the Private
Securities Litigation Reform Act of 1995. When used in this
Report or in any of the Company's other documents or oral
presentations, the words "anticipate," "expect," "estimate,"
"plans," "believes," "objective," "forecast," "goal" or similar
words are intended to identify forward-looking statements. Such
forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from those
expressed or implied in the statements relating to the Company's
operations, markets, services, rates, recovery of costs,
availability of gas supply, and other factors. These risks and
uncertainties include, but are not limited to, national, regional
and local economic and competitive conditions, regulatory and
business trends and decisions, technological developments, Year
2000 issues, inflation rates, weather conditions, and other
uncertainties, all of which are difficult to predict and many of
which are beyond the control of the Company.
Accordingly, while the Company believes that the
expectations reflected in the forward-looking statements are
reasonable, there can be no assurance that such expectations will
be realized or will approximate actual results.
Ratemaking Activity
During the quarter ended December 31, 1999, the Western
Kentucky Division received a rate increase in Kentucky of
approximately $9.9 million in annual revenues, effective
December 21, 1999, and a five-year weather normalization pilot
program beginning in November 2000. The Energas Division
received an increase in annual revenues of approximately $2.05
million in base rates plus an increase of $.1 million in service
charges in Amarillo, Texas, effective for bills rendered on or
after January 1, 2000. The agreement also provided for changes
in rate structure to reduce the impact of warmer than normal
weather and to improve the recovery of the actual cost of service
calls. If the Energas Division's request for an annual increase
of $8.8 million from the cities served by its West Texas System
can not be settled, it will be appealed to the Railroad
Commission of Texas with a final decision expected in September
2000. Upon the settlement of these cases, the Railroad
Commission is expected to act upon requests for similar increases
totaling approximately $1.05 million in the environs outside
Amarillo and the West Texas System cities. For further
information regarding rate activity, see Note 2 of notes to
condensed consolidated financial statements. The Company
continues to monitor rates in all its service areas for recovery
of its service costs and an adequate return on its investment.
Year 2000 Readiness
The Year 2000 issues arose because many computer systems and
software applications, as well as embedded computer chips in
plant and equipment currently in use, were constructed using an
abbreviated date field that eliminates the first two digits of
the year. It was believed that on January 1, 2000, these systems,
applications and embedded computer chips could have incorrectly
recognized the date as January 1, 1900. Accordingly, many
computer systems and software applications, as well as embedded
chips, could have incorrectly processed financial and operating
information or fail to process such information completely.
Since October 1996, the Company has worked on ensuring that
all critical systems, facilities and processes have been
identified, analyzed for Year 2000 readiness, corrected if
necessary, and tested if changes are necessary. As of December
31, 1999, the Company had incurred a total of approximately $1.2
million in direct fees and expenses in connection with its Year
2000 efforts. While there can be no assurance that there will be
no problems in the future related to Year 2000 issues, it appears
that to date these efforts were successful since January 1, 2000
passed with no significant impact on any of the Company's systems
or operations. The Company will continue to monitor any Year 2000
issues that may develop in the future and has in place procedures
to address such issues in the unlikely event that any related
problems may occur.
Weather and Seasonality
The Company's natural gas and propane distribution
businesses are seasonal due to weather conditions in the
Company's service areas. Sales are affected by winter heating
season requirements. Sales to agricultural customers (who use
natural gas as fuel in the operation of irrigation pumps during
the period from April through September) are affected by rainfall
amounts. These factors generally result 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. Weather for the three months ended
December 31, 1999 was 17% warmer than normal and 2% warmer than
weather in the corresponding period of the prior year as shown
below. This caused total throughput to decrease 1.6 billion
cubic feet ("Bcf") or 3%.
HEATING DEGREE DAYS
Three months ended
Weather December 31,
Sensitive -------------------------
Service Area Customers % 1999 1998 Normal
- ---------------- ----------- ----- ----- ------
Energas 29% 1,226 1,232 1,402
Trans La 8% 552 530 661
Western Kentucky 18% 1,201 1,300 1,613
Greeley Gas 20% 1,763 1,899 2,133
United Cities 25% 1,212 1,131 1,420
----
System Average 100% 1,261 1,284 1,517
The Company has weather normalization adjustments ("WNAs")
in Georgia and Tennessee, where it serves approximately 186,000
customers or approximately 18% of the Company's total customers
and revenues. The WNAs increase the base rate when weather is
warmer than normal and decrease it when weather is colder than
normal. The effect of the WNAs was to increase revenues
approximately $.9 million for the three months ended December 31,
1999, as compared with an increase of approximately $2.0 million
for the three months ended December 31, 1998. The Company did
not have WNAs in its other service areas during the quarter ended
December 31, 1999.
Status of Acquisition
In October 1999, the Company entered into a definitive
agreement with Southwestern Energy Company ("Southwestern") to
acquire the Missouri natural gas distribution assets of
Associated Natural Gas, a division of Arkansas Western Gas, which
is a wholly-owned subsidiary of Southwestern. Under the terms of
the agreement, the Company will purchase the Missouri gas system
for approximately $32.0 million in cash plus working capital
adjustments. This transaction, which will add approximately
48,000 customers, is expected to be completed by mid-year 2000,
subject to approvals by the Missouri Public Service Commission
and the Federal Energy Regulatory Commission.
FINANCIAL CONDITION
For the three months ended December 31, 1999, net cash used
by operating activities totaled $37.0 million compared with $20.8
million for the three months ended December 31, 1998. Net income
decreased $1.1 million to $14.3 million for the three months
ended December 31, 1999 from $15.4 million for the three months
ended December 31, 1998. Depreciation and amortization increased
$2.9 million for the three months ended December 31, 1999 because
of utility property additions placed in service during the past
year. Net operating assets and liabilities increased $77.5
million for the three months ended December 31, 1999 compared
with an increase of $53.0 million for the three months ended
December 31, 1998. This increase in net operating assets and
liabilities resulted primarily from the large fluctuations in
accounts receivable, gas stored underground and accounts payable
that occur when entering and leaving the winter or heating
season.
Major cash flows used in investing activities for the three
months ended December 31, 1999 included capital expenditures of
$17.5 million compared with $19.9 million for the three months
ended December 31, 1998. The capital expenditures budget for
fiscal 2000 is approximately $75.0 million, as compared with
actual capital expenditures of $110.4 million in fiscal 1999. The
decreased capital expenditures budget resulted from the
completion of the customer billing system, customer support
center, enterprise resource planning system and other technology
projects in fiscal 1999. Budgeted capital projects for fiscal
2000 include major expenditures for mains, services, meters,
vehicles and computer software and equipment. These expenditures
will be financed from internally generated funds and financing
activities.
For the three months ended December 31, 1999, cash flows
provided by financing activities amounted to $70.2 million as
compared with $51.8 million for the three months ended
December 31, 1998. During the three-month period, commercial
paper and notes payable to banks increased $81.1 million, as
compared with an increase of $101.6 million for the three months
ended December 31, 1998, due to short-term borrowings for
repayment of $40.0 million of long-term notes due in November
1998 and seasonal factors. Payments of long-term debt totaled
$7.0 million for the three months ended December 31, 1999, as
compared with $47.9 million for the three months ended
December 31, 1998. The Company paid $8.9 million in cash
dividends during the three months ended December 31, 1999,
compared with dividends of $8.4 million paid during the three
months ended December 31, 1998. This reflects increases in the
quarterly dividend rate and in the number of shares outstanding.
In the three months ended December 31, 1999, the Company issued
241,480 shares of common stock. The following table presents the
number of shares issued under the various plans for the three-
month periods ended December 31, 1999 and 1998.
Three months ended
December 31,
---------------------
1999 1998
-------- --------
Shares issued:
Restricted Stock Grant Plan - 60,000
Employee Stock Ownership Plan 40,557 20,892
Direct Stock Purchase Plan 200,406 143,458
Outside Directors Stock-for-Fee Plan 517 437
United Cities Long-term Stock Plan - 1,250
------- -------
Total shares issued 241,480 226,037
======= =======
The Company believes that internally generated funds, its
short-term credit facilities, commercial paper program and access
to the debt and equity capital markets will provide necessary
working capital and liquidity for capital expenditures and other
cash needs for the remainder of fiscal 2000. At December 31,
1999 the Company had $262.0 million in committed short-term
credit facilities, of which $125.0 million was outstanding and
$124.4 supported commercial paper outstanding. The committed
lines of credit are renewed or renegotiated at least annually.
At December 31, 1999, the Company also had $74.0 million of
uncommitted short-term lines of credit, all of which was unused.
In December 1999, the Company filed a universal shelf
registration statement with the Securities and Exchange
Commission ("SEC") to issue, from time to time, up to $500
million in new common stock and/or debt. The Company also filed
applications for approval to issue securities with seven state
utility commissions. Obtaining all the required state regulatory
approvals is expected to take from three to six months. Once the
shelf filing is declared effective by the SEC and is approved by
the various state utility commissions, the Company will be
authorized to "take securities off the shelf" and issue them to
investors and lenders. The proceeds are planned to be used for
general corporate purposes, including acquisitions, debt
repayment, and other business-related matters. The universal
shelf will provide the Company with greater flexibility in its
financing options.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1999, COMPARED WITH THREE MONTHS
ENDED DECEMBER 31, 1998
Operating revenues increased by 7% to $224.5 million for the
three months ended December 31, 1999 from $210.2 million for the
three months ended December 31, 1998. The most significant
factor contributing to the increase in operating revenues was a
13% increase in average sales price. During the quarter ended
December 1999, temperatures were 2% warmer than in the
corresponding quarter of the prior year, and were 17% warmer than
the 30-year normal for the quarter. The total volume of gas sold
and transported for the three months ended December 31, 1999 was
53.7 billion cubic feet ("Bcf") compared with 55.3 Bcf for the
three months ended December 31, 1998. Decreased sales due to
warmer than normal weather were partially offset by weather
normalization adjustments in Tennessee and Georgia, which
provided approximately $.9 million of additional revenues as
compared with an increase of approximately $2.0 million in the
quarter ended December 31, 1998. The average sales price per Mcf
sold increased $.62 or 13% to $5.35 primarily due to an increase
in the average cost of gas. The average cost of gas per Mcf sold
increased 19% to $3.37 for the three months ended December 31,
1999 from $2.84 for the three months ended December 31, 1998 due
to decreased supply availability in the current market.
Gross profit decreased by 2% to $89.6 million for the three
months ended December 31, 1999, from $91.2 million for the three
months ended December 31, 1998. The decrease in gross profit was
due to the decrease in volumes sold to weather sensitive
customers and a decrease of $1.2 million in transportation
revenues due to lower average transportation revenue per Mcf.
Changes in cost of gas do not directly affect gross profit.
Operating expenses decreased slightly to $59.4 million for
the three months ended December 31, 1999 from $59.5 million for
the three months ended December 31, 1998. The components of
operating expenses that produced the decrease in the quarter
ended December 31, 1999 were operation and maintenance expenses,
which decreased 8% primarily as a result of lower employee
benefits expenses. The Company also realized savings from
reduced meter reading and outside services expenses as a result
of the completion of technology initiatives in fiscal 1999 and
the realization of operating efficiencies and cost controls in
fiscal 2000. The decrease in operation and maintenance expenses
was offset by an increase in depreciation and amortization
related to additional utility plant placed in service in the past
year.
Operating income decreased 5% for the three months ended
December 31, 1999 to $30.1 million from $31.7 million for the
three months ended December 31, 1998. The decrease in operating
income resulted primarily from decreased gross profit, as
described above.
Other income increased $2.2 million for the three months
ended December 31, 1999 compared with the three months ended
December 31, 1998 primarily due to an increase in the earnings
from the Company's 45% interest in Woodward Marketing LLC.
Propane statistics for the three months ended December 31,
1999 and 1998 are included in the "Operating Statistics" tables
which appear at the end of Management's Discussion and Analysis.
The propane operations sold 6.4 million gallons of propane for
the three months ended December 31, 1999, as compared with 6.1
million gallons for the three months ended December 31, 1998.
The increase of $.5 million in propane revenues for the three
months ended December 31, 1999 compared with the same period last
year was the result of a combination of the increased sales
volumes and a slightly higher average sales price due to a
slightly higher cost of supply. The number of propane customers
at December 31, 1999 increased 2,660, or 7%, as compared with
December 31, 1998.
Interest expense increased $2.1 million, or 24%, for the
three months ended December 31, 1999, compared with the three
months ended December 31, 1998, due to a slight increase in the
average debt outstanding and a significant reduction in interest
capitalized in 2000. Approximately $1.9 million of interest was
capitalized in connection with various technology projects that
were in process for the three months ended December 31, 1998. No
interest was capitalized for the three months ended December 31,
1999, as these projects were completed and placed into service by
the end of fiscal 1999.
The provision for income taxes decreased 4% to $8.6 million
in the quarter ended December 31, 1999 compared with $9.0 million
for the corresponding quarter of the prior year due to decreased
pre-tax income.
Net income decreased for the three months ended December 31,
1999 by $1.1 million to $14.3 million from $15.4 million for the
three months ended December 31, 1998. This decrease in net
income resulted primarily from the decrease in sales volumes due
to unusually warm winter weather, as discussed above.
UTILITY, PROPANE AND ENERGY SERVICES OPERATING DATA
Atmos' Utility business is conducted by the Company's
regulated utility divisions: Energas Division, Greeley Gas
Division, Trans La Division, United Cities Division, Western
Kentucky Division and Shared Services. The Propane business is
conducted through United Cities Propane and includes wholesale
and retail propane sales to approximately 41,000 customers in
four states. The Energy Services business includes nonregulated
irrigation sales, energy services to large volume customers,
nonregulated underground storage operations, a 45% interest in
Woodward Marketing LLC, leasing of real estate, vehicles and
appliances and nonregulated shared services. The following table
of operating statistics by segment summarizes data of the
utility, propane, and energy services segments of the Company for
the three-month periods ended December 31, 1999 and 1998. For
further information regarding operating results of the segments,
see Note 7 of notes to condensed consolidated financial
statements.
ATMOS ENERGY CORPORATION
CONSOLIDATED OPERATING STATISTICS
Three months ended
December 31,
-----------------------
1999 1998
--------- ---------
METERS IN SERVICE, end of period
Residential 923,083 902,284
Commercial 98,032 94,976
Public authority and other 7,380 6,552
Industrial (including agricultural) 14,518 16,247
--------- ---------
Total meters 1,043,013 1,020,059
Propane customers 41,401 38,741
--------- ---------
Total 1,084,414 1,058,800
========= =========
HEATING DEGREE DAYS
Actual (weighted average) 1,261 1,284
Percent of normal 83% 85%
SALES VOLUMES -- MMcf(1)
Residential 19,929 21,114
Commercial 10,080 10,126
Public authority and other 1,833 2,193
Industrial (including agricultural) 7,310 7,439
------- ------
Total 39,152 40,872
Transportation volumes -- MMcf(1) 14,510 14,438
------- ------
Total Throughput - MMcf (1) 53,662 55,310
======= ======
Propane - Gallons (000's) 6,354 6,138
======= ======
OPERATING REVENUES (000's)
Gas sales revenues
Residential $117,304 $111,209
Commercial 52,438 47,294
Public authority and other 8,802 9,119
Industrial (including agricultural) 31,007 25,780
-------- --------
Total gas sales revenues 209,551 193,402
Transportation revenues 5,617 6,805
Propane revenues 7,839 7,295
Other revenues 1,451 2,725
-------- --------
Total operating revenues $224,458 $210,227
======== ========
Cost of gas (excluding propane and other) $131,815 $115,873
======== ========
Average gas sales revenues per Mcf $ 5.35 $ 4.73
Average transportation revenue per Mcf $ .39 $ .47
Average cost of gas per Mcf sold $ 3.37 $ 2.84
(1) Volumes are reported as metered in million cubic feet
("MMcf").
ATMOS ENERGY CORPORATION
OPERATING STATISTICS BY SEGMENT
Three months ended
December 31,
-----------------------
1999 1998
--------- ---------
UTILITY
Operating revenues ($000) $ 208,699 $ 196,518
Sales volumes (MMcf) 36,904 39,337
Transportation volumes (MMcf) 14,510 14,438
------ ------
Total throughput 51,414 53,775
====== ======
Heating degree days
Actual 1,261 1,284
30-year normal 1,517 1,517
Percent of normal 83% 85%
Meters, end of period 1,043,013 1,020,059
PROPANE
Operating revenues ($000) $7,839 $7,295
Sales volumes (000 gallons):
Retail 5,736 5,498
Wholesale 618 640
------- ------
Total 6,354 6,138
======= ======
Propane degree days 1,323 1,277
Percent of normal 87% 84%
Customers, end of period 41,401 38,741
ENERGY SERVICES
Operating revenues ($000) $7,920 $6,414
Gas revenues ($000) $7,261 $4,808
Gas sales volumes (MMcf):
Irrigation 600 23
Industrial 1,648 1,512
------- ------
Total 2,248 1,535
======= ======
Atmos equity in earnings of WMLLC ($000) $3,032 $1,213
NOTE: Segment operating revenues and volumes are net of inter-
segment eliminations. See Note 7 for intersegment
revenues.
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
There have been no material changes from the information
provided in Item 7A of the Company's Annual Report on Form 10-K
for the year ended September 30, 1999.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 3 of notes to condensed consolidated financial
statements herein for a description of legal proceedings.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
A list of exhibits required by Item 601 of Regulation S-K
and filed as part of this report is set forth in the
Exhibits Index, which immediately precedes such exhibits.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ATMOS ENERGY CORPORATION
(Registrant)
Date: February 11, 2000 By: /s/ DONALD P. BURMAN
------------------------------
Donald P. Burman
Assistant Controller
(Chief Accounting Officer and
duly authorized signatory)
EXHIBITS INDEX
Item 6(a)
Exhibit Page
Number Description Number
- ------- ----------- -------
10.1 Gas Transportation Agreement No. 30774,
Rate Schedules FT-A and FT-GS, dated
October 1, 1999, between United Cities
Gas Company and East Tennessee Natural
Gas Company
15 Letter regarding unaudited interim
financial information
27 Financial Data Schedule for Atmos Energy
Corporation for the three months ended
December 31, 1999