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 March 31, 1997
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 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 May 1, 1997.
Class Shares Outstanding
----- ------------------
No Par Value 16,171,715
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share data)
March 31, September 30,
1997 1996
------------ ------------
ASSETS
Property, plant and equipment $701,198 $666,438
Less accum. depreciation and amort. 267,189 252,871
-------- --------
Net property, plant and equipment 434,009 413,567
Current assets
Cash and cash equivalents 6,542 3,726
Accounts receivable, net 74,577 25,284
Inventories 7,278 7,174
Gas stored underground 4,776 14,652
Prepayments 2,395 1,489
-------- --------
Total current assets 95,568 52,325
Deferred charges and other assets 38,165 35,969
-------- --------
$567,742 $501,861
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' equity
Common stock outstanding:
16,155,100 shares at 3/31/97 and
16,021,321 shares at 9/30/96 $ 81 $ 80
Additional paid-in capital 114,374 111,206
Retained earnings 76,367 61,012
-------- --------
Total shareholders' equity 190,822 172,298
Long-term debt 157,303 122,303
-------- --------
Total capitalization 348,125 294,601
Current liabilities
Current maturities of long-term debt 8,000 9,000
Notes payable to banks 45,700 62,800
Accounts payable 40,756 31,640
Taxes payable 14,153 3,584
Customers' deposits 10,317 9,858
Other current liabilities 18,320 10,674
-------- --------
Total current liabilities 137,246 127,556
Deferred income taxes 40,676 39,056
Deferred credits and other liabilities 41,695 40,648
-------- --------
$567,742 $501,861
======== ========
See accompanying notes to condensed consolidated financial
statements.
2
ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
Three months ended
March 31,
--------------------
1997 1996
-------- --------
Operating revenues $199,847 $191,104
Purchased gas cost 132,485 125,710
-------- --------
Gross profit 67,362 65,394
Operating expenses
Operation 26,530 20,947
Maintenance 1,203 1,066
Depreciation and amortization 6,161 5,335
Taxes, other than income 6,348 5,506
Income taxes 8,533 10,368
-------- --------
Total operating expenses 48,775 43,222
-------- --------
Operating income 18,587 22,172
Other income (expense) (22) (145)
Interest charges, net 4,054 3,644
-------- --------
Net income $ 14,511 $ 18,383
======== ========
Net income per share $ .90 $ 1.15
======== ========
Cash dividends per share $ .25 $ .24
======== ========
Average shares outstanding 16,140 15,927
======== ========
See accompanying notes to condensed consolidated financial
statements.
3
ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
Six months ended
March 31,
--------------------
1997 1996
-------- --------
Operating revenues $357,500 $321,572
Purchased gas cost 238,462 205,453
-------- --------
Gross profit 119,038 116,119
Operating expenses
Operation 47,947 42,668
Maintenance 2,111 2,141
Depreciation and amortization 12,386 10,926
Taxes, other than income 11,230 9,704
Income taxes 13,758 15,563
-------- --------
Total operating expenses 87,432 81,002
-------- --------
Operating income 31,606 35,117
Other income 67 15
Interest charges 8,270 7,516
-------- --------
Net income $ 23,403 $ 27,616
======== ========
Net income per share $ 1.45 $ 1.75
======== ========
Cash dividends per share $ .50 $ .48
======== ========
Average shares outstanding 16,097 15,800
======== ========
See accompanying notes to condensed consolidated financial
statements.
4
ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
Twelve months ended
March 31,
--------------------
1997 1996
-------- --------
Operating revenues $519,672 $482,250
Purchased gas cost 339,753 302,180
-------- --------
Gross profit 179,919 180,070
Operating expenses
Operation 88,086 83,956
Maintenance 4,182 4,265
Depreciation and amortization 22,309 21,344
Taxes, other than income 18,405 16,850
Income taxes 11,505 13,636
-------- --------
Total operating expenses 144,487 140,051
-------- --------
Operating income 35,432 40,019
Other income (expense) (244) 318
Interest charges 15,452 14,269
-------- --------
Net income $ 19,736 $ 26,068
======== ========
Net income per share $ 1.23 $ 1.67
======== ========
Cash dividends per share $ .98 $ .94
======== ========
Average shares outstanding 16,040 15,638
======== ========
See accompanying notes to condensed consolidated financial
statements.
5
ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Six months ended
March 31,
-------------------
1997 1996
------- --------
Cash Flows From Operating Activities
Net income $ 23,403 $27,616
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization
Charged to depreciation and
amortization 12,386 10,926
Charged to other accounts 1,938 1,795
Deferred income taxes 1,620 1,681
Other 196 (223)
Net change in operating assets and
liabilities (13,982) 15,339
-------- --------
Net cash provided by operating
activities 25,561 57,134
Cash Flows From Investing Activities
Retirements of property, plant and
equipment (890) 2,769
Capital expenditures (33,876) (39,617)
-------- --------
Net cash used in investing activities (34,766) (36,848)
Cash Flows From Financing Activities
Net decrease in notes payable to banks (17,100) (7,400)
Cash dividends paid (8,048) (7,562)
Issuance of long-term debt 40,000 -
Repayment of long-term debt (6,000) (7,000)
Issuance of common stock 3,169 3,173
-------- --------
Net cash provided (used) by
financing activities 12,021 (18,789)
-------- --------
Net increase in cash and cash equivalents 2,816 1,497
Cash and cash equivalents at beginning
of period 3,726 2,294
-------- --------
Cash and cash equivalents at end
of period $6,542 $ 3,791
======== ========
See accompanying notes to condensed consolidated financial
statements.
6
ATMOS ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997
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 fac-
tors, the results of operations for the six-month period ended
March 31, 1997 are not indicative of expected results of
operations for the year ending September 30, 1997. 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 1996 annual report
to shareholders. The condensed consolidated balance sheet of
Atmos, as of March 31, 1997, and the related condensed
consolidated statements of income for the three-month, six-month,
and twelve-month periods ended March 31, 1997 and 1996, and the
condensed consolidated statements of cash flows for the six-month
periods ended March 31, 1997 and 1996, included herein have been
subjected to a review by Ernst & Young LLP, the Company's
independent accountants, whose report is included herein.
Common stock - As of March 31, 1997, a total of 75,000,000 shares
of the Company's common stock, no par value (stated at $.005 per
share), were authorized with 16,155,100 shares outstanding.
2. Business Combination
Merger Agreement with United Cities Gas Company
In July 1996, the Company announced that it had reached a
definitive agreement with United Cities Gas Company ("United
Cities") of Brentwood, Tennessee, wherein United Cities will be
merged with and into Atmos by means of a tax-free reorganization.
The Company will exchange approximately 13.4 million shares of
its common stock for all of the issued and outstanding common
stock of United Cities with Atmos as the surviving corporation.
Atmos has agreed to increase the indicated annual dividend to not
less than $1.02 per share, for no less than four quarters, at the
first meeting of the Board of Directors following the closing of
the transaction. The transaction is expected to be accounted for
by the pooling of interests method. The merger was approved by
the shareholders of both United Cities and Atmos in November
1996. As of May 7, 1997, the companies have obtained the
required regulatory approvals for the merger from all states
except Illinois. In April 1997 the hearing examiner in the
regulatory proceeding in Illinois recommended, in a proposed
order, that the Illinois Commerce Commission deny the companies'
7
petition to merge, and the companies are in the process of
responding to such proposed order. Both Atmos and United Cities
remain optimistic that the Illinois Commission will ultimately
approve the merger. The companies will close the merger as soon
as possible after receipt of the approval of the Illinois
Commission.
United Cities is a natural gas utility company engaged in the
distribution and sale of natural gas to approximately 316,000
customers in Tennessee, Illinois, Virginia, Kansas, Missouri,
South Carolina, Georgia, and Iowa, and in the sale of propane to
approximately 27,000 customers in Tennessee, Virginia and North
Carolina. United Cities' assets primarily consist of the
property, plant and equipment used in its natural gas and propane
sales and distribution businesses. Following consummation of the
merger, Atmos intends to continue to operate the United Cities
business as a division of Atmos, along with Atmos' Energas, Trans
La, Western Kentucky, and Greeley divisions. The accompanying
consolidated financial statements of the Company do not include
the assets, liabilities, or operating results of United Cities.
3. Contingencies
On March 15, 1991, suit was filed in the 15th Judicial District
Court of Lafayette Parish, Louisiana (the "Court"), by the
"Lafayette Daily Advertiser" and others against the Trans La
Division of the Company, Trans Louisiana Industrial Gas Company,
Inc. ("TLIG"), a wholly owned subsidiary of the Company, and
Louisiana Intrastate Gas Corporation and certain of its
affiliates ("LIG"). LIG is the Company's primary supplier of
natural gas in Louisiana and is not otherwise affiliated with the
Company.
The plaintiffs purported to represent a class consisting of all
residential and commercial gas customers in the Trans La
Division's service area. Among other allegations, the plaintiffs
alleged that the defendants violated the antitrust laws of the
state of Louisiana by manipulating the cost-of-gas component of
the Trans La Division's gas rate to the purported customer class,
thereby causing such purported class members to pay a higher
rate. The plaintiffs made no specific allegation of an amount of
damages.
The defendants brought an appeal to the Louisiana Supreme Court
of rulings made by the Court and the Third Circuit Court of
Appeals which denied the defendants' exceptions to the
jurisdiction of the Court. It was the position of the defendants
that the plaintiffs' claims amount to complaints relating to the
level of gas rates and should be within the exclusive
jurisdiction of the Louisiana Public Service Commission (the
"Louisiana Commission").
On January 19, 1993, the Louisiana Supreme Court issued a
decision reversing in part the lower courts' rulings, dismissing
8
all of plaintiffs' claims against the defendants which sought
damages due to alleged overcharges and further ruling that all
such claims are within the exclusive jurisdiction of the
Louisiana Commission. Any claims which seek damages other than
overcharges were remanded to the trial court but were stayed
pending the completion of the Louisiana Commission proceeding
referred to below.
The Company has reached a settlement with the plaintiffs in the
context of the Louisiana Commission proceeding referred to below,
which settlement resolves all outstanding issues relating to the
Company, subject to the satisfaction of certain procedural
conditions.
On July 14, 1995, the Louisiana Commission entered an order
approving a settlement with the Company and TLIG in connection
with its investigation of the costs included in the Trans La
Division's purchased gas adjustment component in its rates. The
order exonerated the Company of any wrongdoing with respect to
the manipulation of the cost of gas component of its gas rate to
residential and commercial customers. In the settlement, the
Company agreed to refund approximately $541,000 plus interest to
the Trans La Division's customers over a two-year period due to
certain issues related to the calculation of the weighted average
cost of gas. The refund totaling approximately $1,016,000, which
includes interest calculated through October 1, 1995, began in
September 1995 and was to be credited to customer bills along
with interest that accrued after October 1, 1995. The Company
refunded approximately $533,000 under the settlement in fiscal
1996 and an additional $417,000 to date in fiscal 1997. Most of
the issues that generated the refunds arose before the Trans La
Division (formerly Trans Louisiana Gas Company) was acquired by
the Company in 1986.
On April 18, 1997, the Louisiana Commission entered its Order
approving a settlement between LIG and the Louisiana Commission
pursuant to which LIG will make a payment of $10,275,000 to the
Trans La Division for the benefit of its ratepayers. This
settlement resolves all remaining issues in the Louisiana
proceeding discussed above. Pursuant to the Order, the Trans La
Division has been ordered to flow through a total of $9,725,000
of the LIG settlement, plus accrued interest, to its customers in
the form of credits to customers bills for the months November
1997 through March 1998. The remaining $550,000 will be credited
one half to TLIG with the other half credited to the Trans La
Division for legal fees. The appeal period applicable to the
Order does not expire until June 1, 1997.
As a result of the settlements reached in the Louisiana
proceedings, a Motion to Lift the Stay of the suit pending in the
Court will be filed along with a request for certification of a
class for settlement purposes. Preliminary approval of the
Notice to the Class along with the settlements will be sought
from the Court. After all delays have run and a hearing has been
9
held, final approval of the settlements by the Court will be
sought. If final approval of the Court is granted, the suit will
be dismissed.
In Colorado, the Greeley Gas Company Division of the Company 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 claim 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 has filed a Notice
of Appeal with the Colorado Court of Appeals with respect to this
case. The Company has adequate insurance to cover the
compensatory damages awarded. However, the Company's insurance
carrier informed the Company that, based upon a recent Colorado
Court ruling, the punitive damages awarded against the Company
cannot be covered by the Company's insurance policy. The Company
is continuing to review the position of the insurance carrier
with respect to coverage of punitive damages. The Company
believes it has meritorious issues for an appeal but cannot
assess, at this time, the likelihood of success in the appeal.
From time to time, claims are made and lawsuits are filed against
the Company arising out of the ordinary business of the Company.
In the opinion of the Company's management, losses, if any,
arising from these actions, including the specific actions
described above, are either covered by insurance, adequately
reserved for by the Company or would not have a material adverse
effect on the financial condition, the results of operations or
the net cash flows of the Company.
4. Long-term and short-term debt
In November 1996 the Company issued $40,000,000 of 6.09% term
notes, payable in November 1998. The proceeds from the term
notes were used primarily to refinance a portion of notes payable
to banks and for working capital, capital expenditures and
general corporate purposes.
During the six months ended March 31, 1997, the Company paid
installments due of $1,000,000 on its 9.75% Senior Notes,
$3,000,000 on its 9.76% Senior Notes and $2,000,000 on its 11.2%
Senior Notes.
At March 31, 1997, the Company had committed, short-term,
unsecured bank credit facilities totaling $90,000,000, of which
$80,000,000 was unused. The Company also had aggregate
uncommitted lines of credit totaling $165,000,000, of which
$129,300,000 was unused at March 31, 1997.
10
5. Statements of cash flows
Supplemental disclosures of cash flow information for the six-
month periods ended March 31, 1997 and 1996 are presented below.
Six months ended
March 31,
1997 1996
------ ------
(In thousands)
Cash paid for
Interest $8,696 $7,755
Income taxes 2,250 1,245
11
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 March 31, 1997, and the
related condensed consolidated statements of income for the
three-month, six-month, and twelve-month periods ended March 31,
1997 and 1996 and the condensed consolidated statements of cash
flows for the six-month periods ended March 31, 1997 and 1996.
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 con-
ducted in accordance with generally accepted auditing standards,
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 modifi-
cations that should be made to the accompanying condensed con-
solidated financial statements referred to above for them to be
in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Atmos
Energy Corporation as of September 30, 1996, 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 4, 1996, 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, 1996, is fairly
stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
ERNST & YOUNG LLP
Dallas, Texas
May 7, 1997
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
The Company distributes and sells natural gas to residential,
commercial, industrial and agricultural customers in six 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, competition within the energy industry, and
economic conditions in the areas that the Company serves.
Revenues and sales volume statistics for the three-month, six-
month, and twelve-month periods ended March 31, 1997 and 1996
appear on pages 21-23. Average meters in service are as follows:
Six months ended
March 31,
-------------------
1997 1996
------- -------
Average Meters in Service
Residential 593,858 586,437
Commercial 61,936 61,454
Industrial (including agricultural) 18,078 19,020
Public authority and other 4,776 5,038
------- -------
Total 678,648 671,949
======= =======
Merger Agreement with United Cities Gas Company
In July 1996, the Company announced that it had reached a
definitive agreement with United Cities Gas Company ("United
Cities") of Brentwood, Tennessee, wherein United Cities will be
merged with and into Atmos by means of a tax-free reorganization.
In November 1996, the shareholders of both companies approved the
merger. As of May 7, 1997, the companies have obtained the
required regulatory approvals for the merger from all states
except Illinois. For further information, please see Note 2 of
the notes to condensed consolidated financial statements.
Rate Activity
In May 1996, the Company filed to increase revenues by
approximately $7.7 million for a portion of its Energas Division
service area, which includes approximately 200,000 customers
inside the city limits of 67 cities in West Texas. All cities
either approved, or took no action to reject, a settlement
allowing a $5.3 million increase in annual revenues to be
effective for bills rendered on or after November 1, 1996. In
October 1996, the Company filed a rate request with the Railroad
13
Commission of Texas to increase revenues by approximately $.5
million for the remaining 22,000 rural customers in West Texas.
The rate request was approved and became effective in April 1997.
In February 1995, the Company filed with the Kentucky Public
Service Commission (the "Kentucky Commission") for a rate
increase for its Western Kentucky Division, which includes
approximately 171,000 customers. In October 1995, the Kentucky
Commission issued an order authorizing the Company to increase
its rates by $2.3 million annually effective November 1, 1995,
and by an additional $1.0 million annually beginning in March
1996. The settlement included a decrease in depreciation rates,
recovery of expenses related to adoption of Statement of
Financial Accounting Standards No. 106 and included a provision
for the Company to begin a three-year demand-side management
pilot program for the 1996-97 heating season, which could cost up
to $450,000 annually, resulting in a total annual operating in-
come increase of approximately $4.0 million. To date the Company
has incurred costs of approximately $100,000 on the demand-side
management pilot program.
FINANCIAL CONDITION
For the six months ended March 31, 1997, net cash provided by
operating activities totaled $25.6 million compared with $57.1
million for the six months ended March 31, 1996. Net income for
the six months ended March 31, 1997 decreased $4.2 million to
$23.4 million from $27.6 million for the six months ended March
31, 1996, as discussed under "Results of Operations." Net
operating assets and liabilities increased $14.0 million for the
six months ended March 31, 1997, as compared with a decrease of
$15.3 million for the six months ended March 31, 1996. This
increase in operating assets and liabilities resulted primarily
from large swings in accounts receivable, accounts payable and
inventories of gas in underground storage which occur when
entering and leaving the winter or heating season.
Major cash flows used in investing activities for the six months
ended March 31, 1997 included capital expenditures of $33.9
million compared with $39.6 million for the six months ended
March 31, 1996. The capital expenditures budget for fiscal year
1997 is currently $92.1 million, as compared with actual capital
expenditures of $77.6 million in fiscal 1996. Capital projects
planned for 1997 include major expenditures for mains, services,
meters, vehicles, and computer equipment. In November 1996 the
Board of Directors approved an additional $24.0 million in the
1997 capital budget for a customer service initiative project
which includes a new Customer Information System (CIS), related
business process changes and technology infrastructure changes.
These expenditures will be financed from internally generated
funds and financing activities.
For the six months ended March 31, 1997, cash provided by
financing activities amounted to $12.0 million compared with
14
$18.8 million cash used for the six months ended March 31, 1996.
During the six months ended March 31, 1997, notes payable to
banks was reduced $17.1 million, as compared with $7.4 million
for the six months ended March 31, 1996 due to seasonal factors
and the refinancing of short-term debt with proceeds from the
issuance of $40.0 million of long-term debt in the quarter ended
December 31, 1996. Payments of long-term debt decreased $1.0
million to $6.0 million for the six months ended March 31, 1997.
Payments of long-term debt consisted of a $1.0 million
installment on the Company's 9.75% Senior Notes, a $3.0 million
installment on the 9.76% Senior Notes and a $2.0 million
installment on the 11.2% Senior Notes. The Company paid $8.0
million in cash dividends during the six months ended March 31,
1997, compared with $7.6 million in cash dividends paid during
the six months ended March 31, 1996. This reflects a $.01 per
share increase in the quarterly dividend rate and a 2% increase
in the average number of shares outstanding. In the six months
ended March 31, 1997, the Company issued 133,779 shares of common
stock, including 132,258 shares issued in connection with the
Employee Stock Ownership Plan and 1,521 shares issued under the
Outside Director's Stock-for-Fee Plan. In the six-month period
ended March 31, 1996, the Company issued 422,703 shares of common
stock including 313,411 shares issued in connection with the
Oceana Heights acquisition.
The Company believes that internally generated funds, its short-
term credit facilities 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 1997. At March 31, 1997 the Company had $90.0 million of
committed short-term credit facilities, of which $80.0 million
was available for additional borrowing. The committed lines of
credit are renewed or renegotiated at least annually. At March
31, 1997, the Company also had $165.0 million of uncommitted
short-term lines of credit, $129.3 million of which was unused.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997, COMPARED WITH THREE MONTHS
ENDED MARCH 31, 1996
Operating revenues increased by 5% to $199.8 million for the
three months ended March 31, 1997 from $191.1 million for the
three months ended March 31, 1996. The most significant factor
contributing to the increase in operating revenues was a 16%
increase in the average sales revenue per Mcf. This price
increase reflects a 17% increase in the average cost of gas per
Mcf sold and rate increases in Texas and Kentucky. Partially
offsetting this increase was a 10% decrease in the volumes sold.
During the quarter ended March 31, 1997, temperatures were 7%
warmer than in the corresponding quarter of the prior year, and
were 6% warmer than the 30-year normal weather. The total volume
of gas sold and transported for the three months ended March 31,
1997 was 49.6 billion cubic feet ("Bcf") compared with 52.4 Bcf
15
for the three months ended March 31, 1996. Sales volumes to
weather sensitive customer classes were lower for the quarter
ended March 31, 1997 than for the corresponding period of the
prior year due to warmer winter weather. Sales volumes to
industrial (including agricultural) customers were reduced by
lower demand by agricultural customers and switching from sales
service to transportation service by certain large industrial
customers in Kentucky. The average sales price per Mcf sold
increased $.67 to $4.75 primarily due to an increase in the
average cost of gas and rate increases implemented in Texas and
Kentucky during the past year, as previously discussed herein
under the heading "Rate Activity." The average cost of gas per
Mcf sold increased 17% to $3.21 for the three months ended March
31, 1997 from $2.74 for the three months ended March 31, 1996 due
to increased supply costs.
Gross profit increased by 3% to $67.4 million for the three
months ended March 31, 1997, from $65.4 million for the three
months ended March 31, 1996. The increase in gross profit was
primarily due to $2.7 million of additional revenues from the
rate increases implemented in Texas and Kentucky. Changes in
cost of gas do not directly affect gross profit. However, the
Company estimates that the impact of the weather being 6% warmer
than normal for the three months ended March 31, 1997 caused
gross profit to be approximately $2.7 million less than it would
have been had the Company experienced normal temperatures in its
respective service areas. Weather was approximately 2% colder
than normal for the three months ended March 31, 1996.
Operating expenses, excluding income taxes, increased 22% to
$40.2 million for the three months ended March 31, 1997 from
$32.9 million for the three months ended March 31, 1996. The
primary factor contributing to the increase in operating expenses
in the 1997 quarter was higher administrative and general
expenses, which include expenses associated with severance pay of
$4.4 million ($2.8 million after tax) due to management changes.
The increase in depreciation related to plant additions placed in
service during the past year. The increase in taxes other than
income taxes was primarily related to taxes on increased
revenues. Operating income decreased 16% for the three months
ended March 31, 1997 to $18.6 million from $22.2 million for the
three months ended March 31, 1996. The decrease in operating
income resulted from increased operating expenses and lower sales
volumes, as mentioned above. Income taxes decreased $1.8 million
or 18% in the quarter ended March 31, 1997 compared with the
corresponding quarter of the prior year due to decreased pre-tax
income.
Interest expense increased $.4 million, or 11%, for the three
months ended March 31, 1997 compared with the three months ended
March 31, 1996 due to an increased amount of total debt
outstanding. Net income decreased for the three months ended
March 31, 1997 by 21% to $14.5 million from $18.4 million for the
three months ended March 31, 1996. This decrease in net income
16
primarily resulted from the increase in operating expenses
discussed above.
SIX MONTHS ENDED MARCH 31, 1997, COMPARED WITH SIX MONTHS ENDED
MARCH 31, 1996
Operating revenues increased by 11% to $357.5 million for the six
months ended March 31, 1997 from $321.6 million for the six
months ended March 31, 1996. The primary factor contributing to
the higher operating revenues was a 20% increase in the average
gas sales revenue per Mcf, due to a 25% increase in the average
cost of gas per Mcf sold, which is reflected in revenues, and
rate increases in Texas and Kentucky. This price increase was
partially offset by a 4% decrease in the total volume of gas sold
and transported for the six months ended March 31, 1997 which
decreased to 88.8 Bcf compared with 92.6 Bcf for the six months
ended March 31, 1996. Sales volumes to weather sensitive
customer classes were lower for the six months ended March 31,
1997 than for the corresponding period of the prior year due to
warmer weather, and sales volumes to industrial (including
agricultural) customers were reduced by lower agricultural usage
and switching by industrial sales customers to transportation
service. The weather in the Company's service areas was 5%
warmer than weather in the corresponding six-month period of the
prior fiscal year and the 30-year normal weather. The average
sales price per Mcf increased to $4.78 for the six months ended
March 31, 1997 from $3.99 for the six months ended March 31,
1996. The increase in the average sales price reflects an
increase in the average cost of gas and rate increases in Texas
and Kentucky. The average cost of gas per Mcf sold increased to
$3.26 for the six months ended March 31, 1997 from $2.60 for the
six months ended March 31, 1996 because of generally higher gas
supply costs.
Gross profit increased 3% to $119.0 million for the six months
ended March 31, 1997, compared with $116.1 million for the six
months ended March 31, 1996. This increase was primarily due to
rate increases in Texas and Kentucky. The increased cost of gas
did not directly affect gross profit. However, the Company
estimates that the impact of the weather being 5% warmer than
normal for the six months ended March 31, 1997 caused gross
profit to be approximately $3.6 million less than it would have
been had the Company experienced normal temperatures in its
respective service areas. Weather was approximately normal for
the six months ended March 31, 1996.
Operating expenses, excluding income taxes, increased to $73.7
million in the six months ended March 31, 1997, from $65.4
million in the six months ended March 31, 1996. The increase was
comprised of $5.3 million in operation expense, $1.5 million in
depreciation and $1.5 million in taxes other than income. The
principal factor contributing to the increase in operation
expense was the increase in administrative and general expenses
associated with severance pay for recent management changes. The
17
increase in depreciation related to utility plant additions
placed in service during the past year. The primary factor in
the increase in taxes other than income taxes was taxes on
increased revenues. The provision for income taxes for the six
months ended March 31, 1997 decreased $1.8 million from the
provision for the corresponding period of the prior year due to
decreased pre-tax income. Operating income decreased for the six
months ended March 31, 1997 to $31.6 million from $35.1 million
for the six months ended March 31, 1996. The decrease in
operating income was related to the increased operating expenses
and decreased sales volumes discussed above.
Interest charges increased $.8 million, or 10%, due to an
increased amount of debt outstanding during the six months ended
March 31, 1997 compared with the corresponding six-month period
of the prior year. Net income decreased 15% for the six months
ended March 31, 1997, to $23.4 million from $27.6 million for the
six months ended March 31, 1996. The decrease in net income
resulted primarily from the increase in operating expenses which
was partially offset by an increase in gross profit margin.
Dividends per share increased approximately 4% to $.50 for the
six months ended March 31, 1997. Average shares outstanding
increased 2% due to shares issued under the Employee Stock
Ownership Plan and the Director's Stock-for-Fee Plan.
TWELVE MONTHS ENDED MARCH 31, 1997, COMPARED WITH TWELVE MONTHS
ENDED MARCH 31, 1996
Operating revenues increased by 8% to $519.7 million for the 12
months ended March 31, 1997 from $482.3 million for the 12 months
ended March 31, 1996. The increased revenues were caused by
higher sales prices per Mcf due to rate increases and higher gas
costs. The effect of higher sales prices was partially offset by
a 4% decrease in total volumes handled. Sales and transportation
volumes decreased to 140.7 Bcf for the 12 months ended March 31,
1997 compared with 146.1 Bcf for the corresponding prior period.
Sales volumes to all classes of customers decreased in the 12
months ended March 31, 1996 due primarily to warmer weather. The
weather was 7% warmer than for the 12 months ended March 31, 1996
and 6% warmer than normal. Industrial (including agricultural)
sales were reduced by lower agricultural usage and switching of
certain large industrial customers to transportation service.
The average sales price per Mcf increased 15% to $4.50 from
$3.92. The increase was primarily due to increased cost of gas
per Mcf sold, but also reflects rate increases implemented in
Texas and Kentucky. The average cost of gas per Mcf sold
increased 20% to $3.03 for the 12 months ended March 31, 1997
from $2.53 for the prior year. The average cost of gas increased
due to increased supply costs.
Gross profit was almost unchanged at $179.9 million for the 12
months ended March 31, 1997 compared with $180.1 million for the
12 months ended March 31, 1996. Changes in cost of gas did not
directly affect gross profit. However, the Company estimates
18
that the impact of the weather being 6% warmer than normal for
the twelve months ended March 31, 1997 caused gross profit to be
approximately $3.5 million less than it would have been had the
Company experienced normal temperatures in its respective service
areas. Weather was approximately 1% colder than normal for the
12 months ended March 31, 1996.
Operating expenses, excluding income taxes, increased from $126.4
million for the 12 months ended March 31, 1996, to $133.0 million
for the 12 months ended March 31, 1997. Increases occurred in
operation expense, depreciation and taxes other than income
taxes. Factors contributing to the $4.1 million increase in
operation expense were higher administrative and general expenses
associated with severance pay for recent management changes and
increased distribution, customer accounts, and customer service
and information expenses. The reason for the $1.0 million in-
crease in depreciation was utility plant additions placed in
service during the past year. The $1.6 million increase in taxes
other than income resulted primarily from taxes on increased
revenues. Income taxes decreased $2.1 million for the 12 months
ended March 31, 1997, compared with the 12 months ended March 31,
1996 due to decreased pre-tax income. Operating income decreased
in the 12 months ended March 31, 1997 by 11% to $35.4 million
from $40.0 million for the 12 months ended March 31, 1996. The
primary reason for the decrease in operating income was increased
operating expenses mentioned above. Operating income was also
affected by the reduced sales volumes due to warmer weather, as
discussed above.
Interest charges increased $1.2 million to $15.5 million,
compared with $14.3 million for the prior year. This was caused
by an increased amount of average debt outstanding, including the
issuance of $40 million of Senior Notes in November 1996. Net
income for the 12 months ended March 31, 1997 was $19.7 million
compared with $26.1 million for the 12 months ended March 31,
1996. The decrease in net income resulted from the increase in
operating expenses as well as decreased sales volumes, as
discussed above. Earnings per share decreased by 26% to $1.23.
Average shares outstanding increased approximately 3% as compared
with the prior year. Cash dividends per share increased
approximately 4% to $.98 from $.94 for the prior year.
Cautionary Statement pursuant to the Private Securities
Litigation Reform Act of 1995
The matters discussed or incorporated by reference in this report
contain both historical and forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 or Section
21E of the Securities Exchange Act of 1934, as amended. The
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 as discussed in the
19
Company's filings with the Securities and Exchange Commission.
These risks and uncertainties include, but are not limited to,
economic, competitive, governmental, weather, and technological
factors.
20
ATMOS ENERGY CORPORATION
CONSOLIDATED OPERATING STATISTICS
Quarter ended March 31,
Volumes Handled - MMcf (1) 1997 1996
- -------------------------- ------- -------
Sales Volumes
Residential 22,912 24,276
Commercial 9,242 9,561
Industrial (including agricultural) 6,886 9,788
Public authority and other 2,213 2,334
------- -------
Total 41,253 45,959
Transportation Volumes 8,360 6,473
------- -------
Total Volumes Handled 49,613 52,432
======= =======
Operating Revenues (000's)
- --------------------------
Gas Sales Revenues
Residential $117,784 $108,000
Commercial 43,585 39,182
Industrial (including agricultural) 23,978 30,630
Public authority and other 10,696 9,850
-------- --------
Total Gas Revenues 196,043 187,662
Transportation Revenues 2,585 1,833
Other Revenues 1,219 1,609
-------- --------
Total Operating Revenues $199,847 $191,104
======== ========
Average Gas Sales Revenues per Mcf $ 4.75 $ 4.08
Average Transportation Revenue per Mcf $ .31 $ .28
Cost of Gas per Mcf Sold $ 3.21 $ 2.74
HEATING DEGREE DAYS
Weather
Service Sensitive Quarter ended March 31,
Area Customers % 1997 1996 Normal
- -------------- ----------- ----- ----- ------
Texas 45% 1,839 1,845 1,884
Kentucky 26% 2,071 2,442 2,355
Louisiana 13% 881 1,163 1,068
Colorado, Kansas
and Missouri 16% 2,945 2,983 2,965
----
System Average 100% 1,952 2,106 2,073
(1) Volumes are reported as metered in million cubic feet
("MMcf").
21
ATMOS ENERGY CORPORATION
CONSOLIDATED OPERATING STATISTICS
Six months ended March 31,
Volumes Handled - MMcf (1) 1997 1996
- -------------------------- ------- -------
Sales Volumes
Residential 39,783 41,132
Commercial 16,507 16,531
Industrial (including agricultural) 12,912 17,060
Public authority and other 4,049 4,210
------- -------
Total 73,251 78,933
Transportation Volumes 15,565 13,683
------- -------
Total Volumes Handled 88,816 92,616
======= =======
Operating Revenues (000's)
- --------------------------
Gas Sales Revenues
Residential $207,414 $179,553
Commercial 78,392 66,243
Industrial (including agricultural) 44,630 52,078
Public authority and other 19,861 16,973
-------- --------
Total Gas Revenues 350,297 314,847
Transportation Revenues 4,825 3,998
Other Revenues 2,378 2,727
-------- --------
Total Operating Revenues $357,500 $321,572
======== ========
Average Gas Sales Revenues per Mcf $ 4.78 $ 3.99
Average Transportation Revenue per Mcf $ .31 $ .29
Cost of Gas per Mcf Sold $ 3.26 $ 2.60
HEATING DEGREE DAYS
Weather
Service Sensitive Six months ended March 31,
Area Customers % 1997 1996 Normal
- -------------- ----------- ----- ----- ------
Texas 45% 3,128 3,094 3,286
Kentucky 26% 3,684 4,211 3,968
Louisiana 13% 1,421 1,898 1,729
Colorado, Kansas
and Missouri 16% 5,237 5,145 5,315
----
System Average 100% 3,388 3,579 3,585
(1) Volumes are reported as metered in million cubic feet
("MMcf").
22
ATMOS ENERGY CORPORATION
CONSOLIDATED OPERATING STATISTICS
Twelve months
ended March 31,
Volumes Handled - MMcf (1) 1997 1996
- -------------------------- ------- -------
Sales Volumes
Residential 50,194 52,141
Commercial 21,517 21,780
Industrial (including agricultural) 35,508 40,190
Public authority and other 5,021 5,228
------- -------
Total 112,240 119,339
Transportation Volumes 28,416 26,723
------- -------
Total Volumes Handled 140,656 146,062
======= =======
Operating Revenues (000's)
- --------------------------
Gas Sales Revenues
Residential $270,979 $239,909
Commercial 102,498 89,813
Industrial (including agricultural) 107,444 117,010
Public authority and other 24,626 21,238
-------- --------
Total Gas Sales Revenues 505,547 467,970
Transportation Revenues 9,134 9,038
Other Revenues 4,991 5,242
-------- --------
Total Operating Revenues $519,672 $482,250
======== ========
Average Gas Sales Revenues per Mcf $ 4.50 $ 3.92
Average Transportation Revenue per Mcf $ .32 $ .34
Cost of Gas per Mcf Sold $ 3.03 $ 2.53
HEATING DEGREE DAYS
Weather
Service Sensitive Twelve months ended March 31,
Area Customers % 1997 1996 Normal
- -------------- ----------- ----- ----- ------
Texas 45% 3,365 3,444 3,539
Kentucky 26% 4,083 4,531 4,352
Louisiana 13% 1,503 1,954 1,766
Colorado, Kansas
and Missouri 16% 6,004 6,301 6,257
----
System Average 100% 3,734 4,016 3,957
(1) Volumes are reported as metered in million cubic feet
("MMcf").
23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 3 of notes to consolidated financial statements on pages
8-10 herein for a description of legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of Atmos Energy Corporation
on February 12, 1997, 14,552,221 votes were cast as follows:
VOTES VOTES BROKER
FOR WITHHELD NON-VOTE
---------- ---------- --------
Class II Directors:
Thomas C. Meredith 14,430,625 121,596 -
Carl S. Quinn 14,473,984 78,237 -
Robert F. Stephens 14,478,500 73,721 -
Richard Ware II 14,475,047 77,174 -
The other directors will continue to serve until the expiration
of their terms. The term of the Class III directors, Phillip E.
Nichol, Lee E. Schlessman, and Charles K. Vaughan will expire in
1998. The term of the Class I directors, Travis W. Bain II and
Dan Busbee, will expire in 1999. The term of the Class II
directors, listed above, will expire in 2000.
Item 5. Other Information
In addition to the officer and director changes disclosed herein
under Item 6(b) Reports on Form 8-K, Donald P. Burman was named
to the position of Treasurer for the Company, replacing Carl W.
Weller, who retired in January 1997.
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.
24
(b) Reports on Form 8-K
The Company filed a Form 8-K Current Report, Item 5,
Other Events, dated February 17, 1997, disclosing:
(1) Robert F. Stephens has resigned as President and
Chief Operating Officer.
(2) James F. Purser has resigned as Executive Vice
President and Chief Financial Officer.
(3) Robert W. Best was elected as Chairman of the
Board, President and Chief Executive Officer. In
addition, Charles K. Vaughan announced his
resignation from the position of Chairman of the
Board effective with the employment of Mr. Best.
Mr. Vaughan, however, will remain a member of the
Board of Directors.
The Company filed a Form 8-K Current Report, Item 5,
Other Events, dated March 17, 1997, disclosing:
(1) Atmos and United Cities have agreed to extend the
period of closing the merger of United Cities with
and into Atmos until August 31, 1997, pending
regulatory approvals of the merger in Illinois and
Missouri.
(2) Atmos has initiated a restructuring of its
operations to achieve operating efficiencies and
cost savings. Specifically, Atmos is setting up a
network of payment centers in its service areas,
consolidating field offices, and opening a central
customer support center.
Subsequent to March 31, 1997, the Company filed a Form
8-K Current Report, Item 5, Other Events, dated April
4, 1997, disclosing:
(1) Robert F. Stephens and James F. Purser have
resigned from Atmos' Board of Directors.
(2) The Illinois hearing examiner in the regulatory
proceeding in Illinois recommended, in a proposed
order, that the Illinois Commerce Commission deny
Atmos' and United Cities' petition to merge. The
companies have an opportunity to respond to such
proposed order and they remain optimistic that the
Illinois Commission will ultimately approve the
merger.
(3) Larry J. Dagley has been appointed Executive Vice
President and Chief Financial Officer of Atmos.
He previously served as Senior Vice President and
25
Chief Financial Officer of Pacific Enterprises,
Chief Financial Officer of Transco Energy Company
and as an audit partner with Arthur Andersen & Co.
26
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: May 14, 1997 By: /s/ Larry J. Dagley
------------------------------
Larry J. Dagley
Executive Vice President
and Chief Financial Officer
Date: May 14, 1997 By: /s/ David L. Bickerstaff
------------------------------
David L. Bickerstaff
Vice President and Controller
(Principal Accounting Officer)
27
EXHIBITS INDEX
Item 6(a)
Page Number or
Exhibit Incorporation
Number Description by Reference to
------- ----------------------------------- ---------------
10.1 *Severance Agreement dated March 10,
1997 between the Company and Robert
W. Best
15 Letter regarding unaudited interim
financial information
27 Financial Data Schedule for Atmos
for the quarter ended March 31, 1997
---------------------
* This exhibit constitutes a "management contract or
compensatory plan, contract, or arrangement."
28