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, 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 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 2, 1998.
Class Shares Outstanding
----- ------------------
No Par Value 29,908,813
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share data)
December 31, September 30,
1997 1997
------------ ------------
ASSETS
Property, plant and equipment $1,357,946 $1,332,672
Less accum. depreciation and amort. 497,200 483,545
---------- ----------
Net property, plant and equipment 860,746 849,127
Current assets
Cash and cash equivalents 9,051 6,016
Accounts receivable, net 172,770 71,217
Inventories of supplies and merchandise 13,654 12,333
Gas stored underground 45,680 48,122
Prepayments 5,346 6,017
---------- ----------
Total current assets 246,501 143,705
Deferred charges and other assets 98,743 95,479
---------- ----------
$1,205,990 $1,088,311
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' equity
Common stock outstanding: 29,850,935
shares at 12/31/97 and 29,642,437
shares at 9/30/97 $ 149 $ 148
Additional paid-in capital 256,563 251,174
Retained earnings 88,170 75,938
---------- ----------
Total shareholders' equity 344,882 327,260
Long-term debt 255,827 302,981
---------- ----------
Total capitalization 600,709 630,241
Current liabilities
Current maturities of long-term debt 56,229 15,201
Notes payable to banks 219,107 167,300
Accounts payable 110,970 62,626
Taxes payable 11,106 416
Customers' deposits 14,702 15,098
Other current liabilities 47,806 52,582
---------- ----------
Total current liabilities 459,920 313,223
Deferred income taxes 87,655 87,828
Deferred credits and other liabilities 57,706 57,019
---------- ----------
$1,205,990 $1,088,311
========== ==========
See accompanying notes to condensed consolidated financial
statements.
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ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
Three months ended December 31,
-------------------------------
1997 1996
-------- --------
Operating revenues $295,331 $280,624
Purchased gas cost 195,730 183,355
-------- --------
Gross profit 99,601 97,269
Operating expenses
Operation 36,041 38,173
Maintenance 2,481 2,588
Depreciation and amortization 11,908 11,512
Taxes, other than income 8,219 8,179
Income taxes 12,284 10,849
-------- --------
Total operating expenses 70,933 71,301
-------- --------
Operating income 28,668 25,968
Other income 763 888
Interest charges, net 9,309 8,701
-------- --------
Net income $ 20,122 $ 18,155
======== ========
Basic net income per share $ .68 $ .62
======== ========
Diluted net income per share $ .68 $ .62
======== ========
Cash dividends per share $ .265 $ .245
======== ========
Weighted average
shares outstanding:
Basic 29,569 29,243
======== ========
Diluted 29,749 29,255
======== ========
See accompanying notes to condensed consolidated financial
statements.
- 3 -
ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Three months ended
December 31,
1997 1996
-------- --------
Cash Flows From Operating Activities
Net income $20,122 $ 18,155
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization
Charged to depreciation and
amortization 11,908 11,512
Charged to other accounts 801 966
Deferred income taxes (benefit) (173) 2,792
Net change in operating assets and
liabilities (48,476) (45,888)
-------- --------
Net cash used by operating activities (15,818) (12,463)
Cash Flows From Investing Activities
Capital expenditures (24,525) (26,734)
Retirements of property, plant and
equipment 197 756
-------- --------
Net cash used in investing activities (24,328) (25,978)
Cash Flows From Financing Activities
Net increase in notes
payable to banks 51,807 14,288
Cash dividends paid (7,890) (7,375)
Issuance of long-term debt - 40,000
Repayment of long-term debt (6,126) (7,378)
Issuance of common stock 5,390 3,251
-------- --------
Net cash provided by financing
activities 43,181 42,786
-------- --------
Net increase in cash and cash equivalents 3,035 4,345
Cash and cash equivalents at beginning
of period 6,016 8,757
-------- --------
Cash and cash equivalents at end
of period $ 9,051 $ 13,102
======== ========
See accompanying notes to condensed consolidated financial
statements.
- 4 -
ATMOS ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 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 three month period ended
December 31, 1997 are not indicative of expected results of
operations for the year ending September 30, 1998. 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 1997 annual report
to shareholders. The condensed consolidated balance sheet of
Atmos, as of December 31, 1997, and the related condensed
consolidated statements of income and cash flows for the three-
month periods ended December 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 December 31, 1997, the Company had
75,000,000 shares of common stock, no par value (stated at $.005
per share), authorized and 29,850,935 shares outstanding.
2. Business Combination
As discussed in Note 2 of notes to consolidated financial
statements in the Company's Form 10-K for the year ended
September 30, 1997, on July 31, 1997, Atmos acquired by means of
a merger all of the assets and liabilities of United Cities Gas
Company ("UCGC"). The transaction was accounted for as a pooling
of interests; therefore, prior financial statements have been
restated to reflect the merger.
3. Rates
The Company's ratemaking activity over the three-year period
ended September 30, 1997 was reviewed in Note 3 of notes to
consolidated financial statements in the Company's Form 10-K for
the year ended September 30, 1997. The status at December 31,
1997 has not changed, except as discussed below.
In fiscal 1997, the Colorado Office of Consumer Counsel
filed a complaint with the Colorado Public Utilities Commission
("Colorado Commission") requesting a $3.5 million reduction in
the annual revenues in Colorado of the Greeley Gas Division. On
December 17, 1997, a hearing was held at the Colorado Commission
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presenting a Stipulation and Agreement reached by the Greeley Gas
Division and the Colorado Office of Consumer Counsel. It settled
the Consumer Counsel's complaint against the Greeley Gas Division
for a $1.6 million reduction in annual revenues. The reduction
will not become effective until it has been submitted to and
approved by the Colorado Commission which will probably occur
sometime after mid-January 1998. It will reduce the Greeley Gas
Division's annual revenues and gross profit by approximately 2%
and 4%, respectively. At December 31, 1997, the Company did not
have any rate cases pending.
4. Contingencies
For a review of the status of the Company's litigation and
environmental matters as of September 30, 1997, please refer to
Note 5 of notes to consolidated financial statements in the
Company's Form 10-K for the year ended September 30, 1997.
Material contingencies and developments since September 30, 1997
are discussed below.
Litigation
On March 15, 1991, suit was filed in the 15th Judicial
District Court of Lafayette Parish, Louisiana, by the "Lafayette
Daily Advertiser" and others against Trans Louisiana Gas Company
("Trans La Division"), 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 things, the lawsuit 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 case was finally concluded when, at a fairness hearing on
December 15, 1997, the Court entered its final approval of the
settlement and the suit was dismissed with prejudice.
In Colorado, Greeley Gas Company ("Greeley Gas 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 claim that the fire resulted from a leak in a severed
gas service line owned by the Greeley Gas 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
appealed the judgment to the Colorado Court of Appeals. The
Company believes it has meritorious issues for such appeal but
- 6 -
cannot assess, at this time, the likelihood of success in the
appeal. The Company has adequate insurance to cover the
compensatory and punitive damages awarded.
In March 1997, Western Kentucky Gas Company ("Western
Kentucky Division") was named as a defendant in a lawsuit in the
District Court in Danville, Kentucky, as a result of an explosion
and fire at a residence in Danville, Kentucky on March 4, 1997.
The plaintiffs, Lisa Benedict, et al, who were leasing the
residence, suffered serious burns in the accident and have
alleged that the Western Kentucky Division was negligent in
installing and servicing gas lines at the residence. The
plaintiffs, who are also suing the landlord/owner of the house,
have asked for punitive damages and compensatory damages in the
case. Discovery has just begun; accordingly, the Company cannot
assess, at this time, the likelihood of success in this case.
However, the Company believes it has adequate insurance and
reserves to cover damages that may be awarded.
In November 1997, a jury in Plaquemine, Louisiana awarded
Brian L. Heard General Contractor, Inc., ("Heard") a total of
$177,929 in actual damages and $15 million in punitive damages
resulting from a lawsuit by Heard against the Trans La Division,
the successor in interest to Oceana Heights Gas Company, which
the Company acquired in November 1995. The trial judge also
awarded interest on the total judgment amount. The claims are
for events that occurred prior to the time Atmos acquired Oceana
Heights Gas Company. Heard claimed damages associated with
delays he allegedly incurred in constructing a sewer system in
Iberville Parish, Louisiana. Heard filed the suit against the
Trans La Division and two other defendants, alleging that gas
leaks had caused delays in Heard s completion of a sewer project,
resulting in lost business opportunities for the contractor
during 1994. The Company believes that the gas leaks claimed in
the lawsuit were minor leaks, common in normal operations of gas
systems, and were repaired in accordance with standard industry
practices and did not cause the damages claimed.
The jury awarded punitive damages under a prior Louisiana
statute that allowed punitive damages to be awarded in cases
involving hazardous substances, which, as defined in the statute,
included natural gas. Although not retroactive, the Louisiana
legislature repealed the statute in 1996. The Company does not
believe that punitive damages are applicable in the case and
should not be awarded because there were no direct damages caused
by natural gas. The Company plans to appeal the verdict and to
aggressively pursue obtaining reversal of the judgment. However,
the Company cannot assess, at this time, the likelihood of the
judgment being reversed on appeal. The Company is in the process
of reviewing its insurance coverage with respect to this case.
Although Oceana Heights Gas Company was insured, it appears that
a claim of this nature will not be covered by such insurance.
However, the Company does not expect the final outcome of this
case to have a material adverse effect on the financial
- 7 -
condition, the results of operations or the net cash flows of the
Company.
From time to time, other 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,
liabilities, if any, arising from these other claims and lawsuits
are either covered by insurance, adequately reserved for by the
Company or would not have a material adverse effect on the
financial condition, results of operations, or cash flows of the
Company.
Environmental Matters
The United Cities Division owned a former manufactured gas
plant site in Americus, Georgia. On May 14, 1997, the Georgia
Environmental Protection Division requested that UCGC enter into
a proposed voluntary consent order for the remediation of the
Americus site. Subsequently, the other responsible parties at
the site advised UCGC that they would be willing to enter into a
"cashout" settlement for a one-time payment by the Company of
$250,000. A Settlement Agreement wherein the Company agreed to
pay $250,000 for a "cashout" settlement was entered into by the
parties on December 16, 1997. The agreement contains a Covenant
not to sue and indemnification provision from the other parties
and gives the other parties all responsibility for investigation
and environmental response actions of the site. As of
December 31, 1997, the Company had accrued and deferred for
recovery amounts related to this site.
The Company addresses other environmental matters from time
to time in the regular and ordinary course of its business.
Management expects that future expenditures related to response
action at any site will be recovered through rates or insurance,
or shared among other potentially responsible parties.
Therefore, the costs of responding to these sites are not
expected to materially affect the results of operations,
financial condition or cash flows of the Company.
5. Short-term debt
At December 31, 1997, the Company had committed, short-term,
unsecured bank credit facilities totaling $187,000,000, all of
which was used. The Company also had aggregate uncommitted lines
of credit totaling $160,000,000, of which $133,143,000 was
unused.
- 8 -
6. Statements of cash flows
Supplemental disclosures of cash flow information for the
three month periods ended December 31, 1997 and 1996 are
presented below.
Three months ended
December 31,
1997 1996
------ ------
(In thousands)
Cash paid for
Interest $12,685 $11,557
Income taxes 211 2,370
7. Earnings per share
In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per
Share. Statement 128 replaced the previously reported primary
and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Diluted earnings per share
is very similar to the previously reported fully diluted earnings
per share. All earnings per share amounts for all periods have
been presented, and where necessary, restated to conform to the
Statement 128 requirements. Adoption of Statement 128 did not
change the fully diluted earnings per share amounts for the three
months ended December 31, 1997 and 1996. Reconciliations of the
numerators and denominators of the basic and diluted per-share
computations for net income for the three months ended
December 31, 1997 and 1996 are as follows:
For the three months ended
December 31, 1997
-----------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
(In thousands)
Basic EPS:
Income available to common
stockholders $20,122 29,569 $ .68
=====
Effect of dilutive securities:
Restricted stock - 162
Stock options - 18
------- ------
Diluted EPS:
Income available to common
stockholders and assumed
conversions $20,122 29,749 $ .68
======= ====== =====
- 9 -
For the three months ended
December 31, 1996
-----------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
(In thousands)
Basic EPS:
Income available to common
stockholders $18,155 29,243 $ .62
=====
Effect of dilutive securities:
Restricted stock - -
Stock options - 12
------- ------
Diluted EPS:
Income available to common
stockholders and assumed
conversions $18,155 29,255 $ .62
======= ====== =====
- 10 -
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, 1997, and the related condensed
consolidated statements of income and cash flows for the three-month periods
ended December 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
conducted 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 modifications that
should be made to the accompanying condensed consolidated financial
statements at December 31, 1997, and for the three-month periods ended
December 31, 1997 and 1996 for them to be in conformity with generally ac-
cepted 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, 1997, 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 11, 1997, 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, 1997, 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
February 4, 1998
- 11 -
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 1997 Annual Report to Shareholders and the Company's Annual
Report on Form 10-K for the year ended September 30, 1997.
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 contain "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. All statements other than statements of
historical facts included in this 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 4
of notes 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. Such forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those expressed or implied in the
statements relating to the Company's operations, markets, services, rates,
recovery of costs, availability of gas supply, and other factors. These
risks and uncertainties include, but are not limited to, national, regional
and local economic competitive conditions, regulatory and business trends
and decisions, technological developments, 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 these forward-looking
statements to be reasonable, there can be no assurance that they will
approximate actual experience or that the expectations derived from them
will be realized.
Ratemaking Activity
In December 1997, the Company and the Colorado Office of Consumer
Counsel presented a Stipulation and Agreement to the Colorado Commission to
settle the Consumer Counsel's $3.5 million rate reduction complaint against
Greeley Gas Company. Upon approval by the Colorado Commission, the
Stipulation provides for a reduction of approximately $1.6 million in annual
revenues in Colorado. Such approval is expected in the second quarter of
- 12 -
fiscal 1998. The reduction will decrease the estimated annual gross profit
of the Greeley Gas Division by approximately 4% and the gross profit of
Atmos by approximately .5%.
Year 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any
computer programs that have date-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business
activities.
The Company has developed a Year 2000 plan to identify, evaluate,
implement and test solutions to issues regarding four digit dates. The
Company understood this issue several years ago and began implementing four
digit solutions to in-house developed systems that were being enhanced or
changed due to non-Year 2000 issues. The major mission critical system of
the Company is a customer information system that is being replaced, with
completion expected in late 1998. This system uses many best practices and
will add to the quality of service to our customers. The Company's Year 2000
plan includes implementing all solutions by the end of calendar 1998 and
testing during 1999. The Company, at this time, does not have an estimated
cost for the remaining systems or mechanical device changes, but does not
believe that it will be a material amount.
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
quarter ended December 31, 1997 was 12% colder than weather in the
corresponding quarter of the prior year and sales volumes to weather
sensitive customers increased 1.3 billion cubic feet ("Bcf"). The Company
has weather normalization adjustments ("WNAs") in Georgia and Tennessee,
where it serves approximately 170,000 customers. 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 reduce revenues
approximately $1.6 million for the quarter ended December 31, 1997, as
compared with a decrease of $.4 million for the quarter ended December 31,
1996. The Company does not have WNAs in its other service areas.
FINANCIAL CONDITION
For the three months ended December 31, 1997 net cash used by operating
activities totaled $15.8 million compared with $12.5 million net cash used
by operating activities for the three months ended December 31, 1996. Net
- 13 -
operating assets and liabilities increased $48.5 million for the three
months ended December 31, 1997 compared with an increase of $45.9 million
for the three months ended December 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
that occur when entering and leaving the winter or heating season. These
fluctuations were due to weather in December 1997 being 16% colder than in
December 1996.
Major cash flows used in investing activities for the three months
ended December 31, 1997 included capital expenditures of $24.5 million
compared with $26.7 million for the three months ended December 31, 1996.
The capital expenditures budget for fiscal 1998 is currently $109.1 million,
including $41.5 million for completing the Customer Service Initiative
("CSI"), as compared with actual capital expenditures of $122.3 million in
fiscal 1997. Other budgeted capital projects include major expenditures for
mains, services, meters, vehicles and computer software and equipment. The
CSI project includes a new Customer Information System, a call center, and
related business process and infrastructure changes which are planned to be
placed in full operation in September 1998. These expenditures will be
financed from internally generated funds and financing activities.
For the three months ended December 31, 1997, cash flows provided by
financing activities amounted to $43.2 million as compared with $42.8
million for the three months ended December 31, 1996. During the quarter,
notes payable to banks increased $51.8 million, as compared with an increase
of $14.3 million in the quarter ended December 31, 1996, due to seasonal
factors, cash requirements for the UCGC integration and the CSI project, 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. The debt
issued in November 1996 consisted of $40.0 million of 6.09% term notes,
payable in November 1998. Payments of long-term debt totaled $6.1 million
for the quarter ended December 31, 1997. Such payments consisted of a $3.0
million installment on the Company's 9.76% Senior Notes, a $2.0 million
installment on the Company's 11.2% Senior Notes and installments of $1.1
million on various non-utility notes. The Company paid $7.9 million in cash
dividends during the three months ended December 31, 1997, compared with
dividends of $7.4 million paid during the three months ended December 31,
1996. This reflects increases in the quarterly dividend rate and in the
number of shares outstanding. In the quarter ended December 31, 1997, the
Company issued 208,498 shares of common stock, of which 16,649 were for the
Employee Stock Ownership Plan ("ESOP"), 68,169 for the Direct Stock Purchase
Plan ("DSPP"), 630 for the Outside Directors Stock-for-Fee Plan, 111,250 for
the Restricted Stock Grant Plan and 11,800 for stock options. In the
quarter ended December 31, 1996, the Company issued 142,759 shares of common
stock of which 96,161 were for the ESOP, 45,632 for the DSPP, and 966 for
the Outside Directors Stock-for-Fee Plan.
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 1998. At December 31, 1997 the
Company had $187.0 million in committed short-term credit facilities, all of
which was in use. The committed lines of credit are renewed or renegotiated
at least annually. At December 31, 1997, the Company also had $160.0
- 14 -
million of uncommitted short-term lines of credit, of which $133.1 million
was unused.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH THREE MONTHS ENDED
DECEMBER 31, 1996
Operating revenues increased to $295.3 million for the three months
ended December 31, 1997 compared with $280.6 million for the three months
ended December 31, 1996. The increase in operating revenues was primarily
due to increased average sales prices, which reflect increases in the cost
of natural gas and rate increases implemented in fiscal 1997. The weather
for the three months ended December 31, 1997 was 9% colder than the 30-year
normal and 12% colder than the weather for the corresponding quarter of the
prior year. Total volumes sold for the two periods were almost the same at
50.2 billion cubic feet ("Bcf") for the first quarter of fiscal 1998,
compared with 50.5 Bcf for the first quarter of fiscal 1997. Sales volumes
for residential, commercial and public authority customers increased 1.3 Bcf
due to the colder weather in the quarter ended December 31, 1997. The
impact of colder than normal weather in the Tennessee and Georgia service
areas was offset by weather normalization adjustments that reduced revenues
by approximately $1.6 million as compared with a reduction of $.4 million
last year. Sales volumes to industrial (including agricultural) customers
decreased 1.6 Bcf while volumes transported increased 2.4 Bcf, indicating
industrial customers switching from sales service to transportation service.
Transportation revenues increased due to the increase in volumes transported
and an increase from $.43 to $.48 in the average transportation revenue per
Mcf for the first quarter of fiscal 1998. The average sales price per
thousand cubic feet ("Mcf") sold increased $.31 to $5.44 while the average
cost of gas per Mcf sold increased $.27 to $3.90. The increase in the
average sales price reflects the increased cost of natural gas and rate
increases implemented during the past year. Changes in cost of gas are
reflected in regulated sales prices through purchased gas adjustment
mechanisms. Recent rate increases include a $3.2 million annual rate
increase in Georgia effective in December 1996, and a $5.3 million annual
increase in West Texas effective in November 1996, with an additional $.5
million increase in April 1997.
Gross profit increased by 2% to $99.6 million for the three months
ended December 31, 1997, from $97.3 million for the three months ended
December 31, 1996. The factors contributing to the increased gross profit
were the colder weather and rate increases discussed above. Operating
expenses, excluding income taxes, decreased approximately 3% to $58.6
million for the three months ended December 31, 1997 from $60.5 million for
the three months ended December 31, 1996. Factors contributing to the
decrease were lower operation and maintenance expenses due to a lower number
of employees and integration and reorganization savings. Income taxes
increased $1.4 million due to higher pre-tax profits. Operating income
increased for the three months ended December 31, 1997 by 10% to $28.7
million from $26.0 million for the three months ended December 31, 1996.
The increase in operating income resulted primarily from increased gross
profit.
- 15 -
Interest charges increased $.6 million or 7% primarily due to increased
average short-term debt outstanding in the three months ended December 31,
1997, as compared with the quarter ended December 31, 1996.
Net income increased for the three months ended December 31, 1997 by
approximately 11% to $20.1 million from $18.2 million for the three months
ended December 31, 1996. This increase primarily resulted from increased
gross profit. Diluted earnings per share increased by 10% to $.68. Diluted
average shares outstanding increased 2% as compared with the first quarter
of fiscal 1997. Dividends per share increased 8% to $.265 due to a $.02 per
share increase in the quarterly dividend rate as compared with the restated
rate for the first quarter of the prior year.
- 16 -
UTILITY AND NON-UTILITY DATA
The following table summarizes certain information regarding the
operation of the utility and non-utility businesses of the Company for each
of the three-month periods ended December 31, 1997 and 1996. Prior periods
have been restated to reflect the pooling of interests with UCGC on July 31,
1997.
Utility Non-utility Total
------- ----------- ---------
Three months ended December 31 (In thousands)
1997
Operating revenues $282,066 $13,265 $295,331
Net income 18,658 1,464 20,122
1996
Operating revenues $263,852 $16,772 $280,624
Net income 16,396 1,759 18,155
The utility business is comprised of the Company's five utility
divisions: Energas Division, Greeley Gas Division, Trans La Division,
United Cities Division and Western Kentucky Division. It includes regulated
as well as certain nonregulated utility businesses such as irrigation,
transportation and gas marketing activities in the utility divisions'
respective service areas.
The non-utility business includes the operations of UCG Storage and UCG
Energy, which includes a 45% interest in Woodward Marketing LLC, UCG Propane
and leasing of real estate, vehicles and appliances. Their net income for
the three-month periods ended December 31, 1997 and 1996 are recapped below:
Three months ended
December 31,
1997 1996
------ --------
(In thousands)
Non-utility net income:
Propane $ 844 $1,017
Leasing and rental 301 290
Woodward Marketing 233 256
Storage and other 86 196
------ -------
Total $1,464 $1,759
====== =======
The Company's Propane Division sells and transports propane to both
wholesale and retail customers. Propane statistics for the three-month
periods ended December 31, 1997 and 1996 are included in the "Consolidated
Operating Statistics" table which appears at the end of Management's
Discussion and Analysis. The division sold 11 million gallons of propane
for the three-month period ended December 31, 1997, as compared with 12
million gallons for the three-month period ended December 31, 1996. The
decrease in revenues for the quarter ended December 31, 1997 compared with
the same period last year was the result of a combination of fewer wholesale
- 17 -
gallons sold due to the loss of certain wholesale customers, and a lower
average sales price due to comparatively lower cost of supply to the
division.
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ATMOS ENERGY CORPORATION
CONSOLIDATED OPERATING STATISTICS
Quarter ended December 31,
--------------------------
1997 1996
------------ -----------
Meters-in-service at end of period
Residential 885,726 871,044
Commercial 95,576 93,965
Public authority and other 4,837 4,789
Industrial (including agricultural) 17,091 19,263
--------- ---------
Total natural gas meters 1,003,230 989,061
Propane 29,405 27,054
--------- ---------
Total 1,032,635 1,016,115
========= ==========
Sales Volumes -- MMcf (1)
Residential 26,466 25,322
Commercial 12,549 12,447
Public authority and other 1,884 1,836
Industrial (including agricultural) 9,334 10,945
-------- --------
Total 50,233 50,550
Transportation Volumes -- MMcf (1) 14,341 11,895
-------- --------
Total Volumes Delivered 64,574 62,445
======== ========
Propane - Gallons (000s) 11,258 11,624
======== ========
Operating Revenues (000's)
Gas Revenues
Residential $155,111 $145,388
Commercial 69,217 64,590
Public authority and other 8,950 9,165
Industrial (including agricultural) 40,111 39,946
-------- --------
Total gas revenues 273,389 259,089
Transportation Revenues 6,835 5,099
Other revenues 1,842 1,486
-------- --------
Total utility revenues 282,066 265,674
Non-utility revenues
Propane revenues 10,443 12,816
Other revenues 2,822 2,134
-------- --------
Total non-utility revenues 13,265 14,950
-------- --------
Total operating revenues $295,331 $280,624
======== ========
Average Gas Sales Revenues per Mcf $ 5.44 $ 5.13
Average Transportation Revenue per Mcf $ .48 $ .43
Cost of Gas per Mcf Sold $ 3.90 $ 3.63
(1)Volumes are reported as metered in million cubic feet ("MMcf").
- 19 -
ATMOS ENERGY CORPORATION
CONSOLIDATED OPERATING STATISTICS
(Continued)
HEATING DEGREE DAYS (1)
Weather Quarter ended December 31,
Sensitive ---------------------------
Utility Service Areas Customers % 1997 1996 Normal
- -------------------- ----------- ----- ----- ------
Energas 30 1,632 1,288 1,402
Trans La 8 796 540 661
Western Kentucky 18 1,713 1,613 1,613
Greeley Gas 11 2,371 2,292 2,350
United Cities (2) 33 1,641 1,573 1,526
-----
Atmos System Average 100% 1,655 1,481 1,516
(1) A heating degree day is equivalent to each degree that the average of
the high and the low temperatures for a day is below 65 degrees. The
colder the climate, the greater the number of heating degree days.
Heating degree days are used in the natural gas industry to measure the
coldness of weather experienced and to compare relative temperatures
between one geographic area and another. Normal heating degree days
are derived from a 30-year average of actual heating degree days
compiled by the National Weather Service.
(2) Regulators in Georgia and Tennessee have approved Weather Normalization
Adjustments ("WNAs") which increase the base rate portion of customer's
bills when weather is warmer than normal and decrease it when weather
is colder than normal. The WNAs are applicable to approximately
170,000 customers or 53% of the United Cities Division's total
customers and revenues.
- 20 -
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 4 of notes to consolidated financial statements herein for a
description of legal proceedings.
Item 5. Other Information
The following officers have retired or left the Company since September 30,
1997:
O. Carl Brown, Vice President - Financial and Strategic Planning, effective
November 14, 1997.
Jack W. Eversull, Vice President - Investor Relations, effective December 3,
1997.
Don James, Senior Vice President of Public Affairs, effective January 31,
1998.
Mary S. Lovell, Senior Vice President - Utility Services, effective January
31, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
A list of exhibits required by Item 601 of Regulation S-K and filed as
part of this report is set forth in the Exhibits Index, which
immediately precedes such exhibits.
(b) Reports on Form 8-K
The Company filed a Form 8-K Current Report, Item 5, Other Events,
dated November 12, 1997, disclosing that the Board of Directors of
Atmos Energy Corporation declared a dividend distribution of one Right
for each outstanding share of the Company's Common Stock to
shareholders of record at the close of business on May 10, 1998 (the
"Record Date"). Each Right entitles the registered holder to purchase
from the Company one share of Common Stock at a Purchase Price of $80
per share, subject to adjustment. The description and terms of the
Rights are set forth in a Rights Agreement (the "Rights Agreement")
between the Company and BankBoston, N.A. as Rights Agent.
Under Item 7, Financial Statements and Exhibits, two exhibits were
attached: the Rights Agreement between the Company and the Rights
Agent, and a copy of a related press release dated November 12, 1997.
- 21 -
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, 1998 By: /s/ David L. Bickerstaff
------------------------------
David L. Bickerstaff
Vice President and Controller
(Chief Accounting Officer and
duly authorized signatory)
EXHIBITS INDEX
Item 6(a)
Exhibit Page
Number Description Number
------- ----------- -------
15 Letter regarding unaudited interim
financial information
27 Financial Data Schedule for Atmos
Energy Corporation for the three
months ended December 31, 1997
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