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 March 31, 1998
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 May 1, 1998.
Class Shares Outstanding
----- ------------------
No Par Value 30,087,113
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,
1998 1997
------------ ------------
ASSETS
Property, plant and equipment $1,384,992 $1,332,672
Less accum. depreciation and amort. 508,923 483,545
---------- ----------
Net property, plant and equipment 876,069 849,127
Current assets
Cash and cash equivalents 10,025 6,016
Accounts receivable, net 110,442 71,217
Inventories of supplies and mdse. 13,289 12,333
Gas stored underground 22,910 48,122
Prepayments 4,132 6,017
---------- ----------
Total current assets 160,798 143,705
Deferred charges and other assets 111,307 95,479
---------- ----------
$1,148,174 $1,088,311
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' equity
Common stock $ 150 $ 148
Additional paid-in capital 262,295 251,174
Retained earnings 117,630 75,938
---------- ----------
Total shareholders' equity 380,075 327,260
Long-term debt 252,152 302,981
---------- ----------
Total capitalization 632,227 630,241
Current liabilities
Current maturities of long-term debt 57,508 15,201
Notes payable to banks 146,843 167,300
Accounts payable 73,463 62,626
Taxes payable 27,332 416
Customers' deposits 13,581 15,098
Other current liabilities 51,198 52,582
---------- ----------
Total current liabilities 369,925 313,223
Deferred income taxes 87,486 87,828
Deferred credits and other liabilities 58,536 57,019
---------- ----------
$1,148,174 $1,088,311
========== ==========
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,
-----------------------------
1998 1997
-------- --------
Operating revenues $288,550 $362,637
Purchased gas cost 164,579 238,389
-------- --------
Gross profit 123,971 124,248
Operating expenses
Operation 33,227 43,562
Maintenance 2,288 3,150
Depreciation and amortization 11,876 11,553
Taxes, other than income 9,377 10,133
Income taxes 22,710 18,775
-------- --------
Total operating expenses 79,478 87,173
-------- --------
Operating income 44,493 37,075
Other income 2,241 2,214
Interest charges, net 9,336 8,663
-------- --------
Net income $ 37,398 $ 30,626
======== ========
Basic net income per share $ 1.26 $ 1.04
======== ========
Diluted net income per share $ 1.25 $ 1.04
======== ========
Cash dividends per share $ .265 $ .252
======== ========
Weighted average
shares outstanding:
Basic 29,740 29,379
======== ========
Diluted 29,965 29,397
======== ========
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,
--------------------
1998 1997
-------- --------
Operating revenues $583,881 $643,261
Purchased gas cost 360,309 421,744
-------- --------
Gross profit 223,572 221,517
Operating expenses
Operation 69,268 81,735
Maintenance 4,769 5,738
Depreciation and amortization 23,784 23,065
Taxes, other than income 17,596 18,312
Income taxes 34,994 29,624
-------- --------
Total operating expenses 150,411 158,474
-------- --------
Operating income 73,161 63,043
Other income 3,004 3,102
Interest charges 18,645 17,364
-------- --------
Net income $ 57,520 $ 48,781
======== ========
Basic net income per share $ 1.94 $ 1.66
======== ========
Diluted net income per share $ 1.94 $ 1.66
======== ========
Cash dividends per share $ .53 $ .50
======== ========
Weighted average shares outstanding
Basic 29,654 29,310
======= ======
Diluted 29,668 29,328
======= ======
See accompanying notes to condensed consolidated financial
statements.
- 4 -
ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Six months ended
March 31,
-------------------
1998 1997
-------- --------
Cash Flows From Operating Activities
Net income $57,520 $ 48,781
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization
Charged to depreciation and
amortization 23,784 23,065
Charged to other accounts 1,634 1,938
Deferred income taxes (benefit) (342) 3,584
Net change in operating assets and
liabilities 7,457 (20,650)
-------- --------
Net cash provided by
operating activities 90,053 56,718
Cash Flows From Investing Activities
Capital expenditures (52,575) (53,547)
Retirements of property, plant and
equipment 215 314
-------- --------
Net cash used in investing activities (52,360) (53,233)
Cash Flows From Financing Activities
Net decrease in notes payable to banks (20,457) (15,943)
Cash dividends paid (15,828) (14,789)
Issuance of long-term debt - 40,000
Repayment of long-term debt (8,522) (9,724)
Issuance of common stock 11,123 5,382
-------- --------
Net cash provided (used) by financing
activities (33,684) 4,926
-------- --------
Net increase in cash and cash equivalents 4,009 8,411
Cash and cash equivalents at beginning
of period 6,016 8,757
-------- --------
Cash and cash equivalents at end
of period $ 10,025 $ 17,168
======== ========
See accompanying notes to condensed consolidated financial
statements.
- 5 -
ATMOS ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
1. Unaudited interim financial information
In the opinion of management, all material adjustments
necessary for a fair presentation have been made to the unaudited
interim period financial statements. Such adjustments consisted
only of normal recurring accruals. Because of seasonal and other
factors, the results of operations for the six-month period ended
March 31, 1998 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 March 31, 1998, the related condensed consolidated
statements of income for the three-month and six-month periods
ended March 31, 1998 and 1997, and the condensed consolidated
statements of cash flows for the six-month periods ended March
31, 1998 and 1997, 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, 1998, the Company had
75,000,000 shares of common stock, no par value (stated at $.005
per share), authorized and 30,056,436 shares outstanding. At
September 30, 1997 29,642,437 shares were 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, financial statements for prior periods
have been restated to reflect the merger. Certain UCGC account
balances for prior periods have been reclassified to conform
UCGC's classifications to Atmos' presentation.
- 6 -
3. Rates
The Company's ratemaking activity over the three-year period
ended September 30, 1997 was discussed 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 of such activity
at March 31, 1998 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 Greeley Gas Company ("the
Greeley Gas Division"). On December 17, 1997, a hearing was held
at the Colorado Commission 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 Stipulation and Agreement became effective
in late January 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%.
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 new 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 concluded when the Court entered its final approval
of the settlement and the suit was dismissed with prejudice at a
fairness hearing on December 15, 1997.
- 7 -
In Colorado, the 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 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 the Company 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
- 8 -
should not be awarded because there were no direct damages caused
by natural gas. The Company is appealing the verdict and
aggressively pursuing the 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
condition, results of operations or 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 net 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, an indemnification provision from the other parties
and gives the other parties all responsibility for investigation
and environmental response actions of the site. As of March 31,
1998, 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 financial condition, results of
operations, or net cash flows of the Company.
5. Short-term debt
At March 31, 1998, the Company had committed, short-term,
unsecured bank credit facilities totaling $187,000,000, of which
$65,000,000 was unused. The Company also had aggregate
- 9 -
uncommitted lines of credit totaling $160,000,000, of which
$140,300,000 was unused.
6. Statements of cash flows
Supplemental disclosures of cash flow information for the
six-month periods ended March 31, 1998 and 1997 are presented
below.
Six months ended
March 31,
1998 1997
------ ------
(In thousands)
Cash paid for
Interest $18,460 $13,375
Income taxes 7,399 5,658
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-month and six-month periods ended March 31, 1997.
Reconciliations of the numerators and denominators of the basic
and diluted per-share computations for net income for the three-
month and six-month periods ended March 31, 1998 and 1997 are as
follows:
- 10 -
For the three months ended
March 31, 1998
-----------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
(In thousands)
Basic EPS:
Income available to common
stockholders $37,398 29,740 $1.26
=====
Effect of dilutive securities:
Restricted stock - 211
Stock options - 14
------- ------
Diluted EPS:
Income available to common
stockholders and assumed
conversions $37,398 29,965 $1.25
======= ====== =====
For the three months ended
March 31, 1997
-----------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
(In thousands)
Basic EPS:
Income available to common
stockholders $30,626 29,379 $1.04
=====
Effect of dilutive securities:
Restricted stock - -
Stock options - 18
------- ------
Diluted EPS:
Income available to common
stockholders and assumed
conversions $30,626 29,397 $1.04
======= ====== =====
- 11 -
For the six months ended
March 31, 1998
-----------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
(In thousands)
Basic EPS:
Income available to common
stockholders $57,520 29,654 $1.94
=====
Effect of dilutive securities:
Restricted stock - -
Stock options - 14
------- ------
Diluted EPS:
Income available to common
stockholders and assumed
conversions $57,520 29,668 $1.94
======= ====== =====
For the six months ended
March 31, 1997
-----------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
(In thousands)
Basic EPS:
Income available to common
stockholders $48,781 29,310 $1.66
=====
Effect of dilutive securities:
Restricted stock - -
Stock options - 18
------- ------
Diluted EPS:
Income available to common
stockholders and assumed
conversions $48,781 29,328 $1.66
======= ====== =====
- 12 -
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, 1998, and the related condensed
consolidated statements of income for the three-month and six-month periods
ended March 31, 1998 and 1997 and the condensed consolidated statements of
cash flows for the six-month periods ended March 31, 1998 and 1997. 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 March 31, 1998, and for the three-month and six-month periods
ended March 31, 1998 and 1997 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, 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
April 27, 1998
- 13 -
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 Quarterly Report including, but not
limited to, those contained in the following sections, Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
and Note 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. When used in this
Report or in any of the Company's other documents or oral presentations, the
words "anticipate," "report," "objective," "forecast," "goal" or similar
words are intended to identify forward-looking statements. Such forward-
looking statements are subject to risks and uncertainties that could cause
actual results to differ materially from those expressed or implied in the
statements relating to the Company's operations, markets, services, rates,
recovery of costs, availability of gas supply, and other factors. These
risks and uncertainties include, but are not limited to, national, regional
and local economic 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
- 14 -
the Greeley Gas Division. It was approved by the Colorado Commission,
effective in late January 1998. It provides for a reduction of
approximately $1.6 million in annual revenues in Colorado. 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 the importance of 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 and is planned to be placed in full operation in September
1998. This system uses many best practices and will add to the quality of
service to the Company's customers. The Company's Year 2000 plan includes
implementing all critical solutions by the end of calendar 1998 and testing
during calendar 1999. At this time, the Company, does not have a specific
estimated total 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. Although weather for
the six months ended March 31, 1998 was 4% warmer than normal, it was 2%
colder than weather in the corresponding period of the prior year and sales
volumes to weather sensitive customers increased .5 billion cubic feet
("Bcf"). The Company has weather normalization adjustments ("WNAs") in
Georgia and Tennessee, where it serves approximately 170,000 customers or
53% of the United Cities Division's total customers and revenues. The WNAs
increase the base rate when weather is warmer than normal and decrease it
when weather is colder than normal. The effect of the WNAs was to increase
revenues approximately $.6 million for the six months ended March 31, 1998,
as compared with an increase of approximately $2.8 million for the six month
period ended March 31, 1997. The Company does not have WNAs in its other
service areas.
- 15 -
FINANCIAL CONDITION
For the six months ended March 31, 1998 net cash provided by operating
activities totaled $90.1 million compared with $56.7 million for the six
months ended March 31, 1997. The increase resulted from increased net
income and decreased net operating assets and liabilities. Net income
increased $8.7 million to $57.5 million for the six months ended March 31,
1998 from $48.8 million for the six months ended March 31, 1997. Net
operating assets and liabilities decreased $7.5 million for the six months
ended March 31, 1998 compared with an increase of $20.7 million for the six
months ended March 31, 1997. This decrease in net 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 primarily to weather in the month of March 1998 being 38% colder
than in the month of March 1997.
Major cash flows used in investing activities for the six months ended
March 31, 1998 included capital expenditures of $52.6 million compared with
$53.5 million for the six months ended March 31, 1997. The capital
expenditures budget for fiscal 1998 is currently $109.1 million, including
$37.0 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 six months ended March 31, 1998, cash flows used by financing
activities amounted to $33.7 million as compared with cash flows provided of
$4.9 million for the six months ended March 31, 1997. During the six month
period, notes payable to banks decreased $20.5 million, as compared with a
decrease of $15.9 million in the six months ended March 31, 1997, 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. 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 $8.5 million for the six months ended March 31, 1998.
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, an installment of $2.0 million on the Company's 8.69% Series N First
Mortgage Bonds, and installments of $1.5 million on various non-utility
notes. The Company paid $15.8 million in cash dividends during the six
months ended March 31, 1998, compared with dividends of $14.8 million paid
during the six months ended March 31, 1997. This reflects increases in the
quarterly dividend rate and in the number of shares outstanding. In the six
months ended March 31, 1998, the Company issued 413,999 shares of common
stock, of which 25,815 were for the Employee Stock Ownership Plan ("ESOP"),
221,786 were for the Direct Stock Purchase Plan ("DSPP"), 1,148 for the
Outside Directors Stock-for-Fee Plan, 111,250 for the Restricted Stock Grant
Plan and 54,000 for stock options under the Long Term Stock Plan for the
United Cities Division. In the six months ended March 31, 1997, the Company
issued 236,569 shares of common stock of which 146,484 were for the ESOP and
- 16 -
401(k) plans, 88,452 for the DSPP, and 1,633 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 March 31, 1998 the
Company had $187.0 million in committed short-term credit facilities, $65.0
million of which was unused. The committed lines of credit are renewed or
renegotiated at least annually. At March 31, 1998, the Company also had
$160.0 million of uncommitted short-term lines of credit, of which $140.3
million was unused.
On April 20, 1998 the Company filed a registration statement on Form S-
3 with the SEC to register the issuance of up to $150 million of unsecured
debt securities. Before the debt securities may be issued, the registration
statement must become effective and approvals must be obtained from several
states' utility commissions. The proceeds from the debt issuance are to be
used to refinance short-term borrowings under the Company's credit
facilities.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998, COMPARED WITH THREE MONTHS ENDED MARCH
31, 1997
Operating revenues decreased by 20% to $288.6 million for the three
months ended March 31, 1998 from $362.6 million for the three months ended
March 31, 1997. The most significant factor contributing to the decrease in
operating revenues was an 18% decrease in the average sales revenue per Mcf.
The decrease in the revenue per Mcf sold reflects a 27% decrease in the
average cost of gas per Mcf sold which is passed through to customers. In
addition, there was a 3% decrease in the volumes delivered. During the
quarter ended March 31, 1998, temperatures were 6% warmer than in the
corresponding quarter of the prior year, and were 13% warmer than the 30-
year normal weather for the quarter. The total volume of gas sold and
transported for the three months ended March 31, 1998 was 74.2 billion cubic
feet ("Bcf") compared with 76.3 Bcf for the three months ended March 31,
1997. Sales volumes to weather sensitive customer classes were lower for
the quarter ended March 31, 1998 than for the corresponding period of the
prior year due to the 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 decreased $.97 to $4.42 primarily due to a decrease
in the average cost of gas. The average cost of gas per Mcf sold decreased
27% to $2.77 for the three months ended March 31, 1998 from $3.78 for the
three months ended March 31, 1997 due to increased supply availability in
the current market.
Gross profit decreased by .2% to $124.0 million for the three months
ended March 31, 1998, from $124.2 million for the three months ended March
31, 1997. The decrease in gross profit was primarily due to the decrease in
volumes sold. Changes in cost of gas do not directly affect gross profit.
However, the Company estimates that the impact of the weather being 13%
- 17 -
warmer than normal and rainfall being above normal for the three months
ended March 31, 1998 caused gross profit to be approximately $6.0 million
less than it would have been had the Company experienced normal temperatures
and rainfall in its respective service areas. Weather was approximately 8%
warmer than normal for the three months ended March 31, 1997.
Operating expenses, excluding income taxes, decreased 17% to $56.8
million for the three months ended March 31, 1998 from $68.4 million for
the three months ended March 31, 1997. The major factors contributing to
the decrease in operation and maintenance expenses in the 1998 quarter were
savings from restructuring and the integration of United Cities, as well as
higher administrative and general expenses in the 1997 quarter, which
included expenses associated with severance pay of $4.4 million ($2.8
million after tax) due to management reorganization. The decrease in taxes
other than income taxes was related to taxes on decreased revenues and
payroll taxes related to the reduced labor force. Operating income
increased 20% for the three months ended March 31, 1998 to $44.5 million
from $37.1 million for the three months ended March 31, 1997. The increase
in operating income resulted from decreased operating expenses, as mentioned
above. Income taxes increased $3.9 million or 21% in the quarter ended
March 31, 1998 compared with the corresponding quarter of the prior year due
to increased pre-tax income.
Interest expense increased $.7 million, or 8%, for the three months
ended March 31, 1998 compared with the three months ended March 31, 1997 due
to an increased amount of total debt outstanding. Net income increased for
the three months ended March 31, 1998 by 22% to $37.4 million from $30.6
million for the three months ended March 31, 1997. This increase in net
income resulted primarily from the decrease in operating expenses discussed
above.
SIX MONTHS ENDED MARCH 31, 1998, COMPARED WITH SIX MONTHS ENDED MARCH 31,
1997
Operating revenues decreased by 9% to $583.9 million for the six months
ended March 31, 1998 from $643.3 million for the six months ended March 31,
1997. The primary factor contributing to the lower operating revenues was a
7% decrease in the average gas sales revenue per Mcf, due to a 12% decrease
in the average cost of gas per Mcf sold, which is reflected in revenues.
Total volumes delivered was unchanged for the six months ended March 31,
1998. However, the volume of gas sold decreased 4.0 Bcf and the volume
transported increased 4.0 Bcf compared with the six months ended March 31,
1997. This switching of industrial sales customers to transportation
service reduced gross revenues, purchased gas cost and, to a lesser extent,
gross profit. Sales volumes to weather sensitive customer classes increased
.5 Bcf for the six months ended March 31, 1998 compared with the
corresponding period of the prior year due to 2% colder weather. Sales
volumes to industrial (including agricultural) customers were reduced by
lower agricultural usage and switching by industrial sales customers to
transportation service. Although the weather in the Company's service areas
was 2% colder than weather in the corresponding six-month period of the
prior fiscal year, it was 4% warmer than 30-year normal weather. The
average sales price per Mcf decreased to $4.89 for the six months ended
March 31, 1998 from $5.27 for the six months ended March 31, 1997. The
decrease in the average sales price reflects a decrease in the average cost
- 18 -
of gas, partially offset by rate increases. The average cost of gas per Mcf
sold decreased to $3.28 for the six months ended March 31, 1998 from $3.71
for the six months ended March 31, 1997 because of generally lower gas
supply costs.
Gross profit increased 1% to $223.6 million for the six months ended
March 31, 1998, compared with $221.5 million for the six months ended March
31, 1997. This increase was primarily due to an increase of $.05 average
transportation revenue per Mcf and secondarily to rate increases in Texas,
Georgia and Illinois. The decreased cost of gas did not directly affect
gross profit. However, the Company estimates that the impact of the weather
being 4% warmer than normal and rainfall being above normal for the six
months ended March 31, 1998 caused gross profit to be approximately $3.9
million less than it would have been had the Company experienced normal
temperatures and rainfall in its respective service areas. Weather was
approximately 6% warmer than normal for the six months ended March 31, 1997.
Operating expenses, excluding income taxes, decreased to $115.4 million
in the six months ended March 31, 1998, from $128.9 million in the six
months ended March 31, 1997. The decrease was comprised of $12.5 million in
operation expense, $1.0 million in maintenance and $.7 million in taxes
other than income. The principal factors contributing to the decrease in
operation and maintenance expenses were savings realized in connection with
integration and reorganization initiatives and the administrative and
general expenses incurred in the six months ended March 31, 1997 in
connection with management reorganization. The increase in depreciation
related to utility plant additions placed in service during the past year.
Significant factors in the decrease in taxes other than income taxes were
lower taxes on decreased revenues and payroll taxes related to the reduced
labor force. The provision for income taxes for the six months ended March
31, 1998 increased $5.4 million from the provision for the corresponding
period of the prior year due to increased pre-tax income. Operating income
increased for the six months ended March 31, 1998 to $73.2 million from
$63.0 million for the six months ended March 31, 1997. The increase in
operating income was primarily related to the decreased operating expenses
and, to a lesser extent, to increased gross profit, as discussed above.
Interest charges increased $1.3 million, or 7%, due to an increased
amount of debt outstanding during the six months ended March 31, 1998
compared with the corresponding six-month period of the prior year. Net
income increased 18% for the six months ended March 31, 1998, to $57.5
million from $48.8 million for the six months ended March 31, 1997. The
increase in net income resulted primarily from the decrease in operating
expenses which was supplemented by an increase in gross profit. Dividends
per share increased approximately 6% to $.53 for the six months ended March
31, 1998. Diluted average shares outstanding increased 1% due to shares
issued under the Employee Stock Ownership Plan and the Direct Stock Purchase
Plan.
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 six-month periods ended March 31, 1998 and 1997. Prior periods have
- 19 -
been restated to reflect the pooling of interests with UCGC on July 31,
1997.
Utility Non-utility Total
------- ----------- ---------
Six months ended March 31: (In thousands)
1998
Operating revenues $555,206 $28,675 $583,881
Net income 53,788 3,732 57,520
1997
Operating revenues $612,970 $30,291 $643,261
Net income 44,917 3,864 48,781
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, Atmos
Propane, and leasing of real estate, vehicles and appliances. The net
income for such operations for the six-month periods ended March 31, 1998
and 1997 are recapped below:
Six months ended March 31,
1998 1997
------ --------
(In thousands)
Non-utility net income:
Atmos Propane $1,554 $1,736
Woodward Marketing 1,462 1,414
Leasing and rental 474 596
Storage and other 242 118
------ -------
Total $3,732 $3,864
====== =======
Atmos Propane sells and transports propane to both wholesale and retail
customers. Propane statistics for the six-month periods ended March 31,
1998 and 1997 are included in the "Consolidated Operating Statistics" table
which appears at the end of Management's Discussion and Analysis. The
division sold 24.3 million gallons of propane for the six-month period ended
March 31, 1998, as compared with 23.7 million gallons for the six-month
period ended March 31, 1997. The decrease in revenues for the six months
ended March 31, 1998 compared with the same period last year was the result
of a lower average sales price due to comparatively lower cost of supply to
the division.
- 20 -
Total customers at March 31, 1998 increased 17,515, or 2%, compared
with March 31, 1997.
March 31,
--------------------------
1998 1997
------------ -----------
Meters-in-service at end of period
Residential 892,069 875,243
Commercial 96,430 94,585
Public authority and other 4,874 4,786
Industrial (including agricultural) 16,833 17,330
--------- ----------
Total natural gas meters 1,010,206 991,944
Propane customers 29,229 29,976
--------- ----------
Total 1,039,435 1,021,920
========= ==========
- 21 -
ATMOS ENERGY CORPORATION
CONSOLIDATED OPERATING STATISTICS
Quarter ended March 31,
1998 1997
Sales volumes -- MMcf(1) ------- -------
Residential 33,404 33,554
Commercial 14,903 15,518
Public authority and other 2,183 2,213
Industrial (including agricultural) 8,985 11,853
------- -------
Total 59,475 63,138
Transportation volumes -- MMcf(1) 14,748 13,189
------- -------
Total volumes delivered 74,223 76,327
======= =======
Propane - Gallons (000's) 13,022 12,081
Gas sales revenues (000's): ======= =======
Residential $155,456 $195,352
Commercial 66,865 85,449
Public authority and other 6,656 10,696
Industrial (including agricultural) 34,129 48,510
-------- --------
Total gas revenues 263,106 340,007
Transportation revenues 6,420 5,261
Other revenues 3,613 2,028
-------- --------
Total utility revenues 273,139 347,296
Non-utility revenues:
Propane revenues 11,375 12,559
Other revenues 4,036 2,782
-------- --------
Total non-utility revenues 15,411 15,341
-------- --------
Total operating revenues $288,550 $362,637
======== ========
Average Gas Sales Revenues per Mcf $ 4.42 $ 5.39
Average Transportation Revenue per Mcf $ .44 $ .40
Cost of Gas per Mcf Sold $ 2.77 $ 3.78
HEATING DEGREE DAYS
Service Weather Sensitive Quarter ended March 31,
Area Customers % 1998 1997 Normal
- -------------- ----------- ----- ----- ------
Energas 30% 1,762 1,839 1,884
Trans La 8% 855 882 1,068
Western Kentucky 18% 1,796 2,071 2,355
Greeley Gas 11% 2,779 2,945 2,963
United Cities 33% 1,862 1,916 2,200
----
System Average 100% 1,831 1,940 2,115
(1) Volumes are reported as metered in million cubic feet ("MMcf").
- 22 -
ATMOS ENERGY CORPORATION
CONSOLIDATED OPERATING STATISTICS
Six months ended March 31,
1998 1997
Sales volumes -- MMcf(1) ------- -------
Residential 59,871 58,875
Commercial 27,452 27,965
Public authority and other 4,066 4,049
Industrial (including agricultural) 18,319 22,799
------- -------
Total 109,708 113,688
Transportation volumes -- MMcf(1) 29,089 25,084
------- -------
Total volumes delivered 138,797 138,772
======= =======
Propane - Gallons (000's) 24,280 23,705
Gas sales revenues (000's): ======= =======
Residential $310,566 $340,741
Commercial 136,082 150,039
Public authority and other 15,606 19,861
Industrial (including agricultural) 74,241 88,456
-------- --------
Total gas revenues 536,495 599,097
Transportation revenues 13,255 10,360
Other revenues 5,456 3,513
-------- --------
Total utility revenues $555,206 $612,970
Non-utility revenues:
Propane revenues 21,818 25,375
Other revenues 6,857 4,916
-------- --------
Total non-utility revenues $ 28,675 $ 30,291
-------- --------
Total operating revenues $583,881 $643,261
======== ========
Average Gas Sales Revenues per Mcf $ 4.89 $ 5.27
Average Transportation Revenue per Mcf $ .46 $ .41
Cost of Gas per Mcf Sold $ 3.28 $ 3.71
HEATING DEGREE DAYS
Service Weather Sensitive Six months ended March 31,
Area Customers % 1998 1997 Normal
- -------------- ----------- ----- ----- ------
Energas 30% 3,394 3,128 3,286
Trans La 8% 1,651 1,421 1,729
Western Kentucky 18% 3,509 3,684 3,968
Greeley Gas 11% 5,150 5,237 5,313
United Cities 33% 3,503 3,489 3,726
----
System Average 100% 3,486 3,421 3,631
(1) Volumes are reported as metered in million cubic feet ("MMcf").
- 23 -
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 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of Atmos Energy Corporation on
February 11, 1998, 27,391,818 votes were cast as follows:
VOTES VOTES BROKER
FOR WITHHELD NON-VOTE
---------- ---------- --------
Class III Directors:
Robert W. Best 27,096,540 295,278
Thomas J. Garland 27,077,093 314,725 -
Phillip E. Nichols 27,090,372 301,446 -
Charles K. Vaughan 27,090,257 301,561 -
The other directors will continue to serve until the expiration of their
terms. The term of the Class II directors, Richard W. Cardin, Thomas C.
Meredith, Carl S. Quinn and Richard Ware II will expire in 2000. The term
of the Class I directors, Travis W. Bain II, Gene C. Koonce, Vincent J.
Lewis and Dan Busbee, will expire in 1999. The term of the Class III
directors, listed above, will expire in 2001. Lee E. Schlessman retired
from the Board at the expiration of his term in February 1998 in accordance
with the Company's mandatory retirement policy.
Proposal to increase the total number of shares that may be issued under the
Restricted Stock Grant Plan by 650,000 shares.
VOTES VOTES VOTES BROKER
FOR AGAINST ABSTAINING NON-VOTE
---------- ---------- ---------- --------
25,360,895 1,430,549 483,882 116,492
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
A list of exhibits required by Item 601 of Regulation S-K and filed
as part of this report is set forth in the Exhibits Index, which
immediately precedes such exhibits.
(b) Reports on Form 8-K
None.
- 24 -
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, 1998 By: /s/ David L. Bickerstaff
------------------------------
David L. Bickerstaff
Vice President and Controller
(Chief Accounting Officer and
duly authorized signatory)
- 25 -
EXHIBITS INDEX
Item 6(a)
Exhibit Page
Number Description Number
------- ----------- -------
10.1 Agreement for Firm Intrastate
Transportation of Natural Gas in the
State of Louisiana between Trans La
and Louisiana Intrastate Gas Company
L.L.C.( LIG ) dated December 22,
1997, and effective July 1, 1997.
10.2 Agreement for Firm 311(a)(2)
Transportation of Natural Gas in the
State of Louisiana between Trans La
and Louisiana Intrastate Gas Company
L.L.C.( LIG ) dated December 22,
1997, and effective July 1, 1997.
10.3 Firm Transportation Service
Agreement No. 33180000, Rate
Schedule TF-1, between Greeley Gas
Company and Colorado Interstate Gas
Company dated October 1, 1996.
10.4 Gas Transportation Agreement Service
Package No. 4272 between United
Cities Gas Company and East
Tennessee Natural Gas Company dated
November 1, 1993.
10.5 Gas Transportation Agreement Service
Package No. 4219 between United
Cities Gas Company and Tennessee Gas
Pipeline Company dated November 1,
1993.
10.6 Transportation-Storage Contract
(Request 0180) between United Cities
Gas Company and Williams Natural Gas
Company dated October 1, 1993.
10.7 Transportation-Storage Contract
(Request 0002) between United Cities
Gas Company and Williams Natural Gas
Company dated October 1, 1993.
10.8 Service Agreement No. 867760 under
Rate Schedule FT between United
Cities Gas Company and Southern
Natural Gas Company dated November
1, 1993.
- 26 -
Exhibit Page
Number Description Number
------- ----------- -------
10.9 Service Agreement No. 867761 under
Rate Schedule FT-NN between United
Cities Gas Company and Southern
Natural Gas Company dated November
1, 1993.
15 Letter regarding unaudited interim
financial information
27.1 Financial Data Schedule for Atmos
Energy Corporation for the six
months ended March 31, 1998
27.2 Restated Financial Data Schedules
for Atmos Energy Corporation for the
following periods:
- Three months ended December 31,
1996
- Six months ended March 31, 1997
- Nine months ended June 30, 1997
27.3 Restated Financial Data Schedules
for Atmos Energy Corporation for the
following periods:
- Three months ended December 31,
1995
- Six months ended March 31, 1996
- Nine months ended June 30, 1996
- Year ended September 30, 1996
27.4 Restated Financial Data Schedule for
Atmos Energy Corporation for the
year ended September 30, 1995
- 27 -