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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1995
COMMISSION IRS EMPLOYER
FILE STATE OF IDENTIFICATION
NUMBER REGISTRANT INCORPORATION NUMBER
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1-7810 Energen Corporation Alabama 63-0757759
2-38960 Alabama Gas Corporation Alabama 63-0022000
2101 Sixth Avenue North
Birmingham, Alabama 35203
(205) 326-2700
Securities Registered Pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED
- ------------------- ----------------------------
Energen Corporation Common Stock, $0.01 par value New York Stock Exchange
Energen Corporation Preferred Stock Purchase Rights New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: NONE
Indicate by a check mark whether registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports) and (2) have been subject to
such filing requirements for the past 90 days. YES X NO
--- ---
Indicate by a check mark if disclosure of delinquent files pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ( )
Aggregate market value of the voting stock held by non-affiliates of the
registrants as of December 18, 1995:
Energen Corporation $271,868,000
Indicate number of shares outstanding of each of the registrant's classes of
common stock as of December 18, 1995:
Energen Corporation 10,984,566 shares
Alabama Gas Corporation 1,972,052 shares
DOCUMENTS INCORPORATED BY REFERENCE
o Energen Corporation Proxy Statement to be filed on or about December 21,
1995 (Part III, Item 10-13)
o Portions of Energen Corporation 1995 Annual Report to Stockholders are
incorporated by reference into Part II, Items 5, 6, 7, and 8 of this report
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ENERGEN CORPORATION
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . 8
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters . . . . . . . . . . 12
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . 13
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PART III
Item 10. Directors and Executive Officers of the Registrants . . . . . . . . . . . . . . . . . . 13
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . 13
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . 13
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . 14
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This Form 10-K is filed on behalf of Energen Corporation (Energen
or the Company) and Alabama Gas Corporation (Alagasco).
PART I
ITEM 1. BUSINESS
GENERAL
Energen is a diversified energy holding company engaged primarily in natural
gas distribution and the exploration and production of natural gas and oil.
Energen was incorporated in Alabama in 1978 in connection with the
reorganization of its largest subsidiary, Alagasco. Alagasco was formed in
1948 by the merger of Alabama Gas Company into Birmingham Gas Company, the
predecessors of which had been in existence since the late 1800's. Alagasco
became a public company in 1953.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The information required by this item is incorporated by reference from Note 15
to the Consolidated Financial Statements of the 1995 Annual Report to
Stockholders, and is attached herein as Part IV, Item 14, Exhibit 13.
NARRATIVE DESCRIPTION OF BUSINESS
o NATURAL GAS DISTRIBUTION
GENERAL: Alagasco, Energen's principal subsidiary, is the largest natural
gas distribution utility in the state of Alabama. Alagasco purchases
natural gas through interstate and intrastate suppliers and distributes the
purchased gas through its distribution facilities for sale to residential,
commercial, industrial and other end-users of natural gas. Alagasco also
provides transportation services to industrial and commercial customers
located on its distribution system. These transportation customers, acting
on their own or using Alagasco as their agent, purchase gas directly from
producers or other suppliers and arrange for delivery of the gas into the
Alagasco distribution system. Alagasco then charges a fee to transport this
customer-owned gas through its distribution system to the customer's
facility.
Alagasco's service territory is located primarily in central and north
Alabama and includes over 175 communities in 30 counties. Birmingham, the
largest city in Alabama, and Montgomery, the state capital, are served by
Alagasco. The counties in which Alagasco provides service have an aggregate
area of more than 22,000 square miles and include the service territories of
various municipal gas distribution systems.
The aggregate population of the counties served by Alagasco is estimated to
be 2.4 million. During 1995 Alagasco served an average of 410,515
residential customers, 33,115 small commercial and industrial customers, and
48 large commercial and industrial customers. The Alagasco distribution
system includes approximately 8,650 miles of main, more than 9,500 miles of
service lines, odorization and regulation facilities, and customer meters.
Alagasco also operates two liquefied natural gas facilities which it uses to
meet peak demands.
APSC REGULATION: As a public utility in the state of Alabama, Alagasco is
subject to regulation by the Alabama Public Service Commission (APSC), which
has adopted several innovative approaches to rate regulation, including
Alagasco's Rate Stabilization and Equalization (RSE) rate-setting process.
Implemented in 1983 and modified in 1985, 1987, and 1990, RSE replaced the
traditional utility rate case
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with APSC-monitored periodic rate adjustments presently designed to give
Alagasco the opportunity to earn an average return on equity (ROE) at its
fiscal year-end within a specified range. Under Alagasco's current RSE
order, which became effective December 1990, Alagasco's allowed ROE range is
13.15 percent to 13.65 percent. The APSC conducts quarterly reviews to
determine, based on Alagasco's budget and fiscal year-to-date performance,
whether Alagasco's projected ROE for the fiscal year will be within the
allowed range. Reductions in rates can be made quarterly to bring the
projected ROE within the allowed range. Increases, however, are permitted
only once each fiscal year effective on December 1, and cannot exceed 4
percent of prior-year revenues.
RSE limits Alagasco's equity upon which a return is permitted to 60 percent
of total capitalization and provides for a cost control measure designed to
monitor Alagasco's operations and maintenance (O & M) expense. If increases
in O & M expense per customer fall within 1.25 percent above or below the
Consumer Price Index for all Urban Customers (index range), no adjustment is
required. If, however, increases in O & M expense per customer exceed the
index range, three-fourths of the difference is returned to customers. To
the extent increases in O & M expense per customer are less than the index
range, Alagasco will benefit by one-half of the difference through future
rate adjustments.
Under its terms, Alagasco's current RSE order continues until, after notice
to Alagasco, the APSC votes to either modify or discontinue its operation.
On October 4, 1993, the APSC unanimously voted to extend RSE until such time
as certain hearings mandated by the Energy Policy Act of 1992 (Energy Act)
in connection with integrated resource planning and demand side management
programs are completed. The Energy Act proceedings are expected to conclude
during fiscal 1996 at which time the Commission is expected to begin a
review of Alagasco's RSE. No time table for review has yet been
established.
FERC REGULATION: Alagasco's interstate pipeline suppliers, Southern
Natural Gas Company (Southern) and Transcontinental Gas Pipeline Corporation
(Transco), are subject to regulation by the Federal Energy Regulatory
Commission (FERC). Among other things, FERC regulates the character of
services that Southern and Transco can offer and the rates and fees they can
charge Alagasco and other customers for gas transportation services; thus,
FERC can directly affect Alagasco's services and operating expenses.
On March 15, 1995, Southern filed a comprehensive settlement with the FERC
in the form of a Stipulation and Agreement (the Settlement) to resolve all
issues in Southern's six pending rate cases, as well as to resolve all Gas
Supply Realignment (GSR) and transition cost issues resulting from the
implementation of FERC Order 636. The Settlement is supported by parties
representing more than 90 percent of the firm transportation demand on
Southern's system, including local distribution companies (including
Alagasco), municipal distribution systems, major gas producers, large
industrial end users, marketers, and state commissions (including the APSC).
On September 29, 1995, the FERC issued its Order Accepting Settlement,
Severing Contesting parties, and Issuing Certificates and Approving
Abandonment (Settlement Order). The Settlement Order approves the Settlement
with minor modifications. Contesting parties had 30 days from the date of
the Settlement Order to file motions for rehearing and several such motions
were timely filed. Until such motions are ruled on by the FERC, the
Settlement Order is not considered to be final.
Specifically, the Settlement provides for the following: (1) the resolution
of all cost of service and rate design issues in Southern's six pending rate
cases and the establishment of reduced rates for the purpose of calculating
rate case refunds; (2) the implementation of reduced settlement rates on an
interim basis for supporting parties commencing March 1, 1995 (by order
dated April 4, 1995, FERC approved these interim rates pending its final
review of the merits of the Settlement); (3) the resolution of all GSR and
other transition cost issues resulting from FERC Order 636; (4) lower GSR
cost recovery through the reduction and earlier payout of GSR costs; (5) a
three-year moratorium on general rate increases; and (6) the resolution and
disposition of all rate case and GSR refunds for supporting parties. With
respect to this
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last point, the Settlement provides that all rate case refunds will be used
to offset a portion of Southern's remaining GSR liability. In addition, as a
result of the recalculated GSR surcharges for the period January 1, 1994, to
February 28, 1995, Southern will refund over-collected GSR costs. Neither
the total amount of this refund nor Alagasco's share has yet been
determined; therefore, no amounts have been recorded in the financial
statements. In the Settlement filing with FERC, Southern has represented
that the Settlement will allow Southern and the supporting parties to
resolve all issues relating to GSR and other transition costs, the majority
of which costs will be collected by the end of calendar 1995. Alagasco
estimates that it has a remaining GSR liability of approximately $2.4
million to be paid through December 1995 and approximately $2.6 million in
other transition costs to be paid through June 1998 and has recorded
such amounts in the financial statements. Because these costs will be
recovered in full from Alagasco's customers in a timely manner through the
GSA rider of Alagasco's Tariff, the Company has recorded a corresponding
regulatory asset in the accompanying financial statements.
GAS SUPPLY: The Alagasco distribution system is connected to and has firm
transportation contracts with two major interstate pipeline
systems--Southern and Transco. Effective November 1, 1993, Alagasco's
pre-Order 636 contract demand and firm transportation with Southern
converted to 250,924 Mcf (thousand cubic feet) per day of No-Notice Firm
Transportation service for a period of 15 years, 91,946 Mcf per day of Firm
Transportation service for 15 years, and 50,000 Mcf per day of Firm
Transportation for five years. Southern also unbundled its existing storage
capacity. Alagasco's pro rata share of this storage is 12,426,687 Mcf.
Alagasco has a maximum withdrawal rate from storage of 250,924 Mcf per day
and a maximum injection rate into storage of 95,590 Mcf per day. The Transco
firm transportation contract, which expires in 2001, provides for maximum
daily firm transportation of up to 100,000 Mcf. Thus the Company has a peak
day firm interstate pipeline transportation capacity of 492,870 Mcf per day.
Alagasco has replaced the sales service formerly provided by Southern with
purchases from various gas producers and marketers including affiliates of
Southern and Transco and from certain intrastate producers including Basin
Pipeline Corp., an Energen subsidiary. Alagasco has contracts in place to
purchase up to a total of 286,776 Mcf per day of firm supply, of which
241,946 is supported by firm transportation on the Transco and Southern
systems, 14,830 Mcf provides redundant supply on the Southern system, and
30,000 Mcf is purchased at the city gate from intrastate suppliers. This
volume, along with Alagasco's maximum withdrawal from storage of 250,924 Mcf
per day and 200,000 Mcf per day of liquefied natural gas peak shaving
capacity, gives Alagasco a peak day firm supply of 722,870 Mcf per day.
Alagasco also utilizes the Southern and Transco pipeline systems to access
spot market gas in order to supplement its firm system supply and serve its
industrial transportation customers.
COMPETITION AND PRICING: The price of natural gas is a significant
marketing factor in the territory served by Alagasco; propane, coal and fuel
oil are readily available, and many major industrial customers have the
capability to switch to alternate fuels. In the residential and small
industrial and commercial markets, electricity is the principal competitor.
Natural gas service available to Alagasco customers generally falls into two
categories -- interruptible and firm. Interruptible service is
contractually subject to interruption by Alagasco for various reasons, the
most common of which is curtailment of industrial customers during periods
of peak residential heating demand on the Alagasco system. Firm service is
generally not subject to interruption and, therefore, is more expensive than
interruptible service. Firm service is generally provided to residential
and small commercial and industrial customers. Interruptible service is
generally provided to large commercial and industrial customers which
typically have the capacity to reduce consumption by adjusting their
production schedules or by switching to alternate fuels during periods of
interruption. Deliveries of sales and transportation gas totaled 101,447
MMcf (million cubic feet) in 1995.
In 1994, capitalizing on federally mandated changes in the natural gas
industry, Alagasco implemented the "P" Rate. This tariff allows the utility
to, in effect, release available pipeline capacity thereby reducing
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pipeline transportation costs for its 250 transportation customers. The
lower costs help prevent bypass. Also, because revenue received from
capacity release reduces core market gas costs, Alagasco's competitive
position in the residential and small commercial markets is enhanced as
well.
Alagasco has a Competitive Fuel Clause (CFC) as part of its rate tariff
which allows Alagasco to adjust large commercial and industrial prices on a
case-by-case basis to compete with either alternate fuels or alternate
sources of gas. The GSA rider to Alagasco's tariff increases the rates paid
by other customers to recover the reduction in rates allowed under the CFC
because the retention of any customer, particularly large commercial and
industrial, benefits all customers by recovering a portion of the system's
fixed cost. Alagasco also has a Transportation Tariff (the Tariff) which
allows the Company to transport gas for customers rather than buying and
reselling gas to them. The Tariff is based on Alagasco's gas sales profit
margin so that Alagasco's net income is not affected whether it transports
or sells gas. The Tariff also may be adjusted under the CFC. Of Alagasco's
total large commercial and industrial customer deliveries during 1995, 99.5
percent (46,207 MMcf) was from transportation of customer-owned gas.
GROWTH: Alagasco has supplemented traditional service area growth with
acquisitions of municipally-owned gas distribution systems. Since 1985
Alagasco has acquired 20 such systems, including the 500-customer gas system
of Ragland purchased in early fiscal 1996. More than 42,000 customers have
been added through initial system purchases and subsequent customer
additions, as Alagasco has increased the relatively low saturation rates in
the acquired areas through a variety of marketing efforts including offering
natural gas service to propane customers already situated on the municipal
system lines, extending the acquired municipal system into nearby
neighborhoods that desire natural gas service, and marketing natural gas
appliances to existing and new customers. Approximately 80 municipal
systems, representing about 250,000 customers, remain in Alabama, and many
are located in or near Alagasco's existing service territory. The Company is
optimistic that additional acquisition opportunities will arise in the
future.
WEATHER: Alagasco's gas distribution business is highly seasonal since a
material portion of Alagasco's total sales and delivery volumes is to
customers whose use varies depending upon temperature, principally
residential, small commercial and small industrial customers. Alagasco's
rate tariff includes a temperature adjustment rider which is designed to
mitigate the effect of departures from normal temperature on Alagasco's
earnings. The calculation is performed monthly and adjustments are made to
customers' bills in the actual month the weather variation occurs.
ENVIRONMENTAL MATTERS: Alagasco is in the chain of title of eight former
manufactured gas plant sites, of which it still owns four, and five
manufactured gas distribution sites, of which it still owns one. A
preliminary investigation of the sites does not indicate the present need
for remediation activities. Management expects that, should remediation of
any such sites be required in the future, Alagasco's share, if any, of such
costs will not materially affect the results of operations or financial
condition of Alagasco.
o OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES
Energen's oil and gas exploration and production activities are conducted by
its subsidiary, Taurus Exploration, Inc. (Taurus), and involve the
exploration for and the production of natural gas and oil from conventional
and nonconventional reservoirs. Taurus's 1995 oil and gas production
totaled 10.1 Bcf (with oil expressed in natural gas equivalents), and the
average sales price was $1.83 per Mcf equivalent. Conventional oil and gas
reserves of 70,179 MMcf equivalents plus nonconventional gas reserves of
25,004 MMcf combine for total oil and gas reserves at fiscal year-end of
95,183 MMcf equivalents.
CONVENTIONAL: Taurus's conventional oil and gas strategy is to aggressively
grow its reserve base primarily by making significant acquisitions of oil
and gas properties through its joint acquisition agreements with Sonat
Exploration Company, PMC Reserve Acquisition Company, and United Meridian
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Corporation (UMC), formerly General Atlantic Resources, Inc., along with its
internal and independent evaluation of other property acquisition
opportunities. A more thorough discussion of Taurus's acquisition strategy
is included in the 1995 Annual Report to Stockholders, pages 32 and 33.
Taurus will continue to supplement its returns with exploratory drilling.
Taurus utilizes several avenues to help ensure a continuing flow of high
quality exploratory prospects including its participation in UMC's offshore
exploratory program, a multi-year 3-D seismic joint venture with King Ranch
and Holley Petroleum, Inc. covering 200 offshore Texas blocks, and other
offshore lease sales with various industry partners.
Taurus's exploration activities are concentrated in the shallow waters of
the Gulf of Mexico. Eight successful discoveries during 1995 added reserves
of 10 Bcf equivalents. Proved property acquisitions added reserves of 26.7
Bcf equivalents.
NONCONVENTIONAL: Taurus's nonconventional gas strategy is to focus on
operating the large projects in which it has a small working interest and
operating for others; supplementing these activities, Taurus also consults
on a limited basis. Taurus does not anticipate additional major project
development in the Black Warrior Basin. Taurus does plan, however, to
continue its operating activities.
As a result of its 1994 evaluation of North American coalbed methane
investment opportunities which indicated that available opportunities did
not meet Taurus's current risk profile, Taurus reduced and reorganized its
coalbed methane staff during 1995 to match its ongoing operational needs. No
additional restructuring is anticipated at this time.
At September 30, 1995, Taurus had working interests in 418 coalbed methane
wells and royalty interests in an additional 216 wells, all located in
Alabama's Black Warrior Basin. Gas produced from these wells through the
year 2002 qualifies for the Section 29 tax credit for producing fuel from
nonconventional sources.
Taurus is the operator of more than 950 coalbed methane wells, including
wells in an existing project owned by TECO Coalbed Methane, Inc., one of
Taurus's coalbed methane joint venture partners in other projects. Under
the terms of the agreement, Taurus provides technical, administrative and
operating services for a fee and receives additional compensation based on
the project's profitability.
During 1994, Taurus signed a multi-year strategic alliance with Conoco, Inc.
designed to enhance both companies' coalbed methane programs. During 1995,
Taurus provided consulting and associated services relative to the
acquisition, exploration and development of coalbed methane properties to
complement Conoco's capabilities and the companies mutually agreed to
terminate the alliance late in the fiscal year. Also during 1995, Taurus
decided that it would not pursue international coalbed methane investment
opportunities since such opportunities did not meet Taurus's risk parameters.
Most of the gas produced from the coalbed methane wells in which Taurus has
an interest is being sold under long-term contracts which provide markets
for 100 percent of the wells' production capacity and is sold at prices
indexed to the monthly Gulf Coast spot market.
ENVIRONMENTAL MATTERS: Taurus is subject to various environmental
regulations. Management believes that Taurus is in compliance with
currently applicable standards of the environmental agencies to which it is
subject and that potential environmental liabilities, if any, are minimal.
Also, to the extent Taurus has operating agreements with various joint
venture partners, environmental costs, if any, would be shared
proportionately.
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o INTRASTATE GAS GATHERING AND TRANSMISSION
Energen operates an intrastate gas pipeline and gathering system through its
subsidiary, Basin Pipeline Corp. (Basin). Basin's pipeline and gathering
facilities primarily serve certain Taurus coalbed methane properties.
o COMBUSTION TECHNOLOGY
Prior to May 1994, through its American Heat Tech, Inc. (Heat Tech)
subsidiary, Energen owned a 41 percent equity interest in American
Combustion, Inc. During May 1994, a substantial portion of this interest
was sold leaving Heat Tech with approximately an 8 percent ownership
interest. ACI designs, manufactures and markets high temperature combustion
technology products.
o PROPANE SALES
Prior to the June 1994 sale of substantially all of the assets of W & J
Propane Gas, Inc., Energen had been involved in the retail propane
distribution business.
EMPLOYEES
The Company has 1,431 employees; Alagasco employs 1,288; Taurus employs 130;
and Energen's other subsidiaries employ 13.
ITEM 2. PROPERTIES
The corporate headquarters of Energen, Alagasco and Taurus are located in
leased office space in Birmingham, Alabama.
The properties of Alagasco consist primarily of its gas distribution system,
which includes more than 8,650 miles of main, more than 9,500 miles of service
lines, odorization and regulation facilities, and customer meters. Alagasco
also has two liquefied natural gas facilities, 23 commercial offices, nine
service centers, and other related property and equipment, some of which are
leased by Alagasco.
For a description of Taurus's oil and gas properties, see the discussion under
Item 1--Business. Information concerning Taurus's production, reserves and
development is included in Note 14 to the Consolidated Financial Statements
which is incorporated by reference from the 1995 Annual Report to Stockholders
and is included in Part IV, Item 14, Exhibit 13, herein. The proved reserve
estimates are consistent with comparable reserve estimates filed by Taurus with
any federal authority or agency.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending, other than routine litigation
incidental to the Company's business, in which the Company or any of its
subsidiaries is a party. There are no material legal proceedings to which any
officer or director of the Company or any of its subsidiaries is a party or has
a material interest adverse to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1995.
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EXECUTIVE OFFICERS OF THE REGISTRANTS
ENERGEN CORPORATION
Name Age Position (1)
---- --- ------------
Rex J. Lysinger 58 Chairman of the Board and Chief Executive Officer (2)
Wm. Michael Warren, Jr. 48 President and Chief Operating Officer (3)
Geoffrey C. Ketcham 44 Executive Vice President, Chief Financial Officer and
Treasurer (4)
Dudley C. Reynolds 42 General Counsel and Secretary (5)
Gary C. Youngblood 52 Executive Vice President and Chief Operating Officer of
Alagasco (6)
James T. McManus 37 Executive Vice President and Chief Operating Officer of
Taurus (7)
John A. Wallace 51 Senior Vice President--Methane of Taurus (8)
J. David Woodruff, Jr. 39 Vice President--Legal and Assistant Secretary and Vice
President, Corporate Development (9)
NOTES: (1) All executive officers of Energen have been employed by Energen or
a subsidiary for the past five years. Officers serve at the
pleasure of its Board of Directors.
(2) Served as Vice President of Alagasco from July 1975 to January
1977, when he was elected President. Elected President of Energen
upon its formation in 1978. Elected Chairman of the Board of
Energen and its subsidiaries September 1982. Currently Chairman of
the Board of Energen and all subsidiaries and Chief Executive
Officer of Energen. Serves as a Director of Energen and each of
its subsidiaries.
(3) Served as Senior Vice President and General Counsel of Alagasco
from September 1983 to October 1984, when he was elected President
and Chief Operating Officer of that corporation. Elected Executive
Vice President of Energen June 1987 and elected President and Chief
Operating Officer of Energen April 1991. Elected President and
Chief Operating Officer of all Energen subsidiaries (except W & J)
January 1992. Elected Chief Executive Officer of Alagasco and
Taurus effective October 1995. Serves as a Director of Energen and
each of its subsidiaries.
(4) Elected Controller of Alagasco November 1981, Vice President and
Controller June 1984, Vice President--Finance and Planning of
Alagasco June 1985 and Vice President--Planning of Energen August
1986. Elected Vice President--Finance, Chief Financial Officer and
Treasurer of Energen and each of its subsidiaries June 1987.
Elected Senior Vice President--Finance, Chief Financial Officer and
Treasurer of Energen and each of its subsidiaries April 1989.
Elected Executive Vice President, Chief Financial Officer and
Treasurer of Energen and each of its subsidiaries April 1991.
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(5) Served as Staff Attorney for Energen and its subsidiaries to
November 1984, when he was named Senior Attorney. Elected
Assistant Secretary in 1985 and Secretary effective September 1986.
Elected Vice President--Legal and Secretary of Energen and each of
its subsidiaries June 1987. Elected General Counsel and Secretary
of Energen and each of its subsidiaries April 1991.
(6) Served as District Manager--Birmingham District until June 1985,
when he was elected Vice President--Birmingham Operations; Elected
Senior Vice President-Administration of Alagasco April 1991.
Elected Executive Vice President of Alagasco October 1993. Elected
Chief Operating Officer of Alagasco effective October 1995.
(7) Served as Director of Corporate Accounting of Energen until
November 1988, when he was elected Controller of Energen; Elected
Controller of Alagasco May 1989. Elected Assistant Vice
President--Corporate Development of Energen June 1990. Elected
Vice President--Finance and Corporate Development of Energen and
Vice President--Finance and Planning of Alagasco effective April
1991. Elected Executive Vice President and Chief Operating Officer
of Taurus effective October 1995.
(8) Served as Manager, Methane Development of Taurus until August 1988,
when he was elected Vice President Methane Operations of Taurus.
Elected Vice President Methane Exploration and Production of Taurus
November 1990. Elected Senior Vice President--Methane of Taurus
February 1992.
(9) Served as Staff Attorney for Alagasco from March 1986 to June 1987
when he was named Senior Attorney. Elected Assistant Vice
President--Legal and Assistant Secretary of Energen and each of its
subsidiaries November 1988. Elected Vice President--Legal and
Assistant Secretary of Energen and each of its subsidiaries April
1991. Elected Vice President--Legal, and Assistant Secretary and
Vice President--Corporate Development of Energen and each of its
subsidiaries October 1995.
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ALABAMA GAS CORPORATION
Name Age Position (1)
---- --- ------------
Rex J. Lysinger 58 Chairman of the Board (2)
Wm. Michael Warren, Jr. 48 President and Chief Executive Officer (2)
Geoffrey C. Ketcham 44 Executive Vice President and Chief Financial Officer (2)
Dudley C. Reynolds 42 General Counsel and Secretary (2)
Gary C. Youngblood 52 Executive Vice President and Chief Operating Officer (2)
Roy F. Etheredge 59 Senior Vice President (3)
George M. Taylor 59 Vice President--State Operations (4)
Gerald G. Turner 61 Vice President--Rates (5)
Donald C. Wiseman 57 Senior Vice President--Gas Supply (6)
J. David Woodruff, Jr. 39 Vice President--Legal and Assistant Secretary (2)
Paula H. Rushing 42 Controller (7)
NOTES: (1) All executive officers of Alagasco have been employed by
Energen or a subsidiary for the past five years. Officers
serve at the pleasure of the Board of Directors.
(2) See discussion of Energen officers on prior pages.
(3) Elected Assistant Vice President in 1983, Vice
President--Northern Division in 1984. Elected Vice
President--State Operations in May 1985. Elected Senior Vice
President--Operations April 1991.
(4) Elected Assistant Vice President--Birmingham Operations in
1988. Elected Vice President-- Birmingham Operations in 1991.
Elected Vice President--Technical Services in 1993. Elected
Vice President--State Operations in May 1995.
(5) Served as Director of Rates and Regulations until he was
elected Assistant Vice President--Rates in June 1987. Elected
Vice President--Rates May 1989.
(6) Elected Assistant Vice President--Gas Supply in 1988. Elected
Vice President--Gas Supply in 1990. Elected Senior Vice
President--Gas Supply in October 1995.
(7) Served as Director of General Accounting of Alagasco until
October 1995 when she was elected Controller.
11
13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The information regarding Energen's common stock and the frequency and amount
of dividends paid during the past two years with respect to such stock is
incorporated by reference from the 1995 Annual Report to Stockholders, page 34,
and is included in Part IV, Item 14, Exhibit 13, herein. At October 29, 1995,
there were approximately 6,000 holders of record of Energen's common stock. For
restrictions on Energen's present and future ability to pay dividends, see Note
3 to the Consolidated Financial Statements which is incorporated by reference
from the 1995 Annual Report to Stockholders and is included in Part IV, Item
14, Exhibit 13, herein.
At the date of this filing, Energen Corporation owns all the issued and
outstanding common stock of Alabama Gas Corporation.
ITEM 6. SELECTED FINANCIAL DATA
Energen Corporation
The information regarding selected financial data is incorporated by reference
from the 1995 Annual Report to Stockholders, pages 56-57, and is included in
Part IV, Item 14, Exhibit 13, herein.
Alabama Gas Corporation
(unaudited)
====================================================================================================
YEARS ENDED SEPTEMBER 30, 1995 1994 1993 1992 1991
(IN THOUSANDS)
====================================================================================================
Operating revenues $295,967 $344,637 $330,560 $310,726 $309,128
Net income $ 15,721 $ 14,896 $ 13,024 $ 12,420 $ 11,970
Cash dividends on common stock $ 9,170 $ 8,695 $ 7,975 $ 7,630 $ 6,994
Cash dividends on preferred stock $ -- $ -- $ 70 $ 85 $ 85
- ----------------------------------------------------------------------------------------------------
Total assets $335,267 $308,905 $264,548 $258,902 $246,573
Long-term debt $100,000 $ 84,391 $ 43,912 $ 60,979 $ 66,307
Preferred stock $ -- $ -- $ -- $ 1,800 $ 1,800
====================================================================================================
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This information is incorporated by reference from the 1995 Annual Report to
Stockholders, pages 25-33, and is included in Part IV, Item 14, Exhibit 13,
herein.
12
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item for Energen Corporation and subsidiaries
is incorporated by reference from the 1995 Annual Report to Stockholders and is
included in Part IV, Item 14, Exhibit 13, herein. The information required by
this item for Alabama Gas Corporation is contained in Part IV, Item 14, herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the executive officers of both Energen and Alagasco is
included in Part I. The other information required by Item 10 is incorporated
herein by reference from Energen's definitive proxy statement for the Annual
Meeting of Stockholders to be held January 24, 1996. The proxy statement will
be filed within 120 days after the end of the fiscal year covered by this Form
10-K. The directors and nominees for director of Alagasco are the same as
those of Energen except the Alagasco directors do not have staggered terms,
thus the entire Alagasco Board has been nominated for re-election to an annual
term at the Annual Meeting.
ITEM 11. EXECUTIVE COMPENSATION
The information regarding executive compensation is incorporated herein by
reference from Energen's definitive proxy statement for the Annual Meeting of
Stockholders to be held January 24, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The information regarding the security ownership of the beneficial owners
of more than five percent of Energen's common stock is incorporated herein
by reference from Energen's definitive proxy statement for the Annual
Meeting of Stockholders to be held January 24, 1996.
B. SECURITY OWNERSHIP OF MANAGEMENT
The information regarding the security ownership of management is
incorporated herein by reference from Energen's definitive proxy statement
for the Annual Meeting of Stockholders to be held January 24, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information regarding certain relationships and related transactions is
incorporated herein by reference from Energen's definitive proxy statement for
the Annual Meeting of Stockholders to be held January 24, 1996.
13
15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
a. DOCUMENTS FILED AS PART OF THIS REPORT
(1) FINANCIAL STATEMENTS
The financial statements listed in the accompanying Index to
Financial Statements and Financial Statement Schedules are filed as
part of this report and are included in Part IV, Item 14, Exhibit 13,
herein.
(2) FINANCIAL STATEMENT SCHEDULES
The financial statement schedules listed in the accompanying Index to
Financial Statements and Financial Statement Schedules are filed as
part of this report.
(3) EXHIBITS
The exhibits listed on the accompanying Index to Exhibits are filed
as part of this report.
b. REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of 1995.
14
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrants have duly caused this report to be signed
on their behalf by the undersigned thereunto duly authorized.
ENERGEN CORPORATION
(Registrant)
ALABAMA GAS CORPORATION
(Registrant)
December 20, 1995 /s/Rex J. Lysinger
- ------------------------- -------------------------------------------------
DATE Rex J. Lysinger
Chairman of the Board of Directors of Energen
and all subsidiaries, Chief Executive Officer of
Energen
15
17
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrants
and in the capacities and on the dates indicated:
December 20, 1995 /s/Rex J. Lysinger
- -------------------------- -----------------------------------------------------------
DATE Rex J. Lysinger
Chairman of the Board of Directors of Energen and all
subsidiaries, Chief Executive Officer of Energen
December 20, 1995 /s/Wm. Michael Warren, Jr.
- -------------------------- -----------------------------------------------------------
DATE Wm. Michael Warren, Jr.
President and Director of Energen and all
subsidiaries, Chief Executive Officer of Alagasco and Chief
Operating Officer of Energen
December 20, 1995 /s/Geoffrey C. Ketcham
- -------------------------- -----------------------------------------------------------
DATE Geoffrey C. Ketcham
Executive Vice President, Chief
Financial Officer and Treasurer
December 20, 1995 /s/Paula H. Rushing
- -------------------------- -----------------------------------------------------------
DATE Paula H. Rushing
Controller of Alagasco
December 20, 1995 /s/Stephen D. Ban
- -------------------------- -----------------------------------------------------------
DATE Stephen D. Ban
Director
December 20, 1995 /s/James S. M. French
- -------------------------- -----------------------------------------------------------
DATE James S. M. French
Director
December 20, 1995 /s/Harris Saunders, Jr.
- -------------------------- -----------------------------------------------------------
DATE Harris Saunders, Jr.
Director
December 20, 1995 /s/Judy M. Merritt
- -------------------------- -----------------------------------------------------------
DATE Judy M. Merritt
Director
16
18
ENERGEN CORPORATION
ALABAMA GAS CORPORATION
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
ITEM 14(a)
Reference Page
--------------
1995
1995 Annual
10-K Report
---- ------
1. Energen Corporation
-------------------
A. Financial Statements
Report of Independent Certified Public Accountants . . . . . . . . . 55
Consolidated statements of income for the years ended
September 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . 35
Consolidated balance sheets as of September 30,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Consolidated statements of shareholders' equity for the years
ended September 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . 38
Consolidated statements of cash flows for the years ended
September 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . 39
Notes to consolidated financial statements . . . . . . . . . . . . . 40
B. Financial Statement Schedules
Report of Independent Certified Public Accountants . . . . . . . . . 39
Schedule II Valuation and Qualifying Accounts . . . . . . . . . 40
2. Alabama Gas Corporation
-----------------------
A. Financial Statements
Report of Independent Certified Public Accounts . . . . . . . . . . 22
Statements of income for the years ended
September 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . 23
Balance sheets as of September 30, 1995 and 1994 . . . . . . . . . . 24
17
19
Reference Page
--------------
1995
1995 Annual
10-K Report
---- ------
Statements of shareholder's equity for the years ended
September 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . 26
Statements of cash flows for the years ended
September 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . 27
Notes to financial statements . . . . . . . . . . . . . . . . . . . 28
B. Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts . . . . . . . . . 41
Schedules other than those listed above are omitted for the reason that they
are not required or are not applicable, or the required information is shown in
the financial statements or notes thereto.
18
20
ENERGEN CORPORATION
ALABAMA GAS CORPORATION
INDEX TO EXHIBITS
ITEM 14(A)(3)
Exhibit
Number Description
- ------- -----------
*3(a) Restated Certificate of Incorporation of Energen Corporation (formerly Alagasco, Inc.) which was filed as
Exhibit 4(a) to Energen's Registration Statement on Form S-8 (Registration No. 33-14855).
*3(b) Amendment to the Restated Certificate of Incorporation of Energen Corporation (formerly Alagasco, Inc.)
adopted on July 18, 1985, which was filed as Exhibit 4(b) to Energen's Registration Statement on Form S-8
(Registration No. 33-14855).
*3(c) Amendment to the Restated Certificate of Incorporation of Energen Corporation adopted on January 15, 1987,
which was filed as Exhibit 4(c) to Energen's Registration Statement on Form S-8 (Registration No.
33-14855).
*3(d) Amendment to the Restated Certificate of Incorporation of Energen Corporation adopted on January 25, 1989,
which was filed as Exhibit 4(d) to Energen's Registration Statement on Form S-3 (Registration No.
33-70464).
3(e) Articles of Amendment to the Restated Certificate of Incorporation of Energen Corporation dated February
3, 1995.
3(f) Restated Conformed Certificate of Incorporation of Energen Corporation, as amended through February 3,
1995.
*3(g) Certificate of Adoption of Resolutions designating Series A Junior Participating Preferred Stock (June 27,
1988) which was filed as Exhibit 4(e) to Energen's Registration Statement on Form S-2 (Registration No.
33-25435).
*3(h) Bylaws of Energen Corporation, which were filed as Exhibit 4(e) to Energen's Registration Statement on
Form S-8 (Registration No. 33-14855).
3(i) Articles of Amendment and Restatement of the Articles of Incorporation of Alabama Gas Corporation, dated
September 27, 1995.
*3(j) By-Laws of Alabama Gas Corporation, which was filed as Exhibit 4(k) to Alabama Gas' Registration Statement
on Form S-3 (Registration No. 33-12841).
*4(a) Rights Agreement, dated as of July 27, 1988, between Energen Corporation and AmSouth Bank, N.A., Rights
Agent, which was filed as Exhibit 1 to Energen's Registration Statement on Form 8-A (File No. 1-7810).
*4(b) Amendment of Rights Agreement, dated as of February 28, 1990, between Energen Corporation and AmSouth
Bank, N.A., Rights Agent, which was filed as Exhibit 2 to Energen's Form 8 Amendment No. 2 to its
Registration Statement on Form 8-A (File No. 1-7810).
19
21
*4(c) Indenture, dated as of January 1, 1992, between Energen Corporation and Boatmen's Trust Company, Trustee,
which was filed as Exhibit 4 to Energen's Amendment No. 1 to Registration Statement on Form S-3
(Registration No. 33-44936).
*4(d) Indenture, dated as of March 1, 1993, between Energen Corporation and Boatmen's Trust Company, Trustee,
which was filed as Exhibit 4 to Energen's Registration Statement on Form S-3 (Registration No.
33-25435).
*4(e) Indenture dated as of November 1, 1993, between Alabama Gas Corporation and NationsBank of Georgia,
National Association, Trustee, which was filed as Exhibit 4(k) to Alabama Gas's Registration Statement on
Form S-3 (Registration No. 33-70466).
*10(a) Form of Service Agreement Under Rate Schedule CSS (No. S10710), between Southern Natural Gas Company and
Alabama Gas Corporation as filed as Exhibit 10(a) to Energen's Annual Report on Form 10-K for the year
ended September 30, 1993.
*10(b) Form of Service Agreement Under Rate Schedule IT (No. 790420), between Southern Natural Gas Company and
Alabama Gas Corporation as filed as Exhibit 10(b) to Energen's Annual Report on Form 10-K for the year
ended September 30, 1993.
*10(c) Form of Service Agreement Under Rate Schedule FT-NN (No. 866941), between Southern Natural Gas Company and
Alabama Gas Corporation as filed as Exhibit 10(c) to Energen's Annual Report on Form 10-K for the year
ended September 30, 1993.
*10(d) Form of Service Agreement Under Rate Schedule FT (No. 866940) between Southern Natural Gas Company and
Alabama Gas Corporation as filed as Exhibit 10(d) to Energen's Annual Report on Form 10-K for the year
ended September 30, 1993.
*10(e) Form of Executive Retirement Supplement Agreement between Energen Corporation and certain executive
officers as filed as Exhibit 10(f) to Energen's Annual Report on Form 10-K for the year ended September
30, 1993.
*10(f) Amendment to Executive Retirement Supplement Agreement effective as of June 22, 1994, between Energen
Corporation and certain executive officers as filed as Exhibit 10(f) to Energen's Annual Report on Form
10-K for the year ended September 30, 1994.
*10(g) Restricted Stock Incentive Plan of Energen Corporation, which was filed as Exhibit 4 to Post Effective
Amendment No. 2 to Energen Corporation's Registration Statement on Forms S-8 and S-3 (Registration No.
2-89855).
*10(h) Severance Compensation Agreement between Energen Corporation and certain executive officers, which was
filed as Exhibit 10(e) to Energen's Annual Report on Form 10-K for the year ended September 30, 1992.
*10(i) Energen Corporation 1988 Stock Option Plan as filed as Exhibit 10(i) to Energen's Annual Report on Form
10-K for the year ended September 30, 1993.
*10(j) Energen Corporation 1992 Long-Range Performance Share Plan, dated as of October 1, 1991, which was filed
as Exhibit A to the Registrant's Proxy Statement for its January 22, 1992, Annual Meeting (File No.
1-7810).
20
22
*10(k) Energen Corporation 1992 Directors Stock Plan, effective as of January 22, 1992, which was filed as
Exhibit B to Energen's Proxy Statement for its January 22, 1992, Annual Meeting (File No. 1-7810).
*10(l) Energen Corporation Director Fees Deferral Plan as filed as Exhibit 10(l) to Energen's Annual Report on
Form 10-K for the year ended September 30, 1993.
*10(m) Energen Corporation Annual Incentive Compensation Plan, Revised 5/90, as amended effective October 1,
1993, as filed as Exhibit 10(m) to Energen's Annual report on Form 10-K for the year ended September 30,
1994.
13 Information incorporated by reference from pages 25-59 of the Energen Corporation 1995 Annual Report to
Stockholders
21 Subsidiaries of Energen Corporation
23(a) Consent of Independent Certified Public Accountants (Energen)
23(b) Consent of Independent Certified Public Accountants (Alagasco)
27.1 Financial Data Schedule of Alabama Gas Corporation (for SEC purposes only)
27.2 Financial Data Schedule of Energen Corporation (for SEC purposes only)
*Incorporated by reference
21
23
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF ALABAMA GAS CORPORATION:
We have audited the financial statements and the financial statement schedules
of Alabama Gas Corporation listed in the index on pages 17 and 18 of this Form
10-K. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Alabama Gas Corporation as of
September 30, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1995, in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedules referred to above, when considered
in relation to the basic financial statements taken as a whole, present fairly,
in all material respects, the information required to be included therein.
As discussed in Note 6 to the financial statements, the Company changed its
method of accounting for certain other post-retirement benefits, effective
October 1, 1993.
Coopers & Lybrand L.L.P.
Birmingham, Alabama
October 25, 1995
22
24
STATEMENTS OF INCOME
ALABAMA GAS CORPORATION
===========================================================================================================
YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993
===========================================================================================================
OPERATING REVENUES $295,967 $344,637 $330,560
- -----------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of gas 133,556 188,592 187,800
Operations 78,139 72,639 66,196
Maintenance 9,727 9,147 8,781
Depreciation 19,370 17,941 17,206
Income taxes
Current 8,392 10,623 5,407
Deferred, net 177 (2,418) 1,530
Deferred investment tax credits, net (487) (487) (528)
Taxes, other than income taxes 22,662 26,301 24,196
- -----------------------------------------------------------------------------------------------------------
Total operating expenses 271,536 322,338 310,588
- -----------------------------------------------------------------------------------------------------------
OPERATING INCOME 24,431 22,299 19,972
- -----------------------------------------------------------------------------------------------------------
OTHER INCOME
Allowance for funds used during construction 1,054 465 163
Other, net (112) 452 376
- -----------------------------------------------------------------------------------------------------------
Total other income 942 917 539
- -----------------------------------------------------------------------------------------------------------
INTEREST CHARGES
Interest on long-term debt 7,730 6,475 5,532
Other interest expense 1,922 1,845 1,955
- -----------------------------------------------------------------------------------------------------------
Total interest charges 9,652 8,320 7,487
- -----------------------------------------------------------------------------------------------------------
NET INCOME 15,721 14,896 13,024
Less cash dividends on cumulative preferred stock -- -- 70
- -----------------------------------------------------------------------------------------------------------
NET INCOME AVAILABLE FOR COMMON $ 15,721 $ 14,896 $ 12,954
===========================================================================================================
The accompanying Notes to Financial Statements are an integral part of these
statements.
23
25
BALANCE SHEETS
ALABAMA GAS CORPORATION
===========================================================================================================
YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994
===========================================================================================================
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Utility plant $504,371 $464,593
Less accumulated depreciation 247,926 231,327
- -----------------------------------------------------------------------------------------------------------
Utility plant, net 256,445 233,266
- -----------------------------------------------------------------------------------------------------------
Other property, net 193 183
- -----------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash 727 156
Accounts receivable
Gas 22,215 22,209
Merchandise 1,546 1,326
Other 1,598 1,512
Allowance for doubtful accounts (2,000) (2,000)
Inventories, at average cost
Storage gas inventory 20,276 24,363
Materials and supplies 5,860 5,688
Liquified natural gas in storage 3,539 3,349
Deferred gas costs 1,426 1,460
Regulatory asset 6,321 --
Deferred income taxes 7,416 5,724
Prepayments and other 2,302 2,595
- -----------------------------------------------------------------------------------------------------------
Total current assets 71,226 66,382
- -----------------------------------------------------------------------------------------------------------
DEFERRED CHARGES AND OTHER ASSETS 7,403 9,074
- -----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $335,267 $308,905
===========================================================================================================
The accompanying Notes to Financial Statements are an integral part of these
statements.
24
26
BALANCE SHEETS
ALABAMA GAS CORPORATION
===========================================================================================================
YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994
===========================================================================================================
CAPITAL AND LIABILITIES
CAPITALIZATION
Common shareholder's equity
Common stock, $0.01 par value; 3,000,000 shares authorized,
1,972,052 shares outstanding in 1995 and 1994 $ 20 $ 20
Premium on capital stock 31,682 31,682
Capital Surplus 2,802 2,802
Retained Earnings 87,638 81,087
- -----------------------------------------------------------------------------------------------------------
Total common shareholder's equity 122,142 115,591
Cumulative preferred stock, $0.01 par value, 120,000 shares
authorized -- --
Long-term debt 100,000 84,391
- -----------------------------------------------------------------------------------------------------------
Total capitalization 222,142 199,982
- -----------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Long-term debt due within one year -- 2,823
Notes payable to banks -- 4,000
Accounts payable
Other 26,160 19,002
Affiliated companies -- 132
Accrued taxes 10,236 14,241
Customers' deposits 18,218 17,462
Supplier refunds due customers 3,315 832
Other amounts due customers 13,231 10,902
Accrued wages and benefits 5,228 5,659
Other 9,444 7,605
- -----------------------------------------------------------------------------------------------------------
Total current liabilities 85,832 82,658
- -----------------------------------------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 16,343 13,704
Accumulated deferred investment tax credits 4,103 4,590
Regulatory liability 6,001 6,960
Customer advances for construction and other 846 1,011
- -----------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities 27,293 26,265
- -----------------------------------------------------------------------------------------------------------
TOTAL CAPITAL AND LIABILITIES $335,267 $308,905
===========================================================================================================
The accompanying Notes to Financial Statements are an integral part of these
statements.
25
27
STATEMENTS OF SHAREHOLDER'S EQUITY
ALABAMA GAS CORPORATION
============================================================================================================
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
============================================================================================================
COMMON STOCK
----------------
NUMBER OF PAR PREMIUM ON CAPITAL RETAINED
SHARES VALUE CAPITAL STOCK SURPLUS EARNINGS
- ------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1992 1,972,052 $20 $21,682 $2,802 $69,907
Net income 13,024
Cash dividends -- $1.05 per share (7,975)
Less cash dividends on preferred stock 70
- ------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1993 1,972,052 20 21,682 2,802 74,886
Net income 14,896
Cash dividends -- $1.09 per share (8,695)
Capital contribution from parent 10,000
- ------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1994 1,972,052 20 31,682 2,802 81,087
Net income 15,721
Cash dividends -- $1.13 per share (9,170)
- ------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1995 1,972,052 $20 $31,682 $2,802 $87,638
============================================================================================================
The accompanying Notes to Financial Statements are an integral part of these
statements.
26
28
STATEMENTS OF CASH FLOWS
ALABAMA GAS CORPORATION
===========================================================================================================
YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993
===========================================================================================================
OPERATING ACTIVITIES
Net Income $ 15,721 $ 14,896 $ 13,024
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 19,370 17,941 17,206
Deferred income taxes, net 177 (2,418) 1,530
Deferred investment tax credits (487) (487) (528)
Net change in:
Accounts receivable (113) 896 (3,787)
Inventories 3,526 (23,913) (94)
Accounts payable 7,026 (890) 3,398
Other current assets and liabilities (3,023) 17,268 968
Other, net 673 (2,116) (1,536)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 42,870 21,177 30,181
- -----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to property, plant and equipment (41,560) (37,853) (21,743)
Net advances (to) from parent company -- 87 (87)
Other, net (15) 181 (320)
- -----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (41,575) (37,585) (22,150)
- -----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payment of dividends on common stock (9,170) (8,695) (7,975)
Payment of dividends on preferred stock -- -- (70)
Reduction of long-term debt and preferred stock (37,214) (9,891) (19,500)
Proceeds from medium term notes 49,660 49,670 --
Proceeds from capital contribution from parent -- 10,000 --
Net advances to parent company -- -- (6,299)
Net change in short-term debt (4,000) (25,000) 24,000
Other, net -- -- (101)
- -----------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (724) 16,084 (9,945)
- -----------------------------------------------------------------------------------------------------------
Net change in cash 571 (324) (1,914)
Cash at beginning of period 156 480 2,394
- -----------------------------------------------------------------------------------------------------------
Cash at end of period $ 727 $ 156 $ 480
===========================================================================================================
The accompanying Notes to Financial Statements are an integral part of these
statements.
27
29
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Alabama Gas Corporation (Alagasco), a wholly-owned subsidiary of Energen
Corporation, is the largest natural gas distribution utility in the State of
Alabama, serving customers primarily in central and north Alabama. The
following is a description of its significant accounting policies and
practices.
A. UTILITY PLANT AND DEPRECIATION
Utility plant is stated at original cost which includes an allowance for funds
used during construction. Maintenance is charged for the cost of normal
repairs and the renewal or replacement of an item of property which is less
than a retirement unit. When property which represents a retirement unit is
replaced or removed, the cost of such property is credited to utility plant
and, together with the cost of removal less salvage, is charged to the
accumulated reserve for depreciation.
Depreciation is provided on the straight-line method over the estimated useful
lives of utility property at rates established by the Alabama Public Service
Commission (APSC). Approved depreciation rates averaged approximately 4.3
percent in 1995, 1994 and 1993.
B. OPERATING REVENUE AND GAS COSTS
In accordance with industry practice, Alagasco records revenue on a monthly and
cycle billing basis. Alagasco extends credit to its residential and industrial
utility customers which are located primarily in central and north Alabama.
The commodity cost of purchased gas applicable to gas delivered to customers
but not yet billed under the cycle billing method is deferred as a current
asset.
C. INCOME TAXES
Alagasco files a consolidated income tax return with its parent. The
consolidated income taxes are allocated to the appropriate subsidiaries using
the separate return method. Deferred income taxes reflect the impact of
temporary differences between the tax basis of assets and liabilities and their
carrying amounts for financial reporting purposes, and are measured in
compliance with enacted tax laws. Investment tax credits have been deferred
and are being amortized over the lives of the related assets.
D. CASH EQUIVALENTS
Alagasco includes highly liquid marketable securities and debt instruments
purchased with a maturity of three months or less in cash equivalents.
28
30
2. LONG-TERM DEBT AND NOTES PAYABLE
Long-term debt consists of the following:
=============================================================================================================
AS OF SEPTEMBER 30, (IN THOUSANDS) 1995 1994
=============================================================================================================
Medium term notes, interest ranging from 5.4% to 7.7%, for notes
redeemable December 1, 1998 to June 27, 2025 $100,000 $50,000
First Mortgage Bonds, 11% Series H, defeased during fiscal
year 1995 -- 7,500
9% debentures, defeased during fiscal year 1995 -- 28,758
Mortgage note payable, paid in full during fiscal year 1995 -- 956
- -------------------------------------------------------------------------------------------------------------
Total 100,000 87,214
Less amounts due within one year -- 2,823
- -------------------------------------------------------------------------------------------------------------
Total $100,000 $84,391
=============================================================================================================
During the fourth quarter, Alagasco deposited $37.6 million into an irrevocable
trust to complete an in-substance defeasance of the 9 percent debentures and 11
percent Series H First Mortgage Bonds. The funds in the trust, primarily
obtained through the issuance of medium-term notes and short-term borrowings,
will be used solely to satisfy the principal, interest, and call premium of the
defeased debt. Accordingly, the debt and related accrued interest have been
excluded from the 1995 consolidated balance sheet. No gain or loss was recorded
in the financial statements as the APSC has granted Alagasco regulatory relief
related to the income statement impact of this defeasance.
The aggregate maturities of long-term debt for the next five years are as
follows:
=======================================================================================================
YEARS ENDING SEPTEMBER 30, (IN THOUSANDS)
=======================================================================================================
1996 1997 1998 1999 2000
- -------------------------------------------------------------------------------------------------------
-- -- -- $5,350 --
=======================================================================================================
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31
Energen and Alagasco have short-term credit lines and other credit facilities
of $110 million available to either entity for working capital needs. The
following is a summary of information relating to notes payable to banks:
============================================================================================================
AS OF SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993
============================================================================================================
Alagasco outstanding $ -- $ 4,000 $ 29,000
Other Energen outstanding 32,300 2,000 11,000
Available for borrowings 77,700 104,000 70,000
- ------------------------------------------------------------------------------------------------------------
Total $110,000 $110,000 $110,000
============================================================================================================
Maximum amount outstanding at any month-end $ 5,000 $ 60,000 $ 29,000
Average daily amount outstanding $ 447 $ 13,460 $ 23,071
Weighted average interest rates based on:
Average daily amount outstanding 5.69% 3.32% 3.41%
Amount outstanding at year-end -- 5.17% 3.35%
============================================================================================================
Total interest expense in 1995, 1994 and 1993 was $9,652,000, $8,320,000, and
$7,487,000, respectively.
3. REGULATORY
As an Alabama utility, Alagasco is subject to regulation by the APSC which, in
1983, established the Rate Stabilization and Equalization (RSE) rate-setting
process. RSE was extended for the third time on December 3, 1990, for a
three-year period. Under the terms of that extension, RSE shall continue
after November 30, 1993, unless, after notice to the Company, the Commission
votes to either modify or discontinue its operation. On October 4, 1993, the
Commission unanimously voted to extend RSE until such time as certain hearings
mandated by the Energy Policy Act of 1992 (Energy Act) in connection with
integrated resource planning and demand side management programs are completed.
The Energy Act proceedings are expected to conclude during fiscal 1996 at which
time it is expected that the Commission will begin reviewing Alagasco's RSE.
No time table for review has yet been established.
Under RSE as extended, the APSC conducts quarterly reviews to determine, based
on Alagasco's projections and fiscal year-to-date performance, whether
Alagasco's return on equity for the fiscal year will be within the allowed
range of 13.15 percent to 13.65 percent. Reductions in rates can be made
quarterly to bring the projected return within the allowed range; increases,
however, are allowed only once each fiscal year, effective December 1, and
cannot exceed 4 percent of prior-year revenues. RSE limits the utility's equity
upon which a return is permitted to 60 percent of total capitalization and
provides for certain cost control measures designed to monitor the Company's
operations and maintenance (O&M) expense. If O&M expense per customer falls
within 1.25 percentage points above or below the Consumer Price Index For All
Urban Customers (index range), no adjustment is required. If, however, O&M
expense per customer exceeds the index range, three-quarters of the difference
will be returned to the customers. To the extent O&M expense per customer is
less than the index range, the utility will benefit by one-half of the
difference through future rate adjustments. Under RSE as extended, a $1.1
million decrease in revenue became effective October 1, 1994, and a $5.2
million annual increase in revenue became effective December 1, 1994.
Effective December 15, 1990, the APSC approved a temperature adjustment to
customers' monthly bills to remove the effect of departures from normal
temperature on Alagasco's earnings. The calculation is performed monthly, and
the adjustments to customers' bills are made in the same month the weather
variation occurs.
30
32
The Company's rate schedules for natural gas distribution charges contain a Gas
Supply Adjustment (GSA) rider, established in 1993, which permits the
pass-through to customers of changes in the cost of gas supply, including Gas
Supply Realignment (GSR) surcharges imposed by the Company's suppliers
resulting from changes in gas supply purchases related to the implementation of
FERC Order 636.
On June 12, 1995, the APSC approved Alagasco's application to issue $50 million
of new debt. A portion of the proceeds was used to redeem all of Alagasco's 9
percent debentures and 11 percent First Mortgage Bonds. In connection with the
early call of the redeemed debt, Alagasco paid an early call premium of
approximately $1.3 million during the fourth quarter. Because the APSC Order
authorized Alagasco to collect the early call premium through customer rates
during the fiscal year ending September 30, 1996, Alagasco recorded a
regulatory asset of $1.3 million during the fourth quarter ending September 30,
1995.
In accordance with APSC-directed regulatory accounting procedures, Alagasco in
1989 began returning to customers excess utility deferred taxes which resulted
from a reduction in the federal statutory tax rate from 46 percent to 34
percent using the average rate assumption method. This method provides for the
return to ratepayers of excess deferred taxes over the lives of the related
assets. In 1993 those excess taxes were reduced as a result of a federal tax
rate increase from 34 percent to 35 percent. Approximately $2.9 million of the
remaining excess utility deferred taxes is being returned to ratepayers over
approximately 15 years.
FERC REGULATION: On March 15, 1995, Southern Natural Gas Company (Southern)
filed a comprehensive settlement with the FERC in the form of a Stipulation and
Agreement (the Settlement) to resolve all issues in Southern's six pending rate
cases, as well as to resolve all GSR and transition cost issues resulting from
the implementation of FERC Order 636. The Settlement is supported by parties
representing more than 90 percent of the firm transportation demand on
Southern's system, including local distribution companies (including Alagasco),
municipal distribution systems, major gas producers, large industrial end
users, marketers, and state commissions (including the APSC).
On September 29, 1995, the FERC issued its Order Accepting Settlement, Severing
Contesting parties, and Issuing Certificates and Approving Abandonment
(Settlement Order). The Settlement Order approves the Settlement with minor
modifications. Contesting parties had 30 days from the date of the Settlement
Order to file motions for rehearing and several such motions were timely filed.
Until such motions are ruled on by the FERC, the Settlement Order is not
considered to be final.
Specifically, the Settlement provides for the following: (1) the resolution of
all cost of service and rate design issues in Southern's six pending rate cases
and the establishment of reduced rates for the purpose of calculating rate case
refunds; (2) the implementation of reduced settlement rates on an interim basis
for supporting parties commencing March 1, 1995 (by order dated April 4, 1995,
FERC approved these interim rates pending its final review of the merits of the
Settlement); (3) the resolution of all GSR and other transition cost issues
resulting from FERC Order 636; (4) lower GSR cost recovery through the
reduction and earlier payout of GSR costs; (5) a three-year moratorium on
general rate increases; and (6) the resolution and disposition of all rate case
and GSR refunds for supporting parties. With respect to this last point, the
Settlement provides that all rate case refunds will be used to offset a portion
of Southern's remaining GSR liability. In addition, as a result of the
recalculated GSR surcharges for the period January 1, 1994, to February 28,
1995, Southern will refund over-collected GSR costs. Neither the total amount
of this refund nor Alagasco's share has yet been determined; therefore, no
amounts have been recorded in the financial statements. In the Settlement
filing with FERC, Southern has represented that the Settlement will allow
Southern and the supporting parties to resolve all issues relating to GSR and
other transition costs, the majority of which costs will be collected by the
end of calendar 1995. Alagasco estimates that it has a remaining GSR liability
of approximately $2.4 million to be paid through December 1995 and
approximately $2.6 million in other transition costs to be paid through June
1998 and that it has recorded such amounts in the financial statements. Because
these costs will be recovered in full from Alagasco's customers in a timely
31
33
manner through the GSA rider of Alagasco's Tariff, the Company has recorded a
corresponding regulatory asset in the accompanying financial statements.
4. CAPITAL STOCK
Alagasco's authorized common stock consists of 3 million, $0.01 par value
common shares. At September 30, 1995 and 1994, 1,972,052 shares were issued
and outstanding. Alagasco is authorized to issue 120,000 shares of preferred
stock, par value $0.01 per share, in one or more series. There are no shares
currently outstanding.
5. INCOME TAXES
The components of income taxes consist of the following:
============================================================================================================
FOR THE YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993
============================================================================================================
Taxes estimated to be payable currently:
Federal $7,633 $ 9,664 $4,911
State 759 959 496
- ------------------------------------------------------------------------------------------------------------
Total current 8,392 10,623 5,407
- ------------------------------------------------------------------------------------------------------------
Taxes deferred:
Federal (326) (2,689) 867
State 16 (216) 135
- ------------------------------------------------------------------------------------------------------------
Total deferred (310) (2,905) 1,002
- ------------------------------------------------------------------------------------------------------------
Total income tax expense $8,082 $ 7,718 $6,409
============================================================================================================
32
34
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities for 1995 and 1994 are as
follows:
============================================================================================================
1995 1994
---------------------------------------------------------
AS OF SEPTEMBER 30, (IN THOUSANDS) CURRENT NONCURRENT CURRENT NONCURRENT
============================================================================================================
Deferred tax assets:
Deferred investment tax credits $ -- $ 1,386 $ -- $ 1,567
Regulatory liabilities -- 2,229 -- 2,585
Unbilled revenue 1,565 -- 1,454 --
Insurance and accruals 1,923 -- 1,339 --
Gas supply adjustment 930 -- 1,123 --
Accrued vacation 988 -- 981 --
Allowance for uncollectible accounts 902 -- 878 --
Other, net 2,022 52 1,477 96
- ------------------------------------------------------------------------------------------------------------
Subtotal 8,330 3,667 7,252 4,248
Valuation allowance -- -- -- --
- ------------------------------------------------------------------------------------------------------------
Total deferred tax assets $8,330 $ 3,667 $7,252 $ 4,248
============================================================================================================
Deferred tax liabilities:
Depreciation and basis differences $ -- $19,297 $ -- $17,704
Pension and other benefit costs 912 -- 1,457 --
Other, net 2 713 71 248
- ------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities $ 914 $20,010 $1,528 $17,952
============================================================================================================
No valuation allowance with respect to deferred taxes is deemed necessary, as
the Company anticipates generating adequate future taxable income to realize
the benefits of all deferred tax assets on the balance sheet.
Total income tax expense differs from the amount which would be provided by
applying the statutory federal income tax rate to pretax earnings as
illustrated below:
============================================================================================================
FOR THE YEAR ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993
============================================================================================================
Income tax expense at statutory federal income tax rate $8,331 $7,915 $6,729
Increase (decrease) resulting from:
Investment tax credits -- deferred (487) (487) (528)
State income taxes, net of federal income tax benefit 512 486 412
Other, net (274) (196) (204)
- ------------------------------------------------------------------------------------------------------------
Total income tax expense $8,082 $7,718 $6,409
============================================================================================================
There were no tax-related balances due to affiliates at September 30, 1995, or
1994.
33
35
6. RETIREMENT INCOME PLANS AND OTHER BENEFITS
All information presented concerning retirement income and other benefit plans
includes other affiliates of Energen Corporation as well as Alagasco.
The Company has two defined benefit non-contributory pension plans which cover
a majority of the employees. Benefits are based on years of service and final
earnings. The Company's policy is to use the "projected unit credit" actuarial
method for funding and financial reporting purposes. The expense (income) for
the plan covering the majority of employees (Plan A) for the years ended
September 30, 1995, 1994 and 1993, was $1,158,000, $15,000, and $(118,000),
respectively. The expense for the second plan covering employees under labor
union agreements (Plan B) for 1995, 1994 and 1993 was $339,000, $555,000 and
$557,000, respectively.
The funded status of the plans is as follows:
=============================================================================================================
AS OF JUNE 30, (IN THOUSANDS) PLAN A PLAN B
=============================================================================================================
1995 1994 1995 1994
------------------------ ---------------------
Vested benefits $(46,073) $(48,354) $(13,499) $(12,860)
Nonvested benefits (5,912) (5,530) (2,083) (2,253)
- -------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation (51,985) (53,884) (15,582) (15,113)
Effects of salary progression (11,047) (10,332) -- --
- -------------------------------------------------------------------------------------------------------------
Projected benefit obligation (63,032) (64,216) (15,582) (15,113)
Fair value of plan assets, primarily equity and
fixed income securities 69,431 72,004 16,429 11,863
Unrecognized net gain 1,470 2,646 296 1,034
Unrecognized prior service cost 41 46 1,412 1,554
Unrecognized net transition obligation (asset) (5,111) (6,524) 396 452
Additional minimum liability -- -- -- (3,040)
- -------------------------------------------------------------------------------------------------------------
Accrued pension asset (liability) $ 2,799 $ 3,956 $ 3,951 $ (3,250)
=============================================================================================================
At September 30, 1995 and 1994, for both plans the discount rate used to
measure the projected benefit obligation was 7.5 percent, and the expected
long-term rate of return on plan assets was 8.25 percent. The annual rate of
salary increase for the salaried plan was 5.5 percent for both years.
34
36
The components of net pension costs for 1995, 1994 and 1993 were:
=============================================================================================================
FOR THE YEARS ENDED SEPTEMBER 30,
(IN THOUSANDS) PLAN A PLAN B
=============================================================================================================
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
Service cost $ 2,052 $ 1,873 $ 1,678 $ 224 $ 224 $ 187
Interest cost on projected
benefit obligation 4,728 4,550 4,097 1,095 1,042 1,018
Actual (return) on plan assets (8,787) (504) (6,858) (2,172) (372) (1,048)
Net amortization and deferral 2,106 (5,904) 965 1,192 (339) 400
Loss due to special termination
benefits 1,489 -- -- -- -- --
Settlement gain (430) -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------
Net pension (income) expense $ 1,158 $ 15 $ (118) $ 339 $ 555 $ 557
=============================================================================================================
In 1995 the Company recognized a loss for special termination benefits of
$1,489,000 and a settlement gain of $430,000 pursuant to a voluntary early
retirement option offered to all salaried, non-officer employees of at least 58
years of age with a minimum of 5 years' service. Of the 55 eligible employees,
41 accepted.
Energen has deferred compensation plan agreements for certain key executives
providing for payments on retirement, death or disability. The deferred
compensation expense under these agreements for 1995, 1994 and 1993 was
$808,000, $461,000, and $650,000, respectively.
In addition to providing pension benefits, the Company provides certain
post-retirement health care and life insurance benefits. Substantially all of
the Company's employees may become eligible for such benefits if they reach
normal retirement age while working for the Company. In a prior year, the
company adopted SFAS No. 106, Employers' Accounting for Post-retirement
Benefits Other Than Pensions, with respect to the accrual of such costs for
salaried employees. During fiscal year 1994, the Company adopted SFAS 106 with
respect to such costs for employees under collective bargaining agreements.
There is no cumulative effect on the income statement resulting from the
adoption of SFAS 106 as the Company elected to amortize transition costs over a
20-year period. On December 6, 1993, the APSC adopted Order 4-3454 which allows
the Company to recover all costs accrued under SFAS 106 through rates.
While the Company has not adopted a formal funding policy, all of its accrued
post-retirement liability was funded at year-end. The expense for salaried
employees for the years ended September 30, 1995, 1994 and 1993 was $2,271,000,
$2,319,000, and $2,677,000, respectively. The expense for union employees was
$3,613,000, $3,685,000 and $982,000 during 1995, 1994 and 1993, respectively.
Prior to 1994, the Company recognized the cost of providing post-retirement
benefits for union employees on a "pay-as-you-go" basis. These benefits were
provided through a self-insurance arrangement and through insurance companies
whose premiums were based on the benefits paid during the year. The "projected
unit credit" actuarial method was used to determine the normal cost and
actuarial liability.
35
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A reconciliation of the estimated status of the obligation is as follows:
=============================================================================================================
AS OF JUNE 30, (IN THOUSANDS) SALARIED EMPLOYEES UNION EMPLOYEES
=============================================================================================================
1995 1994 1995 1994
---- ---- ---- ----
Accumulated post-retirement benefit obligation $(20,757) $(21,296) $(29,600) $(24,564)
Plan assets 12,659 9,408 4,419 1,248
Unamortized amounts 7,550 11,751 24,237 21,357
- -------------------------------------------------------------------------------------------------------------
Accrued post-retirement benefit liability $ (548) $ (137) $ (944) $ (1,959)
=============================================================================================================
Net periodic post-retirement benefit cost for the years ended September 30,
1995, 1994 and 1993, included the following:
=============================================================================================================
FOR THE YEAR ENDED SEPTEMBER 30, (IN THOUSANDS) SALARIED EMPLOYEES UNION EMPLOYEES
=============================================================================================================
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
Service cost $ 512 $ 450 $ 464 $ 807 $ 481 $ --
Interest cost on accumulated post-retirement
benefit obligation 1,696 1,726 1,457 1,793 1,920 --
Amortization of transition obligation 723 723 842 1,285 1,285 --
Amortization of actuarial gains and losses -- -- 49 -- -- --
Deferred asset (gain) loss 539 (453) -- 424 -- --
Actual (return) on plan assets (1,199) (127) (135) (696) (1) --
- -------------------------------------------------------------------------------------------------------------
Net periodic post-retirement benefit expense $ 2,271 $2,319 $2,677 $3,613 $3,685 $ --
=============================================================================================================
The weighted average health care cost trend rate used in determining the
accumulated post-retirement benefit obligation was 8 percent in 1995 and 1994.
That assumption has a significant effect on the amounts reported. For example,
with respect to salaried employees, increasing the weighted average health care
cost trend rate by 1 percent would increase the accumulated post-retirement
benefit obligation by 3 percent and the net periodic post-retirement benefit
cost by 2.1 percent. For union employees increasing the weighted average health
care cost trend rate by 1 percent would increase the accumulated
post-retirement benefit obligation by 7.1 percent and the net periodic
post-retirement benefit cost by 7 percent. The weighted average discount rate
used in determining the accumulated post-retirement benefit obligation was 7.5
percent in 1995 and 1994.
The Company has a long-term disability plan covering most salaried employees.
Expense for the years ended September 30, 1995, 1994 and 1993 was $155,000,
$150,000, and $129,000, respectively.
7. COMMITMENTS
Alagasco has various firm gas supply and firm gas transportation contracts,
which expire at various dates through the year 2008. These contracts typically
contain minimum demand charge obligations on the part of Alagasco.
Alagasco entered into an agreement with a financial institution whereby it can
sell on an ongoing basis, with recourse, certain installment receivables
related to its merchandising program up to a maximum of $20 million. During
1995 and 1994, Alagasco sold $8,454,000 and $6,784,000, respectively, of
installment receivables. At September 30, 1995 and 1994, the balance of these
installment receivables was $15,618,000 and $13,027,000, respectively.
Receivables sold under this agreement are considered financial instruments with
off-balance-sheet risk. Alagasco's exposure to credit loss in the event of
non-performance by customers is represented by the balance of installment
receivables.
36
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Various legal proceedings arising in the normal course of business are
currently in progress and Alagasco currently accrues provisions for estimated
cost. Although the outcome of any litigation cannot be predicted with
certainty, management does not believe that the ultimate outcome will have a
material adverse effect on Alagasco's financial position or results of
operations.
8. LEASES
Total payments related to leases included as operating expense in the
accompanying statements of income amounted to $2,201,000, $2,147,000, and
$2,332,000 in 1995, 1994 and 1993, respectively. Minimum future rental
payments (in thousands) required after 1995 under leases with initial or
remaining noncancelable lease terms in excess of one year are as follows:
==========================================================================================================
1996 1997 1998 1999 2000 2001 AND THEREAFTER
==========================================================================================================
$1,749 $1,577 $463 $81 $81 $125
==========================================================================================================
9. ENVIRONMENTAL MATTERS
Alagasco is in the chain of title of eight former manufactured gas plant sites,
of which it still owns four, and five manufactured gas distribution sites, of
which it still owns one. A preliminary investigation of the sites does not
indicate the present need for remediation activities. Management expects that,
should remediation of any such sites be required in the future, Alagasco's
share, if any, of such costs will not materially affect the results of
operations or financial condition of Alagasco.
10. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental information concerning cash flow activities is as follows:
===========================================================================================================
FOR THE YEAR ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993
===========================================================================================================
Interest paid, net of amount capitalized $11,166 $7,762 $8,726
Income taxes paid $10,920 $9,097 $5,844
Noncash investing activities:
Capitalized depreciation $ 166 $ 155 $ 187
Allowance for funds used during construction $ 1,054 $ 465 $ 163
Noncash financing activities (debt issuance costs) $ 340 $ 330 $ --
===========================================================================================================
37
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11. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following data summarize operating results for the four quarters of 1995
and 1994. Alagasco's business is seasonal in character and strongly influenced
by weather conditions.
============================================================================================================
1995 FISCAL QUARTERS
(IN THOUSANDS) FIRST SECOND THIRD FOURTH
============================================================================================================
Operating revenues $67,226 $134,141 $55,865 $38,735
Operating income (loss) $ 3,696 $ 19,276 $ 3,383 $(1,924)
Net income (loss) available for common $ 1,751 $ 17,267 $ 1,772 $(5,069)
============================================================================================================
============================================================================================================
1994 FISCAL QUARTERS
(IN THOUSANDS) FIRST SECOND THIRD FOURTH
============================================================================================================
Operating revenues $78,993 $158,268 $66,070 $41,306
Operating income (loss) $ 2,945 $ 18,485 $ 3,580 $(2,711)
Net income (loss) available for common $ 696 $ 16,688 $ 1,799 $(4,287)
===========================================================================================================
12. TRANSACTIONS WITH RELATED PARTIES
Alagasco purchased natural gas from affiliates amounting to $4,644,000,
$10,255,000, and $13,826,000, in 1995, 1994, and 1993, respectively. These
amounts are included in gas purchased for resale. Alagasco had net
receivables from affiliates of $183,000 at September 30, 1995, and net payables
to affiliates of $132,000 at September 30, 1994.
13. FINANCIAL INSTRUMENTS
In accordance with the requirements of SFAS No. 107 (Disclosures about Fair
Value of Financial Instruments), the estimated fair values of Alagasco's
financial instruments at September 30, 1995, were as follows:
==============================================================================================================
CARRYING FAIR
AS OF SEPTEMBER 30, 1995 (IN THOUSANDS) AMOUNT VALUE
==============================================================================================================
Cash and cash equivalents $ 727 $ 727
Receivables, net of allowance account $ 23,359 $23,359
Long-term debt (including current maturities) $100,000 $98,750
==============================================================================================================
The following methods and assumptions were used to estimate the fair value of
financial instruments:
o CASH AND CASH EQUIVALENTS: Fair value was considered to be the same as the
carrying amount.
o RECEIVABLES: The Company believes that, in the aggregate, current and
non-current net receivables were not materially different from the fair
value of those receivables.
o LONG-TERM DEBT: The fair value of fixed-rate long-term debt was based on
the market value of debt with similar maturities and with interest rates
currently trading in the marketplace; the carrying amount of variable rate
long-term debt was assumed to approximate fair value.
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF ENERGEN CORPORATION:
Our report on the consolidated financial statements of Energen Corporation and
subsidiaries has been incorporated by reference in this Form 10-K from page 55
of the 1995 Annual Report to Stockholders of Energen Corporation and
subsidiaries. In connection with our audits of such financial statements, we
have also audited the related financial statement schedules listed in the index
on page 17 and 18 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects the information required to be
included therein.
Coopers & Lybrand L.L.P.
Birmingham, Alabama
October 25, 1995
39
41
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ENERGEN CORPORATION AND SUBSIDIARIES
====================================================================================================
YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993
====================================================================================================
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Balance at beginning of year $2,037 $1,927 $1,927
- ----------------------------------------------------------------------------------------------------
Additions:
Charged to income: 2,431 1,825 1,656
Recoveries and adjustments 67 153 81
- ----------------------------------------------------------------------------------------------------
2,498 1,978 1,737
- ----------------------------------------------------------------------------------------------------
Less uncollectible accounts written off 2,002 1,868 1,737
- ----------------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $2,533 $2,037 $1,927
====================================================================================================
40
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SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ALABAMA GAS CORPORATION
====================================================================================================
YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993
====================================================================================================
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Balance at beginning of year $2,000 $1,800 $1,800
- ----------------------------------------------------------------------------------------------------
Additions:
Charged to income: 1,935 1,805 1,613
Recoveries and adjustments 67 263 78
- ----------------------------------------------------------------------------------------------------
2,002 2,068 1,691
- ----------------------------------------------------------------------------------------------------
Less uncollectible accounts written off 2,002 1,868 1,691
- ----------------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $2,000 $2,000 $1,800
====================================================================================================
41