UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year ended September 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from __________ to ____________ Commission File Number 1-10042 ATMOS ENERGY CORPORATION (Exact name of registrant as specified in its charter) TEXAS 75-1743247 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) Three Lincoln Centre, Suite 1800 5430 LBJ Freeway, Dallas, Texas 75240 (Address of principal executive offices (Zip code) Registrant's telephone number, including area code: (972) 934-9227 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ---------------------- Common stock, No Par Value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X. No ___. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. [X]
The aggregate market value of the voting stock held by non- affiliates of the registrant was $347,049,393 as of November 1, 1996. On November 1, 1996 the registrant had 16,036,598 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of registrant's definitive proxy statement filed for the annual meeting of shareholders on February 12, 1997 are incorporated by reference into Part III.
PART I ITEM 1. BUSINESS Atmos Energy Corporation (the "Company") was organized under the laws of the State of Texas in 1983 as a subsidiary of Pioneer Corporation ("Pioneer") for the purposes of owning and operating Pioneer's natural gas distribution business in Texas. Immediate- ly following the transfer of such business, which had been opera- ted by Pioneer and its predecessors since 1906, Pioneer distrib- uted the outstanding stock of the Company, then known as Energas Company, to Pioneer shareholders. In September 1988, the Company changed its name from Energas Company to Atmos Energy Corporation. The Company distributes and sells natural gas to residential, commercial, industrial, agricultural, and other customers in 419 cities, towns, and communities in service areas located in Texas, Louisiana, Kentucky, Colorado, Kansas, and a small portion of Missouri. The Company also transports gas for others through parts of its distribution system. The Company has helped promote the development of a market for natural gas as a clean burning vehicular fuel by opening seven public refueling facilities in its service areas. The Company's Texas distribution system is operated through its Energas Company division (the "Energas Division") and covers an area having a population of approximately 950,000 people. The economy of the area is based primarily on oil and gas production and agriculture. The principal cities served by the Energas Division include Amarillo, Lubbock, Midland, and Odessa. At September 30, 1996, the Company had 311,754 gas meters in service in Texas. The Company's Louisiana distribution system is operated through its Trans Louisiana Gas Company division (the "Trans La Division") and covers an area having a population of approximately 250,000 people. The economy of the area is based primarily on oil and gas production, agriculture, and food processing. The principal cities served by the Trans La Division are Lafayette, Pineville, and Natchitoches. At September 30, 1996, the Company had 79,880 gas meters in service in Louisiana. The Company's Kentucky distribution system is operated through its Western Kentucky Gas Company division (the "Western Kentucky Division") and covers an area having a population of approximately 680,000 people. The economy of the area is based primarily on industry and agriculture. The principal cities served by the Western Kentucky Division include Bowling Green, Owensboro, and Paducah. At September 30, 1996, the Company had 171,140 gas meters in service in Kentucky. The Company's Colorado, Kansas and Missouri distribution systems are operated through its Greeley Gas Company division 1
(the "Greeley Gas Division") and covers an area having a combined population of approximately 228,000 people. The economies of the areas served are based on oil and gas production, agriculture and resort business. The principal cities served by the Greeley Gas Division include Greeley, Durango and Lamar, Colorado and Bonner Springs, Herington and Ulysses, Kansas. At September 30, 1996 the Greeley Gas Division had 111,284 meters in service. The natural gas distribution industry is subject to a number of factors, many of which affect the Company from time to time. These include (i) the ongoing need to obtain adequate and timely rate relief from regulatory authorities to recover costs of service and earn a fair return on invested capital; (ii) inherent seasonality of the business in local gas distribution service areas; (iii) competition with alternate fuels; (iv) competition with other gas sources for industrial customers, including the ability of some customers to bypass the Company's facilities, which could result in loss of revenues and reduction in the Company's net income; and (v) possible volatility in the supply and price of natural gas. ACQUISITIONS AND MERGERS Since its organization in 1983, the Company has sought to expand its customer base and to diversify the weather patterns, local economic conditions, and regulatory environments to which its operations are subject. As part of this strategy, the Company acquired Trans Louisiana Gas Company, Inc. ("TLG") in January 1986, Western Kentucky Gas Utility Corporation in December 1987, Greeley Gas Company ("GGC") in December 1993, and Oceana Heights Gas Company of Thibodaux, Louisiana in November 1995. The Company continues to consider and pursue, where appropriate, additional acquisitions of natural gas distribution properties and other business opportunities. In July 1996, the Company entered into a definitive agreement with United Cities Gas Company of Brentwood, Tennessee providing for the merger of United Cities with and into the Company. Completion of the merger is dependent upon the approval of the shareholders and regulators of both companies. For further information regarding acquisitions, see Note 2 of notes to consolidated financial statements. FIVE-YEAR OPERATING STATISTICS Certain information with respect to the Company's natural gas operations for the past five years is shown on the following page. 2
<TABLE> <CAPTION> Year ended September 30, --------------------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> NUMBER OF ACCOUNTS, at end of year Residential 565,474 551,269 549,129 539,309 534,762 Commercial 56,860 55,894 55,027 54,275 55,562 Industrial (including agricultural) 8,116 8,331 8,781 8,924 9,331 Public authority and other 3,451 3,377 3,351 3,267 1,745 ------- ------- ------- ------- ------- Total 633,901 618,871 616,288 605,775 601,400 ======= ======= ======= ======= ======= METERS IN SERVICE, at end of year 674,058 658,114 649,319 636,159 630,365 ======= ======= ======= ======= ======= METERS IN SERVICE, average 672,517 656,259 646,165 635,074 631,130 ======= ======= ======= ======= ======= HEATING DEGREE DAYS, system average (1) Actual 3,925 3,579 3,953 4,046 3,676 Normal 3,983 3,983 3,983 3,983 3,983 Percent of normal 99% 90% 99% 102% 92% SALES VOLUMES - MMcf (2) Residential 51,543 46,765 51,209 51,763 48,223 Commercial 21,541 19,756 21,134 21,872 20,675 Industrial (including agricultural) 39,656 38,046 38,502 31,367 27,489 Public authority and other 5,182 4,779 5,242 4,403 3,333 ------- ------- ------- ------- ------- Total 117,922 109,346 116,087 109,405 99,720 TRANSPORTATION VOLUMES - MMcf (2) 26,534 30,463 35,308 39,782 32,203 ------- ------- ------- ------- ------- TOTAL VOLUMES HANDLED - MMcf (2) 144,456 139,809 151,395 149,187 131,923 ======= ======= ======= ======= ======= OPERATING REVENUES (000's) Gas Revenues Residential $243,118 $210,165 $245,931 $237,914 $211,767 Commercial 90,349 79,982 92,507 91,250 82,311 Industrial (including agricultural) 114,892 110,815 119,722 92,455 77,218 Public authority and other 21,738 18,185 22,463 18,315 13,232 -------- -------- -------- -------- -------- Total gas revenues 470,097 419,147 480,623 439,934 384,528 Transportation Revenues 8,307 11,711 14,118 15,013 13,674 Other Revenue 5,340 4,962 5,067 4,694 5,151 -------- -------- -------- -------- -------- Total operating revenues $483,744 $435,820 $499,808 $459,641 $403,353 ======== ======== ======== ======== ======== AVERAGE SALES PRICE/Mcf Residential $4.72 $4.49 $4.80 $4.60 $4.39 Commercial 4.19 4.05 4.38 4.17 3.98 Industrial (including agricultural) 2.90 2.91 3.11 2.95 2.81 Public authority and other 4.19 3.81 4.29 4.16 3.97 Total 3.99 3.83 4.14 4.02 3.86 AVERAGE COST OF GAS/Mcf SOLD 2.60 2.46 2.86 2.71 2.58 <FN> See footnotes on page 4. </TABLE> 3
<TABLE> SALES AND STATISTICAL DATA BY STATE - 1996 <CAPTION> Year ended September 30, 1996 --------------------------------------------------------------- Texas Louisiana Kentucky Colorado Kansas Mo. Total ------- ------ ------- ------ ------ --- ------- <S> <C> <C> <C> <C> <C> <C> <C> METERS IN SERVICE, at end of year Residential 266,805 73,414 151,798 72,469 24,663 521 589,670 Commercial 24,950 5,392 17,334 9,841 3,318 71 60,906 Industrial (including agricultural) 17,780 118 467 73 328 - 18,766 Public authority and other 2,219 956 1,541 - - - 4,716 ------- ------ ------- ------ ------ --- ------- Total 311,754 79,880 171,140 82,383 28,309 592 674,058 ======= ====== ======= ====== ====== === ======= HEATING DEGREE DAYS, system average (1) Actual 3,331 1,980 4,610 5,990 5,651 5,658 3,925 Normal 3,528 1,760 4,376 6,556 5,158 5,028 3,983 Percent of normal 94% 113% 105% 91% 110% 113% 99% SALES VOLUMES (2) Residential 22,866 4,177 14,702 7,232 2,520 46 51,543 Commercial 7,407 1,507 6,345 4,995 1,274 13 21,541 Industrial (including agricultural) 24,977 1,707 10,726 707 1,539 - 39,656 Public authority and other 2,526 973 1,683 - - - 5,182 ------ ----- ------ ----- ----- -- ------ Total 57,776 8,364 33,456 12,934 5,333 59 117,922 TRANSPORTATION VOLUMES (2) 5,694 562 16,936 3,244 98 - 26,534 ------ ----- ------ ------ ----- -- ------- TOTAL VOLUMES HANDLED (2) 63,470 8,926 50,392 16,178 5,431 59 144,456 ====== ===== ====== ====== ===== == ======= OTHER STATISTICS Operating revenues (000's) $203,726 $ 52,970 $153,203 $49,017 $24,451 $377 $483,744 Gross plant (000's) $278,180 $103,809 $158,918 $81,438 $43,415 $678 $666,438 Net plant (000's) $168,014 $ 74,816 $ 96,252 $47,858 $26,151 $476 $413,567 Miles of pipe 13,163 2,090 3,570 2,454 1,331 32 22,640 Employees (3) 844 167 373 202 66 - 1,652 Communities served 92 41 163 62 59 2 419 Estimated population in service area 950,000 250,000 680,000 160,000 66,000 2,000 2,108,000 Estimated square miles in service area 30,000 7,000 12,000 1,050 580 20 50,650 Vehicles in fleet 422 132 266 155 52 - 1,027 Franchises 72 58 63 35 43 2 273 <FN> (1) A heating degree day is equivalent to each degree that the average of the high and the low temperatures for a day is below 65 degrees. The greater the number of heating degree days, the colder the climate. Heating degree days are used in the natural gas industry to measure the coldness of wea- ther experienced and to compare relative temperatures be- tween one geographic area and another. (2) Volumes are reported as metered in million cubic feet ("MMcf"). (3) The Texas column includes 235 and 223 employees in the Dallas general office in 1996 and 1995, respectively. </TABLE> 6
<TABLE> SALES AND STATISTICAL DATA BY STATE - 1995 <CAPTION> Year ended September 30, 1995 ---------------------------------------------------------------- Texas Louisiana Kentucky Colorado Kansas Mo. Total ------- --------- -------- -------- ------ --- ------- <S> <C> <C> <C> <C> <C> <C> <C> METERS IN SERVICE, at end of year Residential 265,192 64,612 149,567 69,865 24,225 519 573,980 Commercial 24,893 4,937 16,989 9,862 3,284 71 60,036 Industrial (including agricultural) 18,130 115 447 98 326 - 19,116 Public authority and other 2,550 906 1,526 - - - 4,982 ------- ------ ------- ------ ------ --- ------- Total 310,765 70,570 168,529 79,825 27,835 590 658,114 ======= ====== ======= ====== ====== === ======= HEATING DEGREE DAYS, system average (1) Actual 3,152 1,448 3,792 6,243 5,093 5,044 3,579 Normal 3,528 1,760 4,376 6,556 5,158 5,028 3,983 Percent of normal 89% 82% 87% 95% 99% 100% 90% SALES VOLUMES (2) Residential 22,338 3,163 11,949 7,007 2,265 43 46,765 Commercial 7,300 1,183 5,276 4,905 1,081 11 19,756 Industrial (including agricultural) 23,875 1,864 9,992 725 1,590 - 38,046 Public authority and other 2,547 789 1,443 - - - 4,779 ------ ----- ------ ------ ----- -- ------ Total 56,060 6,999 28,660 12,637 4,936 54 109,346 TRANSPORTATION VOLUMES (2) 9,571 490 17,103 3,180 119 - 30,463 ------ ----- ------ ------ ----- -- ------- TOTAL VOLUMES HANDLED (2) 65,631 7,489 45,763 15,817 5,055 54 139,809 ====== ===== ====== ====== ===== == ======= OTHER STATISTICS Operating revenues (000's) $207,149 $38,716 $117,154 $51,199 $21,254 $348 $435,820 Gross plant (000's) $245,173 $93,677 $142,699 $73,216 $40,000 $594 $595,359 Net plant (000's) $138,479 $70,899 $87,705 $41,995 $23,772 $402 $363,252 Miles of pipe 13,090 1,863 3,509 2,400 1,318 32 22,212 Employees (3) 833 161 383 204 65 - 1,646 Communities served 92 37 163 62 58 2 414 Estimated population in service area 950,000 250,000 680,000 160,000 66,000 2,000 2,108,000 Estimated square miles in service area 30,000 7,000 12,000 1,050 580 20 50,650 Vehicles in fleet 452 144 295 169 53 - 1,113 Franchises 72 58 63 34 42 2 271 <FN> See footnotes on page 4. </TABLE> 7
GAS SALES The Company's natural gas distribution business is seasonal and highly dependent on weather conditions in the Company's service areas. Gas sales to residential and commercial customers are greater during the winter months than during the remainder of the year. The volumes of such sales during the winter months will vary with the temperatures during such months. The seasonal nature of the Company's sales to residential and commercial customers is offset partially by the Company's sales in the spring and summer months to its agricultural customers in Texas, Colorado and Kansas who utilize natural gas to operate irrigation equipment. The Company's management believes that the Company has lessened its sensitivity to weather risk by diversifying its operations into geographic areas having different weather patterns. In addition to weather, the Company's revenues are affected by the cost of natural gas and economic conditions in the areas that the Company serves. Higher gas costs, which the Company is generally able to pass through to its customers under purchased gas adjustment clauses, may cause customers to conserve, or, in the case of industrial customers, to use alternative energy sources. In recent years, natural gas market conditions have changed. Natural gas prices to distributors have become more volatile and the number of competing marketers of natural gas has increased. The Company's gas marketing subsidiaries purchase gas to address these changing markets. In certain instances, customers purchase gas directly from others instead of from the Company and the Company transports such gas through its distribution systems to the customers' facilities for a fee. Although transportation of customer-owned gas reduces the Company's operating revenues and corresponding purchased gas cost, the transportation revenues received by the Company may offset the loss to gas sales revenues. The Company's distribution systems have experienced aggregate peak day deliveries of approximately one billion cubic feet ("Bcf") per day. The Company has the ability to curtail deliveries to certain customers under the terms of interruptible contracts and applicable state statutes or regulations which enables it to maintain its deliveries to high priority customers. The Company has not imposed curtailment in its Energas Division since the Company began independent operations in 1983 or in its Trans La Division since the Company acquired TLG in 1986. The Western Kentucky Division curtailed deliveries to certain interruptible customers during exceptionally cold periods in December 1989, January 1994 and during the winter of 1996. GGC has not curtailed deliveries to its sales customers since prior to 1980. 8
GAS SUPPLY The principal gas suppliers to the Company in 1996, 1995 and 1994 included Westar Transmission Company ("Westar") and KN Gas Marketing, affiliates of KNEnergy; Mesa Operating Company ("Mesa"); Louisiana Intrastate Gas Corporation ("LIG"), an affiliate of Equitable Resources Inc.; Natural Gas Clearinghouse; Texaco Gas Marketing; Union Pacific Fuels; Vastar, an affiliate of ARCO; PanEnergy, an affiliate of PanEnergy Corporation; Astra Resources Marketing, Inc. ("Astra"), an affiliate of Western Resources, Inc. and LG&E Natural, an affiliate of LG&E Energy. The prices paid by the Company for natural gas delivered to it are set by contracts with gas suppliers and/or ratemaking proceedings before regulatory authorities. Charges for gas costs are passed through to the Company's customers under approved or negotiated tariffs or pursuant to contract. 9
The following table sets forth volumes purchased from the Company's principal gas suppliers for the years ended September 30, 1996, 1995, and 1994. Volumes purchased (MMcf as metered) 1996: Astra Resources Marketing, Inc. 3,047 LG&E Natural 5,256 LIG 3,790 Mesa 9,318 Natural Gas Clearinghouse 5,097 PanEnergy 5,988 Texaco Gas Marketing 4,571 Union Pacific Fuels 5,550 Vastar 5,778 Westar and KN Gas Marketing 42,660 1995: Astra Resources Marketing, Inc. 2,565 LG&E Natural 2,902 LIG 2,698 Mesa 9,369 Natural Gas Clearinghouse 2,154 PanEnergy 7,077 Texaco Gas Marketing 8,427 Union Pacific Fuels 5,298 Vastar 3,490 Westar and KN Gas Marketing 43,950 1994: Astra Resources Marketing, Inc. 2,210 LIG 4,254 Mesa 9,926 PanEnergy 3,283 Texaco Gas Marketing 5,453 Union Pacific Fuels 5,825 Vastar 6,881 Westar and KN Gas Marketing 47,842 Westar and KN Gas Marketing supply natural gas to most of the Energas Division under multiple contracts. The Westar contract was scheduled to expire in 1998. During fiscal 1996 Westar, KN Gas Marketing and the Company commenced negotiations to restructure supply and transportation services provided to the Company by KN Energy. The restructured supply and transportation services agreements which became effective during fiscal 1996 replace prior service which had been provided on a Weighted Average Cost of Gas ("WACOG") basis. Contract terms now extend through 2001. The principal gas supply for the Company's Amarillo, Texas distribution system is furnished by Mesa under a long-term con- tract that expires upon the depletion of the field from which the gas is produced. Mesa owns the gas rights in certain specified 10
acreage in the West Panhandle field. Pursuant to a contract between Colorado Interstate Gas Company ("CIG") and Mesa, CIG is obligated to deliver to Mesa the volumes of gas required for sale to customers in Amarillo and its environs, subject to certain contractual volume limitations, so long as the gas reserves from the West Panhandle field are commercially producible. The price under the contract is determined each year pursuant to a formula until December 1997. The contract also provides a mechanism for price redetermination each two year period thereafter beginning January 1, 1998. On October 28, 1991, the Company and LIG entered into new agreements which were approved by the Louisiana Public Service Commission ("Louisiana Commission") on November 26, 1991, and became effective June 1, 1992. These agreements provide continued supply by LIG for most of the Trans La Division's gas requirements for a term of ten years (but subject to cancellation by either party after five years). The agreements provide for market sensitive pricing and allow the Company to purchase certain volumes of gas from other suppliers. LIG is required to provide standby service to back up the purchases from the other suppliers. The Company's Louisiana industrial sales subsidiary, Trans Louisiana Industrial Gas Company, Inc., purchases some gas supplies for resale to certain of its Louisiana industrial customers from suppliers other than LIG. The Western Kentucky Division requirements are delivered by Texas Gas and Tennessee Gas with the exception of a small percentage of the requirements being purchased directly from intrastate producers. The Western Kentucky Division purchases its supply under staggered term contracts from major producers and marketers including Texaco, Union Pacific, Vastar, PanEnergy, LG&E Natural and Natural Gas Clearinghouse. The Company's distribution system in the Western Kentucky Division includes six underground storage facilities, which are used to help meet customer requirements during peak demand per- iods and to reduce the need to contract for additional pipeline capacity to meet such peak demand periods. See "Item 2. Proper- ties" for further information regarding the underground storage facilities. The Company also contracted for storage service in underground storage facilities of Tennessee Gas and Texas Gas under FERC Order No. 636. The Greeley Gas Division purchases or transports approximat- ely 81% of its natural gas requirements on eight pipelines. Five of these are regulated by the Federal Energy Regulatory Commission ("FERC") and the remaining three are state regulated. The FERC pipelines are Colorado Interstate Gas Company, Williams Natural Gas Company, KNEnergy, Northwest Pipeline Corporation, and NorAm. The state regulated pipelines are Public Service Company of Colorado, Western Resources, Inc. and Kansas Pipeline Partnership in Kansas. Approximately 19% of the Divisions's gas 11
supply is purchased from local sources. Several of the operating areas are in or adjacent to natural gas producing fields. PanEnergy is the main supplier to the Greeley Gas Division's largest district, the Greeley District. Astra is the principal gas supplier for the Kansas and Missouri districts. Gas is transported through three different pipeline systems (Williams Natural Gas, Western Resources, Inc. and NorAm). The Company has not experienced supply curtailment in its Texas distribution system since it began independent operations in 1983, in its Louisiana system since its acquisition, or in Colorado, Kansas or Missouri since prior to 1980. A large proportion of the Company's sales are made to high priority residential and commercial consumers; therefore, any curtailment of supply for these customers is unlikely. REGULATION AND RATES Regulation. In the Energas Division, the governing body of each municipality served by the Company has original jurisdiction over all utility rates, operations, and services within its city limits except with respect to sales of natural gas for vehicle fuel and agricultural use. The Company operates pursuant to non- exclusive franchises granted by the municipalities it serves, which franchises are subject to renewal from time to time. The franchises granted to the Company permit it to conduct natural gas distribution within the municipalities' incorporated limits. The Railroad Commission of Texas ("Railroad Commission") has exclusive appellate jurisdiction over all rate and regulatory orders and ordinances of the municipalities and exclusive original jurisdiction over rates and services to customers not located within the limits of a municipality. In Texas, rates for large industrial customers are routinely set by contract negotiation between the Company and its customers pursuant to statutory standards and are filed with and subject to the governmental authority of the municipalities or the Railroad Commission, depending on whether the customer is located inside or outside the limits of a municipality. Historically, the Company's rates for large industrial customers have been accepted as filed. Agricultural sales in Texas are not regulated, except that prices for agricultural sales cannot exceed the prices the Company charges the majority of its commercial or other similar large-volume users in Texas. The Trans La Division is regulated by the Louisiana Commis- sion, which regulates utility services, rates, and other matters. In most of the parishes and incorporated areas in which the Company operates in Louisiana, it does so pursuant to a non- exclusive franchise granted by the governing authority of each parish or incorporated area. The franchise gives the Company the general privilege to operate its gas distribution business in, as well as the right to install its distribution lines along the 12
roadways of, the parish or the incorporated area. Direct sales of natural gas to industrial customers in Louisiana who utilize the gas for fuel or in manufacturing processes and sales of natural gas for vehicle fuel are exempt from regulation. The Western Kentucky Division is regulated by the Kentucky Public Service Commission ("Kentucky Commission"), which regulates utility services, rates, issuances of securities, and other matters. The Company operates in the various incorporated cities served by it in Kentucky pursuant to non-exclusive franchises granted by such cities. The franchises grant to the Company the right to operate its gas distribution business in the city and to install its distribution lines and related equipment in and along the city's public rights-of-way. Sales of natural gas for use as vehicle fuel in Kentucky are not subject to regulation. The Greeley Gas Division is regulated by the Colorado Public Utilities Commission ("Colorado Commission"), the Kansas Corporation Commission, and the Missouri Public Service Commis- sion with respect to accounting, rates and charges, operating matters, and the issuance of securities. The Company operates in the various incorporated cities served by it in the states of Colorado, Kansas and Missouri under terms of non-exclusive franchises granted by the various cities. The franchises grant to the Company, among other things, the right to install and operate its gas distribution system within the city limits. Most of the Greeley Gas Division's wholesale gas suppliers are regulated by various federal and state commissions. The Company is also subject to regulation by the United States Department of Transportation with respect to safety requirements in the operation and maintenance of its gas distribution facilities. The Company's distribution operations are also subject to various state and federal laws regulating environmental matters. From time to time the Company receives inquiries regarding various environmental matters. The Company believes that its properties and operations substantially comply with and are operated in substantial conformity with applicable safety and environmental statutes and regulations. There are no administrative or judicial proceedings arising under environmental quality statutes pending or known to be contemplated by governmental agencies which, if adversely determined, would have a material adverse effect on the Company. Rates. Approximately 89% of the Company's revenues in fis- cal 1996 was derived from sales at rates set by or subject to approval by local or state authorities. The method of determin- ing regulated rates varies among the six states in which the Company operates. As a general rule, the regulatory authority reviews the Company's rate request and establishes a rate structure intended to generate revenue sufficient to cover the Company's costs of doing business and provide a reasonable return on invested capital. 13
Substantially all of the sales rates charged by the Company to its customers fluctuate with the cost of gas purchased by the Company. Base rates established by regulatory authorities are adjusted for increases and decreases in the Company's purchased gas cost through automatic purchased gas adjustment mechanisms. Therefore, while the Company's operating revenues may fluctuate, gross profit (which is defined as operating revenues less purchased gas cost) is generally not eroded or enhanced because of gas cost increases or decreases. The following table sets forth the major rate requests made by the Company during the most recent five years and the action taken on such requests: Effective Amount Amount Jurisdiction Date Requested Received ------------ --------- --------- -------- Texas West Texas System 11/18/94 2,581,000 1,702,000 (a) 11/01/96 7,676,000 5,300,000 Amarillo 11/25/92 4,398,000 2,130,000 Louisiana 03/01/93 (b) 730,000 (b) 03/01/94 (b) 1,058,000 (b) 03/01/95 (b) 1,071,000 (b) Kentucky 11/01/95 7,665,000 2,300,000 (c) 03/01/96 1,000,000 (c) Colorado 05/01/94 4,527,000 3,246,000 Kansas 01/06/92 1,495,000 505,000 12/01/93 2,604,000 2,088,000 (a) The increase includes $200,000 applicable to areas outside the city limits which became effective in January 1995. (b) A September 1992 rate order approved a Rate Stabilization Clause ("RSC") for three years which provided for an annual adjustment of rates to reflect changes in expenses and investment. The RSC provided the Company the opportunity to earn a return on common equity between 11.75% and 12.25%. (c) The Kentucky rate order provided an increase of $2,300,000, lowered depreciation rates effective November 1, 1995 and provided an additional $1,000,000 beginning March 1, 1996. The order also included a provision for a pilot demand side management program which could cost up to $450,000 annually. 14
COMPETITION The Company is not currently in significant direct competition with any other distributors of natural gas to residential and commercial customers within its service areas. However, the Company does compete with other natural gas suppliers and suppliers of alternate fuels for sales to industrial and agricultural customers. The Company competes in all aspects of its business with alternative energy sources, including, in particular, electrici- ty. Competition for the residential and commercial customers is increasing. Promotional incentives, improved equipment efficien- cies, and promotional rates all contribute to the acceptability of electric equipment. Beginning in 1985, changes in the federal regulatory environment through FERC orders and conditions related to markets and gas supply in the United States have brought increased competition into the natural gas industry. In 1993, FERC Order 636 was implemented by the interstate pipelines in the Company's service territories. The FERC policies apply only to interstate pipelines and have not had a direct impact upon the Company's operations which are primarily supplied by intrastate pipelines. However, the Company has felt the impact of increased competitiveness in the large volume market in some areas result- ing from these changes. The Company has sought regulatory approvals for competitive pricing on a case by case basis. The Company has opened seven public refueling facilities for the sale of compressed natural gas ("CNG") for vehicular use. The most recent of these were opened in Greeley, Colorado in September 1996, at West Texas A&M University in Canyon, Texas in August 1995, and in Owensboro, Kentucky in April 1995. Prior to that time, the Company provided CNG for vehicular use only in limited situations (such as for school buses in certain school districts and for the fleet vehicles of certain businesses). With the opening of these public refueling stations the Company began competing with gasoline for vehicular fuel sales. All of these facilities, except those in Greeley, Colorado and at West Texas A&M, are located at existing local gasoline stations. Also during fiscal 1996, the Company formed a power marketing subsidiary, Atmos Energy Services, Inc., to conduct electric power purchases and sales. The Company expects to market these services to industrial customers in addition to natural gas. 15
Employees At September 30, 1996, the Company employed 1,652 persons. See "Sales and Statistical Data by State - 1996" for the number of employees by state. ITEM 2. PROPERTIES The Company owns an aggregate of 22,640 miles of underground pipelines throughout its gas distribution systems. These pipe- lines are located on easements or right-of-ways granted to the Company, which generally provide for perpetual use. The Company maintains its pipelines through a program of continuous inspection and repair and believes that its pipeline system is in good condition. The Company also owns or operates six under- ground gas storage facilities in Kentucky that have a total storage capacity of approximately 10.7 Bcf. However, approximately 6.5 Bcf of gas in the storage facilities must be retained as cushion gas. The maximum daily delivery capability of the storage facilities is approximately 109 MMcf. Substantially all of the Company's properties in its Greeley Gas Division with a recorded value of approximately $74.5 million are subject to a lien under First Mortgage Bonds assumed by the Company in the acquisition of GGC. At September 30, 1996, the lien secured approximately $17.0 million of outstanding 9.4% Series J First Mortgage Bonds due May 1, 2021. In 1996 the Company consolidated its administrative offices in Dallas, Texas under one lease. The Company also maintains field offices throughout its distribution system, substantially all of which are located in leased premises. The Company holds franchises granted by the incorporated cities and towns that it serves. At September 30, 1996, the Company held 273 such franchises having terms generally ranging from five to 25 years. The Company believes that each of its franchises will be renewed. ITEM 3. LEGAL PROCEEDINGS See Note 10 of notes to consolidated financial statements. 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 fiscal 1996. 16
EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information as of September 30, 1996, regarding the executive officers of the Company. It is followed by a brief description of the business experience of each executive officer during the past five years. Name Age Office Currently Held ---- --- --------------------- Robert F. Stephens 48 President and Chief Operating Officer, Director James F. Purser 46 Executive Vice President and Chief Financial Officer, Director J. Charles Goodman 35 Executive Vice President of Operations H.F. Harber 54 Senior Vice President of Corporate Services Donald E. James 49 Senior Vice President of Public Affairs Mary S. Lovell 45 Senior Vice President of Utility Services Glen A. Blanscet 39 Vice President, General Counsel and Corporate Secretary Robert F. Stephens was named President and Chief Operating Officer and was appointed to the Board of Directors in February 1995. He previously served as Executive Vice President - Corporate Operations from May 1989 through February 1995. James F. Purser was appointed to the Board of Directors in February 1995. He was named Executive Vice President and Chief Financial Officer in May 1989. J. Charles Goodman was named Executive Vice President, Operations in April 1995. He previously served as President of the Company's Trans La Gas Division from February 1993 until April 1995 and as Chief Engineer from February 1989 until February 1993. H.F. Harber was named Senior Vice President - Corporate Services in August 1993. He previously served as Vice President, Human Resources and Administration from July 1991 to August 1993. Donald E. James was named Senior Vice President - Public Affairs in May 1995. He previously served as Senior Vice President and General Counsel from January 1994 to May 1995, as Senior Vice President - General Counsel and Corporate Secretary from May 1993 until August 1993, and as Senior Vice President and General Counsel from May 1989 until May 1993. 17
Mary S. Lovell was named Senior Vice President, Utility Services in May 1995. She previously served as Vice President, Rates and Regulatory Affairs from August 1990 to May 1995. Glen A. Blanscet was named Vice President, General Counsel and Corporate Secretary in May 1995. He previously served as Assistant General Counsel and Corporate Secretary from January 1994 to May 1995, and as Assistant General Counsel from July 1988 to December 1993. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's stock trades on the New York Stock Exchange under the trading symbol "ATO". The high and low sale prices and dividends paid per share of the Company's common stock for fiscal 1996 and 1995 are listed below. <TABLE> <CAPTION> 1996 1995 ---------------------------------- ---------------------------------- Dividends Dividends High Low paid High Low paid Quarter ended: --------- --------- --------- -------- -------- --------- <S> <C> <C> <C> <C> <C> <C> December 31 $23 $18 $ .24 $18 $15 7/8 $ .23 March 31 23 21 .24 18 1/2 16 1/8 .23 June 30 31 22 3/4 .24 20 1/4 17 1/2 .23 September 30 30 5/8 20 7/8 .24 20 5/8 19 .23 ----- ------ $ .96 $ .92 ===== ====== </TABLE> See Note 3 of notes to consolidated financial statements for restriction on payment of dividends. The number of record holders of the Company's common stock on September 30, 1996 was 28,624. 18
ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data with respect to the Company and should be read in conjunction with the consolidated financial statements included herein. Year ended September 30, -------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- (In thousands, except per share data) Operating revenues $483,744 $435,820 $499,808 $459,641 $403,353 ======== ======== ======== ======== ======== Net income $ 23,949 $ 18,873 $ 14,679 $ 17,544 $ 10,998 ======== ======== ======== ======== ======== Net income per share $ 1.51 $ 1.22 $ .97 $ 1.22 $ .80 ======== ======== ======== ======== ======== Cash dividends per share $ .96 $ .92 $ .88 $ .85 $ .83 ======== ======== ======== ======== ======== Total assets at end of year $501,861 $445,783 $416,678 $391,618 $358,363 ======== ======== ======== ======== ======== Long-term debt at end of year $122,303 $131,303 $138,303 $105,853 $112,153 ======== ======== ======== ======== ======== Supplemental net income (1) $ 18,132 $ 10,570 ======== ======== Supplemental net income per share (1) $ 1.26 $ .77 ======== ======== (1) Supplemental net income reflects results if GGC had not made an S Corporation election in 1987. 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The Company distributes and sells natural gas to residential, commercial, industrial and agricultural customers in six states. Such business is subject to federal and state regulation and/or regulation by local authorities in each of the states in which the Company operates. In addition, the Company's business is affected by seasonal weather patterns, competitive factors within the energy industry, and economic conditions in the areas that the Company serves. RATE ACTIVITY In May 1996, the Company filed to increase revenues by approximately $7.7 million for a portion of its Energas Company service area, which includes approximately 200,000 customers inside the city limits of 67 cities in West Texas. All cities either approved, or took no action to reject, a settlement allowing a $5.3 million increase in annual revenues to be effective for bills rendered on or after November 1, 1996. In October 1996, the Company filed to increase revenues by approximately $.5 million for the remaining rural customers in West Texas. In February 1995, the Company filed with the Kentucky Commission for a rate increase for its Western Kentucky Division. In October 1995, the Kentucky Commission issued an order authorizing the Company to increase its rates by $2.3 million annually effective November 1, 1995, and by an additional $1.0 million annually beginning in March 1996. The settlement included a decrease in depreciation rates, recovery of expenses related to adoption of SFAS No. 106 and included a provision for the Company to begin a three-year demand-side management pilot program for the 1996-97 heating season, which could cost up to $450,000 annually, resulting in a total annual operating income increase of approximately $4.0 million. The Company provides natural gas service to approximately 171,000 customers in Kentucky. In September 1994, the Company filed to increase revenues by approximately $2.6 million for a portion of its Energas Company service area, which includes approximately 217,000 customers both inside and outside of 67 cities in West Texas. The Company requested recovery of accrual accounting for postretirement benefits in accordance with SFAS No. 106. See Note 8 of the accompanying notes to consolidated financial statements for SFAS No. 106 information. In November 1994, the Company implemented an annual revenue increase of approximately $1.5 million affecting approximately 195,000 customers located inside the city limits of towns in this portion of its Energas Division. Upon approval by the Railroad Commission of Texas in January 1995, the 20
Company implemented an annual increase of approximately $.2 million relating to the 22,000 remaining rural customers. Effective December 1, 1993, GGC received an annual rate increase of approximately $2.1 million or 10.6% in its Kansas service area. The increase reflects recovery of SFAS No. 106 expenses with external funding and a moratorium on rate requests in Kansas until December 1, 1996. GGC filed a request for an increase in annual revenues of $4.5 million with the Colorado Public Utility Commission in September, 1993. On May 1, 1994, the Company implemented an annual increase of $3.2 million or an increase in revenues of 6.9% in Phase I of this proceeding. The Phase I rates reflect recovery of SFAS No. 106 expenses with external funding, consistent with the recommended decision of the presiding administrative law judge. In October 1994, the Colorado Commission issued its order affirming the increase as set forth in Phase I. In March 1995, the Greeley Gas Division filed Phase II in the rate proceeding, which addressed rate structure. In September 1995 all parties to the proceeding entered into a stipulation and agreement which became final in November 1995 upon the recommendation by an administrative law judge of the Colorado Commission. In September 1992, the Louisiana Commission issued a rate order for the Company's Louisiana service area, which included a rate stabilization clause ("RSC") for three years that provided for an annual adjustment to the Company's rates to reflect changes in expenses, revenues and invested capital following an annual review. The RSC provided an opportunity for a return on jurisdictional common equity of between 11.75% and 12.25%. As a result of the Company's filings under the RSC, an increase of $730,000 annually or 2% went into effect on March 1, 1993, an increase of $1.1 million annually or 2.7% went into effect on March 1, 1994, and the third increase of $1.1 million annually or 2.0% went into effect on March 6, 1995. In April 1996, the Company filed a request with the Louisiana Commission to extend the rate stabilization mechanism. ACQUISITIONS AND MERGERS The Company has expanded its customer base and sought to diversify the regulations, weather patterns and local economic conditions to which it is subject through acquisitions in fiscal years 1995, 1994, 1987, and 1986. The Company continues to consider and pursue, where appropriate, additional acquisitions of natural gas distribution properties and other business opportunities. In July 1996, the Company entered into a definitive agreement with United Cities Gas Company of Brentwood, Tennessee providing for the merger of United Cities with and into the Company. Completion of the merger is dependent upon the approval of the shareholders and regulators of both companies, as well as 21
other conditions precedent to closing. Shareholder approvals were obtained on November 12, 1996. In November 1995, the Company acquired privately held Oceana Heights Gas Company ("Oceana") of Thibodaux, Louisiana. Oceana provides natural gas service to approximately 9,200 customers and is located adjacent to a system in LaFourche Parish that was acquired by Atmos in 1994. The transaction was accounted for as a pooling of interests. The outstanding shares of Oceana's capital stock were converted into shares of Atmos common stock having a market value equal to the $6.4 million purchase price. Oceana was merged into the Trans La Division, bringing Trans La to nearly 80,000 customers. In December 1993, the Company acquired Greeley Gas Company ("GGC") of Denver, Colorado in a merger transaction accounted for as a pooling of interests; therefore, all historical financial statements and notes thereto have been restated to retroactively reflect this merger. At that time, GGC was a privately held company providing natural gas service to nearly 100,000 customers in 122 communities in Colorado, Kansas and a small service area in Missouri. The transaction was structured to be a tax-free reorganization. The Company exchanged 2,329,330 shares of its common stock before the 3-for-2 stock split (3,493,995 shares on a post-split basis) for all of the outstanding stock of GGC. For further information regarding acquisition activity, see Note 2 of notes to consolidated financial statements. RESULTS OF OPERATIONS YEAR ENDED SEPTEMBER 30, 1996 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1995 Operating revenues increased 11% to $483.7 million in 1996 from $435.8 million in 1995 due to weather that was 10% colder than in 1995 and a 6% increase in the average cost of gas per thousand cubic feet ("Mcf") sold. Average gas sales revenues per Mcf increased from 1995 by $.16 to $3.99 in 1996, while the average cost of gas per Mcf sold increased $.14 to $2.60 in 1996. The number of meters in service increased to 674,058 at September 30, 1996 compared with 658,114 at September 30, 1995. Sales to weather sensitive residential, commercial and public authority customers increased approximately 7.0 billion cubic feet ("Bcf") in 1996 while sales to industrial and agricultural customers increased approximately 1.6 Bcf. Total sales volumes increased 8% to 117.9 Bcf in 1996, as compared with 109.3 Bcf in 1995. Revenues from gas transported for others decreased $3.4 million to approximately $8.3 million in fiscal 1996 due to a decrease in volumes transported of 3.9 Bcf to 26.5 Bcf in 1996. Gross profit increased by approximately 6% to $177.0 million in 1996 from $167.0 million in 1995. The primary factor contributing to the higher gross profit was higher volumes sold due to colder weather. Operating expenses, excluding income taxes, decreased slightly to $124.7 million in 1996 from $125.1 22
million in 1995, due primarily to decreased operation expense. The Company also adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS No. 106") in 1994. It has been successful in seeking recovery of SFAS No. 106 expenses in the majority of its service areas and will continue to seek recovery in its remaining service areas. See Note 8 of the accompanying notes to consolidated financial statements. Income taxes increased to $13.3 million for 1996 from $9.6 million for 1995. The primary reason for the increase was higher pre-tax profits. The effective tax rate increased to 35.7% in 1996 from 33.7% in 1995. This was primarily due to the decreased impact of permanent differences on the higher pre-tax profits in 1996. Operating income increased in 1996 by approximately 20% to $38.9 million from $32.4 million in 1995. The increase in operating income resulted primarily from the increase in 1996 gross profit, partially offset by increases in taxes, as discussed above. Net income increased in 1996 by approximately 27% to $23.9 million from $18.9 million in the prior year. This increase in net income resulted primarily from the increase in operating income, which was partially offset by a $1.0 million increase in interest expense. Net income per share increased to $1.51 for 1996 from $1.22 for 1995. Average shares outstanding increased 3% to 15,892,000 in 1996 from 1995. 23
YEAR ENDED SEPTEMBER 30, 1995 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1994 Operating revenues decreased approximately 13% to $435.8 million in 1995 from $499.8 million in 1994 due to weather that was 9% warmer than in 1994 and a 14% decrease in the average cost of gas per Mcf sold. Average gas sales revenues per Mcf decreased from 1994 by $.31 to $3.83 in 1995, while the average cost of gas per Mcf sold decreased $.40 to $2.46 in 1995. The number of meters in service increased to 658,114 at September 30, 1995 compared with 649,319 at September 30, 1994. Sales to weather sensitive residential, commercial and public authority customers decreased approximately 6.3 Bcf in 1995 while sales to industrial and agricultural customers decreased approximately .5 Bcf. Total sales volumes decreased 5.8% to 109.3 Bcf in 1995, as compared with 1994. Revenues from gas transported for others decreased $2.4 million to approximately $11.7 million in fiscal 1995 due to a decrease in volumes transported of 4.8 Bcf to 30.5 Bcf in 1995. Gross profit decreased by approximately 1% to $167.0 million in 1995 from $168.2 million in 1994. The primary factor contributing to the lower gross profit was lower volumes sold and transported due to warmer weather. The effect of warmer weather on gross profit was substantially reduced by implementing rate increases totaling $2.8 million and $6.4 million in 1995 and 1994, respectively. Operating expenses, excluding income taxes, decreased 6% to $125.1 million in 1995 from $133.7 million in 1994, due primarily to decreased operation and maintenance expense. Operation and maintenance expense decreased $10.3 million due to decreased distribution expense, customer accounts expenses, employee welfare and pension expenses, rent expense, and outside services expense. In 1994 the GGC acquisition and assimilation costs were approximately $1.5 million and the cost of an early retirement program was approximately $1.3 million. The acquisition and assimilation costs as well as the early retirement program were one-time costs associated with the GGC acquisition. Income taxes increased to $9.6 million for 1995 from $8.1 million for 1994. The primary reason for the increase was higher pre-tax profits. The effective tax rate decreased to 33.7% in 1995 from 35.6% in 1994. This was primarily due to the impact of increased permanent differences on the higher pre-tax profits in 1995. Operating income increased in 1995 by approximately 22% to $32.4 million from $26.5 million in 1994. The increase in operating income resulted primarily from decreases in 1995 operating expenses as discussed above. Net income increased in 1995 by approximately 29% to $18.9 million from $14.7 million in the prior year. This increase in net income resulted primarily from an increase in operating income, which was partially offset by a $1.4 million increase in interest expense. Net income per share increased to $1.22 for 1995 from $.97 for 1994. Average shares outstanding increased 1% to 15,416,000 in 1995 from 1994. 24
The Company estimates that the impact of the weather being 10% warmer than normal for 1995 caused net income to be approximately $4.0 million less than it would have been had the Company experienced normal temperatures in its respective service areas. Weather was approximately 1% warmer than normal for 1994. CAPITAL RESOURCES AND LIQUIDITY (See "Consolidated Statements of Cash Flows") Cash Flows from Operating Activities Cash flows from operating activities totaled $64.5 million for 1996 compared with $58.5 million for 1995 and $41.2 million for 1994. In 1996 the Company experienced an increase in net income as compared with 1995 and 1994. Depreciation and deferred income taxes increased in 1996 and 1995 because of increasing capital expenditures. Gas stored underground increased in 1996 because of higher gas cost, but decreased in 1995 and 1994 because of substantially lower gas prices during the summers of 1995 and 1994 when the storage reservoirs were being refilled. See "Consolidated Statements of Cash Flows" for other changes in assets and liabilities. Cash Flows from Investing Activities Net cash used in investing activities totaled $73.8 million in 1996 compared with $60.2 million in 1995 and $48.4 million in 1994. Capital expenditures in fiscal 1996 amounted to $77.6 million compared with $62.9 million in 1995 and $50.4 million in 1994. Currently budgeted capital expenditures for 1997 total $63.8 million and include major expenditures for mains, services, meters and vehicles. The Board of Directors in November 1996, also approved an additional $24.0 million in capital expenditures in 1997 for a Customer Information System ("CIS") project. The CIS project includes application software, related technology infrastructure and business process changes. Capital expenditures will be financed from internally generated funds and financing activities, as discussed below. Cash Flows from Financing Activities Net cash provided by financing activities totaled $10.8 million for 1996 compared with $1.2 million for 1995 and $7.7 million for 1994. Financing activities during these periods included issuance of common stock, dividend payments, borrowings from banks, and issuance and repayments of long-term debt. Cash dividends and distributions paid. The Company paid $15.2 million in cash dividends during 1996 compared with $14.2 million in 1995 and $12.7 million in 1994. The $1.0 million increase over 1995 primarily reflects an increase in the Company's quarterly dividend rate and an increase in the number of shares of common stock outstanding in 1996. Including fiscal 25
1997, the Company has increased its dividend rate for nine consecutive years. Short-term financing activities. At September 30, 1996, the Company had committed lines of credit totaling $90.0 million, $80.0 million of which was unused, in order to provide for short- term cash requirements. These credit facilities are negotiated at least annually. At September 30, 1996, the Company also had uncommitted short-term credit lines of $165.0 million, of which $112.2 million was unused. During 1996, notes payable increased $29.3 million compared with a decrease of $24.6 million during 1995 and an increase of $22.4 million in 1994. The decrease in fiscal 1995 was primarily due to repayment of short-term debt with the proceeds from the issuance of long-term debt in November 1994. Long-term financing activities. During the first quarter of fiscal 1997 the Company has been in the process of arranging to borrow $40.0 million under a loan agreement with a bank and has been seeking the necessary regulatory approvals. The term of the loan will be one day less than two years and the rate will be set at current market rates. The proceeds will be used to refinance short-term debt. Pending regulatory approval, the Company expects to complete the transaction in November 1996. Long-term debt payments increased $3.0 million to $7.0 million for the year ended September 30, 1996 compared with the year ended September 30, 1995. Payments of long-term debt in 1996 consisted of a $2.0 million installment on the Company's 9.75% Senior Notes due in December 1996, a $2.0 million installment on the 11.2% Senior Notes and a $3.0 million installment on the 9.76% Senior Notes. Payments of long-term debt in 1995 consisted of a $2.0 million installment on the Company's 9.75% Senior Notes and a $2.0 million installment on the 11.2% Senior Notes. In November 1994, the Company entered into note purchase agreements totaling $40.0 million with two insurance companies and issued $20.0 million of unsecured Senior Notes at 8.07% payable in annual installments of $4.0 million beginning October 31, 2002 through October 31, 2006 with semiannual interest payments and $20.0 million of unsecured Senior Notes at 8.26% payable in annual installments of $1,818,182 beginning October 31, 2004 through October 31, 2014 with semiannual interest payments. No long-term debt was issued in 1996 or 1994. Payments of long-term debt during 1994 consisted of a $3.0 million installment on the Company's 9.75% Senior Notes due in 1996, a $2.0 million installment on the 11.2% Senior Notes, the balance of $3.25 million on the 13.75% Series I First Mortgage Bonds and the balance of $1.6 million on the 13% Series G First Mortgage Bonds. The loan agreements pursuant to which all the Company's Senior Notes have been issued contain covenants by the Company with respect to the maintenance of certain debt-to-equity ratios and cash flows, and restrictions on the payment of dividends. Also see Note 3 of the accompanying notes to consolidated financial statements. Issuance of common stock. The Company issued 502,209, 221,946 and 428,264 shares of common stock in 1996, 1995 and 26
1994, respectively, for its Direct Stock Purchase Plan ("DSPP"), Employee Stock Ownership Plan, Restricted Stock Grant Plan, Outside Directors Stock-for-Fee Plan and Oceana Heights acquisition. See the Consolidated Statements of Shareholders' Equity for the number of shares issued under each of the plans and for the Oceana Heights acquisition. No new shares were issued under the DSPP in 1996 or 1995. Shares purchased by participants in the DSPP in 1996 and 1995 were purchased by the plan on the open market. In 1994, 173,801 shares were issued under the plan, generating proceeds of $3.0 million. At September 30, 1996, 712,596 shares were available for future issuance under the DSPP. The Company believes that internally generated funds, its credit facilities and access to the debt and equity capital markets will provide necessary working capital and liquidity for capital expenditures and other cash needs for 1997. Seasonality The Company's natural gas distribution business is seasonal due to weather conditions in the Company's service areas. Gas sales are affected by winter heating season requirements. Sales to agricultural customers (who use natural gas as fuel in the operation of irrigation pumps) during the period from April through September may be affected by rainfall amounts. These factors generally result in higher operating revenues and net income during the period from October through March of each year and lower operating revenues and either net losses or lower net income during the period from April through September of each year. The following table sets forth, on an unaudited basis, the Company's quarterly operating revenues, quarterly operating revenues as a percentage of annual operating revenues, quarterly net income (loss) and quarterly net income (loss) as a percentage of annual net income for its past two fiscal years. <TABLE> <CAPTION> Quarter ended --------------------------------------------------- December 31 March 31 June 30 September 30 Total ------------ --------- -------- ------------ ---------- (In thousands, except for percentages) <S> <C> <C> <C> <C> <C> 1996 - ---- Operating revenues $130,468 $191,104 $93,571 $68,601 $483,744 27% 40% 19% 14% 100% Net income (loss) $ 9,233 $ 18,383 $ 316 $(3,983) $ 23,949 39% 77% 1% (17)% 100% 1995 - ---- Operating revenues $117,848 $157,294 $84,685 $75,993 $435,820 27% 36% 19% 18% 100% Net income (loss) $ 6,476 $ 13,945 $ 82 $(1,630) $ 18,873 34% 74% 1% (9)% 100% </TABLE> 27
Inflation The Company believes that inflation has caused and will continue to cause increases in certain operating expenses and has required and will continue to require assets to be replaced at higher costs. The Company continually reviews the adequacy of its gas rates in relation to the increasing cost of providing service and the inherent regulatory lag in adjusting those gas rates. Environmental Matters From time to time, the Company receives inquiries regarding various environmental matters. The Company believes that its properties and operations substantially comply with and are oper- ated in substantial conformity with all applicable environmental statutes and regulations. There are no administrative or judi- cial proceedings arising under environmental quality statutes pending or known to be contemplated by governmental agencies which, if adversely determined, would have a material adverse effect on the Company. "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995 The matters discussed or incorporated by reference in this Report on Form 10-K statements. The forward-looking statements involve risks and uncertainties that affect the Company's operations, markets, services, rates, recovery of costs, availability of gas supply, and other factors as discussed in the Company's filings with the Securities and Exchange Commission. These risks and uncertainties include, but are not limited to, economic, competitive, governmental, weather, and technological factors. 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page no. Report of independent auditors 28 Consolidated balance sheets 29 Consolidated statements of income 30 Consolidated statements of shareholders' equity 31 Consolidated statements of cash flows 32 Notes to consolidated financial statements 34 Supplementary data (unaudited) 54 29
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors Atmos Energy Corporation We have audited the accompanying consolidated balance sheets of Atmos Energy Corporation at September 30, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended September 30, 1996. These financial statements 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 consolidated financial position of Atmos Energy Corporation at September 30, 1996 and 1995, and its consolidated results of operations and its cash flows for each of the three years in the period ended September 30, 1996 in conformity with generally accepted accounting principles. Ernst & Young LLP Dallas, Texas November 4, 1996 30
ATMOS ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS September 30, 1996 1995 -------- -------- ASSETS (In thousands, except share data) Property, plant and equipment $654,571 $589,801 Construction in progress 11,867 5,558 -------- -------- 666,438 595,359 Less accumulated depreciation and amort. 252,871 232,107 -------- -------- Net property, plant and equipment 413,567 363,252 Current assets Cash and cash equivalents 3,726 2,294 Accounts receivable, less allowance for doubtful accounts of $716 in 1996 and $916 in 1995 25,284 25,690 Inventories 7,174 6,747 Gas stored underground 14,652 10,758 Prepayments 1,489 2,747 -------- -------- Total current assets 52,325 48,236 Deferred charges and other assets 35,969 34,295 -------- -------- $501,861 $445,783 CAPITALIZATION AND LIABILITIES ======== ======== Shareholders' equity Common stock, no par value (stated at $.005 per share); authorized 75,000,000 shares; issued and outstanding 1996 - 16,021,321 shares, 1995 - 15,519,112 shares $ 80 $ 78 Additional paid-in capital 111,206 106,496 Retained earnings 61,012 51,704 -------- -------- Total shareholders' equity 172,298 158,278 Long-term debt 122,303 131,303 -------- -------- Total capitalization 294,601 289,581 Current liabilities Current maturities of long-term debt 9,000 7,000 Notes payable to banks 62,800 33,500 Accounts payable 31,640 24,945 Taxes payable 3,584 1,926 Customers' deposits 9,858 9,343 Other current liabilities 10,674 10,641 -------- -------- Total current liabilities 127,556 87,355 Deferred income taxes 39,056 33,120 Deferred credits and other liabilities 40,648 35,727 -------- -------- $501,861 $445,783 ======== ======== See accompanying notes to consolidated financial statements. 31
ATMOS ENERGY CORPORATION CONSOLIDATED STATEMENTS OF INCOME Year ended September 30, -------------------------------- 1996 1995 1994 -------- -------- -------- (In thousands, except per share data) Operating revenues $483,744 $435,820 $499,808 Purchased gas cost 306,744 268,810 331,571 -------- -------- -------- Gross profit 177,000 167,010 168,237 Operating expenses Operation 82,807 83,431 92,132 Maintenance 4,212 4,276 5,888 Depreciation and amortization 20,849 20,741 18,841 Taxes, other than income 16,879 16,611 16,808 Income taxes 13,310 9,574 8,102 -------- -------- -------- Total operating expenses 138,057 134,633 141,771 -------- -------- -------- Operating income 38,943 32,377 26,466 Other income (expense) Interest income 113 459 168 Other, net (409) (242) 335 -------- -------- -------- Total other income (expense) (296) 217 503 Interest charges 14,698 13,721 12,290 -------- -------- -------- Net income $ 23,949 $ 18,873 $ 14,679 ======== ======== ======== Net income per share $ 1.51 $ 1.22 $ .97 ======== ======== ======== Cash dividends per share $ .96 $ .92 $ .88 ======== ======== ======== Average shares outstanding 15,892 15,416 15,195 ======== ======== ======== See accompanying notes to consolidated financial statements. 32
ATMOS ENERGY CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Common stock ----------------- Additional Number of Stated paid-in Retained shares value capital earnings ----------- ------ --------- -------- (In thousands, except share data) Balance, September 30, 1993 14,868,902 $74 $94,279 $45,076 Net income - - - 14,679 Cash dividends ($.88 per share) - - - (12,612) GGC distributions - - - (120) Common stock issued Restricted stock grant plan 105,000 1 2,134 - Direct stock purchase plan 173,801 1 3,037 - Employee stock ownership plan 149,463 1 2,713 - Other - - 293 - ---------- --- ------- ------- Balance, September 30, 1994 15,297,166 77 102,456 47,023 Net income - - - 18,873 Cash dividends ($.92 per share) - - - (14,192) Common stock issued Restricted stock grant plan 7,000 - 119 - Employee stock ownership plan 214,946 1 3,876 - Other - - 45 - ---------- --- -------- ------- Balance, September 30, 1995 15,519,112 78 106,496 51,704 Net income - - - 23,949 Cash dividends ($.96 per share) - - - (15,235) Common stock issued Restricted stock grant plan 24,800 - 493 - Outside directors stock- for-fee plan 2,521 - 60 - Employee stock ownership plan 161,477 1 3,641 - Oceana Heights acquisition 313,411 1 304 594 Other - - 212 - ---------- --- -------- ------- Balance, September 30, 1996 16,021,321 $80 $111,206 $61,012 ========== === ======== ======= See accompanying notes to consolidated financial statements. 33
ATMOS ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended September 30, ------------------------- 1996 1995 1994 ------- -------- ------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $23,949 $18,873 $14,679 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization Charged to depreciation and amortization 20,849 20,741 18,841 Charged to other accounts 3,568 3,592 1,476 Deferred income taxes 5,944 2,809 244 Other 493 2,011 2,101 ------- ------- ------- 54,803 48,026 37,341 Change in assets and liabilities (Increase) decrease in accounts receivable 406 3,988 (478) (Increase) decrease in inventories (427) (859) 176 (Increase) decrease in gas stored underground (3,894) 1,899 4,946 (Increase) decrease in prepayments 1,258 (438) 1,931 Decrease in deferred charges and other assets (1,674) (333) (3,824) Increase (decrease) in accounts payable 6,695 2,970 (7,128) Increase (decrease) in taxes payable 1,862 (2,766) (1,314) Increase in customers' deposits 515 1,086 395 Increase in other current liabilities 33 3,603 583 Increase in deferred credits and other liabilities 4,921 1,326 8,596 ------- ------- ------- Net cash provided by operating activities 64,498 58,502 41,224 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (77,597)(62,927) (50,355) Retirements of property, plant and equipment 3,764 2,749 1,906 ------- ------- ------- Net cash used in investing activities (73,833)(60,178) (48,449) - Continued - 34
ATMOS ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) Year ended September 30, 1996 1995 1994 -------- -------- -------- (In thousands) CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in notes payable $29,300 $(24,600) $22,400 Proceeds from issuance of long-term debt - 40,000 - Repayment of long-term debt (7,000) (4,000) (9,850) Cash dividends and distributions paid (15,235) (14,192) (12,732) Issuance of common stock 3,702 3,996 7,887 ------- ------- ------- Net cash provided by financing activities 10,767 1,204 7,705 ------- ------- ------- Net increase (decrease) in cash and cash equivalents 1,432 (472) 480 Cash and cash equivalents at beginning of year 2,294 2,766 2,286 ------- ------- ------- Cash and cash equivalents at end of year $ 3,726 $ 2,294 $ 2,766 ======= ======= ======= See accompanying notes to consolidated financial statements. 35
ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of significant accounting policies Description of business - Atmos Energy Corporation and its subsidiaries ("Atmos" or the "Company") are in the business of distributing natural gas to residential, commercial, industrial and agricultural customers within service areas located in Texas, Louisiana, Kentucky, Colorado, Kansas and a small portion of Missouri. Such business is subject to federal and state regulation and/or regulation by local authorities in each of the six states in which the Company operates. The Company has no other material business segments. Principles of consolidation - The accompanying consolidated financial statements include the accounts of Atmos Energy Corporation and its subsidiaries. Each subsidiary is wholly- owned and all material intercompany items have been eliminated. Revenue recognition - Sales of natural gas are billed on a monthly cycle basis; however, the billing cycle periods for certain classes of customers do not necessarily coincide with ac- counting periods used for financial reporting purposes. The Company follows the revenue accrual method of accounting for natural gas revenues whereby revenues applicable to gas delivered to customers but not yet billed under the cycle billing method are estimated and accrued and the related costs are charged to expense. Estimated losses due to credit risk are reserved at the time revenue is recognized. Property, plant and equipment - Property, plant and equipment is stated at original cost net of contributions in aid of construction. The cost of additions includes an allowance for funds used during construction and applicable overhead charges. Major renewals and betterments are capitalized, while the costs of maintenance and repairs are charged to expense as incurred. Property, plant and equipment is depreciated at various rates on a straight-line basis over the estimated useful lives of the assets. The composite rates were 3.8% and 4.1% for the years ended September 30, 1996 and 1995, respectively. The decrease in the composite rate in 1996 resulted from the decrease in Kentucky depreciation rates ordered by the Kentucky Public Service Commission as part of the rate case settlement in October 1995. At the time property, plant and equipment is retired, the cost, plus removal expenses and less salvage, is charged to accumulated depreciation. Inventories - Inventories consist of materials and supplies and merchandise held for resale. Inventories are stated at the lower of average cost or market. Gas stored underground - Net additions of inventory gas to underground storage and withdrawals of inventory gas from storage are priced using the average cost method. Non-current gas in 36
storage is classified as property, plant and equipment and is priced at cost. Income taxes - The Company provides deferred income taxes for significant temporary differences in the recognition of revenues and expenses for tax and financial reporting purposes. Cash and cash equivalents - The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Deferred charges and other assets - Deferred charges and other assets at September 30, 1996 and 1995 include assets of the Company's qualified defined benefit retirement plans in excess of the plans' obligations in the amounts of $9,970,000 and $9,962,000, respectively, and Company assets related to the nonqualified retirement plans at September 30, 1996 and 1995 of $17,808,000 and $16,510,000, respectively. Deferred credits and other liabilities - Deferred credits and other liabilities include customer advances for construction of $8,458,000 and $8,212,000 at September 30, 1996 and 1995, respectively; obligations under capital leases of $2,769,000 and $2,882,000 at September 30, 1996 and 1995, respectively; and obligations under the Company's nonqualified retirement plans of $18,759,000 and $16,125,000 at September 30, 1996 and 1995, respectively. Earnings per share - The calculation of primary earnings per share is based on reported net income divided by weighted average common shares outstanding. The Company does not have other classes of stock or dilutive common stock equivalents. Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. Business combination activity Agreement to merge with United Cities Gas Company In July 1996, the Company announced that it had reached a definitive agreement to merge with United Cities Gas Company ("United Cities") of Brentwood, Tennessee, by means of a tax-free reorganization. The Company will exchange approximately 13.1 million shares of its stock for all of the outstanding stock of United Cities. Atmos will be the surviving corporation. Atmos has agreed to increase the indicated annual dividend to not less than $1.02 per share, for no less than four quarters, at the first Board meeting following the closing of the transaction. The transaction is expected to be accounted for by the pooling of 37
interests method. The transaction is subject to approval by the United Cities and Atmos shareholders, which approvals were obtained on November 12, 1996. Approval by appropriate regulatory bodies will also be required among other conditions precedent to closing. United Cities is a natural gas utility engaged in the distribution and sale of natural gas to approximately 310,000 customers in Tennessee, Illinois, Virginia, Kansas, Missouri, South Carolina, Georgia, and Iowa, and in the sale of propane to approximately 27,000 customers in Tennessee, Virginia and North Carolina. United Cities' assets consist principally of the property, plant and equipment used in its natural gas and propane sales and distribution businesses. Following consummation of the merger, Atmos intends to continue to operate the United Cities business as a division of Atmos, along with Atmos' Energas, Trans La, Western Kentucky, and Greeley divisions. The accompanying consolidated financial statements of the Company do not include the assets, liabilities, or operating results of United Cities. On August 1, 1996, Southern Union Company filed a Schedule 13D with the Securities and Exchange Commission reporting that it owns 6.5% of United Cities' outstanding common stock. Subsequently, various lawsuits and complaints were filed by Atmos, United Cities, and Southern Union relating to the purported ownership of the stock by Southern Union, the actions of the United Cities board of directors in approving the merger with Atmos, and certain other matters. On November 2, 1996, all of the parties entered into a settlement agreement that resolved the disputes and requires, among other things, the dismissal of all such lawsuits and complaints. Acquisition of Greeley Gas Company On December 22, 1993, Atmos acquired by means of a merger all of the assets and liabilities of Greeley Gas Company ("GGC") in accordance with the terms and provisions of an Agreement and Plan of Reorganization dated July 2, 1993. GGC is a natural gas utility engaged in the distribution and sale of natural gas to residential, commercial, industrial, agricultural, and other customers throughout Colorado, Kansas, and a small portion of Missouri. All of the shares of GGC's common stock were exchanged for a total of 3,493,995 shares of Atmos common stock as adjusted for a 3-for-2 stock split (2,329,330 shares on a pre-split basis). See Note 5 for information regarding the stock split in May 1994. This merger transaction was accounted for as a pooling of interests; therefore, all historical financial statements and notes thereto have been restated. Subsequent to the merger, the business of GGC has been operated through the Company's Greeley Gas Company division (the "Greeley Gas Division"). 38
Results of operations and net income for the previously separate companies for the period prior to the merger are as follows: Quarter ended December 31, 1993 ----------------- (In thousands) Operating revenues Atmos $119,223 GGC 26,278 -------- $145,501 ======== Net income Atmos $ 5,458 GGC 1,630 -------- $ 7,088 ======== The dividends per share presentation on the consolidated statements of income reflects Atmos dividends declared per share as adjusted for the 3-for-2 stock split in May 1994. The cash dividends per share reflect the per share dividend declared by Atmos Energy Corporation for the year ended September 30, 1994. The restated cash dividends and distributions per share reflect the total amounts paid by Atmos and GGC to their shareholders, divided by the total amount of weighted average shares outstanding as restated for the shares issued to effect the merger between Atmos and GGC and the 3-for-2 stock split in May 1994. Year ended September 30, 1994 ------------------ Cash dividends per share $.88 ==== Restated cash dividends and distributions per share, including GGC $.84 ==== 39
3. Long-term debt and notes payable Long-term debt at September 30, 1996 and 1995 consisted of the following: 1996 1995 --------- -------- (In thousands) Unsecured 7.95% Senior Notes, payable in annual installments of $1,000 beginning August 31, 1997 through August 31, 2006 with semiannual interest payments $ 10,000 $ 10,000 Unsecured 9.57% Senior Notes, payable in annual installments of $2,000 beginning September 30, 1997 through September 30, 2006 with semiannual interest payments 20,000 20,000 Unsecured 9.76% Senior Notes, payable in annual installments of $3,000 beginning December 30, 1995 through December 30, 2004 with semiannual interest payments 27,000 30,000 Unsecured 9.75% Senior Notes, payable in varying annual installments through December 30, 1996 1,000 3,000 Unsecured 11.2% Senior Notes, payable in annual installments of $2,000 beginning December 30, 1993 through December 30, 2002 with semiannual interest payments 14,000 16,000 First Mortgage Bonds, 9.4% Series J, due May 1, 2021 17,000 17,000 Unsecured 10% Notes, due December 31, 2011 2,303 2,303 Unsecured 8.07% Senior Notes, payable in annual installments of $4,000 beginning October 31, 2002 through October 31, 2006 with semiannual interest payments 20,000 20,000 Unsecured 8.26% Senior Notes, payable in annual installments of $1,818 beginning October 31, 2004 through October 31, 2014 with semiannual interest payments 20,000 20,000 -------- -------- 131,303 138,303 Less amounts classified as current (9,000) (7,000) -------- -------- $122,303 $131,303 ======== ======== 40
The Company may prepay any of the Senior Notes in whole at any time, subject to a prepayment premium. The note agreements provide for certain cash flow requirements and restrictions on additional indebtedness, sale of assets and payment of dividends. Under the most restrictive of such covenants, cumulative cash dividends paid after September 30, 1988 may not exceed the sum of 75% of accumulated net income for periods after September 30, 1988 plus $12,000,000 plus the proceeds from the sale of common stock after September 30, 1988. At September 30, 1996, approximately $52,626,000 of shareholders' equity was not so restricted. As of September 30, 1996, all of the Company's utility plant assets in Colorado, Kansas and Missouri with a net book value of approximately $74,486,000 are subject to a lien under the 9.4% Series J First Mortgage Bonds assumed by the Company in the acquisition of GGC. Based on the borrowing rates currently available to the Company for debt with similar terms and remaining average maturities, the fair value of long-term debt at September 30, 1996 and 1995 is estimated using discounted cash flow analysis to be $140,678,000 and $153,049,000, respectively. It is not currently advantageous for the Company to refinance its long-term debt because of prepayment costs set forth in the various debt agreements. Maturities of long-term debt are as follows (in thousands): 1997 $ 9,000 1998 8,000 1999 8,000 2000 8,000 2001 8,000 Thereafter 90,303 -------- $131,303 ======== Notes payable to banks The Company has committed short-term, unsecured bank credit facilities totaling $90,000,000, $80,000,000 of which was unused at September 30, 1996. One facility of $80,000,000 requires a commitment fee of 0.09% on the unused portion. A second facility for $10,000,000 requires a commitment fee of 3/16 of 1% on the unused portion. The committed lines are renewed or renegotiated at least annually. The Company also had aggregate uncommitted credit lines of $165,000,000, of which $112,200,000 was unused as of September 30, 1996. The uncommitted lines have varying terms and the Company pays no fee for the availability of the lines. 41
Borrowings under these lines are made on a when and as-available basis at the discretion of the banks. The weighted average interest rates on short-term borrowings outstanding at September 30, 1996 and 1995 were 6.2% and 7.0%, respectively. 4. Income taxes The components of income tax expense for 1996, 1995 and 1994 are as follows: 1996 1995 1994 ------- ------ ------ (In thousands) Current $ 7,366 $6,765 $7,858 Deferred 5,944 2,809 244 ------- ------ ------ $13,310 $9,574 $8,102 ======= ====== ====== Included in the provision for income taxes are state income taxes of $1,134,000, $506,000, and $328,000 for 1996, 1995, and 1994, respectively. 42
Deferred income taxes reflect the tax effect of differences between the basis of assets and liabilities for book and tax purposes. The tax effect of temporary differences that give rise to significant components of the deferred tax liabilities and deferred tax assets at September 30, 1996 and 1995 are presented below: 1996 1995 ------- ------- (In thousands) Deferred tax assets Costs expensed for book purposes and capitalized for tax purposes $ 863 $ 872 Accruals not currently deductible for tax purposes 1,403 1,045 Customer advances 2,629 2,020 Nonqualified benefit plans 7,616 7,107 Postretirement benefits 3,184 2,187 Other, net 1,348 2,902 ------- ------- Total deferred tax assets 17,043 16,133 Deferred tax liabilities Difference in net book value and net tax value of assets 50,799 43,549 Prepaid pensions 3,929 4,528 Other, net 1,371 1,176 ------- ------- Total deferred tax liabilities 56,099 49,253 ------- ------- Net deferred tax liabilities $39,056 $33,120 ======= ======= SFAS No. 109 deferred accounts for rate regulated entities (included in other deferred credits): Liabilities $ 2,536 $ 2,580 ======= ======= 43
Reconciliations of the provisions for income taxes computed at the statutory rate to the reported provisions for income taxes for 1996, 1995 and 1994 are set forth below: Liability Method -------------------------- 1996 1995 1994 ------- ------- ------- (In thousands) Tax at statutory rate of 35% $13,041 $9,956 $ 7,992 Financial expenses, not deductible for tax reporting 63 35 503 Common stock dividends deductible for tax reporting (684) (619) (573) State taxes 900 261 328 Other, net (10) (59) (148) ------- ------- ------- Provision for income taxes $13,310 $9,574 $ 8,102 ======= ======= ======= 5. Stock split On February 9, 1994, the Board of Directors of Atmos ap- proved a 3-for-2 split of its common stock implemented in the form of a stock dividend, which resulted in shareholders receiving one new share for every two shares held. Fractional shares were not issued but were paid in cash or credited to the accounts of participants of the Dividend Reinvestment and Stock Purchase Plan ("DRSPP") and Employee Stock Ownership Plan ("ESOP"). The record date for the split was May 4, 1994 and the payment date for mailing the new shares and cash for fractional shares to shareholders was May 16, 1994. All share and per share amounts in the financial statements and notes thereto have been restated to reflect this split, unless otherwise noted. 6. Common stock and stock options At the annual meeting of shareholders on February 8, 1995, the shareholders approved an increase in the number of authorized shares of common stock from 50,000,000 to 75,000,000. The Company issued 24,800 shares of its common stock in fiscal 1996 in connection with its Restricted Stock Grant Plan. The Company has an Employee Stock Ownership Plan as dis- cussed in Note 7. It issued 161,477 shares under the plan in 1996. The Company has registered 1,600,000 shares for issuance under the plan, of which 713,353 shares were available for future issuance on September 30, 1996. In August 1992, the Company announced a Direct Stock Purchase Plan ("DSPP") which was the successor to and replacement for the Dividend Reinvestment Plan ("DRP"). Members of the DRP were automatically enrolled in the DSPP. In November 1993, the Company amended the DSPP to remove the direct stock purchase 44
feature of the plan and to rename the plan the Atmos Energy Corporation Dividend Reinvestment and Stock Purchase Plan. In January 1995, the direct stock purchase feature was reinstated and the name was changed back to the Direct Stock Purchase Plan. Participants in the DSPP may have all or part of their dividends reinvested at a 3% discount from market prices. DSPP participants may purchase additional shares of Company common stock as often as weekly with voluntary cash payments of at least $25, up to an annual maximum of $100,000. At September 30, 1996, 712,596 shares were available for future issuance under the plan. On April 27, 1988, the Company adopted a Shareholders' Rights Plan and declared a dividend of one right (a "Right") for each outstanding pre-split share of common stock of the Company, payable to shareholders of record as of May 10, 1988. Each Right will entitle the holder thereof, until the earlier of May 10, 1998 or the date of redemption of the Rights, to buy one share of common stock of the Company at an exercise price of $30 per share, subject to adjustment by the Board of Directors upon the occurrence of certain events. The Rights will be represented by the common stock certificates and are not exercisable or transferable apart from the common stock until a "Distribution Date" (which is defined in the Rights Agreement between the Company and the Rights Agent as the date upon which the Rights become separate from the common stock). At no time will the Rights have any voting rights. The exercise price payable and the number of shares of common stock or other securities or property issuable upon exercise of the Rights are subject to adjustment from time to time to prevent dilution. Until the Distribution Date, the Company will issue one Right with each share of common stock that becomes outstanding so that all shares of common stock will have attached Rights. After a Distribution Date, the Company may issue Rights when it issues common stock if the Board deems such issuance to be necessary or appropriate. The Rights have certain anti-takeover effects and may cause substantial dilution to a person or entity that attempts to acquire the Company on terms not approved by the Board of Directors except pursuant to an offer conditioned upon a substantial number of Rights being acquired. The Rights should not interfere with any merger or other business combination approved by the Board of Directors because, prior to the time the Rights become exercisable or transferable, the Rights may be redeemed by the Company at $.05 per Right. The Company's Restricted Stock Grant Plan for management and key employees of the Company, which became effective October 1, 1987, provides for awards of common stock that are subject to certain restrictions. The plan is administered by the Board of Directors. The members of the Board who are not employees of the Company make the final determinations regarding participation in the plan, awards under the plan, and restrictions on the re- stricted stock awarded. The restricted stock may consist of 45
previously issued shares purchased on the open market or shares issued directly from the Company. The Company registered 600,000 shares (900,000 post-split shares) for issuance under the plan. Compensation expense of $795,000, $1,015,000 and $1,164,000 was recognized in 1996, 1995 and 1994, respectively, in connection with the issuance of shares under the plan. At September 30, 1996, 352,500 shares were available for future award under the plan. In November 1994, the Board adopted the Outside Directors Stock-for-Fee Plan, which plan was approved by the shareholders of the Company in February 1995. The plan permits non-employee directors to receive all or part of their annual retainer and meeting fees in stock rather than in cash. The Company has registered 50,000 shares, 47,479 of which were available for future issuance under the plan as of September 30, 1996. 7. Employee retirement and stock ownership plans At September 30, 1996, the Company had three defined benefit pension plans. One covers the Western Kentucky Division employ- ees, one covers the Greeley Gas Division employees, and the third covers all other Atmos employees. The plans provide essentially the same benefits to all employees. Benefits are based on years of service and the employee's compensation during the highest paid five consecutive calendar years within the last 10 years of employment. The Company's funding policy is to contribute annually an amount in accordance with the requirements of the Em- ployee Retirement Income Security Act of 1974. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. 46
The following table sets forth the Atmos plan's funded status at September 30, 1996 and 1995: 1996 1995 -------- -------- (In thousands) Actuarial present value of benefit obligations Accumulated benefit obligation, including vested benefits of $77,089 and $74,967 in 1996 and 1995, respectively $(77,513) $(75,529) ======== ======== Projected benefit obligation $(86,571) $(84,182) Plan assets at fair value 90,157 82,464 -------- -------- Funded status 3,586 (1,718) Unrecognized net asset being recognized over 15 years (198) (416) Unrecognized prior service cost (1,359) (1,812) Unrecognized net (gain) loss (3,086) 3,514 -------- -------- Accrued pension cost $ (1,057) $ (432) ======== ======== Net periodic pension cost for the Atmos plan for 1996, 1995 and 1994 included the following components: 1996 1995 1994 ------- ------ ------ (In thousands) Service cost $ 2,235 $ 1,862 $1,846 Interest cost on projected benefit obligation 6,434 6,060 5,614 Actual return on plan assets (11,342) (12,200) (955) Net amortization and deferral 3,298 5,007 (5,778) ------- ------ ------ Net periodic pension cost $ 625 $ 729 $ 727 ======= ====== ====== 47
The following table sets forth the Western Kentucky Gas Division plan's funded status at September 30, 1996 and 1995: 1996 1995 --------- --------- (In thousands) Actuarial present value of benefit obligations Accumulated benefit obligation, including vested benefits of $30,934 and $27,236 in 1996 and 1995, respectively $(30,983) $(27,262) ======== ======== Projected benefit obligation $(35,673) $(31,642) Plan assets at fair value 46,478 42,216 -------- -------- Funded status 10,805 10,574 Unrecognized prior service cost 4,829 2,855 Unrecognized net gain (4,361) (2,468) -------- -------- Prepaid pension cost $ 11,273 $ 10,961 ======== ======== Net periodic pension cost for 1996, 1995 and 1994 included the following components: 1996 1995 1994 -------- -------- -------- (In thousands) Service cost $ 672 $ 706 $ 729 Interest cost 2,431 2,306 2,160 Actual return on plan assets (5,771) (6,355) 324 Net amortization and deferral 2,356 3,399 (3,097) -------- -------- -------- Net periodic pension cost (benefit) $ (312) $ 56 $ 116 ======== ======== ======== The weighted-average discount rates used in determining the actuarial present value of the projected benefit obligations of the Atmos and WKG retirement plans was 7.5% at June 30, 1996 and 1995. The rate of increase in future compensation levels reflected in such determination was 4.0% for the years ended September 30, 1996 and 1995. The expected long-term rate of return on plan assets was 9.5%, 10.0% and 9.5% for the years ended September 30, 1996, 1995 and 1994, respectively. The plan assets consist primarily of investments in common stocks, interest bearing securities and interests in commingled pension trust funds. Prepaid pension cost is included in deferred charges and other assets. 48
The following table sets forth the Greeley Gas Division plan's funded status at September 30, 1996 and 1995: 1996 1995 -------- -------- (In thousands) Actuarial present value of benefit obligations Accumulated benefit obligation, including vested benefits of $15,110 and $13,134 in 1996 and 1995, respectively $(15,252) $(13,385) ======== ======== Projected benefit obligation $(17,666) $(15,148) Plan assets at fair value 16,086 14,607 -------- -------- Funded status (1,580) (541) Unrecognized net asset being recognized over 15 years (1,521) (1,810) Unrecognized prior service cost 1,480 419 Unrecognized net loss 1,375 1,370 -------- -------- Accrued pension cost $ (246) $ (562) ======== ======== Net periodic pension cost (credit) for the Greeley Gas Division plan for 1996, 1995 and 1994 included the following components: 1996 1995 1994 ------ ------- ------- (In thousands) Service cost $ 453 $ 328 $ 486 Interest cost on projected benefit obligation 1,185 1,208 1,039 Actual return on plan assets (2,390) (2,530) 441 Net amortization and deferral 810 1,217 (1,795) ------ ------- ------- Net periodic pension cost $ 58 $ 223 $ 171 ====== ======= ======= Accumulated plan benefits were computed using the Projected Unit Credit funding method. The discount rate and rate of in- crease in future compensation levels used in determining the actuarial present value of the projected benefit obligations were 7.5% and 4.0% in both 1996 and 1995. The expected long-term rate of return on plan assets was 9.5%, 10.0% and 9.5% in 1996, 1995 and 1994, respectively. Plan assets consist primarily of corporate bonds, equity securities, mutual funds, partnership interests, and other miscellaneous investments. The actual return on plan assets in 1994 resulted in a loss of $441,000 due to writedowns of certain plan assets to reflect current market value. 49
Effective October 1, 1987, the Company adopted a nonquali- fied Supplemental Executive Benefits Plan ("Supplemental Plan") which provides additional pension, disability and death benefits to the officers and certain other employees of the Company. Expense recognized in connection with the Supplemental Plan during fiscal 1996, 1995 and 1994 was $2,708,000, $2,158,000 and $2,062,000, respectively. The Company sponsors an Employee Stock Ownership Plan. Full time employees who have completed one year of service, as defined in the plan, are eligible to participate. Each participant enters into a salary reduction agreement with the Company pursuant to which the participant's salary is reduced by an amount not less than 2% nor more than 10%. Taxes on the amount by which the participant's salary is reduced are deferred pursuant to Section 401(k) of the Internal Revenue Code. The amount of the salary reduction is contributed by the Company to the ESOP for the account of the participant. The Company may make a matching contribution for the account of the participant in an amount determined each year by the Board of Directors, which amount must be at least equal to 25% of all or a portion of the participant's salary reduction. For the 1996 plan year, the Board of Directors elected to match 100% of each participant's salary reduction contribution up to 4% of the participant's salary. Matching contributions to the ESOP amounted to $1,944,000, $1,977,000, and $1,780,000 for 1996, 1995 and 1994, respectively. The Directors may also approve discretionary contributions, subject to the provisions of the Internal Revenue Code of 1986 and applicable regulations of the Internal Revenue Service. The Company recorded a charge of $1,500,000 for a discretionary contribution in the year ended September 30, 1996. Company contributions to the plan are expensed as incurred. Effective January 1, 1988, the Greeley Gas Division adopted a 401(k) plan that covered substantially all the Greeley Gas Division employees. Total employer contributions to the 401(k) plan were $141,000 for the period ended September 30, 1994. Contributions to the plan were discontinued on March 31, 1994 and participants were enrolled in the Atmos ESOP on April 1, 1994. 8. Other postretirement benefits In addition to providing pension benefits, the Company provides certain other postretirement benefits for retired employees, the major benefit being health care. Prior to 1994, the cost of other postretirement benefits was recognized by expensing claims and annual insurance premiums as incurred. Effective October 1, 1993, the Company adopted Financial Accounting Standards No. 106 ("SFAS No. 106"), "Employers' Accounting for Postretirement Benefits Other Than Pensions". SFAS No. 106 focuses principally on postretirement health care benefits and significantly changed the practice of accounting for postretirement benefits on a pay-as-you-go basis by requiring accrual of such benefit costs on an actuarial basis from the date 50
each employee reaches age 45 until the date of full eligibility for such benefits. The Company is amortizing on a straight line basis the initial transition obligation of $33,354,000 over 20 years. The effect of adopting the new rules increased net periodic postretirement benefits cost for the year ended September 30, 1994 by $3,789,000 and decreased net income by $2,440,000. Approximately $746,000 of this increased cost was recovered through rates during 1994. Atmos sponsors two defined benefit postretirement plans other than pensions. One plan provides medical, dental, and vision benefits to retired employees of Greeley Gas Company. The other offers medical benefits to all other retired Atmos employees. Substantially all of the Company's employees may become eligible for these benefits if they reach retirement age while working for the Company and attain 10 consecutive years of service after age 45. Participant contributions are required under these plans. Prior to June 1994, the plans were not funded. In June 1994, the Company made its first quarterly payment to the external trust set up to fund SFAS No. 106 costs in excess of the pay-as-you-go cost in Kansas in accordance with an order of the Kansas Corporation Commission. In April, 1995 it began external funding in Colorado in accordance with an order of the Colorado Public Utility Commission. The amount of funding will ultimately depend upon the ratemaking treatment allowed in the Company's various rate jurisdictions. The components of net periodic postretirement benefits cost for each of the years ended September 30, 1996, 1995 and 1994 are as follows: 1996 1995 1994 ------ ------ ------ (In thousands) Service cost $1,469 $1,497 $1,817 Interest cost 2,224 2,322 2,269 Actual return on plan assets (39) (18) - Amortization of transition obligation 1,550 1,549 1,668 Net amortization and deferral (80) (150) - ------ ------ ------ Net periodic postretirement benefits cost $5,124 $5,200 $5,754 ====== ====== ====== 51
The following is a reconciliation of the funded status of the plans to the net postretirement benefits liability on the balance sheet as of September 30, 1996 and 1995: 1996 1995 -------- -------- (In thousands) Accumulated postretirement benefits obligation Retirees $(19,849) $(20,402) Fully eligible employees (6,426) (5,906) Other employees (4,644) (4,468) -------- -------- (30,919) (30,776) Plan assets 927 594 -------- -------- Accumulated postretirement benefits obligation in excess of plan assets (29,992) (30,182) Unrecognized net gain (4,775) (3,807) Unrecognized transition obligation 26,342 27,892 -------- -------- Accrued postretirement benefits liability $ (8,425) $ (6,097) ======== ======== In the latest actuarial calculation of the accrued postre- tirement benefits liability, the assumed health care cost trend rate used to estimate the cost of postretirement benefits was 8.0% for 1996, 7.5% for 1997 and is assumed to decrease gradually to 5.0% by 2000 and remain at that level thereafter. Similarly, the dental trend rate was 7.0% for 1996 at which time dental benefits were discontinued. The trend for vision benefits is assumed to remain level for all years at 4.5%. The effect of a 1% increase in the assumed health care cost trend rate for each future year is $344,000 and $353,000 on the annual aggregate of the service and interest cost components of net periodic postret- irement benefit costs and $2,377,000 and $2,355,000 on the accumulated postretirement benefits obligation as of September 30, 1996 and 1995, respectively. The assumed discount rate, the rate at which liabilities could be settled, was 7.5% as of September 30, 1996 and 1995. The Company is currently recovering other postretirement benefits ("OPEB") costs through its regulated rates under SFAS No. 106 accrual accounting in Colorado, Kansas, the majority of its Texas service area and in Kentucky (effective November 1, 1995). It receives rate treatment as a cost of service item for OPEB costs on the pay-as-you-go basis in Louisiana. Management believes that accrual accounting in accordance with SFAS No. 106 is appropriate and will continue to seek rate recovery of accrual-based expenses in its ratemaking jurisdictions that have not yet approved the recovery of these expenses. 52
9. Postemployment benefits The Company also provides postemployment benefits, primarily workers' compensation, to former or inactive employees after employment but before retirement. Effective October 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers Accounting for Postemployment Benefits" ("SFAS No. 112"). SFAS No. 112 requires that certain benefits provided to former or inactive employees, after employment but before retirement, such as workers' compensation, disability benefits and health care continuation coverage be accrued if attributable to the employees' prior service. Prior to October 1, 1994, such postemployment benefit costs were recorded and recovered in rates on the pay-as-you-go basis. Both the cumulative effect of adopting SFAS No. 112, as well as the effect of the new standard upon the recurring expense being recognized for these benefits in 1996 and 1995, were not material. 10. Contingencies On March 15, 1991, suit was filed in the 15th Judicial District Court of Lafayette Parish, Louisiana, by the "Lafayette Daily Advertiser" and others against the Trans La Division, Trans Louisiana Industrial Gas Company, Inc. ("TLIG"), a wholly owned subsidiary of the Company, and Louisiana Intrastate Gas Corporation and certain of its affiliates ("LIG"). LIG is the Company's primary supplier of natural gas in Louisiana and is not otherwise affiliated with the Company. The plaintiffs purported to represent a class consisting of all residential and commercial gas customers in the Trans La Division's service area. Among other things, the lawsuit alleged that the defendants violated antitrust laws of the state of Louisiana by manipulating the cost-of-gas component of the Trans La Division's gas rate to the purported customer class, thereby causing such purported class members to pay a higher rate. The plaintiffs made no specific allegation of an amount of damages. The defendants brought an appeal to the Louisiana Supreme Court of rulings by the trial court and the Third Circuit Court of Appeal which denied defendants' exceptions to the jurisdiction of the trial court. It was the position of the defendants that the plaintiffs' claims amount to complaints about the level of gas rates and should be within the exclusive jurisdiction of the Louisiana Commission. On January 19, 1993, the Louisiana Supreme Court issued a decision reversing in part the lower courts' rulings, dismissing all of plaintiffs' claims against the defendants which seek damages due to alleged overcharges and further ruling that all such claims are within the exclusive jurisdiction of the Louisiana Commission. Any claims which seek damages other than overcharges were remanded to the trial court but were stayed pending the completion of the Louisiana Commission proceeding referred to below. 53
The Company has reached a tentative settlement with the plaintiffs in the context of the Louisiana Commission proceeding referred to below, which settlement will resolve all outstanding issues relating to the Company, subject to certain procedural conditions. On July 14, 1995, the Louisiana Commission entered an order approving a settlement with the Company and TLIG in connection with its investigation of the costs included in the Trans La Division's purchased gas adjustment component in its rates. The order exonerated the Company of any wrongdoing or manipulation of the cost of gas component of its gas rate to residential and commercial customers. In the settlement, the Company agreed to refund approximately $541,000 plus interest to the Trans La Division's customers over a two-year period due to certain issues related to the calculation of the weighted average cost of gas. The refund totaling approximately $1,016,000, which includes interest calculated through October 1, 1995, began in September 1995 and will be credited to customer bills along with interest that accrues after October 1, 1995. The Company refunded $533,000 under the settlement for the twelve months ended September 30, 1996. Most of the issues that generated the refunds arose before Trans Louisiana Gas Company was acquired by the Company in 1986. The Greeley Gas Company Division of the Company is a defendant in several lawsuits filed as a result of a fire in a building in Steamboat Springs, Colorado on February 3, 1994. The plaintiffs claim that the fire resulted from a leak in a severed gas service line owned by the Greeley Division. On January 12, 1996, the jury awarded the plaintiffs approximately $2.5 million in compensatory damages and approximately $2.5 million in punitive damages. The jury assessed the Company with liability for all of the damages awarded. The Company has filed a Notice of Appeal with the Colorado Court of Appeals with respect to this case. The Company has adequate insurance to cover the compensatory damages awarded. The Company's insurance carrier informed the Company that, based upon a recent Colorado Court ruling, the punitive damages awarded against the Company cannot be covered by the Company's insurance policy. The Company is reviewing the position of the insurance carrier with respect to coverage of punitive damages. The Company believes it has meritorious issues for an appeal but cannot assess, at this time, the likelihood of success in the appeal. From time to time, claims are made and lawsuits are filed against the Company arising out of the ordinary business of the Company. In the opinion of the Company's management, liabilities, if any, arising from these actions are either covered by insurance, adequately reserved for by the Company or would not have a material adverse effect on the financial condition of the Company. 54
11. Statement of cash flows Supplemental disclosures of cash flow information for 1996, 1995 and 1994 are presented below: 1996 1995 1994 ------- ------- ------- (In thousands) Cash paid for Interest $15,717 $11,503 $12,756 Income taxes 6,679 10,123 6,352 12. Leases The Company has entered into noncancelable leases involving office space and warehouse space. The remaining lease terms range from one to 20 years and generally provide for the payment of taxes, insurance and maintenance by the lessee. Net property, plant and equipment included amounts for capital leases of $2,511,000 and $2,694,000 at September 30, 1996 and 1995, respectively. The related future minimum lease payments at September 30, 1996 were as follows: Capital Operating leases leases -------- -------- (In thousands) 1997 $ 568 $ 7,725 1998 568 7,216 1999 568 7,190 2000 568 7,178 2001 568 7,050 Thereafter 2,847 52,314 ------ ------- Total minimum lease payments 5,687 $88,673 ======= Less amount representing interest (2,918) ------ Present value of net minimum lease payments $2,769 ====== Consolidated rent expense amounted to $7,448,000, $6,643,000 and $6,490,000 for fiscal 1996, 1995 and 1994, respectively. Rents for the regulated business are expensed and the Company receives rate treatment as a cost of service on a pay-as-you-go basis. 55
SUPPLEMENTARY DATA Quarterly Financial Data (Unaudited) Summarized unaudited quarterly financial data are presented below. The sum of net income per share by quarter may not equal the net income per share for the year due to variations in the weighted average shares outstanding used in computing such amounts. <TABLE> <CAPTION> Quarter ended --------------------------------------------------------------------------------- December 31, March 31, June 30, September 30, ----------------- ----------------- ----------------- ---------------- 1995 1994 1996 1995 1996 1995 1996 1995 -------- -------- -------- -------- -------- -------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> (In thousands, except per share data) Operating revenues $130,468 $117,848 $191,104 $157,294 $93,571 $84,685 $68,601 $75,993 Gross profit 50,725 43,482 65,394 59,577 33,776 34,069 27,105 29,882 Operating income (loss) 12,945 9,786 22,172 17,689 4,059 2,987 (233) 1,915 Net income (loss) 9,233 6,476 18,383 13,945 316 82 (3,983) (1,630) Net income (loss) per share .59 .42 1.15 .91 .02 .01 (.25) (.11) </TABLE> 56
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE REGISTRANT Information regarding directors is incorporated herein by reference from the Company's definitive proxy statement for the annual meeting of shareholders on February 12, 1997. Information regarding executive officers is included in Part I. ITEM 11. EXECUTIVE COMPENSATION Incorporated herein by reference from the Company's definitive proxy statement for the annual meeting of shareholders on February 12, 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference from the Company's definitive proxy statement for the annual meeting of shareholders on February 12, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated herein by reference from the Company's definitive proxy statement for the annual meeting of shareholders on February 12, 1997. 57
PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1 and 2. Financial statements and financial statement schedules. The financial statements listed in the accompanying Index to Financial Statements are filed as part of this annual report. No financial statement schedules are required in this filing. 3. Exhibits The exhibits listed in the accompanying Exhibits Index are filed as part of this annual report. The exhibits numbered 10.18(a) through 10.25(c) and 10.27 are management contracts or compensatory plans or arrangements. (b) Reports on Form 8-K The Company filed a Form 8-K Current Report on July 24, 1996 reporting under Item 5, Other Events, that on July 19, 1996 it had entered into a definitive Agreement and Plan of Reorganization with United Cities Gas Company ("United Cities") whereby United Cities would merge with and into Atmos. Financial statements were not filed at that time. 58
INDEX TO FINANCIAL STATEMENTS (Item 8, 14(a) 1 and 2) Page Number Independent auditors' report 28 Financial statements: Consolidated balance sheets at September 30, 1996 and 1995 29 Consolidated statements of income for the years ended September 30, 1996, 1995 and 1994 30 Consolidated statements of shareholders' equity for the years ended September 30, 1996, 1995 and 1994 31 Consolidated statements of cash flows for the years ended September 30, 1996, 1995 and 1994 32 Notes to consolidated financial statements 34-53 All financial statement schedules are omitted because the required information is not present, or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and accompanying notes thereto. 59
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ATMOS ENERGY CORPORATION (Registrant) By /s/ James F. Purser ---------------------- James F. Purser Executive Vice President and Chief Financial Officer Date: November 13, 1996 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints James F. Purser, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Form 10-K, and to file the same, with all exhibits thereto, and all other documents in connection there- with, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated: /s/ Charles K. Vaughan Chairman of November 13, 1996 - ------------------------- the Board Charles K. Vaughan /s/ Robert F. Stephens President and November 13, 1996 - ------------------------- Chief Operating Robert F. Stephens Officer, Director 60
/s/ James F. Purser Executive Vice November 13, 1996 - ------------------------- President and James F. Purser Chief Financial Officer, Director /s/ David L. Bickerstaff Vice President November 13, 1996 - ------------------------- and Controller David L. Bickerstaff (Principal accounting officer) /s/ Travis W. Bain, II Director November 13, 1996 - ------------------------- Travis W. Bain, II /s/ Dan Busbee Director November 13, 1996 - ------------------------- Dan Busbee /s/ Thomas C. Meredith Director November 13, 1996 - ------------------------- Thomas C. Meredith /s/ Phillip E. Nichol Director November 13, 1996 - ------------------------- Phillip E. Nichol /s/ John W. Norris, Jr. Director November 13, 1996 - ------------------------- John W. Norris, Jr. /s/ Carl S. Quinn Director November 13, 1996 - ------------------------- Carl S. Quinn 61
/s/ Lee E. Schlessman Director November 13, 1996 - ------------------------- Lee E. Schlessman /s/ Richard Ware II Director November 13, 1996 - ------------------------- Richard Ware II 62
EXHIBITS INDEX Item 14. (a) (3) Page Number or Exhibit Incorporation by Number Description Reference to -------- ------------------------------------ ------------------------- 3.1 Restated Articles of Incorporation, Exhibit 3.1 of Form 10-K as amended as of February 9, 1995 for fiscal year ended September 30, 1995 (File No. 1-10042) 3.2 By-Laws of Atmos Energy Corporation Exhibit 3.2 of Form 10-K (As amended as of November 9, 1994) for fiscal year ended September 30, 1995 (File No. 1-10042) 4.1 Specimen Common Stock Certificate Exhibit (4) of the (Energas Company) October 28, 1983 Form 10 (File No. 0-11249) 4.2 Specimen Common Stock Certificate Exhibit (4) (b) of Form (Atmos Energy Corporation) 10-K for fiscal year ended September 30, 1988 (File No. 1-10042) 4.3(a) Rights Agreement, dated as of April Exhibit (1) of Form 8-K 27, 1988, between the Company and filed May 10, 1988 (File Morgan Shareholder Services Trust No. 0-11249) Company 4.3(b) Amendment No. 1 to Rights Agreement, Exhibit 4.3(b) of Form dated August 10, 1994 10-K for fiscal year ended September 30, 1994 (File No. 1-10042) 4.3(c) Certificate of Adjusted Price, dated Exhibit 4.3(c) of Form August 15, 1994 10-K for fiscal year ended September 30, 1994 (File No. 1-10042) 9 Not applicable 10.1(a) Note Purchase Agreement, dated Exhibit (10)(a)(i) of December 30, 1986, by and between Form 10-K for fiscal year the Company and John Hancock Mutual ended September 30, 1991 Life Insurance Company (File No. 1-10042) Note Purchase Agreement, dated December 30, 1986, by and between the Company and Mellon Bank, N.A., Trustee under Master Trust Agreement of NYNEX Corporation dated January 1, 1984 for Employee Pension Plans - NYNEX - John Hancock - Private Placement. (Agreement is identical to the Hancock Agreement listed above except as to the parties thereto.) 63
Page Number or Exhibit Incorporation by Number Description Reference to -------- ------------------------------------ ------------------------- 10.1(b) Letter, dated November 13, 1987, Exhibit 28(a) of Form 8-K from John Hancock Mutual Life filed January 7, 1988 Insurance Company to the Company (File No. 0-11249) Letter, dated November 13, 1987, from Mellon Bank, N.A., Trustee under Master Trust Agreement of NYNEX Corporation dated January 1, 1984 for Employee Pension Plans - NYNEX - John Hancock - Private Placement to the Company (Mellon letter is identical to the Hancock letter listed above except as to the parties thereto.) 10.1(c) Amendment to Note Purchase Exhibit (10)(a)(iii) of Agreement, dated October 11, 1989, Form 10-K for fiscal year by and between the Company and John ended September 30, 1989 Hancock Mutual Life Insurance (File No. 1-10042) Company revising Note Purchase Agreement dated December 30, 1986 Amendment to Note Purchase Agreement, dated October 11, 1989, by and between the Company and Mellon Bank, N.A., Trustee under Master Trust Agreement of NYNEX Corporation dated January 1, 1984 for Employee Pension Plans - NYNEX - John Hancock - Private Placement revising Note Purchase Agreement dated December 30, 1986. (This amendment is identical to the Hancock amendment listed above except as to the parties thereto.) 10.1(d) Amendment to Note Purchase Exhibit (10)(a)(iv) of Agreement, dated November 12, 1991, Form 10-K for fiscal year by and between the Company and John ended September 30, 1991 Hancock Mutual Life Insurance (File No. 1-10042) Company revising Note Purchase Agreement dated December 30, 1986. 64
Page Number or Exhibit Incorporation by Number Description Reference to -------- ------------------------------------ ------------------------- Amendment to Note Purchase Agreement, dated November 12, 1991, by and between the Company and Mellon Bank, N.A., Trustee under Master Trust Agreement of NYNEX Corporation dated January 1, 1984 for Employee Pension Plans - NYNEX - John Hancock - Private Placement revising Note Purchase Agreement dated December 30, 1986. (This amendment is identical to the Hancock amendment listed above except as to the parties thereto.) 10.2(a) Note Purchase Agreement, dated as of Exhibit 10(c) of Form 8-K December 21, 1987, by and between filed January 7, 1988 the Company and John Hancock Mutual (File No. 0-11249) Life Insurance Company Note Purchase Agreement, dated as of December 21, 1987, by and between the Company and John Hancock Charitable Trust I (Agreement is identical to Hancock Agreement listed above except as to the parties thereto.) Note Purchase Agreement dated as of December 21, 1987, by and between the Company and Mellon Bank, N.A., Trustee under Master Trust Agreement of AT&T Corporation, dated January 1, 1984, for Employee Pension Plans - AT&T - John Hancock - Private Placement (Agreement is identical to Hancock Agreement listed above except as to the parties thereto.) 10.2(b) Amendment to Note Purchase Exhibit (10)(b)(ii) of Agreement, dated October 11, 1989, Form 10-K for fiscal year by and between the Company and John ended September 30, 1989 Hancock Mutual Life Insurance (File No. 1-10042) Company revising Note Purchase Agreement dated December 21, 1987 65
Page Number or Exhibit Incorporation by Number Description Reference to -------- ------------------------------------ ------------------------- Amendment to Note Purchase Agreement, dated October 11, 1989, by and between the Company and John Hancock Charitable Trust I revising Note Purchase Agreement dated December 21, 1987. (Amendment is identical to Hancock amendment listed above except as to the parties thereto.) Amendment to Note Purchase Agreement, dated October 11, 1989, by and between the Company and Mellon Bank, N.A., Trustee under Master Trust Agreement of AT&T Corporation, dated January 1, 1984, for Employee Pension Plans - AT&T - John Hancock - Private Placement revising Note Purchase Agreement dated December 21, 1987 (Amendment is identical to Hancock amendment listed above except as to the parties thereto.) 10.2(c) Amendment to Note Purchase Exhibit 10(b)(iii) of Agreement, dated November 12, 1991, Form 10-K for fiscal year by and between the Company and John ended September 30, 1991 Hancock Mutual Life Insurance (File No. 1-10042) Company revising Note Purchase Agreement dated December 21, 1987 Amendment to Note Purchase Agreement, dated November 12, 1991, by and between the Company and John Hancock Charitable Trust I revising Note Purchase Agreement dated December 21, 1987. (Amendment is identical to Hancock amendment listed above except as to the parties thereto.) 66
Page Number or Exhibit Incorporation by Number Description Reference to -------- ------------------------------------ ------------------------- Amendment to Note Purchase Agreement, dated November 12, 1991, by and between the Company and Mellon Bank, N.A., Trustee under Master Trust Agreement of AT&T Corporation, dated January 1, 1984, for Employee Pension Plans - AT&T - John Hancock - Private Placement revising Note Purchase Agreement dated December 21, 1987. (Amendment is identical to Hancock amendment above except as to the parties thereto.) 10.3(a) Note Purchase Agreement, dated as of Exhibit 10(c) of Form 10- October 11, 1989, by and between the K for fiscal year ended Company and John Hancock Mutual Life September 30, 1989 (File Insurance Company No. 1-10042) 10.3(b) Amendment to Note Purchase Exhibit 10(c)(ii) of Form Agreement, dated as of November 12, 10-K for fiscal year 1991, by and between the Company and ended September 30, 1991 John Hancock Mutual Life Insurance (File No. 1-10042) Company revising Note Purchase Agreement dated October 11, 1989 10.4(a) Note Purchase Agreement, dated as of Exhibit 10(f)(i) of Form August 29, 1991, by and between the 10-K for fiscal year Company and The Variable Annuity ended September 30, 1991 Life Insurance Company (File No. 1-10042) 10.4(b) Amendment to Note Purchase Exhibit 10(f)(ii) of Form Agreement, dated November 26, 1991, 10-K for fiscal year by and between the Company and The ended September 30, 1991 Variable Annuity Life Insurance (File No. 1-10042) Company revising Note Purchase Agreement dated August 29, 1991 10.5 Note Purchase Agreement, dated as of Exhibit (10)(f) of Form August 31, 1992, by and between the 10-K for fiscal year Company and The Variable Annuity ended September 30, 1992 Life Insurance Company (File No. 1-10042) 67
Page Number or Exhibit Incorporation by Number Description Reference to -------- ------------------------------------ ------------------------- 10.6 Note Purchase Agreement, dated Exhibit 10.1 of Form 10-Q November 14, 1994, by and among the for quarter ended Company and New York Life Insurance December 31, 1994 (File Company, New York Life Insurance and No. 1-10042) Annuity Corporation, The Variable Annuity Life Insurance Company, American General Life Insurance Company, and Merit Life Insurance Company 10.7(a) Service Agreement No. 50772 between Exhibit 10.6(a) of Form Greeley Gas Company and Public 10-K for fiscal year Service Company of Colorado (West ended September 30, 1994 Gas Supply Co. prior to merger with (File No. 1-10042) PSCO) dated August 1, 1992 10.7(b) Transportation Storage Service Exhibit 10.6(b) of Form Agreement No. TA-0544 between 10-K for fiscal year Greeley Gas Company and Williams ended September 30, 1994 Natural Gas Company dated October 1, (File No. 1-10042) 1993 10.7(c) No-Notice Transportation Service Exhibit 10.6(c) of Form Agreement No. 31013, Rate Schedule 10-K for fiscal year NNT-1, between Greeley Gas Company ended September 30, 1994 and Colorado Interstate Gas Company, (File No. 1-10042) as amended, dated October 1, 1993 10.7(d) Firm Transportation Service Exhibit 10.6(d) of Form Agreement No. 35009, Rate Schedule 10-K for fiscal year TF2, between Greeley Gas Company and ended September 30, 1994 Colorado Interstate Gas Company, as (File No. 1-10042) amended, dated October 1, 1993 10.8(a) Amarillo Supply Agreement dated Exhibit 10.7(a) of Form January 2, 1993 between the Company 10-K for fiscal year and Mesa Operating Company ended September 30, 1994 (File No. 1-10042) 10.8(b) Interruptible Gas Transportation and Exhibit (10)(g)(iv) of Sales Agreement dated January 1, Form 10-K for fiscal year 1991, between Mesa Operating Limited ended September 30, 1992 Partnership and Energas Company (File No. 1-10042) regarding transportation charges to Mesa 10.8(c) Letter agreement between the Company Exhibit (10)(h)(vi) of and Mesa Operating Limited Form 10-K for fiscal year Partnership dated March 21, 1989, ended September 30, 1989 regarding transportation rates (File No. 1-10042) 68
Page Number or Exhibit Incorporation by Number Description Reference to -------- ------------------------------------ ------------------------- 10.9(a) Gas Sales Agreement between the Exhibit (10)(i)(i) of Company and Westar Transmission Form 10-K for fiscal year Company dated January 1, 1986, as ended September 30, 1989 amended by Letter Agreement dated (File No. 1-10042) November 21, 1986, and Agreement dated December 9, 1988, revising the pricing formula for city gate sales 10.9(b) Amendment to Gas Sales Agreement, Exhibit (10)(h)(ii) of dated February 27, 1987, between the Form 10-K for fiscal year Company and Westar Transmission ended September 30, 1992 Company (File No. 1-10042) 10.9(c) Amendment to Gas Sales Agreement, Exhibit (10)(h)(iii) of dated January 1, 1988, between Cabot Form 10-K for fiscal year Gas Supply Corporation ("CGSC") and ended September 30, 1992 the Company (File No. 1-10042) 10.10(a) Gas Transportation Agreement between Exhibit 10(i)(i) of Form the Company and Westar Transmission 10-K for fiscal year Company dated January 1, 1986, as ended September 30, 1991 amended by letter agreement dated (File No. 1-10042) November 21, 1986 10.10(b) Amendment to Gas Transportation Exhibit (10)(i)(ii) of Agreement, dated January 1, 1988, Form 10-K for fiscal year between CGSC and the Company ended September 30, 1992 (File No. 1-10042) 10.11 Supplemental Gas Sales Agreement, Exhibit (10)(j) of Form dated January 1, 1988, between CGSC 10-K for fiscal year and the Company ended September 30, 1992 (File No. 1-10042) 10.12 Gas Purchase and Sales Agreement, Exhibit (10)(k) of Form dated January 1, 1988, between Cabot 10-K for fiscal year Energy Marketing Corporation and ended September 30, 1992 EnerMart, Inc. (File No. 1-10042) 10.13 Gas Sales Agreement, dated January Exhibit (10)(l) of Form 1, 1988, between the Company and Gas 10-K for fiscal year Marketing, Inc. ("GMI"), relating to ended September 30, 1992 Amarillo supplemental supplies (File No. 1-10042) 10.14 Gas Sales Agreement, dated January Exhibit (10)(m) of Form 1, 1988, between the Company and 10-K for fiscal year GMI, relating to West Texas ended September 30, 1992 supplemental supplies (File No. 1-10042) 69
Page Number or Exhibit Incorporation by Number Description Reference to -------- ------------------------------------ ------------------------- 10.15(a) Agreement for Natural Gas Service Exhibit 10(o)(ii) of Form for Distribution and Resale between 10-K for fiscal year Trans La and LIG dated October 28, ended September 30, 1991 1991 (File No. 1-10042) 10.15(b) Agreement for Intrastate Exhibit 10(o)(iii) of Transportation of Natural Gas Form 10-K for fiscal year between Trans La and LIG dated ended September 30, 1991 October 28, 1991 (File No. 1-10042) 10.16(a) Gas Transportation Agreement between Exhibit 10.1 of Form 10-Q Texas Gas Transmission Corporation for quarter ended ("Texas Gas") and Western Kentucky December 31, 1993 (File Gas Company, a division of Atmos No. 1-10042) Energy Corporation ("Western Ken- tucky") dated November 1, 1993 (Contract no. T3817, zone 2) 10.16(b) Gas Transportation Agreement between Exhibit 10.2 of Form 10-Q Texas Gas and Western Kentucky dated for quarter ended November 1, 1993 (Contract no. December 31, 1993 (File T3770, zone 2) No. 1-10042) 10.16(c) Gas Transportation Agreement between Exhibit 10.3 of Form 10-Q Texas Gas and Western Kentucky Gas for quarter ended dated November 1, 1993 (Contract no. December 31, 1993 (File T3355, zone 3) No. 1-10042) 10.16(d) Gas Transportation Agreement between Exhibit 10.4 of Form 10-Q Texas Gas and Western Kentucky Gas for quarter ended dated November 1, 1993 (Contract no. December 31, 1993 (File T3819, zone 4) No. 1-10042) 10.16(e) Gas Transportation Agreement between Exhibit 10.5 of Form 10-Q Texas Gas and Western Kentucky Gas for quarter ended dated November 1, 1993 (Contract no. December 31, 1993 (File N0210, zone 2, Contract no. N0340, No. 1-10042) zone 3, Contract no. N0435, zone 4) 10.17(a) Gas Transportation Agreement, Exhibit 10.17(a) of Form Contract No. 2550, dated September 10-K for fiscal year 1, 1993, between Tennessee Gas ended September 30, 1993 Pipeline Company, a division of (File No. 1-10042) Tenneco, Inc. ("Tennessee Gas"), and Western Kentucky, Campbellsville Service Area 70
Page Number or Exhibit Incorporation by Number Description Reference to -------- ------------------------------------ ------------------------- 10.17(b) Gas Transportation Agreement, Exhibit 10.17(b) of Form Contract No. 2546, dated September 10-K for fiscal year 1, 1993, between Tennessee Gas and ended September 30, 1993 Western Kentucky, Danville Service (File No. 1-10042) Area 10.17(c) Gas Transportation Agreement, Exhibit 10.17(c) of Form Contract No. 2385, dated September 10-K for fiscal year 1, 1993, between Tennessee Gas and ended September 30, 1993 Western Kentucky, Greensburg et al (File No. 1-10042) Service Area 10.17(d) Gas Transportation Agreement, Exhibit 10.17(d) of Form Contract No. 2551, dated September 10-K for fiscal year 1, 1993, between Tennessee Gas and ended September 30, 1993 Western Kentucky, Harrodsburg (File No. 1-10042) Service Area 10.17(e) Gas Transportation Agreement, Exhibit 10.17(e) of Form Contract No. 2548, dated September 10-K for fiscal year 1, 1993, between Tennessee Gas and ended September 30, 1993 Western Kentucky, Lebanon Service (File No. 1-10042) Area 10.18(a) *Severance Agreement dated April 1, Exhibit 10.3 of Form 10-Q 1995 between the Company and J. for quarter ended June Charles 30, 1995 (File No. 1- Goodman 10042) 10.18(b) *Severance Agreement amended and Exhibit 10(r)(ii) of Form (i) restated as of August 8, 1991, 10-K for fiscal year between the Company and Robert F. ended September 30, 1991 Stephens (File No. 1-10042) 10.18(b) *Letter dated May 3, 1995 amending Exhibit 10.1 of Form 10-Q (ii) the severance agreement between the for quarter ended June Company and Robert F. Stephens 30, 1995 (File No. 1- 10042) 10.18(c) *Severance Agreement amended and Exhibit 10(r)(iii) of restated as of August 8, 1991, Form 10-K for fiscal year between the Company and Don E. James ended September 30, 1991 (File No. 1-10042) 10.18(d) *Severance Agreement amended and Exhibit 10(r)(iv) of Form restated as of August 8, 1991, 10-K for fiscal year between the Company and James F. ended September 30, 1991 Purser (File No. 1-10042) 71
Page Number or Exhibit Incorporation by Number Description Reference to -------- ------------------------------------ ------------------------- 10.18(e) *Severance Agreement dated August Exhibit 10.18(g) of Form 11, 1993, between the Company and 10-K for fiscal year H.F. Harber ended September 30, 1993 (File No. 1-10042) 10.18(f) *Severance Agreement dated May 3, Exhibit 10.2 of Form 10-Q 1995 between the Company and Mary S. for quarter ended June Lovell 30, 1995 (File No. 1- 10042) 10.18(g) *Severance Agreement dated August 14, 1996, between the Company and Glen A. Blanscet 10.19(a) *The Atmos Energy Corporation Exhibit (10)(t) of Form Supplemental Executive Benefits 10-K for fiscal year Plan, effective October 1, 1987, ended September 30, 1992 Restated as of November 11, 1992 (File No. 1-10042) 10.19(b) *Amendment No. 1 to the Atmos Energy Exhibit 10.3 of Form 10-Q Corporation Supplemental Executive for quarter ended Benefits Plan (Restated as of December 31, 1996 (File November 11, 1992) No. 1-10042) 10.19(c) *Amendment No. 2 to the Atmos Energy Exhibit 10.2 of Form 10-Q Corporation Supplemental Executive for quarter ended June Benefits Plan (Restated as of 30, 1996 (File No. 1- November 11, 1992) 10042) 10.20(a) *Atmos Energy Corporation Restricted Exhibit 10.1 of Form 10-Q Stock Grant Plan (Restated as of for the quarter ended November 9, 1994) December 31, 1995 (File No. 1-10042) 10.20(b) *Amendment No. 1 to the Atmos Energy Exhibit 10.1 of Form 10-Q Corporation Restricted Stock Grant for the quarter ended Plan (Restated as of November 9, December 31, 1995 (File 1994) No. 1-10042) 10.21 *Atmos Energy Corporation Annual Exhibit 10(x) of Form 10- Performance Bonus Plan for Corporate K for fiscal year ended Officers, restated as of November 8, September 30, 1990 (File 1989 No. 1-10042) 10.22 *Atmos Energy Corporation Mini-Med Plan, as restated effective July 1, 1996 10.23 *Atmos Energy Corporation Deferred Exhibit 10(x) of Form 10- Compensation Plan for Outside K for fiscal year ended Directors September 30, 1992 (File No. 1-10042) 72
Page Number or Exhibit Incorporation by Number Description Reference to -------- ------------------------------------ ------------------------- 10.24 *Atmos Energy Corporation Retirement Exhibit 10(y) of Form 10- Plan for Outside Directors K for fiscal year ended September 30, 1992 (File No. 1-10042) 10.25(a) *Description of Car Allowance Exhibit 10.26(a) of Form Payments 10-K for fiscal year ended September 30, 1993 (File No. 1-10042) 10.25(b) *Description of Financial and Estate Exhibit 10.26(b) of Form Planning Program 10-K for fiscal year ended September 30, 1993 (File No. 1-10042) 10.25(c) *Description of Sporting Events Exhibit 10.26(c) of Form Program 10-K for fiscal year ended September 30, 1993 (File No. 1-10042) 10.26(a) Seventh Supplemental Indenture, Exhibit 10.1 of Form 10-Q dated as of October 1, 1983 between for quarter ended June Greeley Gas Company ("The Greeley 30, 1994 (File No. 1- Gas Division") and the Central Bank 10042) of Denver, N.A. ("Central Bank") 10.26(b) Ninth Supplemental Indenture, dated Exhibit 10.2 of Form 10-Q as of April 1, 1991, between The for quarter ended June Greeley Gas Division and Central 30, 1994 (File No. 1- Bank 10042) 10.26(c) Bond Purchase Agreement, dated as of Exhibit 10.3 of Form 10-Q April 1, 1991, between The Greeley for quarter ended June Gas Division and Central Bank 30, 1994 (File No. 1- 10042) 10.26(d) Tenth Supplemental Indenture, dated Exhibit 10.4 of Form 10-Q as of December 1, 1993, between the for quarter ended June Company and Colorado National Bank, 30, 1994 (File No. 1- formerly Central Bank 10042) 10.27 *The Atmos Energy Corporation Exhibit 4.5 of Form S-8 Outside Directors Stock-for-Fee Plan for Atmos' Outside Directors Stock-for-Fee Plan filed February 14, 1995 (Registration No. 33-57695) 73
Page Number or Exhibit Incorporation by Number Description Reference to -------- ------------------------------------ ------------------------- 10.28(a) Agreement and Plan of Reorganization Exhibit 2.1 of Form S-4 dated July 19, 1996, by and between filed October 4, 1996 the Registrant and United Cities Gas Company 10.28(b) Amendment No. 1 to Agreement and Exhibit 2.1(a) of Form S- Plan of Reorganization dated October 4 filed October 4, 1996 3, 1996 11 Not applicable 12 Not applicable 13 Not applicable 16 Not applicable 18 Not applicable 21 Subsidiaries of the registrant 22 Not applicable 23 Consent of independent auditors 24 Power of Attorney Signature page of Form 10-K for fiscal year ended September 30, 1996 27 Financial Data Schedule for Atmos for year ended September 30, 1996 28 Not applicable 99.1 Standstill Agreement, dated as of Exhibit 99.1 of Form 8-K July 13, 1996, between Atmos Energy dated July 19, 1996 Corporation and United Cities Gas Company 99.2 Agreement between Atmos Energy Exhibit 99.2 of Form 8-K Corporation, United Cities Gas dated November 2, 1996 Company and Southern Union Company dated November 2, 1996 -------------------------- * This exhibit constitutes a "management contract or compensatory plan, contract, or arrangement." 74