UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 1-10042 ATMOS ENERGY CORPORATION (Exact name of registrant as specified in its charter) TEXAS and VIRGINIA 75-1743247 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1800 Three Lincoln Centre 5430 LBJ Freeway, Dallas, Texas 75240 (Address of principal executive offices) (Zip Code) (972) 934-9227 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X .No . Number of shares outstanding of each of the issuer's classes of common stock, as of July 30, 1997. Class Shares Outstanding ------------ ------------------ No Par Value 16,204,504
PART 1. FINANCIAL INFORMATION Item 1. Financial Statements ATMOS ENERGY CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands, except share data) June 30, September 30, 1997 1996 ------------ ------------ ASSETS Property, plant and equipment $722,742 $666,438 Less accum. depreciation and amort. 272,941 252,871 -------- -------- Net property, plant and equipment 449,801 413,567 Current assets Cash and cash equivalents 2,140 3,726 Accounts receivable, net 44,367 25,284 Inventories 7,605 7,174 Gas stored underground 9,767 14,652 Prepayments 2,751 1,489 -------- -------- Total current assets 66,630 52,325 Deferred charges and other assets 37,470 35,969 -------- -------- $553,901 $501,861 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Shareholders' equity Common stock outstanding: 16,192,897 shares at 6/30/97 and 16,021,321 shares at 9/30/96 $ 81 $ 80 Additional paid-in capital 115,268 111,206 Retained earnings 72,820 61,012 -------- -------- Total shareholders' equity 188,169 172,298 Long-term debt 157,303 122,303 -------- -------- Total capitalization 345,472 294,601 Current liabilities Current maturities of long-term debt 8,000 9,000 Notes payable to banks 38,700 62,800 Accounts payable 41,715 31,640 Taxes payable 10,696 3,584 Customers' deposits 10,010 9,858 Other current liabilities 14,940 10,674 -------- -------- Total current liabilities 124,061 127,556 Deferred income taxes 42,523 39,056 Deferred credits and other liabilities 41,845 40,648 -------- -------- $553,901 $501,861 ======== ======== See notes to condensed consolidated financial statements. 2
ATMOS ENERGY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share data) Three months ended June 30, ------------------ 1997 1996 ------- ------- Operating revenues $86,726 $93,571 Purchased gas cost 51,599 59,795 ------- ------- Gross profit 35,127 33,776 Operating expenses Operation 19,191 19,354 Maintenance 1,122 1,013 Depreciation and amortization 5,795 5,456 Taxes, other than income 4,022 3,742 Income taxes 292 152 ------- ------- Total operating expenses 30,422 29,717 ------- ------- Operating income 4,705 4,059 Other income (expense) (88) (303) Interest charges 4,119 3,440 -------- ------- Net income $ 498 $ 316 ======== ======= Net income per share $ .03 $ .02 ======== ======= Cash dividends per share $ .25 $ .24 ======== ======= Average shares outstanding 16,176 15,965 ======== ======= See notes to condensed consolidated financial statements. 3
ATMOS ENERGY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share data) Nine months ended June 30, -------------------- 1997 1996 -------- -------- Operating revenues $444,226 $415,143 Purchased gas cost 290,061 265,248 -------- -------- Gross profit 154,165 149,895 Operating expenses Operation 67,138 62,022 Maintenance 3,233 3,154 Depreciation and amortization 18,181 16,382 Taxes, other than income 15,252 13,446 Income taxes 14,050 15,715 --------- ------- Total operating expenses 117,854 110,719 --------- ------- Operating income 36,311 39,176 Other income (expense) (21) (288) Interest charges 12,389 10,956 -------- -------- Net income $ 23,901 $ 27,932 ======== ======== Net income per share $ 1.48 $ 1.76 ======== ======== Cash dividends per share $ .75 $ .72 ======== ======== Average shares outstanding 16,123 15,855 ======== ======== See notes to condensed consolidated financial statements. 4
ATMOS ENERGY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share data) Twelve months ended June 30, -------------------- 1997 1996 -------- -------- Operating revenues $512,827 $491,136 Purchased gas cost 331,557 311,359 -------- -------- Gross profit 181,270 179,777 Operating expenses Operation 87,923 82,334 Maintenance 4,291 4,206 Depreciation and amortization 22,648 21,623 Taxes, other than income 18,685 16,767 Income taxes 11,645 13,756 -------- -------- Total operating expenses 145,192 138,686 -------- -------- Operating income 36,078 41,091 Other income (expense) (29) (458) Interest charges 16,131 14,331 -------- -------- Net income $ 19,918 $ 26,302 ======== ======== Net income per share $ 1.24 $ 1.67 ======== ======== Cash dividends per share $ .99 $ .95 ======== ======== Average shares outstanding 16,093 15,767 ======== ======== See notes to condensed consolidated financial statements. 5
ATMOS ENERGY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) Nine months ended June 30, ------------------- 1997 1996 -------- -------- Cash Flows From Operating Activities Net income $ 23,901 $ 27,932 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization Charged to depreciation and amortization 18,181 16,382 Charged to other accounts 2,872 2,705 Deferred income taxes 3,467 2,307 Other 306 219 Net change in operating assets and liabilities 5,104 16,398 ------- -------- Net cash provided by operating activities 53,831 65,943 Cash Flows From Investing Activities Capital expenditures (55,044) (57,874) Retirements of property, plant and equipment (2,243) 3,344 -------- -------- Net cash used in investing activities (57,287) (54,530) Cash Flows From Financing Activities Net increase (decrease) in notes payable to banks (24,100) 2,600 Issuance of long-term debt 40,000 - Cash dividends paid (12,093) (11,393) Repayment of long-term debt (6,000) (7,000) Issuance of common stock 4,063 4,239 -------- -------- Net cash provided (used) in financing activities 1,870 (11,554) -------- -------- Net decrease in cash and cash equivalents (1,586) (141) Cash and cash equivalents at beginning of period 3,726 2,294 -------- -------- Cash and cash equivalents at end of period $ 2,140 $ 2,153 ======== ======== See notes to condensed consolidated financial statements. 6
ATMOS ENERGY CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 1997 1. Unaudited interim financial information In the opinion of management, all material adjustments necessary for a fair presentation have been made to the unaudited interim period financial statements. Such adjustments consisted only of normal recurring accruals. Because of seasonal and other factors, the results of operations for the nine month period ended June 30, 1997 are not indicative of expected results of operations for the year ending September 30, 1997. These interim financial statements and notes are condensed as permitted by the instructions to Form 10-Q, and should be read in conjunction with the audited consolidated financial statements in the 1996 annual report to shareholders of Atmos Energy Corporation ("Atmos" or the "Company"). The condensed consolidated balance sheet of Atmos, as of June 30, 1997, and the related condensed consolidated statements of income for the three-month, nine- month, and twelve-month periods ended June 30, 1997 and 1996, and the condensed consolidated statements of cash flows for the nine- month periods ended June 30, 1997 and 1996, included herein have been subjected to a review by Ernst & Young LLP, the Company's independent accountants, whose report is included herein. Common stock - As of June 30, 1997, the Company had 75,000,000 shares of common stock, no par value (stated at $.005 per share), authorized. 2. Business combination activity Agreement to acquire United Cities Gas Company In July 1996, the Company announced that it had reached a definitive agreement with United Cities Gas Company ("United Cities") of Brentwood, Tennessee, wherein United Cities will be merged with and into Atmos by means of a tax-free reorganization. The merger was approved by the shareholders of both United Cities and Atmos in November 1996. The final regulatory approval was received on June 25, 1997. It was followed by a 30-day period during which any of the parties to the proceeding could have sought rehearing. Effective July 31, 1997, each of the approximately 13.3 million shares of United Cities common stock was converted into the right to receive one share of Atmos common stock. Pursuant to the agreement with United Cities, Atmos will 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, which Board meeting will be on August 13, 1997. The transaction will be accounted for by the pooling of interests method. Certain pro forma 7
combined financial statements are included herein as supplemental information. United Cities is a natural gas utility company engaged in the distribution and sale of natural gas to approximately 316,000 customers in Tennessee, Illinois, Virginia, Kansas, Missouri, South Carolina, Georgia, and Iowa, and in the sale of propane to approximately 27,000 customers in Tennessee, Virginia and North Carolina. United Cities' assets consist of the property, plant and equipment used in its natural gas and propane sales and distribution businesses. Following consummation of the merger, United Cities' business will be operated as a division of Atmos, along with Atmos' Energas Company, Trans Louisiana Gas Company, Western Kentucky Gas Company, and Greeley Gas Company divisions. The accompanying consolidated financial statements of the Company do not include the assets, liabilities, or operating results of United Cities. 3. Contingencies On March 15, 1991, suit was filed in the 15th Judicial District Court of Lafayette Parish, Louisiana (the "Court"), by the "Lafayette Daily Advertiser" and others against the Trans La Division of the Company, Trans Louisiana Industrial Gas Company, Inc. ("TLIG"), a wholly owned subsidiary of the Company, and Louisiana Intrastate Gas Corporation and certain of its affiliates ("LIG"). LIG is the Company's primary supplier of natural gas in Louisiana and is not otherwise affiliated with the Company. The plaintiffs purported to represent a class consisting of all residential and commercial gas customers in the Trans La Division's service area. Among other allegations, the plaintiffs alleged that the defendants violated the antitrust laws of the state of Louisiana by manipulating the cost-of-gas component of the Trans La Division's gas rate to the purported customer class, thereby causing such purported class members to pay a higher rate. The plaintiffs made no specific allegation of an amount of damages. The defendants brought an appeal to the Louisiana Supreme Court of rulings made by the Court and the Third Circuit Court of Appeals which denied the defendants' exceptions to the jurisdiction of the Court. It was the position of the defendants that the plaintiffs' claims amount to complaints relating to the level of gas rates and should be within the exclusive jurisdiction of the Louisiana Public Service Commission (the "Louisiana Commission"). On January 19, 1993, the Louisiana Supreme Court issued a decision reversing in part the lower courts' rulings, dismissing all of plaintiffs' claims against the defendants which sought damages due to alleged overcharges and further ruling that all such claims are within the exclusive jurisdiction of the Louisiana Commission. Any claims which sought damages other than 8
overcharges were remanded to the trial court but were stayed pending the completion of the Louisiana Commission proceeding referred to below. The Company has reached a settlement with the plaintiffs in the context of the Louisiana Commission proceeding referred to below, which settlement resolves all outstanding issues relating to the Company, subject to the satisfaction of certain procedural conditions. On July 14, 1995, the Louisiana Commission entered an order approving a settlement with the Company and TLIG in connection with its investigation of the costs included in the Trans La Division's purchased gas adjustment component in its rates. The order exonerated the Company of any wrongdoing with respect to the manipulation of the cost of gas component of its gas rate to residential and commercial customers. In the settlement, the Company agreed to refund approximately $541,000 plus interest to the Trans La Division's customers over a two-year period due to certain issues related to the calculation of the weighted average cost of gas. The refund totaling approximately $1,016,000, which includes interest calculated through October 1, 1995, began in September 1995 and was to be credited to customer bills along with interest that accrued after October 1, 1995. The Company refunded approximately $533,000 under the settlement in fiscal 1996 and the remaining amount in fiscal 1997. Most of the issues that generated the refunds arose before the Trans La Division (formerly Trans Louisiana Gas Company) was acquired by the Company in 1986. On April 18, 1997, the Louisiana Commission entered its Order approving a settlement between LIG and the Louisiana Commission pursuant to which LIG will make a payment of $10,275,000 to the Trans La Division for the benefit of its ratepayers. This settlement resolves all remaining issues in the Louisiana proceeding discussed above. Pursuant to the Order, the Trans La Division has been ordered to flow through a total of $9,725,000 of the LIG settlement, plus accrued interest, to its customers in the form of credits to customers bills for the months November 1997 through March 1998. The remaining $550,000 will be credited one half to TLIG with the other half credited to the Trans La Division for legal fees. The Order became final on June 2, 1997 when no appeals had been filed during the appeal period which ended June 1, 1997. As a result of the settlements reached in the Louisiana proceedings, a Joint Motion was filed in the Court on July 29, 1997, requesting the Court to lift the stay of the proceedings entered by the Court on January 19, 1993 to permit the consummation of the proposed settlement, certify a class for purposes of settlement and to preliminarily approve the settlement between the plaintiff class and all defendants. On July 30, 1997, the Court entered its order lifting the stay of the proceedings, certifying a class of current Trans La Gas rate payers for purposes of settlement and receipt of proceeds of 9
settlement, preliminarily approving the proposed settlement between the plaintiff class and the defendants, approving the form of notice to potential class members, and setting a fairness hearing regarding the proposed settlement and disbursement of proceeds. At the fairness hearing, which is set for December 15, 1997, final approval of the settlement by the Court will be sought. If final approval of the Court is granted, the suit will be dismissed. In Colorado, the Greeley Gas Company Division of the Company is a defendant in several lawsuits filed as a result of a fire in a building in Steamboat Springs, Colorado on February 3, 1994. The plaintiffs claim that the fire resulted from a leak in a severed gas service line owned by the Greeley Division. On January 12, 1996, the jury awarded the plaintiffs approximately $2.5 million in compensatory damages and approximately $2.5 million in punitive damages. The jury assessed the Company with liability for all of the damages awarded. The Company has filed a Notice of Appeal with the Colorado Court of Appeals with respect to this case. The Company has adequate insurance to cover the compensatory damages awarded. However, the Company's insurance carrier informed the Company that, based upon a recent Colorado Court ruling, the punitive damages awarded against the Company cannot be covered by the Company's insurance policy. The Company is continuing to review the position of the insurance carrier with respect to coverage of punitive damages. The Company believes it has meritorious issues for an appeal but cannot assess, at this time, the likelihood of success in the appeal. From time to time, claims are made and lawsuits are filed against the Company arising out of the ordinary business of the Company. In the opinion of the Company's management, losses, if any, arising from these actions, including the specific actions described above, are either covered by insurance, adequately reserved for by the Company or would not have a material adverse effect on the financial condition, the results of operations or the net cash flows of the Company. 4. Long-term and short-term debt In November 1996 the Company issued $40,000,000 of 6.09% term notes, payable in November 1998. The proceeds from the term notes were used primarily to refinance a portion of notes payable to banks and for working capital, capital expenditures and general corporate purposes. During the nine months ended June 30, 1997, the Company paid installments due of $1,000,000 on its 9.75% Senior Notes, $3,000,000 on its 9.76% Senior Notes and $2,000,000 on its 11.2% Senior Notes. At June 30, 1997, the Company had committed, short-term, unsecured bank credit facilities totaling $92,000,000, of which $80,000,000 was unused. The Company also had aggregate 10
uncommitted lines of credit totaling $155,000,000, of which $128,300,000 was unused at June 30, 1997. 5. Statements of cash flows Supplemental disclosures of cash flow information for the nine month periods ended June 30, 1997 and 1996 are presented below. Nine months ended June 30, ------------------- 1997 1996 ------- ------- (In thousands) Cash paid for Interest $14,174 $11,477 Income taxes 2,238 3,840 11
INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors Atmos Energy Corporation We have reviewed the accompanying condensed consolidated balance sheet of Atmos Energy Corporation as of June 30, 1997, and the related condensed consolidated statements of income for the three-month, nine-month, and twelve-month periods ended June 30, 1997 and 1996 and the statements of cash flows for the nine-month periods ended June 30, 1997 and 1996. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Atmos Energy Corporation as of September 30, 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended (not presented herein) and in our report dated November 4, 1996, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 1996, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. ERNST & YOUNG LLP Dallas, Texas August 6, 1997 12
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS The following unaudited pro forma combined condensed financial statements give effect to the merger of Atmos and United Cities on a pooling of interests basis. The pooling of interests method of accounting assumes that the combining companies were merged from inception and the historical financial statements for the periods prior to consummation of the merger are restated as though the companies had been combined from inception. The pro forma combined condensed balance sheet assumes that the Merger took place on the balance sheet date and combines the June 30, 1997 balance sheets of Atmos and United Cities, respectively. The pro forma combined condensed statements of income for the nine month and twelve month periods ended June 30, 1997 include Atmos' and United Cities' results of operations for the periods then ended. Atmos' fiscal year ends on September 30, while United Cities' fiscal year ends on December 31. Thus, the pro forma combined condensed statements of income for the years ended September 30, 1996, 1995, and 1994 include Atmos' results of operations for the years then ended and United Cities' results of operations for the years ended December 31, 1996, 1995, and 1994. As a result, United Cities' results of operations for the three months ended December 31, 1996 (operating revenues of $122,971,000 and net income of $9,263,000) are included in the pro forma statements of income for both the year ended September 30, 1996, and the nine and twelve month periods ended June 30, 1997. The pro forma combined condensed financial statements include certain account reclassifications to conform United Cities' classifications to Atmos' presentation. These pro forma combined condensed financial statements should be read in conjunction with the accompanying notes, the historical financial statements and notes of Atmos and the historical financial statements and notes of United Cities. The pro forma adjustments are based upon available information and assumptions that management of Atmos, through consultation with management of United Cities, believes are reasonable. The pro forma combined condensed financial statements do not purport to represent the financial position or results of operations which would have occurred had the merger been consummated on the dates indicated or Atmos' financial position or results of operations for any future date or period. In addition, due to the effect of weather on sales and other factors which are characteristic of public utility operations, pro forma financial results for the twelve month period ended June 30, 1997, are not necessarily indicative of trends for any 12-month period. 13
<TABLE> ATMOS ENERGY CORPORATION AND UNITED CITIES GAS COMPANY PRO FORMA COMBINED CONDENSED BALANCE SHEET JUNE 30, 1997 (Unaudited) <CAPTION> United Pro Forma Atmos Cities Adj Pro Forma -------- -------- -------- ---------- ASSETS (In thousands) <S> <C> <C> <C> <C> Property, plant and equipment $722,742 $570,950 $ - $1,293,692 Less accum. depreciation and amort. 272,941 206,865 - 479,806 --------- --------- -------- ---------- Net property, plant and equipment 449,801 364,085 - 813,886 Current assets Cash and cash equivalents 2,140 5,067 - 7,207 Accounts receivable, net 44,367 31,053 - 75,420 Inventories 7,605 6,709 - 14,314 Gas stored underground 9,767 24,781 - 34,548 Other current assets 2,751 603 - 3,354 --------- --------- --------- ---------- Total current assets 66,630 68,213 - 134,843 Deferred charges and other assets 37,470 30,670 - 68,140 --------- --------- --------- ---------- $553,901 $462,968 $ - $1,016,869 ========= ========= ========= ========== LIABILITIES AND SHAREHOLDERS' EQUITY Shareholders' equity Common stock $ 81 $110,109 $(110,042)(b) $ 148 Additional paid-in capital 115,268 22,462 110,042 (b) 247,772 Retained earnings 72,820 32,599 - 105,419 --------- --------- --------- ----------- Total shareholders' equity 188,169 165,170 - 353,339 Long-term debt 157,303 149,233 - 306,536 --------- --------- --------- ----------- Total capitalization 345,472 314,403 - 659,875 Current liabilities Current maturities of long-term debt 8,000 7,173 - 15,173 Notes payable to banks 38,700 39,626 - 78,326 Accounts payable 41,715 18,686 - 60,401 Taxes payable 10,696 7,646 - 18,342 Customers' deposits 10,010 6,255 - 16,265 Other current liabilities 14,940 21,593 - 36,533 --------- --------- ---------- ----------- Total current liabilities 124,061 100,979 - 225,040 Deferred income taxes 42,523 32,980 - 75,503 Deferred credits and other liabilities 41,845 14,606 - 56,451 --------- --------- ---------- ----------- $553,901 $462,968 $ - $1,016,869 ========= ========= ========== =========== <FN> See accompanying notes to pro forma combined condensed financial statements. </TABLE> 14 <TABLE> ATMOS ENERGY CORPORATION AND UNITED CITIES GAS COMPANY PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME NINE MONTHS ENDED JUNE 30, 1997 (Unaudited) <CAPTION> United Pro Forma Atmos Cities Adj Pro Forma -------- -------- --------- --------- (In thousands, except share data) <S> <C> <C> <C> <C> Operating revenues $444,226 $342,747 $ - $786,973 Purchased gas cost 290,061 215,850 - 505,911 --------- --------- --------- -------- Gross profit 154,165 126,897 - 281,062 Operating expenses Operation 67,138 49,450 - 116,588 Maintenance 3,233 5,618 - 8,851 Depreciation and amortization 18,181 16,691 - 34,872 Taxes, other than income 15,252 10,357 - 25,609 Income taxes 14,050 13,450 - 27,500 --------- --------- --------- -------- Total operating expenses 117,854 95,566 - 213,420 --------- --------- --------- -------- Operating income 36,311 31,331 - 67,642 Other income (expense) (21) 3,947 - 3,926 Interest charges 12,389 13,417 - 25,806 --------- --------- --------- -------- Net income $ 23,901 $ 21,861 $ - $ 45,762 ========= ========== ========= ========= Net income per share $ 1.48 $ 1.65 $ - $ 1.56 ========= ========== ========= ========= Dividends per share $ .75 $ .76 $ - (c) $ .76 ========= ========== ========= ========= Average shares outstanding 16,123 13,241 - 29,364 ========= ========== ========= ========= <FN> See accompanying notes to pro forma combined condensed financial statements. </TABLE> 15
<TABLE> ATMOS ENERGY CORPORATION AND UNITED CITIES GAS COMPANY PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME TWELVE MONTHS ENDED JUNE 30, 1997 (Unaudited) <CAPTION> United Pro Forma Atmos Cities Adj Pro Forma -------- -------- --------- --------- (In thousands, except share data) <S> <C> <C> <C> <C> Operating revenues $512,827 $390,291 $ - $903,118 Purchased gas cost 331,557 244,246 - 575,803 --------- --------- --------- --------- Gross profit 181,270 146,045 - 327,315 Operating expenses Operation 87,923 65,511 - 153,434 Maintenance 4,291 7,492 - 11,783 Depreciation and amortization 22,648 21,954 - 44,602 Taxes, other than income 18,685 13,234 - 31,919 Income taxes 11,645 9,463 - 21,108 --------- --------- --------- --------- Total operating expenses 145,192 117,654 - 262,846 --------- --------- --------- --------- Operating income 36,078 28,391 - 64,469 Other income (expense) (29) 4,585 - 4,556 Interest charges 16,131 17,587 - 33,718 --------- --------- --------- --------- Net income $ 19,918 $ 15,389 $ - $ 35,307 ========= ========= ========= ========= Net income per share $ 1.24 $ 1.16 $ - $ 1.20 ========= ========= ========= ========= Dividends per share $ .99 $ 1.02 $ - (c) $ 1.00 ========= ========= ========= ========= Average shares outstanding 16,093 13,215 - 29,308 ========= ========= ========= ========= <FN> See accompanying notes to pro forma combined condensed financial statements. </TABLE> 16
<TABLE> ATMOS ENERGY CORPORATION AND UNITED CITIES GAS COMPANY PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME YEAR ENDED SEPTEMBER 30, 1996 (Unaudited) <CAPTION> As reported (a) ---------------------- United Pro Forma Atmos Cities Adj Pro Forma -------- -------- -------- ---------- (In thousands, except share data) <S> <C> <C> <C> <C> Operating revenues $483,744 $402,947 $ - $886,691 Purchased gas cost 306,744 255,535 - 562,279 --------- --------- --------- -------- Gross profit 177,000 147,412 - 324,412 Operating expenses Operation 82,807 65,389 - 148,196 Maintenance 4,212 7,507 - 11,719 Depreciation and amortization 20,849 20,817 - 41,666 Taxes, other than income 16,879 13,735 - 30,614 Income taxes 13,310 9,646 - 22,956 --------- --------- --------- -------- Total operating expenses 138,057 117,094 - 255,151 -------- -------- --------- -------- Operating income 38,943 30,318 - 69,261 Other income (expense) (296) 3,863 - 3,567 Interest charges 14,698 16,979 - 31,677 --------- --------- --------- -------- Net income $ 23,949 $ 17,202 $ - $ 41,151 ========= ========= ========= ======== Net income per share $ 1.51 $ 1.31 $ - $ 1.42 ========= ========= ========= ======== Dividends per share $ .96 $ 1.02 $ - (c) $ .98 ========= ========= ========= ======== Average shares outstanding 15,892 13,086 - 28,978 ========= ========= ========= ======== <FN> See accompanying notes to pro forma combined condensed financial statements. </TABLE> 17
<TABLE> ATMOS ENERGY CORPORATION AND UNITED CITIES GAS COMPANY PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME YEAR ENDED SEPTEMBER 30, 1995 (Unaudited) <CAPTION> As reported (a) ---------------------- United Pro Forma Atmos Cities Adj Pro Forma -------- -------- ---------- --------- (In thousands, except share data) <S> <C> <C> <C> <C> Operating revenues $435,820 $313,735 $ - $749,555 Purchased gas cost 268,810 180,587 - 449,397 --------- --------- --------- -------- Gross profit 167,010 133,148 - 300,158 Operating expenses Operation 83,431 63,193 - 146,624 Maintenance 4,276 7,074 - 11,350 Depreciation and amortization 20,741 19,856 - 40,597 Taxes, other than income 16,611 13,369 - 29,980 Income taxes 9,574 6,616 - 16,190 --------- --------- --------- ------- Total operating expenses 134,633 110,108 - 244,741 --------- --------- --------- ------- Operating income 32,377 23,040 - 55,417 Other income 217 3,360 - 3,577 Interest charges 13,721 16,465 - 30,186 --------- --------- --------- --------- Net income $ 18,873 $ 9,935 $ - $ 28,808 ========= ========= ========= ========= Net income per share $ 1.22 $ .84 $ - $ 1.06 ========= ========= ========= ========= Dividends per share $ .92 $ 1.02 $ - (c) $ .96 ========= ========= ========= ========= Average shares outstanding 15,416 11,792 - 27,208 ========= ========= ========= ========= <FN> See accompanying notes to pro forma combined condensed financial statements. </TABLE> 18
<TABLE> ATMOS ENERGY CORPORATION AND UNITED CITIES GAS COMPANY PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME YEAR ENDED SEPTEMBER 30, 1994 (Unaudited) <CAPTION> As reported (a) -------------------- United Pro Forma Atmos Cities Adj Pro Forma -------- -------- --------- --------- (In thousands, except share data) <S> <C> <C> <C> <C> Operating revenues $499,808 $326,494 $ - $826,302 Purchased gas cost 331,571 197,711 - 529,282 --------- --------- --------- -------- Gross profit 168,237 128,783 - 297,020 Operating expenses Operation 92,132 58,852 - 150,984 Maintenance 5,888 6,595 - 12,483 Depreciation and amortization 18,841 17,870 - 36,711 Taxes, other than income 16,808 11,538 - 28,346 Income taxes 8,102 6,368 - 14,470 --------- --------- --------- -------- Total operating expenses 141,771 101,223 - 242,994 -------- --------- --------- -------- Operating income 26,466 27,560 - 54,026 Other income 503 351 - 854 Interest charges 12,290 15,818 - 28,108 --------- --------- --------- -------- Net income $ 14,679 $ 12,093 $ - $ 26,772 ========= ========= ========= ======== Net income per share $ .97 $ 1.16 $ - $ 1.05 ========= ========= ========= ======== Dividends per share $ .88 $ 1.005 $ - (c) $ .90 ========= ========= ========= ======== Average shares outstanding 15,195 10,409 - 25,604 ========= ========= ========= ======== <FN> See accompanying notes to pro forma combined condensed financial statements. </TABLE> 19
ATMOS ENERGY CORPORATION AND UNITED CITIES GAS COMPANY NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. Merger Pursuant to the terms of the Reorganization Agreement, each outstanding share of United Cities Stock has been converted into the right to receive one share of Atmos Stock. The pro forma financial statements assume the issuance of the Atmos Stock in connection with the merger and that the transaction will be accounted for as a pooling of interests. The cost of the merger and integration are estimated to total approximately $17.0 million for the transaction costs and $32.0 million for the separation and other costs. None of these estimated merger and integration costs or the estimated cost savings resulting from the merger, have been reflected in the pro forma combined condensed financial statements. The pro forma combined condensed balance sheet assumes that the merger took place on the balance sheet date and combines the June 30, l997 balance sheets of Atmos and United Cities, respectively. The pro forma combined condensed statements of income for the nine and twelve months ended June 30, 1997 include Atmos' and United Cities' results of operations for the periods then ended. The pro forma combined condensed statements of income for the years ended September 30, 1996, 1995, and 1994 include Atmos' results of operations for the years then ended and United Cities' results of operations for its fiscal years ended December 31, 1996, 1995, and 1994, respectively. As a result, United Cities' results of operations for the three months ended December 31, 1996 (operating revenues of $122,971,000 and net income of $9,263,000) are included in the pro forma combined condensed statements of income for both the year ended September 30, 1996 and the nine month and twelve month periods ended June 30, 1997. 2. Pro forma adjustments The pro forma adjustments in the accompanying unaudited pro forma combined condensed financial statements are listed below. (a) Reclassifications were made to certain "as reported" account balances reflected in United Cities financial statements to conform to this reporting presentation. (b) To adjust common stock to relect the shares of Atmos Stock (stated value of $.005) to be issued in exchange for the shares of United Cities stock. One share of Atmos Stock was exchanged for each share of United Cities Stock. At June 30, 1997, 13,313,047 shares of United Cities Stock were outstanding, resulting in an increase of $66,565 in Atmos Common Stock and a reclassification of $110,041,860 to additional paid-in capital. The actual number of shares issued on July 31, 1997 was 13,320,221. 20
(c) Dividends per share are calculated by totaling the actual dividends paid by Atmos and United Cities and dividing the result by the total of the weighted average shares outstanding for each period presented. The pro forma dividends per share do not purport to represent the dividend rate for any future date or period. 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction The Company distributes and sells natural gas to residential, commercial, industrial and agricultural customers in six states. Such business is subject to regulation by state and/or local authorities in each of the states in which the Company operates. In addition, the Company's business is affected by seasonal weather patterns, competition within the energy industry, and economic conditions in the areas that the Company serves. Revenues and sales volume statistics for the three-month, nine- month, and twelve-month periods ended June 30, 1997 and 1996 appear on pages 30-32. Average meters in service are as follows: Nine months ended June 30, ------------------- 1997 1996 -------- ------- Average Meters in Service Residential 594,002 586,888 Commercial 61,951 61,385 Industrial (including agricultural) 17,628 18,985 Public authority and other 4,777 5,044 ------- ------- Total 678,358 672,302 ======= ======= Completion of Merger with United Cities Gas Company Effective July 31, 1997 at 11:59 p.m. Eastern time, United Cities Gas Company ("United Cities") of Brentwood, Tennessee, was merged with and into Atmos by means of a tax-free reorganization. The Company will operate United Cities as a division of Atmos and is beginning the integration of the companies. United Cities will be structured like other divisions of Atmos. To achieve this structure, approximately 560 utility positions in United Cities will be eliminated over the next 12 months. An additional 75 Atmos positions will be eliminated as part of the integration, resulting in approximately 635 total position reductions in the combined company over the next twelve months. Atmos also has initiated plans to enhance its customer service in Texas, Louisiana, Kentucky, Colorado, Kansas and Missouri through business process changes which will result in a net reduction of approximately 240 positions. These changes include restructuring business office operations and establishing a network of payment centers and a customer support call center. Atmos estimates the cost of the merger and integration will total approximately $17 million for the transaction costs and $32 million for the separation and other costs. The Company believes 22
there are substantial longer term benefits to its customers and shareholders from the merger of the two companies, which are expected to result in operating cost savings over the next 10 years totaling approximately $375 million. The Company believes a significant amount of the costs to achieve these benefits will be recovered through rates and future operating efficiencies of the combined operations. The Company expects to record as regulatory assets the costs of the merger and integration of United Cities as discussed above, along with the costs of the customer service initiative, which are primarily separation costs and are estimated to be approximately $12 million. However, the Company will establish a general reserve of approximately $20 million ($12.8 million after-tax), to account for costs that may not be recovered. Since the substantial portion of the costs are related to position eliminations over the next 12 months and fees payable at the close of the merger, the company expects to account for these costs in the fourth quarter of fiscal year 1997 when the merger is complete, separation plans are approved by the Board of Directors, and announcements are made to employees. For further information, please see Note 2 of the notes to condensed consolidated financial statements and the pro forma combined condensed financial statements included herein. Rate Activity In May 1996, the Company filed to increase revenues by approximately $7.7 million for a portion of its Energas Division service area, which includes approximately 200,000 customers inside the city limits of 67 cities in West Texas. All cities either approved, or took no action to reject, a settlement allowing a $5.3 million increase in annual revenues to be effective for bills rendered on or after November 1, 1996. In October 1996, the Company filed a rate request with the Railroad Commission of Texas to increase revenues by approximately $.5 million for the remaining 22,000 rural customers in West Texas. The rate request was approved and became effective in April 1997. In February 1995, the Company filed with the Kentucky Public Service Commission (the "Kentucky Commission") for a rate increase for its Western Kentucky Division, which includes approximately 171,000 customers. In October 1995, the Kentucky Commission issued an order authorizing the Company to increase its rates by $2.3 million annually effective November 1, 1995, and by an additional $1.0 million annually beginning in March 1996. The settlement included a decrease in depreciation rates, recovery of expenses related to adoption of Statement of Financial Accounting Standards No. 106 and included a provision for the Company to begin a three-year demand-side management pilot program for the 1996-97 heating season, which could cost up to $450,000 annually, resulting in a total annual operating in- come increase of approximately $4.0 million. To date the Company 23
has incurred costs of approximately $170,000 on the demand-side management pilot program. FINANCIAL CONDITION For the nine months ended June 30, 1997, net cash provided by operating activities totaled $53.8 million compared with $65.9 million for the nine months ended June 30, 1996. The net change in operating assets and liabilities was $5.1 million for the nine months ended June 30, 1997 compared with $16.4 million for the nine months ended June 30, 1996. Due to the seasonal nature of the natural gas distribution business, large swings in accounts receivable, accounts payable and inventories of gas in underground storage will occur when entering and leaving the winter or heating season. Major cash flows used for investing activities for the nine months ended June 30, 1997 included capital expenditures of $55.0 million compared with $57.9 million for the nine months ended June 30, 1996. The capital expenditures budget for fiscal year 1997 is currently $92.1 million, as compared with actual capital expenditures of $77.6 million in fiscal 1996. Capital projects planned for 1997 include major expenditures for mains, services, meters, vehicles, and computer equipment. In November 1996 the Board of Directors approved an additional $24.0 million in the 1997 capital budget for a customer service initiative project which includes a new Customer Information System (CIS), related business process changes and technology infrastructure changes. These expenditures will be financed from internally generated funds and financing activities. For the nine months ended June 30, 1997, cash provided by financing activities amounted to $1.9 million compared with cash used of $11.6 million for the nine months ended June 30, 1996. During the nine months ended June 30, 1997, notes payable to banks decreased $24.1 million, as compared with an increase of $2.6 million for the nine months ended June 30, 1996 due to the refinancing of short-term debt with proceeds from the issuance of $40.0 million of long-term debt in the quarter ended December 31, 1996. Payments of long-term debt decreased $1.0 million to $6.0 million for the nine months ended June 30, 1997. Such payments consisted of a $1.0 million installment on the Company's 9.75% Senior Notes, a $3.0 million installment on its 9.76% Senior Notes and a $2.0 million installment on its 11.2% Senior Notes. The Company paid $12.1 million in cash dividends during the nine months ended June 30, 1997, compared with $11.4 million in cash dividends paid during the nine months ended June 30, 1996. This reflects a $.01 per share increase in the quarterly dividend rate and an increase in the number of shares outstanding. In the nine month period ended June 30, 1997, the Company issued 171,576 shares of stock under the ESOP and the Directors' Stock-for-Fee Plan compared with 463,192 shares, including 313,411 for the Oceana Heights acquisition, issued during the nine months ended June 30, 1996. 24
The Company believes that internally generated funds, its short- term credit facilities and access to the debt and equity capital markets will provide necessary working capital and liquidity for capital expenditures and other cash needs for the remainder of fiscal 1997. At June 30, 1997 the Company had $92.0 million of committed, short-term credit facilities, $80.0 million of which was available for additional borrowing. The committed lines are renewed or renegotiated at least annually. At June 30, 1997, the Company also had $155.0 million of uncommitted short-term lines, $128.3 million of which was unused. In July 1997, the Company received its initial debt ratings from two rating agencies. Standard & Poor's has assigned its single - - -'A'- minus corporate credit rating to the Company. In addition, a single -'A'- minus rating has been assigned to the Company's senior secured and senior unsecured debt, and a single -'A'- minus bank loan rating has been assigned. Moody's has assigned an A3 rating to the Company's senior unsecured medium-term notes and unsecured bank term loan. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1997, COMPARED WITH THREE MONTHS ENDED JUNE 30, 1996 Operating revenues decreased by approximately 7% to $86.7 million for the three months ended June 30, 1997 from $93.6 million for the three months ended June 30, 1996. The primary factor contributing to the decrease in operating revenues was decreased sales to industrial (including agricultural) customers. Volumes sold to industrial (including agricultural) customers decreased 6.5 billion cubic feet ("Bcf") or 50%. During the quarter ended June 30, 1997, temperatures averaged 57% colder than in the corresponding quarter of the prior year, resulting in increased sales volumes to all weather sensitive customers. Sales revenue per Mcf also increased. However, the revenue impact of these factors in the quarter ended June 30, 1997 was more than offset by decreased industrial (including agricultural) sales volumes due to higher rainfall which reduced the need for irrigation. The total volume of gas sold and transported for the three months ended June 30, 1997 was 25.9 Bcf compared with 29.2 Bcf for the three months ended June 30, 1996. The average sales price per Mcf sold increased $.57 to $4.50 as a result of a $.19 increase in the average cost of gas per Mcf sold and rate increases in Kentucky and Texas. Gas costs are passed through to end users and do not affect gross profit directly. Purchased gas cost for the quarter ended June 30, 1997 decreased $8.2 million, or 14%, due to decreased sales volumes, as discussed above. The decrease in volumes more than offset the increase in the average cost of gas per Mcf sold. Gross profit increased by approximately 4% to $35.1 million for the three months ended June 30, 1997, from $33.8 million for the 25
three months ended June 30, 1996. The increase in gross profit was primarily due to $1.5 million of additional revenues from the rate increases implemented in Texas and Kentucky. Increased sales to weather sensitive customers also contributed. These factors were partially offset by the 50% decrease in sales volumes to industrial (including agricultural) customers, as discussed above. Operating expenses, excluding income taxes, increased 2% from $29.6 million for the three months ended June 30, 1996 to $30.1 million for the three months ended June 30, 1997 primarily due to slightly higher depreciation and taxes other. Operating income increased for the three months ended June 30, 1997 to $4.7 million from $4.1 million for the three months ended June 30, 1996. The increase in operating income primarily resulted from increased gross profit. Net income increased from $.3 million for the three months ended June 30, 1996 to $.5 million for the three months ended June 30, 1997. This increase in net income primarily resulted from the increase in operating income. It was partially offset by a $.7 million increase in interest charges due to increased debt outstanding during the quarter ended June 30, 1997 as compared with the quarter ended June 30, 1996. NINE MONTHS ENDED JUNE 30, 1997, COMPARED WITH NINE MONTHS ENDED JUNE 30, 1996 Operating revenues increased by approximately 7% to $444.2 million for the nine months ended June 30, 1997 from $415.1 million for the nine months ended June 30, 1996. The primary factor contributing to the higher operating revenues was increased sales revenue per Mcf. Weather in the Company's service areas was 2% warmer than normal and 1% warmer than weather in the corresponding nine-month period of the prior fiscal year. Volumes sold to industrial (including agricultural) customers decreased from the corresponding period of the prior year by 10.6 Bcf or 36% due to lower agricultural demand due to increased rainfall and switching to transportation service by industrial sales customers. The average sales price per Mcf increased from $3.98 for the nine months ended June 30, 1996 to $4.72 for the nine months ended June 30, 1997. The increase in the average sales price reflects increased cost of gas and rate increases implemented in Texas and Kentucky. The average cost of gas per Mcf sold increased 21% from $2.61 for the nine months ended June 30, 1996 to $3.16 for the nine months ended June 30, 1997. The average cost of gas increased due to increased supply costs. Gross profit increased to $154.2 million for the nine months ended June 30, 1997, compared with $149.9 million for the nine months ended June 30, 1996. The 3% increase in gross profit was primarily due to rate increases in Texas and Kentucky, which contributed approximately $5.8 million to gross profit for the nine months ended June 30, 1997. The effect of these rate increases was partially offset by lower sales volumes. Operating 26
expenses, excluding income taxes, increased to $103.8 million for the nine months ended June 30, 1997, from $95.0 million for the nine months ended June 30, 1996. The increase was comprised of $5.1 million in operation expense, $.8 million in maintenance expense, $1.8 million in depreciation and $1.8 million in taxes other than income. The principal factor contributing to the increase in operation expense was the increase in administrative and general expenses associated with approximately $4.4 million of severance pay for management changes in the second quarter. The increase in depreciation related to utility plant additions placed in service during the past year. The primary factor in the increase in taxes other than income taxes was taxes on increased revenues. The provision for income taxes for the nine months ended June 30, 1997 decreased $1.7 million from the provision for the corresponding period of the prior year due to decreased pre-tax income. Operating income decreased for the nine months ended June 30, 1997 to $36.3 million from $39.2 million for the nine months ended June 30, 1996. The decrease in operating income primarily resulted from decreased sales to industrial (including agricultural) customers and increased operating expenses as discussed above. Interest expense increased approximately $1.4 million or 13% for the nine months ended June 30, 1997 compared with the nine months ended June 30, 1996. This increase was primarily due to increased average debt outstanding. Net income decreased for the nine months ended June 30, 1997, by approximately 14% to $23.9 million from $27.9 million for the nine months ended June 30, 1996. The decrease in net income resulted from the increases in operating expenses and interest charges. Earnings per share decreased to $1.48 for the nine months ended June 30, 1997 from $1.76 for the nine months ended June 30, 1996, while average shares outstanding increased approximately 2%. Dividends per share increased 4% to $.75 for the nine months ended June 30, 1997. TWELVE MONTHS ENDED JUNE 30, 1997, COMPARED WITH TWELVE MONTHS ENDED JUNE 30, 1996 Operating revenues increased by approximately 4% to $512.8 million for the 12 months ended June 30, 1997 from $491.1 million for the 12 months ended June 30, 1996. The increased revenues for the 12 months ended June 30, 1997 were due to increased gas sales revenue per Mcf as a result of rate increases and higher gas costs which are passed through to end users. Total sales and transportation volumes decreased to 137.4 Bcf for the 12 months ended June 30, 1997 compared with 147.6 Bcf for the corresponding prior 12-month period. Sales volumes to industrial (including agricultural) customers decreased 13.9 Bcf while transportation volumes increased 3.5 Bcf. This significant decrease in industrial (including agricultural) sales volumes was due to 27
decreased agricultural demand and switching from sales to transportation service by some industrial customers. The average sales price per Mcf increased from $3.93 to $4.62. The average sales price reflects the increased cost of gas and rate increases implemented in Texas and Kentucky. The average cost of gas per Mcf sold increased from $2.56 to $3.08 for the 12 months ended June 30, 1997. The average cost of gas increased due to increased supply costs. Gross profit increased by approximately 1% to $181.3 million for the 12 months ended June 30, 1997, from $179.8 million for the 12 months ended June 30, 1996 due to the rate increases mentioned above. Changes in cost of gas did not directly affect gross profit. Operating expenses, excluding income taxes, increased 7% from $124.9 million for the 12 months ended June 30, 1996, to $133.5 million for the 12 months ended June 30, 1997. Increases occurred in operation expenses, depreciation and taxes other than income. Factors contributing to the $5.6 million increase in operation expenses were administrative and general expenses of approximately $4.4 million associated with severance pay for recent management changes and smaller increases in distribution, customer accounts, and customer service and information expenses. The primary reason for the $1.0 million increase in depreciation was utility plant additions placed in service during the past year. The $1.9 million increase in taxes other than income resulted primarily from taxes on increased revenues. Income taxes decreased $2.1 million for the 12 months ended June 30, 1997, as compared with the 12 months ended June 30, 1996 due to decreased pretax income. Operating income decreased in the 12 months ended June 30, 1997 by approximately 12% to $36.1 million. The primary reasons for the decrease in operating income were the significant decrease in agricultural demand and the increase in operating expenses discussed above. Net income for the 12 months ended June 30, 1997 was $19.9 million compared with $26.3 million for the 12 months ended June 30, 1996. The decrease in net income resulted from the decrease in operating income discussed above and an increase of $1.8 million in interest charges due to increased average debt outstanding, including the issuance of $40 million of Senior Notes issued in November 1996. Earnings per share decreased by 26% to $1.24. Average shares outstanding increased approximately 2% as compared with the prior year. Dividends per share increased approximately 4% to $.99. Cautionary Statement pursuant to the Private Securities Litigation Reform Act of 1995 The matters discussed or incorporated by reference in this report contain both historical and forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the statements relating to the Company's 28
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. 29
ATMOS ENERGY CORPORATION CONSOLIDATED OPERATING STATISTICS Three months ended June 30, 1997 1996 ------- ------- Sales Volumes -- MMcf (1) Residential 7,905 6,568 Commercial 3,405 2,882 Industrial (including agricultural) 6,385 12,870 Public authority and other 718 549 ------- ------- Total 18,413 22,869 Transportation Volumes -- MMcf (1) 7,485 6,335 ------- ------- Total Volumes Delivered - MMcf (1) 25,898 29,204 ======= ======= Operating Revenues (000's) Gas Sales Revenues Residential $43,101 $38,050 Commercial 15,845 13,648 Industrial (including agricultural) 20,599 35,492 Public authority and other 3,254 2,781 ------- ------- Total Gas Revenues 82,799 89,971 Transportation Revenues 2,476 2,169 Other Revenues 1,451 1,431 ------- ------- Total Operating Revenues $86,726 $93,571 ======= ======= Average Gas Sales Revenues per Mcf $ 4.50 $ 3.93 Average Transportation Revenue per Mcf $ .33 $ .34 Cost of Gas per Mcf Sold $ 2.80 $ 2.61 HEATING DEGREE DAYS Weather Three months ended June 30, Service Sensitive --------------------------- Area Customers % 1997 1996 Normal - - -------------- ----------- ---- ---- ------ Texas 45% 406 192 227 Kentucky 26% 482 363 336 Louisiana 13% 102 91 42 Colorado, Kansas and Missouri 16% 852 607 779 ---- System Average 100% 458 291 321 Percent of Normal 143% 91% (1) Volumes are reported as metered in million cubic feet("MMcf"). 30
ATMOS ENERGY CORPORATION CONSOLIDATED OPERATING STATISTICS Nine months ended June 30, 1997 1996 -------- -------- Sales Volumes -- MMcf (1) Residential 47,688 47,700 Commercial 19,912 19,413 Industrial (including agricultural) 19,297 29,930 Public authority and other 4,767 4,759 -------- -------- Total 91,664 101,802 Transportation Volumes -- MMcf (1) 23,050 20,018 -------- -------- Total Volumes Delivered - MMcf (1) 114,714 121,820 ======== ======== Operating Revenues (000's) Gas Sales Revenues Residential $250,515 $217,603 Commercial 94,237 79,891 Industrial (including agricultural) 65,229 87,570 Public authority and other 23,115 19,754 -------- -------- Total Gas Revenues 433,096 404,818 Transportation Revenues 7,301 6,167 Other Revenues 3,829 4,158 -------- -------- Total Operating Revenues $444,226 $415,143 ======== ======== Average Gas Sales Revenues per Mcf $ 4.72 $ 3.98 Average Transportation Revenue per Mcf $ .32 $ .31 Cost of Gas per Mcf Sold $ 3.16 $ 2.61 HEATING DEGREE DAYS Weather Nine months ended June 30, Service Sensitive ----------------------------- Area Customers % 1997 1996 Normal - - -------------- ----------- ----- ----- ------ Texas 45% 3,534 3,286 3,513 Kentucky 26% 4,166 4,574 4,304 Louisiana 13% 1,523 1,989 1,771 Colorado, Kansas and Missouri 16% 6,089 5,752 6,094 ---- System Average 100% 3,846 3,870 3,906 Percent of Normal 98% 99% See footnote on page 30. 31
ATMOS ENERGY CORPORATION CONSOLIDATED OPERATING STATISTICS Twelve months ended June 30, 1997 1996 -------- -------- Sales Volumes -- MMcf (1) Residential 51,531 51,824 Commercial 22,040 21,625 Industrial (including agricultural) 29,023 42,917 Public authority and other 5,190 5,195 -------- -------- Total 107,784 121,561 Transportation Volumes -- MMcf (1) 29,566 26,032 -------- -------- Total Volumes Delivered - MMcf (1) 137,350 147,593 ======== ======== Operating Revenues (000's) Gas Sales Revenues Residential $276,030 $242,407 Commercial 104,695 90,088 Industrial (including agricultural) 92,551 123,314 Public authority and other 25,099 21,586 -------- -------- Total Gas Sales Revenues 498,375 477,395 Transportation Revenues 9,441 8,434 Other Revenues 5,011 5,307 -------- -------- Total Operating Revenues $512,827 $491,136 ======== ======== Average Gas Sales Revenues per Mcf $ 4.62 $ 3.93 Average Transportation Revenue per Mcf $ .32 $ .32 Cost of Gas per Mcf Sold $ 3.08 $ 2.56 HEATING DEGREE DAYS Weather Twelve months ended June 30, Service Sensitive ---------------------------- Area Customers % 1997 1996 Normal - - -------------- ----------- ----- ----- ------ Texas 45% 3,579 3,348 3,529 Kentucky 26% 4,202 4,628 4,339 Louisiana 13% 1,514 1,994 1,771 Colorado, Kansas and Missouri 16% 6,249 5,931 6,268 ---- System Average 100% 3,901 3,942 3,950 Percent of Normal 99% 100% See footnote on page 30. 32
PART II. OTHER INFORMATION Item 1. Legal Proceedings See Note 3 of notes to consolidated financial statements on pages 8, 9 and 10 herein for a description of legal proceedings. Item 5. Other Information The following officers have announced their plans to retire: H.F. Harber, Senior Vice President - Corporate Services, retired July 31, 1997. Jack W. Eversull, Vice President - Investor Relations, will retire effective December 3, 1997. Don James, Senior Vice President of Public Affairs, will retire effective December 31, 1997. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits A list of exhibits required by Item 601 of Regulation S-K and filed as part of this report is set forth in the Exhibits Index, which immediately precedes such exhibits. (b) Reports on Form 8-K The Company filed a Form 8-K Current Report, Item 5, Other Events, dated April 4, 1997, disclosing: (1) Robert F. Stephens and James F. Purser have resigned from Atmos' Board of Directors. (2) The Illinois hearing examiner in the regulatory proceeding in Illinois recommended, in a proposed order, that the Illinois Commerce Commission deny Atmos' and United Cities' petition to merge. The companies have an opportunity to respond to such proposed order and they remain optimistic that the Illinois Commission will ultimately approve the merger. (3) Larry J. Dagley has been appointed Executive Vice President and Chief Financial Officer of Atmos. He previously served as Senior Vice President and Chief Financial Officer of Pacific Enterprises, Chief Financial Officer of Transco Energy Company and as an audit partner with Arthur Andersen & Co. 33
The Company filed a Form 8-K Current Report, Item 5, Other Events, dated June 10, 1997, disclosing the following: (1) On June 10, 1997, Atmos, United Cities and the staff of the Illinois Commerce Commission jointly filed a proposed order, which if granted, would approve the merger of United Cities and Atmos. 2) The Illinois Commerce Commission issued an order dated June 25, 1997, approving the merger of United Cities and Atmos. 34
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ATMOS ENERGY CORPORATION (Registrant) Date: August 13, 1997 By: /s/ Larry J. Dagley ------------------------------ Larry J. Dagley Executive Vice President and Chief Financial Officer Date: August 13, 1997 By: /s/ David L. Bickerstaff ------------------------------ David L. Bickerstaff Vice President and Controller (Principal Accounting Officer) 35
EXHIBITS INDEX Item 6. (a) Page Number or Exhibit Incorporation Number Description by Reference to ------- -------------------------------------- --------------- 10.1 *Atmos Energy Corporation Supplemental Executive Benefits Plan (Amended and Restated in its entirety May 14, 1997) 10.2 *Consulting Agreement between the Company and Charles K. Vaughan, effective October 1, 1994 10.3 *Amendment No. 1 to Consulting Agreement between the Company and Charles K. Vaughan, dated May 14, 1997 15 Letter regarding unaudited interim financial information 27 Financial Data Schedule for Atmos Energy Corporation for the nine months ended June 30, 1997 * This exhibit constitutes a "management contract or compensatory plan, contract, or arrangement." 36