UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to _______________ Commission File Number 1-10042 ATMOS ENERGY CORPORATION (Exact name of registrant as specified in its charter) TEXAS AND VIRGINIA 75-1743247 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1800 Three Lincoln Centre 5430 LBJ Freeway, Dallas, Texas 75240 (Address of principal executive offices) (Zip Code) (972) 934-9227 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Number of shares outstanding of each of the issuer's classes of common stock, as of May 1, 2000. Class Shares Outstanding ----- ------------------ No Par Value 31,608,359 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements ATMOS ENERGY CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands) March 31, September 30, 2000 1999 ----------- ------------- ASSETS Property, plant and equipment $1,574,105 $1,549,258 Less accum. depreciation and amort. 606,716 583,476 ---------- ---------- Net property, plant and equipment 967,389 965,782 Current assets Cash and cash equivalents 22,994 8,585 Accounts receivable, net 119,116 70,564 Inventories of supplies and mdse. 8,199 8,209 Gas stored underground 19,013 44,653 Prepayments 2,381 3,142 ---------- ---------- Total current assets 171,703 135,153 Deferred charges and other assets 137,589 129,602 ---------- ---------- $1,276,681 $1,230,537 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Shareholders' equity Common stock $ 158 $ 156 Additional paid-in capital 300,053 293,359 Retained earnings 109,212 83,231 Accumulated other comprehensive income 2,753 917 ---------- ---------- Total shareholders' equity 412,176 377,663 Long-term debt 372,543 377,483 ---------- ---------- Total capitalization 784,719 755,146 Current liabilities Current maturities of long-term debt 14,475 17,848 Short-term debt 126,739 168,304 Accounts payable 83,963 64,167 Taxes payable 28,777 848 Customers' deposits 7,894 9,657 Other current liabilities 33,426 25,951 ---------- ---------- Total current liabilities 295,274 286,775 Deferred income taxes 117,643 112,610 Deferred credits and other liabilities 79,045 76,006 ---------- ---------- $1,276,681 $1,230,537 ========== ========== See accompanying notes to condensed consolidated financial statements. ATMOS ENERGY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share data) Three months ended March 31, ------------------------- 2000 1999 -------- -------- Operating revenues $314,197 $261,426 Purchased gas cost 196,070 149,031 -------- -------- Gross profit 118,127 112,395 Operating expenses Operation 34,609 37,562 Maintenance 1,845 1,156 Depreciation and amortization 16,490 13,800 Taxes, other than income 9,196 9,034 -------- -------- Total operating expenses 62,140 61,552 -------- -------- Operating income 55,987 50,843 Other income 1,688 2,355 Interest charges, net 11,027 8,166 -------- -------- Income before income taxes 46,648 45,032 Income taxes 17,075 16,237 -------- -------- Net income $ 29,573 $ 28,795 ======== ======== Basic net income per share $ .94 $ .95 ======== ======== Diluted net income per share $ .94 $ .94 ======== ======== Cash dividends per share $ .285 $ .275 ======== ======== Weighted average shares outstanding: Basic 31,332 30,449 ======== ======== Diluted 31,544 30,698 ======== ======== See accompanying notes to condensed consolidated financial statements. ATMOS ENERGY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share data) Six months ended March 31, ------------------------ 2000 1999 -------- -------- Operating revenues $538,655 $471,653 Purchased gas cost 330,978 268,050 -------- -------- Gross profit 207,677 203,603 Operating expenses Operation 67,691 73,440 Maintenance 4,187 3,827 Depreciation and amortization 32,990 27,400 Taxes, other than income 16,681 16,405 -------- -------- Total operating expenses 121,549 121,072 -------- -------- Operating income 86,128 82,531 Other income 5,646 4,075 Interest charges, net 22,244 17,239 -------- -------- Income before income taxes 69,530 69,367 Income taxes 25,633 25,192 -------- -------- Net income $ 43,897 $ 44,175 ======== ======== Basic net income per share $ 1.41 $ 1.45 ======== ======== Diluted net income per share $ 1.40 $ 1.44 ======== ======== Cash dividends per share $ .57 $ .55 ======== ======== Weighted average shares outstanding: Basic 31,226 30,361 ======== ======== Diluted 31,440 30,601 ======== ======== See accompanying notes to condensed consolidated financial statements. ATMOS ENERGY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) Six months ended March 31, ----------------------- 2000 1999 ------- ------- Cash Flows From Operating Activities Net income $43,897 $44,175 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization: Charged to depreciation and amortization 32,990 27,400 Charged to other accounts 2,290 2,100 Deferred income taxes 3,987 4,281 Net change in operating assets and liabilities 29,230 (4,625) ------- -------- Net cash provided by operating activities 112,394 73,331 Cash Flows From Investing Activities Capital expenditures (38,400) (51,130) Retirements of property, plant and equipment 1,513 (2,055) ------- -------- Net cash used in investing activities (36,887) (53,185) Cash Flows From Financing Activities Net increase(decrease) in short-term debt (41,565) 45,747 Cash dividends paid (17,916) (16,828) Repayment of long-term debt (8,313) (50,695) Issuance of common stock 6,696 11,504 ------- -------- Net cash used in financing activities (61,098) (10,272) ------- -------- Net increase in cash and cash equivalents 14,409 9,874 Cash and cash equivalents at beginning of period 8,585 4,735 ------- -------- Cash and cash equivalents at end of period $22,994 $14,609 ======= ======== See accompanying notes to condensed consolidated financial statements. ATMOS ENERGY CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) March 31, 2000 1. Unaudited interim financial information In the opinion of management, all material adjustments necessary for a fair presentation have been made to the unaudited interim period financial statements. Such adjustments consisted only of normal recurring accruals. Because of seasonal and other factors, the results of operations for the six month period ended March 31, 2000 are not indicative of expected results of operations for the year ending September 30, 2000. These interim financial statements and notes are condensed as permitted by the instructions to Form 10-Q, and should be read in conjunction with the audited consolidated financial statements of Atmos Energy Corporation ("Atmos" or the "Company") in its 1999 Annual Report on Form 10-K. Common stock - As of March 31, 2000, the Company had 100,000,000 shares of common stock, no par value (stated at $.005 per share), authorized and 31,582,305 shares outstanding. At September 30, 1999, the Company had 31,247,800 shares outstanding. Comprehensive income - In accordance with Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income", the Company is required to report comprehensive income and its components (revenues, expenses, gains and losses) in its financial statements. Comprehensive income includes all changes, except those resulting from investments by owners and distributions to owners, in the equity of a business enterprise from transactions and other events including, as applicable, foreign-currency items, minimum pension liability adjustments and unrealized gains and losses on certain investments in debt and equity securities. The following table presents the components of comprehensive income, net of related tax, for the three-month and six-month periods ended March 31, 2000. Three months ended Six months ended March 31, 2000 March 31, 2000 ------------------ ---------------- (In thousands) Net income $29,573 $43,897 Unrealized holding gains on investments 391 1,836 ------- ------- Comprehensive income $29,964 $45,733 ======= ======= The only component of accumulated other comprehensive income, net of related tax, at March 31, 2000, relates to unrealized gains and losses associated with certain available for sale investments. Total accumulated other comprehensive income at March 31, 2000, was $2.8 million. 2. Rates The Company's ratemaking activity over the three-year period ended September 30, 1999 was discussed in Note 3 of notes to consolidated financial statements in the Company's Form 10-K for the year ended September 30, 1999. New developments in ratemaking activity since September 30, 1999 are discussed below. In May 1999, the Western Kentucky Division requested from the Kentucky Public Service Commission ("KPSC") an increase in revenues of approximately $14.1 million, a weather normalization adjustment and changes in rate design to shift a portion of revenues from commodity charges to fixed rates. In December 1999, the KPSC granted an increase in annual revenues of approximately $9.9 million to the Western Kentucky Division. The new rates were effective for services rendered on or after December 21, 1999. In addition, the KPSC approved a five-year pilot program for weather normalization beginning in November 2000. This program will be similar to the Company's program in Georgia and Tennessee and will be in effect from November through April. The Western Kentucky Division serves approximately 180,000 customers in Kentucky. In August 1999, the Energas Division filed rate cases in its West Texas System cities and Amarillo, Texas, requesting rate increases of approximately $8.8 million and $4.4 million, respectively. In December 1999, the City of Amarillo, Texas, granted an increase in annual revenues of approximately $2.05 million in base rates plus an increase of $.1 million in service charges to the Energas Division. The new rates became effective for bills rendered on or after January 1, 2000. The increase in service charges allows the Energas Division to recover a larger portion of the actual cost of service calls. In addition, rate design was restructured to reduce the impact of warmer than normal weather and a zero-based gas cost adjustment was implemented to position the Energas Division for possible future deregulation. The Company and the West Texas System cities could not agree on the amount of a rate increase, and the Company appealed to the Railroad Commission of Texas, with a final resolution expected in September 2000. In January 2000, the Company requested an increase of approximately $48,000 in the environs area outside the city limits of Amarillo and will likewise request an increase of approximately $1.0 million in the environs of the West Texas System cities when that case is settled. Rates in areas outside the city limits in Texas are subject to the jurisdiction of the Railroad Commission of Texas. At this time, management cannot predict the outcome of these rate proceedings. In February 2000, the United Cities Gas Division filed a rate case in Illinois with the Illinois Commerce Commission requesting an increase in revenues of approximately $3.1 million. The Illinois Commerce Commission is currently in the process of reviewing this request. The Company expects this process to be completed and new rates implemented in January 2001. In addition, in March 2000, the United Cities Gas Division filed a rate case in Virginia with the State Corporation Commission of the Commonweath of Virginia requesting an increase in revenues of approximately $2.3 million. The State Corporation Commission of Virginia is currently in the process of reviewing the filing to determine if it meets the appropriate rules and regulations. Once the Commission accepts the filing, they will have five months to make the final decision. The Company expects this increase to be effective in the fall of 2000. At this time, management cannot predict the outcome of these rate proceedings. 3. Contingencies Litigation Greeley Division In Colorado, the Greeley Division has been 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 claimed 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 appealed the judgment to the Colorado Court of Appeals, which reversed the trial court verdict and ordered a new trial. The Colorado Supreme Court upheld the Court of Appeals reversal and order for a new trial. As previously reported, as a result of mediation, a settlement had been reached with five of the claimants, leaving only three remaining claimants with aggregate claims of approximately $2 million. On April 7, 2000, as a result of mediation, the Company agreed to settle with the three remaining claimants for an aggregate total of $1.5 million, which amounts are to be paid by the Company's insurance carrier, thus effectively concluding this litigation against the Company. On September 23, 1999, a suit was filed in the District Court of Stevens County, Kansas, by Quinque Operating Company, Tom Boles and Robert Ditto, against more than 200 companies in the natural gas industry, including the Company and the Greeley Gas Division. The plaintiffs, who purport to represent a class consisting of gas producers, royalty owners, overriding royalty owners, working interest owners and state taxing authorities, accuse the defendants of underpaying royalties on gas taken from wells situated on non-federal and non-Indian lands throughout the United States and offshore waters predicated upon allegations that the defendants' gas measurements are simply inaccurate and that the defendants failed to comply with applicable regulations and industry standards over the last 25 years. Although the plaintiffs do not specifically allege an amount of damages, they contend that this suit is brought to recover billions of dollars in revenues that the defendants have allegedly unlawfully diverted from the plaintiffs to themselves. On April 10, 2000, this case was consolidated for pre-trial proceedings with other similar pending litigation in federal court in Wyoming in which the Company is also a defendant along with over 200 other defendants in the case of In Re Natural Gas Royalties Quitam Litigation. The Company believes that the plaintiffs' claims are lacking in merit and intends to vigorously defend this action. However, the Company cannot assess, at this time, the likelihood of whether or not the plaintiffs may prevail on any one or more of their asserted claims. In any event, the Company does not expect the final outcome of this case to have a material adverse effect on the financial condition, the results of operations or the net cash flows of the Company because the Company believes that it has adequate reserves to cover any damages that may ultimately be awarded. The Company is a party to other litigation matters and claims that arise out of the ordinary business of the Company. While the results of these litigation matters and claims cannot be predicted with certainty, the Company does not believe the final outcome of such litigation and claims will have a material adverse effect on the financial condition, the results of operations or the cash flows of the Company because the Company believes that it has adequate insurance and reserves to cover any damages that may ultimately be awarded. Guarantees The Company's wholly-owned subsidiary, Atmos Energy Marketing, LLC ("AEM"), and Woodward Marketing, Inc. ("WMI"), sole members of Woodward Marketing, LLC ("WMLLC"), act as guarantors of up to $12.5 million of balances outstanding under a $30.0 million bank credit facility for WMLLC. AEM guarantees the payment of up to approximately $5.6 million of borrowings under this facility. At March 31, 2000, $15.2 million was outstanding under this credit facility. AEM and WMI also act as joint and several guarantors on payables of WMLLC up to $40.0 million of natural gas purchases and transportation services from suppliers. WMLLC payable balances outstanding that were subject to these guarantees amounted to $6.1 million at March 31, 2000. Environmental Matters The United Cities Division is the owner or previous owner of manufactured gas plant sites in Keokuk, Iowa; Johnson City and Bristol, Tennessee; and Hannibal, Missouri, which were used to supply gas prior to availability of natural gas. The gas manufacturing process resulted in certain by-products and residual materials including coal tar. The manufacturing process used by the Company was an acceptable and satisfactory process at the time such operations were being conducted. Under current environmental protection laws and regulations, the Company may be responsible for response actions with respect to such materials, if response actions are necessary. As of March 31, 2000, the Company had accrued and deferred for recovery $1.1 million, including $258,000 that was incurred for an insurance recoverability study, and $750,000 for the investigations of the Johnson City and Bristol, Tennessee and Hannibal, Missouri sites. As of March 31, 2000, the Company has incurred costs of approximately $631,000 for these sites. Iowa sites In June 1995, United Cities Gas Company ("UCGC") entered into an agreement to pay $1.8 million to Union Electric Company, now Ameren, whereby Union Electric agreed to assume responsibility for UCGC's continuing investigation and environmental response action obligations as outlined in the feasibility study related to a former manufactured gas plant in Keokuk. The $1.8 million was paid in five annual installments, with the last installment being paid in July 1999. In a rate case effective June 1, 1996, UCGC began collecting increased rates, which included a 10-year amortization of the $1.8 million payment to Union Electric. Tennessee sites UCGC and the Tennessee Department of Environment and Conservation ("TDEC") entered into a consent order effective January 23, 1997, for the purpose of facilitating the investigation, removal and remediation of the Johnson City site. UCGC began the implementation of the consent order in the first quarter of 1997, which continued through March 31, 2000. In March 1998, UCGC submitted a Preliminary Site Investigation Report to the TDEC. From October 1999 through February 2000, Phase II remedial investigation fieldwork was conducted pursuant to the consent order. A Phase II Remedial Investigation Report was submitted to the TDEC on April 25, 2000. The Company is unaware of any information that suggests the Bristol site would give rise to a present health or environmental risk as a result of the manufactured gas process or that any response action will be necessary. The Tennessee Regulatory Authority granted UCGC permission to defer, until its next rate case, all costs incurred in Tennessee in connection with state and federally mandated environmental control requirements. Missouri sites On July 22, 1998, Atmos entered into an Abatement Order on Consent with the Missouri Department of Natural Resources addressing the former manufactured gas plant located in Hannibal, Missouri. Atmos, through its United Cities Division, agreed in the order to perform a removal action, a subsequent site evaluation and to reimburse the response costs incurred by the state of Missouri in connection with the property. The removal action was conducted and completed in August 1998. The site evaluation fieldwork was conducted from August through December 1999. On March 9, 1999, the Missouri Public Service Commission issued an order authorizing Atmos to defer the costs associated with this site. The order is effective for two years. Kansas sites Atmos is currently conducting investigation and remediation activities pursuant to Consent Orders between the Kansas Department of Health and Environment ("KDHE") and UCGC. The Orders provide for the investigation and remediation of mercury contamination at gas pipeline sites, which utilize or formerly utilized mercury meter equipment in Kansas. As of March 31, 2000, the Company had identified approximately 720 sites where mercury may have been used and had incurred $100,000 for recovery. In addition, based upon available current information, the Company accrued and deferred for recovery an additional $271,000 for the investigation of these sites. The Kansas Corporation Commission has authorized the Company to defer these costs and seek recovery in a future rate case. The Company is a party to other environmental matters and claims that arise out of the ordinary business of the Company. While the ultimate results of response actions to these environmental matters and claims cannot be predicted with certainty, the Company does not believe the final outcome of such response actions will have a material adverse effect on the financial condition, the results of operations or the cash flows of the Company because the Company believes that the expenditures related to such response actions will either be recovered through rates, shared with other parties, or covered by adequate insurance or reserves. 4. Short-term debt At March 31, 2000, short-term debt was composed of $116.6 million of commercial paper and $10.1 million outstanding under bank credit facilities. The Company has two short-term committed credit facilities. One short-term unsecured credit facility is for $250.0 million. No amounts were outstanding under this facility at March 31, 2000. A second facility is for $12.0 million with $10.1 million outstanding at March 31, 2000. The Company also has unsecured short-term uncommitted credit lines totaling $74.0 million. No borrowings were outstanding under these lines at March 31, 2000. The Company has a $250.0 million commercial paper program that is supported by the $250.0 million committed line of credit described above. 5. Statements of cash flows Supplemental disclosures of cash flow information for the six- month periods ended March 31, 2000 and 1999 are presented below. Six months ended March 31, ---------------------- 2000 1999 ------- ------- (In thousands) Cash paid (received) for Interest $22,618 $20,833 Income taxes (6,906) 13,374 6. Earnings per share Basic earnings per share has been computed by dividing net income available to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share has been computed by dividing net income available to common stockholders for the period by the weighted average number of common shares outstanding during the period adjusted for the assumed exercise of restricted stock and other contingently issuable shares of common stock. Net income for basic and diluted earnings per share are the same, as there are no contingently issuable shares of stock whose issuance would have impacted net income. A reconciliation between basic and diluted weighted average common shares outstanding follows: For the three months ended March 31, -------------------------- 2000 1999 ------ ------ (Thousands of shares) Weighted average common shares - basic 31,332 30,449 Effect of dilutive securities: Restricted stock 207 243 Stock options 5 6 ------ ------ Weighted average common shares - assuming dilution 31,544 30,698 ====== ====== For the six months ended March 31, -------------------------- 2000 1999 ------ ------ (Thousands of shares) Weighted average common shares - basic 31,226 30,361 Effect of dilutive securities: Restricted stock 207 234 Stock options 7 6 ------ ------ Weighted average common shares - assuming dilution 31,440 30,601 ====== ====== 7. Segment Information In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", the Company has identified the following three segments: Utility, Propane and Energy Services. For a more complete description of these segments, please refer to Note 1 of notes to consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended September 30, 1999. Summarized financial information concerning the Company's reportable segments for the three months and six months ended March 31, 2000 and 1999 is shown in the following table: Energy Utility Propane Services Total ---------- ------- -------- -------- (In thousands) As of and for the three months ended March 31, 2000: - ------------------- Operating revenues $ 283,922 $11,603 $20,276 $ 315,801 Intersegment revenues 708 - 896 1,604 Net income 26,486 967 2,120 29,573 Energy Utility Propane Services Total ---------- ------- -------- -------- (In thousands) As of and for the three months ended March 31, 1999: - ------------------- Operating revenues $ 239,502 $10,026 $12,682 $ 262,210 Intersegment revenues 784 - - 784 Net income 24,918 1,306 2,571 28,795 Energy Utility Propane Services Total ---------- ------- -------- -------- (In thousands) As of and for the six months ended March 31, 2000: - ------------------- Operating revenues $ 493,218 $19,441 $29,067 $ 541,726 Intersegment revenues 1,304 - 1,767 3,071 Net income 37,590 1,389 4,918 43,897 Total assets 1,181,535 17,069 81,955 1,280,559 Energy Utility Propane Services Total ---------- ------- -------- -------- (In thousands) As of and for the six months ended March 31, 1999: - ------------------- Operating revenues $ 436,484 $17,321 $19,096 $ 472,901 Intersegment revenues 1,248 - - 1,248 Net income 39,290 1,716 3,169 44,175 Total assets 1,136,132 23,687 76,370 1,236,189 The following tables present a reconciliation of the operating revenues by segment to total consolidated revenues for the three months and six months ended March 31, 2000 and 1999. Three months ended March 31, -------------------- 2000 1999 -------- -------- (In thousands) Total revenues for reportable segments $315,801 $262,210 Elimination of intersegment revenues (1,604) (784) -------- -------- Total consolidated operating revenues $314,197 $261,426 ======== ======== Six months ended March 31, -------------------- 2000 1999 -------- -------- (In thousands) Total revenues for reportable segments $541,726 $472,901 Elimination of intersegment revenues (3,071) (1,248) -------- -------- Total consolidated operating revenues $538,655 $471,653 ======== ======== A reconciliation of total assets for the reportable segments to total consolidated assets for March 31, 2000 and 1999 is presented below. March 31, ---------------------- 2000 1999 ---------- ---------- (In thousands) Total assets for reportable segments $1,280,559 $1,236,189 Elimination of intercompany receivables (3,878) (14,526) ---------- ---------- Total consolidated assets $1,276,681 $1,221,663 ========== ========== 8. Related party transactions Atmos owns a 45% interest in Woodward Marketing, LLC, a limited liability company headquartered in Houston, Texas, which is engaged in gas marketing and energy services. The Company holds its interest in WMLLC through its ownership of Atmos Energy Marketing, LLC. Included in purchased gas cost were purchases from WMLLC of approximately $50.3 million and $42.1 million for the three-month periods ended March 31, 2000 and 1999, respective ly, and approximately $98.7 million and $62.8 million for the six- month periods ended March 31, 2000 and 1999, respectively. 9. Recently issued accounting standards not yet adopted The Company has not yet adopted Statement of Financial Accounting Standards No. 133 " Accounting for Derivative Instruments and Hedging Activities." The Statement will be effective for the Company's fiscal year 2001. It establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The Statement does not allow retroactive application to financial statements of prior periods. The Company's management is currently in the process of evaluating the impact of adopting this statement on its reported financial condition, results of operations and cash flows. 10. Subsequent event Subsequent to March 31, 2000, the Company entered into a definitive agreement to acquire the Louisiana gas operations of Louisiana Gas Service Company, a division of Citizens Utilities Company, and LGS Natural Gas Company, a subsidiary of Citizens Utilities Company. Under the terms of the agreement, the Company will purchase the assets of Louisiana Gas Service Company and LGS Natural Gas Company for $375.0 million. This transaction, which will add approximately 279,000 customers, is expected to be completed within 12 months, subject to approval by the Louisiana Public Service Commission and compliance with the Hart-Scott Rodino Act. INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors Atmos Energy Corporation We have reviewed the accompanying condensed consolidated balance sheet of Atmos Energy Corporation as of March 31, 2000, and the related condensed consolidated statements of income and cash flows for the three-month and six-month periods ended March 31, 2000 and 1999. 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 in the United States, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements at March 31, 2000, and for the three-month and six-month periods ended March 31, 2000 and 1999 for them to be in conformity with generally accepted accounting principles in the United States. We have previously audited, in accordance with generally accepted auditing standards in the United States, the consolidated balance sheet of Atmos Energy Corporation as of September 30, 1999, 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 9, 1999, 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, 1999, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. ERNST & YOUNG LLP Dallas, Texas April 26, 2000 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction The following discussion should be read in conjunction with the condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q and Management's Discussion and Analysis contained in the Company's 1999 Annual Report to Shareholders and the Company's Annual Report on Form 10-K for the year ended September 30, 1999. The Company distributes and sells natural gas and propane to residential, commercial, industrial and agricultural customers in thirteen states. Such business is subject to regulation by state and/or local authorities in each of the states in which the Company operates. In addition, the Company's business is affected by seasonal weather patterns, competitive factors within the energy industry, and economic conditions in the areas that the Company serves. Cautionary Statement under the Private Securities Litigation Reform Act of 1995 The matters discussed or incorporated by reference in this Quarterly Report on Form 10-Q may contain "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts included in this Quarterly Report including, but not limited to, those contained in the following sections, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations", and Note 3 to condensed consolidated financial statements, regarding the Company's financial position, business strategy and plans and objectives of management of the Company for future operations, are forward-looking statements made in good faith by the Company and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. When used in this Report or in any of the Company's other documents or oral presentations, the words "anticipate," "expect," "estimate," "plans," "believes," "objective," "forecast," "goal" or similar words are intended to identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the statements relating to the Company's operations, markets, services, rates, recovery of costs, availability of gas supply, and other factors. These risks and uncertainties include, but are not limited to, national, regional and local economic competitive conditions, regulatory and business trends and decisions, technological developments, inflation rates, weather conditions, and other uncertainties, all of which are difficult to predict and many of which are beyond the control of the Company. Accordingly, while the Company believes that the expectations reflected in the forward-looking statements are reasonable, there can be no assurance that such expectations will be realized or will approximate actual results. Ratemaking Activity During the six months ended March 31, 2000, the Western Kentucky Division received a rate increase in Kentucky of approximately $9.9 million in annual revenues, effective December 21, 1999, and a five-year weather normalization pilot program beginning in November 2000. The Energas Division received an increase in annual revenues of approximately $2.05 million in base rates plus an increase of $.1 million in service charges in Amarillo, Texas, effective for bills rendered on or after January 1, 2000. The agreement also provided for changes in rate structure to reduce the impact of warmer than normal weather and to improve the recovery of the actual cost of service calls. The Energas Division's request for an annual increase of $8.8 million from the 67 cities served by its West Texas System could not be settled. In March 2000, it was appealed to the Railroad Commission of Texas, with a final decision expected in September 2000. Upon the settlement of these cases, the Railroad Commission is expected to act upon requests for similar increases totaling approximately $1.05 million in the environs outside Amarillo and the West Texas System cities. In February 2000, the United Cities Gas Division filed a rate case in Illinois for $3.1 million and in March 2000, filed a rate case in Virginia for $2.3 million. For further information regarding rate activity, see Note 2 of notes to condensed consolidated financial statements. The Company continues to monitor rates in all its service areas for recovery of its service costs and an adequate return on its investment. Weather and Seasonality The Company's natural gas and propane distribution businesses are seasonal due to weather conditions in the Company's service areas. Sales are affected by winter heating season requirements. Sales to agricultural customers (who use natural gas as fuel in the operation of irrigation pumps) during the period from April through September are affected by rainfall amounts. These factors generally result in higher operating revenues and net income during the period from October through March of each year and lower operating revenues and either net losses or lower net income during the period from April through September of each year. Weather for the six months ended March 31, 2000 was 19% warmer than normal and 3% warmer than weather in the corresponding period of the prior year. Decreased sales to weather sensitive customers reduced net income for the six months ended March 31, 2000 by approximately $26.7 million or $.85 per diluted share. The Company has weather normalization adjustments ("WNAs") in Georgia and Tennessee, where it serves approximately 186,000 customers or approximately 18% of the Company's total customers and revenues. The WNAs increase the base rate when weather is warmer than normal and decrease it when weather is colder than normal. The effect of the WNAs was to increase revenues approximately $3.9 million for the six months ended March 31, 2000, as compared with an increase of approximately $4.4 million for the six months ended March 31, 1999. The Company did not have WNAs in its other service areas during the six months ended March 31, 2000. Status of Pending Acquisitions and Joint Venture On April 13, 2000, the Company announced a definitive agreement to acquire the assets of Louisiana Gas Service Company, a division of Citizens Utilities Company and LGS Natural Gas Company, a subsidiary of Citizens Utilities Company. Under the terms of the agreement, Atmos will purchase the assets of the companies for $375.0 million. The transaction would be accounted for as a purchase. Bridge financing will be provided by a bank credit facility. The transaction is expected to close within 12 months and is subject to approval by the Louisiana Public Service Commission and compliance with the Hart-Scott Rodino Act. With this acquisition Atmos will become the largest natural gas distributor in the state of Louisiana with approximately 359,000 customers. In February 2000, the Company announced that it had entered into an agreement to form a joint venture which combines its United Cities Propane Gas operations with the propane operations of AGL Resources, Inc., Atlanta, Georgia; Piedmont Natural Gas Company, Inc., Charlotte, North Carolina; and TECO Energy, Tampa, Florida. The combined entity, to be named US Propane, L.P., will be among the 10 largest propane retailers in the nation with nearly 200,000 customers. Focused on the Southeast, US Propane will have operations in Alabama, Florida, Georgia, Kentucky, North Carolina, South Carolina and Tennessee. The participating companies expect the transaction to be completed in the summer of 2000. In October 1999, the Company entered into a definitive agreement with Southwestern Energy Company ("Southwestern") to acquire the Missouri natural gas distribution assets of Associated Natural Gas, a division of Arkansas Western Gas, which is a wholly- owned subsidiary of Southwestern. Under the terms of the agreement, the Company will purchase the Missouri gas system for approximately $32.0 million in cash plus working capital adjustments. This transaction, which will add approximately 48,000 customers, is expected to be completed June 1, 2000. The Company has received approvals from the Missouri Public Service Commission and the Federal Energy Regulatory Commission. FINANCIAL CONDITION For the six months ended March 31, 2000 net cash provided by operating activities totaled $112.4 million compared with $73.3 million for the six months ended March 31, 1999. Net income decreased $.3 million to $43.9 million for the six months ended March 31, 2000 from $44.2 million for the six months ended March 31, 1999. Depreciation and amortization increased $5.6 million for the six months ended March 31, 2000 because of utility property additions placed in service during the past year. Net operating assets and liabilities decreased $29.2 million for the six months ended March 31, 2000 compared with an increase of $4.6 million for the six months ended March 31, 1999. This decrease in net operating assets and liabilities resulted primarily from large fluctuations in accounts receivable, accounts payable and inventories of gas in underground storage that occur when entering and leaving the winter or heating season. It also reflected an increase of $7.5 million in other current liabilities related to borrowing storage gas inventories. Major cash flows used in investing activities for the six months ended March 31, 2000 included capital expenditures of $38.4 million compared with $51.1 million for the six months ended March 31, 1999. The capital expenditures budget for fiscal 2000 is approximately $75.0 million, as compared with actual capital expenditures of $110.4 million in fiscal 1999. The capital budget and capital expenditures are lower for 2000 than for 1999 because the Company's major technology projects were completed in 1999. Also, non-essential capital expenditures are being postponed in fiscal 2000 under the Company's warm winter weather plan. Budgeted capital projects for fiscal 2000 include major expenditures for mains, services, meters, vehicles and computer software and equipment. These expenditures will be financed from internally generated funds and financing activities. For the six months ended March 31, 2000, cash flows used by financing activities amounted to $61.1 million as compared with $10.3 million for the six months ended March 31, 1999. During the six-month period ended March 31, 2000, commercial paper and short- term debt decreased $41.6 million, as compared with an increase of $45.7 million for the six months ended March 31, 1999, due to seasonal factors, project costs of the Customer Service Initiative and the implementation of Oracle financials in fiscal 1999. Payments of long-term debt totaled $8.3 million for the six months ended March 31, 2000, as compared with $50.7 million for the six months ended March 31, 1999. The Company paid $17.9 million in cash dividends during the six months ended March 31, 2000, compared with dividends of $16.8 million paid during the six months ended March 31, 1999. This reflects increases in the quarterly dividend rate and in the number of shares outstanding. In the six months ended March 31, 2000, the Company issued 334,505 shares of common stock. The following table presents the number of shares issued under the various plans for the six-month periods ended March 31, 2000 and 1999. Six months ended March 31, --------------------- 2000 1999 ------- ------- Shares issued: Restricted Stock Grant Plan - 56,850 Employee Stock Ownership Plan 118,277 21,291 Direct Stock Purchase Plan 215,101 349,307 Outside Directors Stock-for-Fee Plan 1,127 824 United Cities Long-term Stock Plan - 1,250 ------- ------- Total shares issued 334,505 429,522 ======= ======= The Company believes that internally generated funds, its short-term credit facilities, commercial paper program 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 2000. At March 31, 2000 the Company had $262.0 million in committed short-term credit facilities, of which $10.1 million was outstanding and $116.6 million supported commercial paper outstanding. The committed lines of credit are renewed or renegotiated at least annually. At March 31, 2000, the Company also had $74.0 million of uncommitted short-term lines of credit, all of which was unused. The Company plans to finance the $32.0 million Missouri acquisition closing on June 1, 2000 from its commercial paper program. A bank has provided a $385.0 million credit facility for bridge financing for the Louisiana acquisition which will terminate when the Company completes permanent financing or as of August 2001. In December 1999, the Company filed a universal shelf registration statement with the Securities and Exchange Commission ("SEC") to issue, from time to time, up to $500 million in new common stock and/or debt. The Company also filed applications for approval to issue securities with six state utility commissions. The Company has received approvals from five of the six required states and expects to receive the final state approval in the near future. Once the shelf filing is declared effective by the SEC and is approved by the various state utility commissions, the Company will be authorized to "take securities off the shelf" and issue them to investors and lenders. The proceeds are planned to be used for general corporate purposes, including acquisitions, debt repayment, and other business-related matters. The universal shelf should provide the Company with greater flexibility in its financing options. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2000, COMPARED WITH THREE MONTHS ENDED MARCH 31, 1999 Operating revenues increased by 20% to $314.2 million for the three months ended March 31, 2000 from $261.4 million for the three months ended March 31, 1999. The most significant factor contributing to the increase in operating revenues was a higher average sales price due to rate increases and the pass through of higher gas cost. Rate increases were implemented in Kentucky in December 1999 and in Amarillo, Texas in January 2000. The impact of a higher average sales price was partially offset by lower sales volumes due to warmer winter weather. During the quarter ended March 31, 2000, temperatures were 4% warmer than in the corresponding quarter of the prior year, and were 21% warmer than the 30-year normal weather for the quarter. The total volume of gas sold and transported for the three months ended March 31, 2000 was 70.1 billion cubic feet ("Bcf") compared with 71.5 Bcf for the three months ended March 31, 1999. The average sales price per Mcf sold increased $1.01 to $5.29 due to an increase in the average cost of gas and the rate increases. The average cost of gas per Mcf sold increased 33% to $3.36 for the three months ended March 31, 2000 from $2.52 for the three months ended March 31, 1999 due to decreased supply availability in the current market. Changes in cost of gas do not directly affect the Company's gross profit. Gross profit increased by 5% to $118.1 million for the three months ended March 31, 2000, from $112.4 million for the three months ended March 31, 1999. The increase in gross profit was primarily due to the increase in average sales price. Also, transportation revenues increased $.9 million due to an increase of .9 Bcf in transportation volumes and an increase of $.04 in average transportation revenue per Mcf. Operating expense increased 1% to $62.1 million for the three months ended March 31, 2000 from $61.6 million for the three months ended March 31, 1999. The major factors contributing to the increase were the $2.7 million increase in depreciation and amortization and the $.7 million increase in maintenance expenses. The increase in depreciation and amortization was due to technology improvements placed in service in 1999. The increase in maintenance expense was due to increased material and supplies expense, outside services and rents. This increase was offset by the $3.25 million litigation settlement recorded in the three months ended March 31, 1999. Operating income increased 10% for the three months ended March 31, 2000 to $56.0 million from $50.8 million for the three months ended March 31, 1999. The increase in operating income resulted from increased operating revenues and gross profit, as discussed above. Other income decreased $.7 million for the three months ended March 31, 2000 compared with the three months ended March 31, 1999 primarily due to a decrease in the earnings recorded from the Company's 45 percent interest in Woodward Marketing, LLC. Propane statistics for the three months ended March 31, 2000 and 1999 are included in the "Operating Statistics" tables which appear at the end of Management's Discussion and Analysis. The propane operation sold 10.1 million gallons of propane for the three months ended March 31, 2000, as compared with 10.6 million gallons for the three months ended March 31, 1999. The decrease of $.3 million in propane net income for the three months ended March 31, 2000 compared with the same period last year was the result of lower sales volumes due to comparatively warmer winter weather. Propane customers at March 31, 2000 increased 2,365, or 6%, as compared with March 31, 1999. Interest expense increased $2.9 million, or 35%, for the three months ended March 31, 2000 compared with the three months ended March 31, 1999. The increase was primarily due to approximately $1.8 million of interest capitalized in connection with the Customer Service Initiative in process during the three months ended March 31, 1999, as well as higher rates and average short- term balances outstanding during the three months ended March 31, 2000. Net income increased for the three months ended March 31, 2000 by $.8 million to $29.6 million from $28.8 million for the three months ended March 31, 1999. This increase in net income resulted primarily from the increase in gross profit discussed above. SIX MONTHS ENDED MARCH 31, 2000, COMPARED WITH SIX MONTHS ENDED MARCH 31, 1999 Operating revenues increased by 14% to $538.7 million for the six months ended March 31, 2000 from $471.7 million for the six months ended March 31, 1999. The primary factor contributing to the higher operating revenues was a 19% increase in the average gas sales revenue per Mcf. The higher sales price reflects the rate increases discussed in Note 2 of notes to condensed consolidated financial statements and a 27% increase in the average cost of gas per Mcf sold, which is passed through to the customer and does not affect gross profit. The increase in revenues due to increased average sales price was partially offset by lower throughput due to warmer winter weather. Total volumes delivered decreased 3.0 Bcf or 2% for the six months ended March 31, 2000, as compared with the six months ended March 31, 1999. The volume transported increased 1.0 Bcf compared with the six months ended March 31, 1999 due to switching from sales to transportation service by some industrial customers. Sales volumes decreased 4.0 Bcf for the six months ended March 31, 2000 compared with the corresponding period of the prior year due to warmer weather. Sales revenues from all customer classes increased due to higher sales prices. Weather in the Company's service areas was 3% warmer than weather in the corresponding six-month period of the prior fiscal year, and 19% warmer than 30-year normal weather. The average sales price per Mcf increased to $5.31 for the six months ended March 31, 2000 from $4.47 for the six months ended March 31, 1999. The increase in the average sales price reflects an increase in the average cost of gas. The average cost of gas per Mcf sold increased to $3.36 for the six months ended March 31, 2000 from $2.65 for the six months ended March 31, 1999 because of generally higher gas supply costs. The increased cost of gas did not directly affect gross profit. Gross profit increased 2% to $207.7 million for the six months ended March 31, 2000, compared with $203.6 million for the six months ended March 31, 1999. This increase was primarily due to rate increases implemented in Kentucky and Amarillo, Texas. Operating expenses increased slightly to $121.5 million in the six months ended March 31, 2000, from $121.1 million in the six months ended March 31, 1999. The increase was primarily due to an increase of $5.6 million in depreciation and amortization for the six months ended March 31, 2000. The increase in depreciation related to utility plant additions placed in service during fiscal 1999. The increases in depreciation and amortization, maintenance expense and taxes other than income were partially offset by a decrease of $5.7 million in operation expense for the six months ended March 31, 2000. The decrease in operation expense resulted from savings of approximately $2.5 million as a result of the Company's warm winter plan for the six months ended March 31, 2000 and the $3.25 million litigation settlement which was recorded in the six months ended March 31, 1999. Operating income increased for the six months ended March 31, 2000 to $86.1 million from $82.5 million for the six months ended March 31, 1999. The increase in operating income was primarily related to the increased operating revenues and related gross profit, as discussed above. Other income increased $1.6 million for the six months ended March 31, 2000 compared with the six months ended March 31, 1999 due to an increase of $1.7 million in the earnings from the Company's 45 percent interest in Woodward Marketing, LLC ("WMLLC"). This improvement is a result of growth in WMLLC's core pre-tax earnings and net unrealized gains calculated in accordance with Emerging Issues Task Force 98-10. The propane operation sold 16.5 million gallons of propane for the six months ended March 31, 2000, as compared with 16.7 million gallons for the six months ended March 31, 1999. Gross profit decreased $.8 million for the six months ended March 31, 2000 compared with the same period last year due to a combination of factors including warmer weather and a lower average profit margin due to comparatively higher cost of supply. Interest charges increased $5.0 million, or 29%, due to higher average interest rates and debt outstanding for the six months ended March 31, 2000, as well as capitalized interest of $3.7 recorded on technology projects in process for the six months ended March 31, 1999. Net income decreased 1% for the six months ended March 31, 2000, to $43.9 million from $44.2 million for the six months ended March 31, 1999. The decrease in net income resulted from increased interest charges and the decrease in operating revenues which resulted from 3% warmer weather in fiscal 2000. The Company estimates that the impact of the weather being 19% warmer than normal for the six months ended March 31, 2000 caused net income to be approximately $26.7 million less than it would have been had the Company experienced normal temperatures and rainfall in its respective service areas. Dividends per share increased approximately 4% to $.57 for the six months ended March 31, 2000. Diluted average shares outstanding increased 3% due to shares issued under the Employee Stock Ownership Plan and the Direct Stock Purchase Plan. Total natural gas meters and propane customers at March 31, 2000 increased 22,559, or 2%, compared with March 31, 1999. March 31, -------------------------- 2000 1999 ---------- ---------- Meters-in-service at end of period Residential 925,293 906,945 Commercial 98,338 95,724 Public authority and other 7,427 6,553 Industrial (including agricultural) 14,513 16,155 --------- ---------- Total meters 1,045,571 1,025,377 Propane customers 41,273 38,908 --------- ---------- Total 1,086,844 1,064,285 ========= ========== UTILITY, PROPANE AND ENERGY SERVICES OPERATING DATA Atmos' Utility business is conducted by the Company's regulated utility divisions: Energas Division, Greeley Gas Division, Trans La Division, United Cities Division, Western Kentucky Division as well as Shared Services. The Propane business is conducted through United Cities Propane and includes wholesale and retail propane sales to approximately 41,000 customers in four states. As discussed under "Status of Pending Acquisitions and Joint Venture," Atmos has entered into an agreement with three other companies to form a joint venture to combine United Cities Propane Gas with the propane operations of the other companies. The combined entity will be named US Propane, L.P. The transaction is expected to be completed in the summer of 2000. The Energy Services business includes non- regulated irrigation sales, energy services to large volume customers, non-regulated underground storage operations, a 45% interest in Woodward Marketing, LLC, leasing of real estate, vehicles and appliances and non-regulated shared services. The following tables of operating statistics by segment summarizes data of the utility, propane, and energy services segments of the Company for the three-month and six-month periods ended March 31, 2000 and 1999. For further information regarding operating results of the segments, see Note 7 of notes to condensed consolidated financial statements. ATMOS ENERGY CORPORATION CONSOLIDATED OPERATING STATISTICS Three months ended March 31, 2000 1999 Sales volumes -- MMcf(1) -------- -------- Residential 29,612 31,378 Commercial 12,588 13,069 Public authority and other 2,462 2,275 Industrial (including agricultural) 9,245 9,492 ------- ------ Total 53,907 56,214 Transportation volumes -- MMcf(1) 16,211 15,265 ------- ------ TOTAL THROUGHPUT - MMcf (1) 70,118 71,479 ======= ====== Propane - Gallons (000's) 10,113 10,568 ======= ====== OPERATING REVENUES (000's) Gas sales revenues Residential $168,635 $145,845 Commercial 67,299 56,377 Public authority and other 11,051 7,903 Industrial (including agricultural) 38,008 30,680 -------- -------- Total gas sales revenues 284,993 240,805 Transportation revenues 6,590 5,645 Propane revenues 11,603 10,026 Other revenues 11,011 4,950 -------- -------- Total operating revenues $314,197 $261,426 ======== ======== Cost of gas (excluding propane and other)$181,317 $141,588 ======== ======== Average gas sales revenues per Mcf $ 5.29 $ 4.28 Average transportation revenue per Mcf $ .41 $ .37 Average cost of gas per Mcf sold $ 3.36 $ 2.52 (1) Volumes are reported as metered in million cubic feet ("MMcf"). ATMOS ENERGY CORPORATION CONSOLIDATED OPERATING STATISTICS Six months ended March 31, 2000 1999 Sales volumes -- MMcf(1) -------- -------- Residential 49,541 52,493 Commercial 22,668 23,195 Public authority and other 4,295 4,468 Industrial (including agricultural) 16,555 16,932 -------- ------- Total 93,059 97,088 Transportation volumes -- MMcf(1) 30,721 29,703 -------- ------- TOTAL THROUGHPUT - MMcf (1) 123,780 126,791 ======== ======= Propane - Gallons (000's) 16,467 16,706 ======== ======= OPERATING REVENUES (000's) Gas sales revenues Residential $285,939 $257,056 Commercial 119,737 103,670 Public authority and other 19,853 17,021 Industrial (including agricultural) 69,015 56,460 -------- -------- Total gas sales revenues 494,544 434,207 Transportation revenues 12,207 12,450 Propane revenues 19,441 17,321 Other revenues 12,463 7,675 -------- -------- Total operating revenues $538,655 $471,653 ======== ======== Cost of gas (excluding propane and other)$313,132 $257,461 ======== ======== Average gas sales revenues per Mcf $ 5.31 $ 4.47 Average transportation revenue per Mcf $ .40 $ .42 Average cost of gas per Mcf sold $ 3.36 $ 2.65 (1) Volumes are reported as metered in million cubic feet ("MMcf"). ATMOS ENERGY CORPORATION OPERATING STATISTICS BY SEGMENT Three months ended March 31, ----------------------- 2000 1999 --------- --------- UTILITY Operating revenues ($000) $ 283,214 $ 238,718 Sales volumes (MMcf) 51,099 53,161 Transportation volumes (MMcf) 16,211 15,265 ------ ------ Total throughput 67,310 68,426 ====== ====== Heating degree days Actual 1,686 1,758 30-year normal 2,130 2,130 Percent of normal 79% 83% Meters, end of period 1,045,571 1,025,377 PROPANE Operating revenues ($000) $11,603 $10,026 Sales volumes (000 gallons): Retail 9,098 9,149 Wholesale 1,015 1,419 ------- ------- Total 10,113 10,568 ======= ======= Propane degree days 1,829 1,933 Percent of normal 85% 89% Customers, end of period 41,273 38,908 ENERGY SERVICES Operating revenues ($000) $19,380 $12,682 Gas revenues ($000) $ 9,216 $ 9,173 Gas sales volumes (MMcf): Irrigation 1,418 1,653 Industrial 1,390 1,400 ------- ------- Total 2,808 3,053 ======= ======= Atmos equity in earnings of WMLLC ($000) $ 1,355 $ 1,447 NOTE: Segment operating revenues and volumes are net of inter- segment eliminations. See Note 7 for intersegment revenues. ATMOS ENERGY CORPORATION OPERATING STATISTICS BY SEGMENT Six months ended March 31, ----------------------- 2000 1999 --------- --------- UTILITY Operating revenues ($000) $ 491,914 $ 435,236 Sales volumes (MMcf) 88,003 92,500 Transportation volumes (MMcf) 30,721 29,703 ------- ------- Total throughput 118,724 122,203 ======= ======= Heating degree days Actual 2,947 3,042 30-year normal 3,647 3,647 Percent of normal 81% 83% Meters, end of period 1,045,571 1,025,377 PROPANE Operating revenues ($000) $19,441 $17,321 Sales volumes (000 gallons): Retail 14,834 14,647 Wholesale 1,633 2,059 ------- ------- Total 16,467 16,706 ======= ======= Propane degree days 3,152 3,210 Percent of normal 86% 87% Customers, end of period 41,273 38,908 ENERGY SERVICES Operating revenues ($000) $27,300 $19,096 Gas revenues ($000) $16,478 $13,981 Gas sales volumes (MMcf): Irrigation 2,018 1,676 Industrial 3,038 2,912 ------- ------- Total 5,056 4,588 ======= ======= Atmos equity in earnings of WMLLC ($000) $ 4,387 $ 2,661 NOTE: Segment operating revenues and volumes are net of inter- segment eliminations. See Note 7 for intersegment revenues. Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes from the information provided in Item 7A of the Company's Annual Report on Form 10-K for the year ended September 30, 1999. PART II. OTHER INFORMATION Item 1. Legal Proceedings See Note 3 of notes to condensed consolidated financial statements herein for a description of legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of Shareholders of Atmos Energy Corporation on February 9, 2000, 27,660,982 votes were cast as follows: VOTES VOTES FOR WITHHELD ---------- -------- Class II Directors: Richard W. Cardin 27,138,839 522,143 Thomas C. Meredith 27,130,278 530,704 Carl S. Quinn 27,140,521 520,461 Richard Ware II 27,135,150 525,832 The other directors will continue to serve until the expiration of their terms. The term of the Class III directors, Robert W. Best, Thomas J. Garland, Phillip E. Nichol and Charles K. Vaughan will expire in 2001. The term of the Class I directors, Travis W. Bain II, Dan Busbee, Gene C. Koonce and Vincent J. Lewis, will expire in 2002. The term of the Class II directors, listed above, will expire in 2003. Item 5. Other Information In March 2000, Thomas Pearson was named Vice President, Customer Information and Technology. Mr. Pearson began working with Atmos in March 1999 as an Arthur Andersen consultant. He was project manager for several information technology initiatives. In March 2000, Shirley Morgan Hines was elected Corporate Secretary by the Atmos Board of Directors. Mrs. Hines joined the Company as a Legal Assistant in 1986 and was named Assistant Corporate Secretary in 1995. In April 2000, J. Charles Goodman resigned from his position with the Company as Executive Vice President of Utility Operations. R. Earl Fischer, President of Energas Company, was promoted to the additional title of Senior Vice President, Utility Operations. In April 2000, Larry J. Dagley resigned from his position with the Company as Executive Vice President and Chief Financial Officer. Mr. Dagley was elected Chief Operating Officer of US Propane, L.P. J. Patrick Reddy was promoted to Senior Vice President, Chief Financial Officer and Treasurer. 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 February 16, 2000, announcing that it had entered into an agreement to form a joint venture to combine the operations of its wholly-owned subsidiary, United Cities Propane Gas, Inc., with the propane operations of AGL Resources, Inc., Piedmont Natural Gas Company, Inc., and TECO Energy. Under Item 7, Financial Statements and Exhibits, an exhibit was attached: a copy of a related press release dated February 16, 2000. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ATMOS ENERGY CORPORATION (Registrant) Date: May 11, 2000 By: /s/ DONALD P. BURMAN ------------------------------ Donald P. Burman Assistant Controller (Chief Accounting Officer and duly authorized signatory) EXHIBITS INDEX Item 6(a) Exhibit Page Number Description Number - ------- ----------- ------- 15 Letter regarding unaudited interim financial information 27 Financial Data Schedule for Atmos Energy Corporation for the six months ended March 31, 2000