(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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TEXAS AND VIRGINIA 75-1743247
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
THREE LINCOLN CENTRE, SUITE 1800 75240
5430 LBJ FREEWAY, DALLAS, TEXAS (Zip code)
(Address of principal executive offices)
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common stock, No Par Value New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the registrant was $853,523,154 as of October 31, 2002. On October 31, 2002 the registrant had 41,731,717 shares of common stock outstanding.
Portions of the registrant's Definitive Proxy Statement to be filed for the
Annual Meeting of Shareholders on February 12, 2003 are incorporated by
reference into Part III of this report.
The terms "we," "our," "us," "Atmos" and "Atmos Energy" refer to Atmos Energy Corporation and its subsidiaries, unless the context suggests otherwise. The abbreviations "Mcf," "MMcf" and "Bcf" mean thousand cubic feet, million cubic feet and billion cubic feet.
ITEM 1. BUSINESS
OPERATIONS
Atmos Energy Corporation and its subsidiaries are engaged primarily in the natural gas utility business as well as certain non-regulated businesses. We distribute natural gas through sales and transportation arrangements to approximately 1.4 million residential, commercial, public authority and industrial customers through our five regulated utility divisions. Effective in December 2002, our customer base will increase to approximately 1.7 million. See "Recent Developments." Our five utility operating divisions cover service areas located in Colorado, Georgia, Illinois, Iowa, Kansas, Kentucky, Louisiana, Missouri, Tennessee, Texas and Virginia. In addition, we transport natural gas for others through our distribution system.
Prior to October 1, 2002, our five operating divisions were named Greeley Gas Company with operations in Colorado, Kansas and a portion of Missouri; Western Kentucky Gas Company with operations in Kentucky; Atmos Energy Louisiana Gas Company with operations in Louisiana; United Cities Gas Company with operations in Georgia, Illinois, Iowa, our remaining Missouri operations, Tennessee and Virginia; and Energas Company with operations in Texas. Effective October 1, 2002, we united our utility operations under the Atmos Energy brand. Our former Greeley Gas Company operations are now conducted under the name Atmos Energy Colorado-Kansas Division; our former Western Kentucky Gas Company operations are now conducted under the name Atmos Energy Kentucky Division; our former Atmos Energy Louisiana Gas Company operations are now conducted under the name Atmos Energy Louisiana Division; our former United Cities Gas Company operations are now conducted under the name Atmos Energy Mid-States Division; and our former Energas Company operations are now conducted under the name Atmos Energy Texas Division.
We provide natural gas storage services and own or hold an interest in natural gas storage fields in Kansas, Kentucky and Louisiana to supplement natural gas used by customers in Kansas, Kentucky, Tennessee, Louisiana and other states. We also provide energy management and gas marketing services to industrial customers, municipalities and other local distribution companies. We also provide electrical power generation to meet peak load demands for municipalities and industrial customers. In addition, we market natural gas to industrial and agricultural customers primarily in west Texas and to industrial customers in Louisiana.
FORMATION
We were organized under the laws of Texas in 1983 as Energas Company, a subsidiary of Pioneer Corporation, for the purposes of owning and operating Pioneer's natural gas distribution business in Texas. Immediately following the transfer by Pioneer to Energas of its gas distribution business, which Pioneer and its predecessors had operated since 1906, Pioneer distributed our outstanding stock to its shareholders. In September 1988, we changed our name from Energas Company to Atmos Energy Corporation. As a result of the merger with United Cities Gas Company in July 1997, we also became incorporated in Virginia.
RECENT DEVELOPMENTS
Pending acquisition of Mississippi Valley Gas Company. In September 2001, we entered into a definitive agreement to acquire Mississippi Valley Gas Company, a privately held natural gas utility, for $75.0 million cash and $75.0 million of Atmos common stock. In addition, we will repay outstanding long-term debt of Mississippi Valley Gas of approximately $45.0 million. Mississippi Valley Gas provides natural gas distribution service to approximately 261,500 residential, commercial, industrial and other customers located primarily in the northern and central regions of Mississippi. Mississippi Valley Gas has a 5,500 mile distribution system and 335 miles of intrastate pipeline. It also has two underground storage facilities with 2.05 Bcf of working gas capacity. On October 31, 2002, we announced that we had received approval from the Mississippi Public Service Commission to acquire Mississippi Valley Gas. The transaction had previously received federal regulatory approval and approvals from the six other state utility commissions that required approval. We expect to close the acquisition in December 2002.
Louisiana Regulatory Actions. In January and February 2002, our Louisiana division submitted its 2001 Rate Stabilization filings to the Louisiana Public Service Commission for the two gas systems we operate in Louisiana. Recently completed audits by the Louisiana Public Service Commission of these filings found our earnings to be deficient and that rate adjustments were appropriate. Approved tariff revisions, which became effective November 1, 2002, will result in $15.8 million in additional revenue per year during the first 24-month period. Subsequent to the first 24-month period, adjusted rates will provide $12.2 million in total annual revenue increases. As a result of the actions taken by the Louisiana Public Service Commission, Atmos Energy has decreased its overall weather sensitivity in Louisiana.
Atmos Power Systems, Inc. constructs power plant. In September 2002, Atmos Power Systems, Inc., a subsidiary of Atmos Energy Holdings, Inc. completed construction of a 20-megawatt natural gas fueled power plant in Tennessee which was placed in operation in October 2002. The plant provides an interruptible electric rate while reducing annual energy costs. Power is directly connected to the customer's substation. The customer has leased the facility for a 10-year period with an option to purchase the plant after the fifth year of the lease. Capital expenditures for construction and related costs totaled $8.5 million. Woodward Marketing, L.L.C., a subsidiary of Atmos Energy Marketing, LLC, has entered into a contract to supply natural gas to the facility.
STRATEGY
Our overall strategy is to:
- deliver superior shareholder value,
- continue to manage our utility operations efficiently,
- profitably grow our non-utility operations to complement our utility operations, and
- profitably grow our business through acquisitions.
We are running our operations efficiently by:
- managing our operating and maintenance expenses,
- leveraging our technology, such as our 24-hour call center, to achieve more efficient operations,
- focusing on regulatory rate proceedings to increase revenue,
- mitigating weather-related risks through weather normalized rates in some jurisdictions and purchasing weather insurance in others, and
- disposing of non-growth assets.
We are growing our non-utility operations by:
- increasing our non-regulated gas sales, and
- growing such non-utility businesses as distributed electrical power generation.
We are growing our utility business by acquiring natural gas operations, such as the pending acquisition of Mississippi Valley Gas Company.
Our operations are divided into three segments, the utility segment, which includes our regulated natural gas distribution and sales operations; the natural gas marketing segment, which includes Atmos Energy Marketing, Woodward Marketing and Trans Louisiana Industrial Gas Company, Inc.; and our other non- utility segment, which includes all of our other non-utility operations.
UTILITY OPERATIONS SEGMENT OVERVIEW
Our utility operations segment is operated through our five regulated natural gas divisions:
- Atmos Energy Colorado-Kansas Division (formerly Greeley Gas Company),
- Atmos Energy Kentucky Division (formerly Western Kentucky Gas Company),
- Atmos Energy Louisiana Division (formerly Atmos Energy Louisiana Gas Company),
- Atmos Energy Mid-States Division (formerly United Cities Gas Company), and
- Atmos Energy Texas Division (formerly Energas Company).
Atmos Energy Colorado-Kansas Division: Our Colorado-Kansas Division operates in Colorado, Kansas and a portion of Missouri and is regulated by each respective state's public service commission with respect to accounting, rates and charges, operating matters and the issuance of securities. We operate under terms of non-exclusive franchises granted by the various cities. At September 30, 2002 and 2001, our Colorado-Kansas Division had 216,980 and 212,484 utility meters in service. For the years ended September 30, 2002 and 2001, this division had total throughput of 33,554 and 37,797 MMcf.
Atmos Energy Kentucky Division: Our Kentucky Division operates in Kentucky and is regulated by the Kentucky Public Service Commission, which regulates utility services, rates, issuance of securities and other matters. We operate in the various incorporated cities pursuant to non-exclusive franchises granted to us by these cities. Sales of natural gas for use as vehicle fuel in Kentucky are unregulated. We have been operating under a performance-based rate program since July 1998. We also have weather normalization adjustments to our rates in Kentucky. At September 30, 2002 and 2001, our Kentucky Division had 178,379 and 182,275 utility meters in service. For the years ended September 30, 2002 and 2001, this division had total throughput of 43,721 and 46,530 MMcf.
Atmos Energy Louisiana Division: Our Louisiana Division includes the operations of the assets of Louisiana Gas Service Company acquired in July 2001 and our previously existing Trans La Division. Our Louisiana Division operates in Louisiana and is regulated by the Louisiana Public Service Commission, which regulates utility services, rates and other matters. In most of the areas in which we operate in Louisiana, we do so pursuant to a non-exclusive franchise granted by the governing authority of each area. Direct sales of natural gas to industrial customers in Louisiana, who use gas for fuel or in manufacturing processes, and sales of natural gas for vehicle fuel are exempt from regulation.
In connection with its review of our acquisition of Louisiana Gas Service, the Louisiana Public Service Commission has approved a rate structure that requires us to share cost savings that resulted from the acquisition with the customers of Louisiana Gas Service. The shared cost savings will be the difference between operation and maintenance expense in any future year and the 1998 normalized expense for Louisiana Gas Service, indexed for inflation, annual changes in labor costs and customer growth. Beginning January 1, 2002, the customers are assured annual savings, which will be indexed for inflation, annual changes in labor costs and customer growth. The sharing mechanism will remain in place for 20 years subject to established modification procedures.
The rates of Louisiana Gas Service are subject to a purchased gas adjustment clause that allows it to pass changes in gas costs on to its customers. In addition, on January 29, 2001, the Louisiana Public Service Commission approved a rate stabilization clause for Louisiana Gas Service for a three-year period beginning January 1, 2001. Under the rate stabilization clause, Louisiana Gas Service will be allowed to earn a return on equity within certain ranges that will be monitored on an annual basis. After the completion of the acquisition of Louisiana Gas Service, our Atmos Energy Louisiana Division also became subject to those clauses.
Prior to our acquisition of the assets of Louisiana Gas Service Company, a division of Citizens Communications Company, in July 2001, Louisiana Gas Service Company was involved in a proceeding with the Louisiana Public Service Commission relating to past costs associated with the purchase of gas that it charged to its customers. Subsequent to our acquisition of the Louisiana Gas assets, we agreed to take responsibility for assuring the payment of refunds and/or credits to ratepayers that may arise from Citizens Communications' past activities with respect to purchased gas costs. On April 10, 2002, the Louisiana Public Service Commission issued a Report of Proceedings in which it approved a Stipulation and Agreement between Citizens Communications, Atmos and the Commission Staff. This Stipulation and Agreement resulted in no refunds being due to customers.
In October 2002, Atmos received written notification from the Executive Secretary of the Louisiana Public Service Commission that he was asserting that a monthly facilities fee of approximately $0.6 million charged since July 2001 to Atmos by Trans Louisiana Gas Pipeline, Inc., a wholly-owned subsidiary of Atmos, pursuant to a contract between the parties, was excessive. The Executive Secretary asserted that all monthly facilities fees in excess of approximately $0.1 million from July 2001 should be refunded to ratepayers with interest.
Atmos has responded to the Secretary and noted that it has previously made all required filings with the Commission fully disclosing the amount of the facilities fee. Atmos intends to file another petition seeking Commission approval of the facilities fee by the end of calendar year 2003 similar to that filed in 2001 but containing updated data. In the interim, Atmos is continuing to charge a facilities fee of approximately $0.6 million per month, as the Executive Secretary's correspondence does not constitute action of the Commission.
The Louisiana Public Service Commission approved a rate stabilization clause for a three year period for our former Trans La Division beginning October 1, 1999. Under the rate stabilization clause, our former Trans La Division will be allowed to earn a return on equity within certain ranges that will be monitored on an annual basis.
At September 30, 2002 and 2001, our Louisiana Division had 370,012 and 368,436 utility meters in service. For the years ended September 30, 2002 and 2001, this division had total throughput of 30,435 and 12,578 MMcf. The increase in throughput from 2001 to 2002 resulted from throughput from the Louisiana Gas Service assets which we purchased in July 2001.
In January and February 2002, our Louisiana division submitted its 2001 Rate Stabilization filings to the Louisiana Public Service Commission for the two gas systems we operate in Louisiana. Recently completed audits by the Louisiana Public Service Commission of these filings found our earnings to be deficient and that rate adjustments were appropriate. Approved tariff revisions, which became effective November 1, 2002, will result in $15.8 million in additional revenue per year during the first 24-month period. Subsequent to the first 24-month period, adjusted rates will provide $12.2 million in total annual revenue increases. As a result of the actions taken by the Louisiana Public Service Commission, Atmos Energy has decreased its overall weather sensitivity in Louisiana.
Atmos Energy Mid-States Division: Our Mid-States Division operates in Georgia, Illinois, Iowa, Missouri, Tennessee and Virginia. In each of these states, our rates, services and operations as a natural gas distribution company are subject to general regulation by each state's public service commission. We operate in each community, where necessary, under a franchise granted by the municipality for a fixed term of years. In Tennessee and Georgia, we have performance-based rates, which provide incentives for us to find ways to lower costs. Any cost savings are then shared with our customers. We also have weather normalization adjustments to our rates in Tennessee and Georgia. At September 30, 2002 and 2001, our Mid-States Division had 310,630 and 308,394 utility meters in service. For the years ended September 30, 2002 and 2001, this division had total throughput of 57,144 and 64,924 MMcf.
Atmos Energy Texas Division: Our Texas Division operates in Texas. The governing body of each municipality we serve has original jurisdiction over all utility rates, operations and services within its city limits, except with respect to sales of natural gas for vehicle fuel and agricultural use. We operate pursuant to non-exclusive franchises granted by the municipalities we serve, which are subject to renewal from time to time. The Railroad Commission of Texas has exclusive appellate jurisdiction over all rate and regulatory orders and ordinances of the municipalities and exclusive original jurisdiction over rates and services to customers not located within the limits of a municipality. At September 30, 2002 and 2001, our Texas Division had 313,340 and 314,734 utility meters in service. For the years ended September 30, 2002 and 2001, this division had total throughput of 49,279 and 53,586 MMcf.
NATURAL GAS MARKETING SEGMENT OVERVIEW
Our natural gas marketing and other non-utility segments have operations in 18 states and are organized under Atmos Energy Holdings, Inc.
Atmos Energy Marketing, L.L.C. comprises our natural gas marketing segment. Woodward Marketing, L.L.C. and Trans Louisiana Industrial Gas Company, Inc. are wholly-owned subsidiaries of Atmos Energy Marketing. Atmos Energy Marketing provides a variety of natural gas management services to natural gas utility systems, municipalities and industrial natural gas consumers in several states and to our Colorado-Kansas, Kentucky, Louisiana and Mid-States divisions. These services consist primarily of the furnishing of natural gas supplies at fixed and market-based prices, load forecasting and management, gas storage and transportation services, peaking sales and balancing services and gas price hedging through the use of derivative products. In addition, Trans Louisiana Industrial Gas Company markets natural gas primarily to commercial customers in Louisiana. For the year ended September 30, 2002, Atmos Energy Marketing realized $49.0 million in gas trading margin from the sale of 273.8 Bcf of natural gas to its customers.
We acquired a 45 percent interest in Woodward Marketing in July 1997 as a result of the merger of Atmos and United Cities Gas Company, which had acquired that interest in May 1995. In April 2001, we acquired the 55 percent interest that we did not own from JD Woodward and others for 1,423,193 restricted shares of our common stock. Immediately following the acquisition, Mr. Woodward was elected as a Senior Vice President of Atmos in charge of all non-utility business activities, a position he has held since April 2001. Prior to that time, Mr. Woodward had not been an officer or employee of Atmos.
The principal business of Atmos Energy Marketing, including the activities of Woodward Marketing and Trans Louisiana Industrial Gas, is the overall management of natural gas requirements for municipalities, local gas utility companies and industrial customers located primarily in the southeastern and midwestern United States. This business involves the sale of natural gas by Atmos Energy Marketing to its customers and the management of storage and transportation contracts for its customers under contracts generally having one to two-year terms. At September 30, 2002, Atmos Energy Marketing had a total of 101 municipal customers and 641 industrial customers. Atmos Energy Marketing also sells natural gas to certain of its industrial customers on a delivered burner tip basis under contract terms from 30 days to two years. In addition, Atmos Energy Marketing supplies our regulated operations with a portion of our natural gas requirements on a competitive bid basis. Any mark-to-market gains or losses on these affiliate contracts are eliminated.
In the management of natural gas requirements for municipal and other local utilities, Atmos Energy Marketing sells physical natural gas to those customers for future delivery and manages the associated price risk through the use of gas futures, forwards, over-the-counter and exchange-traded options, and swap contracts with counterparties. These financial contracts are marked-to-market at the daily close of business. Atmos Energy Marketing links gas derivatives to physical delivery of natural gas and typically balances its derivatives positions at the end of each trading day. Over-the-counter swap agreements require Atmos Energy Marketing to receive or make payments based on the difference between a fixed price and the market price of natural gas on the settlement date. Atmos Energy Marketing uses these futures and swaps to manage margins on offsetting fixed-price purchase or sale commitments for physical quantities of natural gas, which are also carried on a mark-to-market basis. Mark-to-market accounting refers to the measurement of contracts at fair value determined at the balance sheet date with any gains and losses included in earnings. Options held to manage price risk provide the right, but not the requirement, to buy or sell energy commodities at a fixed price. Atmos Energy Marketing uses options to manage margins and to limit overall price risk exposure. At any point in time, Atmos Energy Marketing may not have completely hedged its price risk on these activities.
Energy related services provided by Atmos Energy Marketing include the sale of natural gas to its various customer classes and management of transportation and storage assets and inventories. More specifically, energy services include contract negotiation and administration, load forecasting, storage acquisition, natural gas purchase and delivery and capacity utilization strategies. In providing these services, Atmos Energy Marketing generates income from its utility, municipal and industrial customers through negotiated prices based on the volume of gas supplied to the customer. Atmos Energy Marketing also generates income by taking advantage of the difference between near-term gas prices and prices for future delivery as well as the daily movement of gas prices by utilizing storage and transportation capacity that it controls.
Prior to May 2002, Atmos Energy Marketing engaged in limited financial trading for speculative purposes. Financial trading involves utilizing financial instruments (futures, options, swaps, etc.) to hedge natural gas prices or to take a position in the market based on anticipated price movement. In some prior years, Atmos Energy Marketing experienced losses in its financial speculative trading business. Effective in May 2002, Atmos Energy Marketing's financial trading for speculative purposes was discontinued. Atmos Energy Marketing will continue its financial trading for hedging (risk management purposes) related to its physical trading positions. With regard to its physical trading business, Atmos Energy Marketing does engage in limited speculative natural gas trading for its own account primarily related to its storage activity, subject to a risk management policy established by Atmos' management which limits the level of trading loss to a maximum of 25 percent of the budgeted annual operating income of Atmos Energy Holdings. Physical trading involves utilizing physical assets (storage and transportation) to sell and deliver gas to customers or to take a position in the market based on anticipated price movement. Compliance with such risk management policy is monitored on a daily basis. In addition, Woodward Marketing's bank credit facility limits trading positions that are not closed at the end of the day (open positions) to 5.0 Bcf of natural gas. At September 30, 2002, Atmos Energy Marketing's net open positions in its trading operations totaled 1.9 Bcf. Atmos Energy Marketing's open trading positions are monitored on a daily basis but are not required to be closed if they remain within the limits set by the bank loan agreement. In addition to the price risk of any net open position at the end of each trading day, the financial exposure that results from intra-day fluctuations of gas prices constitutes a risk of loss since the price of natural gas purchased or sold for future delivery at the beginning of the day may not be hedged until later in the day.
Financial instruments, which subject Atmos Energy Marketing to counterparty risk, consist primarily of financial instruments arising from trading and risk management activities and overnight repurchase agreements that are not insured. Counterparty risk is the risk of loss from nonperformance by financial counterparties to a contract. Exchange-traded future and option contracts are generally guaranteed by the exchanges.
Atmos Energy Marketing's operations are concentrated in the natural gas industry, and its customers and suppliers may be subject to economic risks affecting that industry.
From time to time, Woodward Marketing borrows money to fund its natural gas purchases and to fulfill its obligations to maintain deposit accounts with its counterparties. See Note 3 of notes to consolidated financial statements.
OTHER NON-UTILITY SEGMENT OVERVIEW
- Atmos Pipeline and Storage, L.L.C. Atmos Pipeline and Storage owns or has an interest in underground storage fields in Kansas, Kentucky and Louisiana and provides storage services to our Colorado-Kansas, Mid-States and Louisiana divisions and to other non-utility customers. Our total storage capacity is approximately 26.1 Bcf. Atmos Pipeline and Storage also provides transportation services to our utility operations in Louisiana.
- Atmos Power Systems, Inc. Atmos Power Systems constructs and operates electrical power generating plants and associated facilities. Atmos Power Systems may also enter into agreements to either lease or sell such plants.
OPERATING STATISTICS
The following table shows our consolidated operating statistics for each of the five fiscal years from 1998 through 2002. It is followed by three additional tables that show utility sales and statistical data by division for 2002 and 2001 and our non-utility sales and statistical data for the same periods. Certain prior year amounts have been reclassified to conform with the current year presentation.
YEAR ENDED SEPTEMBER 30
--------------------------------------------------------------
2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
METERS IN SERVICE, end of year
Residential...................... 1,247,247 1,243,625 970,873 919,012 889,074
Commercial....................... 122,156 122,274 104,019 98,268 94,302
Industrial (including
agricultural).................. 12,694 13,020 14,259 14,329 16,322
Public authority and other....... 7,244 7,404 7,448 6,386 4,834
---------- ---------- ---------- ---------- ----------
Total meters.............. 1,389,341 1,386,323 1,096,599 1,037,995 1,004,532
Propane customers(1)............. -- -- -- 39,539 37,400
---------- ---------- ---------- ---------- ----------
Total..................... 1,389,341 1,386,323 1,096,599 1,077,534 1,041,932
========== ========== ========== ========== ==========
HEATING DEGREE DAYS(2)
Actual (weighted average)........ 3,368 4,124 2,096 3,374 3,799
Percent of normal................ 94% 115% 82% 85% 95%
SALES VOLUMES -- MMcf
Residential...................... 77,386 79,000 63,285 67,128 73,472
Commercial....................... 35,796 36,922 30,707 31,457 36,083
Industrial (including
agricultural).................. 26,431 33,730 38,687 35,741 44,881
Public authority and other....... 5,875 6,892 5,520 5,793 4,937
---------- ---------- ---------- ---------- ----------
Total sales volumes....... 145,488 156,544 138,199 140,119 159,373
Transportation volumes -- MMcf..... 63,053 61,230 59,365 55,468 56,224
---------- ---------- ---------- ---------- ----------
TOTAL THROUGHPUT -- MMcf........... 208,541 217,774 197,564 195,587 215,597
========== ========== ========== ========== ==========
PROPANE -- Gallons (000's)(1)...... -- -- 19,329 22,291 23,412
========== ========== ========== ========== ==========
OPERATING REVENUES (000's)
Gas sales revenues
Residential...................... $ 535,981 $ 788,902 $ 405,552 $ 349,691 $ 410,538
Commercial....................... 221,728 342,945 176,712 144,836 184,046
Industrial (including
agricultural).................. 112,172 208,168 171,447 117,382 161,382
Public authority and other....... 31,731 58,539 27,198 22,330 20,504
---------- ---------- ---------- ---------- ----------
Total gas sales
revenues............... 901,612 1,398,554 780,909 634,239 776,470
Transportation revenues............ 36,591 28,668 23,610 23,101 23,971
Other gas revenues................. 11,258 10,925 4,674 4,500 8,121
---------- ---------- ---------- ---------- ----------
Total gas revenues........ 949,461 1,438,147 809,193 661,840 808,562
Propane revenues(1)................ -- -- 22,550 22,944 29,091
Other revenues..................... 1,388 4,128 18,409 5,412 10,555
---------- ---------- ---------- ---------- ----------
Total operating
revenues............... $ 950,849 $1,442,275 $ 850,152 $ 690,196 $ 848,208
========== ========== ========== ========== ==========
AVERAGE SALES PRICE/Mcf............ $ 6.20 $ 8.93 $ 5.65 $ 4.53 $ 4.87
AVERAGE COST OF GAS/Mcf SOLD....... 3.81 6.83 3.79 2.79 3.24
AVERAGE TRANSPORTATION
REVENUES/Mcf..................... .58 .47 .40 .42 .43
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See footnotes following these tables.
YEAR ENDED SEPTEMBER 30, 2002
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COLORADO-
KANSAS KENTUCKY LOUISIANA MID-STATES TEXAS TOTAL UTILITY
--------- -------- --------- ---------- -------- -------------
METERS IN SERVICE, at end of
year
Residential............... 196,320 158,296 346,369 273,166 273,096 1,247,247
Commercial................ 18,602 18,017 22,709 35,925 26,903 122,156
Industrial................ 464 409 -- 729 11,092 12,694
Public authority and
other.................. 1,594 1,657 934 810 2,249 7,244
-------- -------- -------- -------- -------- ----------
Total............. 216,980 178,379 370,012 310,630 313,340 1,389,341
======== ======== ======== ======== ======== ==========
HEATING DEGREE DAYS(2)
Actual.................... 5,373 4,346 1,543 3,644 3,259 3,368
Percent of normal......... 95% 100% 90% 94% 92% 94%
SALES VOLUMES -- MMcf(4)
Residential............... 15,660 10,802 15,117 16,245 19,562 77,386
Commercial................ 5,948 4,611 6,442 11,599 7,196 35,796
Industrial................ 1,839 1,931 -- 8,658 13,059 25,487
Public authority and
other.................. 1,190 1,314 847 287 2,237 5,875
-------- -------- -------- -------- -------- ----------
Total............. 24,637 18,658 22,406 36,789 42,054 144,544
TRANSPORTATION
VOLUMES -- MMcf(4)........ 8,917 25,063 8,029 20,355 7,225 69,589
-------- -------- -------- -------- -------- ----------
TOTAL THROUGHPUT
-- MMcf(4)................ 33,554 43,721 30,435 57,144 49,279 214,133
======== ======== ======== ======== ======== ==========
OTHER STATISTICS
Operating revenues
(000's)................ $154,718 $138,772 $188,092 $257,305 $198,639 $ 937,526
Miles of pipe............. 6,454 3,794 7,951 7,637 13,321 39,157
Employees(5).............. 271 245 457 461 332 1,766
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See footnotes following these tables.
YEAR ENDED SEPTEMBER 30, 2001
------------------------------------------------------------------------
COLORADO-
KANSAS KENTUCKY LOUISIANA MID-STATES TEXAS TOTAL UTILITY
--------- -------- --------- ---------- -------- -------------
METERS IN SERVICE, at end of
year
Residential............... 192,056 161,616 344,870 271,233 273,850 1,243,625
Commercial................ 18,376 18,602 22,650 35,518 27,128 122,274
Industrial................ 414 397 -- 711 11,498 13,020
Public authority and
other.................. 1,638 1,660 916 932 2,258 7,404
-------- -------- -------- -------- -------- ----------
Total............. 212,484 182,275 368,436 308,394 314,734 1,386,323
======== ======== ======== ======== ======== ==========
HEATING DEGREE DAYS(2)
Actual.................... 6,041 4,233 2,076 3,755 3,782 4,124
Percent of normal......... 106% 98% 117% 97% 107% 115%
SALES VOLUMES -- MMcf(4)
Residential............... 18,027 12,833 5,257 19,978 22,905 79,000
Commercial................ 6,845 5,669 2,448 13,968 7,992 36,922
Industrial................ 1,224 3,018 -- 10,473 8,395 23,110
Public authority and
other.................. 1,497 1,519 919 339 2,618 6,892
-------- -------- -------- -------- -------- ----------
Total............. 27,593 23,039 8,624 44,758 41,910 145,924
TRANSPORTATION
VOLUMES -- MMcf(4)........ 10,204 23,491 3,954 20,166 11,676 69,491
-------- -------- -------- -------- -------- ----------
TOTAL THROUGHPUT --
MMcf(4)................... 37,797 46,530 12,578 64,924 53,586 215,415
======== ======== ======== ======== ======== ==========
OTHER STATISTICS
Operating revenues
(000's)................ $270,678 $237,047 $ 96,511 $464,498 $311,414 $1,380,148
Miles of pipe............. 6,344 3,779 7,934 7,536 13,345 38,938
Employees(5).............. 272 247 488 470 342 1,819
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YEAR ENDED SEPTEMBER 30
-----------------------
2002 2001
---------- ----------
OPERATIONS DATA (000's)
Operating revenues........................................ $ 14,795 $ 64,116
Gas trading margin........................................ $ 38,538 $ 488
Equity in earnings of Woodward Marketing, L.L.C.(6)....... $ -- $ 8,062
Net income................................................ $ 16,662 $ 6,209
Total assets.............................................. $313,376 $303,884
OTHER STATISTICS
Customers:
Industrial............................................. 641 531
Municipal.............................................. 101 68
Employees................................................. 83 62
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See footnotes following these tables.
Notes to preceding tables:
(1) Prior to August 2000, propane revenues and expenses were fully consolidated. Subsequent to August 2000, the results of our propane operations are shown on the equity basis.
(2) A heating degree day is equivalent to each degree that the average of the high and the low temperatures for a day is below 65 degrees. The colder the climate, the greater the number of heating degree days. Heating degree days are used in the natural gas industry to measure the relative coldness of weather and to compare relative temperatures between one geographic area and another. Normal degree days are based on 30-year average National Weather Service data for selected locations. Degree day information for 2002 and 2001 is adjusted for service areas included in the Mid-States Division and the Kentucky Division which have weather normalized operations. Degree day information for 2000, 1999 and 1998 has not been adjusted for service areas with weather normalized operations as that information was not available.
(3) These tables present data for our five utility divisions. Their operations include the regulated local distribution companies located in their respective service areas. The operations of Louisiana Gas are included in our Louisiana Division since July 1, 2001, the date of acquisition.
(4) Utility sales volumes and revenues reflect utility segment operations, including intercompany sales and transportation amounts.
(5) The number of employees excludes 489 and 480 Atmos shared services and customer support center employees and 83 and 62 non-utility employees in 2002 and 2001.
(6) In April 2001, we completed our acquisition of the remaining 55 percent interest in Woodward Marketing that we did not already own. Subsequent to April 2001, the revenues and expenses of Woodward Marketing are now shown on a consolidated basis.
We consider each division within our utility segment to be a reporting unit of the utility segment and not a separate reportable segment.
The following table summarizes certain information regarding the operations of the utility, natural gas marketing and other non-utility segments of Atmos as of and for each of the three years ended September 30, 2002. The information is net of intersegment eliminations.
NATURAL GAS OTHER NON-
UTILITY MARKETING UTILITY TOTAL
---------- ----------- ---------- ----------
(IN THOUSANDS)
2002
Operating revenues.................. $ 936,054 $ 404 $ 14,391 $ 950,849
Gas trading margin.................. -- 38,538 -- 38,538
Operating income.................... 125,506 20,610 9,215 155,331
Net income.......................... 42,994 12,614 4,048 59,656
Identifiable assets................. 1,666,845 242,340 71,036 1,980,221
2001
Operating revenues.................. $1,378,159 $ 7,946 $ 56,170 $1,442,275
Gas trading margin.................. -- 488 -- 488
Operating income (loss)............. 127,980 (3,122) 5,423 130,281
Net income.......................... 49,881 2,551 3,658 56,090
Identifiable assets................. 1,732,296 251,238 52,646 2,036,180
2000
Operating revenues.................. $ 734,835 $ 929 $114,388 $ 850,152
Gas trading margin.................. -- -- -- --
Operating income.................... 77,207 155 7,954 85,316
Net income.......................... 22,459 5,344 8,115 35,918
Identifiable assets................. 1,246,782 37,621 64,355 1,348,758
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GAS SALES
Our natural gas utility distribution business is seasonal and highly dependent on weather conditions in our service areas. Gas sales to residential and commercial customers are greater during the winter months than during the remainder of the year. The volumes of gas sales during the winter months will vary with the temperatures during these months. The seasonal nature of our sales to residential and commercial customers is partially offset by our sales in the spring and summer months to our agricultural customers in Texas, Colorado and Kansas who use natural gas to operate irrigation equipment.
In addition to weather, our revenues are affected by the cost of natural gas and economic conditions in the areas that we serve. Higher gas costs, which we are generally able to pass through to our customers under purchased gas adjustment clauses, may cause customers to conserve, or, in the case of industrial customers, to use alternative energy sources.
To protect against volatility in gas prices, we are hedging gas costs for the 2002-2003 heating season by using a combination of storage, financial hedges and fixed forward contracts to stabilize gas prices. For the 2002-2003 heating season, we have covered between 45 and 50 percent of our anticipated flowing gas requirements through storage and financial instruments. The gas hedges should help to moderate the effects of higher customer accounts receivable caused by potentially higher gas prices.
We also have weather normalization adjustments in our rate jurisdictions in Tennessee, Georgia and Kentucky which protect against earnings volatility. We purchased a three-year weather insurance policy for our Texas and Louisiana operations commencing with the 2001-2002 heating season, with an option to cancel in the third year if we obtain weather protection in our rate structures. The policy covers the entire heating season of October through March. See "Weather and Seasonality" in Management's Discussion and Analysis of Operations.
Our distribution systems have experienced aggregate peak day deliveries of approximately 2.0 Bcf per day. We have the ability to curtail deliveries to certain customers under the terms of interruptible contracts and applicable state statutes or regulations which enable us to maintain our deliveries to high priority customers. We have not imposed curtailment in our Texas Division since we began independent operations in 1983 or in our Louisiana Division since we acquired Trans Louisiana Gas Company in 1986 and Louisiana Gas Service in 2001. The Kentucky Division curtailed deliveries to certain interruptible customers during exceptionally cold periods in December 1989, January 1994 and during the winter of 1996. Neither the Colorado-Kansas Division nor its predecessor, Greeley Gas Company, has curtailed deliveries to its sales customers since prior to 1980. The Mid-States Division curtails interruptible service customers from time to time each year in accordance with the interruptible contracts and tariffs.
GAS SUPPLY
We receive gas deliveries in our utility operations through 35 pipeline transportation companies, both interstate and intrastate, to satisfy our sales market requirements. The pipeline transportation agreements are firm and many of them have pipeline no-notice storage service which provides for daily balancing between system requirements and nominated flowing supplies. These agreements have been negotiated with the shortest term necessary while still maintaining our right of first refusal.
The Kentucky Division's gas supply is delivered primarily by the following pipelines: Williams Pipeline-Texas Gas, Tennessee Gas, Trunkline, Midwestern Pipeline and ANR. During 2002, the Kentucky Division sought and was granted approval by the Kentucky Public Service Commission for a four year extension of its performance-based rate program which commenced in July 1998. Under the performance-based program, we and our customers jointly share in any actual gas cost savings achieved when compared to pre-determined benchmarks. We also have similar gas cost performance-based rate mechanisms in Georgia and Tennessee.
Our Mid-States Division is served by 13 interstate pipelines. The majority of the volumes are transported through East Tennessee Pipeline, Southern Natural Gas, Tennessee Gas Pipeline and Columbia Gulf.
Colorado Interstate Gas Company, Williams Pipeline-Central, Public Service Company of Colorado and Northwest Pipeline are the principal transporters of the Colorado-Kansas Division's requirements. Additionally, the Colorado-Kansas Division purchases substantial volumes from producers that are connected directly to its distribution system.
Our Texas Division receives transportation service from ONEOK Pipeline. In addition, the Texas Division purchases a significant portion of its supply from Pioneer Natural Resources which is connected directly to our Amarillo, Texas distribution system.
Louisiana Intrastate Gas Company, Acadian Pipeline, Gulf South and Williams Pipeline-Texas Gas pipelines deliver most of the Louisiana Division's requirements.
We also own or hold an interest in and operate numerous natural gas storage facilities in Kentucky, Kansas and Louisiana which are used to help meet customer requirements during peak demand periods and to reduce the need to contract for additional pipeline capacity to meet such peak demand periods. Additionally, we operate one propane plant and a liquefied natural gas plant for peak shaving purposes. We also contract for storage service in underground storage facilities on many of the interstate pipelines serving us. See "Item 2. Properties" below for further information regarding the peak shaving facilities.
We normally inject gas into pipeline storage systems and company owned storage facilities during the summer months and withdraw it in the winter months. Our underground storage facilities in Kansas, Kentucky and Louisiana have a combined maximum daily output capability of approximately 266,000 Mcf.
We purchase our gas supply from various producers and marketers. Supply arrangements are contracted on a firm basis with various terms at market prices. The firm supply consists of both base load and swing supply quantities. Base load quantities are those that flow at a constant level throughout the month and swing supply quantities provide the flexibility to change daily quantities to match increases or decreases in requirements related to weather conditions. Except for local production purchases, we select suppliers through a competitive bidding process by requesting proposals from suppliers that have demonstrated that they can provide reliable service. We select these suppliers based on their ability to deliver gas supply to our designated firm pipeline receipt points at the best cost. Major suppliers during fiscal 2002 were Reliant Energy, Pioneer Natural Resources, Duke Energy, our non-utility subsidiary Woodward Marketing, ONEOK Gas Marketing, BP Energy, Anadarko and Tenaska Marketing. We do not anticipate problems with obtaining additional gas supply as needed for our customers.
REGULATION
Each of our utility divisions is regulated by various state or local public utility authorities. We are also subject to regulation by the United States Department of Transportation with respect to safety requirements in the operation and maintenance of our gas distribution facilities. Our distribution operations are also subject to various state and federal laws regulating environmental matters. From time to time we receive inquiries regarding various environmental matters. We believe that our properties and operations substantially comply with and are operated in substantial conformity with applicable safety and environmental statutes and regulations. There are no administrative or judicial proceedings arising under environmental quality statutes pending or known to be contemplated by governmental agencies which would have a material adverse effect on us or our operations. Our environmental claims have arisen out of manufactured gas plant sites in Tennessee and Missouri and mercury contamination sites in Kansas. See Note 5 of notes to consolidated financial statements.
RATES
The method of determining regulated rates varies among the states in which our utility divisions operate. The regulators have the responsibility of ensuring that utilities under their jurisdiction operate in the best interests of customers while providing the utilities the opportunity to earn a reasonable return on investment. In a general rate case, the applicable regulatory authority, which is typically the state public utility commission, establishes a base margin, which is the amount of revenue authorized to be collected from customers to recover authorized operating expense (other than the cost of gas), depreciation, interest, taxes and return on rate base. The divisions in our utility operations segment perform annual deficiency studies for each rate jurisdiction to determine when to file rate cases.
Substantially all of our sales to our customers fluctuate with the cost of gas that we purchase. Rates established by regulatory authorities are adjusted for increases and decreases in our purchased gas cost through purchased gas adjustment mechanisms. Purchased gas adjustment mechanisms provide gas utilities a method of recovering purchased gas costs on an ongoing basis without the necessity of a rate case addressing all of the utilities' non-gas costs. These mechanisms are commonly utilized when regulatory authorities recognize a particular type of expense, such as purchased gas costs, that (i) is subject to significant price fluctuations compared to the utility's other costs, (ii) represents a large component of the utility's cost of service and (iii) is generally outside the control of the gas utility. Such purchased gas adjustment mechanisms are not designed to allow the utility to earn a profit but are designed to allow a dollar-for-dollar recovery of fuel costs. Therefore, while our operating revenues may fluctuate, gross profit (which is defined as operating revenues less purchased gas cost) is generally not eroded or enhanced because of gas cost increases or decreases.
Approximately 98 percent of our revenues in the fiscal year ended September 30, 2002, and approximately 96 percent of our revenues in fiscal 2001 were derived from sales at rates set by or subject to approval by local or state authorities. Generally, the regulatory authority reviews our rate request and establishes a rate structure intended to generate revenue sufficient to cover our costs of doing business and provide a reasonable return on invested capital.
AMOUNT
EFFECTIVE AMOUNT RECEIVED
JURISDICTION DATE REQUESTED (REDUCED)
------------ --------- --------- ---------
(IN THOUSANDS)
Texas
West Texas System.................................. 12/01/00 $ 9,827 $ 3,011
Amarillo System.................................... 01/01/00 4,354 2,200
Louisiana
Trans La System.................................... 11/01/02 -- 364(a)
LGS System......................................... 11/01/02 -- 11,890(b)
Kentucky............................................. 12/21/99 14,127 9,900(c)
Colorado............................................. 01/21/98 -- (1,600)(d)
05/04/01 4,200 2,750
Iowa................................................. 03/05/01 -- (326)(e)
Illinois............................................. 10/23/00 2,100 1,367
Virginia............................................. 10/01/98 -- (248)(f)
04/01/01 2,100 (534)
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(a) The Louisiana Public Service Commission approved, in October 1999, a rate stabilization clause for three years for our former Trans La Division. The rate stabilization clause will allow the Trans La system to earn a return on equity within certain ranges that will be monitored on an annual basis. In 2002, we submitted our 2001 rate stabilization filing and received tariff revisions which resulted in an increase in annual revenues of $0.5 million during the first 24-month period. Subsequent to the first 24-month period, adjusted rates will provide an increase in annual revenues of $0.4 million.
(b) On January 29, 2001, the Louisiana Public Service Commission approved a rate stabilization clause for our LGS system for a three-year period beginning January 1, 2001. Under the rate stabilization clause, our LGS system will be allowed to earn a return on equity within certain ranges that will be monitored on an annual basis. In 2002, we submitted our 2001 rate stabilization filing and received tariff revisions which resulted in an increase in annual revenues of $15.3 million during the first 24-month period. Subsequent to the first 24-month period, adjusted rates will provide an increase in annual revenues of $11.9 million.
(c) The Kentucky rate order also included a provision for a five-year pilot program for weather normalization which began in November 2000.
(d) Rate reduction as a result of settlement in a case initiated by the Colorado Consumer Council.
(e) Rate reduction as a result of an agreement initiated by the Iowa Consumer Advocate Division of the Department of Justice.
(f) Rate reduction as a result of a settlement with the Virginia State Corporation Commission staff.
COMPETITION
Our utility operations are not currently in significant direct competition with any other distributors of natural gas to residential and commercial customers within our service areas. However, we do compete with other natural gas suppliers and suppliers of alternative fuels for sales to industrial and agricultural customers. We compete in all aspects of our business with alternative energy sources, including, in particular, electricity. Competition for residential and commercial customers is increasing. Promotional incentives, improved equipment efficiencies and promotional rates all contribute to the acceptability of electrical equipment. Electric utilities offer electricity as a rival energy source and compete for the space heating, water heating and cooking markets. The principal means to compete against alternative fuels is lower prices, and natural gas historically has maintained its price advantage in the residential, commercial and industrial markets. In addition, our Natural Gas Marketing segment competes with other natural gas brokers in obtaining natural gas supplies for customers.
EMPLOYEES
At September 30, 2002, we had 2,338 employees, consisting of 2,255 employees in our utility segment and 83 employees in our other segments. See "Utility Sales and Statistical Data by Division" for the number of employees by division.
ITEM 2. PROPERTIES
We own an aggregate of 39,157 miles of underground distribution and transmission mains throughout our gas distribution systems. These mains are located on easements or rights-of-way which generally provide for perpetual use. We maintain our mains through a program of continuous inspection and repair and believe that our system of mains is in good condition. We also own and operate one propane peak shaving plant with a total capacity of approximately 180,000 gallons that can produce an equivalent of approximately 3,300 Mcf daily. We own a liquefied natural gas storage facility with a capacity of 500,000 Mcf which can inject a daily volume of 30,000 Mcf into the system, as well as underground storage fields, as discussed below, that are used to supplement the supply of natural gas in periods of peak demand.
We have seven underground gas storage facilities in Kentucky and four in Kansas. We own a 25 percent interest in a gas storage facility in Napoleonville, Louisiana. This gas storage facility is operated by Acadian Gas Pipeline System who also owns the remaining 75 percent interest. Our 25 percent usable capacity is 364,782 Mcf. In addition to the usable capacity, we maintain 332,917 Mcf of cushion gas to maintain reservoir pressure. The Napoleonville facility has a maximum daily delivery capability of approximately 56,000 Mcf. We also have a contract through March 2003 with Bridgeline Gas Distribution L.L.C. for 250,000 Mcf of usable storage capacity in a storage facility in Sorrento, Louisiana. The Sorrento facility has a maximum daily delivery capability of approximately 25,000 Mcf.
Our total storage capacity is approximately 26.1 Bcf. However, approximately 12.3 Bcf of gas in the storage facilities must be retained as cushion gas to maintain reservoir pressure. The maximum daily delivery capability of these storage facilities is approximately 266,000 Mcf.
Substantially all of our properties in our Colorado-Kansas Division and Mid-States Division with net book values of approximately $184.8 million and $328.8 million are subject to liens under First Mortgage Bonds assumed in our acquisitions of Greeley Gas Company and United Cities Gas Company. At September 30, 2002, the liens collateralized $17.0 million of outstanding 9.4 percent Series J First Mortgage Bonds due May 1, 2021, and $86.6 million of outstanding Series P, Q, R, T, U and V First Mortgage Bonds due at various dates from 2004 through 2022.
Our administrative offices are consolidated in Dallas, Texas under one lease. We also maintain field offices throughout our distribution system, the majority of which are located in leased facilities. Our non-utility operations are headquartered in Houston, Texas, with offices in Houston and other locations, primarily in leased facilities.
Net property, plant and equipment at September 30, 2002 included approximately $1,223.9 million for utility, $9.9 million for natural gas marketing and $66.5 million for other non-utility.
We hold franchises granted by the incorporated cities and towns that we serve. At September 30, 2002, we held 555 such franchises having terms generally ranging from five to 25 years. We believe that each of our franchises will be renewed.
See Note 5 of notes to consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2002.
The following table sets forth certain information as of September 30, 2002, regarding the executive officers of the Company. It is followed by a brief description of the business experience of each executive officer.
YEARS OF
NAME AGE SERVICE OFFICE CURRENTLY HELD
---- --- -------- ---------------------
Robert W. Best............... 55 5 Chairman, President and Chief Executive Officer
John P. Reddy................ 49 4 Senior Vice President and Chief Financial
Officer
R. Earl Fischer.............. 63 40 Senior Vice President, Utility Operations
JD Woodward III.............. 52 1 Senior Vice President, Non-Utility Operations
Louis P. Gregory............. 47 2 Senior Vice President and General Counsel
Wynn D. McGregor............. 49 14 Vice President, Human Resources
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Robert W. Best was named Chairman of the Board, President and Chief Executive Officer in March 1997. He previously served as Senior Vice President -- Regulated Businesses of Consolidated Natural Gas Company (1996-March 1997) and was responsible for its transmission and distribution companies.
John P. Reddy was named Senior Vice President and Chief Financial Officer in September 2000. From April 2000 to September 2000, he was Senior Vice President, Chief Financial Officer and Treasurer. Mr. Reddy previously served the Company as Vice President, Corporate Development and Treasurer from December 1998 to March 2000. He joined the Company in August 1998 from Pacific Enterprises, a Los Angeles, California based utility holding company whose principal subsidiary was Southern California Gas Co. where he was Vice President of Planning and Advisory Services responsible for corporate development and merger and acquisition activities. Mr. Reddy was with Pacific Enterprises from 1980 to 1998 in various management and financial positions.
R. Earl Fischer was named Senior Vice President, Utility Operations in May 2000. He previously served the Company as President of the Texas Division from January 1999 to April 2000 and as President of the Kentucky Division from February 1989 to December 1998.
JD Woodward was named Senior Vice President, Non-Utility Operations in April 2001. Prior to joining the Company, Mr. Woodward was President of Woodward Marketing, L.L.C. from January 1995 to March 2001.
Louis P. Gregory joined the Company as Senior Vice President and General Counsel in September 2000. Prior to joining the Company, he practiced law from April 1999 to August 2000 with the law firm of McManemin & Smith. Prior to that, he served as a consultant and independent contractor from August 1996 to December 1998 for Nomas Corp. (formerly known as Lomas Mortgage USA, Inc.) and Siena Holdings, Inc. (formerly known as Lomas Financial Corporation).
Wynn D. McGregor was named Vice President, Human Resources in January 1994. He previously served the Company as Director of Human Resources from February 1991 to December 1993 and as Manager, Compensation and Employment from December 1987 to January 1991.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our stock trades on the New York Stock Exchange under the trading symbol "ATO." The high and low sale prices and dividends paid per share of our common stock for fiscal 2002 and 2001 are listed below. The high and low prices listed are the actual closing NYSE quotes for shares of our common stock.
DIVIDENDS
HIGH LOW PAID
------ ------ ---------
FISCAL YEAR 2002
Quarter ended:
December 31.......................................... $22.10 $19.46 $.295
March 31............................................. 24.20 20.26 .295
June 30.............................................. 24.46 21.25 .295
September 30......................................... 22.75 18.37 .295
-----
$1.18
=====
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DIVIDENDS
HIGH LOW PAID
------ ------ ---------
FISCAL YEAR 2001
Quarter ended:
December 31.......................................... $26.25 $19.31 $.290
March 31............................................. 25.25 21.50 .290
June 30.............................................. 24.46 21.45 .290
September 30......................................... 23.64 19.79 .290
-----
$1.16
=====
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See Note 3 of notes to consolidated financial statements for restriction on payment of dividends. The number of record holders of our common stock on September 30, 2002 was 28,829.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company and should be read in conjunction with the consolidated financial statements included herein. All income was from continuing operations.
YEAR ENDED SEPTEMBER 30
--------------------------------------------------------------
2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Operating revenues............ $ 950,849 $1,442,275 $ 850,152 $ 690,196 $ 848,208
========== ========== ========== ========== ==========
Net income.................... $ 59,656 $ 56,090 $ 35,918 $ 17,744 $ 55,265
========== ========== ========== ========== ==========
Diluted net income per
share....................... $ 1.45 $ 1.47 $ 1.14 $ .58 $ 1.84
========== ========== ========== ========== ==========
Cash dividends paid per
share....................... $ 1.18 $ 1.16 $ 1.14 $ 1.10 $ 1.06
========== ========== ========== ========== ==========
Total assets at end of year... $1,980,221 $2,036,180 $1,348,758 $1,230,537 $1,141,390
========== ========== ========== ========== ==========
Long-term debt at end of
year........................ $ 670,463 $ 692,399 $ 363,198 $ 377,483 $ 398,548
========== ========== ========== ========== ==========
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
This section provides management's discussion of the financial condition, cash flows and results of operations of Atmos Energy Corporation with specific information on liquidity, capital resources and results of operations. It includes management's interpretation of such financial results, the factors affecting these results, the major factors expected to affect future operating results and future investment and financing plans. This discussion should be read in conjunction with the Company's consolidated financial statements and notes thereto.
CAUTIONARY STATEMENT FOR THE PURPOSES OF THE SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in this Annual Report on Form 10-K 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 fact included in this Report 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 any other of the Company's 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 strategy, operations, markets, services, rates, recovery of costs, availability of gas supply and other factors. These risks and uncertainties include the following: adverse weather conditions such as warmer than normal weather in the Company's service territories; national, regional and local economic conditions, including competition from other energy suppliers as well as alternative forms of energy; regulatory approvals, including the impact of rate proceedings before various state regulatory commissions; successful completion and integration of pending acquisitions; inflation and increased gas costs, including their effect on commodity prices for natural gas; increased competition; further deregulation or "unbundling" of the natural gas distribution industry; hedging and market risk activities and other uncertainties, all of which are difficult to predict and many of which are beyond the control of the Company. Accordingly, while the Company believes these forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. Further, the Company undertakes no obligation to update or revise any of its forward-looking statements whether as a result of new information, future events or otherwise.
RATEMAKING ACTIVITY
The following is a discussion of our ratemaking activity for rate cases that are currently pending as of September 30, 2002 or rate proceedings completed during the three years ended September 30, 2002.
Results of our rate activity for the three years ended September 30, 2002 can be summarized as follows: no rate increases implemented in 2002, net annual rate increases totaling $6.4 million implemented in 2001 and net annual rate increase totaling $12.1 million in 2000.
In August 1999, the Texas Division filed rate cases in its West Texas System cities and Amarillo, Texas, requesting rate increases of approximately $9.8 million and $4.4 million. The Texas Division received an increase in annual revenues of approximately $2.1 million in base rates plus an increase of $0.1 million in service charges in Amarillo, Texas, effective for bills rendered on or after January 1, 2000. The agreement with Amarillo also provided for changes in the rate structure to reduce the impact of warmer than normal weather and to improve the recovery of the actual cost of service calls. The Texas Division's request for an annual increase of approximately $9.8 million from the 67 cities served by its West Texas System was denied. In March 2000, this decision was appealed to the Railroad Commission of Texas. Subsequently, 59 cities representing approximately 58 percent of the Texas Division's customers ratified a non-binding Settlement Agreement. The Settlement Agreement capped the rate increase at $3.0 million and entitled the ratifying cities to accept a rate increase below $3.0 million in the event the Railroad Commission adopted a lesser increase for the non-ratifying cities. Eight cities declined to participate in the settlement and a hearing with the Railroad Commission was held in August 2000. In December 2000, the Railroad Commission approved an increase in annual revenues of approximately $3.0 million that covered all 67 cities served by the West Texas System effective December 1, 2000. In addition, the Railroad Commission approved a new rate design providing more protection from warmer than normal weather for our West Texas System.
In June 1999, the Trans La operations of the Louisiana Division were involved in a rate investigation before the Louisiana Public Service Commission, including the redesign of rates to mitigate the effects of warm winter weather. A decision was rendered by the Louisiana Commission in October 1999 that increased service charges associated with customer service calls and increased the monthly customer charges from $6 to $9, both effective November 1, 1999. While these changes are revenue neutral, they have mitigated the impact of warmer than normal winter weather on earnings. The decision also included a three-year rate stabilization clause which will allow the Trans La operations of our Louisiana Division's rates to be adjusted annually to allow us to earn a return on equity within certain ranges that will be monitored on an annual basis.
In connection with its review of our acquisition of Louisiana Gas Service, the Louisiana Public Service Commission approved a rate structure that requires us to share cost savings that resulted from the acquisition with the customers of Louisiana Gas Service. The shared cost savings will be the difference between operation and maintenance expense in any future year and the 1998 normalized expense for Louisiana Gas Service, indexed for inflation, annual changes in labor costs and customer growth. Beginning January 1, 2002, the customers are assured annual savings, which will be indexed for inflation, annual changes in labor costs and customer growth. The sharing mechanism will remain in place for 20 years subject to established modification procedures.
In January and February 2002, our Louisiana division submitted its 2001 Rate Stabilization filings to the Louisiana Public Service Commission for the two gas systems we operate in Louisiana. Recently completed audits by the Louisiana Public Service Commission of these filings found our earnings to be deficient and that rate adjustments were appropriate. Approved tariff revisions, which became effective November 1, 2002, will result in $15.8 million in additional revenue per year during the first 24-month period. Subsequent to the first 24-month period, adjusted rates will provide $12.2 million in total annual revenue increases. As a result of the actions taken by the Louisiana Public Service Commission, Atmos Energy has decreased its overall weather sensitivity in Louisiana.
In October 2002, Atmos received written notification from the Executive Secretary of the Louisiana Public Service Commission that he was asserting that a monthly facilities fee of approximately $0.6 million charged since July 2001 to Atmos by Trans Louisiana Gas Pipeline, Inc., a wholly-owned subsidiary of Atmos, pursuant to a contract between the parties, was excessive. The Executive Secretary asserted that all monthly facilities fees in excess of approximately $0.1 million from July 2001 should be refunded to ratepayers with interest.
Atmos has responded to the Secretary and noted that it has previously made all required filings with the Commission fully disclosing the amount of the facilities fee. Atmos intends to file another petition seeking Commission approval of the facilities fee by the end of calendar year 2003 similar to that filed in 2001 but containing updated data. In the interim, Atmos is continuing to charge a facilities fee of approximately $0.6 million per month, as the Executive Secretary's correspondence does not constitute action of the Commission.
In May 1999, the Kentucky Division requested from the Kentucky Public Service Commission an increase in revenues, 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 Kentucky Commission granted an increase in annual revenues of approximately $9.9 million. The new rates were effective for services rendered on or after December 21, 1999. In addition, the Kentucky Commission approved a five-year pilot program for weather normalization beginning in November 2000.
On March 25, 2002, the Kentucky Commission issued an Order approving a four year extension, effective April 1, 2002, of the Performance-based Ratemaking mechanism related to gas procurement and gas transportation activities filed by the Kentucky Division. The Performance-based Ratemaking mechanism is incorporated into the Kentucky Division's gas cost adjustment clause. As discussed above, it provides for sharing of purchased gas cost savings between our customers and us. We recognized other income of $1.1 million, $0.2 million and $2.1 million under the Kentucky Performance-based Ratemaking mechanism in fiscal years 2002, 2001 and 2000.
In November 2000, the Colorado-Kansas Division filed a rate case with the Colorado Public Utilities Commission for approximately $4.2 million in additional annual revenues. In May 2001, we received an increase in annual revenues of approximately $2.8 million from the Colorado Public Utilities Commission. The new rates went into effect on May 4, 2001.
Effective April 1, 1999, the Tennessee Regulatory Authority approved the Mid-States Division's request to continue its Performance-based Ratemaking mechanism related to gas procurement and gas transportation activities. The Tennessee Regulatory Authority revised the mechanism from the original two-year experimental period, by increasing the cap for incentive gains and/or losses to $1.25 million per year. Under this agreement, the mechanism has no expiration date and can be amended or cancelled by either the Mid-States Division or the Tennessee Regulatory Authority according to the provisions of the agreement. Similar to Tennessee, the Georgia Public Service Commission renewed our Performance-based Ratemaking program for an additional three years effective May 1, 2002. The gas purchase and capacity release mechanisms of the Performance-based Ratemaking mechanism are designed to provide us incentives to find innovative methods to lower gas costs to our customers. We recognized other income of $0.4 million, $1.0 million and $0.2 million in fiscal years 2002, 2001 and 2000 attributable to the Georgia and Tennessee Performance-based Ratemaking mechanisms.
In February 2000, the Mid-States Division filed a rate case in Illinois with the Illinois Commerce Commission requesting an increase in annual revenues of approximately $3.1 million. After review by the Illinois Commerce Commission, the amount requested was revised to approximately $2.1 million. The Mid-States Division received an increase in annual revenues of approximately $1.4 million. The new rates went into effect on October 23, 2000 and are collected primarily through an increase in monthly customer charges.
In March 2000, the Mid-States Division filed a rate case in Virginia with the State Corporation Commission of the Commonwealth of Virginia requesting an increase in annual revenues of approximately $2.3 million. The State Corporation Commission of Virginia reviewed the filing to determine if it met the appropriate rules and regulations. In July 2000, we refiled the case requesting an increase in revenues of approximately $2.1 million. The Commission accepted the revised filing. In April 2001, the Mid-States Division agreed to an annual rate reduction of $0.5 million effective beginning with the April 2001 billing cycle.
In March 2001, the Mid-States Division and the Iowa Consumer Advocate Division of the Department of Justice reached an agreement for an annual rate reduction of $0.3 million relating to our Iowa operations. The rate reduction was effective in March 2001.
In 2001, the Mid-States Division filed requests for accounting orders related to uncollectable delinquencies in three states. As a result, we were able to defer $1.5 million as a regulatory asset.
We continue to monitor rates in all of our service areas to ensure that they are adequate for the recovery of service costs and return on investment.
WEATHER AND SEASONALITY
Our natural gas utility distribution business and irrigation sales business is seasonal and dependent upon weather conditions in our service areas. Natural gas sales to residential, commercial and public authority customers are affected by winter heating season requirements. This generally results 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. Sales to industrial customers are much less weather sensitive. Sales to agricultural customers, who typically use natural gas to power irrigation pumps during the period from March through September, are affected by rainfall amounts. The effects of colder than normal winter weather in 2001 and the effects of warmer than normal winter weather in 2002 and 2000 on our consolidated volumes delivered are illustrated by the following degree day information. The degree day information presented below for 2002 and 2001 is adjusted for service areas with weather normalized operations. The degree day information for 2000 has not been adjusted for service areas with weather normalized operations as that information was not available.
YEAR ENDED SEPTEMBER 30
------------------------
2002 2001 2000
------ ------ ------
Sales volumes -- Bcf........................................ 145.5 156.6 138.2
Transportation volumes -- Bcf............................... 63.0 61.2 59.4
----- ----- -----
Total............................................. 208.5 217.8 197.6
===== ===== =====
Degree days:
Actual.................................................... 3,368 4,124 2,096
Percent of normal......................................... 94% 115% 82%
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The effects of temperatures that are above or below normal are partially offset in the Tennessee and Georgia jurisdictions served by the Mid-States Division and in the Kentucky jurisdiction served by the Kentucky Division through weather normalization adjustments. The Georgia Public Service Commission, the Tennessee Regulatory Authority and the Kentucky Public Service Commission have approved weather normalization adjustments. The weather normalization adjustments, effective October through May each year in Georgia, and November through April each year in Tennessee and Kentucky, allow the Mid-States Division and the Kentucky Division to increase the base rate portion of customers' bills when weather is warmer than normal and decrease the base rate when weather is colder than normal. The net effect of the weather normalization adjustments was an increase in revenue of $6.0 million in 2002, a decrease in revenues of $3.3 million for 2001 and an increase in revenues of $4.1 million in 2000. Approximately 374,000 or 27 percent of our meters in service are located in Georgia, Tennessee and Kentucky. We did not have weather normalization adjustments in our other service areas during the year ended September 30, 2002. We also received approval to change our rate structure in our West Texas System of the Texas Division beginning in December 2000 to help offset some of the negative effects of weather.
In July 2000, we entered into an agreement to purchase weather hedges for our Texas and Louisiana operations effective for the 2000-2001 heating season. The hedges were designed to help mitigate the effects of weather that was at least seven percent warmer than normal in both Texas and Louisiana while preserving any upside. The cost of the weather hedges was approximately $4.9 million which was amortized over the 2000-2001 heating season. No income was recognized for the 2000-2001 heating season for these weather hedges due to the colder than normal weather. The cost of the weather hedges was more than offset by the positive effects of colder weather on our gross profit.
In June 2001, we purchased a three year weather insurance policy with an option to cancel in the third year. We will receive a refund of a portion of the cost of the policy if we cancel in the third year. The policy is for our Texas and Louisiana operations and covers the entire heating season of October to March beginning with the 2001-2002 heating season. The cost of the three-year policy was $13.2 million which was prepaid and is being amortized over the appropriate heating seasons based on degree days. The insurance is designed to protect against weather that is at least seven percent warmer than normal for the entire heating season. During the 2001-2002 heating season, weather was not at least seven percent warmer than normal resulting in no claim having been filed under the insurance policy. Only the amortization of $4.4 million of premiums was recognized during the heating season.
We have historically hedged approximately 20 to 25 percent of our gas supply through the use of our underground storage assets. For the 2001-2002 heating season, we covered approximately 64 percent of our flowing gas requirements through storage, financial hedges and fixed forward contracts at a weighted average cost of slightly less than $4.00 per Mcf. For the 2002-2003 heating season, we have covered between 45 and 50 percent of our anticipated flowing gas requirements through storage, financial hedges and fixed forward contracts at a weighted average cost of less than $4.00 per Mcf. This should provide protection to us and our customers against potential sharp increases in the price of natural gas during the 2002-2003 heating season.
STATUS OF PENDING ACQUISITION
In September 2001, we entered into a definitive agreement to acquire Mississippi Valley Gas Company, a privately held natural gas utility, for $150.0 million, consisting of $75.0 million cash and $75.0 million of Atmos common stock. In addition, we will repay outstanding long-term debt of Mississippi Valley Gas of approximately $45.0 million. Mississippi Valley Gas provides natural gas distribution service to approximately 261,500 residential, commercial, industrial and other customers located primarily in the northern and central regions of Mississippi. On October 31, 2002, we announced that we had received approval from the Mississippi Public Service Commission to acquire Mississippi Valley Gas. The transaction had previously received federal regulatory approval and approvals from the six other state utility commissions that require approval. We expect to close the acquisition in December 2002.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
General -- Our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States. Preparation of these financial statements required us to make estimates and judgments that affected the reported amounts of assets, liabilities, revenues and expenses and the related disclosures of contingent assets and liabilities. We based our estimates on historical experience and various other assumptions that we believed to be reasonable under the circumstances. On an ongoing basis, we evaluate our estimates, including those related to risk management and trading activities, allowance for doubtful accounts, goodwill and pension and other post retirement plans. Actual results may differ from estimates.
Regulation -- Our utility operations are subject to regulation with respect to rates, service, maintenance of accounting records and various other matters by the respective regulatory authorities in the states in which we operate. Our accounting policies recognize the financial effects of the ratemaking and accounting practices and policies of the various regulatory commissions. Regulated utility operations are accounted for in accordance with Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation." This statement requires cost-based rate regulated entities that meet certain criteria to reflect the authorized recovery of costs due to regulatory decisions in their financial statements. As a result, certain costs are permitted to be capitalized rather than expensed because they can be recovered through rates.
Risk Management and Trading Activities -- We use storage, transportation and requirements contracts, forwards, over-the-counter and exchange-traded options, futures and swap contracts to conduct our risk management and trading activities. Changes in the assets and liabilities from risk management activity result primarily from changes in the valuation of the portfolio of contracts, maturity and settlement of contracts, and newly originated transactions. The market prices and models used to value these transactions reflect management's best estimates considering various factors including closing exchange and over-the-counter quotations, the time value of money and volatility factors underlying the contracts. We adjust the values to reflect the potential impact of liquidating our positions in an orderly manner over a reasonable period of time under present market conditions. Changes in market prices directly affect management's estimate of the fair value of these transactions. Assumptions different from those used would impact these carrying values.
Allowance for Doubtful Accounts -- For the majority of our receivables, we establish an allowance for doubtful accounts based on an aging of those receivable balances. We apply percentages to each aging category based on our collections experience. On certain other receivables where we are aware of a specific customer's inability or reluctance to pay, we record an allowance for doubtful accounts against amounts due to reduce the net receivable balance to the amount we reasonably expect to collect. We believe our allowance for doubtful accounts is adequate. However, if circumstances change, our estimate of the recoverability of accounts receivable could be different.
Goodwill -- At September 30, 2002, we had $185.0 million of goodwill, $150.3 million of which was attributable to our utility segment, $21.3 million was attributable to our natural gas marketing segment and $13.4 million was attributable to our other non-utility segment. We evaluate our goodwill balances for impairment each year during our second fiscal quarter. Our evaluation during the quarter ended March 31, 2002 resulted in no impairment. If our projections of estimated future cash flows change, those changes could result in a reduction in the carrying value of our goodwill.
Pension and Other Postretirement Plans -- Pension and other postretirement plan expenses and liabilities are determined on an actuarial basis and are affected by the market value of plan assets, estimates of the expected return on plan assets and assumed discount rates. Actual changes in the fair market value of plan assets and differences between the actual return on plan assets and the expected return on plan assets could have a material effect on the amount of pension expense ultimately recognized. The assumed return on plan assets is based on management's expectation of the long-term return on plan assets portfolio. The discount rate used to compute the present value of plan liabilities is based generally on rates of high grade corporate bonds with maturities similar to the average period over which benefits will be paid.
Fiscal 2002 was a year in which total cash inflows exceeded total cash outflows. This was generally the result of increased cash flows from operating activities as a result of the Louisiana Gas Service assets acquired in July 2001, the acquisition of the remaining 55 percent of Woodward Marketing that we did not already own in April 2001 and a decrease in cash held in margin accounts partially offset by increased capital expenditures. Common stock issued primarily through our Retirement Savings Plan and our Direct Stock Purchase Plan was also used to finance operations.
CASH FLOWS FROM OPERATING ACTIVITIES
Items on the Consolidated Statement of Cash Flows for the year ended September 30, 2001 reflect changes in balances for the year, net of assets acquired and liabilities assumed in the acquisition of the additional interest in Woodward Marketing, L.L.C. and the assets of Louisiana Gas Service Company and LGS Natural Gas Company. See Note 10 of notes to consolidated financial statements.
Cash flows from operating activities as reported in the consolidated statements of cash flows totaled $296.2 million for 2002 compared to $83.0 million for 2001 and $54.2 million for 2000. The increase in net cash provided by operating activities from 2001 to 2002 was primarily the result of increases in net income, accounts payable and other current liabilities and decreases in cash held on deposit in margin accounts and deferred gas costs. The increase in net cash provided by operating activities was partially offset by increases in accounts receivable. The increase in net income was due primarily to higher gross profit and income from our gas marketing activities partially offset by higher operating expenses and interest expense.
CASH FLOWS FROM INVESTING ACTIVITIES
During the last three years, a substantial portion of our cash resources was used to fund acquisitions, our ongoing construction program to provide natural gas services to our customer base and technology improvements. Net cash used in investing activities totaled $158.2 million in 2002 compared with $468.1 million in 2001 and $100.1 million in 2000. Capital expenditures in fiscal 2002 amounted to $132.3 million, compared with $113.1 million in 2001 and $75.6 million in 2000. The increase in capital expenditures from 2001 to 2002 was primarily the result of additional capital requirements needed due to our growing customer base. Included in investing activities for 2002 is $15.7 million, in our natural gas marketing and other non-utility operations, for the acquisition of Kentucky-based market area storage and associated pipeline facility assets, certain gas marketing assets and the common stock of Southern Resources, Inc. Included in investing activities for 2001 is $363.4 million used to acquire the assets of Louisiana Gas Service Company and LGS Natural Gas Company as discussed in Note 2 of the notes to consolidated financial statements. Included in investing activities in 2000 was $32.0 million used to acquire the Missouri natural gas distribution assets of Associated Natural Gas. Currently budgeted capital expenditures for fiscal 2003 total approximately $160.2 million and include funds for additional mains, services, meters and equipment. In 2003, we also plan to complete the Mississippi Valley Gas Company acquisition for $150.0 million plus the repayment of approximately $45.0 million of outstanding long-term debt as discussed in Note 2 of the notes to consolidated financial statements. Capital expenditures and acquisitions for fiscal 2003 are planned to be financed from internally generated funds and financing activities as discussed below. In 2002, we had $8.5 million in expenditures for assets to be used in leasing activities. In 2001, we had $5.4 million in expenditures for assets to be used in leasing activities. In connection with our acquisition of Woodward Marketing in 2001, we received $8.6 million in cash. In 2001, we received net proceeds of $6.6 million in connection with the sale of certain utility assets. In 2000, we received net proceeds of $6.5 million in connection with the sale of certain propane assets to Heritage Propane Partners, L.P.
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash used by financing activities totaled $106.4 million for 2002 compared with net cash provided by financing activities of $393.0 million for 2001 and $44.7 million for 2000. Financing activities during these periods included issuance of common stock, dividend payments, short-term borrowings from banks under our credit facilities and issuance and repayment of long-term debt. The change in cash used by financing activities in 2002 as compared to cash provided by financing activities in 2001 was due primarily to the issuance of long-term debt and the issuance of common stock during 2001. In 2001, we received $347.1 million in net proceeds from our $350.0 million debt offering in May 2001. The net proceeds were used to help finance the completion of the Louisiana Gas Service Company and LGS Natural Gas Company acquisition in July 2001. Long-term debt repayments totaled $20.7 million, $17.7 million and $14.6 million for 2002, 2001 and 2000. Repayments of long-term debt in 2002, 2001 and 2000 consisted of annual installments under the various loan documents. During 2002, short-term debt decreased by $55.5 million due primarily to more effective collection experience of customer accounts receivable balances which increased the amount of cash available to reduce short-term debt. During 2001, short-term debt decreased $48.8 million due primarily to the use of the net proceeds from our equity offering in December 2000 to reduce commercial paper debt. During 2000, short-term debt increased $81.7 million due to the effect of warmer weather on net income for 2000, the acquisition of the Missouri natural gas distribution assets of Associated Natural Gas for $32.0 million and increases in accounts receivable, cost of gas stored underground and deferred charges.
Issuance of common stock. We issued 884,431, 674,468 and 704,540 shares of common stock in 2002, 2001 and 2000 under our various plans. See the Consolidated Statements of Shareholders' Equity and Note 6 of notes to consolidated financial statements for the number of shares issued and available for issuance under each of our plans. In addition to the shares issued under our various plans, we also issued 6,741,500 shares through our equity offering in December 2000 and 1,423,193 shares of restricted common stock for the acquisition of the remaining 55 percent of Woodward Marketing in April 2001. The net proceeds from the equity offering were used to reduce commercial paper debt as discussed above.
Cash dividends paid. We paid $48.6 million in cash dividends during 2002 compared with $44.1 million in 2001 and $36.0 million in 2000. We increased the dividend per share by $.02 in both 2002 and 2001 and $.04 in 2000. The increase in cash dividends in 2002 over 2001 was also due to the increase in the number of shares outstanding as discussed above.
The excess of cash inflows over outflows has resulted in a slight decrease in debt as a percentage of total capitalization, including short-term debt, as shown in the table below.
SEPTEMBER 30
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2002 2001
------------------ ------------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
Short-term debt................................ $ 145,791 10.3% $ 201,247 13.4%
Long-term debt................................. 692,443 49.1% 713,094 47.6%
Shareholders' equity........................... 573,235 40.6% 583,864 39.0%
---------- ----- ---------- -----
Total capitalization, including short-term
debt......................................... $1,411,469 100.0% $1,498,205 100.0%
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Total debt as a percentage of total capitalization, including short-term debt, was 59.4 percent and 61.0 percent at September 30, 2002 and 2001. Our long-term plans are to decrease the debt to capitalization ratio to nearer its target range of 50-52 percent through cash flow generated from operations, continued issuance of new common stock under our Direct Stock Purchase Plan and Retirement Savings Plan, access to the debt and equity capital markets and limiting annual maintenance and capital expenditures. It is likely that the debt to capitalization ratio will remain in its current range in the near term.
At September 30, 2002, we had short-term committed credit facilities totaling $318.0 million. One short-term unsecured credit facility is for $300.0 million and serves as a backup liquidity facility for our commercial paper program. Our commercial paper is rated A-2 by Standard and Poor's, P-2 by Moody's and F-2 by Fitch. At September 30, 2002, $132.7 million of commercial paper was outstanding. We have a second credit facility in place for $18.0 million. At September 30, 2002, $13.1 million was outstanding under this credit facility. These credit facilities are negotiated at least annually and are used for working capital purposes.
On October 7, 2002, we entered into a $150.0 million short-term unsecured committed credit facility. This credit facility will be used to provide initial funding for the cash portion of the Mississippi Valley Gas acquisition and to refinance Mississippi Valley Gas' existing debt.
At September 30, 2002, our Woodward Marketing subsidiary had an uncommitted demand credit facility for $210.0 million which is used for working capital purposes for our non-utility business. Atmos Energy Holdings, Inc., our wholly-owned subsidiary, is the sole guarantor of all amounts outstanding under this facility. At September 30, 2002, there were no amounts outstanding under this credit facility. Related letters of credit totaling $41.0 million reduced the amount available under this facility. The amount available under this credit facility is also limited by various covenants, including covenants based on working capital. Under the most restrictive covenant, the amount available to Woodward Marketing under this credit facility at September 30, 2002 was $59.0 million.
At September 30, 2002, we also had an unsecured short-term uncommitted credit line for $20.0 million. There were no borrowings under this uncommitted credit facility at September 30, 2002. This uncommitted line is renewed or renegotiated at least annually with varying terms and we pay no fee for the availability of the line. Borrowings under this line are made on a when- and as-available basis at the discretion of the bank.
In addition, Woodward Marketing has up to $100.0 million available from Atmos Energy Holdings for its non-utility business. At September 30, 2002, $20.0 million was outstanding. Any outstanding amounts under the Atmos Energy Holdings facility are subordinated to Woodward Marketing's $210.0 million uncommitted demand credit facility described above. This intercompany loan is eliminated in the consolidated financial statements.
The loan agreements pursuant to which our Senior Notes and First Mortgage Bonds have been issued contain covenants by us with respect to the maintenance of certain debt-to-equity ratios and cash flows and restrictions on the payment of dividends. See Note 3 of notes to consolidated financial statements for more information on these covenants.
The following tables provide information about contractual obligations and commercial commitments at September 30, 2002.
PAYMENTS DUE BY PERIOD
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LESS THAN AFTER
TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS 5 YEARS
-------- --------- --------- --------- --------
(IN THOUSANDS)
CONTRACTUAL OBLIGATIONS
Long-term Debt......................... $692,443 $ 21,980 $34,962 $25,766 $609,735
Capital Lease Obligations.............. 5,754 876 1,719 866 2,293
Operating Leases....................... 66,860 9,572 18,528 15,550 23,210
-------- -------- ------- ------- --------
Total Contractual
Obligations................ $765,057 $ 32,428 $55,209 $42,182 $635,238
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OTHER COMMERCIAL COMMITMENTS
Lines of Credit........................ $145,791 $145,791 $ -- $ -- $ --
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RISK MANAGEMENT AND TRADING ACTIVITIES
We conduct our risk management activities through both our utility and natural gas marketing segments. See Notes 1 and 15 of notes to consolidated financial statements for a description of our risk management activities. The following table shows our risk management assets and liabilities by segment at September 30, 2002.
NATURAL GAS
UTILITY MARKETING TOTAL
------- ----------- --------
(IN THOUSANDS)
Assets from risk management activities, current....... $4,424 $ 23,560 $ 27,984
Assets from risk management activities, noncurrent.... -- 5,241 5,241
Liabilities from risk management activities,
current............................................. -- (18,487) (18,487)
Liabilities from risk management activities,
noncurrent.......................................... -- (3,663) (3,663)
------ -------- --------
Net assets (liabilities).............................. $4,424 $ 6,651 $ 11,075
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In accordance with Financial Accounting Standards No. 71 "Accounting for the Effects of Certain Types of Regulation", current period changes in the assets and liabilities from risk management activities related to our utility segment are recorded as deferred gas cost on the consolidated balance sheet as these costs will ultimately be recovered from ratepayers. Accordingly, there is no earnings impact as a result of the use of these financial instruments. Upon maturity, the contracts are recognized in purchased gas cost on the consolidated statement of income.
To conduct our risk management and trading activities, Atmos Energy Marketing uses natural gas storage, transportation and requirements contracts, forwards, over-the-counter and exchange-traded options, futures and swap contracts. Prior to May 2002, Atmos Energy Marketing engaged in limited financial trading for speculative purposes. Effective in May 2002, Atmos Energy Marketing's financial trading for speculative purposes was discontinued. The mark-to-market method is used to account for these activities, as prescribed in EITF Issue No. 98-10, EITF Issue 00-17 and EITF Issue 02-03. Under this method, the aforementioned contracts are reflected at fair value, inclusive of future servicing costs and valuation adjustments, with resulting unrealized gains and losses recorded as "Assets from risk management activities" and "Liabilities from risk management activities" on the consolidated balance sheet. Current period changes in the assets and liabilities from risk management activities are recognized as net gains or losses on the consolidated statement of income as gas trading margin. Changes in assets and liabilities from risk management activities result primarily from changes in valuation of the portfolio of contracts, maturity and settlement of contracts and newly originated transactions.
Market prices are primarily used to value these transactions. In addition, a market price based model is used for valuing certain storage and transportation contracts. These values reflect management's best estimate considering various factors, including closing exchange and over-the-counter quotations, time value, and volatility factors underlying the contracts. The values are adjusted to reflect the potential impact of liquidating our position in an orderly manner over a reasonable time frame under present market conditions. Changes in market prices directly affect management's estimate of the fair value of these transactions.
At its October 2002 meeting, the Emerging Issues Task Force rescinded EITF Issue Nos. 98-10 and 00-17. The impact on Atmos will be to discontinue mark-to-market accounting of our sales, storage and transportation contracts and our natural gas storage inventory. Any cumulative effect of this change in accounting will depend on the number and valuation of our sales, storage and transportation contracts and our natural gas storage inventory level and valuation at the time we adopt the new rules.
The following table reflects the components of the change in fair value of our non-utility energy trading contract activities for the year ended September 30, 2002 (in thousands).
Fair value of contracts at September 30, 2001............... $ 28,349
Contracts realized/settled................................ (18,910)
Fair value of new contracts............................... 2,447
Other changes in value.................................... (5,235)
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Fair value of contracts at September 30, 2002............... $ 6,651
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The fair value of our non-utility energy trading contracts at September 30, 2002, is segregated below, by time period and fair value source.
FAIR VALUE OF CONTRACTS AT SEPTEMBER 30, 2002
----------------------------------------------------------
MATURITY MATURITY
LESS THAN MATURITY MATURITY EXCESS OF TOTAL FAIR
1 YEAR 1-3 YEARS 4-5 YEARS 5 YEARS VALUE
--------- --------- --------- --------- ----------
(IN THOUSANDS)
SOURCE OF FAIR VALUE
Prices actively quoted................. $(2,546) $ 908 $-- $-- $(1,638)
Prices provided by other external
sources.............................. 3,145 1,159 20 -- 4,324
Prices based on models and other
valuation methods.................... 4,379 (588) 75 99 3,965
------- ------ --- --- -------
Total Fair Value....................... $ 4,978 $1,479 $95 $99 $ 6,651
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FUTURE CAPITAL REQUIREMENTS
We believe that internally generated funds, our credit facilities, commercial paper program and access to the public debt and equity capital markets will provide necessary working capital and liquidity for capital expenditures and other cash needs for fiscal 2003.
RESULTS OF OPERATIONS
Operating revenues decreased by 34 percent to $950.8 million for 2002 from $1.4 billion for 2001. The most significant factors contributing to the decrease in operating revenues were a 31 percent decrease in average sales price due to the decreased cost of gas and a 17 percent decrease in sales volumes due to warmer weather, excluding the additional sales volumes attributable to the Louisiana Gas Service operations acquired in July 2001. During 2002, temperatures were 18 percent warmer than in the corresponding period of the prior year and were six percent warmer than the 30-year normal, adjusted for service areas with weather normalized operations. The total volume of gas sold, excluding the Louisiana Gas Service volumes, for 2002 was 130.6 Bcf compared with 156.5 Bcf for 2001. However, the decrease in sales volumes was partially offset by the additional sales volumes of 14.9 Bcf attributable to the Louisiana Gas Service operations acquired in July 2001. The average cost of gas per Mcf sold decreased 44 percent to $3.81 for 2002 from $6.83 for 2001. However, the decrease in operating revenues was partially offset by increased revenues resulting from the Louisiana Gas Service acquisition in July 2001.
Gross profit increased by five percent to $392.6 million for 2002 from $374.7 million for 2001. The increase in gross profit was due primarily to the additional gross profit resulting from the Louisiana Gas Service acquisition in July 2001 partially offset by the effect of warmer weather. Changes in the cost of gas do not directly affect gross profit because the fluctuations in gas prices are passed through to the customer.
In April 2001, we completed our acquisition of the remaining 55 percent interest in Woodward Marketing, L.L.C. that we did not already own. As a result of this acquisition, the revenues and expenses of Woodward Marketing are now shown on a consolidated basis. For 2002, Atmos Energy Marketing, which includes the operations of Woodward Marketing and Trans Louisiana Industrial Gas Company, had income of $38.5 million in gas trading margin. For 2001, Atmos Energy Marketing had income of $0.5 million in gas trading margin and an equity in earnings of Woodward Marketing of $8.1 million. The increase for 2002 compared to 2001 was primarily due to gains on inventory sales and favorable pricing under natural gas sales contracts as well as our full consolidation of Woodward Marketing beginning April 2001.
Operating expenses increased to $275.8 million for 2002 from $244.9 million for 2001. Operation and maintenance expense increased due primarily to the addition of $21.5 million relating to the Louisiana Gas Service acquisition in July 2001 and an increase of $10.7 million in pension costs. In addition, operation and maintenance expense increased $9.2 million due to the full consolidation of Woodward Marketing's operations beginning April 1, 2001. A decrease in the provision for doubtful accounts of $26.2 million partially offset this increase. The decrease in the provision for doubtful accounts was attributable to the lower gas commodity prices during 2002 as well as our effective recovery of customer receivable balances. Depreciation and amortization increased $13.8 million due to the addition of the assets from the Louisiana Gas Service acquisition in July 2001. Taxes other than income decreased as a result of decreased city franchise taxes and state gross receipts taxes, which are revenue based. However, these taxes are paid by our customers; thus, these amounts are offset in revenues through customer billings and have no effect on net income. The decrease in taxes other than income was partially offset by increases in property and payroll taxes related to the Louisiana Gas Service acquisition in July 2001.
Operating income increased 19 percent for 2002 to $155.3 million from $130.3 million for 2001. The increase in operating income resulted primarily from the increase in gross profit and the income from our gas trading margin described above partially offset by an increase in operating expenses.
Miscellaneous expense decreased $0.6 million to $1.3 million in 2002 compared to $1.9 million in 2001. This decrease was due primarily to an increase in net recoveries related to our performance based-ratemaking mechanisms, the recognition of $0.5 million related to a large industrial contract we received during 2002 and a reduction in the amortization expense recognized related to weather insurance purchased for the 2001-2002 heating season. In addition, we had an increase of $3.0 million in interest income in May 2001 due primarily to interest income earned on the proceeds from our $350.0 million debt offering in 2001. We invested these proceeds in short-term investments until the completion of the Louisiana Gas Service acquisition in July 2001. No such interest income was recognized in 2002.
Interest expense increased $12.2 million to $59.2 million for 2002 compared to $47.0 million for 2001. This increase was due primarily to the interest expense on the $350.0 million debt offering in May 2001.
Net income increased for 2002 by $3.6 million to $59.7 million from $56.1 million for 2001. This increase in net income resulted primarily from the increase in operating income partially offset by the increase in interest expense discussed above.
Operating revenues increased by 70 percent to $1.4 billion for 2001 from $850.2 million for 2000. The most significant factors contributing to the increase in operating revenues were a 58 percent increase in average sales price due to the increased cost of gas and a 10 percent increase in sales and transportation volumes due to colder weather. During 2001, excluding service areas with weather normalized operations, temperatures were 31 percent colder than in the corresponding period of the prior year and were seven percent colder than the 30-year normal. The total volume of gas sold and transported for 2001 was 217.8 Bcf compared with 197.6 Bcf for 2000. During the early part of our 2001 fiscal year, natural gas prices throughout the country began to increase significantly. The average cost of gas per Mcf sold increased to $6.83 for 2001 from $3.79 for 2000. Although we expect to recover our purchased gas costs from customers through purchased gas adjustment mechanisms, generally there is a lag between the time we pay for gas purchases and the time when regulators allow us to place higher rates in service and recover those gas costs. As a result, we have from time to time used short-term borrowings to temporarily finance unrecovered purchased gas costs. Where permitted, we have increased our purchased gas adjustments to help mitigate the increased cost of gas. In addition, as a result of the increased gas costs, our accounts receivable balances during fiscal 2001 increased significantly and, consequently, we also increased our allowance for doubtful accounts, which we considered to be adequate. We do not, however, expect this rise in natural gas prices to have a material adverse effect on our financial condition, results of operations or net cash flows.
In addition, operating revenues increased due to the impact of rate increases in Kentucky, Illinois, Colorado, Amarillo, Texas, and west Texas. Also contributing to the increase in operating revenues was the addition of approximately 48,000 customers in Missouri due to the Associated Natural Gas acquisition completed in fiscal 2000 and the addition of approximately 279,000 residential and commercial meters in Louisiana due to the completion of the Louisiana Gas Service Company acquisition in July 2001. However, operating revenues were partially offset by a reduction related to our former propane assets which were placed into a joint venture partnership in August 2000.
Gross profit increased by 15 percent to $374.7 million for 2001 from $325.7 million for 2000. The increase in gross profit was due primarily to the increase in volumes sold to weather sensitive customers, an increase of $5.1 million in transportation revenues due to higher average transportation revenue per Mcf and increased volumes and a $6.7 million non-recurring adjustment to purchased gas cost to reflect state filings. In addition, gross profit increased due to the impact of rate increases and additional customers, partially offset by a reduction related to our former propane operations. Changes in the cost of gas do not directly affect gross profit because the fluctuations in gas prices are passed through to our customers.
On April 1, 2001, we completed our acquisition of the remaining 55 percent interest in Woodward Marketing, L.L.C. As a result of this acquisition, the revenues and expenses of Woodward Marketing are now shown on a consolidated basis.
Operating expenses increased to $244.9 million for 2001 from $240.4 million for 2000. Operation and maintenance expense decreased due to savings resulting from the continued cost control initiatives started during fiscal 2000 and reduced operation and maintenance expenses associated with our former propane operations which were placed into a joint venture partnership in fiscal 2000. An increase in the provision for doubtful accounts of $8.5 million and pension costs of $4.5 million partially offset this decrease. Depreciation and amortization expense increased due to the completion of the Louisiana Gas Service Company and LGS Natural Gas Company acquisition in July 2001. Taxes other than income increased as a result of increased city franchise taxes and state gross receipts taxes, which are revenue based. However, these taxes are paid by our customers; thus, these amounts are offset in revenues through customer billings and have no effect on net income.
Operating income increased 53 percent for 2001 to $130.3 million from $85.3 million for 2000. The increase in operating income resulted primarily from increased gross profit described above.
Miscellaneous income (expense) decreased $9.3 million to $(1.9) million for 2001 compared to $7.4 million for 2000. This decrease was due primarily to charges incurred related to our Performance-based Ratemaking mechanisms and the amortization of $4.9 million related to weather hedges purchased for our Louisiana and Texas operations. In addition, we recognized a gain of $5.8 million in 2000 resulting from the sale of certain non-utility assets. No such gain occurred in 2001. Partially offsetting the decrease in miscellaneous income (expense) during 2001 was an increase of $3.0 million in interest income due primarily to interest income earned on the proceeds from our $350.0 million debt offering in May 2001. We invested these proceeds in short-term investments until the completion of the Louisiana Gas Service Company and LGS Natural Gas Company acquisition in July 2001.
Interest expense increased $3.2 million to $47.0 million for 2001 compared to $43.8 million for 2000. This increase was due primarily to interest expense on the $350.0 million debt offering in May 2001.
Net income increased for 2001 by $20.2 million to $56.1 million from $35.9 million for 2000. This increase in net income resulted primarily from the increase in sales volumes due to the colder than normal weather and the impact of rate increases discussed above.
FACTORS THAT MAY AFFECT FUTURE PERFORMANCE OF THE COMPANY
Our performance in the future will primarily depend on the results of our utility and natural gas marketing operations. Several factors exist that could influence Atmos' future financial performance, some of which are described below. They should be considered in connection with evaluating forward-looking statements contained in this report or otherwise made by or on behalf of us since these factors could cause actual results and conditions to differ materially from those projected in these forward-looking statements.
Our natural gas sales volumes and related revenues are correlated with heating requirements that result from cold winter weather. Our agricultural sales volumes are associated with the rainfall levels during the growing season in our west Texas irrigation market. Weather is one of the most significant factors influencing our performance. However, as was more fully discussed above, we have purchased weather insurance to mitigate the effect of warmer than historically normal weather in our Texas and Louisiana service areas. In addition, weather normalized rates are in effect in several of our jurisdictions, which should mitigate the adverse effects of warmer than normal weather on our operating results.
Our operations will always be affected by the conditions and overall strength of the national, regional and local economies, including interest rates, changes in the capital markets and increases in the costs of our primary commodity, natural gas. These factors impact the amount of residential, industrial and commercial growth in our service territories. Higher costs of natural gas in recent years have already caused many of our customers to conserve in the use of our gas services and could lead to even more customers utilizing such conservation methods.
Our utility business is subject to various regulated returns on its rate base in each of the 11 states in which we operate. We monitor the allowed rates of return, our effectiveness in earning such rates and initiate rate proceedings or operating changes as needed. In addition, in the normal course of the regulatory environment, assets are placed in service and historical test periods are established before rate cases can be filed. Once rate cases are filed, regulatory bodies have the authority to suspend implementation of the new rates while studying the cases. Because of this process, we must temporarily suffer the negative financial effects of having placed assets in service without the benefit of rate relief, which is commonly referred to as "regulatory lag". In addition, our debt and equity financing programs are also subject to approval by regulatory bodies in five states, which could limit our ability to take advantage of favorable short-term market conditions.
Our acquisition strategy depends on our ability to successfully acquire and integrate the operations of companies such as Mississippi Valley Gas Company, which acquisition is currently expected to close in December 2002. Acquisitions such as Mississippi Valley Gas should help us achieve greater economies of scale by spreading the fixed costs of the utility business over a larger customer base. In addition, the integration of this acquisition into our operations during the next fiscal year will require a substantial commitment of financial resources and management time.
We believe that inflation has caused, and will continue to cause, increases in certain operating expenses, and has required, and will continue to require, assets to be replaced at higher costs. We have a process in place to continually review the adequacy of our gas rates in relation to the increasing cost of providing service and the inherent regulatory lag in adjusting those gas rates. Historically, we have been able to budget and control operating expenses and investments within the amounts authorized to be collected in rates and intend to continue to do so. The ability to control expenses is an important factor that will influence future results.
In addition, the rapid increases in the price of purchased gas, as has occurred in some prior years, causes us to experience a significant increase in short-term debt because we must pay suppliers for such gas when it is purchased long before such costs may be recovered through the collection of monthly customer bills for gas delivered. Also, increases in purchased gas costs cause more customers to be slow to pay their gas bills, leading to higher than normal accounts receivable which in turn lead to higher short-term debt levels and increased bad debts. Should the price of purchased gas increase significantly in the upcoming heating season, we would expect increases in our short-term debt and accounts receivable during fiscal 2003.
We are facing increased competition from other energy suppliers as well as electric companies and from energy marketing and trading companies. In the case of industrial customers, such as manufacturing plants, and agricultural customers, adverse economic conditions, including higher gas costs, could cause such customers to use alternative sources of energy such as electricity or to bypass our systems in favor of special competitive contracts with lower per-unit costs.
We are closely monitoring the development of unbundling initiatives in the natural gas industry. Unbundling is the separation of the provision and pricing of local distribution gas services into discrete components. It typically focuses on the separation of the distribution and gas supply components and the resulting opening of the regulated components of sales services to alternative unregulated suppliers of those services. Because of our enhanced technology and distribution system infrastructures, we believe that we are now positively positioned as unbundling evolves. Consequently, we expect there would be no significant adverse effect on our business should unbundling or further deregulation of the natural gas distribution service business occur.
Utility hedging activities
To protect against volatility in gas prices, we are hedging gas costs for the 2002-2003 heating season by utilizing a combination of storage, financial hedges and fixed forward contracts to stabilize gas prices. For the 2002-2003 heating season, we have covered approximately 45 to 50 percent of our anticipated flowing gas requirements through storage and financial instruments. The gas hedges should help to moderate the effects of higher customer accounts receivable caused by potentially higher gas prices.
Atmos Energy Marketing activities
We acquired a 45 percent interest in Woodward Marketing, L.L.C. in July 1997 as a result of the merger of Atmos and United Cities Gas Company, which had acquired that interest in May 1995. In April 2001, we acquired the 55 percent interest that we did not own from JD Woodward and others for 1,423,193 restricted shares of our common stock. Immediately following the acquisition, Mr. Woodward was elected as a Senior Vice President of Atmos in charge of all non-utility business activities, a position he has held since April 2001. Prior to that time, Mr. Woodward had not been an officer or employee of Atmos.
The principal business of Atmos Energy Marketing, including the activities of Woodward Marketing and Trans Louisiana Industrial Gas Company, Inc., is the overall management of natural gas requirements for municipalities, local gas utility companies and industrial customers located primarily in the southeastern and midwestern United States. This business involves the sale of natural gas by Atmos Energy Marketing to its customers and the management of storage and transportation contracts for its customers under contracts generally having one to two-year terms. At September 30, 2002, Atmos Energy Marketing had 101 municipal customers and 641 industrial customers. Atmos Energy Marketing also sells natural gas to certain of its industrial customers on a delivered burner tip basis under contract terms from 30 days to two years. In addition, Atmos Energy Marketing supplies our regulated operations with a portion of our natural gas requirements on a competitive bid basis. Any mark-to-market gains or losses on these affiliate contacts are eliminated.
In the management of natural gas requirements for municipal and other local utilities, Atmos Energy Marketing sells physical natural gas for future delivery and manages the associated price risk through the use of gas futures, forwards, over-the-counter and exchange-traded options, and swap contracts with counterparties. These financial contracts are marked-to-market at the daily close of business. Atmos Energy Marketing links gas derivatives to physical delivery of natural gas and typically balances its derivatives positions at the end of each trading day. Over-the-counter swap agreements require Atmos Energy Marketing to receive or make payments based on the difference between a fixed price and the market price of natural gas on the settlement date. Atmos Energy Marketing uses these futures and swaps to manage margins on offsetting fixed- price purchase or sale commitments for physical quantities of natural gas, which are also carried on a mark-to-market basis. Mark-to-market accounting refers to the measurement of contracts at fair value determined at the balance sheet date with any gains and losses included in earnings. Options held to manage price risk provide the right, but not the requirement, to buy or sell energy commodities at a fixed price. Atmos Energy Marketing uses options to manage margins and to limit overall price risk exposure. At any point in time, Atmos Energy Marketing may not have completely offset its price risk on these activities.
Energy related services provided by Atmos Energy Marketing include the sale of natural gas to its various customer classes and management of transportation and storage assets and inventories. More specifically, energy services include contract negotiation and administration, load forecasting, storage acquisition, natural gas purchase and delivery and capacity utilization strategies. In providing these services, Atmos Energy Marketing generates income from its utility, municipal and industrial customers through negotiated prices based on the volume of gas supplied to the customer. Atmos Energy Marketing also generates income by taking advantage of the difference between near-term gas prices and prices for future delivery as well as the daily movement of gas prices by utilizing storage and transportation capacity that it controls.
Financial instruments, which subject Atmos Energy Marketing to counterparty risk, consist primarily of financial instruments arising from trading and risk management activities and overnight repurchase agreements that are not insured. Counterparty risk is the risk of loss from nonperformance by financial counterparties to a contract. Exchange-traded future and option contracts are generally guaranteed by the exchanges.
Atmos Energy Marketing's operations are concentrated in the natural gas industry, and its customers and suppliers may be subject to economic risks affecting that industry.
From time to time, Woodward Marketing borrows money to fund its natural gas purchases and to fulfill its obligations to maintain deposit accounts with its counterparties. See Note 3 of notes to consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The risk inherent in our market risk sensitive instruments is the potential loss arising from adverse changes in natural gas commodity prices and interest rates as discussed below. The sensitivity analysis does not, however, consider the effects that such adverse changes may have on overall economic activity nor do they consider additional actions we may take to mitigate exposure to such changes. Actual results may differ.
GAS PRICES
We purchase natural gas for our operations. Substantially all of the cost of gas purchased for utility operations is recovered through purchased gas adjustment mechanisms. The utility segment has a limited market risk in gas prices related to gas purchases in the open market at spot prices for sale to non-regulated energy services customers at fixed prices. As a result, our earnings could be affected by changes in the price and availability of such gas. To protect against volatility in gas prices, we from time to time hedge our gas costs by purchasing futures contracts. Our utility segment does not use such financial instruments for trading purposes and we are not a party to any leveraged derivatives. Market risk is estimated as a hypothetical 10 percent increase in the portion of our gas cost related to fixed-price non-regulated sales. Based on projected fiscal 2003 non-regulated gas sales at fixed prices, such an increase would result in an increase to cost of gas of approximately $4.1 million in fiscal 2003.
In April 2001, we acquired the 55 percent interest in Woodward Marketing, L.L.C., that we did not already own. Atmos Energy Marketing's principal business is the management of natural gas requirements for municipalities, local gas utility companies and industrial customers located primarily in the southeastern and midwestern United States. This business involves the sale of natural gas and the management of storage and transportation contracts for customers under contracts generally having one to two-year terms. Atmos Energy Marketing also sells natural gas to industrial customers on a delivered burner tip basis under contract terms from 30 days to two years. In the management of natural gas requirements for municipal and other local utilities, Atmos Energy Marketing sells natural gas for future delivery and manages price risk through the use of gas futures including forwards, over-the-counter and exchange-traded options, futures and swap contracts. Financial contracts are marked-to-market at the daily close of business.
Prior to May 2002, Atmos Energy Marketing engaged in limited financial trading for speculative purposes for its own account, subject to a risk management policy established by us which limits the level of trading loss to a maximum of 25 percent of the budgeted annual operating income of Atmos Energy Holdings. Compliance with such risk management policy is monitored on a daily basis. In addition, Woodward Marketing's bank credit facility limits open trading positions to 5.0 Bcf of natural gas. Atmos Energy Marketing will continue its financial trading for hedging (risk management purposes) related to its physical trading positions. At September 30, 2002, Atmos Energy Marketing's open positions in its trading operations totaled 1.9 Bcf. In its trading, Atmos Energy Marketing's open trading positions are monitored on a daily basis but are not required to be closed if within the limits set by the bank credit facility. The financial exposure that results from intra-day fluctuations of gas prices and the potential for daily price movements has an impact on the net open position. Based on its open positions at September 30, 2002, a $.50 increase in market strip would result in a $1.0 million decrease in the trading gain. A $.50 decrease in market strip would result in a $1.0 million increase in the trading gain.
Atmos Energy Marketing uses gas futures contracts, over-the-counter and exchange-traded options and swap agreements, in the conduct of its business. Atmos Energy Marketing links gas derivatives to physical delivery of natural gas and typically balances its derivatives positions at the end of each trading day. Over-the-counter swap agreements require Atmos Energy Marketing to receive or make payments based on the difference between a fixed price and the market price of natural gas on the settlement date. Atmos Energy Marketing uses futures and swaps to manage margins on offsetting fixed-price purchase or sale commitments for physical quantities of natural gas. Options held to hedge price risk provide the right, but not the requirement, to buy or sell energy commodities at a fixed price. Atmos Energy Marketing uses options to manage margins and to limit overall price risk exposure.
Counterparty risk is the risk of loss from nonperformance by financial counterparties to a contract. Financial instruments, which subject Atmos Energy Marketing to counterparty risk, consist primarily of financial instruments arising from trading and risk management activities and overnight repurchase agreements that are not insured. Exchange traded future and option contracts are generally guaranteed by the exchanges.
Atmos Energy Marketing's operations are concentrated in the natural gas industry, and its customers and suppliers may be subject to economic risks affecting that industry. Therefore, an economic downturn in the industry could have an adverse affect on the creditworthiness of Atmos Energy Marketing's customers. Atmos Energy Marketing manages credit risk to attempt to minimize its exposure to uncollectible receivables. In compliance with Atmos Energy Marketing's existing credit policy, prospective and existing customers are reviewed for creditworthiness and customers not meeting minimum standards, at the discretion of management, provide security deposits and are subject to various requisite secured payment terms.
INTEREST RATES
Our earnings are affected by changes in short-term interest rates as a result of our issuance of short-term commercial paper and our other short-term borrowings. If market interest rates for short-term borrowings in fiscal 2002 had averaged two percent more, our interest expense would have increased by approximately $2.7 million.
Market risk for fixed-rate long-term obligations is estimated as the potential increase in fair value resulting from a hypothetical one percent decrease in interest rates and amounts to approximately $63.5 million based on discounted cash flow analyses.
As of September 30, 2002, we were not engaged in other activities which would cause exposure to the risk of material earnings or cash flow loss due to changes in interest rates, foreign currency exchange rates or market commodity prices.
Index to financial statements and financial statement schedule:
PAGE
----
Report of independent auditors.............................. 38
Financial statements and supplementary data:
Consolidated balance sheets at September 30, 2002 and
2001................................................... 39
Consolidated statements of income for the years ended
September 30, 2002, 2001 and 2000...................... 40
Consolidated statements of shareholders' equity for the
years ended September 30, 2002, 2001 and 2000.......... 41
Consolidated statements of cash flows for the years ended
September 30, 2002, 2001 and 2000...................... 42
Notes to consolidated financial statements................ 43
Subsequent Event (unaudited).............................. 77
Selected Quarterly Financial Data (unaudited)............. 78
Supplementary Disclosures (unaudited)..................... 79
Financial statement schedule for the years ended September
30, 2002, 2001 and 2000
II. Valuation and Qualifying Accounts..................... 88
|
All other financial statement schedules are omitted because the required information is not present, or not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements and accompanying notes thereto.
Board of Directors
Atmos Energy Corporation
We have audited the accompanying consolidated balance sheets of Atmos Energy Corporation as of September 30, 2002 and 2001, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended September 30, 2002. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Atmos Energy Corporation at September 30, 2002 and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 2002, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
As discussed in Note 1 to the financial statements, in fiscal 2002 the Company adopted Statement of Financial Accounting Standards No. 141, Business Combinations and Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.
Dallas, Texas
November 8, 2002
SEPTEMBER 30
-----------------------
2002 2001
---------- ----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
ASSETS
Property, plant and equipment............................... $2,103,428 $2,055,986
Construction in progress.................................... 24,399 53,881
---------- ----------
2,127,827 2,109,867
Less accumulated depreciation and amortization.............. 827,507 774,469
---------- ----------
Net property, plant and equipment......................... 1,300,320 1,335,398
Current assets
Cash and cash equivalents................................. 46,827 15,263
Cash held on deposit in margin account.................... 10,192 66,666
Accounts receivable, less allowance for doubtful accounts
of $10,509 in 2002 and $16,151 in 2001................. 136,227 124,046
Inventories............................................... 3,769 6,041
Gas stored underground.................................... 91,783 89,555
Assets from risk management activities.................... 27,984 95,968
Deferred gas cost......................................... -- 10,999
Other current assets and prepayments...................... 13,209 15,713
---------- ----------
Total current assets.............................. 329,991 424,251
Intangible assets........................................... 5,365 12,125
Goodwill.................................................... 185,015 64,745
Noncurrent assets from risk management activities........... 5,241 29,771
Deferred charges and other assets........................... 154,289 169,890
---------- ----------
$1,980,221 $2,036,180
========== ==========
CAPITALIZATION AND LIABILITIES
Shareholders' equity
Common stock, no par value (stated at $.005 per share);
100,000,000 shares authorized; issued and outstanding:
2002 -- 41,675,932 shares, 2001 -- 40,791,501 shares... $ 208 $ 204
Additional paid-in capital................................ 508,265 489,948
Retained earnings......................................... 106,142 95,132
Accumulated other comprehensive income (loss)............. (41,380) (1,420)
---------- ----------
Shareholders' equity.............................. 573,235 583,864
Long-term debt.............................................. 670,463 692,399
---------- ----------
Total capitalization.............................. 1,243,698 1,276,263
Current liabilities
Current maturities of long-term debt...................... 21,980 20,695
Short-term debt........................................... 145,791 201,247
Accounts payable and accrued liabilities.................. 135,609 84,471
Taxes payable............................................. 15,626 11,620
Customers' deposits....................................... 31,147 32,351
Liabilities from risk management activities............... 18,487 119,484
Deferred gas cost......................................... 21,947 --
Other current liabilities................................. 72,520 41,161
---------- ----------
Total current liabilities......................... 463,107 511,029
Deferred income taxes....................................... 134,540 138,934
Noncurrent liabilities from risk management activities...... 3,663 7,412
Deferred credits and other liabilities...................... 135,213 102,542
---------- ----------
$1,980,221 $2,036,180
========== ==========
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See accompanying notes to consolidated financial statements
YEAR ENDED SEPTEMBER 30
--------------------------------------
2002 2001 2000
---------- ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Operating revenues.......................................... $950,849 $1,442,275 $850,152
Purchased gas cost.......................................... 558,247 1,067,555 524,446
-------- ---------- --------
Gross profit................................................ 392,602 374,720 325,706
Gas trading margin.......................................... 38,538 488 --
Operating expenses
Operation and maintenance................................. 158,119 139,608 147,897
Depreciation and amortization............................. 81,469 67,664 63,855
Taxes, other than income.................................. 36,221 37,655 28,638
-------- ---------- --------
Total operating expenses.......................... 275,809 244,927 240,390
-------- ---------- --------
Operating income............................................ 155,331 130,281 85,316
Other income (expense)
Equity in earnings of Woodward Marketing, L.L.C. ......... -- 8,062 7,307
Miscellaneous income (expense), net....................... (1,321) (1,874) 7,437
-------- ---------- --------
Total other income (expense)...................... (1,321) 6,188 14,744
Interest charges............................................ 59,174 47,011 43,823
-------- ---------- --------
Income before income taxes.................................. 94,836 89,458 56,237
Income taxes................................................ 35,180 33,368 20,319
-------- ---------- --------
Net income........................................ $ 59,656 $ 56,090 $ 35,918
======== ========== ========
Basic net income per share.................................. $ 1.45 $ 1.47 $ 1.14
======== ========== ========
Diluted net income per share................................ $ 1.45 $ 1.47 $ 1.14
======== ========== ========
Cash dividends per share.................................... $ 1.18 $ 1.16 $ 1.14
======== ========== ========
Weighted average shares outstanding:
Basic..................................................... 41,171 38,156 31,461
======== ========== ========
Diluted................................................... 41,250 38,247 31,594
======== ========== ========
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See accompanying notes to consolidated financial statements
COMMON STOCK ACCUMULATED
------------------- ADDITIONAL OTHER
NUMBER OF STATED PAID-IN COMPREHENSIVE RETAINED
SHARES VALUE CAPITAL INCOME (LOSS) EARNINGS TOTAL
---------- ------ ---------- ------------- -------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
Balance, September 30, 1999.......... 31,247,800 $156 $293,359 $ 917 $ 83,231 $377,663
Comprehensive income:
Net income......................... -- -- -- -- 35,918 35,918
Unrealized holding gains on
investments, net................. -- -- -- 1,348 -- 1,348
--------
Total comprehensive
income.................... 37,266
Cash dividends ($1.14 per share)..... -- -- -- -- (35,995) (35,995)
Common stock:
Direct stock purchase plan......... 440,990 2 8,588 -- -- 8,590
Retirement savings plan............ 258,049 1 4,842 -- -- 4,843
Long-term stock plan for United
Cities Division.................. 4,200 -- 66 -- -- 66
Outside directors stock-for-fee
plan............................. 2,601 1 50 -- -- 51
Cancellation of restricted stock... (1,300) -- (18) -- -- (18)
---------- ---- -------- -------- -------- --------
Balance, September 30, 2000.......... 31,952,340 160 306,887 2,265 83,154 392,466
Comprehensive income:
Net income......................... -- -- -- -- 56,090 56,090
Unrealized holding losses on
investments, net................. -- -- -- (3,685) -- (3,685)
--------
Total comprehensive
income.................... 52,405
Cash dividends ($1.16 per share)..... -- -- -- -- (44,112) (44,112)
Common stock issued:
Direct stock purchase plan......... 411,159 2 8,682 -- -- 8,684
Retirement savings plan............ 225,945 1 5,098 -- -- 5,099
Long-term stock plan for United
Cities Division.................. 15,300 -- 240 -- -- 240
Long-term incentive plan........... 17,172 -- 272 -- -- 272
Directors equity incentive
compensation plan................ 2,740 -- 60 -- -- 60
Outside directors stock-for-fee
plan............................. 2,152 -- 50 -- -- 50
Woodward Marketing, L.L.C.
acquisition...................... 1,423,193 7 26,650 -- -- 26,657
Public offering.................... 6,741,500 34 142,009 -- -- 142,043
---------- ---- -------- -------- -------- --------
Balance, September 30, 2001.......... 40,791,501 204 489,948 (1,420) 95,132 583,864
Comprehensive income:
Net income......................... -- -- -- -- 59,656 59,656
Minimum pension liability, net..... -- -- -- (39,432) -- (39,432)
Unrealized holding losses on
investments, net................. -- -- -- (528) -- (528)
--------
Total comprehensive
income.................... 19,696
Cash dividends ($1.18 per share)..... -- -- -- -- (48,646) (48,646)
Common stock issued:
Direct stock purchase plan......... 505,202 2 10,546 -- -- 10,548
Retirement savings plan............ 326,335 2 7,137 -- -- 7,139
Long-term incentive plan........... 50,465 -- 579 -- -- 579
Outside directors stock-for-fee
plan............................. 2,429 -- 55 -- -- 55
---------- ---- -------- -------- -------- --------
Balance, September 30, 2002.......... 41,675,932 $208 $508,265 $(41,380) $106,142 $573,235
========== ==== ======== ======== ======== ========
|
See accompanying notes to consolidated financial statements
YEAR ENDED SEPTEMBER 30
---------------------------------
2002 2001 2000
--------- --------- ---------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................. $ 59,656 $ 56,090 $ 35,918
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization:
Charged to depreciation and amortization........... 81,469 67,664 63,855
Charged to other accounts.......................... 2,452 2,806 3,065
Deferred income taxes................................ 14,509 18,501 18,251
Other................................................ (3,371) (979) --
Net assets/liabilities from risk management
activities......................................... (9,576) 13,881 --
Gain on sale of non-regulated assets................. -- -- (5,831)
Changes in assets and liabilities:
(Increase) decrease in cash held on deposit in margin
account............................................ 56,474 (62,181) --
(Increase) decrease in accounts receivable........... (12,181) 65,032 (11,260)
Decrease in inventories.............................. 2,272 374 2,037
Increase in gas stored underground................... (2,228) (3,376) (17,518)
(Increase) decrease in deferred gas cost............. 32,946 15,440 (31,353)
(Increase) decrease in other current assets and
prepayments........................................ 2,504 (6,646) (4,930)
Increase in deferred charges and other assets........ (33,515) (12,143) (13,053)
Increase (decrease) in accounts payable.............. 51,138 (94,769) 8,643
Increase in taxes payable............................ 4,006 791 9,607
Increase (decrease) in customers' deposits........... (1,204) 6,078 (909)
Increase (decrease) in other current liabilities..... 31,393 9,019 (4,866)
Increase in deferred credits and other liabilities... 19,487 7,413 2,540
--------- --------- ---------
Net cash provided by operating activities.......... 296,231 82,995 54,196
CASH FLOWS USED IN INVESTING ACTIVITIES
Capital expenditures.................................... (132,252) (113,109) (75,557)
Acquisitions............................................ (15,747) (363,399) (32,000)
Retirements of property, plant and equipment, net....... (1,725) (1,460) 957
Assets for leasing activities........................... (8,511) (5,377) --
Increase in cash from acquisition....................... -- 8,644 --
Proceeds from sale of assets, net....................... -- 6,625 6,467
--------- --------- ---------
Net cash used in investing activities.............. (158,235) (468,076) (100,133)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in short-term debt.............. (55,456) (48,800) 81,743
Net proceeds from issuance of long-term debt............ -- 347,099 --
Repayment of long-term debt............................. (20,651) (17,670) (14,567)
Cash dividends paid..................................... (48,646) (44,112) (35,995)
Issuance of common stock................................ 18,321 14,405 13,550
Net proceeds from equity offering....................... -- 142,043 --
--------- --------- ---------
Net cash provided (used) by financing activities... (106,432) 392,965 44,731
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents...... 31,564 7,884 (1,206)
Cash and cash equivalents at beginning of year............ 15,263 7,379 8,585
--------- --------- ---------
Cash and cash equivalents at end of year.................. $ 46,827 $ 15,263 $ 7,379
========= ========= =========
|
See accompanying notes to consolidated financial statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business -- Atmos Energy Corporation and its subsidiaries are engaged primarily in the natural gas utility business as well as certain non-regulated businesses. We distribute natural gas through sales and transportation arrangements to approximately 1.4 million residential, commercial, public authority and industrial customers through our five regulated utility divisions: Atmos Energy Colorado-Kansas Division (formerly Greeley Gas Division) in Colorado, Kansas and Missouri; Atmos Energy Kentucky Division (formerly Western Kentucky Gas Division) in Kentucky; Atmos Energy Louisiana Division (formerly Atmos Energy Louisiana Gas Division) in Louisiana; Atmos Energy Mid-States Division (formerly United Cities Gas Division) in Illinois, Tennessee, Iowa, Virginia, Georgia and Missouri; and Atmos Energy Texas Division (formerly Energas Division) in Texas. Such business is subject to federal and state regulation and/or regulation by local authorities in each of the states in which the utility divisions operate. Our shared services unit is located in Dallas, Texas and our customer support centers are located in Amarillo, Texas and Metairie, Louisiana. Our non-utility businesses include various energy service businesses as described below.
Through Atmos Energy Marketing, L.L.C., we are engaged in gas marketing and energy management services. Atmos Energy Marketing provides gas supply management services to industrial customers, municipalities and local distribution companies including our five regulated utility divisions. Woodward Marketing, L.L.C. and Trans Louisiana Industrial Gas Company, Inc. are wholly-owned subsidiaries of Atmos Energy Marketing.
Through Atmos Pipeline and Storage, L.L.C., we own and operate natural gas storage fields in Kansas, Kentucky and Louisiana to supplement natural gas used by customers of the regulated utility divisions in Kansas, Kentucky, Tennessee and Louisiana and to provide storage services to other customers including customers in other states.
Through Atmos Power Systems, Inc., we construct and operate electrical power generating plants and associated facilities. Atmos Power Systems may also enter into agreements to either lease or sell such plants.
In addition, our non-utility businesses provide various retail services and own an indirect interest in Heritage Propane Partners as described below.
We were formerly engaged in the retail and wholesale distribution of propane gas through United Cities Propane Gas, Inc. On February 15, 2000, we entered into an agreement to form a joint venture which combined our propane operations with the propane operations of three other unrelated companies. The combined joint venture was named U.S. Propane, L.P. On June 15, 2000, U.S. Propane, in which we are a 19 percent partner, entered into an agreement to combine its operations with Heritage Holdings, Inc. Upon closing of this transaction, which occurred in August 2000, U.S. Propane owns all of the general partnership interest and approximately 30 percent of the limited partnership interest in Heritage Propane Partners, a publicly traded master limited partnership. Through our ownership in U.S. Propane, we own an approximate six percent interest in Heritage Propane Partners.
Principles of consolidation -- The accompanying consolidated financial statements include the accounts of Atmos Energy Corporation and its wholly-owned subsidiaries. All material intercompany transactions have been eliminated.
Prior to April 1, 2001, we owned a 45 percent interest in Woodward Marketing, L.L.C. and accounted for that ownership using the equity method of accounting for investments. Subsequent to April 1, 2001, we owned 100 percent of Woodward Marketing and have accounted for that ownership on a consolidated basis. See Note 2.
Subsequent to August 10, 2000, we accounted for our interest in U.S. Propane using the equity method of accounting.
Intangible assets -- Intangible assets consist primarily of customer contracts valued at fair market value. These contracts have a gross carrying value of $5.8 million. The weighted average amortization period is 10 years and amortization expense is $0.6 million per year.
Goodwill -- Total goodwill was $185.0 million and $64.7 million at September 30, 2002 and 2001. Goodwill applicable to the utility segment was $150.3 million and $36.9 at September 30, 2002 and 2001. Goodwill applicable to the natural gas marketing segment was $21.3 million and $15.0 million at September 30, 2002 and 2001. Goodwill applicable to the other non-utility segment was $13.4 million and $12.8 million at September 30, 2002 and 2001. Goodwill applicable to the utility segment resulted from the acquisition of the Louisiana Gas Service Company assets on July 1, 2001 and is not subject to amortization under the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." Goodwill applicable to the natural gas marketing segment was amortized over 20 years through September 30, 2001. Effective October 1, 2001, goodwill applicable to the natural gas marketing segment was not amortized under the provisions of SFAS No. 142. The proforma effect of adopting SFAS No. 142 would be to increase net income by $0.3 million in 2001 and $0.1 million in 2000. Under the provisions of SFAS No. 142, we evaluate our goodwill balance annually in our second quarter or as impairment indicators arise. The initial evaluation took place during the second quarter of fiscal 2002. We use a present value technique based on discounted cash flows to estimate the fair value of our reporting groups. No impairment of our goodwill balance was indicated as a result of that evaluation.
Impairment of Long-Lived Assets -- We periodically evaluate whether events or circumstances have occurred that indicate that other long-lived assets may not be recoverable or that the remaining useful life may warrant revision. When such events or circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value will be recovered through the expected future cash flows. In the event the sum of the expected future cash flows resulting from the use of the asset is less than the carrying value of the asset, an impairment loss equal to the excess of the asset's carrying value over its fair value is recorded. To date, no impairment has been recognized.
Regulation -- Our utility operations are subject to regulation with respect to rates, service, maintenance of accounting records and various other matters by the respective regulatory authorities in the states in which we operate. Our accounting policies recognize the financial effects of the ratemaking and accounting practices and policies of the various regulatory commissions. Regulated utility operations are accounted for in accordance with Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation." This statement requires cost-based rate regulated entities that meet certain criteria to reflect the authorized recovery of costs due to regulatory decisions in their financial statements.
We record regulatory assets which represent assets that are being recovered through customer rates or are probable of being recovered through customer rates. Significant regulatory assets as of September 30, 2002 included merger and integration costs included in deferred charges and other assets and environmental costs of $3.7 million. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are to be credited to customers through the ratemaking process. As of September 30, 2002, we had recorded a regulatory liability of $3.3 million for deferred income taxes.
Revenue recognition -- Sales of natural gas are billed on a monthly cycle basis; however, the billing cycle periods for certain classes of customers do not necessarily coincide with accounting periods used for financial reporting purposes. We follow the revenue accrual method of accounting for natural gas revenues whereby revenues applicable to gas delivered to customers, but not yet billed under the cycle billing method, are estimated and accrued and the related costs are charged to expense. Estimated losses due to credit risk are reserved at the time revenue is recognized.
Accounts receivable and allowance for doubtful accounts -- Accounts receivable consist of natural gas sales to residential, commercial, industrial, agricultural and other customers. The allowance for doubtful accounts is computed based on the aging of outstanding accounts receivable and historical collections experience and represents in management's opinion, an adequate allowance to provide for probable uncollectable accounts.
Utility property, plant and equipment -- Utility property, plant and equipment is stated at original cost net of contributions in aid of construction. The cost of additions includes direct construction costs, payroll related costs (taxes, pensions and other fringe benefits), administrative and general costs and an allowance for funds used during construction. (See allowance for funds used during construction below). Major renewals and betterments are capitalized while the costs of maintenance and repairs are charged to expense as incurred. The costs of large projects are accumulated in construction in progress until the project is completed. When the project is completed, tested and placed in service, the balance is transferred to the utility plant in service account included in the rate base and depreciation begins. Property, plant and equipment is depreciated at various rates on a straight-line basis over the estimated useful lives of the assets. The composite rates were 3.8 percent for 2002, 3.7 percent for 2001 and 4.1 percent for 2000. At the time property, plant and equipment is retired, the cost, plus removal expenses less salvage, is charged to accumulated depreciation.
Allowance for funds used during construction -- Allowance for funds used during construction represents the estimated cost of funds used to finance the construction of major projects. Under regulatory practices, the costs are capitalized and included in rate base for ratemaking purposes when the completed projects are placed in service. Interest expense of $1.3 million and $1.2 million was capitalized in 2002 and 2001. No interest expense was capitalized during 2000.
Non-utility property, plant and equipment -- Balances are stated at cost and depreciation is generally computed on the straight-line method for financial reporting purposes. The estimated useful lives of our non-utility assets range between 8 and 38 years.
Gas stored underground -- Net additions of inventory gas to storage and withdrawals of inventory gas from storage are priced using the average cost method for all our utility divisions, except for the Mid-States Division, where it is priced on the first-in first-out method. Gas stored underground and owned by Atmos Pipeline and Storage is priced on the last-in first-out method. Gas in storage that is retained as cushion gas to maintain reservoir pressure is classified as property, plant and equipment and is priced at cost.
Risk management assets, natural gas marketing segment -- We use storage, transportation and requirements contracts, forwards, over-the-counter and exchange-traded options, futures and swap contracts to conduct our risk management activities. We use the mark-to-market method to account for these activities in accordance with Emerging Issues Task Force Issue No. 98-10, "Accounting for Energy Trading and Risk Management Activities." Under this method, the aforementioned contracts are reflected at fair value, inclusive of future servicing costs and valuation adjustments, with resulting unrealized gains and losses recorded as assets or liabilities from risk management activities on the consolidated balance sheet. Current period changes in the assets and liabilities from risk management activities are recognized as net gains or losses on the consolidated statement of income. Changes in the assets and liabilities from risk management activities result primarily from changes in the valuation of the portfolio of contracts, maturity and settlement of contracts and newly originated transactions. Market prices and models used to value these transactions reflect our best estimate considering various factors including closing exchange and over-the-counter quotations, time value and volatility factors underlying the contracts. Values are adjusted to reflect the potential impact of liquidating our positions in an orderly manner over a reasonable period of time under present market conditions. Changes in market prices directly affect our estimate of the fair value of these transactions. Certain contracts within this segment are not subject to EITF Issue No. 98-10 and are therefore accounted for on the accrual basis.
At September 30, 2002, we had net outstanding contracts representing 1.9 Bcf of net notional volumes with average contract maturities of less than two years. These contracts were marked to market. Contracts representing 75 percent of the fair value of these contracts are scheduled to mature within one year. Contracts representing 22 percent of the remaining fair value are scheduled to mature within three years.
Risk management assets, utility segment -- Our divisions have entered into financial instruments for the 2002-2003 heating season. The purpose of entering into these financial instruments is to protect us and our customers from unusually large winter period gas price increases. We use the mark-to-market method as prescribed by Financial Accounting Standard No. 133 "Accounting for Derivatives and Hedging Activities" to account for these activities. In accordance with Financial Accounting Standards No. 71 "Accounting for the Effects of Certain Types of Regulation", current period changes in the assets and liabilities from risk management activities are recorded as deferred gas costs on the consolidated balance sheet due to recoverability in rates. Accordingly, there is no earnings impact as a result of the use of these financial instruments. See Note 15. Upon maturity, the contracts are recognized in purchased gas cost.
Income taxes -- Income taxes are provided based on the liability method, resulting in income tax assets and liabilities due to temporary differences. Temporary differences are differences between the tax bases of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. The liability method requires the effect of tax rate changes on current and accumulated deferred income taxes to be reflected in the period in which the rate change was enacted. The liability method also requires that deferred tax assets be reduced by a valuation allowance unless it is more likely than not that the assets will be realized.
Cash and cash equivalents -- We consider all highly liquid investments with an initial or remaining maturity of three months or less to be cash equivalents.
Deferred charges and other assets -- Deferred charges and other assets at September 30, 2002 and 2001 include merger and integration costs of $27.0 million and $24.2 million, net of the related reserve for possible non-recovery and accumulated amortization and the indirect investment in Heritage Propane Partners of $22.2 million and $23.8 million in 2002 and 2001. Also included in deferred charges and other assets are assets of our qualified defined benefit retirement plans in excess of the plans' obligations of none and $44.4 million, assets related to the nonqualified retirement plans of $27.7 million and $25.1 million, unamortized debt acquisition expense of $8.9 million and $9.7 million, prepaid weather insurance premiums of $8.8 million and $8.8 million, long-term receivable on leased assets of $8.8 million and $9.8 million and deferred asset projects of $6.6 million and $12.6 million at September 30, 2002 and 2001.
Deferred credits and other liabilities -- Deferred credits and other liabilities at September 30, 2002 and 2001 include customer advances for construction of $12.0 million and $11.7 million; net additional minimum pension liability related to our qualified defined benefit retirement plan of $15.7 million and none; obligations under other postretirement benefits of $39.5 million and $38.1 million; and obligations under our nonqualified retirement plans of $38.0 million and $34.2 million.
Pension and Other Postretirement Plans -- Pension and other postretirement plan expenses and liabilities are determined on an actuarial basis and are affected by the market value of plan assets, estimates of the expected return on plan assets and assumed discount rates. Actual changes in the fair market value of plan assets and differences between the actual return on plan assets and the expected return on plan assets could have a material effect on the amount of pension expense ultimately recognized. The assumed return on plan assets is based on management's expectation of the long-term return on plan assets portfolio. The discount rate used to compute the present value of plan liabilities is based generally on rates of high grade corporate bonds with maturities similar to the average period over which benefits will be paid. At September 30, 2002 and 2001, prepaid pension assets were $47.9 million and $44.4 million. At September 30, 2002, we recorded an additional minimum pension liability of $63.6 million resulting in a net pension liability of $15.7 million which is included in deferred credits and other liabilities on the consolidated balance sheet. At September 30, 2001, no minimum pension liability was required and the prepaid pension assets were included in deferred charges and other assets on the consolidated balance sheet.
Earnings per share -- The calculation of basic earnings per share is based on net income divided by the weighted average number of common shares outstanding. The calculation of diluted earnings per share is based on net income divided by the weighted average number of shares outstanding plus the dilutive shares related to the United Cities' Long-term Stock Plan, the Long-Term Incentive Plan and Atmos' Restricted Stock Grant Plan.
Comprehensive income -- In 1999, we adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This statement requires reporting of comprehensive income and its components (revenues, expenses, gains and losses) in any complete presentation of general purpose financial statements. Comprehensive income describes 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. While the primary component of comprehensive income is our reported net income, the other components of comprehensive income relate to unrealized gains and losses associated with certain investments held as available for sale and minimum pension liability adjustments.
The following table presents the components of other comprehensive income (loss) and the related tax effect for the years ended September 30, 2002, 2001 and 2000:
2002 2001 2000
-------- ------- ------
(IN THOUSANDS)
Unrealized holding gains (losses) on investments........ $ (840) $(5,845) $2,106
Minimum pension liability............................... (63,600) -- --
-------- ------- ------
(64,440) (5,845) 2,106
Tax expense (benefit)................................... (24,480) (2,160) 758
-------- ------- ------
Other comprehensive income (loss)....................... $(39,960) $(3,685) $1,348
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Use of estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.
Weather insurance and hedges -- In June 2001, we purchased a three year weather insurance policy with an option to cancel in the third year. We will receive a refund of a portion of the cost of the policy if we cancel in the third year. The policy is for our Texas and Louisiana operations and covers the entire heating season of October to March beginning with the 2001-2002 heating season. The cost of the three year policy was $13.2 million which was prepaid and is being amortized over the appropriate heating seasons based on degree days. The insurance is designed to protect against weather that is at least seven percent warmer than normal for the entire heating season. During the 2001-2002 heating season, weather was not at least seven percent warmer than normal resulting in no claim having been filed under the insurance policy. Only the amortization of $4.4 million of premiums was recognized during the heating season.
In July 2000, we entered into an agreement to purchase weather hedges for our Texas and Louisiana operations effective for the 2000-2001 heating season. The hedges were designed to help mitigate the effects of weather that was at least seven percent warmer than normal in both Texas and Louisiana while preserving any upside. The cost of the weather hedges was approximately $4.9 million which was amortized over the 2000-2001 heating season. No income was recognized for the 2000-2001 heating season for these weather hedges due to the colder than normal weather. The cost of the weather hedges was more than offset by the positive effects of colder weather on our gross profit.
Recently issued accounting standards not yet adopted -- In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations." This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The provisions of this Statement are effective for financial statements issued for fiscal years beginning after June 15, 2002. We believe that the impact of adopting SFAS No. 143 will not be material. This conclusion was based on the perpetual nature of our franchise agreements and on our experience in the businesses in which we operate.
In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This Statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The provisions of this Statement are effective for financial statements issued for fiscal years beginning after December 15, 2001. We believe that the impact of adopting SFAS No. 144 will not be material.
At its October 2002 meeting, the Emerging Issues Task Force rescinded EITF Issue Nos. 98-10 and 00-17. The impact on Atmos Energy Marketing will be to discontinue mark-to-market accounting of our sales, storage and transportation contracts and our natural gas storage inventory. Any cumulative effect of this change in accounting will depend on the number and valuation of our sales, storage and transportation contracts and our natural gas storage inventory level and valuation at the time we adopt the new rules. The consensus to rescind EITF Issue No. 98-10 is effective for all new contracts entered into (and physical inventory purchased or produced) after October 25, 2002. The consensus is effective for fiscal periods beginning after December 15, 2002 for energy trading and energy-related contracts that existed on or before October 25, 2002 that remain in effect at the date the consensus is initially applied. We are currently evaluating the impact of this rescission on our financial condition, results of operations and cash flows.
Reclassifications -- Certain prior year amounts have been reclassified to conform with the current year presentation.
2. ACQUISITIONS
In April 2001, we acquired from Woodward Marketing, Inc. the 55 percent interest in Woodward Marketing, L.L.C. that we did not already own in exchange for 1,423,193 restricted shares of our common stock. The consideration is subject to a potential upward adjustment, based on our share price, of up to 232,547 shares plus an amount of shares to compensate for dividends paid after the completion of the acquisition. The adjustment period expires on March 31, 2006. The pro forma effects for the fiscal year ended September 30, 2001 of combining 100 percent of Woodward Marketing's results of operations with Atmos' consolidated results of operations would have been a $17.9 million increase in gas trading margin to $18.4 million, elimination of the $8.1 million equity in earnings of Woodward Marketing, a $6.2 million increase in net income to $62.3 million and a $.13 increase in diluted earnings per share to $1.60.
Such pro forma effects for the fiscal year ended September 30, 2000 would have been a $16.2 million increase in gas trading margin to $16.2 million, elimination of the $7.3 million equity in earnings of Woodward Marketing, a $5.7 million increase in net income to $41.2 million and a $.12 increase in diluted earnings per share to $1.26.
The acquisition enabled us to control Woodward Marketing's future direction and strategies. Since April 1, 2001, 100 percent of Woodward Marketing's operations have been consolidated with our operations.
The following table summarizes the fair market value of Woodward Marketing's assets as of April 1, 2001, in thousands:
Net property, plant and equipment........................... $ 1,649
Current assets.............................................. 128,386
Other intangible assets..................................... 250
Goodwill.................................................... 12,310
Deferred charges and other assets........................... 22
---------
Total assets acquired............................. 142,617
Current liabilities......................................... (102,997)
Noncurrent liabilities...................................... (856)
Value of 45 percent already owned........................... (12,107)
---------
Net assets acquired............................... $ 26,657
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Other intangible assets represent the fair market value of non-compete contracts. The cost assigned to these contracts is being amortized over 10 years. The value assigned to goodwill was based on our belief that ownership of 100 percent of Woodward Marketing would enable us to exercise greater control over Woodward Marketing's operation, thereby increasing its value. The goodwill amount is applicable to our Natural Gas Marketing segment. We expect that the goodwill amount will not be deductible for tax purposes.
Effective July 1, 2001, we acquired the assets of Louisiana Gas Service Company and LGS Natural Gas Company for $363.4 million. The acquired assets provide natural gas distribution service through approximately 279,000 residential and commercial meters in southeastern and northern Louisiana. The service territory includes the suburban areas of metropolitan New Orleans (excluding Orleans Parish), the north shore of Lake Pontchartrain and the Monroe/West Monroe metropolitan area. The non-utility operations include a natural gas marketing company and an intrastate pipeline company which provides gas transportation service to industrial customers in Louisiana and to the acquired assets.
The acquisition increased the size of our operations in Louisiana and allowed us to achieve certain synergies and cost savings by combining the acquired operations with our existing Louisiana operations. Beginning in July 2001, results of operations of the Louisiana Gas Service assets have been consolidated with our results of operations.
The following table summarizes the fair market values of the assets acquired and liabilities assumed as of July 1, 2001, in thousands:
Net property, plant and equipment........................... $313,251
Current assets.............................................. 31,423
Other intangible assets..................................... 11,200
Goodwill.................................................... 49,793
Noncurrent assets from risk management activities........... 5,355
Deferred charges and other assets........................... 958
--------
Total assets acquired............................. 411,980
Current liabilities......................................... (45,972)
Noncurrent liabilities...................................... (2,609)
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Net assets acquired............................... $363,399
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Other intangible assets represent the fair market value of industrial customer contracts and are being amortized over 10 years. The value assigned to goodwill was based on our belief that the acquisition of the Louisiana Gas assets will enable us to realize cost savings in the state of Louisiana when combined with our existing Louisiana operations. The amount assigned to goodwill was increased from $49.8 million in fiscal 2001 to $162.5 million in fiscal 2002. The revised amount was based on additional information acquired during 2002 about the regulated rate base of the acquired assets and the value assigned to other intangible assets. At September 30, 2002, goodwill was assigned $144.2 million to our utility segment, $5.8 million to our natural gas marketing segment and $12.5 million to our other non-utility segment. We expect the entire goodwill amount to be deductible for tax purposes.
The pro forma effects for the fiscal year ended September 30, 2001 of combining the results of operations of the Louisiana Gas assets with our consolidated results of operations were a $306.2 million increase in operating revenues to $1.7 billion, a $24.2 million decrease in net income to $31.9 million and a $.64 decrease in diluted earnings per share to $.83.
Such pro forma effects for the fiscal year ended September 30, 2000 were a $186.1 million increase in operating revenues to $1.0 billion, a $6.9 million decrease in net income to $29.0 million and a $.22 decrease in diluted earnings per share to $.92.
In September 2001, we entered into a definitive agreement to acquire Mississippi Valley Gas Company, a privately held natural gas utility. This acquisition will be accounted for as a purchase and will be acquired using $75.0 million in cash and the issuance of $75.0 million of our common stock. We will also repay Mississippi Valley Gas' outstanding long-term debt of approximately $45.0 million. Mississippi Valley Gas provides natural gas distribution service to approximately 261,500 residential, commercial, industrial and other customers located primarily in the northern and central regions of Mississippi. Mississippi Valley Gas has two underground storage facilities with 2.05 Bcf of working gas capacity. On October 31, 2002, we announced that we had received approval from the Mississippi Public Service Commission to acquire Mississippi Valley Gas. The transaction had previously received federal regulatory approval and approvals from the six other state utility commissions that require approval. We expect to close the acquisition in December 2002.
3. DEBT
Long-term debt at September 30, 2002 and 2001 consisted of the following:
2002 2001
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(IN THOUSANDS)
Unsecured 11.2% Senior Notes, due 2002, payable in annual
installments of $2,000.................................... $ 2,000 $ 4,000
Unsecured 9.76% Senior Notes, due 2004, payable in annual
installments of $3,000.................................... 9,000 12,000
Unsecured 9.57% Senior Notes, due 2006, payable in annual
installments of $2,000.................................... 8,000 10,000
Unsecured 7.95% Senior Notes, due 2006, payable in annual
installments of $1,000.................................... 4,000 5,000
Unsecured 10% Notes, due 2011............................... 2,303 2,303
Unsecured 7.375% Senior Notes, due 2011..................... 350,000 350,000
Unsecured 8.07% Senior Notes, due 2006, payable in annual
installments of $4,000 beginning 2002..................... 20,000 20,000
Unsecured 8.26% Senior Notes, due 2014, payable in annual
installments of $1,818 beginning 2004..................... 20,000 20,000
Medium term notes
Series A, 1995-1, 6.67%, due 2025......................... 10,000 10,000
Series A, 1995-2, 6.27%, due 2010......................... 10,000 10,000
Unsecured 6.75% Debentures, due 2028........................ 150,000 150,000
First Mortgage Bonds
Series J, 9.40% due 2021.................................. 17,000 17,000
Series P, 10.43% due 2017................................. 16,250 18,750
Series Q, 9.75% due 2020.................................. 18,000 19,000
Series R, 11.32% due 2004................................. 4,300 6,440
Series T, 9.32% due 2021.................................. 18,000 18,000
Series U, 8.77% due 2022.................................. 20,000 20,000
Series V, 7.50% due 2007.................................. 10,000 10,000
Rental property, propane and other term notes due in
installments through 2013................................. 3,590 10,601
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Total long-term debt.............................. 692,443 713,094
Less current maturities..................................... (21,980) (20,695)
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$670,463 $692,399
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Most of the Senior Notes and First Mortgage Bonds contain provisions that allow us to prepay the outstanding balance in whole at any time, subject to a prepayment premium. The Senior Note agreements and First Mortgage Bond indentures provide for certain cash flow requirements and restrictions on additional indebtedness, sale of assets and payment of dividends. Under the most restrictive of such covenants, cumulative cash dividends paid after December 31, 1988 may not exceed the sum of accumulated net income for periods after December 31, 1988 plus $15.0 million. At September 30, 2002, approximately $67.7 million of retained earnings was unrestricted.
As of September 30, 2002, all of the Colorado-Kansas Division utility plant assets with a net book value of approximately $184.8 million were subject to a lien under the 9.4 percent Series J First Mortgage Bonds assumed by us in the acquisition of Greeley Gas Company. Also, substantially all of the Mid-States Division utility plant assets, totaling $328.8 million, were subject to a lien under the Indenture of Mortgage of the Series P through V First Mortgage Bonds.
Based on the borrowing rates currently available to us for debt with similar terms and remaining average maturities, the fair value of long-term debt at September 30, 2002 and 2001 is estimated, using discounted cash flow analysis, to be $775.5 million and $709.9 million.
Maturities of long-term debt at September 30, 2002 were as follows (in thousands):
2003........................................................ $ 21,980
2004........................................................ 18,766
2005........................................................ 16,196
2006........................................................ 14,259
2007........................................................ 11,507
Thereafter.................................................. 609,735
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$692,443
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At September 30, 2002, short-term debt consisted of $132.7 million of commercial paper and $13.1 million outstanding under bank credit facilities. At September 30, 2001, short-term debt was composed of $171.0 million of commercial paper and $30.2 million outstanding under bank credit facilities. The weighted average interest rate on short-term borrowings outstanding was 2.3 percent and 4.0 percent at September 30, 2002 and 2001.
Committed credit facilities
We have short-term committed credit facilities totaling $318.0 million. One short-term unsecured credit facility is for $300.0 million and serves as a backup liquidity facility for our commercial paper program. Our commercial paper is rated A-2 by Standard and Poor's, P-2 by Moody's and F-2 by Fitch. At September 30, 2002, $132.7 million of commercial paper was outstanding. At September 30, 2001, $171.0 million of commercial paper was outstanding. We have a second credit facility in place for $18.0 million. At September 30, 2002, $13.1 million was outstanding under this credit facility. At September 30, 2001, $2.2 million was outstanding under this credit facility. These credit facilities are negotiated at least annually and are used for working capital purposes.
Uncommitted credit facilities
Our Woodward Marketing subsidiary has an uncommitted demand credit facility for $210.0 million which is used for its non-utility business. Atmos Energy Holdings, Inc., our wholly-owned subsidiary, is the sole guarantor of all amounts outstanding under this facility. At September 30, 2002, there were no amounts outstanding under this credit facility. Related letters of credit totaling $41.0 million reduced the amount available under this facility. This facility is used for working capital purposes. The amount available under this credit facility is also limited by various covenants, including covenants based on working capital. Under the most restrictive covenant, the amount available to Woodward Marketing under this credit facility at September 30, 2002 was $59.0 million. During the quarter ended September 30, 2002, Woodward was not in technical compliance with certain of the covenants contained in this uncommitted demand credit facility. Woodward has obtained waivers for the periods of non-compliance.
We also have an unsecured short-term uncommitted credit line for $20.0 million. There were no borrowings under this uncommitted credit facility at September 30, 2002. At September 30, 2001, we had unsecured short-term uncommitted credit lines from two banks totaling $40.0 million of which there were no amounts outstanding. This uncommitted line is renewed or renegotiated at least annually with varying terms and we pay no fee for the availability of the line. Borrowings under this line are made on a when- and as-available basis at the discretion of the bank.
In addition, Woodward Marketing has up to $100.0 million available from Atmos Energy Holdings for its non-utility business. At September 30, 2002, $20.0 million was outstanding. Any outstanding amounts under the Atmos Energy Holdings facility are subordinated to Woodward Marketing's $210.0 million uncommitted demand credit facility described above. This intercompany loan is eliminated in the consolidated financial statements.
On October 7, 2002, we entered into a $150.0 million short-term unsecured committed credit facility. This credit facility will be used to provide initial funding for the cash portion of the Mississippi Valley Gas acquisition and to refinance Mississippi Valley Gas' existing debt.
4. INCOME TAXES
The components of income tax expense for 2002, 2001 and 2000 were as follows:
2002 2001 2000
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(IN THOUSANDS)
Current
Federal............................................... $17,638 $13,624 $ --
State................................................. 3,575 2,189 2,500
Deferred
Federal............................................... 12,964 14,971 18,611
State................................................. 1,420 3,013 (345)
Investment tax credits.................................. (417) (429) (447)
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$35,180 $33,368 $20,319
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Deferred income taxes reflect the tax effect of differences between the basis of assets and liabilities for book and tax purposes. The tax effect of temporary differences that give rise to significant components of the deferred tax liabilities and deferred tax assets at September 30, 2002 and 2001 are presented below:
2002 2001
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(IN THOUSANDS)
Deferred tax assets:
Costs expensed for book purposes and capitalized for tax
purposes............................................... $ 2,398 $ 1,269
Accruals not currently deductible for tax purposes........ 3,968 4,527
Customer advances......................................... 4,578 4,443
Nonqualified benefit plans................................ 14,325 11,098
Postretirement benefits................................... 22,153 21,638
Unamortized investment tax credit......................... 902 1,049
Regulatory liabilities.................................... 1,328 1,396
Tax net operating loss and credit carryforwards........... 6,377 13,154
Other, net................................................ 9,201 9,801
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Total deferred tax assets......................... 65,230 68,375
Deferred tax liabilities:
Difference in net book value and net tax value of
assets................................................. (194,573) (171,734)
Pension funding........................................... 6,450 (16,010)
Gas cost adjustments...................................... 6,464 4,670
Regulatory assets......................................... (3,154) (3,153)
Cost capitalized for book purposes and expensed for tax
purposes............................................... (7,717) (8,387)
Other, net................................................ (7,240) (12,695)
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Total deferred tax liabilities.................... (199,770) (207,309)
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Net deferred tax liabilities................................ $(134,540) $(138,934)
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SFAS No. 109 deferred accounts for rate regulated
entities.................................................. $ 1,704 $ 1,327
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Reconciliations of the provisions for income taxes computed at the statutory rate to the reported provisions for income taxes for 2002, 2001 and 2000 are set forth below:
2002 2001 2000
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(IN THOUSANDS)
Tax at statutory rate of 35%............................ $33,193 $31,310 $19,683
Common stock dividends deductible for tax reporting..... (707) (857) (774)
State taxes (net of federal benefit).................... 3,489 3,652 1,677
Other, net.............................................. (795) (737) (267)
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Provision for income taxes.............................. $35,180 $33,368 $20,319
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We have tax credit carryforwards amounting to $6.1 million, the majority of which represent alternative minimum tax credits which do not expire. The remaining tax credit carryforwards will expire at varying times between 2011 and 2018. We also have net operating loss carryforwards for state income tax purposes amounting to $0.3 million which expire at varying times depending on the jurisdiction in which the net operating loss was generated.
5. CONTINGENCIES
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 us and our Colorado-Kansas 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 was 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 we are also a defendant along with over 200 other defendants in the case of In Re Natural Gas Royalties Quitam Litigation. In January 2001, the federal court elected to remand this case back to the Kansas state court. A reconsideration of remand was filed, but it was denied. The state court now has jurisdiction over this proceeding and has issued a preliminary case management order. We believe that the plaintiffs' claims are lacking in merit, and we intend to vigorously defend this action. While the results of this litigation cannot be predicted with certainty, we believe the final outcome of such litigation will not have a material adverse effect on our financial condition, results of operations or net cash flows.
On May 18, 2001, a suit was filed in the 99th District Court of Lubbock County, Texas, by the City of Lubbock, Texas, and the West Texas Municipal Agency against Stewart & Stevenson Energy Products, Inc., a division of GE Packaged Power, Inc. ("GE") and our Texas Division. The action arose out of (i) the construction and installation of a gas-fired electric generating facility designed and installed by GE and (ii) the natural gas pipeline, which provides natural gas to the facility, that was designed and installed by our Texas Division. This suit was settled in October 2002.
On February 13, 2002, a suit was filed in the 287th District Court of Parmer County, Texas by Anderson Brothers, a Partnership, against Atmos Energy Corporation, et al. The plaintiffs' claims arise out of an alleged breach of contract by us and by a number of our divisions and subsidiaries concerning the sale of natural gas used in irrigation activities since 1998 and an alleged violation of the Texas Agricultural Gas Users Act of 1985. The Court has ruled proper venue to be in Parmer County, Texas. We have been responding to numerous discovery requests from the plaintiffs. We have also filed suit in Travis County, Texas to have the Texas Agricultural Gas Users Act of 1985 declared unconstitutional. The plaintiffs seek class action status and to recover unspecified damages plus attorney's fees. We have denied any liability and intend to vigorously defend against the plaintiffs' claims. While the results of this litigation cannot be predicted with certainty, we believe the final outcome of such litigation will not have a material adverse effect on our financial condition, results of operations or net cash flows.
We are a plaintiff in the case styled Energas Company, a Division of Atmos Energy Corporation v. ONEOK Energy Marketing and Trading Company, L.P., ONEOK Westex Transmission, Inc. and ONEOK Energy Marketing and Trading Company II, filed in December 2001, pending in the District Court of Lubbock County, Texas, 72nd Judicial District. In this case, we are seeking to collect our receivable related to approximately 5.0 Bcf of natural gas that we believe was not delivered. We believe the receivable is fully recoverable.
Prior to our acquisition of the assets of Louisiana Gas Service Company, a division of Citizens Communications Company, on July 1, 2001, Louisiana Gas Service Company was involved in a proceeding with the Louisiana Public Service Commission relating to past costs associated with the purchase of gas that it charged to its customers. Subsequent to our acquisition of the Louisiana Gas assets on July 1, 2001, we agreed to take responsibility for assuring the payment of refunds and/or credits to ratepayers that may arise from Citizens Communications' past activities with respect to purchased gas costs. On April 10, 2002, the Louisiana Public Service Commission issued a Report of Proceedings in which it approved a Stipulation and Agreement between Citizens Communications, Atmos and the Commission Staff. This Stipulation and Agreement resulted in no refunds being due to customers.
United Cities Propane Gas, Inc., one of our wholly-owned subsidiaries, is a party to an action filed in June 2000 which is pending in the Circuit Court of Sevier County, Tennessee. The plaintiffs' claims arise out of injuries alleged to have been caused by a low-level propane explosion. The plaintiffs seek to recover damages of $13.0 million. Discovery activities have begun in this case. We have denied any liability, and we intend to vigorously defend against the plaintiffs' claims. While the results of this litigation cannot be predicted with certainty, we believe the final outcome of such litigation will not have a material adverse effect on our financial condition, results of operations or net cash flows.
We are a party to other litigation and claims that arise in the ordinary course of our business. While the results of such litigation and claims cannot be predicted with certainty, we believe the final outcome of such litigation and claims will not have a material adverse effect on our financial condition, results of operations or net cash flows.
The Mid-States Division is the owner or previous owner of manufactured gas plant sites in 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 our predecessors was an acceptable and satisfactory process at the time such operations were being conducted. Under current environmental protection laws and regulations, we may be responsible for response actions with respect to such materials if response actions are necessary.
United Cities Gas Company and the Tennessee Department of Environment and Conservation entered into a consent order effective January 23, 1997, to facilitate the investigation, removal and remediation of the Johnson City site. United Cities Gas Company began the implementation of the consent order in the first quarter of 1997 which continued through September 30, 2002. The investigative phase of the work at the site has been completed. An interim removal action was completed in June 2001. We have completed a risk assessment report which is currently under review by the Tennessee Department of Environment and Conservation. The Tennessee Regulatory Authority granted United Cities Gas Company permission to defer, until its next rate case, all costs incurred in Tennessee in connection with state and federally mandated environmental control requirements.
In March 2002, the Tennessee Department of Environment and Conservation contacted us about conducting an investigation at the former manufactured gas plant located in Bristol, Tennessee. We agreed to perform a preliminary investigation at the site which was completed in June 2002. The investigation identified manufactured gas plant residual materials in the soil beneath the site and we have proposed performing a removal action to remove any such residuals in the first quarter of fiscal 2003. The Tennessee Department of Environment and Conservation has requested that the removal action be conducted pursuant to a voluntary agreement and we are currently preparing a draft agreement.
On July 22, 1998, we entered into an Abatement Order on Consent with the Missouri Department of Natural Resources addressing the former manufactured gas plant located in Hannibal, Missouri. Through our Mid-States Division, we agreed 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 and the site evaluation field work was conducted in August 1999. A risk assessment for the site has been completed and is currently under review by the Missouri Department of Natural Resources. In preparation for the risk assessment, we executed and recorded certain site use limitations including restricting use of the site to commercial and industrial purposes and prohibiting the withdrawal of groundwater for use as drinking water. On March 9, 1999, the Missouri Public Service Commission issued an Order authorizing us to defer the costs associated with this site until March 9, 2001. A renewal of the Order has been requested. The matter is still pending before the Commission.
As of September 30, 2002, we had incurred costs of approximately $1.1 million for the investigations of the Johnson City and Bristol, Tennessee and Hannibal, Missouri sites and had a remaining accrual relating to these sites of $0.6 million.
We have completed investigation and remediation activities pursuant to Consent Orders between the Kansas Department of Health and Environment and United Cities Gas Company. The Orders provided for the investigation and remediation of mercury contamination at gas pipeline sites which utilize or formerly utilized mercury meter equipment in Kansas. The Final Interim Characterization and Remediation Report has been submitted to the Kansas Department of Health. We have amended the Orders with the Kansas Department of Health to include all mercury meters that belonged to our Colorado-Kansas Division before the merger with United Cities Gas Company on July 31, 1997. All work on these sites will be completed in fiscal 2003.
As of September 30, 2002, we had incurred costs of $0.1 million for these sites and had a remaining accrual of $0.3 million for recovery. The Kansas Corporation Commission has authorized us to defer these costs and seek recovery in a future rate case.
We are a party to other environmental matters and claims, including those discussed above, that arise in the ordinary course of our business. While the ultimate results of response actions to these environmental matters and claims cannot be predicted with certainty, we believe the final outcome of such response actions will not have a material adverse effect on our financial condition, results of operations or net cash flows because we believe that the expenditures related to such response actions will either be recovered through rates, shared with other parties or covered by adequate insurance.
6. COMMON STOCK AND STOCK OPTIONS
We have a Rights Agreement under which each right ("Right") will entitle the holder thereof, until May 10, 2008 or the date of redemption of the Rights, to buy 1/10 of one share of Common Stock of Atmos at the exercise price of $8.00, subject to adjustment. At no time will the Rights have any voting rights. The exercise price payable and the number of shares of Common Stock or other securities or property issuable upon exercise of the Rights are subject to adjustment from time to time to prevent dilution. At the date upon which the rights become separate from our Common Stock (the "Distribution Date"), we will issue one right with each share of Common Stock that becomes outstanding so that all shares of Common Stock will have attached Rights. After the Distribution Date, we may issue Rights when we issue Common Stock if the Board deems such issuance to be necessary or appropriate.
The Rights will separate from the Common Stock and a Distribution Date will occur upon the occurrence of certain events specified in the Rights Agreement, including but not limited to, the acquisition by certain persons of at least 15 percent of the beneficial ownership of our Common Stock. The Rights have certain anti-takeover effects and may cause substantial dilution to a person or entity that attempts to acquire the Company on terms not approved by the Board of Directors except pursuant to an offer conditioned upon a substantial number of Rights being acquired. The Rights should not interfere with any merger or other business combination approved by the Board of Directors because, prior to the time that the Rights become exercisable or transferable, the Rights may be redeemed by us at $.01 per Right.
The following table presents the number of shares issued under our various plans in 2002 and 2001, as well as the number of shares available for future issuance at September 30, 2002.
SHARES AVAILABLE
SHARES ISSUED FOR ISSUANCE AT
----------------- SEPTEMBER 30,
2002 2001 2002
------- ------- ----------------
Restricted Stock Grant Plan........................ -- -- 732,750
Retirement Savings Plan............................ 326,335 225,945 608,729
Direct Stock Purchase Plan......................... 505,202 411,159 869,536
Outside Directors Stock-For-Fee Plan............... 2,429 2,152 33,356
United Cities Long-Term Stock Plan................. -- 15,300 168,550
Long-Term Incentive Plan........................... 50,465 17,172 2,374,757
Equity Incentive and Deferred Compensation Plan for
Non-Employee Directors........................... -- 2,740 147,260
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Our Restricted Stock Grant Plan for management and key employees of the Company, which became effective October 1, 1987 and was amended and restated in February 1998, provides for awards of common stock that are subject to certain restrictions. The Restricted Stock Grant Plan is administered by the Board of Directors. The members of the Board who are not employees of Atmos make the final determinations regarding participation in the Plan, awards under the Plan and restrictions on the restricted stock awarded. The restricted stock may consist of previously issued shares purchased on the open market or shares issued directly from us. During 1998, we increased the number of shares of our common stock that may be issued under the Restricted Stock Grant Plan by 650,000 shares. Compensation expense of $0.8 million, $1.1 million and $2.3 million was recognized in 2002, 2001 and 2000 in connection with the vesting of shares awarded under the Plan. Effective in February 2002, no additional shares of Restricted Stock will be granted under this Plan.
Prior to January 1, 1999, we had an Employee Stock Ownership Plan and the Mid-States Division had a 401(k) savings plan. The Employee Stock Ownership Plan was amended effective January 1, 1999, as is more fully discussed in Note 7. Effective March 1, 2002, the Employee Stock Ownership Plan was renamed the Atmos Energy Corporation Retirement Savings Plan and Trust.
We also have a Direct Stock Purchase Plan. Participants in the Direct Stock Purchase Plan may have all or part of their dividends reinvested at a three percent discount from market prices. Direct Stock Purchase Plan participants may purchase additional shares of Atmos common stock as often as weekly with voluntary cash payments of at least $25, up to an annual maximum of $100,000.
In November 1994, the Board adopted the Outside Directors Stock-for-Fee Plan which was approved by the shareholders of Atmos in February 1995 and was amended and restated in November 1997. The plan permits non-employee directors to receive all or part of their annual retainer and meeting fees in stock rather than in cash.
In November 1998, the Board adopted the Equity Incentive and Deferred Compensation Plan for Non-Employee Directors which was approved by the shareholders of Atmos in February 1999. Such plan represents an amendment to the Atmos Energy Corporation Deferred Compensation Plan for Outside Directors adopted by the Company on May 10, 1990 and replaced the pension payable under the Company's Retirement Plan for Non-Employee Directors. Only non-employee directors of Atmos are eligible to participate in the Equity Incentive and Deferred Compensation Plan, the purpose of which is to provide non-employee directors with the opportunity to defer receipt of compensation for services rendered to the Company, invest deferred compensation into either a cash account or a stock account and to receive an annual grant of share units for each year of service on the Board.
We have two stock-based compensation plans that provide for the granting of stock options to officers, key employees and non-employee directors. The objectives of these plans include attracting and retaining the best personnel, providing for additional performance incentives and promoting the success of Atmos by providing employees the opportunity to acquire common stock.
Prior to the merger with Atmos, certain United Cities Gas Company officers and key employees participated in the United Cities Long-Term Stock Plan implemented in 1989. At the time of the merger on July 31, 1997, Atmos adopted this plan by registering a total of 250,000 shares of Atmos stock to be issued under the Long-Term Stock Plan for the Mid-States Division. Under this plan, incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock or any combination thereof may be granted to officers and key employees of the Mid-States Division. Options granted under the plan become exercisable at a rate of 20 percent per year and expire 10 years after the date of grant. During 2002, no options were exercised under the plan. At September 30, 2002, there were 19,300 options outstanding, all of which were fully vested. No incentive stock options, nonqualified stock options, stock appreciation rights or restricted stock have been granted under the plan since 1996. Because of the limited activities of this plan, the pro forma effects of applying Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" would have less than a $.01 per diluted share effect on earnings per share or $4,030, $4,764 and $8,580 for 2002, 2001 and 2000.
On August 12, 1998, the Board of Directors approved and adopted the 1998 Long-Term Incentive Plan, which became effective October 1, 1998 after approval by the shareholders of Atmos. An amendment to this plan increasing the share reserve by 2,500,000 shares was amended by the shareholders at its annual meeting on February 13, 2002. The Long-Term Incentive Plan represents a part of our Total Rewards strategy which we developed as a result of a study we conducted of all employee, executive and non-employee director compensation and benefits. The Long-Term Incentive Plan is a comprehensive, long-term incentive compensation plan providing for discretionary awards of incentive stock options, non-qualified stock options, stock appreciation rights, bonus stock, restricted stock and performance-based stock to help attract, retain and reward employees and non-employee directors of Atmos and its subsidiaries.
We are authorized to grant awards for up to a maximum of 4,000,000 shares of common stock under the Long-Term Incentive Plan subject to certain adjustment provisions. To date only non-qualified stock options have been issued. The option price is equal to the market price of our stock at the date of grant. The stock options expire 10 years from the date of the grant and options vest annually over a service period ranging from one to three years. At September 30, 2002, we had 1,557,606 options outstanding under the Long- Term Incentive Plan at an exercise price ranging from $14.68 to $25.66.
In October 1995, Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," was issued. This statement established a fair value-based method of accounting for employee stock options or similar equity instruments and encourages, but does not require, all companies to adopt that method of accounting for all of their employee stock compensation plans. SFAS No. 123 allows companies to continue to measure compensation cost for employee stock options or similar equity instruments using the intrinsic value method of accounting described in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". We have elected to continue using the intrinsic value method as prescribed by APB No. 25. Under this method, no compensation cost for stock options is recognized for stock option awards granted at or above fair market value.
A summary of activity for grants of stock options under the Long-Term Incentive Plan follows:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
--------- --------
Outstanding -- September 30, 1999........................... 325,000 $24.43
Granted................................................... 379,500 16.03
Exercised................................................. -- --
Forfeited................................................. (46,000) 22.03
---------
Outstanding -- September 30, 2000........................... 658,500 19.76
---------
Granted................................................... 439,500 23.45
Exercised................................................. (17,172) 15.82
Forfeited................................................. (71,498) 19.86
---------
Outstanding -- September 30, 2001........................... 1,009,330 21.43
---------
Granted................................................... 607,877 22.35
Exercised................................................. (19,102) 16.69
Forfeited................................................. (40,499) 20.53
---------
Outstanding -- September 30, 2002........................... 1,557,606 $21.87
=========
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Information about outstanding and exercisable options under the Long-Term Incentive Plan, as of September 30, 2002, follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- --------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
NUMBER OF LIFE EXERCISE NUMBER OF EXERCISE
RANGE OF EXERCISE PRICES OPTIONS (IN YEARS) PRICE OPTIONS PRICE
------------------------ --------- ----------- -------- --------- --------
$14.68 to $17.49................. 246,562 7.4 $15.63 133,562 $15.62
$17.50 to $20.24................. 32,000 7.9 $19.84 21,333 $19.84
$20.25 to $22.99................. 627,877 9.3 $22.30 10,667 $21.66
$23.00 to $25.66................. 651,167 7.7 $23.91 367,167 $24.18
$14.68 to $25.66................. 1,557,606 8.3 $21.87 532,729 $21.81
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A summary of outstanding options under the Long-Term Incentive Plan that are fully exercisable follows:
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------
Exercisable -- September 30, 2000........................... 90,503 $24.43
Exercisable -- September 30, 2001........................... 285,448 $21.37
Exercisable -- September 30, 2002........................... 532,729 $21.81
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The following table sets forth the number of securities authorized for issuance under our equity compensation plans at September 30, 2002.
NUMBER OF
SECURITIES
REMAINING
NUMBER OF WEIGHTED- AVAILABLE FOR
SECURITIES TO BE AVERAGE FUTURE ISSUANCE
ISSUED UPON EXERCISE PRICE UNDER EQUITY
EXERCISE OF OF COMPENSATION
OUTSTANDING OUTSTANDING PLANS EXCLUDING
OPTIONS, OPTIONS, SECURITIES
WARRANTS AND WARRANTS AND REFLECTED IN
RIGHTS RIGHTS COLUMN (A)
---------------- -------------- ---------------
(A) (B) (C)
Equity compensation plans approved by
security holders:
Long-Term Incentive Plan.................... 1,557,606 $21.87 2,374,757
United Cities Long-Term Stock Plan.......... 19,300 $15.76 168,550
--------- ------ ---------
Total equity compensation plans approved by
security holders.......................... 1,576,906 $21.79 2,543,307
--------- ------ ---------
Equity compensation plans not approved by
security holders.......................... -- -- --
--------- ------ ---------
Total....................................... 1,576,906 $21.79 2,543,307
========= ====== =========
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Had compensation expense for our stock options been recognized based on the fair value on the grant date under the methodology prescribed by SFAS No. 123, our net income and earnings per share for 2002, 2001 and 2000 would have been impacted as shown in the following table.
2002 2001 2000
----- ----- -----
Net income -- as reported (millions)........................ $59.7 $56.1 $35.9
Net income -- pro forma (millions).......................... $59.2 $55.7 $35.7
Basic earnings per share -- as reported..................... $1.45 $1.47 $1.14
Basic earnings per share -- pro forma....................... $1.44 $1.46 $1.13
Diluted earnings per share -- as reported................... $1.45 $1.47 $1.14
Diluted earnings per share -- pro forma..................... $1.43 $1.46 $1.13
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In accordance with the fair value method of determining compensation expense, the weighted average grant date fair value per share of options granted was as follows:
- $3.55 in fiscal 2002;
- $3.97 in fiscal 2001; and
- $2.88 in fiscal 2000.
We used the Black-Scholes pricing model to estimate the fair value of each option granted with the following weighted average assumptions for 2002, 2001 and 2000:
2002 2001 2000
---- ---- ----
Expected Life (years)....................................... 7 5 5
Interest rate............................................... 3.9% 4.7% 5.8%
Volatility.................................................. 24.2% 25.5% 25.1%
Dividend yield.............................................. 4.8% 4.9% 5.0%
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7. EMPLOYEE RETIREMENT, STOCK OWNERSHIP AND OTHER PLANS
Effective January 1, 1999, we established the Atmos Pension Account Plan which covers substantially all employees of Atmos. Opening account balances were established for participants as of January 1, 1999 equal to the present value of their respective accrued benefits under the pension plans which were previously in effect as of December 31, 1998. The Pension Account Plan credits an allocation to each participant's account at the end of each year according to a formula based on the participant's age, service and total pay (excluding incentive pay).
The Pension Account Plan also provides for an additional annual allocation based upon a participant's age as of January 1, 1999 for those participants who were participants in the prior pension plans. The plan will credit this additional allocation each year through December 31, 2008. In addition, at the end of each year, a participant's account will be credited with interest on the employee's prior year account balance. A special grandfather benefit also applies through December 31, 2008, for participants who were at least age 50 as of January 1, 1999, and who were participants in one of the prior plans on December 31, 1998. Participants are fully vested in their account balances after five years of service and may choose to receive their account balances as a lump sum or an annuity.
Our funding policy is to contribute annually an amount in accordance with the requirements of the Employee Retirement Income Security Act of 1974. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future.
At September 30, 2002, we recorded the accrued pension asset against the additional minimum pension liability resulting in a net pension liability in deferred credits and other liabilities. At September 30, 2001, we recorded the accrued pension asset in deferred charges and other assets. The following table sets forth the total for the Pension Account Plan's funded status for 2002 and 2001.
2002 2001
-------- --------
(IN THOUSANDS)
Change in benefit obligation:
Benefit obligation at beginning of year................... $210,878 $210,152
Service cost.............................................. 5,247 3,557
Interest cost............................................. 15,544 16,408
Actuarial (gain) loss..................................... 12,732 (875)
Acquisition/merger........................................ -- (385)
Benefits paid............................................. (18,204) (17,979)
-------- --------
Benefit obligation at end of year......................... 226,197 210,878
Change in plan assets:
Fair value of plan assets at beginning of year............ 246,327 279,498
Actual return on plan assets.............................. (18,182) (14,807)
Acquisition/merger........................................ -- (385)
Benefits paid............................................. (18,204) (17,979)
-------- --------
Fair value of plan assets at end of year.................. 209,941 246,327
-------- --------
Funded status............................................... (16,256) 35,449
Unrecognized transition asset............................... -- (72)
Unrecognized prior service cost............................. (7,112) (7,995)
Unrecognized net loss....................................... 71,233 17,021
-------- --------
Accrued pension asset....................................... $ 47,865 $ 44,403
======== ========
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2002 2001 2000
---- ----- -----
Weighted average assumptions for end of year disclosure:
Discount rate............................................. 7.25% 7.50% 8.00%
Rate of compensation increase............................. 4.00% 4.00% 4.00%
Expected return on plan assets............................ 9.25% 10.00% 10.00%
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The plan assets consist primarily of investments in common stocks, interest bearing securities and interests in commingled pension trust funds.
Net periodic pension cost, which is recorded as an operation expense, for the Pension Account Plan for 2002, 2001 and 2000, included the following components:
2002 2001 2000
-------- -------- --------
(IN THOUSANDS)
Components of net periodic pension cost:
Service cost....................................... $ 5,247 $ 3,557 $ 2,352
Interest cost...................................... 15,544 16,408 14,573
Expected return on assets.......................... (23,298) (27,093) (27,403)
Amortization of:
Transition asset................................ (72) (290) (263)
Prior service cost.............................. (883) (883) (802)
Actuarial gain.................................. -- -- (1,610)
-------- -------- --------
Net periodic pension cost..................... $ (3,462) $ (8,301) $(13,153)
======== ======== ========
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We have a nonqualified Supplemental Executive Benefits Plan which provides additional pension, disability and death benefits to the officers and certain other employees of Atmos. The Supplemental Executive Benefits Plan was amended and restated in August 1998. In addition, in August 1998, we adopted the Performance-Based Supplemental Executive Benefits Plan which covers all employees who become officers or division presidents after August 12, 1998 or any other employees selected by our Board of Directors in its discretion.
We record the accrued pension cost in deferred credits and other liabilities. The following table sets forth the total for the Supplemental Plans' funded status for 2002 and 2001.
2002 2001
-------- --------
(IN THOUSANDS)
Change in benefit obligation:
Benefit obligation at beginning of year................... $ 52,845 $ 47,426
Service cost.............................................. 1,028 832
Interest cost............................................. 3,938 3,751
Actuarial loss............................................ 4,227 3,642
Benefits paid............................................. (2,886) (2,806)
-------- --------
Benefit obligation at end of year......................... 59,152 52,845
Change in plan assets:
Fair value of plan assets at beginning of year............ -- --
Employer contribution..................................... 2,886 2,806
Benefits paid............................................. (2,886) (2,806)
-------- --------
Fair value of plan assets at end of year.................. -- --
-------- --------
Funded status............................................... (59,152) (52,845)
Unrecognized transition obligation.......................... 196 292
Unrecognized prior service cost............................. 5,772 6,793
Unrecognized net loss....................................... 15,221 11,538
-------- --------
Accrued pension cost........................................ $(37,963) $(34,222)
======== ========
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2002 2001 2000
---- ----- -----
Weighted average assumptions for end of year disclosure:
Discount rate............................................. 7.25% 7.50% 8.00%
Rate of compensation increase............................. 4.00% 4.00% 4.00%
Expected return on plan assets............................ 9.25% 10.00% 10.00%
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Assets for the Supplemental Plans are held in our rabbi trusts (see Note 12) and consist primarily of investments in equity mutual funds. The market value of the rabbi trusts amounted to $27.7 million and $25.1 million at September 30, 2002 and 2001. The assets in the rabbi trusts are included on our balance sheet under deferred charges and other assets and are not presented above as plan assets.
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the Supplemental Plans with accumulated benefit obligations in excess of plan assets were $59.2 million, $53.2 million and none as of September 30, 2002 and $52.8 million, $45.5 million and none, as of September 30, 2001.
Net periodic pension cost, which is recorded as an operation expense, for the Supplemental Plans for 2002, 2001 and 2000 consisted of the following components:
2002 2001 2000
------ ------ ------
(IN THOUSANDS)
Components of net periodic pension cost:
Service cost............................................. $1,028 $ 832 $ 937
Interest cost............................................ 3,938 3,751 2,916
Amortization of:
Transition obligation................................. 96 96 96
Prior service cost.................................... 1,022 1,022 1,022
Actuarial loss........................................ 542 325 215
------ ------ ------
Net periodic pension cost........................... $6,626 $6,026 $5,186
====== ====== ======
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Atmos sponsors a Retirement Savings Plan for substantially all employees. Effective January 1, 1999 the Retirement Savings Plan was amended to provide for deferral of a portion of a participant's salary ranging from a minimum of one percent of eligible compensation, as defined by the Plan, up to the maximum allowed by the Internal Revenue Service. In addition, among other changes to the Retirement Savings Plan, participants are provided with automatic matching contributions of 100 percent of each participant's salary reduction up to four percent of the participant's salary and are provided the option of taking out loans against their accounts subject to certain restrictions. Each participant enters into a salary reduction agreement with Atmos pursuant to which the participant's salary is reduced by an amount not to exceed the maximum amount allowed by the Internal Revenue Service. Taxes on the amount by which the participant's salary is reduced are deferred pursuant to Section 401(k) of the Internal Revenue Code. The amount of the salary reduction is contributed by us to the Retirement Savings Plan for the account of the participant. Matching contributions to the Plan were expensed as incurred and amounted to $3.6 million, $3.2 million, and $3.0 million for 2002, 2001 and 2000. The directors may also approve discretionary contributions, subject to the provisions of the Internal Revenue Code of 1986 and applicable regulations of the Internal Revenue Service. No discretionary contributions were made for 2002, 2001 or 2000.
The Variable Pay Plan was created to give each employee an opportunity to share in the success of Atmos based on certain criteria. Each fiscal year, we establish key performance measures for the Variable Pay Plan. These performance measures are considered critical to achieving business objectives for a given year and may include such things as growth in earnings, improved cash flows or crucial customer satisfaction and safety results. Each year a performance measure is established, and we make accruals during the year of the expected payout based on the best estimates available at that time.
8. OTHER POSTRETIREMENT BENEFITS
Prior to January 1, 1999, Atmos sponsored two postretirement plans other than pensions. Each provided health care benefits to retired employees. One provided benefits to the Mid-States Division retirees and the other provided medical benefits to all other retired Atmos employees.
Effective January 1, 1999, the United Cities plan was merged into the Atmos plan and began providing benefits to future retirees that are essentially the same as provided to other Atmos employees.
Substantially all of our employees become eligible for these benefits if they reach retirement age while working for us and attain certain specified years of service. In addition, participant contributions are required under the plan.
We record the accrued postretirement cost primarily in deferred credits and other liabilities. The following table sets forth the total liability currently recognized for the postretirement plan other than pensions for 2002 and 2001.
2002 2001
-------- --------
(IN THOUSANDS)
Change in benefit obligation:
Benefit obligation at beginning of year................... $ 82,850 $ 63,029
Service cost.............................................. 2,891 2,274
Interest cost............................................. 6,199 5,434
Plan participants' contributions.......................... 312 649
Actuarial loss............................................ 26,270 6,023
Acquisitions/divestitures................................. -- 10,402
Benefits paid............................................. (6,227) (4,961)
-------- --------
Benefit obligation at end of year......................... 112,295 82,850
Change in plan assets:
Fair value of plan assets at beginning of year............ 13,854 11,872
Actual return on plan assets.............................. 2,396 (463)
Employer contributions.................................... 5,915 6,757
Plan participants' contributions.......................... 312 649
Benefits paid............................................. (6,227) (4,961)
-------- --------
Fair value of plan assets at end of year.................. 16,250 13,854
-------- --------
Funded status............................................... (96,045) (68,996)
Unrecognized transition obligation.......................... 17,198 18,709
Unrecognized prior service cost............................. 1,534 2,054
Unrecognized net loss....................................... 29,466 4,834
-------- --------
Accrued postretirement cost................................. $(47,847) $(43,399)
======== ========
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2002 2001 2000
----- ---- ----
Weighted average assumptions for end of year liability
disclosure:
Discount rate.......................................... 7.25% 7.50% 8.00%
Expected return on plan assets......................... 5.30% 5.30% 5.30%
Initial trend rate..................................... 10.00% 7.00% 8.00%
Ultimate trend rate.................................... 5.00% 5.00% 5.00%
Number of years from initial to ultimate trend......... 6 3 4
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The plan assets consist primarily of investments in registered investment companies and common/collective trusts.
Net periodic postretirement cost, which is recorded as an operation expense, for the postretirement benefit plan for 2002, 2001 and 2000 included the following components:
2002 2001 2000
------- ------ ------
(IN THOUSANDS)
Components of net periodic postretirement cost:
Service cost............................................ $ 2,891 $2,274 $2,543
Interest cost........................................... 6,199 5,434 4,119
Expected return on assets............................... (759) (653) (540)
Amortization of:
Transition obligation................................ 1,511 1,511 1,511
Prior service cost................................... 520 520 520
Actuarial gain....................................... -- -- (94)
------- ------ ------
Net periodic postretirement cost................... $10,362 $9,086 $8,059
======= ====== ======
|
Assumed health care cost trend rates have a significant effect on the amounts reported for the plan. A one-percentage point change in assumed health care cost trend rates would have the following effects on the latest actuarial calculations:
1-PERCENTAGE 1-PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------
(IN THOUSANDS)
Effect on total service and interest cost components...... $1,066 $ (859)
Effect on postretirement benefit obligation............... $9,055 $(9,604)
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We are currently recovering other postretirement benefits costs through our regulated rates under Statement of Financial Accounting Standards No. 106 accrual accounting in Colorado, Kansas, the majority of the Texas service area and Kentucky. We receive rate treatment as a cost of service item for other postretirement benefits costs on the pay-as-you-go basis in Louisiana. Other postretirement benefits costs have been specifically addressed in rate orders in each jurisdiction served by the Mid-States Division or have been included in a rate case and not disallowed. Management believes that accrual accounting in accordance with SFAS No. 106 is appropriate and will continue to seek rate recovery of accrual-based expenses in its ratemaking jurisdictions that have not yet approved the recovery of these expenses.
9. EARNINGS PER SHARE
Basic earnings per share have been computed by dividing net income for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share have been computed by dividing net income for the period by the weighted average number of common shares outstanding during the period adjusted for restricted stock and other contingently issuable shares of common stock. Net income for the years ended September 30, 2002, 2001 and 2000 for basic and diluted earnings per share is the same, as there were no contingently issuable shares of stock whose issuance would have impacted net income. A reconciliation between basic and diluted weighted average common shares outstanding at September 30 follows:
2002 2001 2000
------ ------ ------
(IN THOUSANDS)
Weighted average common shares -- basic.................... 41,171 38,156 31,461
Effect of dilutive securities:
Restricted stock......................................... 54 79 125
Stock options............................................ 25 12 8
------ ------ ------
Weighted average common shares -- diluted.................. 41,250 38,247 31,594
====== ====== ======
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10. STATEMENT OF CASH FLOWS SUPPLEMENTAL DISCLOSURES
Supplemental disclosures of cash flow information for 2002, 2001 and 2000 are presented below.
2002 2001 2000
------- ------- -------
(IN THOUSANDS)
Cash paid (received) for
Interest.............................................. $59,639 $41,042 $46,243
Income taxes.......................................... $16,588 $16,808 $(7,989)
|
In connection with the transaction related to the sale in 2000 of our propane business (see Note 1), we contributed property, plant and equipment of $38.9 million with a related accumulated depreciation of $17.1 million and deferred charges and other assets of $3.9 million in exchange for an indirect investment in Heritage Propane Partners. In addition, we received net proceeds of $6.5 million and recorded a gain on the transaction of $5.8 million.
In May 2000, we completed the acquisition, which was accounted for as a purchase, of the Missouri natural gas distribution assets of Southwestern Energy Company and subsequent thereto, its operations were included in our consolidated results. We paid $32.0 million in connection with this acquisition. Of the $32.0 million paid in cash, we recorded property, plant and equipment of $52.3 million with a related accumulated depreciation of $21.7 million, accounts receivable of $1.3 million, inventories of $0.3 million and gas stored underground of $2.0 million. In addition, we recorded accounts payable of $0.2 million, taxes payable of $0.4 million, customer deposits of $1.2 million and deferred credits of $0.4 million.
In April 2001, we completed the acquisition, which was accounted for as a purchase, of the remaining 55 percent of Woodward Marketing that we did not already own in exchange for 1,423,193 restricted shares of our common stock. Subsequent to the acquisition, Woodward Marketing's operations were included in our consolidated results. Consideration given for the stock purchase was $26.7 million. In connection with the issuance of the stock for this acquisition, we recorded property, plant and equipment of $2.1 million with a related accumulated depreciation of $0.4 million, accounts receivable of $94.8 million, gas stored underground of $10.7 million, assets from risk management activities of $9.8 million, intangible assets of $0.2 million and goodwill of $12.3 million. In addition, we received $8.6 million in cash and $4.5 million of cash held on deposit in margin accounts. We also reduced deferred charges and other assets by $12.1 million which related to the net of the amounts received in the purchase and the removal of the 45 percent equity investment we had in Woodward Marketing which we had previously owned. Liabilities assumed in the acquisition included $95.2 million in accounts payable, $0.5 million in customer deposits, $7.3 million in other current liabilities and $0.8 million in deferred credits and other liabilities.
In July 2001, we completed the acquisition, which was accounted for as a purchase, of the natural gas operations of Louisiana Gas Service Company and LGS Natural Gas Company. Subsequent to the acquisition, the operations of Louisiana Gas Service and LGS Natural Gas were included in our consolidated results. We paid $363.4 million in cash in connection with this acquisition. We recorded property, plant and equipment of $466.5 million with a related accumulated depreciation of $153.2 million, accounts receivable of $18.1 million, gas stored underground of $12.4 million, a deferred gas credit of $10.8 million, assets from risk management activities of $11.7 million, noncurrent assets from risk management activities of $5.3 million and deferred charges and other assets of $1.0 million. In addition, we recorded intangible assets of $11.2 million, goodwill of $49.8 million and $9.0 million in deferred tax assets. Liabilities assumed in the acquisition included $12.8 million in accounts payable, $16.0 million in customer deposits, $14.1 million in liabilities from risk management activities, $3.1 million in other current liabilities and $11.6 million in deferred credits and other liabilities. The amount assigned to goodwill was increased from $49.8 million in fiscal 2001 to $162.5 million in fiscal 2002. The revised amount was based on additional information acquired during 2002 about the regulated rate base of the acquired assets and the value assigned to other intangible assets.
11. SEGMENT INFORMATION
Our determination of reportable segments considers the strategic operating units under which we manage sales of various products and services to customers in differing regulatory environments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. All intersegment sales prices are market based. We evaluate performance based on net income or loss of the respective operating units.
Included in purchased gas cost were purchases from Atmos Energy Marketing of $190.6 million, $525.6 million and $228.6 million in 2002, 2001 and 2000. Volumes purchased were 67.7 Bcf, 96.3 Bcf and 74.4 Bcf in 2002, 2001 and 2000. These purchases were made in a competitive open bidding process and reflect market prices. Average prices per Mcf for gas purchased from Atmos Energy Marketing were $2.82, $5.46 and $3.07 in 2002, 2001 and 2000. In addition, we have entered into contracts with Atmos Energy Marketing to manage a significant portion of our underground storage facilities. Atmos Energy Marketing has acted as agent in placing financial instruments for the various divisions that protect us and our customers from unusually large winter period gas price increases.
In accordance with Statement of Financial Accounting Standards No. 131 "Disclosure about Segments of an Enterprise and Related Information", we have identified the Utility, Natural Gas Marketing and Other Non-Utility segments, as described in Note 1. We consider each division within our utility segment to be a reporting unit of the utility segment and not a separate reportable segment. The individual operations that comprise the other non-utility segment are not currently material to our consolidated financial position or results of operation and therefore do not require separate reporting. Income from our other non-utility segment is generated primarily from pipeline and storage operations.
Summarized financial information concerning our reportable segments is shown in the following table:
NATURAL GAS OTHER NON-
UTILITY MARKETING UTILITY TOTAL
---------- ----------- ---------- ----------
(IN THOUSANDS)
As of and for the year ended
September 30, 2002:
Operating revenues.................... $ 937,526 $ 678 $ 24,705 $ 962,909
Intersegment revenues................. 1,472 274 10,314 12,060
Gas trading margin.................... -- 38,538 -- 38,538
Depreciation and amortization......... 77,704 2,069 1,696 81,469
Operating income...................... 125,506 20,610 9,215 155,331
Interest charges...................... 58,084 860 230 59,174
Net income............................ 42,994 12,614 4,048 59,656
Total assets.......................... 1,789,833 258,624 71,036 2,119,493
Equity investment in unconsolidated
entity.............................. -- -- 22,175 22,175
Expenditures for additions to
long-lived assets................... 129,632 779 1,841 132,252
As of and for the year ended
September 30, 2001:
Operating revenues.................... $1,380,148 $ 7,946 $ 59,436 $1,447,530
Intersegment revenues................. 1,989 -- 3,266 5,255
Gas trading margin.................... -- 488 -- 488
Depreciation and amortization......... 65,614 1,062 988 67,664
Operating income (loss)............... 127,980 (3,122) 5,423 130,281
Equity in earnings of Woodward
Marketing, L.L.C.................... -- 8,062 -- 8,062
Interest charges...................... 45,313 660 1,038 47,011
Net income............................ 49,881 2,551 3,658 56,090
Total assets.......................... 1,732,697 255,729 111,427 2,099,853
Equity investment in unconsolidated
entity.............................. -- -- 23,840 23,840
Expenditures for additions to
long-lived assets................... 112,683 32 394 113,109
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NATURAL GAS OTHER NON-
UTILITY MARKETING UTILITY TOTAL
---------- ----------- ---------- ----------
(IN THOUSANDS)
As of and for the year ended
September 30, 2000:
Operating revenues.................... $ 739,951 $ 929 $117,926 $ 858,806
Intersegment revenues................. 5,116 -- 3,538 8,654
Gas trading margin.................... -- -- -- --
Depreciation and amortization......... 60,120 606 3,129 63,855
Operating income...................... 77,207 155 7,954 85,316
Equity in earnings of Woodward
Marketing, L.L.C.................... -- 7,307 -- 7,307
Interest charges...................... 42,096 -- 1,727 43,823
Net income............................ 22,459 5,344 8,115 35,918
Total assets.......................... 1,253,023 37,621 74,673 1,365,317
Equity investment in unconsolidated
entity.............................. -- 17,351 24,979 42,330
Expenditures for additions to
long-lived assets................... 105,012 -- 1,128 106,140
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The following table presents a reconciliation of the operating revenues to total consolidated revenues for the years ended September 30, 2002, 2001 and 2000.
2002 2001 2000
-------- ---------- --------
(IN THOUSANDS)
Total revenues for reportable segments.............. $962,909 $1,447,530 $858,806
Elimination of intersegment revenues................ (12,060) (5,255) (8,654)
-------- ---------- --------
Total operating revenues.................. $950,849 $1,442,275 $850,152
======== ========== ========
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A reconciliation of total assets for the reportable segments to total consolidated assets for September 30, 2002, 2001 and 2000 is presented below.
2002 2001 2000
---------- ---------- ----------
(IN THOUSANDS)
Total assets for reportable segments............. $2,119,493 $2,099,853 $1,365,317
Elimination of intercompany accounts............. (139,272) (63,673) (16,559)
---------- ---------- ----------
Total consolidated assets.............. $1,980,221 $2,036,180 $1,348,758
========== ========== ==========
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The following table summarizes our revenues by products and services for the year ended September 30.
2002 2001 2000
-------- ---------- --------
(IN THOUSANDS)
Gas sales revenues:
Residential....................................... $535,981 $ 788,902 $405,552
Commercial........................................ 221,728 342,945 176,712
Public authority and other........................ 31,731 58,539 27,198
Industrial........................................ 98,765 148,180 97,089
-------- ---------- --------
Total gas sales revenues.................. 888,205 1,338,566 706,551
Transportation revenues............................. 36,591 28,668 23,610
Other gas revenues.................................. 11,258 10,925 4,674
-------- ---------- --------
Total utility revenues.................... 936,054 1,378,159 734,835
Propane revenues.................................... -- -- 22,550
Non-Utility revenues................................ 14,795 64,116 92,767
-------- ---------- --------
Total operating revenues.................. $950,849 $1,442,275 $850,152
======== ========== ========
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12. MARKETABLE SECURITIES
In accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," all marketable securities are classified as available-for-sale and are reported at market value with unrealized gains and losses shown as a component of "accumulated other comprehensive income (loss)" labeled "unrealized holding gains (losses) on investments, net." All marketable securities are held in rabbi trusts for the Supplemental Executive Benefits Plans.
The cost, unrealized holding gain (loss) and the market value of the marketable securities are as follows:
UNREALIZED
HOLDING MARKET
COST GAIN (LOSS) VALUE
------- ----------- -------
(IN THOUSANDS)
As of September 30, 2002:
Available-for-sale securities:
Domestic equity mutual funds..................... $28,788 $(3,113) $25,675
Foreign equity mutual funds...................... 2,087 (27) 2,060
------- ------- -------
$30,875 $(3,140) $27,735
======= ======= =======
As of September 30, 2001:
Available-for-sale securities:
Domestic equity mutual funds..................... $24,565 $(1,496) $23,069
Foreign equity mutual funds...................... 2,845 (804) 2,041
------- ------- -------
$27,410 $(2,300) $25,110
======= ======= =======
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13. LEASES
We have entered into non-cancelable operating leases for office and warehouse space used in our operations. The remaining lease terms range from one to 15 years and generally provide for the payment of taxes, insurance and maintenance by the lessee. Renewal options exist for certain of these leases. We have also entered into capital leases for division offices and operating facilities. Property, plant and equipment included amounts for capital leases of $5.2 million at September 30, 2002 and 2001. Accumulated depreciation for these capital leases totaled $2.2 million and $1.9 million at September 30, 2002 and 2001.
The related future minimum lease payments at September 30, 2002 were as follows:
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
2003........................................................ $ 876 $ 9,572
2004........................................................ 876 9,307
2005........................................................ 843 9,221
2006........................................................ 433 8,782
2007........................................................ 433 6,768
Thereafter.................................................. 2,293 23,210
------- -------
Total minimum lease payments................................ 5,754 $66,860
=======
Less amount representing interest........................... (2,713)
-------
Present value of net minimum lease payments................. $ 3,041
=======
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Consolidated lease and rental expense amounted to $8.1 million, $5.9 million and $9.0 million for fiscal 2002, 2001 and 2000.
14. RELATED PARTY TRANSACTIONS
JD Woodward became Senior Vice President, Non-Utility Operations of the Company on April 1, 2001. Woodward Marketing L.L.C., a wholly-owned subsidiary of the Company, leases office space and furniture from two corporations owned by Mr. Woodward. The lease originated in April 2002 and expires in March 2007. Base lease payments are $225,000 in the first year of the lease and increase to $253,000 in the final year.
Effective in October 1994, Charles Vaughan retired as an officer and employee of the Company and entered into a consulting agreement with the Company. Under the terms of the agreement, Mr. Vaughan performed such consulting services as the Board requested from time to time. During fiscal 2002, Mr. Vaughan received $130,000 in payment for his services during that period. In addition, pursuant to the terms of the agreement, upon early termination of the agreement by the Company in September 2002, Mr. Vaughan received a total of $175,000, representing the total sums due him under the remainder of the agreement that was due to expire September 30, 2004.
15. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Effective October 1, 2000, we adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. This Statement established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that all derivative financial instruments be recognized in the financial statements and measured at fair value regardless of the purpose or intent for holding them. Changes in the fair value of derivative financial instruments are either recognized periodically in income or as deferred gas costs, depending on the classification of the derivative. Derivative instruments may be classified as either fair value hedges or cash flow hedges. The cumulative effect of the change in accounting for the adoption of this Statement did not have a material impact on our financial position, results of operations or cash flows.
In July 2000, we entered into an agreement to purchase weather hedges for our Texas and Louisiana operations effective for the 2000-2001 heating season. The hedges were designed to help mitigate the effects of weather that was at least seven percent warmer than normal in both Texas and Louisiana while preserving any upside. The cost of the weather hedges was approximately $4.9 million which was amortized over the 2000-2001 heating season. No income was recognized for the 2000-2001 heating season for these weather hedges due to the colder than normal weather. The cost of the weather hedges was more than offset by the positive effects of colder weather on our gross profit.
In June 2001, we purchased a three year weather insurance policy with an option to cancel in the third year. We will receive a refund of a portion of the cost of the policy if we cancel in the third year. The policy is for our Texas and Louisiana operations and covers the entire heating season of October to March beginning with the 2001-2002 heating season. The cost of the three year policy was $13.2 million which was prepaid and is being amortized over the appropriate heating seasons based on degree days. The insurance is designed to protect against weather that is at least seven percent warmer than normal for the entire heating season. During the 2001-2002 heating season, weather was not at least seven percent warmer than normal resulting in no claim having been filed under the insurance policy. Only the amortization of $4.4 million of premiums was recognized during the heating season.
We have historically hedged 20 to 25 percent of our gas supply through the use of our underground storage assets. For the 2002-2003 heating season, we have covered between 45 and 50 percent of our anticipated flowing gas requirements through storage, financial hedges and fixed forward contracts at a weighted average cost of less than $4.00 per Mcf. This should provide protection to us and our customers against potential sharp increases in the price of natural gas during the 2002-2003 heating season.
In accordance with Statement of Financial Accounting Standards No. 133, we use the mark-to-market method to account for our financial instruments discussed previously. In accordance with Statement of Financial Accounting Standards No. 71 "Accounting for the Effects of Certain Types of Regulation", current period changes in the assets and liabilities from risk management activities are recorded as deferred gas costs on the condensed consolidated balance sheet as these costs will ultimately be recovered from ratepayers. Accordingly, there is no earnings impact as a result of the use of these financial instruments. Upon maturity, the contracts are recognized in purchased gas cost on the consolidated statement of income.
At the close of business on September 30, 2002, we had outstanding contracts representing 1.9 Bcf of net notional volumes with average contract maturities of less than two years. These contracts were marked to market. Contracts representing 75 percent of the fair value of these contracts are scheduled to mature within one year. Contracts representing 22 percent of the remaining fair value are scheduled to mature within three years.
Effective April 1, 2001, natural gas sales from our natural gas trading operations have been netted against purchased gas costs and shown as gas trading margin on the condensed consolidated statements of income. For the year ended September 30, 2002, our gas trading margin consisted of a $49.0 million realized trading gain and a $10.5 million unrealized trading loss. For the year ended September 30, 2001, our gas trading margin consisted of a $4.0 million realized trading loss and a $4.5 million unrealized trading gain.
We acquired a 45 percent interest in Woodward Marketing in July 1997 as a result of the merger of Atmos and United Cities Gas Company, which had acquired that interest in May 1995. In April 2001, we acquired the 55 percent interest that we did not own from JD Woodward and others for 1,423,193 restricted shares of our common stock. Immediately following the acquisition, Mr. Woodward was elected as a Senior Vice President of Atmos in charge of all non-utility business activities, a position he has held since April 1, 2001. Prior to that time, Mr. Woodward had not been an officer or employee of Atmos.
The principal business of Atmos Energy Marketing, including the activities of Woodward Marketing and Trans Louisiana Industrial Gas Company, is the overall management of natural gas requirements for municipalities, local gas utility companies and industrial customers located primarily in the southeastern and midwestern United States. This business involves the sale of natural gas by Atmos Energy Marketing to its customers and the management of storage and transportation contracts for its customers under contracts generally having one to two-year terms. At September 30, 2002, Atmos Energy Marketing had a total of 101 municipal customers and 641 industrial customers. Atmos Energy Marketing also sells natural gas to certain of its industrial customers on a delivered burner tip basis under contract terms from 30 days to two years. In addition, Atmos Energy Marketing supplies our regulated operations with a portion of our natural gas requirements on a competitive bid basis. Any mark-to-market gains or losses on these affiliate contracts are eliminated.
In the management of natural gas requirements for municipal and other local utilities, Atmos Energy Marketing sells physical natural gas to those customers for future delivery and manages the associated price risk through the use of gas futures, including forwards, over-the-counter and exchange-traded options and swap contracts with counterparties. These financial contracts are marked-to-market daily at the close of business. Atmos Energy Marketing links gas futures to physical delivery of natural gas and typically balances its futures positions at the end of each trading day. Over-the-counter swap agreements require Atmos Energy Marketing to receive or make payments based on the difference between a fixed price and the market price of natural gas on the settlement date. Atmos Energy Marketing uses these futures and swaps to manage margins on offsetting fixed-price purchase or sale commitments for physical quantities of natural gas, which are also carried on a mark-to-market basis. Mark-to-market accounting refers to the measurement of contracts at fair value determined at the balance sheet date with any gains and losses included in earnings. Options held to manage price risk provide the right, but not the requirement, to buy or sell energy commodities at a fixed price. Atmos Energy Marketing uses options to manage margins and to limit overall price risk exposure. At any point in time, Atmos Energy Marketing may not have completely offset its price risk on these activities.
Energy related services provided by Atmos Energy Marketing include the sale of natural gas to its various customer classes and management of transportation and storage assets and inventories. More specifically, energy services include contract negotiation and administration, load forecasting, storage acquisition, natural gas purchase and delivery and capacity utilization strategies. In providing these services, Atmos Energy Marketing generates income from its utility, municipal and industrial customers through negotiated prices based on the volume of gas supplied to the customer. Atmos Energy Marketing also generates income by taking advantage of the difference between near-term gas prices and prices for future delivery as well as the daily movement of gas prices by utilizing storage and transportation capacity that it controls.
Prior to May 2002, Atmos Energy Marketing engaged in limited financial trading for speculative purposes. Financial trading involves utilizing financial instruments (futures, options, swaps, etc.) to hedge natural gas prices or to take a position in the market based on anticipated price movement. In some prior years, Atmos Energy Marketing experienced losses in its financial speculative trading business. Effective in May 2002, Atmos Energy Marketing's financial trading for speculative purposes was discontinued. Atmos Energy Marketing will continue its financial trading for hedging (risk management purposes) related to its physical trading positions. With regard to its physical trading business, Atmos Energy Marketing does engage in limited speculative natural gas trading for its own account primarily related to its storage activity, subject to a risk management policy established by us which limits the level of trading loss to a maximum of 25 percent of the budgeted annual operating income of Atmos Energy Holdings. Physical trading involves utilizing physical assets (storage and transportation) to sell and deliver gas to customers or to take a position in the market based on anticipated price movement. Compliance with such risk management policy is monitored on a daily basis. In addition, Woodward Marketing's bank credit facility limits trading positions that are not closed at the end of the day (open positions) to 5.0 Bcf of natural gas. At September 30, 2002, Atmos Energy Marketing's net open positions in its trading operations totaled 1.9 Bcf. Atmos Energy Marketing's open trading positions are monitored on a daily basis but are not required to be closed if they remain within the limits set by the bank loan agreement. In addition to the price risk of any net open position at the end of each trading day, the financial exposure that results from intra-day fluctuations of gas prices and the potential for daily price movements constitutes a risk of loss since the price of natural gas purchased or sold for future delivery at the beginning of the day may not be hedged until later in the day.
Financial instruments, which subject Atmos Energy Marketing to counterparty risk, consist primarily of financial instruments arising from trading and risk management activities and overnight repurchase agreements that are not insured. Counterparty risk is the risk of loss from nonperformance by financial counterparties to a contract. Exchange-traded future and option contracts are generally guaranteed by the exchanges.
Atmos Energy Marketing's operations are concentrated in the natural gas industry, and its customers and suppliers may be subject to economic risks affecting that industry.
From time to time, Woodward Marketing borrows money to fund its natural gas purchases and to fulfill its obligations to maintain deposit accounts with its counterparties. See Note 3 of notes to consolidated financial statements.
16. SUBSEQUENT EVENT (UNAUDITED)
On October 31, 2002, the Mississippi Public Service Commission approved the acquisition by Atmos of Mississippi Valley Gas Company, a privately held natural gas utility. The acquisition, which we expect to be effective in December 2002, will be accounted for as a purchase. The acquisition price is $75.0 million in cash and the issuance of $75.0 million of our common stock. In addition, we will repay approximately $45.0 million of Mississippi Valley Gas' long-term debt. On October 7, 2002, we entered into a $150.0 million short-term unsecured committed credit facility that will be used to provide initial funding for the cash portion of the acquisition and to refinance Mississippi Valley Gas' existing debt.
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited quarterly financial data is presented below. The sum of net income per share by quarter may not equal the net income per share for the year due to variations in the weighted average shares outstanding used in computing such amounts. Our businesses are seasonal due to weather conditions in our service areas. For further information on its effects on quarterly results, see the "Weather and Seasonality" discussion included in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section herein.
QUARTER ENDED
------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
----------- -------- -------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR 2002
Operating revenues................... $271,342 $379,481 $161,800 $138,226
Gross profit......................... 109,365 149,883 73,833 59,521
Operating income..................... 43,446 86,333 19,178 6,374
Net income (loss).................... 20,633 41,378 3,254 (5,609)
Diluted income (loss) per share...... .50 1.01 .08 (.14)
FISCAL YEAR 2001
Operating revenues................... $442,790 $675,113 $164,260 $160,112
Gross profit......................... 109,948 138,324 61,279 65,169
Operating income..................... 48,941 73,891 3,174 4,275
Net income (loss).................... 22,972 44,074 (3,400) (7,556)
Diluted income (loss) per share...... .70 1.13 (.08) (.19)
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18. SUPPLEMENTAL DISCLOSURES (UNAUDITED)
The following supplemental condensed financial statements show our three operating segments and the elimination of material intercompany transactions. The following supplemental condensed balance sheet is as of September 30, 2002.
NATURAL OTHER
GAS NON-
UTILITY MARKETING UTILITY ELIMINATIONS CONSOLIDATED
---------- --------- ------- ------------ ------------
(IN THOUSANDS)
ASSETS
Property, plant and equipment, net... $1,223,901 $ 9,893 $66,526 $ -- $1,300,320
Investment in subsidiaries........... 122,988 (5,752) -- (117,236) --
Current assets
Cash and cash equivalents.......... (1,164) 47,887 104 -- 46,827
Cash held on deposit in margin
account......................... -- 10,192 -- -- 10,192
Accounts receivable, net........... 51,855 105,203 (4,144) (16,687) 136,227
Inventories........................ 3,550 -- 219 -- 3,769
Gas stored underground............. 63,343 21,329 7,111 -- 91,783
Assets from risk management
activities...................... 4,424 28,909 -- (5,349) 27,984
Other current assets and
prepayments..................... 7,318 4,802 1,089 -- 13,209
Intercompany receivables........... 76,174 (33,027) (43,147) -- --
---------- -------- ------- --------- ----------
Total current assets....... 205,500 185,295 (38,768) (22,036) 329,991
Intangible assets.................... -- 5,365 -- -- 5,365
Goodwill............................. 150,287 21,288 13,440 -- 185,015
Noncurrent assets from risk
management activities.............. -- 5,241 -- -- 5,241
Deferred charges and other assets.... 87,157 37,294 29,838 -- 154,289
---------- -------- ------- --------- ----------
$1,789,833 $258,624 $71,036 $(139,272) $1,980,221
========== ======== ======= ========= ==========
CAPITALIZATION AND LIABILITIES
Shareholders' equity................. $ 573,235 $ 75,675 $47,313 $(122,988) $ 573,235
Long-term debt....................... 667,946 -- 2,517 -- 670,463
---------- -------- ------- --------- ----------
Total capitalization....... 1,241,181 75,675 49,830 (122,988) 1,243,698
Current liabilities
Current maturities of long-term
debt............................... 20,907 -- 1,073 -- 21,980
Short-term debt.................... 145,791 -- -- -- 145,791
Liabilities from risk management
activities...................... -- 18,487 -- -- 18,487
Deferred gas cost.................. 16,404 5,097 446 -- 21,947
Other current liabilities.......... 116,570 145,949 8,667 (16,284) 254,902
---------- -------- ------- --------- ----------
Total current
liabilities.............. 299,672 169,533 10,186 (16,284) 463,107
Deferred income taxes................ 130,575 (3,227) 7,192 -- 134,540
Noncurrent liabilities from risk
management activities.............. -- 3,663 -- -- 3,663
Deferred credits and other
liabilities........................ 118,405 12,980 3,828 -- 135,213
---------- -------- ------- --------- ----------
$1,789,833 $258,624 $71,036 $(139,272) $1,980,221
========== ======== ======= ========= ==========
|
The following supplemental condensed statement of income is for the year ended September 30, 2002.
NATURAL OTHER
GAS NON-
UTILITY MARKETING UTILITY ELIMINATIONS CONSOLIDATED
-------- ---------- ------- ------------ ------------
(IN THOUSANDS)
Operating revenues.......... $937,526 $1,040,191 $24,705 $(1,051,573) $950,849
Purchased gas cost.......... 559,891 994,319 8,022 (1,003,985) 558,247
-------- ---------- ------- ----------- --------
Gross profit.............. 377,635 45,872 16,683 (47,588) 392,602
Gas trading margin.......... -- (10,674) -- 49,212 38,538
Operating expenses.......... 252,129 16,946 7,468 (734) 275,809
-------- ---------- ------- ----------- --------
Operating income............ 125,506 18,252 9,215 2,358 155,331
Miscellaneous income
(expense)................. 1,427 1,331 554 (4,633) (1,321)
Interest charges............ (58,796) (2,866) (2,145) 4,633 (59,174)
-------- ---------- ------- ----------- --------
Income before income
taxes..................... 68,137 16,717 7,624 2,358 94,836
Provision for income
taxes..................... 25,143 6,058 3,576 403 35,180
-------- ---------- ------- ----------- --------
Net income........ $ 42,994 $ 10,659 $ 4,048 $ 1,955 $ 59,656
======== ========== ======= =========== ========
|
Organization -- Atmos Energy Corporation distributes natural gas in 11 states through its regulated utility operating divisions -- Colorado-Kansas Division, Kentucky Division, Louisiana Division, Mid-States Division and Texas Division. Our nonutility operations are organized under Atmos Energy Holdings, Inc., which includes Atmos Energy Marketing, L.L.C., Atmos Pipeline and Storage, Inc., Atmos Power Systems, Inc. and an indirect equity interest in Heritage Propane Partners, L.P. Atmos Energy Marketing includes the operations of Woodward Marketing and Trans Louisiana Industrial Gas Company.
Consolidating Financial Statements -- The column headed "Utility" consists of the operations of Atmos' five operating divisions. The column headed "Natural Gas Marketing" consists of Atmos Energy Marketing, Woodward Marketing and Trans Louisiana Industrial Gas Company. The column headed "Other Non-Utility" consists of our nonutility operations excluding natural gas marketing. Operating revenues and purchased gas costs from our natural gas marketing operations are shown on a gross basis in the "Natural Gas Marketing" column. Such natural gas marketing activities are reclassified in the elimination column as gas trading margin.
Current and noncurrent assets and liabilities from risk management activities on the supplemental condensed consolidated balance sheet consist of the fair value, inclusive of future servicing costs and valuation adjustments, of our storage, transportation and requirements contracts, forwards, over-the-counter and exchange traded options, futures and swap contracts.
The gas trading margin on the supplemental condensed consolidated statement of income consists primarily of the difference between revenue arising from Natural Gas Marketing's sale of physical natural gas to its customers less the cost to purchase natural gas and current period changes in assets and liabilities from risk management activities.
Risk Management Assets and Liabilities, Natural Gas Marketing -- We use storage, transportation and requirements contracts, forwards, over-the-counter and exchange-traded options, futures and swap contracts to conduct our risk management activities. We use the mark-to-market method to account for these activities in accordance with Emerging Issues Task Force Issue No. 98-10, "Accounting for Energy Trading and Risk Management Activities" and EITF 00-17, "Measuring the Fair Value of Energy-Related Contracts in Applying Issue No. 98-10." Under this method, the aforementioned contracts are reflected at fair value, inclusive of future servicing costs and valuation adjustments, with resulting unrealized gains and losses recorded as assets or liabilities from risk management activities on the condensed consolidated balance sheet. Current period changes in the assets and liabilities from risk management activities are recognized as gas trading margins on the condensed consolidated statement of income. Changes in the mark-to-market valuation of assets and liabilities from risk management activities result primarily from changes in the valuation of the portfolio of contracts, maturity and settlement of contracts and newly originated transactions. Market prices and models used to value these transactions reflect our best estimate considering various factors including closing exchange and over-the-counter quotations, time value and volatility factors underlying the contracts. Values are adjusted to reflect the potential impact of liquidating our positions in an orderly manner over a reasonable period of time under present market conditions. Changes in market prices directly affect our estimate of the fair value of these transactions.
At its October 2002 meeting, the Emerging Issues Task Force rescinded EITF Issue Nos. 98-10 and 00-17. The impact on Atmos will be to discontinue mark-to-market accounting of our sales, storage and transportation contracts and our natural gas storage inventory. Any cumulative effect of this change in accounting will depend on the number and valuation of our sales, storage and transportation contracts and our natural gas storage inventory level and valuation at the time we adopt the new rules. We are evaluating the impact on Atmos of this action.
Eliminations -- Included in purchased gas cost in the Utility column are natural gas purchases from Atmos Energy Marketing. These purchases were made in a competitive open bidding process and reflect market prices. In addition, we have entered into contracts with Atmos Energy Marketing to manage a significant portion of our underground storage facilities. Atmos Energy Marketing has acted as agent in placing financial instruments for the various divisions that protect us and our customers from unusually large winter period gas price increases.
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated herein by reference from the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders on February 12, 2003. Information regarding executive officers is included in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders on February 12, 2003.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders on February 12, 2003.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders on February 12, 2003.
ITEM 14. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including the Chairman, President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chairman, President and Chief Executive Officer; and Senior Vice President and Chief Financial Officer have concluded that our disclosure controls and procedures are effective.
Such disclosure controls and procedures are controls and procedures designed to ensure that all information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods set forth in applicable Securities and Exchange Commission forms, rules and regulations. In addition, we have reviewed our internal controls and have concluded that there have been no significant changes in such internal controls or other factors that could significantly affect those controls subsequent to the date of our review.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. and 2. Financial Statements and Financial Statement Schedules
The financial statements and financial statement schedules listed in the Index to Financial Statements in Item 8 are filed as part of this Form 10-K.
3. Exhibits
The exhibits listed in the accompanying Exhibits Index are filed as part of this Form 10-K. The exhibits numbered 10.21(a) through 10.32(b) are management contracts or compensatory plans or arrangements.
The Company filed a Form 8-K Current Report, Item 9, Regulation FD Disclosure, dated August 14, 2002, disclosing that on August 14, 2002, each of the Principal Executive Officer, Robert W. Best, and Principal Financial Officer, John P. Reddy, of Atmos Energy Corporation, submitted to the Securities and Exchange Commission sworn statements pursuant to Securities and Exchange Commission Order No. 4-460. Also, two exhibits were attached: a copy of these statements dated August 14, 2002.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
By /s/ JOHN P. REDDY
------------------------------------
John P. Reddy
Senior Vice President
and Chief Financial Officer
|
Date: November 22, 2002
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Robert W. Best and John P. Reddy, or either of them acting alone or together, as his true and lawful attorney-in-fact and agent with full power to act alone, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Form 10-K, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated:
/s/ ROBERT W. BEST Chairman, President and Chief November 22, 2002
-------------------------------------- Executive Officer
Robert W. Best
/s/ JOHN P. REDDY Senior Vice President and Chief November 22, 2002
-------------------------------------- Financial Officer
John P. Reddy
/s/ F.E. MEISENHEIMER Vice President and Controller November 22, 2002
-------------------------------------- (Principal Accounting Officer)
F.E. Meisenheimer
/s/ TRAVIS W. BAIN, II Director November 22, 2002
--------------------------------------
Travis W. Bain, II
/s/ DAN BUSBEE Director November 22, 2002
--------------------------------------
Dan Busbee
/s/ RICHARD W. CARDIN Director November 22, 2002
--------------------------------------
Richard W. Cardin
/s/ THOMAS J. GARLAND Director November 22, 2002
--------------------------------------
Thomas J. Garland
/s/ RICHARD K. GORDON Director November 22, 2002
--------------------------------------
Richard K. Gordon
/s/ GENE C. KOONCE Director November 22, 2002
--------------------------------------
Gene C. Koonce
/s/ THOMAS C. MEREDITH Director November 22, 2002
--------------------------------------
Thomas C. Meredith
/s/ PHILLIP E. NICHOL Director November 22, 2002
--------------------------------------
Phillip E. Nichol
/s/ CARL S. QUINN Director November 22, 2002
--------------------------------------
Carl S. Quinn
/s/ CHARLES K. VAUGHAN Director November 22, 2002
--------------------------------------
Charles K. Vaughan
/s/ RICHARD WARE II Director November 22, 2002
--------------------------------------
Richard Ware II
|
I, Robert W. Best, certify that:
1. I have reviewed this annual report on Form 10-K of Atmos Energy Corporation;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
By /s/ ROBERT W. BEST
------------------------------------
Robert W. Best
Chairman, President and Chief
Executive Officer
|
Date: November 22, 2002
I, John P. Reddy, certify that:
1. I have reviewed this annual report on Form 10-K of Atmos Energy Corporation;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
By /s/ JOHN P. REDDY
------------------------------------
John P. Reddy
Senior Vice President and Chief
Financial Officer
|
Date: November 22, 2002
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COST & OTHER AT END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
---------- ---------- ---------- ---------- ---------
(IN THOUSANDS)
2002
Allowance for doubtful accounts...... $16,151 $ -- $1,500(1) $ 7,142(2) $10,509
2001
Allowance for doubtful accounts...... $10,589 $26,226 -- $20,664(2) $16,151
2000
Allowance for doubtful accounts...... $ 9,231 $17,724 -- $16,366(2) $10,589
|
(1) This amount was charged to regulatory assets within deferred charges and other assets as recovery was specifically permitted by the relevant regulators.
(2) Uncollectible accounts written off
ITEM 14.(A)(3)
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER OR INCORPORATION BY REFERENCE TO
------- ----------- --------------------------------------------
Plan of Reorganization
2.1 Purchase and Sale Agreement (Louisiana Exhibit 2.1 to Registration Statement on
Gas Operations), by and among Citizens Form S-3/A filed November 6, 2000 (File No.
Utilities Company (now known as Citizens 333-73705)
Communications Company), LGS Natural Gas
Company and Atmos Energy Corporation,
dated as of April 13, 2000
2.2 Agreement and Plan of Merger and Exhibit 2.2 of Form 10-K for fiscal year
Reorganization dated as of September 21, ended September 30, 2001 (File No. 1-10042)
2001, by and among Atmos Energy
Corporation, Mississippi Valley Gas
Company and the Shareholders Named on
the Signature Pages hereto
Articles of Incorporation and Bylaws
3.1(a) Restated Articles of Incorporation of Exhibit 3.1 of Form 10-K for fiscal year
the Company, as Amended (as of July 31, ended September 30, 1997 (File No. 1-10042)
1997)
3.1(b) Articles of Amendment to the Restated Exhibit 3a of Form 10-Q for quarter ended
Articles of Incorporation of Atmos March 31, 1999 (File No. 1-10042)
Energy Corporation as Amended (Texas)
3.1(c) Articles of Amendment to the Restated Exhibit 3b of Form 10-Q for quarter ended
Articles of Incorporation of Atmos March 31, 1999 (File No. 1-10042)
Energy Corporation as Amended (Virginia)
3.2(a) Bylaws of the Company (Amended and Re- Exhibit 3.2 of Form 10-K for fiscal year
stated as of November 12, 1997) ended September 30, 1997 (File No. 1-10042)
3.2(b) Amendment No. 1 to Bylaws of Atmos Exhibit 3.1 of Form 10-Q for quarter ended
Energy Corporation (Amended and Restated March 31, 2001 (File No. 1-10042)
as of November 12, 1997)
Instruments Defining Rights of Security
Holders
4.1 Specimen Common Stock Certificate (Atmos Exhibit (4)(b) of Form 10-K for fiscal year
Energy Corporation) ended September 30, 1988 (File No. 1-10042)
4.2 Rights Agreement, dated as of November Exhibit 4.1 of Form 8-K dated November 12,
12, 1997, between the Company and 1997 (File No. 1-10042)
BankBoston, N.A., as Rights Agent
4.3 First Amendment to Rights Agreement Exhibit 2 of Form 8-A, Amendment No. 1,
dated as of August 11, 1999, between the dated August 12, 1999 (File No. 1-10042)
Company and BankBoston, N.A., as Rights
Agent
4.4 Second Amendment to Rights Agreement Exhibit 4 of Form 10-Q for quarter ended
dated as of February 13, 2002, between December 31, 2001 (File No. 1-10042)
the Company and EquiServe Trust Company,
N.A., as Rights Agent
4.5 Form of Indenture between Atmos Energy Exhibit 4.1 to Registration Statement on
Corporation and U.S. Bank Trust National Form S-3 filed April 20, 1998 (File No.
Association, Trustee 333-50477)
4.6 Indenture between Atmos Energy Exhibit 99.3 of Form 8-K dated May 15, 2001
Corporation, as Issuer, and Suntrust (File No. 1-10042)
Bank, Trustee dated as of May 22, 2001
|
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER OR INCORPORATION BY REFERENCE TO
------- ----------- --------------------------------------------
4.7(a) Indenture of Mortgage, dated as of July Exhibit to Registration Statement of United
15, 1959, from United Cities Gas Company Cities Gas Company on Form S-3 (File No.
to First Trust of Illinois, National 33-56983)
Association, and M.J. Kruger, as
Trustees, as amended and supplemented
through December 1, 1992 (the Indenture
of Mortgage through the 20th Sup-
plemental Indenture)
4.7(b) Twenty-First Supplemental Indenture Exhibit 10.7(a) of Form 10-K for fiscal year
dated as of February 5, 1997 by and ended September 30, 1997 (File No. 1-10042)
among United Cities Gas Company and Bank
of America Illinois and First Trust
National Association and Russell C.
Bergman supplementing Indenture of
Mortgage dated as of July 15, 1959
4.7(c) Twenty-Second Supplemental Indenture Exhibit 10.7(b) of Form 10-K for fiscal year
dated as of July 29, 1997 by and among ended September 30, 1997 (File No. 1-10042)
the Company and First Trust National
Association and Russell C. Bergman
supplementing Indenture of Mortgage
dated as of July 15, 1959
4.8(a) Form of Indenture between United Cities Exhibit to Registration Statement of United
Gas Company and First Trust of Illinois, Cities Gas Company on Form S-3 (File No.
National Association, as Trustee dated 33-56983)
as of November 15, 1995
4.8(b) First Supplemental Indenture between the Exhibit 10.8(a) of Form 10-K for fiscal year
Company and First Trust of Illinois, ended September 30, 1997 (File No. 1-10042)
National Association, as Trustee dated
as of July 29, 1997
4.9(a) Seventh Supplemental Indenture, dated as Exhibit 10.1 of Form 10-Q for quarter ended
of October 1, 1983 between Greeley Gas June 30, 1994 (File No. 1-10042)
Company ("The Greeley Gas Division") and
the Central Bank of Denver, N.A.
("Central Bank")
4.9(b) Ninth Supplemental Indenture, dated as Exhibit 10.2 of Form 10-Q for quarter ended
of April 1, 1991, between The Greeley June 30, 1994 (File No. 1-10042)
Gas Division and Central Bank
4.9(c) Tenth Supplemental Indenture, dated as Exhibit 10.4 of Form 10-Q for quarter ended
of December 1, 1993, between the Company June 30, 1994 (File No. 1-10042)
and Colorado National Bank, formerly
Central Bank
9 Not Applicable
|
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER OR INCORPORATION BY REFERENCE TO
------- ----------- --------------------------------------------
Material Contracts
10.1(a) Note Purchase Agreement, dated as of Exhibit 10(c) of Form 8-K filed January 7,
December 21, 1987, by and between the 1988 (File No. 0-11249)
Company and John Hancock Mutual Life
Insurance Company
Note Purchase Agreement, dated as of
December 21, 1987, by and between the
Company and John Hancock Charitable
Trust I (Agreement is identical to
Hancock Agreement listed above except as
to the parties thereto.)
Note Purchase Agreement dated as of
December 21, 1987, by and between the
Company and Mellon Bank, N.A., Trustee
under Master Trust Agreement of AT&T
Corporation, dated January 1, 1984, for
Employee Pension Plans -- AT&T -- John
Hancock -- Private Placement (Agreement
is identical to Hancock Agreement listed
above except as to the parties thereto.)
10.1(b) Amendment to Note Purchase Agreement, Exhibit (10)(b)(ii) of Form 10-K for fiscal
dated October 11, 1989, by and between year ended September 30, 1989 (File No.
the Company and John Hancock Mutual Life 1-10042)
Insurance Company revising Note Purchase
Agreement dated December 21, 1987
Amendment to Note Purchase Agreement,
dated October 11, 1989, by and between
the Company and John Hancock Charitable
Trust I revising Note Purchase Agreement
dated December 21, 1987. (Amendment is
identical to Hancock amendment listed
above except as to the parties thereto.)
Amendment to Note Purchase Agreement,
dated October 11, 1989, by and between
the Company and Mellon Bank, N.A.,
Trustee under Master Trust Agreement of
AT&T Corporation, dated January 1, 1984,
for Employee Pension
Plans -- AT&T -- John Hancock -- Private
Placement revising Note Purchase
Agreement dated December 21, 1987
(Amendment is identical to Hancock
amendment listed above except as to the
parties thereto.)
|
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER OR INCORPORATION BY REFERENCE TO
------- ----------- --------------------------------------------
10.1(c) Amendment to Note Purchase Agreement, Exhibit 10(b)(iii) of Form 10-K for fiscal
dated November 12, 1991, by and between year ended September 30, 1991 (File No.
the Company and John Hancock Mutual Life 1-10042)
Insurance Company revising Note Purchase
Agreement dated December 21, 1987
Amendment to Note Purchase Agreement,
dated November 12, 1991, by and between
the Company and John Hancock Charitable
Trust I revising Note Purchase Agreement
dated December 21, 1987. (Amendment is
identical to Hancock amendment listed
above except as to the parties thereto.)
Amendment to Note Purchase Agreement,
dated November 12, 1991, by and between
the Company and Mellon Bank, N.A.,
Trustee under Master Trust Agreement of
AT&T Corporation, dated January 1, 1984,
for Employee Pension
Plans -- AT&T -- John Hancock -- Private
Placement revising Note Purchase
Agreement dated December 21, 1987.
(Amendment is identical to Hancock
amendment above except as to the parties
thereto.)
10.1(d) Amendment to Note Purchase Agreement, Exhibit 4.3(d) to Registration Statement on
dated December 22, 1993, by and between Form S-3 filed April 20, 1998 (File No.
the Company and John Hancock Mutual Life 333-50477)
Insurance Company revising Note Purchase
Agreement dated December 21, 1987
Amendment to Note Purchase Agreement,
dated December 22, 1993, by and between
the Company and Mellon Bank, N.A.,
Trustee under Master Trust Agreement of
AT&T Corporation, dated January 1, 1984,
for Employee Pension
Plans -- AT&T -- John Hancock -- Private
Placement revising Note Purchase
Agreement dated December 21, 1987
(Amendment is identical to Hancock
amendment listed above except as to the
parties thereto and the amounts thereof)
10.1(e) Amendment to Note Purchase Agreement, Exhibit 4.3(e) to Registration Statement on
dated December 20, 1994, by and between Form S-3 filed April 20, 1998 (File No.
the Company and John Hancock Mutual Life 333-50477)
Insurance Company revising Note Purchase
Agreement dated December 21, 1987
Amendment to Note Purchase Agreement,
dated December 20, 1994, by and between
the Company and Mellon Bank, N.A.,
Trustee under Master Trust Agreement of
AT&T Corporation, dated January 1, 1984,
for Employee Pension
Plans -- AT&T -- John Hancock -- Private
Placement revising Note Purchase
Agreement dated December 21, 1987
(Amendment is identical to Hancock
amendment listed above)
|
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER OR INCORPORATION BY REFERENCE TO
------- ----------- --------------------------------------------
10.1(f) Amendment to Note Purchase Agreement, Exhibit 4.3(f) to Registration Statement on
dated July 29, 1997, by and between the Form S-3 filed April 20, 1998 (File No.
Company and John Hancock Mutual Life 333-50477)
Insurance Company revising Note Purchase
Agreement dated December 21, 1987
Amendment to Note Purchase Agreement,
dated July 29, 1997, by and between the
Company and Mellon Bank, N.A., Trustee
under Master Trust Agreement of AT&T
Corporation, dated January 1, 1984, for
Employee Pension Plans -- AT&T -- John
Hancock -- Private Placement revising
Note Purchase Agreement dated December
21, 1987 (Amendment is identical to
Hancock amendment listed above except as
to the parties thereto and the amounts
thereof)
10.2(a) Note Purchase Agreement, dated as of Exhibit 10(c) of Form 10-K for fiscal year
October 11, 1989, by and between the ended September 30, 1989 (File No. 1-10042)
Company and John Hancock Mutual Life
Insurance Company
10.2(b) Amendment to Note Purchase Agreement, Exhibit 10(c)(ii) of Form 10-K for fiscal
dated as of November 12, 1991, by and year ended September 30, 1991 (File No.
between the Company and John Hancock 1-10042)
Mutual Life Insurance Company revising
Note Purchase Agreement dated October
11, 1989
10.2(c) Amendment to Note Purchase Agreement, Exhibit 4.4(c) to Registration Statement on
dated December 22, 1993, by and between Form S-3 filed April 20, 1998 (File No.
the Company and John Hancock Mutual Life 333-50477)
Insurance Company revising Note Purchase
Agreement dated October 11, 1989
10.2(d) Amendment to Note Purchase Agreement, Exhibit 4.4(d) to Registration Statement on
dated December 20, 1994, by and between Form S-3 filed April 20, 1998 (File No.
the Company and John Hancock Mutual Life 333-50477)
Insurance Company revising Note Purchase
Agreement dated October 11, 1989
10.2(e) Amendment to Note Purchase Agreement, Exhibit 4.4(e) to Registration Statement on
dated July 29, 1997, by and between the Form S-3 filed April 20, 1998 (File No.
Company and John Hancock Mutual Life 333-50477)
Insurance Company revising Note Purchase
Agreement dated October 11, 1989
10.3(a) Note Purchase Agreement, dated as of Au- Exhibit 10(f)(i) of Form 10-K for fiscal
gust 29, 1991, by and between the year ended September 30, 1991 (File No.
Company and The Variable Annuity Life 1-10042)
Insurance Company
10.3(b) Amendment to Note Purchase Agreement, Exhibit 10(f)(ii) of Form 10-K for fiscal
dated November 26, 1991, by and between year ended September 30, 1991 (File No.
the Company and The Variable Annuity 1-10042)
Life Insurance Company revising Note
Purchase Agreement dated August 29, 1991
|
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER OR INCORPORATION BY REFERENCE TO
------- ----------- --------------------------------------------
10.3(c) Amendment to Note Purchase Agreement, Exhibit 4.5(c) to Registration Statement on
dated December 22, 1993, by and between Form S-3 filed April 20, 1998 (File No.
the Company and The Variable Annuity 333-50477)
Life Insurance Company revising Note
Purchase Agreement dated August 29, 1991
10.3(d) Amendment to Note Purchase Agreement, Exhibit 4.5(d) to Registration Statement on
dated July 29, 1997, by and between the Form S-3 filed April 20, 1998 (File No.
Company and The Variable Annuity Life 333-50477)
Insurance Company revising Note Purchase
Agreement dated August 29, 1991
10.4(a) Note Purchase Agreement, dated as of Au- Exhibit (10)(f) of Form 10-K for fiscal year
gust 31, 1992, by and between the ended September 30, 1992 (File No. 1-10042)
Company and The Variable Annuity Life
Insurance Company
10.4(b) Amendment to Note Purchase Agreement, Exhibit 4.6(b) to Registration Statement on
dated December 22, 1993, by and between Form S-3 filed April 20, 1998 (File No.
the Company and The Variable Annuity 333-50477)
Life Insurance Company revising Note
Purchase Agreement dated August 31, 1992
10.4(c) Amendment to Note Purchase Agreement, Exhibit 4.6(c) to Registration Statement on
dated July 29, 1997, by and between the Form S-3 filed April 20, 1998 (File No.
Company and The Variable Annuity Life 333-50477)
Insurance Company revising Note Purchase
Agreement dated August 31, 1992
10.5(a) Note Purchase Agreement, dated Novem- Exhibit 10.1 of Form 10-Q for quarter ended
ber 14, 1994, by and among the Company December 31, 1994 (File No. 1-10042)
and New York Life Insurance Company, New
York Life Insurance and Annuity Corpo-
ration, The Variable Annuity Life
Insurance Company, American General Life
Insurance Company, and Merit Life
Insurance Company
10.5(b) Amendment to Note Purchase Agreement, Exhibit 4.7(b) to Registration Statement on
dated July 29, 1997 by and among the Form S-3 filed April 20, 1998 (File No.
Company and New York Life Insurance 333-50477)
Company, New York Life Insurance and
Annuity Corporation, The Variable
Annuity Life Insurance Company, American
General Life Insurance Company and Merit
Life Insurance Company revising Note
Purchase Agreement dated November 14,
1994
10.6 Bond Purchase Agreement, dated as of Exhibit 10.3 of Form 10-Q for quarter ended
April 1, 1991, between the Greeley June 30, 1994 (File No. 1-10042)
Division and Central Bank
10.7(a) Purchase Agreement for 6 3/4% Debentures Exhibit 99.1 of Form 8-K dated July 22, 1998
due 2028 by and among Merrill Lynch Co., (File No. 1-10042)
NationsBanc Montgomery Securities
L.L.C., Edward D. Jones & Co., L.P. and
Atmos Energy Corporation dated July 22,
1998
|
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER OR INCORPORATION BY REFERENCE TO
------- ----------- --------------------------------------------
10.7(b) Purchase Agreement for 7 3/8% Senior Exhibit 99.1 of Form 8-K dated May 15, 2001
Notes due 2011 by and among Banc of (File No. 1-10042)
America Securities L.L.C., Banc One
Capital markets, Inc, First Union
Securities, Inc, Fleet Securities, Inc,
SG Cowen Securities Corporation and
Atmos Energy Corporation dated May 15,
2001
10.7(c) Purchase Agreement for 6,741,500 Shares Exhibit 99.1 of Form 8-K dated December 14,
of Common Stock (No Par Value) by and 2000 (File No. 1-10042)
among Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith
Incorporated, UBS Warburg L.L.C., A.G.
Edwards & Sons, Inc, Edward D. Jones &
Co., L.P. and Atmos Energy Corporation
dated December 14, 2000
10.8(a) 364-Day Revolving Credit Agreement, Exhibit 10.2 of Form 10-Q for quarter ended
dated as of July 31, 2002, among Atmos June 30, 2002 (File No. 1-10042)
Energy Corporation, Bank One, NA,
Wachovia Bank, National Association,
Suntrust Bank, CoBank ACB and Societe
Generale, New York Branch
10.8(b) Uncommitted Amended and Restated Credit Exhibit 10.1 of Form 10-Q for quarter ended
Agreement, dated to be effective July 1, June 30, 2002 (File No. 1-10042)
2002, among Woodward Marketing, L.L.C.,
Fortis Capital Corp., BNP Paribas and
the other financial institutions which
may become parties hereto
10.8(c) Bridge Credit Agreement, dated as of
October 7, 2002, among Atmos Energy
Corporation, Bank One, NA, Wachovia
Bank, National Association, Suntrust
Bank and Societe Generale, New York
Branch
Gas Supply Contracts
10.9(a) Firm Gas Transportation Agreement No. Exhibit 10.10(a) of Form 10-K for fiscal
123535 dated November 1, 1998 between year ended September 30, 1999 (File No.
Greeley Gas Company and Public Service 1-10042)
Company of Colorado
10.9(b) Transportation Storage Service Agreement Exhibit 10.6(b) of Form 10-K for fiscal year
No. TA-0544 between Greeley Gas Company ended September 30, 1994 (File No. 1-10042)
and Williams Natural Gas Company dated
October 1, 1993, as amended to extend to
October 1, 2003
10.9(c) Firm Transportation Service Agreement Exhibit 10.9(c) of Form 10-K for fiscal year
No. 33182000C, Rate Schedule TF-1, ended September 30, 2001 (File No. 1-10042)
between Colorado Interstate Gas Company
and Greeley Gas Company dated October 1,
2001
10.9(d) No-Notice Storage and Transportation Exhibit 10.9(d) of Form 10-K for fiscal year
Delivery Service Agreement No. 31044000, ended September 30, 2001 (File No. 1-10042)
Rate Schedule NNT-1, between Colorado
Interstate Gas Company and Greeley Gas
Company dated October 1, 2001
|
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER OR INCORPORATION BY REFERENCE TO
------- ----------- --------------------------------------------
10.9(e) Transportation-Storage Contract No. Exhibit 10.6 of Form 10-Q for quarter ended
TA-0614 (Request 0180) between Greeley March 31, 1998 (File No. 1-10042)
Gas Company (transferred from United
Cities Gas Company effective January 1,
2000) and Williams Natural Gas Company
dated October 1, 1993, as amended to
extend to October 1, 2005
10.9(f) Transportation-Storage Contract No. Exhibit 10.7 of Form 10-Q for quarter ended
TA-0611 (Request 0002) between Greeley March 31, 1998 (File No. 1-10042)
Gas Company (transferred from United
Cities Gas Company effective January 1,
2000) and Williams Natural Gas Company
dated October 1, 1993, as amended to
extend to October 1, 2003
10.10(a) Agreement for Firm Intrastate Exhibit 10.1 of Form 10-Q for quarter ended
Transportation of Natural Gas in the March 31, 1998 (File No. 1-10042)
State of Louisiana between Trans La (now
known as Atmos Energy Louisiana) and
Louisiana Intrastate Gas Company L.L.C.
(LIG) dated December 22, 1997 and
effective July 1, 1997, as amended to
extend to July 1, 2005 and for
successive 1 year terms
10.10(b) Agreement for Firm 311(a)(2) Exhibit 10.2 of Form 10-Q for quarter ended
Transportation of Natural Gas in the March 31, 1998 (File No. 1-10042)
State of Louisiana between Trans La (now
known as Atmos Energy Louisiana) and
Louisiana Intrastate Gas Company L.L.C.
(LIG) dated December 22, 1997 and
effective July 1, 1997, as amended to
extend to July 1, 2005 and for
successive 1 year terms
10.11(a) Gas Transportation Agreement between Exhibit 10.3 of Form 10-Q for quarter ended
Texas Gas and Western Kentucky Gas dated December 31, 1993 (File No. 1-10042)
November 1, 1993 (Contract No. T3355,
zone 3), as amended to extend to
November 1, 2004
10.11(b) Gas Transportation Agreement between Exhibit 10.4 of Form 10-Q for quarter ended
Texas Gas and Western Kentucky Gas dated December 31, 1993 (File No. 1-10042)
November 1, 1993 (Contract No. T3819,
zone 4), as amended to extend to
November 1, 2004
10.11(c) Gas Transportation Agreement between Exhibit 10.5 of Form 10-Q for quarter ended
Texas Gas and Western Kentucky Gas dated December 31, 1993 (File No. 1-10042)
November 1, 1993 (Contract No. N0210,
Zone 2, Contract No. N0340, Zone 3,
Contract No. N0435, Zone 4), as amended
to extend to November 1, 2004
10.12(a) Gas Transportation Agreement, Contract Exhibit 10.17(a) of Form 10-K for fiscal
No. 2550, dated September 1, 1993, year ended September 30, 1993 (File No.
between Tennessee Gas Pipeline Company, 1-10042)
a division of Tenneco, Inc. ("Tennessee
Gas"), and Western Kentucky,
Campbellsville Service Area, as amended
to extend to November 1, 2007
10.12(b) Gas Transportation Agreement, Contract Exhibit 10.17(b) of Form 10-K for fiscal
No. 2546, dated September 1, 1993, year ended September 30, 1993 (File No.
between Tennessee Gas and Western 1-10042)
Kentucky, Danville Service Area, as
amended to extend to November 1, 2007
|
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER OR INCORPORATION BY REFERENCE TO
------- ----------- --------------------------------------------
10.12(c) Gas Transportation Agreement, Contract Exhibit 10.17(c) of Form 10-K for fiscal
No. 2385, dated September 1, 1993, year ended September 30, 1993 (File No.
between Tennessee Gas and Western 1-10042)
Kentucky, Greensburg et al Service Area,
as amended to extend to November 1, 2007
10.12(d) Gas Transportation Agreement, Contract Exhibit 10.17(d) of Form 10-K for fiscal
No. 2551, dated September 1, 1993, year ended September 30, 1993 (File No.
between Tennessee Gas and Western 1-10042)
Kentucky, Harrodsburg Service Area, as
amended to extend to November 1, 2007
10.12(e) Gas Transportation Agreement, Contract Exhibit 10.17(e) of Form 10-K for fiscal
No. 2548, dated September 1, 1993, year ended September 30, 1993 (File No.
between Tennessee Gas and Western 1-10042)
Kentucky, Lebanon Service Area, as
amended to extend to November 1, 2007
10.13 Transportation Service Agreement between
Energas Company and ONEOK WesTex
Transmission, L.P. dated January 1, 2002
10.14 Amarillo Supply Agreement dated January Exhibit 10.7(a) of Form 10-K for fiscal year
2, 1993 between Energas and Pioneer ended September 30, 1994 (File No. 1-10042)
Natural Resources, USA, Inc. (formerly
Mesa Operating Company)
10.15(a) Gas Transportation Agreement No. 30774, Exhibit 10.1 of Form 10-Q for quarter ended
Rate Schedules FT-A and FT-GS, between December 31, 1999 (File No. 1-10042)
United Cities Gas Company and East
Tennessee Natural Gas Company dated
October 1, 1999
10.15(b) Gas Transportation Agreement No. 27311 Exhibit 10.20(c) of Form 10-K for fiscal
between United Cities Gas Company and year ended September 30, 2000 (File No.
Tennessee Gas Pipeline Company dated 1-10042)
November 1, 2000
10.15(c) Service Agreement No. 867760, under Rate Exhibit 10.8 of Form 10-Q for quarter ended
Schedule FT, between United Cities Gas March 31, 1998 (File No. 1-10042)
Company and Southern Natural Gas Company
dated November 1, 1993, as amended to
extend to November 1, 2005
10.15(d) Service Agreement No. 867761 under Rate Exhibit 10.9 of Form 10-Q for quarter ended
Schedule FT-NN between United Cities Gas March 31, 1998 (File No. 1-10042)
Company and Southern Natural Gas Company
dated November 1, 1993, as amended to
extend to November 1, 2005
10.15(e) FTS-1 Service Agreement No. 59572 Exhibit 10.20(f) of Form 10-K for fiscal
between United Cities Gas Company and year ended September 30, 2000 (File No.
Columbia Gulf Transmission Company dated 1-10042)
November 1, 1998
10.15(f) Gas Transportation Agreement No. 34538 Exhibit 10.20(g) of Form 10-K for fiscal
(Rocky Top Expansion) between United year ended September 30, 2000 (File No.
Cities Gas Company and East Tennessee 1-10042)
Natural Gas Company dated November 1,
2000
|
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER OR INCORPORATION BY REFERENCE TO
------- ----------- --------------------------------------------
10.16 Precedent Agreement, Cornerstone
Expansion Project, between United Cities
Gas Company and Transcontinental
Pipeline Corporation dated April 16,
2002
10.17 Transportation Service Agreement under
Rate Schedule FTS or ITS between Ozark
Gas Transmission LLC and United Cities
Gas Company (successor to Associated
Natural Gas Company) dated May 20, 1992
10.18 Service Agreement #400227 for Rate
Schedule SS-1 between United Cities Gas
Company and Texas Eastern Transmission
Corporation dated May 31, 2000
Asset Purchase Agreements
10.19 Asset Sale and Purchase Agreement by and Exhibit 99.2 of Form 8-K dated May 31, 2000
among Southwestern Energy Company, (File No. 1-10042)
Arkansas Western Gas Company and Atmos
Energy Corporation dated as of October
15, 1999
10.20 Asset Purchase Agreement by and among Exhibit 10.1 to Registration Statement on
Atmos Energy Corporation, Atmos Energy Form S-3/A filed November 6, 2000 (File No.
Marketing, L.L.C., Woodward Marketing, 333-93705)
Inc., JD and Linda Woodward and James
and Rita B. Kifer dated as of August 7,
2000
Executive Compensation Plans and
Arrangements
10.21(a)* Form of Atmos Energy Corporation Change Exhibit 10.21(b) of Form 10-K for fiscal
in Control Severance Agreement -- Tier I year ended September 30, 1998 (File No.
1-10042)
10.21(b)* Form of Atmos Energy Corporation Change Exhibit 10.21(c) of Form 10-K for fiscal
in Control Severance Agreement -- Tier year ended September 30, 1998 (File No.
II 1-10042)
10.22* Atmos Energy Corporation Long-Term Stock Exhibit 99.1 of Form S-8 filed July 29, 1997
Plan for the United Cities Gas Company (File No. 333-32343)
Division
10.23(a)* Atmos Energy Corporation Executive Exhibit 10.31 of Form 10-K for fiscal year
Retiree Life Plan ended September 30, 1997 (File No. 1-10042)
10.23(b)* Amendment No. 1 to the Atmos Energy Cor- Exhibit 10.31(a) of Form 10-K for fiscal
poration Executive Retiree Life Plan year ended September 30, 1997 (File No.
1-10042)
10.24(a)* Description of Financial and Estate Exhibit 10.25(b) of Form 10-K for fiscal
Planning Program year ended September 30, 1997 (File No.
1-10042)
10.24(b)* Description of Sporting Events Program Exhibit 10.26(c) of Form 10-K for fiscal
year ended September 30, 1993 (File No.
1-10042)
10.25(a)* Atmos Energy Corporation Supplemental Exhibit 10.26 of Form 10-K for fiscal year
Executive Benefits Plan, Amended and ended September 30, 1998 (File No. 1-10042)
Restated in its Entirety: August 12,
1998
10.25(b)* Atmos Energy Corporation Exhibit 10.32 of Form 10-K for fiscal year
Performance-Based Supplemental Executive ended September 30, 1998 (File No. 1-10042)
Benefits Plan, Effective Date: August
12, 1998
10.25(c)* Amendment Number One to the Atmos En- Exhibit 10.2 of Form 10-Q for quarter ended
ergy Corporation Performance-Based December 31, 2000 (File No. 1-10042)
Supplemental Executive Benefits Plan,
Effective Date: January 1, 1999
|
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER OR INCORPORATION BY REFERENCE TO
------- ----------- --------------------------------------------
10.25(d)* Atmos Energy Corporation Exhibit 10.1 of Form 10-Q for quarter ended
Performance-Based Supplemental Executive December 31, 2000 (File No. 1-10042)
Benefits Plan Trust Agreement, Effective
Date December 1, 2000
10.25(e)* Form of Individual Trust Agreement for Exhibit 10.3 of Form 10-Q for quarter ended
the Supplemental Executive Benefits Plan December 31, 2000 (File No. 1-10042)
10.26* Atmos Energy Corporation Restricted Exhibit 99.1 of Form S-8 filed February 13,
Stock Grant Plan (Amended and Restated 1998 (File No. 333-46337)
as of February 12, 1998)
10.27* Atmos Energy Corporation Executive Non- Exhibit 10.33 of Form 10-K for fiscal year
qualified Deferred Compensation Plan ended September 30, 1998 (File No. 1-10042)
10.28(a)* Consulting Agreement between the Company Exhibit 10.2 of Form 10-Q for quarter ended
and Charles K. Vaughan, effective June 30, 1997 (File No. 1-10042)
October 1, 1994
10.28(b)* Amendment No. 1 to Consulting Agreement Exhibit 10.3 of Form 10-Q for quarter ended
between the Company and Charles K. June 30, 1997 (File No. 1-10042)
Vaughan, dated May 14, 1997
10.28(c)* Amendment No. 2 to Consulting Agreement Exhibit 10.30(c) of Form 10-K for fiscal
between the Company and Charles K. year ended September 30, 1998 (File No.
Vaughan, dated August 12, 1998 1-10042)
10.28(d)* Amendment No. 3 to Consulting Agreement Exhibit 10.30(d) of Form 10-K for fiscal
between the Company and Charles K. year ended September 30, 1999 (File No.
Vaughan, dated November 10, 1999 1-10042)
10.28(e)* Amendment No. 4 to Consulting Agreement Exhibit 10.32(e) of Form 10-K for fiscal
between the Company and Charles K. year ended September 30, 2000 (File No.
Vaughan, dated November 9, 2000 1-10042)
10.28(f)* Mini-Med/Dental Benefit Extension Agree- Exhibit 10.28(f) of Form 10-K for fiscal
ment dated October 1, 1994 year ended September 30, 2001 (File No.
1-10042)
10.28(g)* Amendment No. 1 to Mini-Med/Dental Bene- Exhibit 10.28(g) of Form 10-K for fiscal
fit Extension Agreement dated August 14, year ended September 30, 2001 (File No.
2001 1-10042)
10.29* Atmos Energy Corporation Equity Exhibit C of Definitive Proxy Statement on
Incentive and Deferred Compensation Plan Schedule 14A filed December 30, 1998 (File
for Non-Employee Directors No. 1-10042)
10.30(a)* Atmos Energy Corporation Retirement Plan Exhibit 10(y) of Form 10-K for fiscal year
for Outside Directors ended September 30, 1992 (File No. 1-10042)
10.30(b)* Amendment No. 1 to the Atmos Energy Cor- Exhibit 10.2 of Form 10-Q for quarter ended
poration Retirement Plan for Outside December 31, 1996 (File No. 1-10042)
Directors
10.31* Atmos Energy Corporation Outside Exhibit 10.28 of Form 10-K for fiscal year
Directors Stock-for-Fee Plan (Amended ended September 30, 1997 (File No. 1-10042)
and Restated as of November 12, 1997)
10.32(a)* Atmos Energy Corporation 1998 Long-Term Exhibit 10.1 of Form 10-Q for quarter ended
Incentive Plan (as amended and restated March 31, 2002 (File No. 1-10042)
February 14, 2002)
10.32(b)* Atmos Energy Corporation Annual Exhibit 10.2 of Form 10-Q for quarter ended
Incentive Plan for Management (as March 31, 2002 (File No. 1-10042)
amended and restated February 14, 2002)
11 Not applicable
12 Computation of ratio of earnings to
fixed charges
13 Not applicable
|
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER OR INCORPORATION BY REFERENCE TO
------- ----------- --------------------------------------------
16 Not applicable
18 Not applicable
Other Exhibits, as indicated
21 Subsidiaries of the registrant
22 Not applicable
23 Consent of independent auditor, Ernst &
Young LLP
24 Power of Attorney Signature page of Form 10-K for fiscal year
ended September 30, 2002
99.1 Certification Pursuant to 18 U.S.C. Sec-
tion 1350 as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 by
the Company's Chief Executive Officer**
99.2 Certification Pursuant to 18 U.S.C Sec-
tion 1350 as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 by
the Company's Chief Financial Officer**
|
* This exhibit constitutes a "management contract or compensatory plan, contract, or arrangement."
** These certifications pursuant to 18 U.S.C. Section 1350 by the Company's Chief Executive Officer and Chief Financial Officer, furnished as Exhibits 99.1 and 99.2, respectively, to this Annual Report on Form 10-K, will not be deemed to be filed with the Commission or incorporated by reference into any filing by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates such certifications by reference.
PAGE
SECTION 1. DEFINITIONS AND ACCOUNTING TERMS...........................................................1
1.1 Definitions....................................................................................1
1.2 Computation of Time Periods...................................................................12
1.3 Accounting Terms..............................................................................13
1.4 Time..........................................................................................13
SECTION 2. LOANS.....................................................................................13
2.1 Bridge Loan Commitment........................................................................13
2.2 Method of Borrowing for Bridge Loans..........................................................13
2.3 Funding of Bridge Loans.......................................................................14
2.4 Continuations and Conversions.................................................................14
2.5 Minimum Amounts...............................................................................15
2.6 Reductions of Bridge Loan Commitment..........................................................15
2.7 Notes.........................................................................................16
SECTION 3. PAYMENTS..................................................................................16
3.1 Interest......................................................................................16
3.2 Prepayments...................................................................................16
3.3 Payment in full at Maturity...................................................................17
3.4 Fees..........................................................................................17
3.5 Place and Manner of Payments..................................................................18
3.6 Pro Rata Treatment............................................................................18
3.7 Computations of Interest and Fees.............................................................19
3.8 Sharing of Payments...........................................................................19
3.9 Evidence of Debt..............................................................................20
SECTION 4. ADDITIONAL PROVISIONS REGARDING LOANS.....................................................21
4.1 Eurodollar Loan Provisions....................................................................21
4.2 Capital Adequacy..............................................................................22
4.3 Compensation..................................................................................23
4.4 Taxes.........................................................................................23
SECTION 5. CONDITIONS PRECEDENT......................................................................25
5.1 Closing Conditions............................................................................25
|
PAGE
5.2 Conditions to Loans...........................................................................27
SECTION 6. REPRESENTATIONS AND WARRANTIES............................................................28
6.1 Organization and Good Standing................................................................28
6.2 Due Authorization.............................................................................28
6.3 No Conflicts..................................................................................28
6.4 Consents......................................................................................28
6.5 Enforceable Obligations.......................................................................28
6.6 Financial Condition...........................................................................29
6.7 No Material Change............................................................................29
6.8 No Default....................................................................................29
6.9 Litigation....................................................................................29
6.10 Taxes.........................................................................................29
6.11 Compliance with Law...........................................................................30
6.12 Material Agreements...........................................................................30
6.13 ERISA.........................................................................................30
6.14 Use of Proceeds...............................................................................31
6.15 Government Regulation.........................................................................31
6.16 Disclosure....................................................................................32
6.17 Environmental Matters.........................................................................32
6.18 Insurance.....................................................................................32
6.19 Franchises, Licenses, Etc.....................................................................32
6.20 Secured Indebtedness..........................................................................32
6.21 Subsidiaries..................................................................................33
SECTION 7. AFFIRMATIVE COVENANTS.....................................................................33
7.1 Information Covenants.........................................................................33
7.2 Debt to Capitalization Ratio..................................................................35
7.3 Preservation of Existence, Franchises and Assets..............................................35
7.4 Books and Records.............................................................................35
7.5 Compliance with Law...........................................................................35
7.6 Payment of Taxes and Other Indebtedness.......................................................35
|
PAGE
7.7 Insurance.....................................................................................36
7.8 Use of Proceeds...............................................................................36
7.9 Audits/Inspections............................................................................36
SECTION 8. NEGATIVE COVENANTS........................................................................36
8.1 Nature of Business............................................................................36
8.2 Consolidation and Merger......................................................................36
8.3 Sale or Lease of Assets.......................................................................37
8.4 Arm's-Length Transactions.....................................................................37
8.5 Fiscal Year; Organizational Documents.........................................................37
8.6 Liens.........................................................................................37
SECTION 9. EVENTS OF DEFAULT.........................................................................38
9.1 Events of Default.............................................................................38
9.2 Acceleration; Remedies........................................................................42
9.3 Allocation of Payments After Event of Default.................................................42
SECTION 10. AGENCY PROVISIONS.........................................................................42
10.1 Appointment...................................................................................42
10.2 Delegation of Duties..........................................................................43
10.3 Exculpatory Provisions........................................................................43
10.4 Reliance on Communications....................................................................44
10.5 Notice of Default.............................................................................44
10.6 Non-Reliance on Administrative Agent and Other Lenders........................................44
10.7 Indemnification...............................................................................45
10.8 Administrative Agent in Its Individual Capacity...............................................45
10.9 Successor Agent...............................................................................45
SECTION 11. MISCELLANEOUS.............................................................................46
11.1 Notices.......................................................................................46
11.2 Right of Set-Off..............................................................................46
11.3 Benefit of Agreement..........................................................................47
11.4 No Waiver; Remedies Cumulative................................................................50
11.5 Payment of Expenses, etc......................................................................50
|
PAGE
11.6 Amendments, Waivers and Consents..............................................................50
11.7 Counterparts/Telecopy.........................................................................51
11.8 Headings......................................................................................52
11.9 Defaulting Lender.............................................................................52
11.10 Survival of Indemnification and Representations and Warranties................................52
11.11 Governing Law; Venue..........................................................................52
11.12 Waiver of Jury Trial..........................................................................53
11.13 Severability..................................................................................53
11.14 Further Assurances............................................................................53
11.15 Entirety......................................................................................53
11.16 Binding Effect; Continuing Agreement..........................................................53
|
TABLE OF CONTENTS
SCHEDULES
Schedule 1.1(a) Commitment Percentages
Schedule 1.1(b) Pricing Schedule
Schedule 6.20 Secured Indebtedness
Schedule 6.21 Subsidiaries
Schedule 11.1 Notices
EXHIBITS
Exhibit 2.2 Form of Notice of Borrowing
Exhibit 2.4 Form of Notice of Continuation/Conversion
Exhibit 2.7 Form of Bridge Loan Note
Exhibit 7.1(c) Form of Officer's Certificate
Exhibit 11.3(b) Form of Assignment Agreement
|
THIS BRIDGE CREDIT AGREEMENT (this "Credit Agreement"), dated as of October 7, 2002, is entered into among ATMOS ENERGY CORPORATION, a Texas and Virginia corporation (the "Borrower"), the Lenders (as defined herein) and BANK ONE, NA as agent for the Lenders (in such capacity, the "Administrative Agent").
WHEREAS, the Borrower wishes, from time to time, to obtain loans in the principal sum of up to $150,000,000 and the Lenders are willing to make such loans to the Borrower, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
SECTION 1.
1.1 DEFINITIONS.
As used herein, the following terms shall have the meanings herein specified unless the context otherwise requires. Defined terms herein shall include in the singular number the plural and in the plural the singular.
"Adjusted Eurodollar Rate" means the Eurodollar Rate plus the Applicable Percentage for Eurodollar Loans.
"Administrative Agent" means Bank One, NA and any successors and assigns in such capacity.
"Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with such Person. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power (a) to vote 10% or more of the securities having ordinary voting power for the election of directors of such other Person or (b) to direct or cause direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise.
"Agency Services Address" means 1 Bank One Plaza, 10th Floor, Chicago, IL 60670 or such other address as the Administrative Agent may designate in writing.
"Applicable Percentage" - See the Pricing Schedule.
"Bankruptcy Code" means the Bankruptcy Code in Title 11 of the United States Code, as amended, modified, succeeded or replaced from time to time.
"Base Rate" means a fluctuating rate of interest equal to the higher of (a) the Prime Rate and (b) the sum of the Federal Funds Rate most recently determined by the Administrative Agent plus 1/2% per annum. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable after due inquiry to ascertain the Federal Funds Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms hereof, the Base Rate shall be determined without regard to clause (a) of the first sentence of this definition until the circumstances giving rise to such inability no longer exist. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Rate, respectively.
"Base Rate Loan" means a Loan which bears interest based on the Base Rate.
"Borrower" means Atmos Energy Corporation, a Texas and Virginia corporation.
"Borrower Obligations" means, without duplication, all of the obligations of the Borrower to the Lenders and the Administrative Agent, whenever arising, under this Credit Agreement, the Notes or any of the other Credit Documents.
"Bridge Loan" means a loan made by a Lender to the Borrower pursuant to Section 2.1(a).
"Bridge Loan Commitment" means one hundred fifty million Dollars ($150,000,000) as such amount may be otherwise reduced in accordance with Section 2.6.
"Bridge Loan Notes" means the promissory notes of the Borrower in favor of each Lender evidencing the Bridge Loans and substantially in the form of Exhibit 2.7, as such promissory notes may be amended, modified, supplemented or replaced from time to time.
"Business Day" means any day other than a Saturday, a Sunday, a legal holiday or a day on which banking institutions are authorized or required by law or other governmental action to close in Chicago, Illinois; provided that in the case of Eurodollar Loans, such day is also a day on which dealings between banks are carried on in U.S. dollar deposits in the London interbank market.
"Capital Stock" means (a) in the case of a corporation, all classes of capital stock of such corporation, (b) in the case of a partnership, partnership interests (whether general or limited), (c) in the case of a limited liability company, membership interests and (d) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.
"Change of Control" means either of the following events:
(a) any "person" or "group" (within the meaning of Section 13(d) or 14(d) of the Exchange Act) has become, directly or indirectly, the "beneficial owner" (as defined in Rules 13d-3 (other than subsection (d) thereof) and 13d-5 under the Exchange Act), by way of merger, consolidation or otherwise of 40% or more of the voting power of the Borrower on a fully-diluted basis, after giving effect to the conversion and exercise of all outstanding warrants, options and other securities of the Borrower convertible into or exercisable for voting stock of the Borrower (whether or not such securities are then currently convertible or exercisable); or
(b) during any period of two consecutive calendar years, individuals who at the beginning of such period constituted the board of directors of the Borrower together with any new members of such board of directors whose elections by such board or board of directors or whose nomination for election by the stockholders of the Borrower was approved by a vote of a majority of the members of such board of directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved cease for any reason to constitute a majority of the directors of the Borrower then in office.
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder.
"Commitment Percentage" means, for each Lender, the percentage identified as its Commitment Percentage opposite such Lender's name on Schedule 1.1(a), as such percentage may be modified by assignment in accordance with the terms of this Credit Agreement.
"Commitments" means, collectively, each Lender's share of the Bridge Loan Commitment based upon such Lender's Commitment Percentage, as reflected on Schedule 1.1(a).
"Consolidated Capitalization" means, without duplication, the sum of (a) all of the shareholders' equity or net worth of the Borrower and its Subsidiaries on a consolidated basis, as determined in accordance with GAAP plus (b) the aggregate principal amount of Preferred Securities plus (c) the aggregate Minority Interests in Subsidiaries plus (d) Consolidated Funded Debt.
"Consolidated Funded Debt" means, without duplication, the sum of (a) all indebtedness of the Borrower and its Subsidiaries for borrowed money, (b) all purchase money indebtedness of the Borrower and its Subsidiaries, (c) the principal portion of all obligations of the Borrower and its Subsidiaries under capital leases, (d) all commercial letters of credit and the maximum amount of all performance and standby letters of credit issued or bankers' acceptance facilities created for the account of the Borrower or one of its Subsidiaries, including, without duplication, all unreimbursed draws thereunder, (e) all Guaranty Obligations of the Borrower and its Subsidiaries with respect to funded indebtedness of another Person; provided that neither the indebtedness of Woodward Marketing, LLC ("Woodward") incurred in connection with the purchase of gas by Woodward for resale to the Borrower nor the guaranty by the Borrower or one of its Subsidiaries of such indebtedness shall be included in this definition if such indebtedness has been outstanding for less than two months from the date of its incurrence by Woodward, (f) all indebtedness of another entity secured by a Lien on any property of the Borrower or any of its Subsidiaries whether or not such indebtedness has been assumed by the Borrower or any of its Subsidiaries, (g) all indebtedness of any partnership or unincorporated joint venture to the extent the Borrower or one of its Subsidiaries is legally obligated with respect thereto, net of any assets of such partnership or joint venture, (h) all obligations of the Borrower and its Subsidiaries to advance or provide funds or other support for the payment or purchase of funded indebtedness (including, without limitation, maintenance agreements, comfort letters or similar agreements or arrangements) (other than as may be given in respect of Woodward) and (i) the principal balance outstanding under any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product of the Borrower or one of its Material Subsidiaries where such transaction is considered borrowed money indebtedness for tax purposes but is classified as an operating lease in accordance with GAAP.
"Consolidated Net Property" means the Fixed Assets less, without duplication, the amount of accumulated depreciation and amortization attributable thereto.
"Credit Documents" means this Credit Agreement, the Notes, any Notice of Borrowing and all other related agreements and documents issued or delivered hereunder or thereunder or pursuant hereto or thereto.
"Debt to Capitalization Ratio" means the ratio of (a) Consolidated Funded Debt to (b) Consolidated Capitalization.
"Default" means any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" means, at any time, any Lender that, at such time (a) has failed to make a Loan required pursuant to the term of this Credit Agreement, (b) has failed to pay to the Administrative Agent or any Lender an amount owed by such Lender pursuant to the terms of this Credit Agreement or (c) has been deemed insolvent or has become subject to a bankruptcy or insolvency proceeding or to a receiver, trustee or similar official.
"Dollars" and "$" means dollars in lawful currency of the United States of America.
"Effective Date" means the date on which all of the conditions set forth in Section 5.1 shall have been fulfilled (or waived in the sole discretion of the Lenders).
"Eligible Assignee" means (a) a Lender; (b) an Affiliate of a Lender; and (c) any other Person approved by the Administrative Agent and the Borrower (such approval not to be unreasonably withheld or delayed); provided that (i) the Borrower's consent is not required during the existence and continuation of a Default or an Event of Default,
"Environmental Laws" means any current or future legal requirement
of any Governmental Authority pertaining to (a) the protection of health, safety,
and the indoor or outdoor environment, (b) the conservation, management, or
use of natural resources and wildlife, (c) the protection or use of surface
water and groundwater or
(d) the management, manufacture, possession, presence, use, generation, transportation,
treatment, storage, disposal, release, threatened release, abatement, removal,
remediation or handling of, or exposure to, any hazardous or toxic substance
or material or (e) pollution (including any release to land surface water and
groundwater) and includes, without limitation, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986, 42 USC 9601 et seq., Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976
and Hazardous and Solid Waste Amendment of 1984, 42 USC 6901 et seq., Federal
Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 USC
1251 et seq., Clean Air Act of 1966, as amended, 42 USC 7401 et seq., Toxic
Substances Control Act of 1976, 15 USC 2601 et seq., Hazardous Materials Transportation
Act, 49 USC App. 1801 et seq., Occupational Safety and Health Act of 1970, as
amended, 29 USC 651 et seq., Oil Pollution Act of 1990, 33 USC 2701 et seq.,
Emergency Planning and Community Right-to-Know Act of 1986, 42 USC 11001 et
seq., National Environmental Policy Act of 1969, 42 USC 4321 et seq., Safe Drinking
Water Act of 1974, as amended, 42 USC 300(f) et seq., any analogous implementing
or successor law, and any amendment, rule, regulation, order, or directive issued
thereunder.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto, as interpreted by the rules and regulations thereunder, all as the same may be in effect from time to time. References to sections of ERISA shall be construed also to refer to any successor sections.
"ERISA Affiliate" means an entity, whether or not incorporated, which is under common control with the Borrower or any of its Subsidiaries within the meaning of Section 4001(a)(14) of ERISA, or is a member of a group which includes the Borrower or any of its Subsidiaries and which is treated as a single employer under Sections 414(b), (c), (m), or (o) of the Code.
"Eurodollar Loan" means a Loan bearing interest at the Adjusted Eurodollar Rate.
"Eurodollar Rate" means, with respect to any Interest Period, the applicable London interbank offered rate for deposits in U.S. dollars appearing on Reuters Screen FRBD as of 11:00 a.m. (London time) two Business Days prior to the first day of the applicable Interest Period, and having a maturity equal to such Interest Period, adjusted for Federal Reserve Board reserve requirements.
"Event of Default" has the meaning specified in Section 9.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
"Federal Funds Rate" means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day by the Federal Reserve Bank of New York, or if such rate is not so published for such day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.
"Financial Officer" means any one of the chief financial officer, the controller or the treasurer of the Borrower.
"Fixed Assets" means the assets of the Borrower and its Subsidiaries constituting "net property, plant and equipment" on the consolidated balance sheet of the Borrower and its Subsidiaries.
"GAAP" means generally accepted accounting principles in the United States applied on a consistent basis and subject to Section 1.3.
"Governmental Authority" means any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body.
"Guaranty Obligations" means, with respect to any Person, without duplication, any obligations (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) guaranteeing any indebtedness for borrowed money of any other Person in any manner, whether direct or indirect, and including without limitation any obligation, whether or not contingent, (a) to purchase any such indebtedness or other obligation or any property constituting security therefor, (b) to lease or purchase property, securities or services primarily for the purpose of assuring the owner of such indebtedness or (c) to otherwise assure or hold harmless the owner of such indebtedness or obligation against loss in respect thereof. The amount of any Guaranty Obligation hereunder shall (subject to any limitations set forth therein) be deemed to be an amount equal to the outstanding principal amount of the indebtedness in respect of which such Guaranty Obligation is made.
"Interest Payment Date" means (a) as to Base Rate Loans, the last day of each fiscal quarter of the Borrower and the Maturity Date and (b) as to Eurodollar Loans, the last day of each applicable Interest Period and the Maturity Date.
"Interest Period" means, as to Eurodollar Loans, a period of one, two or three months' duration, as the Borrower may elect, commencing, in each case, on the date of the borrowing (including continuations and conversions of Eurodollar Loans); provided, however, (a) if any Interest Period would end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day (except that where the next succeeding Business Day falls in the next succeeding calendar month, then such Interest Period shall end on the next preceding Business Day), (b) no Interest Period shall extend beyond the Maturity Date and (c) with respect to Eurodollar Loans, where an Interest Period begins on a day for which there is no numerically corresponding day in the calendar month in which the Interest Period is to end, such Interest Period shall end on the last Business Day of such calendar month.
"Lender" means any of the Persons identified as a "Lender" on the signature pages hereto, and any Eligible Assignee which may become a Lender by way of assignment in accordance with the terms hereof, together with their successors and permitted assigns.
"LGS Purchase and Sale Agreement" means that certain Purchase and Sale Agreement, dated as of April 13, 2000, among Citizens Utilities Company, LGS Natural Gas Company and the Borrower.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, encumbrance, lien (statutory or otherwise), preference, priority or charge of any kind (including any agreement to give any of the foregoing).
"Loans" means the Bridge Loans.
"Material Adverse Effect" means a material adverse effect on (a) the operations, business, assets, liabilities (actual or contingent), financial condition or prospects of the Borrower and its Subsidiaries, taken as a whole (taking into account the value of any indemnifications in favor of the Borrower pursuant to the LGS Purchase and Sale Agreement and the MVG Merger Agreement), (b) the ability of the Borrower to perform its obligations under this Credit Agreement or (c) the validity or enforceability of this Credit Agreement, any of the other Credit Documents, or the rights and remedies of the Lenders hereunder or thereunder.
"Material Subsidiary" means, at any date, a Subsidiary of the Borrower whose aggregate assets properly included under the category "property, plant and equipment" on the balance sheet of such Subsidiary, less the amount of depreciation and amortization attributable thereto, constitutes at least 10% of Consolidated Net Property as of such date; provided that if at any time the Borrower has Subsidiaries that are not Material Subsidiaries whose total aggregate assets under the category "property, plant and equipment" on the balance sheet of such Subsidiaries, less the amount of depreciation and amortization attributable thereto, constitutes more than 20% of Consolidated Net Property as of such date the Borrower shall designate one or more of such Subsidiaries as Material Subsidiaries for the purposes of this Credit Agreement in order that all Subsidiaries of the Borrower, other than Material Subsidiaries, own not more than 20% of Consolidated Net Property.
"Maturity Date" means January 31, 2003.
"Minority Interests" means interests owned by Persons (other than the Borrower or a Subsidiary of the Borrower) in a Subsidiary of the Borrower in which less than 100% of all classes of the voting securities are owned by the Borrower or its Subsidiaries.
"Moody's" means Moody's Investors Service, Inc., or any successor or assignee of the business of such company in the business of rating securities.
"Moody's Rating" - see the Pricing Schedule.
"Multiemployer Plan" means a Plan covered by Title IV of ERISA which is a multiemployer plan as defined in Section 3(37) or 4001(a)(3) of ERISA.
"Multiple Employer Plan" means a Plan covered by Title IV of ERISA, other than a Multiemployer Plan, which the Borrower or any ERISA Affiliate and at least one employer other than the Borrower or any ERISA Affiliate are contributing sponsors.
"MVG Acquisition" means the merger of Mississippi Valley Gas Company with and into the Borrower pursuant to the MVG Merger Agreement.
"MVG Merger Agreement" means the Agreement and Plan of Merger and Reorganization, dated as of September 21, 2001, by and among Atmos Energy Corporation, Mississippi Valley Gas Company and the Shareholders of the Mississippi Valley Gas Company.
"Net Cash Proceeds" means with respect to any public offering of common stock or any issuance of long-term indebtedness for borrowed money or any other long-term capital markets issuance, the aggregate cash proceeds received by the Borrower or any Subsidiary pursuant to such offering or issuance, net of the direct costs relating to such offering or issuance (including, without limitation, sales and underwriter's discounts and commissions and legal, accounting and investment banking fees).
"1957 Indenture" means, collectively, that certain Indenture of Mortgage, dated as of March 1, 1957, granted by Greeley Gas Company (predecessor in interest to the Borrower) to The Central Bank and Trust Company, as original Trustee, and all Supplemental Indentures thereto.
"1987 Note Purchase Agreements" means, collectively, those certain Note Purchase Agreements, dated as of December 21, 1987, by and between Energas Company (predecessor in interest to the Borrower) and (a) John Hancock Mutual Life Insurance Company, (b) John Hancock Charitable Trust I and (c) Mellon Bank, N.A., Trustee under the Master Trust of AT&T Corporation, and all Amendments thereto, including, without limitation, that certain Amendment to Note Purchase Agreements, amending each of the above-referenced Note Purchase Agreements, each dated as of (i) October 11, 1989, (ii) November 12, 1991, (iii) December 22, 1993, (iv) December 20, 1994 and July 29, 1997.
"1989 Note Purchase Agreement" means, collectively, that certain Note Purchase Agreement, dated as of October 11, 1989, by and between the Borrower and John Hancock Mutual Life Insurance Company, and all Amendments thereto, including, without limitation, those Amendments dated as of October 11, 1989, November 12, 1991, December 22, 1993, December 20, 1994, and July 29, 1997.
"1991 Note Purchase Agreement" means, collectively, that certain Note Purchase Agreement, dated as of August 29, 1991, by and between the Borrower and The Variable Annuity Life Insurance Company, and all Amendments thereto, including, without limitation, those Amendments dated as of November 26, 1991, December 22, 1993, and July 29, 1997.
"1994 Note Purchase Agreement" means, collectively, that certain Note Purchase Agreement dated November 14, 1994, by and among the Borrower and New York Life Insurance Company, New York Life Insurance and Annuity Corporation, The Variable Annuity Life Insurance Company, American General Life Insurance Company, and Merit Life Insurance Company, and all Amendments thereto; including, without limitation, that Amendment dated as of July 29, 1997.
"1998 Indenture" means, collectively, that certain Indenture, dated as of July 15, 1998, granted by the Borrower to US Bank Trust National Association, as Trustee, and all Supplemental Indentures thereto.
"Notes" means the Bridge Loan Notes.
"Notice of Borrowing" means a request by the Borrower for a Bridge Loan in the form of Exhibit 2.2.
"Notice of Continuation/Conversion" means a request by the Borrower for the continuation or conversion of a Bridge Loan in the form of Exhibit 2.4.
"PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA and any successor thereto.
"Person" means any individual, partnership, joint venture, firm, corporation, association, trust, limited liability company or other enterprise (whether or not incorporated), or any government or political subdivision or any agency, department or instrumentality thereof.
"Plan" means any employee benefit plan (as defined in Section 3(3) of ERISA) which is covered by ERISA and with respect to which the Borrower or any ERISA Affiliate is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" within the meaning of Section 3(5) of ERISA.
"Preferred Securities" means, at any date, any equity interests in the Borrower, in a Special Purpose Financing Subsidiary of the Borrower or in any other Subsidiary of the Borrower (such as those known as "TECONS", "MIPS" or "RHINOS"): (a) that are not (i) required to be redeemed or redeemable at the option of the holder thereof prior to the fifth anniversary of the Maturity Date or (ii) convertible into or exchangeable for (unless solely at the option of the Borrower or such Subsidiary of the Borrower) equity interests referred to in clause (i) above or indebtedness having a scheduled maturity, or requiring any repayments or prepayments of principal or any sinking fund or similar payments in respect of principal or providing for any such repayment, prepayment, sinking fund or other payment at the option of the holder thereof prior to the fifth anniversary of the Maturity Date and (b) as to which, at such date, the Borrower or such Subsidiary of the Borrower has the right to defer the payment of all dividends and other distributions in respect thereof for the period of at least 19 consecutive quarters beginning at such date.
"Pricing Schedule" - See Schedule 1.1(b).
"Prime Rate" means a rate per annum equal to the prime rate of interest announced from time to time by Bank One, NA or its parent (which is not necessarily the lowest rate charged to any customer), changing when and as said prime rate changes.
"Register" has the meaning set forth in Section 11.3(c).
"Regulation A, D, O, T, U, or X" means Regulation A, D, O, T, U or X, respectively, of the Board of Governors of the Federal Reserve System (or any successor body) as from time to time in effect, any amendment thereto and any successor to all or a portion thereof.
"Reportable Event" means a "reportable event" as defined in Section 4043 of ERISA with respect to which the notice requirements to the PBGC have not been waived.
"Required Lenders" means Lenders whose aggregate Credit Exposure (as hereinafter defined) constitutes more than 51% of the aggregate Credit Exposure of all Lenders at such time; provided, however, that if any Lender shall be a Defaulting Lender at such time then there shall be excluded from the determination of Required Lenders the aggregate principal amount of Credit Exposure of such Lender at such time. For purposes of the preceding sentence, the term "Credit Exposure" as applied to each Lender shall mean (a) at any time prior to the termination of the Commitments, the Commitment Percentage of such Lender multiplied times the Bridge Loan Commitment and (b) at any time after the termination of the Commitments, the sum of the principal balance of the outstanding Bridge Loans of such Lender.
"S&P" means Standard & Poor's Ratings Services, a division of McGraw Hill, Inc., or any successor or assignee of the business of such division in the business of rating securities.
"S&P Rating" - see the Pricing Schedule.
"Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
"Single Employer Plan" means any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan or a Multiple Employer Plan.
"Special Purpose Financing Subsidiary" means a Subsidiary of the Borrower that has no direct or indirect interest in the business of the Borrower and its other Subsidiaries and was formed solely for the purpose of issuing Preferred Securities.
"Subsidiary" means, as to any Person, (a) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not, at the time, any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries and (b) any partnership, association, joint venture, limited liability company or other entity in which such Person directly or indirectly through Subsidiaries has more than 50% equity interest at any time.
"Termination Event" means (a) with respect to any Single Employer Plan, the occurrence of a Reportable Event or the substantial cessation of operations (within the meaning of Section 4062(e) of ERISA), (b) the withdrawal of the Borrower or any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it was a substantial employer (as such term is defined in Section 4001(a)(2) of ERISA), or the termination of a Multiple Employer Plan, (c) the distribution of a notice of intent to terminate or the actual termination of a Plan pursuant to Section 4041(a)(2) or 4041A of ERISA, (d) the institution of proceedings to terminate or the actual termination of a Plan by the PBGC under Section 4042 of ERISA, (e) any event or condition which might reasonably constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or (f) the complete or partial withdrawal of the Borrower or any ERISA Affiliate from a Multiemployer Plan.
"Total Assets" means all assets of the Borrower as shown on its most recent quarterly consolidated balance sheet, as determined in accordance with GAAP.
"2001 Indenture" means, collectively, that certain Indenture, dated as of May 22, 2001, granted by the Borrower to SunTrust Bank, Atlanta, as Trustee, and all Supplemental Indentures thereto.
"Unused Bridge Loan Commitment" means, for any period from the Effective Date to the Maturity Date, the amount by which (a) the then applicable Bridge Loan Commitment exceeds (b) the daily average sum for such period of the aggregate principal amount of all Bridge Loans outstanding.
"Unused Fees" has the meaning set forth in Section 3.4(a).
"Utilization Fees" has the meaning set forth in Section 3.4(b).
"Woodward Acquisition" means the acquisition by the Borrower on April 1, 2001, of the remaining 55% ownership interest in Woodward Marketing LLC theretofore not owned by the Borrower, pursuant to that certain Asset Purchase Agreement, dated as of August 7, 2000, by and among the Borrower, Atmos Energy Marketing, LLC, a wholly-owned Subsidiary of the Borrower, Woodward Marketing, Inc. and the shareholders of Woodward Marketing, Inc.
1.2 COMPUTATION OF TIME PERIODS.
For purposes of computation of periods of time hereunder, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding." References in this Credit Agreement to "Articles", "Sections", "Schedules" or "Exhibits" shall be to Articles, Sections, Schedules or Exhibits of or to this Credit Agreement unless otherwise specifically provided.
1.3 ACCOUNTING TERMS.
Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Lenders hereunder shall be prepared, in accordance with GAAP applied on a consistent basis. All calculations made for the purposes of determining compliance with this Credit Agreement shall (except as otherwise expressly provided herein) be made by application of GAAP applied on a basis consistent with the most recent annual or quarterly financial statements delivered pursuant to Section 7.1 (or, prior to the delivery of the first financial statements pursuant to Section 7.1, consistent with the financial statements described in Section 5.1(d)); provided, however, if (a) the Borrower shall object to determining such compliance on such basis at the time of delivery of such financial statements due to any change in GAAP or the rules promulgated with respect thereto or (b) the Administrative Agent or the Required Lenders shall so object in writing within 30 days after delivery of such financial statements, then such calculations shall be made on a basis consistent with the most recent financial statements delivered by the Borrower to the Lenders as to which no such objection shall have been made.
1.4 TIME.
All references to time herein shall be references to Central Standard Time or Central Daylight time, as the case may be, unless specified otherwise.
SECTION 2.
2.1 BRIDGE LOAN COMMITMENT.
(a) Bridge Loans. Subject to the terms and conditions set forth herein, each Lender severally agrees to make loans to the Borrower in Dollars, at any time and from time to time, during the period from the Effective Date to the Maturity Date (each a "Bridge Loan" and collectively the "Bridge Loans"); provided, however, that (i) the aggregate amount of Bridge Loans outstanding shall not exceed the Bridge Loan Commitment and (ii) with respect to each individual Lender, the Lender's Commitment Percentage multiplied by the outstanding Bridge Loans shall not exceed such Lender's Commitment.
2.2 METHOD OF BORROWING FOR BRIDGE LOANS.
By no later than 11:00 a.m. (a) on the date of the requested borrowing of Bridge Loans that will be Base Rate Loans or (b) three Business Days prior to the date of the requested borrowing of Bridge Loans that will be Eurodollar Loans, the Borrower shall telephone the Administrative Agent as well as submit a written Notice of Borrowing in the form of Exhibit 2.2 to the Administrative Agent setting forth (i) the amount requested, (ii) whether such Loans shall accrue interest at the Base Rate or the Adjusted Eurodollar Rate, (iii) with respect to Loans that will be Eurodollar Loans, the Interest Period applicable thereto and (iv) certification that the Borrower has complied in all respects with Section 5.2. There may be no more than five (5) Borrowings of Bridge Loans under this Credit Agreement.
2.3 FUNDING OF BRIDGE LOANS.
Upon receipt of a Notice of Borrowing, the Administrative Agent shall promptly inform the Lenders as to the terms thereof. Each such Lender shall make its Commitment Percentage of the requested Bridge Loans available to the Administrative Agent by 1:00 p.m. on the date specified in the Notice of Borrowing by deposit, in Dollars, of immediately available funds at the Agency Services Address. The amount of the requested Bridge Loans will then be made available to the Borrower by the Administrative Agent by crediting the account of the Borrower on the books of such office of the Administrative Agent, to the extent the amount of such Bridge Loans are made available to the Administrative Agent.
No Lender shall be responsible for the failure or delay by any other Lender in its obligation to make Bridge Loans hereunder; provided, however, that the failure of any Lender to fulfill its obligations hereunder shall not relieve any other Lender of its obligations hereunder. Unless the Administrative Agent shall have been notified by any Lender prior to the date of any such Bridge Loan that such Lender does not intend to make available to the Administrative Agent its portion of the Bridge Loans to be made on such date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on the date of such Bridge Loans, and the Administrative Agent in reliance upon such assumption, may (in its sole discretion but without any obligation to do so) make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent, the Administrative Agent shall be able to recover such corresponding amount from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent will promptly notify the Borrower, and the Borrower shall immediately pay such corresponding amount to the Administrative Agent. The Administrative Agent shall also be entitled to recover from the Lender or the Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to the Borrower to the date such corresponding amount is recovered by the Administrative Agent at a per annum rate equal to (a) from the Borrower at the applicable rate for such Bridge Loan pursuant to the Notice of Borrowing and (b) from a Lender at the Federal Funds Rate.
2.4 CONTINUATIONS AND CONVERSIONS.
The Borrower shall have the option, on any Business Day, to continue existing Eurodollar Loans for a subsequent Interest Period, to convert Base Rate Loans into Eurodollar Loans or to convert Eurodollar Loans into Base Rate Loans; provided, however, that (a) each such continuation or conversion must be requested by the Borrower pursuant to a written Notice of Continuation/Conversion, in the form of Exhibit 2.4, in compliance with the terms set forth below, (b) except as provided in Section 4.1, Eurodollar Loans may only be continued or converted into Base Rate Loans on the last day of the Interest Period applicable thereto, (c) Eurodollar Loans may not be continued nor may Base Rate Loans be converted into Eurodollar Loans during the existence and continuation of a Default or Event of Default and (d) any request to extend a Eurodollar Loan that fails to comply with the terms hereof or any failure to request an extension of a Eurodollar Loan at the end of an Interest Period shall constitute a conversion to a Base Rate Loan on the last day of the applicable Interest Period. Each continuation or conversion must be requested by the Borrower no later than 11:00 a.m. (i) on the date for a requested conversion of a Eurodollar Loan to a Base Rate Loan or (ii) three Business Days prior to the date for a requested continuation of a Eurodollar Loan or conversion of a Base Rate Loan to a Eurodollar Loan, in each case pursuant to a written Notice of Continuation/Conversion submitted to the Administrative Agent which shall set forth (A) whether the Borrower wishes to continue or convert such Loans and (B) if the request is to continue a Eurodollar Loan or convert a Base Rate Loan to a Eurodollar Loan, the Interest Period applicable thereto.
2.5 MINIMUM AMOUNTS.
Each request for a Loan or a conversion or continuation hereunder shall be subject to the following requirements: (a) each Eurodollar Loan shall be in a minimum of $5,000,000 (and in integral multiples of $1,000,000 in excess thereof), (b) each Base Rate Loan shall be in a minimum amount of the lesser of $5,000,000 (and in integral multiples of $1,000,000 in excess thereof) or the remaining amount of the Bridge Loan Commitment available to be borrowed and (c) no more than five Eurodollar Loans shall be outstanding hereunder at any one time. For the purposes of this Section 2.5, all Eurodollar Loans with the same Interest Periods that begin and end on the same date shall be considered as one Eurodollar Loan, but Eurodollar Loans with different Interest Periods, even if they begin on the same date, shall be considered separate Eurodollar Loans.
2.6 REDUCTIONS OF BRIDGE LOAN COMMITMENT.
(a) Voluntary. Upon at least three Business Days' prior written notice, the Borrower shall have the right to permanently terminate or reduce the aggregate unused amount of the Bridge Loan Commitment at any time or from time to time; provided that (a) each partial reduction shall be in an aggregate amount at least equal to $5,000,000 and in integral multiples of $1,000,000 above such amount and (b) no reduction shall be made which would reduce the Bridge Loan Commitment to an amount less than the sum of the then outstanding Bridge Loans. Any reduction in (or termination of) the Bridge Loan Commitment shall be permanent and may not be reinstated.
(b) Mandatory. Concurrently with the receipt by the Borrower or any Subsidiary of any Net Cash Proceeds of any public offering of common stock or any issuance of long-term indebtedness for borrowed money or any other long-term capital markets issuance of the Borrower or any Subsidiary, the aggregate unused amount of the Bridge Loan Commitment shall be reduced by the amount of such Net Cash Proceeds not applied as a mandatory prepayment of Bridge Loans pursuant to Section 3.2(b). Any reduction in the Bridge Loan Commitment shall be permanent and may not be reinstated.
The Bridge Loans made by the Lenders shall be evidenced by a promissory note of the Borrower payable to each Lender in substantially the form of Exhibit 2.7 (the "Bridge Loan Notes").
The date, amount, type, interest rate and duration of Interest Period (if applicable) of each Loan made by each Lender to the Borrower, and each payment made on account of the principal thereof, shall be recorded by such Lender on its books; provided that the failure of such Lender to make any such recordation or endorsement shall not affect the obligations of the Borrower to make a payment when due of any amount owing hereunder or under any Note in respect of the Loans to be evidenced by such Note, and each such recordation or endorsement shall be conclusive and binding absent manifest error.
SECTION 3.
3.1 INTEREST.
(a) Interest Rate.
(i) All Base Rate Loans shall accrue interest at the Base Rate.
(ii) All Eurodollar Loans shall accrue interest at the Adjusted Eurodollar Rate applicable to each Eurodollar Loan.
(b) Default Rate of Interest. Upon the occurrence, and during the continuation, of an Event of Default, the principal of and, to the extent permitted by law, interest on the Loans and any other amounts owing hereunder or under the other Credit Documents shall bear interest, payable on demand, at a per annum rate equal to two percent (2%) plus the rate which would otherwise be applicable (or if no rate is applicable, then the rate for Bridge Loans that are Base Rate Loans plus two percent (2%) per annum).
(c) Interest Payments. Interest on Loans shall be due and payable in arrears on each Interest Payment Date.
3.2 PREPAYMENTS.
(a) Voluntary Prepayments. The Borrower shall have the right to prepay Loans in whole or in part from time to time without premium or penalty; provided, however, that (i) Eurodollar Loans may only be prepaid on three Business Days' prior written notice to the Administrative Agent and any prepayment of Eurodollar Loans will be subject to Section 4.3; and (ii) each such partial prepayment of Loans shall be in the minimum principal amount of $5,000,000 and in integral multiples of $1,000,000 above such amount. Amounts prepaid hereunder shall be applied as the Borrower may elect; provided that if the Borrower fails to specify the application of a voluntary prepayment then such prepayment shall be applied first to Base Rate Loans and then to Eurodollar Loans in direct order of Interest Period maturities. Once prepaid, the amount of such Bridge Loans may not be re-borrowed.
(b) Mandatory Prepayments.
(i) If at any time the amount of Bridge Loans outstanding exceeds the Bridge Loan Commitment, the Borrower shall immediately make a principal payment to the Administrative Agent in the manner and in an amount such that the amount of Bridge Loans outstanding is less than or equal to the Bridge Loan Commitment.
(ii) Concurrently with the receipt by the Borrower or any Subsidiary of any Net Cash Proceeds of any public offering of common stock or any issuance of long-term indebtedness for borrowed money or any other long-term capital markets issuance of the Borrower or any Subsidiary, the Borrower shall immediately make a principal payment of Bridge Loans to the Administrative Agent in an amount equal to 100% of such Net Cash Proceeds.
Any payments made under this Section 3.2(b) shall be subject to Section 4.3 and shall be applied first to Base Rate Loans and then to Eurodollar Loans in direct order of Interest Period maturities. Once prepaid, the amount of such Bridge Loans may not be re-borrowed.
3.3 PAYMENT IN FULL AT MATURITY.
On the Maturity Date, the entire outstanding principal balance of all Loans, together with accrued but unpaid interest and all other sums owing under this Credit Agreement and the other Credit Documents, shall be due and payable in full, unless accelerated sooner pursuant to Section 9.2.
3.4 FEES.
(a) Unused Fees.
(i) In consideration of the Bridge Loan Commitment being made available by the Lenders hereunder, the Borrower agrees to pay to the Administrative Agent, for the pro rata benefit of each Lender, a per annum fee equal to the Applicable Percentage for Unused Fees (as set forth on the Pricing Schedule) on the Unused Bridge Loan Commitment (the "Unused Fees").
(ii) The accrued Unused Fees shall be due and payable in arrears five Business Days after the end of each fiscal quarter of the Borrower (as well as on the Maturity Date) for the immediately preceding fiscal quarter (or portion thereof), beginning with the first of such dates to occur after the date of execution of this Credit Agreement.
3.5 PLACE AND MANNER OF PAYMENTS.
All payments of principal, interest, fees, expenses and other amounts to be made by the Borrower under this Credit Agreement shall be made unconditionally and without setoff, deduction, defense, recoupment or counterclaim and received not later than 2:00 p.m. on the date when due, in Dollars and in immediately available funds, by the Administrative Agent at the Agency Services Address. In the event any such payment shall be due on a day that is not a Business Day, the applicable payment date shall be the next succeeding Business Day, except, with respect to Eurodollar Loans, if the next succeeding Business Day shall fall in the next succeeding calendar month, then such payment shall be due on the next preceding Business Day. The Borrower shall, at the time it makes any payment under this Credit Agreement, specify to the Administrative Agent, the Loans, fees or other amounts payable by the Borrower hereunder to which such payment is to be applied (and in the event that it fails to specify, or if such application would be inconsistent with the terms hereof, the Administrative Agent shall distribute such payment to the Lenders in such manner as it reasonably determines in its sole discretion.)
3.6 PRO RATA TREATMENT.
Except to the extent otherwise provided herein, all Bridge Loans, each payment or prepayment of principal of any Bridge Loan, each payment of interest on the Bridge Loans, each payment of Unused Fees, each payment of Utilization Fees, each reduction of the Bridge Loan Commitment, and each conversion or continuation of any Bridge Loans, shall be allocated pro rata among the Lenders in accordance with the respective Commitment Percentages; provided that, if any Lender shall have failed to pay its applicable pro rata share of any Bridge Loan, then any amount to which such Lender would otherwise be entitled pursuant to this Section 3.6 shall instead be payable to the Administrative Agent until the share of such Bridge Loan not funded by such Lender has been repaid and any interest owed by such Lender as a result of such failure to fund has been paid; and provided further, that in the event any amount paid to any Lender pursuant to this Section 3.6 is rescinded or must otherwise be returned by the Administrative Agent, each Lender shall, upon the request of the Administrative Agent, repay to the Administrative Agent the amount so paid to such Lender, with interest for the period commencing on the date such payment is returned by the Administrative Agent until the date the Administrative Agent receives such repayment at a rate per annum equal to, during the period to but excluding the date two Business Days after such request, the Federal Funds Rate, and thereafter, the Base Rate plus two percent (2%) per annum.
(a) Except for Base Rate Loans accruing interest at the Prime Rate, which interest shall be computed on the basis of a 365 or 366 day year as the case may be, all computations of interest and fees hereunder shall be made on the basis of the actual number of days elapsed over a year of 360 days. Interest shall accrue from the date a Loan is made until the date such Loan is repaid or continued or converted pursuant to Section 2.4.
(b) It is the intent of the Lenders and the Borrower to conform to and contract in strict compliance with applicable usury law from time to time in effect. All agreements between the Lenders and the Borrower are hereby limited by the provisions of this paragraph which shall override and control all such agreements, whether now existing or hereafter arising and whether written or oral. In no way, nor in any event or contingency (including but not limited to prepayment or acceleration of the maturity of any obligation), shall the interest taken, reserved, contracted for, charged, or received under this Credit Agreement, under the Notes or otherwise, exceed the maximum nonusurious amount permissible under applicable law. If, from any possible construction of any of the Credit Documents or any other document, interest would otherwise be payable in excess of the maximum nonusurious amount, any such construction shall be subject to the provisions of this paragraph and interest owing pursuant to such documents shall be automatically reduced to the maximum nonusurious amount permitted under applicable law, without the necessity of execution of any amendment or new document. If any Lender shall ever receive anything of value which is characterized as interest on the Loans under applicable law and which would, apart from this provision, be in excess of the maximum lawful amount, an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing on the Loans and not to the payment of interest, or refunded to the Borrower or the other payor thereof if and to the extent such amount which would have been excessive exceeds such unpaid principal amount of the Loans. The right to demand payment of the Loans or any other indebtedness evidenced by any of the Credit Documents does not include the right to receive any interest which has not otherwise accrued on the date of such demand, and the Lenders do not intend to charge or receive any unearned interest in the event of such demand. All interest paid or agreed to be paid to the Lenders with respect to the Loans shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term (including any renewal or extension) of the Loans so that the amount of interest on account of such indebtedness does not exceed the maximum nonusurious amount permitted by applicable law.
3.8 SHARING OF PAYMENTS.
Each Lender agrees that, in the event that any Lender shall obtain payment in respect of any Loan or any other obligation owing to such Lender under this Credit Agreement through the exercise of a right of set-off, banker's lien, counterclaim or otherwise (including, but not limited to, pursuant to the Bankruptcy Code) in excess of its pro rata share as provided for in this Credit Agreement, such Lender shall promptly purchase from the other Lenders a participation in such Loans and other obligations, in such amounts and with such other adjustments from time to time, as shall be equitable in order that all Lenders share such payment in accordance with their respective ratable shares as provided for in this Credit Agreement. Each Lender further agrees that if a payment to a Lender (which is obtained by such Lender through the exercise of a right of set-off, banker's lien, counterclaim or otherwise) shall be rescinded or must otherwise be restored, each Lender which shall have shared the benefit of such payment shall, by repurchase of a participation theretofore sold, return its share of that benefit to each Lender whose payment shall have been rescinded or otherwise restored. The Borrower agrees that any Lender so purchasing such a participation may, to the fullest extent permitted by law, exercise all rights of payment, including set-off, banker's lien or counterclaim, with respect to such participation as fully as if such Lender were a holder of such Loan or other obligation in the amount of such participation. Except as otherwise expressly provided in this Credit Agreement, if any Lender shall fail to remit to the Administrative Agent or any other Lender an amount payable by such Lender to the Administrative Agent or such other Lender pursuant to this Credit Agreement on the date when such amount is due, such payments shall accrue interest thereon, for each day from the date such amount is due until the day such amount is paid to the Administrative Agent or such other Lender, at a rate per annum equal to the Federal Funds Rate. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section 3.8 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders under this Section 3.8 to share in the benefits of any recovery on such secured claim.
3.9 EVIDENCE OF DEBT.
(a) Each Lender shall maintain an account or accounts evidencing each Loan made by such Lender to the Borrower from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Credit Agreement. Each Lender will make reasonable efforts to maintain the accuracy of its account or accounts and to promptly update its account or accounts from time to time, as necessary.
(b) The Administrative Agent shall maintain the Register pursuant to Section 11.3(c), and a subaccount for each Lender, in which Register and subaccounts (taken together) shall be recorded (i) the amount, type and Interest Period of each such Loan hereunder, (ii) the amount of any principal or interest due and payable or to become due and payable to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder from or for the account of the Borrower and each Lender's share thereof. The Administrative Agent will make reasonable efforts to maintain the accuracy of the subaccounts referred to in the preceding sentence and to promptly update such subaccounts from time to time, as necessary.
(c) The entries made in the accounts, Register and subaccounts maintained pursuant to subsection (b) of this Section 3.9 (and, if consistent with the entries of the Administrative Agent, subsection (a)) shall be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded; provided, however, that the failure of any Lender or the Administrative Agent to maintain any such account, such Register or such subaccount, as applicable, or any error therein, shall not in any manner affect the obligation of the Borrower to repay the Loans made by such Lender in accordance with the terms hereof.
SECTION 4.
4.1 EURODOLLAR LOAN PROVISIONS.
(a) Unavailability. In the event that the Administrative Agent shall have determined in good faith (i) that U.S. dollar deposits in the principal amounts requested with respect to a Eurodollar Loan are not generally available in the London interbank Eurodollar market or (ii) that reasonable means do not exist for ascertaining the Eurodollar Rate, the Administrative Agent shall, as soon as practicable thereafter, give notice of such determination to the Borrower and the Lenders. In the event of any such determination under clauses (i) or (ii) above, until the Administrative Agent shall have advised the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (A) any request by the Borrower for Eurodollar Loans shall be deemed to be a request for Base Rate Loans, (B) any request by the Borrower for conversion into or continuation of Eurodollar Loans shall be deemed to be a request for conversion into or continuation of Base Rate Loans and (C) any Loans that were to be converted or continued as Eurodollar Loans on the first day of an Interest Period shall be converted to or continued as Base Rate Loans.
(b) Change in Legality.
(i) Notwithstanding any other provision herein, if any change, after the date hereof, in any law, governmental rule, regulation, guideline or order (including the introduction of any new law, governmental rule, regulation, guideline or order) or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof shall make it unlawful for any Lender to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated hereby with respect to any Eurodollar Loan, then, by written notice to the Borrower and to the Administrative Agent, such Lender may:
(A) declare that Eurodollar Loans, and conversions to or continuations of Eurodollar Loans, will not thereafter be made by such Lender hereunder, whereupon any request by the Borrower for, or for conversion into or continuation of, Eurodollar Loans shall, as to such Lender only, be deemed a request for, or for conversion into or continuation of, Base Rate Loans, unless such declaration shall be subsequently withdrawn; and
(B) require that all outstanding Eurodollar Loans made by it be converted to Base Rate Loans in which event all such Eurodollar Loans shall be automatically converted to Base Rate Loans.
(c) Requirements of Law. If at any time a Lender shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to the making, the commitment to make or the maintaining of any Eurodollar Loan because of (i) any change after the date hereof, in any law, governmental rule, regulation, guideline or order (including the introduction of any new law, governmental rule, regulation, guideline or order) or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof, including, without limitation, the imposition, modification or deemed applicability of any reserves, deposits or similar requirements (such as, for example, but not limited to, a change in official reserve requirements, but, in all events, excluding reserves required under Regulation D to the extent included in the computation of the Adjusted Eurodollar Rate) or (ii) other circumstances affecting the London interbank Eurodollar market; then (A) the Lender shall promptly notify the Administrative Agent and the Borrower and shall designate a different lending office of such Lender if such designation will avoid or reduce the amount of such increased costs, or reductions in amounts receivable and such designation will not, in such Lender's sole discretion, be otherwise disadvantageous to such Lender and (B) the Borrower shall promptly pay to such Lender such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender may determine in its sole discretion) as may be required to compensate such Lender for such increased costs or reductions in amounts receivable hereunder.
Each determination and calculation made by a Lender under this Section 4.1
shall, absent manifest error, be binding and conclusive on the parties hereto.
Any conversions of Eurodollar Loans made pursuant to this Section 4.1 shall
subject the Borrower to the payments required by Section 4.3. This Section
4.1 shall survive termination of this Credit Agreement and the other Credit
Documents and the payment of the Loans and all other amounts payable hereunder.
4.2 CAPITAL ADEQUACY.
If any Lender has determined in good faith that the adoption or effectiveness, after the date hereof, of any applicable law, rule or regulation regarding capital adequacy, or any change therein (after the date hereof), or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Lender (or its parent corporation) with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's (or parent corporation's) capital or assets as a consequence of its commitments or obligations hereunder to a level below that which such Lender (or its parent corporation) could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration such Lender's (or parent corporation's) policies with respect to capital adequacy), then, upon notice from such Lender, the Borrower shall promptly pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. Each determination by any such Lender of amounts owing under this Section 4.2 shall, absent manifest error, be conclusive and binding on the parties hereto. This Section 4.2 shall survive termination of this Credit Agreement and the other Credit Documents and the payment of the Loans and all other amounts payable hereunder.
4.3 COMPENSATION.
The Borrower promises to indemnify each Lender and to hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of (a) default by the Borrower in the making of a borrowing of, conversion into or continuation of a Eurodollar Loan after the Borrower has given a notice requesting the same in accordance with the provisions of this Credit Agreement, (b) default by the Borrower in making any prepayment of a Eurodollar Loan after the Borrower has given a notice thereof in accordance with the provisions of this Credit Agreement, (c) the making of a prepayment of a Eurodollar Loan on a day which is not the last day of an Interest Period with respect thereto and (d) the payment, continuation or conversion of a Eurodollar Loan on a day which is not the last day of the Interest Period applicable thereto or the failure to repay a Eurodollar Loan when required by the terms of this Credit Agreement. Each determination by any such Lender of amounts owing under this Section 4.3 shall, absent manifest error, be conclusive and binding on the parties hereto. This Section 4.3 shall survive the termination of this Credit Agreement and the other Credit Documents and the payment of the Loans and all other amounts payable hereunder.
4.4 TAXES.
(a) Except as provided below in this Section 4.4, all payments made by the Borrower under this Credit Agreement and any Notes shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any court, or governmental body, agency or other official, excluding taxes measured by or imposed upon the net income of any Lender or its applicable lending office, or any branch or affiliate thereof, and all franchise taxes, branch taxes, taxes on doing business or taxes on the capital or net worth of any Lender or its applicable lending office, or any branch or affiliate thereof, in each case imposed in lieu of net income taxes: (i) by the jurisdiction under the laws of which such Lender, applicable lending office, branch or affiliate is organized or is located, or in which its principal executive office is located, or any nation within which such jurisdiction is located or any political subdivision thereof; or (ii) by reason of any connection between the jurisdiction imposing such tax and such Lender, applicable lending office, branch or affiliate other than a connection arising solely from such Lender having executed, delivered or performed its obligations, or received payment under or enforced, this Credit Agreement or any Notes. If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts payable to an Administrative Agent or any Lender hereunder or under any Notes, (A) the amounts so payable to the Administrative Agent or such Lender shall be increased to the extent necessary to yield to the Administrative Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Credit Agreement and any Notes, provided, however, that the Borrower shall be entitled to deduct and withhold any Non-Excluded Taxes and shall not be required to increase any such amounts payable to any Lender that is not organized under the laws of the United States of America or a state thereof if such Lender fails to comply with the requirements of paragraph (b) of this Section 4.4 whenever any Non-Excluded Taxes are payable by the Borrower, and (B) as promptly as possible after requested, the Borrower shall send to the Administrative Agent for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Administrative Agent and any Lender for any incremental Non-Excluded Taxes, interest or penalties that may become payable by the Administrative Agent or any Lender as a result of any such failure. The agreements in this Section 4.4 shall survive the termination of this Credit Agreement and the payment of the Loans and all other amounts payable hereunder.
(b) Each Lender that is not incorporated under the laws of the United States of America or a state thereof shall:
(i) (A) on or before the date of any payment by the
Borrower under this Credit Agreement or the Notes to such
Lender, deliver to the Borrower and the Administrative Agent
(x) two duly completed copies of United States Internal
Revenue Service Form W8-BEN or W8-ECI, or successor applicable
form, as the case may be, certifying that it is entitled to
receive payments under this Credit Agreement and any Notes
without deduction or withholding of any United States federal
income taxes and (y) an Internal Revenue Service Form W-8 or
W-9, or successor applicable form, as the case may be,
certifying that it is entitled to an exemption from United
States backup withholding tax;
(B) deliver to the Borrower and the Administrative Agent two further copies of any such form or certification on or before the date that any such form or certification expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Borrower; and
(C) obtain such extensions of time for filing and complete such forms or certifications as may reasonably be requested by the Borrower or the Administrative Agent; or
(ii) in the case of any such Lender that is not a "bank" within the meaning of Section 881(c)(3)(A) of the Internal Revenue Code, (A) represent to the Borrower (for the benefit of the Borrower and the Administrative Agent) that it is not a bank within the meaning of Section 881 (c)(3)(A) of the Internal Revenue Code, (B) agree to furnish to the Borrower, on or before the date of any payment by the Borrower, with a copy to the Administrative Agent, two accurate and complete original signed copies of Internal Revenue Service Form W-8, or successor applicable form certifying to such Lender's legal entitlement at the date of such certificate to an exemption from U.S. withholding tax under the provisions of Section 881(c) of the Internal Revenue Code with respect to payments to be made under this Credit Agreement and any Notes (and to deliver to the Borrower and the Administrative Agent two further copies of such form on or before the date it expires or becomes obsolete and after the occurrence of any event requiring a change in the most recently provided form and, if necessary, obtain any extensions of time reasonably requested by the Borrower or the Administrative Agent for filing and completing such forms), and (C) agree, to the extent legally entitled to do so, upon reasonable request by the Borrower, to provide to the Borrower (for the benefit of the Borrower and the Administrative Agent) such other forms as may be reasonably required in order to establish the legal entitlement of such Lender to an exemption from withholding with respect to payments under this Credit Agreement and any Notes.
Notwithstanding the above, if any change in treaty, law or regulation has occurred after the date such Person becomes a Lender hereunder which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender so advises the Borrower and the Administrative Agent, then such Lender shall be exempt from such requirements. Each Person that shall become a Lender or a participant of a Lender pursuant to Section 11.3 shall, upon the effectiveness of the related transfer, be required to provide all of the forms, certifications and statements required pursuant to this subsection (b); provided that in the case of a participant of a Lender, the obligations of such participant of a Lender pursuant to this subsection (b) shall be determined as if the participant of a Lender were a Lender except that such participant of a Lender shall furnish all such required forms, certifications and statements to the Lender from which the related participation shall have been purchased.
SECTION 5.
5.1 CLOSING CONDITIONS.
The obligation of the Lenders to enter into this Credit Agreement is subject to satisfaction (or waiver) of the following conditions:
(a) Executed Credit Documents. Receipt by the Administrative Agent of duly executed copies of (i) this Credit Agreement, (ii) the Notes and (iii) all other Credit Documents, each in form and substance acceptable to the Lenders.
(b) Corporate Documents. Receipt by the Administrative Agent of the following:
(ii) Bylaws. A copy of the bylaws of the Borrower certified by a secretary or assistant secretary of the Borrower to be true and correct as of the Closing Date.
(iii) Resolutions. Copies of resolutions of the Board of Directors of the Borrower approving and adopting the Credit Documents to which it is a party, the transactions contemplated therein and authorizing execution and delivery thereof, certified by a secretary or assistant secretary of the Borrower to be true and correct and in full force and effect as of the Closing Date.
(iv) Good Standing. Copies of certificates of good standing, existence or its equivalent with respect to the Borrower certified as of a recent date by the appropriate Governmental Authorities of the states or other jurisdictions of incorporation and each other jurisdiction in which the failure to so qualify and be in good standing would have a Material Adverse Effect.
(v) Incumbency. An incumbency certificate of the Borrower certified by a secretary or assistant secretary of the Borrower to be true and correct as of the Closing Date.
(c) Opinion of Counsel. Receipt by the Administrative Agent of an opinion, or opinions, from legal counsel to the Borrower addressed to the Administrative Agent on behalf of the Lenders and dated as of the Effective Date, in each case satisfactory in form and substance to the Administrative Agent.
(d) Financial Statements. Receipt by the Lenders of the consolidated audited financial statements of the Borrower and its Subsidiaries dated as of September 30, 2000 and September 30, 2001, and the unaudited financial statements for the quarters ending December 31, 2001, March 31, 2002 and June 30, 2002, including balance sheets and income and cash flow statements, in each case audited (except for the quarterly financial statements) by independent public accountants of recognized standing and prepared in accordance with GAAP.
(e) Fees and Expenses. Payment by the Borrower of all fees and expenses owed by it to the Lenders and the Administrative Agent.
(f) Material Adverse Effect. No event or condition shall have occurred since June 30, 2002 that has had or would be reasonably expected to have a Material Adverse Effect.
(g) Officer's Certificates. The Administrative Agent shall have received a certificate or certificates executed by a Financial Officer of the Borrower as of the Effective Date stating that (i) the Borrower and its Subsidiaries are in compliance with all existing material financial obligations, (ii) no action, suit, investigation or legal, equitable, arbitration or administrative proceeding is pending or, to such officer's knowledge, threatened in any court or before any arbitrator or Governmental Authority that would have or be reasonably expected to have a Material Adverse Effect, (iii) the financial statements and information delivered to the Administrative Agent on or before the Effective Date were prepared in good faith and in accordance with GAAP and (iv) immediately after giving effect to this Credit Agreement, the other Credit Documents and all the transactions contemplated herein and therein to occur on such date, (A) no Default or Event of Default exists, (B) all representations and warranties contained herein and in the other Credit Documents are true and correct in all material respects on and as of the date made and (C) the Borrower is in compliance with the financial covenant set forth in Section 7.2.
(h) Other. Receipt by the Lenders of such other documents, instruments, agreements or information as reasonably requested by any Lender.
5.2 CONDITIONS TO LOANS.
In addition to the conditions precedent stated elsewhere herein, the Lenders shall not be obligated to make new Loans unless:
(a) Request. The Borrower shall have timely delivered a duly executed and completed Notice of Borrowing in conformance with all the terms and conditions of this Credit Agreement.
(b) Representations and Warranties. The representations and warranties made by the Borrower are true and correct in all material respects at and as if made as of the date of the funding of the requested Loans.
(c) No Default. No Default or Event of Default shall exist or be continuing either prior to or after giving effect thereto.
(d) Availability. Immediately after giving effect to the making of a Loan (and the application of the proceeds thereof) the sum of the amount of Bridge Loans outstanding shall not exceed the Bridge Loan Commitment.
The delivery of each Notice of Borrowing shall constitute a representation and warranty by the Borrower of the correctness of the matters specified in subsections (b) through (d) above.
SECTION 6.
The Borrower hereby represents and warrants to each Lender that:
The Borrower (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdictions of its incorporation, (b) is duly qualified and in good standing as a foreign corporation authorized to do business in every jurisdiction where the failure to so qualify would have or would reasonably be expected to have a Material Adverse Effect and (c) has the requisite corporate power and authority to own its properties and to carry on its business as now conducted and as proposed to be conducted.
6.2 DUE AUTHORIZATION.
The Borrower (a) has the requisite corporate power and authority to execute, deliver and perform this Credit Agreement and the other Credit Documents and to incur the obligations herein and therein provided for and (b) has been authorized by all necessary corporate action, to execute, deliver and perform this Credit Agreement and the other Credit Documents.
6.3 NO CONFLICTS.
Neither the execution and delivery of the Credit Documents, nor the consummation of the transactions contemplated therein, nor performance of and compliance with the terms and provisions thereof by the Borrower will in any material respect (a) violate or conflict with any provision of its articles of incorporation or bylaws, (b) violate, contravene or conflict with any law (including without limitation, the Public Utility Holding Company Act of 1935, as amended), regulation (including without limitation, Regulation U, Regulation X or any regulation promulgated by the Federal Energy Regulatory Commission), order, writ, judgment, injunction, decree or permit applicable to it, (c) violate, contravene or conflict with contractual provisions of, or cause an event of default under, any indenture, loan agreement, mortgage, deed of trust, contract or other agreement or instrument to which it is a party or by which it or its properties may be bound, or (d) result in or require the creation of any Lien upon or with respect to its properties.
6.4 CONSENTS.
No consent, approval, authorization or order of, or filing, registration or qualification with, any court or Governmental Authority or third party is required in connection with the execution, delivery or performance of this Credit Agreement or any of the other Credit Documents.
6.5 ENFORCEABLE OBLIGATIONS.
This Credit Agreement and the other Credit Documents have been duly executed and delivered and constitute legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, except as may be limited by bankruptcy or insolvency laws or similar laws affecting creditors' rights generally or by general equitable principles.
(a) The financial statements delivered to the Lenders pursuant to Section 5.1(d) and pursuant to Section 7.1(a) and (b): (i) have been prepared in accordance with GAAP (subject to the provisions of Section 1.3) and (ii) present fairly in all material respects the financial condition, results of operations, and cash flows of the Borrower and its Subsidiaries as of such date and for such periods.
(b) Other than the MVG Acquisition, since June 30, 2002, there has been no sale, transfer or other disposition by the Borrower of any material part of the business or property of the Borrower, and no purchase or other acquisition by the Borrower of any business or property (including any Capital Stock of any other Person) material in relation to the financial condition of the Borrower, in each case which is not (i) reflected in the most recent financial statements delivered to the Lenders pursuant to Section 5.1(d) or 7.1 or in the notes thereto or (ii) otherwise permitted by the terms of this Credit Agreement and communicated to the Administrative Agent.
6.7 NO MATERIAL CHANGE.
Since June 30, 2002, there has been no development or event relating to or affecting the Borrower or any of its Subsidiaries that has had or would be reasonably expected to have a Material Adverse Effect, it being understood that the consummation of the MVG Acquisition, in and of itself, does not constitute a Material Adverse Effect.
6.8 NO DEFAULT.
No Default or Event of Default presently exists and is continuing.
6.9 LITIGATION.
There are no actions, suits, investigations or legal, equitable, arbitration or administrative proceedings pending or, to the knowledge of the Borrower, threatened against the Borrower, any of its Subsidiaries or any of its properties which could have or be reasonably expected to have a Material Adverse Effect.
6.10 TAXES.
The Borrower and its Subsidiaries have filed, or caused to be filed, all tax returns (federal, state, local and foreign) required to be filed and paid all amounts of taxes shown thereon to be due (including interest and penalties) and has paid all other taxes, fees, assessments and other governmental charges (including mortgage recording taxes, documentary stamp taxes and intangibles taxes) owing by it, except for such taxes which are not yet delinquent or that are being contested in good faith and by proper proceedings, and against which adequate reserves are being maintained in accordance with GAAP.
The Borrower and each of its Subsidiaries is in compliance with all laws, rules, regulations, orders and decrees applicable to it or to its properties, except where the failure to be in compliance would not have or would not reasonably be expected to have a Material Adverse Effect.
6.12 MATERIAL AGREEMENTS.
Neither the Borrower nor any of its Subsidiaries is in default in any respect under any contract, lease, loan agreement, indenture, mortgage, security agreement or other agreement or obligation to which it is a party or by which any of its properties is bound which default has had or would be reasonably expected to have a Material Adverse Effect.
6.13 ERISA.
Except as would not result or be reasonably expected to result in a Material Adverse Effect:
(a) During the five-year period prior to the date on which this representation is made or deemed made: (i) no Termination Event has occurred, and, to the best knowledge of the Borrower, no event or condition has occurred or exists as a result of which any Termination Event is reasonably expected to occur, with respect to any Plan; (ii) no "accumulated funding deficiency," as such term is defined in Section 302 of ERISA and Section 412 of the Code, whether or not waived, has occurred with respect to any Plan; (iii) each Plan has been maintained, operated, and funded in material compliance with its own terms and in material compliance with the provisions of ERISA, the Code, and any other applicable federal or state laws; and (iv) no Lien in favor or the PBGC or a Plan has arisen or is reasonably expected to arise on account of any Plan.
(b) No liability has been or is reasonably expected by the Borrower to be incurred under Sections 4062, 4063 or 4064 of ERISA with respect to any Single Employer Plan by the Borrower or any of its Subsidiaries which has or would reasonably be expected to have a Material Adverse Effect.
(c) The actuarial present value of all "benefit liabilities" under each Single Employer Plan (determined within the meaning of Section 401(a)(2) of the Code, utilizing the actuarial assumptions used to fund such Plans), whether or not vested, did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the current value of the assets of such Plan allocable to such accrued liabilities, except as disclosed in the Borrower's financial statements.
(d) Neither the Borrower nor any ERISA Affiliate has incurred, or, to the best knowledge of the Borrower, is reasonably expected to incur, any withdrawal liability under ERISA to any Multiemployer Plan or Multiple Employer Plan. Neither the Borrower nor any ERISA Affiliate has received any notification that any Multiemployer Plan is in reorganization (within the meaning of Section 4241 of ERISA), is insolvent (within the meaning of Section 4245 of ERISA), or has been terminated (within the meaning of Title IV of ERISA), and no Multiemployer Plan is, to the best knowledge of the Borrower, reasonably expected to be in reorganization, insolvent, or terminated.
(e) No prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary responsibility has occurred with respect to a Plan which has subjected or is reasonably likely to subject the Borrower or any ERISA Affiliate to any liability under Sections 406, 407, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which the Borrower or any ERISA Affiliate has agreed or is required to indemnify any person against any such liability.
(f) The present value (determined using actuarial and other assumptions which are reasonable with respect to the benefits provided and the employees participating) of the liability of the Borrower and each ERISA Affiliate for post-retirement welfare benefits to be provided to their current and former employees under Plans which are welfare benefit plans (as defined in Section 3(1) of ERISA), net of all assets under all such Plans allocable to such benefits, are reflected on the financial statements referenced in Section 7.1 in accordance with FASB 106.
(g) Each Plan which is a welfare plan (as defined in Section 3(1) of ERISA) to which Sections 601-609 of ERISA and Section 4980B of the Code apply has been administered in compliance in all material respects with such sections.
6.14 USE OF PROCEEDS.
The proceeds of the Loans hereunder will be used solely for the purposes specified in Section 7.8.
6.15 GOVERNMENT REGULATION.
(a) No proceeds of the Loans will be used, directly or indirectly, for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U, or for the purpose of purchasing or carrying or trading in any securities. If requested by any Lender or the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form U-1 referred to in Regulation U. No indebtedness being reduced or retired out of the proceeds of the Loans was or will be incurred for the purpose of purchasing or carrying any margin stock within the meaning of Regulation U or any "margin security" within the meaning of Regulation T. "Margin stock" within the meaning of Regulation U does not constitute more than 25% of the value of the consolidated assets of the Borrower and its Subsidiaries. None of the transactions contemplated by the Credit Documents (including, without limitation, the direct or indirect use of the proceeds of the Loans) will violate or result in a violation of the Securities Act or the Exchange Act.
(b) Neither the Borrower nor any of its Subsidiaries is (i) an "investment company" registered or required to be registered under the Investment Company Act of 1940, as amended, and is not controlled by an "investment company", or (ii) a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended.
(c) No director, executive officer or principal shareholder of the Borrower or any of its Subsidiaries is a director, executive officer or principal shareholder of any Lender. For the purposes hereof the terms "director", "executive officer" and "principal shareholder" (when used with reference to any Lender) have the respective meanings assigned thereto in Regulation O.
6.16 DISCLOSURE.
Neither this Credit Agreement nor any financial statements delivered to the Lenders nor any other document, certificate or statement furnished to the Lenders by or on behalf of the Borrower in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein or herein, taken as a whole, not misleading.
6.17 ENVIRONMENTAL MATTERS.
Except as would not result or be reasonably expected to result in a Material Adverse Effect: (a) each of the properties of the Borrower and its Subsidiaries (the "Properties") and all operations at the Properties are in compliance in all material respects with all applicable Environmental Laws, (b) there is no violation of any Environmental Law with respect to the Properties or the businesses operated by the Borrower or its Subsidiaries (the "Businesses"), and (c) there are no conditions relating to the Businesses or Properties that would reasonably be expected to give rise to a material liability under any applicable Environmental Laws.
6.18 INSURANCE.
The Borrower and its Subsidiaries maintain insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar business and owning similar properties in the same general areas in which the Borrower and its Subsidiaries operate.
6.19 FRANCHISES, LICENSES, ETC.
The Borrower and its Subsidiaries possess (a) good title to, or the legal right to use, all material properties and assets and (b) all material franchises, certificates, licenses, permits and other authorizations, in each case as are necessary for the operation of their respective businesses.
6.20 SECURED INDEBTEDNESS.
All of the secured indebtedness of the Borrower is set forth on Schedule 6.20 or permitted by Section 8.6.
All Subsidiaries of the Borrower and the designation as to which such
Subsidiaries are Material Subsidiaries are set forth on Schedule 6.21. Schedule
6.21 may be updated from time to time by the Borrower.
SECTION 7.
The Borrower hereby covenants and agrees that so long as this Credit Agreement is in effect and until the Loans, together with interest, fees and other obligations hereunder, have been paid in full and the Commitments shall have terminated:
7.1 INFORMATION COVENANTS.
The Borrower will furnish, or cause to be furnished, to the Administrative Agent (who shall forward copies thereof to each Lender):
(a) Annual Financial Statements. As soon as available, and in any event within 120 days after the close of each fiscal year of the Borrower, a consolidated balance sheet and income statement of the Borrower and its Subsidiaries, as of the end of such fiscal year, together with retained earnings and a consolidated statement of cash flows for such fiscal year setting forth in comparative form figures for the preceding fiscal year, all such financial information described above to be in reasonable form and detail and audited by independent certified public accountants of recognized national standing reasonably acceptable to the Administrative Agent and whose opinion shall be furnished to the Administrative Agent, shall be to the effect that such financial statements have been prepared in accordance with GAAP (except for changes with which such accountants concur) and shall not be limited as to the scope of the audit or qualified in any respect.
(b) Quarterly Financial Statements. As soon as available, and in any event within 65 days after the close of each fiscal quarter of the Borrower (other than the fourth fiscal quarter, in which case 120 days after the end thereof) a consolidated balance sheet and income statement of the Borrower and its Subsidiaries, as of the end of such fiscal quarter, together with a related consolidated statement of cash flows for such fiscal quarter in each case setting forth in comparative form figures for the corresponding period of the preceding fiscal year, all such financial information described above to be in reasonable form and detail and reasonably acceptable to the Administrative Agent, and accompanied by a certificate of a Financial Officer of the Borrower to the effect that such quarterly financial statements fairly present in all material respects the financial condition of the Borrower and have been prepared in accordance with GAAP, subject to changes resulting from audit and normal year-end audit adjustments.
(c) Officer's Certificate. At the time of delivery of the financial statements provided for in Sections 7.1(a) and 7.1(b) above, a certificate of a Financial Officer of the Borrower, substantially in the form of Exhibit 7.1(c), (i) demonstrating compliance with Section 7.2 by calculation thereof as of the end of each such fiscal period and (ii) stating that no Default or Event of Default exists, or if any Default or Event of Default does exist, specifying the nature and extent thereof and what action the Borrower proposes to take with respect thereto.
(d) Reports. Promptly upon transmission or receipt thereof, copies of any filings and registrations with, and reports to or from, any Governmental Authority, including, without limitation, the Securities and Exchange Commission or any successor agency and any utility regulatory body.
(e) Notices. Upon the Borrower obtaining knowledge thereof, the Borrower will give written notice to the Administrative Agent immediately of (i) the occurrence of a Default or Event of Default, specifying the nature and existence thereof and what action the Borrower proposes to take with respect thereto and (ii) the occurrence of any of the following with respect to the Borrower or any Subsidiary: (A) the pendency or commencement of any litigation, arbitration or governmental proceeding against the Borrower or such Subsidiary which, if adversely determined, would have or would be reasonably expected to have a Material Adverse Effect or (B) the institution of any proceedings against the Borrower or such Subsidiary with respect to, or the receipt of notice by such Person of potential liability or responsibility for violation or alleged violation of, any federal, state or local law, rule or regulation (including, without limitation, any Environmental Law), the violation of which would have or would be reasonably expected to have a Material Adverse Effect.
(f) ERISA. Upon the Borrower or any ERISA Affiliate obtaining knowledge thereof, the Borrower will give written notice to the Administrative Agent and each of the Lenders promptly (and in any event within five Business Days) of: (i) any event or condition, including, but not limited to, any Reportable Event, that constitutes, or would be reasonably expected to lead to, a Termination Event; (ii) any communication from the PBGC stating its intention to terminate any Plan or to have a trustee appointed to administer any Plan together with a statement of the amount of liability,