UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year ended September 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from __________ to ____________ Commission File Number 1-10042 ATMOS ENERGY CORPORATION (Exact name of registrant as specified in its charter) TEXAS 75-1743247 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) Three Lincoln Centre, Suite 1800 5430 LBJ Freeway, Dallas, Texas 75240 (Address of principal executive offices (Zip code) Registrant's telephone number, including area code: (214) 934-9227 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ---------------------- Common stock, No Par Value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X. No ___. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non- affiliates of the registrant was $301,605,820 as of December 1, 1995. On December 1, 1995, the registrant had 15,900,392 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of registrant's definitive proxy statement filed for the annual meeting of shareholders on February 14, 1996 are incorporated by reference into Part III. PART I ITEM 1. BUSINESS Atmos Energy Corporation (the "Company") was organized under the laws of the State of Texas in 1983 as a subsidiary of Pioneer Corporation ("Pioneer") for the purposes of owning and operating Pioneer's natural gas distribution business in Texas. Immediate- ly following the transfer of such business, which had been opera- ted by Pioneer and its predecessors since 1906, Pioneer distrib- uted the outstanding stock of the Company, then known as Energas Company, to Pioneer shareholders. In September 1988, the Company changed its name from Energas Company to Atmos Energy Corporation. The Company distributes and sells natural gas to residential, commercial, industrial, agricultural, and other customers in 414 cities, towns, and communities in parts of Texas, Louisiana, Kentucky, Colorado, Kansas, and Missouri. The Company also transports gas for others through parts of its distribution system. The Company is also helping promote the development of a market for natural gas as a clean burning vehicular fuel by opening six public refueling facilities in its service areas. The Company's Texas distribution system is operated through its Energas Company division (the "Energas Division") and is located in the western part of Texas covering an area having a population of approximately 950,000 people. The economy of the area is based primarily on oil and gas production and agricul- ture. The principal cities served by the Energas Division include Amarillo, Lubbock, Midland, and Odessa. At September 30, 1995, the Company had 310,765 gas meters in service in Texas. The Company's Louisiana distribution system is operated through its Trans Louisiana Gas Company division (the "Trans La Division") and is located in Louisiana covering an area having a population of approximately 250,000 people. The economy of the area is based primarily on oil and gas production, agriculture, and food processing. The principal cities served by the Trans La Division are Lafayette, Pineville, and Natchitoches. At September 30, 1995, the Company had 70,570 gas meters in service in Louisiana. The Company's Kentucky distribution system is operated through its Western Kentucky Gas Company division (the "Western Kentucky Division") and covers an area having a population of approximately 680,000 people. The economy of the area is based primarily on industry and agriculture. The principal cities served by the Western Kentucky Division include Bowling Green, Owensboro, and Paducah. At September 30, 1995, the Company had 168,529 gas meters in service in Kentucky. In December 1993, the Company acquired Greeley Gas Company ("GGC") of Denver, Colorado in a merger accounted for as a pool- 1 ing of interests, and accordingly, all amounts included herein have been restated to include GGC's operating results. Since the merger, the business of GGC has been operated through the Company's Greeley Gas Company division (the "Greeley Gas Division"). It serves customers in areas of Colorado, Kansas, and Missouri having a combined population of approximately 228,000 people. The economies of the areas served are based on oil and gas production, agriculture and resort business in Colorado. The principal cities served include Greeley, Durango and Lamar, Colorado and Bonner Springs, Herington and Ulysses, Kansas. At September 30, 1995 the Greeley Gas Division had 108,250 meters in service. The natural gas distribution industry is subject to numerous special factors, many of which affect the Company from time to time. These include (i) adequate and timely rate relief from regulatory authorities to recover costs of service and earn a fair return on invested capital; (ii) inherent seasonality of the business in local gas distribution service areas; (iii) competition from alternate fuels; (iv) competition with other gas sources for industrial customers, including bypass of the Company's facilities, which could result in loss of revenues and reduction in the Company's net income; and (v) possible volatility in the supply and price of natural gas. ACQUISITIONS Since its organization in 1983, the Company has sought to expand its customer base and to diversify the weather patterns, local economic conditions, and regulatory environments to which its operations are subject. As part of this strategy, the Company acquired Trans Louisiana Gas Company, Inc. ("TLG") in January 1986, Western Kentucky Gas Utility Corporation ("WKG") in December 1987, and Greeley Gas Company ("GGC") in December 1993. Subsequent to September 30, 1995, the Company acquired Oceana Heights Gas Company ("Oceana") of Thibodaux, Louisiana. Oceana provides natural gas service to approximately 9,200 customers. The Company continues to consider and pursue, where appropriate, additional acquisitions of natural gas distribution properties and other business opportunities. For further information regarding acquisitions, see Note 2 of notes to consolidated financial statements, and Management's Discussion and Analysis of Financial Condition and Results of Operations. FIVE-YEAR OPERATING STATISTICS Certain information with respect to the Company's natural gas operations for the past five years is shown on the following page. 2 Year ended September 30, --------------------------------------------------------- 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- NUMBER OF ACCOUNTS, at end of year Residential 551,269 549,129 539,309 534,762 529,498 Commercial 55,894 55,027 54,275 55,562 54,703 Industrial (including agricultural) 8,331 8,781 8,924 9,331 9,793 Public authority and other 3,377 3,351 3,267 1,745 1,788 ------- ------- ------- ------- ------- Total 618,871 616,288 605,775 601,400 595,782 ======= ======= ======= ======= ======= METERS IN SERVICE, at end of year 658,114 649,319 636,159 630,365 619,111 ======= ======= ======= ======= ======= METERS IN SERVICE, average 656,259 646,165 635,074 631,130 618,736 ======= ======= ======= ======= ======= HEATING DEGREE DAYS, system average (1) Actual 3,579 3,953 4,046 3,676 3,583 Normal 3,983 3,983 3,983 3,983 3,983 Percent of normal 90% 99% 102% 92% 90% SALES VOLUMES - MMcf (2) Residential 46,765 51,209 51,763 48,223 47,484 Commercial 19,756 21,134 21,872 20,675 20,778 Industrial (including agricultural) 38,046 38,502 31,367 27,489 29,788 Public authority and other 4,779 5,242 4,403 3,333 3,385 ------- ------- ------- ------- ------- Total 109,346 116,087 109,405 99,720 101,435 TRANSPORTATION VOLUMES - MMcf (2) 30,463 35,308 39,782 32,203 35,201 ------- ------- ------- ------- ------- TOTAL VOLUMES HANDLED - MMcf (2) 139,809 151,395 149,187 131,923 136,636 ======= ======= ======= ======= ======= OPERATING REVENUES (000's) Gas Revenues Residential $210,165 $245,931 $237,914 $211,767 $202,486 Commercial 79,982 92,507 91,250 82,311 81,414 Industrial (including agricultural 110,815 119,722 92,455 77,218 81,746 Public authority and other 18,185 22,463 18,315 13,232 13,290 -------- -------- -------- -------- -------- Total gas revenues 419,147 480,623 439,934 384,528 378,936 Transportation Revenues 11,711 14,118 15,013 13,674 16,348 Other Revenue 4,962 5,067 4,694 5,151 4,383 -------- -------- -------- -------- -------- Total operating revenues $435,820 $499,808 $459,641 $403,353 $399,667 ======== ======== ======== ======== ======== AVERAGE SALES PRICE/Mcf Residential $4.49 $4.80 $4.60 $4.39 $4.26 Commercial 4.05 4.38 4.17 3.98 3.92 Industrial (including agricultural) 2.91 3.11 2.95 2.81 2.74 Public authority and other 3.81 4.29 4.16 3.97 3.93 Total 3.83 4.14 4.02 3.86 3.74 AVERAGE COST OF GAS/Mcf SOLD 2.46 2.86 2.71 2.58 2.58 See footnotes on page 4. 3 SALES AND STATISTICAL DATA BY STATE - 1995 Year ended September 30, 1995 ---------------------------------------------------------------- Texas Louisiana Kentucky Colorado Kansas Mo. Total ------- --------- -------- -------- ------ --- ------- METERS IN SERVICE, at end of year Residential 265,192 64,612 149,567 69,865 24,225 519 573,980 Commercial 24,893 4,937 16,989 9,862 3,284 71 60,036 Industrial (including agricultural) 18,130 115 447 98 326 - 19,116 Public authority and other 2,550 906 1,526 - - - 4,982 ------- ------ ------- ------ ------ --- ------- Total 310,765 70,570 168,529 79,825 27,835 590 658,114 ======= ====== ======= ====== ====== === ======= HEATING DEGREE DAYS, system average (1) Actual 3,152 1,448 3,792 6,243 5,093 5,044 3,579 Normal 3,528 1,760 4,376 6,556 5,158 5,028 3,983 Percent of normal 89% 82% 87% 95% 99% 100% 90% SALES VOLUMES (2) Residential 22,338 3,163 11,949 7,007 2,265 43 46,765 Commercial 7,300 1,183 5,276 4,905 1,081 11 19,756 Industrial (including agricultural) 23,875 1,864 9,992 725 1,590 - 38,046 Public authority and other 2,547 789 1,443 - - - 4,779 ------ ----- ------ ------ ----- -- ------ Total 56,060 6,999 28,660 12,637 4,936 54 109,346 TRANSPORTATION VOLUMES (2) 9,571 490 17,103 3,180 119 - 30,463 ------ ----- ------ ------ ----- -- ------- TOTAL VOLUMES HANDLED (2) 65,631 7,489 45,763 15,817 5,055 54 139,809 ====== ===== ====== ====== ===== == ======= OTHER STATISTICS Operating revenues (000's) $207,149 $38,716 $117,154 $51,199 $21,254 $348 $435,820 Gross plant (000's) $245,173 $93,677 $142,699 $73,216 $40,000 $594 $595,359 Net plant (000's) $138,479 $70,899 $87,705 $41,995 $23,772 $402 $363,252 Miles of pipe 13,090 1,863 3,509 2,400 1,318 32 22,212 Employees (3) 833 161 383 204 65 - 1,646 Communities served 92 37 163 62 58 2 414 Estimated population in service area 950,000 250,000 680,000 160,000 66,000 2,000 2,108,000 Estimated square miles in service area 30,000 7,000 12,000 1,050 580 20 50,650 Vehicles in fleet 452 144 295 169 53 - 1,113 Franchises 72 58 63 34 42 2 271 (1) A heating degree day is equivalent to each degree that the average of the high and the low temperatures for a day is below 65 degrees. The greater the number of heating degree days, the colder the climate. Heating degree days are used in the natural gas industry to measure the coldness of wea- ther experienced and to compare relative temperatures be- tween one geographic area and another. 4 (2) Volumes are reported as metered in million cubic feet ("MMcf"). (3) The Texas column includes 223 and 224 employees in the Dallas general office in 1995 and 1994, respectively. 5 SALES AND STATISTICAL DATA BY STATE - 1994 Year ended September 30, 1994 --------------------------------------------------------------- Texas Louisiana Kentucky Colorado Kansas Mo. Total ------- ------ ------- ------ ------ --- ------- METERS IN SERVICE, at end of year Residential 263,330 64,401 146,384 67,062 23,692 546 565,415 Commercial 24,899 4,944 16,653 9,594 3,228 71 59,389 Industrial (including agricultural) 18,749 108 268 108 333 - 19,566 Public authority and other 2,518 908 1,523 - - - 4,949 ------- ------ ------- ------ ------ --- ------- Total 309,496 70,361 164,828 76,764 27,253 617 649,319 ======= ====== ======= ====== ====== === ======= HEATING DEGREE DAYS, system average (1) Actual 3,561 1,922 4,342 6,116 5,108 4,990 3,953 Normal 3,528 1,760 4,376 6,556 5,158 5,028 3,983 Percent of normal 101% 109% 99% 93% 99% 99% 99% SALES VOLUMES (2) Residential 24,276 3,604 13,776 7,041 2,464 48 51,209 Commercial 7,933 1,260 5,820 4,943 1,167 11 21,134 Industrial (including agricultural) 25,791 1,606 8,766 734 1,605 - 38,502 Public authority and other 2,714 885 1,643 - - - 5,242 ------ ----- ------ ----- ----- -- ------ Total 60,714 7,355 30,005 12,718 5,236 59 116,087 TRANSPORTATION VOLUMES (2) 14,179 500 17,498 3,071 60 - 35,308 ------ ----- ------ ------ ----- -- ------- TOTAL VOLUMES HANDLED (2) 74,893 7,855 47,503 15,789 5,296 59 151,395 ====== ===== ====== ====== ===== == ======= OTHER STATISTICS Operating revenues (000's) $234,628 $43,374 $143,508 $55,010 $22,880 $408 $499,808 Gross plant (000's) $221,516 $86,771 $127,169 $70,852 $36,819 $565 $543,692 Net plant (000's) $119,616 $66,220 $79,410 $40,355 $21,446 $360 $327,407 Miles of pipe 13,007 1,815 3,425 2,352 1,295 33 21,927 Employees (3) 859 166 387 221 76 - 1,709 Communities served 92 36 163 62 58 2 413 Estimated population in service area 950,000 250,000 680,000 160,000 66,000 2,000 2,108,000 Estimated square miles in service area 30,000 7,000 12,000 1,050 580 20 50,650 Vehicles in fleet 446 137 268 154 52 - 1,057 Franchises 71 58 62 36 42 2 271 See footnotes on page 4. 6 GAS SALES The Company's natural gas distribution business is seasonal and highly dependent on weather conditions in the Company's service areas. Gas sales to residential and commercial customers are greater during the winter months than during the remainder of the year. The volumes of such sales during the winter months will vary with the temperatures during such months. The seasonal nature of the Company's sales to residential and commercial customers is offset partially by the Company's sales in the spring and summer months to its agricultural customers in Texas, Colorado and Kansas who utilize natural gas to operate irrigation equipment. The Company's management believes that the Company has lessened its sensitivity to weather risk by diversifying its operations into geographic areas having different weather patterns. In addition to weather, the Company's revenues are affected by the cost of natural gas and economic conditions in the areas that the Company serves. Higher gas costs, which the Company is generally able to pass through to its customers under purchased gas adjustment clauses, may cause customers to conserve, or, in the case of industrial customers, to use alternative energy sources. In recent years, natural gas market conditions have changed. Natural gas prices to distributors have become more volatile and the number of competing marketers of natural gas has increased. The Company's gas marketing subsidiaries purchase gas to address these changing markets. In certain instances, customers purchase gas directly from others and the Company transports such gas through its distribution systems to the customers' facilities for a fee. Although transportation of customer-owned gas reduces the Company's operating revenues and corresponding purchased gas cost, the transportation revenues received by the Company may offset the loss of gross profit. The Company's distribution systems have experienced aggregate peak day deliveries of approximately 1 billion cubic feet ("Bcf") per day. The Company has the ability to curtail deliveries to certain customers under the terms of interruptible contracts and applicable state statutes or regulations which enables it to maintain its deliveries to high priority customers. The Company has not imposed curtailment in its Energas Division since the Company began independent operations in 1983 or in its Trans La Division since the Company acquired TLG in 1986. The Western Kentucky Division curtailed deliveries to certain interruptible customers during exceptionally cold periods in December 1989 and January 1994. GGC has not curtailed deliveries to its sales customers since prior to 1980. 7 GAS SUPPLY The principal gas suppliers to the Company in 1995, 1994 and 1993 included Westar Transmission Company ("Westar"), an affil- iate of KNEnergy; Anthem Energy Company, L.P. ("Anthem"), an affiliate of KNEnergy; Mesa Operating Company ("Mesa"); Louisiana Intrastate Gas Corporation ("LIG"), an affiliate of Equitable Resources Inc.; Tennessee Gas Pipeline Company ("Tennessee Gas"), an affiliate of Tenneco, Inc.; Texas Gas Transmission Corporation ("Texas Gas"), an affiliate of The Williams Companies, Inc.; Texaco Gas Marketing; Union Pacific Fuels; Vastar, an affiliate of ARCO; Associated Natural Gas, Inc. ("ANGI"), an affiliate of Panhandle Eastern Corporation; and Astra Resources Marketing, Inc. ("Astra"), an affiliate of Western Resources, Inc. The prices paid by the Company for natural gas delivered to it are set by contracts with gas suppliers and/or ratemaking proceedings before regulatory authorities. Charges for gas costs are passed through to the Company's customers under approved or negotiated tariffs or pursuant to contract. 8 The following table sets forth volumes purchased from the Company's principal gas suppliers for the years ended September 30, 1995, 1994, and 1993. Volumes purchased (MMcf as metered) 1995: Associated Natural Gas, Inc. 7,077 Astra Resources Marketing, Inc. 2,565 Chevron 2,154 Hadson Gas 2,902 LIG 2,698 Mesa 9,369 Texaco Gas Marketing 8,427 Union Pacific Fuels 5,298 Vastar 3,490 Westar and Anthem 43,950 1994: Associated Natural Gas, Inc. 3,283 Astra Resources Marketing, Inc. 2,210 LIG 4,254 Mesa 9,926 Texaco Gas Marketing 5,453 Union Pacific Fuels 5,825 Vastar 6,881 Westar and Anthem 47,842 1993: Associated Natural Gas, Inc. 3,291 Astra Resources Marketing, Inc. 1,946 LIG 4,490 Mesa 10,659 Tennessee Gas 2,575 Texas Gas 10,329 Westar and Anthem 45,031 Westar and Anthem supply natural gas to most of the Energas Division under multiple contracts. The Westar contract expires in 1998. The Anthem contracts are renegotiated annually. Westar purchases gas from various pipeline companies and natural gas processing plants and at the wellhead. Westar's gas price to the Company is subject to an annual adjustment in accordance with the existing contract. The principal gas supply for the Company's Amarillo, Texas distribution system is furnished by Mesa under a long-term con- tract that expires upon the depletion of the field from which the gas is produced. Mesa owns the gas rights in certain specified acreage in the West Panhandle field. Pursuant to a contract between Colorado Interstate Gas Company ("CIG") and Mesa, CIG is obligated to deliver to Mesa the volumes of gas required for sale to customers in Amarillo and its environs, subject to certain contractual volume limitations, so long as the gas reserves from the West Panhandle field are commercially producible. The price 9 under the contract is determined each year pursuant to a formula until December 1997. The contract also provides a mechanism for price redetermination each two year period thereafter beginning January 1, 1998. On October 28, 1991, the Company and LIG entered into new agreements which were approved by the Louisiana Public Service Commission ("Louisiana Commission") on November 26, 1991, and became effective June 1, 1992. These agreements provide continued supply by LIG for most of the Trans La Division's gas requirements for a term of ten years (but subject to cancellation by either party after five years). The agreements provide for market sensitive pricing and allow the Company to purchase certain volumes of gas from other suppliers. LIG is required to provide standby service to back up the purchases from the other suppliers. The Company's Louisiana industrial sales subsidiary, Trans Louisiana Industrial Gas Company, Inc., purchases some gas supplies for resale to certain of its Louisiana industrial customers from suppliers other than LIG. The Western Kentucky Division requirements are delivered by Texas Gas and Tennessee Gas with the exception of a small percentage of the requirements being purchased directly from intrastate producers. The Western Kentucky Division purchases its supply under staggered term contracts from major producers and marketers including Texaco, Union Pacific, Vastar, Associated Natural, Hadson and Chevron. The Company's distribution system in the Western Kentucky Division includes six underground storage facilities, which are used to help meet customer requirements during peak demand per- iods and to reduce the need to contract for additional pipeline capacity to meet such peak demand periods. See "Item 2. Proper- ties" for further information regarding the underground storage facilities. The Company also contracted for storage service in underground storage facilities of Tennessee Gas and Texas Gas under FERC Order No. 636. The Greeley Gas Division purchases or transports approximat- ely 82% of its natural gas requirements on eight pipelines. Five of these are regulated by the FERC and the remaining three are state regulated. The FERC pipelines are Colorado Interstate Gas Company, Williams Natural Gas Company, KNEnergy, Northwest Pipe- line Corporation, and NorAm. The state regulated pipelines are Public Service Company of Colorado, Western Resources, Inc. and Kansas Pipeline Partnership in Kansas. Approximately 18% of the Divisions's gas supply is purchased from local sources. Several of the operating areas are in or adjacent to natural gas produc- ing fields. Associated Natural Gas, Inc. is the main supplier to the Greeley Gas Division's largest district, the Greeley District. 10 Astra is the principal gas supplier for the Kansas and Missouri districts. Gas is transported through three different pipeline systems (Williams Natural Gas, Western Resources, Inc. and NorAm). The Company has not experienced supply curtailment in its Texas distribution system since it began independent operations in 1983, in its Louisiana system since its acquisition, or in Colorado, Kansas or Missouri since prior to 1980. A large proportion of the Company's sales are made to high priority residential and commercial consumers; therefore, any curtailment of supply for these customers is unlikely. REGULATION AND RATES Regulation. In the Energas Division, the governing body of each municipality served by the Company has original jurisdiction over all utility rates, operations, and services within its city limits except with respect to sales of natural gas for vehicle fuel and agricultural use. The Company operates pursuant to non- exclusive franchises granted by the municipalities it serves, which franchises are subject to renewal from time to time. The franchises granted to the Company permit it to conduct natural gas distribution within the municipalities' incorporated limits. The Railroad Commission of Texas ("Railroad Commission") has exclusive appellate jurisdiction over all rate and regulatory orders and ordinances of the municipalities and exclusive original jurisdiction over rates and services to customers not located within the limits of a municipality. In Texas, rates for large industrial customers are routinely set by contract negotiation between the Company and its customers pursuant to statutory standards and are filed with and subject to the governmental authority of the municipalities or the Railroad Commission, depending on whether the customer is located inside or outside the limits of a municipality. Historically, the Company's rates for large industrial customers have been accepted as filed. Agricultural sales in Texas are not regulated, except that prices for agricultural sales cannot exceed the prices the Company charges the majority of its commercial or other similar large-volume users in Texas. The Trans La Division is regulated by the Louisiana Commis- sion, which regulates utility services, rates, and other matters. In most of the parishes and incorporated areas in which the Company operates in Louisiana, it does so pursuant to a non- exclusive franchise granted by the governing authority of each parish or incorporated area. The franchise gives the Company the general privilege to operate its gas distribution business in, as well as the right to install its distribution lines along the roadways of, the parish or the incorporated area. Direct sales of natural gas to industrial customers in Louisiana who utilize the gas for fuel or in manufacturing processes and sales of natural gas for vehicle fuel are exempt from regulation. 11 The Western Kentucky Division is regulated by the Kentucky Public Service Commission ("Kentucky Commission"), which regulates utility services, rates, issuances of securities, and other matters. The Company operates in the various incorporated cities served by it in Kentucky pursuant to non-exclusive franchises granted by such cities. The franchises grant to the Company the right to operate its gas distribution business in the city and to install its distribution lines and related equipment in and along the city's public rights-of-way. Sales of natural gas for use as vehicle fuel in Kentucky are not subject to regulation. The Greeley Gas Division is regulated by the Colorado Public Utilities Commission ("Colorado Commission"), the Kansas Corporation Commission, and the Missouri Public Service Commis- sion with respect to accounting, rates and charges, operating matters, and the issuance of securities. The Company operates in the various incorporated cities served by it in the states of Colorado, Kansas and Missouri under terms of non-exclusive franchises granted by the various cities. The franchises grant to the Company, among other things, the right to install and operate its gas distribution system within the city limits. Most of the Greeley Gas Division's wholesale gas suppliers are regulated by various federal and state commissions. The Company is also subject to regulation by the United States Department of Transportation with respect to safety requirements in the operation and maintenance of its gas distribution facilities. The Company's distribution operations are also subject to various state and federal laws regulating environmental matters. From time to time the Company receives inquiries regarding various environmental matters. The Company believes that its properties and operations substantially comply with and are operated in substantial conformity with applicable safety and environmental statutes and regulations. There are no administrative or judicial proceedings arising under environmental quality statutes pending or known to be contemplated by governmental agencies which, if adversely determined, would have a material adverse effect on the Company. Rates. Approximately 87% of the Company's revenues in fis- cal 1995 was derived from sales at rates set by or subject to approval by local or state authorities. The method of determin- ing regulated rates varies among the six states in which the Company operates. For the most part, the regulatory bodies which establish the Company's rates have not yet instituted widespread "incentive regulation" or "performance based rates." Generally, the Company applies for a specific rate structure based upon requirements of the regulatory authority. The regulatory authority reviews the Company's rate request and establishes a rate structure intended to generate revenue sufficient to cover the Company's costs of doing business and a reasonable return on invested capital. 12 Substantially all of the sales rates charged by the Company to its customers fluctuate with the cost of gas purchased by the Company. Base rates established by regulatory authorities are adjusted for increases and decreases in the Company's purchased gas cost through automatic purchased gas adjustment mechanisms. Therefore, while the Company's operating revenues may fluctuate, gross profit (which is defined as operating revenues less purchased gas cost) is generally not eroded or enhanced because of gas cost increases or decreases. 13 The following table sets forth the major rate requests made by the Company and the action taken on such requests: Effective Amount Amount Jurisdiction Date Requested Received ------------ --------- --------- -------- Texas West Texas System 11/01/84 $8,915,000 $5,000,000 09/09/91 5,987,000 4,600,000 11/18/94 2,581,000 1,702,000 (a) Amarillo 12/11/85 4,850,000 3,400,000 11/25/92 4,398,000 2,130,000 Louisiana 04/01/87 5,195,000 3,610,000 09/03/92 3,409,000 974,000 (b,c) 03/01/93 (c) 730,000 (c) 03/01/94 (c) 1,058,000 (c) 03/01/95 (c) 1,071,000 (c) Kentucky 05/29/91 8,973,000 3,632,000 11/01/95 7,665,000 2,300,000 (d) 03/01/96 1,000,000 (d) Colorado 05/09/85 1,651,000 1,575,000 11/06/90 2,677,000 1,405,000 05/01/94 4,527,000 3,246,000 Kansas 07/28/83 1,214,000 1,003,000 11/14/86 934,000 844,000 10/22/90 2,485,000 1,376,000 01/06/92 1,495,000 505,000 12/01/93 2,604,000 2,088,000 Missouri 06/01/90 N/A (e) 49,000 - -------------- (a) The increase includes $200,000 applicable to areas outside the city limits which became effective in January 1995. (b) The September 1992 rate order provided for recovery of an additional $800,000 for franchise tax expense. (c) The September 1992 rate order also approved a Rate Stabilization Clause ("RSC") for three years which provided for an annual adjustment of rates to reflect changes in expenses and investment. The RSC provided the Company the opportunity to earn a return on common equity between 11.75% and 12.25%. (d) The Kentucky rate order provided an increase of $2,300,000, lowered depreciation rates effective November 1, 1995 and provided an additional $1,000,000 beginning March 1, 1996. The order also included a provision for a pilot demand side management program which could cost up to $450,000 annually. (e) The Company applied for relief under alternative rate request procedures in Missouri which do not require a specific dollar request amount. 14 COMPETITION The Company is not currently in significant direct competition with any other distributors of natural gas to residential and commercial customers within its service areas. However, the Company does compete with other natural gas suppliers and suppliers of alternate fuels for sales to industrial and agricultural customers. The Company competes in all aspects of its business with alternative energy sources, including, in particular, electrici- ty. Competition for the residential and commercial customers is increasing. Promotional incentives, improved equipment efficien- cies, and promotional rates all contribute to the acceptability of electric equipment. Beginning in 1985, changes in the federal regulatory environment through FERC orders and conditions related to markets and gas supply in the United States have brought increased competition into the natural gas industry. In 1993, the FERC's Order 636 was implemented by the interstate pipelines in the Company's service territories. The FERC policies apply only to interstate pipelines and have not had a direct impact upon the Company's operations which are primarily supplied by intrastate pipelines. However, the Company has felt the impact of increased competitiveness in the large volume market in some areas result- ing from these changes. The Company has sought regulatory approvals for competitive pricing on a case by case basis. The Company has opened six public retail facilities for the sale of compressed natural gas ("CNG") for vehicular use. The most recent of these were opened in Owensboro, Kentucky in April 1995 and at West Texas A&M University in Canyon, Texas in August 1995. Prior to that time, the Company provided CNG for vehicular use only in limited situations (such as for school buses in cer- tain school districts and for the fleet vehicles of certain busi- nesses). With the opening of these public refueling stations the Company began competing with gasoline for vehicular fuel sales. All of these facilities, except those at West Texas A&M, are located at existing local gasoline stations. Employees At September 30, 1995, the Company employed 1,646 persons. See page 4 for number of employees by state. ITEM 2. PROPERTIES The Company owns an aggregate of 22,212 miles of underground pipelines throughout its gas distribution systems. These pipe- lines are located on easements or rights-of-way granted to the Company, which generally provide for perpetual use. The Company maintains its pipelines through a program of continuous inspection and repair and believes that the pipeline system is in good condition. The Company also owns or operates six under- 15 ground gas storage facilities in Kentucky that have a total storage capacity of approximately 10.7 Bcf. However, approximately 6.5 Bcf of gas in the storage facilities must be retained as cushion gas. The maximum daily delivery capability of the storage facilities is approximately 109 MMcf. Substantially all of the Company's properties in its Greeley Gas Division with a recorded value of approximately $66.2 million are subject to a lien under First Mortgage Bonds assumed by the Company in the acquisition of GGC. At September 30, 1995, the lien secured approximately $17.0 million of outstanding 9.4% Series J First Mortgage Bonds due May 1, 2021. The Company has leased its administrative offices in Dallas, Texas under two leases. In 1995 one lease was renegotiated which will allow for the consolidation of its office space. The Company also maintains field offices throughout its distribution system, substantially all of which are located in leased pre- mises. The Company holds franchises granted by the incorporated cities and towns and by each Louisiana parish that it serves. At September 30, 1995, the Company held 271 such franchises having terms generally ranging from five to 25 years. The Company believes that each of its franchises will be renewed. ITEM 3. LEGAL PROCEEDINGS See Note 10 of notes to consolidated financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 16 EXECUTIVE OFFICERS The following table sets forth certain information as of September 30, 1995, regarding the executive officers of the Company: Name Age Office Currently Held ---- --- --------------------- Robert F. Stephens 47 President and Chief Operating Officer, Director James F. Purser 45 Executive Vice President and Chief Financial Officer, Director J. Charles Goodman 34 Executive Vice President of Corporate Operations H.F. Harber 53 Senior Vice President of Corporate Services Donald E. James 48 Senior Vice President of Public Affairs Mary S. Lovell 44 Senior Vice President of Utility Services Glen A. Blanscet 38 Vice President, General Counsel and Corporate Secretary Robert F. Stephens was named President and Chief Operating Officer and was appointed to the Board of Directors in February 1995. He previously served as Executive Vice President - Corporate Operations from May 1989 through February 1995, as Senior Vice President, Corporate Operations from January 1988 until May 1989 and as Senior Vice President, Corporate Services from April 1986 until January 1988, and as Vice President, Corporate Development and Regulatory Affairs from August 1984 until April 1986. James F. Purser was appointed to the Board of Directors in February 1995. He was named Executive Vice President and Chief Financial Officer in May 1989. He previously served as Senior Vice President and Chief Financial Officer from August 1988 until May 1989 and as Vice President from September 1986 until August 1988. J. Charles Goodman was named Executive Vice President, Corporate Operations in April 1995. He previously served as President of the Company's Trans La Gas Division from February 1993 until April 1995 and as Chief Engineer from February 1989 until February 1993. H.F. Harber was named Senior Vice President - Corporate Services in August 1993. He previously served as Vice President, Human Resources and Administration from July 1991 to August 1993, and as Vice President, Human Resources from May 1990 to July 1991. 17 Donald E. James was named Senior Vice President - Public Affairs in May 1995. He previously served as Senior Vice President and General Counsel from January, 1994 to May, 1995, as Senior Vice President - General Counsel and Corporate Secretary from May 1993 until August 1993, as Senior Vice President and General Counsel from May 1989 until May 1993, as Vice President and General Counsel from January 1986 until May 1989, as Assistant Vice President and General Counsel from August 1985 until January 1986, and as Assistant Vice President and Assistant General Counsel from February 1984 until August 1985. Mary S. Lovell was named Senior Vice President, Utility Services in May, 1995. She previously served as Vice President, Rates and Regulatory Affairs from August 1990 to May 1995, as Vice President, Rates from February 1989 to August 1990, as Operating Companies Senior Vice President, Rates from October 1988 until February 1989 and as System Vice President, Rates from May 1988 until October 1988. Glen A. Blanscet was named Vice President, General Counsel and Corporate Secretary in May 1995. He previously served as Assistant General Counsel and Corporate Secretary from January, 1994 to May, 1995, and as Assistant General Counsel from July 1988 to December 1993. 18 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's stock trades on the New York Stock Exchange under the trading symbol "ATO". The high and low sale prices and dividends paid per share of the Company's common stock, as adjusted for the 3-for-2 stock split in May 1994, for fiscal 1995 and 1994 are listed below. 1995 1994 ---------------------------------- --------------------------------- Dividends Dividends High Low paid High Low paid Quarter ended: --------- --------- --------- -------- -------- --------- December 31 $18 $15 7/8 $ .23 $21 1/8 $16 3/4 $ .22 March 31 18 1/2 16 1/8 .23 20 17 3/4 .22 June 30 20 1/4 17 1/2 .23 20 1/4 18 .22 September 30 20 5/8 19 .23 19 16 3/8 .22 ----- ----- $ .92 $ .88 ===== ===== Prior to its acquisition, GGC made distributions to its shareholders in fiscal 1994 of $120,000. The "Dividends paid" information above has not been restated for the pooling of interests in December 1993, but reflects historical cash dividends paid per share of Atmos common stock as restated for the 3-for-2 stock split in May 1994. See Note 3 of notes to consolidated financial statements for restriction on payment of dividends. The number of record holders of the Company's common stock on September 30, 1995 was 23,625. 19 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data with respect to the Company and should be read in conjunction with the consolidated financial statements included herein. Year ended September 30, -------------------------------------------- 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- (In thousands, except per share data) Operating revenues $435,820 $499,808 $459,641 $403,353 $399,667 ======== ======== ======== ======== ======== Net income $ 18,873 $ 14,679 $ 17,544 $ 10,998 $ 9,612 ======== ======== ======== ======== ======== Net income per share $ 1.22 $ .97 $ 1.22 $ .80 $ .71 ======== ======== ======== ======== ======== Cash dividends per share $ .92 $ .88 $ .85 $ .83 $ .80 ======== ======== ======== ======== ======== Total assets at end of year $445,783 $416,678 $391,618 $358,363 $338,714 ======== ======== ======== ======== ======== Long-term debt at end of year $131,303 $138,303 $105,853 $112,153 $116,461 ======== ======== ======== ======== ======== Supplemental net income (1) $ 18,132 $ 10,570 $ 10,130 ======== ======== ======== Supplemental net income per share (1) $ 1.26 $ .77 $ .75 ======== ======== ======== (1) Supplemental net income reflects results if GGC had not made an S Corporation election in 1987. 20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The Company distributes and sells natural gas to residential, commercial, industrial and agricultural customers in six states. Such business is subject to federal and state regulation and/or regulation by local authorities in each of the states in which the Company operates. In addition, the Company's business is affected by seasonal weather patterns, competitive factors within the energy industry, and economic conditions in the areas that the Company serves. RATE ACTIVITY On February 10, 1995, the Company filed with the Kentucky Commission for a rate increase for its Western Kentucky Gas Company Division. The filing requested an annual revenue in- crease of approximately $7.7 million, or 5.5 percent. In July 1995 a settlement agreement was filed with the Kentucky Commission. The Company withdrew from the settlement on August 31, 1995, after the Kentucky Commission issued an order that made modifications which the Company found unacceptable. The Company and all intervenors filed a revised settlement, which was approved by the Kentucky Commission without modifications on October 20, 1995, effective November 1, 1995. The order issued by the Kentucky Commission authorizes the Company to increase its rates by $2.3 million annually, and by an additional $1.0 million annually beginning in March 1996. The settlement includes a decrease in depreciation rates, recovery of expenses related to adoption of SFAS No. 106 and includes a provision for the Company to begin a three-year demand-side management pilot program for the 1996-97 heating season, which could cost up to $450,000 annually, resulting in a total operating income increase of approximately $4.0 million. The Company provides natural gas service to approximately 168,000 customers in Kentucky. In September 1994, the Company filed to increase revenues by approximately $2.6 million for a portion of its Energas Company service area, which includes approximately 217,000 customers. The Company requested recovery of accrual accounting for post- retirement benefits in accordance with SFAS No. 106. See Note 8 of the accompanying notes to consolidated financial statements for SFAS No. 106 information. In November 1994, the Company implemented an annual revenue increase of approximately $1.5 million affecting approximately 195,000 customers located inside the city limits of towns in this portion of its Energas Division. Upon approval of the Railroad Commission of Texas in January 1995, the Company implemented an annual increase of approximately $.2 million relating to the 22,000 remaining rural customers. GGC filed a request for an increase in annual revenues of $4.5 million with the Colorado Public Utility Commission in 21 September, 1993. On May 1, 1994, the Company implemented an annual increase of $3.2 million or 6.9% in Phase I of this proceeding. The Phase I rates reflect recovery of SFAS No. 106 expenses with external funding, consistent with the recommended decision of the presiding administrative law judge. In October 1994, the Colorado Commission issued its order affirming the increase as set forth in Phase I. In March 1995, the Greeley Gas Division filed Phase II in the rate proceeding, which addressed rate structure. In September 1995 all parties to the proceeding entered into a stipulation and agreement which became final in November 1995 upon the recommendation by an administrative law judge of the Colorado Commission. Effective December 1, 1993, GGC received an annual rate increase of approximately $2.1 million or 10.6% in its Kansas service area. The increase reflects recovery of SFAS No. 106 expenses with external funding and a moratorium on rate requests in Kansas until December 1, 1996. On February 11, 1992, the Company filed a rate case with the city of Amarillo, Texas seeking to increase annual revenues by approximately $4.4 million, or 12%. In June 1992 the city denied the Company's request for rate relief and the Company appealed to the Railroad Commission. In November 1992, the Railroad Commission issued its decision resulting in a total annual increase of $2.1 million. The Company and the city requested a rehearing of the Order. On January 11, 1993, the Railroad Commission denied rehearing to both parties. In February 1993, the city appealed the Railroad Commission's rate order to the District Court of Travis County, Texas. In January 1994, the District Court denied the city's appeal. The city appealed to the Court of Appeals. On March 1, 1995 the Austin Court of Appeals issued its decision affirming the Railroad Commission's 1993 Amarillo Rate Order in all respects. The Texas Supreme Court has declined to review the case. During the period of 1991 through 1993, the Company also filed for and received other rate increases in certain other rate jurisdictions in its Energas Division totaling approximately $.3 million annually. In September 1992, the Louisiana Commission issued a rate order for the Company's Louisiana service area, which included a rate stabilization clause ("RSC") for three years that provides for an annual adjustment to the Company's rates to reflect changes in expenses, revenues and invested capital following an annual review. The RSC provides an opportunity for a return on jurisdictional common equity of between 11.75% and 12.25%. As a result of the Company's filings under the RSC, an increase of $730,000 annually or 2% went into effect on March 1, 1993, an increase of $1.1 million annually or 2.7% went into effect on March 1, 1994, and the third increase of $1.1 million annually or 2.0% went into effect on March 6, 1995. The Company expects to have a hearing before the Louisiana Commission on extending the rate stabilization mechanism. 22 ACQUISITIONS The Company has expanded its customer base and sought to diversify the regulations, weather patterns and local economic conditions to which it is subject through acquisitions in 1986, 1987 and 1993. The Company continues to consider and pursue, where appropriate, additional acquisitions of natural gas distribution properties and other business opportunities. In December 1993, the Company acquired Greeley Gas Company ("GGC") of Denver, Colorado in a merger transaction accounted for as a pooling of interests; therefore, all historical financial statements and notes thereto have been restated to retroactively reflect this merger. At that time, GGC was a privately held company providing natural gas service to nearly 100,000 customers in 122 communities in Colorado, Kansas and a small service area in Missouri. The transaction was structured to be a tax-free reorganization. The Company exchanged 2,329,330 shares of its common stock before the 3-for-2 stock split (3,493,995 shares on a post-split basis) for all of the outstanding stock of GGC. For further information regarding the merger, see Note 2 of notes to consolidated financial statements. Subsequent to September 30, 1995, the Company acquired privately held Oceana Heights Gas Company ("Oceana") of Thibodaux, Louisiana. Oceana provides natural gas service to approximately 9,200 customers and is located adjacent to a system in LaFourche Parish that was acquired by Atmos in 1994. The transaction will be accounted for as a pooling of interests. The outstanding shares of Oceana Heights capital stock were converted into shares of Atmos common stock having a market value equal to the $6.4 million purchase price. The Louisiana Commission's approval included regulatory and rate making terms acceptable to Atmos. Although significant for the Trans La Division's opera- tions which currently serve over 70,000 customers in Louisiana, the transaction is not expected to have a material impact on the Company's financial condition and results of operations. The acquisition is consistent with the Company's long-standing corporate development strategy. RESULTS OF OPERATIONS YEAR ENDED SEPTEMBER 30, 1995 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1994 Operating revenues decreased 13% to $435.8 million in 1995 from $499.8 million in 1994 due to weather that was 9% warmer than in 1994 and a 14% decrease in the average cost of gas per thousand cubic feet ("Mcf") sold. Average gas sales revenues per Mcf decreased from 1994 by $.31 to $3.83 in 1995, while the average cost of gas per Mcf sold decreased $.40 to $2.46 in 1995. The number of meters in service increased to 658,114 at September 30, 1995 compared with 649,319 at September 30, 1994. Sales to weather sensitive residential, commercial and public authority 23 customers decreased approximately 6.3 billion cubic feet ("Bcf") in 1995 while sales to industrial and agricultural customers decreased approximately .5 Bcf. Total sales volumes decreased 5.8% to 109.3 Bcf in 1995, as compared with 1994. Revenues from gas transported for others decreased $2.4 million to approximately $11.7 million in fiscal 1995 due to a decrease in volumes transported of 4.8 Bcf to 30.5 Bcf in 1995. Gross profit decreased by approximately 1% to $167.0 million in 1995 from $168.2 million in 1994. The primary factor contributing to the lower gross profit was lower volumes sold and transported due to warmer weather. The effect of warmer weather on gross profit was substantially reduced by implementing rate increases totaling $2.8 million and $6.4 million in 1995 and 1994, respectively. Operating expenses, excluding income taxes, decreased 6% to $125.1 million in 1995 from $133.7 million in 1994, due primarily to decreased operation and maintenance expense. Operation and maintenance expense decreased $10.3 million due to decreased distribution expense, customer accounts expenses, employee welfare and pension expenses, rent expense, and outside services expense. In 1994 GGC acquisition and assimilation costs were approximately $1.5 million and the cost of an early retirement program was approximately $1.3 million. The acquisition and assimilation costs as well as the early retirement program were one-time costs associated with the GGC acquisition. The Company also adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" in 1994. It has been successful in seeking recovery of SFAS No. 106 expenses in the majority of its service areas in 1994 and 1995 and will continue to seek recovery in its remaining service areas (Note 8). Income taxes increased to $9.6 million for 1995 from $8.1 million for 1994. The primary reason for the increase was higher pre-tax profits. The effective tax rate decreased to 33.7% in 1995 from 35.6% in 1994. This was primarily due to the impact of permanent differences on the higher pre-tax profits in 1995. Operating income increased in 1995 by approximately 22% to $32.4 million from $26.5 million in 1994. The increase in operating income resulted primarily from decreases in 1995 operating expenses as discussed above. The Company expects to see operating expenses return to a more normal level in 1996. Net income increased in 1995 by approximately 29% to $18.9 million from $14.7 million in the prior year. This increase in net income resulted primarily from an increase in operating income, which was partially offset by a $1.4 million increase in interest expense. Net income per share increased to $1.22 for 1995 from $.97 for 1994. The Company estimates that the impact of the weather being 10% warmer than normal for 1995 caused net income to be approximately $4.0 million less than it would have been had the Company experienced normal temperatures in its respective service areas. Weather was approximately 1% warmer than normal for 1994. 24 YEAR ENDED SEPTEMBER 30, 1994 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1993 Operating revenues increased to $499.8 million in 1994 from $459.6 million in 1993 due to rate increases implemented in Kansas, Colorado and Louisiana, an increase in the number of customers, changes in cost of gas and increased volumes sold. Average gas sales revenues per Mcf increased from 1993 by $.12 to $4.14 in 1994, while the average cost of gas per Mcf sold increased $.15 to $2.86 in 1994. The number of meters in service increased to 649,319 at September 30, 1994 compared with 636,159 at September 30, 1993. Although the weather was 2% warmer in 1994 than in 1993, it was only slightly warmer than normal. Sales to residential, commercial and public authority customers decreased approximately .5 Bcf in 1994, but sales to industrial and agricultural customers increased approximately 7 Bcf. Total sales volumes increased 6.7 Bcf to 116.1 Bcf in 1994, as compared with 1993. Revenues from gas transported for others decreased $.9 million to approximately $14.1 million in fiscal 1994 due to a decrease in volumes transported of 4.5 Bcf to 35.3 Bcf in 1994. Gross profit increased by approximately 3% to $168.2 million in 1994 from $163.1 million in 1993. The primary factors contributing to the higher gross profit were increased prices and volumes, as discussed above. Operating expenses, excluding income taxes, increased to $133.7 million in 1994 from $122.8 million in 1993 due to increased operation expense and depreciation. Operation expense increased $9.9 million due to increased distribution expense, employee welfare expenses including adoption of SFAS No. 106, GGC acquisition and assimi- lation costs, and the cost of an early retirement program in the Greeley Gas Division in the fourth quarter. SFAS No. 106 expenses in excess of pay-as-you-go expenses were approximately $3.8 million in 1994. The Company has been successful in seeking recovery of SFAS No. 106 expenses in a portion of its service areas and will continue to seek recovery in its remaining service areas (Note 8). GGC acquisition and assimilation costs were approximately $1.5 million in 1994 compared with approximately $.5 million in 1993. The cost of the early retirement program was approximately $1.3 million in 1994. The acquisition and assimilation costs as well as the early retirement program are one-time costs associated with the GGC acquisition. Income taxes decreased to $8.1 million for 1994 from $10.1 million for 1993. The primary reasons for the decrease were lower pre-tax profits and a lower effective tax rate. The effective tax rate decreased to 35.6% in 1994 from 36.5% in 1993. This was primarily due to the impact of permanent differences on the lower pre-tax profits in 1994. Operating income decreased in 1994 by approximately 13% to $26.5 million from $30.3 million in 1993. The decrease in operating income resulted primarily from increased operating expenses as discussed above. Net income decreased in 1994 by approximately 16% to $14.7 million from $17.5 million in the prior year. This decrease in net income resulted primarily from a decrease in operating 25 income, which was partially offset by a $1.0 million decrease in interest expense. Net income per share decreased to $.97 for 1994 from $1.22 for 1993, reflecting the effects of an increase in average shares outstanding of approximately 6%. One-time acquisition costs, assimilation expenses and an early retirement program in Greeley Gas Company, as well as the effect of adopting SFAS No. 106, reduced earnings per share by approximately $.22 in 1994. CAPITAL RESOURCES AND LIQUIDITY (See "Consolidated Statements of Cash Flows") Cash Flows from Operating Activities Cash flows from operating activities totaled $58.5 million for 1995 compared with $41.2 million for 1994 and $37.1 million for 1993. In 1995 the Company experienced increases in both net income and in cash provided by changes in assets and liabilities as compared with 1994 and 1993. Depreciation increased in 1995 because of increasing capital expenditures. Gas stored under- ground decreased in 1995 and 1994 because of substantially lower gas prices during the summers of 1995 and 1994 when the storage reservoirs were being refilled. The $10.9 million increase in deferred charges and other assets in 1993 related to the $8.4 million increase in deferred credits and other liabilities and recognized funding for the Supplemental Executive Benefits Plan. See "Consolidated Statements of Cash Flows" for other changes in assets and liabilities. Cash Flows from Investing Activities Net cash used in investing activities totaled $60.2 million in 1995 compared with $48.4 million in 1994 and $42.2 million in 1993. Capital expenditures in fiscal 1995 amounted to $62.9 million compared with $50.4 million in 1994 and $43.1 million in 1993. Currently budgeted capital expenditures for 1996 total $66.3 million and include major expenditures for mains, services, meters, vehicles and computer software. Such expenditures will be financed from internally generated funds and financing activities, as discussed below. Cash Flows from Financing Activities Net cash provided by financing activities totaled $1.2 million for 1995 compared with $7.7 million for 1994 and $3.7 million for 1993. Financing activities during these periods included issuance of common stock, dividend payments, borrowings from banks, and issuance and repayments of long-term debt. Cash dividends and distributions paid. The Company paid $14.2 million in cash dividends during 1995 compared with $12.7 million in 1994 and $10.2 million in 1993. The $1.5 million increase over 1994 primarily reflects an increase in the Company's quarterly dividend rate and an increase in the number 26 of shares of common stock outstanding in 1995. The Company has increased its historical dividend rate in each of the last seven years. Short-term financing activities. At September 30, 1995, the Company had committed lines of credit totaling $90.0 million, all of which was unused, in order to provide for short-term cash requirements. These credit facilities are negotiated at least annually. At September 30, 1995, the Company also had uncommitted short-term credit lines of $140.0 million, of which $106.5 million was unused. During 1995, notes payable decreased $24.6 million compared with increases of $22.4 million during 1994 and $2.6 million in 1993. The decrease in 1995 was primarily due to repayment of short-term debt with the proceeds from the issuance of long-term debt in November 1994. The increase in 1993 was less than the increase in 1994, partly because of funds provided in 1993 from stock issued under the Direct Stock Purchase Plan. Long-term financing activities. Payments of long-term debt decreased $5.85 million to $4.0 million for the year ended September 30, 1995 compared with the year ended September 30, 1994. Payments of long-term debt in 1995 consisted of a $2.0 million installment on the Company's 9.75% Senior Notes due in 1996 and a $2.0 million installment on the 11.2% Senior Notes. In November 1994, the Company entered into note purchase agree- ments totaling $40.0 million with two insurance companies and issued at par $20.0 million of unsecured Senior Notes at 8.07% payable in annual installments of $4.0 million beginning October 31, 2002 through October 31, 2006 with semiannual interest payments and $20.0 million of unsecured Senior Notes at 8.26% payable in annual installments of $1,818,182 beginning October 31, 2004 through October 31, 2014 with semiannual interest payments. No long-term debt was issued in 1994 or 1993. Pay- ments of long-term debt during fiscal 1994 consisted of a $3.0 million installment on the Company's 9.75% Senior Notes due in 1996, a $2.0 million installment on the 11.2% Senior Notes, the balance of $3.25 million on the 13.75% Series I First Mortgage Bonds and the balance of $1.6 million on the 13% Series G First Mortgage Bonds. The loan agreements pursuant to which all the Company's Senior Notes have been issued contain covenants by the Company with respect to the maintenance of certain debt-to-equity ratios and cash flows, and restrictions on the payment of dividends. Also see Note 3 of notes to consolidated financial statements. Issuance of common stock. The Company issued 221,946, 428,264 and 897,089 shares of common stock in 1995, 1994 and 1993, respectively, for its Direct Stock Purchase Plan ("DSPP"), Employee Stock Ownership Plan, Restricted Stock Grant Plan, and Incentive Stock Option Plan. See the Consolidated Statements of Shareholders' Equity for the number of shares issued under each of the plans. The DSPP was implemented in August 1992. In 1993 the DSPP was amended to remove the direct stock purchase feature of the plan and the plan was renamed the Atmos Energy Corporation 27 Dividend Reinvestment and Stock Purchase Plan ("DRSPP"). How- ever, in January 1995 the direct stock purchase feature was rein- stated and the name was changed back to the Direct Stock Purchase Plan. Shares purchased under the DSPP in 1995 were purchased on the open market. No new shares were issued under the DSPP in 1995. In 1994 and 1993, 173,801 and 760,089 shares, respective- ly, were issued under the DRSPP, generating proceeds of $3.0 million and $13.4 million, respectively. At September 30, 1995, 712,596 shares were available for future issuance under the DSPP. The Company believes that internally generated funds, its short-term credit facilities and access to the debt and equity capital markets will provide necessary working capital and liquidity for capital expenditures and other cash needs for 1996. Seasonality The Company's natural gas distribution business is seasonal due to weather conditions in the Company's service areas. Gas sales are affected by winter heating season requirements, and sales to agricultural customers (who use natural gas as fuel in the operation of irrigation pumps) during the period from April through September may be affected by rainfall amounts. These factors generally result in higher operating revenues and net income during the period from October through March of each year and lower operating revenues and either net losses or lower net income during the period from April through September of each year. The following table sets forth, on an unaudited basis, the Company's quarterly operating revenues, quarterly operating revenues as a percentage of annual operating revenues, quarterly net income (loss) and quarterly net income (loss) as a percentage of annual net income for its past two fiscal years. 28 Quarter ended --------------------------------------------------- December 31 March 31 June 30 September 30 Total ------------ --------- -------- ------------ ---------- (In thousands, except for percentages) 1995 - ---- Operating revenues $117,848 $157,294 $84,685 $75,993 $435,820 27% 36% 19% 18% 100% Net income (loss) $ 6,476 $ 13,945 $ 82 $(1,630) $ 18,873 34% 74% 1% (9)% 100% 1994 - ---- Operating revenues $145,501 $186,944 $90,013 $77,350 $499,808 29% 37% 18% 16% 100% Net income (loss) $ 7,088 $ 13,242 $(1,224) $(4,427) $ 14,679 48% 90% (8)% (30)% 100% Inflation The Company believes that inflation has caused and will continue to cause increases in certain operating expenses and has required and will continue to require assets to be replaced at higher costs. The Company continually reviews the adequacy of its gas rates in relation to the increasing cost of providing service and the inherent regulatory lag in adjusting those gas rates. Environmental Matters From time to time, the Company receives inquiries regarding various environmental matters. The Company believes that its properties and operations substantially comply with and are oper- ated in substantial conformity with all applicable environmental statutes and regulations. There are no administrative or judi- cial proceedings arising under environmental quality statutes pending or known to be contemplated by governmental agencies which, if adversely determined, would have a material adverse effect on the Company. 29 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page no. Report of independent auditors 30 Consolidated balance sheets 31 Consolidated statements of income 32 Consolidated statements of shareholders' equity 33 Consolidated statements of cash flows 34 Notes to consolidated financial statements 36 Supplementary data (unaudited) 57 30 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors Atmos Energy Corporation We have audited the accompanying consolidated balance sheets of Atmos Energy Corporation at September 30, 1995 and 1994, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended September 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Atmos Energy Corporation at September 30, 1995 and 1994, and its consolidated results of operations and its cash flows for each of the three years in the period ended September 30, 1995 in conformity with generally accepted accounting principles. Ernst & Young LLP Dallas, Texas November 8, 1995 31 ATMOS ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS September 30, 1995 1994 -------- -------- ASSETS (In thousands, except share data) Property, plant and equipment Utility plant $589,801 $537,834 Construction in progress 5,558 5,858 -------- -------- 595,359 543,692 Less accumulated depreciation and amort. 232,107 216,285 -------- -------- Net property, plant and equipment 363,252 327,407 Current assets Cash and cash equivalents 2,294 2,766 Accounts receivable, less allowance for doubtful accounts of $916 in 1995 and $787 in 1994 25,690 29,678 Inventories 6,747 5,888 Gas stored underground 10,758 12,657 Prepayments 2,747 2,309 -------- -------- Total current assets 48,236 53,298 Deferred charges and other assets 34,295 35,973 -------- -------- $445,783 $416,678 ======== ======== CAPITALIZATION AND LIABILITIES Shareholders' equity Common stock, no par value (stated at $.005 per share); authorized 75,000,000 shares; issued and outstanding 1995 - 15,519,112 shares, 1994 - 15,297,166 shares $ 78 $ 77 Additional paid-in capital 106,496 102,456 Retained earnings 51,704 47,023 -------- -------- Total shareholders' equity 158,278 149,556 Long-term debt 131,303 138,303 -------- -------- Total capitalization 289,581 287,859 Current liabilities Current maturities of long-term debt 7,000 4,000 Notes payable to banks 33,500 18,100 Accounts payable 24,945 21,975 Taxes payable 1,926 4,864 Customers' deposits 9,343 8,257 Other current liabilities 10,641 7,038 -------- -------- Total current liabilities 87,355 64,234 Deferred income taxes 33,120 30,184 Deferred credits and other liabilities 35,727 34,401 -------- -------- $445,783 $416,678 ======== ======== See accompanying notes to consolidated financial statements. 32 ATMOS ENERGY CORPORATION CONSOLIDATED STATEMENTS OF INCOME Year ended September 30, -------------------------------- 1995 1994 1993 -------- -------- -------- (In thousands, except per share data) Operating revenues $435,820 $499,808 $459,641 Purchased gas cost 268,810 331,571 296,532 -------- -------- -------- Gross profit 167,010 168,237 163,109 Operating expenses Operation 83,431 92,132 82,185 Maintenance 4,276 5,888 6,335 Depreciation and amortization 20,741 18,841 17,433 Taxes, other than income 16,611 16,808 16,806 Income taxes 9,574 8,102 10,073 -------- -------- -------- Total operating expenses 134,633 141,771 132,832 -------- -------- -------- Operating income 32,377 26,466 30,277 Other income (expense) Interest income 459 168 327 Other, net (242) 335 239 -------- -------- -------- Total other income 217 503 566 Interest charges 13,721 12,290 13,299 -------- -------- -------- Net income $ 18,873 $ 14,679 $ 17,544 ======== ======== ======== Net income per share $ 1.22 $ .97 $ 1.22 ======== ======== ======== Cash dividends per share $ .92 $ .88 $ .85 ======== ======== ======== Average shares outstanding 15,416 15,195 14,338 ======== ======== ======== See accompanying notes to consolidated financial statements. 33 ATMOS ENERGY CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Common stock ----------------- Additional Number of Stated paid-in Retained shares value capital earnings ----------- ------ --------- -------- (In thousands, except share data) Balance, September 30, 1992 13,971,813 $70 $ 78,541 $38,637 Net income - - - 17,544 Cash dividends ($.85 per share) - - - (9,262) GGC distributions - - - (893) Common stock issued Stock option plan 6,000 - 60 - Direct stock purchase plan 760,089 3 13,401 - Employee stock ownership plan 131,000 1 2,277 - Less: GGC net income for the quarter ended December 31, 1992 (Note 2) - - - (950) ---------- --- ------- ------- Balance, September 30, 1993 14,868,902 74 94,279 45,076 Net income - - - 14,679 Cash dividends ($.88 per share) - - - (12,612) GGC distributions - - - (120) Common stock issued Restricted stock grant plan 105,000 1 2,134 - Direct stock purchase plan 173,801 1 3,037 - Employee stock ownership plan 149,463 1 2,713 - Other - - 293 - ---------- --- ------- ------- Balance, September 30, 1994 15,297,166 77 102,456 47,023 Net income - - - 18,873 Cash dividends ($.92 per share) - - - (14,192) Common stock issued Restricted stock grant plan 7,000 - 119 - Employee stock ownership plan 214,946 1 3,876 - Other - - 45 - ---------- --- -------- ------- Balance, September 30, 1995 15,519,112 $78 $106,496 $51,704 ========== === ======== ======= See accompanying notes to consolidated financial statements. 34 ATMOS ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended September 30, ------------------------- 1995 1994 1993 --------------- ------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $18,873 $14,679 $16,594 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization Charged to depreciation and amortization 20,741 18,841 16,480 Charged to other accounts 3,592 1,476 3,377 Deferred income taxes 2,809 244 2,733 Other 2,011 2,101 622 ------- ------- ------- 48,026 37,341 39,806 Change in assets and liabilities (Increase) decrease in accounts receivable 3,988 (478) 1,564 (Increase) decrease in inventories (859) 176 708 (Increase) decrease in gas stored underground 1,899 4,946 (6,176) (Increase) decrease in prepayments (438) 1,931 1,873 Decrease in deferred charges and other assets (333) (3,824) (10,908) Increase (decrease) in accounts payable 2,970 (7,128) (58) Increase (decrease) in taxes payable (2,766) (1,314) 195 Increase (decrease) in customers' deposits 1,086 395 (61) Increase in other current liabilities 3,603 583 1,804 Increase in deferred credits and other liabilities 1,326 8,596 8,398 ------- ------- ------- Net cash provided by operating activities 58,502 41,224 37,145 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (62,927)(50,355) (43,143) Retirements of property, plant and equipment 2,749 1,906 935 ------- ------- ------- Net cash used in investing activities (60,178)(48,449) (42,208) - Continued - 35 ATMOS ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) Year ended September 30, 1995 1994 1993 -------- -------- -------- (In thousands) CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in notes payable $(24,600)$ 22,400 $ 2,563 Proceeds from issuance of long-term debt 40,000 - - Repayment of long-term debt (4,000) (9,850) (4,500) Cash dividends and distributions paid (14,192) (12,732) (10,155) Issuance of common stock 3,996 7,887 15,742 ------- ------- ------- Net cash provided by financing activities 1,204 7,705 3,650 ------- ------- ------- Net increase (decrease) in cash and cash equivalents (472) 480 (1,413) Cash and cash equivalents at beginning of year 2,766 2,286 3,699 ------- ------- ------- Cash and cash equivalents at end of year $ 2,294 $ 2,766 $ 2,286 ======= ======= ======= See accompanying notes to consolidated financial statements. 36 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of significant accounting policies Description of business - Atmos Energy Corporation and its subsidiaries ("Atmos" or the "Company") are in the business of distributing natural gas to residential, commercial, industrial and agricultural customers within service areas located in Texas, Louisiana, Kentucky, Colorado, Kansas and a small portion of Missouri. Such business is subject to federal and state regulation and/or regulation by local authorities in each of the six states in which the Company operates. The Company has no other material business segments. Principles of consolidation - The accompanying consolidated financial statements include the accounts of Atmos Energy Corporation and its subsidiaries. Each subsidiary is wholly- owned and all material intercompany items have been eliminated. Revenue recognition - Sales of natural gas are billed on a monthly cycle basis; however, the billing cycle periods for certain classes of customers do not necessarily coincide with ac- counting periods used for financial reporting purposes. The Company follows the revenue accrual method of accounting for natural gas revenues whereby revenues applicable to gas delivered to customers but not yet billed under the cycle billing method are estimated and accrued and the related costs are charged to expense. Estimated losses due to credit risk are reserved at the time revenue is recognized. Property, plant and equipment - Property, plant and equipment is stated at original cost net of contributions in aid of construction. The cost of additions includes an allowance for funds used during construction and applicable overhead charges. Major renewals and betterments are capitalized, while the costs of maintenance and repairs are charged to expense as incurred. Property, plant and equipment is depreciated at various rates on a straight-line basis over the estimated useful lives of the assets. In the first quarter of fiscal 1993, the Company changed the estimated average useful lives used to compute depreciation for certain utility plant assets. These changes resulted from revised estimates of the projected economic life of the affected assets based on recent orders received from regulatory bodies having jurisdiction over the Company and independently performed depreciation service life studies. The effect of this change on net income for the year ended September 30, 1993 was an increase of $1,104,000. The composite rates were 4.1% and 3.5% for the years ended September 30, 1995 and 1994, respectively. At the time property, plant and equipment is retired, the cost, plus removal expenses and less salvage, is charged to accumulated depreciation. 37 Inventories - Inventories consist of materials and supplies and merchandise held for resale. Inventories are stated at the lower of average cost or market. Gas stored underground - Net additions of inventory gas to underground storage and withdrawals of inventory gas from storage are priced using the average cost method. Non-current gas in storage is classified as property, plant and equipment and is priced at cost. Income taxes - The Company provides deferred income taxes for significant temporary differences in the recognition of revenues and expenses for tax and financial reporting purposes. Cash and cash equivalents - The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Deferred charges and other assets - Deferred charges and other assets at September 30, 1995 and 1994 include assets of the Company's qualified defined benefit retirement plans in excess of the plans' obligations in the amounts of $9,962,000 and $12,275,000, respectively, and Company assets related to the nonqualified retirement plans at September 30, 1995 and 1994 of $16,510,000 and $15,735,000, respectively. Deferred credits and other liabilities - Deferred credits and other liabilities include customer advances for construction of $8,212,000 and $8,428,000 at September 30, 1995 and 1994, respectively; obligations under capital leases of $2,882,000 and $6,294,000 at September 30, 1995 and 1994, respectively; and obligations under the Company's nonqualified retirement plans of $16,125,000 and $11,151,000 at September 30, 1995 and 1994, respectively. At September 30, 1994, a payable of $1,300,000 was recorded for expenses related to an early retirement program under Greeley Gas Company's qualified defined benefit retirement plan. Earnings per share - The calculation of primary earnings per share is based on reported net income divided by weighted average common shares outstanding. The Company does not have other classes of stock or dilutive common stock equivalents. See Note 2 for a discussion of supplemental net income per share. 2. Greeley Gas Company acquisition On December 22, 1993, Atmos acquired by means of a merger all of the assets and liabilities of Greeley Gas Company ("GGC") in accordance with the terms and provisions of an Agreement and Plan of Reorganization dated July 2, 1993. GGC is a natural gas utility engaged in the distribution and sale of natural gas to residential, commercial, industrial, agricultural, and other customers throughout Colorado, Kansas, and a small portion of Missouri. All of the shares of GGC's common stock were exchanged for a total of 3,493,995 shares of Atmos common stock as adjusted 38 for a 3-for-2 stock split (2,329,330 shares on a pre-split basis). See Note 5 for information regarding the stock split in May 1994. This merger transaction was accounted for as a pooling of interests; therefore, all historical financial statements and notes thereto have been restated. Subsequent to the merger, the business of GGC has been operated through the Company's Greeley Gas Company division (the "Greeley Gas Division"). GGC prepared its financial statements on a December 31 fiscal year end. GGC's fiscal year has been changed to September 30 to conform to the Company's year end. The restated consoli- dated statement of income for the year ended September 30, 1993 includes Atmos and GGC operations for the twelve months then ended. As a result, GGC's operations for the three months ended December 31, 1992 (operating revenue of $18,322,842 and net income of $950,185) are included in both the 1993 and 1992 restated statements of income, and the GGC net income for this period has been deducted in calculating the shareholders' equity balances at September 30, 1993 and cash flows for the year then ended. In 1987, GGC elected classification as an S Corporation (small business corporation) under the provisions of the Internal Revenue Code. Normally, income taxes are not reported in the financial statements of S Corporations as the liability for payment of federal and state income taxes is the direct responsibility of the shareholders. However, during 1991, as part of the settlement of rate cases filed in the states of Colorado and Kansas, GGC was ordered to begin providing for current and deferred income taxes. Accordingly, the Company's restated 1991 financial statements include a one-time charge to income of $1,081,202 to reinstate deferred income taxes for GGC. Supplemental net income and earnings per share of the Company are presented below to eliminate the one-time charge and to reflect income tax expense in periods prior to 1994 as if GGC had not made the S Corporation election in 1987. Year ended September 30, 1993 ------------------ (In thousands, except per share data) Supplemental net income $ 18,132 ======== Supplemental net income per share $ 1.26 ======== 39 Results of operations and net income for the previously separate companies for periods prior to the merger are as follows: Quarter ended Year ended December 31, 1993 September 30,1993 ----------------- ----------------- (In thousands) Operating revenues Atmos $119,223 $388,495 GGC 26,278 71,146 -------- -------- $145,501 $459,641 ======== ======== Net income Atmos $ 5,458 $ 15,712 GGC 1,630 1,832 -------- -------- $ 7,088 $ 17,544 ======== ======== The dividends per share presentation on the consolidated statements of income reflects Atmos dividends declared per share as adjusted for the 3-for-2 stock split in May 1994. The cash dividends per share reflect the per share dividends declared by Atmos Energy Corporation for the years ended September 30, 1994 and 1993. The restated cash dividends and distributions per share reflect the total amounts paid by Atmos and GGC to their shareholders in each of those two years, divided by the total amount of weighted average shares outstanding in those periods as restated for the shares issued to effect the merger between Atmos and GGC and the 3-for-2 stock split in May 1994. Year ended September 30, -------------- 1994 1993 ---- ---- Cash dividends per share $.88 $.85 ==== ==== Restated cash dividends and distributions per share, including GGC $.84 $.71 ==== ==== 40 3. Long-term debt and notes payable Long-term debt at September 30, 1995 and 1994 consisted of the following: 1995 1994 --------- -------- (In thousands) Unsecured 7.95% Senior Notes, payable in annual installments of $1,000,000 beginning August 31, 1997 through August 31, 2006 with semiannual interest payments $ 10,000 $ 10,000 Unsecured 9.57% Senior Notes, payable in annual installments of $2,000,000 beginning September 30, 1997 through September 30, 2006 with semiannual interest payments 20,000 20,000 Unsecured 9.76% Senior Notes, payable in annual installments of $3,000,000 beginning December 30, 1995 through December 30, 2004 with semiannual interest payments 30,000 30,000 Unsecured 9.75% Senior Notes, payable in varying annual installments through December 30, 1996 3,000 5,000 Unsecured 11.2% Senior Notes, payable in annual installments of $2,000,000 beginning December 30, 1993 through December 30, 2002 with semiannual interest payments 16,000 18,000 First Mortgage Bonds, 9.4% Series J, due May 1, 2021 17,000 17,000 Unsecured 10% Notes, due December 31, 2011 2,303 2,303 Unsecured 8.07% Senior Notes, payable in annual installments of $4,000,000 beginning October 31, 2002 through October 31, 2006 with semiannual interest payments 20,000 20,000 Unsecured 8.26% Senior Notes, payable in annual installments of $1,818,182 beginning October 31, 2004 through October 31, 2014 with semiannual interest payments 20,000 20,000 -------- -------- 138,303 142,303 Less amounts classified as current (7,000) (4,000) -------- -------- $131,303 $138,303 ======== ======== In November 1994, the Company entered into note purchase agreements with two insurance companies and issued at par $20,000,000 of unsecured Senior Notes at 8.07% and $20,000,000 of unsecured Senior Notes at 8.26%. As a result of this financing, 41 $40,000,000 of notes payable to banks was classified as long-term at September 30, 1994. During the quarter ended December 31, 1994, the Company paid installments due of $2,000,000 on its 9.75% Senior Notes and $2,000,000 on its 11.2% Senior Notes. The Company may prepay any of the Senior Notes in whole at any time, subject to a prepayment premium. The note agreements provide for certain cash flow requirements and restrictions on additional indebtedness, sale of assets and payment of dividends. Under the most restrictive of such covenants, cumulative cash dividends paid after September 30, 1988 may not exceed the sum of 75% of accumulated net income for periods after September 30, 1988 plus $12,000,000 plus the proceeds from the sale of common stock after September 30, 1988. At September 30, 1995, approximately $48,451,000 of shareholders' equity was not so restricted. As of September 30, 1995, all of the Company's utility plant assets in Colorado, Kansas and Missouri with a net book value of approximately $66,170,000 are subject to a lien under the 9.4% Series J First Mortgage Bonds assumed by the Company in the acquisition of GGC. Maturities of long-term debt are as follows (in thousands): 1996 $ 7,000 1997 9,000 1998 8,000 1999 8,000 2000 8,000 Thereafter 98,303 -------- $138,303 ======== Notes payable to banks The Company has committed short-term, unsecured bank credit facilities totaling $90,000,000, all of which was unused at September 30, 1995. One facility of $80,000,000 requires a commitment fee of 1/10 of 1% on the unused portion. A second facility for $10,000,000 requires a commitment fee of 3/16 of 1% on the unused portion. The committed lines are renewed or renegotiated at least annually. The Company also had aggregate uncommitted credit lines of $140,000,000, of which $106,500,000 was unused as of September 30, 1995. The uncommitted lines have varying terms and the Company pays no fee for the availability of the lines. Borrowings under these lines are made on a when and as-available basis at the discretion of the banks. 42 The weighted average interest rate on short-term borrowings outstanding at September 30, 1995 and 1994 were 7.0% and 5.6%, respectively. 4. Income taxes The components of income tax expense for 1995, 1994 and 1993 are as follows: 1995 1994 1993 ------- ------- ------- (In thousands) Current $6,765 $7,858 $ 7,340 Deferred 2,809 244 2,733 ------ ------ ------- $9,574 $8,102 $10,073 ====== ====== ======= Included in the provision for income taxes are state income taxes of $506,000, $328,000, and $890,000 for 1995, 1994, and 1993, respectively. Effective October 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109") and, as permitted under these rules, prior years' financial statements have not been restated. Adoption of the new standard in 1994 had no significant effect on net income. This standard changes the Company's method of accounting for income taxes from the deferred method (APB 11) to the liability method. Previously the Company deferred the past tax effects of timing differences between financial reporting and taxable income. Under the liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the estimated future tax effects of differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 43 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, 1995 and 1994 are presented below: 1995 1994 ------- ------- (In thousands) Deferred tax assets Costs expensed for book purposes and capitalized for tax purposes $ 872 $ 914 Accruals not currently deductible for tax purposes 1,045 1,929 Customer advances 2,020 2,365 Nonqualified benefit plans 7,107 5,074 Postretirement benefits 2,187 1,442 Other, net 2,902 1,198 ------- ------- Total deferred tax assets 16,133 12,922 Deferred tax liabilities Tax and book basis of utility plant 43,549 37,316 Prepaid pensions 4,528 4,640 Other, net 1,176 1,150 ------- ------- Total deferred tax liabilities 49,253 43,106 ------- ------- Net deferred tax liabilities $33,120 $30,184 ======= ======= SFAS No. 109 deferred accounts for rate regulated entities (included in other deferred credits): Liabilities $ 2,580 $ 2,647 ======= ======= 44 During 1993, deferred income taxes were provided for significant timing differences in recognition of revenues and expenses for tax and financial reporting purposes. The effects of these timing differences at September 30, 1993 were as follows: 1993 ------ (In thousands) Excess of tax over financial depreciation and amortization $1,754 Items capitalized for financial reporting and recognized currently for tax reporting 416 Deferred gas service revenue recognized currently for tax reporting 1,464 Other, net (901) ------ Total deferred income taxes $2,733 ====== Reconciliations of the provisions for income taxes computed at the statutory rate to the reported provisions for income taxes for 1995, 1994 and 1993 are set forth below: Deferred Liability Method Method ---------------- -------- 1995 1994 1993 ------ ------- ------- (In thousands) Tax at statutory rate of 34% through December 31, 1992 and 35% thereafter $9,956 $ 7,992 $ 9,603 Financial expenses, not deductible for tax reporting 35 503 680 Common stock dividends deductible for tax reporting (619) (573) (462) State taxes 261 328 682 Other, net (59) (148) (430) ------ ------- ------- Provision for income taxes $9,574 $ 8,102 $10,073 ====== ======= ======= 5. Stock split On February 9, 1994, the Board of Directors of Atmos ap- proved a 3-for-2 split of its common stock implemented in the form of a stock dividend, which resulted in shareholders receiving one new share for every two shares held. Fractional shares were not issued but were paid in cash or credited to the accounts of participants of the Dividend Reinvestment and Stock Purchase Plan ("DRSPP") and ESOP. The record date for the split was May 4, 1994 and the payment date for mailing the new shares and cash for fractional shares to shareholders was May 16, 1994. 45 All share and per share amounts in the financial statements and notes thereto have been restated to reflect this split, unless otherwise noted. 6. Common stock and stock options At the annual meeting of shareholders on February 8, 1995, the shareholders approved an increase in the number of authorized shares of common stock from 50,000,000 to 75,000,000. The Company issued 221,946 shares of its common stock in fiscal 1995 in connection with its Restricted Stock Grant Plan and Employee Stock Ownership Plan. The Company has an Employee Stock Ownership Plan as dis- cussed in Note 7. The Company has registered 1,600,000 shares for issuance under the plan, of which 874,830 shares were available for future issuance on September 30, 1995. In August 1992, the Company announced a Direct Stock Purchase Plan ("DSPP") which was the successor to and replacement for the Dividend Reinvestment Plan ("DRP"). Members of the DRP were automatically enrolled in the DSPP. In November 1993, the Company amended the DSPP to remove the direct stock purchase feature of the plan and to rename the plan the Atmos Energy Corporation Dividend Reinvestment and Stock Purchase Plan ("DRSPP"). In January 1995, the direct stock purchase feature was reinstated and the name was changed back to the Direct Stock Purchase Plan. Participants in the DSPP may have all or part of their dividends reinvested at a 3% discount from market prices. DSPP participants may purchase additional shares of Company com- mon stock as often as weekly with voluntary cash payments of at least $25, up to an annual maximum of $100,000. At September 30, 1995, 712,596 shares were available for future issuance under the plan. On April 27, 1988, the Company adopted a Shareholders' Rights Plan (the "Rights Plan") and declared a dividend of one right (a "Right") for each outstanding pre-split share of common stock of the Company, payable to shareholders of record as of May 10, 1988. Each Right will entitle the holder thereof, until the earlier of May 10, 1998 or the date of redemption of the Rights, to buy one share of common stock of the Company at an exercise price of $30 per share, subject to adjustment by the Board of Directors upon the occurrence of certain events. The Rights will be represented by the common stock certificates and are not exercisable or transferable apart from the common stock until a "Distribution Date" (which is defined in the Rights Agreement between the Company and the Rights Agent as the date upon which the Rights become separate from the common stock). At no time will the Rights have any voting rights. The exercise price payable and the number of shares of common stock or other securities or property issuable upon exercise of the Rights are subject to adjustment from time to time to prevent 46 dilution. Until the Distribution Date, the Company will issue one Right with each share of common stock that becomes outstanding so that all shares of common stock will have attached Rights. After a Distribution Date, the Company may issue Rights when it issues common stock if the Board deems such issuance to be necessary or appropriate. The Rights have certain anti-takeover effects and may cause substantial dilution to a person or entity that attempts to acquire the Company on terms not approved by the Board of Directors except pursuant to an offer conditioned upon a substantial number of Rights being acquired. The Rights should not interfere with any merger or other business combination approved by the Board of Directors because, prior to the time the Rights become exercisable or transferable, the Rights may be redeemed by the Company at $.05 per Right. The Company had an Incentive Stock Option Plan for key employees covering an aggregate of 100,000 shares of common stock. The plan provided for options to be granted at prices not less than the fair market value of the stock on the date of grant and to be exercisable over ten years from such date in cumulative annual installments of 25% of the aggregate shares granted, commencing one year after the date of grant. At September 30, 1993, no options were outstanding under the plan. The Company allowed the plan to expire in October 1993 without granting additional options. The following table summarizes the status of the expired Incentive Stock Option Plan as of September 30, 1993: 1993 -------------------- Price Shares per share ------- ----------- Outstanding options at beginning of year 6,000 $9.25-10.63 Exercised (6,000) 9.25-10.63 ------ Outstanding options at end of year - - ====== Exercisable options at end of year - Options available for future grants (pre-split) 8,150 The Company's Restricted Stock Grant Plan for management and key employees of the Company, which became effective October 1, 1987, provides for awards of common stock that are subject to certain restrictions. The plan is administered by the Board of Directors. The members of the Board who are not employees of the 47 Company make the final determinations regarding participation in the plan, awards under the plan, and restrictions on the re- stricted stock awarded. The restricted stock may consist of previously issued shares purchased on the open market or shares issued directly from the Company. The Company registered 600,000 shares (900,000 post-split shares) for issuance under the plan. Compensation expense of $1,015,000, $1,164,000 and $735,000 was recognized in 1995, 1994 and 1993, respectively, in connection with the issuance of shares under the plan. At September 30, 1995, 377,300 shares were available for future award under the plan. In November 1994, the Board adopted the Outside Directors Stock-for-Fee Plan, which plan was approved by the shareholders of the Company in February 1995. The plan permits non-employee directors to receive all or part of their annual retainer and meeting fees in stock rather than in cash. The Company has registered 50,000 shares, all of which were available for future issuance under the plan as of September 30, 1995. 7. Employee retirement and stock ownership plans At September 30, 1995, the Company had three defined benefit pension plans. One covers the Western Kentucky Division employ- ees, one covers the Greeley Gas Division employees, and the third covers all other Atmos employees. The plans provide essentially the same benefits to all employees. Benefits are based on years of service and the employee's compensation during the highest paid five consecutive calendar years within the last 10 years of employment. The Company's funding policy is to contribute annually an amount in accordance with the requirements of the Em- ployee Retirement Income Security Act of 1974. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. 48 The following table sets forth the Atmos plan's funded status at September 30, 1995 and 1994: 1995 1994 -------- -------- (In thousands) Actuarial present value of benefit obligations Accumulated benefit obligation, including vested benefits of $74,967 and $63,658 in 1995 and 1994, respectively $(75,529) $(64,805) ======== ======== Projected benefit obligation $(84,182) $(73,895) Plan assets at fair value 82,464 73,454 -------- -------- Funded status (1,718) (441) Unrecognized net asset being recognized over 15 years (416) (633) Unrecognized prior service cost (1,812) (1,955) Unrecognized net loss 3,514 3,326 -------- -------- (Accrued) prepaid pension cost $ (432) $ 297 ======== ======== Net periodic pension cost for the Atmos plan for 1995, 1994 and 1993 included the following components: 1995 1994 1993 ------- ------ ------ (In thousands) Service cost $ 1,862 $1,846 $1,543 Interest cost on projected benefit obligation 6,060 5,614 5,242 Actual return on plan assets (12,200) (955) (9,445) Net amortization and deferral 5,007 (5,778) 3,206 ------- ------ ------ Net periodic pension cost $ 729 $ 727 $ 546 ======= ====== ====== 49 The following table sets forth the Western Kentucky Gas Division plan's funded status at September 30, 1995 and 1994: 1995 1994 --------- --------- (In thousands) Actuarial present value of benefit obligations Accumulated benefit obligation, including vested benefits of $27,236 and $24,247 in 1995 and 1994, respectively $(27,262) $(24,874) ======== ======== Projected benefit obligation $(31,642) $(28,328) Plan assets at fair value 42,216 37,409 -------- -------- Funded status 10,574 9,081 Unrecognized prior service cost 2,855 3,378 Unrecognized net gain (2,468) (1,442) -------- -------- Prepaid pension cost $ 10,961 $ 11,017 ======== ======== Net periodic pension cost for 1995, 1994 and 1993 included the following components: 1995 1994 1993 -------- -------- -------- (In thousands) Service cost $ 706 $ 729 $ 639 Interest cost 2,306 2,160 2,016 Actual return on plan assets (6,355) 324 (5,604) Net amortization and deferral 3,399 (3,097) 3,110 -------- -------- -------- Net periodic pension cost $ 56 $ 116 $ 161 ======== ======== ======== The weighted-average discount rates used in determining the actuarial present value of the projected benefit obligations of the Atmos and WKG retirement plans were 7.5% and 8.375% at June 30, 1995 and 1994, respectively. The rate of increase in future compensation levels reflected in such determination was 4.0% and 4.5% for the years ended September 30, 1995 and 1994, respectively. The expected long-term rate of return on plan assets was 10.0%, 9.5% and 8.5% for the years ended September 30, 1995, 1994 and 1993, respectively. The plan assets consist primarily of investments in common stocks, interest bearing securities and interests in commingled pension trust funds. Prepaid pension cost is included in deferred charges and other assets. 50 The following table sets forth the Greeley Gas Division plan's funded status at September 30, 1995 and 1994: 1995 1994 -------- -------- (In thousands) Actuarial present value of benefit obligations Accumulated benefit obligation, including vested benefits of $13,134 and $12,849 in 1995 and 1994, respectively $(13,385) $(13,206) ======== ======== Projected benefit obligation $(15,148) $(15,020) Plan assets at fair value 14,607 13,140 -------- -------- Funded status (541) (1,880) Unrecognized net asset being recognized over 15 years (1,810) (2,100) Unrecognized prior service cost 419 455 Unrecognized net loss 1,370 3,186 -------- -------- Accrued pension cost $ (562) $ (339) ======== ======== Net periodic pension cost (credit) for the Greeley Gas Division plan for 1995, 1994 and 1993 included the following components: 1995 1994 1993 ------ ------- ------- (In thousands) Service cost $ 328 $ 486 $ 374 Interest cost on projected benefit obligation 1,208 1,039 954 Actual return on plan assets (2,530) 441 (1,180) Net amortization and deferral 1,217 (1,795) (257) ------ ------- ------- Net periodic pension cost (credit) $ 223 $ 171 $ (109) ====== ======= ======= Accumulated plan benefits were computed using the Projected Unit Credit funding method. The discount rate and rate of in- crease in future compensation levels used in determining the actuarial present value of the projected benefit obligations were 7.5% and 4.0%, respectively, in 1995 and 8.375% and 4.5%, respec- tively, in 1994. The expected long-term rate of return on plan assets was 10.0%, 9.5% and 9.0% in 1995, 1994 and 1993, respectively. Plan assets consist primarily of corporate bonds, equity securities, mutual funds, partnership interests, and other miscellaneous investments. The actual return on plan assets in 1994 resulted in a loss of $.4 million due to writedowns of certain plan assets to reflect current market value. 51 Effective October 1, 1987, the Company adopted a nonquali- fied Supplemental Executive Benefits Plan ("Supplemental Plan") which provides additional pension, disability and death benefits to the officers and certain other employees of the Company. Expense recognized in connection with the Supplemental Plan during fiscal 1995, 1994 and 1993 was $2,158,000, $2,062,000 and $1,492,000, respectively. The Company sponsors an Employee Stock Ownership Plan ("ESOP"). Full time employees who have completed one year of service, as defined in the plan, are eligible to participate. Each participant enters into a salary reduction agreement with the Company pursuant to which the participant's salary is reduced by an amount not less than 2% nor more than 10%. Taxes on the amount by which the participant's salary is reduced are deferred pursuant to Section 401(k) of the Internal Revenue Code. The amount of the salary reduction is contributed by the Company to the ESOP for the account of the participant. The Company may make a matching contribution for the account of the participant in an amount determined each year by the Board of Directors, which amount must be at least equal to 25% of all or a portion of the participant's salary reduction. For the 1995 plan year, the Board of Directors elected to match 100% of each participant's salary reduction contribution up to 4% of the participant's salary. These matching percentages have also been approved for the 1996 plan year. Matching contributions to the ESOP amounted to $1,977,000, $1,780,000, and $1,413,000 for 1995, 1994 and 1993, respectively. The Directors may also approve discretionary contributions, subject to the provisions of the Internal Revenue Code of 1986 and applicable regulations of the Internal Revenue Service. The Company recorded a charge of $1,000,000 for a discretionary contribution in the year ended September 30, 1993. Company contributions to the plan are expensed as incurred. Effective January 1, 1988, the Greeley Gas Division adopted a 401(k) plan that covers substantially all the Greeley Gas Division employees. Employee contributions were limited to 6% of base compensation. The Company matched 50% of employee contributions. Total employer contributions to the 401(k) plan were $141,000 and $230,000 for the periods ended September 30, 1994 and 1993 respectively. Contributions to the plan were discontinued on March 31, 1994 and participants were enrolled in the Atmos ESOP on April 1, 1994. 8. Other postretirement benefits In addition to providing pension benefits, the Company provides certain other postretirement benefits for retired employees, the major benefit being health care. To be eligible for these benefits, an employee must retire under the terms of the Company's retirement plans. Prior to 1994, the cost of other postretirement benefits was recognized by expensing claims and annual insurance premiums as incurred. In fiscal 1993, these costs totaled $1,453,000. 52 Effective October 1, 1993, the Company adopted Financial Accounting Standards No. 106 ("SFAS No. 106"), "Employers' Accounting for Postretirement Benefits Other Than Pensions". SFAS No. 106 focuses principally on postretirement health care benefits and significantly changed the practice of accounting for postretirement benefits on a pay-as-you-go basis by requiring accrual of such benefit costs at Atmos on an actuarial basis from the date each employee reaches age 45 until the date of full eligibility for such benefits. The Company is amortizing on a straight line basis the initial transition obligation of $33,354,000 over 20 years. The effect of adopting the new rules increased net periodic postretirement benefit cost for the year ended September 30, 1994 by $3,789,000 and decreased net income by $2,440,000. Approximately $746,000 of this increased cost was recovered through rates during 1994. Atmos sponsors two defined benefit postretirement plans other than pensions. One plan provides medical, dental, and vision benefits to retired employees of Greeley Gas Company. The other offers medical benefits to all other retired Atmos employees. Substantially all of the Company's employees may become eligible for these benefits if they reach retirement age while working for the Company and attain 10 consecutive years of service. Participant contributions are required under these plans. Prior to June 1994, the plans were not funded. In June 1994, the Company made its first quarterly payment to the external trust set up to fund SFAS No. 106 costs in excess of the pay-as-you-go cost in Kansas in accordance with an order of the Kansas Corporation Commission. In April, 1995 it began external funding in Colorado in accordance with an order of the Colorado Public Utility Commission. The amount of funding will ultimately depend upon the ratemaking treatment allowed in the Company's various rate jurisdictions. The components of net periodic postretirement benefit cost for each of the years ended September 30, 1995 and 1994 are as follows: 1995 1994 ------ ------ (In thousands) Service cost $1,497 $1,817 Interest cost 2,322 2,269 Actual return on plan assets (18) - Amortization of transition obligation 1,549 1,668 Net amortization and deferral (150) - ------ ------ Net periodic postretirement benefit cost $5,200 $5,754 ====== ====== 53 The following is a reconciliation of the funded status of the plans to the net postretirement benefits liability on the balance sheet as of September 30, 1995 and 1994: 1995 1994 -------- -------- (In thousands) Accumulated postretirement benefit obligation Retirees $(20,402) $(18,083) Fully eligible employees (5,906) (6,827) Other employees (4,468) (4,206) -------- -------- (30,776) (29,116) Plan assets 594 274 -------- -------- Accumulated postretirement benefit obligation in excess of plan assets (30,182) (28,842) Unrecognized prior service cost - (2,256) Unrecognized net gain (3,807) (4,105) Unrecognized transition obligation 27,892 31,686 -------- -------- Accrued postretirement benefits liability $ (6,097) $ (3,517) ======== ======== In the latest actuarial calculation of the accrued postre- tirement benefits liability, the assumed health care cost trend rate used to estimate the cost of postretirement benefits was 9.5% for 1995, 8.5% for 1996 and is assumed to decrease gradually to 5.0% for 2000 and remain at that level thereafter. Similarly, the dental trend rate is 7.5% for 1995 and decreases to 7.0% for 1996 at which time dental benefits will be discontinued. The trend for vision benefits is assumed to remain level for all years at 4.5%. The effect of a 1% increase in the assumed health care cost trend rate for each future year is $353,000 and $410,000 on the annual aggregate of the service and interest cost components of net periodic postretirement benefit costs and $2,355,000 and $2,279,000 on the accumulated postretirement benefit obligation as of September 30, 1995 and 1994, respectively. The assumed discount rate, the rate at which liabilities could be settled, was 7.5% and 8.25% as of September 30, 1995 and 1994, respectively. The Company is currently recovering other postretirement benefit ("OPEB") costs through its regulated rates under SFAS No. 106 accrual accounting in Colorado, Kansas, the majority of its Texas service area and in Kentucky (effective November 1, 1995). It recovers OPEB costs on the pay-as-you-go basis in Louisiana. Management believes that accrual accounting in accordance with SFAS No. 106 is appropriate and will continue to seek rate recovery of accrual-based expenses in its ratemaking jurisdic- tions that have not yet approved the recovery of these expenses. The ultimate impact of the adoption of SFAS No. 106 on the 54 Company's financial position and results of operations will not be known with certainty until the regulatory treatment that will be allowed in each of the Company's ratemaking jurisdictions is determined. 9. Postemployment benefits The Company also provides postemployment benefits, primarily workers' compensation, to former or inactive employees after employment but before retirement. Effective October 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers Accounting for Postemployment Benefits" ("SFAS No. 112"). SFAS No. 112 requires that certain benefits provided to former or inactive employees, after employment but before retirement, such as workers' compensation, disability benefits and health care continuation coverage be accrued if attributable to the employees' prior service. Prior to October 1, 1994, such postemployment benefit costs were recorded and recovered in rates on the pay-as-you-go basis. Both the cumulative effect of adopting SFAS No. 112, as well as the effect of the new standard upon the recurring expense being recognized for these benefits in 1995, were not material. 10. Contingencies On March 15, 1991, suit was filed in the 15th Judicial District Court of Lafayette Parish, Louisiana, by the "Lafayette Daily Advertiser" and others against the Trans La Division, Trans Louisiana Industrial Gas Company, Inc. ("TLIG"), a wholly owned subsidiary of the Company, and Louisiana Intrastate Gas Corporation and certain of its affiliates ("LIG"). LIG is the Company's primary supplier of natural gas in Louisiana and is not otherwise affiliated with the Company. The plaintiffs purported to represent a class consisting of all residential and commercial gas customers in the Trans La Division's service area. Among other things, the lawsuit alleged that the defendants violated antitrust laws of the state of Louisiana by manipulating the cost-of-gas component of the Trans La Division's gas rate to the purported customer class, thereby causing such purported class members to pay a higher rate. The plaintiffs made no specific allegation of an amount of damages. The defendants brought an appeal to the Louisiana Supreme Court of rulings by the trial court and the Third Circuit Court of Appeal which denied defendants' exceptions to the jurisdiction of the trial court. It was the position of the defendants that the plaintiffs' claims amount to complaints about the level of gas rates and should be within the exclusive jurisdiction of the Louisiana Commission. On January 19, 1993, the Louisiana Supreme Court issued a decision reversing in part the lower courts' rulings, dismissing all of plaintiffs' claims against the defendants which seek damages due to alleged overcharges and further ruling that all 55 such claims are within the exclusive jurisdiction of the Louisiana Commission. Any claims which seek damages other than overcharges were remanded to the trial court but were stayed pending the completion of the Louisiana Commission proceeding referred to below. The Company has reached a tentative settlement with the plaintiffs in the context of the Louisiana Commission proceeding referred to below, which settlement will resolve all outstanding issues relating to the Company, subject to certain procedural conditions. On July 14, 1995, the Louisiana Commission entered an order approving a settlement with the Company and TLIG in connection with its investigation of the costs included in the Trans La Division's purchased gas adjustment component in its rates. The order exonerated the Company of any wrongdoing or manipulation of the cost of gas component of its gas rate to residential and commercial customers. In the settlement, the Company agreed to refund approximately $541,000 plus interest to the Trans La Division's customers over a two-year period due to certain issues related to the calculation of the weighted average cost of gas. The refund totaling approximately $1,016,000, which includes interest calculated through October 1, 1995, began in September 1995 and will be credited to customer bills along with interest that accrues after October 1, 1995. Most of the issues that generated the refunds arose before Trans Louisiana Gas Company was acquired by the Company in 1986. The Greeley Gas Company Division of the Company is a defendant in several lawsuits filed as a result of a fire in a building in Steamboat Springs, Colorado on February 3, 1994. The plaintiffs claim that the fire resulted from a leak in a severed gas service line owned by the Greeley Division. The Company believes that the evidence shows that any damage to the line was caused by a third party or parties and occurred prior to the Company's acquisition of Greeley Gas Company in 1993. The Company has adequate insurance and/or reserves to cover any potential damages that may be awarded against the Company in this matter and has been informed by its insurance carrier that the Company's insurance policy will cover punitive damages. The Company believes that the allegations against it are without merit and will vigorously protect its interest in this matter. From time to time, claims are made and lawsuits are filed against the Company arising out of the ordinary business of the Company. In the opinion of the Company's management, liabilities, if any, arising from these actions are either covered by insurance, adequately reserved for by the Company or would not have a material adverse effect on the financial condition of the Company. 56 11. Statement of cash flows Supplemental disclosures of cash flow information for 1995, 1994 and 1993 are presented below: 1995 1994 1993 ------- ------- ------- (In thousands) Cash paid for Interest $11,503 $12,756 $13,436 Income taxes 10,123 6,352 8,190 12. Leases The Company has entered into noncancelable leases involving office space and warehouse space. The remaining lease terms range from one to 20 years and generally provide for the payment of taxes, insurance and maintenance by the lessee. Net property, plant and equipment included amounts for capital leases of $2,694,000 and $5,664,000 at September 30, 1995 and 1994, respectively. The related future minimum lease payments at September 30, 1995 were as follows: Capital Operating leases leases -------- -------- (In thousands) 1996 $ 568 $ 7,163 1997 568 7,118 1998 568 6,951 1999 568 6,905 2000 568 6,827 Thereafter 3,415 45,399 ------ ------- Total minimum lease payments 6,255 $80,363 ======= Less amount representing interest (3,373) ------ Present value of net minimum lease payments $2,882 ====== Consolidated rent expense amounted to $6,643,000, $6,490,000 and $5,277,000 for fiscal 1995, 1994 and 1993, respectively. Rents are expensed and recovered in rates on a pay-as-you-go basis. 57 SUPPLEMENTARY DATA Quarterly Financial Data (Unaudited) Summarized unaudited quarterly financial data are presented below. The sum of net income per share by quarter may not equal the net income per share for the year due to variations in the weighted average shares outstanding used in computing such amounts. Quarter ended ---------------------------------------------------------------------------------- December 31, March 31, June 30, September 30, ----------------- ----------------- ----------------- ---------------- 1994 1993 1995 1994 1995 1994 1995 1994 -------- -------- -------- -------- -------- -------- ------- ------- (In thousands, except per share data) Operating revenues $117,848 $145,501 $157,294 $186,944 $84,685 $90,013 $75,993 $77,350 Gross profit 43,482 48,421 59,577 59,366 34,069 31,790 29,882 28,660 Operating income (loss) 9,786 10,302 17,689 16,345 2,987 1,433 1,915 (1,614) Net income (loss) 6,476 7,088 13,945 13,242 82 (1,224) (1,630) (4,427) Net income (loss) per share .42 .47 .91 .87 .01 (.08) (.11) (.29) 58 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors is incorporated herein by reference from the Company's definitive proxy statement for the annual meeting of shareholders on February 14, 1996. Information regarding executive officers is included in Part I. ITEM 11. EXECUTIVE COMPENSATION Incorporated herein by reference from the Company's definitive proxy statement for the annual meeting of shareholders on February 14, 1996. 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 14, 1996. 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 14, 1996. 59 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1 and 2. Financial statements and financial statement schedules. The financial statements listed in the accompanying Index to Financial Statements are filed as part of this annual report. No financial statement schedules are required in this filing. 3. Exhibits The exhibits listed in the accompanying Exhibits Index are filed as part of this annual report. The exhibits numbered 10.19(a) through 10.27(c) and 10.29 are management contracts or compensatory plans or arrangements. (b) Reports on Form 8-K None. 60 INDEX TO FINANCIAL STATEMENTS (Item 8, 14(a) 1 and 2) Page Number Financial statements: Consolidated balance sheets at September 30, 1995 and 1994 31 Consolidated statements of income for the years ended September 30, 1995, 1994 and 1993 32 Consolidated statements of shareholders' equity for the years ended September 30, 1995, 1994 and 1993 33 Consolidated statements of cash flows for the years ended September 30, 1995, 1994 and 1993 34 Notes to consolidated financial statements 36-56 Independent auditors' report 30 All financial statement schedules are omitted because the required information is not present, or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and accompanying notes thereto. 61 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ATMOS ENERGY CORPORATION (Registrant) By /s/ JAMES F. PURSER ----------------------- James F. Purser Executive Vice President and Chief Financial Officer Date: December 14, 1995 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints James F. Purser, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Form 10-K, and to file the same, with all exhibits thereto, and all other documents in connection there- with, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated: /s/ CHARLES K. VAUGHAN Chairman of December 14, 1995 - ------------------------- the Board Charles K. Vaughan /s/ ROBERT F. STEPHENS President and December 14, 1995 - ------------------------- Chief Operating Robert F. Stephens Officer, Director 62 /s/ JAMES F. PURSER Executive Vice December 14, 1995 - ------------------------- President and James F. Purser Chief Financial Officer, Director /s/ DAVID L. BICKERSTAFF Vice President December 14, 1995 - ------------------------- and Controller David L. Bickerstaff (Principal accounting officer) /s/ TRAVIS W. BAIN, II Director December 14, 1995 - ------------------------- Travis W. Bain, II /s/ DAN BUSBEE Director December 14, 1995 - ------------------------- Dan Busbee /s/ THOMAS C. MEREDITH Director December 14, 1995 - ------------------------- Thomas C. Meredith /s/ PHILLIP E. NICHOL Director December 14, 1995 - ------------------------- Phillip E. Nichol /s/ JOHN W. NORRIS, JR. Director December 14, 1995 - ------------------------- John W. Norris, Jr. /s/ CARL S. QUINN Director December 14, 1995 - ------------------------- Carl S. Quinn 63 Director December 14, 1995 - ------------------------- Lee E. Schlessman /s/ RICHARD WARE II Director December 14, 1995 - ------------------------- Richard Ware II 64 EXHIBITS INDEX Item 14. (a) (3) Page Number or Exhibit Incorporation by Number Description Reference to -------- ------------------------------------ ------------------------- 3.1 Restated Articles of Incorporation, as amended as of February 9, 1995 3.2 By-Laws of Atmos Energy Corporation (As amended as of November 9, 1994) 4.1 Specimen Common Stock Certificate Exhibit (4) of the (Energas Company) October 28, 1983 Form 10 (File No. 0-11249) 4.2 Specimen Common Stock Certificate Exhibit (4) (b) of Form (Atmos Energy Corporation) 10-K for fiscal year ended September 30, 1988 (File No. 1-10042) 4.3(a) Rights Agreement, dated as of April Exhibit (1) of Form 8-K 27, 1988, between the Company and filed May 10, 1988 (File Morgan Shareholder Services Trust No. 0-11249) Company 4.3(b) Amendment No. 1 to Rights Agreement, Exhibit 4.3(b) of Form dated August 10, 1994 10-K for fiscal year ended September 30, 1994 (File No. 1-10042) 4.3(c) Certificate of Adjusted Price, dated Exhibit 4.3(c) of Form August 15, 1994 10-K for fiscal year ended September 30, 1994 (File No. 1-10042) 9 Not applicable 10.1(a) Note Purchase Agreement, dated Exhibit (10)(a)(i) of December 30, 1986, by and between Form 10-K for fiscal year the Company and John Hancock Mutual ended September 30, 1991 Life Insurance Company (File No. 1-10042) Note Purchase Agreement, dated December 30, 1986, by and between the Company and Mellon Bank, N.A., Trustee under Master Trust Agreement of NYNEX Corporation dated January 1, 1984 for Employee Pension Plans - NYNEX - John Hancock - Private Placement. (Agreement is identical to the Hancock Agreement listed above except as to the parties thereto.) 65 Page Number or Exhibit Incorporation by Number Description Reference to -------- ------------------------------------ ------------------------- 10.1(b) Letter, dated November 13, 1987, Exhibit 28(a) of Form 8-K from John Hancock Mutual Life filed January 7, 1988 Insurance Company to the Company (File No. 0-11249) Letter, dated November 13, 1987, from Mellon Bank, N.A., Trustee under Master Trust Agreement of NYNEX Corporation dated January 1, 1984 for Employee Pension Plans - NYNEX - John Hancock - Private Placement to the Company (Mellon letter is identical to the Hancock letter listed above except as to the parties thereto.) 10.1(c) Amendment to Note Purchase Exhibit (10)(a)(iii) of Agreement, dated October 11, 1989, Form 10-K for fiscal year by and between the Company and John ended September 30, 1989 Hancock Mutual Life Insurance (File No. 1-10042) Company revising Note Purchase Agreement dated December 30, 1986 Amendment to Note Purchase Agreement, dated October 11, 1989, by and between the Company and Mellon Bank, N.A., Trustee under Master Trust Agreement of NYNEX Corporation dated January 1, 1984 for Employee Pension Plans - NYNEX - John Hancock - Private Placement revising Note Purchase Agreement dated December 30, 1986. (This amendment is identical to the Hancock amendment listed above except as to the parties thereto.) 10.1(d) Amendment to Note Purchase Exhibit (10)(a)(iv) of Agreement, dated November 12, 1991, Form 10-K for fiscal year by and between the Company and John ended September 30, 1991 Hancock Mutual Life Insurance (File No. 1-10042) Company revising Note Purchase Agreement dated December 30, 1986. 66 Page Number or Exhibit Incorporation by Number Description Reference to -------- ------------------------------------ ------------------------- Amendment to Note Purchase Agreement, dated November 12, 1991, by and between the Company and Mellon Bank, N.A., Trustee under Master Trust Agreement of NYNEX Corporation dated January 1, 1984 for Employee Pension Plans - NYNEX - John Hancock - Private Placement revising Note Purchase Agreement dated December 30, 1986. (This amendment is identical to the Hancock amendment listed above except as to the parties thereto.) 10.2(a) Note Purchase Agreement, dated as of Exhibit 10(c) of Form 8-K December 21, 1987, by and between filed January 7, 1988 the Company and John Hancock Mutual (File No. 0-11249) Life Insurance Company Note Purchase Agreement, dated as of December 21, 1987, by and between the Company and John Hancock Charitable Trust I (Agreement is identical to Hancock Agreement listed above except as to the parties thereto.) Note Purchase Agreement dated as of December 21, 1987, by and between the Company and Mellon Bank, N.A., Trustee under Master Trust Agreement of AT&T Corporation, dated January 1, 1984, for Employee Pension Plans - AT&T - John Hancock - Private Placement (Agreement is identical to Hancock Agreement listed above except as to the parties thereto.) 10.2(b) Amendment to Note Purchase Exhibit (10)(b)(ii) of Agreement, dated October 11, 1989, Form 10-K for fiscal year by and between the Company and John ended September 30, 1989 Hancock Mutual Life Insurance (File No. 1-10042) Company revising Note Purchase Agreement dated December 21, 1987 67 Page Number or Exhibit Incorporation by Number Description Reference to -------- ------------------------------------ ------------------------- Amendment to Note Purchase Agreement, dated October 11, 1989, by and between the Company and John Hancock Charitable Trust I revising Note Purchase Agreement dated December 21, 1987. (Amendment is identical to Hancock amendment listed above except as to the parties thereto.) Amendment to Note Purchase Agreement, dated October 11, 1989, by and between the Company and Mellon Bank, N.A., Trustee under Master Trust Agreement of AT&T Corporation, dated January 1, 1984, for Employee Pension Plans - AT&T - John Hancock - Private Placement revising Note Purchase Agreement dated December 21, 1987 (Amendment is identical to Hancock amendment listed above except as to the parties thereto.) 10.2(c) Amendment to Note Purchase Exhibit 10(b)(iii) of Agreement, dated November 12, 1991, Form 10-K for fiscal year by and between the Company and John ended September 30, 1991 Hancock Mutual Life Insurance (File No. 1-10042) Company revising Note Purchase Agreement dated December 21, 1987 Amendment to Note Purchase Agreement, dated November 12, 1991, by and between the Company and John Hancock Charitable Trust I revising Note Purchase Agreement dated December 21, 1987. (Amendment is identical to Hancock amendment listed above except as to the parties thereto.) 68 Page Number or Exhibit Incorporation by Number Description Reference to -------- ------------------------------------ ------------------------- Amendment to Note Purchase Agreement, dated November 12, 1991, by and between the Company and Mellon Bank, N.A., Trustee under Master Trust Agreement of AT&T Corporation, dated January 1, 1984, for Employee Pension Plans - AT&T - John Hancock - Private Placement revising Note Purchase Agreement dated December 21, 1987. (Amendment is identical to Hancock amendment above except as to the parties thereto.) 10.3(a) Note Purchase Agreement, dated as of Exhibit 10(c) of Form 10- October 11, 1989, by and between the K for fiscal year ended Company and John Hancock Mutual Life September 30, 1989 (File Insurance Company No. 1-10042) 10.3(b) Amendment to Note Purchase Exhibit 10(c)(ii) of Form Agreement, dated as of November 12, 10-K for fiscal year 1991, by and between the Company and ended September 30, 1991 John Hancock Mutual Life Insurance (File No. 1-10042) Company revising Note Purchase Agreement dated October 11, 1989 10.4(a) Note Purchase Agreement, dated as of Exhibit 10(f)(i) of Form August 29, 1991, by and between the 10-K for fiscal year Company and The Variable Annuity ended September 30, 1991 Life Insurance Company (File No. 1-10042) 10.4(b) Amendment to Note Purchase Exhibit 10(f)(ii) of Form Agreement, dated November 26, 1991, 10-K for fiscal year by and between the Company and The ended September 30, 1991 Variable Annuity Life Insurance (File No. 1-10042) Company revising Note Purchase Agreement dated August 29, 1991 10.5 Note Purchase Agreement, dated as of Exhibit (10)(f) of Form August 31, 1992, by and between the 10-K for fiscal year Company and The Variable Annuity ended September 30, 1992 Life Insurance Company (File No. 1-10042) 69 Page Number or Exhibit Incorporation by Number Description Reference to -------- ------------------------------------ ------------------------- 10.6 Note Purchase Agreement, dated Exhibit 10.1 of Form 10-Q November 14, 1994, by and among the for quarter ended Company and New York Life Insurance December 31, 1994 (File Company, New York Life Insurance and No. 1-10042) Annuity Corporation, The Variable Annuity Life Insurance Company, American General Life Insurance Company, and Merit Life Insurance Company 10.7(a) Service Agreement No. 50772 between Exhibit 10.6(a) of Form Greeley Gas Company and Public 10-K for fiscal year Service Company of Colorado (West ended September 30, 1994 Gas Supply Co. prior to merger with (File No. 1-10042) PSCO) dated August 1, 1992 10.7(b) Transportation Storage Service Exhibit 10.6(b) of Form Agreement No. TA-0544 between 10-K for fiscal year Greeley Gas Company and Williams ended September 30, 1994 Natural Gas Company dated October 1, (File No. 1-10042) 1993 10.7(c) No-Notice Transportation Service Exhibit 10.6(c) of Form Agreement No. 31013, Rate Schedule 10-K for fiscal year NNT-1, between Greeley Gas Company ended September 30, 1994 and Colorado Interstate Gas Company, (File No. 1-10042) as amended, dated October 1, 1993 10.7(d) Firm Transportation Service Exhibit 10.6(d) of Form Agreement No. 35009, Rate Schedule 10-K for fiscal year TF2, between Greeley Gas Company and ended September 30, 1994 Colorado Interstate Gas Company, as (File No. 1-10042) amended, dated October 1, 1993 10.8(a) Amarillo Supply Agreement dated Exhibit 10.7(a) of Form January 2, 1993 between the Company 10-K for fiscal year and Mesa Operating Company ended September 30, 1994 (File No. 1-10042) 10.8(b) Interruptible Gas Transportation and Exhibit (10)(g)(iv) of Sales Agreement dated January 1, Form 10-K for fiscal year 1991, between Mesa Operating Limited ended September 30, 1992 Partnership and Energas Company (File No. 1-10042) regarding transportation charges to Mesa 10.8(c) Letter agreement between the Company Exhibit (10)(h)(vi) of and Mesa Operating Limited Form 10-K for fiscal year Partnership dated March 21, 1989, ended September 30, 1989 regarding transportation rates (File No. 1-10042) 70 Page Number or Exhibit Incorporation by Number Description Reference to -------- ------------------------------------ ------------------------- 10.9(a) Gas Sales Agreement between the Exhibit (10)(i)(i) of Company and Westar Transmission Form 10-K for fiscal year Company dated January 1, 1986, as ended September 30, 1989 amended by Letter Agreement dated (File No. 1-10042) November 21, 1986, and Agreement dated December 9, 1988, revising the pricing formula for city gate sales 10.9(b) Amendment to Gas Sales Agreement, Exhibit (10)(h)(ii) of dated February 27, 1987, between the Form 10-K for fiscal year Company and Westar Transmission ended September 30, 1992 Company (File No. 1-10042) 10.9(c) Amendment to Gas Sales Agreement, Exhibit (10)(h)(iii) of dated January 1, 1988, between Cabot Form 10-K for fiscal year Gas Supply Corporation ("CGSC") and ended September 30, 1992 the Company (File No. 1-10042) 10.10(a) Gas Transportation Agreement between Exhibit 10(i)(i) of Form the Company and Westar Transmission 10-K for fiscal year Company dated January 1, 1986, as ended September 30, 1991 amended by letter agreement dated (File No. 1-10042) November 21, 1986 10.10(b) Amendment to Gas Transportation Exhibit (10)(i)(ii) of Agreement, dated January 1, 1988, Form 10-K for fiscal year between CGSC and the Company ended September 30, 1992 (File No. 1-10042) 10.11 Supplemental Gas Sales Agreement, Exhibit (10)(j) of Form dated January 1, 1988, between CGSC 10-K for fiscal year and the Company ended September 30, 1992 (File No. 1-10042) 10.12 Gas Purchase and Sales Agreement, Exhibit (10)(k) of Form dated January 1, 1988, between Cabot 10-K for fiscal year Energy Marketing Corporation and ended September 30, 1992 EnerMart, Inc. (File No. 1-10042) 10.13 Gas Sales Agreement, dated January Exhibit (10)(l) of Form 1, 1988, between the Company and Gas 10-K for fiscal year Marketing, Inc. ("GMI"), relating to ended September 30, 1992 Amarillo supplemental supplies (File No. 1-10042) 10.14 Gas Sales Agreement, dated January Exhibit (10)(m) of Form 1, 1988, between the Company and 10-K for fiscal year GMI, relating to West Texas ended September 30, 1992 supplemental supplies (File No. 1-10042) 71 Page Number or Exhibit Incorporation by Number Description Reference to -------- ------------------------------------ ------------------------- 10.15 Settlement Agreement, dated January Exhibit (10)(n) of Form 15, 1988, between CGSC and the 10-K for fiscal year Company ended September 30, 1992 (File No. 1-10042) 10.16(a) Agreement for Natural Gas Service Exhibit 10(o)(ii) of Form for Distribution and Resale between 10-K for fiscal year Trans La and LIG dated October 28, ended September 30, 1991 1991 (File No. 1-10042) 10.16(b) Agreement for Intrastate Exhibit 10(o)(iii) of Transportation of Natural Gas Form 10-K for fiscal year between Trans La and LIG dated ended September 30, 1991 October 28, 1991 (File No. 1-10042) 10.17(a) Gas Transportation Agreement between Exhibit 10.1 of Form 10-Q Texas Gas Transmission Corporation for quarter ended ("Texas Gas") and Western Kentucky December 31, 1993 (File Gas Company, a division of Atmos No. 1-10042) Energy Corporation ("Western Ken- tucky") dated November 1, 1993 (Contract no. T3817, zone 2) 10.17(b) Gas Transportation Agreement between Exhibit 10.2 of Form 10-Q Texas Gas and Western Kentucky dated for quarter ended November 1, 1993 (Contract no. December 31, 1993 (File T3770, zone 2) No. 1-10042) 10.17(c) Gas Transportation Agreement between Exhibit 10.3 of Form 10-Q Texas Gas and Western Kentucky Gas for quarter ended dated November 1, 1993 (Contract no. December 31, 1993 (File T3355, zone 3) No. 1-10042) 10.17(d) Gas Transportation Agreement between Exhibit 10.4 of Form 10-Q Texas Gas and Western Kentucky Gas for quarter ended dated November 1, 1993 (Contract no. December 31, 1993 (File T3819, zone 4) No. 1-10042) 10.17(e) Gas Transportation Agreement between Exhibit 10.5 of Form 10-Q Texas Gas and Western Kentucky Gas for quarter ended dated November 1, 1993 (Contract no. December 31, 1993 (File N0210, zone 2, Contract no. N0340, No. 1-10042) zone 3, Contract no. N0435, zone 4) 10.18(a) Gas Transportation Agreement, Exhibit 10.17(a) of Form Contract No. 2550, dated September 10-K for fiscal year 1, 1993, between Tennessee Gas ended September 30, 1993 Pipeline Company, a division of (File No. 1-10042) Tenneco, Inc. ("Tennessee Gas"), and Western Kentucky, Campbellsville Service Area 72 Page Number or Exhibit Incorporation by Number Description Reference to -------- ------------------------------------ ------------------------- 10.18(b) Gas Transportation Agreement, Exhibit 10.17(b) of Form Contract No. 2546, dated September 10-K for fiscal year 1, 1993, between Tennessee Gas and ended September 30, 1993 Western Kentucky, Danville Service (File No. 1-10042) Area 10.18(c) Gas Transportation Agreement, Exhibit 10.17(c) of Form Contract No. 2385, dated September 10-K for fiscal year 1, 1993, between Tennessee Gas and ended September 30, 1993 Western Kentucky, Greensburg et al (File No. 1-10042) Service Area 10.18(d) Gas Transportation Agreement, Exhibit 10.17(d) of Form Contract No. 2551, dated September 10-K for fiscal year 1, 1993, between Tennessee Gas and ended September 30, 1993 Western Kentucky, Harrodsburg (File No. 1-10042) Service Area 10.18(e) Gas Transportation Agreement, Exhibit 10.17(e) of Form Contract No. 2548, dated September 10-K for fiscal year 1, 1993, between Tennessee Gas and ended September 30, 1993 Western Kentucky, Lebanon Service (File No. 1-10042) Area 10.19(a) *Employment Agreement dated April 1, Exhibit 10.3 of Form 10-Q 1995 between the Company and J. for quarter ended June Charles Goodman 30, 1995 (File No. 1- 10042) 10.19(b) *Employment Agreement amended and Exhibit 10(r)(ii) of Form (i) restated as of August 8, 1991, 10-K for fiscal year between the Company and Robert F. ended September 30, 1991 Stephens (File No. 1-10042) 10.19(b) *Letter dated May 3, 1995 amending Exhibit 10.1 of Form 10-Q (ii) the employment agreement between the for quarter ended June Company and Robert F. Stephens 30, 1995 (File No. 1- 10042) 10.19(c) *Employment Agreement amended and Exhibit 10(r)(iii) of restated as of August 8, 1991, Form 10-K for fiscal year between the Company and Don E. James ended September 30, 1991 (File No. 1-10042) 10.19(d) *Employment Agreement amended and Exhibit 10(r)(iv) of Form restated as of August 8, 1991, 10-K for fiscal year between the Company and James F. ended September 30, 1991 Purser (File No. 1-10042) 73 Page Number or Exhibit Incorporation by Number Description Reference to -------- ------------------------------------ ------------------------- 10.19(e) *Employment Agreement dated August Exhibit 10.18(g) of Form 11, 1993, between the Company and 10-K for fiscal year H.F. Harber ended September 30, 1993 (File No. 1-10042) 10.19(f) *Employment Agreement dated May 3, Exhibit 10.2 of Form 10-Q 1995 between the Company and Mary S. for quarter ended June Lovell 30, 1995 (File No. 1- 10042) 10.20 *1983 Incentive Stock Option Plan of Exhibit 10(u) of Form 10- Energas Company K for fiscal year ended September 30, 1990 (File No. 1-10042) 10.21 *The Atmos Energy Corporation Exhibit (10)(t) of Form Supplemental Executive Benefits 10-K for fiscal year Plan, effective October 1, 1987, ended September 30, 1992 Restated as of November 11, 1992 (File No. 1-10042) 10.22(a) *The Atmos Energy Corporation Exhibit (10)(u) of Form Restricted Stock Grant Plan, 10-K for fiscal year effective October 1, 1987, amended ended September 30, 1992 and restated as of May 13, 1992 (File No. 1-10042) 10.22(b) *Amendment No. 1 to the Atmos Energy Exhibit 10.1 of Form 10-Q Corporation Restricted Stock Grant for the quarter ended Plan (Restated as of May 13, 1992) December 31, 1992 (File No. 1-10042) 10.22(c) *Amendment No. 2 to the Atmos Energy Exhibit 10 of Form 10-Q Corporation Restricted Stock Grant for the quarter ended Plan (Restated as of May 13, 1992) June 30, 1993 (File No. 1-10042) 10.22(d) *Amendment No. 3 to the Atmos Energy Exhibit 10.21(d) of Form Corporation Restricted Stock Grant 10-K for fiscal year Plan (Restated as of May 13, 1992) ended September 30, 1993 (File No. 1-10042) 10.23 *Atmos Energy Corporation Annual Exhibit 10(x) of Form 10- Performance Bonus Plan for Corporate K for fiscal year ended Officers, restated as of November 8, September 30, 1990 (File 1989 No. 1-10042) 10.24(a) *Atmos Energy Corporation Mini-Med Exhibit 10(w)(i) of Form Plan, as restated effective April 1, 10-K for fiscal year 1989 ended September 30, 1992 (File No. 1-10042) 74 Page Number or Exhibit Incorporation by Number Description Reference to -------- ------------------------------------ ------------------------- 10.24(b) *Amendment No. 1 to the Atmos Energy Exhibit (10)(w)(ii) of Corporation Mini-Med Plan Form 10-K for fiscal year ended September 30, 1992 (File No. 1-10042) 10.24(c) *Amendment No. 2 to the Atmos Energy Exhibit (10)(w)(iii) of Corporation Mini-Med Plan Form 10-K for fiscal year ended September 30, 1992 (File No. 1-10042) 10.24(d) *Amendment No. 3 to the Atmos Energy Exhibit 10(w)(iv) of Form Corporation Mini-Med Plan 10-K for fiscal year ended September 30, 1992 (File No. 1-10042) 10.24(e) *Amendment No. 4 to the Atmos Energy Exhibit 10.23(e) of Form Corporation Mini-Med Plan 10-K for fiscal year ended September 30, 1993 (File No. 1-10042) 10.25 *Atmos Energy Corporation Deferred Exhibit 10(x) of Form 10- Compensation Plan for Outside K for fiscal year ended Directors September 30, 1992 (File No. 1-10042) 10.26 *Atmos Energy Corporation Retirement Exhibit 10(y) of Form 10- Plan for Outside Directors K for fiscal year ended September 30, 1992 (File No. 1-10042) 10.27(a) *Description of Car Allowance Exhibit 10.26(a) of Form Payments 10-K for fiscal year ended September 30, 1993 (File No. 1-10042) 10.27(b) *Description of Financial and Estate Exhibit 10.26(b) of Form Planning Program 10-K for fiscal year ended September 30, 1993 (File No. 1-10042) 10.27(c) *Description of Sporting Events Exhibit 10.26(c) of Form Program 10-K for fiscal year ended September 30, 1993 (File No. 1-10042) 10.28(a) Seventh Supplemental Indenture, Exhibit 10.1 of Form 10-Q dated as of October 1, 1983 between for quarter ended June Greeley Gas Company ("The Greeley 30, 1994 (File No. 1- Gas Division") and the Central Bank 10042) of Denver, N.A. ("Central Bank") 75 Page Number or Exhibit Incorporation by Number Description Reference to -------- ------------------------------------ ------------------------- 10.28(b) Ninth Supplemental Indenture, dated Exhibit 10.2 of Form 10-Q as of April 1, 1991, between The for quarter ended June Greeley Gas Division and Central 30, 1994 (File No. 1- Bank 10042) 10.28(c) Bond Purchase Agreement, dated as of Exhibit 10.3 of Form 10-Q April 1, 1991, between The Greeley for quarter ended June Gas Division and Central Bank 30, 1994 (File No. 1- 10042) 10.28(d) Tenth Supplemental Indenture, dated Exhibit 10.4 of Form 10-Q as of December 1, 1993, between the for quarter ended June Company and Colorado National Bank, 30, 1994 (File No. 1- formerly Central Bank 10042) 10.29 *The Atmos Energy Corporation Exhibit 4.5 of Form S-8 Outside Directors Stock-for-Fee Plan for Atmos' Outside Directors Stock-for-Fee Plan filed February 14, 1995 (Registration No. 33-57695) 11 Not applicable 12 Not applicable 13 Not applicable 16 Not applicable 18 Not applicable 21 Subsidiaries of the registrant 22 Not applicable 23 Consent of independent auditors 24 Power of Attorney Signature page of Form 10-K for fiscal year ended September 30, 1995 27 Financial Data Schedule for Atmos for year ended September 30, 1995 28 Not applicable 99 Not applicable _________________________ * This exhibit constitutes a "management contract or compensatory plan, contract, or arrangement." 76 EX-3 2 EXHIBIT 3.1 ----------- RESTATED ARTICLES OF INCORPORATION OF ATMOS ENERGY CORPORATION ARTICLE I. The name of the corporation shall be Atmos Energy Corporation (the "Corporation"). ARTICLE II. The purpose for which the Corporation is organized is the transaction of any or all lawful business for which corporations may be incorporated under the Texas Business Corporation Act, including, but not limited to, the following: the transportation and distribution of natural gas by pipeline as a public utility. ARTICLE III. The post office address of the registered office of this Corporation is Three Lincoln Centre, Suite 1800, 5430 LBJ Freeway, Dallas, Texas 75246, and the registered agent for service of this Corporation at the same address is Don E. James. ARTICLE IV. The period of the Corporation's duration shall be perpetual. ARTICLE V. The Corporation shall not commence business until it has received for the shares consideration of the value of One Thousand Dollars ($1,000) consisting of money, labor done or property actually received. ARTICLE VI. The number of directors constituting the present board of directors is nine (9); however, thereafter the number of directors constituting the Board of Directors shall be fixed by the Bylaws of the Corporation. No director shall be removed during his term of office except for cause and by the affirmative vote of the holders of seventy-five percent (75%) of the shares then entitled to vote at an election of directors. The names and addresses of the persons who are to serve as directors until the next annual meeting of the shareholders or until their successors are duly elected and qualified are as follows: Name Address Charles K. Vaughan Three Lincoln Centre Suite 1800 5430 LBJ Freeway Dallas, TX 75246 Travis W. Bain II 502 Genesco Park Nashville, TN 37202 Paul L. Bell 1401 Elm Street Suite 1818 Dallas, Texas 75202 Dan Busbee 2200 Ross Avenue Suite 2200 Dallas, TX 75201 Ronald L. Fancher 1409 French Odessa, TX 79761 Phillip E. Nichol P.O. Box 32500 Amarillo, TX 79120 John W. Norris, Jr. P.O. Box 809000 Dallas, TX 75380 William M. Quackenbush 2315 Harmony Amarillo, TX 79106 Dewey G. Williams P.O. Box 2759 Dallas, TX 75221 ARTICLE VII. 1. Capitalization. The aggregate number of shares which the Corporation shall have the authority to issue is Seventy-Five Million (75,000,000) shares of Common Stock having no par value. - 2 - 2. Designation and Statement of Preferences, Limitations and Relative Rights of Common Stock. 2.01 Subject to the provisions of the Texas Business Corporation Act and to the conditions set forth in any Resolution of the Board of Directors of the Corporation, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors may be declared and paid on the Common Stock from time to time out of any funds legally available therefor. 2.02 The holders of the Common Stock shall exclusively possess full voting power for the election of directors and for all other purposes. In the exercise of its voting power, the Common Stock shall be entitled to one vote for each share held. 3. Provisions Applicable to All Classes of Stock. 3.01 Subject to applicable law, the Board of Directors may in its discretion issue from time to time authorized but unissued shares for such consideration as it may determine. The shareholders shall have no pre-emptive rights, as such holders, to purchase any shares or securities of any class which may at any time be sold or offered for sale by the Corporation. 3.02 At each election for directors every shareholder entitled to vote at any meeting shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are directors to be elected. Cumulative voting of shares of stock in the election of directors or otherwise is hereby expressly prohibited. 3.03 The Corporation shall be entitled to treat the person in whose name any share or other security is registered as the owner thereof, for all purposes, and shall not be bound to recognize any equitable or other claim to or interest in such shares or other security on the part of any other person, whether or not the Corporation shall have notice thereof. 4. Provisions Applicable to Certain Business Combinations. - 3 - 4.01 The affirmative vote of the holders of not less than seventy-five percent (75%) of the outstanding shares of "Voting Stock" (as hereinafter defined) held by stockholders other than a "Substantial Shareholder" (as hereinafter defined) shall be required for the approval or authorization of any "Business Combination" (as hereinafter defined) of the Corporation with any Substantial Shareholder; provided, however, that the seventy-five percent (75%) voting requirement shall not be applicable if either: (i) The "Continuing Directors" (as hereinafter defined) of the Corporation by the affirmative vote of at least a majority (a) have expressly approved in advance the acquisition of the outstanding shares of Voting Stock that caused such Substantial Shareholder to become a Substantial Shareholder, or (b) have expressly approved such Business Combination either in advance of or subsequent to such Substantial Shareholder's having become a Substantial Shareholder; or (ii) The cash or fair market value (as determined by at least a majority of the Continuing Directors) of the property, securities or other consideration to be received per share by holders of Voting Stock of the Corporation in the Business Combination is not less than the "Highest Per Share Price" or the "Highest Equivalent Price" (as these terms are hereinafter defined) paid by the Substantial Shareholder in acquiring any of its holdings of the Corporation's Voting Stock. 4.02 For purposes of this paragraph 4 of Article VII: (i) The term "Business Combination" shall include, without limitation, (a) any merger or consolidation of the Corporation, or any entity controlled by or under common control with the Corporation, with or into any Substantial Shareholder, or any entity controlled by or under common control with the Substantial Shareholder, (b) any merger or consolidation of a Substantial Shareholder, or any entity controlled by or under common control with the Corporation, (c) any sale, lease, exchange, transfer or other disposition of all or substantially all of the property and assets of the Corporation, or any entity controlled by or under common control with the Corporation, to a Substantial Shareholder, or any entity controlled by or under common control with the Substantial Shareholder, (d) any purchase, lease, exchange, transfer or other acquisition of all or substantially all of the property and assets of a Substantial Shareholder or any entity controlled by or under common control with the Corporation, (e) any recapitalization of the Corporation that would have the - 4 - effect of increasing the voting power of a Substantial Shareholder, and (f) any agreement, contract or other arrangement providing for any of the transactions described in this definition of Business Combination. (ii) The term "Substantial Shareholder" shall mean and include any individual, corporation, partnership or other person or entity which, together with its "Affiliates" and "Associates" (as those terms are defined in Rule 12b-2 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") as in effect at the date of the adoption hereof), "Beneficially Owns" (as defined in Rule 13d-3 of the Exchange Act) an aggregate of 10 percent or more of the outstanding Voting Stock of the Corporation, and any Affiliate or Associate of any such individual, corporation, partnership or other person or entity. (iii) Without limitation, any share of Voting Stock of the Corporation that any Substantial Shareholder has the right to acquire at any time (notwithstanding that Rule 13d-3 of the Exchange Act deems such shares to be beneficially owned only if such right may be exercised within 60 days) pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise, shall be deemed to be Beneficially Owned by the Substantial Shareholder and to be outstanding for purposes of clause (ii) above. (iv) For the purposes of subparagraph 4.01(ii) of this paragraph 4 of Article VII, the term "other consideration to be received" shall include, without limitation, Common Stock or other capital stock of the Corporation retained by its existing stockholders other than Substantial Shareholders or other parties to such Business Combination in the event of a Business Combination in which the Corporation is the surviving corporation. (v) The term "Voting Stock" shall mean all of the outstanding shares of Common Stock entitled to vote on each matter on which the holders of record of Common Stock shall be entitled to vote, and each reference to a proportion of shares of Voting Stock shall refer to such proposition of the votes entitled to be cast by such shares. (vi) The term "Continuing Director" shall mean a Director who was a member of the Board of Directors of the Corporation immediately prior to the time that the Substantial Shareholder involved in a Business Combination became a Substantial Shareholder. - 5 - (vii) A Substantial Shareholder shall be deemed to have acquired a share of the Voting Stock of the Corporation at the time when such Substantial Shareholder became the Beneficial Owner thereof. With respect to the shares owned by Affiliates, Associates or other persons whose ownership is attributed to a Substantial Shareholder under the foregoing definition of Substantial Shareholder, if the price is paid by such Substantial Shareholder for such shares is not determinable by a majority of the Continuing Directors, the price so paid shall be deemed to be the higher of (a) the price paid upon the acquisition thereof by the Affiliate, Associate or other person or (b) the market price of the shares in question at the time when the Substantial Shareholder became the Beneficial Owner thereof. (viii) The terms "Highest Per Share Price" and "Highest Equivalent Price" as used in this paragraph 4 of Article VII shall mean the highest price that can be determined to have been paid at any time by the Substantial Shareholder for any share or shares of that class of capital stock. If there is more than one class of capital stock of the Corporation issued and outstanding, the Highest Equivalent Price shall mean with respect to each class and series of capital stock of the Corporation the amount determined by a majority of the Continuing Directors, on whatever basis they believe is appropriate, to be the highest per share price equivalent to the highest price that can be determined to have been paid at any time by the Substantial Shareholder for any share or shares of any class or series of capital stock of the Corporation. In determining the Highest Per Share Price and Highest Equivalent Price, all purchases by the Substantial Shareholder shall be taken into account regardless of whether the shares were purchased before or after the Substantial Shareholder became a Substantial Shareholder. The Highest Per Share Price and the Highest Equivalent Price shall include any brokerage commissions, transfer taxes and soliciting dealers' fees paid by the Substantial Shareholder with respect to the shares of capital stock of the Corporation acquired by the Substantial Shareholder. In the case of any Business Combination with a Substantial Shareholder, the Continuing Directors shall determine the Highest Per Share Price or the Highest Equivalent Price for each class and series of the capital stock of the Corporation. 4.03 The provisions set forth in this paragraph 4 of Article VII may not be amended, altered, changed or repealed in any respect unless such action is approved by the affirmative vote of the holders of not less than seventy-five percent (75%) of the outstanding shares of Voting Stock (as - 6 - defined in this Article VII) of the Corporation at a meeting of the shareholders duly called for the consideration of such amendment, alteration, change or repeal; provided, however, that if there is a Substantial Shareholder (as defined in this Article VII), such action must also be approved by the affirmative vote of the holders of not less than seventy-five percent (75%) of the outstanding shares of Voting Stock held by the shareholders other than the Substantial Shareholder. ARTICLE VIII. The power to alter, amend or repeal the Corporation's bylaws, and to adopt new bylaws, is hereby vested in the Board of Directors, subject, however, to repeal or change by the affirmative vote of the holders of seventy-five percent (75%) of the outstanding shares entitled to vote thereon. ARTICLE IX. The Corporation shall indemnify, to the fullest extent permitted by law, any person who was, is, or is threatened to be made a named defendant or respondent in any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, arbitrative, or investigative, any appeal in such action, suit, or proceeding, and any inquiry or investigation that could lead to such an action, suit, or proceeding, by reason of the fact that such person is or was a director or officer of the Corporation, or, while such person was a director of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent, or similar functionary of another corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan, or other enterprise, against judgments, penalties (including excise and similar taxes), fines, settlements, and reasonable expenses (including attorney's fees) actually incurred by such person in connection with such action, suit, or proceeding. In addition to the foregoing, the Corporation shall, upon request of any such person described above and to the fullest extent permitted by law, pay or reimburse the reasonable expenses incurred by such person in any action, suit, or proceeding described above in advance of the final disposition of such action, suit, or proceeding. ARTICLE X. No director of the Corporation shall be personally liable to the Corporation or its shareholders for monetary damages for an act or omission in such director's capacity as a - 7 - director, except for liability for (i) a breach of the director's duty of loyalty to the Corporation or its shareholders; (ii) an act or omission not in good faith or that involves intentional misconduct or a knowing violation of the law; (iii) a transaction from which the director received an improper benefit, whether or not the benefit resulted from an action taken within the scope of the director's office; (iv) an act or omission for which the liability of a director is expressly provided by statute; or (v) an act related to an unlawful stock repurchase or payment of a dividend. If the laws of the State of Texas are hereafter amended to authorize corporate action further eliminating or limiting the personal liability of a director of the Corporation, then the liability of a director of the Corporation shall thereupon automatically be eliminated or limited to the fullest extent permitted by such laws. Any repeal or modification of this Article X by the shareholders of the Corporation shall not adversely affect any right or protection of a director existing at the time of such repeal or modification with respect to such events or circumstances occurring or existing prior to such time. - 8 - EX-3 3 EXHIBIT 3.2 ----------- BYLAWS OF ATMOS ENERGY CORPORATION ARTICLE I OFFICES 1.01 Registered Office. The registered office shall be located in the City of Dallas, County of Dallas, State of Texas. 1.02 Other Offices. The corporation also may have offices at such other places both within and without the State of Texas as the Board of Directors may from time to time determine or as the business of the corporation may require. ARTICLE II MEETINGS OF SHAREHOLDERS 2.01 Place of Meetings. All meetings of shareholders for the election of directors or for any other proper purposes shall be held at such place within or without the State of Texas as the Board of Directors may from time to time designate, as stated in the notice of such meeting or a duly executed waiver of notice thereof. 2.02 Annual Meeting. An annual meeting of shareholders shall be held at 11:00 a.m. on the second Wednesday of February of each year commencing in 1989, unless such day is a legal holiday, in which case such meeting shall be held at the specified time on the next full business day thereafter which is not a legal holiday. At such meeting the shareholders entitled to vote thereat shall elect a Board of Directors and may transact such other business as may properly be brought before the meeting. 2.03 Special Meetings. Special meetings of shareholders may be called by the Chairman of the Board of Directors, the President, a majority of the Board of Directors, or as otherwise provided in the Articles of Incorporation or the Texas Business Corporation Act. 2.04 Notice of Annual or of Special Meeting. Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting, either personally or by mail, by or at the direction of the Chairman of the Board, President, Secretary, or the officer or person calling the meeting to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid. 2.05 Notice of Shareholder Proposals. At any annual meeting, only such business shall be conducted as shall have been brought before the annual meeting by or at the direction of the Board of Directors or by any shareholder who complies with the procedures set forth in this Section 2.05. Except as otherwise provided by the Articles of Incorporation, the only business which shall be conducted at any annual meeting of the shareholders shall (i) have been specified in the written notice of the meeting (or any supplement thereto) given as provided in Section 2.04 of the Bylaws, (ii) be brought before the meeting at the direction of the Board of Directors or the Chairman of the meeting or (iii) have been specified in a written notice (a "Shareholder Meeting Notice") given to the corporation, in accordance with all of the following requirements, by or on behalf of any shareholder who shall have been a shareholder of record on the record date for such meeting and who shall continue to be entitled to vote thereat. Each Shareholder Meeting Notice must be delivered or mailed by first class United States mail, postage prepaid, to and received by, the Secretary of the corporation, at the principal executive offices of the corporation, not less than 50 days nor more than 75 days prior to the annual meeting; provided, however, that if less than 65 days' notice or prior public disclosure of the date of the annual meeting is given or made to shareholders, notice by the shareholder to be timely must be received by the Secretary of the corporation not later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. Each Shareholder Meeting Notice shall set forth: (i) a description of each item of business proposed to be brought before the meeting; (ii) the name and address of the shareholder proposing to bring such item of business before the meeting; (iii) the class and number of shares of stock held of record, owned beneficially and represented by proxy by such shareholder as of the record date for the meeting (if such date shall then have been made publicly available) and as of the date of such Shareholder Meeting Notice; and (iv) all other information which would be required to be included in a proxy statement filed with the Securities and Exchange Commission if, with respect to any such item of business, such shareholder were a participant in a solicitation subject to Section 14 of the Securities Exchange Act of 1934. No business shall be brought before any meeting of shareholders of the corporation otherwise than as provided in this paragraph or the Articles of Incorporation. 2.06 Business at Special Meeting. The business transacted at any special meeting of shareholders shall be limited to the purposes stated in the notice thereof. - 2 - 2.07 Quorum of Shareholders. Unless otherwise provided in the Articles of Incorporation, the holders of a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If, however, a quorum shall not be present or represented at any meeting of the shareholders, the shareholders present in person or represented by proxy shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. 2.08 Act of Shareholders' Meeting. The vote of the holders of a majority of the shares entitled to vote and thus represented at a meeting at which a quorum is present shall be the act of the shareholders' meeting, unless the vote of a greater number is required by law, the Articles of Incorporation, or these Bylaws. 2.09 Voting of Shares. Each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders, except to the extent that the voting rights of the shares of any class are limited or denied by the Articles of Incorporation or are otherwise provided by law. Cumulative voting in the election of directors or otherwise is expressly prohibited by the Articles of Incorporation. At each election for directors, every shareholder entitled to vote at such election shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are directors to be elected and for whose election he has the right to vote. 2.10 Proxies. At any meeting of the shareholders, each shareholder having the right to vote shall be entitled to vote either in person or by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. Any such proxy shall be delivered to the secretary of such meeting at or prior to the time designated by the chairman of the meeting or in the order of business for so delivering such proxies. No proxy shall be valid after eleven (11) months from the date of its execution unless otherwise provided in the proxy. Each proxy shall be revocable unless expressly provided therein to be irrevocable and unless otherwise made irrevocable by law. Unless required by statute or determined by the chairman of the meeting to be advisable, the vote on any question need not be by ballot. On a vote by ballot, each ballot shall be signed by the shareholder voting or by such shareholder's proxy, if there be such proxy. 2.11 Voting List. The officer or agent having charge of the stock transfer books for shares of the corporation shall make, at least ten (10) days before each meeting of shareholders, - 3 - a complete list of the shareholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and number of shares held by each shareholder, which list, for a period of ten (10) days prior to such meeting, shall be kept on file at the registered office of the corporation and shall be subject to the inspection by any shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original stock transfer books shall be prima facie evidence as to who are the shareholders entitled to examine such list or transfer books or to vote at any such meeting of shareholders. 2.12 Order of Business. The order of business of each meeting of the shareholders of the corporation shall be determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority to prescribe such rules, regulations, and procedures and to do all such acts and things as are necessary or desirable for the conduct of the meeting, including, without limitation, the establishment of the procedures for the dismissal of business not properly presented, maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the corporation, restrictions on entry to such meetings after the time prescribed for commencement thereof, and the opening and closing of the voting polls. 2.13 Action by Written Consent Without a Meeting. Any action required or permitted by law, the Articles of Incorporation or these Bylaws to be taken at a meeting of the shareholders may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the shareholders entitled to vote with respect to the subject matter thereof. Such consent shall have the same force and effect as a unanimous vote of shareholders. ARTICLE III BOARD OF DIRECTORS 3.01 Powers. The business and affairs of the corporation shall be managed by its Board of Directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by law, the Articles of Incorporation or these Bylaws directed or required to be exercised and done by the shareholders. 3.02 Number of Directors. The number of directors of the corporation constituting the Board of Directors shall be not less than three (3) nor more than fifteen (15). The first Board of Directors shall consist of three (3) directors; thereafter, the number of directors shall be determined in accordance with these - 4 - Bylaws by resolution of the Board of Directors or of the shareholders, but no decrease shall have the effect of shortening the term of any incumbent director. 3.03 Election and Term. The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one- third of the total number of directors constituting the entire Board of Directors. At the 1989 annual meeting of shareholders, Class I directors shall be elected for a one-year term, Class II directors for a two-year term and Class III directors for a three-year term. At each succeeding annual meeting of shareholders beginning in 1990, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. Directors shall be elected by a majority vote of the shares entitled to vote in the election of directors and represented in person or by proxy at a meeting of shareholders at which a quorum is present. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. 3.04 Nominations of Directors. Nominations for election to the Board of Directors of the corporation at a meeting of shareholders may be made by the Board of Directors, or by any shareholder of the corporation entitled to vote for the election of directors at such meeting. Such nominations, other than those made by the Board of Directors, shall be made by notice in writing delivered or mailed by first class United States mail, postage prepaid, to and received by the Secretary of the corporation, at the principal executive offices of the corporation, not less than 50 days nor more than 75 days prior to any meeting of shareholders called for the election of directors; provided, however, that if less than 65 days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, such nomination shall have been received by the Secretary of the corporation not later than the close of business on the tenth day following the day on which the notice of meeting was mailed or such public disclosure was made. Such notice shall set forth: (i) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; (ii) the class and number of shares of stock held of record, owned beneficially and represented by proxy by such shareholder as of the record date for the meeting (if such date - 5 - shall then have been made publicly available) and of the date of such notice; (iii) a representation that the shareholder is a holder of record of stock of the corporation entitled to vote at such meeting and that the shareholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iv) a description of all arrangements or understandings between such shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such shareholder; (v) such other information regarding each nominee proposed by such shareholder as would be required to be disclosed in solicitations for proxies for election of directors pursuant to the proxy rules of the Securities and Exchange Commission; and (vi) the consent of each nominee to serve as a director of the corporation if so elected. The presiding officer of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. 3.05 Vacancies. Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining directors although less than a quorum of the Board of Directors. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Any directorship to be filled by reason of an increase in the number of directors may be filled by election at an annual meeting or special meeting of shareholders called for that purpose or may be filled by the board of directors for a term of office continuing only until the next election of one or more directors by the shareholders; provided, however, that the board of directors may not fill more than two such directorships during the period between any two successive annual meetings of shareholders. 3.06 Resignation and Removal. Any director may resign at any time upon giving written notice to the corporation. No director shall be removed during his term of office except for cause and by the affirmative vote of the holders of seventy-five percent (75%) of the shares then entitled to vote at an election of directors. If the shareholders of this corporation are then entitled to cumulative voting in the election of directors and if less than the entire Board is to be removed, no one of the directors may be removed if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors, or if there be classes of directors, at an election of the class of directors of which he is a part. 3.07 Compensation of Directors. As specifically prescribed from time to time by resolution of the Board of Directors, the directors of the corporation may be paid their expenses of attendance at each meeting of the Board and may be paid a fixed sum for attendance at each meeting of the Board or a stated salary in their capacity as directors. This provision shall not preclude any director from serving the corporation in - 6 - any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. ARTICLE IV MEETINGS OF THE BOARD 4.01 First Meeting. The first meeting of each newly elected Board of Directors shall be held without further notice immediately following and at the same place as the annual meeting of shareholders unless, by unanimous consent of the directors then elected and serving, such time or place shall be changed. At such meeting, the Board of Directors shall elect one of its members to be Chairman of the Board, who shall preside at all meetings of the shareholders and the Board of Directors and perform such other duties as the Board of Directors shall prescribe and who shall serve as an ex-officio member of all committees of the Board. 4.02 Regular Meeting. Regular meetings of the Board of Directors may be held with or without notice at such time and at such place either within or without the State of Texas as from time to time shall be prescribed by resolution of the Board of Directors. 4.03 Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors or the President, and shall be called by the Chairman of the Board of Directors, the President or the Secretary on the written request of two directors. Written notice of special meetings of the Board of Directors shall be given to each director at least two (2) days before the date of the meeting. 4.04 Business at Regular or Special Meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. 4.05 Quorum of Directors. A majority of the Board of Directors shall constitute a quorum for the transaction of business, unless a greater number is required by law or the Articles of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement of the meeting, until a quorum shall be present. 4.06 Act of Directors' Meeting. The act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors unless the act of a greater number is required by law, the Articles of Incorporation, or these Bylaws. - 7 - 4.07 Action by Written Consent Without a Meeting. Any action required or permitted by law, the Articles of Incorporation or these Bylaws to be taken at a meeting of the Board of Directors or any committee thereof may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all members of the Board of Directors or committee, as the case may be. Such consent shall have the same force and effect as a unanimous vote at such meeting. ARTICLE V COMMITTEES The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may designate from among its members an executive committee and one or more other committees, each of which shall be comprised of one or more members and, to the extent provided in such resolution or in the Articles of Incorporation or in these Bylaws, shall have and may exercise all of the authority of the Board of Directors, except that no such committee shall have the authority of the Board of Directors in reference to amending the Articles of Incorporation, approving a plan of merger or consolidation, recommending to the shareholders the sale, lease, or exchange of all or substantially all of the property and assets of the corporation otherwise than in the usual and regular course of its business, recommending to the shareholders a voluntary dissolution of the corporation or a revocation thereof, amending, altering, or repealing the Bylaws of the corporation or adopting new Bylaws for the corporation, filling vacancies in the Board of Directors or any such committee, electing or removing officers, members of the Board of directors or members of any such committee, fixing the compensation of any member of such committee, or altering or repealing any resolution of the Board of Directors which by its terms provides that it shall not be so amendable or repealable. No such committee shall have the power or authority to declare a dividend or to authorize the issuance of shares of the corporation. Vacancies in the membership of the committee shall be filled by the Board of Directors at a regular or special meeting of the Board. The executive committee shall keep regular minutes of its proceedings and report the same to the Board when required. The designation of such committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed upon it or him by law. ARTICLE VI NOTICES 6.01 Methods of Giving Notice. Whenever any notice is required to be given to any shareholder or director under the provisions of any statute, the Articles of Incorporation or these - 8 - Bylaws, it shall be given in writing and delivered personally or mailed to such shareholder or director at such address as appears on the books of the corporation, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail with sufficient postage thereon prepaid. Notice to directors may also be given by telegram or electronic communication, and notice given by such means shall be deemed given at the time it is delivered to the telegraph office or transmitted by means of electronic communication. 6.02 Waiver of Notice. Whenever any notice is required to be given to any shareholder or director under the provisions of any law, the Articles of Incorporation or these Bylaws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. 6.03 Attendance as Waiver. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. ARTICLE VII ACTION WITHOUT A MEETING BY USE OF CONFERENCE TELEPHONE OR SIMILAR COMMUNICATIONS EQUIPMENT Subject to the provisions requiring or permitting notice of meeting, unless otherwise restricted by the Articles of Incorporation or these Bylaws, shareholders, members of the Board of Directors or members of any committee designated by such Board may participate in and hold a meeting of such shareholders, Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. ARTICLE VIII OFFICERS 8.01 Executive Officers. The officers of the corporation shall consist of a President, one or more Vice Presidents, a Secretary, and a Treasurer, and may also include the Chairman of the Board if so designated as an officer by the Board of Directors and such other officers as are provided for in Section 8.03 of this Article. Any Vice President of the corporation may, - 9 - by the addition of a number or a word or words before or after the title "Vice President", be designated "Senior Executive", "Executive", "Senior", "Trust", "Second" or "Assistant" Vice President. Each officer of the corporation shall be elected by the Board of Directors as provided in Section 8.02 of this Article. Any two or more offices may be held by the same person. 8.02 Election and Qualification. The Board of Directors, at its first meeting after each annual meeting of shareholders, shall choose a President, one or more Vice Presidents, a Secretary, and a Treasurer, none of whom need be a member of the Board. The Board also may elect one or more Assistant Secretaries and Assistant Treasurers. 8.03 Other Officers and Agents. The Board of Directors may elect or appoint such other officers, assistant officers and agents as may be necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. 8.04 Salaries. The salaries of all officers and agents of the corporation shall be fixed by resolution of the Board of Directors. 8.05 Term, Removal and Vacancies. Each officer of the corporation shall hold office until his successor is chosen and qualified or until his death, resignation or removal. Any officer may resign at any time upon giving written notice to the corporation. Any officer or agent or member of a committee elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interest of the corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent or member of a committee shall not of itself create contract rights. Any vacancy occurring in any office of the corporation by death, resignation, removal or otherwise shall be filled by the Board of Directors. 8.06 Chief Executive Officer. The Board of Directors shall designate whether the Chairman of the Board or the President shall be the chief executive officer of the corporation. The chief executive officer shall have all of the powers and duties as usually pertain to such position, including the power to make and sign contracts and agreements in the name of and on behalf of the corporation and all other powers and duties granted by these Bylaws to the President of the corporation. In the event the Chairman of the Board is designated the chief executive officer of the corporation, the Chairman of the Board shall have supervisory powers over the President, all other officers of the corporation, and the business activities of the corporation. - 10 - 8.07 President. The President shall be the chief operating officer of the corporation and shall have such powers and duties as usually pertain to such office, except as the same may be modified by the Board of Directors. The President shall have general powers of oversight, supervision and management of the business and affairs of the corporation, shall see that all orders and resolutions of the Board of Directors are carried into effect, and shall have the power to make and sign contracts and agreements in the name and on behalf of the corporation and to do or perform all other acts incident to the office of President or that are authorized or required by law. The President shall preside at meetings of the shareholders in the absence of the Chairman of the Board. If the President is also a member of the Board, he shall be ex-officio a member of all committees of the Board and shall preside, in the absence of the Chairman of the Board, at meetings of the Board. 8.08 Vice President. Unless otherwise determined by the Board of Directors, one of the Vice Presidents shall, in the absence or disability of the President, perform the duties and exercise the powers of the President. The various Vice Presidents shall perform such other duties and have such other powers as the Board of Directors shall prescribe. 8.09 Secretary. The Secretary shall attend all meetings of the Board of Directors and of the shareholders, record all the proceedings of the meetings of the Board of Directors and of the shareholders in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the shareholders and special meetings as may be prescribed by the Board of Directors, Chairman of the Board, or the President. He shall keep in safe custody the seal of the corporation, and, when authorized by the Board of Directors, affix the same to any instrument requiring it, and, when so affixed, it shall be attested by his signature or by the signature of the Treasurer or an Assistant Secretary. 8.10 Assistant Secretaries. An Assistant Secretary, unless otherwise determined by the Board of Directors, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary. They shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. 8.11 Treasurer. The Treasurer shall have the custody of the corporate funds and securities, shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board of Directors, taking proper vouchers for such - 11 - disbursements, and shall render to the Chairman of the Board (if he is the chief executive officer), President, and the Board of Directors at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer, and of the financial condition of the corporation. 8.12 Assistant Treasurers. An Assistant Treasurer, unless otherwise determined by the Board of Directors, shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer. They shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. 8.13 Officer's Bond. If required by the Board of Directors, any officer so required shall give the corporation a bond (which shall be renewed as the Board may require) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of any and all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. ARTICLE IX INDEMNIFICATION OF OFFICERS AND DIRECTORS Subject to any limitation which may be contained in the Articles of Incorporation, the corporation shall indemnify, to the fullest extent permitted by law, any person who was, is, or is threatened to be made a named defendant or respondent in any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, arbitrative, or investigative, any appeal in such action, suit, or proceeding, and any inquiry or investigation that could lead to such an action, suit or proceeding, by reason of the fact that such person is or was a director or officer of the corporation, or, while such person was a director of the corporation, is or was serving at the request of the corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent, or similar functionary of another corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan, or other enterprise, against judgments, penalties (including excise and similar taxes), fines, settlements, and reasonable expenses (including attorney's fees) actually incurred by such person in connection with such action, suit, or proceeding. In addition to the foregoing, the corporation shall, upon request of any such person described above and to the fullest extent permitted by law, pay or reimburse the reasonable expenses incurred by such person in any action, suit, or proceeding described above in advance of the final disposition of such action, suit, or proceeding. - 12 - ARTICLE X CERTIFICATES FOR SHARES 10.01 Certificates Representing Shares. The corporation shall deliver certificates representing all shares to which shareholders are entitled. Such certificates shall be numbered and shall be entered in the books of the corporation as they are issued, and shall be signed by the Chairman of the Board, President, or a Vice President, and the Secretary or an Assistant Secretary of the corporation, and may be sealed with the seal of the corporation or a facsimile thereof. The signatures of the Chairman of the Board, President, or Vice President, and the Secretary or Assistant Secretary, upon a certificate may be facsimiles, if the certificate is countersigned by a transfer agent or registered by a registrar, either of which is other than the corporation itself or an employee of the corporation. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of its issuance. If the corporation is authorized to issue shares of more than one class, each certificate representing shares issued by such corporation (1) shall conspicuously set forth on the face or back of the certificate a full statement of (a) all of the designations, preferences, limitations and relative rights of the shares of each class authorized to be issued and, (b) if the corporation is authorized to issue shares of any preferred or special class in series, the variations in the relative rights and preferences of the shares of each such series to the extent the same have been fixed and determined and the authority of the Board of Directors to fix and determine the relative rights and preferences of subsequent series; or (2) shall conspicuously state on the face or back of the certificate that (a) such a statement is set forth in the Articles of Incorporation on file in the office of the Secretary of State of Texas and (b) the corporation will furnish a copy of such statement to the record holder of the certificate without charge on written request to the corporation at its principal place of business or registered office. If the corporation has by its Articles of Incorporation limited or denied the preemptive right of shareholders to acquire unissued or treasury shares of the corporation, each certificate representing shares issued by such corporation (1) shall conspicuously set forth on the face or back of the certificate a full statement of the limitation or denial of preemptive rights contained in the Articles of Incorporation, or (2) shall conspicuously state on the face or back of the certificate that (a) such a statement is set forth in the Articles of Incorporation on file in the office of the Secretary of State of Texas and (b) the corporation will furnish a copy of such statement to the record holder of the certificate without charge on request to the corporation at its principal place of business or registered office. Each certificate - 13 - representing shares shall state upon the face thereof that the corporation is organized under the laws of the State of Texas, the name of the person to whom issued, the number and class of shares and the designation of the series, if any, which such certificate represents and the par value of each share represented by such certificate or a statement that the shares are without par value. No certificate shall be issued for any share until the consideration therefor, fixed as provided by law, has been fully paid. 10.02 Restriction on Transfer of Shares. If any restriction on the transfer, or registration of the transfer, of shares shall be imposed or agreed to by the corporation, as permitted by law, the Articles of Incorporation or these Bylaws, each certificate representing shares so restricted (1) shall conspicuously set forth a full or summary statement of the restrictions on the face of the certificate, or (2) shall set forth such statement on the back of the certificate and conspicuously refer to the same on the face of the certificate, or (3) shall conspicuously state on the face or back of the certificate that such a restriction exists pursuant to a specified document and (a) that the corporation will furnish to the record holder of the certificate without charge upon written request to the corporation at its principal place of business or registered office a copy of the specified document, or (b) if such document is one required or permitted to be and has been filed under applicable law, that such specified document is on file in the Office of the Secretary of State of Texas and contains a full statement of such restrictions. Unless such document was on file in the Office of the Secretary of State of Texas at the time of the request, if the corporation fails within a reasonable time to furnish the record holder of a certificate, upon such request and without charge, a copy of the specified document, the corporation shall not be permitted thereafter to enforce its rights under the restriction imposed on the shares represented by such certificate. Any restriction on the transfer, or registration of transfer, of shares of the corporation, if reasonable and noted conspicuously on the certificates representing such shares, may be enforced against the holder of the restricted shares or any successor or transferee of the holder, including an executor, administrator, trustee, guardian, or other fiduciary entrusted with like responsibility for the person or estate of the holder. Unless noted conspicuously on the certificates representing such shares, a restriction, even though otherwise enforceable, is ineffective except against a person with actual knowledge of the restriction. 10.03 Transfer of Shares. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate - 14 - to the person entitled thereto, cancel the old certificate, and record the transaction upon its books. 10.04 Lost, Stolen or Destroyed Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. 10.05 Closing of Transfer Books and Fixing Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, sixty (60) days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten (10) days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than sixty (60) days and, in case of a meeting of shareholders, not less than ten (10) days prior to the date on which the particular action requiring such determination of shareholders is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section 10.05, such determination shall apply to any adjournment thereof, except where the determination has been made through the closing of stock transfer books and the stated period of closing has expired. 10.06 Registered Shareholders. The corporation shall be entitled to recognize the exclusive right of a person registered - 15 - on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Texas ARTICLE XI GENERAL PROVISIONS 11.01 Dividends. The Board of Directors from time to time may declare, and the corporation may pay, dividends on its outstanding shares in cash, in property, or in its own shares, except when the corporation is insolvent or when the payment thereof would render the corporation insolvent or when the declaration or payment thereof would be contrary to any restrictions contained in the Articles of Incorporation. Such dividends may be declared at any regular or special meeting of the Board, and the declaration and payment shall be subject to all applicable provisions of law, the Articles of Incorporation and these Bylaws. 11.02 Reserves. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, deem proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall deem conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. 11.03 Reports. The Board of Directors shall, when requested by the holders of at least a majority of the outstanding shares of the corporation, present full and clear written reports, not more often than quarterly, of the amount of business and the financial condition of the corporation. 11.04 Checks. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors from time to time may designate. 11.05 Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. 11.06 Seal. The corporation may have a corporate seal and, if the Board of Directors adopts a corporate seal, the corporate seal shall have inscribed thereon the name of the corporation and may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. - 16 - ARTICLE XII AMENDMENTS The initial Bylaws of the corporation shall be adopted by the Board of Directors. The power to alter, amend, or repeal the Bylaws or adopt new Bylaws, subject to repeal or change by action of the shareholders, is vested in the Board of Directors. Thus, these Bylaws may be altered, amended, or repealed or new Bylaws may be adopted at any regular or special meeting of the Board of Directors by the affirmative vote of a majority of the Board of Directors, subject to repeal or change at any regular or special meeting of shareholders at which a quorum is present or represented by the affirmative vote of seventy-five (75%) of the shares entitled to vote at such meeting and present or represented thereat provided notice of the proposed repeal or change is contained in the notice of such meeting of shareholders. The Bylaws may contain any provision for the regulation and management of the affairs of the corporation not inconsistent with law or the Articles of Incorporation. - 17 - EX-21 4 EXHIBIT 21 ---------- LIST OF SUBSIDIARIES OF THE COMPANY Names Under Which Name of State of Subsidiary Does Subsidiary Incorporation Business ----------- ------------- ------------------ EGASCO, Inc. Texas EGASCO, Inc. EnerMart, Inc. Delaware EnerMart, Inc. Enermart Trust Pennsylvania Enermart Trust Trans Louisiana Louisiana Trans Louisiana Industrial Gas Industrial Gas Company, Inc. Company, Inc. Western Kentucky Gas Delaware Western Kentucky Gas Resources Company Resources Company NRG Corp. EX-23 5 EXHIBIT 23 ---------- CONSENT OF INDEPENDENT AUDITOR We consent to the incorporation by reference in the Registration Statements (Form S-3 No. 33-58220, Form S-3 No. 33-56915, Form S-8 No. 33-57687, Form S-8 No. 33-68852, and Form S-8 No. 33-57695) of Atmos Energy Corporation and in the related Prospectuses of our report dated November 8, 1995, with respect to the consolidated financial statements of Atmos Energy Corporation included in this Annual Report (Form 10-K) for the year ended September 30, 1995. ERNST & YOUNG LLP Dallas, Texas December 14, 1995