TEXAS AND VIRGINIA 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)
(972) 934-9227
(Registrant's telephone number, including area code)
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Number of shares outstanding of each of the issuer's classes of common stock, as of May 1, 2002.
Class Shares Outstanding ----- ------------------ No Par Value 41,294,762 |
March 31, September 30,
2002 2001
----------- -------------
(Unaudited)
ASSETS
Property, plant and equipment $ 2,178,997 $ 2,109,867
Less accumulated depreciation and amortization 810,193 774,469
----------- -----------
Net property, plant and equipment 1,368,804 1,335,398
Current assets
Cash and cash equivalents 3,113 15,263
Cash held on deposit in margin account 26,611 66,666
Accounts receivable, net 226,259 124,046
Inventories 5,420 6,041
Gas stored underground 55,906 89,555
Assets from risk management activities 11,311 95,968
Deferred gas cost -- 10,999
Other current assets and prepayments 5,271 15,713
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Total current assets 333,891 424,251
Intangible assets 11,423 12,125
Goodwill 65,228 64,745
Noncurrent assets from risk management activities 11,590 29,771
Deferred charges and other assets 169,466 169,890
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$ 1,960,402 $ 2,036,180
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SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' equity
Common stock $ 206 $ 204
Additional paid-in capital 498,887 489,948
Retained earnings 132,945 95,132
Accumulated other comprehensive income (loss) (1,159) (1,420)
----------- -----------
Shareholders' equity 630,879 583,864
Long-term debt 678,985 692,399
----------- -----------
Total capitalization 1,309,864 1,276,263
Current liabilities
Current maturities of long-term debt 20,413 20,695
Short-term debt 42,561 201,247
Accounts payable and accrued liabilities 163,112 84,471
Taxes payable 47,387 11,620
Customers' deposits 31,760 32,351
Liabilities from risk management activities 10,129 119,484
Deferred gas cost 35,488 --
Other current liabilities 42,275 41,161
----------- -----------
Total current liabilities 393,125 511,029
Deferred income taxes 131,183 138,934
Noncurrent liabilities from risk management activities 6,682 7,412
Deferred credits and other liabilities 119,548 102,542
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$ 1,960,402 $ 2,036,180
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Three months ended
March 31
-----------------------
2002 2001
--------- ---------
Operating revenues $ 379,481 $ 675,113
Purchased gas cost 229,598 536,789
--------- ---------
Gross profit 149,883 138,324
Gas trading margin 9,604 --
Operating expenses
Operation and maintenance 42,254 34,984
Depreciation and amortization 20,039 15,905
Taxes, other than income 10,861 13,544
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Total operating expenses 73,154 64,433
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Operating income 86,333 73,891
Equity in earnings of Woodward Marketing, L.L.C -- 6,022
Miscellaneous income (expense) (6,112) 317
Interest charges, net 14,489 9,817
--------- ---------
Income before income taxes 65,732 70,413
Income taxes 24,354 26,339
--------- ---------
Net income $ 41,378 $ 44,074
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Basic net income per share $ 1.01 $ 1.14
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Diluted net income per share $ 1.01 $ 1.13
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Cash dividends declared per share $ .295 $ .290
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Weighted average shares outstanding:
Basic 41,040 38,815
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Diluted 41,135 38,919
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See accompanying notes to condensed consolidated financial statements
Six months ended
March 31
---------------------------
2002 2001
----------- -----------
Operating revenues $ 650,823 $ 1,117,903
Purchased gas cost 391,575 869,631
----------- -----------
Gross profit 259,248 248,272
Gas trading margin 16,767 --
Operating expenses
Operation and maintenance 84,782 70,943
Depreciation and amortization 40,513 31,686
Taxes, other than income 20,941 22,811
----------- -----------
Total operating expenses 146,236 125,440
----------- -----------
Operating income 129,779 122,832
Equity in earnings of Woodward Marketing, L.L.C -- 8,062
Miscellaneous income (expense) (711) (2,070)
Interest charges, net 30,481 22,063
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Income before income taxes 98,587 106,761
Income taxes 36,576 39,715
----------- -----------
Net income $ 62,011 $ 67,046
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Basic net income per share $ 1.51 $ 1.87
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Diluted net income per share $ 1.51 $ 1.87
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Cash dividends declared per share $ .590 $ .580
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Weighted average shares outstanding:
Basic 40,937 35,780
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Diluted 41,032 35,879
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See accompanying notes to condensed consolidated financial statements
Six months ended
March 31
-----------------------
2002 2001
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Cash Flows From Operating Activities
Net income $ 62,011 $ 67,046
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization:
Charged to depreciation and
amortization 40,513 31,686
Charged to other accounts 1,364 1,475
Deferred income taxes (benefit) (7,905) (31,018)
Other (1,115) --
Net assets/liabilities from risk management activities (5,229) --
Net change in operating assets and liabilities 163,212 45,839
--------- ---------
Net cash provided by operating activities 252,851 115,028
Cash Flows From Investing Activities
Capital expenditures (60,869) (42,507)
Acquisitions (15,747) --
Retirements of property, plant and
equipment, net (746) 745
Proceeds from sale of assets, net -- 6,625
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Net cash used in investing activities (77,362) (35,137)
Cash Flows From Financing Activities
Net decrease in short-term debt (158,686) (197,060)
Cash dividends paid (24,198) (20,567)
Repayment of long-term debt (13,696) (10,778)
Issuance of common stock 8,941 6,715
Proceeds from equity offering, net -- 142,043
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Net cash used by financing activities (187,639) (79,647)
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Net increase (decrease) in cash and cash equivalents (12,150) 244
Cash and cash equivalents at beginning
of period 15,263 7,379
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Cash and cash equivalents at end
of period $ 3,113 $ 7,623
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See accompanying notes to condensed consolidated financial statements
1. Unaudited Interim Financial Information
In the opinion of management, all material adjustments (consisting of only normal recurring accruals) necessary for a fair presentation have been made to the unaudited interim period financial statements. Because of seasonal and other factors, the results of operations for the six month period ended March 31, 2002 are not indicative of expected results of operations for the year ending September 30, 2002. These interim financial statements and notes are condensed as permitted by the instructions to Form 10-Q and should be read in conjunction with the audited consolidated financial statements of Atmos Energy Corporation in its Annual Report on Form 10-K for the fiscal year ended September 30, 2001.
Principles of consolidation - The accompanying condensed consolidated financial statements include the accounts of Atmos Energy Corporation and its wholly-owned subsidiaries. All material intercompany transactions have been eliminated.
Prior to April 1, 2001, we owned a 45 percent interest in Woodward Marketing, L.L.C. and accounted for that ownership using the equity method of accounting for investments. Beginning April 1, 2001, we owned 100 percent of Woodward Marketing and accounted for that ownership on a consolidated basis.
Common stock - As of March 31, 2002, we had 100,000,000 shares of common stock, no par value (stated at $.005 per share), authorized and 41,241,912 shares outstanding. At September 30, 2001, we had 40,791,501 shares outstanding.
Goodwill - Total goodwill was $65.2 million and $64.7 million at March 31, 2002 and September 30, 2001. Goodwill applicable to the utility segment was $36.9 million at March 31, 2002 and September 30, 2001. Goodwill applicable to the non-regulated segment was $28.3 million and $27.8 million at March 31, 2002 and September 30, 2001. Goodwill applicable to the utility segment resulted from the acquisition of the Louisiana Gas Service Company assets on July 1, 2001 and is not subject to amortization under the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). Goodwill applicable to the non-regulated segment was amortized over 20 years until September 30, 2001. Effective October 1, 2001, goodwill applicable to the non-regulated segment was not amortized under the provisions of SFAS No. 142. The proforma effect on goodwill amortization of adopting SFAS No. 142 is not material.
Under the provisions of SFAS No. 142, we evaluate our goodwill balance annually for impairment. The initial evaluation took place during the second quarter of our current fiscal year. No impairment of our goodwill balance was indicated as a result of this evaluation.
Revenue recognition - Sales of natural gas are billed on a monthly cycle basis; however, the billing cycle periods for certain classes of customers do not necessarily coincide with accounting periods used for financial reporting purposes. We follow the revenue accrual method of accounting for natural gas revenues whereby revenues applicable to gas delivered to customers, but not yet billed under the cycle billing method, are estimated and accrued and the related costs are charged to expense. Estimated losses due to credit risk are reserved at the time revenue is recognized.
Accounts receivable and allowance for doubtful accounts - Accounts receivable consists of natural gas sales to residential, commercial, industrial, agricultural and other customers. The allowance for doubtful accounts is computed based on the aging of outstanding accounts receivable and historical collections experience and, in management's opinion, represents an adequate allowance to provide for probable uncollectable accounts.
Risk management assets and liabilities, utility segment - Our business units entered into financial instruments for the 2001-2002 heating season. The purpose of entering into these financial instruments was to protect us and our customers from unusually large winter period gas price increases. We use the mark-to-market method to account for these activities in accordance with Statement of Financial Accounting Standards No. 133. In accordance with Financial Accounting Standards No. 71 "Accounting for the Effects of Certain Types of Regulation", current period changes in the assets and liabilities from risk management activities were recorded as deferred gas costs on the condensed consolidated balance sheet as these costs will ultimately be recovered from ratepayers. Accordingly, there was no earnings impact as a result of the use of these financial instruments. Upon maturity, the contracts were recognized in purchased gas cost.
Risk management assets and liabilities, non-regulated segment - We use storage, transportation and requirements contracts, forwards, over-the-counter and exchange-traded options, futures and swap contracts to conduct our risk management activities. We use the mark-to-market method to account for these activities in accordance with Emerging Issues Task Force Issue No. 98-10, "Accounting for Energy Trading and Risk Management Activities." Under this method, the aforementioned contracts are reflected at fair value, inclusive of future servicing costs and valuation adjustments, with resulting unrealized gains and losses recorded as assets or liabilities from risk management activities on the consolidated balance sheet. Current period changes in the assets and liabilities from risk management activities are recognized as net gains or losses on the condensed consolidated statement of income as gas trading margin. Changes in the assets and liabilities from risk management activities result primarily from changes in the valuation of the portfolio of contracts, maturity and settlement of contracts and newly originated transactions. Market prices used to value these transactions reflect our best estimate considering various factors including closing exchange and over-the-counter quotations, time value and volatility factors underlying the contracts. Values are adjusted to reflect the potential impact of liquidating our positions in an orderly manner over a reasonable period of time under present market conditions. Changes in market prices directly affect our estimate of the fair value of these transactions. Current period changes in assets and liabilities from risk management activities do not impact cash in the current period. Cash is impacted when outstanding contracts are closed.
Comprehensive income - The following table presents the components of comprehensive income, net of related tax, for the three-month and six-month periods ended March 31, 2002 and 2001:
Three months ended
March 31
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2002 2001
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(In thousands)
Net income $ 41,378 $ 44,074
Unrealized holding losses on investments (376) (759)
Reclassification for losses on derivative financial
instruments included in net income -- 3,634
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Comprehensive income $ 41,002 $ 46,949
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Six months ended
March 31
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2002 2001
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(In thousands)
Net income $ 62,011 $ 67,046
Unrealized holding gains (losses) on investments 261 (2,281)
Derivative financial instruments:
Unrealized losses on derivative financial instruments -- (3,634)
Less: reclassification for losses included in
net income -- 3,634
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Comprehensive income $ 62,272 $ 64,765
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The only components of accumulated other comprehensive income (loss), net of related tax, relate to unrealized holding gains and losses associated with certain available for sale investments and unrealized gains and losses associated with derivative financial instruments.
Recently issued accounting standards not yet adopted - In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This Statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The provisions of this Statement are effective for financial statements issued for fiscal years beginning after December 15, 2001. We are currently in the process of evaluating the impact the adoption of this Statement will have on our financial condition, results of operations and net cash flows.
Reclassifications - Certain prior year amounts have been reclassified to conform with the current year presentation.
2. Contingencies
Litigation
Greeley Gas Division
On September 23, 1999, a suit was filed in the District Court of Stevens County, Kansas, by Quinque Operating Company, Tom Boles and Robert Ditto, against more than 200 companies in the natural gas industry including us and our Greeley Gas Division. The original plaintiffs have since withdrawn from the case and on December 31, 2001, were substituted with Will Price, Stixon Petroleum Inc., Tom Boles and The Cooper Clark Foundation as plaintiffs. The plaintiffs, who purport to represent a class consisting of gas producers, royalty owners, overriding royalty owners, working interest owners and state taxing authorities, accuse the defendants of underpaying royalties on gas taken from wells situated on non-federal and non-Indian lands throughout the United States and offshore waters predicated upon allegations that the defendants' gas measurements are simply inaccurate and that the defendants failed to comply with applicable regulations and industry standards over the last 25 years. Although the plaintiffs do not specifically allege an amount of damages, they contend that this suit is brought to recover billions of dollars in revenues that the defendants have allegedly unlawfully diverted from the plaintiffs to themselves. On April 10, 2000, this case was consolidated for pre-trial proceedings with other similar pending litigation in federal court in Wyoming in which we are also a defendant along with over 200 other defendants in the case of In Re Natural Gas Royalties Quitam Litigation. In January 2001, the federal court remanded this case back to the Kansas state court. A reconsideration of remand was filed, but it was denied.
Energas Division
On May 18, 2001, a suit was filed in the 99th District Court of Lubbock County, Texas, by the City of Lubbock, Texas, and the West Texas Municipal Agency against Stewart & Stevenson Energy Products, Inc., a division of GE Packaged Power, Inc. ("GE") and our Energas Division. The action arises out of (i) the construction and installation of a gas-fired electric generating facility designed and installed by GE and (ii) the design and installation by our Energas Division of the natural gas pipeline that provides natural gas to the facility. The plaintiffs allege that they incurred damages as a result of certain corrosive products that were introduced into the facility's turbine that damaged the turbine and necessitated repair costs of approximately $0.9 million and consequential damages of approximately $4.7 million, as a result of electric power purchases made by the plaintiffs from other sources while the facility was inoperative or operating below specifications. The causes of action asserted by the plaintiffs against the Energas Division include breach of contract, breach of warranty and negligence. We have denied any liability and intend to vigorously defend against the plaintiffs' claims. While the results of this litigation cannot be predicted with certainty, we believe the final outcome of such litigation will not have a material adverse effect on our financial condition, results of operations or net cash flows because we believe that we have adequate insurance and/or reserves to cover any damages that may ultimately be awarded.
On February 13, 2002, an action was filed and is pending in the 287th District Court of Parmer County by Anderson Brothers, a Partnership, against Atmos Energy Corporation et al. The plaintiffs' claims arise out of an alleged breach of contract by us and by a member of our divisions and subsidiaries concerning the sale of natural gas used in irrigation activities since 1998 and an alleged violation of the Texas Agricultural Gas Users Act of 1985. The plaintiffs seek class action status and to recover unspecified damages plus attorney's fees. We have denied any liability and intend to vigorously defend against the plaintiffs' claims.
Atmos Energy Louisiana Gas Division
Prior to our acquisition of the assets of Louisiana Gas Service Company, a division of Citizens Communications Company, on July 1, 2001, Louisiana Gas Service Company was involved in a proceeding with the Louisiana Public Service Commission relating to past costs associated with the purchase of gas that it charged to its customers. Subsequent to our acquisition of the Louisiana Gas assets on July 1, 2001, we agreed to take responsibility for assuring the payment of refunds and/or credits to ratepayers that may arise from Citizens Communications' past activities with respect to purchased gas costs. On April 10, 2002, the Louisiana Public Service Commission issued a Report of Proceedings in which it approved a Stipulation and Agreement between Citizens Communications, Atmos and the Commission Staff. This Stipulation and Agreement resulted in no refunds being due to customers.
United Cities Propane Gas, Inc.
United Cities Propane Gas, Inc., one of our wholly-owned subsidiaries, is a party to an action filed in June 2000 which is pending in the Circuit Court of Sevier County, Tennessee. The plaintiffs' claims arise out of injuries alleged to have been caused by a low-level propane explosion. The plaintiffs seek to recover damages of $13.0 million. Discovery activities have begun in this case. We have denied any liability, and we intend to vigorously defend against the plaintiffs' claims. While the results of this litigation cannot be predicted with certainty, we believe the final outcome of such litigation will not have a material adverse effect on our financial condition, results of operations or net cash flows because we believe that we have adequate insurance and/or reserves to cover any damages that may ultimately be awarded.
We are a party to other litigation and claims that arise out of the ordinary course of our business. While the results of such litigation and claims cannot be predicted with certainty, we believe the final outcome of such litigation and claims will not have a material adverse effect on our financial condition, results of operations or net cash flows because we believe that we have adequate insurance and/or reserves to cover any damages that may ultimately be awarded.
Environmental Matters
Manufactured Gas Plant Sites
Our United Cities Gas Division is the owner or previous owner of manufactured gas plant sites in Johnson City and Bristol, Tennessee and Hannibal, Missouri which were used to supply gas prior to availability of natural gas. The gas manufacturing process resulted in certain by-products and residual materials including coal tar. The manufacturing process used by our predecessors was an acceptable and satisfactory process at the time such operations were being conducted. Under current environmental protection laws and regulations, we may be responsible for response actions with respect to such materials if response actions become necessary.
United Cities Gas Company and the Tennessee Department of Environment and Conservation entered into a consent order effective January 23, 1997, to facilitate the investigation, removal and remediation of the Johnson City site. United Cities began the implementation of the consent order in the first quarter of 1997 which has continued through March 31, 2002. The investigative phase of the work at the site has been completed. An interim removal action was completed in June 2001. United Cities is in the process of conducting a risk assessment at the site.
On July 22, 1998, we entered into an Abatement Order on Consent with the Missouri Department of Natural Resources addressing the former manufactured gas plant located in Hannibal, Missouri. Through our United Cities Gas Division, we agreed to perform a removal action, a subsequent site evaluation and to reimburse the response costs incurred by the state of Missouri in connection with the property. The removal action was conducted and completed in August 1998, and the site evaluation field work was conducted in August 1999. A risk assessment for the site is currently being performed. On March 9, 1999, the Missouri Public Service Commission issued an Order authorizing us to defer the costs associated with this site until March 9, 2001. A renewal of the Order has been requested. The matter is still pending before the Commission.
As of March 31, 2002, we had incurred costs of approximately $0.9 million for the investigations of the Johnson City and Bristol, Tennessee and Hannibal, Missouri sites and had a remaining accrual relating to these sites of $0.8 million.
Mercury Contamination Sites
We have completed investigation and remediation activities pursuant to Consent Orders between the Kansas Department of Health and Environment and United Cities Gas Company. The Orders provided for the investigation and remediation of mercury contamination at gas pipeline sites which utilize or formerly utilized mercury meter equipment in Kansas. The Final Interim Characterization and Remediation Report has been submitted to the Kansas Department of Health. We have agreed to amendments of the Orders with the Kansas Department of Health to include all mercury meters that belonged to our Greeley Gas Division before the merger with United Cities Gas Company on July 31, 1997. These sites will be investigated in 2002 and any necessary remediation will be performed. As of March 31, 2002, we had incurred costs of $0.1 million for these sites and had a remaining accrual of $0.3 million for recovery. The Kansas Corporation Commission has authorized us to defer these costs and seek recovery in a future rate case.
We are a party to other environmental matters and claims, including those discussed above, that arise out of the ordinary course of our business. While the ultimate results of response actions to these environmental matters and claims cannot be predicted with certainty, we believe the final outcome of such response actions will not have a material adverse effect on our financial condition, results of operations or net cash flows because we believe that the expenditures related to such response actions will either be recovered through rates, shared with other parties or covered by adequate insurance or reserves.
3. Short-term Debt
At March 31, 2002, short-term debt was comprised of $31.1 million of commercial paper and $11.5 million outstanding under bank credit facilities.
Committed credit facilities
We have short-term committed credit facilities totaling $318.0 million. One short-term unsecured credit facility is for $300.0 million with an option to increase the amount by $100.0 million and serves as a backup liquidity facility for our commercial paper program. Our commercial paper is rated A-2 by Standard and Poor's and P-2 by Moody's. At March 31, 2002, $31.1 million of commercial paper was outstanding. We have a second facility in place for $18.0 million. At March 31, 2002, $11.5 million was outstanding under this credit facility. These credit facilities are negotiated at least annually and are used for working capital purposes.
Uncommitted credit facilities
Our Woodward Marketing subsidiary has an uncommitted demand credit facility for $125.0 million which is used for its non-regulated business. Atmos Energy Marketing, LLC, our wholly-owned subsidiary, is the sole guarantor of all amounts outstanding under this facility. At March 31, 2002, no amount was outstanding under this credit facility. Related letters of credit totaling $56.8 million reduced the amount available under this facility. This facility is used for working capital purposes.
We also have unsecured short-term uncommitted credit lines from two banks totaling $40.0 million. No amounts were outstanding under these credit facilities at March 31, 2002. The uncommitted lines are renewed or renegotiated at least annually with varying terms and we pay 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. These facilities are also used for working capital purposes.
In addition, Woodward Marketing has up to $100.0 million of credit available from Atmos Energy Marketing, LLC for its non-regulated business. At March 31, 2002, $28.5 million was outstanding. This intercompany facility is subordinated in terms of repayment to the $125.0 million uncommitted demand credit facility described above.
4. Earnings Per Share
Basic earnings per share has been computed by dividing net income for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share has been computed by dividing net income for the period by the weighted average number of common shares outstanding during the period adjusted for the assumed exercise of restricted stock and other contingently issuable shares of common stock. Net income for basic and diluted earnings per share are the same, as there are no contingently issuable shares of stock whose issuance would have impacted net income. A reconciliation between basic and diluted weighted average common shares outstanding follows:
For the three months ended
March 31
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2002 2001
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(In thousands)
Weighted average common shares - basic 41,040 38,815
Effect of dilutive securities:
Restricted stock 67 92
Stock options 28 12
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Weighted average common shares - assuming
dilution 41,135 38,919
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For the six months ended
March 31
--------------------------
2002 2001
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(In thousands)
Weighted average common shares - basic 40,937 35,780
Effect of dilutive securities:
Restricted stock 67 92
Stock options 28 7
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Weighted average common shares - assuming
dilution 41,032 35,879
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5. Derivative Instruments and Hedging Activities
Effective October 1, 2000, we adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that all derivative financial instruments be recognized in the financial statements and measured at fair value regardless of the purpose or intent for holding them. Changes in the fair value of derivative financial instruments are either recognized periodically in income or as deferred gas costs, depending on the classification of the derivative. Derivative instruments may be classified as either fair value hedges or cash flow hedges. The cumulative effect of the change in accounting for the adoption of this Statement did not have a material impact on our financial position, results of operations or net cash flows.
In July 2000, we entered into an agreement to purchase weather hedges for our Texas and Louisiana operations effective for the 2000-2001 heating season. The hedges were designed to help mitigate the effects of weather that was at least seven percent warmer than normal in both Texas and Louisiana while preserving any upside. The cost of the weather hedges was approximately $4.9 million which was amortized over the 2000-2001 heating season. No income was recognized for the 2000-2001 heating season for these weather hedges due to the colder than normal weather.
In June 2001, we purchased a three year weather insurance policy with an option to cancel in the third year if we obtain weather protection in our rate structures. The policy is for our Texas and Louisiana operations and covers the entire heating season of October to March beginning with the 2001-2002 heating season. The cost of the three year policy was approximately $13.2 million which was prepaid and is being amortized over the appropriate heating seasons based on degree days. The insurance is designed to protect against weather that is at least seven percent warmer than normal. During the first quarter of fiscal 2002, we recognized $5.9 million in income and during the second quarter of fiscal 2002, we recognized $5.9 million in expense resulting in no income being recognized for the 2001-2002 heating season on this insurance policy due to the weather not being at least seven percent warmer than normal. Amortization expense of $4.4 million was recognized during the 2001-2002 heating season related to this policy.
Utility Hedging Activities
Historically we have effectively hedged 20 percent of the gas supply required during our annual October through March hating season by utilizing our underground storage assets. For the 2001-2002 heating season, we covered approximately 64 percent of our anticipated flowing gas requirements through storage and futures and fixed forward contracts.
In accordance with Statement of Financial Accounting Standards No. 133, we use the mark-to-market method to account for our financial instruments discussed previously. In accordance with Statement of Financial Accounting Standards No. 71 "Accounting for the Effects of Certain Types of Regulation", current period changes in the assets and liabilities from risk management activities are recorded as deferred gas costs on the condensed consolidated balance sheet as these costs will ultimately be recovered from ratepayers. Accordingly, there is no earnings impact as a result of the use of these financial instruments. Upon maturity, the contracts are recognized in purchased gas cost.
Non-Regulated Hedging Activities
At the close of business on March 31, 2002, we had outstanding contracts representing (3.7) Bcf of net notional volumes with average contract maturities of less than two years. These contracts were marked to market. Contracts representing 75 percent of the fair value of these contracts are scheduled to mature within one year. Contracts representing 27 percent of the remaining fair value are scheduled to mature within three years. The $17.6 million mark-to-market loss associated with these positions was recorded as unrealized trading margin on the condensed consolidated statement of income for the six months ended March 31, 2002.
Effective April 1, 2001, natural gas sales from our natural gas trading operations have been netted against purchased gas costs and shown as gas trading margin on the consolidated statements of income. For the three months ended March 31, 2002, our gas trading margin consisted of a $31.5 million realized trading gain and a $21.9 million unrealized trading loss. For the six months ended March 31, 2002, our gas trading margin consisted of a $34.4 million realized trading gain and a $17.6 million unrealized trading loss.
We acquired a 45 percent interest in Woodward Marketing, L.L.C. in 1997 as a result of the merger of Atmos and United Cities Gas Company, which had acquired that interest in 1995. On April 1, 2001, we acquired the 55 percent interest that we did not own from J.D. Woodward and others for 1,423,193 restricted shares of our common stock. Immediately following the acquisition, Mr. Woodward was elected as a Senior Vice President of Atmos in charge of all non-regulated business activities, a position he has held since April 1, 2001. Prior to that time, Mr. Woodward had not been an officer or employee of Atmos.
The principal business of Woodward Marketing, including the activities of Trans Louisiana Industrial Gas Company, Inc., is the overall management of natural gas requirements for municipalities, local gas utility companies and industrial customers located primarily in the southwestern and midwestern United States. This business involves the sale of natural gas by Woodward Marketing to its customers and the management of storage and transportation contracts for its customers under contracts generally having one to two-year terms. At March 31, 2002, Woodward Marketing had a total of 94 municipal and local gas utility customers and 297 industrial customers. Woodward Marketing also sells natural gas to certain of its industrial customers on a delivered burner tip basis under contract terms from 30 days to two years. In addition, Woodward Marketing supplies us with a portion of our natural gas requirements on a competitive bid basis.
In the management of natural gas requirements for municipal and other local utilities, Woodward Marketing sells physical natural gas to those customers for future delivery and hedges the associated price risk through the use of gas futures, including forwards, over-the-counter and exchange-traded options, and swap contracts with counterparties. These financial contracts are marked-to-market daily at the close of business. Woodward Marketing links gas futures to physical delivery of natural gas and balances its futures positions at the end of each trading day. Over-the-counter swap agreements require Woodward Marketing to receive or make payments based on the difference between a fixed price and the market price of natural gas on the settlement date. Woodward Marketing uses these futures and swaps to manage margins on offsetting fixed-price purchase or sale commitments for physical quantities of natural gas, which are also carried on a mark-to-market basis. Options held to hedge price risk provide the right, but not the requirement, to buy or sell energy commodities at a fixed price. Woodward Marketing uses options to manage margins and to limit overall price risk exposure.
Energy related services provided by Woodward Marketing include the sale of natural gas to its various customer classes and management of transportation and storage assets and inventories. More specifically, energy services include contract negotiation and administration, load forecasting, storage acquisition, natural gas purchase and delivery and capacity utilization strategies. In providing these services, Woodward Marketing generates income from its utility, municipal and industrial customers through negotiated prices based on the volume of gas supplied to the customer. Woodward Marketing also generates income by taking advantage of the difference between near-term gas prices and prices for future delivery as well as the daily movement of gas prices by utilizing storage and transportation capacity that it controls.
Woodward Marketing also engages in limited speculative natural gas trading for
its own account, subject to a risk management policy established by us which
limits the level of trading loss in any fiscal year to a maximum of 25 percent
of the budgeted annual operating income of Woodward Marketing. Compliance with
such risk management policy is monitored on a daily basis. In addition, Woodward
Marketing's bank credit facility limits trading positions that are not closed at
the end of the day (open positions) to 5.0 Bcf of natural gas. At March 31,
2002, Woodward Marketing's net open positions in its trading operations totaled
(3.7) Bcf. In its speculative trading, Woodward Marketing's open trading
positions are monitored on a daily basis but are not required to be closed if
they remain within the limits set by the bank loan agreement. In some prior
years, Woodward Marketing experienced losses in its speculative trading
business. The financial exposure that results from the daily fluctuations of gas
prices and the potential for daily price movements constitutes a risk of loss
since the price of natural gas purchased for future delivery at the beginning of
the day may not be hedged until later in the day. Effective in May 2002,
Woodward Marketing's trading for speculative purposes was discontinued.
Financial instruments, which subject Woodward Marketing to counterparty risk, consist primarily of financial instruments arising from trading and risk management activities and overnight repurchase agreements that are not insured. Counterparty risk is the risk of loss from nonperformance by financial counterparties to a contract. Exchange-traded future and option contracts are generally guaranteed by the exchanges.
Woodward Marketing's operations are concentrated in the natural gas industry, and its customers and suppliers may be subject to economic risks affecting that industry.
6. Segment Information
Our determination of reportable segments considers, in part, the strategic operating units under which we manage sales of various products and services to customers in differing regulatory environments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies included in Note 1 of notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended September 30, 2001. All intersegment sales prices are market based. We evaluate performance based on net income or loss of the respective operating units.
In accordance with Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information", we have identified the Utility and Non-regulated segments. For an expanded description of these segments, refer to Note 1 of notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended September 30, 2001. We consider each business unit within our utility segment to be a reporting unit of the utility segment and not a reportable segment. Our chief executive officer makes decisions about allocating resources to the utility segment as a whole and not to individual reporting units. The individual operations that comprise the non-regulated segment are not currently material to our consolidated financial position or results of operations and therefore do not require separate reporting. Prior to April 1, 2001, we owned a 45 percent interest in Woodward Marketing and accounted for that ownership using the equity method of accounting for investments. Beginning April 1, 2001, we own 100 percent of Woodward Marketing and account for that ownership on a consolidated basis.
Non-
Utility Regulated Total
----------- ----------- -----------
(In thousands)
For the three months ended
March 31, 2002:
--------------
Operating revenues for reportable
segments $ 376,811 $ 9,664 $ 386,475
Elimination of intersegment
revenues (309) (6,685) (6,994)
----------- ----------- -----------
Total operating revenues 376,502 2,979 379,481
Net income 36,687 4,691 41,378
March 31, 2001:
--------------
Operating revenues for reportable
segments $ 647,292 $ 28,945 $ 676,237
Elimination of intersegment
revenues (364) (760) (1,124)
----------- ----------- -----------
Total operating revenues 646,928 28,185 675,113
Net income 35,941 8,133 44,074
|
Non-
Utility Regulated Total
----------- ----------- -----------
(In thousands)
As of and for the six months ended
March 31, 2002:
--------------
Operating revenues for reportable
segments $ 641,967 $ 17,299 $ 659,266
Elimination of intersegment
revenues (948) (7,495) (8,443)
----------- ----------- -----------
Total operating revenues 641,019 9,804 650,823
Net income 53,521 8,490 62,011
Total assets 1,833,446 284,172 2,117,618
March 31, 2001:
--------------
Operating revenues for reportable
segments $ 1,075,754 $ 44,912 $ 1,120,666
Elimination of intersegment
revenues (1,117) (1,646) (2,763)
----------- ----------- -----------
Total operating revenues 1,074,637 43,266 1,117,903
Net income 58,779 8,267 67,046
Total assets 1,353,452 115,229 1,468,681
|
A reconciliation of total assets for the reportable segments to total consolidated assets for March 31, 2002 and 2001 is presented below:
March 31
---------------------------
2002 2001
----------- -----------
(In thousands)
Total assets for reportable segments $ 2,117,618 $ 1,468,681
Elimination of intercompany accounts (157,216) (16,555)
----------- -----------
Total consolidated assets $ 1,960,402 $ 1,452,126
=========== ===========
|
The following supplemental condensed financial statements show Atmos Energy Corporation, consisting of Atmos' regulated natural gas divisions; Atmos Energy Holdings, consisting of Atmos' non-regulated subsidiaries; and the elimination of material intercompany transactions. The following supplemental condensed balance sheet is as of March 31, 2002.
Atmos Energy Atmos Energy
Corporation Holdings Eliminations Consolidated
------------ ------------ ------------ ------------
(In thousands)
ASSETS
Property, plant and equipment, net $ 1,301,630 $ 67,174 $ -- $ 1,368,804
Investment in subsidiaries 114,817 (5,754) (109,063) --
Current assets
Cash and cash equivalents (5,575) 8,688 -- 3,113
Cash held on deposit in margin
account 11,710 14,901 -- 26,611
Accounts receivable, net 140,225 115,742 (29,708) 226,259
Inventories 5,154 266 -- 5,420
Gas stored underground 27,454 28,452 -- 55,906
Assets from risk management
activities -- 29,756 (18,445) 11,311
Other current assets and prepayments 3,508 1,763 -- 5,271
Intercompany receivables 64,247 (64,247) -- --
------------ ------------ ------------ ------------
Total current assets 246,723 135,321 (48,153) 333,891
Intangible assets -- 11,423 -- 11,423
Goodwill 36,880 28,348 -- 65,228
Noncurrent assets from risk
management activities -- 11,590 -- 11,590
Deferred charges and other assets 133,396 36,070 -- 169,466
------------ ------------ ------------ ------------
$ 1,833,446 $ 284,172 $ (157,216) $ 1,960,402
============ ============ ============ ============
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' equity $ 630,879 $ 114,817 $ (114,817) $ 630,879
Long-term debt 675,687 3,298 -- 678,985
------------ ------------ ------------ ------------
Total capitalization 1,306,566 118,115 (114,817) 1,309,864
Current liabilities
Current maturities of long-term debt 19,307 1,106 -- 20,413
Short-term debt 42,561 -- -- 42,561
Liabilities from risk management
activities -- 24,082 (13,953) 10,129
Deferred gas cost 34,100 1,388 -- 35,488
Other current liabilities 213,934 99,046 (28,446) 284,534
------------ ------------ ------------ ------------
Total current liabilities 309,902 125,622 (42,399) 393,125
Deferred income taxes 118,297 12,886 -- 131,183
Noncurrent liabilities from risk
management activities -- 6,682 -- 6,682
Deferred credits and other liabilities 98,681 20,867 -- 119,548
------------ ------------ ------------ ------------
$ 1,833,446 $ 284,172 $ (157,216) $ 1,960,402
============ ============ ============ ============
|
The following supplemental condensed statement of income is for the three months ended March 31, 2002.
Atmos Energy Atmos Energy
Corporation Holdings Eliminations Consolidated
------------ ------------ ------------ ------------
(In thousands)
Operating revenues $ 376,811 $ 286,037 $ (283,367) $ 379,481
Purchased gas cost 231,668 251,322 (253,392) 229,598
------------ ------------ ------------ ------------
Gross profit 145,143 34,715 (29,975) 149,883
Gas trading margin -- (19,065) 28,669 9,604
Operating expenses 66,003 7,151 -- 73,154
------------ ------------ ------------ ------------
Operating income 79,140 8,499 (1,306) 86,333
Miscellaneous income (expense) (6,767) 1,756 (1,101) (6,112)
Interest charges, net (14,500) (1,090) 1,101 (14,489)
------------ ------------ ------------ ------------
Income before income taxes 57,873 9,165 (1,306) 65,732
Income taxes 21,186 3,623 (455) 24,354
------------ ------------ ------------ ------------
Net income $ 36,687 $ 5,542 $ (851) $ 41,378
============ ============ ============ ============
|
The following supplemental condensed statement of income is for the six months ended March 31, 2002.
Atmos Energy Atmos Energy
Corporation Holdings Eliminations Consolidated
------------ ------------ ------------ ------------
(In thousands)
Operating revenues $ 641,967 $ 547,948 $ (539,092) $ 650,823
Purchased gas cost 391,605 501,520 (501,550) 391,575
------------ ------------ ------------ ------------
Gross profit 250,362 46,428 (37,542) 259,248
Gas trading margin -- (23,989) 40,756 16,767
Operating expenses 134,528 11,709 (1) 146,236
------------ ------------ ------------ ------------
Operating income 115,834 10,730 3,215 129,779
Miscellaneous income (expense) (845) 2,614 (2,480) (711)
Interest charges, net (30,389) (2,572) 2,480 (30,481)
------------ ------------ ------------ ------------
Income before income taxes 84,600 10,772 3,215 98,587
Income taxes 31,079 4,234 1,263 36,576
------------ ------------ ------------ ------------
Net income $ 53,521 $ 6,538 $ 1,952 $ 62,011
============ ============ ============ ============
|
Organization - Atmos Energy Corporation distributes natural gas in 11 states through its operating divisions - Atmos Energy Louisiana, Energas Company, Greeley Gas Company, United Cities Gas Company and Western Kentucky Gas Company. Our nonutility operations are organized under Atmos Energy Holdings, Inc., which includes Atmos Energy Marketing, Atmos Pipeline and Storage, Atmos Power Systems and an indirect equity interest in Heritage Propane Partners, L.P. Atmos Energy Marketing includes the operations of Woodward Marketing.
Consolidating Financial Statements - The column headed "Atmos Energy Corporation" includes operations of Atmos' five operating divisions. The column headed "Atmos Energy Holdings" comprises our nonutility operations. Operating revenues and purchased gas costs from our natural gas marketing operations are shown on a gross basis in the Atmos Energy Holdings column. Such natural gas marketing activities are reclassified in the elimination column as gas trading margin.
Current and noncurrent assets and liabilities from risk management activities on the supplemental condensed consolidated balance sheet consist of the fair value, inclusive of future servicing costs and valuation adjustments, of our storage, transportation and requirements contracts, forwards, over-the-counter and exchange traded options, futures and swap contracts.
The gas trading margin on the supplemental condensed consolidated statement of income consists primarily of the difference between revenue arising from Atmos Energy Holdings' sale of physical natural gas to its customers less the cost to purchase natural gas, and current period changes in assets and liabilities from risk management activities.
Risk management assets and liabilities, Atmos Energy Holdings - We use storage, transportation and requirements contracts, forwards, over-the-counter and exchange-traded options, futures and swap contracts to conduct our risk management activities. We use the mark-to-market method to account for these activities in accordance with Emerging Issues Task Force Issue No. 98-10, "Accounting for Energy Trading and Risk Management Activities" and EITF 00-17, "Measuring the Fair Value of Energy-Related Contracts in Applying Issue No. 98-10." Under this method, the aforementioned contracts are reflected at fair value, inclusive of future servicing costs and valuation adjustments, with resulting unrealized gains and losses recorded as assets or liabilities from risk management activities on the condensed consolidated balance sheet. Current period changes in the assets and liabilities from risk management activities are recognized as gas trading margins on the condensed consolidated statement of income. Changes in the mark-to-market valuation of assets and liabilities from risk management activities result primarily from changes in the valuation of the portfolio of contracts, maturity and settlement of contracts and newly originated transactions. Market prices and models used to value these transactions reflect our best estimate considering various factors including closing exchange and over-the-counter quotations, time value and volatility factors underlying the contracts. Values are adjusted to reflect the potential impact of liquidating our positions in an orderly manner over a reasonable period of time under present market conditions. Changes in market prices directly affect our estimate of the fair value of these transactions.
Related Party - Included in purchased gas cost in the Atmos Energy Corporation column are natural gas purchases from Woodward Marketing. These purchases were made in a competitive open bidding process and reflect market prices. In addition, we have entered into contracts with Woodward Marketing to manage a significant portion of our underground storage facilities. Woodward Marketing has acted as agent in placing financial instruments for the various business units that protect us and our customers from unusually large winter period gas price increases.
The Board of Directors
Atmos Energy Corporation
We have reviewed the accompanying condensed consolidated balance sheet of Atmos Energy Corporation as of March 31, 2002 and the related condensed consolidated statements of income and cash flows for the three-month periods and six-month periods ended March 31, 2002 and 2001. These financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States.
We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of Atmos Energy Corporation as of September 30, 2001, and the related consolidated statements of income, shareholders' equity and cash flows for the year then ended (not presented herein) and in our report dated November 2, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 2001 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Dallas, Texas
May 10, 2002
Introduction
The following discussion should be read in conjunction with the condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q and Management's Discussion and Analysis contained in our Annual Report on Form 10-K for the year ended September 30, 2001.
We distribute and sell natural gas to approximately 1.4 million residential, commercial, industrial, agricultural and other customers. We operate through five divisions in service areas located in Colorado, Georgia, Illinois, Iowa, Kansas, Kentucky, Louisiana, Missouri, Tennessee, Texas and Virginia. Such business is subject to regulation by state and/or local authorities in each of the states in which we operate. In addition, our business is affected by seasonal weather patterns, competitive factors within the energy industry and economic conditions in the areas that we serve. We also transport natural gas for others through our distribution system.
We provide natural gas storage services and own or hold an interest in natural gas storage fields in Kansas, Kentucky and Louisiana to supplement natural gas used by customers in Kansas, Kentucky, Tennessee, Louisiana and other states. We also provide energy management and gas marketing services to industrial customers, municipalities and other local distribution companies. We also provide electrical power generation to meet peak load demands for a municipality regulated by the Tennessee Valley Authority. In addition, we market natural gas to industrial and agricultural customers primarily in West Texas and to industrial customers in Louisiana.
Cautionary Statement for the Purposes of the Safe Harbor under the Private Securities Litigation Reform Act of 1995
The statements contained in this Quarterly Report on Form 10-Q may contain "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this Report are forward-looking statements made in good faith by the Company and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. When used in this Report, or any other of the Company's documents or oral presentations, the words "anticipate," "expect," "estimate," "plans," "believes," "objective," "forecast," "goal" or similar words are intended to identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the statements relating to the Company's strategy, operations, markets, services, rates, recovery of costs, availability of gas supply and other factors. These risks and uncertainties include the following: adverse weather conditions such as warmer than normal weather in the Company's service territories; national, regional and local economic conditions, including competition from other energy suppliers as well as alternative forms of energy; recent national events; regulatory approvals, including the impact of rate proceedings before various state regulatory commissions; successful completion and integration of pending acquisition; inflation and increased gas costs, including their effect on commodity prices for natural gas; increased competition; further deregulation or "unbundling" of the natural gas distribution industry; hedging and market risk activities and other uncertainties, all of which are difficult to predict and many of which are beyond the control of the Company. A discussion of these risks and uncertainties may be found in the Company's Form 10-K for the year ended September 30, 2001. Accordingly, while the Company believes these forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. Further, the Company undertakes no obligation to update or revise any of its forward-looking statements whether as a result of new information, future events or otherwise.
Weather and Seasonality
Our natural gas distribution business and irrigation sales business is seasonal and dependent upon weather conditions in our service areas. Natural gas sales to residential, commercial and public authority customers are affected by winter heating season requirements. This generally results in higher operating revenues and net income during the period from October through March of each year and lower operating revenues and either net losses or lower net income during the period from April through September of each year. Sales to industrial customers are much less weather sensitive. Sales to agricultural customers, who typically use natural gas to power irrigation pumps during the period from March through September, are affected by rainfall amounts and the price of natural gas. Weather, adjusted for service areas with weather normalized operations, for the six months ended March 31, 2002 was 6 percent warmer than normal and 20 percent warmer than weather in the corresponding period of the prior year.
The effects of weather that is above or below normal are partially offset in the Tennessee and Georgia jurisdictions served by the United Cities Gas Division and in the Kentucky jurisdiction served by the Western Kentucky Gas Division through weather normalization adjustments. The Georgia Public Service Commission, the Tennessee Regulatory Authority and the Kentucky Public Service Commission have approved weather normalization adjustments. The weather normalization adjustments, effective October through May each year in Georgia, and November through April each year in Tennessee and Kentucky, allow the United Cities Gas Division and Western Kentucky Gas Division to increase the base rate portion of customers' bills when weather is warmer than normal and decrease the base rate when weather is colder than normal. The net effect of the weather normalization adjustments was an increase in revenues of approximately $5.7 million for the six months ended March 31, 2002, as compared with a decrease of approximately $2.6 million for the six months ended March 31, 2001. Approximately 374,000 or 27 percent of our meters in service are located in Georgia, Tennessee and Kentucky. We did not have weather normalization adjustments in our other service areas during the six months ended March 31, 2002.
In June 2001, we purchased a three year weather insurance policy with an option to cancel in the third year if we obtain weather protection in our rate structures. The policy is for our Texas and Louisiana operations and covers the entire heating season of October to March beginning with the 2001-2002 heating season. The cost of the three year policy was approximately $13.2 million which was prepaid and is being amortized over the appropriate heating seasons based on degree days. The insurance is designed to protect against weather that is at least seven percent warmer than normal. During the first quarter of fiscal 2002, we recognized $5.9 million in income and during the second quarter of fiscal 2002, we recognized $5.9 million in expense resulting in no income being recognized for the 2001-2002 heating season on this insurance policy due to the weather not being at least seven percent warmer than normal. Amortization expense of $4.4 million was recognized during the 2001-2002 heating season related to this policy.
Historically we have effectively hedged 20 percent of the gas supply required during our annual October through March heating season by utilizing our underground storage assets. For the 2001-2002 heating season, we covered approximately 64 percent of our anticipated flowing gas requirements through storage and futures and fixed forward contracts.
Status of Pending Acquisition
In September 2001, we entered into a definitive agreement to acquire Mississippi Valley Gas Company, a privately held natural gas utility, for $150.0 million, consisting of $75.0 million cash and $75.0 million of Atmos common stock. In addition, we will repay outstanding debt of Mississippi Valley Gas, net of working capital, of approximately $45.0 million. Mississippi Valley Gas provides natural gas distribution service to more than 261,500 residential, commercial, industrial and other customers located primarily in the northern and central regions of Mississippi. The acquisition is subject to state and federal regulatory approval. It is anticipated that the acquisition will be completed by the end of fiscal 2002.
Critical Accounting Policies and Estimates
General - Our condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States. Preparation of these financial statements required us to make estimates and judgments that affected the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities. We based our estimates on historical experience and various other assumptions that we believed to be reasonable under the circumstances. On an on-going basis, we evaluate our estimates, including those related to risk management and trading activities, allowance for doubtful accounts, deferred income tax assets, intangible assets and goodwill. Actual results may differ from estimates.
Risk Management and Trading Activities - We use storage, transportation and requirements contracts, forwards, over-the-counter and exchange-traded options, futures and swap contracts to conduct our risk management and trading activities. Changes in the assets and liabilities from risk management activities result primarily from changes in the valuation of the portfolio of contracts, maturity and settlement of contracts, and newly originated transactions. The market prices and models used to value these transactions reflect management's best estimate considering various factors including closing exchange and over-the-counter quotations, the time value of money and volatility factors underlying the contracts. We adjust the values to reflect the potential impact of liquidating our positions in an orderly manner over a reasonable period of time under present market conditions. Changes in market prices directly affect management's estimate of the fair value of these transactions. Assumptions different from those used would impact these carrying values.
Allowance for Doubtful Accounts - For the majority of our receivables, we establish an allowance for doubtful accounts based on an aging of those receivable balances. We apply percentages to each aging category based on our collections experience. On certain other receivables where we are aware of a specific customer's inability or reluctance to pay its receivable balance, we record an allowance for doubtful accounts against amounts due to reduce the net receivable balance to the amount we reasonably expect to collect. We believe our allowance for doubtful accounts is adequate. However, if circumstances change, our estimate of the recoverability of accounts receivable could be different.
Deferred Income Tax Assets - We have deferred income tax assets consisting of employee and retiree benefit liabilities not currently deductible, credit carryforwards and other items treated as expenses for book purposes but not currently deductible for tax purposes. We have not recorded any valuation allowance for these deferred income tax assets because we believe that it is more likely than not that our deferred income tax assets will be realized. Realization of these assets is based on estimates of future taxable income. Those estimates were prepared using the same assumptions used to prepare internal forecasts. We estimate that the credit carryforwards will be utilized before they expire. If our estimates of taxable income are reduced in the future, a valuation allowance could be required.
Intangible Assets - We acquired intangible assets valued at approximately $12.0 million in fiscal year 2001. Those intangible assets relate to the value assigned to relationships with certain of our industrial customers and are being amortized over 10 years. If our assumptions of the useful lives of those assets change, the amount of amortization expense would be impacted.
FINANCIAL CONDITION
For the six months ended March 31, 2002, net cash provided by operating activities in the statement of cash flows totaled $252.9 million compared with $115.0 million for the six months ended March 31, 2001. The increase in net cash provided by operating activities was primarily the result of a smaller increase in accounts receivable compared to the previous period, a decrease in cash held on deposit in margin accounts, a decrease in deferred gas costs and a larger increase in accounts payable and deferred credits and other liabilities compared to the previous period. This increase was partially offset by a smaller increase in taxes payable and a decrease in net income. In addition, an increase in depreciation and amortization and a smaller deferred income tax benefit added to the increase in net cash provided by operating activities. These increases were offset by the reduction in the net change in our assets/liabilities from risk management activities. The decrease in net income was due primarily to higher operating expenses and interest expense. These higher expenses were partially offset by an increase in gross profit as well as an increase in income from our gas marketing activities.
For the six months ended March 31, 2002, net cash used in investing activities totaled $77.4 million compared with $35.1 million for the six months ended March 31, 2001. Major cash flows used in investing activities for the six months ended March 31, 2002 included capital expenditures of $60.9 million compared with $42.5 million for the six months ended March 31, 2001. The revised capital expenditures budget for fiscal 2002, excluding acquisitions, is expected to be in the range of $125.0 million to $130.0 million as compared with actual capital expenditures of $113.1 million for fiscal 2001. Budgeted capital projects for fiscal 2002 include expenditures for additional mains, services, meters and equipment. In fiscal 2002, we plan to complete the Mississippi Valley Gas Company acquisition for $75.0 million cash, $75.0 million of Atmos common stock and the repayment of approximately $45.0 million of long-term debt. Capital expenditures and acquisitions for fiscal 2002 are planned to be financed from internally generated funds and financing activities as discussed below. For the six months ended March 31, 2002, investing activities included $15.7 million, in our non-regulated operations, for the acquisition of Kentucky-based market area storage and associated pipeline facility assets and the gas marketing assets of Innovative Gas Services, Inc. and common stock of Southern Resources, Inc. For the six months ended March 31, 2001, we received net proceeds of $6.6 million in connection with the sale of certain utility assets.
For the six months ended March 31, 2002, net cash used by financing activities totaled $187.6 million compared with $79.6 million for the six months ended March 31, 2001. For the six-month period ended March 31, 2002, short-term debt decreased $158.7 million compared with a decrease of $197.1 million for the six months ended March 31, 2001. The decrease for the six months ended March 31, 2002 was due primarily to more effective collection experience of customer accounts receivable balances which increased the amount of cash available to repay short-term debt. The decrease for the six months ended March 31, 2001 was due to the net proceeds of approximately $142.0 million from the equity offering in December 2000 being used to reduce the amount of short-term debt outstanding. Repayments of long-term debt totaled $13.7 million for the six months ended March 31, 2002 compared with $10.8 million for the six months ended March 31, 2001. We paid $24.2 million in cash dividends during the six months ended March 31, 2002 compared with dividends paid of $20.6 million during the six months ended March 31, 2001. This reflects increases in the quarterly dividend rate and in the number of shares outstanding. During the six months ended March 31, 2002, we issued 450,411 shares of common stock.
The following table presents the number of shares issued for the six-month periods ended March 31, 2002 and 2001:
Six months ended
March 31
----------------------
2002 2001
--------- ---------
Shares issued:
Employee Stock Ownership Plan 151,577 94,002
Direct Stock Purchase Plan 255,566 198,878
Outside Directors Stock-for-Fee Plan 1,237 1,117
United Cities Long-Term Stock Plan -- 3,700
Long-Term Incentive Plan 42,031 4,668
Equity Offering -- 6,741,500
--------- ---------
Total shares issued 450,411 7,043,865
========= =========
|
We believe that internally generated funds, our credit facilities, commercial paper program and access to the public debt and equity capital markets will provide necessary working capital and liquidity for capital expenditures and other cash needs for the remainder of fiscal 2002.
We have short-term committed credit facilities totaling $318.0 million. One short-term unsecured credit facility is for $300.0 million with an option to increase the amount by $100.0 million and serves as a backup liquidity facility for our commercial paper program. Our commercial paper is rated A-2 by Standard and Poor's and P-2 by Moody's. At March 31, 2002, $31.1 million of commercial paper was outstanding. We have a second facility in place for $18.0 million. At March 31, 2002, $11.5 million was outstanding under this credit facility. These credit facilities are negotiated at least annually and are used for working capital purposes.
Our Woodward Marketing subsidiary has an uncommitted demand credit facility for $125.0 million which is used for its non-regulated business. Atmos Energy Marketing, LLC, our wholly-owned subsidiary, is the sole guarantor of all amounts outstanding under this facility. At March 31, 2002, no amount was outstanding under this credit facility. Related letters of credit totaling $56.8 million reduced the amount available under this facility. This facility is used for working capital purposes.
We also have unsecured short-term uncommitted credit lines from two banks totaling $40.0 million. No amounts were outstanding under these credit facilities at March 31, 2002. The uncommitted lines are renewed or renegotiated at least annually with varying terms and we pay 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. These facilities are also used for working capital purposes.
In addition, Woodward Marketing has up to $100.0 million of credit available from Atmos Energy Marketing LLC. At March 31, 2002, $28.5 million was outstanding. This intercompany facility is subordinated in terms of repayment to the $125.0 million uncommitted demand credit facility described above.
In December 2001, we filed a shelf registration statement with the Securities and Exchange Commission to issue, from time to time, up to $600.0 million in new common stock and/or debt. In connection with this filing, we have filed applications for approval to issue securities with five state utility commissions. We expect to receive all required regulatory approvals by the end of the fiscal third quarter. The registration statement was declared effective by the Securities and Exchange Commission on January 30, 2002. Once it is approved by the various state utility commissions, we will be authorized to issue securities to investors and lenders. The proceeds are planned to be used for general corporate purposes, including acquisitions, debt repayment and other business-related matters.
The following tables provide information about contractual obligations and commercial commitments at March 31, 2002.
Payments Due by Period
-------------------------------------------------------------
Less than After 5
Total 1 year 1-3 years 4-5 years years
--------- --------- --------- --------- ---------
(In thousands)
CONTRACTUAL OBLIGATIONS
Long Term Debt $ 699,398 $ 20,413 $ 36,733 $ 27,393 $ 614,859
Capital Lease Obligations 6,630 876 1,752 1,276 2,726
Operating Leases 66,467 9,250 16,713 15,624 24,880
--------- --------- --------- --------- ---------
Total Contractual
Obligations $ 772,495 $ 30,539 $ 55,198 $ 44,293 $ 642,465
========= ========= ========= ========= =========
|
Payments Due by Period
-------------------------------------------------------------
Less than After 5
Total 1 year 1-3 years 4-5 years years
--------- --------- --------- --------- ---------
(In thousands)
OTHER COMMERCIAL
COMMITMENTS
Lines of Credit $ 318,000 $ 318,000 $ -- $ -- $ --
|
One short-term unsecured credit facility for $300.0 million included in the total lines of credit above serves as a backup liquidity facility for our commercial paper program. Any amounts outstanding on our commercial paper reduce the amount available under this facility.
Risk Management and Trading Activities
We conduct our risk management activities through both our utility and non-regulated segments. See Note 5 to the consolidated financial statements for a description of our risk management activities. The following table shows our risk management assets and liabilities by segment at March 31, 2002.
Utility Non-Regulated Total
-------- ------------- --------
(In thousands)
Assets from risk management
activities, current $ -- $11,311 $ 11,311
Assets from risk management
activities, noncurrent -- 11,590 11,590
Liabilities from risk management
activities, current -- (10,129) (10,129)
Liabilities from risk management
activities, noncurrent -- (6,682) (6,682)
-------- -------- --------
Net assets (liabilities) $ - $ 6,090 $ 6,090
======== ======== ========
|
In accordance with Financial Accounting Standards No. 71 "Accounting for the Effects of Certain Types of Regulation", current period changes in the assets and liabilities from risk management activities related to our utility segment are recorded as deferred gas costs on the condensed consolidated balance sheet as these costs will ultimately be recovered from ratepayers. Accordingly, there is no earnings impact as a result of the use of these financial instruments. Upon maturity, the contracts are recognized in purchased gas cost.
To conduct our risk management and trading activities, Atmos Energy Marketing, a unit of our non-regulated segment, uses natural gas storage, transportation and requirements contracts, forwards, over-the-counter and exchange-traded options, futures and swap contracts. The mark-to-market method is used to account for these activities, as prescribed in EITF Issue No. 98-10 and EITF Issue 00-17. Under these methods, the aforementioned contracts are reflected at fair value, inclusive of future servicing costs and valuation adjustments, with resulting unrealized gains and losses recorded as "Assets from risk management activities" and "Liabilities from risk management activities" on the balance sheet. Current period changes in the assets and liabilities from risk management activities are recognized as net gains or losses on the condensed consolidated statement of income as gas trading margin. Changes in assets and liabilities from risk management activities result primarily from changes in valuation of the portfolio of contracts, maturity and settlement of contracts, and newly originated transactions. Effective in May 2002, Woodward Marketing's trading for speculative purposes was discontinued.
Market prices are primarily used to value these transactions. In addition, a market price based model is used for valuing certain storage and transportation contracts. These values reflect management's best estimate considering various factors, including closing exchange and over-the-counter quotations, time value, and volatility factors underlying the contracts. The values are adjusted to reflect the potential impact of liquidating our position in an orderly manner over a reasonable time frame under present market conditions. Changes in market prices directly affect management's estimate of the fair value of these transactions.
The following table reflects the reasons for the change in fair value of our non-regulated energy trading contract activities for the three months ending March 31, 2002 (in thousands).
Fair value of contracts at December 31, 2001 $ 34,210
Contracts realized/settled (23,771)
Fair value of new contracts (8,503)
Changes in fair value in valuation
techniques/assumptions 8,698
Other changes in value (4,544)
--------
Fair value of contracts at March 31, 2002 $ 6,090
========
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The following table reflects the reasons for the change in fair value of our non-regulated energy trading contract activities for the six months ending March 31, 2002 (in thousands).
Fair value of contracts at September 30, 2001 $ 28,349
Contracts realized/settled (13,203)
Fair value of new contracts (4,880)
Changes in fair value in valuation
techniques/assumptions 8,698
Other changes in value (12,874)
--------
Fair value of contracts at March 31, 2002 $ 6,090
========
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The fair value of our non-regulated energy trading contracts at March 31, 2002, is segregated below, by time period and fair value source.
Fair Value of Contracts at March 31, 2002
--------------------------------------------------------------------
Maturity Maturity
Less than Maturity Maturity excess of Total Fair
1 year 1-3 years 4-5 years 5 years Value
---------- ---------- ---------- ---------- ----------
(In thousands)
SOURCE OF FAIR VALUE
Prices actively quoted $ (15,415) $ (749) $ -- $ -- $ (16,164)
Prices provided by
other external sources 15,313 3,804 273 66 19,456
Prices based on models
and other valuation
methods 4,647 (1,416) (433) -- 2,798
---------- ---------- ---------- ---------- ----------
Total Fair Value $ 4,545 $ 1,639 $ (160) $ 66 $ 6,090
========== ========== ========== ========== ==========
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RESULTS OF OPERATIONS
Three Months Ended March 31, 2002, Compared with Three Months Ended March 31, 2001
Operating revenues decreased by 44 percent to $379.5 million for the three months ended March 31, 2002 from $675.1 million for the three months ended March 31, 2001. The most significant factors contributing to the decrease in operating revenues were a 45 percent decrease in average sales price due to the decreased cost of gas and a 11 percent decrease in sales volumes due to warmer weather, excluding the additional sales volumes attributable to the Louisiana Gas Service operations acquired in July 2001. During the quarter ended March 31, 2002, temperatures were 12 percent warmer than in the corresponding quarter of the prior year and were 2 percent warmer than the 30-year normal for the quarter, adjusted for service areas with weather normalized operations. The total volume of gas sold, excluding the Louisiana Gas Service volumes, for the three months ended March 31, 2002 was 55.4 billion cubic feet compared with 62.0 billion cubic feet for the three months ended March 31, 2001. However, the decrease in sales volumes was offset by the additional sales volumes of 8.1 billion cubic feet attributable to the Louisiana Gas Service operations acquired in July 2001. The average sales price per Mcf sold decreased $4.74 or 45 percent to $5.74 primarily due to a decrease in the average cost of gas. The average cost of gas per Mcf sold decreased 57 percent to $3.65 for the three months ended March 31, 2002 from $8.53 for the three months ended March 31, 2001. However, the decrease in operating revenues was partially offset by increased revenues resulting from the Louisiana Gas Service acquisition in July 2001.
Gross profit increased to $149.9 million for the three months ended March 31, 2002 from $138.3 million for the three months ended March 31, 2001. The increase in gross profit was due primarily to the additional gross profit resulting from the Louisiana Gas Service acquisition in July 2001 partially offset by a decrease in volumes sold to weather sensitive customers. Changes in the cost of gas do not directly affect gross profit because the fluctuations in gas prices are passed through to the customer.
On April 1, 2001, we completed our acquisition of the remaining 55 percent interest in Woodward Marketing, L.L.C. that we did not already own. As a result of this acquisition, the revenues and expenses of Woodward Marketing are now shown on a consolidated basis. For the three months ended March 31, 2002, Atmos Energy Marketing, which includes the operations of Woodward Marketing, had income of $9.6 million in gas trading margin.
Operating expenses increased to $73.2 million for the three months ended March 31, 2002 from $64.4 million for the three months ended March 31, 2001. Operation and maintenance expense increased due primarily to the addition of $6.3 million relating to the Louisiana Gas Service acquisition in July 2001 and an increase of $3.1 million in pension costs. In addition, operation and maintenance expense increased due to the full consolidation of Woodward Marketing's operations beginning April 1, 2001. A decrease in the provision for doubtful accounts of $3.9 million partially offset this increase. The decrease in the provision for doubtful accounts was attributable to the lower gas commodity prices during the second quarter of fiscal 2002 as well as our effective recovery of customer receivable balances. Depreciation and amortization increased $4.1 million due to the addition of the assets from the Louisiana Gas Service acquisition in July 2001.
Operating income increased 17 percent for the three months ended March 31, 2002 to $86.3 million from $73.9 million for the three months ended March 31, 2001. The increase in operating income resulted primarily from the increase in gross profit and the income from our gas trading margin described above partially offset by an increase in operating expenses.
Miscellaneous income (expense) was $(6.1) million for the three months ended March 31, 2002 compared to $0.3 million for the three months ended March 31, 2001. The $6.4 million change was due primarily to $5.9 million in expense recognized as a result of the weather insurance policy covering our Texas and Louisiana operations. Weather in our Texas and Louisiana operations was not at least seven percent warmer than normal which is required to generate income from the weather insurance coverage.
Interest expense increased $4.7 million, or 48 percent, for the three months ended March 31, 2002 compared with the three months ended March 31, 2001 due primarily to the interest expense on the $350.0 million debt offering in May 2001.
Net income decreased for the three months ended March 31, 2002 by $2.7 million to $41.4 million from $44.1 million for the three months ended March 31, 2001. This decrease in net income resulted primarily from the change in miscellaneous income (expense) and the increase in interest expense discussed above partially offset by the increase in operating income.
Operating revenues decreased by 42 percent to $650.8 million for the six months ended March 31, 2002 from $1.1 billion for the six months ended March 31, 2001. The most significant factors contributing to the decrease in operating revenues were a 37 percent decrease in average sales price due to the decreased cost of gas and a 19 percent decrease in sales volumes due to warmer weather, excluding the additional sales volumes attributable to the Louisiana Gas Service operations acquired in July 2001. During the six-month period ended March 2002, temperatures were 20 percent warmer than in the corresponding period of the prior year and were 6 percent warmer than the 30-year normal, adjusted for service areas with weather normalized operations. The total volume of gas sold, excluding the Louisiana Gas Service volumes, for the six months ended March 31, 2002 was 92.2 billion cubic feet compared with 114.5 billion cubic feet for the six months ended March 31, 2001. However, the decrease in sales volumes was partially offset by the additional sales volumes of 12.2 billion cubic feet attributable to the Louisiana Gas Service operations acquired in July 2001. The average sales price per Mcf sold decreased $3.47 or 37 percent to $5.97 primarily due to a decrease in the average cost of gas. The average cost of gas per Mcf sold decreased 50 percent to $3.75 for the six months ended March 31, 2002 from $7.50 for the six months ended March 31, 2001. However, the decrease in operating revenues was partially offset by increased revenues resulting from the Louisiana Gas Service acquisition in July 2001.
Gross profit increased to $259.2 million for the six months ended March 31, 2002 from $248.3 million for the six months ended March 31, 2001. The increase in gross profit was due primarily to the additional gross profit resulting from the Louisiana Gas Service acquisition in July 2001 partially offset by a decrease in volumes sold to weather sensitive customers. Changes in the cost of gas do not directly affect gross profit because the fluctuations in gas prices are passed through to the customer.
On April 1, 2001, we completed our acquisition of the remaining 55 percent interest in Woodward Marketing, L.L.C. that we did not already own. As a result of this acquisition, the revenues and expenses of Woodward Marketing are now shown on a consolidated basis. For the six months ended March 31, 2002, Atmos Energy Marketing, which includes the operations of Woodward Marketing, had income of $16.8 million in gas trading margin.
Operating expenses increased to $146.2 million for the six months ended March 31, 2002 from $125.4 million for the six months ended March 31, 2001. Operation and maintenance expense increased due primarily to the addition of $15.5 million relating to the Louisiana Gas Service acquisition in July 2001 and an increase of $6.2 million in pension costs. In addition, operation and maintenance expense increased due to the full consolidation of Woodward Marketing's operations beginning April 1, 2001. A decrease in the provision for doubtful accounts of $11.1 million partially offset this increase. The decrease in the provision for doubtful accounts was attributable to the lower gas commodity prices during the first six months of fiscal 2002 as well as our effective recovery of customer receivable balances. Depreciation and amortization increased $8.8 million due to the addition of the assets from the Louisiana Gas Service acquisition in July 2001.
Miscellaneous expense decreased $1.4 million to $0.7 million for the six months ended March 31, 2002 compared to $2.1 million for the six months ended March 31, 2001. The primary reason for the decrease was due to an increase of $0.7 million in net recoveries related to our performance based-ratemaking mechanisms and the recognition of $0.5 million related to a large industrial contract we received in during 2002.
Interest expense increased $8.4 million, or 38 percent, for the six months ended March 31, 2002 compared with the six months ended March 31, 2001 due primarily to the interest expense on the $350.0 million debt offering in May 2001.
Net income decreased for the six months ended March 31, 2002 by $5.0 million to $62.0 million from $67.0 million for the six months ended March 31, 2001. This decrease in net income resulted primarily from the increase in interest expense discussed above partially offset by the increase in operating income.
UTILITY AND NON-REGULATED OPERATING DATA
Our utility business is composed of our five regulated utility divisions: Atmos Energy Louisiana Gas Division, Energas Division, Greeley Gas Division, United Cities Gas Division, Western Kentucky Gas Division and Shared Services. The non-regulated business includes gas marketing and energy management services, operation of natural gas storage fields, construction and operation of electrical power generating plants and associated facilities and non-regulated industrial sales. The following tables of operating statistics summarizes data of the utility and non-regulated segments for the three-month and six month periods ended March 31, 2002 and 2001. Heating degree days are presented as adjusted for weather-normalized operations. Prior periods have been adjusted to reflect current period presentation. For further information regarding operating results of the segments, see Note 6 of notes to condensed consolidated financial statements.
Three months ended
March 31
---------------------
2002 2001
-------- --------
HEATING DEGREE DAYS
Actual, adjusted for WNA (weighted average) 1,877 2,136
Percent of normal 98% 111%
SALES VOLUMES - MMcf (1)
Residential 39,458 36,487
Commercial 15,722 15,252
Public authority and other 2,646 2,737
Industrial (including agricultural) 5,627 7,504
-------- --------
Total 63,453 61,980
Transportation volumes - MMcf (1) 19,183 17,403
-------- --------
Total throughput - MMcf (1) 82,636 79,383
======== ========
OPERATING REVENUES (000's)
Gas sales revenues
Residential $238,062 $394,270
Commercial 89,745 161,646
Public authority and other 13,208 26,790
Industrial (including agricultural) 23,233 66,890
-------- --------
Total gas sales revenues 364,248 649,596
Transportation revenues 11,294 8,378
Other revenues 3,939 17,139
-------- --------
Total operating revenues $379,481 $675,113
======== ========
Cost of gas (excluding non-regulated) $231,668 $528,564
======== ========
Average gas sales revenues per Mcf $ 5.74 $ 10.48
Average transportation revenue per Mcf $ .59 $ .48
Average cost of gas per Mcf sold $ 3.65 $ 8.53
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(1) Volumes are reported as metered in million cubic feet (MMcf).
Six months ended
March 31
-------------------------
2002 2001
---------- ----------
METERS IN SERVICE, end of period
Residential 1,247,431 975,627
Commercial 122,885 105,581
Public authority and other 7,353 7,470
Industrial (including agricultural) 12,995 16,280
---------- ----------
Total meters 1,390,664 1,104,958
========== ==========
HEATING DEGREE DAYS
Actual, adjusted for WNA (weighted average) 3,092 3,849
Percent of normal 94% 117%
SALES VOLUMES - MMcf (1)
Residential 62,290 65,300
Commercial 26,740 28,518
Public authority and other 4,645 5,620
Industrial (including agricultural) 10,735 15,089
---------- ----------
Total 104,410 114,527
Transportation volumes - MMcf (1) 35,251 32,901
---------- ----------
Total throughput - MMcf (1) 139,661 147,428
========== ==========
OPERATING REVENUES (000's)
Gas sales revenues
Residential $ 395,990 $ 644,104
Commercial 158,341 272,274
Public authority and other 24,362 48,870
Industrial (including agricultural) 44,854 116,210
---------- ----------
Total gas sales revenues 623,547 1,081,458
Transportation revenues 20,093 15,116
Other revenues 7,183 21,329
---------- ----------
Total operating revenues $ 650,823 $1,117,903
========== ==========
Cost of gas (excluding non-regulated) $ 391,605 $ 859,384
========== ==========
Average gas sales revenues per Mcf $ 5.97 $ 9.44
Average transportation revenue per Mcf $ .57 $ .46
Average cost of gas per Mcf sold $ 3.75 $ 7.50
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(1) Volumes are reported as metered in million cubic feet (MMcf).
There have been no material changes from the information provided in Item 7A of our Annual Report on Form 10-K for the year ended September 30, 2001.
Item 1. Legal Proceedings
See Note 2 of notes to condensed consolidated financial statements herein for a description of legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of Atmos Energy Corporation on February 13, 2002, 37,506,477 votes were cast as follows:
VOTES VOTES
FOR WITHHELD
---------- ---------
Class I Directors:
Travis W. Bain II 35,587,658 1,918,819
Dan Busbee 35,599,976 1,906,501
Richard K. Gordon 34,741,702 2,764,775
Gene C. Koonce 34,769,582 2,736,895
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The other directors will continue to serve until the expiration of their terms. The term of the Class II directors, Richard W. Cardin, Thomas C. Meredith, Carl S. Quinn and Richard Ware II will expire in 2003. The term of the Class III directors, Robert W. Best, Thomas J. Garland, Phillip E. Nichol and Charles K. Vaughan will expire in 2004. The term of the Class I directors, listed above, will expire in 2005.
Proposal to approve the amendment to the 1998 Long-Term Incentive Plan:
VOTES VOTES VOTES BROKER
FOR AGAINST ABSTAINING NON-VOTES
---------- ---------- ---------- ----------
21,583,813 10,328,659 726,247 4,867,758
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Proposal to approve the amendment to the Annual Incentive Plan for Management:
VOTES VOTES VOTES BROKER
FOR AGAINST ABSTAINING NON-VOTES
---------- ---------- ---------- ----------
31,920,949 4,766,872 818,656 --
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
A list of exhibits required by Item 601 of Regulation S-K and filed as part of this report is set forth in the Exhibits Index, which immediately precedes such exhibits.
(b) Reports on Form 8-K
None.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 14, 2002 By: /s/ F.E. MEISENHEIMER
---------------------------
F.E. Meisenheimer
Vice President and Controller
(Chief Accounting Officer
and duly authorized signatory)
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Exhibit Page
Number Description Number
------- ----------- ------
10.1 Atmos Energy Corporation 1998 Long-Term Incentive Plan
(as amended and restated February 14, 2002)
10.2 Atmos Energy Corporation Annual Incentive Plan for
Management (as amended and restated February 14, 2002)
12 Computation of ratio of earnings to fixed charges
15 Letter regarding unaudited interim financial information
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PAGE
----
ARTICLE 1 PURPOSE..............................................................................1
ARTICLE 2 DEFINITIONS..........................................................................2
ARTICLE 3 ADMINISTRATION.......................................................................8
ARTICLE 4 ELIGIBILITY..........................................................................9
ARTICLE 5 SHARES SUBJECT TO PLAN...............................................................9
ARTICLE 6 GRANT OF AWARDS.....................................................................10
6.1 In General............................................................10
6.2 Maximum ISO Grants....................................................10
6.3 Maximum Individual Grants.............................................10
6.4 Restricted Stock/Restricted Stock Units...............................10
6.5 SAR...................................................................13
6.6 Tandem Awards.........................................................13
6.7 Performance Based Awards..............................................13
6.8 Bonus Stock...........................................................14
6.9 Other Stock Based Awards..............................................15
ARTICLE 7 OPTION PRICE; SAR PRICE.............................................................16
ARTICLE 8 AWARD PERIOD; VESTING...............................................................16
8.1 Award Period..........................................................16
8.2 Vesting...............................................................17
ARTICLE 9 TERMINATION OF SERVICE..............................................................17
ARTICLE 10 EXERCISE OF INCENTIVE...............................................................17
10.1 In General..........................................................17
10.2 Disqualifying Disposition of ISO....................................19
ARTICLE 11 SPECIAL PROVISIONS APPLICABLE TO COVERED PARTICIPANTS...............................20
ARTICLE 12 AMENDMENT OR DISCONTINUANCE.........................................................22
ARTICLE 13 TERM................................................................................23
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ARTICLE 14 CAPITAL ADJUSTMENTS.................................................................23
ARTICLE 15 RECAPITALIZATION, MERGER AND CONSOLIDATION; CHANGE IN CONTROL.......................24
ARTICLE 16 LIQUIDATION OR DISSOLUTION..........................................................26
ARTICLE 17 INCENTIVES IN SUBSTITUTION FOR INCENTIVES GRANTED BY OTHER CORPORATIONS.............26
ARTICLE 18 MISCELLANEOUS PROVISIONS............................................................27
18.1 Investment Intent....................................................27
18.2 No Right to Continued Employment.....................................27
18.3 Indemnification of Board and Committee...............................27
18.4 Effect of the Plan...................................................27
18.5 Compliance With Other Laws and Regulations...........................27
18.6 Tax Requirements.....................................................28
18.7 Assignability........................................................28
18.8 Use of Proceeds......................................................29
18.9 Governing Law........................................................29
18.10 Successors and Assigns...............................................29
18.11 Effective Date.......................................................29
18.12 Legend...............................................................29
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The Atmos Energy Corporation 1998 Long-Term Incentive Plan (hereinafter called the "Plan") was adopted by the Board of Directors of Atmos Energy Corporation, a Texas and Virginia corporation (hereinafter called the "Company") on August 12, 1998 to be effective October 1, 1998, and was approved by the Company's shareholders on February 10, 1999. The Plan was amended by the Board of Directors on August 8, 2001 to provide for an increase of 2,500,000 additional shares available for issuance under the Plan, which amendment was approved by the Company's shareholders on February 13, 2002.
The purpose of the Plan is to attract and retain the services of able persons as employees of the Company and its Subsidiaries and as Non-employee Directors (as herein defined), to provide such persons with a proprietary interest in the Company through the granting of incentive stock options, non-qualified stock options, stock appreciation rights, or restricted stock, and to motivate employees and Non-employee Directors using performance-related incentives linked to longer-range performance goals and the interests of the Company's shareholders, whether granted singly, or in combination, or in tandem, that will
(a) increase the interest of such persons in the Company's welfare;
(b) furnish an incentive to such persons to continue their services for the Company; and
(c) provide a means through which the Company may attract able persons as employees and Non-employee Directors.
With respect to Reporting Participants, the Plan and all transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (the "1934 Act"). To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void ab initio, to the extent permitted by law and deemed advisable by the Committee. Further, any Awards granted under the Plan to a Non-employee Director shall be solely to compensate said Director for his services to the Company as a Non-employee Director.
For the purpose of the Plan, unless the context requires otherwise, the following terms shall have the meanings indicated:
2.1 "Award" means the grant of any Incentive Stock Option, Non-qualified Stock Option, SAR, Restricted Stock, Restricted Stock Unit, Performance Unit, Performance Share, Bonus Stock or other Stock Unit Award whether granted singly, in combination or in tandem (each individually referred to herein as an "Incentive"). "Award" also means any Incentive to which an award under the Management Incentive Plan is made or converted.
2.2 "Award Agreement" means a written agreement between a Participant and the Company, which sets out the terms of the grant of an Award.
2.3 "Award Period" means the period during which one or more Incentives granted under an Award may be exercised or earned.
2.4 "Board" means the Board of Directors of the Company.
2.5 "Bonus Stock" means an Award granted pursuant to Section 6.8 of the Plan expressed as a share of Common Stock which may or may not be subject to restrictions.
2.6 (a) "Change in Control" of the Company shall be deemed to have occurred if:
(i) Any "Person" (as defined in Section 2.6(b)(i) below), other than (1) the Company or any of its Subsidiaries, (2) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (3) an underwriter temporarily holding securities pursuant to an offering of such securities, or (4) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Section 2.6(b)(ii) below), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its Affiliates) representing 33-1/3% or more of the combined voting power of the Company's then outstanding securities, or 33-1/3% or more of the then outstanding common stock of the Company, excluding any Person who becomes such a beneficial owner in connection with a transaction described in subparagraph (iii)(A) below.
(ii) During any period of two consecutive years (the "Period"), individuals who at the beginning of the Period constitute the Board of Directors of the Company and any "new director" (as defined in Section 2.6(b)(iii) below) cease for any reason to constitute a majority of the Board of Directors.
(iii) There is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, except if:
(A) the merger or consolidation would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least sixty percent (60%) of the combined voting power of the voting securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or
(B) the merger or consolidation is effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates other than in connection with the acquisition by the Company or its Affiliates of a business) representing 60% or more of the combined voting power of the Company's then outstanding securities;
(b) Definitions. For purposes of Section 2.6(a) above,
(i) "Person" shall have the meaning given in Section 3(a)(9) of the 1934 Act as modified and used in Sections 13(d) and 14(d) of the 1934 Act.
(ii) "Beneficial owner" shall have the meaning provided in Rule 13d-3 under the 1934 Act.
(iii) "New director" shall mean an individual whose election by the Company's Board of Directors or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the Period or whose election or nomination for election was previously so approved or recommended. However, "new director" shall not include a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation relating to the election of directors of the Company.
(iv) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the 1934 Act.
2.7 "Code" means the Internal Revenue Code of 1986, as amended, together with the published rulings, regulations, and interpretations duly promulgated thereunder.
2.8 "Committee" means the committee appointed or designated by the Board to administer the Plan in accordance with Article 3 of this Plan.
2.9 "Common Stock" means the common stock, with no par value (stated value of $.005 per share), which the Company is currently authorized to issue or may in the future be authorized to issue.
2.11 "Covered Participant" means a Participant who is a "covered employee" as defined in Section 162(m)(3) of the Code, and the regulations promulgated thereunder, or who the Committee believes will be such a covered employee for a Performance Period, and who the Committee believes will have remuneration in excess of $1,000,000 for the Performance Period, as provided in Section 162(m) of the Code.
2.12 "Date of Grant" means the effective date on which an Award is made to a Participant as set forth in the applicable Award Agreement; provided, however, that solely for purposes of Section 16 of the 1934 Act and the rules and regulations promulgated thereunder, the Date of Grant of an Award shall be the date of stockholder approval of the Plan if such date is later than the effective date of such Award as set forth in the Award Agreement.
2.13 "Employee" means common law employee (as defined in accordance with the Regulations and Revenue Rulings then applicable under Section 3401(c) of the Code) of the Company or any Subsidiary of the Company.
2.14 "Fair Market Value" of a share of Common Stock is the mean of the highest and lowest prices per share on the New York Stock Exchange Consolidated Tape, or such reporting service as the Board may select, on the appropriate date, or in the absence of reported sales on such day, the most recent previous day for which sales were reported.
2.15 "Incentive Stock Option" or "ISO" means an incentive stock option within the meaning of Section 422 of the Code, granted pursuant to this Plan.
2.16 "Management Incentive Plan" means the Atmos Energy Corporation Annual Incentive Plan for Management, as amended from time to time.
2.17 "Non-employee Director" means a member of the Board who is not an Employee and who satisfies the requirements of Rule 16b-3(b)(3) promulgated under the 1934 Act or any successor provision.
2.18 "Non-qualified Stock Option" or "NQSO" means a non-qualified stock option, granted pursuant to this Plan.
2.19 "Option Price" means the price which must be paid by a Participant upon exercise of a Stock Option to purchase a share of Common Stock.
2.21 "Performance Award" means a performance-based Award, which may be in the form of either Performance Shares or Performance Units.
2.22 "Performance Criteria" or "Performance Goals" or "Performance Measures" mean the objectives established by the Committee for a Performance Period, for the purpose of determining when an Award subject to such objectives is earned.
2.23 "Performance Period" means the time period designated by the Committee during which performance goals must be met.
2.24 "Performance Share" means an Award, designated as a Performance Share, granted to a Participant pursuant to Section 6.7 hereof, the value of which is determined, in whole or in part, by the value of Common Stock in a manner deemed appropriate by the Committee and described in the Agreement.
2.25 "Performance Unit" means an Award, designated as a Performance Unit, granted to a Participant pursuant to Section 6.7 hereof, the value of which is determined, in whole or in part, by the attainment of pre-established goals relating to Company financial or operating performance as deemed appropriate by the Committee and described in the Award Agreement.
2.26 "Plan" means The Atmos Energy Corporation 1998 Long-Term Incentive Plan, as amended from time to time.
2.27 "Reporting Participant" means a Participant who is subject to the reporting requirements of Section 16 of the 1934 Act.
2.28 "Restricted Stock" means shares of Common Stock issued or transferred to a Participant pursuant to Section 6.4 of this Plan which are subject to restrictions or limitations set forth in this Plan and in the related Award Agreement.
2.29 "Restricted Stock Unit" means a fixed or variable dollar denominated right to acquire Common Stock, which may or may not be subject to restrictions, contingently awarded under Section 6.4 of the Plan.
2.30 "Retirement" means any Termination of Service solely due to retirement upon attainment of age 65, or permitted early retirement as determined by the Committee.
2.32 "SAR Price" means the Fair Market Value of each share of Common Stock covered by an SAR, determined on the Date of Grant of the SAR.
2.33 "Stock Option" means a Non-qualified Stock Option or an Incentive Stock Option.
2.34 "Stock Unit Award" means awards of Common Stock or other awards pursuant to Section 6.9 hereof that are valued in whole or in part by reference to, or are otherwise based on, shares of Common Stock or other securities of the Company.
2.35 "Subsidiary" means (i) any corporation in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing a majority of the total combined voting power of all classes of stock in one of the other corporations in the chain, (ii) any limited partnership, if the Company or any corporation described in item (i) above owns a majority of the general partnership interest and a majority of the limited partnership interests entitled to vote on the removal and replacement of the general partner, and (iii) any partnership or limited liability company, if the partners or members thereof are composed only of the Company, any corporation listed in item (i) above or any limited partnership listed in item (ii) above. "Subsidiaries" means more than one of any such corporations, limited partnerships, partnerships or limited liability companies.
2.36 "Termination of Service" occurs when a Participant who is an Employee or Non-employee Director shall cease to serve as an Employee or Non-employee Director for any reason.
2.37 "Total and Permanent Disability" means a Participant is qualified for long-term disability benefits under The Atmos Energy Corporation Group Long-Term Disability Plan as in effect from time to time; or, if such Plan is not then in existence, that the Participant, because of ill health, physical or mental disability or any other reason beyond his or her control, is unable to perform his or her duties of employment for a period of six (6) continuous months, as determined in good faith by the Committee; provided that, with respect to any Incentive Stock Option, Total and Permanent Disability shall have the meaning given it under the rules governing Incentive Stock Options under the Code.
The Plan shall be administered by the Human Resources Committee of the Board (the "Committee") unless otherwise determined by the Board. If said Human Resources Committee does not so serve, the Committee shall consist of not fewer than two persons; any member of the Committee may be removed at any time, with or without cause, by resolution of the Board; and any vacancy occurring in the membership of the Committee may be filled by appointment by the Board.
All actions to be taken by the Committee under this Plan, insofar as such actions affect compliance with Section 162(m) of the Code, shall be limited to those members of the Board who are Non-employee Directors and who are "outside directors" under Section 162(m). The Committee shall select one of its members to act as its Chairman. A majority of the Committee shall constitute a quorum, and the act of a majority of the members of the Committee present at a meeting at which a quorum is present shall be the act of the Committee.
The Committee shall determine and designate from time to time the eligible persons to whom Awards will be granted and shall set forth in each related Award Agreement the Award Period, the Date of Grant, and such other terms, provisions, limitations, and performance requirements, as are approved by the Committee, but not inconsistent with the Plan, including, but not limited to, any rights of the Committee to cancel or rescind any such Award. The Committee shall determine whether an Award shall include one type of Incentive, two or more Incentives granted in combination, or two or more Incentives granted in tandem (that is, a joint grant where exercise of one Incentive results in cancellation of all or a portion of the other Incentive).
The Committee, in its discretion, shall (i) interpret the Plan, (ii) prescribe, amend, and rescind any rules and regulations necessary or appropriate for the administration of the Plan, and (iii) make such other determinations and take such other action as it deems necessary or advisable in the administration of the Plan. Any interpretation, determination, or other action made or taken by the Committee shall be final, binding, and conclusive on all interested parties.
With respect to restrictions in the Plan that are based on the requirements of Rule 16b-3 promulgated under the 1934 Act, Section 422 of the Code, Section 162(m) of the Code, the rules of any exchange or inter-dealer quotation system upon which the Company's securities are listed or quoted, or any other applicable law, rule or restriction (collectively, "applicable law"), to the extent that any such restrictions are no longer required by applicable law, the Committee shall have the sole discretion and authority to grant Awards that are not subject to such mandated restrictions and/or to waive any such mandated restrictions with respect to outstanding Awards.
Any Employee (including an Employee who is also a director or an officer) and any Non-employee Director is eligible to participate in the Plan. The Committee, upon its own action, may grant, but shall not be required to grant, an Award to any Employee or any Non-employee Director. Awards may be granted by the Committee at any time and from time to time to new Participants, or to then Participants, or to a greater or lesser number of Participants, and may include or exclude previous Participants, as the Committee shall determine. Except as required by this Plan, different Awards need not contain similar provisions. The Committee's determinations under the Plan (including without limitation determinations of which Employees or Non-employee Directors, if any, are to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such Awards and the agreements evidencing same) need not be uniform and may be made by it selectively among Employees and Non-employee Directors who receive, or are eligible to receive, Awards under the Plan.
Subject to adjustment as provided in Articles 14 and 15, the maximum number of shares of Common Stock that may be delivered pursuant to Awards granted under the Plan is (a) 4,000,000 shares; plus (b) shares of Common Stock previously subject to Awards which are forfeited, terminated, cancelled or rescinded, settled in cash in lieu of Common Stock, or exchanged for Awards that do not involve Common Stock, or expired unexercised.
Shares to be issued may be made available from authorized but unissued Common Stock, Common Stock held by the Company in its treasury, or Common Stock purchased by the Company on the open market or otherwise. During the term of this Plan, the Company will at all times reserve and keep available the number of shares of Common Stock that shall be sufficient to satisfy the requirements of this Plan.
6.1 IN GENERAL. The grant of an Award shall be authorized by the Committee and shall be evidenced by an Award Agreement setting forth the Incentive or Incentives being granted, the total number of shares of Common Stock subject to the Incentive(s), the Option Price (if applicable), the Award Period, the Date of Grant, and such other terms, provisions, limitations, and performance objectives, as are approved by the Committee, but not inconsistent with the Plan. The Company shall execute an Award Agreement with a Participant after the Committee approves the issuance of an Award. Any Award granted pursuant to this Plan must be granted within ten (10) years of the date of adoption of this Plan. The grant of an Award to a Participant shall not be deemed either to entitle the Participant to, or to disqualify the Participant from, receipt of any other Award under the Plan.
If the Committee establishes a purchase price for an Award, the Participant must accept such Award within a period of 30 days (or such shorter period as the Committee may specify) after the Date of Grant by executing the applicable Award Agreement and paying such purchase price.
6.2 MAXIMUM ISO GRANTS. The Committee may not grant Incentive Stock Options under the Plan to any Employee which would permit the aggregate Fair Market Value (determined on the Date of Grant) of the Common Stock with respect to which Incentive Stock Options (under this and any other plan of the Company and its Subsidiaries) are exercisable for the first time by such Employee during any calendar year to exceed $100,000. To the extent any Stock Option granted under this Plan, which is designated as an Incentive Stock Option exceeds this limit or otherwise fails to qualify as an Incentive Stock Option, such Stock Option shall be a Non-qualified Stock Option. The Committee may not grant Incentive Stock Options to Non-employee Directors.
6.3 MAXIMUM INDIVIDUAL GRANTS. No Participant may receive during any fiscal year of the Company Awards of Stock Options and SARs covering an aggregate of more than five hundred thousand (500,000) shares of Common Stock.
6.4 RESTRICTED STOCK/RESTRICTED STOCK UNITS. If Restricted Stock and/or Restricted Stock Units are granted to a Participant under an Award, the Committee shall set forth in the related Award Agreement: (i) the number of shares of Common Stock and/or the number of Restricted Stock Units awarded, (ii) the price, if any, to be paid by the Participant for such Restricted Stock and/or Restricted Stock Units, (iii) the time or times within which such Award may be subject to forfeiture, (iv) specified Performance Goals of the Company, a Subsidiary, any division thereof or any group of Employees of the Company, or other criteria, which the Committee determines must be met in order to remove any restrictions (including vesting) on such Award, and (v) all other terms, limitations, restrictions, and conditions of the Restricted Stock and/or Restricted Stock Units, which shall be consistent with this Plan. The provisions of Restricted Stock and/or Restricted Stock Units need not be the same with respect to each Participant.
(a) Legend on Shares. Each Participant who is awarded Restricted Stock shall be issued a stock certificate or certificates in respect of such shares of Common Stock. Such certificate(s) shall be registered in the name of the Participant, and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, substantially as provided in Section 18.12 of the Plan. The Committee may require that the stock certificates evidencing shares of Restricted Stock be held in custody by the Company until the restrictions thereon shall have lapsed, and that the Participant deliver to the Committee a stock power or stock powers, endorsed in blank, relating to the shares of Restricted Stock.
(b) Restrictions and Conditions. Shares of Restricted Stock and Restricted Stock Units shall be subject to the following restrictions and conditions:
(i) Subject to the other provisions of this Plan and the terms of the particular Award Agreements, during such period as may be determined by the Committee commencing on the Date of Grant (the "Restriction Period"), the Participant shall not be permitted to sell, transfer, pledge or assign shares of Restricted Stock and/or Restricted Stock Units. Except for these limitations, the Committee may in its sole discretion, remove any or all of the restrictions on such Restricted Stock and/or Restricted Stock Units whenever it may determine that, by reason of changes in applicable laws or other changes in circumstances arising after the date of the Award, such action is appropriate.
(ii) Except as provided in subparagraph (i) above, the Participant shall have, with respect to his or her Restricted Stock, all of the rights of a stockholder of the Company, including the right to vote the shares, and the right to receive any dividends thereon. Certificates for shares of Common Stock free of restriction under this Plan shall be delivered to the Participant promptly after, and only after, the Restriction Period shall expire without forfeiture in respect of such shares of Common Stock. Certificates for the shares of Common Stock forfeited under the provisions of the Plan and the applicable Award Agreement shall be promptly returned to the Company by the forfeiting Participant. Each Award Agreement shall require that (x) each Participant, by his or her acceptance of Restricted Stock, shall irrevocably grant to the Company a power of attorney to transfer any shares so forfeited to the Company and agrees to execute any documents requested by the Company in connection with such forfeiture and transfer, and (y) such provisions regarding returns and transfers of stock certificates with respect to forfeited shares of Common Stock shall be specifically performable by the Company in a court of equity or law.
(iii) The Restriction Period of Restricted Stock and/or Restricted Stock Units shall commence on the Date of Grant and, subject to Article 15 of the Plan, unless otherwise established by the Committee in the Award Agreement setting forth the terms of the Restricted Stock and/or Restricted Stock Units, shall expire upon satisfaction of the conditions set forth in the Award Agreement; such conditions may provide for vesting based on (i) length of continuous service, (ii) achievement of specific business objectives, (iii) increases in specified indices, (iv) attainment of specified growth rates, or (v) other comparable Performance Measurements, as may be determined by the Committee in its sole discretion.
(iv) Subject to the provisions of the particular Award Agreement, upon Termination of Service for any reason during the Restriction Period, the nonvested shares of Restricted Stock and/or Restricted Stock Units shall be forfeited by the Participant. In the event a Participant has paid any consideration to the Company for such forfeited Restricted Stock and/or Restricted Stock Units, the Company shall, as soon as practicable after the event causing forfeiture (but in any event within 5 business days), pay to the Participant, in cash, an amount equal to the total consideration paid by the Participant for such forfeited shares and/or units. Upon any forfeiture, all rights of a Participant with respect to the forfeited shares of the Restricted Stock shall cease and terminate, without any further obligation on the part of the Company.
6.6 TANDEM AWARDS. The Committee may grant two or more Incentives in one Award in the form of a "tandem award," so that the right of the Participant to exercise one Incentive shall be canceled if, and to the extent, the other Incentive is exercised. For example, if a Stock Option and an SAR are issued in a tandem Award, and the Participant exercises the SAR with respect to 100 shares of Common Stock, the right of the Participant to exercise the related Stock Option shall be canceled to the extent of 100 shares of Common Stock.
6.7 PERFORMANCE BASED AWARDS.
(a) Grant of Performance Awards. The Committee may issue Performance Awards in the form of either Performance Units or Performance Shares to Participants subject to the Performance Goals and Performance Period as it shall determine. The terms and conditions of each Performance Award will be set forth in the related Award Agreement. The Committee shall have complete discretion in determining the number and value of Performance Units or Performance Shares granted to each Participant. Participants receiving Performance Awards are not required to pay the Company thereof (except for applicable tax withholding) other than the rendering of services.
(b) Value of Performance Awards. The Committee shall set performance goals in its discretion for each Participant who is granted a Performance Award. Such Performance Goals may be particular to a Participant, may relate to the performance of the Subsidiary which employs him or her, may be based on the division which employs him or her, may be based on the performance of the Company generally, or a combination of the foregoing. The Performance Goals may be based on achievement of balance sheet or income statement objectives, or any other objectives established by the Committee. The Performance Goals may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated. The extent to which such Performance Goals are met will determine the value of the Performance Unit or Performance Share to the Participant.
(c) Form of Payment. Payment of the amount to which a Participant shall be entitled upon the settlement of a Performance Award shall be made in a lump sum or installments in cash, shares of Common Stock, or a combination thereof as determined by the Committee.
6.8 BONUS STOCK. The Committee may award shares of Bonus Stock to Participants under the Plan without cash consideration. The Committee shall determine and indicate in the related Award Agreement whether such shares of Bonus Stock awarded under the Plan shall be unencumbered of any restrictions (other than those advisable to comply with law) or shall be subject to restrictions and limitations similar to those referred to in Section 6.7 hereof. In the event the Committee assigns any restrictions on the shares of Bonus Stock awarded under the Plan, then such shares shall be subject to at least the following restrictions:
(a) No shares of Bonus Stock may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated if such shares are subject to restrictions which have not lapsed or have not been vested.
(b) If any condition of vesting of the shares of Bonus Stock are not met, all such shares subject to such vesting shall be delivered to the Company (in a manner determined by the Committee) within 60 days of the failure to meet such conditions without any payment from the Company.
(a) Grant of Other Stock Based Awards. The Committee may issue to Participants, either alone or in addition to other Awards made under the Plan, Stock Unit Awards which may be in the form of Common Stock or other securities. The value of each such Award shall be based, in whole or in part, on the value of the underlying Common Stock or other securities. The Committee, in its sole and complete discretion, may determine that an Award, either in the form of a Stock Unit Award under this Section 6.9 or as an Award granted pursuant to the other provisions of this Article 6, may provide to the Participant (i) dividends or dividend equivalents (payable on a current or deferred basis) and (ii) cash payments in lieu of or in addition to an Award. The Committee shall determine the terms, restrictions, conditions, vesting requirements, and payment rules (all of which are sometimes hereinafter collectively referred to as "rules") of the Award and shall set forth those rules in the related Award Agreement.
(b) Rules. The Committee, in its sole and complete discretion, may grant a Stock Unit Award subject to the following rules:
(i) Common Stock or other securities issued pursuant to Stock Unit Awards may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated by a Participant until the expiration of at least six months from the Award Date, except that such limitation shall not apply in the case of death or disability of the Participant. To the extent Stock Unit Awards are deemed to be derivative securities within the meaning of Rule 16b-3 under the 1934 Act, a Participant's rights with respect to such Awards shall not vest or be exercisable until the expiration of at least six months from the Award Date. To the extent a Stock Unit Award granted under the Plan is deemed to be a derivative security within the meaning of Rule 16b-3 under the 1934 Act, it may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by laws of descent and distribution. All rights with respect to such Stock Unit Awards granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant or his or her guardian or legal representative.
(iii) The Committee, in its sole and complete discretion, may establish certain Performance Criteria that may relate in whole or in part to receipt of the Stock Unit Awards.
(iv) Stock Unit Awards may be subject to a deferred payment schedule and/or vesting over a specified employment period.
(v) The Committee as a result of certain circumstances, may waive or otherwise remove, in whole or in part, any restriction or condition imposed on a Stock Unit Award at the time of Award.
The Option Price for any share of Common Stock which may be purchased
under a Stock Option and the SAR Price for any share of Common Stock subject to
an SAR shall be at least One Hundred Percent (100%) of the Fair Market Value of
the share on the Date of Grant. If an Incentive Stock Option is granted to an
Employee who owns or is deemed to own (by reason of the attribution rules of
Section 424(d) of the Code) more than 10% of the combined voting power of all
classes of stock of the Company (or any parent or Subsidiary), the Option Price
shall be at least 110% of the Fair Market Value of the Common Stock on the Date
of Grant.
8.1 AWARD PERIOD. Subject to the other provisions of this Plan, the Committee may, in its discretion, provide that an Incentive may not be exercised in whole or in part for any period or periods of time or beyond any date specified in the Award Agreement. Except as provided in the Award Agreement, an Incentive may be exercised in whole or in part at any time during its term. The Award Period for an Incentive shall be reduced or terminated upon Termination of Service in accordance with this Article 8 and Article 9. No Incentive granted under the Plan may be exercised at any time after the end of its Award Period. No portion of any Incentive may be exercised after the expiration of ten (10) years from its Date of Grant. However, if an Employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock of the Company (or any parent or Subsidiary) and an Incentive Stock Option is granted to such Employee, the term of such Incentive Stock Option (to the extent required by the Code at the time of grant) shall be no more than five (5) years from the Date of Grant.
8.2 VESTING. The Committee, in its sole discretion, may determine that an Incentive will be immediately exercisable, in whole or in part, or that all or any portion may not be exercised until a date, or dates, subsequent to its Date of Grant, or until the occurrence of one or more specified events, subject in any case to the terms of the Plan. If the Committee imposes conditions upon exercise, then subsequent to the Date of Grant, the Committee may, in its sole discretion, accelerate the date on which all or any portion of the Incentive may be exercised.
In the event of Termination of Service of a Participant, an Incentive may only be exercised as determined by the Committee and provided in the Award Agreement.
10.1 IN GENERAL. A vested Incentive may be exercised during its Award Period, subject to limitations and restrictions set forth therein and in Article 9. A vested Incentive may be exercised at such times and in such amounts as provided in this Plan and the applicable Award Agreement, subject to the terms, conditions, and restrictions of the Plan.
In no event may an Incentive be exercised or shares of Common Stock be issued pursuant to an Award if a necessary listing or quotation of the shares of Common Stock on a stock exchange or inter-dealer quotation system or any registration under state or federal securities laws required under the circumstances has not been accomplished. No Incentive may be exercised for a fractional share of Common Stock. The granting of an Incentive shall impose no obligation upon the Participant to exercise that Incentive.
Upon payment of all amounts due from the Participant, the Company shall cause certificates for the Common Stock then being purchased to be delivered as directed by the Participant (or the person exercising the Participant's Stock Option in the event of his death) at its principal business office promptly after the Exercise Date; provided that if the Participant has exercised an Incentive Stock Option, the Company may at its option retain physical possession of the certificate evidencing the shares acquired upon exercise until the expiration of the holding periods described in Section 422(a)(1) of the Code. The obligation of the Company to deliver shares of Common Stock shall, however, be subject to the condition that if at any time the Committee shall determine in its discretion that the listing, registration, or qualification of the Stock Option or the Common Stock upon any securities exchange or inter-dealer quotation system or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the Stock Option or the issuance or purchase of shares of Common Stock thereunder, the Stock Option may not be exercised in whole or in part unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Committee.
If the Participant fails to pay for any of the Common Stock specified in such notice or fails to accept delivery thereof, the Participant's right to purchase such Common Stock may be terminated by the Company.
(b) SARs. Subject to the conditions of this Section 10.1(b) and such administrative regulations as the Committee may from time to time adopt, an SAR may be exercised by the delivery (including by FAX) of written notice to the Committee setting forth the number of shares of Common Stock with respect to which the SAR is to be exercised and the date of exercise thereof (the "Exercise Date") which shall be at least three (3) days after giving such notice unless an earlier time shall have been mutually agreed upon. On the Exercise Date, the Participant shall receive from the Company in exchange therefor cash in an amount equal to the excess (if any) of the Fair Market Value (as of the date of the exercise of the SAR) per share of Common Stock over the SAR Price per share specified in such SAR, multiplied by the total number of shares of Common Stock of the SAR being surrendered. In the discretion of the Committee, the Company may satisfy its obligation upon exercise of an SAR by the distribution of that number of shares of Common Stock having an aggregate Fair Market Value (as of the date of the exercise of the SAR) equal to the amount of cash otherwise payable to the Participant, with a cash settlement to be made for any fractional share interests, or the Company may settle such obligation in part with shares of Common Stock and in part with cash.
10.2 DISQUALIFYING DISPOSITION OF ISO. If shares of Common Stock acquired upon exercise of an Incentive Stock Option are disposed of by a Participant prior to the expiration of either two (2) years from the Date of Grant of such Stock Option or one (1) year from the transfer of shares of Common Stock to the Participant pursuant to the exercise of such Stock Option, or in any other disqualifying disposition within the meaning of Section 422 of the Code, such Participant shall notify the Company in writing of the date and terms of such disposition. A disqualifying disposition by a Participant shall not affect the status of any other Stock Option granted under the Plan as an Incentive Stock Option within the meaning of Section 422 of the Code.
Awards subject to Performance Criteria paid to Covered Participants under this Plan shall be governed by the conditions of this Section 11 in addition to the requirements of Sections 6.4, 6.7, 6.8 and 6.9 above. Should conditions set forth under this Section 11 conflict with the requirements of Sections 6.4, 6.7, 6.8 and 6.9, the conditions of this Section 11 shall prevail.
(a) All Performance Measures, Goals, or Criteria relating to Covered Participants for a relevant Performance Period shall be established by the Committee in writing prior to the beginning of the Performance Period, or by such other later date for the Performance Period as may be permitted under Section 162(m) of the Code. The Performance Goals may be identical for all Participants or, at the discretion of the Committee, may be different to reflect more appropriate measures of individual performance.
(b) The Performance Goals relating to Covered Participants for a Performance Period shall be established by the Committee in writing. Performance Goals may include alternative and multiple Performance Goals and may be based on one or more business and/or financial criteria. In establishing the Performance Goals for the Performance Period, the Committee in its discretion may include one or any combination of the following criteria in either absolute or relative terms, for the Company or any Subsidiary:
(i) Total shareholder return;
(ii) Return on assets, equity, capital, or investment;
(iii) Pre-tax or after-tax profit levels, including:
earnings per share; earnings before interest and taxes;
earnings before interest, taxes, depreciation and
amortization; net operating profits after tax, and net income;
(v) Economic value added and economic profit;
(vi) Growth in earnings per share;
(vii) Levels of operating expense or other expense items as reported on the income statement, including operating and maintenance expense; or
(viii) Measures of customer satisfaction and customer service as surveyed from time to time, including the relative improvement therein.
(c) The Performance Goals must be objective and must satisfy third party "objectivity" standards under Section 162(m) of the Code, and the regulations promulgated thereunder.
(d) The Committee is authorized to make adjustments in the method of calculating attainment of Performance Goals in recognition of: (i) extraordinary or non-recurring items, (ii) changes in tax laws, (iii) changes in generally accepted accounting principles or changes in accounting principles, (iv) charges related to restructured or discontinued operations, (v) restatement of prior period financial results, and (vi) any other unusual, non-recurring gain or loss that is separately identified and quantified in the Company's financial statements. Notwithstanding the foregoing, the Committee may, at its sole discretion, reduce the performance results upon which Awards are based under the Plan, to offset any unintended result(s) arising from events not anticipated when the Performance Goals were established, provided that such adjustment is permitted by Section 162(m) of the Code.
(e) The Performance Goals shall not allow for any discretion by the Committee as to an increase in any Award, but discretion to lower an Award is permissible.
(f) The Award and payment of any Award under this Plan to a Covered Participant with respect to a relevant Performance Period shall be contingent upon the attainment of the Performance Goals that are applicable to such Covered Participant. The Committee shall certify in writing prior to payment of any such Award that such applicable Performance Goals relating to the Award are satisfied. Approved minutes of the Committee may be used for this purpose.
(g) The maximum Award that may be paid to any Covered Participant under the Plan pursuant to Sections 6.4, 6.7, 6.8 and 6.9 for any Performance Period shall be (i) if in cash, One Million Dollars ($1,000,000.00) and (ii) if in shares of Common Stock, five hundred thousand (500,000) shares.
(h) All Awards to Covered Participants under this Plan shall be further subject to such other conditions, restrictions, and requirements as the Committee may determine to be necessary to carry out the purpose of this Section 11.
Subject to the limitations set forth in this Article 12, the Board may at any time and from time to time, without the consent of the Participants, alter, amend, revise, suspend, or discontinue the Plan in whole or in part; provided, however, that no amendment which requires stockholder approval in order for the Plan and Incentives awarded under the Plan to continue to comply with Section 162(m) of the Code, including any successors to such Section, shall be effective unless such amendment shall be approved by the requisite vote of the stockholders of the Company entitled to vote thereon. Any such amendment shall, to the extent deemed necessary or advisable by the Committee, be applicable to any outstanding Incentives theretofore granted under the Plan, notwithstanding any contrary provisions contained in any Award Agreement. In the event of any such amendment to the Plan, the holder of any Incentive outstanding under the Plan shall, upon request of the Committee and as a condition to the exercisability thereof, execute a conforming amendment in the form prescribed by the Committee to any Award Agreement relating thereto. Notwithstanding anything contained in this Plan to the contrary, unless required by law, no action contemplated or permitted by this Article 12 shall adversely affect any rights of Participants or obligations of the Company to Participants with respect to any Incentive theretofore granted under the Plan without the consent of the affected Participant.
The Plan shall be effective as set forth in Section 18.11. Unless sooner terminated by action of the Board, the Plan will terminate on October 1, 2008, but Incentives granted before that date will continue to be effective in accordance with their terms and conditions.
If at any time while the Plan is in effect, or Incentives are outstanding, there shall be any increase or decrease in the number of issued and outstanding shares of Common Stock resulting from (1) the declaration or payment of a stock dividend, (2) any recapitalization resulting in a stock split-up, combination, or exchange of shares of Common Stock, or (3) other increase or decrease in such shares of Common Stock effected without receipt of consideration by the Company, then and in such event:
(a) An appropriate adjustment shall be made in the maximum number of shares of Common Stock then subject to being awarded under the Plan and in the maximum number of shares of Common Stock that may be awarded to a Participant to the end that the same proportion of the Company's issued and outstanding shares of Common Stock shall continue to be subject to being so awarded.
(b) Appropriate adjustments shall be made in the number of shares of Common Stock and the Option Price thereof then subject to purchase pursuant to each such Stock Option previously granted and unexercised, to the end that the same proportion of the Company's issued and outstanding shares of Common Stock in each such instance shall remain subject to purchase at the same aggregate Option Price.
(c) Appropriate adjustments shall be made in the number of SARs and the SAR Price thereof then subject to exercise pursuant to each such SAR previously granted and unexercised, to the end that the same proportion of the Company's issued and outstanding shares of Common Stock in each instance shall remain subject to exercise at the same aggregate SAR Price.
(e) Appropriate adjustments shall be made with respect to shares of Common Stock applicable to any other Incentives previously awarded under the Plan as the Committee, in its sole discretion, deems appropriate, consistent with the event.
Except as otherwise expressly provided herein, the issuance by the Company of shares of its capital stock of any class, or securities convertible into shares of capital stock of any class, either in connection with direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to (i) the number of or Option Price of shares of Common Stock then subject to outstanding Stock Options granted under the Plan, (ii) the number of or SAR Price or SARs then subject to outstanding SARs granted under the Plan, (iii) the number of outstanding shares of Restricted Stock, or (iv) the number of shares of Common Stock otherwise payable under any other Incentive.
Upon the occurrence of each event requiring an adjustment with respect to any Incentive, the Company shall mail to each affected Participant its computation of such adjustment which shall be conclusive and shall be binding upon each such Participant.
(a) The existence of this Plan and Incentives granted hereunder shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations, or other changes in the Company's capital structure and its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or preference stocks ranking prior to or otherwise affecting the Common Stock or the rights thereof (or any rights, options, or warrants to purchase same), or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.
(c) In the event of any merger, consolidation or share exchange pursuant to which the Company is not the surviving or resulting corporation, there shall be substituted for each share of Common Stock subject to the unexercised portions of such outstanding Incentives, that number of shares of each class of stock or other securities or that amount of cash, property, or assets of the surviving, resulting or consolidated company which were distributed or distributable to the stockholders of the Company in respect to each share of Common Stock held by them, such outstanding Incentives to be thereafter exercisable for such stock, securities, cash, or property in accordance with their terms. Notwithstanding the foregoing, however, all Stock Options and SARs may be canceled by the Company immediately prior to the effective date of any such reorganization, merger, consolidation, share exchange or any dissolution or liquidation of the Company by giving notice to each holder thereof or his personal representative of its intention to do so and by permitting the purchase during the thirty (30) day period next preceding such effective date of all or any portion of all of the shares of Common Stock subject to such outstanding Incentives whether or not such Incentives are then vested or exercisable.
(d) In the event of a Change in Control, notwithstanding any other provision in this Plan to the contrary all unmatured installments of Incentives outstanding and not otherwise canceled in accordance with Section 15(c) above, shall thereupon automatically be accelerated and exercisable in full and all Restriction Periods applicable to Awards of Restricted Stock and/or Restricted Stock Units shall automatically expire. The determination of the Committee that any of the foregoing conditions has been met shall be binding and conclusive on all parties.
In case the Company shall, at any time while any Incentive under this Plan shall be in force and remain unexpired, (i) sell all or substantially all of its property, or (ii) dissolve, liquidate, or wind up its affairs, then each Participant shall be thereafter entitled to receive, in lieu of each share of Common Stock of the Company which such Participant would have been entitled to receive under the Incentive, the same kind and amount of any securities or assets as may be issuable, distributable, or payable upon any such sale, dissolution, liquidation, or winding up with respect to each share of Common Stock of the Company. If the Company shall, at any time prior to the expiration of any Incentive, make any partial distribution of its assets, in the nature of a partial liquidation, whether payable in cash or in kind (but excluding the distribution of a cash dividend payable out of earned surplus and designated as such) then in such event the Option Prices or SAR Prices then in effect with respect to each Stock Option or SAR shall be reduced, on the payment date of such distribution, in proportion to the percentage reduction in the tangible book value of the shares of the Company's Common Stock (determined in accordance with generally accepted accounting principles) resulting by reason of such distribution.
Incentives may be granted under the Plan from time to time in substitution for similar instruments held by employees of a corporation who become or are about to become Employees of the Company or any Subsidiary as a result of a merger or consolidation of the employing corporation with the Company or the acquisition by the Company of stock of the employing corporation. The terms and conditions of the substitute Incentives so granted may vary from the terms and conditions set forth in this Plan to such extent as the Board at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the Incentives in substitution for which they are granted.
18.1 INVESTMENT INTENT. The Company may require that there be presented to and filed with it by any Participant under the Plan, such evidence as it may deem necessary to establish that the Incentives granted or the shares of Common Stock to be purchased or transferred are being acquired for investment and not with a view to their distribution.
18.2 NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Plan nor any Incentive granted under the Plan shall confer upon any Participant any right with respect to continuance of employment by the Company or any Subsidiary.
18.3 INDEMNIFICATION OF BOARD AND COMMITTEE. No member of the Board or the Committee, nor any officer or employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination, or interpretation.
18.4 EFFECT OF THE PLAN. Neither the adoption of this Plan nor any action of the Board or the Committee shall be deemed to give any person any right to be granted an Award or any other rights except as may be evidenced by an Award Agreement, or any amendment thereto, duly authorized by the Committee and executed on behalf of the Company, and then only to the extent and upon the terms and conditions expressly set forth therein.
18.5 COMPLIANCE WITH OTHER LAWS AND REGULATIONS. Notwithstanding anything contained herein to the contrary, the Company shall not be required to sell or issue shares of Common Stock under any Incentive if the issuance thereof would constitute a violation by the Participant or the Company of any provisions of any law or regulation of any governmental authority or any national securities exchange or inter-dealer quotation system or other forum in which shares of Common Stock are quoted or traded (including without limitation Section 16 of the 1934 Act and Section 162(m) of the Code); and, as a condition of any sale or issuance of shares of Common Stock under an Incentive, the Committee may require such agreements or undertakings, if any, as the Committee may deem necessary or advisable to assure compliance with any such law or regulation. The Plan, the grant and exercise of Incentives hereunder, and the obligation of the Company to sell and deliver shares of Common Stock, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any government or regulatory agency as may be required.
18.6 TAX REQUIREMENTS. The Company shall have the right to deduct from all amounts hereunder paid in cash or other form, any Federal, state, or local taxes required by law to be withheld with respect to such payments. The Participant receiving shares of Common Stock issued under the Plan shall be required to pay the Company the amount of any taxes which the Company is required to withhold with respect to such shares of Common Stock. Notwithstanding the foregoing, in the event of an assignment of a Non-qualified Stock Option or SAR pursuant to Section 18.7, the Participant who assigns the Non-qualified Stock Option or SAR shall remain subject to withholding taxes upon exercise of the Non-qualified Stock Option or SAR by the transferee to the extent required by the Code or the rules and regulations promulgated thereunder. Such payments shall be required to be made prior to the delivery of any certificate representing such shares of Common Stock. Such payment may be made in cash, by check, or through the delivery of shares of Common Stock owned by the Participant (which may be effected by the actual delivery of shares of Common Stock by the Participant or by the Company's withholding a number of shares to be issued upon the exercise of a Stock Option, if applicable), which shares have an aggregate Fair Market Value equal to the required minimum withholding payment, or any combination thereof.
18.7 ASSIGNABILITY. Incentive Stock Options may not be transferred or assigned other than by will or the laws of descent and distribution and may be exercised during the lifetime of the Participant only by the Participant or the Participant's legally authorized representative, and each Award Agreement in respect of an Incentive Stock Option shall so provide. The designation by a Participant of a beneficiary will not constitute a transfer of the Stock Option. The Committee may waive or modify any limitation contained in the preceding sentences of this Section 18.7 that is not required for compliance with Section 422 of the Code. The Committee may, in its discretion, authorize all or a portion of a Non-qualified Stock Option or SAR to be granted to a Participant to be on terms which permit transfer by such Participant to (i) the spouse, children or grandchildren of the Participant ("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership in which such Immediate Family Members are the only partners, (iv) an entity exempt from federal income tax pursuant to Section 501(c)(3) of the Code or any successor provision, or (v) a split interest trust or pooled income fund described in Section 2522(c)(2) of the Code or any successor provision, provided that (x) there shall be no consideration for any such transfer, (y) the Award Agreement pursuant to which such Non-qualified Stock Option or SAR is granted must be approved by the Committee and must expressly provide for transferability in a manner consistent with this Section, and (z) subsequent transfers of transferred Non-qualified Stock Options or SARs shall be prohibited except those by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended. Following transfer, any such Non-qualified Stock Option and SAR shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of Articles 10, 12, 14, 16 and 18 hereof the term "Participant" shall be deemed to include the transferee. The events of Termination of Service shall continue to be applied with respect to the original Participant, following which the Non-qualified Stock Options and SARs shall be exercisable by the transferee only to the extent and for the periods specified in the Award Agreement. The Committee and the Company shall have no obligation to inform any transferee of a Non-qualified Stock Option or SAR of any expiration, termination, lapse or acceleration of such Option. The Company shall have no obligation to register with any federal or state securities commission or agency any Common Stock issuable or issued under a Non-qualified Stock Option or SAR that has been transferred by a Participant under this Section 18.7.
18.8 USE OF PROCEEDS. Proceeds from the sale of shares of Common Stock pursuant to Incentives granted under this Plan shall constitute general funds of the Company.
18.9 GOVERNING LAW. The validity, construction and effect of the Plan and any actions taken or relating to the Plan shall be determined in accordance with the laws of the State of Texas and applicable Federal law.
18.10 SUCCESSORS AND ASSIGNS. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, expressly to assume and agree to perform the Company's obligation under this Plan in the same manner and to the same extent that the Company would be required to perform them if no such succession had taken place. As used herein, the "Company" shall mean the Company as hereinbefore defined and any aforesaid successor to its business and/or assets.
18.11 EFFECTIVE DATE. The Plan shall be effective as of October 1, 1998. Subject to earlier termination pursuant to Article 12, the Plan shall have a term of ten (10) years from its effective date. After termination of the Plan, no future Awards may be made.
18.12 LEGEND. Each certificate representing shares of Restricted Stock issued to a Participant shall bear the following legend, or a similar legend deemed by the Company to constitute an appropriate notice of the provisions hereof (any such certificate not having such legend shall be surrendered upon demand by the Company and so endorsed):
"Transfer of this stock is restricted in accordance with conditions printed on the reverse of this certificate."
On the reverse:
"The shares of stock evidenced by this certificate are subject to and transferrable only in accordance with that certain Atmos Energy Corporation 1998 Long-Term Incentive Plan, a copy of which is on file at the principal office of the Company in Dallas, Texas. No transfer or pledge of the shares evidenced hereby may be made except in accordance with and subject to the provisions of said Plan. By acceptance of this certificate, any holder, transferee or pledgee hereof agrees to be bound by all of the provisions of said Plan."
The following legend shall be inserted on a certificate evidencing Common Stock issued under the Plan if the shares were not issued in a transaction registered under the applicable federal and state securities laws:
"Shares of stock represented by this certificate have been acquired by the holder for investment and not for resale, transfer or distribution, have been issued pursuant to exemptions from the registration requirements of applicable state and federal securities laws, and may not be offered for sale, sold or transferred other than pursuant to effective registration under such laws, or in transactions otherwise in compliance with such laws, and upon evidence satisfactory to the Company of compliance with such laws, as to which the Company may rely upon an opinion of counsel satisfactory to the Company."
A copy of this Plan shall be kept on file in the principal office of the Company in Dallas, Texas.
* * * * * * * * * *
By: /s/ ROBERT W. BEST
------------------
Robert W. Best
Chairman of the Board, President
and Chief Executive Officer
|
Attest:
/s/ SHIRLEY A. HINES -------------------- Shirley A. Hines Corporate Secretary |
The Atmos Energy Corporation Annual Incentive Plan for Management (hereinafter called the "Plan") was adopted by the Board of Directors of Atmos Energy Corporation, a Texas and Virginia corporation (hereinafter called the "Company"), on August 12, 1998 to be effective October 1, 1998 and was approved by the Company's shareholders on February 10, 1999. An amendment to the Plan was approved by the Board of Directors on August 8, 2001, which amendment was approved by the Company's shareholders on February 13, 2002.
The Plan is intended to provide the Company a means by which it can engender and sustain a sense of personal commitment on the part of its executives and senior managers in the continued growth, development, and financial success of the Company and encourage them to remain with and devote their best efforts to the business of the Company, thereby advancing the interests of the Company and its shareholders. Accordingly, the Company may award to executives and senior managers annual incentive compensation on the terms and conditions established herein.
For the purposes of the Plan, unless the context requires otherwise, the following terms shall have the meanings indicated:
2.1 "Annual Incentive Award" or "Award" means the compensation payable under this Plan to a Participant by the Committee pursuant to such terms, conditions, restrictions, and limitations established by the Committee and Plan.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Bonus Stock" or "Bonus Shares" means shares of Common Stock of the Company awarded to a Participant as permitted and pursuant to the terms of the Long Term Incentive Plan.
2.4 (a) "Change in Control" of the Company shall be deemed to have occurred if:
(i) Any "Person" (as defined in Section 2.4(b)(i) below), other than (1) the Company or any of its Subsidiaries, (2) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (3) an underwriter temporarily holding securities pursuant to an offering of such securities, or (4) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Section 2.4(b)(ii) below), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its Affiliates) representing 33-1/3% or more of the combined voting power of the Company's then outstanding securities, or 33-1/3% or more of the then outstanding common stock of the Company, excluding any Person who becomes such a beneficial owner in connection with a transaction described in subparagraph (iii)(A) below.
(ii) During any period of two consecutive years (the "Period"), individuals who at the beginning of the Period constitute the Board of Directors of the Company and any "new director" (as defined in Section 2.4(b)(iii) below) cease for any reason to constitute a majority of the Board of Directors.
(iii) There is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, except if:
(A) the merger or consolidation would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least sixty percent (60%) of the combined voting power of the voting securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or
(B) the merger or consolidation is effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner, directly, or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates other than in connection with the acquisition by the Company or its Affiliates of a business) representing 60% or more of the combined voting power of the Company's then outstanding securities;
(iv) The shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by the stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.
(b) Definitions. For purposes of Section 2.4(a) above,
(i) "Person" shall have the meaning given in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "1934 Act") as modified and used in Sections 13(d) and 14(d) of the 1934 Act.
(iii) "New director" shall mean an individual whose election by the Company's Board of Directors or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the Period or whose election or nomination for election was previously so approved or recommended. However, "new director" shall not include a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation relating to the election of directors of the Company.
(iv) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the 1934 Act.
2.5 "Code" means the Internal Revenue Code of 1986, as amended, together with the published rulings, regulations, and interpretations duly promulgated thereunder.
2.6 "Committee" means the committee appointed or designated by the Board to administer the Plan in accordance with Article 3 of this Plan.
2.7 "Common Stock" or "Common Shares" means the Common Stock of the Company, with no par value (stated value of $.005 per share), or such other security or right or instrument into which such common stock may be changed or converted in the future.
2.8 "Company" means Atmos Energy Corporation, a Texas and Virginia corporation, and any successor entity.
2.9 "Covered Participant" means a Participant who is a "covered employee" as defined in Section 162(m)(3) of the Code, and the regulations promulgated thereunder, or who the Committee believes will be such a covered employee for a Performance Period, and who the Committee believes may have remuneration in excess of $1,000,000 for the Performance Period, as provided in Section 162(m) of the Code.
2.10 "Date of Conversion" means the date on which the Committee determines and approves Awards; this is also the effective Date of Conversion for Restricted Stock or Restricted Shares, and for Stock Options.
2.11 "Employee" means common law employee (as defined in accordance with the Regulations and Revenue Rulings then applicable under Section 3401(c) of the Code) of the Company and any Subsidiary of the Company.
2.12 "Executive Nonqualified Deferred Compensation Plan" is the Atmos Energy Corporation Executive Nonqualified Deferred Compensation Plan, as amended from time to time.
2.13 "Fair Market Value" of a share of Common Stock is the mean of the highest and lowest prices per share on the New York Stock Exchange Consolidated Tape, or such reporting service as the Board may select, on the appropriate date, or in the absence of reported sales on such day, the most recent previous day for which sales were reported.
2.15 "Participant" means an Employee who is selected by the Committee to participate in the Plan.
2.16 "Performance Criteria" or "Performance Goals" or "Performance Measures" mean the objectives established by the Committee for the Performance Period pursuant to Article V hereof, for the purpose of determining Awards under the Plan.
2.17 "Performance Period" means the consecutive 12 month period that constitutes the Company's fiscal year.
2.18 "Plan" means the Atmos Energy Corporation Annual Incentive Plan for Management, dated effective October 1, 1998, as amended from time to time.
2.19 "Restricted Stock" or "Restricted Shares" means shares of Common Stock of the Company contingently granted to a Participant as permitted and pursuant to the terms and provisions of the Long-Term Incentive Plan.
2.20 "Section 162(m)" means Section 162(m) of the Code and the regulations promulgated thereunder.
2.21 "Stock Option" or "Option" means an option to purchase Common Shares of the Company as permitted and pursuant to the terms and provisions of the Long-Term Incentive Plan.
2.22 "Subsidiary" means (i) any corporation in an unbroken chain of
corporations beginning with the Company, if each of the corporations other than
the last corporation in the unbroken chain owns stock possessing a majority of
the total combined voting power of all classes of stock in one of the other
corporations in the chain, (ii) any limited partnership, if the Company or any
corporation described in item (i) above owns a majority of the general
partnership interest and a majority of the limited partnership interests
entitled to vote on the removal and replacement of the general partner, and
(iii) any partnership or limited liability company, if the partners or members
thereof are composed only of the Company, any corporation listed in item (i)
above or any limited partnership listed in item (ii) above. "Subsidiaries" means
more than one of any such corporations, limited partnerships, partnerships or
limited liability companies.
2.23 "Termination of Service" occurs when a Participant who is an Employee of the Company or any Subsidiary shall cease to serve as an Employee of the Company and its Subsidiaries, for any reason.
The Plan shall be administered by the Human Resources Committee of the Board unless otherwise determined by the Board. If said Human Resources Committee does not so serve, the Committee shall consist of not fewer than two persons; any member of the Committee may be removed at any time, with or without cause, by resolution of the Board; and any vacancy occurring in the membership of the Committee may be filled by appointment by the Board.
The Committee shall determine and designate from time to time the
eligible persons to whom Awards will be made. The Committee, in its discretion,
shall (i) interpret the Plan, (ii) prescribe, amend, and rescind any rules and
regulations necessary or appropriate for the administration of the Plan, and
(iii) make such other determinations and take such other action as it deems
necessary or advisable in the administration of the Plan. Any interpretation,
determination, or other action made or taken by the Committee shall be final,
binding, and conclusive on all interested parties.
With respect to restrictions in the Plan that are based on the requirements of Section 162(m) of the Code or any other applicable law, rule or restriction (collectively, "applicable law"), to the extent that any such restrictions are no longer required by applicable law, the Committee shall have the sole discretion and authority to make Awards hereunder that are no longer subject to such restrictions.
Any Employee (including an Employee who is also a director or an officer) is eligible to participate in the Plan. The Committee, upon its own action, may make, but shall not be required to make, an Award to any Employee. Awards may be made by the Committee at any time and from time to time to new Participants, or to then Participants, or to a greater or lesser number of Participants, and may include or exclude previous Participants, as the Committee shall determine. The Committee's determinations under the Plan (including without limitation determinations of which Employees, if any, are to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such Awards, and the agreements evidencing same) may be made by the Committee selectively among Employees who receive, or are eligible to receive, Awards under the Plan. An Employee must be a Participant in the Plan for a minimum of six months during the Plan Year to be eligible for an Award for that Plan Year.
5.1 Performance Goals Establishment. Performance Goals shall be established by the Committee not later than 90 days after commencement of the Performance Period. The Performance Goals may be identical for all Participants or, at the discretion of the Committee, may be different to reflect more appropriate measures of individual performance.
5.2 Awards. Awards shall be made annually in accordance with actual performance compared to the Performance Goals previously established by the Committee for the Performance Period.
(a) Total shareholder return
(b) Return on assets, equity, capital, or investment
(c) Pre-tax or after-tax profit levels, including: earnings per share; earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; net operating profits after tax, and net income
(d) Cash flow and cash flow return on investment
(e) Economic value added and economic profit
(f) Growth in earnings per share
(g) Levels of operating expense or other expense items as reported on the income statement, including operating and maintenance expense
(h) Measures of customer satisfaction and customer service as surveyed from time to time, including the relative improvement therein.
5.4 Adjustments for Extraordinary Items. The Committee shall be authorized to make adjustments in the method of calculating attainment of Performance Goals in recognition of: (i) extraordinary or non-recurring items, (ii) changes in tax laws, (iii) changes in generally accepted accounting principles or changes in accounting policies, (iv) charges related to restructured or discontinued operations, (v) restatement of prior period financial results, and (vi) any other unusual, non-recurring gain or loss that is separately identified and quantified in the Company's financial statements. Notwithstanding the foregoing, the Committee may, at its sole discretion, reduce the performance results upon which Awards are based under the Plan, to offset any unintended result(s) arising from events not anticipated when the Performance Goals were established, provided that such adjustment is permitted by Section 162(m).
5.5 Determination of Awards. The Award and payment of any Award under this Plan to a Covered Participant with respect to the Performance Period shall be contingent upon the attainment of the Performance Goals that are applicable to such Covered Participant. The Committee shall certify in writing prior to payment of any such Award that such applicable Performance Goals relating to the Award are satisfied. Approved minutes of the Committee may be used for this purpose. The Performance Goals shall not allow for any discretion by the Committee as to an increase in any Award, but discretion to lower an Award is permissible.
6.1 Timing of Awards. At the first meeting of the Committee after the completion of the Performance Period, the Committee shall review the prior year's performance in relation to the Performance Goals. The first meeting of the Committee shall occur within 60 days following the completion of the Performance Period.
6.2 Form of Awards. Awards are paid in cash or, at the Committee's discretion, in whole or in part, in stock options. The value of any stock options paid in lieu of a cash Award will be determined as set forth in Section 6.2(d) below. Such stock options will be granted pursuant to the Long-Term Incentive Plan. In addition, if and as the Committee so permits and depending upon the Participant's voluntary election prior to the commencement of the Performance Period, the Participant may elect to convert any Award paid to him in cash in 25 percent increments, in whole or part, into the following forms:
(a) Deferred Compensation. The Participant may elect to defer receipt of all or a portion of the Award under provisions of the Executive Nonqualified Deferred Compensation Plan.
(b) Bonus Stock. The Participant may elect to convert all or a portion of the Award to Bonus Shares, with the value of the Bonus Shares (based on the Fair Market Value of such Bonus Shares as of the Date of Conversion) being equal to 110% of the amount of the Award. Such Bonus Shares shall be unrestricted and shall be granted pursuant to the Long-Term Incentive Plan.
(c) Restricted Stock Awards. The Participant may elect to convert all or a portion of the Award to Company Restricted Shares, with the value of the Restricted Shares (based on the Fair Market Value of such Restricted Shares as of the Date of Conversion) being equal to 150% of the amount of the Award. Such Restricted Stock will have a restriction period of not less than 3 years from the Date of Conversion. These Restricted Shares will be granted pursuant to the Long-Term Incentive Plan.
(d) Non Qualified Stock Options. The Participant may elect to convert all or a portion of the Award to Stock Options, with the value of the Stock Options (determined on the Date of Conversion using the Black-Scholes option pricing model) being equal to 250% of the amount of the Award. The term of the Stock Option shall not be greater than 10 years, and the Stock Option will not be fully vested until 3 years have passed from the Date of Conversion. All Stock Options shall be granted at 100 percent of the Common Stock's Fair Market Value on the Date of Conversion. These Stock Options will be granted pursuant to the Long-Term Incentive Plan.
6.3 Maximum Awards. The maximum cash Award that may be made to a Covered Participant under the Plan for any Performance Period shall be $1.0 million.
The Company shall have the right to deduct from any payment to be made pursuant to the Plan the amount of any taxes required by law to be withheld with respect to such payments.
No Employee shall have any claim or right to be made an Award, and the making of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company or any of its Subsidiaries. Further, the Company and its Subsidiaries expressly reserve the right at any time to terminate the employment of any Participant free from any liability under the Plan; except that a Participant, who meets or exceeds the Performance Goals for the Performance Period and was actively employed for the full term of the Performance Period, will be eligible for an Award even though the Participant is not an active employee of the Company at the time the Committee makes Awards under the Plan.
Immediately upon a Change in Control, notwithstanding any other provision of this Plan, all Awards for the Performance Period in which the Change in Control occurs shall be deemed earned at the maximum Performance Goal level, and the Company shall make a payment in cash to each Participant within ten (10) days after the effective date of the Change in Control in the amount of such maximum Award. The making of Awards under the Plan shall in no way affect the right of the Company to adjust, reclassify, reorganize, or otherwise change its capital or business structure, or to merge, consolidate, dissolve, liquidate, sell or transfer all or any portion of its businesses or assets.
Subject to the limitations set forth in the Article 10, the Board may at any time and from time to time, without the consent of the Participants, alter, amend, revise, suspend, or discontinue the Plan in whole or in part; provided, however, that no amendment which requires stockholder approval in order for the Plan and Awards under the Plan to continue to comply with Section 162(m) of the Code, including any successors to such Section, shall be effective unless such amendment shall be approved by the requisite vote of the stockholders of the Company entitled to vote thereon.
The validity, construction and effect of the Plan and any actions taken or relating to the Plan shall be determined in accordance with the laws of the State of Texas and applicable Federal law.
The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, expressly to assume and agree to perform the Company's obligation under this Plan in the same manner and to the same extent that the Company would be required to perform them if no such succession had taken place. As used herein, the "Company" shall mean the Company as hereinbefore defined and any aforesaid successor to its business and/or assets.
This Plan shall be effective as of October 1, 1998. Subject to earlier termination pursuant to Article 10, the Plan shall have a term of five years from its effective date. As of August 8, 2001, the Board authorized extension of the term of the Plan for an additional three year period, or until September 30, 2006, which extension was approved by the Company's shareholders on February 13, 2002. After termination of the Plan, no future Awards may be made.
The Plan is designed to comply with Section 162(m) of the Code, and all provisions hereof shall be construed in a manner consistent with that intent.
No member of the Board or the Committee, nor any officer or Employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or Employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination, or interpretation.
* * * * *
IN WITNESS WHEREOF, the Company has caused this instrument to be executed as of February 14, 2002 by its President.
By: /s/ ROBERT W. BEST
------------------
Robert W. Best
Chairman of the Board, President
and Chief Executive Officer
|
Attest:
/s/ SHIRLEY A. HINES -------------------- Shirley A. Hines Secretary |
Three Months Ended Six Months Ended
March 31 March 31
---------------------- ----------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Income from continuing operations before provision for
income taxes per statement of income $ 65,732 $ 70,413 $ 98,587 $ 106,761
Add:
Portion of rents representative of the interest factor 983 922 1,884 1,470
Interest on debt & amortization of debt expense 14,489 9,817 30,481 22,063
--------- --------- --------- ---------
Income as adjusted $ 81,204 $ 81,152 $ 130,952 $ 130,294
========= ========= ========= =========
Fixed charges:
Interest on debt & amortization of debt expense (1) $ 14,489 $ 9,817 $ 30,481 $ 22,063
Capitalized interest (2) 331 -- 703 --
Rents 2,948 2,766 5,653 4,410
Portion of rents representative of the interest
factor(3) 983 922 1,884 1,470
--------- --------- --------- ---------
Fixed charges (1)+(2)+(3) $ 15,803 $ 10,739 $ 33,068 $ 23,533
========= ========= ========= =========
Ratio of earnings to fixed charges 5.14 7.56 3.96 5.54
|
Board of Directors
Atmos Energy Corporation
We are aware of the incorporation by reference in the Registration Statements (Form S-3, No. 33-37869; Form S-3 D/A, No. 33-70212; Form S-3, No. 33-58220; Form S-3, No. 33-56915; Form S-3/A, No. 333-03339; Form S-3/A, No. 333-32475; Form S-3/A, No. 333-50477; Form S-3/A, No. 333-93705; Form S-3, No. 333-95525; Form S-3, No. 333-75576; Form S-4, No. 333-13429; Form S-8, No. 33-68852; Form S-8, No. 33-57687; Form S-8, No. 33-57695; Form S-8, No. 333-32343; Form S-8, No. 333-46337; Form S-8, No. 333-73143; Form S-8, No. 333-73145; and Form S-8, No. 333-63738) of Atmos Energy Corporation and in the related Prospectuses of our report dated May 10, 2002, relating to the unaudited condensed consolidated interim financial statements of Atmos Energy Corporation which are included in its Form 10-Q for the quarter ended March 31, 2002.
Dallas, Texas
May 14, 2002