UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Form 8-K
Current Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
June 17, 2004
ATMOS ENERGY CORPORATION
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
o
Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
TEXAS AND VIRGINIA
1-10042
75-1743247
(State or Other Jurisdiction
of Incorporation)
(Commission File
Number)
(I.R.S. Employer
Identification No.)
1800 THREE LINCOLN CENTRE,
5430 LBJ FREEWAY, DALLAS, TEXAS
75240
(Address of Principal Executive Offices)
(Zip Code)
(972) 934-9227
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
| Item 8.01. Other Events. | ||||||||
| Item 9.01. Financial Statements and Exhibits. | ||||||||
| SIGNATURE | ||||||||
| EXHIBIT INDEX | ||||||||
| Letter of Deloitte & Touche LLP Re: Unaudited Interim Financial Information | ||||||||
| Unaudited Condensed Consolidated Financial Statements of TXU Gas Company | ||||||||
| Unaudited Proforma Combined Balance Sheet and Statements of Income | ||||||||
Item 8.01. Other Events.
On June 17, 2004, a subsidiary of Atmos Energy Corporation entered into a definitive agreement to acquire the natural gas distribution and pipeline operations of TXU Gas Company, a subsidiary of TXU Corp. The audited consolidated financial statements of TXU Gas Company and its subsidiaries as of December 31, 2003 and 2002 and for the three years ended December 31, 2003 were filed as Exhibit 99.1 to our current report on Form 8-K on July 7, 2004. The unaudited condensed consolidated financial statements of TXU Gas Company and its subsidiaries as of June 30, 2004 and for the quarterly periods ended June 30, 2004 and 2003 are filed as Exhibit 99.1 hereto. Please note that these audited and unaudited financial statements of TXU Gas Company reflect the entire assets and operations of TXU Gas Company. However, under the terms of the definitive agreement, we are only acquiring the natural gas distribution and pipeline operations of TXU Gas Company. Our unaudited pro forma combined balance sheet as of June 30, 2004 and our unaudited pro forma combined statements of income for the nine months ended June 30, 2004 and the twelve months ended September 30, 2003, which are filed as Exhibit 99.2 hereto, give effect to our acquisition of the TXU Gas operations and entering into the related bridge financing facility, which we will use to finance the acquisition, as well as the application of the net proceeds of $235.8 million from our recent offering of our common stock towards the purchase price of the TXU Gas operations.
Item 9.01. Financial Statements and Exhibits.
| (c) | Exhibits |
| 15.1 | Letter of Deloitte & Touche LLP regarding unaudited interim financial information | |||
| 99.1 | Unaudited condensed consolidated financial statements of TXU Gas Company and its Subsidiaries as of June 30, 2004 and for the quarterly periods ended June 30, 2004 and 2003 | |||
| 99.2 | Unaudited pro forma combined balance sheet of Atmos Energy Corporation as of June 30, 2004 and unaudited pro forma combined statements of income for the nine months ended June 30, 2004 and the 12 months ended September 30, 2003 | |||
SIGNATURE
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 hereunto duly authorized.
| ATMOS ENERGY CORPORATION
(Registrant) |
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|
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|
DATE: August 31, 2004
|
By: | /s/ LOUIS P. GREGORY | ||
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Louis P. Gregory Senior Vice President and General Counsel |
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EXHIBIT INDEX
EXHIBIT 15.1
Atmos Energy Corporation:
We have made a review, in accordance with standards of the Public Company Accounting Oversight Board (United States), of the unaudited condensed consolidated interim financial information of TXU Gas Company and subsidiaries (TXU Gas) as of June 30, 2004 and for the three and six-month periods ended June 30, 2004 and 2003, and have issued our report thereon dated August 13, 2004; because we did not perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in Atmos Energy Corporation’s Current Report on Form 8-K filed on or about August 27, 2004, is incorporated by reference in the Registration Statement of Atmos Energy Corporation on Form S-3 for the registration of its debt securities or common stock.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
August 27, 2004
Exhibit 99.1
When the following terms and abbreviations appear in the text of the notes to
the financial statements, they shall have the meanings indicated below:
TXU GAS COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED
See Notes to Financial Statements.
TXU GAS COMPANY AND SUBSIDIARIES
See Notes to Financial Statements.
TXU GAS COMPANY AND SUBSIDIARIES
See Notes to Financial Statements.
TXU GAS COMPANY AND SUBSIDIARIES
Description
of Business — TXU Gas, a Texas corporation, is a largely regulated
business engaged in the purchase, transmission, distribution and sale of
natural gas in the north-central, eastern and western parts of Texas. TXU
Gas is a wholly-owned subsidiary of TXU Corp. The TXU Gas business is held
for sale as described below.
TXU
Gas serves more than 1.4 million retail gas customers and owns and
operates gas distribution mains, gas transportation and gathering pipelines
and underground storage reservoirs. TXU Gas also provides transportation
services to gas distribution companies, electricity generation plants, end-use
industrial customers and through-system shippers.
TXU
Gas’ natural gas pipeline, gas distribution and asset management services
operations are managed as one integrated business; accordingly, there are
no separate reportable business segments.
Strategic
Initiatives and Other Actions — As previously reported, on February 23,
2004, C. John Wilder was named president and chief executive of TXU Corp.
Mr. Wilder was formerly executive vice president and chief financial
officer of Entergy Corporation. Mr. Wilder has been reviewing the operations
of TXU Corp. and has formulated certain strategic initiatives and continues
to develop others. The review has resulted in the decision to sell TXU Gas.
Other actions taken that impact TXU Gas relate to TXU Corp.’s cost
structure, including organizational alignments and headcount as well as
non-core business activities.
Sale
of TXU Gas
On
June 17, 2004, TXU Gas entered into a definitive merger agreement with
an acquisition subsidiary of Atmos Energy Corporation (Atmos) pursuant to
which Atmos will acquire the operations of TXU Gas for $1.925 billion
in cash. The intent to sell the business had been previously disclosed.
The transaction is expected to close by the end of the year, subject to
the satisfaction of customary closing conditions and Atmos obtaining limited
state regulatory approvals.
Based
on June 30, 2004 balance sheet amounts, estimated assets totaling $111 million
and liabilities totaling $1.23 billion would not be assumed by the
buyer. The assets consist largely of prepayments related to revenue-related
taxes and employee deferred compensation-related investments. The liabilities
consist largely of short and long-term debt, pension, post retirement benefits
and deferred compensation obligations, and income tax liabilities including
deferred income taxes.
Capgemini
Energy Agreement
On
May 17, 2004, TXU Corp. entered into a services agreement with a subsidiary
of Cap Gemini North America Inc., Capgemini Energy LP (Capgemini), a new
company initially providing business process support services to TXU Corp.
and subsidiaries, and immediately implementing a plan to offer similar services
to other utility companies. Under the ten-year agreement, over 2,500 employees
transferred from subsidiaries of TXU Corp. to Capgemini effective July 1,
2004. Outsourced base support services performed by Capgemini for a fixed
fee include information technology, customer call center, billing, human
resources, supply chain and certain accounting activities.
As
part of the services agreements, TXU Corp. agreed to indemnify Capgemini
for severance costs incurred by Capgemini for former employees terminated
within 18 months of their transfer to Capgemini. Accordingly, TXU Gas
recorded a $7 million ($5 million after-tax) charge for severance
expense in the second quarter of 2004, which represents a reasonable estimate
of the indemnity and is reported in other deductions. The charge consists
principally of an allocation of severance related to TXU Business Services
employees. In addition, TXU Corp. committed to pay for costs associated
with transitioning the outsourced activities to Capgemini. The transition
costs allocable to TXU Gas are expected to be recorded during the remainder
of 2004.
Basis
of Presentation — The condensed consolidated financial statements of
TXU Gas have been prepared in accordance with US GAAP and on the same basis
as the audited financial statements included in its 2003 Form 10-K. In the
opinion of management, all other adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the results of operations
and financial position have been included therein. All intercompany items
and transactions have been eliminated in consolidation. Certain information
and footnote disclosures normally included in annual consolidated financial
statements prepared in accordance with US GAAP have been omitted pursuant
to the rules and regulations of the SEC. Because the condensed consolidated
interim financial statements do not include all of the information and footnotes
required by US GAAP, they should be read in conjunction with the audited
financial statements and related notes included in the 2003 Form 10-K. The
results of operations for an interim period may not give a true indication
of results for a full year. Certain
reclassifications have been made to conform prior period data to the current
period presentation. The income statement presentation, which is a regulatory
format, differs from previous disclosures in that income tax expense and
benefit is presented as a component of both operating and nonoperating results.
All dollar amounts in the financial statements and tables in the notes are
stated in millions of dollars unless otherwise indicated.
Changes
in Accounting Standards — FIN 46R was issued in December 2003
and replaced FIN 46, which was issued in January 2003. FIN 46R expands
and clarifies the guidance originally contained in FIN 46, regarding consolidation
of variable interest entities. FIN 46R did not impact results of operations
or financial position for the first six months of 2004.
The
Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the
Medicare Act) was enacted in December 2003. TXU Corp. is accounting
for the effects of the Medicare Act in accordance with FASB Staff Position
106-2. For the three and six months ended June 30, 2004, the effect
of adoption of the Medicare Act was a reduction of approximately $1 million
and $2 million, respectively, in TXU Gas’ postretirement benefit
costs.
In
May 2003, TXU Gas filed, for the first time, a system-wide rate case
for the distribution and pipeline operations. The case was filed in all
437 incorporated cities served by the distribution operations, and at the
RRC for the pipeline business and for unincorporated areas served by the
distribution operations. The TXU Gas filing requested an annual revenue
increase of $69.5 million or 7.24%. All 437 cities took action on the case
within their statutory time frame, and TXU Gas appealed these actions to
the RRC. Twelve parties intervened in the case.
On
May 25, 2004, the RRC issued a final order in TXU Gas’ system-wide
rate case granting an $11.7 million or 1.22% increase in TXU Gas’
rates. Additionally, as a result of the RRC order, TXU Gas recorded a charge
of approximately $153 million ($99 million after-tax) in the second
quarter 2004 to reserve for certain regulatory disallowances contained within
the RRC’s order. The disallowances consisted of the following:
TXU
Gas believes that the final order does not follow applicable law or precedent
in many important respects and filed a motion for rehearing requesting the
RRC to reconsider and reverse significant judgments that TXU Gas believes
are in error. The RRC has denied the motion for rehearing. TXU Gas is filing
an appeal in district court.
Short-term
Borrowings — At June 30, 2004, TXU Gas had outstanding short-term
borrowings consisting of bank borrowings of $300 million at a weighted
average interest rate of 2.18% and $38 million of short-term advances
from affiliates at a weighted average interest rate of 2.85%. At March 31,
2004, TXU Gas had outstanding short-term advances from affiliates of $231 million
at a weighted average interest rate of 2.86%.
Credit
Facilities — On April 26, 2004, TXU Gas entered into a new $300
million, 364-day credit facility. At June 30, 2004, the facility was
fully drawn and borrowings were used to repay advances from affiliates.
In July 2004, this facility was repaid and has been terminated.
Sale
of Receivables — TXU Corp. has established an accounts receivable securitization
program. The activity under this program is accounted for as a sale of accounts
receivable in accordance with SFAS 140. Under the program, subsidiaries
of TXU Corp. (originators) sell trade accounts receivable to TXU Receivables
Company, a consolidated wholly-owned bankruptcy remote direct subsidiary
of TXU Corp., which sells undivided interests in the purchased accounts
receivable for cash to special purpose entities established by financial
institutions (the funding entities). As of June 30, 2004, $47 million
of undivided interests in TXU Gas’ accounts receivable had been sold
by TXU Receivables Company. Effective June 30, 2004, the program was
extended through June 28, 2005. Additionally, the extension allows
for increased availability of funding through a credit ratings-based reduction
of customer deposits previously used to reduce the amount of undivided interests
that could be sold. Undivided interests will now be reduced by 100% of the
customer deposit for a Baa3/BBB- rating; 50% for a Baa2/BBB rating; and
zero % for a Baa1/BBB+ and above rating (based on each originator’s
credit rating).
All
new trade receivables under the program generated by the originators are
continuously purchased by TXU Receivables Company with the proceeds from
collections of receivables previously purchased. Changes in the amount of
funding under the program, through changes in the amount of undivided interests
sold by TXU Receivables Company, are generally due to seasonal variations
in the level of accounts receivable and changes in collection trends. TXU
Receivables Company has issued subordinated notes payable to the originators
for the difference between the face amount of the uncollected accounts receivable
purchased, less a discount, and cash paid to the originators that was funded
by the sale of the undivided interests.
The
discount from face amount on the purchase of receivables principally funds
program fees paid by TXU Receivables Company to the funding entities, as
well as a servicing fee paid by TXU Receivables Company to TXU Business
Services. The program fees (losses on sale), which consist primarily of
interest costs on the underlying financing, were $1 million for each
of the six-month periods ending June 30, 2004 and 2003 and approximated
2.1% and 3.6% for the first six months of 2004 and 2003, respectively, of
the average funding under the program on an annualized basis; these fees
represent the net incremental costs of the program to TXU Gas and are reported
in operation and maintenance expenses. The servicing fee, which totaled
approximately $1 million and $2 million, for the first six months of
2004 and 2003, respectively, compensates TXU Business Services for its services
as collection agent, including maintaining the detailed accounts receivable
collection records.
The
June 30, 2004 balance sheet reflects $85 million face amount of
trade accounts receivable reduced by $47 million of undivided interests
sold by TXU Receivables Company. Funding under the program decreased $6 million
for the six months ended June 30, 2004, primarily due to the effect
of seasonal fluctuations. Funding under the program for the six months ended
June 30, 2003 increased $22 million. Funding increases or decreases
under the program are reflected as operating cash flow activity in the statement
of cash flows. The carrying amount of the retained interests in the accounts
receivable approximated fair value due to the short-term nature of the collection
period.
Activities
of TXU Receivables Company related to TXU Gas for the six months ended June 30,
2004 and 2003 were as follows:
Upon
termination of the program, cash flows to TXU Gas would be delayed as collections
of sold receivables would be used by TXU Receivables Company to repurchase
the undivided interests sold instead of purchasing new receivables. The
level of cash flows would normalize in approximately 16 to 31 days.
Contingencies
Related to Sale of Receivables Program — Although TXU Receivables Company
expects to be able to pay its subordinated notes from the collections of
purchased receivables, these notes are subordinated to the undivided interests
of the financial institutions in those receivables, and collections might
not be sufficient to pay the subordinated notes. The program may be terminated
if either of the following events occurs:
The
delinquency and dilution ratios exceeded the relevant thresholds during
the first four months of 2003, but waivers were granted. These ratios were
affected by issues related to the transition to competition. Certain billing
and collection delays arose due to implementation of new systems and processes
within Energy and ERCOT for clearing customers’ switching and billing
data. Strengthened credit and collection policies and practices have brought
the ratios into consistent compliance with the program requirement.
Under
terms of the receivables sale program, all the originators are required
to maintain specified fixed charge coverage and leverage ratios (or supply
a parent guarantor that meets the ratio requirements). The failure, by an
originator or its parent guarantor, if any, to maintain the specified financial
ratios would prevent that originator from selling its accounts receivable
under the program. If all the originators and the parent guarantor, if any,
fail to maintain the specified financial ratios so that there are no eligible
originators, the facility would terminate.
Long-Term
Debt — At June 30, 2004 and December 31, 2003, the long-term
debt of TXU Gas and its consolidated subsidiaries consisted of the following:
At
June 30, 2004 and December 31, 2003, a statutory business trust
established as a wholly-owned financing subsidiary of TXU Gas, had 150 units
($147 million) of floating rate mandatorily redeemable preferred securities
outstanding. Distributions on these preferred securities are payable quarterly
based on an annual floating rate determined quarterly with reference to
a three-month LIBOR rate plus a margin. The only assets held by the trust
are $155 million principal amount of Floating Rate Junior Subordinated Debentures
Series A issued by TXU Gas. The interest on the debentures matches the distributions
on the preferred trust securities. The debentures will mature on July 1,
2028. TXU Gas has the right to redeem the debentures and cause the redemption
of the preferred securities in whole or in part. TXU Gas owns the common
securities issued by its subsidiary trust and has effectively issued a full
and unconditional guarantee of the trust’s preferred securities.
As
a result of the adoption of FIN 46R in the fourth quarter of 2003, the subsidiary
trust has been deconsolidated. As a result, TXU Gas’ balance sheet
reflects the $155 million of long-term debt held by the trust and an
investment in the trust of $8 million, instead of the former presentation
of $147 million of preferred interests of subsidiaries. Upon the sale
of TXU Gas’ operations, under the current definitive agreement, TXU
Gas would be required to provide for the satisfaction of these securities.
At
June 30, 2004, TXU Gas had 75,000 shares of Adjustable Rate Series F
Preferred Stock outstanding (2,000,000 total shares authorized) which is
entitled upon liquidation to the stated value of $1,000 per share. The preferred
stock series is the underlying preferred stock for depositary shares that
were issue
Legislation that restructured the electric
utility industry in Texas to provide for competition
TXU Gas’ Annual Report on
Form 10-K for the year ended December 31, 2003
Billion cubic feet
Public Utility Commission of Texas
Electric Reliability Council of Texas, the Independent System Operator and the regional reliability
coordinator of the various electricity systems within Texas
Financial Accounting Standards Board, the designated organization in the private sector for
establishing standards for financial accounting and reporting
Financial Accounting Standards Board Interpretation
FIN No. 46, “Consolidation of Variable Interest
Entities”
FIN No. 46 (Revised 2003), “Consolidation of Variable Interest Entities-An Interpretation of ARB
No. 51”
Fitch Ratings, Ltd.
Internal Revenue Service
Moody’s Investors Services, Inc.
Railroad Commission of Texas
Standard & Poor’s, a division of The McGraw Hill
Companies
Sarbanes-Oxley Act of 2002
United States Securities and Exchange Commission
Statement of Financial Accounting Standards issued by the FASB
SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, a replacement of FASB Statement 125”
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (LOSS)
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2004
2003
2004
2003
(millions of dollars)
$
216
$
199
$
724
$
820
102
89
428
519
137
72
206
139
19
19
38
37
(13
)
(9
)
4
16
30
33
61
55
275
204
737
766
(59
)
(5
)
(13
)
54
2
1
4
3
125
—
125
—
(29
)
—
(27
)
1
—
—
—
1
8
11
16
22
(161
)
(15
)
(123
)
35
1
1
2
2
$
(162
)
$
(16
)
$
(125
)
$
33
COMPREHENSIVE INCOME (LOSS)
(Unaudited)
$
(161
)
$
(15
)
$
(123
)
$
35
—
1
—
2
—
1
—
2
$
(161
)
$
(14
)
$
(123
)
$
37
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
2004
2003
(millions of dollars)
$
(123
)
$
35
43
40
(48
)
7
35
—
153
—
—
(1
)
6
34
(48
)
(9
)
18
106
(150
)
(125
)
300
—
(116
)
60
(4
)
(2
)
—
(2
)
30
(69
)
(49
)
(48
)
4
9
(45
)
(39
)
3
(2
)
5
4
$
8
$
2
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30,
December 31,
2004
2003
(millions of dollars)
$
8
$
5
29
101
135
144
50
27
222
277
10
10
31
35
1,624
1,685
300
305
12
16
$
2,199
$
2,328
$
300
—
38
154
150
150
51
148
130
88
669
540
32
79
155
155
125
276
113
35
354
364
1,448
1,449
75
75
—
—
815
815
(135
)
(7
)
(4
)
(4
)
676
804
751
879
$
2,199
$
2,328
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1.
SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS
2.
GAS DISTRIBUTION RATE CASE
•
Gas utility plant investment associated with the replacement of polyethylene
pipe (“poly pipe”) in the amount of $77 million, with
the related charge reported in other deductions;
•
Regulatory asset relating to costs incurred for identifying locations
requiring polyethylene pipe (“poly pipe”) replacements in
the amount of $40 million, with the related charge reported in
operation and maintenance expense;
•
Regulatory asset relating to the costs of employee severance programs
occurring in 1997 and again in 1999 in the amount of $31 million, with
the related charge reported in operation and maintenance expense;
•
Gains on sales of land and cushion gas in the combined approximate
amount of $5 million, with the related charge reported in other
deductions.
3.
FINANCING ARRANGEMENTS
1)
all of the originators cease to maintain their required fixed charge
coverage ratio and debt to capital (leverage) ratio;
2)
the delinquency ratio (delinquent for 31 days) for the sold
receivables, the default ratio (delinquent for 91 days or deemed
uncollectible), the dilution ratio (reductions for discounts, disputes
and other allowances) or the days collection outstanding ratio exceed
stated thresholds and the financial institutions do not waive such event
of termination. The thresholds apply to the entire portfolio of sold
receivables, not separately to the receivables of each originator.
(a)
These series are in the multiannual mode and are subject
to mandatory tender prior to maturity on the mandatory remarketing date.
On such date, the interest rate and interest rate period will be reset
for the notes.
(b)
Upon the sale of TXU Gas’ operations, under the
current definitive agreement, TXU Gas would be required to provide for
the satisfaction of the outstanding long-term debt obligations.
4.
LONG-TERM DEBT HELD BY SUBSIDIARY TRUST
5.
PREFERRED STOCK