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AT
M
O S
ATMOS ENERGY CORPORATION 1998 ANNUAL REPORT
Thinking like awinner.

Table of contents

  • Page 1
    ATMOS AT M O S E N E R G Y C O R P O R AT I O N 1 9 9 8 A N N UA L R E P O RT Th i n k i n g l i k e a w i n n e r.

  • Page 2
    ... to Shareholders Chief Executive Q&A Utility Operations Energas Company Information Greeley Gas Company Information Trans Louisiana Gas Company Information United Cities Gas Company Information Western Kentucky Gas Company Information Non-Utility Operations Shared Services Financial Information...

  • Page 3
    ... our industry is changing, our is not. This report outlines our successes in 1998 and highlights ways we are delivering on our commitment to be counted among the best in the industry. We also feature some outstanding citizens from the communities served by our company who display a winning...

  • Page 4
    ... ended September 30, 1998 1997 1996 Utility Meters In Service (1) Residential ...Commercial...Industrial (including agricultural) ...Public authority ...Total natural gas meters...Propane customers ...Total ...Heating Degree Days Actual (weighted average) ...Percent of normal ...Sales Volumes (MMcf...

  • Page 5
    ... in Dallas,Texas, Atmos Energy Corporation distributes natural gas and propane to more than one million customers in Colorado, Georgia, Illinois, Iowa, Kansas, Kentucky, Louisiana, Missouri, North Carolina, South Carolina,Tennessee,Texas and Virginia through its operating divisions - Energas Company...

  • Page 6
    ...$1.10 annually. With the payment of the quarterly dividend on December 10, 1998, to shareholders of record on November 25, 1998, the Company will have paid a quarterly dividend for 60 consecutive quarters. United Cities was successfully integrated into Atmos' utility operations. During 1998, United...

  • Page 7
    ... service areas. Atmos added more than 19,000 new utility meters in 1998, with the largest number of additions in the United Cities and Greeley Divisions. We are focusing on untapped market potential in our existing service areas, particularly in residential gas fireplaces, water heating and gas...

  • Page 8
    ... compensation and meeting fees in the form of company stock. The total rewards program establishes share ownership guidelines for Atmos executives at a minimum of one and one-half to five times their annual salary, and a new officer incentive plan will base stock option grants on the achievement...

  • Page 9
    ...-utility operations (propane and gas marketing); developing retail energy services; and growing through acquisitions. We have worked to define our organizational structure and governance policies. Our business units have established brand names and are closest to our customers, giving them greater...

  • Page 10
    ... Woodward Marketing, LLC, and create the opportunity to market electricity to Woodward customers. How does Atmos plan to offer retail services to its customers? The cornerstone of our retail services strategy is to position the Company to sell the gas commodity to customers behind the meter through...

  • Page 11
    ... our Year 2000 readiness. Our goal is to make the Year 2000 a non-event for our customers and the Company. We formed a Y2K team in October 1996 to inventory all internal and external systems and to address related issues throughout Atmos and with our external business partners. We are working with...

  • Page 12
    ...business hours. With the payment centers and Customer Support Center in place, Atmos was able to consolidate its field offices. Internal Growth The Company added over 19,000 new utility meters in its current service areas in fiscal 1998. The largest number of additions occurred in the United Cities...

  • Page 13
    .... United Cities Gas has a similar performance-based gas cost incentive plan in effect in Georgia, and a plan is under review in Tennessee. Local identity Our five utility business units are committed to being good citizens in the communities they serve. We believe in the importance of supporting and...

  • Page 14
    ... "He started asking for a motorcycle at age three. I told him he'd have to wait until he could ride his bicycle without training wheels. He's been riding in Motocross events since he was five," says Energas employee, Michael Burns, Tyler's dad and coach. For Atmos, providing convenient customer call...

  • Page 15
    ... market in Texas that provides revenues during the summer when heating sales are low. Farmers use natural gas to power irrigation pumps. Energas Company is headquartered in Lubbock, Texas. Energas serves more than 300,000 customers in 92 West Texas towns and communities, including Amarillo, Lubbock...

  • Page 16
    ... Bardin and Chip White started a home-sewing operation making funky athletic headwear for skiers and for college students in Colorado. Today, their Durango-based company, Bula Inc., is a world-class manufacturer of headwear, and is a sponsor of the U.S. Olympic ski team and many athletes, including...

  • Page 17
    ... to customer requests for service. Greeley Gas Company is headquartered in Denver, Colorado, and serves more than 115,000 customers in 123 communities in Colorado, Kansas and Missouri. Towns served include Greeley, Steamboat Springs, Durango and Cañon City, Colorado, and Bonner Springs, and Johnson...

  • Page 18
    ... interested in the traditional music he grew up with in Carencro, Louisiana. Then he rediscovered his Creole roots, picked up the accordion and...awards, Buckwheat Zydeco says, "Don't criticize what you don't understand, or you'll be the loser." Atmos is taking what it understands and employing ...

  • Page 19
    ...new pipe without tearing up the customer's lawn and landscaping. Trans Louisiana Gas Company is headquartered in Lafayette, Louisiana, and serves more than 81,000 customers in 41 communities in Louisiana, including Monroe, Natchitoches, Pineville and Lafayette. Trans La has 134 employees. Operating...

  • Page 20
    ... in downtown Franklin, Tennessee, rehabilitating abandoned industrial buildings into tourist attractions. "I don't see broken bricks and walls when I walk through these old buildings - I see people attending concerts, and visiting art galleries and restaurants," he says. Atmos' vision is to...

  • Page 21
    ... untapped market potential in residential gas lighting and fireplaces. United Cities Gas Company is headquartered in Franklin, Tennessee, and serves more than 316,000 customers in 383 communities in Illinois, Tennessee, Iowa, Virginia, Georgia, South Carolina, Kansas and Missouri. Towns served...

  • Page 22
    ... for a winner is helping others succeed. A gospel singer and Owensboro, Kentucky, city employee who served three terms on the city commis- sion of her hometown of Beaver Dam, Alma Randolph heads a charitable foundation that provides new back-to-school clothes and supplies for more than 500...

  • Page 23
    ...service technicians use computerized meter reading devices that improve accuracy and reduce paperwork. Western Kentucky Gas Company is headquartered in Owensboro, Kentucky, and serves more than 176,000 customers in 163 communities in Kentucky, including Owensboro, Paducah, Danville and Bowling Green...

  • Page 24
    ...tanks like this subdivision near Franklin, Tennessee. ATMOS PROPANE, INC. Atmos Propane, Inc. distributes propane to 37,400 customers in 240 communities in Tennessee, Kentucky, Virginia and North Carolina. The propane division has 186 employees. Operating revenues from propane were $29.1 million in...

  • Page 25
    ... opportunities for electricity marketing as an added service through Woodward Marketing, LLC. Irrigation Atmos serves a unique agricultural market in West Texas, selling natural gas to farmers who use natural gas-fired engines that pump water for irrigation. Due to hotter and drier weather in 1998...

  • Page 26
    ...shared services during 1998: the Customer Support Center. The Company opened the central Customer Support Center in Amarillo, Texas, to provide response to customer calls 24 hours a day, seven days a week. Previously, the Company had staffed business offices in locations throughout its service areas...

  • Page 27
    ..., General Counsel and Corporate Secretary Larry J. Dagley Executive Vice President and Chief Financial Officer J. Charles Goodman Executive Vice President, Utility Operations Wynn D. McGregor Vice President, Human Resources Business Units Thomas R. Blose, Jr. President, United Cities Gas Company...

  • Page 28
    ... ...Current liabilities Current maturities of long-term debt ...Notes payable to banks...Accounts payable...Taxes payable...Customers' deposits ...Other current liabilities ...Total current liabilities...Deferred income taxes ...Deferred credits and other liabilities ...57,783 66,400 44,742 12...

  • Page 29
    ... 30, 1998 1997 (In thousands, except per share data) 1996 Operating revenues ...Purchased gas cost ...Gross profit ...Operating expenses Operation ...Maintenance ...Depreciation and amortization ...Taxes, other than income ...Income taxes ...Total operating expenses ...Operating income ...Other...

  • Page 30
    ..., except share data) Balance, September 30, 1995 ...Net income ...Cash dividends ($.98 per share)...Common stock issued: Restricted stock grant plan ...Direct stock purchase plans...ESOP ...Long-term stock plan for United Cities Division ...Outside directors stock-for-fee plan ...Monarch Gas Co...

  • Page 31
    ... charges and other assets...Increase (decrease) in accounts payable ...Increase (decrease) in taxes payable ...Increase (decrease) in customers' deposits ...Increase (decrease) in other current liabilities ...Increase in deferred credits and other liabilities ...Net cash provided by operating...

  • Page 32
    ...Texas, the Company is engaged in gas marketing and energy management services. WMLLC provides gas marketing services to industrial customers, municipalities and local distribution companies, including the United Cities, Energas, Greeley, and Trans La Divisions. The Company utilizes equity accounting...

  • Page 33
    ... in subsequent gas adjustments in customer rates and does not affect the results of operations. Noncurrent gas in storage is classified as property, plant and equipment and is priced at cost. Income Taxes The Company provides deferred income taxes for equipment is stated at original cost net of...

  • Page 34
    ... stock. UCGC was a natural gas utility company engaged in the distribution and sale of natural gas. At the time of the merger, UCGC served approximately 306,000 utility customers in Georgia, Illinois, Iowa, Kansas, Missouri, South Carolina, Tennessee, and Virginia, and approximately 29,000 propane...

  • Page 35
    ... 1998. Atmos also has initiated plans to enhance its customer service in Texas, Louisiana, Kentucky, Colorado, Kansas and Missouri through business process changes which resulted in a net reduction of approximately 240 positions. These changes include restructuring business office operations...

  • Page 36
    ... activities filed by the Western Kentucky Division. The PBR mechanism is incorporated into the Western Kentucky Division's Gas Cost Adjustment Clause. The Georgia Public Service Commission and the Tennessee Regulatory Authority have approved Weather Normalization Adjustments ("WNA"). The WNAs...

  • Page 37
    ... affiliated with the Company. The plaintiffs purported to represent a class consisting of all residential and commercial gas customers in the Trans La Division's service area. Among other things, the lawsuit alleged the benefit of its customers in the form of credits to customers' bills during the...

  • Page 38
    ... gas purchases and transportation services from suppliers. WMLLC payable balances outstanding that were subject to these guarantees amounted to $8.5 million at September 30, 1998. Missouri. Atmos, through its United Cities Division, agreed in the order to perform a removal action, a subsequent site...

  • Page 39
    ... lease terms range from one to 20 years and generally provide for the payment of taxes, insurance and maintenance by the lessee. The Company has also entered into capital leases for division offices and operating facilities. Net property, plant and equipment included amounts for capital leases of...

  • Page 40
    ... 30, 1998, all of the Greeley Division utility plant assets with a net book value of approximately $88.3 million are subject to a lien under the 9.4% Series J First Mortgage Bonds assumed by the Company in the acquisition of Greeley Gas Company. Also, substantially all of the United Cities Division...

  • Page 41
    ... of all Ownership Plan ("ESOP") and the United Cities Division has a 401(k) savings plan, as discussed in Note 10. The ESOP will be amended effective January 1, 1999, as is more fully discussed in Note 10. Direct Stock Purchase Plan The Company also has a Direct ATMOS ENERGY CORPORATION 37

  • Page 42
    ... Benefit Plans As of September 30, 1998, the Company had four defined benefit pension plans, covering the Western Kentucky Division employees, the Greeley Division employees, the United Cities Division employees, and the fourth covering all other Atmos employees. The plans provide similar benefits...

  • Page 43
    ... than pensions. Each provides health care benefits to retired employees. One provides benefits to the United Cities Division retirees and the other provides medical benefits to all other retired Atmos employees. Substantially all of the Company's employees become eligible ATMOS ENERGY CORPORATION...

  • Page 44
    ... 1999, the United Cities plan will provide benefits to future retirees that are essentially the same as provided to other Atmos employees. The obligations as of September 30, 1998 anticipate this plan change. Weighted average assumptions for end of year disclosure: Discount rate Rate of compensation...

  • Page 45
    ... 1.85 Texas service area and in Kentucky (effective November 1, 1995). It receives rate treatment as a cost of service item for OPEB costs on the pay-as-you-go basis in Louisiana. OPEB costs have been specifically addressed in rate orders in each jurisdiction served by the United Cities Division or...

  • Page 46
    ..., 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of United Cities Gas Company, wholly owned by Atmos Energy Corporation (see...

  • Page 47
    ..., taxes through 1,004,532 meters in service areas located in Texas, Louisiana, Kentucky, Colorado, Kansas, Illinois, Tennessee, Iowa, Virginia, Georgia, South Carolina and Missouri. The Company also transports gas for others through parts of its distribution sys- ATMOS ENERGY CORPORATION 43

  • Page 48
    ... as operating revenues less purchased gas cost) is generally not eroded or enhanced because of gas cost increases or decreases. The Georgia Commission and Tennessee Regulatory Authority have approved Weather Normalization Adjustments as discussed below under "Weather and Seasonality." The Company...

  • Page 49
    ... of replacing its customer information system, accounting and financial reporting system, and human resources system with systems that happen to be Year 2000 compliant. However, the installation of these systems was not accelerated in an attempt to deal with the Year 2000 issues. Risks of Year 2000...

  • Page 50
    ... of the organization and Atmos' integration of United Cities Gas Company. Sales of gas in Texas to farmers for fueling irrigation pumps increased due to hot and dry summer weather in 1998. Irrigation volumes increased 34% in 1998 compared with 1997. Utility operations contributed about 76% of...

  • Page 51
    ... In 1998 the Company sold the office Utility Propane Leasing/Rental Storage and Energy Services Reported net income $42,147 (66) 3,272 9,912 $55,265 $16,991 (90) 1,117 5,820 $23,838 $31,905 1,276 1,237 6,733 $41,151 building in which UCGC had headquartered its operation in Brentwood, Tennessee...

  • Page 52
    ...in Texas, Kentucky, Illinois, Georgia, Iowa, Tennessee, Missouri and Virginia. Weather normalization adjustments in Georgia and Tennessee contributed approximately $.7 million to gross profit in 1998, $2.6 million in 1997, and a reduction of $2.6 million in 1996. The Company received rate reductions...

  • Page 53
    ... Gas Storage Company, which owns underground storage fields in Kansas and Kentucky and provides storage services to the United Cities Division and other non-regulated customers; EnerMart, Inc. and EGASCO, which market gas to industrial and irrigation customers in West Texas; Atmos Energy Services...

  • Page 54
    ... markets to serve certain non-regulated markets. Interest charges decreased $.4 million in 1998 as compared with 1997 due primarily to reduced debt balances in EnerMart Inc., the Company's wholly-owned subsidiary that conducts nonregulated utility operations in West Texas. Net income for 1998...

  • Page 55
    ... in certain seasonal asset and liability accounts like accounts receivable and accounts payable. Gas in storage increased in 1996 because of higher gas cost, but was lower in 1997 and 1998 because of substantially lower gas prices during the summers of 1997 and 1998 ATMOS ENERGY CORPORATION 51

  • Page 56
    ... improvement in 1998 reflects the benefits of 1998 net income in excess of dividend requirements and the issuance of equity under the Direct Stock Company began a commercial paper program under which it is authorized to issue up to $250.0 million. The commercial paper 52 ATMOS ENERGY CORPORATION

  • Page 57
    ... of common stock in 1998, 1997 and 1996, respectively, for its Direct Stock Purchase Plan, Employee Stock Ownership Plans, Long-term Stock Plan for United Cities Division, Restricted Stock Grant Plan, Outside Directors Stockfor-Fee Plan, and acquisitions of Oceana Heights and Monarch Gas Company in...

  • Page 58
    ... 26 1/4 25 1/2 27 7/8 $22 5/8 22 1/8 22 1/2 24 1/2 $.251 .252 .252 .255 $1.01 See Note 7 of notes to consolidated financial statements for restriction on payment of dividends. The number of record holders of the Company's common stock on September 30, 1998 was 36,949. 54 ATMOS ENERGY CORPORATION

  • Page 59
    ...per Mcf sold ...Average purchased gas cost per Mcf sold ...Average transportation fee per Mcf ...Statistics Return on average shareholders' equity ...Number of employees ...Net plant per meter ...Operating, maintenance and administrative expense per customer ...Meters/customers per employee ...Times...

  • Page 60
    ... Hiring Officer for Central Division PaineWebber Incorporated Fort Worth, Texas Board member since 1985 Committees: Nominating (Chairman), Human Resources, Work Session/ Annual Meeting Carl S. Quinn Of Counsel with Gibson Dunn & Crutcher Dallas,Texas Board Member since 1998 Committees: Audit...

  • Page 61
    ...company information and access daily stock quotes without the assistance of a customer service representative, call 1-800-543-3038 and have your Atmos Energy shareholder account number and Social Security or taxpayer ID number ready. Stock Transfer Agent and Registrar Shareholder inquiries on stock...

  • Page 62
    Atmos Energy Corporation P.O. Box 650205 Dallas, Texas 75265-0205 (972) 934-9227 3100-AR-98