-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HnS4wFhMwYKPaVqHMRhVr3hxawmvfpsVRjBtugE0L6BA26/q8tDRt6pt3xzyObvT mXhkgH9YqoDZtUUYEAeUXA== 0000950144-95-003641.txt : 19960102 0000950144-95-003641.hdr.sgml : 19960102 ACCESSION NUMBER: 0000950144-95-003641 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951229 SROS: CSX SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALABAMA GAS CORP CENTRAL INDEX KEY: 0000003146 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 63022000 STATE OF INCORPORATION: AL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 033-70466 FILM NUMBER: 95605867 BUSINESS ADDRESS: STREET 1: 2101 SIXTH AVE NORTH CITY: BIRMINGHAM STATE: AL ZIP: 35203 BUSINESS PHONE: 2053268100 MAIL ADDRESS: STREET 1: 2101 SIXTH AVE NORTH CITY: BIRMINGHAM STATE: AL ZIP: 35203 10-K 1 ALABAMA GAS CORPORATION 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1995
COMMISSION IRS EMPLOYER FILE STATE OF IDENTIFICATION NUMBER REGISTRANT INCORPORATION NUMBER - ------------------------------------------------------------------------------------------------------------- 1-7810 Energen Corporation Alabama 63-0757759 2-38960 Alabama Gas Corporation Alabama 63-0022000
2101 Sixth Avenue North Birmingham, Alabama 35203 (205) 326-2700 Securities Registered Pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED - ------------------- ---------------------------- Energen Corporation Common Stock, $0.01 par value New York Stock Exchange Energen Corporation Preferred Stock Purchase Rights New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: NONE Indicate by a check mark whether registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports) and (2) have been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate by a check mark if disclosure of delinquent files pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) Aggregate market value of the voting stock held by non-affiliates of the registrants as of December 18, 1995: Energen Corporation $271,868,000 Indicate number of shares outstanding of each of the registrant's classes of common stock as of December 18, 1995: Energen Corporation 10,984,566 shares Alabama Gas Corporation 1,972,052 shares DOCUMENTS INCORPORATED BY REFERENCE o Energen Corporation Proxy Statement to be filed on or about December 21, 1995 (Part III, Item 10-13) o Portions of Energen Corporation 1995 Annual Report to Stockholders are incorporated by reference into Part II, Items 5, 6, 7, and 8 of this report 2 ENERGEN CORPORATION 1995 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . 8 PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters . . . . . . . . . . 12 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . 13 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 PART III Item 10. Directors and Executive Officers of the Registrants . . . . . . . . . . . . . . . . . . 13 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . 13 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . 13 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . 14
2 3 (This page intentionally left blank) 4 This Form 10-K is filed on behalf of Energen Corporation (Energen or the Company) and Alabama Gas Corporation (Alagasco). PART I ITEM 1. BUSINESS GENERAL Energen is a diversified energy holding company engaged primarily in natural gas distribution and the exploration and production of natural gas and oil. Energen was incorporated in Alabama in 1978 in connection with the reorganization of its largest subsidiary, Alagasco. Alagasco was formed in 1948 by the merger of Alabama Gas Company into Birmingham Gas Company, the predecessors of which had been in existence since the late 1800's. Alagasco became a public company in 1953. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The information required by this item is incorporated by reference from Note 15 to the Consolidated Financial Statements of the 1995 Annual Report to Stockholders, and is attached herein as Part IV, Item 14, Exhibit 13. NARRATIVE DESCRIPTION OF BUSINESS o NATURAL GAS DISTRIBUTION GENERAL: Alagasco, Energen's principal subsidiary, is the largest natural gas distribution utility in the state of Alabama. Alagasco purchases natural gas through interstate and intrastate suppliers and distributes the purchased gas through its distribution facilities for sale to residential, commercial, industrial and other end-users of natural gas. Alagasco also provides transportation services to industrial and commercial customers located on its distribution system. These transportation customers, acting on their own or using Alagasco as their agent, purchase gas directly from producers or other suppliers and arrange for delivery of the gas into the Alagasco distribution system. Alagasco then charges a fee to transport this customer-owned gas through its distribution system to the customer's facility. Alagasco's service territory is located primarily in central and north Alabama and includes over 175 communities in 30 counties. Birmingham, the largest city in Alabama, and Montgomery, the state capital, are served by Alagasco. The counties in which Alagasco provides service have an aggregate area of more than 22,000 square miles and include the service territories of various municipal gas distribution systems. The aggregate population of the counties served by Alagasco is estimated to be 2.4 million. During 1995 Alagasco served an average of 410,515 residential customers, 33,115 small commercial and industrial customers, and 48 large commercial and industrial customers. The Alagasco distribution system includes approximately 8,650 miles of main, more than 9,500 miles of service lines, odorization and regulation facilities, and customer meters. Alagasco also operates two liquefied natural gas facilities which it uses to meet peak demands. APSC REGULATION: As a public utility in the state of Alabama, Alagasco is subject to regulation by the Alabama Public Service Commission (APSC), which has adopted several innovative approaches to rate regulation, including Alagasco's Rate Stabilization and Equalization (RSE) rate-setting process. Implemented in 1983 and modified in 1985, 1987, and 1990, RSE replaced the traditional utility rate case 3 5 with APSC-monitored periodic rate adjustments presently designed to give Alagasco the opportunity to earn an average return on equity (ROE) at its fiscal year-end within a specified range. Under Alagasco's current RSE order, which became effective December 1990, Alagasco's allowed ROE range is 13.15 percent to 13.65 percent. The APSC conducts quarterly reviews to determine, based on Alagasco's budget and fiscal year-to-date performance, whether Alagasco's projected ROE for the fiscal year will be within the allowed range. Reductions in rates can be made quarterly to bring the projected ROE within the allowed range. Increases, however, are permitted only once each fiscal year effective on December 1, and cannot exceed 4 percent of prior-year revenues. RSE limits Alagasco's equity upon which a return is permitted to 60 percent of total capitalization and provides for a cost control measure designed to monitor Alagasco's operations and maintenance (O & M) expense. If increases in O & M expense per customer fall within 1.25 percent above or below the Consumer Price Index for all Urban Customers (index range), no adjustment is required. If, however, increases in O & M expense per customer exceed the index range, three-fourths of the difference is returned to customers. To the extent increases in O & M expense per customer are less than the index range, Alagasco will benefit by one-half of the difference through future rate adjustments. Under its terms, Alagasco's current RSE order continues until, after notice to Alagasco, the APSC votes to either modify or discontinue its operation. On October 4, 1993, the APSC unanimously voted to extend RSE until such time as certain hearings mandated by the Energy Policy Act of 1992 (Energy Act) in connection with integrated resource planning and demand side management programs are completed. The Energy Act proceedings are expected to conclude during fiscal 1996 at which time the Commission is expected to begin a review of Alagasco's RSE. No time table for review has yet been established. FERC REGULATION: Alagasco's interstate pipeline suppliers, Southern Natural Gas Company (Southern) and Transcontinental Gas Pipeline Corporation (Transco), are subject to regulation by the Federal Energy Regulatory Commission (FERC). Among other things, FERC regulates the character of services that Southern and Transco can offer and the rates and fees they can charge Alagasco and other customers for gas transportation services; thus, FERC can directly affect Alagasco's services and operating expenses. On March 15, 1995, Southern filed a comprehensive settlement with the FERC in the form of a Stipulation and Agreement (the Settlement) to resolve all issues in Southern's six pending rate cases, as well as to resolve all Gas Supply Realignment (GSR) and transition cost issues resulting from the implementation of FERC Order 636. The Settlement is supported by parties representing more than 90 percent of the firm transportation demand on Southern's system, including local distribution companies (including Alagasco), municipal distribution systems, major gas producers, large industrial end users, marketers, and state commissions (including the APSC). On September 29, 1995, the FERC issued its Order Accepting Settlement, Severing Contesting parties, and Issuing Certificates and Approving Abandonment (Settlement Order). The Settlement Order approves the Settlement with minor modifications. Contesting parties had 30 days from the date of the Settlement Order to file motions for rehearing and several such motions were timely filed. Until such motions are ruled on by the FERC, the Settlement Order is not considered to be final. Specifically, the Settlement provides for the following: (1) the resolution of all cost of service and rate design issues in Southern's six pending rate cases and the establishment of reduced rates for the purpose of calculating rate case refunds; (2) the implementation of reduced settlement rates on an interim basis for supporting parties commencing March 1, 1995 (by order dated April 4, 1995, FERC approved these interim rates pending its final review of the merits of the Settlement); (3) the resolution of all GSR and other transition cost issues resulting from FERC Order 636; (4) lower GSR cost recovery through the reduction and earlier payout of GSR costs; (5) a three-year moratorium on general rate increases; and (6) the resolution and disposition of all rate case and GSR refunds for supporting parties. With respect to this 4 6 last point, the Settlement provides that all rate case refunds will be used to offset a portion of Southern's remaining GSR liability. In addition, as a result of the recalculated GSR surcharges for the period January 1, 1994, to February 28, 1995, Southern will refund over-collected GSR costs. Neither the total amount of this refund nor Alagasco's share has yet been determined; therefore, no amounts have been recorded in the financial statements. In the Settlement filing with FERC, Southern has represented that the Settlement will allow Southern and the supporting parties to resolve all issues relating to GSR and other transition costs, the majority of which costs will be collected by the end of calendar 1995. Alagasco estimates that it has a remaining GSR liability of approximately $2.4 million to be paid through December 1995 and approximately $2.6 million in other transition costs to be paid through June 1998 and has recorded such amounts in the financial statements. Because these costs will be recovered in full from Alagasco's customers in a timely manner through the GSA rider of Alagasco's Tariff, the Company has recorded a corresponding regulatory asset in the accompanying financial statements. GAS SUPPLY: The Alagasco distribution system is connected to and has firm transportation contracts with two major interstate pipeline systems--Southern and Transco. Effective November 1, 1993, Alagasco's pre-Order 636 contract demand and firm transportation with Southern converted to 250,924 Mcf (thousand cubic feet) per day of No-Notice Firm Transportation service for a period of 15 years, 91,946 Mcf per day of Firm Transportation service for 15 years, and 50,000 Mcf per day of Firm Transportation for five years. Southern also unbundled its existing storage capacity. Alagasco's pro rata share of this storage is 12,426,687 Mcf. Alagasco has a maximum withdrawal rate from storage of 250,924 Mcf per day and a maximum injection rate into storage of 95,590 Mcf per day. The Transco firm transportation contract, which expires in 2001, provides for maximum daily firm transportation of up to 100,000 Mcf. Thus the Company has a peak day firm interstate pipeline transportation capacity of 492,870 Mcf per day. Alagasco has replaced the sales service formerly provided by Southern with purchases from various gas producers and marketers including affiliates of Southern and Transco and from certain intrastate producers including Basin Pipeline Corp., an Energen subsidiary. Alagasco has contracts in place to purchase up to a total of 286,776 Mcf per day of firm supply, of which 241,946 is supported by firm transportation on the Transco and Southern systems, 14,830 Mcf provides redundant supply on the Southern system, and 30,000 Mcf is purchased at the city gate from intrastate suppliers. This volume, along with Alagasco's maximum withdrawal from storage of 250,924 Mcf per day and 200,000 Mcf per day of liquefied natural gas peak shaving capacity, gives Alagasco a peak day firm supply of 722,870 Mcf per day. Alagasco also utilizes the Southern and Transco pipeline systems to access spot market gas in order to supplement its firm system supply and serve its industrial transportation customers. COMPETITION AND PRICING: The price of natural gas is a significant marketing factor in the territory served by Alagasco; propane, coal and fuel oil are readily available, and many major industrial customers have the capability to switch to alternate fuels. In the residential and small industrial and commercial markets, electricity is the principal competitor. Natural gas service available to Alagasco customers generally falls into two categories -- interruptible and firm. Interruptible service is contractually subject to interruption by Alagasco for various reasons, the most common of which is curtailment of industrial customers during periods of peak residential heating demand on the Alagasco system. Firm service is generally not subject to interruption and, therefore, is more expensive than interruptible service. Firm service is generally provided to residential and small commercial and industrial customers. Interruptible service is generally provided to large commercial and industrial customers which typically have the capacity to reduce consumption by adjusting their production schedules or by switching to alternate fuels during periods of interruption. Deliveries of sales and transportation gas totaled 101,447 MMcf (million cubic feet) in 1995. In 1994, capitalizing on federally mandated changes in the natural gas industry, Alagasco implemented the "P" Rate. This tariff allows the utility to, in effect, release available pipeline capacity thereby reducing 5 7 pipeline transportation costs for its 250 transportation customers. The lower costs help prevent bypass. Also, because revenue received from capacity release reduces core market gas costs, Alagasco's competitive position in the residential and small commercial markets is enhanced as well. Alagasco has a Competitive Fuel Clause (CFC) as part of its rate tariff which allows Alagasco to adjust large commercial and industrial prices on a case-by-case basis to compete with either alternate fuels or alternate sources of gas. The GSA rider to Alagasco's tariff increases the rates paid by other customers to recover the reduction in rates allowed under the CFC because the retention of any customer, particularly large commercial and industrial, benefits all customers by recovering a portion of the system's fixed cost. Alagasco also has a Transportation Tariff (the Tariff) which allows the Company to transport gas for customers rather than buying and reselling gas to them. The Tariff is based on Alagasco's gas sales profit margin so that Alagasco's net income is not affected whether it transports or sells gas. The Tariff also may be adjusted under the CFC. Of Alagasco's total large commercial and industrial customer deliveries during 1995, 99.5 percent (46,207 MMcf) was from transportation of customer-owned gas. GROWTH: Alagasco has supplemented traditional service area growth with acquisitions of municipally-owned gas distribution systems. Since 1985 Alagasco has acquired 20 such systems, including the 500-customer gas system of Ragland purchased in early fiscal 1996. More than 42,000 customers have been added through initial system purchases and subsequent customer additions, as Alagasco has increased the relatively low saturation rates in the acquired areas through a variety of marketing efforts including offering natural gas service to propane customers already situated on the municipal system lines, extending the acquired municipal system into nearby neighborhoods that desire natural gas service, and marketing natural gas appliances to existing and new customers. Approximately 80 municipal systems, representing about 250,000 customers, remain in Alabama, and many are located in or near Alagasco's existing service territory. The Company is optimistic that additional acquisition opportunities will arise in the future. WEATHER: Alagasco's gas distribution business is highly seasonal since a material portion of Alagasco's total sales and delivery volumes is to customers whose use varies depending upon temperature, principally residential, small commercial and small industrial customers. Alagasco's rate tariff includes a temperature adjustment rider which is designed to mitigate the effect of departures from normal temperature on Alagasco's earnings. The calculation is performed monthly and adjustments are made to customers' bills in the actual month the weather variation occurs. ENVIRONMENTAL MATTERS: Alagasco is in the chain of title of eight former manufactured gas plant sites, of which it still owns four, and five manufactured gas distribution sites, of which it still owns one. A preliminary investigation of the sites does not indicate the present need for remediation activities. Management expects that, should remediation of any such sites be required in the future, Alagasco's share, if any, of such costs will not materially affect the results of operations or financial condition of Alagasco. o OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES Energen's oil and gas exploration and production activities are conducted by its subsidiary, Taurus Exploration, Inc. (Taurus), and involve the exploration for and the production of natural gas and oil from conventional and nonconventional reservoirs. Taurus's 1995 oil and gas production totaled 10.1 Bcf (with oil expressed in natural gas equivalents), and the average sales price was $1.83 per Mcf equivalent. Conventional oil and gas reserves of 70,179 MMcf equivalents plus nonconventional gas reserves of 25,004 MMcf combine for total oil and gas reserves at fiscal year-end of 95,183 MMcf equivalents. CONVENTIONAL: Taurus's conventional oil and gas strategy is to aggressively grow its reserve base primarily by making significant acquisitions of oil and gas properties through its joint acquisition agreements with Sonat Exploration Company, PMC Reserve Acquisition Company, and United Meridian 6 8 Corporation (UMC), formerly General Atlantic Resources, Inc., along with its internal and independent evaluation of other property acquisition opportunities. A more thorough discussion of Taurus's acquisition strategy is included in the 1995 Annual Report to Stockholders, pages 32 and 33. Taurus will continue to supplement its returns with exploratory drilling. Taurus utilizes several avenues to help ensure a continuing flow of high quality exploratory prospects including its participation in UMC's offshore exploratory program, a multi-year 3-D seismic joint venture with King Ranch and Holley Petroleum, Inc. covering 200 offshore Texas blocks, and other offshore lease sales with various industry partners. Taurus's exploration activities are concentrated in the shallow waters of the Gulf of Mexico. Eight successful discoveries during 1995 added reserves of 10 Bcf equivalents. Proved property acquisitions added reserves of 26.7 Bcf equivalents. NONCONVENTIONAL: Taurus's nonconventional gas strategy is to focus on operating the large projects in which it has a small working interest and operating for others; supplementing these activities, Taurus also consults on a limited basis. Taurus does not anticipate additional major project development in the Black Warrior Basin. Taurus does plan, however, to continue its operating activities. As a result of its 1994 evaluation of North American coalbed methane investment opportunities which indicated that available opportunities did not meet Taurus's current risk profile, Taurus reduced and reorganized its coalbed methane staff during 1995 to match its ongoing operational needs. No additional restructuring is anticipated at this time. At September 30, 1995, Taurus had working interests in 418 coalbed methane wells and royalty interests in an additional 216 wells, all located in Alabama's Black Warrior Basin. Gas produced from these wells through the year 2002 qualifies for the Section 29 tax credit for producing fuel from nonconventional sources. Taurus is the operator of more than 950 coalbed methane wells, including wells in an existing project owned by TECO Coalbed Methane, Inc., one of Taurus's coalbed methane joint venture partners in other projects. Under the terms of the agreement, Taurus provides technical, administrative and operating services for a fee and receives additional compensation based on the project's profitability. During 1994, Taurus signed a multi-year strategic alliance with Conoco, Inc. designed to enhance both companies' coalbed methane programs. During 1995, Taurus provided consulting and associated services relative to the acquisition, exploration and development of coalbed methane properties to complement Conoco's capabilities and the companies mutually agreed to terminate the alliance late in the fiscal year. Also during 1995, Taurus decided that it would not pursue international coalbed methane investment opportunities since such opportunities did not meet Taurus's risk parameters. Most of the gas produced from the coalbed methane wells in which Taurus has an interest is being sold under long-term contracts which provide markets for 100 percent of the wells' production capacity and is sold at prices indexed to the monthly Gulf Coast spot market. ENVIRONMENTAL MATTERS: Taurus is subject to various environmental regulations. Management believes that Taurus is in compliance with currently applicable standards of the environmental agencies to which it is subject and that potential environmental liabilities, if any, are minimal. Also, to the extent Taurus has operating agreements with various joint venture partners, environmental costs, if any, would be shared proportionately. 7 9 o INTRASTATE GAS GATHERING AND TRANSMISSION Energen operates an intrastate gas pipeline and gathering system through its subsidiary, Basin Pipeline Corp. (Basin). Basin's pipeline and gathering facilities primarily serve certain Taurus coalbed methane properties. o COMBUSTION TECHNOLOGY Prior to May 1994, through its American Heat Tech, Inc. (Heat Tech) subsidiary, Energen owned a 41 percent equity interest in American Combustion, Inc. During May 1994, a substantial portion of this interest was sold leaving Heat Tech with approximately an 8 percent ownership interest. ACI designs, manufactures and markets high temperature combustion technology products. o PROPANE SALES Prior to the June 1994 sale of substantially all of the assets of W & J Propane Gas, Inc., Energen had been involved in the retail propane distribution business. EMPLOYEES The Company has 1,431 employees; Alagasco employs 1,288; Taurus employs 130; and Energen's other subsidiaries employ 13. ITEM 2. PROPERTIES The corporate headquarters of Energen, Alagasco and Taurus are located in leased office space in Birmingham, Alabama. The properties of Alagasco consist primarily of its gas distribution system, which includes more than 8,650 miles of main, more than 9,500 miles of service lines, odorization and regulation facilities, and customer meters. Alagasco also has two liquefied natural gas facilities, 23 commercial offices, nine service centers, and other related property and equipment, some of which are leased by Alagasco. For a description of Taurus's oil and gas properties, see the discussion under Item 1--Business. Information concerning Taurus's production, reserves and development is included in Note 14 to the Consolidated Financial Statements which is incorporated by reference from the 1995 Annual Report to Stockholders and is included in Part IV, Item 14, Exhibit 13, herein. The proved reserve estimates are consistent with comparable reserve estimates filed by Taurus with any federal authority or agency. ITEM 3. LEGAL PROCEEDINGS There are no material legal proceedings pending, other than routine litigation incidental to the Company's business, in which the Company or any of its subsidiaries is a party. There are no material legal proceedings to which any officer or director of the Company or any of its subsidiaries is a party or has a material interest adverse to the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of 1995. 8 10 EXECUTIVE OFFICERS OF THE REGISTRANTS ENERGEN CORPORATION
Name Age Position (1) ---- --- ------------ Rex J. Lysinger 58 Chairman of the Board and Chief Executive Officer (2) Wm. Michael Warren, Jr. 48 President and Chief Operating Officer (3) Geoffrey C. Ketcham 44 Executive Vice President, Chief Financial Officer and Treasurer (4) Dudley C. Reynolds 42 General Counsel and Secretary (5) Gary C. Youngblood 52 Executive Vice President and Chief Operating Officer of Alagasco (6) James T. McManus 37 Executive Vice President and Chief Operating Officer of Taurus (7) John A. Wallace 51 Senior Vice President--Methane of Taurus (8) J. David Woodruff, Jr. 39 Vice President--Legal and Assistant Secretary and Vice President, Corporate Development (9)
NOTES: (1) All executive officers of Energen have been employed by Energen or a subsidiary for the past five years. Officers serve at the pleasure of its Board of Directors. (2) Served as Vice President of Alagasco from July 1975 to January 1977, when he was elected President. Elected President of Energen upon its formation in 1978. Elected Chairman of the Board of Energen and its subsidiaries September 1982. Currently Chairman of the Board of Energen and all subsidiaries and Chief Executive Officer of Energen. Serves as a Director of Energen and each of its subsidiaries. (3) Served as Senior Vice President and General Counsel of Alagasco from September 1983 to October 1984, when he was elected President and Chief Operating Officer of that corporation. Elected Executive Vice President of Energen June 1987 and elected President and Chief Operating Officer of Energen April 1991. Elected President and Chief Operating Officer of all Energen subsidiaries (except W & J) January 1992. Elected Chief Executive Officer of Alagasco and Taurus effective October 1995. Serves as a Director of Energen and each of its subsidiaries. (4) Elected Controller of Alagasco November 1981, Vice President and Controller June 1984, Vice President--Finance and Planning of Alagasco June 1985 and Vice President--Planning of Energen August 1986. Elected Vice President--Finance, Chief Financial Officer and Treasurer of Energen and each of its subsidiaries June 1987. Elected Senior Vice President--Finance, Chief Financial Officer and Treasurer of Energen and each of its subsidiaries April 1989. Elected Executive Vice President, Chief Financial Officer and Treasurer of Energen and each of its subsidiaries April 1991. 9 11 (5) Served as Staff Attorney for Energen and its subsidiaries to November 1984, when he was named Senior Attorney. Elected Assistant Secretary in 1985 and Secretary effective September 1986. Elected Vice President--Legal and Secretary of Energen and each of its subsidiaries June 1987. Elected General Counsel and Secretary of Energen and each of its subsidiaries April 1991. (6) Served as District Manager--Birmingham District until June 1985, when he was elected Vice President--Birmingham Operations; Elected Senior Vice President-Administration of Alagasco April 1991. Elected Executive Vice President of Alagasco October 1993. Elected Chief Operating Officer of Alagasco effective October 1995. (7) Served as Director of Corporate Accounting of Energen until November 1988, when he was elected Controller of Energen; Elected Controller of Alagasco May 1989. Elected Assistant Vice President--Corporate Development of Energen June 1990. Elected Vice President--Finance and Corporate Development of Energen and Vice President--Finance and Planning of Alagasco effective April 1991. Elected Executive Vice President and Chief Operating Officer of Taurus effective October 1995. (8) Served as Manager, Methane Development of Taurus until August 1988, when he was elected Vice President Methane Operations of Taurus. Elected Vice President Methane Exploration and Production of Taurus November 1990. Elected Senior Vice President--Methane of Taurus February 1992. (9) Served as Staff Attorney for Alagasco from March 1986 to June 1987 when he was named Senior Attorney. Elected Assistant Vice President--Legal and Assistant Secretary of Energen and each of its subsidiaries November 1988. Elected Vice President--Legal and Assistant Secretary of Energen and each of its subsidiaries April 1991. Elected Vice President--Legal, and Assistant Secretary and Vice President--Corporate Development of Energen and each of its subsidiaries October 1995. 10 12 ALABAMA GAS CORPORATION
Name Age Position (1) ---- --- ------------ Rex J. Lysinger 58 Chairman of the Board (2) Wm. Michael Warren, Jr. 48 President and Chief Executive Officer (2) Geoffrey C. Ketcham 44 Executive Vice President and Chief Financial Officer (2) Dudley C. Reynolds 42 General Counsel and Secretary (2) Gary C. Youngblood 52 Executive Vice President and Chief Operating Officer (2) Roy F. Etheredge 59 Senior Vice President (3) George M. Taylor 59 Vice President--State Operations (4) Gerald G. Turner 61 Vice President--Rates (5) Donald C. Wiseman 57 Senior Vice President--Gas Supply (6) J. David Woodruff, Jr. 39 Vice President--Legal and Assistant Secretary (2) Paula H. Rushing 42 Controller (7)
NOTES: (1) All executive officers of Alagasco have been employed by Energen or a subsidiary for the past five years. Officers serve at the pleasure of the Board of Directors. (2) See discussion of Energen officers on prior pages. (3) Elected Assistant Vice President in 1983, Vice President--Northern Division in 1984. Elected Vice President--State Operations in May 1985. Elected Senior Vice President--Operations April 1991. (4) Elected Assistant Vice President--Birmingham Operations in 1988. Elected Vice President-- Birmingham Operations in 1991. Elected Vice President--Technical Services in 1993. Elected Vice President--State Operations in May 1995. (5) Served as Director of Rates and Regulations until he was elected Assistant Vice President--Rates in June 1987. Elected Vice President--Rates May 1989. (6) Elected Assistant Vice President--Gas Supply in 1988. Elected Vice President--Gas Supply in 1990. Elected Senior Vice President--Gas Supply in October 1995. (7) Served as Director of General Accounting of Alagasco until October 1995 when she was elected Controller. 11 13 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The information regarding Energen's common stock and the frequency and amount of dividends paid during the past two years with respect to such stock is incorporated by reference from the 1995 Annual Report to Stockholders, page 34, and is included in Part IV, Item 14, Exhibit 13, herein. At October 29, 1995, there were approximately 6,000 holders of record of Energen's common stock. For restrictions on Energen's present and future ability to pay dividends, see Note 3 to the Consolidated Financial Statements which is incorporated by reference from the 1995 Annual Report to Stockholders and is included in Part IV, Item 14, Exhibit 13, herein. At the date of this filing, Energen Corporation owns all the issued and outstanding common stock of Alabama Gas Corporation. ITEM 6. SELECTED FINANCIAL DATA Energen Corporation The information regarding selected financial data is incorporated by reference from the 1995 Annual Report to Stockholders, pages 56-57, and is included in Part IV, Item 14, Exhibit 13, herein. Alabama Gas Corporation (unaudited)
==================================================================================================== YEARS ENDED SEPTEMBER 30, 1995 1994 1993 1992 1991 (IN THOUSANDS) ==================================================================================================== Operating revenues $295,967 $344,637 $330,560 $310,726 $309,128 Net income $ 15,721 $ 14,896 $ 13,024 $ 12,420 $ 11,970 Cash dividends on common stock $ 9,170 $ 8,695 $ 7,975 $ 7,630 $ 6,994 Cash dividends on preferred stock $ -- $ -- $ 70 $ 85 $ 85 - ---------------------------------------------------------------------------------------------------- Total assets $335,267 $308,905 $264,548 $258,902 $246,573 Long-term debt $100,000 $ 84,391 $ 43,912 $ 60,979 $ 66,307 Preferred stock $ -- $ -- $ -- $ 1,800 $ 1,800 ====================================================================================================
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This information is incorporated by reference from the 1995 Annual Report to Stockholders, pages 25-33, and is included in Part IV, Item 14, Exhibit 13, herein. 12 14 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item for Energen Corporation and subsidiaries is incorporated by reference from the 1995 Annual Report to Stockholders and is included in Part IV, Item 14, Exhibit 13, herein. The information required by this item for Alabama Gas Corporation is contained in Part IV, Item 14, herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding the executive officers of both Energen and Alagasco is included in Part I. The other information required by Item 10 is incorporated herein by reference from Energen's definitive proxy statement for the Annual Meeting of Stockholders to be held January 24, 1996. The proxy statement will be filed within 120 days after the end of the fiscal year covered by this Form 10-K. The directors and nominees for director of Alagasco are the same as those of Energen except the Alagasco directors do not have staggered terms, thus the entire Alagasco Board has been nominated for re-election to an annual term at the Annual Meeting. ITEM 11. EXECUTIVE COMPENSATION The information regarding executive compensation is incorporated herein by reference from Energen's definitive proxy statement for the Annual Meeting of Stockholders to be held January 24, 1996. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT A. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The information regarding the security ownership of the beneficial owners of more than five percent of Energen's common stock is incorporated herein by reference from Energen's definitive proxy statement for the Annual Meeting of Stockholders to be held January 24, 1996. B. SECURITY OWNERSHIP OF MANAGEMENT The information regarding the security ownership of management is incorporated herein by reference from Energen's definitive proxy statement for the Annual Meeting of Stockholders to be held January 24, 1996. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information regarding certain relationships and related transactions is incorporated herein by reference from Energen's definitive proxy statement for the Annual Meeting of Stockholders to be held January 24, 1996. 13 15 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K a. DOCUMENTS FILED AS PART OF THIS REPORT (1) FINANCIAL STATEMENTS The financial statements listed in the accompanying Index to Financial Statements and Financial Statement Schedules are filed as part of this report and are included in Part IV, Item 14, Exhibit 13, herein. (2) FINANCIAL STATEMENT SCHEDULES The financial statement schedules listed in the accompanying Index to Financial Statements and Financial Statement Schedules are filed as part of this report. (3) EXHIBITS The exhibits listed on the accompanying Index to Exhibits are filed as part of this report. b. REPORTS ON FORM 8-K No reports on Form 8-K were filed during the fourth quarter of 1995. 14 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. ENERGEN CORPORATION (Registrant) ALABAMA GAS CORPORATION (Registrant) December 20, 1995 /s/Rex J. Lysinger - ------------------------- ------------------------------------------------- DATE Rex J. Lysinger Chairman of the Board of Directors of Energen and all subsidiaries, Chief Executive Officer of Energen
15 17 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrants and in the capacities and on the dates indicated: December 20, 1995 /s/Rex J. Lysinger - -------------------------- ----------------------------------------------------------- DATE Rex J. Lysinger Chairman of the Board of Directors of Energen and all subsidiaries, Chief Executive Officer of Energen December 20, 1995 /s/Wm. Michael Warren, Jr. - -------------------------- ----------------------------------------------------------- DATE Wm. Michael Warren, Jr. President and Director of Energen and all subsidiaries, Chief Executive Officer of Alagasco and Chief Operating Officer of Energen December 20, 1995 /s/Geoffrey C. Ketcham - -------------------------- ----------------------------------------------------------- DATE Geoffrey C. Ketcham Executive Vice President, Chief Financial Officer and Treasurer December 20, 1995 /s/Paula H. Rushing - -------------------------- ----------------------------------------------------------- DATE Paula H. Rushing Controller of Alagasco December 20, 1995 /s/Stephen D. Ban - -------------------------- ----------------------------------------------------------- DATE Stephen D. Ban Director December 20, 1995 /s/James S. M. French - -------------------------- ----------------------------------------------------------- DATE James S. M. French Director December 20, 1995 /s/Harris Saunders, Jr. - -------------------------- ----------------------------------------------------------- DATE Harris Saunders, Jr. Director December 20, 1995 /s/Judy M. Merritt - -------------------------- ----------------------------------------------------------- DATE Judy M. Merritt Director
16 18 ENERGEN CORPORATION ALABAMA GAS CORPORATION INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES ITEM 14(a)
Reference Page -------------- 1995 1995 Annual 10-K Report ---- ------ 1. Energen Corporation ------------------- A. Financial Statements Report of Independent Certified Public Accountants . . . . . . . . . 55 Consolidated statements of income for the years ended September 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . 35 Consolidated balance sheets as of September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Consolidated statements of shareholders' equity for the years ended September 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . 38 Consolidated statements of cash flows for the years ended September 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . 39 Notes to consolidated financial statements . . . . . . . . . . . . . 40 B. Financial Statement Schedules Report of Independent Certified Public Accountants . . . . . . . . . 39 Schedule II Valuation and Qualifying Accounts . . . . . . . . . 40 2. Alabama Gas Corporation ----------------------- A. Financial Statements Report of Independent Certified Public Accounts . . . . . . . . . . 22 Statements of income for the years ended September 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . 23 Balance sheets as of September 30, 1995 and 1994 . . . . . . . . . . 24
17 19
Reference Page -------------- 1995 1995 Annual 10-K Report ---- ------ Statements of shareholder's equity for the years ended September 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . 26 Statements of cash flows for the years ended September 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . 27 Notes to financial statements . . . . . . . . . . . . . . . . . . . 28 B. Financial Statement Schedules Schedule II Valuation and Qualifying Accounts . . . . . . . . . 41
Schedules other than those listed above are omitted for the reason that they are not required or are not applicable, or the required information is shown in the financial statements or notes thereto. 18 20 ENERGEN CORPORATION ALABAMA GAS CORPORATION INDEX TO EXHIBITS ITEM 14(A)(3)
Exhibit Number Description - ------- ----------- *3(a) Restated Certificate of Incorporation of Energen Corporation (formerly Alagasco, Inc.) which was filed as Exhibit 4(a) to Energen's Registration Statement on Form S-8 (Registration No. 33-14855). *3(b) Amendment to the Restated Certificate of Incorporation of Energen Corporation (formerly Alagasco, Inc.) adopted on July 18, 1985, which was filed as Exhibit 4(b) to Energen's Registration Statement on Form S-8 (Registration No. 33-14855). *3(c) Amendment to the Restated Certificate of Incorporation of Energen Corporation adopted on January 15, 1987, which was filed as Exhibit 4(c) to Energen's Registration Statement on Form S-8 (Registration No. 33-14855). *3(d) Amendment to the Restated Certificate of Incorporation of Energen Corporation adopted on January 25, 1989, which was filed as Exhibit 4(d) to Energen's Registration Statement on Form S-3 (Registration No. 33-70464). 3(e) Articles of Amendment to the Restated Certificate of Incorporation of Energen Corporation dated February 3, 1995. 3(f) Restated Conformed Certificate of Incorporation of Energen Corporation, as amended through February 3, 1995. *3(g) Certificate of Adoption of Resolutions designating Series A Junior Participating Preferred Stock (June 27, 1988) which was filed as Exhibit 4(e) to Energen's Registration Statement on Form S-2 (Registration No. 33-25435). *3(h) Bylaws of Energen Corporation, which were filed as Exhibit 4(e) to Energen's Registration Statement on Form S-8 (Registration No. 33-14855). 3(i) Articles of Amendment and Restatement of the Articles of Incorporation of Alabama Gas Corporation, dated September 27, 1995. *3(j) By-Laws of Alabama Gas Corporation, which was filed as Exhibit 4(k) to Alabama Gas' Registration Statement on Form S-3 (Registration No. 33-12841). *4(a) Rights Agreement, dated as of July 27, 1988, between Energen Corporation and AmSouth Bank, N.A., Rights Agent, which was filed as Exhibit 1 to Energen's Registration Statement on Form 8-A (File No. 1-7810). *4(b) Amendment of Rights Agreement, dated as of February 28, 1990, between Energen Corporation and AmSouth Bank, N.A., Rights Agent, which was filed as Exhibit 2 to Energen's Form 8 Amendment No. 2 to its Registration Statement on Form 8-A (File No. 1-7810).
19 21 *4(c) Indenture, dated as of January 1, 1992, between Energen Corporation and Boatmen's Trust Company, Trustee, which was filed as Exhibit 4 to Energen's Amendment No. 1 to Registration Statement on Form S-3 (Registration No. 33-44936). *4(d) Indenture, dated as of March 1, 1993, between Energen Corporation and Boatmen's Trust Company, Trustee, which was filed as Exhibit 4 to Energen's Registration Statement on Form S-3 (Registration No. 33-25435). *4(e) Indenture dated as of November 1, 1993, between Alabama Gas Corporation and NationsBank of Georgia, National Association, Trustee, which was filed as Exhibit 4(k) to Alabama Gas's Registration Statement on Form S-3 (Registration No. 33-70466). *10(a) Form of Service Agreement Under Rate Schedule CSS (No. S10710), between Southern Natural Gas Company and Alabama Gas Corporation as filed as Exhibit 10(a) to Energen's Annual Report on Form 10-K for the year ended September 30, 1993. *10(b) Form of Service Agreement Under Rate Schedule IT (No. 790420), between Southern Natural Gas Company and Alabama Gas Corporation as filed as Exhibit 10(b) to Energen's Annual Report on Form 10-K for the year ended September 30, 1993. *10(c) Form of Service Agreement Under Rate Schedule FT-NN (No. 866941), between Southern Natural Gas Company and Alabama Gas Corporation as filed as Exhibit 10(c) to Energen's Annual Report on Form 10-K for the year ended September 30, 1993. *10(d) Form of Service Agreement Under Rate Schedule FT (No. 866940) between Southern Natural Gas Company and Alabama Gas Corporation as filed as Exhibit 10(d) to Energen's Annual Report on Form 10-K for the year ended September 30, 1993. *10(e) Form of Executive Retirement Supplement Agreement between Energen Corporation and certain executive officers as filed as Exhibit 10(f) to Energen's Annual Report on Form 10-K for the year ended September 30, 1993. *10(f) Amendment to Executive Retirement Supplement Agreement effective as of June 22, 1994, between Energen Corporation and certain executive officers as filed as Exhibit 10(f) to Energen's Annual Report on Form 10-K for the year ended September 30, 1994. *10(g) Restricted Stock Incentive Plan of Energen Corporation, which was filed as Exhibit 4 to Post Effective Amendment No. 2 to Energen Corporation's Registration Statement on Forms S-8 and S-3 (Registration No. 2-89855). *10(h) Severance Compensation Agreement between Energen Corporation and certain executive officers, which was filed as Exhibit 10(e) to Energen's Annual Report on Form 10-K for the year ended September 30, 1992. *10(i) Energen Corporation 1988 Stock Option Plan as filed as Exhibit 10(i) to Energen's Annual Report on Form 10-K for the year ended September 30, 1993. *10(j) Energen Corporation 1992 Long-Range Performance Share Plan, dated as of October 1, 1991, which was filed as Exhibit A to the Registrant's Proxy Statement for its January 22, 1992, Annual Meeting (File No. 1-7810).
20 22 *10(k) Energen Corporation 1992 Directors Stock Plan, effective as of January 22, 1992, which was filed as Exhibit B to Energen's Proxy Statement for its January 22, 1992, Annual Meeting (File No. 1-7810). *10(l) Energen Corporation Director Fees Deferral Plan as filed as Exhibit 10(l) to Energen's Annual Report on Form 10-K for the year ended September 30, 1993. *10(m) Energen Corporation Annual Incentive Compensation Plan, Revised 5/90, as amended effective October 1, 1993, as filed as Exhibit 10(m) to Energen's Annual report on Form 10-K for the year ended September 30, 1994. 13 Information incorporated by reference from pages 25-59 of the Energen Corporation 1995 Annual Report to Stockholders 21 Subsidiaries of Energen Corporation 23(a) Consent of Independent Certified Public Accountants (Energen) 23(b) Consent of Independent Certified Public Accountants (Alagasco) 27.1 Financial Data Schedule of Alabama Gas Corporation (for SEC purposes only) 27.2 Financial Data Schedule of Energen Corporation (for SEC purposes only)
*Incorporated by reference 21 23 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TO THE BOARD OF DIRECTORS OF ALABAMA GAS CORPORATION: We have audited the financial statements and the financial statement schedules of Alabama Gas Corporation listed in the index on pages 17 and 18 of this Form 10-K. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Alabama Gas Corporation as of September 30, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 1995, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. As discussed in Note 6 to the financial statements, the Company changed its method of accounting for certain other post-retirement benefits, effective October 1, 1993. Coopers & Lybrand L.L.P. Birmingham, Alabama October 25, 1995 22 24 STATEMENTS OF INCOME ALABAMA GAS CORPORATION
=========================================================================================================== YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993 =========================================================================================================== OPERATING REVENUES $295,967 $344,637 $330,560 - ----------------------------------------------------------------------------------------------------------- OPERATING EXPENSES Cost of gas 133,556 188,592 187,800 Operations 78,139 72,639 66,196 Maintenance 9,727 9,147 8,781 Depreciation 19,370 17,941 17,206 Income taxes Current 8,392 10,623 5,407 Deferred, net 177 (2,418) 1,530 Deferred investment tax credits, net (487) (487) (528) Taxes, other than income taxes 22,662 26,301 24,196 - ----------------------------------------------------------------------------------------------------------- Total operating expenses 271,536 322,338 310,588 - ----------------------------------------------------------------------------------------------------------- OPERATING INCOME 24,431 22,299 19,972 - ----------------------------------------------------------------------------------------------------------- OTHER INCOME Allowance for funds used during construction 1,054 465 163 Other, net (112) 452 376 - ----------------------------------------------------------------------------------------------------------- Total other income 942 917 539 - ----------------------------------------------------------------------------------------------------------- INTEREST CHARGES Interest on long-term debt 7,730 6,475 5,532 Other interest expense 1,922 1,845 1,955 - ----------------------------------------------------------------------------------------------------------- Total interest charges 9,652 8,320 7,487 - ----------------------------------------------------------------------------------------------------------- NET INCOME 15,721 14,896 13,024 Less cash dividends on cumulative preferred stock -- -- 70 - ----------------------------------------------------------------------------------------------------------- NET INCOME AVAILABLE FOR COMMON $ 15,721 $ 14,896 $ 12,954 ===========================================================================================================
The accompanying Notes to Financial Statements are an integral part of these statements. 23 25 BALANCE SHEETS ALABAMA GAS CORPORATION
=========================================================================================================== YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 =========================================================================================================== ASSETS PROPERTY, PLANT AND EQUIPMENT Utility plant $504,371 $464,593 Less accumulated depreciation 247,926 231,327 - ----------------------------------------------------------------------------------------------------------- Utility plant, net 256,445 233,266 - ----------------------------------------------------------------------------------------------------------- Other property, net 193 183 - ----------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash 727 156 Accounts receivable Gas 22,215 22,209 Merchandise 1,546 1,326 Other 1,598 1,512 Allowance for doubtful accounts (2,000) (2,000) Inventories, at average cost Storage gas inventory 20,276 24,363 Materials and supplies 5,860 5,688 Liquified natural gas in storage 3,539 3,349 Deferred gas costs 1,426 1,460 Regulatory asset 6,321 -- Deferred income taxes 7,416 5,724 Prepayments and other 2,302 2,595 - ----------------------------------------------------------------------------------------------------------- Total current assets 71,226 66,382 - ----------------------------------------------------------------------------------------------------------- DEFERRED CHARGES AND OTHER ASSETS 7,403 9,074 - ----------------------------------------------------------------------------------------------------------- TOTAL ASSETS $335,267 $308,905 ===========================================================================================================
The accompanying Notes to Financial Statements are an integral part of these statements. 24 26 BALANCE SHEETS ALABAMA GAS CORPORATION
=========================================================================================================== YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 =========================================================================================================== CAPITAL AND LIABILITIES CAPITALIZATION Common shareholder's equity Common stock, $0.01 par value; 3,000,000 shares authorized, 1,972,052 shares outstanding in 1995 and 1994 $ 20 $ 20 Premium on capital stock 31,682 31,682 Capital Surplus 2,802 2,802 Retained Earnings 87,638 81,087 - ----------------------------------------------------------------------------------------------------------- Total common shareholder's equity 122,142 115,591 Cumulative preferred stock, $0.01 par value, 120,000 shares authorized -- -- Long-term debt 100,000 84,391 - ----------------------------------------------------------------------------------------------------------- Total capitalization 222,142 199,982 - ----------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES Long-term debt due within one year -- 2,823 Notes payable to banks -- 4,000 Accounts payable Other 26,160 19,002 Affiliated companies -- 132 Accrued taxes 10,236 14,241 Customers' deposits 18,218 17,462 Supplier refunds due customers 3,315 832 Other amounts due customers 13,231 10,902 Accrued wages and benefits 5,228 5,659 Other 9,444 7,605 - ----------------------------------------------------------------------------------------------------------- Total current liabilities 85,832 82,658 - ----------------------------------------------------------------------------------------------------------- DEFERRED CREDITS AND OTHER LIABILITIES Deferred income taxes 16,343 13,704 Accumulated deferred investment tax credits 4,103 4,590 Regulatory liability 6,001 6,960 Customer advances for construction and other 846 1,011 - ----------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 27,293 26,265 - ----------------------------------------------------------------------------------------------------------- TOTAL CAPITAL AND LIABILITIES $335,267 $308,905 ===========================================================================================================
The accompanying Notes to Financial Statements are an integral part of these statements. 25 27 STATEMENTS OF SHAREHOLDER'S EQUITY ALABAMA GAS CORPORATION
============================================================================================================ (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ============================================================================================================ COMMON STOCK ---------------- NUMBER OF PAR PREMIUM ON CAPITAL RETAINED SHARES VALUE CAPITAL STOCK SURPLUS EARNINGS - ------------------------------------------------------------------------------------------------------------ BALANCE AT SEPTEMBER 30, 1992 1,972,052 $20 $21,682 $2,802 $69,907 Net income 13,024 Cash dividends -- $1.05 per share (7,975) Less cash dividends on preferred stock 70 - ------------------------------------------------------------------------------------------------------------ BALANCE AT SEPTEMBER 30, 1993 1,972,052 20 21,682 2,802 74,886 Net income 14,896 Cash dividends -- $1.09 per share (8,695) Capital contribution from parent 10,000 - ------------------------------------------------------------------------------------------------------------ BALANCE AT SEPTEMBER 30, 1994 1,972,052 20 31,682 2,802 81,087 Net income 15,721 Cash dividends -- $1.13 per share (9,170) - ------------------------------------------------------------------------------------------------------------ BALANCE AT SEPTEMBER 30, 1995 1,972,052 $20 $31,682 $2,802 $87,638 ============================================================================================================
The accompanying Notes to Financial Statements are an integral part of these statements. 26 28 STATEMENTS OF CASH FLOWS ALABAMA GAS CORPORATION
=========================================================================================================== YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993 =========================================================================================================== OPERATING ACTIVITIES Net Income $ 15,721 $ 14,896 $ 13,024 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 19,370 17,941 17,206 Deferred income taxes, net 177 (2,418) 1,530 Deferred investment tax credits (487) (487) (528) Net change in: Accounts receivable (113) 896 (3,787) Inventories 3,526 (23,913) (94) Accounts payable 7,026 (890) 3,398 Other current assets and liabilities (3,023) 17,268 968 Other, net 673 (2,116) (1,536) - ----------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 42,870 21,177 30,181 - ----------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Additions to property, plant and equipment (41,560) (37,853) (21,743) Net advances (to) from parent company -- 87 (87) Other, net (15) 181 (320) - ----------------------------------------------------------------------------------------------------------- Net cash used in investing activities (41,575) (37,585) (22,150) - ----------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Payment of dividends on common stock (9,170) (8,695) (7,975) Payment of dividends on preferred stock -- -- (70) Reduction of long-term debt and preferred stock (37,214) (9,891) (19,500) Proceeds from medium term notes 49,660 49,670 -- Proceeds from capital contribution from parent -- 10,000 -- Net advances to parent company -- -- (6,299) Net change in short-term debt (4,000) (25,000) 24,000 Other, net -- -- (101) - ----------------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (724) 16,084 (9,945) - ----------------------------------------------------------------------------------------------------------- Net change in cash 571 (324) (1,914) Cash at beginning of period 156 480 2,394 - ----------------------------------------------------------------------------------------------------------- Cash at end of period $ 727 $ 156 $ 480 ===========================================================================================================
The accompanying Notes to Financial Statements are an integral part of these statements. 27 29 NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Alabama Gas Corporation (Alagasco), a wholly-owned subsidiary of Energen Corporation, is the largest natural gas distribution utility in the State of Alabama, serving customers primarily in central and north Alabama. The following is a description of its significant accounting policies and practices. A. UTILITY PLANT AND DEPRECIATION Utility plant is stated at original cost which includes an allowance for funds used during construction. Maintenance is charged for the cost of normal repairs and the renewal or replacement of an item of property which is less than a retirement unit. When property which represents a retirement unit is replaced or removed, the cost of such property is credited to utility plant and, together with the cost of removal less salvage, is charged to the accumulated reserve for depreciation. Depreciation is provided on the straight-line method over the estimated useful lives of utility property at rates established by the Alabama Public Service Commission (APSC). Approved depreciation rates averaged approximately 4.3 percent in 1995, 1994 and 1993. B. OPERATING REVENUE AND GAS COSTS In accordance with industry practice, Alagasco records revenue on a monthly and cycle billing basis. Alagasco extends credit to its residential and industrial utility customers which are located primarily in central and north Alabama. The commodity cost of purchased gas applicable to gas delivered to customers but not yet billed under the cycle billing method is deferred as a current asset. C. INCOME TAXES Alagasco files a consolidated income tax return with its parent. The consolidated income taxes are allocated to the appropriate subsidiaries using the separate return method. Deferred income taxes reflect the impact of temporary differences between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes, and are measured in compliance with enacted tax laws. Investment tax credits have been deferred and are being amortized over the lives of the related assets. D. CASH EQUIVALENTS Alagasco includes highly liquid marketable securities and debt instruments purchased with a maturity of three months or less in cash equivalents. 28 30 2. LONG-TERM DEBT AND NOTES PAYABLE Long-term debt consists of the following:
============================================================================================================= AS OF SEPTEMBER 30, (IN THOUSANDS) 1995 1994 ============================================================================================================= Medium term notes, interest ranging from 5.4% to 7.7%, for notes redeemable December 1, 1998 to June 27, 2025 $100,000 $50,000 First Mortgage Bonds, 11% Series H, defeased during fiscal year 1995 -- 7,500 9% debentures, defeased during fiscal year 1995 -- 28,758 Mortgage note payable, paid in full during fiscal year 1995 -- 956 - ------------------------------------------------------------------------------------------------------------- Total 100,000 87,214 Less amounts due within one year -- 2,823 - ------------------------------------------------------------------------------------------------------------- Total $100,000 $84,391 =============================================================================================================
During the fourth quarter, Alagasco deposited $37.6 million into an irrevocable trust to complete an in-substance defeasance of the 9 percent debentures and 11 percent Series H First Mortgage Bonds. The funds in the trust, primarily obtained through the issuance of medium-term notes and short-term borrowings, will be used solely to satisfy the principal, interest, and call premium of the defeased debt. Accordingly, the debt and related accrued interest have been excluded from the 1995 consolidated balance sheet. No gain or loss was recorded in the financial statements as the APSC has granted Alagasco regulatory relief related to the income statement impact of this defeasance. The aggregate maturities of long-term debt for the next five years are as follows:
======================================================================================================= YEARS ENDING SEPTEMBER 30, (IN THOUSANDS) ======================================================================================================= 1996 1997 1998 1999 2000 - ------------------------------------------------------------------------------------------------------- -- -- -- $5,350 -- =======================================================================================================
29 31 Energen and Alagasco have short-term credit lines and other credit facilities of $110 million available to either entity for working capital needs. The following is a summary of information relating to notes payable to banks:
============================================================================================================ AS OF SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993 ============================================================================================================ Alagasco outstanding $ -- $ 4,000 $ 29,000 Other Energen outstanding 32,300 2,000 11,000 Available for borrowings 77,700 104,000 70,000 - ------------------------------------------------------------------------------------------------------------ Total $110,000 $110,000 $110,000 ============================================================================================================ Maximum amount outstanding at any month-end $ 5,000 $ 60,000 $ 29,000 Average daily amount outstanding $ 447 $ 13,460 $ 23,071 Weighted average interest rates based on: Average daily amount outstanding 5.69% 3.32% 3.41% Amount outstanding at year-end -- 5.17% 3.35% ============================================================================================================
Total interest expense in 1995, 1994 and 1993 was $9,652,000, $8,320,000, and $7,487,000, respectively. 3. REGULATORY As an Alabama utility, Alagasco is subject to regulation by the APSC which, in 1983, established the Rate Stabilization and Equalization (RSE) rate-setting process. RSE was extended for the third time on December 3, 1990, for a three-year period. Under the terms of that extension, RSE shall continue after November 30, 1993, unless, after notice to the Company, the Commission votes to either modify or discontinue its operation. On October 4, 1993, the Commission unanimously voted to extend RSE until such time as certain hearings mandated by the Energy Policy Act of 1992 (Energy Act) in connection with integrated resource planning and demand side management programs are completed. The Energy Act proceedings are expected to conclude during fiscal 1996 at which time it is expected that the Commission will begin reviewing Alagasco's RSE. No time table for review has yet been established. Under RSE as extended, the APSC conducts quarterly reviews to determine, based on Alagasco's projections and fiscal year-to-date performance, whether Alagasco's return on equity for the fiscal year will be within the allowed range of 13.15 percent to 13.65 percent. Reductions in rates can be made quarterly to bring the projected return within the allowed range; increases, however, are allowed only once each fiscal year, effective December 1, and cannot exceed 4 percent of prior-year revenues. RSE limits the utility's equity upon which a return is permitted to 60 percent of total capitalization and provides for certain cost control measures designed to monitor the Company's operations and maintenance (O&M) expense. If O&M expense per customer falls within 1.25 percentage points above or below the Consumer Price Index For All Urban Customers (index range), no adjustment is required. If, however, O&M expense per customer exceeds the index range, three-quarters of the difference will be returned to the customers. To the extent O&M expense per customer is less than the index range, the utility will benefit by one-half of the difference through future rate adjustments. Under RSE as extended, a $1.1 million decrease in revenue became effective October 1, 1994, and a $5.2 million annual increase in revenue became effective December 1, 1994. Effective December 15, 1990, the APSC approved a temperature adjustment to customers' monthly bills to remove the effect of departures from normal temperature on Alagasco's earnings. The calculation is performed monthly, and the adjustments to customers' bills are made in the same month the weather variation occurs. 30 32 The Company's rate schedules for natural gas distribution charges contain a Gas Supply Adjustment (GSA) rider, established in 1993, which permits the pass-through to customers of changes in the cost of gas supply, including Gas Supply Realignment (GSR) surcharges imposed by the Company's suppliers resulting from changes in gas supply purchases related to the implementation of FERC Order 636. On June 12, 1995, the APSC approved Alagasco's application to issue $50 million of new debt. A portion of the proceeds was used to redeem all of Alagasco's 9 percent debentures and 11 percent First Mortgage Bonds. In connection with the early call of the redeemed debt, Alagasco paid an early call premium of approximately $1.3 million during the fourth quarter. Because the APSC Order authorized Alagasco to collect the early call premium through customer rates during the fiscal year ending September 30, 1996, Alagasco recorded a regulatory asset of $1.3 million during the fourth quarter ending September 30, 1995. In accordance with APSC-directed regulatory accounting procedures, Alagasco in 1989 began returning to customers excess utility deferred taxes which resulted from a reduction in the federal statutory tax rate from 46 percent to 34 percent using the average rate assumption method. This method provides for the return to ratepayers of excess deferred taxes over the lives of the related assets. In 1993 those excess taxes were reduced as a result of a federal tax rate increase from 34 percent to 35 percent. Approximately $2.9 million of the remaining excess utility deferred taxes is being returned to ratepayers over approximately 15 years. FERC REGULATION: On March 15, 1995, Southern Natural Gas Company (Southern) filed a comprehensive settlement with the FERC in the form of a Stipulation and Agreement (the Settlement) to resolve all issues in Southern's six pending rate cases, as well as to resolve all GSR and transition cost issues resulting from the implementation of FERC Order 636. The Settlement is supported by parties representing more than 90 percent of the firm transportation demand on Southern's system, including local distribution companies (including Alagasco), municipal distribution systems, major gas producers, large industrial end users, marketers, and state commissions (including the APSC). On September 29, 1995, the FERC issued its Order Accepting Settlement, Severing Contesting parties, and Issuing Certificates and Approving Abandonment (Settlement Order). The Settlement Order approves the Settlement with minor modifications. Contesting parties had 30 days from the date of the Settlement Order to file motions for rehearing and several such motions were timely filed. Until such motions are ruled on by the FERC, the Settlement Order is not considered to be final. Specifically, the Settlement provides for the following: (1) the resolution of all cost of service and rate design issues in Southern's six pending rate cases and the establishment of reduced rates for the purpose of calculating rate case refunds; (2) the implementation of reduced settlement rates on an interim basis for supporting parties commencing March 1, 1995 (by order dated April 4, 1995, FERC approved these interim rates pending its final review of the merits of the Settlement); (3) the resolution of all GSR and other transition cost issues resulting from FERC Order 636; (4) lower GSR cost recovery through the reduction and earlier payout of GSR costs; (5) a three-year moratorium on general rate increases; and (6) the resolution and disposition of all rate case and GSR refunds for supporting parties. With respect to this last point, the Settlement provides that all rate case refunds will be used to offset a portion of Southern's remaining GSR liability. In addition, as a result of the recalculated GSR surcharges for the period January 1, 1994, to February 28, 1995, Southern will refund over-collected GSR costs. Neither the total amount of this refund nor Alagasco's share has yet been determined; therefore, no amounts have been recorded in the financial statements. In the Settlement filing with FERC, Southern has represented that the Settlement will allow Southern and the supporting parties to resolve all issues relating to GSR and other transition costs, the majority of which costs will be collected by the end of calendar 1995. Alagasco estimates that it has a remaining GSR liability of approximately $2.4 million to be paid through December 1995 and approximately $2.6 million in other transition costs to be paid through June 1998 and that it has recorded such amounts in the financial statements. Because these costs will be recovered in full from Alagasco's customers in a timely 31 33 manner through the GSA rider of Alagasco's Tariff, the Company has recorded a corresponding regulatory asset in the accompanying financial statements. 4. CAPITAL STOCK Alagasco's authorized common stock consists of 3 million, $0.01 par value common shares. At September 30, 1995 and 1994, 1,972,052 shares were issued and outstanding. Alagasco is authorized to issue 120,000 shares of preferred stock, par value $0.01 per share, in one or more series. There are no shares currently outstanding. 5. INCOME TAXES The components of income taxes consist of the following:
============================================================================================================ FOR THE YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993 ============================================================================================================ Taxes estimated to be payable currently: Federal $7,633 $ 9,664 $4,911 State 759 959 496 - ------------------------------------------------------------------------------------------------------------ Total current 8,392 10,623 5,407 - ------------------------------------------------------------------------------------------------------------ Taxes deferred: Federal (326) (2,689) 867 State 16 (216) 135 - ------------------------------------------------------------------------------------------------------------ Total deferred (310) (2,905) 1,002 - ------------------------------------------------------------------------------------------------------------ Total income tax expense $8,082 $ 7,718 $6,409 ============================================================================================================
32 34 Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and liabilities for 1995 and 1994 are as follows:
============================================================================================================ 1995 1994 --------------------------------------------------------- AS OF SEPTEMBER 30, (IN THOUSANDS) CURRENT NONCURRENT CURRENT NONCURRENT ============================================================================================================ Deferred tax assets: Deferred investment tax credits $ -- $ 1,386 $ -- $ 1,567 Regulatory liabilities -- 2,229 -- 2,585 Unbilled revenue 1,565 -- 1,454 -- Insurance and accruals 1,923 -- 1,339 -- Gas supply adjustment 930 -- 1,123 -- Accrued vacation 988 -- 981 -- Allowance for uncollectible accounts 902 -- 878 -- Other, net 2,022 52 1,477 96 - ------------------------------------------------------------------------------------------------------------ Subtotal 8,330 3,667 7,252 4,248 Valuation allowance -- -- -- -- - ------------------------------------------------------------------------------------------------------------ Total deferred tax assets $8,330 $ 3,667 $7,252 $ 4,248 ============================================================================================================ Deferred tax liabilities: Depreciation and basis differences $ -- $19,297 $ -- $17,704 Pension and other benefit costs 912 -- 1,457 -- Other, net 2 713 71 248 - ------------------------------------------------------------------------------------------------------------ Total deferred tax liabilities $ 914 $20,010 $1,528 $17,952 ============================================================================================================
No valuation allowance with respect to deferred taxes is deemed necessary, as the Company anticipates generating adequate future taxable income to realize the benefits of all deferred tax assets on the balance sheet. Total income tax expense differs from the amount which would be provided by applying the statutory federal income tax rate to pretax earnings as illustrated below:
============================================================================================================ FOR THE YEAR ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993 ============================================================================================================ Income tax expense at statutory federal income tax rate $8,331 $7,915 $6,729 Increase (decrease) resulting from: Investment tax credits -- deferred (487) (487) (528) State income taxes, net of federal income tax benefit 512 486 412 Other, net (274) (196) (204) - ------------------------------------------------------------------------------------------------------------ Total income tax expense $8,082 $7,718 $6,409 ============================================================================================================
There were no tax-related balances due to affiliates at September 30, 1995, or 1994. 33 35 6. RETIREMENT INCOME PLANS AND OTHER BENEFITS All information presented concerning retirement income and other benefit plans includes other affiliates of Energen Corporation as well as Alagasco. The Company has two defined benefit non-contributory pension plans which cover a majority of the employees. Benefits are based on years of service and final earnings. The Company's policy is to use the "projected unit credit" actuarial method for funding and financial reporting purposes. The expense (income) for the plan covering the majority of employees (Plan A) for the years ended September 30, 1995, 1994 and 1993, was $1,158,000, $15,000, and $(118,000), respectively. The expense for the second plan covering employees under labor union agreements (Plan B) for 1995, 1994 and 1993 was $339,000, $555,000 and $557,000, respectively. The funded status of the plans is as follows:
============================================================================================================= AS OF JUNE 30, (IN THOUSANDS) PLAN A PLAN B ============================================================================================================= 1995 1994 1995 1994 ------------------------ --------------------- Vested benefits $(46,073) $(48,354) $(13,499) $(12,860) Nonvested benefits (5,912) (5,530) (2,083) (2,253) - ------------------------------------------------------------------------------------------------------------- Accumulated benefit obligation (51,985) (53,884) (15,582) (15,113) Effects of salary progression (11,047) (10,332) -- -- - ------------------------------------------------------------------------------------------------------------- Projected benefit obligation (63,032) (64,216) (15,582) (15,113) Fair value of plan assets, primarily equity and fixed income securities 69,431 72,004 16,429 11,863 Unrecognized net gain 1,470 2,646 296 1,034 Unrecognized prior service cost 41 46 1,412 1,554 Unrecognized net transition obligation (asset) (5,111) (6,524) 396 452 Additional minimum liability -- -- -- (3,040) - ------------------------------------------------------------------------------------------------------------- Accrued pension asset (liability) $ 2,799 $ 3,956 $ 3,951 $ (3,250) =============================================================================================================
At September 30, 1995 and 1994, for both plans the discount rate used to measure the projected benefit obligation was 7.5 percent, and the expected long-term rate of return on plan assets was 8.25 percent. The annual rate of salary increase for the salaried plan was 5.5 percent for both years. 34 36 The components of net pension costs for 1995, 1994 and 1993 were:
============================================================================================================= FOR THE YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) PLAN A PLAN B ============================================================================================================= 1995 1994 1993 1995 1994 1993 ---- ---- ---- ---- ---- ---- Service cost $ 2,052 $ 1,873 $ 1,678 $ 224 $ 224 $ 187 Interest cost on projected benefit obligation 4,728 4,550 4,097 1,095 1,042 1,018 Actual (return) on plan assets (8,787) (504) (6,858) (2,172) (372) (1,048) Net amortization and deferral 2,106 (5,904) 965 1,192 (339) 400 Loss due to special termination benefits 1,489 -- -- -- -- -- Settlement gain (430) -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------- Net pension (income) expense $ 1,158 $ 15 $ (118) $ 339 $ 555 $ 557 =============================================================================================================
In 1995 the Company recognized a loss for special termination benefits of $1,489,000 and a settlement gain of $430,000 pursuant to a voluntary early retirement option offered to all salaried, non-officer employees of at least 58 years of age with a minimum of 5 years' service. Of the 55 eligible employees, 41 accepted. Energen has deferred compensation plan agreements for certain key executives providing for payments on retirement, death or disability. The deferred compensation expense under these agreements for 1995, 1994 and 1993 was $808,000, $461,000, and $650,000, respectively. In addition to providing pension benefits, the Company provides certain post-retirement health care and life insurance benefits. Substantially all of the Company's employees may become eligible for such benefits if they reach normal retirement age while working for the Company. In a prior year, the company adopted SFAS No. 106, Employers' Accounting for Post-retirement Benefits Other Than Pensions, with respect to the accrual of such costs for salaried employees. During fiscal year 1994, the Company adopted SFAS 106 with respect to such costs for employees under collective bargaining agreements. There is no cumulative effect on the income statement resulting from the adoption of SFAS 106 as the Company elected to amortize transition costs over a 20-year period. On December 6, 1993, the APSC adopted Order 4-3454 which allows the Company to recover all costs accrued under SFAS 106 through rates. While the Company has not adopted a formal funding policy, all of its accrued post-retirement liability was funded at year-end. The expense for salaried employees for the years ended September 30, 1995, 1994 and 1993 was $2,271,000, $2,319,000, and $2,677,000, respectively. The expense for union employees was $3,613,000, $3,685,000 and $982,000 during 1995, 1994 and 1993, respectively. Prior to 1994, the Company recognized the cost of providing post-retirement benefits for union employees on a "pay-as-you-go" basis. These benefits were provided through a self-insurance arrangement and through insurance companies whose premiums were based on the benefits paid during the year. The "projected unit credit" actuarial method was used to determine the normal cost and actuarial liability. 35 37 A reconciliation of the estimated status of the obligation is as follows:
============================================================================================================= AS OF JUNE 30, (IN THOUSANDS) SALARIED EMPLOYEES UNION EMPLOYEES ============================================================================================================= 1995 1994 1995 1994 ---- ---- ---- ---- Accumulated post-retirement benefit obligation $(20,757) $(21,296) $(29,600) $(24,564) Plan assets 12,659 9,408 4,419 1,248 Unamortized amounts 7,550 11,751 24,237 21,357 - ------------------------------------------------------------------------------------------------------------- Accrued post-retirement benefit liability $ (548) $ (137) $ (944) $ (1,959) =============================================================================================================
Net periodic post-retirement benefit cost for the years ended September 30, 1995, 1994 and 1993, included the following:
============================================================================================================= FOR THE YEAR ENDED SEPTEMBER 30, (IN THOUSANDS) SALARIED EMPLOYEES UNION EMPLOYEES ============================================================================================================= 1995 1994 1993 1995 1994 1993 ---- ---- ---- ---- ---- ---- Service cost $ 512 $ 450 $ 464 $ 807 $ 481 $ -- Interest cost on accumulated post-retirement benefit obligation 1,696 1,726 1,457 1,793 1,920 -- Amortization of transition obligation 723 723 842 1,285 1,285 -- Amortization of actuarial gains and losses -- -- 49 -- -- -- Deferred asset (gain) loss 539 (453) -- 424 -- -- Actual (return) on plan assets (1,199) (127) (135) (696) (1) -- - ------------------------------------------------------------------------------------------------------------- Net periodic post-retirement benefit expense $ 2,271 $2,319 $2,677 $3,613 $3,685 $ -- =============================================================================================================
The weighted average health care cost trend rate used in determining the accumulated post-retirement benefit obligation was 8 percent in 1995 and 1994. That assumption has a significant effect on the amounts reported. For example, with respect to salaried employees, increasing the weighted average health care cost trend rate by 1 percent would increase the accumulated post-retirement benefit obligation by 3 percent and the net periodic post-retirement benefit cost by 2.1 percent. For union employees increasing the weighted average health care cost trend rate by 1 percent would increase the accumulated post-retirement benefit obligation by 7.1 percent and the net periodic post-retirement benefit cost by 7 percent. The weighted average discount rate used in determining the accumulated post-retirement benefit obligation was 7.5 percent in 1995 and 1994. The Company has a long-term disability plan covering most salaried employees. Expense for the years ended September 30, 1995, 1994 and 1993 was $155,000, $150,000, and $129,000, respectively. 7. COMMITMENTS Alagasco has various firm gas supply and firm gas transportation contracts, which expire at various dates through the year 2008. These contracts typically contain minimum demand charge obligations on the part of Alagasco. Alagasco entered into an agreement with a financial institution whereby it can sell on an ongoing basis, with recourse, certain installment receivables related to its merchandising program up to a maximum of $20 million. During 1995 and 1994, Alagasco sold $8,454,000 and $6,784,000, respectively, of installment receivables. At September 30, 1995 and 1994, the balance of these installment receivables was $15,618,000 and $13,027,000, respectively. Receivables sold under this agreement are considered financial instruments with off-balance-sheet risk. Alagasco's exposure to credit loss in the event of non-performance by customers is represented by the balance of installment receivables. 36 38 Various legal proceedings arising in the normal course of business are currently in progress and Alagasco currently accrues provisions for estimated cost. Although the outcome of any litigation cannot be predicted with certainty, management does not believe that the ultimate outcome will have a material adverse effect on Alagasco's financial position or results of operations. 8. LEASES Total payments related to leases included as operating expense in the accompanying statements of income amounted to $2,201,000, $2,147,000, and $2,332,000 in 1995, 1994 and 1993, respectively. Minimum future rental payments (in thousands) required after 1995 under leases with initial or remaining noncancelable lease terms in excess of one year are as follows:
========================================================================================================== 1996 1997 1998 1999 2000 2001 AND THEREAFTER ========================================================================================================== $1,749 $1,577 $463 $81 $81 $125 ==========================================================================================================
9. ENVIRONMENTAL MATTERS Alagasco is in the chain of title of eight former manufactured gas plant sites, of which it still owns four, and five manufactured gas distribution sites, of which it still owns one. A preliminary investigation of the sites does not indicate the present need for remediation activities. Management expects that, should remediation of any such sites be required in the future, Alagasco's share, if any, of such costs will not materially affect the results of operations or financial condition of Alagasco. 10. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental information concerning cash flow activities is as follows:
=========================================================================================================== FOR THE YEAR ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993 =========================================================================================================== Interest paid, net of amount capitalized $11,166 $7,762 $8,726 Income taxes paid $10,920 $9,097 $5,844 Noncash investing activities: Capitalized depreciation $ 166 $ 155 $ 187 Allowance for funds used during construction $ 1,054 $ 465 $ 163 Noncash financing activities (debt issuance costs) $ 340 $ 330 $ -- ===========================================================================================================
37 39 11. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED) The following data summarize operating results for the four quarters of 1995 and 1994. Alagasco's business is seasonal in character and strongly influenced by weather conditions.
============================================================================================================ 1995 FISCAL QUARTERS (IN THOUSANDS) FIRST SECOND THIRD FOURTH ============================================================================================================ Operating revenues $67,226 $134,141 $55,865 $38,735 Operating income (loss) $ 3,696 $ 19,276 $ 3,383 $(1,924) Net income (loss) available for common $ 1,751 $ 17,267 $ 1,772 $(5,069) ============================================================================================================
============================================================================================================ 1994 FISCAL QUARTERS (IN THOUSANDS) FIRST SECOND THIRD FOURTH ============================================================================================================ Operating revenues $78,993 $158,268 $66,070 $41,306 Operating income (loss) $ 2,945 $ 18,485 $ 3,580 $(2,711) Net income (loss) available for common $ 696 $ 16,688 $ 1,799 $(4,287) ===========================================================================================================
12. TRANSACTIONS WITH RELATED PARTIES Alagasco purchased natural gas from affiliates amounting to $4,644,000, $10,255,000, and $13,826,000, in 1995, 1994, and 1993, respectively. These amounts are included in gas purchased for resale. Alagasco had net receivables from affiliates of $183,000 at September 30, 1995, and net payables to affiliates of $132,000 at September 30, 1994. 13. FINANCIAL INSTRUMENTS In accordance with the requirements of SFAS No. 107 (Disclosures about Fair Value of Financial Instruments), the estimated fair values of Alagasco's financial instruments at September 30, 1995, were as follows:
============================================================================================================== CARRYING FAIR AS OF SEPTEMBER 30, 1995 (IN THOUSANDS) AMOUNT VALUE ============================================================================================================== Cash and cash equivalents $ 727 $ 727 Receivables, net of allowance account $ 23,359 $23,359 Long-term debt (including current maturities) $100,000 $98,750 ==============================================================================================================
The following methods and assumptions were used to estimate the fair value of financial instruments: o CASH AND CASH EQUIVALENTS: Fair value was considered to be the same as the carrying amount. o RECEIVABLES: The Company believes that, in the aggregate, current and non-current net receivables were not materially different from the fair value of those receivables. o LONG-TERM DEBT: The fair value of fixed-rate long-term debt was based on the market value of debt with similar maturities and with interest rates currently trading in the marketplace; the carrying amount of variable rate long-term debt was assumed to approximate fair value. 38 40 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TO THE BOARD OF DIRECTORS OF ENERGEN CORPORATION: Our report on the consolidated financial statements of Energen Corporation and subsidiaries has been incorporated by reference in this Form 10-K from page 55 of the 1995 Annual Report to Stockholders of Energen Corporation and subsidiaries. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed in the index on page 17 and 18 of this Form 10-K. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects the information required to be included therein. Coopers & Lybrand L.L.P. Birmingham, Alabama October 25, 1995 39 41 SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS ENERGEN CORPORATION AND SUBSIDIARIES
==================================================================================================== YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993 ==================================================================================================== ALLOWANCE FOR DOUBTFUL ACCOUNTS Balance at beginning of year $2,037 $1,927 $1,927 - ---------------------------------------------------------------------------------------------------- Additions: Charged to income: 2,431 1,825 1,656 Recoveries and adjustments 67 153 81 - ---------------------------------------------------------------------------------------------------- 2,498 1,978 1,737 - ---------------------------------------------------------------------------------------------------- Less uncollectible accounts written off 2,002 1,868 1,737 - ---------------------------------------------------------------------------------------------------- BALANCE AT END OF YEAR $2,533 $2,037 $1,927 ====================================================================================================
40 42 SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS ALABAMA GAS CORPORATION
==================================================================================================== YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993 ==================================================================================================== ALLOWANCE FOR DOUBTFUL ACCOUNTS Balance at beginning of year $2,000 $1,800 $1,800 - ---------------------------------------------------------------------------------------------------- Additions: Charged to income: 1,935 1,805 1,613 Recoveries and adjustments 67 263 78 - ---------------------------------------------------------------------------------------------------- 2,002 2,068 1,691 - ---------------------------------------------------------------------------------------------------- Less uncollectible accounts written off 2,002 1,868 1,691 - ---------------------------------------------------------------------------------------------------- BALANCE AT END OF YEAR $2,000 $2,000 $1,800 ====================================================================================================
41 EX-3.E 2 ARTICLES OF AMENDMENT 1 EXHIBIT 3(e) ARTICLES OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF ENERGEN CORPORATION TO THE HONORABLE JUDGE OF PROBATE, JEFFERSON COUNTY, ALABAMA: Pursuant to the provisions of Article 10 of Chapter 2B of Title 10 of the Code of Alabama of 1975 (Section 10-2B-10.01, et seq.), the undersigned corporation executes the following Articles of Amendment to its Restated Certificate of Incorporation: (1) The name of the corporation is Energen Corporation. (2) The Restated Certificate of Incorporation of the said corporation is amended as follows: (a) A new Article XI is added to read in its entirety as follows: XI. Limitation of Liability 11.01 A director of the Corporation shall not be liable to the Corporation or its shareholders for money damages for any action taken, or failure to take action, as a director, except for (i) the amount of a financial benefit received by such director to which such director is not entitled; (ii) an intentional infliction of harm by such director on the Corporation or its shareholders; (iii) a violation of Section 10-2B-8.33 of the Code of Alabama of 1975 or any successor provision to such section; (iv) an intentional violation by such director of criminal law; or (v) a breach of such director's duty of loyalty to the Corporation or its shareholders. If the Alabama Business Corporation Act, or any successor statute thereto, is hereafter amended to authorize the further elimination or limitation of the liability of a director of a corporation, then the liability of a director of the Corporation, in addition to the limitations on liability provided herein, shall be limited to the fullest extent permitted by the Alabama Business Corporation Act, as amended, or any successor statute thereto. The limitation on liability of directors of the Corporation contained herein shall apply to liabilities arising out of acts or omissions occurring subsequent to the adoption of this Article XI and, except to the extent prohibited by law, to liabilities arising out of acts or omissions occurring prior to the adoption of this Article XI. Any repeal or modification of this Article XI by the shareholders of the Corporation shall be prospective only and shall not adversely affect any limitation on the liability of a director of the Corporation existing at the time of such repeal or modification. (b) The provisions of the Restated Certificate of Incorporation which constituted Article XI prior to the adoption of the foregoing Article XI shall be renumbered as Article XII and all sections therein, or references thereto, shall be correspondingly renumbered to reflect the foregoing amendment. (3) The foregoing amendment to the Restated Certificate of Incorporation was adopted by the shareholders of the said Corporation on January 25, 1995 in the manner prescribed by the Alabama Business Corporation Act. (4) The common stock of the Corporation, par value $0.01 per share, was the only voting group entitled to vote on the amendment. As of the record date for the meeting, there were 10,919,977 shares of such common stock outstanding, and the holders of such shares were entitled to cast one vote per share, or an aggregate of 10,919,977 votes. There were 9,156,260 votes entitled to be cast by the holders of the common stock of the Corporation indisputably represented at the meeting. (5) The total number of undisputed votes cast for the amendment by the holders of the common stock of the Corporation was 8,150,902, and the number of votes cast for the amendment was sufficient for approval of the amendment by the holders of the common stock of the Corporation. Dated as of February 3, 1995. ENERGEN CORPORATION BY /s/ Rex J. Lysinger -------------------------- Rex J. Lysinger Its Chairman of the Board of Directors ATTEST: /s/ J. D. Woodruff, Jr. - --------------------------- J. D. Woodruff, Jr. Assistant Secretary EX-3.F 3 RESTATED CONFORMED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3(f) RESTATED CONFORMED CERTIFICATE OF INCORPORATION OF ENERGEN CORPORATION [AS AMENDED THROUGH FEBRUARY 3, 1995] STATE OF ALABAMA ) ) COUNTY OF JEFFERSON ) TO THE HONORABLE JUDGE OF PROBATE, JEFFERSON COUNTY, ALABAMA: Pursuant to the provisions of Article 10 of Chapter 2B of Title 10 of the Code of Alabama of 1975 (Section Section 10-2A-110, et seq.), the undersigned corporation executes the following Restated Certificate of Incorporation: I. NAME OF CORPORATION: 1.01 The name of the corporation shall be Energen Corporation. II. OBJECTS: 2.01 To manufacture, produce, buy, deal in, use, sell, distribute, furnish and supply gas; to construct, equip, use, operate and maintain works for holding, receiving, purifying and distributing gas, and all buildings, works, meters, pipes, fittings, machinery, apparatus and appliances convenient or necessary in connection therewith. 1 2 2.02 To carry on the business of a gas company in all its branches; to manufacture, use, deal in, render salable and sell all products, by-products and residual products obtained in the production of gas; to manufacture, buy, sell, rent and deal in all kinds of goods, wares, merchandise and personal property which may seem calculated directly or indirectly to promote the consumption of gas. 2.03 To manufacture, produce, buy, deal in, use, sell, distribute, furnish and supply petroleum, petroleum products and by-products; to construct, equip, use, operate and maintain works for holding, receiving, purifying and distributing petroleum, petroleum products and by-products, and all buildings, works, meters, pipes, fittings, machinery, apparatus and appliances convenient or necessary in connection therewith. 2.04 To acquire, buy, hold, own, sell, lease, exchange, dispose of, finance, deal in, construct, build, equip, improve, use, operate, maintain and work upon any and all kinds of works, plants, stations, systems, machinery, generators, apparatus, devices, supplies and articles of every kind pertaining to or in anywise connected with the production, use, distribution, regulation, control or application of light, heat, refrigeration, ice, water, water-power, electricity, gas, and any other force. 2.05 To acquire, buy, hold, own, sell, lease, exchange, dispose of, distribute, deal in, use, produce, furnish and supply light, heat, refrigeration, ice, water, water-power, electricity, and any other power or force. 2.06 To acquire, buy, hold, own, sell, lease, exchange and dispose of lands or the gas, oil and mineral rights in lands; to develop such lands by drilling gas and oil wells thereon; to produce therefrom gas, oil or other volatile or mineral substances; to produce, deal in, use, distribute, furnish and sell such gas or oil or other volatile or mineral substances; to install, construct, build, equip, improve, use, operate and maintain any and all manner of plants, machinery and appliances for any and all such purposes and the marketing and selling of such products. 2 3 2.07 To carry on the business of aiding in the construction and operations of plants and works, including those of gas companies, electric companies, and other public utility companies, and for or in connection with any or all of the foregoing purposes to furnish services and advice of engineers, auditors, executives and other experts. 2.08 To acquire, organize, assemble, develop, build up and operate, constructing and operating and other organizations and systems and to hire, sell, lease, exchange, turn over, deliver and dispose of such organizations, in whole or in part, and to enter into and perform contracts, agreements and undertakings of any kind in connection with any or all of the foregoing objects. 2.09 To purchase, acquire, hold, own, develop and dispose of lands and interests in and rights with respect to lands and waters and fixed and movable property, franchises, concessions, consents, privileges and licenses in its opinion useful or desirable for or in connection with any or all of the foregoing objects. 2.10 To acquire by purchase, subscription or otherwise, and to sell, use, assign, transfer, mortgage, pledge, exchange or otherwise dispose of, and to make and enter into all manner and kinds of contracts, agreements and obligations for the purchasing, acquiring, dealing in or selling of, real and personal property of every sort and description and wheresoever situated, including shares of stock, bonds, debentures, notes, scrip, securities, evidences of indebtedness, contracts or obligations of any corporation or corporations, association or associations, domestic or foreign, or of any firm or individual of the United States or any state, territory or dependency of the United States or any foreign country, or any municipality or local authority within or without the United States, and also to issue in exchange therefor stocks, bonds or other securities or evidences of indebtedness of the Corporation and while the owner or holder of any such property, to receive, collect and dispose of the interest, dividends and income on or from such property, and to possess and exercise in respect thereto all of the rights, powers and privileges of ownership, including voting rights. 2.11 To act as financial, business, managing and/or purchasing agent, general or special. 3 4 2.12 To carry on the business of general brokers and dealers in stocks, bonds, securities, mortgages and other choses in action, including the acquisition thereof by original subscription; to make investments in such property; and to hold, manage, mortgage, pledge, sell and dispose of the same in like manner as individuals may do. 2.13 To acquire by purchase or otherwise and to own, hold, buy, sell, donate, convey, lease, mortgage or incumber real or personal property both within and without the State of Alabama; to survey, sub-divide, plat, improve and develop lands for the purposes of sale or otherwise; to lay off such lands in streets, lanes, squares, parks and alleys, city blocks and lots and to sell or otherwise dispose of lots and to secure the purchase by purchase-money notes, mortgages, or otherwise, to open and improve the streets, lanes, parks, squares and alleys which may be laid off and to do and perform all things needful for the development and improvement of such lands for trade or business and to make donations of any of its lands when in the opinion of its Board of Directors the same may be desirable to further the Corporation's interest. 2.14 To engage in and carry on a general mercantile and trade business and to buy, manufacture, produce or otherwise acquire, hold, own, use, import, export, trade or otherwise deal in or turn to account, sell, lease, pledge or otherwise dispose of any and all kinds of goods, wares and merchandise and other articles of commercial and personal property without limit as to character or manner. 2.15 To borrow or otherwise raise moneys for any of the purposes of the Corporation from time to time and without limit as to amount, except as may be provided in a resolution or resolutions adopted by the shareholders of the Corporation, to issue bonds, debentures, notes or other obligations of any nature, or in any manner, and to secure the payment of the principal and interest of any thereof by mortgage upon, or pledge or conveyance or assignment in trust of, the whole or any part of the property of the Corporation, real and personal, whether at the time owned or thereafter acquired, including contract rights; and to sell, pledge, or otherwise dispose of such bonds, debentures, notes or other obligations of any nature of the Corporation for its corporate purposes. 4 5 2.16 To lend and advance money and extend credit, either with or without security, and to underwrite for investment, resale or otherwise stocks, bonds and other securities, and to aid the organization, financing, liquidation or reorganization of corporations, associations or firms. 2.17 To purchase or otherwise acquire and to hold, cancel, re-issue, sell or transfer shares of its own capital stock (so far as may be permitted by law) and its bonds, debentures, notes, scrip or other securities or evidences of indebtedness, provided that it shall not use its funds or property for the purchase of shares of its own capital stock when such use would cause any impairment of its capital, and provided, further, that shares of its own capital stock belonging to it shall not be voted directly or indirectly. 2.18 In connection with the purchase or lease or other acquisition by the Corporation of any property of whatever nature, to pay therefor in cash or property or to issue in exchange therefor shares of its capital stock, bonds, or other obligations or other securities of the Corporation and to assume any liabilities of any person, firm, association or corporation. 2.19 To sell, exchange or barter for other property, assign, transfer, lease as lessor, mortgage, pledge or otherwise dispose of or encumber any part or parts, or all, of the property or assets of the Corporation; to cease to conduct the business connected with any such property or assets so disposed of; to resume any business which it shall cease to conduct; and the Corporation may receive any form of; to resume any business which it shall cease to conduct; and the Corporation may receive any form of consideration for property so sold, exchanged, bartered or otherwise disposed of, including (but not excluding other forms of consideration) bonds, debentures and/or other obligations and/or shares of stock of any existing corporate or other entity or of any corporate or other entity in process of organization. 2.20 To endorse, or otherwise guarantee, or become a surety with respect to, or obligate itself for, or without becoming liable therefor, nevertheless, to pledge or mortgage all or any part of its properties to secure the payment of the principal of, and interest on, or either thereof, any bonds, including construction or performance bonds, debentures, notes, scrip, 5 6 coupons, contracts or other obligations or evidences of indebtedness, or the performance of any contract, lease, construction, performance or other bond, mortgage, or obligation of any other corporation or association, domestic or foreign, or of any firm, partnership, joint venture, or other person whatsoever, in which this Corporation may have a lawful interest, or on account of, or with respect to, any transaction in which this Corporation shall receive any lawful consideration, advantage or benefit, on any account whatsoever. Irrespective of the relative net worth of the corporations, associations, or persons involved, and of the relative amounts of obligations involved, this Corporation shall be deemed to have a lawful interest in any corporation, association or person (A) which owns stock in this Corporation, or (B) which owns stock in another corporation which owns stock in this Corporation, or (C) in which this Corporation owns stock, or (D) in which another corporation owns stock which also owns stock in this Corporation, or (E) in which any one or more persons who own stock in this Corporation also own stock, or (F) which or who has entered into any contractual arrangement pursuant to which any such corporation or persons undertakes corresponding or like obligations of endorsement, guarantee, or suretyship, with respect to all or any such obligations or evidences of indebtedness, contracts of this Corporation, or which may engage with this Corporation, in the conduct of any joint venture or enterprise, or in the use of common facilities or services. 2.21 To engage in any commercial, financial, mercantile, industrial, manufacturing, marine, exploration, mining, agricultural, research, licensing, servicing or agency business not prohibited by law, and any, some or all of the foregoing. 2.22 In general, to do any or all of the things hereinbefore set forth to the same extent as natural persons could do, and as principal or agent or otherwise, and either alone or in conjunction with any other persons, firms, associations or corporations. 2.23 To exercise its powers in accomplishment of its objects and purposes in any part of the world and to have one or more offices out of the State of Alabama. 6 7 2.24 To do all acts and things which it shall find necessary or convenient to do in aid of or in connection with the transaction, promotion and carrying on of the objects and purposes hereinabove stated or necessary or incidental to the protection and benefit of the corporation, and in general to carry on any lawful business necessary or incidental to the attainment of the purposes of the Corporation, whether such business is similar in nature to the objects and powers hereinabove set forth or otherwise. 2.25 The Corporation's power to acquire property of any kind which it is or shall be authorized to acquire may be exercised directly or indirectly through the acquisition of stocks and bonds representative of such property and for the purpose of acquiring and holding either in perpetuity or for a limited period. The foregoing clauses shall be construed as powers and provisions for the regulation of the business and the conduct and affairs of the Corporation, the Directors and stockholders and each class of stockholders, and it is hereby expressly provided that the foregoing specific enumeration shall not be held to limit or restrict in any manner the powers of the Corporation. III. LOCATION: 3.01 The location of the Corporation's principal office in the State of Alabama shall be: 1918 First Avenue North Birmingham, Alabama 35295 IV. CAPITAL STOCK: 4.01 The total number of shares of stock which the Corporation shall have authority to issue is as follows: (a) Five million (5,000,000) shares, par value of $0.01 per share, which are hereby designated as preferred stock (hereinafter called "Preferred Stock"). 7 8 (b) Thirty million (30,000,000) shares, par value of $0.01 per share, which are hereby designated as common stock (hereinafter called "Common Stock"). 4.02 (a) The Preferred Stock may be issued in such one or more series as shall from time to time be created and authorized to be issued by the Board of Directors as hereinafter provided. The Board of Directors is hereby expressly authorized, by resolution or resolutions from time to time adopted providing for the issuance of Preferred Stock, to fix and determine, to the extent not fixed by the provisions hereinafter set forth, the relative rights and preferences of the shares of each series of Preferred Stock, including (but without limiting the generality of the foregoing) any of the following with respect to which the Board of Directors may make specific provisions: (i) the distinctive name and any serial designations; (ii) the annual dividend rate or rates and the dividend payment dates; (iii) with respect to the declaration and payment of dividends upon each series of the Preferred Stock, whether such dividends are to be cumulative or noncumulative, preferred, subordinate or equal to dividends declared and paid upon other series of the Preferred Stock or upon any other shares of stock of the Corporation, and the participating or other special rights, if any, of such dividends; (iv) the redemption provisions, if any, with respect to any series, and if any series is subject to redemption, the manner and time of redemption and the redemption price or prices; 8 9 (v) the amount or amounts of preferential or other payment to which any series of Preferred Stock is entitled over any other series of Preferred Stock or over the Common Stock on voluntary or involuntary liquidation, dissolution or winding-up, subject to the provisions set forth in paragraph (c)(ii) of Section 4.02 hereof; (vi) any sinking fund or other retirement provisions and the extent to which the charges therefor are to have priority over the payment of dividends on or the making of sinking fund or other like retirement provisions for shares of any other series of Preferred Stock or for shares of the Common Stock; (vii) any conversion, exchange, purchase or other privileges to acquire shares of any other series of Preferred Stock or of the Common Stock; (viii) the number of shares of such series; and (ix) the voting rights, if any, of such series, subject to the provisions set forth in paragraph (c)(I) of Section 4.02 hereof. Each share of each series of Preferred Stock shall have the same relative rights and be identical in all respects with all the other shares of the same series. Before the Corporation shall issue any shares of Preferred Stock of any series authorized as hereinbefore provided, a statement setting forth a copy of the resolution or resolutions with respect to such series adopted by the Board of Directors of the Corporation pursuant to the foregoing authority vested in said Board shall be made, filed and recorded in accordance with the then 9 10 applicable requirements, if any, of the laws of the State of Alabama, or, if no statement is then so required, a certificate shall be signed and acknowledged on behalf of the Corporation by its Chairman of the Board, President or a Vice-President and its corporate seal shall be affixed thereto and attested by its Secretary or an Assistant Secretary and such certificate shall be filed and kept on file at the principal office of the Corporatio in the State of Alabama and in such other place or places as the Board of Directors shall designate. (b) The authority of the Board of Directors to provide for the issuance of any shares of the Corporation's stock shall include, but shall not be limited to, authority to issue shares of stock of the Corporation for any purpose and in any manner (including issuance pursuant to rights, warrants, or other options) permitted by law, for delivery as all or part of the consideration for or in connection with the acquisition of all or part of the stock of another corporation or of all or part of the assets of another corporation or enterprise, irrespective of the amount by which the issuance of such stock shall increase the number of shares outstanding (but not in excess of the number of shares authorized). (C) The following relative rights and preferences of the stock of the Corporation are fixed as follows: (I) Voting Rights. (A) Common Stock. At all elections of directors of the Corporation, and in respect of all other matters as to which the vote or consent of stockholders of the Corporation shall be required to be taken, the holders of the Common Stock shall be entitled to one (1) vote for each share held by them. (B) Preferred Stock. The holders of each series of the Preferred Stock shall have such voting rights as may be fixed by resolution or by resolutions of the Board of Directors providing for the issuance of each such series. 10 11 (ii) Liquidation, Dissolution, etc. In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, the assets of the Corporation available for distribution to the stockholders (whether from capital or surplus) shall be distributed among those of the respective series of the outstanding Preferred Stock, if any, as may be entitled to any preferential amounts and among the respective holders thereof in accordance with the relative rights and preferences, if any, fixed and determined for each such series and the holders thereof by resolution or resolutions of the Board of Directors providing for the issue of each such series of the Preferred Stock; and after payment in full of the amounts payable in respect of the Preferred Stock, if any, the holders of any series of the outstanding Preferred Stock who are not entitled to preferential treatment pursuant to resolutions of the Board of Directors providing for the issue thereof and the holders of the outstanding Common Stock shall be entitled (to the exclusion of the holders of any series of the outstanding Preferred Stock entitled to preferential treatment pursuant to resolutions of the Board of Directors providing for the issue thereof) to share ratably in all the remaining assets of the Corporation available for distribution to its stockholders. A merger, consolidation or reorganization of the Corporation with or into one or more corporations, or a sale, lease or other transfer of all or substantially all the assets of the Corporation, that does not result in the termination of the enterprise and distribution of the assets to stockholders, shall not be deemed to constitute a liquidation, dissolution or winding-up of the Corporation within the meaning of this paragraph (c)(ii) of Section 4.02 hereof, notwithstanding the fact that the Corporation may cease to exist or may surrender its Certificate of Incorporation. (iii) Dividends. Dividends on any stock of the Corporation shall be payable only out of earnings or assets of the Corporation legally available for the payment of such dividends and only as and when declared by the Board of Directors. (d) No holder of any share or shares of any class of stock of the Corporation shall have any preemptive rights to subscribe for any shares of stock of any class of the Corporation now or hereafter authorized or for any securities convertible into or carrying any optional rights to purchase or subscribe for any shares of stock of any class of the Corporation now or hereafter authorized, provided, however, that no provision of the Certificate of Incorporation shall be deemed to deny to the Board of Directors the right, in its discretion, to grant to the holders of shares of any class of stock at the time outstanding the right to purchase or 11 12 subscribe for shares of stock of any class or any other securities of the Corporation now or hereafter authorized at such prices and upon such other terms and conditions as the Board of Directors, in its discretion, may fix. 4.03 The amount of the capital stock with which the Corporation shall begin business shall be 1,000 shares of Common Stock. V. OFFICER TO RECEIVE SUBSCRIPTION: 5.01 The name and post office address of the officer designated by the incorporators to receive subscriptions to the capital of the Corporation are: Name: A. S. Lacy Post Office Address: 1918 First Avenue North Birmingham Alabama 35295 12 13 VI. INCORPORATORS AND SHARES: The names and post office addresses of the incorporators and the number of shares of Common Stock subscribed for by each are as follows:
NUMBER OF SHARES OF COMMON STOCK NAME POST OFFICE ADDRESS SUBSCRIBED FOR Howard Higgins 1918 First Avenue North 334 Birmingham, Alabama 35295 Rex J. Lysinger 1918 First Avenue North 333 Birmingham, Alabama 35295 A. S. Lacy 1918 First Avenue North 333 Birmingham, Alabama 35295 ----- Total 1,000
VII. DIRECTORS AND OFFICERS: 7.01 The number of directors constituting the initial board of directors of the Corporation shall be nine. Subject to Section 10.01 of Article X hereof, the number of directors of the Corporation shall be as provided in and fixed by the Bylaws of the Corporation. The names and post office addresses of the directors and the officers chosen for the first year are: 13 14 DIRECTORS
NAME POST OFFICE ADDRESS Emory O. Cunningham Post Office Box 2581 Birmingham, Alabama 35202 James S. M. French Post Office Box 247 Birmingham, Alabama 35201 Robert F. Henry Post Office Box 2230 Montgomery, Alabama 36103 Howard Higgins 1918 First Avenue North Birmingham, Alabama 35295 Norman R. Kerredge 1918 First Avenue North Birmingham, Alabama 35295 Rex J. Lysinger 1918 First Avenue North Birmingham, Alabama 35295 Harry H. Pritchett Post Office Box 2389 Tuscaloosa, Alabama 35401 Richard A. Puryear, Jr. 3700-A Country Club Drive Birmingham, Alabama 35213 Robert S. Weatherly 2865 Stratford Road Birmingham, Alabama 35213 OFFICERS OFFICERS TITLE POST OFFICE ADDRESS Howard Higgins Chairman of the 1918 First Avenue N. Board and CEO Birmingham, AL 35295 Rex J. Lysinger President 1918 First Avenue N. Birmingham, AL 35295 A. S. Lacy Vice President and 1918 First Avenue N. Secretary Birmingham, AL 35295 Richard J. Patzke Vice President and 1918 First Avenue N. Treasurer Birmingham, AL 35295 VIII. TIME LIMIT: 8.01 The duration of the Corporation shall be perpetual.
IX. CERTAIN PROVISIONS RESPECTING BUSINESS COMBINATIONS: 9.01 Definitions. For the purposes of this Article IX: (a) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on June 11, 1984. (b) "Announcement Date" means, with respect to any Business Combination, the date of the first public announcement of such Business Combination. (c) A person shall be a "beneficial owner" of any Voting Stock: (I) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; or (ii) which such person or any of its Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (B) the right to vote or direct the vote pursuant to any agreement, arrangement or understanding; or (iii) which is beneficially owned, directly or indirectly, by any other person with which such person or any of its 14 15 Affiliates or Associates has any agreement, arrangement, or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the Corporation. (d) For the purposes of determining whether a person is an Interested Stockholder pursuant to paragraph (k) of this Section 9.01 hereof, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned by the Interested Stockholder through application of paragraph (C) of Section 9.01 hereof, but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise. (e) "Board" means the Board of Directors of the Corporation. (f) A "Business Combination" shall mean any one or more of the following: (I) any merger or consolidation-dation of the Corporation or any Subsidiary with or into (A) any Interested Stockholder or (B) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate of an Interested Stockholder; or 15 16 (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value of $1,000,000 or more; or (iii) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of $1,000,000 or more; or (iv) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Stockholder or an Affiliate of any Interested Stockholder; or (v) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any similar transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity securities, or securities convertible into equity securities, of the Corporation or any Subsidiary, including, without limitation, any class or series of Protected Stock, which is directly or indirectly owned by any Interested Stockholder or any Affiliate of any Interested Stockholder. 16 17 (g) "Consummation Date" means, with respect to any Business Combination, the date on which such Business Combination is effected. (h) "Determination Date" means, with respect to any Interested Stockholder, the date on which such Interested Stockholder first became an Interested Stockholder. (I) "Disinterested Director" means any member of the Board who is unaffiliated with, and not a nominee of, the Interested Stockholder and was a member of the Board prior to the time that the Interested Stockholder became an Interested Stockholder, and any successor of a Disinterested Director who is a member of the Board and who is unaffiliated with, and not a nominee of, the Interested Stockholder and was recommended to succeed a Disinterested Director by a majority of Disinterested Directors on the Board at the time of such recommendation. (j) "Fair Market Value" means (I) in the case of stock, the highest closing sale price during the thirty-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange, Inc. Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, Inc., or, if such stock is not listed on the New York Stock Exchange, Inc., on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the thirty-day period preceding the date in question as reported by the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a majority of the Disinterested Directors in good 17 18 faith; and (ii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by a majority of the Disinterested Directors in good faith. (k) "Interested Stockholder" shall mean, in respect of any Business Combination, any person (other than the Corporation) who or which, as of the date of the first public announcement of such Business Combination, or on the day immediately prior to the consummation of any such Business Combination: (I) is the beneficial owner, directly or indirectly, of ten percent (10%) or more of the voting power of the outstanding Voting Stock; or (ii) is an Affiliate of the Corporation and at any time within two years prior there to was the beneficial owner, directly or indirectly, of ten percent (10%) or more of the voting power of the then outstanding Voting Stock; or (iii) is an assignee of or has otherwise succeeded to any shares of Voting Stock of the Corporation which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (l) A "person" shall mean any individual, firm, corporation or other entity. (m) "Protected Stock" means all Voting Stock and all other shares of capital stock of the Corporation having, or which may have upon the 18 19 happening of some contingency, the right to vote for the election of some or all of the directors of the Corporation, regardless of whether at the time in question such shares then have a present right to so vote. (n) "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation. (o) "Voting Stock" means, at any time, all shares of capital stock of the Corporation entitled to vote generally in the election of directors, which shares shall be considered for the purpose of the vote required by this Article IX as one class. (p) In the event of any Business Combination in which the Corporation survives, the phrase "other consideration to be received" as used in clauses (I) and (ii) of paragraph (b) of 9.03 of this Article IX shall include the shares of Common Stock and/or the shares of any other class of outstanding Protected Stock retained by the holders of such shares. 9.02 Higher Vote for Certain Business Combinations. In addition to any affirmative vote required by law or this Certificate of Incorporation, and except as otherwise expressly provided in 9.03 of this Article IX, any Business Combination shall require the affirmative vote of the holders of at least eighty percent (80%) of the then outstanding shares of Voting Stock. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that some lesser percentage may be specified, by law or under the rules of, or in any agreement with, any United States securities exchange registered under the Securities Exchange Act of 1934, or any successor act thereto, on which any of the Voting Stock is listed, or otherwise. 9.03 When Higher Vote Is Not Required. The provisions of 9.02 of this Article IX shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote, if any, as is required by law and any other Article of this Certificate of Incorporation, if all of the 19 20 conditions specified in either of the following paragraphs (a) and (b) are met: (a) Approval by the Disinterested Directors. The Business Combination shall have been approved by a majority of the Disinterested Directors. (b) Price and Procedure Requirements. All of the following conditions shall have been met: (I) Common Stock. The aggregate amount of the cash and the Fair Market Value as of the Consummation Date of consideration other than cash to be received by holders of the Common Stock of the Corporation in such Business Combination, computed on a per share basis, shall be at least equal to the higher of the following: (A) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder for any shares of Common Stock acquired by the Interested Stockholder (I) within the two-year period immediately prior to the Announcement Date or (II) in the transaction or transactions by which the Interested Stockholder became an Interested Stockholder, whichever is higher; or (B) the Fair Market Value per share of the Common Stock on the Announcement Date or the Determination Date, whichever is higher. (ii)Protected Stock. The aggregate amount of cash and the Fair Market Value as of the Consummation Date of consideration other than cash to be received per share by holders of shares of any other class of outstanding Protected Stock regardless of whether the Interested Stockholder has previously acquired 20 21 any shares of a particular class of such Protected Stock shall be at least equal to the highest of the following: (A) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder for any shares of such class of Protected Stock acquired by the Interested Stockholder (I) within the two- year period immediately prior to the Announcement Date or (II) in the transaction or transactions by which the Interested Stockholder became an Interested Stockholder, whichever is higher; (B) the highest preferential amount per share to which the holders of shares of such class of Protected Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; or (C) the Fair Market Value per share of such class of Protected Stock on the Announcement Date or the Determination Date, whichever is higher. 21 22 (iii) Form of Consideration. The consideration to be received by holders of a particular class or series of outstanding Protected Stock (including Common Stock) shall be in cash or in the same form as the Interested Stockholder has paid for shares of such class of Protected Stock prior to the Consummation Date. If the Interested Stockholder has paid for shares of any class of Protected Stock with varying forms of consideration, the form of consideration for such class of Protected Stock shall be either cash or the form used to acquire the largest number of shares of such class of Protected Stock previously acquired by it. (iv) Maintain Dividends. After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (A) except as approved by a majority of the Disinterested Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding Preferred Stock of the Corporation; and (B) there shall have been (I) no reduction in the annual rate of dividends paid on the Common Stock except as necessary to reflect any subdivision of the Common Stock, except as approved by a majority of the Disinterested Directors, and (II) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock unless the failure so to increase such annual rate is approved by a majority of the Disinterested Directors. (v) Acquisition of Additional Shares. After such Interested Stockholder has become 22 23 an Interested Stockholder and prior to the consummation of such Business Combination, such Interested Stockholder shall not have become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Stockholder becoming an Interested Stockholder. (vi) No Disproportionate Benefits. After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise. (vii) Furnish Information. A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to all stockholders of this Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or any such subsequent provisions). 23 24 9.04 Powers of Board of Directors. A majority of the Disinterested Directors of the Corporation shall have the power and duty to determine for the purposes of this Article IX on the basis of the information known to them after reasonable inquiry, (1) the number of shares of Voting Stock beneficially owned by any person, (2) whether a person is an Interested Stockholder or is an Affiliate or Associate of another person, (3) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in paragraph (C) of Section 9.01 of this Article IX, (4) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $1,000,000 or more, or (5) whether the requirements of paragraph (a) or (b) of Section 9.03 of this Article IX have been met with respect to any Business Combination. 9.05 No Effect on Fiduciary Obligations of Interested Stockholders. Nothing contained in this Article IX shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. 9.06 Amendment, Repeal, Etc. Notwithstanding any other provisions of this Certificate of Incorporation or the Bylaws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Certificate of Incorporation or the Bylaws of the Corporation), the affirmative vote of the holders of at least eighty percent (80%) of the shares of the then outstanding Voting Stock shall be required to amend or repeal, or adopt any provisions inconsistent with, this Article IX of this Certificate of Incorporation. X. BOARD OF DIRECTORS: 10.01 (a)Number, election and terms. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed under the direction of, a Board of Directors which, except as otherwise fixed by or pursuant to the provisions of Article IV hereof relating to the rights of the holders of any class or series of Preferred Stock to elect additional directors under specified circumstances, shall 24 25 consist of not less than nine (9) nor more than fifteen (15) persons. The exact number of directors within the minimum and maximum limitations specified in the preceding sentence shall be fixed from time to time by the Board of Directors pursuant to a resolution adopted by a majority of the entire Board of Directors. At the annual meeting of stockholders of the Corporation held in 1985, the directors, other than those who may be elected by the holders of any class or series of Preferred Stock, shall be divided into three classes, as nearly equal in number as possible, with the term of office of the first class of directors to expire at the annual meeting of stockholders of the Corporation to be held in 1986, the term of office of the second class of directors to expire at the annual meeting of stockholders of the Corporation to be held in 1987 and the term of office of the third class of directors to expire at the annual meeting of stockholders of the Corporation to be held in 1988. At each annual meeting of stockholders of the Corporation following such initial classification and election, and except as otherwise so fixed by or pursuant to the provisions of Article IV hereof relating to the rights of the holders of any or series of Preferred Stock to elect additional directors under specified circumstances, directors elected to succeed those directors whose terms expire at such annual meeting shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders of the Corporation after their election. (b) Vacancies and Newly Created Directorships. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors. A director elected to fill a vacancy shall be elected to serve until the next annual meeting of stockholders. Any directorship to be filled by reason of an increase in the number of directors shall be filled by election at an annual meeting or at a special meeting of stockholders called for that purpose, unless applicable law then permits such directorship to be filled by the affirmative vote of a majority of the remaining directors (even though less than a quorum of the Board of Directors). No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. 25 26 (c) Continuance in Office. Notwithstanding the foregoing provisions of Section 10.01 hereof, any director whose term of office has expired shall continue to hold office until his successor shall be elected and qualify. (d) Removal. Subject to the rights of the holders of any class or series of Preferred Stock then outstanding, any director, or the entire Board of Directors, may be removed from office at any time, with or without cause, but only by the affirmative vote of the holders of at least eighty percent (80%) of the voting power of all of the shares of the Corporation then entitled to vote for the election of directors. (e) Amendment, repeal, etc. Notwithstanding any other provisions of this Certificate of Incorporation or the Bylaws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Certificate of Incorporation or the Bylaws of the Corporation), the affirmative vote of the holders of at least eighty percent (80%) of the voting power of all of the shares of the Corporation then entitled to vote for the election of directors shall be required to amend or repeal, or to adopt any provision inconsistent with, Section 10.01 hereof. 10.02 In furtherance, not in limitation, of the powers conferred upon the Board of Directors by statute, the Board of Directors is expressly authorized, without any vote or other action by stockholders other than such as at the time shall be expressly required by statute applicable to such action, to exercise in a manner not inconsistent with any of the provisions of the Certificate of Incorporation all of the powers, rights and privileges of the Corporation (whether expressed or implied in this Certificate of Incorporation or conferred by statute) and do all acts and things which may be done by the Corporation, and particularly, among other things: 26 27 (a) Subject to Section 9.06 of Article IX and paragraph (e) of Section 10.01 hereof, to make, alter and repeal Bylaws of the Corporation, subject to the power of the stockholders to alter or repeal Bylaws made by the Board of Directors, which action by the directors shall fully protect third parties in dealing with the Corporation; provided, however, that the Board of Directors may not alter, amend or repeal any Bylaw establishing what constitutes a quorum at any meeting of the stockholders of the Corporation; (b) To determine, subject to the provisions of Article IX hereof, whether any, and if any, what part, of the net income of the Corporation or of its net assets in excess of its capital shall be declared in dividends and paid to the stockholders and whether or not in cash or capital stock of the Corporation or in other property, and generally to determine and direct the use and disposition of any such net income or any such excess of net assets over capital; and to fix the times for the declaration and payment of dividends; (C) From time to time, to fix the amount to be reserved over and above the capital stock of the Corporation paid in and to determine and direct how amount so reserved shall be used; (d) To determine from time to time at what times and places and under what conditions and regulations the accounts and books of the Corporation, or any of them, shall be open to the inspection of stockholders; and no stockholders shall have any right to inspect any account or book or document of the Corporation except as conferred by the laws of the State of Alabama or authorized by resolution of the Board of Directors or of the stockholders; (e) From time to time, and without other limit as to amount, except as may be provided in a resolution or resolutions adopted by the stockholders of the Corporation, to borrow or otherwise raise moneys for any of the purposes of the Corporation; to authorize the issue of bonds, debentures, notes, or other obligations of the Corporation, of any nature, or in any manner, and to authorize the creation of mortgages upon, or the pledge or conveyance or assignment in trust of, the whole or any part of the property of the Corporation, real or personal, whether at the time owned or thereafter acquired, including contract rights, to secure the payment of any of such bonds, debentures, notes or other obligations and the interest thereon; and to authorize the sale or pledge or other disposition of such bonds, debentures, notes or other obligations of the Corporation for its corporate purposes; (f) To provide, subject to the requirements of law and the bylaws of the Corporation, for the holding of stockholders and Directors meetings within or without the State of Alabama at such places as may be from time to time designated by resolution of the Board of Directors and to provide for an office or offices and for the keeping of the books of the Corporation (subject to the provisions of the statute) within or without the State of Alabama; (g) By resolution adopted by majority vote of all the Directors of the Corporation as at the time fixed by its bylaws, to designate three or more of their number to constitute an executive committee, which, to the extent provided in such resolution or in the bylaws of the Corporation, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may have power to authorize the seal of the Corporation to be affixed to all papers which may require it, and by like resolution, from time to time, to constitute other committees out of their number, with such powers as shall be provided in such resolutions or in the bylaws of the Corporation; (h) Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the Board or such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee; (I) To exercise such further powers as may be conferred by the bylaws of the Corporation in addition to the powers and authority expressly conferred in the foregoing or by law. 27 28 XI. LIMITATION OF LIABILITY: 11.01 A director of the Corporation shall not be liable to the Corporation or its shareholders for money damages for any action taken, or failure to take action, as a director, except for (I) the amount of a financial benefit received by such director to which such director is not entitled; (ii) an intentional infliction of harm by such director on the Corporation or its shareholders; (iii) a violation of Section 10-2B-8.33 of the Code of Alabama of 1975 or any successor provision to such section; (iv) an intentional violation by such director of criminal law; or (v) a breach of such director's duty of loyalty to the Corporation or its shareholders. If the Alabama Business Corporation Act, or any successor statute thereto, is hereafter amended to authorize the further elimination or limitation of the liability of a director of a corporation, then the liability of a director of the Corporation, in addition to the limitations on liability provided herein, shall be limited to the fullest extent permitted by the Alabama Business Corporation Act, as amended, or any successor statute thereto. The limitation on liability of directors of the Corporation contained herein shall apply to liabilities arising out of acts or omissions occurring subsequent to the adoption of this Article XI and, except to the extent prohibited by law, to liabilities arising out of acts or omissions occurring prior to the adoption of this Article XI. Any repeal or modification of this Article XI by the shareholders of the Corporation shall be prospective only and shall not adversely affect any limitation on the liability of a director of the Corporation existing at the time of such repeal or modification. XII. GENERAL PROVISIONS 12.01 Capital surplus, paid-in surplus and premiums on stock of the Corporation now existing or hereafter created shall not be available for the payment of dividends other than liquidating dividends. 12.02 All persons who shall acquire stock in the Corporation shall acquire it subject to the provisions of this Certificate of Incorporation. 28 29 12.03 So far as not otherwise expressly provided by the laws of the State of Alabama, the Corporation shall be entitled to treat the person in whose name any share is registered as the owner thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in said share on the part of any other person, whether or not the Corporation shall have notice thereof. 12.04 Attached hereto, marked Exhibit "A" and made a part hereof, is a statement, under oath, made by A. S. Lacy, the officer or agent authorized by the incorporators to receive subscriptions to the capital stock of the Corporation subscribed for and the amount thereof which has been paid in. There is also attached hereto, marked Exhibit "B" and made a part hereof, a true and correct copy of the subscription list of the Corporation showing the amount of capital stock subscribed for by the incorporators and the manner in which such subscriptions are provided to be discharged. The board of directors of the Corporation adopted a resolution with respect to the restatement of the certificate of incorporation of the corporation on July 19, 1984. The foregoing restated certificate of incorporation of the Corporation sets forth all of the operative provisions of the Certificate of Incorporation of the Corporation, correctly sets forth without change the corresponding provisions of the Certificate of Incorporation of the Corporation as heretofore amended and supersedes the original Certificate of Incorporation of the Corporation and all amendments thereto. Dated this 20th day of July, 1984. ENERGEN CORPORATION By /s/ Rex J. Lysinger ------------------------------- Its Chairman of the Board of Directors and President and /s/ A. S. Lacy ------------------------------- Its Secretary 29 30 STATE OF ALABAMA ) ) COUNTY OF JEFFERSON ) Before me, the undersigned authority in and for said County in said State, personally appeared Rex J. Lysinger known to me, who being first duly sworn doth depose and say that he is the Chairman of the Board of Directors and President of Energen Corporation, that he signed the foregoing Restated Certification of Incorporation of said corporation as Chairman of the Board of Directors and President of said corporation and with full authority and that the statements made in the foregoing Restated Certification of Incorporation of said corporation are true and correct. /s/ Rex J. Lysinger ----------------------------- Rex J. Lysinger Subscribed and sworn before me on this 20th day of July, 1984, in witness whereof I hereunto subscribe my name and attach the seal in my office. Margaret G. Priola ------------------------------ Notary Public [NOTARIAL SEAL] My Commission Expires: 4/20/85 30 31 EXHIBIT "A" STATE OF ALABAMA ) ) COUNTY OF JEFFERSON ) Before me, Evelyn E. Pulley, a Notary Public in and for said county in said state, personally appeared A. S. Lacy, who is known to me, and who, being by me first duly sworn according to law, deposed and said that he is the officer or agent designated and authorized by the incorporators of Energen Corporation, an corporation proposed to be incorporated under the laws of the State of Alabama, to receive the subscription to the capital stock of said corporation; that the amount of capital stock of said corporation that has been paid in cash is One Thousand Dollars ($1,000.00) which amount is at least twenty percent (20%) of the stock subscribed; that a true copy of the subscription list of capital stock of said corporation and the price paid in cash therefor by each subscriber is attached hereto, marked Exhibit "B" and made a part hereof; and that affiant now holds said cash for delivery to said corporation, upon completion of the organization thereof. /s/ A. S. LACY ---------------------------- A. S. Lacy Subscribed and sworn to before me this 26th day of October, 1978. /s/ Evelyn E. Pulley - -------------------------------------- Notary Public in and for the County of Jefferson, Alabama My Commission expires: March 16, 1980 31 32 EXHIBIT "B" SUBSCRIPTION LIST OF THE CAPITAL STOCK OF ENERGEN CORPORATION We, the undersigned, do hereby respectively subscribe for and agree to take and pay in cash for the number of shares of common stock of the par value of One Dollar ($1.00) per share of Energen Corporation, a corporation proposed to be organized under the laws of the State of Alabama, that is set opposite our respective signatures. IN WITNESS WHEREOF, each of the undersigned subscribers has signed his name hereto, all opposite the number of shares subscribed for by each of the undersigned, this 19th day of October, 1978.
NUMBER AMOUNT OF PAID SHARES IN CASH /s/ Howard Higgins 334 $334.00 - ---------------------------- Howard Higgins /s/ Rex J. Lysinger 333 $333.00 - ---------------------------- Rex J. Lysinger /s/ A. S. Lacy 333 $333.00 - ---------------------------- A. S. Lacy
32 EX-3.I 4 ARTICLES OF AMENDMENT AND RESTATEMENT 1 EXHIBIT 3(i) ARTICLES OF AMENDMENT AND RESTATEMENT OF THE ARTICLES OF INCORPORATION OF ALABAMA GAS CORPORATION STATE OF ALABAMA ) : COUNTY OF JEFFERSON ) TO THE HONORABLE SECRETARY OF STATE OF ALABAMA: Pursuant to the provisions of Article 10 of Chapter 2B of Title 10 of the Code of Alabama of 1975 (# 10-2B- 10.01, et seq.), the undersigned corporation executes the following Articles of Amendment and Restatement of the Articles of Incorporation: FIRST: The name of the corporation is Alabama Gas Corporation. SECOND: The articles of incorporation of the corporation shall be amended and restated in their entirety to read as follows: 1. The name of the corporation is Alabama Gas Corporation. 2. The aggregate number of shares of all classes of stock which the corporation is authorized to issue is 3,120,000 shares, of which 120,000 shares, par value of $0.01 per share, are to be preferred stock (hereinafter called "Preferred Stock"), and 3,000,000 shares, par value of $0.01 per share, are to be common stock (hereinafter called "Common Stock"). A. The Preferred Stock may be issued in such one or more series as shall from time to time be created and authorized to be issued by the board of directors as hereinafter provided. The board of directors is hereby expressly authorized, in accordance with the requirements of, and to the fullest extent permitted by, the Alabama Business Corporation Act, as amended, or any successor statute thereto, to fix and determine, to the extent not fixed by the provisions hereinafter set forth, the preferences, limitations and relative rights of the shares of each series of Preferred Stock before the issuance of any shares of that series. Each share of each series of Preferred Stock shall have the same preferences, limitations and relative rights and be identical in all respects with all the other shares of the same series. Before the corporation shall issue any shares of Preferred Stock of any series authorized as hereinbefore provided, articles of amendment of the articles of incorporation of the corporation with respect to such amendment shall be filed and recorded in accordance with the then applicable requirements, if any, of the laws of the State of Alabama, or, if no articles of amendment are then so required, a certificate shall be signed and acknowledged on behalf of the corporation by its chairman of the board, president or a vice president and its corporate seal shall be affixed thereto and attested by its secretary or an assistant secretary and such certificate 1 2 shall be filed and kept on file at the principal office of the corporation in the State of Alabama and in such other place or places as the board of directors shall designate. B. The authority of the board of directors to provide for the issuance of any shares of the corporation's stock shall include, but shall not be limited to, authority to issue shares of stock of the corporation for any purpose and in any manner (including issuance pursuant to rights, warrants, or other options) permitted by law, for delivery as all or part of the consideration for or in connection with the acquisition of all or part of the stock of another corporation or of all or part of the assets of another corporation or enterprise, irrespective of the amount by which the issuance of such stock shall increase the number of shares outstanding (but not in excess of the number of shares authorized). C. The following relative rights and preferences of the stock of the corporation are fixed as follows: (1) Voting Rights. (a) Common Stock. At all elections of directors of the corporation and in respect of all other matters as to which the vote or consent of shareholders of the corporation shall be required to be taken, the holders of the Common Stock shall be entitled to one (1) vote for each share held by them. (b) Preferred Stock. The holders of each series of the Preferred Stock shall have such voting rights as may be fixed by resolution or by resolutions of the board of directors providing for the issuance of such series. (2) Liquidation, Dissolution, etc. In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the corporation, the assets of the corporation available for distribution to the shareholders (whether from capital or surplus) shall be distributed among those of the respective series of the outstanding Preferred Stock, if any, as may be entitled to any preferential amounts and among the respective holders thereof in accordance with the relative rights and preferences, if any, fixed and determined for each such series and the holders thereof by the amendment to the articles of incorporation of the corporation providing for the issue of each such series of the Preferred Stock; and after payment in full of the amounts payable in respect of the Preferred Stock, if any, the holders of any series of the outstanding Preferred Stock who are not entitled to preferential treatment pursuant to resolutions of the board of directors providing for the issue thereof and the holders of the outstanding Common Stock shall be entitled (to the exclusion of the holders of any series of the outstanding Preferred Stock entitled to preferential treatment pursuant to resolutions of the board of directors providing for the issue thereof) to share ratably in all the remaining assets of the corporation available for distribution to its shareholders. A merger, consolidation or reorganization of the corporation with or into one or more corporations, or a sale, lease or other transfer of all or substantially all the assets of the corporation, that does not result in the termination of the enterprise and distribution of the assets to shareholders, shall not be deemed to constitute a liquidation, dissolution or winding-up of the corporation within the meaning of this paragraph C(2) of this Article 2, notwithstanding the fact that the corporation may cease to exist and may surrender its corporate charter. 2 3 (3) Dividends. Dividends on any stock of the corporation shall be payable only to the extent distributions are permitted to be made by the corporation to its shareholders pursuant to the Alabama Business Corporation Act, as amended, or any successor statute thereto, and only as and when declared by the board of directors. D. No holder of any share or shares of any class of stock of the corporation shall have any preemptive right to subscribe for any shares of stock of any class of the corporation now or hereafter authorized or for any securities convertible into or carrying any optional rights to purchase or subscribe for any shares of stock of any class of the corporation now or hereafter authorized, provided, however, that no provision of the articles of incorporation shall be deemed to deny to the board of directors the right, in its discretion, to grant to the holders of shares of any class of stock at the time outstanding the right to purchase or subscribe for shares of stock of any class or any other securities of the corporation now or hereafter authorized at such prices and upon such other terms and conditions as the board of directors, in its discretion, may fix. 3. The street address of the registered office of the corporation is 2101 Sixth Avenue North, Birmingham, Alabama 35203, and the name of the corporation's registered agent at such address is Dudley C. Reynolds. 4. The purpose or purposes for which the corporation is organized are the transaction of any or all lawful business for which corporations may be incorporated under the Alabama Business Corporation Act, including, without limitation, the following: (i) The construction, acquisition, maintenance and operation of natural gas transmission, distribution, storage and related facilities; (ii) Engaging in the business of natural gas distribution as a regulated public utility and in non-regulated capacities; (iii) The acquisition, leasing, sale and financing of appliances, equipment and other merchandise and services at wholesale and retail; and (iv) The acquisition, development, leasing, sale and financing of any and all kinds of property, real, personal and intangible. The corporation shall have and may exercise any and all powers which a corporation incorporated under the Alabama Business Corporation Act, as amended, or any successor statute thereto, may have and exercise. 5. The number of directors of the corporation shall consist of not less than one nor more than twenty persons, the exact number of persons within such minimum and maximum limitations being fixed from time to time by the board of directors of the corporation pursuant to resolutions adopted by a majority of the persons constituting the board of directors at the time such resolutions are adopted. The board of directors shall have the power to fill all vacancies occurring on the board of directors, including, without limitation, any vacancies resulting from an increase in 3 4 the number of directors within the minimum and maximum limitations on the number of directors of the corporation set forth in this Article 5. 6. A director of the corporation shall not be liable to the corporation or its shareholders for money damages for any action taken, or failure to take action, as a director, except for (i) the amount of a financial benefit received by such director to which such director is not entitled; (ii) an intentional infliction of harm by such director on the corporation or its shareholders; (iii) a violation of Section 10-2B-8.33 of the Code of Alabama of 1975 or any successor provision to such section; (iv) an intentional violation by such director of criminal law; or (v) a breach of such director's duty of loyalty to the corporation or its shareholders. If the Alabama Business Corporation Act, or any successor statute thereto, is hereafter amended to authorize the further elimination or limitation of the liability of a director of a corporation, then the liability of a director of the corporation, in addition to the limitations on liability provided herein, shall be limited to the fullest extent permitted by the Alabama Business Corporation Act, as amended, or any successor statute thereto. The limitation on liability of directors of the corporation contained herein shall apply to liabilities arising out of acts or omissions occurring subsequent to the adoption of this Article 6 and, except to the extent prohibited by law, to liabilities arising out of acts or omissions occurring prior to the adoption of this Article 6. Any repeal or modification of this Article 6 by the shareholders of the corporation shall be prospective only and shall not adversely affect any limitation on the liability of a director of the corporation existing at the time of such repeal or modification. THIRD: The foregoing amended and restated articles of incorporation were adopted by the shareholders of the corporation, by execution of an action by unanimous written consent of shareholders in lieu of a meeting dated September 27, 1995, in the manner prescribed by the Alabama Business Corporation Act. FOURTH: The common stock of the said corporation, par value $.01 per share, was the only voting group entitled to vote on the amendment. There were 1,972,052 shares of such common stock outstanding, and the holders of such shares were entitled to cast one vote per share, or an aggregate of 1,972,052 votes. The shareholders executing the action by unanimous written consent of shareholders in lieu of a meeting were indisputably entitled to cast 1,972,052 votes with respect to the said amendment. FIFTH: The total number of undisputed votes cast for the amendment by the holders of the common stock of the said corporation, by the execution of an action by unanimous written consent of the shareholders in lieu of a meeting, was 1,972,052 and the number of votes cast for the amendment was sufficient for approval of the amendment by the holders of the common stock of the said corporation. 4 5 Dated this 27th day of September, 1995. ALABAMA GAS CORPORATION By /s/ Rex J. Lysinger --------------------------- Rex J. Lysinger Its Chairman of the Board of Directors This instrument prepared by: John K. Molen, Esq. Bradley, Arant, Rose & White 2001 Park Place, Suite 1400 Birmingham, Alabama 35203 5 EX-13 5 REFERENCE INFORMATION FROM 1995 ANNUAL REPORT 1 EXHIBIT 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS CONSOLIDATED NET INCOME Energen Corporation's net income totaled $19.3 million, or $1.77 per share, for the fiscal year ended September 30, 1995. This compares with last year's record earnings of $23.8 million, or $2.19 per share, which includes a one-time gain of $2 million, or 18 cents per share, for the sale of propane assets and a reduction in investment in high temperature combustion technology. For 1993, Energen reported earnings of $18.1 million, or $1.77 per share. 1995 vs 1994: Alabama Gas Corporation (Alagasco), Energen's natural gas utility, achieved record earnings for the fifth consecutive year. In addition to normal annual equity growth which approximated 4 percent in 1995, Alagasco's net income of $15.7 million increased 5.4 percent over the prior year primarily due to the utility earning for a full year on a higher level of equity generated by a $21 million investment in underground storage working gas made in 1994 for which the utility received a $10 million equity infusion from Energen. Partially offsetting this increase was a one-time after-tax charge to earnings of $503,000 resulting from a voluntary early retirement program. Energen's oil and gas exploration and production company, Taurus Exploration Inc. (Taurus), earned net income of $3.5 million in 1995, a decrease of 46 percent from the prior year. As expected, the major factor negatively affecting Taurus's earnings was comparatively lower natural gas commodity prices. Depressed prices affected Taurus's gas production revenues as well as income from price-sensitive coalbed methane operating fees. Taurus's 1995 earnings also were negatively impacted by increased operating expense and depreciation, depletion, and amortization (DD&A) expense. 1994 vs 1993: Alagasco's 1994 earnings of $14.9 million compared with $13 million in fiscal 1993. The utility's investment in underground storage working gas in early fiscal 1994 increased the equity upon which Alagasco was able to earn its allowed return. Taurus's 1994 income of $6.5 million compared with fiscal 1993 earnings of $5.1 million. The 27 percent increase largely was associated with increased conventional gas activities as production more than doubled to 5.5 Bcf. Taurus also benefitted from increased coalbed methane operating fees. 25 2 OPERATING INCOME Consolidated operating income in 1995, 1994, and 1993 totaled $32.4 million, $35.9 million, and $30.3 million, respectively. Lower natural gas commodity prices and increased operating expense at Taurus significantly affected operating income in 1995. The increase in operating income in 1994 primarily was associated with the utility's investment in underground working storage gas which was financed, in part, through the issuance of equity upon which the utility was able to earn its allowed return. ALAGASCO: Alagasco generates revenues through the sale and transportation of natural gas. Shifts between transportation and sales gas can cause large variations in natural gas revenues since the transportation rate does not contain an amount representing the cost of gas. Alagasco's rate structure allows similar margins on transported and sales gas; therefore, operating income is not adversely affected. Weather also can cause variations in revenues, but operating margins remain unaffected due to a real-time temperature adjustment which lets Alagasco adjust customer bills monthly to reflect changes in usage due to departures from normal weather. Alagasco's gross natural gas sales revenues totaled $265.5 million, $315.3 million, and $303.2 million in 1995, 1994 and 1993, respectively. A lower commodity cost of gas contributed significantly to the 1995 decrease; the decreased cost was passed to customers through reduced rates. Additionally, weather was significantly warmer than normal, resulting in a 12 percent decrease in sales volumes
- -------------------------------------------------------------------------------------- YEARS ENDED SEPTEMBER 30, (DOLLARS IN THOUSANDS) 1995 1994 1993 - -------------------------------------------------------------------------------------- Gross natural gas sales revenues $ 265,477 $ 315,317 $ 303,178 Cost of natural gas (133,556) (188,592) (187,800) Revenue taxes (16,051) (20,018) (18,540) - -------------------------------------------------------------------------------------- Net natural gas sales margin 115,870 106,707 96,838 Net natural gas transportation margin 30,490 29,320 27,382 - -------------------------------------------------------------------------------------- Net natural gas sales and transportation margin $ 146,360 $ 136,027 $ 124,220 ====================================================================================== Natural gas sales volumes (MMcf) Residential 27,489 31,254 30,957 Commercial and industrial small 12,288 13,536 13,853 Commercial and industrial large 29 106 282 - -------------------------------------------------------------------------------------- Total natural gas sales volumes 39,806 44,896 45,092 Natural gas transportation volumes (MMcf) 61,640 52,635 49,346 ====================================================================================== Total deliveries (MMcf) 101,446 97,531 94,438 ======================================================================================
26 3 to residential customers; the recovery of margins via the temperature adjustment partially offset the revenue impact. The majority of the increase in 1994 was related to rate relief. Residential sales volumes decreased 12 percent in the current year as weather in Alagasco's service area was 19 percent warmer than normal. Residential volumes remained relatively stable in 1994 compared with 1993, as temperatures were 2 percent and 1 percent colder than normal, respectively. Sales and transportation volumes to commercial, industrial and municipal customers totaled 74 Bcf in 1995, 66.3 Bcf in 1994, and 63.5 Bcf in 1993. The increase in 1995 and 1994 is due to the addition in each year of several large industrial customers. A significant decline in the commodity cost of gas coupled with a decrease in residential sales volumes attributable to warmer weather contributed to a 29 percent decrease in the cost of gas in fiscal 1995. Cost of gas in 1994 virtually was unchanged from 1993, as the effect of lower prices on stable volumes was largely offset by the inclusion of gas supply realignment costs incurred in connection with the implementation of FERC Order 636. Operations and maintenance (O&M) expense increased 7 percent in 1995 and 9 percent in 1994 primarily due to an increase in labor and related benefits costs. Included in these costs for the current year was a pre-tax charge of $1.1 million (net of the related settlement gain) associated with a voluntary early retirement option offered to all salaried, non-officer employees of at least 58 years of age with a minimum of five years' service. Of the 55 eligible employees, 41 accepted. As a result of these costs, the increase in O&M expense per customer exceeded the inflation-based cap established by the Alabama Public Service Commission (APSC) and necessitated the return of a portion of the excess to customers. Of the 9 percent increase in 1994, 3 percent was related to the adoption of SFAS 106, Employers' Accounting For Postretirement Benefits Other Than Pensions, for employees under labor union agreements, the cost of which was allowed to be recovered through rates. Depreciation expense rose 8 percent in 1995 and 4 percent in 1994 consistent with growth in the utility's depreciable base. Alagasco's expense for taxes other than income primarily reflects various state and local business taxes as well as payroll-related taxes; state and local business taxes generally are based on gross receipts and fluctuate accordingly. As discussed more fully in Note 2 to the Consolidated Financial Statements, Alagasco is subject to regulation by the APSC, which is expected to review the utility's rate-setting mechanism following its evaluation of certain mandates under the Energy Policy Act of 1992. 27 4 TAURUS: Weak natural gas prices had the greatest impact on production revenues. To minimize commodity price volatility, Taurus hedged 65 percent of its 1995 natural gas production at $2.06 per Mcf, adding 31 cents to Taurus's average sales price. Despite this hedging program, the average sales price for 1995 gas production of $1.72 per Mcf was 9 percent below the prior year's average price of $1.89 per Mcf. Natural gas production revenues also were affected by a 6 percent decline in volumes primarily attributable to lower offshore production which was not replaced in the current year due in part to the timing of production schedules. Oil revenues benefitted from an increase in volumes and prices. Coalbed methane operating fees represent a percentage of net proceeds on certain coalbed methane properties, as defined by the related operating agreements, and vary with changes in natural gas prices, production volumes, and operating expenses. Revenues in 1995 from operating fees decreased $1.1 million largely due to lower natural gas prices. Coalbed methane consulting revenues increased slightly as Taurus earned fees for a full year from its strategic alliance with Conoco Inc. Also included in current year revenues was a $769,000 gain associated with the buyout of a long-term sales contract. For 1994, the $5.8 million increase in natural gas production revenues largely was due to substantially higher conventional production. Oil revenues declined slightly as a result of a 17 percent decrease in oil prices. Increased production and the addition of a new coalbed methane project created the majority of the $1 million increase in operating fees. Consulting fees decreased
- ------------------------------------------------------------------------------------------------ YEARS ENDED SEPTEMBER 30, (DOLLARS IN THOUSANDS, EXCEPT UNIT PRICE) 1995 1994 1993 - ------------------------------------------------------------------------------------------------ Revenues Natural gas production $ 14,748 $ 17,292 $ 11,449 Oil production 3,765 2,725 3,484 Operating and consulting fees 4,373 5,194 4,954 Other 769 -- -- - ------------------------------------------------------------------------------------------------ Total Revenues $ 23,655 $ 25,211 $ 19,887 ================================================================================================ Production volumes Natural gas (MMcf) 8,597 9,169 6,245 Oil (MBbl) 250 191 204 ================================================================================================ Average unit sales price Natural gas (per Mcf) $ 1.72 $ 1.89 $ 1.83 Oil (per Bbl) $ 15.07 $ 14.25 $ 17.09 ================================================================================================
28 5 $800,000 due to the completion of several projects but were offset partially by revenue from the Conoco alliance. Operations expense increased $3 million in 1995 primarily due to increased labor and related expense, exploration expense and administrative expense. The $2 million increase in 1994 operations expense was related to increased exploratory efforts and the resulting impact on exploration expenses. The 8 percent increase in DD&A for 1995 was caused by an increased depletion rate (88 cents per Mcf compared to 78 cents per Mcf) which related to downward reserve revisions in the current year. DD&A increased 30 percent in 1994 primarily due to a significant increase in production volumes, as the depletion rate remained unchanged. OTHER ACTIVITIES AND INTERCOMPANY ELIMINATIONS: Operating income from Energen's group of other activities decreased $800,000 in 1995 almost exclusively due to the absence of contribution from propane activities following the sale of the Company's propane assets in June 1994. The increase in 1994 operating income from Energen's other activities was due to increased contribution from propane activities prior to the asset sale and increased contribution from merchandising operations. Intercompany eliminations for 1995, 1994 and 1993 totaled $7.4 million, $8.1 million and $8.3 million, respectively, and varied primarily based on intercompany natural gas and merchandising sales. NON-OPERATING ITEMS CONSOLIDATED: Fiscal 1995 interest expense increased 4 percent over 1994 primarily due to the issuance of $50 million of medium-term notes. Partially offsetting this increase was the repayment of $6.3 million of notes payable in early fiscal 1995 and a decrease in average short-term borrowings. The 7 percent increase in 1994 interest expense resulted from the issuance of $50 million of medium-term notes in 1994 and the inclusion for a full year of the Series 1993 Notes, offset in part by decreased average short-term borrowings. Total other income decreased $3.4 million in 1995 and increased $3.2 million in 1994 largely due to the inclusion in 1994 of one-time, pre-tax gains associated with the sale of the Company's propane assets ($2.1 million) and the sale of the Company's investment in equity securities ($1.5 million). 29 6 The Company's effective tax rates in 1995, 1994, and 1993 were lower than statutory federal tax rates primarily due to the recognition of nonconventional fuel tax credits and the amortization of investment tax credits. Changes in income tax expense in both years resulted primarily from changes in pre-tax income. The Company's effective tax rates are expected to remain lower than statutory federal rates through December 31, 2002, as tax credits generated each year are expected to be fully recognized in the financial statements. FINANCIAL POSITION AND LIQUIDITY The Company's net cash from operating activities totaled $60.9 million, $34.3 million, and $40.4 million in 1995, 1994, and 1993, respectively. The fluctuation in operating cash flow from 1993 through 1995 primarily is due to the net cash outflow of $24 million in 1994 to purchase storage gas at Alagasco partially offset by the timing of the recovery of gas supply adjustment costs. For both years, cash flow was affected by fluctuations in other receivables and payables which are generally the result of timing. Cash used in investing activities increased $39.6 million in 1995 largely due to Taurus's $16.9 million initial investment in proved property acquisitions, adding 26.8 Bcfe of proved oil and gas reserves. Proceeds of $13.4 million for the sale of both propane assets and equity securities in the prior year contributed to the increase in cash used in the current year. In 1994, the inclusion of the $13.4 million in sales proceeds created a decrease in cash used in investing activities, as total capital expenditures were essentially unchanged. Cash provided by financing activities was $15.9 million in 1995. In the current year, Alagasco issued $50 million of medium-term notes with interest rates ranging from 6.6 percent to 7.7 percent and maturities from August 1, 2002, to June 27, 2025. Proceeds from this issuance primarily were used to defease the Company's 11 percent First Mortgage Bonds and 9 percent debentures by depositing all future principal and interest payments into an irrevocable trust. These funds are invested in essentially risk-free securities backed by the U.S. government. The remainder of the proceeds will be used to fund other capital and operating needs. In the prior year, the Company issued 550,000 shares of Energen common stock, generating proceeds of $13.5 million and, Alagasco issued $50 million of medium-term notes with interest rates ranging from 5.4 percent to 7.2 percent and maturities from December 1, 1998, to December 15, 2023. Proceeds from these debt and equity issues were used to fund the purchase of underground storage working gas, redeem the Company's 8.75 percent debentures, reduce its short-term debt, and fund additional capital needs. 30 7 CAPITAL EXPENDITURES NATURAL GAS DISTRIBUTION: During the last three fiscal years, Alagasco has invested $103.3 million for capital projects: $80.3 million was spent on normal expansion replacements and support of its distribution system; $11.6 million was used in connection with the development of a new customer information system; $6.2 million was used to improve gas availability; and $5.2 million was used to purchase two municipal gas systems.
- ------------------------------------------------------------------------------------------------------- YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993 - ------------------------------------------------------------------------------------------------------- Capital expenditures for: Renewals, replacements, system expansion and other $ 30,611 $ 30,264 $ 19,438 Additions to improve gas availability 3,024 1,644 1,569 Municipal gas system acquisitions 3,972 178 1,086 Customer information system 5,173 6,387 -- - ------------------------------------------------------------------------------------------------------- Total $ 42,780 $ 38,473 $ 22,093 =======================================================================================================
EXPLORATION AND PRODUCTION: Taurus has spent $59.6 million for capital projects over the last three fiscal years. Of that total, $4.4 million was charged to income as exploration expense. Expenditures for conventional oil and gas activities over the last three years totaled $56 million and primarily reflect Taurus's investment in proved property acquisitions and exploration and development of offshore natural gas properties. Expenditures for nonconventional oil and gas activities for the last three years totaled $2 million.
- ------------------------------------------------------------------------------------------ YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993 - ------------------------------------------------------------------------------------------ Capital and exploration expenditures for: Conventional oil and gas $ 27,348 $ 7,853 $ 20,777 Nonconventional gas 429 217 1,007 Other 716 900 397 - ------------------------------------------------------------------------------------------ Total $ 28,493 $ 8,970 $ 22,181 ========================================================================================== Exploration expenditures charged to income (included above) for: Conventional oil and gas $ 2,038 $ 1,577 $ 731 Nonconventional gas 26 37 1 - ------------------------------------------------------------------------------------------ Total $ 2,064 $ 1,614 $ 732 ==========================================================================================
31 8 OTHER ACTIVITIES: Capital expenditures by Energen's other activities totaled $1.8 million in the last three fiscal years and primarily relate to gathering activities. RECENT PRONOUNCEMENTS OF THE FASB In March 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Company is required to adopt this Statement in its 1997 fiscal year but implementation is not expected to have a material impact on the Company's financial statements. In October 1995, SFAS No. 123, Accounting for Stock-Based Compensation, was issued and also requires adoption by the Company in its 1997 fiscal year. The implementation of SFAS No. 123 is not expected to have a material impact on the financial statements. FUTURE CAPITAL RESOURCES AND LIQUIDITY EXPLORATION AND PRODUCTION: During 1995, the Company's strategic planning process indicated that an increased level of investment in the exploration and production business was needed to generate desired earnings growth, increase shareholder return, and increase total market capitalization. Therefore, during the next five years, Taurus plans to invest $400 million for property acquisitions and related development and an additional $100 million for offshore exploration and development. Although 1996 will likely not yield dramatically improved earnings, the pace of earnings growth is expected to accelerate in fiscal 1997 as acquisitions and development of acquired reserves and exploratory successes occur. To facilitate this aggressive acquisition strategy, Taurus has entered into a three-and-one-half-year agreement with Sonat Exploration Company. Under the agreement, Taurus has committed to invest up to $30 million and $40 million as its proportionate share of acquisitions made during calendar years 1995 and 1996, respectively, through Sonat Exploration's reserve acquisition program. In addition, Taurus expects to spend between $25 million and $50 million annually in the subsequent two years. Related development expenditures are expected to approximate 50 cents for every acquisition dollar in the next five years. Taurus also will continue its reserve acquisition efforts with other partners and expand its offshore exploration and development program, including increasing its internal generation of acquisition and exploration opportunities. It should be noted that 32 9 Taurus's ability to invest in property acquisitions will be significantly influenced by industry trends as the producing property acquisition market has historically been cyclical. The Company expects to finance these acquisitions with issuances of long-term debt and equity to supplement internally generated cash flows. Over the five-year period, if the acquisition and development activities are successful, the Company would need to raise approximately $250 million in new capital, with new equity issues potentially ranging from $50 million to $75 million. The Company has short-term credit facilities of $110 million that it anticipates using to initially acquire properties, but long-term debt and equity will be issued for permanent financing of these investments. Capital expenditures could approximate $115 million in 1996. Taurus has previously entered into futures contracts to hedge its exposure to price fluctuations on oil and gas production and currently has contracts for the sale of 5 Bcf of its fiscal 1996 gas production at an average contract price of $1.81 per Mcf. To better manage the financing risk associated with the acquisition program, Taurus plans to increase use of futures contracts and expand its hedging program to include swaps in order to reduce price risk for longer periods than currently allowed on commodity exchanges. To the extent that acquisitions include a significant amount of reserves to be developed in the future, the ability to initially hedge that future production will be limited; accordingly, although the Company anticipates earnings to increase, the earnings related to the exploration and production business will be volatile due to uncertainty surrounding the price of oil and natural gas and developmental and exploratory risks. NATURAL GAS DISTRIBUTION: Utility capital expenditures could approximate $43.5 million in 1996 and primarily represent additions for normal distribution system expansion and the development of a new customer information system. In addition, Alagasco will maintain an investment in storage working gas which is expected to average approximately $18.2 million in 1996. The Company anticipates funding these capital requirements through internally generated capital and the utilization of short-term credit facilities. CONSOLIDATED: The Company has short-term credit facilities totaling $110 million available for working capital needs with $32.3 million and $6 million employed at September 30, 1995, and 1994, respectively. 33 10 QUARTERLY MARKET PRICES AND DIVIDENDS PAID PER SHARE
- ----------------------------------------------------------------------------------------------- DIVIDENDS QUARTER ENDED (IN DOLLARS) HIGH LOW CLOSE PAID - ----------------------------------------------------------------------------------------------- December 31, 1993 26 5/8 20 1/8 21 1/2 .27 March 31, 1994 23 7/8 20 1/4 20 1/2 .27 June 30, 1994 23 1/4 19 1/4 20 7/8 .27 September 30, 1994 23 1/2 20 3/4 22 1/2 .28 - ----------------------------------------------------------------------------------------------- December 31, 1994 22 3/4 19 3/4 22 .28 March 31, 1995 23 1/2 20 5/8 22 7/8 .28 June 30, 1995 23 1/4 20 1/8 21 1/2 .28 September 30, 1995 22 3/8 21 21 3/4 .29 - -----------------------------------------------------------------------------------------------
34 11 CONSOLIDATED STATEMENTS OF INCOME
ENERGEN CORPORATION AND SUBSIDIARIES - ------------------------------------------------------------------------------------------------------------------------------------ YEARS ENDED SEPTEMBER 30, (IN THOUSANDS, EXCEPT SHARE DATA) 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------------ OPERATING REVENUES Natural gas distribution $ 295,967 $ 344,637 $ 330,560 Oil and gas production 23,655 25,211 19,887 Other 9,001 15,401 14,926 Intercompany eliminations (7,419) (8,176) (8,257) - ------------------------------------------------------------------------------------------------------------------------------------ Total operating revenues 321,204 377,073 357,116 - ------------------------------------------------------------------------------------------------------------------------------------ OPERATING EXPENSES Cost of gas 130,220 184,458 182,925 Operations 95,509 91,787 84,050 Maintenance 9,849 9,469 9,235 Depreciation, depletion and amortization 29,577 28,000 25,289 Taxes, other than income taxes 23,640 27,451 25,350 - ------------------------------------------------------------------------------------------------------------------------------------ Total operating expenses 288,795 341,165 326,849 - ------------------------------------------------------------------------------------------------------------------------------------ OPERATING INCOME 32,409 35,908 30,267 - ------------------------------------------------------------------------------------------------------------------------------------ OTHER INCOME (EXPENSE) Interest expense, net of amounts capitalized (11,818) (11,345) (10,605) Gain on sale of assets -- 2,142 -- Other, net 2,398 3,657 1,827 - ------------------------------------------------------------------------------------------------------------------------------------ Total other income (expense) (9,420) (5,546) (8,778) - ------------------------------------------------------------------------------------------------------------------------------------ INCOME BEFORE INCOME TAXES 22,989 30,362 21,489 Income taxes 3,681 6,611 3,408 - ------------------------------------------------------------------------------------------------------------------------------------ NET INCOME $ 19,308 $ 23,751 $ 18,081 ==================================================================================================================================== EARNINGS PER AVERAGE COMMON SHARE $ 1.77 $ 2.19 $ 1.77 ==================================================================================================================================== AVERAGE COMMON SHARES OUTSTANDING 10,906,315 10,833,619 10,236,926 ====================================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 35 12 CONSOLIDATED BALANCE SHEETS
ENERGEN CORPORATION AND SUBSIDIARIES - ------------------------------------------------------------------------------------------------------------------------------------ AS OF SEPTEMBER 30, (IN THOUSANDS) 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS PROPERTY, PLANT AND EQUIPMENT Utility plant $ 504,371 $ 464,593 Less accumulated depreciation 247,926 231,327 - ------------------------------------------------------------------------------------------------------------------------------------ Utility plant, net 256,445 233,266 - ------------------------------------------------------------------------------------------------------------------------------------ Oil and gas properties, successful efforts method 117,339 92,355 Less accumulated depreciation, depletion and amortization 51,170 43,052 - ------------------------------------------------------------------------------------------------------------------------------------ Oil and gas properties, net 66,169 49,303 - ------------------------------------------------------------------------------------------------------------------------------------ Other property, net 4,650 4,613 - ------------------------------------------------------------------------------------------------------------------------------------ Total property, plant and equipment, net 327,264 287,182 - ------------------------------------------------------------------------------------------------------------------------------------ CURRENT ASSETS Cash and cash equivalents 36,695 27,526 Accounts receivable, net of allowance for doubtful accounts of $2,533 in 1995 and $2,037 in 1994 30,813 34,145 Inventories, at average cost Storage gas inventory 20,276 24,363 Materials and supplies 7,711 7,589 Liquified natural gas in storage 3,539 3,349 Regulatory asset 6,321 -- Deferred gas costs 1,426 1,460 Deferred income taxes 9,667 7,542 Prepayments and other 2,583 3,117 - ------------------------------------------------------------------------------------------------------------------------------------ Total current assets 119,031 109,091 - ------------------------------------------------------------------------------------------------------------------------------------ OTHER ASSETS Notes receivable 3,095 3,911 Deferred charges and other 9,694 11,130 - ------------------------------------------------------------------------------------------------------------------------------------ Total other assets 12,789 15,041 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL ASSETS $ 459,084 $ 411,314 ====================================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 36 13
AS OF SEPTEMBER 30, (IN THOUSANDS) 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL AND LIABILITIES CAPITALIZATION Preferred stock, cumulative, $0.01 par value, 5,000,000 shares authorized $ -- $ -- Common shareholders' equity Common stock, $0.01 par value; 30,000,000 shares authorized, 10,921,733 shares outstanding in 1995 and 10,917,904 shares outstanding in 1994 109 109 Premium on capital stock 81,243 81,073 Capital surplus 2,802 2,802 Retained earnings 90,020 83,042 Treasury stock, at cost (11,627 shares) (250) -- - ------------------------------------------------------------------------------------------------------------------------------------ Total common shareholders' equity 173,924 167,026 Long-term debt 131,600 118,302 - ------------------------------------------------------------------------------------------------------------------------------------ Total capitalization 305,524 285,328 - ------------------------------------------------------------------------------------------------------------------------------------ CURRENT LIABILITIES Long-term debt due within one year 1,775 10,123 Notes payable to banks 32,300 6,000 Accounts payable 32,242 27,480 Accrued taxes 11,339 13,083 Customers' deposits 18,218 17,462 Amounts due customers 16,546 11,734 Accrued wages and benefits 10,955 9,662 Other 14,923 15,129 - ------------------------------------------------------------------------------------------------------------------------------------ Total current liabilities 138,298 110,673 - ------------------------------------------------------------------------------------------------------------------------------------ DEFERRED CREDITS AND OTHER LIABILITIES Deferred income taxes 2,540 1,706 Accumulated deferred investment tax credits 4,103 4,590 Other 8,619 9,017 - ------------------------------------------------------------------------------------------------------------------------------------ Total deferred credits and other liabilities 15,262 15,313 - ------------------------------------------------------------------------------------------------------------------------------------ COMMITMENTS AND CONTINGENCIES -- -- - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL CAPITAL AND LIABILITIES $ 459,084 $ 411,314 ====================================================================================================================================
37 14 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ENERGEN CORPORATION AND SUBSIDIARIES - ------------------------------------------------------------------------------------------------------------------------------------ (IN THOUSANDS, EXCEPT SHARE AMOUNTS) - ------------------------------------------------------------------------------------------------------------------------------------ Common Stock Treasury Stock --------------------- ---------------------- Number of Par Premium on Capital Retained Number of Shares Value Capital Stock Surplus Earnings Shares Cost - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT SEPTEMBER 30, 1992 10,182,598 $ 102 $ 63,245 $ 2,802 $ 63,709 -- $ -- Net income 18,081 Shares issued for: Dividend reinvestment plan 20,862 474 Employee benefit plans 116,857 1 2,649 Cash dividends -- $1.05 per share (10,750) ==================================================================================================================================== BALANCE AT SEPTEMBER 30, 1993 10,320,317 103 66,368 2,802 71,040 -- -- Net income 23,751 Shares issued for: Stock offering 550,000 6 13,531 Dividend reinvestment plan 7,717 181 Employee benefit plans 39,870 993 Cash dividends -- $1.09 per share (11,749) - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT SEPTEMBER 30, 1994 10,917,904 109 81,073 2,802 83,042 -- -- Net income 19,308 Purchase of treasury shares (128,900) (2,721) Shares issued for: Dividend reinvestment plan 14 19,035 394 Employee benefit plans 3,829 156 98,238 2,077 Cash dividends -- $1.13 per share (12,330) - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT SEPTEMBER 30, 1995 10,921,733 $ 109 $ 81,243 $ 2,802 $ 90,020 (11,627) $ (250) ====================================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 38 15 CONSOLIDATED STATEMENTS OF CASH FLOWS
ENERGEN CORPORATION AND SUBSIDIARIES - ------------------------------------------------------------------------------------------------------------------------------------ YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------------ OPERATING ACTIVITIES Net income $ 19,308 $ 23,751 $ 18,081 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 29,577 28,000 25,289 Deferred income taxes, net (2,061) (2,802) (785) Deferred investment tax credits, net (487) (487) (528) Gain on sale of assets -- (2,142) -- Gain on sale of equity securities -- (2,878) -- Net change in: Accounts receivable 3,332 1,523 (6,360) Inventories 3,775 (23,467) 466 Accounts payable 4,762 (129) 4,990 Other current assets and liabilities (773) 15,798 (1,808) Other, net 3,436 (2,824) 1,096 - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 60,869 34,343 40,441 - ------------------------------------------------------------------------------------------------------------------------------------ INVESTING ACTIVITIES Additions to property, plant and equipment (68,940) (45,543) (43,672) Proceeds from sale of assets -- 8,624 -- Proceeds from sale of equity securities -- 4,808 -- Payments on notes receivable 816 1,639 1,388 Other, net 501 2,485 819 - ------------------------------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (67,623) (27,987) (41,465) - ------------------------------------------------------------------------------------------------------------------------------------ FINANCING ACTIVITIES Payment of dividends on common stock (12,330) (11,749) (10,750) Issuance of common stock 84 14,711 3,124 Purchase of treasury stock (2,721) -- -- Reduction of long-term debt (45,070) (12,470) (21,200) Proceeds from issuance of long-term debt 49,660 49,670 14,555 Net change in short-term debt 26,300 (34,000) 20,000 - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided by financing activities 15,923 6,162 5,729 - ------------------------------------------------------------------------------------------------------------------------------------ Net change in cash and cash equivalents 9,169 12,518 4,705 Cash and cash equivalents at beginning of period 27,526 15,008 10,303 - ------------------------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of period $ 36,695 $ 27,526 $ 15,008 ====================================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 39 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ENERGEN CORPORATION AND SUBSIDIARIES - ------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Energen Corporation (the Company) is a diversified energy holding company engaged primarily in the purchase, distribution, and sale of natural gas, principally in central and north Alabama, and the exploration, production and development of oil and gas in the continental United States. The following is a description of the Company's significant accounting policies and practices. A. Principles of Consolidation The accompanying financial statements include the accounts of Energen Corporation and its subsidiaries, principally Alabama Gas Corporation (Alagasco), after elimination of all significant intercompany transactions in consolidation. B. Property, Plant and Equipment and Related Depreciation Property, plant and equipment (principally utility plant) is stated at cost. The cost of utility plant includes an allowance for funds used during construction. Maintenance is charged for the cost of normal repairs and the renewal or replacement of an item of property which is less than a retirement unit. When property which represents a retirement unit is replaced or removed, the cost of such property is credited to utility plant and, together with the cost of removal less salvage, is charged to the accumulated reserve for depreciation. Depreciation is provided on the straight-line method over the estimated useful lives of utility property at rates established by the Alabama Public Service Commission (APSC). Approved depreciation rates averaged approximately 4.3 percent in 1995, 1994 and 1993. C. Operating Revenue and Gas Costs In accordance with industry practice, the Company records natural gas distribution revenues on a monthly- and cycle-billing basis. The Company extends credit to its residential and industrial utility customers which are located primarily in central and north Alabama. The commodity cost of purchased gas applicable to gas delivered to customers but not yet billed under the cycle-billing method is deferred as a current asset. D. Income Taxes The Company's deferred income taxes reflect the impact of temporary differences between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes and are measured in compliance with enacted tax laws. Investment tax credits have been deferred and are being amortized over the lives of the related assets. E. Oil and Gas Producing Activities The Company follows the successful efforts method of accounting for costs incurred in the exploration and development of oil and gas reserves. Lease acquisition costs are capitalized initially, and unproved properties are reviewed periodically to determine if there has been impairment of the carrying value, with any such impairment charged to exploration expense currently. Exploratory drilling costs are capitalized pending determination of proved reserves. If proved reserves are not discovered, the exploratory drilling costs are expensed. Other exploration costs, including geological and geophysical costs, are expensed as incurred. All development costs are capitalized. Depreciation, depletion and amortization is determined on a field-by-field basis using the unit-of-production method based on proved reserves. A provision for anticipated abandonment and restoration costs at the end of a property's useful life is made through depreciation expense. The Company's oil and gas subsidiary periodically enters into futures contracts to hedge its exposure to price fluctuations on oil and gas production. Gains and losses on futures contracts are recognized in the income statement as the hedged volumes are produced. F. Cash Equivalents The Company includes highly liquid marketable securities and debt instruments purchased with a maturity of three months or less in cash equivalents. 40 17 2. REGULATORY As an Alabama utility, Alagasco is subject to regulation by the Alabama Public Service Commission (APSC) which, in 1983, established the Rate Stabilization and Equalization (RSE) rate-setting process. RSE was extended for the third time on December 3, 1990, for a three-year period. Under the terms of that extension, RSE shall continue after November 30, 1993, unless, after notice to the Company, the Commission votes to either modify or discontinue its operation. On October 4, 1993, the Commission unanimously voted to extend RSE until such time as certain hearings mandated by the Energy Policy Act of 1992 (Energy Act) in connection with integrated resource planning and demand side management programs are completed. The Energy Act proceedings are expected to conclude during fiscal 1996 at which time the Commission is expected to begin a review of Alagasco's RSE. No time table for the review has yet been established. Under RSE as extended, the APSC conducts quarterly reviews to determine, based on Alagasco's projections and fiscal year-to-date performance, whether Alagasco's return on equity for the fiscal year will be within the allowed range of 13.15 percent to 13.65 percent. Reductions in rates can be made quarterly to bring the projected return within the allowed range; increases, however, are allowed only once each fiscal year, effective December 1, and cannot exceed 4 percent of prior-year revenues. RSE limits the utility's equity upon which a return is permitted to 60 percent of total capitalization and provides for certain cost control measures designed to monitor the Company's operations and maintenance (O&M) expense. If O&M expense per customer falls within 1.25 percentage points above or below the Consumer Price Index For All Urban Customers (index range), no adjustment is required. If, however, O&M expense per customer exceeds the index range, three-quarters of the difference is returned to the customers. To the extent O&M expense per customer is less than the index range, the utility benefits by one-half of the difference through future rate adjustments. Under RSE as extended, a $1.1 million decrease in revenue became effective October 1, 1994, and a $5.2 million annual increase in revenue became effective December 1, 1994. Effective December 15, 1990, the APSC approved a temperature adjustment to customers' monthly bills to remove the effect of departures from normal temperature on Alagasco's earnings. The calculation is performed monthly, and the adjustments to customers' bills are made in the same month the weather variation occurs. The Company's rate schedules for natural gas distribution charges contain a Gas Supply Adjustment (GSA) rider, established in 1993, which permits the pass-through to customers of changes in the cost of gas supply, including Gas Supply Realignment (GSR) surcharges imposed by the Company's suppliers resulting from changes in gas supply purchases related to the implementation of FERC Order 636. On June 12, 1995, the APSC approved Alagasco's application to issue $50 million of new debt. A portion of the proceeds was used to redeem all of Alagasco's 9 percent debentures and 11 percent First Mortgage Bonds. In connection with the early call of the redeemed debt, Alagasco paid an early call premium of approximately $1.3 million during the fourth quarter. Because the APSC Order authorized Alagasco to collect the early call premium through customer rates during the fiscal year ending September 30, 1996, Alagasco recorded a regulatory asset of $1.3 million during the fourth quarter ending September 30, 1995. In accordance with APSC-directed regulatory accounting procedures, Alagasco in 1989 began returning to customers excess utility deferred taxes which resulted from a reduction in the federal statutory tax rate from 46 percent to 34 percent using the average rate assumption method. This method provides for the return to ratepayers of excess deferred taxes over the lives of the related assets. In 1993 those excess taxes were reduced as a result of a federal tax rate increase from 34 percent to 35 percent. Approximately $2.9 million of remaining excess utility deferred taxes is being returned to ratepayers over approximately 15 years. FERC Regulation: On March 15, 1995, Southern Natural Gas Company (Southern) filed a comprehensive settlement with the FERC in the form of a Stipulation and Agreement (the Settlement) to resolve all issues in Southern's six pending rate cases, as well as to resolve all GSR and transition cost issues resulting from the implementation of FERC Order 636. The Settlement is supported by parties representing more than 90 percent of the firm transportation demand on Southern's system, including local distribution companies (including Alagasco), municipal distribution systems, major gas producers, large industrial end users, marketers, and state commissions (including the APSC). 41 18 On September 29, 1995, the FERC issued its Order Accepting Settlement, Severing Contesting Parties, and Issuing Certificates and Approving Abandonment (Settlement Order). The Settlement Order approves the Settlement with minor modifications. Contesting parties had 30 days from the date of the Settlement Order to file motions for rehearing and several such motions were timely filed. Until such motions are ruled on by the FERC, the Settlement Order is not considered to be final. Specifically, the Settlement provides for the following: (1) the resolution of all cost of service and rate design issues in Southern's six pending rate cases and the establishment of reduced rates for the purpose of calculating rate case refunds; (2) the implementation of reduced settlement rates on an interim basis for supporting parties commencing March 1, 1995 (by order dated April 4, 1995, FERC approved these interim rates pending its final review of the merits of the Settlement); (3) the resolution of all GSR and other transition cost issues resulting from FERC Order 636; (4) lower GSR cost recovery through the reduction and earlier payout of GSR costs; (5) a three-year moratorium on general rate increases; and (6) the resolution and disposition of all rate case and GSR refunds for supporting parties. With respect to this last point, the Settlement provides that all rate case refunds will be used to offset a portion of Southern's remaining GSR liability. In addition, as a result of the recalculated GSR surcharges for the period January 1, 1994, to February 28, 1995, Southern will refund over-collected GSR costs. Neither the total amount of this refund nor Alagasco's share has yet been determined; therefore, no amounts have been recorded in the financial statements. In the Settlement filing with FERC, Southern has represented that the Settlement will allow Southern and the supporting parties to resolve all issues relating to GSR and other transition costs, the majority of which costs will be collected by the end of calendar 1995. Alagasco estimates that it has a remaining GSR liability of approximately $2.4 million to be paid through December 1995 and approximately $2.6 million in other transition costs to be paid through June 1998 and that it has recorded such amounts in the financial statements. Because these costs will be recovered in full from Alagasco's customers in a timely manner through the GSA rider of Alagasco's Tariff, the Company has recorded a corresponding regulatory asset in the accompanying financial statements. 3. LONG-TERM DEBT AND NOTES PAYABLE Long-term debt consists of the following:
- --------------------------------------------------------------------------------- AS OF SEPTEMBER 30, (IN THOUSANDS) 1995 1994 - --------------------------------------------------------------------------------- Energen Corporation: 8% Debentures, due up to $1,000,000 annually to February 1, 2007 $ 18,746 $ 19,935 Series 1993 Notes, interest ranging from 4.65% to 7.25%, due annually beginning March 1, 1996, in payments ranging from $775,000 to $1,675,000 to March 1, 2008 14,629 14,976 Notes payable, interest ranging from 9.3% to 10.05%, paid in full during fiscal year 1995 -- 6,300 Alabama Gas Corporation: First Mortgage Bonds, 11% Series H, defeased during fiscal year 1995 -- 7,500 Medium-term Notes, interest ranging from 5.4% to 7.7%, for notes redeemable December 1, 1998, to June 27, 2025 100,000 50,000 9% Debentures, defeased during fiscal year 1995 -- 28,758 Mortgage note payable, paid in full during fiscal year 1995 -- 956 - --------------------------------------------------------------------------------- Total 133,375 128,425 Less amounts due within one year 1,775 10,123 - --------------------------------------------------------------------------------- Total $131,600 $118,302 =================================================================================
During the fourth quarter, the Company deposited $37.6 million into an irrevocable trust to complete an in-substance defeasance of Alagasco's 9 percent debentures and 11 percent Series H First Mortgage Bonds. The funds in the trust, primarily obtained through the issuance of medium-term notes and short-term borrowings, will be used solely to satisfy the principal, interest, and call premium of the defeased debt. Accordingly, the debt and related accrued interest have been excluded from the 1995 consolidated balance sheet. No gain or loss was recorded in the financial statements as the APSC has granted Alagasco regulatory relief related to the income statement impact of this defeasance. 42 19 The aggregate maturities of long-term debt for the next five years are as follows:
- -------------------------------------------------------------------------------- YEARS ENDING SEPTEMBER 30, (IN THOUSANDS) - -------------------------------------------------------------------------------- 1996 1997 1998 1999 2000 - -------------------------------------------------------------------------------- $1,775 $1,815 $1,870 $7,222 $1,965 ================================================================================
The Company is subject to various restrictions on the payment of dividends. Under its 8 percent debentures, the most restrictive provision states that dividends or other distributions with respect to common stock may not be made unless the Company maintains a minimum consolidated tangible net worth of $80 million; at September 30, 1995, Energen had a tangible net worth of $173,697,000. The Company and Alagasco have short-term credit lines and other credit facilities of $110 million available to either entity for working capital needs. The following is a summary of information relating to notes payable to banks:
- -------------------------------------------------------------------------------- AS OF SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993 - -------------------------------------------------------------------------------- Amount outstanding $ 32,300 $ 6,000 $ 40,000 Available for borrowings 77,700 104,000 70,000 - -------------------------------------------------------------------------------- Total $110,000 $110,000 $110,000 ================================================================================ Maximum amount outstanding at any month-end $ 32,300 $ 60,000 $ 43,000 Average daily amount outstanding $ 917 $ 13,836 $ 31,318 Weighted average interest rates based on: Average daily amount outstanding 5.76% 3.32% 3.42% Amount outstanding at year-end 5.96% 5.17% 3.33% ================================================================================
Total interest expense for Energen in 1995, 1994 and 1993 was $11,818,000, $11,345,000, and $10,605,000 respectively. 4. INCOME TAXES The components of income taxes consist of the following:
- -------------------------------------------------------------------------------- FOR THE YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993 - -------------------------------------------------------------------------------- Taxes estimated to be payable currently: Federal $ 5,377 $ 8,550 $ 3,905 State 873 1,369 611 - -------------------------------------------------------------------------------- Total current 6,250 9,919 4,516 - -------------------------------------------------------------------------------- Taxes deferred: Federal (2,580) (2,976) (1,280) State 11 (332) 172 - -------------------------------------------------------------------------------- Total deferred (2,569) (3,308) (1,108) - -------------------------------------------------------------------------------- Total income tax expense $ 3,681 $ 6,611 $ 3,408 ================================================================================
43 20 Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and liabilities for 1995 and 1994 are as follows:
- ------------------------------------------------------------------------------------------ 1995 1994 AS OF SEPTEMBER 30, (IN THOUSANDS) CURRENT NONCURRENT CURRENT NONCURRENT - ------------------------------------------------------------------------------------------ Deferred tax assets: Deferred investment tax credits $ -- $ 1,386 $ -- $ 1,567 Regulatory liabilities -- 2,229 -- 2,585 Minimum tax credit -- 14,622 -- 12,469 Insurance and accruals 2,175 -- 1,568 -- Unbilled revenue 1,565 -- 1,454 -- Other, net 6,691 626 6,302 146 - ------------------------------------------------------------------------------------------ Subtotal 10,431 18,863 9,324 16,767 Valuation allowance -- -- -- -- - ------------------------------------------------------------------------------------------ Total deferred tax assets $10,431 $18,863 $ 9,324 $16,767 ========================================================================================== Deferred tax liabilities: Depreciation and basis differences $ -- $18,497 $ -- $16,905 Basis differences on oil and gas producing properties -- 2,160 -- 1,564 Pension and other benefit costs 714 -- 1,306 -- Other, net 50 746 476 4 - ------------------------------------------------------------------------------------------ Total deferred tax liabilities $ 764 $21,403 $ 1,782 $18,473 ==========================================================================================
No valuation allowance with respect to deferred taxes is deemed necessary, as the Company anticipates generating adequate future taxable income to realize the benefits of all deferred tax assets on the consolidated balance sheet. As of September 30, 1995, the amount of minimum tax credit which can be carried forward indefinitely to reduce future regular tax liability is $14,622,000. Total income tax expense differs from the amount which would be provided by applying the statutory federal income tax rate to pre-tax earnings as illustrated below:
- ------------------------------------------------------------------------------------------- FOR THE YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993 - ------------------------------------------------------------------------------------------- Income tax expense at statutory federal income tax rate $ 8,046 $ 10,627 $ 7,467 Increase (decrease) resulting from: Nonconventional fuel credits--current (2,343) (4,259) (1,374) Nonconventional fuel credits--deferred (1,779) 127 (2,446) Investment tax credits--deferred (487) (487) (528) State income taxes, net of federal income tax benefit 625 700 639 Other, net (381) (97) (350) - ------------------------------------------------------------------------------------------- Total income tax expense $ 3,681 $ 6,611 $ 3,408 ==========================================================================================
5. RETIREMENT INCOME PLANS AND OTHER BENEFITS The Company has two defined benefit non-contributory pension plans which cover a majority of the employees. Benefits are based on years of service and final earnings. The Company's policy is to use the "projected unit credit" actuarial method for funding and financial reporting purposes. The expense (income) for the plan covering the majority of employees (Plan A) for the years ended September 30, 1995, 1994 and 1993, was $1,158,000, $15,000, and $(118,000), respectively. The expense for the second plan covering employees under labor union agreements (Plan B) for 1995, 1994 and 1993 was $339,000, $555,000, and $557,000, respectively. 44 21 The funded status of the plans is as follows:
- --------------------------------------------------------------------------------------------------------------------------- AS OF JUNE 30, (IN THOUSANDS) Plan A Plan B - --------------------------------------------------------------------------------------------------------------------------- 1995 1994 1995 1994 ---------------------------- ------------------------------ Vested benefits $ (46,073) $ (48,354) $ (13,499) $ (12,860) Nonvested benefits (5,912) (5,530) (2,083) (2,253) - --------------------------------------------------------------------------------------------------------------------------- Accumulated benefit obligation (51,985) (53,884) (15,582) (15,113) Effects of salary progression (11,047) (10,332) -- -- - --------------------------------------------------------------------------------------------------------------------------- Projected benefit obligation (63,032) (64,216) (15,582) (15,113) Fair value of plan assets, primarily equity and fixed income securities 69,431 72,004 16,429 11,863 Unrecognized net gain 1,470 2,646 296 1,034 Unrecognized prior service cost 41 46 1,412 1,554 Unrecognized net transition obligation (asset) (5,111) (6,524) 396 452 Additional minimum liability -- -- -- (3,040) - --------------------------------------------------------------------------------------------------------------------------- Accrued pension asset (liability) $ 2,799 $ 3,956 $ 2,951 $ (3,250) ===========================================================================================================================
At September 30, 1995 and 1994, for both plans the discount rate used to measure the projected benefit obligation was 7.5 percent, and the expected long-term rate of return on plan assets was 8.25 percent. The annual rate of salary increase for the salaried plan was 5.5 percent for both years. The components of net pension costs for 1995, 1994 and 1993 were:
- ------------------------------------------------------------------------------------------------------------------------------------ FOR THE YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) Plan A Plan B - ------------------------------------------------------------------------------------------------------------------------------------ 1995 1994 1993 1995 1994 1993 ------------------------------------ ------------------------------------- Service cost $ 2,052 $ 1,873 $ 1,678 $ 224 $ 224 $ 187 Interest cost on projected benefit obligation 4,728 4,550 4,097 1,095 1,042 1,018 Actual (return) on plan assets (8,787) (504) (6,858) (2,172) (372) (1,048) Net amortization and deferral 2,106 (5,904) 965 1,192 (339) 400 Loss due to special termination benefits 1,489 -- -- -- -- -- Settlement gain (430) -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Net pension (income) expense $ 1,158 $ 15 $ (118) $ 339 $ 555 $ 557 ====================================================================================================================================
In 1995 the Company recognized a loss for special termination benefits of $1,489,000 and a settlement gain of $430,000 pursuant to a voluntary early retirement option offered to all salaried, non-officer employees of at least 58 years of age with a minimum of 5 years' service. Of the 55 eligible employees, 41 accepted. The Company has deferred compensation plan agreements for certain key executives providing for payments on retirement, death or disability. The deferred compensation expense under these agreements for 1995, 1994 and 1993 was $808,000, $461,000, and $650,000, respectively. In addition to providing pension benefits, the Company provides certain post-retirement health care and life insurance benefits. Substantially all of the Company's employees may become eligible for such benefits if they reach normal retirement age while working for the Company. In a prior year, the Company adopted SFAS No. 106, Employers' Accounting for Post-retirement benefits Other Than Pensions, with respect to the accrual of such costs for salaried employees. During fiscal year 1994, the Company adopted SFAS 106 with respect to such costs for employees under collective bargaining agreements. There was no cumulative effect on the income statement resulting from the adoption of SFAS 106, as the Company elected to amortize transition costs over a 20-year 45 22 period. On December 6, 1993, the APSC adopted Order 4-3454 which allows the Company to recover all costs accrued under SFAS 106 through rates. While the Company has not adopted a formal funding policy, all of its accrued post-retirement liability was funded at year-end. The expense for salaried employees for the years ended September 30, 1995, 1994, and 1993 was $2,271,000, $2,319,000, and $2,677,000, respectively. The expense for union employees was $3,613,000, $3,685,000 and $982,000 during 1995, 1994 and 1993, respectively. Prior to 1994, the Company recognized the cost of providing post-retirement benefits for union employees on a pay-as-you-go basis. These benefits were provided through a self-insurance arrangement and through insurance companies whose premiums were based on the benefits paid during the year. The projected unit credit actuarial method was used to determine the normal cost and actuarial liability. A reconciliation of the estimated status of the obligation is as follows:
- --------------------------------------------------------------------------------------------------------------------------- AS OF JUNE 30, (IN THOUSANDS) Salaried Employees Union Employees - --------------------------------------------------------------------------------------------------------------------------- 1995 1994 1995 1994 --------------------------- --------------------------- Accumulated post-retirement benefit obligation $(20,757) $(21,296) $(29,600) $(24,564) Fair value of plan assets, primarily equity and fixed income securities 12,659 9,408 4,419 1,248 Unamortized amounts 7,550 11,751 24,237 21,357 - --------------------------------------------------------------------------------------------------------------------------- Accrued post-retirement benefit liability $ (548) $ (137) $ (944) $ (1,959) ===========================================================================================================================
Net periodic post-retirement benefit cost for the years ended September 30, 1995, 1994, and 1993, included the following:
- ------------------------------------------------------------------------------------------------------------------------------------ FOR THE YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) Salaried Employees Union Employees - ------------------------------------------------------------------------------------------------------------------------------------ 1995 1994 1993 1995 1994 1993 ----------------------------------------- ------------------------------------- Service cost $ 512 $ 450 $ 464 $ 807 $ 481 $ -- Interest cost on accumulated post-retirement benefit obligation 1,696 1,726 1,457 1,793 1,920 -- Amortization of transition obligation 723 723 842 1,285 1,285 -- Amortization of actuarial gains and losses -- -- 49 -- -- -- Deferred asset (gain) loss 539 (453) -- 424 -- -- Actual (return) on plan assets (1,199) (127) (135) (696) (1) -- - ------------------------------------------------------------------------------------------------------------------------------------ Net periodic post-retirement benefit expense $ 2,271 $ 2,319 $ 2,677 $ 3,613 $ 3,685 $ -- ====================================================================================================================================
The weighted average health care cost trend rate used in determining the accumulated post-retirement benefit obligation was 8 percent in 1995 and 1994. That assumption has a significant effect on the amounts reported. For example, with respect to salaried employees, increasing the weighted average health care cost trend rate by 1 percent would increase the accumulated post-retirement benefit obligation by 3 percent and the net periodic post-retirement benefit cost by 2.1 percent. For union employees, increasing the weighted average health care cost trend rate by 1 percent would increase the accumulated post-retirement benefit obligation by 7.1 percent and the net periodic post-retirement benefit cost by 7 percent. The weighted average discount rate used in determining the accumulated post-retirement benefit obligation was 7.5 percent in 1995 and 1994. The Company has a long-term disability plan covering most salaried employees. Expense for the years ended September 30, 1995, 1994, and 1993, was $155,000, $150,000, and $129,000, respectively. 46 23 6. COMMON STOCK PLANS A majority of Company employees are eligible to participate in the Energen Employee Savings Plan (ESP) by investing a portion of their compensation in the Plan, with the Company matching a part of the employee investment by contributing Company common stock (new issue or treasury shares) or funds for the purchase of Company common stock. The ESP also contains employee stock ownership plan provisions. At September 30, 1995, 481,484 common shares were reserved for issuance under the ESP. Expense associated with Company contributions to the ESP was $2,944,000, $2,772,000 and $2,601,000 for 1995, 1994 and 1993, respectively. In 1992 the Company adopted the Energen Corporation 1992 Long-Range Performance Plan which provides for the award of up to 500,000 performance units, with each unit equal to the market value of one share of common stock, to eligible employees based on predetermined performance criteria at the end of a four-year award period. Under the Plan, a portion of the performance units is payable with Company common stock; accordingly, 350,000 shares have been reserved for issuance. Under the Plan, 56,430, 49,120 and 59,850 performance units were awarded in 1995, 1994 and 1993, respectively, leaving 280,826 performance units available for award at September 30, 1995. The Company recorded expense of $1,628,000, $939,000 and $688,000 for 1995, 1994 and 1993, respectively, under the Plan. The Restricted Stock Incentive Plan of Energen Corporation, adopted in 1984, provided for the award of common stock to eligible participants. Stock awarded under the Plan is subject to certain restrictions against sale or pledge. Pursuant to its terms, the Plan terminated effective January 1994 subject to completion of restriction periods applicable to previously awarded shares. Under the Plan, no common shares were awarded in 1995, 1994, or 1993. Expense of $121,000, $218,000 and $289,000 was charged during 1995, 1994 and 1993, respectively, under this Plan. The Company has a dividend reinvestment plan for which 161,437 common shares were reserved at September 30, 1995. The Energen Corporation 1988 Stock Option Plan provides for the grant of incentive stock options, non-qualified stock options, or a combination thereof to officers and key employees. Options granted under the Plan provide for purchase of the Company's common stock at not less than the fair market value on the date the option is granted. Under the Plan, 270,000 shares of the Company's common stock have been reserved for issuance. Options were granted in 1995 and 1993 with dividend equivalents, 1,900 of which have been exercised. In 1993, 12,696 options with stock appreciation rights (SARS) were canceled upon exercise. Options expire 10 years from the date of grant. Transactions under the Plan are summarized as follows:
- --------------------------------------------------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------- Outstanding at beginning of year ($16.75 - $20.125) 141,556 141,556 111,152 Granted (at $16.75 - $20.125) 10,500 -- 45,000 Exercised ($22.875 - $25.125) -- -- (1,900) Canceled upon exercise of Stock Appreciation Rights ($23.25 - $26.375) -- -- (12,696) Forfeited -- -- -- - --------------------------------------------------------------------------------------------------------------------------- Outstanding at year-end 152,056 141,556 141,556 - --------------------------------------------------------------------------------------------------------------------------- Exercisable at year-end 152,056 141,556 141,556 - --------------------------------------------------------------------------------------------------------------------------- Remaining reserved for issuance at year-end 103,348 113,848 113,848 ===========================================================================================================================
In 1992 the Company adopted the Energen Corporation 1992 Directors Stock Plan to enable the Company to pay part of the compensation of its non-employee directors in shares of the Company's common stock. Under the Plan, 3,829, 3,515 and 5,085 shares were issued in 1995, 1994 and 1993, respectively, leaving 89,594 shares reserved for issuance at September 30, 1995. 47 24 The Company has adopted a Shareholder Rights Plan intended to protect shareholders from coercive or unfair takeover tactics. Under certain circumstances, shareholders have the right to acquire the Company's Series A Junior Participating Preferred Stock (or, in certain cases, securities of an acquiring person) at a significant discount. Terms and conditions are set forth in a Rights Agreement (dated July 27, 1988, and amended February 28, 1990) between the Company and its Rights Agent. Under the plan, two-thirds of a right is associated with each outstanding share of Common Stock. Rights outstanding under the Shareholder Rights Plan at September 30, 1995 and 1994, were convertible into 72,734 and 72,786 shares, respectively, of Series A Junior Participating Preferred Stock (1/100 share of preferred stock for each full right) subject to adjustment upon the occurrence of certain take-over related events. No rights were exercised or exercisable at either period. The price at which the rights would be exercised is $80 per right, subject to adjustment upon the occurrence of certain take-over related events. In general, in the absence of certain takeover-related events, as described in the Plan, the rights may be redeemed prior to their July 27, 1998, expiration for $0.02 per right. 7. PREFERRED STOCK The Company is authorized to issue 5,000,000 shares of cumulative preferred stock, par value $0.01 per share, in one or more series, 150,000 of which have been designated as Series A Junior Participating Preferred Stock. There are no shares issued or outstanding. Alagasco is authorized to issue 120,000 shares of preferred stock, par value $0.01 per share, in one or more series. There are no shares currently outstanding. 8. ENVIRONMENTAL MATTERS Alagasco is in the chain of title of eight former manufactured gas plant sites, of which it still owns four, and five manufactured gas distribution sites, of which it still owns one. A preliminary investigation of the sites does not indicate the present need for remediation activities. Management expects that, should remediation of any such sites be required in the future, Alagasco's share, if any, of such costs will not materially affect the results of operations or financial condition of Alagasco. Taurus is subject to various environmental regulations. Management believes that Taurus is in compliance with the currently applicable standards of the environmental agencies to which it is subject and that potential environmental liabilities, if any, are minimal. Also, to the extent Taurus has operating agreements with various joint venture partners, environmental costs, if any, would be shared proportionately. 9. COMMITMENTS The Company has various firm gas supply and firm gas transportation contracts which expire at various dates through the year 2008. These contracts typically contain minimum demand charge obligations on the part of the Company. Taurus has entered into a three-and-one-half-year agreement with Sonat Exploration Company. Under the agreement, Taurus has committed to invest up to $30 million as its proportionate share of acquisitions made during calendar year 1995 through Sonat Exploration's reserve acquisition program. In addition, Taurus expects to spend between $25 million and $50 million annually in the subsequent years. The Company has entered into an agreement with a financial institution whereby it can sell on an ongoing basis, with recourse, certain installment receivables related to its merchandising program up to a maximum of $20 million. During 1995 and 1994, the Company sold $8,454,000 and $6,784,000, respectively, of installment receivables. At September 30, 1995 and 1994, the balance of these installment receivables was $15,618,000 and $13,027,000, respectively. Receivables sold under this agreement are considered financial instruments with off-balance sheet risk. The Company's exposure to credit loss in the event of non-performance by customers is represented by the balance of installment receivables. The Company's oil and gas subsidiary periodically enters into futures contracts to hedge its exposure to price fluctuations on oil and gas production. Under this program, Taurus has entered into futures contracts for the sale of 5 Bcf of its fiscal 1996 gas production at an average contract price of $1.81 per Mcf. 48 25 Various legal proceedings arising in the normal course of business are currently in progress and the Company currently accrues provisions for estimated cost. Although the outcome of any litigation cannot be predicted with certainty, management does not believe that the ultimate outcome will have a material adverse effect on the Company's financial position or results of operations. 10. LEASES Total payments related to leases included as operating expense in the accompanying consolidated statements of income were $3,035,000, $2,986,000, and $3,228,000 in 1995, 1994 and 1993, respectively. Minimum future rental payments (in thousands) required after 1995 under leases with initial or remaining noncancelable lease terms in excess of one year are as follows:
- ------------------------------------------------------------------------------------------------ 1996 1997 1998 1999 2000 2001 and thereafter - ------------------------------------------------------------------------------------------------ $2,181 $1,936 $592 $132 $86 $125 ================================================================================================
11. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental information concerning cash flow activities is as follows:
- -------------------------------------------------------------------------------------------------- FOR THE YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993 - -------------------------------------------------------------------------------------------------- Interest paid $ 13,994 $ 11,055 $ 11,906 Income taxes paid $ 6,234 $ 10,965 $ 5,133 Noncash investing activities: Capitalized depreciation $ 166 $ 155 $ 187 Allowance for funds used during construction $ 1,054 $ 465 $ 163 Noncash financing activities (debt issuance costs) $ 340 $ 330 $ 445 ==================================================================================================
12. FINANCIAL INSTRUMENTS In accordance with the requirements of SFAS No. 107, the estimated fair values of the Company's financial instruments at September 30, 1995, were as follows:
- --------------------------------------------------------------------------------------- Carrying Fair AS OF SEPTEMBER 30, 1995 (IN THOUSANDS) Amount Value - --------------------------------------------------------------------------------------- Cash and cash equivalents $ 36,695 $ 36,695 Receivables, net of allowance account $ 30,813 $ 30,813 Short-term debt $ 32,300 $ 32,300 Long-term debt (including current portion) $ 133,375 $ 129,016 =======================================================================================
The following methods and assumptions were used to estimate the fair value of financial instruments: - - Cash and cash equivalents: Fair value was considered to be the same as the carrying amount. - - Receivables: The Company believes that, in the aggregate, current and non-current net receivables were not materially different from the fair value of those receivables. - - Short-term debt: The fair value was determined to be the same as the carrying amount. - - Long-term debt: The fair value of fixed-rate long-term debt was based on the market value of debt with similar maturities and with interest rates currently trading in the marketplace; the carrying amount of variable rate long-term debt was assumed to approximate fair value. 49 26 13. SUMMARIZED QUARTERLY FINANCIAL DATA (Unaudited) The following data summarize quarterly operating results. The Company's business is seasonal in character and strongly influenced by weather conditions.
- ------------------------------------------------------------------------------------------------------------ 1995 FISCAL QUARTERS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FIRST SECOND THIRD FOURTH - ------------------------------------------------------------------------------------------------------------ Operating revenues $ 73,484 $ 140,820 $ 61,532 $ 45,368 Operating income (loss) $ 5,436 $ 30,302 $ 3,316 $ (6,645) Net income (loss) $ 2,736 $ 21,714 $ 1,129 $ (6,271) Earnings (loss) per average common share $ 0.25 $ 1.99 $ 0.10 $ (0.58) - ------------------------------------------------------------------------------------------------------------ 1994 FISCAL QUARTERS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FIRST SECOND THIRD FOURTH - ------------------------------------------------------------------------------------------------------------ Operating revenues $ 87,919 $ 168,087 $ 73,125 $ 47,942 Operating income (loss) $ 5,713 $ 30,370 $ 4,325 $ (4,500) Net income (loss) $ 2,300 $ 22,192 $ 3,950 $ (4,691) Earnings (loss) per average common share $ 0.22 $ 2.03 $ 0.36 $ (0.43) ============================================================================================================
14. OIL AND GAS PRODUCING ACTIVITIES (Unaudited) The following schedules detail historical financial data of the Company's oil and gas producing activities. Certain terms appearing in the schedules are prescribed by the Securities and Exchange Commission and are briefly described as follows: - - Lease Acquisition Costs are costs incurred to lease or otherwise acquire a property. - - Exploration Expenses are primarily costs associated with drilling unsuccessful exploratory wells in undeveloped properties, exploratory geological and geophysical activities, and costs of impaired leaseholds. - - Development Costs include costs necessary to gain access to, prepare and equip development wells in areas of proved reserves. - - Production (Lifting) Costs include costs incurred to operate and maintain wells. - - Gross Revenues are reported after deduction of royalty interest payments. - - Gross Well or Acre is a well or acre in which a working interest is owned. - - Net Well or Acre is deemed to exist when the sum of fractional ownership working interests in gross wells or acres equals one. - - Dry Well is an exploratory or a development well found to be incapable of producing either oil or gas in sufficient quantities to justify completion as an oil or gas well. - - Productive Well is an exploratory or a development well that is not a dry well. CAPITALIZED COSTS
- ------------------------------------------------------------------------------------------------------------ AS OF SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------ Proved $ 115,720 $ 90,709 $ 84,373 Unproved 1,619 1,646 1,704 - ------------------------------------------------------------------------------------------------------------ Total capitalized costs 117,339 92,355 86,077 Accumulated depreciation, depletion and amortization 51,170 43,052 35,150 - ------------------------------------------------------------------------------------------------------------ Capitalized costs, net $ 66,169 $ 49,303 $ 50,927 ============================================================================================================
50 27 COSTS INCURRED The following table sets forth costs incurred in property acquisition and exploration and development activities and includes both capitalized costs and costs charged to expense during the year:
- --------------------------------------------------------------------------------- AS OF SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993 - --------------------------------------------------------------------------------- Property acquisition: Proved $ 16,950 $ 1,372 $ 11,645 Unproved 989 1,169 154 Exploration 4,666 4,565 3,336 Development 6,044 1,438 6,673 - --------------------------------------------------------------------------------- Total costs incurred $ 28,649 $ 8,544 $ 21,808 =================================================================================
RESULTS OF OPERATIONS The following table sets forth results of the Company's oil and gas producing activities:
- ---------------------------------------------------------------------------------------------------- YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993 - ---------------------------------------------------------------------------------------------------- Gross revenues: Unaffiliated (excluding consulting revenues) $ 20,397 $ 21,577 $ 14,974 Affiliated 2,259 2,917 3,424 Production (lifting) costs 5,995 5,882 5,383 Exploration expense 2,933 2,088 756 Depreciation, depletion and amortization 8,847 8,080 5,852 Income taxes (2,410) (1,607) (1,185) - ---------------------------------------------------------------------------------------------------- Results of operations from producing activities $ 7,291 $ 10,051 $ 7,592 ====================================================================================================
AVERAGE SALES PRICE, PRODUCTION COST AND DEPRECIATION RATE
- ------------------------------------------------------------------------------------------------------- YEARS ENDED SEPTEMBER 30, 1995 1994 1993 - ------------------------------------------------------------------------------------------------------- Average sales price: Gas (per Mcf) $ 1.72 $ 1.89 $ 1.83 Oil (per barrel) $ 15.07 $ 14.25 $ 17.09 Average production (lifting) cost (per Mcf equivalent) $ .59 $ 0.57 $ 0.72 Average depreciation rate (per Mcf equivalent) $ .88 $ 0.78 $ 0.78 =======================================================================================================
DRILLING ACTIVITY The following table sets forth the total number of net productive and dry exploratory and development wells drilled:
- ------------------------------------------------------------------------------ YEARS ENDED SEPTEMBER 30, 1995 1994 1993 - ------------------------------------------------------------------------------ Exploratory: Productive 0.9 0.6 0.9 Dry 1.0 0.4 0.3 - ------------------------------------------------------------------------------ Total 1.9 1.0 1.2 - ------------------------------------------------------------------------------ Development: Productive 1.0 0.7 3.7 Dry 0.1 -- -- - ------------------------------------------------------------------------------ Total 1.1 0.7 3.7 ==============================================================================
51 28 As of September 30, 1995, the Company was participating in the drilling of 2 gross wells, with the Company's interest equivalent to .28 wells. PRODUCTIVE WELLS AND ACREAGE The following table sets forth the total gross and net productive gas and oil wells as of September 30, 1995, and developed and undeveloped acreage as of the latest practicable date prior to year-end: - ------------------------------------------------------- GROSS NET - ------------------------------------------------------- Gas Wells 926 211 Oil Wells 3,329 70 Developed Acreage 360,215 55,594 Undeveloped Acreage 127,695 14,014 =======================================================
The Company also had a revenue interest only in an additional 216 gross wells. There were 57 gross wells with multiple completions with the Company's interest being an equivalent of 5.9 wells. All wells and acreage are located in, both onshore and offshore, the United States, with the majority of the net undeveloped acreage located in the Gulf Coast region. OIL AND GAS PRODUCING ACTIVITIES Taurus's proved reserves are located in, both onshore and offshore, the United States and are as follows:
- --------------------------------------------------------------------------------------------------------------------- YEARS ENDED SEPTEMBER 30, 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------- Gas Oil Gas Oil Gas Oil MMcf MBbl MMcf MBbl MMcf MBbl ------------------- ------------------- ----------------- Proved reserves at beginning of year 60,057 1,485 67,298 1,289 51,329 338 Revisions of previous estimates (1,462) 142 (3,579) 144 400 (13) Purchase of minerals in place, net 11,919 2,472 456 201 11,467 1,149 Discoveries and other additions 9,350 137 5,051 42 10,347 19 Production (8,597) (250) (9,169) (191) (6,245) (204) - --------------------------------------------------------------------------------------------------------------------- Proved reserves at end of year 71,267 3,986 60,057 1,485 67,298 1,289 - --------------------------------------------------------------------------------------------------------------------- Proved developed reserves at end of year 50,657 3,380 45,538 1,281 56,207 1,155 =====================================================================================================================
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES The standardized measure of discounted future net cash flows is not intended, nor should it be interpreted, to present the fair market value of the Company's crude oil and natural gas reserves. An estimate of fair market value would take into consideration factors such as, but not limited to, the recovery of reserves not presently classified as proved reserves, anticipated future changes in prices and costs, and a discount factor more representative of the time value of money and the risks inherent in reserve estimates.
- ----------------------------------------------------------------------------------------------------------------- YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------- Future gross revenues $ 156,367 $ 105,986 $ 164,483 Future production and development costs 82,340 54,137 62,185 - ----------------------------------------------------------------------------------------------------------------- Future net cash flows before income taxes 74,027 51,849 102,298 Future income tax expense (benefit) including tax credits (10,533) (15,856) 1,304 - ----------------------------------------------------------------------------------------------------------------- Future net cash flows after income taxes 84,560 67,705 100,994 Discount at 10% per annum 21,001 16,051 28,210 - ----------------------------------------------------------------------------------------------------------------- Standardized measure of discounted future net cash flows relating to proved oil and gas reserves $ 63,559 $ 51,654 $ 72,784 =================================================================================================================
52 29 The following are the principal sources of changes in the standardized measure of discounted future net cash flows:
- -------------------------------------------------------------------------------------------------------------------------------- YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993 - -------------------------------------------------------------------------------------------------------------------------------- Balance at beginning of year $ 51,654 $ 72,784 $ 48,298 - -------------------------------------------------------------------------------------------------------------------------------- Revisions to reserves proved in prior years: Net changes in prices, production costs and future development costs (1,984) (24,969) 5,789 Net changes due to revisions in quantity estimates (2,474) (2,278) 1,303 Development costs incurred, previously estimated 3,207 1,723 1,700 Accretion of discount 5,166 7,278 4,830 Other (37) (560) (2,638) - -------------------------------------------------------------------------------------------------------------------------------- Total Revisions 3,878 (18,806) 10,984 New Field discoveries and extensions, net of future production and development costs 6,021 523 11,906 Sales of oil and gas produced, net of production costs (12,518) (14,635) (9,550) Purchases of minerals in place, net 13,894 1,354 17,158 Net change in income taxes 630 10,434 (6,012) - -------------------------------------------------------------------------------------------------------------------------------- Net change in standardized measure of discounted future net cash flows 11,905 (21,130) 24,486 - -------------------------------------------------------------------------------------------------------------------------------- Balance at end of year $ 63,559 $ 51,654 $ 72,784 ================================================================================================================================
COALBED METHANE ACTIVITIES The Company is actively engaged in the development of pipeline-quality natural gas from coal (coalbed methane). The results of the Company's coalbed methane activities have been included in the oil and gas disclosures shown previously. Because of the significance of coalbed methane to the Company, certain data are separately disclosed below. Production of coalbed methane from wells drilled prior to January 1, 1993, qualifies through December 31, 2002, for federal income tax credits under Section 29 of the Internal Revenue Code of 1986, as amended. The tax credit currently approximates $1 per Mcf of qualifying production. Accordingly, a significant portion of the value of proved coalbed methane reserves is associated with this tax credit.
- --------------------------------------------------------------------------------------------------------------- YEARS ENDED SEPTEMBER 30, 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------- Proved reserves at beginning of year (MMcf) 26,712 34,109 34,306 Revisions of previous estimates 1,842 (3,687) 364 Discoveries and other additions 159 -- 3,231 Production (3,709) (3,710) (3,792) - --------------------------------------------------------------------------------------------------------------- Proved reserves at end of year 25,004 26,712 34,109 - --------------------------------------------------------------------------------------------------------------- Estimated proved reserves qualifying for tax credits (MMcf) 15,837 18,947 21,461 - --------------------------------------------------------------------------------------------------------------- Net capitalized costs (in thousands) $ 19,370 $ 21,924 $ 24,896 - --------------------------------------------------------------------------------------------------------------- Gross wells in which Taurus has working and/or revenue interest 634 657 727 - --------------------------------------------------------------------------------------------------------------- Net productive wells 154.4 164.2 173.2 ===============================================================================================================
53 30 15. INDUSTRY SEGMENT INFORMATION The Company is principally engaged in the purchase, distribution and sale of natural gas in central and north Alabama and the development of oil and gas in the continental United States. The Company also is engaged in intrastate gas transmission services and merchandising.
- ------------------------------------------------------------------------------------------------------- AS OF SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993 - ------------------------------------------------------------------------------------------------------- Operating revenues, unaffiliated customers: Natural gas distribution $ 295,967 $ 344,637 $ 330,560 Oil and gas production 21,396 22,294 16,463 Other 3,841 10,142 10,093 - ------------------------------------------------------------------------------------------------------- Total $ 321,204 $ 377,073 $ 357,116 - ------------------------------------------------------------------------------------------------------- Intersegment revenues: Natural gas distribution $ -- $ -- $ -- Oil and gas production 2,259 2,917 3,424 Other 5,160 5,259 4,833 - ------------------------------------------------------------------------------------------------------- Total $ 7,419 $ 8,176 $ 8,257 - ------------------------------------------------------------------------------------------------------- Depreciation, depletion and amortization expense: Natural gas distribution $ 19,368 $ 17,941 $ 17,206 Oil and gas production 9,767 9,065 6,947 Other 442 994 1,136 - ------------------------------------------------------------------------------------------------------- Total $ 29,577 $ 28,000 $ 25,289 - ------------------------------------------------------------------------------------------------------- Capital expenditures: Natural gas distribution $ 42,780 $ 38,473 $ 22,107 Oil and gas production 26,429 7,356 21,449 Other 951 334 480 - ------------------------------------------------------------------------------------------------------- Total $ 70,160 $ 46,163 $ 44,036 - ------------------------------------------------------------------------------------------------------- Identifiable assets (year-end): Natural gas distribution $ 335,267 $ 308,905 $ 264,548 Oil and gas production 113,701 92,019 84,664 Other 10,116 10,390 21,473 - ------------------------------------------------------------------------------------------------------- Total $ 459,084 $ 411,314 $ 370,685 - ------------------------------------------------------------------------------------------------------- Operating income (loss) before income taxes: Natural gas distribution $ 32,513 $ 30,017 $ 26,381 Oil and gas production 483 5,701 4,539 Other 612 1,594 929 Eliminations and corporate expenses (1,199) (1,404) (1,582) - ------------------------------------------------------------------------------------------------------- Total 32,409 35,908 30,267 Interest expense (11,818) (11,345) (10,605) Dividends on preferred stock of subsidiary -- -- (70) Gain on sale of assets -- 2,142 -- Other, net 2,398 3,657 1,897 - ------------------------------------------------------------------------------------------------------- Income before income taxes $ 22,989 $ 30,362 $ 21,489 =======================================================================================================
31 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying consolidated financial statements and related notes of Energen Corporation were prepared by management, which has the primary responsibility for the integrity of the financial information therein. The statements were prepared in conformity with generally accepted accounting principles appropriate in the circumstances and include amounts which are based necessarily on management's best estimates and judgments. Financial information presented elsewhere in this report is consistent with the information in the financial statements. Management maintains a comprehensive system of internal accounting controls and relies on the system to discharge its responsibility for the integrity of the financial statements. This system provides reasonable assurance that corporate assets are safeguarded and that transactions are recorded in such a manner as to permit the preparation of reliable financial information. Reasonable assurance recognizes that the cost of a system of internal accounting controls should not exceed the related benefits. This system of internal accounting controls is augmented by written policies and procedures, internal auditing, and the careful selection and training of qualified personnel. As of September 30, 1995, management was aware of no material weaknesses in Energen's system of internal accounting controls. The consolidated financial statements have been audited by the Company's independent certified public accountants, whose opinion is expressed elsewhere on this page. Their audit was conducted in accordance with generally accepted auditing standards; and, in connection therewith, they obtained an understanding of the Company's system of internal accounting controls and conducted such tests and related procedures as they deemed necessary to arrive at an opinion on the fairness of presentation of the consolidated financial statements. The functioning of the accounting system and related internal accounting controls is under the general oversight of the Audit Committee of the Board of Directors, which is comprised of four outside Directors. The Audit Committee meets regularly with the independent public accountants and representatives of management to discuss matters regarding internal accounting controls, auditing and financial reporting. /s/ Geoffrey C. Ketcham - -------------------------------------- Geoffrey C. Ketcham Executive Vice President Chief Financial Officer and Treasurer - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders of Energen: We have audited the accompanying consolidated balance sheets of Energen Corporation and Subsidiaries as of September 30, 1995 and 1994, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended September 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Energen Corporation and Subsidiaries as of September 30, 1995 and 1994, and the consolidated results of their operations and cash flows for each of the three years in the period ended September 30, 1995, in conformity with generally accepted accounting principles. As discussed in Note 5 to the consolidated financial statements, the Company changed its method of accounting for certain other post-retirement benefits, effective October 1, 1993. /s/ Coopers & Lybrand L.L.P. - ----------------------------- Coopers & Lybrand L.L.P. Birmingham, Alabama October 25, 1995 55 32 SELECTED FINANCIAL DATA
ENERGEN CORPORATION AND SUBSIDIARIES - --------------------------------------------------------------------------------------------------------------- YEARS ENDED SEPTEMBER 30, (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1995 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------- INCOME STATEMENT Operating revenues $ 321,204 $ 377,073 $ 357,116 $ 331,982 Income before cumulative effect of change in accounting principle $ 19,308 $ 23,751 $ 18,081 $ 15,687 Net income $ 19,308 $ 23,751 $ 18,081 $ 16,628 Earnings per share before cumulative effect $ 1.77 $ 2.19 $ 1.77 $ 1.54 Earnings per average common share $ 1.77 $ 2.19 $ 1.77 $ 1.64 =============================================================================================================== BALANCE SHEET Capitalization at year-end: Common shareholders' equity $ 173,924 $ 167,026 $ 140,313 $ 129,858 Preferred stock -- -- -- 1,800 Long-term debt 131,600 118,302 85,852 90,609 - --------------------------------------------------------------------------------------------------------------- Total capitalization $ 305,524 $ 285,328 $ 226,165 $ 222,267 - --------------------------------------------------------------------------------------------------------------- Total assets $ 459,084 $ 411,314 $ 370,685 $ 342,119 - --------------------------------------------------------------------------------------------------------------- Property, plant and equipment, net $ 327,264 $ 287,182 $ 273,097 $ 254,630 =============================================================================================================== COMMON STOCK DATA Annual dividend rate at year-end $ 1.16 $ 1.12 $ 1.08 $ 1.04 Cash dividends paid per common share $ 1.13 $ 1.09 $ 1.05 $ 1.01 Book value per common share $ 15.94 $ 15.30 $ 13.60 $ 12.75 Market-to-book ratio at year-end (%) 136 147 182 142 Yield at year-end (%) 5.3 5.0 4.4 5.7 Return on average common equity (%) 11.0 14.6 13.0 13.0 Price-to-earnings ratio at year-end 12.3 10.3 14.0 11.1 Shares outstanding at year-end (000) 10,910 10,918 10,320 10,183 Price Range: High $ 23 1/2 $ 26 5/8 $ 26 3/4 $ 18 7/8 Low $ 19 3/4 $ 19 1/4 $ 17 5/8 $ 15 Close $ 21 3/4 $ 22 1/2 $ 24 3/4 $ 18 1/8 =============================================================================================================== OTHER GENERAL DATA Capital expenditures $ 70,160 $ 46,163 $ 44,036 $ 22,758 ===============================================================================================================
Note: All information prior to 1989 has been adjusted for the effects of a three-for-two common stock split. All information prior to 1990 includes the effects of discontinued operations. 56 33
- -------------------------------------------------------------------------------------- 1991 1990 1989 1988 1987 1986 1985 - -------------------------------------------------------------------------------------- $ 325,643 $ 324,860 $ 308,604 $ 353,135 $ 332,590 $ 364,853 $ 378,660 $ 14,112 $ 11,267 $ 6,422 $ 11,667 $ 8,950 $ 1,544 $ 5,248 $ 14,112 $ 11,267 $ 6,422 $ 11,667 $ 8,950 $ 1,544 $ 5,248 $ 1.42 $ 1.15 $ .69 $ 1.53 $ 1.38 $ .24 $ .86 $ 1.42 $ 1.15 $ .69 $ 1.53 $ 1.38 $ .24 $ .86 ====================================================================================== $ 121,995 $ 113,316 $ 107,950 $ 86,256 $ 63,687 $ 58,325 $ 59,085 1,800 1,800 2,450 2,450 2,850 3,000 3,150 77,677 82,835 86,188 53,203 54,589 42,286 24,690 - -------------------------------------------------------------------------------------- $ 201,472 $ 197,951 $ 196,588 $ 141,909 $ 121,126 $ 103,611 $ 86,925 - -------------------------------------------------------------------------------------- $ 337,516 $ 326,350 $ 294,614 $ 260,560 $ 237,445 $ 211,055 $ 191,524 - -------------------------------------------------------------------------------------- $ 273,539 $ 250,983 $ 238,329 $ 206,230 $ 191,099 $ 170,952 $ 150,544 ====================================================================================== $ 1.00 $ .94 $ .88 $ .827 $ .76 $ .72 $ .693 $ .955 $ .895 $ .843 $ .777 $ .73 $ .70 $ .653 $ 12.07 $ 11.48 $ 11.13 $ 10.80 $ 9.73 $ 9.02 $ 9.45 150 157 190 147 163 140 97 5.5 5.2 4.2 5.2 4.8 5.7 7.6 11.6 10.0 6.0 15.6 14.7 2.6 9.2 12.8 15.7 30.6 10.4 11.5 52.6 10.6 10,104 9,872 9,695 7,989 6,544 6,467 6,253 $ 20 $ 21 1/2 $ 24 3/8 $ 16 1/4 $ 16 1/2 $ 14 3/8 $ 10 3/4 $ 16 $ 16 $ 15 3/8 $ 11 3/8 $ 12 1/2 $ 9 $ 7 7/8 $ 18 1/8 $ 18 $ 21 1/8 $ 15 7/8 $ 15 7/8 $ 12 5/8 $ 9 1/8 ====================================================================================== $ 47,024 $ 37,335 $ 54,474 $ 39,260 $ 40,139 $ 39,688 $ 29,182 ======================================================================================
57 34 SELECTED OPERATING DATA
ENERGEN CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------------------------------------------------------- YEARS ENDED SEPTEMBER 30, (DOLLARS IN THOUSANDS) 1995 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------------------------- NATURAL GAS DISTRIBUTION Gas sold and transported (MMcf) Residential 27,489 31,254 30,957 29,119 Commercial and industrial--small 12,289 13,536 13,853 13,860 Commercial and industrial--large 29 106 282 2,654 Transportation 61,640 52,635 49,346 46,235 - -------------------------------------------------------------------------------------------------------------------------------- Total 101,447 97,531 94,438 91,868 - -------------------------------------------------------------------------------------------------------------------------------- Revenues from gas sold and transported Residential $ 194,089 $ 229,019 $ 216,587 $ 198,676 Commercial and industrial--small 68,409 84,443 83,069 78,799 Commercial and industrial--large 290 790 1,223 6,501 Transportation 30,490 29,321 27,382 25,089 Other 2,687 1,064 2,299 1,661 - -------------------------------------------------------------------------------------------------------------------------------- Total $ 295,965 $ 344,637 $ 330,560 $ 310,726 - -------------------------------------------------------------------------------------------------------------------------------- Average number of customers Residential 410,515 402,531 395,057 387,871 Commercial and industrial--small 33,115 32,563 32,269 31,732 Commercial and industrial--large 48 43 46 41 - -------------------------------------------------------------------------------------------------------------------------------- Total 443,678 435,137 427,372 419,644 - -------------------------------------------------------------------------------------------------------------------------------- Degree days (systemwide) 39-year moving average 2,590 2,590 2,590 2,590 Actual for year 2,101 2,636 2,624 2,434 Ratio of actual to 39-year average (%) .81 101.8 101.3 94.0 ================================================================================================================================ OIL AND GAS PRODUCTION Operating revenues $ 23,655 $ 25,211 $ 19,887 $ 15,718 Coalbed methane proved reserves (MMcf) 25,004 26,712 34,109 34,306 Conventional proved reserves (MMcf)* 70,179 42,261 40,923 19,041 Oil and gas produced (MMcf)* 10,096 10,316 7,468 7,287 ================================================================================================================================ OTHER ACTIVITIES Operating revenues $ 9,001 $ 15,401 $ 14,926 $ 15,099 Operating income $ 612 $ 1,594 $ 929 $ 2,009 Property, plant and equipment, net $ 2,339 $ 1,977 $ 6,273 $ 6,797 ================================================================================================================================
*Oil expressed in natural gas equivalents 58 35
- ----------------------------------------------------------------------------------------------------------- 1991 1990 1989 1988 1987 1986 1985 - ----------------------------------------------------------------------------------------------------------- 26,262 28,653 27,210 28,636 27,365 25,373 26,314 14,837 16,581 17,946 21,806 18,482 22,337 22,620 3,411 4,786 9,494 13,026 8,902 20,877 18,365 41,447 39,117 34,447 28,730 26,895 6,636 3,876 - ----------------------------------------------------------------------------------------------------------- 85,957 89,137 89,097 92,198 81,644 75,223 71,175 - ----------------------------------------------------------------------------------------------------------- $ 195,250 $188,168 $170,302 $190,836 $181,007 $165,060 $165,034 84,260 85,588 85,477 104,420 93,242 112,580 119,290 8,916 13,596 25,000 37,923 24,982 77,989 87,134 22,890 22,734 19,574 15,158 17,871 3,748 1,802 (2,188) 873 731 689 679 648 507 - ----------------------------------------------------------------------------------------------------------- $ 309,128 $310,959 $301,084 $349,026 $317,781 $360,125 $373,767 - ----------------------------------------------------------------------------------------------------------- 382,747 379,362 365,572 358,872 350,712 341,406 334,418 31,432 31,565 30,492 29,717 29,007 28,318 27,817 39 42 42 37 34 32 30 - ----------------------------------------------------------------------------------------------------------- 414,218 410,969 396,106 388,626 379,753 369,756 362,265 - ----------------------------------------------------------------------------------------------------------- 2,590 2,590 2,585 2,585 2,585 2,585 2,590 2,017 2,378 2,383 2,592 2,523 2,345 2,410 77.9 91.8 92.2 100.3 97.6 90.7 93.1 =========================================================================================================== $ 12,661 $ 12,983 $ 13,469 $ 13,034 $ 9,536 $ 8,163 $ 7,833 61,314 44,881 17,384 8,783 9,450 3,594 -- 14,369 14,626 14,060 7,772 8,985 10,796 12,136 6,455 5,434 5,534 5,540 3,975 2,926 2,374 =========================================================================================================== $ 13,951 $ 13,372 $ 5,962 $ 3,345 $ 3,843 $ 734 $ 578 $ 1,395 $ 1,890 $ (94) $ 1,324 $ 1,690 $ 319 $ 317 $ 7,098 $ 7,754 $ 9,004 $ 9,814 $ 5,833 $ 5,581 $ 44 ===========================================================================================================
EX-21 6 SUBSIDIARIES OF ENERGEN CORPORATION 1 EXHIBIT 21 SUBSIDIARIES OF ENERGEN CORPORATION Alabama Gas Corporation Taurus Exploration, Inc. Taurus Exploration USA, Inc. Basis Pipeline Corp American Heat Tech, Inc. Graves Well Drilling Company, Inc. EGN Services, Inc. Midtown NGV, Inc. EX-23.A 7 COOPERS & LYBRAND LLP CONSENT (ENERGEN) 1 EXHIBIT 23(a) CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Energen Corporation on Forms S-8 and S-3 (File No. 2-89855), Form S-3 (File No. 33-41997) and Forms S-8 (File No. 33-27869, File No. 33-46641, File No. 33-48504, and File No. 33-48505) of our report, which includes an explanatory paragraph regarding the Company's change in method of accounting for certain other post-retirement benefits, dated October 25, 1995, on our audits of the consolidated financial statements of Energen Corporation as of September 30, 1995 and 1994, and for the years ended September 30, 1995, 1994, and 1993, which report is incorporated by reference in this Annual Report on Form 10-K. Coopers & Lybrand L.L.P. Birmingham, Alabama December 22, 1995 EX-23.B 8 COOPERS & LYBRAND LLP CONSENT (ALAGASCO) 1 EXHIBIT 23(b) CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Alabama Gas Corporation on Form S-3 (File No. 33-70466), of our report, which includes an explanatory paragraph regarding the change in method of accounting for certain other post-retirement benefits, dated October 25, 1995, on our audits of the financial statements and financial statement schedules of Alabama Gas Corporation as of September 30, 1995 and 1994, and for the years ended September 30, 1995, 1994, and 1993, which report is included in this Annual Report on Form 10-K. Coopers & Lybrand L.L.P. Birmingham, Alabama December 22, 1995 EX-27.1 9 FINANCIAL DATA SCHEDULE (ALABAMA GAS) WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF ALABAMA GAS CORPORATION FOR THE YEAR ENDED SEPTEMBER 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 PER-BOOK 256,445 193 71,226 7,403 0 335,267 20 34,484 87,638 122,142 0 0 100,000 0 0 0 0 0 0 0 113,125 335,267 295,967 8,082 263,454 271,536 24,431 942 25,373 9,652 15,721 0 15,721 9,170 7,536 42,870 0 0 EARNINGS PER SHARE IS CALCULATED FOR ENERGEN CORPORATION (PARENT COMPANY OF ALAGASCO) AND IS NOT CALCULATED FOR ALAGASCO SEPARATELY, AS AMOUNT WOULD NOT BE MEANINGFUL.
EX-27.2 10 FINANCIAL DATA SCHEDULE (ENERGEN CORPORATION)
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF ENERGEN CORPORATION FOR THE YEAR ENDED SEPTEMBER 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 PER-BOOK 256,445 70,819 119,031 9,694 3,095 459,084 109 83,795 90,020 173,924 0 0 131,600 32,300 0 0 1,775 0 0 0 119,485 459,084 321,204 3,681 288,795 292,476 28,728 2,398 31,126 11,818 19,308 0 19,308 12,330 10,021 60,869 1.77 1.77
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