Atmos Energy 1997 Annual Report Download - page 33

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ONE Summary of significant accounting policies
Description of business Atmos Energy Corporation and its subsidiaries (“Atmos” or the
“Company”) are in the business of distributing natural gas to residential, commercial,
industrial and agricultural customers within service areas located in Texas, Louisiana,
Kentucky, Colorado, Kansas, Illinois, Tennessee, Iowa, Virginia, Georgia, South Carolina
and Missouri. Such business is subject to federal and state regulation and/or regulation by
local authorities in each of the twelve states in which the Company operates. In connec-
tion with the acquisition of United Cities Gas Company (See Note 2), the Company also
acquired non-utility businesses operated through UCG Energy Corporation (“UCG
Energy”) and United Cities Gas Storage Company (“UCG Storage”). They are involved in
propane sales and distribution, gas marketing, rental of real estate, equipment and appliances,
and natural gas storage services. None of the non-utility operations constitute a material
business segment.
Principles of consolidation The accompanying consolidated financial statements include
the accounts of Atmos Energy Corporation and its subsidiaries. Each subsidiary is wholly
owned and all material intercompany items have been eliminated. Investments in
50%-or-less owned joint ventures or partnerships are accounted for by the equity method
or the cost method, as appropriate.
Restatement for pooling of interests The consolidated financial statements for all
prior periods presented have been restated for the pooling of interests of the Company with
United Cities Gas Company in July 1997. Certain changes in account classifications have
been made to conform United Cities Gas Company’s classifications to Atmos’ presentation.
Regulation The Company’s utility operations are subject to regulation with respect to
rates, service, maintenance of accounting records and various other matters by the respec-
tive regulatory authorities in the states in which it operates. The consolidated financial
statements are based on generally accepted accounting principles. Atmos’ accounting
policies recognize the financial effects of the ratemaking and accounting practices and
policies of the various regulatory commissions.
Revenue recognition Sales of natural gas are billed on a monthly cycle basis; however,
the billing cycle periods for certain classes of customers do not necessarily coincide with
accounting periods used for financial reporting purposes. The Company follows the rev-
enue accrual method of accounting for natural gas revenues whereby revenues applicable
to gas delivered to customers but not yet billed under the cycle billing method are
estimated and accrued and the related costs are charged to expense. Estimated losses due
to credit risk are reserved at the time revenue is recognized.
Property, plant and equipment Property, plant and equipment is stated at original cost
net of contributions in aid of construction. The cost of additions includes an allowance
for funds used during construction and applicable overhead charges. Major renewals and
betterments are capitalized, while the costs of maintenance and repairs are charged to
expense as incurred. Property, plant and equipment is depreciated at various rates on a
straight-line basis over the estimated useful lives of the assets. The composite rates were
3.9% and 3.7% for the years ended September 30, 1997 and 1996, respectively. At the
time property, plant and equipment is retired, the cost, plus removal expenses and less sal-
vage, is charged to accumulated depreciation.
Inventories Inventories consist of materials and supplies and merchandise held for
resale. Inventories are stated at the lower of average cost or market.
Gas stored underground Net additions of inventory gas to underground storage and
withdrawals of inventory gas from storage are priced using the average cost method for
Atmos, except for the United Cities Division, where it is priced on the first-in first-out
method. Propane is priced at average cost. Gas stored underground and owned by UCG
Storage is priced on the last-in first-out (“LIFO”) method. In accordance with the
United Cities Division’s PGA clause, the liquidation of a LIFO layer would be reflected in
subsequent gas adjustments in customer rates and does not affect the results of opera-
tions. Non-current gas in storage is classified as property, plant and equipment and is
priced at cost.
Income taxes The Company provides deferred income taxes for significant temporary
differences in the recognition of revenues and expenses for tax and financial
reporting purposes.
Cash and cash equivalents The Company considers all highly liquid debt instru-
ments purchased with a maturity of three months or less to be cash equivalents.
Deferred charges and other assets Deferred charges and other assets at September
30, 1997 and 1996 include assets of the Company’s qualified defined benefit retire-
ment plans in excess of the plans’ obligations in the amounts of $11,557,000 and
$11,810,000, respectively, and Company assets related to the nonqualified retirement
plans at September 30, 1997 and 1996 of $21,210,000 and $17,808,000, respectively.
Deferred credits and other liabilities Deferred credits and other liabilities include cus-
tomer advances for construction of $10,072,000 and $9,753,000 at September 30, 1997
and 1996, respectively; obligations under capital leases of $3,047,000 and $2,769,000 at
September 30, 1997 and 1996, respectively; and obligations under the Company’s non-
qualified retirement plans of $22,167,000 and $20,313,000 at September 30, 1997 and
1996, respectively.
Earnings per share The calculation of primary earnings per share is based on reported net
income divided by weighted average common shares outstanding. The Company does not
have other classes of stock or dilutive common stock equivalents.
Use of estimates The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and expenses dur-
ing the reporting period. Actual results could differ from those estimates.
Notes to Consolidated Financial Statements
ATMOS ENERGY CORPORATION