Atmos Energy 1997 Annual Report Download - page 34

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Recently issued accounting standards not yet adopted The Company has not yet
adopted Statement of Financial Accounting Standards No. 128 “Earnings per Share.”
The Statement is effective for Atmos’ fiscal year 1998 and earlier adoption is not permit-
ted. The Statement requires restatement of all prior-period EPS data presented.
The Company has not yet adopted Statement of Financial Accounting Standards No. 130
“Reporting Comprehensive Income.” The Statement will be effective for Atmos’ fiscal
year 1999. It establishes standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains, and losses) in a full set of general-purpose
financial statements. Reclassification of financial statements for earlier periods provided
for comparative purposes is required.
The Company has not yet adopted Statement of Financial Accounting Standards No. 131
“Disclosures about Segments of an Enterprise and Related Information.” The Statement
will be effective for Atmos’ fiscal year 1999. It establishes standards for the way
that public business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected information
about operating segments in interim financial reports issued to shareholders. In the
initial year of application, comparative information for earlier years is to be restated.
The Company believes that adoption of these Statements will not have a material
impact on its financial condition, results of operations, or cash flows.
TWO Business combinations
On July 31, 1997 Atmos acquired by means of a merger all of the assets and liabilities of
United Cities Gas Company (“UCGC”) in accordance with the terms and provisions of
an Agreement and Plan of Reorganization dated July 19, 1996 and amended October 3,
1996. A total of 13,320,221 shares of Atmos common stock were issued in a one-for-
one exchange for all outstanding shares of UCGC common stock. UCGC was a natural
gas utility company engaged in the distribution and sale of natural gas to approximately
306,000 customers in Georgia, Illinois, Iowa, Kansas, Missouri, South Carolina,
Tennessee, and Virginia, and in the sale of propane to approximately 29,000 customers
in Kentucky, North Carolina, Tennessee, and Virginia. Its assets consisted of the prop-
erty, plant and equipment used in its natural gas and propane sales and distribution
businesses. With the completion of the merger, Atmos serves over 1,000,000 customers
in 13 states.
UCGC was merged with and into Atmos by means of a tax-free reorganization. The
transaction was accounted for as a pooling of interests; therefore, all historical financial
statements and notes thereto have been restated. UCGC prepared its financial statements
on a December 31 fiscal year end. UCGC’s fiscal year has been changed to September 30
to conform to the Company’s year end. The restated September 30, 1996 balance sheet,
as presented, is the combined balance sheets of Atmos as of September 30, 1996 and
UCGC as of December 31, 1996. The restated consolidated statements of income and
cash flows for the years ended September 30, 1996 and 1995 include Atmos operations
for the years then ended and UCGC operations for the years ended December 31, 1996
and 1995. The consolidated statement of income for the year ended September 30, 1997
includes Atmos and UCGC operations for the twelve months then ended. As a result,
UCGC’s operations for the three months ended December 31, 1996 (operating revenues
of $122,971,000 and net income of $9,263,000) are included in both the 1997 and 1996
consolidated statements of income, the UCGC net income for this period has been deduct-
ed in calculating the shareholders’ equity balances at September 30, 1997 and cash flows
for the year then ended. Certain account reclassifications were made to conform UCGC’s
classifications to Atmos’ presentation.
Following the merger, UCGC’s business has been operated as United Cities Gas Company,
a division of Atmos (“United Cities Division”) and integration of the companies has
begun. The United Cities Division will be structured like other divisions of Atmos. To
achieve this structure, approximately 560 utility positions in the United Cities Division
will be eliminated by September 1998. An additional 75 Atmos positions will be elimi-
nated as part of the integration, resulting in approximately 635 total position reductions
in the combined company by September 1998. Atmos also has initiated plans to enhance
its customer service in Texas, Louisiana, Kentucky, Colorado, Kansas and Missouri
through business process changes which will result in a net reduction of approximately 240
positions. These changes include restructuring business office operations, establishing a net-
work of payment centers and creating a customer support call center.
Atmos estimates the cost of the merger and integration will total approximately
$17,000,000 for the transaction costs and $32,000,000 for the separation and other
costs. The Company believes there are substantial longer term benefits to its customers
and shareholders from the merger of the two companies, which are expected to result in
operating cost savings over the next 10 years totaling approximately $375,000,000. The
Company believes a significant amount of the costs to achieve these benefits will be recov-
ered through rates and future operating efficiencies of the combined operations.
The Company recorded as regulatory assets the costs of the merger and integration of the
United Cities Division as discussed above, along with the costs of the customer service ini-
tiative, which are primarily separation costs and are estimated to be approximately
$12,000,000 through September 30, 1997. However, the Company established a general
reserve of approximately $20,340,000 ($12,630,000 after-tax), to account for costs that
may not be recovered through rates. Since the substantial portion of the costs are related
to position eliminations between July 31, 1997 and July 31, 1998 and fees payable at the
close of the merger, the Company recorded these costs in the fourth quarter of fiscal year
1997 when the merger was completed, separation plans were approved by the Board of
Directors, and announcements were made to employees.
ATMOS ENERGY CORPORATION