Atmos Energy 1997 Annual Report Download - page 46

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ATMOS ENERGY CORPORATION
has an excellent track record of acquiring LDC operations that provide diversity in weath-
er, regulatory patterns, economies and markets. It has achieved synergies and benefits
quickly, while preserving brand equity.
Ratemaking Activity
Rates and regulatory initiatives are at the heart of Atmos’ utility operations and are
important to both shareholders and customers. Atmos’ objective is to achieve rates that
provide fair returns for its shareholders while having these rates at low, competitive levels
for its customers. As the energy environment and industry change, the process for setting
rates in the future may also need to change. In that regard, the Company is participating
in a performance-based rates experimental program in Tennessee, which is designed to
reward the Company for performing better than certain benchmarks relating to purchased
gas cost. A similar program is under way in Georgia. Atmos believes that performance-
based rate programs benefit customers and reward efficient service providers like Atmos,
and Atmos intends to seek gas cost incentive arrangements and incentive rates in every
jurisdiction possible.
The Company received rate increases totaling $9.4 million, $6.8 million, and $5.8 million
effective in fiscal 1997, 1996 and 1995, respectively. For further information regarding these
rate increases please see Note 3 “Rates” in notes to consolidated financial statements.
Weather and Seasonality
The Company’s natural gas and propane distribution businesses are seasonal due to
weather conditions in the Company’s service areas. Sales are affected by winter heating
season requirements. Sales to agricultural customers (who use natural gas as fuel in the
operation of irrigation pumps) during the period from April through September are affect-
ed by rainfall amounts. These factors generally result in higher operating revenues and net
income during the period from October through March of each year and lower operating
revenues and either net losses or lower net income during the period from April through
September of each year. For further seasonality information, please see the Supplementary
Quarterly Financial Data following the notes to consolidated financial statements herein.
The Georgia Public Service Commission and the Tennessee Regulatory Authority have
approved Weather Normalization Adjustments (“WNAs”). The WNAs, effective October
through May each year in Georgia and November through April each year in Tennessee,
allow the United Cities Division to increase the base rate portion of customers’ bills when
weather is warmer than normal and decrease the base rate when weather is colder than
normal. The net effect of the WNAs was an increase/(decrease) in revenues of $2,643,000,
($2,612,000) and $1,030,000 in 1997, 1996 and 1995, respectively.
The Company has not sought weather normalization clauses in its other rate jurisdictions
because of the effect of its geographical diversification strategy and the potential for
increased profits in unusually cold years.
Environmental Matters
The Company is involved in certain environmental matters as discussed in Note 5
“Contingencies” of notes to consolidated financial statements.
Results of Operations
Year ended September 30, 1997 compared with year ended September 30, 1996
To assist in management’s discussion of results of operations, the following table presents
the effects for fiscal years 1997, 1996 and 1995 of certain non-recurring charges as well
as weather which affected reported results.
(In thousands, except per share data) 1997 1996 1995
__________________________________________________________________ _________________________________________________________________ ___________________________________________________________________
Per Per Per
Amount Share Amount Share Amount Share
_______________________________ ______________________________ ______________________________ ______________________________ ______________________________ ________________________________
Net income as reported..................... $23,838 $ .81 $41,151 $1.42 $28,808 $1.06
Non-recurring charges:
Management reorganization.......... 2,800 .10 - - - -
Reserve for potential sharing of
merger and integration costs .... 12,630 .43 - - - -
_______________________________ ______________________________ ______________________________ ______________________________ ______________________________ ________________________________
Normalized net income except
for effects of weather .................... 39,268 1.34 41,151 1.42 28,808 1.06
Effects of weather.............................. 3,571 .12 (1,838) (.06) 5,000 .18
_______________________________ ______________________________ ______________________________ ______________________________ ______________________________ ________________________________
Normalized net income...................... $42,839 $1.46 $39,313 $1.36 $33,808 $ 1.24
_______________________________ ______________________________ ______________________________ ______________________________ ______________________________ ________________________________
_______________________________ ______________________________ ______________________________ ______________________________ ______________________________ ________________________________
Net Income As Reported
The Company reported net income of $23.8 million, or $.81 per share, on operating rev-
enues of $906.8 million for the fiscal year ended September 30, 1997. The 1997 net
income includes the effects of non-recurring after-tax charges related to management reor-
ganization ($2.8 million or $.10 per share) and reserves related to the UCGC merger and
integration ($12.6 million or $.43 per share). Excluding the effect of these charges, the
Company’s net income would have been $39.3 million or $1.34 per share in 1997, com-
pared with $41.2 million, or $1.42 per share for 1996. The 1997 results include United
Cities Gas Company, which merged with Atmos effective July 31, 1997, and prior year
operating results have been restated to reflect the pooling of interests accounting which
was used for the merger.
Non-recurring Charges
The Company completed a management reorganization in 1997 and recorded a charge of
$4.4 million ($2.8 million after-tax) in related costs.
The cost of the UCGC merger and integration totaled approximately $17 million for the
transaction costs and $32 million for the separation and other costs. There are substantial
longer term benefits to the Company’s customers and shareholders from the merger of the
two companies, which the Company expects to result in cost savings over the next 10
years totaling about $375 million. The Company believes a significant amount of the
costs to achieve these benefits will be recovered through rates and future operating effi-