Atmos Energy 1997 Annual Report Download - page 47

42 ATMOS ENERGY CORPORATION
ciencies of the combined operations. Therefore, the Company recorded as regulatory
assets the costs of the merger and integration of UCGC. However, the Company has
established a reserve of approximately $20 million ($12.6 million after-tax), to account
for costs that may not be recovered. 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. For
further information regarding the merger please see Note 2 of notes to consolidated finan-
cial statements.
Effects of Weather
Annual sales volumes and revenues vary in relation to winter heating degree days and
summer irrigation demand. The Company has weather normalization adjustments in its
rates in Georgia and Tennessee, but not in the other 10 states in which it has natural gas
distribution operations. The estimated effect on net income of weather different from 30-
year normals is included in the previous table. The decline in net income, excluding the
charges and reserves, was the result of the effects of warmer than normal weather during
the winter months, which negatively impacted gas throughput and sales as well as
propane sales. In addition, the spring months were wetter than normal, which adversely
impacted irrigation gas utilization. Normal weather conditions would have added $.12
per share to net income.
Rates
The negative effects of weather were partially offset by rate increases implemented in fis-
cal 1996 and 1997 in jurisdictions in Texas, Kentucky, Illinois, Georgia, Iowa, Tennessee,
Missouri and Virginia. Rate increases contributed approximately $8 million to gross profit
in 1997.
The following table summarizes heating degree days and volumes delivered for 1997,
1996 and 1995.
YEAR ENDED SEPTEMBER 30,
1997 1996 1995
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Heating degree days,
Actual............................................................................. 3,909 4,043 3,706
Percent of normal.......................................................... 98% 101% 93%
Sales volumes – MMcf
Residential ..................................................................... 75,214 77,001 69,666
Commercial.................................................................... 37,382 38,247 34,921
Industrial (including agricultural)................................... 46,417 57,863 57,290
Public authority and other ............................................ 5,195 5,182 4,779
___________________________________________ __________________________________________ ____________________________________________
Total ........................................................................... 164,208 178,293 166,656
Transportation volumes – MMcf ....................................... 48,800 44,146 47,647
___________________________________________ __________________________________________ ____________________________________________
Total volumes delivered – MMcf....................................... 213,008 222,439 214,303
___________________________________________ __________________________________________ ____________________________________________
___________________________________________ __________________________________________ ____________________________________________
Propane – Gallons (000’s).................................................. 32,975 40,723 28,854
___________________________________________ __________________________________________ ____________________________________________
___________________________________________ __________________________________________ ____________________________________________
Total operating revenues (000’s) ....................................... $906,835 $886,691 $749,555
___________________________________________ __________________________________________ ____________________________________________
___________________________________________ __________________________________________ ____________________________________________
Operating revenues increased approximately 2% to $906.8 million in 1997 from $886.7
million in 1996 due to an increase of 13% in the average sales price per thousand cubic
feet (“Mcf”) of gas sold, which more than offset a 4% decrease in total volumes deliv-
ered. The increase in sales price reflects an increase in the commodity cost of gas which is
passed through to end users and rate increases implemented in 1996 and 1997. Average
gas sales revenues per Mcf increased by $.60 to $5.11 in 1997, while the average cost of
gas per Mcf sold increased $.36 to $3.51 in 1997. The number of meters in service
increased to 985,448 at September 30, 1997 compared with 976,308 at September 30,
1996. Sales to weather sensitive residential, commercial and public authority customers
decreased approximately 2.6 billion cubic feet (“Bcf”) in 1997 while sales and trans-
portation volumes delivered to industrial and agricultural customers decreased approximately
6.8 Bcf. Total sales and transportation volumes delivered decreased 4.2% to 213.0 Bcf in
1997, as compared with 222.4 Bcf in 1996. The decrease was primarily due to lower irri-
gation demand as a result of cooler, wetter summer weather in West Texas.
Gross profit increased by approximately 2% to $329.7 million in 1997 from $324.4 mil-
lion in 1996. The primary factor contributing to the higher gross profit was annual rate
increases totalling approximately $16.3 million implemented in fiscal 1997 and 1996 in
Texas, Kentucky, Tennessee, Iowa, Missouri, Georgia, and Illinois. This was partially off-
set by a decrease of 9.4 Bcf or 4.2% due to the effect of warmer than normal weather and
decreased irrigation demand as a result of cooler, wetter summer weather in 1997.
Operating expenses, excluding income taxes, increased $31.2 million or 13% to $263.0
million in 1997. The $25.5 million increase in operation expense was due primarily to the
non-recurring $20.0 million reserve for potential sharing of merger and integration costs,
and the $4.4 million charge for management reorganization. The $3.6 million increase in
depreciation was due to utility plant additions placed in service in 1996 and 1997. Income
taxes decreased to $14.3 million for 1997 from $23.3 million for 1996. The primary rea-
son for the decrease was lower pre-tax profits. The effective tax rate increased slightly to
37.5% in 1997 from 36.2% in 1996. This was primarily due to increased state income
tax rates in 1997. Also, prior to the merger in 1997, UCGC’s income was subject to a
slightly lower federal tax rate because of the graduated rate structure. Operating income
decreased in 1997 by approximately $17.0 million or 24% to $52.3 million. The decrease
in operating income resulted primarily from the non-recurring charges included in 1997
operating expenses as discussed above.
Net income decreased in 1997 by approximately 42% to $23.8 million from $41.2 million
in the prior year. This $17.3 million decrease in net income resulted from the $17.0 million
decrease in operating income and a $1.9 million increase in interest expense, which were
partially offset by a $1.6 million increase in other income. The increase in interest expense
was due to higher average debt outstanding in 1997 than in 1996. The $1.6 million
increase in other income for 1997 was primarily due to a $1.1 million increase in income
from the Company’s investment in Woodward Marketing L.L.C., a Houston gas market-
ing company. Net income per share decreased to $.81 for 1997 from $1.42 for 1996.
Average shares outstanding increased 1% to 29,409,000 shares in 1997 from 1996.
Year ended September 30, 1996 compared with year ended September 30, 1995
Operating revenues increased 18% to $886.7 million in 1996 from $749.6 million in
1995 due to weather that was 9% colder than in 1995 and an 11% increase in the aver-