Atmos Energy 1997 Annual Report Download - page 43

38 ATMOS ENERGY CORPORATION
Effective October 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 106 (“SFAS No. 106”), “Employers’ Accounting for Postretirement
Benefits Other Than Pensions.” SFAS No. 106 focuses principally on postretirement
health care benefits and significantly changed the practice of accounting for postretire-
ment benefits on a pay-as-you-go basis by requiring accrual of such benefit costs on an
actuarial basis from the date each employee reaches age 45 until the date of full eligibility
for such benefits. The Company is amortizing on a straight line basis its initial transition
obligations over 20 years. The initial transition obligation of the United Cities Division
was $8,894,000. The initial transition obligation for all other Divisions was $33,354,000.
Substantially all of the Company’s employees other than the United Cities Division
become eligible for these benefits if they reach retirement age while working for the
Company and attain 10 consecutive years of service after age 45. Participant contribu-
tions are required under these plans. Prior to June 1994, the plans were not funded. In
June 1994, the Company made its first quarterly payment to the external trust set up to
fund SFAS No. 106 costs in excess of the pay-as-you-go cost in Kansas in accordance with
an order of the Kansas Corporation Commission. In April, 1995 it began external fund-
ing in Colorado in accordance with an order of the Colorado Public Utility Commission.
The amount of funding will ultimately depend upon the ratemaking treatment allowed in
the Company’s various rate jurisdictions.
The components of net periodic postretirement benefits cost for the Atmos plans for each
of the years ended September 30, 1997, 1996 and 1995 are as follows:
(In thousands) 1997 1996 1995
_____________________________ ______________________________________ ____________________________________
Service cost............................................................................... $1,599 $1,469 $1,497
Interest cost.............................................................................. 2,371 2,224 2,322
Actual return on plan assets..................................................... (28) (39) (18)
Amortization of transition obligation....................................... 1,550 1,550 1,549
Prior service cost ...................................................................... 202 - -
Net amortization and deferral.................................................. (217) (80) (150)
_____________________________ ______________________________________ ____________________________________
Net periodic postretirement benefits cost .............................. $5,477 $5,124 $5,200
_________________________ _________________________________ ____________________________________
_________________________ _________________________________ ____________________________________
The following is a reconciliation of the funded status of the Atmos plans to the net postre-
tirement benefits liability on the balance sheet as of September 30, 1997 and 1996:
(In thousands) 1997 1996
_________________________________________ _________________________________________
Accumulated postretirement benefits obligation
Retirees............................................................................................. $(22,575) $(19,849)
Fully eligible employees................................................................... (721) (6,426)
Other employees.............................................................................. (10,328) (4,644)
_________________________________________ _________________________________________
(33,624) (30,919)
Plan assets ................................................................................................ 1,278 927
_________________________________________ _________________________________________
Accumulated postretirement benefits
obligation in excess of plan assets ...................................................... (32,346) (29,992)
Unrecognized net gain............................................................................. (6,602) (4,775)
Unrecognized transition obligation.......................................................... 25,802 26,342
_________________________________________ _________________________________________
Accrued postretirement benefits liability ................................................ $(13,146) $ (8,425)
_________________________________________ _________________________________________
_________________________________________ _________________________________________
In the latest actuarial calculation of the accrued postretirement benefits liability, the
assumed health care cost trend rate used to estimate the cost of postretirement benefits
was 7.5% for 1997 and 1998 and is assumed to decrease gradually to 5.0% by 2001 and
remain at that level thereafter. The trend for vision benefits is assumed to remain level for
all years at 4.5%. The effect of a 1% increase in the assumed health care cost trend rate
for each future year is $376,000 and $344,000 on the annual aggregate of the service and
interest cost components of net periodic postretirement benefit costs and $2,760,000 and
$2,377,000 on the accumulated postretirement benefits obligation as of September 30,
1998 and 1997, respectively. The assumed discount rate, the rate at which liabilities could
be settled, was 7.5% as of September 30, 1997 and 1996. The expected long-term rate of
return on plan assets was 5.3% for 1997 and 1996.
The Company maintains a separate postretirement health care benefits plan for the United
Cities Division. Substantially all of its employees will become eligible for these benefits if
they reach the normal retirement age while working for the Company.
The components of net periodic postretirement benefits cost for the United Cities Division
for each of the years ended September 30, 1997, 1996 and 1995 are as follows:
(In thousands) 1997 1996 1995
___________________________________ __________________________________ ___________________________________
Service cost .................................................................................. $ 86 $ 89 $ 120
Interest cost ................................................................................. 926 897 1,051
Actual return on plan assets........................................................ (274) (212) (107)
Amortization of transition obligation .......................................... 364 364 445
Net amortization and deferral..................................................... 298 232 182
___________________________________ __________________________________ ___________________________________
Net periodic postretirement benefits cost ................................. $1,400 $1,370 $1,691
___________________________________ __________________________________ ___________________________________
___________________________________ __________________________________ ___________________________________
The following is a reconciliation of the funded status of the United Cities Division plan to the
net postretirement benefits liability on the balance sheet as of September 30, 1997 and 1996:
(In thousands) 1997 1996
_________________________________________ __________________________________________
Accumulated postretirement benefits obligation
Retirees ................................................................................................ $(16,331) $(11,546)
Fully eligible employees...................................................................... (213) (1,007)
Other employees................................................................................. (750) (816)
_________________________________________ __________________________________________
(17,294) (13,369)
Plan assets ............................................................................................... 4,336 3,715
_________________________________________ __________________________________________
Accumulated postretirement benefits
obligation in excess of plan assets ..................................................... (12,958) (9,654)
Unrecognized net gain ............................................................................ 7,837 5,186
Unrecognized transition obligation......................................................... 5,280 5,821
_________________________________________ __________________________________________
Accrued postretirement benefits liability ............................................... $ 159 $ 1,353
___________________________________ ____________________________________
___________________________________ ____________________________________
In the latest actuarial calculation of the accrued postretirement benefits liability for the
United Cities Division, the assumed health care cost trend rate used to estimate the cost
of postretirement benefits was 7.5% for 1997 and 1998, and is assumed to decrease grad-
ually to 5.0% by 2001 and remain at that level thereafter. The effect of a 1% increase in
the assumed health care cost trend rate for each future year is $88,000 and $79,000 on
the annual aggregate of the service and interest cost components of net periodic postre-