Atmos Energy 1999 Annual Report Download - page 40

Atmos
Energy
Corporation
36
The following table presents the WMLLC financial results recorded
by Atmos for the years ended September 30, 1999, 1998 and 1997.
WMLLC has adopted the calendar year for financial reporting purposes.
Twelve months ended September 30,
1999 1998 1997
(In thousands)
WMLLC net income
before taxes $ 15,902 $ 8,711 $ 7,231
Atmos share @ 45% 7,156 3,920 3,254
Less:
Amortization of excess
purchase price 407 400 359
Provision for taxes 2,362 1,337 1,100
Atmos equity in
WMLLC earnings $ 4,387 $ 2,183 $ 1,795
The net income before taxes of WMLLC increased from $7.2 mil-
lion for 1997, to $8.7 million for 1998, to $15.9 million for 1999,
due to growth in number of customers and gas marketing volumes
and revenues each year. Additionally, WMLLC adopted EITF 98-10 in
1999, the effect of which added $2.4 million to the Company’s equi-
ty in earnings of unconsolidated investment.
Factors Influencing Future Performance
Performance of the Company in the near future will primarily
depend on the results of its utility operations since utility operations
are expected to continue to be the substantial contributor to the
Company’s consolidated net income. Because of the changing energy
marketplace, there are several factors that will influence Atmos’
future financial performance. Some of these factors are described
below.
Allowed Rate of Return The Company’s utility business is subject to
various regulated returns on its rate base in each of the 12 states in
which it operates. The Company constantly monitors the allowed
rates of return, its effectiveness in earning such rates, and initiates
rate proceedings or operating changes as needed.
Outcome of Pending Rate Cases In the normal course of the regu-
latory environment, assets are placed in service and historical test peri-
ods are established before rate cases can be filed. Once rate cases are
filed, regulatory bodies have the authority to suspend implementation
of the new rates while studying the cases. Because of this process, the
Company must suffer the negative financial effects of having placed
assets in service without the benefit of rate relief. Management can-
not predict the outcome of the approximately $28.4 million of rev-
enue increases it is seeking in Texas and Kentucky.
Weather The Company’s natural gas and propane sales volumes and
related revenues are directly correlated with space heating require-
ments that result from cold winter weather. Its agricultural sales vol-
umes are associated with the rainfall levels during the growing sea-
son in its West Texas irrigation market. Weather is a significant factor
influencing the Company’s performance.
Control of Expenses Historically, the Company has been able to
budget and control operating expenses and investment within the
amounts authorized to be collected in rates, and intends to continue
to do so. The ability to control expenses is an important factor that
will influence future results.
Environmental Matters The Company is involved in certain environ-
mental matters and expenditures to comply with these laws and reg-
ulations are expected to be recovered through rates, insurance, or
shared with other potentially responsible parties. These matters are
not expected to materially affect the results of operations, financial
condition or cash flows of the Company. See Note 6 of notes to con-
solidated financial statements for further information.
Performance-based Regulation Regulators in Georgia, Kentucky
and Tennessee allow the Company and its customers to share in pur-
chased gas cost savings when the Company can obtain gas supplies
below certain benchmark indices. Acceptance of such incentives in
other states would contribute to the profitability of the Company’s
utility operations.
Deregulation or Unbundling The Company is closely monitoring
the development of unbundling initiatives in the natural gas industry.
Because of its brand loyalty in its service areas, its enhanced technol-
ogy and distribution system infrastructures, the Company believes
that it is now positively positioned as unbundling evolves.
Growth through Acquisitions Achieving economies of scale, there-
by spreading the fixed costs of the utility business over a large cus-
tomer base is a basic tenet in the Company’s plan to continue to be a
low cost provider among its industry peers.
Inflation The Company believes that inflation has caused, and will
continue to cause, increases in certain operating expenses and has
required and will continue to require assets to be replaced at higher
costs. The Company has a process in place to continually review the
adequacy of its gas rates in relation to the increasing cost of providing
service and the inherent regulatory lag in adjusting rates.