Atmos Energy 2005 Annual Report Download - page 10

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o p e r a t i o n s ฀ r e v i e w
ALABAMA
A R K A N S A S
C O L O R A D O
GEORGIA
I L L I N O I S
INDIANA
MICHIGAN
P E N N S Y L V A N I A
I O W A
K A N S A S
K E N T U C K Y
LOUISIANA
MISSISSIPPI
M I S S O U R I
OHIO
OKLAHOMA
TENNESSEE
TEXAS
VIRGINIA
W E S T
VIRGINIA
Atmos฀Energy฀Headquarters
States฀with฀Both฀Utility฀
and฀Nonutility฀Operations
States฀with฀Only฀
Nonutility฀Operations
Utility฀Service฀Areas
Atmos฀Energy฀Utility฀Division฀Headquarters
Atmos฀Energy฀Marketing฀Headquarters
Atmos฀Energy฀Marketing฀Regional฀Offices
DE NVER
DALL AS
LUBBOCK
HOUSTON
JACKSON
BATON฀ROUGE
NE W฀ORL EA NS
FR ANKLI N
OW ENSBO RO
S O U T H
C A R O L I N A
N O R T H
C A R O L I N A
R E S U L T S ฀ O F ฀ O P E R A T I O N S
In฀fiscal฀2005,฀consolidated฀net฀income฀increased฀58฀
percent฀to฀$135.8฀million฀from฀$86.2฀million฀in฀fiscal฀
2004.฀Earnings฀per฀diluted฀share฀were฀$1.72,฀compared฀
with฀$1.58฀in฀the฀previous฀year.฀Gross฀profit฀was฀$1.1฀
billion฀on฀operating฀revenues฀of฀$5.0฀billion.฀Return฀฀
on฀average฀shareholders’฀equity฀was฀9.0฀percent.฀The฀
company฀paid฀total฀cash฀dividends฀of฀$1.24฀per฀share฀and฀
provided฀a฀total฀return฀to฀shareholders฀of฀17.2฀percent.
฀ Utility฀operations฀contributed฀60฀percent฀of฀
consolidated฀net฀income฀in฀fiscal฀2005.฀Natural฀gas฀
marketing฀operations฀contributed฀17฀percent,฀and฀
pipeline฀and฀storage฀operations฀contributed฀23฀percent.
T X U ฀ G A S ฀ A C Q U I S I T I O N
A฀major฀factor฀supporting฀Atmos฀Energy’s฀record-setting฀
results฀in฀fiscal฀2005฀was฀the฀full฀year฀of฀contributions฀
from฀the฀acquired฀distribution฀and฀pipeline฀operations฀
of฀TXU฀Gas฀Company.฀As฀we฀forecast,฀the฀acquisition฀
proved฀accretive฀to฀earnings฀in฀its฀first฀year,฀contributing฀
$52.7฀million฀to฀consolidated฀net฀income,฀or฀18฀cents฀
per฀diluted฀share.฀We฀paid฀approximately฀$1.9฀billion฀in฀
cash฀and฀financed฀the฀acquisition฀with฀two฀public฀
offerings฀of฀common฀stock,฀yielding฀net฀proceeds฀of฀
approximately฀$618฀million,฀and฀a฀$1.39฀billion฀public฀
offering฀of฀senior฀debt.฀
฀ The฀acquisition฀added฀1.5฀million฀gas฀utility฀customers฀
in฀the฀north-central,฀eastern฀and฀western฀regions฀of฀
Texas฀to฀nearly฀double฀our฀size.฀The฀acquired฀operations฀
also฀included฀one฀of฀the฀largest฀intrastate฀natural฀gas฀
pipelines฀in฀Texas฀and฀five฀connected฀gas฀storage฀fields.฀
As฀part฀of฀the฀new฀Atmos฀Pipeline–Texas฀Division,฀the
6,162-mile฀pipeline฀system฀delivers฀natural฀gas฀to฀more฀
than฀550฀cities฀served฀by฀our฀new฀Mid-Tex฀Division.฀
It฀also฀transports฀natural฀gas฀from฀nine฀producing฀basins฀
across฀Texas฀and฀interconnects฀with฀several฀intrastate฀
and฀interstate฀gas฀pipelines฀at฀three฀major฀transportation฀
hubs฀in฀West฀Texas,฀East฀Texas฀and฀the฀Houston฀area.
฀
฀ To฀better฀serve฀our฀Mid-Tex฀Division’s฀customers,฀
Atmos฀Energy฀took฀over฀the฀operation฀of฀a฀large฀customer฀
call฀center฀in฀Waco,฀Texas,฀and฀hired฀about฀240฀employees฀
to฀staff฀the฀center.฀We฀also฀assumed฀responsibility฀for฀
other฀services฀that฀had฀been฀outsourced฀by฀TXU฀Gas,฀such฀
as฀information฀technology,฀customer฀billing฀and฀meter฀
reading.฀By฀the฀beginning฀of฀the฀2006฀fiscal฀year,฀we฀had฀
completed฀the฀conversion฀of฀the฀former฀systems฀to฀฀
our฀own฀systems—nearly฀a฀year฀in฀advance฀of฀the฀time฀
typically฀needed฀for฀such฀conversions.฀We฀believe฀these฀
changes฀will฀provide฀long-term฀savings฀and฀help฀us฀be฀more฀
responsive฀to฀our฀customers’฀needs.
W E A T H E R ฀ A N D ฀ T H R O U G H P U T
Weather,฀overall,฀during฀fiscal฀2005฀was฀11฀percent฀
warmer฀than฀the฀30-year฀normal฀averages,฀as฀adjusted฀
for฀our฀operations฀that฀have฀weather-normalized฀rates.฀
The฀warm฀winter฀heating฀season฀reduced฀our฀net฀
income฀by฀$22.8฀million,฀or฀29฀cents฀per฀diluted฀share.
฀ Consolidated฀utility฀throughput฀increased฀to฀฀
411.1฀billion฀cubic฀feet฀(Bcf)฀in฀fiscal฀2005฀from฀246.0฀
Bcf฀in฀fiscal฀2004.฀The฀increase฀was฀largely฀due฀to฀
operations฀of฀the฀Mid-Tex฀Division,฀which฀added฀174.3฀
Bcf฀in฀throughput฀for฀the฀year.฀Natural฀gas฀marketing฀
sales฀volumes฀increased฀about฀15.5฀Bcf฀to฀238.1฀Bcf,฀and฀
pipeline฀transportation฀volumes฀were฀375.6฀Bcf฀during฀
fiscal฀2005.
N A T U R A L ฀ G A S ฀ P R I C E S
Wholesale฀natural฀gas฀prices฀continued฀rising฀during฀
fiscal฀2005,฀following฀a฀five-year฀trend.฀Domestic฀natural฀
gas฀production฀barely฀kept฀pace฀with฀the฀growing฀
demand฀largely฀because฀clean-burning฀natural฀gas฀is฀
being฀used฀to฀fuel฀most฀new฀electric฀power฀plants.฀In฀
addition,฀Hurricanes฀Katrina฀and฀Rita฀damaged฀more฀
than฀15฀percent฀of฀the฀natural฀gas฀production฀capacity฀฀
in฀the฀Gulf฀of฀Mexico.฀Damage฀to฀offshore฀drilling฀and฀
producing฀platforms฀and฀the฀pipelines฀and฀processing฀
facilities฀needed฀to฀transport฀the฀gas฀to฀shore฀caused฀
natural฀gas฀prices฀to฀reach฀record฀levels฀during฀the฀
summer,฀when฀we฀typically฀inject฀large฀gas฀volumes฀into฀
storage฀to฀withdraw฀during฀the฀winter฀heating฀season.
฀
฀ Our฀average฀utility฀cost฀of฀natural฀gas฀for฀the฀2005฀
fiscal฀year฀was฀$7.41฀per฀thousand฀cubic฀feet฀(Mcf),฀
compared฀with฀$6.55฀per฀Mcf฀for฀the฀2004฀fiscal฀year.฀
To฀help฀protect฀our฀customers฀from฀the฀volatility฀in฀
wholesale฀natural฀gas฀markets,฀we฀continue฀to฀hedge฀
gas฀prices฀for฀our฀customers฀in฀jurisdictions฀that฀
allow฀hedging฀programs.฀For฀the฀2005–2006฀heating฀
season,฀we฀have฀hedged฀approximately฀46฀percent฀
of฀our฀expected฀winter฀supply,฀using฀a฀combination฀of฀
underground฀storage฀and฀financial฀contracts.฀We฀
project฀that฀our฀weighted฀average฀cost฀for฀storage฀gas฀
and฀financial฀contracts฀will฀be฀about฀$9.11฀per฀Mcf,฀
which฀is฀46฀percent฀more฀than฀we฀paid฀in฀the฀winter฀
of฀2004–2005.
O P E R A T I N G ฀ E F F I C I E N C Y
Atmos฀Energy฀remains฀one฀of฀the฀utility฀industry’s฀฀
low-cost฀leaders฀in฀operation฀and฀
maintenance฀expense,฀as฀measured฀
by฀O&M฀expense฀per฀utility฀customer.฀฀
For฀fiscal฀2005,฀our฀
utility฀O&M฀expense฀฀
฀
was฀$110฀per฀customer,฀compared฀to฀our฀peer-group฀
average฀of฀$209฀per฀customer.฀Another฀indicator,฀
customers฀per฀employee,฀also฀demonstrates฀Atmos฀
Energy’s฀leadership฀in฀productivity.฀In฀fiscal฀2005,฀฀
we฀served฀730฀utility฀customers฀per฀utility฀employee,฀
compared฀with฀our฀peer-group฀average฀of฀511฀
customers฀per฀employee.
฀ A฀significant฀achievement฀during฀fiscal฀2005฀฀
was฀our฀ability฀to฀accelerate฀$12.4฀million฀(net฀of฀tax)฀฀
of฀cost฀savings฀from฀the฀TXU฀Gas฀acquisition.฀฀
These฀savings฀
originally฀were฀
forecast฀for฀฀
fiscal฀2006.