T R O P E R L A U N N A Y R A M M U S 3 0 0 2 N O I T A R O P R O C Y G R E N E S O M T A A Company that $1.20 1.00 .80 .60 .40 .20 4 8 5 8 6 8 7 8 8 8 9 8 0 9 1 9 2 9 3 9 4 9 5 9 6 9 7 9 8 9 9 9 0 0 1 0 2 0 3 0 4 0 Dividends in dollars per share 20consecutive years of increasing dividends. At a time when many companies are just deciding to pay dividends, ours keep rising. Why? Atmos Energy’s employees work hard at working smarter. We invite you to look inside to see how their good ideas make Atmos Energy work for you. Twenty years of consecutive annual increases in dividends (adjusted for mergers and acquisitions) rank Atmos Energy as one of only 284 corporations that have paid higher consecutive dividends for 10 years or longer, according to Mergent, Inc. Our indicated annual dividend rate for fiscal 2004 is $1.22 per share. Year ended September 30 (Dollars in thousands, except per share data) 2003 2002 Change Operating revenues Gross profit Utility net income Natural gas marketing net income (loss) Other nonutility net income Total Total assets Total capitalization Net income per share – diluted Cash dividends per share Book value per share at end of year Consolidated utility segment throughput (MMcf) Consolidated natural gas marketing segment throughput (MMcf) Heating degree days Degree days as a percentage of normal Meters in service at end of year Return on average shareholders’ equity Shareholders’ equity as a percentage of total capitalization (including short-term debt) at end of year Shareholders of record Weighted average shares outstanding – diluted (000s) $ 2,799,916 534,976 $ $ $ 62,137 (970) 10,521 71,688 $ 2,518,508 $ 1,721,435 1.54 $ 1.20 $ 16.66 $ 247,965 225,961 3,473 101% 1,672,798 9.9% 46.4% 28,510 46,496 $ 1,650,964 $ 431,140 $ $ 42,994 12,614 4,048 59,656 $ 1,981,385 $ 1,243,698 1.45 $ 1.18 $ 13.75 $ 208,541 204,027 3,368 94% 1,389,341 9.9% 40.6% 28,829 41,250 69.6% 24.1% 44.5% -107.7% 159.9% 20.2% 27.1% 38.4% 6.2% 1.7% 21.2% 18.9% 10.8% 3.1% 7.4% 20.4% — 14.3% -1.1% 12.7% DEAR FELLOW SHAREHOLDERS: Our consistent dividend increases, along with I am extremely proud of all the work by Atmos recent cuts in the federal income tax on dividends, Energy’s employees who made our 20th anniversary have made our stock more attractive to investors year such a success. seeking value and growth. To the extent our operating Atmos Energy is a company that works. Our 2,905 results and financial condition permit, the Board employees work hard to serve our customers and to of Directors remains committed to raising the dividend deliver strong financial results. For the past two annually and to lowering the payout ratio in the decades, their efforts have produced consistent growth and above-average returns for our 70,000 owners. future to around 65 percent of earnings. 2003 IN REVIEW That was true again in fiscal 2003. We achieved Fiscal 2003 was not without challenges. One of the a 20 percent increase in net income and a 6 percent major hurdles we had to overcome was natural gas rise in earnings per diluted share. In fiscal 2003, Atmos Energy earned $1.80 $71.7 million. Earnings per diluted share were $1.54 and were within our stated guidance of $1.52 to $1.58 per diluted share. Moreover, we exceeded our industry peer group’s average total return of 16.4 percent, delivering a solid 17.2 percent total return to our shareholders. Return on average shareholders’ equity was 9.9 percent. 1.50 1.20 0.90 0.60 0.30 0.00 1999 2000 2001 2002 2003 Cash dividends per share Earnings per share prices that were both high and volatile. Zig-zagging gas prices put additional demands on our collection efforts and cut into both our utility and nonutility earnings. Like other corporations, we also faced the added challenge of controlling rapidly rising costs for our employee pension plan, medical coverage and liability insurance. Through the dedicated determi- nation of our employees, we not only Recognizing these successful results, the Board managed those matters, but also achieved other of Directors in November 2003 increased the annual successes. Ten achievements stand out because they dividend rate by 2 cents per share. In fiscal 2003, Atmos Energy paid total cash dividends of $1.20 per will contribute to our long-term success. 10 MAJOR ACHIEVEMENTS share. The indicated annual dividend rate for fiscal First, we took advantage of a window of opportunity 2004 is $1.22 per share. to sell 4.1 million common shares. The sale strength- Paying cash dividends consistently is one of the ened our balance sheet by improving our debt-to-equity best measures of a company’s financial strength. ratio and bolstered our high credit ratings. Atmos Energy’s record of consecutive annual dividend increases ranks it among the top 2.5 percent of corporations that pay dividends. 5 8 22 30 31 32 5 Letter to Shareholders Operational Review Financial Review Atmos Energy Officers Board of Directors Corporate Information Letter to Shareholders Second, we made a $77 million contribution to Eighth, we pursued our passion for customer service. annual earnings growth of 3 percent to 5 percent, We have pursued a consistent strategy of running our pension plan to adequately fund the plan. This Excellence in customer service is an attitude and it with our earnings per diluted share expected to range our utilities well, of making sound acquisitions should help to protect our employees and retirees starts with each employee. During 2003, we launched from $1.55 to $1.60. and of expanding our nonutility business. Our reputa- and to reduce our future pension funding requirements. Third, we closed our acquisition of Mississippi a systemwide customer service training program. As Atmos Energy enters its third decade, the tion has grown not from our size, but from the Ninth, our investments in technology yielded increas- company is well positioned for long-term growth and neighborliness, mettle and strength of character of Valley Gas Company and welcomed some 260,000 new ing dividends. Our Enterprise Asset Management continued success. Our balance sheet is strong; Atmos Energy’s employees. utility customers and 600 employees of Valley Gas Project, as described on page 18, is the latest in a long our credit ratings are high; our rate filings have added Our commitment to strong ethics and integrity has into Atmos Energy. The transaction was the company’s list of information and telecommunications advances to revenues and have reduced the effects of weather been part of the company since its founding, long ninth major acquisition. we’ve made. With our highly automated Customer on profitability; and our earnings have grown at a steady before the Sarbanes-Oxley Act was passed. To reiterate Fourth, we renewed our credit facilities in both Support Center and Internet site, we’re serving customers our utility and nonutility operations. These credit better and at lower costs. pace, enabling us to pay higher dividends each year. FOUNDATION OF SUCCESS that commitment, the Board of Directors this past year reviewed and revised its committee charters and our agreements have allowed us to finance all of our oper- Tenth, we continued to manage our total spending The foundation of Atmos Energy’s success has code of conduct for all directors, officers and employees. ations in an orderly and disciplined fashion. in strategic ways. Both our capital outlays and Fifth, we received rate increases in Louisiana and in operation and maintenance expense were under budget. Amarillo, Texas, and we achieved weather normaliza- tion adjustments These 10 achievements reflect many of the characteristics that differentiate Atmos Energy in the business of delivering natural gas. Capital expen- ditures during fiscal 2003 were $159 million. in Kansas and Amarillo. Our ability to grow our Our O&M expense per customer of $122 continues to earnings relies on our continual success in achieving compare favorably to our peer group’s average been built on our utility operations, which provide about 80 percent of our net income. Through acquisitions, we have evolved from a regional Texas gas utility to one of the country’s largest natural gas distribution companies. We are known for making responsible, disciplined and accretive acquisitions. We pledge to continue to manage Atmos Energy for long-term success, not for immediate or personal gains. Our goals remain to grow and prosper financially, to foster great customer service, to be a safe and rewarding place to work and to benefit all those who associate with Atmos Energy— fair rate designs and keeping rates current. expense of $195. Closely managing capital and O&M To strengthen the company’s foundation, we our shareholders, customers, communities and Sixth, by using our 49.4 billion cubic feet of expenditures helps us stay highly competitive. have added opportunities for long-term growth employees. I thank you, our owners, and all of our usable and contracted natural gas storage and fixed- These 10 achievements reflect many of the through our nonutility operations. Our natural employees for supporting these goals. forward supply contracts, we hedged about half characteristics that differentiate Atmos Energy in the gas marketing business, for instance, ranks as one Consistency in purpose, financial results and of our winter gas supply to save our utility customers business of delivering natural gas. This summary of the best in the industry based on independent ethical conduct stands as Atmos Energy’s foremost more than $67 million last year in gas costs. annual report discusses those characteristics that customer satisfaction surveys. strength as we observe our 20th year. Seventh, we took steps to enhance the profitability during the past 20 years have made Atmos Energy of our nonutility operations by contracting for an additional 1.25 billion cubic feet of natural gas storage, a company that works. 2004 OUTLOOK installing a new billing system and renegotiating We expect fiscal 2004 will be a challenging contracts to reduce the risk of price volatility. year. High gas costs will make collecting customer bills more difficult and will require us to make higher cash outlays for gas supplies. We have targeted Robert W. Best Chairman, President and Chief Executive Officer December 1, 2003 6 7 Since 1983, our annual customer growth rate has averaged over 9%. By making sound acquisitions and adding customers within existing operations, we’ve become one of America’s largest pure natural gas distributors. Along the way, we’ve also learned how to efficiently integrate new operations and customers into a growing Atmos Energy. Commercial and industrial customers like Unilever Bestfoods account for almost two-fifths of our utility gas revenues with high-volume meters that run almost nonstop. We serve mainly small to medium-size communities. Nine major acquisitions have enabled us to grow from 279,000 customers in 1983 to nearly 1.7 million in 2003. American families and value-minded builders choose our natural gas for clean, low-cost energy. Steamboat Springs, Colorado Growth through acquisitions is one of our key strategies and a way to leverage our technology and purchasing power to better serve customers. We fuel our steady revenue growth through acquisitions, population growth and by attracting new commercial and industrial customers. tmos Energy has a long history of being a company that works. Since 1983, we have been delivering value to our investors, energy to our customers, improvements to our communities and investments in our employees. Over this time, a number of characteristics have evolved that set us apart from others in the natural gas delivery industry—giving us not only a distinctive personality, but also the strengths on which our success has been formed. In particular, our commitment to hard work and sound acquisitions has helped us grow from 279,000 customers in 1983 to nearly 1.7 million today, making us one of the country’s largest natural gas distributors. We have remained steadfast to our clear three-part strategy: running our utilities exceptionally well, making sound acquisitions and expanding our nonutility operations. Our business model is unlike virtually any other natural gas distributor’s. It’s based on our focus on gas operations, tight cost control, geographic diversity and growth by acquisitions. Moreover, our record of consecutive annual dividend increases ranks us as one of only 284 corporations that have paid higher consecutive dividends for 10 years or longer, according to Mergent’s list of Dividend Achievers. Our dividend has grown at a 20-year average annual compound rate of 6.44 percent. Wayne Elliston, Customer Service, and his two-day supply of gas meters in a warehouse now up for sale in Amarillo, Texas. We serve price- regulated and price-sensitive markets. Our employees keep productivity at industry-leading levels and make sure that every expenditure is a wise one. In short, we make cost manage- ment a 24-hour- a-day job. Our highly efficient workers have kept our already-low operation and maintenance expense per customer well below the industry average for years. 6 4 1 $ 5 3 1 $ 0 3 1 $ 2 2 1 $ 1 0 1 $ We rely on our own employees to train and mentor fellow employees. That way, they learn from the best. We deliver the greenest of all fossil fuels, natural gas, which produces virtually no emissions that cause acid rain. Natural gas also is the most efficient energy source on a Btu basis. 99 00 01 02 03 11 Our employees set the mark for the industry in productivity. Even spread over 12 states and lacking the economies of scale of large metropolitan operations, Atmos Energy has maintained its leadership among peers through its low operation and maintenance expense per customer and its high number of customers served per employee. Cost management is a way of life for company employees, who benefit from incentive bonus programs by keeping costs down and contributing to earnings. Cost control, however, is never at the expense of safety or service. Atmos Energy’s top priority is always to serve customers safely, reliably and courteously—as well as efficiently. Empty warehouses mean lower costs. Just-in-time delivery has cut our parts inventory to so few items that storage and retrieval take us man- minutes, not man-hours. Labeling parts with employees’ names saves even more time and money. And that’s how we work for you. diversity We are spread from the Plains to the Gulf and from the Rockies to the Appalachians—by choice. Our diversity moderates the effect that a single area’s unseasonable weather, slowing regional economy or local regulation changes can have on earnings. Instead of experiencing boom or bust, our diversity helps make our business more predictable and manageable. Steamboat Springs Denver Chase County Owensboro Franklin Blue Ridge Mountains Lubbock Jackson Dallas Natchitoches Houston Baton Rouge New Orleans Atmos Energy Headquarters Atmos Energy Division Offices Atmos Energy Marketing Headquarters Atmos Energy Marketing Regional Offices Utility Operations 12 Our nonutility operations are in 18 states and overlap most of our utility operations. Nonutility States of Operation 13 Diversity of territory, weather, customers, regional economies and regulatory policies makes us the country’s most geographically diverse natural gas utility. We serve a broad range of people whose varied ethnic backgrounds, regional customs, language patterns and family heritages truly represent the heartland of America. From the rugged Rocky Mountains, across the vast Great Plains, through the bountiful Midwest, deep into the storied South of Nearly 1.7 million utility customers live in more than 1,000 communities where we have franchises to deliver natural gas service. We also serve another 1,000 or so municipalities, industrial customers and governmental entities that buy wholesale natural gas or gas transportation services from us. Excellent customer service is our passion. We are committed to being the best in our industry. And we prove that by our low costs and our high dedication to the Mississippi Valley to the beautiful Blue Ridge Mountains, we deliver America’s natural gas to the homes and community affairs, economic development and civic pride. Even in our highly competitive nonutility operations, businesses of our nation, all as one team with one name — Atmos Energy. we consistently rank among the top three mid-tier gas marketers for excellence in customer service. Great places to live. Nine of ten Atmos Energy employees make their homes, raise their families and take great pride in the communities we serve. And that’s how we work for you. We do infields. Atmos Energy supports Little League and many other youth activities in communities we serve. 9out of 10 employees live, work and play in the communities we serve. We stay close to our customers by being one of them. When it rains, we get wet with every- one else. If someone needs on-site service, we’re usually in the neighborhood. Yes, we offer toll-free and online access for our customers’ convenience, but to make the kind of commitment our communities deserve, there’s no substitute for being there. Kenny Westerfield, Operations Specialist, enjoying good food and chitchat at a favorite community spot, Horn’s Dairy Bar in Owensboro, Kentucky. To help Cloverdale, Kentucky, recover from arson damage caused by drug dealers, we donated trucks and office equipment to replace the city’s destroyed facilities. 14 Commitment to our communities is a strong tradition at Atmos Energy. By being close to our customers, we know them both personally and professionally. Our employees give their time and leadership to many excellent programs, such as United Way, chambers of commerce, regional economic development groups, school boards and city councils, Scouting, Girls Inc., Little League, blood drives and fundraisers, Habitat for Humanity homes, university trusteeships, environmental and wildlife protection, Crime Watch—and hundreds more worthy causes. Dawn McManus, Regional Marketing Manager, and Brian Felger, Regional Marketing Director, on St. Peter Street in the French Quarter of New Orleans. Our service keeps many schools running smoothly and looking sharp. We provide natural gas sales and transportation services to hundreds of large manufacturers, including Continental Tire, Mayfield, Kentucky, Our natural gas helps alligator farms keep their water warm and swampy. Noranda Aluminum, New Madrid, Missouri, and Saturn, Spring Hill, e . s e s e n n e T Industrial, very large commercial and some municipal entities buy their natural gas supply from a gas marketer, such as Atmos Energy Marketing. Many also use our utility system to deliver the gas. Serving these large-volume gas users helps us meet a key objective: lower gas prices for all of our customers. Hanging tough in the Big Easy. Facing stiff competition, Atmos Energy Marketing recently won an Entergy New Orleans contract to supply about half the natural gas for New Orleans. Our gas storage strategy helped seal the deal. And that’s how we work for you. We supply natural gas to many small municipal utilities, helping them deliver gas at low costs. c u s e n t l l e e x c l p s O u r e h e c r v i e s r t a i n t o m e e r w i n a n d t o m e u s c u s t y i l i n o n u t i n a h i g h l y i v e b u s c o m p e t t i r i n e s . s s 17 Gas deregulation has given large gas consumers choices for their gas supplier and for other gas services. Our strategy of expanding our nonutility operations to serve industrial and municipal customers complements our core business as a regulated local distribution company. Our nonutility operations in 18 states are in close proximity to our utility operations. This provides advantages for natural gas purchasing, transportation and storage. Our nonutility operations sold 226 billion cubic feet of natural gas in 2003 to municipalities, industrials and governmental entities. We also develop distributed electric generation plants for municipalities and companies. Richard Herrera, Customer Service, works in waist-deep sorghum near Plainview, Texas. Second to our employees, technology is the smartest worker we have. Satellite-based commu- nication between field and office staff is very efficient — dispatching is text-based, allowing our service technicians to read, click and go. Handheld computers now being tested will give field staff full access to our utility mapping, engineering specifications, job cost data as well as our other information systems as part of our Enterprise Asset Management project. Technology can save time, save space, cut costs, boost productivity, reduce errors, improve communication with customers and employees, and automate virtually any control system. 18 Our substantial investment in information and telecommunications technology helps us continually improve our customer service while it lowers our operating costs. Starting in 1997, Atmos Energy undertook a massive conversion to advanced data processing technology. Today, information is accessible from mobile computers in our service trucks. Our telecommunications systems support one of the best customer call centers in the industry. Meters on remote farms are read from an airplane. Service routing will soon be handled by a satellite network. And new field technologies will enhance the safety and efficiency of our construction and maintenance work. Efficiency from out of the blue. Reading 1,200 transmitter- equipped meters attached to natural gas-powered farm irrigators takes one pilot one day— saving over a week of work by a field crew. And that’s how we work for you. Immediate, silent and environmentally friendly snow removal, thanks to thousands of feet of tubing pulsing with water heated by natural gas, means snow won’t stick where people walk and drive. And that’s how we work for you. Rob Mosher, Sales Representative, standing where 25 feet of yearly snow won’t, in Steamboat Springs, Colorado. smart people doing smart things When natural gas producers are busy pumping gas out of the ground and selling it for less, we buy it and pump it back into underground storage. Why? Storing gas in the summer that our customers can buy later in the winter helps keep our customers’ bills low. Management by councils made up of staff who lead and perform the work helps us adopt common practices that maximize effectiveness and efficiency. Never underestimate the power of an idea. Even an innovation that seems odd in the beginning can make our customers and us look smart in the end. Some of our best ideas help customers use gas in new ways or help us deliver gas at lower prices. Who’d have thought that melting snow in ski country would be a good idea? But it is. We develop distributed generation electric plants so that businesses and municipalities can generate electricity at a savings. 21 Innovation has been at the heart of Atmos Energy from the start. As a small regional gas utility, our company’s leaders knew they must innovate to survive and prosper. So early on, Atmos Energy sought new markets for natural gas, new ways to help customers use gas and new assets, such as storage fields, to lower customers’ costs. The company grew by adding operations outside its traditional market. And the new employees who joined our system were encouraged to share their knowledge in what today has become a system of management by councils, which set our common operating practices. The combination of knowledge and new ideas sets Atmos Energy apart—as the company that works. Summary Annual Report The financial information presented in this report about Atmos Energy Corporation is condensed. Our complete financial statements, including notes as well as management’s discussion and analysis of financial condition and results of operations, are presented in our Annual Report on Form 10-K. Atmos Energy’s chief executive officer and its chief financial officer have complied with, and have executed, all certifications of these financial statements required under the Sarbanes-Oxley Act of 2002 and all related rules of the Securities and Exchange Commission with respect to the financial statements contained within. Investors may request, without charge, our Annual Report on Form 10-K for the fiscal year ended September 30, 2003, by calling Shareholder Relations at (972) 855-3729 between 8 a.m. and 5 p.m. Central time. Our Form 10-K also is available on Atmos Energy’s Web site at www.atmosenergy.com. Additional investor information is presented on page 32 of this report. 23 24 25 26 27 28 29 Atmos Energy at a Glance Condensed Consolidated Balance Sheets Condensed Consolidated Statements of Income Condensed Consolidated Statements of Cash Flows Report of Independent Auditors Consolidated Financial and Statistical Summary 1999-2003 Forward-Looking Statements Year ended September 30 Meters in service Residential Commercial Industrial Agricultural Public authority and other Total meters Heating degree days Actual (weighted average) Percent of normal Utility sales volumes (MMcf) Residential Commercial Industrial Agricultural Public authority and other Total Utility transportation volumes (MMcf) Total utility throughput (MMcf) Intersegment activity (MMcf) Consolidated utility throughput (MMcf) Consolidated natural gas marketing throughput (MMcf) Operating revenues (000s) Gas utility sales revenues Residential Commercial Industrial (including agricultural) Public authority and other Total gas sales revenues Transportation revenues Other gas revenues Total utility revenues Natural gas marketing revenues Other nonutility revenues Total operating revenues (000s) Other statistics Gross plant (000s) Net plant (000s) Miles of pipe Employees 2003 2002 1,498,586 151,008 3,799 9,514 9,891 1,672,798 1,247,247 122,156 2,118 10,576 7,244 1,389,341 3,473 101)% 3,368 94)% 97,953 45,611 23,738 7,884 9,326 184,512 70,159 254,671 77,386 35,796 14,499 10,988 5,875 144,544 69,589 214,133 (6,706) (5,592) 247,965 225,961 208,541 204,027 $ 873,375 367,961 192,676 65,921 1,499,933 29,583 23,341 1,552,857 1,234,447 12,612 $ 2,799,916 $ 2,480,139 $ 1,515,989 45,267 2,905 $ 535,981 221,728 98,765 31,731 888,205 36,591 11,258 936,054 700,519 14,391 $ 1,650,964 $ 2,127,827 $ 1,300,320 39,157 2,338 23 Financial Review Atmos Energy at a Glance September 30 (Dollars in thousands, except share data) 2003 2002 September 30 (Dollars in thousands, except per share data) 2003 2002 2001 Assets Property, plant and equipment Construction in progress Less accumulated depreciation and amortization Net property, plant and equipment Current assets Cash and cash equivalents Cash held on deposit in margin account Accounts receivable, less allowance for doubtful accounts of $13,051 in 2003 and $10,509 in 2002 Gas stored underground Other current assets Total current assets Goodwill and intangible assets Deferred charges and other assets Capitalization and Liabilities Shareholders’ equity Common stock, no par value (stated at $.005 per share); 100,000,000 shares authorized; issued and outstanding: 2003 – 51,475,785 shares, 2002 – 41,675,932 shares Additional paid-in capital Retained earnings Accumulated other comprehensive loss Shareholders’ equity Long-term debt Total capitalization Current liabilities Accounts payable and accrued liabilities Other current liabilities Short-term debt Current maturities of long-term debt Total current liabilities Deferred income taxes Deferred credits and other liabilities $ 2,463,992 16,147 2,480,139 964,150 1,515,989 15,683 17,903 216,783 168,765 38,863 457,997 273,499 271,023 $ 2,518,508 $ 257 736,180 122,539 (1,459) 857,517 863,918 1,721,435 179,852 127,923 118,595 9,345 435,715 223,350 138,008 $ 2,518,508 $ 2,103,428 24,399 2,127,827 827,507 1,300,320 47,991 10,192 136,227 91,783 44,962 331,155 190,380 159,530 $ 1,981,385 $ 208 508,265 106,142 (41,380) 573,235 670,463 1,243,698 136,773 159,727 145,791 21,980 464,271 134,540 138,876 $ 1,981,385 Operating revenues Utility segment Natural gas marketing segment Other nonutility segment Intersegment eliminations Purchased gas cost Utility segment Natural gas marketing segment Other nonutility segment Intersegment eliminations Gross profit Operating expenses Operation and maintenance Depreciation and amortization Taxes, other than income Total operating expenses Operating income Other income (expense) Equity in earnings of Woodward Marketing, L.L.C. Miscellaneous income (expense) Total other income (expense) Interest charges Income before income taxes and cumulative effect of accounting change Income tax expense Income before cumulative effect of accounting change Cumulative effect of accounting change, net of income tax benefit Net income Per share data Basic income per share: Income before cumulative effect of accounting change Cumulative effect of accounting change, net of income tax benefit Net income Diluted income per share: Income before cumulative effect of accounting change Cumulative effect of accounting change, net of income tax benefit Net income Weighted average shares outstanding: Basic Diluted $ 1,554,082 1,668,493 21,630 (444,289) 2,799,916 1,062,679 1,644,328 1,540 (443,607) 2,264,940 534,976 205,090 87,001 55,045 347,136 187,840 — 2,191 2,191 63,660 126,371 46,910 79,461 (7,773) 71,688 1.72 (.17) 1.55 1.71 (.17) 1.54 46,319 46,496 $ $ $ $ $ $ 937,526 1,031,874 24,705 (343,141) 1,650,964 559,891 994,318 8,022 (342,407) 1,219,824 431,140 158,119 81,469 36,221 275,809 155,331 — (1,321) (1,321) 59,174 94,836 35,180 59,656 — 59,656 1.45 — 1.45 1.45 — 1.45 41,171 41,250 $ $ $ $ $ $ 1,380,148 447,096 59,436 (161,199) 1,725,481 1,017,363 445,504 48,605 (161,199) 1,350,273 375,208 139,608 67,664 37,655 244,927 130,281 8,062 (1,874) 6,188 47,011 89,458 33,368 56,090 — 56,090 1.47 — 1.47 1.47 — 1.47 38,156 38,247 $ $ $ $ $ 24 25 Condensed Consolidated Balance Sheets Condensed Consolidated Statements of Income Year ended September 30 (Dollars in thousands) 2003 2002 2001 To Shareholders of Atmos Energy Corporation: Cash Flows from Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of accounting change, net of income tax benefit Depreciation and amortization: Charged to depreciation and amortization Charged to other accounts Deferred income taxes Other Changes in assets and liabilities Net cash provided by operating activities Cash Flows Used in Investing Activities Capital expenditures Acquisitions, net of cash received Retirements of property, plant and equipment, net Assets for leasing activities Proceeds from sale of assets, net Net cash used in investing activities Cash Flows from Financing Activities Net decrease in short-term debt Net proceeds from issuance of long-term debt Proceeds from bridge loan Repayment of bridge loan Repayment of long-term debt Repayment of Mississippi Valley Gas debt Cash dividends paid Issuance of common stock Net proceeds from equity offering Net cash provided (used) by financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year $ 71,688 $ 59,656 $ 56,090 7,773 — 87,001 2,193 53,867 (5,885) (167,186) 49,451 (159,439) (74,650) 704 — — (233,385) (27,196) 253,267 147,000 (147,000) (73,165) (70,938) (55,291) 25,720 99,229 151,626 (32,308) 47,991 15,683 $ 81,469 2,452 14,509 (3,371) 142,680 297,395 (132,252) (15,747) (1,725) (8,511) — (158,235) (55,456) — — — (20,651) — (48,646) 18,321 — (106,432) 32,728 15,263 47,991 $ — 67,664 2,806 18,501 (979) (61,087) 82,995 (113,109) (354,755) (1,460) (5,377) 6,625 (468,076) (48,800) 347,099 — — (17,670) — (44,112) 14,405 142,043 392,965 7,884 7,379 15,263 $ We have audited, in accordance with generally accepted auditing standards, the consolidated balance sheets of Atmos Energy Corporation at September 30, 2003 and 2002, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the three years in the period ended September 30, 2003 (not presented separately herein) and in our report dated November 10, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheets and statements of income and cash flows are fairly stated in all material respects in relation to the basic consolidated financial statements from which they have been derived. Dallas, Texas November 10, 2003 26 27 Condensed Consolidated Statements of Cash Flows Report of Independent Auditors Year ended September 30 2003 2002 2001 2000 1999 Balance Sheet Data at September 30 (000s) Capital expenditures Net property, plant and equipment Working capital Total assets Shareholders’ equity Long-term debt, excluding current maturities Total capitalization Income Statement Data Operating revenues* (000s) Gross profit* (000s) Net income (000s) Net income per diluted share Common Stock Data Shares outstanding (000s) End of year Weighted average Cash dividends per share Shareholders of record Market price – High Low End of year Book value per share at end of year Price/Earnings ratio at end of year Market/Book ratio at end of year Annualized dividend yield at end of year Customers and Volumes (As metered) Consolidated utility gas sales volumes (MMcf) Consolidated utility gas transportation volumes (MMcf) Consolidated utility throughput (MMcf) Consolidated natural gas marketing throughput (MMcf) Meters in service at end of year Heating degree days # Degree days as a percentage of normal Utility average gas sales price per Mcf sold Utility average cost of gas per Mcf sold Utility average transportation fee per Mcf Statistics Return on average shareholders’ equity Number of employees Net utility plant per meter Utility operation, maintenance and administrative expense per meter Customers per employee – utility Times interest earned before income taxes 28 $ 159,439 1,515,989 22,282 2,518,508 857,517 863,918 1,721,435 $ 2,799,916 534,976 71,688 1.54 $ $ $ $ $ $ $ $ $ $ 51,476 46,496 1.20 28,510 25.45 20.70 23.94 16.66 15.55 1.44 5.0% 184,512 63,453 247,965 225,961 1,672,798 3,473 101% 8.17 5.76 .43 9.9% 2,905 865 115 594 2.75 * In conjunction with the adoption of EITF 02-03, energy trading contracts resulting in delivery of a commodity where we are the principal in the transaction are included as operating revenues or purchased gas cost. All prior periods have been reclassified to conform with this new presentation. # Heating degree days for 2003, 2002 and 2001 are adjusted for service areas with weather-normalized operations. Heating degree days for years prior to 2001 are not adjusted for service areas with weather- normalized operations, as that information was not available. + Adjusted for partial-year results of Louisiana Gas Service Company, which was acquired in July 2001. $ 132,252 1,300,320 (133,116) 1,981,385 573,235 670,463 1,243,698 $ 1,650,964 431,140 59,656 1.45 $ $ $ $ $ $ $ $ $ $ 41,676 41,250 1.18 28,829 24.46 18.37 21.50 13.75 14.83 1.56 5.5% 145,488 63,053 208,541 204,027 1,389,341 3,368 94% 6.21 3.87 .41 9.9% 2,338 881 101 616 2.55 $ 113,109 1,335,398 (86,778) 2,036,180 583,864 692,399 1,276,263 $ 1,725,481 375,208 56,090 1.47 $ $ $ $ $ $ $ $ $ $ 40,792 38,247 1.16 30,524 26.25 19.31 21.60 14.31 14.69 1.51 5.4% 156,544 61,230 217,774 55,469 1,386,323 4,124 115% 8.99 6.82 .41 10.4% 2,361 924 130)+ 603 2.83 $ $ $ $ $ $ $ $ $ $ $ $ 75,557 982,346 (181,890) 1,348,758 392,466 363,198 755,664 850,152 325,706 35,918 1.14 31,952 31,594 1.14 32,394 25.00 14.75 20.63 12.28 18.09 1.68 5.5% 119,470 59,365 178,835 — 1,096,599 2,096 82% 5.91 3.67 .37 9.3% 1,885 874 135 591 2.28 $ $ $ $ $ $ $ $ $ $ $ $ 110,353 965,782 (151,622) 1,230,537 377,663 377,483 755,146 690,196 299,794 17,744 .58 31,248 30,819 1.10 35,179 32.69 23.06 24.13 12.09 41.59 2.00 4.6% 125,279 55,468 180,747 — 1,037,995 3,374 85% 4.71 2.74 .39 4.7% 2,062 884 146 547 1.56 The matters discussed or incorporated by reference in this Summary Annual Report may contain “forward- looking statements” within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this report are forward-looking statements made in good faith by the Company and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. When used in this report or in any of the Company’s other documents or oral presentations, the words “anticipate,” “expect,” “estimate,” “plans,” “believes,” “objective,” “forecast,” “goal” or similar words are intended to identify forward-looking statements. Such forward- looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the statements relating to the Company’s strategy, operations, markets, services, rates, recovery of costs, availability of gas supply and other factors. A discussion of these risks and uncertainties may be found in the Company’s Form 10-K for the year ended September 30, 2003. Although the Company believes these forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. Further, the Company undertakes no obligation to update or revise its forward-looking statements, whether as a result of new information, future events or otherwise. 29 Consolidated Financial and Statistical Summary (1999-2003) Forward-Looking Statements Senior Management Team Nonutility Business Robert W. Best Chairman, President and Chief Executive Officer Ron W. McDowell Vice President, New Business Ventures Shared Services Verlon R. Aston, Jr. Vice President, Governmental Affairs Leslie H. Duncan Vice President and Chief Information Officer Susan C. Kappes Vice President, Investor Relations and Corporate Communications Dwala J. Kuhn Corporate Secretary Robert E. Mattingly Vice President, Gas Supply Fred E. Meisenheimer Vice President and Controller Gordon J. Roy Vice President, Security and Compliance Laurie M. Sherwood Vice President, Corporate Development, and Treasurer J. Patrick Reddy Senior Vice President and Chief Financial Officer R. Earl Fischer Senior Vice President, Utility Operations JD Woodward Senior Vice President, Nonutility Operations Louis P. Gregory Senior Vice President and General Counsel Wynn D. McGregor Vice President, Human Resources Utility Divisions J. Kevin Akers President, Mississippi Valley Gas Division Thomas R. Blose, Jr. President, Mid-States Division Conrad E. Gruber President, Louisiana Division Tom S. Hawkins, Jr. President, Texas Division John A. Paris President, Kentucky Division Gary L. Schlessman President, Colorado-Kansas Division Dr. Thomas C. Meredith Chancellor of the University System of Georgia Atlanta, Georgia Board member since 1995 Committees: Audit, Nominating and Corporate Governance Phillip E. Nichol Formerly Senior Vice President of Central Division Staff UBS PaineWebber Incorporated Dallas, Texas Board member since 1985 Committees: Nominating and Corporate Governance (Chairman), Human Resources, Work Session/Annual Meeting Carl S. Quinn General Partner, Quinn Oil Company, Ltd. East Hampton, New York Board member since 1994 Committees: Audit, Executive, Nominating and Corporate Governance Charles K. Vaughan Formerly Chairman of the Board Atmos Energy Corporation Dallas, Texas Board member since 1983 Committee: Executive (Chairman) Richard Ware II President, Amarillo National Bank Amarillo, Texas Board member since 1994 Committees: Nominating and Corporate Governance, Work Session/Annual Meeting Lee E. Schlessman Honorary Director President, Dolo Investment Company Denver, Colorado Retired from Board in 1998 Travis W. Bain II Chairman, Texas Custom Pools, Inc. Plano, Texas Board member since 1988 Committees: Work Session/Annual Meeting (Chairman), Audit, Human Resources Robert W. Best Chairman, President and Chief Executive Officer Atmos Energy Corporation Dallas, Texas Board member since 1997 Committee: Executive Dan Busbee Adjunct Professor, Dedman School of Law, Southern Methodist University; Visiting Senior Fellow, Centre for Commercial Law Studies, University of London Dallas, Texas Board member since 1988 Committees: Audit (Chairman), Human Resources Richard W. Cardin Retired partner of Arthur Andersen LLP Nashville, Tennessee Board member since 1997 Committees: Audit, Nominating and Corporate Governance Thomas J. Garland Chairman of the Tusculum Institute for Public Leadership and Policy Greeneville, Tennessee Board member since 1997 Committees: Human Resources, Work Session/Annual Meeting Richard K. Gordon General Partner Juniper Capital LP and HSF Capital LP Houston, Texas Board member since 2001 Committees: Human Resources, Nominating and Corporate Governance Gene C. Koonce Formerly Chairman of the Board, President and Chief Executive Officer United Cities Gas Company Nashville, Tennessee Board member since 1997 Committees: Human Resources (Chairman), Executive, Work Session/Annual Meeting 30 31 Atmos Energy Officers Board of Directors Common Stock Listing Direct Stock Purchase Plan New York Stock Exchange. Trading symbol: ATO Atmos Energy Corporation has a Direct Stock Purchase Plan that is Stock Transfer Agent and Registrar EquiServe Trust Company, N.A. P.O. Box 43010 available to all investors. For an initial Investment Form or Enrollment Authorization Form and a Plan Prospectus, please call EquiServe at 1-800-543-3038. The Prospectus is also available on the Internet at http://www.atmosenergy.com. You may also obtain information by Providence, Rhode Island 02940-3010 writing to Shareholder Relations, Atmos Energy Corporation, P.O. Box 1-800-543-3038 650205, Dallas, Texas 75265-0205. To inquire about your Atmos Energy stock, please call EquiServe at the This is not an offer to sell, or a solicitation to buy, any securities of telephone number above. You may use the agent’s interactive voice response Atmos Energy. Shares of Atmos Energy common stock purchased through system 24 hours a day to learn about transferring stock, to listen to current the Direct Stock Purchase Plan will be offered only by Prospectus. company information, to obtain daily stock quotes or to check your recent account activity — all without the assistance of a customer service Atmos Energy on the Internet representative. Please have available your Atmos Energy shareholder account Information about Atmos Energy is available on the Internet at number and your Social Security or federal taxpayer ID number. http://www.atmosenergy.com. Our Web site includes news releases, current and historical financial reports and other investor data, To speak to an EquiServe customer service representative, call the same corporate governance documents, management biographies, customer number between 9 a.m. and 6 p.m. Eastern time, Monday through Friday. information and information about Atmos Energy’s operations. You also may send an e-mail message to our agent’s Web site at Atmos Energy Corporation Contacts http://www.equiserve.com. Please refer to Atmos Energy in your To contact Atmos Energy’s Shareholder Relations, call (972) 855-3729 e-mail and include your Atmos Energy shareholder account number between 8 a.m. and 5 p.m. Central time or send an e-mail message to and your Social Security or federal taxpayer ID number. InvestorRelations@atmosenergy.com. Independent Auditors Ernst & Young LLP 2121 San Jacinto, Suite 1500 Dallas, Texas 75201 (214) 969-8000 Form 10-K For financial information for securities analysts and investment managers, contact: Susan C. Kappes Vice President, Investor Relations and Corporate Communications (972) 855-3729 (972) 855-3040 (fax) InvestorRelations@atmosenergy.com Atmos Energy Corporation’s Annual Report on Form 10-K is available upon request from Shareholder Relations, Atmos Energy Corporation, © 2003 by Atmos Energy Corporation. All rights reserved. P.O. Box 650205, Dallas, Texas 75265-0205 or by calling (972) 855-3729 between Atmos EnergyTM is a trademark and Spirit of ServiceSM is a service mark 8 a.m. and 5 p.m. Central time. Atmos Energy’s Form 10-K may also of Atmos Energy Corporation. be viewed on Atmos Energy’s Web site at http://www.atmosenergy.com. Annual Meeting of Shareholders Saturn is a registered trademark of General Motors Corporation. Ragú® is a registered trademark of Unilever Bestfoods affiliated companies. The Annual Meeting of Shareholders will be held at the Ritz Carlton Hotel, 921 Canal Street, New Orleans, Louisiana 70112 on Wednesday, February 11, 2004, at 11 a.m. Central time. 32 Corporate Information A T M O S E N E R G Y C O R P O R A T I O N 2 0 0 3 S U M M A R Y A N N U A L R E P O R T 3100-AR-2004 Atmos Energy Corporation P.O. Box 650205 Dallas, Texas 75265-0205 atmosenergy.com