Atos Annual Report 2005 | Quarterlytics

Plain-text annual report

2005 a LANDMARK year in our HISTORY 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 5 S U M M A R Y A N N U A L R E P O R T a year of INTEGR ATION and u npr ecedented GROW TH In a year of many notable successes, our acquisition of TXU Gas stands out. Overnight, our customer base and pipeline and storage capacity doubled, and our company became a subject of greater interest in our industry and the markets. When we accomplished the TXU Gas integration both swiftly and efﬁciently, some observers reacted with surprise. But we weren’t surprised. We’ve always had great conﬁdence in the people who make Atmos Energy work. In this year’s annual report, we describe our expanded company and some of the elements that, together, create our success. Our shape changed signiﬁcantly in 2005. But our passion and values—the values that have built Atmos Energy— remained as strong as ever. 2 3 fi na nci a l highl ights l et ter to sh a r ehol ders 16 oper ations r ev iew 2 0 fi na nci a l r ev iew 2 8 atmos en ergy officers 3 0 boa r d of dir ec tors ibc c or por ate i n for m ation On the cover: Working together, Troy Duncan, Mike McCann and their fellow employees made ﬁscal 2005 a year of unprecedented growth and success for Atmos Energy. At right: Overseen by Project Manager Mark Patterson, the North Side Loop project is stockpiled with 30-inch pipe on a 10-acre site in Denton County, Texas. The loop’s initial capacity of 220,000 million Btu per day can be more than doubled to 500,000 million Btu per day. f i n a n c i a l h i g h l i g h t s l e t t e r t o s h a r e h o l d e r s Y E A R E N D E D S E P T E M B E R 3 0 (Dollars in thousands, except per share data) 2 0 0 5 2 0 0 4 C h a n g e D E A R F E L L O W S H A R E H O L D E R : Operating revenues Gross proﬁt Utility net income Natural gas marketing net income Pipeline and storage net income 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) Consolidated pipeline and storage segment transportation volumes (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) * Total capitalization represents the sum of shareholders’ equity and long-term debt (excluding current maturities). $ 4,973,326 $ 2,920,037 $ $ $ 1,129,090 $ 81,117 23,404 30,599 665 $ 135,785 $ 562,191 63,096 16,633 2,767 3,731 86,227 $ 5,653,527 $ 2,912,627 $ 3,785,526 $ 1,994,770 $ $ $ 1.72 1.24 19.90 $ $ $ 1.58 1.22 18.05 411,134 238,097 246,033 222,572 375,604 2,587 89% — 3,271 96% 3,157,840 1,679,136 9.0% 9.1% 40.7% 56.7% 26,242 79,012 27,555 54,416 70.3% 100.8% 28.6% 40.7% 1,005.9% -82.2% 57.5% 94.1% 89.8% 8.9% 1.6% 10.2% 67.1% 7.0% — -20.9% -7.3% 88.1% -1.1% -28.2% -4.8% 45.2% Our acquisition of the distribution and pipeline operations of TXU Gas has created a powerful union— which is the subject of much of this year’s report. The acquisition, which closed on October 1, 2004, has exceeded our best expectations, as measured on several dimensions. It contributed to Atmos Energy’s extraordinary ﬁnancial results in ﬁscal 2005. It transformed Atmos Energy into the largest all-natural- gas distribution company in the country, and it created major opportunities for future growth. Atmos Energy’s gross proﬁt in ﬁscal 2005 doubled to exceed $1 billion for the ﬁrst time in our company’s history. Net income increased 58 percent to a record $135.8 million, and earnings per diluted share grew by 14 cents to $1.72. Fiscal 2005 marked our ﬁfth year of consistently improved performance. Our total return to shareholders was 17.2 percent, and our return on average shareholders’ equity was 9.0 percent. Recognizing these accomplishments, the Board of Directors raised the dividend by 2 cents to an indicated annual rate of $1.26 per share. This marked our 18th consecutive annual increase. Moreover, when adjusted for mergers and acquisitions, Atmos Energy’s dividend has gone up every year since it was formed in 1983. E X C E P T I O N A L P E R F O R M A N C E Atmos Energy’s employees did more than just deliver on the company’s promise of $1.65 to $1.75 in earnings per diluted share for ﬁscal 2005. They overcame warmer- than-normal weather that reduced earnings by 29 cents per diluted share, dilution from a year-over-year increase of 24.6 million more shares outstanding and the ravages of two hurricanes that affected two-thirds of our Louisiana operations and a portion of our Mississippi territory. The TXU Gas acquisition was a major contributor to earnings. It was accretive in the ﬁrst year—adding 18 cents to earnings per diluted share. That result far surpassed our original estimate of a contribution from 5 cents to 10 cents per diluted share. The acquisition has nearly doubled the size of our utility operations by adding 1.5 million gas utility customers in Texas. Overall, the additional territory exceeds national averages for customer growth. In particular, the Dallas and Fort Worth metropolitan areas as well as the northern suburbs of Austin are experiencing strong residential and commercial development. Integrating the former TXU Gas employees and operations has gone exceptionally well. Our integration teams have exceeded goals and completed work well ahead of deadlines. In particular, we are proud of the conversion of all the former back-ofﬁce and information technology systems. We no longer are using any outsourced services for meter reading, customer billing or telephone call centers. We expect that using our own state-of-the-art systems will lead to improved customer satisfaction and lower long-term operating costs. $1.80 1.50 1.20 0.90 0.60 $1.72 $1.58 $1.54 $1.47 $1.45 E a r n i n g s R e v i e w Net income per diluted share 2001 2002 2003 2004 2005 2 3 hurricanes PROVE THE METTLE of the atmos energy team Across Louisiana to the Mississippi Delta, Atmos Energy employees responded courageously to Hurricanes Katrina and Rita. After Katrina devastated southern Louisiana on August 29, Atmos Energy was the ﬁ rst utility back into hard-hit Jefferson Parish. There and elsewhere, employees—many of whom had lost their own homes —worked tirelessly, some living for weeks at company service centers in order to respond to customers’ needs. Atmos Energy mobilized supplies and manpower to aid its crews, displaced employees, customers and neighbors. The second storm, Rita, delivered a lesser blow to Atmos Energy’s operations in western Louisiana. Disruption was further minimized thanks to wise preparedness and fast response. M I S S I S S I P P I L O U I S I A N A J AC KS ON BAT ON R OUGE NE W OR LE ANS P I P E L I N E A N D S T O R A G E An especially noteworthy part of the acquisition was our addition of one of the largest intrastate natural gas pipelines in Texas, which became the Atmos Pipeline– Texas Division. This expansive pipeline system, shown on page 9, supports our regulated utility operations by carrying natural gas from producers and storage ﬁ elds to our local distribution system. It crisscrosses the state, with terminals at three major gas transportation hubs where we can buy gas from other intrastate lines and major interstate pipelines. It also transports volumes from the state’s nine major gas-producing basins, which hold a substantial portion of our country’s onshore natural gas reserves. Atmos Pipeline–Texas gives us new opportunities to transport gas for producers to wider markets. In ﬁ scal 2005, the pipeline added transportation volumes of 375.6 billion cubic feet (Bcf). It contributed $149.5 million, or 95 percent, of the $157.9 million in gross proﬁ t from our pipeline and storage segment. By comparison, the segment’s gross proﬁ t last year before the acquisition was just $10.4 million. We are continuing to unlock added value from the Texas pipeline. We currently have four pipeline projects under way that we expect will add to earnings starting in ﬁ scal 2006. The largest of these is a joint-venture project to install 45 miles of 30-inch pipeline to serve the northern suburbs of the Dallas-Fort Worth Metroplex. This new pipeline will help Atmos Energy deliver reliable natural gas supplies to one of the fastest-growing consumer markets in the country. It also will provide needed gas transmission capacity to serve natural gas producers and shippers in the Texas intrastate wholesale gas market. N A T U R A L G A S M A R K E T I N G Our natural gas marketing segment produced exceptional results in ﬁ scal 2005, contributing 30 cents per diluted share. The improvement largely was due to achieving more favorable arbitrage spreads using our underground natural gas storage facilities. It also came from our marketing efforts that added customers in new areas. $1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 $1.26 D i v i d e n d s Atmos Energy has provided shareholders with 22 consecutive years of annual increases in dividends (adjusted for mergers and acquisitions). The indicated annual rate for ﬁ scal 2006 is $1.26 per share. 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 The TXU Gas acquisition opened up a large gas marketing area in Texas with hundreds of prospective customers, providing further conﬁ rmation that the acquisition is a good ﬁ t with all segments of our business. During ﬁ scal 2005, our nonutility operations contracted for 9.0 Bcf of additional working gas storage capacity and expanded our marketing efforts into four more states. Altogether, our natural gas marketing operations now serve more than 800 industrial, municipal and other customers in 22 states. R A T E S T R A T E G Y We continue to be successful in maintaining our rates, with $15 million to $25 million in average annual additions to our utility revenues. Part of the increase in ﬁ scal 2005 came from our GRIP ﬁ lings in Texas. GRIP, the Gas Reliability Infrastructure Program, is a Texas law that permits natural gas utilities to earn a timely return of and on their basic investments. Without ﬁ ling a lengthy rate case, a utility can raise rates annually to pay for investments in pipelines and other facilities to maintain reliability and safety and to meet customer growth. The utility must ﬁ le a complete rate case at least every ﬁ ve years to justify its GRIP expenditures. Higher natural gas costs have intensiﬁ ed public scrutiny of all utilities’ rates. As a result, regulatory bodies in three of our states have been asked to review our rate structures. We are cooperating fully in these inquiries and believe our rates in all jurisdictions remain fair and reasonable. In our rate ﬁ lings, we are seeking to decouple the recovery of our approved margins from customer usage patterns that are affected by weather, declining use and conservation. Because gas volumes ﬂ uctuate, our earnings depend on consumption factors over which we have little control. We are seeking to put more of our costs into our basic monthly customer charge and to add adjustments that help moderate the effects of the rise and fall in our gas sales volumes. Our most recent rate agreement in Mississippi, for example, reﬂ ects our decoupling goals. The state’s Public Service Commission allowed us to shift $10 million in annual margins from volume-based charges to ﬁ xed customer charges. We also were granted an improved weather normalization adjustment (WNA), which adjusts our rates when winter weather turns either unseasonably warm or cool, and we obtained a GRIP-like mechanism in Mississippi to reduce the regulatory lag for the investments we make on behalf of our customers. 4 5 We have been successful in obtaining weather normalization adjustments for about one-third of our customer base. In our two largest jurisdictions, our Mid-Tex and Louisiana Divisions, we do not have WNA. In those areas, other rate-design features help offset the lack of weather protection—up to a point. In ﬁ scal 2005, our Mid-Tex Division had weather that was 20 percent warmer than normal, and our Louisiana Division had weather that was 22 percent warmer than normal. Overall, weather was 11 percent warmer than normal in ﬁ scal 2005, reducing our net income by $22.8 million, or 29 cents per diluted share. In our rate ﬁ lings, we also are seeking to recover the gas-cost portion of bad debt expense. As a public utility that is obligated to serve everyone in the community, we work to help the less-fortunate and other customers who have difﬁ culty paying their energy bills. In return for supporting the community’s social needs by not disconnecting those who do not pay during the winter, we are asking regulators to let us recover the sizable costs we incur for gas supplies used by our indigent customers. P A Y I N G D O W N D E B T We ﬁ nanced our TXU Gas acquisition with two successful equity offerings, which raised about $618 million in net proceeds, and with a sale of $1.39 billion of senior notes. Not unexpectedly, our debt level went up, which has occurred in the past to ﬁ nance earlier transactions, yet we maintained investment-grade ratings with all of the major rating agencies. We issued approximately 26 million new common shares in connection with the acquisition. Our weighted average number of common shares outstanding increased, year over year, by 24.6 million shares, causing dilution in our per-share earnings. Our total debt as a percentage of total capitalization, including short-term debt, was 59.3 percent at year- end. We are committed to paying down debt to return to the range of 50 percent to 55 percent during the next three to ﬁ ve years. We are conﬁ dent we can do so to continue our reliable record of reducing our debt- to-equity ratio after major acquisitions. $1,200 1,000 800 600 400 200 $1,129 $535 $562 $375 $431 G r o s s P r o f i t Consolidated from 2001 to 2005 (in millions) 2001 2002 2003 2004 2005 In ﬁ scal 2005, we generated operating cash ﬂ ow of $386.9 million, compared with $270.7 million in ﬁ scal 2004. Our capital expenditures increased to $333.2 million from $190.3 million in ﬁ scal 2004, with virtually all the increase being spent on our Mid-Tex and Atmos Pipeline–Texas Divisions. O U T L O O K F O R 2 0 0 6 For ﬁ scal 2006, we see more opportunities than ever before, largely because of the size and growth of our added operations in Texas. Our goal is to continue to grow our earnings at 4 percent to 6 percent a year on average. We estimate that earnings per diluted share in ﬁ scal 2006 will reach $1.80 to $1.90, assuming normal weather and no material effect from marking to market our storage and related ﬁ nancial hedges. We are especially mindful of the effects that volatile, high natural gas prices are having on our customers everywhere. More of our customers could have difﬁ culty paying their bills this winter, and our bad debt expense could go up. On April 1, 2006, JD Woodward will retire as senior vice president, nonutility operations. He will be succeeded by Mark H. Johnson, who recently was named vice president, nonutility operations, and who also serves as president of our natural gas marketing subsidiary. JD founded Woodward Marketing, which became the core of our natural gas marketing segment. He has led all our nonutility operations since joining Atmos Energy in 2001. I deeply thank him for his friendship, his leadership and all he has done to serve our customers and employees and to produce results that have rewarded our shareholders. We expect 2006 to be another prosperous year for Atmos Energy. All of us appreciate your continuing support as investors. We pledge to protect your investment and to use it wisely to provide exceptional service to our 3.2 million customers and 1,500 communities. That is the best way we can ensure future ﬁ nancial success. Robert W. Best c h a i r m a n , p r e s i d e n t a n d c e o n o v e m b e r 1 8 , 2 0 0 5 We have stepped up a broad range of programs to help our customers as well as to seek increased natural gas supplies. Actions by Congress are sorely needed— to permit more gas exploration in coastal waters and on Western public lands, to build a pipeline from the abundant gas ﬁ elds in Alaska and to permit liqueﬁ ed natural gas terminals on domestic shores. These actions would help provide more natural gas and, in turn, would help lower gas prices. In 2006, we also must deal with the lingering aftermath of Hurricanes Katrina and Rita. The hurricanes affected up to 230,000 of our customers and reduced our ﬁ scal 2005 net income by $3.8 million, or 5 cents per diluted share. To aid in the recovery, Atmos Energy and its employees donated nearly $1.5 million to the hurricane relief efforts. Today we estimate a semi-permanent loss of about 40,000 meters in the four hardest hit parishes where we serve. Our lost margins in ﬁ scal 2006 will be between $10 million and $12 million. Nevertheless, in surveying the region just days after the destruction, I became convinced that the resilient spirit of Louisiana residents and business owners will triumph over the storms’ fury. Their desire to rebuild is evident everywhere. It will just take time. We estimate our capital expenditures in ﬁ scal 2006 will total $400 million to $415 million. Of that total, about 60 percent will be spent on our growing Mid-Tex and Atmos Pipeline–Texas Divisions. Our spending reinforces our goal of investing growth capital to seek the best returns. Although one of our key strategies is to continue to grow through sound acquisitions, our immediate goal is to reduce our debt with longer- term plans for future acquisitions. L E A D E R S H I P C H A N G E S It was my pleasure this year to announce the addition to the Board of Directors of Stephen R. Springer. I have known Steve for nearly three decades and have worked closely with him in the past. He brings an extensive background in the natural gas industry and a steadfast commitment to integrity and honesty. We are pleased he agreed to join our board. 6 7 SEAMLESS integration creates the NATION’S LARGEST all-natural- gas utility The October 1, 2004, completion of our TXU Gas acquisition doubled the size of Atmos Energy and made it the nation’s largest all-natural-gas utility. It also marked one of the swiftest major utility acquisitions in recent history. An innovative transition agreement helped to cement the rapid integration and secure regulatory approvals from utility commissions in ﬁ ve states. Financial markets were enthusiastic, with investors subscribing to Atmos Energy’s two offerings of common stock and a $1.39 billion debt offering at highly competitive rates. Analysts also applauded the company’s higher proportion of regulated customers, delivering greater stability of earnings. As part of the successful rebranding, TV commercials assured the 1.5 million former TXU Gas customers they would have the same great gas service they’ve always counted on. The historic Lone Star Gas Building, redundant after the acquisition, became one of ﬁ ve downtown buildings Atmos Energy donated to the City of Dallas. Former TXU Gas operations moved from downtown to the North Dallas headquarters. The company’s new, higher proﬁ le includes building signage. Maria Chavez serves customers from the new Atmos Energy call center in Waco, Texas. The center added 240 new jobs to the local economy. Keeping service personnel close to the customers being served is a crucial ingredient in the company’s success. Existing Service Territory Acquired Service Territory Acquired Natural Gas Pipeline Atmos Energy Headquarters Major Gas Delivery Hub Amarillo Lubbock Wichita Falls Denton Denton Fort WoWortrthh Plano Plano Midland Abilene Abilene Arlington Arlington San Angelo Brownwood Brownwood Wacoco Waha Hub Sherman Richardson Richardson Garland Garland Dallas Dallas Longview Carthage Hub 8 Sunrise in Dallas, and Senior Construction Manager Andre Brown and Crew Foreman Clayton Hunter are already lining out the day’s work. Dallas-Fort Worth alone added more than one million new customers to the Atmos Energy system. Bryan/College Station Bryan/College Station Round Rock Round Rock Austin Austin Katy Hub Integrating a new service area larger than many entire states required a massive conversion of customer billing and back-ofﬁ ce systems. The Atmos Energy team won accolades for their deft accomplishment of the task. 9 Keith Prewitt, an Atmos Energy manager of new construction in Round Rock, Texas, inventories 8-inch distribution pipe that will expand service to new communities growing in Central Texas. Atmos Energy has earned national attention – and customer kudos – for its investment in service. East Texas customers beneﬁt from the new Palestine service center, one of nine new facilities the company has opened across the state. Innovative thinking solved a rocky problem for Central Texas developers. Atmos Energy engineers found ways to run pipeline through the area’s terrain of hills, cliffs and solid rock to serve homebuyers’ demand for natural gas. Technician Doyce Wilson exempliﬁes the long tenure of much of the workforce. He joined Lone Star Gas in 1972 and stayed through the transitions to TXU Gas and to Atmos Energy. Such continuity helped make the change from TXU Gas to Atmos Energy worry-free for customers. a t m o s e n e r g y F U E L S T H E G R O W T H o f o n e o f A M E R I C A ’ S m o s t V I B R A N T R E G I O N S Along with 1.5 million new customers for Atmos Energy, the TXU Gas acquisition added momentum to the growth of a region that includes the nation’s eighth largest metropolitan area, Dallas-Fort Worth, as well as Austin suburbs that rank among the country’s fastest-growing communities in housing and commercial expansion. To support its highly experienced workforce, Atmos Energy has added nine new service centers to better serve its customers, who already register high satisfaction in surveys. As Atmos Energy invested in the region’s growth, the company made the ﬁrst ﬁling under Texas’ Gas Reliability Infrastructure Program (GRIP), which reduces the lag time on recovery of basic service investments. 10 1 1 Eddie Ortowski supervises compression and storage of natural gas at the company’s Lake Dallas storage facility. Such facilities, strategically placed, help stabilize supply during peak periods. At City Gate Distribution Center in Mesquite, Texas, Danny Bowman and Gerald Armstrong help supply customers from Sherman, near the Red River, to Katy, near Houston. A major hub, City Gate provides energy to six power plants. Soon it will tie in to the company’s new North Side Loop. Staff members at this Atmos Energy gas control center in Dallas monitor weather, news events, next-day prices and gas futures, advising buyers who trade gas to serve 1.5 million Texas customers. going to EXTRAORDINARY LENGTHS to bring gas where it’s NEEDED Atmos Energy operates one of the largest intrastate gas pipeline systems in Texas. This system is growing significantly with construction of the 45-mile North Side Loop and related compressor stations in the D-FW Metroplex. Jointly owned with Energy Transfer Partners, L.P., the new pipeline will ensure ample natural gas supplies for the rapid residential and commercial growth of Collin, Denton and northern Tarrant Counties. It also will add transmission capacity to help natural gas producers and shippers bring more Texas natural gas to market, particularly gas from the expanding production in the Fort Worth Basin. In May, Atmos Energy entered an agreement with Enbridge Energy Partners to transport up to 100,000 million Btu per day through the Atmos Energy system. Pipe for the new North Side Loop awaits welding outside Krum, Texas. Pipeline crews took advantage of unusually dry fall weather to build at a faster-than-expected pace. 1 2 13 atmos energy MARKETING finds LARGE-SCALE OPPORTUNITIES The new territory added with the TXU Gas acquisition represents a vast ﬁeld of opportunity for Atmos Energy Marketing, which develops relationships with industrial and municipal customers, such as manufacturing facilities, hospitals and electric generation plants. Developers of new residential communities in fast-growing Central and North Texas represent another signiﬁcant opportunity for growth. Atmos Energy has ample capacity for projected customer needs. Large gas hubs in three major market centers—Waha in West Texas, Carthage in East Texas and Katy, near Houston—connect with Texas intrastate pipelines and interstate pipelines at more than 100 points. Among the new industrial customers Atmos Energy has gained are high-tech companies such as Dell and Samsung in the Austin area. The humble patio has evolved into a full outdoor room. Outdoor kitchens, living areas and sleeping rooms are among the new features most requested by homeowners. How do you fuel and heat an outdoor room? Natural gas, of course. 15 Atmos Energy fuels production at GM’s 3 million-square-foot Arlington assembly plant. Other major customers in North Texas include Texas Instruments, Coca-Cola, Pepsi and two Frito-Lay plants. Louis Moya takes measurements at the company’s Katy distribution hub, part of Atmos Pipeline–Texas, one of the largest intrastate gas pipeline networks in Texas. As new neighborhoods expand across Atmos Energy’s territory, the company markets to homebuilders and developers, promoting the beneﬁts of natural gas for builder and homebuyer alike. 1 4 o p e r a t i o n s r e v i e w 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. 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. T X U G A S A C Q U I S I T I O N W E A T H E R A N D T H R O U G H P U T 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. 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. 1 6 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. I O W A For ﬁscal 2005, our utility O&M expense DEN VE R C O L O R A D O 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. M I C H I G A N P E N N S Y L V A N I A I N D I A N A O H I O I L L I N O I S W E S T V I R G I N I A K A N S A S OWENS BORO V I R G I N I A M I S S O U R I K E N T U C K Y O K L A H O M A A R K A N S A S FRANK L IN T E N N E S S E E N O R T H C A R O L I N A S O U T H C A R O L I N A LUB BOCK M I S S I S S I P P I G E O R G I A DA LL AS JACK SON A L A B A M A L O U I S I A N A T E X A S HO UST ON BAT ON ROUG E NEW ORLEA NS States with Both Utility and Nonutility Operations States with Only Nonutility Operations Utility Service Areas Atmos Energy Headquarters Atmos Energy Utility Division Headquarters Atmos Energy Marketing Headquarters Atmos Energy Marketing Regional Offices 17 Our consolidated operation and maintenance expense for ﬁscal 2005 totaled $427.7 million, nearly double our O&M expense for ﬁscal 2004 of $214.5 million. The increase was largely due to $206.6 million in added O&M expense for the Mid-Tex and Atmos Pipeline–Texas Divisions. The provision for doubtful accounts also increased by $14.9 million over the previous year’s amount to $20.3 million in ﬁscal 2005. The large increase was due to the added operations of the Mid-Tex Division and to our decision to raise our provision to cover collection risks caused by higher natural gas costs. Our utility collection efforts have produced exceptional results, keeping our actual bad-debt write-offs below our target rate of 0.75 percent of utility revenues. Our actual rate in ﬁscal 2005 was 0.58 percent. Excluding increases in O&M expense due to the acquired TXU Gas operations and the provision for doubtful accounts, our O&M expense went up about $2.0 million over the same period in ﬁscal 2004. The increase resulted mainly from $2.3 million of expenses from Hurricanes Katrina and Rita, partially offset by cost-control efforts in our utility operations. Hurricanes Katrina and Rita affected about 230,000 of our customers in Louisiana and Mississippi. Service in Mississippi was restored promptly, but restoration has been delayed in areas of Louisiana that were under water or that sustained severe damage. We estimate that the damages to our system are between $13 million and $15 million. After discussions with the Louisiana Public Service Commission and our insurance carriers, we expect that we will recoup most of our losses although the timing is uncertain. The ﬁnancial effect of the hurricanes in ﬁscal 2005 was about $3.9 million in lost margin. We estimate a semi-permanent loss of some 40,000 customers in four Louisiana parishes that suffered the worst damages. We expect our lost margin in ﬁscal 2006 will be approximately $10 million to $12 million, or about 8 cents to 10 cents per diluted share. $140.00 130.00 $130 120.00 110.00 100.00 90.00 $126 $122 $110 $101 O & M E x p e n s e s Operation and maintenance expense per customer 2001 2002 2003 2004 2005 R A T E A D J U S T M E N T S Our utility rate strategy is to minimize regulatory lag and to provide stable, predictable margins by eliminating the effects of weather and consumption on the recovery of our margins. We also are seeking to recover the gas- cost portion of our bad debt expense. To reduce the sensitivity of our earnings to weather, we have obtained weather-normalized rates in nine jurisdictions, covering approximately one million customers. Rates in our two largest jurisdictions, the Mid-Tex and Louisiana Divisions, provide limited protection from unseasonably warm winter weather, which occurred in both jurisdictions in ﬁscal 2005. We are pursuing rate-design alternatives in both divisions to better safeguard margins. During the 2004–2005 winter heating season, approximately 48 percent of our margins were not sensitive to weather or consumption ﬂuctuations; 35 percent were weather-normalized; and 17 percent were weather- sensitive. We expect similar margin percentages during the winter heating season of 2005–2006. We beneﬁted in ﬁscal 2005 from rate increases that had been approved in West Texas and in Mississippi in the latter half of 2004. We also completed ﬁlings for 2003 made under Texas’ Gas Reliability Infrastructure Program and initiated our 2004 GRIP ﬁlings. GRIP reduces regulatory lag by allowing Texas natural gas utilities to earn a timely return on, and return of, their basic investments needed to serve utility customers. We forecast that rate requests will add, on average, $15 million to $25 million annually to our utility revenues. We project that most of our rate increases in ﬁscal 2006 will result from our Texas GRIP ﬁlings. N O N U T I L I T Y O P E R A T I O N S Our natural gas marketing segment set a new company record by contributing 30 cents per diluted share to earnings. We beneﬁted from additional storage capacity and greater market volatility. We also added new customers in a number of areas and expanded into four new states—Michigan, North Carolina, Pennsylvania and West Virginia—all states close to our existing operations with good prospects for new business. In addition, we expanded our gas marketing activities in Texas as a result of the TXU Gas acquisition. Our new pipeline and storage segment combines the regulated utility operations of our Atmos Pipeline– Texas Division with those of our nonregulated pipeline and storage operations. For ﬁscal 2005, Atmos Pipeline– Texas contributed $149.5 million of the segment’s gross proﬁt of $157.9 million. Our pipeline and storage segment contributed 39 cents per diluted share to earnings, due primarily to the operations of Atmos Pipeline–Texas. In a 50-50 joint venture with Energy Transfer Partners, L.P., we began constructing a new pipeline to better serve the northern counties of the Dallas-Fort Worth Metroplex. We are building 45 miles of 30-inch pipeline that will improve utility distribution reliability and will transport more natural gas from Texas gas fields to market. Called the North Side Loop, the ﬁrst phase of this project should begin operations in December 2005, and the second phase should be completed by March 2006. We also entered into three other major pipeline and storage projects in ﬁscal 2005. They include • an agreement to transport up to 100,000 million British thermal units (Btu) per day of natural gas from the Fort Worth Basin producing area to a major interstate pipeline company’s system using new compression equipment that Atmos Energy is installing; • an agreement leveraging this added compression to transport an additional 50,000 million Btu per day of natural gas under a contract with another third- party shipper; • an agreement with three other shippers to transport an additional 50,000 million Btu per day to the Katy hub near Houston. F I S C A L 2 0 0 6 F O R E C A S T We forecast that our earnings in ﬁscal 2006 will continue to grow at our stated goal of 4 percent to 6 percent a year, on average. We expect that earnings per diluted share will be between $1.80 and $1.90, assuming normal weather and no material effect from marking to market our storage and related ﬁnancial hedges. We project that our capital expenditures in ﬁscal 2006 will range between $400 million and $415 million, compared with $333 million expended in ﬁscal 2005. About 60 percent of our capital spending in ﬁscal 2006 will be invested in our Mid-Tex and Atmos Pipeline– Texas Divisions, reﬂecting our goal to invest in higher- growth prospects. A key goal is to lower the proportion of debt in our capital structure to between 50 percent and 55 percent within three to ﬁve years. Atmos Energy’s Board of Directors approved an increase in the annual dividend rate in November 2005 for the 18th consecutive year. The new indicated annual rate is $1.26 per share, providing shareholders a yield of approximately 5 percent. Adjusted for mergers and acquisitions, our dividend has increased every year since Atmos Energy’s founding. 1 8 19 f i n a n c i a l r e v i e w a t m o s e n e r g y a t a g l a n c e S U M M A R Y A N N U A L R E P O R T 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 executed all certifications with respect to the financial statements contained therein and have completed management’s report on internal control over financial reporting, which are required under the Sarbanes-Oxley Act of 2002 and all related rules and regulations of the Securities and Exchange Commission. Investors may request, without charge, our Annual Report on Form 10-K for the fiscal year ended September 30, 2005, 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 inside the back cover of this report. 2 0 Y E A R E N D E D S E P T E M B E R 3 0 2 0 0 5 2 0 0 4 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) Consolidated pipeline transportation volumes (MMcf) Operating revenues (000s) Gas utility sales revenues Residential Commercial Industrial Agricultural Public authority and other Total gas sales revenues Transportation revenues Other gas revenues Total utility revenues Natural gas marketing revenues Pipeline and storage revenues Other nonutility revenues Total operating revenues (000s) Other statistics Gross plant (000s) Net plant (000s) Miles of pipe Employees 2,862,822 274,536 2,715 9,639 8,128 3,157,840 1,506,777 151,381 2,436 8,397 10,145 1,679,136 2,587 89% 3,271 96% 162,016 92,401 29,434 3,348 9,084 296,283 122,098 418,381 (7,247) 411,134 238,097 375,604 92,208 44,226 22,330 4,642 9,813 173,219 87,746 260,965 (14,932) 246,033 222,572 — $ 1,791,172 869,722 229,649 27,889 86,853 3,005,285 58,897 37,859 3,102,041 1,783,926 85,333 2,026 $ 4,973,326 $ 923,773 400,704 155,336 31,851 77,178 1,588,842 30,622 17,172 1,636,636 1,279,424 1,617 2,360 $ 2,920,037 $ 4,765,610 $ 3,374,367 81,604 4,543 $ 2,633,651 $ 1,722,521 47,616 2,864 2 1 c o n d e n s e d c o n s o l i d a t e d b a l a n c e s h e e t s c o n d e n s e d c o n s o l i d a t e d s t a t e m e n t s o f i n c o m e S E P T E M B E R 3 0 (Dollars in thousands, except share data) 2 0 0 5 2 0 0 4 Y E A R E N D E D S E P T E M B E R 3 0 (Dollars in thousands, except per share data) 2 0 0 5 2 0 0 4 2 0 0 3 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 $15,613 in 2005 and $7,214 in 2004 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); 200,000,000 shares authorized, issued and outstanding: 2005 – 80,539,401 shares, 2004 – 62,799,710 shares Additional paid-in capital Accumulated other comprehensive loss Retained earnings 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 Regulatory cost of removal obligation Deferred credits and other liabilities $ 4,631,684 133,926 4,765,610 1,391,243 3,374,367 $ 2,595,374 38,277 2,633,651 911,130 1,722,521 40,116 80,956 454,313 450,807 238,238 1,264,430 737,787 276,943 $ 5,653,527 201,932 — 211,810 200,134 99,319 713,195 245,528 231,383 $ 2,912,627 $ 403 1,426,523 (3,341) 178,837 1,602,422 2,183,104 3,785,526 $ 314 1,005,644 (14,529) 142,030 1,133,459 861,311 1,994,770 461,314 503,368 144,809 3,264 1,112,755 292,207 263,424 199,615 185,295 238,682 — 5,908 429,885 241,257 103,579 143,136 $ 5,653,527 $ 2,912,627 Operating revenues Utility segment Natural gas marketing segment Pipeline and storage segment Other nonutility segment Intersegment eliminations Purchased gas cost Utility segment Natural gas marketing segment Pipeline and storage 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 Miscellaneous income 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: $ 3,103,140 2,106,278 164,742 5,302 (406,136) 4,973,326 2,195,774 2,044,305 6,811 — (402,654) 3,844,236 1,129,090 $ 1,637,728 $ 1,554,082 1,618,602 1,668,493 19,758 3,393 (359,444) 2,920,037 1,134,594 1,571,971 9,383 — 20,298 2,853 (445,810) 2,799,916 1,062,679 1,644,328 3,061 — (358,102) (445,128) 2,357,846 562,191 2,264,940 534,976 427,734 178,005 174,696 780,435 348,655 2,021 132,658 218,018 82,233 135,785 — 214,470 96,647 57,379 368,496 193,695 9,507 65,437 137,765 51,538 86,227 — 205,090 87,001 55,045 347,136 187,840 2,191 63,660 126,371 46,910 79,461 (7,773) $ 135,785 $ 86,227 $ 71,688 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 $ $ $ $ 1.73 — 1.73 1.72 — 1.72 $ $ $ $ 1.60 — 1.60 1.58 — 1.58 $ $ $ $ 1.72 (.17) 1.55 1.71 (.17) 1.54 Weighted average shares outstanding: Basic Diluted 78,508 79,012 54,021 54,416 46,319 46,496 2 2 23 c o n d e n s e d c o n s o l i d a t e d s t a t e m e n t s o f c a s h f l o w s r e p o r t o f i n d e p e n d e n t r e g i s t e r e d p u b l i c a c c o u n t i n g f i r m T H E B O A R D O F D I R E C T O R S A T M O S E N E R G Y C O R P O R A T I O N We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Atmos Energy Corporation at September 30, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity, and cash ﬂows for each of the three years in the period ended September 30, 2005 (not presented herein); and in our report dated November 16, 2005, we expressed an unqualiﬁed opinion on those consolidated ﬁnancial statements. In our opinion, the information set forth in the accompanying condensed consolidated ﬁnancial statements is fairly stated, in all material respects, in relation to the consolidated ﬁnancial statements from which it has been derived. (164,893) (233,385) Dallas, Texas November 16, 2005 Y E A R E N D E D S E P T E M B E R 3 0 (Dollars in thousands) 2 0 0 5 2 0 0 4 2 0 0 3 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 Gain on sales of assets 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 Other, net Proceeds from sale of assets Net cash used in investing activities Cash Flows from Financing Activities Net increase (decrease) in short-term debt Net proceeds from issuance of long-term debt Settlement of Treasury lock agreements 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 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 $ 135,785 $ 86,227 $ 71,688 — — 178,005 791 12,669 11,522 48,172 386,944 (333,183) (1,916,696) (2,131) — (2,252,010) 144,809 1,385,847 (43,770) — — (103,425) — (98,978) 37,183 381,584 1,703,250 (161,816) 201,932 — (6,700) 96,647 1,465 36,997 (1,772) 57,870 270,734 (190,285) (1,957) (570) 27,919 7,773 — 87,001 2,193 53,867 (5,885) (167,186) 49,451 (159,439) (74,650) 704 — (118,595) 5,000 — — — (9,713) — (66,736) 34,715 235,737 80,408 186,249 15,683 (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 $ 40,116 $ 201,932 $ 2 4 2 5 c o n s o l i d a t e d f i n a n c i a l a n d s t a t i s t i c a l s u m m a r y ( 2 0 0 1 - 2 0 0 5 ) f o r w a r d - l o o k i n g s t a t e m e n t s Y E A R E N D E D S E P T E M B E R 3 0 2 0 0 5 2 0 0 4 2 0 0 3 2 0 0 2 2 0 0 1 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 $ 333,183 3,374,367 151,675 5,653,527 1,602,422 2,183,104 3,785,526 $ 190,285 1,722,521 283,310 2,912,627 1,133,459 861,311 1,994,770 $ 159,439 1,624,394 16,248 2,625,495 857,517 862,500 1,720,017 $ 132,252 1,380,070 (139,150) 2,059,631 573,235 668,959 1,242,194 $ 113,109 1,409,432 (90,968) 2,108,841 583,864 691,026 1,274,890 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 $ 4,973,326 1,129,090 135,785 1.72 $ 2,920,037 562,191 86,227 1.58 $ 2,799,916 534,976 71,688 1.54 $ 1,650,964 431,140 59,656 1.45 $ 1,725,481 375,208 56,090 1.47 $ $ $ $ $ 80,539 79,012 1.24 26,242 29.76 24.85 28.25 19.90 16.42 1.42 4.4% $ $ $ $ $ 62,800 54,416 1.22 27,555 26.86 23.68 25.19 18.05 15.94 1.40 4.8% $ $ $ $ $ 51,476 46,496 1.20 28,510 25.45 20.70 23.94 16.66 15.55 1.44 5.0% $ $ $ $ $ 41,676 41,250 1.18 28,829 24.46 18.37 21.50 13.75 14.83 1.56 5.5% $ $ $ $ $ 40,792 38,247 1.16 30,524 26.25 19.31 21.60 14.31 14.69 1.51 5.4% 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 296,283 173,219 184,512 145,488 156,544 114,851 411,134 72,814 246,033 63,453 247,965 63,053 208,541 61,230 217,774 throughput (MMcf) 238,097 222,572 225,961 204,027 55,469 Consolidated pipeline transportation volumes (MMcf) Meters in service at end of year Heating degree days # Degree days as a percentage of normal 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 Meters per employee – utility Times interest earned before income taxes $ $ $ $ 375,604 3,157,840 2,587 — 1,679,136 3,271 — 1,672,798 3,473 — 1,389,341 3,368 — 1,386,323 4,124 89% 7.41 .49 9.0% 4,543 927 110 730 2.59 $ $ $ $ 96% 6.55 .36 9.1% 2,864 994 116 612 3.05 $ $ $ $ 101% 5.76 .43 9.9% 2,905 930 115 594 2.75 $ $ $ $ 94% 3.87 .41 9.9% 2,338 939 101 616 2.55 $ $ $ $ 115% 6.82 .41 10.4% 2,361 977 130+ 603 2.83 * In conjunction with the adoption of EITF 02-03 in fiscal 2003, 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. Fiscal years 2001-2002 have been reclassiﬁed to conform with this new presentation. # Heating degree days are adjusted for service areas with weather-normalized operations. + Adjusted for partial-year results of Louisiana Gas Service Company, which was acquired in July 2001. 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 and 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 any other of the Company’s documents or oral presentations, the words “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “objective,” “plan,” “projection,” “seek,” “strategy” 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 discussed in this report. These risks and uncertainties are discussed in the Company’s Form 10-K for the ﬁscal year ended September 30, 2005. 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 any of its forward-looking statements, whether as a result of new information, future events or otherwise. 2 6 27 a t m o s e n e r g y o f f i c e r s a t m o s e n e r g y o f f i c e r s S E N I O R M A N A G E M E N T T E A M U T I L I T Y D I V I S I O N S N O N U T I L I T Y B U S I N E S S Robert W. Best Chairman, President and Chief Executive Ofﬁcer J. Kevin Akers President, Mississippi Division Mark H. Johnson Vice President, Nonutility Operations President, Atmos Energy Marketing, LLC Susan C. Kappes Vice President, Investor Relations J. Patrick Reddy Senior Vice President and Chief Financial Ofﬁcer Richard A. Erskine President, Mid-Tex Division President, Atmos Pipeline–Texas Division Ron W. McDowell Vice President, New Business Ventures Dwala J. Kuhn Corporate Secretary R. Earl Fischer Senior Vice President, Utility Operations JD Woodward Senior Vice President, Nonutility Operations Gary W. Gregory President, West Texas Division Verlon R. Aston, Jr. Vice President, Governmental Affairs Fred E. Meisenheimer Vice President and Controller S H A R E D S E R V I C E S Tom S. Hawkins, Jr. President, Louisiana Division Leslie H. Duncan Vice President and Chief Information Ofﬁcer Laurie M. Sherwood Vice President, Corporate Development, and Treasurer Louis P. Gregory Senior Vice President and General Counsel John A. Paris President, Kentucky Division President, Mid-States Division Cindy A. Foor Vice President, Corporate Communications Wynn D. McGregor Senior Vice President, Human Resources Gary L. Schlessman President, Colorado-Kansas Division Conrad E. Gruber Vice President, Strategic Planning 2 8 2 9 b o a r d o f d i r e c t o r s c o r p o r a t e i n f o r m a t i o n 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; Senior Visiting 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 Juniper Advisory LP Houston, Texas Board member since 2001 Committees: Human Resources, Nominating and Corporate Governance Gene C. Koonce Retired 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 3 0 Dr. Thomas C. Meredith Commissioner of Mississippi Institutions of Higher Learning Jackson, Mississippi Board member since 1995 Committees: Audit, Nominating and Corporate Governance Phillip E. Nichol Retired 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 Nancy K. Quinn Principal, Hanover Capital, LLC East Hampton, New York Board member since 2004 Committees: Audit, Nominating and Corporate Governance Stephen R. Springer Retired Senior Vice President and General Manager, Mid-Stream Division The Williams Companies, Inc. Syracuse, Indiana Board member since 2005 Committee: Work Session/Annual Meeting Charles K. Vaughan Retired 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 C O M M O N S T O C K L I S T I N G A N N U A L M E E T I N G O F S H A R E H O L D E R S New York Stock Exchange. Trading symbol: ATO S T O C K T R A N S F E R A G E N T A N D R E G I S T R A R American Stock Transfer and Trust Company 59 Maiden Lane Plaza Level New York, New York 10038 (800) 543-3038 To inquire about your Atmos Energy stock, please call AST at the telephone number above. You may use the agent’s interactive voice response system 24 hours a day to learn about transferring stock or to check your recent account activity—all without the assistance of a customer service representative. Please have available your Atmos Energy shareholder account number and your Social Security or federal taxpayer ID number. To speak to an AST customer service representative, please call the same number between 8 a.m. and 7 p.m. Eastern time, Monday through Thursday, or 8 a.m. to 5 p.m. Eastern time on Friday. You also may send an e-mail message on our agent’s Web site at http://www.amstock.com. Please refer to Atmos Energy in your e-mail and include your Atmos Energy shareholder account number and your Social Security or federal taxpayer ID number. I N D E P E N D E N T R E G I S T E R E D P U B L I C A C C O U N T I N G F I R M Ernst & Young LLP 2100 Ross Avenue, Suite 1500 Dallas, Texas 75201 (214) 969-8000 F O R M 1 0 - K Atmos Energy Corporation’s Annual Report on Form 10-K is available upon request from Shareholder Relations, Atmos Energy Corporation, P.O. Box 650205, Dallas, Texas 75265- 0205 or by calling (972) 855-3729 between 8 a.m. and 5 p.m. Central time. Atmos Energy’s Form 10-K may also be viewed on Atmos Energy’s Web site at http://www.atmosenergy.com. The Annual Meeting of Shareholders will be held in the Rio Grande Ballroom at the Ambassador Hotel, 3100 I-40 West, Amarillo, Texas 79102 on Wednesday, February 8, 2006, at 11 a.m. Central time. D I R E C T S T O C K P U R C H A S E P L A N Atmos Energy Corporation has a Direct Stock Purchase Plan that is available to all investors. For an Enrollment Application Form and a Plan Prospectus, please call AST at (800) 543-3038. The Prospectus is also available on the Internet at http://www.atmosenergy.com. You may also obtain information by writing to Shareholder Relations, Atmos Energy Corporation, P.O. Box 650205, Dallas, Texas 75265-0205. This is not an offer to sell, or a solicitation to buy, any securi- ties of Atmos Energy Corporation. Shares of Atmos Energy common stock purchased through the Direct Stock Purchase Plan will be offered only by Prospectus. A T M O S E N E R G Y O N T H E I N T E R N E T Information about Atmos Energy is available on the Internet at http://www.atmosenergy.com. Our Web site includes news releases, current and historical ﬁnancial reports, other investor data, corporate governance documents, management biographies, customer information and facts about Atmos Energy’s operations. A T M O S E N E R G Y C O R P O R A T I O N C O N T A C T S To contact Atmos Energy’s Shareholder Relations, call (972) 855-3729 between 8 a.m. and 5 p.m. Central time or send an e-mail message to InvestorRelations@atmosenergy.com. Securities analysts and investment managers, please contact: Susan C. Kappes Vice President, Investor Relations (972) 855-3729 (972) 855-3040 (fax) InvestorRelations@atmosenergy.com © 2005 by Atmos Energy Corporation. All rights reserved. Atmos Energy® is a registered trademark, and Atmos Energy–The Spirit of Service® is a registered service mark of Atmos Energy Corporation. You can view this Summary Annual Report, our Annual Report on Form 10-K and other financial documents for fiscal 2005 and previous years on our Web site at www.atmosenergy.com. If you are a shareholder who would like to receive our Summary Annual Report and other company documents in the future electronically, please sign up for electronic distribution. It’s convenient and easy and will save costs in producing and distributing these materials. To receive these documents over the Internet next year, please visit www.amstock.com and access your account to give your consent. Please remember that accessing the Summary Annual Report and other company documents over the Internet may result in charges to you from your Internet service provider or telephone company. Atmos Energy Corporation P.O. Box 650205 Dallas, Texas 75265-0205 www.atmosenergy.com (972) 934-9227

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