Atmos Energy 2006 Annual Report Download - page 9

Atmos Energy was named to
the FORTUNE 500 for the
first time in 2006. The
company moved up
150 places since 2005.
In 1626, French explorers
discovered American natives
igniting gases that were
seeping into Lake Erie.
prices last winter. AEM used its experience
and expertise as one of the country’s
leading gas marketers to help many public
utilities, municipalities and industrial
customers contend with the wide swings
in wholesale gas prices. As a result,
AEM increased its 2006 marketing sales
volumes by 46 billion cubic feet (Bcf)
to 284.0 Bcf.
Furthermore, our pipeline and storage
segment, also part of our nonutility
operations, achieved higher transportation
and related-service margins and
favorable arbitrage spreads on its storage
contracts. The segment contributed
$35.6 million to net income, a 16 percent
increase over its contribution in fiscal
2005. Consolidated pipeline and storage
throughput increased to 420.2 Bcf from
383.4 Bcf in fiscal 2005.
A significant step we took during
2006—one that promises favorable returns
and future opportunities—was our
expansion into natural gas gathering. We
expect to be able to use many of the same
operating and marketing strengths found
in our pipeline business in the gathering
business. A gathering system collects raw
gas from producers’ wells and transports
it to a processing and sales terminal. From
there, larger regulated pipelines carry
the gas to market.
In October 2006, we received an order
from the Federal Energy Regulatory
Commission (FERC) exempting our
proposed Straight Creek Gathering
System from FERC regulation. This
gathering system will use a 20-inch
backbone pipeline running approximately
60 miles through the Big Sandy natural
gas producing region in eastern Kentucky.
It will be able to transport up to 100,000
million Btu (MMBtu) a day of gas when
it goes into operation in 2007, with the
capability to expand throughput up to
225,000 MMBtu a day.
The Big Sandy producing region
historically has not had sucient gathering
capacity to handle the available supply. It’s
estimated that our project could generate
more than $150 million a year in
500
Dear Fellow Shareholder:
45
We have many reasons to celebrate 2006,
not the least of which was our company’s
100th birthday.
In our centennial year, Atmos Energy
delivered exceptional financial results
that were driven by increased sales volumes
and higher margins in our nonutility
segment. At the same time, our utility
operations implemented improved
rate designs to strengthen our future
financial performance.
Net income for the fiscal year increased
9 percent to $147.7 million from $135.8
million in fiscal 2005, and earnings per
diluted share grew by 10 cents to $1.82.
We paid dividends of $1.26 per
share, resulting in a yield of between
4 percent and 5 percent. In November
2006, the board of directors declared our
19th consecutive annual dividend
increase, raising the dividend by 2 cents
a share. The indicated rate for fiscal
2007 is $1.28.
During 2006, we achieved smooth
management transitions in both our utility
and nonutility operations. Kim R. Cocklin
assumed responsibilities as senior vice
president, utility operations, and
Mark H. Johnson was named senior vice
president, nonutility operations.
We also began recovering from
Hurricanes Katrina and Rita, which ini-
tially had affected service to more than
60 percent of our Louisiana customers.
Although Atmos Energy has changed
in many ways during the past century,
it has remained true to the founders’ core
vision to serve the public as a natural
gas company.
Today, that vision translates into our
complementary strategy of natural
gas utility services and nonutility gas
marketing, pipeline and storage
services—a strategy that produced
exceptional results in fiscal 2006.
N O N U T I L I T Y E A R N I N G S I N C R E A S E 7 3 P E R C E N T
A very bright spot in 2006 was our
nonutility operations. Earnings from
these operations offset a 35 percent
decline in our utility earnings to contribute
a record-setting $94.7 million to net
income, or $1.17 per diluted share.
Our gas marketing subsidiary,
Atmos Energy Marketing (AEM), was
able to realize $68.7 million more in
margins primarily as a result of the extreme
volatility in natural gas commodity
14
–
15
33
One of the largest pipeline
projects in Atmos Energy’s
history, the 45-mile North
Side Loop was completed in
2006 to better serve the
Dallas-Fort Worth area.
Natural gas costs less
than one-third of the cost
of electricity per Btu.
1626
. . . . . Corporation to emphasize its diversified assets. 1980: Trans Louisiana Gas Company was formed. 1983: Pioneer launched Energas as an independent, . . . . . . . . . . . . . . . . . . publicly held gas utility company. 1986: Energas made its first acquisition with the purchase of Trans Louisiana Gas. 1987: Growth continued with . . . . . . . . .
F I S C A L 2 0 0 6 N E T I N C O M E B Y S E G M E N T
Contributions from utility and nonutility operations
N A T U R A L G A S M A R K E T I N G 39.6%
P I P E L I N E A N D S T O R A G E 24.1%
U T I L I T Y 35.9%
O T H E R N O N U T I L I T Y 0.4%