Atmos Energy DEF 14A 2013
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
Atmos Energy Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
Notice of Annual Meeting
and Proxy Statement
Annual Meeting of Shareholders
Wednesday, February 5, 2014
December 20, 2013
Dear Atmos Energy Shareholder:
You are cordially invited to attend the annual meeting of shareholders on Wednesday, February 5, 2014, at 9:00 a.m. Central Standard Time. The meeting will be held at the Charles K. Vaughan Center, 3697 Mapleshade Lane, Plano, Texas 75075.
The matters to be acted upon at the meeting are described in the Notice of Annual Meeting of Shareholders and Proxy Statement. In addition, we will review the affairs and progress of the Company during the past year and discuss the results of operations for the first quarter of our 2014 fiscal year.
Your vote is very important, regardless of the number of shares you hold. Whether or not you plan to attend the meeting in person, please cast your vote, as instructed in the Notice of Internet Availability of Proxy Materials (Notice) or proxy card, over the Internet, by telephone or on the proxy card, as promptly as possible. If you received only a Notice in the mail or by electronic mail, you may also request a paper proxy card to submit your vote by mail, if you prefer. However, we encourage you to vote over the Internet or by telephone because it is more convenient and saves natural resources, as well as printing costs and postage fees.
On behalf of your Board of Directors, thank you for your continued support and interest in Atmos Energy Corporation.
ATMOS ENERGY CORPORATION
P.O. Box 650205
Dallas, Texas 75265-0205
NOTICE OF ANNUAL MEETING
To Our Shareholders:
The annual meeting of the shareholders of Atmos Energy Corporation will be held at the Charles K. Vaughan Center, 3697 Mapleshade Lane, Plano, Texas 75075 on Wednesday, February 5, 2014, at 9:00 a.m. Central Standard Time for the following purposes:
Shareholders of record of our common stock at the close of business on December 10, 2013, will be entitled to notice of, and to vote at, such meeting. The stock transfer books will not be closed. Your vote is very important to us. Regardless of the number of shares you own, please vote. All shareholders of record may vote (i) over the Internet, (ii) by toll-free telephone (please see the proxy card for instructions), (iii) by written proxy by signing and dating the proxy card and mailing it to us or (iv) by attending the annual meeting and voting in person. These various options for voting are described in the Notice or proxy card. For all shareholders who participate in our Retirement Savings Plan and Trust (RSP), your vote over the Internet, by telephone or on your proxy card will serve as voting instructions to the trustee of the RSP. If you own shares through the RSP, only the trustee may vote your plan shares even if you attend the annual meeting in person.
All shareholders who hold shares in street name in the name of a broker, bank or other nominee (broker) may submit your written votes through voting instruction forms provided by your brokers. If you hold shares in street name, you may also generally vote your proxy over the Internet or by telephone, in accordance with voting instructions provided by your broker. Brokers do not have the discretion to vote the shares of customers or clients who fail to provide voting instructions on any of the proposals listed above, except the proposal to ratify the Audit Committees appointment of Ernst & Young to serve as the Companys independent registered public accounting firm for fiscal 2014. Therefore, if you do not provide instructions to your broker to vote your shares, the broker may vote your shares only on that one proposal at our annual meeting. In addition, if you own your shares in street name and you intend to vote in person at the meeting, you must first obtain a legal proxy from your broker and bring it to the annual meeting.
We encourage you to receive all proxy materials in the future electronically to help us save printing costs and postage fees, as well as to conserve natural resources in producing and distributing these materials. If you wish to receive these materials electronically for next years annual meeting, please follow the instructions on the proxy card or on our website at www.atmosenergy.com under the Investors tab.
December 20, 2013
TABLE OF CONTENTS
PROXY STATEMENT SUMMARY
To assist you in reviewing the proposals to be acted upon at our annual meeting of shareholders, including the election of directors and the non-binding advisory vote to approve our executive compensation, please review the information below in this summary. This summary represents only highlights of information contained elsewhere in this proxy statement. Please read the entire proxy statement before voting because this summary does not contain all the information you should consider.
Fiscal 2013 Financial Highlights
Highlights of Executive Compensation Program
Objectives of Program
Limitations on Executive Compensation Program Adopted by Board
No Changes to Executive Compensation Program in Fiscal 2013
Our shareholders overwhelmingly approved the compensation of our named executive officers for fiscal 2012 at our fiscal 2013 annual meeting of shareholders, with over 96 percent of the shares voted in favor of such compensation. Accordingly, the Human Resources Committee (HR Committee) and our Board decided not to change our executive compensation decisions and policies over the last fiscal year.
Compensation of Chief Executive Officer
The Board awarded our President and Chief Executive Officer, Kim R. Cocklin, an amount of annual and long-term incentive compensation for fiscal 2013 that was commensurate with our business results and pay for performance philosophy. Such compensation included an annual incentive cash award of $1,171,862 and long-term equity compensation awards with a total value of $2,521,185 during fiscal 2013. Consistent with our executive compensation philosophy, a significant majority of Mr. Cocklins total direct compensation of $4,561,093 for fiscal 2013 was incentive-based and at risk, as illustrated by the following chart:
Compensation of Other Named Executive Officers
Consistent with its approach to the compensation of our CEO, the Board awarded each of our other named executive officers an amount of annual and long-term incentive compensation for fiscal 2013 that was also commensurate with our business results and pay for performance philosophy. A significant majority of each of their amounts of total direct compensation for fiscal 2013 was also incentive-based and at risk, as shown on the following table and as illustrated by the chart below:
Proposals to Be Voted On By Our Shareholders
Proposal OneElection of Directors
You will find in this proxy statement important information about the qualifications, skills and experience of each of the 11 director nominees that you are being asked to elect at our annual meeting of shareholders. Our Nominating and Corporate Governance Committee (Nominating and CG Committee) performs an annual assessment of the performance of each member of the Board of Directors to ensure that our directors have the qualifications, skills and experience to continue to serve effectively. The committee has determined that all of our current directors possess the qualifications, skills, experience and other qualities important to the continued success of the Company. Accordingly, our Board recommends that shareholders vote in favor of each nominee for re-election.
Proposal TwoRatification of our Independent Registered Public Accounting Firm
You will also find in this proxy statement important information about our independent registered public accounting firm, Ernst & Young LLP. We believe Ernst & Young LLP continues to provide high quality professional services to the Company. Our Board of Directors recommends that shareholders vote in favor of ratification of the firms appointment by the Audit Committee for fiscal 2014.
Proposal ThreeAdvisory Vote on Executive Compensation Program
Our shareholders have the opportunity to cast a non-binding, advisory vote on the compensation of our named executive officers for fiscal 2013. As recommended by our shareholders at our 2011 annual meeting, we intend to provide our shareholders with an annual opportunity to vote on executive compensation until the next non-binding vote on the frequency of our advisory vote on executive compensation. We were pleased that at last years annual meeting, over 96 percent of our shareholders voted to approve the compensation of our named executive officers for fiscal 2012. In evaluating this Say on Pay proposal, we recommend that you review our Compensation Discussion and Analysis in this proxy statement, which explains how and why the HR Committee and our Board arrived at decisions concerning our fiscal 2013 executive compensation. Our Board of Directors recommends that shareholders approve, on an advisory basis, the compensation of our named executive officers for fiscal 2013.
ATMOS ENERGY CORPORATION
P.O. Box 650205
Dallas, Texas 75265-0205
2014 ANNUAL MEETING OF SHAREHOLDERS
to be Held on February 5, 2014
Date, Time, Place and Purpose of Meeting
Our 2014 annual meeting of shareholders will be held on Wednesday, February 5, 2014, at 9:00 a.m. Central Standard Time at the Charles K. Vaughan Center, 3697 Mapleshade Lane, Plano, Texas 75075. The purpose of the 2014 annual meeting is set forth in the Notice of Annual Meeting of Shareholders to which this proxy statement is attached. Atmos Energy Corporation is referred to as Atmos Energy, the Company, our, us or we in this proxy statement.
Internet Availability of Proxy Materials
Under rules of the U.S. Securities and Exchange Commission (SEC), we are furnishing proxy materials to our shareholders primarily over the Internet, rather than mailing paper copies of the materials (including our Summary Annual Report and Annual Report on Form 10-K for fiscal 2013) to each shareholder. If you received only a Notice by mail or electronic mail, you will not receive a paper copy of these proxy materials unless you request one. Instead, the Notice will instruct you as to how you may access and review the proxy materials over the Internet. The Notice will also instruct you on how you may access your proxy card to vote over the Internet. If you received a Notice by mail or electronic mail and would like to receive a paper copy of our proxy materials, free of charge, please follow the instructions included in the Notice.
We anticipate that the mailing of the Notice to our shareholders will commence on or about December 20, 2013 and will be sent by electronic mail to our shareholders who have opted for such means of delivery on or about December 23, 2013.
Revocability and Voting of Proxies
Any shareholder of record submitting a proxy has the power to revoke the proxy at any time prior to its exercise by (1) submitting a new proxy with a later date or time, including a proxy given over the Internet or by telephone; (2) notifying our Corporate Secretary in writing before the meeting or (3) voting in person at the meeting. Any shareholder owning shares in street name who wishes to revoke voting instructions previously given to a broker should contact such broker for further instructions. An independent inspector of election will count the votes. Your vote will not be disclosed to us and will remain confidential except under special circumstances. For example, a copy of your proxy card will be sent to us if you add any written comments to the card. If you are a shareholder of record and give us your signed proxy, but do not specify how to vote on any particular proposal, we will vote your shares in favor of the nominees for the election of directors (see Proposal OneElection of Directors, beginning on page 17); in favor of the proposal to ratify the Audit Committees appointment of Ernst & Young as the independent registered public accounting firm for the Company for fiscal 2014 (see Proposal TwoRatification of Appointment of Independent Registered Public
Accounting Firm beginning on page 29) and in favor of the advisory proposal to approve executive compensation for fiscal 2013 (see Proposal ThreeNon-Binding, Advisory Vote on Approval of Executive Compensation, beginning on page 31).
Solicitation of Proxies
The proxy accompanying this statement is solicited by the management of the Company at the direction of our Board of Directors. It is expected that these materials will be first sent to our shareholders on or about December 20, 2013. We expect to solicit proxies primarily by mail, but our directors, officers, employees and agents may also solicit proxies in person or by telephone or other electronic means. We will pay for all costs of preparing, assembling and distributing the proxies and accompanying materials for the annual meeting of shareholders, including the costs of reimbursing brokers for forwarding proxies and proxy materials to their principals. We will ask brokers to prepare and send a Notice to each of their customers or clients for whom they hold shares and forward copies of the proxy materials to such beneficial owners who request a paper copy. In addition, Morrow & Co., LLC, 470 West Avenue, Stamford, Connecticut 06902 (Morrow) will assist us in the solicitation of proxies. We will pay approximately $7,500 in fees, plus expenses and disbursements, to Morrow for its proxy solicitation services.
Common Stock Information; Record Date
As of December 10, 2013, our record date, there were 90,956,899 shares of our common stock, no par value, issued and outstanding, all of which are entitled to vote. These shares constitute the only class of our stock issued and outstanding. As stated in the Notice, only shareholders of record at the close of business on December 10, 2013 will be entitled to vote at the meeting. Each share is entitled to one vote.
In accordance with Texas and Virginia law, our bylaws provide that if the holders of a majority of the issued and outstanding shares of our common stock entitled to vote are present in person or represented by proxy, there will be a quorum. The aggregate number of votes entitled to be cast by all shareholders present in person or represented by proxy at the annual meeting, whether those shareholders vote for, against or abstain from voting on any matter, will be counted for purposes of determining whether a quorum exists. Broker non-votes, which are described below, will also be considered present for purposes of determining whether a quorum exists.
Broker Non-Votes and Vote Required
If a broker holds your shares and you have previously elected to receive a paper copy of your proxy materials, a paper copy of this proxy statement and other proxy materials have been sent to your broker. You may have received this proxy statement directly from your broker, together with instructions as to how to direct the broker to vote your shares. If you desire to have your vote counted, it is important that you return your voting instructions to your broker. Rules of the New York Stock Exchange (NYSE) determine whether proposals presented at shareholder meetings are considered routine or non-routine. If a proposal is routine, a broker holding shares for an owner in street name may vote on the proposal without voting instructions from the owner. If a proposal is non-routine, the broker may vote on the proposal only if the owner has provided voting instructions. A broker non-vote occurs when the broker is unable to vote on a proposal because the proposal is non-routine and the owner does not provide instructions. Broker non-votes have no effect on the vote on such a
proposal because they are not considered present and entitled to vote. Proposals One and Three are considered non-routine proposals. Therefore, brokers may vote on these proposals only if voting instructions are provided by the owner of the shares. Only Proposal Two, the proposal to ratify the appointment of Ernst & Young as the independent registered public accounting firm for the Company for fiscal 2014, is considered a routine proposal under the rules of the NYSE. As a result, brokers holding shares for an owner in street name may vote on this proposal, even if no voting instructions are provided by the owner of the shares.
Generally, in accordance with Texas and Virginia law, under our bylaws, the number of votes required for the approval of a proposal is a majority of the shares of our common stock present or represented by proxy and entitled to vote at the meeting. Abstentions will have the same effect as an against vote but, as discussed above, broker non-votes will have no effect on the vote for these proposals. If any other proposals are properly presented to the shareholders at the meeting, the number of votes required for approval will depend on the nature of the proposal. The proxy gives discretionary authority to the proxy holders to vote on any matter not included in this proxy statement that is properly presented to the shareholders at the meeting. The persons named as proxies on the proxy card are Robert W. Best, Chairman of the Board and Nancy K. Quinn, Lead Director and Chair of the Audit Committee.
In accordance with, and pursuant to, the corporate governance standards of the NYSE, the Board has adopted and periodically updated our Corporate Governance Guidelines (Guidelines), which govern the structure and proceedings of the Board and contain the Boards position on many governance issues. The Board has also adopted and periodically updated the Code of Conduct for our directors, officers and employees. The Code of Conduct provides guidance to the Board and management in areas of ethical business conduct and risk and provides guidance to employees and directors by helping them to recognize and deal with ethical issues including, but not limited to (i) conflicts of interest, (ii) gifts and entertainment, (iii) confidential information, (iv) fair dealing, (v) protection of corporate assets and (vi) compliance with rules and regulations. We have provided to our directors, officers and other employees a toll-free compliance hotline and a website by which they may report on an anonymous basis any observation of unethical behavior or any suspected violations of our Code of Conduct. In addition, the Board has adopted and periodically updated the charters for its Audit Committee, HR Committee, and Nominating and CG Committee. All of the foregoing documents are posted on the Corporate Governance page under the Investors tab of our website at www.atmosenergy.com.
Independence of Directors
The Board is comprised of a majority of independent directors in accordance with NYSE corporate governance standards. In accordance with rules of the SEC and the NYSE, as well as our Guidelines, to be considered independent, a director must not have a direct or indirect material relationship with the Company or its management, other than as a director. To assist it in making its determination of the independence of each of its members, the Board has adopted its Categorical Standards of Director Independence (Standards). The Standards specify the criteria by which the independence of our directors will be determined and the types of relationships the Board has determined to be categorically immaterial, including relationships of directors and their immediate
families with respect to past employment or affiliation with the Company, our management or our independent registered public accounting firm. For purposes of the Standards, the Board has adopted the definition of an immediate family member as set forth by the NYSE, which includes a directors spouse, parents, children, siblings and in-laws of the director, as well as anyone else (other than any domestic employee) who shares such directors home. The Standards and our Guidelines are posted on the Corporate Governance page of our website.
Based on its review of the Standards, as well as applicable SEC rules and regulations, NYSE corporate governance standards, and taking into consideration all business relationships between the Company and each non-employee director and non-employee director nominee, the Board has concluded that none of such relationships are material, other than the relationship with Messrs. Best and Springer described below. Accordingly, the Board has affirmatively determined that Ms. Quinn, Dr. Meredith and Messrs. Douglas, Esquivel, Gordon, Grable, Sampson, and Ware are independent members of the Board. In addition, the Board has affirmatively determined that each member of the Audit Committee, HR Committee and Nominating and CG Committee are independent under the Standards, as well as applicable SEC rules and regulations and NYSE corporate governance standards.
In recommending to the Board that each non-employee director and non-employee nominee be found independent, other than Mr. Best, who was an executive officer of the Company until April 1, 2013, or Mr. Springer, the Nominating and CG Committee reviewed and considered the following transactions, relationships or arrangements during the past three fiscal years, as discussed below. All matters described below fall within the Standards, including the monetary thresholds set forth in such Standards. Such matters are more fully discussed below under Related Person Transactions.
Because Mr. Springers son-in-law is a partner with the firm of Ernst & Young, our independent registered public accounting firm, the Board has determined that Mr. Springer may not be considered independent from the Company under the Standards. However, Mr. Springers son-in-law is not involved in our audit and is not considered a covered person with respect to us, as defined under the SECs independence-related rules and regulations for auditors. Thus, this relationship has no effect on Ernst & Youngs independence as our independent registered public accounting firm. Further, Mr. Springer does not serve on our Audit Committee, HR Committee or Nominating and CG Committee.
Related Person Transactions
In accordance with applicable SEC rules and in recognition that transactions into which we enter with related persons may present potential or actual conflicts of interest, our Board has adopted and periodically reviews written guidelines with respect to related person transactions. For purposes of these guidelines, a reportable related person transaction is a transaction between the Company and any related person (i) involving more than $120,000 when aggregated with all similar transactions during any fiscal year and (ii) where such related person has or will have a direct or indirect material interest in such transaction (other than solely as a result of being a director or a less than 10 percent
beneficial owner of another entity). A related person is any (a) person who is or was (since the beginning of the last fiscal year) an executive officer, director or nominee for election as a director of the Company; (b) person who beneficially owns more than five percent of the Companys common stock or (c) immediate family member of any of the foregoing. An immediate family member includes a persons spouse, parents, children, siblings, in-laws and anyone (other than a tenant or employee) residing in such persons home.
Under the guidelines, all executive officers, directors and director nominees are required to identify, to the best of their knowledge after reasonable inquiry, business and financial affiliations involving themselves or their immediate family members, which could reasonably be expected to give rise to a related person transaction. Executive officers, directors and director nominees are required to advise the Corporate Secretary of the Company promptly of any change in the information provided and are asked periodically to review and reaffirm this information.
The Nominating and CG Committee reviews the material facts of all related person transactions and either approves or disapproves of the entry into any such transaction. However, if advance committee approval of a related person transaction is not feasible, then it shall be considered and, if the committee determines it to be appropriate, ratified at the committees next regularly scheduled meeting. In determining whether to approve or ratify a related person transaction, the committee takes into account, among other factors it deems appropriate, whether the related person transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related persons interest in the transaction.
No director is allowed to participate in any discussion or approval of a related person transaction for which he or she is a related person, except that the director shall provide all material information concerning the transaction to the committee. If a related person transaction will be ongoing, the committee may establish guidelines for the Companys management to follow in its ongoing dealings with the related person. Thereafter, the committee, on at least an annual basis, will review and assess ongoing relationships with the related person to see that they remain in compliance with the committees related person transaction guidelines and that the related person transaction remains appropriate. In addition, the committee will periodically review the related person guidelines to determine if changes or modifications may be appropriate.
The committee also makes a recommendation to the Board as to whether the committee determines that an identified transaction is required to be reported as a related person transaction under SEC rules. Under SEC rules, certain transactions are deemed not to involve a material interest and thus are not reportable (including transactions in which the amount involved in any 12-month period is less than $120,000 and transactions with entities where a related persons interest is limited to service as a non-employee director). In determining materiality for this purpose, information is considered material if, in light of all the facts and circumstances of the transaction, there is a substantial likelihood a reasonable investor would consider the information important in deciding whether to buy, sell or vote shares of the Companys common stock. The types of transactions specified below, which are pre-approved by the committee, are presumed not to involve a material interest.
The committee reviewed all ordinary course of business transactions during fiscal 2013 between the Company and companies for which related persons serve as executive officers, including the transactions described below, which represent the only reportable transactions of this type during fiscal 2013.
Mr. Esquivel is Vice President for Community and Corporate Relations for UT Southwestern Medical Center in Dallas, Texas. For the 2013 fiscal year, the Company received total revenues from UT Southwestern Medical Center (UT Southwestern) of approximately $3,816,000. A total of about $2,951,000 in revenues was received from UT Southwestern for natural gas purchased from the Companys marketing and trading affiliate, Atmos Energy Marketing, LLC (AEM), with the remainder of approximately $865,000 in revenues being received for natural gas distribution and transportation services provided to UT Southwestern. All such services provided to UT Southwestern, including the sales of natural gas by AEM, were made in the ordinary course of business and on substantially the same terms as other comparable transactions with third parties. The committee has received written confirmation that the total amount of revenues received from UT Southwestern during fiscal 2013 represents less than one percent of the gross revenues of UT Southwestern for that period. In addition, Mr. Esquivel did not participate in any decision to enter into such transactions. Based on these facts, the committee determined that Mr. Esquivel did not have a material interest in such transactions.
As noted above, in the discussion on the independence of our directors, Mr. Ware is president of Amarillo National Bank in Amarillo, Texas, which provides a $25 million short-term line of credit to the Company and serves as a depository bank for us. During fiscal 2013, we paid a total of about $213,000 to Amarillo National Bank for these services, which amount is reasonable and customary for these types of services and such services are substantially on the same terms as comparable third-party transactions. The committee has received written confirmation that such amount represents less than one percent of the gross revenues of the bank for the applicable period. Because these transactions with Amarillo National Bank fall within the types of transactions that have been pre-approved by the committee, such transactions are presumed not to involve a material interest.
The committee also reviewed all other transactions between the Company and other related persons, including those described below, which represent the only reportable transactions of this type during fiscal 2013.
State Street Corporation is the beneficial owner of more than five percent (5%) of the Companys common stock outstanding. State Street and its affiliates provide certain services for the Company and
our Master Retirement Trust. State Street acted as trustee of several benefits plans-related trusts for which we paid State Street a total of approximately $113,000 during fiscal 2013. For our Master Retirement Trust, State Street acted as trustee, provided payment services for two benefits plans whose assets are held in the Trust and provided investment management services relating to assets held in the Master Trust. For such services, the Master Trust paid a total of approximately $256,000 in fees to State Street during fiscal 2013.
Finally, Mr. Best, our Chairman of the Board, has a son-in-law employed by the Company in a non-executive officer position. The total value of the family members compensation for fiscal 2013, including base salary, incentive compensation and equity awards appropriate for his position, exceeds the SECs reporting threshold for disclosure of $120,000 per fiscal year. The Company is not aware of any related person transactions required to be reported under applicable SEC rules since the beginning of the last fiscal year where our policies and procedures did not require review or where such policies and procedures were not followed.
Board Leadership Structure
The Companys bylaws and Guidelines provide that our Board of Directors has the right to exercise its discretion to either separate or combine the offices of the Chairman of the Board and the Chief Executive Officer (CEO). This decision is based upon the Boards determination of what is in the best interests of the Company and its shareholders, in light of the circumstances and taking into consideration succession planning, skills and experience of the individuals filling those positions and other relevant factors. Until October 1, 2010, the Board had historically determined that the offices of the Chairman of the Board and the CEO should be combined, primarily to provide unified leadership and direction for the Company. However, on October 1, 2010, Mr. Best was appointed by the Board as Executive Chairman while Mr. Cocklin was appointed as President and CEO. Considering the skills and experience of Messrs. Best and Cocklin, the need to provide an orderly leadership transition from Mr. Best to Mr. Cocklin and the completion of the execution of the Companys succession planning process, the Board at that time determined that the Board and Companys leadership structure that was most appropriate was to have an Executive Chairman separate from its CEO. On April 1, 2013, Mr. Best retired as Executive Chairman and was appointed by the Board as Chairman. The current leadership structure is based on the experienced leadership provided by a Chairman of the Board (currently Mr. Best) and a full-time CEO (currently Mr. Cocklin), with both positions being subject to oversight and review by the Companys independent directors. The Board recognizes that if the circumstances change in the future, other leadership structures might also be appropriate and it has the discretion to revisit this determination of the Companys leadership structure. A combined Chairman and CEO Board leadership structure has previously worked well for the Company and its shareholders and may do so in the future.
The Boards leadership structure is designed so that independent directors exercise oversight of the Companys management and key issues related to strategy and risk. Only independent directors serve on our Audit Committee, HR Committee and Nominating and CG Committee of the Board and all standing Board committees, other than the Executive Committee, are chaired by independent directors. Additionally, independent directors regularly hold executive sessions of the Board outside the presence of the Chairman, the President and CEO or any other Company employee and they generally meet in a private session with the Chairman and the President and CEO at every regularly scheduled Board meeting.
Each year, the independent directors of the Board select an independent director to serve as a Lead Director (the Lead Director). The Lead Director performs the following duties: (i) convenes and chairs meetings of the non-management directors in executive sessions as may be necessary; (ii) convenes and chairs meetings of the independent directors in executive sessions as may be necessary; (iii) coordinates and develops the agenda for executive sessions of the non-management directors; (iv) coordinates feedback to the Chairman and the President and CEO on behalf of the non-management directors regarding business, management or other issues; (v) collaborates with the Chairman and the President and CEO in developing the agenda for meetings of the Board; (vi) consults with the Chairman and the President and CEO on related information that is sent to the Board; (vii) discusses the results of the performance evaluation of the President and CEO with the Chairman and the chair of the HR Committee; (viii) reports to the President and CEO the results of his performance evaluation and (ix) identifies and develops with the Chairman and the President and CEO, along with the chair of the Nominating and CG Committee, the Boards compositional needs and criteria for the selection of candidates to serve as directors. In performing the duties described above, the Lead Director is expected to consult with the chairs of the appropriate Board committees and solicit their participation. The Lead Director also performs such other duties as may be assigned to the Lead Director by the Board of Directors, the independent directors, the Chairman or the President and CEO.
Risk Oversight Process
Our Board of Directors has the primary responsibility for risk oversight of the Company as a whole. However, the Board has delegated primary risk oversight responsibility to the Audit Committee. The Audit Committee is responsible for overseeing risks associated with financial and accounting matters, including compliance with all legal and regulatory requirements and internal control over financial reporting. In addition, the Audit Committee has oversight responsibility for the Companys overall business risk management process, which includes the identification, assessment, mitigation and monitoring of key business risks on a company-wide basis. KPMG LLP (KPMG), which serves as the Companys internal auditor, presents a report to the Audit Committee at its regularly-scheduled quarterly meetings on its internal audit activities. The report includes the audit activities performed the previous quarter, which address the key business risks identified by the Audit Committee, including evaluations and assessments of internal controls and procedures.
The Board has also charged the HR Committee with ensuring that our executive compensation policies and practices support the retention and development of executive talent with the experience required to manage risks inherent to our business and do not encourage or reward excessive risk-taking by our executives. See the discussion in Compensation Risk Assessment, beginning on page 16 for more information on the specific processes used by the HR Committee to assess the risk profile of our compensation programs. The Nominating and CG Committee oversees risks associated with corporate governance, including Board leadership structure, succession planning and other matters. The Boards role in risk oversight has had no significant effect on the Boards leadership structure. In addition, we believe that the current leadership structure of the Board supports effective oversight of the Companys risk management processes described above by providing independent leadership at the Board committee level, with ultimate oversight by the full Board as led by the Chairman, the President and CEO and the Lead Director.
Lead Director and Communications with Directors
In accordance with the corporate governance standards of the NYSE, the independent directors of the Board have designated Ms. Quinn as the Lead Director at all meetings of non-management directors,
which meetings will continue to be held by the Board on a regular basis. In addition, all independent members of the Board meet as a group at least once annually. Shareholders and other interested parties may communicate with the Lead Director, individual non-management directors, or the non-management directors as a group, by writing to Board of Directors, Atmos Energy Corporation, P.O. Box 650205, Dallas, Texas, 75265-0205 or by electronic mail at email@example.com. Our Senior Vice President, General Counsel and Corporate Secretary, Louis P. Gregory, receives all such communications initially and forwards the communications to Ms. Quinn, as Lead Director, or another individual non-management director, if applicable, as he deems appropriate. Interested parties may also contact our only director who is a member of management, Kim R. Cocklin, President and CEO (firstname.lastname@example.org), by mail at Atmos Energy Corporation, P.O. Box 650205, Dallas, Texas 75265-0205 or by telephone at 972-934-9227.
Committees of the Board of Directors
Standing Committees. We have certain standing committees, each of which is described below. The Executive Committee consists of the Chairman of the Board and the chairs of each of our standing committees. Current members of the Executive Committee are Ms. Quinn, Dr. Meredith and Messrs. Best, Gordon and Ware. Mr. Best serves as chair of the committee. In accordance with our bylaws, the Executive Committee has, and may exercise, all of the powers of the Board of Directors during the intervals between the Boards meetings, subject to certain limitations and restrictions as set forth in the bylaws or as may be established by resolution of the Board from time to time. The Executive Committee held no meetings during fiscal 2013.
The Board has established a separately-designated standing Audit Committee in accordance with applicable provisions of the Securities Exchange Act of 1934 (Exchange Act). The Audit Committee consists of Ms. Quinn and Messrs. Esquivel, Grable, Sampson and Ware. Ms. Quinn serves as chair of the committee. As discussed in Independence of Directors, beginning on page 7, the Board has determined that each member of the committee satisfies the independence requirements of the NYSE and SEC. The Audit Committee oversees our accounting and financial reporting processes and procedures; reviews the scope and procedures of the internal audit function; appoints our independent registered public accounting firm and is responsible for the oversight of its work and the review of the results of its independent audits. The Audit Committee held five meetings during the last fiscal year and has adopted a charter that it follows in conducting its activities, which is available on the Corporate Governance page of our website.
The HR Committee consists of Dr. Meredith and Messrs. Douglas, Esquivel, Gordon, Grable and Sampson. Mr. Gordon serves as chair of the committee. The Board has determined that each member of the committee satisfies the independence requirements of the NYSE and SEC. This committee reviews and makes recommendations to the Board regarding executive compensation policy and strategy and specific compensation recommendations for the President and CEO as well as our other officers and division presidents. This committee retained the worldwide consulting firm of Pay Governance LLC (Pay Governance) during fiscal 2013 to serve as its executive compensation consultant, which was directly accountable to the committee for the performance of its consulting services. In addition, the committee determines, develops and makes recommendations to the Board regarding severance agreements, succession planning and other related matters concerning our President and CEO, as well as other officers and division presidents. This committee also administers our 1998 Long-Term Incentive Plan (LTIP) and the Annual Incentive Plan for Management (Incentive Plan). During the last fiscal year, the committee held four meetings. The committee has
adopted a charter that it follows in conducting its activities, which is available on the Corporate Governance page of our website.
The Nominating and CG Committee consists of Ms. Quinn, Dr. Meredith and Messrs. Douglas, Gordon and Ware. Mr. Ware serves as chair of the committee. The Board has determined that each member of the committee satisfies the independence requirements of the NYSE and SEC. This committee makes recommendations to the Board regarding the nominees for director to be submitted to our shareholders for election at each annual meeting of shareholders, selects candidates for consideration by the full Board to fill any vacancies on the Board, which may occur from time to time, and oversees all of our corporate governance matters. The committee held one meeting during the last fiscal year. The committee has adopted a charter that it follows in conducting its activities, which is available on the Corporate Governance page of our website.
The Work Session/Annual Meeting Committee consists of Dr. Meredith and Messrs. Douglas, Grable, Springer and Ware. Dr. Meredith serves as chair of the committee. This committee selects the site and plans the meeting and agenda for the work session meeting of the Board held each year for the purpose of focusing on long-range planning and corporate strategy issues and selects the site for the annual meeting of shareholders. During the last fiscal year, the committee held two meetings.
Other Board and Board Committee Matters
Human Resources Committee Interlocks and Insider Participation. As discussed above, the members of the HR Committee during the last fiscal year were Dr. Meredith and Messrs. Douglas, Esquivel, Gordon, Grable and Sampson. None of the HR Committee members were, during fiscal 2013 or previously, an officer or employee of the Company or any of our subsidiaries. In addition, there was no interlocking relationship between any executive officer of the Company and any other corporation during fiscal 2013.
Attendance at Board Meetings and Annual Meeting of Shareholders. During fiscal 2013, our Board held nine meetings and each director attended at least 75 percent of the aggregate of (a) all meetings of the Board and (b) all meetings of the committees of the Board on which such director served. In addition, all members of the Board attended our annual meeting of shareholders on February 13, 2013. We strongly support and encourage each member of our Board to attend our annual meeting of shareholders.
Independence of Audit Committee Members, Financial Literacy and Audit Committee Financial Experts
In addition to being declared as independent under the NYSE corporate governance standards, applicable NYSE and SEC rules and regulations require that each member of an audit committee satisfy additional independence and financial literacy requirements and at least one of these members must satisfy the additional requirement of having accounting or related financial management expertise. This additional requirement can be satisfied if the Board determines that at least one Audit Committee member is an audit committee financial expert, within the meaning of applicable SEC rules and regulations. Generally, the additional independence requirements provide that (i) a member of the Audit Committee, or his or her immediate family members, are prohibited from receiving any direct or indirect compensation or fee from the Company or its affiliates and (ii) he or she may not be an affiliated person of the Company or any of its subsidiaries. An immediate family member is
defined by applicable NYSE rules to include a directors spouse, parents, children, siblings and in-laws of the director, as well as anyone else (other than any domestic employee) who shares the directors home.
Generally, the financial literacy requirements provide that the Board, in its business judgment, shall determine if each member is financially literate, taking into account factors such as the members education, experience and ability to read and understand financial statements of public companies. Audit committee financial experts must have the following five additional attributes: (i) an understanding of generally accepted accounting principles and financial statements, (ii) the ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves, (iii) experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the Companys financial statements, or experience actively supervising one or more persons engaged in such activities, (iv) an understanding of internal control over financial reporting and (v) an understanding of how an audit committee functions.
Based on its review of the independence, financial literacy and audit committee financial expert requirements previously discussed, as well as its review of their individual backgrounds and qualifications, the Board has determined that all members of the Audit Committee satisfy the additional independence and financial literacy requirements required by the SEC and NYSE for members of an audit committee. The Board has also designated Ms. Quinn and Messrs. Sampson and Ware each as an audit committee financial expert, as such term is defined by applicable rules and regulations of the SEC. As provided by the safe harbor contained in applicable SEC rules and regulations, our audit committee financial experts will not be deemed experts for any purpose as a result of being so designated. In addition, such designation does not impose on such persons any duties, obligations or liabilities that are greater than the duties, obligations and liabilities imposed on such persons as members of the Audit Committee or the Board in the absence of such designation. This designation also does not affect the duties, obligations or liabilities of any other member of the Audit Committee or the Board.
Independence of Human Resources Committee Members
The Board has affirmatively determined that each member of the HR Committee has no relationship to the Company which is material to that directors ability to be independent from management of the Company in connection with the duties of an HR Committee member. In doing so, the Board considered all factors set forth in the NYSE corporate governance standards (and any exceptions thereto) and any other relevant factor, including, but not limited to (i) the source of all compensation paid by the Company to each member of the HR Committee during fiscal 2013, including any consulting, advisory, or other compensatory fees and (ii) whether each HR Committee member is affiliated with the Company, a subsidiary of the Company or an affiliate of a subsidiary of the Company.
Audit Committee Pre-Approval Policy
The Audit Committee has adopted a pre-approval policy relating to the provision of both audit and non-audit services by Ernst & Young. Our Audit Committee Pre-Approval Policy provides for the pre-approval of audit, audit-related, tax and other services specifically described in appendices to the
policy on an annual basis. Such services are pre-approved up to a specified fee limit. All other permitted services, as well as proposed services exceeding the pre-approved fee limit, must be separately pre-approved by the Audit Committee. Requests for services that require separate approval by the Audit Committee must be submitted to the Audit Committee by both our Chief Financial Officer and our independent registered public accounting firm and must include a joint statement as to whether, in their view, the request is consistent with the SECs rules on auditor independence. The policy authorizes the Audit Committee to delegate to one or more of its members pre-approval authority with respect to permitted services. The Audit Committee did not delegate pre-approval authority to any members during fiscal 2013 and pre-approved all audit, audit-related and tax fees for services performed by Ernst & Young in fiscal 2013 in accordance with such pre-approval policy. The Audit Committee further concluded that the provision of these services by Ernst & Young was compatible with maintaining its independence. The Audit Committee Pre-Approval Policy is available on the Corporate Governance page of our website.
Compensation Risk Assessment
During fiscal 2013, the HR Committee engaged Pay Governance, which is the HR Committees independent executive compensation consultant, to assist the committee in assessing the risk profile of the compensation plans of the Company. Pay Governance reviewed all of the compensation plans of the Company to gauge whether any compensation plan encourages employees to engage in excessively risky behaviors detrimental to the Company and its shareholders. Our two annual incentive compensation plans are the Variable Pay Plan (VPP) and the Incentive Plan. Pay Governance also evaluated our long-term incentive plan, the LTIP, which includes grants of both time-lapse RSUs and performance-based RSUs. The review by Pay Governance of these incentive plans included an evaluation of the plans design features and provisions, including such provisions as the establishment of target levels, the determination of awards, the types of performance criteria measured, the capping of maximum award opportunities, the balance between annual and long-term opportunities, the role of the HR Committee in its governance and oversight and other issues. At the conclusion of its review and evaluation, Pay Governance reported to the HR Committee that none of these incentive compensation plans encourage our employees to engage in excessive risk-taking activities for short-term gains. In particular, Pay Governance reported that the features shown below help to mitigate any excessive risk-taking on the part of the participants in these plans:
Accordingly, the HR Committee has determined that neither of the Companys incentive compensation plans encourage our executive officers or other employees to take excessive risks and that the risks arising from these plans are not reasonably likely to have a material adverse effect on the Company.
The Board is nominating Ms. Quinn, Dr. Meredith and Messrs. Best, Cocklin, Douglas, Esquivel, Gordon, Grable, Sampson, Springer and Ware to continue serving as directors whose one-year terms will expire in 2015. All nominees were recommended for nomination by the Nominating and CG Committee of the Board. We did not pay a fee to any third party to identify, evaluate or assist in identifying or evaluating potential nominees for the Board. In addition, the Nominating and CG Committee did not receive any recommendations from a shareholder or a group of shareholders who, individually or in the aggregate, beneficially owned greater than five percent of our common stock for at least one year.
The names, ages, biographical summaries and qualifications of the persons who have been nominated to serve as our directors are set forth under Nominees for Director, beginning on page 19. Each of the nominees has consented to be a nominee and to serve as a director if elected. If we receive proxies that are signed but do not specify how to vote, we will vote those shares FOR all of the nominees. In accordance with Texas and Virginia law, to be elected as a director, our bylaws require a
nominee to receive the vote of a majority of the shares of our common stock entitled to vote and represented in person or by proxy at a meeting of shareholders at which a quorum is present.
Procedures for Nomination of Candidates for Director
There are no differences in the manner in which the Nominating and CG Committee evaluates nominees for director based on whether or not the nominee is presented by a shareholder. All director candidates shall, at a minimum, possess the qualifications for director discussed below. According to our bylaws, any shareholder may make nominations for the election of directors if notice of such nominations is delivered to, or mailed and received by the Corporate Secretary of the Company at our principal executive offices, not less than 60 days nor more than 85 days prior to the date of the originally scheduled meeting. However, if less than 75 days notice or prior public disclosure of the date of the meeting is given by the Company, notice of such nominations must be so received no later than the close of business on the 25th day following the earlier of the day on which notice of the meeting was sent or the day on which such public disclosure was made. Since we are providing less than 75 days notice or prior public disclosure of the date of the 2014 annual meeting, shareholders may make nominations for the election of directors at the 2014 annual meeting, if notice of such nominations is delivered to, or mailed and received by the Corporate Secretary of the Company at our principal executive offices no later than the close of business on January 14, 2014, the 25th day following the day on which notice of the meeting is to be sent, December 20, 2013. If no nominations are so made, only the nominations made by the Board of Directors may be voted upon at the 2014 annual meeting.
Each notice of a director nomination should include the following: (i) name, address and number of shares owned by the nominating shareholder, (ii) the nominees name and address, (iii) a listing of the nominees background and qualifications, (iv) a description of all arrangements between such shareholder and each nominee and any other person and (v) all other information relating to such person that is required to be disclosed in the solicitations for proxies for election of directors under applicable SEC and NYSE rules and regulations. A signed statement from the nominee should accompany the notice of nomination indicating that he or she consents to being considered as a nominee and that, if nominated by the Board and elected by the shareholders, he or she will serve as a director.
Qualifications for Directors
The Nominating and CG Committee uses a variety of methods to identify nominees for director, including considering potential director candidates who come to the committees attention through current officers, directors, professional search firms, shareholders or other persons. Nominees for director must possess, at a minimum, the level of education, experience, sophistication and expertise required to perform the duties of a member of the board of directors of a public company of our size and scope. Once a person is nominated, the committee will assess the qualifications of the nominee, including an evaluation of his or her judgment and skills. The Board has adopted guidelines outlining the qualifications sought when considering non-employee director nominees, which are discussed in our Guidelines posted on the Corporate Governance page of our website.
Based on the Guidelines, the specific qualifications and skills the Board seeks across its membership to achieve a balance of experiences important to the Company include, but are not limited to, outstanding achievement in personal careers; prior board experience; wisdom, integrity and ability to make independent, analytical inquiries; understanding of our business environment; and a willingness to devote adequate time to Board duties. Other required specific qualifications and skills
include a basic understanding of principal operational and financial objectives and plans and strategies of a corporation or organization of our stature; results of operations and financial condition of an organization and of any significant subsidiaries or business segments and a relative understanding of an organization and its business segments in relation to its competitors.
The Board is committed to diversified membership and does not discriminate on the basis of race, color, national origin, gender, religion or disability in selecting nominees. Although the Board has not established a formal policy on diversity, the Board and the committee believe it is important that our directors represent diverse viewpoints and backgrounds. Our Guidelines provide that the committee shall evaluate each directors continued service on the Board, at least annually, by considering the appropriate skills and characteristics of members of the Board of Directors in the context of the then current makeup of the Board. This assessment includes the following factors: diversity (including diversity of skills, background and experience); age; business or professional background; financial literacy and expertise; availability and commitment; independence and other criteria that the committee or the full Board finds to be relevant. It is also the practice of the committee to consider these factors when screening and evaluating candidates for nomination to the Board.
Nominees for Director
Each of the following current directors has been nominated to serve an additional one-year term on the Board of Directors with such term expiring in 2015.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR EACH OF THE ABOVE NOMINEES FOR DIRECTOR.
As compensation for serving as a director during fiscal 2013, each of our non-employee directors received an annual retainer of $75,000, payable in advance on a quarterly basis. Beginning on April 1, 2013, Mr. Best has received an annual fee of $125,000, payable in advance on a quarterly basis, for the additional services he has performed in connection with being the Chairman of the Board. In addition, since January 2013, our Lead Director, Ms. Quinn, has received an annual fee of $25,000, also payable in advance on a quarterly basis, for additional services she has performed in connection with being the Lead Director. Committee chairpersons are paid an additional annual fee of $7,500 for additional services performed in connection with their committee duties and responsibilities.
The Company also provides our non-employee directors the option to receive all or part of their director fees (in 10 percent increments) in Atmos Energy common stock through the Atmos Energy Corporation Outside Directors Stock-for-Fee Plan (Stock-for-Fee Plan). The purpose of this plan is to increase the proprietary interest of our non-employee directors in the Companys long-term prospects and the strategic growth of our business. The common stock portion of the payment of the fee earned in each quarter is issued as soon as possible following the first business day of each quarter. The number of shares issued is equal to the amount of the fee that would have been paid to the non-employee director during a quarter divided by the fair market value (mean of the highest and lowest prices as reported on the NYSE Consolidated Tape) on the first business day of such quarter. Only whole numbers of shares of common stock may be issued; fractional shares are paid in cash.
With respect to other director compensation matters, all directors are reimbursed for reasonable expenses incurred in connection with attendance at Board and committee meetings. A director who is also an officer or employee receives no compensation for his or her service as a director. We provide business travel accident insurance for non-employee directors and their spouses. The policy provides $100,000 coverage to directors and $50,000 coverage to their spouses per accident while traveling on Company business.
Each non-employee director participates in the Atmos Energy Corporation Equity Incentive and Deferred Compensation Plan for Non-Employee Directors (Directors Plan). This plan allows each such director to defer receipt of his or her annual retainer fee or other director fees and to invest such deferred fees in either a cash account or a stock account (in 10 percent increments). The Directors Plan is intended to encourage qualified individuals to accept nominations as directors of the Company and to better align the interests between the non-employee directors and the Companys other shareholders.
The amount of the fee allocated as a credit to the cash account is converted to a cash balance as of the first business day of each quarter to be credited with interest at a rate equal to 2.5 percent plus the annual yield reported on a 10-year U.S. Treasury Note for the first business day of January for each plan year. Interest on the accumulated balance of the cash account is payable monthly. The amount of the fee allocated as a credit to the stock account is converted to share units. The fee payable for the quarter is converted to a number of whole and, if applicable, fractional share units on the first business day of that quarter. Share units are also credited with dividend equivalents whenever dividends are declared on shares of the Companys common stock. Such dividend equivalent credits are converted to whole and, if applicable, fractional share units on the same day on which such dividends are paid. At the time of a participating directors retirement, plan benefits paid from the cash account are paid in the form of cash. Plan benefits paid from the stock account are paid in the form of shares of common stock equal in number to whole share units in the directors stock account. Any fractional share units are rounded up to a whole share unit prior to distribution. Each non-employee director also receives an annual grant of share units (currently 3,000 units) under the LTIP each year he or she serves on the Companys Board of Directors. The grants generally occur on the 30th day following the Companys annual meeting of shareholders each year.
Summary of Cash and Other Compensation
The following table sets forth all compensation paid to our non-employee directors for fiscal 2013:
Director Compensation for Fiscal Year 2013(a)
Director Deferred Board Fees
The following table sets forth, for each participating non-employee director, the amount of director compensation deferred during fiscal 2013 and cumulative deferred compensation as of September 30, 2013:
Director Deferred Board Fees for Fiscal Year 2013
Director Share Units and Stock-for-Fee Awards
The following table sets forth the number of share units issued to our non-employee directors during fiscal 2013 for service on our Board or a Board committee and the number of share units earned as dividend equivalents during fiscal 2013 on the accumulated balances of share units for each director. The table also shows the amount of shares granted to directors in fiscal 2013 who elected to take all or a portion of their directors fees in stock under our Stock-for-Fee Plan.
Director Share Units and Stock-for-Fee Awards for Fiscal Year 2013(a)
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board has appointed Ernst & Young to continue as our independent registered public accounting firm for the fiscal year ending September 30, 2014. The firm of Ernst & Young (and its predecessors) has been our independent registered public accounting firm since our incorporation in 1983. It is expected that representatives of Ernst & Young will be present at the annual meeting. The representatives of Ernst & Young will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.
As a matter of good corporate governance, the Company submits the Audit Committees appointment of Ernst & Young as its independent registered public accounting firm to our shareholders for ratification each year. If the appointment of Ernst & Young is not so ratified, the Audit Committee will take into account the outcome of the vote in its future selection of an independent registered public accounting firm.
Audit and Related Fees
Fees for professional services provided by our independent registered public accounting firm, Ernst & Young, in each of the last two fiscal years, in each of the following categories are:
Audit Fees. Fees for audit services include fees associated with the annual audit, the assessment by the firm of our design and operating effectiveness of internal control over financial reporting and the reviews of our quarterly reports on Form 10-Q.
Tax Fees. Tax fees include fees relating to reviews of tax returns, tax consulting and assistance with sales and use tax filings and audits.
Audit Committee Report
The Audit Committee of the Board of Directors is composed of five directors who are independent directors as required by and in compliance with all applicable corporate governance standards of the NYSE, as well as all applicable rules and regulations of the SEC, as discussed in the Corporate Governance and Other Board Matters section of this proxy statement. The Audit Committee acts under a written charter adopted by the Board of Directors, which sets forth its detailed responsibilities and duties, as well as requirements for the Audit Committees composition and meetings. A copy of the charter is available on the Corporate Governance page of the Companys website.
The primary purpose of the Audit Committee is to oversee the Companys financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the financial reporting processes of the Company, including systems of internal control over financial reporting and disclosure controls and procedures. Ernst & Young is responsible for (i) expressing an opinion, based on its audit, as to the conformity of the audited financial statements with generally accepted accounting principles and (ii) expressing an opinion, based on its audit, on the effectiveness of the Companys internal control over financial reporting.
In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed the audited financial statements appearing in the Companys 2013 Annual Report on Form 10-K with both management and Ernst & Young, which included a discussion of the critical accounting policies and practices used by the Company, and alternative treatments of financial information within generally accepted accounting principles, if any, and their effects, including the treatments preferred by the independent registered public accounting firm, if applicable. In addition, the Committee reviewed all other material communications between the Company and Ernst & Young.
Management has represented to the Audit Committee that the Companys internal control over financial reporting is effective. The Audit Committee then reviewed and discussed managements assessment with management and Ernst & Young. The Audit Committee also discussed with Ernst & Young its report on the Companys internal control over financial reporting as well as the matters required to be discussed under generally accepted auditing standards, including those matters set forth in Auditing Standard No. 16, Communication with Audit Committees, as adopted by the Public Company Accounting Oversight Board (PCAOB).
In addition, the Audit Committee has received and reviewed the written disclosures and letter from Ernst & Young, which are required by applicable requirements of the PCAOB regarding the independent registered public accounting firms communications with the Audit Committee concerning independence and discussed with Ernst & Young the firms independence. The Audit Committee also received and reviewed those disclosures related to the independence of the Companys independent registered public accounting firm required by the provisions of the Sarbanes-Oxley Act of 2002 and related rules and regulations of the SEC. In addition, the Audit Committee has considered the fees paid to Ernst & Young during the last fiscal year for audit and non-audit services and has determined that the non-audit services provided are compatible with the firms independence and are in compliance with applicable law.
The Audit Committee has also discussed with KPMG, which provides internal audit services to the Company, and Ernst & Young, the overall scope and plans for their respective audits. The Committee periodically meets with both firms, with and without management present, to discuss the results of their examinations, the assessments of the Companys internal control over financial reporting and the overall quality of the Companys financial reporting.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors (which the Board has approved) that the Companys audited financial statements be included in its Annual Report on Form 10-K for the year ended September 30, 2013 for filing with the SEC. The Audit Committee has also appointed Ernst & Young as the Companys independent registered public accounting firm for the 2014 fiscal year, which appointment will be submitted to our shareholders for their ratification at our 2014 annual meeting of shareholders.
Respectfully submitted by the members of the Audit Committee of the Board of Directors:
Nancy K. Quinn, Chair
Ruben E. Esquivel
Robert C. Grable
Richard A. Sampson
Richard Ware II
As discussed in Audit Committee Pre-Approval Policy on page 15, all professional services provided by Ernst & Young were pre-approved by the Audit Committee in accordance with its pre-approval policy.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANYS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2014.
ON APPROVAL OF EXECUTIVE COMPENSATION
Background of the Proposal
We are required by Section 14A of the Securities Exchange Act to hold a separate non-binding, advisory shareholder vote to approve the compensation of our executive officers as described in the Compensation Discussion and Analysis, the executive compensation tables and any related information in our proxy statement (commonly known as the Say on Pay proposal). At our annual meeting of shareholders on February 9, 2011, our shareholders voted overwhelmingly to adopt the recommendation of our Board to vote on the Say on Pay proposal every year at our annual meeting. As a result, we will submit our Say on Pay proposal to our shareholders at each annual meeting until we are required to submit to our shareholders within the next three years another proposal on the frequency of the vote on the Say on Pay proposal.
As discussed below in the Compensation Discussion and Analysis section of this proxy statement, beginning on page 35, the Board believes that our current executive compensation program directly links executive compensation to our financial performance and aligns the interests of our executive officers with those of our shareholders. Our Board also believes that our executive compensation program provides our executive officers with a balanced compensation package that includes a reasonable base salary along with annual and long-term incentive compensation plans that are based on the Companys financial performance. As discussed below in Elements of Executive Compensation beginning on page 38, for fiscal 2013, about 81 percent of our President and Chief Executive Officers actual total direct compensation was performance-based, while the average for the other named executive officers was about 70 percent. These incentive plans are designed to reward our executive officers on both an annual and long-term basis if they attain specified target goals, the attainment of which do not require the taking of an unreasonable amount of risk, as discussed below in Compensation Risk Assessment, beginning on page 16. Our shareholders overwhelmingly approved this executive compensation philosophy when they approved the executive compensation of our named executive officers at our last annual meeting with a positive vote of over 96 percent. See Additional Information on Executive Compensation, beginning on page 43.
The HR Committee periodically reviews the Companys overall approach to executive compensation to see that the Companys current benefits, perquisites, policies and practices continue to be in line with the best practices of companies in the natural gas distribution industry and in Fortune 500 companies and to assist us with the hiring and retention of a high-quality management team. As a result, during the past several years, (as discussed below in Compensation Discussion and Analysis, beginning on page 35) the HR Committee recommended changes to our executive compensation program, which changes were approved by the Board, as follows:
The Compensation Discussion and Analysis discussion, beginning on page 35, includes additional details about our executive compensation program. This Say on Pay proposal is set forth in the following resolution:
RESOLVED, that the shareholders of Atmos Energy Corporation approve, on an advisory basis, the compensation of its named executive officers for fiscal 2013, as disclosed in the Companys Proxy Statement for the 2014 Annual Meeting of Shareholders, pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables and any related information found in the proxy statement of Atmos Energy Corporation.
Because your vote on this proposal is advisory, it will not be binding on the Board or the Company. However, the HR Committee and the Board of Directors will take into account the outcome of the vote when considering future executive compensation arrangements.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF EXECUTIVE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS,
AS DISCLOSED IN THIS PROXY STATEMENT, PURSUANT TO THE COMPENSATION DISCLOSURE RULES OF THE SECURITIES AND
Security Ownership of Certain Beneficial Owners
The following table lists the beneficial ownership, as of November 29, 2013, with respect to each person known by us to be the beneficial owner of more than five percent of any class of our voting securities:
State Street is currently considered a related person under our related person transactions guidelines as a result of being a beneficial owner of more than five percent (5%) of our common stock outstanding. As discussed above under Related Person Transactions, State Street and its affiliates provide certain services to the Company and our Master Retirement Trust, including providing payment services for certain of our benefit plans, acting as trustee of our Master Retirement Trust and other benefits plans-related trusts, as well as providing investment management services. We paid State Street a total of approximately $113,000 and the Master Trust paid State Street a total of approximately $256,000 for these services during fiscal 2013.
Security Ownership of Management and Directors
The following table lists the beneficial ownership, as of November 29, 2013, of our common stock, the only class of securities issued and outstanding, with respect to all our directors and nominees for director, our chief executive officer, chief financial officer and our three other most highly compensated executive officers (our named executive officers) and all our directors and executive officers as a group. Except as otherwise noted, the directors, nominees and named executive officers or other executive officers, individually or as a group, have sole voting and investment power with respect to the shares listed.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers and persons who beneficially own more than ten percent of our common stock to file with the SEC initial reports of ownership and reports of changes in their ownership in our common stock. Directors, certain executive officers and greater-than-ten-percent beneficial shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such reports furnished to us, we believe that, during fiscal 2013, all of our directors (other than Ms. Quinn), named executive officers and greater-than-ten-percent beneficial owners were in compliance with the Section 16(a) filing requirements. A Form 4 was inadvertently filed by Ms. Quinn one day late on
April 4, 2013 (which was due April 3, 2013), concerning an award of share units which she received on April 1, 2013 under the deferred compensation feature of our Directors Plan.
HUMAN RESOURCES COMMITTEE REPORT
The Human Resources Committee of the Board of Directors has the responsibility for reviewing and recommending to the full Board of Directors, the Companys executive compensation program. The committee is composed entirely of persons who qualify as independent directors under the corporate governance standards of the NYSE. In this context, the committee has met, reviewed and discussed with management the Compensation Discussion and Analysis contained in this proxy statement. Based on this review and discussion, the committee recommended to the Board of Directors, and the Board of Directors approved, the inclusion of the Compensation Discussion and Analysis in this proxy statement.
Respectfully submitted by the members of the Human Resources Committee of the Board of Directors:
Richard K. Gordon, Chair
Richard W. Douglas
Ruben E. Esquivel
Robert C. Grable
Thomas C. Meredith
Richard A. Sampson
In this section of the proxy statement, we discuss our executive compensation objectives and strategy, the elements of compensation that we provide to our named executive officers, and the analysis we employed in reaching the decisions to pay the specific amounts and types of executive compensation discussed. Later, under Named Executive Officer Compensation, beginning on page 48, we present a series of tables containing specific information about the compensation paid to or earned by our named executive officers during fiscal 2013, as well as more information about the elements of our executive officer compensation program. The discussion below is intended to assist you in understanding the information provided in the tables and in putting that information into context. Our named executed officers for fiscal 2013 are listed below:
Our executive compensation program is built upon our strategy of Total Rewards, which we adopted for all our employees in 1998. Under our Total Rewards strategy, we take a comprehensive view of the various compensation plans and employee benefits that comprise the total package of compensation that is offered to all our corporate officers, including the named executive officers in this proxy statement, division presidents and other key employees. The Total Rewards strategy is based on the payment of (i) total cash compensation, composed of base salary and annual incentive compensation and (ii) total direct compensation, composed of total cash compensation and the annualized expected value of long-term incentive compensation awards, being targeted at the 50th percentile of all such compensation for equivalent positions at companies of comparable size in the natural gas distribution industry, which is represented by companies in our proxy peer group and in an energy services industry database, as discussed below under Competitive Compensation Benchmarking beginning on page 44. We believe this strategy also fosters a philosophy of pay for performance through the use of both annual and long-term incentive plans.
Our Total Rewards strategy, in which we limit the use of executive benefits and perquisites, is reviewed each year and updated as needed by our HR Committee, with assistance from its independent executive compensation consultant, Pay Governance LLC. None of our employees, including our named executive officers, have an employment agreement with the Company. Our executive compensation program does not permit or include problematic pay practices such as (i) the repricing of underwater stock options without shareholder approval, (ii) excessive perquisites or (iii) change in control severance payments that (a) exceed three times base salary and most recent bonus, (b) are triggered without an involuntary job loss or substantial diminution of duties (single triggers) or (c) contain excise tax gross-up payments. We believe that our executive compensation program provides our executive officers with a balanced compensation approach each year by providing a reasonable base salary along with annual and long-term incentive compensation plans that are based on the Companys financial performance. These incentive plans are designed to reward our executive officers on both an annual and long-term basis if they attain specified target goals, the attainment of which do not require the taking of an unreasonable amount of risk, as discussed in Compensation Risk Assessment, beginning on page 16.
Overview of Annual Incentive Compensation Paid for Fiscal 2013 Financial Performance. The Company exceeded its target EPS goal under the Incentive Plan of $2.47 per diluted share in fiscal 2013, by earning $2.53 per diluted share, excluding both mark-to-market gains recognized by the Companys nonregulated operations and the gain recognized on the sale of the Georgia operations to Liberty Energy (Georgia) Corp. in April 2013. This performance attainment resulted in the named executive officers, and the other participants in the Incentive Plan, receiving awards equal to 150 percent of their respective target awards (as a specified percentage of base salary). See Annual Incentive Compensation, beginning on page 39.
Overview of Long-Term Incentive Compensation Paid for Fiscal 2011-2013 Financial Performance. The Company achieved a cumulative EPS amount of $7.28, compared to the cumulative EPS target amount of $7.15 during the three-year performance period ended September 30, 2013 (fiscal 2011-2013), for the grants of performance-based RSUs awarded in May 2011. The participants, including the named executive officers, earned a total number of performance-based RSUs equal to approximately 126 percent of the target plus dividend equivalents, in the form of shares of common stock issued in November 2013. See Long-Term Incentive Compensation, beginning on page 41.
Executive Compensation Program Objectives and Strategy
Our executive compensation program is designed to ensure that the interests of our executive officers are closely aligned with those of our shareholders and that our executive officers are paid an appropriate amount of incentive compensation only when the Companys performance warrants the payment of such compensation. We believe that our executive compensation program is effective in allowing the organization to attract and retain highly-qualified senior management who can deliver outstanding performance.
As discussed above, our executive compensation program is built on our Total Rewards strategy and is founded upon the following principles:
Limitations in Executive Compensation Program
During the last few years, the HR Committee, along with Pay Governance, with the assistance of its former executive compensation consultant, Towers Watson, have completed periodic reviews of the Companys overall approach to executive benefits and perquisites, to ensure that the Companys current benefits, perquisites, policies and practices have continued to be in line with best practices of other companies in the natural gas distribution industry as well as Fortune 500 companies. As a result of those reviews, the HR Committee has approved several limitations to the Companys benefits, perquisites, policies and practices that have maintained the alignment of the Companys executive compensation plans with best practices utilized by other companies in our industry peer group, as well as by Fortune 500 companies in general, and have reduced the overall cost of executive compensation
for all of the Companys officers and division presidents. These limitations, which were all approved by our Board of Directors, include those specifically discussed below:
Elements of Executive Compensation
The following discussion describes the various elements of executive compensation that we have provided to our named executive officers, as well as a discussion of why we pay each element, how we determine the amount we pay under each element and how each element fits into our overall compensation objectives.
Base Salary. The amount of base salary paid to each named executive officer is a major determinant of the amounts of all other elements of compensation paid to our named executive officers.
For example, the annual awards under the Incentive Plan are based on a percentage of base salary. See Annual Incentive Compensation, below. In addition, the value of our long-term incentive compensation that the HR Committee has granted to our executive officers is based on a percentage of each named executive officers midpoint of his respective salary range. See Long-Term Incentive Compensation, beginning on page 41. Base salaries constitute only a portion of total direct compensation (base salary plus annual incentive award plus grants of long-term equity incentive compensation). In fiscal 2013, the base salary for our President and Chief Executive Officer constituted about 19 percent of his actual total direct compensation, while the average for the other named executive officers was about 30 percent. Positions are compared on the basis of job content to similar positions in companies in our proxy peer group and the energy services industry database. Salary ranges are reviewed on an annual basis and proposed salary ranges are reviewed and considered by the HR Committee in October of each year. The midpoint of each salary range is designed to approximate the 50th percentile of base salaries of such comparable companies. Our President and CEO provided the HR Committee with an oral presentation discussing his individual performance and contributions, along with a performance evaluation of each other named executive officer.
Each named executive officers base salary for the calendar year beginning January 1, 2013 was established by the HR Committee after considering the competitive benchmarking data for each position discussed below, the committees subjective evaluation of the performance of each named executive officer, the Companys overall salary increase budget and related salary increase guidelines established by the Company as well as current economic conditions. Generally, the base salary for each named executive officer, as determined by the HR Committee for 2013, was established at or near the salary range midpoint for his pay grade, based upon the factors discussed above. As a result, the HR Committee approved an increase of three percent in the base salaries during calendar year 2013 for each of the named executive officers, other than Mr. Eckert, resulting in the following amounts:
Mr. Eckert was granted an increase in base salary of ten percent, based primarily on competitive benchmarking data for the position of chief financial officer, to which he was appointed effective October 1, 2012, and to adjust his base salary nearer to the salary range midpoint for his pay grade. The HR Committee believes that the base salaries as determined for each of the named executive officers were appropriate and competitive with salaries offered for similar positions by companies in our proxy peer group and the energy services industry database and are consistent with our Total Rewards strategy.
Annual Incentive Compensation. We believe it is important to provide our named executive officers with a reasonable financial incentive to maximize the Companys financial performance each year. Through our Incentive Plan, we provide our named executive officers, along with our other officers, division presidents and other key management employees, an opportunity to earn an annual incentive award based upon the Companys actual financial performance each year. The Incentive Plan is based on our ability to achieve a target level of EPS each year. The EPS performance measurement
is the lynchpin of both our short-term (annual) and long-term compensation plans. The HR Committee believes that EPS is the most appropriate measurement of our financial performance both on an annual and long-term basis, because it reflects the growth of our operations. EPS is also one of the most well-known measurements of overall financial performance, which is widely used by financial analysts as well as the investing public. The HR Committee believes that using this measurement as the basis for our incentive compensation plans better aligns the interests of the participants in the Incentive Plan and the LTIP, including our named executive officers, with the interests of our shareholders.
For fiscal 2013, the HR Committee reviewed competitive compensation benchmarking data, as discussed below, to establish an annual target opportunity expressed as a percentage of salary earned for the fiscal year for each participant in the Incentive Plan. The HR Committee has historically used varying percentages for annual target incentive award opportunities for all participants in the Incentive Plan, based on each participants particular pay grade, which range from Grades 11-14 for our named executive officers. Our pay grades are based on competitive market data, as well as the job content and responsibility of each participant, and the potential impact that each participant could have on the operations and financial performance of the Company. The target incentive award opportunities for each participant are reviewed each year and benchmarked against the 50th percentile as described above in Executive Compensation Program Objectives and Strategy on page 37. There were no changes in the Incentive Plan targets from the prior fiscal year.
The Incentive Plan targets for fiscal 2013 for each of the named executive officers were as follows:
At its meeting in October 2012, the HR Committee established the threshold, target and maximum performance levels of EPS presented below, upon which the Incentive Plans awards would be based for fiscal 2013. The target EPS goal was based on our annual business plan and budget and took into account such factors as the allowed rates of return in our established service areas, natural gas pricing and volatility, budgeted capital expenditures, expected growth within our service areas, competitive factors from other service providers and other business considerations embedded in the annual business planning process.
The Companys target level of EPS was $2.47 for fiscal 2013 and the HR Committee adopted this level as the Incentive Plans target goal, with the threshold and maximum levels of performance and corresponding percentages of target awards as set forth in the table below. Since the actual performance level attained was between target and maximum, straight-line interpolation was used to compute the percentage of the target award earned. The HR Committee has the discretion under the Incentive Plan to make downward adjustments to earned awards but may not make upward adjustments. For fiscal 2013, the HR Committee did not use its discretion to make negative adjustments to any awards for any participant in the Incentive Plan, including the named executive officers. However, the HR Committee places a limit under certain conditions on the amount of earned
awards for all members of the Management Committee, which is composed of all our named executive officers. If the TSR during any fiscal year is negative, the earned award for each such officer for that fiscal year will be limited to the amount earned at the target level of performance. This limitation was not applicable in fiscal 2013 because the TSR was positive for the fiscal year at 23.3 percent.
For each of the last three fiscal years prior to fiscal 2013, we reached or exceeded our target level of performance based on EPS, with the payouts to participants averaging approximately 109 percent of their target awards each year over that period. Our EPS target levels under the plan have historically increased between four and six percent each year and have been within the range of announced EPS guidance provided to the public in October or November of each year. The following table summarizes the performance targets and actual performance attainment for the Incentive Plan for fiscal 2013:
LongTerm Incentive Compensation. The HR Committee awards grants that are structured with 50 percent of the targeted long-term value in the form of time-lapse RSUs with three-year cliff vesting with the remaining 50 percent in the form of performance-based RSUs. The value of the long-term compensation that the HR Committee grants has been based on a percentage of each named executive officers midpoint of his respective salary range. We based the actual number and value of awards granted on the competitive compensation benchmarking of grants made by the companies in our proxy peer group and the energy services industry database, as discussed below.
The HR Committee believes that the payment of long-term incentive compensation in the form of grants of time-lapse RSUs promotes and encourages long-term retention and service to the Company and better aligns the interests of our named executive officers with those of our shareholders through increased share ownership. The HR Committee also believes that an equal amount of grants of performance-based RSUs, as measured by cumulative EPS over a three-year performance period, provide a balanced approach to long-term compensation by rewarding our named executive officers for improved financial performance of the Company, thereby giving them an incentive to enhance long-term shareholder value.
With respect to the grants of performance-based RSUs awarded in May 2011 for the fiscal 2011-2013 performance period, the HR Committee set the cumulative EPS target performance at $7.15 per share, with the threshold and maximum levels of performance and corresponding percentages of target awards as set forth in the table below. Since the actual performance level attained was between target and maximum, straight-line interpolation was used to compute the percentage of the target award earned. The participants, including the named executive officers, earned a total number of performance-based RSUs equal to the percentage of the target earned, as shown below, plus dividend
equivalents, in the form of shares of common stock issued in November 2013. The TSR limitations on the payout of the grants of performance-based RSUs were in effect for the fiscal 2011-2013 performance period but since the TSR for such performance period was positive at 64.1 percent, the limitations did not apply. The following table summarizes the performance targets and actual performance attainment for the fiscal 2011-2013 performance period:
In April 2013, the HR Committee also awarded grants of new performance-based RSUs for the fiscal 2013-2015 performance period and approved an increase in the maximum percentage of target award from 150% to 200%. The following table shows the three-year performance criteria for such period:
As discussed above in Limitations in Executive Compensation Program, beginning on page 37, beginning with grants made in fiscal 2012, like under the Incentive Plan, the performance targets and actual performance attainment for any performance-based RSUs granted under the LTIP exclude any mark-to-market gains or losses recognized by the Companys nonregulated operations. This same change was made in an effort to remove the impact of such gains or losses on earnings over the three fiscal year performance period since they do not truly reflect the operating performance of the Company over such period.
Retirement Benefits. All of our named executive officers, other than Mr. Eckert, participate in our Pension Account Plan (PAP), which is a qualified, cash balance defined benefit pension plan. Benefits under this plan become vested and non-forfeitable after completion of three years of continuous employment. For any named executive officer who retires with vested benefits under the plan, the compensation shown as Salary in the Summary Compensation Table for Fiscal Year 2013, beginning on page 48 would be considered eligible compensation in determining benefits. See the discussion under Pension Account Plan on page 55 for more information about this plan. In addition, all of our named executive officers participate in our RSP, which is a defined contribution plan. Because Mr. Eckert joined the Company after September 30, 2010, he and any other employee who joined the Company after that date have not been eligible to participate in the PAP. However, Mr. Eckert and all other new employees after that date have each received a fixed annual company contribution, which is equal to four percent (4%) of eligible earnings for all participants in the RSP. See the discussion under Retirement Savings Plan on page 56 for more information about this plan.
Our named executive officers (as well as most of our other officers, division presidents and other employees designated by the Board) also participate in a supplemental retirement plan, which provides retirement benefits (as well as supplemental disability and death benefits). Generally, each of our named executive officers who has participated in the plan for at least two years and who have attained the age of 55 is entitled to an annual retirement supplement in an amount that, when added to the annual retirement amount payable to him under either the PAP or RSP, equals 60 percent of his compensation. The annual supplemental retirement amount will generally be equal to the sum of the amount of the participants last annual base salary and the amount of his or her last award under the Incentive Plan, subject to reductions for less than ten years of employment with the Company and for retirement prior to age 62. In addition, should the Board appoint any officers to the Companys Management Committee in the future, such officer will also participate in this supplemental retirement plan. However, all other officers or division presidents who have been appointed by the Board on or after August 5, 2009 instead participate in a supplemental account balance retirement plan that provides deferred compensation retirement benefits to the participants. The HR Committee believes that these retirement benefits at the amounts provided to our named executive officers are an important component of the total compensation and benefits that we provide under our Total Rewards strategy and are required to ensure that our overall executive compensation package remains competitive with packages offered by other major public companies in our industry. See the discussion under Retirement Plans, beginning on page 55 for more information on our retirement benefits.
Change in Control Severance Benefits. We have severance agreements in place with each of the named executive officers to provide certain severance benefits for them in the event of the termination of their employment within three years following a change in control of the Company (as defined in the severance agreements and described generally in Change in Control Severance Agreements, beginning on page 58). The severance agreement for each named executive officer generally provides that the Company will pay such officer as severance pay in one lump sum an amount equal to (a) 2.5 times his total compensation (annual base salary and the higher of the last payment or the average of the three highest payments received under the Incentive Plan) and (b) the total of (i) an amount that is actuarially equivalent to an additional three years of annual age and service credits payable to the officer under our PAP or RSP, (ii) an amount that is actuarially equivalent to an additional three years of Company matching contributions payable to the officer under our RSP, (iii) an amount that is generally actuarially equivalent to an additional three years of health and welfare benefits and (iv) an amount actuarially equivalent to 36 months of accident and life insurance coverage, along with disability coverage. If such lump sum severance payment results in the imposition of excise taxes imposed by Section 4999 of the Code, the officer has the ability to elect to have the payment reduced to a level that will result in no payment of such excise tax. In lieu of reducing the severance payments under the agreement, each participant may elect to have the Company pay the full severance amount, thereby leaving the participant responsible for personally paying the excise tax penalties imposed for excess parachute payments.
Additional Information on Executive Officer Compensation
The compensation of our President and CEO, Mr. Cocklin, was higher in fiscal 2013 than that of any of our other named executive officers, primarily in recognition of his level of responsibility and the competitive market data for chief executive officers of comparably sized companies in our proxy peer group and the energy services industry database. However, Mr. Cocklin participated in all the same compensation plans as the other officers and division presidents and was subject to the same performance measurement determinations under the incentive compensation plans. We do not have any
individual compensation policies or plans that are not applied consistently to all of our officers and division presidents. We also do not have a policy under which the annual levels of compensation and the grants of both Incentive Plan and LTIP awards are adjusted each year to reflect the projected gains that may be realized by an executive officer from stock-based compensation. Each year, we set our target opportunities in incentive compensation based solely upon competitive market conditions and the other factors discussed below.
In addition, the HR Committee and our Board of Directors considered the results of our most recent shareholder advisory vote on executive compensation at our February 13, 2013 meeting of shareholders. Our shareholders overwhelmingly approved the compensation of our named executive officers for fiscal 2012, with over 96 percent of the shares voted in favor of such compensation. Accordingly, the HR Committee and our Board decided to continue to adhere to its pay for performance philosophy and did not materially change our executive compensation decisions and policies over the last fiscal year as a result of the most recent shareholders advisory vote on executive compensation or otherwise. However, the HR Committee and Board will continue to review our executive compensation program in the future and will consider the views of our shareholders and other developments during such review.
Competitive Compensation Benchmarking
Like all major corporations, we operate in a competitive environment for talented executives. Pay Governance provided a comprehensive review of the compensation program elements and pay levels for companies similar to us and of comparable size as measured by financial measures and market capitalization for fiscal 2013. The competitive compensation benchmarking included assessments of all elements of compensation for our named executive officers, as well as the compensation program for the non-employee members of our Board.
The competitive compensation benchmarking data reviewed by the HR Committee included base salary, annual incentive compensation and long-term incentive compensation found in the proxy statements filed by companies in the proxy peer group. This set of proxy peer group companies was also used to benchmark annual share utilization data, stock overhang and market capitalization data for long-term incentive compensation analysis. The companies in the proxy peer group were selected because they represent those companies considered by the HR Committee to be the most comparable to the Company in terms of business operations, market capitalization and overall financial performance. The annual revenue for the companies in the proxy peer group ranged from $1.1 billion to $12.6 billion, with the average being $4.4 billion for the most recent year reported, while the Company reported revenue of $3.4 billion for the year ended September 30, 2012. The market capitalization for the companies in the proxy peer group ranged from $2.3 billion to $10.3 billion, with the average being $5.7 billion, while the market capitalization for the Company was $3.9 billion as of March 2013. The companies in the proxy peer group are selected annually by the HR Committee, after its review of the recommendation of Pay Governance. The companies in the proxy peer group selected for the 2013 fiscal year are as follows:
The companies in this group remained unchanged from the prior fiscal year. To supplement the executive compensation information derived from its study of the proxy peer group, the HR Committee also considered executive compensation benchmarking data from the latest Towers Watson U.S. CDB Energy Services Executive Compensation Database (energy services industry database). The companies in this database constitute a larger and more diverse set of companies, including companies in the gas, nuclear and electric utilities industries. To adjust for size differences, Towers Watson employed a statistical analysis (single regression analysis) in the survey based on relative total annual revenues to determine competitive pay rates for our named executive officers based upon the data derived from all companies in the energy services industry database. The companies in this database are as follows:
Using primarily the proxy peer group compensation analysis, as well as corroborating data from the energy services industry database, the HR Committee reviewed competitive target compensation levels for each named executive officer at the 50th percentile level of the competitive market. For each named executive officer position, base salary, target total cash compensation (base salary plus annual incentive award) and target total direct compensation (base salary plus annual incentive award plus the annualized present value of long-term incentive compensation) were benchmarked and analyzed as the Companys desired competitive compensation positioning. In reviewing the competitive compensation data with the current base salaries and target compensation levels of our named executive officers, the HR Committee found that base salaries, target total cash compensation, and target total direct
compensation for our named executive officers fell slightly below the 50th percentile benchmarks for each element of compensation and in the aggregate.
Executive Compensation Consultant
The HR Committee has been granted through its charter the sole authority from the Board of Directors for the appointment, compensation and oversight of the Companys executive compensation consultant. The HR Committee retained Pay Governance during the 2013 fiscal year as its consultant to assist the HR Committee with its responsibilities related to the Companys compensation program for its executives and Board of Directors. The HR Committee directed Pay Governance to (i) regularly attend meetings of the committee, (ii) conduct studies of competitive compensation practices and (iii) develop conclusions and recommendations related to the executive compensation plans of the Company for consideration by the committee. Pay Governance prepared reports and analyses and assisted with (i) the identification of the Companys proxy peer group, (ii) an assessment of competitive compensation for non-employee directors, and (iii) a review of base salary, annual incentives and long-term incentive compensation opportunities relative to competitive practices. Pay Governance also prepared a report on emerging trends and developments in executive compensation, provided recommendations regarding our executive compensation strategy and performed an assessment of the risks contained in the Companys incentive compensation plans. A senior consultant from Pay Governance attended all three HR Committee meetings held in fiscal 2013. Pay Governance provided no additional services to the Company during fiscal 2013. Based on policies and procedures implemented by the HR Committee and by Pay Governance to ensure the objectivity and independence of the individual executive compensation consultants for Pay Governance, the committee believes that the consulting advice it received during the fiscal year from Pay Governance and its individual consultants was objective, not influenced by any other relationships Pay Governance had with the Company and raised no conflicts of interest. In making this determination, the HR Committee also assessed the independence factors set forth in applicable SEC regulations and rules, NYSE corporate governance standards and other facts and circumstances and concluded that both Pay Governance and its individual consultants were independent from the Company.
Managements Role in Setting Executive Officer Compensation
The HR Committee and Kim Cocklin, our President and CEO, met with representatives of Pay Governance at the beginning of fiscal 2013 to review and discuss the compensation of all other named executive officers. However, at no time did Mr. Cocklin meet with representatives of Pay Governance regarding his own compensation. The only other executive officer of the Company who regularly worked with Pay Governance is the Senior Vice President, Human Resources, Mr. Haefner. For fiscal 2013, Mr. Cocklin recommended to the HR Committee compensation for Messrs. Eckert, Sweetin, Gregory and Haefner, while Pay Governance provided to the committee general guidance and competitive compensation data for Mr. Cocklin.
Mr. Cocklin may be present during a portion of the HR Committees meetings on executive compensation. However, Mr. Cocklin (along with any other members of management in attendance at HR Committee meetings) are excused when those executives compensation is discussed and decisions regarding their compensation are reached by the committee. All decisions by the HR Committee concerning executive compensation levels to be paid to the President and CEO and the other named executive officers are approved by the Board.
Executive Compensation Recoupment Policy
Our Board of Directors has adopted a clawback policy, which provides for the recoupment by the Company under certain circumstances of incentive compensation, including annual cash incentive compensation, stock-based awards, performance-based compensation and any other forms of cash or equity compensation other than salary (awards). This policy applies to any current or former employee holding (or who held) a position of division president or corporate vice president or above. In the event of an accounting restatement of the Companys previously issued financial statements due to the material noncompliance of the Company with any financial reporting requirement under the federal securities laws, the Company will seek recovery from any current or former officer who received the amount or portion of any awards paid or granted during the three-year period preceding the date on which the Company is required to prepare an accounting restatement, based on the erroneous data, in excess of what would have been paid or granted to the officer under the accounting restatement.
In addition, in the event of an accounting restatement as a result of errors, omission, fraud or other causes, the HR Committee shall review the facts and circumstances underlying the restatement (including any potential wrongdoing and whether the restatement was the result of negligence or intentional or gross misconduct) and may, in its discretion, direct that the Company recover all or a portion of any award from one or more officers with respect to any fiscal year in which the Companys financial results are negatively affected by such restatement. If (a) the payment, grant or vesting of any award(s) is based upon the achievement of financial results that are subsequently restated or (b) a lower payment, award value or vesting would have occurred based upon the restated financial results, the HR Committee may seek to recoup, and such officer shall forfeit or repay, all or any portion of such excess compensation as the committee deems appropriate. Finally, if the HR Committee determines that an officer engaged in an act of fraud or misconduct that contributed to the need for an accounting restatement, the committee may, in its discretion, recover and the officer shall forfeit or repay, all of the officers awards for the relevant period, plus a reasonable rate of interest. This policy, however, does not affect the Companys ability to recoup executive compensation under any other applicable law or regulation, including, but not limited to the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act, which became law in 2010.
Policy Prohibiting Hedging-Related Transactions
Our Board of Directors has also adopted a policy prohibiting hedging transactions in our common stock as an amendment to our insider trading policy, which provides that no member of our Board of Directors or any employee of the Company may purchase any financial instruments (including, without limitation, prepaid variable forward contracts, equity swaps, collars and exchange funds) that establish a short position in our common stock and are designed to hedge or offset any decrease in the market value of our common stock granted by Atmos Energy as part of compensation to employees or our common stock already held by them. In addition, the following transactions are prohibited: (i) short sales, which are sales of our common stock that are not then owned and (ii) trading of put options, call options or other derivatives of our common stock. Finally, no member of our Board of Directors or any executive officer of the Company may purchase our common stock on margin or hold our common stock in a margin account, borrow against any account in which our common stock is held or otherwise pledge our common stock as collateral for a loan.
Share Ownership Guidelines
We have adopted share ownership guidelines for our named executive officers and for other officers and division presidents, which are voluntary and are intended to be achieved by each such executive over the course of five years. The HR Committee believes that executive share ownership promotes better alignment of the interests of our executives with those of our shareholders and it monitors compliance with the ownership guidelines each year. Our President and CEO has a guideline to reach a share ownership position of five times his base salary, with each of the remaining named executive officers having a guideline to reach a share ownership position of 2.5 times base salary. The share ownership positions include shares of unvested time-lapse RSUs but do not include unvested performance-based RSUs. Each of the named executive officers serving as of the end of fiscal 2013 (other than Mr. Eckert, who did not join the Company as an officer until June 2012) had achieved his individual ownership objective as of that time.
Summary of Cash and Other Compensation
The following table provides information concerning compensation we paid to or accrued on behalf of our Principal Executive Officer, our Principal Financial Officer and the three other most highly compensated executive officers serving as such on September 30, 2013:
Summary Compensation Table for Fiscal Year 2013(a)
All Other Compensation
for Fiscal Year 2013
Annual Incentive Plan for Management
Background and Purpose. Along with the LTIP, the Incentive Plan represents an integral part of our overall balanced and competitive compensation program. The Incentive Plan represents another part of our Total Rewards strategy, which we developed as a result of a study we conducted of all employee, executive and non-employee director compensation and benefits. The Board of Directors adopted the Incentive Plan, effective October 1, 1998, which was approved by our shareholders in February 1999, and amended subsequent to the approval of our shareholders in February 2002, February 2007 and February 2011 to extend the term of the plan through September 30, 2016. The purpose of the Incentive Plan is to promote our interests and those of our shareholders by attracting, motivating and retaining executives and senior managers. The Incentive Plan is also intended to establish a sense of personal commitment on the part of our executives and senior managers in our growth, development and financial success and reward these key employees accordingly.
Any of our employees, including an employee who is also an officer, is eligible to participate in the Incentive Plan. However, only officers, division presidents and other key employees (a total of 190 employees in the last fiscal year) have participated in the Incentive Plan since its inception. The HR Committee, in its sole discretion, may make, but shall not be required to make, an award to any employee. In the event of a change in control (as defined in the Incentive Plan), all awards for the performance period shall be deemed earned at the maximum performance goal level and payment of the maximum award shall be made within 10 days after the effective date of the change in control. We will require any successor to assume and agree to perform our obligations under the Incentive Plan in the same manner and to the same extent that we would be required to perform them if no such succession had taken place. The Board may at any time amend, suspend or terminate the Incentive Plan; provided, however, that any amendment shall be made only with shareholder approval where such approval is necessary to comply with Section 162(m) of the Code.
Administration. The Incentive Plan is administered and interpreted by the HR Committee, unless otherwise determined by the Board. Actions taken by the HR Committee with respect to the Incentive Plan have been and will continue to be taken by those members who are non-employee directors and who qualify as outside directors under Section 162(m) of the Code and as non-employee directors under the rules promulgated under Section 16 of the Exchange Act, insofar as such actions are affected by Section 162(m) or Section 16. The HR Committee determines and designates the eligible persons to whom awards will be made. The HR Committee also has the power to: (i) interpret the Incentive Plan, (ii) prescribe, amend and waive any rules and regulations necessary for the administration of the Incentive Plan and (iii) make such other determinations and take such other action as it deems necessary or advisable in the administration of the Incentive Plan. All interpretations, determinations or actions made or taken by the HR Committee are final, binding and conclusive on all interested parties.
Performance Goals and Measurement. Performance goals are established by the HR Committee in writing not later than 90 days after the beginning of the applicable performance period. Performance goals may be the same for all participants, or at the discretion of the HR Committee, may differ to reflect more appropriate measures of individual performance. Performance goals may be based on one or more business and/or financial criteria. In establishing performance goals for the plan year, the HR Committee may include one or any combination of the following criteria: Total Shareholder Return; return on assets, equity, capital or investment; earnings per share; cash flow; levels of operating expense; and measures of customer satisfaction and service. However, since the adoption of the Incentive Plan, the HR Committee has established the achievement of an earnings per share target for the fiscal year as the sole performance goal each year. The HR Committee also has the discretion to make adjustments in calculating the attainment of performance goals in recognition of extraordinary items, changes in the law or financial reporting. For example, the HR Committee determined that the gain from the sale of the Companys Georgia operations that was completed in April 2013 should be excluded in the calculation of each award under the Incentive Plan for fiscal 2013.
Awards. Awards are generally paid in cash. However, if the HR Committee so permits and if the participant makes an election in advance, the participant may elect to convert his or her award in 25 percent increments, in whole or in part, into the following forms: (a) unrestricted stock in the form of bonus stock (value equal to 105 percent of the amount of the award) granted under the LTIP or (b) time-lapse RSUs with three-year cliff vesting (value equal to 120 percent of the amount of the award) granted under the LTIP. The maximum cash award for any performance period is $2,000,000.
1998 Long-Term Incentive Plan
To provide our named executive officers, other officers, division presidents and other key management employees with the incentive to achieve our long-term growth and profitability goals as well as to focus upon the creation of shareholder value, the HR Committee makes recommendations to the Board concerning grants of long-term incentive awards under our LTIP.
The HR Committee recommends grants of all annual long-term incentive grants at its regularly scheduled March meeting, which are then approved by the Board at its next regularly scheduled meeting. In addition, when an award is granted in connection with a pre-established performance goal, the HR Committee approves the performance goal and the related compensation formula within the first 90 days of the fiscal year. Each year, prior to making grants, the HR Committee establishes a target long-term incentive value for the LTIP participants, including the named executive officers. The
actual value of grants ultimately received by participants may differ from the intended value or target long-term incentive value granted, depending upon share price performance and any performance considerations imposed upon such awards.
No options have been granted to any participants since fiscal 2003 although they may still be granted under the terms of the LTIP. However, some participants did receive options in fiscal 2004 and 2005 pursuant to their election to convert all or a portion of their incentive compensation received under the Incentive Plan in those years, which election is no longer allowed under the Incentive Plan. Options may be exercisable in full at the time of grant or may become exercisable in one or more installments. Options are exercisable for a period of ten years after the date of grant of the option. Since October 1, 2007, however, participants exercising options may not sell or otherwise transfer, for at least one year after the date of exercise, more than 25 percent of the number of shares of common stock acquired through the exercise. In the event of a participants termination of service, the options lapse 90 days after said termination, except in the case of retirement, in which case the retiring participant may exercise the options at any time within three years from the date of retirement. In the event of death, the options may be exercised by the personal representative of the optionee at any time within three years from the date of death.
We use time-lapse RSUs and performance-based RSUs as our form of long-term incentive compensation. Dividend equivalents are paid on the time-lapse RSUs at the same time and at the same rate as dividends are paid on shares of common stock. Once the restrictions have lapsed, an equivalent number of shares of common stock is issued to the participant by the Company, net of shares withheld for taxes, provided that he or she is an employee of the Company at that time, unless such participant has retired, died, become disabled or is no longer employed by the Company as a result of certain types of termination. The distributions of shares are also subject to the provisions of Section 409A of the Code, if applicable.
Performance-based RSUs are subject to a three-year performance criterion expressed as a cumulative EPS target amount. The cumulative EPS target is derived from our annual business plan, with the first fiscal year of such EPS target equal to the same EPS target as that used under the Incentive Plan and the remainder of the cumulative EPS target generally representing a four to six percent increase above the first fiscal years EPS target, on average, for each of second and third fiscal years on a compounded basis. At the conclusion of the three-year performance period, the total number of performance-based RSUs to be issued is determined by a formula with an established threshold, target and maximum number of RSUs earned, ranging from 0 percent to 150 percent, of the performance-based RSUs granted, based on the cumulative amount of EPS achieved over the three-year performance period. Beginning in fiscal 2013, the HR Committee adjusted such range to from 0 to 200 percent of the performance-based RSUs granted, based on the cumulative amount of EPS achieved over the three-year performance period. Although our LTIP provides that cash, shares of our common stock or a combination thereof may be issued to participants in payment for their units, we have always paid participants for their units in the form of shares of our common stock at the end of each three-year performance period. In addition, dividend equivalents are credited to each participants account with respect to the performance-based RSUs earned, with the payment of such dividend equivalents in the form of additional shares of stock not occurring until the three-year cumulative EPS performance targets are measured and vesting is completed. Beginning with grants made to our named executive officers during fiscal 2010, any distributions of awards of performance-based RSUs that have been granted to our named executive officers have been limited to the amount awarded at the target level of performance, unless the TSR during the three-year performance period is positive. In addition, as
discussed above under Long-Term Incentive Compensation, beginning on page 41, beginning with grants in fiscal 2012, the performance targets and actual performance attainment for all performance-based RSUs granted under the LTIP have excluded any mark-to-market gains or losses recognized by the Companys nonregulated operations.
Grants of Plan-Based Awards
The following table shows the grants of executive compensation plan-based awards to the named executive officers during fiscal 2013:
Grants of Plan-Based Awards for Fiscal Year 2013(a)
Outstanding Equity Awards
The following table shows the outstanding equity awards held by the named executive officers at September 30, 2013:
Outstanding Equity Awards at Fiscal Year-End for 2013(a)
Time-Lapse Restricted Stock Units Vesting Schedule(a)
Performance-Based Restricted Stock Units Vesting Schedule(a)
The following table sets forth the vested common stock received by the named executive officers during fiscal 2013:
Stock Vested for Fiscal Year 2013
Pension Account Plan. Our PAP is a qualified, cash balance defined benefit pension plan under both the Code and the Employee Retirement Income Security Act of 1974, as amended. The plan covers a majority of our employees, including all named executive officers, other than Mr. Eckert, since he joined the Company after September 30, 2010 and was not eligible to participate in the PAP. Benefits under this plan become vested and non-forfeitable after completion of three years of continuous employment. Under the terms of the PAP, a vested participant receives a benefit based on the value of the cash balance account at termination or retirement from the Company. Benefits payable
under our retirement plan are not offset by Social Security benefits. Under the Code, the annual compensation of each employee to be taken into account under our retirement plan for 2013 cannot exceed $255,000.
The earnings utilized in the PAP include Form W-2 earnings, deferrals to the RSP and Code Section 125 (cafeteria plan) reductions, while it excludes all incentive pay and expense reimbursements. All participants are fully vested in their account balances after three years of eligible service and may choose to receive their account balances in the form of a lump sum or an annuity. For any named executive officer who retires with vested benefits under the plan, the compensation shown as Salary in the Summary Compensation Table for Fiscal Year 2013, beginning on page 48 would be considered eligible compensation in determining benefits, subject to applicable limitations under the Code.
Retirement Savings Plan. The RSP is a defined contribution plan, which is intended to comply with Section 404(C) of the Employment Retirement Income Security Act of 1974, as amended. All employees are eligible to participate in the RSP immediately upon joining the Company. Investments may be made in shares of Company stock or in a variety of other equity and fixed income investments offered by the RSP administrator. Employees may make pre-tax contributions to the RSP based on eligible earnings, which are composed of Form W-2 earnings, pre-tax contributions to the RSP and cafeteria plan reductions, excluding all incentive compensation and expense reimbursements. Upon the completion of one year of employment, the Company matches a participants contribution up to four percent (4%) of eligible earnings. The RSP was revised in late 2010 to also include a fixed annual company contribution, which is equal to four percent (4%) of eligible earnings for all participants in the RSP who joined the Company after September 30, 2010, when new employees ceased to be eligible to participate in the PAP. Eligible participants begin receiving the fixed annual company contribution after one year of employment. All participants are immediately vested in their contributions to the RSP and matching Company contributions. Participants are vested in the fixed annual company contributions component of their RSP account balances after three continuous years of employment.
Supplemental Executive Retirement Plan. All named executive officers participate in the Companys SERP, which provides retirement benefits (as well as supplemental disability and death benefits) to most officers, division presidents and other employees, all as approved by the Board. For any participant in the SERP prior to November 2008, the SERP provides that an officer or division president (or any other employee selected by the Board) who has participated in the SERP for at least two years and has attained age 55 is entitled to an annual supplemental pension in an amount that, when added to his or her annual pension payable under the PAP, equals 60 percent of his compensation, subject to reductions for less than ten years of employment and for retirement prior to age 62. The Board amended the SERP in November 2008 to provide that any participant who begins participation in the SERP beginning in November 2008 must have participated in the SERP for at least three years and attained age 55 to receive the same benefits, subject to reductions for less than ten years of participation in the plan and for retirement prior to age 62.
The SERP covers compensation in an amount equal to the sum of (a) the greater of the participants annual base salary at the date of termination of employment or the average of the participants annual base salary for the highest of three calendar years (whether or not consecutive) of employment with the Company and (b) the greater of the amount of the participants last award under
any of the Companys annual performance bonus or incentive plans or the average of the participants highest three performance awards under such plans (whether or not consecutive). The amount of current compensation covered by the SERP at the end of fiscal 2013 for each of the named executive officers listed in the Summary Compensation Table is as follows: Mr. Cocklin, $2,047,362; Mr. Eckert, $722,292; Mr. Sweetin, $617,930; Mr. Gregory, $644,529 and Mr. Haefner, $597,992.
Each of such named executive officers has also entered into a participation agreement with the Company as required by the SERP, which provides that the accrued benefits, as calculated pursuant to the plan, of each participant will vest if: (a) the plan is terminated by the Company; (b) the plan is amended by the Company, resulting in a decrease in the benefits otherwise payable to the participant; (c) the participants employment is terminated by the Company for any reason other than cause; (d) the participants participation in the plan is terminated by the Company for any reason other than cause prior to the participants termination of employment; (e) within any time during the three-year period following a change of control of the Company (as such term is defined in the plan), (i) the participants employment is terminated involuntarily by the Company for any reason other than cause or (ii) the participant is demoted or reassigned to a position that would cause him to cease to be eligible for participation in the plan; or (f) in anticipation of a change in control (whether or not a change in control ever occurs), if (i) the participants employment is terminated involuntarily by the Company for any reason other than cause at the request of a party to a pending transaction that would constitute a change in control, if and when the transaction were consummated or (ii) the participants participation in the plan is terminated for any reason other than cause prior to the participants termination of employment. The participation agreements set forth the specific rights of the participants to their accrued benefits upon the occurrence of the events described above and constitute enforceable contracts separate from the provisions of the SERP.
The table below shows the present value of accumulated benefits payable to each of the named executive officers including the number of years of service credited to each such named executive officer under our PAP, RSP and SERP as applicable, along with the total amount of payments made during fiscal 2013 under the PAP. See the discussion under Pension Account Plan, beginning on page 55 and Supplemental Executive Retirement Plan, beginning on page 56 for more information on these plans. As discussed above under Supplemental Executive Retirement Plan, each of the named executive officers, other than Mr. Eckert, will receive a benefit under both the PAP and the SERP, the present values of which are presented in the table below. We used the following assumptions in calculating the present value of accumulated benefits for the PAP and the SERP:
Pension Benefits for Fiscal Year 2013
Change in Control Severance Agreements
We have entered into severance agreements with each of the current named executive officers to provide certain severance benefits for them in the event of the termination of their employment within three years following a change in control of the Company (as defined in the severance agreements and described generally below). In addition, such executive officer will be entitled to all rights and benefits, if any, provided under any other plan or agreement between him and the Company.
The severance agreement for each such named executive officer generally provides that the Company will pay such officer as severance pay in one lump sum an amount equal to (a) 2.5 times his total compensation (annual base salary and average amount of annual incentive compensation received under the Incentive Plan) and (b) for executives participating in the PAP, the total of (i) an amount that is actuarially equivalent to an additional three years of annual age and service credits payable to the officer under the PAP and (ii) an amount that is actuarially equivalent to an additional three years of Company matching contributions payable to the officer under the RSP or (c) for executives who are not participating in the PAP (i) an amount that is actuarially equivalent to an additional three years of fixed annual Company contributions and (ii) an amount that is actuarially equivalent to an additional three years of Company matching contributions payable to the officer under the RSP. The Company is also obligated to provide the officer with all medical, dental, vision and any other health benefits which qualify for continuation coverage under Code Section 4980B, for a period of 18 months from the date of termination. In addition, following the end of the 18-month period, the Company is to pay such officer a lump sum amount equal to the present value of the cost to the Company of providing those benefits to him for an additional 18-month period. Also, the Company must pay the officer a lump sum amount equal to the present value of the cost to the Company of providing accident and life insurance benefits as well as disability benefits for a period of 36 months from his date of termination, equal to such benefits in effect for the officer at the time of the change in control.
However, if an executive officer is terminated by the Company for cause (as defined in the severance agreement), or his employment is terminated by retirement, death or disability, the Company
is not obligated to pay such officer the lump sum severance payment. Further, if an executive officer voluntarily terminates his employment except for constructive termination (as defined in the severance agreement), the Company is not obligated to pay such officer the lump sum severance payment. The Company is not responsible for the payment of any excise tax gross-up payments which may be due on the payment of severance benefits to our named executive officers. As a result, if such lump sum severance benefit payments result in the imposition of excise taxes imposed by Section 4999 of the Code, the officer will have the option to elect to have the payment reduced to a level that will result in no payment of such excise tax by such officer.
For the purposes of these agreements, a change in control will generally be deemed to have occurred at any one of the following times:
For the purposes of these severance agreements, cause means (i) the willful and continued failure by the employee to substantially perform his duties with the Company (other than any such failure resulting from his incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the employee by the Board that specifically identifies the manner in which the Board believes that the employee has not substantially performed his duties or (ii) an employees willful engagement in conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise. No act, or failure to act, on an employees part shall be deemed willful unless done, or omitted to be done, by the employee not in good faith and without a reasonable belief that the action or omission was in the best interests of the Company. Notwithstanding the foregoing, the employee shall not be deemed to have been terminated for cause unless approved by an affirmative vote of not less than three-quarters (3/4) of the entire membership of our Board at a meeting called and held for such determination.
Potential Payments Upon Termination or Change in Control
Payments Made Upon Any Termination. Regardless of the manner in which a named executive officers employment is terminated, he is entitled to receive the following amounts earned during his term of employment. Such amounts include:
Payments Made Upon Retirement. In the event of the retirement of a named executive officer, in addition to the items identified above, such named executive officer will be entitled to receive:
Payments Made Upon Death or Disability. In the event of the death or disability of a named executive officer, in addition to the benefits listed under the headings, Payments Made Upon Any Termination and Payments Made Upon Retirement, the named executive officer or designated beneficiary will receive benefits under the Companys disability plan or payments under the Companys life insurance plan, as appropriate.
Payments Made Upon a Change in Control. As discussed above in Change in Control Severance Agreements, beginning on page 58, we have also entered into severance agreements with each of the named executive officers to provide certain severance benefits for them in the event of the termination or constructive termination of their employment within three years following a change in control of the Company, as such terms are defined in the agreements. As is also discussed above, under the best net approach, the Company is not liable for the tax gross-up payments on behalf of those individuals whose severance payments would trigger excise tax penalties. In the tables below under the heading Termination Upon Change in Control, we assume the named executive officers would pay any related excise tax penalties. The severance agreement for each such executive officer provides that the Company will pay such executive officer a lump sum severance payment as described above in Change in Control Severance Agreements.
In the tables below, we have shown the severance compensation and employee benefits to be provided in the aggregate to each named executive officer in the event of each of five termination scenarios. In each scenario, there are differences in how retirement benefits and health and welfare benefits are determined. The discussion below provides more specific information on the retirement benefits and health and welfare benefits under each of the various scenarios.
Termination Upon Death. The SERP benefit is the sum of the following:
Termination Upon Disability. The SERP benefit is the sum of the following:
Termination Upon Retirement. For the named executive officers, their SERP benefit at retirement is the lump sum benefit based on a target benefit of 60 percent of final average earnings (base salary plus annual payment under the Incentive Plan) less an offset for the benefits to be paid from the tax-qualified PAP or RSP, as applicable, which would be reduced if retirement were to occur prior to age 62 or the service period in the SERP were less than ten years. In addition, the following benefits are payable at retirement:
Termination Without Cause. The retirement benefits for a termination without cause are equal to the same retirement benefits as described above with respect to termination upon retirement.
Termination Upon Change in Control. The SERP benefit upon termination pursuant to a change in control is equal to the same retirement benefits as described above with respect to termination upon retirement with the following additional provisions:
Health and Welfare Benefits. The Company only provides supplemental benefits in the form of health and welfare benefits in the event of the termination of a named executive officer pursuant to a change in control. The supplemental health and welfare benefits reported in the following tables
represent the following benefits: (i) all medical, dental, vision and any other health benefits which qualify for continuation coverage under Code Section 4980B for a period of 18 months from the date of termination; (ii) payment of a lump sum equal to the present value of the cost to the Company of providing those benefits for an additional 18-month period; and (iii) payment of a lump sum equal to the present value of the cost to the Company of providing accident and life insurance benefits as well as disability benefits for a period of 36 months from his date of termination, equal to such benefits in effect for the officer at the time of the change in control.
Potential Post-Employment Payment Tables. The following tables reflect estimates of the total amount of compensation due each named executive officer in the event of such executives termination of employment by reason of death, disability or retirement, termination of employment without cause, or termination of employment following a change in control. The amounts shown below assume that such termination was effective as of September 30, 2013 and are estimates of the amounts which would be paid out to the executives upon such termination. The actual amounts to be paid out can only be determined at the time of such executives separation from the Company.
In the event a shareholder intends to present a proposal at our annual meeting of shareholders on February 5, 2014, in accordance with the Companys bylaws, the shareholder must be a shareholder of record on the record date, December 10, 2013, who shall continue to be entitled to vote at the annual meeting and who mails a notice of such proposal so that it is received by the Corporate Secretary at our principal executive offices by January 14, 2014 and includes the information required by the Companys bylaws. In the event a shareholder intends to present a proposal at our 2015 annual meeting of shareholders, if such proposal is to be included in our proxy statement relating to such meeting, it must be received by the Corporate Secretary at our principal executive offices no later than August 22, 2014 and it must be prepared according to applicable law, as determined by the Company.
We know of no other business that may come before the annual meeting. However, if any other matters are properly brought before the meeting by the management or any shareholder, it is the intention of each person named in the accompanying proxy to vote such proxy in accordance with his or her judgment on such matters. The proxy confers discretionary authority to the proxy holders to vote on any matter not included in this proxy statement that is properly presented to the shareholders at the meeting.
A copy of our Annual Report on Form 10-K for the fiscal year ended September 30, 2013, including the financial statements and the financial statement schedules included therein, accompanies this proxy statement. In addition, the exhibits of the Annual Report on Form 10-K are available upon payment of charges that approximate our cost of reproduction. If you would like to receive a copy of these exhibits, please visit our website at www.atmosenergy.com, call Shareholder Relations at 972-855-3792 or mail your written request to Shareholder Relations, Atmos Energy Corporation, P.O. Box 650205, Dallas, Texas 75265-0205.
By Order of the Board of Directors,
Louis P. Gregory
Senior Vice President, General Counsel
and Corporate Secretary
December 20, 2013
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