Company Quick10K Filing
Quick10K
Atmos Energy
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$100.70 117 $11,780
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-K 2018-09-30 Annual: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-K 2016-09-30 Annual: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-K 2015-09-30 Annual: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-K 2014-09-30 Annual: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-05-07 Earnings, Exhibits
8-K 2019-02-11 Amend Bylaw, Shareholder Vote, Exhibits
8-K 2019-02-05 Earnings, Exhibits
8-K 2018-11-28 Enter Agreement, Regulation FD, Other Events, Exhibits
8-K 2018-11-16 Enter Agreement, Exhibits
8-K 2018-11-07 Earnings, Exhibits
8-K 2018-11-01 Officers, Exhibits
8-K 2018-10-04 Enter Agreement, Exhibits
8-K 2018-10-01 Other Events, Exhibits
8-K 2018-08-08 Earnings, Exhibits
8-K 2018-08-06 Officers, Exhibits
8-K 2018-02-14 Regulation FD
8-K 2018-02-07 Shareholder Vote, Other Events
CAKE Cheesecake Factory 2,160
ENPH Enphase Energy 1,490
LXFR Luxfer Holdings 664
SILC Silicom 241
PATI Patriot Transportation Holding 64
SYNC Synacor 60
ANCN Anchiano Therapeutics 38
AMCN Airmedia Group 22
OIBR OI 0
WBHC Wilson Bank Holding 0
ATO 2019-03-31
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 6. Exhibits
EX-15 ato20190331ex-15.htm
EX-31 ato20190331ex-31.htm
EX-32 ato20190331ex-32.htm

Atmos Energy Earnings 2019-03-31

ATO 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 ato2019033110-q.htm 10-Q Document


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to                    
Commission File Number 1-10042
Atmos Energy Corporation
(Exact name of registrant as specified in its charter)
 
Texas and Virginia
 
75-1743247
(State or other jurisdiction of
incorporation or organization)
 
(IRS employer
identification no.)
 
 
Three Lincoln Centre, Suite 1800
5430 LBJ Freeway, Dallas, Texas
 
75240
(Zip code)
(Address of principal executive offices)
 
 
(972) 934-9227
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer  þ
  
Accelerated Filer  ¨
  
Non-Accelerated Filer  ¨
  
Smaller Reporting Company  ¨
 
Emerging growth company ¨
(Do not check if a smaller reporting company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes  ¨    No  þ
Number of shares outstanding of each of the issuer’s classes of common stock, as of May 2, 2019.
Title of each class
Trading Symbol
Name of each exchange on which registered
Shares Outstanding
Common stock, No Par Value
ATO
New York Stock Exchange
116,988,209




GLOSSARY OF KEY TERMS
 
 
 
Adjusted diluted net income per share
Non-GAAP measure defined as diluted net income per share before the one-time, non-cash income tax benefit
Adjusted net income
Non-GAAP measure defined as net income before the one-time, non-cash income tax benefit
AEC
Atmos Energy Corporation
AOCI
Accumulated other comprehensive income
ARM
Annual Rate Mechanism
ASC
Accounting Standards Codification
Bcf
Billion cubic feet
Contribution Margin
Non-GAAP measure defined as operating revenues less purchased gas cost
DARR
Dallas Annual Rate Review
ERISA
Employee Retirement Income Security Act of 1974
FASB
Financial Accounting Standards Board
FERC
Federal Energy Regulatory Commission
GAAP
Generally Accepted Accounting Principles
GRIP
Gas Reliability Infrastructure Program
GSRS
Gas System Reliability Surcharge
Mcf
Thousand cubic feet
MMcf
Million cubic feet
Moody’s
Moody’s Investors Services, Inc.
NTSB
National Transportation Safety Board
PPA
Pension Protection Act of 2006
PRP
Pipeline Replacement Program
RRC
Railroad Commission of Texas
RRM
Rate Review Mechanism
RSC
Rate Stabilization Clause
S&P
Standard & Poor’s Corporation
SAVE
Steps to Advance Virginia Energy
SEC
United States Securities and Exchange Commission
SIR
System Integrity Rider
SRF
Stable Rate Filing
SSIR
System Safety and Integrity Rider
TCJA
Tax Cuts and Jobs Act of 2017
WNA
Weather Normalization Adjustment

2



PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS 
 
March 31,
2019
 
September 30,
2018
 
(Unaudited)
 
 
 
(In thousands, except
share data)
ASSETS
 
 
 
Property, plant and equipment
$
13,272,148

 
$
12,567,373

Less accumulated depreciation and amortization
2,300,414

 
2,196,226

Net property, plant and equipment
10,971,734

 
10,371,147

Current assets
 
 
 
Cash and cash equivalents
108,353

 
13,771

Accounts receivable, net
419,612

 
253,295

Gas stored underground
78,148

 
165,732

Other current assets
65,068

 
46,055

Total current assets
671,181

 
478,853

Goodwill
730,419

 
730,419

Deferred charges and other assets
301,616

 
294,018

 
$
12,674,950

 
$
11,874,437

CAPITALIZATION AND LIABILITIES
 
 
 
Shareholders’ equity
 
 
 
Common stock, no par value (stated at $0.005 per share); 200,000,000 shares authorized; issued and outstanding: March 31, 2019 — 116,982,903 shares; September 30, 2018 — 111,273,683 shares
$
585

 
$
556

Additional paid-in capital
3,485,794

 
2,974,926

Accumulated other comprehensive loss
(116,810
)
 
(83,647
)
Retained earnings
2,138,532

 
1,878,116

Shareholders’ equity
5,508,101

 
4,769,951

Long-term debt
3,528,713

 
2,493,665

Total capitalization
9,036,814

 
7,263,616

Current liabilities
 
 
 
Accounts payable and accrued liabilities
244,042

 
217,283

Other current liabilities
495,097

 
547,068

Short-term debt

 
575,780

Current maturities of long-term debt
125,000

 
575,000

Total current liabilities
864,139

 
1,915,131

Deferred income taxes
1,251,836

 
1,154,067

Regulatory excess deferred taxes (See Note 13)
712,681

 
739,670

Regulatory cost of removal obligation
462,249

 
466,405

Pension and postretirement liabilities
176,593

 
177,520

Deferred credits and other liabilities
170,638

 
158,028

 
$
12,674,950

 
$
11,874,437

See accompanying notes to condensed consolidated financial statements.

3



ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
Three Months Ended 
 March 31
 
2019
 
2018
 
(Unaudited)
(In thousands, except per
share data)
Operating revenues
 
 
 
Distribution segment
$
1,057,889

 
$
1,199,291

Pipeline and storage segment
135,650

 
120,955

Intersegment eliminations
(98,894
)
 
(100,837
)
Total operating revenues
1,094,645

 
1,219,409

 
 
 
 
Purchased gas cost
 
 
 
Distribution segment
570,348

 
727,053

Pipeline and storage segment
(90
)
 
433

Intersegment eliminations
(98,582
)
 
(100,526
)
Total purchased gas cost
471,676

 
626,960

 
 
 
 
Operation and maintenance expense
149,427

 
159,159

Depreciation and amortization expense
96,772

 
89,381

Taxes, other than income
79,093

 
73,007

Operating income
297,677

 
270,902

Other non-operating income (expense)
4,232

 
(2,167
)
Interest charges
26,949

 
27,304

Income before income taxes
274,960

 
241,431

Income tax expense
60,072

 
62,439

Net income
$
214,888

 
$
178,992

Basic net income per share
$
1.83

 
$
1.60

Diluted net income per share
$
1.82

 
$
1.60

Cash dividends per share
$
0.525

 
$
0.485

Basic weighted average shares outstanding
117,581

 
111,706

Diluted weighted average shares outstanding
117,756

 
111,706

 
 
 
 
Net income
$
214,888

 
$
178,992

Other comprehensive income (loss), net of tax
 
 
 
Net unrealized holding gains (losses) on available-for-sale securities, net of tax of $29 and $(276) (See Note 2)
97

 
(939
)
Cash flow hedges:
 
 
 
Amortization and unrealized gain (loss) on interest rate agreements, net of tax of $(825) and $6,575
(2,792
)
 
22,244

Total other comprehensive income (loss)
(2,695
)
 
21,305

Total comprehensive income
$
212,193

 
$
200,297

See accompanying notes to condensed consolidated financial statements.







4



ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 
Six Months Ended 
 March 31
 
2019
 
2018
 
(Unaudited)
(In thousands, except per
share data)
Operating revenues
 
 
 
Distribution segment
$
1,896,724

 
$
2,060,083

Pipeline and storage segment
270,120

 
247,418

Intersegment eliminations
(194,417
)
 
(198,900
)
Total operating revenues
1,972,427

 
2,108,601

 
 
 
 
Purchased gas cost
 
 
 
Distribution segment
1,008,080

 
1,190,811

Pipeline and storage segment
(448
)
 
1,345

Intersegment eliminations
(193,791
)
 
(198,279
)
Total purchased gas cost
813,841

 
993,877

 
 
 
 
Operation and maintenance expense
288,027

 
288,204

Depreciation and amortization expense
192,837

 
177,755

Taxes, other than income
143,581

 
135,780

Operating income
534,141

 
512,985

Other non-operating expense
(3,491
)
 
(4,724
)
Interest charges
54,798

 
58,813

Income before income taxes
475,852

 
449,448

Income tax expense (benefit)
103,318

 
(43,676
)
Net income
$
372,534

 
$
493,124

Basic net income per share
$
3.22

 
$
4.47

Diluted net income per share
$
3.21

 
$
4.47

Cash dividends per share
$
1.05

 
$
0.97

Basic weighted average shares outstanding
115,690

 
110,135

Diluted weighted average shares outstanding
115,794

 
110,135

 
 
 
 
Net income
$
372,534

 
$
493,124

Other comprehensive income (loss), net of tax
 
 
 
Net unrealized holding gains (losses) on available-for-sale securities, net of tax of $29 and $(338) (See Note 2)
97

 
(1,046
)
Cash flow hedges:
 
 
 
Amortization and unrealized gain (loss) on interest rate agreements, net of tax of $(7,405) and $6,026
(25,050
)
 
21,289

Total other comprehensive income (loss)
(24,953
)
 
20,243

Total comprehensive income
$
347,581

 
$
513,367

See accompanying notes to condensed consolidated financial statements.


5



ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Six Months Ended 
 March 31
 
2019
 
2018
 
(Unaudited)
(In thousands)
Cash Flows From Operating Activities
 
 
 
Net income
$
372,534

 
$
493,124

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization expense
192,837

 
177,755

Deferred income taxes
96,885

 
116,023

One-time income tax benefit

 
(165,675
)
Other
5,334

 
12,252

Net assets / liabilities from risk management activities
(333
)
 
812

Net change in operating assets and liabilities
(106,428
)
 
117,076

Net cash provided by operating activities
560,829

 
751,367

Cash Flows From Investing Activities
 
 
 
Capital expenditures
(777,586
)
 
(693,978
)
Proceeds from the sale of discontinued operations
4,000

 
3,000

Debt and equity securities activities, net
777

 
(1,175
)
Other, net
4,388

 
4,009

Net cash used in investing activities
(768,421
)
 
(688,144
)
Cash Flows From Financing Activities
 
 
 
Net decrease in short-term debt
(575,780
)
 
(318,143
)
Net proceeds from equity offering
494,085

 
395,092

Issuance of common stock through stock purchase and employee retirement plans
10,344

 
11,902

Proceeds from issuance of long-term debt
1,045,221

 

Settlement of interest rate swaps
(90,141
)
 

Repayment of long-term debt
(450,000
)
 

Cash dividends paid
(120,328
)
 
(105,891
)
Debt issuance costs
(11,227
)
 

Other

 
(1,518
)
Net cash provided by (used in) financing activities
302,174

 
(18,558
)
Net increase in cash and cash equivalents
94,582

 
44,665

Cash and cash equivalents at beginning of period
13,771

 
26,409

Cash and cash equivalents at end of period
$
108,353

 
$
71,074


See accompanying notes to condensed consolidated financial statements.

6



ATMOS ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2019
1.    Nature of Business
Atmos Energy Corporation (“Atmos Energy” or the “Company”) and its subsidiaries are engaged in the regulated natural gas distribution and pipeline and storage businesses. Our distribution business is subject to federal and state regulation and/or regulation by local authorities in each of the states in which our regulated divisions and subsidiaries operate.
Our distribution business delivers natural gas through sales and transportation arrangements to over three million residential, commercial, public authority and industrial customers through our six regulated distribution divisions, which at March 31, 2019, covered service areas located in eight states.
Our pipeline and storage business, which is also subject to federal and state regulations, includes the transportation of natural gas to our Texas and Louisiana distribution systems and the management of our underground storage facilities used to support our distribution business in various states.

2.    Unaudited Financial Information
These consolidated interim-period financial statements have been prepared in accordance with accounting principles generally accepted in the United States on the same basis, aside from accounting policy changes noted below, as those used for the Company’s audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. In the opinion of management, all material adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been made to the unaudited consolidated interim-period financial statements. These consolidated interim-period financial statements are condensed as permitted by the instructions to Form 10-Q and should be read in conjunction with the audited consolidated financial statements of Atmos Energy Corporation included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. Because of seasonal and other factors, the results of operations for the six-month period ended March 31, 2019 are not indicative of our results of operations for the full 2019 fiscal year, which ends September 30, 2019.
No events have occurred subsequent to the balance sheet date that would require recognition or disclosure in the condensed consolidated financial statements.

Significant accounting policies
Our accounting policies are described in Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018.
During the second quarter of fiscal 2019, we completed our annual goodwill impairment assessment using a qualitative assessment, as permitted under U.S. GAAP. We test goodwill for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit. Based on the assessment performed, we determined that our goodwill was not impaired.
Accounting pronouncements adopted in fiscal 2019
During the first quarter of fiscal 2019, we adopted the following accounting guidance updates, effective October 1, 2018. The adoption of this new guidance, individually and collectively, did not have a material impact on our financial position, results of operations or cash flows.
Revenue recognition - Under the new guidance, we are required to recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. See Note 5 for our discussion of the effects of implementing this standard.

Classification and measurement of financial instruments - The new guidance requires that we recognize changes in the fair value of our equity securities formerly designated as available-for-sale in other non-operating income (expense) in our condensed consolidated statement of comprehensive income on a prospective basis from the date of adoption. Additionally, in accordance with the guidance, we reclassified a net $8.2 million unrealized gain related to these equity securities from accumulated other comprehensive income (AOCI) to retained earnings. The accounting for debt securities designated as available-for-sale did not change as a result of this new guidance. Accordingly, changes in the fair value of these securities will continue to be recorded as a component of AOCI.

Presentation of the Components of Net Periodic Benefit Cost - The new guidance requires us to present only the current service cost component of the net benefit cost within operations and maintenance expense in the statement of

7



comprehensive income. The remaining components of net benefit cost are now recorded in other non-operating income (expense) in our condensed consolidated statements of comprehensive income. The change in presentation of these costs was implemented on a retrospective basis as required by the guidance. In lieu of determining how each component of the net periodic benefit cost was actually reflected in the prior periods’ condensed statement of comprehensive income, we elected to utilize a practical expedient that permits the use of the amounts disclosed for these costs in our pension and post-retirement benefit plans footnote as the basis to retroactively apply this standard.

In addition, under the new guidance, only the service cost component of net benefit cost is eligible for capitalization (e.g., as part of inventory or property, plant, and equipment). We continue to capitalize these costs into property, plant and equipment.
However, the Federal Energy Regulatory Commission (FERC), which establishes the regulatory accounting practices for rate-regulated entities, issued guidance that permits such entities the option to continue to capitalize non-service benefit costs for regulatory purposes.  Since the accounting guidelines by the FERC are typically followed by our state regulatory authorities, for U.S. GAAP reporting purposes, we are prospectively deferring into a regulatory asset the portion of non-service components of net periodic benefit cost that are capitalizable for regulatory purposes.
Accounting for Implementation Costs Incurred in A Hosting Arrangement That Is A Service Contract - The new guidance aligns the requirements for capitalizing implementation costs incurred for these contracts with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). We elected to early adopt the new guidance on a prospective basis. Accordingly, we will capitalize the up-front costs incurred for cloud computing arrangements had they been capitalizable in a similar on-premise software solution.
Accounting pronouncements that will be effective after fiscal 2019
In February 2016, the Financial Accounting Standards Board (FASB) issued a comprehensive new leasing standard that will require lessees to recognize a lease liability and a right-of-use asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. Subsequently, the FASB issued practical expedients to 1) allow entities to not evaluate existing or expired land easements that were not previously accounted for as leases under the current guidance and 2) allow entities the option to adopt the standard and recognize a cumulative–effect adjustment to the opening balance of retained earnings in the period of adoption rather than applying the new guidance at the beginning of the earliest comparative period presented in the year of adoption. The new standard will be effective for us beginning on October 1, 2019. We are currently evaluating the effect of this standard and amendments on our financial position, results of operations, cash flows and business processes.
In June 2016, the FASB issued new guidance which will require credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model. Under this model, entities will estimate credit losses over the entire contractual term of the instrument from the date of initial recognition of that instrument. In contrast, current U.S. GAAP is based on an incurred loss model that delays recognition of credit losses until it is probable the loss has been incurred. The new guidance also introduces a new impairment recognition model for available-for-sale debt securities that will require credit losses for available-for-sale debt securities to be recorded through an allowance account. The new standard will be effective for us beginning on October 1, 2021; early adoption is permitted. We are currently evaluating the potential impact of this new guidance on our financial position, results of operations and cash flows. 
In August 2018, the FASB issued new guidance that modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The guidance removes the disclosure requirements for the amounts of gain/loss and prior service cost/credit amortization expected in the following year and the disclosure of the effect of a one-percentage-point change in the health care cost trend rate, among other changes. The guidance adds certain disclosures including the weighted average interest crediting rate for cash balance plans and a narrative description for the significant change in gains and losses as well as any other significant change in the plan obligations or assets. The new guidance is effective for us in the fiscal year beginning October 1, 2020 and should be applied on a retrospective basis to all periods presented. Early adoption is permitted. The adoption of this new guidance impacts only our disclosures; however we are still evaluating the timing of our adoption.
Regulatory assets and liabilities
Accounting principles generally accepted in the United States require cost-based, rate-regulated entities that meet certain criteria to reflect the authorized recovery of costs due to regulatory decisions in their financial statements. As a result, certain costs are permitted to be capitalized rather than expensed because they can be recovered through rates. We record certain costs as regulatory assets when future recovery through customer rates is considered probable. Regulatory liabilities are recorded when it is probable that revenues will be reduced for amounts that will be credited to customers through the ratemaking process.

8



Substantially all of our regulatory assets are recorded as a component of deferred charges and other assets and our regulatory liabilities are recorded as a component of other current liabilities and deferred credits and other liabilities. Deferred gas costs are recorded either in other current assets or liabilities and our regulatory excess deferred taxes and regulatory cost of removal obligation are reported separately.
Significant regulatory assets and liabilities as of March 31, 2019 and September 30, 2018 included the following:
 
March 31,
2019
 
September 30,
2018
 
(In thousands)
Regulatory assets:
 
 
 
Pension and postretirement benefit costs
$
7,843

 
$
6,496

Infrastructure mechanisms(1)
107,649

 
96,739

Deferred gas costs
3,490

 
1,927

Recoverable loss on reacquired debt
7,450

 
8,702

Deferred pipeline record collection costs
23,914

 
20,467

Rate case costs
1,612

 
2,741

Other
6,691

 
6,739

 
$
158,649

 
$
143,811

Regulatory liabilities:
 
 
 
Regulatory excess deferred taxes(2)
$
736,634

 
$
744,895

Regulatory cost of service reserve(3)
6,175

 
22,508

Regulatory cost of removal obligation
524,067

 
522,175

Deferred gas costs
124,248

 
94,705

Asset retirement obligation
12,887

 
12,887

APT annual adjustment mechanism
48,524

 
35,228

Pension and postretirement benefit costs
70,328

 
69,113

Other
16,942

 
9,486

 
$
1,539,805

 
$
1,510,997

 
(1)
Infrastructure mechanisms in Texas and Louisiana allow for the deferral of all eligible expenses associated with capital expenditures incurred pursuant to these rules, including the recording of interest on deferred expenses until the next rate proceeding (rate case or annual rate filing), at which time investment and costs would be recoverable through base rates.
(2)
The TCJA resulted in the remeasurement of the net deferred tax liability included in our rate base. Of this amount, $24.0 million is recorded in other current liabilities. The period and timing of the return of the excess deferred taxes is being determined by regulators in each of our jurisdictions. See Note 13 for further information.
(3)
Effective January 1, 2018, regulators in each of our service areas required us to establish a regulatory liability for the difference in recoverable federal taxes included in revenues based on the former 35% federal statutory rate and the new 21% federal statutory rate for service provided on or after January 1, 2018. The period and timing of the return of this liability to utility customers is being determined by regulators in each of our jurisdictions. See Note 13 for further information.

3.    Segment Information

 We manage and review our consolidated operations through the following reportable segments:

The distribution segment is primarily comprised of our regulated natural gas distribution and related sales operations in eight states.
The pipeline and storage segment is comprised primarily of the pipeline and storage operations of our Atmos Pipeline-Texas division and our natural gas transmission operations in Louisiana.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies found in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018.

9



Income statements and capital expenditures for the three and six months ended March 31, 2019 and 2018 by segment are presented in the following tables:
 
Three Months Ended March 31, 2019
 
Distribution
 
Pipeline and Storage
 
Eliminations
 
Consolidated
 
(In thousands)
Operating revenues from external parties
$
1,057,192

 
$
37,453

 
$

 
$
1,094,645

Intersegment revenues
697

 
98,197

 
(98,894
)
 

Total operating revenues
1,057,889

 
135,650

 
(98,894
)
 
1,094,645

Purchased gas cost
570,348

 
(90
)
 
(98,582
)
 
471,676

Operation and maintenance expense
117,621

 
32,118

 
(312
)
 
149,427

Depreciation and amortization expense
69,904

 
26,868

 

 
96,772

Taxes, other than income
71,053

 
8,040

 

 
79,093

Operating income
228,963

 
68,714

 

 
297,677

Other non-operating income (expense)
5,263

 
(1,031
)
 

 
4,232

Interest charges
15,896

 
11,053

 

 
26,949

Income before income taxes
218,330

 
56,630

 

 
274,960

Income tax expense
46,137

 
13,935

 

 
60,072

Net income
$
172,193

 
$
42,695

 
$

 
$
214,888

Capital expenditures
$
293,270

 
$
67,912

 
$

 
$
361,182


 
Three Months Ended March 31, 2018
 
Distribution
 
Pipeline and Storage
 
Eliminations
 
Consolidated
 
(In thousands)
Operating revenues from external parties
$
1,198,309

 
$
21,100

 
$

 
$
1,219,409

Intersegment revenues
982

 
99,855

 
(100,837
)
 

Total operating revenues
1,199,291

 
120,955

 
(100,837
)
 
1,219,409

Purchased gas cost
727,053

 
433

 
(100,526
)
 
626,960

Operation and maintenance expense
130,077

 
29,393

 
(311
)
 
159,159

Depreciation and amortization expense
65,649

 
23,732

 

 
89,381

Taxes, other than income
64,692

 
8,315

 

 
73,007

Operating income
211,820

 
59,082

 

 
270,902

Other non-operating expense
(1,521
)
 
(646
)
 

 
(2,167
)
Interest charges
16,898

 
10,406

 

 
27,304

Income before income taxes
193,401

 
48,030

 

 
241,431

Income tax expense
48,158

 
14,281

 

 
62,439

Net income
$
145,243

 
$
33,749

 
$

 
$
178,992

Capital expenditures
$
224,235

 
$
86,505

 
$

 
$
310,740


10



 
Six Months Ended March 31, 2019
 
Distribution
 
Pipeline and Storage
 
Eliminations
 
Consolidated
 
(In thousands)
Operating revenues from external parties
$
1,895,373

 
$
77,054

 
$

 
$
1,972,427

Intersegment revenues
1,351

 
193,066

 
(194,417
)
 

Total operating revenues
1,896,724

 
270,120

 
(194,417
)
 
1,972,427

Purchased gas cost
1,008,080

 
(448
)
 
(193,791
)
 
813,841

Operation and maintenance expense
223,388

 
65,265

 
(626
)
 
288,027

Depreciation and amortization expense
139,613

 
53,224

 

 
192,837

Taxes, other than income
127,243

 
16,338

 

 
143,581

Operating income
398,400

 
135,741

 

 
534,141

Other non-operating expense
(1,214
)
 
(2,277
)
 

 
(3,491
)
Interest charges
34,106

 
20,692

 

 
54,798

Income before income taxes
363,080

 
112,772

 

 
475,852

Income tax expense
76,502

 
26,816

 

 
103,318

Net income
$
286,578

 
$
85,956

 
$

 
$
372,534

Capital expenditures
$
595,815

 
$
181,771

 
$

 
$
777,586

 
Six Months Ended March 31, 2018
 
Distribution
 
Pipeline and Storage
 
Eliminations
 
Consolidated
 
(In thousands)
Operating revenues from external parties
$
2,058,762

 
$
49,839

 
$

 
$
2,108,601

Intersegment revenues
1,321

 
197,579

 
(198,900
)
 

Total operating revenues
2,060,083

 
247,418

 
(198,900
)
 
2,108,601

Purchased gas cost
1,190,811

 
1,345

 
(198,279
)
 
993,877

Operation and maintenance expense
233,292

 
55,533

 
(621
)
 
288,204

Depreciation and amortization expense
131,083

 
46,672

 

 
177,755

Taxes, other than income
119,799

 
15,981

 

 
135,780

Operating income
385,098

 
127,887

 

 
512,985

Other non-operating expense
(3,443
)
 
(1,281
)
 

 
(4,724
)
Interest charges
38,266

 
20,547

 

 
58,813

Income before income taxes
343,389

 
106,059

 

 
449,448

Income tax (benefit) expense
(50,953
)
 
7,277

 

 
(43,676
)
Net income
$
394,342

 
$
98,782

 
$

 
$
493,124

Capital expenditures
$
465,484

 
$
228,494

 
$

 
$
693,978

 

11



Balance sheet information at March 31, 2019 and September 30, 2018 by segment is presented in the following tables:
 
March 31, 2019
 
Distribution
 
Pipeline and Storage
 
Eliminations
 
Consolidated
 
(In thousands)
Property, plant and equipment, net
$
8,126,906

 
$
2,844,828

 
$

 
$
10,971,734

Total assets
$
11,904,290

 
$
3,071,654

 
$
(2,300,994
)
 
$
12,674,950

 
September 30, 2018
 
Distribution
 
Pipeline and Storage
 
Eliminations
 
Consolidated
 
(In thousands)
Property, plant and equipment, net
$
7,644,693

 
$
2,726,454

 
$

 
$
10,371,147

Total assets
$
11,109,128

 
$
2,963,480

 
$
(2,198,171
)
 
$
11,874,437


4.    Earnings Per Share
We use the two-class method of computing earnings per share because we have participating securities in the form of non-vested restricted stock units with a nonforfeitable right to dividend equivalents, for which vesting is predicated solely on the passage of time. The calculation of earnings per share using the two-class method excludes income attributable to these participating securities from the numerator and excludes the dilutive impact of those shares from the denominator. Basic weighted average shares outstanding is calculated based upon the weighted average number of common shares outstanding during the periods presented. Also, this calculation includes fully vested stock awards that have not yet been issued as common stock. Additionally, the weighted average shares outstanding for diluted EPS includes the incremental effects of the forward sale agreements, discussed in Note 7, when the impact is dilutive. Basic and diluted earnings per share for the three and six months ended March 31, 2019 and 2018 are calculated as follows:

 
Three Months Ended 
 March 31
 
Six Months Ended 
 March 31
 
2019
 
2018
 
2019
 
2018
 
(In thousands, except per share amounts)
Basic Earnings Per Share
 
 
 
 
 
 
 
Net income
$
214,888

 
$
178,992

 
$
372,534

 
$
493,124

Less: Income allocated to participating securities
170

 
161

 
301

 
459

Income available to common shareholders
$
214,718

 
$
178,831

 
$
372,233

 
$
492,665

Basic weighted average shares outstanding
117,581

 
111,706

 
115,690

 
110,135

Net income per share — Basic
$
1.83

 
$
1.60

 
$
3.22

 
$
4.47

Diluted Earnings Per Share
 
 
 
 
 
 
 
Income available to common shareholders
$
214,718

 
$
178,831

 
$
372,233

 
$
492,665

Effect of dilutive shares

 

 

 

Income available to common shareholders
$
214,718

 
$
178,831

 
$
372,233

 
$
492,665

Basic weighted average shares outstanding
117,581

 
111,706

 
115,690

 
110,135

Dilutive shares
175

 

 
104

 

Diluted weighted average shares outstanding
117,756

 
111,706

 
115,794

 
110,135

Net income per share - Diluted
$
1.82

 
$
1.60

 
$
3.21

 
$
4.47


5.    Revenue

Effective October 1, 2018, we adopted the new guidance under Accounting Standards Codification (ASC) Topic 606. The implementation of the new guidance did not have a material impact on our financial position, results of operations, cash flow or

12



business processes. However, the guidance introduced new disclosures which are presented below. The following table disaggregates our revenue from contracts with customers by customer type and segment and provides a reconciliation to total revenues for the period presented.

 
Three Months Ended March 31, 2019
 
Six Months Ended March 31, 2019
 
Distribution
 
Pipeline and Storage
 
Distribution
 
Pipeline and Storage
 
(In thousands)
Gas sales revenues:
 
 
 
 
 
 
 
Residential
$
695,827

 
$

 
$
1,243,755

 
$

Commercial
278,945

 

 
497,883

 

Industrial
35,887

 

 
70,424

 

Public authority and other
17,087

 

 
30,372

 

Total gas sales revenues
1,027,746

 

 
1,842,434

 

Transportation revenues
27,682

 
142,270

 
53,082

 
289,694

Miscellaneous revenues
7,364

 
2,773

 
14,314

 
4,455

Revenues from contracts with customers
1,062,792

 
145,043

 
1,909,830

 
294,149

Alternative revenue program revenues
(5,397
)
 
(9,393
)
 
(14,136
)
 
(24,029
)
Other revenues
494

 

 
1,030

 

Total operating revenues
$
1,057,889

 
$
135,650

 
$
1,896,724

 
$
270,120


Distribution Revenues
Distribution revenues represent the delivery of natural gas to residential, commercial, industrial and public authority customers at prices based on tariff rates established by regulatory authorities in the states in which we operate. Revenue is recognized and our performance obligation is satisfied over time when natural gas is delivered and simultaneously consumed by our customer. We have elected to use the invoice practical expedient and recognize revenue for volumes delivered that we have the right to invoice our customers. We read meters and bill our customers on a monthly cycle basis. Accordingly, we estimate volumes from the last meter read to the balance sheet date and accrue revenue for gas delivered but not yet billed.
In our Texas and Mississippi jurisdictions, we pay franchise fees and gross receipt taxes to operate in these service areas. These franchise fees and gross receipts taxes are required to be paid regardless of our ability to collect from our customers. Accordingly, we account for these amounts on a gross basis in revenue and we record the associated tax expense as a component of taxes, other than income.
Pipeline and Storage Revenues
Pipeline and storage revenues primarily represent the transportation and storage of natural gas on our Atmos Pipeline-Texas (APT) system and the transmission of natural gas through our 21-mile pipeline in Louisiana. APT provides transportation and storage services to our Mid-Tex Division, other third party local distribution companies and certain industrial customers under tariff rates approved by the Railroad Commission of Texas (RRC). APT also provides certain transportation and storage services to industrial and electric generation customers, as well as marketers and producers, under negotiated rates. Our pipeline in Louisiana is primarily used to aggregate gas supply for our Louisiana Division under a long-term contract and on a more limited basis to third parties. The demand fee charged to our Louisiana Division is subject to regulatory approval by the Louisiana Public Service Commission. We also manage two asset management plans with distribution affiliates of the Company at terms that have been approved by the applicable state regulatory commissions. The performance obligations for these transportation customers are satisfied by means of transporting customer-supplied gas to the designated location. Revenue is recognized and our performance obligation is satisfied over time when natural gas is delivered to the customer. Management determined that these arrangements qualify for the invoice practical expedient for recognizing revenue. For demand fee arrangements, revenue is recognized and our performance obligation is satisfied by standing ready to transport natural gas over the period of each individual month.

13



Alternative Revenue Program Revenues
In our distribution segment, we have weather-normalization adjustment mechanisms that serve to minimize the effects of weather on our contribution margin. Additionally, APT has a regulatory mechanism that requires that we share with its tariffed customers 75% of the difference between the total non-tariffed revenues earned during a test period and a revenue benchmark of $69.4 million that was established in its most recent rate case. Differences between actual revenues and revenues calculated under these mechanisms adjust the amount billed to customers. These mechanisms are considered to be alternative revenue programs under accounting standards generally accepted in the United States as they are deemed to be contracts between us and our regulator. Accordingly, revenue under these mechanisms are excluded from revenue from contracts with customers.

6.    Debt
The nature and terms of our debt instruments and credit facilities are described in detail in Note 5 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. Other than as described below, there were no material changes in the terms of our debt instruments during the six months ended March 31, 2019.
Long-term debt at March 31, 2019 and September 30, 2018 consisted of the following:
 
 
March 31, 2019
 
September 30, 2018
 
(In thousands)
Unsecured 8.50% Senior Notes, due March 2019
$

 
$
450,000

Unsecured 3.00% Senior Notes, due 2027
500,000

 
500,000

Unsecured 5.95% Senior Notes, due 2034
200,000

 
200,000

Unsecured 5.50% Senior Notes, due 2041
400,000

 
400,000

Unsecured 4.15% Senior Notes, due 2043
500,000

 
500,000

Unsecured 4.125% Senior Notes, due 2044
750,000

 
750,000

Unsecured 4.30% Senior Notes, due 2048
600,000

 

Unsecured 4.125% Senior Notes, due 2049
450,000

 

Medium-term note Series A, 1995-1, 6.67%, due 2025
10,000

 
10,000

Unsecured 6.75% Debentures, due 2028
150,000

 
150,000

Floating-rate term loan, due September 2019(1)
125,000

 
125,000

Total long-term debt
3,685,000

 
3,085,000

Less:
 
 
 
Original issue (premium) / discount on unsecured senior notes and debentures
263

 
(4,439
)
Debt issuance cost
31,024

 
20,774

Current maturities
125,000

 
575,000

 
$
3,528,713

 
$
2,493,665

    
(1)
Up to $200 million can be drawn under this term loan.
On March 4, 2019, we completed a public offering of $450 million of 4.125% senior notes due 2049. The effective interest rate of these notes is 4.86%, after giving effect to the offering costs and the settlement of the associated forward starting interest rate swaps. The net proceeds, after the underwriting discount and offering expenses, of $443.4 million, together with available cash, was used to repay at maturity our $450 million 8.50% unsecured senior notes due March 15, 2019 and the related settlement of our interest rate swaps for $90.1 million.
On October 4, 2018, we completed a public offering of $600 million of 4.30% senior notes due 2048. We received net proceeds from the offering, after the underwriting discount and offering expenses, of $590.6 million, that were used to repay working capital borrowings pursuant to our commercial paper program. The effective interest rate of these notes is 4.37% after giving effect to the offering costs.
We utilize short-term debt to provide cost-effective, short-term financing until it can be replaced with a balance of long-term debt and equity financing that achieves the Company’s desired capital structure with an equity-to-total-capitalization ratio between 50% and 60%, inclusive of long-term and short-term debt. Our short-term borrowing requirements are driven primarily by construction work in progress and the seasonal nature of the natural gas business. Changes in the price of natural gas and the

14



amount of natural gas we need to supply our customers’ needs could significantly affect our borrowing requirements. Our short-term borrowings typically reach their highest levels in the winter months.
Currently, our short-term borrowing requirements are satisfied through a combination of a $1.5 billion commercial paper program and three committed revolving credit facilities with third-party lenders that provide approximately $1.5 billion of total working capital funding. The primary source of our funding is our commercial paper program, which is supported by a five-year unsecured $1.5 billion credit facility. On March 29, 2019, we executed our final one-year extension option which extended the maturity date from September 25, 2022 to September 25, 2023. The facility bears interest at a base rate or at a LIBOR-based rate for the applicable interest period, plus a margin ranging from zero percent to 1.25 percent, based on the Company’s credit ratings. Additionally, the facility contains a $250 million accordion feature, which provides the opportunity to increase the total committed loan to $1.75 billion. At March 31, 2019, there were no amounts outstanding under our commercial paper program. At September 30, 2018, a total of $575.8 million was outstanding.
Additionally, we have a $25 million 364-day unsecured facility, which was renewed effective April 1, 2019 and expires March 31, 2020, and a $10 million 364-day unsecured revolving credit facility, which is used primarily to issue letters of credit. At March 31, 2019, there were no borrowings outstanding under either of these facilities; however, outstanding letters of credit reduced the total amount available to us under our $10 million facility to $4.4 million.
The availability of funds under these credit facilities is subject to conditions specified in the respective credit agreements, all of which we currently satisfy. These conditions include our compliance with financial covenants and the continued accuracy of representations and warranties contained in these agreements. We are required by the financial covenants in each of these facilities to maintain, at the end of each fiscal quarter, a ratio of total-debt-to-total-capitalization of no greater than 70 percent. At March 31, 2019, our total-debt-to-total-capitalization ratio, as defined in the agreements, was 41 percent. In addition, both the interest margin and the fee that we pay on unused amounts under certain of these facilities are subject to adjustment depending upon our credit ratings.
These credit facilities and our public indentures contain usual and customary covenants for our business, including covenants substantially limiting liens, substantial asset sales and mergers. Additionally, our public debt indentures relating to our senior notes and debentures, as well as certain of our revolving credit agreements, each contain a default provision that is triggered if outstanding indebtedness arising out of any other credit agreements in amounts ranging from in excess of $15 million to in excess of $100 million becomes due by acceleration or if not paid at maturity. We were in compliance with all of our debt covenants as of March 31, 2019. If we were unable to comply with our debt covenants, we would likely be required to repay our outstanding balances on demand, provide additional collateral or take other corrective actions.


15



7.    Shareholders' Equity

The following tables present a reconciliation of changes in stockholders' equity for the three and six months ended March 31, 2019 and 2018.
 
Common stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive Income
(Loss)
 
Retained
Earnings
 
Total
 
Number of
Shares
 
Stated
Value
 
 
(In thousands, except share and per share data)
Balance, September 30, 2018
111,273,683

 
$
556

 
$
2,974,926

 
$
(83,647
)
 
$
1,878,116

 
$
4,769,951

Net income

 

 

 

 
157,646

 
157,646

Other comprehensive loss

 

 

 
(22,258
)
 

 
(22,258
)
Cash dividends ($0.525 per share)

 

 

 

 
(58,722
)
 
(58,722
)
Cumulative effect of accounting change (See Note 2)

 

 

 
(8,210
)
 
8,210

 

Common stock issued:
 
 
 
 
 
 
 
 
 
 
 
Public and other stock offerings
5,434,812

 
27

 
498,948

 

 

 
498,975

Stock-based compensation plans
184,464

 
1

 
2,602

 

 

 
2,603

Balance, December 31, 2018
116,892,959

 
584

 
3,476,476

 
(114,115
)
 
1,985,250

 
5,348,195

Net income

 

 

 

 
214,888

 
214,888

Other comprehensive loss

 

 

 
(2,695
)
 

 
(2,695
)
Cash dividends ($0.525 per share)

 

 

 

 
(61,606
)
 
(61,606
)
Common stock issued:
 
 
 
 
 
 
 
 
 
 
 
Public and other stock offerings
61,006

 
1

 
5,453

 

 

 
5,454

Stock-based compensation plans
28,938

 

 
3,865

 

 

 
3,865

Balance, March 31, 2019
116,982,903

 
$
585

 
$
3,485,794

 
$
(116,810
)
 
$
2,138,532

 
$
5,508,101


 
Common stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive Income
(Loss)
 
Retained
Earnings
 
Total
 
Number of
Shares
 
Stated
Value
 
 
(In thousands, except share and per share data)
Balance, September 30, 2017
106,104,634

 
$
531

 
$
2,536,365

 
$
(105,254
)
 
$
1,467,024

 
$
3,898,666

Net income

 

 

 

 
314,132

 
314,132

Other comprehensive loss

 

 

 
(1,062
)
 

 
(1,062
)
Cash dividends ($0.485 per share)

 

 

 

 
(51,837
)
 
(51,837
)
Common stock issued:
 
 
 
 
 
 
 
 
 
 
 
Public and other stock offerings
4,621,518

 
22

 
400,737

 

 

 
400,759

Stock-based compensation plans
235,960

 
2

 
2,960

 

 

 
2,962

Balance, December 31, 2017
110,962,112

 
555

 
2,940,062

 
(106,316
)
 
1,729,319

 
4,563,620

Net income

 

 

 

 
178,992

 
178,992

Other comprehensive income

 

 

 
21,305

 

 
21,305

Cash dividends ($0.485 per share)

 

 

 

 
(54,054
)
 
(54,054
)
Common stock issued:
 
 
 
 
 
 
 
 
 
 
 
Public and other stock offerings
76,776

 

 
6,235

 

 

 
6,235

Stock-based compensation plans
21,440

 

 
5,248

 

 

 
5,248

Balance, March 31, 2018
111,060,328

 
$
555

 
$
2,951,545

 
$
(85,011
)
 
$
1,854,257

 
$
4,721,346



16



Shelf Registration, At-the-Market Equity Sales Program and Equity Issuance
On November 13, 2018, we filed a registration statement with the Securities and Exchange Commission (SEC) to issue, from time to time, up to $3.0 billion in common stock and/or debt securities, which expires November 13, 2021. This registration statement replaced our previous registration statement that was effectively exhausted in October 2018. At March 31, 2019, approximately $1.3 billion of securities remained available for issuance under the shelf registration statement.
On November 19, 2018, we filed a prospectus supplement under the registration statement relating to an at-the-market (ATM) equity sales program under which we may issue and sell shares of our common stock up to an aggregate offering price of $500 million (including shares of common stock that may be sold pursuant to a forward sale agreement entered into concurrently with the ATM equity sales program), which expires November 13, 2021.
In February 2019, under the ATM program, we executed forward sale agreements through the ATM with various underwriters who borrowed and sold 1,670,509 shares of our common stock at a weighted average price of $95.46 per share. Under the agreements we have the ability to settle these shares before March 31, 2020 at a price based on the offering price established on the trade dates. As of March 31, 2019, no shares of common stock from these forward sale agreements had been settled. If we had settled all shares under these forward sale agreements at March 31, 2019, we would have received approximately $159.0 million, based on a net price of $95.19 per share.
As of March 31, 2019, the ATM program (including the impact of the forward sale transactions discussed above) had approximately $340 million of equity available for issuance.
On November 30, 2018, we filed a prospectus supplement under the registration statement relating to an underwriting agreement to sell 5,390,836 shares of our common stock for $500 million. After expenses, net proceeds from the offering were $494.1 million. Concurrently, we entered into separate forward sale agreements with two underwriters who borrowed and sold 2,668,464 shares of our common stock. Under the agreements we have the ability to settle these shares before March 31, 2020 at a price based on the offering price established on November 28, 2018. As of March 31, 2019, no shares of common stock were settled under the forward sale agreements. If we had settled all shares under the forward agreements at March 31, 2019, we would have received approximately $244.8 million, based on a net price of $91.75 per share.
On November 30, 2017, we filed a prospectus supplement under the previous registration statement relating to an underwriting agreement to sell 4,558,404 shares of our common stock for $400 million. After expenses, net proceeds from the offering were $395.1 million.

Accumulated Other Comprehensive Income (Loss)
We record deferred gains (losses) in AOCI related to available-for-sale debt securities and interest rate agreement cash flow hedges. Deferred gains (losses) for our available-for-sale debt securities are recognized in earnings upon settlement, while deferred gains (losses) related to our interest rate agreement cash flow hedges are recognized in earnings as they are amortized. The following tables provide the components of our accumulated other comprehensive income (loss) balances, net of the related tax effects allocated to each component of other comprehensive income (loss).
 
Available-
for-Sale
Securities(1)
 
Interest Rate
Agreement
Cash Flow
Hedges
 
Total
 
(In thousands)
September 30, 2018
$
8,124

 
$
(91,771
)
 
$
(83,647
)
Other comprehensive income (loss) before reclassifications
97

 
(25,966
)
 
(25,869
)
Amounts reclassified from accumulated other comprehensive income

 
916

 
916

Net current-period other comprehensive income (loss)
97

 
(25,050
)
 
(24,953
)
Cumulative effect of accounting change (See Note 2)
(8,210
)
 

 
(8,210
)
March 31, 2019
$
11

 
$
(116,821
)
 
$
(116,810
)
 

17



 
Available-
for-Sale
Securities(1)
 
Interest Rate
Agreement
Cash Flow
Hedges
 
Total
 
(In thousands)
September 30, 2017
$
7,048

 
$
(112,302
)
 
$
(105,254
)
Other comprehensive income (loss) before reclassifications
(167
)
 
20,454

 
20,287

Amounts reclassified from accumulated other comprehensive income
(879
)
 
835

 
(44
)
Net current-period other comprehensive income (loss)
(1,046
)
 
21,289

 
20,243

March 31, 2018
$
6,002

 
$
(91,013
)
 
$
(85,011
)

(1)
Available-for-sale-securities reported in fiscal 2018 include both debt and equity securities, while fiscal 2019 includes only debt securities. See Note 2 for further discussion regarding our adoption of the new accounting standard.

8.     Interim Pension and Other Postretirement Benefit Plan Information
The components of our net periodic pension cost for our pension and other postretirement benefit plans for the three and six months ended March 31, 2019 and 2018 are presented in the following tables. Most of these costs are recoverable through our tariff rates. A portion of these costs is capitalized into our rate base or deferred as a regulatory asset or liability. The remaining costs are recorded as a component of operation and maintenance expense or other non-operating expense.
 
Three Months Ended March 31
 
Pension Benefits
 
Other Benefits
 
2019
 
2018
 
2019
 
2018
 
(In thousands)
Components of net periodic pension cost:
 
 
 
 
 
 
 
Service cost
$
4,045

 
$
4,575

 
$
2,703

 
$
3,019

Interest cost(1)
6,801

 
6,433

 
2,958

 
2,727

Expected return on assets(1)
(7,113
)
 
(6,916
)
 
(2,665
)
 
(2,001
)
Amortization of prior service cost (credit)(1)
(58
)
 
(58
)
 
44

 
3

Amortization of actuarial (gain) loss(1)
1,607

 
3,085

 
(2,044
)
 
(1,619
)
Settlements(1)

 
2,415

 

 

Net periodic pension cost
$
5,282

 
$
9,534

 
$
996

 
$
2,129


 
Six Months Ended March 31
 
Pension Benefits
 
Other Benefits
 
2019
 
2018
 
2019
 
2018
 
(In thousands)
Components of net periodic pension cost:
 
 
 
 
 
 
 
Service cost
$
8,090

 
$
9,135

 
$
5,405

 
$
6,039

Interest cost(1)
13,600

 
12,863

 
5,919

 
5,454

Expected return on assets(1)
(14,226
)
 
(13,833
)
 
(5,330
)
 
(4,003
)
Amortization of prior service cost (credit)(1)
(116
)
 
(116
)
 
87

 
6

Amortization of actuarial (gain) loss(1)
3,215

 
6,174

 
(4,089
)
 
(3,237
)
Settlements(1)

 
2,415

 

 

Net periodic pension cost
$
10,563

 
$
16,638

 
$
1,992

 
$
4,259


(1)
The components of net periodic cost other than the service cost component are included in the line item other non-operating expense in the condensed consolidated statement of comprehensive income or are capitalized on the condensed consolidated balance sheets as a regulatory asset or liability, as described in Note 2.


 

18



9.    Commitments and Contingencies
Litigation and Environmental Matters
In the normal course of business, we are subject to various legal and regulatory proceedings. For such matters, we record liabilities when they are considered probable and estimable, based on currently available facts, our historical experience and our estimates of the ultimate outcome or resolution of the liability in the future. While the outcome of these proceedings is uncertain and a loss in excess of the amount we have accrued is possible though not reasonably estimable, it is the opinion of management that any amounts exceeding the accruals will not have a material adverse impact on our financial position, results of operations or cash flows.
We maintain liability insurance for various risks associated with the operation of our natural gas pipelines and facilities, including for property damage and bodily injury. These liability insurance policies generally require us to be responsible for the first $1.0 million (self-insured retention) of each incident.
The National Transportation Safety Board (NTSB) is investigating an incident that occurred at a Dallas, Texas residence on February 23, 2018 that resulted in one fatality and injuries to four other residents. Together with the Railroad Commission of Texas (RRC) and the Pipeline and Hazardous Materials Safety Administration, Atmos Energy is a party to the investigation and in that capacity is working closely with the NTSB to help determine the cause of this incident.
On March 29, 2018, a civil action was filed in Dallas, Texas against Atmos Energy in response to the February 23rd incident. The plaintiffs seek over $1.0 million in damages for, among with others, wrongful death and personal injury.
We are a party to various other litigation and environmental-related matters or claims that have arisen in the ordinary course of our business. While the results of such litigation and response actions to such environmental-related matters or claims cannot be predicted with certainty, we continue to believe the final outcome of such litigation and matters or claims will not have a material adverse effect on our financial condition, results of operations or cash flows.
Purchase Commitments
Our distribution divisions maintain supply contracts with several vendors that generally cover a period of up to one year. Commitments for estimated base gas volumes are established under these contracts on a monthly basis at contractually negotiated prices. Commitments for incremental daily purchases are made as necessary during the month in accordance with the terms of the individual contract.
Our Mid-Tex Division also maintains a limited number of long-term supply contracts to ensure a reliable source of gas for our customers in its service area, which obligate it to purchase specified volumes at prices indexed to natural gas hubs. These purchase commitment contracts are detailed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. There were no material changes to the purchase commitments for the six months ended March 31, 2019.
Leases
We have entered into operating leases for towers, office and warehouse space, vehicles and heavy equipment used in our operations. During the six months ended March 31, 2019, we executed amendments to some of our lease agreements that impacted terms as well as our future minimum lease payments. As of March 31, 2019, the remaining lease terms range from one to 20 years and generally provide for the payment of taxes, insurance and maintenance by the lessee. Renewal options exist for certain of these leases. The related future minimum lease payments at March 31, 2019 totaled $193.3 million.
Regulatory Matters
Except for routine regulatory proceedings as discussed below, there were no material changes to regulatory matters for the six months ended March 31, 2019.
As of March 31, 2019, regulatory proceedings were in progress in substantially all of our service areas. These regulatory proceedings are discussed in further detail below in Management’s Discussion and Analysis — Recent Ratemaking Developments. Additionally, as discussed in further detail in Note 13, all jurisdictions are addressing impacts of the Tax Cuts and Jobs Act of 2017 (the "TCJA").

10.    Financial Instruments
We currently use financial instruments to mitigate commodity price risk and in the past have also used financial instruments to mitigate interest rate risk. The objectives and strategies for using financial instruments and the related accounting for these financial instruments are fully described in Notes 2 and 13 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. During the six months ended March 31, 2019, there were no material changes in our objectives, strategies and accounting for using financial instruments. Our financial instruments

19



do not contain any credit-risk-related or other contingent features that could cause payments to be accelerated when our financial instruments are in net liability positions. The following summarizes those objectives and strategies.

Commodity Risk Management Activities
Our purchased gas cost adjustment mechanisms essentially insulate our distribution segment from commodity price risk; however, our customers are exposed to the effects of volatile natural gas prices. We manage this exposure through a combination of physical storage, fixed-price forward contracts and financial instruments, primarily over-the-counter swap and option contracts, in an effort to minimize the impact of natural gas price volatility on our customers during the winter heating season.
We typically seek to hedge between 25 and 50 percent of anticipated heating season gas purchases using financial instruments. For the 2018-2019 heating season (generally October through March), in the jurisdictions where we are permitted to utilize financial instruments, we hedged approximately 33 percent, or 18.9 Bcf of the winter flowing gas requirements. We have not designated these financial instruments as hedges for accounting purposes.

Interest Rate Risk Management Activities
Historically, we managed interest rate risk by periodically entering into financial instruments to effectively fix the Treasury yield component of the interest cost associated with anticipated financings.
In fiscal 2014 and 2015, we entered into forward starting interest rate swaps to fix the Treasury yield component associated with $450 million of the then anticipated issuance of $450 million unsecured senior notes in fiscal 2019. These notes were issued as planned in March 2019 and we settled the swaps with the payment of $90.1 million. Because the swaps were effective, the realized loss was recorded as a component of AOCI and is being recognized as a component of interest expense over the 30-year life of the senior notes.
As of March 31, 2019, we had $116.8 million of net realized losses in AOCI associated with the settlement of financial instruments used to fix the Treasury yield component of the interest cost of financing various issuances of long-term debt and senior notes, which will be recognized as a component of interest expense over the life of the associated notes from the date of settlement. The remaining amortization periods for these settled amounts extend through fiscal 2049.
 
Quantitative Disclosures Related to Financial Instruments
The following tables present detailed information concerning the impact of financial instruments on our condensed consolidated balance sheet and statements of comprehensive income.
As of March 31, 2019, our financial instruments were comprised of both long and short commodity positions. A long position is a contract to purchase the commodity, while a short position is a contract to sell the commodity. As of March 31, 2019, we had 6,065 MMcf of net long commodity contracts outstanding. These contracts have not been designated as hedges.
Financial Instruments on the Balance Sheet
The following tables present the fair value and balance sheet classification of our financial instruments as of March 31, 2019 and September 30, 2018. The gross amounts of recognized assets and liabilities are netted within our unaudited condensed consolidated balance sheets to the extent that we have netting arrangements with our counterparties. However, for March 31, 2019 and September 30, 2018, no gross amounts and no cash collateral were netted within our consolidated balance sheet.
 
 
 
 
 
Balance Sheet Location
 
Assets
 
Liabilities
 
 
 
 (In thousands)
March 31, 2019
 
 
 
 
 
Not Designated As Hedges:
 
 
 
 
 
Commodity contracts
Other current assets /
Other current liabilities
 
$
1,611

 
$
(38
)
Gross / Net Financial Instruments
 
 
$
1,611

 
$
(38
)
 

20



 
 
 
 
 
Balance Sheet Location
 
Assets
 
Liabilities
 
 
 
 (In thousands)
September 30, 2018
 
 
 
 
 
Designated As Hedges:
 
 
 
 
 
Interest rate swaps
Other current assets /
Other current liabilities
 
$

 
$
(56,499
)
Total
 
 

 
(56,499
)
Not Designated As Hedges:
 
 
 
 
 
Commodity contracts
Other current assets /
Other current liabilities
 
1,369

 
(235
)
Commodity contracts
Deferred charges and other assets /
Deferred credits and other liabilities
 
250

 
(103
)
Total
 
 
1,619

 
(338
)
Gross / Net Financial Instruments
 
 
$
1,619

 
$
(56,837
)
 
Impact of Financial Instruments on the Statement of Comprehensive Income
Cash Flow Hedges
As discussed above, in the past our distribution segment had interest rate agreements, which we designated as cash flow hedges at the time the agreements were executed. The net loss on settled interest rate agreements reclassified from AOCI into interest charges on our condensed consolidated statements of comprehensive income for the three months ended March 31, 2019 and 2018 was $0.6 million and $0.6 million and for the six months ended March 31, 2019 and 2018 was $1.2 million and $1.2 million.
The following table summarizes the gains and losses arising from hedging transactions that were recognized as a component of other comprehensive income (loss), net of taxes, for the three and six months ended March 31, 2019 and 2018. The amounts included in the table below exclude gains and losses arising from ineffectiveness because those amounts are immediately recognized in the statement of comprehensive income as incurred.
 
Three Months Ended 
 March 31
 
Six Months Ended 
 March 31
 
2019
 
2018
 
2019
 
2018
 
(In thousands)
Increase (decrease) in fair value:
 
 
 
 
 
 
 
Interest rate agreements
$
(3,250
)
 
$
21,786

 
$
(25,966
)
 
$
20,454

Recognition of losses in earnings due to settlements:
 
 
 
 
 
 
 
Interest rate agreements
458

 
458

 
916

 
835

Total other comprehensive income (loss) from hedging, net of tax
$
(2,792
)
 
$
22,244

 
$
(25,050
)
 
$
21,289

Deferred gains (losses) recorded in AOCI associated with our interest rate agreements are recognized in earnings as they are amortized over the terms of the underlying debt instruments. The following amounts, net of deferred taxes, represent the expected recognition in earnings, as of March 31, 2019, of the deferred losses recorded in AOCI associated with our financial instruments, based upon the fair values of these financial instruments at the date of settlement.
 
Interest Rate
Agreements
 
(In thousands)
Next twelve months
$
(4,212
)
Thereafter
(112,609
)
Total
$
(116,821
)
 




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Financial Instruments Not Designated as Hedges
As discussed above, commodity contracts which are used in our distribution segment are not designated as hedges. However, there is no earnings impact on our distribution segment as a result of the use of these financial instruments because the gains and losses arising from the use of these financial instruments are recognized in the consolidated statement of comprehensive income as a component of purchased gas cost when the related costs are recovered through our rates and recognized in revenue. Accordingly, the impact of these financial instruments is excluded from this presentation.

11.    Fair Value Measurements
We report certain assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We record cash and cash equivalents, accounts receivable and accounts payable at carrying value, which substantially approximates fair value due to the short-term nature of these assets and liabilities. For other financial assets and liabilities, we primarily use quoted market prices and other observable market pricing information to minimize the use of unobservable pricing inputs in our measurements when determining fair value. The methods used to determine fair value for our assets and liabilities are fully described in Note 2 to the financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. During the six months ended March 31, 2019, there were no changes in these methods.
Fair value measurements also apply to the valuation of our pension and postretirement plan assets. Current accounting guidance requires employers to annually disclose information about fair value measurements of the assets of a defined benefit pension or other postretirement plan. The fair value of these assets is presented in Note 7 to the financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018.
Quantitative Disclosures
Financial Instruments
The classification of our fair value measurements requires judgment regarding the degree to which market data is observable or corroborated by observable market data. Authoritative accounting literature establishes a fair value hierarchy that prioritizes the inputs used to measure fair value based on observable and unobservable data. The hierarchy categorizes the inputs into three levels, with the highest priority given to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1), with the lowest priority given to unobservable inputs (Level 3). The following tables summarize, by level within the fair value hierarchy, our assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2019 and September 30, 2018. Assets and liabilities are categorized in their entirety based on the lowest level of input that is significant to the fair value measurement.
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)(1)
 
Significant
Other
Unobservable
Inputs
(Level 3)
 
Netting and
Cash
Collateral
 
March 31, 2019
 
(In thousands)
Assets:
 
 
 
 
 
 
 
 
 
Financial instruments
$

 
$
1,611

 
$

 
$

 
$
1,611

Debt and equity securities
 
 
 
 
 
 
 
 
 
Registered investment companies
42,412

 

 

 

 
42,412

Bond mutual funds
21,935

 

 

 

 
21,935

Bonds(2)

 
29,890

 

 

 
29,890

Money market funds

 
2,440

 

 

 
2,440

Total debt and equity securities
64,347

 
32,330

 

 

 
96,677

Total assets
$
64,347

 
$
33,941

 
$

 
$

 
$
98,288

Liabilities:
 
 
 
 
 
 
 
 
 
Financial instruments
$

 
$
38

 
$

 
$

 
$
38



22



 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)(1)
 
Significant
Other
Unobservable
Inputs
(Level 3)
 
Netting and
Cash
Collateral
 
September 30, 2018
 
(In thousands)
Assets:
 
 
 
 
 
 
 
 
 
Financial instruments
$

 
$
1,619

 
$

 
$

 
$
1,619

Debt and equity securities