Company Quick10K Filing
Quick10K
One Gas
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$85.97 53 $4,530
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-29
8-K 2019-07-23
8-K 2019-07-10
8-K 2019-05-23 Shareholder Vote
8-K 2019-05-08
8-K 2019-04-29
8-K 2019-04-03
8-K 2019-02-25
8-K 2019-02-20
8-K 2019-01-15
8-K 2019-01-10
8-K 2018-12-04
8-K 2018-11-30
8-K 2018-11-15 Other Events
8-K 2018-11-01 Off-BS Arrangement, Exhibits
8-K 2018-10-29
8-K 2018-10-10
8-K 2018-10-05 Enter Agreement, Exhibits
8-K 2018-09-20
8-K 2018-07-30
8-K 2018-07-24
8-K 2018-07-23 Officers, Amend Bylaw, Regulation FD, Exhibits
8-K 2018-07-11
8-K 2018-06-29
8-K 2018-05-30 Officers, Amend Bylaw, Shareholder Vote
8-K 2018-05-11
8-K 2018-04-30
8-K 2018-04-05
8-K 2018-02-26
8-K 2018-02-23
8-K 2018-02-21
8-K 2018-02-20
8-K 2018-01-17
8-K 2018-01-12
8-K 2018-01-09
NCLH Norwegian Cruise Line 12,400
FFIV F5 Networks 8,770
CTRE Caretrust REIT 2,310
REVG REV Group 761
ARVN Arvinas 691
FBMS First Bancshares 535
MPX Marine Products 515
PRTS US Auto Parts Network 34
SFAR Steadfast Apartment REIT 0
STLY HG Holdings 0
OGS 2019-06-30
Part I - Financial Information
Item 1. Consolidated 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 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ogsexhibit3112q10-q2019.htm
EX-31.2 ogsexhibit3122q10-q2019.htm
EX-32.1 ogsexhibit3212q10-q2019.htm
EX-32.2 ogsexhibit3222q10-q2019.htm

One Gas Earnings 2019-06-30

OGS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
false--12-31Q200015877320000.010.0125000000025000000052598005527342225256490252734222The indenture governing our Senior Notes includes an event of default upon the acceleration of other indebtedness of $100 million or more. Such events of default would entitle the trustee or the holders of 25 percent in aggregate principal amount of the outstanding Senior Notes to declare those senior notes immediately due and payable in full.The indenture governing our Senior Notes includes an event of default upon the acceleration of other indebtedness of $100 million or more. Such events of default would entitle the trustee or the holders of 25 percent in aggregate principal amount of the outstanding Senior Notes to declare those senior notes immediately due and payable in full.The indenture governing our Senior Notes includes an event of default upon the acceleration of other indebtedness of $100 million or more. Such events of default would entitle the trustee or the holders of 25 percent in aggregate principal amount of the outstanding Senior Notes to declare those senior notes immediately due and payable in full.The ONE Gas Credit Agreement contains certain financial, operational and legal covenants. Among other things, these covenants include maintaining ONE Gas’ total debt-to-capital ratio of no more than 70 percent at the end of any calendar quarter.11457000111590000.350.21P15Y0M0DP1Y0M0D130000000032000000P7Y0M0D68000419000530001060000000331030 0001587732 2019-01-01 2019-06-30 0001587732 2019-07-22 0001587732 2018-01-01 2018-06-30 0001587732 2018-04-01 2018-06-30 0001587732 2019-04-01 2019-06-30 0001587732 2018-12-31 0001587732 2019-06-30 0001587732 2017-12-31 0001587732 2018-06-30 0001587732 us-gaap:TreasuryStockMember 2018-01-01 2018-03-31 0001587732 us-gaap:RetainedEarningsMember 2018-01-01 2018-03-31 0001587732 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-04-01 2019-06-30 0001587732 2019-01-01 2019-03-31 0001587732 us-gaap:RetainedEarningsMember 2019-04-01 2019-06-30 0001587732 us-gaap:TreasuryStockMember 2019-01-01 2019-03-31 0001587732 2018-01-01 2018-03-31 0001587732 us-gaap:TreasuryStockMember 2019-04-01 2019-06-30 0001587732 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 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  001-36108

ONE Gas, Inc.
(Exact name of registrant as specified in its charter)
Oklahoma
46-3561936
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
15 East Fifth Street

Tulsa,
OK
74103
(Address of principal
executive offices)
(Zip Code)

Registrant’s telephone number, including area code   (918) 947-7000

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of exchange on which registered
Common Stock, par value $0.01 per share
 
OGS
 
New York Stock Exchange

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  Yes ☒ 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.
Large accelerated filer
Accelerated filer
 
 
 
 
Non-accelerated filer
Smaller reporting company
 
 
 
 
 
 
Emerging growth 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  ☒

On July 22, 2019, the Company had 52,734,526 shares of common stock outstanding.





























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ONE Gas, Inc.
TABLE OF CONTENTS
Financial Information
Page No.
 
Consolidated Statements of Income - Three and Six Months Ended June 30, 2019 and 2018
 
Consolidated Statements of Comprehensive Income - Three and Six Months Ended June 30, 2019 and 2018
 
Consolidated Balance Sheets - June 30, 2019 and December 31, 2018
 
Consolidated Statements of Cash Flows - Six Months Ended June 30, 2019 and 2018
 
Consolidated Statements of Equity - Three and Six Months Ended June 30, 2019 and 2018
 
Notes to Consolidated Financial Statements
 

As used in this Quarterly Report, references to “we,” “our,” “us” or the “company” refer to ONE Gas, Inc., an Oklahoma corporation, and its predecessors and subsidiaries, unless the context indicates otherwise.

The statements in this Quarterly Report that are not historical information, including statements concerning plans and objectives of management for future operations, economic performance or related assumptions, are forward-looking statements.  Forward-looking statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “should,” “goal,” “forecast,” “guidance,” “could,” “may,” “continue,” “might,” “potential,” “scheduled,” “likely,” and other words and terms of similar meaning.  Although we believe that our expectations regarding future events are based on reasonable assumptions, we can give no assurance that such expectations or assumptions will be achieved. Important factors that could cause actual results to differ materially from those in the forward-looking statements are described under Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Forward-Looking Statements,” in this Quarterly Report and under Part I, Item IA, “Risk Factors,” in our Annual Report.


3


AVAILABLE INFORMATION

We make available, free of charge, on our website (www.onegas.com) copies of our Annual Report, Quarterly Reports, Current Reports on Form 8-K, amendments to those reports filed or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act and reports of holdings of our securities filed by our officers and directors under Section 16 of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC, which also makes these materials available on its website (www.sec.gov).  Copies of our Code of Business Conduct and Ethics, Corporate Governance Guidelines, Certificate of Incorporation, bylaws, the written charters of our Audit Committee, Executive Compensation Committee, Corporate Governance Committee and Executive Committee and our Corporate Responsibility Report are also available on our website, and copies of these documents are available upon request.  

In addition to filings with the SEC and materials posted on our website, we also use social media platforms as channels of information distribution to reach public investors. Information contained on our website, posted on or disseminated through our social media accounts are not incorporated by reference into this report.



4


GLOSSARY - The abbreviations, acronyms and industry terminology used in this Quarterly Report are defined as follows:
AAO
Accounting Authority Order
ADIT
Accumulated deferred income tax
Annual Report
Annual Report on Form 10-K for the year ended December 31, 2018
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
Bcf
Billion cubic feet
CERCLA
Federal Comprehensive Environmental Response, Compensation and Liability
  Act of 1980, as amended
Clean Air Act
Federal Clean Air Act, as amended
Clean Water Act
Federal Water Pollution Control Amendments of 1972, as amended
Code
Internal Revenue Code of 1986, as amended
COSA
Cost-of-service Adjustment
DOT
United States Department of Transportation
EPA
United States Environmental Protection Agency
EPS
Earnings per share
Exchange Act
Securities Exchange Act of 1934, as amended
FASB
Financial Accounting Standards Board
GAAP
Accounting principles generally accepted in the United States of America
GPAC
Gas Pipeline Advisory Committee
GRIP
Gas Reliability Infrastructure Program
GSRS
Gas System Reliability Surcharge
Heating Degree Day or HDD

A measure designed to reflect the demand for energy needed for heating based on
  the extent to which the daily average temperature falls below a reference
  temperature for which no heating is required, usually 65 degrees Fahrenheit
IRS
U.S. Internal Revenue Service
KCC
Kansas Corporation Commission
KDHE
Kansas Department of Health and Environment
LDC
Local distribution company
Mcf
Thousand cubic feet
MGP
Manufactured gas plant
MMcf
Million cubic feet
Moody’s
Moody’s Investors Service, Inc.
Net margin
Non-GAAP measure defined as total revenues less cost of natural gas
NOL
Net operating loss
NPRM
Notice of Proposed Rulemaking
NYMEX
New York Mercantile Exchange
OCC
Oklahoma Corporation Commission
ONE Gas
ONE Gas, Inc.
ONE Gas Credit Agreement
ONE Gas’ $700 million amended and restated revolving credit agreement which expires on October 5, 2023
ONEOK
ONEOK, Inc. and its subsidiaries
PBRC
Performance-Based Rate Change
PHMSA
United States Department of Transportation Pipeline and Hazardous Materials Safety Administration
Pipeline Safety, Regulatory Certainty
and Job Creation Act
Pipeline Safety, Regulatory Certainty and Job Creation Act of 2011, as amended
Quarterly Report(s)
Quarterly Report(s) on Form 10-Q
ROE
Return on equity, calculated consistent with utility ratemaking principles in each jurisdiction in which we
  operate
RRC
Railroad Commission of Texas
S&P
Standard & Poor’s Ratings Services
SEC
Securities and Exchange Commission
Securities Act
Securities Act of 1933, as amended
Senior Notes
ONE Gas’ registered notes consisting of $300 million of 3.61 percent senior notes due 2024, $600 million of
  4.658 percent senior notes due 2044 and $400 million of 4.50 percent notes due 2048
Separation and Distribution Agreement
Separation and Distribution Agreement dated January 14, 2014, between ONEOK
and ONE Gas
XBRL
eXtensible Business Reporting Language

5


PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

ONE Gas, Inc.

 

 
 
 
 
 
CONSOLIDATED STATEMENTS OF INCOME

 

 
 
 
 
 


Three Months Ended
 
Six Months Ended
 

June 30,
 
June 30,
(Unaudited)

2019

2018
 
2019
 
2018


(Thousands of dollars, except per share amounts)

 
 
 
 
 
 
 
 
Total revenues
 
$
290,560

 
$
292,521

 
$
951,560

 
$
930,985

 
 
 
 
 
 
 
 
 
Cost of natural gas

82,588


94,159

 
447,664

 
444,578

 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
Operations and maintenance

101,482


102,995

 
209,757

 
205,660

Depreciation and amortization

44,943


39,757

 
88,789

 
78,647

General taxes

14,656


14,567

 
30,840

 
30,767

Total operating expenses

161,081


157,319

 
329,386

 
315,074

Operating income

46,891


41,043

 
174,510

 
171,333

Other expense, net

(865
)

(2,194
)
 
(436
)
 
(4,358
)
Interest expense, net

(15,399
)

(12,003
)
 
(31,185
)
 
(24,355
)
Income before income taxes

30,627


26,846

 
142,889

 
142,620

Income taxes

(6,157
)

(6,427
)
 
(24,759
)
 
(31,366
)
Net income

$
24,470


$
20,419

 
$
118,130

 
$
111,254








 
 
 
 
Earnings per share






 
 
 
 
Basic

$
0.46


$
0.39

 
$
2.23

 
$
2.11

Diluted

$
0.46


$
0.39

 
$
2.22

 
$
2.10








 
 
 
 
Average shares (thousands)






 
 
 
 
Basic

52,890


52,692

 
52,858

 
52,648

Diluted

53,215


52,899

 
53,210

 
52,898

Dividends declared per share of stock

$
0.50


$
0.46

 
$
1.00

 
$
0.92

See accompanying Notes to Consolidated Financial Statements.

6


ONE Gas, Inc.
 
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(Unaudited)
2019
 
2018
 
2019
 
2018
 
(Thousands of dollars)
Net income
$
24,470

 
$
20,419

 
$
118,130

 
$
111,254

Other comprehensive income (loss), net of tax
 

 
 

 
 

 
 

Change in pension and other postemployment benefit plan liability, net of tax of $(53), $(68), $(106) and $(419), respectively
160

 
203

 
320

 
123

Total other comprehensive income (loss), net of tax
160

 
203

 
320

 
123

Comprehensive income
$
24,630

 
$
20,622

 
$
118,450

 
$
111,377

See accompanying Notes to Consolidated Financial Statements.


7



ONE Gas, Inc.
 
 
 
 
CONSOLIDATED BALANCE SHEETS
 
 
 
 
 
 
 
 
 
 
 
June 30,
 
December 31,
(Unaudited)
 
2019
 
2018
Assets
 
(Thousands of dollars)
Property, plant and equipment
 
 

 
 

Property, plant and equipment
 
$
6,241,105

 
$
6,073,143

Accumulated depreciation and amortization
 
1,840,457

 
1,789,431

Net property, plant and equipment
 
4,400,648

 
4,283,712

Current assets
 
 
 
 
Cash and cash equivalents
 
11,114

 
21,323

Accounts receivable, net
 
169,801

 
295,421

Materials and supplies
 
50,344

 
44,333

Natural gas in storage
 
88,235

 
107,295

Regulatory assets
 
38,372

 
54,420

Other current assets
 
18,946

 
20,495

Total current assets
 
376,812

 
543,287

Goodwill and other assets
 
 

 
 

Regulatory assets
 
424,304

 
437,479

Goodwill
 
157,953

 
157,953

Other assets
 
86,889

 
46,211

Total goodwill and other assets
 
669,146

 
641,643

Total assets
 
$
5,446,606

 
$
5,468,642

See accompanying Notes to Consolidated Financial Statements.


8


ONE Gas, Inc.
 
 
 
 
CONSOLIDATED BALANCE SHEETS
 
 
 
 
(Continued)
 
 
 
 
 
 
June 30,
 
December 31,
(Unaudited)
 
2019
 
2018
Equity and Liabilities
 
(Thousands of dollars)
Equity and long-term debt
 
 
 
 
Common stock, $0.01 par value:
authorized 250,000,000 shares; issued and outstanding 52,734,222 shares at June 30, 2019; issued 52,598,005 and outstanding 52,564,902 shares at December 31, 2018
 
$
527

 
$
526

Paid-in capital
 
1,725,843

 
1,727,492

Retained earnings
 
387,077

 
320,869

Accumulated other comprehensive loss
 
(4,984
)
 
(4,086
)
Treasury stock, at cost: 33,103 shares at December 31, 2018
 

 
(2,145
)
   Total equity
 
2,108,463

 
2,042,656

Long-term debt, excluding current maturities, and net of issuance costs of $11,159 and $11,457, respectively
 
1,285,811

 
1,285,483

Total equity and long-term debt

3,394,274


3,328,139

Current liabilities
 
 
 
 
Notes payable
 
293,000

 
299,500

Accounts payable
 
67,578

 
174,510

Accrued taxes other than income
 
37,312

 
47,640

Regulatory liabilities
 
46,534

 
48,394

Customer deposits
 
58,831

 
61,183

Other current liabilities
 
75,098

 
67,664

Total current liabilities
 
578,353

 
698,891

Deferred credits and other liabilities
 
 

 
 

Deferred income taxes
 
673,939

 
652,426

Regulatory liabilities
 
508,877

 
520,866

Employee benefit obligations
 
168,387

 
178,720

Other deferred credits
 
122,776

 
89,600

Total deferred credits and other liabilities
 
1,473,979

 
1,441,612

Commitments and contingencies
 


 


Total liabilities and equity
 
$
5,446,606

 
$
5,468,642

See accompanying Notes to Consolidated Financial Statements.





















9



























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10


ONE Gas, Inc.
 
 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
 
 
Six Months Ended
 
 
June 30,
(Unaudited)
 
2019
 
2018
 
 
(Thousands of dollars)
Operating activities
 
 
 
 
Net income
 
$
118,130

 
$
111,254

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
88,789

 
78,647

Deferred income taxes
 
9,401

 
30,546

Share-based compensation expense
 
4,911

 
4,080

Provision for doubtful accounts
 
3,557

 
4,071

Changes in assets and liabilities:
 
 
 
 
Accounts receivable
 
122,063

 
130,730

Materials and supplies
 
(6,011
)
 
3,548

Natural gas in storage
 
19,060

 
49,672

Asset removal costs
 
(24,324
)
 
(25,774
)
Accounts payable
 
(109,340
)
 
(68,428
)
Accrued taxes other than income
 
(10,328
)
 
(6,393
)
Customer deposits
 
(2,352
)
 
438

Regulatory assets and liabilities
 
25,948

 
105,967

Other assets and liabilities
 
1,667

 
(18,401
)
Cash provided by operating activities
 
241,171

 
399,957

Investing activities
 
 

 
 

Capital expenditures
 
(184,349
)
 
(175,834
)
Other investing expenditures
 
(3,583
)
 

Other investing receipts
 
598

 

Cash used in investing activities
 
(187,334
)
 
(175,834
)
Financing activities
 
 

 
 

Repayments of notes payable, net
 
(6,500
)
 
(172,215
)
Issuance of common stock
 
2,536

 
2,390

Dividends paid
 
(52,687
)
 
(48,272
)
Tax withholdings related to net share settlements of stock compensation
 
(7,395
)
 
(7,859
)
Cash used in financing activities
 
(64,046
)
 
(225,956
)
Change in cash and cash equivalents
 
(10,209
)
 
(1,833
)
Cash and cash equivalents at beginning of period
 
21,323

 
14,413

Cash and cash equivalents at end of period
 
$
11,114

 
$
12,580

See accompanying Notes to Consolidated Financial Statements.


11


ONE Gas, Inc.
 
 
 
 
CONSOLIDATED STATEMENTS OF EQUITY
 
 
 
 
 
 
 
 
 
(Unaudited)
 
Common Stock Issued
Common Stock
Paid-in Capital
 
 
(Shares)
(Thousands of dollars)
 
 
 
 
 
January 1, 2019
 
52,598,005

$
526

$
1,727,492

Net income
 



Other comprehensive income
 



Reclassification of stranded tax effects
 



Common stock issued and other
 
88,629

1

(7,499
)
Common stock dividends - $0.50 per share
 


227

March 31, 2019
 
52,686,634

$
527

$
1,720,220

Net income
 



Other comprehensive income
 



Common stock issued and other
 
47,588


5,397

Common stock dividends - $0.50 per share
 


226

June 30, 2019
 
52,734,222

$
527

$
1,725,843

 
 
 
 
 
January 1, 2018
 
52,598,005

$
526

$
1,737,551

Net income
 



Other comprehensive income
 



Common stock issued and other
 


(16,074
)
Common stock dividends - $0.46 per share
 


224

March 31, 2018
 
52,598,005

$
526

$
1,721,701

Net income
 



Other comprehensive income
 



Common stock issued and other
 


1,867

Common stock dividends - $0.46 per share
 


227

June 30, 2018
 
52,598,005

$
526

$
1,723,795

See accompanying Notes to Consolidated Financial Statements.



12


ONE Gas, Inc.
 
 
 
 
 
CONSOLIDATED STATEMENTS OF EQUITY
 
 
 
(Continued)
 
 
 
 
 
(Unaudited)
 
Retained Earnings
Treasury Stock
Accumulated Other Comprehensive Loss
Total Equity
 
 
(Thousands of dollars)
 
 
 
 
 
 
January 1, 2019
 
$
320,869

$
(2,145
)
$
(4,086
)
$
2,042,656

Net income
 
93,660



93,660

Other comprehensive income
 


160

160

Reclassification of stranded tax effects
 
1,218


(1,218
)

Common stock issued and other
 

2,145


(5,353
)
Common stock dividends - $0.50 per share
 
(26,570
)


(26,343
)
March 31, 2019
 
$
389,177

$

$
(5,144
)
$
2,104,780

Net income
 
24,470



24,470

Other comprehensive income
 


160

160

Common stock issued and other
 



5,397

Common stock dividends - $0.50 per share
 
(26,570
)


(26,344
)
June 30, 2019
 
$
387,077

$

$
(4,984
)
$
2,108,463

 
 
 
 
 
 
January 1, 2018
 
$
246,121

$
(18,496
)
$
(5,493
)
$
1,960,209

Net income
 
90,835



90,835

Other comprehensive income
 


(80
)
(80
)
Common stock issued and other
 

10,195


(5,879
)
Common stock dividends - $0.46 per share
 
(24,361
)


(24,137
)
March 31, 2018
 
$
312,595

$
(8,301
)
$
(5,573
)
$
2,020,948

Net income
 
20,419



20,419

Other comprehensive income
 


203

203

Common stock issued and other
 

3,042


4,909

Common stock dividends - $0.46 per share
 
(24,362
)


(24,135
)
June 30, 2018
 
$
308,652

$
(5,259
)
$
(5,370
)
$
2,022,344

See accompanying Notes to Consolidated Financial Statements.


13


ONE Gas, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. These statements also have been prepared in accordance with GAAP and reflect all adjustments that, in our opinion, are necessary for a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature. The 2018 year-end consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by GAAP. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes in our Annual Report. Our significant accounting policies are described in Note 1 of our Notes to Consolidated Financial Statements in our Annual Report. Due to the seasonal nature of our business, the results of operations for the three and six months ended June 30, 2019, are not necessarily indicative of the results that may be expected for a 12-month period.

We provide natural gas distribution services to our 2.2 million customers through our divisions in Oklahoma, Kansas and Texas through Oklahoma Natural Gas, Kansas Gas Service and Texas Gas Service, respectively. We serve residential, commercial, industrial and transportation customers in all three states.

Use of Estimates - The preparation of our consolidated financial statements and related disclosures in accordance with GAAP requires us to make estimates and assumptions with respect to values or conditions that cannot be known with certainty that affect the reported amount of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements. These estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period. Items that may be estimated include, but are not limited to, the economic useful life of assets, fair value of assets and liabilities, provision for doubtful accounts, unbilled revenues for natural gas delivered but for which meters have not been read, natural gas purchased but for which no invoice has been received, provision for income taxes, including any deferred tax valuation allowances, the results of litigation and various other recorded or disclosed amounts.

We evaluate these estimates on an ongoing basis using historical experience and other methods we consider reasonable based on the particular circumstances. Nevertheless, actual results may differ significantly from the estimates. Any effects on our financial position or results of operations from revisions to these estimates are recorded in the period when the facts that give rise to the revision become known to us.

Segments - We operate in one reportable and operating business segment: regulated public utilities that deliver natural gas to residential, commercial, industrial and transportation customers. The accounting policies for our segment are the same as those described in Note 1 of our Notes to Consolidated Financial Statements in our Annual Report. We evaluate our financial performance principally on operating income. For the three and six months ended June 30, 2019, and 2018, we had no single external customer from which we received 10 percent or more of our gross revenues.

Reclassification of Prior Year Presentation - Certain prior year amounts have been reclassified for consistency with the current year presentation. Adjustments have been made to the consolidated balance sheets and consolidated statements of cash flows for the year ended December 31, 2018, to include accrued interest and accrued liabilities in other current liabilities. These reclassifications had no effect on the reported results of operations in the consolidated statements of income or previously reported cash flows from operating activities in the consolidated statements of cash flows.

Recently Issued Accounting Standards Update - In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force).” Under this guidance, a company should defer implementation costs that it incurs if the company would capitalize those same costs under the internal-use software guidance for an arrangement that is a software license. This standard is effective for interim and annual periods in fiscal years beginning after December 15, 2019, and early adoption is permitted. We will adopt this standard January 1, 2020, using the prospective transition approach. We are currently assessing the potential impacts of adopting this standard, but do not expect a material impact on our consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which allows a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. We adopted this new guidance in the first quarter 2019 and our adoption did not result in a material impact to our consolidated financial statements. This change is reflected in our consolidated statements of equity.

14




In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments,’’ which introduces new guidance to the accounting for credit losses on instruments within its scope, including trade receivables. It is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted for fiscal years beginning after December 15, 2018. The new guidance will be initially applied through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. We are currently assessing the timing and impacts of adopting this standard, which must be adopted in the first quarter of 2020.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” as amended, (“Topic 842”) which prescribes recognizing lease assets and liabilities on the balance sheet and includes disclosure of key information about leasing arrangements. We adopted this new guidance effective January 1, 2019, and applied the modified retrospective approach to all existing leases. Upon adoption we recognized lease liabilities of approximately $32 million, with corresponding right-of-use assets of the same amount based on the present value of the remaining minimum rental payments for existing operating leases. Our adoption did not result in a material impact to our results of operations or cash flows. We utilized the practical expedients that allow us to: (1) not reassess expired or existing contracts to determine whether they are subject to lease accounting guidance, (2) not reconsider lease classification at transition, and (3) not evaluate previously capitalized initial direct costs under the revised requirements. We also utilized the practical expedients that allow us to: (1) not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current lease guidance in ASC Topic 840 (“Topic 840”) and (2) use an additional transition method in which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We adopted an accounting policy that exempts leases with terms of less than one year from the recognition requirements of Topic 842, and disclose such leases in our interim and annual disclosures upon adoption. Our adoption did not result in a cumulative adjustment to our opening retained earnings. See Note 6 for additional information regarding our leases.
 
Property, Plant and Equipment - Accounts payable for construction work in process and asset removal costs increased by approximately $2.4 million and decreased by approximately $4.8 million for the six months ended June 30, 2019 and 2018, respectively. Such amounts are not included in capital expenditures in our consolidated statements of cash flows.

2.REVENUE

We recognize revenue from contracts with customers to depict the transfers of goods and services to customers at an amount that we expect to be entitled to receive in exchange for these goods and services. Our sources of revenue are disaggregated by natural gas sales, transportation revenues, and miscellaneous revenues, which are primarily one-time service fees, that meet the requirements of FASB’s ASU 2014-09, “Revenue from Contracts with Customers” (“ASC 606”). Certain revenues that do not meet the requirements of ASC 606 are classified as other revenues in our Notes to Consolidated Financial Statements in this Quarterly Report.

Our natural gas sales to customers represent revenue from contracts with customers through implied contracts established by our tariff rates approved by the regulatory authorities. For natural gas sales, the customer receives the benefits of our performance when the commodity is received and simultaneously consumed by the customer. The performance obligation is satisfied over time as the customer consumes the natural gas.

Our transportation revenues represent revenue from contracts with customers through implied contracts established by our tariff rates approved by the regulatory authorities and tariff-based negotiated contracts. The customer receives the benefits of our performance when the commodity is delivered to the customer and the performance obligation is satisfied over time as the customer receives the natural gas.

For regulated deliveries of natural gas, we read meters and bill customers on a monthly cycle. We recognize revenues upon the delivery of natural gas commodity or services rendered to customers. The billing cycles for customers do not necessarily coincide with the accounting periods used for financial reporting purposes. We accrue unbilled revenues for natural gas that has been delivered but not yet billed at the end of an accounting period. We use the invoice method practical expedient, where we recognize revenue for volumes delivered for which we have a right to invoice. As a result, we estimate unbilled revenues at the end of each accounting period consistent with past practice. Accrued unbilled revenue is based on a percentage estimate of amounts unbilled each month, which is dependent upon a number of factors, some of which require management’s judgment. These factors include customer consumption patterns and the impact of weather on usage. The accrued unbilled natural gas sales revenue at June 30, 2019 and December 31, 2018, were $48.7 million and $127.6 million, respectively, and are included in accounts receivable in our consolidated balance sheets.


15


Our miscellaneous revenues from contracts with customers represent implied contracts established by our tariff rates approved
by the regulatory authorities and include miscellaneous utility services with the performance obligation satisfied at a point in time when services are rendered to the customer.

Total other revenues consist of revenues associated with regulatory mechanisms that do not meet the requirements of ASC 606 as revenue from contracts with customers, but authorize us to accrue revenues earned based on tariffs approved by the regulatory authorities. Other revenues - natural gas sales related primarily reflect our weather normalization mechanism in Kansas. This mechanism adjusts our revenues earned for the variance between actual and normal HDDs. This mechanism can have either positive (warmer than normal) or negative (colder than normal) effects on revenues.

We collect and remit other taxes on behalf of governmental authorities, and we record these amounts in accrued taxes other than income in our consolidated balance sheets.

The following table sets forth our revenues disaggregated by source for the periods indicated:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(Thousands of dollars)
Natural gas sales to customers
 
$
258,560

 
$
261,347

 
$
880,052

 
$
856,273

Transportation revenues
 
23,991

 
24,062

 
59,019

 
57,605

Miscellaneous revenues
 
5,428

 
5,759

 
10,856

 
12,527

Total revenues from contracts with customers
 
287,979

 
291,168

 
949,927

 
926,405

Other revenues - natural gas sales related
 
207

 
(1,108
)
 
(2,737
)
 
(78
)
Other revenues
 
2,374

 
2,461

 
4,370

 
4,658

Total other revenues
 
2,581

 
1,353

 
1,633

 
4,580

Total revenues
 
$
290,560

 
$
292,521

 
$
951,560

 
$
930,985



3.
REGULATORY ASSETS AND LIABILITIES

The tables below present a summary of regulatory assets, net of amortization, and liabilities for the periods indicated:
 
 
 
 
June 30, 2019
 
 
 
 
Current
 
Noncurrent
 
Total
 
 
 
 
(Thousands of dollars)
Under-recovered purchased-gas costs
 
 
 
$
767

 
$

 
$
767

Pension and postemployment benefit costs
 

 
22,966

 
406,441

 
429,407

Reacquired debt costs
 

 
812

 
6,082

 
6,894

Ad valorem tax
 
 
 
2,083

 

 
2,083

MGP remediation costs
 

 
98

 
9,758

 
9,856

Other
 

 
11,646

 
2,023

 
13,669

Total regulatory assets, net of amortization
 
 
 
38,372

 
424,304

 
462,676

Federal corporate income tax rate changes (a)
 
 
 
(15,755
)
 
(508,877
)
 
(524,632
)
Over-recovered purchased-gas costs
 
 
 
(22,616
)
 

 
(22,616
)
Weather normalization
 
 
 
(8,163
)
 

 
(8,163
)
Total regulatory liabilities
 
 
 
(46,534
)
 
(508,877
)
 
(555,411
)
Net regulatory liabilities
 
 
 
$
(8,162
)
 
$
(84,573
)
 
$
(92,735
)
(a) See Note 11 for additional information regarding our federal corporate income tax rate changes to regulatory liabilities.

16


 
 
 
 
December 31, 2018
 
 
 
 
Current
 
Noncurrent
 
Total
 
 
 
 
(Thousands of dollars)
Under-recovered purchased-gas costs
 

 
$
25,083

 
$

 
$
25,083

Pension and postemployment benefit costs
 

 
23,384

 
421,726

 
445,110

Reacquired debt costs
 

 
812

 
6,487

 
7,299

MGP remediation costs
 
 
 

 
7,724

 
7,724

Ad valorem tax
 
 
 
1,070

 

 
1,070

Other
 

 
4,071

 
1,542

 
5,613

Total regulatory assets, net of amortization
 
 
 
54,420

 
437,479

 
491,899

Federal corporate income tax rate changes (a)
 
 
 
(30,934
)
 
(520,866
)
 
(551,800
)
Over-recovered purchased-gas costs
 

 
(13,668
)
 

 
(13,668
)
Weather normalization
 
 
 
(3,792
)
 

 
(3,792
)
Total regulatory liabilities
 
 
 
(48,394
)
 
(520,866
)
 
(569,260
)
Net regulatory assets (liabilities)
 
 
 
$
6,026

 
$
(83,387
)
 
$
(77,361
)

(a) See Note 11 for additional information regarding our federal corporate income tax rate changes to regulatory liabilities.

Regulatory assets in our consolidated balance sheets, as authorized by various regulatory authorities, are probable of recovery. Base rates and certain riders are designed to provide a recovery of costs during the period such rates are in effect, but do not generally provide for a return on investment for amounts we have deferred as regulatory assets. All of our regulatory assets are subject to review by the respective regulatory authorities during future regulatory proceedings. We are not aware of any evidence that these costs will not be recoverable through either riders or base rates, and we believe that we will be able to recover such costs, consistent with our historical recoveries.

4.
CREDIT FACILITY AND SHORT-TERM NOTES PAYABLE

In October 2018, we exercised a one-year extension on the ONE Gas Credit Agreement. The ONE Gas Credit Agreement remains a $700 million revolving unsecured credit facility and includes a $20 million letter of credit subfacility and a $60 million swingline subfacility. We are able to request an increase in commitments of up to an additional $500 million upon satisfaction of customary conditions, including receipt of commitments from either new lenders or increased commitments from existing lenders. The ONE Gas Credit Agreement expires in October 2023, and is available to provide liquidity for working capital, capital expenditures, acquisitions and mergers, the issuance of letters of credit and for other general corporate purposes.

The ONE Gas Credit Agreement contains certain financial, operational and legal covenants. Among other things, these covenants include maintaining ONE Gas’ total debt-to-capital ratio of no more than 70 percent at the end of any calendar quarter. At June 30, 2019, our total debt-to-capital ratio was 43 percent and we were in compliance with all covenants under the ONE Gas Credit Agreement.

At June 30, 2019, we had $1.2 million in letters of credit issued and no borrowings under the ONE Gas Credit Agreement, resulting in $698.8 million of remaining credit available under the ONE Gas Credit Agreement.

We have a commercial paper program under which we may issue unsecured commercial paper up to a maximum amount of $700 million to fund short-term borrowing needs. The maturities of the commercial paper notes may vary but may not exceed 270 days from the date of issue. The commercial paper notes are generally sold at par less a discount representing an interest factor. At June 30, 2019, we had $293.0 million of commercial paper outstanding. The ONE Gas Credit Agreement is available to repay the commercial paper notes, if necessary.

5.
LONG-TERM DEBT

In November 2018, ONE Gas issued $400 million of 4.50 percent senior notes due 2048. The proceeds from the issuance were used to retire the $300 million of 2.07 percent senior notes due 2019, to reduce the amount of outstanding commercial paper and for general corporate purposes.

Our long-term debt includes $300 million of 3.61 percent senior notes due in 2024, $600 million of 4.658 percent senior notes due 2044, and $400 million of 4.50 percent senior notes due 2048. The indenture governing our Senior Notes includes an event

17


of default upon the acceleration of other indebtedness of $100 million or more. Such events of default would entitle the trustee or the holders of 25 percent in aggregate principal amount of the outstanding Senior Notes to declare those Senior Notes immediately due and payable in full.

6.
LEASES

A lease is a contract that conveys the right to control the use and obtain substantially all the economic benefits from the use of an identified asset for a period of time in exchange for consideration. We determine if an arrangement is a lease at inception and, if so, whether the arrangement is an operating lease or a finance lease. We identify a lease as a finance lease if the agreement includes any of the following criteria: transfer of ownership by the end of the lease term; an option to purchase the underlying asset that the lessee is reasonably certain to exercise; a lease term that represents 75 percent or more of the remaining economic life of the underlying asset; a present value of lease payments and any residual value guaranteed by the lessee that equals or exceeds 90 percent of the fair value of the underlying asset; or an underlying asset that is so specialized in nature that there is no expected alternative use to the lessor at the end of the lease term. A lease that does not meet any of these criteria is considered an operating lease.
Lease right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the commencement date of a lease based on the present value of lease payments over the lease term. Our lease terms may include options to extend or terminate the lease. We include these extension or termination options in the determination of the lease term when it is reasonably certain that we will exercise that option. We have lease agreements with lease and non-lease components, which are accounted for separately. Additionally, for certain office equipment leases, we apply a portfolio approach to effectively account for the operating lease right-of-use assets and liabilities. We do not recognize leases having a term of less than one year in our consolidated balance sheets.
For purposes of determining the present value of the lease payments, we use a lease’s implicit interest rate when readily determinable. As most of our leases do not provide an implicit interest rate, we use a discount rate commensurate with borrowing rates for defined terms that are reviewed annually on December 31st. Lease cost for operating leases is recognized on a straight-line basis over the lease term.
We have operating leases for office facilities, gas storage facilities, information technology equipment and right-of-way contracts. Our leases have remaining lease terms of 1 year to 15 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within specified time frames. We have not entered into any finance leases.
Our right-of-use asset is $37.3 million as of June 30, 2019, and is reported within other assets in our consolidated balance sheets. Current operating lease liabilities are reported within our other current liabilities and other liabilities in our consolidated balance sheets. Total operating lease cost including immaterial amounts attributable to short-term operating leases was $2.2 million and $4.2 million for the three and six months ended June 30, 2019, respectively.
 
Six Months Ended
 
June 30,
Other information related to operating leases
2019
 
(Millions of dollars)
 
 
Weighted-average remaining lease term
7 years
 
 
Weighted-average discount rate
3.62%
 
 
Supplemental cash flows information
 
Lease payments
$
(4.4
)
Right-of-use assets obtained in exchange for lease obligations
$
9.1




18


 
 
 
 
 
June 30,
Future minimum lease payments under non-cancellable operating leases
 
2019
 
 
(Millions of dollars)
2019 (excluding the six months ended June 30, 2019)
 
$
3.7

2020
 
7.5

2021
 
7.1

2022
 
6.8

2023
 
5.7

Thereafter
 
11.6

Total future minimum lease payments
 
$
42.4

Imputed interest
 
(5.2
)
Total operating lease liability
 
$
37.2

 
 
 
Consolidated balance sheets as of June 30, 2019
 
 
Current operating lease liability
 
$
6.2

Long-term operating lease liability
 
31.0

Total operating lease liability
 
$
37.2



The following table sets forth the required disclosures under Topic 842 for the period indicated under Topic 840, as reported in Note 15 of our Notes to Consolidated Financial Statements in our Annual Report:
 
 
December 31,
Future minimum lease payments under non-cancellable operating leases
 
2018
 
 
(Millions of dollars)
2019
 
$
6.3

2020
 
5.1

2021
 
4.5

2022
 
4.3

2023
 
4.2

Thereafter
 
3.8

Total future minimum lease payments
 
$
28.2



7.
EQUITY

Dividends Declared - In July 2019, we declared a dividend of $0.50 per share ($2.00 per share on an annualized basis) for shareholders of record as of August 12, 2019, payable September 3, 2019.


19


8.
ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table sets forth the effect of reclassifications from accumulated other comprehensive loss in our consolidated statements of income for the periods indicated:
 
 
Three Months Ended
 
Six Months Ended
 
Affected Line Item in the
Details About Accumulated Other
 
June 30,
 
June 30,
 
Consolidated Statements
Comprehensive Loss Components
 
2019
2018
 
2019
2018
 
of Income
 
 
(Thousands of dollars)
 
 
Pension and other postemployment benefit plan obligations (a)
 
 
 
 
 
 
 
 
Amortization of net loss
 
$
8,821

$
10,950

 
$
17,642

$
21,900

 
 
Amortization of unrecognized prior service credit
 
(168
)
(1,142
)
 
(336
)
(2,284
)
 
 
 
 
8,653

9,808

 
17,306

19,616

 
 
Reclassification of stranded tax effects (b)
 


 
(1,218
)

 
 
Regulatory adjustments (c)
 
(8,440
)
(9,537
)
 
(15,662
)
(19,074
)
 
 
 
 
213

271

 
426

542

 
Income before income taxes
 
 
(53
)
(68
)
 
(106
)
(419
)
 
Income tax expense
Total reclassifications for the period
 
$
160

$
203

 
$
320

$
123

 
Net income
(a) These components of accumulated other comprehensive loss are included in the computation of net periodic benefit cost. See Note 10 for additional detail of our net periodic benefit cost.
(b) Reflects the impact of the adoption of ASU 2018-02 in fiscal year 2019 related to stranded tax effects in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act of 2017. See Note 1 for additional information regarding our adoption of this standard.
(c) Regulatory adjustments represent pension and other postemployment benefit costs expected to be recovered through rates and are deferred as part of our regulatory assets. See Note 3 for additional disclosures of regulatory assets and liabilities.

9.
EARNINGS PER SHARE

Basic EPS is based on net income and is calculated based upon the daily 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. Diluted EPS includes basic EPS, plus unvested stock awards granted under our compensation plans, but only to the extent these instruments dilute earnings per share.

The following tables set forth the computation of basic and diluted EPS from continuing operations for the periods indicated:
 
Three Months Ended June 30, 2019
 
Income
 
Shares
 
Per Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation
 
 
 
 
 
Net income available for common stock
$
24,470

 
52,890

 
$
0.46

Diluted EPS Calculation
 

 
 

 
 

Effect of dilutive securities

 
325

 
 

Net income available for common stock and common stock equivalents
$
24,470

 
53,215

 
$
0.46


 
Three Months Ended June 30, 2018
 
Income
 
Shares
 
Per Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation
 
 
 
 
 
Net income available for common stock
$
20,419

 
52,692

 
$
0.39

Diluted EPS Calculation
 
 
 

 
 

Effect of dilutive securities

 
207

 
 

Net income available for common stock and common stock equivalents
$
20,419

 
52,899

 
$
0.39




20


 
Six Months Ended June 30, 2019
 
Income
 
Shares
 
Per Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation
 
 
 

 
 
Net income available for common stock
$
118,130

 
52,858

 
$
2.23

Diluted EPS Calculation