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Atmos Energy 10-Q 2015

Documents found in this filing:

  1. 10-Q
  2. Ex-12
  3. Ex-15
  4. Ex-31
  5. Ex-32
  6. Ex-32
ATO 2015.06.30 10-Q


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 June 30, 2015
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 and posted on its website, if any, 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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer  þ
  
Accelerated Filer  ¨
  
Non-Accelerated Filer  ¨
  
Smaller Reporting Company  ¨
(Do not check if a smaller reporting company)
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 July 31, 2015.
Class
  
Shares Outstanding
No Par Value
  
101,369,699




GLOSSARY OF KEY TERMS
 
 
 
AEC
Atmos Energy Corporation
AEH
Atmos Energy Holdings, Inc.
AEM
Atmos Energy Marketing, LLC
AOCI
Accumulated other comprehensive income
Bcf
Billion cubic feet
FASB
Financial Accounting Standards Board
Fitch
Fitch Ratings, Ltd.
GAAP
Generally Accepted Accounting Principles
GRIP
Gas Reliability Infrastructure Program
Mcf
Thousand cubic feet
MMcf
Million cubic feet
Moody’s
Moody’s Investors Services, Inc.
NYMEX
New York Mercantile Exchange, Inc.
PPA
Pension Protection Act of 2006
PRP
Pipeline Replacement Program
RRC
Railroad Commission of Texas
RRM
Rate Review Mechanism
S&P
Standard & Poor’s Corporation
SEC
United States Securities and Exchange Commission
WNA
Weather Normalization Adjustment

2



PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
June 30,
2015
 
September 30,
2014
 
(Unaudited)
 
 
 
(In thousands, except
share data)
ASSETS
 
 
 
Property, plant and equipment
$
9,017,043

 
$
8,447,700

Less accumulated depreciation and amortization
1,804,955

 
1,721,794

Net property, plant and equipment
7,212,088

 
6,725,906

Current assets
 
 
 
Cash and cash equivalents
43,153

 
42,258

Accounts receivable, net
301,743

 
343,400

Gas stored underground
213,151

 
278,917

Other current assets
58,602

 
111,265

Total current assets
616,649

 
775,840

Goodwill
742,029

 
742,029

Deferred charges and other assets
313,723

 
350,929

 
$
8,884,489

 
$
8,594,704

CAPITALIZATION AND LIABILITIES
 
 
 
Shareholders’ equity
 
 
 
Common stock, no par value (stated at $.005 per share); 200,000,000 shares authorized; issued and outstanding: June 30, 2015 — 101,336,818 shares; September 30, 2014 — 100,388,092 shares
$
507

 
$
502

Additional paid-in capital
2,207,102

 
2,180,151

Retained earnings
1,092,887

 
917,972

Accumulated other comprehensive loss
(62,241
)
 
(12,393
)
Shareholders’ equity
3,238,255

 
3,086,232

Long-term debt
2,455,303

 
2,455,986

Total capitalization
5,693,558

 
5,542,218

Current liabilities
 
 
 
Accounts payable and accrued liabilities
227,256

 
308,086

Other current liabilities
437,344

 
405,869

Short-term debt
251,977

 
196,695

Total current liabilities
916,577

 
910,650

Deferred income taxes
1,429,090

 
1,286,616

Regulatory cost of removal obligation
432,153

 
445,387

Pension and postretirement liabilities
318,140

 
340,963

Deferred credits and other liabilities
94,971

 
68,870

 
$
8,884,489

 
$
8,594,704

See accompanying notes to condensed consolidated financial statements.

3



ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
 
Three Months Ended 
 June 30
 
2015
 
2014
 
(Unaudited)
(In thousands, except per
share data)
Operating revenues
 
 
 
Regulated distribution segment
$
416,794

 
$
517,707

Regulated pipeline segment
97,008

 
87,189

Nonregulated segment
278,769

 
465,485

Intersegment eliminations
(106,170
)
 
(127,211
)
 
686,401

 
943,170

Purchased gas cost
 
 
 
Regulated distribution segment
149,775

 
260,042

Regulated pipeline segment

 

Nonregulated segment
260,990

 
450,672

Intersegment eliminations
(106,037
)
 
(127,077
)
 
304,728

 
583,637

Gross profit
381,673

 
359,533

Operating expenses
 
 
 
Operation and maintenance
132,447

 
125,559

Depreciation and amortization
68,444

 
63,955

Taxes, other than income
63,175

 
63,414

Total operating expenses
264,066

 
252,928

Operating income
117,607

 
106,605

Miscellaneous income (expense)
634

 
(374
)
Interest charges
27,955

 
31,840

Income before income taxes
90,286

 
74,391

Income tax expense
34,005

 
28,670

Net income
$
56,281

 
$
45,721

Basic net income per share
$
0.55

 
$
0.45

Diluted net income per share
$
0.55

 
$
0.45

Cash dividends per share
$
0.39

 
$
0.37

Weighted average shares outstanding:
 
 
 
Basic
102,000

 
101,162

Diluted
102,000

 
101,163

See accompanying notes to condensed consolidated financial statements.













4



ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
 
 
 
 
 
 
 
 
 
Nine Months Ended 
 June 30
 
2015
 
2014
 
(Unaudited)
(In thousands, except per
share data)
Operating revenues
 
 
 
Regulated distribution segment
$
2,394,179

 
$
2,652,532

Regulated pipeline segment
272,305

 
232,145

Nonregulated segment
1,179,379

 
1,660,131

Intersegment eliminations
(360,629
)
 
(392,926
)
 
3,485,234

 
4,151,882

Purchased gas cost
 
 
 
Regulated distribution segment
1,397,113

 
1,710,508

Regulated pipeline segment

 

Nonregulated segment
1,122,655

 
1,589,163

Intersegment eliminations
(360,230
)
 
(392,556
)
 
2,159,538

 
2,907,115

Gross profit
1,325,696

 
1,244,767

Operating expenses
 
 
 
Operation and maintenance
384,489

 
365,991

Depreciation and amortization
204,059

 
185,731

Taxes, other than income
181,606

 
165,640

Total operating expenses
770,154

 
717,362

Operating income
555,542

 
527,405

Miscellaneous expense
(2,634
)
 
(4,022
)
Interest charges
85,166

 
95,556

Income before income taxes
467,742

 
427,827

Income tax expense
176,182

 
161,723

Net income
291,560

 
266,104

Basic net income per share
$
2.86

 
$
2.76

Diluted net income per share
$
2.86

 
$
2.76

Cash dividends per share
$
1.17

 
$
1.11

Weighted average shares outstanding:
 
 
 
Basic
101,776

 
96,392

Diluted
101,776

 
96,394

See accompanying notes to condensed consolidated financial statements.


5




ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
Three Months Ended 
 June 30
 
Nine Months Ended 
 June 30
 
2015
 
2014
 
2015
 
2014
 
(Unaudited)
(In thousands)
Net income
$
56,281

 
$
45,721

 
$
291,560

 
$
266,104

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Net unrealized holding gains (losses) on available-for-sale securities, net of tax of $(41), $216, $(170) and $1,518
(191
)
 
377

 
(296
)
 
2,519

Cash flow hedges:
 
 
 
 
 
 
 
Amortization and unrealized gain (loss) on interest rate agreements, net of tax of $31,314, $(13,472), $(17,232) and $(21,005)
54,475

 
(23,440
)
 
(29,981
)
 
(36,545
)
Net unrealized gains (losses) on commodity cash flow hedges, net of tax of $7,393, $(1,580), $(12,698) and $4,122
11,563

 
(2,471
)
 
(19,571
)
 
6,448

Total other comprehensive income (loss)
65,847

 
(25,534
)
 
(49,848
)
 
(27,578
)
Total comprehensive income
$
122,128

 
$
20,187

 
$
241,712

 
$
238,526


See accompanying notes to condensed consolidated financial statements.

6



ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Nine Months Ended 
 June 30
 
2015
 
2014
 
(Unaudited)
(In thousands)
Cash Flows From Operating Activities
 
 
 
Net income
$
291,560

 
$
266,104

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization:
 
 
 
Charged to depreciation and amortization
204,059

 
185,731

Charged to other accounts
853

 
669

Deferred income taxes
164,627

 
150,457

Other
18,146

 
21,587

Net assets / liabilities from risk management activities
(13,136
)
 
3,158

Net change in operating assets and liabilities
51,473

 
2,504

Net cash provided by operating activities
717,582

 
630,210

Cash Flows From Investing Activities
 
 
 
Capital expenditures
(667,483
)
 
(552,600
)
Other, net
(1,119
)
 
(620
)
Net cash used in investing activities
(668,602
)
 
(553,220
)
Cash Flows From Financing Activities
 
 
 
Net increase (decrease) in short-term debt
48,830

 
(366,602
)
Net proceeds from equity offering

 
390,205

Net proceeds from issuance of long-term debt
493,538

 

Settlement of interest rate agreements
13,364

 

Repayment of long-term debt
(500,000
)
 

Cash dividends paid
(116,645
)
 
(108,806
)
Repurchase of equity awards
(7,985
)
 
(8,717
)
Issuance of common stock
20,813

 
2,152

Net cash used in financing activities
(48,085
)
 
(91,768
)
Net increase (decrease) in cash and cash equivalents
895

 
(14,778
)
Cash and cash equivalents at beginning of period
42,258

 
66,199

Cash and cash equivalents at end of period
$
43,153

 
$
51,421


See accompanying notes to condensed consolidated financial statements.

7



ATMOS ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2015
1.    Nature of Business
Atmos Energy Corporation (“Atmos Energy” or the “Company”) and our subsidiaries are engaged primarily in the regulated natural gas distribution and pipeline businesses as well as other nonregulated natural gas businesses. Historically, our regulated businesses have generated over 90 percent of our consolidated net income.
Through our regulated distribution business, we deliver natural gas through sales and transportation arrangements to approximately three million residential, commercial, public authority and industrial customers through our six regulated distribution divisions, which at June 30, 2015, covered service areas located in eight states. In addition, we transport natural gas for others through our distribution system. Our regulated businesses also include our regulated pipeline and storage operations, which include the transportation of natural gas to our North Texas distribution system and the management of our underground storage facilities. Our regulated businesses are subject to federal and state regulation and/or regulation by local authorities in each of the states in which our regulated distribution divisions operate.
Our nonregulated businesses operate primarily in the Midwest and Southeast through various wholly-owned subsidiaries of Atmos Energy Holdings, Inc. (AEH). AEH is wholly owned by the Company and based in Houston, Texas. Through AEH, we provide natural gas management and transportation services to municipalities, natural gas distribution companies, including certain divisions of Atmos Energy, and third parties.

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 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, 2014. 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, 2014. Because of seasonal and other factors, the results of operations for the nine-month period ended June 30, 2015 are not indicative of our results of operations for the full 2015 fiscal year, which ends September 30, 2015.
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, 2014.
Certain prior-year amounts have been reclassified to conform with the current year presentation.
During the second quarter of fiscal 2015, we completed our annual goodwill impairment assessment. Based on the assessment performed, we determined that our goodwill was not impaired.
In May 2014, the Financial Accounting Standards Board (FASB) issued a comprehensive new revenue recognition standard that will supersede virtually all existing revenue recognition guidance under generally accepted accounting principles in the United States. Under the new standard, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. On July 9, 2015, the FASB voted to approve a deferral of the effective date of the new standard by one year. With the one year extension, the new standard is currently scheduled to become effective for us beginning on October 1, 2018 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. We are currently evaluating the impact this standard may have on our financial position, results of operations and cash flows.
In April 2015, the FASB issued guidance to simplify the presentation of debt issuance costs which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The new standard will be effective for us beginning on October 1, 2016, and will be applied retrospectively. We are currently evaluating the impact this standard may have on our financial position, results of operations and cash flows.

8



In April 2015, the FASB issued guidance to simplify the accounting for fees paid in connection with arrangements with cloud-based software providers. Under the new guidance, unless a software arrangement includes specific elements enabling customers to possess and operate software on platforms other than that offered by the cloud-based provider, the cost of such arrangements is to be accounted for as an operating expense in the period incurred. The new guidance is effective for us beginning October 1, 2016 and may be applied either prospectively or retrospectively with early adoption permitted. We anticipate the adoption of this standard will not have a material impact on our financial position, results of operations and cash flows.
There were no other significant changes to our accounting policies during the nine months ended June 30, 2015 that will become applicable to the Company in future periods.
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. Substantially all of our regulatory assets are recorded as a component of deferred charges and other assets and substantially all of our regulatory liabilities are recorded as a component of deferred credits and other liabilities. Deferred gas costs are recorded either in other current assets or liabilities and the regulatory cost of removal obligation is reported separately.
 
Significant regulatory assets and liabilities as of June 30, 2015 and September 30, 2014 included the following:
 
June 30,
2015
 
September 30,
2014
 
(In thousands)
Regulatory assets:
 
 
 
Pension and postretirement benefit costs(1)
$
149,202

 
$
162,777

Merger and integration costs, net
4,327

 
4,730

Deferred gas costs
1,494

 
20,069

Rate case costs
1,354

 
3,757

Infrastructure Mechanisms(2)
24,228

 
26,948

APT annual adjustment mechanism

 
8,479

Recoverable loss on reacquired debt
16,959

 
18,877

Other
4,944

 
4,672

 
$
202,508

 
$
250,309

Regulatory liabilities:
 
 
 
Deferred gas costs
$
81,134

 
$
35,063

Deferred franchise fees
747

 
5,268

Regulatory cost of removal obligation
486,672

 
490,448

Other
12,810

 
14,980

 
$
581,363

 
$
545,759

 
(1) 
Includes $15.8 million and $18.8 million of pension and postretirement expense deferred pursuant to regulatory authorization.
(2) 
Infrastructure mechanisms in Texas and Louisiana allow for the deferral of all expenses associated with capital expenditures incurred pursuant to these rules, including the recording of interest expense, until the next rate proceeding (rate case or annual rate filing), at which time investment and costs would be recoverable through base rates.
Currently authorized rates do not include a return on certain of our merger and integration costs; however, we recover the amortization of these costs. Merger and integration costs, net, are generally amortized on a straight-line basis over estimated useful lives ranging up to 20 years.




9



3.    Segment Information
We operate the Company through the following three segments:
The regulated distribution segment, which includes our regulated natural gas distribution and related sales operations,
The regulated pipeline segment, which includes the regulated pipeline and storage operations of our Atmos Pipeline — Texas Division and
The nonregulated segment, which is comprised of our nonregulated natural gas management, nonregulated natural gas transmission, storage and other services.
 
Our determination of reportable segments considers the strategic operating units under which we manage sales of various products and services to customers in differing regulatory environments. Although our regulated distribution segment operations are geographically dispersed, they are reported as a single segment as each regulated distribution division has similar economic characteristics. 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, 2014. We evaluate performance based on net income or loss of the respective operating units.
Income statements for the three and nine month periods ended June 30, 2015 and 2014 by segment are presented in the following tables:
 
Three Months Ended June 30, 2015
 
Regulated
Distribution
 
Regulated
Pipeline
 
Nonregulated
 
Eliminations
 
Consolidated
 
(In thousands)
Operating revenues from external parties
$
415,160

 
$
25,859

 
$
245,382

 
$

 
$
686,401

Intersegment revenues
1,634

 
71,149

 
33,387

 
(106,170
)
 

 
416,794

 
97,008

 
278,769

 
(106,170
)
 
686,401

Purchased gas cost
149,775

 

 
260,990

 
(106,037
)
 
304,728

Gross profit
267,019

 
97,008

 
17,779

 
(133
)
 
381,673

Operating expenses
 
 
 
 
 
 
 
 
 
Operation and maintenance
98,552

 
26,572

 
7,456

 
(133
)
 
132,447

Depreciation and amortization
55,491

 
11,816

 
1,137

 

 
68,444

Taxes, other than income
56,176

 
6,193

 
806

 

 
63,175

Total operating expenses
210,219

 
44,581

 
9,399

 
(133
)
 
264,066

Operating income
56,800

 
52,427

 
8,380

 

 
117,607

Miscellaneous income (expense)
1,045

 
(211
)
 
345

 
(545
)
 
634

Interest charges
19,961

 
8,299

 
240

 
(545
)
 
27,955

Income before income taxes
37,884

 
43,917

 
8,485

 

 
90,286

Income tax expense
15,420

 
15,349

 
3,236

 

 
34,005

Net income
$
22,464

 
$
28,568

 
$
5,249

 
$

 
$
56,281

Capital expenditures
$
170,134

 
$
55,914

 
$
(209
)
 
$

 
$
225,839


10



 
Three Months Ended June 30, 2014
 
Regulated
Distribution
 
Regulated
Pipeline
 
Nonregulated
 
Eliminations
 
Consolidated
 
(In thousands)
Operating revenues from external parties
$
516,644

 
$
24,990

 
$
401,536

 
$

 
$
943,170

Intersegment revenues
1,063

 
62,199

 
63,949

 
(127,211
)
 

 
517,707

 
87,189

 
465,485

 
(127,211
)
 
943,170

Purchased gas cost
260,042

 

 
450,672

 
(127,077
)
 
583,637

Gross profit
257,665

 
87,189

 
14,813

 
(134
)
 
359,533

Operating expenses
 
 
 
 
 
 
 
 
 
Operation and maintenance
92,994

 
23,570

 
9,129

 
(134
)
 
125,559

Depreciation and amortization
52,542

 
10,281

 
1,132

 

 
63,955

Taxes, other than income
57,596

 
5,054

 
764

 

 
63,414

Total operating expenses
203,132

 
38,905

 
11,025

 
(134
)
 
252,928

Operating income
54,533

 
48,284

 
3,788

 

 
106,605

Miscellaneous income (expense)
678

 
(489
)
 
1,018

 
(1,581
)
 
(374
)
Interest charges
23,649

 
9,162

 
610

 
(1,581
)
 
31,840

Income before income taxes
31,562

 
38,633

 
4,196

 

 
74,391

Income tax expense
13,033

 
13,695

 
1,942

 

 
28,670

Net income
$
18,529

 
$
24,938

 
$
2,254

 
$

 
$
45,721

Capital expenditures
$
146,860

 
$
45,658

 
$
1,073

 
$

 
$
193,591

 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended June 30, 2015
 
Regulated
Distribution
 
Regulated
Pipeline
 
Nonregulated
 
Eliminations
 
Consolidated
 
(In thousands)
Operating revenues from external parties
$
2,389,037

 
$
70,887

 
$
1,025,310

 
$

 
$
3,485,234

Intersegment revenues
5,142

 
201,418

 
154,069

 
(360,629
)
 

 
2,394,179

 
272,305

 
1,179,379

 
(360,629
)
 
3,485,234

Purchased gas cost
1,397,113

 

 
1,122,655

 
(360,230
)
 
2,159,538

Gross profit
997,066

 
272,305

 
56,724

 
(399
)
 
1,325,696

Operating expenses
 
 
 
 
 
 
 
 
 
Operation and maintenance
288,962

 
74,029

 
21,897

 
(399
)
 
384,489

Depreciation and amortization
165,730

 
34,945

 
3,384

 

 
204,059

Taxes, other than income
162,759

 
16,296

 
2,551

 

 
181,606

Total operating expenses
617,451

 
125,270

 
27,832

 
(399
)
 
770,154

Operating income
379,615

 
147,035

 
28,892

 

 
555,542

Miscellaneous income (expense)
(1,221
)
 
(842
)
 
897

 
(1,468
)
 
(2,634
)
Interest charges
60,914

 
25,014

 
706

 
(1,468
)
 
85,166

Income before income taxes
317,480

 
121,179

 
29,083

 

 
467,742

Income tax expense
121,776

 
42,894

 
11,512

 

 
176,182

Net income
$
195,704

 
$
78,285

 
$
17,571

 
$

 
$
291,560

Capital expenditures
$
482,371

 
$
185,028

 
$
84

 
$

 
$
667,483


11



 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended June 30, 2014
 
Regulated
Distribution
 
Regulated
Pipeline
 
Nonregulated
 
Eliminations
 
Consolidated
 
(In thousands)
Operating revenues from external parties
$
2,648,505

 
$
67,162

 
$
1,436,215

 
$

 
$
4,151,882

Intersegment revenues
4,027

 
164,983

 
223,916

 
(392,926
)
 

 
2,652,532

 
232,145

 
1,660,131

 
(392,926
)
 
4,151,882

Purchased gas cost
1,710,508

 

 
1,589,163

 
(392,556
)
 
2,907,115

Gross profit
942,024

 
232,145

 
70,968

 
(370
)
 
1,244,767

Operating expenses
 
 
 
 
 
 
 
 
 
Operation and maintenance
289,433

 
57,465

 
19,463

 
(370
)
 
365,991

Depreciation and amortization
152,113

 
30,223

 
3,395

 

 
185,731

Taxes, other than income
155,286

 
8,485

 
1,869

 

 
165,640

Total operating expenses
596,832

 
96,173

 
24,727

 
(370
)
 
717,362

Operating income
345,192

 
135,972

 
46,241

 

 
527,405

Miscellaneous income (expense)
304

 
(2,751
)
 
1,785

 
(3,360
)
 
(4,022
)
Interest charges
69,802

 
27,274

 
1,840

 
(3,360
)
 
95,556

Income before income taxes
275,694

 
105,947

 
46,186

 

 
427,827

Income tax expense
105,665

 
37,454

 
18,604

 

 
161,723

Net income
$
170,029

 
$
68,493

 
$
27,582

 
$

 
$
266,104

Capital expenditures
$
413,921

 
$
137,579

 
$
1,100

 
$

 
$
552,600

 

12



Balance sheet information at June 30, 2015 and September 30, 2014 by segment is presented in the following tables:

 
June 30, 2015
 
Regulated
Distribution
 
Regulated
Pipeline
 
Nonregulated
 
Eliminations
 
Consolidated
 
(In thousands)
ASSETS
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
$
5,543,386

 
$
1,613,182

 
$
55,520

 
$

 
$
7,212,088

Investment in subsidiaries
1,028,457

 

 
(2,096
)
 
(1,026,361
)
 

Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
35,288

 

 
7,865

 

 
43,153

Assets from risk management activities
780

 

 
10,806

 

 
11,586

Other current assets
375,213

 
20,100

 
497,871

 
(331,274
)
 
561,910

Intercompany receivables
820,587

 

 

 
(820,587
)
 

Total current assets
1,231,868

 
20,100

 
516,542

 
(1,151,861
)
 
616,649

Goodwill
574,816

 
132,502

 
34,711

 

 
742,029

Noncurrent assets from risk management activities
1,109

 

 

 

 
1,109

Deferred charges and other assets
291,740

 
15,305

 
5,569

 

 
312,614

 
$
8,671,376

 
$
1,781,089

 
$
610,246

 
$
(2,178,222
)
 
$
8,884,489

CAPITALIZATION AND LIABILITIES
 
 
 
 
 
 
 
 
 
Shareholders’ equity
$
3,238,255

 
$
560,898

 
$
467,559

 
$
(1,028,457
)
 
$
3,238,255

Long-term debt
2,455,303

 

 

 

 
2,455,303

Total capitalization
5,693,558

 
560,898

 
467,559

 
(1,028,457
)
 
5,693,558

Current liabilities
 
 
 
 
 
 
 
 
 
Short-term debt
570,977

 

 

 
(319,000
)
 
251,977

Liabilities from risk management activities
4,916

 

 

 

 
4,916

Other current liabilities
551,102

 
17,850

 
100,910

 
(10,178
)
 
659,684

Intercompany payables

 
786,493

 
34,094

 
(820,587
)
 

Total current liabilities
1,126,995

 
804,343

 
135,004

 
(1,149,765
)
 
916,577

Deferred income taxes
1,014,432

 
415,687

 
(1,029
)
 

 
1,429,090

Noncurrent liabilities from risk management activities
47,224

 

 

 

 
47,224

Regulatory cost of removal obligation
432,153

 

 

 

 
432,153

Pension and postretirement liabilities
318,140

 

 

 

 
318,140

Deferred credits and other liabilities
38,874

 
161

 
8,712

 

 
47,747

 
$
8,671,376

 
$
1,781,089

 
$
610,246

 
$
(2,178,222
)
 
$
8,884,489


13





 
September 30, 2014
 
Regulated
Distribution
 
Regulated
Pipeline
 
Nonregulated
 
Eliminations
 
Consolidated
 
(In thousands)
ASSETS
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
$
5,202,761

 
$
1,464,572

 
$
58,573

 
$

 
$
6,725,906

Investment in subsidiaries
952,171

 

 
(2,096
)
 
(950,075
)
 

Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
33,303

 

 
8,955

 

 
42,258

Assets from risk management activities
23,102

 

 
22,725

 

 
45,827

Other current assets
490,408

 
14,009

 
526,161

 
(342,823
)
 
687,755

Intercompany receivables
790,442

 

 

 
(790,442
)
 

Total current assets
1,337,255

 
14,009

 
557,841

 
(1,133,265
)
 
775,840

Goodwill
574,816

 
132,502

 
34,711

 

 
742,029

Noncurrent assets from risk management activities
13,038

 

 

 

 
13,038

Deferred charges and other assets
309,965

 
21,826

 
6,100

 

 
337,891

 
$
8,390,006

 
$
1,632,909

 
$
655,129

 
$
(2,083,340
)
 
$
8,594,704

CAPITALIZATION AND LIABILITIES
 
 
 
 
 
 
 
 
 
Shareholders’ equity
$
3,086,232

 
$
482,612

 
$
469,559

 
$
(952,171
)
 
$
3,086,232

Long-term debt
2,455,986

 

 

 

 
2,455,986

Total capitalization
5,542,218

 
482,612

 
469,559

 
(952,171
)
 
5,542,218

Current liabilities
 
 
 
 
 
 
 
 
 
Short-term debt
522,695

 

 

 
(326,000
)
 
196,695

Liabilities from risk management activities
1,730

 

 

 

 
1,730

Other current liabilities
559,765

 
24,790

 
142,397

 
(14,727
)
 
712,225

Intercompany payables

 
763,635

 
26,807

 
(790,442
)
 

Total current liabilities
1,084,190

 
788,425

 
169,204

 
(1,131,169
)
 
910,650

Deferred income taxes
913,260

 
361,688

 
11,668

 

 
1,286,616

Noncurrent liabilities from risk management activities
20,126

 

 

 

 
20,126

Regulatory cost of removal obligation
445,387

 

 

 

 
445,387

Pension and postretirement liabilities
340,963

 

 

 

 
340,963

Deferred credits and other liabilities
43,862

 
184

 
4,698

 

 
48,744

 
$
8,390,006

 
$
1,632,909

 
$
655,129

 
$
(2,083,340
)
 
$
8,594,704


14




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 and diluted earnings per share for the three and nine months ended June 30, 2015 and 2014 are calculated as follows:
 
Three Months Ended 
 June 30
 
Nine Months Ended 
 June 30
 
2015
 
2014
 
2015
 
2014
 
(In thousands, except per share amounts)
Basic Earnings Per Share
 
 
 
 
 
 
 
Net income
$
56,281

 
$
45,721

 
$
291,560

 
$
266,104

Less: Income allocated to participating securities
111

 
106

 
596

 
667

Income available to common shareholders
$
56,170

 
$
45,615

 
$
290,964

 
$
265,437

Basic weighted average shares outstanding
102,000

 
101,162

 
101,776

 
96,392

Net income per share - Basic
$
0.55

 
$
0.45

 
$
2.86

 
$
2.76

Diluted Earnings Per Share
 
 
 
 
 
 
 
Net income available to common shareholders
$
56,170

 
$
45,615

 
290,964

 
265,437

Effect of dilutive stock options and other shares

 

 

 

Net income available to common shareholders
$
56,170

 
$
45,615

 
290,964

 
265,437

Basic weighted average shares outstanding
102,000

 
101,162

 
101,776

 
96,392

Additional dilutive stock options and other shares

 
1

 

 
2

Diluted weighted average shares outstanding
102,000

 
101,163

 
101,776

 
96,394

Net income per share - Diluted
$
0.55

 
$
0.45

 
$
2.86

 
$
2.76


There were no out-of-the-money stock options excluded from the computation of diluted earnings per share for the three and nine months ended June 30, 2014 as their exercise price was less than the average market price of the common stock during those periods. As of June 30, 2015 there were no outstanding options.
2014 Equity Offering
On February 18, 2014, we completed the public offering of 9,200,000 shares of our common stock, including the underwriters’ exercise of their overallotment option of 1,200,000 shares under our existing shelf registration statement. The offering was priced at $44.00 and generated net proceeds of $390.2 million, which were used to repay short-term debt outstanding under our commercial paper program, fund infrastructure spending primarily to enhance the safety and reliability of our system and for general corporate purposes.
2011 Share Repurchase Program
We did not repurchase any shares during the nine months ended June 30, 2015 and 2014 under our 2011 share repurchase program, which is scheduled to end on September 30, 2016.

15




5.    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, 2014. Except as noted below, there were no material changes in the terms of our debt instruments during the nine months ended June 30, 2015.
Long-term debt
Long-term debt at June 30, 2015 and September 30, 2014 consisted of the following:
 
 
June 30, 2015
 
September 30, 2014
 
(In thousands)
Unsecured 4.95% Senior Notes, due October 2014
$

 
$
500,000

Unsecured 6.35% Senior Notes, due 2017
250,000

 
250,000

Unsecured 8.50% Senior Notes, due 2019
450,000

 
450,000

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
500,000

 

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

Total long-term debt
2,460,000

 
2,460,000

Less:
 
 
 
Original issue discount on unsecured senior notes and debentures
4,697

 
4,014

 
$
2,455,303

 
$
2,455,986

 
On October 15, 2014, we issued $500 million of 4.125% 30-year unsecured senior notes, which replaced, on a long-term basis, our $500 million unsecured 4.95% senior notes. The effective rate of these notes is 4.086%, after giving effect to the offering costs and the settlement of the associated forward starting interest rate swaps. The net proceeds of approximately $494 million were used to repay our $500 million 4.95% senior unsecured notes at maturity on October 15, 2014.

Short-term debt
Our short-term debt is utilized to fund ongoing working capital needs, such as our seasonal requirements for gas supply, general corporate liquidity and capital expenditures. Our short-term borrowing requirements are affected primarily by the seasonal nature of the natural gas business. Changes in the price of natural gas and the 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.
We currently finance our short-term borrowing requirements through a combination of a $1.25 billion commercial paper program, four committed revolving credit facilities and one uncommitted revolving credit facility with third-party lenders. These facilities provide approximately $1.3 billion of working capital funding. At June 30, 2015 and September 30, 2014 a total of $252.0 million and $196.7 million was outstanding under our commercial paper program.
Regulated Operations
We fund our regulated operations as needed, primarily through our commercial paper program and three committed revolving credit facilities with third-party lenders that provide approximately $1.3 billion of working capital funding, including a five-year $1.25 billion unsecured facility with an accordion feature, which, if utilized would increase the borrowing capacity to $1.5 billion, a $25 million unsecured facility and a $10 million unsecured revolving credit facility, which is used primarily to issue letters of credit. Due to outstanding letters of credit, the total amount available to us under our $10 million revolving credit facility was $4.2 million at June 30, 2015.
In addition to these third-party facilities, our regulated operations have a $500 million intercompany revolving credit facility with AEH, which bears interest at the lower of (i) the Eurodollar rate under the five-year revolving credit facility or

16



(ii) the lowest rate outstanding under the commercial paper program. Applicable state regulatory commissions have approved our use of this facility through December 31, 2015.
Nonregulated Operations
Atmos Energy Marketing, LLC (AEM), which is wholly owned by AEH, has one uncommitted $25 million 364-day bilateral credit facility and one committed $15 million 364-day bilateral credit facility that expire in December 2015. These facilities are used primarily to issue letters of credit. Due to outstanding letters of credit, the total amount available to us under these bilateral credit facilities was $36.0 million at June 30, 2015.
AEH has a $500 million intercompany demand credit facility with AEC. This facility bears interest at a rate equal to the one-month LIBOR rate plus 3.00 percent. Applicable state regulatory commissions have approved our use of this facility through December 31, 2015.
Shelf Registration

We filed a shelf registration statement with the Securities and Exchange Commission (SEC) on March 28, 2013 that originally permitted us to issue a total of $1.75 billion in common stock and/or debt securities. At June 30, 2015, $845 million of securities remain available for issuance under the shelf registration statement until March 28, 2016.
Debt Covenants
The availability of funds under our regulated 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 June 30, 2015, our total-debt-to-total-capitalization ratio, as defined in the agreements, was 47 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.
In addition to these financial covenants, our credit facilities and 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 is not paid at maturity.
We were in compliance with all of our debt covenants as of June 30, 2015. 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.

6.     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 nine months ended June 30, 2015 and 2014 are presented in the following table. Most of these costs are recoverable through our gas distribution rates; however, a portion of these costs is capitalized into our gas distribution rate base. The remaining costs are recorded as a component of operation and maintenance expense. On October 2, 2013, due to the retirement of one of our executive officers, we recognized a settlement loss of $4.5 million associated with our Supplemental Executive Benefits Plan (SEBP). In association with his retirement, on October 2, 2013, we made a $16.8 million benefit payment from the SEBP.

17



 
Three Months Ended June 30
 
Pension Benefits
 
Other Benefits
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Components of net periodic pension cost:
 
 
 
 
 
 
 
Service cost
$
5,051

 
$
4,738

 
$
3,895

 
$
4,196

Interest cost
6,698

 
6,824

 
3,596

 
3,987

Expected return on assets
(6,435
)
 
(5,901
)
 
(1,608
)
 
(1,291
)
Amortization of transition obligation

 

 
69

 
69

Amortization of prior service credit
(48
)
 
(34
)