NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business
Atmos Energy Corporation (“Atmos Energy” or the “Company”) and our subsidiaries are engaged in the regulated natural gas distribution and pipeline and storage businesses. Through our distribution business, we deliver natural gas through sales and transportation arrangements to over
three million
residential, commercial, public-authority and industrial customers through our
six
regulated distribution divisions in the service areas described below:
|
|
|
|
Division
|
|
Service Area
|
Atmos Energy Colorado-Kansas Division
|
|
Colorado, Kansas
|
Atmos Energy Kentucky/Mid-States Division
|
|
Kentucky, Tennessee, Virginia
(1)
|
Atmos Energy Louisiana Division
|
|
Louisiana
|
Atmos Energy Mid-Tex Division
|
|
Texas, including the Dallas/Fort Worth metropolitan area
|
Atmos Energy Mississippi Division
|
|
Mississippi
|
Atmos Energy West Texas Division
|
|
West Texas
|
|
|
(1)
|
Denotes location where we have more limited service areas.
|
In addition, we transport natural gas for others through our distribution system. Our distribution business is subject to federal and state regulation and/or regulation by local authorities in each of the states in which our distribution divisions operate. Our corporate headquarters and shared-services function are located in Dallas, Texas, and our customer support centers are located in Amarillo and Waco, Texas.
Our pipeline and storage business, which is also subject to federal and state regulation, consists of the operations of our Atmos Pipeline–Texas (APT) Division and our Louisiana natural gas transmission business. The APT division transports natural gas to our Mid-Tex Division, transports natural gas for third parties and manages five underground storage reservoirs in Texas. We also provide ancillary services customary to the pipeline industry including parking arrangements, lending and sales of inventory on hand. Our natural gas transmission operations in Louisiana are comprised of a proprietary 21-mile pipeline located in New Orleans, Louisiana that is primarily used to aggregate gas supply for our distribution division in Louisiana under a long-term contract and on a more limited basis, to third parties.
On October 29, 2016, we entered into a Membership Interest Purchase Agreement (the Agreement) with CenterPoint Energy Services, Inc., a subsidiary of CenterPoint Energy, Inc. (CES) to sell all of the equity interests of AEM. The transaction closed on January 3, 2017, with an effective date of
January 1, 2017
. AEM’s historical financial results are reflected in the Company’s consolidated financial statements as discontinued operations, which required retrospective application to financial information for all periods presented. Please refer to Note 15 for further information. Our discontinued natural gas marketing segment was primarily engaged in an unregulated natural gas marketing business, conducted by Atmos Energy Marketing (AEM). The natural gas marketing business operated primarily in the Midwest and Southeast and was based in Houston, Texas. This business provided natural gas management and transportation services to municipalities, regulated distribution companies, including certain divisions of Atmos Energy, and third parties.
2
. Summary of Significant Accounting Policies
Principles of consolidation
— The accompanying consolidated financial statements include the accounts of Atmos Energy Corporation and our wholly-owned subsidiaries. All material intercompany transactions have been eliminated; however, we have not eliminated intercompany profits when such amounts are probable of recovery under the affiliates’ rate regulation process.
Use of estimates
— The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The most significant estimates include the allowance for doubtful accounts, unbilled revenues, contingency accruals, pension and postretirement obligations, deferred income taxes, impairment of long-lived assets, risk management and trading activities, fair value measurements and the valuation of goodwill and other long-lived assets. Actual results could differ from those estimates.
Regulation
— Our distribution and pipeline and storage operations are subject to regulation with respect to rates, service, maintenance of accounting records and various other matters by the respective regulatory authorities in the states in which we operate. Our accounting policies recognize the financial effects of the ratemaking and accounting practices and policies of the various regulatory commissions. Accounting principles generally accepted in the United States require cost-based, rate-
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 that would normally be expensed under accounting principles generally accepted in the United States are permitted to be capitalized or deferred on the balance sheet because it is probable they can be recovered through rates. Further, regulation may impact the period in which revenues or expenses are recognized. The amounts to be recovered or recognized are based upon historical experience and our understanding of the regulations.
We record regulatory assets as a component of other current assets and deferred charges and other assets for costs that have been deferred for which future recovery through customer rates is considered probable. Regulatory liabilities are recorded either on the face of the balance sheet or as a component of current liabilities, deferred income taxes or deferred credits and other liabilities when it is probable that revenues will be reduced for amounts that will be credited to customers through the ratemaking process. Significant regulatory assets and liabilities as of
September 30, 2017
and
2016
included the following:
|
|
|
|
|
|
|
|
|
|
September 30
|
|
2017
|
|
2016
|
|
(In thousands)
|
Regulatory assets:
|
|
|
|
Pension and postretirement benefit costs
(1)
|
$
|
26,826
|
|
|
$
|
132,348
|
|
Infrastructure mechanisms
(2)
|
46,437
|
|
|
42,719
|
|
Deferred gas costs
|
65,714
|
|
|
45,184
|
|
Recoverable loss on reacquired debt
|
11,208
|
|
|
13,761
|
|
Deferred pipeline record collection costs
|
11,692
|
|
|
7,336
|
|
APT annual adjustment mechanism
|
2,160
|
|
|
7,171
|
|
Rate case costs
|
2,629
|
|
|
1,539
|
|
Other
|
10,132
|
|
|
13,565
|
|
|
$
|
176,798
|
|
|
$
|
263,623
|
|
Regulatory liabilities:
|
|
|
|
Regulatory cost of removal obligation
|
$
|
521,330
|
|
|
$
|
476,891
|
|
Deferred gas costs
|
15,559
|
|
|
20,180
|
|
Asset retirement obligation
|
12,827
|
|
|
13,404
|
|
Other
|
5,941
|
|
|
4,250
|
|
|
$
|
555,657
|
|
|
$
|
514,725
|
|
|
|
(1)
|
Includes
$9.4 million
and
$12.4 million
of pension and postretirement expense deferred pursuant to regulatory authorization.
|
|
|
(2)
|
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 the deferred expenses until the next rate proceeding (rate case or annual rate filing), at which time investment and costs would be recovered through base rates.
|
Revenue recognition
— Sales of natural gas to our distribution customers are billed on a monthly basis; however, the billing cycle periods for certain classes of customers do not necessarily coincide with accounting periods used for financial reporting purposes. We follow the revenue accrual method of accounting for distribution segment revenues whereby revenues applicable to gas delivered to customers, but not yet billed under the cycle billing method, are estimated and accrued and the related costs are charged to expense.
On occasion, we are permitted to implement new rates that have not been formally approved by our state regulatory commissions, which are subject to refund. As permitted by accounting principles generally accepted in the United States, we recognize this revenue and establish a reserve for amounts that could be refunded based on our experience for the jurisdiction in which the rates were implemented.
Rates established by regulatory authorities are adjusted for increases and decreases in our purchased gas costs through purchased gas cost adjustment mechanisms. Purchased gas cost adjustment mechanisms provide gas distribution companies a method of recovering purchased gas costs on an ongoing basis without filing a rate case to address all of their non-gas costs. There is no gross profit generated through purchased gas cost adjustments, but they provide a dollar-for-dollar offset to increases or decreases in our distribution segment’s gas costs. The effects of these purchased gas cost adjustment mechanisms are recorded as deferred gas costs on our balance sheet.
Operating revenues for our pipeline and storage segment are recognized in the period in which volumes are transported.
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Discontinued operations
— Accounting policies specific to our discontinued natural gas marketing business are described in more detail in Note 15.
Cash and cash equivalents
— We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Accounts receivable and allowance for doubtful accounts
— Accounts receivable arise from natural gas sales to residential, commercial, industrial, municipal and other customers. We establish an allowance for doubtful accounts to reduce the net receivable balance to the amount we reasonably expect to collect based on our collection experience or where we are aware of a specific customer’s inability or reluctance to pay. However, if circumstances change, our estimate of the recoverability of accounts receivable could be affected. Circumstances which could affect our estimates include, but are not limited to, customer credit issues, the level of natural gas prices, customer deposits and general economic conditions. Accounts are written off once they are deemed to be uncollectible.
Gas stored underground
— Our gas stored underground is comprised of natural gas injected into storage to support the winter season withdrawals for our distribution operations. The average cost method is used for substantially all of our distribution operations. Gas in storage that is retained as cushion gas to maintain reservoir pressure is classified as property, plant and equipment and is valued at cost.
Property, plant and equipment
— Regulated property, plant and equipment is stated at original cost, net of contributions in aid of construction. The cost of additions includes direct construction costs, payroll related costs (taxes, pensions and other fringe benefits), administrative and general costs and an allowance for funds used during construction. The allowance for funds used during construction represents the estimated cost of funds used to finance the construction of major projects and are capitalized in the rate base for ratemaking purposes when the completed projects are placed in service. Interest expense of
$2.5 million
,
$2.8 million
and
$2.3 million
was capitalized in
2017
,
2016
and
2015
.
Major renewals, including replacement pipe, and betterments that are recoverable under our regulatory rate base are capitalized while the costs of maintenance and repairs that are not recoverable through rates are charged to expense as incurred. The costs of large projects are accumulated in construction in progress until the project is completed. When the project is completed, tested and placed in service, the balance is transferred to the regulated plant in service account included in the rate base and depreciation begins.
Regulated property, plant and equipment is depreciated at various rates on a straight-line basis. These rates are approved by our regulatory commissions and are comprised of two components: one based on average service life and one based on cost of removal. Accordingly, we recognize our cost of removal expense as a component of depreciation expense. The related cost of removal accrual is reflected as a regulatory liability on the consolidated balance sheet. At the time property, plant and equipment is retired, removal expenses less salvage, are charged to the regulatory cost of removal accrual. The composite depreciation rate was
3.1 percent
,
3.2 percent
and
3.3 percent
for the fiscal years ended
September 30, 2017
,
2016
and
2015
.
Other property, plant and equipment is stated at cost. Depreciation is generally computed on the straight-line method for financial reporting purposes based upon estimated useful lives.
Asset retirement obligations
— We record a liability at fair value for an asset retirement obligation when the legal obligation to retire the asset has been incurred with an offsetting increase to the carrying value of the related asset. Accretion of the asset retirement obligation due to the passage of time is recorded as an operating expense.
As of
September 30, 2017
and
2016
, we had asset retirement obligations of
$12.8 million
and
$13.4 million
. Additionally, we had
$7.8 million
and
$8.1 million
of asset retirement costs recorded as a component of property, plant and equipment that will be depreciated over the remaining life of the underlying associated assets.
We believe we have a legal obligation to retire our natural gas storage facilities. However, we have not recognized an asset retirement obligation associated with our storage facilities because we are not able to determine the settlement date of this obligation as we do not anticipate taking our storage facilities out of service permanently. Therefore, we cannot reasonably estimate the fair value of this obligation.
Impairment of long-lived assets
— We periodically evaluate whether events or circumstances have occurred that indicate that other long-lived assets may not be recoverable or that the remaining useful life may warrant revision. When such events or circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value will be recovered through the expected future cash flows. In the event the sum of the expected future cash flows resulting from the use of the asset is less than the carrying value of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded.
Goodwill
— We annually evaluate our goodwill balances for impairment during our second fiscal quarter or more frequently as impairment indicators arise. We use a present value technique based on discounted cash flows to estimate the fair
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
value of our reporting units. These calculations are dependent on several subjective factors including the timing of future cash flows, future growth rates and the discount rate. An impairment charge is recognized if the carrying value of a reporting unit’s goodwill exceeds its fair value. During the second quarter of fiscal 2017, we completed our annual goodwill impairment assessment. Based on the assessment performed, we determined that our goodwill was not impaired.
Marketable securities
— As of
September 30, 2017
and
2016
, all of our marketable securities were classified as available for sale. In accordance with the authoritative accounting standards, these securities are reported at market value with unrealized gains and losses shown as a component of accumulated other comprehensive income (loss). We regularly evaluate the performance of these investments on an individual investment by investment basis for impairment, taking into consideration the fund’s purpose, volatility and current returns. If a determination is made that a decline in fair value is other than temporary, the related investment is written down to its estimated fair value.
Financial instruments and hedging activities
— We use financial instruments to mitigate commodity price risk in our
distribution
and
pipeline and storage
segments and to mitigate interest rate risk. The objectives and strategies for using financial instruments have been tailored to our continuing business and are discussed in Note
13
.
We record all of our financial instruments on the balance sheet at fair value
,
with changes in fair value ultimately recorded in the income statement. These financial instruments are reported as risk management assets and liabilities and are classified as current or noncurrent other assets or liabilities based upon the anticipated settlement date of the underlying financial instrument. We record the cash flow impact of our financial instruments in operating cash flows based upon their balance sheet classification.
The timing of when changes in fair value of our financial instruments are recorded in the income statement depends on whether the financial instrument has been designated and qualifies as a part of a hedging relationship or if regulatory rulings require a different accounting treatment. Changes in fair value for financial instruments that do not meet one of these criteria are recognized in the income statement as they occur.
Financial Instruments Associated with Commodity Price Risk
In our
distribution
segment, the costs associated with and the gains and losses arising from the use of financial instruments to mitigate commodity price risk are included in our purchased gas cost adjustment mechanisms in accordance with regulatory requirements. Therefore, changes in the fair value of these financial instruments are initially recorded as a component of deferred gas costs and recognized in the consolidated statement of income as a component of purchased gas cost when the related costs are recovered through our rates and recognized in revenue in accordance with accounting principles generally accepted in the United States. Accordingly, there is no earnings impact on our
distribution
segment as a result of the use of financial instruments.
Financial Instruments Associated with Interest Rate Risk
We manage interest rate risk, primarily when we plan to issue new long-term debt or to refinance existing long-term debt. We currently manage this risk through the use of forward starting interest rate swaps to fix the Treasury yield component of the interest cost associated with anticipated financings. We designate these financial instruments as cash flow hedges at the time the agreements are executed. Unrealized gains and losses associated with the instruments are recorded as a component of accumulated other comprehensive income (loss). When the instruments settle, the realized gain or loss is recorded as a component of accumulated other comprehensive income (loss) and recognized as a component of interest expense over the life of the related financing arrangement. Hedge ineffectiveness to the extent incurred is reported as a component of interest expense. As of
September 30, 2017
,
no
cash was required to be held in margin accounts. As of
September 30, 2016
, the Company netted
$25.7 million
of cash held in margin accounts into its current and noncurrent risk management liabilities.
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 primarily use quoted market prices and other observable market pricing information in valuing our financial assets and liabilities and minimize the use of unobservable pricing inputs in our measurements.
Fair-value estimates also consider our own creditworthiness and the creditworthiness of the counterparties involved. Our counterparties consist primarily of financial institutions and major energy companies. This concentration of counterparties may materially impact our exposure to credit risk resulting from market, economic or regulatory conditions. We seek to minimize counterparty credit risk through an evaluation of their financial condition and credit ratings and the use of collateral requirements under certain circumstances.
Amounts reported at fair value are subject to potentially significant volatility based upon changes in market prices, including, but not limited to, the valuation of the portfolio of our contracts, maturity and settlement of these contracts and newly originated transactions and interest rates, each of which directly affect the estimated fair value of our financial instruments. We
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
believe the market prices and models used to value these financial instruments represent the best information available with respect to closing exchange and over-the-counter quotations, time value and volatility factors underlying the contracts. Values are adjusted to reflect the potential impact of an orderly liquidation of our positions over a reasonable period of time under then current market conditions.
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) and the lowest priority given to unobservable inputs (Level 3). The levels of the hierarchy are described below:
Level 1
— Represents unadjusted quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is defined as a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Prices actively quoted on national exchanges are used to determine the fair value of most of our assets and liabilities recorded on our balance sheet at fair value.
Our Level 1 measurements consist primarily of our available-for-sale securities. The Level 1 measurements for investments in the Atmos Energy Corporation Master Retirement Trust (the Master Trust), Supplemental Executive Benefit Plan and postretirement benefit plan consist primarily of exchange-traded financial instruments.
Level 2
— Represents pricing inputs other than quoted prices included in Level 1 that are either directly or indirectly observable for the asset or liability as of the reporting date. These inputs are derived principally from, or corroborated by, observable market data. Our Level 2 measurements primarily consist of non-exchange-traded financial instruments, such as over-the-counter options and swaps and municipal and corporate bonds where market data for pricing is observable. The Level 2 measurements for investments in our Master Trust, Supplemental Executive Benefit Plan and postretirement benefit plan consist primarily of non-exchange traded financial instruments such as corporate bonds and government securities.
Level 3
— Represents generally unobservable pricing inputs which are developed based on the best information available, including our own internal data, in situations where there is little if any market activity for the asset or liability at the measurement date. The pricing inputs utilized reflect what a market participant would use to determine fair value. We currently do not have any Level 3 investments.
Investments for which fair value is measured at net asset value per share (or its equivalent) using the practical expedient are not categorized within the fair value hierarchy, as required by accounting guidance adopted in the current fiscal year and includes common collective trusts and investments in limited partnerships held by our pension plans, as described in Note 7. The adoption of the new accounting guidance did not have an impact on our results of operations, consolidated balance sheets or cash flows.
Pension and other postretirement plans
— Pension and other postretirement plan costs and liabilities are determined on an actuarial basis and are affected by numerous assumptions and estimates including the market value of plan assets, estimates of the expected return on plan assets, assumed discount rates and current demographic and actuarial mortality data. Our measurement date is September 30. The assumed discount rate and the expected return are the assumptions that generally have the most significant impact on our pension costs and liabilities. The assumed discount rate, the assumed health care cost trend rate and assumed rates of retirement generally have the most significant impact on our postretirement plan costs and liabilities.
The discount rate is utilized principally in calculating the actuarial present value of our pension and postretirement obligation and net pension and postretirement cost. When establishing our discount rate, we consider high quality corporate bond rates based on bonds available in the marketplace that are suitable for settling the obligations, changes in those rates from the prior year and the implied discount rate that is derived from matching our projected benefit disbursements with currently available high quality corporate bonds.
The expected long-term rate of return on assets is utilized in calculating the expected return on plan assets component of the annual pension and postretirement plan cost. We estimate the expected return on plan assets by evaluating expected bond returns, equity risk premiums, asset allocations, the effects of active plan management, the impact of periodic plan asset rebalancing and historical performance. We also consider the guidance from our investment advisors when making a final determination of our expected rate of return on assets. To the extent the actual rate of return on assets realized over the course of a year is greater than or less than the assumed rate, that year’s annual pension or postretirement plan cost is not affected. Rather, this gain or loss is amortized over the expected future working lifetime of the plan participants.
The expected return on plan assets is then calculated by applying the expected long-term rate of return on plan assets to the market-related value of the plan assets. The market-related value of our plan assets represents the fair market value of the plan assets, adjusted to smooth out short-term market fluctuations over a five-year period. The use of this calculation will delay the impact of current market fluctuations on the pension expense for the period.
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We use a corridor approach to amortize actuarial gains and losses. Under this approach, net gains or losses in excess of ten percent of the larger of the pension benefit obligation or the market-related value of the assets are amortized on a straight-line basis. The period of amortization is the average remaining service of active participants who are expected to receive benefits under the plan.
We estimate the assumed health care cost trend rate used in determining our annual postretirement net cost based upon our actual health care cost experience, the effects of recently enacted legislation and general economic conditions. Our assumed rate of retirement is estimated based upon the annual review of our participant census information as of the measurement date.
Income taxes
— Income taxes are determined based on the liability method, which results in income tax assets and liabilities arising from temporary differences. Temporary differences are differences between the tax bases of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. The liability method requires the effect of tax rate changes on accumulated deferred income taxes to be reflected in the period in which the rate change was enacted. The liability method also requires that deferred tax assets be reduced by a valuation allowance unless it is more likely than not that the assets will be realized.
The Company may recognize the tax benefit from uncertain tax positions only if it is at least more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the taxing authorities. We recognize accrued interest related to unrecognized tax benefits as a component of interest expense. We recognize penalties related to unrecognized tax benefits as a component of miscellaneous income (expense) in accordance with regulatory requirements.
Tax collections
— We are allowed to recover from customers revenue-related taxes that are imposed upon us. We record such taxes as operating expenses and record the corresponding customer charges as operating revenues. However, we do collect and remit various other taxes on behalf of various governmental authorities, and we record these amounts in our consolidated balance sheets on a net basis. We do not collect income taxes from our customers on behalf of governmental authorities.
Contingencies
— In the normal course of business, we are confronted with issues or events that may result in a contingent liability. These generally relate to lawsuits, claims made by third parties or the action of various regulatory agencies. For such matters, we record liabilities when they are considered probable and estimable, based on currently available facts and our estimates of the ultimate outcome or resolution of the liability in the future. Actual results may differ from estimates, depending on actual outcomes or changes in the facts or expectations surrounding each potential exposure.
Recent accounting pronouncements
— 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, an entity 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 may need to use more judgment and make more estimates than under current guidance. The new guidance will become effective for us 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.
As of September 30, 2017, we have substantially completed the evaluation of our sources of revenue and the impact that the new guidance will have on our financial position, results of operations, cash flows and business processes. Based on this evaluation, we currently do not believe the implementation of the new guidance will have a material effect on our financial position, results of operations, cash flows or business processes. We expect to apply the new guidance using the modified retrospective method, which will result in a cumulative-effect adjustment on the date of adoption. We are currently still evaluating the impact to our financial statement presentation and related disclosures.
In January 2016, the FASB issued guidance related to the classification and measurement of financial instruments. The amendments modify the accounting and presentation for certain financial liabilities and equity investments not consolidated or reported using the equity method. The guidance is effective for us beginning October 1, 2018; limited early adoption is permitted. We are currently evaluating the potential impact of this new guidance.
In February 2016, the 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. The new standard will be effective for us beginning on October 1, 2019; early adoption is permitted. The new leasing standard requires modified retrospective transition, which requires application of the new guidance at the beginning of the earliest comparative period presented in the year of adoption. We are currently evaluating the effect on our financial position, results of operations and cash flows.
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 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 beginning on October 1, 2019. We are currently evaluating the potential impact of this new guidance.
In January 2017, the FASB issued new guidance that simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill impairment test. Under the new guidance, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The new standard will be effective for our fiscal 2021 goodwill impairment test; however, early adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of the new standard will have no impact on our results of operations, consolidated balance sheets or cash flows.
In March 2017, the FASB issued new guidance related to the income statement presentation of the components of net periodic benefit cost for an entity’s sponsored defined benefit pension and other postretirement plans. The new guidance requires entities to disaggregate the current service cost component of the net periodic benefit cost from the other components and present it with other current compensation costs for related employees in the statement of income. The other components of net periodic benefit cost will be presented outside of income from operations on the statement of income. In addition, only the service cost component of net periodic benefit cost is eligible for capitalization (e.g., as part of property, plant, and equipment). However, we believe that we will be allowed to defer the other components of net periodic benefit cost as a regulatory asset and that we will still be allowed to capitalize all components of net periodic benefit cost for ratemaking purposes. The new guidance is effective for us in the fiscal year beginning on October 1, 2018 and for interim periods within that year. We are currently evaluating the potential impact of this new guidance on our financial position, results of operations and cash flows.
3. Segment Information
As of September 30, 2017, we manage and review our consolidated operations through the following
three
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
natural gas marketing
segment
is comprised of our discontinued natural gas marketing business.
|
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 distribution segment operations are geographically dispersed, they are aggregated and reported as a single segment as each natural gas distribution division has similar economic characteristics. In addition, because the pipeline and storage operations of our Atmos Pipeline-Texas division and our natural gas transmission operations in Louisiana have similar economic characteristics, they have been aggregated and reported as a single segment.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. We evaluate performance based on net income or loss of the respective operating units. We allocate interest and pension expense to the pipeline and storage segment; however, there is no debt or pension liability recorded on the pipeline and storage segment balance sheet. All material intercompany transactions have been eliminated; however, we have not eliminated intercompany profits when such amounts are probable of recovery under the affiliates’ rate regulation process. Income taxes are allocated to each segment as if each segment’s taxes were calculated on a separate return basis.
Summarized income statements and capital expenditures by segment are shown in the following tables.
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2017
|
|
Distribution
|
|
Pipeline and Storage
|
|
Natural Gas Marketing
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Operating revenues from external parties
|
$
|
2,647,813
|
|
|
$
|
111,922
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,759,735
|
|
Intersegment revenues
|
1,362
|
|
|
345,108
|
|
|
—
|
|
|
(346,470
|
)
|
|
—
|
|
Total operating revenues
|
2,649,175
|
|
|
457,030
|
|
|
—
|
|
|
(346,470
|
)
|
|
2,759,735
|
|
Purchased gas cost
|
1,269,456
|
|
|
2,506
|
|
|
—
|
|
|
(346,426
|
)
|
|
925,536
|
|
Operation and maintenance expense
|
413,077
|
|
|
133,765
|
|
|
—
|
|
|
(44
|
)
|
|
546,798
|
|
Depreciation and amortization expense
|
249,071
|
|
|
70,377
|
|
|
—
|
|
|
—
|
|
|
319,448
|
|
Taxes, other than income
|
211,929
|
|
|
28,478
|
|
|
—
|
|
|
—
|
|
|
240,407
|
|
Operating income
|
505,642
|
|
|
221,904
|
|
|
—
|
|
|
—
|
|
|
727,546
|
|
Miscellaneous expense
|
(1,695
|
)
|
|
(1,575
|
)
|
|
—
|
|
|
—
|
|
|
(3,270
|
)
|
Interest charges
|
79,789
|
|
|
40,393
|
|
|
—
|
|
|
—
|
|
|
120,182
|
|
Income from continuing operations before income taxes
|
424,158
|
|
|
179,936
|
|
|
—
|
|
|
—
|
|
|
604,094
|
|
Income tax expense
|
155,789
|
|
|
65,594
|
|
|
—
|
|
|
—
|
|
|
221,383
|
|
Income from continuing operations
|
268,369
|
|
|
114,342
|
|
|
—
|
|
|
—
|
|
|
382,711
|
|
Income from discontinued operations, net of tax
|
—
|
|
|
—
|
|
|
10,994
|
|
|
—
|
|
|
10,994
|
|
Gain on sale of discontinued operations, net of tax
|
—
|
|
|
—
|
|
|
2,716
|
|
|
—
|
|
|
2,716
|
|
Net income
|
$
|
268,369
|
|
|
$
|
114,342
|
|
|
$
|
13,710
|
|
|
$
|
—
|
|
|
$
|
396,421
|
|
Capital expenditures
|
$
|
849,950
|
|
|
$
|
287,139
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,137,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2016
|
|
Distribution
|
|
Pipeline and Storage
|
|
Natural Gas Marketing
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Operating revenues from external parties
|
$
|
2,338,404
|
|
|
$
|
116,244
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,454,648
|
|
Intersegment revenues
|
1,374
|
|
|
310,952
|
|
|
—
|
|
|
(312,326
|
)
|
|
—
|
|
Total operating revenues
|
2,339,778
|
|
|
427,196
|
|
|
—
|
|
|
(312,326
|
)
|
|
2,454,648
|
|
Purchased gas cost
|
1,058,576
|
|
|
(58
|
)
|
|
—
|
|
|
(312,326
|
)
|
|
746,192
|
|
Operation and maintenance expense
|
407,982
|
|
|
130,610
|
|
|
—
|
|
|
—
|
|
|
538,592
|
|
Depreciation and amortization expense
|
234,109
|
|
|
56,682
|
|
|
—
|
|
|
—
|
|
|
290,791
|
|
Taxes, other than income
|
197,227
|
|
|
24,616
|
|
|
—
|
|
|
—
|
|
|
221,843
|
|
Operating income
|
441,884
|
|
|
215,346
|
|
|
—
|
|
|
—
|
|
|
657,230
|
|
Miscellaneous income (expense)
|
1,171
|
|
|
(1,405
|
)
|
|
—
|
|
|
—
|
|
|
(234
|
)
|
Interest charges
|
78,238
|
|
|
36,574
|
|
|
—
|
|
|
—
|
|
|
114,812
|
|
Income from continuing operations before income taxes
|
364,817
|
|
|
177,367
|
|
|
—
|
|
|
—
|
|
|
542,184
|
|
Income tax expense
|
130,987
|
|
|
65,655
|
|
|
—
|
|
|
—
|
|
|
196,642
|
|
Income from continuing operations
|
233,830
|
|
|
111,712
|
|
|
—
|
|
|
—
|
|
|
345,542
|
|
Income from discontinued operations, net of tax
|
—
|
|
|
—
|
|
|
4,562
|
|
|
—
|
|
|
4,562
|
|
Net income
|
$
|
233,830
|
|
|
$
|
111,712
|
|
|
$
|
4,562
|
|
|
$
|
—
|
|
|
$
|
350,104
|
|
Capital expenditures
|
$
|
740,246
|
|
|
$
|
346,383
|
|
|
$
|
321
|
|
|
$
|
—
|
|
|
$
|
1,086,950
|
|
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2015
|
|
Distribution
|
|
Pipeline and Storage
|
|
Natural Gas Marketing
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Operating revenues from external parties
|
$
|
2,819,977
|
|
|
$
|
107,008
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,926,985
|
|
Intersegment revenues
|
1,385
|
|
|
277,949
|
|
|
—
|
|
|
(279,334
|
)
|
|
—
|
|
Total operating revenues
|
2,821,362
|
|
|
384,957
|
|
|
—
|
|
|
(279,334
|
)
|
|
2,926,985
|
|
Purchased gas cost
|
1,574,447
|
|
|
562
|
|
|
—
|
|
|
(279,334
|
)
|
|
1,295,675
|
|
Operation and maintenance expense
|
393,504
|
|
|
122,902
|
|
|
—
|
|
|
—
|
|
|
516,406
|
|
Depreciation and amortization expense
|
224,094
|
|
|
48,314
|
|
|
—
|
|
|
—
|
|
|
272,408
|
|
Taxes, other than income
|
206,625
|
|
|
23,639
|
|
|
—
|
|
|
—
|
|
|
230,264
|
|
Operating income
|
422,692
|
|
|
189,540
|
|
|
—
|
|
|
—
|
|
|
612,232
|
|
Miscellaneous income (expense)
|
284
|
|
|
(1,103
|
)
|
|
—
|
|
|
—
|
|
|
(819
|
)
|
Interest charges
|
83,087
|
|
|
33,154
|
|
|
—
|
|
|
—
|
|
|
116,241
|
|
Income from continuing operations before income taxes
|
339,889
|
|
|
155,283
|
|
|
—
|
|
|
—
|
|
|
495,172
|
|
Income tax expense
|
134,069
|
|
|
55,480
|
|
|
—
|
|
|
—
|
|
|
189,549
|
|
Income from continuing operations
|
205,820
|
|
|
99,803
|
|
|
—
|
|
|
—
|
|
|
305,623
|
|
Income from discontinued operations, net of tax
|
—
|
|
|
—
|
|
|
9,452
|
|
|
—
|
|
|
9,452
|
|
Net income
|
$
|
205,820
|
|
|
$
|
99,803
|
|
|
$
|
9,452
|
|
|
$
|
—
|
|
|
$
|
315,075
|
|
Capital expenditures
|
$
|
670,620
|
|
|
$
|
292,775
|
|
|
$
|
226
|
|
|
$
|
—
|
|
|
$
|
963,621
|
|
The following table summarizes our revenues from external parties by products and services for the fiscal year ended September 30.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
(In thousands)
|
Distribution revenues:
|
|
|
|
|
|
Gas sales revenues:
|
|
|
|
|
|
Residential
|
$
|
1,642,918
|
|
|
$
|
1,477,049
|
|
|
$
|
1,761,689
|
|
Commercial
|
708,167
|
|
|
619,979
|
|
|
772,187
|
|
Industrial
|
133,372
|
|
|
98,439
|
|
|
131,034
|
|
Public authority and other
|
45,820
|
|
|
41,307
|
|
|
53,401
|
|
Total gas sales revenues
|
2,530,277
|
|
|
2,236,774
|
|
|
2,718,311
|
|
Transportation revenues
|
86,332
|
|
|
76,690
|
|
|
72,340
|
|
Other gas revenues
|
31,204
|
|
|
24,940
|
|
|
29,326
|
|
Total distribution revenues
|
2,647,813
|
|
|
2,338,404
|
|
|
2,819,977
|
|
Pipeline and storage revenues
|
111,922
|
|
|
116,244
|
|
|
107,008
|
|
Total operating revenues
|
$
|
2,759,735
|
|
|
$
|
2,454,648
|
|
|
$
|
2,926,985
|
|
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Balance sheet information at
September 30, 2017
and
2016
by segment is presented in the following tables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
Distribution
|
|
Pipeline and Storage
|
|
Natural Gas Marketing
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Property, plant and equipment, net
|
$
|
6,849,517
|
|
|
$
|
2,409,665
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,259,182
|
|
Total assets
|
$
|
10,050,164
|
|
|
$
|
2,621,601
|
|
|
$
|
—
|
|
|
$
|
(1,922,169
|
)
|
|
$
|
10,749,596
|
|
Deferred income tax liabilities
|
$
|
1,271,808
|
|
|
$
|
606,891
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,878,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
Distribution
|
|
Pipeline and Storage
|
|
Natural Gas Marketing
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Property, plant and equipment, net
(1)
|
$
|
6,208,465
|
|
|
$
|
2,060,141
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,268,606
|
|
Total assets
|
$
|
9,321,815
|
|
|
$
|
2,283,864
|
|
|
$
|
216,715
|
|
|
$
|
(1,811,505
|
)
|
|
$
|
10,010,889
|
|
Deferred income tax liabilities
|
$
|
1,055,348
|
|
|
$
|
543,390
|
|
|
$
|
4,318
|
|
|
$
|
—
|
|
|
$
|
1,603,056
|
|
|
|
(1)
|
Natural gas marketing had net property, plant and equipment of
$11.9 million
classified as assets held for sale on the consolidated balance sheet at September 30, 2016.
|
4. Earnings Per Share
Since we have non-vested share-based payments with a nonforfeitable right to dividends or dividend equivalents (referred to as participating securities), we are required to use the two-class method of computing earnings per share. The Company’s non-vested restricted stock units, granted under the 1998 Long-Term Incentive Plan, for which vesting is predicated solely on the passage of time, are considered to be participating securities. 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 fiscal years ended September 30 are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
(In thousands, except per share data)
|
Basic and Diluted Earnings Per Share from continuing operations
|
|
|
|
|
|
Income from continuing operations
|
$
|
382,711
|
|
|
$
|
345,542
|
|
|
$
|
305,623
|
|
Less: Income from continuing operations allocated to participating securities
|
475
|
|
|
538
|
|
|
607
|
|
Income from continuing operations available to common shareholders
|
$
|
382,236
|
|
|
$
|
345,004
|
|
|
$
|
305,016
|
|
Basic and diluted weighted average shares outstanding
|
106,100
|
|
|
103,524
|
|
|
101,892
|
|
Income from continuing operations per share — Basic and Diluted
|
$
|
3.60
|
|
|
$
|
3.33
|
|
|
$
|
3.00
|
|
|
|
|
|
|
|
Basic and Diluted Earnings Per Share from discontinued operations
|
|
|
|
|
|
Income from discontinued operations
|
$
|
13,710
|
|
|
$
|
4,562
|
|
|
$
|
9,452
|
|
Less: Income from discontinued operations allocated to participating securities
|
12
|
|
|
8
|
|
|
19
|
|
Income from discontinued operations available to common shareholders
|
$
|
13,698
|
|
|
$
|
4,554
|
|
|
$
|
9,433
|
|
Basic and diluted weighted average shares outstanding
|
106,100
|
|
|
103,524
|
|
|
101,892
|
|
Income from discontinued operations per share - Basic and Diluted
|
$
|
0.13
|
|
|
$
|
0.05
|
|
|
$
|
0.09
|
|
Net Income per share — Basic and Diluted
|
$
|
3.73
|
|
|
$
|
3.38
|
|
|
$
|
3.09
|
|
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
5
. Debt
Long-term debt
Long-term debt at
September 30, 2017
and
2016
consisted of the following:
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
(In thousands)
|
Unsecured 6.35% Senior Notes, due June 2017
|
—
|
|
|
250,000
|
|
Unsecured 8.50% Senior Notes, due March 2019
|
450,000
|
|
|
450,000
|
|
Unsecured 3.00% Senior Notes, due 2027
|
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
|
|
|
500,000
|
|
Medium term Series A notes, 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 June 2019
|
125,000
|
|
|
—
|
|
Total long-term debt
|
3,085,000
|
|
|
2,460,000
|
|
Less:
|
|
|
|
Original issue (premium) discount on unsecured senior notes and debentures
|
(4,384
|
)
|
|
4,270
|
|
Debt issuance cost
|
22,339
|
|
|
16,951
|
|
Current maturities
|
—
|
|
|
250,000
|
|
|
$
|
3,067,045
|
|
|
$
|
2,188,779
|
|
Maturities of long-term debt at
September 30, 2017
were as follows (in thousands):
|
|
|
|
|
2018
|
$
|
—
|
|
2019
|
575,000
|
|
2020
|
—
|
|
2021
|
—
|
|
2022
|
—
|
|
Thereafter
|
2,510,000
|
|
|
$
|
3,085,000
|
|
On June 8, 2017, we completed a public offering of
$500 million
of
3.00%
senior notes due 2027 and
$250 million
of
4.125%
senior notes due 2044. The effective rate of these notes is
3.12%
and
4.40%
, after giving effect to the offering costs and the settlement of the associated forward starting interest rate swaps. The net proceeds, excluding the loss on the settlement of the interest rate swaps of
$37 million
, of approximately
$753 million
were used to repay our
$250 million
6.35%
senior unsecured notes at maturity on
June 15, 2017
and for general corporate purposes, including the repayment of working capital borrowings pursuant to our commercial paper program.
On September 22, 2016, we entered into a three year,
$200 million
multi-draw term loan agreement with a syndicate of three lenders. Borrowings under the term loan may be made in increments of
$1.0 million
or higher, may be repaid at any time during the loan period and will bear interest at a rate dependent upon our credit ratings at the time of such borrowing and based, at our election, on a base rate or LIBOR for the applicable interest period. The term loan was used to refinance existing indebtedness and for working capital, capital expenditures and other general corporate purposes. At
September 30, 2017
, there was
$125.0 million
of borrowings outstanding under the term loan. At
September 30, 2016
, there were
no
borrowings outstanding.
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-capitalization ratio between
50%
and
60%
, inclusive of long-term and short-term debt. 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
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 that expires September 25, 2021. The facility bears interest at a base rate or at a LIBOR-based rate for the applicable interest period, plus a spread 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
. This facility was amended in October 2016 to increase the total availability from
$1.25 billion
. At
September 30, 2017
and
2016
, there was
$447.7 million
and
$829.8 million
outstanding under our commercial paper program with weighted average interest rates of
1.25%
and
0.81%
, with average maturities of less than two months.
Additionally, we have a
$25 million
unsecured facility, which was renewed on April 1, 2017, and a
$10 million
unsecured revolving credit facility, which was renewed on September 30, 2017. At
September 30, 2017
, 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
unsecured revolving facility to
$4.2 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 our five-year unsecured facility to maintain, at the end of each fiscal quarter, a ratio of total debt to total capitalization of no greater than
70 percent
. At
September 30, 2017
, our total-debt-to-total-capitalization ratio, as defined, was
48 percent
. In addition, both the interest margin over the Eurodollar rate and the fee that we pay on unused amounts under each 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 is not paid at maturity. We were in compliance with all of our debt covenants as of
September 30, 2017
. 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. Shareholders' Equity
Shelf Registration
On March 28, 2016, we filed a registration statement with the Securities and Exchange Commission (SEC) that originally permitted us to issue, from time to time, up to
$2.5 billion
in common stock and/or debt securities, which replaced our registration statement that expired on March 28, 2016. At
September 30, 2017
,
$1.6 billion
of securities remain available for issuance under the shelf registration statement.
At-the-Market Equity Sales Program
On March 28, 2016, we entered into an at-the-market (ATM) equity distribution agreement (the Agreement) with Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. in their capacity as agents and/or as principals (Agents). Under the terms of the Agreement, we were permitted to issue and sell, through any of the Agents, shares of our common stock, up to an aggregate offering price of
$200 million
, through the period ended March 28, 2019. During fiscal 2017, we sold
1,303,494
shares of common stock under the ATM program for
$100.0 million
and received net proceeds of
$98.8 million
. During fiscal 2016, we sold
1,360,756
shares of common stock under the ATM program for
$100.0 million
and received net proceeds of
$98.6 million
. The shares were issued pursuant to our shelf registration statement filed with the SEC on March 28, 2016. At
September 30, 2017
, substantially all shares had been issued under our ATM program.
1998 Long-Term Incentive Plan
In August 1998, the Board of Directors approved and adopted the 1998 Long-Term Incentive Plan (LTIP), which became effective in October 1998 after approval by our shareholders. The LTIP is a comprehensive, long-term incentive compensation plan providing for discretionary awards of incentive stock options, non-qualified stock options, stock appreciation rights, bonus stock, time-lapse restricted stock, time-lapse restricted stock units, performance-based restricted stock units and stock units to
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
certain employees and non-employee directors of the Company and our subsidiaries. The objectives of this plan include attracting and retaining the best available personnel, providing for additional performance incentives and promoting our success by providing employees with the opportunity to acquire our common stock.
As of September 30, 2015, we were authorized to grant awards for up to a maximum of
8.7 million
shares of common stock under this plan subject to certain adjustment provisions. In February 2016, our shareholders voted to increase the number of authorized LTIP shares by
2.5 million
shares and to extend the term of the plan for an additional five years, through September 2021. On March 29, 2016, we filed with the SEC a registration statement on Form S-8 to register the additional
2.5 million
shares; we also listed such shares with the New York Stock Exchange. As of
September 30, 2017
, we were authorized to grant awards for up to a maximum of
11.2 million
shares of common stock under this plan subject to certain adjustment provisions.
Accumulated Other Comprehensive Income (Loss)
We record deferred gains (losses) in accumulated other comprehensive income (AOCI) related to available-for-sale securities, interest rate agreement cash flow hedges and commodity contract cash flow hedges. Deferred gains (losses) for our available-for-sale securities and commodity contract cash flow hedges 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-
for-Sale
Securities
|
|
Interest
Rate
Agreement
Cash Flow
Hedges
|
|
Commodity
Contracts
Cash Flow
Hedges
|
|
Total
|
|
(In thousands)
|
September 30, 2016
|
$
|
4,484
|
|
|
$
|
(187,524
|
)
|
|
$
|
(4,982
|
)
|
|
$
|
(188,022
|
)
|
Other comprehensive income (loss) before reclassifications
|
2,502
|
|
|
74,560
|
|
|
9,847
|
|
|
86,909
|
|
Amounts reclassified from accumulated other comprehensive income
|
62
|
|
|
662
|
|
|
(4,865
|
)
|
|
(4,141
|
)
|
Net current-period other comprehensive income
|
2,564
|
|
|
75,222
|
|
|
4,982
|
|
|
82,768
|
|
September 30, 2017
|
$
|
7,048
|
|
|
$
|
(112,302
|
)
|
|
$
|
—
|
|
|
$
|
(105,254
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-
for-Sale
Securities
|
|
Interest
Rate
Agreement
Cash Flow
Hedges
|
|
Commodity
Contracts
Cash Flow
Hedges
|
|
Total
|
|
(In thousands)
|
September 30, 2015
|
$
|
4,949
|
|
|
$
|
(88,842
|
)
|
|
$
|
(25,437
|
)
|
|
$
|
(109,330
|
)
|
Other comprehensive income (loss) before reclassifications
|
(263
|
)
|
|
(99,029
|
)
|
|
(11,662
|
)
|
|
(110,954
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
(202
|
)
|
|
347
|
|
|
32,117
|
|
|
32,262
|
|
Net current-period other comprehensive income (loss)
|
(465
|
)
|
|
(98,682
|
)
|
|
20,455
|
|
|
(78,692
|
)
|
September 30, 2016
|
$
|
4,484
|
|
|
$
|
(187,524
|
)
|
|
$
|
(4,982
|
)
|
|
$
|
(188,022
|
)
|
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following tables detail reclassifications out of AOCI for the fiscal years ended
September 30, 2017
and
2016
. Amounts in parentheses below indicate decreases to net income in the statement of income.
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30, 2017
|
Accumulated Other Comprehensive Income Components
|
Amount Reclassified from
Accumulated Other
Comprehensive Income
|
|
Affected Line Item in the
Statement of Income
|
|
(In thousands)
|
|
|
Available-for-sale securities
|
$
|
(97
|
)
|
|
Operation and maintenance expense
|
|
(97
|
)
|
|
Total before tax
|
|
35
|
|
|
Tax benefit
|
|
$
|
(62
|
)
|
|
Net of tax
|
Cash flow hedges
|
|
|
|
Interest rate agreements
|
$
|
(1,043
|
)
|
|
Interest charges
|
Commodity contracts
|
7,967
|
|
|
Purchased gas cost
(1)
|
|
6,924
|
|
|
Total before tax
|
|
(2,721
|
)
|
|
Tax expense
|
|
$
|
4,203
|
|
|
Net of tax
|
Total reclassifications
|
$
|
4,141
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30, 2016
|
Accumulated Other Comprehensive Income Components
|
Amount Reclassified from
Accumulated Other
Comprehensive Income
|
|
Affected Line Item in the
Statement of Income
|
|
(In thousands)
|
|
|
Available-for-sale securities
|
$
|
318
|
|
|
Operation and maintenance expense
|
|
318
|
|
|
Total before tax
|
|
(116
|
)
|
|
Tax expense
|
|
$
|
202
|
|
|
Net of tax
|
Cash flow hedges
|
|
|
|
Interest rate agreements
|
$
|
(546
|
)
|
|
Interest charges
|
Commodity contracts
|
(52,651
|
)
|
|
Purchased gas cost
(1)
|
|
(53,197
|
)
|
|
Total before tax
|
|
20,733
|
|
|
Tax benefit
|
|
$
|
(32,464
|
)
|
|
Net of tax
|
Total reclassifications
|
$
|
(32,262
|
)
|
|
Net of tax
|
|
|
(1)
|
Amounts are presented as part of income from discontinued operations on the consolidated statements of income.
|
7
. Retirement and Post-Retirement Employee Benefit Plans
We have both funded and unfunded noncontributory defined benefit plans that together cover most of our employees. We also maintain post-retirement plans that provide health care benefits to retired employees. Finally, we sponsor a defined contribution plan that cover substantially all employees. These plans are discussed in further detail below.
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As a rate regulated entity, we generally recover our pension costs in our rates over a period of up to
15
years. The amounts that have not yet been recognized in net periodic pension cost that have been recorded as regulatory assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined
Benefits Plan
|
|
Supplemental
Executive
Retirement Plans
|
|
Postretirement
Plans
|
|
Total
|
|
(In thousands)
|
September 30, 2017
|
|
|
|
|
|
|
|
Unrecognized prior service credit
|
$
|
(1,278
|
)
|
|
$
|
—
|
|
|
$
|
1,309
|
|
|
$
|
31
|
|
Unrecognized actuarial (gain) loss
|
62,388
|
|
|
42,170
|
|
|
(87,196
|
)
|
|
17,362
|
|
|
$
|
61,110
|
|
|
$
|
42,170
|
|
|
$
|
(85,887
|
)
|
|
$
|
17,393
|
|
September 30, 2016
|
|
|
|
|
|
|
|
Unrecognized prior service credit
|
$
|
(1,509
|
)
|
|
$
|
—
|
|
|
$
|
(2,880
|
)
|
|
$
|
(4,389
|
)
|
Unrecognized actuarial (gain) loss
|
127,028
|
|
|
51,558
|
|
|
(54,298
|
)
|
|
124,288
|
|
|
$
|
125,519
|
|
|
$
|
51,558
|
|
|
$
|
(57,178
|
)
|
|
$
|
119,899
|
|
Defined Benefit Plans
Employee Pension Plan
As of
September 30, 2017
, we maintained one defined benefit plan, the Atmos Energy Corporation Pension Account Plan (the Plan). The assets of the Plan are held within the Atmos Energy Corporation Master Retirement Trust (the Master Trust). The Plan is a cash balance pension plan that was established effective January 1999 and covers most of the employees of Atmos Energy that were hired before September 30, 2010. The plan was closed to new participants effective October 1, 2010.
Opening account balances were established for participants as of January 1999 equal to the present value of their respective accrued benefits under the pension plans which were previously in effect as of December 31, 1998. The Plan credits an allocation to each participant’s account at the end of each year according to a formula based on the participant’s age, service and total pay (excluding incentive pay). In addition, at the end of each year, a participant’s account is credited with interest on the employee’s prior year account balance. Participants are fully vested in their account balances after
three
years of service and may choose to receive their account balances as a lump sum or an annuity.
Generally, our funding policy is to contribute annually an amount in accordance with the requirements of the Employee Retirement Income Security Act of 1974, including the funding requirements under the Pension Protection Act of 2006 (PPA). However, additional voluntary contributions are made from time to time as considered necessary. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future.
During fiscal
2017
and
2016
we contributed
$5.0 million
and
$15.0 million
in cash to the Plan to achieve a desired level of funding while maximizing the tax deductibility of this payment. Based upon market conditions at
September 30, 2017
, the current funded position of the Plan and the funding requirements under the PPA, we do not anticipate a minimum required contribution for fiscal
2018
. However, we may consider whether a voluntary contribution is prudent to maintain certain funding levels.
We make investment decisions and evaluate performance of the assets in the Master Trust on a medium-term horizon of at least
three
to
five
years. We also consider our current financial status when making recommendations and decisions regarding the Master Trust’s assets. Finally, we strive to ensure the Master Trust’s assets are appropriately invested to maintain an acceptable level of risk and meet the Master Trust’s long-term asset investment policy adopted by the Board of Directors.
To achieve these objectives, we invest the Master Trust’s assets in equity securities, fixed income securities, interests in commingled pension trust funds, other investment assets and cash and cash equivalents. Investments in equity securities are diversified among the market’s various subsectors in an effort to diversify risk and maximize returns. Fixed income securities are invested in investment grade securities. Cash equivalents are invested in securities that either are short term (less than 180 days) or readily convertible to cash with modest risk.
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents asset allocation information for the Master Trust as of
September 30, 2017
and
2016
.
|
|
|
|
|
|
|
|
|
|
Targeted
Allocation Range
|
|
Actual
Allocation
September 30
|
Security Class
|
2017
|
|
2016
|
Domestic equities
|
35%-55%
|
|
43.9
|
%
|
|
40.5
|
%
|
International equities
|
10%-20%
|
|
17.2
|
%
|
|
15.5
|
%
|
Fixed income
|
5%-30%
|
|
10.6
|
%
|
|
11.2
|
%
|
Company stock
|
0%-15%
|
|
11.8
|
%
|
|
15.1
|
%
|
Other assets
|
0%-20%
|
|
16.5
|
%
|
|
17.7
|
%
|
At
September 30, 2017
and
2016
, the Plan held
716,700
and
956,700
shares of our common stock which represented
11.8 percent
and
15.1 percent
of total Plan assets. These shares generated dividend income for the Plan of approximately
$1.7 million
and
$1.8 million
during fiscal
2017
and
2016
.
Our employee pension plan expenses and liabilities are determined on an actuarial basis and are affected by numerous assumptions and estimates including the market value of plan assets, estimates of the expected return on plan assets and assumed discount rates and demographic data. We review the estimates and assumptions underlying our employee pension plans annually based upon a September 30 measurement date. The development of our assumptions is fully described in our significant accounting policies in Note
2
. The actuarial assumptions used to determine the pension liability for the Plan was determined as of
September 30, 2017
and
2016
and the actuarial assumptions used to determine the net periodic pension cost for the Plan was determined as of
September 30, 2016
,
2015
and
2014
. On
October 20, 2017
, the Society of Actuaries released its annually-updated mortality improvement scale for pension plans incorporating new assumptions surrounding life expectancies in the United States. As of September 30, 2017, we updated our assumed mortality rates to incorporate the updated mortality table.
Additional assumptions are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Liability
|
|
Pension Cost
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2015
|
Discount rate
|
3.89
|
%
|
|
3.73
|
%
|
|
3.73
|
%
|
|
4.55
|
%
|
|
4.43
|
%
|
Rate of compensation increase
|
3.50
|
%
|
|
3.50
|
%
|
|
3.50
|
%
|
|
3.50
|
%
|
|
3.50
|
%
|
Expected return on plan assets
|
6.75
|
%
|
|
7.00
|
%
|
|
7.00
|
%
|
|
7.00
|
%
|
|
7.25
|
%
|
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents the Plan’s accumulated benefit obligation, projected benefit obligation and funded status as of
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
(In thousands)
|
Accumulated benefit obligation
|
$
|
505,355
|
|
|
$
|
516,924
|
|
Change in projected benefit obligation:
|
|
|
|
Benefit obligation at beginning of year
|
$
|
545,480
|
|
|
$
|
508,599
|
|
Service cost
|
18,109
|
|
|
16,419
|
|
Interest cost
|
20,443
|
|
|
23,193
|
|
Actuarial (gain) loss
|
(16,347
|
)
|
|
41,847
|
|
Benefits paid
(1)
|
(34,230
|
)
|
|
(44,578
|
)
|
Benefit obligation at end of year
|
533,455
|
|
|
545,480
|
|
Change in plan assets:
|
|
|
|
Fair value of plan assets at beginning of year
|
473,950
|
|
|
450,932
|
|
Actual return on plan assets
|
63,524
|
|
|
52,596
|
|
Employer contributions
|
5,000
|
|
|
15,000
|
|
Benefits paid
(1)
|
(34,230
|
)
|
|
(44,578
|
)
|
Fair value of plan assets at end of year
|
508,244
|
|
|
473,950
|
|
Reconciliation:
|
|
|
|
Funded status
|
(25,211
|
)
|
|
(71,530
|
)
|
Unrecognized prior service cost
|
—
|
|
|
—
|
|
Unrecognized net loss
|
—
|
|
|
—
|
|
Accrued pension cost
|
$
|
(25,211
|
)
|
|
$
|
(71,530
|
)
|
|
|
(1)
|
Includes
$12.8 million
of one-time payments to eligible deferred vested participants who elected to receive a lump-sum payout of their pension benefits during fiscal 2016.
|
Net periodic pension cost for the Plan for fiscal
2017
,
2016
and
2015
is recorded as operating expense and included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30
|
|
2017
|
|
2016
|
|
2015
|
|
(In thousands)
|
Components of net periodic pension cost:
|
|
|
|
|
|
Service cost
|
$
|
18,109
|
|
|
$
|
16,419
|
|
|
$
|
16,231
|
|
Interest cost
|
20,443
|
|
|
23,193
|
|
|
21,850
|
|
Expected return on assets
|
(27,975
|
)
|
|
(27,522
|
)
|
|
(25,744
|
)
|
Amortization of prior service credit
|
(231
|
)
|
|
(226
|
)
|
|
(192
|
)
|
Recognized actuarial loss
|
12,744
|
|
|
10,693
|
|
|
13,322
|
|
Net periodic pension cost
|
$
|
23,090
|
|
|
$
|
22,557
|
|
|
$
|
25,467
|
|
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table sets forth by level, within the fair value hierarchy, the Plan's assets at fair value as of
September 30, 2017
and
2016
. As required by authoritative accounting literature, assets are categorized in their entirety based on the lowest level of input that is significant to the fair value measurement. The methods used to determine fair value for the assets held by the Plan are fully described in Note
2
. Investments in our common/collective trusts and limited partnerships that are measured at net asset value per share equivalent are not classified in the fair value hierarchy. The net asset value amounts presented are intended to reconcile the fair value hierarchy to the total investments. In addition to the assets shown below, the Plan had net accounts receivable of
$0.6 million
and
$2.6 million
at
September 30, 2017
and
2016
which materially approximates fair value due to the short-term nature of these assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of September 30, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(In thousands)
|
Investments:
|
|
|
|
|
|
|
|
Common stocks
|
$
|
164,910
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
164,910
|
|
Money market funds
|
—
|
|
|
9,588
|
|
|
—
|
|
|
9,588
|
|
Registered investment companies
|
64,102
|
|
|
—
|
|
|
—
|
|
|
64,102
|
|
Government securities:
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
—
|
|
|
15,664
|
|
|
—
|
|
|
15,664
|
|
U.S. treasuries
|
5,129
|
|
|
822
|
|
|
—
|
|
|
5,951
|
|
Corporate bonds
|
—
|
|
|
32,314
|
|
|
—
|
|
|
32,314
|
|
Total investments at fair value
|
$
|
234,141
|
|
|
$
|
58,388
|
|
|
$
|
—
|
|
|
292,529
|
|
Investments measured at net asset value:
|
|
|
|
|
|
|
|
Common/collective trusts
(1)
|
|
|
|
|
|
|
150,976
|
|
Limited partnerships
(1)
|
|
|
|
|
|
|
64,135
|
|
Total investments at fair value
|
|
|
|
|
|
|
$
|
507,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of September 30, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(In thousands)
|
Investments:
|
|
|
|
|
|
|
|
Common stocks
|
$
|
157,111
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
157,111
|
|
Money market funds
|
—
|
|
|
11,522
|
|
|
—
|
|
|
11,522
|
|
Registered investment companies
|
87,396
|
|
|
—
|
|
|
—
|
|
|
87,396
|
|
Government securities:
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
—
|
|
|
15,223
|
|
|
—
|
|
|
15,223
|
|
U.S. treasuries
|
4,704
|
|
|
863
|
|
|
—
|
|
|
5,567
|
|
Corporate bonds
|
—
|
|
|
31,929
|
|
|
—
|
|
|
31,929
|
|
Total assets in the fair value hierarchy
|
$
|
249,211
|
|
|
$
|
59,537
|
|
|
$
|
—
|
|
|
308,748
|
|
Investments measured at net asset value:
|
|
|
|
|
|
|
|
Common/collective trusts
(1)
|
|
|
|
|
|
|
105,124
|
|
Limited partnerships
(1)
|
|
|
|
|
|
|
57,438
|
|
Total investments at fair value
|
|
|
|
|
|
|
$
|
471,310
|
|
|
|
(1)
|
The fair value of our common/collective trusts and limited partnerships are measured using the net asset value per share practical expedient. There are no redemption restrictions, redemption notice periods or unfunded commitments for these investments. The redemption frequency is daily.
|
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Supplemental Executive Retirement Plans
We have three nonqualified supplemental plans which provide additional pension, disability and death benefits to our officers, division presidents and certain other employees of the Company.
The first plan is referred to as the Supplemental Executive Benefits Plan (SEBP) and covers our officers, division presidents and certain other employees of the Company who were employed on or before August 12, 1998. The SEBP is a defined benefit arrangement which provides a benefit equal to
75
percent of covered compensation under which benefits paid from the underlying qualified defined benefit plan are an offset to the benefits under the SEBP.
In August 1998, we adopted the Supplemental Executive Retirement Plan (SERP) (formerly known as the Performance-Based Supplemental Executive Benefits Plan), which covers all officers or division presidents selected to participate in the plan between August 12, 1998 and August 5, 2009 and any corporate officer who was appointed to the Management Committee through December 31, 2016. The SERP is a defined benefit arrangement which provides a benefit equal to
60
percent of covered compensation under which benefits paid from the underlying qualified defined benefit plan are an offset to the benefits under the SERP.
Effective August 5, 2009, we adopted a new defined benefit Supplemental Executive Retirement Plan (the 2009 SERP), for corporate officers, division presidents or any other employees selected at the discretion of the Board. Under the 2009 SERP, a nominal account has been established for each participant, to which the Company contributes at the end of each calendar year an amount equal to
ten
percent (
25
percent for members of the Management Committee appointed on or after January 1, 2017) of the total of each participant’s base salary and cash incentive compensation earned during each prior calendar year, beginning December 31, 2009. The benefits vest after
three years
of service and attainment of age
55
and earn interest credits at the same annual rate as the Company’s Pension Account Plan (currently
4.69%
).
Due to the departure of certain executives in February 2017, we recognized a settlement loss of $2.7 million associated with our SEBP and made an $8.6 million benefit payment during the fourth quarter of fiscal 2017.
Similar to our employee pension plans, we review the estimates and assumptions underlying our supplemental plans annually based upon a September 30 measurement date using the same techniques as our employee pension plans. The actuarial assumptions used to determine the pension liability for the supplemental plans were determined as of
September 30, 2017
and
2016
and the actuarial assumptions used to determine the net periodic pension cost for the supplemental plans were determined as of
September 30, 2016
,
2015
and
2014
. These assumptions are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Liability
|
|
Pension Cost
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2015
|
Discount rate
|
3.89
|
%
|
|
3.73
|
%
|
|
3.73
|
%
|
|
4.55
|
%
|
|
4.43
|
%
|
Rate of compensation increase
|
3.50
|
%
|
|
3.50
|
%
|
|
3.50
|
%
|
|
3.50
|
%
|
|
3.50
|
%
|
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents the supplemental plans’ accumulated benefit obligation, projected benefit obligation and funded status as of
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
(In thousands)
|
Accumulated benefit obligation
|
$
|
130,070
|
|
|
$
|
137,616
|
|
Change in projected benefit obligation:
|
|
|
|
Benefit obligation at beginning of year
|
$
|
142,574
|
|
|
$
|
122,393
|
|
Service cost
|
2,756
|
|
|
2,371
|
|
Interest cost
|
4,744
|
|
|
5,185
|
|
Actuarial (gain) loss
|
(2,452
|
)
|
|
17,229
|
|
Benefits paid
|
(4,588
|
)
|
|
(4,604
|
)
|
Settlements
|
(8,554
|
)
|
|
—
|
|
Benefit obligation at end of year
|
134,480
|
|
|
142,574
|
|
Change in plan assets:
|
|
|
|
Fair value of plan assets at beginning of year
|
—
|
|
|
—
|
|
Employer contribution
|
13,142
|
|
|
4,604
|
|
Benefits paid
|
(4,588
|
)
|
|
(4,604
|
)
|
Settlements
|
(8,554
|
)
|
|
—
|
|
Fair value of plan assets at end of year
|
—
|
|
|
—
|
|
Reconciliation:
|
|
|
|
Funded status
|
(134,480
|
)
|
|
(142,574
|
)
|
Unrecognized prior service cost
|
—
|
|
|
—
|
|
Unrecognized net loss
|
—
|
|
|
—
|
|
Accrued pension cost
|
$
|
(134,480
|
)
|
|
$
|
(142,574
|
)
|
Assets for the supplemental plans are held in separate rabbi trusts. At
September 30, 2017
and
2016
, assets held in the rabbi trusts consisted of available-for-sale securities of
$42.9 million
and
$41.3 million
, which are included in our fair value disclosures in Note
14
.
Net periodic pension cost for the supplemental plans for fiscal
2017
,
2016
and
2015
is recorded as operating expense and included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30
|
|
2017
|
|
2016
|
|
2015
|
|
(In thousands)
|
Components of net periodic pension cost:
|
|
|
|
|
|
Service cost
|
$
|
2,756
|
|
|
$
|
2,371
|
|
|
$
|
3,971
|
|
Interest cost
|
4,744
|
|
|
5,185
|
|
|
4,943
|
|
Amortization of transition asset
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of prior service cost
|
—
|
|
|
—
|
|
|
—
|
|
Recognized actuarial loss
|
4,251
|
|
|
2,586
|
|
|
2,343
|
|
Settlements
|
2,685
|
|
|
—
|
|
|
—
|
|
Net periodic pension cost
|
$
|
14,436
|
|
|
$
|
10,142
|
|
|
$
|
11,257
|
|
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Estimated Future Benefit Payments
The following benefit payments for our defined benefit plans, which reflect expected future service, as appropriate, are expected to be paid in the following fiscal years:
|
|
|
|
|
|
|
|
|
|
Pension
Plan
|
|
Supplemental
Plans
|
|
(In thousands)
|
2018
|
$
|
32,173
|
|
|
$
|
18,411
|
|
2019
|
32,903
|
|
|
23,000
|
|
2020
|
34,314
|
|
|
4,701
|
|
2021
|
36,487
|
|
|
4,609
|
|
2022
|
37,857
|
|
|
17,520
|
|
2023-2027
|
204,690
|
|
|
48,415
|
|
Postretirement Benefits
We sponsor the Retiree Medical Plan for Retirees and Disabled Employees of Atmos Energy Corporation (the Atmos Retiree Medical Plan). This plan provides medical and prescription drug protection to all qualified participants based on their date of retirement. The Atmos Retiree Medical Plan provides different levels of benefits depending on the level of coverage chosen by the participants and the terms of predecessor plans; however, we generally pay
80
percent of the projected net claims and administrative costs and participants pay the remaining
20
percent of this cost. Effective January 1, 2015, for employees who had not met the participation requirements by September 30, 2009, the contribution rates for the Company will be limited to a
three percent
cost increase in claims and administrative costs each year, with the participant responsible for the additional costs.
Generally, our funding policy is to contribute annually an amount in accordance with the requirements of ERISA. However, additional voluntary contributions are made annually as considered necessary. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. We expect to contribute between
$10 million
and
$20 million
to our postretirement benefits plan during fiscal
2018
.
We maintain a formal investment policy with respect to the assets in our postretirement benefits plan to ensure the assets funding the postretirement benefit plan are appropriately invested to maintain an acceptable level of risk. We also consider our current financial status when making recommendations and decisions regarding the postretirement benefits plan.
We currently invest the assets funding our postretirement benefit plan in diversified investment funds which consist of common stocks, preferred stocks and fixed income securities. The diversified investment funds may invest up to
75
percent of assets in common stocks and convertible securities. The following table presents asset allocation information for the postretirement benefit plan assets as of
September 30, 2017
and
2016
.
|
|
|
|
|
|
|
|
Actual
Allocation
September 30
|
Security Class
|
2017
|
|
2016
|
Diversified investment funds
|
97.5
|
%
|
|
97.2
|
%
|
Cash and cash equivalents
|
2.5
|
%
|
|
2.8
|
%
|
Similar to our employee pension and supplemental plans, we review the estimates and assumptions underlying our postretirement benefit plan annually based upon a September 30 measurement date using the same techniques as our employee pension plans. The actuarial assumptions used to determine the pension liability for our postretirement plan were determined as of
September 30, 2017
and
2016
and the actuarial assumptions used to determine the net periodic pension cost for the postretirement plan were determined as of
September 30, 2016
,
2015
and
2014
. The assumptions are presented in the following table:
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
Liability
|
|
Postretirement Cost
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2015
|
Discount rate
|
3.89
|
%
|
|
3.73
|
%
|
|
3.73
|
%
|
|
4.55
|
%
|
|
4.43
|
%
|
Expected return on plan assets
|
4.29
|
%
|
|
4.45
|
%
|
|
4.45
|
%
|
|
4.45
|
%
|
|
4.60
|
%
|
Initial trend rate
|
7.00
|
%
|
|
7.50
|
%
|
|
7.50
|
%
|
|
7.50
|
%
|
|
7.50
|
%
|
Ultimate trend rate
|
5.00
|
%
|
|
5.00
|
%
|
|
5.00
|
%
|
|
5.00
|
%
|
|
5.00
|
%
|
Ultimate trend reached in
|
2022
|
|
|
2022
|
|
|
2022
|
|
|
2021
|
|
|
2020
|
|
The following table presents the postretirement plan’s benefit obligation and funded status as of
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
(In thousands)
|
Change in benefit obligation:
|
|
|
|
Benefit obligation at beginning of year
|
$
|
279,222
|
|
|
$
|
267,179
|
|
Service cost
|
12,436
|
|
|
10,823
|
|
Interest cost
|
10,679
|
|
|
12,424
|
|
Plan participants’ contributions
|
4,936
|
|
|
4,289
|
|
Actuarial gain
|
(21,750
|
)
|
|
(1,052
|
)
|
Benefits paid
|
(13,970
|
)
|
|
(14,441
|
)
|
Plan amendments
|
2,545
|
|
|
—
|
|
Benefit obligation at end of year
|
274,098
|
|
|
279,222
|
|
Change in plan assets:
|
|
|
|
Fair value of plan assets at beginning of year
|
158,977
|
|
|
138,009
|
|
Actual return on plan assets
|
21,160
|
|
|
14,528
|
|
Employer contributions
|
13,687
|
|
|
16,592
|
|
Plan participants’ contributions
|
4,936
|
|
|
4,289
|
|
Benefits paid
|
(13,970
|
)
|
|
(14,441
|
)
|
Fair value of plan assets at end of year
|
184,790
|
|
|
158,977
|
|
Reconciliation:
|
|
|
|
Funded status
|
(89,308
|
)
|
|
(120,245
|
)
|
Unrecognized transition obligation
|
—
|
|
|
—
|
|
Unrecognized prior service cost
|
—
|
|
|
—
|
|
Unrecognized net loss
|
—
|
|
|
—
|
|
Accrued postretirement cost
|
$
|
(89,308
|
)
|
|
$
|
(120,245
|
)
|
Net periodic postretirement cost for fiscal
2017
,
2016
and
2015
is recorded as operating expense and included the components presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30
|
|
2017
|
|
2016
|
|
2015
|
|
(In thousands)
|
Components of net periodic postretirement cost:
|
|
|
|
|
|
Service cost
|
$
|
12,436
|
|
|
$
|
10,823
|
|
|
$
|
15,583
|
|
Interest cost
|
10,679
|
|
|
12,424
|
|
|
14,385
|
|
Expected return on assets
|
(7,185
|
)
|
|
(6,264
|
)
|
|
(6,431
|
)
|
Amortization of transition obligation
|
—
|
|
|
82
|
|
|
272
|
|
Amortization of prior service credit
|
(1,644
|
)
|
|
(1,644
|
)
|
|
(1,644
|
)
|
Recognized actuarial (gain) loss
|
(2,827
|
)
|
|
(2,167
|
)
|
|
—
|
|
Net periodic postretirement cost
|
$
|
11,459
|
|
|
$
|
13,254
|
|
|
$
|
22,165
|
|
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Assumed health care cost trend rates have a significant effect on the amounts reported for the plan. A one-percentage point change in assumed health care cost trend rates would have the following effects on the latest actuarial calculations:
|
|
|
|
|
|
|
|
|
|
One-Percentage
Point Increase
|
|
One-Percentage
Point Decrease
|
|
(In thousands)
|
Effect on total service and interest cost components
|
$
|
4,526
|
|
|
$
|
(3,584
|
)
|
Effect on postretirement benefit obligation
|
$
|
41,259
|
|
|
$
|
(33,863
|
)
|
We are currently recovering other postretirement benefits costs through our regulated rates in substantially all of our service areas under accrual accounting as prescribed by accounting principles generally accepted in the United States. Other postretirement benefits costs have been specifically addressed in rate orders in each jurisdiction served by our Kentucky/Mid-States, West Texas, Mid-Tex and Mississippi Divisions as well as our Kansas jurisdiction and Atmos Pipeline – Texas or have been included in a rate case and not disallowed. Management believes that this accounting method is appropriate and will continue to seek rate recovery of accrual-based expenses in its ratemaking jurisdictions that have not yet approved the recovery of these expenses.
The following tables set forth by level, within the fair value hierarchy, the Retiree Medical Plan’s assets at fair value as of
September 30, 2017
and
2016
. The methods used to determine fair value for the assets held by the Retiree Medical Plan are fully described in Note
2
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of September 30, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(In thousands)
|
Investments:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
—
|
|
|
$
|
4,534
|
|
|
$
|
—
|
|
|
$
|
4,534
|
|
Registered investment companies
|
180,256
|
|
|
—
|
|
|
—
|
|
|
180,256
|
|
Total investments at fair value
|
$
|
180,256
|
|
|
$
|
4,534
|
|
|
$
|
—
|
|
|
$
|
184,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of September 30, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(In thousands)
|
Investments:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
—
|
|
|
$
|
4,470
|
|
|
$
|
—
|
|
|
$
|
4,470
|
|
Registered investment companies
|
154,507
|
|
|
—
|
|
|
—
|
|
|
154,507
|
|
Total investments at fair value
|
$
|
154,507
|
|
|
$
|
4,470
|
|
|
$
|
—
|
|
|
$
|
158,977
|
|
Estimated Future Benefit Payments
The following benefit payments paid by us, retirees and prescription drug subsidy payments for our postretirement benefit plans, which reflect expected future service, as appropriate, are expected to be paid in the following fiscal years. Company payments for fiscal
2017
include contributions to our postretirement plan trusts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
Payments
|
|
Retiree
Payments
|
|
Subsidy
Payments
|
|
Total
Postretirement
Benefits
|
|
(In thousands)
|
2018
|
$
|
15,387
|
|
|
$
|
3,392
|
|
|
$
|
—
|
|
|
$
|
18,779
|
|
2019
|
12,140
|
|
|
3,751
|
|
|
—
|
|
|
15,891
|
|
2020
|
12,658
|
|
|
4,171
|
|
|
—
|
|
|
16,829
|
|
2021
|
13,571
|
|
|
4,704
|
|
|
—
|
|
|
18,275
|
|
2022
|
14,523
|
|
|
5,282
|
|
|
—
|
|
|
19,805
|
|
2023-2027
|
85,118
|
|
|
35,165
|
|
|
—
|
|
|
120,283
|
|
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Defined Contribution Plan
The Atmos Energy Corporation Retirement Savings Plan and Trust (the Retirement Savings Plan) covers substantially all employees and is subject to the provisions of Section 401(k) of the Internal Revenue Code. Effective January 1, 2007, employees automatically become participants of the Retirement Savings Plan on the date of employment. Participants may elect a salary reduction up to a maximum of
65 percent
of eligible compensation, as defined by the Plan, not to exceed the maximum allowed by the Internal Revenue Service. New participants are automatically enrolled in the Plan at a salary reduction amount of
four percent
of eligible compensation, from which they may opt out. We match
100 percent
of a participant’s contributions, limited to
four percent
of the participant’s salary. Participants are eligible to receive matching contributions after completing
one
year of service, in which they are immediately vested. Participants are also permitted to take out a loan against their accounts subject to certain restrictions. Employees hired on or after October 1, 2010 participate in the enhanced plan in which participants receive a fixed annual contribution of
four
percent of eligible earnings to their Retirement Savings Plan account. Participants will continue to be eligible for company matching contributions of up to
four
percent of their eligible earnings and will be fully vested in the fixed annual contribution after
three
years of service. Prior to December 31, 2015, we also maintained the AEH 401(k) Profit-Sharing Plan, which covered substantially all AEH employees.
Matching and fixed annual contributions to the Retirement Savings Plan and the AEH 401(k) Profit-Sharing Plan are expensed as incurred and amounted to
$15.4 million
,
$15.8 million
and
$14.8 million
for fiscal years
2017
,
2016
and
2015
. At
September 30, 2017
and
2016
, the Retirement Savings Plan held
3.7 percent
and
4.2 percent
of our outstanding common stock.
8. Stock and Other Compensation Plans
Stock-Based Compensation Plans
Total stock-based compensation cost was
$23.1 million
,
$24.6 million
and
$27.5 million
for the fiscal years ended
September 30, 2017
,
2016
and
2015
. Of this amount,
$9.0 million
,
$9.8 million
and
$11.5 million
was capitalized. Tax benefits related to stock-based compensation were
$4.4 million
,
$5.0 million
and
$4.7 million
for the fiscal years ended
September 30, 2017
,
2016
and
2015
.
1998 Long-Term Incentive Plan
We have a Long-Term Incentive Plan (LTIP), which provides a long-term incentive compensation plan providing for discretionary awards of incentive stock options, non-qualified stock options, stock appreciation rights, bonus stock, time-lapse restricted stock, time-lapse restricted stock units, performance-based restricted stock units and stock units to certain employees and non-employee directors of the Company and our subsidiaries. The objectives of this plan include attracting and retaining the best available personnel, providing for additional performance incentives and promoting our success by providing employees with the opportunity to acquire common stock.
As of
September 30, 2017
, we were authorized to grant awards for up to a maximum of
11.2 million
shares of common stock under this plan subject to certain adjustment provisions. As of
September 30, 2017
, non-qualified stock options, bonus stock, time-lapse restricted stock, time-lapse restricted stock units, performance-based restricted stock units and stock units had been issued under this plan, and
2.0 million
shares were available for future issuance.
Restricted Stock Units Award Grants
As noted above, the LTIP provides for discretionary awards of restricted stock units to help attract, retain and reward employees of Atmos Energy and its subsidiaries. Certain of these awards vest based upon the passage of time and other awards vest based upon the passage of time and the achievement of specified performance targets. The fair value of the awards granted is based on the market price of our stock at the date of grant. We estimate forfeitures using our historical forfeiture rate. The associated expense is recognized ratably over the vesting period. We use authorized and unissued shares to meet share requirements for the vesting of restricted stock units.
Employees who are granted time-lapse restricted stock units under our LTIP have a nonforfeitable right to dividend equivalents that are paid at the same rate and at the same time at which they are paid on shares of stock without restrictions. Time-lapse restricted stock units contain only a service condition that the employee recipients render continuous services to the Company for a period of three years from the date of grant, except for accelerated vesting in the event of death, disability, change of control of the Company or termination without cause (with certain exceptions). There are no performance conditions required to be met for employees to be vested in time-lapse restricted stock units.
Employees who are granted performance-based restricted stock units under our LTIP have a forfeitable right to dividend equivalents that accrue at the same rate at which they are paid on shares of stock without restrictions. Dividend equivalents on the performance-based restricted stock units are paid either in cash or in the form of shares upon the vesting of the award.
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Performance-based restricted stock units contain a service condition that the employee recipients render continuous services to the Company for a period of three years from the beginning of the applicable three-year performance period, except for accelerated vesting in the event of death, disability, change of control of the Company or termination without cause (with certain exceptions) and a performance condition based on a cumulative earnings per share target amount.
The following summarizes information regarding the restricted stock units granted under the plan during the fiscal years ended
September 30, 2017
,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Number of
Restricted
Units
|
|
Weighted
Average
Grant-Date
Fair
Value
|
|
Number of
Restricted
Units
|
|
Weighted
Average
Grant-Date
Fair
Value
|
|
Number of
Restricted
Units
|
|
Weighted
Average
Grant-Date
Fair
Value
|
Nonvested at beginning of year
|
782,431
|
|
|
$
|
57.66
|
|
|
878,104
|
|
|
$
|
48.24
|
|
|
988,637
|
|
|
$
|
42.22
|
|
Granted
|
273,497
|
|
|
74.15
|
|
|
357,323
|
|
|
65.98
|
|
|
444,543
|
|
|
50.50
|
|
Vested
|
(448,326
|
)
|
|
52.23
|
|
|
(448,136
|
)
|
|
45.88
|
|
|
(551,688
|
)
|
|
39.28
|
|
Forfeited
|
(36,788
|
)
|
|
63.48
|
|
|
(4,860
|
)
|
|
53.52
|
|
|
(3,388
|
)
|
|
48.55
|
|
Nonvested at end of year
|
570,814
|
|
|
$
|
69.45
|
|
|
782,431
|
|
|
$
|
57.66
|
|
|
878,104
|
|
|
$
|
48.24
|
|
As of
September 30, 2017
, there was
$10.9 million
of total unrecognized compensation cost related to nonvested restricted stock units granted under the LTIP. That cost is expected to be recognized over a weighted-average period of
1.6 years
. The fair value of restricted stock vested during the fiscal years ended
September 30, 2017
,
2016
and
2015
was
$23.4 million
,
$20.6 million
and
$21.7 million
.
Other Plans
Direct Stock Purchase Plan
We maintain a Direct Stock Purchase Plan, open to all investors, which allows participants to have all or part of their cash dividends paid quarterly in additional shares of our common stock. The minimum initial investment required to join the plan is
$1,250
. Direct Stock Purchase Plan participants may purchase additional shares of our common stock as often as weekly with voluntary cash payments of at least
$25
, up to an annual maximum of
$100,000
.
Equity Incentive and Deferred Compensation Plan for Non-Employee Directors
We have an Equity Incentive and Deferred Compensation Plan for Non–Employee Directors, which provides non-employee directors of Atmos Energy with the opportunity to defer receipt, until retirement, of compensation for services rendered to the Company and invest deferred compensation into either a cash account or a stock account. The plan provides non-employee directors of Atmos Energy with the opportunity to defer receipt, until retirement, of compensation for services rendered to the Company and invest deferred compensation into either a cash account or a stock account.
Other Discretionary Compensation Plans
We have an annual incentive program covering substantially all employees to give each employee an opportunity to share in our financial success based on the achievement of key performance measures considered critical to achieving business objectives for a given year with minimum and maximum thresholds. The Company must meet the minimum threshold for the plan to be funded and distributed to employees. These performance measures may include earnings growth objectives, improved cash flow objectives or crucial customer satisfaction and safety results. We monitor progress towards the achievement of the performance measures throughout the year and record accruals based upon the expected payout using the best estimates available at the time the accrual is recorded. During the last several fiscal years, we have used earnings per share as our sole performance measure.
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
9. Details of Selected Consolidated Balance Sheet Captions
The following tables provide additional information regarding the composition of certain of our balance sheet captions. Assets held for sale at September 30, 2016 are detailed in Note 15.
Accounts receivable
Accounts receivable was comprised of the following at
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
September 30
|
|
2017
|
|
2016
|
|
(In thousands)
|
Billed accounts receivable
|
$
|
135,091
|
|
|
$
|
120,128
|
|
Unbilled revenue
|
73,143
|
|
|
67,396
|
|
Other accounts receivable
|
24,894
|
|
|
39,412
|
|
Total accounts receivable
|
233,128
|
|
|
226,936
|
|
Less: allowance for doubtful accounts
|
(10,865
|
)
|
|
(11,056
|
)
|
Net accounts receivable
|
$
|
222,263
|
|
|
$
|
215,880
|
|
Other current assets
Other current assets as of
September 30, 2017
and
2016
were comprised of the following accounts.
|
|
|
|
|
|
|
|
|
|
September 30
|
|
2017
|
|
2016
|
|
(In thousands)
|
Deferred gas costs
|
$
|
65,714
|
|
|
$
|
45,184
|
|
Prepaid expenses
|
32,163
|
|
|
21,489
|
|
Taxes receivable
|
—
|
|
|
5,456
|
|
Materials and supplies
|
4,472
|
|
|
5,825
|
|
Assets from risk management activities
|
2,436
|
|
|
3,029
|
|
Other
|
1,536
|
|
|
7,102
|
|
Total
|
$
|
106,321
|
|
|
$
|
88,085
|
|
Property, plant and equipment
Property, plant and equipment was comprised of the following as of
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
September 30
|
|
2017
|
|
2016
|
|
(In thousands)
|
Production plant
|
$
|
66
|
|
|
$
|
66
|
|
Storage plant
|
369,510
|
|
|
353,523
|
|
Transmission plant
|
2,521,671
|
|
|
2,232,927
|
|
Distribution plant
|
7,306,021
|
|
|
6,598,990
|
|
General plant
|
765,662
|
|
|
732,606
|
|
Intangible plant
|
38,980
|
|
|
40,515
|
|
|
11,001,910
|
|
|
9,958,627
|
|
Construction in progress
|
299,394
|
|
|
183,879
|
|
|
11,301,304
|
|
|
10,142,506
|
|
Less: accumulated depreciation and amortization
|
(2,042,122
|
)
|
|
(1,873,900
|
)
|
Net property, plant and equipment
(1)
|
$
|
9,259,182
|
|
|
$
|
8,268,606
|
|
|
|
(1)
|
Net property, plant and equipment includes plant acquisition adjustments of
$(64.1)
million and
$(59.8)
million at
September 30, 2017
and
2016
.
|
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Goodwill
The following presents our goodwill balance allocated by segment and changes in the balance for the fiscal year ended
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
|
|
Pipeline and Storage
|
|
Total
|
|
(In thousands)
|
Balance as of September 30, 2016
(1)
|
$
|
583,950
|
|
|
$
|
143,012
|
|
|
$
|
726,962
|
|
Allocation of goodwill due to disposal of Natural Gas Marketing operations
|
2,711
|
|
|
—
|
|
|
2,711
|
|
Deferred tax adjustments on prior acquisitions
(2)
|
419
|
|
|
40
|
|
|
459
|
|
Balance as of September 30, 2017
|
$
|
587,080
|
|
|
$
|
143,052
|
|
|
$
|
730,132
|
|
|
|
(1)
|
Our discontinued natural gas marketing segment had
$16.4 million
of goodwill at
September 30, 2016
. Of this amount,
$13.7 million
was written off in connection with the sale and the remaining
$2.7 million
was reallocated to the distribution segment.
|
|
|
(2)
|
We annually adjust certain deferred taxes recorded in connection with acquisitions completed in fiscal 2001 and fiscal 2004, which resulted in an increase to goodwill and net deferred tax liabilities of
$0.5 million
for fiscal
2017
.
|
Deferred charges and other assets
Deferred charges and other assets as of
September 30, 2017
and
2016
were comprised of the following accounts.
|
|
|
|
|
|
|
|
|
|
September 30
|
|
2017
|
|
2016
|
|
(In thousands)
|
Marketable securities
|
$
|
88,409
|
|
|
$
|
72,701
|
|
Regulatory assets
|
110,977
|
|
|
214,890
|
|
Assets from risk management activities
|
803
|
|
|
1,822
|
|
Other
|
20,447
|
|
|
15,606
|
|
Total
|
$
|
220,636
|
|
|
$
|
305,019
|
|
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities as of
September 30, 2017
and
2016
were comprised of the following accounts.
|
|
|
|
|
|
|
|
|
|
September 30
|
|
2017
|
|
2016
|
|
(In thousands)
|
Trade accounts payable
|
$
|
143,422
|
|
|
$
|
114,361
|
|
Accrued gas payable
|
50,253
|
|
|
47,107
|
|
Accrued liabilities
|
39,375
|
|
|
35,017
|
|
Total
|
$
|
233,050
|
|
|
$
|
196,485
|
|
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other current liabilities
Other current liabilities as of
September 30, 2017
and
2016
were comprised of the following accounts.
|
|
|
|
|
|
|
|
|
|
September 30
|
|
2017
|
|
2016
|
|
(In thousands)
|
Customer credit balances and deposits
|
$
|
54,627
|
|
|
$
|
81,219
|
|
Accrued employee costs
|
46,653
|
|
|
47,058
|
|
Deferred gas costs
|
15,559
|
|
|
20,180
|
|
Accrued interest
|
39,624
|
|
|
34,863
|
|
Liabilities from risk management activities
|
322
|
|
|
56,771
|
|
Taxes payable
|
116,291
|
|
|
104,145
|
|
Pension and postretirement obligations
|
18,411
|
|
|
36,606
|
|
Regulatory cost of removal accrual
|
35,910
|
|
|
52,610
|
|
Other
|
5,251
|
|
|
5,633
|
|
Total
|
$
|
332,648
|
|
|
$
|
439,085
|
|
Deferred credits and other liabilities
Deferred credits and other liabilities as of
September 30, 2017
and
2016
were comprised of the following accounts.
|
|
|
|
|
|
|
|
|
|
September 30
|
|
2017
|
|
2016
|
|
(In thousands)
|
Customer advances for construction
|
$
|
9,309
|
|
|
$
|
9,850
|
|
Regulatory liabilities
|
5,257
|
|
|
4,152
|
|
Asset retirement obligation
|
12,827
|
|
|
13,404
|
|
Liabilities from risk management activities
|
112,076
|
|
|
184,048
|
|
Other
|
36,266
|
|
|
33,920
|
|
Total
|
$
|
175,735
|
|
|
$
|
245,374
|
|
10
. Leases
We have entered into operating leases for office and warehouse space, vehicles and heavy equipment used in our operations. The remaining lease terms range from
one
to
14
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
September 30, 2017
were as follows:
|
|
|
|
|
|
Operating
Leases
|
|
(In thousands)
|
2018
|
$
|
17,170
|
|
2019
|
16,437
|
|
2020
|
15,438
|
|
2021
|
15,238
|
|
2022
|
15,138
|
|
Thereafter
|
35,516
|
|
Total minimum lease payments
|
$
|
114,937
|
|
Consolidated lease and rental expense amounted to
$32.7 million
,
$32.6 million
and
$32.5 million
for fiscal
2017
,
2016
and
2015
.
11
. Commitments and Contingencies
Litigation
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We are a party to various litigation that has arisen in the ordinary course of our business. While the results of such litigation cannot be predicted with certainty, we believe the final outcome of such litigation will not have a material adverse effect on our financial condition, results of operations or cash flows.
Environmental Matters
We are a party to environmental matters and claims that have arisen in the ordinary course of our business. While the ultimate results of response actions to these environmental matters and claims cannot be predicted with certainty, we believe the final outcome of such response actions will not have a material adverse effect on our financial condition, results of operations or cash flows because we believe that the expenditures related to such response actions will either be recovered through rates, shared with other parties or are adequately covered by insurance.
Purchase Commitments
Our distribution and pipeline and storage segments 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 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 trading hubs. At
September 30, 2017
, we were committed to purchase
20.9
Bcf within one year,
37.9
Bcf within two to three years and
0.3
Bcf beyond three years under indexed contracts. Purchases under these contracts totaled
$49.7 million
,
$85.3 million
and
$113.3 million
for
2017
,
2016
and
2015
.
12. Income Taxes
The components of income tax expense from continuing operations for
2017
,
2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
(In thousands)
|
Current
|
|
|
|
|
|
Federal
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
9,022
|
|
|
5,667
|
|
|
6,513
|
|
Deferred
|
|
|
|
|
|
Federal
|
197,013
|
|
|
178,630
|
|
|
170,649
|
|
State
|
15,348
|
|
|
12,350
|
|
|
12,393
|
|
Investment tax credits
|
—
|
|
|
(5
|
)
|
|
(6
|
)
|
|
$
|
221,383
|
|
|
$
|
196,642
|
|
|
$
|
189,549
|
|
Reconciliations of the provision for income taxes computed at the statutory rate to the reported provisions for income taxes from continuing operations for
2017
,
2016
and
2015
are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
(In thousands)
|
Tax at statutory rate of 35%
|
$
|
211,433
|
|
|
$
|
189,764
|
|
|
$
|
173,310
|
|
Common stock dividends deductible for tax reporting
|
(2,584
|
)
|
|
(2,570
|
)
|
|
(2,413
|
)
|
State taxes (net of federal benefit)
|
16,100
|
|
|
11,133
|
|
|
12,289
|
|
Change in valuation allowance
|
—
|
|
|
1,324
|
|
|
4,998
|
|
Other, net
|
(3,566
|
)
|
|
(3,009
|
)
|
|
1,365
|
|
Income tax expense
|
$
|
221,383
|
|
|
$
|
196,642
|
|
|
$
|
189,549
|
|
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Deferred income taxes reflect the tax effect of differences between the basis of assets and liabilities for book and tax purposes. The tax effect of temporary differences that gave rise to significant components of the deferred tax liabilities and deferred tax assets at
September 30, 2017
and
2016
are presented below:
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
(In thousands)
|
Deferred tax assets:
|
|
|
|
Employee benefit plans
|
$
|
121,288
|
|
|
$
|
122,682
|
|
Interest rate agreements
|
65,171
|
|
|
107,782
|
|
Net operating loss carryforwards
|
555,043
|
|
|
514,391
|
|
Charitable and other credit carryforwards
|
18,873
|
|
|
22,273
|
|
Other
|
10,218
|
|
|
23,648
|
|
Total deferred tax assets
|
770,593
|
|
|
790,776
|
|
Valuation allowance
|
(5,403
|
)
|
|
(10,481
|
)
|
Net deferred tax assets
|
765,190
|
|
|
780,295
|
|
Deferred tax liabilities:
|
|
|
|
Difference in net book value and net tax value of assets
|
(2,528,485
|
)
|
|
(2,259,278
|
)
|
Pension funding
|
(13,101
|
)
|
|
(30,652
|
)
|
Gas cost adjustments
|
(60,376
|
)
|
|
(54,725
|
)
|
Other
|
(41,927
|
)
|
|
(38,696
|
)
|
Total deferred tax liabilities
|
(2,643,889
|
)
|
|
(2,383,351
|
)
|
Net deferred tax liabilities
|
$
|
(1,878,699
|
)
|
|
$
|
(1,603,056
|
)
|
Deferred credits for rate regulated entities
|
$
|
985
|
|
|
$
|
861
|
|
At
September 30, 2017
, we had
$532.9 million
of federal net operating loss carryforwards. The federal net operating loss carryforwards are available to offset taxable income and will begin to expire in
2029
. The Company also has
$10.1 million
of federal alternative minimum tax credit carryforwards, which do not expire. In addition, the Company has
$7.6 million
in charitable contribution carryforwards to offset taxable income. The Company’s charitable contribution carryforwards expire in
2018
-
2022
.
For state taxable income, the Company has
$22.1 million
of state net operating loss carryforwards (net of
$11.9 million
of federal effects) and
$1.2 million
of state tax credits carryforwards (net of federal effects). Depending on the jurisdiction in which the state net operating loss was generated, the carryforwards will begin to expire between
2018
and
2032
.
We believe it is more likely than not that the benefit from certain charitable contribution carryforwards, state net operating loss carryforwards and state credit carryforwards will not be realized. Due to the uncertainty of realizing a benefit from the deferred tax asset recorded for the carryforwards, a valuation allowance of
$1.1 million
was established for the year ended
September 30, 2016
.
No
additional valuation allowance was recorded for the year ended
September 30, 2017
. However, at
September 30, 2017
,
$5.1 million
of deferred tax assets expired for which a valuation allowance had previously been recorded.
At
September 30, 2017
, we had recorded liabilities associated with unrecognized tax benefits totaling
$23.7 million
. The following table reconciles the beginning and ending balance of our unrecognized tax benefits:
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
(In thousands)
|
Unrecognized tax benefits - beginning balance
|
$
|
20,298
|
|
|
$
|
17,069
|
|
|
$
|
12,629
|
|
Increase (decrease) resulting from prior period tax positions
|
(366
|
)
|
|
(290
|
)
|
|
1,009
|
|
Increase resulting from current period tax positions
|
3,787
|
|
|
3,519
|
|
|
3,431
|
|
Unrecognized tax benefits - ending balance
|
23,719
|
|
|
20,298
|
|
|
17,069
|
|
Less: deferred federal and state income tax benefits
|
(8,302
|
)
|
|
(7,104
|
)
|
|
(5,974
|
)
|
Total unrecognized tax benefits that, if recognized, would impact the effective income tax rate as of the end of the year
|
$
|
15,417
|
|
|
$
|
13,194
|
|
|
$
|
11,095
|
|
The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expense. During the years ended
September 30, 2017
,
2016
and
2015
, the Company recognized approximately
$1.1 million
,
$2.5 million
and
$0.5 million
in interest and penalties. The Company had approximately
$4.5 million
,
$3.3 million
and
$0.8 million
for the payment of interest and penalties accrued at
September 30, 2017
,
2016
and
2015
.
We file income tax returns in the U.S. federal jurisdiction as well as in various states where we have operations. We have concluded substantially all U.S. federal income tax matters through fiscal year 2009 and concluded substantially all Texas income tax matters through fiscal year 2010.
13
. Financial Instruments
We use financial instruments to mitigate commodity price risk and interest rate risk. Our financial instruments do not contain any credit-risk-related or other contingent features that could cause accelerated payments when our financial instruments are in net liability positions.
As discussed in Note
2
and Note 15, we report our financial instruments as risk management assets and liabilities, each of which is classified as current or noncurrent based upon the anticipated settlement date of the underlying financial instrument. The following table shows the fair values of our risk management assets and liabilities at
September 30, 2017
and
2016
. Risk management assets and liabilities associated with our former natural gas marketing operations have been classified as held for sale at September 30, 2016. These risk management assets and liabilities are presented in Note 15.
|
|
|
|
|
|
|
|
|
|
September 30
|
|
2017
|
|
2016
|
|
(In thousands)
|
|
|
|
|
Assets from risk management activities, current
|
$
|
2,436
|
|
|
$
|
3,029
|
|
Assets from risk management activities, noncurrent
|
803
|
|
|
1,822
|
|
Liabilities from risk management activities, current
(1)
|
(322
|
)
|
|
(56,771
|
)
|
Liabilities from risk management activities, noncurrent
(1)
|
(112,076
|
)
|
|
(184,048
|
)
|
Net assets (liabilities)
|
$
|
(109,159
|
)
|
|
$
|
(235,968
|
)
|
|
|
(1)
|
Includes
$25.7 million
of cash held on deposit to collateralize certain
distribution
financial instruments, which were used to offset current and noncurrent risk management liabilities at
September 30, 2016
.
|
Distribution
Commodity Risk Management Activities
Although our purchased gas cost adjustment mechanisms essentially insulate our
distribution
segment from commodity price risk, 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.
Our
distribution
gas supply department is responsible for executing this segment’s commodity risk management activities in conformity with regulatory requirements. In jurisdictions where we are permitted to mitigate commodity price risk through financial instruments, the relevant regulatory authorities may establish the level of heating season gas purchases that can be hedged. Historically, if the regulatory authority does not establish this level, we seek to hedge between
25
and
50 percent
of anticipated heating season gas purchases using financial instruments. For the
2016
-
2017
heating season (generally October through March), in the jurisdictions where we are permitted to utilize financial instruments, we hedged approximately
27
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
percent
, or approximately
16.2
Bcf of the winter flowing gas requirements at a weighted average cost of approximately
$3.08
per Mcf. We have not designated these financial instruments as hedges.
Natural Gas Marketing
Commodity Risk Management Activities
Our discontinued
natural gas marketing
segment was exposed to risks associated with changes in the market price of natural gas through the purchase, sale and delivery of natural gas to its customers at competitive prices. Through December 31, 2016, we managed our exposure to such risks through a combination of physical storage and financial instruments, including futures, over-the-counter and exchange-traded options and swap contracts with counterparties. Effective January 1, 2017, as a result of the sale of AEM, these activities were discontinued.
Due to the sale of AEM, we determined that the cash flows associated with our natural gas marketing commodity cash flow hedges were no longer probable of occurring; therefore, we discontinued hedge accounting as of December 31, 2016. As a result, we reclassified the gain in accumulated other comprehensive income associated with the commodity contracts into earnings as a reduction of purchased gas cost and recognized a pre-tax gain of
$10.6 million
, which is included in income from discontinued operations on the consolidated statement of income for the year ended September 30, 2017.
Interest Rate Risk Management Activities
We currently manage interest rate risk through the use of forward starting interest rate swaps to fix the Treasury yield component of the interest cost associated with anticipated financings.
In October 2012, we entered into forward starting interest rate swaps to fix the Treasury yield component associated with the then anticipated issuance of
$500 million
senior notes in October 2014. These notes were issued as planned in October 2014 and we settled swaps with the receipt of
$13.4 million
. Because the swaps were effective, the realized gain was recorded as a component of accumulated other comprehensive income and is being recognized as a component of interest expense over the 30-year life of the senior notes.
In October 2012, we entered into forward starting interest rate swaps to fix the Treasury yield component associated with
$210 million
of the then anticipated issuance of
$250 million
unsecured senior notes in June 2017. These notes were issued as planned in June 2017 and we settled swaps with the payment of
$37.0 million
. Because the swaps were effective, the realized loss was recorded as a component of accumulated other comprehensive loss and is being recognized as a component of interest expense over the 27-year life of the senior notes.
Additionally, in fiscal 2014 and 2015, we entered into forward starting interest rate swaps to effectively fix the Treasury yield component associated with
$450 million
of the anticipated issuance of
$450 million
unsecured senior notes in fiscal 2019. We designated all of these swaps as cash flow hedges at the time the agreements were executed. Accordingly, unrealized gains and losses associated with the forward starting interest rate swaps will be recorded as a component of accumulated other comprehensive income (loss). When the forward starting interest rate swaps settle, the realized gain or loss will be recorded as a component of accumulated other comprehensive income (loss) and recognized as a component of interest expense over the life of the related financing arrangement. Hedge ineffectiveness to the extent incurred, will be reported as a component of interest expense.
Prior to fiscal 2012, we entered into several interest rate agreements to fix the Treasury yield component of the interest cost of financing for various issuances of long-term debt and senior notes. The gains and losses realized upon settlement of these interest rate agreements were recorded as a component of accumulated other comprehensive income (loss) when they were settled and are being recognized as a component of interest expense over the life of the associated notes from the date of settlement. The remaining amortization periods for the settled interest rate agreements extend through fiscal 2045.
Quantitative Disclosures Related to Financial Instruments
The following tables present detailed information concerning the impact of financial instruments on our consolidated balance sheet and income statements.
As of
September 30, 2017
, 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
September 30, 2017
, we had
19,172
MMcf of net long commodity contracts outstanding. These contracts have not been designated as hedges.
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Financial Instruments on the Balance Sheet
The following tables present the fair value and balance sheet classification of our financial instruments as of
September 30, 2017
and
2016
. The gross amounts of recognized assets and liabilities are netted within our Consolidated Balance Sheets to the extent that we have netting arrangements with the counterparties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location
|
|
Assets
|
|
Liabilities
|
|
|
|
(In thousands)
|
September 30, 2017
|
|
|
|
|
|
Designated As Hedges:
|
|
|
|
|
|
Interest rate contracts
|
Deferred charges and other assets /
Deferred credits and other liabilities
|
|
$
|
—
|
|
|
$
|
(112,076
|
)
|
Total
|
|
|
—
|
|
|
(112,076
|
)
|
Not Designated As Hedges:
|
|
|
|
|
|
Commodity contracts
|
Other current assets /
Other current liabilities
|
|
2,436
|
|
|
(322
|
)
|
Commodity contracts
|
Deferred charges and other assets /
Deferred credits and other liabilities
|
|
803
|
|
|
—
|
|
Total
|
|
|
3,239
|
|
|
(322
|
)
|
Gross Financial Instruments
|
|
|
3,239
|
|
|
(112,398
|
)
|
Gross Amounts Offset on Consolidated Balance Sheet:
|
|
|
|
|
|
Contract netting
|
|
|
—
|
|
|
—
|
|
Net Financial Instruments
|
|
|
3,239
|
|
|
(112,398
|
)
|
Cash collateral
|
|
|
—
|
|
|
—
|
|
Net Assets/Liabilities from Risk Management Activities
|
|
|
$
|
3,239
|
|
|
$
|
(112,398
|
)
|
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location
|
|
Assets
|
|
Liabilities
|
|
|
|
(In thousands)
|
September 30, 2016
|
|
|
|
|
|
Designated As Hedges:
|
|
|
|
|
|
Commodity contracts
|
Current assets of disposal group classified as held for sale / Current liabilities of disposal group classified as held for sale
|
|
$
|
6,612
|
|
|
$
|
(21,903
|
)
|
Interest rate contracts
|
Other current assets /
Other current liabilities
|
|
—
|
|
|
(68,481
|
)
|
Commodity contracts
|
Noncurrent assets of disposal group classified as held for sale / Noncurrent liabilities of disposal group classified as held for sale
|
|
2,178
|
|
|
(3,779
|
)
|
Interest rate contracts
|
Deferred charges and other assets /
Deferred credits and other liabilities
|
|
—
|
|
|
(198,008
|
)
|
Total
|
|
|
8,790
|
|
|
(292,171
|
)
|
Not Designated As Hedges:
|
|
|
|
|
|
Commodity contracts
|
Other current assets /
Other current liabilities
|
|
3,029
|
|
|
—
|
|
Commodity contracts
|
Current assets of disposal group classified as held for sale / Current liabilities of disposal group classified as held for sale
|
|
18,157
|
|
|
(18,812
|
)
|
Commodity contracts
|
Deferred charges and other assets /
Deferred credits and other liabilities
|
|
1,822
|
|
|
—
|
|
Commodity contracts
|
Noncurrent assets of disposal group classified as held for sale / Noncurrent liabilities of disposal group classified as held for sale
|
|
12,343
|
|
|
(12,701
|
)
|
Total
|
|
|
35,351
|
|
|
(31,513
|
)
|
Gross Financial Instruments
|
|
|
44,141
|
|
|
(323,684
|
)
|
Gross Amounts Offset on Consolidated Balance Sheet:
|
|
|
|
|
|
Contract netting
|
|
|
(39,290
|
)
|
|
39,290
|
|
Net Financial Instruments
|
|
|
4,851
|
|
|
(284,394
|
)
|
Cash collateral
|
|
|
6,775
|
|
|
43,575
|
|
Net Assets/Liabilities from Risk Management Activities
|
|
|
$
|
11,626
|
|
|
$
|
(240,819
|
)
|
Impact of Financial Instruments on the Income Statement
Hedge ineffectiveness for our
natural gas marketing
segment was recorded as a component of purchased gas cost, which is included in discontinued operations on the consolidated statements of income, and primarily results from differences in the location and timing of the derivative instrument and the hedged item. For the years ended
September 30, 2017
,
2016
and
2015
, we recognized a gain arising from fair value and cash flow hedge ineffectiveness of
$3.4 million
,
$21.6 million
and
$0.2 million
. Additional information regarding ineffectiveness recognized in the income statement is included in the tables below.
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fair Value Hedges
The impact of our
natural gas marketing
segment commodity contracts designated as fair value hedges and the related hedged item on the results of discontinued operations on our consolidated income statement for the years ended
September 30, 2017
,
2016
and
2015
is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30
|
|
2017
|
|
2016
|
|
2015
|
|
(In thousands)
|
Commodity contracts
|
$
|
(9,567
|
)
|
|
$
|
3,516
|
|
|
$
|
10,311
|
|
Fair value adjustment for natural gas inventory designated as the hedged item
|
12,858
|
|
|
18,079
|
|
|
(9,768
|
)
|
Total decrease in purchased gas cost reflected in income from discontinued operations
|
$
|
3,291
|
|
|
$
|
21,595
|
|
|
$
|
543
|
|
The decrease in purchased gas cost reflected in income from discontinued operations is comprised of the following:
|
|
|
|
|
|
Basis ineffectiveness
|
$
|
(597
|
)
|
|
$
|
(1,390
|
)
|
|
$
|
811
|
|
Timing ineffectiveness
|
3,888
|
|
|
22,985
|
|
|
(268
|
)
|
|
$
|
3,291
|
|
|
$
|
21,595
|
|
|
$
|
543
|
|
Basis ineffectiveness arises from natural gas market price differences between the locations of the hedged inventory and the delivery location specified in the hedge instruments. Timing ineffectiveness arises due to changes in the difference between the spot price and the futures price, as well as the difference between the timing of the settlement of the futures and the valuation of the underlying physical commodity. As the commodity contract nears the settlement date, spot-to-forward price differences should converge, which should reduce or eliminate the impact of this ineffectiveness on purchased gas cost.
To the extent that the Company’s natural gas inventory does not qualify as a hedged item in a fair-value hedge, or has not been designated as such, the natural gas inventory is valued at the lower of cost or market.
Cash Flow Hedges
The impact of cash flow hedges on our consolidated income statements for the years ended
September 30, 2017
,
2016
and
2015
is presented below. Note that this presentation does not reflect the financial impact arising from the hedged physical transaction. Therefore, this presentation is not indicative of the economic gross profit we realized when the underlying physical and financial transactions were settled.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30
|
|
2017
|
|
2016
|
|
2015
|
|
(In thousands)
|
Loss reclassified from AOCI for effective portion of natural gas marketing commodity contracts
|
$
|
(2,612
|
)
|
|
$
|
(52,651
|
)
|
|
$
|
(41,716
|
)
|
Gain (loss) arising from ineffective portion of natural gas marketing commodity contracts
|
111
|
|
|
(19
|
)
|
|
(325
|
)
|
Gain on discontinuance of cash flow hedging of natural gas marketing commodity contracts reclassified from AOCI
|
10,579
|
|
|
—
|
|
|
—
|
|
Total impact on purchased gas cost reflected in income from discontinued operations
|
8,078
|
|
|
(52,670
|
)
|
|
(42,041
|
)
|
Net loss on settled interest rate agreements reclassified from AOCI into interest expense
|
(1,043
|
)
|
|
(546
|
)
|
|
(853
|
)
|
Total impact from cash flow hedges
|
$
|
7,035
|
|
|
$
|
(53,216
|
)
|
|
$
|
(42,894
|
)
|
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 years ended
September 30, 2017
and
2016
. The amounts included in the table below exclude gains and losses arising from ineffectiveness because these amounts are immediately recognized in the income statement as incurred.
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
September 30
|
|
2017
|
|
2016
|
|
(In thousands)
|
Increase (decrease) in fair value:
|
|
|
|
Interest rate agreements
|
$
|
74,560
|
|
|
$
|
(99,029
|
)
|
Forward commodity contracts
|
9,847
|
|
|
(11,662
|
)
|
Recognition of (gains) losses in earnings due to settlements:
|
|
|
|
Interest rate agreements
|
662
|
|
|
347
|
|
Forward commodity contracts
|
(4,865
|
)
|
|
32,117
|
|
Total other comprehensive income (loss) from hedging, net of tax
(1)
|
$
|
80,204
|
|
|
$
|
(78,227
|
)
|
|
|
(1)
|
Utilizing an income tax rate ranging from approximately
37 percent
to
39 percent
based on the effective rates in each taxing jurisdiction.
|
Deferred gains (losses) recorded in AOCI associated with our interest rate agreements are recognized in earnings as they are amortized. The following amounts, net of deferred taxes, represent the expected recognition in earnings of the deferred gains (losses) recorded in AOCI associated with our financial instruments, based upon the fair values of these financial instruments as of
September 30, 2017
. However, the table below does not include the expected recognition in earnings of our outstanding interest rate agreements as those financial instruments have not yet settled.
|
|
|
|
|
|
Interest Rate
Agreements
|
|
(In thousands)
|
2018
|
$
|
(1,509
|
)
|
2019
|
(1,533
|
)
|
2020
|
(1,557
|
)
|
2021
|
(1,557
|
)
|
2022
|
(1,557
|
)
|
Thereafter
|
(33,420
|
)
|
Total
(1)
|
$
|
(41,133
|
)
|
|
|
(1)
|
Utilizing an income tax rate of
37 percent
.
|
Financial Instruments Not Designated as Hedges
The impact of financial instruments that have not been designated as hedges on our consolidated income statements for the years ended
September 30, 2017
,
2016
and
2015
was an increase (decrease) in purchased gas cost reflected in income from discontinued operations of
$6.8 million
,
$(15.5) million
and
$15.5 million
. Note that this presentation does not reflect the expected gains or losses arising from the underlying physical transactions associated with these financial instruments. Therefore, this presentation is not indicative of the economic gross profit we realized when the underlying physical and financial transactions were settled.
As discussed above, financial instruments 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 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.
14
. 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
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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
.
Fair value measurements also apply to the valuation of our pension and post-retirement plan assets. The fair value of these assets is presented in Note
7
.
Quantitative Disclosures
Financial Instruments
The classification of our fair value measurements requires judgment regarding the degree to which market data are observable or corroborated by observable market data. 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
September 30, 2017
and
2016
. As required under authoritative accounting literature, 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
|
|
September 30, 2017
|
|
(In thousands)
|
Assets:
|
|
|
|
|
|
|
|
|
|
Financial instruments
|
$
|
—
|
|
|
$
|
3,239
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,239
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
Registered investment companies
|
41,097
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
41,097
|
|
Bond mutual funds
|
16,371
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,371
|
|
Bonds
|
—
|
|
|
29,104
|
|
|
—
|
|
|
—
|
|
|
29,104
|
|
Money market funds
|
—
|
|
|
1,837
|
|
|
—
|
|
|
—
|
|
|
1,837
|
|
Total available-for-sale securities
|
57,468
|
|
|
30,941
|
|
|
—
|
|
|
—
|
|
|
88,409
|
|
Total assets
|
$
|
57,468
|
|
|
$
|
34,180
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
91,648
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Financial instruments
|
$
|
—
|
|
|
$
|
112,398
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
112,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
Prices in
Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
(1)
|
|
Significant
Other
Unobservable
Inputs
(Level 3)
|
|
Netting and
Cash
Collateral
(2)
|
|
September 30, 2016
|
|
(In thousands)
|
Assets:
|
|
|
|
|
|
|
|
|
|
Financial instruments
(3)
|
$
|
—
|
|
|
$
|
44,141
|
|
|
$
|
—
|
|
|
$
|
(32,515
|
)
|
|
$
|
11,626
|
|
Hedged portion of gas stored underground
(3)
|
52,578
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
52,578
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
Registered investment companies
|
38,677
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38,677
|
|
Bonds
|
—
|
|
|
31,394
|
|
|
—
|
|
|
—
|
|
|
31,394
|
|
Money market funds
|
—
|
|
|
2,630
|
|
|
—
|
|
|
—
|
|
|
2,630
|
|
Total available-for-sale securities
|
38,677
|
|
|
34,024
|
|
|
—
|
|
|
—
|
|
|
72,701
|
|
Total assets
|
$
|
91,255
|
|
|
$
|
78,165
|
|
|
$
|
—
|
|
|
$
|
(32,515
|
)
|
|
$
|
136,905
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Financial instruments
(3)
|
$
|
—
|
|
|
$
|
323,684
|
|
|
$
|
—
|
|
|
$
|
(82,865
|
)
|
|
$
|
240,819
|
|
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
(1)
|
Our Level 2 measurements consist of over-the-counter options and swaps, which are valued using a market-based approach in which observable market prices are adjusted for criteria specific to each instrument, such as the strike price, notional amount or basis differences, municipal and corporate bonds, which are valued based on the most recent available quoted market prices and money market funds which are valued at cost.
|
|
|
(2)
|
This column reflects adjustments to our gross financial instrument assets and liabilities to reflect netting permitted under our master netting agreements and the relevant authoritative accounting literature. As of
September 30, 2016
we had
$50.4 million
of cash held in margin accounts to collateralize certain financial instruments. Of this amount,
$43.6 million
was used to offset current and noncurrent risk management liabilities under master netting agreements and the remaining
$6.8 million
is classified as current risk management assets.
|
|
|
(3)
|
Our financial instruments and hedged portion of gas stored underground include assets and liabilities related to our
natural gas marketing
operations, which are classified as “held for sale” on our consolidated balance sheets at
September 30, 2016
.
|
Available-for-sale securities are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gain
|
|
Gross
Unrealized
Loss
|
|
Fair
Value
|
|
(In thousands)
|
As of September 30, 2017
|
|
|
|
|
|
|
|
Domestic equity mutual funds
|
$
|
25,361
|
|
|
$
|
8,920
|
|
|
$
|
—
|
|
|
$
|
34,281
|
|
Foreign equity mutual funds
|
4,581
|
|
|
2,235
|
|
|
—
|
|
|
6,816
|
|
Bond mutual funds
|
16,391
|
|
|
2
|
|
|
(22
|
)
|
|
16,371
|
|
Bonds
|
29,074
|
|
|
46
|
|
|
(16
|
)
|
|
29,104
|
|
Money market funds
|
1,837
|
|
|
—
|
|
|
—
|
|
|
1,837
|
|
|
$
|
77,244
|
|
|
$
|
11,203
|
|
|
$
|
(38
|
)
|
|
$
|
88,409
|
|
As of September 30, 2016
|
|
|
|
|
|
|
|
Domestic equity mutual funds
|
$
|
26,692
|
|
|
$
|
6,419
|
|
|
$
|
(590
|
)
|
|
$
|
32,521
|
|
Foreign equity mutual funds
|
4,954
|
|
|
1,202
|
|
|
—
|
|
|
6,156
|
|
Bonds
|
31,296
|
|
|
108
|
|
|
(10
|
)
|
|
31,394
|
|
Money market funds
|
2,630
|
|
|
—
|
|
|
—
|
|
|
2,630
|
|
|
$
|
65,572
|
|
|
$
|
7,729
|
|
|
$
|
(600
|
)
|
|
$
|
72,701
|
|
At
September 30, 2017
and
2016
, our available-for-sale securities included
$42.9 million
and
$41.3 million
related to assets held in separate rabbi trusts for our supplemental executive retirement plans as discussed in Note
7
. At
September 30, 2017
we maintained investments in bonds that have contractual maturity dates ranging from October 2017 through December 2020.
Other Fair Value Measures
In addition to the financial instruments above, we have several financial and nonfinancial assets and liabilities subject to fair value measures. These financial assets and liabilities include cash and cash equivalents, accounts receivable, accounts payable and debt. The nonfinancial assets and liabilities include asset retirement obligations and pension and post-retirement plan assets. We record cash and cash equivalents, accounts receivable, accounts payable and debt at carrying value. For cash and cash equivalents, accounts receivable and accounts payable, we consider carrying value to materially approximate fair value due to the short-term nature of these assets and liabilities.
Our debt is recorded at carrying value. The fair value of our debt is determined using third party market value quotations, which are considered Level 1 fair value measurements for debt instruments with a recent, observable trade or Level 2 fair value measurements for debt instruments where fair value is determined using the most recent available quoted market price. The following table presents the carrying value and fair value of our debt as of
September 30, 2017
:
|
|
|
|
|
|
September 30, 2017
|
|
(In thousands)
|
Carrying Amount
|
$
|
3,085,000
|
|
Fair Value
|
$
|
3,382,272
|
|
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
15. Divestitures and Acquisitions
Divestiture of Atmos Energy Marketing (AEM)
On October 29, 2016, we entered into a Membership Interest Purchase Agreement (the Agreement) with CenterPoint Energy Services, Inc., a subsidiary of CenterPoint Energy, Inc. (CES) to sell all of the equity interests of AEM. The transaction closed on January 3, 2017, with an effective date of
January 1, 2017
. CES paid a cash purchase price of
$38.3 million
plus working capital of
$109.0 million
for total cash consideration of
$147.3 million
. Of this amount,
$7.0 million
was placed into escrow and will be paid to the Company within 24 months, net of any indemnification claims agreed upon between the two companies. We recognized a net gain of
$0.03
per diluted share on the sale in the second quarter of fiscal 2017 and completed the working capital true–up during the third quarter of fiscal 2017.
The operating results of our
natural gas marketing
reportable segment have been reported on the consolidated statements of income as income from discontinued operations, net of income tax. Accordingly, expenses related to allocable general corporate overhead and interest expense are not included in these results. The decision to report this segment as a discontinued operation was predicated, in part, on the following qualitative and quantitative factors: 1) the disposal resulted in the company becoming a fully regulated entity; 2) the fact that an entire reportable segment was disposed and 3) the fact the disposed segment represented in excess of 30 percent of consolidated revenues over the last five fiscal years.
The tables below set forth selected financial and operational information related to assets, liabilities and operating results related to discontinued operations. Additionally, assets and liabilities related to our
natural gas marketing
operations are classified as “held for sale” on our consolidated balance sheets at
September 30, 2016
. Prior period revenues and expenses associated with these assets have been reclassified into discontinued operations. This reclassification had no impact on previously reported consolidated net income.
The following table presents statement of income data related to discontinued operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30
|
|
2017
|
|
2016
|
|
2015
|
|
(In thousands)
|
|
|
|
|
|
|
Operating revenues
|
$
|
303,474
|
|
|
$
|
1,005,090
|
|
|
$
|
1,409,071
|
|
Purchased gas cost
|
277,554
|
|
|
968,118
|
|
|
1,359,832
|
|
Operating expenses
|
7,874
|
|
|
26,184
|
|
|
30,076
|
|
Operating income
|
18,046
|
|
|
10,788
|
|
|
19,163
|
|
Other nonoperating expense
|
(211
|
)
|
|
(2,495
|
)
|
|
(3,570
|
)
|
Income from discontinued operations before income taxes
|
17,835
|
|
|
8,293
|
|
|
15,593
|
|
Income tax expense
|
6,841
|
|
|
3,731
|
|
|
6,141
|
|
Income from discontinued operations
|
10,994
|
|
|
4,562
|
|
|
9,452
|
|
Gain on sale from discontinued operations, net of tax ($10,215, $0 and $0)
|
2,716
|
|
|
—
|
|
|
—
|
|
Net income from discontinued operations
|
$
|
13,710
|
|
|
$
|
4,562
|
|
|
$
|
9,452
|
|
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents a reconciliation of the carrying amounts of major classes of assets and liabilities of our natural gas marketing's operations to total assets and liabilities classified as held for sale.
|
|
|
|
|
|
September 30, 2016
|
|
(In thousands)
|
Assets:
|
|
Net property, plant and equipment
|
$
|
11,905
|
|
Accounts receivable
|
93,551
|
|
Gas stored underground
|
54,246
|
|
Assets from risk management activities
|
8,743
|
|
Other current assets
|
5,968
|
|
Goodwill
|
16,445
|
|
Noncurrent assets from risk management activities
|
169
|
|
Deferred charges and other assets
|
266
|
|
Total assets of the disposal group classified as held for sale in the statement of financial position
(1)
|
191,293
|
|
Cash
|
25,417
|
|
Other assets
|
5
|
|
Total assets of disposal group in the statement of financial position
|
$
|
216,715
|
|
|
|
Liabilities:
|
|
Accounts payable and accrued liabilities
|
$
|
72,268
|
|
Other current liabilities
|
9,640
|
|
Deferred credits and other
|
316
|
|
Total liabilities of the disposal group classified as held for sale in the statement of financial position
(1)
|
82,224
|
|
Intercompany note payable
|
35,000
|
|
Tax liabilities
|
15,471
|
|
Intercompany payables
|
14,139
|
|
Other liabilities
|
3,284
|
|
Total liabilities of disposal group in the statement of financial position
|
$
|
150,118
|
|
|
|
(1)
|
Amounts are classified as current and long term in the statement of financial position.
|
The following table presents statement of cash flow data related to discontinued operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30
|
|
2017
|
|
2016
|
|
2015
|
|
(In thousands)
|
|
|
Depreciation and amortization
|
$
|
185
|
|
|
$
|
2,304
|
|
|
$
|
2,388
|
|
Capital expenditures
|
$
|
—
|
|
|
$
|
321
|
|
|
$
|
226
|
|
Noncash gain (loss) in commodity contract cash flow hedges
|
$
|
(8,165
|
)
|
|
$
|
(33,533
|
)
|
|
$
|
38,956
|
|
Significant Accounting Policies Related to Discontinued Operations
Except as noted below, AEM adhered to the same Significant Accounting Policies as described in Note 2.
Revenue recognition
— Operating revenues for our natural gas marketing segment was recognized in the period in which actual volumes were transported and storage services were provided. Operating revenues for our natural gas marketing segment and the associated carrying value of natural gas inventory (inclusive of storage costs) were recognized when we sold the gas
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and physically delivered it to our customers. Operating revenues include realized gains and losses arising from the settlement of financial instruments used in our natural gas marketing activities.
Gas stored underground
— Gas stored underground was comprised of natural gas injected into storage to conduct the operations of the natural gas marketing segment. Our natural gas marketing segment utilized the average cost method; however, most of this inventory was hedged and was therefore reported at fair value at the end of each month.
Property, plant and equipment
— Natural gas marketing property, plant and equipment was stated at cost. Depreciation was generally computed on the straight-line method for financial reporting purposes based upon estimated useful lives ranging from
3
to
30
years.
Financial instruments and hedging activities
— In our
natural gas marketing
segment, we previously designated most of the natural gas inventory held by this operating segment as the hedged item in a fair-value hedge. This inventory was marked to market at the end of each month based on the Gas Daily index, with changes in fair value recognized as unrealized gains or losses in purchased gas cost, which is reflected in income from discontinued operations in the period of change. The financial instruments associated with this natural gas inventory were designated as fair-value hedges and were marked to market each month based upon the NYMEX price with changes in fair value recognized as unrealized gains or losses in purchased gas cost in the period of change. We elected to exclude this spot/forward differential for purposes of assessing the effectiveness of these fair-value hedges.
Additionally, we previously elected to treat fixed-price forward contracts used in our
natural gas marketing
segment to deliver natural gas as normal purchases and normal sales. As such, these deliveries were recorded on an accrual basis in accordance with our revenue recognition policy. Financial instruments used to mitigate the commodity price risk associated with these contracts were designated as cash flow hedges of anticipated purchases and sales at indexed prices. Accordingly, unrealized gains and losses on these open financial instruments were recorded as a component of accumulated other comprehensive income, and are recognized in earnings as a component of purchased gas cost which is reflected in income from discontinued operations when the hedged volumes were sold.
Gains and losses from hedge ineffectiveness were recognized in the income statement. Fair value and cash flow hedge ineffectiveness arising from natural gas market price differences between the locations of the hedged inventory and the delivery location specified in the financial instruments is referred to as basis ineffectiveness. Ineffectiveness arising from changes in the fair value of the fair value hedges due to changes in the difference between the spot price and the futures price, as well as the difference between the timing of the settlement of the futures and the valuation of the underlying physical commodity is referred to as timing ineffectiveness. Hedge ineffectiveness, to the extent incurred, is reported as a component of purchased gas cost reflected in income from discontinued operations for the years ended
September 30, 2017
,
2016
and
2015
.
Our
natural gas marketing
segment also utilized master netting agreements with significant counterparties that allow us to offset gains and losses arising from financial instruments that would be settled in cash with gains and losses arising from financial instruments that could be settled with the physical commodity. Assets and liabilities from risk management activities, as well as accounts receivable and payable, reflect the master netting agreements in place. Additionally, the accounting guidance for master netting arrangements requires us to include the fair value of cash collateral or the obligation to return cash in the amounts that have been netted under master netting agreements used to offset gains and losses arising from financial instruments. As of
September 30, 2016
, the Company netted
$24.7 million
of cash held in margin accounts into its current and noncurrent risk management assets and liabilities, which are included in assets and liabilities held for sale.
Fair Value Measurements
— Our discontinued operations used the same fair value measurement policies as described in Note 2 for our continuing operations. Level 1 measurements included primarily exchange-traded financial instruments and gas stored underground that was been designated as the hedged item in a fair value hedge. Within our
natural gas marketing
operations, we utilized a mid-market pricing convention (the mid-point between the bid and ask prices), as permitted under current accounting standards. Values derived from these sources reflected the market in which transactions involving these financial instruments are executed. Level 2 measurements primarily consisted of non-exchange-traded financial instruments, such as over-the-counter options and swaps.
Short-term Debt Related to Discontinued Operations
AEM had one uncommitted
$25 million
364-day bilateral credit facility that was scheduled to expire on July 31, 2017 and one committed
$15 million
364-day bilateral credit facility that was scheduled to expire on September 30, 2017. In connection with the sale of AEM, both facilities were terminated on January 3, 2017.
Acquisition of EnLink Pipeline
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On
December 20, 2016
, we executed a purchase and sale agreement to acquire the general partnership and limited partnership interests in EnLink North Texas Pipeline, LP (EnLink Pipeline) from EnLink Energy GP, LLC and EnLink Midstream Operating, LP for a cash price of
$85.0 million
, plus working capital of
$1.1 million
.
EnLink Pipeline's primary asset was a 140–mile natural gas pipeline located on the north side of the Dallas–Fort Worth Metroplex. The
$85.0 million
purchase price has been allocated, based on fair value using observable market inputs, to the net book value of the acquired pipeline.
16
. Concentration of Credit Risk
Credit risk is the risk of financial loss to us if a customer fails to perform its contractual obligations. We engage in transactions for the purchase and sale of products and services with major companies in the energy industry and with industrial, commercial, residential and municipal energy consumers. These transactions principally occur in the southern and midwestern regions of the United States. We believe that this geographic concentration does not contribute significantly to our overall exposure to credit risk. Credit risk associated with trade accounts receivable for the distribution segment is mitigated by the large number of individual customers and diversity in our customer base. The credit risk for our other segments is not significant.
17. Selected Quarterly Financial Data (Unaudited)
Summarized unaudited quarterly financial data is presented below. The sum of net income per share by quarter may not equal the net income per share for the fiscal year due to variations in the weighted average shares outstanding used in computing such amounts. Our businesses are seasonal due to weather conditions in our service areas. For further information on its effects on quarterly results, see the “Results of Operations” discussion included in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
December 31
|
|
March 31
|
|
June 30
|
|
September 30
|
|
(In thousands, except per share data)
|
Fiscal year 2017:
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
Distribution
|
$
|
754,656
|
|
|
$
|
962,541
|
|
|
$
|
494,060
|
|
|
$
|
437,918
|
|
Pipeline and storage
|
109,952
|
|
|
111,972
|
|
|
117,283
|
|
|
117,823
|
|
Intersegment eliminations
|
(84,440
|
)
|
|
(86,327
|
)
|
|
(84,842
|
)
|
|
(90,861
|
)
|
Total operating revenues
|
780,168
|
|
|
988,186
|
|
|
526,501
|
|
|
464,880
|
|
|
|
|
|
|
|
|
|
Purchased gas cost
|
311,305
|
|
|
427,494
|
|
|
114,176
|
|
|
72,561
|
|
Operating income
|
209,918
|
|
|
285,172
|
|
|
140,664
|
|
|
91,792
|
|
Income from continuing operations
|
114,038
|
|
|
162,012
|
|
|
70,808
|
|
|
35,853
|
|
Income from discontinued operations
|
10,994
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Gain on sale of discontinued operations
|
—
|
|
|
2,716
|
|
|
—
|
|
|
—
|
|
Net income
|
125,032
|
|
|
164,728
|
|
|
70,808
|
|
|
35,853
|
|
Basic and diluted earnings per share
|
|
|
|
|
|
|
|
Income per share from continuing operations
|
$
|
1.08
|
|
|
$
|
1.52
|
|
|
$
|
0.67
|
|
|
$
|
0.34
|
|
Income per share from discontinued operations
|
0.11
|
|
|
0.03
|
|
|
—
|
|
|
—
|
|
Net income per share — basic and diluted
|
$
|
1.19
|
|
|
$
|
1.55
|
|
|
$
|
0.67
|
|
|
$
|
0.34
|
|
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
December 31
|
|
March 31
|
|
June 30
|
|
September 30
|
|
(In thousands, except per share data)
|
Fiscal year 2016:
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
Distribution
|
$
|
649,443
|
|
|
$
|
862,127
|
|
|
$
|
424,905
|
|
|
$
|
403,303
|
|
Pipeline and storage
|
98,416
|
|
|
102,153
|
|
|
113,855
|
|
|
112,772
|
|
Intersegment eliminations
|
(73,106
|
)
|
|
(74,240
|
)
|
|
(82,548
|
)
|
|
(82,432
|
)
|
Total operating revenues from continuing operations
|
674,753
|
|
|
890,040
|
|
|
456,212
|
|
|
433,643
|
|
Operating revenues from discontinued operations
(1)
|
231,468
|
|
|
242,253
|
|
|
176,704
|
|
|
244,876
|
|
|
|
|
|
|
|
|
|
Purchased gas cost from continuing operations
|
240,326
|
|
|
377,356
|
|
|
64,583
|
|
|
63,927
|
|
Purchased gas cost from discontinued operations
(1)
|
221,999
|
|
|
236,993
|
|
|
160,889
|
|
|
238,448
|
|
Operating income from continuing operations
|
192,729
|
|
|
251,656
|
|
|
128,396
|
|
|
84,449
|
|
Operating income (loss) from discontinued operations
|
3,476
|
|
|
(1,640
|
)
|
|
8,768
|
|
|
184
|
|
Income from continuing operations
|
101,546
|
|
|
143,003
|
|
|
66,143
|
|
|
34,850
|
|
Income (loss) from discontinued operations
|
1,315
|
|
|
(1,193
|
)
|
|
5,050
|
|
|
(610
|
)
|
Net Income
|
102,861
|
|
|
141,810
|
|
|
71,193
|
|
|
34,240
|
|
Basic and diluted earnings per share
|
|
|
|
|
|
|
|
Income per share from continuing operations
|
$
|
0.99
|
|
|
$
|
1.39
|
|
|
$
|
0.64
|
|
|
$
|
0.33
|
|
Income (loss) per share from discontinued operations
|
$
|
0.01
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.05
|
|
|
$
|
—
|
|
Net income per share — basic and diluted
|
$
|
1.00
|
|
|
$
|
1.38
|
|
|
$
|
0.69
|
|
|
$
|
0.33
|
|
|
|
(1)
|
Operating revenues and purchased gas cost from discontinued operations are shown net of intersegment eliminations.
|