NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2017
1. Nature of Business
Atmos Energy Corporation (“Atmos Energy” or the “Company”) is engaged in the regulated natural gas distribution and pipeline and storage businesses. Our regulated businesses are subject to federal and state regulation and/or regulation by local authorities in each of the states in which our regulated divisions and subsidiaries operate.
Our distribution business delivers natural gas through sales and transportation arrangements to approximately
three million
residential, commercial, public authority and industrial customers through our
six
natural gas distribution divisions, which at
June 30, 2017
, covered service areas located in
eight
states.
Our pipeline and storage business includes the transportation of natural gas to Texas and Louisiana distribution systems and the management of our underground storage facilities used to support Texas distribution businesses.
Effective January 1, 2017, we completed the sale of all of the equity interests of Atmos Energy Marketing (AEM) to CenterPoint Energy Services, Inc., a subsidiary of CenterPoint Energy, Inc. (CES). Accordingly, AEM’s historical financial results are reflected in the Company’s condensed consolidated financial statements as discontinued operations, which required retrospective application to financial information for all periods presented. Refer to Note 6 for further information. Our discontinued natural gas marketing segment was primarily engaged in a nonregulated natural gas marketing business, conducted by AEM. This business provided natural gas management and transportation services to municipalities, regulated distribution companies, including certain divisions of Atmos Energy and third parties.
2. Unaudited Financial Information
These consolidated interim-period financial statements have been prepared in accordance with accounting principles generally accepted in the United States on the same basis as those used for the Company’s audited consolidated financial statements for the fiscal year ended
September 30, 2016
, which appear in Exhibit 99.1 to our Current Report on Form 8-K dated April 12, 2017 (the "Fiscal 2016 Financial Statements"). In the opinion of management, all material adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been made to the unaudited consolidated interim-period financial statements. These consolidated interim-period financial statements are condensed as permitted by the instructions to Form 10-Q and should be read in conjunction with our Fiscal 2016 Financial Statements. Because of seasonal and other factors, the results of operations for the
nine
-month period ended
June 30, 2017
are not indicative of our results of operations for the full
2017
fiscal year, which ends
September 30, 2017
.
During the third quarter, we completed a State of Texas use tax audit that covered the period from October 2011 to March 2017, which resulted in a refund of
$29.8 million
. We concluded the appropriate regulatory treatment of this refund was to reduce rate base. We received
$18.7 million
during the third quarter, which has been included in cash flows from investing activities, and recorded an
$11.1 million
receivable as of June 30, 2017.
On January 6, 2017, our Atmos Pipeline - Texas Division filed its statement of intent seeking
$63.6 million
, as adjusted in its rebuttal case, in additional annual operating income. On August 1, 2017, a final order was issued in our APT rate case resulting in a
$13.0 million
increase in annual operating income. No other events have occurred subsequent to the balance sheet date that would require recognition or disclosure in the condensed consolidated financial statements.
Significant accounting policies
Our accounting policies are described in Note 2 of our Fiscal 2016 Financial Statements.
As discussed in Note
3
, due to the realignment of our reportable segments, prior periods' segment information has been recast in accordance with applicable accounting guidance. Additionally, as discussed in Note
6
, due to the sale of AEM, prior period amounts have been presented as discontinued operations. The segment realignment and the presentation of discontinued operations have not impacted our reported net income, financial position or cash flows.
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.
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 June 30, 2017, we have substantially completed the evaluation of our sources of revenue and are currently assessing the effect that the new guidance will have on our financial position, results of operations, cash flows and business processes. The conclusion of our assessment is contingent, in part, upon the completion of deliberations currently in progress by our industry, notably in connection with efforts to produce an accounting guide intended to be developed by the American Institute of Certified Public Accountants (AICPA).
In association with this undertaking, the AICPA formed a number of industry task forces, including a Power & Utilities (P&U) Task Force. Industry representatives and organizations, the largest auditing firms, the AICPA’s Revenue Recognition Working Group and its Financial Reporting Executive Committee have undertaken, and continue to undertake, consideration of several items relevant to our industry as further discussed below. Where applicable or necessary, the FASB’s Transition Resource Group (TRG) is also participating.
Additionally, we are actively working with our peers in the rate-regulated natural gas industry and with the public accounting profession to conclude on the accounting treatment for several other issues that are not expected to be addressed by the P&U Task Force. Based on the progress of these deliberations to date, 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 are currently still evaluating the transition method we will utilize to adopt the new guidance as well as the impact to our financial statement presentation and related disclosures.
In May 2015, the FASB issued guidance removing the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The guidance was effective for us on October 1, 2016, to be applied retrospectively. We measure certain pension plan assets using the net asset value per share practical expedient, which are disclosed on an annual basis in our Form 10-K. The adoption of the new standard should have no material impact on our results of operations, consolidated balance sheets or cash flows.
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 on our financial position, results of operations and cash flows.
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. As of June 30, 2017, we had begun the process of identifying and categorizing our lease contracts, evaluating our current business processes and identifying a lease software solution. We are currently evaluating the effect on our financial position, results of operations and cash flows.
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 on our financial position, results of operations and cash flows.
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 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
benefit cost will be presented outside of income from operations on the statement of income. In addition, only the service cost component of net benefit cost is eligible for capitalization (e.g., as part of inventory or property, plant, and equipment). 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.
Regulatory assets and liabilities
Accounting principles generally accepted in the United States require cost-based, rate-regulated entities that meet certain criteria to reflect the authorized recovery of costs due to regulatory decisions in their financial statements. As a result, certain costs are permitted to be capitalized rather than expensed because they can be recovered through rates. We record certain costs as regulatory assets when future recovery through customer rates is considered probable. Regulatory liabilities are recorded when it is probable that revenues will be reduced for amounts that will be credited to customers through the ratemaking process. Substantially all of our regulatory assets are recorded as a component of deferred charges and other assets and substantially all of our regulatory liabilities are recorded as a component of deferred credits and other liabilities. Deferred gas costs are recorded either in other current assets or liabilities and the regulatory cost of removal obligation is reported separately.
Significant regulatory assets and liabilities as of
June 30, 2017
and
September 30, 2016
included the following:
|
|
|
|
|
|
|
|
|
|
June 30,
2017
|
|
September 30,
2016
|
|
(In thousands)
|
Regulatory assets:
|
|
|
|
Pension and postretirement benefit costs
(1)
|
$
|
122,202
|
|
|
$
|
132,348
|
|
Infrastructure mechanisms
(2)
|
38,653
|
|
|
42,719
|
|
Deferred gas costs
|
16,405
|
|
|
45,184
|
|
Recoverable loss on reacquired debt
|
11,843
|
|
|
13,761
|
|
Deferred pipeline record collection costs
|
10,327
|
|
|
7,336
|
|
APT annual adjustment mechanism
|
4,973
|
|
|
7,171
|
|
Rate case costs
|
2,480
|
|
|
1,539
|
|
Other
|
9,949
|
|
|
13,565
|
|
|
$
|
216,832
|
|
|
$
|
263,623
|
|
Regulatory liabilities:
|
|
|
|
Regulatory cost of removal obligations
|
$
|
492,404
|
|
|
$
|
476,891
|
|
Deferred gas costs
|
16,753
|
|
|
20,180
|
|
Asset retirement obligations
|
13,404
|
|
|
13,404
|
|
Other
|
6,729
|
|
|
4,250
|
|
|
$
|
529,290
|
|
|
$
|
514,725
|
|
|
|
(1)
|
Includes
$11.5 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 deferred expenses until the next rate proceeding (rate case or annual rate filing), at which time investment and costs would be recoverable through base rates.
|
3
. Segment Information
Through November 30, 2016, our consolidated operations were managed and reviewed through
three
segments:
|
|
•
|
The
regulated distribution segment
, which included our regulated natural gas distribution and related sales operations.
|
|
|
•
|
The
regulated pipeline segment
, which included the pipeline and storage operations of our Atmos Pipeline-Texas division and,
|
|
|
•
|
The
nonregulated segment
, which included our nonregulated natural gas management, nonregulated natural gas transmission, storage and other services.
|
As a result of the announced sale of Atmos Energy Marketing, we revised the information used by the chief operating decision maker to manage the Company, effective December 1, 2016. Accordingly, we have been managing and reviewing 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 and storage assets located in Kentucky and Tennessee, which are used solely to support our natural gas distribution operations in those states. These storage assets were formerly included in our nonregulated segment.
|
|
|
•
|
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, which were formerly included in our nonregulated segment.
|
|
|
•
|
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 found in our Fiscal 2016 Financial Statements. We evaluate performance based on net income or loss of the respective operating segments. 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.
Prior periods' segment information has been recast as required by applicable accounting guidance. The segment realignment has not impacted our reported consolidated revenues or net income.
Income statements for the
three and nine months ended
June 30, 2017
and
2016
by segment are presented in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
|
|
Distribution
|
|
Pipeline and Storage
|
|
Natural Gas Marketing
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Operating revenues from external parties
|
$
|
493,738
|
|
|
$
|
32,763
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
526,501
|
|
Intersegment revenues
|
322
|
|
|
84,520
|
|
|
—
|
|
|
(84,842
|
)
|
|
—
|
|
Total operating revenues
|
494,060
|
|
|
117,283
|
|
|
—
|
|
|
(84,842
|
)
|
|
526,501
|
|
Purchased gas cost
|
197,767
|
|
|
1,251
|
|
|
—
|
|
|
(84,842
|
)
|
|
114,176
|
|
Operation and maintenance expense
|
99,631
|
|
|
29,059
|
|
|
—
|
|
|
—
|
|
|
128,690
|
|
Depreciation and amortization expense
|
62,760
|
|
|
17,263
|
|
|
—
|
|
|
—
|
|
|
80,023
|
|
Taxes, other than income
|
56,850
|
|
|
6,098
|
|
|
—
|
|
|
—
|
|
|
62,948
|
|
Operating income
|
77,052
|
|
|
63,612
|
|
|
—
|
|
|
—
|
|
|
140,664
|
|
Miscellaneous expense
|
(62
|
)
|
|
(227
|
)
|
|
—
|
|
|
—
|
|
|
(289
|
)
|
Interest charges
|
18,394
|
|
|
10,104
|
|
|
—
|
|
|
—
|
|
|
28,498
|
|
Income before income taxes
|
58,596
|
|
|
53,281
|
|
|
—
|
|
|
—
|
|
|
111,877
|
|
Income tax expense
|
22,082
|
|
|
18,987
|
|
|
—
|
|
|
—
|
|
|
41,069
|
|
Net income
|
$
|
36,514
|
|
|
$
|
34,294
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
70,808
|
|
Capital expenditures
|
$
|
205,780
|
|
|
$
|
46,983
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
252,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2016
|
|
Distribution
|
|
Pipeline and Storage
|
|
Natural Gas Marketing
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Operating revenues from external parties
|
$
|
424,553
|
|
|
$
|
31,659
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
456,212
|
|
Intersegment revenues
|
352
|
|
|
82,196
|
|
|
—
|
|
|
(82,548
|
)
|
|
—
|
|
Total operating revenues
|
424,905
|
|
|
113,855
|
|
|
—
|
|
|
(82,548
|
)
|
|
456,212
|
|
Purchased gas cost
|
147,569
|
|
|
(438
|
)
|
|
—
|
|
|
(82,548
|
)
|
|
64,583
|
|
Operation and maintenance expense
|
101,819
|
|
|
29,569
|
|
|
—
|
|
|
—
|
|
|
131,388
|
|
Depreciation and amortization expense
|
59,193
|
|
|
13,687
|
|
|
—
|
|
|
—
|
|
|
72,880
|
|
Taxes, other than income
|
52,662
|
|
|
6,303
|
|
|
—
|
|
|
—
|
|
|
58,965
|
|
Operating income
|
63,662
|
|
|
64,734
|
|
|
—
|
|
|
—
|
|
|
128,396
|
|
Miscellaneous income (expense)
|
1,243
|
|
|
(125
|
)
|
|
—
|
|
|
—
|
|
|
1,118
|
|
Interest charges
|
18,677
|
|
|
9,002
|
|
|
—
|
|
|
—
|
|
|
27,679
|
|
Income from continuing operations before income taxes
|
46,228
|
|
|
55,607
|
|
|
—
|
|
|
—
|
|
|
101,835
|
|
Income tax expense
|
15,867
|
|
|
19,825
|
|
|
—
|
|
|
—
|
|
|
35,692
|
|
Income from continuing operations
|
30,361
|
|
|
35,782
|
|
|
—
|
|
|
—
|
|
|
66,143
|
|
Income from discontinued operations, net of tax
|
—
|
|
|
—
|
|
|
5,050
|
|
|
—
|
|
|
5,050
|
|
Net income
|
$
|
30,361
|
|
|
$
|
35,782
|
|
|
$
|
5,050
|
|
|
$
|
—
|
|
|
$
|
71,193
|
|
Capital expenditures
|
$
|
187,470
|
|
|
$
|
66,108
|
|
|
$
|
106
|
|
|
$
|
—
|
|
|
$
|
253,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2017
|
|
Distribution
|
|
Pipeline and Storage
|
|
Natural Gas Marketing
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Operating revenues from external parties
|
$
|
2,210,221
|
|
|
$
|
84,634
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,294,855
|
|
Intersegment revenues
|
1,036
|
|
|
254,573
|
|
|
—
|
|
|
(255,609
|
)
|
|
—
|
|
Total operating revenues
|
2,211,257
|
|
|
339,207
|
|
|
—
|
|
|
(255,609
|
)
|
|
2,294,855
|
|
Purchased gas cost
|
1,106,209
|
|
|
2,331
|
|
|
—
|
|
|
(255,565
|
)
|
|
852,975
|
|
Operation and maintenance expense
|
296,048
|
|
|
89,863
|
|
|
—
|
|
|
(44
|
)
|
|
385,867
|
|
Depreciation and amortization expense
|
185,219
|
|
|
49,429
|
|
|
—
|
|
|
—
|
|
|
234,648
|
|
Taxes, other than income
|
165,032
|
|
|
20,579
|
|
|
—
|
|
|
—
|
|
|
185,611
|
|
Operating income
|
458,749
|
|
|
177,005
|
|
|
—
|
|
|
—
|
|
|
635,754
|
|
Miscellaneous income (expense)
|
334
|
|
|
(784
|
)
|
|
—
|
|
|
—
|
|
|
(450
|
)
|
Interest charges
|
56,437
|
|
|
30,035
|
|
|
—
|
|
|
—
|
|
|
86,472
|
|
Income from continuing operations before income taxes
|
402,646
|
|
|
146,186
|
|
|
—
|
|
|
—
|
|
|
548,832
|
|
Income tax expense
|
149,623
|
|
|
52,351
|
|
|
—
|
|
|
—
|
|
|
201,974
|
|
Income from continuing operations
|
253,023
|
|
|
93,835
|
|
|
—
|
|
|
—
|
|
|
346,858
|
|
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
|
$
|
253,023
|
|
|
$
|
93,835
|
|
|
$
|
13,710
|
|
|
$
|
—
|
|
|
$
|
360,568
|
|
Capital expenditures
|
$
|
636,449
|
|
|
$
|
175,699
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
812,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2016
|
|
Distribution
|
|
Pipeline and Storage
|
|
Natural Gas Marketing
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Operating revenues from external parties
|
$
|
1,935,421
|
|
|
$
|
85,584
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,021,005
|
|
Intersegment revenues
|
1,054
|
|
|
228,840
|
|
|
—
|
|
|
(229,894
|
)
|
|
—
|
|
Total operating revenues
|
1,936,475
|
|
|
314,424
|
|
|
—
|
|
|
(229,894
|
)
|
|
2,021,005
|
|
Purchased gas cost
|
912,231
|
|
|
(72
|
)
|
|
—
|
|
|
(229,894
|
)
|
|
682,265
|
|
Operation and maintenance expense
|
294,154
|
|
|
84,919
|
|
|
—
|
|
|
—
|
|
|
379,073
|
|
Depreciation and amortization expense
|
174,748
|
|
|
40,179
|
|
|
—
|
|
|
—
|
|
|
214,927
|
|
Taxes, other than income
|
153,198
|
|
|
18,761
|
|
|
—
|
|
|
—
|
|
|
171,959
|
|
Operating income
|
402,144
|
|
|
170,637
|
|
|
—
|
|
|
—
|
|
|
572,781
|
|
Miscellaneous income (expense)
|
804
|
|
|
(894
|
)
|
|
—
|
|
|
—
|
|
|
(90
|
)
|
Interest charges
|
57,481
|
|
|
27,294
|
|
|
—
|
|
|
—
|
|
|
84,775
|
|
Income from continuing operations before income taxes
|
345,467
|
|
|
142,449
|
|
|
—
|
|
|
—
|
|
|
487,916
|
|
Income tax expense
|
126,090
|
|
|
51,134
|
|
|
—
|
|
|
—
|
|
|
177,224
|
|
Income from continuing operations
|
219,377
|
|
|
91,315
|
|
|
—
|
|
|
—
|
|
|
310,692
|
|
Income from discontinued operations, net of tax
|
—
|
|
|
—
|
|
|
5,172
|
|
|
—
|
|
|
5,172
|
|
Net income
|
$
|
219,377
|
|
|
$
|
91,315
|
|
|
$
|
5,172
|
|
|
$
|
—
|
|
|
$
|
315,864
|
|
Capital expenditures
|
$
|
528,063
|
|
|
$
|
261,446
|
|
|
$
|
179
|
|
|
$
|
—
|
|
|
$
|
789,688
|
|
Balance sheet information at
June 30, 2017
and
September 30, 2016
by segment is presented in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
Distribution
|
|
Pipeline and Storage
|
|
Natural Gas Marketing
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
$
|
6,678,875
|
|
|
$
|
2,245,506
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,924,381
|
|
Investment in subsidiaries
|
798,994
|
|
|
13,851
|
|
|
—
|
|
|
(812,845
|
)
|
|
—
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
69,777
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
69,777
|
|
Other current assets
|
437,700
|
|
|
29,265
|
|
|
—
|
|
|
(2,360
|
)
|
|
464,605
|
|
Intercompany receivables
|
983,866
|
|
|
—
|
|
|
—
|
|
|
(983,866
|
)
|
|
—
|
|
Total current assets
|
1,491,343
|
|
|
29,265
|
|
|
—
|
|
|
(986,226
|
)
|
|
534,382
|
|
Goodwill
|
586,661
|
|
|
143,012
|
|
|
—
|
|
|
—
|
|
|
729,673
|
|
Deferred charges and other assets
|
280,240
|
|
|
30,099
|
|
|
—
|
|
|
—
|
|
|
310,339
|
|
|
$
|
9,836,113
|
|
|
$
|
2,461,733
|
|
|
$
|
—
|
|
|
$
|
(1,799,071
|
)
|
|
$
|
10,498,775
|
|
CAPITALIZATION AND LIABILITIES
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
$
|
3,901,710
|
|
|
$
|
812,845
|
|
|
$
|
—
|
|
|
$
|
(812,845
|
)
|
|
$
|
3,901,710
|
|
Long-term debt
|
3,066,734
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,066,734
|
|
Total capitalization
|
6,968,444
|
|
|
812,845
|
|
|
—
|
|
|
(812,845
|
)
|
|
6,968,444
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
258,573
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
258,573
|
|
Other current liabilities
|
451,026
|
|
|
38,420
|
|
|
—
|
|
|
(2,360
|
)
|
|
487,086
|
|
Intercompany payables
|
—
|
|
|
983,866
|
|
|
—
|
|
|
(983,866
|
)
|
|
—
|
|
Total current liabilities
|
709,599
|
|
|
1,022,286
|
|
|
—
|
|
|
(986,226
|
)
|
|
745,659
|
|
Deferred income taxes
|
1,251,528
|
|
|
602,036
|
|
|
—
|
|
|
—
|
|
|
1,853,564
|
|
Regulatory cost of removal obligation
|
432,531
|
|
|
24,529
|
|
|
—
|
|
|
—
|
|
|
457,060
|
|
Pension and postretirement liabilities
|
304,919
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
304,919
|
|
Deferred credits and other liabilities
|
169,092
|
|
|
37
|
|
|
—
|
|
|
—
|
|
|
169,129
|
|
|
$
|
9,836,113
|
|
|
$
|
2,461,733
|
|
|
$
|
—
|
|
|
$
|
(1,799,071
|
)
|
|
$
|
10,498,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
Distribution
|
|
Pipeline and Storage
|
|
Natural Gas Marketing
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
$
|
6,208,465
|
|
|
$
|
2,060,141
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,268,606
|
|
Investment in subsidiaries
|
768,415
|
|
|
13,854
|
|
|
—
|
|
|
(782,269
|
)
|
|
—
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
22,117
|
|
|
—
|
|
|
25,417
|
|
|
—
|
|
|
47,534
|
|
Current assets of disposal group classified as held for sale
|
—
|
|
|
—
|
|
|
162,508
|
|
|
(11,391
|
)
|
|
151,117
|
|
Other current assets
|
489,963
|
|
|
39,078
|
|
|
5
|
|
|
(46,011
|
)
|
|
483,035
|
|
Intercompany receivables
|
971,665
|
|
|
—
|
|
|
—
|
|
|
(971,665
|
)
|
|
—
|
|
Total current assets
|
1,483,745
|
|
|
39,078
|
|
|
187,930
|
|
|
(1,029,067
|
)
|
|
681,686
|
|
Goodwill
|
583,950
|
|
|
143,012
|
|
|
—
|
|
|
—
|
|
|
726,962
|
|
Noncurrent assets of disposal group classified as held for sale
|
—
|
|
|
—
|
|
|
28,785
|
|
|
(169
|
)
|
|
28,616
|
|
Deferred charges and other assets
|
277,240
|
|
|
27,779
|
|
|
—
|
|
|
—
|
|
|
305,019
|
|
|
$
|
9,321,815
|
|
|
$
|
2,283,864
|
|
|
$
|
216,715
|
|
|
$
|
(1,811,505
|
)
|
|
$
|
10,010,889
|
|
CAPITALIZATION AND LIABILITIES
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
$
|
3,463,059
|
|
|
$
|
715,672
|
|
|
$
|
66,597
|
|
|
$
|
(782,269
|
)
|
|
$
|
3,463,059
|
|
Long-term debt
|
2,188,779
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,188,779
|
|
Total capitalization
|
5,651,838
|
|
|
715,672
|
|
|
66,597
|
|
|
(782,269
|
)
|
|
5,651,838
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
250,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
250,000
|
|
Short-term debt
|
829,811
|
|
|
—
|
|
|
35,000
|
|
|
(35,000
|
)
|
|
829,811
|
|
Current liabilities of the disposal group classified as held for sale
|
—
|
|
|
—
|
|
|
81,908
|
|
|
(9,008
|
)
|
|
72,900
|
|
Other current liabilities
|
605,790
|
|
|
39,911
|
|
|
3,263
|
|
|
(13,394
|
)
|
|
635,570
|
|
Intercompany payables
|
—
|
|
|
957,526
|
|
|
14,139
|
|
|
(971,665
|
)
|
|
—
|
|
Total current liabilities
|
1,685,601
|
|
|
997,437
|
|
|
134,310
|
|
|
(1,029,067
|
)
|
|
1,788,281
|
|
Deferred income taxes
|
1,055,348
|
|
|
543,390
|
|
|
4,318
|
|
|
—
|
|
|
1,603,056
|
|
Regulatory cost of removal obligation
|
397,162
|
|
|
27,119
|
|
|
—
|
|
|
—
|
|
|
424,281
|
|
Pension and postretirement liabilities
|
297,743
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
297,743
|
|
Noncurrent liabilities of disposal group classified as held for sale
|
—
|
|
|
—
|
|
|
316
|
|
|
—
|
|
|
316
|
|
Deferred credits and other liabilities
|
234,123
|
|
|
246
|
|
|
11,174
|
|
|
(169
|
)
|
|
245,374
|
|
|
$
|
9,321,815
|
|
|
$
|
2,283,864
|
|
|
$
|
216,715
|
|
|
$
|
(1,811,505
|
)
|
|
$
|
10,010,889
|
|
4. Earnings Per Share
We use the two-class method of computing earnings per share because we have participating securities in the form of non-vested restricted stock units with a nonforfeitable right to dividend equivalents, for which vesting is predicated solely on the passage of time. The calculation of earnings per share using the two-class method excludes income attributable to these participating securities from the numerator and excludes the dilutive impact of those shares from the denominator. Basic and diluted earnings per share for the
three and nine months ended June 30, 2017
and
2016
are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30
|
|
Nine Months Ended
June 30
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
(In thousands, except per share amounts)
|
Basic and Diluted Earnings Per Share from continuing operations
|
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
70,808
|
|
|
$
|
66,143
|
|
|
$
|
346,858
|
|
|
$
|
310,692
|
|
Less: Income from continuing operations allocated to participating securities
|
75
|
|
|
100
|
|
|
424
|
|
|
488
|
|
Income from continuing operations available to common shareholders
|
$
|
70,733
|
|
|
$
|
66,043
|
|
|
$
|
346,434
|
|
|
$
|
310,204
|
|
Basic and diluted weighted average shares outstanding
|
106,364
|
|
|
103,750
|
|
|
105,862
|
|
|
103,137
|
|
Income from continuing operations per share — Basic and Diluted
|
$
|
0.67
|
|
|
$
|
0.64
|
|
|
$
|
3.27
|
|
|
$
|
3.01
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Earnings Per Share from discontinued operations
|
|
|
|
|
|
|
|
Income from discontinued operations
|
$
|
—
|
|
|
$
|
5,050
|
|
|
$
|
13,710
|
|
|
$
|
5,172
|
|
Less: Income from discontinued operations allocated to participating securities
|
—
|
|
|
6
|
|
|
15
|
|
|
4
|
|
Income from discontinued operations available to common shareholders
|
$
|
—
|
|
|
$
|
5,044
|
|
|
$
|
13,695
|
|
|
$
|
5,168
|
|
Basic and diluted weighted average shares outstanding
|
106,364
|
|
|
103,750
|
|
|
105,862
|
|
|
103,137
|
|
Income from discontinued operations per share — Basic and Diluted
|
$
|
—
|
|
|
$
|
0.05
|
|
|
$
|
0.13
|
|
|
$
|
0.05
|
|
Net income per share — Basic and Diluted
|
$
|
0.67
|
|
|
$
|
0.69
|
|
|
$
|
3.40
|
|
|
$
|
3.06
|
|
5
. Debt
The nature and terms of our debt instruments and credit facilities are described in detail in Note 5 in our Fiscal 2016 Financial Statements. Except as noted below, there were no material changes in the terms of our debt instruments during the
nine months ended June 30, 2017
.
Long-term debt at
June 30, 2017
and
September 30, 2016
consisted of the following:
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
September 30, 2016
|
|
(In thousands)
|
Unsecured 6.35% Senior Notes, due June 2017
|
$
|
—
|
|
|
$
|
250,000
|
|
Unsecured 8.50% Senior Notes, due 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 note Series A, 1995-1, 6.67%, due 2025
|
10,000
|
|
|
10,000
|
|
Unsecured 6.75% Debentures, due 2028
|
150,000
|
|
|
150,000
|
|
Floating-rate term loan, due 2019
|
125,000
|
|
|
—
|
|
Total long-term debt
|
3,085,000
|
|
|
2,460,000
|
|
Less:
|
|
|
|
Original issue (premium) discount on unsecured senior notes and debentures
|
(4,370
|
)
|
|
4,270
|
|
Debt issuance cost
|
22,636
|
|
|
16,951
|
|
Current maturities
|
—
|
|
|
250,000
|
|
|
$
|
3,066,734
|
|
|
$
|
2,188,779
|
|
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 floating-rate 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 repay short-term debt and for working capital, capital expenditures and other general corporate purposes. At
June 30, 2017
, there was
$125.0 million
outstanding under the term loan.
We utilize short-term debt to fund ongoing working capital needs, such as our seasonal requirements for gas supply, general corporate liquidity and capital expenditures. Our short-term borrowing requirements are affected primarily by the seasonal nature of the natural gas business. Changes in the price of natural gas and the amount of natural gas we need to supply our customers’ needs could significantly affect our borrowing requirements. Our short-term borrowings typically reach their highest levels in the winter months.
We currently finance our short-term borrowing requirements through a combination of a
$1.5 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
June 30, 2017
and
September 30, 2016
a total of
$258.6 million
and
$829.8 million
was outstanding under our commercial paper program.
Additionally, we have a
$25 million
unsecured facility, which was renewed on
April 1, 2017
, and a
$10 million
unsecured revolving credit facility, which is used primarily to issue letters of credit. At
June 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
$4.1 million
.
The availability of funds under these credit facilities is subject to conditions specified in the respective credit agreements, all of which we currently satisfy. These conditions include our compliance with financial covenants and the continued accuracy of representations and warranties contained in these agreements. We are required by the financial covenants in each of these facilities to maintain, at the end of each fiscal quarter, a ratio of total debt to total capitalization of no greater than
70 percent
. At
June 30, 2017
, our total-debt-to-total-capitalization ratio, as defined in the agreements, was
47 percent
. In addition, both the interest margin and the fee that we pay on unused amounts under certain of these facilities are subject to adjustment depending upon our credit ratings.
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
June 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.
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 discussed in Note
6
, both facilities were terminated on January 3, 2017.
6
. 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 of the closing date, 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 condensed 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 of 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. Operating expenses include operation and maintenance expense, provision for doubtful accounts, depreciation and amortization expense and taxes, other than income. Additionally, assets and liabilities related to our
natural gas marketing
operations are classified as “held for sale” on our consolidated balance sheet 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 tables present statement of income data related to discontinued operations:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30
|
|
2017
|
|
2016
|
|
(In thousands)
|
|
|
|
|
Operating revenues
|
$
|
—
|
|
|
$
|
200,213
|
|
|
|
|
|
Purchased gas cost
|
—
|
|
|
184,398
|
|
Operating expenses
|
—
|
|
|
7,047
|
|
Operating income
|
—
|
|
|
8,768
|
|
Other nonoperating expense
|
—
|
|
|
(304
|
)
|
Income from discontinued operations before income taxes
|
—
|
|
|
8,464
|
|
Income tax expense
|
—
|
|
|
3,414
|
|
Net income from discontinued operations
|
$
|
—
|
|
|
$
|
5,050
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
June 30
|
|
2017
|
|
2016
|
|
(In thousands)
|
|
|
|
|
Operating revenues
|
$
|
303,474
|
|
|
$
|
728,989
|
|
|
|
|
|
Purchased gas cost
|
277,554
|
|
|
698,445
|
|
Operating expenses
|
7,874
|
|
|
19,940
|
|
Operating income
|
18,046
|
|
|
10,604
|
|
Other nonoperating expense
|
(211
|
)
|
|
(1,937
|
)
|
Income from discontinued operations before income taxes
|
17,835
|
|
|
8,667
|
|
Income tax expense
|
6,841
|
|
|
3,495
|
|
Income from discontinued operations
|
10,994
|
|
|
5,172
|
|
Gain on sale from discontinued operations, net of tax ($10,215 and $0)
|
2,716
|
|
|
—
|
|
Net income from discontinued operations
|
$
|
13,710
|
|
|
$
|
5,172
|
|
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:
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
September 30, 2016
|
|
(In thousands)
|
Assets:
|
|
|
|
Net property, plant and equipment
|
$
|
—
|
|
|
$
|
11,905
|
|
Accounts receivable
|
—
|
|
|
93,551
|
|
Gas stored underground
|
—
|
|
|
54,246
|
|
Other current assets
|
—
|
|
|
14,711
|
|
Goodwill
|
—
|
|
|
16,445
|
|
Deferred charges and other assets
|
—
|
|
|
435
|
|
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 in the comparative period 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:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
June 30
|
|
2017
|
|
2016
|
|
(In thousands)
|
Depreciation and amortization expense
|
$
|
185
|
|
|
$
|
1,743
|
|
Capital expenditures
|
$
|
—
|
|
|
$
|
179
|
|
Noncash gain (loss) in commodity contract cash flow hedges
|
$
|
18,744
|
|
|
$
|
(33,898
|
)
|
Acquisition of EnLink Pipeline
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 purchase price of
$85 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 million
purchase price has been allocated, based on fair value using observable market inputs, to the net book value of the acquired pipeline.
7. Shareholders' Equity
Shelf Registration and At-the-Market Equity Sales Program
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. We also filed a prospectus supplement under the registration statement relating to an at-the-market (ATM) equity distribution program under which we may issue and sell, shares of our common stock, up to an aggregate offering price of
$200 million
. During the
nine months ended June 30, 2017
, we sold
1,303,494
shares of common stock under our existing ATM program for
$100 million
and received net proceeds of
$98.8 million
. At
June 30, 2017
, approximately
$1.6 billion
of securities remained available for issuance under the shelf registration statement and substantially all shares have been issued under our ATM program.
Accumulated Other Comprehensive Income (Loss)
We record deferred gains (losses) in AOCI related to available-for-sale securities, interest rate 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 (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 before reclassifications
|
1,485
|
|
|
76,602
|
|
|
9,847
|
|
|
87,934
|
|
Amounts reclassified from accumulated other comprehensive income
|
68
|
|
|
286
|
|
|
(4,865
|
)
|
|
(4,511
|
)
|
Net current-period other comprehensive income
|
1,553
|
|
|
76,888
|
|
|
4,982
|
|
|
83,423
|
|
June 30, 2017
|
$
|
6,037
|
|
|
$
|
(110,636
|
)
|
|
$
|
—
|
|
|
$
|
(104,599
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 loss before reclassifications
|
(1,417
|
)
|
|
(88,345
|
)
|
|
(8,612
|
)
|
|
(98,374
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
(79
|
)
|
|
260
|
|
|
29,290
|
|
|
29,471
|
|
Net current-period other comprehensive income (loss)
|
(1,496
|
)
|
|
(88,085
|
)
|
|
20,678
|
|
|
(68,903
|
)
|
June 30, 2016
|
$
|
3,453
|
|
|
$
|
(176,927
|
)
|
|
$
|
(4,759
|
)
|
|
$
|
(178,233
|
)
|
The following tables detail reclassifications out of AOCI for the
three and nine months ended June 30, 2017
and
2016
. Amounts in parentheses below indicate decreases to net income in the statement of income:
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
|
Accumulated Other Comprehensive Income Components
|
Amount Reclassified from
Accumulated Other
Comprehensive Income
|
|
Affected Line Item in the
Statement of Income
|
|
(In thousands)
|
|
|
Cash flow hedges
|
|
|
|
Interest rate agreements
|
$
|
(177
|
)
|
|
Interest charges
|
Commodity contracts
|
—
|
|
|
Purchased gas cost
|
|
(177
|
)
|
|
Total before tax
|
|
64
|
|
|
Tax benefit
|
Total reclassifications
|
$
|
(113
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2016
|
Accumulated Other Comprehensive Income Components
|
Amount Reclassified from
Accumulated Other
Comprehensive Income
|
|
Affected Line Item in the
Statement of Income
|
|
(In thousands)
|
|
|
Cash flow hedges
|
|
|
|
Interest rate agreements
|
$
|
(137
|
)
|
|
Interest charges
|
Commodity contracts
|
(12,347
|
)
|
|
Purchased gas cost
(1)
|
|
(12,484
|
)
|
|
Total before tax
|
|
4,865
|
|
|
Tax benefit
|
Total reclassifications
|
$
|
(7,619
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 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
|
$
|
(107
|
)
|
|
Operation and maintenance expense
|
|
(107
|
)
|
|
Total before tax
|
|
39
|
|
|
Tax benefit
|
|
$
|
(68
|
)
|
|
Net of tax
|
Cash flow hedges
|
|
|
|
Interest rate agreements
|
$
|
(450
|
)
|
|
Interest charges
|
Commodity contracts
|
7,976
|
|
|
Purchased gas cost
(1)
|
|
7,526
|
|
|
Total before tax
|
|
(2,947
|
)
|
|
Tax expense
|
|
$
|
4,579
|
|
|
Net of tax
|
Total reclassifications
|
$
|
4,511
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 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
|
$
|
124
|
|
|
Operation and maintenance expense
|
|
124
|
|
|
Total before tax
|
|
(45
|
)
|
|
Tax expense
|
|
$
|
79
|
|
|
Net of tax
|
Cash flow hedges
|
|
|
|
Interest rate agreements
|
$
|
(410
|
)
|
|
Interest charges
|
Commodity contracts
|
(48,015
|
)
|
|
Purchased gas cost
(1)
|
|
(48,425
|
)
|
|
Total before tax
|
|
18,875
|
|
|
Tax benefit
|
|
$
|
(29,550
|
)
|
|
Net of tax
|
Total reclassifications
|
$
|
(29,471
|
)
|
|
Net of tax
|
|
|
(1)
|
Amounts are presented as part of income from discontinued operations on the condensed consolidated statements of income.
|
8. Interim Pension and Other Postretirement Benefit Plan Information
The components of our net periodic pension cost for our pension and other postretirement benefit plans for the
three and nine months ended
June 30, 2017
and
2016
are presented in the following table. Most of these costs are recoverable through our tariff rates; however, a portion of these costs is capitalized into our rate base. The remaining costs are recorded as a component of operation and maintenance expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30
|
|
Pension Benefits
|
|
Other Benefits
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
(In thousands)
|
Components of net periodic pension cost:
|
|
|
|
|
|
|
|
Service cost
|
$
|
5,216
|
|
|
$
|
4,698
|
|
|
$
|
3,109
|
|
|
$
|
2,705
|
|
Interest cost
|
6,296
|
|
|
7,095
|
|
|
2,669
|
|
|
3,106
|
|
Expected return on assets
|
(6,993
|
)
|
|
(6,881
|
)
|
|
(1,796
|
)
|
|
(1,566
|
)
|
Amortization of transition obligation
|
—
|
|
|
—
|
|
|
—
|
|
|
21
|
|
Amortization of prior service credit
|
(57
|
)
|
|
(57
|
)
|
|
(411
|
)
|
|
(411
|
)
|
Amortization of actuarial (gain) loss
|
4,248
|
|
|
3,319
|
|
|
(706
|
)
|
|
(541
|
)
|
Net periodic pension cost
|
$
|
8,710
|
|
|
$
|
8,174
|
|
|
$
|
2,865
|
|
|
$
|
3,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30
|
|
Pension Benefits
|
|
Other Benefits
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
(In thousands)
|
Components of net periodic pension cost:
|
|
|
|
|
|
|
|
Service cost
|
$
|
15,649
|
|
|
$
|
14,093
|
|
|
$
|
9,327
|
|
|
$
|
8,117
|
|
Interest cost
|
18,890
|
|
|
21,284
|
|
|
8,009
|
|
|
9,318
|
|
Expected return on assets
|
(20,981
|
)
|
|
(20,642
|
)
|
|
(5,389
|
)
|
|
(4,698
|
)
|
Amortization of transition obligation
|
—
|
|
|
—
|
|
|
—
|
|
|
62
|
|
Amortization of prior service credit
|
(173
|
)
|
|
(170
|
)
|
|
(1,233
|
)
|
|
(1,233
|
)
|
Amortization of actuarial (gain) loss
|
12,746
|
|
|
9,959
|
|
|
(2,120
|
)
|
|
(1,625
|
)
|
Net periodic pension cost
|
$
|
26,131
|
|
|
$
|
24,524
|
|
|
$
|
8,594
|
|
|
$
|
9,941
|
|
The assumptions used to develop our net periodic pension cost for the
three and nine months ended
June 30, 2017
and
2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Discount rate
|
|
3.73%
|
|
4.55%
|
|
3.73%
|
|
4.55%
|
Rate of compensation increase
|
|
3.50%
|
|
3.50%
|
|
N/A
|
|
N/A
|
Expected return on plan assets
|
|
7.00%
|
|
7.00%
|
|
4.45%
|
|
4.45%
|
The discount rate used to compute the present value of a plan’s liabilities generally is based on rates of high-grade corporate bonds with maturities similar to the average period over which the benefits will be paid. Generally, our funding policy has been to contribute annually an amount in accordance with the requirements of the Employee Retirement Income Security Act of 1974. In accordance with the Pension Protection Act of 2006 (PPA), we determined the funded status of our plan as of January 1, 2017. Based on that determination, we are not required to make a minimum contribution to our defined benefit plan during fiscal 2017; however, we made a voluntary contribution of
$5.0 million
during the third quarter of fiscal
2017
.
We contributed
$9.9 million
to our other post-retirement benefit plans during the
nine
months ended
June 30, 2017
. We expect to contribute a total of between
$10 million
and
$20 million
to these plans during fiscal
2017
.
9
. Commitments and Contingencies
Litigation and Environmental Matters
With respect to the specific litigation and environmental-related matters or claims that were disclosed in Note 11 of our Fiscal 2016 Financial Statements, there were no material changes in the status of such litigation and environmental-related matters or claims during the
nine months ended June 30, 2017
.
We are a party to various litigation and environmental-related matters or claims that have arisen in the ordinary course of our business. While the results of such litigation and response actions to such environmental-related matters or claims cannot be predicted with certainty, we continue to believe the final outcome of such litigation and matters or claims will not have a material adverse effect on our financial condition, results of operations or cash flows.
Purchase Commitments
Our distribution divisions maintain supply contracts with several vendors that generally cover a period of up to one year. Commitments for estimated base gas volumes are established under these contracts on a monthly basis at contractually negotiated prices. Commitments for incremental daily purchases are made as necessary during the month in accordance with the terms of the individual contract.
Our Mid-Tex Division also maintains a limited number of long-term supply contracts to ensure a reliable source of gas for our customers in its service area, which obligate it to purchase specified volumes at prices indexed to natural gas hubs. At
June 30, 2017
, we were committed to purchase
53.2
Bcf within one year,
37.6
Bcf within two to three years and
0.4
Bcf beyond three years under indexed contracts.
Regulatory Matters
Various regulatory agencies, including the SEC and the Commodities Futures Trading Commission, continue to adopt regulations implementing many of the provisions of the Dodd-Frank Act of 2010. We continue to enact new procedures and modify existing business practices and contractual arrangements to comply with such regulations. Additional rulemakings are pending which we believe will result in new reporting and disclosure obligations. The costs associated with hedging certain risks inherent in our business may be further increased when these expected additional regulations are adopted.
As of
June 30, 2017
, formula rate mechanisms were pending regulatory approval in our Louisiana service area, infrastructure mechanisms were pending regulatory approval in our Mississippi and Virginia service areas and rate cases were pending regulatory approval in our Colorado service area and Texas service area related to APT. These regulatory proceedings are discussed in further detail below in
Management’s Discussion and Analysis — Recent Ratemaking Developments
.
10. Financial Instruments
We currently use financial instruments to mitigate commodity price risk and interest rate risk. The objectives and strategies for using financial instruments and the related accounting for these financial instruments are fully described in Notes 2 and 13 of our Fiscal 2016 Financial Statements. During the
nine months ended June 30, 2017
, except for the change in the scope of our natural gas marketing commodity risk management activities as a result of the sale of AEM, there were no material
changes in our objectives, strategies and accounting for using financial instruments. Our financial instruments do not contain any credit-risk-related or other contingent features that could cause payments to be accelerated when our financial instruments are in net liability positions. The following summarizes those objectives and strategies.
Regulated Commodity Risk Management Activities
Our purchased gas cost adjustment mechanisms essentially insulate our distribution segment from commodity price risk; however, our customers are exposed to the effects of volatile natural gas prices. We manage this exposure through a combination of physical storage, fixed-price forward contracts and financial instruments, primarily over-the-counter swap and option contracts, in an effort to minimize the impact of natural gas price volatility on our customers during the winter heating season.
We typically seek to hedge between
25
and
50 percent
of anticipated heating season gas purchases using financial instruments. For the
2016
-
2017
heating season (generally October through March), in the jurisdictions where we are permitted to utilize financial instruments, we hedged approximately
27 percent
, or
16.2
Bcf of the winter flowing gas requirements. We have not designated these financial instruments as hedges for accounting purposes.
Natural Gas Marketing
Commodity Risk Management Activities
Our
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 condensed consolidated statement of income for the three months ended December 31, 2016.
Interest Rate Risk Management Activities
We periodically manage interest rate risk by entering into financial instruments to effectively fix the Treasury yield component of the interest cost associated with anticipated financings.
As of
June 30, 2017
, we had forward starting interest rate swaps to effectively fix the Treasury yield component associated with the anticipated issuance of
$450 million
unsecured senior notes in fiscal 2019 at
3.78%
, which we designated as a cash flow hedge at the time the swaps were executed. As of
June 30, 2017
, we had
$41.5 million
of net realized losses in accumulated other comprehensive income (AOCI) associated with the settlement of financial instruments used to fix the Treasury yield component of the interest cost of financing various issuances of long-term debt and senior notes, which will be recognized as a component of interest expense over the life of the associated notes from the date of settlement. The remaining amortization periods for these settled amounts extend through fiscal 2045.
Quantitative Disclosures Related to Financial Instruments
The following tables present detailed information concerning the impact of financial instruments on our condensed consolidated balance sheet and income statements.
As of
June 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
June 30, 2017
, we had
18,833
MMcf of net short commodity contracts outstanding. These contracts have not been designated as hedges.
Financial Instruments on the Balance Sheet
The following tables present the fair value and balance sheet classification of our financial instruments as of
June 30, 2017
and
September 30, 2016
. The gross amounts of recognized assets and liabilities are netted within our unaudited Condensed Consolidated Balance Sheets to the extent that we have netting arrangements with the counterparties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location
|
|
Assets
|
|
Liabilities
|
|
|
|
(In thousands)
|
June 30, 2017
|
|
|
|
|
|
Designated As Hedges:
|
|
|
|
|
|
Interest rate contracts
|
Deferred credits and other liabilities
|
|
—
|
|
|
(108,860
|
)
|
Total
|
|
|
—
|
|
|
(108,860
|
)
|
Not Designated As Hedges:
|
|
|
|
|
|
Commodity contracts
|
Other current assets /
Other current liabilities
|
|
2,960
|
|
|
(230
|
)
|
Commodity contracts
|
Deferred charges and other assets /
Deferred credits and other liabilities
|
|
268
|
|
|
(282
|
)
|
Total
|
|
|
3,228
|
|
|
(512
|
)
|
Gross Financial Instruments
|
|
|
3,228
|
|
|
(109,372
|
)
|
Gross Amounts Offset on Consolidated Balance Sheet:
|
|
|
|
|
|
Contract netting
|
|
|
—
|
|
|
—
|
|
Net Financial Instruments
|
|
|
3,228
|
|
|
(109,372
|
)
|
Cash collateral
|
|
|
—
|
|
|
—
|
|
Net Assets/Liabilities from Risk Management Activities
|
|
|
$
|
3,228
|
|
|
$
|
(109,372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location
|
|
Assets
|
|
Liabilities
|
|
|
|
(In thousands)
|
September 30, 2016
|
|
|
|
|
|
Designated As Hedges:
|
|
|
|
|
|
Commodity contracts
|
Other current assets /
Other current liabilities
|
|
$
|
6,612
|
|
|
$
|
(21,903
|
)
|
Interest rate contracts
|
Other current assets /
Other current liabilities
|
|
—
|
|
|
(68,481
|
)
|
Commodity contracts
|
Deferred charges and other assets /
Deferred credits and other liabilities
|
|
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
|
|
21,186
|
|
|
(18,812
|
)
|
Commodity contracts
|
Deferred charges and other assets /
Deferred credits and other liabilities
|
|
14,165
|
|
|
(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 condensed consolidated statements of income, and primarily results from differences in the location and timing of the derivative instrument and the hedged item. For the three months ended
June 30, 2016
, we recognized a gain arising from fair value and cash flow hedge ineffectiveness of
$13.6 million
. For the
nine months ended
June 30, 2017
and
2016
, we recognized gains arising from fair value and cash flow hedge ineffectiveness of
$3.4 million
and
$18.1 million
. Additional information regarding ineffectiveness recognized in the income statement is included in the tables below.
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 condensed consolidated income statement for the
three and nine months ended June 30, 2017
and
2016
is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30
|
|
Nine Months Ended
June 30
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
(In thousands)
|
Commodity contracts
|
$
|
—
|
|
|
$
|
(22,146
|
)
|
|
$
|
(9,567
|
)
|
|
$
|
(11,808
|
)
|
Fair value adjustment for natural gas inventory designated as the hedged item
|
—
|
|
|
35,630
|
|
|
12,858
|
|
|
29,852
|
|
Total decrease in purchased gas cost reflected in income from discontinued operations
|
$
|
—
|
|
|
$
|
13,484
|
|
|
$
|
3,291
|
|
|
$
|
18,044
|
|
The decrease in purchased gas cost reflected in income from discontinued operations is comprised of the following:
|
|
|
|
|
|
|
|
Basis ineffectiveness
|
$
|
—
|
|
|
$
|
(684
|
)
|
|
$
|
(597
|
)
|
|
$
|
(1,490
|
)
|
Timing ineffectiveness
|
—
|
|
|
14,168
|
|
|
3,888
|
|
|
19,534
|
|
|
$
|
—
|
|
|
$
|
13,484
|
|
|
$
|
3,291
|
|
|
$
|
18,044
|
|
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.
Cash Flow Hedges
The impact of our interest rate and natural gas marketing segment cash flow hedges on our condensed consolidated income statements for the
three and nine months ended June 30, 2017
and
2016
is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30
|
|
Nine Months Ended
June 30
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
(In thousands)
|
|
|
|
|
Loss reclassified from AOCI for effective portion of natural gas marketing commodity contracts
|
$
|
—
|
|
|
$
|
(12,347
|
)
|
|
$
|
(2,612
|
)
|
|
$
|
(48,015
|
)
|
Gain arising from ineffective portion of natural gas marketing commodity contracts
|
—
|
|
|
66
|
|
|
111
|
|
|
84
|
|
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
|
—
|
|
|
(12,281
|
)
|
|
8,078
|
|
|
(47,931
|
)
|
Net loss on settled interest rate agreements reclassified from AOCI into interest expense
|
(177
|
)
|
|
(137
|
)
|
|
(450
|
)
|
|
(410
|
)
|
Total Impact from Cash Flow Hedges
|
$
|
(177
|
)
|
|
$
|
(12,418
|
)
|
|
$
|
7,628
|
|
|
$
|
(48,341
|
)
|
The following table summarizes the gains and losses arising from hedging transactions that were recognized as a component of other comprehensive income (loss), net of taxes, for the
three and nine months ended June 30, 2017
and
2016
. The amounts included in the table below exclude gains and losses arising from ineffectiveness because those amounts are immediately recognized in the income statement as incurred.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30
|
|
Nine Months Ended
June 30
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
(In thousands)
|
Increase (decrease) in fair value:
|
|
|
|
|
|
|
|
Interest rate agreements
|
$
|
(18,669
|
)
|
|
$
|
(39,337
|
)
|
|
$
|
76,602
|
|
|
$
|
(88,345
|
)
|
Forward commodity contracts
|
—
|
|
|
10,573
|
|
|
9,847
|
|
|
(8,612
|
)
|
Recognition of (gains) losses in earnings due to settlements:
|
|
|
|
|
|
|
|
Interest rate agreements
|
113
|
|
|
87
|
|
|
286
|
|
|
260
|
|
Forward commodity contracts
|
—
|
|
|
7,532
|
|
|
(4,865
|
)
|
|
29,290
|
|
Total other comprehensive income (loss) from hedging, net of tax
(1)
|
$
|
(18,556
|
)
|
|
$
|
(21,145
|
)
|
|
$
|
81,870
|
|
|
$
|
(67,407
|
)
|
|
|
(1)
|
Utilizing an income tax rate ranging from
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 over the terms of the underlying debt instruments, while deferred gains (losses) associated with natural gas marketing segment commodity contracts were recognized in earnings upon settlement. The following amounts, net of deferred taxes, represent the expected recognition in earnings of the deferred losses recorded in AOCI associated with our financial instruments, based upon the fair values of these financial instruments as of
June 30, 2017
. However, the table below does not include the expected recognition in earnings of our outstanding interest rate agreements as those instruments have not yet settled.
|
|
|
|
|
|
Interest Rate
Agreements
|
|
(In thousands)
|
Next twelve months
|
$
|
(1,509
|
)
|
Thereafter
|
(40,001
|
)
|
Total
(1)
|
$
|
(41,510
|
)
|
|
|
(1)
|
Utilizing an income tax rate of
37 percent
.
|
Financial Instruments Not Designated as Hedges
The impact of the natural gas marketing segment's financial instruments that had not been designated as hedges on our condensed consolidated income statements for the three months ended
June 30, 2016
was a decrease in purchased gas cost of
$1.9 million
, which is included in discontinued operations on the condensed consolidated statements of income. For the nine months ended
June 30, 2017
and
2016
purchased gas cost (increased) decreased by
$6.8 million
and
$(2.8) million
.
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.
11. Fair Value Measurements
We report certain assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We record cash and cash equivalents, accounts receivable and accounts payable at carrying value, which substantially approximates fair value due to the short-term nature of these assets and liabilities. For other financial assets and liabilities, we primarily use quoted market prices and other observable market pricing information to minimize the use of unobservable pricing inputs in our measurements when determining fair value. The methods used to determine fair value for our assets and liabilities are fully
described in Note 2 of our Fiscal 2016 Financial Statements. During the
nine months ended June 30, 2017
, there were no changes in these methods.
Fair value measurements also apply to the valuation of our pension and postretirement plan assets. Current accounting guidance requires employers to annually disclose information about fair value measurements of the assets of a defined benefit pension or other postretirement plan. The fair value of these assets is presented in Note 7 of our Fiscal 2016 Financial Statements.
Quantitative Disclosures
Financial Instruments
The classification of our fair value measurements requires judgment regarding the degree to which market data is observable or corroborated by observable market data. Authoritative accounting literature establishes a fair value hierarchy that prioritizes the inputs used to measure fair value based on observable and unobservable data. The hierarchy categorizes the inputs into three levels, with the highest priority given to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1), with the lowest priority given to unobservable inputs (Level 3). The following tables summarize, by level within the fair value hierarchy, our assets and liabilities that were accounted for at fair value on a recurring basis as of
June 30, 2017
and
September 30, 2016
. 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
|
|
June 30, 2017
|
|
(In thousands)
|
Assets:
|
|
|
|
|
|
|
|
|
|
Financial instruments
|
$
|
—
|
|
|
$
|
3,228
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,228
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
Registered investment companies
|
39,406
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
39,406
|
|
Bond mutual funds
|
15,892
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,892
|
|
Bonds
|
—
|
|
|
31,429
|
|
|
—
|
|
|
—
|
|
|
31,429
|
|
Money market funds
|
—
|
|
|
2,884
|
|
|
—
|
|
|
—
|
|
|
2,884
|
|
Total available-for-sale securities
|
55,298
|
|
|
34,313
|
|
|
—
|
|
|
—
|
|
|
89,611
|
|
Total assets
|
$
|
55,298
|
|
|
$
|
37,541
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
92,839
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Financial instruments
|
$
|
—
|
|
|
$
|
109,372
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
109,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
$
|
—
|
|
|
$
|
44,141
|
|
|
$
|
—
|
|
|
$
|
(32,515
|
)
|
|
$
|
11,626
|
|
Hedged portion of gas stored underground
|
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
|
$
|
—
|
|
|
$
|
323,684
|
|
|
$
|
—
|
|
|
$
|
(82,865
|
)
|
|
$
|
240,819
|
|
|
|
(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 arrangements with the remaining
$6.8 million
classified as current risk management assets.
|
Available-for-sale securities are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gain
|
|
Gross
Unrealized
Loss
|
|
Fair
Value
|
|
(In thousands)
|
As of June 30, 2017
|
|
|
|
|
|
|
|
Domestic equity mutual funds
|
$
|
25,236
|
|
|
$
|
7,749
|
|
|
$
|
(17
|
)
|
|
$
|
32,968
|
|
Foreign equity mutual funds
|
4,581
|
|
|
1,857
|
|
|
—
|
|
|
6,438
|
|
Bond mutual funds
|
15,928
|
|
|
—
|
|
|
(36
|
)
|
|
15,892
|
|
Bonds
|
31,407
|
|
|
52
|
|
|
(30
|
)
|
|
31,429
|
|
Money market funds
|
2,884
|
|
|
—
|
|
|
—
|
|
|
2,884
|
|
|
$
|
80,036
|
|
|
$
|
9,658
|
|
|
$
|
(83
|
)
|
|
$
|
89,611
|
|
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
June 30, 2017
and
September 30, 2016
, our available-for-sale securities included
$42.3 million
and
$41.3 million
related to assets held in separate rabbi trusts for our supplemental executive benefit plans. At
June 30, 2017
, we maintained investments in bonds that have contractual maturity dates ranging from July 2017 through December 2020.
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 a fund by fund 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 fund is written down to its estimated fair value and the other-than-temporary impairment is recognized in the income statement.
Other Fair Value Measures
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
June 30, 2017
and
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
September 30, 2016
|
|
(In thousands)
|
Carrying Amount
|
$
|
3,085,000
|
|
|
$
|
2,460,000
|
|
Fair Value
|
$
|
3,388,003
|
|
|
$
|
2,844,990
|
|
12. Concentration of Credit Risk
Information regarding our concentration of credit risk is disclosed in Note 16 of our Fiscal 2016 Financial Statements. Except for the sale of AEM, during the
nine months ended June 30, 2017
, there were no material changes in our concentration of credit risk.