Atmos Energy Corp 10-Q for FY2020 Q1

Atmos Energy Corp (ATO)

10-Q 2020-02-04 For: 2019-12-31

Added on April 03, 2026

About this 10-Q

Atmos Energy Corp filed this 10-Q on February 4, 2020, covering the quarter ended December 31, 2019 (FY2020 Q1).

Headline figures

Quarter ended December 31, 2019, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $875.56M; down 0.3% from $877.78M a year earlier
Net income: $178.67M; up 13.3% from net income of $157.65M a year earlier
Diluted EPS: $1.47; up 6.5% from $1.38 a year earlier

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Texas	and		Virginia	75-1743247
(State or other jurisdiction of incorporation or organization)				(IRS employer identification no.)

1800 Three Lincoln Centre
5430 LBJ Freeway
Dallas		Texas		75240
(Address of principal executive offices)				(Zip code)



Title of each class		Trading Symbol	Name of each exchange on which registered
Common stock	No Par Value	ATO	New York Stock Exchange



Large accelerated filer	þ	Accelerated filer	¨	Non-accelerated filer	¨	Smaller reporting company	☐	Emerging growth company	☐



Class		Shares Outstanding
Common stock	No Par Value	122,266,316




AEC	Atmos Energy Corporation
AOCI	Accumulated other comprehensive income
ARM	Annual Rate Mechanism
ASC	Accounting Standards Codification
Bcf	Billion cubic feet
DARR	Dallas Annual Rate Review
ERISA	Employee Retirement Income Security Act of 1974
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission
GAAP	Generally Accepted Accounting Principles
GRIP	Gas Reliability Infrastructure Program
GSRS	Gas System Reliability Surcharge
Mcf	Thousand cubic feet
MMcf	Million cubic feet
Moody’s	Moody’s Investors Services, Inc.
NTSB	National Transportation Safety Board
PPA	Pension Protection Act of 2006
PRP	Pipeline Replacement Program
RRC	Railroad Commission of Texas
RRM	Rate Review Mechanism
RSC	Rate Stabilization Clause
S&P	Standard & Poor’s Corporation
SAVE	Steps to Advance Virginia Energy
SEC	United States Securities and Exchange Commission
SIR	System Integrity Rider
SRF	Stable Rate Filing
SSIR	System Safety and Integrity Rider
TCJA	Tax Cuts and Jobs Act of 2017
WNA	Weather Normalization Adjustment



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	December 31, 2019			September 30, 2019
	(Unaudited)
	(In thousands, except share data)
ASSETS
Property, plant and equipment	$	14,691,719		$	14,180,593
Less accumulated depreciation and amortization	2,441,296			2,392,924
Net property, plant and equipment	12,250,423			11,787,669
Current assets
Cash and cash equivalents	189,272			24,550
Accounts receivable, net	435,616			230,571
Gas stored underground	115,259			130,138
Other current assets	71,982			72,772
Total current assets	812,129			458,031
Goodwill	730,706			730,706
Deferred charges and other assets	594,867			391,213
	$	14,388,125		$	13,367,619
CAPITALIZATION AND LIABILITIES
Shareholders’ equity
Common stock, no par value (stated at $0.005 per share); 200,000,000 shares authorized; issued and outstanding: December 31, 2019 — 122,262,403 shares; September 30, 2019 — 119,338,925 shares	$	611		$	597
Additional paid-in capital	3,979,564			3,712,194
Accumulated other comprehensive loss	(113,531		)	(114,583		)
Retained earnings	2,261,131			2,152,015
Shareholders’ equity	6,127,775			5,750,223
Long-term debt	4,324,285			3,529,452
Total capitalization	10,452,060			9,279,675
Current liabilities
Accounts payable and accrued liabilities	308,113			265,024
Other current liabilities	537,009			479,501
Short-term debt	—			464,915
Current maturities of long-term debt	50			—
Total current liabilities	845,172			1,209,440
Deferred income taxes	1,352,333			1,300,015
Regulatory excess deferred taxes	699,375			705,101
Regulatory cost of removal obligation	451,178			473,172
Deferred credits and other liabilities	588,007			400,216
	$	14,388,125		$	13,367,619



	Three Months Ended December 31
	2019			2018
	(Unaudited) (In thousands, except per share data)
Operating revenues
Distribution segment	$	828,504		$	838,835
Pipeline and storage segment	148,176			134,470
Intersegment eliminations	(101,117		)	(95,523		)
Total operating revenues	875,563			877,782

Purchased gas cost
Distribution segment	397,558			437,732
Pipeline and storage segment	99			(358		)
Intersegment eliminations	(100,789		)	(95,209		)
Total purchased gas cost	296,868			342,165

Operation and maintenance expense	152,245			138,600
Depreciation and amortization expense	105,062			96,065
Taxes, other than income	68,607			64,488
Operating income	252,781			236,464
Other non-operating income (expense)	4,887			(7,723		)
Interest charges	27,229			27,849
Income before income taxes	230,439			200,892
Income tax expense	51,766			43,246
Net income	$	178,673		$	157,646
Basic net income per share	$	1.47		$	1.38
Diluted net income per share	$	1.47		$	1.38
Cash dividends per share	$	0.575		$	0.525
Basic weighted average shares outstanding	121,113			113,800
Diluted weighted average shares outstanding	121,359			113,832

Net income	$	178,673		$	157,646
Other comprehensive income (loss), net of tax
Net unrealized holding losses on available-for-sale securities, net of tax of $0 and $0	(1		)	—
Cash flow hedges:
Amortization and unrealized loss on interest rate agreements, net of tax of $311 and $(6,580)	1,053			(22,258		)
Total other comprehensive income (loss)	1,052			(22,258		)
Total comprehensive income	$	179,725		$	135,388



	December 31, 2019		September 30, 2019
	(In thousands)
Regulatory assets:
Pension and postretirement benefit costs	$	83,783	$	86,089
Infrastructure mechanisms⁽¹⁾	108,997		131,894
Deferred gas costs	10,386		23,766
Recoverable loss on reacquired debt	6,102		6,551
Deferred pipeline record collection costs	27,414		26,418
Rate case costs	1,052		1,346
Other	4,324		8,483
	$	242,058	$	284,547
Regulatory liabilities:
Regulatory excess deferred taxes⁽²⁾	$	721,049	$	726,307
Regulatory cost of service reserve⁽³⁾	4,747		5,238
Regulatory cost of removal obligation	519,538		528,893
Deferred gas costs	42,142		14,112
Asset retirement obligation	17,054		17,054
APT annual adjustment mechanism	72,732		78,402
Other	17,755		16,120
	$	1,395,017	$	1,386,126


(1)	Infrastructure mechanisms in Texas and Louisiana allow for the deferral of all eligible expenses associated with capital expenditures incurred pursuant to these rules, including the recording of interest on deferred expenses until the next rate proceeding (rate case or annual rate filing), at which time investment and costs would be recoverable through base rates.


•	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.



	Three Months Ended December 31, 2019
	Distribution		Pipeline and Storage		Eliminations			Consolidated
	(In thousands)
Operating revenues from external parties	$	827,840	$	47,723	$	—		$	875,563
Intersegment revenues	664		100,453		(101,117		)	—
Total operating revenues	828,504		148,176		(101,117		)	875,563
Purchased gas cost	397,558		99		(100,789		)	296,868
Operation and maintenance expense	114,352		38,221		(328		)	152,245
Depreciation and amortization expense	76,074		28,988		—			105,062
Taxes, other than income	60,243		8,364		—			68,607
Operating income	180,277		72,504		—			252,781
Other non-operating income	1,954		2,933		—			4,887
Interest charges	16,362		10,867		—			27,229
Income before income taxes	165,869		64,570		—			230,439
Income tax expense	36,112		15,654		—			51,766
Net income	$	129,757	$	48,916	$	—		$	178,673
Capital expenditures	$	404,247	$	124,939	$	—		$	529,186



	Three Months Ended December 31, 2018
	Distribution			Pipeline and Storage			Eliminations			Consolidated
	(In thousands)
Operating revenues from external parties	$	838,181		$	39,601		$	—		$	877,782
Intersegment revenues	654			94,869			(95,523		)	—
Total operating revenues	838,835			134,470			(95,523		)	877,782
Purchased gas cost	437,732			(358		)	(95,209		)	342,165
Operation and maintenance expense	105,767			33,147			(314		)	138,600
Depreciation and amortization expense	69,709			26,356			—			96,065
Taxes, other than income	56,190			8,298			—			64,488
Operating income	169,437			67,027			—			236,464
Other non-operating expense	(6,477		)	(1,246		)	—			(7,723		)
Interest charges	18,210			9,639			—			27,849
Income before income taxes	144,750			56,142			—			200,892
Income tax expense	30,365			12,881			—			43,246
Net income	$	114,385		$	43,261		$	—		$	157,646
Capital expenditures	$	302,545		$	113,859		$	—		$	416,404



Item 1.	Financial Statements


•	We elected to bundle our lease and non-lease components as a single component for all asset classes.


•	We elected not to perform the following:


◦	Evaluate existing or expired land easements prior to October 1, 2019 to determine if they are leases.



	December 31, 2019
	Distribution		Pipeline and Storage		Eliminations			Consolidated
	(In thousands)
Property, plant and equipment, net	$	9,083,765	$	3,166,658	$	—		$	12,250,423
Total assets	$	13,599,293	$	3,389,655	$	(2,600,823	)	$	14,388,125



	September 30, 2019
	Distribution		Pipeline and Storage		Eliminations			Consolidated
	(In thousands)
Property, plant and equipment, net	$	8,737,590	$	3,050,079	$	—		$	11,787,669
Total assets	$	12,579,741	$	3,279,323	$	(2,491,445	)	$	13,367,619


◦	Include short-term leases in the calculation of our lease liability.


◦	Evaluate existing or expired contracts to determine if they are leases.


◦	Assess lease classification for existing or expired leases.


◦	Use hindsight in order to determine the lease term or impairment of our ROU assets.



	December 31, 2019
Weighted average remaining lease term (years)
Finance lease	19.00
Operating leases	10.78



	December 31, 2019
Weighted average discount rate
Finance lease	9.57	%
Operating leases	2.91	%



	Three Months Ended December 31, 2019
	(In thousands)
Finance lease cost	$	73
Operating lease cost	9,925
Total lease cost	$	9,998



	Balance Sheet Classification	December 31, 2019
		(In thousands)
Assets
Finance lease	Net Property, Plant and Equipment	$	2,522
Operating leases	Deferred charges and other assets	223,486
Total right-of-use assets		$	226,008
Liabilities
Current
Finance lease	Current maturities of long-term debt	$	50
Operating leases	Other current liabilities	30,099
Noncurrent
Finance lease	Long-term debt	2,484
Operating leases	Deferred credits and other liabilities	200,997
Total lease liabilities		$	233,630



	Three Months Ended December 31, 2019
	(In thousands)
Cash paid amounts included in the measurement of lease liabilities
Operating cash flows used for operating leases	$	8,840
Right-of-use assets obtained in exchange for lease obligations
Operating leases	$	6,812



	Total		Finance Lease		Operating Leases
	(In thousands)
Year 1	$	35,719	$	244	$	35,475
Year 2	35,954		249		35,705
Year 3	32,230		254		31,976
Year 4	27,421		259		27,162
Year 5	18,981		264		18,717
Thereafter	127,745		4,222		123,523
Total lease payments	278,050		5,492		272,558
Less: Imputed interest	44,420		2,958		41,462
Total	$	233,630	$	2,534	$	231,096
Reported as of December 31, 2019
Short-term lease liabilities	$	30,149	$	50	$	30,099
Long-term lease liabilities	203,481		2,484		200,997
Total lease liabilities	$	233,630	$	2,534	$	231,096



	Operating Leases⁽¹⁾		Capital Lease
	(In thousands)
2020	$	21,017	$	243
2021	20,416		248
2022	19,370		253
2023	18,071		258
2024	15,718		263
Thereafter	105,544		4,343
Total minimum lease payments	$	200,136	5,608
Less amount representing interest			3,018
Present value of net minimum lease payments			$	2,590



	Common stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
	Number of Shares	Stated Value		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
	(In thousands, except share and per share data)
Balance, September 30, 2019	119,338,925	$	597	$	3,712,194	$	(114,583	)	$	2,152,015		$	5,750,223
Net income	—	—		—		—			178,673			178,673
Other comprehensive income	—	—		—		1,052			—			1,052
Cash dividends ($0.575 per share)	—	—		—		—			(69,557		)	(69,557		)
Common stock issued:
Public and other stock offerings	2,758,929	13		263,259		—			—			263,272
Stock-based compensation plans	164,549	1		4,111		—			—			4,112
Balance, December 31, 2019	122,262,403	$	611	$	3,979,564	$	(113,531	)	$	2,261,131		$	6,127,775



	Maturity
	September 30, 2020				March 31, 2020				Total
	Shares		Price⁽¹⁾		Shares		Price⁽¹⁾		Shares		Price⁽¹⁾
Available Balance September 30, 2019	2,474,162				2,155,698				4,629,860
Q1 Issuance	339,574		$	107.40	—		$	—	339,574		$	107.40
Q1 Settlement	(564,362	)	$	100.21	(2,155,698	)	$	93.88	(2,720,060	)	$	95.22
Available Balance December 31, 2019	2,249,374				—				2,249,374


(1)	Issued price as disclosed is calculated as the weighted average price for activity occurring during the quarter.



	Available- for-Sale Securities			Interest Rate Agreement Cash Flow Hedges			Total
	(In thousands)
September 30, 2019	$	132		$	(114,715	)	$	(114,583	)
Other comprehensive loss before reclassifications	(1		)	—			(1		)
Amounts reclassified from accumulated other comprehensive income	—			1,053			1,053
Net current-period other comprehensive income (loss)	(1		)	1,053			1,052
December 31, 2019	$	131		$	(113,662	)	$	(113,531	)



	Three Months Ended December 31
	Pension Benefits						Other Benefits
	2019			2018			2019			2018
	(In thousands)
Components of net periodic pension cost:
Service cost	$	4,653		$	4,045		$	3,366		$	2,702
Interest cost⁽¹⁾	5,843			6,799			2,653			2,961
Expected return on assets⁽¹⁾	(7,079		)	(7,113		)	(2,625		)	(2,665		)
Amortization of prior service cost (credit)⁽¹⁾	(58		)	(58		)	43			43
Amortization of actuarial (gain) loss⁽¹⁾	(1,271		)	1,608			(334		)	(2,045		)
Net periodic pension cost	$	2,088		$	5,281		$	3,103		$	996




	Balance Sheet Location	Assets		Liabilities
		(In thousands)
December 31, 2019
Not Designated As Hedges:
Commodity contracts	Other current assets / Other current liabilities	$	1,213	$	(8,391	)
Commodity contracts	Deferred charges and other assets / Deferred credits and other liabilities	158		(439		)
Total		1,371		(8,830		)
Gross / Net Financial Instruments		$	1,371	$	(8,830	)



	Interest Rate Agreements
	(In thousands)
Next twelve months	$	(4,212	)
Thereafter	(109,450		)
Total	$	(113,662	)