Atmos Energy Corp 10-Q for FY2020 Q3

Atmos Energy Corp (ATO)

10-Q 2020-08-05 For: 2020-06-30

Added on April 03, 2026

About this 10-Q

Atmos Energy Corp filed this 10-Q on August 5, 2020, covering the quarter ended June 30, 2020 (FY2020 Q3).

Headline figures

Quarter ended June 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $493M; up 1.5% from $485.74M a year earlier
Net income: $117.79M; up 46.4% from net income of $80.47M a year earlier
Diluted EPS: $0.96; up 41.2% from $0.68 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	123,354,982



Adjusted diluted net income per share	Non-GAAP measure defined as diluted net income per share before the non-cash income tax benefit
Adjusted net income	Non-GAAP measure defined as net income before the non-cash income tax benefit
AEC	Atmos Energy Corporation
AOCI	Accumulated other comprehensive income
ARM	Annual Rate Mechanism
Bcf	Billion cubic feet
DARR	Dallas Annual Rate Review
FASB	Financial Accounting Standards Board
GAAP	Generally Accepted Accounting Principles
GRIP	Gas Reliability Infrastructure Program
GSRS	Gas System Reliability Surcharge
LIBOR	London Interbank Offered Rate
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



	June 30, 2020			September 30, 2019
	(Unaudited)
	(In thousands, except share data)
ASSETS
Property, plant and equipment	$	15,443,224		$	14,180,593
Less accumulated depreciation and amortization	2,562,374			2,392,924
Net property, plant and equipment	12,880,850			11,787,669
Current assets
Cash and cash equivalents	208,064			24,550
Accounts receivable, net	236,466			230,571
Gas stored underground	84,886			130,138
Other current assets	72,743			72,772
Total current assets	602,159			458,031
Goodwill	730,706			730,706
Deferred charges and other assets	657,267			391,213
	$	14,870,982		$	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: June 30, 2020 — 123,351,267 shares; September 30, 2019 — 119,338,925 shares	$	617		$	597
Additional paid-in capital	4,100,130			3,712,194
Accumulated other comprehensive loss	(116,727		)	(114,583		)
Retained earnings	2,477,451			2,152,015
Shareholders’ equity	6,461,471			5,750,223
Long-term debt	4,531,341			3,529,452
Total capitalization	10,992,812			9,279,675
Current liabilities
Accounts payable and accrued liabilities	200,116			265,024
Other current liabilities	502,413			479,501
Short-term debt	—			464,915
Current maturities of long-term debt	157			—
Total current liabilities	702,686			1,209,440
Deferred income taxes	1,420,065			1,300,015
Regulatory excess deferred taxes	702,493			705,101
Regulatory cost of removal obligation	458,101			473,172
Deferred credits and other liabilities	594,825			400,216
	$	14,870,982		$	13,367,619



	Three Months Ended June 30
	2020			2019
	(Unaudited) (In thousands, except per share data)
Operating revenues
Distribution segment	$	435,308		$	444,944
Pipeline and storage segment	158,008			149,198
Intersegment eliminations	(100,321		)	(108,404		)
Total operating revenues	492,995			485,738

Purchased gas cost
Distribution segment	126,093			139,518
Pipeline and storage segment	(11		)	(96		)
Intersegment eliminations	(100,010		)	(108,096		)
Total purchased gas cost	26,072			31,326

Operation and maintenance expense	149,460			164,545
Depreciation and amortization expense	107,104			97,700
Taxes, other than income	71,324			69,965
Operating income	139,035			122,202
Other non-operating income	7,235			1,645
Interest charges	19,580			19,592
Income before income taxes	126,690			104,255
Income tax expense	8,899			23,789
Net income	$	117,791		$	80,466
Basic net income per share	$	0.96		$	0.68
Diluted net income per share	$	0.96		$	0.68
Cash dividends per share	$	0.575		$	0.525
Basic weighted average shares outstanding	123,026			118,075
Diluted weighted average shares outstanding	123,032			118,430

Net income	$	117,791		$	80,466
Other comprehensive income (loss), net of tax
Net unrealized holding gains on available-for-sale securities, net of tax of $96 and $27	364			94
Cash flow hedges:
Amortization and unrealized gain (loss) on interest rate agreements, net of tax of $(1,115) and $312	(4,450		)	1,053
Total other comprehensive income (loss)	(4,086		)	1,147
Total comprehensive income	$	113,705		$	81,613



	Nine Months Ended June 30
	2020			2019
	(Unaudited) (In thousands, except per share data)
Operating revenues
Distribution segment	$	2,196,817		$	2,341,668
Pipeline and storage segment	452,421			419,318
Intersegment eliminations	(303,015		)	(302,821		)
Total operating revenues	2,346,223			2,458,165

Purchased gas cost
Distribution segment	942,586			1,147,598
Pipeline and storage segment	290			(544		)
Intersegment eliminations	(302,053		)	(301,887		)
Total purchased gas cost	640,823			845,167

Operation and maintenance expense	449,529			452,572
Depreciation and amortization expense	318,082			290,537
Taxes, other than income	214,535			213,546
Operating income	723,254			656,343
Other non-operating income (expense)	9,133			(1,846		)
Interest charges	68,980			74,390
Income before income taxes	663,407			580,107
Income tax expense	127,297			127,107
Net income	$	536,110		$	453,000
Basic net income per share	$	4.38		$	3.89
Diluted net income per share	$	4.37		$	3.88
Cash dividends per share	$	1.725		$	1.575
Basic weighted average shares outstanding	122,352			116,485
Diluted weighted average shares outstanding	122,463			116,673

Net income	$	536,110		$	453,000
Other comprehensive income (loss), net of tax
Net unrealized holding gains on available-for-sale securities, net of tax of $47 and $56	200			191
Cash flow hedges:
Amortization and unrealized loss on interest rate agreements, net of tax of $(492) and $(7,093)	(2,344		)	(23,997		)
Total other comprehensive loss	(2,144		)	(23,806		)
Total comprehensive income	$	533,966		$	429,194



	June 30, 2020		September 30, 2019
	(In thousands)
Regulatory assets:
Pension and postretirement benefit costs	$	79,108	$	86,089
Infrastructure mechanisms⁽¹⁾	180,390		131,894
Deferred gas costs	—		23,766
Recoverable loss on reacquired debt	5,259		6,551
Deferred pipeline record collection costs	28,700		26,418
Rate case costs	401		1,346
Other	6,173		8,483
	$	300,031	$	284,547
Regulatory liabilities:
Regulatory excess deferred taxes⁽²⁾	$	723,400	$	726,307
Regulatory cost of service reserve	2,559		5,238
Regulatory cost of removal obligation	528,932		528,893
Deferred gas costs	48,917		14,112
Asset retirement obligation	17,054		17,054
APT annual adjustment mechanism	62,461		78,402
Other	21,923		16,120
	$	1,405,246	$	1,386,126


(1)	Infrastructure mechanisms in Texas, Louisiana and Tennessee 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 June 30, 2020
	Distribution		Pipeline and Storage			Eliminations			Consolidated
	(In thousands)
Operating revenues from external parties	$	434,650	$	58,345		$	—		$	492,995
Intersegment revenues	658		99,663			(100,321		)	—
Total operating revenues	435,308		158,008			(100,321		)	492,995
Purchased gas cost	126,093		(11		)	(100,010		)	26,072
Operation and maintenance expense	107,537		42,234			(311		)	149,460
Depreciation and amortization expense	77,187		29,917			—			107,104
Taxes, other than income	61,980		9,344			—			71,324
Operating income	62,511		76,524			—			139,035
Other non-operating income	5,167		2,068			—			7,235
Interest charges	7,969		11,611			—			19,580
Income before income taxes	59,709		66,981			—			126,690
Income tax expense	810		8,089			—			8,899
Net income	$	58,899	$	58,892		$	—		$	117,791
Capital expenditures	$	342,385	$	68,551		$	—		$	410,936



Item 1.	Financial Statements


(1)	In our distribution segment, we have weather-normalization adjustment mechanisms that serve to mitigate the effects of weather on our revenue. Additionally, APT has a regulatory mechanism that requires that we share with its tariffed customers 75% of the difference between the total non-tariffed revenues earned during a test period and a revenue benchmark.


•	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:



	Three Months Ended June 30, 2019
	Distribution		Pipeline and Storage			Eliminations			Consolidated
	(In thousands)
Operating revenues from external parties	$	444,287	$	41,451		$	—		$	485,738
Intersegment revenues	657		107,747			(108,404		)	—
Total operating revenues	444,944		149,198			(108,404		)	485,738
Purchased gas cost	139,518		(96		)	(108,096		)	31,326
Operation and maintenance expense	123,998		40,855			(308		)	164,545
Depreciation and amortization expense	70,611		27,089			—			97,700
Taxes, other than income	62,134		7,831			—			69,965
Operating income	48,683		73,519			—			122,202
Other non-operating income (expense)	3,005		(1,360		)	—			1,645
Interest charges	10,597		8,995			—			19,592
Income before income taxes	41,091		63,164			—			104,255
Income tax expense	8,693		15,096			—			23,789
Net income	$	32,398	$	48,068		$	—		$	80,466
Capital expenditures	$	316,825	$	104,788		$	—		$	421,613



	Nine Months Ended June 30, 2020
	Distribution		Pipeline and Storage		Eliminations			Consolidated
	(In thousands)
Operating revenues from external parties	$	2,194,786	$	151,437	$	—		$	2,346,223
Intersegment revenues	2,031		300,984		(303,015		)	—
Total operating revenues	2,196,817		452,421		(303,015		)	2,346,223
Purchased gas cost	942,586		290		(302,053		)	640,823
Operation and maintenance expense	337,740		112,751		(962		)	449,529
Depreciation and amortization expense	229,526		88,556		—			318,082
Taxes, other than income	190,636		23,899		—			214,535
Operating income	496,329		226,925		—			723,254
Other non-operating income	1,930		7,203		—			9,133
Interest charges	35,128		33,852		—			68,980
Income before income taxes	463,131		200,276		—			663,407
Income tax expense	87,411		39,886		—			127,297
Net income	$	375,720	$	160,390	$	—		$	536,110
Capital expenditures	$	1,119,945	$	285,728	$	—		$	1,405,673



	Nine Months Ended June 30, 2019
	Distribution		Pipeline and Storage			Eliminations			Consolidated
	(In thousands)
Operating revenues from external parties	$	2,339,660	$	118,505		$	—		$	2,458,165
Intersegment revenues	2,008		300,813			(302,821		)	—
Total operating revenues	2,341,668		419,318			(302,821		)	2,458,165
Purchased gas cost	1,147,598		(544		)	(301,887		)	845,167
Operation and maintenance expense	347,386		106,120			(934		)	452,572
Depreciation and amortization expense	210,224		80,313			—			290,537
Taxes, other than income	189,377		24,169			—			213,546
Operating income	447,083		209,260			—			656,343
Other non-operating income (expense)	1,791		(3,637		)	—			(1,846		)
Interest charges	44,703		29,687			—			74,390
Income before income taxes	404,171		175,936			—			580,107
Income tax expense	85,195		41,912			—			127,107
Net income	$	318,976	$	134,024		$	—		$	453,000
Capital expenditures	$	912,640	$	286,559		$	—		$	1,199,199



	June 30, 2020
	Distribution		Pipeline and Storage		Eliminations			Consolidated
	(In thousands)
Property, plant and equipment, net	$	9,644,503	$	3,236,347	$	—		$	12,880,850
Total assets	$	14,098,715	$	3,471,282	$	(2,699,015	)	$	14,870,982



	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


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


◦	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.



	June 30, 2020
Weighted average remaining lease term (years)
Finance leases	19.36
Operating leases	10.69



	June 30, 2020
Weighted average discount rate
Finance leases	8.02	%
Operating leases	2.91	%



	Balance Sheet Classification	June 30, 2020
		(In thousands)
Assets
Finance leases	Net Property, Plant and Equipment	$	8,554
Operating leases	Deferred charges and other assets	225,311
Total right-of-use assets		$	233,865
Liabilities
Current
Finance leases	Current maturities of long-term debt	$	157
Operating leases	Other current liabilities	33,884
Noncurrent
Finance leases	Long-term debt	8,479
Operating leases	Deferred credits and other liabilities	200,390
Total lease liabilities		$	242,910



	Nine Months Ended June 30, 2020
	(In thousands)
Cash paid amounts included in the measurement of lease liabilities
Operating cash flows used for operating leases	$	28,011
Right-of-use assets obtained in exchange for lease obligations
Finance leases	$	6,143
Operating leases	$	23,628



	Total		Finance Leases		Operating Leases
	(In thousands)
Year 1	$	39,017	$	738	$	38,279
Year 2	37,983		749		37,234
Year 3	33,112		759		32,353
Year 4	26,386		770		25,616
Year 5	17,607		781		16,826
Thereafter	139,172		12,862		126,310
Total lease payments	293,277		16,659		276,618
Less: Imputed interest	50,367		8,023		42,344
Total	$	242,910	$	8,636	$	234,274
Reported as of June 30, 2020
Short-term lease liabilities	$	34,041	$	157	$	33,884
Long-term lease liabilities	208,869		8,479		200,390
Total lease liabilities	$	242,910	$	8,636	$	234,274



	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
Net income	—	—		—		—			239,646			239,646
Other comprehensive income	—	—		—		890			—			890
Cash dividends ($0.575 per share)	—	—		—		—			(70,520		)	(70,520		)
Common stock issued:
Public and other stock offerings	38,662	1		3,095		—			—			3,096
Stock-based compensation plans	7,660	—		3,528		—			—			3,528
Balance, March 31, 2020	122,308,725	612		3,986,187		(112,641		)	2,430,257			6,304,415
Net income	—	—		—		—			117,791			117,791
Other comprehensive loss	—	—		—		(4,086		)	—			(4,086		)
Cash dividends ($0.575 per share)	—	—		—		—			(70,597		)	(70,597		)
Common stock issued:
Public and other stock offerings	965,576	5		105,799		—			—			105,804
Stock-based compensation plans	76,966	—		8,144		—			—			8,144
Balance, June 30, 2020	123,351,267	$	617	$	4,100,130	$	(116,727	)	$	2,477,451		$	6,461,471



Maturity	Shares Available	Net Proceeds Available (In thousands)		Forward Price
September 30, 2020	1,662,270	$	174,142	$	104.76
March 31, 2021	2,089,927	229,650		$	109.88
June 30, 2021	1,394,423	143,430		$	102.86
Total	5,146,620	$	547,222



	Available- for-Sale Securities			Interest Rate Agreement Cash Flow Hedges			Total
	(In thousands)
September 30, 2019	$	132		$	(114,715	)	$	(114,583	)
Other comprehensive income (loss) before reclassifications	202			(4,932		)	(4,730		)
Amounts reclassified from accumulated other comprehensive income	(2		)	2,588			2,586
Net current-period other comprehensive income (loss)	200			(2,344		)	(2,144		)
June 30, 2020	$	332		$	(117,059	)	$	(116,727	)



	Three Months Ended June 30
	Pension Benefits						Other Benefits
	2020			2019			2020			2019
	(In thousands)
Components of net periodic pension cost:
Service cost	$	4,652		$	4,044		$	3,366		$	2,702
Interest cost⁽¹⁾	5,843			6,799			2,653			2,960
Expected return on assets⁽¹⁾	(7,079		)	(7,113		)	(2,625		)	(2,664		)
Amortization of prior service cost (credit)⁽¹⁾	(58		)	(57		)	43			43
Amortization of actuarial (gain) loss⁽¹⁾	3,242			1,606			(334		)	(2,045		)
Net periodic pension cost	$	6,600		$	5,279		$	3,103		$	996