Atmos Energy Corp 10-Q for FY2020 Q2

Atmos Energy Corp (ATO)

10-Q 2020-05-06 For: 2020-03-31

Added on April 03, 2026

About this 10-Q

Atmos Energy Corp filed this 10-Q on May 6, 2020, covering the quarter ended March 31, 2020 (FY2020 Q2).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $977.67M; down 10.7% from $1.09B a year earlier
Net income: $239.65M; up 11.5% from net income of $214.89M a year earlier
Diluted EPS: $1.95; up 7.1% from $1.82 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	122,311,513




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



	March 31, 2020			September 30, 2019
	(Unaudited)
	(In thousands, except share data)
ASSETS
Property, plant and equipment	$	15,044,831		$	14,180,593
Less accumulated depreciation and amortization	2,496,591			2,392,924
Net property, plant and equipment	12,548,240			11,787,669
Current assets
Cash and cash equivalents	320,099			24,550
Accounts receivable, net	377,817			230,571
Gas stored underground	68,061			130,138
Other current assets	63,584			72,772
Total current assets	829,561			458,031
Goodwill	730,706			730,706
Deferred charges and other assets	607,891			391,213
	$	14,716,398		$	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: March 31, 2020 — 122,308,725 shares; September 30, 2019 — 119,338,925 shares	$	612		$	597
Additional paid-in capital	3,986,187			3,712,194
Accumulated other comprehensive loss	(112,641		)	(114,583		)
Retained earnings	2,430,257			2,152,015
Shareholders’ equity	6,304,415			5,750,223
Long-term debt	4,328,866			3,529,452
Total capitalization	10,633,281			9,279,675
Current liabilities
Accounts payable and accrued liabilities	190,088			265,024
Other current liabilities	543,248			479,501
Short-term debt	199,923			464,915
Current maturities of long-term debt	131			—
Total current liabilities	933,390			1,209,440
Deferred income taxes	1,421,779			1,300,015
Regulatory excess deferred taxes	694,433			705,101
Regulatory cost of removal obligation	448,681			473,172
Deferred credits and other liabilities	584,834			400,216
	$	14,716,398		$	13,367,619



	Three Months Ended March 31
	2020			2019
	(Unaudited) (In thousands, except per share data)
Operating revenues
Distribution segment	$	933,005		$	1,057,889
Pipeline and storage segment	146,237			135,650
Intersegment eliminations	(101,577		)	(98,894		)
Total operating revenues	977,665			1,094,645

Purchased gas cost
Distribution segment	418,935			570,348
Pipeline and storage segment	202			(90		)
Intersegment eliminations	(101,254		)	(98,582		)
Total purchased gas cost	317,883			471,676

Operation and maintenance expense	147,824			149,427
Depreciation and amortization expense	105,916			96,772
Taxes, other than income	74,604			79,093
Operating income	331,438			297,677
Other non-operating income (expense)	(2,989		)	4,232
Interest charges	22,171			26,949
Income before income taxes	306,278			274,960
Income tax expense	66,632			60,072
Net income	$	239,646		$	214,888
Basic net income per share	$	1.95		$	1.83
Diluted net income per share	$	1.95		$	1.82
Cash dividends per share	$	0.575		$	0.525
Basic weighted average shares outstanding	122,916			117,581
Diluted weighted average shares outstanding	122,997			117,756

Net income	$	239,646		$	214,888
Other comprehensive income (loss), net of tax
Net unrealized holding gains (losses) on available-for-sale securities, net of tax of $(49) and $29	(163		)	97
Cash flow hedges:
Amortization and unrealized loss on interest rate agreements, net of tax of $312 and $(825)	1,053			(2,792		)
Total other comprehensive income (loss)	890			(2,695		)
Total comprehensive income	$	240,536		$	212,193



	Six Months Ended March 31
	2020			2019
	(Unaudited) (In thousands, except per share data)
Operating revenues
Distribution segment	$	1,761,509		$	1,896,724
Pipeline and storage segment	294,413			270,120
Intersegment eliminations	(202,694		)	(194,417		)
Total operating revenues	1,853,228			1,972,427

Purchased gas cost
Distribution segment	816,493			1,008,080
Pipeline and storage segment	301			(448		)
Intersegment eliminations	(202,043		)	(193,791		)
Total purchased gas cost	614,751			813,841

Operation and maintenance expense	300,069			288,027
Depreciation and amortization expense	210,978			192,837
Taxes, other than income	143,211			143,581
Operating income	584,219			534,141
Other non-operating income (expense)	1,898			(3,491		)
Interest charges	49,400			54,798
Income before income taxes	536,717			475,852
Income tax expense	118,398			103,318
Net income	$	418,319		$	372,534
Basic net income per share	$	3.43		$	3.22
Diluted net income per share	$	3.42		$	3.21
Cash dividends per share	$	1.15		$	1.05
Basic weighted average shares outstanding	122,015			115,690
Diluted weighted average shares outstanding	122,179			115,794

Net income	$	418,319		$	372,534
Other comprehensive income (loss), net of tax
Net unrealized holding gains (losses) on available-for-sale securities, net of tax of $(49) and $29	(164		)	97
Cash flow hedges:
Amortization and unrealized loss on interest rate agreements, net of tax of $623 and $(7,405)	2,106			(25,050		)
Total other comprehensive income (loss)	1,942			(24,953		)
Total comprehensive income	$	420,261		$	347,581



	March 31, 2020		September 30, 2019
	(In thousands)
Regulatory assets:
Pension and postretirement benefit costs	$	80,955	$	86,089
Infrastructure mechanisms⁽¹⁾	142,075		131,894
Deferred gas costs	—		23,766
Recoverable loss on reacquired debt	5,652		6,551
Deferred pipeline record collection costs	27,811		26,418
Rate case costs	2,250		1,346
Other	7,765		8,483
	$	266,508	$	284,547
Regulatory liabilities:
Regulatory excess deferred taxes⁽²⁾	$	715,807	$	726,307
Regulatory cost of service reserve	3,770		5,238
Regulatory cost of removal obligation	521,319		528,893
Deferred gas costs	115,112		14,112
Asset retirement obligation	17,054		17,054
APT annual adjustment mechanism	68,048		78,402
Other	17,591		16,120
	$	1,458,701	$	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 March 31, 2020
	Distribution			Pipeline and Storage		Eliminations			Consolidated
	(In thousands)
Operating revenues from external parties	$	932,296		$	45,369	$	—		$	977,665
Intersegment revenues	709			100,868		(101,577		)	—
Total operating revenues	933,005			146,237		(101,577		)	977,665
Purchased gas cost	418,935			202		(101,254		)	317,883
Operation and maintenance expense	115,851			32,296		(323		)	147,824
Depreciation and amortization expense	76,265			29,651		—			105,916
Taxes, other than income	68,413			6,191		—			74,604
Operating income	253,541			77,897		—			331,438
Other non-operating income (expense)	(5,191		)	2,202		—			(2,989		)
Interest charges	10,797			11,374		—			22,171
Income before income taxes	237,553			68,725		—			306,278
Income tax expense	50,489			16,143		—			66,632
Net income	$	187,064		$	52,582	$	—		$	239,646
Capital expenditures	$	373,313		$	92,238	$	—		$	465,551



Item 1.	Financial Statements


(1)	In our distribution segment, we have weather-normalization adjustment mechanisms that serve to minimize 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 March 31, 2019
	Distribution		Pipeline and Storage			Eliminations			Consolidated
	(In thousands)
Operating revenues from external parties	$	1,057,192	$	37,453		$	—		$	1,094,645
Intersegment revenues	697		98,197			(98,894		)	—
Total operating revenues	1,057,889		135,650			(98,894		)	1,094,645
Purchased gas cost	570,348		(90		)	(98,582		)	471,676
Operation and maintenance expense	117,621		32,118			(312		)	149,427
Depreciation and amortization expense	69,904		26,868			—			96,772
Taxes, other than income	71,053		8,040			—			79,093
Operating income	228,963		68,714			—			297,677
Other non-operating income (expense)	5,263		(1,031		)	—			4,232
Interest charges	15,896		11,053			—			26,949
Income before income taxes	218,330		56,630			—			274,960
Income tax expense	46,137		13,935			—			60,072
Net income	$	172,193	$	42,695		$	—		$	214,888
Capital expenditures	$	293,270	$	67,912		$	—		$	361,182



	Six Months Ended March 31, 2020
	Distribution			Pipeline and Storage		Eliminations			Consolidated
	(In thousands)
Operating revenues from external parties	$	1,760,136		$	93,092	$	—		$	1,853,228
Intersegment revenues	1,373			201,321		(202,694		)	—
Total operating revenues	1,761,509			294,413		(202,694		)	1,853,228
Purchased gas cost	816,493			301		(202,043		)	614,751
Operation and maintenance expense	230,203			70,517		(651		)	300,069
Depreciation and amortization expense	152,339			58,639		—			210,978
Taxes, other than income	128,656			14,555		—			143,211
Operating income	433,818			150,401		—			584,219
Other non-operating income (expense)	(3,237		)	5,135		—			1,898
Interest charges	27,159			22,241		—			49,400
Income before income taxes	403,422			133,295		—			536,717
Income tax expense	86,601			31,797		—			118,398
Net income	$	316,821		$	101,498	$	—		$	418,319
Capital expenditures	$	777,560		$	217,177	$	—		$	994,737



	Six Months Ended March 31, 2019
	Distribution			Pipeline and Storage			Eliminations			Consolidated
	(In thousands)
Operating revenues from external parties	$	1,895,373		$	77,054		$	—		$	1,972,427
Intersegment revenues	1,351			193,066			(194,417		)	—
Total operating revenues	1,896,724			270,120			(194,417		)	1,972,427
Purchased gas cost	1,008,080			(448		)	(193,791		)	813,841
Operation and maintenance expense	223,388			65,265			(626		)	288,027
Depreciation and amortization expense	139,613			53,224			—			192,837
Taxes, other than income	127,243			16,338			—			143,581
Operating income	398,400			135,741			—			534,141
Other non-operating expense	(1,214		)	(2,277		)	—			(3,491		)
Interest charges	34,106			20,692			—			54,798
Income before income taxes	363,080			112,772			—			475,852
Income tax expense	76,502			26,816			—			103,318
Net income	$	286,578		$	85,956		$	—		$	372,534
Capital expenditures	$	595,815		$	181,771		$	—		$	777,586



	March 31, 2020
	Distribution		Pipeline and Storage		Eliminations			Consolidated
	(In thousands)
Property, plant and equipment, net	$	9,364,424	$	3,183,816	$	—		$	12,548,240
Total assets	$	13,946,651	$	3,403,106	$	(2,633,359	)	$	14,716,398



	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.



	March 31, 2020
Weighted average remaining lease term (years)
Finance leases	19.45
Operating leases	10.72



	March 31, 2020
Weighted average discount rate
Finance leases	6.95	%
Operating leases	2.92	%



	Balance Sheet Classification	March 31, 2020
		(In thousands)
Assets
Finance leases	Net Property, Plant and Equipment	$	6,631
Operating leases	Deferred charges and other assets	222,653
Total right-of-use assets		$	229,284
Liabilities
Current
Finance leases	Current maturities of long-term debt	$	131
Operating leases	Other current liabilities	31,482
Noncurrent
Finance leases	Long-term debt	6,535
Operating leases	Deferred credits and other liabilities	199,563
Total lease liabilities		$	237,711



	Six Months Ended March 31, 2020
	(In thousands)
Cash paid amounts included in the measurement of lease liabilities
Operating cash flows used for operating leases	$	18,223
Right-of-use assets obtained in exchange for lease obligations
Finance leases	$	4,150
Operating leases	$	13,854



	Total		Finance Leases		Operating Leases
	(In thousands)
Year 1	$	36,723	$	516	$	36,207
Year 2	37,066		526		36,540
Year 3	32,468		536		31,932
Year 4	27,244		547		26,697
Year 5	17,088		558		16,530
Thereafter	133,876		9,335		124,541
Total lease payments	284,465		12,018		272,447
Less: Imputed interest	46,754		5,352		41,402
Total	$	237,711	$	6,666	$	231,045
Reported as of March 31, 2020
Short-term lease liabilities	$	31,613	$	131	$	31,482
Long-term lease liabilities	206,098		6,535		199,563
Total lease liabilities	$	237,711	$	6,666	$	231,045



	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



Issue Quarter	Issued Under	Shares Available	Net Proceeds Available (In thousands)		Maturity	Forward Price
June 30, 2019	ATM	486,201	$	48,819	9/30/2020	$	100.41
September 30, 2019	ATM	1,423,599	153,426		9/30/2020	$	107.77
December 31, 2019	ATM	339,574	36,218		9/30/2020	$	106.66
March 31, 2020	ATM	1,551,283	180,117		9/30/2020 3/31/2021	$	116.11
Total		3,800,657	$	418,580



	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	(163		)	—			(163		)
Amounts reclassified from accumulated other comprehensive income	(1		)	2,106			2,105
Net current-period other comprehensive income (loss)	(164		)	2,106			1,942
March 31, 2020	$	(32	)	$	(112,609	)	$	(112,641	)



	Three Months Ended March 31
	Pension Benefits						Other Benefits
	2020			2019			2020			2019
	(In thousands)
Components of net periodic pension cost:
Service cost	$	4,652		$	4,045		$	3,366		$	2,703
Interest cost⁽¹⁾	5,843			6,801			2,653			2,958
Expected return on assets⁽¹⁾	(7,079		)	(7,113		)	(2,625		)	(2,665		)
Amortization of prior service cost (credit)⁽¹⁾	(58		)	(58		)	43			44
Amortization of actuarial (gain) loss⁽¹⁾	3,242			1,607			(334		)	(2,044		)
Net periodic pension cost	$	6,600		$	5,282		$	3,103		$	996