NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 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 distribution business is 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 over
three million
residential, commercial, public authority and industrial customers through our
six
regulated distribution divisions, which at
December 31, 2017
, covered service areas located in
eight
states.
Our pipeline and storage business, which is also subject to federal and state regulations, includes the transportation of natural gas to our Texas and Louisiana distribution systems and the management of our underground storage facilities used to support our distribution business in various states.
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 included in our Annual Report on Form 10-K for the fiscal year ended
September 30, 2017
. 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 the audited consolidated financial statements of Atmos Energy Corporation included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017. Because of seasonal and other factors, the results of operations for the
three
-month period ended
December 31, 2017
are not indicative of our results of operations for the full
2018
fiscal year, which ends
September 30, 2018
.
Except for the actions of our regulators regarding tax reform as discussed in Note 6 and the receipt of funds held in escrow related to the prior year sale of AEM, no 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 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.
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 December 31, 2017, we had substantially completed the evaluation of our sources of revenue and the impact that the new guidance will have on our financial position, results of operations, cash flows and business processes. Based on this evaluation, we currently do not believe the implementation of the new guidance will have a material effect on our financial position, results of operations, cash flows or business processes. We expect to apply the new guidance using the modified retrospective method on the date of adoption. We are currently still evaluating the impact on our financial statement presentation and related disclosures.
In January 2016, the FASB issued guidance related to the classification and measurement of financial instruments. The amendments modify the accounting and presentation for certain financial liabilities and equity investments not consolidated or reported using the equity method. The guidance is effective for us beginning October 1, 2018; limited early adoption is permitted. We are currently evaluating the potential impact of this new guidance 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. Additionally, in January 2018, the FASB issued amendments to the standard that provides a practical expedient for entities to not evaluate existing or expired land easements that were not previously accounted for as leases under the current guidance. We are currently evaluating the effect of this standard and amendments 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. We have elected to early adopt the new standard, which will be effective for our goodwill impairment test performed in our second fiscal quarter. We do not anticipate the new standard will have a material 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). However, we believe that we will be allowed to defer the other components of net periodic benefit cost as a regulatory asset and that we will still be allowed to capitalize all components of net periodic benefit cost for ratemaking purposes. The new guidance will be 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 a portion 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 our regulatory excess deferred taxes and regulatory cost of removal obligation is reported separately.
Significant regulatory assets and liabilities as of
December 31, 2017
and
September 30, 2017
included the following:
|
|
|
|
|
|
|
|
|
|
December 31,
2017
|
|
September 30,
2017
|
|
(In thousands)
|
Regulatory assets:
|
|
|
|
Pension and postretirement benefit costs
(1)
|
$
|
24,598
|
|
|
$
|
26,826
|
|
Infrastructure mechanisms
(2)
|
54,571
|
|
|
46,437
|
|
Deferred gas costs
|
18,505
|
|
|
65,714
|
|
Recoverable loss on reacquired debt
|
10,580
|
|
|
11,208
|
|
Deferred pipeline record collection costs
|
12,942
|
|
|
11,692
|
|
APT annual adjustment mechanism
|
—
|
|
|
2,160
|
|
Rate case costs
|
3,160
|
|
|
2,629
|
|
Other
|
9,703
|
|
|
10,132
|
|
|
$
|
134,059
|
|
|
$
|
176,798
|
|
Regulatory liabilities:
|
|
|
|
Regulatory excess deferred taxes
(3)
|
$
|
746,246
|
|
|
$
|
—
|
|
Regulatory cost of removal obligation
|
520,483
|
|
|
521,330
|
|
Deferred gas costs
|
19,739
|
|
|
15,559
|
|
Asset retirement obligation
|
12,827
|
|
|
12,827
|
|
APT annual adjustment mechanism
|
1,720
|
|
|
—
|
|
Other
|
7,673
|
|
|
5,941
|
|
|
$
|
1,308,688
|
|
|
$
|
555,657
|
|
|
|
(1)
|
Includes
$8.6 million
and
$9.4 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)
|
The TCJA resulted in the remeasurement of the net deferred tax liability included in our rate base. The excess deferred taxes will be returned to utility customers in accordance with regulatory requirements. See Note 6 for further information.
|
3
. Segment Information
We manage and review our consolidated operations through the following reportable segments:
|
|
•
|
The
distribution
segment
is primarily comprised of our regulated natural gas distribution and related sales operations in eight states.
|
|
|
•
|
The
pipeline and storage
segment
is comprised primarily of the pipeline and storage operations of our Atmos Pipeline-Texas division and our natural gas transmission operations in Louisiana.
|
|
|
•
|
The
natural gas marketing
segment
was 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 Annual Report on Form 10-K for the fiscal year ended September 30, 2017. We evaluate performance based on net income or loss of the respective operating units. We allocate interest and pension expense to the pipeline and storage segment; however, there is no debt or pension liability recorded on the pipeline and storage segment balance sheet. All material intercompany transactions have been eliminated; however, we have not eliminated intercompany profits when such amounts are probable of recovery under the affiliates’ rate regulation process. Income taxes are allocated to each segment as if each segment’s taxes were calculated on a separate return basis.
Income statements and capital expenditures for the
three months ended
December 31, 2017
and
2016
by segment are presented in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2017
|
|
Distribution
|
|
Pipeline and Storage
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Operating revenues from external parties
|
$
|
860,453
|
|
|
$
|
28,739
|
|
|
$
|
—
|
|
|
$
|
889,192
|
|
Intersegment revenues
|
339
|
|
|
97,724
|
|
|
(98,063
|
)
|
|
—
|
|
Total operating revenues
|
860,792
|
|
|
126,463
|
|
|
(98,063
|
)
|
|
889,192
|
|
Purchased gas cost
|
463,758
|
|
|
912
|
|
|
(97,753
|
)
|
|
366,917
|
|
Operation and maintenance expense
|
103,737
|
|
|
26,140
|
|
|
(310
|
)
|
|
129,567
|
|
Depreciation and amortization expense
|
65,434
|
|
|
22,940
|
|
|
—
|
|
|
88,374
|
|
Taxes, other than income
|
55,107
|
|
|
7,666
|
|
|
—
|
|
|
62,773
|
|
Operating income
|
172,756
|
|
|
68,805
|
|
|
—
|
|
|
241,561
|
|
Miscellaneous expense
|
(1,400
|
)
|
|
(635
|
)
|
|
—
|
|
|
(2,035
|
)
|
Interest charges
|
21,368
|
|
|
10,141
|
|
|
—
|
|
|
31,509
|
|
Income before income taxes
|
149,988
|
|
|
58,029
|
|
|
—
|
|
|
208,017
|
|
Income tax benefit
|
(99,111
|
)
|
|
(7,004
|
)
|
|
—
|
|
|
(106,115
|
)
|
Net income
|
$
|
249,099
|
|
|
$
|
65,033
|
|
|
$
|
—
|
|
|
$
|
314,132
|
|
Capital expenditures
|
$
|
241,249
|
|
|
$
|
141,989
|
|
|
$
|
—
|
|
|
$
|
383,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2016
|
|
Distribution
|
|
Pipeline and Storage
|
|
Natural Gas Marketing
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Operating revenues from external parties
|
$
|
754,266
|
|
|
$
|
25,902
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
780,168
|
|
Intersegment revenues
|
390
|
|
|
84,050
|
|
|
—
|
|
|
(84,440
|
)
|
|
—
|
|
Total operating revenues
|
754,656
|
|
|
109,952
|
|
|
—
|
|
|
(84,440
|
)
|
|
780,168
|
|
Purchased gas cost
|
395,346
|
|
|
355
|
|
|
—
|
|
|
(84,396
|
)
|
|
311,305
|
|
Operation and maintenance expense
|
92,714
|
|
|
32,268
|
|
|
—
|
|
|
(44
|
)
|
|
124,938
|
|
Depreciation and amortization expense
|
61,157
|
|
|
15,801
|
|
|
—
|
|
|
—
|
|
|
76,958
|
|
Taxes, other than income
|
50,546
|
|
|
6,503
|
|
|
—
|
|
|
—
|
|
|
57,049
|
|
Operating income
|
154,893
|
|
|
55,025
|
|
|
—
|
|
|
—
|
|
|
209,918
|
|
Miscellaneous expense
|
(633
|
)
|
|
(361
|
)
|
|
—
|
|
|
—
|
|
|
(994
|
)
|
Interest charges
|
21,118
|
|
|
9,912
|
|
|
—
|
|
|
—
|
|
|
31,030
|
|
Income from continuing operations before income taxes
|
133,142
|
|
|
44,752
|
|
|
—
|
|
|
—
|
|
|
177,894
|
|
Income tax expense
|
47,778
|
|
|
16,078
|
|
|
—
|
|
|
—
|
|
|
63,856
|
|
Income from continuing operations
|
85,364
|
|
|
28,674
|
|
|
—
|
|
|
—
|
|
|
114,038
|
|
Income from discontinued operations, net of tax
|
—
|
|
|
—
|
|
|
10,994
|
|
|
—
|
|
|
10,994
|
|
Net income
|
$
|
85,364
|
|
|
$
|
28,674
|
|
|
$
|
10,994
|
|
|
$
|
—
|
|
|
$
|
125,032
|
|
Capital expenditures
|
$
|
222,484
|
|
|
$
|
75,478
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
297,962
|
|
Balance sheet information at
December 31, 2017
and
September 30, 2017
by segment is presented in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Distribution
|
|
Pipeline and Storage
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Property, plant and equipment, net
|
$
|
7,010,709
|
|
|
$
|
2,508,083
|
|
|
$
|
—
|
|
|
$
|
9,518,792
|
|
Total assets
|
$
|
10,633,234
|
|
|
$
|
2,729,455
|
|
|
$
|
(2,097,969
|
)
|
|
$
|
11,264,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
Distribution
|
|
Pipeline and Storage
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Property, plant and equipment, net
|
$
|
6,849,517
|
|
|
$
|
2,409,665
|
|
|
$
|
—
|
|
|
$
|
9,259,182
|
|
Total assets
|
$
|
10,050,164
|
|
|
$
|
2,621,601
|
|
|
$
|
(1,922,169
|
)
|
|
$
|
10,749,596
|
|
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 months ended December 31, 2017
and
2016
are calculated as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31
|
|
2017
|
|
2016
|
|
(In thousands, except per share amounts)
|
Basic and Diluted Earnings Per Share from continuing operations
|
|
|
|
Income from continuing operations
|
$
|
314,132
|
|
|
$
|
114,038
|
|
Less: Income from continuing operations allocated to participating securities
|
328
|
|
|
153
|
|
Income from continuing operations available to common shareholders
|
$
|
313,804
|
|
|
$
|
113,885
|
|
Basic and diluted weighted average shares outstanding
|
108,564
|
|
|
105,284
|
|
Income from continuing operations per share — Basic and Diluted
|
$
|
2.89
|
|
|
$
|
1.08
|
|
|
|
|
|
Basic and Diluted Earnings Per Share from discontinued operations
|
|
|
|
Income from discontinued operations
|
$
|
—
|
|
|
$
|
10,994
|
|
Less: Income from discontinued operations allocated to participating securities
|
—
|
|
|
14
|
|
Income from discontinued operations available to common shareholders
|
$
|
—
|
|
|
$
|
10,980
|
|
Basic and diluted weighted average shares outstanding
|
108,564
|
|
|
105,284
|
|
Income from discontinued operations per share — Basic and Diluted
|
$
|
—
|
|
|
$
|
0.11
|
|
Net income per share — Basic and Diluted
|
$
|
2.89
|
|
|
$
|
1.19
|
|
5
. Debt
The nature and terms of our debt instruments and credit facilities are described in detail in Note 5 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017. There were no material changes in the terms of our debt instruments during the
three months ended December 31, 2017
.
Long-term debt at
December 31, 2017
and
September 30, 2017
consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
September 30, 2017
|
|
(In thousands)
|
Unsecured 8.50% Senior Notes, due March 2019
|
$
|
450,000
|
|
|
$
|
450,000
|
|
Unsecured 3.00% Senior Notes, due 2027
|
500,000
|
|
|
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
|
|
|
750,000
|
|
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 September 2019
(1)
|
125,000
|
|
|
125,000
|
|
Total long-term debt
|
3,085,000
|
|
|
3,085,000
|
|
Less:
|
|
|
|
Original issue premium / discount on unsecured senior notes and debentures
|
(4,398
|
)
|
|
(4,384
|
)
|
Debt issuance cost
|
21,929
|
|
|
22,339
|
|
|
$
|
3,067,469
|
|
|
$
|
3,067,045
|
|
|
|
(1)
|
Up to
$200 million
can be drawn under this term loan.
|
We utilize short-term debt to provide cost-effective, short-term financing until it can be replaced with a balance of long-term debt and equity financing that achieves the Company’s desired capital structure with an equity–to–capitalization ratio between
50%
and
60%
, inclusive of long–term and short–term debt. Our short–term borrowing requirements are affected primarily by the seasonal nature of the natural gas business. Changes in the price of natural gas and the amount of natural gas we need to supply our customers’ needs could significantly affect our borrowing requirements. Our short–term borrowings typically reach their highest levels in the winter months.
Currently, our short-term borrowing requirements are satisfied through a combination of a
$1.5 billion
commercial paper program and three committed revolving credit facilities with third-party lenders that provide approximately
$1.5 billion
of total working capital funding. The primary source of our funding is our commercial paper program, which is supported by a five-year unsecured
$1.5 billion
credit facility that expires
September 25, 2021
. The facility bears interest at a base rate or at a LIBOR-based rate for the applicable interest period, plus a spread ranging from
zero percent
to
1.25 percent
, based on the Company’s credit ratings. Additionally, the facility contains a
$250 million
accordion feature, which provides the opportunity to increase the total committed loan to
$1.75 billion
. At
December 31, 2017
and
September 30, 2017
a total of
$336.8 million
and
$447.7 million
was outstanding under our commercial paper program.
Additionally, we have a
$25 million
364-day unsecured facility and a
$10 million
364-day unsecured revolving credit facility, which is used primarily to issue letters of credit. At
December 31, 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
facility to
$4.4 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
December 31, 2017
, our total-debt-to-total-capitalization ratio, as defined in the agreements, was
44 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
December 31, 2017
. If we were unable to comply with our debt covenants, we would likely be required to repay our outstanding balances on demand, provide additional collateral or take other corrective actions.
6. Impact of the Tax Cuts and Jobs Act of 2017
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "TCJA") was signed into law. The TCJA introduced several significant changes to corporate income tax laws in the United States. The most significant change that will affect Atmos Energy is the reduction of the federal statutory income tax rate from
35%
to
21%
. As a rate-regulated entity, the accelerated capital expensing and the limitation on interest deductibility provisions included in the TCJA are not applicable to us.
Under generally accepted accounting principles, we use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
At September 30, 2017, we measured our net deferred tax liability using the enacted federal statutory tax rate of
35%
. The enactment of the TCJA on December 22, 2017 required us to remeasure our deferred tax assets and liabilities, including our U.S. federal income tax net operating loss carryforwards, at the newly enacted federal statutory income tax rate. As the Company’s fiscal year end is September 30, the Internal Revenue Code requires the Company to use a blended statutory federal corporate income tax rate of
24.5%
for fiscal 2018.
The decrease in the federal statutory income tax rate reduced our net deferred tax liability by
$908.1 million
. Of this amount,
$746.2 million
relates to regulated operations and has been recorded as a regulatory liability, which will be returned to utility customers. The period and timing of these revenue adjustments are subject to Internal Revenue Code provisions and regulatory actions in each of the eight states in which we operate. The remaining
$161.9 million
has been reflected as a one-time income tax benefit in our condensed consolidated statement of income because these taxes were not considered in our cost of service ratemaking.
At December 31, 2017, we had
$330.4 million
of remeasured federal net operating loss carryforwards. The federal net operating loss carryforwards are available to offset future taxable income and will begin to expire in
2029
. The Company also has
$10.1 million
of federal alternative minimum tax credit carryforwards that do not expire and are expected to be fully refunded to us between
2019
and
2022
as a result of changes introduced by the TCJA. These credit carryforwards are now reflected as taxes receivable within the deferred charges and other assets line item on our condensed consolidated balance sheet. In addition, the Company has
$5.1 million
in remeasured charitable contribution carryforwards to offset future taxable income. The Company’s charitable contribution carryforwards expire between
2018
and
2023
.
The Company also has
$25.9 million
of state net operating loss carryforwards and
$1.5 million
of state tax credit carryforwards (net of
$6.9 million
and
$0.4 million
of remeasured federal effects). Depending on the jurisdiction in which the state net operating loss was generated, the carryforwards will begin to expire between
2018
and
2032
.
Due to the changes introduced by the TCJA, we now believe it is more likely than not that the benefit from certain charitable contribution carryforwards for which a valuation allowance was previously established will be realized. As a result, we reduced our valuation allowance by
$4.2 million
during the first quarter. This amount is included in the
$161.9 million
one-time income tax benefit.
The SEC issued guidance in Staff Accounting Bulletin 118 (SAB 118), which allows us to record provisional amounts during a one-year measurement period, similar to the measurement period in accounting for business combinations. The Company has determined a reasonable estimate for the measurement and accounting for certain effects of the TCJA, including the remeasurement of our net deferred tax liabilities and the establishment of a regulatory liability, which have been reflected as provisional amounts in the December 31, 2017 condensed consolidated financial statements and are described in further detail above. The amounts represent our best estimates based upon records, information and current guidance. We are still analyzing certain aspects of the TCJA, refining our calculations and expect additional guidance relating to the TCJA from the U.S. Department of the Treasury and the Internal Revenue Service. Any additional issued guidance or future actions of our regulators could potentially affect the final determination of the accounting effects arising from the implementation of the TCJA.
We are actively working with our regulators in each jurisdiction to address the impact of the TCJA on our cost of service based rates. Accounting orders have been issued for our Colorado, Kansas, Kentucky, Tennessee and Virginia service areas that require us to establish, effective January 1, 2018, a separate regulatory liability for the difference in taxes included in our rates that have been calculated based on a
35%
statutory income tax rate and the new
21%
statutory income tax rate. The establishment of this regulatory liability relating to our cost of service rates will result in a reduction to our revenues beginning in the second quarter of fiscal 2018. The period and timing of the return of these liabilities to utility customers will be determined by regulators in each of our jurisdictions.
Regulators in our other services areas, including Texas, Mississippi and Louisiana, have also taken action in response to the TCJA:
•
On January 23, 2018, the Railroad Commission of Texas directed the Commission Staff to develop recommendations to ensure that, beginning January 1, 2018, all gas utility customers in Texas receive the full benefit of the TCJA.
•
On January 26, 2018, the Mississippi Public Service Commission (MPSC) entered an order requiring each utility to file within thirty days a detailed description identifying how the TCJA will be reflected in the formula rate plan or other rate structures under which the utility operates.
•
On January 31, 2018, Louisiana Public Service Commission (LPSC) directed utilities to file reports on February 14, 2018, regarding savings for ratepayers as a result of the new federal tax laws. The LPSC is also considering an accounting order to direct the utilities to track and record the impacts of the TCJA and a rule making docket to address the TCJA.
7. Shareholders' Equity
Shelf Registration, At-the-Market Equity Sales Program and Equity Issuance
On March 28, 2016, we filed a registration statement with the Securities and Exchange Commission (SEC) that originally permitted us to issue, from time to time, up to
$2.5 billion
in common stock and/or debt securities, which expires March 28, 2019. At
December 31, 2017
, approximately
$1.2 billion
of securities remained available for issuance under the shelf registration statement.
On November 14, 2017, we filed a prospectus supplement under the registration statement relating to an at-the-market (ATM) equity sales program under which we may issue and sell shares of our common stock up to an aggregate offering price of
$500 million
, which expires March 28, 2019. During the
three months ended December 31, 2017
,
no
shares of common stock were sold under the ATM program.
On November 30, 2017, we filed a prospectus supplement under the registration statement relating to an underwriting agreement to sell
4,558,404
shares of our common stock. We received aggregate gross proceeds of
$400 million
and received net proceeds, after expenses, of
$395.1 million
from the offering.
Accumulated Other Comprehensive Income (Loss)
We record deferred gains (losses) in AOCI related to available-for-sale securities, interest rate cash flow hedges and prior to the sale of Atmos Energy Marketing on January 3, 2017, 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
|
|
Total
|
|
(In thousands)
|
September 30, 2017
|
$
|
7,048
|
|
|
$
|
(112,302
|
)
|
|
$
|
(105,254
|
)
|
Other comprehensive loss before reclassifications
|
(107
|
)
|
|
(1,332
|
)
|
|
(1,439
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
—
|
|
|
377
|
|
|
377
|
|
Net current-period other comprehensive loss
|
(107
|
)
|
|
(955
|
)
|
|
(1,062
|
)
|
December 31, 2017
|
$
|
6,941
|
|
|
$
|
(113,257
|
)
|
|
$
|
(106,316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-
for-Sale
Securities
|
|
Interest
Rate
Agreement
Cash Flow
Hedges
|
|
Commodity
Contracts
Cash Flow
Hedges
|
|
Total
|
|
(In thousands)
|
September 30, 2016
|
$
|
4,484
|
|
|
$
|
(187,524
|
)
|
|
$
|
(4,982
|
)
|
|
$
|
(188,022
|
)
|
Other comprehensive income (loss) before reclassifications
|
(828
|
)
|
|
91,127
|
|
|
9,847
|
|
|
100,146
|
|
Amounts reclassified from accumulated other comprehensive income
|
—
|
|
|
87
|
|
|
(4,865
|
)
|
|
(4,778
|
)
|
Net current-period other comprehensive income (loss)
|
(828
|
)
|
|
91,214
|
|
|
4,982
|
|
|
95,368
|
|
December 31, 2016
|
$
|
3,656
|
|
|
$
|
(96,310
|
)
|
|
$
|
—
|
|
|
$
|
(92,654
|
)
|
The following tables detail reclassifications out of AOCI for the
three months ended December 31, 2017
and
2016
. Amounts in parentheses below indicate decreases to net income in the statement of income:
|
|
|
|
|
|
|
|
Three Months Ended December 31, 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
|
$
|
(594
|
)
|
|
Interest charges
|
|
(594
|
)
|
|
Total before tax
|
|
217
|
|
|
Tax benefit
|
Total reclassifications
|
$
|
(377
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 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
|
7,967
|
|
|
Purchased gas cost
(1)
|
|
7,830
|
|
|
Total before tax
|
|
(3,052
|
)
|
|
Tax expense
|
Total reclassifications
|
$
|
4,778
|
|
|
Net of tax
|
(1) Amounts are presented as part of income from discontinued operations in 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 months ended
December 31, 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 December 31
|
|
Pension Benefits
|
|
Other Benefits
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
(In thousands)
|
Components of net periodic pension cost:
|
|
|
|
|
|
|
|
Service cost
|
$
|
4,560
|
|
|
$
|
5,216
|
|
|
$
|
3,020
|
|
|
$
|
3,109
|
|
Interest cost
|
6,430
|
|
|
6,297
|
|
|
2,727
|
|
|
2,670
|
|
Expected return on assets
|
(6,917
|
)
|
|
(6,994
|
)
|
|
(2,002
|
)
|
|
(1,796
|
)
|
Amortization of prior service cost (credit)
|
(58
|
)
|
|
(58
|
)
|
|
3
|
|
|
(411
|
)
|
Amortization of actuarial (gain) loss
|
3,089
|
|
|
4,249
|
|
|
(1,618
|
)
|
|
(707
|
)
|
Net periodic pension cost
|
$
|
7,104
|
|
|
$
|
8,710
|
|
|
$
|
2,130
|
|
|
$
|
2,865
|
|
The assumptions used to develop our net periodic pension cost for the
three months ended
December 31, 2017
and
2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Discount rate
|
|
3.89%
|
|
3.73%
|
|
3.89%
|
|
3.73%
|
Rate of compensation increase
|
|
3.50%
|
|
3.50%
|
|
N/A
|
|
N/A
|
Expected return on plan assets
|
|
6.75%
|
|
7.00%
|
|
4.29%
|
|
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 were not required to make a minimum contribution to our defined benefit plan during the first quarter of fiscal 2018.
We contributed
$3.9 million
to our other post-retirement benefit plans during the
three
months ended
December 31, 2017
. We expect to contribute a total of between
$10 million
and
$20 million
to these plans during fiscal
2018
.
9
. Commitments and Contingencies
Litigation and Environmental Matters
With respect to the litigation and environmental-related matters or claims that were disclosed in Note 11 to the financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017, there were no material changes in the status of such litigation and environmental-related matters or claims during the
three months ended December 31, 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. These purchase commitment contracts are detailed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017. There were no material changes to the purchase commitments for the three months ended December 31, 2017.
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
December 31, 2017
, formula rate mechanisms were pending regulatory approval in our Louisiana and Tennessee service areas, infrastructure mechanisms were pending regulatory approval in our Kansas service area, an ad valorem tax rider filing was in progress in our Kansas service area and rate cases were pending regulatory approval in our Colorado, Kentucky and Mid-Tex service areas. These regulatory proceedings are discussed in further detail below in
Management’s Discussion and Analysis — Recent Ratemaking Developments
. Additionally, as discussed in further detail in Note 6, all jurisdictions are addressing impacts of the TCJA.
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 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017. During the
three months ended December 31, 2017
, 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.
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
2017
-
2018
heating season (generally October through March), in the jurisdictions where we are permitted to utilize financial instruments, we anticipate hedging approximately
26 percent
, or
15.0
Bcf of the winter flowing gas requirements. We have not designated these financial instruments as hedges for accounting purposes.
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
December 31, 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
December 31, 2017
, we had
$40.8 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
December 31, 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
December 31, 2017
, we had
12,143
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
December 31, 2017
and
September 30, 2017
. 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 our counterparties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location
|
|
Assets
|
|
Liabilities
|
|
|
|
(In thousands)
|
December 31, 2017
|
|
|
|
|
|
Designated As Hedges:
|
|
|
|
|
|
Interest rate contracts
|
Deferred charges and other assets /
Deferred credits and other liabilities
|
|
—
|
|
|
(114,175
|
)
|
Total
|
|
|
—
|
|
|
(114,175
|
)
|
Not Designated As Hedges:
|
|
|
|
|
|
Commodity contracts
|
Other current assets /
Other current liabilities
|
|
456
|
|
|
(2,738
|
)
|
Commodity contracts
|
Deferred charges and other assets /
Deferred credits and other liabilities
|
|
190
|
|
|
(262
|
)
|
Total
|
|
|
646
|
|
|
(3,000
|
)
|
Gross Financial Instruments
|
|
|
646
|
|
|
(117,175
|
)
|
Gross Amounts Offset on Consolidated Balance Sheet:
|
|
|
|
|
|
Contract netting
|
|
|
—
|
|
|
—
|
|
Net Financial Instruments
|
|
|
646
|
|
|
(117,175
|
)
|
Cash collateral
|
|
|
—
|
|
|
—
|
|
Net Assets/Liabilities from Risk Management Activities
|
|
|
$
|
646
|
|
|
$
|
(117,175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location
|
|
Assets
|
|
Liabilities
|
|
|
|
(In thousands)
|
September 30, 2017
|
|
|
|
|
|
Designated As Hedges:
|
|
|
|
|
|
Interest rate contracts
|
Deferred charges and other assets /
Deferred credits and other liabilities
|
|
—
|
|
|
(112,076
|
)
|
Total
|
|
|
—
|
|
|
(112,076
|
)
|
Not Designated As Hedges:
|
|
|
|
|
|
Commodity contracts
|
Other current assets /
Other current liabilities
|
|
2,436
|
|
|
(322
|
)
|
Commodity contracts
|
Deferred charges and other assets /
Deferred credits and other liabilities
|
|
803
|
|
|
—
|
|
Total
|
|
|
3,239
|
|
|
(322
|
)
|
Gross Financial Instruments
|
|
|
3,239
|
|
|
(112,398
|
)
|
Gross Amounts Offset on Consolidated Balance Sheet:
|
|
|
|
|
|
Contract netting
|
|
|
—
|
|
|
—
|
|
Net Financial Instruments
|
|
|
3,239
|
|
|
(112,398
|
)
|
Cash collateral
|
|
|
—
|
|
|
—
|
|
Net Assets/Liabilities from Risk Management Activities
|
|
|
$
|
3,239
|
|
|
$
|
(112,398
|
)
|
Impact of Financial Instruments on the Income Statement
Cash Flow Hedges
As discussed above, our distribution segment has interest rate swap agreements, which we designated as a cash flow hedge at the time the swaps were executed. The net loss on settled interest rate agreements reclassified from AOCI into interest charges on our condensed consolidated statements of income for the
three months ended December 31, 2017
and
2016
was
$0.6 million
and
$0.1 million
.
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 months ended December 31, 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
December 31
|
|
2017
|
|
2016 (1)
|
|
(In thousands)
|
Increase (decrease) in fair value:
|
|
|
|
Interest rate agreements
|
$
|
(1,332
|
)
|
|
$
|
91,127
|
|
Forward commodity contracts
(2)
|
—
|
|
|
9,847
|
|
Recognition of (gains) losses in earnings due to settlements:
|
|
|
|
Interest rate agreements
|
377
|
|
|
87
|
|
Forward commodity contracts
(2)
|
—
|
|
|
(4,865
|
)
|
Total other comprehensive income (loss) from hedging, net of tax
|
$
|
(955
|
)
|
|
$
|
96,196
|
|
|
|
(1)
|
Utilizing an income tax rate ranging from
37 percent
to
39 percent
based on the effective rates in each taxing jurisdiction for the three-month period ended December 31, 2016.
|
|
|
(2)
|
Due to the sale of AEM, these amounts are included in income from discontinued operations.
|
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. 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
December 31, 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
|
$
|
(1,508
|
)
|
Thereafter
|
(39,248
|
)
|
Total
|
$
|
(40,756
|
)
|
Financial Instruments Not Designated as Hedges
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 to the financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017. During the
three months ended December 31, 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 to the financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.
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
December 31, 2017
and
September 30, 2017
. 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
|
|
December 31, 2017
|
|
(In thousands)
|
Assets:
|
|
|
|
|
|
|
|
|
|
Financial instruments
|
$
|
—
|
|
|
$
|
646
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
646
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
Registered investment companies
|
43,065
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
43,065
|
|
Bond mutual funds
|
16,359
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,359
|
|
Bonds
|
—
|
|
|
30,861
|
|
|
—
|
|
|
—
|
|
|
30,861
|
|
Money market funds
|
—
|
|
|
614
|
|
|
—
|
|
|
—
|
|
|
614
|
|
Total available-for-sale securities
|
59,424
|
|
|
31,475
|
|
|
—
|
|
|
—
|
|
|
90,899
|
|
Total assets
|
$
|
59,424
|
|
|
$
|
32,121
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
91,545
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Financial instruments
|
$
|
—
|
|
|
$
|
117,175
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
117,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
Prices in
Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
(1)
|
|
Significant
Other
Unobservable
Inputs
(Level 3)
|
|
Netting and
Cash
Collateral
|
|
September 30, 2017
|
|
(In thousands)
|
Assets:
|
|
|
|
|
|
|
|
|
|
Financial instruments
|
$
|
—
|
|
|
$
|
3,239
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,239
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
Registered investment companies
|
41,097
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
41,097
|
|
Bond mutual funds
|
16,371
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,371
|
|
Bonds
|
—
|
|
|
29,104
|
|
|
—
|
|
|
—
|
|
|
29,104
|
|
Money market funds
|
—
|
|
|
1,837
|
|
|
—
|
|
|
—
|
|
|
1,837
|
|
Total available-for-sale securities
|
57,468
|
|
|
30,941
|
|
|
—
|
|
|
—
|
|
|
88,409
|
|
Total assets
|
$
|
57,468
|
|
|
$
|
34,180
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
91,648
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Financial instruments
|
$
|
—
|
|
|
$
|
112,398
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
112,398
|
|
|
|
(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.
|
Available-for-sale securities are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gain
|
|
Gross
Unrealized
Loss
|
|
Fair
Value
|
|
(In thousands)
|
As of December 31, 2017
|
|
|
|
|
|
|
|
Domestic equity mutual funds
|
$
|
27,171
|
|
|
$
|
8,850
|
|
|
$
|
(14
|
)
|
|
$
|
36,007
|
|
Foreign equity mutual funds
|
4,725
|
|
|
2,333
|
|
|
—
|
|
|
7,058
|
|
Bond mutual funds
|
16,461
|
|
|
—
|
|
|
(102
|
)
|
|
16,359
|
|
Bonds
|
30,936
|
|
|
6
|
|
|
(81
|
)
|
|
30,861
|
|
Money market funds
|
614
|
|
|
—
|
|
|
—
|
|
|
614
|
|
|
$
|
79,907
|
|
|
$
|
11,189
|
|
|
$
|
(197
|
)
|
|
$
|
90,899
|
|
As of September 30, 2017
|
|
|
|
|
|
|
|
Domestic equity mutual funds
|
$
|
25,361
|
|
|
$
|
8,920
|
|
|
$
|
—
|
|
|
$
|
34,281
|
|
Foreign equity mutual funds
|
4,581
|
|
|
2,235
|
|
|
—
|
|
|
6,816
|
|
Bond mutual funds
|
16,391
|
|
|
2
|
|
|
(22
|
)
|
|
16,371
|
|
Bonds
|
29,074
|
|
|
46
|
|
|
(16
|
)
|
|
29,104
|
|
Money market funds
|
1,837
|
|
|
—
|
|
|
—
|
|
|
1,837
|
|
|
$
|
77,244
|
|
|
$
|
11,203
|
|
|
$
|
(38
|
)
|
|
$
|
88,409
|
|
At
December 31, 2017
and
September 30, 2017
, our available-for-sale securities included
$43.7 million
and
$42.9 million
related to assets held in separate rabbi trusts for our supplemental executive benefit plans. At
December 31, 2017
, we maintained investments in bonds that have contractual maturity dates ranging from January 2018 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
December 31, 2017
and
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
September 30, 2017
|
|
(In thousands)
|
Carrying Amount
|
$
|
3,085,000
|
|
|
$
|
3,085,000
|
|
Fair Value
|
$
|
3,305,656
|
|
|
$
|
3,382,272
|
|
12. Concentration of Credit Risk
Information regarding our concentration of credit risk is disclosed in Note 16 to the financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017. During the
three months ended December 31, 2017
, there were no material changes in our concentration of credit risk.
13
. Discontinued Operations
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 Atmos Energy Marketing, LLC (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 was to be paid to the Company within 24 months of the closing date, net of any indemnification claims agreed upon between the two companies. In January 2018,
$3.0 million
of this escrowed amount was released and received by the Company. 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 statement of income as income from discontinued operations, net of income tax, for the three months ended December 31, 2016. Accordingly, expenses related to allocable general corporate overhead and interest expense are not included in these results.
The tables below set forth selected financial information related to discontinued operations. Operating expenses include operation and maintenance expense, provision for doubtful accounts, depreciation and amortization expense and taxes, other than income. At December 31, 2017 and September 30, 2017 we did not have any assets or liabilities held for sale.
The following table presents statement of income data related to discontinued operations:
|
|
|
|
|
|
|
|
Three Months Ended
December 31, 2016
|
|
(In thousands)
|
|
|
Operating revenues
|
$
|
303,474
|
|
Purchased gas cost
|
277,554
|
|
Operating expenses
|
7,874
|
|
Operating income
|
18,046
|
|
Other nonoperating expense
|
(211
|
)
|
Income from discontinued operations before income taxes
|
17,835
|
|
Income tax expense
|
6,841
|
|
Net income from discontinued operations
|
$
|
10,994
|
|
The following table presents statement of cash flow data related to discontinued operations:
|
|
|
|
|
|
Three Months Ended
December 31, 2016
|
|
(In thousands)
|
Depreciation and amortization expense
|
$
|
185
|
|
Capital expenditures
|
$
|
—
|
|
Noncash loss in commodity contract cash flow hedges
|
$
|
(8,165
|
)
|
Natural Gas Marketing
Commodity Risk Management Activities
Our discontinued
natural gas marketing
segment was exposed to risks associated with changes in the market price of natural gas through the purchase, sale and delivery of natural gas to its customers at competitive prices. Through December 31, 2016, we managed our exposure to such risks through a combination of physical storage and financial instruments, including futures, over-the-counter and exchange-traded options and swap contracts with counterparties. Effective January 1, 2017, as a result of the sale of AEM, these activities were discontinued.
Due to the sale of AEM, we determined that the cash flows associated with our natural gas marketing commodity cash flow hedges were no longer probable of occurring; therefore, we discontinued hedge accounting as of December 31, 2016. As a result, we reclassified the gain in accumulated other comprehensive income associated with the commodity contracts into earnings as a reduction of purchased gas cost and recognized a pre-tax gain of
$10.6 million
, which is included in income from discontinued operations on the condensed consolidated statement of income for the three months ended December 31, 2016.
The Company's other risk management activities are discussed in Note 10.
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
December 31, 2016
, we recognized a gain arising from fair value and cash flow hedge ineffectiveness of
$3.4 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 months ended December 31,
2016
is presented below.
|
|
|
|
|
|
Three Months Ended
December 31, 2016
|
|
(In thousands)
|
Commodity contracts
|
$
|
(9,567
|
)
|
Fair value adjustment for natural gas inventory designated as the hedged item
|
12,858
|
|
Total decrease in purchased gas cost reflected in income from discontinued operations
|
$
|
3,291
|
|
The decrease in purchased gas cost reflected in income from discontinued operations is comprised of the following:
|
|
Basis ineffectiveness
|
$
|
(597
|
)
|
Timing ineffectiveness
|
3,888
|
|
|
$
|
3,291
|
|
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
natural gas marketing
segment cash flow hedges on our condensed consolidated income statements for the three months ended December 31, 2016 is presented below:
|
|
|
|
|
|
Three Months Ended
December 31, 2016
|
|
(In thousands)
|
Loss reclassified from AOCI for effective portion of natural gas marketing commodity contracts
|
$
|
(2,612
|
)
|
Gain arising from ineffective portion of natural gas marketing commodity contracts
|
111
|
|
Gain on discontinuance of cash flow hedging of natural gas marketing commodity contracts reclassified from AOCI
|
10,579
|
|
Total impact on purchased gas cost reflected in income from discontinued operations
|
$
|
8,078
|
|
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
December 31, 2016
was a decrease in purchased gas cost of
$6.8 million
, which is included in discontinued operations on the condensed consolidated statements of income.