NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 2020
1. Nature of Business
Atmos Energy Corporation (“Atmos Energy” or the “Company”) and its subsidiaries are 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, 2020, 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, aside from accounting policy changes noted below, 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, 2020. 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, 2020. Because of seasonal and other factors, the results of operations for the three-month period ended December 31, 2020 are not indicative of our results of operations for the full 2021 fiscal year, which ends September 30, 2021.
No events have occurred subsequent to the balance sheet date that would require recognition or disclosure in the unaudited condensed consolidated financial statements.
Significant accounting policies
Except as noted below, related to the change in policies as a result of our adoption of new accounting standards, 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, 2020.
Accounting pronouncements adopted in fiscal 2021
Effective October 1, 2020, we adopted new accounting guidance that requires 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, we estimate credit losses over the entire contractual term of the instrument from the date of initial recognition of that instrument. The new guidance also introduces a new impairment recognition model for available-for-sale debt securities that will require credit losses to be recorded through an allowance account. We adopted the new guidance using a modified retrospective method. The adoption of this standard did not have a material impact on our financial position, results of operations and cash flows and no adjustments were made to October 1, 2020 opening balances as a result of this adoption. As required under the modified retrospective method of adoption, results for the reporting period beginning after October 1, 2020 are presented under Accounting Standards Codification (ASC) 326, while prior period amounts are not adjusted. See Notes 5 and 11 to the unaudited condensed consolidated financial statements for further discussion of implementation of the standard.
Accounting pronouncements that will be effective after fiscal 2021
In March 2020, the Financial Accounting Standards Board (FASB) issued optional guidance which will ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The amendments provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by the cessation of the London Interbank Offered Rate (LIBOR). The amendments can be elected immediately, as of March 12, 2020, through December 31, 2022. We are currently evaluating if we will apply the optional guidance as we assess the impact of the cessation of LIBOR on our current contracts and hedging relationships and the potential impact 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 our regulatory liabilities are recorded as a component of other current liabilities and 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 are reported separately.
Significant regulatory assets and liabilities as of December 31, 2020 and September 30, 2020 included the following:
|
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|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
September 30,
2020
|
|
(In thousands)
|
Regulatory assets:
|
|
|
|
Pension and postretirement benefit costs
|
$
|
146,734
|
|
|
$
|
149,089
|
|
Infrastructure mechanisms(1)
|
155,526
|
|
|
183,943
|
|
Deferred gas costs
|
11,322
|
|
|
40,593
|
|
Recoverable loss on reacquired debt
|
4,529
|
|
|
4,894
|
|
Deferred pipeline record collection costs
|
30,166
|
|
|
29,839
|
|
|
|
|
|
|
|
|
|
Other
|
4,969
|
|
|
6,283
|
|
|
$
|
353,246
|
|
|
$
|
414,641
|
|
Regulatory liabilities:
|
|
|
|
Regulatory excess deferred taxes(2)
|
$
|
713,993
|
|
|
$
|
718,651
|
|
|
|
|
|
Regulatory cost of removal obligation
|
527,087
|
|
|
531,096
|
|
Deferred gas costs
|
15,196
|
|
|
19,985
|
|
Asset retirement obligation
|
20,348
|
|
|
20,348
|
|
APT annual adjustment mechanism
|
55,313
|
|
|
57,379
|
|
|
|
|
|
Other
|
19,433
|
|
|
19,554
|
|
|
$
|
1,351,370
|
|
|
$
|
1,367,013
|
|
(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.
(2)Includes amount from the remeasurement of the net deferred tax liability included in our rate base as a result of the Tax Cuts and Jobs Act of 2017 (the "TCJA") and a Kansas legislative change enacted in fiscal 2020. Of this amount, $18.8 million as of December 31, 2020 and $20.9 million as of September 30, 2020 is recorded in other current liabilities. These liabilities are currently being returned to customers in most of our jurisdictions on a provisional basis over 15 to 69 years until formal orders establish the final refund periods.
As of December 31, 2020, we received regulatory orders in most states to defer into a regulatory asset all expenses, beyond the normal course of business, related to Coronavirus Disease 2019 (COVID-19 or virus), including bad debt expense. As of December 31, 2020, no amounts have been recorded as regulatory assets or liabilities for expenses related to COVID-19.
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 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, 2020.
Income statements and capital expenditures for the three months ended December 31, 2020 and 2019 by segment are presented in the following tables:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2020
|
|
Distribution
|
|
Pipeline and Storage
|
|
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Operating revenues from external parties
|
$
|
875,887
|
|
|
$
|
38,593
|
|
|
|
|
$
|
—
|
|
|
$
|
914,480
|
|
Intersegment revenues
|
763
|
|
|
121,120
|
|
|
|
|
(121,883)
|
|
|
—
|
|
Total operating revenues
|
876,650
|
|
|
159,713
|
|
|
|
|
(121,883)
|
|
|
914,480
|
|
Purchased gas cost
|
411,072
|
|
|
(1,244)
|
|
|
|
|
(121,568)
|
|
|
288,260
|
|
Operation and maintenance expense
|
108,802
|
|
|
30,156
|
|
|
|
|
(315)
|
|
|
138,643
|
|
Depreciation and amortization expense
|
82,870
|
|
|
32,415
|
|
|
|
|
—
|
|
|
115,285
|
|
Taxes, other than income
|
64,352
|
|
|
9,100
|
|
|
|
|
—
|
|
|
73,452
|
|
Operating income
|
209,554
|
|
|
89,286
|
|
|
|
|
—
|
|
|
298,840
|
|
Other non-operating income
|
835
|
|
|
5,237
|
|
|
|
|
—
|
|
|
6,072
|
|
Interest charges
|
10,712
|
|
|
11,298
|
|
|
|
|
—
|
|
|
22,010
|
|
Income before income taxes
|
199,677
|
|
|
83,225
|
|
|
|
|
—
|
|
|
282,902
|
|
Income tax expense
|
45,985
|
|
|
19,239
|
|
|
|
|
—
|
|
|
65,224
|
|
Net income
|
$
|
153,692
|
|
|
$
|
63,986
|
|
|
|
|
$
|
—
|
|
|
$
|
217,678
|
|
Capital expenditures
|
$
|
306,016
|
|
|
$
|
150,793
|
|
|
|
|
$
|
—
|
|
|
$
|
456,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2019
|
|
Distribution
|
|
Pipeline and Storage
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Operating revenues from external parties
|
$
|
827,840
|
|
|
$
|
47,723
|
|
|
$
|
—
|
|
|
$
|
875,563
|
|
Intersegment revenues
|
664
|
|
|
100,453
|
|
|
(101,117)
|
|
|
—
|
|
Total operating revenues
|
828,504
|
|
|
148,176
|
|
|
(101,117)
|
|
|
875,563
|
|
Purchased gas cost
|
397,558
|
|
|
99
|
|
|
(100,789)
|
|
|
296,868
|
|
Operation and maintenance expense
|
114,352
|
|
|
38,221
|
|
|
(328)
|
|
|
152,245
|
|
Depreciation and amortization expense
|
76,074
|
|
|
28,988
|
|
|
—
|
|
|
105,062
|
|
Taxes, other than income
|
60,243
|
|
|
8,364
|
|
|
—
|
|
|
68,607
|
|
Operating income
|
180,277
|
|
|
72,504
|
|
|
—
|
|
|
252,781
|
|
Other non-operating income
|
1,954
|
|
|
2,933
|
|
|
—
|
|
|
4,887
|
|
Interest charges
|
16,362
|
|
|
10,867
|
|
|
—
|
|
|
27,229
|
|
Income before income taxes
|
165,869
|
|
|
64,570
|
|
|
—
|
|
|
230,439
|
|
Income tax expense
|
36,112
|
|
|
15,654
|
|
|
—
|
|
|
51,766
|
|
Net income
|
$
|
129,757
|
|
|
$
|
48,916
|
|
|
$
|
—
|
|
|
$
|
178,673
|
|
Capital expenditures
|
$
|
404,247
|
|
|
$
|
124,939
|
|
|
$
|
—
|
|
|
$
|
529,186
|
|
Balance sheet information at December 31, 2020 and September 30, 2020 by segment is presented in the following tables:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Distribution
|
|
Pipeline and Storage
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Property, plant and equipment, net
|
$
|
10,235,658
|
|
|
$
|
3,526,485
|
|
|
$
|
—
|
|
|
$
|
13,762,143
|
|
Total assets
|
$
|
15,694,179
|
|
|
$
|
3,757,875
|
|
|
$
|
(2,976,175)
|
|
|
$
|
16,475,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
Distribution
|
|
Pipeline and Storage
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Property, plant and equipment, net
|
$
|
9,944,978
|
|
|
$
|
3,410,369
|
|
|
$
|
—
|
|
|
$
|
13,355,347
|
|
Total assets
|
$
|
14,578,176
|
|
|
$
|
3,647,907
|
|
|
$
|
(2,867,051)
|
|
|
$
|
15,359,032
|
|
|
|
|
|
|
|
|
|
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 weighted average shares outstanding is calculated based upon the weighted average number of common shares outstanding during the periods presented. Also, this calculation includes fully vested stock awards that have not yet been issued as common stock. Additionally, the weighted average shares outstanding for diluted EPS includes the incremental effects of the forward sale agreements, discussed in Note 7 to the unaudited condensed consolidated financial statements, when the impact is dilutive. Basic and diluted earnings per share for the three months ended December 31, 2020 and 2019 are calculated as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
(In thousands, except per share amounts)
|
Basic Earnings Per Share
|
|
|
|
|
|
|
|
Net income
|
$
|
217,678
|
|
|
$
|
178,673
|
|
|
|
|
|
Less: Income allocated to participating securities
|
151
|
|
|
136
|
|
|
|
|
|
Income available to common shareholders
|
$
|
217,527
|
|
|
$
|
178,537
|
|
|
|
|
|
Basic weighted average shares outstanding
|
127,034
|
|
|
121,113
|
|
|
|
|
|
Net income per share — Basic
|
$
|
1.71
|
|
|
$
|
1.47
|
|
|
|
|
|
Diluted Earnings Per Share
|
|
|
|
|
|
|
|
Income available to common shareholders
|
$
|
217,527
|
|
|
$
|
178,537
|
|
|
|
|
|
Effect of dilutive shares
|
—
|
|
|
—
|
|
|
|
|
|
Income available to common shareholders
|
$
|
217,527
|
|
|
$
|
178,537
|
|
|
|
|
|
Basic weighted average shares outstanding
|
127,034
|
|
|
121,113
|
|
|
|
|
|
Dilutive shares
|
—
|
|
|
246
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
127,034
|
|
|
121,359
|
|
|
|
|
|
Net income per share - Diluted
|
$
|
1.71
|
|
|
$
|
1.47
|
|
|
|
|
|
5. Revenue and Accounts Receivable
Revenue
Our revenue recognition policy is fully described in Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. The following tables disaggregate our revenue from contracts with customers by customer type and segment and provide a reconciliation to total operating revenues, including intersegment revenues, for the three months ended December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2020
|
|
Three Months Ended December 31, 2019
|
|
Distribution
|
|
Pipeline and Storage
|
|
Distribution
|
|
Pipeline and Storage
|
|
(In thousands)
|
Gas sales revenues:
|
|
|
|
|
|
|
|
Residential
|
$
|
591,834
|
|
|
$
|
—
|
|
|
$
|
552,076
|
|
|
$
|
—
|
|
Commercial
|
208,947
|
|
|
—
|
|
|
211,314
|
|
|
—
|
|
Industrial
|
24,708
|
|
|
—
|
|
|
24,925
|
|
|
—
|
|
Public authority and other
|
13,062
|
|
|
—
|
|
|
13,022
|
|
|
—
|
|
Total gas sales revenues
|
838,551
|
|
|
—
|
|
|
801,337
|
|
|
—
|
|
Transportation revenues
|
27,767
|
|
|
164,761
|
|
|
26,640
|
|
|
152,010
|
|
Miscellaneous revenues
|
2,396
|
|
|
5,148
|
|
|
6,786
|
|
|
5,155
|
|
Revenues from contracts with customers
|
868,714
|
|
|
169,909
|
|
|
834,763
|
|
|
157,165
|
|
Alternative revenue program revenues(1)
|
7,441
|
|
|
(10,196)
|
|
|
(6,751)
|
|
|
(8,989)
|
|
Other revenues
|
495
|
|
|
—
|
|
|
492
|
|
|
—
|
|
Total operating revenues
|
$
|
876,650
|
|
|
$
|
159,713
|
|
|
$
|
828,504
|
|
|
$
|
148,176
|
|
(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.
Accounts receivable and allowance for uncollectible accounts
Accounts receivable arise from natural gas sales to residential, commercial, industrial, public authority and other customers. Our accounts receivable balance includes unbilled amounts which represent a customer’s consumption of gas from the date of the last cycle billing through the last day of the month. The receivable balances are short term and generally do not extend beyond one month. To minimize credit risk, we assess the credit worthiness of new customers, require deposits where necessary, assess late fees, pursue collection activities and disconnect service for nonpayment. After disconnection, accounts are written off when deemed uncollectible.
As described in Note 2, on October 1, 2020, we adopted new accounting guidance which requires credit losses on our accounts receivable to be measured using an expected credit loss model over the entire contractual term from the date of initial recognition. At each reporting period, we assess the allowance for uncollectible accounts based on historical experience, current conditions and consideration of expected future conditions. Circumstances which could affect our estimates include, but are not limited to, customer credit issues, the level of natural gas prices, customer deposits and general economic conditions.
Due to the COVID-19 pandemic, in March 2020 we temporarily suspended disconnecting customers for nonpayment and stopped charging late fees. We are actively working with our customers experiencing financial hardship through flexible payment options and directing them to aid agencies for financial assistance. Our allowance for uncollectible accounts reflects the expected impact on our customers’ ability to pay when we resume disconnection activity.
A rollforward of our allowance for uncollectible accounts for the three months ended December 31, 2020 is presented in the table below. The allowance excludes the gas cost portion of customers’ bills for approximately 78 percent of our customers as we have the ability to collect these gas costs through our gas cost recovery mechanisms in most of our jurisdictions.
|
|
|
|
|
|
|
Three Months Ended December 31, 2020
|
|
|
Beginning balance, September 30, 2020
|
$
|
29,949
|
|
Current period provisions
|
6,937
|
|
Write-offs charged against allowance
|
(2,288)
|
|
Recoveries of amounts previously written off
|
491
|
|
Ending balance, December 31, 2020
|
$
|
35,089
|
|
6. Debt
The nature and terms of our debt instruments and credit facilities are described in detail in Note 7 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. Other than as described below, there were no material changes in the terms of our debt instruments during the three months ended December 31, 2020.
Long-term debt at December 31, 2020 and September 30, 2020 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
September 30, 2020
|
|
(In thousands)
|
Unsecured 3.00% Senior Notes, due 2027
|
$
|
500,000
|
|
|
$
|
500,000
|
|
Unsecured 2.625% Senior Notes, due 2029
|
300,000
|
|
|
300,000
|
|
Unsecured 1.50% Senior Notes, due 2031
|
600,000
|
|
|
—
|
|
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
|
|
Unsecured 4.30% Senior Notes, due 2048
|
600,000
|
|
|
600,000
|
|
Unsecured 4.125% Senior Notes, due 2049
|
450,000
|
|
|
450,000
|
|
Unsecured 3.375% Senior Notes, due 2049
|
500,000
|
|
|
500,000
|
|
Floating-rate term loan, due 2022
|
200,000
|
|
|
200,000
|
|
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
|
|
Finance lease obligations
|
8,608
|
|
|
8,631
|
|
Total long-term debt
|
5,168,608
|
|
|
4,568,631
|
|
Less:
|
|
|
|
Original issue discount on unsecured senior notes and debentures
|
3,090
|
|
|
583
|
|
Debt issuance cost
|
40,485
|
|
|
36,104
|
|
Current maturities
|
171
|
|
|
165
|
|
|
$
|
5,124,862
|
|
|
$
|
4,531,779
|
|
On October 1, 2020, we completed a public offering of $600 million of 1.50% senior notes due 2031. The net proceeds from the offering, after the underwriting discount and offering expenses, of $592.3 million, were used for general corporate purposes, including the repayment of working capital borrowings pursuant to our commercial paper program and the related settlement of our interest rate swaps. The effective interest rate on these notes is 1.71%, after giving effect to the offering costs and settlement of our interest rate swaps.
Short-term debt
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-total-capitalization ratio between 50% and 60%, inclusive of long-term and short-term debt. Our short-term borrowing requirements are driven primarily
by construction work in progress and 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 borrowing requirements are satisfied through a combination of a $1.5 billion commercial paper program and four committed revolving credit facilities with third-party lenders that provide approximately $2.2 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 on September 25, 2023. The facility bears interest at a base rate or at a LIBOR-based rate for the applicable interest period, plus a margin 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, 2020 and September 30, 2020, there were no amounts outstanding under our commercial paper program.
We have a $600 million 364-day unsecured revolving credit facility, which expires April 22, 2021 and is used to provide additional working capital funding. The facility bears interest at a base rate or at a LIBOR-based rate for the applicable interest period, plus a margin ranging from zero percent to 1.25 percent, based on the Company's credit ratings. At December 31, 2020, there were no borrowings outstanding under this facility.
Additionally, we have a $50 million 364-day unsecured facility, which expires on March 31, 2021 and is used to provide working capital funding. There were no borrowings outstanding under this facility as of December 31, 2020.
Finally, we have a $50 million 364-day unsecured revolving credit facility, which expires April 29, 2021 and is used to issue letters of credit and to provide working capital funding. At December 31, 2020, there were no borrowings outstanding under this facility; however, outstanding letters of credit reduced the total amount available to us to $44.4 million.
Debt covenants
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, 2020, our total-debt-to-total-capitalization ratio, as defined in the agreements, was 43 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 if not paid at maturity. We were in compliance with all of our debt covenants as of December 31, 2020. 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.
7. Shareholders' Equity
The following tables present a reconciliation of changes in stockholders' equity for the three months ended December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Other
Comprehensive Income
(Loss)
|
|
Retained
Earnings
|
|
Total
|
|
Number of
Shares
|
|
Stated
Value
|
|
|
(In thousands, except share and per share data)
|
Balance, September 30, 2020
|
125,882,477
|
|
|
$
|
629
|
|
|
$
|
4,377,149
|
|
|
$
|
(57,589)
|
|
|
$
|
2,471,014
|
|
|
$
|
6,791,203
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
217,678
|
|
|
217,678
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
60,121
|
|
|
—
|
|
|
60,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends ($0.625 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(79,023)
|
|
|
(79,023)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued:
|
|
|
|
|
|
|
|
|
|
|
|
Public and other stock offerings
|
2,126,118
|
|
|
11
|
|
|
219,998
|
|
|
—
|
|
|
—
|
|
|
220,009
|
|
Stock-based compensation plans
|
144,366
|
|
|
1
|
|
|
3,167
|
|
|
—
|
|
|
—
|
|
|
3,168
|
|
Balance, December 31, 2020
|
128,152,961
|
|
|
$
|
641
|
|
|
$
|
4,600,314
|
|
|
$
|
2,532
|
|
|
$
|
2,609,669
|
|
|
$
|
7,213,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Other
Comprehensive Income
(Loss)
|
|
Retained
Earnings
|
|
Total
|
|
Number of
Shares
|
|
Stated
Value
|
|
|
(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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shelf Registration, At-the-Market Equity Sales Program and Equity Issuances
On February 11, 2020, we filed a shelf registration statement with the Securities and Exchange Commission (SEC) that allows us to issue up to $4.0 billion in common stock and/or debt securities, which expires February 11, 2023. At December 31, 2020, approximately $2.4 billion of securities remained available for issuance under the shelf registration statement.
During the three months ended December 31, 2020, we executed forward sales under our ATM equity sales program with various forward sellers who borrowed and sold 1,201,674 shares of our common stock at an aggregate price of $121.8 million. During the three months ended December 31, 2020, we also settled forward sale agreements with respect to 2,085,492 shares that had been borrowed and sold by various forward sellers during fiscal 2019 under the ATM program for net proceeds of $216.0 million. As of December 31, 2020, approximately $430 million of equity remains available for issuance under the ATM program. Additionally, we had $246.8 million in available proceeds from outstanding forward sale agreements, as detailed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
Shares Available
|
|
Net Proceeds Available
(In thousands)
|
|
|
Forward Price
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
1,060,660
|
|
|
$
|
107,255
|
|
|
|
$
|
101.12
|
|
September 30, 2021
|
|
1,391,517
|
|
|
139,579
|
|
|
|
$
|
100.31
|
|
Total
|
|
2,452,177
|
|
|
$
|
246,834
|
|
|
|
$
|
100.66
|
|
Accumulated Other Comprehensive Income (Loss)
We record deferred gains (losses) in AOCI related to available-for-sale debt securities and interest rate agreement cash flow hedges. Deferred gains (losses) for our available-for-sale debt securities 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, 2020
|
$
|
238
|
|
|
$
|
(57,827)
|
|
|
|
|
$
|
(57,589)
|
|
Other comprehensive income (loss) before reclassifications
|
(63)
|
|
|
59,042
|
|
|
|
|
58,979
|
|
Amounts reclassified from accumulated other comprehensive income
|
—
|
|
|
1,142
|
|
|
|
|
1,142
|
|
Net current-period other comprehensive income (loss)
|
(63)
|
|
|
60,184
|
|
|
|
|
60,121
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
$
|
175
|
|
|
$
|
2,357
|
|
|
|
|
$
|
2,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-
for-Sale
Securities
|
|
Interest Rate
Agreement
Cash Flow
Hedges
|
|
|
|
Total
|
|
(In thousands)
|
September 30, 2019
|
$
|
132
|
|
|
$
|
(114,715)
|
|
|
|
|
$
|
(114,583)
|
|
Other comprehensive loss before reclassifications
|
(1)
|
|
|
—
|
|
|
|
|
(1)
|
|
Amounts reclassified from accumulated other comprehensive income
|
—
|
|
|
1,053
|
|
|
|
|
1,053
|
|
Net current-period other comprehensive income (loss)
|
(1)
|
|
|
1,053
|
|
|
|
|
1,052
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
$
|
131
|
|
|
$
|
(113,662)
|
|
|
|
|
$
|
(113,531)
|
|
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, 2020 and 2019 are presented in the following tables. Most of these costs are recoverable through our tariff rates. A portion of these costs is capitalized into our rate base or deferred as a regulatory asset or liability. The remaining costs are recorded as a component of operation and maintenance expense or other non-operating expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31
|
|
Pension Benefits
|
|
Other Benefits
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
(In thousands)
|
Components of net periodic pension cost:
|
|
|
|
|
|
|
|
Service cost
|
$
|
4,612
|
|
|
$
|
4,653
|
|
|
$
|
4,306
|
|
|
$
|
3,366
|
|
Interest cost(1)
|
5,028
|
|
|
5,843
|
|
|
2,660
|
|
|
2,653
|
|
Expected return on assets(1)
|
(6,978)
|
|
|
(7,079)
|
|
|
(2,614)
|
|
|
(2,625)
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost (credit)(1)
|
(58)
|
|
|
(58)
|
|
|
43
|
|
|
43
|
|
Amortization of actuarial (gain) loss(1)
|
3,172
|
|
|
(1,271)
|
|
|
—
|
|
|
(334)
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
$
|
5,776
|
|
|
$
|
2,088
|
|
|
$
|
4,395
|
|
|
$
|
3,103
|
|
(1) The components of net periodic cost other than the service cost component are included in the line item other non-operating expense in the condensed consolidated statements of comprehensive income or are capitalized on the condensed consolidated balance sheets as a regulatory asset or liability, as described in Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.
For the three months ended December 31, 2020 we contributed $4.1 million to our postretirement medical plans. We anticipate contributing a total of between $15 million and $25 million to our postretirement plans during fiscal 2021.
9. Commitments and Contingencies
Litigation and Environmental Matters
In the normal course of business, we are subject to various legal and regulatory proceedings. For such matters, we record liabilities when they are considered probable and estimable, based on currently available facts, our historical experience and our estimates of the ultimate outcome or resolution of the liability in the future. While the outcome of these proceedings is uncertain and a loss in excess of the amount we have accrued is possible though not reasonably estimable, it is the opinion of management that any amounts exceeding the accruals will not have a material adverse impact on our financial position, results of operations or cash flows.
We maintain liability insurance for various risks associated with the operation of our natural gas pipelines and facilities, including for property damage and bodily injury. These liability insurance policies generally require us to be responsible for the first $1.0 million (self-insured retention) of each incident.
The National Transportation Safety Board (NTSB) held a public meeting on January 12, 2021 to determine the probable cause of the incident that occurred at a Dallas, Texas residence on February 23, 2018 that resulted in one fatality and injuries to four other residents. At the meeting, the Board deliberated and voted on proposed findings of fact, a probable cause statement, and safety recommendations. At the conclusion of the Board meeting, the NTSB issued an abstract to its website (www.ntsb.gov) that included an Executive Summary, Findings, Probable Cause, and Recommendations. The NTSB noted in the Abstract that the NTSB staff is currently making final revisions to the report and that the final report and safety recommendations letters would be later distributed to recommendation recipients, including Atmos Energy.
We are a party to various other 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, 2020. There were no material changes to the purchase commitments for the three months ended December 31, 2020.
Rate Regulatory Proceedings
As of December 31, 2020, routine rate regulatory proceedings were in progress in Colorado, Kansas and West Texas, which are discussed in further detail below in Management’s Discussion and Analysis — Recent Ratemaking Developments. Except for these proceedings, there were no material changes to rate regulatory proceedings for the three months ended December 31, 2020.
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 14 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. During the three months ended December 31, 2020, 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 2020-2021 heating season (generally October through March), in the jurisdictions where we are permitted to utilize financial instruments, we anticipate hedging approximately 39 percent, or 15.8 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 manage interest rate risk by periodically entering into financial instruments to effectively fix the Treasury yield component of the interest cost associated with anticipated financings.
As of December 31, 2020, we had the following forward starting interest rate swaps to effectively fix the Treasury yield component which we designated as cash flow hedges at the time the agreements were executed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Planned Debt Issuance Date
|
|
Amount Hedged
|
|
Interest Rate
|
Fiscal 2022
|
|
$
|
450,000
|
|
|
1.33
|
%
|
Fiscal 2023
|
|
300,000
|
|
|
1.36
|
%
|
Fiscal 2025
|
|
300,000
|
|
|
1.35
|
%
|
|
|
$
|
1,050,000
|
|
|
|
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 statements of comprehensive income.
As of December 31, 2020, 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, 2020, we had 11,641 MMcf of net long 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, 2020 and September 30, 2020. 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. However, for December 31, 2020 and September 30, 2020, no gross amounts and no cash collateral were netted within our consolidated balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location
|
|
Assets
|
|
Liabilities
|
|
|
|
(In thousands)
|
December 31, 2020
|
|
|
|
|
|
Designated As Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
Other current assets /
Other current liabilities
|
|
$
|
56,484
|
|
|
$
|
—
|
|
|
|
|
|
|
|
Interest rate contracts
|
Deferred charges and other assets /
Deferred credits and other liabilities
|
|
92,678
|
|
|
—
|
|
Total
|
|
|
149,162
|
|
|
—
|
|
Not Designated As Hedges:
|
|
|
|
|
|
Commodity contracts
|
Other current assets /
Other current liabilities
|
|
993
|
|
|
(1,843)
|
|
Commodity contracts
|
Deferred charges and other assets /
Deferred credits and other liabilities
|
|
243
|
|
|
—
|
|
Total
|
|
|
1,236
|
|
|
(1,843)
|
|
Gross / Net Financial Instruments
|
|
|
$
|
150,398
|
|
|
$
|
(1,843)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location
|
|
Assets
|
|
Liabilities
|
|
|
|
(In thousands)
|
September 30, 2020
|
|
|
|
|
|
Designated As Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
Deferred charges and other assets /
Deferred credits and other liabilities
|
|
$
|
73,055
|
|
|
$
|
—
|
|
Total
|
|
|
73,055
|
|
|
—
|
|
Not Designated As Hedges:
|
|
|
|
|
|
Commodity contracts
|
Other current assets /
Other current liabilities
|
|
5,687
|
|
|
(2,015)
|
|
Commodity contracts
|
Deferred charges and other assets /
Deferred credits and other liabilities
|
|
1,936
|
|
|
—
|
|
Total
|
|
|
7,623
|
|
|
(2,015)
|
|
Gross / Net Financial Instruments
|
|
|
$
|
80,678
|
|
|
$
|
(2,015)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of Financial Instruments on the Statement of Comprehensive Income
Cash Flow Hedges
As discussed above, our distribution segment has interest rate agreements, which we designated as cash flow hedges at the time the agreements were executed. The net loss on settled interest rate agreements reclassified from AOCI into interest charges on our condensed consolidated statements of comprehensive income for the three months ended December 31, 2020 and 2019 was $1.5 million and $1.4 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, 2020 and 2019. The amounts included in the table below exclude gains and losses arising from ineffectiveness because those amounts are immediately recognized in the statement of comprehensive income as incurred.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
(In thousands)
|
Increase in fair value:
|
|
|
|
|
|
|
|
Interest rate agreements
|
$
|
59,042
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of losses in earnings due to settlements:
|
|
|
|
|
|
|
|
Interest rate agreements
|
1,142
|
|
|
1,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) from hedging, net of tax
|
$
|
60,184
|
|
|
$
|
1,053
|
|
|
|
|
|
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. As of December 31, 2020, we had $113.4 million of net realized losses in AOCI associated with our interest rate agreements. The following amounts, net of deferred taxes, represent the expected recognition in earnings of the deferred net losses recorded in AOCI associated with our interest rate agreements, based upon the fair values of these agreements at the date of settlement. The remaining amortization periods for these settled amounts extend through fiscal 2049. However, the table below does not include the expected recognition in earnings of our outstanding interest rate swaps as those instruments have not yet settled.
|
|
|
|
|
|
|
Interest Rate
Agreements
|
|
(In thousands)
|
Next twelve months
|
$
|
(4,566)
|
|
Thereafter
|
(108,794)
|
|
Total
|
$
|
(113,360)
|
|
Financial Instruments Not Designated as Hedges
As discussed above, commodity contracts which are 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 comprehensive 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 consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. During the three months ended December 31, 2020, 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 9 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.
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, 2020 and September 30, 2020. 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, 2020
|
|
(In thousands)
|
Assets:
|
|
|
|
|
|
|
|
|
|
Financial instruments
|
$
|
—
|
|
|
$
|
150,398
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
150,398
|
|
Debt and equity securities
|
|
|
|
|
|
|
|
|
|
Registered investment companies
|
35,518
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35,518
|
|
Bond mutual funds
|
30,204
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30,204
|
|
Bonds(2)
|
—
|
|
|
34,142
|
|
|
—
|
|
|
—
|
|
|
34,142
|
|
Money market funds
|
—
|
|
|
6,162
|
|
|
—
|
|
|
—
|
|
|
6,162
|
|
Total debt and equity securities
|
65,722
|
|
|
40,304
|
|
|
—
|
|
|
—
|
|
|
106,026
|
|
Total assets
|
$
|
65,722
|
|
|
$
|
190,702
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
256,424
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Financial instruments
|
$
|
—
|
|
|
$
|
1,843
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2020
|
|
(In thousands)
|
Assets:
|
|
|
|
|
|
|
|
|
|
Financial instruments
|
$
|
—
|
|
|
$
|
80,678
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
80,678
|
|
Debt and equity securities
|
|
|
|
|
|
|
|
|
|
Registered investment companies
|
37,831
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
37,831
|
|
Bond mutual funds
|
29,166
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29,166
|
|
Bonds(2)
|
—
|
|
|
32,900
|
|
|
—
|
|
|
—
|
|
|
32,900
|
|
Money market funds
|
—
|
|
|
4,055
|
|
|
—
|
|
|
—
|
|
|
4,055
|
|
Total debt and equity securities
|
66,997
|
|
|
36,955
|
|
|
—
|
|
|
—
|
|
|
103,952
|
|
Total assets
|
$
|
66,997
|
|
|
$
|
117,633
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
184,630
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Financial instruments
|
$
|
—
|
|
|
$
|
2,015
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,015
|
|
(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 that are valued at cost.
(2)Our investments in bonds are considered available-for-sale debt securities in accordance with current accounting guidance.
Debt and equity securities are comprised of our available-for-sale debt securities and our equity securities. As described further in Note 2 to the unaudited condensed consolidated financial statements, we adopted ASC 326 effective October 1, 2020. In accordance with the new guidance, we evaluate the performance of our available-for-sale debt securities on an investment by investment basis for impairment, taking into consideration the investment’s purpose, volatility, current returns and any intent to sell the security. As of December 31, 2020, no allowance for credit losses was recorded for our available-for-sale debt securities. At December 31, 2020 and September 30, 2020, the amortized cost of our available-for-sale debt securities was $33.9 million and $32.6 million. At December 31, 2020, we maintained investments in bonds that have contractual maturity dates ranging from January 2021 through December 2023.
Other Fair Value Measures
Our long-term debt is recorded at carrying value. The fair value of our long-term debt, excluding finance leases, 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 carrying value of our finance leases materially approximates fair value. The following table presents the carrying value and fair value of our long-term debt, excluding finance leases, debt issuance costs and original issue premium or discount, as of December 31, 2020 and September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
September 30, 2020
|
|
(In thousands)
|
Carrying Amount
|
$
|
5,160,000
|
|
|
$
|
4,560,000
|
|
Fair Value
|
$
|
6,294,671
|
|
|
$
|
5,597,183
|
|
12. Concentration of Credit Risk
Information regarding our concentration of credit risk is disclosed in Note 16 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. During the three months ended December 31, 2020, there were no material changes in our concentration of credit risk.