UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)



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

For the quarterly period ended ~~March 31,~~June 30, 2017



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

For the transition period from to

Commission File Number 1-10042

Atmos Energy Corporation

(Exact name of registrant as specified in its charter)



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

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

(972) 934-9227

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large Accelerated Filer þ	Accelerated Filer ¨	Non-Accelerated Filer ¨	Smaller Reporting Company ¨	Emerging growth company ¨

(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No þ

Number of shares outstanding of each of the issuer’s classes of common stock, as of ~~April~~July 28, 2017.



Class		Shares Outstanding
No Par Value		~~105,288,359~~106,065,596

GLOSSARY OF KEY TERMS




AEC	Atmos Energy Corporation
AEH	Atmos Energy Holdings, Inc.
AEM	Atmos Energy Marketing, LLC
AOCI	Accumulated other comprehensive income
Bcf	Billion cubic feet
FASB	Financial Accounting Standards Board
~~Fitch~~	~~Fitch Ratings, Ltd.~~
GAAP	Generally Accepted Accounting Principles
GRIP	Gas Reliability Infrastructure Program
Gross Profit	Non-GAAP measure defined as operating revenues less purchased gas cost
Mcf	Thousand cubic feet
MMcf	Million cubic feet
Moody’s	Moody’s Investors Services, Inc.
NYMEX	New York Mercantile Exchange, Inc.
PPA	Pension Protection Act of 2006
PRP	Pipeline Replacement Program
RRC	Railroad Commission of Texas
RRM	Rate Review Mechanism
S&P	Standard & Poor’s Corporation
SEC	United States Securities and Exchange Commission
WNA	Weather Normalization Adjustment

PART I. FINANCIAL INFORMATION



Item 1.	Financial Statements

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


	March 31, 2017			September 30, 2016			June 30, 2017			September 30, 2016
	(Unaudited)						(Unaudited)
	(In thousands, except share data)						(In thousands, except share data)
ASSETS
Property, plant and equipment	$	10,725,834		$	10,142,506		$	10,952,422		$	10,142,506
Less accumulated depreciation and amortization	1,987,347			1,873,900			2,028,041			1,873,900
Net property, plant and equipment	8,738,487			8,268,606			8,924,381			8,268,606
Current assets
Cash and cash equivalents	45,403			47,534			69,777			47,534
Accounts receivable, net	336,637			215,880			250,224			215,880
Gas stored underground	120,026			179,070			151,656			179,070
Current assets of disposal group classified as held for sale	—			151,117			—			151,117
Other current assets	61,018			88,085			62,725			88,085
Total current assets	563,084			681,686			534,382			681,686
Goodwill	729,673			726,962			729,673			726,962
Noncurrent assets of disposal group classified as held for sale	—			28,616			—			28,616
Deferred charges and other assets	330,222			305,019			310,339			305,019
	$	10,361,466		$	10,010,889		$	10,498,775		$	10,010,889
CAPITALIZATION AND LIABILITIES
Shareholders’ equity
Common stock, no par value (stated at $.005 per share); 200,000,000 shares authorized; issued and outstanding: March 31, 2017 — 105,275,505 shares; September 30, 2016 — 103,930,560 shares	$	526		$	520
Common stock, no par value (stated at $0.005 per share); 200,000,000 shares authorized; issued and outstanding: June 30, 2017 — 106,059,875 shares; September 30, 2016 — 103,930,560 shares							$	530		$	520
Additional paid-in capital	2,464,252			2,388,027			2,525,752			2,388,027
Accumulated other comprehensive loss	(86,894		)	(188,022		)	(104,599		)	(188,022		)
Retained earnings	1,456,980			1,262,534			1,480,027			1,262,534
Shareholders’ equity	3,834,864			3,463,059			3,901,710			3,463,059
Long-term debt	2,314,620			2,188,779			3,066,734			2,188,779
Total capitalization	6,149,484			5,651,838			6,968,444			5,651,838
Current liabilities
Accounts payable and accrued liabilities	185,212			196,485			164,365			196,485
Current liabilities of disposal group classified as held for sale	—			72,900			—			72,900
Other current liabilities	390,253			439,085			322,721			439,085
Short-term debt	670,607			829,811			258,573			829,811
Current maturities of long-term debt	250,000			250,000			—			250,000
Total current liabilities	1,496,072			1,788,281			745,659			1,788,281
Deferred income taxes	1,810,160			1,603,056			1,853,564			1,603,056
Regulatory cost of removal obligation	444,848			424,281			457,060			424,281
Pension and postretirement liabilities	305,845			297,743			304,919			297,743
Noncurrent liabilities of disposal group held for sale	—			316			—			316
Deferred credits and other liabilities	155,057			245,374			169,129			245,374
	$	10,361,466		$	10,010,889		$	10,498,775		$	10,010,889

See accompanying notes to condensed consolidated financial statements.

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended March 31						Three Months Ended June 30
	2017			2016			2017			2016
	(Unaudited) (In thousands, except per share data)						(Unaudited) (In thousands, except per share data)
Operating revenues
Distribution segment	$	962,541		$	862,127		$	494,060		$	424,905
Pipeline and storage segment	111,972			102,153			117,283			113,855
Intersegment eliminations	(86,327		)	(74,240		)	(84,842		)	(82,548		)
Total operating revenues	988,186			890,040			526,501			456,212

Purchased gas cost
Distribution segment	513,096			450,671			197,767			147,569
Pipeline and storage segment	725			925			1,251			(438		)
Intersegment eliminations	(86,327		)	(74,240		)	(84,842		)	(82,548		)
Total purchased gas cost	427,494			377,356			114,176			64,583
Operation and maintenance expense	132,239			127,857			128,690			131,388
Depreciation and amortization expense	77,667			71,391			80,023			72,880
Taxes, other than income	65,614			61,780			62,948			58,965
Operating income	285,172			251,656			140,664			128,396
Miscellaneous income (expense)	833			(329		)
Miscellaneous (expense) income							(289		)	1,118
Interest charges	26,944			27,559			28,498			27,679
Income from continuing operations before income taxes	259,061			223,768			111,877			101,835
Income tax expense	97,049			80,765			41,069			35,692
Income from continuing operations	162,012			143,003			70,808			66,143
Loss from discontinued operations, net of tax ($0 and ($804))	—			(1,193		)
Gain on sale of discontinued operations, net of tax ($10,215 and $0)	2,716			—
Income from discontinued operations, net of tax ($0 and $3,414)							—			5,050
Net Income	$	164,728		$	141,810		$	70,808		$	71,193
Basic and diluted net income per share
Income per share from continuing operations	$	1.52		$	1.39		$	0.67		$	0.64
Income (loss) per share from discontinued operations	0.03			(0.01		)
Income per share from discontinued operations							—			0.05
Net income per share - basic and diluted	$	1.55		$	1.38		$	0.67		$	0.69
Cash dividends per share	$	0.45		$	0.42		$	0.45		$	0.42
Basic and diluted weighted average shares outstanding	105,935			102,946			106,364			103,750

See accompanying notes to condensed consolidated financial statements.

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME




	Six Months Ended March 31						Nine Months Ended June 30
	2017			2016			2017			2016
	(Unaudited) (In thousands, except per share data)						(Unaudited) (In thousands, except per share data)
Operating revenues
Distribution segment	$	1,717,197		$	1,511,570		$	2,211,257		$	1,936,475
Pipeline and storage segment	221,924			200,569			339,207			314,424
Intersegment eliminations	(170,767		)	(147,346		)	(255,609		)	(229,894		)
Total operating revenues	1,768,354			1,564,793			2,294,855			2,021,005

Purchased gas cost
Distribution segment	908,442			764,662			1,106,209			912,231
Pipeline and storage segment	1,080			366			2,331			(72		)
Intersegment eliminations	(170,723		)	(147,346		)	(255,565		)	(229,894		)
Total purchased gas cost	738,799			617,682			852,975			682,265
Operation and maintenance expense	257,177			247,685			385,867			379,073
Depreciation and amortization expense	154,625			142,047			234,648			214,927
Taxes, other than income	122,663			112,994			185,611			171,959
Operating income	495,090			444,385			635,754			572,781
Miscellaneous expense	(161		)	(1,208		)	(450		)	(90		)
Interest charges	57,974			57,096			86,472			84,775
Income from continuing operations before income taxes	436,955			386,081			548,832			487,916
Income tax expense	160,905			141,532			201,974			177,224
Income from continuing operations	276,050			244,549			346,858			310,692
Income from discontinued operations, net of tax ($6,841 and $81)	10,994			122
Income from discontinued operations, net of tax ($6,841 and $3,495)							10,994			5,172
Gain on sale of discontinued operations, net of tax ($10,215 and $0)	2,716			—			2,716			—
Net Income	$	289,760		$	244,671		$	360,568		$	315,864
Basic and diluted net income per share
Income per share from continuing operations	$	2.61		$	2.38		$	3.27		$	3.01
Income per share from discontinued operations	0.13			—			0.13			0.05
Net income per share - basic and diluted	$	2.74		$	2.38		$	3.40		$	3.06
Cash dividends per share	$	0.90		$	0.84		$	1.35		$	1.26
Basic and diluted weighted average shares outstanding	105,610			102,837			105,862			103,137

See accompanying notes to condensed consolidated financial statements.

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended March 31					Six Months Ended March 31					Three Months Ended June 30						Nine Months Ended June 30
	2017		2016			2017		2016			2017			2016			2017		2016
	(Unaudited) (In thousands)										(Unaudited) (In thousands)
Net income	$	164,728	$	141,810		$	289,760	$	244,671		$	70,808		$	71,193		$	360,568	$	315,864
Other comprehensive income (loss), net of tax
Net unrealized holding gains (losses) on available-for-sale securities, net of tax of $879, $(505), $403 and $(947)	1,530		(879		)	702		(1,647		)
Net unrealized holding gains (losses) on available-for-sale securities, net of tax of $490, $110, $893 and $(837)											851			151			1,553		(1,496		)
Cash flow hedges:
Amortization and unrealized gain (loss) on interest rate agreements, net of tax of $2,432, $(30,819), $54,861 and $(28,070)	4,230		(53,618		)	95,444		(48,835		)
Net unrealized gains on commodity cash flow hedges, net of tax of $0, $140, $3,183 and $1,645	—		220			4,982		2,573
Amortization and unrealized gain (loss) on interest rate agreements, net of tax of $(10,667), $(22,561), $44,194 and $(50,631)											(18,556		)	(39,250		)	76,888		(88,085		)
Net unrealized gains on commodity cash flow hedges, net of tax of $0, $11,575, $3,183 and $13,220											—			18,105			4,982		20,678
Total other comprehensive income (loss)	5,760		(54,277		)	101,128		(47,909		)	(17,705		)	(20,994		)	83,423		(68,903		)
Total comprehensive income	$	170,488	$	87,533		$	390,888	$	196,762		$	53,103		$	50,199		$	443,991	$	246,961

See accompanying notes to condensed consolidated financial statements.

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six Months Ended March 31						Nine Months Ended June 30
	2017			2016			2017			2016
	(Unaudited) (In thousands)						(Unaudited) (In thousands)
Cash Flows From Operating Activities
Net income	$	289,760		$	244,671		$	360,568		$	315,864
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	154,810			143,211			234,833			216,670
Deferred income taxes	148,657			132,456			188,256			171,042
Gain on sale of discontinued operations	(12,931		)	—			(12,931		)	—
Discontinued cash flow hedging for natural gas marketing commodity contracts	(10,579		)	—			(10,579		)	—
Other	10,391			8,771			14,892			14,430
Net assets / liabilities from risk management activities	26,757			9,528			25,661			7,973
Net change in operating assets and liabilities	(54,862		)	(85,682		)	(55,139		)	(96,033		)
Net cash provided by operating activities	552,003			452,955			745,561			629,946
Cash Flows From Investing Activities
Capital expenditures	(559,385		)	(536,004		)	(812,148		)	(789,688		)
Acquisition	(85,714		)	—			(86,128		)	—
Proceeds from the sale of discontinued operations	133,560			—			140,253			—
Available-for-sale securities activities, net	(8,918		)	(2,117		)	(14,329		)	558
Use tax refund							18,562			—
Other, net	3,787			4,597			6,435			5,731
Net cash used in investing activities	(516,670		)	(533,524		)	(747,355		)	(783,399		)
Cash Flows From Financing Activities
Net increase (decrease) in short-term debt	(159,204		)	169,002
Net (decrease) increase in short-term debt							(571,238		)	212,539
Net proceeds from equity offering	49,400			—			98,755			98,660
Issuance of common stock through stock purchase and employee retirement plans	16,984			17,641			22,673			26,500
Proceeds from issuance of long-term debt	125,000			—			884,911			—
Settlement of interest rate agreements							(36,996		)	—
Interest rate agreements cash collateral	25,670			—			25,670			(16,330		)
Repayment of long-term debt							(250,000		)	—
Cash dividends paid	(95,314		)	(86,809		)	(143,075		)	(130,363		)
Net cash provided by (used in) financing activities	(37,464		)	99,834
Net increase (decrease) in cash and cash equivalents	(2,131		)	19,265
Debt issuance costs							(6,663		)	—
Net cash provided by financing activities							24,037			191,006
Net increase in cash and cash equivalents							22,243			37,553
Cash and cash equivalents at beginning of period	47,534			28,653			47,534			28,653
Cash and cash equivalents at end of period	$	45,403		$	47,918		$	69,777		$	66,206

See accompanying notes to condensed consolidated financial statements.

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~March 31,~~June 30, 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 regulated businesses are 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 approximately three million residential, commercial, public authority and industrial customers through our six natural gas distribution divisions, which at ~~March 31,~~June 30, 2017, covered service areas located in eight states. In addition, we transport natural gas for others through our distribution system and manage our storage assets located in Kentucky and Tennessee, which are used solely to support our regulated natural gas distribution operations in those states.

Our pipeline and storage business includes the transportation of natural gas to ~~our North~~ Texas and Louisiana distribution systems and the management of our underground storage facilities used to support ~~our North~~ Texas distribution ~~business.~~businesses.

Effective January 1, 2017, we completed the sale of all of the equity interests of Atmos Energy Marketing (AEM) to CenterPoint Energy Services, Inc., a subsidiary of CenterPoint Energy, Inc. (CES). Accordingly, AEM’s historical financial results are reflected in the Company’s condensed consolidated financial statements as discontinued operations, which required retrospective application to financial information for all periods presented. Refer to Note 6 for further information. Our discontinued natural gas marketing segment was primarily engaged in a nonregulated natural gas marketing business, conducted by AEM. This business provided natural gas management and transportation services to municipalities, regulated distribution companies, including certain divisions of Atmos Energy and third parties.

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, ~~2016.~~2016, which appear in Exhibit 99.1 to our Current Report on Form 8-K dated April 12, 2017 (the "Fiscal 2016 Financial Statements"). 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, 2016.~~Fiscal 2016 Financial Statements. Because of seasonal and other factors, the results of operations for the ~~six-month~~nine-month period ended ~~March 31,~~June 30, 2017 are not indicative of our results of operations for the full 2017 fiscal year, which ends September 30, 2017.

~~We renewed our $25 million unsecured credit facility on April 1, 2017 as discussed in Note 5. In addition, in April 2017,~~During the third quarter, we completed a State of Texas use tax audit that covered the period from October 2011 to ~~June 2015,~~March 2017, which resulted in ana refund of $29.8 million. We concluded the appropriate regulatory treatment of this refund was to reduce rate base. We received $18.7 million ~~refund. We are~~during the third quarter, which has been included in ~~discussions with the State to update this audit through March~~cash flows from investing activities, and recorded an $11.1 million receivable as of June 30, 2017.

On January 6, 2017, our Atmos Pipeline - Texas Division filed its statement of intent seeking $63.6 million, as adjusted in its rebuttal case, in additional annual operating income. On August 1, 2017, a final order was issued in our APT rate case resulting in a $13.0 million increase in annual operating income. No other 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~~of our ~~Annual Report on Form 10-K for the fiscal year ended September 30, 2016.~~Fiscal 2016 Financial Statements.

As discussed in Note 3, due to the realignment of our reportable segments, prior periods' segment information has been recast in accordance with applicable accounting guidance. Additionally, as discussed in Note 6, due to the sale of AEM, prior period amounts have been presented as discontinued operations. The segment realignment and the presentation of discontinued operations dohave not ~~impact~~impacted our reported net income, financial position ~~and~~or cash flows.

During the second quarter of fiscal 2017, we completed our annual goodwill impairment assessment. Based on the assessment performed, we determined that our goodwill was not impaired.

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 ~~March 31,~~June 30, 2017, we have substantially completed the evaluation of our sources of revenue and are currently assessing the effect that the new guidance will have on our financial position, results of operations, cash flows and ~~cash flows.~~business processes. The conclusion of our assessment is contingent, in part, upon the completion of deliberations currently in progress by our industry, notably in connection with efforts to produce an accounting guide intended to be developed by the American Institute of Certified Public Accountants (AICPA).

In association with this undertaking, the AICPA formed a number of industry task forces, including a Power & Utilities (P&U) Task Force. Industry representatives and organizations, the largest auditing firms, the AICPA’s Revenue Recognition Working Group and its Financial Reporting Executive Committee have undertaken, and continue to undertake, consideration of several items relevant to our industry as further discussed below. Where applicable or necessary, the FASB’s Transition Resource Group (TRG) is also participating.

Currently, the industry is working to address several items including the evaluation of collectability from customers if a utility has regulatory mechanisms to help assure recovery of uncollected accounts from ratepayers and the accounting for funds received from third parties to partially or fully reimburse the cost of construction of an asset. A timeline for the resolution of these deliberations has not been established. Additionally, we are actively working with our peers in the rate-regulated natural gas industry and with the public accounting profession to conclude on the accounting treatment for several other issues that are not expected to be addressed by the P&U Task Force. Based on the ~~apparent~~ progress of these deliberations to date, 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 are currently still evaluating the transition method we will utilize to adopt the new guidance as well as the impact to our financial statement presentation and related disclosures.

In May 2015, the FASB issued guidance removing the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The guidance was effective for us on October 1, 2016, to be applied retrospectively. We measure certain pension plan assets using the net asset value per share practical expedient, which are disclosed on an annual basis in our Form 10-K. The adoption of the new standard ~~will~~should have no material impact on our results of operations, consolidated balance sheets or cash flows.

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.~~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. As of June 30, 2017, we had begun the process of identifying and categorizing our lease contracts, evaluating our current business processes and identifying a lease software solution. We are currently evaluating the effect 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.~~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. The adoption of the new standard will have no 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). The new guidance is 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.~~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 substantially all 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 the regulatory cost of removal obligation is reported separately.

Significant regulatory assets and liabilities as of ~~March 31,~~June 30, 2017 and September 30, 2016 included the following:


	March 31, 2017		September 30, 2016		June 30, 2017		September 30, 2016
	(In thousands)				(In thousands)
Regulatory assets:
Pension and postretirement benefit costs⁽¹⁾	$	125,547	$	132,348	$	122,202	$	132,348
Infrastructure mechanisms⁽²⁾	61,470		42,719		38,653		42,719
Deferred gas costs	9,561		45,184		16,405		45,184
Recoverable loss on reacquired debt	12,482		13,761		11,843		13,761
Deferred pipeline record collection costs	9,079		7,336		10,327		7,336
APT annual adjustment mechanism	4,452		7,171		4,973		7,171
Rate case costs	1,467		1,539		2,480		1,539
Other	13,264		13,565		9,949		13,565
	$	237,322	$	263,623	$	216,832	$	263,623
Regulatory liabilities:
Regulatory cost of removal obligations	$	486,110	$	476,891	$	492,404	$	476,891
Deferred gas costs	49,672		20,180		16,753		20,180
Asset retirement obligations	13,404		13,404		13,404		13,404
Other	10,679		4,250		6,729		4,250
	$	559,865	$	514,725	$	529,290	$	514,725


⁽¹⁾	Includes ~~$11.8~~$11.5 million and $12.4 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. Segment Information

Through November 30, 2016, our consolidated operations were managed and reviewed through three segments:

The regulated distribution segment, which included our regulated natural gas distribution and related sales operations.

The regulated pipeline segment, which included the pipeline and storage operations of our Atmos ~~Energy~~ Pipeline-Texas division and,

The nonregulated segment, which included our nonregulated natural gas management, nonregulated natural gas transmission, storage and other services.

As a result of the announced sale of Atmos Energy Marketing, we revised the information used by the chief operating decision maker to manage the ~~Company.~~Company, effective December 1, 2016. Accordingly, we have been managing and reviewing our consolidated operations through the following three reportable segments:

The distribution segment is primarily comprised of our regulated natural gas distribution and related sales operations in eight states and storage assets located in Kentucky and Tennessee, which are used solely to support our natural gas distribution operations in those states. These storage assets were formerly included in our nonregulated segment.

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, which were formerly included in our nonregulated segment.

The natural gas marketing segment is 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, 2016.~~Fiscal 2016 Financial Statements. We evaluate performance based on net income or loss of the respective operating segments. 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.

Prior periods' segment information has been recast as required by applicable accounting guidance. The segment realignment ~~does~~has not ~~impact~~impacted our reported consolidated revenues or net income.

Income statements for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2017 and 2016 by segment are presented in the following tables:


	Three Months Ended March 31, 2017												Three Months Ended June 30, 2017
	Distribution		Pipeline and Storage			Natural Gas Marketing		Eliminations			Consolidated		Distribution			Pipeline and Storage			Natural Gas Marketing		Eliminations			Consolidated
	(In thousands)												(In thousands)
Operating revenues from external parties	$	962,217	$	25,969		$	—	$	—		$	988,186	$	493,738		$	32,763		$	—	$	—		$	526,501
Intersegment revenues	324		86,003			—		(86,327		)	—		322			84,520			—		(84,842		)	—
Total operating revenues	962,541		111,972			—		(86,327		)	988,186		494,060			117,283			—		(84,842		)	526,501
Purchased gas cost	513,096		725			—		(86,327		)	427,494		197,767			1,251			—		(84,842		)	114,176
Operation and maintenance expense	103,703		28,536			—		—			132,239		99,631			29,059			—		—			128,690
Depreciation and amortization expense	61,302		16,365			—		—			77,667		62,760			17,263			—		—			80,023
Taxes, other than income	57,636		7,978			—		—			65,614		56,850			6,098			—		—			62,948
Operating income	226,804		58,368			—		—			285,172		77,052			63,612			—		—			140,664
Miscellaneous income (expense)	1,029		(196		)	—		—			833
Miscellaneous expense													(62		)	(227		)	—		—			(289		)
Interest charges	16,925		10,019			—		—			26,944		18,394			10,104			—		—			28,498
Income from continuing operations before income taxes	210,908		48,153			—		—			259,061
Income before income taxes													58,596			53,281			—		—			111,877
Income tax expense	79,763		17,286			—		—			97,049		22,082			18,987			—		—			41,069
Income from continuing operations	131,145		30,867			—		—			162,012
Income from discontinued operations, net of tax	—		—			—		—			—
Gain on sale of discontinued operations, net of tax	—		—			2,716		—			2,716
Net income	$	131,145	$	30,867		$	2,716	$	—		$	164,728	$	36,514		$	34,294		$	—	$	—		$	70,808
Capital expenditures	$	208,185	$	53,238		$	—	$	—		$	261,423	$	205,780		$	46,983		$	—	$	—		$	252,763


	Three Months Ended March 31, 2016														Three Months Ended June 30, 2016
	Distribution		Pipeline and Storage			Natural Gas Marketing			Eliminations			Consolidated			Distribution		Pipeline and Storage			Natural Gas Marketing		Eliminations			Consolidated
	(In thousands)														(In thousands)
Operating revenues from external parties	$	861,756	$	28,284		$	—		$	—		$	890,040		$	424,553	$	31,659		$	—	$	—		$	456,212
Intersegment revenues	371		73,869			—			(74,240		)	—			352		82,196			—		(82,548		)	—
Total operating revenues	862,127		102,153			—			(74,240		)	890,040			424,905		113,855			—		(82,548		)	456,212
Purchased gas cost	450,671		925			—			(74,240		)	377,356			147,569		(438		)	—		(82,548		)	64,583
Operation and maintenance expense	100,146		27,711			—			—			127,857			101,819		29,569			—		—			131,388
Depreciation and amortization expense	57,941		13,450			—			—			71,391			59,193		13,687			—		—			72,880
Taxes, other than income	54,978		6,802			—			—			61,780			52,662		6,303			—		—			58,965
Operating income	198,391		53,265			—			—			251,656			63,662		64,734			—		—			128,396
Miscellaneous income (expense)	38		(367		)	—			—			(329		)	1,243		(125		)	—		—			1,118
Interest charges	18,414		9,145			—			—			27,559			18,677		9,002			—		—			27,679
Income from continuing operations before income taxes	180,015		43,753			—			—			223,768			46,228		55,607			—		—			101,835
Income tax expense	64,935		15,830			—			—			80,765			15,867		19,825			—		—			35,692
Income from continuing operations	115,080		27,923			—			—			143,003			30,361		35,782			—		—			66,143
Loss from discontinued operations, net of tax	—		—			(1,193		)	—			(1,193		)
Net income (loss)	$	115,080	$	27,923		$	(1,193	)	$	—		$	141,810
Income from discontinued operations, net of tax															—		—			5,050		—			5,050
Net income															$	30,361	$	35,782		$	5,050	$	—		$	71,193
Capital expenditures	$	175,186	$	70,357		$	49		$	—		$	245,592		$	187,470	$	66,108		$	106	$	—		$	253,684



	Six Months Ended March 31, 2017													Nine Months Ended June 30, 2017
	Distribution		Pipeline and Storage			Natural Gas Marketing		Eliminations			Consolidated			Distribution		Pipeline and Storage			Natural Gas Marketing		Eliminations			Consolidated
	(In thousands)													(In thousands)
Operating revenues from external parties	$	1,716,483	$	51,871		$	—	$	—		$	1,768,354		$	2,210,221	$	84,634		$	—	$	—		$	2,294,855
Intersegment revenues	714		170,053			—		(170,767		)	—			1,036		254,573			—		(255,609		)	—
Total operating revenues	1,717,197		221,924			—		(170,767		)	1,768,354			2,211,257		339,207			—		(255,609		)	2,294,855
Purchased gas cost	908,442		1,080			—		(170,723		)	738,799			1,106,209		2,331			—		(255,565		)	852,975
Operation and maintenance expense	196,417		60,804			—		(44		)	257,177			296,048		89,863			—		(44		)	385,867
Depreciation and amortization expense	122,459		32,166			—		—			154,625			185,219		49,429			—		—			234,648
Taxes, other than income	108,182		14,481			—		—			122,663			165,032		20,579			—		—			185,611
Operating income	381,697		113,393			—		—			495,090			458,749		177,005			—		—			635,754
Miscellaneous income (expense)	396		(557		)	—		—			(161		)	334		(784		)	—		—			(450		)
Interest charges	38,043		19,931			—		—			57,974			56,437		30,035			—		—			86,472
Income from continuing operations before income taxes	344,050		92,905			—		—			436,955			402,646		146,186			—		—			548,832
Income tax expense	127,541		33,364			—		—			160,905			149,623		52,351			—		—			201,974
Income from continuing operations	216,509		59,541			—		—			276,050			253,023		93,835			—		—			346,858
Income from discontinued operations, net of tax	—		—			10,994		—			10,994			—		—			10,994		—			10,994
Gain on sale of discontinued operations, net of tax	—		—			2,716		—			2,716			—		—			2,716		—			2,716
Net income	$	216,509	$	59,541		$	13,710	$	—		$	289,760		$	253,023	$	93,835		$	13,710	$	—		$	360,568
Capital expenditures	$	430,669	$	128,716		$	—	$	—		$	559,385		$	636,449	$	175,699		$	—	$	—		$	812,148



	Six Months Ended March 31, 2016														Nine Months Ended June 30, 2016
	Distribution			Pipeline and Storage			Natural Gas Marketing		Eliminations			Consolidated			Distribution		Pipeline and Storage			Natural Gas Marketing		Eliminations			Consolidated
	(In thousands)														(In thousands)
Operating revenues from external parties	$	1,510,869		$	53,924		$	—	$	—		$	1,564,793		$	1,935,421	$	85,584		$	—	$	—		$	2,021,005
Intersegment revenues	701			146,645			—		(147,346		)	—			1,054		228,840			—		(229,894		)	—
Total operating revenues	1,511,570			200,569			—		(147,346		)	1,564,793			1,936,475		314,424			—		(229,894		)	2,021,005
Purchased gas cost	764,662			366			—		(147,346		)	617,682			912,231		(72		)	—		(229,894		)	682,265
Operation and maintenance expense	192,335			55,350			—		—			247,685			294,154		84,919			—		—			379,073
Depreciation and amortization expense	115,555			26,492			—		—			142,047			174,748		40,179			—		—			214,927
Taxes, other than income	100,536			12,458			—		—			112,994			153,198		18,761			—		—			171,959
Operating income	338,482			105,903			—		—			444,385			402,144		170,637			—		—			572,781
Miscellaneous expense	(439		)	(769		)	—		—			(1,208		)
Miscellaneous income (expense)															804		(894		)	—		—			(90		)
Interest charges	38,804			18,292			—		—			57,096			57,481		27,294			—		—			84,775
Income from continuing operations before income taxes	299,239			86,842			—		—			386,081			345,467		142,449			—		—			487,916
Income tax expense	110,223			31,309			—		—			141,532			126,090		51,134			—		—			177,224
Income from continuing operations	189,016			55,533			—		—			244,549			219,377		91,315			—		—			310,692
Income from discontinued operations, net of tax	—			—			122		—			122			—		—			5,172		—			5,172
Net income	$	189,016		$	55,533		$	122	$	—		$	244,671		$	219,377	$	91,315		$	5,172	$	—		$	315,864
Capital expenditures	$	340,593		$	195,338		$	73	$	—		$	536,004		$	528,063	$	261,446		$	179	$	—		$	789,688

Balance sheet information at ~~March 31,~~June 30, 2017 and September 30, 2016 by segment is presented in the following tables:


	March 31, 2017											June 30, 2017
	Distribution		Pipeline and Storage		Natural Gas Marketing		Eliminations			Consolidated		Distribution		Pipeline and Storage		Natural Gas Marketing		Eliminations			Consolidated
	(In thousands)											(In thousands)
ASSETS
Property, plant and equipment, net	$	6,516,911	$	2,221,576	$	—	$	—		$	8,738,487	$	6,678,875	$	2,245,506	$	—	$	—		$	8,924,381
Investment in subsidiaries	764,702		13,851		—		(778,553		)	—		798,994		13,851		—		(812,845		)	—
Current assets
Cash and cash equivalents	45,403		—		—		—			45,403		69,777		—		—		—			69,777
Other current assets	495,270		24,154		—		(1,743		)	517,681		437,700		29,265		—		(2,360		)	464,605
Intercompany receivables	1,015,217		—		—		(1,015,217		)	—		983,866		—		—		(983,866		)	—
Total current assets	1,555,890		24,154		—		(1,016,960		)	563,084		1,491,343		29,265		—		(986,226		)	534,382
Goodwill	586,661		143,012		—		—			729,673		586,661		143,012		—		—			729,673
Deferred charges and other assets	302,827		27,395		—		—			330,222		280,240		30,099		—		—			310,339
	$	9,726,991	$	2,429,988	$	—	$	(1,795,513	)	$	10,361,466	$	9,836,113	$	2,461,733	$	—	$	(1,799,071	)	$	10,498,775
CAPITALIZATION AND LIABILITIES
Shareholders’ equity	$	3,834,864	$	778,553	$	—	$	(778,553	)	$	3,834,864	$	3,901,710	$	812,845	$	—	$	(812,845	)	$	3,901,710
Long-term debt	2,314,620		—		—		—			2,314,620		3,066,734		—		—		—			3,066,734
Total capitalization	6,149,484		778,553		—		(778,553		)	6,149,484		6,968,444		812,845		—		(812,845		)	6,968,444
Current liabilities
Current maturities of long-term debt	250,000		—		—		—			250,000
Short-term debt	670,607		—		—		—			670,607		258,573		—		—		—			258,573
Other current liabilities	543,577		33,631		—		(1,743		)	575,465		451,026		38,420		—		(2,360		)	487,086
Intercompany payables	—		1,015,217		—		(1,015,217		)	—		—		983,866		—		(983,866		)	—
Total current liabilities	1,464,184		1,048,848		—		(1,016,960		)	1,496,072		709,599		1,022,286		—		(986,226		)	745,659
Deferred income taxes	1,230,279		579,881		—		—			1,810,160		1,251,528		602,036		—		—			1,853,564
Regulatory cost of removal obligation	422,191		22,657		—		—			444,848		432,531		24,529		—		—			457,060
Pension and postretirement liabilities	305,845		—		—		—			305,845		304,919		—		—		—			304,919
Deferred credits and other liabilities	155,008		49		—		—			155,057		169,092		37		—		—			169,129
	$	9,726,991	$	2,429,988	$	—	$	(1,795,513	)	$	10,361,466	$	9,836,113	$	2,461,733	$	—	$	(1,799,071	)	$	10,498,775



	September 30, 2016
	Distribution		Pipeline and Storage		Natural Gas Marketing		Eliminations			Consolidated
	(In thousands)
ASSETS
Property, plant and equipment, net	$	6,208,465	$	2,060,141	$	—	$	—		$	8,268,606
Investment in subsidiaries	768,415		13,854		—		(782,269		)	—
Current assets
Cash and cash equivalents	22,117		—		25,417		—			47,534
Current assets of disposal group classified as held for sale	—		—		162,508		(11,391		)	151,117
Other current assets	489,963		39,078		5		(46,011		)	483,035
Intercompany receivables	971,665		—		—		(971,665		)	—
Total current assets	1,483,745		39,078		187,930		(1,029,067		)	681,686
Goodwill	583,950		143,012		—		—			726,962
Noncurrent assets of disposal group classified as held for sale	—		—		28,785		(169		)	28,616
Deferred charges and other assets	277,240		27,779		—		—			305,019
	$	9,321,815	$	2,283,864	$	216,715	$	(1,811,505	)	$	10,010,889
CAPITALIZATION AND LIABILITIES
Shareholders’ equity	$	3,463,059	$	715,672	$	66,597	$	(782,269	)	$	3,463,059
Long-term debt	2,188,779		—		—		—			2,188,779
Total capitalization	5,651,838		715,672		66,597		(782,269		)	5,651,838
Current liabilities
Current maturities of long-term debt	250,000		—		—		—			250,000
Short-term debt	829,811		—		35,000		(35,000		)	829,811
Current liabilities of the disposal group classified as held for sale	—		—		81,908		(9,008		)	72,900
Other current liabilities	605,790		39,911		3,263		(13,394		)	635,570
Intercompany payables	—		957,526		14,139		(971,665		)	—
Total current liabilities	1,685,601		997,437		134,310		(1,029,067		)	1,788,281
Deferred income taxes	1,055,348		543,390		4,318		—			1,603,056
Regulatory cost of removal obligation	397,162		27,119		—		—			424,281
Pension and postretirement liabilities	297,743		—		—		—			297,743
Noncurrent liabilities of disposal group classified as held for sale	—		—		316		—			316
Deferred credits and other liabilities	234,123		246		11,174		(169		)	245,374
	$	9,321,815	$	2,283,864	$	216,715	$	(1,811,505	)	$	10,010,889

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 and ~~six~~nine months ended ~~March 31,~~June 30, 2017 and 2016 are calculated as follows:


	Three Months Ended March 31					Six Months Ended March 31				Three Months Ended June 30				Nine Months Ended June 30
	2017		2016			2017		2016		2017		2016		2017		2016
	(In thousands, except per share amounts)									(In thousands, except per share amounts)
Basic and Diluted Earnings Per Share from continuing operations
Income from continuing operations	$	162,012	$	143,003		$	276,050	$	244,549	$	70,808	$	66,143	$	346,858	$	310,692
Less: Income from continuing operations allocated to participating securities	193		231			348		405		75		100		424		488
Income from continuing operations available to common shareholders	$	161,819	$	142,772		$	275,702	$	244,144	$	70,733	$	66,043	$	346,434	$	310,204
Basic and diluted weighted average shares outstanding	105,935		102,946			105,610		102,837		106,364		103,750		105,862		103,137
Income from continuing operations per share — Basic and Diluted	$	1.52	$	1.39		$	2.61	$	2.38	$	0.67	$	0.64	$	3.27	$	3.01

Basic and Diluted Earnings Per Share from discontinued operations
Income (loss) from discontinued operations	$	2,716	$	(1,193	)	$	13,710	$	122
Income from discontinued operations										$	—	$	5,050	$	13,710	$	5,172
Less: Income from discontinued operations allocated to participating securities	2		—			15		—		—		6		15		4
Income (loss) from discontinued operations available to common shareholders	$	2,714	$	(1,193	)	$	13,695	$	122
Income from discontinued operations available to common shareholders										$	—	$	5,044	$	13,695	$	5,168
Basic and diluted weighted average shares outstanding	105,935		102,946			105,610		102,837		106,364		103,750		105,862		103,137
Income (loss) from discontinued operations per share — Basic and Diluted	$	0.03	$	(0.01	)	$	0.13	$	—
Income from discontinued operations per share — Basic and Diluted										$	—	$	0.05	$	0.13	$	0.05
Net income per share — Basic and Diluted	$	1.55	$	1.38		$	2.74	$	2.38	$	0.67	$	0.69	$	3.40	$	3.06

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, 2016.~~Fiscal 2016 Financial Statements. Except as noted below, there were no material changes in the terms of our debt instruments during the ~~six~~nine months ended ~~March 31,~~June 30, 2017.

Long-term debt at ~~March 31,~~June 30, 2017 and September 30, 2016 consisted of the following:


	March 31, 2017		September 30, 2016		June 30, 2017			September 30, 2016
	(In thousands)				(In thousands)
Unsecured 6.35% Senior Notes, due June 2017	$	250,000	$	250,000	$	—		$	250,000
Unsecured 8.50% Senior Notes, due 2019	450,000		450,000		450,000			450,000
Unsecured 3.00% Senior Notes, due 2027					500,000			—
Unsecured 5.95% Senior Notes, due 2034	200,000		200,000		200,000			200,000
Unsecured 5.50% Senior Notes, due 2041	400,000		400,000		400,000			400,000
Unsecured 4.15% Senior Notes, due 2043	500,000		500,000		500,000			500,000
Unsecured 4.125% Senior Notes, due 2044	500,000		500,000		750,000			500,000
Medium-term note Series A, 1995-1, 6.67%, due 2025	10,000		10,000		10,000			10,000
Unsecured 6.75% Debentures, due 2028	150,000		150,000		150,000			150,000
Floating-rate term loan, due 2019	125,000		—		125,000			—
Total long-term debt	2,585,000		2,460,000		3,085,000			2,460,000
Less:
Original issue discount on unsecured senior notes and debentures	4,099		4,270
Original issue (premium) discount on unsecured senior notes and debentures					(4,370		)	4,270
Debt issuance cost	16,281		16,951		22,636			16,951
Current maturities	250,000		250,000		—			250,000
	$	2,314,620	$	2,188,779	$	3,066,734		$	2,188,779

On June 8, 2017, we completed a public offering of $500 million of 3.00% senior notes due 2027 and $250 million of 4.125% senior notes due 2044. The effective rate of these notes is 3.12% and 4.40%, after giving effect to the offering costs and the settlement of the associated forward starting interest rate swaps. The net proceeds (excluding the loss on the settlement of the interest rate swaps of $37 million) of approximately $753 million were used to repay our $250 million 6.35% senior unsecured notes at maturity on June 15, 2017 and for general corporate purposes, including the repayment of working capital borrowings pursuant to our commercial paper program.

On September 22, 2016, we entered into a three year, $200 million multi-draw floating-rate term loan agreement with a syndicate of three lenders. Borrowings under the term loan may be made in increments of $1.0 million or higher, may be repaid at any time during the loan period and will bear interest at a rate dependent upon our credit ratings at the time of such borrowing and based, at our election, on a base rate or LIBOR for the applicable interest period. The term loan ~~will be~~was used to ~~refinance existing indebtedness~~repay short-term debt and for working capital, capital expenditures and other general corporate purposes. At ~~March 31,~~June 30, 2017, there was $125.0 million outstanding under the term loan.

We utilize short-term debt to fund ongoing working capital needs, such as our seasonal requirements for gas supply, general corporate liquidity and capital expenditures. 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.

We currently finance our short-term borrowing requirements 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. This facility was amended in October 2016 to increase the total availability from $1.25 billion. At ~~March 31,~~June 30, 2017 and September 30, 2016 a total of ~~$670.6~~$258.6 million and $829.8 million was outstanding under our commercial paper program.

Additionally, we have a $25 million unsecured facility, which was renewed on April 1, 2017, and a $10 million unsecured revolving credit facility, which is used primarily to issue letters of credit. At ~~March 31,~~June 30, 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 unsecured revolving facility to $4.1 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 ~~March 31,~~June 30, 2017, our total-debt-to-total-capitalization ratio, as defined in the agreements, was 47 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 ~~March 31,~~June 30, 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.

AEM had one uncommitted $25 million 364-day bilateral credit facility that was scheduled to expire on July 31, 2017 and one committed $15 million 364-day bilateral credit facility that was scheduled to expire on September 30, 2017. In connection with the sale of AEM discussed in Note 6, both facilities were terminated on January 3, 2017.

6. Divestitures and Acquisitions

Divestiture of Atmos Energy Marketing (AEM)

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 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 ~~estimated~~ working capital of ~~$103.2~~$109.0 million for total cash consideration of ~~$141.5~~$147.3 million. Of this amount, $7.0 million was placed into escrow and will be paid to the Company within 24 months of the closing date, net of any indemnification claims agreed upon between the two companies. We recognized a net gain of $0.03 per diluted share on the sale in the second quarter of fiscal 2017 and ~~expect to complete~~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 statements of income as income from discontinued operations, net of income tax. Accordingly, expenses related to allocable general corporate overhead and interest expense are not included in these results. The decision to report this segment as a discontinued operation was predicated, in part, on the following qualitative and quantitative factors: 1) the disposal ~~results~~resulted in the company becoming a fully regulated entity; 2) the fact that an entire reportable segment ~~will be~~was disposed of and 3) the fact the disposed segment represented in excess of 30 percent of consolidated revenues over the last five fiscal years.

The tables below set forth selected financial and operational information related to assets, liabilities and operating results related to discontinued operations. Operating expenses include operation and maintenance expense, provision for doubtful accounts, depreciation and amortization expense and taxes, other than income. Additionally, assets and liabilities related to our natural gas marketing operations are classified as “held for sale” on our consolidated balance sheet at September 30, 2016. Prior period revenues and expenses associated with these assets have been reclassified into discontinued operations. This reclassification had no impact on previously reported consolidated net income.

The following tables present statement of income data related to discontinued ~~operations.~~operations:

Three Months Ended
March 31
2017 2016
(In thousands)

Operating revenues $ —
$ 269,519

Purchased gas cost —
264,259
Operating expenses —
6,900
Operating loss —
(1,640 )
Other nonoperating expense —
(357 )
Loss from discontinued operations before income taxes —
(1,997 )
Income tax benefit —
(804 )
Loss from discontinued operations —
(1,193 )
Gain on sale from discontinued operations, net of tax ($10,215 and $0) 2,716
—
Net income (loss) from discontinued operations $ 2,716
$ (1,193 )



	Three Months Ended June 30
	2017		2016
	(In thousands)

Operating revenues	$	—	$	200,213

Purchased gas cost	—		184,398
Operating expenses	—		7,047
Operating income	—		8,768
Other nonoperating expense	—		(304		)
Income from discontinued operations before income taxes	—		8,464
Income tax expense	—		3,414
Net income from discontinued operations	$	—	$	5,050


	Six Months Ended March 31						Nine Months Ended June 30
	2017			2016			2017			2016
	(In thousands)						(In thousands)

Operating revenues	$	303,474		$	528,776		$	303,474		$	728,989

Purchased gas cost	277,554			514,047			277,554			698,445
Operating expenses	7,874			12,893			7,874			19,940
Operating income	18,046			1,836			18,046			10,604
Other nonoperating expense	(211		)	(1,633		)	(211		)	(1,937		)
Income from discontinued operations before income taxes	17,835			203			17,835			8,667
Income tax expense	6,841			81			6,841			3,495
Income from discontinued operations	10,994			122			10,994			5,172
Gain on sale from discontinued operations, net of tax ($10,215 and $0)	2,716			—			2,716			—
Net income from discontinued operations	$	13,710		$	122		$	13,710		$	5,172

The following table presents a reconciliation of the carrying amounts of major classes of assets and liabilities of our natural gas marketing's operations to total assets and liabilities classified as held for ~~sale.~~sale:


	March 31, 2017		September 30, 2016		June 30, 2017		September 30, 2016
	(In thousands)				(In thousands)
Assets:
Net property, plant and equipment	$	—	$	11,905	$	—	$	11,905
Accounts receivable	—		93,551		—		93,551
Gas stored underground	—		54,246		—		54,246
Other current assets	—		14,711		—		14,711
Goodwill	—		16,445		—		16,445
Deferred charges and other assets	—		435		—		435
Total assets of the disposal group classified as held for sale in the statement of financial position ⁽¹⁾	—		191,293		—		191,293
Cash	—		25,417		—		25,417
Other assets	—		5		—		5
Total assets of disposal group in the statement of financial position	$	—	$	216,715	$	—	$	216,715

Liabilities:
Accounts payable and accrued liabilities	$	—	$	72,268	$	—	$	72,268
Other current liabilities	—		9,640		—		9,640
Deferred credits and other	—		316		—		316
Total liabilities of the disposal group classified as held for sale in the statement of financial position ⁽¹⁾	—		82,224		—		82,224
Intercompany note payable	—		35,000		—		35,000
Tax liabilities	—		15,471		—		15,471
Intercompany payables	—		14,139		—		14,139
Other liabilities	—		3,284		—		3,284
Total liabilities of disposal group in the statement of financial position	$	—	$	150,118	$	—	$	150,118


⁽¹⁾	Amounts in the comparative period are classified as current and long term in the statement of financial position.

The following table presents statement of cash flow data related to discontinued ~~operations.~~operations:


	Six Months Ended March 31					Nine Months Ended June 30
	2017		2016			2017		2016
	(In thousands)					(In thousands)
Depreciation and amortization expense	$	185	$	1,164		$	185	$	1,743
Capital expenditures	$	—	$	73		$	—	$	179
Noncash gain (loss) in commodity contract cash flow hedges	$	18,744	$	(4,218	)	$	18,744	$	(33,898	)

Acquisition of EnLink Pipeline

On December 20, 2016, we executed a purchase and sale agreement to acquire the general partnership and limited partnership interests in EnLink North Texas Pipeline, LP (EnLink Pipeline) from EnLink Energy GP, LLC and EnLink Midstream Operating, LP for ~~an all–~~a cash purchase price of $85 million, plus ~~estimated working capital. After considering estimated~~ working capital ~~the total proceeds paid were $85.7~~of $1.1 million. ~~The final purchase price is subject to adjustment after the estimated working capital is finalized during the third quarter of fiscal 2017.~~

EnLink Pipeline's primary asset iswas a 140–mile natural gas pipeline located on the north side of the Dallas–Fort Worth Metroplex. ~~As of March 31, 2017, the~~The $85 million purchase price has been allocated, based on fair value using observable market inputs, to the net book value of the acquired pipeline. The final purchase price allocation is subject to adjustment pending the completion of our analysis of the fair value of certain contracts included in the acquisition, which we expect to finalize in the third quarter of fiscal 2017.

7. Shareholders' Equity

Shelf Registration and At-the-Market Equity Sales Program

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. We also filed a prospectus supplement under the registration statement relating to an at-the-market (ATM) equity distribution program under which we may issue and sell, shares of our common stock, up to an aggregate offering price of $200 million. During the ~~first fiscal quarter of~~nine months ended June 30, 2017, we sold ~~690,812~~1,303,494 shares of common stock under our existing ATM program for ~~$50.0~~$100 million and received net proceeds of ~~$49.4~~$98.8 million. At ~~March 31,~~June 30, 2017, approximately ~~$2.4~~$1.6 billion of securities ~~remain~~remained available for issuance under the shelf registration statement and ~~approximately $50.0 million of equity remained available for issuance~~substantially all shares have been issued under ~~the~~our ATM program.

Accumulated Other Comprehensive Income (Loss)

We record deferred gains (losses) in AOCI related to available-for-sale securities, interest rate cash flow hedges and 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			Commodity Contracts Cash Flow Hedges			Total			Available- for-Sale Securities		Interest Rate Agreement Cash Flow Hedges			Commodity Contracts Cash Flow Hedges			Total
	(In thousands)											(In thousands)
September 30, 2016	$	4,484	$	(187,524	)	$	(4,982	)	$	(188,022	)	$	4,484	$	(187,524	)	$	(4,982	)	$	(188,022	)
Other comprehensive income before reclassifications	634		95,271			9,847			105,752			1,485		76,602			9,847			87,934
Amounts reclassified from accumulated other comprehensive income	68		173			(4,865		)	(4,624		)	68		286			(4,865		)	(4,511		)
Net current-period other comprehensive income	702		95,444			4,982			101,128			1,553		76,888			4,982			83,423
March 31, 2017	$	5,186	$	(92,080	)	$	—		$	(86,894	)
June 30, 2017												$	6,037	$	(110,636	)	$	—		$	(104,599	)


	Available- for-Sale Securities			Interest Rate Agreement Cash Flow Hedges			Commodity Contracts Cash Flow Hedges			Total			Available- for-Sale Securities			Interest Rate Agreement Cash Flow Hedges			Commodity Contracts Cash Flow Hedges			Total
	(In thousands)												(In thousands)
September 30, 2015	$	4,949		$	(88,842	)	$	(25,437	)	$	(109,330	)	$	4,949		$	(88,842	)	$	(25,437	)	$	(109,330	)
Other comprehensive loss before reclassifications	(1,568		)	(49,008		)	(19,185		)	(69,761		)	(1,417		)	(88,345		)	(8,612		)	(98,374		)
Amounts reclassified from accumulated other comprehensive income	(79		)	173			21,758			21,852			(79		)	260			29,290			29,471
Net current-period other comprehensive income (loss)	(1,647		)	(48,835		)	2,573			(47,909		)	(1,496		)	(88,085		)	20,678			(68,903		)
March 31, 2016	$	3,302		$	(137,677	)	$	(22,864	)	$	(157,239	)
June 30, 2016													$	3,453		$	(176,927	)	$	(4,759	)	$	(178,233	)

The following tables detail reclassifications out of AOCI for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2017 and 2016. Amounts in parentheses below indicate decreases to net income in the statement of ~~income.~~income:


	Three Months Ended March 31, 2017				Three Months Ended June 30, 2017
Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income			Affected Line Item in the Statement of Income	Amount Reclassified from Accumulated Other Comprehensive Income			Affected Line Item in the Statement of Income
	(In thousands)
Available-for-sale securities	$	(107	)	Operation and maintenance expense
	(107		)	Total before tax
	39			Tax benefit
	$	(68	)	Net of tax	(In thousands)
Cash flow hedges
Interest rate agreements	$	(136	)	Interest charges	$	(177	)	Interest charges
Commodity contracts	—			Purchased gas cost	—			Purchased gas cost
	(136		)	Total before tax	(177		)	Total before tax
	50			Tax benefit	64			Tax benefit
	$	(86	)	Net of tax
Total reclassifications	$	(154	)	Net of tax	$	(113	)	Net of tax


	Three Months Ended March 31, 2016				Three Months Ended June 30, 2016
Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income			Affected Line Item in the Statement of Income	Amount Reclassified from Accumulated Other Comprehensive Income			Affected Line Item in the Statement of Income
	(In thousands)
Available-for-sale securities	$	124		Operation and maintenance expense
	124			Total before tax
	(45		)	Tax expense
	$	79		Net of tax	(In thousands)
Cash flow hedges
Interest rate agreements	$	(136	)	Interest charges	$	(137	)	Interest charges
Commodity contracts	(12,703		)	Purchased gas cost⁽¹⁾	(12,347		)	Purchased gas cost⁽¹⁾
	(12,839		)	Total before tax	(12,484		)	Total before tax
	5,004			Tax benefit	4,865			Tax benefit
	$	(7,835	)	Net of tax
Total reclassifications	$	(7,756	)	Net of tax	$	(7,619	)	Net of tax





	Nine Months Ended June 30, 2017
Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income			Affected Line Item in the Statement of Income
	(In thousands)
Available-for-sale securities	$	(107	)	Operation and maintenance expense
	(107		)	Total before tax
	39			Tax benefit
	$	(68	)	Net of tax
Cash flow hedges
Interest rate agreements	$	(450	)	Interest charges
Commodity contracts	7,976			Purchased gas cost⁽¹⁾
	7,526			Total before tax
	(2,947		)	Tax expense
	$	4,579		Net of tax
Total reclassifications	$	4,511		Net of tax

Six Months Ended March 31, 2017
Accumulated Other Comprehensive Income Components
Amount Reclassified from
Accumulated Other
Comprehensive Income

Affected Line Item in the
Statement of Income
(In thousands)
Available-for-sale securities $ (107 ) Operation and maintenance expense
(107 ) Total before tax
39
Tax benefit
$ (68 ) Net of tax
Cash flow hedges
Interest rate agreements $ (273 ) Interest charges
Commodity contracts 7,976

Purchased gas cost⁽¹⁾
7,703
Total before tax
(3,011 ) Tax expense
$ 4,692
Net of tax
Total reclassifications $ 4,624
Net of tax




	Six Months Ended March 31, 2016				Nine Months Ended June 30, 2016
Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income			Affected Line Item in the Statement of Income	Amount Reclassified from Accumulated Other Comprehensive Income			Affected Line Item in the Statement of Income
	(In thousands)				(In thousands)
Available-for-sale securities	$	124		Operation and maintenance expense	$	124		Operation and maintenance expense
	124			Total before tax	124			Total before tax
	(45		)	Tax expense	(45		)	Tax expense
	$	79		Net of tax	$	79		Net of tax
Cash flow hedges
Interest rate agreements	$	(273	)	Interest charges	$	(410	)	Interest charges
Commodity contracts	(35,668		)	Purchased gas cost⁽¹⁾	(48,015		)	Purchased gas cost⁽¹⁾
	(35,941		)	Total before tax	(48,425		)	Total before tax
	14,010			Tax benefit	18,875			Tax benefit
	$	(21,931	)	Net of tax	$	(29,550	)	Net of tax
Total reclassifications	$	(21,852	)	Net of tax	$	(29,471	)	Net of tax


⁽¹⁾	Amounts are presented as part of income from discontinued operations on 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 and ~~six~~nine months ended ~~March 31,~~June 30, 2017 and 2016 are presented in the following table. Most of these costs are recoverable through our ~~gas distribution~~tariff rates; however, a portion of these costs is capitalized into our ~~gas distribution~~ rate base. The remaining costs are recorded as a component of operation and maintenance expense.


	Three Months Ended March 31												Three Months Ended June 30
	Pension Benefits						Other Benefits						Pension Benefits						Other Benefits
	2017			2016			2017			2016			2017			2016			2017			2016
	(In thousands)												(In thousands)
Components of net periodic pension cost:
Service cost	$	5,217		$	4,697		$	3,109		$	2,706		$	5,216		$	4,698		$	3,109		$	2,705
Interest cost	6,297			7,094			2,670			3,106			6,296			7,095			2,669			3,106
Expected return on assets	(6,994		)	(6,880		)	(1,797		)	(1,566		)	(6,993		)	(6,881		)	(1,796		)	(1,566		)
Amortization of transition obligation	—			—			—			20			—			—			—			21
Amortization of prior service credit	(58		)	(56		)	(411		)	(411		)	(57		)	(57		)	(411		)	(411		)
Amortization of actuarial (gain) loss	4,249			3,320			(707		)	(542		)	4,248			3,319			(706		)	(541		)
Net periodic pension cost	$	8,711		$	8,175		$	2,864		$	3,313		$	8,710		$	8,174		$	2,865		$	3,314



	Six Months Ended March 31												Nine Months Ended June 30
	Pension Benefits						Other Benefits						Pension Benefits						Other Benefits
	2017			2016			2017			2016			2017			2016			2017			2016
	(In thousands)												(In thousands)
Components of net periodic pension cost:
Service cost	$	10,433		$	9,395		$	6,218		$	5,412		$	15,649		$	14,093		$	9,327		$	8,117
Interest cost	12,594			14,189			5,340			6,212			18,890			21,284			8,009			9,318
Expected return on assets	(13,988		)	(13,761		)	(3,593		)	(3,132		)	(20,981		)	(20,642		)	(5,389		)	(4,698		)
Amortization of transition obligation	—			—			—			41			—			—			—			62
Amortization of prior service credit	(116		)	(113		)	(822		)	(822		)	(173		)	(170		)	(1,233		)	(1,233		)
Amortization of actuarial (gain) loss	8,498			6,640			(1,414		)	(1,084		)	12,746			9,959			(2,120		)	(1,625		)
Net periodic pension cost	$	17,421		$	16,350		$	5,729		$	6,627		$	26,131		$	24,524		$	8,594		$	9,941

The assumptions used to develop our net periodic pension cost for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2017 and 2016 are as follows:



	Pension Benefits		Other Benefits
	2017	2016	2017	2016
Discount rate	3.73%	4.55%	3.73%	4.55%
Rate of compensation increase	3.50%	3.50%	N/A	N/A
Expected return on plan assets	7.00%	7.00%	4.45%	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 are not required to make a minimum contribution to our defined benefit plan during fiscal 2017; however, we ~~may consider whether~~made a voluntary contribution ~~is prudent to maintain certain funding levels.~~of $5.0 million during the third quarter of fiscal 2017.

We contributed ~~$6.6~~$9.9 million to our other post-retirement benefit plans during the ~~six~~nine months ended ~~March 31,~~June 30, 2017. We expect to contribute a total of between $10 million and $20 million to these plans during fiscal 2017.

9. Commitments and Contingencies

Litigation and Environmental Matters

With respect to the specific litigation and environmental-related matters or claims that were disclosed in Note 11 ~~to the financial statements in~~of our ~~Annual Report on Form 10-K for the fiscal year ended September 30,~~Fiscal 2016 Financial Statements, there were no material changes in the status of such litigation and environmental-related matters or claims during the ~~six~~nine months ended ~~March 31,~~June 30, 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 ~~except for our Mid-Tex Division,~~ 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 ~~distribution~~ hubs. ~~These~~At June 30, 2017, we were committed to purchase ~~commitment contracts are detailed in our Annual Report on Form 10-K for the fiscal~~53.2 Bcf within one year, ~~ended September 30, 2016. There were no material changes~~37.6 Bcf within two to ~~the purchase commitments for the six months ended March 31, 2017.~~three years and 0.4 Bcf beyond three years under indexed contracts.

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 ~~March 31,~~June 30, 2017, formula rate mechanisms were ~~in progress~~pending regulatory approval in our Louisiana ~~Tennessee~~service area, infrastructure mechanisms were pending regulatory approval in our Mississippi and ~~Mid-Tex~~Virginia service areas and ~~infrastructure mechanisms~~rate cases were ~~in progress~~pending regulatory approval in our ~~Mid-Tex, Mississippi~~Colorado service area and ~~West~~ Texas service ~~areas.~~area related to APT. These regulatory proceedings are discussed in further detail below in Management’s Discussion and Analysis — Recent Ratemaking Developments.

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~~of our ~~Annual Report on Form 10-K for the fiscal year ended September 30, 2016.~~Fiscal 2016 Financial Statements. During the ~~six~~nine months ended ~~March 31,~~June 30, 2017, except for the change in the scope of our natural gas marketing commodity risk management activities as a result of the sale of AEM, 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.

Regulated 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 2016-2017 heating season (generally October through March), in the jurisdictions where we are permitted to utilize financial instruments, we hedged approximately 27 percent, or 16.2 Bcf of the winter flowing gas requirements. We have not designated these financial instruments as hedges for accounting purposes.

Natural Gas Marketing Commodity Risk Management Activities

Our 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 ~~anticipated~~ 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 ~~costs~~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.

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 ~~March 31,~~June 30, 2017, we had forward starting interest rate swaps to effectively fix the Treasury yield component associated with the anticipated issuance of ~~$250 million and~~ $450 million unsecured senior notes in fiscal ~~2017 and fiscal~~ 2019 at ~~3.37% and~~ 3.78%, which we designated as a cash flow ~~hedges~~hedge at the time the swaps were executed. As of ~~March 31,~~June 30, 2017, we had ~~$18.1~~$41.5 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 ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2017, we had ~~8,909~~18,833 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 ~~March 31,~~June 30, 2017 and September 30, 2016. 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 the counterparties.



	Balance Sheet Location	Assets		Liabilities			Balance Sheet Location	Assets		Liabilities
		(In thousands)						(In thousands)
March 31, 2017
June 30, 2017
Designated As Hedges:
Interest rate contracts	Other current liabilities	$	—	$	(22,199	)
Interest rate contracts	Deferred credits and other liabilities	—		(94,256		)	Deferred credits and other liabilities	—		(108,860		)
Total		—		(116,455		)		—		(108,860		)
Not Designated As Hedges:
Commodity contracts							Other current assets / Other current liabilities	2,960		(230		)
Commodity contracts	Other current assets / Other current liabilities	3,096		(645		)	Deferred charges and other assets / Deferred credits and other liabilities	268		(282		)
Total		3,096		(645		)		3,228		(512		)
Gross Financial Instruments		3,096		(117,100		)		3,228		(109,372		)
Gross Amounts Offset on Consolidated Balance Sheet:
Contract netting		—		—				—		—
Net Financial Instruments		3,096		(117,100		)		3,228		(109,372		)
Cash collateral		—		—				—		—
Net Assets/Liabilities from Risk Management Activities		$	3,096	$	(117,100	)		$	3,228	$	(109,372	)




	Balance Sheet Location	Assets			Liabilities
		(In thousands)
September 30, 2016
Designated As Hedges:
Commodity contracts	Other current assets / Other current liabilities	$	6,612		$	(21,903	)
Interest rate contracts	Other current assets / Other current liabilities	—			(68,481		)
Commodity contracts	Deferred charges and other assets / Deferred credits and other liabilities	2,178			(3,779		)
Interest rate contracts	Deferred charges and other assets / Deferred credits and other liabilities	—			(198,008		)
Total		8,790			(292,171		)
Not Designated As Hedges:
Commodity contracts	Other current assets / Other current liabilities	21,186			(18,812		)
Commodity contracts	Deferred charges and other assets / Deferred credits and other liabilities	14,165			(12,701		)
Total		35,351			(31,513		)
Gross Financial Instruments		44,141			(323,684		)
Gross Amounts Offset on Consolidated Balance Sheet:
Contract netting		(39,290		)	39,290
Net Financial Instruments		4,851			(284,394		)
Cash collateral		6,775			43,575
Net Assets/Liabilities from Risk Management Activities		$	11,626		$	(240,819	)

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 ~~March 31,~~June 30, 2016, we recognized a ~~loss~~gain arising from fair value and cash flow hedge ineffectiveness of ~~$3.3~~$13.6 million. For the ~~six~~nine months ended ~~March 31,~~June 30, 2017 and 2016, we recognized gains arising from fair value and cash flow hedge ineffectiveness of $3.4 million and ~~$4.6~~$18.1 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 and ~~six~~nine months ended ~~March 31,~~June 30, 2017 and 2016 is presented below.


	Three Months Ended March 31					Six Months Ended March 31						Three Months Ended June 30					Nine Months Ended June 30
	2017		2016			2017			2016			2017		2016			2017			2016
	(In thousands)											(In thousands)
Commodity contracts	$	—	$	4,594		$	(9,567	)	$	10,338		$	—	$	(22,146	)	$	(9,567	)	$	(11,808	)
Fair value adjustment for natural gas inventory designated as the hedged item	—		(7,939		)	12,858			(5,778		)	—		35,630			12,858			29,852
Total (increase) decrease in purchased gas cost reflected in income from discontinued operations	$	—	$	(3,345	)	$	3,291		$	4,560
The (increase) decrease in purchased gas cost reflected in income from discontinued operations is comprised of the following:
Total decrease in purchased gas cost reflected in income from discontinued operations												$	—	$	13,484		$	3,291		$	18,044
The decrease in purchased gas cost reflected in income from discontinued operations is comprised of the following:
Basis ineffectiveness	$	—	$	(2,095	)	$	(597	)	$	(806	)	$	—	$	(684	)	$	(597	)	$	(1,490	)
Timing ineffectiveness	—		(1,250		)	3,888			5,366			—		14,168			3,888			19,534
	$	—	$	(3,345	)	$	3,291		$	4,560		$	—	$	13,484		$	3,291		$	18,044

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 interest rate and natural gas marketing segment cash flow hedges on our condensed consolidated income statements for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2017 and 2016 is presented below.


	Three Months Ended March 31						Six Months Ended March 31						Three Months Ended June 30						Nine Months Ended June 30
	2017			2016			2017			2016			2017			2016			2017			2016
	(In thousands)												(In thousands)
Loss reclassified from AOCI for effective portion of natural gas marketing commodity contracts	$	—		$	(12,703	)	$	(2,612	)	$	(35,668	)	$	—		$	(12,347	)	$	(2,612	)	$	(48,015	)
Gain arising from ineffective portion of natural gas marketing commodity contracts	—			61			111			18			—			66			111			84
Gain on discontinuance of cash flow hedging of natural gas marketing commodity contracts reclassified from AOCI	—			—			10,579			—			—			—			10,579			—
Total impact on purchased gas cost reflected in income from discontinued operations	—			(12,642		)	8,078			(35,650		)	—			(12,281		)	8,078			(47,931		)
Net loss on settled interest rate agreements reclassified from AOCI into interest expense	(136		)	(136		)	(273		)	(273		)	(177		)	(137		)	(450		)	(410		)
Total Impact from Cash Flow Hedges	$	(136	)	$	(12,778	)	$	7,805		$	(35,923	)	$	(177	)	$	(12,418	)	$	7,628		$	(48,341	)

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 and ~~six~~nine months ended ~~March 31,~~June 30, 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 March 31					Six Months Ended March 31						Three Months Ended June 30						Nine Months Ended June 30
	2017		2016			2017			2016			2017			2016			2017			2016
	(In thousands)											(In thousands)
Increase (decrease) in fair value:
Interest rate agreements	$	4,144	$	(53,704	)	$	95,271		$	(49,008	)	$	(18,669	)	$	(39,337	)	$	76,602		$	(88,345	)
Forward commodity contracts	—		(7,529		)	9,847			(19,185		)	—			10,573			9,847			(8,612		)
Recognition of (gains) losses in earnings due to settlements:
Interest rate agreements	86		86			173			173			113			87			286			260
Forward commodity contracts	—		7,749			(4,865		)	21,758			—			7,532			(4,865		)	29,290
Total other comprehensive income (loss) from hedging, net of tax⁽¹⁾	$	4,230	$	(53,398	)	$	100,426		$	(46,262	)	$	(18,556	)	$	(21,145	)	$	81,870		$	(67,407	)


⁽¹⁾	Utilizing an income tax rate ranging from 37 percent to 39 percent based on the effective rates in each taxing jurisdiction.

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, while deferred gains (losses) associated with natural gas marketing segment commodity contracts were recognized in earnings upon settlement. 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 ~~March 31,~~June 30, 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			Interest Rate Agreements
	(In thousands)			(In thousands)
Next twelve months	$	(598	)	$	(1,509	)
Thereafter	(17,532		)	(40,001		)
Total⁽¹⁾	$	(18,130	)	$	(41,510	)


⁽¹⁾	Utilizing an income tax rate of 37 ~~percent~~. percent.

Financial Instruments Not Designated as Hedges

The impact of the natural gas marketing segment's financial instruments that ~~have~~had not been designated as hedges on our condensed consolidated income statements for the three months ended ~~March 31,~~June 30, 2016 was ~~an increase~~a decrease in purchased gas cost of ~~$2.5~~$1.9 million, which is included in discontinued operations on the condensed consolidated statements of income. For the ~~six~~nine months ended ~~March 31,~~June 30, 2017 and 2016 purchased gas cost (increased) decreased by $6.8 million and ~~$(4.7)~~$(2.8) million.

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~~of our ~~Annual Report on Form 10-K for the fiscal year ended September 30, 2016.~~Fiscal 2016 Financial Statements. During the ~~six~~nine months ended ~~March 31,~~June 30, 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~~of our ~~Annual Report on Form 10-K for the fiscal year ending September 30, 2016.~~Fiscal 2016 Financial Statements.

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 ~~March 31,~~June 30, 2017 and September 30, 2016. 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		March 31, 2017		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)⁽¹⁾		Significant Other Unobservable Inputs (Level 3)		Netting and Cash Collateral		June 30, 2017
	(In thousands)										(In thousands)
Assets:
Financial instruments	$	—	$	3,096	$	—	$	—	$	3,096	$	—	$	3,228	$	—	$	—	$	3,228
Available-for-sale securities
Registered investment companies	37,995		—		—		—		37,995		39,406		—		—		—		39,406
Bond mutual funds	10,438		—		—		—		10,438		15,892		—		—		—		15,892
Bonds	—		30,596		—		—		30,596		—		31,429		—		—		31,429
Money market funds	—		3,623		—		—		3,623		—		2,884		—		—		2,884
Total available-for-sale securities	48,433		34,219		—		—		82,652		55,298		34,313		—		—		89,611
Total assets	$	48,433	$	37,315	$	—	$	—	$	85,748	$	55,298	$	37,541	$	—	$	—	$	92,839
Liabilities:
Financial instruments	$	—	$	117,100	$	—	$	—	$	117,100	$	—	$	109,372	$	—	$	—	$	109,372



	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)⁽¹⁾		Significant Other Unobservable Inputs (Level 3)		Netting and Cash Collateral⁽²⁾			September 30, 2016
	(In thousands)
Assets:
Financial instruments	$	—	$	44,141	$	—	$	(32,515	)	$	11,626
Hedged portion of gas stored underground	52,578		—		—		—			52,578
Available-for-sale securities
Registered investment companies	38,677		—		—		—			38,677
Bonds	—		31,394		—		—			31,394
Money market funds	—		2,630		—		—			2,630
Total available-for-sale securities	38,677		34,024		—		—			72,701
Total assets	$	91,255	$	78,165	$	—	$	(32,515	)	$	136,905
Liabilities:
Financial instruments	$	—	$	323,684	$	—	$	(82,865	)	$	240,819

⁽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.

⁽²⁾

This column reflects adjustments to our gross financial instrument assets and liabilities to reflect netting permitted under our master netting agreements and the relevant authoritative accounting literature. As of September 30, 2016, we had $50.4 million of cash held in margin accounts to collateralize certain financial instruments. Of this amount, $43.6 million was used to offset current and noncurrent risk management liabilities under master netting arrangements with the remaining $6.8 million is classified as current risk management assets.

Available-for-sale securities are comprised of the following:


	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value		Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
	(In thousands)									(In thousands)
As of March 31, 2017
As of June 30, 2017
Domestic equity mutual funds	$	25,158	$	6,956	$	(101	)	$	32,013	$	25,236	$	7,749	$	(17	)	$	32,968
Foreign equity mutual funds	4,581		1,401		—			5,982		4,581		1,857		—			6,438
Bond mutual funds	10,469		—		(31		)	10,438		15,928		—		(36		)	15,892
Bonds	30,588		43		(35		)	30,596		31,407		52		(30		)	31,429
Money market funds	3,623		—		—			3,623		2,884		—		—			2,884
	$	74,419	$	8,400	$	(167	)	$	82,652	$	80,036	$	9,658	$	(83	)	$	89,611
As of September 30, 2016
Domestic equity mutual funds	$	26,692	$	6,419	$	(590	)	$	32,521	$	26,692	$	6,419	$	(590	)	$	32,521
Foreign equity mutual funds	4,954		1,202		—			6,156		4,954		1,202		—			6,156
Bonds	31,296		108		(10		)	31,394		31,296		108		(10		)	31,394
Money market funds	2,630		—		—			2,630		2,630		—		—			2,630
	$	65,572	$	7,729	$	(600	)	$	72,701	$	65,572	$	7,729	$	(600	)	$	72,701

At ~~March 31,~~June 30, 2017 and September 30, 2016, our available-for-sale securities included ~~$41.6~~$42.3 million and $41.3 million related to assets held in separate rabbi trusts for our supplemental executive benefit plans. At ~~March 31,~~June 30, 2017, we maintained investments in bonds that have contractual maturity dates ranging from ~~April~~July 2017 through ~~September~~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 ~~March 31,~~June 30, 2017 and September 30, 2016:


	March 31, 2017		September 30, 2016		June 30, 2017		September 30, 2016
	(In thousands)				(In thousands)
Carrying Amount	$	2,585,000	$	2,460,000	$	3,085,000	$	2,460,000
Fair Value	$	2,806,986	$	2,844,990	$	3,388,003	$	2,844,990

12. Concentration of Credit Risk

Information regarding our concentration of credit risk is disclosed in Note 16 ~~to the financial statements in~~of our ~~Annual Report on Form 10-K for the fiscal year ended September 30, 2016.~~Fiscal 2016 Financial Statements. Except for the sale of AEM, during the ~~six~~nine months ended ~~March 31,~~June 30, 2017, there were no material changes in our concentration of credit risk.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of

Atmos Energy Corporation

We have reviewed the condensed consolidated balance sheet of Atmos Energy Corporation and subsidiaries as of ~~March 31,~~June 30, 2017 and the related condensed consolidated statements of income and comprehensive income for the three and ~~six-month~~nine-month periods ended ~~March 31,~~June 30, 2017 and 2016 and the condensed consolidated statements of cash flows for the ~~six-month~~nine-month periods ended ~~March 31,~~June 30, 2017 and 2016. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Atmos Energy Corporation and subsidiaries as of September 30, 2016, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the year then ended, not presented herein, and in our report dated November 14, 2016 except for the effects of the change in segments described in Note 3 and the discontinued operations described in Note 15, to which the date is April 12, 2017, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 2016, is fairly stated, in all material respects, in relation to the consolidated balance sheets from which it has been derived.

/s/ ERNST & YOUNG LLP

Dallas, Texas

~~May 4,~~August 2, 2017



Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

The following discussion should be read in conjunction with the condensed consolidated financial statements in this Quarterly Report on Form 10-Q and Management’s Discussion and Analysis, which appears in Item 7 of Exhibit 99.1 to our ~~Annual~~Current Report on Form ~~10-K for the year ended September 30, 2016.~~8-K dated April 12, 2017.

Cautionary Statement for the Purposes of the Safe Harbor under the Private Securities Litigation Reform Act of 1995

The statements contained in this Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this Report are forward-looking statements made in good faith by us and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. When used in this Report, or any other of our documents or oral presentations, the words “anticipate”, “believe”, “estimate”, “expect”, “forecast”, “goal”, “intend”, “objective”, “plan”, “projection”, “seek”, “strategy” or similar words are intended to identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the statements relating to our strategy, operations, markets, services, rates, recovery of costs, availability of gas supply and other factors. These risks and uncertainties include the following: our ability to continue to access the credit and capital markets to satisfy our liquidity requirements; regulatory trends and decisions, including the impact of rate proceedings before various state regulatory commissions; the impact of adverse economic conditions on our customers; the effects of inflation and changes in the availability and price of natural gas; the availability and accessibility of contracted gas supplies, interstate pipeline and/or storage services; market risks beyond our control affecting our risk management activities, including commodity price volatility, counterparty creditworthiness or performance and interest rate risk; the concentration of our distribution, pipeline and storage operations in Texas; increased competition from energy suppliers and alternative forms of energy; adverse weather conditions; the capital-intensive nature of our natural gas distribution, ~~business;~~pipeline and storage businesses; increased costs of providing health care benefits, along with pension and postretirement health care benefits and increased funding requirements; the inability to continue to hire, train and retain appropriate personnel; possible increased federal, state and local regulation of the safety of our operations; increased federal regulatory oversight and potential penalties; the impact of environmental regulations on our business; the impact of climate changes or related additional legislation or regulation in the future; the inherent hazards and risks involved in operating our distribution and pipeline and storage businesses; the threat of cyber-attacks or acts of cyber-terrorism that could disrupt our business operations and information technology systems; natural disasters, terrorist activities or other events and other risks and uncertainties discussed herein, all of which are difficult to predict and many of which are beyond our control. Accordingly, while we believe these forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. Further, we undertake no obligation to update or revise any of our forward-looking statements whether as a result of new information, future events or otherwise.

OVERVIEW

Atmos Energy and our subsidiaries are engaged primarily in the regulated natural gas distribution and transmission and storage businesses, as well as our natural gas marketing business through December 31, 2016. We distribute natural gas through sales and transportation arrangements to approximately three million residential, commercial, public authority and industrial customers throughout our six distribution divisions, which at ~~March 31,~~June 30, 2017 covered service areas located in eight states. In addition, we transport natural gas for others through our distribution and pipeline systems.

Through December 31, 2016, our natural gas marketing business provided natural gas management and marketing services to municipalities, other local gas distribution companies and industrial customers primarily in the Midwest and Southeast. We completed the sale of this business in January 2017.

We manage and review our consolidated operations through the following three reportable segments:

The pipeline and storage segment is comprised primarily of the pipeline and storage operations of our Atmos ~~Energy~~ Pipeline-Texas division and our natural gas transmission operations in Louisiana, which were included in our former nonregulated segment.

The natural gas marketing segment is comprised of our discontinued natural gas marketing business.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

Our condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States. Preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures of contingent assets and liabilities. We based our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. On an ongoing basis, we evaluate our estimates, including those related to risk management and trading activities, the allowance for doubtful accounts, legal and environmental accruals, insurance accruals, pension and postretirement obligations, deferred income taxes and the valuation of goodwill, indefinite-lived intangible assets and other long-lived assets. Actual results may differ from such estimates.

Our critical accounting policies used in the preparation of our consolidated financial statements are described in Item 7 of Exhibit 99.1 to our ~~Annual~~Current Report on Form ~~10-K for the fiscal year ended September 30, 2016~~8-K dated April 12, 2017 and include the following:

Regulation

Unbilled revenue

Pension and other postretirement plans

Contingencies

Financial instruments and hedging activities

Fair value measurements

Impairment assessments

Our critical accounting policies are reviewed periodically by the Audit Committee of our Board of Directors. There were no significant changes to these critical accounting policies during the ~~six~~nine months ended ~~March 31,~~June 30, 2017.

Non-GAAP Financial Measure

Our operations are affected by the cost of natural gas. The cost of gas is passed through to our customers without markup and includes commodity price, transportation, storage, injection and withdrawal fees and settlements of financial instruments used to mitigate commodity price risk. These costs are reflected in the income statement as purchased gas cost. Therefore, increases in the cost of gas are offset by a corresponding increase in revenues. Accordingly, we believe Gross Profit, a non-GAAP financial measure defined as operating revenues less purchased gas cost, is a better indicator of our financial performance than operating revenues as it provides a useful and more relevant measure to analyze our financial performance. As such, the following discussion and analysis of our financial performance will reference gross profit rather than operating revenues and purchased gas cost individually.

RESULTS OF OPERATIONS

Executive Summary

Atmos Energy strives to operate its businesses safely and reliably while delivering superior shareholder value. In recent years, we have implemented rate designs that reduce or eliminate regulatory lag and separate the recovery of our approved rate from customer usage patterns. Additionally, we have significantly increased investments in the safety and reliability of our natural gas distribution and transmission infrastructure. This increased level of investment and timely recovery of these investments through our regulatory mechanisms has resulted in increased earnings and operating cash flows in recent years.

The pursuit of our strategy was the primary driver for our decision to sell our nonregulated natural gas marketing business and to fully exit that business. The sale was announced in October 2016 and closed in January 2017 with the receipt of ~~$133.6~~$140.3 million in cash proceeds, including ~~estimated~~ working capital. We recorded a net gain of $0.03 per diluted share on the sale in the second quarter of fiscal 2017. The proceeds received from the transaction ~~will be~~were used to fund infrastructure additions and enhancements in our remaining businesses. As a result of the sale, the results of operations for the divested business have been presented as discontinued ~~operations.~~

Three Months Ended March 31
2017 2016 Change
(In thousands, except per share data)
Distribution operations $ 131,145
$ 115,080
$ 16,065
Pipeline and storage operations 30,867
27,923
2,944
Net income from continuing operations 162,012
143,003
19,009
Net income (loss) from discontinued operations 2,716
(1,193 ) 3,909
Net income $ 164,728
$ 141,810
$ 22,918

Diluted EPS from continuing operations $ 1.52
$ 1.39
$ 0.13
Diluted EPS from discontinued operations 0.03
(0.01 ) 0.04
Consolidated diluted EPS $ 1.55
$ 1.38
$ 0.17
operations in the tables below:



	Six Months Ended March 31						Three Months Ended June 30
	2017		2016		Change		2017		2016		Change
	(In thousands, except per share data)						(In thousands, except per share data)
Distribution operations	$	216,509	$	189,016	$	27,493	$	36,514	$	30,361	$	6,153
Pipeline and storage operations	59,541		55,533		4,008		34,294		35,782		(1,488		)
Net income from continuing operations	276,050		244,549		31,501		70,808		66,143		4,665
Net income from discontinued operations	13,710		122		13,588		—		5,050		(5,050		)
Net income	$	289,760	$	244,671	$	45,089	$	70,808	$	71,193	$	(385	)

Diluted EPS from continuing operations	$	2.61	$	2.38	$	0.23	$	0.67	$	0.64	$	0.03
Diluted EPS from discontinued operations	0.13		—		0.13		—		0.05		(0.05		)
Consolidated diluted EPS	$	2.74	$	2.38	$	0.36	$	0.67	$	0.69	$	(0.02	)




	Nine Months Ended June 30
	2017		2016		Change
	(In thousands, except per share data)
Distribution operations	$	253,023	$	219,377	$	33,646
Pipeline and storage operations	93,835		91,315		2,520
Net income from continuing operations	346,858		310,692		36,166
Net income from discontinued operations	13,710		5,172		8,538
Net income	$	360,568	$	315,864	$	44,704

Diluted EPS from continuing operations	$	3.27	$	3.01	$	0.26
Diluted EPS from discontinued operations	0.13		0.05		0.08
Consolidated diluted EPS	$	3.40	$	3.06	$	0.34

Net income from continuing operations increased 1312 percent, compared to the prior-year period, despite weather that was 2930 percent warmer than normal and 12 percent warmer than the prior-year period, primarily due to positive rate outcomes and customer growth in our distribution business. During the ~~six~~nine months ended ~~March 31,~~June 30, 2017, our distribution segment completed 1117 regulatory proceedings, resulting in an increase in annual operating income of ~~$25.4~~$85.0 million and had ~~nine~~four ratemaking efforts in progress at ~~March 31,~~June 30, 2017 seeking ~~$80.8~~$17.1 million of additional annual operating income. Additionally, on January 6, 2017, our Atmos Pipeline - Texas Division filed its statement of intent seeking ~~$55.2~~$63.6 million, as adjusted in its rebuttal case, in additional annual operating income. On August 1, 2017, a final order was issued resulting in a $13 million increase in annual operating income. Our discontinued natural gas marketing results for the ~~six~~nine months ended ~~March 31,~~June 30, 2017 primarily include a pre-tax gain of $10.6 million recognized in the first fiscal quarter related to the discontinuance of cash flow hedging for our natural gas marketing commodity contracts and a $2.7 million net gain on sale recognized in January 2017 upon completion of the sale.

Capital expenditures for the first ~~six~~nine months of fiscal 2017 were ~~$559.4~~$812.1 million. Approximately 7782 percent was invested to improve the safety and reliability of our distribution and transportation systems, with a significant portion of this investment incurred under regulatory mechanisms that reduce lag to six months or less. We expect our capital expenditures to range between $1.1 billion and $1.25 billion for fiscal 2017. We funded our capital expenditure program primarily through operating cash flows of ~~$552.0~~$745.6 million. Additionally, we issued approximately $885 million ~~$125~~of long-term debt and $100 million ~~in borrowings under our three-year $200 million multi-draw term loan, $49.4 million in proceeds from the issuance~~ of common stock ~~under our at-the-market equity distribution program~~during the nine month period ending June 30, 2017. The net proceeds from these issuances was primarily used to repay maturing long-term debt and ~~net~~to reduce short-term ~~debt borrowings.~~ debt.

In addition, we acquired EnLink Pipeline in the first fiscal quarter of 2017 for an all–cash price of ~~$85.0~~$86.1 million, ~~plus estimated~~inclusive of working capital. The acquisition of EnLink Pipeline increases the capacity on our APT intrastate pipeline to serve transportation customers in North Texas, which continues to experience significant population growth.

As a result of our sustained financial performance, cash flows and capital structure, our Board of Directors increased the quarterly dividend by 7.1 percent for fiscal 2017.

Distribution Segment

The distribution segment is primarily comprised of our regulated natural gas distribution and related sales operations in eight ~~states, and storage assets located in Kentucky and Tennessee, which are solely used to support our regulated natural gas distribution operations in those~~ states. ~~These storage assets were previously included in our former nonregulated segment.~~ The primary factors that impact the results of this segment are our ability to earn our authorized rates of return, the cost of natural gas, competitive factors in the energy industry and economic conditions in our service areas.

Our ability to earn our authorized rates of return is based primarily on our ability to improve the rate design in our various ratemaking jurisdictions by reducing or eliminating regulatory lag and, ultimately, separating the recovery of our approved margins from customer usage patterns. Improving rate design is a long-term process and is further complicated by the fact that we operate in multiple rate jurisdictions.

Seasonal weather patterns can also affect our distribution operations. However, the effect of weather that is above or below normal is substantially offset through weather normalization adjustments, known as WNA, which has been approved by state regulatory commissions for approximately 97 percent of our residential and commercial meters in the following states for the following time periods:




Kansas, West Texas	October — May
Tennessee	October — April
Kentucky, Mississippi, Mid-Tex	November — April
Louisiana	December — March
Virginia	January — December

Our distribution operations are also affected by the cost of natural gas. The cost of gas is passed through to our customers without markup. Therefore, increases in the cost of gas are offset by a corresponding increase in revenues. ~~Accordingly, we believe gross profit, which is defined as operating revenues less purchased gas cost, is a better indicator of our financial performance than revenues. However, gross~~Gross profit in our Texas and Mississippi service areas includes franchise fees and gross receipts taxes, which are calculated as a percentage of revenue (inclusive of gas costs). Therefore, the amount of these taxes included in revenues is influenced by the cost of gas and the level of gas sales volumes. We record the associated tax expense as a component of taxes, other than income. Although changes in these revenue-related taxes arising from changes in gas costs affect gross profit, over time the impact is offset within operating income.

As discussed above, the cost of gas typically does not have a direct impact on our gross profit. However, higher gas costs mean higher bills for our customers, which may adversely impact our accounts receivable collections, resulting in higher bad debt expense and may require us to increase borrowings under our credit facilities resulting in higher interest expense. In addition, higher gas costs, as well as competitive factors in the industry and general economic conditions may cause customers to conserve or, in the case of industrial consumers, to use alternative energy sources. However, gas cost risk has been mitigated in recent years through improvements in rate design that allow us to collect from our customers the gas cost portion of our bad debt expense on approximately 75 percent of our residential and commercial margins.

Three Months Ended ~~March 31,~~June 30, 2017 compared with Three Months Ended ~~March 31,~~June 30, 2016

Financial and operational highlights for our distribution segment for the three months ended ~~March 31,~~June 30, 2017 and 2016 are presented below.


	Three Months Ended March 31							Three Months Ended June 30
	2017		2016		Change			2017			2016		Change
	(In thousands, unless otherwise noted)							(In thousands, unless otherwise noted)
Operating revenues								$	494,060		$	424,905	$	69,155
Purchased gas cost								197,767			147,569		50,198
Gross profit	$	449,445	$	411,456	$	37,989		296,293			277,336		18,957
Operating expenses	222,641		213,065		9,576			219,241			213,674		5,567
Operating income	226,804		198,391		28,413			77,052			63,662		13,390
Miscellaneous income	1,029		38		991
Miscellaneous income (expense)								(62		)	1,243		(1,305		)
Interest charges	16,925		18,414		(1,489		)	18,394			18,677		(283		)
Income before income taxes	210,908		180,015		30,893			58,596			46,228		12,368
Income tax expense	79,763		64,935		14,828			22,082			15,867		6,215
Net income	$	131,145	$	115,080	$	16,065		$	36,514		$	30,361	$	6,153
Consolidated distribution sales volumes — MMcf	97,754		116,370		(18,616		)	42,974			39,040		3,934
Consolidated distribution transportation volumes — MMcf	39,915		40,677		(762		)	33,307			30,416		2,891
Total consolidated distribution throughput — MMcf	137,669		157,047		(19,378		)	76,281			69,456		6,825
Consolidated distribution average cost of gas per Mcf sold	$	5.25	$	3.87	$	1.38		$	4.60		$	3.78	$	0.82

Income for our distribution segment increased 1420 percent, primarily due to a ~~$38.0~~$19.0 million increase in gross profit, ~~which is defined as operating revenues less purchased gas cost,~~ partially offset with a ~~$9.6~~$5.6 million increase in operating expenses. The quarter-over-quarter increase in gross profit primarily reflects:

a ~~$29.5~~$13.7 million net increase in rate adjustments, primarily in our Mid-Tex, West Texas, Louisiana and Mississippi Divisions.

Customer growth, primarily in our Mid-Tex ~~and Tennessee service areas,~~Division, which contributed an incremental ~~net $2.5~~$1.1 million.

a ~~$0.6~~$1.8 million net ~~decrease~~increase in residential and commercial consumption, primarily ~~due to weather that was 34 percent warmer than normal and 23 percent warmer than the prior-year quarter.~~

in our Mid-Tex Division.

The increase in operating expenses, which includes operation and maintenance expense, provision for doubtful accounts, depreciation and amortization expense and taxes, other than income, was primarily due to higher ~~levels of employee-related costs and line locate activities, primarily in our Mid-Tex Division, and higher~~ depreciation and property tax expense associated with increased capital investments, ~~partially offset by lower legal~~as well as higher administrative expenses.

The following table shows our operating income by distribution division, in order of total rate base, for the three months ended ~~March 31,~~June 30, 2017 and 2016. The presentation of our distribution operating income is included for financial reporting purposes and may not be appropriate for ratemaking purposes.


	Three Months Ended March 31						Three Months Ended June 30
	2017		2016		Change		2017		2016		Change
	(In thousands)						(In thousands)
Mid-Tex	$	90,809	$	80,377	$	10,432	$	37,055	$	33,562	$	3,493
Kentucky/Mid-States	34,010		30,647		3,363		13,073		7,126		5,947
Louisiana	30,362		24,860		5,502		11,051		10,051		1,000
West Texas	21,023		20,245		778		6,639		5,659		980
Mississippi	25,802		23,661		2,141		3,437		3,916		(479		)
Colorado-Kansas	18,331		17,986		345		3,842		3,111		731
Other	6,467		615		5,852		1,955		237		1,718
Total	$	226,804	$	198,391	$	28,413	$	77,052	$	63,662	$	13,390

~~Six~~Nine Months Ended ~~March 31,~~June 30, 2017 compared with ~~Six~~Nine Months Ended ~~March 31,~~June 30, 2016

Financial and operational highlights for our distribution segment for the ~~six~~nine months ended ~~March 31,~~June 30, 2017 and 2016 are presented below.



	Six Months Ended March 31								Nine Months Ended June 30
	2017		2016			Change			2017		2016		Change
	(In thousands, unless otherwise noted)								(In thousands, unless otherwise noted)
Operating revenues									$	2,211,257	$	1,936,475	$	274,782
Purchased gas cost									1,106,209		912,231		193,978
Gross profit	$	808,755	$	746,908		$	61,847		1,105,048		1,024,244		80,804
Operating expenses	427,058		408,426			18,632			646,299		622,100		24,199
Operating income	381,697		338,482			43,215			458,749		402,144		56,605
Miscellaneous income (expense)	396		(439		)	835
Miscellaneous income									334		804		(470		)
Interest charges	38,043		38,804			(761		)	56,437		57,481		(1,044		)
Income before income taxes	344,050		299,239			44,811			402,646		345,467		57,179
Income tax expense	127,541		110,223			17,318			149,623		126,090		23,533
Net income	$	216,509	$	189,016		$	27,493		$	253,023	$	219,377	$	33,646
Consolidated regulated distribution sales volumes — MMcf	172,184		188,624			(16,440		)	215,158		227,664		(12,506		)
Consolidated regulated distribution transportation volumes — MMcf	76,090		72,888			3,202			109,397		103,304		6,093
Total consolidated regulated distribution throughput — MMcf	248,274		261,512			(13,238		)	324,555		330,968		(6,413		)
Consolidated regulated distribution average cost of gas per Mcf sold	$	5.28	$	4.05		$	1.23		$	5.14	$	4.01	$	1.13

Income for our distribution segment increased 15 percent, primarily due to ~~a $61.8~~an $80.8 million increase in gross profit, ~~which is defined as operating revenues less purchased gas cost,~~ partially offset with ~~an $18.6~~a $24.2 million increase in operating expenses. The year-over-year increase in gross profit primarily reflects:

a ~~$46.6~~$59.0 million net increase in rate adjustments, primarily in our Mid-Tex, Louisiana and Mississippi Divisions.

Customer growth, primarily in our Mid-Tex and Tennessee service areas, which contributed an incremental ~~$4.2~~$5.4 million.

a $3.8 million increase in revenue-related taxes in our Mid-Tex and West Texas Divisions, offset by a corresponding ~~$2.0~~$3.5 million increase in the related tax expense.

a ~~$2.7~~$4.2 million increase in transportation primarily in our Kentucky/Mid-States, Mid-Tex and West Texas ~~and Kentucky/Mid-States~~ Divisions.

a ~~$1.0~~$2.1 million net ~~decrease~~increase in residential consumption, ~~due to warmer weather compared to the prior-year period.~~

primarily in our Mid-Tex Division.

The increase in operating expenses, which includes operation and maintenance expense, provision for doubtful accounts, depreciation and amortization expense and taxes, other than income, was primarily due to an increase in employee-related costs, higher levels of line locate and pipeline integrity activities, primarily in our Mid-Tex Division, and higher depreciation and property tax expense associated with increased capital investments.

Net income for the prior-year period includes a $3.3 million income tax benefit for stock awards that vested during fiscal 2016 as a result of adopting new stock-based accounting guidance in the prior year.

The following table shows our operating income by distribution division, in order of total rate base, for the ~~six~~nine months ended ~~March 31,~~June 30, 2017 and 2016. The presentation of our distribution operating income is included for financial reporting purposes and may not be appropriate for ratemaking purposes.




	Six Months Ended March 31						Nine Months Ended June 30
	2017		2016		Change		2017		2016		Change
	(In thousands)						(In thousands)
Mid-Tex	$	163,552	$	148,296	$	15,256	$	200,607	$	181,858	$	18,749
Kentucky/Mid-States	56,748		49,785		6,963		69,821		56,911		12,910
Louisiana	50,225		40,703		9,522		61,276		50,754		10,522
West Texas	35,951		33,134		2,817		42,590		38,793		3,797
Mississippi	37,760		36,453		1,307		41,197		40,369		828
Colorado-Kansas	30,036		28,078		1,958		33,878		31,189		2,689
Other	7,425		2,033		5,392		9,380		2,270		7,110
Total	$	381,697	$	338,482	$	43,215	$	458,749	$	402,144	$	56,605

Recent Ratemaking Developments

The amounts described in the following sections represent the operating income that was requested or received in each rate filing, which may not necessarily reflect the stated amount referenced in the final order, as certain operating costs may have changed as a result of a commission’s or other governmental authority’s final ruling. During the first ~~six~~nine months of fiscal 2017, we completed 1117 regulatory proceedings, resulting in aan $~~25.4~~85.0 million increase in annual operating income as summarized ~~below:~~below.


Rate Action	Annual Increase in Operating Income		Annual Increase in Operating Income
	(In thousands)		(In thousands)
Annual formula rate mechanisms	$	24,637	$	84,190
Rate case filings	6		6
Other rate activity	784		784
	$	25,427	$	84,980

Additionally, the following ratemaking efforts seeking ~~$80.8~~$17.1 million in annual operating income were in progress as of ~~March 31,~~June 30, 2017:

Division

Rate Action

Jurisdiction

Operating Income

Requested

Rate Action

Jurisdiction

Operating Income

Requested

(In thousands)

Louisiana

Formula Rate Mechanism

LGS⁽¹⁾

6,237

Mississippi

Infrastructure Mechanism

Mississippi

7,600

Colorado-Kansas

Rate Case

Colorado

2,916

Kentucky/Mid-States

Formula Rate Mechanism ⁽¹⁾

Tennessee

2,200

Infrastructure Mechanism

Virginia

308

Louisiana

Formula Rate Mechanism ⁽²⁾

Trans La

4,392

Louisiana

Formula Rate Mechanism

LGS

6,237

Mid-Tex

Formula Rate Mechanism

Dallas

9,976

Mid-Tex

Formula Rate Mechanism

Mid-Tex Cities

43,320

Mid-Tex

Infrastructure Mechanism

Environs

1,568

Mississippi

Infrastructure Mechanism

Mississippi

7,600

West Texas

Infrastructure Mechanism ⁽³⁾

Cities of Amarillo,Channing, Lubbock, & Dalhart

4,682

West Texas

Infrastructure Mechanism

Environs

872

80,847

17,061


⁽¹⁾	The Tennessee Regulatory Authority (TRA) is currently evaluating a gross filing amount of $6.8 million, of which the TRA issued a final order approving a $4.6 million increase related to the prior year's true-up. The remaining $2.2 million is still under review.


⁽²⁾	The proposed increase for ~~Trans La~~LGS customers was implemented on ~~April~~July 1, 2017, subject to refund.


⁽³⁾	~~The 2016 GRIP increase was implemented on April 25, 2017.~~

Annual Formula Rate Mechanisms

As an instrument to reduce regulatory lag, formula rate mechanisms allow us to refresh our rates on an annual basis without filing a formal rate case. However, these filings still involve discovery by the appropriate regulatory authorities prior to the final determination of rates under these mechanisms. We currently have formula rate mechanisms in our Louisiana, Mississippi and Tennessee operations and in substantially all of our Texas divisions. Additionally, we have specific infrastructure programs in substantially all of our distribution divisions with tariffs in place to permit the investment associated with these programs to have their surcharge rate adjusted annually to recover approved capital costs incurred in a prior test-year

period. The following table summarizes our annual formula rate mechanisms by ~~state.~~state:



	Annual Formula Rate Mechanisms
State	Infrastructure Programs	Formula Rate Mechanisms

Colorado	System Safety and Integrity Rider (SSIR)	—
Kansas	Gas System Reliability Surcharge (GSRS)	—
Kentucky	Pipeline Replacement Program (PRP)	—
Louisiana	(1)	Rate Stabilization Clause (RSC)
Mississippi	System Integrity Rider (SIR)	Stable Rate Filing (SRF), Supplemental Growth Filing (SGR)
Tennessee	—	Annual Rate Mechanism (ARM)
Texas	Gas Reliability Infrastructure Program (GRIP), (1)	Dallas Annual Rate Review (DARR), Rate Review Mechanism (RRM)
Virginia	Steps to Advance Virginia Energy (SAVE)	—


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

The following annual formula rate mechanisms were approved during the ~~six~~nine months ended ~~March 31, 2017.~~June 30, 2017:

Division

Jurisdiction

Test Year

Ended

Increase in

Annual

Operating

Income

Effective

Date

Jurisdiction

Test Year

Ended

Increase in

Annual

Operating

Income

Effective

Date

(In thousands)

2017 Filings:

Mid-Tex

Mid-Tex DARR ⁽¹⁾

09/30/2016

9,672

06/01/2017

Mid-Tex

Mid-Tex Cities RRM

12/31/2016

36,239

06/01/2017

Kentucky/Mid-States

Tennessee

05/31/2016

4,612

06/01/2017

Tennessee ARM

05/31/2016

6,740

06/01/2017

Mid-Tex

Mid-Tex Environs

12/31/2016

1,568

05/23/2017

West Texas

West Texas Environs

12/31/2016

872

05/23/2017

West Texas

West Texas ALDC

12/31/2016

4,682

04/25/2017

Louisiana

TransLa ⁽²⁾

09/30/2016

4,392

04/01/2017

West Texas

West Texas Cities

09/30/2016

4,255

03/15/2017

West Texas Cities RRM

09/30/2016

4,255

03/15/2017

Colorado-Kansas

Kansas

09/30/2016

801

02/09/2017

Kansas

09/30/2016

801

02/09/2017

Mississippi

Mississippi SRF

10/31/2017

4,390

01/12/2017

Mississippi SRF

10/31/2017

4,390

01/12/2017

Mississippi

Mississippi SIR

10/31/2017

3,334

01/01/2017

Mississippi SIR

10/31/2017

3,334

01/01/2017

Mississippi

Mississippi SGR

10/31/2017

1,292

01/01/2017

Mississippi SGR

10/31/2017

1,292

01/01/2017

Colorado-Kansas

Colorado

12/31/2017

1,350

01/01/2017

Colorado SSIR

12/31/2017

1,350

01/01/2017

Kentucky/Mid-States

Kentucky

09/30/2017

4,981

10/14/2016

Kentucky PRP

09/30/2017

4,981

10/14/2016

Kentucky/Mid-States

Virginia

09/30/2017

(378

)

10/01/2016

Virginia SAVE

09/30/2017

(378

)

10/01/2016

Total 2017 Filings

24,637

84,190


(1)	The Company and the City of Dallas were unable to arrive at a mutually agreeable settlement; therefore the DARR rates were implemented, subject to refund, pending the outcome of an appeal filed with the Texas Railroad Commission.


(2)	The Trans Louisiana RSC rates were implemented subject to refund on April 1, 2017.

Rate Case Filings

A rate case is a formal request from Atmos Energy to a regulatory authority to increase rates that are charged to our customers. Rate cases may also be initiated when the regulatory authorities request us to justify our rates. This process is referred to as a “show cause” action. Adequate rates are intended to provide for recovery of the Company’s costs as well as a fair rate of return and ensure that we continue to deliver reliable, reasonably priced natural gas service safely to our customers.

The following table summarizes the rate cases that were completed during the ~~six~~nine months ended ~~March 31, 2017.~~June 30, 2017:





Division	State	Increase in Annual Operating Income		Effective Date
	(In thousands)
2017 Rate Case Filings:
Kentucky/Mid-States ⁽¹⁾	Virginia	$	6	12/27/2016
Total 2017 Rate Case Filings		$	6


⁽¹⁾	The Virginia State Corporation Commission issued a final order approving a re-basing of the Company's SAVE rates into base rates and a decrease to depreciation expense. The Company had implemented rates on April 1, 2016, subject to refund, of $0.5 million.

Other Ratemaking Activity

The following table summarizes other ratemaking activity during the ~~six~~nine months ended ~~March 31, 2017.~~June 30, 2017:




Division	Jurisdiction	Rate Activity	Additional Annual Operating Income		Effective Date
		(In thousands)
2017 Other Rate Activity:
Colorado-Kansas	Kansas	Ad-Valorem⁽¹⁾	$	784	2/1/2017
Total 2017 Other Rate Activity			$	784


⁽¹⁾	The Ad Valorem filing relates to a collection of property taxes in excess of the amount included in our Kansas service area's base rates.

Pipeline and Storage Segment

Our pipeline and storage segment consists of the pipeline and storage operations of our Atmos Pipeline–Texas Division (APT) and our natural gas transmission operations in Louisiana, which were previously included in our former nonregulated segment. APT is one of the largest intrastate pipeline operations in Texas with a heavy concentration in the established natural gas producing areas of central, northern, eastern and ~~eastern~~western Texas, extending into or near the major producing areas of the Barnett Shale, the Texas Gulf Coast and the Delaware and ~~Val Verde~~Midland Basins of West Texas. APT provides transportation and storage services to our Mid-Tex Division, other third-party local distribution companies, industrial and electric generation customers, as well as marketers and producers. As part of its pipeline operations, APT manages five underground storage ~~reservoirs~~facilities in Texas.

Our natural gas transmission operations in Louisiana are comprised of a proprietary 21-mile pipeline located in New Orleans, Louisiana that is primarily used to aggregate gas supply for our distribution division in Louisiana under a long-term contract and on a more limited basis, to third parties. The demand fee charged to our Louisiana distribution division for these services is subject to regulatory approval by the Louisiana Public Service Commission. ~~They~~We also manage two asset management plans which have been approved by applicable state regulatory commissions. Generally, these asset management plans require us to share with our distribution customers a significant portion of the cost savings earned from these arrangements.

Our pipeline and storage segment is impacted by seasonal weather patterns, competitive factors in the energy industry and economic conditions in our Texas and Louisiana service areas. Natural gas prices do not directly impact the results of this segment as revenues are derived from the transportation and storage of natural gas. However, natural gas prices and demand for natural gas could influence the level of drilling activity in the markets that we serve, which may influence the level of throughput we may be able to transport on our pipeline. Further, natural gas price differences between the various hubs that we serve in Texas could influence the volumes of gas transported for shippers through our Texas pipeline system and the rates for such transportation.

The results of APT are also significantly impacted by the natural gas requirements of its local distribution company customers. Additionally, its operations may be impacted by the timing of when costs and expenses are incurred and when these costs and expenses are recovered through its tariffs.

APT annually uses GRIP to recover capital costs incurred in the prior calendar year. However, GRIP also requires a utility to file a statement of intent at least once every five years to review its costs and expenses, including capital costs filed for recovery under GRIP. On January 6, 2017, APT filed its statement of intent seeking $55.2 million in additional annual operating income. APT customarily submits an annual GRIP filing during the second fiscal quarter of each fiscal year. However, APT is precluded from submitting a GRIP filing until a final order has been issued on the

statement of intent. Accordingly, APT ~~did~~has not ~~submit~~yet submitted its annual GRIP filing ~~during the second quarter~~for calendar year 2016. On January 6, 2017, APT filed its statement of ~~fiscal 2017. The Railroad Commission of Texas has 185 days to issue~~intent seeking $63.6 million, as adjusted in its rebuttal case, in additional annual operating income. On August 1, 2017, a final order was issued resulting in ~~this proceeding.~~a $13 million increase in annual operating income.

On December 21, 2016, the Louisiana Public Service Commission approved an annual increase of five percent to the demand fee charged by our natural gas transmission pipeline for each of the next 10 years, effective October 1, 2017. This agreement will replace the existing agreement that expires in September 2017.

Three Months Ended ~~March 31,~~June 30, 2017 compared with Three Months Ended ~~March 31,~~June 30, 2016

Financial and operational highlights for our pipeline and storage segment for the three months ended ~~March 31,~~June 30, 2017 and 2016 are presented below.


	Three Months Ended March 31									Three Months Ended June 30
	2017			2016			Change			2017			2016			Change
	(In thousands, unless otherwise noted)									(In thousands, unless otherwise noted)
Mid-Tex / Affiliate transportation	$	84,277		$	74,653		$	9,624
Third-party transportation	22,839			20,391			2,448
Other	4,131			6,184			(2,053		)
Mid-Tex / Affiliate transportation revenue										$	84,594		$	85,262		$	(668	)
Third-party transportation revenue										27,369			23,877			3,492
Other revenue										5,320			4,716			604
Total operating revenues										117,283			113,855			3,428
Total purchased gas cost										1,251			(438		)	1,689
Gross profit	111,247			101,228			10,019			116,032			114,293			1,739
Operating expenses	52,879			47,963			4,916			52,420			49,559			2,861
Operating income	58,368			53,265			5,103			63,612			64,734			(1,122		)
Miscellaneous expense	(196		)	(367		)	171			(227		)	(125		)	(102		)
Interest charges	10,019			9,145			874			10,104			9,002			1,102
Income before income taxes	48,153			43,753			4,400			53,281			55,607			(2,326		)
Income tax expense	17,286			15,830			1,456			18,987			19,825			(838		)
Net income	$	30,867		$	27,923		$	2,944		$	34,294		$	35,782		$	(1,488	)
Gross pipeline transportation volumes — MMcf	195,233			187,922			7,311			192,543			158,758			33,785
Consolidated pipeline transportation volumes — MMcf	131,151			115,040			16,111			159,023			128,881			30,142

Net income for our pipeline and storage segment ~~increased 11~~decreased four percent, primarily due to a ~~$10.0~~$2.9 million increase in operating expenses, offset by a $1.7 million increase in gross ~~profit, which is defined as operating revenues less purchased gas cost, offset by a $4.9 million increase in operating expenses.~~profit. The increase in gross profit is primarily ~~reflects a $10.8~~the result of higher through system revenue of $1.3 million, ~~increase in rates from~~largely related to incremental throughput on the GRIP filings approved in fiscal 2016. Gross pipeline transportation volumes increased four percent, despite weather that was 34 percent warmer than normal and 23 percent warmer than the prior-year quarter primarily due to volumes associated with EnLink Pipeline, which wewas acquired in the first ~~fiscal~~ quarter of ~~2017.~~fiscal 2017, and higher basis spreads due to increased production in the Permian Basin. As noted above, as a result of the annual rate case, we did not file our annual GRIP filing during the second quarter of fiscal 2017, which influenced this segment's performance quarter-over-quarter.

Operating expenses, which includes operation and maintenance expense, provision for doubtful accounts, depreciation and amortization expense and taxes, other than income, increased ~~$4.9~~$2.9 million, primarily due to higher depreciation expense and property taxes associated with increased capital ~~investments.~~investments and the acquisition of EnLink Pipeline.

~~Six~~Nine Months Ended ~~March 31,~~June 30, 2017 compared with ~~Six~~Nine Months Ended ~~March 31,~~June 30, 2016

Financial and operational highlights for our pipeline and storage segment for the ~~six~~nine months ended ~~March 31,~~June 30, 2017 and 2016 are presented below.



	Six Months Ended March 31									Nine Months Ended June 30
	2017			2016			Change			2017			2016			Change
	(In thousands, unless otherwise noted)									(In thousands, unless otherwise noted)
Mid-Tex / Affiliate transportation	$	166,760		$	144,686		$	22,074
Third-party transportation	45,044			42,484			2,560
Other	9,040			13,033			(3,993		)
Mid-Tex / Affiliate transportation revenue										$	251,354		$	229,916		$	21,438
Third-party transportation revenue										72,414			66,393			6,021
Other revenue										15,439			18,115			(2,676		)
Total operating revenues										339,207			314,424			24,783
Total purchased gas cost										2,331			(72		)	2,403
Gross profit	220,844			200,203			20,641			336,876			314,496			22,380
Operating expenses	107,451			94,300			13,151			159,871			143,859			16,012
Operating income	113,393			105,903			7,490			177,005			170,637			6,368
Miscellaneous expense	(557		)	(769		)	212			(784		)	(894		)	110
Interest charges	19,931			18,292			1,639			30,035			27,294			2,741
Income before income taxes	92,905			86,842			6,063			146,186			142,449			3,737
Income tax expense	33,364			31,309			2,055			52,351			51,134			1,217
Net income	$	59,541		$	55,533		$	4,008		$	93,835		$	91,315		$	2,520
Gross pipeline transportation volumes — MMcf	382,013			367,774			14,239			574,556			526,532			48,024
Consolidated pipeline transportation volumes — MMcf	266,127			244,199			21,928			425,150			373,080			52,070

Net income for our pipeline and storage segment increased ~~seven~~three percent, primarily due to a ~~$20.6~~$22.4 million increase in gross profit, ~~which is defined as operating revenues less purchased gas cost,~~ offset by a ~~$13.2~~$16.0 million increase in operating expenses. The increase in gross profit primarily reflects a ~~$21.5~~$22.1 million increase in rates from the GRIP filings approved in fiscal 2016. Gross pipeline transportation volumes increased four percent, despite weather that was 29 percent warmer than normal and 12 percent warmer than the prior-year period, primarily due to volumes associated with EnLink Pipeline.

Operating expenses, which includes operation and maintenance expense, provision for doubtful accounts, depreciation and amortization expense and taxes, other than income, increased ~~$13.2~~$16.0 million, primarily due to increased levels of pipeline maintenance and integrity activities and higher depreciation expense and property taxes associated with increased capital ~~investments.~~investments and the acquisition of EnLink Pipeline.

Natural Gas Marketing Segment

Through December 31, 2016, we were engaged in an unregulated natural gas marketing business, which was conducted by Atmos Energy Marketing (AEM). AEM’s primary business was to aggregate and purchase gas supply, arrange transportation and storage logistics and ultimately deliver gas to customers at competitive prices. Additionally, AEM utilized proprietary and customer–owned transportation and storage assets to provide various services its customers requested. AEM served most of its customers under contracts generally having one to two year terms. As a result, AEM’s margins arose from the types of commercial transactions it had structured with its customers and its ability to identify the lowest cost alternative among the natural gas supplies, transportation and markets to which it had access to serve those customers.

As more fully described in Note 6, effective January 1, 2017, we sold all of the equity interests of AEM to CenterPoint Energy Services, Inc. (CES), a subsidiary of CenterPoint Energy Inc. As a result of the sale, Atmos Energy has fully exited the nonregulated natural gas marketing business. Accordingly, these operations have been reported as discontinued operations.

Three Months Ended ~~March 31,~~June 30, 2017 compared with Three Months Ended ~~March 31,~~June 30, 2016

Financial and operating highlights for our natural gas marketing segment for the three months ended ~~March 31,~~June 30, 2017 and 2016 are presented below.

Three Months Ended March 31
2017 2016 Change
(In thousands, unless otherwise noted)
Gross profit $ —
$ 5,260
$ (5,260 )
Operating expenses —
6,900
(6,900 )
Operating loss —
(1,640 ) 1,640
Miscellaneous income —
39
(39 )
Interest charges —
396
(396 )
Loss before income taxes —
(1,997 ) 1,997
Income tax benefit —
(804 ) 804
Loss from discontinued operations —
(1,193 ) 1,193
Gain on sale of discontinued operations, net of tax 2,716
—
2,716
Net income (loss) from discontinued operations $ 2,716
$ (1,193 ) $ 3,909
Gross natural gas marketing delivered gas sales volumes — MMcf —
102,977
(102,977 )
Consolidated natural gas marketing delivered gas sales volumes — MMcf —
91,366
(91,366 )
Net physical position (Bcf) —
35.2
(35.2 )



	Three Months Ended June 30
	2017		2016		Change
	(In thousands, unless otherwise noted)
Operating revenues	$	—	$	200,213	$	(200,213	)
Purchased gas cost	—		184,398		(184,398		)
Gross profit	—		15,815		(15,815		)
Operating income	—		7,047		(7,047		)
Operating income	—		8,768		(8,768		)
Miscellaneous income	—		56		(56		)
Interest charges	—		360		(360		)
Income before income taxes	—		8,464		(8,464		)
Income tax expense	—		3,414		(3,414		)
Net income from discontinued operations	$	—	$	5,050	$	(5,050	)
Gross natural gas marketing delivered gas sales volumes — MMcf	—		84,415		(84,415		)
Consolidated natural gas marketing delivered gas sales volumes — MMcf	—		72,742		(72,742		)
Net physical position (Bcf)	—		29.4		(29.4		)

The $3.9 million quarter-over-quarter increase in net income from discontinued operations primarily reflects the recognition of a net $2.7 million gain on sale upon completion of the sale of AEM to CES in January 2017.

~~Six~~Nine Months Ended ~~March 31,~~June 30, 2017 compared with ~~Six~~Nine Months Ended ~~March 31,~~June 30, 2016

Financial and operating highlights for our natural gas marketing segment for the ~~six~~nine months ended ~~March 31,~~June 30, 2017 and 2016 are presented below.




	Six Months Ended March 31							Nine Months Ended June 30
	2017		2016		Change			2017		2016		Change
	(In thousands, unless otherwise noted)							(In thousands, unless otherwise noted)
Operating revenues								$	303,474	$	728,989	$	(425,515	)
Purchased gas cost								277,554		698,445		(420,891		)
Gross profit	$	25,920	$	14,729	$	11,191		25,920		30,544		(4,624		)
Operating expenses	7,874		12,893		(5,019		)	7,874		19,940		(12,066		)
Operating income	18,046		1,836		16,210			18,046		10,604		7,442
Miscellaneous income	30		115		(85		)	30		171		(141		)
Interest charges	241		1,748		(1,507		)	241		2,108		(1,867		)
Income before income taxes	17,835		203		17,632			17,835		8,667		9,168
Income tax expense	6,841		81		6,760			6,841		3,495		3,346
Income from discontinued operations	10,994		122		10,872			10,994		5,172		5,822
Gain on sale of discontinued operations, net of tax	2,716		—		2,716			2,716		—		2,716
Net income from discontinued operations	$	13,710	$	122	$	13,588		$	13,710	$	5,172	$	8,538
Gross nonregulated delivered gas sales volumes — MMcf	90,223		196,173		(105,950		)	90,223		280,588		(190,365		)
Consolidated nonregulated delivered gas sales volumes — MMcf	78,646		172,960		(94,314		)	78,646		245,702		(167,056		)
Net physical position (Bcf)	—		35.2		(35.2		)	—		29.4		(29.4		)

The ~~$13.6~~$8.5 million year-over-year increase in net income from discontinued operations primarily reflects the recognition of a net $6.6 million noncash gain from unwinding hedge accounting for certain of the natural gas marketing business's financial ~~positions. Due to~~positions in connection with the ~~anticipated~~ 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 gains in accumulated other comprehensive income associated with the commodity contracts into earnings as a reduction of purchased gas costs and recognized a pre-tax gain of $10.6 million during the first fiscal quarter of 2017.AEM. Additionally, we recognized a $2.7 million net gain on sale upon completion of the sale of AEM to CES in January 2017.

Liquidity and Capital Resources

The liquidity required to fund our working capital, capital expenditures and other cash needs is provided from a variety of sources, including internally generated funds and borrowings under our commercial paper program and bank credit facilities. Additionally, we have various uncommitted trade credit lines with our gas suppliers that we utilize to purchase natural gas on a monthly basis. Finally, from time to time, we raise funds from the public debt and equity capital markets to fund our liquidity needs.

We regularly evaluate our funding strategy and capital structure to ensure that we (i) have sufficient liquidity for our short-term and long-term needs in a cost-effective manner and (ii) maintain a balanced capital structure with a debt-to-capitalization ratio in a target range of 45 to 55 percent. We also evaluate the levels of committed borrowing capacity that we require. We currently have over $1.5 billion of capacity under our short-term facilities.

We plan to continue to fund our growth through the use of operating cash flows and debt and equity securities, while maintaining a balanced capital structure. To support our capital market activities, we have a registration statement on file with the SEC that permits us to issue a total of $2.5 billion in common stock and/or debt securities. Under the shelf registration statement, we have filed a prospectus supplement for an at–the-market (ATM) equity distribution program under which we may issue and sell, shares of our common stock, up to an aggregate offering price of $200 million.

During the first nine months of fiscal 2017, we issued 1,303,494 shares under our ATM program and received net proceeds of $98.8 million. Substantially all shares have now been issued under this program. Additionally, on June 8, 2017, we completed a public offering of $500 million of 3.00% senior unsecured notes due 2027 and $250 million of 4.125% senior unsecured notes due 2044. The net proceeds of approximately $753 million were used to repay our $250 million 6.35% senior unsecured notes at maturity on June 15, 2017 and for general corporate purposes, including the repayment of working capital borrowings pursuant to our commercial paper program. At ~~March 31,~~June 30, 2017, approximately ~~$2.4~~$1.6 billion of securities remain available for issuance under the shelf registration ~~statement and approximately $50 million of equity remained available for issuance under the ATM program.~~statement.

The following table presents our capitalization inclusive of short-term debt and the current portion of long-term debt as of ~~March 31,~~June 30, 2017, September 30, 2016 and ~~March 31,~~June 30, 2016:


	March 31, 2017				September 30, 2016				March 31, 2016				June 30, 2017				September 30, 2016				June 30, 2016
	(In thousands, except percentages)												(In thousands, except percentages)
Short-term debt	$	670,607	9.5	%	$	829,811	12.3	%	$	626,929	9.8	%	$	258,573	3.6	%	$	829,811	12.3	%	$	670,466	10.2	%
Long-term debt⁽¹⁾	2,564,620		36.3	%	2,438,779		36.2	%	2,438,304		38.0	%	3,066,734		42.4	%	2,438,779		36.2	%	2,438,699		37.1	%
Shareholders’ equity	3,834,864		54.2	%	3,463,059		51.5	%	3,344,565		52.2	%	3,901,710		54.0	%	3,463,059		51.5	%	3,466,724		52.7	%
Total	$	7,070,091	100.0	%	$	6,731,649	100.0	%	$	6,409,798	100.0	%	$	7,227,017	100.0	%	$	6,731,649	100.0	%	$	6,575,889	100.0	%


⁽¹⁾	In June 2017, $250 million of long-term debt will mature. We plan to issue new senior notes to replace this maturing debt. We have executed forward starting interest rate swaps to effectively fix the Treasury yield component associated with this anticipated issuance at 3.37%.

Cash Flows

Our internally generated funds may change in the future due to a number of factors, some of which we cannot control. These include regulatory changes, prices for our products and services, demand for such products and services, margin requirements resulting from significant changes in commodity prices, operational risks and other factors.

Cash flows from operating, investing and financing activities for the ~~six~~nine months ended ~~March 31,~~June 30, 2017 and 2016 are presented below.


	Six Months Ended March 31									Nine Months Ended June 30
	2017			2016			Change			2017			2016			Change
	(In thousands)									(In thousands)
Total cash provided by (used in)
Operating activities	$	552,003		$	452,955		$	99,048		$	745,561		$	629,946		$	115,615
Investing activities	(516,670		)	(533,524		)	16,854			(747,355		)	(783,399		)	36,044
Financing activities	(37,464		)	99,834			(137,298		)	24,037			191,006			(166,969		)
Change in cash and cash equivalents	(2,131		)	19,265			(21,396		)	22,243			37,553			(15,310		)
Cash and cash equivalents at beginning of period	47,534			28,653			18,881			47,534			28,653			18,881
Cash and cash equivalents at end of period	$	45,403		$	47,918		$	(2,515	)	$	69,777		$	66,206		$	3,571

Cash flows from operating activities

Period-over-period changes in our operating cash flows are primarily attributable to changes in net income and working capital changes, particularly within our distribution segment resulting from changes in the price of natural gas and the timing of customer collections, payments for natural gas purchases and deferred gas cost recoveries.

For the ~~six~~nine months ended ~~March 31,~~June 30, 2017, we generated cash flow of ~~$552.0~~$745.6 million from operating activities compared with ~~$453.0~~$629.9 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2016. The ~~$99.0~~$115.6 million increase in operating cash flows reflects the positive cash effects of successful rate case outcomes achieved in fiscal 2016 and changes in working ~~capital.~~capital, primarily the recovery of deferred purchased gas costs.

Cash flows from investing activities

In executing our regulatory strategy, we target our capital spending on regulatory mechanisms that permit us to earn an adequate return timely on our investment without compromising the safety or reliability of our system. Substantially all of our regulated jurisdictions have rate tariffs that provide the opportunity to include in their rate base approved capital costs on a periodic basis without being required to file a rate case.

In recent years, a substantial portion of our cash resources has been used to fund our ongoing construction program, which enables us to enhance the safety and reliability of the systems used to provide natural gas distribution services to our existing customer base, expand our natural gas distribution services into new markets, enhance the integrity of our pipelines and, more recently, expand our intrastate pipeline network. Over the last three fiscal years, approximately 80 percent of our capital spending has been committed to improving the safety and reliability of our system. We anticipate our annual capital spending will be in the range of $1 billion to $1.4 billion through fiscal 2020.

For the ~~six~~nine months ended ~~March 31,~~June 30, 2017, cash used for investing activities was ~~$516.7~~$747.4 million compared to ~~$533.5~~$783.4 million in the prior-year period. Capital spending ~~rose a net $23.4~~increased by $22.5 million, or ~~4.4~~2.8 percent, as a result of planned increases in our distribution segment to repair and replace vintage ~~pipelines,~~pipe, partially offset by a decrease in spending in our pipeline and storage segment as a result of the substantial completion of an APT project to improve the reliability of gas service to its local distribution company customers. Cash flows from investing activities also include proceeds of ~~$133.6~~$140.3 million received from the sale of AEM, a portion of the proceeds received from the completion of a State of Texas use tax audit and the ~~$85.7~~$86.1 million used to purchase ~~price for EnLink~~Enlink Pipeline in the first fiscal quarter of 2017.

Cash flows from financing activities

For the ~~six~~nine months ended ~~March 31,~~June 30, 2017, our financing activities ~~used $37.5~~generated $24.0 million of cash compared with ~~$99.8~~$191.0 million generated in the prior-year period. The ~~$137.3~~$167.0 million ~~increase~~decrease in cash ~~used for~~provided by financing activities is primarily due to ~~net repayments of~~the reduction in our short-term debt, ~~in the current-year period,~~partially offset by borrowings under our three year, $200 million multi-draw floating-rate term loan agreement, proceeds received from the issuance of common stock under our ATM program during the first quarter and the return of cash collateral related to our forward-starting interest rate swaps due to an increase in ~~interest rates in the first quarter.~~our long-term debt.

The following table summarizes our share issuances for the ~~six~~nine months ended ~~March 31,~~June 30, 2017 and ~~2016.~~2016:


	Six Months Ended March 31		Nine Months Ended June 30
	2017	2016	2017	2016
Shares issued:
Direct Stock Purchase Plan	54,366	78,652	90,789	107,736
1998 Long-Term Incentive Plan	426,835	458,929	529,060	597,470
Retirement Savings Plan and Trust	172,932	193,106	205,972	282,578
At-the-Market (ATM) Equity Distribution Program	690,812	—	1,303,494	1,360,756
Total shares issued	1,344,945	730,687	2,129,315	2,348,540

The year-over-year ~~increase~~decrease in the number of shares issued primarily reflects a decrease in shares issued under the ~~ATM Program in~~Retirement Savings Plan and Trust and the ~~current year.~~1998 Long-Term Incentive Plan.

Credit Facilities

Our short-term borrowing requirements are affected primarily by the seasonal nature of the natural gas business and the level of our capital expenditures. Changes in the price of natural gas, the amount of natural gas we need to supply to meet our customers’ needs and our capital spending activities could significantly affect our borrowing requirements. However, our short-term borrowings typically reach their highest levels in the winter months.

We finance our short-term borrowing requirements through a combination of a $1.5 billion commercial paper program and three committed revolving credit facilities with third-party lenders that provide a total of approximately $1.5 billion of working capital funding. As of ~~March 31,~~June 30, 2017, the amount available to us under our credit facilities, net of commercial paper and outstanding letters of credit, was ~~$0.9~~$1.3 billion.

Credit Ratings

Our credit ratings directly affect our ability to obtain short-term and long-term financing, in addition to the cost of such financing. In determining our credit ratings, the rating agencies consider a number of quantitative factors, including debt to total capitalization, operating cash flow relative to outstanding debt, operating cash flow coverage of interest and pension liabilities and funding status. In addition, the rating agencies consider qualitative factors such as consistency of our earnings over time, the quality of our management and business strategy, the risks associated with our businesses and the regulatory structures that govern our rates in the states where we operate.

Our debt is rated by ~~three~~two rating agencies: Standard & Poor’s Corporation (S&P), and Moody’s Investors Service (Moody’s) ~~and Fitch Ratings (Fitch)~~. As of ~~March 31,~~June 30, 2017, ~~all three~~both rating agencies maintained a stable outlook. Our current debt ratings are all considered investment grade and are as follows:



	S&P	Moody’s	~~Fitch~~
Senior unsecured long-term debt	A	A2	A
Short-term debt	A-1	P-1	~~F-2~~

A significant degradation in our operating performance or a significant reduction in our liquidity caused by more limited access to the private and public credit markets as a result of deteriorating global or national financial and credit conditions could trigger a negative change in our ratings outlook or even a reduction in our credit ratings by the three credit rating agencies. This would mean more limited access to the private and public credit markets and an increase in the costs of such borrowings.

A credit rating is not a recommendation to buy, sell or hold securities. The highest investment grade credit rating is AAA for S&P and Aaa for ~~Moody’s and AAA for Fitch.~~Moody’s. The lowest investment grade credit rating is BBB- for S&P and Baa3 for ~~Moody’s and BBB- for Fitch.~~Moody’s. Our credit ratings may be revised or withdrawn at any time by the rating agencies, and each rating should be evaluated independently of any other rating. There can be no assurance that a rating will remain in effect for any given period of time or that a rating will not be lowered, or withdrawn entirely, by a rating agency if, in its judgment, circumstances so warrant.

Debt Covenants

We were in compliance with all of our debt covenants as of ~~March 31,~~June 30, 2017. Our debt covenants are described in greater detail in Note 5 to the unaudited condensed consolidated financial statements.

Contractual Obligations and Commercial Commitments

Except as noted in Note 9 to the unaudited condensed consolidated financial statements, there were no significant changes in our contractual obligations and commercial commitments during the ~~six~~nine months ended ~~March 31,~~June 30, 2017.

Risk Management Activities

In our distribution and pipeline and storage segments, we use a combination of physical storage, fixed physical contracts and fixed financial contracts to reduce our exposure to unusually large winter-period gas price increases. Additionally, we manage interest rate risk by entering into financial instruments to effectively fix the Treasury yield component of the interest cost associated with anticipated financings. Through December 31, 2016, we managed our exposure to the risk of natural gas price changes in our natural gas marketing segment by locking in our gross profit margin through a combination of storage and financial instruments, including futures, over-the-counter and exchange-traded options and swap contracts with counterparties.

The following table shows the components of the change in fair value of our financial instruments for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2017 and 2016:


	Three Months Ended March 31						Six Months Ended March 31						Three Months Ended June 30						Nine Months Ended June 30
	2017			2016			2017			2016			2017			2016			2017			2016
	(In thousands)												(In thousands)
Fair value of contracts at beginning of period	$	(121,722	)	$	(130,282	)	$	(279,543	)	$	(153,981	)	$	(114,004	)	$	(203,949	)	$	(279,543	)	$	(153,981	)
Contracts realized/settled	1,793			(6,279		)	11,756			(11		)	37,172			1,196			48,928			1,185
Fair value of new contracts	(2,560		)	240			(1,597		)	57			557			2,377			(1,040		)	2,434
Other changes in value	8,485			(67,628		)	155,380			(50,014		)	(29,869		)	(62,709		)	125,511			(112,723		)
Fair value of contracts at end of period	(114,004		)	(203,949		)	(114,004		)	(203,949		)	(106,144		)	(263,085		)	(106,144		)	(263,085		)
Netting of cash collateral	—			25,582			—			25,582			—			39,067			—			39,067
Cash collateral and fair value of contracts at period end	$	(114,004	)	$	(178,367	)	$	(114,004	)	$	(178,367	)	$	(106,144	)	$	(224,018	)	$	(106,144	)	$	(224,018	)

The fair value of our financial instruments at ~~March 31,~~June 30, 2017 is presented below by time period and fair value source:


	Fair Value of Contracts at March 31, 2017													Fair Value of Contracts at June 30, 2017
	Maturity in Years													Maturity in Years
Source of Fair Value	Less Than 1			1-3			4-5		Greater Than 5		Total Fair Value			Less Than 1		1-3			4-5		Greater Than 5		Total Fair Value
	(In thousands)													(In thousands)
Prices actively quoted	$	(19,748	)	$	(94,256	)	$	—	$	—	$	(114,004	)	$	2,730	$	(108,874	)	$	—	$	—	$	(106,144	)
Prices based on models and other valuation methods	—			—			—		—		—			—		—			—		—		—
Total Fair Value	$	(19,748	)	$	(94,256	)	$	—	$	—	$	(114,004	)	$	2,730	$	(108,874	)	$	—	$	—	$	(106,144	)

Pension and Postretirement Benefits Obligations

For the ~~six~~nine months ended ~~March 31,~~June 30, 2017 and 2016, our total net periodic pension and other benefits costs were ~~$23.2~~$34.7 million and ~~$23.0~~$34.5 million. A substantial portion of those costs relating to our natural gas distribution operations are recoverable through our gas distribution rates; however, a portion of these costs is capitalized into our distribution rate base. The remaining costs are recorded as a component of operation and maintenance expense.

Our fiscal 2017 costs were determined using a September 30, 2016 measurement date. As of September 30, 2016, interest and corporate bond rates were lower than the rates as of September 30, 2015. Therefore, we decreased the discount rate used to measure our fiscal 2017 net periodic cost from 4.55 percent to 3.73 percent. We maintained the expected return on plan assets of 7.00 percent in the determination of our fiscal 2017 net periodic pension cost based upon expected market returns for our targeted asset allocation. As a result of the net impact of changes in these and other assumptions, we expect our fiscal 2017 net periodic pension cost to be generally consistent with fiscal 2016.

The amount with which we fund our defined benefit plan is determined in accordance with the Pension Protection Act of 2006 (PPA) and is influenced by the funded position of the plan when the funding requirements are determined on January 1 of each year. Based upon the determination as of January 1, 2017, we are not required to make a minimum contribution to our defined benefit plan during fiscal 2017. However, in June 2017, we ~~will consider whether~~made a voluntary contribution ~~is prudent to maintain certain funding levels.~~of $5.0 million.

For the ~~six~~nine months ended ~~March 31,~~June 30, 2017 we contributed ~~$6.6~~$9.9 million to our postretirement medical plans. We anticipate contributing a total of between $10 million and $20 million to our postretirement plans during fiscal 2017.

The projected pension liability, future funding requirements and the amount of pension expense or income recognized for the plans are subject to change, depending upon the actuarial value of plan assets in the plans and the determination of future benefit obligations as of each subsequent actuarial calculation date. These amounts will be determined by actual investment returns, changes in interest rates, values of assets in the plans and changes in the demographic composition of the participants in the plans.

OPERATING STATISTICS AND OTHER INFORMATION

The following tables present certain operating statistics for our distribution and pipeline and storage segments for the three and ~~six-month~~nine-month periods ended ~~March 31,~~June 30, 2017 and 2016.

Distribution Sales and Statistical Data


	Three Months Ended March 31				Six Months Ended March 31				Three Months Ended June 30				Nine Months Ended June 30
	2017		2016		2017		2016		2017		2016		2017		2016
METERS IN SERVICE, end of period
Residential	2,929,455		2,899,265		2,929,455		2,899,265		2,935,136		2,903,099		2,935,136		2,903,099
Commercial	269,055		267,213		269,055		267,213		268,734		266,435		268,734		266,435
Industrial	1,690		1,828		1,690		1,828		1,682		1,815		1,682		1,815
Public authority and other	8,332		8,410		8,332		8,410		8,301		8,377		8,301		8,377
Total meters	3,208,532		3,176,716		3,208,532		3,176,716		3,213,853		3,179,726		3,213,853		3,179,726

INVENTORY STORAGE BALANCE — Bcf	40.0		40.2		40.0		40.2		50.4		51.3		50.4		51.3
SALES VOLUMES — MMcf⁽¹⁾
Gas sales volumes
Residential	56,931		68,758		98,431		108,927		17,137		16,407		115,568		125,334
Commercial	31,739		35,854		55,475		59,272		15,960		14,718		71,435		73,990
Industrial	6,708		8,897		14,140		15,890		8,719		6,728		22,859		22,618
Public authority and other	2,376		2,861		4,138		4,535		1,158		1,187		5,296		5,722
Total gas sales volumes	97,754		116,370		172,184		188,624		42,974		39,040		215,158		227,664
Transportation volumes	42,142		43,986		81,207		79,110		35,020		33,367		116,227		112,477
Total throughput	139,896		160,356		253,391		267,734		77,994		72,407		331,385		340,141
OPERATING REVENUES (000’s)⁽¹⁾
Gas sales revenues
Residential	$	609,771	$	563,565	$	1,091,444	$	979,550	$	294,000	$	260,634	$	1,385,444	$	1,240,184
Commercial	251,174		222,480		451,662		394,505		136,611		113,075		588,273		507,580
Industrial	47,986		29,643		78,017		54,401		28,150		19,766		106,167		74,167
Public authority and other	17,607		16,560		29,716		27,093		8,591		7,309		38,307		34,402
Total gas sales revenues	926,538		832,248		1,650,839		1,455,549		467,352		400,784		2,118,191		1,856,333
Transportation revenues	24,307		22,623		46,788		42,105		20,439		18,097		67,227		60,202
Other gas revenues	11,696		7,256		19,570		13,916		6,269		6,024		25,839		19,940
Total operating revenues	$	962,541	$	862,127	$	1,717,197	$	1,511,570	$	494,060	$	424,905	$	2,211,257	$	1,936,475
Average cost of gas per Mcf sold	$	5.25	$	3.87	$	5.28	$	4.05	$	4.60	$	3.78	$	5.14	$	4.01

See footnote following these tables.

Pipeline and Storage Operations Sales and Statistical Data


	Three Months Ended March 31				Six Months Ended March 31				Three Months Ended June 30				Nine Months Ended June 30
	2017		2016		2017		2016		2017		2016		2017		2016
CUSTOMERS, end of period
Industrial	91		88		91		88		92		90		92		90
Other	226		221		226		221		239		214		239		214
Total	317		309		317		309		331		304		331		304

INVENTORY STORAGE BALANCE — Bcf	0.6		1.8		0.6		1.8		1.1		2.4		1.1		2.4
PIPELINE TRANSPORTATION VOLUMES — MMcf⁽¹⁾	195,233		187,922		382,013		367,774		192,543		158,758		574,556		526,532
OPERATING REVENUES (000’s)⁽¹⁾	$	111,972	$	102,153	$	221,924	$	200,569	$	117,283	$	113,855	$	339,207	$	314,424

Note to preceding tables:


⁽¹⁾	Sales volumes and revenues reflect segment operations, including intercompany sales and transportation amounts.

RECENT ACCOUNTING DEVELOPMENTS

Recent accounting developments and their impact on our financial position, results of operations and cash flows are described in Note 2 to the unaudited condensed consolidated financial statements.



Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Information regarding our quantitative and qualitative disclosures about market risk are disclosed in Item 7A inof Exhibit 99.1 to our ~~Annual~~Current Report on Form ~~10-K for the fiscal year ended September 30, 2016.~~8-K dated April 12, 2017. During the ~~six~~nine months ended ~~March 31,~~June 30, 2017, except for the effects of the sale of AEM on our market risk, there were no material changes in our quantitative and qualitative disclosures about market risk.



Item 4.	Controls and Procedures

Management’s Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act). Based on this evaluation, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures were effective as of ~~March 31,~~June 30, 2017 to provide reasonable assurance that information required to be disclosed by us, including our consolidated entities, in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the SEC’s rules and forms, including a reasonable level of assurance that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

We did not make any changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the ~~second~~third quarter of the fiscal year ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION



Item 1.	Legal Proceedings

During the ~~six~~nine months ended ~~March 31,~~June 30, 2017, there were no material changes in the status of the litigation and other matters that were disclosed in Note 11 toof our ~~Annual Report on Form 10-K for the fiscal year ended September 30, 2016.~~Fiscal 2016 Financial Statements. We continue to believe that the final outcome of such litigation and other matters or claims will not have a material adverse effect on our financial condition, results of operations or cash flows.



Item 6.	Exhibits

A list of exhibits required by Item 601 of Regulation S-K and filed as part of this report is set forth in the Exhibits Index, which immediately precedes such exhibits.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



			ATMOS ENERGY CORPORATION (Registrant)
			By: /s/ CHRISTOPHER T. FORSYTHE
			Christopher T. Forsythe Senior Vice President and Chief Financial Officer (Duly authorized signatory)

Date: ~~May 4,~~August 2, 2017

EXHIBITS INDEX

Item 6



Exhibit Number	Description	Page Number or Incorporation by Reference to
2.1	Membership Interest Purchase Agreement by and between Atmos Energy Holdings, Inc. as Seller and CenterPoint Energy Services, Inc. as Buyer, dated as of October 29, 2016	Exhibit 2.1 to Form 8-K dated October 29, 2016 (File No. 1-10042)
10	Equity Distribution Agreement, dated as of March 28, 2016, among Atmos Energy Corporation, Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. LLC.	Exhibit 1.1 to Form 8-K dated March 28, 2016 (File No. 1-10042)
12	Computation of ratio of earnings to fixed charges
15	Letter regarding unaudited interim financial information
31	Rule 13a-14(a)/15d-14(a) Certifications
32	Section 1350 Certifications*
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Labels Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase



*	These certifications, which were made pursuant to 18 U.S.C. Section 1350 by the Company’s Chief Executive Officer and Chief Financial Officer, furnished as Exhibit 32 to this Quarterly Report on Form 10-Q, will not be deemed to be filed with the Commission or incorporated by reference into any filing by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates such certifications by reference.

5655