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 December 31, ~~2018~~2019



¨☐	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~~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.)

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

~~(972)~~ (972) 934-9227

(Registrant’s telephone number, including area code)



Title of each class		Trading Symbol	Name of each exchange on which registered
Common stock	No Par Value	ATO	New York Stock Exchange

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. YesþNo¨

Indicate by check mark whether the registrant has submitted electronically 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). YesþNo¨

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”,~~filer,” “smaller reporting ~~company”,~~company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	þ	Accelerated ~~Filer~~ þfiler	¨	~~Accelerated Filer~~ ¨ Non-accelerated filer	¨	~~Non-Accelerated Filer~~ ¨ Smaller reporting company	☐	~~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 ¨☐Noþ

Number of shares outstanding of each of the issuer’s classes of common stock, as of January ~~30, 2019.~~31, 2020.



Class		Shares Outstanding
Common stock	No Par Value	~~116,897,373~~122,266,316

GLOSSARY OF KEY TERMS




~~Adjusted diluted net income per share~~	~~Non-GAAP measure defined as diluted net income per share before the one-time, non-cash income tax benefit~~
~~Adjusted net income~~	~~Non-GAAP measure defined as net income before the one-time, non-cash income tax benefit~~
AEC	Atmos Energy Corporation
AOCI	Accumulated other comprehensive income
ARM	Annual Rate Mechanism
ASC	Accounting Standards Codification
Bcf	Billion cubic feet
~~Contribution Margin~~	~~Non-GAAP measure defined as operating revenues less purchased gas cost~~
DARR	Dallas Annual Rate Review
ERISA	Employee Retirement Income Security Act of 1974
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission
GAAP	Generally Accepted Accounting Principles
GRIP	Gas Reliability Infrastructure Program
GSRS	Gas System Reliability Surcharge
Mcf	Thousand cubic feet
MMcf	Million cubic feet
Moody’s	Moody’s Investors Services, Inc.
NTSB	National Transportation Safety Board
PPA	Pension Protection Act of 2006
PRP	Pipeline Replacement Program
RRC	Railroad Commission of Texas
RRM	Rate Review Mechanism
RSC	Rate Stabilization Clause
S&P	Standard & Poor’s Corporation
SAVE	Steps to Advance Virginia Energy
SEC	United States Securities and Exchange Commission
SIR	System Integrity Rider
SRF	Stable Rate Filing
SSIR	System Safety and Integrity Rider
TCJA	Tax Cuts and Jobs Act of 2017
WNA	Weather Normalization Adjustment

PART I. FINANCIAL INFORMATION



Item 1.	Financial Statements

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


	December 31, 2018			September 30, 2018			December 31, 2019			September 30, 2019
	(Unaudited)						(Unaudited)
	(In thousands, except share data)						(In thousands, except share data)
ASSETS
Property, plant and equipment	$	12,948,229		$	12,567,373		$	14,691,719		$	14,180,593
Less accumulated depreciation and amortization	2,250,000			2,196,226			2,441,296			2,392,924
Net property, plant and equipment	10,698,229			10,371,147			12,250,423			11,787,669
Current assets
Cash and cash equivalents	218,197			13,771			189,272			24,550
Accounts receivable, net	478,373			253,295			435,616			230,571
Gas stored underground	146,552			165,732			115,259			130,138
Other current assets	69,616			46,055			71,982			72,772
Total current assets	912,738			478,853			812,129			458,031
Goodwill	730,419			730,419			730,706			730,706
Deferred charges and other assets	274,403			294,018			594,867			391,213
	$	12,615,789		$	11,874,437		$	14,388,125		$	13,367,619
CAPITALIZATION AND LIABILITIES
Shareholders’ equity
Common stock, no par value (stated at $0.005 per share); 200,000,000 shares authorized; issued and outstanding: December 31, 2018 — 116,892,959 shares; September 30, 2018 — 111,273,683 shares	$	584		$	556
Common stock, no par value (stated at $0.005 per share); 200,000,000 shares authorized; issued and outstanding: December 31, 2019 — 122,262,403 shares; September 30, 2019 — 119,338,925 shares							$	611		$	597
Additional paid-in capital	3,476,476			2,974,926			3,979,564			3,712,194
Accumulated other comprehensive loss	(114,115		)	(83,647		)	(113,531		)	(114,583		)
Retained earnings	1,985,250			1,878,116			2,261,131			2,152,015
Shareholders’ equity	5,348,195			4,769,951			6,127,775			5,750,223
Long-term debt	3,084,779			2,493,665			4,324,285			3,529,452
Total capitalization	8,432,974			7,263,616			10,452,060			9,279,675
Current liabilities
Accounts payable and accrued liabilities	301,734			217,283			308,113			265,024
Other current liabilities	578,764			547,068			537,009			479,501
Short-term debt	—			575,780			—			464,915
Current maturities of long-term debt	575,000			575,000			50			—
Total current liabilities	1,455,498			1,915,131			845,172			1,209,440
Deferred income taxes	1,191,824			1,154,067			1,352,333			1,300,015
Regulatory excess deferred taxes (See Note 13)	717,758			739,670
Regulatory excess deferred taxes							699,375			705,101
Regulatory cost of removal obligation	468,825			466,405			451,178			473,172
Pension and postretirement liabilities	176,582			177,520
Deferred credits and other liabilities	172,328			158,028			588,007			400,216
	$	12,615,789		$	11,874,437		$	14,388,125		$	13,367,619

See accompanying notes to condensed consolidated financial statements.

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended December 31						Three Months Ended December 31
	2018			2017			2019			2018
	(Unaudited) (In thousands, except per share data)						(Unaudited) (In thousands, except per share data)
Operating revenues
Distribution segment	$	838,835		$	860,792		$	828,504		$	838,835
Pipeline and storage segment	134,470			126,463			148,176			134,470
Intersegment eliminations	(95,523		)	(98,063		)	(101,117		)	(95,523		)
Total operating revenues	877,782			889,192			875,563			877,782

Purchased gas cost
Distribution segment	437,732			463,758			397,558			437,732
Pipeline and storage segment	(358		)	912			99			(358		)
Intersegment eliminations	(95,209		)	(97,753		)	(100,789		)	(95,209		)
Total purchased gas cost	342,165			366,917			296,868			342,165

Operation and maintenance expense	138,600			129,045			152,245			138,600
Depreciation and amortization expense	96,065			88,374			105,062			96,065
Taxes, other than income	64,488			62,773			68,607			64,488
Operating income	236,464			242,083			252,781			236,464
Other non-operating expense	(7,723		)	(2,557		)
Other non-operating income (expense)							4,887			(7,723		)
Interest charges	27,849			31,509			27,229			27,849
Income before income taxes	200,892			208,017			230,439			200,892
Income tax expense (benefit)	43,246			(106,115		)
Income tax expense							51,766			43,246
Net income	$	157,646		$	314,132		$	178,673		$	157,646
Basic net income per share	$	1.38		$	2.89		$	1.47		$	1.38
Diluted net income per share	$	1.38		$	2.89		$	1.47		$	1.38
Cash dividends per share	$	0.525		$	0.485		$	0.575		$	0.525
Basic weighted average shares outstanding	113,800			108,564			121,113			113,800
Diluted weighted average shares outstanding	113,832			108,564			121,359			113,832

Net income	$	157,646		$	314,132		$	178,673		$	157,646
Other comprehensive income (loss), net of tax
Net unrealized holding losses on available-for-sale securities, net of tax of $0 and $62 (See Note 2)	—			(107		)
Net unrealized holding losses on available-for-sale securities, net of tax of $0 and $0							(1		)	—
Cash flow hedges:
Amortization and unrealized loss on interest rate agreements, net of tax of $6,580 and $549	(22,258		)	(955		)
Total other comprehensive loss	(22,258		)	(1,062		)
Amortization and unrealized loss on interest rate agreements, net of tax of $311 and $(6,580)							1,053			(22,258		)
Total other comprehensive income (loss)							1,052			(22,258		)
Total comprehensive income	$	135,388		$	313,070		$	179,725		$	135,388

See accompanying notes to condensed consolidated financial statements.

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



	Three Months Ended December 31
	2019			2018
	(Unaudited) (In thousands)
Cash Flows From Operating Activities
Net income	$	178,673		$	157,646
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	105,062			96,065
Deferred income taxes	46,726			40,339
Other	(616		)	6,231
Net assets / liabilities from risk management activities	4,143			(2,458		)
Net change in operating assets and liabilities	(161,543		)	(133,139		)
Net cash provided by operating activities	172,445			164,684
Cash Flows From Investing Activities
Capital expenditures	(529,186		)	(416,404		)
Debt and equity securities activities, net	(1,602		)	(963		)
Other, net	2,553			2,074
Net cash used in investing activities	(528,235		)	(415,293		)
Cash Flows From Financing Activities
Net decrease in short-term debt	(464,915		)	(575,780		)
Net proceeds from equity offering	259,005			494,734
Issuance of common stock through stock purchase and employee retirement plans	4,267			4,241
Proceeds from issuance of long-term debt	799,450			596,994
Cash dividends paid	(69,557		)	(58,722		)
Debt issuance costs	(7,738		)	(6,432		)
Net cash provided by financing activities	520,512			455,035
Net increase in cash and cash equivalents	164,722			204,426
Cash and cash equivalents at beginning of period	24,550			13,771
Cash and cash equivalents at end of period	$	189,272		$	218,197

Three Months Ended
December 31
2018 2017

(Unaudited)
(In thousands)
Cash Flows From Operating Activities
Net income $ 157,646
$ 314,132
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense 96,065
88,374
Deferred income taxes 40,339
53,149
One-time income tax benefit —
(161,884 )
Other 6,231
6,915
Net assets / liabilities from risk management activities (2,458 ) 2,030
Net change in operating assets and liabilities (133,139 ) (129,478 )
Net cash provided by operating activities 164,684
173,238
Cash Flows From Investing Activities
Capital expenditures (416,404 ) (383,238 )
Debt and equity securities activities, net (963 ) (135 )
Other, net 2,074
2,001
Net cash used in investing activities (415,293 ) (381,372 )
Cash Flows From Financing Activities
Net decrease in short-term debt (575,780 ) (110,929 )
Net proceeds from equity offering 494,734
395,099
Issuance of common stock through stock purchase and employee retirement plans 4,241
5,660
Proceeds from issuance of long-term debt 596,994
—
Cash dividends paid (58,722 ) (51,837 )
Debt issuance costs (6,432 ) —
Other —
(1,518 )
Net cash provided by financing activities 455,035
236,475
Net increase in cash and cash equivalents 204,426
28,341
Cash and cash equivalents at beginning of period 13,771
26,409
Cash and cash equivalents at end of period $ 218,197
$ 54,750

See accompanying notes to condensed consolidated financial statements.

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 31, ~~2018~~2019

1. Nature of Business

Atmos Energy Corporation (“Atmos Energy” or the “Company”) and its subsidiaries are engaged in the regulated natural gas distribution and pipeline and storage businesses. Our distribution business is subject to federal and state regulation and/or regulation by local authorities in each of the states in which our regulated divisions and subsidiaries operate.

Our distribution business delivers natural gas through sales and transportation arrangements to over ~~three million~~3000000 residential, commercial, public authority and industrial customers through our ~~six~~6 regulated distribution divisions, which at December 31, ~~2018,~~2019, covered service areas located in ~~eight~~8 states.

Our pipeline and storage business, which is also subject to federal and state regulations, includes the transportation of natural gas to our Texas and Louisiana distribution systems and the management of our underground storage facilities used to support our distribution business in various states.

2. Unaudited Financial Information

These consolidated interim-period financial statements have been prepared in accordance with accounting principles generally accepted in the United States on the same basis, aside from accounting policy changes noted below, as those used for the Company’s audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018.~~2019. 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, ~~2018.~~2019. Because of seasonal and other factors, the results of operations for the three-month period ended December 31, ~~2018~~2019 are not indicative of our results of operations for the full ~~2019~~2020 fiscal year, which ends September 30, ~~2019.~~2020.

No events have occurred subsequent to the balance sheet date that would require recognition or disclosure in the condensed consolidated financial statements.

Significant accounting policies

Our accounting policies are described in Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018.~~2019.

Accounting pronouncements adopted in fiscal ~~2019~~2020

In ~~May 2014,~~February 2016, the Financial Accounting Standards Board (FASB) issued a comprehensive new ~~revenue recognition~~leasing standard that ~~superseded virtually~~requires lessees to recognize a lease liability and a right-of-use (ROU) asset for all ~~existing revenue recognition guidance under generally accepted accounting principles in the United States. Under the~~leases, including operating leases on its balance sheet. The new standard ~~an entity recognizes 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~~was effective for ~~those goods or services. We adopted the new guidance October 1, 2018 using the modified retrospective method. See Note 5 for our discussion of the effects of implementing this standard.~~

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. Effective October 1, 2018, changes in the fair value of our equity securities formerly designated as available-for-sale are now recognized in other non-operating expense on our condensed consolidated statement of comprehensive income. Additionally, in accordance with the guidance, we reclassified a net $8.2 million unrealized gain related to these equity securities from accumulated other comprehensive income to retained earnings. The accounting for debt securities designated as available-for-sale did not change as a result of this new guidance. Accordingly, changes in the fair value of these securities will continue to be recorded as a component of accumulated other comprehensive income.

In March 2017, the FASB issued new guidance related to the statement of comprehensive income 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 comprehensive income. The other components of net benefit cost will be presented outside of income from operations on the statement of comprehensive income. In addition, under the new guidance 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 Federal Energy Regulatory Commission

(FERC), which regulates interstate transmission pipelines and also establishes, through its Uniform System of Accounts, accounting practices for rate-regulated entities, has issued guidance that states it will permit an election to either continue to capitalize non-service benefit costs or to cease capitalizing such costs for regulatory purposes. Accounting guidelines by the FERC are typically also followed by state commissions. As such, we continue to capitalize into property, plant and equipment all components of net periodic benefit cost for ratemaking purposes and will defer the non-service cost components as a regulatory asset for U.S. GAAP reporting purposes on a prospective basis in accordance with the new guidance.

~~We adopted the new guidance~~us beginning on October 1, ~~2018. We continue~~2019. See Note 6 to ~~present~~ the service cost component of net periodic benefit cost within operation and maintenance expense; however, other components of the net periodic benefit cost are now presented separately within other non-operating expense on ourunaudited condensed consolidated statement of comprehensive income. The changes in presentation were implemented on a retrospective basis in accordance with the guidance. In lieu of determining how each component of the net periodic benefit cost was actually reflected in the condensed statement of comprehensive income, we elected to utilize a practical expedient that permits the use of the amounts disclosedfinancial statements for ~~each component of the net periodic benefit cost in~~further details regarding our pension and post-retirement benefit plans footnote as the basis to retroactively apply this standard to all prior periods presented. The new standard did not have a material impact on our financial position, results of operations or cash flows.

In August 2018, the FASB issued new guidance aligning the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). We elected to early adopt the new guidance on a prospective basis, beginning October 1, 2018. As a resultadoption of the new ~~guidance, we will defer onto~~lease standard and the balance sheet those up-front costs of cloud computing arrangements if they would have been capitalized in a similar on-premise software solution. The new standard did not have a material impact on our financial position, results of operations or cash flows.related disclosures.

Accounting pronouncements that will be effective after fiscal ~~2019~~2020

In ~~February 2016,~~December 2019, the FASB issued new guidance related to accounting for income taxes which removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocations and calculating income taxes in interim periods. The new standard also adds guidance to reduce complexity in certain areas, such as recognizing deferred taxes for tax goodwill and allocating taxes to members of 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.consolidated group. The new standard will be effective for us beginning on October 1, 2019. 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. In January 2018, the FASB issued a practical expedient to allow entities to not evaluate existing or expired land easements that were not previously accounted for as leases under the current guidance. In July 2018, the FASB issued a practical expedient providing an additional and optional transition method to adopt the standard at the2021; early adoption ~~date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.~~is permitted. We are currently evaluating the ~~effect~~potential impact of this ~~standard and amendments~~new guidance on our financial position, results of operations and cash ~~flows and business processes.~~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 debt 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;~~2020; early adoption is permitted. We are currently evaluating the potential impact of this new guidance on our financial position, results of operations and cash flows.

In August 2018, the FASB issued new guidance that modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The guidance removes the disclosure requirements for the amounts of gain/loss and prior service cost/credit amortization expected in the following year and the disclosure of the effect of a one-percentage-point change in the health care cost trend rate, among other changes. The guidance adds certain disclosures including the weighted average interest crediting rate for cash balance plans and a narrative description for the significant change in gains and losses as well as any other significant change in the plan obligations or assets. The new guidance is effective for us in the fiscal year beginning October 1, 2020 and should be applied on a retrospective basis to all periods presented. Early adoption is permitted. The adoption of this new guidance impacts only our disclosures; however we are still evaluating the timing of our adoption.

Regulatory assets and liabilities

Accounting principles generally accepted in the United States require cost-based, rate-regulated entities that meet certain criteria to reflect the authorized recovery of costs due to regulatory decisions in their financial statements. As a result, certain costs are permitted to be capitalized rather than expensed because they can be recovered through rates. We record certain costs

as regulatory assets when future recovery through customer rates is considered probable. Regulatory liabilities are recorded when it is probable that revenues will be reduced for amounts that will be credited to customers through the ratemaking process. Substantially all of our regulatory assets are recorded as a component of deferred charges and other assets and our regulatory liabilities are recorded as a component of other current liabilities and deferred credits and other liabilities. Deferred gas costs are recorded either in other current assets or liabilities and our regulatory excess deferred taxes and regulatory cost of removal obligation are reported separately.

Significant regulatory assets and liabilities as of December 31, ~~2018~~2019 and September 30, ~~2018~~2019 included the following:



	December 31, 2019		September 30, 2019
	(In thousands)
Regulatory assets:
Pension and postretirement benefit costs	$	83,783	$	86,089
Infrastructure mechanisms⁽¹⁾	108,997		131,894
Deferred gas costs	10,386		23,766
Recoverable loss on reacquired debt	6,102		6,551
Deferred pipeline record collection costs	27,414		26,418
Rate case costs	1,052		1,346
Other	4,324		8,483
	$	242,058	$	284,547
Regulatory liabilities:
Regulatory excess deferred taxes⁽²⁾	$	721,049	$	726,307
Regulatory cost of service reserve⁽³⁾	4,747		5,238
Regulatory cost of removal obligation	519,538		528,893
Deferred gas costs	42,142		14,112
Asset retirement obligation	17,054		17,054
APT annual adjustment mechanism	72,732		78,402
Other	17,755		16,120
	$	1,395,017	$	1,386,126

December 31,
2018 September 30,
2018
(In thousands)
Regulatory assets:
Pension and postretirement benefit costs $ 7,188
$ 6,496
Infrastructure mechanisms⁽¹⁾
85,071
96,739
Deferred gas costs 11,621
1,927
Recoverable loss on reacquired debt 8,076
8,702
Deferred pipeline record collection costs 22,122
20,467
Rate case costs 1,866
2,741
Other 6,422
6,739
$ 142,366
$ 143,811
Regulatory liabilities:
Regulatory excess deferred taxes⁽²⁾
$ 740,896
$ 744,895
Regulatory cost of service reserve⁽³⁾
19,281
22,508
Regulatory cost of removal obligation 523,644
522,175
Deferred gas costs 85,820
94,705
Asset retirement obligation 12,887
12,887
APT annual adjustment mechanism 44,619
35,228
Pension and postretirement benefit costs 70,969
69,113
Other 14,354
9,486
$ 1,512,470
$ 1,510,997


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

(2)

The ~~TCJA~~Tax Cuts and Jobs Act of 2017 (the "TCJA") resulted in the remeasurement of the net deferred tax liability included in our rate base. Of this amount, ~~$23.1~~$21.7 million as of December 31, 2019 and $21.2 million as of September 30, 2019 is recorded in other current liabilities. ~~The period and timing of the return of the excess deferred taxes is~~These liabilities are being ~~determined by regulators~~returned to customers in ~~each~~most of our ~~jurisdictions. See Note 13 for further information.~~jurisdictions on a provisional basis over 15 to 46 years until formal orders establish the final refund periods.

(3)

Effective January 1, 2018, regulators in each of our service areas required us to establish a regulatory liability for the difference in recoverable federal taxes included in revenues based on the former 35% federal statutory rate and the new 21% federal statutory rate for service provided on or after January 1, 2018. The period and timing of the return of this liability to utility customers is being determined by regulators in each of our jurisdictions. ~~See Note 13 for further information.~~

3. Segment Information

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


•	The distribution segment is primarily comprised of our regulated natural gas distribution and related sales operations in 8 states.


•	The pipeline and storage segment is comprised primarily of the pipeline and storage operations of our Atmos Pipeline-Texas division and our natural gas transmission operations in Louisiana.

~~The~~ ~~distribution segment~~ ~~is primarily comprised of our regulated natural gas distribution and related sales operations in eight states.~~

~~The~~ ~~pipeline and storage segment~~ ~~is comprised primarily of the pipeline and storage operations of our Atmos Pipeline-Texas division and our natural gas transmission operations in Louisiana.~~

The accounting policies of the segments are the same as those described in the summary of significant accounting policies found in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018.~~2019.

Income statements and capital expenditures for the three months ended December 31, ~~2018~~2019 and ~~2017~~2018 by segment are presented in the following tables:



	Three Months Ended December 31, 2019
	Distribution		Pipeline and Storage		Eliminations			Consolidated
	(In thousands)
Operating revenues from external parties	$	827,840	$	47,723	$	—		$	875,563
Intersegment revenues	664		100,453		(101,117		)	—
Total operating revenues	828,504		148,176		(101,117		)	875,563
Purchased gas cost	397,558		99		(100,789		)	296,868
Operation and maintenance expense	114,352		38,221		(328		)	152,245
Depreciation and amortization expense	76,074		28,988		—			105,062
Taxes, other than income	60,243		8,364		—			68,607
Operating income	180,277		72,504		—			252,781
Other non-operating income	1,954		2,933		—			4,887
Interest charges	16,362		10,867		—			27,229
Income before income taxes	165,869		64,570		—			230,439
Income tax expense	36,112		15,654		—			51,766
Net income	$	129,757	$	48,916	$	—		$	178,673
Capital expenditures	$	404,247	$	124,939	$	—		$	529,186



	Three Months Ended December 31, 2018
	Distribution			Pipeline and Storage			Eliminations			Consolidated
	(In thousands)
Operating revenues from external parties	$	838,181		$	39,601		$	—		$	877,782
Intersegment revenues	654			94,869			(95,523		)	—
Total operating revenues	838,835			134,470			(95,523		)	877,782
Purchased gas cost	437,732			(358		)	(95,209		)	342,165
Operation and maintenance expense	105,767			33,147			(314		)	138,600
Depreciation and amortization expense	69,709			26,356			—			96,065
Taxes, other than income	56,190			8,298			—			64,488
Operating income	169,437			67,027			—			236,464
Other non-operating expense	(6,477		)	(1,246		)	—			(7,723		)
Interest charges	18,210			9,639			—			27,849
Income before income taxes	144,750			56,142			—			200,892
Income tax expense	30,365			12,881			—			43,246
Net income	$	114,385		$	43,261		$	—		$	157,646
Capital expenditures	$	302,545		$	113,859		$	—		$	416,404

Three Months Ended December 31, 2017
Distribution Pipeline and Storage Eliminations Consolidated
(In thousands)
Operating revenues from external parties $ 860,453
$ 28,739
$ —
$ 889,192
Intersegment revenues 339
97,724
(98,063 ) —
Total operating revenues 860,792
126,463
(98,063 ) 889,192
Purchased gas cost 463,758
912
(97,753 ) 366,917
Operation and maintenance expense 103,215
26,140
(310 ) 129,045
Depreciation and amortization expense 65,434
22,940
—
88,374
Taxes, other than income 55,107
7,666
—
62,773
Operating income 173,278
68,805
—
242,083
Other non-operating expense (1,922 ) (635 ) —
(2,557 )
Interest charges 21,368
10,141
—
31,509
Income before income taxes 149,988
58,029
—
208,017
Income tax benefit (99,111 ) (7,004 ) —
(106,115 )
Net income $ 249,099
$ 65,033
$ —
$ 314,132
Capital expenditures $ 241,249
$ 141,989
$ —
$ 383,238

Balance sheet information at December 31, ~~2018~~2019 and September 30, ~~2018~~2019 by segment is presented in the following tables:



	December 31, 2019
	Distribution		Pipeline and Storage		Eliminations			Consolidated
	(In thousands)
Property, plant and equipment, net	$	9,083,765	$	3,166,658	$	—		$	12,250,423
Total assets	$	13,599,293	$	3,389,655	$	(2,600,823	)	$	14,388,125

December 31, 2018
Distribution Pipeline and Storage Eliminations Consolidated
(In thousands)
Property, plant and equipment, net $ 7,889,901
$ 2,808,328
$ —
$ 10,698,229
Total assets $ 11,836,888
$ 3,040,831
$ (2,261,930 ) $ 12,615,789



	September 30, 2019
	Distribution		Pipeline and Storage		Eliminations			Consolidated
	(In thousands)
Property, plant and equipment, net	$	8,737,590	$	3,050,079	$	—		$	11,787,669
Total assets	$	12,579,741	$	3,279,323	$	(2,491,445	)	$	13,367,619

September 30, 2018
Distribution Pipeline and Storage Eliminations Consolidated
(In thousands)
Property, plant and equipment, net $ 7,644,693
$ 2,726,454
$ —
$ 10,371,147
Total assets $ 11,109,128
$ 2,963,480
$ (2,198,171 ) $ 11,874,437

4. Earnings Per Share

We use the two-class method of computing earnings per share because we have participating securities in the form of non-vested restricted stock units with a nonforfeitable right to dividend equivalents, for which vesting is predicated solely on the passage of time. The calculation of earnings per share using the two-class method excludes income attributable to these participating securities from the numerator and excludes the dilutive impact of those shares from the denominator. Basic weighted average shares outstanding is calculated based upon the weighted average number of common shares outstanding during the periods presented. Also, this calculation includes fully vested stock awards that have not yet been issued as common stock. Additionally, the ~~weighted-average~~weighted average shares outstanding for diluted EPS includes the incremental effects of the forward sale agreements, discussed in Note 7,8 to the unaudited condensed consolidated financial statements, when the impact is dilutive. Basic and diluted earnings per share for the three months ended December 31, ~~2018~~2019 and ~~2017~~2018 are calculated as follows:



	Three Months Ended December 31
	2019		2018
	(In thousands, except per share amounts)
Basic Earnings Per Share
Net income	$	178,673	$	157,646
Less: Income allocated to participating securities	136		135
Income available to common shareholders	$	178,537	$	157,511
Basic weighted average shares outstanding	121,113		113,800
Net income per share — Basic	$	1.47	$	1.38
Diluted Earnings Per Share
Income available to common shareholders	$	178,537	$	157,511
Effect of dilutive shares	—		—
Income available to common shareholders	$	178,537	$	157,511
Basic weighted average shares outstanding	121,113		113,800
Dilutive shares	246		32
Diluted weighted average shares outstanding	121,359		113,832
Net income per share - Diluted	$	1.47	$	1.38

Three Months Ended
December 31
2018 2017
(In thousands, except per share amounts)
Basic Earnings Per Share
Net income $ 157,646
$ 314,132
Less: Income allocated to participating securities 135
328
Income available to common shareholders $ 157,511
$ 313,804
Basic weighted average shares outstanding 113,800
108,564
Net income per share — Basic $ 1.38
$ 2.89
Diluted Earnings Per Share
Income available to common shareholders $ 157,511
$ 313,804
Effect of dilutive shares —
—
Income available to common shareholders $ 157,511
$ 313,804
Basic weighted average shares outstanding 113,800
108,564
Dilutive shares ⁽¹⁾
32
—
Diluted weighted average shares outstanding 113,832
108,564
Net income per share - Diluted $ 1.38
$ 2.89


~~(1)~~	~~Dilutive shares were the result of the forward sale agreements entered into during fiscal 2019. See Note 7 for further discussion.~~

5. Revenue

~~Effective October 1, 2018, we adopted~~Our revenue recognition policy is fully described in Note 2 to the ~~new guidance under Accounting Standards Codification (ASC) Topic 606. The implementation of~~financial statements in our Annual Report on Form 10-K for the new guidance did not have a material impact on our financial position, results of operations, cash flow or business processes. However, the guidance introduced new disclosures which are presented below.fiscal year ended September 30, 2019. The following ~~table~~

~~disaggregates~~tables disaggregate our revenue from contracts with customers by customer type and segment and provides a reconciliation to total operating revenues, including intersegment revenues, for the ~~period presented.~~three months ended December 31, 2019 and 2018.



	Three Months Ended December 31, 2019
	Distribution			Pipeline and Storage
	(In thousands)
Gas sales revenues:
Residential	$	552,076		$	—
Commercial	211,314			—
Industrial	24,925			—
Public authority and other	13,022			—
Total gas sales revenues	801,337			—
Transportation revenues	26,640			152,010
Miscellaneous revenues	6,786			5,155
Revenues from contracts with customers	834,763			157,165
Alternative revenue program revenues	(6,751		)	(8,989		)
Other revenues	492			—
Total operating revenues	$	828,504		$	148,176



	Three Months Ended December 31, 2018
	Distribution			Pipeline and Storage
	(In thousands)
Gas sales revenues:
Residential	$	547,928		$	—
Commercial	218,938			—
Industrial	34,537			—
Public authority and other	13,285			—
Total gas sales revenues	814,688			—
Transportation revenues	25,400			147,424
Miscellaneous revenues	6,950			1,682
Revenues from contracts with customers	847,038			149,106
Alternative revenue program revenues	(8,739		)	(14,636		)
Other revenues	536			—
Total operating revenues	$	838,835		$	134,470

6. Leases

We adopted the provisions of the new lease accounting standard beginning on October 1, 2019, using the optional transition method, which allows us to apply the provisions of the new standard to all leases that existed as of the date of adoption. Therefore, results for reporting periods beginning on October 1, 2019 are presented under the new lease accounting standard and prior periods are presented under the former lease accounting standard.

The new guidance included several practical expedients to facilitate the implementation of the new standard. The following summarizes the practical expedients we used to implement the standard.

We elected to bundle our lease and non-lease components as a single component for all asset classes.

Three Months Ended December 31, 2018
Distribution Pipeline and Storage
(In thousands)
Gas sales revenues:
Residential $ 547,928
$ —
Commercial 218,938
—
Industrial 34,537
—
Public authority and other 13,285
—
Total gas sales revenues 814,688
—
Transportation revenues 25,400
147,424
Miscellaneous revenues 6,950
1,682
Revenues from contracts with customers 847,038
149,106
Alternative revenue program revenues (8,739 ) (14,636 )
Other revenues 536
—
Total operating revenues $ 838,835
$ 134,470
We elected not to perform the following:


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


◦	Include short-term leases in the calculation of our lease liability.


◦	Evaluate existing or expired contracts to determine if they are leases.


◦	Assess lease classification for existing or expired leases.


◦	Review initial direct costs for existing leases.


◦	Use hindsight in order to determine the lease term or impairment of our ROU assets.

Upon adoption of this new guidance, we recorded ROU assets and lease liabilities of $231.3 million. Additionally, we reclassified a net $6.5 million of accrued and prepaid lease costs to the ROU asset and $2.5 million related to an existing finance lease from deferred credits and other liabilities to long-term debt.

~~Distribution Revenues~~

~~Distribution revenues represent~~Implementation of the ~~delivery~~new lease accounting guidance had no material impact on our condensed consolidated statements of ~~natural gas~~comprehensive income or our condensed consolidated statements of cash flows. Additionally, we did not record a cumulative-effect adjustment to ~~residential, commercial, industrial and public authority customers~~retained earnings on the opening balance sheet.

New Lease Accounting Policy

We determine if an arrangement is a lease at ~~prices~~the inception of the agreement based on ~~tariff rates established by regulatory authorities~~the terms and conditions in the ~~states in which we operate. Revenue~~contract. A contract contains a lease if there is ~~recognized~~an identified asset and our performance obligation is satisfied over time when natural gas is delivered and simultaneously consumed by our customer. We have elected to use the invoice practical expedient and recognize revenue for volumes delivered that we have the right to ~~invoice~~control the asset. We are the lessee for substantially all of our ~~customers.~~leasing activity, which primarily includes operating leases for office and warehouse space, towers, vehicles and heavy equipment used in our operations. We ~~read meters~~are also a lessee in a finance lease for a service center.

We record a lease liability and ~~bill~~a corresponding ROU asset for all of our ~~customers~~leases with a term greater than 12 months. For lease contracts containing renewal and termination options, we include the option period in the lease term when it is reasonably certain the option will be exercised. We most frequently assume renewal options at the inception of the arrangement for our tower and fleet leases, based on our anticipated use of the assets. Real estate leases that contain a renewal option are evaluated on a ~~monthly cycle basis. Accordingly,~~lease-by-lease basis to determine if the option period should be included in the lease term. Currently, we ~~estimate volumes from~~have not included material renewal options for real estate leases in our ROU asset or lease liability. The following table presents our weighted average remaining lease term for our leases.



	December 31, 2019
Weighted average remaining lease term (years)
Finance lease	19.00
Operating leases	10.78

The lease liability represents the ~~last meter read~~present value of all lease payments over the lease term. The discount rate used to determine the present value of the lease liability is the rate implicit in the lease unless that rate cannot be readily determined. We use the implicit rate stated in the agreement to determine the lease liability for our fleet leases. We use our corporate collateralized incremental borrowing rate as the discount rate for all other lease agreements. This rate is appropriate because we believe it represents the rate we would have incurred to borrow funds to acquire the leased asset over a similar term. We calculated this rate using a combination of inputs, including our current credit rating, quoted market prices of interest rates for our publicly traded unsecured debt, observable market yield curve data for peer companies with a credit rating one notch higher than our current credit rating and the lease term.

The following table represents our weighted average discount rate at December 31, 2019:



	December 31, 2019
Weighted average discount rate
Finance lease	9.57	%
Operating leases	2.91	%

The ROU asset represents the right to use the underlying asset for the lease term, and is equal to the ~~balance sheet date~~lease liability, adjusted for prepaid or accrued lease payments and ~~accrue revenue for gas delivered but not yet billed.~~

In our Texas and Mississippi jurisdictions, we pay franchise fees and gross receipt taxes to operate in these service areas. These franchise fees and gross receipts taxes are required to be paid regardless of our ability to collect from our customers. Accordingly, we account for these amounts on a gross basis in revenue and we record the associated tax expense as a component of taxes, other than income.

~~Pipeline and Storage Revenues~~

Pipeline and storage revenues primarily represent the transportation and storage of natural gas on our Atmos Pipeline-Texas (APT) system and the transmission of natural gas through our 21-mile pipeline in Louisiana. APT provides transportation and storage services to our Mid-Tex Division, other third party local distribution companies and certain industrial customers under tariff rates approved by the Railroad Commission of Texas (RRC). APT also provides certain transportation and storage services to industrial and electric generation customers, as well as marketers and producers, under negotiated rates. Our pipeline in Louisiana is primarily used to aggregate gas supply for our Louisiana Division under a long-term contract and on a more limited basis to third parties. The demand fee charged to our Louisiana Division is subject to regulatory approval by the Louisiana Public Service Commission. We also manage two asset management plans with distribution affiliates of the Company at pricesany lease incentives that have been ~~approved by~~paid to us or when we are reasonably certain to incur costs equal to or greater than the ~~applicable state regulatory commissions. The performance obligations~~allowance defined in the contract.

Variable payments included in our leasing arrangements are expensed in the period in which the obligation for these ~~transportation customers~~payments is incurred. Variable payments are ~~satisfied by means~~dependent on usage, output or may vary for other reasons. Most of ~~transporting customer-supplied gas~~our variable

lease expense is related to ~~the designated location. Revenue is recognized~~tower leases that have escalating payments based on changes to a stated CPI index, and usage of certain office equipment.

We have not provided material residual value guarantees for our ~~performance obligation is satisfied over time when natural gas is delivered to the customer. Management determined that these arrangements qualify~~leases, nor do our leases contain material restrictions or covenants.

Lease costs for the ~~invoice practical expedient~~three months ended December 31, 2019 are presented in the table below. These costs include both amounts recognized in expense and amounts capitalized. For the three months ended December 31, 2019, we did not have material short-term lease costs or variable lease costs.



	Three Months Ended December 31, 2019
	(In thousands)
Finance lease cost	$	73
Operating lease cost	9,925
Total lease cost	$	9,998

Our ROU assets and lease liabilities are presented as follows on the condensed consolidated balance sheets (unaudited):



	Balance Sheet Classification	December 31, 2019
		(In thousands)
Assets
Finance lease	Net Property, Plant and Equipment	$	2,522
Operating leases	Deferred charges and other assets	223,486
Total right-of-use assets		$	226,008
Liabilities
Current
Finance lease	Current maturities of long-term debt	$	50
Operating leases	Other current liabilities	30,099
Noncurrent
Finance lease	Long-term debt	2,484
Operating leases	Deferred credits and other liabilities	200,997
Total lease liabilities		$	233,630

Other pertinent information related to leases was as follows. During the three months ended December 31, 2019, amounts paid in cash for ~~recognizing revenue. For demand fee arrangements, revenue is recognized and~~ our ~~performance obligation is satisfied by standing ready to transport natural gas over the period of each individual month.~~finance lease were not material, nor did we enter into any new finance leases.

~~Alternative Revenue Program Revenues~~

In our distribution segment, we have weather-normalization adjustment mechanisms that serve to minimize the effects of weather on our contribution margin. Additionally, APT has a regulatory mechanism that requires that we share with its tariffed customers 75% of the difference between the total non-tariffed revenues earned during a test period and a revenue benchmark of $69.4 million that was established in its most recent rate case. These amounts can be either additional revenue or given back to customers depending on actual results as compared to the weather in our distribution segment or versus the benchmark in our pipeline and storage segment. These mechanisms are considered to be alternative revenue programs under accounting



	Three Months Ended December 31, 2019
	(In thousands)
Cash paid amounts included in the measurement of lease liabilities
Operating cash flows used for operating leases	$	8,840
Right-of-use assets obtained in exchange for lease obligations
Operating leases	$	6,812

~~standards generally accepted~~

Maturities of our lease liabilities as of December 31, 2019, presented on a rolling 12-month basis, were as follows:



	Total		Finance Lease		Operating Leases
	(In thousands)
Year 1	$	35,719	$	244	$	35,475
Year 2	35,954		249		35,705
Year 3	32,230		254		31,976
Year 4	27,421		259		27,162
Year 5	18,981		264		18,717
Thereafter	127,745		4,222		123,523
Total lease payments	278,050		5,492		272,558
Less: Imputed interest	44,420		2,958		41,462
Total	$	233,630	$	2,534	$	231,096
Reported as of December 31, 2019
Short-term lease liabilities	$	30,149	$	50	$	30,099
Long-term lease liabilities	203,481		2,484		200,997
Total lease liabilities	$	233,630	$	2,534	$	231,096

Disclosures Related to Prior Periods

The future minimum lease payments as September 30, 2019 were as follows:



	Operating Leases⁽¹⁾		Capital Lease
	(In thousands)
2020	$	21,017	$	243
2021	20,416		248
2022	19,370		253
2023	18,071		258
2024	15,718		263
Thereafter	105,544		4,343
Total minimum lease payments	$	200,136	5,608
Less amount representing interest			3,018
Present value of net minimum lease payments			$	2,590

(1)

Future minimum lease payments do not include amounts for fleet leases and other de minimis items that can be renewed beyond the initial lease term. The Company anticipates renewing the leases beyond the initial term, but the anticipated payments associated with the renewals do not meet the definition of expected minimum lease payments and therefore are not included above. Expected payments are $17.6 million in 2020, $18.0 million in 2021, $11.8 million in 2022, $8.5 million in 2023, $5.4 million 2024 and $2.7 million thereafter.

Consolidated lease and rental expense for the ~~United States as they are deemed to be contracts between us and our regulator. Accordingly, revenue under these mechanisms are excluded from revenue from contracts with customers.~~three months ended December 31, 2018 was $10.0 million.

6.7. Debt

The nature and terms of our debt instruments and credit facilities are described in detail in Note 56 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018.~~2019. Other than as described below, there were no material changes in the terms of our debt instruments during the three months ended December 31, ~~2018.~~2019.

Long-term debt at December 31, ~~2018~~2019 and September 30, ~~2018~~2019 consisted of the following:



	December 31, 2019		September 30, 2019
	(In thousands)
Unsecured 3.00% Senior Notes, due 2027	$	500,000	$	500,000
Unsecured 2.625% Senior Notes, due 2029	300,000		—
Unsecured 5.95% Senior Notes, due 2034	200,000		200,000
Unsecured 5.50% Senior Notes, due 2041	400,000		400,000
Unsecured 4.15% Senior Notes, due 2043	500,000		500,000
Unsecured 4.125% Senior Notes, due 2044	750,000		750,000
Unsecured 4.30% Senior Notes, due 2048	600,000		600,000
Unsecured 4.125% Senior Notes, due 2049	450,000		450,000
Unsecured 3.375% Senior Notes, due 2049	500,000		—
Medium-term note Series A, 1995-1, 6.67%, due 2025	10,000		10,000
Unsecured 6.75% Debentures, due 2028	150,000		150,000
Finance lease obligations (see Note 6)	2,534		—
Total long-term debt	4,362,534		3,560,000
Less:
Original issue (premium) / discount on unsecured senior notes and debentures	703		193
Debt issuance cost	37,496		30,355
Current maturities	50		—
	$	4,324,285	$	3,529,452

December 31, 2018 September 30, 2018
(In thousands)
Unsecured 8.50% Senior Notes, due March 2019 $ 450,000
$ 450,000
Unsecured 3.00% Senior Notes, due 2027 500,000
500,000
Unsecured 5.95% Senior Notes, due 2034 200,000
200,000
Unsecured 5.50% Senior Notes, due 2041 400,000
400,000
Unsecured 4.15% Senior Notes, due 2043 500,000
500,000
Unsecured 4.125% Senior Notes, due 2044 750,000
750,000
Unsecured 4.30% Senior Notes, due 2048 600,000
—
Medium-term note Series A, 1995-1, 6.67%, due 2025 10,000
10,000
Unsecured 6.75% Debentures, due 2028 150,000
150,000
Floating-rate term loan, due September 2019⁽¹⁾
125,000
125,000
Total long-term debt 3,685,000
3,085,000
Less:
Original issue (premium) / discount on unsecured senior notes and debentures (1,472 ) (4,439 )
Debt issuance cost 26,693
20,774
Current maturities 575,000
575,000
$ 3,084,779
$ 2,493,665


~~(1)~~	~~Up to $200 million can be drawn under this term loan.~~

On October ~~4, 2018,~~2, 2019, we completed a public offering of ~~$600~~$300 million of ~~4.30%~~2.625% senior notes due ~~2048.~~2029 and $500 million of 3.375% senior notes due 2049. We received net proceeds from the offering, after the underwriting discount and offering expenses, of ~~$590.6~~$791.7 million, that were used ~~to repay working capital~~for general corporate purposes, including the repayment of borrowings pursuant to our commercial paper program. The effective interest rate ofon these notes is ~~4.37%~~2.72% and 3.42%, after giving effect to the offering costs.

We utilize short-term debt to provide cost-effective, short-term financing until it can be replaced with a balance of long-term debt and equity financing that achieves the Company’s desired capital structure with an equity-to-total-capitalization ratio between 50% and 60%, inclusive of long-term and short-term debt. Our short-term borrowing requirements are driven primarily by construction work in progress and the seasonal nature of the natural gas business. Changes in the price of natural gas and the amount of natural gas we need to supply our customers’ needs could significantly affect our borrowing requirements. Our short-term borrowings typically reach their highest levels in the winter months.

Currently, our short-term borrowing requirements are satisfied through a combination of a $1.5 billion commercial paper program and three committed revolving credit facilities with third-party lenders that provide approximately $1.5 billion of total working capital funding. The primary source of our funding is our commercial paper program, which is supported by a five-year unsecured $1.5 billion credit facility that expires on September 25, ~~2022.~~2023. The facility bears interest at a base rate or at a LIBOR-based rate for the applicable interest period, plus a ~~spread~~margin ranging from ~~zero~~0 percent to 1.25 percent, based on the Company’s credit ratings. Additionally, the facility contains a $250 million accordion feature, which provides the opportunity to increase the total committed loan to $1.75 billion. At December 31, ~~2018,~~2019, there were no amounts outstanding under our commercial paper program. At September 30, ~~2018,~~2019, a total of ~~$575.8~~$464.9 million was outstanding.

Additionally, we have a $25 million 364-day unsecured facility and a $10 million 364-day unsecured revolving credit facility, which is used primarily to issue letters of credit. At December 31, ~~2018,~~2019, there were no0 borrowings outstanding under

either of these facilities; however, outstanding letters of credit reduced the total amount available to us under our $10 million facility to $4.4 million.

The availability of funds under these credit facilities is subject to conditions specified in the respective credit agreements, all of which we currently satisfy. These conditions include our compliance with financial covenants and the continued accuracy of representations and warranties contained in these agreements. We are required by the financial covenants in each of these facilities to maintain, at the end of each fiscal quarter, a ratio of total-debt-to-total-capitalization of no greater than 70 percent. At December 31, ~~2018,~~2019, our total-debt-to-total-capitalization ratio, as defined in the agreements, was 42 percent. In addition,

both the interest margin and the fee that we pay on unused amounts under certain of these facilities are subject to adjustment depending upon our credit ratings.

These credit facilities and our public indentures contain usual and customary covenants for our business, including covenants substantially limiting liens, substantial asset sales and mergers. Additionally, our public debt indentures relating to our senior notes and debentures, as well as certain of our revolving credit agreements, each contain a default provision that is triggered if outstanding indebtedness arising out of any other credit agreements in amounts ranging from in excess of $15 million to in excess of $100 million becomes due by acceleration or if not paid at maturity. We were in compliance with all of our debt covenants as of December 31, ~~2018.~~2019. 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.

8. Shareholders' Equity

The following tables present a reconciliation of changes in stockholders' equity for the three months ended December 31, ~~2018~~2019 and ~~2017.~~2018.

Common stock Additional
Paid-in
Capital Accumulated
Other
Comprehensive Income
(Loss) Retained
Earnings Total
Number of
Shares Stated
Value
(In thousands, except share and per share data)
Balance, September 30, 2018 111,273,683
$ 556
$ 2,974,926
$ (83,647 ) $ 1,878,116
$ 4,769,951
Net income —
—
—
—
157,646
157,646
Other comprehensive loss —
—
—
(22,258 ) —
(22,258 )
Cash dividends ($0.525 per share) —
—
—
—
(58,722 ) (58,722 )
Cumulative effect of accounting change (See Note 2) —
—
—
(8,210 ) 8,210
—
Common stock issued:
Public and other stock offerings 5,434,812
27
498,948
—
—
498,975
Stock-based compensation plans 184,464
1
2,602
—
—
2,603
Balance, December 31, 2018 116,892,959
$ 584
$ 3,476,476
$ (114,115 ) $ 1,985,250
$ 5,348,195



	Common stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
	Number of Shares	Stated Value		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
	(In thousands, except share and per share data)
Balance, September 30, 2019	119,338,925	$	597	$	3,712,194	$	(114,583	)	$	2,152,015		$	5,750,223
Net income	—	—		—		—			178,673			178,673
Other comprehensive income	—	—		—		1,052			—			1,052
Cash dividends ($0.575 per share)	—	—		—		—			(69,557		)	(69,557		)
Common stock issued:
Public and other stock offerings	2,758,929	13		263,259		—			—			263,272
Stock-based compensation plans	164,549	1		4,111		—			—			4,112
Balance, December 31, 2019	122,262,403	$	611	$	3,979,564	$	(113,531	)	$	2,261,131		$	6,127,775



	Common stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
	Number of Shares	Stated Value		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
	(In thousands, except share and per share data)
Balance, September 30, 2018	111,273,683	$	556	$	2,974,926	$	(83,647	)	$	1,878,116		$	4,769,951
Net income	—	—		—		—			157,646			157,646
Other comprehensive loss	—	—		—		(22,258		)	—			(22,258		)
Cash dividends ($0.525 per share)	—	—		—		—			(58,722		)	(58,722		)
Cumulative effect of accounting change	—	—		—		(8,210		)	8,210			—
Common stock issued:
Public and other stock offerings	5,434,812	27		498,948		—			—			498,975
Stock-based compensation plans	184,464	1		2,602		—			—			2,603
Balance, December 31, 2018	116,892,959	$	584	$	3,476,476	$	(114,115	)	$	1,985,250		$	5,348,195

Common stock Additional
Paid-in
Capital Accumulated
Other
Comprehensive Income
(Loss) Retained
Earnings Total
Number of
Shares Stated
Value
(In thousands, except share and per share data)
Balance, September 30, 2017 106,104,634
$ 531
$ 2,536,365
$ (105,254 ) $ 1,467,024
$ 3,898,666
Net income —
—
—
—
314,132
314,132
Other comprehensive loss —
—
—
(1,062 ) —
(1,062 )
Cash dividends ($0.485 per share) —
—
—
—
(51,837 ) (51,837 )
Common stock issued:
Public and other stock offerings 4,621,518
22
400,737
—
—
400,759
Stock-based compensation plans 235,960
2
2,960
—
—
2,962
Balance, December 31, 2017 110,962,112
$ 555
$ 2,940,062
$ (106,316 ) $ 1,729,319
$ 4,563,620

Shelf Registration, At-the-Market Equity Sales Program and Equity ~~Issuance~~Issuances

~~On November 13, 2018, we filed~~We have a shelf registration statement on file with the Securities and Exchange Commission (SEC) that allows us to issue ~~from time to time,~~ up to $3.0 billion in common stock and/or debt ~~securities, which expires November 13, 2021. This registration statement replaced our previous registration statement that was effectively exhausted in October 2018.~~securities. At December 31, ~~2018,~~2019, approximately ~~$1.8~~$0.5 billion of securities remained available for issuance under the shelf registration ~~statement.~~statement, which expires November 13, 2021.

~~On November 19, 2018, we filed a prospectus supplement under the registration statement relating to~~We also have an at-the-market (ATM) equity sales program ~~under which we may~~that allows us to issue and sell shares of our common stock up to an aggregate offering price of $500 million (including shares of common stock that may be sold pursuant to a forward sale

agreement entered into ~~concurrently~~in connection with the ATM equity sales program), which expires November 13, 2021. During the three months ended December 31, ~~2018, no shares of common stock were sold~~2019, we executed forward sales under the ATM with various forward sellers who borrowed and sold 339,574 shares of our common stock for $36.8 million. Additionally, during the three months ended December 31, 2019, we settled 2,234,871 shares that had been sold during fiscal 2019 under the ATM for net proceeds of $214.6 million. As of December 31, 2019, the ATM program had approximately $38 million of equity ~~sales program.~~available for issuance.

On November 30, 2018, we filed a prospectus supplement under the registration statement relating to an underwriting agreement to sell 5,390,836 shares of our common stock for $500 million. After ~~the underwriting discount,~~expenses, net proceeds from the offering were ~~$494.7~~$494.1 million. Concurrently, we entered into separate forward sale agreements with two ~~underwriters~~forward sellers who borrowed and sold 2,668,464 shares of our common ~~stock. Under the agreements we have the ability to settle these shares before March 31, 2020 at a price based on the offering price established on November 28, 2018.~~stock for $247.5 million. During the three months ended December 31, ~~2018, no~~2019, we settled the remaining 485,189 shares under these agreements for net proceeds of ~~common stock were settled under the forward sale agreements.~~ $44.4 million.

If we had settled all shares that remain available under ~~the~~our various forward sale agreements atas of December 31, ~~2018,~~2019, we would have received ~~approximately $245.2~~proceeds of $239.6 million, based on a net price of ~~$91.90~~$106.51 per share.

~~On November 30, 2017, we filed a prospectus supplement under~~The following table presents information relevant to the ~~previous registration statement relating to an underwriting agreement to sell 4,558,404 shares~~forward sales during the first quarter of ~~our common stock for $400 million. After expenses, net proceeds from the offering were $395.1 million.~~fiscal 2020.



	Maturity
	September 30, 2020				March 31, 2020				Total
	Shares		Price⁽¹⁾		Shares		Price⁽¹⁾		Shares		Price⁽¹⁾
Available Balance September 30, 2019	2,474,162				2,155,698				4,629,860
Q1 Issuance	339,574		$	107.40	—		$	—	339,574		$	107.40
Q1 Settlement	(564,362	)	$	100.21	(2,155,698	)	$	93.88	(2,720,060	)	$	95.22
Available Balance December 31, 2019	2,249,374				—				2,249,374


(1)	Issued price as disclosed is calculated as the weighted average price for activity occurring during the quarter.

Accumulated Other Comprehensive Income (Loss)

We record deferred gains (losses) in AOCI related to available-for-sale debt securities and interest rate agreement cash flow hedges. Deferred gains (losses) for our available-for-sale debt securities are recognized in earnings upon settlement, while deferred gains (losses) related to our interest rate agreement cash flow hedges are recognized in earnings as they are amortized. The following tables provide the components of our accumulated other comprehensive income (loss) balances, net of the related tax effects allocated to each component of other comprehensive income (loss).



	Available- for-Sale Securities			Interest Rate Agreement Cash Flow Hedges			Total
	(In thousands)
September 30, 2019	$	132		$	(114,715	)	$	(114,583	)
Other comprehensive loss before reclassifications	(1		)	—			(1		)
Amounts reclassified from accumulated other comprehensive income	—			1,053			1,053
Net current-period other comprehensive income (loss)	(1		)	1,053			1,052
December 31, 2019	$	131		$	(113,662	)	$	(113,531	)

Available-
for-Sale
Securities⁽¹⁾

Interest Rate
Agreement
Cash Flow
Hedges
Total
(In thousands)
September 30, 2018 $ 8,124
$ (91,771 ) $ (83,647 )
Other comprehensive loss before reclassifications —
(22,716 ) (22,716 )
Amounts reclassified from accumulated other comprehensive income —
458
458
Net current-period other comprehensive loss —
(22,258 ) (22,258 )
Cumulative effect of accounting change (See Note 2) (8,210 ) —
(8,210 )
December 31, 2018 $ (86 ) $ (114,029 ) $ (114,115 )

Available-
for-Sale
Securities⁽¹⁾

Interest Rate
Agreement
Cash Flow
Hedges
Total
(In thousands)
September 30, 2017 $ 7,048
$ (112,302 ) $ (105,254 )
Other comprehensive loss before reclassifications (107 ) (1,332 ) (1,439 )
Amounts reclassified from accumulated other comprehensive income —
377
377
Net current-period other comprehensive loss (107 ) (955 ) (1,062 )
December 31, 2017 $ 6,941
$ (113,257 ) $ (106,316 )


~~(1)~~	Available-for-sale-securities reported in fiscal 2018 include both debt and equity securities, while fiscal 2019 includes only debt securities. See Note 2 for further discussion regarding our adoption of the new accounting standard.



	Available- for-Sale Securities			Interest Rate Agreement Cash Flow Hedges			Total
	(In thousands)
September 30, 2018	$	8,124		$	(91,771	)	$	(83,647	)
Other comprehensive loss before reclassifications	—			(22,716		)	(22,716		)
Amounts reclassified from accumulated other comprehensive income	—			458			458
Net current-period other comprehensive loss	—			(22,258		)	(22,258		)
Cumulative effect of accounting change	(8,210		)	—			(8,210		)
December 31, 2018	$	(86	)	$	(114,029	)	$	(114,115	)

9. Interim Pension and Other Postretirement Benefit Plan Information

The components of our net periodic pension cost for our pension and other postretirement benefit plans for the three months ended December 31, ~~2018~~2019 and ~~2017~~2018 are presented in the following ~~table.~~tables. Most of these costs are recoverable through our tariff rates. A portion of these costs is capitalized into our rate base or deferred as a regulatory asset or liability. The remaining costs are recorded as a component of operation and maintenance expense or other non-operating expense.


	Three Months Ended December 31												Three Months Ended December 31
	Pension Benefits						Other Benefits						Pension Benefits						Other Benefits
	2018			2017			2018			2017			2019			2018			2019			2018
	(In thousands)												(In thousands)
Components of net periodic pension cost:
Service cost	$	4,045		$	4,560		$	2,702		$	3,020		$	4,653		$	4,045		$	3,366		$	2,702
Interest cost⁽¹⁾	6,799			6,430			2,961			2,727			5,843			6,799			2,653			2,961
Expected return on assets⁽¹⁾	(7,113		)	(6,917		)	(2,665		)	(2,002		)	(7,079		)	(7,113		)	(2,625		)	(2,665		)
Amortization of prior service cost (credit)⁽¹⁾	(58		)	(58		)	43			3			(58		)	(58		)	43			43
Amortization of actuarial (gain) loss⁽¹⁾	1,608			3,089			(2,045		)	(1,618		)	(1,271		)	1,608			(334		)	(2,045		)
Net periodic pension cost	$	5,281		$	7,104		$	996		$	2,130		$	2,088		$	5,281		$	3,103		$	996

(1) The components of net periodic cost other than the service cost component are included in the line item other non-operating expense in the condensed consolidated statement of comprehensive income or are capitalized on the condensed consolidated balance sheets as a regulatory asset or liability, as described in Note 2.



(1)								The components of net periodic cost other than the service cost component are included in the line item other non-operating expense in the condensed consolidated statement of comprehensive income or are capitalized on the condensed consolidated balance sheets as a regulatory asset or liability, as described in Note 2 to the financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

10. Commitments and Contingencies

Litigation and Environmental Matters

In the normal course of business, we are subject to various legal and regulatory proceedings. For such matters, we record liabilities when they are considered probable and estimable, based on currently available facts, our historical experience and our estimates of the ultimate outcome or resolution of the liability in the future. While the outcome of these proceedings is uncertain and a loss in excess of the amount we have accrued is possible though not reasonably estimable, it is the opinion of management that any amounts exceeding the accruals will not have a material adverse impact on our financial position, results of operations or cash flows.

We maintain liability insurance for various risks associated with the operation of our natural gas pipelines and facilities, including for property damage and bodily injury. These liability insurance policies generally require us to be responsible for the first $1.0 million (self-insured retention) of each incident.

The National Transportation Safety Board (NTSB) is investigating an incident that occurred at a Dallas, Texas residence on February 23, 2018 that resulted in one fatality and injuries to four other residents. Together with the Railroad Commission of Texas (RRC) and the Pipeline and Hazardous Materials Safety Administration, Atmos Energy is a party to the investigation and in that capacity is working closely with the NTSB to help determine the cause of this incident.

On March 29, 2018, a civil action was filed in Dallas, Texas against Atmos Energy in response to the February 23rd incident. The plaintiffs seek over $1.0 million in damages for, among with others, wrongful death and personal injury.

We are a party to various other litigation and environmental-related matters or claims that have arisen in the ordinary course of our business. While the results of such litigation and response actions to such environmental-related matters or claims cannot be predicted with certainty, we continue to believe the final outcome of such litigation and matters or claims will not have a material adverse effect on our financial condition, results of operations or cash flows.

Purchase Commitments

Our distribution divisions maintain supply contracts with several vendors that generally cover a period of up to one year. Commitments for estimated base gas volumes are established under these contracts on a monthly basis at contractually negotiated prices. Commitments for incremental daily purchases are made as necessary during the month in accordance with the terms of the individual contract.

Our Mid-Tex Division also maintains a limited number of long-term supply contracts to ensure a reliable source of gas for our customers in its service area, which obligate it to purchase specified volumes at prices indexed to natural gas hubs. These

purchase commitment contracts are detailed in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018. There were no material changes to the purchase commitments for the three months ended~~2019. At December 31, ~~2018.~~2019, we were committed to purchase 25.7 Bcf within one year and 1.0 Bcf within two to three years under indexed contracts.

~~Leases~~

We have entered into operating leases for towers, office and warehouse space, vehicles and heavy equipment used in our operations. During the three months ended December 31, 2018, we executed amendments to some of our lease agreements that impacted terms as well as our future minimum lease payments. As of December 31, 2018, the remaining lease terms range from one to 20 years and generally provide for the payment of taxes, insurance and maintenance by the lessee. Renewal options exist for certain of these leases. The related future minimum lease payments at December 31, 2018 totaled $194.2 million

Rate Regulatory ~~Matters~~Proceedings

Except for routine rate regulatory proceedings as discussed below, there were no material changes to rate regulatory ~~matters~~proceedings for the three months ended December 31, ~~2018.~~2019.

As of December 31, ~~2018,~~2019, five rate regulatory proceedings were in progress in some of our ~~Colorado, Kansas, Kentucky, Louisiana, Mid-Tex, Tennessee, Virginia and West Texas~~ service areas. These ~~regulatory~~ proceedings are discussed in further detail below in Management’s Discussion and Analysis — Recent Ratemaking Developments. ~~Additionally, as discussed in further detail in Note 13, all jurisdictions are addressing impacts of the TCJA.~~

~~10.~~11. Financial Instruments

We currently use financial instruments to mitigate commodity price risk and in the past have also used financial instruments to mitigate 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 1314 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018.~~2019. During the three months ended December 31, ~~2018,~~2019, there were no material changes in our objectives, strategies and accounting for using financial instruments. Our financial instruments do not contain any credit-risk-related or other contingent features that could cause payments to be accelerated when our financial instruments are in net liability positions. The following summarizes those objectives and strategies.

Commodity Risk Management Activities

Our purchased gas cost adjustment mechanisms essentially insulate our distribution segment from commodity price risk; however, our customers are exposed to the effects of volatile natural gas prices. We manage this exposure through a combination of physical storage, fixed-price forward contracts and financial instruments, primarily over-the-counter swap and option contracts, in an effort to minimize the impact of natural gas price volatility on our customers during the winter heating season.

We typically seek to hedge between 25 and 50 percent of anticipated heating season gas purchases using financial instruments. For the ~~2018-2019~~2019-2020 heating season (generally October through March), in the jurisdictions where we are permitted to utilize financial instruments, we anticipate hedging approximately 3349 percent, or ~~18.9~~19.9 Bcf of the winter flowing gas requirements. We have not designated these financial instruments as hedges for accounting purposes.

Interest Rate Risk Management Activities

~~We periodically manage~~Historically, we managed interest rate risk by periodically entering into financial instruments to effectively fix the Treasury yield component of the interest cost associated with anticipated financings.

As of December 31, ~~2018,~~2019, we had forward starting interest rate swaps to effectively fix the Treasury yield component associated with the anticipated issuance of $450 million unsecured senior notes in fiscal 2019 at 3.78%, which we designated as a cash flow hedge at the time the swaps were executed. As of December 31, 2018, we had $47.7$113.7 million of net realized losses in ~~accumulated other comprehensive income (AOCI)~~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.~~2049.

Quantitative Disclosures Related to Financial Instruments

The following tables present detailed information concerning the impact of financial instruments on our condensed consolidated balance sheet and statements of comprehensive income.

As of December 31, ~~2018,~~2019, our financial instruments were comprised of both long and short commodity positions. A long position is a contract to purchase the commodity, while a short position is a contract to sell the commodity. As of December 31, ~~2018,~~2019, we had ~~14,353~~14,530 MMcf of net long commodity contracts outstanding. These contracts have not been designated as hedges.

Financial Instruments on the Balance Sheet

The following tables present the fair value and balance sheet classification of our financial instruments as of December 31, ~~2018~~2019 and September 30, ~~2018.~~2019. The gross amounts of recognized assets and liabilities are netted within our unaudited condensed consolidated balance sheets to the extent that we have netting arrangements with our counterparties. However, for December 31, ~~2018~~2019 and September 30, ~~2018, no~~2019, 0 gross amounts and no0 cash collateral were netted within our consolidated balance sheet.




	Balance Sheet Location	Assets		Liabilities
		(In thousands)
December 31, 2019
Not Designated As Hedges:
Commodity contracts	Other current assets / Other current liabilities	$	1,213	$	(8,391	)
Commodity contracts	Deferred charges and other assets / Deferred credits and other liabilities	158		(439		)
Total		1,371		(8,830		)
Gross / Net Financial Instruments		$	1,371	$	(8,830	)

Balance Sheet Location Assets Liabilities
(In thousands)
December 31, 2018
Designated As Hedges:
Interest rate swap agreements
Other current assets /
Other current liabilities
$ —
$ (85,930 )
Total —
(85,930 )
Not Designated As Hedges:
Commodity contracts
Other current assets /
Other current liabilities
3,241
(1,265 )
Commodity contracts
Deferred charges and other assets /
Deferred credits and other liabilities
285
—
Total 3,526
(1,265 )
Gross / Net Financial Instruments $ 3,526
$ (87,195 )



	Balance Sheet Location	Assets		Liabilities			Balance Sheet Location	Assets		Liabilities
		(In thousands)						(In thousands)
September 30, 2018
Designated As Hedges:
Interest rate swap agreements	Other current assets / Other current liabilities	$	—	$	(56,499	)
Total		—		(56,499		)
September 30, 2019
Not Designated As Hedges:
Commodity contracts	Other current assets / Other current liabilities	1,369		(235		)	Other current assets / Other current liabilities	$	1,586	$	(4,552	)
Commodity contracts	Deferred charges and other assets / Deferred credits and other liabilities	250		(103		)	Deferred charges and other assets / Deferred credits and other liabilities	225		(1,249		)
Total		1,619		(338		)		1,811		(5,801		)
Gross / Net Financial Instruments		$	1,619	$	(56,837	)		$	1,811	$	(5,801	)

Impact of Financial Instruments on the Statement of Comprehensive Income

Cash Flow Hedges

As discussed above, in the past our distribution segment ~~has~~had interest rate ~~swap~~ agreements, which we designated as a cash flow ~~hedge~~hedges at the time the ~~swaps~~agreements were executed. The net loss on settled interest rate agreements reclassified from AOCI into interest charges on our condensed consolidated statements of comprehensive income for the three months ended December 31, 2019 and 2018 ~~and 2017~~ was ~~$0.6~~$1.4 million and $0.6 million.

The following table summarizes the gains and losses arising from hedging transactions that were recognized as a component of other comprehensive income (loss), net of taxes, for the three months ended December 31, ~~2018~~2019 and ~~2017.~~2018. The

amounts included in the table below exclude gains and losses arising from ineffectiveness because those amounts are immediately recognized in the statement of comprehensive income as incurred.



	Three Months Ended December 31
	2019		2018
	(In thousands)
Increase (decrease) in fair value:
Interest rate agreements	$	—	$	(22,716	)
Recognition of losses in earnings due to settlements:
Interest rate agreements	1,053		458
Total other comprehensive income (loss) from hedging, net of tax	$	1,053	$	(22,258	)

Three Months Ended
December 31
2018 2017
(In thousands)
Increase (decrease) in fair value:
Interest rate agreements $ (22,716 ) $ (1,332 )
Recognition of losses in earnings due to settlements:
Interest rate agreements 458
377
Total other comprehensive income (loss) from hedging, net of tax $ (22,258 ) $ (955 )

Deferred gains (losses) recorded in AOCI associated with our interest rate agreements are recognized in earnings as they are amortized over the terms of the underlying debt instruments. The following amounts, net of deferred taxes, represent the expected recognition in earnings, as of December 31, ~~2018,~~2019, of the deferred losses recorded in AOCI associated with our financial instruments, based upon the fair values of these financial instruments at the date of settlement. ~~However, the table below does not include the expected recognition in earnings of our outstanding interest rate agreements as those instruments have not yet settled.~~



	Interest Rate Agreements
	(In thousands)
Next twelve months	$	(4,212	)
Thereafter	(109,450		)
Total	$	(113,662	)

Interest Rate
Agreements
(In thousands)
Next twelve months $ (1,878 )
Thereafter (45,827 )
Total $ (47,705 )

Financial Instruments Not Designated as Hedges

As discussed above, ~~financial instruments~~commodity contracts which are used in our distribution segment are not designated as hedges. However, there is no earnings impact on our distribution segment as a result of the use of these financial instruments because the gains and losses arising from the use of these financial instruments are recognized in the consolidated statement of comprehensive income as a component of purchased gas cost when the related costs are recovered through our rates and recognized in revenue. Accordingly, the impact of these financial instruments is excluded from this presentation.

~~11.~~12. Fair Value Measurements

We report certain assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We record cash and cash equivalents, accounts receivable and accounts payable at carrying value, which substantially approximates fair value due to the short-term nature of these assets and liabilities. For other financial assets and liabilities, we primarily use quoted market prices and other observable market pricing information to minimize the use of unobservable pricing inputs in our measurements when determining fair value. The methods used to determine fair value for our assets and liabilities are fully described in Note 2 to the financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018.~~2019. During the three months ended December 31, ~~2018,~~2019, 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 78 to the financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018.~~2019.

Quantitative Disclosures

Financial Instruments

The classification of our fair value measurements requires judgment regarding the degree to which market data is observable or corroborated by observable market data. Authoritative accounting literature establishes a fair value hierarchy that prioritizes the inputs used to measure fair value based on observable and unobservable data. The hierarchy categorizes the inputs into three levels, with the highest priority given to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1), with the lowest priority given to unobservable inputs (Level 3). The following tables summarize, by level

within the fair value hierarchy, our assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, ~~2018~~2019 and September 30, ~~2018.~~2019. Assets and liabilities are categorized in their entirety based on the lowest level of input that is significant to the fair value measurement.

Quoted
Prices in
Active
Markets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)⁽¹⁾

Significant
Other
Unobservable
Inputs
(Level 3)

Netting and
Cash
Collateral
December 31, 2018
(In thousands)
Assets:
Financial instruments $ —
$ 3,526
$ —
$ —
$ 3,526
Debt and equity securities
Registered investment companies 37,241
—
—
—
37,241
Bond mutual funds 21,523
—
—
—
21,523
Bonds⁽²⁾
—
30,096
—
—
30,096
Money market funds —
3,319
—
—
3,319
Total debt and equity securities 58,764
33,415
—
—
92,179
Total assets $ 58,764
$ 36,941
$ —
$ —
$ 95,705
Liabilities:
Financial instruments $ —
$ 87,195
$ —
$ —
$ 87,195


	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)⁽¹⁾		Significant Other Unobservable Inputs (Level 3)		Netting and Cash Collateral		September 30, 2018		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)⁽¹⁾		Significant Other Unobservable Inputs (Level 3)		Netting and Cash Collateral		December 31, 2019
	(In thousands)										(In thousands)
Assets:
Financial instruments	$	—	$	1,619	$	—	$	—	$	1,619	$	—	$	1,371	$	—	$	—	$	1,371
Debt and equity securities
Registered investment companies	42,644		—		—		—		42,644		44,468		—		—		—		44,468
Bond mutual funds	21,507		—		—		—		21,507		26,150		—		—		—		26,150
Bonds⁽²⁾	—		31,400		—		—		31,400		—		32,055		—		—		32,055
Money market funds	—		3,834		—		—		3,834		—		1,453		—		—		1,453
Total debt and equity securities	64,151		35,234		—		—		99,385		70,618		33,508		—		—		104,126
Total assets	$	64,151	$	36,853	$	—	$	—	$	101,004	$	70,618	$	34,879	$	—	$	—	$	105,497
Liabilities:
Financial instruments	$	—	$	56,837	$	—	$	—	$	56,837	$	—	$	8,830	$	—	$	—	$	8,830



	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)⁽¹⁾		Significant Other Unobservable Inputs (Level 3)		Netting and Cash Collateral		September 30, 2019
	(In thousands)
Assets:
Financial instruments	$	—	$	1,811	$	—	$	—	$	1,811
Debt and equity securities
Registered investment companies	41,406		—		—		—		41,406
Bond mutual funds	25,966		—		—		—		25,966
Bonds⁽²⁾	—		31,915		—		—		31,915
Money market funds	—		2,596		—		—		2,596
Total debt and equity securities	67,372		34,511		—		—		101,883
Total assets	$	67,372	$	36,322	$	—	$	—	$	103,694
Liabilities:
Financial instruments	$	—	$	5,801	$	—	$	—	$	5,801

(1)

Our Level 2 measurements consist of over-the-counter options and swaps, which are valued using a market-based approach in which observable market prices are adjusted for criteria specific to each instrument, such as the strike price, notional amount or basis differences, municipal and corporate bonds, which are valued based on the most recent available quoted market prices and money market funds that are valued at cost.


(2)	Our investments in bonds are considered available-for-sale debt securities in accordance with current accounting ~~guidance as described in Note 2.~~guidance.

Debt and equity securities are comprised of our available-for-sale debt securities and our equity securities. We regularly evaluate the performance of our available-for-sale debt securities on an investment by investment basis for impairment, taking into consideration the investment’s purpose, volatility and current returns. If a determination is made that a decline in fair value is other than temporary, the related investment is written down to its estimated fair value and the other-than-temporary impairment is recognized in the statement of comprehensive income. At December 31, ~~2018~~2019 and September 30, ~~2018,~~2019, the amortized cost of our available-for-sale debt securities ~~were recorded at amortized cost of $30.2~~was $31.9 million and ~~$31.5~~$31.7 million. At December 31, ~~2018,~~2019, we maintained investments in bonds that have contractual maturity dates ranging from January ~~2019~~2020 through ~~December 2021.~~

February 2022.

Other Fair Value Measures

Our long-term debt is recorded at carrying value. The fair value of our long-term debt, excluding finance leases, is determined using third party market value quotations, which are considered Level 1 fair value measurements for debt instruments with a recent, observable trade or Level 2 fair value measurements for debt instruments where fair value is determined using the most recent available quoted market price. The carrying value of our finance lease materially approximates fair value. The following table presents the carrying value and fair value of our long-term debt, excluding finance leases, as of December 31, ~~2018~~2019 and September 30, ~~2018:~~2019:



	December 31, 2019		September 30, 2019
	(In thousands)
Carrying Amount	$	4,360,000	$	3,560,000
Fair Value	$	4,927,756	$	4,216,249

December 31, 2018 September 30, 2018
(In thousands)
Carrying Amount $ 3,685,000
$ 3,085,000
Fair Value $ 3,746,697
$ 3,161,679

~~12.~~13. Concentration of Credit Risk

Information regarding our concentration of credit risk is disclosed in Note 1617 to the financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018.~~2019. During the three months ended December 31, ~~2018,~~2019, there were no material changes in our concentration of credit risk.

~~13. Impact of the Tax Cuts and Jobs Act of 2017~~

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "TCJA") was signed into law. As a result of the implementation of the TCJA, we recognized a $161.9 million income tax benefit in our condensed consolidated statement of comprehensive income during the first quarter of fiscal 2018 related to a change in deferred taxes that were not related to our cost of service ratemaking. The change in deferred taxes related to our cost of service ratemaking (referred to as excess deferred taxes) was reclassified into a regulatory liability and will be returned to ratepayers in accordance with regulatory requirements. As of December 31, 2018 and September 30, 2018, this liability totaled $740.9 million and $744.9 million.

We have and continue to work with our regulators in each jurisdiction to fully incorporate the effects of the TCJA into customer bills. As of December 31, 2018, we have received approval from regulators to update our cost of service rates to reflect the decrease in the statutory income tax rate in our Colorado, Kansas, Kentucky, Louisiana, Mississippi, Tennessee and Texas service areas. We continue to work with regulators in Virginia to reflect the effects of the lower statutory income tax rate in our cost of service in rates.

Regulators in all of our service areas issued accounting orders that required us to establish, effective January 1, 2018, a separate regulatory liability for the difference in taxes included in our rates that were calculated based on a 35% statutory income tax rate and rates based on the new 21% statutory income tax rate until the new rates could be established. As of December 31, 2018, we received approval from regulators to return these liabilities to customers in Colorado, Kansas, Louisiana and Texas. This regulatory liability totaled $19.3 million and $22.5 million as of December 31, 2018 and September 30, 2018.

As of December 31, 2018, we received approval from regulators to return excess deferred taxes in Colorado, Kentucky, Louisiana, Mississippi, Tennessee and Texas in accordance with regulatory proceedings on a provisional basis over periods ranging from 13 to 51 years. In our remaining jurisdictions, the treatment of the effects of the TCJA in rates is being addressed in ongoing or will be addressed in future regulatory proceedings.

The SEC issued guidance in Staff Accounting Bulletin 118 (SAB 118), which allowed us to record provisional amounts during a one-year measurement period, similar to the measurement period in accounting for business combinations. The Company recorded provisional amounts for the income tax effects of the TCJA for the fiscal year ended September 30, 2018. Although the Company no longer considers the accounting effects of the TCJA to be provisional under SAB 118, many aspects of the TCJA remain unclear and its impact on the Company's income tax balances may change following further interpretation of TCJA provisions by issuance of U.S. Treasury regulations or guidance from the Internal Revenue Service. We continue to monitor and assess the accounting implications of the TCJA developments on the consolidated financial statements.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Atmos Energy Corporation

Results of Review of Interim Financial Statements

We have reviewed the accompanying condensed consolidated balance sheet of Atmos Energy Corporation (the Company) as of December 31, ~~2018,~~2019, the related condensed consolidated statements of comprehensive income and cash flows for the three months ended December 31, ~~2018~~2019 and ~~2017,~~2018, and the related notes (collectively referred to as the "condensed consolidated interim financial statements"). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements 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) (PCAOB), the consolidated balance sheet of the Company as of September 30, ~~2018,~~2019, the related consolidated statements of ~~income,~~ comprehensive income, shareholders’ equity, and cash flows for the year then ended, and the related notes and schedule (not presented herein); and in our report dated November ~~13, 2018,~~12, 2019, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of ~~December 31, 2018,~~September 30, 2019, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements 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 PCAOB, 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.

/s/ ERNST & YOUNG LLP

Dallas, Texas

February ~~5, 2019~~4, 2020



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 in our Annual Report on Form 10-K for the year ended September 30, ~~2018.~~2019.

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: state and local regulatory trends and decisions, including the impact of rate proceedings before various state regulatory commissions; increased federal regulatory oversight and potential penalties; possible increased federal, state and local regulation of the safety of our operations; possible significant costs and liabilities resulting from pipeline integrity and other similar programs and related repairs; the inherent hazards and risks involved in distributing, transporting and storing natural gas; the capital-intensive nature of our business; our ability to continue to access the credit and capital markets to execute our business strategy; market risks beyond our control affecting our risk management activities, including commodity price volatility, counterparty performance or creditworthiness and interest rate risk; the concentration of our operations in Texas; the impact of adverse economic conditions on our customers; changes in the availability and price of natural gas; the availability and accessibility of contracted gas supplies, interstate pipeline and/or storage services; increased competition from energy suppliers and alternative forms of energy; adverse weather conditions; 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 operational, technical and managerial personnel; the impact of climate ~~change~~change; the impact of greenhouse gas emissions or ~~related additional~~other legislation or ~~regulation in~~regulations intended to address climate change; increased dependence on technology that may hinder the ~~future;~~Company's business if such technologies fail; the threat of cyber-attacks or acts of cyber-terrorism that could disrupt our business operations and information technology systems or result in the loss or exposure of confidential or sensitive customer, employee or Company information; 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 in the regulated natural gas distribution and pipeline and storage businesses. We distribute natural gas through sales and transportation arrangements to over three million residential, commercial, public authority and industrial customers throughout our six distribution divisions, which at December 31, ~~2018~~2019 covered service areas located in eight states. In addition, we transport natural gas for others through our distribution and pipeline systems.

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


•	The distribution segment is primarily comprised of our regulated natural gas distribution and related sales operations in eight states.


•	The pipeline and storage segment is comprised primarily of the pipeline and storage operations of our Atmos Pipeline-Texas division and our natural gas transmission operations in Louisiana.

~~The~~ ~~distribution segment~~ ~~is primarily comprised of our regulated natural gas distribution and related sales operations in eight states.~~

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 our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018~~2019 and include the following:

Regulation

Unbilled revenue

Pension and other postretirement plans

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 three months ended December 31, ~~2018.~~2019.

~~Non-GAAP Financial Measures~~

Our operations are affected by the cost of natural gas, which 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 statement of comprehensive income as purchased gas cost. Therefore, increases in the cost of gas are offset by a corresponding increase in revenues. Accordingly, we believe Contribution Margin, a non-GAAP financial measure, defined as operating revenues less purchased gas cost, is a more useful and relevant measure to analyze our financial performance than operating revenues. As such, the following discussion and analysis of our financial performance will reference Contribution Margin rather than operating revenues and purchased gas cost individually. Further, the term Contribution Margin is not intended to represent operating income, the most comparable GAAP financial measure, as an indicator of operating performance and is not necessarily comparable to similarly titled measures reported by other companies.

As described further in Note 13, the enactment of the Tax Cuts and Jobs Act of 2017 (the "TCJA") required us to remeasure our deferred tax assets and liabilities at our new federal statutory income tax rate as of December 22, 2017. The remeasurement of our net deferred tax liabilities resulted in the recognition of a non-cash income tax benefit of $161.9 million for the three months ended December 31, 2017. Due to the non-recurring nature of this benefit, we believe that net income and diluted net income per share before the non-cash income tax benefit provide a more relevant measure to analyze our financial performance than net income and diluted net income per share in order to allow investors to better analyze our core results and allow the information to be presented on a comparative basis to the prior year. Accordingly, the following discussion and analysis of our financial performance will reference adjusted net income and adjusted diluted earnings per share, which is calculated as follows:

Three Months Ended December 31
2018 2017 Change
(In thousands, except per share data)
Net income $ 157,646
$ 314,132
$ (156,486 )
TCJA non-cash income tax benefit —
(161,884 ) 161,884
Adjusted net income $ 157,646
$ 152,248
$ 5,398

Diluted net income per share $ 1.38
$ 2.89
$ (1.51 )
Diluted EPS from TCJA non-cash income tax benefit —
(1.49 ) 1.49
Adjusted diluted net income per share $ 1.38
$ 1.40
$ (0.02 )

RESULTS OF OPERATIONS

Executive Summary

Atmos Energy strives to operate our businesses safely and reliably while delivering superior shareholder value. Our commitment to modernizing our natural gas distribution and transmission systems requires a significant level of capital spending. We have the ability to begin recovering a significant portion of these investments timely through rate designs and mechanisms that reduce or eliminate regulatory lag and separate the recovery of our approved rate from customer usage patterns. The execution of our capital spending program, the ability to recover these investments timely and our ability to access the capital markets to satisfy our financing needs are the primary drivers that affect our financial performance.

During the three months ended December 31, ~~2018,~~2019, we recorded net income of $178.7 million, or $1.47 per diluted share, compared to net income of $157.6 million, or $1.38 per diluted share ~~compared to net income of $314.1 million, or $2.89 per diluted share~~ for the three months ended December 31, ~~2017.~~

After adjusting for the nonrecurring benefit recognized after implementing the TCJA in fiscal 2018, we recorded adjusted net income of $152.2 million, or $1.40 per diluted share for the three months ended December 31, 2017.2018. The period-over-period increase in ~~adjusted~~ net income of ~~$5.4~~$21.1 million, or ~~four~~13 percent, largely reflects ~~weather that was 20 percent colder than the prior year,~~ positive rate outcomes and customer growth in our pipeline and storage business and the impact of the TCJA on our effective income tax rate, partially offset by reduced revenues as a result of implementing the TCJA. Additionally, the period-over-period decrease in adjusted diluted earning per share reflects increases in our common stock outstanding due to common stock issuances in 2017 and 2018.distribution business. During the three months ended December 31, ~~2018,~~2019, we implemented ratemaking regulatory actions which resulted in an increase in annual operating income of ~~$22.4~~$56.7 million and had ~~ten~~five ratemaking efforts in progress at December 31, ~~2018,~~2019, seeking a total increase in annual operating income of ~~$20.9~~$6.6 million.

Capital expenditures for the three months ended December 31, ~~2018~~2019 increased ~~nine~~27 percent ~~period-over-period,~~period over period, to ~~$416.4~~$529.2 million. Over 80 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 from ~~$1.65~~$1.85 billion to ~~$1.75~~$1.95 billion for fiscal ~~2019. We funded our capital expenditures program primarily through operating cash flows of $164.7 million. Additionally, we completed $1.35 billion in external financing during~~2020. During the three months ended December 31, ~~2018 with~~2019, we completed the ~~issuance~~public offering of ~~$600~~$300 million inof 10-year senior notes and $500 million of 30-year senior notes and ~~approximately $750 million~~received net proceeds of ~~common stock. Approximately $245 million of the~~$791.7 million. We also received net proceeds from the settlement of certain equity ~~offering were allocated to the~~ forward sale agreements ~~that expire in March~~of $259.0 million during the first fiscal quarter of 2020. ~~The net proceeds from these issuances were used to repay short-term debt under our commercial paper program, to fund capital spending and for general corporate purposes.~~

As a result of our sustained financial performance, improved cash flows and capital structure, our Board of Directors increased the quarterly dividend by ~~8.2~~9.5 percent for fiscal ~~2019.~~2020.

The following discusses the results of operations for each of our operating segments.

Distribution Segment

The distribution segment is primarily comprised of our regulated natural gas distribution and related sales operations in eight states. The primary factors that impact the results of this segment are our ability to earn our authorized rates of return, 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 to minimize regulatory lag and, ultimately, separate the recovery of our approved rates 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~~have 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. We are generally able to pass the cost of gas through to our customers without markup under purchased gas cost adjustment mechanisms; therefore, increases in the cost of

gas are offset by a corresponding increase in revenues. ~~Contribution Margin~~Revenues in our Texas and Mississippi service areas ~~includes~~include 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 revenue-related taxes arising from changes in gas costs affect Contribution Margin, over time the impact is offset within operating income.~~

Although the cost of gas typically does not have a direct impact on our ~~Contribution Margin,~~operating income, higher gas costs 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. Currently, gas cost risk has been mitigated by rate design that allows us to collect from our customers the gas cost portion of our bad debt expense on approximately 76 percent of our residential and commercial margins.

Three Months Ended December 31, ~~2018~~2019 compared with Three Months Ended December 31, ~~2017~~2018

Financial and operational highlights for our distribution segment for the three months ended December 31, ~~2018~~2019 and ~~2017~~2018 are presented below.


	Three Months Ended December 31									Three Months Ended December 31
	2018			2017			Change			2019		2018			Change
	(In thousands, unless otherwise noted)									(In thousands, unless otherwise noted)
Operating revenues	$	838,835		$	860,792		$	(21,957	)	$	828,504	$	838,835		$	(10,331	)
Purchased gas cost	437,732			463,758			(26,026		)	397,558		437,732			(40,174		)
Contribution Margin	401,103			397,034			4,069
Operating expenses	231,666			223,756			7,910			250,669		231,666			19,003
Operating income	169,437			173,278			(3,841		)	180,277		169,437			10,840
Other non-operating expense	(6,477		)	(1,922		)	(4,555		)
Other non-operating income (expense)										1,954		(6,477		)	8,431
Interest charges	18,210			21,368			(3,158		)	16,362		18,210			(1,848		)
Income before income taxes	144,750			149,988			(5,238		)	165,869		144,750			21,119
TCJA non-cash income tax benefit	—			(140,151		)	140,151
Income tax expense	30,365			41,040			(10,675		)	36,112		30,365			5,747
Net income	$	114,385		$	249,099		$	(134,714	)	$	129,757	$	114,385		$	15,372
Consolidated distribution sales volumes — MMcf	101,698			86,307			15,391			99,061		101,698			(2,637		)
Consolidated distribution transportation volumes — MMcf	41,048			38,050			2,998			40,497		41,048			(551		)
Total consolidated distribution throughput — MMcf	142,746			124,357			18,389			139,558		142,746			(3,188		)
Consolidated distribution average cost of gas per Mcf sold	$	4.30		$	5.37		$	(1.07	)	$	4.01	$	4.30		$	(0.29	)

~~Income before~~Operating income ~~taxes~~ for our distribution segment ~~decreased four~~increased 6 percent, ~~primarily due to a $7.9 million increase in operating expenses, partially offset by a $4.1 million increase in Contribution Margin. The quarter-over-quarter increase in Contribution Margin~~which primarily reflects:

a ~~$7.7~~$27.0 million net increase in ~~residential and commercial net consumption,~~rate adjustments, primarily in our Mid-Tex, Mississippi, Louisiana and ~~Mississippi~~West Texas Divisions.

a ~~$3.7~~$4.0 million increase from customer growth primarily in our Mid-Tex Division.

a ~~$7.3~~$1.4 million ~~net~~ decrease in ~~rate adjustments, after~~net consumption, primarily due to warmer weather than the ~~effect of the TCJA, primarily in our Mid-Tex and Kentucky/Mid-States Divisions.~~prior year period.

The increase in operating expenses, which includes operation and maintenance expense, provision for doubtful accounts, depreciation and amortization expense and taxes, other than income, is primarily attributable to ana $9.2 million increase in depreciation expense and property taxes associated with increased capital investments.

~~The decrease~~a $3.1 million increase in ~~income tax expense reflects~~ pipeline maintenance and related activities.

a ~~reduction~~$2.5 million increase in employee costs as we increased service-related headcount during fiscal 2019 to support operations in our ~~effective tax rate from 27.4% to 21.0%, as a result of~~fastest growing service territories.

Additionally, the ~~TCJA. As the Company's fiscal year end is September 30, the Internal Revenue Code required the Company to use a blended statutory federal corporate~~quarter-over-quarter increase in other non-operating income ~~tax rate for fiscal 2018 due to the enactment of the TCJA~~primarily reflects changes in the ~~first fiscal quarter.~~fair value of our equity securities.

The following table shows our operating income by distribution division, in order of total rate base, for the three months ended December 31, ~~2018~~2019 and ~~2017.~~2018. The presentation of our distribution operating income is included for financial reporting purposes and may not be appropriate for ratemaking purposes.



	Three Months Ended December 31
	2019		2018		Change
	(In thousands)
Mid-Tex	$	78,295	$	72,406	$	5,889
Kentucky/Mid-States	23,281		24,452		(1,171		)
Louisiana	24,293		22,153		2,140
West Texas	17,766		15,823		1,943
Mississippi	22,414		19,588		2,826
Colorado-Kansas	13,736		13,789		(53		)
Other	492		1,226		(734		)
Total	$	180,277	$	169,437	$	10,840

Three Months Ended December 31
2018 2017 Change
(In thousands)
Mid-Tex $ 72,406
$ 72,925
$ (519 )
Kentucky/Mid-States 24,452
28,129
(3,677 )
Louisiana 22,153
23,268
(1,115 )
West Texas 15,823
15,761
62
Mississippi 19,588
18,275
1,313
Colorado-Kansas 13,789
12,931
858
Other 1,226
1,989
(763 )
Total $ 169,437
$ 173,278
$ (3,841 )

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 three months of fiscal ~~2019,~~2020, we implemented ~~five~~six regulatory proceedings, resulting in a $~~22.4~~56.7 million increase in annual operating income as summarized below. The ratemaking outcomes for fiscal 2019 include the effect of tax reform legislation enacted effective January 1, 2018 and do not reflect the true economic benefit of the outcomes because they do not include the corresponding income tax benefit we will receive due to the decrease in our statutory tax rate.


Rate Action	Annual Increase (Decrease) in Operating Income		Annual Increase in Operating Income
	(In thousands)		(In thousands)
Annual formula rate mechanisms	$	22,378	$	56,727
Rate case filings	—		—
Other rate activity	—		—
	$	22,378	$	56,727

The following ratemaking efforts ~~which reflect a 21% federal income tax rate resulting from the TCJA,~~ seeking ~~$20.9~~$6.6 million in increased annual operating income were in progress as of December 31, ~~2018:~~2019:

Division

Rate Action

Jurisdiction

Operating Income Requested

Rate Action

Jurisdiction

Operating Income Requested

(In thousands)

Colorado-Kansas

SSIR

Colorado ⁽¹⁾

2,147

Infrastructure Mechanism

Colorado ⁽¹⁾

2,082

Colorado-Kansas

SSIR/GIS

Colorado ⁽²⁾

Ad Valorem

Kansas ⁽²⁾

353

Colorado-Kansas

Ad Valorem

Kansas ⁽³⁾

214

Rate Case

Kansas

3,697

Louisiana

RSC

Trans La

4,719

Mid-Tex

Rate Case

ATM Cities

4,252

Mid-Tex

Rate Case

Environs ⁽⁴⁾

(1,875

)

Kentucky/Mid-States

Formula Rate Mechanism True-Up

Tennessee ⁽⁵⁾

(3,220

)

Kentucky/Mid-States

Rate Case

Kentucky

14,424

Kentucky/Mid-States

Rate Case

Virginia

605

Formula Rate Mechanism

Tennessee

726

West Texas

Rate Case

Environs ⁽⁴⁾

(485

)

Rate Case

West Texas Triangle

(242

)

20,868

6,616



	Three Months Ended December 31, 2017
	Distribution			Pipeline and Storage			Eliminations			Consolidated
	(In thousands)
Operating revenues from external parties	$	860,453		$	28,739		$	—		$	889,192
Intersegment revenues	339			97,724			(98,063		)	—
Total operating revenues	860,792			126,463			(98,063		)	889,192
Purchased gas cost	463,758			912			(97,753		)	366,917
Operation and maintenance expense	103,215			26,140			(310		)	129,045
Depreciation and amortization expense	65,434			22,940			—			88,374
Taxes, other than income	55,107			7,666			—			62,773
Operating income	173,278			68,805			—			242,083
Other non-operating expense	(1,922		)	(635		)	—			(2,557		)
Interest charges	21,368			10,141			—			31,509
Income before income taxes	149,988			58,029			—			208,017
Income tax benefit	(99,111		)	(7,004		)	—			(106,115		)
Net income	$	249,099		$	65,033		$	—		$	314,132
Capital expenditures	$	241,249		$	141,989		$	—		$	383,238



	Available- for-Sale Securities⁽¹⁾			Interest Rate Agreement Cash Flow Hedges			Total
	(In thousands)
September 30, 2018	$	8,124		$	(91,771	)	$	(83,647	)
Other comprehensive loss before reclassifications	—			(22,716		)	(22,716		)
Amounts reclassified from accumulated other comprehensive income	—			458			458
Net current-period other comprehensive loss	—			(22,258		)	(22,258		)
Cumulative effect of accounting change (See Note 2)	(8,210		)	—			(8,210		)
December 31, 2018	$	(86	)	$	(114,029	)	$	(114,115	)


(1)	The Colorado Public Utilities Commission approved the SSIR implementation at their December ~~19, 2018~~17, 2019 meeting with rates effective January 1, ~~2019.~~2020.


(2)	~~The Company has filed a request to recover Geographic Information System projects in a manner similar to its current SSIR program.~~


~~(3)~~	The Kansas Corporation Commission approved the Ad Valorem filing on January ~~8, 2019.~~16, 2020.



~~(4)~~	~~The Texas Railroad Commission approved these filings on December 11, 2018 with an operating income decrease of $2.7 million for Mid-Tex and $0.8 million for West Texas effective January 1, 2019.~~



~~(5)~~	The Tennessee Formula Mechanism True-up (True-up filing) test period ended May 2018 reflects the impact of the lower federal income tax rate between January 1, 2018 and May 31, 2018. The True-up filing was included in the Tennessee ARM filing made on February 1, 2019 with the Tennessee Public Utility Commission, which requested an operating income increase of $3.2 million.



	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) ~~(2)~~	—
Louisiana	(1)	Rate Stabilization Clause (RSC)
Mississippi	System Integrity Rider (SIR)	Stable Rate Filing (SRF)
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)	—


~~(2)~~	The Company has proposed removal of the PRP tariff in a pending Kentucky Public Service Commission case and anticipates recovery of this program investment through annual forward-looking rate case filings.



Issue Quarter	Issued Under	Shares Available	Net Proceeds Available (In thousands)		Maturity	Forward Price
June 30, 2019	ATM	486,201	$	49,063	9/30/2020	$	100.91
September 30, 2019	ATM	1,423,599	154,125		9/30/2020	$	108.70
December 31, 2019	ATM	339,574	36,385		9/30/2020	$	107.40
Total		2,249,374	$	239,573


	December 31, 2018				September 30, 2018				December 31, 2017				December 31, 2019				September 30, 2019				December 31, 2018
	(In thousands, except percentages)												(In thousands, except percentages)
Short-term debt	$	—	—	%	$	575,780	6.8	%	$	336,816	4.2	%	$	—	—	%	$	464,915	4.8	%	$	—	—	%
Long-term debt⁽¹⁾	3,659,779		40.6	%	3,068,665		36.5	%	3,067,469		38.5	%	4,324,335		41.4	%	3,529,452		36.2	%	3,659,779		40.6	%
Shareholders’ equity	5,348,195		59.4	%	4,769,951		56.7	%	4,563,620		57.3	%	6,127,775		58.6	%	5,750,223		59.0	%	5,348,195		59.4	%
Total	$	9,007,974	100.0	%	$	8,414,396	100.0	%	$	7,967,905	100.0	%	$	10,452,110	100.0	%	$	9,744,590	100.0	%	$	9,007,974	100.0	%


~~(1)~~	In March 2019, $450 million of long-term debt will mature. We plan to issue new senior notes to replace the maturing debt. We have executed forward starting interest rate swaps to effectively fix the Treasury yield component associated with this anticipated issuance at 3.78%. In September 2019, our $125 million term loan will mature, which we plan to refinance.



	S&P	Moody’s
Senior unsecured long-term debt	A	A2A1
Short-term debt	A-1	P-1


	Fair Value of Contracts at December 31, 2018												Fair Value of Contracts at December 31, 2019
	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	$	(83,954	)	$	285	$	—	$	—	$	(83,669	)	$	(7,178	)	$	(281	)	$	—	$	—	$	(7,459	)
Prices based on models and other valuation methods	—			—		—		—		—			—			—			—		—		—
Total Fair Value	$	(83,954	)	$	285	$	—	$	—	$	(83,669	)	$	(7,178	)	$	(281	)	$	—	$	—	$	(7,459	)


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


⁽²⁾	Operating revenues include revenues from our alternative revenue programs as defined in Note 5.2 to the financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.



Item 3.	Quantitative and Qualitative Disclosures About Market Risk



Exhibit Number	Description	Page Number or Incorporation by Reference to
103.1	~~Equity Distribution Agreement, dated as~~Restated Articles of ~~November 16, 2018, among~~Incorporation of Atmos Energy Corporation ~~and the Managers and Forward Purchasers named in Schedule A thereto~~- Texas (As Amended Effective February 3, 2010)	Exhibit ~~1.1~~3.1 to Form 10-Q dated March 31, 2010 (File No. 1-10042)
3.2	Restated Articles of Incorporation of Atmos Energy Corporation - Virginia (As Amended Effective February 3, 2010)	Exhibit 3.2 to Form 10-Q dated March 31, 2010 (File No. 1-10042)
3.3	Amended and Restated Bylaws of Atmos Energy Corporation (as of February 5, 2019)	Exhibit 3.1 to Form 8-K dated ~~November 16, 2018~~February 5, 2019 (File No. 1-10042)
~~10.1~~	~~Form of Master Forward Sale Confirmation~~	~~Exhibit 1.2 to Form 8-K dated November 16, 2018 (File No. 1-10042)~~
~~10.2~~	~~Forward Sale Agreement between Atmos Energy Corporation and Goldman Sachs & Co. LLC dated as of November 28, 2018~~	~~Exhibit 10.1 to Form 8-K dated November 28, 2018 (File No. 1-10042~~)
~~10.3~~	~~Forward Sale Agreement between Atmos Energy Corporation and Bank of America, N.A. dated as of November 28, 2018~~	~~Exhibit 10.2 to Form 8-K dated November 28, 2018 (File No. 1-10042)~~
~~10.4~~	~~Additional Forward Sale Agreement between Atmos Energy Corporation and Goldman Sachs & Co. LLC dated as of November 29, 2018~~	~~Exhibit 10.3 to Form 8-K dated November 28, 2018 (File No. 1-10042)~~
~~10.5~~	~~Additional Forward Sale Agreement between Atmos Energy Corporation and Bank of America, N.A. dated as of November 29, 2018~~	~~Exhibit 10.4 to Form 8-K dated November 28, 2018 (File No. 1-10042)~~
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		- the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	Inline XBRL Taxonomy Extension Schema
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB	Inline XBRL Taxonomy Extension Labels Linkbase
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase
104	Cover Page Interactive Data File - the cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document



*	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.



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