ONE Gas(OGS) - 2020 Q2 - Quarterly Report

Report Overview Filing Information This report is ONE Gas, Inc.'s quarterly report (Form 10-Q) for the period ended June 30, 2020, with the company registered in Oklahoma, stock ticker OGS listed on the NYSE, classified as a large accelerated filer, and having filed all required reports | Metric | Details | | :--- | :--- | | Report Type | Quarterly Report (Form 10-Q) | | Reporting Period | As of June 30, 2020 | | Company Name | ONE Gas, Inc. | | Jurisdiction of Incorporation | Oklahoma | | Stock Ticker | OGS | | Listing Exchange | New York Stock Exchange | | Filer Category | Large Accelerated Filer | | Common Stock Outstanding | 52,920,531 shares (as of July 20, 2020) | Forward-Looking Statements Disclaimer This report contains forward-looking statements regarding management's expectations for future operations, financial performance, and market conditions, cautioning investors that actual results may differ significantly due to various factors - Forward-looking statements cover future operating plans, economic performance, and related assumptions, using words like "anticipate," "estimate," and "expect"[9] - The company cannot guarantee that forward-looking expectations or assumptions will be realized, and actual results may differ materially due to various significant factors[9] - Important influencing factors are detailed in the "Forward-Looking Statements" within "Management's Discussion and Analysis" and "Risk Factors" sections[9] Available Information The company provides free access to SEC filings, governance documents, and uses social media for information dissemination, with website and social media content not incorporated by reference into this report - The company's website (www.onegas.com) provides free access to SEC filings (10-K, 10-Q, 8-K) and their amendments[10] - The company's website also offers corporate governance documents, such as the Code of Business Conduct, Corporate Governance Guidelines, and Bylaws[10] - The company uses social media platforms to disseminate information, but website and social media content are not incorporated by reference into this report[11] Glossary This report includes a glossary defining abbreviations, acronyms, and industry terms to aid reader comprehension of specialized content - The glossary defines abbreviations, acronyms, and industry terms used in this quarterly report, such as AAO (Accounting Authority Order), ADIT (Accumulated Deferred Income Taxes), and COVID-19 (Coronavirus Disease 2019)[13] Part I. Financial Information Item 1. Consolidated Financial Statements (Unaudited) This section presents ONE Gas, Inc.'s unaudited consolidated financial statements, including statements of income, comprehensive income, balance sheets, cash flows, and equity, along with notes, for the quarter and six months ended June 30, 2020 Consolidated Statements of Income Consolidated Statements of Income Key Data (Unaudited) | Metric (Thousands of Dollars) | June 30, 2020 (3 Months) | June 30, 2019 (3 Months) | June 30, 2020 (6 Months) | June 30, 2019 (6 Months) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | 273,287 | 290,560 | 801,455 | 951,560 | | Cost of Natural Gas | 62,510 | 82,588 | 288,649 | 447,664 | | Operating Income | 44,608 | 46,891 | 177,812 | 174,510 | | Net Income | 25,325 | 24,470 | 117,002 | 118,130 | | Diluted Earnings Per Share | 0.48 | 0.46 | 2.20 | 2.22 | | Dividends Per Share | 0.54 | 0.50 | 1.08 | 1.00 | - For the three months ended June 30, 2020, net income increased by 3.5% year-over-year, and diluted earnings per share grew by 4.3%[14] - For the six months ended June 30, 2020, net income decreased by 0.9% year-over-year, and diluted earnings per share decreased by 0.9%[14] Consolidated Statements of Comprehensive Income Consolidated Statements of Comprehensive Income Key Data (Unaudited) | Metric (Thousands of Dollars) | June 30, 2020 (3 Months) | June 30, 2019 (3 Months) | June 30, 2020 (6 Months) | June 30, 2019 (6 Months) | | :--- | :--- | :--- | :--- | :--- | | Net Income | 25,325 | 24,470 | 117,002 | 118,130 | | Other Comprehensive Income (Net of Tax) | 223 | 160 | 447 | 320 | | Comprehensive Income | 25,548 | 24,630 | 117,449 | 118,450 | - For the three months ended June 30, 2020, comprehensive income increased by 3.7% year-over-year[16] - For the six months ended June 30, 2020, comprehensive income decreased by 0.8% year-over-year[16] Consolidated Balance Sheets Consolidated Balance Sheets Key Data (Unaudited) | Metric (Thousands of Dollars) | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | 5,681,612 | 5,708,300 | | Net Property, Plant and Equipment | 4,707,725 | 4,565,226 | | Total Equity | 2,191,987 | 2,129,390 | | Long-Term Debt (Less Current Maturities) | 1,581,931 | 1,286,064 | | Total Liabilities and Equity | 5,681,612 | 5,708,300 | - As of June 30, 2020, total assets slightly decreased by 0.47% compared to December 31, 2019[18] - Long-term debt (less current maturities) significantly increased by 23.0%, reflecting the company's issuance of $300 million of 2.00% Senior Notes in April 2020[20][59] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Key Data (Unaudited) | Metric (Thousands of Dollars) | June 30, 2020 (6 Months) | June 30, 2019 (6 Months) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | 278,685 | 241,171 | | Net Cash Used in Investing Activities | (235,018) | (187,334) | | Net Cash Used in Financing Activities | (51,066) | (64,046) | | Net Change in Cash and Cash Equivalents | (7,399) | (10,209) | | Cash and Cash Equivalents at End of Period | 10,454 | 11,114 | - Net cash from operating activities increased by 15.5% year-over-year, primarily due to changes in working capital from the timing of natural gas purchases[24][161] - Net cash used in investing activities increased by 25.5%, mainly due to higher capital expenditures for system integrity activities and new area service extensions[24][162] - Net cash used in financing activities decreased by 20.3%, primarily as proceeds from long-term debt issuance offset increased note repayments[24][163] Consolidated Statements of Equity Consolidated Statements of Equity Key Data (Unaudited) | Metric (Thousands of Dollars) | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Equity | 2,191,987 | 2,129,390 | | Retained Earnings | 461,962 | 402,509 | | Accumulated Other Comprehensive Loss | (6,292) | (6,739) | | Common Stock Issued (Shares) | 52,920,530 | 52,771,749 | - As of June 30, 2020, total equity increased by 2.9% compared to December 31, 2019, primarily driven by an increase in retained earnings[28] - Retained earnings increased by 14.8%, reflecting the accumulation of net income and dividend payments[28] Notes to Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The company primarily provides natural gas distribution services to approximately 2.2 million customers across Oklahoma, Kansas, and Texas, serving residential, commercial, and transportation sectors[32] - The company adopted ASU 2020-04 (Reference Rate Reform) and ASU 2016-13 (Financial Instruments – Credit Losses) in the first quarter of 2020, with no material impact on the consolidated financial statements[38][43] - The company adopted ASU 2018-15 (Implementation Costs in Cloud Service Contracts) on January 1, 2020, with no material impact on the consolidated financial statements[41] 2. REVENUE Revenue by Source (Unaudited) | Revenue Source (Thousands of Dollars) | June 30, 2020 (3 Months) | June 30, 2019 (3 Months) | June 30, 2020 (6 Months) | June 30, 2019 (6 Months) | | :--- | :--- | :--- | :--- | :--- | | Natural Gas Sales to Customers | 243,308 | 258,560 | 724,026 | 880,052 | | Transportation Revenue | 24,481 | 23,991 | 58,238 | 59,019 | | Miscellaneous Revenue | 3,120 | 5,428 | 7,590 | 10,856 | | Total Revenue from Customer Contracts | 270,909 | 287,979 | 789,854 | 949,927 | | Other Revenue | 2,378 | 2,581 | 11,601 | 1,633 | | Total Revenues | 273,287 | 290,560 | 801,455 | 951,560 | - For the three months ended June 30, 2020, natural gas sales revenue decreased by 5.9% year-over-year, and total revenues decreased by 5.9%[46] - For the six months ended June 30, 2020, natural gas sales revenue decreased by 17.7% year-over-year, and total revenues decreased by 15.8%[46] 3. REGULATORY ASSETS AND LIABILITIES Summary of Regulatory Assets and Liabilities (Unaudited) | Metric (Thousands of Dollars) | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Regulatory Assets, Net | 421,202 | 438,476 | | Total Regulatory Liabilities, Net | (584,278) | (548,719) | | Net Regulatory Assets and Liabilities | (163,076) | (110,243) | - Kansas legislation exempting utilities from state income tax led to the company remeasuring ADIT, resulting in an $81.5 million EDIT regulatory liability to be refunded to customers[50] - The company has received regulatory accounting orders authorizing deferral of certain incremental costs and lost revenues related to COVID-19, but these have not been recorded as regulatory assets as of June 30, 2020, pending future recoverability determination[53] 4. CREDIT FACILITY AND SHORT-TERM NOTES PAYABLE - The company has a $700 million commercial paper program, with $230.5 million of commercial paper outstanding as of June 30, 2020[54] - The ONE Gas Credit Agreement is a $700 million revolving unsecured credit facility maturing in October 2024, with $698.8 million of remaining credit available as of June 30, 2020[55][57] - In April 2020, the company entered into a $250 million ONE Gas 364-Day Credit Agreement as an additional liquidity source, with no borrowings outstanding as of June 30, 2020[58] 5. LONG-TERM DEBT - In April 2020, ONE Gas issued $300 million of 2.00% Senior Notes due 2030, with proceeds used to reduce outstanding commercial paper and for general corporate purposes[59] - The company's long-term debt includes multiple series of senior notes totaling $1.6 billion, with maturities ranging from 2024 to 2048[60] 6. LEASES - In March 2020, the company reassessed and modified certain operating leases for office facilities, resulting in a $9 million increase in right-of-use assets and a $9.4 million increase in operating lease liabilities[61] 7. EQUITY - In February 2020, the company initiated an "at-the-market" equity program for up to $250 million, having issued and sold 4,783 shares of common stock for net proceeds of $394 thousand as of June 30, 2020[62][63] - In July 2020, the company declared a dividend of $0.54 per share, which annualizes to $2.16 per share[63] 8. ACCUMULATED OTHER COMPREHENSIVE LOSS Reclassification Impact of Accumulated Other Comprehensive Loss Components (Unaudited) | Metric (Thousands of Dollars) | June 30, 2020 (3 Months) | June 30, 2019 (3 Months) | June 30, 2020 (6 Months) | June 30, 2019 (6 Months) | | :--- | :--- | :--- | :--- | :--- | | Pension and Other Postretirement Benefit Plan Liabilities | 10,594 | 8,653 | 21,188 | 17,306 | | Regulatory Adjustments | (10,296) | (8,440) | (20,592) | (15,662) | | Total Reclassifications for the Period | 223 | 160 | 447 | 320 | - The net loss amortization for pension and other postretirement benefit plan liabilities is part of net periodic benefit cost[64][65] - Regulatory adjustments represent pension and other postretirement benefit costs expected to be recovered through rates and deferred as regulatory assets[65] 9. EARNINGS PER SHARE Basic and Diluted Earnings Per Share Calculation (Unaudited) | Metric | June 30, 2020 (3 Months) | June 30, 2019 (3 Months) | June 30, 2020 (6 Months) | June 30, 2019 (6 Months) | | :--- | :--- | :--- | :--- | :--- | | Basic Earnings Per Share | 0.48 | 0.46 | 2.21 | 2.23 | | Diluted Earnings Per Share | 0.48 | 0.46 | 2.20 | 2.22 | | Basic Average Shares (Thousands) | 53,053 | 52,890 | 53,030 | 52,858 | | Diluted Average Shares (Thousands) | 53,264 | 53,215 | 53,266 | 53,210 | - Basic earnings per share are calculated based on net income and the daily weighted-average number of common shares outstanding, including fully vested but unissued shares[66] - Diluted earnings per share include basic earnings per share, plus unvested share awards under compensation plans, but only to the extent these instruments dilute earnings per share[66] 10. EMPLOYEE BENEFIT PLANS Components of Net Periodic Benefit Cost for Pension Benefits (Unaudited) | Metric (Thousands of Dollars) | June 30, 2020 (3 Months) | June 30, 2019 (3 Months) | June 30, 2020 (6 Months) | June 30, 2019 (6 Months) | | :--- | :--- | :--- | :--- | :--- | | Service Cost | 3,217 | 3,008 | 6,434 | 6,016 | | Interest Cost | 8,545 | 10,168 | 17,090 | 20,336 | | Expected Return on Assets | (15,280) | (15,485) | (30,560) | (30,970) | | Net Loss Amortization | 10,580 | 8,260 | 21,160 | 16,520 | | Net Periodic Benefit Cost | 7,062 | 5,951 | 14,124 | 11,902 | - The company recovers qualified pension benefit plan and other postretirement benefit plan costs through rates charged to customers[70] - As of June 30, 2020, the company recognized $5.9 million in regulatory assets, reflecting capitalized non-service cost components[71] 11. INCOME TAXES - The company uses an estimated annual effective tax rate to determine income tax provisions for interim reporting periods[72] - New Kansas law exempting utilities from state income tax led to the company remeasuring ADIT, resulting in an $81.5 million EDIT regulatory liability to be refunded to customers[74] - As of June 30, 2020, the company had no uncertain tax positions and is no longer subject to income tax examinations for years prior to 2017[73] 12. OTHER INCOME AND OTHER EXPENSE Components of Other Income and Other Expense (Unaudited) | Metric (Thousands of Dollars) | June 30, 2020 (3 Months) | June 30, 2019 (3 Months) | June 30, 2020 (6 Months) | June 30, 2019 (6 Months) | | :--- | :--- | :--- | :--- | :--- | | Net Periodic Benefit Cost (Non-Service Cost) | (1,253) | (1,469) | (2,376) | (3,068) | | Investment Income (Loss) Related to Non-Qualified Employee Benefit Plans | 3,947 | 1,050 | (312) | 3,491 | | Other, Net | (300) | (446) | (706) | (859) | | Other Income (Expense), Net | 2,394 | (865) | (3,394) | (436) | - For the three months ended June 30, 2020, other income (expense), net, shifted from an $865 thousand expense in 2019 to $2.394 million in income, primarily due to a significant increase in investment income related to non-qualified employee benefit plans[76] - For the six months ended June 30, 2020, other income (expense), net, changed from a $436 thousand expense in 2019 to a $3.394 million expense, mainly due to losses on investments related to non-qualified employee benefit plans[76] 13. COMMITMENTS AND CONTINGENCIES - The COVID-19 pandemic impacted company operations, including reduced late payment fees, reconnection fees, and collection expenses, increased bad debt expense, and incremental costs for personal protective equipment[77] - The company has 12 former manufactured gas plant (MGP) sites in Kansas and bears environmental liabilities, with 3 sites having received regulatory closure, though future costs may still arise[79] - PHMSA (Pipeline and Hazardous Materials Safety Administration) issued new pipeline safety regulations, with the first final rule effective July 1, 2020, and compliance costs are not expected to materially impact the company[87][89] 14. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS - The company records all derivative instruments at fair value, except for normal purchases and sales expected to result in physical delivery, and has not designated any derivative instruments as hedging instruments[92][93] - As of June 30, 2020, the company held 1.47 billion cubic feet of purchased natural gas call options, for which it paid $5.8 million in premiums, with a fair value of $4.9 million, classified as Level 1 fair value measurements[96] - The carrying value of the company's long-term debt (including current maturities) was $1.6 billion as of June 30, 2020, with an estimated fair value of $1.9 billion, classified as Level 2 fair value measurements[98] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses ONE Gas, Inc.'s financial condition and operating results for the three and six months ended June 30, 2020, focusing on recent developments, regulatory activities, financial performance, liquidity, capital resources, and environmental, safety, and regulatory matters RECENT DEVELOPMENTS - The COVID-19 pandemic has impacted company operations in several ways, including a moratorium on customer disconnections, increased bad debt expense, reduced travel expenses, and incremental costs for personal protective equipment[102] - The company has received regulatory authorization to defer incremental costs and lost revenues related to COVID-19, but these have not been recorded as regulatory assets as of June 30, 2020[102] - In July 2020, the company declared a dividend of $0.54 per share, and in February 2020, it initiated a $250 million "at-the-market" equity program to support company operations and capital expenditures[103][104] REGULATORY ACTIVITIES - Oklahoma regulators approved COVID-19 related regulatory assets and deferrals, along with a $9.7 million base rate increase and $2.2 million in energy efficiency incentives[105][106] - Kansas legislation exempting utilities from state income tax resulted in an $81.5 million EDIT regulatory liability to be refunded to customers, and approved a $4.2 million GSRS increase[112][113] - Texas regulators authorized the use of regulatory accounting mechanisms to seek future recovery of incremental costs incurred due to the COVID-19 pandemic and approved a $4.7 million GRIP increase for the West Texas service area[117][118] FINANCIAL RESULTS AND OPERATING INFORMATION Selected Financial Results (Unaudited) | Metric (Millions of Dollars) | June 30, 2020 (3 Months) | June 30, 2019 (3 Months) | June 30, 2020 (6 Months) | June 30, 2019 (6 Months) | | :--- | :--- | :--- | :--- | :--- | | Net Income | 25.3 | 24.5 | 117.0 | 118.1 | | Total Revenues | 273.3 | 290.6 | 801.5 | 951.6 | | Cost of Natural Gas | 62.5 | 82.6 | 288.6 | 447.7 | | Gross Profit | 210.8 | 208.0 | 512.9 | 503.9 | | Operating Income | 44.6 | 46.9 | 177.8 | 174.5 | | Capital Expenditures and Cost of Asset Disposals | 130.6 | 114.2 | 254.0 | 208.6 | - For the three months ended June 30, 2020, gross profit (non-GAAP) increased by $2.8 million (1%), primarily due to new rates and customer growth, offset by reduced COVID-19 related late payment and collection fees[130] - For the six months ended June 30, 2020, capital expenditures and cost of asset disposals increased by $16.4 million and $45.4 million, respectively, mainly due to system integrity activities and new area service extensions[136] Average Customer Count (Unaudited) | Customer Type | June 30, 2020 (3 Months) | June 30, 2019 (3 Months) | June 30, 2020 (6 Months) | June 30, 2019 (6 Months) | | :--- | :--- | :--- | :--- | :--- | | Residential | 2,045 | 2,022 | 2,044 | 2,024 | | Commercial and Industrial | 161 | 160 | 162 | 161 | | Total Customers (Thousands) | 2,221 | 2,197 | 2,221 | 2,200 | CONTINGENCIES - The company is a party to various lawsuits and claims but believes that reasonably possible losses from these matters will not materially adversely affect operating results, financial condition, or cash flows[142] LIQUIDITY AND CAPITAL RESOURCES - The company primarily relies on cash flow from operations and commercial paper to meet liquidity and capital needs, expecting to maintain operating levels through stable cash flow and financing arrangements[143][144] - As of June 30, 2020, the company had a $700 million commercial paper program, a $700 million revolving credit facility, and a $250 million 364-day credit agreement, totaling $728.8 million in short-term liquidity[146][147][151] - In April 2020, the company issued $300 million of 2.00% Senior Notes to reduce outstanding commercial paper and for general corporate purposes, with a long-term debt to capitalization ratio of 42% as of June 30, 2020[152][154] Credit Ratings (as of June 30, 2020) | Rating Agency | Rating | Outlook | | :--- | :--- | :--- | | Moody's | A2 | Stable | | S&P | A | Stable | CASH FLOW ANALYSIS Cash Flow Changes (Unaudited) | Activity Type (Millions of Dollars) | June 30, 2020 (6 Months) | June 30, 2019 (6 Months) | 2020 vs. 2019 Change | | :--- | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | 278.7 | 241.2 | 37.5 | | Net Cash Used in Investing Activities | (235.0) | (187.3) | (47.7) | | Net Cash Used in Financing Activities | (51.1) | (64.1) | 13.0 | | Net Change in Cash and Cash Equivalents | (7.4) | (10.2) | 2.8 | - Operating cash flow increased, primarily due to changes in working capital from the timing of natural gas purchases[161] - Cash outflow from investing activities increased, mainly due to higher capital expenditures for system integrity activities and new area service extensions[162] - Cash outflow from financing activities decreased, primarily as proceeds from long-term debt issuance offset increased note repayments[163] ENVIRONMENTAL, SAFETY AND REGULATORY MATTERS - The company continued to provide essential services during the COVID-19 pandemic, implementing policies and procedures to protect employee and customer safety, while obtaining regulatory authorization to defer related incremental costs and lost revenues[164] - The company is subject to various environmental laws and regulations, including investigation and remediation responsibilities for former MGP sites, though related expenditures have not materially impacted financial condition to date[165][167][172] - The company is subject to PHMSA pipeline safety regulations, with the first final rule effective July 1, 2020, and compliance costs are not expected to materially impact the company; a second final rule is anticipated in 2020, potentially incurring significant capital and operating expenditures[174][176][177] IMPACT OF NEW ACCOUNTING STANDARDS - Information regarding the impact of new accounting standards is included in Note 1 to the consolidated financial statements in this quarterly report[187] ESTIMATES AND CRITICAL ACCOUNTING POLICIES - The company makes estimates and assumptions when preparing consolidated financial statements, which may affect reported amounts of assets, liabilities, revenues, and expenses, and actual results may differ from these estimates[188] - Detailed information on estimates and critical accounting policies is included in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of the company's annual report[189] FORWARD-LOOKING STATEMENTS - Forward-looking statements in this report pertain to the company's expected financial performance, liquidity, future operating plans, business prospects, regulatory and legal proceedings outcomes, and market conditions[190] - The company cautions investors that actual results may differ materially from forward-looking statements due to various known and unknown risks, uncertainties, and other factors[192] - Factors that could cause actual results to differ include, but are not limited to: ability to recover operating costs, regulatory changes, economic climate, COVID-19 pandemic impacts, competition, weather variations, debt levels, natural gas supply, mechanical integrity, labor relations, capital market accessibility, credit ratings, inflation and interest rate changes, environmental and safety laws, litigation, and regulatory investigations[193] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discloses the company's market risks, primarily commodity price, interest rate, and counterparty credit risks, and outlines strategies for managing these exposures Commodity Price Risk - The company mitigates commodity price risk, primarily driven by natural gas price fluctuations, through purchased gas cost adjustment mechanisms[196] - The company may use derivative instruments to economically hedge anticipated natural gas purchase costs during winter heating seasons to reduce the impact of natural gas market price volatility on customers[196] - Gains or losses associated with these derivative instruments and storage activities are included in the purchased gas cost adjustment mechanism and are recoverable[197] Interest-Rate Risk - The company primarily faces interest rate risk related to commercial paper borrowings and new debt financings used to meet capital requirements[198] - The company plans to manage future borrowing interest rate risk through the use of fixed-rate debt, variable-rate debt, and interest rate swaps[198] Counterparty Credit Risk - The company assesses customer creditworthiness and requires guarantees from customers not meeting minimum standards, but does not face significant concentrations of credit risk due to a large customer base[199] - The COVID-19 pandemic led to a moratorium on customer disconnections, increasing bad debt expense, but the company has received regulatory authorization to defer related incremental costs and lost revenues[199] - The company maintains an allowance for doubtful accounts based on customer credit risk, historical trends, and current conditions, and recovers the fuel-related portion of bad debt through the purchased gas cost adjustment mechanism[199] Item 4. Controls and Procedures This section reports the quarterly evaluation results of the company's disclosure controls and procedures and changes in internal control over financial reporting Quarterly Evaluation of Disclosure Controls and Procedures - The company's Chief Executive Officer and Chief Financial Officer have concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[200] Changes in Internal Control Over Financial Reporting - Despite employees working remotely due to the COVID-19 pandemic, there were no changes in internal control over financial reporting during the second quarter ended June 30, 2020, that materially affected or are reasonably likely to materially affect internal control over financial reporting[201] Part II. Other Information Item 1. Legal Proceedings The company is a party to various legal proceedings and claims arising in the normal course of operations, believing that reasonably possible losses will not materially adversely affect operating results, financial condition, or cash flows - The company is a party to various legal proceedings and claims, but believes that reasonably possible losses from these matters will not materially adversely affect operating results, financial condition, or cash flows[203] Item 1A. Risk Factors This section supplements the risk factors listed in the company's annual report, specifically highlighting the potentially significant adverse impacts of pandemics or other health crises on the business Pandemics or other health crises could have an adverse effect on our business. - The COVID-19 pandemic has had an unprecedented impact on the U.S. economy and caused significant volatility in financial markets, potentially adversely affecting the company's customers, employees, and supply chain partners[205] - The pandemic may lead to customer payment defaults, business disruptions, and could force the company to suspend or limit certain business operations, with regulators requiring continued service to defaulting customers during the pandemic, potentially adversely affecting profitability, liquidity, and cash flows[206] - Increased remote work arrangements may elevate the risk of cyberattacks, and technical system failures could limit normal operations or amplify the impact of cyberattacks[207][208] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section is not applicable as the company did not report unregistered equity securities sales and use of proceeds - This section is not applicable[211] Item 3. Defaults Upon Senior Securities This section is not applicable as the company did not report defaults upon senior securities - This section is not applicable[212] Item 4. Mine Safety Disclosures This section is not applicable as the company did not make mine safety disclosures - This section is not applicable[213] Item 5. Other Information This section is not applicable as the company did not report other information - This section is not applicable[214] Item 6. Exhibits This section lists all exhibits filed with this quarterly report, including underwriting agreements, articles of incorporation, credit agreements, and XBRL files, emphasizing that exhibits are provided for SEC compliance and not as the sole basis for factual disclosure - Exhibits include underwriting agreements, articles of incorporation, credit agreements, and XBRL files, intended to comply with SEC requirements[215][216][217] - Statements, warranties, or opinions in the exhibits may be subject to exceptions and qualifications in disclosure schedules or represent an allocation of risks between transaction parties[215] - Interactive data files (XBRL files) are also available on the company's website[218]