Atmos Energy (ATO) - 2024 Q2 - Quarterly Report

Form 10-Q Filing Information This section details the filing specifics of Atmos Energy Corporation's Quarterly Report on Form 10-Q for the period ended March 31, 2024 Filing Details This document is a Quarterly Report on Form 10-Q for the period ended March 31, 2024, filed by Atmos Energy Corporation, classified as a large accelerated filer - The report is a Quarterly Report on Form 10-Q for the period ended March 31, 2024[1] - Atmos Energy Corporation is classified as a large accelerated filer[2] - The company is not a shell company[2] Registrant Information Atmos Energy Corporation, headquartered in Dallas, Texas, reported 150,877,056 common shares outstanding as of May 3, 2024, traded on the NYSE under ATO - Registrant's principal executive offices are located at 1800 Three Lincoln Centre, 5430 LBJ Freeway, Dallas, Texas 75240[2] Common Stock Information as of May 3, 2024 | Class | Shares Outstanding | | :----------- | :----------------- | | Common stock | 150,877,056 | - Common stock is traded on the New York Stock Exchange under the symbol ATO[2] Glossary of Key Terms This section provides a glossary of key terms and acronyms used throughout the report, including AEC, GAAP, and SEC - The glossary defines key terms and acronyms relevant to the company's operations and financial reporting[3] Part I. Financial Information This part presents Atmos Energy Corporation's unaudited condensed consolidated financial statements and related notes Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Atmos Energy Corporation, including balance sheets, statements of comprehensive income, and cash flows, with accompanying notes Condensed Consolidated Balance Sheets As of March 31, 2024, total assets increased to $24.00 billion from $22.52 billion, with shareholders' equity rising to $11.62 billion and long-term debt, net, to $7.44 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Item | March 31, 2024 (Unaudited) | September 30, 2023 | | :------------------------------------ | :------------------------- | :----------------- | | Total Assets | $24,004,640 | $22,516,968 | | Net Property, Plant and Equipment | $20,814,563 | $19,606,583 | | Cash and Cash Equivalents | $262,497 | $15,404 | | Total Current Assets | $1,432,435 | $885,768 | | Shareholders' Equity | $11,618,639 | $10,870,064 | | Long-term Debt, net | $7,444,855 | $6,554,133 | | Total Current Liabilities | $1,055,185 | $1,352,592 | Condensed Consolidated Statements of Comprehensive Income For the three months ended March 31, 2024, net income increased to $432.0 million from $357.7 million, with basic EPS rising to $2.85 from $2.48, driven by higher operating revenues Key Financial Highlights (Three Months Ended March 31, in thousands, except per share data) | Metric | 2024 | 2023 | | :-------------------------- | :---------- | :---------- | | Total Operating Revenues | $1,647,227 | $1,540,973 | | Operating Income | $550,990 | $422,638 | | Net Income | $432,023 | $357,671 | | Basic Net Income Per Share | $2.85 | $2.48 | | Diluted Net Income Per Share| $2.85 | $2.48 | | Cash Dividends Per Share | $0.805 | $0.740 | Key Financial Highlights (Six Months Ended March 31, in thousands, except per share data) | Metric | 2024 | 2023 | | :-------------------------- | :---------- | :---------- | | Total Operating Revenues | $2,805,694 | $3,024,982 | | Operating Income | $950,095 | $743,824 | | Net Income | $743,315 | $629,531 | | Basic Net Income Per Share | $4.93 | $4.40 | | Diluted Net Income Per Share| $4.93 | $4.40 | | Cash Dividends Per Share | $1.61 | $1.48 | Condensed Consolidated Statements of Cash Flows For the six months ended March 31, 2024, net cash provided by operating activities decreased significantly to $991.9 million from $2.89 billion, primarily due to a $2.02 billion receipt from Texas securitization activities in fiscal 2023 Condensed Consolidated Statements of Cash Flows (Six Months Ended March 31, in thousands) | Activity | 2024 | 2023 | | :-------------------------------------------------------------------- | :------------ | :------------ | | Net Cash Provided by Operating Activities | $991,873 | $2,892,716 | | Net Cash Used in Investing Activities | $(1,409,264) | $(1,410,390) | | Net Cash Provided by (Used in) Financing Activities | $661,912 | $(1,438,705) | | Net Increase in Cash and Cash Equivalents and Restricted Cash | $244,521 | $43,621 | | Cash and Cash Equivalents and Restricted Cash at End of Period | $263,769 | $95,175 | - Operating cash flow decreased by $1.90 billion primarily due to the receipt of $2.02 billion in the second quarter of fiscal 2023 related to Texas securitization activities[14][145] Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations and disclosures for the condensed consolidated financial statements, covering business nature, accounting policies, regulatory impacts, segment performance, and other financial disclosures Note 1. Nature of Business Atmos Energy Corporation operates regulated natural gas distribution and pipeline and storage businesses across eight states, serving over 3.3 million customers - Atmos Energy Corporation is engaged in regulated natural gas distribution and pipeline and storage businesses[17] - The distribution business serves over 3.3 million residential, commercial, public authority, and industrial customers in eight states[17] - The pipeline and storage business transports natural gas to Texas and Louisiana distribution systems and manages underground storage facilities[17] Note 2. Summary of Significant Accounting Policies Interim financial statements are prepared in accordance with GAAP, with no goodwill impairment in Q2 fiscal 2024, and new FASB guidance on segment and income tax disclosures are being evaluated - Interim financial statements are prepared in accordance with GAAP and are condensed as permitted by Form 10-Q instructions[18] - Goodwill impairment assessment completed in Q2 fiscal 2024 determined no impairment[19] - New FASB guidance on segment disclosure (effective fiscal 2025 for 10-K, fiscal 2026 for 10-Q) and income tax disclosures (effective fiscal 2026 for 10-K) is being evaluated for impact[20] Note 3. Regulation Regulatory assets decreased to $405.4 million at March 31, 2024, primarily due to reduced deferred gas costs and Winter Storm Uri costs, while securitization efforts continue in Kansas and Texas - Regulatory assets are recorded when future recovery through customer rates is probable, and regulatory liabilities are recorded when revenue reductions are probable[21] Regulatory Assets and Liabilities (in thousands) | Item | March 31, 2024 | September 30, 2023 | | :------------------------------------ | :------------- | :----------------- | | Regulatory Assets: | | | | Total Regulatory Assets | $405,368 | $554,928 | | * Winter Storm Uri incremental costs | $15,510 | $32,115 | | * Deferred gas costs | $25,928 | $148,297 | | Regulatory Liabilities: | | | | Total Regulatory Liabilities | $1,248,781 | $1,284,334 | - In Texas, the company began collecting customer rate relief charges on October 1, 2023, from $3.5 billion in securitized bonds issued in March 2023 to recover Winter Storm Uri costs[23] Note 4. Segment Information Atmos Energy operates through Distribution and Pipeline and Storage segments, with both showing increased net income for the three and six months ended March 31, 2024 - The company manages operations through two reportable segments: Distribution and Pipeline and Storage[25] Segment Net Income (Three Months Ended March 31, in thousands) | Segment | 2024 | 2023 | | :----------------------- | :--------- | :--------- | | Distribution | $342,692 | $288,474 | | Pipeline and Storage | $89,331 | $69,197 | | Consolidated Net Income| $432,023 | $357,671 | Segment Net Income (Six Months Ended March 31, in thousands) | Segment | 2024 | 2023 | | :----------------------- | :--------- | :--------- | | Distribution | $564,129 | $482,942 | | Pipeline and Storage | $179,186 | $146,589 | | Consolidated Net Income| $743,315 | $629,531 | Note 5. Earnings Per Share Earnings per share are calculated using the two-class method, with basic and diluted EPS increasing to $2.85 for the three months and $4.93 for the six months ended March 31, 2024 - Earnings per share are computed using the two-class method due to non-vested restricted stock units with dividend rights[33] Basic and Diluted EPS (Three Months Ended March 31) | Metric | 2024 | 2023 | | :-------------------------- | :---- | :---- | | Basic Net Income Per Share | $2.85 | $2.48 | | Diluted Net Income Per Share| $2.85 | $2.48 | Basic and Diluted EPS (Six Months Ended March 31) | Metric | 2024 | 2023 | | :-------------------------- | :---- | :---- | | Basic Net Income Per Share | $4.93 | $4.40 | | Diluted Net Income Per Share| $4.93 | $4.40 | Note 6. Revenue and Accounts Receivable Distribution segment operating revenues increased to $1.59 billion for the three months ended March 31, 2024, but decreased to $2.69 billion for the six months, while the allowance for uncollectible accounts rose to $42.7 million Distribution Segment Operating Revenues (Three Months Ended March 31, in thousands) | Revenue Type | 2024 | 2023 | | :---------------------------- | :---------- | :---------- | | Total Gas Sales Revenues | $1,521,536 | $1,409,632 | | Transportation Revenues | $37,607 | $33,511 | | Total Operating Revenues | $1,589,181 | $1,500,210 | Distribution Segment Operating Revenues (Six Months Ended March 31, in thousands) | Revenue Type | 2024 | 2023 | | :---------------------------- | :---------- | :---------- | | Total Gas Sales Revenues | $2,569,286 | $2,833,391 | | Transportation Revenues | $71,374 | $65,673 | | Total Operating Revenues | $2,694,519 | $2,940,636 | - The allowance for uncollectible accounts was $42.7 million at March 31, 2024, compared to $40.8 million at September 30, 2023[40][43] - A $13.9 million reduction to bad debt expense was recorded in Q1 fiscal 2024 due to a Mississippi Public Service Commission decision allowing recovery of uncollectible accounts through the purchased gas cost mechanism[39] Note 7. Debt Total long-term debt, net, increased to $7.44 billion at March 31, 2024, primarily due to a $900 million senior notes offering, with the company maintaining a $1.5 billion commercial paper program and $3.1 billion in revolving credit facilities Long-Term Debt, Net (in thousands) | Item | March 31, 2024 | September 30, 2023 | | :------------------------ | :------------- | :----------------- | | Total Long-Term Debt, Net | $7,444,855 | $6,554,133 | - In October 2023, the company completed a public offering of $500 million of 6.20% senior notes due October 2053 and $400 million of 5.90% senior notes due October 2033, generating $889.4 million in net proceeds[46] - The company utilizes a $1.5 billion commercial paper program and four committed revolving credit facilities totaling $3.1 billion for short-term financing[47] - At March 31, 2024, the total-debt-to-total-capitalization ratio was 40%, well within the 70% covenant limit[49] Note 8. Shareholders' Equity Shareholders' equity increased to $11.62 billion at March 31, 2024, driven by net income and equity issuances, with $3.1 billion available under a shelf registration and $889.7 million from forward sale agreements Shareholders' Equity (in thousands) | Item | March 31, 2024 | September 30, 2023 | | :--------------------------------- | :------------- | :----------------- | | Total Shareholders' Equity | $11,618,639 | $10,870,064 | | Common Stock (shares outstanding) | 150,874,552 | 148,492,783 | | Additional Paid-in Capital | $6,953,761 | $6,684,120 | | Retained Earnings | $4,168,424 | $3,666,674 | - The company has a shelf registration statement allowing issuance of up to $5.0 billion in common stock and/or debt securities, with $3.1 billion available at March 31, 2024[53] - An at-the-market (ATM) equity sales program allows for the sale of common stock up to an aggregate offering price of $1.0 billion, with $81.6 million available at March 31, 2024[53][55] - As of March 31, 2024, there were $889.7 million in available proceeds from outstanding forward sale agreements[55][56] Note 9. Variable Interest Entity Atmos Energy Kansas Securitization I, LLC (AEK), a wholly-owned special-purpose entity, was formed to issue securitized bonds for Winter Storm Uri cost recovery and is consolidated as a variable interest entity - AEK was formed to issue securitized bonds to recover extraordinary costs from Winter Storm Uri[59] - AEK's assets cannot be used to settle Atmos Energy's obligations, and bondholders have no recourse against Atmos Energy[59] - AEK is considered a variable interest entity and is included in Atmos Energy's condensed consolidated financial statements[59] Impact of AEK on Condensed Consolidated Balance Sheets (in thousands) | Item | March 31, 2024 | September 30, 2023 | | :----------------------------------------- | :------------- | :----------------- | | Securitized intangible asset, net | $87,279 | $92,202 | | Current maturities of securitized long-term debt | $8,001 | $9,922 | | Securitized long-term debt | $81,261 | $85,078 | Note 10. Interim Pension and Other Postretirement Benefit Plan Information Net periodic pension cost for the three months ended March 31, 2024, was $2.7 million, and for the six months, it was $6.3 million, with most costs recoverable through tariff rates Net Periodic Pension Cost (Three Months Ended March 31, in thousands) | Component | 2024 | 2023 | | :------------------------ | :------ | :------ | | Net Periodic Pension Cost | $2,730 | $3,089 | Net Periodic Pension Cost (Six Months Ended March 31, in thousands) | Component | 2024 | 2023 | | :------------------------ | :------ | :------ | | Net Periodic Pension Cost | $6,307 | $6,178 | - A settlement charge of $0.8 million was recognized in the first quarter of fiscal 2024 due to an executive retirement, leading to a revaluation of the Supplemental Executive Retirement Plan's net periodic pension cost[63][66] Note 11. Commitments and Contingencies The company is subject to various legal and regulatory proceedings, including an NTSB investigation for incidents in Jackson, Mississippi, and has natural gas purchase commitments of 82.2 Bcf within one year - The company is subject to various legal and regulatory proceedings, with liabilities recorded when probable and estimable[67] - An NTSB investigation is underway for two incidents in Jackson, Mississippi, in January 2024, which resulted in one fatality[67] - As of March 31, 2024, purchase commitments for natural gas include 82.2 Bcf within one year and 30.0 Bcf within two to three years under indexed contracts[68] Note 12. Income Taxes The effective tax rates for the three and six months ended March 31, 2024, were 15.7% and 15.3%, respectively, differing from the 21% federal statutory rate due to various adjustments Effective Tax Rates | Period | 2024 | 2023 | | :----------------------------------- | :---- | :---- | | Three Months Ended March 31 | 15.7% | 11.2% | | Six Months Ended March 31 | 15.3% | 11.1% | - The effective tax rates differ from the 21% federal statutory rate primarily due to amortization of excess deferred federal income tax liabilities, tax credits, state income taxes, and other permanent differences[70] - Regulatory excess net deferred tax liability of $263.4 million is being returned to customers over various periods[71] Note 13. Financial Instruments Atmos Energy uses financial instruments to mitigate commodity price and interest rate risks, hedging 27.6 Bcf of winter gas requirements and $900 million in anticipated financings, with total financial instrument assets of $357.1 million - Financial instruments are used to mitigate commodity price risk and interest rate risk[72] - For the 2023-2024 heating season, approximately 27.6 Bcf of winter flowing gas requirements were hedged using financial instruments not designated as accounting hedges[73] Planned Debt Issuance Date and Amount Hedged (in thousands) | Planned Debt Issuance Date | Amount Hedged | | :------------------------- | :------------ | | Fiscal 2025 | $600,000 | | Fiscal 2026 | $300,000 | | Total | $900,000 | Financial Instruments on the Balance Sheet (March 31, 2024, in thousands) | Item | Assets | Liabilities | | :---------------------------------- | :--------- | :---------- | | Designated As Hedges (Interest rate contracts) | $355,781 | $— | | Not Designated As Hedges (Commodity contracts) | $1,320 | $(5,840) | | Gross / Net Financial Instruments | $357,101 | $(5,840) | Note 14. Fair Value Measurements As of March 31, 2024, total assets measured at fair value were $464.9 million, and liabilities were $5.8 million, with long-term debt having a carrying amount of $7.46 billion and a fair value of $6.76 billion - Fair value measurements are categorized into a three-level hierarchy based on the observability of inputs[87][88] Fair Value Measurements (March 31, 2024, in thousands) | Item | Level 1 | Level 2 | Level 3 | Total | | :---------------------------------- | :--------- | :--------- | :------ | :--------- | | Assets: | | | | | | Financial instruments | $— | $357,101 | $— | $357,101 | | Debt and equity securities | $66,920 | $40,854 | $— | $107,774 | | Total Assets | $66,920| $397,955| $— | $464,875| | Liabilities: | | | | | | Financial instruments | $— | $5,840 | $— | $5,840 | Long-Term Debt Carrying Value and Fair Value (in thousands) | Item | March 31, 2024 | September 30, 2023 | | :-------------- | :------------- | :----------------- | | Carrying Amount | $7,460,000 | $6,560,000 | | Fair Value | $6,762,617 | $5,402,591 | Note 15. Concentration of Credit Risk No material changes in the company's concentration of credit risk occurred during the six months ended March 31, 2024 - No material changes in concentration of credit risk occurred during the six months ended March 31, 2024[93] Report of Independent Registered Public Accounting Firm Ernst & Young LLP reviewed Atmos Energy Corporation's interim financial statements for March 31, 2024 and 2023, finding no material modifications needed for GAAP conformity - Ernst & Young LLP reviewed the condensed consolidated interim financial statements for the periods ended March 31, 2024 and 2023[95] - No material modifications are needed for the interim financial statements to conform with U.S. GAAP[95] - The September 30, 2023, consolidated balance sheet information is fairly stated in all material respects[96] Part II. Other Information This part contains other information relevant to the company's financial reporting, including management's discussion and analysis, market risk disclosures, and controls and procedures Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's discussion and analysis of Atmos Energy's financial condition and results of operations, highlighting key drivers, rate recovery, liquidity, and risk management Introduction This introduction advises readers to review the Management's Discussion and Analysis in conjunction with the condensed consolidated financial statements and the prior Annual Report on Form 10-K - The discussion should be read with the condensed consolidated financial statements in this 10-Q and the Annual Report on Form 10-K for the year ended September 30, 2023[100] Cautionary Statement for the Purposes of the Safe Harbor under the Private Securities Litigation Reform Act of 1995 This section includes forward-looking statements subject to various risks and uncertainties, such as regulatory decisions, operational hazards, and market risks, which could cause actual results to differ materially - The report contains forward-looking statements subject to risks and uncertainties[101] - Key risks include regulatory decisions, operational safety, gas supply, competition, workforce, natural disasters, cyber-attacks, weather, climate change, capital intensity, market access, commodity price volatility, and interest rate risk[101] Overview Atmos Energy operates regulated natural gas distribution and pipeline and storage businesses, serving over 3.3 million customers across eight states through two reportable segments - Atmos Energy is engaged in regulated natural gas distribution and pipeline and storage businesses[102] - The company serves over 3.3 million residential, commercial, public authority, and industrial customers in eight states[102] - Operations are managed through two reportable segments: Distribution and Pipeline and Storage[102] Critical Accounting Estimates and Policies The preparation of financial statements requires estimates and judgments, with no significant changes to critical accounting policies during the six months ended March 31, 2024 - Critical accounting policies include regulation, pension and other postretirement plans, and impairment assessments[104] - No significant changes to critical accounting policies occurred during the six months ended March 31, 2024[104] Results of Operations Atmos Energy achieved a net income of $743.3 million ($4.93 diluted EPS) for the six months ended March 31, 2024, an 18% increase year-over-year, driven by positive rate outcomes and lower bad debt expense Executive Summary Atmos Energy reported an 18% year-over-year increase in net income to $743.3 million ($4.93 diluted EPS) for the six months ended March 31, 2024, driven by positive rate outcomes and lower bad debt expense Net Income and EPS (Six Months Ended March 31) | Metric | 2024 | 2023 | Change (%) | | :-------------------------- | :---------- | :---------- | :--------- | | Net Income | $743.3 million | $629.5 million | 18% | | Diluted Net Income Per Share| $4.93 | $4.40 | | - Net income increase reflects positive rate outcomes from safety and reliability spending and lower bad debt expense[106] - Fiscal 2024 results were favorably impacted by $14.7 million due to Texas property tax legislation[106] - Ratemaking regulatory actions resulted in a $165.4 million increase in annual operating income, with $178.8 million in efforts still in progress[106] Distribution Segment The Distribution segment's operating income increased by 27.1% for the three months and 24.6% for the six months ended March 31, 2024, driven by rate adjustments, customer growth, and lower property taxes - Approximately 70% of distribution segment revenues are earned in the first six months of the fiscal year[108] - Weather normalization adjustments (WNA) are approved for approximately 96% of residential and commercial revenues in several states to mitigate weather effects[109] - Gas costs are generally passed through to customers without markup, but higher costs can impact accounts receivable and interest expense[110] Three Months Ended March 31, 2024 compared with Three Months Ended March 31, 2023 For the three months ended March 31, 2024, the Distribution segment's operating income increased by 27.1% to $426.2 million, driven by rate adjustments, consumption, customer growth, and lower property taxes Distribution Segment Financial Highlights (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change | | :--------------------- | :---------- | :---------- | :---------- | | Operating Revenues | $1,589,181 | $1,500,210 | $88,971 | | Purchased Gas Cost | $788,643 | $809,023 | $(20,380) | | Operating Income | $426,190 | $335,324 | $90,866 | | Net Income | $342,692 | $288,474 | $54,218 | - Operating income increased by $90.6 million due to rate adjustments, $10.7 million from consumption (net of WNA), and $6.5 million from customer growth[112][113] - Property taxes decreased by $3.8 million, including a $6.4 million decrease from Texas property tax legislation[113] - Partially offset by a $15.1 million increase in depreciation expense and an $8.7 million increase in refunds of excess deferred taxes[113] Six Months Ended March 31, 2024 compared with Six Months Ended March 31, 2023 For the six months ended March 31, 2024, the Distribution segment's operating income increased by 24.6% to $706.7 million, driven by rate adjustments, customer growth, and lower bad debt expense Distribution Segment Financial Highlights (Six Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change | | :--------------------- | :---------- | :---------- | :---------- | | Operating Revenues | $2,694,519 | $2,940,636 | $(246,117) | | Purchased Gas Cost | $1,285,305 | $1,690,938 | $(405,633) | | Operating Income | $706,671 | $567,080 | $139,591 | | Net Income | $564,129 | $482,942 | $81,187 | - Operating income increased by $155.2 million due to rate adjustments, $12.4 million from residential customer growth, and a $13.3 million decrease in bad debt expense[116] - Property taxes decreased by $2.9 million, including an $11.0 million decrease from Texas property tax legislation[116] - Partially offset by a $29.1 million increase in depreciation expense, a $17.5 million increase in refunds of excess deferred taxes, and a $16.1 million increase in other operation and maintenance expense[116] Recent Ratemaking Developments During the first six months of fiscal 2024, regulatory proceedings increased annual operating income by $138.4 million, with $96.4 million in additional ratemaking efforts in progress - Regulatory proceedings resulted in a $138.4 million increase in annual operating income during the first six months of fiscal 2024[118][119] - Excluding the impact of excess deferred income taxes (EDIT), the total rate outcomes were $137.1 million[118][119] - Ratemaking efforts seeking $96.4 million in increased annual operating income were in progress as of March 31, 2024[121][122] Annual Formula Rate Mechanisms Annual formula rate mechanisms, active in several states, increased annual operating income by $136.9 million during the six months ended March 31, 2024, by allowing annual rate adjustments without formal rate cases - Formula rate mechanisms allow annual rate refreshes without formal rate cases, reducing regulatory lag[123] - These mechanisms are active in Louisiana, Mississippi, Tennessee, and most Texas divisions, alongside infrastructure programs[123][124] Approved Annual Formula Rate Mechanisms (Six Months Ended March 31, 2024, in thousands) | Rate Action | Increase in Annual Operating Income | | :--------------------------------- | :---------------------------------- | | Total 2024 Filings | $136,935 | | Total 2024 Filings Excluding EDIT | $136,536 | Rate Case Filings During the six months ended March 31, 2024, one rate case filing in the Kentucky/Mid-States division (Virginia) resulted in a $2.4 million increase in annual operating income - A rate case is a formal request to a regulatory authority to increase rates[128] Completed Rate Case Filings (Six Months Ended March 31, 2024, in thousands) | Division / State | Increase in Annual Operating Income | | :--------------- | :---------------------------------- | | Kentucky/Mid-States (Virginia) | $2,434 | | Excluding EDIT | $1,495 | Other Ratemaking Activity Other ratemaking activity during the six months ended March 31, 2024, included an Ad Valorem filing in the Colorado-Kansas division (Kansas), resulting in a $0.97 million decrease in annual operating income Other Ratemaking Activity (Six Months Ended March 31, 2024, in thousands) | Division / Jurisdiction | Rate Activity | Decrease in Annual Operating Income | | :---------------------- | :------------ | :---------------------------------- | | Colorado-Kansas (Kansas)| Ad Valorem | $(971) | - The Ad Valorem filing relates to property taxes that are either over or undercollected compared to the amount included in the Kansas service area's base rate[131] Pipeline and Storage Segment The Pipeline and Storage segment's operating income increased by 42.9% for the three months and 37.7% for the six months ended March 31, 2024, driven by rate adjustments, increased through-system activities, and decreased property taxes - The segment's revenues are derived from transportation and storage of natural gas, not directly impacted by gas prices[133] - APT annually uses GRIP to recover capital costs, with a filing made on February 27, 2024, seeking an $82.4 million increase in operating income[133] - A rate case approved in December 2023 for APT resulted in a $27.0 million increase in annual operating income[133] Three Months Ended March 31, 2024 compared with Three Months Ended March 31, 2023 For the three months ended March 31, 2024, the Pipeline and Storage segment's operating income increased by 42.9% to $124.8 million, primarily due to rate adjustments, increased through-system activities, and decreased property taxes Pipeline and Storage Segment Financial Highlights (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change | | :--------------------- | :---------- | :---------- | :---------- | | Total Operating Revenues | $223,487 | $184,424 | $39,063 | | Total Purchased Gas Cost | $840 | $621 | $219 | | Operating Income | $124,800 | $87,314 | $37,486 | | Net Income | $89,331 | $69,197 | $20,134 | - Operating income increased by $17.0 million due to rate adjustments from the December 2023 rate case[136] - A $7.1 million increase in APT's through-system activities and a $9.3 million decrease in refunds of excess deferred taxes also contributed to the increase[136] Six Months Ended March 31, 2024 compared with Six Months Ended March 31, 2023 For the six months ended March 31, 2024, the Pipeline and Storage segment's operating income increased by 37.7% to $243.4 million, driven by rate adjustments, reduced inspection spending, and increased through-system activities Pipeline and Storage Segment Financial Highlights (Six Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change | | :--------------------- | :---------- | :---------- | :---------- | | Total Operating Revenues | $434,656 | $371,053 | $63,603 | | Total Purchased Gas Cost | $844 | $(237) | $1,081 | | Operating Income | $243,424 | $176,744 | $66,680 | | Net Income | $179,186 | $146,589 | $32,597 | - Operating income increased by $36.5 million due to rate adjustments from the GRIP filing and December 2023 rate case[139] - An $11.8 million decrease in pipeline inspection spending and a $7.9 million net increase in APT's through-system activities also contributed[139] Liquidity and Capital Resources Atmos Energy's liquidity is supported by internal cash flows, external debt and equity financing, a $1.5 billion commercial paper program, and $3.1 billion in revolving credit facilities, totaling approximately $4.2 billion as of March 31, 2024 - Liquidity is provided by internally generated cash flows and external debt and equity financing[140] - The company has a $1.5 billion commercial paper program and $3.1 billion in committed revolving credit facilities[140] - As of March 31, 2024, total liquidity was approximately $4.2 billion, comprising cash, equity forward sales proceeds, and undrawn credit facilities[107] Capitalization (in thousands, except percentages) | Item | March 31, 2024 | % | September 30, 2023 | % | | :--------------------- | :------------- | :----- | :----------------- | :----- | | Short-term debt | $— | — % | $241,933 | 1.4 % | | Long-term debt | $7,446,446 | 39.1 % | $6,555,701 | 37.1 % | | Shareholders' equity | $11,618,639 | 60.9 % | $10,870,064 | 61.5 % | | Total | $19,065,085| 100.0 %| $17,667,698 | 100.0 %| Cash Flows For the six months ended March 31, 2024, operating cash flow decreased by $1.90 billion to $991.9 million, primarily due to a $2.02 billion receipt from Texas securitization activities in fiscal 2023, while financing activities provided $661.9 million Cash Flow Summary (Six Months Ended March 31, in thousands) | Activity | 2024 | 2023 | Change | | :----------------------- | :------------ | :------------ | :------------ | | Operating activities | $991,873 | $2,892,716 | $(1,900,843) | | Investing activities | $(1,409,264) | $(1,410,390) | $1,126 | | Financing activities | $661,912 | $(1,438,705) | $2,100,617 | - Operating cash flow decreased primarily due to the $2.02 billion receipt in fiscal 2023 from Texas securitization activities[145] - Capital expenditures for investing activities are primarily for improving system safety and reliability (87% over the last three fiscal years)[146] - Financing activities provided $661.9 million, including $1.2 billion in net proceeds from long-term debt and equity issuances[148] Credit Ratings Atmos Energy's debt is rated investment grade by S&P (A- stable outlook) and Moody's (A1 negative outlook), with ratings influencing financing costs and access to capital - Credit ratings directly affect the ability and cost of obtaining short-term and long-term financing[150] Credit Ratings as of April 1, 2024 | Rating Agency | Senior Unsecured Long-Term Debt | Short-Term Debt | Outlook | | :------------ | :------------------------------ | :-------------- | :------- | | S&P | A- | A-2 | Stable | | Moody's | A1 | P-1 | Negative | - A significant degradation in operating performance or liquidity could trigger a negative change in ratings outlook or a reduction in credit ratings[151] Debt Covenants Atmos Energy was in compliance with all its debt covenants as of March 31, 2024, including maintaining a total-debt-to-total-capitalization ratio of no greater than 70% - The company was in compliance with all debt covenants as of March 31, 2024[154] - Debt covenants require maintaining a total-debt-to-total-capitalization ratio of no greater than 70%[49] Contractual Obligations and Commercial Commitments No significant changes in contractual obligations and commercial commitments occurred during the six months ended March 31, 2024 - No significant changes in contractual obligations and commercial commitments occurred during the six months ended March 31, 2024[155] Risk Management Activities Atmos Energy manages commodity price risk through physical and financial contracts and interest rate risk using forward starting interest rate swaps, with the fair value of financial instruments at $351.3 million as of March 31, 2024 - The company uses physical storage, fixed physical contracts, and fixed financial contracts to reduce exposure to winter-period gas price increases[156] - Interest rate risk is managed by entering into financial instruments to fix the Treasury yield component of anticipated financings[156] Fair Value of Financial Instruments (March 31, 2024, in thousands) | Source of Fair Value | Less Than 1 Year | 1-3 Years | 4-5 Years | Greater Than 5 Years | Total Fair Value | | :------------------- | :--------------- | :-------- | :-------- | :------------------- | :--------------- | | Prices actively quoted | $254,102 | $97,159 | $— | $— | $351,261 | Operating Statistics and Other Information This section provides operating statistics for the distribution and pipeline and storage segments, including 3,367,671 total meters in service and 428,981 MMcf in pipeline transportation volumes for the six months ended March 31, 2024 Distribution Sales and Statistical Data (March 31, 2024) | Metric | Three Months Ended | Six Months Ended | | :----------------------------------- | :----------------- | :--------------- | | Total Meters in Service | 3,367,671 | 3,367,671 | | Total Gas Sales Volumes (MMcf) | 131,537 | 214,253 | | Total Throughput (MMcf) | 178,213 | 303,221 | Pipeline and Storage Operations Sales and Statistical Data (March 31, 2024) | Metric | Three Months Ended | Six Months Ended | | :----------------------------------- | :----------------- | :--------------- | | Total Customers | 283 | 283 | | Pipeline Transportation Volumes (MMcf)| 219,709 | 428,981 | Recent Accounting Developments This section refers to Note 2 of the condensed consolidated financial statements for information on recent accounting developments and their potential impact - Recent accounting developments and their impact are described in Note 2 to the condensed consolidated financial statements[163] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes occurred in the company's quantitative and qualitative disclosures about market risk during the six months ended March 31, 2024 - No material changes in quantitative and qualitative disclosures about market risk occurred during the six months ended March 31, 2024[165] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2024, with no material changes in internal control over financial reporting during the second quarter of fiscal year 2024 Management's Evaluation of Disclosure Controls and Procedures The company's principal executive and financial officers concluded that disclosure controls and procedures were effective as of March 31, 2024 - Disclosure controls and procedures were effective as of March 31, 2024[166] Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting occurred during the second quarter of the fiscal year ended September 30, 2024 - No material changes in internal control over financial reporting occurred during the second quarter of fiscal year 2024[167] Item 1. Legal Proceedings No material changes in legal proceedings occurred during the six months ended March 31, 2024, and management believes the final outcome will not materially adversely affect the company's financial position - No material changes in legal proceedings occurred during the six months ended March 31, 2024, except as noted in Note 11[169] - Management believes the final outcome of legal matters will not materially adversely affect financial condition, results of operations, or cash flows[169] Item 1A. Risk Factors There were no material changes from the risk factors disclosed in Item 1A of the Annual Report on Form 10-K for the year ended September 30, 2023 - No material changes from the risk factors disclosed in the prior Annual Report on Form 10-K[169] Item 5. Other Information No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended March 31, 2024 - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended March 31, 2024[169] Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report, including corporate governance documents, credit agreements, and XBRL interactive data files - Exhibits include corporate governance documents (Articles of Incorporation, Bylaws) and credit agreements[173] - XBRL Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Labels Linkbase, Presentation Linkbase, and Cover Page Interactive Data File are filed[171] - Certifications pursuant to 18 U.S.C. Section 1350 by the CEO and CFO are furnished as Exhibit 32[171][173] Signature The report is duly signed on behalf of Atmos Energy Corporation by Christopher T. Forsythe, Senior Vice President and Chief Financial Officer, on May 8, 2024 - The report was signed by Christopher T. Forsythe, Senior Vice President and Chief Financial Officer, on May 8, 2024[175]