Atmos Energy (ATO) 10-K risk factor changes: FY2019 vs FY2018

[removed: We] [added: We] are subject to state and local regulations that affect our operations and financial [removed: results.][added: results.]

These mechanisms work to effectively reduce the regulatory lag [added: inherent in the ratemaking process.]

[removed: The regulatory process also involves the risk that regulatory authorities may (i) review our] purchases of natural gas and adjust the amount of our gas costs that we pass through to our customers or (ii) limit the costs we may have incurred from our cost of service that can be recovered from customers.

[removed: Some] [added: Some] of our operations are subject to increased federal regulatory oversight that could affect our operations and financial [removed: results.][added: results.]

[removed: We] [added: We] may experience increased federal, state and local regulation of the safety of our [removed: operations.][added: operations.]

[removed: However,] [added: As] in recent years, natural gas distribution and pipeline companies [removed: have faced] [added: are continuing to encounter] increasing federal, state and local oversight of the safety of their operations.

Although we believe these [added: are] costs [removed: should be] ultimately recoverable through our rates, the costs of complying with new laws and regulations may have at least a short-term adverse impact on our operating costs and financial results.

[removed: Distributing,] [added: Distributing,] transporting and storing natural gas involve risks that may result in accidents and additional operating [removed: costs.][added: costs.]

However, because some of our transmission pipeline and storage facilities are near or are in populated areas, [removed: any loss of human life or adverse financial results resulting from such events could be large.]

[removed: Our] [added: Our] growth in the future may be limited by the nature of our business, which requires extensive capital [removed: spending.][added: spending.]

[removed: The] [added: The] Company is dependent on continued access to the credit and capital markets to execute our business [removed: strategy.][added: strategy.]

Our long-term debt is currently rated as “investment grade” by Standard & Poor’s Corporation and Moody’s Investors Service, Inc. Similar to most companies, we rely upon access to both short-term and long-term credit and capital markets to [added: satisfy our liquidity requirements.]

[removed: We] [added: We] are exposed to market risks that are beyond our control, which could adversely affect our financial [removed: results.][added: results.]

[removed: The] [added: The] concentration of our operations in the State of Texas exposes our operations and financial results to economic conditions, weather patterns and regulatory decisions in [removed: Texas.][added: Texas.]

[removed: A] [added: A] deterioration in economic conditions could adversely affect our customers and negatively impact our financial [removed: results.][added: results.]

[removed: Increased] [added: Increased] gas costs could adversely impact our customer base and customer collections and increase our level of [removed: indebtedness.][added: indebtedness.]

Increases in purchased gas costs also slow our natural gas distribution collection efforts as customers are more likely to delay the payment of their gas bills, leading to higher than normal [removed: accounts receivable.]

[removed: If] [added: If] contracted gas supplies, interstate pipeline and/or storage services are not available or delivered in a timely manner, our ability to meet our customers’ natural gas requirements may be impaired and our financial condition may be adversely [removed: affected.][added: affected.]

[removed: Our] [added: Our] operations are subject to increased [removed: competition.][added: competition.]

[removed: Adverse] [added: Adverse] weather conditions could affect our operations or financial [removed: results.][added: results.]

[removed: The] [added: The] costs of providing health care benefits, pension and postretirement health care benefits and related funding requirements may increase [removed: substantially.][added: substantially.]

[removed: The] [added: The] inability to continue to hire, train and retain operational, technical and managerial personnel could adversely affect our results of [removed: operations.][added: operations.]

[removed: The] [added: The] operations and financial results of the Company could be adversely impacted as a result of climate [removed: change or related additional legislation or regulation in the future.][added: change.]

[removed: To the extent] [added: As] climate change occurs, our businesses could be adversely impacted, although we believe it is likely that any such resulting impacts would occur very gradually over a long period of time and thus would be difficult to quantify with any degree of specificity.

Such climate change could [removed: also] cause shifts in population, including customers moving away from our service [removed: territories near the Gulf Coast in Louisiana and Mississippi.][added: territories.]

[removed: Another possible climate change would be] [added: It could also result in] more frequent and more severe weather events, such as hurricanes and tornadoes, which could increase our costs to repair damaged facilities and restore service to our customers.

If we were unable to deliver natural gas to our customers, our financial results would be impacted by lost revenues, and we generally would have to [added: seek approval from regulators to recover restoration costs.]

[removed: In addition, there have been a number of federal and] [added: Federal, regional and/or] state legislative [removed: and] [added: and/or] regulatory initiatives [removed: proposed in recent years in an] [added: may] attempt to control or limit the [removed: effects] [added: causes] of [removed: global warming and overall] climate change, including greenhouse gas emissions, such as carbon [removed: dioxide.][added: dioxide and methane.]

[removed: Cyber-attacks] [added: Cyber-attacks] or acts of cyber-terrorism could disrupt our business operations and information technology systems or result in the loss or exposure of confidential or sensitive customer, employee or Company [removed: information.][added: information.]

Disruption of those systems could adversely impact our ability to safely deliver natural gas to our customers, operate our pipeline and storage [removed: systems or serve our customers timely.]

[removed: Natural] [added: Natural] disasters, terrorist activities or other significant events could adversely affect our operations or financial [removed: results.][added: results.]

The regulatory process also involves the risk that regulatory authorities may (i) review our

We may incur significant costs and liabilities resulting from pipeline integrity and other similar programs and related repairs.

PHMSA requires pipeline operators to develop integrity management programs to comprehensively evaluate certain areas along their pipelines and to take additional measures to protect pipeline segments located in “high consequence areas” where a leak or rupture could potentially do the most harm.

As pipeline operator, the Company will be required to:

- perform ongoing assessments of pipeline integrity;

- identify and characterize applicable threats to pipeline segments that could impact a “high consequence area”;

- improve data collection, integration and analysis;

- repair and remediate the pipeline as necessary; and

- implement preventative and mitigating actions.

The Company incurs significant costs associated with its compliance with existing PHMSA and comparable state regulations.

Although we believe these are costs ultimately recoverable through our rates, the costs of complying with new laws and regulations may have at least a short-term adverse impact on our operating costs and financial results.

For example, the adoption of new regulations requiring more comprehensive or stringent safety standards could require installation of new or modified safety controls, new capital projects, or accelerated maintenance programs, all of which could require a potentially significant increase in operating costs.

any loss of human life or adverse financial results resulting from such events could be large.

accounts receivable.

Greenhouse gas emissions or other legislation or regulations intended to address climate change could increase our operating costs, adversely affecting our financial results, growth, cash flows and results of operations.

Such laws or regulations could impose costs tied to greenhouse gas emissions, operational requirements or restrictions, or additional charges to fund energy efficiency activities.

They could also provide a cost advantage to alternative energy sources, impose costs or restrictions on end users of natural gas, or result in other costs or requirements, such as costs associated with the adoption of new infrastructure and technology to respond to new mandates.

The focus on climate change could adversely impact the reputation of fossil fuel products or services.

The occurrence of the foregoing events could put upward pressure on the cost of natural gas relative to other energy sources, increase our costs and the prices we charge to customers, reduce the demand for natural gas or cause fuel switching to other energy sources, and impact the competitive position of natural gas and the ability to serve new or existing customers, adversely affecting our business, results of operations and cash flows.

Increased dependence on technology may hinder the Company’s business operations and adversely affect its financial condition and results of operations if such technologies fail.

Over the last several years, the Company has implemented or acquired a variety of technological tools including both Company-owned information technology and technological services provided by outside parties.

These tools and systems support critical functions including, scheduling and dispatching of service technicians, automated meter reading systems, customer care and billing, operational plant logistics, management reporting, and external financial reporting.

The failure of these or other similarly important technologies, or the Company’s inability to have these technologies supported, updated, expanded, or integrated into other technologies, could hinder its business operations and adversely impact its financial condition and results of operations.

Although the Company has, when possible, developed alternative sources of technology and built redundancy into its computer networks and tools, there can be no assurance that these efforts would protect against all potential issues related to the loss of any such technologies.

systems or serve our customers timely.

Although we have tried to discuss key risk factors below, please be aware that other or new risks may prove to be important in the future.

inherent in the ratemaking process.

satisfy our liquidity requirements.

To the extent climate change would result in warmer temperatures in our service territories, financial results could be adversely affected through lower gas volumes and revenues.

seek approval from regulators to recover restoration costs.

The adoption of this type of legislation by Congress or similar legislation by states or the adoption of related regulations by federal or state governments mandating a substantial reduction in greenhouse gas emissions in the future could have far-reaching and significant impacts on the energy industry.

Such new legislation or regulations could result in increased compliance costs for us or additional operating restrictions on our business, affect the demand for natural gas or impact the prices we charge to our customers.

At this time, we cannot predict the potential impact of such laws or regulations that may be adopted on our future business, financial condition or financial results.

[removed: INTRODUCTION][added: INTRODUCTION]

[removed: Cautionary] [added: Cautionary] Statement for the Purposes of the Safe Harbor under the Private Securities Litigation Reform Act of [removed: 1995][added: 1995]

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; [added: 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 [removed: change] [added: change; the impact of greenhouse gas emissions] or [removed: related additional] [added: other] legislation or [removed: regulation in] [added: regulations intended to address climate change; increased dependence on technology that may hinder] the [removed: future;] [added: 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.

[removed: CRITICAL] [added: CRITICAL] ACCOUNTING [removed: POLICIES][added: POLICIES]

Our significant accounting policies are discussed in Notes 2 and [removed: 15] [added: 16] to our consolidated financial statements.

| [removed: Critical Accounting Policy] [added: Critical Accounting Policy] | [removed: Summary] [added: Summary] of [removed: Policy] [added: Policy] | [removed: Factors] [added: Factors] Influencing Application of the [removed: Policy] [added: Policy] |

| [removed: Regulation] [added: Regulation] | Our distribution and pipeline operations meet the criteria of a cost-based, rate-regulated entity under accounting principles generally accepted in the United States. Accordingly, the financial results for these operations reflect the effects of the ratemaking and accounting practices and policies of the various regulatory commissions to which we are subject. As a result, certain costs that would normally be expensed under accounting principles generally accepted in the United States are permitted to be capitalized or deferred on the balance sheet because it is probable they can be recovered through rates. Further, regulation may impact the period in which revenues or expenses are recognized. The amounts expected to be recovered or recognized are based upon historical experience and our understanding of the regulations. Discontinuing the application of this method of accounting for regulatory assets and liabilities or changes in the accounting for our various regulatory mechanisms could significantly increase our operating expenses as fewer costs would likely be capitalized or deferred on the balance sheet, which could reduce our net income. | Decisions of regulatory authorities Issuance of new regulations or regulatory mechanisms Assessing the probability of the recoverability of deferred costs Continuing to meet the criteria of a cost-based, rate regulated entity for accounting purposes |

| [removed: Unbilled Revenue] [added: Unbilled Revenue] | We follow the revenue accrual method of accounting for distribution segment revenues whereby revenues attributable to gas delivered to customers, but not yet billed under the cycle billing method, are estimated and accrued and the related costs are charged to expense. When permitted, we implement rates that have not been formally approved by our regulatory authorities, subject to refund.We recognize this revenue and establish a reserve for amounts that could be refunded based on our experience for the jurisdiction in which the rates were implemented. | Estimates of delivered sales volumes based on actual tariff information and weather information and estimates of customer consumption and/or behavior Estimates of purchased gas costs related to estimated deliveries Estimates of amounts billed subject to refund |

| [removed: Pension] [added: Pension] and other postretirement [removed: plans] [added: plans] | Pension and other postretirement plan costs and liabilities are determined on an actuarial basis using a September 30 measurement date and are affected by numerous assumptions and estimates including the market value of plan assets, estimates of the expected return on plan assets, assumed discount rates and current demographic and actuarial mortality data. The assumed discount rate and the expected return are the assumptions that generally have the most significant impact on our pension costs and liabilities. The assumed discount rate, the assumed health care cost trend rate and assumed rates of retirement generally have the most significant impact on our postretirement plan costs and liabilities. The discount rate is utilized principally in calculating the actuarial present value of our pension and postretirement obligations and net periodic pension and postretirement benefit plan costs. When establishing our discount rate, we consider high quality corporate bond rates based on bonds available in the marketplace that are suitable for settling the obligations, changes in those rates from the prior year and the implied discount rate that is derived from matching our projected benefit disbursements with currently available high quality corporate bonds. The expected long-term rate of return on assets is utilized in calculating the expected return on plan assets component of our annual pension and postretirement plan costs. We estimate the expected return on plan assets by evaluating expected bond returns, equity risk premiums, asset allocations, the effects of active plan management, the impact of periodic plan asset rebalancing and historical performance. We also consider the guidance from our investment advisors in making a final determination of our expected rate of return on assets. To the extent the actual rate of return on assets realized over the course of a year is greater than or less than the assumed rate, that year’s annual pension or postretirement plan costs are not affected. Rather, this gain or loss reduces or increases future pension or postretirement plan costs over a period of approximately ten to twelve years. The market-related value of our plan assets represents the fair market value of the plan assets, adjusted to smooth out short-term market fluctuations over a five-year period. The use of this methodology will delay the impact of current market fluctuations on the pension expense for the period. We estimate the assumed health care cost trend rate used in determining our postretirement net expense based upon our actual health care cost experience, the effects of recently enacted legislation and general economic conditions. Our assumed rate of retirement is estimated based upon our annual review of our participant census information as of the measurement date. | General economic and market conditions Assumed investment returns by asset class Assumed future salary increases Assumed discount rate Projected timing of future cash disbursements Health care cost experience trends Participant demographic information Actuarial mortality assumptions Impact of legislation Impact of regulation |

| [removed: Impairment assessments] [added: Impairment assessments] | We review the carrying value of our long-lived assets, including goodwill and identifiable intangibles, whenever events or changes in circumstance indicate that such carrying values may not be recoverable, and at least annually for goodwill, as required by U.S. accounting standards. The evaluation of our goodwill balances and other long-lived assets or identifiable assets for which uncertainty exists regarding the recoverability of the carrying value of such assets involves the assessment of future cash flows and external market conditions and other subjective factors that could impact the estimation of future cash flows including, but not limited to the commodity prices, the amount and timing of future cash flows, future growth rates and the discount rate. Unforeseen events and changes in circumstances or market conditions could adversely affect these estimates, which could result in an impairment charge. | General economic and market conditions Projected timing and amount of future discounted cash flows Judgment in the evaluation of relevant data |

[removed: Non-GAAP] [added: *Non-GAAP] Financial [removed: Measures][added: Measures*]

These costs are reflected in the [added: consolidated statements of comprehensive] income [removed: statement] as purchased gas cost.

As described further in Note [removed: 12,] [added: 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.

Due to the non-recurring nature of this benefit, we believe that [added: net] income [removed: from continuing operations] and diluted [removed: earnings] [added: net income] per share [removed: from continuing operations] before the non-cash income tax benefit provide a more relevant measure to analyze our financial performance than [added: net] income [removed: from continuing operations] and [removed: consolidated] diluted [removed: earnings] [added: net income] per share [removed: from continuing operations] 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 [added: net] income [removed: from continuing operations] and [added: adjusted] diluted earnings per share, [added: non-GAAP measures,] which [removed: is] [added: are] calculated as follows:

| | [removed: For] [added: For] the Fiscal Year Ended September [removed: 30] [added: 30] | | | | | | | | | | |

| | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: Change] [added: Change] | | |

| | [removed: (In] [added: (In] thousands, except per share [removed: data)] [added: data)] | | | | | | | | | | |

| [removed: Income] [added: Net income] from continuing operations | [removed: $] [added: 511,406] | [removed: 603,064] | | | [removed: $] [added: 603,064] | [removed: 382,711] | | | [removed: $] [added: 382,711] | [removed: 220,353] | |

| TCJA non-cash income tax benefit | [removed: (158,782] [added: —] | | [removed: )] | | [removed: —] [added: (158,782] | | [added: )] | | [removed: (158,782] [added: 158,782] | | [removed: )] |

| Diluted EPS from TCJA non-cash income tax benefit | [removed: (1.43] [added: —] | | [removed: )] | | [removed: —] [added: (1.43] | | [added: )] | | [removed: (1.43] [added: 1.43] | | [removed: )] |

[removed: RESULTS] [added: RESULTS] OF [removed: OPERATIONS][added: OPERATIONS]

[removed: Overview][added: Overview]

During fiscal [removed: 2018,] [added: 2019,] we recorded [added: net] income [removed: from continuing operations] of [removed: $603.1] [added: $511.4] million, or [removed: $5.43] [added: $4.35] per diluted share, compared to [added: net] income [removed: from continuing operations] of [removed: $382.7] [added: $603.1] million, or [removed: $3.60] [added: $5.43] per diluted share in the prior year.

After adjusting for the nonrecurring benefit recognized after implementing the [removed: TCJA,] [added: TCJA in fiscal 2018,] we [removed: recognized] [added: recorded] adjusted [added: net] income [removed: from continuing operations] of $444.3 million, or $4.00 per diluted share for the year ended September 30, [removed: 2018, compared to adjusted income from continuing operations of $382.7 million, or $3.60 per diluted share for the year ended September 30, 2017.][added: 2018.]

The year-over-year increase [added: in adjusted net income] of [removed: $61.6] [added: $67.1] million, or [removed: 16] [added: 15] percent, largely reflects [added: positive] rate [removed: increases] [added: outcomes] driven by safety and reliability spending, [removed: weather that was 36 percent colder than the prior year,] customer growth in our distribution [added: business, positive Contribution Margin in our pipeline and storage] business [added: primarily due to positive supply] and [added: demand dynamics affecting] the [added: Permian Basin due to wider spreads and the] impact of the TCJA on our effective income tax [removed: rate, partially offset by reduced revenues as a result of implementing the TCJA.][added: rate.]

During the year ended September 30, [removed: 2018,] [added: 2019,] we [removed: completed 18] [added: implemented ratemaking] regulatory [removed: proceedings, resulting] [added: actions which resulted] in an increase in annual operating income of [removed: $80.1] [added: $116.7] million and had [removed: 11] [added: nine] ratemaking efforts in progress at September 30, [removed: 2018,] [added: 2019,] seeking a total increase in annual operating income of [removed: $52.8] [added: $81.2] million.

We funded [added: a portion of] our current-year capital expenditures program [removed: primarily] through operating cash flows of [removed: $1,124.7] [added: $968.8] million.

The net proceeds from [removed: the issuance] [added: these issuances, together with available cash,] were [removed: primarily] used to repay [added: at maturity our $450 million 8.5% unsecured senior notes, to repay] short-term debt under our commercial paper program, to fund capital spending and for general corporate purposes.

We received net proceeds from the offering, after underwriting discount and estimated offering expenses of approximately [removed: $591] [added: $791.6] million, that were used [removed: to repay] [added: for general corporate purposes, including the repayment of] working capital borrowings pursuant to our commercial paper program.

The effective interest rate of these notes is [removed: 4.37%] [added: 2.72% and 3.42%] after giving effect to the offering costs.

As a result of the continued contribution and stability of our earnings, cash flows and capital structure, our Board of Directors increased the quarterly dividend by [removed: 8.2%] [added: 9.5%] percent for fiscal [removed: 2019.][added: 2020.]

[removed: The following table presents our consolidated financial] [added: Financial and operational] highlights for [added: our distribution segment for] the fiscal years ended September 30, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016.][added: 2017 are presented below.]

| | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | |

| [removed: One-time,] [added: TCJA] non-cash income tax benefit | [removed: (158,782] [added: —] | | [added: | | (21,104 | |] ) | | — | | | | [removed: —] [added: 21,104] | | | [added: | (21,104 | | ) |]

| Net income from discontinued operations | — | | | | [removed: 13,710] [added: —] | | | | [removed: 4,562] [added: 13,710] | | |

| Net income | $ | [removed: 603,064] [added: 511,406] | | | $ | [removed: 396,421] [added: 603,064] | | | $ | [removed: 350,104] [added: 396,421] | |

| Diluted net income [removed: from continuing operations] per share | $ | [removed: 5.43] [added: 4.35] | | | $ | [removed: 3.60] [added: 5.43] | | | $ | [removed: 3.33] [added: (1.08] | [added: )] |

| [removed: Diluted] [added: Adjusted diluted] net income per share | $ | [removed: 5.43] [added: 4.35] | | | $ | [removed: 3.73] [added: 4.00] | | | $ | [removed: 3.38] [added: 0.35] | |

[removed: Our] [added: The following table details our] consolidated net income [added: by segment] during the last three fiscal [removed: years was earned across our business segments as follows:][added: years:]

| Critical Accounting Policy | Summary of Policy | Factors Influencing Application of the Policy |

| Net income | $ | 511,406 | | | $ | 603,064 | | | $ | (91,658 | ) |

| Adjusted net income | $ | 511,406 | | | $ | 444,282 | | | $ | 67,124 | |

Capital expenditures for fiscal 2019 increased 15 percent period-over-period, to $1.7 billion.

Additionally, we completed over $2 billion in external financing during the year ended September 30, 2019 with the issuance of $1.1 billion in 30-year senior notes and over $1.0 billion of common stock, of which approximately $470 million was allocated to forward sale agreements which have not yet been settled.

Additionally, on October 2, 2019, we completed a public offering of $300 million of 2.625% senior notes due 2029 and $500 million of 3.375% senior notes due 2049.

Currently, gas cost risk has been mitigated by rate design that allows us to collect

| Operating expenses(1) | 1,006,098 | | | | 957,544 | | | | 865,995 | | | | 48,554 | | | | 91,549 | | |

| Operating income | 470,772 | | | | 485,667 | | | | 513,724 | | | | (14,895 | | ) | | (28,057 | | ) |

| Other non-operating income (expense)(1) | 6,241 | | | | (6,649 | | ) | | (9,777 | | ) | | 12,890 | | | | 3,128 | | |

| (1) | In accordance with our adoption of new accounting standards, changes in income statement presentation were implemented on a retrospective basis and impacted previously issued financial statements for the fiscal years ended 2018 and 2017, as discussed in greater detail in Note 2. |

| • | a $2.3 million decrease in residential and commercial net consumption. |

Operating expenses, which include operating and maintenance expense, provision for doubtful accounts, depreciation and amortization expense and taxes, other than income, increased $48.6 million primarily due to:

| • | a $20.7 million increase in pipeline maintenance and related activities. |

| • | a $13.7 million increase in employee and training costs as we have increased service-related headcount to support operations in our fastest growing service territories. |

| • | a $3.5 million increase in software maintenance fees. |

| • | a $24.3 million decrease in nonrecurring expenses related to the planned outage of our natural gas distribution system in Northwest Dallas in March 2018. |

The year-over-year decrease in other non-operating expense and interest charges of $18.7 million is primarily due to increased capitalized interest and AFUDC, as well as decreases due to the adoption of new accounting standards.

As discussed further in Note 2, we are now required to recognize changes in the fair value of our equity securities formerly designated as available-for-sale on our consolidated statements of comprehensive income and the components of net periodic cost other than the service cost component are included in other non-operating expense in the consolidated statements of comprehensive income.

These decreases are partially offset by an increase in interest expense due to the issuance of long-term debt during fiscal 2019.

The fiscal year ended September 30, 2018 compared with fiscal year ended September 30, 2017 for our distribution segment is described in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended September 30, 2018.

| | For the Fiscal Year Ended September 30 | | | | | | | | | | | | | | | | | | |

| Other | (1,176 | | ) | | 6,445 | | | | 16,030 | | | | (7,621 | | ) | | (9,585 | | ) |

| Total | $ | 470,772 | | | $ | 485,667 | | | $ | 513,724 | | | $ | (14,895 | ) | | $ | (28,057 | ) |

On May 7, 2019, the RRC approved the Company's GRIP filing.

*Review of Financial and Operating Results*

| | For the Fiscal Year Ended September 30 | | | | | | | | | | | | | | | | | | |

| Other non-operating income (expense) | 1,163 | | | | (3,495 | | ) | | (1,575 | | ) | | 4,658 | | | | (1,920 | | ) |

The fiscal year ended September 30, 2018 compared with fiscal year ended September 30, 2017 for our pipeline and storage segment is described in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended September 30, 2018.

The fiscal year ended September 30, 2018 compared with fiscal year ended September 30, 2017 for our natural gas marketing segment is described in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended September 30, 2018.

The registration statement replaced our previous registration statement that was effectively exhausted in October 2018.

At September 30, 2019, approximately $75 million remained available under the ATM equity sales program.

For the year ended September 30, 2019, we completed over $2 billion of long-term debt and equity financing.

During fiscal 2019, we executed forward sales with various forward sellers who borrowed and sold 6,813,135 shares of our common stock for initial aggregate proceeds of approximately $673 million.

The following table summarizes the remaining availability under our various forward sales as of September 30, 2019:

| | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | |

| Issue Quarter | Shares Available | | Net Proceeds Available (In thousands) | | | Maturity | Forward Price | | |

| December 31, 2018 | 485,189 | | $ | 44,342 | | 3/31/2020 | $ | 91.39 | |

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Adjusted income from continuing operations | $ | 444,282 | | | $ | 382,711 | | | $ | 61,571 | |

| Consolidated diluted EPS from continuing operations | $ | 5.43 | | | $ | 3.60 | | | $ | 1.83 | |

| Adjusted diluted EPS from continuing operations | $ | 4.00 | | | $ | 3.60 | | | $ | 0.40 | |

Capital expenditures for fiscal 2018 totaled $1,467.6 million.

Additionally, we issued $400 million of common stock during the year ended September 30, 2018.

On October 4, 2018, we completed a public offering of $600 million 4.30% senior notes due 2048.

TCJA Impact

The TCJA introduced several significant changes to corporate income tax laws in the United States, which have been reflected in our consolidated financial statements for the year ended September 30, 2018.

As a rate regulated entity, the effects of lower tax rates included in our cost of service rates will ultimately flow through to our utility customers in the form of adjusted rates.

Therefore, the favorable impact of the reduction in our federal statutory income tax rate on our financial performance will be limited to items that impact our income before income taxes in the current period that have not yet been reflected in our rates (most notably increases to and decreases in commission-approved regulatory assets and liabilities recorded on our consolidated balance sheet) and market-based revenues that are earned from customers who utilize our assets.

Note 12 to the consolidated financial statements details the various impacts of the TCJA on our financial position and results from operations.

The most significant changes are summarized as follows:

| | |

| --- | --- |

| • | Because our fiscal year started on October 1, 2017, our federal statutory income tax rate for fiscal 2018 was reduced from 35% to 24.5%. Our effective income tax rate for fiscal 2018 was 27.5%, before the effect of the return of the excess deferred tax liability and the one-time, non-cash income tax benefit. Our federal statutory income tax rate declined to 21% on October 1, 2018. |

| • | As a result of implementing the TCJA, we remeasured our net deferred tax liability using our new federal statutory income tax rate, which reduced our net deferred tax liability by $905.3 million. Of this amount, $746.5 million was reclassified to a regulatory liability called excess deferred tax liability. The remaining $158.8 million was recognized as a one-time, non-cash income tax benefit in our consolidated statement of income for the year ended September 30, 2018. |

| • | Atmos Energy supports our regulators' efforts to ensure our utility customers receive the full benefits of changes in our cost of service rates arising from tax reform. Income taxes, like other costs, are passed through to our customers in our rates; however, changes to customer rates must be approved by our regulators. |

| ◦ | Beginning in the second quarter of fiscal 2018, we established regulatory liabilities in all our jurisdictions for the difference in taxes included in our cost of service rates that have been calculated based on a 35% statutory income tax rate and a 21% statutory income tax rate, which reduced our revenues. We have received approval from most of our regulators to adjust customer rates for the lower statutory income tax rate. |

| ◦ | We have also received approval from regulators in several of our states to return amounts to customers related to the regulatory liability recorded for differences in our cost of service rates due to the change in the statutory income tax rate within one year. |

| ◦ | We have received approval from regulators in several of our states to begin returning the Excess Deferred Tax Liability created upon implementation of the TCJA, as discussed above, over a period ranging from 18 to 40 years. For the year ended September 30, 2018, we amortized $1.6 million of this regulatory liability. |

| • | The enactment of the TCJA is expected to reduce our future cash flows from operations primarily due to 1) the collection of taxes at a lower rate and 2) the return of regulatory liabilities established in response to the enactment of the TCJA and regulatory activities to our utility customers. We intend to externally finance this reduction in operating cash flow in a balanced fashion in order to maintain an equity-to-total-capitalization ratio ranging from 50% to 60% to maintain our current credit ratings. |

Consolidated Results

| Operating revenues | $ | 3,115,546 | | | $ | 2,759,735 | | | $ | 2,454,648 | |

| Purchased gas cost | 1,167,848 | | | | 925,536 | | | | 746,192 | | |

| Operating expenses | 1,224,564 | | | | 1,106,653 | | | | 1,051,226 | | |

| Operating income | 723,134 | | | | 727,546 | | | | 657,230 | | |

| Interest charges | 106,646 | | | | 120,182 | | | | 114,812 | | |

| Income from continuing operations before income taxes | 611,144 | | | | 604,094 | | | | 542,184 | | |

| Income tax expense | 166,862 | | | | 221,383 | | | | 196,642 | | |

| Net income from continuing operations | 603,064 | | | | 382,711 | | | | 345,542 | | |

| Diluted net income from discontinued operations per share | — | | | | 0.13 | | | | 0.05 | | |

| Net income from discontinued natural gas marketing operations | — | | | | 13,710 | | | | 4,562 | | |

See the following discussion regarding the results of operations for each of our business operating segments.

income.

| Operating expenses | 962,344 | | | | 874,077 | | | | 839,318 | | | | 88,267 | | | | 34,759 | | |

| Operating income | 480,867 | | | | 505,642 | | | | 441,884 | | | | (24,775 | | ) | | 63,758 | | |

| Miscellaneous income (expense) | (1,849 | | ) | | (1,695 | | ) | | 1,171 | | | | (154 | | ) | | (2,866 | | ) |

| • | a $12.2 million increase in net consumption, primarily in our Mid-Tex, Mississippi, Kentucky/Mid-States and Louisiana Divisions. |

Our risk management activities and related accounting treatment are described in further detail in Note [removed: 13] [added: 14] to the consolidated financial statements.

[removed: Commodity] [added: Commodity] Price [removed: Risk][added: Risk]

[removed: Interest] [added: Interest] Rate [removed: Risk][added: Risk]

Had interest rates associated with our short-term borrowings increased by an average of one percent, our [removed: net] interest expense would [added: not] have [added: been materially] increased [removed: by approximately $0.2 million] during [removed: 2018.][added: 2019.]

[removed: Overview] [added: Overview] and [removed: Strategy][added: Strategy]

Since that time, our capital expenditures have increased approximately [removed: 13%] [added: 14%] annually.

[removed: Operating Segments][added: Operating Segments]

As of September 30, [removed: 2018,] [added: 2019,] we manage and review our consolidated operations through the following [removed: three] reportable [removed: segments:][added: segments, which are discussed in further detail below.]

| • | The [removed: distribution segment] [added: *distribution segment*] is primarily comprised of our regulated natural gas distribution and related sales operations in eight states. |

| • | The [removed: pipeline] [added: *pipeline] and storage [removed: segment] [added: segment*] is comprised primarily of the pipeline and storage operations of our Atmos Pipeline-Texas division and our natural gas transmission operations in Louisiana. |

[removed: | • | The] [added: Prior to disposition, the] natural gas marketing [removed: segment is] [added: segment, which was] comprised of our [removed: discontinued] natural gas marketing [removed: business. |][added: business, was also a reportable segment.]

[removed: Distribution] [added: Distribution] Segment [removed: Overview][added: Overview]

| [removed: Division] [added: Division] | | [removed: Service Areas] [added: Service Areas] | | [removed: Communities Served] [added: Communities Served] | | [removed: Customer Meters] [added: Customer Meters] |

| Mid-Tex | | Texas, including the Dallas/Fort Worth Metroplex | | 550 | | [removed: 1,697,171] [added: 1,722,424] |

| Kentucky/Mid-States | | Kentucky | | 230 | | [removed: 182,510] [added: 183,450] |

| West Texas | | Amarillo, Lubbock, Midland | | 80 | | [removed: 313,828] [added: 316,844] |

| Colorado-Kansas | | Colorado | | 170 | | [removed: 120,384] [added: 121,883] |

At September 30, [removed: 2018,] [added: 2019,] we held [removed: 1,013] [added: 1,017] franchises having terms generally ranging from five to 35 years.

Purchased gas cost adjustment mechanisms provide [removed: natural gas distribution companies] a method of recovering purchased gas costs on an ongoing basis without filing a rate case because they provide a dollar-for-dollar offset to increases or decreases in the cost [added: of] natural gas.

Therefore, although substantially all of our distribution operating revenues fluctuate with the cost of gas that we purchase, distribution Contribution Margin [removed: (a Non-GAAP measure defined as operating revenues less purchased gas cost)] is generally not affected by fluctuations in the cost of gas.

Additionally, some jurisdictions have performance-based ratemaking adjustments to provide incentives to [removed: distribution companies to] minimize purchased gas costs through improved storage management and use of financial instruments to [removed: lock] [added: reduce volatility] in gas costs.

Under the performance-based ratemaking adjustments, purchased gas costs savings are shared between the [removed: utility] [added: Company] and its customers.

Major suppliers during fiscal [removed: 2018] [added: 2019] were Castleton Commodities Merchant Trading L.P., CenterPoint Energy Services, Inc., Concord Energy LLC, ConocoPhillips Company, Devon Gas Services, L.P., [removed: DTE Energy Trading Inc., Mieco Inc., Sequent Energy Management,] [added: Hartree Partners,] L.P., Targa Gas Marketing [removed: LLC and] [added: LLC,] Tenaska [removed: Gas Storage &] Marketing [removed: Ventures,] [added: Ventures & Gas Storage, LLC, Texla Energy Management, Inc. and United Energy Trading,] LLC.

The peak-day demand for our distribution operations in fiscal [removed: 2018] [added: 2019] was on [removed: January 16, 2018,] [added: March 4, 2019,] when sales to customers reached approximately [removed: 3.8] [added: 3.3] Bcf.

Currently, our distribution divisions utilize [removed: 38] [added: 37] pipeline transportation companies, both interstate and intrastate, to transport our natural gas.

The natural gas supply for our Mid-Tex Division is delivered primarily by our [removed: Atmos Pipeline — Texas Division (APT).][added: APT Division.]

[removed: Pipeline] [added: Pipeline] and Storage Segment [removed: Overview][added: Overview]

APT is one of the largest intrastate pipeline operations in Texas with a heavy concentration in the established natural gas-producing areas of central, northern and eastern Texas, extending into or near the major producing areas of the Barnett Shale, the Texas Gulf Coast and the [removed: Delaware and Val Verde Basins] [added: Permian Basin] of West Texas.

Rates are updated through periodic filings made under Texas’ [removed: Gas Reliability Infrastructure Program (GRIP).][added: GRIP.]

Our natural gas transmission operations in Louisiana are comprised of a [removed: proprietary] 21-mile pipeline located in the New Orleans, Louisiana area that is primarily used to aggregate gas supply for our distribution division in Louisiana under a long-term contract [removed: and] [added: and,] on a more limited basis, to third parties.

[removed: Natural] [added: Natural] Gas Marketing Segment [removed: Overview][added: Overview]

Additionally, AEM utilized proprietary and customer-owned transportation and storage assets to provide various services to its customers [added: as] requested.

As more fully described in Note [removed: 15,] [added: 16,] effective January 1, 2017, we sold all of the equity interests of AEM to CenterPoint Energy Services, Inc. (CES), a subsidiary of CenterPoint Energy Inc. As a result of the sale, Atmos Energy [removed: has] fully exited the nonregulated natural gas marketing business.

[removed: Ratemaking Activity][added: Ratemaking Activity]

[removed: Overview][added: Overview]

| • | Infrastructure programs in place in the majority of our states that provide for an annual adjustment to rates for qualifying capital expenditures. Through our annual formula rate mechanisms and infrastructure programs, we have the ability to recover [removed: over 85] [added: approximately 90] percent of our capital expenditures within six months and [removed: 99 percent] [added: substantially all of our capital expenditures] within twelve months. |

The following table provides a jurisdictional rate summary for our regulated operations as of September 30, [removed: 2018.][added: 2019.]

| [removed: Division] [added: Division] | | [removed: Jurisdiction] [added: Jurisdiction] | | [removed: Effective Date] [added: Effective Date] of [removed: Last Rate/GRIP Action] [added: Last Rate/GRIP Action] | | [removed: Rate Base (thousands)(1)] [added: Rate Base (thousands)(1)] | | [removed: Authorized Rate of Return(1)] [added: Authorized Rate of Return(1)] | | [removed: Authorized Debt/ Equity Ratio] [added: Authorized Debt/ Equity Ratio(1)] | [removed: Authorized Return on Equity(1)] [added: Authorized Return on Equity(1)] |

| Atmos Pipeline — Texas | | Texas | | [removed: 05/22/2018] [added: 05/07/2019] | | [removed: $2,122,194] [added: $2,387,764] | | 8.87% | | 47/53 | 11.50% |

| [added: Colorado-Kansas] | | Kansas GSRS | | [removed: 02/27/2018 |] [added: 12/2018] | [removed: 12,514] | [added: 1,562] | [removed: (3)] | | [removed: (3)] | [removed: (3)] [added: 05/01/2019] |

| Kentucky/Mid-States | | Kentucky | | [removed: 05/03/2018 | | 427,646 |] [added: (7,504] | [removed: 7.41%] | [added: )] | [removed: 47/53] | [removed: 9.70%] [added: 05/03/2018] |

| Mid-Tex [removed: —] [added: - City of] Dallas | | Texas | | [removed: 02/14/2018 | | (3) |] [added: (5,108] | [removed: (3)] | [added: )] | [removed: (3)] | [removed: (3)] [added: 02/14/2018] |

| West [removed: Texas(4) |] [added: Texas] | [removed: Texas(10)] | [added: Environs] | [removed: 03/15/2017] | [added: 12/2017] | [removed: (3)] | [added: 826] | [removed: (3)] | | [removed: (3)] | [removed: 10.50%] [added: 06/05/2018] |

| [removed: Division] [added: Division] | | [removed: Jurisdiction] [added: Jurisdiction] | | [removed: Bad Debt Rider(5)] [added: Bad Debt Rider(5)] | | [removed: Formula Rate] [added: Formula Rate] | | [removed: Infrastructure Mechanism] [added: Infrastructure Mechanism] | [removed: Performance Based Rate Program(6)] [added: Performance Based Rate Program(6)] | | [removed: WNA Period] [added: WNA Period] |

| | | Tennessee | | | | 154,004 |

| | | Virginia | | | | 24,536 |

| Louisiana | | Louisiana | | 270 | | 365,320 |

| Mississippi | | Mississippi | | 110 | | 266,727 |

| | | Kansas | | | | 136,647 |

| | | Colorado SSIR | | 01/01/2019 | | 40,009 | | 7.55% | | 44/56 | 9.45% |

| | | Kansas GSRS | | 05/01/2019 | | 26,322 | | (3) | | (3) | (3) |

| | | Tennessee | | 06/01/2019 | | 389,061 | | 7.79% | | 42/58 | 9.80% |

| | | Virginia | | 04/01/2019 | | 47,827 | | 7.43% | | 42/58 | 9.20% |

| Louisiana | | Trans La | | 04/01/2019 | | 192,586 | | 7.81% | | 41/59 | 9.80% |

| | | LGS | | 07/01/2019 | | 468,958 | | 7.79% | | 42/58 | 9.80% |

| Mid-Tex | | Mid-Tex Cities(8) | | 10/01/2018 | | 2,587,261(2) | | 7.87% | | 42/58 | 9.80% |

| | | Mid-Tex - ATM Cities | | 09/26/2019 | | 2,975,975(2) | | 7.97% | | 40/60 | 9.80% |

| | | Mid-Tex - Environs | | 06/04/2019 | | 2,975,978(2) | | 7.97% | | 40/60 | 9.80% |

| | | Dallas(11) | | 06/01/2019 | | 2,861,599(2) | | 7.96% | | 40/60 | 9.80% |

| Mississippi | | Mississippi(7) | | 11/01/2018 | | 415,627 | | 7.81% | | 45/55 | 10.24% |

| | | Mississippi - SIR(7) | | 11/01/2018 | | 126,049 | | 7.81% | | 45/55 | 10.24% |

| West Texas | | West Texas Cities(4) (9) | | 10/01/2018 | | 503,332(10) | | 7.87% | | 42/58 | 9.80% |

| | | West Texas - ALDC | | 05/01/2019 | | 594,539(10) | | 8.57% | | 48/52 | 10.50% |

| | | West Texas - Environs | | 06/04/2019 | | 592,919(10) | | 7.97% | | 40/60 | 9.80% |

| (10) | The West Texas rate base represents a "system-wide," or 100 percent, of the West Texas Division's rate base. |

| (11) | The Company and the City of Dallas have arrived at a settlement. This settlement has not yet been approved by the Railroad Commission of Texas (RRC). The DARR rates were implemented subject to refund on June 1, 2019. |

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 the commission's or other governmental authority's final ruling.

The following table summarizes our ratemaking outcomes for the last three fiscal years.

| Colorado-Kansas | | Rate Case | | Kansas | | $ | 3,697 | |

| Kentucky/Mid-States | | Infrastructure Mechanism | | Kentucky (1) | | 2,912 | | |

| | | | | | | $ | 81,154 | |

| (1) | On September 24, 2019, the Kentucky Public Service Commission approved this filing with rates to be implemented beginning October 1, 2019. |

| (2) | On September 24, 2019, the State Corporation Commission of Virginia approved a rate increase of $0.1 million effective October 1, 2019. |

(4) The Mississippi Public Service Commission approved an increase in operating income of $7.6 million for the SIR filing and $6.9 million for the SRF filing.

New rates were implemented November 1, 2019.

| *2019 Filings:* | | | | | | | | | | |

| Louisiana | | LGS | | 12/2018 | | 7,124 | | | | 07/01/2019 |

| Mid-Tex | | Environs | | 12/2018 | | 2,435 | | | | 06/04/2019 |

| Mid-Tex | | DARR (1) | | 09/2018 | | 9,452 | | | | 06/01/2019 |

| Kentucky/Mid-States | | Tennessee ARM | | 05/2020 | | 2,393 | | | | 06/01/2019 |

| Atmos Pipeline - Texas | | Texas | | 12/2018 | | 49,225 | | | | 05/07/2019 |

| West Texas | | Amarillo, Lubbock, Dalhart and Channing | | 12/2018 | | 5,692 | | | | 05/01/2019 |

| Louisiana | | Trans La | | 09/2018 | | 4,719 | | | | 04/01/2019 |

| Colorado-Kansas | | Colorado GIS | | 12/2019 | | 87 | | | | 04/01/2019 |

| | |

| --- | --- |

These operating segments are described in greater detail below.

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

| | | Tennessee | | | | 150,661 |

| | | Virginia | | | | 24,396 |

| Louisiana | | Louisiana | | 270 | | 362,233 |

| Mississippi | | Mississippi | | 110 | | 269,333 |

| | | Kansas | | | | 135,820 |

| | | Colorado SSIR | | 01/01/2018 | | 29,855 | | 7.82% | | 48/52 | 9.60% |

| | | Tennessee(8) | | 06/01/2017 | | 302,953 | | 7.49% | | 47/53 | 9.80% |

| | | Virginia | | 12/27/2016 | | 47,581 | | (3) | | (3) | (3) |

| Louisiana | | Trans La | | 05/01/2018 | | 169,120 | | 7.26% | | 49/51 | 9.80% |

| | | LGS | | 07/01/2018 | | 419,080 | | 7.55% | | 44/56 | 9.80% |

| Mid-Tex Cities | | Texas(9) | | 06/01/2017 | | 2,362,937(2) | | 8.36% | | 45/55 | 10.50% |

| Mississippi | | Mississippi(7) | | 01/01/2018 | | 377,954 | | 7.47% | | 47/53 | 9.67% |

| | | Mississippi - SIR(7) | | 01/01/2018 | | 70,141 | | 7.60% | | 47/53 | 9.92% |

| | | Mississippi - SGR | | 01/01/2018 | | 23,718 | | 8.70% | | 47/53 | 12.00% |

| | | Texas-GRIP | | 06/05/2018 | | 507,831 | | 8.57% | | 48/52 | 10.50% |

| (10) | The West Texas Cities approved the Formula Rate Mechanism filing with rates effective October 1, 2018, which included a rate base of $505.7 million, an authorized return of 7.87%, a debt/equity ratio of 42/58 and an authorized ROE of 9.80%. |

Net operating income increases resulting from ratemaking activity totaling $80.1 million, $104.2 million and $122.5 million, became effective in fiscal 2018, 2017 and 2016, as summarized below.

| Mid-Tex | | Rate Case | | Environs (1) (7) | | (1,875 | | ) |

| Kentucky/Mid-States | | Formula Rate Mechanism True-Up | | Tennessee (1) (5) | | (3,220 | | ) |

| | | | | | | $ | 52,830 | |

| (1) | The filing amount reflects a 21% federal income tax rate resulting from the Tax Cuts and Jobs Act of 2017 (TCJA). |

| (3) | The Mississippi Public Service Commission approved a settlement at its meeting on October 23, 2018, for a combined $7.0 million increase. New rates were implemented November 1, 2018. |

| (4) | The Tennessee Public Utility Commission approved the Formula Rate Mechanism filing, which included $0.4 million related to the May 2017 true-up, at its October 15, 2018 meeting. |

| (5) | The Tennessee Formula Rate Mechanism Test Period Ended May 2018 reflects the discontinuance of the prior year true-up. |

| (7) | Settlement pending Texas Railroad Commission approval. |

| 2016 Filings: | | | | | | | | | | |

| Louisiana | | LGS | | 12/2015 | | $ | 8,686 | | | 07/01/2016 |

| Kentucky/Mid-States | | Tennessee | | 05/2017 | | 4,888 | | | | 06/01/2016 |

| Mid-Tex | | Mid-Tex DARR | | 09/2015 | | 5,429 | | | | 06/01/2016 |

| Mid-Tex | | Mid-Tex Environs | | 12/2015 | | 1,325 | | | | 05/03/2016 |

| Atmos Pipeline - Texas | | Texas | | 12/2015 | | 40,658 | | | | 05/03/2016 |

| West Texas | | West Texas Environs | | 12/2015 | | 646 | | | | 05/03/2016 |

| West Texas | | West Texas ALDC | | 12/2015 | | 3,484 | | | | 04/26/2016 |

| Louisiana | | Trans La | | 09/2015 | | 6,216 | | | | 04/01/2016 |

| Colorado-Kansas | | Colorado | | 12/2016 | | 764 | | | | 01/01/2016 |

| Mississippi | | Mississippi - SRF | | 10/2016 | | 9,192 | | | | 01/01/2016 |

See Note [removed: 11] [added: 12] to the consolidated financial statements, which is incorporated in this Item 3 by reference.

[removed: UNITED] [added: UNITED] STATES SECURITIES AND EXCHANGE [removed: COMMISSION][added: COMMISSION]

[removed: Washington,] [added: Washington,] D.C. [removed: 20549][added: 20549]

[removed: Form 10-K][added: Form 10-K]

[removed: (Mark One)][added: (Mark One)]

[removed: þ ANNUAL] [added: ☑ANNUAL] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934][added: 1934]

[removed: For] [added: For] the fiscal year [removed: ended] [added: ended] September 30, [removed: 2018][added: 2019]

[removed: ¨ TRANSITION] [added: ☐TRANSITION] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934][added: 1934]

[removed: For] [added: For] the transition period from [removed: to][added: to]

[removed: Commission] [added: Commission] file [removed: number 1-10042][added: number 1-10042]

[removed: Atmos] [added: Atmos] Energy [removed: Corporation][added: Corporation]

[removed: (Exact] [added: *(Exact] name of registrant as specified in its [removed: charter)][added: charter)*]

[removed: Texas and Virginia 75-1743247][added: Texas and Virginia 75-1743247]

[removed: (State] [added: *(State] or other jurisdiction of (IRS [removed: employer][added: employer*]

[removed: incorporation] [added: *incorporation] or organization) identification [removed: no.)][added: no.)*]

[added: 1800] Three Lincoln [removed: Centre, Suite 1800][added: Centre]

[removed: 5430] [added: 5430] LBJ [removed: Freeway, Dallas, Texas 75240][added: Freeway]

[removed: (Address] [added: *(Address] of principal executive offices) (Zip [removed: code)][added: code)*]

[removed: Registrant’s] [added: Registrant’s] telephone number, including area [removed: code:][added: code:]

[removed: (972) 934-9227][added: (972) 934-9227]

[removed: Securities] [added: Securities] registered pursuant to Section 12(b) of the [removed: Act:][added: Act:]

[removed: Title] [added: | Table] of [removed: Each Class] [added: each class | | Trading Symbol | Name of each exchange] on [removed: Which Registered][added: which registered |]

[added: |] Common [removed: stock,] [added: stock |] No Par Value [added: | ATO |] New York Stock Exchange [added: |]

[removed: Securities] [added: Securities] registered pursuant to Section 12(g) of the [removed: Act:][added: Act:]

[removed: None][added: None]

Yes [removed: ¨] [added: ☐] No þ

[added: |] Large accelerated filer [removed: þ] [added: | ☑ |] Accelerated filer [removed: ¨] [added: | ☐ |] Non-accelerated filer [removed: ¨] [added: | ☐ |] Smaller reporting company [removed: ¨] [added: | ☐ |] Emerging growth company [removed: ¨][added: | ☐ |]

The aggregate market value of the common voting stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter, March 31, [removed: 2018,] [added: 2019,] was [removed: $9,175,655,493.][added: $11,826,627,172.]

As of November [removed: 8, 2018,] [added: 7, 2019,] the registrant had [removed: 111,352,649] [added: 119,343,545] shares of common stock outstanding.

[removed: DOCUMENTS] [added: DOCUMENTS] INCORPORATED BY [removed: REFERENCE][added: REFERENCE]

Portions of the registrant’s Definitive Proxy Statement to be filed for the Annual Meeting of Shareholders on February [removed: 6, 2019] [added: 5, 2020] are incorporated by reference into Part III of this report.

[removed: TABLE] [added: TABLE] OF [removed: CONTENTS][added: CONTENTS]

| | | [removed: Page] [added: Page] |

[removed: | [Glossary of Key Terms](#sDF1F3183FCEF53FF8B8CE56743D84783) | | [3](#sDF1F3183FCEF53FF8B8CE56743D84783) |][added: GLOSSARY OF KEY TERMS]

| | [removed: Part I] [added: Part I] | |

| Item 1. | [removed: [Business](#sAF84D91D69CF5A0F800B48EB889917D8)] [added: [Business](#s2B408C80D451523EB63A2E18F012658B)] | [removed: [4](#sAF84D91D69CF5A0F800B48EB889917D8)] [added: [4](#s2B408C80D451523EB63A2E18F012658B)] |

| Item 1A. | [Risk [removed: Factors](#s4A270027E45E5DC68FBC5E0F0FE7FE1F)] [added: Factors](#sBF561109E1DC5D0A9EEFFDCCA09A58ED)] | [removed: [13](#s4A270027E45E5DC68FBC5E0F0FE7FE1F)] [added: [13](#sBF561109E1DC5D0A9EEFFDCCA09A58ED)] |

| Item 1B. | [Unresolved Staff [removed: Comments](#sC361E2ED1F465EF1A0448ED2B51AFEE2)] [added: Comments](#s0D7CCD8B8FE55DF58653E3CE04F5A3A3)] | [removed: [17](#sC361E2ED1F465EF1A0448ED2B51AFEE2)] [added: [18](#s0D7CCD8B8FE55DF58653E3CE04F5A3A3)] |

| Item 2. | [removed: [Properties](#s22E16B9FD7B6512D91ED0D367F23DDBD)] [added: [Properties](#s341852929F8C530F9F56E500AEF0A70F)] | [removed: [17](#s22E16B9FD7B6512D91ED0D367F23DDBD)] [added: [18](#s341852929F8C530F9F56E500AEF0A70F)] |

| Item 3. | [Legal [removed: Proceedings](#sC6B92F113ECD56899E954A73DCE1AF04)] [added: Proceedings](#s2065CFE4C92D5F1FB534054DC387E9D0)] | [removed: [18](#sC6B92F113ECD56899E954A73DCE1AF04)] [added: [19](#s2065CFE4C92D5F1FB534054DC387E9D0)] |

| Item 4. | Mine Safety Disclosures | [removed: [18](#s866AC8A7CDE8597091E9731597B58EEB)] [added: [19](#sB4EDA995DA9D54098E5B593EB7C8834D)] |

OR

Dallas, Texas 75240

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| | | | |

| | | | | | | | | | |

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| | | | | | | | | | |

| Item 16. | [Form 10-K Summary](#se7210ead9a7b4d74944d9d6ab0d7ff33) | [93](#se7210ead9a7b4d74944d9d6ab0d7ff33) |

| AFUDC | Allowance for funds used during construction |

10-K 1 ato201893010-k.htm 10-K

OR

Name of Each Exchange

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

[removed: Distribution,] [added: Distribution,] transmission and related [removed: assets][added: assets]

At September 30, [removed: 2018,] [added: 2019,] in our distribution segment, we owned an aggregate of [removed: 70,071] [added: 70,875] miles of underground distribution and transmission mains throughout our distribution systems.

Through our pipeline and storage segment we owned [removed: 5,678] [added: 5,669] miles of gas transmission lines as well.

[removed: Storage Assets][added: Storage Assets]

The following table summarizes certain information regarding our underground gas storage facilities at September 30, [removed: 2018:][added: 2019:]

| [removed: State] [added: State] | | [removed: Usable Capacity (Mcf)] [added: Usable Capacity (Mcf)] | | | [removed: Cushion Gas (Mcf)(1)] [added: Cushion Gas (Mcf)(1)] | | | [removed: Total Capacity (Mcf)] [added: Total Capacity (Mcf)] | | | [removed: Maximum Daily Delivery Capability (Mcf)] [added: Maximum Daily Delivery Capability (Mcf)] | |

| [removed: Distribution Segment] [added: *Distribution Segment*] | | | | | | | | | | | | |

| [removed: Total] [added: *Total*] | | 13,103,562 | | | 14,305,200 | | | 27,408,762 | | | 234,100 | |

| [removed: Pipeline] [added: *Pipeline] and Storage [removed: Segment] [added: Segment*] | | | | | | | | | | | | |

| [removed: Total] [added: *Total*] | | 46,494,589 | | | 16,134,925 | | | 62,629,514 | | | 1,766,000 | |

The following table summarizes our contracted storage capacity at September 30, [removed: 2018:][added: 2019:]

| [removed: Segment] [added: Segment] | | [removed: Division/Company] [added: Division/Company] | | [removed: Maximum Storage Quantity (MMBtu)] [added: Maximum Storage Quantity (MMBtu)] | | | [removed: Maximum Daily Withdrawal Quantity (MDWQ)(1)] [added: Maximum Daily Withdrawal Quantity (MDWQ)(1)] | |

| [removed: Distribution Segment] [added: *Distribution Segment*] | | | | | | | | |

| | | Mid-Tex Division | | [removed: 5,500,000] [added: 4,000,000] | | | [removed: 225,000] [added: 150,000] | |

| | | West Texas Division | | [removed: 5,000,000] [added: 5,500,000] | | | [removed: 161,000] [added: 176,000] | |

| [removed: Pipeline] [added: *Pipeline] and Storage [removed: Segment] [added: Segment*] | | | | | | | | |

[removed: Offices][added: Offices]

| | | Colorado-Kansas Division | | 6,343,728 | | | 147,965 | |

| | | Louisiana Division | | 2,514,875 | | | 173,765 | |

| | | Mississippi Division | | 5,099,536 | | | 164,764 | |

| *Total* | | | | 31,633,242 | | | 1,039,233 | |

| Total Contracted Storage Capacity | | | | 32,633,242 | | | 1,086,733 | |

| | | Colorado-Kansas Division | | 6,129,562 | | | 136,996 | |

| | | Louisiana Division | | 2,536,779 | | | 174,805 | |

| | | Mississippi Division | | 5,083,801 | | | 163,627 | |

| Total | | | | 32,425,245 | | | 1,088,167 | |

| Total Contracted Storage Capacity | | | | 33,425,245 | | | 1,135,667 | |

[removed: PART II][added: PART II]

Our stock trades on the New York Stock Exchange under the trading symbol “ATO.” The dividends paid per share of our common stock for fiscal [removed: 2018] [added: 2019] and [removed: 2017] [added: 2018] are listed below.

| | | [removed: Fiscal 2018] [added: Fiscal 2019] | | | | [removed: Fiscal 2017] [added: Fiscal 2018] | | |

| [removed: Quarter ended:] [added: Quarter ended:] | | | | | | | | |

| December 31 | | $ | [removed: 0.485] [added: 0.525] | | | $ | [removed: 0.450] [added: 0.485] | |

| March 31 | | [removed: 0.485] [added: 0.525] | | | | [removed: 0.450] [added: 0.485] | | |

| June 30 | | [removed: 0.485] [added: 0.525] | | | | [removed: 0.450] [added: 0.485] | | |

| September 30 | | [removed: 0.485] [added: 0.525] | | | | [removed: 0.450] [added: 0.485] | | |

Future payments of dividends, and the amounts of these dividends, will depend on our [removed: financial condition, results of operations, capital requirements and other factors.]

We sold no securities during fiscal [removed: 2018] [added: 2019] that were not registered under the Securities Act of 1933, as amended.

[removed: Performance Graph][added: Performance Graph]

The graph and table below assume that $100.00 was invested on September 30, [removed: 2013] [added: 2014] in our common stock, the S&P 500 and in the common stock of the companies in the Comparison Company Indices, as well as a reinvestment of dividends paid on such investments throughout the period.

[removed: Comparison] [added: Comparison] of Five-Year Cumulative Total [removed: Return][added: Return]

[removed: among] [added: among] Atmos Energy Corporation, S&P 500 [removed: Index][added: Index]

[removed: and] [added: and] Comparison Company [removed: Index][added: Index]

[removed: ][added: ]

| | [removed: Cumulative] [added: Cumulative] Total [removed: Return] [added: Return] | | | | | | | | | | | | | | | | |

| | [removed: 9/30/2013] [added: 9/30/2014] | | | [removed: 9/30/2014] [added: 9/30/2015] | | | [removed: 9/30/2015] [added: 9/30/2016] | | | [removed: 9/30/2016] [added: 9/30/2017] | | | [removed: 9/30/2017] [added: 9/30/2018] | | | [removed: 9/30/2018] [added: 9/30/2019] | |

The companies in the index are Alliant Energy Corporation, Ameren Corporation, CenterPoint Energy, Inc., CMS Energy Corporation, DTE Energy Company, National Fuel Gas Company, NiSource Inc., ONE Gas, Inc., Spire Inc. (formerly The Laclede Group, Inc.), Vectren [removed: Corporation,] [added: Corporation(1),] WEC Energy Group, Inc., [removed: WGL Holdings, Inc.,] and Xcel Energy, Inc.

| (1) | [removed: WGL Holdings] [added: Vectren Corporation merged with CenterPoint Energy,] Inc. [removed: was acquired] prior to September 30, [removed: 2018.] [added: 2019.] As a result, the cumulative total return of [removed: this company] [added: Vectren Corporation] is not included in the Comparison Company Index represented in the graph above. |

The following table sets forth the number of securities authorized for issuance under our equity compensation plans at September 30, [removed: 2018.][added: 2019.]

| | [removed: Number of securities] [added: Number of securities] to be [removed: issued upon] [added: issued upon] exercise [removed: of outstanding] [added: of outstanding] options, restricted stock [removed: units, warrants] [added: units, warrants] and [removed: rights] [added: rights] | | | [removed: Weighted-average exercise] [added: Weighted-average exercise] price [removed: of outstanding options, warrants] [added: of outstanding options, warrants] and [removed: rights] [added: rights] | | | | [removed: Number] [added: Number] of securities [removed: remaining available] [added: remaining available] for future [removed: issuance under] [added: issuance under] equity [removed: compensation plans] [added: compensation plans] (excluding [removed: securities reflected] [added: securities reflected] in column [removed: (a))] [added: (a))] | |

| [removed: Equity] [added: Equity] compensation plans approved by security [removed: holders:] [added: holders:] | | | | | | | | | |

| [removed: Total equity] [added: Equity] compensation plans [added: not] approved by security [removed: holders] [added: holders] | [removed: 1,041,519] [added: —] | | | — | | | | [removed: 1,752,235] [added: —] | |

| [removed: Equity] [added: Total equity] compensation plans [removed: not] approved by security [removed: holders] [added: holders] | [removed: —] [added: 1,004,158] | | | — | | | | [removed: —] [added: 1,489,985] | |

| (1) | Comprised of a total of [removed: 422,996] [added: 384,056] time-lapse restricted stock units, [removed: 343,952] [added: 343,467] director share units and [removed: 274,571] [added: 276,635] performance-based restricted stock units at the target level of performance granted under our 1998 Long-Term Incentive Plan. |

| | | $ | 2.10 | | | $ | 1.94 | |

As of October 31, 2019, there were 11,806 holders of record of our common stock.

financial condition, results of operations, capital requirements and other factors.

| Atmos Energy Corporation | 100.00 | | | 125.54 | | | 164.58 | | | 189.56 | | | 217.10 | | | 268.76 | |

| S&P 500 Stock Index | 100.00 | | | 99.39 | | | 114.72 | | | 136.07 | | | 160.44 | | | 167.27 | |

| Comparison Company Index | 100.00 | | | 110.80 | | | 136.77 | | | 159.21 | | | 168.54 | | | 219.86 | |

| | (a) | | | (b) | | | | (c) | |

| 1998 Long-Term Incentive Plan | 1,004,158 | | (1) | $ | — | | | 1,489,985 | |

| Total | 1,004,158 | | | $ | — | | | 1,489,985 | |

| | | $ | 1.94 | | | $ | 1.80 | |

The number of record holders of our common stock on October 31, 2018 was 12,550.

| Atmos Energy Corporation | 100.00 | | | 115.52 | | | 145.03 | | | 190.13 | | | 218.98 | | | 250.80 | |

| S&P 500 Stock Index | 100.00 | | | 119.73 | | | 119.00 | | | 137.36 | | | 162.92 | | | 192.10 | |

| Peer Group | 100.00 | | | 116.03 | | | 128.49 | | | 158.62 | | | 185.66 | | | 196.95 | |

| | (a) | | | (b) | | | | (c) | |

| 1998 Long-Term Incentive Plan | 1,041,519 | | (1) | $ | — | | | 1,752,235 | |

| Total | 1,041,519 | | | $ | — | | | 1,752,235 | |

| | [removed: Fiscal] [added: Fiscal] Year Ended September [removed: 30] [added: 30] | | | | | | | | | | | | | | | | | | |

| | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| | [removed: (In] [added: (In] thousands, except per share [removed: data)] [added: data)] | | | | | | | | | | | | | | | | | | |

| [removed: Results] [added: Results] of [removed: Operations] [added: Operations] | | | | | | | | | | | | | | | | | | | |

| Operating revenues | $ | [removed: 3,115,546] [added: 2,901,848] | | | $ | [removed: 2,759,735] [added: 3,115,546] | | | $ | [removed: 2,454,648] [added: 2,759,735] | | | $ | [removed: 2,926,985] [added: 2,454,648] | | | $ | [removed: 3,243,904] [added: 2,926,985] | |

| Contribution [removed: margin] [added: Margin] | $ | [removed: 1,947,698] [added: 2,043,011] | | | $ | [removed: 1,834,199] [added: 1,947,698] | | | $ | [removed: 1,708,456] [added: 1,834,199] | | | $ | [removed: 1,631,310] [added: 1,708,456] | | | $ | [removed: 1,521,844] [added: 1,631,310] | |

| Income from continuing operations | $ | [removed: 603,064] [added: 511,406] | | | $ | [removed: 382,711] [added: 603,064] | | | $ | [removed: 345,542] [added: 382,711] | | | $ | [removed: 305,623] [added: 345,542] | | | $ | [removed: 270,331] [added: 305,623] | |

| Net income | $ | [removed: 603,064] [added: 511,406] | | | $ | [removed: 396,421] [added: 603,064] | | | $ | [removed: 350,104] [added: 396,421] | | | $ | [removed: 315,075] [added: 350,104] | | | $ | [removed: 289,817] [added: 315,075] | |

| Diluted income per share from continuing operations | $ | [removed: 5.43] [added: 4.35] | | | $ | [removed: 3.60] [added: 5.43] | | | $ | [removed: 3.33] [added: 3.60] | | | $ | [removed: 3.00] [added: 3.33] | | | $ | [removed: 2.76] [added: 3.00] | |

| Diluted net income per share | $ | [removed: 5.43] [added: 4.35] | | | $ | [removed: 3.73] [added: 5.43] | | | $ | [removed: 3.38] [added: 3.73] | | | $ | [removed: 3.09] [added: 3.38] | | | $ | [removed: 2.96] [added: 3.09] | |

| Cash dividends declared per share | $ | [removed: 1.94] [added: 2.10] | | | $ | [removed: 1.80] [added: 1.94] | | | $ | [removed: 1.68] [added: 1.80] | | | $ | [removed: 1.56] [added: 1.68] | | | $ | [removed: 1.48] [added: 1.56] | |

| [removed: Financial Condition] [added: Financial Condition] | | | | | | | | | | | | | | | | | | | |

| Net property, plant and equipment(1) | $ | [removed: 10,371,147] [added: 11,787,669] | | | $ | [removed: 9,259,182] [added: 10,371,147] | | | $ | [removed: 8,268,606] [added: 9,259,182] | | | $ | [removed: 7,416,700] [added: 8,268,606] | | | $ | [removed: 6,709,926] [added: 7,416,700] | |

| Total assets | $ | [removed: 11,874,437] [added: 13,367,619] | | | $ | [removed: 10,749,596] [added: 11,874,437] | | | $ | [removed: 10,010,889] [added: 10,749,596] | | | $ | [removed: 9,075,072] [added: 10,010,889] | | | $ | [removed: 8,581,006] [added: 9,075,072] | |

| Shareholders’ equity | $ | [removed: 4,769,951] [added: 5,750,223] | | | $ | [removed: 3,898,666] [added: 4,769,951] | | | $ | [removed: 3,463,059] [added: 3,898,666] | | | $ | [removed: 3,194,797] [added: 3,463,059] | | | $ | [removed: 3,086,232] [added: 3,194,797] | |

| Long-term debt (excluding current maturities) | [removed: 2,493,665] [added: 3,529,452] | | | | [removed: 3,067,045] [added: 2,493,665] | | | | [removed: 2,188,779] [added: 3,067,045] | | | | [removed: 2,437,515] [added: 2,188,779] | | | | [removed: 2,442,288] [added: 2,437,515] | | |

| Total capitalization | $ | [removed: 7,263,616] [added: 9,279,675] | | | $ | [removed: 6,965,711] [added: 7,263,616] | | | $ | [removed: 5,651,838] [added: 6,965,711] | | | $ | [removed: 5,632,312] [added: 5,651,838] | | | $ | [removed: 5,528,520] [added: 5,632,312] | |

| (1) | Amounts shown are net of assets held for sale related to the divestiture of our natural gas marketing business for fiscal years [removed: 2014 through 2016.] [added: 2016 and 2015.] |

| | [removed: Page] [added: Page] |

[removed: | [Report of independent registered public accounting firm](#s8DCFDA3CFA4C5B1EAEDC89BEA1E4B2F8) | [41](#s8DCFDA3CFA4C5B1EAEDC89BEA1E4B2F8) |][added: REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM]

| [Consolidated balance sheets at September 30, [removed: 2018] [added: 2019] and [removed: 2017](#s4000E6BB50EC5170B75920C9AA79D710)] [added: 2018](#sD202DF88F53F55A1A987DD5F27B7996C)] | [removed: [42](#s4000E6BB50EC5170B75920C9AA79D710)] [added: [39](#sD202DF88F53F55A1A987DD5F27B7996C)] |

| [Consolidated statements of [added: comprehensive] income for the years ended September 30, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016](#sB6D28558627956A497C6DFD9789EA843)] [added: 2017](#s5F38D03A135B561C873A1424122557D8)] | [removed: [43](#sB6D28558627956A497C6DFD9789EA843)] [added: [40](#s5F38D03A135B561C873A1424122557D8)] |

| [Consolidated statements of [removed: comprehensive income] [added: shareholders' equity] for the years ended September 30, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016](#s30BA41331A4F592C837DCB65343C7A4B)] [added: 2017](#s58968E06948652C18AE937986B205D34)] | [removed: [44](#s30BA41331A4F592C837DCB65343C7A4B)] [added: [41](#s58968E06948652C18AE937986B205D34)] |

| [Consolidated statements of [removed: shareholders' equity] [added: cash flow] for the years ended September 30, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016](#sE0B2C890B1405E08AB3115C2DF1027BC)] [added: 2017](#sDB4A9E1FC75F512EB0E1507B2F09CBD6)] | [removed: [45](#sE0B2C890B1405E08AB3115C2DF1027BC)] [added: [42](#sDB4A9E1FC75F512EB0E1507B2F09CBD6)] |

[removed: | [Consolidated statements] [added: Supplemental disclosures] of cash flow [added: information] for the [added: fiscal] years ended September 30, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016](#s4A99E6A6969957FFAF55EF291E434FA0) | [46](#s4A99E6A6969957FFAF55EF291E434FA0) |][added: 2017 were as follows:]

[removed: | [Notes to consolidated financial statements](#sD293DF81710050C896832E89A45F4205) | [47](#sD293DF81710050C896832E89A45F4205) |][added: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS]

[removed: | [Selected] [added: Selected] Quarterly Financial Data [removed: (Unaudited)](#s937E5E97F10E53C2A6030BF79715706E) | [90](#s937E5E97F10E53C2A6030BF79715706E) |][added: (Unaudited)]

| Financial statement schedule for the years ended September 30, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016] [added: 2017] | |

| [Schedule II. Valuation and Qualifying [removed: Accounts](#sF4DA03425D9A54DF9972A0D4E496DF85)] [added: Accounts](#sD5DD17769AF352639B55E21652B0113D)] | [removed: [103](#sF4DA03425D9A54DF9972A0D4E496DF85)] [added: [97](#sD5DD17769AF352639B55E21652B0113D)] |

[removed: REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM][added: | [Report of independent registered public accounting firm](#s1AFD6C1C3EF95A14B128C28E7FB8549B) | [37](#s1AFD6C1C3EF95A14B128C28E7FB8549B) |]

[removed: To] [added: To] the Shareholders and the Board of Directors of Atmos Energy [removed: Corporation][added: Corporation]

[removed: Opinion] [added: Opinion] on the Financial [removed: Statements][added: Statements]

We have audited the accompanying consolidated balance sheets of Atmos Energy Corporation (the “Company“) as of September 30, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] the related consolidated statements of [removed: income,] comprehensive income, shareholders‘ equity, and cash flows, for each of the three years in the period ended September 30, [removed: 2018,] [added: 2019,] and the related notes and financial statement schedule listed in the Index at Item 8 (collectively referred to as the "financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] and the results of its operations and its cash flows for each of the three years in the period ended September 30, [removed: 2018,] [added: 2019,] in conformity with US generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, [removed: 2018,] [added: 2019,] based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated November [removed: 13, 2018] [added: 12, 2019] expressed an unqualified opinion thereon.

[removed: Basis] [added: Basis] for [removed: Opinion][added: Opinion]

[removed: ATMOS] [added: ATMOS] ENERGY [removed: CORPORATION][added: CORPORATION]

[removed: CONSOLIDATED] [added: CONSOLIDATED] BALANCE [removed: SHEETS][added: SHEETS]

| | [removed: September 30] [added: September 30] | | | | | | |

| | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | [added: | 2017 | | |]

| | [removed: (In] [added: (In] thousands, except share [removed: data)] [added: data)] | | | | | | |

| [removed: ASSETS] [added: ASSETS] | | | | | | | |

| Property, plant and equipment | $ | [removed: 12,217,648] [added: 13,758,899] | | | $ | [removed: 11,001,910] [added: 12,217,648] | |

| Construction in progress | [removed: 349,725] [added: 421,694] | | | | [removed: 299,394] [added: 349,725] | | |

| Less accumulated depreciation and amortization | [removed: 2,196,226] [added: 2,392,924] | | | | [removed: 2,042,122] [added: 2,196,226] | | |

| Net property, plant and equipment | [removed: 10,371,147] [added: 11,787,669] | | | | [removed: 9,259,182] [added: 10,371,147] | | |

| Cash and cash equivalents | [removed: 13,771] [added: 24,550] | | | | [removed: 26,409] [added: 13,771] | | |

| Accounts receivable, less allowance for doubtful accounts of [removed: $14,795] [added: $15,899] in [removed: 2018] [added: 2019] and [removed: $10,865] [added: $14,795] in [removed: 2017] [added: 2018] | [removed: 253,295] [added: 230,571] | | | | [removed: 222,263] [added: 253,295] | | |

| Gas stored underground | [removed: 165,732] [added: 130,138] | | | | [removed: 184,653] [added: 165,732] | | |

| Other current assets | [removed: 46,055] [added: 72,772] | | | | [removed: 106,321] [added: 46,055] | | |

| Total current assets | [removed: 478,853] [added: 458,031] | | | | [removed: 539,646] [added: 478,853] | | |

| Goodwill | [removed: 730,419] [added: 730,706] | | | | [removed: 730,132] [added: 730,419] | | |

| Deferred charges and other assets | [removed: 294,018] [added: 391,213] | | | | [removed: 220,636] [added: 294,018] | | |

| [removed: CAPITALIZATION] [added: CAPITALIZATION] AND [removed: LIABILITIES] [added: LIABILITIES] | | | | | | | |

| Common stock, no par value (stated at $.005 per share); 200,000,000 shares authorized; issued and outstanding: [removed: 2018] [added: 2019] — [removed: 111,273,683] [added: 119,338,925] shares, [removed: 2017] [added: 2018] — [removed: 106,104,634] [added: 111,273,683] shares | $ | [removed: 556] [added: 597] | | | $ | [removed: 531] [added: 556] | |

| Additional paid-in capital | [removed: 2,974,926] [added: 3,712,194] | | | | [removed: 2,536,365] [added: 2,974,926] | | |

| Accumulated other comprehensive loss | [removed: (83,647] [added: (114,583] | | ) | | [removed: (105,254] [added: (83,647] | | ) |

| Retained earnings | [removed: 1,878,116] [added: 2,152,015] | | | | [removed: 1,467,024] [added: 1,878,116] | | |

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

| | Determination of Capital Costs |

| *Description of the Matter* | As more fully described in Note 2 to the financial statements, the Company capitalizes the direct and indirect costs of construction. Once a project is completed, it is placed into service and included in the Company’s rate base. Costs of maintenance and repairs that are not included in the Company’s rate base are charged to expense. For the year ended September 30, 2019, the Company capitalized approximately $1.8 billion of construction-related costs for regulated property, plant and equipment. Auditing management’s identification of capital additions and maintenance and repairs expense involved significant effort and auditor judgment. These amounts have both a higher magnitude and a higher likelihood of potential misstatement. As a cost-based, rate-regulated entity, the rates charged to customers are designed to recover the entity’s costs and provide a rate of return on rate base. Net property, plant and equipment is the most significant component of the Company’s rate base. As a result, inappropriate capitalization of costs could affect the amount, timing and classification of revenues and expenses in the consolidated financial statements. |

| *How We Addressed the Matter in Our Audit* | We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over the initial determination and approval of expenditures for either capital additions or maintenance and repair. For example, we selected a sample of projects initiated during the year to evaluate the effectiveness of management’s review controls to determine the proper categorization of project expenditures as either capitalizable costs or current-period expense. Our audit procedures included, among others, testing a sample of projects initiated during the year, including the evaluation of the nature of the project, with Company personnel outside of accounting and financial reporting. For example, we evaluated project setup through inspection of each project’s description for compliance with the Company’s capitalization policy as described in Note 2 and a series of inquiries of the project approver to understand how they assessed whether projects should be treated as capital or expense. Other audit procedures included evaluating whether the descriptions and amounts included on third-party invoices either support or contradict the project classification as capital, evaluating the appropriateness of individuals capitalizing direct labor charges to projects by assessing the relevance of their job function to the capital project, and recalculating other overhead costs capitalized to projects. |

November 12, 2019

| | 2019 | | | | 2018 | | |

| | 14,180,593 | | | | 12,567,373 | | |

| | $ | 13,367,619 | | | $ | 11,874,437 | |

| | $ | 13,367,619 | | | $ | 11,874,437 | |

ATMOS ENERGY CORPORATION

| Operation and maintenance expense | 630,308 | | | | 594,795 | | | | 538,716 | | |

| Operating income | 746,058 | | | | 727,934 | | | | 735,628 | | |

| Other non-operating income (expense) | 7,404 | | | | (10,144 | | ) | | (11,352 | | ) |

| Weighted average shares outstanding: | | | | | | | | | | | |

| Basic | 117,200 | | | | 111,012 | | | | 106,100 | | |

| Diluted | 117,461 | | | | 111,012 | | | | 106,100 | | |

| Net income | $ | 511,406 | | | $ | 603,064 | | | $ | 396,421 | |

ATMOS ENERGY CORPORATION

| Common stock issued: | | | | | | | | | | | | | | | | | | | | | | |

| Net income | — | | | — | | | | — | | | | — | | | | 511,406 | | | | 511,406 | | |

| Common stock issued: | | | | | | | | | | | | | | | | | | | | | | |

| Public offering | 7,574,111 | | | 38 | | | | 694,065 | | | | — | | | | — | | | | 694,103 | | |

| Retirement savings plan | 81,456 | | | — | | | | 8,252 | | | | — | | | | — | | | | 8,252 | | |

| 1998 Long-term incentive plan | 299,612 | | | 2 | | | | 2,946 | | | | — | | | | — | | | | 2,948 | | |

| Balance, September 30, 2019 | 119,338,925 | | | $ | 597 | | | $ | 3,712,194 | | | $ | (114,583 | ) | | $ | 2,152,015 | | | $ | 5,750,223 | |

ATMOS ENERGY CORPORATION

| Net income | $ | 511,406 | | | $ | 603,064 | | | $ | 396,421 | |

| Equity component of AFUDC | (11,165 | | ) | | — | | | | — | | |

| Purchases of debt and equity securities | (29,153 | | ) | | (46,401 | | ) | | (53,597 | | ) |

| Settlement of interest rate swaps | (90,141 | | ) | | — | | | | (36,996 | | ) |

ATMOS ENERGY CORPORATION

1.

2.

ATMOS ENERGY CORPORATION

| | 2019 | | | | 2018 | | |

| | $ | 284,547 | | | $ | 143,811 | |

| | $ | 1,386,126 | | | $ | 1,510,997 | |

Revenue recognition — Effective October 1, 2018, we adopted the new guidance under Accounting Standards Codification (ASC) Topic 606.

November 13, 2018

| | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- |

| | 12,567,373 | | | | 11,301,304 | | |

| | $ | 11,874,437 | | | $ | 10,749,596 | |

See accompanying notes to consolidated financial statements.

| Operation and maintenance expense | 599,595 | | | | 546,798 | | | | 538,592 | | |

| Operating income | 723,134 | | | | 727,546 | | | | 657,230 | | |

| Miscellaneous expense | (5,344 | | ) | | (3,270 | | ) | | (234 | | ) |

| Balance, September 30, 2015 | 101,478,818 | | | $ | 507 | | | $ | 2,230,591 | | | $ | (109,330 | ) | | $ | 1,073,029 | | | $ | 3,194,797 | |

| Net income | — | | | — | | | | — | | | | — | | | | 350,104 | | | | 350,104 | | |

| Public offering | 1,360,756 | | | 7 | | | | 98,567 | | | | — | | | | — | | | | 98,574 | | |

| Retirement savings plan | 359,414 | | | 2 | | | | 25,047 | | | | — | | | | — | | | | 25,049 | | |

| Purchases of available-for-sale securities | (46,401 | | ) | | (53,597 | | ) | | (32,551 | | ) |

1.

2.

| | $ | 143,811 | | | $ | 176,798 | |

| | $ | 1,510,997 | | | $ | 555,657 | |

| (1) | Includes $6.5 million and $9.4 million of pension and postretirement expense deferred pursuant to regulatory authorization. |

| (4) | 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 12 for further information. |

Revenue recognition — Sales of natural gas to our distribution customers are billed on a monthly basis; however, the billing cycle periods for certain classes of customers do not necessarily coincide with accounting periods used for financial reporting purposes.

We follow the revenue accrual method of accounting for distribution segment revenues whereby revenues applicable to gas delivered to customers, but not yet billed under the cycle billing method, are estimated and accrued and the related costs are charged to expense.

On occasion, we are permitted to implement new rates that have not been formally approved by our state regulatory commissions, which are subject to refund.

As permitted by accounting principles generally accepted in the United States, we recognize this revenue and establish a reserve for amounts that could be refunded based on our experience for the jurisdiction in which the rates were implemented.

The allowance for funds used during construction represents the estimated cost of funds used to finance the construction of major projects and are capitalized in the rate base for ratemaking purposes when the completed projects are placed in service.

Interest expense of $6.8 million, $2.5 million and $2.8 million was capitalized in 2018, 2017 and 2016.

recovered through the expected future cash flows.

Marketable securities — As of September 30, 2018 and 2017, all of our marketable securities were classified as available for sale.

We manage interest rate risk, primarily when we plan to issue long-term debt.

measurement date (exit price).

In February 2018, the Financial Accounting Standards Board (FASB) issued new guidance as a result of the Tax Cuts and Jobs Act of 2017 (the "TCJA"), related to the treatment of certain tax effects from accumulated other comprehensive income.

The new guidance allows entities to reclassify from accumulated other comprehensive income to retained earnings the stranded tax effects resulting from the adoption of the TCJA.

The new guidance will be effective for us in the fiscal year beginning on October 1, 2019 and for interim periods within that year.

Early adoption is permitted, including adoption in any interim period for public business entities for reporting periods for which financial statements have not yet been issued and should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized.

We have early adopted the new standard effective as of September 30, 2018, and reclassified the stranded tax effects of $22.9 million, resulting from the TCJA from accumulated other comprehensive income to retained earnings.

This change is reflected on our consolidated statement of shareholders' equity.

In January 2017, the FASB issued new guidance that simplified the accounting for goodwill impairments by eliminating step 2 from the goodwill impairment test.

Under the new guidance, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

We early adopted the new standard, effective for our goodwill impairment test performed in our second

fiscal quarter of 2018.

[removed: Management’s] [added: Management’s] Evaluation of Disclosure Controls and [removed: Procedures][added: Procedures]

Based on this evaluation, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, [removed: 2018] [added: 2019] to provide reasonable assurance that information required to be disclosed by us, including our consolidated entities, in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the SEC’s rules and forms, including a reasonable level of assurance that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

[removed: Management’s] [added: Management’s] Report on Internal Control over Financial [removed: Reporting][added: Reporting]

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of our internal control over financial reporting based on the framework in [removed: Internal] [added: *Internal] Control-Integrated [removed: Framework] [added: Framework*] issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO).

Based on our evaluation under the framework in [removed: Internal] [added: *Internal] Control-Integrated [removed: Framework] [added: Framework*] issued by COSO and applicable Securities and Exchange Commission rules, our management concluded that our internal control over financial reporting was effective as of September 30, [removed: 2018,] [added: 2019,] in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

[removed: REPORT] [added: REPORT] OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING [removed: FIRM][added: FIRM]

[removed: To] [added: To] the Shareholders and the Board of Directors of Atmos Energy [removed: Corporation][added: Corporation]

[removed: Opinion] [added: Opinion] on Internal Control over Financial [removed: Reporting][added: Reporting]

We have audited Atmos Energy Corporation’s internal control over financial reporting as of September 30, [removed: 2018,] [added: 2019,] based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, Atmos Energy Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of September 30, [removed: 2018,] [added: 2019,] based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the [removed: 2018] [added: 2019] consolidated financial statements of the Company and our report dated November [removed: 13, 2018] [added: 12, 2019] expressed an unqualified opinion thereon.

[removed: Basis] [added: Basis] for [removed: Opinion][added: Opinion]

[removed: Definition] [added: Definition] and Limitations of Internal Control Over Financial [removed: Reporting][added: Reporting]

[removed: Changes] [added: Changes] in Internal Control over Financial [removed: Reporting][added: Reporting]

We did not make any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Act) during the fourth quarter of the fiscal year ended September 30, [removed: 2018] [added: 2019] that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

| /s/ JOHN K. AKERS | | /s/ CHRISTOPHER T. FORSYTHE |

| John K. Akers | | Christopher T. Forsythe |

| November 12, 2019 | | |

November 12, 2019

| /s/ MICHAEL E. HAEFNER | | /s/ CHRISTOPHER T. FORSYTHE |

| Michael E. Haefner | | Christopher T. Forsythe |

| November 13, 2018 | | |

November 13, 2018

[removed: PART III][added: PART III]

Information regarding directors and [removed: compliance with] [added: delinquent] Section 16(a) [removed: of the Securities Exchange Act of 1934] [added: reports, if applicable,] is incorporated herein by reference to the Company’s Definitive Proxy Statement for the Annual Meeting of Shareholders on February [removed: 6, 2019.][added: 5, 2020.]

The following table sets forth certain information as of September 30, [removed: 2018,] [added: 2019,] regarding the executive officers of the Company.

| [removed: Name] [added: Name] | | [removed: Age] [added: Age] | | [removed: Years of Service] [added: Years of Service] | | [removed: Office] [added: Office] Currently [removed: Held] [added: Held] |

| Kim R. Cocklin | | [removed: 67] [added: 68] | | [removed: 12] [added: 13] | | Executive Chairman of the Board |