filings.toolsItem 8. Financial Statements and Supplementary Data.
226K characters. Original on sec.gov · Markdown
Item 8. Financial Statements and Supplementary Data.
Index to financial statements and financial statement schedules:
All financial statement schedules are omitted because the required information is not present, or not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements and accompanying notes thereto.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Atmos Energy Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Atmos Energy Corporation (the Company) as of September 30, 2023 and 2022, the related consolidated statements of comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended September 30, 2023, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2023, in conformity with U.S. 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, 2023, 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 14, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was 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 consolidated 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.
| Regulation | |||||
| Description of the Matter | As discussed in Note 3 to the consolidated financial statements, the Company’s distribution and pipeline and storage operations are subject to regulation with respect to rates, service, maintenance of accounting records and various other matters by the respective regulatory authorities in the states in which they operate. The Company’s accounting policies recognize the financial effects of the ratemaking and accounting practices and policies of the various regulatory commissions and are subject to accounting principles for rate-regulated activities. As a result, certain costs are permitted to be capitalized rather than expensed because they can be recovered through rates. The Company records certain costs as regulatory assets when future recovery through customer rates is considered probable. Regulatory liabilities are recorded when it is probable that revenues will be reduced for amounts that will be credited to customers through the ratemaking process. The amounts to be recovered or recognized are based upon the Company’s historical experience and understanding of the regulations. As described in Note 3, the proceeds received related to the securitization of the costs related to the Winter Storm Uri event reflected the recovery of the related regulatory asset. As of September 30, 2023, there were $554.9 million of deferred costs included in regulatory assets and $1,284.3 million of regulatory liabilities awaiting cash outflow or potential refund. Auditing the effects of regulatory matters is complex as it requires specialized knowledge of rate-regulated activities and assessments as to matters that could affect the recording or updating of regulatory assets and liabilities, including the securitization of the costs related to Winter Storm Uri. |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company's accounting for regulatory assets and liabilities, including, among others, controls over management's assessment of the likelihood of approval by regulators for new matters and controls over the evaluation on rulings with regulatory bodies on existing regulatory assets and liabilities, including factors that may affect the timing or nature of recoverability. We performed audit procedures that included, among others, examining evidence of correspondence with regulatory bodies to test that the Company appropriately evaluated information obtained from regulatory rulings. For example, we assessed the recoverability and completeness of various regulatory assets and liabilities, considering information obtained from regulatory rulings. In addition, we tested that amortization of regulatory assets and liabilities corresponded to relevant regulatory rulings. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1983.
Dallas, Texas
November 14, 2023
ATMOS ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
| September 30 | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands, except share data) | |||||||||||
| ASSETS | |||||||||||
| Property, plant and equipment | $ | 21,958,447 | $ | 19,402,271 | |||||||
| Construction in progress | 939,927 | 835,868 | |||||||||
| 22,898,374 | 20,238,139 | ||||||||||
| Less accumulated depreciation and amortization | 3,291,791 | 2,997,900 | |||||||||
| Net property, plant and equipment | 19,606,583 | 17,240,239 | |||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | 15,404 | 51,554 | |||||||||
| Restricted cash and cash equivalents (See Note 10) | 3,844 | — | |||||||||
| Cash and cash equivalents and restricted cash and cash equivalents | 19,248 | 51,554 | |||||||||
| Accounts receivable, less allowance for uncollectible accounts of $40,840 in 2023 and $49,993 in 2022 | 328,654 | 363,708 | |||||||||
| Gas stored underground | 245,830 | 357,941 | |||||||||
| Other current assets (See Note 3) | 292,036 | 2,274,490 | |||||||||
| Total current assets | 885,768 | 3,047,693 | |||||||||
| Securitized intangible asset, less accumulated amortization of $1,398 in 2023 (See Note 10) | 92,202 | — | |||||||||
| Goodwill | 731,257 | 731,257 | |||||||||
| Deferred charges and other assets | 1,201,158 | 1,173,800 | |||||||||
| $ | 22,516,968 | $ | 22,192,989 | ||||||||
| CAPITALIZATION AND LIABILITIES | |||||||||||
| Shareholders’ equity | |||||||||||
| Common stock, no par value (stated at $0.005 per share); 200,000,000 shares authorized; issued and outstanding: 2023 — 148,492,783 shares; 2022 — 140,896,598 shares | $ | 742 | $ | 704 | |||||||
| Additional paid-in capital | 6,684,120 | 5,838,118 | |||||||||
| Accumulated other comprehensive income | 518,528 | 369,112 | |||||||||
| Retained earnings | 3,666,674 | 3,211,157 | |||||||||
| Shareholders’ equity | 10,870,064 | 9,419,091 | |||||||||
| Long-term debt | 6,554,133 | 5,760,647 | |||||||||
| Securitized long-term debt (See Note 10) | 85,078 | — | |||||||||
| Total capitalization | 17,509,275 | 15,179,738 | |||||||||
| Commitments and contingencies (See Note 14) | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable and accrued liabilities | 336,083 | 496,019 | |||||||||
| Other current liabilities | 763,086 | 720,157 | |||||||||
| Short-term debt | 241,933 | 184,967 | |||||||||
| Current maturities of long-term debt | 1,568 | 2,201,457 | |||||||||
| Current maturities of securitized long-term debt (See Note 10) | 9,922 | — | |||||||||
| Total current liabilities | 1,352,592 | 3,602,600 | |||||||||
| Deferred income taxes | 2,304,974 | 1,999,505 | |||||||||
| Regulatory excess deferred taxes (See Note 15) | 253,212 | 385,213 | |||||||||
| Regulatory cost of removal obligation | 497,017 | 487,631 | |||||||||
| Deferred credits and other liabilities | 599,898 | 538,302 | |||||||||
| $ | 22,516,968 | $ | 22,192,989 |
See accompanying notes to consolidated financial statements.
ATMOS ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Year Ended September 30 | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| (In thousands, except per share data) | |||||||||||||||||
| Operating revenues | |||||||||||||||||
| Distribution segment | $ | 4,099,690 | $ | 4,035,194 | $ | 3,241,973 | |||||||||||
| Pipeline and storage segment | 785,174 | 693,660 | 637,347 | ||||||||||||||
| Intersegment eliminations | (609,507) | (527,192) | (471,830) | ||||||||||||||
| Total operating revenues | 4,275,357 | 4,201,662 | 3,407,490 | ||||||||||||||
| Purchased gas cost | |||||||||||||||||
| Distribution segment | 2,061,920 | 2,210,302 | 1,501,695 | ||||||||||||||
| Pipeline and storage segment | (1,220) | (1,583) | 1,582 | ||||||||||||||
| Intersegment eliminations | (608,527) | (526,063) | (470,560) | ||||||||||||||
| Total purchased gas cost | 1,452,173 | 1,682,656 | 1,032,717 | ||||||||||||||
| Operation and maintenance expense | 764,906 | 710,161 | 679,019 | ||||||||||||||
| Depreciation and amortization expense | 604,327 | 535,655 | 477,977 | ||||||||||||||
| Taxes, other than income | 386,804 | 352,208 | 312,779 | ||||||||||||||
| Operating income | 1,067,147 | 920,982 | 904,998 | ||||||||||||||
| Other non-operating income (expense) | 69,775 | 33,737 | (2,145) | ||||||||||||||
| Interest charges | 137,281 | 102,811 | 83,554 | ||||||||||||||
| Income before income taxes | 999,641 | 851,908 | 819,299 | ||||||||||||||
| Income tax expense | 113,779 | 77,510 | 153,736 | ||||||||||||||
| Net income | $ | 885,862 | $ | 774,398 | $ | 665,563 | |||||||||||
| Basic net income per share | $ | 6.10 | $ | 5.61 | $ | 5.12 | |||||||||||
| Diluted net income per share | $ | 6.10 | $ | 5.60 | $ | 5.12 | |||||||||||
| Weighted average shares outstanding: | |||||||||||||||||
| Basic | 145,121 | 137,830 | 129,779 | ||||||||||||||
| Diluted | 145,166 | 138,096 | 129,834 | ||||||||||||||
| Net income | $ | 885,862 | $ | 774,398 | $ | 665,563 | |||||||||||
| Other comprehensive income (loss), net of tax | |||||||||||||||||
| Net unrealized holding gains (losses) on available-for-sale securities, net of tax of $37, $(157) and $(55) | 126 | (542) | (191) | ||||||||||||||
| Cash flow hedges: | |||||||||||||||||
| Amortization and unrealized gains on interest rate agreements, net of tax of $43,148, $86,664 and $36,875 | 149,290 | 299,851 | 127,583 | ||||||||||||||
| Total other comprehensive income | 149,416 | 299,309 | 127,392 | ||||||||||||||
| Total comprehensive income | $ | 1,035,278 | $ | 1,073,707 | $ | 792,955 |
See accompanying notes to consolidated financial statements.
ATMOS ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| Common stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total | |||||||||||||||||||||||||||||||
| Number of Shares | Stated Value | ||||||||||||||||||||||||||||||||||
| (In thousands, except share and per share data) | |||||||||||||||||||||||||||||||||||
| Balance, September 30, 2020 | 125,882,477 | $ | 629 | $ | 4,377,149 | $ | (57,589) | $ | 2,471,014 | $ | 6,791,203 | ||||||||||||||||||||||||
| Net income | — | — | — | — | 665,563 | 665,563 | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 127,392 | — | 127,392 | |||||||||||||||||||||||||||||
| Cash dividends ($2.50 per share) | — | — | — | — | (323,904) | (323,904) | |||||||||||||||||||||||||||||
| Common stock issued: | |||||||||||||||||||||||||||||||||||
| Public offering | 6,130,875 | 31 | 606,636 | — | — | 606,667 | |||||||||||||||||||||||||||||
| Direct stock purchase plan | 79,921 | — | 7,715 | — | — | 7,715 | |||||||||||||||||||||||||||||
| Retirement savings plan | 84,265 | 1 | 8,125 | — | — | 8,126 | |||||||||||||||||||||||||||||
| 1998 Long-term incentive plan | 242,216 | 1 | 3,091 | — | — | 3,092 | |||||||||||||||||||||||||||||
| Employee stock-based compensation | — | — | 21,035 | — | — | 21,035 | |||||||||||||||||||||||||||||
| Balance, September 30, 2021 | 132,419,754 | 662 | 5,023,751 | 69,803 | 2,812,673 | 7,906,889 | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | 774,398 | 774,398 | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 299,309 | — | 299,309 | |||||||||||||||||||||||||||||
| Cash dividends ($2.72 per share) | — | — | — | — | (375,914) | (375,914) | |||||||||||||||||||||||||||||
| Common stock issued: | |||||||||||||||||||||||||||||||||||
| Public offering | 7,907,883 | 40 | 776,765 | — | — | 776,805 | |||||||||||||||||||||||||||||
| Direct stock purchase plan | 68,693 | — | 7,495 | — | — | 7,495 | |||||||||||||||||||||||||||||
| Retirement savings plan | 72,339 | — | 7,908 | — | — | 7,908 | |||||||||||||||||||||||||||||
| 1998 Long-term incentive plan | 427,929 | 2 | 2,396 | — | — | 2,398 | |||||||||||||||||||||||||||||
| Employee stock-based compensation | — | — | 19,803 | — | — | 19,803 | |||||||||||||||||||||||||||||
| Balance, September 30, 2022 | 140,896,598 | 704 | 5,838,118 | 369,112 | 3,211,157 | 9,419,091 | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | 885,862 | 885,862 | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 149,416 | — | 149,416 | |||||||||||||||||||||||||||||
| Cash dividends ($2.96 per share) | — | — | — | — | (430,345) | (430,345) | |||||||||||||||||||||||||||||
| Common stock issued: | |||||||||||||||||||||||||||||||||||
| Public offering | 7,272,261 | 36 | 806,913 | — | — | 806,949 | |||||||||||||||||||||||||||||
| Direct stock purchase plan | 64,871 | — | 7,429 | — | — | 7,429 | |||||||||||||||||||||||||||||
| Retirement savings plan | 69,716 | 1 | 7,965 | — | — | 7,966 | |||||||||||||||||||||||||||||
| 1998 Long-term incentive plan | 189,337 | 1 | 2,107 | — | — | 2,108 | |||||||||||||||||||||||||||||
| Employee stock-based compensation | — | — | 21,588 | — | — | 21,588 | |||||||||||||||||||||||||||||
| Balance, September 30, 2023 | 148,492,783 | $ | 742 | $ | 6,684,120 | $ | 518,528 | $ | 3,666,674 | $ | 10,870,064 |
See accompanying notes to consolidated financial statements.
ATMOS ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended September 30 | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||||||||
| Net income | $ | 885,862 | $ | 774,398 | $ | 665,563 | |||||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||||||||||||
| Depreciation and amortization | 604,327 | 535,655 | 477,977 | ||||||||||||||
| Deferred income taxes | 108,215 | 53,651 | 155,355 | ||||||||||||||
| Stock-based compensation | 10,178 | 10,743 | 11,255 | ||||||||||||||
| Amortization of debt issuance costs | 3,639 | 9,141 | 14,030 | ||||||||||||||
| Equity component of AFUDC | (64,019) | (45,505) | (32,749) | ||||||||||||||
| Other | (591) | 3,265 | 3,731 | ||||||||||||||
| Changes in assets and liabilities: | |||||||||||||||||
| (Increase) decrease in accounts receivable | 46,859 | (34,325) | (113,665) | ||||||||||||||
| (Increase) decrease in gas stored underground | 112,111 | (179,825) | (66,166) | ||||||||||||||
| (Increase) decrease in Winter Storm Uri current regulatory asset (see Note 3) | 2,021,889 | — | (2,003,659) | ||||||||||||||
| Increase in other current assets | (36,041) | (65,979) | (84,705) | ||||||||||||||
| Increase in Winter Storm Uri long-term regulatory asset (see Note 3) | — | — | (76,652) | ||||||||||||||
| (Increase) decrease in deferred charges and other assets | (172,586) | 13,287 | 136,809 | ||||||||||||||
| Increase (decrease) in accounts payable and accrued liabilities | (132,575) | 40,394 | 104,242 | ||||||||||||||
| Increase (decrease) in other current liabilities | 30,687 | (152,274) | (166,268) | ||||||||||||||
| Increase (decrease) in deferred credits and other liabilities | 41,788 | 14,958 | (109,349) | ||||||||||||||
| Net cash provided by (used in) operating activities | 3,459,743 | 977,584 | (1,084,251) | ||||||||||||||
| CASH FLOWS USED IN INVESTING ACTIVITIES | |||||||||||||||||
| Capital expenditures | (2,805,973) | (2,444,420) | (1,969,540) | ||||||||||||||
| Purchases of debt and equity securities | (46,789) | (28,285) | (49,879) | ||||||||||||||
| Proceeds from sale of debt and equity securities | 25,134 | 4,872 | 14,957 | ||||||||||||||
| Maturities of debt securities | 13,340 | 27,586 | 28,850 | ||||||||||||||
| Other, net | 19,008 | 10,289 | 11,957 | ||||||||||||||
| Net cash used in investing activities | (2,795,280) | (2,429,958) | (1,963,655) | ||||||||||||||
See accompanying notes to consolidated financial statements.
ATMOS ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
| Year Ended September 30 | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||||||||
| Net increase in short-term debt | 56,966 | 184,967 | — | ||||||||||||||
| Proceeds from issuance of long-term debt, net of premium/discount | 797,258 | 798,802 | 2,797,346 | ||||||||||||||
| Proceeds from issuance of securitized long-term debt by AEK | 95,000 | — | — | ||||||||||||||
| Net proceeds from equity offering | 806,949 | 776,805 | 606,667 | ||||||||||||||
| Issuance of common stock through stock purchase and employee retirement plans | 15,395 | 15,403 | 15,841 | ||||||||||||||
| Settlement of interest rate swaps | 171,145 | 197,073 | 62,159 | ||||||||||||||
| Proceeds from term loan | 2,020,000 | — | — | ||||||||||||||
| Repayment of term loan | (2,020,000) | — | — | ||||||||||||||
| Repayment of long-term debt | (2,200,000) | (200,000) | — | ||||||||||||||
| Cash dividends paid | (430,345) | (375,914) | (323,904) | ||||||||||||||
| Debt issuance costs | (7,864) | (8,196) | (14,288) | ||||||||||||||
| Securitized debt issuance costs | (1,273) | — | — | ||||||||||||||
| Other | — | (1,735) | — | ||||||||||||||
| Net cash provided by (used in) financing activities | (696,769) | 1,387,205 | 3,143,821 | ||||||||||||||
| Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents | (32,306) | (65,169) | 95,915 | ||||||||||||||
| Cash and cash equivalents and restricted cash and cash equivalents at beginning of year | 51,554 | 116,723 | 20,808 | ||||||||||||||
| Cash and cash equivalents and restricted cash and cash equivalents at end of year | $ | 19,248 | $ | 51,554 | $ | 116,723 | |||||||||||
See accompanying notes to consolidated financial statements.
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business
Atmos Energy Corporation (Atmos Energy or the “Company”) and its subsidiaries are engaged in the regulated natural gas distribution and pipeline and storage businesses. Through our distribution business, we deliver natural gas through sales and transportation arrangements to over 3.3 million residential, commercial, public-authority and industrial customers through our six regulated distribution divisions in the service areas described below:
| Division | Service Area | |||||||
| Atmos Energy Colorado-Kansas Division | Colorado, Kansas | |||||||
| Atmos Energy Kentucky/Mid-States Division | Kentucky, Tennessee, Virginia | |||||||
| Atmos Energy Louisiana Division | Louisiana | |||||||
| Atmos Energy Mid-Tex Division | Texas, including the Dallas/Fort Worth metropolitan area | |||||||
| Atmos Energy Mississippi Division | Mississippi | |||||||
| Atmos Energy West Texas Division | West Texas |
In addition, we transport natural gas for others through our distribution system. Our distribution business is subject to federal and state regulation and/or regulation by local authorities in each of the states in which our distribution divisions operate. Our corporate headquarters and shared-services function are located in Dallas, Texas, and our customer support centers are located in Amarillo and Waco, Texas.
Our pipeline and storage business, which is also subject to federal and state regulation, consists of the pipeline and storage operations of our Atmos Pipeline–Texas (APT) Division and our natural gas transmission business in Louisiana. The APT division provides transportation and storage services to our Mid-Tex Division, other third-party local distribution companies, industrial and electric generation customers, as well as marketers and producers. As part of its pipeline operations, APT manages five underground storage facilities in Texas. We also provide ancillary services customary to the pipeline industry including parking arrangements, lending and sales of inventory on hand. Our natural gas transmission operations in Louisiana are comprised of a 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 and on a more limited basis, to third parties.
2. Summary of Significant Accounting Policies
Principles of consolidation — The accompanying consolidated financial statements include the accounts of Atmos Energy Corporation and its wholly-owned subsidiaries. All material intercompany transactions have been eliminated; however, we have not eliminated intercompany profits when such amounts are probable of recovery under the affiliates’ rate regulation process.
Reclassification — Certain reclassifications have been made to prior period amounts to conform to current period presentation.
Use of estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The most significant estimates include the allowance for doubtful accounts, unbilled revenues, contingency accruals, pension and postretirement obligations, deferred income taxes, risk management and trading activities and fair value measurements. Actual results could differ from those estimates.
Regulation — Our distribution and pipeline and storage operations are subject to regulation with respect to rates, service, maintenance of accounting records and various other matters by the respective regulatory authorities in the states in which we operate. Our accounting policies recognize the financial effects of the ratemaking and accounting practices and policies of the various regulatory commissions. Accounting principles generally accepted in the United States require cost-based, rate-regulated entities that meet certain criteria to reflect the authorized recovery of costs due to regulatory decisions in their financial statements. As a result, certain costs are permitted to be capitalized rather than expensed because they can be recovered through rates. We record certain costs as regulatory assets when future recovery through customer rates is considered probable. Regulatory liabilities are recorded when it is probable that revenues will be reduced for amounts that will be credited to customers through the ratemaking process. The amounts to be recovered or recognized are based upon historical experience and our understanding of the regulations. Further, regulation may impact the period in which revenues or expenses are recognized.
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Revenue recognition
Distribution Revenues
Distribution revenues represent the delivery of natural gas to residential, commercial, industrial and public authority customers at prices based on tariff rates established by regulatory authorities in the states in which we operate. Revenue is recognized and our performance obligation is satisfied over time when natural gas is delivered and simultaneously consumed by our customers. We have elected to use the invoice practical expedient and recognize revenue for volumes delivered that we have the right to invoice our customers. We bill our customers on a monthly cycle basis. Accordingly, we estimate volumes from the last meter read to the balance sheet date and accrue revenue for gas delivered but not yet billed.
In our Texas and Mississippi jurisdictions, we pay franchise fees and gross receipt taxes to operate in these service areas. These franchise fees and gross receipts taxes are required to be paid regardless of our ability to collect from our customers. Accordingly, we account for these amounts on a gross basis in revenue and we record the associated tax expense as a component of taxes, other than income.
Pipeline and Storage Revenues
Pipeline and storage revenues primarily represent the transportation and storage of natural gas on our APT system and the transmission of natural gas through our 21-mile pipeline in Louisiana. APT provides transportation and storage services to our Mid-Tex Division, other third party local distribution companies and certain industrial customers under tariff rates approved by the RRC. APT also provides certain transportation and storage services to industrial and electric generation customers, as well as marketers and producers, under negotiated rates. Our pipeline in Louisiana is primarily used to aggregate gas supply for our Louisiana Division under a long-term contract and on a more limited basis to third parties. The demand fee charged to our Louisiana Division is subject to regulatory approval by the Louisiana Public Service Commission. We also manage two asset management plans with distribution affiliates of the Company at terms that have been approved by the applicable state regulatory commissions. The performance obligations for these transportation customers are satisfied by means of transporting customer-supplied gas to the designated location. Revenue is recognized and our performance obligation is satisfied over time when natural gas is delivered to the customer. Management determined that these arrangements qualify for the invoice practical expedient for recognizing revenue. For demand fee arrangements, revenue is recognized and our performance obligation is satisfied by standing ready to transport natural gas over the period of each individual month.
Alternative Revenue Program Revenues
In our distribution segment, we have weather-normalization adjustment mechanisms that serve to minimize the effects of weather on our residential and commercial revenues. APT has a regulatory mechanism that requires that we share with its tariffed customers 75% of the difference between the total non-tariffed revenues earned during a test period and a revenue benchmark of $69.4 million that was established in its most recent rate case. Differences between actual revenues and revenues calculated under these mechanisms adjust the amount billed to customers. These mechanisms are considered to be alternative revenue programs under accounting standards generally accepted in the United States as they are deemed to be contracts between us and our regulator. Accordingly, revenue under these mechanisms are excluded from revenue from contracts with customers.
Purchased gas costs — Rates established by regulatory authorities are adjusted for increases and decreases in our purchased gas costs through purchased gas cost adjustment mechanisms. There is no margin generated through purchased gas cost adjustments, but they provide a dollar-for-dollar offset to increases or decreases in our distribution segment’s gas costs. The effects of these purchased gas cost adjustment mechanisms are recorded as deferred gas costs on our consolidated balance sheets.
Cash and cash equivalents — We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Restricted cash and cash equivalents — Restricted cash and cash equivalents consists of funds that are contractually or legally restricted as to usage or withdrawal and have been presented separately from cash and cash equivalents on our consolidated balance sheets. Restricted cash and cash equivalents accounts were established for payment of Securitized Utility Tariff Bonds issuance costs and payment of debt service on those bonds as well as certain ongoing costs of Atmos Energy Kansas Securitization I, LLC (AEK).
Accounts receivable and allowance for uncollectible accounts — Accounts receivable arise from natural gas sales to residential, commercial, industrial, public authority and other customers. Our accounts receivable balance includes unbilled amounts which represent a customer’s consumption of gas from the date of the last cycle billing through the last day of the month. The receivable balances are short term and generally do not extend beyond one month.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Credit losses on our accounts receivable are measured using an expected credit loss model over the entire contractual term from the date of initial recognition. To minimize credit risk, we assess the credit worthiness of new customers, require deposits where necessary, assess late fees, pursue collection activities and disconnect service for nonpayment. After disconnection, accounts are written off when deemed uncollectible. At each reporting period, we assess the allowance for uncollectible accounts based on historical experience, current conditions and consideration of expected future conditions. Circumstances which could affect our estimates include, but are not limited to, customer credit issues, the level of natural gas prices, customer deposits and general economic conditions.
Gas stored underground — Our gas stored underground is comprised of natural gas injected into storage to support the winter season withdrawals for our distribution operations. The average cost method is used for all of our distribution operations. Gas in storage that is retained as cushion gas to maintain reservoir pressure is classified as property, plant and equipment and is valued at cost.
Securitized intangible asset — Our securitized intangible asset is recorded on AEK and represents the Securitized Utility Tariff Property acquired from Atmos Energy in fiscal 2023. See Note 10 to the consolidated financial statements. The securitized intangible asset is stated at cost, net of accumulated amortization, and is amortized over the life of the asset in proportion to the pattern of economic benefit based on expected future undiscounted cash flows. At the end of its life, this securitized intangible asset will have no residual value.
Property, plant and equipment — Regulated property, plant and equipment is stated at original cost, net of contributions in aid of construction. The cost of additions includes direct construction costs, payroll related costs (taxes, the service cost portion of pension expense and other benefits), administrative and general costs and an allowance for funds used during construction (AFUDC). AFUDC represents the capitalizable total cost of funds used to finance the construction of major projects.
The following table details amounts capitalized for the fiscal year ended September 30.
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Component of AFUDC | Statement of Comprehensive Income Location | (In thousands) | ||||||||||||||||||
| Debt | Interest charges | $ | 15,808 | $ | 12,153 | $ | 11,414 | |||||||||||||
| Equity | Other non-operating income (expense) | 64,019 | 45,505 | 32,749 | ||||||||||||||||
| $ | 79,827 | $ | 57,658 | $ | 44,163 |
Major renewals, including replacement pipe, and betterments that are recoverable through our regulatory rate base are capitalized while the costs of maintenance and repairs that are not capitalizable are charged to expense as incurred. The costs of large projects are accumulated in construction in progress until the project is completed. When the project is completed, tested and placed in service, the balance is transferred to the regulated plant in service account included in the rate base and depreciation begins.
Regulated property, plant and equipment is depreciated at various rates on a straight-line basis. These rates are approved by our regulatory commissions and are comprised of two components: one based on average service life and one based on cost of removal. Accordingly, we recognize our cost of removal expense as a component of depreciation expense. The related cost of removal accrual is reflected as a regulatory liability on the consolidated balance sheet. At the time property, plant and equipment is retired, removal expenses less salvage, are charged to the regulatory cost of removal accrual. The composite depreciation rate was 3.0 percent for the fiscal years ended September 30, 2023, 2022 and 2021.
Other property, plant and equipment is stated at cost. Depreciation is generally computed on the straight-line method for financial reporting purposes based upon estimated useful lives.
Impairment of long-lived assets — We evaluate whether events or circumstances have occurred that indicate that other long-lived assets may not be recoverable or that the remaining useful life may warrant revision. When such events or circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value will be recovered through the expected future cash flows. In the event the sum of the expected future cash flows resulting from the use of the asset is less than the carrying value of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded. No impairment losses were recorded for our long-lived assets during the fiscal years ended September 30, 2023, 2022 and 2021.
Goodwill — We annually evaluate our goodwill balances for impairment during our second fiscal quarter or more frequently as impairment indicators arise. During the second quarter of fiscal 2023, we completed our annual goodwill impairment assessment. We test goodwill for impairment at the reporting unit level on an annual basis and between annual tests
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit. Based on the assessment performed, we determined that our goodwill was not impaired. Although not applicable for the fiscal 2023 analysis, if a qualitative goodwill assessment resulted in impairment indicators, we would then use a present value technique based on discounted cash flows to estimate the fair value of our reporting units. These calculations are dependent on several subjective factors including the timing of future cash flows, future growth rates and the discount rate. An impairment charge is recognized if the carrying value of a reporting unit’s goodwill exceeds its fair value.
Lease accounting — We determine if an arrangement is a lease at the inception of the agreement based on the terms and conditions in the contract. A contract contains a lease if there is an identified asset and we have the right to control the asset. We are the lessee for substantially all of our leasing activities, which primarily includes operating leases for office and warehouse space, tower space, vehicles and heavy equipment used in our operations. We are also a lessee in finance leases for certain service centers.
We record a lease liability and a corresponding right of use (ROU) asset for all of our leases with a term greater than 12 months. For lease contracts containing renewal and termination options, we include the option period in the lease term when it is reasonably certain the option will be exercised. We most frequently assume renewal options at the inception of the arrangement for our tower and fleet leases, based on our anticipated use of the assets. Real estate leases that contain a renewal option are evaluated on a lease-by-lease basis to determine if the option period should be included in the lease term. Currently, we have not included material renewal options for real estate leases in our ROU asset or lease liability.
The lease liability represents the present value of all lease payments over the lease term. We do not include short-term leases in the calculation of our lease liabilities. The discount rate used to determine the present value of the lease liability is the rate implicit in the lease unless that rate cannot be readily determined. We use the implicit rate stated in the agreement to determine the lease liability for our fleet leases. We use our corporate collateralized incremental borrowing rate as the discount rate for all other lease agreements. This rate is appropriate because we believe it represents the rate we would have incurred to borrow funds to acquire the leased asset over a similar term. We calculated this rate using a combination of inputs, including our current credit rating, quoted market prices of interest rates for our publicly traded unsecured debt, observable market yield curve data for peer companies with a credit rating one notch higher than our current credit rating and the lease term.
The ROU asset represents the right to use the underlying asset for the lease term, and is equal to the lease liability, adjusted for prepaid or accrued lease payments and any lease incentives that have been paid to us or when we are reasonably certain to incur costs equal to or greater than the allowance defined in the contract. We bundle our lease and non-lease components as a single component for all asset classes.
Variable payments included in our leasing arrangements are expensed in the period in which the obligation for these payments is incurred. Variable payments are dependent on usage, output or may vary for other reasons. Most of our variable lease expense is related to tower leases that have escalating payments based on changes to a stated CPI index, and usage of certain office equipment.
We have not provided material residual value guarantees for our leases, nor do our leases contain material restrictions or covenants.
Marketable securities — As of September 30, 2023, we hold marketable securities classified as either equity or debt securities. Changes in fair value of our equity securities are recorded in net income, while debt securities, which are considered available-for-sale securities, are reported at market value with unrealized gains and losses shown as a component of accumulated other comprehensive income (loss).
We regularly evaluate the performance of our available-for-sale debt securities on an investment by investment basis for impairment, taking into consideration the securities’ purpose, volatility and current returns. If a determination is made that a security will likely be sold before the recovery of its cost, the related investment is written down to its estimated fair value.
Financial instruments and hedging activities — We use financial instruments to mitigate commodity price risk in our distribution and pipeline and storage segments and to mitigate interest rate risk. The objectives and strategies for using financial instruments have been tailored to our business and are discussed in Note 16 to the consolidated financial statements.
We record all of our financial instruments on the balance sheet at fair value*,* with the exception of normal purchases and normal sales that are expected to result in physical delivery, with changes in fair value ultimately recorded in the statement of comprehensive income. These financial instruments are reported as risk management assets and liabilities and are classified as current or noncurrent other assets or liabilities based upon the anticipated settlement date of the underlying financial instrument. We record the cash flow impact of our financial instruments in operating cash flows based upon their balance sheet classification.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The timing of when changes in fair value of our financial instruments are recorded in the statement of comprehensive income depends on whether the financial instrument has been designated and qualifies as a part of a hedging relationship or if regulatory rulings require a different accounting treatment. Changes in fair value for financial instruments that do not meet one of these criteria are recognized in the statement of comprehensive income as they occur.
Financial Instruments Associated with Commodity Price Risk
In our distribution segment, the costs associated with and the realized gains and losses arising from the use of financial instruments to mitigate commodity price risk are included in our purchased gas cost adjustment mechanisms in accordance with regulatory requirements. Therefore, changes in the fair value of these financial instruments are initially recorded as a component of deferred gas costs and recognized in the consolidated statements of comprehensive income as a component of purchased gas cost when the related costs are recovered through our rates and recognized in revenue in accordance with accounting principles generally accepted in the United States. Accordingly, there is no earnings impact on our distribution segment as a result of the use of these financial instruments.
Financial Instruments Associated with Interest Rate Risk
In connection with the planned issuance of long-term debt, we may use financial instruments to manage interest rate risk. We currently manage this risk through the use of forward starting interest rate swaps to fix the Treasury yield component of the interest cost associated with anticipated financings. We designate these financial instruments as cash flow hedges at the time the agreements are executed. Unrealized gains and losses associated with the instruments are recorded as a component of accumulated other comprehensive income (loss). When the instruments settle, the realized gain or loss is recorded as a component of accumulated other comprehensive income (loss) and recognized as a component of interest charges over the life of the related financing arrangement. As of September 30, 2023 and 2022, no cash was required to be held in margin accounts.
Fair Value Measurements — We report certain assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We primarily use quoted market prices and other observable market pricing information in valuing our financial assets and liabilities and minimize the use of unobservable pricing inputs in our measurements.
Fair-value estimates also consider our own creditworthiness and the creditworthiness of the counterparties involved. Our counterparties consist primarily of financial institutions and major energy companies. This concentration of counterparties may materially impact our exposure to credit risk resulting from market, economic or regulatory conditions. We seek to minimize counterparty credit risk through an evaluation of their financial condition and credit ratings and the use of collateral requirements under certain circumstances.
Amounts reported at fair value are subject to potentially significant volatility based upon changes in market prices, including, but not limited to, the valuation of the portfolio of our contracts, maturity and settlement of these contracts and newly originated transactions and interest rates, each of which directly affect the estimated fair value of our financial instruments. We believe the market prices and models used to value these financial instruments represent the best information available with respect to closing exchange and over-the-counter quotations, time value and volatility factors underlying the contracts. Values are adjusted to reflect the potential impact of an orderly liquidation of our positions over a reasonable period of time under then current market conditions.
Authoritative accounting literature establishes a fair value hierarchy that prioritizes the inputs used to measure fair value based on observable and unobservable data. The hierarchy categorizes the inputs into three levels, with the highest priority given to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority given to unobservable inputs (Level 3). The levels of the hierarchy are described below:
Level 1 — Represents unadjusted quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is defined as a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Prices actively quoted on national exchanges are used to determine the fair value of most of our assets and liabilities recorded on our balance sheet at fair value.
Our Level 1 measurements consist primarily of our debt and equity securities. The Level 1 measurements for investments in the Atmos Energy Corporation Master Retirement Trust (the Master Trust), Supplemental Executive Benefit Plan and postretirement benefit plan consist primarily of exchange-traded financial instruments.
Level 2 — Represents pricing inputs other than quoted prices included in Level 1 that are either directly or indirectly observable for the asset or liability as of the reporting date. These inputs are derived principally from, or corroborated by, observable market data. Our Level 2 measurements primarily consist of non-exchange-traded financial instruments, such as over-the-counter options and swaps and municipal and corporate bonds where market data for pricing is observable. The Level
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2 measurements for investments in our Master Trust, Supplemental Executive Benefit Plan and postretirement benefit plan consist primarily of non-exchange traded financial instruments such as corporate bonds and government securities.
Level 3 — Represents generally unobservable pricing inputs which are developed based on the best information available, including our own internal data, in situations where there is little if any market activity for the asset or liability at the measurement date. The pricing inputs utilized reflect what a market participant would use to determine fair value. We currently do not have any Level 3 investments.
Pension and other postretirement plans — Pension and other postretirement plan costs and liabilities are determined on an actuarial basis 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. Our measurement date is September 30. 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 obligation and net pension and postretirement cost. 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 the annual pension and postretirement plan cost. 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 when 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 cost is not affected. Rather, this gain or loss is amortized over the expected future working lifetime of the plan participants.
The expected return on plan assets is then calculated by applying the expected long-term rate of return on plan assets to the market-related value of the plan assets. 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 calculation will delay the impact of current market fluctuations on the pension expense for the period.
We use a corridor approach to amortize actuarial gains and losses. Under this approach, net gains or losses in excess of ten percent of the larger of the pension benefit obligation or the market-related value of the assets are amortized on a straight-line basis. The period of amortization is the average remaining service of active participants who are expected to receive benefits under the plan.
We estimate the assumed health care cost trend rate used in determining our annual postretirement net cost 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 the annual review of our participant census information as of the measurement date.
We present only the current service cost component of the net benefit cost within operations and maintenance expense in the consolidated statements of comprehensive income. The remaining components of net benefit cost are recorded in other non-operating income (expense) in our consolidated statements of comprehensive income. Only the service cost component of net benefit cost is eligible for capitalization and we continue to capitalize these costs into property, plant and equipment. Additionally, we defer into a regulatory asset or liability the portion of non-service components of net periodic benefit cost that are capitalizable for regulatory purposes.
Income taxes — Income taxes are determined based on the liability method, which results in income tax assets and liabilities arising from temporary differences. Temporary differences are differences between the tax bases of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. The liability method requires the effect of tax rate changes on accumulated deferred income taxes to be reflected in the period in which the rate change was enacted. The liability method also requires that deferred tax assets be reduced by a valuation allowance unless it is more likely than not that the assets will be realized.
The Company may recognize the tax benefit from uncertain tax positions only if it is at least more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the taxing authorities. We recognize accrued interest
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
related to unrecognized tax benefits as a component of interest charges. We recognize penalties related to unrecognized tax benefits as a component of miscellaneous income (expense) in accordance with regulatory requirements.
Tax collections — We are allowed to recover from customers revenue-related taxes that are imposed upon us. We record such taxes as operating expenses and record the corresponding customer charges as operating revenues. However, we do collect and remit various other taxes on behalf of various governmental authorities, and we record these amounts in our consolidated balance sheets on a net basis. We do not collect income taxes from our customers on behalf of governmental authorities.
Contingencies — In the normal course of business, we are confronted with issues or events that may result in a contingent liability. These generally relate to lawsuits, claims made by third parties or the action of various regulatory agencies. For such matters, we record liabilities when they are considered probable and estimable, based on currently available facts and our estimates of the ultimate outcome or resolution of the liability in the future. We maintain liability insurance for various risks associated with the operation of our natural gas pipelines and facilities, including for property damage and bodily injury. These liability insurance policies generally require us to be responsible for the first $1.0 million (self-insured retention) of each incident. To the extent a loss contingency exceeds the self-insurance retention, we record an insurance receivable when recovery is considered probable. Upon reaching a settlement, the loss contingency is deemed resolved and recorded in accounts payable and accrued liabilities until paid. Loss contingencies and any related insurance recovery receivables reflect our best estimate of these amounts as of the date of this report. Actual results may differ from estimates, depending on actual outcomes or changes in the facts or expectations surrounding each potential exposure.
We record a liability at fair value for an asset retirement obligation when the legal obligation to retire the asset has been incurred with an offsetting increase to the carrying value of the related asset. We believe we have a legal obligation to retire our natural gas storage facilities. However, we have not recognized an asset retirement obligation associated with our storage facilities because we are not able to determine the settlement date of this obligation as we do not anticipate taking our storage facilities out of service permanently. Therefore, we cannot reasonably estimate the fair value of this obligation.
Subsequent events — Except as noted in Note 7 and Note 8 to the consolidated financial statements regarding the execution of a new lease and the public offering of senior notes, no events occurred subsequent to the balance sheet date that would require recognition or disclosure in the consolidated financial statements.
3. Regulation
Our distribution and pipeline and storage operations are subject to regulation with respect to rates, service, maintenance of accounting records and various other matters by the respective regulatory authorities in the states in which we operate, which creates regulatory assets and liabilities that are recovered from or refunded to customers over time through the ratemaking process. Substantially all of our regulatory assets are recorded as a component of other current assets and deferred charges and other assets and our regulatory liabilities are recorded as a component of other current liabilities and deferred credits and other liabilities. Deferred gas costs are recorded either in other current assets or liabilities and the long-term portion of regulatory excess deferred taxes and regulatory cost of removal obligation are reported separately. Significant regulatory assets and liabilities as of September 30, 2023 and 2022 included the following:
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| September 30 | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Regulatory assets: | |||||||||||
| Pension and postretirement benefit costs | $ | 20,629 | $ | 31,122 | |||||||
| Infrastructure mechanisms (1) | 229,996 | 235,972 | |||||||||
| Winter Storm Uri incremental costs | 32,115 | 2,109,454 | |||||||||
| Deferred gas costs | 148,297 | 119,742 | |||||||||
| Regulatory excess deferred taxes (2) | 47,549 | 47,311 | |||||||||
| Recoverable loss on reacquired debt | 3,238 | 3,406 | |||||||||
| Deferred pipeline record collection costs | 54,008 | 36,898 | |||||||||
| Other | 19,096 | 21,467 | |||||||||
| $ | 554,928 | $ | 2,605,372 | ||||||||
| Regulatory liabilities: | |||||||||||
| Regulatory excess deferred taxes (2) | $ | 384,513 | $ | 545,021 | |||||||
| Regulatory cost of removal obligation | 582,867 | 568,307 | |||||||||
| Deferred gas costs | 23,093 | 28,834 | |||||||||
| APT annual adjustment mechanism | 49,894 | 31,138 | |||||||||
| Pension and postretirement benefit costs | 215,913 | 156,857 | |||||||||
| Other | 28,054 | 23,013 | |||||||||
| $ | 1,284,334 | $ | 1,353,170 |
(1)Infrastructure mechanisms in Texas, Louisiana and Tennessee allow for the deferral of all eligible expenses associated with capital expenditures incurred pursuant to these rules, including the recording of interest on the deferred expenses until the next rate proceeding (rate case or annual rate filing), at which time investment and costs would be recovered through base rates.
(2)Regulatory excess deferred taxes represent changes in our net deferred tax liability related to our cost of service ratemaking due to the enactment of the Tax Cuts and Jobs Act of 2017 (the "TCJA") and a Kansas legislative change enacted in fiscal 2020. See Notes 13 and 15 to the consolidated financial statements for further information.
Winter Storm Uri
A historic winter storm impacted supply, market pricing and demand for natural gas in our service territories in mid-February 2021. Due to the unprecedented level of purchased gas costs incurred during Winter Storm Uri, the Kansas Corporation Commission (KCC) and the Railroad Commission of Texas (RRC) issued orders in 2021 authorizing natural gas utilities to record regulatory assets to account for the extraordinary costs associated with the winter storm.
Kansas
In Kansas, we recorded a $92.3 million regulatory asset in fiscal 2021 for costs incurred during Winter Storm Uri. As further discussed in Note 10 to the consolidated financial statements, we relieved this regulatory asset through a securitization transaction that was completed in June 2023.
Texas
In Texas, we recorded a $2.02 billion regulatory asset in fiscal 2021 for costs incurred during Winter Storm Uri. In 2021, the Texas Legislature passed House Bill 1520, which authorized the RRC to issue a statewide securitization financing order directing the Texas Public Finance Authority (TPFA) to issue bonds (customer rate relief bonds) for gas utilities that chose to participate to recover extraordinary costs incurred to secure gas supply and to provide service during Winter Storm Uri, and to restore gas utility systems after that event, thereby providing rate relief to customers by extending the period during which these extraordinary costs would otherwise be recovered and supporting the financial strength and stability of gas utility companies.
In March 2023, the Texas Natural Gas Securitization Finance Corporation (the Finance Corporation), with the authority of the TPFA, issued $3.5 billion in customer rate relief bonds with varying scheduled final maturities from 12 to 18 years. The bonds are obligations of the Finance Corporation, payable from the customer rate relief charges and other bond collateral, and are not an obligation of Atmos Energy. We collected $2.02 billion of this amount and relieved the regulatory asset. U.S. GAAP does not provide comprehensive recognition and measurement guidance for many forms of government assistance received by
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
business entities. Accordingly, we accounted for the proceeds received from the Finance Corporation by analogy to International Accounting Standards No. 20, "Accounting for Government Grants and Disclosure of Government Assistance" consistent with a grant related to income. The proceeds received and the corresponding derecognition of the regulatory asset have been reflected in purchased gas cost and interest charges in our consolidated statements of comprehensive income. As the proceeds reflect the recovery of the regulatory asset, there was no impact to earnings. The proceeds are reflected in our consolidated statements of cash flow as an increase in operating cash flow.
We began collecting the customer rate relief charges on October 1, 2023, and any such property collected is solely owned by the Finance Corporation and not available to pay creditors of Atmos Energy.
Additionally, we deferred $32.4 million in carrying costs incurred after September 1, 2022. Effective October 1, 2023, we began recovering $21.2 million over a 12-month period. This amount is recorded as a current asset in other current assets as of September 30, 2023. We anticipate recovering the remaining $10.9 million in future regulatory filings and have recorded this amount as a long-term asset in deferred charges and other assets as of September 30, 2023.
4. Segment Information
As of September 30, 2023, we manage and review our consolidated operations through the following two reportable segments:
-
The distribution segment is primarily comprised of our regulated natural gas distribution and related sales operations in eight states.
-
The pipeline and storage segment is comprised primarily of the pipeline and storage operations of our Atmos Pipeline-Texas division and our natural gas transmission operations in Louisiana.
Our determination of reportable segments considers the strategic operating units under which we manage sales of various products and services to customers. Although our distribution segment operations are geographically dispersed, they are aggregated and reported as a single segment as each natural gas distribution division has similar economic characteristics. In addition, because the pipeline and storage operations of our Atmos Pipeline-Texas division and our natural gas transmission operations in Louisiana have similar economic characteristics, they have been aggregated and reported as a single segment.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. We evaluate performance based on net income or loss of the respective operating units. We allocate interest and pension expense to the pipeline and storage segment; however, there is no debt or pension liability recorded on the pipeline and storage segment balance sheet. All material intercompany transactions have been eliminated; however, we have not eliminated intercompany profits when such amounts are probable of recovery under the affiliates’ rate regulation process. Income taxes are allocated to each segment as if each segment’s income taxes were calculated on a separate return basis.
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Income statements and capital expenditures by segment are shown in the following tables.
| Year Ended September 30, 2023 | |||||||||||||||||||||||||||||
| Distribution | Pipeline and Storage | Eliminations | Consolidated | ||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| Operating revenues from external parties | $ | 4,096,661 | $ | 178,696 | $ | — | $ | 4,275,357 | |||||||||||||||||||||
| Intersegment revenues | 3,029 | 606,478 | (609,507) | — | |||||||||||||||||||||||||
| Total operating revenues | 4,099,690 | 785,174 | (609,507) | 4,275,357 | |||||||||||||||||||||||||
| Purchased gas cost | 2,061,920 | (1,220) | (608,527) | 1,452,173 | |||||||||||||||||||||||||
| Operation and maintenance expense | 565,179 | 200,707 | (980) | 764,906 | |||||||||||||||||||||||||
| Depreciation and amortization expense | 434,721 | 169,606 | — | 604,327 | |||||||||||||||||||||||||
| Taxes, other than income | 345,244 | 41,560 | — | 386,804 | |||||||||||||||||||||||||
| Operating income | 692,626 | 374,521 | — | 1,067,147 | |||||||||||||||||||||||||
| Other non-operating income | 24,988 | 44,787 | — | 69,775 | |||||||||||||||||||||||||
| Interest charges | 77,185 | 60,096 | — | 137,281 | |||||||||||||||||||||||||
| Income before income taxes | 640,429 | 359,212 | — | 999,641 | |||||||||||||||||||||||||
| Income tax expense | 60,032 | 53,747 | — | 113,779 | |||||||||||||||||||||||||
| Net income | $ | 580,397 | $ | 305,465 | $ | — | $ | 885,862 | |||||||||||||||||||||
| Capital expenditures | $ | 1,927,125 | $ | 878,848 | $ | — | $ | 2,805,973 |
| Year Ended September 30, 2022 | |||||||||||||||||||||||
| Distribution | Pipeline and Storage | Eliminations | Consolidated | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Operating revenues from external parties | $ | 4,031,936 | $ | 169,726 | $ | — | $ | 4,201,662 | |||||||||||||||
| Intersegment revenues | 3,258 | 523,934 | (527,192) | — | |||||||||||||||||||
| Total operating revenues | 4,035,194 | 693,660 | (527,192) | 4,201,662 | |||||||||||||||||||
| Purchased gas cost | 2,210,302 | (1,583) | (526,063) | 1,682,656 | |||||||||||||||||||
| Operation and maintenance expense | 518,443 | 192,847 | (1,129) | 710,161 | |||||||||||||||||||
| Depreciation and amortization expense | 387,858 | 147,797 | — | 535,655 | |||||||||||||||||||
| Taxes, other than income | 314,046 | 38,162 | — | 352,208 | |||||||||||||||||||
| Operating income | 604,545 | 316,437 | — | 920,982 | |||||||||||||||||||
| Other non-operating income | 6,946 | 26,791 | — | 33,737 | |||||||||||||||||||
| Interest charges | 49,921 | 52,890 | — | 102,811 | |||||||||||||||||||
| Income before income taxes | 561,570 | 290,338 | — | 851,908 | |||||||||||||||||||
| Income tax expense | 39,593 | 37,917 | — | 77,510 | |||||||||||||||||||
| Net income | $ | 521,977 | $ | 252,421 | $ | — | $ | 774,398 | |||||||||||||||
| Capital expenditures | $ | 1,675,798 | $ | 768,622 | $ | — | $ | 2,444,420 |
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| Year Ended September 30, 2021 | |||||||||||||||||||||||
| Distribution | Pipeline and Storage | Eliminations | Consolidated | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Operating revenues from external parties | $ | 3,238,753 | $ | 168,737 | $ | — | $ | 3,407,490 | |||||||||||||||
| Intersegment revenues | 3,220 | 468,610 | (471,830) | — | |||||||||||||||||||
| Total operating revenues | 3,241,973 | 637,347 | (471,830) | 3,407,490 | |||||||||||||||||||
| Purchased gas cost | 1,501,695 | 1,582 | (470,560) | 1,032,717 | |||||||||||||||||||
| Operation and maintenance expense | 501,209 | 179,080 | (1,270) | 679,019 | |||||||||||||||||||
| Depreciation and amortization expense | 345,481 | 132,496 | — | 477,977 | |||||||||||||||||||
| Taxes, other than income | 275,074 | 37,705 | — | 312,779 | |||||||||||||||||||
| Operating income | 618,514 | 286,484 | — | 904,998 | |||||||||||||||||||
| Other non-operating income (expense) | (20,694) | 18,549 | — | (2,145) | |||||||||||||||||||
| Interest charges | 36,629 | 46,925 | — | 83,554 | |||||||||||||||||||
| Income before income taxes | 561,191 | 258,108 | — | 819,299 | |||||||||||||||||||
| Income tax expense | 115,329 | 38,407 | — | 153,736 | |||||||||||||||||||
| Net income | $ | 445,862 | $ | 219,701 | $ | — | $ | 665,563 | |||||||||||||||
| Capital expenditures | $ | 1,454,195 | $ | 515,345 | $ | — | $ | 1,969,540 |
The following table summarizes our revenues from external parties, excluding intersegment revenues, by products and services for the fiscal years ended September 30.
| 2023 | 2022 | 2021 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Distribution revenues: | |||||||||||||||||
| Gas sales revenues: | |||||||||||||||||
| Residential | $ | 2,638,689 | $ | 2,492,116 | $ | 2,117,272 | |||||||||||
| Commercial | 1,112,236 | 1,126,189 | 838,382 | ||||||||||||||
| Industrial | 151,970 | 224,632 | 113,171 | ||||||||||||||
| Public authority and other | 62,476 | 66,956 | 50,369 | ||||||||||||||
| Total gas sales revenues | 3,965,371 | 3,909,893 | 3,119,194 | ||||||||||||||
| Transportation revenues | 119,371 | 110,905 | 105,554 | ||||||||||||||
| Other gas revenues | 11,919 | 11,138 | 14,005 | ||||||||||||||
| Total distribution revenues | 4,096,661 | 4,031,936 | 3,238,753 | ||||||||||||||
| Pipeline and storage revenues | 178,696 | 169,726 | 168,737 | ||||||||||||||
| Total operating revenues | $ | 4,275,357 | $ | 4,201,662 | $ | 3,407,490 |
Balance sheet information at September 30, 2023 and 2022 by segment is presented in the following tables.
| September 30, 2023 | |||||||||||||||||||||||
| Distribution | Pipeline and Storage | Eliminations | Consolidated | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Property, plant and equipment, net | $ | 14,402,578 | $ | 5,204,005 | $ | — | $ | 19,606,583 | |||||||||||||||
| Total assets | $ | 21,716,467 | $ | 5,504,972 | $ | (4,704,471) | $ | 22,516,968 | |||||||||||||||
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| September 30, 2022 | |||||||||||||||||||||||
| Distribution | Pipeline and Storage | Eliminations | Consolidated | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Property, plant and equipment, net | $ | 12,723,532 | $ | 4,516,707 | $ | — | $ | 17,240,239 | |||||||||||||||
| Total assets | $ | 21,424,586 | $ | 4,797,206 | $ | (4,028,803) | $ | 22,192,989 | |||||||||||||||
5. Earnings Per Share
We use the two-class method of computing earnings per share because we have participating securities in the form of non-vested restricted stock units with a nonforfeitable right to dividend equivalents, for which vesting is predicated solely on the passage of time. The calculation of earnings per share using the two-class method excludes income attributable to these participating securities from the numerator and excludes the dilutive impact of those shares from the denominator. Basic weighted average shares outstanding is calculated based upon the weighted average number of common shares outstanding during the periods presented. Also, this calculation includes fully vested stock awards that have not yet been issued as common stock. Additionally, the weighted average shares outstanding for diluted EPS includes the incremental effects of the forward sale agreements, discussed in Note 9 to the consolidated financial statements, when the impact is dilutive.
Basic and diluted earnings per share for the fiscal years ended September 30 are calculated as follows:
| 2023 | 2022 | 2021 | |||||||||||||||
| (In thousands, except per share data) | |||||||||||||||||
| Basic Earnings Per Share | |||||||||||||||||
| Net income | $ | 885,862 | $ | 774,398 | $ | 665,563 | |||||||||||
| Less: Income allocated to participating securities | 542 | 508 | 465 | ||||||||||||||
| Net income available to common shareholders | $ | 885,320 | $ | 773,890 | $ | 665,098 | |||||||||||
| Basic weighted average shares outstanding | 145,121 | 137,830 | 129,779 | ||||||||||||||
| Net income per share — Basic | $ | 6.10 | $ | 5.61 | $ | 5.12 | |||||||||||
| Diluted Earnings Per Share | |||||||||||||||||
| Net income available to common shareholders | $ | 885,320 | $ | 773,890 | $ | 665,098 | |||||||||||
| Effect of dilutive shares | — | — | — | ||||||||||||||
| Net income available to common shareholders | $ | 885,320 | $ | 773,890 | $ | 665,098 | |||||||||||
| Basic weighted average shares outstanding | 145,121 | 137,830 | 129,779 | ||||||||||||||
| Dilutive shares | 45 | 266 | 55 | ||||||||||||||
| Diluted weighted average shares outstanding | 145,166 | 138,096 | 129,834 | ||||||||||||||
| Net income per share — Diluted | $ | 6.10 | $ | 5.60 | $ | 5.12 | |||||||||||
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
6. Revenue and Accounts Receivable
The following tables disaggregates our revenue from contracts with customers by customer type and segment and provides a reconciliation to total operating revenues, including intersegment revenues, for the periods presented.
| Year Ended September 30, 2023 | |||||||||||
| Distribution | Pipeline and Storage | ||||||||||
| (In thousands) | |||||||||||
| Gas sales revenues: | |||||||||||
| Residential | $ | 2,606,658 | $ | — | |||||||
| Commercial | 1,100,773 | — | |||||||||
| Industrial | 151,538 | — | |||||||||
| Public authority and other | 61,345 | — | |||||||||
| Total gas sales revenues | 3,920,314 | — | |||||||||
| Transportation revenues | 121,420 | 811,968 | |||||||||
| Miscellaneous revenues | 10,044 | 12,180 | |||||||||
| Revenues from contracts with customers | 4,051,778 | 824,148 | |||||||||
| Alternative revenue program revenues | 43,139 | (38,974) | |||||||||
| Other revenues | 4,773 | — | |||||||||
| Total operating revenues | $ | 4,099,690 | $ | 785,174 |
| Year Ended September 30, 2022 | |||||||||||
| Distribution | Pipeline and Storage | ||||||||||
| Gas sales revenues: | |||||||||||
| Residential | $ | 2,472,461 | $ | — | |||||||
| Commercial | 1,120,322 | — | |||||||||
| Industrial | 224,427 | — | |||||||||
| Public authority and other | 66,691 | — | |||||||||
| Total gas sales revenues | 3,883,901 | — | |||||||||
| Transportation revenues | 113,043 | 707,205 | |||||||||
| Miscellaneous revenues | 10,282 | 13,679 | |||||||||
| Revenues from contracts with customers | 4,007,226 | 720,884 | |||||||||
| Alternative revenue program revenues | 26,041 | (27,224) | |||||||||
| Other revenues | 1,927 | — | |||||||||
| Total operating revenues | $ | 4,035,194 | $ | 693,660 |
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| Year Ended September 30, 2021 | |||||||||||
| Distribution | Pipeline and Storage | ||||||||||
| Gas sales revenues: | |||||||||||
| Residential | $ | 2,129,704 | $ | — | |||||||
| Commercial | 841,145 | — | |||||||||
| Industrial | 113,091 | — | |||||||||
| Public authority and other | 50,565 | — | |||||||||
| Total gas sales revenues | 3,134,505 | — | |||||||||
| Transportation revenues | 107,822 | 646,416 | |||||||||
| Miscellaneous revenues | 10,971 | 14,141 | |||||||||
| Revenues from contracts with customers | 3,253,298 | 660,557 | |||||||||
| Alternative revenue program revenues | (13,303) | (23,210) | |||||||||
| Other revenues | 1,978 | — | |||||||||
| Total operating revenues | $ | 3,241,973 | $ | 637,347 |
We have alternative revenue programs in each of our segments. In our distribution segment, we have weather-normalization adjustment mechanisms that serve to mitigate the effects of weather on our revenue. In our pipeline and storage segment, APT has a regulatory mechanism that requires that we share with its tariffed customers 75% of the difference between the total non-tariffed revenues earned during a test period and a revenue benchmark established by the RRC. Other revenues includes AEK revenues (see Note 10 to the consolidated financial statements) and other miscellaneous revenues.
Accounts receivable and allowance for uncollectible accounts
Rollforwards of our allowance for uncollectible accounts for the years ended September 30, 2023, 2022 and 2021 are presented in the table below.
In response to the COVID-19 pandemic, beginning in March 2020, regulators issued collection moratoriums, which required us to temporarily suspend our customer collection activities and charging late fees. After regulators lifted these moratoriums, we resumed customer collection activities during the third quarter of fiscal 2021. These regulatory orders influenced our bad debt expense and writeoffs from fiscal 2021 through 2023.
We actively work with our customers experiencing financial hardship to offer flexible payment options and to direct them to aid agencies for financial assistance. Our allowance for uncollectible accounts reflects the expected impact on our customers’ ability to pay. Our allowance for uncollectible accounts also reflects the fact that we have the ability to recover the gas cost portion of uncollectible accounts through our gas cost recovery mechanisms in five states, which covers approximately 80 percent of our residential and commercial customers.
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| Allowance for uncollectible accounts | |||||
| (In thousands) | |||||
| Balance, September 30, 2020 | $ | 29,949 | |||
| Current period provisions | 43,807 | ||||
| Write-offs charged against allowance | (11,019) | ||||
| Recoveries of amounts previously written off | 1,734 | ||||
| Balance, September 30, 2021 | 64,471 | ||||
| Current period provisions | 16,576 | ||||
| Write-offs charged against allowance | (32,885) | ||||
| Recoveries of amounts previously written off | 1,831 | ||||
| Balance, September 30, 2022 | 49,993 | ||||
| Current period provisions | 22,353 | ||||
| Write-offs charged against allowance | (33,595) | ||||
| Recoveries of amounts previously written off | 2,089 | ||||
| Balance, September 30, 2023 | $ | 40,840 |
7. Leases
We utilize operating leases for office and warehouse space, tower space, vehicles and heavy equipment used in our operations. We also have finance leases for certain build-to-suit service centers.
The following table presents our weighted average remaining lease term for our leases.
| September 30, 2023 | September 30, 2022 | ||||||||||
| Weighted average remaining lease term (years) | |||||||||||
| Finance leases | 17.7 | 18.7 | |||||||||
| Operating leases | 10.1 | 9.7 |
The following table represents our weighted average discount rate:
| September 30, 2023 | September 30, 2022 | ||||||||||
| Weighted average discount rate | |||||||||||
| Finance leases | 4.0 | % | 4.0 | % | |||||||
| Operating leases | 3.5 | % | 2.9 | % |
Lease costs for the years ended September 30, 2023, 2022 and 2021 are presented in the table below. These costs include both amounts recognized in expense and amounts capitalized. For the years ended September 30, 2023, 2022 and 2021 we did not have material short-term lease costs or variable lease costs.
| Year Ended September 30 | |||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Finance lease cost | $ | 4,499 | $ | 4,314 | $ | 1,334 | |||||||||||||||||
| Operating lease cost | 44,090 | 43,394 | 42,349 | ||||||||||||||||||||
| Total lease cost | $ | 48,589 | $ | 47,708 | $ | 43,683 |
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Our ROU assets and lease liabilities are presented as follows on the consolidated balance sheets:
| Balance Sheet Classification | September 30, 2023 | September 30, 2022 | ||||||||||||
| (In thousands) | ||||||||||||||
| Assets | ||||||||||||||
| Finance leases | Net Property, Plant and Equipment | $ | 47,472 | $ | 50,118 | |||||||||
| Operating leases | Deferred charges and other assets | 223,366 | 214,663 | |||||||||||
| Total right-of-use assets | $ | 270,838 | $ | 264,781 | ||||||||||
| Liabilities | ||||||||||||||
| Current | ||||||||||||||
| Finance leases | Current maturities of long-term debt | $ | 1,568 | $ | 1,457 | |||||||||
| Operating leases | Other current liabilities | 35,820 | 38,644 | |||||||||||
| Noncurrent | ||||||||||||||
| Finance leases | Long-term debt | 48,825 | 50,393 | |||||||||||
| Operating leases | Deferred credits and other liabilities | 194,452 | 184,301 | |||||||||||
| Total lease liabilities | $ | 280,665 | $ | 274,795 | ||||||||||
One service center lease commenced in the first quarter of fiscal 2024 that impacts our future lease payments. The total future lease payments for this lease is $28.9 million, and is not included in the tables below.
Other pertinent information related to leases was as follows. During the years ended September 30, 2023, 2022 and 2021 amounts paid in cash for our finance leases were not material.
| Year Ended September 30 | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Cash paid amounts included in the measurement of lease liabilities | |||||||||||||||||
| Operating cash flows used for operating leases | $ | 45,463 | $ | 45,080 | $ | 42,013 | |||||||||||
| Right-of-use assets obtained in exchange for lease obligations | |||||||||||||||||
| Finance leases | $ | — | $ | 33,833 | $ | 10,333 | |||||||||||
| Operating leases | $ | 29,976 | $ | 28,310 | $ | 25,690 |
Maturities of our lease liabilities as of September 30, 2023 were as follows by fiscal years:
| Total | Finance Leases | Operating Leases | |||||||||
| (In thousands) | |||||||||||
| 2024 | $ | 44,700 | $ | 3,375 | $ | 41,325 | |||||
| 2025 | 35,635 | 3,438 | 32,197 | ||||||||
| 2026 | 30,340 | 3,502 | 26,838 | ||||||||
| 2027 | 27,835 | 3,568 | 24,267 | ||||||||
| 2028 | 24,089 | 3,635 | 20,454 | ||||||||
| Thereafter | 185,270 | 52,362 | 132,908 | ||||||||
| Total lease payments | 347,869 | 69,880 | 277,989 | ||||||||
| Less: Imputed interest | 67,204 | 19,487 | 47,717 | ||||||||
| Total | $ | 280,665 | $ | 50,393 | $ | 230,272 | |||||
| Reported as of September 30, 2023 | |||||||||||
| Short-term lease liabilities | $ | 37,388 | $ | 1,568 | $ | 35,820 | |||||
| Long-term lease liabilities | 243,277 | 48,825 | 194,452 | ||||||||
| Total lease liabilities | $ | 280,665 | $ | 50,393 | $ | 230,272 |
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
8. Debt
Long-term debt
Long-term debt at September 30, 2023 and 2022 consisted of the following:
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Unsecured 0.625% Senior Notes, due March 2023 | $ | — | $ | 1,100,000 | |||||||
| Unsecured 3.00% Senior Notes, due June 2027 | 500,000 | 500,000 | |||||||||
| Unsecured 2.625% Senior Notes, due September 2029 | 500,000 | 500,000 | |||||||||
| Unsecured 1.50% Senior Notes, due January 2031 | 600,000 | 600,000 | |||||||||
| Unsecured 5.45% Senior Notes, due October 2032 | 300,000 | — | |||||||||
| Unsecured 5.95% Senior Notes, due October 2034 | 200,000 | 200,000 | |||||||||
| Unsecured 5.50% Senior Notes, due June 2041 | 400,000 | 400,000 | |||||||||
| Unsecured 4.15% Senior Notes, due January 2043 | 500,000 | 500,000 | |||||||||
| Unsecured 4.125% Senior Notes, due October 2044 | 750,000 | 750,000 | |||||||||
| Unsecured 4.30% Senior Notes, due October 2048 | 600,000 | 600,000 | |||||||||
| Unsecured 4.125% Senior Notes, due March 2049 | 450,000 | 450,000 | |||||||||
| Unsecured 3.375% Senior Notes, due September 2049 | 500,000 | 500,000 | |||||||||
| Unsecured 2.85% Senior Notes, due February 2052 | 600,000 | 600,000 | |||||||||
| Unsecured 5.75% Senior Notes, due October 2052 | 500,000 | — | |||||||||
| Floating-rate Senior Notes, due March 2023 | — | 1,100,000 | |||||||||
| Medium term Series A notes, 1995-1, 6.67%, due December 2025 | 10,000 | 10,000 | |||||||||
| Unsecured 6.75% Debentures, due July 2028 | 150,000 | 150,000 | |||||||||
| Finance lease obligations (see Note 7) | 50,393 | 51,850 | |||||||||
| Total long-term debt | 6,610,393 | 8,011,850 | |||||||||
| Less: | |||||||||||
| Net original issue discount on unsecured senior notes and debentures | 6,104 | 3,704 | |||||||||
| Debt issuance cost | 48,588 | 46,042 | |||||||||
| Current maturities | 1,568 | 2,201,457 | |||||||||
| $ | 6,554,133 | $ | 5,760,647 |
Maturities of long-term debt, excluding our finance lease obligations, at September 30, 2023 were as follows by fiscal years (in thousands):
| 2024 | $ | — | |||
| 2025 | — | ||||
| 2026 | 10,000 | ||||
| 2027 | 500,000 | ||||
| 2028 | 150,000 | ||||
| Thereafter | 5,900,000 | ||||
| $ | 6,560,000 |
On October 10, 2023, we completed a public offering of $500 million of 6.20% senior notes due October 2053, with an effective interest rate of 5.56%, after giving effect to the estimated offering costs and settlement of our interest rate swaps, and $400 million of 5.90% senior notes due October 2033, with an effective interest rate of 4.35%, after giving effect to the estimated offering costs and settlement of our interest rate swaps. The net proceeds from the offering, after the underwriting discount and estimated offering expenses, of $889.2 million were used for general corporate purposes. In September 2023, we settled the designated interest rate swaps associated with this offering and received $171.1 million.
On October 3, 2022, we completed a public offering of $500 million of 5.75% senior notes due October 2052, with an effective interest rate of 4.50%, after giving effect to the offering costs and settlement of our interest rate swaps, and
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
$300 million of 5.45% senior notes due October 2032, with an effective interest rate of 5.57%, after giving effect to the offering costs. The net proceeds from the offering, after the underwriting discount and offering expenses, of $789.4 million were used for general corporate purposes. In September 2022, we settled the interest rate swaps associated with the $500 million offering and received $197.1 million.
On January 14, 2022, we completed a public offering of $200 million of 2.625% senior notes due September 2029, with an effective interest rate of 2.54%, after giving effect to the offering costs. The net proceeds from the offering, after the underwriting discount and offering expenses, of $200.8 million were used to repay our $200 million floating-rate term loan on January 18, 2022.
On October 1, 2021, we completed a public offering of $600 million of 2.85% senior notes due February 2052, with an effective interest rate of 2.58%, after giving effect to the offering costs and settlement of our interest rate swaps. The net proceeds from the offering, after the underwriting discount and offering expenses, of $589.8 million, were used for general corporate purposes. In September 2021, we settled the interest rate swaps associated with this offering and received $62.2 million.
Winter Storm Uri Financing
A historic winter storm impacted supply, market pricing and demand for natural gas in our service territories in mid-February 2021. We experienced unforeseeable and unprecedented market pricing for gas costs, which resulted in aggregated natural gas purchases in February 2021 of approximately $2.3 billion. These gas costs were paid using funds received from a public offering of debt securities completed in March 2021 of $2.2 billion. On March 3, 2023, we entered into a term loan agreement for a $2.02 billion senior unsecured term loan facility and used the proceeds, along with cash on hand, to repay at maturity the outstanding $2.2 billion senior notes that matured on March 9, 2023. On March 23, 2023, we received proceeds from the Finance Corporation in the amount of $2.02 billion and repaid the term loan.
Short-term Debt
We utilize short-term debt to provide cost-effective, short-term financing until it can be replaced with a balance of long-term debt and equity financing that achieves the Company’s desired capital structure. Our short-term borrowing requirements are driven primarily by construction work in progress and the seasonal nature of the natural gas business.
Our short-term borrowing requirements are satisfied through a combination of a $1.5 billion commercial paper program and four committed revolving credit facilities with third-party lenders that provide $2.5 billion of total working capital funding.
The primary source of our funding is our commercial paper program, which is supported by a five-year unsecured $1.5 billion credit facility that expires on March 31, 2027. This facility bears interest at a base rate or at a SOFR-based rate for the applicable interest period, plus a margin ranging from zero percent to 0.25 percent for base rate advances or a margin ranging from 0.75 percent to 1.25 percent for SOFR-based advances, based on the Company’s credit ratings. Additionally, the facility contains a $250 million accordion feature, which provides the opportunity to increase the total committed loan to $1.75 billion. At September 30, 2023, there was $241.9 million outstanding under our commercial paper program with a weighted average interest rate of 5.46% and weighted average maturities of less than one month. At September 30, 2022, there was $185.0 million outstanding under our commercial paper program.
We also have a $900 million three-year unsecured revolving credit facility, which expires March 31, 2025 and is used to provide additional working capital funding. This facility bears interest at a base rate or at a SOFR-based rate for the applicable interest period, plus a margin ranging from zero percent to 0.25 percent for base rate advances or a margin ranging from 0.75 percent to 1.25 percent for SOFR-based advances, based on the Company's credit ratings. Additionally, the facility contains a $100 million accordion feature, which provides the opportunity to increase the total committed loan to $1.0 billion. At September 30, 2023 and 2022, there were no borrowings outstanding under this facility.
Additionally, we have a $50 million 364-day unsecured facility, which was renewed April 1, 2023 and is used to provide working capital funding. There were no borrowings outstanding under this facility as of September 30, 2023 and 2022.
Finally, we have a $50 million 364-day unsecured revolving credit facility, which was renewed March 31, 2023 and is used to issue letters of credit and to provide working capital funding. At September 30, 2023, there were no borrowings outstanding under the new facility; however, outstanding letters of credit reduced the total amount available to us to $44.4 million.
Debt Covenants
The availability of funds under these credit facilities is subject to conditions specified in the respective credit agreements, all of which we currently satisfy. These conditions include our compliance with financial covenants and the continued accuracy
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of representations and warranties contained in these agreements. We are required by the financial covenants in each of these facilities to maintain, at the end of each fiscal quarter, a ratio of total-debt-to-total-capitalization of no greater than 70 percent. At September 30, 2023, our total-debt-to-total-capitalization ratio, as defined, was 40 percent. In addition, both the interest margin and the fee that we pay on unused amounts under each of these facilities are subject to adjustment depending upon our credit ratings.
These credit facilities and our public indentures contain usual and customary covenants for our business, including covenants substantially limiting liens, substantial asset sales and mergers. Additionally, our public debt indentures relating to our senior notes and debentures, as well as certain of our revolving credit agreements, each contain a default provision that is triggered if outstanding indebtedness arising out of any other credit agreements in amounts ranging from in excess of $15 million to in excess of $100 million becomes due by acceleration or is not paid at maturity. We were in compliance with all of our debt covenants as of September 30, 2023. If we were unable to comply with our debt covenants, we would likely be required to repay our outstanding balances on demand, provide additional collateral or take other corrective actions.
9. Shareholders' Equity
Shelf Registration, At-the-Market Equity Sales Program and Equity Issuances
On March 31, 2023, we filed a shelf registration statement with the Securities and Exchange Commission (SEC) that allows us to issue up to $5.0 billion in common stock and/or debt securities, which expires March 31, 2026. This shelf registration statement replaced our previous shelf registration statement which was filed on June 29, 2021. As of the date of this report, $3.1 billion of securities remained available for issuance under the shelf registration statement.
On March 31, 2023, we filed a prospectus supplement under the shelf registration statement relating to an at-the-market (ATM) equity sales program under which we may issue and sell shares of our common stock up to an aggregate offering price of $1.0 billion through March 31, 2026 (including shares of common stock that may be sold pursuant to forward sale agreements entered into concurrently with the ATM equity sales program).
During the year ended September 30, 2023, we executed forward sales under our ATM equity sales programs with various forward sellers who borrowed and sold 4,207,126 shares of our common stock at an aggregate price of $496.5 million. During the year ended September 30, 2023, we also settled forward sale agreements with respect to 7,272,261 shares that had been borrowed and sold by various forward sellers under the ATM program for net proceeds of $806.9 million. As of September 30, 2023, $760.5 million of equity was available for issuance under our existing ATM program. Additionally, we had $466.8 million in available proceeds from outstanding forward sale agreements, as detailed below.
| Maturity | Shares Available | Net Proceeds Available (In Thousands) | Forward Price | ||||||||||||||
| March 28, 2024 | 944,296 | $ | 112,238 | $ | 118.86 | ||||||||||||
| June 28, 2024 | 927,939 | 109,495 | 118.00 | ||||||||||||||
| September 30, 2024 | 1,133,978 | 132,762 | 117.08 | ||||||||||||||
| December 31, 2024 | 954,812 | 112,308 | 117.62 | ||||||||||||||
| Total | 3,961,025 | $ | 466,803 | $ | 117.85 |
Accumulated Other Comprehensive Income (Loss)
We record deferred gains (losses) in accumulated other comprehensive income (AOCI) related to available-for-sale debt securities and interest rate agreement cash flow hedges. Deferred gains (losses) for our available-for-sale debt securities are recognized in earnings upon settlement, while deferred gains (losses) related to our interest rate agreement cash flow hedges are recognized in earnings as a component of interest charges, as they are amortized. The following tables provide the components of our accumulated other comprehensive income (loss) balances, net of the related tax effects allocated to each component of other comprehensive income (loss).
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| Available- for-Sale Securities | Interest Rate Agreement Cash Flow Hedges | Total | |||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| September 30, 2022 | $ | (495) | $ | 369,607 | $ | 369,112 | |||||||||||||||||
| Other comprehensive income before reclassifications | 126 | 151,410 | 151,536 | ||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | — | (2,120) | (2,120) | ||||||||||||||||||||
| Net current-period other comprehensive income | 126 | 149,290 | 149,416 | ||||||||||||||||||||
| September 30, 2023 | $ | (369) | $ | 518,897 | $ | 518,528 |
| Available- for-Sale Securities | Interest Rate Agreement Cash Flow Hedges | Total | |||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| September 30, 2021 | $ | 47 | $ | 69,756 | $ | 69,803 | |||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (542) | 296,875 | 296,333 | ||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | — | 2,976 | 2,976 | ||||||||||||||||||||
| Net current-period other comprehensive income (loss) | (542) | 299,851 | 299,309 | ||||||||||||||||||||
| September 30, 2022 | $ | (495) | $ | 369,607 | $ | 369,112 |
10. Variable Interest Entity
In 2021, the Kansas State Legislature enacted securitization legislation, which permitted a natural gas public utility, in its sole discretion, to apply to the KCC for a financing order for the recovery of qualified extraordinary costs through the issuance of bonds. In September 2021, we filed with the KCC an application to securitize extraordinary gas costs incurred during Winter Storm Uri, which was approved in October 2022.
Atmos Energy Kansas Securitization I, LLC (AEK), a special-purpose entity wholly owned by Atmos Energy, was formed for the purpose of issuing securitized bonds to recover extraordinary costs incurred during Winter Storm Uri. In June 2023, AEK completed a public offering of $95 million of 5.155% Series 2023-A Senior Secured Securitized Utility Tariff Bonds with a term of 10 years and semi-annual payments of principal and interest. The net proceeds from the offering, after the underwriting discount and offering expenses, of $93.7 million were primarily used to purchase the Securitized Utility Tariff Property from Atmos Energy for $92.3 million. The bonds are governed by an indenture between AEK and the indenture trustee. The indenture contains certain covenants that restrict AEK's ability to sell, transfer, convey, exchange or otherwise dispose of its assets. AEK's assets cannot be used to settle Atmos Energy's obligations, and the holders of the Securitized Utility Tariff Bonds have no recourse against Atmos Energy.
Because AEK's equity at risk is less than 1% of its total assets, it is considered to be a variable interest entity. Atmos Energy has the power to direct the most significant financial and operating activities of AEK, including billing, collections and remittance of customer cash receipts to enable AEK to service the principal and interest payments due under the Securitized Utility Tariff Bonds. Atmos Energy also has the obligation to absorb losses and rights to receive returns from AEK. Therefore, Atmos Energy is the primary beneficiary of AEK, and as a result, AEK is included in the consolidated financial statements of Atmos Energy. No gain or loss was recognized upon initial consolidation.
The Securitized Utility Tariff Property that was acquired by AEK is classified as a securitized intangible asset on our consolidated balance sheets. This securitized intangible asset will be amortized over 10 years, the estimated period needed to collect the required amounts from Atmos Energy's customers to service the Securitized Utility Tariff Bonds, with a remaining weighted average amortization period of 5.19 years as of September 30, 2023. The amortization expense related to the securitized intangible asset is included in depreciation and amortization expense in our consolidated statements of comprehensive income.
The following table summarizes the impact of AEK on our consolidated balance sheet, for the period indicated:
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| September 30, 2023 | ||||||||
| (In thousands) | ||||||||
| Restricted cash and cash equivalents | $ | 3,844 | ||||||
| Other current assets | $ | 11 | ||||||
| Securitized intangible asset, net | $ | 92,202 | ||||||
| Accrued interest | $ | 1,374 | ||||||
| Current maturities of securitized long-term debt | $ | 9,922 | ||||||
| Securitized long-term debt | $ | 85,078 |
The following table summarizes the impact of AEK on our consolidated statement of comprehensive income, for the period indicated:
| Year Ended September 30, 2023 | ||||||||
| (In thousands) | ||||||||
| Operating revenues | $ | 2,743 | ||||||
| Amortization expense | (1,398) | |||||||
| Interest expense, net | (1,345) | |||||||
| Income before income taxes | $ | — |
The following table summarizes the maturities of the securitized long-term debt and the amortization expense related to the securitized intangible asset expected to be recognized in our consolidated statements of comprehensive income:
| Maturities of Securitized Long-Term Debt | Amortization Expense of Securitized Intangible Asset | |||||||||||||
| For the fiscal year ending: | (In thousands) | |||||||||||||
| 2024 | $ | 9,922 | $ | 8,159 | ||||||||||
| 2025 | 8,207 | 8,207 | ||||||||||||
| 2026 | 8,635 | 8,635 | ||||||||||||
| 2027 | 9,086 | 9,086 | ||||||||||||
| 2028 | 9,561 | 9,561 | ||||||||||||
| Thereafter | 49,589 | 48,554 | ||||||||||||
| Total | $ | 95,000 | $ | 92,202 |
The securitized long-term debt is recorded at carrying value. The fair value of the securitized long-term debt is determined using third party market value quotations, which are considered Level 2 fair value measurements for debt instruments where fair value is determined using the most recent available quoted market price. The carrying value and fair value of the securitized long-term debt as of September 30, 2023 is $95.0 million and $92.3 million.
11. Retirement and Postretirement Employee Benefit Plans
We have both funded and unfunded noncontributory defined benefit plans that together cover most of our employees. We also maintain a postretirement plan that provides health care benefits to retired employees. Finally, we sponsor a defined contribution plan that covers substantially all employees. These plans are discussed in further detail below.
As a rate regulated entity, most of our net periodic pension and other postretirement benefits costs are recoverable through our rates over a period of up to 15 years. A portion of these costs are capitalized into our rate base or deferred as a regulatory asset or liability. The remaining costs are recorded as a component of operation and maintenance expense or other non-operating expense. Additionally, the amounts that have not yet been recognized in net periodic pension cost that have been recorded as regulatory assets or liabilities are as follows:
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| Employee Pension Plan | Supplemental Executive Retirement Plans | Postretirement Plan | Total | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| September 30, 2023 | |||||||||||||||||||||||
| Unrecognized prior service credit | $ | — | $ | — | $ | (37,937) | $ | (37,937) | |||||||||||||||
| Unrecognized actuarial (gain) loss | (72,129) | 12,314 | (118,161) | (177,976) | |||||||||||||||||||
| $ | (72,129) | $ | 12,314 | $ | (156,098) | $ | (215,913) | ||||||||||||||||
| September 30, 2022 | |||||||||||||||||||||||
| Unrecognized prior service credit | $ | (121) | $ | — | $ | (51,079) | $ | (51,200) | |||||||||||||||
| Unrecognized actuarial (gain) loss | (32,159) | 14,029 | (87,527) | (105,657) | |||||||||||||||||||
| $ | (32,280) | $ | 14,029 | $ | (138,606) | $ | (156,857) |
Defined Benefit Plans
Employee Pension Plan
As of September 30, 2023, we maintained one cash balance defined benefit plan, the Atmos Energy Corporation Pension Account Plan (the Pension Plan). The Pension Plan was established effective January 1999 and covers most of the employees of Atmos Energy that were hired on or before September 30, 2010. Effective October 1, 2010, the Pension Plan was closed to new participants. The assets of the Pension Plan are held within the Atmos Energy Corporation Master Retirement Trust (the Master Trust).
Opening account balances were established for participants as of January 1999 equal to the present value of their respective accrued benefits under the pension plans which were previously in effect as of December 31, 1998. The Pension Plan credits an allocation to each participant’s account at the end of each year according to a formula based on the participant’s age, service and total pay (excluding incentive pay). In addition, at the end of each year, a participant’s account is credited with interest on the employee’s prior year account balance. Participants are fully vested in their account balances after three years of service and may choose to receive their account balances as a lump sum or an annuity.
Generally, our funding policy is to contribute annually an amount in accordance with the requirements of the Employee Retirement Income Security Act of 1974 (ERISA), including the funding requirements under the Pension Protection Act of 2006 (PPA). However, additional voluntary contributions are made from time to time as considered necessary. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future.
During fiscal 2023 and 2022, we contributed $8.0 million and $8.5 million in cash to the Pension Plan to achieve a desired level of funding while maximizing the tax deductibility of this payment. Based upon market conditions at September 30, 2023, the current funded position of the Pension Plan and the funding requirements under the PPA, we do not anticipate a minimum required contribution for fiscal 2024. However, we may consider whether a voluntary contribution is prudent to maintain certain funding levels.
We make investment decisions and evaluate performance of the assets in the Master Trust on a medium-term horizon of at least three to five years. We also consider our current financial status when making recommendations and decisions regarding the Master Trust’s assets. Finally, we strive to ensure the Master Trust’s assets are appropriately invested to maintain an acceptable level of risk and meet the Master Trust’s long-term asset investment policy adopted by the Qualified Retirement Plans and Trusts Committee, comprised of a group of executives appointed by the Board of Directors to oversee the Company's employee pension plan, defined contribution plan and postretirement benefit plan.
To achieve these objectives, we invest the Master Trust’s assets in equity securities, fixed income securities, interests in commingled pension trust funds, other investment assets and cash and cash equivalents. Investments in equity securities are diversified among the market’s various subsectors in an effort to diversify risk and maximize returns. Fixed income securities are invested in investment grade securities. Cash equivalents are invested in securities that either are short term (less than 180 days) or readily convertible to cash with modest risk.
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents asset allocation information for the Master Trust as of September 30, 2023 and 2022.
| Targeted Allocation Range | Actual Allocation September 30 | ||||||||||||||||
| Security Class | 2023 | 2022 | |||||||||||||||
| Domestic equities | 35%-55% | 42.9% | 39.7% | ||||||||||||||
| International equities | 10%-20% | 16.0% | 14.6% | ||||||||||||||
| Fixed income | 5%-45% | 19.8% | 16.0% | ||||||||||||||
| Company stock | 0%-15% | 15.1% | 15.3% | ||||||||||||||
| Other assets | 0%-20% | 6.2% | 14.4% |
At September 30, 2023 and 2022, the Pension Plan held 716,700 shares of our common stock which represented 15.1 percent and 15.3 percent of total Pension Plan assets. These shares generated dividend income for the Pension Plan of approximately $2.1 million and $1.9 million during fiscal 2023 and 2022.
Our Pension Plan expenses and liabilities are determined on an actuarial basis and are affected by numerous assumptions and estimates including the market value of plan assets, estimates of the expected return on plan assets and assumed discount rates and demographic data. We review the estimates and assumptions underlying our Pension Plan annually based upon a September 30 measurement date. The development of our assumptions is fully described in our significant accounting policies in Note 2 to the consolidated financial statements. The actuarial assumptions used to determine the pension liability for the Pension Plan was determined as of September 30, 2023 and 2022 and the actuarial assumptions used to determine the net periodic pension cost for the Pension Plan was determined as of September 30, 2022, 2021 and 2020.
Additional assumptions are presented in the following table:
| Pension Liability | Pension Cost | ||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2021 | |||||||||||||||||||||||||
| Discount rate | 6.10 | % | 5.66 | % | 5.66 | % | 2.97 | % | 2.80 | % | |||||||||||||||||||
| Rate of compensation increase | 3.50 | % | 3.50 | % | 3.50 | % | 3.50 | % | 3.50 | % | |||||||||||||||||||
| Expected return on plan assets | 6.25 | % | 6.25 | % | 6.25 | % | 6.25 | % | 6.25 | % | |||||||||||||||||||
| Interest crediting rate | 4.69 | % | 4.69 | % | 4.69 | % | 4.69 | % | 4.69 | % |
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents the Pension Plan’s accumulated benefit obligation, projected benefit obligation and funded status as of September 30, 2023 and 2022:
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Accumulated benefit obligation | $ | 412,160 | $ | 428,629 | |||||||
| Change in projected benefit obligation: | |||||||||||
| Benefit obligation at beginning of year | $ | 449,527 | $ | 596,029 | |||||||
| Service cost | 10,805 | 16,165 | |||||||||
| Interest cost | 24,924 | 17,606 | |||||||||
| Actuarial gain | (16,085) | (141,567) | |||||||||
| Benefits paid | (37,611) | (38,706) | |||||||||
| Benefit obligation at end of year | 431,560 | 449,527 | |||||||||
| Change in plan assets: | |||||||||||
| Fair value of plan assets at beginning of year | 479,025 | 596,806 | |||||||||
| Actual return on plan assets | 52,998 | (87,575) | |||||||||
| Employer contributions | 8,000 | 8,500 | |||||||||
| Benefits paid | (37,611) | (38,706) | |||||||||
| Fair value of plan assets at end of year | 502,412 | 479,025 | |||||||||
| Reconciliation: | |||||||||||
| Funded status | 70,852 | 29,498 | |||||||||
| Unrecognized prior service cost | — | — | |||||||||
| Unrecognized net loss | — | — | |||||||||
| Net amount recognized | $ | 70,852 | $ | 29,498 |
Net periodic pension cost for the Pension Plan for fiscal 2023, 2022 and 2021 is presented in the following table.
| Fiscal Year Ended September 30 | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Components of net periodic pension cost: | |||||||||||||||||
| Service cost | $ | 10,805 | $ | 16,165 | $ | 17,369 | |||||||||||
| Interest cost (1) | 24,924 | 17,606 | 16,883 | ||||||||||||||
| Expected return on assets (1) | (29,113) | (29,531) | (27,913) | ||||||||||||||
| Amortization of prior service credit (1) | (121) | (231) | (231) | ||||||||||||||
| Recognized actuarial loss (1) | — | 4,638 | 8,686 | ||||||||||||||
| Net periodic pension cost | $ | 6,495 | $ | 8,647 | $ | 14,794 |
(1) The components of net periodic cost other than the service cost component are included in the line item other non-operating income (expense) in the consolidated statements of comprehensive income or are capitalized on the consolidated balance sheets as a regulatory asset or liability, as described in Note 2 to the consolidated financial statements.
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following tables set forth by level, within the fair value hierarchy, the Pension Plan's assets at fair value as of September 30, 2023 and 2022. As required by authoritative accounting literature, assets are categorized in their entirety based on the lowest level of input that is significant to the fair value measurement. The methods used to determine fair value for the assets held by the Pension Plan are fully described in Note 2 to the consolidated financial statements. Investments in our common/collective trusts and limited partnerships that are measured at net asset value per share equivalent are not classified in the fair value hierarchy. The net asset value amounts presented are intended to reconcile the fair value hierarchy to the total investments. In addition to the assets shown below, the Pension Plan had net accounts receivable of $0.4 million and $2.4 million at September 30, 2023 and 2022, which materially approximates fair value due to the short-term nature of these assets.
| Assets at Fair Value as of September 30, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Investments: | |||||||||||||||||||||||
| Common stocks | $ | 243,600 | $ | — | $ | — | $ | 243,600 | |||||||||||||||
| Money market funds | — | 30,965 | — | 30,965 | |||||||||||||||||||
| Registered investment companies | 69,439 | — | — | 69,439 | |||||||||||||||||||
| Government securities: | |||||||||||||||||||||||
| Mortgage-backed securities | — | 17,685 | — | 17,685 | |||||||||||||||||||
| U.S. treasuries | 8,461 | 27 | — | 8,488 | |||||||||||||||||||
| Corporate bonds | — | 23,357 | — | 23,357 | |||||||||||||||||||
| Total investments measured at fair value | $ | 321,500 | $ | 72,034 | $ | — | 393,534 | ||||||||||||||||
| Investments measured at net asset value: | |||||||||||||||||||||||
| Common/collective trusts (1) | 88,122 | ||||||||||||||||||||||
| Limited partnerships (1) | 20,329 | ||||||||||||||||||||||
| Total investments | $ | 501,985 |
| Assets at Fair Value as of September 30, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Investments: | |||||||||||||||||||||||
| Common stocks | $ | 210,325 | $ | — | $ | — | $ | 210,325 | |||||||||||||||
| Money market funds | — | 14,490 | — | 14,490 | |||||||||||||||||||
| Registered investment companies | 53,401 | — | — | 53,401 | |||||||||||||||||||
| Government securities: | |||||||||||||||||||||||
| Mortgage-backed securities | — | 14,175 | — | 14,175 | |||||||||||||||||||
| U.S. treasuries | 3,681 | 28 | — | 3,709 | |||||||||||||||||||
| Corporate bonds | — | 22,320 | — | 22,320 | |||||||||||||||||||
| Total investments measured at fair value | $ | 267,407 | $ | 51,013 | $ | — | 318,420 | ||||||||||||||||
| Investments measured at net asset value: | |||||||||||||||||||||||
| Common/collective trusts (1) | 86,891 | ||||||||||||||||||||||
| Limited partnerships (1) | 71,331 | ||||||||||||||||||||||
| Total investments | $ | 476,642 |
(1) The fair value of our common/collective trusts and limited partnerships are measured using the net asset value per share practical expedient. There are no redemption restrictions, redemption notice periods or unfunded commitments for these investments. The redemption frequency is daily.
Supplemental Executive Retirement Plans
We have three nonqualified supplemental plans (the Supplemental Plans) which provide additional pension, disability and death benefits to our officers and certain other employees of the Company.
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Supplemental Executive Benefits Plan (SEBP) covers our corporate officers and certain other employees of the Company who were employed on or before August 12, 1998. The SEBP is a defined benefit arrangement which provides a benefit equal to 75 percent of covered compensation under which benefits paid from the underlying qualified defined benefit plan are an offset to the benefits under the SEBP.
In August 1998, we adopted the Supplemental Executive Retirement Plan (SERP) (formerly known as the Performance-Based Supplemental Executive Benefits Plan), which covers all corporate officers selected to participate in the plan between August 12, 1998 and August 5, 2009. The SERP is a defined benefit arrangement which provides a benefit equal to 60 percent of covered compensation under which benefits paid from the underlying qualified defined benefit plan are an offset to the benefits under the SERP.
Effective August 5, 2009, we adopted a new defined benefit Supplemental Executive Retirement Plan (the 2009 SERP), for corporate officers or any other employees selected at the discretion of the Board. Under the 2009 SERP, a nominal account has been established for each participant, to which the Company contributes at the end of each calendar year an amount equal to ten percent (25 percent for members of the Management Committee appointed on or after January 1, 2016) of the total of each participant’s base salary and cash incentive compensation earned during each prior calendar year, beginning December 31, 2009. The benefits vest after three years of service and attainment of age 55 and earn interest credits at the same annual rate as the Company’s Pension Plan.
During fiscal 2023, we recognized a settlement charge of $1.0 million and paid a $5.6 million lump sum in relation to the retirement of certain executives. During fiscal 2021, we recognized a settlement charge of $9.2 million and paid a $25.7 million lump sum in relation to the retirements of certain executives.
We review the estimates and assumptions underlying our Supplemental Plans annually based upon a September 30 measurement date using the same techniques as our Pension Plan. The actuarial assumptions used to determine the pension liability for the Supplemental Plans were determined as of September 30, 2023 and 2022 and the actuarial assumptions used to determine the net periodic pension cost for the Supplemental Plans were determined as of September 30, 2022, 2021 and 2020. These assumptions are presented in the following table:
| Pension Liability | Pension Cost | ||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2021 | |||||||||||||||||||||||||
| Discount rate (1) | 6.17 | % | 5.71 | % | 5.50 | % | 2.57 | % | 2.90 | % | |||||||||||||||||||
| Rate of compensation increase | 3.50 | % | 3.50 | % | 3.50 | % | 3.50 | % | 3.50 | % | |||||||||||||||||||
| Interest crediting rate | 4.69 | % | 4.69 | % | 4.69 | % | 4.69 | % | 4.69 | % |
(1) Reflects a weighted average discount rate for pension cost for fiscal 2023 and 2021 due to the settlements during the year.
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents the Supplemental Plans’ accumulated benefit obligation, projected benefit obligation and funded status as of September 30, 2023 and 2022:
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Accumulated benefit obligation | $ | 75,687 | $ | 79,233 | |||||||
| Change in projected benefit obligation: | |||||||||||
| Benefit obligation at beginning of year | $ | 80,775 | $ | 104,301 | |||||||
| Service cost | 845 | 1,129 | |||||||||
| Interest cost | 4,227 | 2,647 | |||||||||
| Actuarial (gain) loss | 6 | (22,471) | |||||||||
| Benefits paid | (4,368) | (4,831) | |||||||||
| Settlements | (5,587) | — | |||||||||
| Benefit obligation at end of year | 75,898 | 80,775 | |||||||||
| Change in plan assets: | |||||||||||
| Fair value of plan assets at beginning of year | — | — | |||||||||
| Employer contribution | — | — | |||||||||
| Benefits paid | — | — | |||||||||
| Settlements | — | — | |||||||||
| Fair value of plan assets at end of year | — | — | |||||||||
| Reconciliation: | |||||||||||
| Funded status | (75,898) | (80,775) | |||||||||
| Unrecognized prior service cost | — | — | |||||||||
| Unrecognized net loss | — | — | |||||||||
| Accrued pension cost | $ | (75,898) | $ | (80,775) |
Assets for the Supplemental Plans are held in separate rabbi trusts. At September 30, 2023 and 2022, assets held in the rabbi trusts consisted of equity securities of $31.5 million and $30.2 million, which are included in our fair value disclosures in Note 17 to the consolidated financial statements.
Net periodic pension cost for the Supplemental Plans for fiscal 2023, 2022 and 2021 is presented in the following table.
| Fiscal Year Ended September 30 | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Components of net periodic pension cost: | |||||||||||||||||
| Service cost | $ | 845 | $ | 1,129 | $ | 1,067 | |||||||||||
| Interest cost (1) | 4,227 | 2,647 | 3,180 | ||||||||||||||
| Recognized actuarial loss (1) | 691 | 3,166 | 3,560 | ||||||||||||||
| Settlements (1) | 1,030 | — | 9,151 | ||||||||||||||
| Net periodic pension cost | $ | 6,793 | $ | 6,942 | $ | 16,958 |
(1) The components of net periodic cost other than the service cost component are included in the line item other non-operating income (expense) in the consolidated statements of comprehensive income or are capitalized on the consolidated balance sheets as a regulatory asset or liability, as described in Note 2 to the consolidated financial statements.
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Estimated Future Benefit Payments
The following benefit payments for our defined benefit plans, which reflect expected future service, as appropriate, are expected to be paid in the following fiscal years:
| Pension Plan | Supplemental Plans | ||||||||||
| (In thousands) | |||||||||||
| 2024 | $ | 39,151 | $ | 9,660 | |||||||
| 2025 | 39,078 | 30,647 | |||||||||
| 2026 | 40,537 | 6,705 | |||||||||
| 2027 | 40,543 | 3,902 | |||||||||
| 2028 | 40,108 | 4,658 | |||||||||
| 2029-2033 | 192,754 | 31,740 |
Postretirement Benefits Plan
We sponsor the Retiree Medical Plan for Retirees and Disabled Employees of Atmos Energy Corporation (the Retiree Medical Plan). This plan provides medical and prescription drug protection to all qualified participants based on their date of retirement. The Retiree Medical Plan provides different levels of benefits depending on the level of coverage chosen by the participants and the terms of predecessor plans; however, we generally pay 80 percent of the projected net claims and administrative costs and participants pay the remaining 20 percent. Effective January 1, 2022, the Retiree Medical Plan was amended to change the post-65 retiree coverage to Via Benefits with an Atmos Energy funded Health Reimbursement Account. Eligible post-65 retirees and post-65 spouses will be able to elect coverage through Via Benefits, including those that previously deferred or declined retiree coverage.
Generally, our funding policy is to contribute annually an amount in accordance with the requirements of ERISA. However, additional voluntary contributions are made annually as considered necessary. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. We expect to contribute between $10 million and $15 million to our Retiree Medical Plan during fiscal 2024.
We maintain a formal investment policy with respect to the assets in our Retiree Medical Plan to ensure the assets funding the Retiree Medical Plan are appropriately invested to maintain an acceptable level of risk. We also consider our current financial status when making recommendations and decisions regarding the Retiree Medical Plan.
We currently invest the assets funding our Retiree Medical Plan in diversified investment funds which consist of common stocks, preferred stocks and fixed income securities. The diversified investment funds may invest up to 75 percent of assets in common stocks and convertible securities. The following table presents asset allocation information for the Retiree Medical Plan assets as of September 30, 2023 and 2022.
| Actual Allocation September 30 | |||||||||||
| Security Class | 2023 | 2022 | |||||||||
| Diversified investment funds | 98.2% | 97.7% | |||||||||
| Cash and cash equivalents | 1.8% | 2.3% |
We review the estimates and assumptions underlying our Retiree Medical Plan annually based upon a September 30 measurement date using the same techniques as our Pension Plan and Supplemental Plans. The actuarial assumptions used to determine the pension liability for our Retiree Medical Plan were determined as of September 30, 2023 and 2022 and the actuarial assumptions used to determine the net periodic pension cost for the Retiree Medical Plan were determined as of September 30, 2022, 2021 and 2020.
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The assumptions are presented in the following table:
| Postretirement Liability | Postretirement Cost | ||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2021 | |||||||||||||||||||||||||
| Discount rate | 6.06 | % | 5.61 | % | 5.61 | % | 3.01 | % | 2.80 | % | |||||||||||||||||||
| Expected return on plan assets | 4.94 | % | 4.94 | % | 4.94 | % | 4.94 | % | 4.94 | % | |||||||||||||||||||
| Initial trend rate | 6.50 | % | 6.25 | % | 6.25 | % | 6.25 | % | 6.25 | % | |||||||||||||||||||
| Ultimate trend rate | 5.00 | % | 4.75 | % | 4.75 | % | 5.00 | % | 5.00 | % | |||||||||||||||||||
| Ultimate trend reached in | 2030 | 2029 | 2029 | 2027 | 2026 |
The following table presents the Retiree Medical Plan’s benefit obligation and funded status as of September 30, 2023 and 2022:
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Change in benefit obligation: | |||||||||||
| Benefit obligation at beginning of year | $ | 250,228 | $ | 355,156 | |||||||
| Service cost | 6,183 | 10,235 | |||||||||
| Interest cost | 13,911 | 10,734 | |||||||||
| Plan participants’ contributions | 2,053 | 3,210 | |||||||||
| Actuarial (gain) loss | (21,468) | (112,748) | |||||||||
| Benefits paid | (16,903) | (16,359) | |||||||||
| Benefit obligation at end of year | 234,004 | 250,228 | |||||||||
| Change in plan assets: | |||||||||||
| Fair value of plan assets at beginning of year | 229,686 | 268,199 | |||||||||
| Actual return on plan assets | 27,833 | (40,113) | |||||||||
| Employer contributions | — | 1,600 | |||||||||
| Benefits paid | (1,719) | — | |||||||||
| Fair value of plan assets at end of year | 255,800 | 229,686 | |||||||||
| Reconciliation: | |||||||||||
| Funded status | 21,796 | (20,542) | |||||||||
| Unrecognized transition obligation | — | — | |||||||||
| Unrecognized prior service cost | — | — | |||||||||
| Unrecognized net loss | — | — | |||||||||
| Accrued postretirement cost | $ | 21,796 | $ | (20,542) |
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net periodic postretirement cost for the Retiree Medical Plan for fiscal 2023, 2022 and 2021 is presented in the following table.
| Fiscal Year Ended September 30 | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Components of net periodic postretirement cost: | |||||||||||||||||
| Service cost | $ | 6,183 | $ | 10,235 | $ | 11,000 | |||||||||||
| Interest cost (1) | 13,911 | 10,734 | 15,372 | ||||||||||||||
| Expected return on assets (1) | (11,215) | (13,249) | (10,455) | ||||||||||||||
| Amortization of prior service (credit) cost (1) | (13,142) | (13,234) | 30,533 | ||||||||||||||
| Recognized actuarial (gain) loss (1) | (7,452) | — | 1,172 | ||||||||||||||
| Net periodic postretirement cost | $ | (11,715) | $ | (5,514) | $ | 47,622 |
(1) The components of net periodic cost other than the service cost component are included in the line item other non-operating income (expense) in the consolidated statements of comprehensive income or are capitalized on the consolidated balance sheets as a regulatory asset or liability, as described in Note 2 to the consolidated financial statements.
We are currently recovering other postretirement benefits costs through our regulated rates in substantially all of our service areas under accrual accounting as prescribed by accounting principles generally accepted in the United States. Other postretirement benefits costs have been specifically addressed in rate orders in each jurisdiction served by our Kentucky/Mid-States, West Texas, Mid-Tex and Mississippi Divisions as well as our Kansas jurisdiction and APT or have been included in a rate case and not disallowed. Management believes that this accounting method is appropriate and will continue to seek rate recovery of accrual-based expenses in its ratemaking jurisdictions that have not yet approved the recovery of these expenses.
The following tables set forth by level, within the fair value hierarchy, the Retiree Medical Plan’s assets at fair value as of September 30, 2023 and 2022. The methods used to determine fair value for the assets held by the Retiree Medical Plan are fully described in Note 2 to the consolidated financial statements.
| Assets at Fair Value as of September 30, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Investments: | |||||||||||||||||||||||
| Money market funds | $ | — | $ | 4,759 | $ | — | $ | 4,759 | |||||||||||||||
| Registered investment companies | 251,041 | — | — | 251,041 | |||||||||||||||||||
| Total investments measured at fair value | $ | 251,041 | $ | 4,759 | $ | — | $ | 255,800 |
| Assets at Fair Value as of September 30, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Investments: | |||||||||||||||||||||||
| Money market funds | $ | — | $ | 5,214 | $ | — | $ | 5,214 | |||||||||||||||
| Registered investment companies | 224,472 | — | — | 224,472 | |||||||||||||||||||
| Total investments measured at fair value | $ | 224,472 | $ | 5,214 | $ | — | $ | 229,686 |
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Estimated Future Benefit Payments
The following benefit payments paid by the Company, retirees and prescription drug subsidies for our Retiree Medical Plan, which reflect expected future service, as appropriate, are expected to be paid in the following fiscal years.
| Company Payments | Retiree Payments | Subsidy Payments | Total Postretirement Benefits | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| 2024 | $ | 17,124 | $ | 2,257 | $ | — | $ | 19,381 | ||||||||||||||||||
| 2025 | 17,179 | 2,233 | — | 19,412 | ||||||||||||||||||||||
| 2026 | 17,228 | 2,189 | — | 19,417 | ||||||||||||||||||||||
| 2027 | 17,464 | 2,095 | — | 19,559 | ||||||||||||||||||||||
| 2028 | 17,576 | 1,967 | — | 19,543 | ||||||||||||||||||||||
| 2029-2033 | 92,555 | 9,068 | — | 101,623 |
Defined Contribution Plan
The Atmos Energy Corporation Retirement Savings Plan and Trust (the Retirement Savings Plan) covers substantially all employees and is subject to the provisions of Section 401(k) of the Internal Revenue Code. Newly hired employees automatically become participants of the Retirement Savings Plan on the date of employment at a contribution rate of four percent. They are eligible to receive matching contributions immediately upon enrollment, which vest after completing one year of service. Participants may elect a salary reduction up to a maximum of 65 percent of eligible compensation, as defined by the Retirement Savings Plan, not to exceed the maximum allowed by the Internal Revenue Service. Effective October 1, 2022, participants who contribute less than 10 percent will have their contribution percent increased by one percent annually until a 10 percent salary deferral rate is achieved, unless the participant opts out of this election. We match 100 percent of a participant’s contributions, limited to four percent of the participant’s salary. Additionally, employees hired on or after October 1, 2010 receive a fixed annual contribution of four percent of eligible earnings. And, effective October 1, 2022, the Retirement Savings Plan was amended to add an elective Roth deferral feature. Finally, participants are permitted to take out a loan against their accounts subject to certain restrictions.
Matching and fixed annual contributions to the Retirement Savings Plan are expensed as incurred and amounted to $23.9 million, $21.9 million and $20.6 million for fiscal years 2023, 2022 and 2021. At September 30, 2023 and 2022, the Retirement Savings Plan held 1.4 percent and 1.6 percent of our outstanding common stock.
12. Stock and Other Compensation Plans
Stock-Based Compensation Plans
Total stock-based compensation cost was $23.7 million, $22.2 million and $24.1 million for the fiscal years ended September 30, 2023, 2022 and 2021. Of this amount, $13.5 million, $11.5 million and $12.9 million was capitalized.
1998 Long-Term Incentive Plan
We have the 1998 Long-Term Incentive Plan (LTIP), which provides a comprehensive, long-term incentive compensation plan providing for discretionary awards of incentive stock options, non-qualified stock options, stock appreciation rights, bonus stock, time-lapse restricted stock, time-lapse restricted stock units, performance-based restricted stock units and stock units to certain employees and non-employee directors of the Company and our subsidiaries. The objectives of this plan include attracting and retaining the best available personnel and providing for additional performance incentives by providing employees with the opportunity to acquire common stock.
We are authorized to grant awards up to a maximum cumulative amount of 11.2 million shares of common stock under this plan subject to certain adjustment provisions. As of September 30, 2023, non-qualified stock options, bonus stock, time-lapse restricted stock, time-lapse restricted stock units, performance-based restricted stock units and stock units had been issued under this plan, and 0.6 million shares are available for future issuance.
Restricted Stock Units Award Grants
As noted above, the LTIP provides for discretionary awards of restricted stock units to help attract, retain and reward certain employees of Atmos Energy and its subsidiaries. Certain of these awards vest based upon the passage of time and other awards vest based upon the passage of time and the achievement of specified performance targets. The fair value of the awards
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
granted is based on the market price of our stock at the date of grant. We estimate forfeitures using our historical forfeiture rate. The associated expense is recognized ratably over the vesting period. We use authorized and unissued shares to meet share requirements for the vesting of restricted stock units.
Employees who are granted time-lapse restricted stock units under our LTIP have a nonforfeitable right to dividend equivalents that are paid at the same rate and at the same time at which they are paid on shares of stock without restrictions. Time-lapse restricted stock units contain only a service condition that the employee recipients render continuous services to the Company for a period of three years from the date of grant, except for accelerated vesting in the event of death, disability, change of control of the Company or termination without cause (with certain exceptions). There are no performance conditions required to be met for employees to be vested in time-lapse restricted stock units.
Employees who are granted performance-based restricted stock units under our LTIP have a forfeitable right to dividend equivalents that accrue at the same rate at which they are paid on shares of stock without restrictions. Dividend equivalents on the performance-based restricted stock units are paid either in cash or in the form of shares upon the vesting of the award. Performance-based restricted stock units contain a service condition that the employee recipients render continuous services to the Company for a period of three years from the beginning of the applicable three-year performance period, except for accelerated vesting in the event of death, disability, change of control of the Company or termination without cause (with certain exceptions) and a performance condition based on a cumulative earnings per share target amount.
The following summarizes information regarding the restricted stock units granted under the plan during the fiscal years ended September 30, 2023, 2022 and 2021:
| 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||
| Number of Restricted Units | Weighted Average Grant-Date Fair Value | Number of Restricted Units | Weighted Average Grant-Date Fair Value | Number of Restricted Units | Weighted Average Grant-Date Fair Value | ||||||||||||||||||||||||||||||
| Nonvested at beginning of year | 381,295 | $ | 105.69 | 378,127 | $ | 102.45 | 443,279 | $ | 99.28 | ||||||||||||||||||||||||||
| Granted | 241,436 | 109.78 | 179,738 | 108.07 | 223,954 | 102.68 | |||||||||||||||||||||||||||||
| Vested | (220,929) | 104.05 | (159,019) | 100.99 | (271,435) | 97.44 | |||||||||||||||||||||||||||||
| Forfeited | (11,845) | 107.47 | (17,551) | 103.37 | (17,671) | 101.48 | |||||||||||||||||||||||||||||
| Nonvested at end of year | 389,957 | $ | 109.10 | 381,295 | $ | 105.69 | 378,127 | $ | 102.45 |
As of September 30, 2023, there was $13.9 million of total unrecognized compensation cost related to nonvested restricted stock units granted under the LTIP. That cost is expected to be recognized over a weighted average period of 1.4 years. The fair value of restricted stock vested during the fiscal years ended September 30, 2023, 2022 and 2021 was $22.8 million, $16.0 million and $26.3 million.
Other Plans
Direct Stock Purchase Plan
We maintain a Direct Stock Purchase Plan, open to all investors, which allows participants to have all or part of their cash dividends paid quarterly in additional shares of our common stock. The minimum initial investment required to join the plan is $1,250. Direct Stock Purchase Plan participants may purchase additional shares of our common stock as often as weekly with voluntary cash payments of at least $25, up to an annual maximum of $100,000.
Equity Incentive and Deferred Compensation Plan for Non-Employee Directors
We have an Equity Incentive and Deferred Compensation Plan for Non–Employee Directors, which provides non-employee directors of Atmos Energy with the opportunity to defer receipt, until retirement, of compensation for services rendered to the Company and invest deferred compensation into either a cash account or a stock account.
Other Discretionary Compensation Plans
We have an annual incentive program covering substantially all employees to give each employee an opportunity to share in our financial success based on the achievement of key performance measures considered critical to achieving business objectives for a given year with minimum and maximum thresholds. The Company must meet the minimum threshold for the plan to be funded and distributed to employees. These performance measures may include earnings growth objectives, improved cash flow objectives or crucial customer satisfaction and safety results. We monitor progress towards the achievement of the performance measures throughout the year and record accruals based upon the expected payout using the best estimates
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
available at the time the accrual is recorded. During the last several fiscal years, we have used earnings per share as our sole performance measure.
13. Details of Selected Financial Statement Captions
The following tables provide additional information regarding the composition of certain financial statement captions.
Balance Sheet
Accounts receivable
Accounts receivable was comprised of the following at September 30, 2023 and 2022:
| September 30 | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Billed accounts receivable | $ | 198,976 | $ | 258,333 | |||||||
| Unbilled revenue | 105,743 | 121,518 | |||||||||
| Contributions in aid of construction receivable | 17,184 | 5,390 | |||||||||
| Insurance receivable | 33,697 | 13,160 | |||||||||
| Other accounts receivable | 13,894 | 15,300 | |||||||||
| Total accounts receivable | 369,494 | 413,701 | |||||||||
| Less: allowance for uncollectible accounts | (40,840) | (49,993) | |||||||||
| Net accounts receivable | $ | 328,654 | $ | 363,708 |
Other current assets
Other current assets as of September 30, 2023 and 2022 were comprised of the following accounts.
| September 30 | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Deferred gas costs | $ | 148,297 | $ | 119,742 | |||||||
| Winter Storm Uri incremental costs | 21,213 | 2,020,954 | |||||||||
| Prepaid expenses | 58,029 | 58,551 | |||||||||
| Taxes receivable | 13,918 | 11,911 | |||||||||
| Materials and supplies | 34,297 | 25,880 | |||||||||
| Assets from risk management activities | 4,071 | 26,207 | |||||||||
| Other | 12,211 | 11,245 | |||||||||
| Total | $ | 292,036 | $ | 2,274,490 |
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Property, plant and equipment
Property, plant and equipment was comprised of the following as of September 30, 2023 and 2022:
| September 30 | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Storage plant | $ | 668,237 | $ | 589,210 | |||||||
| Transmission plant | 4,995,579 | 4,325,540 | |||||||||
| Distribution plant | 15,283,965 | 13,511,409 | |||||||||
| General plant | 972,054 | 937,500 | |||||||||
| Intangible plant | 38,612 | 38,612 | |||||||||
| 21,958,447 | 19,402,271 | ||||||||||
| Construction in progress | 939,927 | 835,868 | |||||||||
| 22,898,374 | 20,238,139 | ||||||||||
| Less: accumulated depreciation and amortization | (3,291,791) | (2,997,900) | |||||||||
| Net property, plant and equipment (1) | $ | 19,606,583 | $ | 17,240,239 |
(1) Net property, plant and equipment includes plant acquisition adjustments of $(24.8) million and $(26.6) million at September 30, 2023 and 2022.
Deferred charges and other assets
Deferred charges and other assets as of September 30, 2023 and 2022 were comprised of the following accounts.
| September 30 | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Marketable securities | $ | 104,602 | $ | 96,012 | |||||||
| Regulatory assets (See Note 3) | 364,741 | 368,375 | |||||||||
| Operating lease right of use assets (See Note 7) | 223,366 | 214,663 | |||||||||
| Winter Storm Uri incremental costs | 10,902 | 88,500 | |||||||||
| Assets from risk management activities | 381,593 | 355,784 | |||||||||
| Pension assets | 92,648 | 29,498 | |||||||||
| Other | 23,306 | 20,968 | |||||||||
| Total | $ | 1,201,158 | $ | 1,173,800 |
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities as of September 30, 2023 and 2022 were comprised of the following accounts.
| September 30 | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Trade accounts payable | $ | 218,181 | $ | 258,506 | |||||||
| Accrued gas payable | 43,688 | 157,942 | |||||||||
| Accrued liabilities | 74,214 | 79,571 | |||||||||
| Total | $ | 336,083 | $ | 496,019 |
Other current liabilities
Other current liabilities as of September 30, 2023 and 2022 were comprised of the following accounts.
| September 30 | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Customer credit balances and deposits | $ | 65,266 | $ | 56,016 | |||||||
| Accrued employee costs | 50,042 | 47,661 | |||||||||
| Deferred gas costs | 23,093 | 28,834 | |||||||||
| Operating lease liabilities (See Note 7) | 35,820 | 38,644 | |||||||||
| Accrued interest | 78,939 | 59,542 | |||||||||
| Liabilities from risk management activities | 14,584 | 3,000 | |||||||||
| Taxes payable | 195,468 | 189,239 | |||||||||
| Pension and postretirement liabilities | 9,375 | 9,721 | |||||||||
| Regulatory cost of removal obligation | 85,850 | 80,676 | |||||||||
| APT annual adjustment mechanism | 34,550 | 18,034 | |||||||||
| Regulatory excess deferred taxes (See Note 15) | 131,301 | 159,808 | |||||||||
| Other | 38,798 | 28,982 | |||||||||
| Total | $ | 763,086 | $ | 720,157 |
Deferred credits and other liabilities
Deferred credits and other liabilities as of September 30, 2023 and 2022 were comprised of the following accounts.
| September 30 | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Pension and postretirement liabilities | $ | 66,523 | $ | 91,596 | |||||||
| Operating lease liabilities (See Note 7) | 194,452 | 184,301 | |||||||||
| Customer advances for construction | 9,158 | 8,628 | |||||||||
| Other regulatory liabilities (See Note 3) | 242,049 | 178,990 | |||||||||
| Asset retirement obligation | 5,174 | 5,737 | |||||||||
| Liabilities from risk management activities | 824 | 1,129 | |||||||||
| APT annual adjustment mechanism | 15,344 | 13,104 | |||||||||
| Unrecognized tax benefits (See Note 15) | 46,620 | 39,908 | |||||||||
| Other | 19,754 | 14,909 | |||||||||
| Total | $ | 599,898 | $ | 538,302 |
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Statement of Comprehensive Income
Other non-operating income (expense)
Other non-operating income (expense) for the fiscal years ended September 30, 2023, 2022 and 2021 were comprised of the following accounts.
| Year Ended September 30 | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Equity component of AFUDC | $ | 64,019 | $ | 45,505 | $ | 32,749 | |||||||||||
| Performance-based rate program | 7,093 | 8,327 | 6,362 | ||||||||||||||
| Pension and other postretirement non-service credit (cost) | 8,955 | 8,337 | (19,238) | ||||||||||||||
| Interest income | 7,207 | 2,781 | 2,144 | ||||||||||||||
| Community support spending | (12,027) | (16,357) | (14,460) | ||||||||||||||
| Unrealized gains (losses) on equity securities | 1,406 | (7,737) | (860) | ||||||||||||||
| Miscellaneous | (6,878) | (7,119) | (8,842) | ||||||||||||||
| Total | $ | 69,775 | $ | 33,737 | $ | (2,145) |
Statement of Cash Flows
Supplemental disclosures of cash flow information for the fiscal years ended September 30, 2023, 2022 and 2021 were as follows:
| Year Ended September 30 | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Cash Paid (Received) During The Period For: | |||||||||||||||||
| Interest (1) | $ | 249,066 | $ | 234,297 | $ | 207,555 | |||||||||||
| Income taxes | $ | 14,968 | $ | 15,760 | $ | 8,199 | |||||||||||
| Non-Cash Transactions: | |||||||||||||||||
| Capital expenditures included in current liabilities | $ | 186,912 | $ | 217,868 | $ | 184,786 |
(1) Cash paid during the period for interest, net of amounts capitalized was $117.9 million, $98.4 million and $81.9 million for the fiscal years ended September 30, 2023, 2022 and 2021.
14. Commitments and Contingencies
Litigation and Environmental Matters
In the normal course of business, we are subject to various legal and regulatory proceedings. For such matters, we record liabilities when they are considered probable and estimable, based on currently available facts, our historical experience and our estimates of the ultimate outcome or resolution of the liability in the future. While the outcome of these proceedings is uncertain and a loss in excess of the amount we have accrued is possible though not reasonably estimable, it is the opinion of management that any amounts exceeding the accruals will not have a material adverse impact on our financial position, results of operations or cash flows.
We are a party to various other litigation and environmental-related matters or claims that have arisen in the ordinary course of our business. While the results of such litigation and response actions to such environmental-related matters or claims cannot be predicted with certainty, we continue to believe the final outcome of such litigation and matters or claims will not have a material adverse effect on our financial condition, results of operations or cash flows.
Purchase Commitments
Our distribution divisions maintain supply contracts with several vendors that generally cover a period of up to one year. Commitments for estimated base gas volumes are established under these contracts on a monthly basis at contractually
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
negotiated prices. Commitments for incremental daily purchases are made as necessary during the month in accordance with the terms of the individual contract.
Our Mid-Tex Division also maintains long-term supply contracts to ensure a reliable source of gas for our customers in its service area, which obligate it to purchase specified volumes at prices under contracts indexed to natural gas trading hubs or fixed price contracts. At September 30, 2023, we were committed to purchase 65.5 Bcf within one year and 72.3 Bcf within two to three years under indexed contracts. At September 30, 2023, we were committed to purchase 20.6 Bcf within one year under fixed price contracts with a weighted average price of $2.80 per Mcf. Purchases under these contracts totaled $182.0 million, $352.6 million and $149.4 million for 2023, 2022 and 2021.
Rate Regulatory Proceedings
As of September 30, 2023, routine rate regulatory proceedings were in progress in some of our service areas, which are discussed in further detail above in the Business — Ratemaking Activity section.
15. Income Taxes
Income Tax Expense
The components of income tax expense from continuing operations for 2023, 2022 and 2021 were as follows:
| 2023 | 2022 | 2021 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Current | |||||||||||||||||
| Federal | $ | (1,274) | $ | 2,849 | $ | — | |||||||||||
| State | 13,550 | 28,125 | 252 | ||||||||||||||
| Deferred | |||||||||||||||||
| Federal | 83,244 | 43,435 | 128,867 | ||||||||||||||
| State | 18,259 | 3,101 | 24,617 | ||||||||||||||
| Income tax expense | $ | 113,779 | $ | 77,510 | $ | 153,736 |
Reconciliations of the provision for income taxes computed at the statutory rate of 21 percent to the reported provisions for income taxes from continuing operations for 2023, 2022 and 2021 are set forth below:
| 2023 | 2022 | 2021 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Tax at statutory rate | $ | 209,925 | $ | 178,901 | $ | 172,053 | |||||||||||
| Common stock dividends deductible for tax reporting | (1,355) | (1,355) | (1,372) | ||||||||||||||
| State taxes (net of federal benefit) | 25,129 | 24,669 | 19,647 | ||||||||||||||
| Amortization of excess deferred taxes | (123,953) | (127,193) | (45,382) | ||||||||||||||
| Other, net | 4,033 | 2,488 | 8,790 | ||||||||||||||
| Income tax expense | $ | 113,779 | $ | 77,510 | $ | 153,736 |
Deferred income taxes reflect the tax effect of differences between the basis of assets and liabilities for book and tax purposes. The tax effect of temporary differences that gave rise to significant components of the deferred tax liabilities and deferred tax assets at September 30, 2023 and 2022 are presented below:
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Deferred tax assets: | |||||||||||
| Employee benefit plans | $ | 50,576 | $ | 57,094 | |||||||
| Net operating loss carryforwards | 504,121 | 485,061 | |||||||||
| Charitable and other credit carryforwards | 10,084 | 1,903 | |||||||||
| Regulatory excess deferred tax | 76,943 | 110,548 | |||||||||
| Lease asset | 58,633 | 50,007 | |||||||||
| Other | 42,257 | 44,035 | |||||||||
| Total deferred tax assets | 742,614 | 748,648 | |||||||||
| Valuation allowance | (351) | (523) | |||||||||
| Net deferred tax assets | 742,263 | 748,125 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Difference in net book value and net tax value of assets | (2,674,341) | (2,431,757) | |||||||||
| Gas cost adjustments | (47,822) | (43,964) | |||||||||
| Winter Storm Uri regulatory asset | (28,116) | (20,710) | |||||||||
| Lease liability | (51,666) | (50,007) | |||||||||
| Rate deferral adjustment | (47,218) | (49,309) | |||||||||
| Interest rate agreements | (149,969) | (106,820) | |||||||||
| Other | (48,105) | (45,063) | |||||||||
| Total deferred tax liabilities | (3,047,237) | (2,747,630) | |||||||||
| Net deferred tax liabilities | $ | (2,304,974) | $ | (1,999,505) |
At September 30, 2023, we had $458.7 million (tax effected) of federal net operating loss carryforwards. The federal net operating loss carryforwards are available to offset future taxable income and have no expiration date. The Company has $8.2 million (tax effected) charitable contribution carryforwards to offset future taxable income as of September 30, 2023.
The Company also has $45.4 million (tax effected) of state net operating loss carryforwards (net of $11.9 million of federal effects) and $1.9 million of state tax credits carryforwards (net of $0.5 million of federal effects). Depending on the jurisdiction in which the state net operating loss was generated, the carryforwards expiration period begins in fiscal 2026.
At September 30, 2023 and 2022, we had recorded liabilities associated with unrecognized tax benefits totaling $58.6 million and $52.7 million, which includes $12.0 million and $12.8 million in deferred tax liabilities. The following table reconciles the beginning and ending balance of our unrecognized tax benefits:
| 2023 | 2022 | 2021 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Unrecognized tax benefits - beginning balance | $ | 52,683 | $ | 32,792 | $ | 30,921 | |||||||||||
| Increase (decrease) resulting from prior period tax positions | (631) | (721) | 671 | ||||||||||||||
| Increase resulting from current period tax positions | 6,586 | 20,612 | 1,200 | ||||||||||||||
| Unrecognized tax benefits - ending balance | 58,638 | 52,683 | 32,792 | ||||||||||||||
| Less: deferred federal and state income tax benefits | (12,314) | (11,063) | (6,886) | ||||||||||||||
| Total unrecognized tax benefits that, if recognized, would impact the effective income tax rate as of the end of the year | $ | 46,324 | $ | 41,620 | $ | 25,906 |
The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties included within interest charges in our consolidated statements of comprehensive income. During the years ended September 30, 2023, 2022 and 2021, the Company recognized approximately $3.4 million, $1.3 million and $1.4 million in interest and penalties. The Company had approximately $15.1 million, $11.7 million and $10.4 million for the payment of interest and penalties accrued at September 30, 2023, 2022 and 2021.
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We file income tax returns in the U.S. federal jurisdiction as well as in various states where we have operations. We have concluded substantially all U.S. federal income tax matters through fiscal year 2009 and concluded substantially all Texas income tax matters through fiscal year 2010.
Regulatory Excess Deferred Taxes
Regulatory excess net deferred taxes represent changes in our net deferred tax liability related to our cost of service ratemaking due to the enactment of the Tax Cuts and Jobs Act of 2017 (the TCJA) and a Kansas legislative change enacted in fiscal 2020. As of September 30, 2023 and 2022, $131.3 million and $159.8 million is recorded in other current liabilities.
Currently, the regulatory excess net deferred tax liability is being returned over various periods. Of this amount, $279.4 million, is being returned to customers over 35 - 60 months. An additional $53.5 million is being returned to customers on a provisional basis over 15 - 69 years until our regulators establish the final refund periods. The refund of the remaining $4.0 million will be addressed in future rate proceedings.
16. Financial Instruments
We currently use financial instruments to mitigate commodity price risk and interest rate risk. Our financial instruments do not contain any credit-risk-related or other contingent features that could cause accelerated payments when our financial instruments are in net liability positions.
Commodity Risk Management Activities
Our purchased gas cost adjustment mechanisms essentially insulate our distribution segment from commodity price risk; however, our customers are exposed to the effects of volatile natural gas prices. We manage this exposure through a combination of physical storage, fixed-price forward contracts and financial instruments, primarily over-the-counter swap and option contracts, in an effort to minimize the impact of natural gas price volatility on our customers during the winter heating season.
In jurisdictions where we are permitted to mitigate commodity price risk through financial instruments, the relevant regulatory authorities may establish the level of heating season gas purchases that can be hedged. Our distribution gas supply department is responsible for executing this segment’s commodity risk management activities in conformity with regulatory requirements. Historically, if the regulatory authority does not establish this level, we seek to hedge between 25 and 50 percent of anticipated heating season gas purchases using financial instruments. For the 2022-2023 heating season (generally October through March), in the jurisdictions where we are permitted to utilize financial instruments, we hedged approximately 17.3 Bcf of the winter flowing gas requirements at a weighted average cost of approximately $5.28 per Mcf. We have not designated these financial instruments as hedges for accounting purposes.
Interest Rate Risk Management Activities
We manage interest rate risk by periodically entering into financial instruments to effectively fix the Treasury yield component of the interest cost associated with anticipated financings.
The following table summarizes our existing forward starting interest rate swaps as of September 30, 2023. These swaps were designated as cash flow hedges at the time the agreements were executed.
| Planned Debt Issuance Date | Amount Hedged | |||||||
| (In thousands) | ||||||||
| Fiscal 2025 | $ | 600,000 | ||||||
| Fiscal 2026 | 300,000 | |||||||
| $ | 900,000 |
Quantitative Disclosures Related to Financial Instruments
The following tables present detailed information concerning the impact of financial instruments on our consolidated balance sheet and statements of comprehensive income.
As of September 30, 2023, our financial instruments were comprised of both long and short commodity positions. A long position is a contract to purchase the commodity, while a short position is a contract to sell the commodity. As of September 30, 2023, we had 31,289 MMcf of net long commodity contracts outstanding. These contracts have not been designated as hedges.
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Financial Instruments on the Balance Sheet
The following tables present the fair value and balance sheet classification of our financial instruments as of September 30, 2023 and 2022. As discussed in Note 2 to the consolidated financial statements, we report our financial instruments as risk management assets and liabilities, each of which is classified as current or noncurrent based upon the anticipated settlement date of the underlying financial instrument. The gross amounts of recognized assets and liabilities are netted within our consolidated balance sheets to the extent that we have netting arrangements with the counterparties. However, as of September 30, 2023 and 2022, no gross amounts and no cash collateral were netted within our consolidated balance sheet.
| Balance Sheet Location | Assets | Liabilities | |||||||||||||||
| (In thousands) | |||||||||||||||||
| September 30, 2023 | |||||||||||||||||
| Designated As Hedges: | |||||||||||||||||
| Interest rate contracts | Deferred charges and other assets / Deferred credits and other liabilities | $ | 379,101 | $ | — | ||||||||||||
| Total | 379,101 | — | |||||||||||||||
| Not Designated As Hedges: | |||||||||||||||||
| Commodity contracts | Other current assets / Other current liabilities | 4,071 | (14,584) | ||||||||||||||
| Commodity contracts | Deferred charges and other assets / Deferred credits and other liabilities | 2,492 | (824) | ||||||||||||||
| Total | 6,563 | (15,408) | |||||||||||||||
| Gross / Net Financial Instruments | $ | 385,664 | $ | (15,408) | |||||||||||||
| Balance Sheet Location | Assets | Liabilities | |||||||||||||||
| (In thousands) | |||||||||||||||||
| September 30, 2022 | |||||||||||||||||
| Designated As Hedges: | |||||||||||||||||
| Interest rate contracts | Deferred charges and other assets / Deferred credits and other liabilities | $ | 355,075 | $ | — | ||||||||||||
| Total | 355,075 | — | |||||||||||||||
| Not Designated As Hedges: | |||||||||||||||||
| Commodity contracts | Other current assets / Other current liabilities | 26,207 | (3,000) | ||||||||||||||
| Commodity contracts | Deferred charges and other assets / Deferred credits and other liabilities | 709 | (1,129) | ||||||||||||||
| Total | 26,916 | (4,129) | |||||||||||||||
| Gross / Net Financial Instruments | $ | 381,991 | $ | (4,129) | |||||||||||||
Impact of Financial Instruments on the Statement of Comprehensive Income
Cash Flow Hedges
As discussed above, our distribution segment has interest rate agreements, which we designate as cash flow hedges at the time the agreements were executed. The net (gain) loss on settled interest rate agreements reclassified from AOCI into interest charges on our consolidated statements of comprehensive income for the years ended September 30, 2023, 2022 and 2021 was $(2.7) million, $3.8 million and $5.9 million.
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the gains and losses arising from hedging transactions that were recognized as a component of other comprehensive income, net of taxes, for the years ended September 30, 2023 and 2022.
| Fiscal Year Ended September 30 | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Increase in fair value: | |||||||||||
| Interest rate agreements | $ | 151,410 | $ | 296,875 | |||||||
| Recognition of (gains) losses in earnings due to settlements: | |||||||||||
| Interest rate agreements | (2,120) | 2,976 | |||||||||
| Total other comprehensive income from hedging, net of tax | $ | 149,290 | $ | 299,851 |
Deferred gains (losses) recorded in AOCI associated with our interest rate agreements are recognized in earnings as they are amortized over the terms of the underlying debt instruments. As of September 30, 2023, we had $224.8 million of net realized gains in AOCI associated with our interest rate agreements. The following amounts, net of deferred taxes, represent the expected recognition in earnings of the deferred net gains recorded in AOCI associated with our interest rate agreements, based upon the fair values of these agreements at the date of settlement. The remaining amortization periods for these settled amounts extend through fiscal 2053. However, the table below does not include the expected recognition in earnings of our outstanding interest rate agreements as those financial instruments have not yet settled.
| Interest Rate Agreements | ||||||||
| (In thousands) | ||||||||
| 2024 | $ | 9,965 | ||||||
| 2025 | 9,965 | |||||||
| 2026 | 9,965 | |||||||
| 2027 | 9,965 | |||||||
| 2028 | 9,965 | |||||||
| Thereafter | 174,973 | |||||||
| Total | $ | 224,798 |
Financial Instruments Not Designated as Hedges
As discussed above, commodity contracts which are used in our distribution segment are not designated as hedges. However, there is no earnings impact on our distribution segment as a result of the use of these financial instruments because the gains and losses arising from the use of these financial instruments are recognized in the consolidated statements of comprehensive income as a component of purchased gas cost when the related costs are recovered through our rates and recognized in revenue. Accordingly, the impact of these financial instruments is excluded from this presentation.
17. Fair Value Measurements
We report certain assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We record cash and cash equivalents and restricted cash and cash equivalents, accounts receivable and accounts payable at carrying value, which substantially approximates fair value due to the short-term nature of these assets and liabilities. For other financial assets and liabilities, we primarily use quoted market prices and other observable market pricing information to minimize the use of unobservable pricing inputs in our measurements when determining fair value. The methods used to determine fair value for our assets and liabilities are fully described in Note 2 to the consolidated financial statements.
Fair value measurements also apply to the valuation of our pension and postretirement plan assets. The fair value of these assets is presented in Note 11 to the consolidated financial statements.
Quantitative Disclosures
Financial Instruments
The classification of our fair value measurements requires judgment regarding the degree to which market data are observable or corroborated by observable market data. The following tables summarize, by level within the fair value hierarchy,
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
our assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2023 and 2022. As required under authoritative accounting literature, assets and liabilities are categorized in their entirety based on the lowest level of input that is significant to the fair value measurement.
| Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2)****(1) | Significant Other Unobservable Inputs (Level 3) | Netting and Cash Collateral | September 30, 2023 | |||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Financial instruments | $ | — | $ | 385,664 | $ | — | $ | — | $ | 385,664 | |||||||||||||||||||
| Debt and equity securities | |||||||||||||||||||||||||||||
| Registered investment companies | 26,685 | — | — | — | 26,685 | ||||||||||||||||||||||||
| Bond mutual funds | 37,573 | — | — | — | 37,573 | ||||||||||||||||||||||||
| Bonds (2) | — | 35,507 | — | — | 35,507 | ||||||||||||||||||||||||
| Money market funds | — | 4,837 | — | — | 4,837 | ||||||||||||||||||||||||
| Total debt and equity securities | 64,258 | 40,344 | — | — | 104,602 | ||||||||||||||||||||||||
| Total assets | $ | 64,258 | $ | 426,008 | $ | — | $ | — | $ | 490,266 | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||
| Financial instruments | $ | — | $ | 15,408 | $ | — | $ | — | $ | 15,408 |
| Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2)****(1) | Significant Other Unobservable Inputs (Level 3) | Netting and Cash Collateral | September 30, 2022 | |||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Financial instruments | $ | — | $ | 381,991 | $ | — | $ | — | $ | 381,991 | |||||||||||||||||||
| Debt and equity securities | |||||||||||||||||||||||||||||
| Registered investment companies | 26,367 | — | — | — | 26,367 | ||||||||||||||||||||||||
| Bond mutual funds | 32,367 | — | — | — | 32,367 | ||||||||||||||||||||||||
| Bonds (2) | — | 33,433 | — | — | 33,433 | ||||||||||||||||||||||||
| Money market funds | — | 3,845 | — | — | 3,845 | ||||||||||||||||||||||||
| Total debt and equity securities | 58,734 | 37,278 | — | — | 96,012 | ||||||||||||||||||||||||
| Total assets | $ | 58,734 | $ | 419,269 | $ | — | $ | — | $ | 478,003 | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||
| Financial instruments | $ | — | $ | 4,129 | $ | — | $ | — | $ | 4,129 |
(1)Our Level 2 measurements consist of over-the-counter options and swaps, which are valued using a market-based approach in which observable market prices are adjusted for criteria specific to each instrument, such as the strike price, notional amount or basis differences, municipal and corporate bonds, which are valued based on the most recent available quoted market prices and money market funds which are valued at cost.
(2)Our investments in bonds are considered available-for-sale debt securities in accordance with current accounting guidance.
Debt and equity securities are comprised of our available-for-sale debt securities and our equity securities. We evaluate the performance of our available-for-sale debt securities on an investment by investment basis for impairment, taking into consideration the investment’s purpose, volatility, current returns and any intent to sell the security. As of September 30, 2023, no allowance for credit losses was recorded for our available-for-sale debt securities. At September 30, 2023 and 2022, the amortized cost of our available-for-sale debt securities was $36.0 million and $34.1 million. At September 30, 2023 we maintained investments in bonds that have contractual maturity dates ranging from October 2023 through September 2026.
Other Fair Value Measures
In addition to the financial instruments above, we have several financial and nonfinancial assets and liabilities subject to fair value measures. These financial assets and liabilities include cash and cash equivalents and restricted cash and cash
ATMOS ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
equivalents, accounts receivable, accounts payable, finance leases and debt, which are recorded at carrying value. The nonfinancial assets and liabilities include asset retirement obligations and pension and postretirement plan assets. For cash and cash equivalents and restricted cash and cash equivalents, accounts receivable, accounts payable and finance leases we consider carrying value to materially approximate fair value due to the short-term nature of these assets and liabilities.
Our long-term debt is recorded at carrying value. The fair value of our long-term debt, excluding finance leases, is determined using third party market value quotations, which are considered Level 1 fair value measurements for debt instruments with a recent, observable trade or Level 2 fair value measurements for debt instruments where fair value is determined using the most recent available quoted market price. The following table presents the carrying value and fair value of our long-term debt, excluding finances leases, debt issuance costs and original issue premium or discount, as of September 30, 2023:
| September 30, 2023 | |||||
| (In thousands) | |||||
| Carrying Amount | $ | 6,560,000 | |||
| Fair Value | $ | 5,402,591 |
18. Concentration of Credit Risk
Credit risk is the risk of financial loss to us if a customer fails to perform its contractual obligations. We engage in transactions for the purchase and sale of products and services with major companies in the energy industry and with industrial, commercial, residential and municipal energy consumers. These transactions principally occur in the southern and midwestern regions of the United States. We believe that this geographic concentration does not contribute significantly to our overall exposure to credit risk. Credit risk associated with trade accounts receivable for the distribution segment is mitigated by the large number of individual customers and the diversity in our customer base. The credit risk for our pipeline and storage segment is not significant.
Previous: Item 7A. Quantitative and Qualitative Disclosures About Market Risk. · Next: Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.