Document


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to                    
Commission File Number 1-10042
Atmos Energy Corporation
(Exact name of registrant as specified in its charter)
 
Texas and Virginia
 
75-1743247
(State or other jurisdiction of
incorporation or organization)
 
(IRS employer
identification no.)
 
 
Three Lincoln Centre, Suite 1800
5430 LBJ Freeway, Dallas, Texas
 
75240
(Zip code)
(Address of principal executive offices)
 
 
(972) 934-9227
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer  þ
  
Accelerated Filer  ¨
  
Non-Accelerated Filer  ¨
  
Smaller Reporting Company  ¨
 
Emerging growth company ¨
(Do not check if a smaller reporting company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes  ¨    No  þ
Number of shares outstanding of each of the issuer’s classes of common stock, as of July 28, 2017.
Class
  
Shares Outstanding
No Par Value
  
106,065,596



GLOSSARY OF KEY TERMS
 
 
 
AEC
Atmos Energy Corporation
AEH
Atmos Energy Holdings, Inc.
AEM
Atmos Energy Marketing, LLC
AOCI
Accumulated other comprehensive income
Bcf
Billion cubic feet
FASB
Financial Accounting Standards Board
GAAP
Generally Accepted Accounting Principles
GRIP
Gas Reliability Infrastructure Program
Gross Profit
Non-GAAP measure defined as operating revenues less purchased gas cost
Mcf
Thousand cubic feet
MMcf
Million cubic feet
Moody’s
Moody’s Investors Services, Inc.
NYMEX
New York Mercantile Exchange, Inc.
PPA
Pension Protection Act of 2006
PRP
Pipeline Replacement Program
RRC
Railroad Commission of Texas
RRM
Rate Review Mechanism
S&P
Standard & Poor’s Corporation
SEC
United States Securities and Exchange Commission
WNA
Weather Normalization Adjustment

2


PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS 
 
June 30,
2017
 
September 30,
2016
 
(Unaudited)
 
 
 
(In thousands, except
share data)
ASSETS
 
 
 
Property, plant and equipment
$
10,952,422

 
$
10,142,506

Less accumulated depreciation and amortization
2,028,041

 
1,873,900

Net property, plant and equipment
8,924,381

 
8,268,606

Current assets
 
 
 
Cash and cash equivalents
69,777

 
47,534

Accounts receivable, net
250,224

 
215,880

Gas stored underground
151,656

 
179,070

Current assets of disposal group classified as held for sale
—

 
151,117

Other current assets
62,725

 
88,085

Total current assets
534,382

 
681,686

Goodwill
729,673

 
726,962

Noncurrent assets of disposal group classified as held for sale
—

 
28,616

Deferred charges and other assets
310,339

 
305,019

 
$
10,498,775

 
$
10,010,889

CAPITALIZATION AND LIABILITIES
 
 
 
Shareholders’ equity
 
 
 
Common stock, no par value (stated at $0.005 per share); 200,000,000 shares authorized; issued and outstanding: June 30, 2017 — 106,059,875 shares; September 30, 2016 — 103,930,560 shares
$
530

 
$
520

Additional paid-in capital
2,525,752

 
2,388,027

Accumulated other comprehensive loss
(104,599
)
 
(188,022
)
Retained earnings
1,480,027

 
1,262,534

Shareholders’ equity
3,901,710

 
3,463,059

Long-term debt
3,066,734

 
2,188,779

Total capitalization
6,968,444

 
5,651,838

Current liabilities
 
 
 
Accounts payable and accrued liabilities
164,365

 
196,485

Current liabilities of disposal group classified as held for sale
—

 
72,900

Other current liabilities
322,721

 
439,085

Short-term debt
258,573

 
829,811

Current maturities of long-term debt
—

 
250,000

Total current liabilities
745,659

 
1,788,281

Deferred income taxes
1,853,564

 
1,603,056

Regulatory cost of removal obligation
457,060

 
424,281

Pension and postretirement liabilities
304,919

 
297,743

Noncurrent liabilities of disposal group held for sale
—

 
316

Deferred credits and other liabilities
169,129

 
245,374

 
$
10,498,775

 
$
10,010,889

See accompanying notes to condensed consolidated financial statements.

3


ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
 
Three Months Ended 
 June 30
 
2017
 
2016
 
(Unaudited)
(In thousands, except per
share data)
Operating revenues
 
 
 
Distribution segment
$
494,060

 
$
424,905

Pipeline and storage segment
117,283

 
113,855

Intersegment eliminations
(84,842
)
 
(82,548
)
Total operating revenues
526,501

 
456,212

 
 
 
 
Purchased gas cost
 
 
 
Distribution segment
197,767

 
147,569

Pipeline and storage segment
1,251

 
(438
)
Intersegment eliminations
(84,842
)
 
(82,548
)
Total purchased gas cost
114,176

 
64,583

Operation and maintenance expense
128,690

 
131,388

Depreciation and amortization expense
80,023

 
72,880

Taxes, other than income
62,948

 
58,965

Operating income
140,664

 
128,396

Miscellaneous (expense) income
(289
)
 
1,118

Interest charges
28,498

 
27,679

Income from continuing operations before income taxes
111,877

 
101,835

Income tax expense
41,069

 
35,692

Income from continuing operations
70,808

 
66,143

Income from discontinued operations, net of tax ($0 and $3,414)
—

 
5,050

Net Income
$
70,808

 
$
71,193

Basic and diluted net income per share
 
 
 
Income per share from continuing operations
$
0.67

 
$
0.64

Income per share from discontinued operations
—

 
0.05

Net income per share - basic and diluted
$
0.67

 
$
0.69

Cash dividends per share
$
0.45

 
$
0.42

Basic and diluted weighted average shares outstanding
106,364

 
103,750

See accompanying notes to condensed consolidated financial statements.








4


ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 
 
 
 
 
 
 
 
 
Nine Months Ended 
 June 30
 
2017
 
2016
 
(Unaudited)
(In thousands, except per
share data)
Operating revenues
 
 
 
Distribution segment
$
2,211,257

 
$
1,936,475

Pipeline and storage segment
339,207

 
314,424

Intersegment eliminations
(255,609
)
 
(229,894
)
Total operating revenues
2,294,855

 
2,021,005

 
 
 
 
Purchased gas cost
 
 
 
Distribution segment
1,106,209

 
912,231

Pipeline and storage segment
2,331

 
(72
)
Intersegment eliminations
(255,565
)
 
(229,894
)
Total purchased gas cost
852,975

 
682,265

Operation and maintenance expense
385,867

 
379,073

Depreciation and amortization expense
234,648

 
214,927

Taxes, other than income
185,611

 
171,959

Operating income
635,754

 
572,781

Miscellaneous expense
(450
)
 
(90
)
Interest charges
86,472

 
84,775

Income from continuing operations before income taxes
548,832

 
487,916

Income tax expense
201,974

 
177,224

Income from continuing operations
346,858

 
310,692

Income from discontinued operations, net of tax ($6,841 and $3,495)
10,994

 
5,172

Gain on sale of discontinued operations, net of tax ($10,215 and $0)
2,716

 
—

Net Income
$
360,568

 
$
315,864

Basic and diluted net income per share
 
 
 
Income per share from continuing operations
$
3.27

 
$
3.01

Income per share from discontinued operations
0.13

 
0.05

Net income per share - basic and diluted
$
3.40

 
$
3.06

Cash dividends per share
$
1.35

 
$
1.26

Basic and diluted weighted average shares outstanding
105,862

 
103,137

See accompanying notes to condensed consolidated financial statements.



5



ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
Three Months Ended 
 June 30
 
Nine Months Ended 
 June 30
 
2017
 
2016
 
2017
 
2016
 
(Unaudited)
(In thousands)
Net income
$
70,808

 
$
71,193

 
$
360,568

 
$
315,864

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Net unrealized holding gains (losses) on available-for-sale securities, net of tax of $490, $110, $893 and $(837)
851

 
151

 
1,553

 
(1,496
)
Cash flow hedges:
 
 
 
 
 
 
 
Amortization and unrealized gain (loss) on interest rate agreements, net of tax of $(10,667), $(22,561), $44,194 and $(50,631)
(18,556
)
 
(39,250
)
 
76,888

 
(88,085
)
Net unrealized gains on commodity cash flow hedges, net of tax of $0, $11,575, $3,183 and $13,220
—

 
18,105

 
4,982

 
20,678

Total other comprehensive income (loss)
(17,705
)
 
(20,994
)
 
83,423

 
(68,903
)
Total comprehensive income
$
53,103

 
$
50,199

 
$
443,991

 
$
246,961


See accompanying notes to condensed consolidated financial statements.

6


ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Nine Months Ended 
 June 30
 
2017
 
2016
 
(Unaudited)
(In thousands)
Cash Flows From Operating Activities
 
 
 
Net income
$
360,568

 
$
315,864

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization expense
234,833

 
216,670

Deferred income taxes
188,256

 
171,042

Gain on sale of discontinued operations
(12,931
)
 
—

Discontinued cash flow hedging for natural gas marketing commodity contracts
(10,579
)
 
—

Other
14,892

 
14,430

Net assets / liabilities from risk management activities
25,661

 
7,973

Net change in operating assets and liabilities
(55,139
)
 
(96,033
)
Net cash provided by operating activities
745,561

 
629,946

Cash Flows From Investing Activities
 
 
 
Capital expenditures
(812,148
)
 
(789,688
)
Acquisition
(86,128
)
 
—

Proceeds from the sale of discontinued operations
140,253

 
—

Available-for-sale securities activities, net
(14,329
)
 
558

Use tax refund
18,562

 
—

Other, net
6,435

 
5,731

Net cash used in investing activities
(747,355
)
 
(783,399
)
Cash Flows From Financing Activities
 
 
 
Net (decrease) increase in short-term debt
(571,238
)
 
212,539

Net proceeds from equity offering
98,755

 
98,660

Issuance of common stock through stock purchase and employee retirement plans
22,673

 
26,500

Proceeds from issuance of long-term debt
884,911

 
—

Settlement of interest rate agreements
(36,996
)
 
—

Interest rate agreements cash collateral
25,670

 
(16,330
)
Repayment of long-term debt
(250,000
)
 
—

Cash dividends paid
(143,075
)
 
(130,363
)
Debt issuance costs
(6,663
)
 
—

Net cash provided by financing activities
24,037

 
191,006

Net increase in cash and cash equivalents
22,243

 
37,553

Cash and cash equivalents at beginning of period
47,534

 
28,653

Cash and cash equivalents at end of period
$
69,777

 
$
66,206


See accompanying notes to condensed consolidated financial statements.

7


ATMOS ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2017
1.    Nature of Business
Atmos Energy Corporation (“Atmos Energy” or the “Company”) is engaged in the regulated natural gas distribution and pipeline and storage businesses. Our regulated businesses are subject to federal and state regulation and/or regulation by local authorities in each of the states in which our regulated divisions and subsidiaries operate.
Our distribution business delivers natural gas through sales and transportation arrangements to approximately three million residential, commercial, public authority and industrial customers through our six natural gas distribution divisions, which at June 30, 2017, covered service areas located in eight states.
Our pipeline and storage business includes the transportation of natural gas to Texas and Louisiana distribution systems and the management of our underground storage facilities used to support Texas distribution businesses.
Effective January 1, 2017, we completed the sale of all of the equity interests of Atmos Energy Marketing (AEM) to CenterPoint Energy Services, Inc., a subsidiary of CenterPoint Energy, Inc. (CES). Accordingly, AEM’s historical financial results are reflected in the Company’s condensed consolidated financial statements as discontinued operations, which required retrospective application to financial information for all periods presented. Refer to Note 6 for further information. Our discontinued natural gas marketing segment was primarily engaged in a nonregulated natural gas marketing business, conducted by AEM. This business provided natural gas management and transportation services to municipalities, regulated distribution companies, including certain divisions of Atmos Energy and third parties.

2.    Unaudited Financial Information
These consolidated interim-period financial statements have been prepared in accordance with accounting principles generally accepted in the United States on the same basis as those used for the Company’s audited consolidated financial statements for the fiscal year ended September 30, 2016, which appear in Exhibit 99.1 to our Current Report on Form 8-K dated April 12, 2017 (the "Fiscal 2016 Financial Statements"). In the opinion of management, all material adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been made to the unaudited consolidated interim-period financial statements. These consolidated interim-period financial statements are condensed as permitted by the instructions to Form 10-Q and should be read in conjunction with our Fiscal 2016 Financial Statements. Because of seasonal and other factors, the results of operations for the nine-month period ended June 30, 2017 are not indicative of our results of operations for the full 2017 fiscal year, which ends September 30, 2017.
During the third quarter, we completed a State of Texas use tax audit that covered the period from October 2011 to March 2017, which resulted in a refund of $29.8 million. We concluded the appropriate regulatory treatment of this refund was to reduce rate base. We received $18.7 million during the third quarter, which has been included in cash flows from investing activities, and recorded an $11.1 million receivable as of June 30, 2017.
On January 6, 2017, our Atmos Pipeline - Texas Division filed its statement of intent seeking $63.6 million, as adjusted in its rebuttal case, in additional annual operating income. On August 1, 2017, a final order was issued in our APT rate case resulting in a $13.0 million increase in annual operating income. No other events have occurred subsequent to the balance sheet date that would require recognition or disclosure in the condensed consolidated financial statements.

Significant accounting policies
Our accounting policies are described in Note 2 of our Fiscal 2016 Financial Statements.
As discussed in Note 3, due to the realignment of our reportable segments, prior periods' segment information has been recast in accordance with applicable accounting guidance. Additionally, as discussed in Note 6, due to the sale of AEM, prior period amounts have been presented as discontinued operations. The segment realignment and the presentation of discontinued operations have not impacted our reported net income, financial position or cash flows. 
During the second quarter of fiscal 2017, we completed our annual goodwill impairment assessment. Based on the assessment performed, we determined that our goodwill was not impaired.
In May 2014, the Financial Accounting Standards Board (FASB) issued a comprehensive new revenue recognition standard that will supersede virtually all existing revenue recognition guidance under generally accepted accounting principles in the United States. Under the new standard, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies may need to use more judgment and make more estimates than under current guidance.

8


The new guidance will become effective for us October 1, 2018 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption.
As of June 30, 2017, we have substantially completed the evaluation of our sources of revenue and are currently assessing the effect that the new guidance will have on our financial position, results of operations, cash flows and business processes. The conclusion of our assessment is contingent, in part, upon the completion of deliberations currently in progress by our industry, notably in connection with efforts to produce an accounting guide intended to be developed by the American Institute of Certified Public Accountants (AICPA).
In association with this undertaking, the AICPA formed a number of industry task forces, including a Power & Utilities (P&U) Task Force. Industry representatives and organizations, the largest auditing firms, the AICPA’s Revenue Recognition Working Group and its Financial Reporting Executive Committee have undertaken, and continue to undertake, consideration of several items relevant to our industry as further discussed below. Where applicable or necessary, the FASB’s Transition Resource Group (TRG) is also participating.
Additionally, we are actively working with our peers in the rate-regulated natural gas industry and with the public accounting profession to conclude on the accounting treatment for several other issues that are not expected to be addressed by the P&U Task Force. Based on the progress of these deliberations to date, we currently do not believe the implementation of the new guidance will have a material effect on our financial position, results of operations, cash flows or business processes. We are currently still evaluating the transition method we will utilize to adopt the new guidance as well as the impact to our financial statement presentation and related disclosures.
In May 2015, the FASB issued guidance removing the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The guidance was effective for us on October 1, 2016, to be applied retrospectively. We measure certain pension plan assets using the net asset value per share practical expedient, which are disclosed on an annual basis in our Form 10-K. The adoption of the new standard should have no material impact on our results of operations, consolidated balance sheets or cash flows. 
In January 2016, the FASB issued guidance related to the classification and measurement of financial instruments. The amendments modify the accounting and presentation for certain financial liabilities and equity investments not consolidated or reported using the equity method. The guidance is effective for us beginning October 1, 2018; limited early adoption is permitted. We are currently evaluating the potential impact of this new guidance on our financial position, results of operations and cash flows.
In February 2016, the FASB issued a comprehensive new leasing standard that will require lessees to recognize a lease liability and a right-of-use asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The new standard will be effective for us beginning on October 1, 2019; early adoption is permitted. The new leasing standard requires modified retrospective transition, which requires application of the new guidance at the beginning of the earliest comparative period presented in the year of adoption. As of June 30, 2017, we had begun the process of identifying and categorizing our lease contracts, evaluating our current business processes and identifying a lease software solution. We are currently evaluating the effect on our financial position, results of operations and cash flows.
In June 2016, the FASB issued new guidance which will require credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model. Under this model, entities will estimate credit losses over the entire contractual term of the instrument from the date of initial recognition of that instrument. In contrast, current U.S. GAAP is based on an incurred loss model that delays recognition of credit losses until it is probable the loss has been incurred. The new guidance also introduces a new impairment recognition model for available-for-sale securities that will require credit losses for available-for-sale debt securities to be recorded through an allowance account. The new standard will be effective for us beginning on October 1, 2021; early adoption is permitted beginning on October 1, 2019. We are currently evaluating the potential impact of this new guidance on our financial position, results of operations and cash flows.
In January 2017, the FASB issued new guidance that simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill impairment test. Under the new guidance, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The new standard will be effective for our fiscal 2021 goodwill impairment test; however, early adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of the new standard will have no impact on our results of operations, consolidated balance sheets or cash flows. 
In March 2017, the FASB issued new guidance related to the income statement presentation of the components of net periodic benefit cost for an entity’s sponsored defined benefit pension and other postretirement plans. The new guidance requires entities to disaggregate the current service cost component of the net benefit cost from the other components and present it with other current compensation costs for related employees in the statement of income. The other components of net

9


benefit cost will be presented outside of income from operations on the statement of income. In addition, only the service cost component of net benefit cost is eligible for capitalization (e.g., as part of inventory or property, plant, and equipment). The new guidance is effective for us in the fiscal year beginning on October 1, 2018 and for interim periods within that year. We are currently evaluating the potential impact of this new guidance on our financial position, results of operations and cash flows.
Regulatory assets and liabilities
Accounting principles generally accepted in the United States require cost-based, rate-regulated entities that meet certain criteria to reflect the authorized recovery of costs due to regulatory decisions in their financial statements. As a result, certain costs are permitted to be capitalized rather than expensed because they can be recovered through rates. We record certain costs as regulatory assets when future recovery through customer rates is considered probable. Regulatory liabilities are recorded when it is probable that revenues will be reduced for amounts that will be credited to customers through the ratemaking process. Substantially all of our regulatory assets are recorded as a component of deferred charges and other assets and substantially all of our regulatory liabilities are recorded as a component of deferred credits and other liabilities. Deferred gas costs are recorded either in other current assets or liabilities and the regulatory cost of removal obligation is reported separately.

Significant regulatory assets and liabilities as of June 30, 2017 and September 30, 2016 included the following:
 
June 30,
2017
 
September 30,
2016
 
(In thousands)
Regulatory assets:
 
 
 
Pension and postretirement benefit costs(1)
$
122,202

 
$
132,348

Infrastructure mechanisms(2)
38,653

 
42,719

Deferred gas costs
16,405

 
45,184

Recoverable loss on reacquired debt
11,843

 
13,761

Deferred pipeline record collection costs
10,327

 
7,336

APT annual adjustment mechanism
4,973

 
7,171

Rate case costs
2,480

 
1,539

Other
9,949

 
13,565

 
$
216,832

 
$
263,623

Regulatory liabilities:
 
 
 
Regulatory cost of removal obligations
$
492,404

 
$
476,891

Deferred gas costs
16,753

 
20,180

Asset retirement obligations
13,404

 
13,404

Other
6,729

 
4,250

 
$
529,290

 
$
514,725

 
(1)
Includes $11.5 million and $12.4 million of pension and postretirement expense deferred pursuant to regulatory authorization.
(2)
Infrastructure mechanisms in Texas and Louisiana allow for the deferral of all eligible expenses associated with capital expenditures incurred pursuant to these rules, including the recording of interest on deferred expenses until the next rate proceeding (rate case or annual rate filing), at which time investment and costs would be recoverable through base rates.



10


3.    Segment Information

Through November 30, 2016, our consolidated operations were managed and reviewed through three segments:
•
The regulated distribution segment, which included our regulated natural gas distribution and related sales operations.
•
The regulated pipeline segment, which included the pipeline and storage operations of our Atmos Pipeline-Texas division and,
•
The nonregulated segment, which included our nonregulated natural gas management, nonregulated natural gas transmission, storage and other services.

 As a result of the announced sale of Atmos Energy Marketing, we revised the information used by the chief operating decision maker to manage the Company, effective December 1, 2016. Accordingly, we have been managing and reviewing our consolidated operations through the following three reportable segments:
•
The distribution segment is primarily comprised of our regulated natural gas distribution and related sales operations in eight states and storage assets located in Kentucky and Tennessee, which are used solely to support our natural gas distribution operations in those states. These storage assets were formerly included in our nonregulated segment.
•
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, which were formerly included in our nonregulated segment.
•
The natural gas marketing segment is comprised of our discontinued natural gas marketing business.

Our determination of reportable segments considers the strategic operating units under which we manage sales of various products and services to customers in differing regulatory environments. 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 found in our Fiscal 2016 Financial Statements. We evaluate performance based on net income or loss of the respective operating segments. 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.
    
Prior periods' segment information has been recast as required by applicable accounting guidance. The segment realignment has not impacted our reported consolidated revenues or net income. 

11


Income statements for the three and nine months ended June 30, 2017 and 2016 by segment are presented in the following tables:
 
Three Months Ended June 30, 2017
 
Distribution
 
Pipeline and Storage
 
Natural Gas Marketing
 
Eliminations
 
Consolidated
 
(In thousands)
Operating revenues from external parties
$
493,738

 
$
32,763

 
$
—

 
$
—

 
$
526,501

Intersegment revenues
322

 
84,520

 
—

 
(84,842
)
 
—

Total operating revenues
494,060

 
117,283

 
—

 
(84,842
)
 
526,501

Purchased gas cost
197,767

 
1,251

 
—

 
(84,842
)
 
114,176

Operation and maintenance expense
99,631

 
29,059

 
—

 
—

 
128,690

Depreciation and amortization expense
62,760

 
17,263

 
—

 
—

 
80,023

Taxes, other than income
56,850

 
6,098

 
—

 
—

 
62,948

Operating income
77,052

 
63,612

 
—

 
—

 
140,664

Miscellaneous expense
(62
)
 
(227
)
 
—

 
—

 
(289
)
Interest charges
18,394

 
10,104

 
—

 
—

 
28,498

Income before income taxes
58,596

 
53,281

 
—

 
—

 
111,877

Income tax expense
22,082

 
18,987

 
—

 
—

 
41,069

Net income
$
36,514

 
$
34,294

 
$
—

 
$
—

 
$
70,808

Capital expenditures
$
205,780

 
$
46,983

 
$
—

 
$
—

 
$
252,763

 
Three Months Ended June 30, 2016
 
Distribution
 
Pipeline and Storage
 
Natural Gas Marketing
 
Eliminations
 
Consolidated
 
(In thousands)
Operating revenues from external parties
$
424,553

 
$
31,659

 
$
—

 
$
—

 
$
456,212

Intersegment revenues
352

 
82,196

 
—

 
(82,548
)
 
—

Total operating revenues
424,905

 
113,855

 
—

 
(82,548
)
 
456,212

Purchased gas cost
147,569

 
(438
)
 
—

 
(82,548
)
 
64,583

Operation and maintenance expense
101,819

 
29,569

 
—

 
—

 
131,388

Depreciation and amortization expense
59,193

 
13,687

 
—

 
—

 
72,880

Taxes, other than income
52,662

 
6,303

 
—

 
—

 
58,965

Operating income
63,662

 
64,734

 
—

 
—

 
128,396

Miscellaneous income (expense)
1,243

 
(125
)
 
—

 
—

 
1,118

Interest charges
18,677

 
9,002

 
—

 
—

 
27,679

Income from continuing operations before income taxes
46,228

 
55,607

 
—

 
—

 
101,835

Income tax expense
15,867

 
19,825

 
—

 
—

 
35,692

Income from continuing operations
30,361

 
35,782

 
—

 
—

 
66,143

Income from discontinued operations, net of tax
—

 
—

 
5,050

 
—

 
5,050

Net income
$
30,361

 
$
35,782

 
$
5,050

 
$
—

 
$
71,193

Capital expenditures
$
187,470

 
$
66,108

 
$
106

 
$
—

 
$
253,684



12


 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended June 30, 2017
 
Distribution
 
Pipeline and Storage
 
Natural Gas Marketing
 
Eliminations
 
Consolidated
 
(In thousands)
Operating revenues from external parties
$
2,210,221

 
$
84,634

 
$
—

 
$
—

 
$
2,294,855

Intersegment revenues
1,036

 
254,573

 
—

 
(255,609
)
 
—

Total operating revenues
2,211,257

 
339,207

 
—

 
(255,609
)
 
2,294,855

Purchased gas cost
1,106,209

 
2,331

 
—

 
(255,565
)
 
852,975

Operation and maintenance expense
296,048

 
89,863

 
—

 
(44
)
 
385,867

Depreciation and amortization expense
185,219

 
49,429

 
—

 
—

 
234,648

Taxes, other than income
165,032

 
20,579

 
—

 
—

 
185,611

Operating income
458,749

 
177,005

 
—

 
—

 
635,754

Miscellaneous income (expense)
334

 
(784
)
 
—

 
—

 
(450
)
Interest charges
56,437

 
30,035

 
—

 
—

 
86,472

Income from continuing operations before income taxes
402,646

 
146,186

 
—

 
—

 
548,832

Income tax expense
149,623

 
52,351

 
—

 
—

 
201,974

Income from continuing operations
253,023

 
93,835

 
—

 
—

 
346,858

Income from discontinued operations, net of tax
—

 
—

 
10,994

 
—

 
10,994

Gain on sale of discontinued operations, net of tax
—

 
—

 
2,716

 
—

 
2,716

Net income
$
253,023

 
$
93,835

 
$
13,710

 
$
—

 
$
360,568

Capital expenditures
$
636,449

 
$
175,699

 
$
—

 
$
—

 
$
812,148

 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended June 30, 2016
 
Distribution
 
Pipeline and Storage
 
Natural Gas Marketing
 
Eliminations
 
Consolidated
 
(In thousands)
Operating revenues from external parties
$
1,935,421

 
$
85,584

 
$
—

 
$
—

 
$
2,021,005

Intersegment revenues
1,054

 
228,840

 
—

 
(229,894
)
 
—

Total operating revenues
1,936,475

 
314,424

 
—

 
(229,894
)
 
2,021,005

Purchased gas cost
912,231

 
(72
)
 
—

 
(229,894
)
 
682,265

Operation and maintenance expense
294,154

 
84,919

 
—

 
—

 
379,073

Depreciation and amortization expense
174,748

 
40,179

 
—

 
—

 
214,927

Taxes, other than income
153,198

 
18,761

 
—

 
—

 
171,959

Operating income
402,144

 
170,637

 
—

 
—

 
572,781

Miscellaneous income (expense)
804

 
(894
)
 
—

 
—

 
(90
)
Interest charges
57,481

 
27,294

 
—

 
—

 
84,775

Income from continuing operations before income taxes
345,467

 
142,449

 
—

 
—

 
487,916

Income tax expense
126,090

 
51,134

 
—

 
—

 
177,224

Income from continuing operations
219,377

 
91,315

 
—

 
—

 
310,692

Income from discontinued operations, net of tax
—

 
—

 
5,172

 
—

 
5,172

Net income
$
219,377

 
$
91,315

 
$
5,172

 
$
—

 
$
315,864

Capital expenditures
$
528,063

 
$
261,446

 
$
179

 
$
—

 
$
789,688

 

13


Balance sheet information at June 30, 2017 and September 30, 2016 by segment is presented in the following tables:

 
June 30, 2017
 
Distribution
 
Pipeline and Storage
 
Natural Gas Marketing
 
Eliminations
 
Consolidated
 
(In thousands)
ASSETS
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
$
6,678,875

 
$
2,245,506

 
$
—

 
$
—

 
$
8,924,381

Investment in subsidiaries
798,994

 
13,851

 
—

 
(812,845
)
 
—

Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
69,777

 
—

 
—

 
—

 
69,777

Other current assets
437,700

 
29,265

 
—

 
(2,360
)
 
464,605

Intercompany receivables
983,866

 
—

 
—

 
(983,866
)
 
—

Total current assets
1,491,343

 
29,265

 
—

 
(986,226
)
 
534,382

Goodwill
586,661

 
143,012

 
—

 
—

 
729,673

Deferred charges and other assets
280,240

 
30,099

 
—

 
—

 
310,339

 
$
9,836,113

 
$
2,461,733

 
$
—

 
$
(1,799,071
)
 
$
10,498,775

CAPITALIZATION AND LIABILITIES
 
 
 
 
 
 
 
 
 
Shareholders’ equity
$
3,901,710

 
$
812,845

 
$
—

 
$
(812,845
)
 
$
3,901,710

Long-term debt
3,066,734

 
—

 
—

 
—

 
3,066,734

Total capitalization
6,968,444

 
812,845

 
—

 
(812,845
)
 
6,968,444

Current liabilities
 
 
 
 
 
 
 
 
 
Short-term debt
258,573

 
—

 
—

 
—

 
258,573

Other current liabilities
451,026

 
38,420

 
—

 
(2,360
)
 
487,086

Intercompany payables
—

 
983,866

 
—

 
(983,866
)
 
—

Total current liabilities
709,599

 
1,022,286

 
—

 
(986,226
)
 
745,659

Deferred income taxes
1,251,528

 
602,036

 
—

 
—

 
1,853,564

Regulatory cost of removal obligation
432,531

 
24,529

 
—

 
—

 
457,060

Pension and postretirement liabilities
304,919

 
—

 
—

 
—

 
304,919

Deferred credits and other liabilities
169,092

 
37

 
—

 
—

 
169,129

 
$
9,836,113

 
$
2,461,733

 
$
—

 
$
(1,799,071
)
 
$
10,498,775


14




 
September 30, 2016
 
Distribution
 
Pipeline and Storage
 
Natural Gas Marketing
 
Eliminations
 
Consolidated
 
(In thousands)
ASSETS
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
$
6,208,465

 
$
2,060,141

 
$
—

 
$
—

 
$
8,268,606

Investment in subsidiaries
768,415

 
13,854

 
—

 
(782,269
)
 
—

Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
22,117

 
—

 
25,417

 
—

 
47,534

Current assets of disposal group classified as held for sale
—

 
—

 
162,508

 
(11,391
)
 
151,117

Other current assets
489,963

 
39,078

 
5

 
(46,011
)
 
483,035

Intercompany receivables
971,665

 
—

 
—

 
(971,665
)
 
—

Total current assets
1,483,745

 
39,078

 
187,930

 
(1,029,067
)
 
681,686

Goodwill
583,950

 
143,012

 
—

 
—

 
726,962

Noncurrent assets of disposal group classified as held for sale
—

 
—

 
28,785

 
(169
)
 
28,616

Deferred charges and other assets
277,240

 
27,779

 
—

 
—

 
305,019

 
$
9,321,815

 
$
2,283,864

 
$
216,715

 
$
(1,811,505
)
 
$
10,010,889

CAPITALIZATION AND LIABILITIES
 
 
 
 
 
 
 
 
 
Shareholders’ equity
$
3,463,059

 
$
715,672

 
$
66,597

 
$
(782,269
)
 
$
3,463,059

Long-term debt
2,188,779

 
—

 
—

 
—

 
2,188,779

Total capitalization
5,651,838

 
715,672

 
66,597

 
(782,269
)
 
5,651,838

Current liabilities
 
 
 
 
 
 
 
 
 
Current maturities of long-term debt
250,000

 
—

 
—

 
—

 
250,000

Short-term debt
829,811

 
—

 
35,000

 
(35,000
)
 
829,811

Current liabilities of the disposal group classified as held for sale
—

 
—

 
81,908

 
(9,008
)
 
72,900

Other current liabilities
605,790

 
39,911

 
3,263

 
(13,394
)
 
635,570

Intercompany payables
—

 
957,526

 
14,139

 
(971,665
)
 
—

Total current liabilities
1,685,601

 
997,437

 
134,310

 
(1,029,067
)
 
1,788,281

Deferred income taxes
1,055,348

 
543,390

 
4,318

 
—

 
1,603,056

Regulatory cost of removal obligation
397,162

 
27,119

 
—

 
—

 
424,281

Pension and postretirement liabilities
297,743

 
—

 
—

 
—

 
297,743

Noncurrent liabilities of disposal group classified as held for sale
—

 
—

 
316

 
—

 
316

Deferred credits and other liabilities
234,123

 
246

 
11,174

 
(169
)
 
245,374

 
$
9,321,815

 
$
2,283,864

 
$
216,715

 
$
(1,811,505
)
 
$
10,010,889


15



4.    Earnings Per Share
We use the two-class method of computing earnings per share because we have participating securities in the form of non-vested restricted stock units with a nonforfeitable right to dividend equivalents, for which vesting is predicated solely on the passage of time. The calculation of earnings per share using the two-class method excludes income attributable to these participating securities from the numerator and excludes the dilutive impact of those shares from the denominator. Basic and diluted earnings per share for the three and nine months ended June 30, 2017 and 2016 are calculated as follows:

 
Three Months Ended 
 June 30
 
Nine Months Ended 
 June 30
 
2017
 
2016
 
2017
 
2016
 
(In thousands, except per share amounts)
Basic and Diluted Earnings Per Share from continuing operations
 
 
 
 
 
 
 
Income from continuing operations
$
70,808

 
$
66,143

 
$
346,858

 
$
310,692

Less: Income from continuing operations allocated to participating securities
75

 
100

 
424

 
488

Income from continuing operations available to common shareholders
$
70,733

 
$
66,043

 
$
346,434

 
$
310,204

Basic and diluted weighted average shares outstanding
106,364

 
103,750

 
105,862

 
103,137

Income from continuing operations per share — Basic and Diluted
$
0.67

 
$
0.64

 
$
3.27

 
$
3.01

 
 
 
 
 
 
 
 
Basic and Diluted Earnings Per Share from discontinued operations
 
 
 
 
 
 
 
Income from discontinued operations
$
—

 
$
5,050

 
$
13,710

 
$
5,172

Less: Income from discontinued operations allocated to participating securities
—

 
6

 
15

 
4

Income from discontinued operations available to common shareholders
$
—

 
$
5,044

 
$
13,695

 
$
5,168

Basic and diluted weighted average shares outstanding
106,364

 
103,750

 
105,862

 
103,137

Income from discontinued operations per share — Basic and Diluted
$
—

 
$
0.05

 
$
0.13

 
$
0.05

Net income per share — Basic and Diluted
$
0.67

 
$
0.69

 
$
3.40

 
$
3.06





16


5.    Debt
The nature and terms of our debt instruments and credit facilities are described in detail in Note 5 in our Fiscal 2016 Financial Statements. Except as noted below, there were no material changes in the terms of our debt instruments during the nine months ended June 30, 2017.
Long-term debt at June 30, 2017 and September 30, 2016 consisted of the following:
 
 
June 30, 2017
 
September 30, 2016
 
(In thousands)
Unsecured 6.35% Senior Notes, due June 2017
$
—

 
$
250,000

Unsecured 8.50% Senior Notes, due 2019
450,000

 
450,000

Unsecured 3.00% Senior Notes, due 2027
500,000

 
—

Unsecured 5.95% Senior Notes, due 2034
200,000

 
200,000

Unsecured 5.50% Senior Notes, due 2041
400,000

 
400,000

Unsecured 4.15% Senior Notes, due 2043
500,000

 
500,000

Unsecured 4.125% Senior Notes, due 2044
750,000

 
500,000

Medium-term note Series A, 1995-1, 6.67%, due 2025
10,000

 
10,000

Unsecured 6.75% Debentures, due 2028
150,000

 
150,000

Floating-rate term loan, due 2019
125,000

 
—

Total long-term debt
3,085,000

 
2,460,000

Less:
 
 
 
Original issue (premium) discount on unsecured senior notes and debentures
(4,370
)
 
4,270

Debt issuance cost
22,636

 
16,951

Current maturities
—

 
250,000

 
$
3,066,734

 
$
2,188,779

    
On June 8, 2017, we completed a public offering of $500 million of 3.00% senior notes due 2027 and $250 million of 4.125% senior notes due 2044. The effective rate of these notes is 3.12% and 4.40%, after giving effect to the offering costs and the settlement of the associated forward starting interest rate swaps. The net proceeds (excluding the loss on the settlement of the interest rate swaps of $37 million) of approximately $753 million were used to repay our $250 million 6.35% senior unsecured notes at maturity on June 15, 2017 and for general corporate purposes, including the repayment of working capital borrowings pursuant to our commercial paper program.
On September 22, 2016, we entered into a three year, $200 million multi-draw floating-rate term loan agreement with a syndicate of three lenders. Borrowings under the term loan may be made in increments of $1.0 million or higher, may be repaid at any time during the loan period and will bear interest at a rate dependent upon our credit ratings at the time of such borrowing and based, at our election, on a base rate or LIBOR for the applicable interest period. The term loan was used to repay short-term debt and for working capital, capital expenditures and other general corporate purposes. At June 30, 2017, there was $125.0 million outstanding under the term loan.
We utilize short-term debt to fund ongoing working capital needs, such as our seasonal requirements for gas supply, general corporate liquidity and capital expenditures. Our short-term borrowing requirements are affected primarily by the seasonal nature of the natural gas business. Changes in the price of natural gas and the amount of natural gas we need to supply our customers’ needs could significantly affect our borrowing requirements. Our short-term borrowings typically reach their highest levels in the winter months.
We currently finance our short-term borrowing requirements through a combination of a $1.5 billion commercial paper program and three committed revolving credit facilities with third-party lenders that provide approximately $1.5 billion of total working capital funding. The primary source of our funding is our commercial paper program, which is supported by a five-year unsecured $1.5 billion credit facility that expires September 25, 2021. The facility bears interest at a base rate or at a LIBOR-based rate for the applicable interest period, plus a spread ranging from zero percent to 1.25 percent, based on the Company’s credit ratings. Additionally, the facility contains a $250 million accordion feature, which provides the opportunity to increase the total committed loan to $1.75 billion. This facility was amended in October 2016 to increase the total availability from $1.25 billion. At June 30, 2017 and September 30, 2016 a total of $258.6 million and $829.8 million was outstanding under our commercial paper program.

17



Additionally, we have a $25 million unsecured facility, which was renewed on April 1, 2017, and a $10 million unsecured revolving credit facility, which is used primarily to issue letters of credit. At June 30, 2017, there were no borrowings outstanding under either of these facilities; however, outstanding letters of credit reduced the total amount available to us under our $10 million unsecured revolving facility to $4.1 million.
The availability of funds under these credit facilities is subject to conditions specified in the respective credit agreements, all of which we currently satisfy. These conditions include our compliance with financial covenants and the continued accuracy of representations and warranties contained in these agreements. We are required by the financial covenants in each of these facilities to maintain, at the end of each fiscal quarter, a ratio of total debt to total capitalization of no greater than 70 percent. At June 30, 2017, our total-debt-to-total-capitalization ratio, as defined in the agreements, was 47 percent. In addition, both the interest margin and the fee that we pay on unused amounts under certain of these facilities are subject to adjustment depending upon our credit ratings.
These credit facilities and our public indentures contain usual and customary covenants for our business, including covenants substantially limiting liens, substantial asset sales and mergers. Additionally, our public debt indentures relating to our senior notes and debentures, as well as certain of our revolving credit agreements, each contain a default provision that is triggered if outstanding indebtedness arising out of any other credit agreements in amounts ranging from in excess of $15 million to in excess of $100 million becomes due by acceleration or is not paid at maturity. We were in compliance with all of our debt covenants as of June 30, 2017. 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.
AEM had one uncommitted $25 million 364-day bilateral credit facility that was scheduled to expire on July 31, 2017 and one committed $15 million 364-day bilateral credit facility that was scheduled to expire on September 30, 2017. In connection with the sale of AEM discussed in Note 6, both facilities were terminated on January 3, 2017.
6. Divestitures and Acquisitions
Divestiture of Atmos Energy Marketing (AEM)
On October 29, 2016, we entered into a Membership Interest Purchase Agreement (the Agreement) with CenterPoint Energy Services, Inc., a subsidiary of CenterPoint Energy, Inc. (CES) to sell all of the equity interests of AEM. The transaction closed on January 3, 2017, with an effective date of January 1, 2017. CES paid a cash purchase price of $38.3 million plus working capital of $109.0 million for total cash consideration of $147.3 million. Of this amount, $7.0 million was placed into escrow and will be paid to the Company within 24 months of the closing date, net of any indemnification claims agreed upon between the two companies. We recognized a net gain of $0.03 per diluted share on the sale in the second quarter of fiscal 2017 and completed the working capital true–up during the third quarter of fiscal 2017.
The operating results of our natural gas marketing reportable segment have been reported on the condensed consolidated statements of income as income from discontinued operations, net of income tax.  Accordingly, expenses related to allocable general corporate overhead and interest expense are not included in these results.  The decision to report this segment as a discontinued operation was predicated, in part, on the following qualitative and quantitative factors:  1) the disposal resulted in the company becoming a fully regulated entity; 2) the fact that an entire reportable segment was disposed of and 3) the fact the disposed segment represented in excess of 30 percent of consolidated revenues over the last five fiscal years.
The tables below set forth selected financial and operational information related to assets, liabilities and operating results related to discontinued operations. Operating expenses include operation and maintenance expense, provision for doubtful accounts, depreciation and amortization expense and taxes, other than income. Additionally, assets and liabilities related to our natural gas marketing operations are classified as “held for sale” on our consolidated balance sheet at September 30, 2016. Prior period revenues and expenses associated with these assets have been reclassified into discontinued operations. This reclassification had no impact on previously reported consolidated net income.

18


The following tables present statement of income data related to discontinued operations:
 
Three Months Ended 
 June 30
 
2017
 
2016
 
(In thousands)
 
 
 
 
Operating revenues
$
—

 
$
200,213

 
 
 
 
Purchased gas cost
—

 
184,398

Operating expenses
—

 
7,047

Operating income
—

 
8,768

Other nonoperating expense
—

 
(304
)
Income from discontinued operations before income taxes
—

 
8,464

Income tax expense
—

 
3,414

Net income from discontinued operations
$
—

 
$
5,050


 
Nine Months Ended 
 June 30
 
2017
 
2016
 
(In thousands)
 
 
 
 
Operating revenues
$
303,474

 
$
728,989

 
 
 
 
Purchased gas cost
277,554

 
698,445

Operating expenses
7,874

 
19,940

Operating income
18,046

 
10,604

Other nonoperating expense
(211
)
 
(1,937
)
Income from discontinued operations before income taxes
17,835

 
8,667

Income tax expense
6,841

 
3,495

Income from discontinued operations
10,994

 
5,172

Gain on sale from discontinued operations, net of tax ($10,215 and $0)
2,716

 
—

Net income from discontinued operations
$
13,710

 
$
5,172



19


The following table presents a reconciliation of the carrying amounts of major classes of assets and liabilities of our natural gas marketing's operations to total assets and liabilities classified as held for sale:
 
June 30, 2017
 
September 30, 2016
 
(In thousands)
Assets:
 
 
 
Net property, plant and equipment
$
—

 
$
11,905

Accounts receivable
—

 
93,551

Gas stored underground
—

 
54,246

Other current assets
—

 
14,711

Goodwill
—

 
16,445

Deferred charges and other assets
—

 
435

Total assets of the disposal group classified as held for sale in the statement of financial position (1)
—

 
191,293

Cash
—

 
25,417

Other assets
—

 
5

Total assets of disposal group in the statement of financial position
$
—

 
$
216,715

 
 
 
 
Liabilities:
 
 
 
Accounts payable and accrued liabilities
$
—

 
$
72,268

Other current liabilities
—

 
9,640

Deferred credits and other
—

 
316

Total liabilities of the disposal group classified as held for sale in the statement of financial position (1)
—

 
82,224

Intercompany note payable
—

 
35,000

Tax liabilities
—

 
15,471

Intercompany payables
—

 
14,139

Other liabilities
—

 
3,284

Total liabilities of disposal group in the statement of financial position
$
—

 
$
150,118


(1)
Amounts in the comparative period are classified as current and long term in the statement of financial position.
The following table presents statement of cash flow data related to discontinued operations:
 
Nine Months Ended 
 June 30
 
2017
 
2016
 
(In thousands)
Depreciation and amortization expense
$
185

 
$
1,743

Capital expenditures
$
—

 
$
179

Noncash gain (loss) in commodity contract cash flow hedges
$
18,744

 
$
(33,898
)
Acquisition of EnLink Pipeline
On December 20, 2016, we executed a purchase and sale agreement to acquire the general partnership and limited partnership interests in EnLink North Texas Pipeline, LP (EnLink Pipeline) from EnLink Energy GP, LLC and EnLink Midstream Operating, LP for a cash purchase price of $85 million, plus working capital of $1.1 million.
EnLink Pipeline's primary asset was a 140–mile natural gas pipeline located on the north side of the Dallas–Fort Worth Metroplex. The $85 million purchase price has been allocated, based on fair value using observable market inputs, to the net book value of the acquired pipeline.


20


7.    Shareholders' Equity

Shelf Registration and At-the-Market Equity Sales Program
On March 28, 2016, we filed a registration statement with the Securities and Exchange Commission (SEC) that originally permitted us to issue, from time to time, up to $2.5 billion in common stock and/or debt securities. We also filed a prospectus supplement under the registration statement relating to an at-the-market (ATM) equity distribution program under which we may issue and sell, shares of our common stock, up to an aggregate offering price of $200 million. During the nine months ended June 30, 2017, we sold 1,303,494 shares of common stock under our existing ATM program for $100 million and received net proceeds of $98.8 million. At June 30, 2017, approximately $1.6 billion of securities remained available for issuance under the shelf registration statement and substantially all shares have been issued under our ATM program.

Accumulated Other Comprehensive Income (Loss)
We record deferred gains (losses) in AOCI related to available-for-sale securities, interest rate cash flow hedges and commodity contract cash flow hedges. Deferred gains (losses) for our available-for-sale securities and commodity contract cash flow hedges are recognized in earnings upon settlement, while deferred gains (losses) related to our interest rate agreement cash flow hedges are recognized in earnings as they are amortized. The following tables provide the components of our accumulated other comprehensive income (loss) balances, net of the related tax effects allocated to each component of other comprehensive income (loss):
 
Available-
for-Sale
Securities
 
Interest
Rate
Agreement
Cash Flow
Hedges
 
Commodity
Contracts
Cash Flow
Hedges
 
Total
 
(In thousands)
September 30, 2016
$
4,484

 
$
(187,524
)
 
$
(4,982
)
 
$
(188,022
)
Other comprehensive income before reclassifications
1,485

 
76,602

 
9,847

 
87,934

Amounts reclassified from accumulated other comprehensive income
68

 
286

 
(4,865
)
 
(4,511
)
Net current-period other comprehensive income
1,553

 
76,888

 
4,982

 
83,423

June 30, 2017
$
6,037

 
$
(110,636
)
 
$
—

 
$
(104,599
)
 
 
Available-
for-Sale
Securities
 
Interest
Rate
Agreement
Cash Flow
Hedges
 
Commodity
Contracts
Cash Flow
Hedges
 
Total
 
(In thousands)
September 30, 2015
$
4,949

 
$
(88,842
)
 
$
(25,437
)
 
$
(109,330
)
Other comprehensive loss before reclassifications
(1,417
)
 
(88,345
)
 
(8,612
)
 
(98,374
)
Amounts reclassified from accumulated other comprehensive income
(79
)
 
260

 
29,290

 
29,471

Net current-period other comprehensive income (loss)
(1,496
)
 
(88,085
)
 
20,678

 
(68,903
)
June 30, 2016
$
3,453

 
$
(176,927
)
 
$
(4,759
)
 
$
(178,233
)


21


The following tables detail reclassifications out of AOCI for the three and nine months ended June 30, 2017 and 2016. Amounts in parentheses below indicate decreases to net income in the statement of income:
 
Three Months Ended June 30, 2017
Accumulated Other Comprehensive Income Components
Amount Reclassified from
Accumulated Other
Comprehensive Income      
 
Affected Line Item in the
Statement of Income
 
(In thousands)
 
 
Cash flow hedges
 
 
 
Interest rate agreements
$
(177
)
 
Interest charges
Commodity contracts
—

 
Purchased gas cost
 
(177
)
 
Total before tax
 
64

 
Tax benefit
Total reclassifications
$
(113
)
 
Net of tax
 
Three Months Ended June 30, 2016
Accumulated Other Comprehensive Income Components
Amount Reclassified from
Accumulated Other
Comprehensive Income      
 
Affected Line Item in the
Statement of Income
 
(In thousands)
 
 
Cash flow hedges
 
 
 
Interest rate agreements
$
(137
)
 
Interest charges
Commodity contracts
(12,347
)
 
Purchased gas cost(1)
 
(12,484
)
 
Total before tax
 
4,865

 
Tax benefit
Total reclassifications
$
(7,619
)
 
Net of tax
 
 
 
 
 
 
 
 
 
Nine Months Ended June 30, 2017
Accumulated Other Comprehensive Income Components                          
Amount Reclassified from
Accumulated Other
Comprehensive Income      
 
Affected Line Item in  the
Statement of Income
 
(In thousands)
 
 
Available-for-sale securities
$
(107
)
 
Operation and maintenance expense
 
(107
)
 
Total before tax
 
39

 
Tax benefit
 
$
(68
)
 
Net of tax
Cash flow hedges
 
 
 
Interest rate agreements
$
(450
)
 
Interest charges
Commodity contracts
7,976

 
Purchased gas cost(1)
 
7,526

 
Total before tax
 
(2,947
)
 
Tax expense
 
$
4,579

 
Net of tax
Total reclassifications
$
4,511

 
Net of tax

22


 
 
 
 
 
 
 
 
 
Nine Months Ended June 30, 2016
Accumulated Other Comprehensive Income Components                          
Amount Reclassified from
Accumulated Other
Comprehensive Income      
 
Affected Line Item in  the
Statement of Income
 
(In thousands)
 
 
Available-for-sale securities
$
124

 
Operation and maintenance expense
 
124

 
Total before tax
 
(45
)
 
Tax expense
 
$
79

 
Net of tax
Cash flow hedges
 
 
 
Interest rate agreements
$
(410
)
 
Interest charges
Commodity contracts
(48,015
)
 
Purchased gas cost(1)
 
(48,425
)
 
Total before tax
 
18,875

 
Tax benefit
 
$
(29,550
)
 
Net of tax
Total reclassifications
$
(29,471
)
 
Net of tax
(1)
Amounts are presented as part of income from discontinued operations on the condensed consolidated statements of income.
8.     Interim Pension and Other Postretirement Benefit Plan Information
The components of our net periodic pension cost for our pension and other postretirement benefit plans for the three and nine months ended June 30, 2017 and 2016 are presented in the following table. Most of these costs are recoverable through our tariff rates; however, a portion of these costs is capitalized into our rate base. The remaining costs are recorded as a component of operation and maintenance expense.
 
Three Months Ended June 30
 
Pension Benefits
 
Other Benefits
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Components of net periodic pension cost:
 
 
 
 
 
 
 
Service cost
$
5,216

 
$
4,698

 
$
3,109