ATMOS ENERGY CORP

Previous wording

Our critical accounting policies are reviewed periodically by the Audit Committee of our Board of Directors. There were no significant changes to these critical accounting policies during the three months ended December 31, 2023.

Current wording

Our critical accounting policies are reviewed periodically by the Audit Committee of our Board of Directors. There were no significant changes to these critical accounting policies during the six months ended March 31, 2024.

Previous wording

During the three months ended December 31, 2023, we recorded net income of $311.3 million, or $2.08 per diluted share, compared to net income of $271.9 million, or $1.91 per diluted share for the three months ended December 31, 2022.

Current wording

During the six months ended March 31, 2024, we recorded net income of $743.3 million, or $4.93 per diluted share, compared to net income of $629.5 million, or $4.40 per diluted share for the six months ended March 31, 2023.

Previous wording

The 14 percent year-over-year increase in net income largely reflects positive rate outcomes driven by safety and reliability spending and lower bad debt expense. Additionally, our fiscal 2024 year to date results were favorably impacted by $5.6 million as a result of legislation that became effective during the first quarter of fiscal 2024 to reduce property tax expenses in Texas. These increases were partially offset by increased depreciation expense and higher interest expense.

Current wording

The 18 percent year-over-year increase in net income largely reflects positive rate outcomes driven by safety and reliability spending and lower bad debt expense. Additionally, our fiscal 2024 year to date results were favorably impacted by $14.7 million as a result of legislation that became effective during the first quarter of fiscal 2024 to reduce property tax expenses in Texas. These increases were partially offset by increased depreciation expense and higher interest expense.

Previous wording

During the three months ended December 31, 2023, we implemented, or received approval to implement, ratemaking regulatory actions which resulted in an increase in annual operating income of $161.9 million. Additionally, as of December 31, 2023, we had ratemaking efforts in progress seeking a total increase in annual operating income of $3.9 million.

Current wording

During the six months ended March 31, 2024, we implemented, or received approval to implement, ratemaking regulatory actions which resulted in an increase in annual operating income of $165.4 million. Additionally, as of March 31, 2024, we had ratemaking efforts in progress seeking a total increase in annual operating income of $178.8 million.

Previous wording

Capital expenditures for the three months ended December 31, 2023 were $769.7 million. Approximately 82 percent was invested to improve the safety and reliability of our distribution and transportation systems, with a significant portion of this investment incurred under regulatory mechanisms that reduce lag to six months or less.

Current wording

Capital expenditures for the six months ended March 31, 2024 were $1,415.5 million. Approximately 81 percent was invested to improve the safety and reliability of our distribution and transportation systems, with a significant portion of this investment incurred under regulatory mechanisms that reduce lag to six months or less.

Previous wording

During the three months ended December 31, 2023, we completed approximately $1.1 billion of long-term debt and equity financing. As of December 31, 2023, our equity capitalization was 60.2 percent. As of December 31, 2023, we had approximately $3.2 billion in total liquidity, consisting of $278.3 million in cash and cash equivalents, $473.5 million in funds available through equity forward sales agreements and $2,494.4 million in undrawn capacity under our credit facilities.

Current wording

During the six months ended March 31, 2024, we completed approximately $1.2 billion of long-term debt and equity financing. As of March 31, 2024, our equity capitalization was 60.9 percent. As of March 31, 2024, we had approximately $4.2 billion in total liquidity, consisting of $262.5 million in cash and cash equivalents, $889.7 million in funds available through equity forward sales agreements and $3,094.4 million in undrawn capacity under our credit facilities.

Previous wording

•a $64.6 million increase in rate adjustments, primarily in our Mid-Tex Division.

Current wording

•a $90.6 million increase in rate adjustments, primarily in our Mid-Tex Division.

Previous wording

•an $8.5 million decrease in consumption, net of WNA.

Current wording

•a $10.7 million increase in consumption, net of WNA.

Previous wording

•a $5.3 million increase related to residential customer growth, primarily in our Mid-Tex Division.

Current wording

•a $6.5 million increase related to residential customer growth, primarily in our Mid-Tex Division, and increased industrial load.

Previous wording

•a $13.2 million decrease in bad debt expense, as discussed in Note 6 to the condensed consolidated financial statements.

Current wording

•a $13.3 million decrease in bad debt expense, as discussed in Note 6 to the condensed consolidated financial statements.

Previous wording

Interest charges increased $11.7 million primarily due to the issuance of long-term debt during the first quarter of fiscal 2024.

Current wording

Interest charges increased $27.1 million primarily due to the issuance of long-term debt during the first quarter of fiscal 2024. The increase in interest charges is also due to the amortization of the Texas regulatory asset that is discussed in Note 3 to the condensed consolidated financial statements. However, this increase is offset by a corresponding increase in revenue resulting in no impact to net income.

Previous wording

The amounts described in the following sections represent the operating income that was requested or received in each rate filing, which may not necessarily reflect the stated amount referenced in the final order, as certain operating costs may have changed as a result of a commission’s or other governmental authority’s final ruling. During the first three months of fiscal 2024, we implemented, or received approval to implement, regulatory proceedings, resulting in a $134.9 million increase in annual operating income as summarized below. Our ratemaking outcomes include the refund (return) of excess deferred income taxes (EDIT) resulting from previously enacted tax reform legislation and do not reflect the true economic benefit of the outcomes because they do not include the corresponding income tax benefit. Excluding these amounts, our total rate outcomes for ratemaking activities for the three months ended December 31, 2023 were $134.5 million.

Current wording

The amounts described in the following sections represent the operating income that was requested or received in each rate filing, which may not necessarily reflect the stated amount referenced in the final order, as certain operating costs may have changed as a result of a commission’s or other governmental authority’s final ruling. During the first six months of fiscal 2024, we implemented, or received approval to implement, regulatory proceedings, resulting in a $138.4 million increase in annual operating income as summarized below. Our ratemaking outcomes include the refund (return) of excess deferred income taxes (EDIT) resulting from previously enacted tax reform legislation and do not reflect the true economic benefit of the outcomes because they do not include the corresponding income tax benefit. Excluding these amounts, our total rate outcomes for ratemaking activities for the six months ended March 31, 2024 were $137.1 million.

Previous wording

The following ratemaking efforts seeking $3.9 million in increased annual operating income were in progress as of December 31, 2023:

Current wording

The following ratemaking efforts seeking $96.4 million in increased annual operating income were in progress as of March 31, 2024:

Previous wording

(2) The Kansas Corporation Commission approved the Ad Valorem filing on January 11, 2024, with rates effective February 1, 2024.

Current wording

(1) The Kansas Corporation Commission approved the SIP filing on March 19, 2024, with rates effective April 1, 2024.

Previous wording

The following annual formula rate mechanisms were approved during the three months ended December 31, 2023:

Current wording

The following annual formula rate mechanisms were approved during the six months ended March 31, 2024:

Previous wording

A rate case is a formal request from Atmos Energy to a regulatory authority to increase rates that are charged to our customers. Rate cases may also be initiated when the regulatory authorities request us to justify our rates. This process is referred to as a “show cause” action. Adequate rates are intended to provide for recovery of the Company’s costs as well as a fair rate of return and ensure that we continue to deliver reliable, reasonably priced natural gas service safely to our customers. There was no rate case activity completed in our distribution segment during the three months ended December 31, 2023.

Current wording

A rate case is a formal request from Atmos Energy to a regulatory authority to increase rates that are charged to our customers. Rate cases may also be initiated when the regulatory authorities request us to justify our rates. This process is referred to as a “show cause” action. Adequate rates are intended to provide for recovery of the Company’s costs as well as a fair rate of return and ensure that we continue to deliver reliable, reasonably priced natural gas service safely to our customers. The following table summarizes the rate cases completed in our distribution segment during the six months ended March 31, 2024.

Previous wording

The Company had no other ratemaking activity during the three months ended December 31, 2023.

Current wording

The following table summarizes other ratemaking activity during the six months ended March 31, 2024.

Previous wording

APT annually uses GRIP to recover capital costs incurred in the prior calendar year. GRIP requires a utility to file a statement of intent at least once every five years to review its costs and expenses, including capital costs filed for recovery under GRIP. On May 19, 2023, APT filed a statement of intent seeking $107.4 million in additional annual operating income. On December 13, 2023, the RRC approved the settlement agreement between APT and the intervening parties for an increase in annual operating income of $27.0 million, exclusive of the impact of the cessation of $36.9 million in excess deferred income tax refunds, which are substantially offset by a corresponding increase in income taxes. New rates were implemented effective December 13, 2023.

Current wording

GRIP also requires a utility to file a statement of intent at least once every five years to review its costs and expenses, including capital costs filed for recovery under GRIP. On May 19, 2023, APT filed a statement of intent seeking $107.4 million in additional annual operating income. On December 13, 2023, the RRC approved the settlement agreement between APT and the intervening parties for an increase in annual operating income of $27.0 million, exclusive of the impact of the cessation of $36.9 million in excess deferred income tax refunds, which are substantially offset by a corresponding increase in income taxes. New rates were implemented effective December 13, 2023.

Previous wording

•a $19.5 million increase primarily due to rate adjustments from the GRIP filing approved in May 2023. The increase in rates was driven by increased safety and reliability spending.

Current wording

•a $36.5 million increase primarily due to rate adjustments from the GRIP filing approved in May 2023 and the rate case approved in December 2023.

Previous wording

The liquidity required to fund our working capital, capital expenditures and other cash needs is provided from a combination of internally generated cash flows and external debt and equity financing. Additionally, we have a $1.5 billion commercial paper program and four committed revolving credit facilities with $2.5 billion in total availability from third-party lenders. The commercial paper program and credit facilities 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. Additionally, we have various uncommitted trade credit lines with our gas suppliers that we utilize to purchase natural gas on a monthly basis.

Current wording

The liquidity required to fund our working capital, capital expenditures and other cash needs is provided from a combination of internally generated cash flows and external debt and equity financing. Additionally, we have a $1.5 billion commercial paper program and four committed revolving credit facilities with $3.1 billion in total availability from third-party lenders. The commercial paper program and credit facilities 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. Additionally, we have various uncommitted trade credit lines with our gas suppliers that we utilize to purchase natural gas on a monthly basis.

Previous wording

We also have 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 in connection with the ATM equity sales program), which expires March 31, 2026. As of December 31, 2023, $499.1 million of equity was available for issuance under our existing ATM equity sales program. Additionally, as of December 31, 2023, we had $473.5 million in available proceeds from outstanding forward sale agreements. Additional details are summarized in Note 8 to the condensed consolidated financial statements.

Current wording

We also have 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 in connection with the ATM equity sales program), which expires March 31, 2026. As of March 31, 2024, $81.6 million of equity was available for issuance under our existing ATM equity sales program. On May 8, 2024, we plan to file a new 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 (including shares of common stock that may be sold pursuant to forward sale agreements entered into in connection with the ATM equity sales program). Additionally, as of March 31, 2024, we had $889.7 million in available proceeds from outstanding forward sale agreements. Additional details are summarized in Note 8 to the condensed consolidated financial statements.

Previous wording

Cash flows from operating, investing and financing activities for the three months ended December 31, 2023 and 2022 are presented below.

Current wording

Cash flows from operating, investing and financing activities for the six months ended March 31, 2024 and 2023 are presented below.

Previous wording

For the three months ended December 31, 2023, we generated cash flow from operating activities of $245.3 million compared with $188.9 million for the three months ended December 31, 2022. Operating cash flow increased $56.4 million primarily due to the positive effects of successful rate case outcomes achieved in fiscal 2023.

Current wording

For the six months ended March 31, 2024, we generated cash flow from operating activities of $991.9 million compared with $2,892.7 million for the six months ended March 31, 2023. Operating cash flow decreased $1,900.8 million primarily due to the receipt of $2.02 billion in the second quarter of fiscal 2023 related to Texas securitization activities.

Previous wording

For the three months ended December 31, 2023, cash used for investing activities was $764.4 million compared to $792.5 million for the three months ended December 31, 2022. Capital spending in our distribution segment increased $95.6 million, primarily as a result of increased system modernization and customer growth spending. Capital spending in our pipeline and storage segment decreased $121.6 million primarily due to timing of spending for pipeline system safety and reliability in Texas.

Current wording

For the six months ended March 31, 2024, cash used for investing activities was $1,409.3 million compared to $1,410.4 million for the six months ended March 31, 2023. Capital spending in our distribution segment increased $203.6 million, primarily as a result of increased system modernization and customer growth spending. Capital spending in our pipeline and storage segment decreased $203.4 million primarily due to timing of spending for pipeline system safety and reliability in Texas.

Previous wording

For the three months ended December 31, 2023, our financing activities provided $785.3 million of cash compared with $723.7 million of cash provided by financing activities in the prior-year period.

Current wording

For the six months ended March 31, 2024, our financing activities provided $661.9 million of cash compared with $1,438.7 million of cash used by financing activities in the prior-year period.

Previous wording

In the three months ended December 31, 2023, we received approximately $1.1 billion in net proceeds from the issuance of long-term debt and equity. We completed a public offering of $500 million of 6.20% senior notes due October 2053 and $400 million of 5.90% senior notes due October 2033, and received net proceeds from the offering, after the underwriting discount and offering expenses, of $889.4 million. Additionally, during the three months ended December 31, 2023, we settled 2,144,558 shares that had been sold on a forward basis for net proceeds of $254.0 million. The net proceeds were used primarily to support capital spending and for other general corporate purposes. Cash dividends increased due to an 8.8 percent increase in our dividend rate and an increase in shares outstanding.

Current wording

In the six months ended March 31, 2024, we received approximately $1.2 billion in net proceeds from the issuance of long-term debt and equity. We completed a public offering of $500 million of 6.20% senior notes due October 2053 and $400 million of 5.90% senior notes due October 2033, and received net proceeds from the offering, after the underwriting discount and offering expenses, of $889.4 million. Additionally, during the six months ended March 31, 2024, we settled 2,144,558 shares that had been sold on a forward basis for net proceeds of $254.0 million. The net proceeds were used primarily to support capital spending and for other general corporate purposes. Cash dividends increased due to an 8.8 percent increase in our dividend rate and an increase in shares outstanding.

Previous wording

In the three months ended December 31, 2022, we received approximately $1.0 billion in net proceeds from the issuance of long-term debt and equity. We completed a public offering of $500 million of 5.75% senior notes due October 2052 and $300 million of 5.45% senior notes due October 2032, and received net proceeds from the offering, after the underwriting discount and offering expenses, of $789.4 million. Additionally, during the three months ended December 31, 2022, we settled 2,114,488 shares that had been sold on a forward basis for net proceeds of $220.0 million. The net proceeds were used primarily to support capital spending and for other general corporate purposes. Cash dividends increased due to an 8.8 percent increase in our dividend rate and an increase in shares outstanding.

Current wording

In the six months ended March 31, 2023, we repaid $2.2 billion in long-term debt, and we received approximately $1.2 billion in net proceeds from the issuance of long-term debt and equity. We completed a public offering of $500 million of 5.75% senior notes due October 2052 and $300 million of 5.45% senior notes due October 2032, and received net proceeds from the offering, after the underwriting discount and offering expenses, of $789.4 million. Additionally, during the six months ended March 31, 2023, we settled 3,394,919 shares that had been sold on a forward basis for net proceeds of $359.7 million. The net proceeds were used primarily to support capital spending and for other general corporate purposes. Cash dividends increased due to an 8.8 percent increase in our dividend rate and an increase in shares outstanding.

Previous wording

The following table summarizes our share issuances for the three months ended December 31, 2023 and 2022:

Current wording

The following table summarizes our share issuances for the six months ended March 31, 2024 and 2023:

Previous wording

Our debt is rated by two rating agencies: Standard & Poor’s Corporation (S&P) and Moody’s Investors Service (Moody’s). As of December 31, 2023, our outlook and current debt ratings, which are all considered investment grade are as follows:

Current wording

Our debt is rated by two rating agencies: Standard & Poor’s Corporation (S&P) and Moody’s Investors Service (Moody’s). On April 1, 2024, Moody's reaffirmed its long-term and short-term credit ratings and placed our ratings under negative outlook. Currently, our outlook and debt ratings, which are all considered investment grade, are as follows:

Previous wording

Except as noted in Note 11 to the condensed consolidated financial statements, there were no significant changes in our contractual obligations and commercial commitments during the three months ended December 31, 2023.

Current wording

Except as noted in Note 11 to the condensed consolidated financial statements, there were no significant changes in our contractual obligations and commercial commitments during the six months ended March 31, 2024.

Previous wording

The following table shows the components of the change in fair value of our financial instruments for the three months ended December 31, 2023 and 2022:

Current wording

The following table shows the components of the change in fair value of our financial instruments for the three and six months ended March 31, 2024 and 2023:

Previous wording

The following tables present certain operating statistics for our distribution and pipeline and storage segments for the three months ended December 31, 2023 and 2022.

Current wording

The following tables present certain operating statistics for our distribution and pipeline and storage segments for the three and six months ended March 31, 2024 and 2023.