UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



þ☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Texas	and		Virginia	75-1743247
(State or other jurisdiction of incorporation or organization)				(IRS employer identification no.)

1800 Three Lincoln Centre ~~Suite 1800~~
5430 LBJ Freeway ~~Dallas, Texas~~
Dallas		Texas		75240 ~~(Zip code)~~
(Address of principal executive offices)				(Zip code)

~~(972)~~ (972) 934-9227

(Registrant’s telephone number, including area code)



Title of each class		Trading Symbol	Name of each exchange on which registered
Common stock	No Par Value	ATO	New York Stock Exchange

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. Yesþ No¨

Indicate by check mark whether the registrant has submitted electronically 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 þNo ¨

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”,~~filer,” “smaller reporting ~~company”,~~company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	þ	Accelerated ~~Filer~~ þfiler	¨	~~Accelerated Filer~~ ¨ Non-accelerated filer	¨	~~Non-Accelerated Filer~~ ¨ Smaller reporting company	☐	~~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 ~~January 30,~~July 31, 2019.



Class		Shares Outstanding
Common stock	No Par Value	~~116,897,373~~118,200,689

GLOSSARY OF KEY TERMS




Adjusted diluted net income per share	Non-GAAP measure defined as diluted net income per share before the one-time, non-cash income tax benefit
Adjusted net income	Non-GAAP measure defined as net income before the one-time, non-cash income tax benefit
AEC	Atmos Energy Corporation
AOCI	Accumulated other comprehensive income
ARM	Annual Rate Mechanism
ASC	Accounting Standards Codification
Bcf	Billion cubic feet
Contribution Margin	Non-GAAP measure defined as operating revenues less purchased gas cost
DARR	Dallas Annual Rate Review
ERISA	Employee Retirement Income Security Act of 1974
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission
GAAP	Generally Accepted Accounting Principles
GRIP	Gas Reliability Infrastructure Program
GSRS	Gas System Reliability Surcharge
Mcf	Thousand cubic feet
MMcf	Million cubic feet
Moody’s	Moody’s Investors Services, Inc.
NTSB	National Transportation Safety Board
PPA	Pension Protection Act of 2006
PRP	Pipeline Replacement Program
RRC	Railroad Commission of Texas
RRM	Rate Review Mechanism
RSC	Rate Stabilization Clause
S&P	Standard & Poor’s Corporation
SAVE	Steps to Advance Virginia Energy
SEC	United States Securities and Exchange Commission
SIR	System Integrity Rider
SRF	Stable Rate Filing
SSIR	System Safety and Integrity Rider
TCJA	Tax Cuts and Jobs Act of 2017
WNA	Weather Normalization Adjustment

PART I. FINANCIAL INFORMATION



Item 1.	Financial Statements

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


	December 31, 2018			September 30, 2018			June 30, 2019			September 30, 2018
	(Unaudited)						(Unaudited)
	(In thousands, except share data)						(In thousands, except share data)
ASSETS
Property, plant and equipment	$	12,948,229		$	12,567,373		$	13,687,833		$	12,567,373
Less accumulated depreciation and amortization	2,250,000			2,196,226			2,347,237			2,196,226
Net property, plant and equipment	10,698,229			10,371,147			11,340,596			10,371,147
Current assets
Cash and cash equivalents	218,197			13,771			46,163			13,771
Accounts receivable, net	478,373			253,295			285,433			253,295
Gas stored underground	146,552			165,732			106,014			165,732
Other current assets	69,616			46,055			65,924			46,055
Total current assets	912,738			478,853			503,534			478,853
Goodwill	730,419			730,419			730,419			730,419
Deferred charges and other assets	274,403			294,018			306,549			294,018
	$	12,615,789		$	11,874,437		$	12,881,098		$	11,874,437
CAPITALIZATION AND LIABILITIES
Shareholders’ equity
Common stock, no par value (stated at $0.005 per share); 200,000,000 shares authorized; issued and outstanding: December 31, 2018 — 116,892,959 shares; September 30, 2018 — 111,273,683 shares	$	584		$	556
Common stock, no par value (stated at $0.005 per share); 200,000,000 shares authorized; issued and outstanding: June 30, 2019 — 118,196,113 shares; September 30, 2018 — 111,273,683 shares							$	591		$	556
Additional paid-in capital	3,476,476			2,974,926			3,599,724			2,974,926
Accumulated other comprehensive loss	(114,115		)	(83,647		)	(115,663		)	(83,647		)
Retained earnings	1,985,250			1,878,116			2,157,344			1,878,116
Shareholders’ equity	5,348,195			4,769,951			5,641,996			4,769,951
Long-term debt	3,084,779			2,493,665			3,529,135			2,493,665
Total capitalization	8,432,974			7,263,616			9,171,131			7,263,616
Current liabilities
Accounts payable and accrued liabilities	301,734			217,283			206,500			217,283
Other current liabilities	578,764			547,068			494,932			547,068
Short-term debt	—			575,780			74,942			575,780
Current maturities of long-term debt	575,000			575,000			125,000			575,000
Total current liabilities	1,455,498			1,915,131			901,374			1,915,131
Deferred income taxes	1,191,824			1,154,067			1,280,307			1,154,067
Regulatory excess deferred taxes (See Note 13)	717,758			739,670			709,974			739,670
Regulatory cost of removal obligation	468,825			466,405			464,855			466,405
Pension and postretirement liabilities	176,582			177,520			177,602			177,520
Deferred credits and other liabilities	172,328			158,028			175,855			158,028
	$	12,615,789		$	11,874,437		$	12,881,098		$	11,874,437

See accompanying notes to condensed consolidated financial statements.

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended December 31						Three Months Ended June 30
	2018			2017			2019			2018
	(Unaudited) (In thousands, except per share data)						(Unaudited) (In thousands, except per share data)
Operating revenues
Distribution segment	$	838,835		$	860,792		$	444,944		$	535,488
Pipeline and storage segment	134,470			126,463			149,198			127,633
Intersegment eliminations	(95,523		)	(98,063		)	(108,404		)	(100,876		)
Total operating revenues	877,782			889,192			485,738			562,245

Purchased gas cost
Distribution segment	437,732			463,758			139,518			230,887
Pipeline and storage segment	(358		)	912			(96		)	561
Intersegment eliminations	(95,209		)	(97,753		)	(108,096		)	(100,562		)
Total purchased gas cost	342,165			366,917			31,326			130,886

Operation and maintenance expense	138,600			129,045			164,545			143,748
Depreciation and amortization expense	96,065			88,374			97,700			90,671
Taxes, other than income	64,488			62,773			69,965			72,620
Operating income	236,464			242,083			122,202			124,320
Other non-operating expense	(7,723		)	(2,557		)
Other non-operating income (expense)							1,645			(3,330		)
Interest charges	27,849			31,509			19,592			23,349
Income before income taxes	200,892			208,017			104,255			97,641
Income tax expense (benefit)	43,246			(106,115		)
Income tax expense							23,789			26,448
Net income	$	157,646		$	314,132		$	80,466		$	71,193
Basic net income per share	$	1.38		$	2.89		$	0.68		$	0.64
Diluted net income per share	$	1.38		$	2.89		$	0.68		$	0.64
Cash dividends per share	$	0.525		$	0.485		$	0.525		$	0.485
Basic weighted average shares outstanding	113,800			108,564			118,075			111,851
Diluted weighted average shares outstanding	113,832			108,564			118,430			111,851

Net income	$	157,646		$	314,132		$	80,466		$	71,193
Other comprehensive income (loss), net of tax
Net unrealized holding losses on available-for-sale securities, net of tax of $0 and $62 (See Note 2)	—			(107		)
Other comprehensive income, net of tax
Net unrealized holding gains on available-for-sale securities, net of tax of $27 and $92 (See Note 2)							94			310
Cash flow hedges:
Amortization and unrealized loss on interest rate agreements, net of tax of $6,580 and $549	(22,258		)	(955		)
Total other comprehensive loss	(22,258		)	(1,062		)
Amortization and unrealized gain on interest rate agreements, net of tax of $312 and $2,460							1,053			8,320
Total other comprehensive income							1,147			8,630
Total comprehensive income	$	135,388		$	313,070		$	81,613		$	79,823

See accompanying notes to condensed consolidated financial statements.

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	Nine Months Ended June 30
	2019			2018
	(Unaudited) (In thousands, except per share data)
Operating revenues
Distribution segment	$	2,341,668		$	2,595,571
Pipeline and storage segment	419,318			375,051
Intersegment eliminations	(302,821		)	(299,776		)
Total operating revenues	2,458,165			2,670,846

Purchased gas cost
Distribution segment	1,147,598			1,421,698
Pipeline and storage segment	(544		)	1,906
Intersegment eliminations	(301,887		)	(298,841		)
Total purchased gas cost	845,167			1,124,763

Operation and maintenance expense	452,572			431,952
Depreciation and amortization expense	290,537			268,426
Taxes, other than income	213,546			208,400
Operating income	656,343			637,305
Other non-operating expense	(1,846		)	(8,054		)
Interest charges	74,390			82,162
Income before income taxes	580,107			547,089
Income tax expense (benefit)	127,107			(17,228		)
Net income	$	453,000		$	564,317
Basic net income per share	$	3.89		$	5.09
Diluted net income per share	$	3.88		$	5.09
Cash dividends per share	$	1.575		$	1.455
Basic weighted average shares outstanding	116,485			110,707
Diluted weighted average shares outstanding	116,673			110,707

Net income	$	453,000		$	564,317
Other comprehensive income (loss), net of tax
Net unrealized holding gains (losses) on available-for-sale securities, net of tax of $56 and $(246) (See Note 2)	191			(736		)
Cash flow hedges:
Amortization and unrealized gain (loss) on interest rate agreements, net of tax of $(7,093) and $8,486	(23,997		)	29,609
Total other comprehensive income (loss)	(23,806		)	28,873
Total comprehensive income	$	429,194		$	593,190

See accompanying notes to condensed consolidated financial statements.

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended December 31						Nine Months Ended June 30
	2018			2017			2019			2018
	(Unaudited) (In thousands)						(Unaudited) (In thousands)
Cash Flows From Operating Activities
Net income	$	157,646		$	314,132		$	453,000		$	564,317
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	96,065			88,374			290,537			268,426
Deferred income taxes	40,339			53,149			120,220			139,852
One-time income tax benefit	—			(161,884		)	—			(165,522		)
Other	6,231			6,915			9,649			18,007
Net assets / liabilities from risk management activities	(2,458		)	2,030			(1,976		)	912
Net change in operating assets and liabilities	(133,139		)	(129,478		)	(62,502		)	209,304
Net cash provided by operating activities	164,684			173,238			808,928			1,035,296
Cash Flows From Investing Activities
Capital expenditures	(416,404		)	(383,238		)	(1,199,199		)	(1,088,472		)
Proceeds from the sale of discontinued operations							4,000			3,000
Debt and equity securities activities, net	(963		)	(135		)	(4,041		)	(7,857		)
Other, net	2,074			2,001			3,839			6,105
Net cash used in investing activities	(415,293		)	(381,372		)	(1,195,401		)	(1,087,224		)
Cash Flows From Financing Activities
Net decrease in short-term debt	(575,780		)	(110,929		)	(500,838		)	(202,968		)
Net proceeds from equity offering	494,734			395,099			593,731			395,092
Issuance of common stock through stock purchase and employee retirement plans	4,241			5,660			14,128			15,850
Proceeds from issuance of long-term debt	596,994			—			1,045,221			—
Settlement of interest rate swaps							(90,141		)	—
Repayment of long-term debt							(450,000		)	—
Cash dividends paid	(58,722		)	(51,837		)	(181,982		)	(160,007		)
Debt issuance costs	(6,432		)	—			(11,254		)	—
Other	—			(1,518		)	—			(1,518		)
Net cash provided by financing activities	455,035			236,475			418,865			46,449
Net increase in cash and cash equivalents	204,426			28,341
Net increase (decrease) in cash and cash equivalents							32,392			(5,479		)
Cash and cash equivalents at beginning of period	13,771			26,409			13,771			26,409
Cash and cash equivalents at end of period	$	218,197		$	54,750		$	46,163		$	20,930

See accompanying notes to condensed consolidated financial statements.

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~December 31, 2018~~June 30, 2019

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. Our distribution business is 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 over three million residential, commercial, public authority and industrial customers through our six regulated distribution divisions, which at ~~December 31, 2018,~~June 30, 2019, covered service areas located in eight states.

Our pipeline and storage business, which is also subject to federal and state regulations, includes the transportation of natural gas to our Texas and Louisiana distribution systems and the management of our underground storage facilities used to support our distribution business in various states.

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, aside from accounting policy changes noted below, as those used for the Company’s audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. 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 the audited consolidated financial statements of Atmos Energy Corporation included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. Because of seasonal and other factors, the results of operations for the ~~three-month~~nine-month period ended ~~December 31, 2018~~June 30, 2019 are not indicative of our results of operations for the full 2019 fiscal year, which ends September 30, 2019.

No 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 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018.

During the second quarter of fiscal 2019, we completed our annual goodwill impairment assessment. Based on the assessment performed, we determined that our goodwill was not impaired.

Accounting pronouncements adopted in fiscal 2019

~~In May 2014,~~During the Financial Accounting Standards Board (FASB) issued a comprehensive new revenue recognition standard that superseded virtually all existing revenue recognition guidance under generally accepted accounting principles in the United States. Under the new standard, an entity recognizes 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. Wefirst quarter of fiscal 2019, we adopted the ~~new~~following accounting guidance updates, effective October 1, ~~2018 using the modified retrospective method. See Note 5 for our discussion of the effects of implementing this standard.~~

~~In January 2016, the FASB issued guidance related to the classification and measurement of financial instruments.~~2018. The amendments modify the accounting and presentation for certain financial liabilities and equity investments not consolidated or reported using the equity method. Effective October 1, 2018, changes in the fair value of our equity securities formerly designated as available-for-sale are now recognized in other non-operating expense on our condensed consolidated statement of comprehensive income. Additionally, in accordance with the guidance, we reclassified a net $8.2 million unrealized gain related to these equity securities from accumulated other comprehensive income to retained earnings. The accounting for debt securities designated as available-for-sale did not change as a resultadoption of this new ~~guidance. Accordingly, changes in the fair value~~guidance, individually and collectively, did not have a material impact on our financial position, results of ~~these securities will continue to be recorded as a component of accumulated other comprehensive income.~~operations or cash flows.


•	Revenue recognition - Under the new guidance, we are required to recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. See Note 5 for our discussion of the effects of implementing this standard.

In March 2017, the FASB issued new guidance related to the statement of comprehensive income 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

•

Classification and measurement of financial instruments - The new guidance requires that we recognize changes in the fair value of our equity securities formerly designated as available-for-sale in other non-operating income (expense) in our condensed consolidated statement of comprehensive income on a prospective basis from the date of adoption. However, we continue to classify cash flows from purchases and sales of equity securities within investing activities given the nature of these securities. Additionally, in accordance with the guidance, we reclassified a net $8.2 million unrealized gain related to these equity securities from accumulated other comprehensive income (AOCI) to retained earnings. The accounting for debt securities designated as available-for-sale did not change as a result of this new guidance. Accordingly, changes in the fair value of these securities will continue to be recorded as a component of AOCI.


•	Presentation of the Components of Net Periodic Benefit Cost - The new guidance requires us to present only the current service cost component of the net benefit cost within operations and maintenance expense in the statement of

comprehensive income. The ~~other~~remaining components of net benefit cost ~~will be presented outside~~are now recorded in other non-operating income (expense) in our condensed consolidated statements of ~~income from operations~~comprehensive income. The change in presentation of these costs was implemented on a retrospective basis as required by the guidance. In lieu of determining how each component of the net periodic benefit cost was actually reflected in the prior periods’ condensed statement of comprehensive ~~income.~~ income, we elected to utilize a practical expedient that permits the use of the amounts disclosed for these costs in our pension and post-retirement benefit plans footnote as the basis to retroactively apply this standard.

In addition, under the new guidance, 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~~We continue to capitalize these costs into property, plant and equipment.

However, the Federal Energy Regulatory Commission

(FERC), which ~~regulates interstate transmission pipelines and also~~ establishes ~~through its Uniform System of Accounts,~~the regulatory accounting practices for rate-regulated entities, ~~has~~ issued guidance that ~~states it will permit an election~~permits such entities the option to ~~either~~ continue to capitalize non-service benefit costs ~~or to cease capitalizing such costs~~ for regulatory purposes. ~~Accounting~~Since the accounting guidelines by the FERC are typically ~~also~~ followed by our state ~~commissions. As such,~~regulatory authorities, for U.S. GAAP reporting purposes, we ~~continue to capitalize~~are prospectively deferring into ~~property, plant and equipment all~~a regulatory asset the portion of non-service components of net periodic benefit cost that are capitalizable for ~~ratemaking purposes and will defer the non-service cost components as a~~ regulatory ~~asset for U.S. GAAP reporting purposes on a prospective basis in accordance with the new guidance.~~purposes.

We adopted the new guidance beginning on October 1, 2018. We continue to present the service cost component of net periodic benefit cost within operation and maintenance expense; however, other components of the net periodic benefit cost are now presented separately within other non-operating expense on our condensed consolidated statement of comprehensive income. The changes in presentation were implemented on a retrospective basis in accordance with the guidance. In lieu of determining how each component of the net periodic benefit cost was actually reflected in the condensed statement of comprehensive income, we elected to utilize a practical expedient that permits the use of the amounts disclosed for each component of the net periodic benefit cost in our pension and post-retirement benefit plans footnote as the basis to retroactively apply this standard to all prior periods presented. The new standard did not have a material impact on our financial position, results of operations or cash flows.

In August 2018, the FASB issued new guidance aligning the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). We elected to early adopt the new guidance on a prospective basis, beginning October 1, 2018. As a result of the new guidance, we will defer onto the balance sheet those up-front costs of cloud computing arrangements if they would have been capitalized in a similar on-premise software solution. The new standard did not have a material impact on our financial position, results of operations or cash flows.

•

Accounting for Implementation Costs Incurred in A Hosting Arrangement That Is A Service Contract - The new guidance aligns the requirements for capitalizing implementation costs incurred for these contracts with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). We elected to early adopt the new guidance on a prospective basis. Accordingly, we will capitalize the up-front costs incurred for cloud computing arrangements had they been capitalizable in a similar on-premise software solution.

Accounting pronouncements that will be effective after fiscal 2019

In February 2016, the ~~FASB~~Financial Accounting Standards Board (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. 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. In January 2018,Subsequently, the FASB issued a practical ~~expedient~~expedients to 1) allow entities to not evaluate existing or expired land easements that were not previously accounted for as leases under the current ~~guidance. In July 2018,~~guidance and 2) allow entities the ~~FASB issued a practical expedient providing an additional and optional transition method~~option to adopt the standard ~~at the adoption date~~ and recognize a ~~cumulative-effect~~cumulative–effect adjustment to the opening balance of retained earnings in the period of adoption rather than applying the new guidance at the beginning of the earliest comparative period presented in the year of adoption. ~~We are currently evaluating the effect~~The new standard will be effective for us beginning on October 1, 2019.

The impact of this ~~standard and amendments~~change on our financial position is not reasonably estimable at this time. We do not anticipate the adoption of this standard will have a material impact to our results of operations or cash ~~flows~~flows. We continue to evaluate our adoption of certain practical expedients, however we currently anticipate adopting the following practical expedients:

•land easements under the provisions of ASU 2018-01, as described above,

•package of three practical expedients described in ASC 842-10-65-1 and ~~business processes.~~

•transition method practical expedient provided in ASU 2018-11, as described above.

We are implementing a new lease accounting system, which we will utilize to capture, track and account for lease data. The new system will also aid in automating the compilation of disclosure information.

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 debt 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;~~2020; 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 August 2018, the FASB issued new guidance that modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The guidance removes the disclosure requirements for the amounts of gain/loss and prior service cost/credit amortization expected in the following year and the disclosure of the effect of a one-percentage-point change in the health care cost trend rate, among other changes. The guidance adds certain disclosures including the weighted average interest crediting rate for cash balance plans and a narrative description for the significant change in gains and losses as well as any other significant change in the plan obligations or assets. The new guidance is effective for us in the fiscal year beginning October 1, 2020 and should be applied on a retrospective basis to all periods

presented. Early adoption is permitted. The adoption of this new guidance impacts only our ~~disclosures; however we are still evaluating~~disclosures. We intend to early adopt the ~~timing~~guidance as of ~~our adoption.~~September 30, 2019.

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 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 our regulatory excess deferred taxes and regulatory cost of removal obligation are reported separately.

Significant regulatory assets and liabilities as of ~~December 31, 2018~~June 30, 2019 and September 30, 2018 included the following:



	June 30, 2019		September 30, 2018
	(In thousands)
Regulatory assets:
Pension and postretirement benefit costs	$	8,007	$	6,496
Infrastructure mechanisms⁽¹⁾	111,211		96,739
Deferred gas costs	7,227		1,927
Recoverable loss on reacquired debt	7,000		8,702
Deferred pipeline record collection costs	25,347		20,467
Rate case costs	1,413		2,741
Other	4,465		6,739
	$	164,670	$	143,811
Regulatory liabilities:
Regulatory excess deferred taxes⁽²⁾	$	731,837	$	744,895
Regulatory cost of service reserve⁽³⁾	6,079		22,508
Regulatory cost of removal obligation	526,403		522,175
Deferred gas costs	66,171		94,705
Asset retirement obligation	12,887		12,887
APT annual adjustment mechanism	63,130		35,228
Pension and postretirement benefit costs	80,330		69,113
Other	3,038		9,486
	$	1,489,875	$	1,510,997

December 31,
2018 September 30,
2018
(In thousands)
Regulatory assets:
Pension and postretirement benefit costs $ 7,188
$ 6,496
Infrastructure mechanisms⁽¹⁾
85,071
96,739
Deferred gas costs 11,621
1,927
Recoverable loss on reacquired debt 8,076
8,702
Deferred pipeline record collection costs 22,122
20,467
Rate case costs 1,866
2,741
Other 6,422
6,739
$ 142,366
$ 143,811
Regulatory liabilities:
Regulatory excess deferred taxes⁽²⁾
$ 740,896
$ 744,895
Regulatory cost of service reserve⁽³⁾
19,281
22,508
Regulatory cost of removal obligation 523,644
522,175
Deferred gas costs 85,820
94,705
Asset retirement obligation 12,887
12,887
APT annual adjustment mechanism 44,619
35,228
Pension and postretirement benefit costs 70,969
69,113
Other 14,354
9,486
$ 1,512,470
$ 1,510,997


(1)	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.

(2)

The TCJA resulted in the remeasurement of the net deferred tax liability included in our rate base. Of this amount, ~~$23.1~~$21.9 million as of June 30, 2019 and $5.2 million as of September 30, 2018 is recorded in other current liabilities. The period and timing of the return of the excess deferred taxes is being determined by regulators in each of our jurisdictions. See Note 13 for further information.

(3)

Effective January 1, 2018, regulators in each of our service areas required us to establish a regulatory liability for the difference in recoverable federal taxes included in revenues based on the former 35% federal statutory rate and the new 21% federal statutory rate for service provided on or after January 1, 2018. The period and timing of the return of this liability to utility customers is being determined by regulators in each of our jurisdictions. See Note 13 for further information.

3. Segment Information

We manage and review our consolidated operations through the following 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.

~~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.~~

The accounting policies of the segments are the same as those described in the summary of significant accounting policies found in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018.

Income statements and capital expenditures for the three and nine months ended ~~December 31,~~June 30, 2019 and 2018 ~~and 2017~~ by segment are presented in the following tables:



	Three Months Ended June 30, 2019
	Distribution		Pipeline and Storage			Eliminations			Consolidated
	(In thousands)
Operating revenues from external parties	$	444,287	$	41,451		$	—		$	485,738
Intersegment revenues	657		107,747			(108,404		)	—
Total operating revenues	444,944		149,198			(108,404		)	485,738
Purchased gas cost	139,518		(96		)	(108,096		)	31,326
Operation and maintenance expense	123,998		40,855			(308		)	164,545
Depreciation and amortization expense	70,611		27,089			—			97,700
Taxes, other than income	62,134		7,831			—			69,965
Operating income	48,683		73,519			—			122,202
Other non-operating income (expense)	3,005		(1,360		)	—			1,645
Interest charges	10,597		8,995			—			19,592
Income before income taxes	41,091		63,164			—			104,255
Income tax expense	8,693		15,096			—			23,789
Net income	$	32,398	$	48,068		$	—		$	80,466
Capital expenditures	$	316,825	$	104,788		$	—		$	421,613

Three Months Ended December 31, 2018
Distribution Pipeline and Storage Eliminations Consolidated
(In thousands)
Operating revenues from external parties $ 838,181
$ 39,601
$ —
$ 877,782
Intersegment revenues 654
94,869
(95,523 ) —
Total operating revenues 838,835
134,470
(95,523 ) 877,782
Purchased gas cost 437,732
(358 ) (95,209 ) 342,165
Operation and maintenance expense 105,767
33,147
(314 ) 138,600
Depreciation and amortization expense 69,709
26,356
—
96,065
Taxes, other than income 56,190
8,298
—
64,488
Operating income 169,437
67,027
—
236,464
Other non-operating expense (6,477 ) (1,246 ) —
(7,723 )
Interest charges 18,210
9,639
—
27,849
Income before income taxes 144,750
56,142
—
200,892
Income tax expense 30,365
12,881
—
43,246
Net income $ 114,385
$ 43,261
$ —
$ 157,646
Capital expenditures $ 302,545
$ 113,859
$ —
$ 416,404



	Three Months Ended June 30, 2018
	Distribution			Pipeline and Storage			Eliminations			Consolidated
	(In thousands)
Operating revenues from external parties	$	534,816		$	27,429		$	—		$	562,245
Intersegment revenues	672			100,204			(100,876		)	—
Total operating revenues	535,488			127,633			(100,876		)	562,245
Purchased gas cost	230,887			561			(100,562		)	130,886
Operation and maintenance expense	110,568			33,494			(314		)	143,748
Depreciation and amortization expense	66,504			24,167			—			90,671
Taxes, other than income	64,420			8,200			—			72,620
Operating income	63,109			61,211			—			124,320
Other non-operating expense	(2,518		)	(812		)	—			(3,330		)
Interest charges	13,315			10,034			—			23,349
Income before income taxes	47,276			50,365			—			97,641
Income tax expense	11,932			14,516			—			26,448
Net income	$	35,344		$	35,849		$	—		$	71,193
Capital expenditures	$	284,209		$	110,285		$	—		$	394,494

Three Months Ended December 31, 2017
Distribution Pipeline and Storage Eliminations Consolidated
(In thousands)
Operating revenues from external parties $ 860,453
$ 28,739
$ —
$ 889,192
Intersegment revenues 339
97,724
(98,063 ) —
Total operating revenues 860,792
126,463
(98,063 ) 889,192
Purchased gas cost 463,758
912
(97,753 ) 366,917
Operation and maintenance expense 103,215
26,140
(310 ) 129,045
Depreciation and amortization expense 65,434
22,940
—
88,374
Taxes, other than income 55,107
7,666
—
62,773
Operating income 173,278
68,805
—
242,083
Other non-operating expense (1,922 ) (635 ) —
(2,557 )
Interest charges 21,368
10,141
—
31,509
Income before income taxes 149,988
58,029
—
208,017
Income tax benefit (99,111 ) (7,004 ) —
(106,115 )
Net income $ 249,099
$ 65,033
$ —
$ 314,132
Capital expenditures $ 241,249
$ 141,989
$ —
$ 383,238



	Nine Months Ended June 30, 2019
	Distribution		Pipeline and Storage			Eliminations			Consolidated
	(In thousands)
Operating revenues from external parties	$	2,339,660	$	118,505		$	—		$	2,458,165
Intersegment revenues	2,008		300,813			(302,821		)	—
Total operating revenues	2,341,668		419,318			(302,821		)	2,458,165
Purchased gas cost	1,147,598		(544		)	(301,887		)	845,167
Operation and maintenance expense	347,386		106,120			(934		)	452,572
Depreciation and amortization expense	210,224		80,313			—			290,537
Taxes, other than income	189,377		24,169			—			213,546
Operating income	447,083		209,260			—			656,343
Other non-operating income (expense)	1,791		(3,637		)	—			(1,846		)
Interest charges	44,703		29,687			—			74,390
Income before income taxes	404,171		175,936			—			580,107
Income tax expense	85,195		41,912			—			127,107
Net income	$	318,976	$	134,024		$	—		$	453,000
Capital expenditures	$	912,640	$	286,559		$	—		$	1,199,199



	Nine Months Ended June 30, 2018
	Distribution			Pipeline and Storage			Eliminations			Consolidated
	(In thousands)
Operating revenues from external parties	$	2,593,578		$	77,268		$	—		$	2,670,846
Intersegment revenues	1,993			297,783			(299,776		)	—
Total operating revenues	2,595,571			375,051			(299,776		)	2,670,846
Purchased gas cost	1,421,698			1,906			(298,841		)	1,124,763
Operation and maintenance expense	343,860			89,027			(935		)	431,952
Depreciation and amortization expense	197,587			70,839			—			268,426
Taxes, other than income	184,219			24,181			—			208,400
Operating income	448,207			189,098			—			637,305
Other non-operating expense	(5,961		)	(2,093		)	—			(8,054		)
Interest charges	51,581			30,581			—			82,162
Income before income taxes	390,665			156,424			—			547,089
Income tax (benefit) expense	(39,021		)	21,793			—			(17,228		)
Net income	$	429,686		$	134,631		$	—		$	564,317
Capital expenditures	$	749,693		$	338,779		$	—		$	1,088,472

Balance sheet information at ~~December 31, 2018~~June 30, 2019 and September 30, 2018 by segment is presented in the following tables:



	June 30, 2019
	Distribution		Pipeline and Storage		Eliminations			Consolidated
	(In thousands)
Property, plant and equipment, net	$	8,404,238	$	2,936,358	$	—		$	11,340,596
Total assets	$	12,083,315	$	3,174,516	$	(2,376,733	)	$	12,881,098

December 31, 2018
Distribution Pipeline and Storage Eliminations Consolidated
(In thousands)
Property, plant and equipment, net $ 7,889,901
$ 2,808,328
$ —
$ 10,698,229
Total assets $ 11,836,888
$ 3,040,831
$ (2,261,930 ) $ 12,615,789



	September 30, 2018
	Distribution		Pipeline and Storage		Eliminations			Consolidated
	(In thousands)
Property, plant and equipment, net	$	7,644,693	$	2,726,454	$	—		$	10,371,147
Total assets	$	11,109,128	$	2,963,480	$	(2,198,171	)	$	11,874,437

September 30, 2018
Distribution Pipeline and Storage Eliminations Consolidated
(In thousands)
Property, plant and equipment, net $ 7,644,693
$ 2,726,454
$ —
$ 10,371,147
Total assets $ 11,109,128
$ 2,963,480
$ (2,198,171 ) $ 11,874,437

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 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~~weighted average shares outstanding for diluted EPS includes the incremental effects of the forward sale agreements, discussed in Note 7, when the impact is dilutive. Basic and diluted earnings per share for the three and nine months ended ~~December 31,~~June 30, 2019 and 2018 ~~and 2017~~ are calculated as follows:



	Three Months Ended June 30				Nine Months Ended June 30
	2019		2018		2019		2018
	(In thousands, except per share amounts)
Basic Earnings Per Share
Net income	$	80,466	$	71,193	$	453,000	$	564,317
Less: Income allocated to participating securities	64		59		386		545
Income available to common shareholders	$	80,402	$	71,134	$	452,614	$	563,772
Basic weighted average shares outstanding	118,075		111,851		116,485		110,707
Net income per share — Basic	$	0.68	$	0.64	$	3.89	$	5.09
Diluted Earnings Per Share
Income available to common shareholders	$	80,402	$	71,134	$	452,614	$	563,772
Effect of dilutive shares	—		—		—		—
Income available to common shareholders	$	80,402	$	71,134	$	452,614	$	563,772
Basic weighted average shares outstanding	118,075		111,851		116,485		110,707
Dilutive shares	355		—		188		—
Diluted weighted average shares outstanding	118,430		111,851		116,673		110,707
Net income per share - Diluted	$	0.68	$	0.64	$	3.88	$	5.09

Three Months Ended
December 31
2018 2017
(In thousands, except per share amounts)
Basic Earnings Per Share
Net income $ 157,646
$ 314,132
Less: Income allocated to participating securities 135
328
Income available to common shareholders $ 157,511
$ 313,804
Basic weighted average shares outstanding 113,800
108,564
Net income per share — Basic $ 1.38
$ 2.89
Diluted Earnings Per Share
Income available to common shareholders $ 157,511
$ 313,804
Effect of dilutive shares —
—
Income available to common shareholders $ 157,511
$ 313,804
Basic weighted average shares outstanding 113,800
108,564
Dilutive shares ⁽¹⁾
32
—
Diluted weighted average shares outstanding 113,832
108,564
Net income per share - Diluted $ 1.38
$ 2.89


~~(1)~~	~~Dilutive shares were the result of the forward sale agreements entered into during fiscal 2019. See Note 7 for further discussion.~~

5. Revenue

Effective October 1, 2018, we adopted the new guidance under Accounting Standards Codification (ASC) Topic 606. The implementation of the new guidance did not have a material impact on our financial position, results of operations, cash flow or

business processes. However, the guidance introduced new disclosures which are presented below. The following table

disaggregates our revenue from contracts with customers by customer type and segment and provides a reconciliation to total revenues for the period presented.



	Three Months Ended June 30, 2019					Nine Months Ended June 30, 2019
	Distribution		Pipeline and Storage			Distribution			Pipeline and Storage
	(In thousands)
Gas sales revenues:
Residential	$	269,484	$	—		$	1,513,239		$	—
Commercial	113,591		—			611,474			—
Industrial	25,277		—			95,701			—
Public authority and other	6,305		—			36,677			—
Total gas sales revenues	414,657		—			2,257,091			—
Transportation revenues	22,923		166,864			76,005			456,558
Miscellaneous revenues	6,125		2,407			20,439			6,862
Revenues from contracts with customers	443,705		169,271			2,353,535			463,420
Alternative revenue program revenues	748		(20,073		)	(13,388		)	(44,102		)
Other revenues	491		—			1,521			—
Total operating revenues	$	444,944	$	149,198		$	2,341,668		$	419,318

Three Months Ended December 31, 2018
Distribution Pipeline and Storage
(In thousands)
Gas sales revenues:
Residential $ 547,928
$ —
Commercial 218,938
—
Industrial 34,537
—
Public authority and other 13,285
—
Total gas sales revenues 814,688
—
Transportation revenues 25,400
147,424
Miscellaneous revenues 6,950
1,682
Revenues from contracts with customers 847,038
149,106
Alternative revenue program revenues (8,739 ) (14,636 )
Other revenues 536
—
Total operating revenues $ 838,835
$ 134,470

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 customer. 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 read meters and 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 Atmos Pipeline-Texas (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 Railroad Commission of Texas (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 ~~prices~~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 contribution margin. Additionally, 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. ~~These amounts can be either additional revenue or given back~~Differences between actual revenues and revenues calculated under these mechanisms adjust the amount billed to ~~customers depending on actual results as compared to the weather in our distribution segment or versus the benchmark in our pipeline and storage segment.~~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.

6. Debt

The nature and terms of our debt instruments and credit facilities are described in detail in Note 5 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. Other than as described below, there were no material changes in the terms of our debt instruments during the ~~three~~nine months ended ~~December 31, 2018.~~June 30, 2019.

Long-term debt at ~~December 31, 2018~~June 30, 2019 and September 30, 2018 consisted of the following:



	June 30, 2019		September 30, 2018
	(In thousands)
Unsecured 8.50% Senior Notes, due March 2019	$	—	$	450,000
Unsecured 3.00% Senior Notes, due 2027	500,000		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		750,000
Unsecured 4.30% Senior Notes, due 2048	600,000		—
Unsecured 4.125% Senior Notes, due 2049	450,000		—
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 September 2019⁽¹⁾	125,000		125,000
Total long-term debt	3,685,000		3,085,000
Less:
Original issue (premium) / discount on unsecured senior notes and debentures	225		(4,439		)
Debt issuance cost	30,640		20,774
Current maturities	125,000		575,000
	$	3,529,135	$	2,493,665

December 31, 2018 September 30, 2018
(In thousands)
Unsecured 8.50% Senior Notes, due March 2019 $ 450,000
$ 450,000
Unsecured 3.00% Senior Notes, due 2027 500,000
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
750,000
Unsecured 4.30% Senior Notes, due 2048 600,000
—
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 September 2019⁽¹⁾
125,000
125,000
Total long-term debt 3,685,000
3,085,000
Less:
Original issue (premium) / discount on unsecured senior notes and debentures (1,472 ) (4,439 )
Debt issuance cost 26,693
20,774
Current maturities 575,000
575,000
$ 3,084,779
$ 2,493,665


(1)	Up to $200 million can be drawn under this term loan.

On March 4, 2019, we completed a public offering of $450 million of 4.125% senior notes due 2049. The effective interest rate of these notes is 4.86%, after giving effect to the offering costs and the settlement of the associated forward starting interest rate swaps. The net proceeds, after the underwriting discount and offering expenses, of $443.4 million, together with available cash, was used to repay at maturity our $450 million 8.50% unsecured senior notes due March 15, 2019 and the related settlement of our interest rate swaps.

On October 4, 2018, we completed a public offering of $600 million of 4.30% senior notes due 2048. We received net proceeds from the offering, after the underwriting discount and offering expenses, of $590.6 million, that were used to repay working capital borrowings pursuant to our commercial paper program. The effective interest rate of these notes is 4.37% after giving effect to the offering costs.

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 with an equity-to-total-capitalization ratio between 50% and 60%, inclusive of long-term and short-term debt. Our short-term borrowing requirements are driven primarily by construction work in progress and 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.

Currently, our short-term borrowing requirements are satisfied 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 on~~facility. On March 29, 2019, we executed our final one-year extension option which extended the maturity date from September 25, ~~2022.~~2022 to September 25, 2023. The facility bears interest at a base rate or at a LIBOR-based rate for the applicable interest period, plus a ~~spread~~margin 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. At ~~December 31,~~June 30, 2019 and September 30, 2018, ~~there were no amounts~~a total of $74.9 million and $575.8 million was outstanding under our commercial paper program. ~~At September 30, 2018, a total of $575.8 million was outstanding.~~

Additionally, we have a $25 million 364-day unsecured facility, which was renewed effective April 1, 2019 and expires March 31, 2020, and a $10 million 364-day unsecured revolving credit facility, which is used primarily to issue letters of credit. At ~~December 31, 2018,~~June 30, 2019, 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 facility to $4.4 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 ~~December 31, 2018,~~June 30, 2019, our total-debt-to-total-capitalization ratio, as defined in the agreements, was 4241 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 if not paid at maturity. We were in compliance with all of our debt covenants as of ~~December 31, 2018.~~June 30, 2019. 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.

7. Shareholders' Equity

The following tables present a reconciliation of changes in stockholders' equity for the three and nine months ended ~~December 31, 2018~~June 30, 2019 and ~~2017.~~2018.


	Common stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total			Common stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
	Number of Shares	Stated Value		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total			Number of Shares	Stated Value		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
	(In thousands, except share and per share data)														(In thousands, except share and per share data)
Balance, September 30, 2018	111,273,683	$	556	$	2,974,926	$	(83,647	)	$	1,878,116		$	4,769,951		111,273,683	$	556	$	2,974,926	$	(83,647	)	$	1,878,116		$	4,769,951
Net income	—	—		—		—			157,646			157,646			—	—		—		—			157,646			157,646
Other comprehensive loss	—	—		—		(22,258		)	—			(22,258		)	—	—		—		(22,258		)	—			(22,258		)
Cash dividends ($0.525 per share)	—	—		—		—			(58,722		)	(58,722		)	—	—		—		—			(58,722		)	(58,722		)
Cumulative effect of accounting change (See Note 2)	—	—		—		(8,210		)	8,210			—			—	—		—		(8,210		)	8,210			—
Common stock issued:
Public and other stock offerings	5,434,812	27		498,948		—			—			498,975			5,434,812	27		498,948		—			—			498,975
Stock-based compensation plans	184,464	1		2,602		—			—			2,603			184,464	1		2,602		—			—			2,603
Balance, December 31, 2018	116,892,959	$	584	$	3,476,476	$	(114,115	)	$	1,985,250		$	5,348,195		116,892,959	584		3,476,476		(114,115		)	1,985,250			5,348,195
Net income															—	—		—		—			214,888			214,888
Other comprehensive loss															—	—		—		(2,695		)	—			(2,695		)
Cash dividends ($0.525 per share)															—	—		—		—			(61,606		)	(61,606		)
Common stock issued:
Public and other stock offerings															61,006	1		5,453		—			—			5,454
Stock-based compensation plans															28,938	—		3,865		—			—			3,865
Balance, March 31, 2019															116,982,903	585		3,485,794		(116,810		)	2,138,532			5,508,101
Net income															—	—		—		—			80,466			80,466
Other comprehensive income															—	—		—		1,147			—			1,147
Cash dividends ($0.525 per share)															—	—		—		—			(61,654		)	(61,654		)
Common stock issued:
Public and other stock offerings															1,127,244	5		103,425		—			—			103,430
Stock-based compensation plans															85,966	1		10,505		—			—			10,506
Balance, June 30, 2019															118,196,113	$	591	$	3,599,724	$	(115,663	)	$	2,157,344		$	5,641,996


	Common stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total			Common stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
	Number of Shares	Stated Value		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total			Number of Shares	Stated Value		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
	(In thousands, except share and per share data)														(In thousands, except share and per share data)
Balance, September 30, 2017	106,104,634	$	531	$	2,536,365	$	(105,254	)	$	1,467,024		$	3,898,666		106,104,634	$	531	$	2,536,365	$	(105,254	)	$	1,467,024		$	3,898,666
Net income	—	—		—		—			314,132			314,132			—	—		—		—			314,132			314,132
Other comprehensive loss	—	—		—		(1,062		)	—			(1,062		)	—	—		—		(1,062		)	—			(1,062		)
Cash dividends ($0.485 per share)	—	—		—		—			(51,837		)	(51,837		)	—	—		—		—			(51,837		)	(51,837		)
Common stock issued:
Public and other stock offerings	4,621,518	22		400,737		—			—			400,759			4,621,518	22		400,737		—			—			400,759
Stock-based compensation plans	235,960	2		2,960		—			—			2,962			235,960	2		2,960		—			—			2,962
Balance, December 31, 2017	110,962,112	$	555	$	2,940,062	$	(106,316	)	$	1,729,319		$	4,563,620		110,962,112	555		2,940,062		(106,316		)	1,729,319			4,563,620
Net income															—	—		—		—			178,992			178,992
Other comprehensive income															—	—		—		21,305			—			21,305
Cash dividends ($0.485 per share)															—	—		—		—			(54,054		)	(54,054		)
Common stock issued:
Public and other stock offerings															76,776	—		6,235		—			—			6,235
Stock-based compensation plans															21,440	—		5,248		—			—			5,248
Balance, March 31, 2018															111,060,328	555		2,951,545		(85,011		)	1,854,257			4,721,346
Net income															—	—		—		—			71,193			71,193
Other comprehensive income															—	—		—		8,630			—			8,630
Cash dividends ($0.485 per share)															—	—		—		—			(54,116		)	(54,116		)
Common stock issued:
Public and other stock offerings															45,307	1		3,947		—			—			3,948
Stock-based compensation plans															89,813	—		8,551		—			—			8,551
Balance, June 30, 2018															111,195,448	$	556	$	2,964,043	$	(76,381	)	$	1,871,334		$	4,759,552

Shelf Registration, At-the-Market Equity Sales Program and Equity ~~Issuance~~Issuances

On November 13, 2018, we filed a registration statement with the Securities and Exchange Commission (SEC) to issue, from time to time, up to $3.0 billion in common stock and/or debt securities, which expires November 13, 2021. This registration statement replaced our previous registration statement that was effectively exhausted in October 2018. At ~~December 31, 2018,~~June 30, 2019, approximately ~~$1.8~~$1.3 billion of securities remained available for issuance under the shelf registration statement.

On November 19, 2018, we filed a prospectus supplement under the 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 $500 million (including shares of common stock that may be sold pursuant to a forward sale agreement entered into concurrently with the ATM equity sales program), which expires November 13, 2021. ~~During the three months ended December 31, 2018, no shares~~As of ~~common stock were sold under~~June 30, 2019, the ATM program had approximately $231 million of equity ~~sales program.~~available for issuance.

On November 30, 2018, we filed a prospectus supplement under the registration statement relating to an underwriting agreement to sell 5,390,836 shares of our common stock for $500 million. After ~~the underwriting discount,~~expenses, net proceeds from the offering were ~~$494.7~~$494.1 million. Concurrently, we entered into separate forward sale agreements with two ~~underwriters who borrowed and sold 2,668,464 shares of our common stock. Under~~forward sellers, collectively referred to as the ~~agreements we have the ability~~block.

The following table presents information relevant to settle these shares before March 31, 2020 at a price based on the offering price established on November 28, 2018. During the three months ended December 31, 2018, no shares of common stock were settled under the forward ~~sale agreements. If we had settled all shares under the forward agreements at December 31, 2018, we would have received approximately $245.2 million, based on a net price of $91.90 per share.~~sales during fiscal year 2019.



Maturity	September 30, 2020					March 31, 2020						Total
	Shares	Price⁽¹⁾		Proceeds (in millions)		Shares		Price⁽¹⁾		Proceeds (in millions)		Shares		Price⁽¹⁾		Proceeds (in millions)
Available Balance September 30, 2018	—	$	—	$	—	—		$	—	$	—	—		$	—	$	—
Issued via Block	—	—				2,668,464		91.77				2,668,464		91.77
Available Balance December 31, 2018 ⁽²⁾	—	—		—		2,668,464		91.90		245.2		2,668,464		91.90		245.2
Issued via ATM	—	—				1,670,509		95.46				1,670,509		95.46
Available Balance March 31, 2019 ⁽²⁾	—	—		—		4,338,973		93.08		403.9		4,338,973		93.08		403.9
Issued via ATM	1,050,563	101.41				—		—				1,050,563		101.41
Settled Block	—	—				(1,089,700	)	91.44				(1,089,700	)	91.44
Available Balance June 30, 2019⁽²⁾	1,050,563	$	101.11	$	106.2	3,249,273		$	93.34	$	303.3	4,299,836		$	95.24	$	409.5


(1)	Issued price as disclosed is calculated as the weighted average price for activity occurring during the quarter.


(2)	If we had settled all shares available under the forward agreements as of the period end, including forward price adjustments, we would receive proceeds based on the stated net price.

On November 30, 2017, we filed a prospectus supplement under the previous registration statement relating to an underwriting agreement to sell 4,558,404 shares of our common stock for $400 million. After expenses, net proceeds from the offering were $395.1 million.

Accumulated Other Comprehensive Income (Loss)

We record deferred gains (losses) in 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 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⁽¹⁾			Interest Rate Agreement Cash Flow Hedges			Total
	(In thousands)
September 30, 2018	$	8,124		$	(91,771	)	$	(83,647	)
Other comprehensive income (loss) before reclassifications	192			(25,966		)	(25,774		)
Amounts reclassified from accumulated other comprehensive income	(1		)	1,969			1,968
Net current-period other comprehensive income (loss)	191			(23,997		)	(23,806		)
Cumulative effect of accounting change (See Note 2)	(8,210		)	—			(8,210		)
June 30, 2019	$	105		$	(115,768	)	$	(115,663	)

Available-
for-Sale
Securities⁽¹⁾

Interest Rate
Agreement
Cash Flow
Hedges
Total
(In thousands)
September 30, 2018 $ 8,124
$ (91,771 ) $ (83,647 )
Other comprehensive loss before reclassifications —
(22,716 ) (22,716 )
Amounts reclassified from accumulated other comprehensive income —
458
458
Net current-period other comprehensive loss —
(22,258 ) (22,258 )
Cumulative effect of accounting change (See Note 2) (8,210 ) —
(8,210 )
December 31, 2018 $ (86 ) $ (114,029 ) $ (114,115 )



	Available- for-Sale Securities⁽¹⁾			Interest Rate Agreement Cash Flow Hedges			Total
	(In thousands)
September 30, 2017	$	7,048		$	(112,302	)	$	(105,254	)
Other comprehensive income before reclassifications	148			28,315			28,463
Amounts reclassified from accumulated other comprehensive income	(884		)	1,294			410
Net current-period other comprehensive income (loss)	(736		)	29,609			28,873
June 30, 2018	$	6,312		$	(82,693	)	$	(76,381	)

Available-
for-Sale
Securities⁽¹⁾

Interest Rate
Agreement
Cash Flow
Hedges
Total
(In thousands)
September 30, 2017 $ 7,048
$ (112,302 ) $ (105,254 )
Other comprehensive loss before reclassifications (107 ) (1,332 ) (1,439 )
Amounts reclassified from accumulated other comprehensive income —
377
377
Net current-period other comprehensive loss (107 ) (955 ) (1,062 )
December 31, 2017 $ 6,941
$ (113,257 ) $ (106,316 )


(1)	Available-for-sale-securities reported in fiscal 2018 include both debt and equity securities, while fiscal 2019 includes only debt securities. See Note 2 for further discussion regarding our adoption of the new accounting standard.

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 ~~December 31,~~June 30, 2019 and 2018 ~~and 2017~~ are presented in the following ~~table.~~tables. Most of these costs are recoverable through our tariff rates. A portion of these costs is 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.


	Three Months Ended December 31												Three Months Ended June 30
	Pension Benefits						Other Benefits						Pension Benefits						Other Benefits
	2018			2017			2018			2017			2019			2018			2019			2018
	(In thousands)												(In thousands)
Components of net periodic pension cost:
Service cost	$	4,045		$	4,560		$	2,702		$	3,020		$	4,044		$	4,794		$	2,702		$	3,020
Interest cost⁽¹⁾	6,799			6,430			2,961			2,727			6,799			6,448			2,960			2,726
Expected return on assets⁽¹⁾	(7,113		)	(6,917		)	(2,665		)	(2,002		)	(7,113		)	(6,917		)	(2,664		)	(2,002		)
Amortization of prior service cost (credit)⁽¹⁾	(58		)	(58		)	43			3			(57		)	(57		)	43			2
Amortization of actuarial (gain) loss⁽¹⁾	1,608			3,089			(2,045		)	(1,618		)	1,606			3,050			(2,045		)	(1,618		)
Settlements⁽¹⁾													—			888			—			—
Net periodic pension cost	$	5,281		$	7,104		$	996		$	2,130		$	5,279		$	8,206		$	996		$	2,128

(1) The components of net periodic cost other than the service cost component are included in the line item other non-operating expense in the condensed consolidated statement of comprehensive income or are capitalized on the condensed consolidated balance sheets as a regulatory asset or liability, as described in Note 2.



	Nine Months Ended June 30
	Pension Benefits						Other Benefits
	2019			2018			2019			2018
	(In thousands)
Components of net periodic pension cost:
Service cost	$	12,134		$	13,929		$	8,107		$	9,059
Interest cost⁽¹⁾	20,399			19,311			8,879			8,180
Expected return on assets⁽¹⁾	(21,339		)	(20,750		)	(7,994		)	(6,005		)
Amortization of prior service cost (credit)⁽¹⁾	(173		)	(173		)	130			8
Amortization of actuarial (gain) loss⁽¹⁾	4,821			9,224			(6,134		)	(4,855		)
Settlements⁽¹⁾	—			3,303			—			—
Net periodic pension cost	$	15,842		$	24,844		$	2,988		$	6,387



(1)							The components of net periodic cost other than the service cost component are included in the line item other non-operating expense in the condensed consolidated statement of comprehensive income or are capitalized on the condensed consolidated balance sheets as a regulatory asset or liability, as described in Note 2.

9. 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 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.

The National Transportation Safety Board (NTSB) is investigating an incident that occurred at a Dallas, Texas residence on February 23, 2018 that resulted in one fatality and injuries to four other residents. Together with the Railroad Commission of

Texas (RRC) and the Pipeline and Hazardous Materials Safety Administration, Atmos Energy is a party to the investigation and in that capacity is working closely with the NTSB to help determine the cause of this incident.

On March 29, 2018, a civil action was filed in Dallas, Texas against Atmos Energy in response to the February 23rd incident. ~~The plaintiffs seek over $1.0 million in damages for, among with others, wrongful death and personal injury.~~In May 2019, the parties resolved the civil action to their mutual satisfaction subject to our self-insured retention noted above.

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 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 a limited number of 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 indexed to natural gas hubs. These

purchase commitment contracts are detailed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. ~~There~~At June 30, 2019, we were ~~no material changes~~committed to ~~the~~ purchase ~~commitments for the~~53.9 Bcf within one year and 1.8 Bcf within two to three ~~months ended December 31, 2018.~~years under indexed contracts.

We have entered into operating leases for towers, office and warehouse space, vehicles and heavy equipment used in our operations. During the ~~three~~nine months ended ~~December 31, 2018,~~June 30, 2019, we executed amendments to some of our lease agreements that impacted terms as well as our future minimum lease payments. As of ~~December 31, 2018,~~June 30, 2019, the remaining lease terms range from one to 20 years and generally provide for the payment of taxes, insurance and maintenance by the lessee. Renewal options exist for certain of these leases. The related future minimum lease payments at ~~December 31, 2018~~June 30, 2019 totaled ~~$194.2 million~~$194.9 million.

Rate Regulatory ~~Matters~~Proceedings

Except for routine rate regulatory proceedings as discussed below, there were no material changes to rate regulatory ~~matters~~proceedings for the ~~three~~nine months ended ~~December 31, 2018.~~June 30, 2019.

As of ~~December 31, 2018,~~June 30, 2019, rate regulatory proceedings were in progress in some of our ~~Colorado, Kansas, Kentucky, Louisiana, Mid-Tex, Tennessee, Virginia and West Texas~~ service areas. These rate regulatory proceedings are discussed in further detail below in Management’s Discussion and Analysis — Recent Ratemaking Developments. Additionally, as discussed in further detail in Note 13, all jurisdictions are addressing impacts of the ~~TCJA.~~Tax Cuts and Jobs Act of 2017 (the "TCJA").

10. Financial Instruments

We currently use financial instruments to mitigate commodity price risk and in the past have also used financial instruments to mitigate interest rate risk. The objectives and strategies for using financial instruments and the related accounting for these financial instruments are fully described in Notes 2 and 13 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. During the ~~three~~nine months ended ~~December 31, 2018,~~June 30, 2019, there were no material changes in our objectives, strategies and accounting for using financial instruments. Our financial instruments do not contain any credit-risk-related or other contingent features that could cause payments to be accelerated when our financial instruments are in net liability positions. The following summarizes those objectives and strategies.

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.

We typically seek to hedge between 25 and 50 percent of anticipated heating season gas purchases using financial instruments. For the 2018-2019 heating season (generally October through March), in the jurisdictions where we are permitted

to utilize financial instruments, we ~~anticipate hedging~~hedged approximately 33 percent, or 18.9 Bcf of the winter flowing gas requirements. We have not designated these financial instruments as hedges for accounting purposes.

Interest Rate Risk Management Activities

~~We periodically manage~~Historically, we managed interest rate risk by periodically entering into financial instruments to effectively fix the Treasury yield component of the interest cost associated with anticipated financings.

~~As of December 31, 2018,~~In fiscal 2014 and 2015, we ~~had~~entered into forward starting interest rate swaps to ~~effectively~~ fix the Treasury yield component associated with $450 million of the then anticipated issuance of $450 million unsecured senior notes in fiscal 2019. These notes were issued as planned in March 2019 ~~at 3.78%, which~~and we ~~designated as a cash flow hedge at~~settled the ~~time~~swaps with the payment of $90.1 million. Because the swaps were ~~executed.~~ effective, the realized loss was recorded as a component of AOCI and is being recognized as a component of interest expense over the 30-year life of the senior notes.

As of ~~December 31, 2018,~~June 30, 2019, we had ~~$47.7~~$115.8 million of net realized losses in ~~accumulated other comprehensive income (AOCI)~~AOCI associated with the settlement of financial instruments used to fix the Treasury yield component of the interest cost of financing various issuances of long-term debt and senior notes, which will be recognized as a component of interest expense over the life of the associated notes from the date of settlement. The remaining amortization periods for these settled amounts extend through fiscal ~~2045.~~2049.

Quantitative Disclosures Related to Financial Instruments

The following tables present detailed information concerning the impact of financial instruments on our condensed consolidated balance sheet and statements of comprehensive income.

Financial Instruments on the Balance Sheet

The following tables present the fair value and balance sheet classification of our financial instruments as of ~~December 31, 2018~~June 30, 2019 and September 30, 2018. The gross amounts of recognized assets and liabilities are netted within our unaudited condensed consolidated balance sheets to the extent that we have netting arrangements with our counterparties. However, for ~~December 31, 2018~~June 30, 2019 and September 30, 2018, no gross amounts and no cash collateral were netted within our consolidated balance sheet.




	Balance Sheet Location	Assets		Liabilities
		(In thousands)
June 30, 2019
Not Designated As Hedges:
Commodity contracts	Other current assets / Other current liabilities	$	2,408	$	(3,358	)
Commodity contracts	Deferred charges and other assets / Deferred credits and other liabilities	149		(513		)
Total		2,557		(3,871		)
Gross / Net Financial Instruments		$	2,557	$	(3,871	)

Balance Sheet Location Assets Liabilities
(In thousands)
December 31, 2018
Designated As Hedges:
Interest rate swap agreements
Other current assets /
Other current liabilities
$ —
$ (85,930 )
Total —
(85,930 )
Not Designated As Hedges:
Commodity contracts
Other current assets /
Other current liabilities
3,241
(1,265 )
Commodity contracts
Deferred charges and other assets /
Deferred credits and other liabilities
285
—
Total 3,526
(1,265 )
Gross / Net Financial Instruments $ 3,526
$ (87,195 )

Balance Sheet Location Assets Liabilities
(In thousands)
September 30, 2018
Designated As Hedges:
Interest rate swap agreements Other current assets /
Other current liabilities $ —
$ (56,499 )
Total —
(56,499 )
Not Designated As Hedges:
Commodity contracts
Other current assets /
Other current liabilities
1,369
(235 )
Commodity contracts
Deferred charges and other assets /
Deferred credits and other liabilities
250
(103 )
Total 1,619
(338 )
Gross / Net Financial Instruments $ 1,619
$ (56,837 )




	Balance Sheet Location	Assets		Liabilities
		(In thousands)
September 30, 2018
Designated As Hedges:
Interest rate swaps	Other current assets / Other current liabilities	$	—	$	(56,499	)
Total		—		(56,499		)
Not Designated As Hedges:
Commodity contracts	Other current assets / Other current liabilities	1,369		(235		)
Commodity contracts	Deferred charges and other assets / Deferred credits and other liabilities	250		(103		)
Total		1,619		(338		)
Gross / Net Financial Instruments		$	1,619	$	(56,837	)

Impact of Financial Instruments on the Statement of Comprehensive Income

As discussed above, in the past our distribution segment ~~has~~had interest rate ~~swap~~ agreements, which we designated as a cash flow ~~hedge~~hedges at the time the ~~swaps~~agreements were executed. The net loss on settled interest rate agreements reclassified from AOCI into interest charges on our condensed consolidated statements of comprehensive income for the three months ended ~~December 31,~~June 30, 2019 and 2018 was $1.4 million and ~~2017 was~~ $0.6 million and ~~$0.6~~for the nine months ended June 30, 2019 and 2018 was $2.6 million and $1.8 million.

The following table summarizes the gains and losses arising from hedging transactions that were recognized as a component of other comprehensive income (loss), net of taxes, for the three and nine months ended ~~December 31, 2018~~June 30, 2019 and ~~2017.~~2018. The

amounts included in the table below exclude gains and losses arising from ineffectiveness because those amounts are immediately recognized in the statement of comprehensive income as incurred.



	Three Months Ended June 30				Nine Months Ended June 30
	2019		2018		2019			2018
	(In thousands)
Increase (decrease) in fair value:
Interest rate agreements	$	—	$	7,861	$	(25,966	)	$	28,315
Recognition of losses in earnings due to settlements:
Interest rate agreements	1,053		459		1,969			1,294
Total other comprehensive income (loss) from hedging, net of tax	$	1,053	$	8,320	$	(23,997	)	$	29,609

Three Months Ended
December 31
2018 2017
(In thousands)
Increase (decrease) in fair value:
Interest rate agreements $ (22,716 ) $ (1,332 )
Recognition of losses in earnings due to settlements:
Interest rate agreements 458
377
Total other comprehensive income (loss) from hedging, net of tax $ (22,258 ) $ (955 )

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. The following amounts, net of deferred taxes, represent the expected recognition in earnings, as of ~~December 31, 2018,~~June 30, 2019, of the deferred losses recorded in AOCI associated with our financial instruments, based upon the fair values of these financial instruments at the date of settlement. ~~However, the table below does not include the expected recognition in earnings of our outstanding interest rate agreements as those instruments have not yet settled.~~



	Interest Rate Agreements
	(In thousands)
Next twelve months	$	(4,212	)
Thereafter	(111,556		)
Total	$	(115,768	)

Interest Rate
Agreements
(In thousands)
Next twelve months $ (1,878 )
Thereafter (45,827 )
Total $ (47,705 )

Financial Instruments Not Designated as Hedges

As discussed above, ~~financial instruments~~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 statement 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.

11. 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, 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 financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. During the ~~three~~nine months ended ~~December 31, 2018,~~June 30, 2019, there were no changes in these methods.

Fair value measurements also apply to the valuation of our pension and postretirement plan assets. Current accounting guidance requires employers to annually disclose information about fair value measurements of the assets of a defined benefit pension or other postretirement plan. The fair value of these assets is presented in Note 7 to the financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018.

Quantitative Disclosures

Financial Instruments

The classification of our fair value measurements requires judgment regarding the degree to which market data is observable or corroborated by observable market data. 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), with the lowest priority given to unobservable inputs (Level 3). The following tables summarize, by level

within the fair value hierarchy, our assets and liabilities that were accounted for at fair value on a recurring basis as of ~~December 31, 2018~~June 30, 2019 and September 30, 2018. Assets and liabilities are categorized in their entirety based on the lowest level of input that is significant to the fair value measurement.

Debt and equity securities are comprised of our available-for-sale debt securities and our equity securities. We regularly 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 and current returns. If a determination is made that a decline in fair value is other than temporary, the related investment is written down to its estimated fair value and the other-than-temporary impairment is recognized in the statement of comprehensive income. At ~~December 31, 2018~~June 30, 2019 and September 30, 2018, our available-for-sale debt securities ~~were recorded at~~ amortized cost ~~of $30.2~~was $31.0 million and $31.5 million. At ~~December 31, 2018,~~June 30, 2019, we maintained investments in bonds that have contractual maturity dates ranging from ~~January~~July 2019 through ~~December 2021.~~

Other Fair Value Measures

Our debt is recorded at carrying value. The fair value of our debt 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 debt as of ~~December 31, 2018~~June 30, 2019 and September 30, 2018:



	June 30, 2019		September 30, 2018
	(In thousands)
Carrying Amount	$	3,685,000	$	3,085,000
Fair Value	$	4,144,253	$	3,161,679

December 31, 2018 September 30, 2018
(In thousands)
Carrying Amount $ 3,685,000
$ 3,085,000
Fair Value $ 3,746,697
$ 3,161,679

12. Concentration of Credit Risk

Information regarding our concentration of credit risk is disclosed in Note 16 to the financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. During the ~~three~~nine months ended ~~December 31, 2018,~~June 30, 2019, there were no material changes in our concentration of credit risk.

13. Impact of the Tax Cuts and Jobs Act of 2017

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "TCJA") was signed into law. As a result of the implementation of the TCJA, we recognized a ~~$161.9~~$165.5 million income tax benefit in our condensed consolidated statement of comprehensive income during the ~~first quarter of fiscal~~nine months ended June 30, 2018 related to a change in deferred taxes that were not related to our cost of service ratemaking. The change in deferred taxes related to our cost of service ratemaking (referred to as excess deferred taxes) was reclassified into a regulatory liability and will be returned to ratepayers in accordance with regulatory requirements. As of ~~December 31, 2018~~June 30, 2019 and September 30, 2018, this liability totaled ~~$740.9~~$731.8 million and $744.9 million.

We have worked and continue to work with our regulators in each jurisdiction to fully incorporate the effects of the TCJA into customer bills. As of ~~December 31, 2018,~~June 30, 2019, we have received approval from regulators to update our cost of service rates to reflect the decrease in the statutory income tax rate in all of our ~~Colorado, Kansas, Kentucky, Louisiana, Mississippi, Tennessee and Texas~~ service areas. ~~We continue to work with regulators in Virginia to reflect the effects of the lower statutory income tax rate in our cost of service in rates.~~

Regulators in all of our service areas issued accounting orders that required us to establish, effective January 1, 2018, a separate regulatory liability for the difference in taxes included in our rates that were calculated based on a 35% statutory income tax rate and rates based on the new 21% statutory income tax rate until the new rates could be established. As of ~~December 31, 2018,~~June 30, 2019, we received approval from substantially all regulators to return these liabilities to ~~customers in Colorado, Kansas, Louisiana and Texas.~~customers. This regulatory liability totaled ~~$19.3~~$6.1 million and $22.5 million as of ~~December 31, 2018~~June 30, 2019 and September 30, 2018.

As of ~~December 31, 2018,~~June 30, 2019, we received approval from regulators to return excess deferred taxes in ~~Colorado, Kentucky, Louisiana, Mississippi, Tennessee and Texas~~most of our jurisdictions in accordance with regulatory proceedings on a provisional basis over periods ranging from 13 to 51 years. In our remaining jurisdictions, the treatment of the effects of the TCJA in rates is being addressed in ongoing or will be addressed in future regulatory proceedings.

The SEC issued guidance in Staff Accounting Bulletin 118 (SAB 118), which allowed us to record provisional amounts during a one-year measurement period, similar to the measurement period in accounting for business combinations. The Company recorded provisional amounts for the income tax effects of the TCJA for the fiscal year ended September 30, 2018. Although the Company no longer considers the accounting effects of the TCJA to be provisional under SAB 118, many aspects of the TCJA remain unclear and its impact on the Company's income tax balances may change following further interpretation of TCJA provisions by issuance of U.S. Treasury regulations or guidance from the Internal Revenue Service. We continue to monitor and assess the accounting implications of the TCJA developments on the consolidated financial statements.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Atmos Energy Corporation

Results of Review of Interim Financial Statements

We have reviewed the accompanying condensed consolidated balance sheet of Atmos Energy Corporation as of ~~December 31, 2018,~~June 30, 2019, the related condensed consolidated statements of comprehensive income for the three and nine month periods ended June 30, 2019 and 2018, the condensed consolidated statements of cash flows for the ~~three months~~nine month periods ended ~~December 31,~~June 30, 2019 and 2018 ~~and 2017,~~ and the related notes (collectively referred to as the "condensed consolidated interim financial statements"). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of September 30, 2018, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the year then ended, and related notes and schedule (not presented herein); and in our report dated November 13, 2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of ~~December 31,~~September 30, 2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Company's management. 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 SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ ERNST & YOUNG LLP

Dallas, Texas

~~February 5,~~August 7, 2019



Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

The following discussion should be read in conjunction with the condensed consolidated financial statements in this Quarterly Report on Form 10-Q and Management’s Discussion and Analysis in our Annual Report on Form 10-K for the year ended September 30, 2018.

Cautionary Statement for the Purposes of the Safe Harbor under the Private Securities Litigation Reform Act of 1995

The statements contained in this Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this Report are forward-looking statements made in good faith by us and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. When used in this Report, or any other of our documents or oral presentations, the words “anticipate”, “believe”, “estimate”, “expect”, “forecast”, “goal”, “intend”, “objective”, “plan”, “projection”, “seek”, “strategy” or similar words are intended to identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the statements relating to our strategy, operations, markets, services, rates, recovery of costs, availability of gas supply and other factors. These risks and uncertainties include the following: state and local regulatory trends and decisions, including the impact of rate proceedings before various state regulatory commissions; increased federal regulatory oversight and potential penalties; possible increased federal, state and local regulation of the safety of our operations; the inherent hazards and risks involved in distributing, transporting and storing natural gas; the capital-intensive nature of our business; our ability to continue to access the credit and capital markets to execute our business strategy; market risks beyond our control affecting our risk management activities, including commodity price volatility, counterparty performance or creditworthiness and interest rate risk; the concentration of our operations in Texas; the impact of adverse economic conditions on our customers; changes in the availability and price of natural gas; the availability and accessibility of contracted gas supplies, interstate pipeline and/or storage services; increased competition from energy suppliers and alternative forms of energy; adverse weather conditions; increased costs of providing health care benefits, along with pension and postretirement health care benefits and increased funding requirements; the inability to continue to hire, train and retain operational, technical and managerial personnel; the impact of climate change or related additional legislation or regulation in the future; the threat of cyber-attacks or acts of cyber-terrorism that could disrupt our business operations and information technology systems or result in the loss or exposure of confidential or sensitive customer, employee or Company information; natural disasters, terrorist activities or other events and other risks and uncertainties discussed herein, all of which are difficult to predict and many of which are beyond our control. Accordingly, while we believe these forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. Further, we undertake no obligation to update or revise any of our forward-looking statements whether as a result of new information, future events or otherwise.

OVERVIEW

Atmos Energy and our subsidiaries are engaged in the regulated natural gas distribution and pipeline and storage businesses. We distribute natural gas through sales and transportation arrangements to over three million residential, commercial, public authority and industrial customers throughout our six distribution divisions, which at ~~December 31, 2018~~June 30, 2019 covered service areas located in eight states. In addition, we transport natural gas for others through our distribution and pipeline systems.

We manage and review our consolidated operations through the following 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.

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

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

Our condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States. Preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures of contingent assets and liabilities. We based our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. On an ongoing basis, we evaluate our estimates, including those related to risk management and trading activities, the allowance for doubtful accounts, legal and environmental accruals, insurance accruals, pension and postretirement obligations, deferred income taxes and the valuation of goodwill, indefinite-lived intangible assets and other long-lived assets. Actual results may differ from such estimates.

Our critical accounting policies used in the preparation of our consolidated financial statements are described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018 and include the following:

Regulation

Unbilled revenue

Pension and other postretirement plans

Impairment assessments

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~~nine months ended ~~December 31, 2018.~~June 30, 2019.

Non-GAAP Financial Measures

Our operations are affected by the cost of natural gas, which is passed through to our customers without markup and includes commodity price, transportation, storage, injection and withdrawal fees and settlements of financial instruments used to mitigate commodity price risk. These costs are reflected in the ~~statement~~condensed consolidated statements of comprehensive income as purchased gas cost. Therefore, increases in the cost of gas are offset by a corresponding increase in revenues. Accordingly, we believe Contribution Margin, a non-GAAP financial measure, defined as operating revenues less purchased gas cost, is a more useful and relevant measure to analyze our financial performance than operating revenues. As such, the following discussion and analysis of our financial performance will reference Contribution Margin rather than operating revenues and purchased gas cost individually. Further, the term Contribution Margin is not intended to represent operating income, the most comparable GAAP financial measure, as an indicator of operating performance and is not necessarily comparable to similarly titled measures reported by other companies.

As described further in Note 13, the enactment of the Tax Cuts and Jobs Act of 2017 (the "TCJA") required us to remeasure our deferred tax assets and liabilities at our new federal statutory income tax rate as of December 22, 2017. The remeasurement of our net deferred tax liabilities resulted in the recognition of a non-cash income tax benefit of ~~$161.9~~$165.5 million for the ~~three~~nine months ended ~~December 31, 2017.~~June 30, 2018. Due to the non-recurring nature of this benefit, we believe that net income and diluted net income per share before the non-cash income tax benefit provide a more relevant measure to analyze our financial performance than net income and diluted net income per share in order to allow investors to better analyze our core results and allow the information to be presented on a comparative basis to the prior year. Accordingly, the following discussion and analysis of our financial performance will reference adjusted net income and adjusted diluted earnings per share, non-GAAP financial measures, which isare calculated as follows:


	Three Months Ended December 31								Nine Months Ended June 30
	2018		2017			Change			2019		2018			Change
	(In thousands, except per share data)								(In thousands, except per share data)
Net income	$	157,646	$	314,132		$	(156,486	)	$	453,000	$	564,317		$	(111,317	)
TCJA non-cash income tax benefit	—		(161,884		)	161,884			—		(165,522		)	165,522
Adjusted net income	$	157,646	$	152,248		$	5,398		$	453,000	$	398,795		$	54,205

Diluted net income per share	$	1.38	$	2.89		$	(1.51	)	$	3.88	$	5.09		$	(1.21	)
Diluted EPS from TCJA non-cash income tax benefit	—		(1.49		)	1.49			—		(1.49		)	1.49
Adjusted diluted net income per share	$	1.38	$	1.40		$	(0.02	)	$	3.88	$	3.60		$	0.28

RESULTS OF OPERATIONS

Executive Summary

Atmos Energy strives to operate our businesses safely and reliably while delivering superior shareholder value. Our commitment to modernizing our natural gas distribution and transmission systems requires a significant level of capital spending. We have the ability to begin recovering a significant portion of these investments timely through rate designs and mechanisms that reduce or eliminate regulatory lag and separate the recovery of our approved rate from customer usage patterns. The execution of our capital spending program, the ability to recover these investments timely and our ability to access the capital markets to satisfy our financing needs are the primary drivers that affect our financial performance.

During the ~~three~~nine months ended ~~December 31, 2018,~~June 30, 2019, we recorded net income of ~~$157.6~~$453.0 million, or ~~$1.38~~$3.88 per diluted share, compared to net income of ~~$314.1~~$564.3 million, or ~~$2.89~~$5.09 per diluted share for the ~~three~~nine months ended ~~December 31, 2017.~~June 30, 2018.

After adjusting for the nonrecurring benefit recognized after implementing the TCJA in fiscal 2018, we recorded adjusted net income of ~~$152.2~~$398.8 million, or ~~$1.40~~$3.60 per diluted share for the ~~three~~nine months ended ~~December 31, 2017.~~June 30, 2018. The period-over-period increase in adjusted net income of ~~$5.4~~$54.2 million, or ~~four~~14 percent, largely reflects ~~weather that was 20 percent colder than the prior year,~~ positive rate outcomes, customer growth in our distribution business, positive Contribution Margins in our pipeline and storage business due to positive supply and demand dynamics affecting the Permian Basin primarily due to wider spreads and the impact of the TCJA on our effective income tax rate, partially offset by reduced revenues as a result of implementing the TCJA. Additionally, the period-over-period decrease in adjusted diluted earning per share reflects increases in our common stock outstanding due to common stock issuances in 2017 and 2018.rate. During the ~~three~~nine months ended ~~December 31, 2018,~~June 30, 2019, we implemented ratemaking regulatory actions which resulted in an increase in annual operating income of ~~$22.4~~$102.9 million and had ~~ten~~seven ratemaking efforts in progress at ~~December 31, 2018,~~June 30, 2019, seeking a total increase in annual operating income of ~~$20.9~~$79.9 million.

Capital expenditures for the ~~three~~nine months ended ~~December 31, 2018~~June 30, 2019 increased ~~nine~~10 percent period-over-period, to ~~$416.4 million.~~$1.2 billion. Over 80 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. We expect our capital expenditures to range from $1.65 billion to $1.75 billion for fiscal 2019. We funded our capital expenditures program primarily through operating cash flows of ~~$164.7~~$808.9 million. Additionally, we completed ~~$1.35~~over $2 billion in external financing during the ~~three~~nine months ended ~~December 31, 2018~~June 30, 2019 with the issuance of ~~$600 million~~$1.1 billion in 30-year senior notes and approximately ~~$750 million~~$1.0 billion of common ~~stock. Approximately $245~~stock, of which approximately $417 million ~~of the net proceeds from the equity offering were~~was allocated to ~~the~~ forward sale agreements ~~that expire in March 2020.~~which have not yet been settled. The net proceeds from these issuances, together with available cash, were used to repay at maturity our $450 million 8.50% unsecured senior notes, to repay short-term debt under our commercial paper program, to fund capital spending and for general corporate purposes.

As a result of our sustained financial performance, improved cash flows and capital structure, our Board of Directors increased the quarterly dividend by 8.2 percent for fiscal 2019.

The following discusses the results of operations for each of our operating segments.

Distribution Segment

The distribution segment is primarily comprised of our regulated natural gas distribution and related sales operations in eight states. The primary factors that impact the results of this segment are our ability to earn our authorized rates of return, competitive factors in the energy industry and economic conditions in our service areas.

Our ability to earn our authorized rates of return is based primarily on our ability to improve the rate design in our various ratemaking jurisdictions to minimize regulatory lag and, ultimately, separate the recovery of our approved rates from customer usage patterns. Improving rate design is a long-term process and is further complicated by the fact that we operate in multiple rate jurisdictions.

Seasonal weather patterns can also affect our distribution operations. However, the effect of weather that is above or below normal is substantially offset through weather normalization adjustments, known as WNA, which ~~has~~have been approved by state regulatory commissions for approximately 97 percent of our residential and commercial meters in the following states for the following time periods:




Kansas, West Texas	October — May
Tennessee	October — April
Kentucky, Mississippi, Mid-Tex	November — April
Louisiana	December — March
Virginia	January — December

Our distribution operations are also affected by the cost of natural gas. We are generally able to pass the cost of gas through to our customers without markup under purchased gas cost adjustment mechanisms; therefore, increases in the cost of

gas are offset by a corresponding increase in revenues. Contribution Margin in our Texas and Mississippi service areas includes franchise fees and gross receipts taxes, which are calculated as a percentage of revenue (inclusive of gas costs). Therefore, the amount of these taxes included in revenues is influenced by the cost of gas and the level of gas sales volumes. We record the associated tax expense as a component of taxes, other than income. Although changes in revenue-related taxes arising from changes in gas costs affect Contribution Margin, over time the impact is offset within operating income.

Although the cost of gas typically does not have a direct impact on our Contribution Margin, higher gas costs may adversely impact our accounts receivable collections, resulting in higher bad debt expense, and may require us to increase borrowings under our credit facilities, resulting in higher interest expense. In addition, higher gas costs, as well as competitive factors in the industry and general economic conditions may cause customers to conserve or, in the case of industrial consumers, to use alternative energy sources. Currently, gas cost risk has been mitigated by rate design that allows us to collect from our customers the gas cost portion of our bad debt expense on approximately 76 percent of our residential and commercial margins.

Three Months Ended ~~December 31, 2018~~June 30, 2019 compared with Three Months Ended ~~December 31, 2017~~June 30, 2018

Financial and operational highlights for our distribution segment for the three months ended ~~December 31,~~June 30, 2019 and 2018 ~~and 2017~~ are presented below.


	Three Months Ended December 31									Three Months Ended June 30
	2018			2017			Change			2019		2018			Change
	(In thousands, unless otherwise noted)									(In thousands, unless otherwise noted)
Operating revenues	$	838,835		$	860,792		$	(21,957	)	$	444,944	$	535,488		$	(90,544	)
Purchased gas cost	437,732			463,758			(26,026		)	139,518		230,887			(91,369		)
Contribution Margin	401,103			397,034			4,069			305,426		304,601			825
Operating expenses	231,666			223,756			7,910			256,743		241,492			15,251
Operating income	169,437			173,278			(3,841		)	48,683		63,109			(14,426		)
Other non-operating expense	(6,477		)	(1,922		)	(4,555		)
Other non-operating income (expense)										3,005		(2,518		)	5,523
Interest charges	18,210			21,368			(3,158		)	10,597		13,315			(2,718		)
Income before income taxes	144,750			149,988			(5,238		)	41,091		47,276			(6,185		)
TCJA non-cash income tax benefit	—			(140,151		)	140,151
Income tax expense	30,365			41,040			(10,675		)	8,693		11,932			(3,239		)
Net income	$	114,385		$	249,099		$	(134,714	)	$	32,398	$	35,344		$	(2,946	)
Consolidated distribution sales volumes — MMcf	101,698			86,307			15,391			41,683		49,369			(7,686		)
Consolidated distribution transportation volumes — MMcf	41,048			38,050			2,998			34,509		33,079			1,430
Total consolidated distribution throughput — MMcf	142,746			124,357			18,389			76,192		82,448			(6,256		)
Consolidated distribution average cost of gas per Mcf sold	$	4.30		$	5.37		$	(1.07	)	$	3.35	$	4.68		$	(1.33	)

Income before income taxes for our distribution segment decreased ~~four~~13 percent, primarily due to a ~~$7.9~~$15.3 million increase in operating expenses, ~~partially~~slightly offset by ~~a $4.1~~an $0.8 million increase in Contribution ~~Margin.~~Margin and a $5.5 million increase in other non-operating income. The quarter-over-quarter increase in Contribution Margin primarily reflects:

Operating expenses, which includes operation and maintenance expense, provision for doubtful accounts, depreciation and amortization expense and taxes, other than income, isincreased $15.3 million, primarily ~~attributable to an~~due to:

These increases are partially offset by a decrease in ~~income tax expense reflects a reduction in our effective tax rate from 27.4% to 21.0%, as a result~~revenue-related taxes of ~~the TCJA. As the Company's fiscal year end is September 30, the Internal Revenue Code required the Company to use a blended statutory federal corporate income tax rate for fiscal 2018 due~~$7.1 million, corresponding to the ~~enactment~~decrease in revenue-related taxes within Contribution Margin as described above.

Additionally, the quarter-over-quarter increase in other non-operating income primarily reflects the adoption of ~~the TCJA~~new accounting standards. As discussed further in Note 2, we are now required to recognize changes in the ~~first fiscal quarter.~~fair value of our equity securities formerly designated as available-for-sale on our condensed consolidated statement of comprehensive income and the components of net periodic cost other than the service cost component are included in the line item other non-operating expense in the condensed consolidated statement of comprehensive income.

The following table shows our operating income by distribution division, in order of total rate base, for the three months ended ~~December 31, 2018~~June 30, 2019 and ~~2017.~~2018. The presentation of our distribution operating income is included for financial reporting purposes and may not be appropriate for ratemaking purposes.



	Three Months Ended June 30
	2019			2018		Change
	(In thousands)
Mid-Tex	$	23,757		$	24,612	$	(855	)
Kentucky/Mid-States	10,486			11,546		(1,060		)
Louisiana	8,517			10,821		(2,304		)
West Texas	5,053			5,135		(82		)
Mississippi	1,694			5,421		(3,727		)
Colorado-Kansas	2,399			2,043		356
Other	(3,223		)	3,531		(6,754		)
Total	$	48,683		$	63,109	$	(14,426	)

Nine Months Ended June 30, 2019 compared with Nine Months Ended June 30, 2018

Financial and operational highlights for our distribution segment for the nine months ended June 30, 2019 and 2018 are presented below.



	Nine Months Ended June 30
	2019		2018			Change
	(In thousands, unless otherwise noted)
Operating revenues	$	2,341,668	$	2,595,571		$	(253,903	)
Purchased gas cost	1,147,598		1,421,698			(274,100		)
Contribution Margin	1,194,070		1,173,873			20,197
Operating expenses	746,987		725,666			21,321
Operating income	447,083		448,207			(1,124		)
Other non-operating income (expense)	1,791		(5,961		)	7,752
Interest charges	44,703		51,581			(6,878		)
Income before income taxes	404,171		390,665			13,506
TCJA non-cash income tax benefit	—		(143,789		)	143,789
Income tax expense	85,195		104,768			(19,573		)
Net income	$	318,976	$	429,686		$	(110,710	)
Consolidated distribution sales volumes — MMcf	282,623		269,722			12,901
Consolidated distribution transportation volumes — MMcf	121,747		117,061			4,686
Total consolidated distribution throughput — MMcf	404,370		386,783			17,587
Consolidated distribution average cost of gas per Mcf sold	$	4.06	$	5.27		$	(1.21	)

Income before income taxes for our distribution segment increased three percent, primarily due to a $20.2 million increase in Contribution Margin, a combined $14.6 million decrease in other non-operating expense and interest charges, partially offset by a $21.3 million increase in operating expenses. The year-over-year increase in Contribution Margin primarily reflects:

Three Months Ended December 31
2018 2017 Change
(In thousands)
Mid-Tex $ 72,406
$ 72,925
$ (519 )
Kentucky/Mid-States 24,452
28,129
(3,677 )
Louisiana 22,153
23,268
(1,115 )
West Texas 15,823
15,761
62
Mississippi 19,588
18,275
1,313
Colorado-Kansas 13,789
12,931
858
Other 1,226
1,989
(763 )
Total $ 169,437
$ 173,278
$ (3,841 )

an $8.7 million decrease in revenue-related taxes primarily in our Mid-Tex Division, partially offset by a corresponding $7.8 million decrease in the related tax expense.

a $4.7 million decrease in residential and commercial net consumption.

Operating expenses increased $21.3 million primarily due to:

a $22.8 million increase in depreciation expense and property taxes associated with increased capital investments.

an $11.7 million increase in pipeline maintenance and related activities.

a $6.6 million increase in employee and training costs as we have increased service-related headcount to support operations in our fastest growing service territories.

a $3.0 million increase in software licensing fees.

These increases are partially offset by a $24 million decrease in nonrecurring expenses related to the planned outage of our natural gas distribution system in Northwest Dallas in March 2018.

The year-over-year increase in other non-operating income primarily reflects the adoption of new accounting standards. As discussed further in Note 2, we are now required to recognize changes in the fair value of our equity securities formerly designated as available-for-sale on our condensed consolidated statement of comprehensive income and the components of net periodic cost other than the service cost component are included in the line item other non-operating expense in the condensed consolidated statement of comprehensive income.

Additionally, the year-over-year decrease in interest charges reflects higher capitalized interest associated with increased capital spending.

The decrease in income tax expense reflects a reduction in our effective tax rate from 26.8% to 21.1%, as a result of the TCJA, as described above.

The following table shows our operating income by distribution division, in order of total rate base, for the nine months ended June 30, 2019 and 2018. The presentation of our distribution operating income is included for financial reporting purposes and may not be appropriate for ratemaking purposes.



	Nine Months Ended June 30
	2019			2018		Change
	(In thousands)
Mid-Tex	$	189,294		$	175,727	$	13,567
Kentucky/Mid-States	69,960			76,204		(6,244		)
Louisiana	63,571			64,849		(1,278		)
West Texas	41,797			42,326		(529		)
Mississippi	48,392			48,792		(400		)
Colorado-Kansas	35,892			32,448		3,444
Other	(1,823		)	7,861		(9,684		)
Total	$	447,083		$	448,207	$	(1,124	)

Recent Ratemaking Developments

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~~nine months of fiscal 2019, we implemented ~~five~~twenty regulatory proceedings, resulting in a $~~22.4~~53.7 million increase in annual operating income as summarized below. The ratemaking outcomes for rate case activity in fiscal 2019 include the effect of tax reform legislation enacted effective January 1, 2018 and do not reflect the true economic benefit of the outcomes because they do not include the corresponding income tax benefit we will receive due to the decrease in our statutory tax rate.


Rate Action	Annual Increase (Decrease) in Operating Income		Annual Increase in Operating Income
	(In thousands)		(In thousands)
Annual formula rate mechanisms	$	22,378	$	51,870
Rate case filings	—		1,656
Other rate activity	—		214
	$	22,378	$	53,740

The following ratemaking efforts ~~which reflect a 21% federal income tax rate resulting from the TCJA,~~ seeking ~~$20.9~~$79.9 million in increased annual operating income were in progress as of ~~December 31, 2018:~~June 30, 2019:

Mississippi ⁽²⁾

Annual Formula Rate Mechanisms

As an instrument to reduce regulatory lag, formula rate mechanisms allow us to refresh our rates on an annual basis without filing a formal rate case. However, these filings still involve discovery by the appropriate regulatory authorities prior to the final determination of rates under these mechanisms. We currently have formula rate mechanisms in our Louisiana, Mississippi and Tennessee operations and in substantially all the service areas in our Texas divisions. Additionally, we have specific infrastructure programs in substantially all of our distribution divisions with tariffs in place to permit the investment associated with these programs to have their surcharge rate adjusted annually to recover approved capital costs incurred in a prior test-year period. The following table summarizes our annual formula rate mechanisms by state:



	Annual Formula Rate Mechanisms
State	Infrastructure Programs	Formula Rate Mechanisms

Colorado	System Safety and Integrity Rider (SSIR)	—
Kansas	Gas System Reliability Surcharge (GSRS)	—
Kentucky	Pipeline Replacement Program (PRP) ~~(2)~~	—
Louisiana	(1)	Rate Stabilization Clause (RSC)
Mississippi	System Integrity Rider (SIR)	Stable Rate Filing (SRF)
Tennessee	—	Annual Rate Mechanism (ARM)
Texas	Gas Reliability Infrastructure Program (GRIP), (1)	Dallas Annual Rate Review (DARR), Rate Review Mechanism (RRM)
Virginia	Steps to Advance Virginia Energy (SAVE)	—

The following annual formula rate mechanisms, which reflect a 21% federal income tax rate resulting from the TCJA, were approved during the ~~three~~nine months ended ~~December 31, 2018:~~June 30, 2019:

Increase (Decrease) in

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~~The following table summarizes the rate ~~case activity~~cases, which reflect a 21% federal income tax rate resulting from the TCJA, that were completed during the ~~three~~nine months ended ~~December 31, 2018.~~June 30, 2019.



Division	State	Increase (Decrease) in Annual Operating Income			Effective Date
		(In thousands)
2019 Rate Case Filings:
Mid-Tex (ATM Cities)	Texas	$	2,113		06/01/2019
Kentucky/Mid-States	Kentucky	3,441			05/08/2019
Kentucky/Mid-States	Virginia	(400		)	04/01/2019
Mid-Tex (Environs)	Texas	(2,674		)	01/01/2019
West Texas (Environs)	Texas	(824		)	01/01/2019
Total 2019 Rate Case Filings		$	1,656

Other Ratemaking Activity

The ~~Company had no~~following table summarizes other ratemaking activity during the ~~three~~nine months ended ~~December 31, 2018.~~June 30, 2019.



Division	Jurisdiction	Rate Activity	Increase in Annual Operating Income		Effective Date
			(In thousands)
2019 Other Rate Activity:
Colorado-Kansas	Kansas	Ad Valorem ⁽¹⁾	$	214	02/01/2019
Total 2019 Other Rate Activity			$	214

Pipeline and Storage Segment

Our pipeline and storage segment consists of the pipeline and storage operations of our Atmos Pipeline–Texas Division (APT) and our natural gas transmission operations in Louisiana. APT is one of the largest intrastate pipeline operations in Texas with a heavy concentration in the established natural gas producing areas of central, northern and eastern Texas, extending into or near the major producing areas of the Barnett Shale, the Texas Gulf Coast and the Delaware and Midland Basins of West Texas. APT 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 owns and operates five underground storage facilities in Texas.

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. The demand fee charged to our Louisiana distribution division for these services is subject to regulatory approval by the Louisiana Public Service Commission. We also manage two asset management plans, which have been approved by applicable state regulatory commissions. Generally, these asset management plans require us to share with our distribution customers a significant portion of the cost savings earned from these arrangements.

Our pipeline and storage segment is impacted by seasonal weather patterns, competitive factors in the energy industry and economic conditions in our Texas and Louisiana service areas. Natural gas prices do not directly impact the results of this segment as revenues are derived from the transportation and storage of natural gas. However, natural gas prices and demand for natural gas could influence the level of drilling activity in the supply areas that we serve, which may influence the level of throughput we may be able to transport on our pipelines. Further, natural gas price differences between the various hubs that we serve in Texas could influence the volumes of gas transported for shippers through our Texas pipeline system and rates for such transportation.

The results of APT are also significantly impacted by the natural gas requirements of its local distribution company customers. Additionally, its operations may be impacted by the timing of when costs and expenses are incurred and when these costs and expenses are recovered through its tariffs.

APT annually uses GRIP to recover capital costs incurred in the prior calendar year. On February 15, 2019, APT made a GRIP filing that covered changes in net investment from January 1, 2018 through December 31, 2018 with a requested increase in operating income of $49.2 million. On May 7, 2019, the Texas Railroad Commission approved the Company's GRIP filing.

Three Months Ended ~~December 31, 2018~~June 30, 2019 compared with Three Months Ended ~~December 31, 2017~~June 30, 2018

Financial and operational highlights for our pipeline and storage segment for the three months ended ~~December 31,~~June 30, 2019 and 2018 ~~and 2017~~ are presented below.

TCJA non-cash income tax benefit

Income before income taxes for our pipeline and storage segment ~~decreased three~~increased 25 percent, primarily due to ~~an $11.1~~a $22.2 million increase in Contribution Margin, partially offset by a $9.9 million increase in operating ~~expenses, partially offset by a $9.3 million increase in Contribution Margin.~~expenses. The quarter-over-quarter increase in Contribution Margin primarily reflects:

Operating expenses increased ~~$11.1~~$9.9 million, primarily due to higher depreciation expense associated with increased capital investments and higher system maintenance ~~expense.~~expense of $6.7 million primarily due to spending on hydro testing and in-line inspections.

Nine Months Ended June 30, 2019 compared with Nine Months Ended June 30, 2018

Financial and operational highlights for our pipeline and storage segment for the nine months ended June 30, 2019 and 2018 are presented below.



	Nine Months Ended June 30
	2019			2018			Change
	(In thousands, unless otherwise noted)
Mid-Tex / Affiliate transportation revenue	$	276,815		$	267,121		$	9,694
Third-party transportation revenue	131,623			97,860			33,763
Other revenue	10,880			10,070			810
Total operating revenues	419,318			375,051			44,267
Total purchased gas cost	(544		)	1,906			(2,450		)
Contribution Margin	419,862			373,145			46,717
Operating expenses	210,602			184,047			26,555
Operating income	209,260			189,098			20,162
Other non-operating expense	(3,637		)	(2,093		)	(1,544		)
Interest charges	29,687			30,581			(894		)
Income before income taxes	175,936			156,424			19,512
TCJA non-cash income tax benefit	—			(21,733		)	21,733
Income tax expense	41,912			43,526			(1,614		)
Net income	$	134,024		$	134,631		$	(607	)
Gross pipeline transportation volumes — MMcf	708,315			666,079			42,236
Consolidated pipeline transportation volumes — MMcf	517,188			484,456			32,732

Income before income taxes for our pipeline and storage segment increased 12 percent, primarily due to a $46.7 million increase in Contribution Margin, partially offset by a $26.6 million increase in operating expenses. The year-over-year increase in Contribution Margin primarily reflects:

Operating expenses increased $26.6 million, primarily due to higher depreciation expense of $9.5 million associated with increased capital investments and higher system maintenance expense of $13.8 million primarily due to spending on hydro testing and in-line inspections.

Liquidity and Capital Resources

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. External debt financing is provided primarily through the issuance of long-term debt, a $1.5 billion commercial paper program and three committed revolving credit facilities with a total availability from third-party lenders of approximately $1.5 billion. 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 with an equity-to-total-capitalization ratio between 50% and 60%, inclusive of long-term and short-term debt. Additionally, we have various uncommitted trade credit lines with our gas suppliers that we utilize to purchase natural gas on a monthly basis. The liquidity provided by these sources is expected to be sufficient to fund the Company's working capital needs and capital expenditure program for the remainder of fiscal year 2019 and beyond.

To continue to support our capital market activities, we filed a registration statement with the SEC on November 13, 2018 that permits us to issue a total of $3.0 billion in common stock and/or debt securities. This registration statement replaced our previous registration statement that was effectively exhausted ~~after the completion~~in October 2018. At June 30, 2019, approximately $1.3 billion of ~~our public offering of $600 million of 4.30% senior notes on October 4, 2018. On November 19, 2018, we entered into an at-the-market (ATM) equity distribution program~~securities remained available for issuance under the ~~new~~ shelf registration statement, under which we may issue and sell shares of our common stock (including shares of common stock that may be sold pursuant to the forward sale agreement) up to an aggregate offering price of $500 million. During the three months ended December 31, 2018, no shares of common stock were sold under the ATM program.statement.

On November ~~30,~~19, 2018, we filed a prospectus supplement under the registration statement relating to an ~~underwriting agreement~~at-the-market (ATM) equity sales program under which we may issue and sell shares of our common stock up to ~~sell~~an aggregate offering price

of $500 million (including shares of common stock that may be sold pursuant to forward sale agreements entered into concurrently with the ATM equity sales program). At June 30, 2019, approximately $231 million remained available under the ATM equity sales program.

During the nine months ended June 30, 2019, we completed over $2 billion of long-term debt and equity financing.

The following table summarizes the ~~offering price established on November 28, 2018. At December 31, 2018, approximately $1.8 billion~~remaining availability under our various forward sales as of ~~securities remained available for issuance under the shelf registration statement.~~June 30, 2019:



Issue Quarter	Issued Under	Shares Available	Net Proceeds Available (In thousands)		Maturity	Forward Price
December 31, 2018	Block	1,578,764	$	144,608	3/31/2020	$	91.60
March 31, 2019	ATM	1,670,509	158,684		3/31/2020	$	94.99
June 30, 2019	ATM	1,050,563	106,219		9/30/2020	$	101.11
Total		4,299,836	$	409,511

The following table presents our capitalization inclusive of short-term debt and the current portion of long-term debt as of ~~December 31, 2018,~~June 30, 2019, September 30, 2018 and ~~December 31, 2017:~~June 30, 2018:

Long-term debt⁽¹⁾

Our internally generated funds may change in the future due to a number of factors, some of which we cannot control. These factors include regulatory changes, the price for our services, demand for such products and services, margin requirements resulting from significant changes in commodity prices, operational risks and other factors.

Cash flows from operating, investing and financing activities for the ~~three~~nine months ended ~~December 31,~~June 30, 2019 and 2018 ~~and 2017~~ are presented below.

Cash flows from operating activities

~~Period-over-period changes~~For the nine months ended June 30, 2019, we generated cash flow from operating activities of $808.9 million compared with $1,035.3 million for the nine months ended June 30, 2018. The $226.4 million decrease in ~~our~~ operating cash flows ~~are~~is primarily attributable to ~~changes~~the change in net income and working capital changes, particularly ~~within~~in our distribution segment resulting from ~~changes in the price of natural gas and~~ the timing of ~~customer collections, payments for natural gas purchases and deferred gas cost recoveries.~~

Cash flows from investing activities

Our capital expenditures are primarily used to improve the safety and reliability of our distribution and transmission system through pipeline replacement and system modernization and to enhance and expand our system to meet customer needs. Over the last three fiscal years, approximately 82 percent of our capital spending has been committed to improving the safety and reliability of our system.

We allocate our capital spending among our service areas using risk management models and subject matter experts to identify, assess and develop a plan of action to address our highest risk facilities. We have regulatory mechanisms in most of our service areas that provide the opportunity to include approved capital costs in rate base on a periodic basis without being required to file a rate case. These mechanisms permit us a reasonable opportunity to earn ~~an adequate~~a fair return ~~timely~~ on our investment without compromising safety or reliability.

For the ~~three~~nine months ended ~~December 31, 2018,~~June 30, 2019, cash used for investing activities was ~~$415.3 million~~$1.2 billion compared to ~~$381.4 million~~$1.1 billion for the ~~three~~nine months ended ~~December 31, 2017.~~June 30, 2018. Capital spending increased by ~~$33.2~~$110.7 million, or ~~nine~~10 percent, as a result of planned increases in our distribution segment to repair and replace vintage pipe and increases in spending in our pipeline and storage segment to improve the reliability of gas service to our local distribution company customers.

Cash flows from financing activities

For the ~~three~~nine months ended ~~December 31, 2018,~~June 30, 2019, our financing activities provided ~~$455.0~~$418.9 million of cash compared with ~~$236.5~~$46.4 million of cash provided by financing activities in the prior-year period. ~~Our significant financing activities for the three months ended December 21, 2018 and 2017 are summarized as follows:~~

In the ~~three~~nine months ended ~~December 31, 2018,~~June 30, 2019, we ~~used $590.6 million~~received $1.6 billion in net proceeds ~~after expenses,~~ from the issuance of long-term debt ~~financing~~ and ~~$494.7 million in~~equity. The net proceeds ~~after the underwriting discount, from equity financing to reduce short-term debt,~~were used primarily to support ~~our~~ capital spending, reduce short term debt, repay at maturity our $450 million 8.50% unsecured senior notes and the settlement of related interest rate swaps for $90.1 million and for other general corporate purposes. Cash dividends increased due to an 8.2 percent increase in our dividend rate and an increase in shares outstanding.

In the ~~three~~nine months ended ~~December 31, 2017,~~June 30, 2018, we used $395.1 million in net proceeds from equity financing to reduce short-term debt, to support our capital spending and for other general corporate purposes.

The following table summarizes our share issuances for the ~~three~~nine months ended ~~December 31, 2018~~June 30, 2019 and ~~2017:~~2018:

Our credit ratings directly affect our ability to obtain short-term and long-term financing, in addition to the cost of such financing. In determining our credit ratings, the rating agencies consider a number of quantitative factors, including but not limited to, debt to total capitalization, operating cash flow relative to outstanding debt, operating cash flow coverage of interest and pension ~~liabilities and funding status.~~liabilities. In addition, the rating agencies consider qualitative factors such as consistency of our earnings over time, the quality of our management and business strategy, the risks associated with our businesses and the regulatory structures that govern our rates in the states where we operate.

Our debt is rated by two rating agencies: Standard & Poor’s Corporation (S&P) and Moody’s Investors Service (Moody’s). On December 14, 2018, Moody's affirmed our debt ratings and improved their outlook from stable to positive, citing improvements to our regulatory construct that ~~reduces~~reduce investment recovery lag and our balanced fiscal policy. As of ~~December 31, 2018,~~June 30, 2019, S&P maintained a stable outlook. Our current debt ratings are all considered investment grade and are as follows:



	S&P	Moody’s
Senior unsecured long-term debt	A	A2
Short-term debt	A-1	P-1

A significant degradation in our operating performance or a significant reduction in our liquidity caused by more limited access to the private and public credit markets as a result of deteriorating global or national financial and credit conditions could trigger a negative change in our ratings outlook or even a reduction in our credit ratings by the two credit rating agencies. This would mean more limited access to the private and public credit markets and an increase in the costs of such borrowings.

A credit rating is not a recommendation to buy, sell or hold securities. The highest investment grade credit rating is AAA for S&P and Aaa for Moody’s. The lowest investment grade credit rating is BBB- for S&P and Baa3 for Moody’s. Our credit ratings may be revised or withdrawn at any time by the rating agencies, and each rating should be evaluated independently of any other rating. There can be no assurance that a rating will remain in effect for any given period of time or that a rating will not be lowered, or withdrawn entirely, by a rating agency if, in its judgment, circumstances so warrant.

We were in compliance with all of our debt covenants as of ~~December 31, 2018.~~June 30, 2019. Our debt covenants are described in greater detail in Note 6 to the unaudited condensed consolidated financial statements.

Contractual Obligations and Commercial Commitments

Except as noted in Note 9 to the unaudited condensed consolidated financial statements, there were no significant changes in our contractual obligations and commercial commitments during the ~~three~~nine months ended ~~December 31, 2018.~~June 30, 2019.

Risk Management Activities

In our distribution and pipeline and storage segments, we use a combination of physical storage, fixed physical contracts and fixed financial contracts to reduce our exposure to unusually large winter-period gas price increases. ~~Additionally,~~In the past we ~~manage~~managed interest rate risk by entering into financial instruments to effectively fix the Treasury yield component of the interest cost associated with anticipated financings.

The following table shows the components of the change in fair value of our financial instruments for the three and nine months ended ~~December 31, 2018~~June 30, 2019 and ~~2017:~~

The fair value of our financial instruments at ~~December 31, 2018~~June 30, 2019 is presented below by time period and fair value source:

Pension and Postretirement Benefits Obligations

For the ~~three~~nine months ended ~~December 31,~~June 30, 2019 and 2018, ~~and 2017,~~ our total net periodic pension and other postretirement benefits costs were ~~$6.3~~$18.8 million and ~~$9.2~~$31.2 million. ~~These~~Most of these costs are recoverable through our rates. A portion of these costs is 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 as discussed in Note 8.

Our fiscal 2019 costs were determined using a September 30, 2018 measurement date. As of September 30, 2018, interest and corporate bond rates were higher than the rates as of September 30, 2017. Therefore, we increased the discount rate used to measure our fiscal 2019 net periodic cost from 3.89 percent to 4.38 percent. The expected return on plan assets remained consistent with prior year at 6.75 percent in the determination of our fiscal 2019 net periodic pension cost based upon expected market returns for our targeted asset allocation. As a result of the net impact of changes in these and other assumptions, we expect our fiscal 2019 net periodic pension cost to be lower than fiscal 2018.

The amount of funding required for our defined benefit plan is determined in accordance with the Pension Protection Act of 2006 (PPA) and is influenced by the funded position of the plan when the funding requirements are determined on January 1 of each year. Based upon the determination as of January 1, ~~2018,~~2019, we were not required to make a minimum contribution to our defined benefit plan during ~~the first quarter of~~ fiscal 2019. However, we may consider whether a voluntary contribution is prudent to maintain certain funding levels.

For the ~~three~~nine months ended ~~December 31, 2018~~June 30, 2019 we contributed ~~$4.3~~$10.1 million to our postretirement medical plans. We anticipate contributing a total of between $10 million and $20 million to our postretirement plans during fiscal 2019.

The projected pension liability, future funding requirements and the amount of pension expense or income recognized for the plans are subject to change, depending upon the actuarial value of plan assets in the plans and the determination of future benefit obligations as of each subsequent actuarial calculation date. These amounts will be determined by actual investment returns, changes in interest rates, values of assets in the plans and changes in the demographic composition of the participants in the plans.

OPERATING STATISTICS AND OTHER INFORMATION

The following tables present certain operating statistics for our distribution and pipeline and storage segments for the ~~three-month~~three and nine month periods ended ~~December 31, 2018~~June 30, 2019 and ~~2017.~~2018.

Distribution Sales and Statistical Data


	Three Months Ended December 31				Three Months Ended June 30				Nine Months Ended June 30
	2018		2017		2019		2018		2019		2018
METERS IN SERVICE, end of period
Residential	2,988,920		2,956,247		3,001,552		2,969,270		3,001,552		2,969,270
Commercial	273,032		270,184		272,942		270,455		272,942		270,455
Industrial	1,682		1,675		1,668		1,667		1,668		1,667
Public authority and other	8,386		8,418		8,560		8,388		8,560		8,388
Total meters	3,272,020		3,236,524		3,284,722		3,249,780		3,284,722		3,249,780

INVENTORY STORAGE BALANCE — Bcf	56.7		55.6		49.1		47.5		49.1		47.5
SALES VOLUMES — MMcf⁽¹⁾
Gas sales volumes
Residential	59,864		48,948		17,469		21,399		162,090		150,872
Commercial	31,583		26,949		15,838		17,368		90,395		85,273
Industrial	8,174		8,458		7,389		9,325		24,290		27,491
Public authority and other	2,077		1,952		987		1,277		5,848		6,086
Total gas sales volumes	101,698		86,307		41,683		49,369		282,623		269,722
Transportation volumes	42,851		39,859		36,367		34,989		127,453		122,691
Total throughput	144,549		126,166		78,050		84,358		410,076		392,413
OPERATING REVENUES (000’s)⁽¹⁾⁽²⁾
Gas sales revenues
Residential	$	540,439	$	556,520	$	270,237	$	318,501	$	1,492,043	$	1,680,155
Commercial	217,060		223,580		113,848		145,685		605,939		687,577
Industrial	34,472		33,413		25,226		31,283		95,677		104,300
Public authority and other	13,107		13,561		6,352		8,581		36,482		41,150
Total gas sales revenues	805,078		827,074		415,663		504,050		2,230,141		2,513,182
Transportation revenues	25,350		25,362		22,686		23,965		75,568		79,266
Other gas revenues(3)	8,407		8,356		6,595		7,473		35,959		3,123
Total operating revenues	$	838,835	$	860,792	$	444,944	$	535,488	$	2,341,668	$	2,595,571
Average cost of gas per Mcf sold	$	4.30	$	5.37	$	3.35	$	4.68	$	4.06	$	5.27

PIPELINE TRANSPORTATION VOLUMES — MMcf⁽¹⁾

OPERATING REVENUES (000’s)⁽¹⁾⁽²⁾

Note to preceding tables:

RECENT ACCOUNTING DEVELOPMENTS

Recent accounting developments and their impact on our financial position, results of operations and cash flows are described in Note 2 to the unaudited condensed consolidated financial statements.



Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Information regarding our quantitative and qualitative disclosures about market risk are disclosed in Item 7A in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. During the ~~three~~nine months ended ~~December 31, 2018,~~June 30, 2019, there were no material changes in our quantitative and qualitative disclosures about market risk.



Item 4.	Controls and Procedures

Management’s Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act). Based on this evaluation, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures were effective as of ~~December 31, 2018~~June 30, 2019 to provide reasonable assurance that information required to be disclosed by us, including our consolidated entities, in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the SEC’s rules and forms, including a reasonable level of assurance that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting



Item 1.	Legal Proceedings

During the ~~three~~nine months ended ~~December 31, 2018,~~June 30, 2019, except as noted in Note 9 to the unaudited condensed consolidated financial statements, there were no material changes in the status of the litigation and other matters that were disclosed in Note 11 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. We continue to believe that the final outcome of such litigation and other matters or claims will not have a material adverse effect on our financial condition, results of operations or cash flows.

The following exhibits are filed as part of this Quarterly Report.



Exhibit Number	Description	Page Number or Incorporation by Reference to
103.1	~~Equity Distribution Agreement, dated as~~Restated Articles of ~~November 16, 2018, among~~Incorporation of Atmos Energy Corporation ~~and the Managers and Forward Purchasers named in Schedule A thereto~~- Texas (As Amended Effective February 3, 2010)	Exhibit ~~1.1~~3.1 to Form 10-Q dated March 31, 2010 (File No. 1-10042)
3.2	Restated Articles of Incorporation of Atmos Energy Corporation - Virginia (As Amended Effective February 3, 2010)	Exhibit 3.2 to Form 10-Q dated March 31, 2010 (File No. 1-10042)
3.3	Amended and Restated Bylaws of Atmos Energy Corporation (as of February 5, 2019)	Exhibit 3.1 to Form 8-K dated ~~November 16, 2018~~February 5, 2019 (File No. 1-10042)
~~10.1~~	~~Form of Master Forward Sale Confirmation~~	~~Exhibit 1.2 to Form 8-K dated November 16, 2018 (File No. 1-10042)~~
~~10.2~~	~~Forward Sale Agreement between Atmos Energy Corporation and Goldman Sachs & Co. LLC dated as of November 28, 2018~~	~~Exhibit 10.1 to Form 8-K dated November 28, 2018 (File No. 1-10042~~)
~~10.3~~	~~Forward Sale Agreement between Atmos Energy Corporation and Bank of America, N.A. dated as of November 28, 2018~~	~~Exhibit 10.2 to Form 8-K dated November 28, 2018 (File No. 1-10042)~~
~~10.4~~	~~Additional Forward Sale Agreement between Atmos Energy Corporation and Goldman Sachs & Co. LLC dated as of November 29, 2018~~	~~Exhibit 10.3 to Form 8-K dated November 28, 2018 (File No. 1-10042)~~
~~10.5~~	~~Additional Forward Sale Agreement between Atmos Energy Corporation and Bank of America, N.A. dated as of November 29, 2018~~	~~Exhibit 10.4 to Form 8-K dated November 28, 2018 (File No. 1-10042)~~
15	Letter regarding unaudited interim financial information
31	Rule 13a-14(a)/15d-14(a) Certifications
32	Section 1350 Certifications*
101.INS	XBRL Instance Document		- the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	Inline XBRL Taxonomy Extension Schema
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB	Inline XBRL Taxonomy Extension Labels Linkbase
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase



*	These certifications, which were made pursuant to 18 U.S.C. Section 1350 by the Company’s Chief Executive Officer and Chief Financial Officer, furnished as Exhibit 32 to this Quarterly Report on Form 10-Q, will not be deemed to be filed with the Commission or incorporated by reference into any filing by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates such certifications by reference.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



			ATMOS ENERGY CORPORATION (Registrant)
			By: /s/ CHRISTOPHER T. FORSYTHE
			Christopher T. Forsythe Senior Vice President and Chief Financial Officer (Duly authorized signatory)

Date: ~~February 5,~~August 7, 2019

3645



	Three Months Ended December 31, 2018
	Distribution			Pipeline and Storage			Eliminations			Consolidated
	(In thousands)
Operating revenues from external parties	$	838,181		$	39,601		$	—		$	877,782
Intersegment revenues	654			94,869			(95,523		)	—
Total operating revenues	838,835			134,470			(95,523		)	877,782
Purchased gas cost	437,732			(358		)	(95,209		)	342,165
Operation and maintenance expense	105,767			33,147			(314		)	138,600
Depreciation and amortization expense	69,709			26,356			—			96,065
Taxes, other than income	56,190			8,298			—			64,488
Operating income	169,437			67,027			—			236,464
Other non-operating expense	(6,477		)	(1,246		)	—			(7,723		)
Interest charges	18,210			9,639			—			27,849
Income before income taxes	144,750			56,142			—			200,892
Income tax expense	30,365			12,881			—			43,246
Net income	$	114,385		$	43,261		$	—		$	157,646
Capital expenditures	$	302,545		$	113,859		$	—		$	416,404



	Three Months Ended December 31, 2017
	Distribution			Pipeline and Storage			Eliminations			Consolidated
	(In thousands)
Operating revenues from external parties	$	860,453		$	28,739		$	—		$	889,192
Intersegment revenues	339			97,724			(98,063		)	—
Total operating revenues	860,792			126,463			(98,063		)	889,192
Purchased gas cost	463,758			912			(97,753		)	366,917
Operation and maintenance expense	103,215			26,140			(310		)	129,045
Depreciation and amortization expense	65,434			22,940			—			88,374
Taxes, other than income	55,107			7,666			—			62,773
Operating income	173,278			68,805			—			242,083
Other non-operating expense	(1,922		)	(635		)	—			(2,557		)
Interest charges	21,368			10,141			—			31,509
Income before income taxes	149,988			58,029			—			208,017
Income tax benefit	(99,111		)	(7,004		)	—			(106,115		)
Net income	$	249,099		$	65,033		$	—		$	314,132
Capital expenditures	$	241,249		$	141,989		$	—		$	383,238


	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)⁽¹⁾		Significant Other Unobservable Inputs (Level 3)		Netting and Cash Collateral		December 31, 2018		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)⁽¹⁾		Significant Other Unobservable Inputs (Level 3)		Netting and Cash Collateral		June 30, 2019
	(In thousands)										(In thousands)
Assets:
Financial instruments	$	—	$	3,526	$	—	$	—	$	3,526	$	—	$	2,557	$	—	$	—	$	2,557
Debt and equity securities
Registered investment companies	37,241		—		—		—		37,241		43,798		—		—		—		43,798
Bond mutual funds	21,523		—		—		—		21,523		25,778		—		—		—		25,778
Bonds⁽²⁾	—		30,096		—		—		30,096		—		31,097		—		—		31,097
Money market funds	—		3,319		—		—		3,319		—		1,369		—		—		1,369
Total debt and equity securities	58,764		33,415		—		—		92,179		69,576		32,466		—		—		102,042
Total assets	$	58,764	$	36,941	$	—	$	—	$	95,705	$	69,576	$	35,023	$	—	$	—	$	104,599
Liabilities:
Financial instruments	$	—	$	87,195	$	—	$	—	$	87,195	$	—	$	3,871	$	—	$	—	$	3,871


(2)	Our investments in bonds are considered available-for-sale debt securities in accordance with current accounting guidance as described in Note 2.


(1)	~~The Colorado~~On June 19, 2019, the Louisiana Public ~~Utilities~~Service Commission approved ~~the SSIR implementation at their December 19, 2018 meeting~~this filing with rates ~~effective January~~to be implemented beginning July 1, 2019.


(2)	~~The Company has filed a request~~On July 1, 2019, we updated this filing to ~~recover Geographic Information System projects in a manner similar~~increase the amount requested to ~~its current SSIR program.~~


~~(3)~~	~~The Kansas Corporation Commission approved the Ad Valorem filing on January 8, 2019.~~


~~(4)~~	~~The Texas Railroad Commission approved these filings on December 11, 2018 with an operating income decrease of $2.7 million for Mid-Tex and $0.8 million for West Texas effective January 1, 2019.~~$8.6 million.


~~(5)~~	The Tennessee Formula Mechanism True-up (True-up filing) test period ended May 2018 reflects the impact of the lower federal income tax rate between January 1, 2018 and May 31, 2018. The True-up filing was included in the Tennessee ARM filing made on February 1, 2019 with the Tennessee Public Utility Commission, which requested an operating income increase of $3.2 million.


~~(2)~~	The Company has proposed removal of the PRP tariff in a pending Kentucky Public Service Commission case and anticipates recovery of this program investment through annual forward-looking rate case filings.


(1)	The Company and the City of Dallas were unable to arrive at a mutually agreeable settlement; therefore the DARR rates were implemented subject to refund, pending the outcome of an appeal filed with the Texas Railroad Commission.



(1)								The Ad Valorem filing relates to property taxes that are either over or undercollected compared to the amount included in our Kansas service area's base rates.


	December 31, 2018				September 30, 2018				December 31, 2017				June 30, 2019				September 30, 2018				June 30, 2018
	(In thousands, except percentages)												(In thousands, except percentages)
Short-term debt	$	—	—	%	$	575,780	6.8	%	$	336,816	4.2	%	$	74,942	0.8	%	$	575,780	6.8	%	$	244,777	3.0	%
Long-term debt⁽¹⁾	3,659,779		40.6	%	3,068,665		36.5	%	3,067,469		38.5	%	3,654,135		39.0	%	3,068,665		36.5	%	3,068,315		38.0	%
Shareholders’ equity	5,348,195		59.4	%	4,769,951		56.7	%	4,563,620		57.3	%	5,641,996		60.2	%	4,769,951		56.7	%	4,759,552		59.0	%
Total	$	9,007,974	100.0	%	$	8,414,396	100.0	%	$	7,967,905	100.0	%	$	9,371,073	100.0	%	$	8,414,396	100.0	%	$	8,072,644	100.0	%


(1)	In March 2019, $450 million of long-term debt will mature. We plan to issue new senior notes to replace the maturing debt. We have executed forward starting interest rate swaps to effectively fix the Treasury yield component associated with this anticipated issuance at 3.78%. In September 2019, our $125 million term loan, ~~will mature,~~ which we plan to ~~refinance.~~refinance, will mature.


	Fair Value of Contracts at December 31, 2018												Fair Value of Contracts at June 30, 2019
	Maturity in Years												Maturity in Years
Source of Fair Value	Less Than 1			1-3		4-5		Greater Than 5		Total Fair Value			Less Than 1			1-3			4-5		Greater Than 5		Total Fair Value
	(In thousands)												(In thousands)
Prices actively quoted	$	(83,954	)	$	285	$	—	$	—	$	(83,669	)	$	(950	)	$	(364	)	$	—	$	—	$	(1,314	)
Prices based on models and other valuation methods	—			—		—		—		—			—			—			—		—		—
Total Fair Value	$	(83,954	)	$	285	$	—	$	—	$	(83,669	)	$	(950	)	$	(364	)	$	—	$	—	$	(1,314	)


⁽¹⁾	Sales volumes and revenues reflect segment operations, including intercompany sales and transportation amounts.


⁽²⁾	Operating revenues include revenues from our alternative revenue programs as defined in Note 5.