Atmos Energy (ATO) 10-Q 2021 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2021

or

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

For the transition period from                    to                    

Commission File Number 1-10042

Atmos Energy Corporation

(Exact name of registrant as specified in its charter)

Texas	and		Virginia	75-1743247
(State or other jurisdiction of incorporation or organization)				(IRS employer identification no.)
1800 Three Lincoln Centre
5430 LBJ Freeway
Dallas		Texas		75240
(Address of principal executive offices)				(Zip code)

(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.    Yes  þ    No  ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes  þ    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes  ☐    No  þ

Number of shares outstanding of each of the issuer’s classes of common stock, as of July 30, 2021.

Class		Shares Outstanding
Common stock	No Par Value	130,790,813

GLOSSARY OF KEY TERMS

AEC	Atmos Energy Corporation
AOCI	Accumulated other comprehensive income
ARM	Annual Rate Mechanism
ASC	Accounting Standards Codification
Bcf	Billion cubic feet
DARR	Dallas Annual Rate Review
FASB	Financial Accounting Standards Board
GAAP	Generally Accepted Accounting Principles
GRIP	Gas Reliability Infrastructure Program
GSRS	Gas System Reliability Surcharge
LIBOR	London Interbank Offered Rate
Mcf	Thousand cubic feet
MMcf	Million cubic feet
Moody’s	Moody’s Investors Services, Inc.
NTSB	National Transportation Safety Board
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

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS 

	June 30, 2021		September 30, 2020
	(Unaudited)
	(In thousands, except share data)
ASSETS
Property, plant and equipment	$	17,265,383	$	15,957,221
Less accumulated depreciation and amortization	2,787,634		2,601,874
Net property, plant and equipment	14,477,749		13,355,347
Current assets
Cash and cash equivalents	524,621		20,808
Accounts receivable, net (See Note 5)	291,122		230,595
Gas stored underground	99,469		111,950
Other current assets	200,154		107,905
Total current assets	1,115,366		471,258
Goodwill	731,257		731,257
Deferred charges and other assets (See Note 8)	2,991,063		801,170
	$	19,315,435	$	15,359,032
CAPITALIZATION AND LIABILITIES
Shareholders’ equity
Common stock, no par value (stated at $0.005 per share); 200,000,000 shares authorized; issued and outstanding: June 30, 2021 — 130,787,039 shares; September 30, 2020 — 125,882,477 shares	$	654	$	629
Additional paid-in capital	4,865,268		4,377,149
Accumulated other comprehensive income (loss)	61,239		(57,589)
Retained earnings	2,846,597		2,471,014
Shareholders’ equity	7,773,758		6,791,203
Long-term debt	7,128,505		4,531,779
Total capitalization	14,902,263		11,322,982
Current liabilities
Accounts payable and accrued liabilities	280,352		235,775
Other current liabilities	581,722		546,461
Current maturities of long-term debt	200,442		165
Total current liabilities	1,062,516		782,401
Deferred income taxes	1,667,784		1,456,569
Regulatory excess deferred taxes	587,680		697,764
Regulatory cost of removal obligation	464,536		457,188
Deferred credits and other liabilities	630,656		642,128
	$	19,315,435	$	15,359,032

See accompanying notes to condensed consolidated financial statements.

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ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended June 30
	2021		2020
	(Unaudited) (In thousands, except per share data)
Operating revenues
Distribution segment	$	558,750	$	435,308
Pipeline and storage segment	162,987		158,008
Intersegment eliminations	(116,184)		(100,321)
Total operating revenues	605,553		492,995
Purchased gas cost
Distribution segment	202,050		126,093
Pipeline and storage segment	691		(11)
Intersegment eliminations	(115,871)		(100,010)
Total purchased gas cost	86,870		26,072
Operation and maintenance expense	184,470		149,460
Depreciation and amortization expense	119,348		107,104
Taxes, other than income	81,475		71,324
Operating income	133,390		139,035
Other non-operating income	5,887		7,235
Interest charges	20,962		19,580
Income before income taxes	118,315		126,690
Income tax expense	15,904		8,899
Net income	$	102,411	$	117,791
Basic net income per share	$	0.78	$	0.96
Diluted net income per share	$	0.78	$	0.96
Cash dividends per share	$	0.625	$	0.575
Basic weighted average shares outstanding	131,358		123,026
Diluted weighted average shares outstanding	131,486		123,032
Net income	$	102,411	$	117,791
Other comprehensive income (loss), net of tax
Net unrealized holding gains (losses) on available-for-sale securities, net of tax of $(11) and $96	(36)		364
Cash flow hedges:
Amortization and unrealized loss on interest rate agreements, net of tax of $(22,890) and $(1,115)	(79,196)		(4,450)
Total other comprehensive loss	(79,232)		(4,086)
Total comprehensive income	$	23,179	$	113,705

See accompanying notes to condensed consolidated financial statements.

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ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Nine Months Ended June 30
	2021		2020
	(Unaudited) (In thousands, except per share data)
Operating revenues
Distribution segment	$	2,718,074	$	2,196,817
Pipeline and storage segment	476,868		452,421
Intersegment eliminations	(355,836)		(303,015)
Total operating revenues	2,839,106		2,346,223
Purchased gas cost
Distribution segment	1,304,269		942,586
Pipeline and storage segment	(440)		290
Intersegment eliminations	(354,890)		(302,053)
Total purchased gas cost	948,939		640,823
Operation and maintenance expense	479,488		449,529
Depreciation and amortization expense	353,269		318,082
Taxes, other than income	243,376		214,535
Operating income	814,034		723,254
Other non-operating income	14,793		9,133
Interest charges	69,068		68,980
Income before income taxes	759,759		663,407
Income tax expense	142,916		127,297
Net income	$	616,843	$	536,110
Basic net income per share	$	4.77	$	4.38
Diluted net income per share	$	4.77	$	4.37
Cash dividends per share	$	1.875	$	1.725
Basic weighted average shares outstanding	129,185		122,352
Diluted weighted average shares outstanding	129,229		122,463
Net income	$	616,843	$	536,110
Other comprehensive income (loss), net of tax
Net unrealized holding gains (losses) on available-for-sale securities, net of tax of $(48) and $47	(165)		200
Cash flow hedges:
Amortization and unrealized gain (loss) on interest rate agreements, net of tax of $34,392 and $(492)	118,993		(2,344)
Total other comprehensive income (loss)	118,828		(2,144)
Total comprehensive income	$	735,671	$	533,966

See accompanying notes to condensed consolidated financial statements.

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ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended June 30
	2021		2020
	(Unaudited) (In thousands)
Cash Flows From Operating Activities
Net income	$	616,843	$	536,110
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization expense	353,269		318,082
Deferred income taxes	144,195		137,996
One-time income tax benefit	0		(20,962)
Other	378		5,935
Net assets / liabilities from risk management activities	(99)		1,295
Net change in Winter Storm Uri regulatory asset (See Note 8)	(2,088,536)		0
Net change in other operating assets and liabilities	(184,517)		(82,970)
Net cash provided by (used in) operating activities	(1,158,467)		895,486
Cash Flows From Investing Activities
Capital expenditures	(1,357,960)		(1,405,673)
Debt and equity securities activities, net	(2,363)		(692)
Other, net	8,006		6,098
Net cash used in investing activities	(1,352,317)		(1,400,267)
Cash Flows From Financing Activities
Net decrease in short-term debt	0		(464,915)
Net proceeds from equity offering	460,678		358,047
Issuance of common stock through stock purchase and employee retirement plans	12,121		14,125
Proceeds from issuance of long-term debt	2,797,346		999,450
Cash dividends paid	(241,260)		(210,674)
Debt issuance costs	(14,288)		(7,738)
Net cash provided by financing activities	3,014,597		688,295
Net increase in cash and cash equivalents	503,813		183,514
Cash and cash equivalents at beginning of period	20,808		24,550
Cash and cash equivalents at end of period	$	524,621	$	208,064

See accompanying notes to condensed consolidated financial statements.

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ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

June 30, 2021

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 3 million residential, commercial, public authority and industrial customers through our 6 regulated distribution divisions, which at June 30, 2021, covered service areas located in 8 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, 2020. 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, 2020. Because of seasonal and other factors, the results of operations for the nine-month period ended June 30, 2021 are not indicative of our results of operations for the full 2021 fiscal year, which ends September 30, 2021.

Except as described in Note 8, Note 10 and Note 11 to the unaudited condensed consolidated financial statements, no events have occurred subsequent to the balance sheet date that would require recognition or disclosure in the unaudited condensed consolidated financial statements.

Significant accounting policies

Except as noted below, related to the change in policies as a result of our adoption of new accounting standards, 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, 2020.

During the second quarter of fiscal 2021, we completed our goodwill impairment assessment. Based on the assessment performed, we determined that our goodwill was not impaired.

Accounting pronouncements adopted in fiscal 2021

Effective October 1, 2020, we adopted new accounting guidance that requires 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, we estimate credit losses over the entire contractual term of the instrument from the date of initial recognition of that instrument. The new guidance also introduces a new impairment recognition model for available-for-sale debt securities that will require credit losses to be recorded through an allowance account. We adopted the new guidance using a modified retrospective method. The adoption of this standard did not have a material impact on our financial position, results of operations and cash flows and no adjustments were made to October 1, 2020 opening balances as a result of this adoption. As required under the modified retrospective method of adoption, results for the reporting period beginning after October 1, 2020 are presented under Accounting Standards Codification (ASC) 326, while prior period amounts are not adjusted. See Notes 5 and 12 to the unaudited condensed consolidated financial statements for further discussion of implementation of the standard.

Accounting pronouncements that will be effective after fiscal 2021

In March 2020, the Financial Accounting Standards Board (FASB) issued optional guidance which will ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The amendments provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by the cessation of the London Interbank Offered Rate (LIBOR). The amendments can be elected immediately, as of March 12, 2020, through December 31, 2022. We are currently evaluating if we will apply the optional guidance as we assess the impact

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of the cessation of LIBOR on our current contracts and hedging relationships and the potential impact on our financial position, results of operations and cash flows.

Regulatory assets and liabilities

Accounting principles generally accepted in the United States require cost-based, rate-regulated entities that meet certain criteria to reflect the authorized recovery of costs due to regulatory decisions in their financial statements. As a result, certain costs are permitted to be capitalized rather than expensed because they can be recovered through rates. We record certain costs as regulatory assets when future recovery through customer rates is considered probable. Regulatory liabilities are recorded when it is probable that revenues will be reduced for amounts that will be credited to customers through the ratemaking process. Substantially all of our regulatory assets are recorded as a component of deferred charges and other assets and 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.

Significant regulatory assets and liabilities as of June 30, 2021 and September 30, 2020 included the following:

	June 30, 2021		September 30, 2020
	(In thousands)
Regulatory assets:
Pension and postretirement benefit costs	$	135,411	$	149,089
Infrastructure mechanisms(1)	222,263		183,943
Winter Storm Uri incremental costs(2)	2,093,779		0
Deferred gas costs	27,593		40,593
Regulatory excess deferred taxes	8,838		0
Recoverable loss on reacquired debt	3,893		4,894
Deferred pipeline record collection costs	31,283		29,839
Other	3,952		6,283
	$	2,527,012	$	414,641
Regulatory liabilities:
Regulatory excess deferred taxes	$	694,018	$	718,651
Regulatory cost of removal obligation	536,317		531,096
Deferred gas costs	55,572		19,985
Asset retirement obligation	20,348		20,348
APT annual adjustment mechanism	37,358		57,379
Other	19,371		19,554
	$	1,362,984	$	1,367,013

(1)Infrastructure mechanisms in Texas, Louisiana and Tennessee allow for the deferral of all eligible expenses associated with capital expenditures incurred pursuant to these rules, including the recording of interest on 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)Includes extraordinary gas costs incurred during Winter Storm Uri and related carrying costs. See Note 8 to the unaudited condensed consolidated financial statements for further information. This amount is recorded within deferred charges and other assets on the condensed consolidated balance sheet as of June 30, 2021.

Regulatory excess net deferred taxes represent changes in our net deferred tax liability related to our cost of service ratemaking due to the enactment of the Tax Cuts and Jobs Act of 2017 (the "TCJA") and a Kansas legislative change enacted in fiscal 2020. As of June 30, 2021 and September 30, 2020, $106.3 million and $20.9 million is recorded in other current liabilities. This amount has increased during fiscal 2021 due to regulatory approvals received during the fiscal year that shortened the refund period in certain of our jurisdictions. As a result, our effective income tax rate decreased to 18.8% for the nine months ended June 30, 2021. Our effective income tax rate in the prior year period was 19.2%, which reflected the income tax benefit recognized upon enactment of the new Kansas legislation.

Currently, the regulatory excess net deferred tax liability is being returned over various periods. Of this amount, $243.0 million, is being returned to customers over 35 - 60 months. An additional $430.1 million is being returned to customers on a provisional basis over 15 - 69 years until our regulators establish the final refund periods. We will work with the Kansas Corporation Commission during our next rate proceeding to determine the refund period for the remaining $12.1 million.

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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 8 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, 2020.

Income statements and capital expenditures for the three and nine months ended June 30, 2021 and 2020 by segment are presented in the following tables:

	Three Months Ended June 30, 2021
	Distribution		Pipeline and Storage		Eliminations		Consolidated
	(In thousands)
Operating revenues from external parties	$	557,931	$	47,622	$	—	$	605,553
Intersegment revenues	819		115,365		(116,184)		—
Total operating revenues	558,750		162,987		(116,184)		605,553
Purchased gas cost	202,050		691		(115,871)		86,870
Operation and maintenance expense	130,454		54,329		(313)		184,470
Depreciation and amortization expense	86,099		33,249		0		119,348
Taxes, other than income	72,024		9,451		0		81,475
Operating income	68,123		65,267		0		133,390
Other non-operating income	1,060		4,827		0		5,887
Interest charges	8,540		12,422		0		20,962
Income before income taxes	60,643		57,672		0		118,315
Income tax expense	7,354		8,550		0		15,904
Net income	$	53,289	$	49,122	$	0	$	102,411
Capital expenditures	$	398,416	$	113,816	$	0	$	512,232

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	Three Months Ended June 30, 2020
	Distribution		Pipeline and Storage		Eliminations		Consolidated
	(In thousands)
Operating revenues from external parties	$	434,650	$	58,345	$	—	$	492,995
Intersegment revenues	658		99,663		(100,321)		—
Total operating revenues	435,308		158,008		(100,321)		492,995
Purchased gas cost	126,093		(11)		(100,010)		26,072
Operation and maintenance expense	107,537		42,234		(311)		149,460
Depreciation and amortization expense	77,187		29,917		0		107,104
Taxes, other than income	61,980		9,344		0		71,324
Operating income	62,511		76,524		0		139,035
Other non-operating income	5,167		2,068		0		7,235
Interest charges	7,969		11,611		0		19,580
Income before income taxes	59,709		66,981		0		126,690
Income tax expense	810		8,089		0		8,899
Net income	$	58,899	$	58,892	$	0	$	117,791
Capital expenditures	$	342,385	$	68,551	$	0	$	410,936

	Nine Months Ended June 30, 2021
	Distribution		Pipeline and Storage		Eliminations		Consolidated
	(In thousands)
Operating revenues from external parties	$	2,715,644	$	123,462	$	—	$	2,839,106
Intersegment revenues	2,430		353,406		(355,836)		—
Total operating revenues	2,718,074		476,868		(355,836)		2,839,106
Purchased gas cost	1,304,269		(440)		(354,890)		948,939
Operation and maintenance expense	363,246		117,188		(946)		479,488
Depreciation and amortization expense	254,636		98,633		0		353,269
Taxes, other than income	214,991		28,385		0		243,376
Operating income	580,932		233,102		0		814,034
Other non-operating income	1,135		13,658		0		14,793
Interest charges	33,269		35,799		0		69,068
Income before income taxes	548,798		210,961		0		759,759
Income tax expense	109,481		33,435		0		142,916
Net income	$	439,317	$	177,526	$	0	$	616,843
Capital expenditures	$	1,000,616	$	357,344	$	0	$	1,357,960

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	Nine Months Ended June 30, 2020
	Distribution		Pipeline and Storage		Eliminations		Consolidated
	(In thousands)
Operating revenues from external parties	$	2,194,786	$	151,437	$	—	$	2,346,223
Intersegment revenues	2,031		300,984		(303,015)		—
Total operating revenues	2,196,817		452,421		(303,015)		2,346,223
Purchased gas cost	942,586		290		(302,053)		640,823
Operation and maintenance expense	337,740		112,751		(962)		449,529
Depreciation and amortization expense	229,526		88,556		0		318,082
Taxes, other than income	190,636		23,899		0		214,535
Operating income	496,329		226,925		0		723,254
Other non-operating income	1,930		7,203		0		9,133
Interest charges	35,128		33,852		0		68,980
Income before income taxes	463,131		200,276		0		663,407
Income tax expense	87,411		39,886		0		127,297
Net income	$	375,720	$	160,390	$	0	$	536,110
Capital expenditures	$	1,119,945	$	285,728	$	0	$	1,405,673

Balance sheet information at June 30, 2021 and September 30, 2020 by segment is presented in the following tables:

	June 30, 2021
	Distribution		Pipeline and Storage		Eliminations		Consolidated
	(In thousands)
Property, plant and equipment, net	$	10,802,062	$	3,675,687	$	0	$	14,477,749
Total assets	$	18,563,345	$	3,906,816	$	(3,154,726)	$	19,315,435

	September 30, 2020
	Distribution		Pipeline and Storage		Eliminations		Consolidated
	(In thousands)
Property, plant and equipment, net	$	9,944,978	$	3,410,369	$	0	$	13,355,347
Total assets	$	14,578,176	$	3,647,907	$	(2,867,051)	$	15,359,032

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 shares outstanding for diluted EPS includes the incremental effects of the forward sale agreements, discussed in Note 7 to the unaudited condensed consolidated financial statements, when the impact is dilutive. Basic and diluted earnings per share for the three and nine months ended June 30, 2021 and 2020 are calculated as follows:

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	Three Months Ended June 30				Nine Months Ended June 30
	2021		2020		2021		2020
	(In thousands, except per share amounts)
Basic Earnings Per Share
Net income	$	102,411	$	117,791	$	616,843	$	536,110
Less: Income allocated to participating securities	70		88		440		408
Income available to common shareholders	$	102,341	$	117,703	$	616,403	$	535,702
Basic weighted average shares outstanding	131,358		123,026		129,185		122,352
Net income per share — Basic	$	0.78	$	0.96	$	4.77	$	4.38
Diluted Earnings Per Share
Income available to common shareholders	$	102,341	$	117,703	$	616,403	$	535,702
Effect of dilutive shares	0		0		0		0
Income available to common shareholders	$	102,341	$	117,703	$	616,403	$	535,702
Basic weighted average shares outstanding	131,358		123,026		129,185		122,352
Dilutive shares	128		6		44		111
Diluted weighted average shares outstanding	131,486		123,032		129,229		122,463
Net income per share - Diluted	$	0.78	$	0.96	$	4.77	$	4.37

5.    Revenue and Accounts Receivable

Revenue

Our revenue recognition policy is fully described in Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. The following tables disaggregate our revenue from contracts with customers by customer type and segment and provide a reconciliation to total operating revenues, including intersegment revenues, for the three and nine months ended June 30, 2021 and 2020.

	Three Months Ended June 30, 2021				Three Months Ended June 30, 2020
	Distribution		Pipeline and Storage		Distribution		Pipeline and Storage
	(In thousands)
Gas sales revenues:
Residential	$	336,016	$	0	$	286,937	$	0
Commercial	157,314		0		101,055		0
Industrial	25,348		0		17,019		0
Public authority and other	8,870		0		7,063		0
Total gas sales revenues	527,548		0		412,074		0
Transportation revenues	25,903		164,619		22,532		164,675
Miscellaneous revenues	2,615		3,895		2,793		2,277
Revenues from contracts with customers	556,066		168,514		437,399		166,952
Alternative revenue program revenues(1)	2,206		(5,527)		(2,567)		(8,944)
Other revenues	478		0		476		0
Total operating revenues	$	558,750	$	162,987	$	435,308	$	158,008

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	Nine Months Ended June 30, 2021				Nine Months Ended June 30, 2020
	Distribution		Pipeline and Storage		Distribution		Pipeline and Storage
	(In thousands)
Gas sales revenues:
Residential	$	1,821,570	$	0	$	1,435,328	$	0
Commercial	692,443		0		543,148		0
Industrial	81,122		0		67,572		0
Public authority and other	42,159		0		34,747		0
Total gas sales revenues	2,637,294		0		2,080,795		0
Transportation revenues	84,643		480,945		77,676		471,433
Miscellaneous revenues	8,336		12,921		16,565		8,767
Revenues from contracts with customers	2,730,273		493,866		2,175,036		480,200
Alternative revenue program revenues(1)	(13,666)		(16,998)		20,320		(27,779)
Other revenues	1,467		0		1,461		0
Total operating revenues	$	2,718,074	$	476,868	$	2,196,817	$	452,421

(1)    In our distribution segment, we have weather-normalization adjustment mechanisms that serve to mitigate the effects of weather on our revenue. 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 regulatorily determined revenue benchmark.

Accounts receivable and allowance for uncollectible accounts

Accounts receivable arise from natural gas sales to residential, commercial, industrial, public authority and other customers. Our accounts receivable balance includes unbilled amounts which represent a customer’s consumption of gas from the date of the last cycle billing through the last day of the month. The receivable balances are short term and generally do not extend beyond one month. To minimize credit risk, we assess the credit worthiness of new customers, require deposits where necessary, assess late fees, pursue collection activities and disconnect service for nonpayment. After disconnection, accounts are written off when deemed uncollectible.

As described in Note 2 to the unaudited condensed consolidated financial statements, on October 1, 2020, we adopted new accounting guidance which requires credit losses on our accounts receivable to be measured using an expected credit loss model over the entire contractual term from the date of initial recognition. At each reporting period, we assess the allowance for uncollectible accounts based on historical experience, current conditions and consideration of expected future conditions. Circumstances which could affect our estimates include, but are not limited to, customer credit issues, the level of natural gas prices, customer deposits and general economic conditions.

Due to the COVID-19 pandemic, in March 2020 we temporarily suspended disconnecting customers for nonpayment and stopped charging late fees. We resumed disconnection activity during the third quarter of fiscal 2021. We are actively working with our customers experiencing financial hardship to offer flexible payment options and directing them to aid agencies for financial assistance. Our allowance for uncollectible accounts reflects the expected impact on our customers’ ability to pay.

Rollforwards of our allowance for uncollectible accounts for the three and nine months ended June 30, 2021 are presented in the table below. The allowance excludes the gas cost portion of customers’ bills for approximately 78 percent of our customers as we have the ability to collect these gas costs through our gas cost recovery mechanisms in most of our jurisdictions.

	Three Months Ended June 30, 2021
	(In thousands)
Beginning balance, March 31, 2021	$	44,680
Current period provisions	14,403
Write-offs charged against allowance	(2,875)
Recoveries of amounts previously written off	437
Ending balance, June 30, 2021	$	56,645

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	Nine Months Ended June 30, 2021
	(In thousands)
Beginning balance, September 30, 2020	$	29,949
Current period provisions	32,872
Write-offs charged against allowance	(7,544)
Recoveries of amounts previously written off	1,368
Ending balance, June 30, 2021	$	56,645

6.    Debt

The nature and terms of our debt instruments and credit facilities are described in detail in Note 7 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. Other than as described below, there were no material changes in the terms of our debt instruments during the nine months ended June 30, 2021.

Long-term debt at June 30, 2021 and September 30, 2020 consisted of the following:

	June 30, 2021		September 30, 2020
	(In thousands)
Unsecured 0.625% Senior Notes, due 2023	$	1,100,000	$	0
Unsecured 3.00% Senior Notes, due 2027	500,000		500,000
Unsecured 2.625% Senior Notes, due 2029	300,000		300,000
Unsecured 1.50% Senior Notes, due 2031	600,000		0
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		600,000
Unsecured 4.125% Senior Notes, due 2049	450,000		450,000
Unsecured 3.375% Senior Notes, due 2049	500,000		500,000
Floating-rate term loan, due April 2022	200,000		200,000
Floating-rate Senior Notes, due 2023	1,100,000		0
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
Finance lease obligations	18,844		8,631
Total long-term debt	7,378,844		4,568,631
Less:
Original issue discount on unsecured senior notes and debentures	2,920		583
Debt issuance cost	46,977		36,104
Current maturities	200,442		165
	$	7,128,505	$	4,531,779

On March 9, 2021, we completed a public offering of $1.1 billion of 0.625% senior notes due 2023, with an effective interest rate of 0.834%, after giving effect to the offering costs, and $1.1 billion floating rate senior notes due 2023 that bear interest at a rate equal to the Three-Month LIBOR rate plus 0.38%. The net proceeds from the offering, after the underwriting discount and offering expenses, of $2.2 billion were used for the payment of unplanned natural gas costs incurred during Winter Storm Uri. See Note 8 to the unaudited condensed consolidated financial statements for further information. The notes are subject to optional redemption at any time on or after September 9, 2021 at a price equal to 100 percent of the principal amount of the notes being redeemed, plus any accrued and unpaid interest thereon, if any, to, but excluding, the redemption date.

On October 1, 2020, we completed a public offering of $600 million of 1.50% senior notes due 2031, with an effective interest rate of 1.71%, after giving effect to the offering costs and settlement of our interest rate swaps. The net proceeds from the offering, after the underwriting discount and offering expenses, of $592.3 million, were used for general corporate purposes,

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including the repayment of working capital borrowings pursuant to our commercial paper program and the related settlement of our interest rate swaps.

Short-term debt

We utilize short-term debt to provide cost-effective, short-term financing until it can be replaced with a balance of long-term debt and equity financing that achieves the Company’s desired capital structure 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.

Our short-term borrowing requirements are satisfied through a combination of a $1.5 billion commercial paper program and 4 committed revolving credit facilities with third-party lenders that provide $2.5 billion of total working capital funding.

The primary source of our funding is our commercial paper program, which is supported by a five-year unsecured $1.5 billion credit facility that was replaced on March 31, 2021, with a new five-year unsecured $1.5 billion credit facility that expires on March 31, 2026. The new facility bears interest at a base rate or at a LIBOR-based rate for the applicable interest period, plus a margin ranging from 0 percent to 0.25 percent for base rate advances or a margin ranging from 0.75 percent to 1.25 percent for LIBOR-based advances, based on the Company’s credit ratings. Additionally, the facility contains a $250 million accordion feature, which provides the opportunity to increase the total committed loan to $1.75 billion. At June 30, 2021 and September 30, 2020, there were 0 amounts outstanding under our commercial paper program.

We had a $600 million 364-day unsecured revolving credit facility, which was replaced on March 31, 2021, with a new $900 million three-year unsecured revolving credit facility. This new facility will be used primarily to provide additional working capital funding. The new facility bears interest at a base rate or at a LIBOR-based rate for the applicable interest period, plus a margin ranging from 0 percent to 0.25 percent for base rate advances or a margin ranging from 0.75 percent to 1.25 percent for LIBOR-based advances, based on the Company's credit ratings. Additionally, the facility contains a $100 million accordion feature, which provides the opportunity to increase the total committed loan to $1.0 billion. At June 30, 2021, there were 0 borrowings outstanding under this facility.

Additionally, we have a $50 million 364-day unsecured facility, which was renewed April 1, 2021 and is used to provide working capital funding. There were 0 borrowings outstanding under this facility as of June 30, 2021.

Finally, we have a $50 million 364-day unsecured revolving credit facility, which was renewed April 29, 2021 and is used to issue letters of credit and to provide working capital funding. At June 30, 2021, there were 0 borrowings outstanding under this facility; however, outstanding letters of credit reduced the total amount available to us to $44.4 million.

Debt covenants

The availability of funds under these credit facilities is subject to conditions specified in the respective credit agreements, all of which we currently satisfy. These conditions include our compliance with financial covenants and the continued accuracy of representations and warranties contained in these agreements. We are required by the financial covenants in each of these facilities to maintain, at the end of each fiscal quarter, a ratio of total-debt-to-total-capitalization of no greater than 70 percent. At June 30, 2021, our total-debt-to-total-capitalization ratio, as defined in the agreements, was 50 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 June 30, 2021. 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 June 30, 2021 and 2020.

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	Common stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total
	Number of Shares	Stated Value
	(In thousands, except share and per share data)
Balance, September 30, 2020	125,882,477	$	629	$	4,377,149	$	(57,589)	$	2,471,014	$	6,791,203
Net income	—	—		—		—		217,678		217,678
Other comprehensive income	—	—		—		60,121		—		60,121
Cash dividends ($0.625 per share)	—	—		—		—		(79,023)		(79,023)
Common stock issued:
Public and other stock offerings	2,126,118	11		219,998		—		—		220,009
Stock-based compensation plans	144,366	1		3,167		—		—		3,168
Balance, December 31, 2020	128,152,961	641		4,600,314		2,532		2,609,669		7,213,156
Net income	—	—		—		—		296,754		296,754
Other comprehensive income	—	—		—		137,939		—		137,939
Cash dividends ($0.625 per share)	—	—		—		—		(80,325)		(80,325)
Common stock issued:
Public and other stock offerings	2,498,026	12		248,948		—		—		248,960
Stock-based compensation plans	16,122	0		4,441		—		—		4,441
Balance, March 31, 2021	130,667,109	653		4,853,703		140,471		2,826,098		7,820,925
Net income	—	—		—		—		102,411		102,411
Other comprehensive loss	—	—		—		(79,232)		—		(79,232)
Cash dividends ($0.625 per share)	—	—		—		—		(81,912)		(81,912)
Common stock issued:
Public and other stock offerings	39,078	1		3,829		—		—		3,830
Stock-based compensation plans	80,852	0		7,736		—		—		7,736
Balance, June 30, 2021	130,787,039	$	654	$	4,865,268	$	61,239	$	2,846,597	$	7,773,758

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	Common stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total
	Number of Shares	Stated Value
	(In thousands, except share and per share data)
Balance, September 30, 2019	119,338,925	$	597	$	3,712,194	$	(114,583)	$	2,152,015	$	5,750,223
Net income	—	—		—		—		178,673		178,673
Other comprehensive income	—	—		—		1,052		—		1,052
Cash dividends ($0.575 per share)	—	—		—		—		(69,557)		(69,557)
Common stock issued:
Public and other stock offerings	2,758,929	13		263,259		—		—		263,272
Stock-based compensation plans	164,549	1		4,111		—		—		4,112
Balance, December 31, 2019	122,262,403	611		3,979,564		(113,531)		2,261,131		6,127,775
Net income	—	—		—		—		239,646		239,646
Other comprehensive income	—	—		—		890		—		890
Cash dividends ($0.575 per share)	—	—		—		—		(70,520)		(70,520)
Common stock issued:
Public and other stock offerings	38,662	1		3,095		—		—		3,096
Stock-based compensation plans	7,660	0		3,528		—		—		3,528
Balance, March 31, 2020	122,308,725	612		3,986,187		(112,641)		2,430,257		6,304,415
Net income	—	—		—		—		117,791		117,791
Other comprehensive loss	—	—		—		(4,086)		—		(4,086)
Cash dividends ($0.575 per share)	—	—		—		—		(70,597)		(70,597)
Common stock issued:
Public and other stock offerings	965,576	5		105,799		—		—		105,804
Stock-based compensation plans	76,966	0		8,144		—		—		8,144
Balance, June 30, 2020	123,351,267	$	617	$	4,100,130	$	(116,727)	$	2,477,451	$	6,461,471

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

On June 29, 2021, we filed a shelf registration statement with the Securities and Exchange Commission (SEC) that allows us to issue up to $5.0 billion in common stock and/or debt securities, which expires June 29, 2024. This shelf registration statement replaced our previous shelf registration statement which was filed on February 11, 2020. At June 30, 2021, $4.0 billion of securities were available for issuance under the shelf registration statement.

On June 29, 2021, we filed a prospectus supplement under the shelf registration statement relating to an at-the-market (ATM) equity sales program (June 2021 ATM) under which we may issue and sell shares of our common stock up to an aggregate offering price of $1.0 billion (including shares of common stock that may be sold pursuant to forward sale agreements entered into concurrently with the ATM equity sales program). This ATM equity sales program replaced our previous ATM equity sales program, filed on February 12, 2020 (February 2020 ATM).

During the nine months ended June 30, 2021, we executed forward sales under our February 2020 ATM equity sales program with various forward sellers who borrowed and sold 3,451,356 shares of our common stock at an aggregate price of $338.3 million. During the nine months ended June 30, 2021, we also settled forward sale agreements with respect to 4,537,669 shares that had been borrowed and sold by various forward sellers under the February 2020 ATM program for net proceeds of $460.7 million. As of June 30, 2021, $1.0 billion of equity was available for issuance under the June 2021 ATM program. Additionally, we had $213.1 million in available proceeds, based on a net price of $94.71 per share, from outstanding forward sale agreements, available through June 30, 2022.

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.

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The following tables provide the components of our accumulated other comprehensive income (loss) balances, net of the related tax effects allocated to each component of other comprehensive income (loss).

	Available- for-Sale Securities		Interest Rate Agreement Cash Flow Hedges		Total
	(In thousands)
September 30, 2020	$	238	$	(57,827)	$	(57,589)
Other comprehensive income (loss) before reclassifications	(165)		115,568		115,403
Amounts reclassified from accumulated other comprehensive income	0		3,425		3,425
Net current-period other comprehensive income (loss)	(165)		118,993		118,828
June 30, 2021	$	73	$	61,166	$	61,239

	Available- for-Sale Securities		Interest Rate Agreement Cash Flow Hedges		Total
	(In thousands)
September 30, 2019	$	132	$	(114,715)	$	(114,583)
Other comprehensive income (loss) before reclassifications	202		(4,932)		(4,730)
Amounts reclassified from accumulated other comprehensive income	(2)		2,588		2,586
Net current-period other comprehensive income (loss)	200		(2,344)		(2,144)
June 30, 2020	$	332	$	(117,059)	$	(116,727)

8.    Winter Storm Uri

Overview

A historic winter storm impacted supply, market pricing and demand for natural gas in our service territories in mid-February. During this time, the governors of Kansas and Texas each declared a state of emergency, and certain regulatory agencies issued emergency orders that impacted the utility and natural gas industries, including statewide utilities curtailment programs and orders encouraging or requiring jurisdictional natural gas utilities to work to ensure customers were provided with safe and reliable natural gas service.

Due to the historic nature of this winter storm, we experienced unforeseeable and unprecedented market pricing for gas costs, which resulted in aggregated natural gas purchases during the month of February of approximately $2.3 billion. These gas costs were paid by the end of March 2021.

Incremental Financing

As discussed in Note 6 to the unaudited condensed consolidated financial statements, on March 9, 2021, we completed a public offering of $2.2 billion in debt securities and the net proceeds from the offering, after the underwriting discount and offering expenses, were used to substantially fund these purchased gas costs. As a result of this unplanned debt issuance, S&P lowered its long-term/short-term credit ratings from A/A-1 to A-/A-2 and placed our ratings under negative outlook. Moody’s reaffirmed its long-term and short-term credit ratings and placed our ratings under negative outlook. These credit rating adjustments and the issuance of unplanned debt did not impact our ability to satisfy our debt covenants.

Regulatory Asset Accounting

Our purchased gas costs are recoverable through purchased gas cost adjustment mechanisms in each state where we operate. Due to the unprecedented level of purchased gas costs incurred during Winter Storm Uri, the Kansas Corporation Commission (KCC) and the Railroad Commission of Texas (RRC) issued orders authorizing natural gas utilities to record a regulatory asset to account for the extraordinary costs associated with the winter storm. Pursuant to these orders, as of June 30, 2021, we have recorded a $2.1 billion regulatory asset for incremental costs, including carrying costs, incurred in Kansas ($77.1 million) and Texas ($2,016.7 million) within deferred charges and other assets on our condensed consolidated balance sheet. These costs are subject to review for prudency by each commission and may be adjusted.

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Income Taxes

We deduct our purchased gas costs for federal income tax purposes in the period they are paid. Based on our current projection of taxable income for fiscal 2021 and the expected magnitude of the purchased gas cost deduction, we recorded a $469.4 million (tax effected) increase in our net operating loss carryforwards and a corresponding increase to our deferred tax liability as of June 30, 2021.

At June 30, 2021, we had $804.7 million (tax effected) of federal net operating loss carryforwards. The federal net operating loss carryforwards are available to offset future taxable income. Net operating loss carryforwards incurred prior to December 22, 2017 begin to expire in 2029. The Company also has $57.0 million (tax effected) of state net operating loss carryforwards (net of $15.2 million of federal effects) and $1.8 million of state tax credits carryforwards (net of $0.5 million of federal effects). Depending on the jurisdiction in which the state net operating loss was generated, the carryforwards are subject to expiration through the remainder of fiscal 2021.

Securitization Legislation

To minimize the impact on the customer bill by extending the recovery periods for these unprecedented purchased gas costs, the Kansas and Texas State Legislatures each introduced securitization legislation. The following summarizes the status of the legislation as of the date of this filing.

Kansas

The Kansas securitization legislation, which became effective April 9, 2021, permits a natural gas public utility, in its sole discretion, to apply to the KCC for a financing order for the recovery of qualified extraordinary costs through the issuance of bonds. Within 25 days after a complete application is filed, the KCC shall establish a procedural schedule that requires it to issue a decision on the application within 180 days from the date a complete application was filed. Utilities may apply for a recovery period of up to 32 years. We plan to file with the KCC an application to securitize the extraordinary gas costs incurred during Winter Storm Uri.

Texas

On June 16, 2021, House Bill 1520, relating to certain extraordinary costs incurred by certain gas utilities relating to Winter Storm Uri and a study of measures to mitigate similar future costs; providing authority to issue bonds and impose fees and assessments, became effective. House Bill 1520 authorizes the RRC to issue a statewide securitization financing order directing the Texas Public Finance authority to issue bonds (customer rate relief bonds) for gas utilities that choose to participate to recover extraordinary costs incurred to secure gas supply and to provide service during Winter Storm Uri, and to restore gas utility systems after that event, thereby providing rate relief to customers by extending the period during which these extraordinary costs would otherwise be recovered and supporting the financial strength and stability of gas utility companies.

The legislation provides that natural gas utilities file an application with the RRC and submit extraordinary gas costs incurred during Winter Storm Uri for a prudency review by July 30, 2021. The RRC has 150 days to approve each application. Following the approval of all applications, the RRC will issue a financing order to the Texas Public Financing Authority authorizing the issuance of customer rate relief bonds to securitize the aggregated extraordinary costs for all participating utilities within 180 days. The participating utilities, as servicers acting on behalf of the state of the securitization financing, will bill and collect customer rate relief charges from their current and future customers and remit the collections to the state issuer of the securitization financing.

On July 30, 2021, we filed with the RRC an application to securitize $2.0 billion of extraordinary gas costs incurred during Winter Storm Uri. This amount also includes an estimate of carrying costs and administrative costs that we expect to incur in connection with the resolution of this filing.

9.     Interim Pension and Other Postretirement Benefit Plan Information

The components of our net periodic pension cost for our pension and other postretirement benefit plans for the three and nine months ended June 30, 2021 and 2020 are presented in the following 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.

In the third quarter of fiscal 2021, due to the retirement of certain executives, we recognized a settlement charge of $9.0 million associated with our Supplemental Executive Retirement Plan and revalued the net periodic pension cost for the remainder of fiscal 2021. The revaluation of the net periodic pension cost for our Supplemental Executive Retirement Plan

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resulted in an increase in the discount rate, effective May 31, 2021, to 3.11% from 2.80%, which will decrease our net periodic pension cost by approximately $0.5 million for the remainder of the fiscal year.

	Three Months Ended June 30
	Pension Benefits				Other Benefits
	2021		2020		2021		2020
	(In thousands)
Components of net periodic pension cost:
Service cost	$	4,609	$	4,652	$	4,305	$	3,366
Interest cost(1)	5,016		5,843		2,661		2,653
Expected return on assets(1)	(6,978)		(7,079)		(2,613)		(2,625)
Amortization of prior service cost (credit)(1)	(58)		(58)		44		43
Amortization of actuarial (gain) loss(1)	3,062		3,242		0		(334)
Settlements(1)	8,999		0		0		0
Net periodic pension cost	$	14,650	$	6,600	$	4,397	$	3,103

	Nine Months Ended June 30
	Pension Benefits				Other Benefits
	2021		2020		2021		2020
	(In thousands)
Components of net periodic pension cost:
Service cost	$	13,834	$	13,957	$	12,917	$	10,099
Interest cost(1)	15,072		17,529		7,981		7,959
Expected return on assets(1)	(20,934)		(21,237)		(7,841)		(7,874)
Amortization of prior service cost (credit)(1)	(174)		(174)		130		130
Amortization of actuarial (gain) loss(1)	9,405		9,725		0		(1,003)
Settlements(1)	8,999		0		0		0
Net periodic pension cost	$	26,202	$	19,800	$	13,187	$	9,311

(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 statements of comprehensive income or are capitalized on the condensed consolidated balance sheets as a regulatory asset or liability, as described in Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.

For the nine months ended June 30, 2021 we contributed $16.8 million to our postretirement medical plans. We anticipate contributing a total of between $15 million and $25 million to our postretirement plans during fiscal 2021.

10.    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) held a public meeting on January 12, 2021 to determine the probable cause of the incident that occurred at a Dallas, Texas residence on February 23, 2018 that resulted in one fatality and injuries to four other residents. At the meeting, the Board deliberated and voted on proposed findings of fact, a probable cause statement, and safety recommendations. On February 8, 2021, the NTSB issued its final report that included an Executive Summary, Findings, Probable Cause, and Recommendations. Also on February 8, 2021, safety recommendations letters were distributed to recommendation recipients, including Atmos Energy. Atmos Energy timely provided a written response on May 7, 2021.

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Following the release of the NTSB’s final report, the Railroad Commission of Texas (RRC) completed its safety evaluation related to the same incident finding four alleged violations and initiated an enforcement proceeding to pursue administrative penalties totaling $1.6 million. Atmos Energy is working with the RRC to resolve the alleged violations and satisfy the administrative penalties.

The NTSB is investigating a worksite accident that occurred in Farmersville, Texas on June 28, 2021 that resulted in two fatalities and injuries to two others. Together with the Railroad Commission of Texas and the Pipeline and Hazardous Materials Safety Administration, Atmos Energy is a party to the investigation and in that capacity is working closely with all parties to help determine the cause of this incident. On July 16, 2021, a civil action was filed in Dallas, Texas against Atmos Energy and one of its contractors in response to the June 28, 2021 incident.

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, 2020. At June 30, 2021, we were committed to purchase 54.3 Bcf within one year and 17.6 Bcf within two to three years under indexed contracts.

Rate Regulatory Proceedings

As of June 30, 2021, routine rate regulatory proceedings were in progress in several of our service areas, which are discussed in further detail below in Management’s Discussion and Analysis — Recent Ratemaking Developments. Except for these proceedings, there were no material changes to rate regulatory proceedings for the nine months ended June 30, 2021.

11.    Financial Instruments

We currently use financial instruments to mitigate commodity price risk and 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 14 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. During the nine months ended June 30, 2021, 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 2020-2021 heating season (generally October through March), in the jurisdictions where we are permitted to utilize financial instruments, we hedged approximately 39 percent, or 15.8 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 manage interest rate risk by periodically entering into financial instruments to effectively fix the Treasury yield component of the interest cost associated with anticipated financings.

21

In June 2021, we entered into forward starting interest rate swaps to effectively fix the Treasury yield component associated with $525 million of planned issuances of unsecured senior notes. These swaps were designated as cash flow hedges at the time the agreements were executed.

The following table summarizes our existing forward starting interest rate swaps as of June 30, 2021:

Planned Debt Issuance Date	Amount Hedged		Effective Interest Rate
	(In thousands)
Fiscal 2022	$	600,000	1.53	%
Fiscal 2023	400,000		1.56	%
Fiscal 2024	75,000		2.19	%
Fiscal 2025	400,000		1.56	%
Fiscal 2026	100,000		2.21	%
	$	1,575,000

Additionally, in July 2021, we entered into forward starting interest rate swaps to effectively fix the Treasury yield component associated with $875 million of planned issuances of unsecured senior notes, which we designated as cash flow hedges at the time the agreements were executed.

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.

As of June 30, 2021, our financial instruments were comprised of both long and short commodity positions. A long position is a contract to purchase the commodity, while a short position is a contract to sell the commodity. As of June 30, 2021, we had 16,797 MMcf of net long commodity contracts outstanding. These contracts have not been designated as hedges.

Financial Instruments on the Balance Sheet

The following tables present the fair value and balance sheet classification of our financial instruments as of June 30, 2021 and September 30, 2020. 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 June 30, 2021 and September 30, 2020, 0 gross amounts and 0 cash collateral were netted within our consolidated balance sheet.

	Balance Sheet Location	Assets		Liabilities
		(In thousands)
June 30, 2021
Designated As Hedges:
Interest rate contracts	Other current assets / Other current liabilities	$	89,260	$	(2,902)
Interest rate contracts	Deferred charges and other assets / Deferred credits and other liabilities	136,242		(574)
Total		225,502		(3,476)
Not Designated As Hedges:
Commodity contracts	Other current assets / Other current liabilities	12,024		(1,926)
Commodity contracts	Deferred charges and other assets / Deferred credits and other liabilities	1,393		0
Total		13,417		(1,926)
Gross / Net Financial Instruments		$	238,919	$	(5,402)

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	Balance Sheet Location	Assets		Liabilities
		(In thousands)
September 30, 2020
Designated As Hedges:
Interest rate contracts	Deferred charges and other assets / Deferred credits and other liabilities	$	73,055	$	0
Total		73,055		0
Not Designated As Hedges:
Commodity contracts	Other current assets / Other current liabilities	5,687		(2,015)
Commodity contracts	Deferred charges and other assets / Deferred credits and other liabilities	1,936		0
Total		7,623		(2,015)
Gross / Net Financial Instruments		$	80,678	$	(2,015)

Impact of Financial Instruments on the Statement of Comprehensive Income

Cash Flow Hedges

As discussed above, our distribution segment has interest rate agreements, which we designated as cash flow hedges at the time the 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 June 30, 2021 and 2020 was $1.5 million and $1.4 million and for the nine months ended June 30, 2021 and 2020 was $4.4 million and $4.1 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 June 30, 2021 and 2020. 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
	2021		2020		2021		2020
	(In thousands)
Increase (decrease) in fair value:
Interest rate agreements	$	(80,338)	$	(4,932)	$	115,568	$	(4,932)
Recognition of losses in earnings due to settlements:
Interest rate agreements	1,142		482		3,425		2,588
Total other comprehensive income (loss) from hedging, net of tax	$	(79,196)	$	(4,450)	$	118,993	$	(2,344)

Deferred gains (losses) recorded in AOCI associated with our interest rate agreements are recognized in earnings as they are amortized over the terms of the underlying debt instruments. As of June 30, 2021, we had $111.1 million of net realized losses in AOCI associated with our interest rate agreements. The following amounts, net of deferred taxes, represent the expected recognition in earnings of the deferred net losses recorded in AOCI associated with our interest rate agreements, based upon the fair values of these agreements at the date of settlement. The remaining amortization periods for these settled amounts extend through fiscal 2049. However, the table below does not include the expected recognition in earnings of our outstanding interest rate swaps as those instruments have not yet settled.

	Interest Rate Agreements
	(In thousands)
Next twelve months	$	(4,566)
Thereafter	(106,511)
Total	$	(111,077)

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Financial Instruments Not Designated as Hedges

As discussed above, commodity contracts which are used in our distribution segment are not designated as hedges. However, there is no earnings impact on our distribution segment as a result of the use of these financial instruments because the gains and losses arising from the use of these financial instruments are recognized in the consolidated 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.

12.    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 consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. During the nine months ended June 30, 2021, 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 9 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.

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 June 30, 2021 and September 30, 2020. Assets and liabilities are categorized in their entirety based on the lowest level of input that is significant to the fair value measurement.

	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)(1)		Significant Other Unobservable Inputs (Level 3)		Netting and Cash Collateral		June 30, 2021
	(In thousands)
Assets:
Financial instruments	$	0	$	238,919	$	0	$	0	$	238,919
Debt and equity securities
Registered investment companies	35,166		0		0		—		35,166
Bond mutual funds	34,270		0		0		—		34,270
Bonds(2)	0		32,264		0		—		32,264
Money market funds	0		4,017		0		—		4,017
Total debt and equity securities	69,436		36,281		0		—		105,717
Total assets	$	69,436	$	275,200	$	0	$	0	$	344,636
Liabilities:
Financial instruments	$	0	$	5,402	$	0	$	0	$	5,402

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	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)(1)		Significant Other Unobservable Inputs (Level 3)		Netting and Cash Collateral		September 30, 2020
	(In thousands)
Assets:
Financial instruments	$	0	$	80,678	$	0	$	0	$	80,678
Debt and equity securities
Registered investment companies	37,831		0		0		—		37,831
Bond mutual funds	29,166		0		0		—		29,166
Bonds(2)	0		32,900		0		—		32,900
Money market funds	0		4,055		0		—		4,055
Total debt and equity securities	66,997		36,955		0		—		103,952
Total assets	$	66,997	$	117,633	$	0	$	0	$	184,630
Liabilities:
Financial instruments	$	0	$	2,015	$	0	$	0	$	2,015

(1)Our Level 2 measurements consist of over-the-counter options and swaps, which are valued using a market-based approach in which observable market prices are adjusted for criteria specific to each instrument, such as the strike price, notional amount or basis differences, municipal and corporate bonds, which are valued based on the most recent available quoted market prices and money market funds that are valued at cost.

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

Debt and equity securities are comprised of our available-for-sale debt securities and our equity securities. As described further in Note 2 to the unaudited condensed consolidated financial statements, we adopted ASC 326 effective October 1, 2020. In accordance with the new guidance, we evaluate the performance of our available-for-sale debt securities on an investment by investment basis for impairment, taking into consideration the investment’s purpose, volatility, current returns and any intent to sell the security. As of June 30, 2021, 0 allowance for credit losses was recorded for our available-for-sale debt securities. At June 30, 2021 and September 30, 2020, the amortized cost of our available-for-sale debt securities was $32.2 million and $32.6 million. At June 30, 2021, we maintained investments in bonds that have contractual maturity dates ranging from July 2021 through April 2024.

Other Fair Value Measures

Our long-term debt is recorded at carrying value. The fair value of our long-term debt, excluding finance leases, is determined using third party market value quotations, which are considered Level 1 fair value measurements for debt instruments with a recent, observable trade or Level 2 fair value measurements for debt instruments where fair value is determined using the most recent available quoted market price. The carrying value of our finance leases materially approximates fair value. The following table presents the carrying value and fair value of our long-term debt, excluding finance leases, debt issuance costs and original issue premium or discount, as of June 30, 2021 and September 30, 2020:

	June 30, 2021		September 30, 2020
	(In thousands)
Carrying Amount	$	7,360,000	$	4,560,000
Fair Value	$	8,101,744	$	5,597,183

13.    Concentration of Credit Risk

Information regarding our concentration of credit risk is disclosed in Note 16 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. During the nine months ended June 30, 2021, there were no material changes in our concentration of credit risk.

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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 (the Company) as of June 30, 2021, the related condensed consolidated statements of comprehensive income for the three and nine months ended June 30, 2021 and 2020, the condensed consolidated statements of cash flows for the nine months ended June 30, 2021 and 2020, 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, 2020, the related consolidated statements of comprehensive income, shareholders’ equity, and cash flows for the year then ended, and the related notes and schedule (not presented herein); and in our report dated November 13, 2020, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 2020, 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

August 4, 2021

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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, 2020.

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: federal, state and local regulatory and political 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 impact of greenhouse gas emissions or other legislation or regulations intended to address climate change; possible significant costs and liabilities resulting from pipeline integrity and other similar programs and related repairs; the inherent hazards and risks involved in distributing, transporting and storing natural gas; the 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; the impact of climate change; the inability to continue to hire, train and retain operational, technical and managerial personnel; increased dependence on technology that may hinder the Company's business if such technologies fail; the threat of cyber-attacks or acts of cyber-terrorism that could disrupt our business operations and information technology systems or result in the loss or exposure of confidential or sensitive customer, employee or Company information; natural disasters, terrorist activities or other events and other risks and uncertainties discussed herein, all of which are difficult to predict and many of which are beyond our control; 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; increased costs of providing health care benefits, along with pension and postretirement health care benefits and increased funding requirements; and the outbreak of COVID-19 and its impact on business and economic conditions. 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 June 30, 2021 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.

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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 the allowance for doubtful accounts, legal and environmental accruals, insurance accruals, pension and postretirement obligations, deferred income taxes and the valuation of goodwill 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, 2020 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 nine months ended June 30, 2021.

Non-GAAP Financial Measures

Due to the passage of Kansas House Bill 2585 on June 1, 2020, we remeasured our deferred tax liability and updated our state deferred tax rate in the third quarter of fiscal 2020. As a result, we recorded a non-cash income tax benefit of $21.0 million for the three and nine months ended June 30, 2020. 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 net income per share, non-GAAP measures, which are calculated as follows:

	Three Months Ended June 30
	2021		2020		Change
	(In thousands, except per share data)
Net income	$	102,411	$	117,791	$	(15,380)
Non-cash income tax benefit	—		(20,962)		20,962
Adjusted net income	$	102,411	$	96,829	$	5,582
Diluted net income per share	$	0.78	$	0.96	$	(0.18)
Diluted EPS from non-cash income tax benefit	—		(0.17)		0.17
Adjusted diluted net income per share	$	0.78	$	0.79	$	(0.01)

	Nine Months Ended June 30
	2021		2020		Change
	(In thousands, except per share data)
Net income	$	616,843	$	536,110	$	80,733
Non-cash income tax benefit	—		(20,962)		20,962
Adjusted net income	$	616,843	$	515,148	$	101,695
Diluted net income per share	$	4.77	$	4.37	$	0.40
Diluted EPS from non-cash income tax benefit	—		(0.17)		0.17
Adjusted diluted net income per share	$	4.77	$	4.20	$	0.57

RESULTS OF OPERATIONS

Executive Summary

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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 nine months ended June 30, 2021, we recorded net income of $616.8 million, or $4.77 per diluted share, compared to net income of $536.1 million, or $4.37 per diluted share for the nine months ended June 30, 2020. After adjusting for a nonrecurring income tax benefit recognized during the third quarter of fiscal 2020, we recorded adjusted net income of $515.1 million, or $4.20 per diluted share for the nine months ended June 30, 2020.

The 20 percent period-over-period increase in adjusted net income largely reflects positive rate outcomes driven by safety and reliability spending and customer growth in our distribution segment. Additionally, in our distribution segment, we have experienced lower service order revenues and higher bad debt expense due to the temporary suspension of collection activities during the pandemic. Finally, our year-to-date results reflect a reduction in our annual effective tax rate related to the refund of excess deferred taxes, which has been or will be materially offset by a corresponding decrease in revenues over the remainder of the fiscal year.

During the nine months ended June 30, 2021, we implemented ratemaking regulatory actions which resulted in an increase in annual operating income of $183.5 million. As of June 30, 2021, we had ratemaking efforts in progress seeking a total increase in annual operating income of $69.5 million.

Capital expenditures for the nine months ended June 30, 2021 were $1.4 billion. Over 85 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.

During the nine months ended June 30, 2021, we completed approximately $3.3 billion of long-term debt and equity financing, including the $2.2 billion of incremental financing issued to pay for the purchased gas costs incurred during Winter Storm Uri. As of June 30, 2021, our equity capitalization was 51.5 percent. Excluding the $2.2 billion of incremental financing, our equity capitalization was 60.2 percent. As of June 30, 2021, we had approximately $3.2 billion in total liquidity, including cash and cash equivalents and funds available through equity forward sales agreements.

As a result of our sustained financial performance, our Board of Directors increased the quarterly dividend by 8.7 percent for fiscal 2021.

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. Under our current rate design, approximately 70 percent of our distribution segment revenues are earned through the first six months of the fiscal year. Additionally, we currently recover approximately 60 percent of our distribution segment revenue, excluding gas costs, through the base customer charge, which partially separates the recovery of our approved rate from customer usage patterns.

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 have been approved by state regulatory commissions for approximately 97 percent of our residential and commercial revenues 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

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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. Revenues in our Texas and Mississippi service areas include 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.

The cost of gas typically does not have a direct impact on our operating income because these costs are recovered through our purchased gas cost adjustment mechanisms.  However, higher gas costs may adversely impact our accounts receivable collections, resulting in higher bad debt expense.  This risk is currently mitigated by rate design that allows us to collect from our customers the gas cost portion of our bad debt expense on approximately 78 percent of our residential and commercial revenues.  Additionally, higher gas costs may require us to increase borrowings under our credit facilities, resulting in higher interest expense.   Finally, 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.

Three Months Ended June 30, 2021 compared with Three Months Ended June 30, 2020

Financial and operational highlights for our distribution segment for the three months ended June 30, 2021 and 2020 are presented below.

	Three Months Ended June 30
	2021		2020		Change
	(In thousands, unless otherwise noted)
Operating revenues	$	558,750	$	435,308	$	123,442
Purchased gas cost	202,050		126,093		75,957
Operating expenses	288,577		246,704		41,873
Operating income	68,123		62,511		5,612
Other non-operating income	1,060		5,167		(4,107)
Interest charges	8,540		7,969		571
Income before income taxes	60,643		59,709		934
Non-cash income tax benefit	—		(13,467)		13,467
Income tax expense	7,354		14,277		(6,923)
Net income	$	53,289	$	58,899	$	(5,610)
Consolidated distribution sales volumes — MMcf	41,352		38,971		2,381
Consolidated distribution transportation volumes — MMcf	34,776		30,191		4,585
Total consolidated distribution throughput — MMcf	76,128		69,162		6,966
Consolidated distribution average cost of gas per Mcf sold	$	4.89	$	3.24	$	1.65

Operating income for our distribution segment increased nine percent, which primarily reflects:

•a $25.4 million net increase in rate adjustments, primarily in our Mid-Tex, Louisiana and Mississippi Divisions.

•an $8.9 million increase in net weather and consumption primarily attributed to colder weather experienced in the Mid-Tex and Louisiana Divisions.

Partially offset by:

•a $12.7 million increase in bad debt expense primarily due to the temporary suspension of collection activities.

•a $9.3 million increase in depreciation expense and property taxes associated with increased capital investments.

•a $3.2 million increase in pipeline maintenance and related activities.

•a $2.6 million increase in employee related costs.

The quarter-over-quarter decrease in our effective income tax rate reflects the anticipated impact on our annual effective income tax rate for the refund of excess deferred income taxes to customers. This reduction in income tax expense has been or will be materially offset with a corresponding reduction in revenues over the remainder of the fiscal year.

The following table shows our operating income by distribution division, in order of total rate base, for the three months ended June 30, 2021 and 2020. The presentation of our distribution operating income is included for financial reporting purposes and may not be appropriate for ratemaking purposes.

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	Three Months Ended June 30
	2021		2020		Change
	(In thousands)
Mid-Tex	$	33,135	$	26,597	$	6,538
Kentucky/Mid-States	11,773		13,026		(1,253)
Louisiana	11,027		9,272		1,755
West Texas	5,118		6,082		(964)
Mississippi	5,365		4,340		1,025
Colorado-Kansas	2,517		2,607		(90)
Other	(812)		587		(1,399)
Total	$	68,123	$	62,511	$	5,612

Nine Months Ended June 30, 2021 compared with Nine Months Ended June 30, 2020

Financial and operational highlights for our distribution segment for the nine months ended June 30, 2021 and 2020 are presented below.

	Nine Months Ended June 30
	2021		2020		Change
	(In thousands, unless otherwise noted)
Operating revenues	$	2,718,074	$	2,196,817	$	521,257
Purchased gas cost	1,304,269		942,586		361,683
Operating expenses	832,873		757,902		74,971
Operating income	580,932		496,329		84,603
Other non-operating income	1,135		1,930		(795)
Interest charges	33,269		35,128		(1,859)
Income before income taxes	548,798		463,131		85,667
Non-cash income tax benefit	—		(13,467)		13,467
Income tax expense	109,481		100,878		8,603
Net income	$	439,317	$	375,720	$	63,597
Consolidated distribution sales volumes — MMcf	275,691		257,390		18,301
Consolidated distribution transportation volumes — MMcf	120,150		115,200		4,950
Total consolidated distribution throughput — MMcf	395,841		372,590		23,251
Consolidated distribution average cost of gas per Mcf sold	$	4.73	$	3.66	$	1.07

Operating income for our distribution segment increased 17 percent, which primarily reflects:

•a $128.1 million net increase in rate adjustments, primarily in our Mid-Tex, Mississippi, Louisiana and West Texas Divisions.

•a $15.0 million increase from customer growth primarily in our Mid-Tex Division.

•a $4.9 million decrease in travel and entertainment expense.

Partially offset by:

•an $8.6 million decrease in service order revenues primarily due to the temporary suspension of collection activities.

•a $21.5 million increase in bad debt expense primarily due to the temporary suspension of collection activities.

•a $31.3 million increase in depreciation expense and property taxes associated with increased capital investments.

•a $5.9 million increase in pipeline maintenance and related activities.

The year-over-year decrease in our effective income tax rate reflects the anticipated impact on our annual effective income tax rate for the refund of excess deferred income taxes to customers. This reduction in income tax expense has been or will be materially offset with a corresponding reduction in revenues over the remainder of the fiscal year.

The following table shows our operating income by distribution division, in order of total rate base, for the nine months ended June 30, 2021 and 2020. The presentation of our distribution operating income is included for financial reporting purposes and may not be appropriate for ratemaking purposes.

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	Nine Months Ended June 30
	2021		2020		Change
	(In thousands)
Mid-Tex	$	284,104	$	214,599	$	69,505
Kentucky/Mid-States	69,127		70,693		(1,566)
Louisiana	66,718		64,867		1,851
West Texas	51,364		47,692		3,672
Mississippi	68,142		58,997		9,145
Colorado-Kansas	36,610		35,139		1,471
Other	4,867		4,342		525
Total	$	580,932	$	496,329	$	84,603

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 nine months of fiscal 2021, we implemented regulatory proceedings, resulting in a $139.6 million increase in annual operating income as summarized below. The ratemaking outcomes for rate case activity in fiscal 2021 include the refund of excess deferred income taxes resulting from previously enacted tax reform legislation and do not reflect the true economic benefit of the outcomes because they do not include the corresponding income tax benefit.

Rate Action	Annual Increase (Decrease) in Operating Income
	(In thousands)
Annual formula rate mechanisms	$	135,366
Rate case filings	5,119
Other rate activity	(877)
	$	139,608

The following ratemaking efforts seeking $69.5 million in increased annual operating income were in progress as of June 30, 2021:

Division	Rate Action	Jurisdiction	Operating Income (Loss) Requested
			(In thousands)
Kentucky/Mid-States	Infrastructure Mechanism	Virginia	$	350
Kentucky/Mid-States	Rate Case	Kentucky	14,394
Louisiana	Formula Rate Mechanism	Louisiana (1)	11,829
Mid-Tex	Infrastructure Mechanism	Environs (2)	4,643
Mid-Tex	Formula Rate Mechanism	Mid-Tex Cities	29,707
Mississippi	Infrastructure Mechanism	Mississippi	8,354
Mississippi	Formula Rate Mechanism	Mississippi	(730)
West Texas	Formula Rate Mechanism	West Texas Cities	903
			$	69,450

(1)    On July 14, 2021, the Louisiana Public Service Commission approved a settlement reached between the Company and Commission Staff for a reduction in operating income of $2.4 million. Rates were implemented on July 1, 2021.

(2)    The Railroad Commission of Texas approved this filing on August 3, 2021 for an increase in operating income of $4.6 million with rates to be implemented beginning September 1, 2021.

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

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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)	—
Louisiana	(1)	Rate Stabilization Clause (RSC)
Mississippi	System Integrity Rider (SIR)	Stable Rate Filing (SRF)
Tennessee	(1)	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)	—

(1)    Infrastructure mechanisms in Texas, Louisiana and Tennessee allow for the deferral of all expenses associated with capital expenditures incurred pursuant to these rules, which primarily consists of interest, depreciation and other taxes (Texas only), until the next rate proceeding (rate case or annual rate filing), at which time investment and costs would be recoverable through base rates.

The following annual formula rate mechanisms were approved during the nine months ended June 30, 2021:

Division	Jurisdiction	Test Year Ended	Increase in Annual Operating Income		Effective Date
		(In thousands)
2021 Filings:
Mid-Tex	ATM Cities (1)	12/31/2020	$	11,085	06/11/2021
West Texas	Triangle (1)	12/31/2020	416		06/11/2021
West Texas	Environs (1)	12/31/2020	1,267		06/11/2021
Mid-Tex	DARR (1)	09/30/2020	1,708		06/09/2021
Kentucky/Mid-States	Tennessee ARM	09/30/2020	10,260		06/01/2021
Colorado-Kansas	Kansas GSRS	09/30/2020	1,695		02/01/2021
Colorado-Kansas	Colorado SSIR	12/31/2021	2,366		01/01/2021
Mid-Tex	Mid-Tex Cities RRM	12/31/2019	82,645		12/01/2020
West Texas	West Texas Cities RRM	12/31/2019	5,645		12/01/2020
Mississippi	Mississippi - SIR	10/31/2021	10,556		11/01/2020
Mississippi	Mississippi - SRF	10/31/2021	5,856		11/01/2020
Kentucky/Mid-States	Virginia - SAVE	09/30/2021	305		10/01/2020
Kentucky/Mid-States	Kentucky PRP	09/30/2021	1,562		10/01/2020
Total 2021 Filings			$	135,366

(1)    The rate increases for these filings were approved based on the effective dates herein; however, the new rates will be implemented beginning September 1, 2021.

Rate Case Filings

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.

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The following table summarizes the rate cases that were completed during the nine months ended June 30, 2021.

Division	State	Increase in Annual Operating Income		Effective Date
		(In thousands)
2021 Rate Case Filings:
West Texas (ALDC)	Texas	$	5,119	06/01/2021
Total 2021 Rate Case Filings		$	5,119

Other Ratemaking Activity

The following table summarizes other ratemaking activity during the nine months ended June 30, 2021.

Division	Jurisdiction	Rate Activity	Decrease in Annual Operating Income		Effective Date
			(In thousands)
2021 Other Rate Activity:
Colorado-Kansas	Kansas	Ad Valorem (1)	$	(877)	02/01/2021
Total 2021 Other Rate Activity			$	(877)

(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 rate.

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 Permian Basin 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. Over 80 percent of this segment’s revenues are derived from these services. 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 12, 2021, APT made a GRIP filing that covered changes in net property, plant and equipment investment from January 1, 2020 through December 31, 2020 with a requested increase in operating income of $44.0 million. On May 11, 2021, the Texas Railroad Commission approved an increase in operating income of $43.9 million.

Three Months Ended June 30, 2021 compared with Three Months Ended June 30, 2020

Financial and operational highlights for our pipeline and storage segment for the three months ended June 30, 2021 and 2020 are presented below.

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	Three Months Ended June 30
	2021		2020		Change
	(In thousands, unless otherwise noted)
Mid-Tex / Affiliate transportation revenue	$	126,022	$	123,661	$	2,361
Third-party transportation revenue	33,565		32,749		816
Other revenue	3,400		1,598		1,802
Total operating revenues	162,987		158,008		4,979
Total purchased gas cost	691		(11)		702
Operating expenses	97,029		81,495		15,534
Operating income	65,267		76,524		(11,257)
Other non-operating income	4,827		2,068		2,759
Interest charges	12,422		11,611		811
Income before income taxes	57,672		66,981		(9,309)
Non-cash income tax benefit	—		(7,495)		7,495
Income tax expense	8,550		15,584		(7,034)
Net income	$	49,122	$	58,892	$	(9,770)
Gross pipeline transportation volumes — MMcf	187,408		185,414		1,994
Consolidated pipeline transportation volumes — MMcf	153,166		153,652		(486)

Operating income for our pipeline and storage segment decreased 15 percent, which primarily reflects:

•a $10.0 million decrease in revenue to refund excess deferred income taxes to APT customers.

•a $1.7 million net decrease in APT's thru-system activities primarily associated with the tightening of regional spreads driven by increased competing takeaway capacity in the Permian Basin.

•an $8.4 million increase in system maintenance expense primarily due to spending on hydro testing and in-line inspections.

•a $3.4 million increase in depreciation expense and property taxes associated with increased capital investments.

Partially offset by:

•a $14.4 million increase due to rate adjustments from the GRIP filing approved in May 2021. The increase in rates was driven by increased safety and reliability spending.

The quarter-over-quarter decrease in our effective income tax rate reflects the refund of excess deferred income taxes to APT customers that began during the second quarter of fiscal 2021.

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Nine Months Ended June 30, 2021 compared with Nine Months Ended June 30, 2020

Financial and operational highlights for our pipeline and storage segment for the nine months ended June 30, 2021 and 2020 are presented below.

	Nine Months Ended June 30
	2021		2020		Change
	(In thousands, unless otherwise noted)
Mid-Tex / Affiliate transportation revenue	$	371,871	$	350,394	$	21,477
Third-party transportation revenue	93,894		94,356		(462)
Other revenue	11,103		7,671		3,432
Total operating revenues	476,868		452,421		24,447
Total purchased gas cost	(440)		290		(730)
Operating expenses	244,206		225,206		19,000
Operating income	233,102		226,925		6,177
Other non-operating income	13,658		7,203		6,455
Interest charges	35,799		33,852		1,947
Income before income taxes	210,961		200,276		10,685
Non-cash income tax benefit	—		(7,495)		7,495
Income tax expense	33,435		47,381		(13,946)
Net income	$	177,526	$	160,390	$	17,136
Gross pipeline transportation volumes — MMcf	614,594		627,656		(13,062)
Consolidated pipeline transportation volumes — MMcf	428,331		453,646		(25,315)

Operating income for our pipeline and storage segment increased three percent, which primarily reflects:

•a $41.9 million increase due to rate adjustments from the GRIP filing approved in May 2020 and May 2021. The increase in rates was driven by increased safety and reliability spending.

Partially offset by:

•a $16.6 million decrease in revenue to refund excess deferred income taxes to APT customers during the second quarter of 2021.

•a $6.5 million net decrease in APT's thru-system activities. Thru-system volumes decreased seven percent due to lower production related to the impact of Winter Storm Uri as well as competing takeaway capacity. Additionally, prices were 12 percent lower primarily associated with the tightening of regional spreads driven by increased competing takeaway capacity in the Permian Basin.

•a $14.9 million increase in depreciation expense and property taxes associated with increased capital investments.

The year-over-year decrease in our effective income tax rate reflects the refund of excess deferred income taxes to APT customers that began during the second quarter of fiscal 2021.

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. Additionally, we have a $1.5 billion commercial paper program and four committed revolving credit facilities with $2.5 billion in total availability from third-party lenders. The commercial paper program and credit facilities provide cost-effective, short-term financing until it can be replaced with a balance of long-term debt and equity financing that achieves the Company's desired capital structure 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.

We have a shelf registration statement on file with the Securities and Exchange Commission (SEC) that allows us to issue up to $5.0 billion in common stock and/or debt securities. At June 30, 2021, $4.0 billion of securities were available for issuance under the shelf registration statement, which expires June 29, 2024.

We also have an at-the-market (ATM) equity sales program that allows us to issue and sell shares of our common stock up to an aggregate offering price of $1.0 billion (including shares of common stock that may be sold pursuant to forward sale agreements entered into in connection with the ATM equity sales program), which expires June 29, 2024. As of June 30, 2021, $1.0 billion of equity was available for issuance under this ATM equity sales program. Additionally, as of June 30, 2021, we

36

had $213.1 million in proceeds from executed forward sale agreements available through June 30, 2022. Additional details are summarized in Note 7 to the unaudited condensed consolidated financial statements.

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 2021. Additionally, we expect to continue to be able to obtain financing upon reasonable terms as necessary.

The following table presents our capitalization inclusive of short-term debt and the current portion of long-term debt as of June 30, 2021, September 30, 2020 and June 30, 2020:

	June 30, 2021				September 30, 2020				June 30, 2020
	(In thousands, except percentages)
Short-term debt	$	—	—	%	$	—	—	%	$	—	—	%
Long-term debt(1)	7,328,947		48.5	%	4,531,944		40.0	%	4,531,498		41.2	%
Shareholders’ equity(2)	7,773,758		51.5	%	6,791,203		60.0	%	6,461,471		58.8	%
Total	$	15,102,705	100.0	%	$	11,323,147	100.0	%	$	10,992,969	100.0	%

(1)     Inclusive of our finance leases.

(2)     Excluding the $2.2 billion of incremental financing issued to pay for the purchased gas costs incurred during Winter Storm Uri, our equity capitalization ratio would have been 60.2%.

Cash Flows

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 nine months ended June 30, 2021 and 2020 are presented below.

	Nine Months Ended June 30
	2021		2020		Change
	(In thousands)
Total cash provided by (used in)
Operating activities	$	(1,158,467)	$	895,486	$	(2,053,953)
Investing activities	(1,352,317)		(1,400,267)		47,950
Financing activities	3,014,597		688,295		2,326,302
Change in cash and cash equivalents	503,813		183,514		320,299
Cash and cash equivalents at beginning of period	20,808		24,550		(3,742)
Cash and cash equivalents at end of period	$	524,621	$	208,064	$	316,557

Cash flows from operating activities

For the nine months ended June 30, 2021, cash flow used from operating activities was $1.2 billion compared with cash flow generated from operating activities of $895.5 million for the nine months ended June 30, 2020. The $2.1 billion decrease in operating cash flows reflects gas costs incurred during Winter Storm Uri and the timing of customer collections partially offset by the positive effects of successful rate case outcomes achieved in fiscal 2020 and 2021.

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 87 percent of our capital spending has been committed to improving the safety and reliability of our system.

For the nine months ended June 30, 2021, cash used for investing activities was $1,352.3 million compared to $1,400.3 million for the nine months ended June 30, 2020. Capital spending decreased by $47.7 million, or 3 percent, primarily as a result of timing of spending in our distribution segment.

Cash flows from financing activities

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For the nine months ended June 30, 2021, our financing activities provided $3.0 billion of cash compared with $688.3 million of cash provided by financing activities in the prior-year period.

In the nine months ended June 30, 2021, we received $3.3 billion in net proceeds from the issuance of long-term debt and equity. We completed a public offering of $600 million of 1.50% senior notes due 2031, $1.1 billion of 0.625% senior notes due 2023 and $1.1 billion floating rate senior notes due 2023. Additionally, during the nine months ended June 30, 2021, we settled 4,537,669 shares that had been sold on a forward basis for net proceeds of $460.7 million. The net proceeds were used primarily to support capital spending and for other general corporate purposes, including the payment of natural gas purchases.

Cash dividends increased due to an 8.7 percent increase in our dividend rate and an increase in shares outstanding.

In the nine months ended June 30, 2020, we received $1.4 billion in net proceeds from the issuance of long-term debt and equity. The net proceeds were used primarily to support capital spending, reduce short term debt and for other general corporate purposes. Cash dividends increased due to a 9.5 percent increase in our dividend rate and an increase in shares outstanding.

The following table summarizes our share issuances for the nine months ended June 30, 2021 and 2020:

	Nine Months Ended June 30
	2021	2020
Shares issued:
Direct Stock Purchase Plan	61,561	72,403
1998 Long-Term Incentive Plan	241,340	249,175
Retirement Savings Plan and Trust	63,992	59,467
Equity Issuance	4,537,669	3,631,297
Total shares issued	4,904,562	4,012,342

Credit Ratings

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. 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). As a result of the impacts of Winter Storm Uri, during the second quarter of fiscal 2021, S&P lowered our long-term and short-term credit ratings by one notch and placed our ratings under negative outlook and Moody's reaffirmed its long-term and short-term credit ratings and placed our ratings under negative outlook. As of June 30, 2021, our outlook and current debt ratings, which are all considered investment grade are as follows:

	S&P	Moody’s
Senior unsecured long-term debt	A-	A1
Short-term debt	A-2	P-1
Outlook	Negative	Negative

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.

Debt Covenants

We were in compliance with all of our debt covenants as of June 30, 2021. Our debt covenants are described in greater detail in Note 6 to the unaudited condensed consolidated financial statements.

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Contractual Obligations and Commercial Commitments

Except as noted in Note 10 to the unaudited condensed consolidated financial statements, there were no significant changes in our contractual obligations and commercial commitments during the nine months ended June 30, 2021.

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

The following table shows the components of the change in fair value of our financial instruments for the three and nine months ended June 30, 2021 and 2020:

	Three Months Ended June 30				Nine Months Ended June 30
	2021		2020		2021		2020
	(In thousands)
Fair value of contracts at beginning of period	$	327,096	$	(832)	$	78,663	$	(3,990)
Contracts realized/settled	13		193		980		(6,743)
Fair value of new contracts	4,030		842		4,356		937
Other changes in value	(97,622)		(5,442)		149,518		4,557
Fair value of contracts at end of period	233,517		(5,239)		233,517		(5,239)
Netting of cash collateral	—		—		—		—
Cash collateral and fair value of contracts at period end	$	233,517	$	(5,239)	$	233,517	$	(5,239)

The fair value of our financial instruments at June 30, 2021 is presented below by time period and fair value source:

	Fair Value of Contracts at June 30, 2021
	Maturity in Years
Source of Fair Value	Less Than 1		1-3		4-5		Greater Than 5		Total Fair Value
	(In thousands)
Prices actively quoted	$	96,456	$	68,715	$	68,346	$	—	$	233,517
Prices based on models and other valuation methods	—		—		—		—		—
Total Fair Value	$	96,456	$	68,715	$	68,346	$	—	$	233,517

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OPERATING STATISTICS AND OTHER INFORMATION

The following tables present certain operating statistics for our distribution and pipeline and storage segments for the three and nine months ended June 30, 2021 and 2020.

Distribution Sales and Statistical Data

	Three Months Ended June 30		Nine Months Ended June 30
	2021	2020	2021	2020
METERS IN SERVICE, end of period
Residential	3,095,895	3,035,840	3,095,895	3,035,840
Commercial	281,628	276,349	281,628	276,349
Industrial	1,664	1,657	1,664	1,657
Public authority and other	8,264	8,486	8,264	8,486
Total meters	3,387,451	3,322,332	3,387,451	3,322,332
INVENTORY STORAGE BALANCE — Bcf	46.4	47.9	46.4	47.9
SALES VOLUMES — MMcf(1)
Gas sales volumes
Residential	17,590	18,653	162,154	148,557
Commercial	16,233	12,946	86,559	81,784
Industrial	6,260	6,181	20,650	20,949
Public authority and other	1,269	1,191	6,328	6,100
Total gas sales volumes	41,352	38,971	275,691	257,390
Transportation volumes	36,679	32,016	125,704	120,832
Total throughput	78,031	70,987	401,395	378,222

Pipeline and Storage Operations Sales and Statistical Data

	Three Months Ended June 30		Nine Months Ended June 30
	2021	2020	2021	2020
CUSTOMERS, end of period
Industrial	95	92	95	92
Other	202	239	202	239
Total	297	331	297	331
INVENTORY STORAGE BALANCE — Bcf	0.4	1.3	0.4	1.3
PIPELINE TRANSPORTATION VOLUMES — MMcf(1)	187,408	185,414	614,594	627,656

Note to preceding tables:

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

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.

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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, 2020. During the nine months ended June 30, 2021, 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 June 30, 2021 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

    We did not make any changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the third quarter of the fiscal year ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

During the nine months ended June 30, 2021, except as noted in Note 10 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 12 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. 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.

Item 1A. Risk Factors

There were no material changes from the risk factors disclosed under the heading “Risk Factors” in Item 1A in the Annual Report on Form 10-K for the year ended September 30, 2020.

Item 6. Exhibits

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

Exhibit Number	Description	Page Number or Incorporation by Reference to
3.1	Restated Articles of Incorporation of Atmos Energy Corporation - Texas (As Amended Effective February 3, 2010)	Exhibit 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 February 5, 2019 (File No. 1-10042)
4.1(a)	Global Security for the 1.500% Senior Notes due 2031	Exhibit 4.2 to Form 8-K dated October 1, 2020 (File No. 1-10042)
4.1(b)	Global Security for the 1.500% Senior Notes due 2031	Exhibit 4.3 to Form 8-K dated October 1, 2020 (File No. 1-10042)
4.1(c)	Global Security for the 0.625% Senior Notes due 2023	Exhibit 4.3 to Form 8-K dated March 9, 2021 (File No. 1-10042)
4.1(d)	Global Security for the 0.625% Senior Notes due 2023	Exhibit 4.4 to Form 8-K dated March 9, 2021 (File No. 1-10042)
4.1(e)	Global Security for the 0.625% Senior Notes due 2023	Exhibit 4.5 to Form 8-K dated March 9, 2021 (File No. 1-10042)
4.1(f)	Global Security for the Floating Rate Senior Notes due 2023	Exhibit 4.6 to Form 8-K dated March 9, 2021 (File No. 1-10042)
4.1(g)	Global Security for the Floating Rate Senior Notes due 2023	Exhibit 4.7 to Form 8-K dated March 9, 2021 (File No. 1-10042)
4.1(h)	Global Security for the Floating Rate Senior Notes due 2023	Exhibit 4.8 to Form 8-K dated March 9, 2021 (File No. 1-10042)
10.1	Revolving Credit Agreement, dated as of March 31, 2021, among Atmos Energy Corporation, Credit Agricole Corporate and Investment Bank, as the Administrative Agent, the agents, arrangers and bookrunners named therein, and the lenders named therein	Exhibit 10.1 to Form 8-K dated March 31, 2021 (File No. 1-10042)

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10.2	Revolving Credit Agreement, dated as of March 31, 2021, among Atmos Energy Corporation, Credit Agricole Corporate and Investment Bank, as the Administrative Agent, the agents, arrangers and bookrunners named therein, and the lenders named therein	Exhibit 10.2 to Form 8-K dated March 31, 2021 (File No. 1-10042)
10.3	Equity Distribution Agreement, dated as of June 29, 2021, among Atmos Energy Corporation and the Managers and Forward Purchasers named in Schedule A thereto	Exhibit 1.1 to Form 8-K dated June 29, 2021 (File No. 1-10042)
10.3(a)	Form of Master Forward Sale Confirmation	Exhibit 1.2 to Form 8-K dated June 29, 2021 (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
104	Cover Page Interactive Data File - the cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document

* 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.

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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: August 4, 2021

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