ATMOS ENERGY CORPORATION 2020 Annual Report Atmos Energy at a Glance Delivering safe, clean and affordable natural gas to more than 3 million homes and businesses Colorado-Kansas Division Denver, CO West Texas Division Lubbock, TX Atmos Energy Corporation Headquarters, Dallas, TX Kentucky/Mid-States Division Franklin, TN Waha Hub Mid-Tex Division Atmos Pipeline-Texas Division Dallas, TX Carthage Hub Mississippi Division Flowood, MS Katy Hub Louisiana Division Baton Rouge, LA Natural gas distribution areas Division offices Proprietary storage Major gas delivery hubs Financial Highlights 3 million Regulated distribution assets in eight states serving more than 3 million customers. $11B to $12B Projected annual capital expenditures of about $11 billion to $12 billion through fiscal 2025; over 80% spent on safety and reliability. 90% | 99% Earning on about 90% of annual capital expenditures within 6 months and on 99% within 12 months. 6% to 8% 36 years 6% to 8% forecasted earnings and dividends per share growth through fiscal 2025. 18 consecutive years of annual EPS growth; 36 consecutive years of annual dividend growth. ON THE COVER: Frank is a Colorado native who enjoys spending time with his family outdoors and volunteering at the Guadalupe Center in Greeley. Earnings Growth Through System and Business Modernization Constructive Regulatory Mechanisms Support System and Business Modernization $11 billion to $12 billion in capital investments through 2025; >80% allocated to safety + Constructive rate mechanisms reducing regulatory lag = 6% to 8% consolidated EPS growth R AT E B A S E ( I N B I L L I O N S ) E A R N I N G O N A N N U A L E A R N I N G S P E R S H A R E Pipeline and Storage Distribution $19.0-$21.0 I N V E S T M E N T S Within 0 – 6 Months Within 7–12 Months Greater than 12 Months $6.30-$6.70 $4.90 -$5.10 $4.72* $4.72 $10.7 $9.2 ~90% 2019 2020 2025E 2020 2021E 2025E Fiscal 2020 by the Numbers $580.5 million* $4.72 EPS* $1.9 billion $2.30 share $95.59 share Adjusted net income for the fiscal year was $580.5 million,* compared to $511.4 million in fiscal 2019. Adjusted earnings per diluted share in fiscal 2020 went up 37 cents, or 8.5 percent, to $4.72,* marking our 18th consecutive annual increase. In fiscal 2020 we spent $1.9 billion to modernize our natural gas distribution and transmission systems. *Adjusted net income and adjusted earnings per diluted share are Non-GAAP measures. See reconciliation on Page 2. Dividends paid in fiscal 2020 were $2.30 per share. Our stock closed at $95.59 on September 30, 2020. ATMOS ENERGY CORPORATI ON | 1 In fiscal 2020, Atmos Energy continued our journey to being the safest provider of natural gas services. We invested $1.9 billion with about 88 percent of the capital investment dedicated to safety and reliability projects. These investments not only improved the safety of our assets but also our environmental footprint. And, although our capital spending has increased, our average monthly bill remains one of the most affordable utility bills in the household. 845 miles We replaced approximately 845 miles of natural gas distribution and transmission pipelines to make our system even safer and more reliable. 54,000 lines We replaced more than 54,000 service lines. 226,000 hours We conducted 226,000 hours of safety and technical and other training in order to continue to provide safe and reliable service. 8.5 percent Adjusted earnings per diluted share increased 8.5 percent, to $4.72 for fiscal 2020 marking our 18th consecutive annual increase. Adusted net income for the fiscal year was $580 million, compared to $511 million in fiscal 2019. $2.30 per share Dividends paid in fiscal 2020 were $2.30 per share. In November 2020, the Board of Directors continued our trend of consecutive annual dividend increases for the 37th consecutive year by raising the indicated rate by 8.7 percent for fiscal 2021 to $2.50 per share. Non-GAAP Reconciliation —Adjusted Net Income and Earnings Per Diluted Share (in thousands, except per share data) 2020 2019 Net income Non-cash income tax benefit Adjusted net income Diluted net income per share Diluted EPS from non-cash income tax benefit Adjusted diluted net income per share 2 | ATMO S ENE R GY C ORPORAT I O N $ 601,443 $ 511,406 (20,962) $ 580,481 $ $ 4.89 (0.17) 4.72 $ $ $ — 511,406 4.35 — 4.35 A M E S S A G E F R O M L E A D E R S H I P Letter To Our Stakeholders or the 9th consecutive year, we executed our proven strategy which focused on operating safely and F reliably while we modernize our natural gas distribution, transmission, and storage systems. Fiscal 2020 brought Kim R. Cocklin unprecedented challenges to our country and the com- Executive Chairman of the Board munities we serve, but the resilience and adaptability of our 4,700 employees allowed us to successfully execute our plan. They quickly transitioned to a remote working environment due to the COVID-19 pandemic, and their skill, innovation, and teamwork positioned us to continue to be the safest provider of natural gas services. We invested $1.9 billion with approximately 88 percent of that capital investment dedicated to safety and reliability projects. We also replaced 845 miles of distribution and J. Kevin Akers President and Chief Executive Officer transmission mains and over 54,000 service lines. As November 13, 2020 a result, our system is safer and our company is stronger. Fueling safe and thriving communities Financial performance We a play a vital role in every community we serve Adjusted earnings per diluted share for fiscal 2020 was through our safe delivery of natural gas service. But $4.72,* an 8.5 percent increase compared to fiscal equally as important, is our time our talent and our 2019 and our eighteenth consecutive annual increase. resources invested in bringing out the best in our commu- Adjusted net income was $580 million,*of which our nities so they can thrive. In fiscal 2020, we rebranded distribution operations contributed 66 percent. During our corporate philanthropic activities under a new fiscal 2020, rate relief increased our operating income program called Fueling Safe and Thriving Communities. by $140 million and we benefited from net customer This program focuses on three primary areas: students, growth exceeding one percent. The impact of the community heroes and our most vulnerable neighbors. pandemic on our fiscal 2020 financial results was limited We donated $14 million in fiscal 2020 to support our because it began to impact our business after the winter friends and neighbors in need throughout our 1,400 heating season was complete. communities through our Fueling Safe and Thriving We raised over $1.6 billion of debt and equity financing Communities Program. Our donations supported local in fiscal 2020 that we used to support our capital food banks and meal programs in schools across our spending program and strengthen our financial profile. eight-state footprint, delivered over 12,000 meals to Additionally, we added $700 million in credit facilities to healthcare workers and first responders, and provided ensure we have ample liquidity. At September 30, 2020, support to agencies that help eligible customers stay our balance sheet had an equity-to-capital ratio of 60.0 warm with financial assistance to pay their gas bill. percent compared to 59.0 percent as of the fiscal 2019 * Adjusted net income and adjusted earnings per diluted share are Non-GAAP measures. See reconciliation on Page 2. year-end and we had $2.6 billion in liquidity on hand to meet anticipated financial needs. ATMOS ENERGY CORPORATI ON | 3 Investing in Safety Investments Drive Rate Base Growth which Drives Earnings per Share Growth 6% to 8% Annually $6.30-$6.70 Key Assumptions $4.72* $5 $4 $3 $2 $1 $0 • Capital expenditures of $11 billion – $12 billion through fiscal 2025, financed with a blend of long-term debt and equity • Maintain existing regulatory mechanisms for infrastructure investment • Normal weather • O&M expense inflation rate of 3.0% - 3.5% annually • Approximately $6.5 billion to $7.5 billion of incremental financing through fiscal 2025 2020 2025E *Adjusted net income and adjusted earnings per diluted share are Non-GAAP measures. See reconciliation on Page 2. The execution of our strategy has supported consistent at an annual growth rate of between 6 percent and 8 financial performance over a long period of time. Our percent through fiscal 2025. consistent financial performance was recognized in Our guidance for earnings per diluted share in fiscal October 2020 when we were selected to join the Dow 2021 ranges between $4.90 and $5.10. Net income is Jones Utility Average index. forecast to be between $635 million and $665 million Outlook System modernization is an ongoing effort that requires in fiscal 2021. Leadership update significant capital investments and partnering closely with Atmos Energy is pleased to have added Franklin H. Yoho regulators and customers to achieve balanced regulatory to our Board of Directors effective May 1, 2020. Mr. constructs. Our portfolio of regulatory mechanisms provides Yoho was formerly Executive Vice President and President for the accelerated recovery of investments in safety that of the natural gas business for Duke Energy where he support our ability to continue to increase our capital oversaw the company’s natural gas operations for the spending. In addition, replacing pipelines reduces leaks five-state regulated natural gas utility and was a member and methane emissions. Continuing to modernize our of Duke Energy’s Senior Management Committee. Mr. system helps us achieve our goal to replace cast iron and Yoho has over 35 years experience in the natural gas unprotected steel mains at an annual rate of 1.5 percent, industry, including senior leadership roles at Duke Energy, and to achieve our goal of reducing methane emissions by Piedmont Natural Gas, and Public Service Company of 50 percent from 2017 to 2035 in our distribution system. North Carolina. He previously served on the boards of Our capital spending for fiscal 2021 is forecast to be the American Gas Association, Southern Gas Association, between $2.0 billion and $2.2 billion. We expect our the advisory board for the Energy Production and capital expenditures through fiscal 2025 will be about Infrastructure Center (EPIC) at UNC Charlotte, and the $11 billion to $12 billion. Our total rate base is expected board of trustees for the Institute of Gas Technology. to grow from approximately $10.7 billion at the end of His experience will add significant value and important fiscal 2020 to between $19 billion and $21 billion by the thought diversity to our Board as we continue on our end of fiscal 2025. Accordingly, we project that earnings journey to becoming the nation’s safest provider of natural per diluted share and dividends per share will increase gas services. 4 | ATMO S ENE R GY C ORPORAT I O N 10K FINANCIALS 116 PAGES (Mark One) Í ‘ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2020 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to OR Commission file number 1-10042 Atmos Energy Corporation (Exact name of registrant as specified in its charter) Texas and Virginia (State or other jurisdiction of incorporation or organization) 1800 Three Lincoln Centre 5430 LBJ Freeway Dallas, Texas (Address of principal executive offices) 75-1743247 (IRS employer identification no.) 75240 (Zip code) Registrant’s telephone number, including area code: (972) 934-9227 Securities registered pursuant to Section 12(b) of the Act: Table of each class Trading Symbol Common stock No Par Value ATO Securities registered pursuant to Section 12(g) of the Act: None Name of each exchange on which registered New York Stock Exchange Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes Í Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ‘ 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 sub- ject to such filing requirements for the past 90 days. Yes Í No ‘ No ‘ No Í 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 Í No ‘ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See 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 Í 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Í Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ The aggregate market value of the common voting stock held by non-affiliates of the registrant as of the last business day of the registrant’s No Í most recently completed second fiscal quarter, March 31, 2020, was $11,938,304,144. As of November 6, 2020, the registrant had 125,889,456 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant’s Definitive Proxy Statement to be filed for the Annual Meeting of Shareholders on February 3, 2021 are incorporated by reference into Part III of this report. TABLE OF CONTENTS Glossary of Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. Item 10. Item 11. Item 12. Item 13. Item 14. Item 15. Item 16. Part I Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part II Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management’s Discussion and Analysis of Financial Condition and Results of Operations . . Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part III Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part IV Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 102 Page 3 4 15 21 22 23 23 23 25 25 39 41 94 94 96 96 97 97 97 97 [THIS PAGE INTENTIONALLY LEFT BLANK] GLOSSARY OF KEY TERMS Adjusted diluted net income per share . . . . . . . . . . . . . . . . . . . . . . . . . Non-GAAP measure defined as diluted net income per share before the one-time, non-cash income tax benefit Adjusted net income . . . . . . . . . . . . . . . Non-GAAP measure defined as net income before the one-time, non-cash income tax benefit AFUDC . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for funds used during construction AOCI . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated Other Comprehensive Income ARM . . . . . . . . . . . . . . . . . . . . . . . . . . . Annual Rate Mechanism ATO . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trading symbol for Atmos Energy Corporation common stock on the NYSE Bcf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Billion cubic feet COSO . . . . . . . . . . . . . . . . . . . . . . . . . . Committee of Sponsoring Organizations of the Treadway Commission DARR . . . . . . . . . . . . . . . . . . . . . . . . . . Dallas Annual Rate Review ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . Employee Retirement Income Security Act of 1974 FASB . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Accounting Standards Board FERC . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Energy Regulatory Commission GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . Generally Accepted Accounting Principles GRIP . . . . . . . . . . . . . . . . . . . . . . . . . . . Gas Reliability Infrastructure Program GSRS . . . . . . . . . . . . . . . . . . . . . . . . . . . Gas System Reliability Surcharge LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . London Interbank Offered Rate 1998 Long-Term Incentive Plan LTIP . . . . . . . . . . . . . . . . . . . . . . . . . . . Mcf MDWQ . . . . . . . . . . . . . . . . . . . . . . . . . Maximum daily withdrawal quantity Mid-Tex ATM Cities . . . . . . . . . . . . . . Represents a coalition of 47 incorporated cities or approximately . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thousand cubic feet 10 percent of the Mid-Tex Division’s customers. Mid-Tex Cities . . . . . . . . . . . . . . . . . . . Represents all incorporated cities other than Dallas and Mid-Tex ATM Cities, or approximately 72 percent of the Mid-Tex Division’s customers. MMcf . . . . . . . . . . . . . . . . . . . . . . . . . . . Million cubic feet Moody’s . . . . . . . . . . . . . . . . . . . . . . . . Moody’s Investor Service, Inc. NGA . . . . . . . . . . . . . . . . . . . . . . . . . . . Natural Gas Act of 1938 NTSB . . . . . . . . . . . . . . . . . . . . . . . . . . . National Transportation Safety Board NYSE . . . . . . . . . . . . . . . . . . . . . . . . . . New York Stock Exchange PHMSA . . . . . . . . . . . . . . . . . . . . . . . . . Pipeline and Hazardous Materials Safety Administration PPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension Protection Act of 2006 PRP . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pipeline Replacement Program RRC . . . . . . . . . . . . . . . . . . . . . . . . . . . . Railroad Commission of Texas RRM . . . . . . . . . . . . . . . . . . . . . . . . . . . Rate Review Mechanism RSC . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rate Stabilization Clause S&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . Standard & Poor’s Corporation SAVE . . . . . . . . . . . . . . . . . . . . . . . . . . Steps to Advance Virginia Energy SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States Securities and Exchange Commission SGR . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supplemental Growth Rider 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 3 The terms “we,” “our,” “us”, “Atmos Energy” and the “Company” refer to Atmos Energy Corporation and its subsidiaries, unless the context suggests otherwise. PART I ITEM 1. Business. Overview and Strategy Atmos Energy Corporation, headquartered in Dallas, Texas, and incorporated in Texas and Virginia, is the country’s largest natural-gas-only distributor based on number of customers. We safely deliver reliable, afford- able, efficient and abundant natural gas through regulated sales and transportation arrangements to over three million residential, commercial, public authority and industrial customers in eight states located primarily in the South. We also operate one of the largest intrastate pipelines in Texas based on miles of pipe. Atmos Energy’s vision is to be the safest provider of natural gas services. We intend to achieve this vision by: ‰ operating our business exceptionally well ‰ investing in our people and infrastructure ‰ enhancing our culture. Since 2011, our operating strategy has focused on modernizing our distribution and transmission system to improve safety and reliability. This operating strategy also allows us to reduce methane emissions from our sys- tem. Since that time, our capital expenditures have increased approximately 14 percent annually. Additionally, during this period, we have added new or modified existing regulatory mechanisms to reduce regulatory lag. Our core values include focusing on our employees and customers while conducting our business with honesty and integrity. We continue to strengthen our culture through ongoing communications with our employ- ees and enhanced employee training. Operating Segments As of September 30, 2020, we manage and review our consolidated operations through the following report- able 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. Distribution Segment Overview The following table summarizes key information about our six regulated natural gas distribution divisions, presented in order of total rate base. Division Service Areas Kentucky/Mid-States . . . . . . . . . . . . . . . . . . . . . . . . . . . Mid-Tex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas, including the Dallas/Fort Worth Metroplex Kentucky Tennessee Virginia Louisiana Amarillo, Lubbock, Midland Mississippi Colorado Kansas Mississippi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Colorado-Kansas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . West Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Communities Served 550 Customer Meters 1,751,898 230 270 80 110 170 182,639 156,820 24,493 368,332 320,085 267,482 123,423 138,009 4 We operate in our service areas under terms of non-exclusive franchise agreements granted by the various cities and towns that we serve. At September 30, 2020, we held 1,023 franchises having terms generally ranging from five to 35 years. A significant number of our franchises expire each year, which require renewal prior to the end of their terms. Historically, we have successfully renewed these franchises and believe that we will continue to be able to renew our franchises as they expire. Revenues in this operating segment are established by regulatory authorities in the states in which we oper- ate. These rates are intended to be sufficient to cover the costs of conducting business, including a reasonable return on invested capital. In addition, we transport natural gas for others through our distribution systems. Rates established by regulatory authorities often include cost adjustment mechanisms for costs that (i) are subject to significant price fluctuations compared to our other costs, (ii) represent a large component of our cost of service and (iii) are generally outside our control. Purchased gas cost adjustment mechanisms represent a common form of cost adjustment mechanism. Pur- chased gas cost adjustment mechanisms provide a method of recovering purchased gas costs on an ongoing basis without filing a rate case because they provide a dollar-for-dollar offset to increases or decreases in the cost of natural gas. Therefore, although substantially all of our distribution operating revenues fluctuate with the cost of gas that we purchase, distribution operating income is generally not affected by fluctuations in the cost of gas. Additionally, some jurisdictions have performance-based ratemaking adjustments to provide incentives to minimize purchased gas costs through improved storage management and use of financial instruments to reduce volatility in gas costs. Under the performance-based ratemaking adjustments, purchased gas costs savings are shared between the Company and its customers. Our supply of natural gas is provided by a variety of suppliers, including independent producers, marketers and pipeline companies, withdrawals of gas from proprietary and contracted storage assets and peaking and spot purchase agreements, as needed. Supply arrangements consist of both base load and swing supply (peaking) quantities and are contracted from our suppliers on a firm basis with various terms at market prices. Base load quantities are those that flow at a constant level throughout the month and swing supply quantities provide the flexibility to change daily quanti- ties to match increases or decreases in requirements related to weather conditions. Except for local production purchases, we select our natural gas suppliers through a competitive bidding process by periodically requesting proposals from suppliers that have demonstrated that they can provide reliable service. We select these suppliers based on their ability to deliver gas supply to our designated firm pipeline receipt points at the lowest reasonable cost. Major suppliers during fiscal 2020 were Castleton Commodities Merchant Trading L.P., CenterPoint Energy Services, Inc., ConocoPhillips Company, Devon Gas Services, L.P., EnLink Gas Marketing LP, Hartree Partners, L.P., Symmetry Energy Solutions, LLC, Targa Gas Marketing LLC, Texla Energy Management, Inc. and Twin Eagle Resources Management, LLC. The combination of base load, peaking and spot purchase agreements, coupled with the withdrawal of gas held in storage, allows us the flexibility to adjust to changes in weather, which minimizes our need to enter into long-term firm commitments. We estimate our peak-day availability of natural gas supply to be approximately 4.4 Bcf. The peak-day demand for our distribution operations in fiscal 2020 was on November 12, 2019, when sales to customers reached approximately 2.7 Bcf. Currently, our distribution divisions utilize 37 pipeline transportation companies, both interstate and intra- state, to transport our natural gas. The pipeline transportation agreements are firm and many of them have “pipeline no-notice” storage service, which provides for daily balancing between system requirements and nomi- nated flowing supplies. These agreements have been negotiated with the shortest term necessary while still main- taining our right of first refusal. The natural gas supply for our Mid-Tex Division is delivered primarily by our APT Division. To maintain our deliveries to high priority customers, we have the ability, and have exercised our right, to curtail deliveries to certain customers under the terms of interruptible contracts or applicable state regulations or statutes. Our customers’ demand on our system is not necessarily indicative of our ability to meet current or 5 anticipated market demands or immediate delivery requirements because of factors such as the physical limi- tations of gathering, storage and transmission systems, the duration and severity of cold weather, the availability of gas reserves from our suppliers, the ability to purchase additional supplies on a short-term basis and actions by federal and state regulatory authorities. Curtailment rights provide us the flexibility to meet the human-needs requirements of our customers on a firm basis. Priority allocations imposed by federal and state regulatory agen- cies, as well as other factors beyond our control, may affect our ability to meet the demands of our customers. We do not anticipate any problems with obtaining additional gas supply as needed for our customers. Pipeline and Storage Segment Overview Our pipeline and storage segment consists of the pipeline and storage operations of 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, extend- ing into or near the major producing areas of the Barnett Shale, the Texas Gulf Coast and the Permian Basin of West Texas. Through its system, APT provides transportation and storage services to our Mid-Tex Division, other third party local distribution companies, industrial and electric generation customers, marketers and pro- ducers. As part of its pipeline operations, APT owns and operates five underground storage reservoirs in Texas. Revenues earned from transportation and storage services for APT are subject to traditional ratemaking governed by the RRC. Rates are updated through periodic filings made under Texas’ GRIP. GRIP allows us to include in our rate base annually approved capital costs incurred in the prior calendar year provided that we file a complete rate case at least once every five years; the most recent of which was completed in August 2017. APT’s existing regulatory mechanisms allow certain transportation and storage services to be provided under market- based rates. 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 Louisi- ana distribution division for these services is subject to regulatory approval by the Louisiana Public Service Commission. We also manage two asset management plans in Louisiana that serve distribution affiliates of the Company, 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. Ratemaking Activity Overview The method of determining regulated rates varies among the states in which our regulated businesses oper- ate. The regulatory authorities have the responsibility of ensuring that utilities in their jurisdictions operate in the best interests of customers while providing utility companies the opportunity to earn a reasonable return on their investment. Generally, each regulatory authority reviews rate requests and establishes a rate structure intended to generate revenue sufficient to cover the costs of conducting business, including a reasonable return on invested capital. Our rate strategy focuses on reducing or eliminating regulatory lag, obtaining adequate returns and provid- ing stable, predictable margins, which benefit both our customers and the Company. As a result of our rate- making efforts in recent years, Atmos Energy has: ‰ Formula rate mechanisms in place in four states that provide for an annual rate review and adjustment to rates. ‰ Infrastructure programs in place in all of our states that provide for an annual adjustment to rates for qual- ifying capital expenditures. Through our annual formula rate mechanisms and infrastructure programs, we have the ability to recover approximately 90 percent of our capital expenditures within six months and substantially all of our capital expenditures within twelve months. 6 ‰ Authorization in tariffs, statute or commission rules that allows us to defer certain elements of our cost of service such as depreciation, ad valorem taxes and pension costs, until they are included in rates. ‰ WNA mechanisms in seven states that serve to minimize the effects of weather on approximately 97 percent of our distribution residential and commercial revenues. ‰ The ability to recover the gas cost portion of bad debts in five states. The following table provides a jurisdictional rate summary for our regulated operations as of September 30, 2020. This information is for regulatory purposes only and may not be representative of our actual financial position. Division Jurisdiction Atmos Pipeline — Texas . . . Texas Colorado-Kansas . . . . . . . . . Colorado Colorado SSIR Kansas Kansas GSRS Kentucky/Mid-States . . . . . . Kentucky . . . . . . . . . . . . . . . . . . . . . . . Kentucky-PRP . . . . . . . . . . . . . . . . . . . . . . . Tennessee . . . . . . . . . . . . . . . . . . . . . . . Virginia . . . . . . . . . . . . . . . . . . . . . . . Virginia-SAVE Louisiana . . . . . . . . . . . . . . . Louisiana Mid-Tex . . . . . . . . . . . . . . . . Mid-Tex Cities(6) Mid-Tex - ATM Cities Mid-Tex - Environs Dallas Mississippi . . . . . . . . . . . . . . Mississippi(7) West Texas . . . . . . . . . . . . . . West Texas Cities(8) (10) Mississippi - SIR(7) West Texas - ALDC West Texas - Environs Effective Date of Last Rate/GRIP Action Rate Base (thousands)(1) Authorized Rate of Return(1) Authorized Debt/Equity Ratio(1) Authorized Return on Equity(1) 05/20/2020 05/03/2018 01/01/2020 04/01/2020 05/01/2019 05/08/2019 10/01/2019 06/01/2019 04/01/2019 10/01/2019 07/01/2020 10/01/2019 06/01/2020 05/20/2020 09/01/2020 11/01/2019 11/01/2019 10/01/2019 04/28/2020 06/16/2020 (4) $2,698,343 134,726 56,507 242,314 26,322 424,929 27,315 389,061 47,827 684 747,021 8.87% 47/53 7.55% 44/56 7.55% 44/56 7.03% 44/56 (4) 7.49% 42/58 7.49% 42/58 7.79% 42/58 7.43% 42/58 7.43% 42/58 7.57% 42/58 3,052,562(5) 7.83% 42/58 3,654,981(5) 7.97% 40/60 3,654,985(5) 7.97% 40/60 3,510,508(5) 7.83% 40/60 (4) 7.81% 448,533 185,844 (4) 7.81% 591,513(9) 7.83% 42/58 671,738(9) 8.57% 48/52 667,994(9) 7.97% 40/60 11.50% 9.45% 9.45% 9.10% (4) 9.65% 9.65% 9.80% 9.20% 9.20% 9.80% 9.80% 9.80% 9.80% 9.80% (4) (4) 9.80% 10.50% 9.80% Division Jurisdiction Bad Debt Rider(2) Formula Rate Infrastructure Mechanism Performance Based Rate Program(3) WNA Period Atmos Pipeline — Texas . . . . . Texas Colorado-Kansas . . . . . . . . . . . Colorado Kansas Kentucky/Mid-States . . . . . . . . Kentucky Tennessee Virginia Louisiana . . . . . . . . . . . . . . . . . Louisiana Mid-Tex Cities . . . . . . . . . . . . . Texas Mid-Tex — Dallas . . . . . . . . . . Texas Mississippi . . . . . . . . . . . . . . . . Mississippi West Texas . . . . . . . . . . . . . . . Texas No No Yes Yes Yes Yes No Yes Yes No Yes Yes No No No Yes No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes N/A No Yes Yes Yes No No No No No No N/A N/A October-May November-April October-April January-December December-March November-April November-April November-April October-May (1) The rate base, authorized rate of return, authorized debt/equity ratio and authorized return on equity pre- sented in this table are those from the most recent regulatory filing for each jurisdiction. These rate bases, rates of return, debt/equity ratios and returns on equity are not necessarily indicative of current or future rate bases, rates of return or returns on equity. (2) The bad debt rider allows us to recover from ratepayers the gas cost portion of bad debts. 7 (3) The performance-based rate program provides incentives to distribution companies to minimize purchased gas costs by allowing the companies and their customers to share the purchased gas costs savings. (4) A rate base, rate of return, return on equity or debt/equity ratio was not included in the respective state commission’s final decision. (5) The Mid-Tex rate base represents a “system-wide,” or 100 percent, of the Mid-Tex Division’s rate base. (6) The Mid-Tex Cities approved the Formula Rate Mechanism filing with rates effective December 1, 2020, which included a rate base of $3,726.3 million, an authorized return of 7.53%, a debt/equity ratio of 42/58 and an authorized ROE of 9.80%. (7) The Mississippi Public Service Commission approved a settlement at its meeting on October 6, 2020, which included a rate base of $721.6 million and an authorized return of 7.81%. New rates were implemented November 1, 2020. (8) The West Texas Cities includes all West Texas Division cities except Amarillo, Channing, Dalhart and Lubbock (ALDC). (9) The West Texas rate base represents a “system-wide,” or 100 percent, of the West Texas Division’s rate base. (10) The West Texas Cities approved the Formula Rate Mechanism filing with rates effective December 1, 2020, which included a rate base of $660.9 million, an authorized return of 7.53%, a debt/equity ratio of 42/58 and an authorized ROE of 9.80%. Although substantial progress has been made in recent years to improve rate design and recovery of invest- ment across our service areas, we are continuing to seek improvements in rate design to address cost variations and pursue tariffs that reduce regulatory lag associated with investments. Further, potential changes in federal energy policy, federal safety regulations and changing economic conditions will necessitate continued vigilance by the Company and our regulators in meeting the challenges presented by these external factors. Recent Ratemaking Activity The amounts described in the following sections represent the annual 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 the commission’s or other governmental authority’s final ruling. The following table summarizes the annualized ratemaking outcomes we implemented in each of the last three fiscal years. Rate Action Annual formula rate mechanisms . . . . . . . . . . . . . . Rate case filings . . . . . . . . . . . . . . . . . . . . . . . . . . . Other ratemaking activity . . . . . . . . . . . . . . . . . . . . 2020 Annual Increase (Decrease) to Operating Income For the Fiscal Year Ended September 30 2018 2019 (In thousands) $114,810 1,656 214 $160,857 (1,057) 353 $ 92,472 (12,853) 457 Additionally, the following ratemaking efforts seeking $131.9 million in annual operating income were ini- tiated during fiscal 2020 but had not been completed or implemented as of September 30, 2020: $160,153 $116,680 $ 80,076 8 Division Rate Action Jurisdiction Kentucky/Mid-States . . . . . . . . . . . Kentucky/Mid-States . . . . . . . . . . . Mid-Tex . . . . . . . . . . . . . . . . . . . . . Mississippi . . . . . . . . . . . . . . . . . . . Mississippi . . . . . . . . . . . . . . . . . . . West Texas . . . . . . . . . . . . . . . . . . . West Texas . . . . . . . . . . . . . . . . . . . Infrastructure Mechanism Infrastructure Mechanism Formula Rate Mechanism Infrastructure Mechanism Formula Rate Mechanism Formula Rate Mechanism Rate Case Virginia (1) Kentucky (2) Mid-Tex Cities (3) Mississippi (4) Mississippi (4) West Texas Cities (5) Amarillo, Lubbock, Dalhart and Channing Operating Income Requested (In thousands) $ 410 3,049 94,060 10,526 8,379 7,057 8,406 $131,887 (1) On August 21, 2020, the State Corporation Commission of Virginia approved a rate increase of $0.3 million effective October 1, 2020. (2) On September 30, 2020, the Kentucky Public Service Commission approved a rate increase of $1.6 million effective October 1, 2020. (3) The Mid-Tex Cities approved a rate increase of $82.6 million with new rates to be implemented on December 1, 2020. (4) The Mississippi Public Service Commission approved an increase in operating income of $10.6 million for the SIR filing and $5.9 million for the SRF filing. New rates were implemented November 1, 2020. (5) The West Texas Cities approved a rate increase of $5.6 million with new rates to be implemented on December 1, 2020. Our recent ratemaking activity is discussed in greater detail below. 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. The following table summarizes our annual formula rate mechanisms by state. State Infrastructure Programs Formula Rate Mechanisms Annual Formula Rate Mechanisms Colorado . . . . . . . . . . System Safety and Integrity Rider (SSIR) — Kansas . . . . . . . . . . . . Gas System Reliability Surcharge (GSRS) Kentucky . . . . . . . . . . Pipeline Replacement Program (PRP) (1) Louisiana . . . . . . . . . . Mississippi . . . . . . . . . System Integrity Rider (SIR) Tennessee . . . . . . . . . (1) Texas . . . . . . . . . . . . . Gas Reliability Infrastructure Program (GRIP), (1) Virginia . . . . . . . . . . . Steps to Advance Virginia Energy (SAVE) — — — Rate Stabilization Clause (RSC) Stable Rate Filing (SRF) Annual Rate Mechanism (ARM) Dallas Annual Rate Review (DARR), Rate Review Mechanism (RRM) (1) Infrastructure mechanisms in Texas, Louisiana and Tennessee allow for the deferral of all expenses asso- ciated 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. 9 The following table summarizes our annual formula rate mechanisms with effective dates during the fiscal years ended September 30, 2020, 2019 and 2018: Division Jurisdiction Test Year Ended 2020 Filings: Mid-Tex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DARR Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . Louisiana (1) West Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . Environs (2) Kentucky/Mid-States . . . . . . . . . . . . . . . . . . . Tennessee ARM Mid-Tex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ATM Cities (2) Mid-Tex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Environs (2) Atmos Pipeline - Texas . . . . . . . . . . . . . . . . . Texas West Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . Amarillo, Lubbock, Dalhart and Channing (2) Colorado-Kansas . . . . . . . . . . . . . . . . . . . . . . Colorado SSIR Mississippi . . . . . . . . . . . . . . . . . . . . . . . . . . . Mississippi - SIR Mississippi . . . . . . . . . . . . . . . . . . . . . . . . . . . Mississippi - SRF Kentucky/Mid-States . . . . . . . . . . . . . . . . . . . Virginia - SAVE Kentucky/Mid-States . . . . . . . . . . . . . . . . . . . Kentucky PRP Mid-Tex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mid-Tex RRM Cities West Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . West Texas Cities RRM Total 2020 Filings . . . . . . . . . . . . . . . . . . . 2019 Filings: Mid-Tex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ATM Cities Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . LGS Mid-Tex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Environs West Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . Environs Mid-Tex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DARR Kentucky/Mid-States . . . . . . . . . . . . . . . . . . . Tennessee ARM Atmos Pipeline - Texas . . . . . . . . . . . . . . . . . Texas West Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . Amarillo, Lubbock, Dalhart and Channing Colorado-Kansas . . . . . . . . . . . . . . . . . . . . . . Kansas GSRS Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trans La Colorado-Kansas . . . . . . . . . . . . . . . . . . . . . . Colorado GIS Colorado-Kansas . . . . . . . . . . . . . . . . . . . . . . Colorado SSIR Mississippi . . . . . . . . . . . . . . . . . . . . . . . . . . . Mississippi - SIR Mississippi . . . . . . . . . . . . . . . . . . . . . . . . . . . Mississippi - SRF Kentucky/Mid-States . . . . . . . . . . . . . . . . . . . Tennessee ARM Mid-Tex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mid-Tex RRM Cities West Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . West Texas Cities RRM 09/2019 12/2019 12/2019 05/2019 12/2019 12/2019 12/2019 12/2019 12/2020 10/2020 10/2020 09/2020 09/2020 12/2018 12/2018 12/2018 12/2018 12/2018 12/2018 09/2018 05/2020 12/2018 12/2018 12/2018 09/2018 12/2019 12/2019 10/2019 10/2019 05/2019 12/2017 12/2017 Increase (Decrease) in Annual Operating Income (In thousands) $ 14,746 14,781 1,031 714 11,148 4,440 49,251 5,937 2,082 7,586 6,886 84 2,912 34,380 4,879 $160,857 $ 6,591 7,124 2,435 1,005 9,452 2,393 49,225 5,692 1,562 4,719 87 2,147 7,135 (118) (5,032) 17,633 2,760 Effective Date 09/01/2020 07/01/2020 06/16/2020 06/15/2020 06/12/2020 05/20/2020 05/20/2020 04/28/2020 01/01/2020 11/01/2019 11/01/2019 10/01/2019 10/01/2019 10/01/2019 10/01/2019 09/26/2019 07/01/2019 06/04/2019 06/04/2019 06/01/2019 06/01/2019 05/07/2019 05/01/2019 05/01/2019 04/01/2019 04/01/2019 01/01/2019 11/01/2018 11/01/2018 10/15/2018 10/01/2018 10/01/2018 Total 2019 Filings . . . . . . . . . . . . . . . . . . . $114,810 10 2018 Filings: Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . LGS West Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . Amarillo, Lubbock, Dalhart and Channing Mid-Tex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Environs West Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . Environs Atmos Pipeline - Texas . . . . . . . . . . . . . . . . . Texas Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trans La Colorado-Kansas . . . . . . . . . . . . . . . . . . . . . . Kansas GSRS Mississippi . . . . . . . . . . . . . . . . . . . . . . . . . . . Mississippi - SIR Mississippi . . . . . . . . . . . . . . . . . . . . . . . . . . . Mississippi - SGR (3) Mississippi . . . . . . . . . . . . . . . . . . . . . . . . . . . Mississippi - SRF (3) Colorado-Kansas . . . . . . . . . . . . . . . . . . . . . . Colorado SSIR Atmos Pipeline - Texas . . . . . . . . . . . . . . . . . Texas Kentucky/Mid-States . . . . . . . . . . . . . . . . . . . Kentucky - PRP Kentucky/Mid-States . . . . . . . . . . . . . . . . . . . Virginia - SAVE 12/2017 $ (1,521) 07/01/2018 12/2017 12/2017 12/2017 12/2017 09/2017 09/2018 10/2018 10/2018 10/2018 12/2018 12/2016 09/2018 09/2017 4,418 1,604 826 42,173 (1,913) 820 7,658 1,245 — 2,228 28,988 5,638 308 06/08/2018 06/05/2018 06/05/2018 05/22/2018 05/01/2018 02/27/2018 01/01/2018 01/01/2018 01/01/2018 12/20/2017 12/05/2017 10/27/2017 10/01/2017 Total 2018 Filings . . . . . . . . . . . . . . . . . . . $ 92,472 (1) Beginning in fiscal 2020, our Trans La and LGS filings were combined into one filing, per Commission order. These rates were implemented on July 1, 2020 subject to refund. (2) The rate increases for our Texas GRIP filings were approved based on the effective date herein; however, the new rates were implemented beginning September 1, 2020. (3) Beginning in fiscal 2019, our SGR rate base was combined with our SRF rate base, per Commission order. Rate Case Filings A rate case is a formal request from Atmos Energy to a regulatory authority to increase rates that are charged to 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 reasonable rate of return to our shareholders and ensure that we continue to safely deliver reliable, reasonably priced natural gas service to our customers. 11 The following table summarizes our recent rate cases: Division State 2020 Rate Case Filings: West Texas (Triangle) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas Colorado-Kansas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kansas Total 2020 Rate Case Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 Rate Case Filings: Mid-Tex (ATM Cities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas Kentucky/Mid-States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kentucky Kentucky/Mid-States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Virginia Mid-Tex (Environs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas West Texas (Environs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas Total 2019 Rate Case Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 Rate Case Filings: Colorado-Kansas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Colorado Kentucky/Mid-States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kentucky Mid-Tex - City of Dallas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas Total 2018 Rate Case Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase (Decrease) in Annual Operating Income (In thousands) $ (808) (249) $ (1,057) $ 2,113 3,441 (400) (2,674) (824) $ 1,656 $ (241) (7,504) (5,108) $(12,853) Effective Date 04/21/2020 04/01/2020 06/01/2019 05/08/2019 04/01/2019 01/01/2019 01/01/2019 05/03/2018 05/03/2018 02/14/2018 Other Ratemaking Activity The following table summarizes other ratemaking activity during the fiscal years ended September 30, 2020, 2019 and 2018: Division Jurisdiction Rate Activity 2020 Other Rate Activity: Colorado-Kansas . . . . . . . . . . . . . . . . . . . . Total 2020 Other Rate Activity . . . . . . . 2019 Other Rate Activity: Colorado-Kansas . . . . . . . . . . . . . . . . . . . . Total 2019 Other Rate Activity . . . . . . . 2018 Other Rate Activity: Colorado-Kansas . . . . . . . . . . . . . . . . . . . . Total 2018 Other Rate Activity . . . . . . . Kansas Ad Valorem (1) Kansas Ad Valorem(1) Kansas Ad-Valorem(1) Increase in Annual Operating Income (In thousands) $353 $353 $214 $214 $457 $457 Effective Date 02/01/2020 02/01/2019 02/01/2018 (1) The Ad Valorem filing relates to property taxes that are either over or undercollected compared to the amount included in our Kansas service area’s base rates. Other Regulation We are regulated by various state or local public utility authorities. We are also subject to regulation by the United States Department of Transportation with respect to safety requirements in the operation and maintenance of our transmission and distribution facilities. In addition, our operations are also subject to various state and 12 federal laws regulating environmental matters. From time to time, we receive inquiries regarding various environmental matters. We believe that our properties and operations comply with, and are operated in con- formity with, applicable safety and environmental statutes and regulations. There are no administrative or judicial proceedings arising under environmental quality statutes pending or known to be contemplated by governmental agencies which would have a material adverse effect on us or our operations. The Pipeline and Hazardous Materials Safety Administration (PHMSA), within the U.S. Department of Transportation, develops and enforces regulations for the safe, reliable and environmentally sound operation of the pipeline transportation system. The PHMSA pipeline safety statutes provide for states to assume safety authority over intrastate natural transmission and distribution gas pipelines. State pipeline safety programs are responsible for adopting and enforcing the federal and state pipeline safety regulations for intrastate natural gas transmission and distribution pipelines. The Federal Energy Regulatory Commission (FERC) allows, pursuant to Section 311 of the Natural Gas Policy Act (NGA), gas transportation services through our APT assets “on behalf of” interstate pipelines or local distribution companies served by interstate pipelines, without subjecting these assets to the jurisdiction of the FERC under the NGA. Additionally, the FERC has regulatory authority over the use and release of interstate pipeline and storage capacity. The FERC also has authority to detect and prevent market manipulation and to enforce compliance with FERC’s other rules, policies and orders by companies engaged in the sale, purchase, transportation or storage of natural gas in interstate commerce. We have taken what we believe are the necessary and appropriate steps to comply with these regulations. The SEC and the Commodities Futures Trading Commission, pursuant to the Dodd–Frank Act, established numerous regulations relating to U.S. financial markets. We enacted procedures and modified existing business practices and contractual arrangements to comply with such regulations. There are, however, some rulemaking proceedings that have not yet been finalized, including those relating to capital and margin rules for (non– cleared) swaps. We do not expect these rules to directly impact our business practices or collateral requirements. However, depending on the substance of these final rules, in addition to certain international regulatory require- ments still under development that are similar to Dodd–Frank, our swap counterparties could be subject to addi- tional and potentially significant capitalization requirements. These regulations could motivate counterparties to increase our collateral requirements or cash postings. Competition Although our regulated distribution operations are not currently in significant direct competition with any other distributors of natural gas to residential and commercial customers within our service areas, we do compete with other natural gas suppliers and suppliers of alternative fuels for sales to industrial customers. We compete in all aspects of our business with alternative energy sources, including, in particular, electricity. Electric utilities offer electricity as a rival energy source and compete for the space heating, water heating and cooking markets. Promotional incentives, improved equipment efficiencies and promotional rates all contribute to the acceptability of electrical equipment. The principal means to compete against alternative fuels is lower prices, and natural gas historically has maintained its price advantage in the residential, commercial and industrial markets. Our pipeline and storage operations have historically faced competition from other existing intrastate pipe- lines seeking to provide or arrange transportation, storage and other services for customers. In the last few years, several new pipelines have been completed, which has increased the level of competition in this segment of our business. Employees The Corporate Responsibility, Sustainability, and Safety Committee of the Board of Directors oversees matters relating to equality, diversity, and inclusion; human workplace rights; employee health and safety; and the Company’s vision, values, and culture. It also assists management in integrating responsibility and sustain- ability into strategic business activities to create long-term shareholder value. Our culture respects and appreciates inclusion and diversity. Thus, we strive to have a workforce that reflects the unique 1,400 communities that we serve. At September 30, 2020, we had 4,694 employees, sub- stantially unchanged from last year. We monitor our workforce data on a calendar year basis. As of 13 December 31, 2019, 61 percent of our employees worked in field roles and 39 percent worked in support/shared services roles. WORKFORCE BY GENDER 77% Men 23% Women WORKFORCE BY RACE/ETHNICITY 2% Asian 13% Black or African American 16% Hispanic or Latino <1% Native American or Alaska Native <1% Native Hawaiian or Pacific Islander 1% Two or more races 67% White To recruit and hire individuals with a variety of skills, talents, backgrounds and experiences, we value and cultivate our strong relationships with hundreds of community and diversity outreach sources. We also target jobs fairs including those focused on minority, veteran and women candidates and partner with local colleges and universities to identify and recruit qualified applicants in each of the cities and towns we serve. Over the last five calendar years, we hired over 1,800 employees. RECENT HIRES BY GENDER within 5 years 69% Men 31% Women RECENT HIRES BY RACE/ETHNICITY within 5 years 2% Asian 17% Black or African American 19% Hispanic or Latino 1% Native American or Alaska Native 5% Two or more races 56% White We perform succession planning annually to ensure that we develop and sustain a strong bench of talent capable of performing at the highest levels. Not only is talent identified, but potential paths of development are discussed to ensure that employees have an opportunity to build their skills and are well-prepared for future roles. The strength of our succession planning process is evident through our long history of promoting our leaders from within the organization. Available Information Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports, and amendments to those reports, and other forms that we file with or furnish to the Securities and Exchange Commission (SEC) at their website, www.sec.gov, are also available free of charge at our website, www.atmosenergy.com, under “Publications and SEC Filings” under the “Investors” tab under “Our Company”, as soon as reasonably practicable, after we electronically file these reports with, or furnish these reports to, the SEC. We will also provide copies of these reports free of charge upon request to Shareholder Relations at the address and telephone number appearing below: Shareholder Relations Atmos Energy Corporation P.O. Box 650205 Dallas, Texas 75265-0205 972-855-3729 Corporate Governance In accordance with and pursuant to relevant related rules and regulations of the SEC as well as corporate governance-related listing standards of the New York Stock Exchange (NYSE), the Board of Directors of the Company has established and periodically updated our Corporate Governance Guidelines and Code of Conduct, which is applicable to all directors, officers and employees of the Company. In addition, in accordance with and 14 pursuant to such NYSE listing standards, our Chief Executive Officer during fiscal 2020, John K. Akers, certified to the New York Stock Exchange that he was not aware of any violations by the Company of NYSE corporate governance listing standards. The Board of Directors also annually reviews and updates, if necessary, the charters for each of its Audit, Human Resources, Nominating and Corporate Governance and Corporate Responsibility, Sustainability and Safety Committees. All of the foregoing documents are posted on our website, www.atmosenergy.com, under “Corporate Governance” under the “Corporate Responsibility” tab under “Our Company”. We will also provide copies of all corporate governance documents free of charge upon request to Shareholder Relations at the address listed above. ITEM 1A. Risk Factors. Our financial and operating results are subject to a number of risk factors, many of which are not within our control. Investors should carefully consider the following discussion of risk factors as well as other information appearing in this report. These factors include the following, which are organized by category: Regulatory and Legislative Risks We are subject to federal, state and local regulations that affect our operations and financial results. We are subject to regulatory oversight from various federal, state and local regulatory authorities in the eight states that we serve. Therefore, our returns are continuously monitored and are subject to challenge for their reasonableness by the appropriate regulatory authorities or other third-party intervenors. In the normal course of business, as a regulated entity, we often need to place assets in service and establish historical test periods before rate cases that seek to adjust our allowed returns to recover that investment can be filed. Further, the regulatory review process can be lengthy in the context of traditional ratemaking. Because of this process, we suffer the negative financial effects of having placed assets in service without the benefit of rate relief, which is commonly referred to as “regulatory lag.” However, in the last several years, a number of regulatory authorities in the states we serve have approved rate mechanisms that provide for annual adjustments to rates that allow us to recover the cost of investments made to replace existing infrastructure or reflect changes in our cost of service. These mechanisms work to effec- tively reduce the regulatory lag inherent in the ratemaking process. However, regulatory lag could significantly increase if the regulatory authorities modify or terminate these rate mechanisms. The regulatory process also involves the risk that regulatory authorities may (i) review our purchases of natural gas and adjust the amount of our gas costs that we pass through to our customers or (ii) limit the costs we may have incurred from our cost of service that can be recovered from customers. We are also subject to laws, regulations and other legal requirements enacted or adopted by federal, state and local governmental authorities relating to protection of the environment and health and safety matters, including those that govern discharges of substances into the air and water, the management and disposal of hazardous substances and waste, the clean-up of contaminated sites, groundwater quality and availability, plant and wildlife protection, as well as work practices related to employee health and safety. Environmental legis- lation also requires that our facilities, sites and other properties associated with our operations be operated, main- tained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. Failure to comply with these laws, regulations, permits and licenses may expose us to fines, penalties or interruptions in our operations that could be significant to our financial results. In addition, existing environmental regulations may be revised or our operations may become subject to new regulations. Some of our operations are subject to increased federal regulatory oversight that could affect our operations and financial results. FERC has regulatory authority over some of our operations, including the use and release of interstate pipe- line and storage capacity. FERC has adopted rules designed to prevent market power abuse and market manipu- lation and to promote compliance with FERC’s other rules, policies and orders by companies engaged in the sale, purchase, transportation or storage of natural gas in interstate commerce. These rules carry increased penalties for violations. Although we have taken steps to structure current and future transactions to comply with 15 applicable current FERC regulations, changes in FERC regulations or their interpretation by FERC or additional regulations issued by FERC in the future could also adversely affect our business, financial condition or financial results. We may experience increased federal, state and local regulation of the safety of our operations. The safety and protection of the public, our customers and our employees is our top priority. We constantly monitor and maintain our pipeline and distribution systems to ensure that natural gas is delivered safely, reliably and efficiently through our network of more than 75,000 miles of distribution and transmission lines. As in recent years, natural gas distribution and pipeline companies are continuing to encounter increasing federal, state and local oversight of the safety of their operations. Although we believe these are costs ultimately recoverable through our rates, the costs of complying with new laws and regulations may have at least a short-term adverse impact on our operating costs and financial results. Greenhouse gas emissions or other legislation or regulations intended to address climate change could increase our operating costs, adversely affecting our financial results, growth, cash flows and results of operations. Federal, regional and/or state legislative and/or regulatory initiatives may attempt to control or limit the causes of climate change, including greenhouse gas emissions, such as carbon dioxide and methane. Such laws or regulations could impose costs tied to greenhouse gas emissions, operational requirements or restrictions, or additional charges to fund energy efficiency activities. They could also provide a cost advantage to alternative energy sources, impose costs or restrictions on end users of natural gas, or result in other costs or requirements, such as costs associated with the adoption of new infrastructure and technology to respond to new mandates. The focus on climate change could adversely impact the reputation of fossil fuel products or services. The occurrence of the foregoing events could put upward pressure on the cost of natural gas relative to other energy sources, increase our costs and the prices we charge to customers, reduce the demand for natural gas or cause fuel switch- ing to other energy sources, and impact the competitive position of natural gas and the ability to serve new or existing customers, adversely affecting our business, results of operations and cash flows. Operational Risks We may incur significant costs and liabilities resulting from pipeline integrity and other similar programs and related repairs. PHMSA requires pipeline operators to develop integrity management programs to comprehensively evaluate certain areas along their pipelines and to take additional measures to protect pipeline segments located in “high consequence areas” where a leak or rupture could potentially do the most harm. As a pipeline operator, the Company is required to: ‰ perform ongoing assessments of pipeline integrity; ‰ identify and characterize applicable threats to pipeline segments that could impact a “high consequence area”; ‰ improve data collection, integration and analysis; ‰ repair and remediate the pipeline as necessary; and ‰ implement preventative and mitigating actions. The Company incurs significant costs associated with its compliance with existing PHMSA and comparable state regulations. Although we believe these are costs ultimately recoverable through our rates, the costs of com- plying with new laws and regulations may have at least a short-term adverse impact on our operating costs and financial results. For example, the adoption of new regulations requiring more comprehensive or stringent safety standards could require installation of new or modified safety controls, new capital projects, or accelerated main- tenance programs, all of which could require a potentially significant increase in operating costs. 16 Distributing, transporting and storing natural gas involve risks that may result in accidents and additional operating costs. Our operations involve a number of hazards and operating risks inherent in storing and transporting natural gas that could affect the public safety and reliability of our distribution system. While Atmos Energy, with the support from each of its regulatory commissions, is accelerating the replacement of aging pipeline infrastructure, operating issues such as leaks, accidents, equipment problems and incidents, including explosions and fire, could result in legal liability, repair and remediation costs, increased operating costs, significant increased capital expenditures, regulatory fines and penalties and other costs and a loss of customer confidence. We maintain liability and property insurance coverage in place for many of these hazards and risks. However, because some of our transmission pipeline and storage facilities are near or are in populated areas, any loss of human life or adverse financial results resulting from such events could be large. If these events were not fully covered by our general liability and property insurance, which policies are subject to certain limits and deductibles, our oper- ations or financial results could be adversely affected. If contracted gas supplies, interstate pipeline and/or storage services are not available or delivered in a timely manner, our ability to meet our customers’ natural gas requirements may be impaired and our financial condition may be adversely affected. In order to meet our customers’ annual and seasonal natural gas demands, we must obtain a sufficient sup- ply of natural gas, interstate pipeline capacity and storage capacity. If we are unable to obtain these, either from our suppliers’ inability to deliver the contracted commodity or the inability to secure replacement quantities, our financial condition and results of operations may be adversely affected. If a substantial disruption to or reduction in interstate natural gas pipelines’ transmission and storage capacity occurred due to operational failures or dis- ruptions, legislative or regulatory actions, hurricanes, tornadoes, floods, terrorist or cyber-attacks or acts of war, our operations or financial results could be adversely affected. Our operations are subject to increased competition. In residential and commercial customer markets, our distribution operations compete with other energy products, such as electricity and propane. Our primary product competition is with electricity for heating, water heating and cooking. Increases in the price of natural gas could negatively impact our competitive position by decreasing the price benefits of natural gas to the consumer. This could adversely impact our business if our customer growth slows or if our customers further conserve their use of gas, resulting in reduced gas purchases and customer billings. In the case of industrial customers, such as manufacturing plants, adverse economic conditions, including higher gas costs, could cause these customers to use alternative sources of energy, such as electricity, or bypass our systems in favor of special competitive contracts with lower per-unit costs. Our pipeline and storage oper- ations historically have faced limited competition from other existing intrastate pipelines and gas marketers seek- ing to provide or arrange transportation, storage and other services for customers. However, in the last few years, several new pipelines have been completed, which has increased the level of competition in this segment of our business. Adverse weather conditions could affect our operations or financial results. We have weather-normalized rates for approximately 97 percent of our residential and commercial revenues in our distribution operations, which substantially mitigates the adverse effects of warmer-than-normal weather for meters in those service areas. However, there is no assurance that we will continue to receive such regulatory protection from adverse weather in our rates in the future. The loss of such weather-normalized rates could have an adverse effect on our operations and financial results. In addition, our operating results may continue to vary somewhat with the actual temperatures during the winter heating season. Additionally, sustained cold weather could challenge our ability to adequately meet customer demand in our operations. 17 The operations and financial results of the Company could be adversely impacted as a result of climate change. As climate change occurs, our businesses could be adversely impacted, although we believe it is likely that any such resulting impacts would occur very gradually over a long period of time and thus would be difficult to quantify with any degree of specificity. Such climate change could cause shifts in population, including custom- ers moving away from our service territories. It could also result in more frequent and more severe weather events, such as hurricanes and tornadoes, which could increase our costs to repair damaged facilities and restore service to our customers. If we were unable to deliver natural gas to our customers, our financial results would be impacted by lost revenues, and we generally would have to seek approval from regulators to recover restoration costs. To the extent we would be unable to recover those costs, or if higher rates resulting from our recovery of such costs would result in reduced demand for our services, our future business, financial condition or financial results could be adversely impacted. The inability to continue to hire, train and retain operational, technical and managerial personnel could adversely affect our results of operations. Although the average age of the employee base of Atmos Energy is not significantly changing year over year, there are still a number of employees who will become eligible to retire within the next five to 10 years. If we were unable to hire appropriate personnel or contractors to fill future needs, the Company could encounter operating challenges and increased costs, primarily due to a loss of knowledge, errors due to inexperience or the lengthy time period typically required to adequately train replacement personnel. In addition, higher costs could result from loss of productivity or increased safety compliance issues. The inability to hire, train and retain new operational, technical and managerial personnel adequately and to transfer institutional knowledge and expertise could adversely affect our ability to manage and operate our business. If we were unable to hire, train and retain appropriately qualified personnel, our results of operations could be adversely affected. Increased dependence on technology may hinder the Company’s business operations and adversely affect its financial condition and results of operations if such technologies fail. Over the last several years, the Company has implemented or acquired a variety of technological tools including both Company-owned information technology and technological services provided by outside parties. These tools and systems support critical functions including, scheduling and dispatching of service technicians, automated meter reading systems, customer care and billing, operational plant logistics, management reporting, and external financial reporting. The failure of these or other similarly important technologies, or the Company’s inability to have these technologies supported, updated, expanded, or integrated into other technologies, could hinder its business operations and adversely impact its financial condition and results of operations. Although the Company has, when possible, developed alternative sources of technology and built redundancy into its computer networks and tools, there can be no assurance that these efforts would protect against all potential issues related to the loss of any such technologies. Cyber-attacks or acts of cyber-terrorism 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. Our business operations and information technology systems may be vulnerable to an attack by individuals or organizations intending to disrupt our business operations and information technology systems, even though the Company has implemented policies, procedures and controls to prevent and detect these activities. We use our information technology systems to manage our distribution and intrastate pipeline and storage operations and other business processes. Disruption of those systems could adversely impact our ability to safely deliver natural gas to our customers, operate our pipeline and storage systems or serve our customers timely. Accordingly, if such an attack or act of terrorism were to occur, our operations and financial results could be adversely affected. 18 In addition, we use our information technology systems to protect confidential or sensitive customer, employee and Company information developed and maintained in the normal course of our business. Any attack on such systems that would result in the unauthorized release of customer, employee or other confidential or sensitive data could have a material adverse effect on our business reputation, increase our costs and expose us to additional material legal claims and liability. Even though we have insurance coverage in place for many of these cyber-related risks, if such an attack or act of terrorism were to occur, our operations and financial results could be adversely affected to the extent not fully covered by such insurance coverage. Natural disasters, terrorist activities or other significant events could adversely affect our operations or financial results. Natural disasters are always a threat to our assets and operations. In addition, the threat of terrorist activities could lead to increased economic instability and volatility in the price of natural gas that could affect our oper- ations. Also, companies in our industry may face a heightened risk of exposure to actual acts of terrorism, which could subject our operations to increased risks. As a result, the availability of insurance covering such risks may become more limited, which could increase the risk that an event could adversely affect our operations or finan- cial results. Financial, Economic and Market Risks Our growth in the future may be limited by the nature of our business, which requires extensive capital spending. Our operations are capital-intensive. We must make significant capital expenditures on a long-term basis to modernize our distribution and transmission system and to comply with the safety rules and regulations issued by the regulatory authorities responsible for the service areas we operate. In addition, we must continually build new capacity to serve the growing needs of the communities we serve. The magnitude of these expenditures may be affected by a number of factors, including new regulations, the general state of the economy and weather. 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. The cost and availability of borrowing funds from third party lenders or issuing equity is dependent on the liquidity of the credit markets, interest rates and other market conditions. This in turn may limit the amount of funds we can invest in our infrastructure. The Company is dependent on continued access to the credit and capital markets to execute our business strategy. Our long-term debt is currently rated as “investment grade” by Standard & Poor’s Corporation and Moody’s Investors Service, Inc. Similar to most companies, we rely upon access to both short-term and long-term credit and capital markets to satisfy our liquidity requirements. If adverse credit conditions were to cause a significant limitation on our access to the private credit and public capital markets, we could see a reduction in our liquidity. A significant reduction in our liquidity could in turn trigger a negative change in our ratings outlook or even a reduction in our credit ratings by one or more of the credit rating agencies. Such a downgrade could further limit our access to private credit and/or public capital markets and increase our costs of borrowing. While we believe we can meet our capital requirements from our operations and the sources of financing available to us, we can provide no assurance that we will continue to be able to do so in the future, especially if the market price of natural gas increases significantly. The future effects on our business, liquidity and financial results of a deterioration of current conditions in the credit and capital markets could be material and adverse to us, both in the ways described above or in other ways that we do not currently anticipate. 19 We are exposed to market risks that are beyond our control, which could adversely affect our financial results. We are subject to market risks beyond our control, including (i) commodity price volatility caused by mar- ket supply and demand dynamics, counterparty performance or counterparty creditworthiness, and (ii) interest rate risk. We are generally insulated from commodity price risk through our purchased gas cost mechanisms. With respect to interest rate risk, we have been operating in a relatively low interest-rate environment in recent years compared to historical norms for both short and long-term interest rates. However, increases in interest rates could adversely affect our future financial results to the extent that we do not recover our actual interest expense in our rates. The concentration of our operations in the State of Texas exposes our operations and financial results to economic conditions, weather patterns and regulatory decisions in Texas. Approximately 70 percent of our consolidated operations are located in the State of Texas. This concen- tration of our business in Texas means that our operations and financial results may be significantly affected by changes in the Texas economy in general, weather patterns and regulatory decisions by state and local regulatory authorities in Texas. A deterioration in economic conditions could adversely affect our customers and negatively impact our financial results. Any adverse changes in economic conditions in the United States, especially in the states in which we oper- ate, could adversely affect the financial resources of many domestic households. As a result, our customers could seek to use less gas and it may be more difficult for them to pay their gas bills. This would likely lead to slower collections and higher than normal levels of accounts receivable. This, in turn, could increase our financing requirements. Additionally, should economic conditions deteriorate, our industrial customers could seek alter- native energy sources, which could result in lower sales volumes. Increased gas costs could adversely impact our customer base and customer collections and increase our level of indebtedness. Rapid increases in the costs of purchased gas would cause us to experience a significant increase in short- term debt. We must pay suppliers for gas when it is purchased, which can be significantly in advance of when these costs may be recovered through the collection of monthly customer bills for gas delivered. Increases in purchased gas costs also slow our natural gas distribution collection efforts as customers are more likely to delay the payment of their gas bills, leading to higher than normal accounts receivable. This could result in higher short-term debt levels, greater collection efforts and increased bad debt expense. The costs of providing health care benefits, pension and postretirement health care benefits and related funding requirements may increase substantially. We provide health care benefits, a cash-balance pension plan and postretirement health care benefits to eligi- ble full-time employees. The costs of providing health care benefits to our employees could significantly increase over time due to rapidly increasing health care inflation, and any future legislative changes related to the provi- sion of health care benefits. The impact of additional costs which are likely to be passed on to the Company is difficult to measure at this time. The costs of providing a cash-balance pension plan to eligible full-time employees prior to 2011 and post- retirement health care benefits to eligible full-time employees and related funding requirements could be influ- enced by changes in the market value of the assets funding our pension and postretirement health care plans. Any significant declines in the value of these investments due to sustained declines in equity markets or a reduction in bond yields could increase the costs of our pension and postretirement health care plans and related funding requirements in the future. Further, our costs of providing such benefits and related funding requirements are also subject to a number of factors, including (i) changing demographics, including longer life expectancy of benefi- ciaries and an expected increase in the number of eligible former employees over the next five to ten years; 20 (ii) various actuarial calculations and assumptions which may differ materially from actual results due primarily to changing market and economic conditions, including changes in interest rates, and higher or lower withdrawal rates; and (iii) future government regulation. The costs to the Company of providing these benefits and related funding requirements could also increase materially in the future, should there be a material reduction in the amount of the recovery of these costs through our rates or should significant delays develop in the timing of the recovery of such costs, which could adversely affect our financial results. The outbreak of COVID-19 and its impact on business and economic conditions could negatively affect our business, results of operations and financial condition. The scale and scope of the recent COVID-19 outbreak, the resulting pandemic, and the impact on the economy and financial markets could adversely affect the Company’s business, results of operations and finan- cial condition. As an essential business, the Company continues to provide natural gas services and has implemented business continuity and emergency response plans to continue to provide natural gas services to customers and support the Company’s operations, while taking health and safety measures such as implementing worker distancing measures and using a remote workforce where possible. However, there is no assurance that the continued spread of COVID-19 and efforts to contain the virus (including, but not limited to, voluntary and mandatory quarantines, restrictions on travel, limiting gatherings of people, and reduced operations and extended closures of many businesses and institutions) will not materially impact our business, results of operations and financial condition. In particular, the continued spread of COVID-19 and efforts to contain the virus could: ‰ impact customer demand for natural gas, particularly from commercial and industrial customers; ‰ reduce the availability and productivity of our employees and contractors; ‰ cause us to experience an increase in costs as a result of our emergency measures, delayed payments from our customers and uncollectable accounts; ‰ cause the Company’s contractors, suppliers and other business partners to be unable to fulfill their con- tractual obligations; ‰ result in our inability to meet the requirements of the covenants in our existing credit facilities, including covenants regarding the ratio of indebtedness to total capitalization; ‰ cause a deterioration in our financial metrics or the business environment that impacts our credit ratings; ‰ impact our liquidity position and cost of and ability to access funds from financial institutions and capital markets; and ‰ cause other unpredictable events. The situation surrounding COVID-19 remains fluid and the likelihood of an impact on the Company that could be material increases the longer the virus impacts activity levels in the United States. Therefore, it is diffi- cult to predict with certainty the potential impact of the virus on the Company’s business, results of operations and financial condition. To the extent the COVID-19 pandemic has an adverse impact on the Company’s business, results of oper- ations and financial condition, it may also have the effect of heightening many of the other risk factors disclosed herein, such as those relating to 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 commod- ity price volatility, counterparty performance or creditworthiness and interest rate risk; and the impact of adverse economic conditions on our customers. ITEM 1B. Unresolved Staff Comments. Not applicable. 21 ITEM 2. Properties. Distribution, transmission and related assets At September 30, 2020, in our distribution segment, we owned an aggregate of 71,558 miles of underground distribution and transmission mains throughout our distribution systems. These mains are located on easements or rights-of-way. We maintain our mains through a program of continuous inspection and repair and believe that our system of mains is in good condition. Through our pipeline and storage segment we also owned 5,684 miles of gas transmission lines. Storage Assets We own underground gas storage facilities in several states to supplement the supply of natural gas in peri- ods of peak demand. The following table summarizes certain information regarding our underground gas storage facilities at September 30, 2020: State Distribution Segment Kentucky . . . . . . . . . . . . . . . . . . . . . . . . . Kansas . . . . . . . . . . . . . . . . . . . . . . . . . . . Mississippi . . . . . . . . . . . . . . . . . . . . . . . . Usable Capacity (Mcf) Cushion Gas (Mcf)(1) Total Capacity (Mcf) 7,956,991 3,239,000 1,907,571 9,562,283 2,300,000 2,442,917 17,519,274 5,539,000 4,350,488 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,103,562 14,305,200 27,408,762 Maximum Daily Delivery Capability (Mcf) 158,100 45,000 31,000 234,100 Pipeline and Storage Segment Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . 46,083,549 411,040 15,878,025 256,900 61,961,574 667,940 1,710,000 56,000 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,494,589 16,134,925 62,629,514 1,766,000 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,598,151 30,440,125 90,038,276 2,000,100 (1) Cushion gas represents the volume of gas that must be retained in a facility to maintain reservoir pressure. Additionally, we contract for storage service in underground storage facilities on many of the interstate and intrastate pipelines serving us to supplement our proprietary storage capacity. The following table summarizes our contracted storage capacity at September 30, 2020: Segment Division/Company Distribution Segment Colorado-Kansas Division Kentucky/Mid-States Division Louisiana Division Mid-Tex Division Mississippi Division West Texas Division Maximum Storage Quantity (MMBtu) 6,343,728 8,175,103 2,594,875 4,000,000 5,099,536 5,500,000 Maximum Daily Withdrawal Quantity (MDWQ)(1) 147,965 226,320 177,765 150,000 164,764 176,000 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,713,242 1,042,814 Pipeline and Storage Segment Trans Louisiana Gas Pipeline, Inc. 1,000,000 47,500 Total Contracted Storage Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,713,242 1,090,314 (1) Maximum daily withdrawal quantity (MDWQ) amounts will fluctuate depending upon the season and the month. Unless otherwise noted, MDWQ amounts represent the MDWQ amounts as of November 1, which is the beginning of the winter heating season. 22 ITEM 3. Legal Proceedings. See Note 12 to the consolidated financial statements, which is incorporated in this Item 3 by reference. ITEM 4. Mine Safety Disclosures. Not applicable. PART II ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our stock trades on the New York Stock Exchange under the trading symbol “ATO.” The dividends paid per share of our common stock for fiscal 2020 and 2019 are listed below. Quarter ended: December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . September 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fiscal 2020 Fiscal 2019 $0.575 0.575 0.575 0.575 $ 2.30 $0.525 0.525 0.525 0.525 $ 2.10 Dividends are payable at the discretion of our Board of Directors out of legally available funds. The Board of Directors typically declares dividends in the same fiscal quarter in which they are paid. As of October 31, 2020, there were 11,199 holders of record of our common stock. Future payments of dividends, and the amounts of these dividends, will depend on our financial condition, results of operations, capital requirements and other factors. We sold no securities during fiscal 2020 that were not registered under the Securities Act of 1933, as amended. Performance Graph The performance graph and table below compares the yearly percentage change in our total return to share- holders for the last five fiscal years with the total return of the S&P 500 Stock Index (S&P 500), the total return of the S&P 500 Utilities Industry Index and the cumulative total return of the customized peer company group described in Part II, Item 5 of our Annual Report on Form 10-K for fiscal 2019, referred to herein as the Old Comparison Company Index. The Old Comparison Company Index is comprised of natural gas distribution companies with similar revenues, market capitalizations and asset bases to that of the Company. The graph and table below assume that $100.00 was invested on September 30, 2015 in our common stock, the S&P 500, the S&P 500 Utilities Industry Index and in the common stock of the companies in the Old Comparison Company Index, as well as a reinvestment of dividends paid on such investments throughout the period. 23 Comparison of Five-Year Cumulative Total Return among Atmos Energy Corporation, S&P 500 Index, S&P 500 Utilities Industry Index and Old Comparison Company Index $220 $210 $200 $190 $180 $170 $160 $150 $140 $130 $120 $110 $100 $90 9/30/2015 9/30/2016 9/30/2017 9/30/2018 9/30/2019 9/30/2020 Atmos Energy Corporation S&P 500 Stock Index S&P 500 Utilities Stock Index Old Comparison Company Index 9/30/2015 9/30/2016 9/30/2017 9/30/2018 9/30/2019 9/30/2020 Cumulative Total Return Atmos Energy Corporation . . . . . . . . . . . . S&P 500 Stock Index . . . . . . . . . . . . . . . . S&P 500 Utilities Stock Index . . . . . . . . . Old Comparison Company Index(1) . . . . . . 100.00 100.00 100.00 100.00 131.10 115.43 117.37 123.44 151.00 136.91 131.49 143.69 172.94 161.43 135.34 152.10 214.09 168.30 172.02 198.43 183.63 193.80 163.47 188.11 (1) The Old Comparison Company Index reflects the cumulative total return of the group of utility companies described in Part II, Item 5 of our Annual Report on Form 10-K for fiscal 2019, except that Vectren Corpo- ration has since been acquired, and as a result, its cumulative total return is not included in the graph. The following table sets forth the number of securities authorized for issuance under our equity compensa- tion plans at September 30, 2020. Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted-average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) Equity compensation plans approved by security holders: 1998 Long-Term Incentive Plan . . . . . . . 952,586(1) Total equity compensation plans approved by security holders Equity compensation plans not approved by security holders 952,586 — Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 952,586 $ $ — — — — 1,288,782 1,288,782 — 1,288,782 (1) Comprised of a total of 355,481 time-lapse restricted stock units, 361,039 director share units and 236,066 performance-based restricted stock units at the target level of performance granted under our 1998 Long- Term Incentive Plan. 24 ITEM 6. Selected Financial Data. The following table sets forth selected financial data of the Company and should be read in conjunction with the consolidated financial statements included herein. 2020 2019 Fiscal Year Ended September 30 2018 (In thousands, except per share data) 2017 2016 Results of Operations Operating revenues . . . . . . . . . . . Operating income(1) . . . . . . . . . . . Income from continuing operations . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . Diluted income per share from continuing operations . . . . . . . Diluted net income per share . . . . Cash dividends declared per share . . . . . . . . . . . . . . . . . . . . Financial Condition Net property, plant and equipment(2) . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . Capitalization: Shareholders’ equity . . . . . . . . Long-term debt (excluding $ 2,821,137 824,099 $ $ 2,901,848 746,058 $ $ 3,115,546 727,934 $ $ 2,759,735 735,628 $ $ 2,454,648 665,368 $ $ $ $ $ $ 601,443 601,443 4.89 4.89 2.30 $ $ $ $ $ 511,406 511,406 4.35 4.35 2.10 $ $ $ $ $ 603,064 603,064 5.43 5.43 1.94 $ $ $ $ $ 382,711 396,421 3.60 3.73 1.80 $ $ $ $ $ 345,542 350,104 3.33 3.38 1.68 $13,355,347 $15,359,032 $11,787,669 $13,367,619 $10,371,147 $11,874,437 $ 9,259,182 $10,749,596 $ 8,268,606 $10,010,889 $ 6,791,203 $ 5,750,223 $ 4,769,951 $ 3,898,666 $ 3,463,059 current maturities) . . . . . . . . 4,531,779 3,529,452 2,493,665 3,067,045 2,188,779 Total capitalization . . . . . . . . . . . $11,322,982 $ 9,279,675 $ 7,263,616 $ 6,965,711 $ 5,651,838 (1) In accordance with our adoption of new accounting standards, changes in comprehensive income statement presentation were implemented on a retrospective basis and impacted previously issued financial statements for the fiscal years ended 2016 through 2018. (2) Amounts shown are net of assets held for sale related to the divestiture of our natural gas marketing business for fiscal year 2016. ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. INTRODUCTION This section provides management’s discussion of the financial condition, changes in financial condition and results of operations of Atmos Energy Corporation and its consolidated subsidiaries with specific information on results of operations and liquidity and capital resources. It includes management’s interpretation of our financial results, the factors affecting these results, the major factors expected to affect future operating results and future investment and financing plans. This discussion should be read in conjunction with our con- solidated financial statements and notes thereto. Several factors exist that could influence our future financial performance, some of which are described in Item 1A above, “Risk Factors”. They should be considered in connection with evaluating forward-looking state- ments contained in this report or otherwise made by or on behalf of us since these factors could cause actual results and conditions to differ materially from those set out in such forward-looking statements. 25 Cautionary Statement for the Purposes of the Safe Harbor under the Private Securities Litigation Reform Act of 1995 The statements contained in this Annual Report on Form 10-K 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 state- ments 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, mar- kets, 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; possi- ble 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 avail- ability and accessibility of contracted gas supplies, interstate pipeline and/or storage services; increased competi- tion 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; 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. CRITICAL ACCOUNTING POLICIES Our 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 judg- ments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures of contingent assets and liabilities. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from estimates. Our significant accounting policies are discussed in Note 2 to our consolidated financial statements. The accounting policies discussed below are both important to the presentation of our financial condition and results of operations and require management to make difficult, subjective or complex accounting estimates. Accord- ingly, these critical accounting policies are reviewed periodically by the Audit Committee of the Board of Direc- tors. 26 Factors Influencing Application of the Policy Decisions of regulatory authorities Issuance of new regu- lations or regulatory mechanisms Assessing the probability of the recoverability of deferred costs Continuing to meet the criteria of a cost-based, rate regulated entity for accounting purposes Estimates of delivered sales volumes based on actual tariff information and weather information and estimates of customer consumption and/or behavior Estimates of purchased gas costs related to esti- mated deliveries Estimates of amounts bil- led subject to refund Critical Accounting Policy Summary of Policy Regulation . . . . . . . . . . . . . . Our distribution and pipeline operations meet the criteria of a cost-based, rate-regulated entity under accounting principles generally accepted in the United States. Accordingly, the financial results for these operations reflect the effects of the rate- making and accounting practices and policies of the various regulatory commissions to which we are subject. Unbilled Revenue . . . . . . . . . As a result, certain costs that would normally be expensed under accounting principles generally accepted in the United States are permitted to be capitalized or deferred on the balance sheet because it is probable they can be recovered through rates. Further, regulation may impact the period in which revenues or expenses are recog- nized. The amounts expected to be recovered or recognized are based upon historical experience and our understanding of the regulations. Discontinuing the application of this method of accounting for regulatory assets and liabilities or changes in the accounting for our various regu- latory mechanisms could significantly increase our operating expenses as fewer costs would likely be capitalized or deferred on the balance sheet, which could reduce our net income. We follow the revenue accrual method of account- ing for distribution segment revenues whereby revenues attributable to gas delivered to custom- ers, but not yet billed under the cycle billing method, are estimated and accrued and the related costs are charged to expense. When permitted, we implement rates that have not been formally approved by our regulatory author- ities, subject to refund. We recognize this revenue and establish a reserve for amounts that could be refunded based on our experience for the juris- diction in which the rates were implemented. 27 Critical Accounting Policy Pension and other postretirement plans Factors Influencing Application of the Policy General economic and market conditions Assumed investment returns by asset class Assumed future salary increases Assumed discount rate Projected timing of future cash disbursements Health care cost experi- ence trends Participant demographic information Actuarial mortality assumptions Impact of legislation Impact of regulation Summary of Policy Pension and other postretirement plan costs and liabilities are determined on an actuarial basis using a September 30 measurement date and are affected by numerous assumptions and estimates including the market value of plan assets, esti- mates of the expected return on plan assets, assumed discount rates and current demographic and actuarial mortality data. The assumed discount rate and the expected return are the assumptions that generally have the most significant impact on our pension costs and liabilities. The assumed discount rate, the assumed health care cost trend rate and assumed rates of retirement generally have the most significant impact on our postretirement plan costs and liabilities. The discount rate is utilized principally in calculat- ing the actuarial present value of our pension and postretirement obligations and net periodic pen- sion and postretirement benefit plan costs. When establishing our discount rate, we consider high quality corporate bond rates based on bonds avail- able in the marketplace that are suitable for set- tling the obligations, changes in those rates from the prior year and the implied discount rate that is derived from matching our projected benefit dis- bursements with currently available high quality corporate bonds. The expected long-term rate of return on assets is utilized in calculating the expected return on plan assets component of our annual pension and post- retirement plan costs. We estimate the expected return on plan assets by evaluating expected bond returns, equity risk premiums, asset allocations, the effects of active plan management, the impact of periodic plan asset rebalancing and historical performance. We also consider the guidance from our investment advisors in making a final determination of our expected rate of return on assets. To the extent the actual rate of return on assets realized over the course of a year is greater than or less than the assumed rate, that year’s annual pension or postretirement plan costs are not affected. Rather, this gain or loss reduces or increases future pension or postretirement plan costs over a period of approximately ten to twelve years. 28 Critical Accounting Policy Summary of Policy Factors Influencing Application of the Policy Impairment assessments The market-related value of our plan assets repre- sents the fair market value of the plan assets, adjusted to smooth out short-term market fluctua- tions over a five-year period. The use of this methodology will delay the impact of current market fluctuations on the pension expense for the period. We estimate the assumed health care cost trend rate used in determining our postretirement net expense based upon our actual health care cost experience, the effects of recently enacted legis- lation and general economic conditions. Our assumed rate of retirement is estimated based upon our annual review of our participant census information as of the measurement date. We review the carrying value of our long-lived assets, including goodwill and identifiable intangibles, whenever events or changes in circumstance indicate that such carrying values may not be recoverable, and at least annually for goodwill, as required by U.S. accounting stan- dards. The evaluation of our goodwill balances and other long-lived assets or identifiable assets for which uncertainty exists regarding the recoverability of the carrying value of such assets involves the assessment of future cash flows and external market conditions and other subjective factors that could impact the estimation of future cash flows including, but not limited to the commodity prices, the amount and timing of future cash flows, future growth rates and the discount rate. Unforeseen events and changes in circumstances or market conditions could adversely affect these estimates, which could result in an impairment charge. General economic and market conditions Projected timing and amount of future dis- counted cash flows Judgment in the evalua- tion of relevant data Non-GAAP Financial Measures As described further in Note 13 to the consolidated financial statements, due to the passage of Kansas House Bill 2585, we remeasured our deferred tax liability and updated our state deferred tax rate. As a result, we recorded a non-cash income tax benefit of $21.0 million for the fiscal year ended September 30, 2020. Addition- ally, the enactment of the Tax Cuts and Jobs Act of 2017 (the TCJA) required us to remeasure our deferred tax assets and liabilities at our new federal statutory income tax rate as of December 22, 2017. The remeasurement of our net deferred tax liabilities resulted in the recognition of a non-cash income tax benefit of $158.8 million for the fiscal year ended September 30, 2018. Due to the non-recurring nature of these benefits, we believe that net income and diluted net income per share before the non-cash income tax benefits provide a more relevant meas- ure 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. Accordingly, the following discussion and analysis of our financial performance will reference adjusted net income and adjusted diluted earnings per share, non-GAAP measures, which are calculated as follows: 29 2020 For the Fiscal Year Ended September 30 2020 vs. 2019 2019 2018 (In thousands, except per share data) 2019 vs. 2018 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . Non-cash income tax benefits . . . . . . . . . . . . $601,443 (20,962) $511,406 — $ 603,064 (158,782) $ 90,037 (20,962) $ (91,658) 158,782 Adjusted net income . . . . . . . . . . . . . . . . . . . $580,481 $511,406 $ 444,282 $ 69,075 $ 67,124 Diluted net income per share . . . . . . . . . . . . Diluted EPS from non-cash income tax $ 4.89 $ 4.35 $ 5.43 $ 0.54 $ (1.08) benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.17) — (1.43) (0.17) Adjusted diluted net income per share . . . . . $ 4.72 $ 4.35 $ 4.00 $ 0.37 $ 1.43 0.35 RESULTS OF OPERATIONS Overview Atmos Energy strives to operate its businesses safely and reliably while delivering superior shareholder value. Our commitment to modernizing our natural gas distribution and transmission systems requires a sig- nificant level of capital spending. We have the ability to begin recovering a significant portion of these invest- ments 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. We continue to execute our strategy well while managing the ongoing impacts of the Coronavirus Disease 2019 (COVID-19) pandemic. Approximately 95 percent of our employees continue to work remotely as we pro- vide essential services to ensure the safety and functionality of our critical infrastructure while taking precautions to provide a safe work environment for employees and customers. During fiscal 2020, we recorded net income of $601.4 million, or $4.89 per diluted share, compared to net income of $511.4 million, or $4.35 per diluted share in the prior year. After adjusting for a nonrecurring income tax benefit recognized during fiscal 2020, we recorded adjusted net income of $580.5 million, or $4.72 per diluted share for the year ended September 30, 2020. The following table details our consolidated net income by segment during the last three fiscal years: Distribution segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pipeline and storage segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 For the Fiscal Year Ended September 30 2019 (In thousands) $328,814 182,592 $395,664 205,779 $442,966 160,098 2018 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $601,443 $511,406 $603,064 The year-over-year increase in adjusted net income of $69.1 million, or 14 percent, largely reflects positive rate outcomes driven by safety and reliability spending and customer growth in our distribution business. We did not experience a material change in year-over-year residential revenue in our distribution segment due to COVID-19; however, we did experience a 10 percent year-over-year decline in nonresidential revenue, including service and other revenues, primarily during the third and fourth fiscal quarter. The decline is partially offset by a reduction in certain operating and maintenance expenses. During the year ended September 30, 2020, we implemented ratemaking regulatory actions which resulted in an increase in annual operating income of $160.2 million and had ratemaking efforts in progress at Sep- tember 30, 2020, seeking a total increase in annual operating income of $131.9 million. As of the date of this report, we have received approval to implement $106.6 million of this amount in the first quarter of fiscal 2021. 30 Capital expenditures for fiscal 2020 increased 14 percent period-over-period, to $1.9 billion. Over 85 percent was invested to improve the safety and reliability of our distribution and transmission systems, with a significant portion of this investment incurred under regulatory mechanisms that reduce regulatory lag to six months or less. During fiscal 2020, we completed over $1.6 billion of long-term debt and equity financing. As of Sep- tember 30, 2020, our equity capitalization was 60 percent and we had approximately $2.6 billion in total liquid- ity, including cash and cash equivalents and funds available through equity forward sales agreements. As a result of the continued contribution and stability of our earnings, cash flows and capital structure, our Board of Directors increased the quarterly dividend by 8.7% percent for fiscal 2021. 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 our distribution operations 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 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 compli- cated by the fact that we operate in multiple rate jurisdictions. The “Ratemaking Activity” section of this Form 10-K describes our current rate strategy, progress towards implementing that strategy and recent ratemaking ini- tiatives in more detail. Revenues in our Texas and Mississippi service areas include franchise fees and gross receipt taxes, which are calculated as a percentage of revenue (inclusive of gas costs). Therefore, the amount of these taxes included in revenue 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. During fiscal 2020, we completed 17 regulatory proceedings in our distribution segment, resulting in a $110.9 million increase in annual operating income. 31 Review of Financial and Operating Results Financial and operational highlights for our distribution segment for the fiscal years ended September 30, 2020, 2019 and 2018 are presented below. 2020 Operating revenues . . . . . . . . . . . . . . . . Purchased gas cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses(1) $2,626,993 1,071,227 1,027,523 For the Fiscal Year Ended September 30 2018 2019 (In thousands, unless otherwise noted) $3,003,047 1,559,836 957,544 $2,745,461 1,268,591 1,006,098 $(118,468) (197,364) 21,425 2020 vs. 2019 2019 vs. 2018 $(257,586) (291,245) 48,554 Operating income . . . . . . . . . . . . . . . . Other non-operating income (expense)(1) . . . . . . . . . . . . . . . . . . . . Interest charges . . . . . . . . . . . . . . . . . . . Income before income taxes . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . . . Non-cash income tax benefits(2) 528,243 470,772 485,667 57,471 (14,895) (1,265) 39,634 487,344 105,147 (13,467) 6,241 60,031 416,982 88,168 — (6,649) 65,850 413,168 107,880 (137,678) (7,506) (20,397) 70,362 16,979 (13,467) 12,890 (5,819) 3,814 (19,712) 137,678 Net income . . . . . . . . . . . . . . . . . . . . . . $ 395,664 $ 328,814 $ 442,966 $ 66,850 $(114,152) Consolidated distribution sales volumes — MMcf . . . . . . . . . . . . . . . Consolidated distribution transportation volumes — MMcf . . . . . . . . . . . . . . . Total consolidated distribution 291,650 315,476 300,817 (23,826) 14,659 147,387 155,078 150,566 (7,691) 4,512 throughput — MMcf . . . . . . . . . . . 439,037 470,554 451,383 (31,517) 19,171 Consolidated distribution average cost of gas per Mcf sold . . . . . . . . . . . . . . $ 3.67 $ 4.02 $ 5.19 $ (0.35) $ (1.17) (1) In accordance with our adoption of new accounting standards, changes in comprehensive income statement presentation were implemented on a retrospective basis and impacted previously issued financial statements for fiscal 2018. (2) See Note 13 to the consolidated financial statements for further information. Fiscal year ended September 30, 2020 compared with fiscal year ended September 30, 2019 Operating income for our distribution segment increased 12 percent, which primarily reflects: ‰ ‰ ‰ an $86.8 million net increase in rate adjustments, primarily in our Mid-Tex, Mississippi, Louisi- ana and West Texas Divisions. a $13.7 million increase from customer growth primarily in our Mid-Tex Division. a $11.7 million decrease in operating expense in response to COVID-19: O $8.1 million associated with travel and entertainment and training. O $3.6 million associated with lower overtime/standby costs and benefit costs. Partially offset by: ‰ a $18.4 million decrease attributable to COVID-19: O $5.9 million decrease in net consumption and transportation during the third and fourth fiscal quarter, primarily due to a 13 percent decrease in commercial volumes. O $6.3 million decrease in service order revenues primarily during the third and fourth quarter due to the cessation of collection activities during the third and fourth quarters. 32 O $6.2 million increase in bad debt expense primarily due to the cessation of collection activ- ities during the third and fourth quarters. ‰ ‰ a $30.6 million increase in depreciation expense and property taxes associated with increased capital investments. a $4.5 million increase in information technology spending to support the modernization of our systems. The year-over-year change in other non-operating expense and interest charges of $12.9 million primarily reflects increased capitalized interest and AFUDC primarily due to increased capitalized spending, partially off- set by an increase in interest expense due to the issuance of long-term debt during fiscal 2020, an increase in community support spending and an increase in pension and other postretirement non-service costs. The fiscal year ended September 30, 2019 compared with fiscal year ended September 30, 2018 for our dis- tribution segment is described in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019. The following table shows our operating income by distribution division, in order of total rate base, for the fiscal years ended September 30, 2020, 2019 and 2018. The presentation of our distribution operating income is included for financial reporting purposes and may not be appropriate for ratemaking purposes. Mid-Tex . . . . . . . . . . . . . . . . . . . . . Kentucky/Mid-States . . . . . . . . . . . Louisiana . . . . . . . . . . . . . . . . . . . . West Texas . . . . . . . . . . . . . . . . . . . Mississippi . . . . . . . . . . . . . . . . . . . Colorado-Kansas . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . 2020 $236,066 76,745 71,892 52,493 55,938 34,039 1,070 For the Fiscal Year Ended September 30 2020 vs. 2019 2019 2018 2019 vs. 2018 $202,050 73,965 70,440 44,902 46,229 34,362 (1,176) (In thousands) $202,444 81,105 70,609 45,494 47,237 32,333 6,445 $34,016 2,780 1,452 7,591 9,709 (323) 2,246 $ (394) (7,140) (169) (592) (1,008) 2,029 (7,621) Total . . . . . . . . . . . . . . . . . . . . . . . . $528,243 $470,772 $485,667 $57,471 $(14,895) Pipeline and Storage Segment Our pipeline and storage segment consists of the pipeline and storage operations of our APT Division and our natural gas transmission operations in Louisiana. Over 80 percent of this segment’s revenues are derived from transportation and storage services provided by APT to our Mid-Tex Division, other third party local dis- tribution companies, industrial and electric generation customers, as well as marketers and producers. 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 pipe- lines. Further, natural gas price differences between the various hubs that we serve in Texas could influences the volumes of gas transported for shippers through Texas pipeline systems 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 14, 2020, APT made a GRIP filing that covered changes in net investment from January 1, 2019 through December 31, 2019 with a requested increase in operating income of $49.3 million. On May 20, 2020, the RRC approved the Company’s GRIP filing. 33 On December 21, 2016, the Louisiana Public Service Commission approved an annual increase of five per- cent to the demand fee charged by our natural gas transmission pipeline for each of the next 10 years, effective October 1, 2017. Review of Financial and Operating Results Financial and operational highlights for our pipeline and storage segment for the fiscal years ended Sep- tember 30, 2020, 2019 and 2018 are presented below. 2020 Mid-Tex / Affiliate transportation revenue . . Third-party transportation revenue . . . . . . . . Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . $474,077 127,444 7,818 Total operating revenues . . . . . . . . . . . . . . . Total purchased gas cost . . . . . . . . . . . . . . . . Operating expenses . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . Other non-operating income (expense) . . . . . Interest charges . . . . . . . . . . . . . . . . . . . . . . . . Income before income taxes . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . Non-cash income tax benefits(1) . . . . . . . . . . . 609,339 1,548 311,935 295,856 8,436 44,840 259,452 61,168 (7,495) 2018 For the Fiscal Year Ended September 30 2020 vs. 2019 2019 (In thousands, unless otherwise noted) $ 45,491 (2,486) (690) $384,500 115,207 8,006 $428,586 129,930 8,508 567,024 (360) 292,098 275,286 1,163 43,122 233,327 50,735 — 507,713 1,978 263,468 242,267 (3,495) 40,796 197,976 58,982 (21,104) 42,315 1,908 19,837 20,570 7,273 1,718 26,125 10,433 (7,495) 2019 vs. 2018 $44,086 14,723 502 59,311 (2,338) 28,630 33,019 4,658 2,326 35,351 (8,247) 21,104 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $205,779 $182,592 $160,098 $ 23,187 $22,494 Gross pipeline transportation volumes — MMcf . . . . . . . . . . . . . . . . . . . 822,499 939,376 871,904 (116,877) 67,472 Consolidated pipeline transportation volumes — MMcf . . . . . . . . . . . . . . . . . . . 621,371 721,998 663,900 (100,627) 58,098 (1) See Note 13 to the consolidated financial statements for further information. Fiscal year ended September 30, 2020 compared with fiscal year ended September 30, 2019 Operating income for our pipeline and storage segment increased seven percent, which primarily reflects: ‰ a $53.2 million net increase due to rate adjustments from the GRIP filing approved in May 2019 and 2020. The increase in rates was driven by increased safety and reliability spending. Partially offset by: ‰ ‰ ‰ a $13.6 million net decrease primarily associated with the tightening of regional spreads driven by a reduction in associated Permian Basin gas production. a $12.5 million increase in depreciation expense associated with increased capital investments. a $9.4 million increase in system maintenance expense primarily due to spending on hydro testing and in-line inspections. The year-over-year change in other non-operating income and interest charges of $5.6 million reflects increased AFUDC primarily due to increased capital spending, partially offset by an increase in interest expense due to the issuance of long-term debt during fiscal 2020. The fiscal year ended September 30, 2019 compared with fiscal year ended September 30, 2018 for our pipeline and storage segment is described in Item 7 “Management’s Discussion and Analysis of Financial 34 Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended Sep- tember 30, 2019. 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. As of Sep- tember 30, 2020, external debt financing is provided primarily through the issuance of long-term debt, a $1.5 billion commercial paper program and four committed revolving credit facilities with a total availability from third-party lenders of approximately $2.2 billion. The commercial paper program and credit facilities pro- vide 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 $4.0 billion in common stock and/or debt securities. As of the date of this report, approx- imately $2.4 billion of securities remained available for issuance under the shelf registration statement, which expires February 11, 2023. 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, which expires February 11, 2023. At Sep- tember 30, 2020, approximately $552 million of equity is available for issuance under this ATM equity sales program. Additionally, as of September 30, 2020, we have $345.2 million in proceeds from previously executed forward sale agreements that must be settled during fiscal 2021. The liquidity provided by these sources is expected to be sufficient to fund the Company’s working capital needs and capital expenditures program. The following table presents our capitalization as of September 30, 2020 and 2019: Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ September 30 2020 2019 (In thousands, except percentages) —% $ 464,915 40.0% 3,529,452 60.0% 5,750,223 — 4,531,944 6,791,203 4.8% 36.2% 59.0% Total capitalization, including short-term debt . . . . . . . . . . . . . . . $11,323,147 100.0% $9,744,590 100.0% (1) Inclusive of our finance leases as of September 30, 2020. 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, the 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 years ended September 30, 2020, 2019 and 2018 are presented below. 35 Total cash provided by (used in) Operating activities . . . . . . . . . . . . . . Investing activities . . . . . . . . . . . . . . Financing activities . . . . . . . . . . . . . . Change in cash and cash 2020 For the Fiscal Year Ended September 30 2018 2019 (In thousands) 2020 vs. 2019 2018 vs. 2017 $ 1,037,999 (1,925,518) 883,777 $ 968,769 (1,683,660) 725,670 $ 1,124,662 (1,463,566) 326,266 $ 69,230 (241,858) 158,107 $(155,893) (220,094) 399,404 equivalents . . . . . . . . . . . . . . . . . . . (3,742) 10,779 (12,638) (14,521) 23,417 Cash and cash equivalents at beginning of period . . . . . . . . . . . . 24,550 13,771 26,409 10,779 (12,638) Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . $ 20,808 $ 24,550 $ 13,771 $ (3,742) $ 10,779 Cash flows for the fiscal year ended September 30, 2019 compared with fiscal year ended September 30, 2018 is described in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019. Cash flows from operating activities For the fiscal year ended September 30, 2020, we generated cash flow from operating activities of $1,038.0 million compared with $968.8 million in the prior year. The year-over-year increase in operating cash flows reflects positive cash effects of rate case outcomes achieved in fiscal 2019 and working capital changes, primarily as a result of the timing of gas cost recoveries under our purchase gas cost mechanisms. Cash flows from investing activities Our capital expenditures are primarily used to improve the safety and reliability of our distribution and trans- mission 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. We allocate our capital spending among our service areas using risk management models and subject matter experts to identify, assess and develop a plan of action to address our highest risk facilities. We have regulatory mechanisms in most of our service areas that provide the opportunity to include approved capital costs in rate base on a periodic basis without being required to file a rate case. These mechanisms permit us a reasonable opportunity to earn a fair return on our investment without compromising safety or reliability. For the fiscal year ended September 30, 2020, we had $1.9 billion in capital expenditures compared with $1.7 billion for the fiscal year ended September 30, 2019. Capital spending increased by $242.2 million, or 14 percent, as a result of planned increases to modernize our system. Cash flows from financing activities Our financing activities provided $883.8 million and $725.7 million in cash for fiscal years 2020 and 2019. During the fiscal year ended September 30, 2020, we received $1.6 billion in net proceeds from the issuance of long-term debt and equity. We completed a public offering of $300 million of 2.625% senior notes due 2029 and $500 million of 3.375% senior notes due 2049 and entered into a two year $200 million term loan. We received net proceeds from these offerings, after the underwriting discount and offering expenses, of $791.7 million. Additionally, during the fiscal year ended September 30, 2020, we settled 6,101,916 shares that had been sold on a forward basis for net proceeds of approximately $624 million. The net proceeds were used primarily to support capital spending, reduce short-term debt and other general corporate purposes. Additionally, cash dividends increased due to a 9.5 percent increase in our dividend rate and an increase in shares outstanding. 36 During the fiscal year ended September 30, 2019, we received $1.7 billion in net proceeds from the issuance of long-term debt and equity. A portion of the net proceeds was used to repay at maturity our $450 million 8.50% unsecured senior notes and the related settlement of our interest rate swaps for $90.1 million, to repay at maturity our $125 million floating rate term loan, to reduce short-term debt, to support our capital spending and for other general corporate purposes. Cash dividends increased due to an 8.2 percent increase in our dividend rate and an increase in shares outstanding. The following table shows the number of shares issued for the fiscal years ended September 30, 2020, 2019 and 2018: Shares issued: For the Fiscal Year Ended September 30 2019 2018 2020 Direct Stock Purchase Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retirement Savings Plan and Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1998 Long-Term Incentive Plan (LTIP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity Issuance(1) 107,989 78,941 254,706 6,101,916 110,063 81,456 299,612 7,574,111 131,213 94,081 385,351 4,558,404 Total shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,543,552 8,065,242 5,169,049 (1) Share amounts do not include shares issued under forward sale agreements until the shares have been settled. 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 operating cash flow less dividends to debt. In addition, the rating agencies consider qualitative factors such as consistency of our earnings over time, the risks associated with our business and the regulatory structures that govern our rates in the states where we operate. Our debt is rated by two rating agencies: Standard & Poor’s Corporation (S&P) and Moody’s Investors Service (Moody’s). On December 16, 2019, Moody’s upgraded our senior unsecured long-term debt rating to A1 and changed their outlook to stable, citing our strong credit metrics as a result of continued improvement in rate design to minimize regulatory lag and our balanced fiscal policy. As of September 30, 2020, 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 A-1 Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stable A1 P-1 Stable 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 finan- cial 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. 37 Debt Covenants We were in compliance with all of our debt covenants as of September 30, 2020. Our debt covenants are described in Note 7 to the consolidated financial statements. Contractual Obligations and Commercial Commitments The following table provides information about contractual obligations and commercial commitments at September 30, 2020. Total Less than 1 year Payments Due by Period 1-3 years (In thousands) 3-5 years More than 5 years Contractual Obligations Long-term debt(1) . . . . . . . . . . . . . . . . . . . . Interest charges(2) . . . . . . . . . . . . . . . . . . . . Finance leases(3) . . . . . . . . . . . . . . . . . . . . . Operating leases(4) . . . . . . . . . . . . . . . . . . . . . . . . . Financial instrument obligations(5) Pension and postretirement benefit plan contributions(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Uncertain tax positions (7) $4,560,000 3,925,475 16,477 278,181 2,015 — $ 194,092 741 40,049 2,015 $200,000 381,386 1,513 70,176 — $ 10,000 378,984 1,557 41,573 — $4,350,000 2,971,013 12,666 126,383 — 423,505 30,921 60,553 — 133,694 30,921 85,792 — 143,466 — Total contractual obligations . . . . . . . . . $9,236,574 $297,450 $817,690 $517,906 $7,603,528 (1) Long-term debt excludes our finance lease obligations, which are separately reported within this table. See Note 7 to the consolidated financial statements for further details. (2) Interest charges were calculated using the effective rate for each debt issuance. (3) Finance lease payments shown above include interest totaling $7.8 million. See Note 6 to the consolidated financial statements. (4) Operating lease payments shown above include interest totaling $41.4 million. See Note 6 to the con- solidated financial statements. (5) Represents liabilities for natural gas commodity financial instruments that were valued as of September 30, 2020. The ultimate settlement amounts of these remaining liabilities are unknown because they are subject to continuing market risk until the financial instruments are settled. (6) Represents expected contributions to our defined benefit and postretirement benefit plans, which are dis- cussed in Note 9 to the consolidated financial statements. (7) Represents liabilities associated with uncertain tax positions claimed or expected to be claimed on tax returns. The amount does not include interest and penalties that may be applied to these positions. We maintain supply contracts with several vendors that generally cover a period of up to one year. Commit- ments 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 individual contracts. 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 market and fixed prices. At September 30, 2020, we were committed to pur- chase 59.3 Bcf within one year, 57.0 Bcf within two to three years and 0.1 Bcf beyond three years under indexed contracts. Risk Management Activities In our distribution and pipeline and storage segments, we use a combination of physical storage, fixed phys- ical contracts and fixed financial contracts to reduce our exposure to unusually large winter-period gas price increases. Additionally, we manage interest rate risk by entering into financial instruments to effectively fix the Treasury yield component of the interest cost associated with anticipated financings. 38 We record our financial instruments as a component of risk management assets and liabilities, which are classified as current or noncurrent based upon the anticipated settlement date of the underlying financial instru- ment. Substantially all of our financial instruments are valued using external market quotes and indices. The following table shows the components of the change in fair value of our financial instruments for the fiscal year ended September 30, 2020 (in thousands): Fair value of contracts at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contracts realized/settled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value of new contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other changes in value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,990) (2,731) 2,570 82,814 Fair value of contracts at September 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Netting of cash collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,663 — Cash collateral and fair value of contracts at September 30, 2020 . . . . . . . . . . . . . . . . . . . . . . $78,663 The fair value of our financial instruments at September 30, 2020, is presented below by time period and fair value source: Source of Fair Value Prices actively quoted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prices based on models and other valuation methods . . . . $3,672 — $49,371 — Total Fair Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,672 $49,371 $25,620 Fair Value of Contracts at September 30, 2020 Maturity in years Less than 1 1-3 4-5 (In thousands) $25,620 — Greater than 5 Total Fair Value $— — $— $78,663 — $78,663 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 consolidated financial statements. ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk. We are exposed to risks associated with commodity prices and interest rates. Commodity price risk is the potential loss that we may incur as a result of changes in the fair value of a particular instrument or commodity. Interest-rate risk is the potential increased cost we could incur when we issue debt instruments or to provide financing and liquidity for our business activities. Additionally, interest-rate risk could affect our ability to issue cost effective equity instruments. We conduct risk management activities in our distribution and pipeline and storage segments. In our dis- tribution segment, we use a combination of physical storage, fixed-price forward contracts and financial instru- ments, 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. Our risk management activities and related accounting treatment are described in further detail in Note 14 to the consolidated financial statements. Additionally, our earnings are affected by changes in short-term interest rates as a result of our issuance of short- term commercial paper and our other short-term borrowings. Commodity Price Risk We purchase natural gas for our distribution operations. Substantially all of the costs of gas purchased for distribution operations are recovered from our customers through purchased gas cost adjustment mechanisms. Therefore, our distribution operations have limited commodity price risk exposure. 39 Interest Rate Risk Our earnings are exposed to changes in short-term interest rates associated with our short-term commercial paper program and other short-term borrowings. We use a sensitivity analysis to estimate our short-term interest rate risk. For purposes of this analysis, we estimate our short-term interest rate risk as the difference between our actual interest expense for the period and estimated interest expense for the period assuming a hypothetical aver- age one percent increase in the interest rates associated with our short-term borrowings. Had interest rates asso- ciated with our short-term borrowings increased by an average of one percent, our interest expense would not have materially increased during 2020. 40 ITEM 8. Financial Statements and Supplementary Data. Index to financial statements and financial statement schedule: Report of independent registered public accounting firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial statements and supplementary data: Consolidated balance sheets at September 30, 2020 and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated statements of comprehensive income for the years ended September 30, 2020, 2019 and 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated statements of shareholders’ equity for the years ended September 30, 2020, 2019 and 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated statements of cash flow for the years ended September 30, 2020, 2019 and 2018 . . . . . . . Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected Quarterly Financial Data (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial statement schedule for the years ended September 30, 2020, 2019 and 2018 Page 42 44 45 46 47 48 93 Schedule II. Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 All other financial statement schedules are omitted because the required information is not present, or not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements and accompanying notes thereto. 41 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Atmos Energy Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Atmos Energy Corporation (the “Company“) as of September 30, 2020 and 2019, the related consolidated statements of comprehensive income, shareholders‘ equity, and cash flows, for each of the three years in the period ended September 30, 2020, and the related notes and financial statement schedule listed in the Index at Item 8 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2020, in conformity with US generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated November 13, 2020 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company‘s management. Our responsibility is to express an opinion on the Company‘s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commis- sion and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing proce- dures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the finan- cial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the finan- cial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 42 Description of the Matter Determination of Capital Costs As more fully described in Note 2 to the financial statements, the Company capitalizes the direct and indirect costs of construction. Once a project is completed, it is placed into service and included in the Company’s rate base. Costs of maintenance and repairs that are not included in the Company’s rate base are charged to expense. For the year ended September 30, 2020, the Company capitalized approximately $1.9 billion of construction-related costs for regulated property, plant and equipment. Auditing management’s identification of capital additions and maintenance and repairs expense involved significant effort and auditor judgment. These amounts have both a higher magnitude and a higher likelihood of potential misstatement. As a cost-based, rate-regulated entity, the rates charged to customers are designed to recover the entity’s costs and provide a rate of return on rate base. Net property, plant and equipment is the most significant component of the Company’s rate base. As a result, inappropriate capitalization of costs could affect the amount, timing and classification of revenues and expenses in the consolidated financial statements. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over the initial determination and approval of expenditures for either capital additions or maintenance and repair. For example, we selected a sample of projects ini- tiated during the year to evaluate the effectiveness of management’s review controls to determine the proper categorization of project expenditures as either capitalizable costs or current-period expense. Our audit procedures included, among others, testing a sample of projects initiated during the year, including the evaluation of the nature of the project, with Company personnel outside of accounting and financial reporting. For example, we evaluated project setup through inspection of each project’s description for compliance with the Company’s capitalization policy as described in Note 2 and a series of inquiries of the project approver to understand how they assessed whether projects should be treated as capital or expense. Other audit procedures included evaluating whether the descriptions and amounts included on third-party invoices either support or contradict the project classification as capital, evaluating the appropriateness of individuals capitalizing direct labor charges to projects by assessing the relevance of their job function to the capital project, and recalculating other overhead costs capitalized to projects. /s/ Ernst & Young LLP We have served as the Company‘s auditor since 1983. Dallas, Texas November 13, 2020 43 ATMOS ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ASSETS Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . September 30 2020 2019 (In thousands, except share data) $15,539,166 418,055 15,957,221 2,601,874 $13,758,899 421,694 14,180,593 2,392,924 Net property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,355,347 11,787,669 Current assets Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable, less allowance for doubtful accounts of $29,949 in 2020 and $15,899 in 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gas stored underground . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill Deferred charges and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,808 24,550 230,595 111,950 107,905 230,571 130,138 72,772 471,258 731,257 801,170 $15,359,032 458,031 730,706 391,213 $13,367,619 CAPITALIZATION AND LIABILITIES Shareholders’ equity Common stock, no par value (stated at $0.005 per share); 200,000,000 shares authorized; issued and outstanding: 2020 — 125,882,477 shares; 2019 — 119,338,925 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional paid-in capital Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt $ 629 4,377,149 (57,589) 2,471,014 6,791,203 4,531,779 Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,322,982 $ 597 3,712,194 (114,583) 2,152,015 5,750,223 3,529,452 9,279,675 Commitments and contingencies (See Note 12) Current liabilities Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Regulatory excess deferred taxes (See Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Regulatory cost of removal obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred credits and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235,775 546,461 — 165 782,401 1,456,569 697,764 457,188 642,128 265,024 479,501 464,915 — 1,209,440 1,300,015 705,101 473,172 400,216 $15,359,032 $13,367,619 See accompanying notes to consolidated financial statements. 44 ATMOS ENERGY CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 2020 Year Ended September 30 2019 (In thousands, except per share data) 2018 Operating revenues Distribution segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pipeline and storage segment Intersegment eliminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,626,993 609,339 (415,195) $2,745,461 567,024 (410,637) $3,003,047 507,713 (395,214) Total operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,821,137 2,901,848 3,115,546 Purchased gas cost Distribution segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pipeline and storage segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intersegment eliminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,071,227 1,548 (413,921) 1,268,591 (360) (409,394) Total purchased gas cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operation and maintenance expense . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . . . . . Taxes, other than income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-operating income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . Interest charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 658,854 629,601 429,828 278,755 824,099 7,171 84,474 746,796 145,353 858,837 630,308 391,456 275,189 746,058 7,404 103,153 650,309 138,903 1,559,836 1,978 (393,966) 1,167,848 594,795 361,083 263,886 727,934 (10,144) 106,646 611,144 8,080 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 601,443 $ 511,406 $ 603,064 Basic net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 4.89 4.89 $ $ 4.36 4.35 $ $ 5.43 5.43 Weighted average shares outstanding: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,788 Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,872 117,200 117,461 111,012 111,012 Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss), net of tax Net unrealized holding gains (losses) on available-for-sale $ 601,443 $ 511,406 $ 603,064 securities, net of tax of $32, $64 and $(146) . . . . . . . . . . . . . . . . . 106 218 (395) Cash flow hedges: Amortization and unrealized gain (loss) on interest rate agreements, net of tax of $17,198, $(6,782) and $13,017 . . . . . Total other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . 56,888 56,994 (22,944) (22,726) 44,936 44,541 Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 658,437 $ 488,680 $ 647,605 See accompanying notes to consolidated financial statements. 45 ATMOS ENERGY CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Common stock Number of Shares Stated Value Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total (In thousands, except share and per share data) Balance, September 30, 2017 . . . . . 106,104,634 $531 $2,536,365 Net income . . . . . . . . . . . . . . . . . . . — Other comprehensive income . . . . — Cash dividends ($1.94 per — — — — $(105,254) — 44,541 $1,467,024 $3,898,666 603,064 44,541 603,064 — share) . . . . . . . . . . . . . . . . . . . . . . — — — — — — — (214,906) (214,906) (22,934) 22,934 — Cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . Common stock issued: Public offering . . . . . . . . . . . . . . . Direct stock purchase plan . . . . . . Retirement savings plan . . . . . . . . 1998 Long-term incentive plan . . Employee stock-based compensation . . . . . . . . . . . . . . 395,092 11,323 8,240 3,471 20,460 4,769,951 511,406 (22,726) 694,103 11,071 8,252 2,948 20,935 5,750,223 601,443 56,994 22 4,558,404 1 131,213 94,081 — 2 385,351 395,070 11,322 8,240 3,469 — — 20,460 — — — — — — — — — — 2,974,926 — — (83,647) — (22,726) 1,878,116 511,406 — Balance, September 30, 2018 . . . . . 111,273,683 Net income . . . . . . . . . . . . . . . . . . . Other comprehensive loss . . . . . . . Cash dividends ($2.10 per 556 — — — — share) . . . . . . . . . . . . . . . . . . . . . . — — Cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . Common stock issued: Public offering . . . . . . . . . . . . . . . Direct stock purchase plan . . . . . . Retirement savings plan . . . . . . . . 1998 Long-term incentive plan . . Employee stock-based compensation . . . . . . . . . . . . . . — — — — — (245,717) (245,717) (8,210) 8,210 — 38 7,574,111 110,063 1 81,456 — 2 299,612 694,065 11,070 8,252 2,946 — — 20,935 — — — — — — — — — — Balance, September 30, 2019 . . . . . 119,338,925 Net income . . . . . . . . . . . . . . . . . . . Other comprehensive income . . . . Cash dividends ($2.30 per 597 — — — — 3,712,194 — — (114,583) — 56,994 2,152,015 601,443 — share) . . . . . . . . . . . . . . . . . . . . . . — — — Common stock issued: Public offering . . . . . . . . . . . . . . . Direct stock purchase plan . . . . . . Retirement savings plan . . . . . . . . 1998 Long-term incentive plan . . Employee stock-based compensation . . . . . . . . . . . . . . 30 6,101,916 107,989 1 78,941 — 1 254,706 624,272 11,325 8,222 2,748 — — 18,388 — — — — — — (282,444) (282,444) — — — — — 624,302 11,326 8,222 2,749 18,388 Balance, September 30, 2020 . . . . . 125,882,477 $629 $4,377,149 $ (57,589) $2,471,014 $6,791,203 See accompanying notes to consolidated financial statements. 46 ATMOS ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS CASH FLOWS FROM OPERATING ACTIVITIES Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . One-time income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity component of AFUDC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Changes in assets and liabilities: (Increase) decrease in accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . Decrease in gas stored underground . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Increase) decrease in other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in deferred charges and other assets . . . . . . . . . . . . . . . . . . . . . . . Increase (decrease) in accounts payable and accrued liabilities . . . . . . . . . Increase (decrease) in other current liabilities . . . . . . . . . . . . . . . . . . . . . . . Increase in deferred credits and other liabilities . . . . . . . . . . . . . . . . . . . . . 2020 Year Ended September 30 2019 (In thousands) 2018 $ 601,443 $ 511,406 $ 603,064 429,828 155,322 (20,962) 9,583 11,543 (23,493) 8,411 7,167 18,188 (35,878) (31,935) 7,359 (129,543) 30,966 391,456 132,004 — 11,121 9,464 (11,165) 1,169 18,724 35,594 (26,590) (58,403) 9,908 (103,895) 47,976 361,083 158,271 (158,782) 12,863 7,865 — 5,437 (29,208) 18,921 60,424 (10,049) (11,857) 74,707 31,923 Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . 1,037,999 968,769 1,124,662 CASH FLOWS USED IN INVESTING ACTIVITIES Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from the sale of discontinued operations . . . . . . . . . . . . . . . . . . . . . Purchases of debt and equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale of debt and equity securities . . . . . . . . . . . . . . . . . . . . . . . Maturities of debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,935,676) — (50,517) 32,339 18,669 9,667 (1,693,477) 4,000 (29,153) 6,070 20,299 8,601 (1,467,591) 3,000 (46,401) 22,360 15,716 9,350 Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,925,518) (1,683,660) (1,463,566) CASH FLOWS FROM FINANCING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . Net increase (decrease) in short-term debt Proceeds from issuance of long-term debt, net of premium/discount . . . . . . . Net proceeds from equity offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of common stock through stock purchase and employee retirement plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Settlement of interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other (464,915) 999,450 624,302 19,548 (4,426) — (282,444) (7,738) — Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . 883,777 Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at beginning of year (3,742) 24,550 (110,865) 1,045,221 694,103 19,323 (90,141) (575,000) (245,717) (11,254) — 725,670 10,779 13,771 128,035 — 395,092 19,563 — — (214,906) — (1,518) 326,266 (12,638) 26,409 Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,808 $ 24,550 $ 13,771 See accompanying notes to consolidated financial statements. 47 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Business Atmos Energy Corporation (Atmos Energy or the “Company”) and its subsidiaries are engaged in the regu- lated natural gas distribution and pipeline and storage businesses. Through our distribution business, we deliver natural gas through sales and transportation arrangements to over three million residential, commercial, public- authority and industrial customers through our six regulated distribution divisions in the service areas described below: Division Service Area Atmos Energy Colorado-Kansas Division . . . . . . . . Colorado, Kansas Atmos Energy Kentucky/Mid-States Division . . . . Kentucky, Tennessee, Virginia(1) Atmos Energy Louisiana Division . . . . . . . . . . . . . . Louisiana Atmos Energy Mid-Tex Division . . . . . . . . . . . . . . Texas, including the Dallas/Fort Worth Atmos Energy Mississippi Division . . . . . . . . . . . . Mississippi Atmos Energy West Texas Division . . . . . . . . . . . . West Texas metropolitan area (1) Denotes location where we have more limited service areas. In addition, we transport natural gas for others through our distribution system. Our distribution business is subject to federal and state regulation and/or regulation by local authorities in each of the states in which our dis- tribution divisions operate. Our corporate headquarters and shared-services function are located in Dallas, Texas, and our customer support centers are located in Amarillo and Waco, Texas. Our pipeline and storage business, which is also subject to federal and state regulation, consists of the pipe- line and storage operations of our Atmos Pipeline–Texas (APT) Division and our natural gas transmission busi- ness in Louisiana. The APT division provides transportation and storage services to our Mid-Tex Division, other third-party local distribution companies, industrial and electric generation customers, as well as marketers and producers. As part of its pipeline operations, APT manages five underground storage facilities in Texas. We also provide ancillary services customary to the pipeline industry including parking arrangements, lending and sales of inventory on hand. Our natural gas transmission operations in Louisiana are comprised of a 21-mile pipeline located in the New Orleans, Louisiana area that is primarily used to aggregate gas supply for our distribution division in Louisiana under a long-term contract and on a more limited basis, to third parties. 2. Summary of Significant Accounting Policies Principles of consolidation — The accompanying consolidated financial statements include the accounts of Atmos Energy Corporation and its wholly-owned subsidiaries. All material intercompany transactions have been eliminated; however, we have not eliminated intercompany profits when such amounts are probable of recovery under the affiliates’ rate regulation process. Use of estimates — The preparation of financial statements in conformity with accounting principles gen- erally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The most significant estimates include the allow- ance for doubtful accounts, unbilled revenues, contingency accruals, pension and postretirement obligations, deferred income taxes, impairment of long-lived assets, risk management and trading activities, fair value meas- urements and the valuation of goodwill and other long-lived assets. Actual results could differ from those esti- mates. Regulation — Our distribution and pipeline and storage operations are subject to regulation with respect to rates, service, maintenance of accounting records and various other matters by the respective regulatory author- ities in the states in which we operate. Our accounting policies recognize the financial effects of the ratemaking and accounting practices and policies of the various regulatory commissions. Accounting principles generally accepted in the United States require cost-based, rate-regulated entities that meet certain criteria to reflect the 48 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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 cus- tomers through the ratemaking process. The amounts to be recovered or recognized are based upon historical experience and our understanding of the regulations. Further, regulation may impact the period in which revenues or expenses are recognized. Substantially all of our regulatory assets are recorded as a component of deferred charges and other assets and our regulatory liabilities are recorded as a component of other current liabilities and deferred credits and other liabilities. Deferred gas costs are recorded either in other current assets or liabilities and the long-term por- tion of regulatory excess deferred taxes and regulatory cost of removal obligation are reported separately. Sig- nificant regulatory assets and liabilities as of September 30, 2020 and 2019 included the following: September 30 2020 2019 (In thousands) Regulatory assets: Pension and postretirement benefit costs . . . . . . . . . . . . . . . . . . . . . . . . . Infrastructure mechanisms(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred gas costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recoverable loss on reacquired debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred pipeline record collection costs . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 149,089 183,943 40,593 4,894 29,839 6,283 $ 86,089 131,894 23,766 6,551 26,418 9,829 $ 414,641 $ 284,547 Regulatory liabilities: Regulatory excess deferred taxes(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Regulatory cost of service reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Regulatory cost of removal obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred gas costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asset retirement obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . APT annual adjustment mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 718,651 1,716 531,096 19,985 20,348 57,379 17,838 $ 726,307 5,238 528,893 14,112 17,054 78,402 16,120 $1,367,013 $1,386,126 (1) Infrastructure mechanisms in Texas, Louisiana and Tennessee allow for the deferral of all eligible expenses associated with capital expenditures incurred pursuant to these rules, including the recording of interest on the deferred expenses until the next rate proceeding (rate case or annual rate filing), at which time investment and costs would be recovered through base rates. (2) Due to the passage of the Kansas House Bill 2585, on June 1, 2020, we remeasured our deferred tax liability and updated our state deferred tax rate resulting in a $12.1 million regulatory liability as of September 30, 2020. The remaining amount reflects the remeasurement of the net deferred tax liability included in our rate base as a result of the Tax Cuts and Jobs Act of 2017 (the TCJA). Of this amount, $20.9 million as of Sep- tember 30, 2020 and $21.2 million as of September 30, 2019 is recorded in other current liabilities. See Note 13 for further information. As of September 30, 2020, we received regulatory orders in most states to defer into a regulatory asset all expenses, beyond the normal course of business, related to Coronavirus Disease 2019 (COVID-19), including 49 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) bad debt expense. As of September 30, 2020, no amounts have been recorded as regulatory assets or liabilities for expenses related to COVID-19. Revenue recognition Distribution Revenues Distribution revenues represent the delivery of natural gas to residential, commercial, industrial and public authority customers at prices based on tariff rates established by regulatory authorities in the states in which we operate. Revenue is recognized and our performance obligation is satisfied over time when natural gas is deliv- ered and simultaneously consumed by our customers. We have elected to use the invoice practical expedient and recognize revenue for volumes delivered that we have the right to invoice our customers. We read meters and bill our customers on a monthly cycle basis. Accordingly, we estimate volumes from the last meter read to the bal- ance sheet date and accrue revenue for gas delivered but not yet billed. In our Texas and Mississippi jurisdictions, we pay franchise fees and gross receipt taxes to operate in these service areas. These franchise fees and gross receipts taxes are required to be paid regardless of our ability to collect from our customers. Accordingly, we account for these amounts on a gross basis in revenue and we record the associated tax expense as a component of taxes, other than income. Pipeline and Storage Revenues Pipeline and storage revenues primarily represent the transportation and storage of natural gas on our APT system and the transmission of natural gas through our 21-mile pipeline in Louisiana. APT provides trans- portation and storage services to our Mid-Tex Division, other third party local distribution companies and certain industrial customers under tariff rates approved by the RRC. APT also provides certain transportation and storage services to industrial and electric generation customers, as well as marketers and producers, under negotiated rates. Our pipeline in Louisiana is primarily used to aggregate gas supply for our Louisiana Division under a long-term contract and on a more limited basis to third parties. The demand fee charged to our Louisiana Divi- sion is subject to regulatory approval by the Louisiana Public Service Commission. We also manage two asset management plans with distribution affiliates of the Company at terms that have been approved by the applicable state regulatory commissions. The performance obligations for these transportation customers are satisfied by means of transporting customer-supplied gas to the designated location. Revenue is recognized and our perform- ance obligation is satisfied over time when natural gas is delivered to the customer. Management determined that these arrangements qualify for the invoice practical expedient for recognizing revenue. For demand fee arrange- ments, revenue is recognized and our performance obligation is satisfied by standing ready to transport natural gas over the period of each individual month. Alternative Revenue Program Revenues In our distribution segment, we have weather-normalization adjustment mechanisms that serve to minimize the effects of weather on our residential and commercial revenues. Additionally, APT has a regulatory mecha- nism that requires that we share with its tariffed customers 75% of the difference between the total non-tariffed revenues earned during a test period and a revenue benchmark of $69.4 million that was established in its most recent rate case. Differences between actual revenues and revenues calculated under these mechanisms adjust the amount billed to customers. These mechanisms are considered to be alternative revenue programs under account- ing standards generally accepted in the United States as they are deemed to be contracts between us and our regu- lator. Accordingly, revenue under these mechanisms are excluded from revenue from contracts with customers. Purchased gas costs — Rates established by regulatory authorities are adjusted for increases and decreases in our purchased gas costs through purchased gas cost adjustment mechanisms. Purchased gas cost adjustment mechanisms provide gas distribution companies a method of recovering purchased gas costs on an ongoing basis 50 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) without filing a rate case to address all of their non-gas costs. There is no margin generated through purchased gas cost adjustments, but they provide a dollar-for-dollar offset to increases or decreases in our distribution segment’s gas costs. The effects of these purchased gas cost adjustment mechanisms are recorded as deferred gas costs on our consolidated balance sheets. Cash and cash equivalents — We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. Accounts receivable and allowance for doubtful accounts — Accounts receivable arise from natural gas sales to residential, commercial, industrial, public authority and other customers. We establish an allowance for doubtful accounts to reduce the net receivable balance to the amount we reasonably expect to collect based on our collection experience or where we are aware of a specific customer’s inability or reluctance to pay. However, if circumstances change, our estimate of the recoverability of accounts receivable could be affected. Circum- stances which could affect our estimates include, but are not limited to, customer credit issues, the level of natu- ral gas prices, customer deposits and general economic conditions. Accounts are written off once they are deemed to be uncollectible. Gas stored underground — Our gas stored underground is comprised of natural gas injected into storage to support the winter season withdrawals for our distribution operations. The average cost method is used for all of our distribution operations. Gas in storage that is retained as cushion gas to maintain reservoir pressure is classi- fied as property, plant and equipment and is valued at cost. Property, plant and equipment — Regulated property, plant and equipment is stated at original cost, net of contributions in aid of construction. The cost of additions includes direct construction costs, payroll related costs (taxes, pensions and other benefits), administrative and general costs and an allowance for funds used during construction. The allowance for funds used during construction (AFUDC) represents the capitalizable total cost of funds used to finance the construction of major projects. The following table details amounts capitalized for the fiscal year ended September 30. Component of AFUDC . . . . . . . . . . . . . . . . . . . . . Debt Equity . . . . . . . . . . . . . . . . . . . . Other non-operating income (expense) Statement of Comprehensive Income Location Interest charges 2020 $ 8,436 23,493 2019 (In thousands) $ 7,643 11,165 $31,929 $18,808 2018 $6,810 — $6,810 Major renewals, including replacement pipe, and betterments that are recoverable through our regulatory rate base are capitalized while the costs of maintenance and repairs that are not capitalizable are charged to expense as incurred. The costs of large projects are accumulated in construction in progress until the project is completed. When the project is completed, tested and placed in service, the balance is transferred to the regulated plant in service account included in the rate base and depreciation begins. Regulated property, plant and equipment is depreciated at various rates on a straight-line basis. These rates are approved by our regulatory commissions and are comprised of two components: one based on average serv- ice life and one based on cost of removal. Accordingly, we recognize our cost of removal expense as a compo- nent of depreciation expense. The related cost of removal accrual is reflected as a regulatory liability on the consolidated balance sheet. At the time property, plant and equipment is retired, removal expenses less salvage, are charged to the regulatory cost of removal accrual. The composite depreciation rate was 3.0 percent, 3.1 percent and 3.2 percent for the fiscal years ended September 30, 2020, 2019 and 2018. Other property, plant and equipment is stated at cost. Depreciation is generally computed on the straight-line method for financial reporting purposes based upon estimated useful lives. 51 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Asset retirement obligations — We record a liability at fair value for an asset retirement obligation when the legal obligation to retire the asset has been incurred with an offsetting increase to the carrying value of the related asset. Accretion of the asset retirement obligation due to the passage of time is recorded as an operating expense. As of September 30, 2020 and 2019, we had asset retirement obligations of $20.3 million and $17.1 million. Additionally, we had $14.4 million and $11.3 million of asset retirement costs recorded as a component of prop- erty, plant and equipment that will be depreciated over the remaining life of the underlying associated assets. We believe we have a legal obligation to retire our natural gas storage facilities. However, we have not recognized an asset retirement obligation associated with our storage facilities because we are not able to determine the settlement date of this obligation as we do not anticipate taking our storage facilities out of service permanently. Therefore, we cannot reasonably estimate the fair value of this obligation. Impairment of long-lived assets — We evaluate whether events or circumstances have occurred that indicate that other long-lived assets may not be recoverable or that the remaining useful life may warrant revision. When such events or circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value will be recovered through the expected future cash flows. In the event the sum of the expected future cash flows resulting from the use of the asset is less than the carrying value of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded. Goodwill — We annually evaluate our goodwill balances for impairment during our second fiscal quarter or more frequently as impairment indicators arise. During the second quarter of fiscal 2020, we completed our annual goodwill impairment assessment using a qualitative assessment, as permitted under U.S. GAAP. We test goodwill for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit. Based on the assessment performed, we determined that our goodwill was not impaired. Although not applicable for the fiscal 2020 analysis, if the qualitative assessment resulted in impairment indicators, we would then use a present value technique based on discounted cash flows to estimate the fair value of our reporting units. These calculations are dependent on several subjective factors including the timing of future cash flows, future growth rates and the discount rate. An impairment charge is recognized if the carrying value of a reporting unit’s goodwill exceeds its fair value. Lease accounting — We adopted the provisions of the new lease accounting standard beginning on October 1, 2019. Results for reporting periods beginning on October 1, 2019 are presented under the new lease accounting standard and prior periods are presented under the former lease accounting standard. Upon adoption, we recorded right of use assets and lease liabilities within the consolidated balance sheet. See Note 6 for further discussion regarding the accounting polices for these leases. Marketable securities — As of September 30, 2020, we hold marketable securities classified as either equity or debt securities. Beginning on October 1, 2018, changes in fair value of our equity securities are recorded in net income, while debt securities, which are considered available for sale securities, are reported at market value with unrealized gains and losses shown as a component of accumulated other comprehensive income (loss). During fiscal 2018 and under the previous accounting guidance, all our debt and equity securities were considered available for sale securities. We regularly evaluate the performance of our available for sale debt securities on an investment by invest- ment basis for impairment, taking into consideration the securities’ purpose, volatility and current returns. If a determination is made that a decline in fair value is other than temporary, the related investment is written down to its estimated fair value. Financial instruments and hedging activities — We use financial instruments to mitigate commodity price risk in our distribution and pipeline and storage segments and to mitigate interest rate risk. The objectives and strategies for using financial instruments have been tailored to our business and are discussed in Note 14. 52 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) We record all of our financial instruments on the balance sheet at fair value, with changes in fair value ulti- mately recorded in the statement of comprehensive income. These financial instruments are reported as risk management assets and liabilities and are classified as current or noncurrent other assets or liabilities based upon the anticipated settlement date of the underlying financial instrument. We record the cash flow impact of our financial instruments in operating cash flows based upon their balance sheet classification. The timing of when changes in fair value of our financial instruments are recorded in the statement of com- prehensive income depends on whether the financial instrument has been designated and qualifies as a part of a hedging relationship or if regulatory rulings require a different accounting treatment. Changes in fair value for financial instruments that do not meet one of these criteria are recognized in the statement of comprehensive income as they occur. Financial Instruments Associated with Commodity Price Risk In our distribution segment, the costs associated with and the realized gains and losses arising from the use of financial instruments to mitigate commodity price risk are included in our purchased gas cost adjustment mechanisms in accordance with regulatory requirements. Therefore, changes in the fair value of these financial instruments are initially recorded as a component of deferred gas costs and recognized in the consolidated state- ments of comprehensive income as a component of purchased gas cost when the related costs are recovered through our rates and recognized in revenue in accordance with accounting principles generally accepted in the United States. Accordingly, there is no earnings impact on our distribution segment as a result of the use of these financial instruments. Financial Instruments Associated with Interest Rate Risk In connection with the planned issuance of long-term debt, we may use financial instruments to manage interest rate risk. We currently manage this risk through the use of forward starting interest rate swaps to fix the Treasury yield component of the interest cost associated with anticipated financings. We designate these finan- cial instruments as cash flow hedges at the time the agreements are executed. Unrealized gains and losses asso- ciated with the instruments are recorded as a component of accumulated other comprehensive income (loss). When the instruments settle, the realized gain or loss is recorded as a component of accumulated other compre- hensive income (loss) and recognized as a component of interest charges over the life of the related financing arrangement. As of September 30, 2020 and 2019, no cash was required to be held in margin accounts. Fair Value Measurements — We report certain assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We primarily use quoted market prices and other observable market pricing information in valuing our financial assets and liabilities and minimize the use of unobservable pricing inputs in our measurements. Fair-value estimates also consider our own creditworthiness and the creditworthiness of the counterparties involved. Our counterparties consist primarily of financial institutions and major energy companies. This concen- tration of counterparties may materially impact our exposure to credit risk resulting from market, economic or regulatory conditions. We seek to minimize counterparty credit risk through an evaluation of their financial con- dition and credit ratings and the use of collateral requirements under certain circumstances. Amounts reported at fair value are subject to potentially significant volatility based upon changes in market prices, including, but not limited to, the valuation of the portfolio of our contracts, maturity and settlement of these contracts and newly originated transactions and interest rates, each of which directly affect the estimated fair value of our financial instruments. We believe the market prices and models used to value these financial instruments represent the best information available with respect to closing exchange and over-the-counter quota- tions, time value and volatility factors underlying the contracts. Values are adjusted to reflect the potential impact of an orderly liquidation of our positions over a reasonable period of time under then current market conditions. 53 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Authoritative accounting literature establishes a fair value hierarchy that prioritizes the inputs used to meas- ure fair value based on observable and unobservable data. The hierarchy categorizes the inputs into three levels, with the highest priority given to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority given to unobservable inputs (Level 3). The levels of the hierarchy are described below: Level 1 — Represents unadjusted quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is defined as a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Prices actively quoted on national exchanges are used to determine the fair value of most of our assets and liabilities recorded on our bal- ance sheet at fair value. Our Level 1 measurements consist primarily of our debt and equity securities. The Level 1 measurements for investments in the Atmos Energy Corporation Master Retirement Trust (the Master Trust), Supplemental Executive Benefit Plan and postretirement benefit plan consist primarily of exchange-traded financial instru- ments. Level 2 — Represents pricing inputs other than quoted prices included in Level 1 that are either directly or indirectly observable for the asset or liability as of the reporting date. These inputs are derived principally from, or corroborated by, observable market data. Our Level 2 measurements primarily consist of non-exchange-traded financial instruments, such as over-the-counter options and swaps and municipal and corporate bonds where market data for pricing is observable. The Level 2 measurements for investments in our Master Trust, Supple- mental Executive Benefit Plan and postretirement benefit plan consist primarily of non-exchange traded financial instruments such as corporate bonds and government securities. Level 3 — Represents generally unobservable pricing inputs which are developed based on the best information available, including our own internal data, in situations where there is little if any market activity for the asset or liability at the measurement date. The pricing inputs utilized reflect what a market participant would use to determine fair value. We currently do not have any Level 3 investments. Pension and other postretirement plans — Pension and other postretirement plan costs and liabilities are determined on an actuarial basis and are affected by numerous assumptions and estimates including the market value of plan assets, estimates of the expected return on plan assets, assumed discount rates and current demo- graphic and actuarial mortality data. Our measurement date is September 30. The assumed discount rate and the expected return are the assumptions that generally have the most significant impact on our pension costs and liabilities. The assumed discount rate, the assumed health care cost trend rate and assumed rates of retirement generally have the most significant impact on our postretirement plan costs and liabilities. For the valuation per- formed as of September 30, 2020, decreases in the discount rate resulted in actuarial losses that increased our plan obligations. The discount rate is utilized principally in calculating the actuarial present value of our pension and post- retirement obligation and net pension and postretirement cost. When establishing our discount rate, we consider high quality corporate bond rates based on bonds available in the marketplace that are suitable for settling the obligations, changes in those rates from the prior year and the implied discount rate that is derived from matching our projected benefit disbursements with currently available high quality corporate bonds. The expected long-term rate of return on assets is utilized in calculating the expected return on plan assets component of the annual pension and postretirement plan cost. We estimate the expected return on plan assets by evaluating expected bond returns, equity risk premiums, asset allocations, the effects of active plan management, the impact of periodic plan asset rebalancing and historical performance. We also consider the guidance from our investment advisors when making a final determination of our expected rate of return on assets. To the extent the actual rate of return on assets realized over the course of a year is greater than or less than the assumed rate, that year’s annual pension or postretirement plan cost is not affected. Rather, this gain or loss is amortized over the expected future working lifetime of the plan participants. 54 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The expected return on plan assets is then calculated by applying the expected long-term rate of return on plan assets to the market-related value of the plan assets. The market-related value of our plan assets represents the fair market value of the plan assets, adjusted to smooth out short-term market fluctuations over a five-year period. The use of this calculation will delay the impact of current market fluctuations on the pension expense for the period. We use a corridor approach to amortize actuarial gains and losses. Under this approach, net gains or losses in excess of ten percent of the larger of the pension benefit obligation or the market-related value of the assets are amortized on a straight-line basis. The period of amortization is the average remaining service of active partic- ipants who are expected to receive benefits under the plan. We estimate the assumed health care cost trend rate used in determining our annual postretirement net cost based upon our actual health care cost experience, the effects of recently enacted legislation and general economic conditions. Our assumed rate of retirement is estimated based upon the annual review of our partic- ipant census information as of the measurement date. On October 1, 2018 we adopted new accounting guidance, which required we present only the current serv- ice cost component of the net benefit cost within operations and maintenance expense in the consolidated state- ments of comprehensive income. The remaining components of net benefit cost are recorded in other non-operating income (expense) in our consolidated statements of comprehensive income. The change in pre- sentation of these costs was implemented on a retrospective basis as required by the guidance. In lieu of determining how each component of the net periodic benefit cost was actually reflected in the fiscal 2018 state- ment of comprehensive income, we elected to utilize a practical expedient that permits the use of the amounts disclosed for these costs in our pension and post-retirement benefit plans footnote as the basis to retroactively apply this standard. In addition, only the service cost component of net benefit cost is eligible for capitalization and we continue to capitalize these costs into property, plant and equipment. Additionally, we defer into a regulatory asset the portion of non-service components of net periodic benefit cost that are capitalizable for regulatory purposes. Income taxes — Income taxes are determined based on the liability method, which results in income tax assets and liabilities arising from temporary differences. Temporary differences are differences between the tax bases of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. The liability method requires the effect of tax rate changes on accumulated deferred income taxes to be reflected in the period in which the rate change was enacted. The liability method also requires that deferred tax assets be reduced by a valuation allowance unless it is more likely than not that the assets will be realized. The Company may recognize the tax benefit from uncertain tax positions only if it is at least more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the taxing authorities. We recognize accrued interest related to unrecognized tax benefits as a component of interest charges. We recognize penalties related to unrecognized tax benefits as a component of miscellaneous income (expense) in accordance with regulatory requirements. Tax collections — We are allowed to recover from customers revenue-related taxes that are imposed upon us. We record such taxes as operating expenses and record the corresponding customer charges as operating revenues. However, we do collect and remit various other taxes on behalf of various governmental authorities, and we record these amounts in our consolidated balance sheets on a net basis. We do not collect income taxes from our customers on behalf of governmental authorities. Contingencies — In the normal course of business, we are confronted with issues or events that may result in a contingent liability. These generally relate to lawsuits, claims made by third parties or the action of various 55 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) regulatory agencies. For such matters, we record liabilities when they are considered probable and estimable, based on currently available facts and our estimates of the ultimate outcome or resolution of the liability in the future. Actual results may differ from estimates, depending on actual outcomes or changes in the facts or expect- ations surrounding each potential exposure. Subsequent events — Except as noted in Note 7 regarding the public offering of senior notes, no events occurred subsequent to the balance sheet date that would require recognition or disclosure in the financial state- ments. Recent accounting pronouncements Accounting pronouncements adopted in fiscal 2020 In February 2016, the Financial Accounting Standards Board (FASB) issued a comprehensive new leasing standard that requires lessees to recognize a lease liability and a right-of-use (ROU) asset for all leases, including operating leases on its balance sheet. The new standard was effective for us beginning on October 1, 2019. See Note 6 to the consolidated financial statements for further details regarding our adoption of the new lease stan- dard and the related disclosures. Accounting pronouncements that will be effective after fiscal 2020 In March 2020, the 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 expe- dients 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 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. In December 2019, the FASB issued new guidance related to accounting for income taxes which removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocations and calculating income taxes in interim periods. The new standard also adds guidance to reduce complexity in certain areas, such as recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The new standard will be effective for us beginning on October 1, 2021; early adoption is permitted. We do not believe the new standard will have a material impact on our financial position, results of operations and cash flows. In June 2016, the FASB issued new guidance which will require credit losses on most financial assets meas- ured at amortized cost and certain other instruments to be measured using an expected credit loss model. Under this model, entities will estimate credit losses over the entire contractual term of the instrument from the date of initial recognition of that instrument. In contrast, current U.S. GAAP is based on an incurred loss model that delays recognition of credit losses until it is probable the loss has been incurred. The new guidance also introduces a new impairment recognition model for available-for-sale debt securities that will require credit losses for available-for-sale debt securities to be recorded through an allowance account. The new standard was effective for us beginning on October 1, 2020. We do not anticipate the adoption of this standard will have a material impact to our financial position, results of operations and cash flows. 3. Segment Information As of September 30, 2020, we manage and review our consolidated operations through the following two reportable segments: ‰ The distribution segment is primarily comprised of our regulated natural gas distribution and related sales operations in eight states. 56 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) ‰ The pipeline and storage segment is comprised primarily of the pipeline and storage operations of our Atmos Pipeline-Texas division and our natural gas transmission operations in Louisiana. Our determination of reportable segments considers the strategic operating units under which we manage sales of various products and services to customers. Although our distribution segment operations are geo- graphically dispersed, they are aggregated and reported as a single segment as each natural gas distribution divi- sion has similar economic characteristics. In addition, because the pipeline and storage operations of our Atmos Pipeline-Texas division and our natural gas transmission operations in Louisiana have similar economic charac- teristics, they have been aggregated and reported as a single segment. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. We evaluate performance based on net income or loss of the respective operating units. We allocate interest and pension expense to the pipeline and storage segment; however, there is no debt or pension liability recorded on the pipeline and storage segment balance sheet. All material intercompany transactions have been eliminated; however, we have not eliminated intercompany profits when such amounts are probable of recovery under the affiliates’ rate regulation process. Income taxes are allocated to each segment as if each segment’s income taxes were calculated on a separate return basis. Income statements and capital expenditures by segment are shown in the following tables. Year Ended September 30, 2020 Distribution Pipeline and Storage Eliminations Consolidated (In thousands) Operating revenues from external parties . . . . . . . . . . . . Intersegment revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $2,624,251 2,742 $196,886 412,453 $ (415,195) — $2,821,137 — Total operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchased gas cost Operation and maintenance expense . . . . . . . . . . . . . . . . Depreciation and amortization expense . . . . . . . . . . . . . Taxes, other than income . . . . . . . . . . . . . . . . . . . . . . . . 2,626,993 1,071,227 472,760 309,582 245,181 Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-operating income (expense) . . . . . . . . . . . . . . Interest charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income before income taxes . . . . . . . . . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 528,243 (1,265) 39,634 487,344 91,680 609,339 1,548 158,115 120,246 33,574 295,856 8,436 44,840 259,452 53,673 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 395,664 $205,779 Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,466,631 $469,045 (415,195) (413,921) (1,274) — — — — — — — 2,821,137 658,854 629,601 429,828 278,755 824,099 7,171 84,474 746,796 145,353 $ $ — $ 601,443 — $1,935,676 57 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Year Ended September 30, 2019 Distribution Pipeline and Storage Eliminations Consolidated (In thousands) Operating revenues from external parties . . . . . . . . . . . . Intersegment revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $2,742,824 2,637 $159,024 408,000 $ (410,637) — $2,901,848 — Total operating revenues . . . . . . . . . . . . . . . . . . . . . . . Purchased gas cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operation and maintenance expense . . . . . . . . . . . . . . . . Depreciation and amortization expense . . . . . . . . . . . . . Taxes, other than income . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-operating income . . . . . . . . . . . . . . . . . . . . . . Interest charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income before income taxes . . . . . . . . . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,745,461 1,268,591 480,222 283,697 242,179 470,772 6,241 60,031 416,982 88,168 567,024 (360) 151,329 107,759 33,010 275,286 1,163 43,122 233,327 50,735 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 328,814 $182,592 Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,274,613 $418,864 (410,637) (409,394) (1,243) — — — — — — — 2,901,848 858,837 630,308 391,456 275,189 746,058 7,404 103,153 650,309 138,903 $ $ — $ 511,406 — $1,693,477 Year Ended September 30, 2018 Distribution Pipeline and Storage Eliminations Consolidated (In thousands) Operating revenues from external parties . . . . . . . . . . . . Intersegment revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $3,000,404 2,643 $115,142 392,571 $ (395,214) — $3,115,546 — Total operating revenues . . . . . . . . . . . . . . . . . . . . . . . Purchased gas cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operation and maintenance expense . . . . . . . . . . . . . . . . Depreciation and amortization expense . . . . . . . . . . . . . Taxes, other than income . . . . . . . . . . . . . . . . . . . . . . . . 3,003,047 1,559,836 461,048 264,930 231,566 Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-operating expense . . . . . . . . . . . . . . . . . . . . . Interest charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income before income taxes . . . . . . . . . . . . . . . . . . . . . . Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . 485,667 (6,649) 65,850 413,168 (29,798) 507,713 1,978 134,995 96,153 32,320 242,267 (3,495) 40,796 197,976 37,878 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 442,966 $160,098 Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,025,800 $441,791 (395,214) (393,966) (1,248) — — — — — — — 3,115,546 1,167,848 594,795 361,083 263,886 727,934 (10,144) 106,646 611,144 8,080 $ $ — $ 603,064 — $1,467,591 58 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following table summarizes our revenues from external parties, excluding intersegment revenues, by products and services for the fiscal years ended September 30. 2020 2019 (In thousands) 2018 Distribution revenues: Gas sales revenues: Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Public authority and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,717,070 654,963 89,641 42,007 Total gas sales revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transportation revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other gas revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total distribution revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pipeline and storage revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,503,681 97,441 23,129 2,624,251 196,886 $1,733,548 711,284 118,046 42,613 2,605,491 95,629 41,704 2,742,824 159,024 $1,916,101 797,073 131,267 47,714 2,892,155 99,250 8,999 3,000,404 115,142 Total operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,821,137 $2,901,848 $3,115,546 Balance sheet information at September 30, 2020 and 2019 by segment is presented in the following tables. Property, plant and equipment, net . . . . . . . . . . . . . $ 9,944,978 $3,410,369 $ — $13,355,347 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,578,176 $3,647,907 $(2,867,051) $15,359,032 September 30, 2020 Distribution Pipeline and Storage Eliminations Consolidated (In thousands) September 30, 2019 Distribution Pipeline and Storage Eliminations Consolidated (In thousands) Property, plant and equipment, net . . . . . . . . . . . . . $ 8,737,590 $3,050,079 $ — $11,787,669 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,579,741 $3,279,323 $(2,491,445) $13,367,619 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 vest- ing 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, dis- cussed in Note 8, when the impact is dilutive. 59 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Basic and diluted earnings per share for the fiscal years ended September 30 are calculated as follows: 2018 2019 2020 (In thousands, except per share data) Basic Earnings Per Share Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Income allocated to participating securities . . . . . . . . . . . . . . . . . . . $601,443 444 $511,406 416 $603,064 580 Net Income available to common shareholders . . . . . . . . . . . . . . . . . . . . . $600,999 $510,990 $602,484 Basic weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . 122,788 117,200 111,012 Net Income per share — Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4.89 $ 4.36 $ 5.43 Diluted Earnings Per Share Net Income available to common shareholders . . . . . . . . . . . . . . . . . . . . . Effect of dilutive shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $600,999 — $510,990 — $602,484 — Net Income available to common shareholders . . . . . . . . . . . . . . . . . . . . . $600,999 $510,990 $602,484 Basic weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . Dilutive shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,788 84 Diluted weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . 122,872 117,200 261 117,461 111,012 — 111,012 Net Income per share — Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4.89 $ 4.35 $ 5.43 5. Revenue The following table disaggregates our revenue from contracts with customers by customer type and segment and provides a reconciliation to total operating revenues, including intersegment revenues, for the period pre- sented. Year Ended September 30, 2020 Year Ended September 30, 2019 Distribution Pipeline and Storage Distribution Pipeline and Storage (In thousands) Gas sales revenues: Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Public authority and other . . . . . . . . . . . . . . . . . . . . . . $1,704,444 650,396 89,467 41,339 $ $ — $1,755,229 716,757 — 118,060 — 42,796 — — — — — Total gas sales revenues . . . . . . . . . . . . . . . . . . . . . Transportation revenues . . . . . . . . . . . . . . . . . . . . . . . . . Miscellaneous revenues . . . . . . . . . . . . . . . . . . . . . . . . . Revenues from contracts with customers . . . . . . . . . . Alternative revenue program revenues(1) . . . . . . . . . . . . . . Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,485,646 99,435 19,085 2,604,166 20,856 1,971 — 636,819 9,754 646,573 (37,234) — 2,632,842 97,495 26,050 2,756,387 (12,958) 2,032 — 623,808 8,060 631,868 (64,844) — Total operating revenues . . . . . . . . . . . . . . . . . . . . . . . $2,626,993 $609,339 $2,745,461 $567,024 (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 revenue benchmark. 60 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 6. Leases We adopted the provisions of the new lease accounting standard beginning on October 1, 2019, using the optional transition method, which allowed us to apply the provisions of the new standard to all leases that existed as of the date of adoption. Therefore, results for reporting periods beginning on October 1, 2019 are presented under the new lease accounting standard and prior periods are presented under the former lease accounting stan- dard. The new guidance included several practical expedients to facilitate the implementation of the new standard. The following summarizes the practical expedients we used to implement the standard. ‰ We elected to bundle our lease and non-lease components as a single component for all asset classes. ‰ We elected not to perform the following: O Evaluate existing or expired land easements prior to October 1, 2019 to determine if they are leases. O Include short-term leases in the calculation of our lease liability. O Evaluate existing or expired contracts to determine if they are leases. O Assess lease classification for existing or expired leases. O Review initial direct costs for existing leases. O Use hindsight in order to determine the lease term or impairment of our ROU assets. Upon adoption of this new guidance, we recorded ROU assets and lease liabilities of $231.3 million. Addi- tionally, we reclassified a net $6.5 million of accrued and prepaid lease costs to the ROU asset and $2.5 million related to an existing finance lease from deferred credits and other liabilities to long-term debt. Implementation of the new lease accounting guidance had no material impact on our consolidated state- ments of comprehensive income or our consolidated statements of cash flows. Additionally, we did not record a cumulative-effect adjustment to retained earnings on the opening balance sheet. New Lease Accounting Policy We determine if an arrangement is a lease at the inception of the agreement based on the terms and con- ditions in the contract. A contract contains a lease if there is an identified asset and we have the right to control the asset. We are the lessee for substantially all of our leasing activity, which primarily includes operating leases for office and warehouse space, tower space, vehicles and heavy equipment used in our operations. We are also a lessee in finance leases for service centers. We record a lease liability and a corresponding ROU asset for all of our leases with a term greater than 12 months. For lease contracts containing renewal and termination options, we include the option period in the lease term when it is reasonably certain the option will be exercised. We most frequently assume renewal options at the inception of the arrangement for our tower and fleet leases, based on our anticipated use of the assets. Real estate leases that contain a renewal option are evaluated on a lease-by-lease basis to determine if the option period should be included in the lease term. Currently, we have not included material renewal options for real estate leases in our ROU asset or lease liability. The following table presents our weighted average remaining lease term for our leases. Weighted average remaining lease term (years) Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.1 10.6 September 30, 2020 61 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The lease liability represents the present value of all lease payments over the lease term. The discount rate used to determine the present value of the lease liability is the rate implicit in the lease unless that rate cannot be readily determined. We use the implicit rate stated in the agreement to determine the lease liability for our fleet leases. We use our corporate collateralized incremental borrowing rate as the discount rate for all other lease agreements. This rate is appropriate because we believe it represents the rate we would have incurred to borrow funds to acquire the leased asset over a similar term. We calculated this rate using a combination of inputs, including our current credit rating, quoted market prices of interest rates for our publicly traded unsecured debt, observable market yield curve data for peer companies with a credit rating one notch higher than our current credit rating and the lease term. The following table represents our weighted average discount rate: September 30, 2020 Weighted average discount rate Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.0% 2.9% The ROU asset represents the right to use the underlying asset for the lease term, and is equal to the lease liability, adjusted for prepaid or accrued lease payments and any lease incentives that have been paid to us or when we are reasonably certain to incur costs equal to or greater than the allowance defined in the contract. Variable payments included in our leasing arrangements are expensed in the period in which the obligation for these payments is incurred. Variable payments are dependent on usage, output or may vary for other reasons. Most of our variable lease expense is related to tower leases that have escalating payments based on changes to a stated CPI index, and usage of certain office equipment. We have not provided material residual value guarantees for our leases, nor do our leases contain material restrictions or covenants. Lease costs for the year ended September 30, 2020 are presented in the table below. These costs include both amounts recognized in expense and amounts capitalized. For the year ended September 30, 2020 we did not have material short-term lease costs or variable lease costs. Finance lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 622 $ 40,887 $41,509 Our ROU assets and lease liabilities are presented as follows on the consolidated balance sheets: Balance Sheet Classification September 30, 2020 (In thousands) September 30, 2020 (In thousands) Assets Finance leases Operating leases Total right-of-use assets . . . . . . . . . . . Net Property, Plant and Equipment Deferred charges and other assets Liabilities Current Finance leases Operating leases Noncurrent Finance leases Operating leases Total lease liabilities . . . . . . . . . . . . . . Current maturities of long-term debt Other current liabilities Long-term debt Deferred credits and other liabilities 62 8,480 $ 227,146 $235,626 $ 165 35,716 8,466 201,071 $245,418 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Other pertinent information related to leases was as follows. During the year ended September 30, 2020, amounts paid in cash for our finance leases were not material. September 30, 2020 (In thousands) Cash paid amounts included in the measurement of lease liabilities Operating cash flows used for operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $37,758 Right-of-use assets obtained in exchange for lease obligations Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,083 $34,169 Maturities of our lease liabilities as of September 30, 2020 were as follows: 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Imputed interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total $ 40,790 38,423 33,266 25,464 17,666 139,049 294,658 49,240 $245,418 Finance Leases (In thousands) $ 741 751 762 773 784 12,666 16,477 7,846 $ 8,631 Operating Leases $ 40,049 37,672 32,504 24,691 16,882 126,383 278,181 41,394 $236,787 Reported as of September 30, 2020 Short-term lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,881 209,537 $245,418 $ 165 8,466 $ 8,631 $ 35,716 201,071 $236,787 Disclosures Related to Prior Periods The future minimum lease payments as of September 30, 2019 were as follows: Operating Leases(1) Capital Lease (In thousands) 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,017 20,416 19,370 18,071 15,718 105,544 $200,136 Less amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Present value of net minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 243 248 253 258 263 4,343 5,608 3,018 $2,590 (1) Future minimum lease payments do not include amounts for fleet leases and other de minimis items that can be renewed beyond the initial lease term. The Company anticipates renewing the leases beyond the initial term, but the anticipated payments associated with the renewals do not meet the definition of expected minimum lease payments and therefore are not included above. Expected payments are $17.6 million in 2020, $18.0 million in 2021, $11.8 million in 2022, $8.5 million in 2023, $5.4 million in 2024 and $2.7 million thereafter. 63 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated lease and rental expense amounted to $40.4 million and $33.8 million for fiscal 2019 and 2018. 7. Debt Long-term debt Long-term debt at September 30, 2020 and 2019 consisted of the following: 2020 2019 (In thousands) Unsecured 3.00% Senior Notes, due 2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 500,000 300,000 Unsecured 2.625% Senior Notes, due 2029 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 Unsecured 5.95% Senior Notes, due 2034 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000 Unsecured 5.50% Senior Notes, due 2041 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 Unsecured 4.15% Senior Notes, due 2043 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750,000 Unsecured 4.125% Senior Notes, due 2044 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000 Unsecured 4.30% Senior Notes, due 2048 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,000 Unsecured 4.125% Senior Notes, due 2049 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 Unsecured 3.375% Senior Notes, due 2049 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 Floating-rate term loan, due 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Medium term Series A notes, 1995-1, 6.67%, due 2025 . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 150,000 Unsecured 6.75% Debentures, due 2028 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,631 Finance lease obligations (see Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 500,000 — 200,000 400,000 500,000 750,000 600,000 450,000 — — 10,000 150,000 — Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,568,631 3,560,000 Less: Net original issue (premium) / discount on unsecured senior notes and debentures . . Debt issuance cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 583 36,104 165 193 30,355 — $4,531,779 $3,529,452 Maturities of long-term debt, excluding our finance lease obligations, at September 30, 2020 were as fol- lows (in thousands): 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter $ — 200,000 — — 10,000 4,350,000 $4,560,000 On October 1, 2020, we completed a public offering of $600 million of 1.50% senior notes due 2031. The net proceeds from the offering, after the underwriting discount and estimated offering expenses, of $592.5 million, were used for general corporate purposes, including the repayment of working capital borrowings pursuant to our commercial paper program and the related settlement of our interest rate swaps. The effective interest rate on these notes is 1.71%, after giving effect to the offering costs. On April 9, 2020, we entered into a two year, $200 million term loan agreement that bears interest at a rate of LIBOR plus 1.25 percent. The term loan was used to pay down borrowings pursuant to our commercial paper program. 64 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On October 2, 2019, we completed a public offering of $300 million of 2.625% senior notes due 2029 and $500 million of 3.375% senior notes due 2049. We received net proceeds from the offering, after the under- writing discount and offering expenses, of $791.7 million, that were used for general corporate purposes, includ- ing the repayment of working capital borrowings pursuant to our commercial paper program. The effective interest rate on these notes was 2.72% and 3.42%, after giving effect to the offering costs. 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-capitalization ratio between 50% and 60%, inclusive of long-term and short-term debt. Our short-term borrowing requirements are driven primarily by construction work in progress and the seasonal nature of the natural gas business. Changes in the price of natural gas and the amount of natural gas we need to supply our customers’ needs could significantly affect our borrowing requirements. Our short-term borrowings typically reach their highest levels in the winter months. As of September 30, 2020, our short-term borrowing requirements were satisfied through a combination of a $1.5 billion commercial paper program and four committed revolving credit facilities with third-party lenders that provide $2.2 billion of total working capital funding. The primary source of our funding is our commercial paper program, which is supported by a five-year unsecured $1.5 billion credit facility that expires on September 25, 2023. The facility bears interest at a base rate or at a LIBOR-based rate for the applicable interest period, plus a margin ranging from zero percent to 1.25 percent, based on the Company’s credit ratings. Additionally, the facility contains a $250 million accordion feature, which provides the opportunity to increase the total committed loan to $1.75 billion. At September 30, 2020, there were no amounts outstanding under our commercial paper program. At September 30, 2019, a total of $464.9 million was outstanding with weighted average interest rates of 2.24% and weighted average maturities of less than one month. Additionally, we had a $25 million 364-day unsecured facility that was renewed on April 1, 2020 and increased to $50 million, which is used to provide working capital funding. There were no borrowings out- standing under this facility as of September 30, 2020. Finally, we had a $10 million 364-day unsecured revolving credit facility, which was replaced on April 30, 2020, with a new $50 million 364-day unsecured revolving credit facility, which is used to issue letters of credit and to provide working capital funding. At September 30, 2020, there were no borrowings outstanding under the new facility; however, outstanding letters of credit reduced the total amount available to us under our $50 million unsecured revolving facility to $44.4 million. On April 23, 2020, we executed a new $600 million 364-day unsecured revolving credit facility to provide additional working capital funding. The facility bears interest at a base rate or at a LIBOR-based rate for the applicable interest period, plus a margin ranging from zero percent to 1.25 percent, based on the Company’s credit ratings. At September 30, 2020, there were no borrowings outstanding under this facility. 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 September 30, 2020, our total-debt-to-total- capitalization ratio, as defined, was 42 percent. In addition, both the interest margin and the fee that we pay on unused amounts under each of these facilities are subject to adjustment depending upon our credit ratings. 65 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS These credit facilities and our public indentures contain usual and customary covenants for our business, including covenants substantially limiting liens, substantial asset sales and mergers. Additionally, our public debt indentures relating to our senior notes and debentures, as well as certain of our revolving credit agreements, each contain a default provision that is triggered if outstanding indebtedness arising out of any other credit agreements in amounts ranging from in excess of $15 million to in excess of $100 million becomes due by acceleration or is not paid at maturity. We were in compliance with all of our debt covenants as of September 30, 2020. 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. 8. Shareholders’ Equity Shelf Registration, At-the-Market Equity Sales Program and Equity Issuances On February 11, 2020, we filed a shelf registration statement with the Securities and Exchange Commission (SEC) that allows us to issue up to $4.0 billion in common stock and/or debt securities, which expires Febru- ary 11, 2023. This shelf registration statement replaced our previous shelf registration statement which was filed on November 13, 2018 (2018 Registration Statement). At September 30, 2020, approximately $3.0 billion of securities remained available for issuance under the shelf registration statement. Following the completion of the $600 million senior unsecured note offering on October 1, 2020 (see Note 7), approximately $2.4 billion of secu- rities remained available for issuance under the shelf registration statement. On February 12, 2020, we filed a prospectus supplement under the shelf registration statement relating to an at-the-market (ATM) equity sales program (February 2020 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 November 19, 2018 (November 2018 ATM), which was exhausted during the second quarter of fiscal 2020. During the year ended September 30, 2020, we executed forward sales under the February 2020 ATM and the November 2018 ATM equity sales programs with various forward sellers who borrowed and sold 4,808,051 shares of our common stock for $523.2 million. Additionally, during the year ended September 30, 2020, we set- tled forward sale agreements with respect to 5,616,727 shares that had been borrowed and sold by various for- ward sellers under the November 2018 ATM and the February 2020 ATM for net proceeds of $581.5 million. As of September 30, 2020, the February 2020 ATM program had approximately $552 million of equity available for issuance. On November 30, 2018, we filed a prospectus supplement under the registration statement relating to an underwriting agreement to sell 5,390,836 shares of our common stock for $500 million. After expenses, net pro- ceeds from the offering were $494.1 million. Concurrently, we entered into separate forward sale agreements with two forward sellers who borrowed and sold 2,668,464 shares of our common stock for $247.5 million. During the year ended September 30, 2019, we settled forward sale agreements with respect to 2,183,275 of the shares that had been borrowed and sold for net proceeds of $200.0 million. During the year ended September 30, 2020, we settled the remaining 485,189 shares for net proceeds of $44.4 million. During the year ended September 30, 2019, we executed forward sales under the November 2018 ATM with various forward sellers who borrowed and sold 4,144,671 shares of our common stock at an aggregate price of $425.0 million. If we had settled all shares that remain available under our outstanding forward sale agreements as of Sep- tember 30, 2020, we would have received proceeds of $345.2 million, based on a net price of $103.48 per share. Additional details are presented below. 66 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Maturity Shares Available Net Proceeds Available (In Thousands) Forward Price March 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . September 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,281,578 1,394,423 659,994 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,335,995 $134,660 142,388 68,158 $345,206 $105.07 $102.11 $103.27 Accumulated Other Comprehensive Income (Loss) We record deferred gains (losses) in accumulated other comprehensive income (AOCI) related to available-for-sale debt securities and interest rate agreement cash flow hedges. Deferred gains (losses) for our available-for-sale debt securities are recognized in earnings upon settlement, while deferred gains (losses) related to our interest rate agreement cash flow hedges are recognized in earnings as a component of interest charges, as they are amortized. The following tables provide the components of our accumulated other comprehensive income (loss) balances, net of the related tax effects allocated to each component of other comprehensive income (loss). Available- for-Sale Securities September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income before reclassifications . . . . . . . . . . . . . . . . . Amounts reclassified from accumulated other comprehensive income . . . . $ Net current-period other comprehensive income . . . . . . . . . . . . . . . . . . . . . September 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 132 108 (2) 106 238 September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss) before reclassifications . . . . . . . . . . . . Amounts reclassified from accumulated other comprehensive income . . . . $ 8,124 219 (1) Available- for-Sale Securities Interest Rate Agreement Cash Flow Hedges (In thousands) $(114,715) 53,241 3,647 Total $(114,583) 53,349 3,645 56,888 56,994 $ (57,827) $ (57,589) Interest Rate Agreement Cash Flow Hedges (In thousands) $ (91,771) (25,966) 3,022 Total $ (83,647) (25,747) 3,021 Net current-period other comprehensive income (loss) . . . . . . . . . . . . . . . . 218 (22,944) (22,726) Cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,210) — (8,210) September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 132 $(114,715) $(114,583) 9. Retirement and Post-Retirement Employee Benefit Plans We have both funded and unfunded noncontributory defined benefit plans that together cover most of our employees. We also maintain post-retirement plans that provide health care benefits to retired employees. Finally, we sponsor a defined contribution plan that covers substantially all employees. These plans are discussed in further detail below. As a rate regulated entity, most of our net periodic pension and other postretirement benefits costs are recov- erable through our rates over a period of up to 15 years. 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 67 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS maintenance expense or other non-operating expense. Additionally, the amounts that have not yet been recog- nized in net periodic pension cost that have been recorded as regulatory assets or liabilities are as follows: Defined Benefit Plan Supplemental Executive Retirement Plans Postretirement Plans Total (In thousands) $ (584) 78,082 $77,498 $ (815) 67,191 $66,376 $ — 51,045 $51,045 $ — 56,784 $56,784 $ 951 9,110 $ 10,061 $ 367 138,237 $138,604 $ 1,125 (43,782) $ 310 80,193 $(42,657) $ 80,503 September 30, 2020 Unrecognized prior service (credit) cost . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized actuarial loss . . . . . . . . . . September 30, 2019 Unrecognized prior service (credit) cost . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized actuarial (gain) loss . . . . Defined Benefit Plans Employee Pension Plan As of September 30, 2020, we maintained one cash balance defined benefit plan, the Atmos Energy Corpo- ration Pension Account Plan (the Plan). The Plan was established effective January 1999 and covers most of the employees of Atmos Energy that were hired on or before September 30, 2010. Effective October 1, 2010, the plan was closed to new participants. The assets of the Plan are held within the Atmos Energy Corporation Master Retirement Trust (the Master Trust). Opening account balances were established for participants as of January 1999 equal to the present value of their respective accrued benefits under the pension plans which were previously in effect as of December 31, 1998. The Plan credits an allocation to each participant’s account at the end of each year according to a formula based on the participant’s age, service and total pay (excluding incentive pay). In addition, at the end of each year, a participant’s account is credited with interest on the employee’s prior year account balance. Participants are fully vested in their account balances after three years of service and may choose to receive their account balances as a lump sum or an annuity. Generally, our funding policy is to contribute annually an amount in accordance with the requirements of the Employee Retirement Income Security Act of 1974, including the funding requirements under the Pension Protection Act of 2006 (PPA). However, additional voluntary contributions are made from time to time as considered necessary. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. During fiscal 2020, we did not make a contribution to the Plan. During fiscal 2019 we contributed $8.5 million in cash to the Plan to achieve a desired level of funding while maximizing the tax deductibility of this payment. Based upon market conditions at September 30, 2020, the current funded position of the Plan and the funding requirements under the PPA, we do not anticipate a minimum required contribution for fiscal 2021. However, we may consider whether a voluntary contribution is prudent to maintain certain funding levels. We make investment decisions and evaluate performance of the assets in the Master Trust on a medium- term horizon of at least three to five years. We also consider our current financial status when making recom- mendations and decisions regarding the Master Trust’s assets. Finally, we strive to ensure the Master Trust’s assets are appropriately invested to maintain an acceptable level of risk and meet the Master Trust’s long-term asset investment policy adopted by the Board of Directors. 68 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS To achieve these objectives, we invest the Master Trust’s assets in equity securities, fixed income securities, interests in commingled pension trust funds, other investment assets and cash and cash equivalents. Investments in equity securities are diversified among the market’s various subsectors in an effort to diversify risk and max- imize returns. Fixed income securities are invested in investment grade securities. Cash equivalents are invested in securities that either are short term (less than 180 days) or readily convertible to cash with modest risk. The following table presents asset allocation information for the Master Trust as of September 30, 2020 and 2019. Security Class Targeted Allocation Range Domestic equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fixed income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Company stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35%-55% 10%-20% 5%-30% 0%-15% 0%-20% Actual Allocation September 30 2019 2020 45.3% 40.6% 15.6% 14.5% 17.0% 18.8% 13.0% 15.4% 9.1% 10.7% At September 30, 2020 and 2019, the Plan held 716,700 shares of our common stock which represented 13.0 percent and 15.4 percent of total Plan assets. These shares generated dividend income for the Plan of approximately $1.6 million and $1.5 million during fiscal 2020 and 2019. Our employee pension plan expenses and liabilities are determined on an actuarial basis and are affected by numerous assumptions and estimates including the market value of plan assets, estimates of the expected return on plan assets and assumed discount rates and demographic data. We review the estimates and assumptions underlying our employee pension plans annually based upon a September 30 measurement date. The develop- ment of our assumptions is fully described in our significant accounting policies in Note 2. The actuarial assump- tions used to determine the pension liability for the Plan was determined as of September 30, 2020 and 2019 and the actuarial assumptions used to determine the net periodic pension cost for the Plan was determined as of Sep- tember 30, 2019, 2018 and 2017. On October 21, 2020, the Society of Actuaries released its annually-updated mortality improvement scale for pension plans incorporating new assumptions surrounding life expectancies in the United States. As of September 30, 2020, we updated our assumed mortality rates to incorporate the updated mortality table. Additional assumptions are presented in the following table: Pension Liability 2020 2019 2020 Pension Cost 2019 2018 Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest crediting rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.80% 3.29% 3.29% 4.38% 3.89% 3.50% 3.50% 3.50% 3.50% 3.50% 6.25% 6.50% 6.50% 6.75% 6.75% 4.69% 4.69% 4.69% 4.69% 4.69% 69 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following table presents the Plan’s accumulated benefit obligation, projected benefit obligation and funded status as of September 30, 2020 and 2019: 2020 2019 (In thousands) Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $565,755 $541,287 Change in projected benefit obligation: Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $577,270 17,551 19,028 22,898 (32,526) $504,719 15,311 22,071 71,139 (35,970) Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 604,221 577,270 Change in plan assets: Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 530,109 31,298 — (32,526) 531,691 25,888 8,500 (35,970) Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 528,881 530,109 Reconciliation: Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (75,340) — — (47,161) — — Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (75,340) $ (47,161) Net periodic pension cost for the Plan for fiscal 2020, 2019 and 2018 is presented in the following table. Fiscal Year Ended September 30 2019 2018 2020 (In thousands) Components of net periodic pension cost: Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on assets(1) Amortization of prior service credit(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recognized actuarial loss(1) $ 17,551 19,028 (28,316) (231) 9,025 $ 15,311 22,071 (28,451) (232) 4,201 $ 17,264 20,803 (27,666) (231) 9,114 Net periodic pension cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,057 $ 12,900 $ 19,284 (1) The components of net periodic cost other than the service cost component are included in the line item other non-operating income (expense) in the consolidated statements of comprehensive income or are capitalized on the consolidated balance sheets as a regulatory asset or liability, as described in Note 2. 70 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following tables set forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of September 30, 2020 and 2019. As required by authoritative accounting literature, assets are categorized in their entirety based on the lowest level of input that is significant to the fair value measurement. The methods used to determine fair value for the assets held by the Plan are fully described in Note 2. Investments in our common/ collective trusts and limited partnerships that are measured at net asset value per share equivalent are not classi- fied in the fair value hierarchy. The net asset value amounts presented are intended to reconcile the fair value hierarchy to the total investments. In addition to the assets shown below, the Plan had net accounts receivable of $0.7 million and $1.3 million at September 30, 2020 and 2019, which materially approximates fair value due to the short-term nature of these assets. Assets at Fair Value as of September 30, 2020 Level 1 Level 2 Level 3 Total (In thousands) Investments: Common stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Registered investment companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Government securities: Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . U.S. treasuries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $211,244 — 29,762 — 21,755 — $ — 6,096 — 15,230 36 52,648 Total investments measured at fair value . . . . . . . . . . . . . . . $262,761 $74,010 $ Investments measured at net asset value: Common/collective trusts (1) Limited partnerships (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $211,244 6,096 — 29,762 — — — — — 15,230 21,791 52,648 336,771 122,207 69,176 $528,154 Assets at Fair Value as of September 30, 2019 Level 1 Level 2 Level 3 Total (In thousands) Investments: Common stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Registered investment companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Government securities: Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . U.S. treasuries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $212,785 — 26,326 — 22,930 — $ — 16,419 — 19,986 885 55,774 Total investments measured at fair value . . . . . . . . . . . . . . . $262,041 $93,064 $ Investments measured at net asset value: Common/collective trusts (1) Limited partnerships (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $212,785 16,419 — 26,326 — — — — — 19,986 23,815 55,774 355,105 108,975 64,718 $528,798 (1) The fair value of our common/collective trusts and limited partnerships are measured using the net asset value per share practical expedient. There are no redemption restrictions, redemption notice periods or unfunded commitments for these investments. The redemption frequency is daily. 71 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Supplemental Executive Retirement Plans We have three nonqualified supplemental plans which provide additional pension, disability and death bene- fits to our officers, division presidents and certain other employees of the Company. The first plan is referred to as the Supplemental Executive Benefits Plan (SEBP) and covers our corporate officers and certain other employees of the Company who were employed on or before August 12, 1998. The SEBP is a defined benefit arrangement which provides a benefit equal to 75 percent of covered compensation under which benefits paid from the underlying qualified defined benefit plan are an offset to the benefits under the SEBP. In August 1998, we adopted the Supplemental Executive Retirement Plan (SERP) (formerly known as the Performance-Based Supplemental Executive Benefits Plan), which covers all corporate officers selected to participate in the plan between August 12, 1998 and August 5, 2009. The SERP is a defined benefit arrangement which provides a benefit equal to 60 percent of covered compensation under which benefits paid from the under- lying qualified defined benefit plan are an offset to the benefits under the SERP. Effective August 5, 2009, we adopted a new defined benefit Supplemental Executive Retirement Plan (the 2009 SERP), for corporate officers or any other employees selected at the discretion of the Board. Under the 2009 SERP, a nominal account has been established for each participant, to which the Company contributes at the end of each calendar year an amount equal to ten percent (25 percent for members of the Management Committee appointed on or after January 1, 2016) of the total of each participant’s base salary and cash incentive compensation earned during each prior calendar year, beginning December 31, 2009. The benefits vest after three years of service and attainment of age 55 and earn interest credits at the same annual rate as the Company’s Pen- sion Account Plan. Due to the retirement of an executive of the company during fiscal 2020, we recognized a one-time settle- ment charge of $9.2 million and paid a $22.7 million lump sum in relation to the retirement. Similar to our employee pension plans, we review the estimates and assumptions underlying our supple- mental plans annually based upon a September 30 measurement date using the same techniques as our employee pension plans. The actuarial assumptions used to determine the pension liability for the supplemental plans were determined as of September 30, 2020 and 2019 and the actuarial assumptions used to determine the net periodic pension cost for the supplemental plans were determined as of September 30, 2019, 2018 and 2017. These assumptions are presented in the following table: Pension Liability 2020 2019 2020 Pension Cost 2019 2018 Discount rate(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest crediting rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.80% 3.29% 3.19% 4.38% 4.08% 3.50% 3.50% 3.50% 3.50% 3.50% 4.69% 4.69% 4.69% 4.69% 4.69% (1) Reflects a weighted average discount rate for pension cost for fiscal 2020 and 2018 due to the settlements during the year. 72 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following table presents the supplemental plans’ accumulated benefit obligation, projected benefit obli- gation and funded status as of September 30, 2020 and 2019: 2020 2019 (In thousands) Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 122,207 $ 138,772 Change in projected benefit obligation: Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 143,987 1,074 4,188 7,386 (4,766) (22,729) $ 121,370 869 5,127 25,099 (8,478) — Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129,140 143,987 Change in plan assets: Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employer contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 27,495 (4,766) (22,729) Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 8,478 (8,478) — — Reconciliation: Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (129,140) — — (143,987) — — Accrued pension cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(129,140) $(143,987) Assets for the supplemental plans are held in separate rabbi trusts. At September 30, 2020 and 2019, assets held in the rabbi trusts consisted of equity securities of $41.9 million and $44.0 million, which are included in our fair value disclosures in Note 15. Net periodic pension cost for the supplemental plans for fiscal 2020, 2019 and 2018 is presented in the fol- lowing table. Fiscal Year Ended September 30 2019 2018 2020 (In thousands) Components of net periodic pension cost: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Service cost Interest cost(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recognized actuarial loss(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Settlements(1) $ 1,074 4,188 3,945 9,180 $ 869 5,127 2,227 — $ 1,332 4,988 3,079 4,159 Net periodic pension cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,387 $8,223 $13,558 (1) The components of net periodic cost other than the service cost component are included in the line item other non-operating income (expense) in the consolidated statements of comprehensive income or are capitalized on the consolidated balance sheets as a regulatory asset or liability, as described in Note 2. 73 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Estimated Future Benefit Payments The following benefit payments for our defined benefit plans, which reflect expected future service, as appropriate, are expected to be paid in the following fiscal years: Pension Plan Supplemental Plans (In thousands) 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2026-2030 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,523 37,804 39,053 40,036 41,016 204,582 $30,021 17,117 5,124 4,472 32,550 22,308 Postretirement Benefits We sponsor the Retiree Medical Plan for Retirees and Disabled Employees of Atmos Energy Corporation (the Atmos Retiree Medical Plan). This plan provides medical and prescription drug protection to all qualified participants based on their date of retirement. The Atmos Retiree Medical Plan provides different levels of bene- fits depending on the level of coverage chosen by the participants and the terms of predecessor plans; however, we generally pay 80 percent of the projected net claims and administrative costs and participants pay the remain- ing 20 percent. Effective January 1, 2015, for employees who had not met the participation requirements by September 30, 2009, the contribution rates for the Company are limited to a three percent cost increase in claims and administrative costs each year, with the participant responsible for the additional costs. Generally, our funding policy is to contribute annually an amount in accordance with the requirements of ERISA. However, additional voluntary contributions are made annually as considered necessary. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. We expect to contribute between $15 million and $25 million to our postretirement benefits plan during fiscal 2021. We maintain a formal investment policy with respect to the assets in our postretirement benefits plan to ensure the assets funding the postretirement benefit plan are appropriately invested to maintain an acceptable level of risk. We also consider our current financial status when making recommendations and decisions regard- ing the postretirement benefits plan. We currently invest the assets funding our postretirement benefit plan in diversified investment funds which consist of common stocks, preferred stocks and fixed income securities. The diversified investment funds may invest up to 75 percent of assets in common stocks and convertible securities. The following table presents asset allocation information for the postretirement benefit plan assets as of September 30, 2020 and 2019. Security Class Actual Allocation September 30 2019 2020 Diversified investment funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97.4% 97.1% 2.6% 2.9% Similar to our employee pension and supplemental plans, we review the estimates and assumptions under- lying our postretirement benefit plan annually based upon a September 30 measurement date using the same techniques as our employee pension plans. The actuarial assumptions used to determine the pension liability for our postretirement plan were determined as of September 30, 2020 and 2019 and the actuarial assumptions used to determine the net periodic pension cost for the postretirement plan were determined as of September 30, 2019, 2018 and 2017. 74 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The assumptions are presented in the following table: Postretirement Liability 2020 2019 Postretirement Cost 2019 2020 2018 Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . Initial trend rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ultimate trend rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ultimate trend reached in . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.80% 3.29% 3.29% 4.38% 3.89% 4.94% 5.14% 5.14% 5.33% 4.29% 6.25% 6.25% 6.25% 6.50% 7.00% 5.00% 5.00% 5.00% 5.00% 5.00% 2026 2025 2022 2025 2022 The following table presents the postretirement plan’s benefit obligation and funded status as of Sep- tember 30, 2020 and 2019: 2020 2019 (In thousands) Change in benefit obligation: Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plan participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 316,033 13,466 10,612 5,849 43,412 (18,694) $ 265,986 10,810 11,839 5,901 39,472 (17,975) Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370,678 316,033 Change in plan assets: Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . . . . . . . Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plan participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201,901 2,356 16,833 5,849 (18,694) 199,361 1,125 13,489 5,901 (17,975) Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208,245 201,901 Reconciliation: Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized transition obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (162,433) — — — (114,132) — — — Accrued postretirement cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(162,433) $(114,132) 75 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Net periodic postretirement cost for fiscal 2020, 2019 and 2018 is presented in the following table. Fiscal Year Ended September 30 2019 2018 2020 (In thousands) Components of net periodic postretirement cost: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Service cost Interest cost(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on assets(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of transition obligation(1) . . . . . . . . . . . . . . . . . . . . . Amortization of prior service cost (credit)(1) . . . . . . . . . . . . . . . . . Recognized actuarial gain(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,466 10,612 (10,499) — 173 (1,337) $ 10,810 11,839 (10,659) — 173 (8,178) $12,078 10,907 (8,006) — 11 (6,473) Net periodic postretirement cost . . . . . . . . . . . . . . . . . . . . . . . . $ 12,415 $ 3,985 $ 8,517 (1) The components of net periodic cost other than the service cost component are included in the line item other non-operating income (expense) in the consolidated statements of comprehensive income or are capitalized on the consolidated balance sheets as a regulatory asset or liability, as described in Note 2. We are currently recovering other postretirement benefits costs through our regulated rates in substantially all of our service areas under accrual accounting as prescribed by accounting principles generally accepted in the United States. Other postretirement benefits costs have been specifically addressed in rate orders in each juris- diction served by our Kentucky/Mid-States, West Texas, Mid-Tex and Mississippi Divisions as well as our Kansas jurisdiction and APT or have been included in a rate case and not disallowed. Management believes that this accounting method is appropriate and will continue to seek rate recovery of accrual-based expenses in its ratemaking jurisdictions that have not yet approved the recovery of these expenses. The following tables set forth by level, within the fair value hierarchy, the Retiree Medical Plan’s assets at fair value as of September 30, 2020 and 2019. The methods used to determine fair value for the assets held by the Retiree Medical Plan are fully described in Note 2. Assets at Fair Value as of September 30, 2020 Level 1 Level 2 Level 3 Total (In thousands) Investments: Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . Registered investment companies . . . . . . . . . . . . . . . $ — $5,525 — 202,720 Total investments measured at fair value . . . . . . . . . . . $202,720 $5,525 $ $ — $ — 5,525 202,720 — $208,245 Assets at Fair Value as of September 30, 2019 Level 1 Level 2 Level 3 Total (In thousands) Investments: Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . Registered investment companies . . . . . . . . . . . . . . . $ — $5,972 — 195,929 Total investments measured at fair value . . . . . . . . . . . $195,929 $5,972 $ $ — $ — 5,972 195,929 — $201,901 76 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Estimated Future Benefit Payments The following benefit payments paid by us, retirees and prescription drug subsidy payments for our post- retirement benefit plans, which reflect expected future service, as appropriate, are expected to be paid in the fol- lowing fiscal years. Company payments for fiscal 2020 include contributions to our postretirement plan trusts. Company Payments Retiree Payments Subsidy Payments Total Postretirement Benefits 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2026-2030 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,632 16,263 16,590 17,517 18,353 101,158 (In thousands) $— — — — — — $ 4,368 4,772 5,144 5,651 6,104 35,039 $ 27,000 21,035 21,734 23,168 24,457 136,197 Defined Contribution Plan The Atmos Energy Corporation Retirement Savings Plan and Trust (the Retirement Savings Plan) covers substantially all employees and is subject to the provisions of Section 401(k) of the Internal Revenue Code. Effective January 1, 2007, employees automatically become participants of the Retirement Savings Plan on the date of employment. Participants may elect a salary reduction up to a maximum of 65 percent of eligible compensation, as defined by the Plan, not to exceed the maximum allowed by the Internal Revenue Service. New participants are automatically enrolled in the Plan at a contribution rate of four percent of eligible compensation, from which they may opt out. We match 100 percent of a participant’s contributions, limited to four percent of the participant’s salary. Participants are eligible to receive matching contributions after completing one year of service, in which they are immediately vested. Effective January 1, 2021, participants are eligible to receive matching contributions immediately upon enrollment in the Retirement Savings Plan. This matching contribution vests after completing one year of service. Participants are also permitted to take out a loan against their accounts subject to certain restrictions. Employees hired on or after October 1, 2010 participate in the enhanced plan in which participants receive a fixed annual contribution of four percent of eligible earnings to their Retirement Savings Plan account. Participants will continue to be eligible for company matching contributions of up to four percent of their eligible earnings and will be fully vested in the fixed annual contribution after three years of service. Matching and fixed annual contributions to the Retirement Savings Plan are expensed as incurred and amounted to $17.9 million, $16.7 million and $16.2 million for fiscal years 2020, 2019 and 2018. At Sep- tember 30, 2020 and 2019, the Retirement Savings Plan held 2.2 percent and 2.6 percent of our outstanding common stock. 10. Stock and Other Compensation Plans Stock-Based Compensation Plans Total stock-based compensation cost was $21.1 million, $23.9 million and $23.9 million for the fiscal years ended September 30, 2020, 2019 and 2018. Of this amount, $11.6 million, $12.8 million and $11.1 million was capitalized. 1998 Long-Term Incentive Plan We have the 1998 Long-Term Incentive Plan (LTIP), which provides a comprehensive, long-term incentive compensation plan providing for discretionary awards of incentive stock options, non-qualified stock options, 77 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) stock appreciation rights, bonus stock, time-lapse restricted stock, time-lapse restricted stock units, performance- based restricted stock units and stock units to certain employees and non-employee directors of the Company and our subsidiaries. The objectives of this plan include attracting and retaining the best available personnel, provid- ing for additional performance incentives and promoting our success by providing employees with the oppor- tunity to acquire common stock. We were originally authorized to grant awards up to a maximum cumulative amount of 11.2 million shares of common stock under this plan subject to certain adjustment provisions. As of September 30, 2020, non-qualified stock options, bonus stock, time-lapse restricted stock, time-lapse restricted stock units, performance-based restricted stock units and stock units had been issued under this plan, and 1.3 million shares are available for future issuance through September 30, 2021. Restricted Stock Units Award Grants As noted above, the LTIP provides for discretionary awards of restricted stock units to help attract, retain and reward employees of Atmos Energy and its subsidiaries. Certain of these awards vest based upon the passage of time and other awards vest based upon the passage of time and the achievement of specified performance tar- gets. The fair value of the awards granted is based on the market price of our stock at the date of grant. We esti- mate forfeitures using our historical forfeiture rate. The associated expense is recognized ratably over the vesting period. We use authorized and unissued shares to meet share requirements for the vesting of restricted stock units. Employees who are granted time-lapse restricted stock units under our LTIP have a nonforfeitable right to dividend equivalents that are paid at the same rate and at the same time at which they are paid on shares of stock without restrictions. Time-lapse restricted stock units contain only a service condition that the employee recipi- ents render continuous services to the Company for a period of three years from the date of grant, except for accelerated vesting in the event of death, disability, change of control of the Company or termination without cause (with certain exceptions). There are no performance conditions required to be met for employees to be vested in time-lapse restricted stock units. Employees who are granted performance-based restricted stock units under our LTIP have a forfeitable right to dividend equivalents that accrue at the same rate at which they are paid on shares of stock without restrictions. Dividend equivalents on the performance-based restricted stock units are paid either in cash or in the form of shares upon the vesting of the award. Performance-based restricted stock units contain a service condition that the employee recipients render continuous services to the Company for a period of three years from the begin- ning of the applicable three-year performance period, except for accelerated vesting in the event of death, dis- ability, change of control of the Company or termination without cause (with certain exceptions) and a performance condition based on a cumulative earnings per share target amount. The following summarizes information regarding the restricted stock units granted under the plan during the fiscal years ended September 30, 2020, 2019 and 2018: 2020 2019 2018 Weighted Average Grant-Date Fair Value Number of Restricted Units Weighted Average Grant-Date Fair Value Number of Restricted Units Nonvested at beginning of year . . . . . . 503,072 $ 91.66 102.34 Granted . . . . . . . . . . . . . . . . . . . . . . 199,985 Vested . . . . . . . . . . . . . . . . . . . . . . . (242,975) (16,803) Forfeited . . . . . . . . . . . . . . . . . . . . . 538,592 241,472 85.66 (269,347) (7,645) 96.87 $80.91 98.25 76.71 86.37 Weighted Average Grant-Date Fair Value $69.45 85.62 64.43 74.87 Number of Restricted Units 570,814 248,710 (274,392) (6,540) Nonvested at end of year . . . . . . . . . . . 443,279 $ 99.28 503,072 $91.66 538,592 $80.91 78 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) As of September 30, 2020, there was $13.0 million of total unrecognized compensation cost related to non- vested restricted stock units granted under the LTIP. That cost is expected to be recognized over a weighted average period of 1.5 years. The fair value of restricted stock vested during the fiscal years ended September 30, 2020, 2019 and 2018 was $20.7 million, $20.5 million and $17.2 million. Other Plans Direct Stock Purchase Plan We maintain a Direct Stock Purchase Plan, open to all investors, which allows participants to have all or part of their cash dividends paid quarterly in additional shares of our common stock. The minimum initial investment required to join the plan is $1,250. Direct Stock Purchase Plan participants may purchase additional shares of our common stock as often as weekly with voluntary cash payments of at least $25, up to an annual maximum of $100,000. Equity Incentive and Deferred Compensation Plan for Non-Employee Directors We have an Equity Incentive and Deferred Compensation Plan for Non–Employee Directors, which pro- vides non-employee directors of Atmos Energy with the opportunity to defer receipt, until retirement, of compensation for services rendered to the Company and invest deferred compensation into either a cash account or a stock account. Other Discretionary Compensation Plans We have an annual incentive program covering substantially all employees to give each employee an oppor- tunity to share in our financial success based on the achievement of key performance measures considered crit- ical to achieving business objectives for a given year with minimum and maximum thresholds. The Company must meet the minimum threshold for the plan to be funded and distributed to employees. These performance measures may include earnings growth objectives, improved cash flow objectives or crucial customer satisfaction and safety results. We monitor progress towards the achievement of the performance measures throughout the year and record accruals based upon the expected payout using the best estimates available at the time the accrual is recorded. During the last several fiscal years, we have used earnings per share as our sole performance meas- ure. 79 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 11. Details of Selected Financial Statement Captions The following tables provide additional information regarding the composition of certain financial statement captions. Balance Sheet Accounts receivable Accounts receivable was comprised of the following at September 30, 2020 and 2019: September 30 2020 2019 (In thousands) Billed accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unbilled revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contributions in aid of construction receivable . . . . . . . . . . . . . . . . . . . . . . . . . Other accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $140,259 80,699 19,821 19,765 $126,984 78,986 22,378 18,122 Total accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260,544 (29,949) 246,470 (15,899) Net accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $230,595 $230,571 Other current assets Other current assets as of September 30, 2020 and 2019 were comprised of the following accounts. September 30 2020 2019 (In thousands) Deferred gas costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assets from risk management activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,593 40,340 6,829 5,687 14,456 $23,766 38,895 5,916 1,586 2,609 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $107,905 $72,772 80 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Property, plant and equipment Property, plant and equipment was comprised of the following as of September 30, 2020 and 2019: September 30 2020 2019 (In thousands) Storage plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transmission plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distribution plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 530,985 3,459,765 10,680,495 829,624 38,297 Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . 15,539,166 418,055 15,957,221 (2,601,874) $ 431,286 3,157,316 9,333,011 799,095 38,191 13,758,899 421,694 14,180,593 (2,392,924) Net property, plant and equipment(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,355,347 $11,787,669 (1) Net property, plant and equipment includes plant acquisition adjustments of $(37.8) million and $(46.7) mil- lion at September 30, 2020 and 2019. Goodwill The following presents our goodwill balance allocated by segment and changes in the balance for the fiscal year ended September 30, 2020: Balance as of September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . Deferred tax adjustments on prior acquisitions(1) . . . . . . . . . . . . $587,604 (768) Distribution Pipeline and Storage (In thousands) $143,102 1,319 Total $730,706 551 Balance as of September 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . $586,836 $144,421 $731,257 (1) We annually adjust certain deferred taxes recorded in connection with an acquisition completed in fiscal 2005, which resulted in an increase to goodwill and net deferred tax liabilities of $0.6 million for fiscal 2020. Deferred charges and other assets Deferred charges and other assets as of September 30, 2020 and 2019 were comprised of the following accounts. September 30 2020 2019 (In thousands) Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Regulatory assets (See Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating lease right of use assets (See Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . Assets from risk management activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $103,952 371,707 227,146 74,991 — 23,374 $101,883 260,220 — 225 10,099 18,786 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $801,170 $391,213 81 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Accounts payable and accrued liabilities Accounts payable and accrued liabilities as of September 30, 2020 and 2019 were comprised of the follow- ing accounts. September 30 2020 2019 (In thousands) Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued gas payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $141,075 42,054 52,646 $176,581 36,817 51,626 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $235,775 $265,024 Other current liabilities Other current liabilities as of September 30, 2020 and 2019 were comprised of the following accounts. September 30 2020 2019 (In thousands) Customer credit balances and deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued employee costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred gas costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating lease liabilities (See Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liabilities from risk management activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension and postretirement liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Regulatory cost of service reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Regulatory cost of removal obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . APT annual adjustment mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Regulatory excess deferred taxes (See Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56,485 57,057 19,985 35,716 53,554 2,015 148,292 29,609 1,716 73,908 43,893 20,887 3,344 $ 54,617 55,216 14,112 — 51,381 4,552 135,597 26,197 4,209 55,721 52,856 21,206 3,837 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $546,461 $479,501 82 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Deferred credits and other liabilities Deferred credits and other liabilities as of September 30, 2020 and 2019 were comprised of the following accounts. September 30 2020 2019 (In thousands) Pension and post retirement liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating lease liabilities (See Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Customer advances for construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other regulatory liabilities (See Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asset retirement obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liabilities from risk management activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . APT annual adjustment mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized tax benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $337,303 201,071 10,060 17,838 20,348 — 13,486 30,921 11,101 $279,083 — 12,566 16,120 17,054 1,249 25,545 27,716 20,883 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $642,128 $400,216 Statement of Comprehensive Income Other non-operating income (expense) Other non-operating income (expense) for the fiscal years ended September 30, 2020, 2019 and 2018 were comprised of the following accounts. Equity component of AFUDC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performance-based rate program . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension and other postretirement non-service credit (cost) . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Community support spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 Year Ended September 30 2019 (In thousands) $ 11,165 6,737 3,016 4,160 (4,771) (12,903) $ 23,493 6,771 (3,189) 2,932 (11,728) (11,108) $ 2018 — 6,745 (5,770) 1,450 (6,053) (6,516) Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,171 $ 7,404 $(10,144) Statement of Cash Flows Supplemental disclosures of cash flow information for the fiscal years ended September 30, 2020, 2019 and 2018 were as follows: 2020 Year Ended September 30 2019 (In thousands) 2018 Cash Paid (Received) During The Period For: Interest(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-Cash Transactions: Capital expenditures included in current liabilities . . . . . . . . . . . . $194,993 $ (3,071) $184,852 $ 11,467 $169,987 6,102 $ $113,365 $149,993 $112,211 (1) Cash paid during the period for interest, net of amounts capitalized was $82.3 million, $91.3 million and $106.8 million for the fiscal years ended September 30, 2020, 2019 and 2018. 83 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 12. Commitments and Contingencies Litigation and Environmental Matters In the normal course of business, we are subject to various legal and regulatory proceedings. For such mat- ters, we record liabilities when they are considered probable and estimable, based on currently available facts, our historical experience and our estimates of the ultimate outcome or resolution of the liability in the future. While the outcome of these proceedings is uncertain and a loss in excess of the amount we have accrued is possible though not reasonably estimable, it is the opinion of management that any amounts exceeding the accruals will not have a material adverse impact on our financial position, results of operations or cash flows. We maintain liability insurance for various risks associated with the operation of our natural gas pipelines and facilities, including for property damage and bodily injury. These liability insurance policies generally require us to be responsible for the first $1.0 million (self-insured retention) of each incident. The National Transportation Safety Board (NTSB) is investigating an incident that occurred at a Dallas, Texas residence on February 23, 2018 that resulted in one fatality and injuries to four other residents. Together with the Railroad Commission of Texas (RRC) and the Pipeline and Hazardous Materials Safety Administration (PHMSA), Atmos Energy is a party to the investigation and in that capacity is working closely with the NTSB to help determine the cause of this incident. 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 oper- ations 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 trading hubs. At September 30, 2020, we were committed to purchase 59.3 Bcf within one year, 57.0 Bcf within two to three years and 0.1 Bcf beyond three years under indexed contracts. Purchases under these contracts totaled $58.5 million, $50.8 million and $57.2 million for 2020, 2019 and 2018. Rate Regulatory Proceedings As of September 30, 2020, routine rate regulatory proceedings were in progress in some of our service areas, which are discussed in further detail above in the Business — Ratemaking Activity section. 84 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 13. Income Taxes Income Tax Expense The components of income tax expense from continuing operations for 2020, 2019 and 2018 were as fol- lows: Current 2020 2019 (In thousands) 2018 Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 14,193 — $ (10,099) 11,075 8,412 Deferred Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TCJA Impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143,039 (11,879) — 113,331 17,160 — 150,556 15,330 (158,782) Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $145,353 $138,903 $ 8,080 (1) Includes a non-cash income tax benefit of $21.0 million resulting from the remeasurement of the rate at which state deferred taxes will reverse in the future as discussed below. Reconciliations of the provision for income taxes computed at the statutory rate to the reported provisions for income taxes from continuing operations for 2020, 2019 and 2018 are set forth below: Tax at statutory rate(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Common stock dividends deductible for tax reporting . . . . . . . . . State taxes (net of federal benefit) . . . . . . . . . . . . . . . . . . . . . . . . Amortization of excess deferred taxes . . . . . . . . . . . . . . . . . . . . . Remeasurement due to TCJA . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remeasurement due to state deferred tax rate change . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 $156,827 (1,419) 22,791 (16,125) — (20,962) 4,241 2019 (In thousands) $136,565 (1,460) 20,202 (14,085) — — (2,319) 2018 $ 149,730 (1,745) 19,826 (1,219) (158,782) — 270 Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $145,353 $138,903 $ 8,080 (1) Tax expense is calculated at the statutory federal income tax rate of 21.0%, 21.0%, 24.5% for the year ended September 30, 2020, 2019 and 2018. 85 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Deferred income taxes reflect the tax effect of differences between the basis of assets and liabilities for book and tax purposes. The tax effect of temporary differences that gave rise to significant components of the deferred tax liabilities and deferred tax assets at September 30, 2020 and 2019 are presented below: Deferred tax assets: Employee benefit plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Charitable and other credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . Regulatory excess deferred tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liabilities: 2020 2019 (In thousands) 66,991 16,719 476,507 8,712 161,565 73,542 804,036 (1,102) 802,934 $ 70,929 33,918 485,133 8,241 165,701 13,186 777,108 (1,894) 775,214 . . . . . . . . . . Difference in net book value and net tax value of assets(1) Pension funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gas cost adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,138,966) (484) (23,209) (96,844) (2,004,516) (4,384) (18,072) (48,257) Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,259,503) (2,075,229) Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,456,569) $(1,300,015) Deferred credits for rate regulated entities . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,537 $ 2,582 (1) Includes $129.0 million and $131.0 million of deferred tax liability related to goodwill as of September 30, 2020 and 2019. At September 30, 2020, we had $446.9 million (tax effected) of federal net operating loss carryforwards. The federal net operating loss carryforwards are available to offset taxable income and will begin to expire in 2029. The Company also had $10.1 million of federal alternative minimum tax credit carryforwards as of Sep- tember 30, 2019, which did not expire and were fully refunded to us during fiscal 2020. In addition, the Company has $6.9 million in charitable contribution carryforwards to offset future taxable income. The Company’s chari- table contribution carryforwards expiration period begins in fiscal 2021. The Company also has $29.6 million (tax effected) of state net operating loss carryforwards (net of $7.9 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 expiration period begins in fiscal 2021. We believe it is more likely than not that the benefit from certain state net operating loss carryforwards and state credit carryforwards will not be realized. Due to the uncertainty of realizing a benefit from the deferred tax asset recorded for the carryforwards, a valuation allowance of $1.1 million was established for the year ended September 30, 2020. 86 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) At September 30, 2020, we had recorded liabilities associated with unrecognized tax benefits totaling $30.9 million. The following table reconciles the beginning and ending balance of our unrecognized tax benefits: Unrecognized tax benefits - beginning balance . . . . . . . . . . . . . . . . . . . . . . . . Increase (decrease) resulting from prior period tax positions . . . . . . . . . . . Increase resulting from current period tax positions . . . . . . . . . . . . . . . . . . Unrecognized tax benefits - ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . Less: deferred federal and state income tax benefits . . . . . . . . . . . . . . . . . . . . . . 2020 $27,716 (26) 3,231 30,921 (6,493) 2019 (In thousands) $26,203 (923) 2,436 2018 $23,719 22 2,462 27,716 (5,820) 26,203 (5,503) Total unrecognized tax benefits that, if recognized, would impact the effective income tax rate as of the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24,428 $21,896 $20,700 The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penal- ties included within interest charges in our consolidated statements of comprehensive income. During the years ended September 30, 2020, 2019 and 2018, the Company recognized approximately $0.7 million, $2.2 million and $1.6 million in interest and penalties. The Company had approximately $8.2 million, $7.9 million and $6.1 million for the payment of interest and penalties accrued at September 30, 2020, 2019 and 2018. We file income tax returns in the U.S. federal jurisdiction as well as in various states where we have oper- ations. We have concluded substantially all U.S. federal income tax matters through fiscal year 2009 and con- cluded substantially all Texas income tax matters through fiscal year 2010. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act did not have an impact on our consolidated financial statements for the year ended September 30, 2020. Excess Deferred Taxes On June 1, 2020, the Kansas legislature passed House Bill 2585 which eliminated the assessment of state income taxes on regulated utilities. This legislation was effective for the Company on October 1, 2020. Due to the change in the Kansas state tax law and the result of a study to estimate the rate at which state deferred taxes will reverse in the future, we reduced our deferred tax liability by $32.5 million during the fiscal third quarter of 2020. We established a $12.1 million regulatory liability for excess deferred taxes that will be returned to Kansas customers. We are currently working with the Kansas Corporation Commission to determine the amortization period for this liability. We recognized a $21.0 million income tax benefit in our consolidated statement of com- prehensive income for the year ended September 30, 2020. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “TCJA”) was signed into law. As a result of the implementation of the TCJA, we recognized a $158.8 million income tax benefit in our consolidated state- ment of comprehensive income for the year ended September 30, 2018 related to a change in deferred taxes that were not related to our cost of service ratemaking. The change in deferred taxes related to our cost of service ratemaking (referred to as excess deferred taxes) was reclassified into a regulatory liability and as approved by our regulators, will be returned to ratepayers on a provisional basis over periods ranging from 15 to 46 years. As of September 30, 2020 and 2019, this liability totaled $706.7 million and $726.3 million. During fiscal 2019, we received approval from regulators to update our cost of service rates to reflect the decrease in the statutory income tax rate in all of our service areas. Additionally, as of September 30, 2020, we have returned the separate regulatory liability to customers in substantially all of our service areas for the 87 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) difference in taxes included in our rates that were calculated based on a 35% statutory income tax rate until new rates could be established based on the new 21% statutory income tax rate. 14. Financial Instruments We currently use financial instruments to mitigate commodity price risk and to mitigate interest rate risk. Our financial instruments do not contain any credit-risk-related or other contingent features that could cause accelerated payments when our financial instruments are in net liability positions. As discussed in Note 2, we report our financial instruments as risk management assets and liabilities, each of which is classified as current or noncurrent based upon the anticipated settlement date of the underlying finan- cial instrument. The following table shows the fair values of our risk management assets and liabilities at Sep- tember 30, 2020 and 2019. September 30 2020 2019 (In thousands) Assets from risk management activities, current . . . . . . . . . . . . . . . . . . . . . . . . . . . Assets from risk management activities, noncurrent . . . . . . . . . . . . . . . . . . . . . . . . Liabilities from risk management activities, current . . . . . . . . . . . . . . . . . . . . . . . . Liabilities from risk management activities, noncurrent . . . . . . . . . . . . . . . . . . . . . $ 5,687 74,991 (2,015) — $ 1,586 225 (4,552) (1,249) Net assets (liabilities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $78,663 $(3,990) Commodity Risk Management Activities Our purchased gas cost adjustment mechanisms essentially insulate our distribution segment from commod- ity price risk; however, our customers are exposed to the effects of volatile natural gas prices. We manage this exposure through a combination of physical storage, fixed-price forward contracts and financial instruments, primarily over-the-counter swap and option contracts, in an effort to minimize the impact of natural gas price volatility on our customers during the winter heating season. In jurisdictions where we are permitted to mitigate commodity price risk through financial instruments, the relevant regulatory authorities may establish the level of heating season gas purchases that can be hedged. Our distribution gas supply department is responsible for executing this segment’s commodity risk management activities in conformity with regulatory requirements. Historically, if the regulatory authority does not establish this level, we seek to hedge between 25 and 50 percent of anticipated heating season gas purchases using finan- cial instruments. For the 2019-2020 heating season (generally October through March), in the jurisdictions where we are permitted to utilize financial instruments, we hedged approximately 49 percent, or approximately 19.9 Bcf of the winter flowing gas requirements at a weighted average cost of approximately $2.84 per Mcf. We have not designated these financial instruments as hedges for accounting purposes. Interest Rate Risk Management Activities In fiscal 2020, we entered into forward starting interest rate swaps to effectively fix the Treasury yield component associated with $500 million of a planned issuance of unsecured senior notes in fiscal 2021 at 0.69%; these swaps were settled in September 2020 with a net payment of $4.4 million. On October 1, 2020, the notes were issued as planned. Additionally, in fiscal 2020, we entered into forward starting interest rate swaps to effectively fix the Treas- ury yield component associated with $450 million of a planned issuance of unsecured senior notes in fiscal 2022 at 1.33%, $300 million of a planned issuance of unsecured senior notes in fiscal 2023 at 1.36% and $300 million of a planned issuance of unsecured senior notes in fiscal 2025 at 1.35%, which we designated as cash flow hedges at the time the agreements were executed. 88 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Quantitative Disclosures Related to Financial Instruments The following tables present detailed information concerning the impact of financial instruments on our consolidated balance sheet and statements of comprehensive income. As of September 30, 2020, our financial instruments were comprised of both long and short commodity positions. A long position is a contract to purchase the commodity, while a short position is a contract to sell the commodity. As of September 30, 2020, we had 18,191 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 September 30, 2020 and 2019. The gross amounts of recognized assets and liabilities are netted within our con- solidated balance sheets to the extent that we have netting arrangements with the counterparties. However, as of September 30, 2020 and 2019, no gross amounts and no cash collateral were netted within our consolidated bal- ance sheet. 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 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Designated As Hedges: Commodity contracts . . . . . . . . . . . . . . . Other current assets / Other current liabilities Commodity contracts . . . . . . . . . . . . . . . Deferred charges and other assets / Deferred credits and other liabilities Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross / Net Financial Instruments . . . . . . . Balance Sheet Location September 30, 2019 Not Designated As Hedges: Commodity contracts . . . . . . . . . . . . . . . Other current assets / Other current liabilities Commodity contracts . . . . . . . . . . . . . . . Deferred charges and other assets / Deferred credits and other liabilities Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross / Net Financial Instruments . . . . . . . Impact of Financial Instruments on the Statement of Comprehensive Income Cash Flow Hedges $73,055 $ — 73,055 — 5,687 (2,015) 1,936 7,623 — (2,015) $80,678 $(2,015) Assets Liabilities (In thousands) $1,586 $(4,552) 225 1,811 (1,249) (5,801) $1,811 $(5,801) As discussed above, the interest rate agreements we executed in prior years were designated as cash flow hedges when those agreements were executed. The net loss on settled interest rate agreements reclassified from AOCI into interest charges on our consolidated statements of comprehensive income for the years ended Sep- tember 30, 2020, 2019 and 2018 was $5.5 million, $3.9 million and $2.4 million. 89 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following table summarizes the gains and losses arising from hedging transactions that were recognized as a component of other comprehensive income (loss), for the years ended September 30, 2020 and 2019. The amounts included in the table below exclude gains and losses arising from ineffectiveness because these amounts are immediately recognized in the statement of comprehensive income as incurred. Fiscal Year Ended September 30 2020 2019 (In thousands) Increase (decrease) in fair value: Interest rate agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $53,241 $(25,966) Recognition of losses in earnings due to settlements: Interest rate agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,647 3,022 Total other comprehensive income (loss) from hedging, net of tax . . . . . . . . . . . $56,888 $(22,944) Deferred gains (losses) recorded in AOCI associated with our interest rate agreements are recognized in earnings as they are amortized over the terms of the underlying debt instruments. As of September 30, 2020, we had $114.5 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. How- ever, the table below does not include the expected recognition in earnings of our outstanding interest rate agreements as those financial instruments have not yet settled. 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter Interest Rate Agreements (In thousands) (4,569) $ (4,569) (4,569) (4,569) (4,569) (91,657) Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(114,502) Financial Instruments Not Designated as Hedges As discussed above, commodity contracts which are used in our distribution segment are not designated as hedges. However, there is no earnings impact on our distribution segment as a result of the use of these financial instruments because the gains and losses arising from the use of these financial instruments are recognized in the consolidated statements of comprehensive income as a component of purchased gas cost when the related costs are recovered through our rates and recognized in revenue. Accordingly, the impact of these financial instruments is excluded from this presentation. 15. 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 measure- ment date (exit price). We record cash and cash equivalents, accounts receivable and accounts payable at carry- ing 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 90 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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. Fair value measurements also apply to the valuation of our pension and post-retirement plan assets. The fair value of these assets is presented in Note 9. Quantitative Disclosures Financial Instruments The classification of our fair value measurements requires judgment regarding the degree to which market data are observable or corroborated by observable market data. The following tables summarize, by level within the fair value hierarchy, our assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2020 and 2019. As required under authoritative accounting literature, assets and liabilities are categorized in their entirety based on the lowest level of input that is significant to the fair value measurement. Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2)(1) Significant Other Unobservable Inputs (Level 3) (In thousands) Netting and Cash Collateral September 30, 2020 Assets: Financial instruments . . . . . . . . . . . . . . . . . . Debt and equity securities Registered investment companies . . . . . . Bond mutual funds . . . . . . . . . . . . . . . . . . Bonds(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . Money market funds . . . . . . . . . . . . . . . . Total debt and equity securities . . . . . . . . . . $ — $ 80,678 $ 37,831 29,166 — — 66,997 — — 32,900 4,055 36,955 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $66,997 $117,633 Liabilities: Financial instruments . . . . . . . . . . . . . . . . . . $ — $ 2,015 $ $ — — — — — — — — $ $ $ — — — — — — — — $ 80,678 37,831 29,166 32,900 4,055 103,952 $184,630 $ 2,015 Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2)(1) Significant Other Unobservable Inputs (Level 3) (In thousands) Netting and Cash Collateral September 30, 2019 Assets: Financial instruments . . . . . . . . . . . . . . . . . . Debt and equity securities Registered investment companies . . . . . . Bond mutual funds . . . . . . . . . . . . . . . . . . Bonds(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . Money market funds . . . . . . . . . . . . . . . . Total debt and equity securities . . . . . . . . . . $ — $ 1,811 $ 41,406 25,966 — — 67,372 — — 31,915 2,596 34,511 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $67,372 $36,322 Liabilities: Financial instruments . . . . . . . . . . . . . . . . . . $ — $ 5,801 $ $ — — — — — — — — $ $ $ — — — — — — — — $ 1,811 41,406 25,966 31,915 2,596 101,883 $103,694 $ 5,801 91 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (1) Our Level 2 measurements consist of over-the-counter options and swaps, which are valued using a market- based approach in which observable market prices are adjusted for criteria specific to each instrument, such as the strike price, notional amount or basis differences, municipal and corporate bonds, which are valued based on the most recent available quoted market prices and money market funds which are valued at cost. (2) Our investments in bonds are considered available-for-sale debt securities in accordance with current accounting guidance. At September 30, 2020 and 2019, the amortized cost of our available-for-sale debt securities was $32.6 million and $31.7 million. At September 30, 2020 we maintained investments in bonds that have con- tractual maturity dates ranging from October 2020 through May 2023. Other Fair Value Measures In addition to the financial instruments above, we have several financial and nonfinancial assets and liabilities subject to fair value measures. These financial assets and liabilities include cash and cash equivalents, accounts receivable, accounts payable and debt, which are recorded at carrying value. The nonfinancial assets and liabilities include asset retirement obligations and pension and post-retirement plan assets. For cash and cash equivalents, accounts receivable and accounts payable, we consider carrying value to materially approximate fair value due to the short-term nature of these assets and liabilities. Our long-term debt is recorded at carrying value. The fair value of our long-term debt, excluding finance leases, is determined using third party market value quotations, which are considered Level 1 fair value measurements for debt instruments with a recent, observable trade or Level 2 fair value measurements for debt instruments where fair value is determined using the most recent available quoted market price. The 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 finances leases, debt issuance costs and original issue premium or discount, as of September 30, 2020: Carrying Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . September 30, 2020 (In thousands) $4,560,000 $5,597,183 16. Concentration of Credit Risk Credit risk is the risk of financial loss to us if a customer fails to perform its contractual obligations. We engage in transactions for the purchase and sale of products and services with major companies in the energy industry and with industrial, commercial, residential and municipal energy consumers. These transactions princi- pally occur in the southern and midwestern regions of the United States. We believe that this geographic concen- tration does not contribute significantly to our overall exposure to credit risk. Credit risk associated with trade accounts receivable for the distribution segment is mitigated by the large number of individual customers and the diversity in our customer base. The credit risk for our other segment is not significant. 92 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 17. Selected Quarterly Financial Data (Unaudited) Summarized unaudited quarterly financial data is presented below. The sum of net income per share by quarter may not equal the net income per share for the fiscal year due to variations in the weighted average shares outstanding used in computing such amounts. Our businesses are seasonal due to weather conditions in our serv- ice areas. For further information on its effects on quarterly results, see the “Results of Operations” discussion included in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sec- tion herein. Quarter Ended December 31 March 31 June 30 September 30 (In thousands, except per share data) Fiscal year 2020: Operating revenues Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pipeline and storage . . . . . . . . . . . . . . . . . . . . . . . . . Intersegment eliminations . . . . . . . . . . . . . . . . . . . . $ 828,504 148,176 (101,117) $ 933,005 146,237 (101,577) $ 435,308 158,008 (100,321) Total operating revenues . . . . . . . . . . . . . . . . . . . Purchased gas cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic net income per share . . . . . . . . . . . . . . . . . . . . . Diluted net income per share . . . . . . . . . . . . . . . . . . . . 875,563 296,868 252,781 178,673 1.47 1.47 $ $ 977,665 317,883 331,438 239,646 1.95 1.95 $ $ 492,995 26,072 139,035 117,791 0.96 0.96 $ $ Quarter Ended $ 430,176 156,918 (112,180) 474,914 18,031 100,845 65,333 0.53 0.53 $ $ December 31 March 31 June 30 September 30 (In thousands, except per share data) Fiscal year 2019: Operating revenues Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pipeline and storage . . . . . . . . . . . . . . . . . . . . . . . . Intersegment eliminations . . . . . . . . . . . . . . . . . . . Total operating revenues . . . . . . . . . . . . . . . . . . . . Purchased gas cost . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic net income per share . . . . . . . . . . . . . . . . . . . . . Diluted net income per share . . . . . . . . . . . . . . . . . . . $838,835 134,470 (95,523) 877,782 342,165 236,464 157,646 1.38 1.38 $ $ $1,057,889 135,650 (98,894) $ 444,944 149,198 (108,404) 1,094,645 471,676 297,677 214,888 1.83 1.82 $ $ 485,738 31,326 122,202 80,466 0.68 0.68 $ $ $ 403,793 147,706 (107,816) 443,683 13,670 89,715 58,406 0.49 0.49 $ $ 93 ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None. ITEM 9A. 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 Rule 13a-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 September 30, 2020 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. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f), in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accord- ance with generally accepted accounting principles. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effective- ness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 frame- work) (COSO). Based on our evaluation under the framework in Internal Control-Integrated Framework issued by COSO and applicable Securities and Exchange Commission rules, our management concluded that our internal control over financial reporting was effective as of September 30, 2020, in providing reasonable assur- ance regarding the reliability of financial reporting and the preparation of financial statements for external pur- poses in accordance with generally accepted accounting principles. Ernst & Young LLP has issued its report on the effectiveness of the Company’s internal control over finan- cial reporting. That report appears below. /s/ JOHN K. AKERS /s/ CHRISTOPHER T. FORSYTHE John K. Akers President, Chief Executive Officer and Director Christopher T. Forsythe Senior Vice President and Chief Financial Officer November 13, 2020 94 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Atmos Energy Corporation Opinion on Internal Control over Financial Reporting We have audited Atmos Energy Corporation’s internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Spon- soring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Atmos Energy Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of September 30, 2020, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2020 consolidated financial statements of the Company and our report dated November 13, 2020 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial report- ing and for its assessment of the effectiveness of internal control over financial reporting included in the accom- panying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public account- ing firm registered with the PCAOB and are required to be independent with respect to the Company in accord- ance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circum- stances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the compa- ny’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect mis- statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that con- trols may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Dallas, Texas November 13, 2020 95 Changes in Internal Control over Financial Reporting We did not make any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Act) during the fourth quarter of the fiscal year ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. Other Information. Not applicable. PART III ITEM 10. Directors, Executive Officers and Corporate Governance. Information regarding directors and delinquent Section 16(a) reports, if applicable, is incorporated herein by reference to the Company’s Definitive Proxy Statement for the Annual Meeting of Shareholders on February 3, 2021. Information regarding executive officers is reported below: INFORMATION ABOUT OUR EXECUTIVE OFFICERS The following table sets forth certain information as of September 30, 2020, regarding the executive officers of the Company. It is followed by a brief description of the business experience of each executive officer. Name Age Years of Service Office Currently Held Kim R. Cocklin . . . . . . . . . . . . . . . . . . . . . . John K. Akers . . . . . . . . . . . . . . . . . . . . . . . Christopher T. Forsythe . . . . . . . . . . . . . . . David J. Park . . . . . . . . . . . . . . . . . . . . . . . . Karen E. Hartsfield . . . . . . . . . . . . . . . . . . . John M. Robbins . . . . . . . . . . . . . . . . . . . . . 69 57 49 49 50 50 14 29 17 26 5 7 Executive Chairman of the Board President, Chief Executive Officer and Director Senior Vice President and Chief Financial Officer Senior Vice President, Utility Operations Senior Vice President, General Counsel and Corporate Secretary Senior Vice President, Human Resources Kim R. Cocklin was named Executive Chairman of the Board on October 1, 2017. From October 1, 2010 through September 30, 2015, Mr. Cocklin served the Company as President and Chief Executive Officer and from October 1, 2015 through September 30, 2017, as Chief Executive Officer. Mr. Cocklin joined the Company in June 2006 and served as President and Chief Operating Officer of the Company from October 1, 2008 through September 30, 2010, after having served as Senior Vice President, Regulated Operations from October 2006 through September 2008. Mr. Cocklin was appointed to the Board of Directors on November 10, 2009. John K. (Kevin) Akers was named President and Chief Executive Officer and was appointed to the Board of Directors effective October 1, 2019. Mr. Akers joined the company in 1991. Mr. Akers assumed increased responsibilities over time and was named President of the Mississippi Division in 2002. He was later named President of the Kentucky/Mid-States Division in May 2007, a position he held until December 2016. Effective January 1, 2017, Mr. Akers was named Senior Vice President, Safety and Enterprise Services and was respon- sible for customer service, facilities management, safety and supply chain management. In November 2018, Mr. Akers was named Executive Vice President and assumed oversight responsibility for APT. Christopher T. Forsythe was named Senior Vice President and Chief Financial Officer effective February 1, 2017. Mr. Forsythe joined the Company in June 2003 and prior to this promotion, served as the Company’s Vice President and Controller from May 2009 through January 2017. Prior to joining Atmos Energy, Mr. Forsythe worked in public accounting for 10 years. David J. Park was named Senior Vice President of Utility Operations, effective January 1, 2017. In this role, Mr. Park is responsible for the operations of Atmos Energy’s six utility divisions as well as gas supply. Prior to 96 this promotion, Mr. Park served as the President of the West Texas Division from July 2012 to December 2016. Mr. Park also served as Vice President of Rates and Regulatory Affairs in the Mid-Tex Division and previously held positions in Engineering and Public Affairs. Mr. Park’s years of service include 10 years at a company acquired by Atmos Energy in 2004. Karen E. Hartsfield was named Senior Vice President, General Counsel and Corporate Secretary of Atmos Energy, effective August 7, 2017. Ms. Hartsfield joined the Company in June 2015, after having served in private practice for 19 years, most recently as Managing Partner of Jackson Lewis LLP in its Dallas office from July 2013 to June 2015. Prior to joining Jackson Lewis as a partner in January 2009, Ms. Hartsfield was a partner with Baker Botts LLP in Dallas. John M. (Matt) Robbins was named Senior Vice President, Human Resources, effective January 1, 2017. Mr. Robbins joined the Company in May 2013 and prior to this promotion served as Vice President, Human Resources from February 2015 to December 2016. Before joining Atmos Energy, Mr. Robbins had over 20 years of experience in human resources. Identification of the members of the Audit Committee of the Board of Directors as well as the Board of Directors’ determination as to whether one or more audit committee financial experts are serving on the Audit Committee of the Board of Directors is incorporated herein by reference to the Company’s Definitive Proxy Statement for the Annual Meeting of Shareholders on February 3, 2021. The Company has adopted a code of ethics for its principal executive officer, principal financial officer and principal accounting officer. Such code of ethics is represented by the Company’s Code of Conduct, which is applicable to all directors, officers and employees of the Company, including the Company’s principal executive officer, principal financial officer and principal accounting officer. A copy of the Company’s Code of Conduct is posted on the Company’s website at www.atmosenergy.com, under “Corporate Governance” under the “Corporate Responsibility” tab. In addition, any amendment to or waiver granted from a provision of the Company’s Code of Conduct will be posted on the Company’s website also under “Corporate Governance” under the “Corporate Responsibility” tab. ITEM 11. Executive Compensation. Information on executive compensation is incorporated herein by reference to the Company’s Definitive Proxy Statement for the Annual Meeting of Shareholders on February 3, 2021, under the captions “Human Resources Committee Report,” “Compensation Discussion and Analysis,” “Other Executive Compensation Matters” and “Named Executive Officer Compensation.” ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Security ownership of certain beneficial owners and of management is incorporated herein by reference to the Company’s Definitive Proxy Statement for the Annual Meeting of Shareholders on February 3, 2021, under the heading “Beneficial Ownership of Common Stock.” Information concerning our equity compensation plans is provided in Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities”, of this Annual Report on Form 10-K. ITEM 13. Certain Relationships and Related Transactions, and Director Independence. Information on certain relationships and related transactions as well as director independence is incorporated herein by reference to the Company’s Definitive Proxy Statement for the Annual Meeting of Share- holders on February 3, 2021, under the heading “Corporate Governance and Other Board Matters,” “Proposal One – Election of Directors,” and “Director Compensation.” ITEM 14. Principal Accountant Fees and Services. Information on our principal accountant’s fees and services is incorporated herein by reference to the Company’s Definitive Proxy Statement for the Annual Meeting of Shareholders on February 3, 2021, under the heading “Proposal Three – Ratification of Appointment of Independent Registered Public Accounting Firm.” 97 ITEM 15. Exhibits and Financial Statement Schedules. (a) 1. and 2. Financial statements and financial statement schedules. PART IV The financial statements and financial statement schedule listed in the Index to Financial Statements in Item 8 are filed as part of this Form 10-K. 3. Exhibits Exhibit Number Description 3.1 3.2 3.3 4.1(a) Articles of Incorporation and Bylaws Restated Articles of Incorporation of Atmos Energy Corporation - Texas (As Amended Effective February 3, 2010) Restated Articles of Incorporation of Atmos Energy Corporation - Virginia (As Amended Effective February 3, 2010) Amended and Restated Bylaws of Atmos Energy Corporation (as of February 5, 2019) Instruments Defining Rights of Security Holders, Including Indentures Specimen Common Stock Certificate (Atmos Energy Corporation) 4.1(b) Description of Registrant’s Securities 4.2 4.3 4.4 4.5 Indenture dated as of November 15, 1995 between United Cities Gas Company and Bank of America Illinois, Trustee Indenture dated as of July 15, 1998 between Atmos Energy Corporation and U.S. Bank Trust National Association, Trustee Indenture dated as of May 22, 2001 between Atmos Energy Corporation and SunTrust Bank, Trustee Indenture dated as of March 26, 2009 between Atmos Energy Corporation and U.S. Bank National Corporation, Trustee Page Number or Incorporation by Reference to Exhibit 3.1 to Form 10-Q dated March 31, 2010 (File No. 1-10042) Exhibit 3.2 to Form 10-Q dated March 31, 2010 (File No. 1-10042) Exhibit 3.1 to Form 8-K dated February 5, 2019 (File No. 1-10042) Exhibit 4.1 to Form 10-K for fiscal year ended September 30, 2012 (File No. 1-10042) Exhibit 4.1(b) to Form 10-K for fiscal year ended September 30, 2019 (File No. 1-10042) Exhibit 4.11(a) to Form S-3 dated August 31, 2004 (File No. 333-118706) Exhibit 4.8 to Form S-3 dated August 31, 2004 (File No. 333-118706) Exhibit 99.3 to Form 8-K dated May 22, 2001 (File No. 1-10042) Exhibit 4.1 to Form 8-K dated March 26, 2009 (File No. 1-10042) 4.6(a) Debenture Certificate for the 6 3/4% Debentures due 2028 4.6(b) Global Security for the 5.95% Senior Notes due 2034 4.6(c) Global Security for the 5.5% Senior Notes due 2041 4.6(d) Global Security for the 4.15% Senior Notes due 2043 4.6(e) Global Security for the 4.125% Senior Notes due 4.6(f) 2044 Global Security for the 3.000% Senior Notes due 2027 Exhibit 99.2 to Form 8-K dated July 29, 1998 (File No. 1-10042) Exhibit 10(2)(g) to Form 10-K for fiscal year ended September 30, 2004 (File No. 1-10042) Exhibit 4.2 to Form 8-K dated June 13, 2011 (File No. 1-10042) Exhibit 4.2 to Form 8-K dated January 11, 2013 (File No. 1-10042) Exhibit 4.2 to Form 8-K dated October 17, 2014 (File No. 1-10042) Exhibit 4.2 to Form 8-K dated June 8, 2017 (File No. 1-10042) 98 Page Number or Incorporation by Reference to Exhibit 4.3 to Form 8-K dated June 8, 2017 (File No. 1-10042) Exhibit 4.2 to Form 8-K dated October 4, 2018 (File No. 1-10042) Exhibit 4.3 to Form 8-K dated October 4, 2018 (File No. 1-10042) Exhibit 4.2 to Form 8-K dated March 4, 2019 (File No. 1-10042) Exhibit 4.2 to Form 8-K dated October 2, 2019 (File No. 1-10042) Exhibit 4.3 to Form 8-K dated October 2, 2019 (File No. 1-10042) Exhibit 4.2 to Form 8-K dated October 1, 2020 (File No. 1-10042) Exhibit 4.3 to Form 8-K dated October 1, 2020 (File No. 1-10042) Exhibit 10.1 to Form 8-K dated October 1, 2015 (File No. 1-10042) Exhibit 10.1 to Form 8-K dated October 11, 2016 (File No. 1-10042) Exhibit 10.1(c) to Form 10-K for fiscal year ended September 30, 2018 (File No. 1-10042) Exhibit 10.1 to Form 8-K dated April 13, 2020 (File No. 1-10042) Exhibit Number Description 4.6(g) Global Security for the 4.125% Senior Notes due 2044 4.6(h) Global Security for the 4.300% Senior Notes due 4.6(i) 4.6(j) 2048 Global Security for the 4.300% Senior Notes due 2048 Global Security for the 4.125% Senior Notes due 2049 4.6(k) Global Security for the 2.625% Senior Notes due 4.6(l) 2029 Global Security for the 3.375% Senior Notes due 2049 4.6(m) Global Security for the 1.500% Senior Notes due 2031 4.6(n) Global Security for the 1.500% Senior Notes due 10.1(a) 10.1(b) 10.1(c) 10.2 2031 Material Contracts Revolving Credit Agreement, dated as of September 25, 2015 among Atmos Energy Corporation, the Lenders from time to time parties thereto, Crédit Agricole Corporate and Investment Bank as Administrative Agent, and Mizuho Bank Ltd., as Syndication Agent First Amendment to Revolving Credit Agreement, dated as of October 5, 2016, by and among Atmos Energy Corporation, the lenders from time to time parties thereto (the “Lenders”) and Credit Agricole Corporate and Investment Bank, in its capacity as administrative agent for the Lenders Second Amendment to Revolving Credit Agreement, dated as of September 7, 2017, by and among Atmos Energy Corporation, the lenders from time to time parties thereto (the “Lenders”) and Credit Agricole Corporate and Investment Bank, in its capacity as administrative agent for the Lenders Term Loan Agreement, dated as of April 9, 2020, among Atmos Energy Corporation, Credit Agricole Corporate and Investment Bank, as the Administrative Agent, Canadian Imperial Bank of Commerce, New York Branch, as Syndication Agent, Credit Agricole Corporate and Investment Bank and Canadian Imperial Bank of Commerce, New York Branch, as Joint Lead Arrangers and Joint-Bookrunners, and the lenders named therein 99 Exhibit Number 10.3 10.4(a) 10.4(b) Description 364-Day Revolving Credit Agreement, dated as of April 23, 2020, among Atmos Energy Corporation, Mizuho Bank, Ltd., as the Administrative Agent, the agents, arrangers and bookrunners named therein, and the lenders named therein Equity Distribution Agreement, dated as of February 12, 2020, among Atmos Energy Corporation and the Managers and Forward Purchasers named in Schedule A thereto Form of Master Forward Sale Confirmation Executive Compensation Plans and Arrangements 10.5(a)* Form of Atmos Energy Corporation Change in Control Severance Agreement - Tier I 10.5(b)* Form of Atmos Energy Corporation Change in Control Severance Agreement - Tier II 10.6(a)* Atmos Energy Corporation Executive Retiree Life Plan 10.6(b)* Amendment No. 1 to the Atmos Energy Corporation Executive Retiree Life Plan Atmos Energy Corporation Annual Incentive Plan for Management (as amended and restated October 1, 2016) 10.7* 10.8(a)* Atmos Energy Corporation Supplemental Executive Benefits Plan, Amended and Restated in its Entirety August 7, 2007 10.8(b)* Form of Individual Trust Agreement for the Supplemental Executive Benefits Plan 10.9(a)* Atmos Energy Corporation Supplemental Executive Retirement Plan (As Amended and Restated, Effective as of January 1, 2016) 10.9(b)* Atmos Energy Corporation Performance-Based 10.10* Supplemental Executive Benefits Plan Trust Agreement, Effective Date December 1, 2000 Atmos Energy Corporation Account Balance Supplemental Executive Retirement Plan (As Amended and Restated, Effective as of January 1, 2016) Page Number or Incorporation by Reference to Exhibit 10.1 to Form 8-K dated April 24, 2020 (File No. 1-10042) Exhibit 1.1 to Form 8-K dated February 12, 2020 (File No. 1-10042) Exhibit 1.2 to Form 8-K dated February 12, 2020 (File No. 1-10042) Exhibit 10.7(a) to Form 10-K for fiscal year ended September 30, 2010 (File No. 1-10042) Exhibit 10.7(b) to Form 10-K for fiscal year ended September 30, 2010 (File No. 1-10042) Exhibit 10.31 to Form 10-K for fiscal year ended September 30, 1997 (File No. 1-10042) Exhibit 10.31(a) to Form 10-K for fiscal year ended September 30, 1997 (File No. 1-10042) Exhibit 10.5 to Form 10-K for fiscal year ended September 30, 2016 (File No. 1-10042) Exhibit 10.8(a) to Form 10-K for fiscal year ended September 30, 2008 (File No. 1-10042) Exhibit 10.3 to Form 10-Q for quarter ended December 31, 2000 (File No. 1-10042) Exhibit 10.7(a) to Form 10-K for fiscal year ended September 30, 2016 (File No. 1-10042) Exhibit 10.1 to Form 10-Q for quarter ended December 31, 2000 (File No. 1-10042) Exhibit 10.8 to Form 10-K for fiscal year ended September 30, 2016 (File No. 1-10042) 10.11(a)* Mini-Med/Dental Benefit Extension Agreement dated October 1, 1994 10.11(b)* Amendment No. 1 to Mini-Med/Dental Benefit Extension Agreement dated August 14, 2001 Exhibit 10.28(f) to Form 10-K for fiscal year ended September 30, 2001 (File No. 1-10042) Exhibit 10.28(g) to Form 10-K for fiscal year ended September 30, 2001 (File No. 1-10042) 10.11(c)* Amendment No. 2 to Mini-Med/Dental Benefit Extension Agreement dated December 31, 2002 Exhibit 10.1 to Form 10-Q for quarter ended December 31, 2002 (File No. 1-10042) 100 Page Number or Incorporation by Reference to Exhibit 10.1 to Form 10-Q for quarter ended December 31, 2011 (File No. 1-10042) Exhibit 10.11(a) to Form 10-K for fiscal year ended September 30, 2019 (File No. 1-10042) Exhibit 10.11(d) to Form 10-K for fiscal year ended September 30, 2019 (File No. 1-10042) Exhibit 10.11(e) to Form 10-K for fiscal year ended September 30, 2019 (File No. 1-10042) Signature page of Form 10-K for fiscal year ended September 30, 2020 Exhibit Number 10.12* Description Atmos Energy Corporation Equity Incentive and Deferred Compensation Plan for Non-Employee Directors, Amended and Restated as of January 1, 2012 10.13(a)* Atmos Energy Corporation 1998 Long-Term Incentive Plan (as amended and restated November 6, 2019) 10.13(b)* Form of Award Agreement of Time-Lapse Restricted Stock Units under the Atmos Energy Corporation 1998 Long-Term Incentive Plan 10.13(c)* Form of Award Agreement of Performance- Based Restricted Stock Units under the Atmos Energy Corporation 1998 Long-Term Incentive Plan 10.13(d)* Form of Non-Employee Director Award Agreement of Time-Lapse Restricted Stock Units Under the Atmos Energy Corporation 1998 Long-Term Incentive Plan 10.13(e)* Form of Non-Employee Director Award Agreement of Stock Unit Awards Under The Atmos Energy Corporation 1998 Long-Term Incentive Plan Other Exhibits, as indicated Subsidiaries of the registrant Consent of independent registered public accounting firm, Ernst & Young LLP Power of Attorney Rule 13a-14(a)/15d-14(a) Certifications Section 1350 Certifications** Interactive Data File 21 23.1 24 31 32 101.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 101.DEF Linkbase Inline XBRL Taxonomy Extension Definition Linkbase 101.LAB Inline XBRL Taxonomy Extension Labels Linkbase 101.PRE Inline XBRL Taxonomy Extension Presentation 104 Linkbase 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 * This exhibit constitutes a “management contract or compensatory plan, contract, or arrangement.” 101 ** These certifications 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 Annual Report on Form 10-K, will not be deemed to be filed with the Securities and Exchange 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. ITEM 16. Form 10-K Summary. Not applicable. 102 Pursuant to the requirements of Section 13 or 15(d) 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. SIGNATURES ATMOS ENERGY CORPORATION (Registrant) By: /s/ CHRISTOPHER T. FORSYTHE Christopher T. Forsythe Senior Vice President and Chief Financial Officer Date: November 13, 2020 103 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby con- stitutes and appoints John K. Akers and Christopher T. Forsythe, or either of them acting alone or together, as his true and lawful attorney-in-fact and agent with full power to act alone, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated: /s/ KIM R. COCKLIN Kim R. Cocklin /s/ JOHN K. AKERS John K. Akers /s/ CHRISTOPHER T. FORSYTHE Christopher T. Forsythe /s/ RICHARD M. THOMAS Richard M. Thomas /s/ ROBERT W. BEST Robert W. Best /s/ KELLY H. COMPTON Kelly H. Compton /s/ SEAN DONOHUE Sean Donohue /s/ RAFAEL G. GARZA Rafael G. Garza /s/ RICHARD K. GORDON Richard K. Gordon /s/ ROBERT C. GRABLE Robert C. Grable /s/ NANCY K. QUINN Nancy K. Quinn /s/ RICHARD A. SAMPSON Richard A. Sampson /s/ STEPHEN R. SPRINGER Stephen R. Springer /s/ DIANA J. WALTERS Diana J. Walters /s/ RICHARD WARE II Richard Ware II /s/ FRANK YOHO Frank Yoho Executive Chairman of the Board November 13, 2020 President, Chief Executive Officer and Director November 13, 2020 Senior Vice President and Chief Financial Officer November 13, 2020 Vice President and Controller (Principal Accounting Officer) November 13, 2020 Director Director Director Director Director Director Director Director Director Director Director Director 104 November 13, 2020 November 13, 2020 November 13, 2020 November 13, 2020 November 13, 2020 November 13, 2020 November 13, 2020 November 13, 2020 November 13, 2020 November 13, 2020 November 13, 2020 November 13, 2020 Schedule II ATMOS ENERGY CORPORATION Valuation and Qualifying Accounts Three Years Ended September 30, 2020 Additions Balance at beginning of period Charged to cost & expenses Charged to other accounts (In thousands) Deductions Balance at end of period 2020 Allowance for doubtful accounts . . . . . . . . . . . . $15,899 $23,837 2019 Allowance for doubtful accounts . . . . . . . . . . . . $14,795 $17,633 2018 Allowance for doubtful accounts . . . . . . . . . . . . $10,865 $14,894 $— $— $— $ 9,787(1) $29,949 $16,529(1) $15,899 $10,964(1) $14,795 (1) Uncollectible accounts written off. 105 Forward-Looking Statements The matters discussed or incorporated by reference in this Annual Report 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 the Company 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 the Company’s 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 discussed in this report. These risks and uncertainties are discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2020. Although the Company believes 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, the Company undertakes no obligation to update or revise any of its forward-looking statements, whether as a result of new information, future events or otherwise. C A P I TA L S P E N D I N G D R I V E S R AT E B A S E G R O W T H Strong Regulated Rate Base Growth—Focused on Enhancing System Safety and Reliability s n o i l l i m $ $20,000 $15,000 $10,000 $5,000 $0 $19.0B -$21.0B Regulated Pipeline Regulated Distribution 2019 2020 2021E* 2022E* 2023E* 2024E* 2025E* * Regulated rate base as estimated at the end of each fiscal year S U S TA I N A B L E A N D G R O W I N G D I V I D E N D 37 Consecutive Years of Dividend Increases $2.50 $2.00 $1.50 $1.00 $.50 0 100% 80% 60% 40% 20% 0% -20% $2.50E The indicated annual dividend increased 8.7% for fiscal 2021 The indicated annual dividend rate for fiscal 2021 is $2.50 Targeted payout ratio of ~50% Note: Amounts are adjusted for mergers and acquisitions. 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21E S T R O N G T O TA L R E T U R N S T O O U R S H A R E H O L D E R S We have also continued to deliver strong returns to our shareholders over the long term 94% 84% 63% 63% Atmos Energy Peer Group S&P 500 S&P 500 Utilities Index 42% 15% 22% 18% 24% -14% -12% 1-year -5% 3-year 5-year * Total shareholder return contains share price fluctuations and dividends paid. Board of Directors J. Kevin Akers President and Chief Executive Officer, Atmos Energy Corporation, Dallas, Texas Board member since 2019 Robert W. Best Former Chairman of the Board, Atmos Energy Corporation, Dallas, Texas Board member since 1997 Committee: Corporate Responsibility, Sustainability, & Safety Kim R. Cocklin Executive Chairman of the Board, Atmos Energy Corporation, Dallas, Texas Board member since 2009 Kelly H. Compton Executive Director, The Hoglund Foundation, Dallas, Texas Board member since 2016 Committees: Audit, Human Resources Sean Donohue Chief Executive Officer Dallas/Fort Worth International Airport Dallas, Texas Board member since 2018 Committees: Corporate Responsibility, Sustainability, & Safety, Nominating and Corporate Governance Rafael G. Garza President and Founder, RGG Capital Partners, LLC, Fort Worth, Texas Board member since 2016 Committees: Audit, Nominating and Corporate Governance Richard K. Gordon General Partner, Juniper Capital LP and Juniper Energy LP; Senior Advisor, Juniper Capital II and Juniper Capital III, Houston, Texas Board member since 2001 Lead Director since 2016 Committees: Corporate Responsibility, Sustainability, & Safety (Chair), Executive (Chair), Human Resources, Nominating and Corporate Governance Robert C. Grable Founding Partner, Kelly Hart & Hallman LLP Fort Worth, Texas Board member since 2009 Committees: Audit, Executive, Nominating and Corporate Governance (Chair) Nancy K. Quinn Independent Energy Consultant Key Biscayne, Florida Board member since 2004 Former Lead Director Committees: Audit, Executive, Human Resources (Chair), Corporate Responsibility, Sustainability, & Safety Richard A. Sampson General Partner and Founder, RS Core Capital, LLC, Denver, Colorado Board member since 2012 Committees: Audit (Chair), Executive, Human Resources Stephen R. Springer Retired Senior Vice President and General Manager, Midstream Division, The Williams Companies, Inc. Fort Myers Beach, Florida Board member since 2005 Committee: Corporate Responsibility, Sustainability, & Safety Diana J. Walters Founder and Managing Member, Amichel, LLC, Magnolia, Texas Board member since 2018 Committees: Corporate Responsibility, Sustainability, & Safety, Human Resources Richard Ware II Chairman, Amarillo National Bank, Amarillo, Texas Board member since 1994 Committees: Audit, Nominating and Corporate Governance Frank Yoho Former Executive Vice President and President of Natural Gas, Duke Energy Charlotte, North Carolina Board member since 2020 Committees: Audit, Corporate Responsibility, Sustainability, & Safety Charles K. Vaughan Honorary Director, Retired Chairman of the Board and Retired Lead Director, Atmos Energy Corporation, Dallas, Texas Board member from 1983 to 2012 Senior Management Team J. Kevin Akers President and Chief Executive Officer David J. Park Senior Vice President, Utility Operations Christopher T. Forsythe Senior Vice President and Chief Financial Officer J. Matt Robbins Senior Vice President, Human Resources Karen E. Hartsfield Senior Vice President, General Counsel and Corporate Secretary Corporate Information Common Stock Listing New York Stock Exchange. Trading symbol: ATO Stock Transfer Agent and Registrar Broadridge Corporate Issuer Solutions, Inc. P.O. Box 1342 Brentwood, NY 11717 800-543-3038 To inquire about your Atmos Energy common stock, please call Broadridge at the telephone number above. You may use the agent’s interactive voice response system 24 hours a day to learn about transferring stock or to check your recent account activity, all without the assistance of a customer service representative. Please have available your Atmos Energy shareholder account number and your Social Security or federal taxpayer ID number. To speak to a Broadridge customer service representative, please call the same number between 9 a.m. and 6 pm. Eastern time, Monday through Friday. You may also find more information at https://shareholder.broadridge.com/ATO. Independent Registered Public Accounting Firm Ernst & Young LLP One Victory Park Suite 2000 2323 Victory Avenue Dallas, Texas 75219 214-969-8000 Annual Report Atmos Energy Corporation’s 2020 Annual Report including our Form 10-K is available at no charge from Investor Relations, Atmos Energy Corporation, P.O. Box 650205, Dallas, Texas 75265-0205 or by calling 972-855-3729, Monday through Friday, between 8 a.m. and 5 p.m. Central time. Atmos Energy’s 2020 Annual Report also may be viewed on Atmos Energy’s website at www.atmosenergy.com. Annual Meeting of Shareholders The 2021 Annual Meeting of Shareholders will be on Wednesday, February 3, 2021, at 9:00 a.m. Central time, and will be conducted virtually via webcast. Please see your proxy materials for further information. Direct Stock Purchase Plan Atmos Energy has a Direct Stock Purchase Plan that is available to all investors. For an Enrollment Application Form and a Plan Prospectus, please call AST at 800-543-3038. The Prospectus is also available at www.atmosenergy.com. You may also obtain information by writing to Investor Relations, Atmos Energy Corporation, P.O. Box 650205, Dallas, Texas 75265-0205. This is not an offer to sell, or a solicitation to buy, any securities of Atmos Energy Corporation. Shares of Atmos Energy common stock purchased through the Direct Stock Purchase Plan will be offered only by prospectus. Atmos Energy on the Internet Information about Atmos Energy is available at www.atmosenergy.com. Our website includes news releases, current and historical financial reports, other investor data, corporate governance documents, management biographies, customer information and facts about Atmos Energy’s operations. Atmos Energy Corporation Contacts To contact Atmos Energy’s Investor Relations, call 972-855-3729, Monday through Friday, between 8 a.m. and 5 p.m. Central time or send an email message to InvestorRelations@atmosenergy.com. Securities analysts and investment managers, please contact: Dan Meziere Vice President, Investor Relations and Treasurer 972-855-3729 (voice) 972-855-3040 (fax) InvestorRelations@atmosenergy.com Atmos Energy Corporation P.O. Box 650205 Dallas, Texas 75265-0205 atmosenergy.com