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# Atmos Energy Corporation (NYSE: ATO) — Narrative, Fiscal 2026 Third Quarter Atmos Energy's fiscal year ends September 30. The current period is the third quarter of fiscal 2026, the three months ended June 30, 2026. The business description, risk factors and annual results come from the Annual Report on Form 10-K for fiscal 2025 (fiscal year ended September 30, 2025; SEC accession 0000731802-25-000056). The quarter's results come from the Form 10-Q for the quarter ended June 30, 2026 (accession 0000731802-26-000102), together with the Form 8-K reports cited in each section. ## Business *Source: FY2025 Form 10-K, accession 0000731802-25-000056 (Item 1, Business; Item 2, Properties).* Atmos Energy is a natural gas-only utility. It distributes regulated natural gas to about 3.4 million residential, commercial, public authority and industrial customers in eight states, mostly in the South. It also owns Atmos Pipeline–Texas (APT), which by miles of pipe is one of the largest intrastate pipelines in Texas. It makes money by earning a regulator-approved return on the capital it invests in pipes, meters and storage. Gas itself is passed through to customers at cost: purchased gas cost adjustment mechanisms offset changes in gas prices dollar for dollar, so revenue moves with gas prices but operating income generally does not. Earnings growth therefore depends on how much the company invests, mostly in safety and reliability, and how quickly regulators let that investment into rates. About 75 percent of consolidated operations are in Texas. The company reports two segments: - **Distribution**: regulated gas distribution and related sales through six divisions, listed here by rate base. Mid-Tex covers Texas including Dallas/Fort Worth, with about 1.83 million meters. Kentucky/Mid-States covers Kentucky, Tennessee and Virginia. Then come Louisiana, West Texas (Amarillo, Lubbock, Midland), Mississippi, and Colorado-Kansas. At September 30, 2025 the company held 1,010 non-exclusive municipal franchises with terms of generally five to 35 years, and owned about 76,000 miles of distribution and transmission mains. - **Pipeline and storage**: APT and a 21-mile transmission pipeline in the New Orleans area. APT carries gas to the Mid-Tex Division, other local distribution companies, industrial and power-generation customers, marketers and producers. It runs from the producing areas of central, northern and eastern Texas into or near the Barnett Shale, the Texas Gulf Coast and the Permian Basin. APT owns five underground storage facilities in Texas, and the segment owns about 5,700 miles of transmission lines. APT services provide over 80 percent of segment revenue. That revenue is set by the Railroad Commission of Texas (RRC) and updated each year through Gas Reliability Infrastructure Program (GRIP) filings. GRIP requires a full rate case at least every five years; the most recent was completed in December 2023. **Rate design is central to the business.** The company's stated strategy is to reduce or eliminate regulatory lag: - Formula rate mechanisms in four states reset rates every year. - Infrastructure programs in every state allow annual rate adjustments for qualifying capital spending. Through these and the formula rate mechanisms, the company says it can begin recovering about 95 percent of its capital spending within six months and substantially all of it within twelve months. - Weather-normalization adjustments in seven states cover about 97 percent of residential and commercial distribution revenue. - Gas-cost bad-debt recovery in six states covers about 89 percent of that revenue. The largest rate bases at the last approved filing were Mid-Tex at about $7.95 billion on a system-wide basis (the Mid-Tex Cities filing with rates effective October 1, 2025 used $8.3 billion) and APT at $5.24 billion. Most authorized returns on equity in the jurisdictional table are about 9.8 percent; APT's is 11.45 percent. The company sources gas competitively from producers and marketers, using 33 interstate and intrastate pipelines. It estimates peak-day supply availability at about 5.4 Bcf, against a fiscal 2025 peak-day demand of about 4.2 Bcf on February 19, 2025. It owns about 66.3 Bcf of underground working gas capacity and contracts for about 82.2 million MMBtu more. Its main competition is electricity for space heating, water heating and cooking. The pipeline segment says several new intrastate pipelines completed in recent years have increased competition. At September 30, 2025 the company had 5,487 employees, none under a collective bargaining agreement. ## Risk factors *Source: FY2025 Form 10-K, accession 0000731802-25-000056 (Item 1A). The June 30, 2026 Form 10-Q (accession 0000731802-26-000102, Part II Item 1A) reports no material changes.* **Regulatory and legislative** - **Regulatory lag and cost disallowance.** Returns are regulated in eight states and can be challenged by regulators and intervenors. Assets are often in service before rate relief arrives. If regulators modify or end the annual and infrastructure mechanisms, regulatory lag could rise significantly. Regulators can also disallow gas purchases or cost-of-service items. - **Federal oversight and safety regulation.** FERC rules on interstate capacity and market manipulation carry higher penalties. Federal, state and local oversight of pipeline safety across the company's more than 81,000 miles of lines keeps increasing. The company considers the cost ultimately recoverable, but compliance can hurt near-term costs and results. **Operational** - **Pipeline integrity costs.** PHMSA integrity-management rules require ongoing assessment, threat identification and repair of segments in "high consequence areas." Stricter standards could force new safety controls, capital projects or accelerated maintenance. - **Accidents.** Leaks, explosions and fires could bring legal liability, fines, remediation and higher capital spending. Some transmission and storage facilities are in or near populated areas, so losses could be large and may exceed insurance limits. - **Gas supply and capacity.** Failures of suppliers, interstate pipelines or storage could leave customer demand unmet. Causes could include operational failures, extreme cold, hurricanes, cyber-attacks or war. - **Competition and workforce.** Electricity and propane compete for residential and commercial load. Industrial customers can switch fuels or bypass the system, and new pipelines can compete with APT. Losing qualified staff and institutional knowledge raises safety-compliance and labor-cost risk. **Technology and cybersecurity** - **Technology failure, cyber-attacks and federal pipeline security rules.** Critical-infrastructure pipelines are named targets in U.S. government warnings. Transportation Security Administration directives impose reporting and vulnerability-assessment duties, and there is no certainty that security costs will be recovered in rates. **Climate** - **Weather and decarbonization policy.** Weather normalization covers about 97 percent of residential and commercial revenue, but that protection could be lost. Six of the eight states served have barred local governments from limiting the types of energy available to customers. Federal, regional or state greenhouse-gas rules could still raise costs, limit service to new customers or push customers to switch fuels. Climate change could reduce gas demand or shift population and bring more severe storms. **Financial, economic and market** - **Capital intensity and market access.** The business depends on continuous debt and equity financing to fund large capital programs. Tighter credit markets could reduce liquidity and trigger rating actions. - **Texas concentration.** About 75 percent of operations are in Texas, so the Texas economy, weather and regulators weigh heavily on results. - **Interest rates, gas prices and collections.** Interest costs above what rates recover would reduce earnings. Sharp gas-price increases raise borrowing, because gas is paid for well before it is billed, and they slow collections and raise bad debt. Pension funding needs depend on market returns and discount rates. ## Management's discussion — fiscal 2025 *Source: FY2025 Form 10-K, accession 0000731802-25-000056 (Item 7; consolidated statements of comprehensive income).* **Results.** Fiscal 2025 net income was $1,198.8 million, or $7.46 per diluted share, up $155.9 million from $1,042.9 million ($6.83) in fiscal 2024. Consolidated operating revenues were $4.70 billion and operating income was $1.56 billion. Management attributes the increase mainly to rate outcomes driven by safety and reliability spending. Texas infrastructure legislation that took effect in the third quarter of fiscal 2025 added a $26.2 million benefit. Partly offsetting these were higher bad debt, employee costs, depreciation and property taxes, and safety and compliance spending. Distribution contributed $746.8 million of net income and pipeline and storage $452.0 million. **Distribution.** Operating income rose 12.8 percent to $963.4 million. Rate adjustments added $184.1 million, mainly in Mid-Tex. Residential customer growth and industrial load added $26.7 million, and lower excess-deferred-tax refunds added $46.3 million (largely offset in income tax). Against these, depreciation and property taxes rose $78.0 million and employee costs $32.6 million. Monitoring, line locating and compliance costs rose $18.6 million. Bad debt rose $17.8 million, because a Mississippi regulatory change had depressed it in fiscal 2024. Mid-Tex alone earned $532.6 million of segment operating income. **Pipeline and storage.** Operating income rose 19.1 percent to $596.6 million. Rate adjustments added $89.4 million: the GRIP filings approved in May 2024 and June 2025, the System Safety and Integrity Rider approved in November 2024, and the December 2023 rate case. Higher contracted capacity from tariff customers added $16.5 million. Partly offsetting these were $23.5 million of higher depreciation and property taxes and $18.9 million of rider-related expense, which is offset in revenue. The June 2025 GRIP approval covered a requested $77.2 million increase in operating income. **Ratemaking.** Regulatory actions implemented in fiscal 2025 raised annual operating income by $333.6 million ($322.8 million excluding excess-deferred-tax effects). Filings seeking $231.1 million were pending at year-end. The largest was the Mid-Tex Cities formula rate filing; the cities approved a $138.5 million increase, and new rates took effect October 1, 2025. **Capital, cash flow and financing.** Capital expenditures were $3.6 billion, about 87 percent for safety and reliability, against $2.9 billion in fiscal 2024. Operating cash flow rose to $2,049.5 million from $1,733.7 million, reflecting rate outcomes. Long-term debt and equity financing totaled about $1.8 billion: - $650 million of 5.00% notes due 2054; - $500 million of 5.20% notes due 2035; - $698.5 million from settling 5,931,289 forward-sold shares. Equity capitalization was 60.3 percent at September 30, 2025. Liquidity was about $4.9 billion: $202.7 million of cash, $1,558.5 million available under equity forward agreements and $3,094.4 million of undrawn credit capacity. Ratings are A-/A-2 at S&P and A2/P-1 at Moody's, both with stable outlooks; Moody's lowered the long-term rating to A2 on April 2, 2025. Dividends paid were $3.48 per share. **Outlook in the annual report.** Management plans to spend about $26 billion between fiscal 2026 and 2030, more than 80 percent on safety and reliability. It cautions that full recovery of that spending is not assured. ## Current quarter — third quarter of fiscal 2026 (three months ended June 30, 2026) *Source: Form 10-Q for the quarter ended June 30, 2026, accession 0000731802-26-000102. Guidance and dividend are from the earnings releases furnished on Form 8-K: accession 0000731802-26-000100 (August 5, 2026) and 0000731802-26-000086 (May 6, 2026).* **Quarter results.** Third-quarter net income was $242.7 million, or $1.43 per diluted share, compared with $186.4 million, or $1.16, a year earlier. Operating revenues were $879.1 million against $838.8 million, and operating income was $320.4 million against $252.1 million. Results are seasonal: about 70 percent of distribution revenue is earned in the first six months of the fiscal year. - **Distribution** operating income rose 14.3 percent to $109.1 million. Rate adjustments added $21.0 million, mainly in Mid-Tex, and customer growth and industrial load added $3.9 million. Against these, depreciation and property taxes rose $20.0 million and employee costs $9.4 million. Segment net income was $89.4 million against $70.5 million. Mid-Tex operating income rose to $74.3 million from $48.2 million, while Mississippi fell to $1.8 million from $7.0 million and Louisiana to $13.8 million from $18.7 million. - **Pipeline and storage** operating income rose 34.9 percent to $211.3 million. GRIP rate adjustments from the June 2025 and May 2026 approvals added $35.1 million. APT's through-system activities, mainly wider spreads, added $18.1 million, and higher contracted peak-day capacity added $4.3 million. Partly offsetting these was $8.4 million of higher depreciation and property taxes. Segment net income was $153.3 million against $115.9 million. - **Texas infrastructure legislation** effective since the third quarter of fiscal 2025 improved pretax income by $26.7 million in distribution and $12.1 million in pipeline and storage this quarter. The filing records the benefit in the line items where the costs fall, including operating expenses and interest charges. **Nine months.** Net income for the nine months was $1,227.6 million, or $7.33 per diluted share, up 20 percent from $1,023.9 million ($6.40). The Texas legislation contributed $132.4 million. Rate outcomes were the main driver, partly offset by depreciation and property taxes, safety and compliance spending, and employee costs. Distribution operating income rose 14.4 percent, which includes $14.7 million of higher consumption net of weather normalization. Pipeline and storage operating income rose 29.3 percent. **Ratemaking.** Regulatory actions implemented in the first nine months raised annual operating income by $355.0 million. Of this, $242.8 million came in distribution, led by the $138.5 million Mid-Tex Cities increase effective October 1, 2025 and the Dallas annual review ($32.1 million). APT's GRIP filing accounted for $112.2 million; it was filed February 13, 2026 and approved by the RRC on May 12, 2026. The Mississippi general rate case cut annual operating income by $23.2 million effective December 1, 2025. The commission's November 4, 2025 order in that case, as described in the FY2025 10-K, set an authorized ROE of 9.40 percent on a 50/50 debt/equity ratio. Filings seeking $373.4 million were pending at June 30, 2026, led by the Mid-Tex Cities formula rate filing ($273.2 million), Mississippi ($37.8 million), Louisiana ($30.8 million) and the Colorado rate case ($17.6 million). **Capital spending, cash flow and balance sheet.** Nine-month capital expenditures were $3,076.3 million, over 85 percent for safety and reliability. Operating cash flow was $1,671.5 million against $1,701.3 million; the filing attributes the dip to the timing of gas-cost recoveries. The company raised about $2.2 billion of long-term debt and equity: - $600 million of 5.45% notes due January 2056, issued October 1, 2025; - $700 million of 4.75% notes due January 2032, issued June 18, 2026; - $941.7 million from settling 7,084,863 forward-sold shares. At June 30, 2026: - **Capital structure.** Equity capitalization was 59.8 percent and debt-to-capitalization under the credit agreements was 41 percent, against a 70 percent covenant ceiling. - **Liquidity.** About $4.6 billion: $521.0 million of cash, $936.8 million available under forward sale agreements covering 6,128,939 shares that mature through June 2027, and $3,094.4 million of undrawn credit capacity. - **Near-term maturity.** The $500 million of 3.00% notes due June 2027 is now within current maturities. In March 2026 the company extended its two $1.5 billion revolving credit facilities by one year, to March 2029 and March 2031. **Guidance and dividend.** On August 5, 2026 the company reaffirmed fiscal 2026 EPS guidance of $8.40 to $8.50, the range it set when it raised guidance in May 2026. Capital expenditure guidance is about $4.2 billion. The quarterly dividend is $1.00 per share, an indicated $4.00 for fiscal 2026, 14.9 percent above fiscal 2025. **Safety investigations.** The National Transportation Safety Board issued its final report and recommendations on March 26, 2026 on two January 2024 incidents in Jackson, Mississippi, which caused one fatality. It issued its final report on May 27, 2026 on the December 2, 2024 incident in Avondale, Louisiana, which also caused one fatality. On May 28, 2026, during the quarter, an incident in Dallas, Texas caused three fatalities. The NTSB is investigating, and the company says it is working with the NTSB and state and federal regulators to determine causal factors. Management continues to expect that amounts beyond its accruals for legal and regulatory matters will not be material, while noting that a loss above the accrued amount is possible but not reasonably estimable. **Governance.** At the February 4, 2026 annual meeting, shareholders approved charter amendments that raise authorized common shares to 400 million, adopt plurality voting for contested director elections and limit certain officers' liability as Texas and Virginia law allows (Form 8-K, accession 0001193125-26-044926). ## Subsequent events *Sources: Form 10-Q, accession 0000731802-26-000102 (Note 2; Note 11; Recent Ratemaking Developments). Forms 8-K: accession 0001193125-26-341096 (August 10, 2026), 0001193125-26-418579 and 0001193125-26-419084 (October 9, 2026).* In the June 30, 2026 Form 10-Q, the company states that no events after the balance sheet date required recognition or disclosure in its financial statements. None of the filings made after the quarter discloses an acquisition or divestiture. Developments after June 30, 2026, from the 10-Q and later filings: - **New rates on July 1, 2026.** On June 10, 2026 the Colorado Public Utilities Commission approved a $10.8 million operating income increase effective July 1, 2026. In Louisiana, the company implemented a $30.3 million increase on July 1, 2026, subject to refund, and expects final commission approval in the fourth quarter of fiscal 2026. - **Dallas incident report.** On July 1, 2026 the NTSB issued its preliminary report on the May 28, 2026 Dallas incident. - **Board and leadership changes, announced August 10, 2026.** - On August 4, 2026 the Board elected James H. Jeffries IV a director, effective September 1, 2026. He is a retiring partner of McGuire Woods LLP, which advised the company on energy and regulatory matters and was paid $422,649 in fiscal 2025 and $346,119 in fiscal 2026 to the filing date. - John S. McDill, Senior Vice President, Utility Operations, will retire in early 2027. Jeff D. Martinez, President of the Mid-Tex Division since December 2023, was appointed to succeed him effective October 1, 2026, with base salary rising from $380,000 to $500,000. - **$700 million senior notes offering, October 2026.** On October 6, 2026 the company agreed to sell $700 million of 6.000% Senior Notes due November 15, 2036. The representatives of the underwriters were BNP Paribas Securities Corp., Credit Agricole Securities (USA) Inc. and U.S. Bancorp Investments, Inc. The offering closed on October 9, 2026 with net proceeds of about $691.4 million. The notes are unsecured senior obligations issued under the company's March 26, 2009 indenture.