Segment Information

Through November 30, 2016, our consolidated operations were managed and reviewed through three segments:


•	The regulated distribution segment, which included our regulated natural gas distribution and related sales operations.


•	The regulated pipeline segment, which included the pipeline and storage operations of our Atmos Energy Pipeline-Texas division and,


•	The nonregulated segment, which included our nonregulated natural gas management, nonregulated natural gas transmission, storage and other services.

As a result of the announced sale of Atmos Energy Marketing, we revised the information used by the chief operating decision maker to manage the Company, effective December 1, 2016. Accordingly, we will manage and review our consolidated operations through the following three reportable segments:


•	The distribution segment is primarily comprised of our regulated natural gas distribution and related sales operations in eight states and storage assets located in Kentucky and Tennessee, which are used to support our natural gas distribution operations in those states. These storage assets were formerly included in our nonregulated segment.


•	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 which were formerly included in our nonregulated segment.


•	The natural gas marketing segment is comprised of our discontinued natural gas marketing business.

Our determination of reportable segments considers how our chief operating decision maker allocates resources between our strategic operating units under which we manage sales of various products and services through our distribution, pipeline and storage and natural gas marketing businesses. Although our distribution segment operations are geographically dispersed, they are aggregated and reported as a single segment as each natural gas distribution division has similar economic characteristics. In addition, the pipeline and storage operations of our Atmos Pipeline-Texas division and our natural gas transmission operations in Louisiana have similar economic characteristics and 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 found in our Annual Report on Form 10-K for the fiscal year ended September 30, 2016. We evaluate performance based on net income or loss of the respective operating segments. 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.

Prior periods' segment information has been recast as required by applicable accounting guidance. The segment realignment does not impact our reported consolidated revenues or net income.

Income statements for the three months ended December 31, 2016 and 2015 by segment are presented in the following tables:



	Three Months Ended December 31, 2016
	Distribution			Pipeline and Storage			Natural Gas Marketing		Eliminations			Consolidated
	(In thousands)
Operating revenues from external parties	$	754,266		$	25,902		$	—	$	—		$	780,168
Intersegment revenues	390			84,050			—		(84,440		)	—
	754,656			109,952			—		(84,440		)	780,168
Purchased gas cost	395,346			355			—		(84,396		)	311,305
Gross profit	359,310			109,597			—		(44		)	468,863
Operating expenses
Operation and maintenance	92,714			32,268			—		(44		)	124,938
Depreciation and amortization	61,157			15,801			—		—			76,958
Taxes, other than income	50,546			6,503			—		—			57,049
Total operating expenses	204,417			54,572			—		(44		)	258,945
Operating income	154,893			55,025			—		—			209,918
Miscellaneous expense	(633		)	(361		)	—		—			(994		)
Interest charges	21,118			9,912			—		—			31,030
Income from continuing operations before income taxes	133,142			44,752			—		—			177,894
Income tax expense	47,778			16,078			—		—			63,856
Income from continuing operations	85,364			28,674			—		—			114,038
Income from discontinued operations, net of tax	—			—			10,994		—			10,994
Net income	$	85,364		$	28,674		$	10,994	$	—		$	125,032
Capital expenditures	$	222,484		$	75,478		$	—	$	—		$	297,962



	Three Months Ended December 31, 2015
	Distribution			Pipeline and Storage			Natural Gas Marketing		Eliminations			Consolidated
	(In thousands)
Operating revenues from external parties	$	649,113		$	25,640		$	—	$	—		$	674,753
Intersegment revenues	330			72,776			—		(73,106		)	—
	649,443			98,416			—		(73,106		)	674,753
Purchased gas cost	313,991			(559		)	—		(73,106		)	240,326
Gross profit	335,452			98,975			—		—			434,427
Operating expenses
Operation and maintenance	92,189			27,639			—		—			119,828
Depreciation and amortization	57,614			13,042			—		—			70,656
Taxes, other than income	45,558			5,656			—		—			51,214
Total operating expenses	195,361			46,337			—		—			241,698
Operating income	140,091			52,638			—		—			192,729
Miscellaneous expense	(477		)	(402		)	—		—			(879		)
Interest charges	20,390			9,147			—		—			29,537
Income from continuing operations before income taxes	119,224			43,089			—		—			162,313
Income tax expense	45,288			15,479			—		—			60,767
Income from continuing operations	73,936			27,610			—		—			101,546
Income from discontinued operations, net of tax	—			—			1,315		—			1,315
Net income	$	73,936		$	27,610		$	1,315	$	—		$	102,861
Capital expenditures	$	165,407		$	124,981		$	24	$	—		$	290,412

Balance sheet information at December 31, 2016 and September 30, 2016 by segment is presented in the following tables:



	December 31, 2016
	Distribution		Pipeline and Storage		Natural Gas Marketing			Eliminations			Consolidated
	(In thousands)
ASSETS
Property, plant and equipment, net	$	6,362,710	$	2,190,252	$	—		$	—		$	8,552,962
Investment in subsidiaries	834,469		—		—			(834,469		)	—
Current assets
Cash and cash equivalents	43,733		—		891			—			44,624
Assets from risk management activities	8,057		—		—			—			8,057
Current assets of disposal group classified as held for sale	—		—		253,950			(18,468		)	235,482
Other current assets	666,474		46,009		(6,824		)	(14,390		)	691,269
Intercompany receivables	1,052,199		—		—			(1,052,199		)	—
Total current assets	1,770,463		46,009		248,017			(1,085,057		)	979,432
Goodwill	586,661		143,012		—			—			729,673
Noncurrent assets from risk management activities	1,282		—		—			—			1,282
Deferred charges and other assets	289,224		26,582		—			—			315,806
	$	9,844,809	$	2,405,855	$	248,017		$	(1,919,526	)	$	10,579,155
CAPITALIZATION AND LIABILITIES
Shareholders’ equity	$	3,698,975	$	731,631	$	102,838		$	(834,469	)	$	3,698,975
Long-term debt	2,314,199		—		—			—			2,314,199
Total capitalization	6,013,174		731,631		102,838			(834,469		)	6,013,174
Current liabilities
Current maturities of long-term debt	250,000		—		—			—			250,000
Short-term debt	940,747		—		—			—			940,747
Liabilities from risk management activities	25,060		—		—			—			25,060
Current liabilities of disposal group classified as held for sale	—		—		120,566			(11,268		)	109,298
Other current liabilities	602,247		43,028		1,025			(21,590		)	624,710
Intercompany payables	—		1,048,091		4,108			(1,052,199		)	—
Total current liabilities	1,818,054		1,091,119		125,699			(1,085,057		)	1,949,815
Deferred income taxes	1,156,716		560,401		8,316			—			1,725,433
Noncurrent liabilities from risk management activities	97,921		—		—			—			97,921
Regulatory cost of removal obligation	407,767		22,640		—			—			430,407
Pension and postretirement liabilities	301,715		—		—			—			301,715
Deferred credits and other liabilities	49,462		64		11,164			—			60,690
	$	9,844,809	$	2,405,855	$	248,017		$	(1,919,526	)	$	10,579,155



	September 30, 2016
	Distribution		Pipeline and Storage		Natural Gas Marketing		Eliminations			Consolidated
	(In thousands)
ASSETS
Property, plant and equipment, net	$	6,208,465	$	2,060,141	$	—	$	—		$	8,268,606
Investment in subsidiaries	768,415		—		—		(768,415		)	—
Current assets
Cash and cash equivalents	22,117		—		25,417		—			47,534
Assets from risk management activities	3,029		—		—		—			3,029
Current assets of disposal group classified as held for sale	—		—		162,508		(11,391		)	151,117
Other current assets	486,934		39,078		5		(46,011		)	480,006
Intercompany receivables	971,665		—		—		(971,665		)	—
Total current assets	1,483,745		39,078		187,930		(1,029,067		)	681,686
Goodwill	583,950		143,012		—		—			726,962
Noncurrent assets from risk management activities	1,822		—		—		—			1,822
Noncurrent assets of disposal group classified as held for sale	—		—		28,785		(169		)	28,616
Deferred charges and other assets	275,418		27,779		—		—			303,197
	$	9,321,815	$	2,270,010	$	216,715	$	(1,797,651	)	$	10,010,889
CAPITALIZATION AND LIABILITIES
Shareholders’ equity	$	3,463,059	$	701,818	$	66,597	$	(768,415	)	$	3,463,059
Long-term debt	2,188,779		—		—		—			2,188,779
Total capitalization	5,651,838		701,818		66,597		(768,415		)	5,651,838
Current liabilities
Current maturities of long-term debt	250,000		—		—		—			250,000
Short-term debt	829,811		—		35,000		(35,000		)	829,811
Liabilities from risk management activities	56,771		1,967		—		(1,967		)	56,771
Current liabilities of the disposal group classified as held for sale	—		—		81,908		(9,008		)	72,900
Other current liabilities	549,019		37,944		3,263		(11,427		)	578,799
Intercompany payables	—		957,526		14,139		(971,665		)	—
Total current liabilities	1,685,601		997,437		134,310		(1,029,067		)	1,788,281
Deferred income taxes	1,055,348		543,390		4,318		—			1,603,056
Noncurrent liabilities from risk management activities	184,048		169		—		(169		)	184,048
Regulatory cost of removal obligation	397,162		27,119		—		—			424,281
Pension and postretirement liabilities	297,743		—		—		—			297,743
Noncurrent liabilities of disposal group classified as held for sale	—		—		316		—			316
Deferred credits and other liabilities	50,075		77		11,174		—			61,326
	$	9,321,815	$	2,270,010	$	216,715	$	(1,797,651	)	$	10,010,889