Segment Information

Atmos Energy Corporation and its subsidiaries are engaged primarily in the regulated natural gas distribution and pipeline and storage business as well as other nonregulated businesses. We distribute natural gas through sales and transportation arrangements to over three million residential, commercial, public authority and industrial customers through our six distribution divisions, which cover service areas located in eight states. In addition, we transport natural gas for others through our distribution system.

Prior to the sale of AEM, our consolidated operations were previously 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. Accordingly, we now manage and review our consolidated operations through the following three reportable segments:


•	The distribution segment 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 solely 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 the strategic operating units under which we manage sales of various products and services to customers in differing regulatory environments. Although our distribution segment operations are geographically dispersed, they are aggregated and reported as a single segment as each 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. We evaluate performance based on net income or loss of the respective operating units. Interest expense is allocated pro rata to each segment based upon our net investment in each segment. Income taxes are allocated between continuing operations and discontinued operations using an intraperiod tax allocation. Income taxes from continuing operations are allocated to each segment of continuing operations based on the separate return basis.

Summarized income statements and capital expenditures by segment are shown in the following tables.



	Year Ended September 30, 2016
	Distribution		Pipeline and Storage			Natural Gas Marketing		Eliminations			Consolidated
	(In thousands)
Operating revenues from external parties	$	2,338,404	$	116,244		$	—	$	—		$	2,454,648
Intersegment revenues	1,374		310,952			—		(312,326		)	—
	2,339,778		427,196			—		(312,326		)	2,454,648
Purchased gas cost	1,058,576		(58		)	—		(312,326		)	746,192
Gross profit	1,281,202		427,254			—		—			1,708,456
Operating expenses
Operation and maintenance	407,982		130,610			—		—			538,592
Depreciation and amortization	234,109		56,682			—		—			290,791
Taxes, other than income	197,227		24,616			—		—			221,843
Total operating expenses	839,318		211,908			—		—			1,051,226
Operating income	441,884		215,346			—		—			657,230
Miscellaneous income (expense)	1,171		(1,405		)	—		—			(234		)
Interest charges	78,238		36,574			—		—			114,812
Income from continuing operations before income taxes	364,817		177,367			—		—			542,184
Income tax expense	130,987		65,655			—		—			196,642
Income from continuing operations	233,830		111,712			—		—			345,542
Income from discontinued operations, net of tax	—		—			4,562		—			4,562
Net income	$	233,830	$	111,712		$	4,562	$	—		$	350,104
Capital expenditures	$	740,246	$	346,383		$	321	$	—		$	1,086,950



	Year Ended September 30, 2015
	Distribution		Pipeline and Storage			Natural Gas Marketing		Eliminations			Consolidated
	(In thousands)
Operating revenues from external parties	$	2,819,977	$	107,008		$	—	$	—		$	2,926,985
Intersegment revenues	1,385		277,949			—		(279,334		)	—
	2,821,362		384,957			—		(279,334		)	2,926,985
Purchased gas cost	1,574,447		562			—		(279,334		)	1,295,675
Gross profit	1,246,915		384,395			—		—			1,631,310
Operating expenses
Operation and maintenance	393,504		122,902			—		—			516,406
Depreciation and amortization	224,094		48,314			—		—			272,408
Taxes, other than income	206,625		23,639			—		—			230,264
Total operating expenses	824,223		194,855			—		—			1,019,078
Operating income	422,692		189,540			—		—			612,232
Miscellaneous income (expense)	284		(1,103		)	—		—			(819		)
Interest charges	83,087		33,154			—		—			116,241
Income from continuing operations before income taxes	339,889		155,283			—		—			495,172
Income tax expense	134,069		55,480			—		—			189,549
Income from continuing operations	205,820		99,803			—		—			305,623
Income from discontinued operations, net of tax	—		—			9,452		—			9,452
Net income	$	205,820	$	99,803		$	9,452	$	—		$	315,075
Capital expenditures	$	670,620	$	292,775		$	226	$	—		$	963,621



	Year Ended September 30, 2014
	Distribution		Pipeline and Storage			Natural Gas Marketing		Eliminations			Consolidated
	(In thousands)
Operating revenues from external parties	$	3,137,858	$	106,046		$	—	$	—		$	3,243,904
Intersegment revenues	1,363		231,494			—		(232,857		)	—
	3,139,221		337,540			—		(232,857		)	3,243,904
Purchased gas cost	1,952,869		2,048			—		(232,857		)	1,722,060
Gross profit	1,186,352		335,492			—		—			1,521,844
Operating expenses
Operation and maintenance	391,747		90,729			—		—			482,476
Depreciation and amortization	209,485		42,187			—		—			251,672
Taxes, other than income	196,503		13,971			—		—			210,474
Total operating expenses	797,735		146,887			—		—			944,622
Operating income	388,617		188,605			—		—			577,222
Miscellaneous income (expense)	3		(3,006		)	—		—			(3,003		)
Interest charges	92,997		36,279			—		—			129,276
Income from continuing operations before income taxes	295,623		149,320			—		—			444,943
Income tax expense	121,165		53,447			—		—			174,612
Income from continuing operations	174,458		95,873			—		—			270,331
Income from discontinued operations, net of tax	—		—			19,486		—			19,486
Net income	$	174,458	$	95,873		$	19,486	$	—		$	289,817
Capital expenditures	$	574,656	$	248,226		$	1,559	$	—		$	824,441

The following table summarizes our revenues from external parties by products and services for the fiscal year ended September 30.



	2016		2015		2014
	(In thousands)
Distribution revenues:
Gas sales revenues:
Residential	$	1,477,049	$	1,761,689	$	1,933,099
Commercial	619,979		772,187		876,042
Industrial	98,439		131,034		166,736
Public authority and other	41,307		53,401		64,779
Total gas sales revenues	2,236,774		2,718,311		3,040,656
Transportation revenues	76,690		72,340		68,020
Other gas revenues	24,940		29,326		29,182
Total distribution revenues	2,338,404		2,819,977		3,137,858
Pipeline and storage revenues	116,244		107,008		106,046
Total operating revenues	$	2,454,648	$	2,926,985	$	3,243,904

Balance sheet information at September 30, 2016 and 2015 by segment is presented in the following tables.



	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		13,854		—		(782,269		)	—
Current assets
Cash and cash equivalents	22,117		—		25,417		—			47,534
Current assets of disposal group classified as held for sale	—		—		162,508		(11,391		)	151,117
Other current assets	489,963		39,078		5		(46,011		)	483,035
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 of disposal group classified as held for sale	—		—		28,785		(169		)	28,616
Deferred charges and other assets	277,240		27,779		—		—			305,019
	$	9,321,815	$	2,283,864	$	216,715	$	(1,811,505	)	$	10,010,889
CAPITALIZATION AND LIABILITIES
Shareholders’ equity	$	3,463,059	$	715,672	$	66,597	$	(782,269	)	$	3,463,059
Long-term debt	2,188,779		—		—		—			2,188,779
Total capitalization	5,651,838		715,672		66,597		(782,269		)	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
Current liabilities of disposal group classified as held for sale	—		—		81,908		(9,008		)	72,900
Other current liabilities	605,790		39,911		3,263		(13,394		)	635,570
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
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	234,123		246		11,174		(169		)	245,374
	$	9,321,815	$	2,283,864	$	216,715	$	(1,811,505	)	$	10,010,889



	September 30, 2015
	Distribution		Pipeline and Storage		Natural Gas Marketing			Eliminations			Consolidated
	(In thousands)
ASSETS
Property, plant and equipment, net	$	5,656,788	$	1,759,912	$	—		$	—		$	7,416,700
Investment in subsidiaries	653,249		13,854		—			(667,103		)	—
Current assets
Cash and cash equivalents	24,645		—		4,008			—			28,653
Current assets of disposal group classified as held for sale	—		—		148,904			(9,849		)	139,055
Other current assets	478,054		50,309		(3,385		)	(66,380		)	458,598
Intercompany receivables	863,088		—		2,960			(866,048		)	—
Total current assets	1,365,787		50,309		152,487			(942,277		)	626,306
Goodwill	583,285		142,972		—			—			726,257
Noncurrent assets of disposal group classified as held for sale	—		—		30,385			—			30,385
Deferred charges and other assets	257,635		17,890		(101		)	—			275,424
	$	8,516,744	$	1,984,937	$	182,771		$	(1,609,380	)	$	9,075,072
CAPITALIZATION AND LIABILITIES
Shareholders’ equity	$	3,194,797	$	629,820	$	37,283		$	(667,103	)	$	3,194,797
Long-term debt	2,437,515		—		—			—			2,437,515
Total capitalization	5,632,312		629,820		37,283			(667,103		)	5,632,312
Current liabilities
Short-term debt	457,927		—		50,000			(50,000		)	457,927
Current liabilities of the disposal group classified as held for sale	—		—		89,471			(14,911		)	74,560
Other current liabilities	578,439		49,352		5,863			(11,318		)	622,336
Intercompany payables	—		866,048		—			(866,048		)	—
Total current liabilities	1,036,366		915,400		145,334			(942,277		)	1,154,823
Deferred income taxes	1,007,198		411,722		(7,605		)	—			1,411,315
Regulatory cost of removal obligation	399,747		27,806		—			—			427,553
Pension and postretirement liabilities	287,373		—		—			—			287,373
Noncurrent liabilities of disposal group classified as held for sale	—		—		347			—			347
Deferred credits and other liabilities	153,748		189		7,412			—			161,349
	$	8,516,744	$	1,984,937	$	182,771		$	(1,609,380	)	$	9,075,072