Document
false--12-31Q220200001587732000.010.0125000000025000000052771749529205305277174952920530The ONE Gas Credit Agreement contains certain financial, operational and legal covenants. Among other things, these covenants include maintaining ONE Gas’ total debt-to-capital ratio of no more than 70 percent at the end of any calendar quarter.The indenture governing our Senior Notes includes an event of default upon the acceleration of other indebtedness of $100 million or more. Such events of default would entitle the trustee or the holders of 25 percent in aggregate principal amount of the outstanding Senior Notes to declare those senior notes immediately due and payable in full.The indenture governing our Senior Notes includes an event of default upon the acceleration of other indebtedness of $100 million or more. Such events of default would entitle the trustee or the holders of 25 percent in aggregate principal amount of the outstanding Senior Notes to declare those senior notes immediately due and payable in full.The indenture governing our Senior Notes includes an event of default upon the acceleration of other indebtedness of $100 million or more. Such events of default would entitle the trustee or the holders of 25 percent in aggregate principal amount of the outstanding Senior Notes to declare those senior notes immediately due and payable in full.The indenture governing our Senior Notes includes an event of default upon the acceleration of other indebtedness of $100 million or more. Such events of default would entitle the trustee or the holders of 25 percent in aggregate principal amount of the outstanding Senior Notes to declare those senior notes immediately due and payable in full.1093600013540000In April 2020, we entered into the ONE Gas 364-day Credit Agreement. The ONE Gas 364-day Credit Agreement is a $250 million revolving unsecured credit facility containing various customary conditions to borrowing and affirmative, negative and financial ratio maintenance covenants, all of which are substantially the same as those of the ONE Gas Credit Agreement. The ONE Gas 364-day Credit Agreement also contains provisions for an applicable margin rate and a quarterly facility fee, both of which adjust with changes in our credit rating.  Based on our current credit ratings, borrowings, if any, will accrue interest at LIBOR plus 115 basis points, and the quarterly facility fee is 10 basis points. In the event LIBOR is not available, and such circumstances are unlikely to be temporary, our lenders may establish an alternative interest rate for the impacted loans by replacing LIBOR with one or more secured overnight financing-based rates or another alternate benchmark rate. 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2020.
OR
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to __________.

Commission file number  001-36108

ONE Gas, Inc.
(Exact name of registrant as specified in its charter)
Oklahoma
46-3561936
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
15 East Fifth Street

Tulsa,
OK
74103
(Address of principal
executive offices)
(Zip Code)

Registrant’s telephone number, including area code   (918) 947-7000

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of exchange on which registered
Common Stock, par value $0.01 per share
 
OGS
 
New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
 
 
 
 
Non-accelerated filer
Smaller reporting company
 
 
 
 
 
 
Emerging growth company

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

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

On July 20, 2020, the Company had 52,920,531 shares of common stock outstanding.





























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ONE Gas, Inc.
TABLE OF CONTENTS
Financial Information
Page No.
 
Consolidated Statements of Income - Three and Six Months Ended June 30, 2020 and 2019
 
Consolidated Statements of Comprehensive Income - Three and Six Months Ended June 30, 2020 and 2019
 
Consolidated Balance Sheets - June 30, 2020 and December 31, 2019
 
Consolidated Statements of Cash Flows - Six Months Ended June 30, 2020 and 2019
 
Consolidated Statements of Equity - Three and Six Months Ended June 30, 2020 and 2019
 
Notes to Consolidated Financial Statements
 

As used in this Quarterly Report, references to “we,” “our,” “us” or the “company” refer to ONE Gas, Inc., an Oklahoma corporation, and its predecessors and subsidiaries, unless the context indicates otherwise.

The statements in this Quarterly Report that are not historical information, including statements concerning plans and objectives of management for future operations, economic performance or related assumptions, are forward-looking statements.  Forward-looking statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “should,” “goal,” “forecast,” “guidance,” “could,” “may,” “continue,” “might,” “potential,” “scheduled,” “likely,” and other words and terms of similar meaning.  Although we believe that our expectations regarding future events are based on reasonable assumptions, we can give no assurance that such expectations or assumptions will be achieved. Important factors that could cause actual results to differ materially from those in the forward-looking statements are described under Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Forward-Looking Statements,” and Part II, Item 1A, “Risk Factors” in this Quarterly Report and under Part I, Item IA, “Risk Factors,” in our Annual Report.


3


AVAILABLE INFORMATION

We make available, free of charge, on our website (www.onegas.com) copies of our Annual Report, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, amendments to those reports filed or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act and reports of holdings of our securities filed by our officers and directors under Section 16 of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC, which also makes these materials available on its website (www.sec.gov).  Copies of our Code of Business Conduct and Ethics, Corporate Governance Guidelines, Certificate of Incorporation, bylaws, the written charters of our Audit Committee, Executive Compensation Committee, Corporate Governance Committee and Executive Committee and our Sustainability Report are also available on our website, and copies of these documents are available upon request.  

In addition to filings with the SEC and materials posted on our website, we also use social media platforms as channels of information distribution to reach public investors. Information contained on our website or posted on or disseminated through our social media accounts is not incorporated by reference into this report.



4


GLOSSARY - The abbreviations, acronyms and industry terminology used in this Quarterly Report are defined as follows:
AAO
Accounting Authority Order
ADIT
Accumulated deferred income tax
Annual Report
Annual Report on Form 10-K for the year ended December 31, 2019
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
Bcf
Billion cubic feet
CDC
Centers for Disease Control and Prevention
CERCLA
Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended
Clean Air Act
Federal Clean Air Act, as amended
Clean Water Act
Federal Water Pollution Control Amendments of 1972, as amended
Code
Internal Revenue Code of 1986, as amended
COSA
Cost-of-service Adjustment
COVID-19
Coronavirus Disease 2019
DOT
United States Department of Transportation
EDIT
Excess accumulated deferred income taxes resulting from a change in enacted tax rates
EPA
United States Environmental Protection Agency
EPS
Earnings per share
Exchange Act
Securities Exchange Act of 1934, as amended
FASB
Financial Accounting Standards Board
GAAP
Accounting principles generally accepted in the United States of America
GPAC
Gas Pipeline Advisory Committee
GRIP
Gas Reliability Infrastructure Program
GSRS
Gas System Reliability Surcharge
Heating Degree Day or HDD

A measure designed to reflect the demand for energy needed for heating based on the extent to which
  the daily average temperature falls below a reference temperature for which no heating is required,
  usually 65 degrees Fahrenheit
HCA(s)
High consequence area(s)
KCC
Kansas Corporation Commission
KDHE
Kansas Department of Health and Environment
LDC
Local distribution company
MAOP(s)
Maximum allowable operating pressure(s)
MGP
Manufactured gas plant
MMcf
Million cubic feet
Moody’s
Moody’s Investors Service, Inc.
Net margin
Non-GAAP measure defined as total revenues less cost of natural gas
NPRM
Notice of Proposed Rulemaking
NYMEX
New York Mercantile Exchange
NYSE
New York Stock Exchange
OCC
Oklahoma Corporation Commission
ONE Gas
ONE Gas, Inc.
ONE Gas 364-day Credit Agreement
ONE Gas’ $250 million 364-day revolving credit agreement, which expires on April 6, 2021
ONE Gas Credit Agreement
ONE Gas’ $700 million amended and restated revolving credit agreement, which expires on October 4, 2024
OSHA
Occupational Safety and Health Administration
PBRC
Performance-Based Rate Change
PHMSA
United States Department of Transportation Pipeline and Hazardous Materials Safety Administration
Pipeline Safety, Regulatory Certainty
and Job Creation Act
Pipeline Safety, Regulatory Certainty and Job Creation Act of 2011, as amended
Quarterly Report(s)
Quarterly Report(s) on Form 10-Q
ROE
Return on equity, calculated consistent with utility ratemaking principles in each jurisdiction in which we operate
RRC
Railroad Commission of Texas
S&P
Standard & Poor’s Ratings Services
SEC
Securities and Exchange Commission
Securities Act
Securities Act of 1933, as amended
Senior Notes
ONE Gas’ registered notes consisting of $300 million of 3.61 percent senior notes due 2024, $300 million of 2.00 percent senior notes due 2030, $600 million of 4.658 percent senior notes due 2044 and $400 million of 4.50 percent notes due 2048
XBRL
eXtensible Business Reporting Language

5


PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

ONE Gas, Inc.

 

 
 
 
 
 
CONSOLIDATED STATEMENTS OF INCOME

 

 
 
 
 
 


Three Months Ended
 
Six Months Ended
 

June 30,
 
June 30,
(Unaudited)

2020

2019
 
2020

2019


(Thousands of dollars, except per share amounts)

 
 
 
 
 
 
 
 
Total revenues
 
$
273,287


$
290,560


$
801,455


$
951,560

 
 





 





Cost of natural gas

62,510


82,588


288,649


447,664

 
 





 





Operating expenses
 





 





Operations and maintenance

103,517


101,482

 
208,356


209,757

Depreciation and amortization

47,387


44,943

 
94,900


88,789

General taxes

15,265


14,656

 
31,738


30,840

Total operating expenses

166,169


161,081

 
334,994


329,386

Operating income

44,608


46,891

 
177,812


174,510

Other income (expense), net

2,394


(865
)
 
(3,394
)

(436
)
Interest expense, net

(15,843
)

(15,399
)
 
(31,536
)

(31,185
)
Income before income taxes

31,159


30,627

 
142,882


142,889

Income taxes

(5,834
)

(6,157
)
 
(25,880
)

(24,759
)
Net income

$
25,325


$
24,470

 
$
117,002


$
118,130








 





Earnings per share






 





Basic

$
0.48


$
0.46

 
$
2.21


$
2.23

Diluted

$
0.48


$
0.46

 
$
2.20


$
2.22








 





Average shares (thousands)






 





Basic

53,053


52,890

 
53,030


52,858

Diluted

53,264


53,215

 
53,266


53,210

Dividends declared per share of stock

$
0.54


$
0.50

 
$
1.08


$
1.00

See accompanying Notes to Consolidated Financial Statements.

6


ONE Gas, Inc.
 
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(Unaudited)
2020
 
2019
 
2020
 
2019
 
(Thousands of dollars)
Net income
$
25,325

 
$
24,470

 
$
117,002

 
$
118,130

Other comprehensive income, net of tax
 

 
 

 
 

 
 

Change in pension and other postemployment benefit plan liability, net of tax of $(75), $(53), $(149) and $(106), respectively
223

 
160

 
447

 
320

Total other comprehensive income, net of tax
223

 
160

 
447

 
320

Comprehensive income
$
25,548

 
$
24,630

 
$
117,449

 
$
118,450

See accompanying Notes to Consolidated Financial Statements.


7



ONE Gas, Inc.
 
 
 
 
CONSOLIDATED BALANCE SHEETS
 
 
 
 
 
 
 
 
 
 
 
June 30,
 
December 31,
(Unaudited)
 
2020
 
2019
Assets
 
(Thousands of dollars)
Property, plant and equipment
 
 

 
 

Property, plant and equipment
 
$
6,633,738

 
$
6,433,119

Accumulated depreciation and amortization
 
1,926,013

 
1,867,893

Net property, plant and equipment
 
4,707,725

 
4,565,226

Current assets
 
 
 
 
Cash and cash equivalents
 
10,454

 
17,853

Accounts receivable, net
 
138,885

 
260,012

Materials and supplies
 
54,586

 
55,732

Natural gas in storage
 
72,192

 
104,259

Regulatory assets
 
47,961

 
47,440

Other current assets
 
23,311

 
20,906

Total current assets
 
347,389

 
506,202

Goodwill and other assets
 
 

 
 

Regulatory assets
 
373,241

 
391,036

Goodwill
 
157,953

 
157,953

Other assets
 
95,304

 
87,883

Total goodwill and other assets
 
626,498

 
636,872

Total assets
 
$
5,681,612

 
$
5,708,300

See accompanying Notes to Consolidated Financial Statements.


8


ONE Gas, Inc.
 
 
 
 
CONSOLIDATED BALANCE SHEETS
 
 
 
 
(Continued)
 
 
 
 
 
 
June 30,
 
December 31,
(Unaudited)
 
2020
 
2019
Equity and Liabilities
 
(Thousands of dollars)
Equity and long-term debt
 
 
 
 
Common stock, $0.01 par value:
authorized 250,000,000 shares; issued and outstanding 52,920,530 shares at June 30, 2020; issued and outstanding 52,771,749 shares at December 31, 2019
 
$
529

 
$
528

Paid-in capital
 
1,735,788

 
1,733,092

Retained earnings
 
461,962

 
402,509

Accumulated other comprehensive loss
 
(6,292
)
 
(6,739
)
   Total equity
 
2,191,987

 
2,129,390

Long-term debt, excluding current maturities and net of issuance costs of $13,540 and $10,936, respectively
 
1,581,931

 
1,286,064

Total equity and long-term debt

3,773,918


3,415,454

Current liabilities
 
 
 
 
Notes payable
 
230,500

 
516,500

Accounts payable
 
62,710

 
120,490

Accrued taxes other than income
 
41,922

 
47,956

Regulatory liabilities
 
26,163

 
45,201

Customer deposits
 
56,949

 
57,987

Other current liabilities
 
72,511

 
84,603

Total current liabilities
 
490,755

 
872,737

Deferred credits and other liabilities
 
 

 
 

Deferred income taxes
 
637,975

 
682,632

Regulatory liabilities
 
558,115

 
503,518

Employee benefit obligations
 
104,075

 
115,657

Other deferred credits
 
116,774

 
118,302

Total deferred credits and other liabilities
 
1,416,939

 
1,420,109

Commitments and contingencies
 


 


Total liabilities and equity
 
$
5,681,612

 
$
5,708,300

See accompanying Notes to Consolidated Financial Statements.






















9


























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10


ONE Gas, Inc.

 

 
CONSOLIDATED STATEMENTS OF CASH FLOWS




Six Months Ended


June 30,
(Unaudited)

2020

2019
 

(Thousands of dollars)
Operating activities

 

 
Net income

$
117,002


$
118,130

Adjustments to reconcile net income to net cash provided by operating activities:





Depreciation and amortization

94,900


88,789

Deferred income taxes

9,779


9,401

Share-based compensation expense

5,089


4,911

Provision for doubtful accounts

7,563


3,557

Changes in assets and liabilities:





Accounts receivable

113,564


122,063

Materials and supplies

1,146


(6,011
)
Natural gas in storage

32,067


19,060

Asset removal costs

(19,068
)

(24,324
)
Accounts payable

(50,920
)

(109,340
)
Accrued taxes other than income

(6,034
)

(10,328
)
Customer deposits

(1,038
)

(2,352
)
Regulatory assets and liabilities

(3,782
)

25,948

Other assets and liabilities

(21,583
)

1,667

Cash provided by operating activities

278,685


241,171

Investing activities

 


 

Capital expenditures

(234,943
)

(184,349
)
Other investing expenditures

(815
)

(3,583
)
Other investing receipts

740


598

Cash used in investing activities

(235,018
)

(187,334
)
Financing activities

 


 

Repayments on notes payable, net

(286,000
)

(6,500
)
Issuance of debt, net of discounts

297,750



Long-term debt financing costs

(2,885
)


Issuance of common stock
 
3,299


2,536

Dividends paid

(57,090
)

(52,687
)
Tax withholdings related to net share settlements of stock compensation

(6,140
)

(7,395
)
Cash used in financing activities

(51,066
)

(64,046
)
Change in cash and cash equivalents

(7,399
)

(10,209
)
Cash and cash equivalents at beginning of period

17,853


21,323

Cash and cash equivalents at end of period

$
10,454


$
11,114

See accompanying Notes to Consolidated Financial Statements.


11


ONE Gas, Inc.
 
 
 
 
CONSOLIDATED STATEMENTS OF EQUITY
 
 
 
 
 
 
 
 
 
(Unaudited)
 
Common Stock Issued
Common Stock
Paid-in Capital
 
 
(Shares)
(Thousands of dollars)
 
 
 
 
 
January 1, 2020
 
52,771,749

$
528

$
1,733,092

Net income
 



Other comprehensive income
 



Common stock issued and other
 
89,059

1

(3,737
)
Common stock dividends - $0.54 per share
 


232

March 31, 2020
 
52,860,808

$
529

$
1,729,587

Net income
 



Other comprehensive income
 



Common stock issued and other
 
59,722


5,974

Common stock dividends - $0.54 per share
 


227

June 30, 2020
 
52,920,530

$
529

$
1,735,788

 
 
 
 
 
January 1, 2019
 
52,598,005

$
526

$
1,727,492

Net income
 



Other comprehensive income
 



Reclassification of stranded tax effects
 



Common stock issued and other
 
88,629

1

(7,449
)
Common stock dividends - $0.50 per share
 


227

March 31, 2019
 
52,686,634

$
527

$
1,720,220

Net income
 



Other comprehensive income
 



Common stock issued and other
 
47,588


5,397

Common stock dividends - $0.50 per share
 


226

June 30, 2019
 
52,734,222

$
527

$
1,725,843

See accompanying Notes to Consolidated Financial Statements.



12


ONE Gas, Inc.
 
 
 
 
 
CONSOLIDATED STATEMENTS OF EQUITY
 
 
 
(Continued)
 
 
 
 
 
(Unaudited)
 
Retained Earnings
Treasury Stock
Accumulated Other Comprehensive Loss
Total Equity
 
 
(Thousands of dollars)
 
 
 
 
 
 
January 1, 2020
 
$
402,509

$

$
(6,739
)
$
2,129,390

Net income
 
91,677



91,677

Other comprehensive income
 


224

224

Common stock issued and other
 



(3,736
)
Common stock dividends - $0.54 per share
 
(28,775
)


(28,543
)
March 31, 2020
 
$
465,411

$

$
(6,515
)
$
2,189,012

Net income
 
25,325



25,325

Other comprehensive income
 


223

223

Common stock issued and other
 



5,974

Common stock dividends - $0.54 per share
 
(28,774
)


(28,547
)
June 30, 2020
 
$
461,962

$

$
(6,292
)
$
2,191,987

 
 
 
 
 
 
January 1, 2019
 
$
320,869

$
(2,145
)
$
(4,086
)
$
2,042,656

Net income
 
93,660



93,660

Other comprehensive income
 


160

160

Reclassification of stranded tax effects
 
1,218


(1,218
)

Common stock issued and other
 

2,145


(5,353
)
Common stock dividends - $0.50 per share
 
(26,570
)


(26,343
)
March 31, 2019
 
$
389,177

$

$
(5,144
)
$
2,104,780

Net income
 
24,470



24,470

Other comprehensive income
 


160

160

Common stock issued and other
 



5,397

Common stock dividends - $0.50 per share
 
(26,570
)


(26,344
)
June 30, 2019
 
$
387,077

$

$
(4,984
)
$
2,108,463

See accompanying Notes to Consolidated Financial Statements.


13


ONE Gas, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. These statements also have been prepared in accordance with GAAP and reflect all adjustments that, in our opinion, are necessary for a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature. The 2019 year-end consolidated balance sheet data was derived from audited consolidated financial statements but does not include all disclosures required by GAAP. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes in our Annual Report. Our significant accounting policies are described in Note 1 of our Notes to Consolidated Financial Statements in our Annual Report. Due to the seasonal nature of our business, the results of operations for the three and six months ended June 30, 2020, are not necessarily indicative of the results that may be expected for a 12-month period.

We provide natural gas distribution services to our approximately 2.2 million customers through our divisions in Oklahoma, Kansas and Texas through Oklahoma Natural Gas, Kansas Gas Service and Texas Gas Service, respectively. We primarily serve residential, commercial and transportation customers in all three states.

Use of Estimates - The preparation of our consolidated financial statements and related disclosures in accordance with GAAP requires us to make estimates and assumptions with respect to values or conditions that cannot be known with certainty that affect the reported amount of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements. These estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period. Items that may be estimated include, but are not limited to, the economic useful life of assets, fair value of assets and liabilities, provision for doubtful accounts, unbilled revenues for natural gas delivered but for which meters have not been read, natural gas purchased but for which no invoice has been received, provision for income taxes, including any deferred tax valuation allowances, the results of litigation and various other recorded or disclosed amounts.

We evaluate these estimates on an ongoing basis using historical experience and other methods we consider reasonable based on the circumstances. Nevertheless, actual results may differ significantly from the estimates. Any effects on our financial position or results of operations from revisions to these estimates are recorded in the period when the facts that give rise to the revision become known to us.

Segments - We operate in one reportable business segment: regulated public utilities that deliver natural gas primarily to residential, commercial and transportation customers. The accounting policies for our segment are the same as those described in Note 1 of our Notes to Consolidated Financial Statements in our Annual Report. We evaluate our financial performance principally on net income. For the three and six months ended June 30, 2020, and 2019, we had no single external customer from which we received 10 percent or more of our gross revenues.

Property, Plant and Equipment - Accounts payable for construction work in process and asset removal costs decreased by approximately $6.9 million and increased $2.4 million for the six months ended June 30, 2020 and 2019, respectively. Such amounts are not included in capital expenditures in our consolidated statements of cash flows.

Accounts Receivable - Accounts receivable represent valid claims against nonaffiliated customers for natural gas sold or services rendered, net of allowances for doubtful accounts. We assess the creditworthiness of our customers. Those customers who do not meet minimum standards may be required to provide security, including deposits and other forms of collateral, when appropriate and allowed by our tariffs. With approximately 2.2 million customers across three states, we are not exposed materially to a concentration of credit risk. We maintain an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends, consideration of the current environment and other information. We recover natural gas costs related to accounts written off when they are deemed uncollectible through the purchased-gas cost adjustment mechanisms in each of our jurisdictions. At June 30, 2020 and December 31, 2019, our allowance for doubtful accounts was $12.2 million and $6.6 million, respectively.

Recently Issued Accounting Standards Update - In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements (e.g., loans, debt securities, derivatives, borrowings) necessitated by reference rate reform. It also provides optional expedients to enable companies to continue to apply hedge accounting to certain hedging relationships impacted by reference rate reform. In the first quarter 2020, we adopted this new guidance effective for contracts modified between March 12, 2020 and December 31, 2022. Our

14


revolving lines of credit under the ONE Gas Credit Agreement and the ONE Gas 364-day Credit Agreement utilize LIBOR as the reference rate. If modified, we may elect the optional practical expedients to account for the modifications prospectively. Our adoption did not result in a material impact to our consolidated financial statements. 

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. ASU 2019-12 also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. This standard is effective for interim and annual periods in fiscal years beginning after December 15, 2020, and early adoption is permitted. We are currently assessing the timing and impacts of adopting this standard.
    
In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force).” Under this guidance, a company should defer implementation costs that it incurs if the company would capitalize those same costs under the internal-use software guidance for an arrangement that is a software license. The deferred implementation costs should be amortized over the term of the hosting arrangement, including any probable renewals. We are party to hosting arrangements identified as service contracts for various information systems used in our operations.  We adopted this new guidance using the prospective transition approach for implementation costs incurred in hosting arrangement service contracts beginning January 1, 2020. In certain jurisdictions, we have orders from our regulators allowing us to amortize deferred implementation costs for hosting arrangements entered into after January 1, 2020, over the life approved by our regulators for our internal-use software systems rather than the term of the hosting arrangement. The difference in amortization calculated between the term of the hosting arrangement and internal-use software life approved by our regulators is deferred as a regulatory asset and amortized over the remaining internal-use software life that exceeds the term of the hosting arrangement. Our adoption did not result in a material impact to our consolidated financial statements. 

In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which allows a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. We adopted this new guidance in the first quarter 2019 and our adoption did not result in a material impact to our consolidated financial statements. This change is reflected in our consolidated statements of equity.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments,’’ which introduces new guidance to the accounting for credit losses on instruments within its scope, including trade receivables. We adopted this new guidance in the first quarter 2020 using the modified retrospective method. Our financial assets within scope of this guidance primarily include our trade receivables from customers. Our policy for measuring our allowance for doubtful accounts is disclosed in the aforementioned policy for accounts receivable. We did not create any new accounting policies, nor did we modify any of our existing policies as a result of adopting this guidance. Our adoption did not result in a cumulative adjustment to our opening retained earnings or have a material impact to our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” as amended, (“Topic 842”) which prescribes recognizing lease assets and liabilities on the balance sheet and includes disclosure of key information about leasing arrangements. We adopted this new guidance effective January 1, 2019 and applied the modified retrospective approach to all existing leases. Upon adoption we recognized lease liabilities of approximately $32 million, with corresponding right-of-use assets of the same amount based on the present value of the remaining minimum rental payments for existing operating leases. Our adoption did not result in a material impact to our results of operations or cash flows. We utilized the practical expedients that allow us to: (1) not reassess expired or existing contracts to determine whether they are subject to lease accounting guidance; (2) not reconsider lease classification at transition; and (3) not evaluate previously capitalized initial direct costs under the revised requirements. We also utilized the practical expedients that allowed us to: (1) not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current lease guidance in ASC Topic 840 (“Topic 840”); and (2) use an additional transition method in which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We adopted an accounting policy that exempts leases with terms of less than one year from the recognition requirements of Topic 842 and disclose such leases in our interim and annual disclosures upon adoption. Our adoption did not result in a cumulative adjustment to our opening retained earnings or a material impact to our consolidated financial statements.

15


2.REVENUE

Accrued unbilled natural gas sales revenues at June 30, 2020 and December 31, 2019, were $49.0 million and $109.7 million, respectively, and are included in accounts receivable on our consolidated balance sheets.

The following table sets forth our revenues disaggregated by source for the periods indicated:
 
 
Three Months Ended
 
Six Months Ended
 
 
 
June 30,
 
June 30,
 
 
 
2020
 
2019
 
2020
 
2019
 
 
 
(Thousands of dollars)
 
Natural gas sales to customers
 
$
243,308

 
$
258,560

 
$
724,026

 
$
880,052

 
Transportation revenues
 
24,481

 
23,991

 
58,238

 
59,019

 
Miscellaneous revenues
 
3,120

 
5,428

 
7,590

 
10,856

 
Total revenues from contracts with customers
 
270,909

 
287,979

 
789,854

 
949,927

 
Other revenues - natural gas sales related
 
(3
)
 
207

 
6,544

 
(2,737
)
 
Other revenues
 
2,381

 
2,374

 
5,057

 
4,370

 
Total other revenues
 
2,378

 
2,581

 
11,601

 
1,633

 
Total revenues
 
$
273,287

 
$
290,560

 
$
801,455

 
$
951,560

 


3.
REGULATORY ASSETS AND LIABILITIES

The tables below present a summary of regulatory assets and liabilities, net of amortization, for the periods indicated:
 
 
 
 
June 30, 2020
 
 
 
 
Current
 
Noncurrent
 
Total
 
 
 
 
(Thousands of dollars)
Under-recovered purchased-gas costs
 
 
 
$
7,247

 
$

 
$
7,247

Pension and postemployment benefit costs
 

 
21,156

 
353,616

 
374,772

Reacquired debt costs
 

 
812

 
5,271

 
6,083

MGP remediation costs
 
 
 
98

 
11,660

 
11,758

Ad-valorem tax
 

 
4,095

 

 
4,095

Weather normalization
 
 
 
4,674

 

 
4,674

Other
 

 
9,879

 
2,694

 
12,573

Total regulatory assets, net of amortization
 
 
 
47,961

 
373,241

 
421,202

Income tax rate changes (a)
 
 
 
(2,265
)
 
(558,115
)
 
(560,380
)
Over-recovered purchased-gas costs
 
 
 
(23,898
)
 

 
(23,898
)
Total regulatory liabilities, net of amortization
 
 
 
(26,163
)
 
(558,115
)
 
(584,278
)
Net regulatory assets and liabilities
 
 
 
$
21,798

 
$
(184,874
)
 
$
(163,076
)
(a) Includes the reclassification of $81.5 million of deferred taxes related to the elimination of state income tax for utilities in Kansas.


16


 
 
 
 
December 31, 2019
 
 
 
 
Current
 
Noncurrent
 
Total
 
 
 
 
(Thousands of dollars)
Under-recovered purchased-gas costs
 

 
$
17,172

 
$

 
$
17,172

Pension and postemployment benefit costs
 

 
21,213

 
373,266

 
394,479

Reacquired debt costs
 

 
812

 
5,677

 
6,489

MGP remediation costs
 
 
 
98

 
9,709

 
9,807

Ad-valorem tax
 
 
 
2,921

 

 
2,921

Other
 

 
5,224

 
2,384

 
7,608

Total regulatory assets, net of amortization
 
 
 
47,440

 
391,036

 
438,476

Income tax rate changes
 
 
 
(10,297
)
 
(503,518
)
 
(513,815
)
Over-recovered purchased-gas costs
 

 
(27,623
)
 

 
(27,623
)
Weather normalization
 
 
 
(7,281
)
 

 
(7,281
)
Total regulatory liabilities
 
 
 
(45,201
)
 
(503,518
)
 
(548,719
)
Net regulatory assets and liabilities
 
 
 
$
2,239

 
$
(112,482
)
 
$
(110,243
)


Regulatory assets in our consolidated balance sheets, as authorized by various regulatory authorities, are probable of recovery. Base rates and certain riders are designed to provide a recovery of costs during the period such rates are in effect, but do not generally provide for a return on investment for amounts we have deferred as regulatory assets. All of our regulatory assets are subject to review by the respective regulatory authorities during future regulatory proceedings. We are not aware of any evidence that these costs will not be recoverable through either riders or base rates, and we believe that we will be able to recover such costs consistent with our historical recoveries.

The regulatory liability for income tax rate changes represents deferral of the effects of enacted federal and state income tax rate changes on our ADIT and other regulatory liabilities resulting from the effect of the changes in income taxes on our rates. In May 2020, a bill amending the Kansas state income tax code was signed into law that exempts public utilities regulated by the KCC from paying Kansas state income taxes beginning January 1, 2021. As a result of the enactment of this legislation, we remeasured our ADIT. As a regulated entity, the reduction in ADIT of $81.5 million was recorded as an EDIT regulatory liability and will be refunded to our customers. The bill stipulates, if requested by the utility, this EDIT will be returned to Kansas customers over a period of no less than 30 years, with the exact timing to be determined in our next general rate proceeding.

In response to the Tax Cuts and Jobs Act of 2017, we received accounting orders requiring us to establish a regulatory liability for the difference in taxes included in our rates that have been calculated based on a 35 percent federal corporate income tax rate and the new 21 percent federal corporate income tax rate effective in January 2018 and to refund the reduction in ADIT due to the remeasurement resulting from the change in the effective tax rate. The regulatory liability for income tax rate changes reflects the portion of the credit resulting from the 2018 Oklahoma Natural Gas PBRC that was accrued in 2018 and is being credited to customers over a 12-month period that began in August 2019.

In addition, the income tax rate changes regulatory liability reflects EDIT associated with the remeasurement of our ADIT as a result of the Tax Cuts and Jobs Act of 2017. Our customers began receiving credit for this liability as determined by our regulators in 2019. Our customers receive credit annually based upon amortization periods in compliance with the tax normalization rules for the portions of EDIT stipulated by the Code and varying periods of five to ten years for all other components of EDIT. During the three months ended June 30, 2020 and 2019, income tax expense reflects credits of $2.5 million and $2.1 million, respectively, for the amortization of the regulatory liability associated with EDIT that was returned to customers. During the six months ended June 30, 2020 and 2019, income tax expense reflects credits of $9.4 million and $8.9 million, respectively.

We have received accounting orders in each of our jurisdictions authorizing us to accumulate and defer for regulatory purposes certain incremental costs incurred, including bad debt expenses, and certain lost revenues, net of offsetting expense reductions associated with COVID-19. Pursuant to these orders, the appropriateness of recovery of any net incremental costs and lost revenues will be determined in future rate cases or alternative rate recovery filings in each jurisdiction. For financial reporting purposes, any amounts deferred as a regulatory asset for future recovery under these accounting orders must be probable of recovery. At June 30, 2020, no regulatory assets have been recorded. We continue to evaluate the impacts of COVID-19 on our business and will record regulatory assets for financial reporting purposes at such time as recovery is deemed probable.


17


4.
CREDIT FACILITY AND SHORT-TERM NOTES PAYABLE

We have a commercial paper program under which we may issue unsecured commercial paper up to a maximum amount of $700 million to fund short-term borrowing needs. The maturities of the commercial paper notes vary but may not exceed 270 days from the date of issue. The commercial paper notes are generally sold at par less a discount representing an interest factor. At June 30, 2020, we had $230.5 million of commercial paper outstanding.

The ONE Gas Credit Agreement is a $700 million revolving unsecured credit facility and includes a $20 million letter of credit subfacility and a $60 million swingline subfacility. We can request an increase in commitments of up to an additional $500 million upon satisfaction of customary conditions, including receipt of commitments from either new lenders or increased commitments from existing lenders. In October 2019, we exercised a one-year extension of the ONE Gas Credit Agreement and amended the agreement to provide that we may extend the maturity date by one year, subject to the lenders’ consent, two additional times. The ONE Gas Credit Agreement expires in October 2024, and is available to provide liquidity for working capital, capital expenditures, acquisitions and mergers, the issuance of letters of credit and for other general corporate purposes.

The ONE Gas Credit Agreement contains certain financial, operational and legal covenants. Among other things, these covenants include maintaining ONE Gas’ total debt-to-capital ratio of no more than 70 percent at the end of any calendar quarter. At June 30, 2020, our total debt-to-capital ratio was 45 percent and we were in compliance with all covenants under the ONE Gas Credit Agreement.

At June 30, 2020, we had $1.2 million in letters of credit issued and no borrowings under the ONE Gas Credit Agreement, with $698.8 million of remaining credit, which is available to repay any of our commercial paper borrowings.

In April 2020, we entered into the ONE Gas 364-day Credit Agreement. The ONE Gas 364-day Credit Agreement is a $250 million revolving unsecured credit facility containing various customary conditions to borrowing and affirmative, negative and financial ratio maintenance covenants, all of which are substantially the same as those of the ONE Gas Credit Agreement. The ONE Gas 364-day Credit Agreement also contains provisions for an applicable margin rate and a quarterly facility fee, both of which adjust with changes in our credit rating.  Based on our current credit ratings, borrowings, if any, will accrue interest at LIBOR plus 115 basis points, and the quarterly facility fee is 10 basis points. In the event LIBOR is not available, and such circumstances are unlikely to be temporary, our lenders may establish an alternative interest rate for the impacted loans by replacing LIBOR with one or more secured overnight financing-based rates or another alternate benchmark rate. At June 30, 2020, we had no borrowings under the ONE Gas 364-day Credit Agreement.

5.
LONG-TERM DEBT

In April 2020, ONE Gas issued $300 million of 2.00 percent senior notes due 2030. The proceeds from the issuance were used to reduce the amount of outstanding commercial paper and for general corporate purposes.

Our long-term debt includes $300 million of 3.61 percent senior notes due 2024, $300 million of 2.00 percent senior notes due 2030, $600 million of 4.658 percent senior notes due 2044, and $400 million of 4.50 percent senior notes due 2048. The indenture governing our Senior Notes includes an event of default upon the acceleration of other indebtedness of $100 million or more. Such events of default would entitle the trustee or the holders of 25 percent in aggregate principal amount of the outstanding Senior Notes to declare those Senior Notes immediately due and payable in full.

6.
LEASES

In March 2020, we reassessed certain operating leases for office facilities which were extended or modified. At March 31, 2020, we recorded increases of $9.0 million and $9.4 million to our right-of-use assets and operating lease liabilities, respectively. Our right-of-use assets and operating lease liabilities are reported within our other assets and our other current liabilities and other liabilities, respectively, in our consolidated balance sheets.

7.
EQUITY

At-the-Market Equity Program - In February 2020, we initiated an at-the-market equity program by entering into an equity distribution agreement under which we may issue and sell shares of our common stock with an aggregate offering price up to $250 million (including any shares of common stock that may be sold pursuant to the master forward sale confirmation entered into in connection with the equity distribution agreement and the related supplemental confirmations). Sales of common stock are made by means of ordinary brokers’ transactions on the NYSE, in block transactions or as otherwise agreed to between us

18


and the sales agent. We are under no obligation to offer and sell common stock under the program. At June 30, 2020, we had issued and sold 4,783 shares of our common stock and had $249.6 million of equity available for issuance under the program.

Dividends Declared - In July 2020, we declared a dividend of $0.54 per share ($2.16 per share on an annualized basis) for shareholders of record as of August 14, 2020, payable on September 1, 2020.

8.
ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table sets forth the effect of reclassifications from accumulated other comprehensive loss in our consolidated statements of income for the periods indicated:
 
 
Three Months Ended
 
Six Months Ended
 
Affected Line Item in the
Details About Accumulated Other
 
June 30,
 
June 30,
 
Consolidated Statements
Comprehensive Loss Components
 
2020
2019
 
2020
2019
 
of Income
 
 
(Thousands of dollars)
 
 
Pension and other postemployment benefit plan obligations (a)
 
 
 
 
 
 
 
 
Amortization of net loss
 
$
10,623

$
8,821

 
$
21,246

$
17,642

 
 
Amortization of unrecognized prior service credit
 
(29
)
(168
)
 
(58
)
(336
)
 
 
 
 
10,594

8,653

 
21,188

17,306

 
 
Reclassification of stranded tax effects (b)
 


 

(1,218
)
 
 
Regulatory adjustments (c)
 
(10,296
)
(8,440
)
 
(20,592
)
(15,662
)
 
 
 
 
298

213

 
596

426

 
Income before income taxes
 
 
(75
)
(53
)
 
(149
)
(106
)
 
Income tax expense
Total reclassifications for the period
 
$
223

$
160

 
$
447

$
320

 
Net income
(a) These components of accumulated other comprehensive loss are included in the computation of net periodic benefit cost. See Note 10 for additional detail of our net periodic benefit cost.
(b) Reflects the impact of the adoption of ASU 2018-02 in fiscal year 2019 related to stranded tax effects in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act of 2017. See Note 1 for additional information regarding our adoption of this standard.
(c) Regulatory adjustments represent pension and other postemployment benefit costs expected to be recovered through rates and are deferred as part of our regulatory assets. See Note 3 for additional disclosures of regulatory assets and liabilities.

9.
EARNINGS PER SHARE

Basic EPS is based on net income and is calculated based upon the daily 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. Diluted EPS includes basic EPS, plus unvested stock awards granted under our compensation plans, but only to the extent these instruments dilute earnings per share.

The following tables set forth the computation of basic and diluted EPS from continuing operations for the periods indicated:
 
Three Months Ended June 30, 2020
 
Income

Shares

Per Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation
 

 

 
Net income available for common stock
$
25,325


53,053


$
0.48

Diluted EPS Calculation
 


 


 

Effect of dilutive securities


211


 

Net income available for common stock and common stock equivalents
$
25,325


53,264


$
0.48



19


 
Three Months Ended June 30, 2019
 
Income
 
Shares
 
Per Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation
 
 
 
 
 
Net income available for common stock
$
24,470

 
52,890

 
$
0.46

Diluted EPS Calculation
 
 
 

 
 

Effect of dilutive securities

 
325

 
 

Net income available for common stock and common stock equivalents
$
24,470

 
53,215

 
$
0.46


 
Six Months Ended June 30, 2020
 
Income
 
Shares
 
Per Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation
 
 
 
 
 
Net income available for common stock
$
117,002

 
53,030

 
$
2.21

Diluted EPS Calculation
 

 
 

 
 

Effect of dilutive securities

 
236

 
 

Net income available for common stock and common stock equivalents
$
117,002

 
53,266

 
$
2.20

 
Six Months Ended June 30, 2019
 
Income
 
Shares
 
Per Share
Amount
 
(Thousands, except per share amounts)
Basic EPS Calculation
 
 
 
 
 
Net income available for common stock
$
118,130

 
52,858

 
$
2.23

Diluted EPS Calculation
 

 
 

 
 

Effect of dilutive securities

 
352

 
 

Net income available for common stock and common stock equivalents
$
118,130

 
53,210

 
$
2.22




10.
EMPLOYEE BENEFIT PLANS

The following tables set forth the components of net periodic benefit cost for our pension and other postemployment benefit plans for the periods indicated:
 
Pension Benefits
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2020
2019
 
2020
2019
 
(Thousands of dollars)
Components of net periodic benefit cost
 
 
 
 
 
Service cost
$
3,217

$
3,008

 
$
6,434

$
6,016

Interest cost
8,545

10,168

 
17,090

20,336

Expected return on assets
(15,280
)
(15,485
)
 
(30,560
)
(30,970
)
Amortization of net loss
10,580

8,260

 
21,160

16,520

Net periodic benefit cost
$
7,062

$
5,951

 
$
14,124

$
11,902




20


 
Other Postemployment Benefits
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2020
2019
 
2020
2019
 
(Thousands of dollars)
Components of net periodic benefit cost (credit)
 
 
 
 
 
Service cost
$
423

$
434

 
$
846

$
868

Interest cost
1,889

2,329

 
3,778

4,658

Expected return on assets
(3,867
)
(3,147
)
 
(7,734
)
(6,294
)
Amortization of unrecognized prior service credit
(29
)
(168
)
 
(58
)
(336
)
Amortization of net loss