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 December 31, 1998
Commission Registrant; State of Incorporation; I.R.S. Employer
File Number Address; and Telephone Number Identification Number
1-14174 AGL RESOURCES INC. 58-2210952
(A Georgia Corporation)
303 PEACHTREE STREET, NE
ATLANTA, GEORGIA 30308
404-584-9470
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 and (2) has been subject to such filing requirements for
the past 90 days. Yes |X| No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of December 31, 1998.
Common Stock, $5.00 Par Value
Shares Outstanding at December 31, 1998 ............................57,524,148
<PAGE>
AGL RESOURCES INC.
Quarterly Report on Form 10-Q
For the Quarter Ended December 31, 1998
Table of Contents
Item Page
Number Number
PART I -- FINANCIAL INFORMATION
1 Financial Statements
Condensed Consolidated Income Statements 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7
2 Management's Discussion and Analysis of Results of
Operations and Financial Condition 11
3 Quantitative and Qualitative Disclosure About Market Risk 25
PART II -- OTHER INFORMATION
1 Legal Proceedings 26
5 Other Information 26
6 Exhibits and Reports on Form 8-K 26
SIGNATURES 27
Page 2 of 27 Pages
<PAGE>
<TABLE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED
DECEMBER 31, 1998 AND 1997
(MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
1998 1997
<S> <C> <C>
Operating Revenues $ 323.9 $ 399.1
Cost of Gas 187.0 254.0
-----------------------------------------
Operating Margin 136.9 145.1
Other Operating Expenses 89.2 92.7
-----------------------------------------
Operating Income 47.7 52.4
Other Income (Loss) (7.9) 5.2
-----------------------------------------
Income Before Interest and Income Taxes 39.8 57.6
Interest Expense and Preferred Stock Dividends
Interest expense 14.2 14.1
Dividends on preferred stock of subsidiaries 1.5 2.4
-----------------------------------------
Total interest expense and preferred stock dividends 15.7 16.5
-----------------------------------------
Income Before Income Taxes 24.1 41.1
Income Taxes 8.2 15.4
=========================================
Net Income $ 15.9 $ 25.7
=========================================
Earnings per Common Share
Basic $ 0.28 $ 0.45
Diluted $ 0.28 $ 0.45
Weighted Average Number of Common Shares Outstanding
Basic 57.4 56.7
Diluted 57.7 56.8
Cash Dividends Paid Per Share of Common Stock $ 0.27 $ 0.27
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
Page 3 of 27 Pages
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<TABLE>
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(MILLIONS)
(Unaudited)
December 31, September 30,
---------------------------------------------------
<CAPTION>
ASSETS 1998 1997 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ - $ 7.9 $ 0.9
Receivables (less allowance for uncollectible accounts
of $4.9 at December 31, 1998, $5.0 at December 31,
1997, and $4.1 at September 30, 1998) 214.6 223.9 121.7
Inventories
Natural gas stored underground 106.4 109.3 138.1
Liquefied natural gas 16.0 17.7 17.7
Other 12.5 13.0 14.6
Deferred purchased gas adjustment 3.3 33.1 3.5
Other 2.0 1.9 1.9
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 354.8 406.8 298.4
- ------------------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment
Utility plant 2,150.2 2,091.3 2,133.5
Less: accumulated depreciation 694.6 661.4 680.9
- ------------------------------------------------------------------------------------------------------------------------
Utility plant - net 1,455.6 1,429.9 1,452.6
- ------------------------------------------------------------------------------------------------------------------------
Nonutility property 114.0 108.7 105.6
Less: accumulated depreciation 27.1 30.9 24.6
- ------------------------------------------------------------------------------------------------------------------------
Nonutility property - net 86.9 77.8 81.0
- ------------------------------------------------------------------------------------------------------------------------
Total property, plant and equipment - net 1,542.5 1,507.7 1,533.6
- ------------------------------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
Unrecovered environmental response costs 76.9 53.7 77.6
Investments in joint ventures 41.8 39.5 46.7
Other 32.3 42.9 29.0
- ------------------------------------------------------------------------------------------------------------------------
Total deferred debits and other assets 151.0 136.1 153.3
========================================================================================================================
Total Assets $ 2,048.3 $ 2,050.6 $ 1,985.3
========================================================================================================================
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
Page 4 of 27 Pages
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<TABLE>
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(MILLIONS)
(Unaudited)
December 31, September 30,
<CAPTION>
---------------------------------------------------
------------------------------- -----------------
LIABILITIES AND CAPITALIZATION 1998 1997 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Current Liabilities
Accounts payable $ 71.0 $ 93.7 $ 48.4
Short-term debt 113.0 150.5 76.5
Customer deposits 31.7 31.6 30.5
Accrued interest 21.6 20.4 32.8
Taxes 11.1 30.3 10.1
Deferred purchased gas adjustment 8.4 12.4
Other 52.8 32.9 42.8
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 309.6 359.4 253.5
- ------------------------------------------------------------------------------------------------------------------------
Accumulated Deferred Income Taxes 207.0 188.6 203.0
- ------------------------------------------------------------------------------------------------------------------------
Long-Term Liabilities
Accrued environmental response costs 47.0 37.3 47.0
Accrued postretirement benefits costs 33.9 35.1 33.4
Deferred credits 54.3 59.7 57.8
Other 3.7 0.4 2.1
- ------------------------------------------------------------------------------------------------------------------------
Total long-term liabilities 138.9 132.5 140.3
- ------------------------------------------------------------------------------------------------------------------------
Capitalization
Long-term debt 660.0 660.0 660.0
Subsidiary obligated mandatorily redeemable
preferred securities 74.3 74.3 74.3
Common stock, $5 par value, shares issued and
outstanding of 57.5 at December 31, 1998, 56.8 at
December 31, 1997, and 57.3 at September 30, 1998 658.5 635.8 654.2
- ------------------------------------------------------------------------------------------------------------------------
Total capitalization 1,392.8 1,370.1 1,388.5
========================================================================================================================
Total Liabilities and Capitalization $ 2,048.3 $ 2,050.6 $ 1,985.3
========================================================================================================================
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
Page 5 of 27 Pages
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<TABLE>
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(MILLIONS OF DOLLARS)
(UNAUDITED)
Three Months
-----------------------------
-----------------------------
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income $ 15.9 $ 25.7
Adjustments to reconcile net income to net
cash flow from operating activities
Depreciation and amortization 21.0 18.4
Deferred income taxes 4.0 (1.3)
Other (0.3) (0.3)
Changes in certain assets and liabilities (37.6) (72.4)
- ----------------------------------------------------------------------------------------------------------
Net cash flow from operating
activities 3.0 (29.9)
- ----------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Short-term borrowings, net 36.5 121.0
Sale of common stock, net of expenses 1.3 0.7
Redemption of preferred securities (44.5)
Dividends paid on common stock (12.9) (13.0)
- ----------------------------------------------------------------------------------------------------------
Net cash flow from financing
activities 24.9 64.2
- ----------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Utility plant expenditures (25.5) (25.2)
Non-utility property expenditures (3.9) (2.5)
Investment in joint ventures (3.0)
Cash received from joint ventures 0.3
Other 0.6 (0.8)
- ----------------------------------------------------------------------------------------------------------
Net cash flow from investing
activities (28.8) (31.2)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents (0.9) 3.1
Cash and cash equivalents at
beginning of period 0.9 4.8
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at
end of period $ - $ 7.9
==========================================================================================================
Cash paid during the period for
Interest $ 25.5 $ 23.6
Income taxes $ 0.1 $ 1.4
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
Page 6 of 27 Pages
<PAGE>
AGL RESOURCES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. General
AGL Resources Inc. is the holding company for Atlanta Gas Light
Company and its wholly owned subsidiary, Chattanooga Gas Company
which are local natural gas distribution utilities. Additionally,
AGL Resources Inc. owns several nonutility subsidiaries and has
interests in several nonutility joint ventures. We collectively
refer to AGL Resources Inc. and its subsidiaries as "AGL Resources."
We refer to Atlanta Gas Light Company as "AGLC."
In the opinion of management, the unaudited consolidated financial
statements included herein reflect all normal recurring adjustments
necessary for a fair statement of the results of the interim periods
reflected. These interim financial statements and notes are condensed
as permitted by the instructions to Form 10-Q, and should be read in
conjunction with the financial statements and the notes included in the
annual report on Form 10-K of AGL Resources for the fiscal year ended
September 30, 1998. Due to the seasonal nature of AGL Resources'
business, the results of operations for a three-month period are not
necessarily indicative of results of operations for a twelve-month
period.
We make estimates and assumptions when preparing financial statements
under generally accepted accounting principles. Those estimates and
assumptions affect various matters, including :
- reported amounts of assets and liabilities in our Condensed
Consolidated Balance Sheets as of the dates of the financial
statements;
- disclosure of contingent assets and liabilities as of the
dates of the financial statements; and
- reported amounts of revenues and expenses in our Condensed
Consolidated Income Statements during the reporting periods.
Those estimates involve judgments with respect to, among other things,
future economic factors that are difficult to predict and are beyond
management's control. Consequently, actual amounts could differ from
our estimates.
Certain amounts in financial statements of prior years have been
reclassified to conform to the presentation of the current year.
2. Impact of New Regulatory Rate Structure and Deregulation
Due to changes in the regulatory rate structure and the enactment of
Georgia's Natural Gas Competition and Deregulation Act (the
Deregulation Act), AGLC has begun to unbundle, or separate, the various
components of its services to its customers. As a result, numerous
changes have occurred with respect to the services being offered by
AGLC and with respect to the manner in which AGLC prices and accounts
for those services Consequently, AGLC's future revenues and expenses
will not follow the same pattern as they have historically.
Page 7 of 27 Pages
<PAGE>
2. Impact of New Regulatory Rate Structure and Deregulation (Continued)
New Regulatory Rate Structure
Beginning July 1, 1998, AGLC's charges for delivery service to utility
customers in Georgia have been based on a straight fixed variable (SFV)
rate design. Under SFV rates, fixed delivery service costs (as opposed
to gas commodity sales costs discussed below) are recovered evenly
throughout the year consistent with the way those costs are incurred.
The effect of the rate structure is to levelize throughout the year the
revenues collected by AGLC for gas delivery services. Prior to July 1,
1998, rates to provide delivery service were based principally on the
amount of gas customers used. Therefore, delivery rates were typically
lower in the summer when customers used less gas, and higher in the
winter when customers used more gas. Going forward AGLC will collect
such rates evenly throughout the year regardless of volumetric summer
and winter differences in gas usage. Consequently, substantial changes
to the quarterly results of operations are expected when compared to
the historical quarterly results due to the transition to this new
regulatory approach.
Deregulation
Pursuant to the Deregulation Act, regulated rates for natural gas
commodity sales service to AGLC customers (as opposed to delivery
service rates discussed above) ended on October 6, 1998. In the
deregulated environment, AGLC intended to price deregulated gas sales
in a manner that, at a minimum, would have allowed it to recover its
annual gas costs.
On January 5, 1999, the GPSC issued a Procedural and Scheduling Order
for the purpose of hearing evidence to consider whether unregulated
prices charged by AGLC for gas sales services subsequent to October 6,
1998 were constrained by market forces. The GPSC initiated the
proceeding in response to numerous complaints from customers who
received gas sales service from AGLC in November and December 1998.
Those complaints stemmed primarily from the effects of record warm
weather on November and December bills that, in many cases, reflected
higher fixed costs associated with gas sales and lower gas usage than
historical comparisons.
AGLC's gas sales rates were designed to enable the Company to recover
its fixed costs associated with gas sales from the customers for whom
the costs were incurred. AGLC intended to bill much of those fixed
costs during the winter, when consumption is typically higher, and
fewer of those fixed costs in the summer, when consumption is typically
lower. Under normal weather conditions, this billing approach would
have produced monthly bills in amounts similar to bills of
corresponding months in recent years. However, unseasonably warm
weather resulted in fixed costs comprising a higher percentage of
customers' bills due to lower gas usage by many customers in November
and December.
On January 26, 1999, AGLC entered into a joint stipulation with the
GPSC to resolve certain gas sales service issues. Among other
requirements in the stipulation, the Company has implemented a new rate
structure for gas sales, beginning with February 1999 bills, that more
closely reflects customers' actual gas usage which includes a demand
charge for fixed costs associated with gas sales that is entirely
volumetric. The new rate structure for gas sales service is intended to
ensure AGLC's recovery of its purchased gas costs incurred from October
6, 1998 to September 30, 1999 as accurately as possible without
creating any significant income or loss. The joint stipulation
agreement provides for a true-up of gas costs and revenues for fiscal
1999 for any amounts over or under a relatively small adjustable dead
band. To the extent that such overage or underage exceeds the
applicable dead band, AGLC will either refund to or collect from its
customers the applicable overage or underage that exists on September
30, 1999.
Page 8 of 27 Pages
<PAGE>
2. Impact of New Regulatory Rate Structure and Deregulation (Continued)
As part of the joint stipulation, AGLC also agreed to issue checks to
customers or credits to customer bills in the total amount of
approximately $14.7 million to lessen the effects of the Company's
earlier rate methodology. Of that amount, $8.2 million will be refunded
to AGLC customers based on the over-collection of gas costs during
fiscal 1998 before deregulation began and as reported in our balance
sheet as of December 31, 1998. The remaining $6.5 million will be
allocated during the second quarter to certain AGLC customers who were
most adversely affected by the change in AGLC's rate structure for gas
sales service.
Regulatory Accounting
We have recorded regulatory assets and liabilities in our Consolidated
Balance Sheets in accordance with Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation" (SFAS 71).
In July 1997, the Emerging Issues Task Force (EITF) concluded that once
legislation is passed to deregulate a segment of a utility and that
legislation includes sufficient detail for the enterprise to determine
how the transition plan will affect that segment, SFAS 71 should be
discontinued for that segment of the utility. The EITF consensus
permits assets and liabilities of a deregulated segment to be retained
if they are recoverable through a segment that remains regulated.
Georgia has enacted legislation, the Deregulation Act, which allows
deregulation of natural gas sales and the separation of some ancillary
services of local natural gas distribution companies. However, the
rates that AGLC, as the local gas distribution company, charges to
deliver natural gas through its intrastate pipe system will continue to
be regulated by the GPSC. Therefore, we have concluded that the
continued application of SFAS 71 remains appropriate for regulatory
assets and liabilities related to AGLC's delivery services.
Pursuant to the Deregulation Act, regulated rates ended on October 6,
1998 for natural gas commodity sales to AGLC customers. Consequently,
SFAS 71 was discontinued as it relates to natural gas commodity sales
on October 6, 1998. In accordance with the EITF consensus, the
following represents the utility's operating revenues, cost of gas and
operating margin between regulated and non-regulated operations for the
three months ended December 31, 1998 (in millions):
Operating Revenues
Nonregulated $ 173.8
Regulated 143.4
============
Total Utility $ 317.2
============
Cost of Sales
Nonregulated $ 172.7
Regulated 12.2
============
Total Utility $ 184.9
============
Operating Margins
Nonregulated $ 1.1
Regulated 131.2
============
Total Utility $ 132.3
============
Page 9 of 27 Pages
<PAGE>
3. Earnings Per Share and Equity
Basic earnings per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur when common stock
equivalents are added to common shares outstanding. AGL Resources' only
common stock equivalents are stock options whose exercise price was
less than the average market price of the common shares for the
respective periods. Additional options to purchase 22,252 and 509,189
shares of common stock were outstanding as of December 31, 1998 and
1997, respectively, but were not included in the computation of diluted
earnings per share because the exercise price of those options was
greater than the average market price of the common shares for the
respective periods.
During the three months ended December 31, 1998, we issued 211,379
shares of common stock under ResourcesDirect, a direct stock purchase
and dividend reinvestment plan; the Retirement Savings Plus Plan; the
Long-Term Stock Incentive Plan; the Nonqualified Savings Plan; and the
Non-Employee Directors Equity Compensation Plan. Those issuances
increased common equity by $3.7 million.
4. Change in Inventory Costing Method
In Georgia's new competitive environment, certificated marketing
companies, including AGLC's marketing affiliate, began selling natural
gas to firm end-use customers at market-based prices in November 1998.
Part of the unbundling process that provides for this competitive
environment is the assignment of certain pipeline services that AGLC
has under contract. AGLC will assign the majority of its pipeline
storage services that it has under contract to the certificated
marketing companies along with a corresponding amount of inventory.
Consequently, the GPSC has approved AGLC's tariff provisions to govern
the sale of its gas storage inventories to certificated marketers.
Following the rules of the tariff, the sale price will be the
weighted-average cost of the storage inventory at the time of sale.
AGLC changed its inventory costing method for its gas inventories from
first-in, first-out to weighted-average effective October 1, 1998. In
management's opinion, the weighted-average inventory costing method
provides for a better matching of costs and revenue from the sale of
gas.
Because AGLC recovered all of its gas costs through a PGA mechanism
until October 6, 1998, there is no cumulative effect resulting from the
change in the inventory costing method.
5. Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No.130, "Reporting Comprehensive
Income" (SFAS 130) which establishes standards for the reporting and
display of comprehensive income and its components in the financial
statements. SFAS 130 is effective for fiscal years beginning after
December 15, 1997 and was adopted by AGL Resources in October 1998.
Comprehensive income includes net income and other comprehensive
income. SFAS 130 presently identifies only the following items as
components of other comprehensive income:
- foreign currency translation adjustment;
- minimum pension liability adjustment; and
- unrealized gains and losses on certain investments in debt and
equity securities classified as available-for-sale securities.
Because AGL Resources does not have any components of other
comprehensive income for any of the periods presented, there is no
difference between net income and comprehensive income and the adoption
of SFAS No. 130 has no impact on AGL Resources' consolidated financial
statements.
Page 10 of 27 Pages
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Forward-Looking Statements
Portions of the information contained in this Form 10-Q, particularly
in the Management's Discussion and Analysis of Results of Operations
and Financial Condition, contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934, and we intend that such
forward-looking statements be subject to the safe harbors created
thereby. Although we believe that our expectations are based on
reasonable assumptions, we can give no assurance that such expectations
will be achieved.
Important factors that could cause our actual results to differ
substantially from those in the forward-looking statements include, but
are not limited to, the following:
- changes in price and demand for natural gas and related products;
- the impact of changes in state and federal legislation and
regulation on both the gas and electric industries;
- the effects and uncertanties of deregulation and competition,
particularly in markets where prices and providers historically
have been regulated;
- changes in accounting policies and practices; - interest rate
fluctuations and financial market condition; - uncertainties about
environmental issues; and - other factors discussed in the following
section: Year 2000
Readiness Disclosure - Forward-Looking Statements.
Nature of Our Business
AGL Resources Inc. is the holding company for:
- Atlanta Gas Light Company (AGLC) and its wholly owned subsidiary,
Chattanooga Gas Company (Chattanooga), which are local natural gas
distribution utilities;
- AGL Energy Services, Inc., (AGLE) a gas supply services company;
and
- several nonutility subsidiaries.
AGLC conducts our primary business: the distribution of natural gas in
Georgia, including Atlanta, Athens, Augusta, Brunswick, Macon, Rome,
Savannah, and Valdosta. Chattanooga distributes natural gas in the
Chattanooga and Cleveland areas of Tennessee. The Georgia Public
Service Commission (GPSC) regulates AGLC, and the Tennessee Regulatory
Authority (TRA) regulates Chattanooga. AGLE is a nonregulated company
that buys and sells the natural gas which is supplied to AGLC's
customers during the transition period to full competition in Georgia.
AGLC comprises substantially all of AGL Resources' assets, revenues,
and earnings. When we discuss the operations and activities of AGLC,
AGLE, and Chattanooga, we refer to them, collectively, as the
"utility."
Page 11 of 27 Pages
<PAGE>
AGL Resources also owns or has an interest in the following nonutility
businesses:
- AGL Interstate Pipeline Company, which owns a 50% interest in
Cumberland Pipeline Company; Cumberland Pipeline Company was
formed for the purpose of providing interstate pipeline services
to customers in Georgia and Tennessee;
- AGL Peaking Services, Inc., which owns a 50% interest in Etowah
LNG Company LLC; Etowah LNG Company LLC is a joint venture with
Southern Natural Gas Company and was formed for the purpose of
constructing, owning, and operating a liquefied natural gas
peaking facility;
- SouthStar Energy Services LLC (SouthStar), a joint venture among
a subsidiary of AGL Resources and subsidiaries of Dynegy, Inc.
and Peidmont Natural Gas Company. Southstar was established to
sell natural gas, propane, fuel oil, electricity, and related
services to industrial, commercial, and residential customers in
Georgia and the Southeast. SouthStar began marketing naturalgas
to all customers in Georgia during the first quarter of fiscal
1999;
- AGL Investments, Inc., which was established to develop and
manage certain nonutility businesses including:
- AGL Gas Marketing, Inc., which owns a 35% interest in Sonat
Marketing Company, L.P. (Sonat Marketing); Sonat Marketing
engages in wholesale and retail natural gas trading;
- AGL Power Services, Inc., which owns a 35% interest in Sonat
Power Marketing, L.P.; Sonat Power Marketing, L.P. engages
in wholesale power trading;
- AGL Propane, Inc., which engages in the sale of propane and
related products and services;
- Trustees Investments, Inc., which owns Trustees Gardens, a
residential and retail development located in Savannah,
Georgia; and
- Utilipro, Inc., which engages in the sale of integrated
customer care solutions to energy marketers.
Results of Operations
In this section we compare the results of our operations for the
three-month periods ended December 31, 1998 and 1997.
Operating Margin Analysis
(Dollars in Millions)
Three Months Ended
12/31/98 12/31/97 Increase/(Decrease)
---------- ---------- ----------------------
Operating Revenues
Utility $ 317.2 $ 377.6 $ (60.4) (16.0%)
Non Utility 6.7 21.5 (14.8) (68.8%)
========== ========== ============
Total $ 323.9 $ 399.1 $ (75.2) (18.8%)
========== ========== ============
Cost of Sales
Utility $ 184.9 $ 236.6 $ (51.7) (21.9%)
Non Utility 2.1 17.4 (15.3) (87.9%)
========== ========== ============
Total $ 187.0 $ 254.0 $ (67.0) (26.4%)
========== ========== ============
Operating Margins
Utility $ 132.3 $ 141.0 $ (8.7) (6.2%)
Non Utility 4.6 4.1 0.5 12.2%
========== ========== ============
Total $ 136.9 $ 145.1 $ (8.2) (5.7%)
========== ========== ============
Page 12 of 27 Pages
<PAGE>
Operating Revenues
Our operating revenues for the three months ended December 31, 1998
decreased to $323.9 million from $399.1 million for the same period
last year, a decrease of 18.8%.
Utility. Utility revenues decreased to $317.2 million for the three
months ended December 31, 1998 from $377.6 million for the same period
last year. The decrease of $60.4 million in utility revenues was
primarily due to the following factors:
- The utility's cost of gas decreased by $51.7 million. (See
discussion of the utility cost of sales below regarding the
effect of warmer weather and migration of customers to
marketers). Prior to deregulation, AGLC passed the actualcost of
gas through to its customers on a dollar for dollar basis under
the PGA mechanism contained in its rate schedule. Now that the
sale of gas by AGLC has been deregulated, AGLC intends to
continue to recover only its actual gas costs from its customers
within the parameters of the joint stipulation agreement of
January 26, 1999. The reduction in gas costs therefore results\
in a corresponding reduction in revenue.
- The utility's base revenue decreased by $4.8 million when
compared to last year primarily due to the new SFV rate
structure for AGLC delivery service that became effective
July 1, 1998. (See Note 2 to the Condensed Consolidated
Financial Statements)
- The Integrated Resource Plan (IRP) was phased out during fiscal
1998 and did not exist during the first quarter of fiscal year
1999, resulting in a $3.6 million decrease in revenue associated
with the plan. AGLC passed through to its customers, on a dollar
for dollar basis, IRP expenses incurred, which were included in
operating expenses. Therefore, the phase out of IRP had no effect
on net income .
Nonutility. Nonutility operating revenues decreased to $6.7 million for
the three months ended December 31, 1998 from $21.5 million for the
same period last year. The decrease of $14.8 million in nonutility
revenues was primarily due to the formation of SouthStar in July 1998.
Prior to the formation of SouthStar (including the first quarter of
fiscal year 1998) we had a wholly owned subsidiary which was engaged in
this same business. Upon the formation of SouthStar, the customers and
operations of this business unit became the customers and operations of
SouthStar. Since the formation of the joint venture, the results of our
interest in SouthStar have been accounted for under the equity method
and our portion of their results of operations is contained in Other
Income for the three months ended December 31, 1998.
Cost of Sales
Our cost of sales decreased to $187.0 million for the three months
ended December 31, 1998 from $254.0 million for the same period last
year, a decrease of 26.4%.
Utility. The utility's cost of sales decreased to $184.9 million for
the three months ended December 31, 1998 from $236.6 million for the
same period last year. The decrease of $51.7 million in the utility's
cost of sales was primarily due to the following factors:
- The utility sold less gas to its customers due to weather that was
44% warmer for the three months ended December 31, 1998 as compared
with the same period last year. This resulted in less volume of gas
sold as compared with last year.
- Beginning November 1, 1998, customers began to switch from AGLC to
certificated marketers for gas purchases. As a result, AGLC sold less
gas.
Page 13 of 27 Pages
<PAGE>
Nonutility. Nonutility cost of sales decreased to $2.1 million for the
three months ended December 31, 1998 from $17.4 million for the same
period last year. The decrease of $15.3 million was primarily due to
the formation of SouthStar as described above under nonutility
operating revenues.
Operating Margin
Our operating margin decreased to $136.9 million for the three months
ended December 31, 1998 from $145.1 million for the same period last
year, a decrease of 5.7%.
Utility. The utility's operating margin decreased to $132.3 million for
the three months ended December 31, 1998 from $141.0 million for the
same period last year. The decrease of $8.7 million was primarily due
to the following factors as mentioned above under utility operating
revenues:
- The utility's base revenue decreased by $4.8 million when compared
with the same period last year primarily due to the new SFV rate
structure for AGLC delivery service that became effective on July
1, 1998.
- A $3.6 million decrease in revenue associated with the phase-out
of the IRP.
Nonutility. Operating margin for the nonutility business increased by
$0.5 million to $4.6 million for the three months ended December 31,
1998 as compared with $4.1 million for the same period last year. This
increase is primarily attributable to Utilipro, our customer care
subsidiary which was acquired during the first quarter of fiscal 1998.
Other Operating Expenses
Other operating expenses decreased slightly to $89.2 million for the
three months ended December 31, 1998 compared to $92.7 million for the
same period last year. The components of other operating expenses are
as follows (dollars in millions):
Three Months Ended
12/31/98 12/31/97 (Increase/(Decrease)
-------- -------- -------------------
Operations $53.1 $58.6 $(5.5) $(9.4%)
Maintenance 9.0 9.3 (0.3) (3.2%)
Depreciation &
Amortization 20.2 17.7 2.5 14.1%
Taxes Other than Income
Taxes 6.9 7.1 (0.2) (2.8%)
-------- -------- --------
Total $89.2 $92.7 $(3.5) (3.8%)
======== ======== ========
Operations expenses decreased primarily due to the phase out of the IRP
during fiscal 1998 which resulted in $3.6 million less expense than the
same period last year. AGLC passed through to its customers, on a
dollar for dollar basis, IRP expenses incurred. Therefore, the phase
out of IRP had no effect on net income .
Depreciation and amortization expenses increased primarily due to
increased depreciable property and increased depreciation rates for
AGLC ordered by the GPSC.
Page 14 of 27 Pages
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Other Income/(Loss)
Other losses totaled $7.9 million for the three months ended December
31, 1998 compared with other income of $5.2 million for the same period
last year. The decrease in other income of $13.1 million is primarily
due to:
- Our portion of the loss recorded by Sonat Marketing, a joint
venture in which we own a 35% interest. The loss by Sonat
Marketing was the result of a combination of significantly warmer
weather than last year and charges recorded in December 1998
associated with changes in certain accounting estimates. We
recorded a pre-tax loss related to our interest in Sonat of
approximately $6.5 million for the three months ended December 31,
1998 as compared with pre-tax income of approximately $3.3 million
for the same period last year.
- Our portion of SouthStar's loss was approximately $1.4 million for
the three months ended December 31, 1998. SouthStar was not formed
until July 1998, therefore there was no income or loss for this
joint venture for the three months ended December 31, 1997.
Income Taxes
Income taxes decreased to $8.2 million for the three months ended
December 31, 1998 from $15.4 million for the same period last year. The
effective tax rate (income tax expense expressed as a percentage of
pretax income) for the three months ended December 31, 1998 was 34.0%
as compared to 37.5% for the same period last year. The reduction in
the effective income tax rate is primarily due to a reduction in tax
expense resulting from our Leveraged Employee Stock Ownership Plan.
Preferred Stock of Subsidiaries
Dividends on preferred stock decreased to $1.5 million for the three
months ended December 31, 1998 compared to $2.4 million for the same
period last year. This decrease is due to the redemption of $44.5
million of 7.70% preferred stock of AGLC on December 1, 1997.
Financial Condition
Our utility business is seasonal in nature which typically results in a
substantial increase in accounts receivable from customers from
September 30 to December 31 as a result of higher billings during
colder weather. The utility also uses gas stored underground to serve
its customers during periods of colder weather resulting in a
substantial decrease in gas inventories when comparing September 30
with December 31. Consequently, accounts receivable increased $92.9
million and inventory of gas stored underground decreased $31.7 million
during the quarter ended December 31, 1998. Accounts payable increased
$22.6 million during the quarter ended December 31, 1998, primarily due
to an increase in accounts payable to gas suppliers.
Our deferred PGA asset was $3.3 million as of December 31, 1998
compared to $33.1 million as of December 31, 1997. The PGA mechanism
and regulated rates ended on October 6, 1998 for natural gas commodity
sales to AGLC customers. Beginning in October 1998, AGLC priced
deregulated gas sales in a manner that more closely matched gas costs
and revenues. The deferred PGA asset that remains as of December 31,
1998 relates to Chattanooga.
We generally meet our liquidity requirements through our operating cash
flow and the issuance of short-term debt. We also use short-term debt
to meet our seasonal working capital requirements and to temporarily
fund capital expenditures. Lines of credit with various banks provide
for direct borrowings and are subject to annual renewal. Availability
under the current lines of credit varies from $230 million in the
summer to $260 million for peak winter financing.
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Short-term debt increased $36.5 million to $113.0 million as of
December 31, 1998, from $76.5 million as of September 30, 1998, to meet
our normal seasonal working capital requirements for the three months
ended December 31, 1998. Short-term debt decreased $37.5 when comparing
December 31, 1998 to December 31, 1997 due to less borrowing needs
during the first quarter of this year as compared to last year. We
generated operating cash flow of $3.0 million for the three months
ended December 31, 1998 as compared to $(29.9) million for the same
period last year. This increase in operating cash flow is primarily due
to the decrease in our deferred PGA asset as a result of AGLC designing
its prices for deregulated gas sales in a manner that more closely
matched gas costs and revenues for the three months ended December 31,
1998.
We believe available credit will be sufficient to meet our working
capital needs both on a short and a long-term basis. However, our
capital needs depend on many factors and we may seek additional
financing through debt or equity offerings in the private or public
markets at any time.
Capital Expenditures
Capital expenditures for construction of distribution facilities,
purchase of equipment, and other general improvements were $29.4
million for the three-month period ended December 31, 1998. Typically,
we provide funding for capital expenditures through a combination of
internal sources and the issuance of short-term debt.
Common Stock
During the three months ended December 31, 1998, we issued 211,379
shares of common stock under ResourcesDirect, a direct stock purchase
and dividend reinvestment plan; the Retirement Savings Plus Plan; the
Long-Term Stock Incentive Plan; the Nonqualified Savings Plan; and the
Non-Employee Directors Equity Compensation Plan. Those issuances
increased common equity by $3.7 million.
Ratios
As of December 31, 1998, our capitalization ratios consisted of:
- 47.4% long-term debt;
- 5.3% preferred securities; and
- 47.3% common equity.
State Regulatory Activity
Deregulation
The Deregulation Act became law on April 14, 1997. It provides a legal
framework for comprehensive deregulation of many aspects of the natural
gas business in Georgia and provides for a transition period before
competition is fully in effect. AGLC will unbundle, or separate, all
services to its natural gas customers; allocate delivery capacity to
approved marketers who sell the gas commodity to residential and small
commercial users; and create a secondary market for large commercial
and industrial transportation capacity.
Approved marketers, including our marketing affiliate, will compete to
sell natural gas to all end-use customers at market-based prices. AGLC
will continue to deliver gas to all end-use customers through its
existing pipeline system, subject to the GPSC's continued regulation.
The GPSC's order acknowledges that under the Deregulation Act, the PGA
mechanism will be deregulated when at least five nonaffiliated
marketers are authorized to serve an area of Georgia. The GPSC issued
more than five such authorizations on October 6, 1998.
Page 16 of 27 Pages
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Going forward, AGLC intends to price deregulated gas sales in a manner
that, at a minimum, will allow it to recover its annual gas costs. Even
though the recovery of gas costs is not currently subject to price
regulation, the GPSC continues to regulate delivery rates, safety,
access to AGLC's system, and quality of service for all aspects of
delivery service.
Generally, under the Deregulation Act, the transition to full-scale
competition occurs when residential and small commercial customers who
represent one-third of the peak day requirements for a particular
delivery group have voluntarily selected a marketer. When the GPSC
determines such market conditions exist, there will be a 120-day
process to notify and assign customers who have not selected a
marketer. Following the 120-day period, residential and small
commercial customers who have not yet selected a marketer will be
randomly assigned a marketer under the rules issued by the GPSC.
The Deregulation Act provides marketing standards and rules of business
practice to ensure the benefits of a competitive natural gas market are
available to all customers on our system. It imposes on marketers an
obligation to serve end-use customers, and creates a universal service
fund. The universal service fund provides a method to fund the recovery
of marketers' uncollectible accounts, and it enables AGLC to expand its
facilities to serve the public interest.
Retail marketing companies, including our marketing affiliate, filed
separate applications with the GPSC to sell natural gas to AGLC's
residential and small commercial customers. On October 6, 1998, the
GPSC approved 19 marketers' applications to begin selling natural gas
services at market prices to Georgia customers on November 1, 1998.
As of December 31, 1998, more than 168,000 residential and small
commercial customers had elected to purchase natural gas services from
one of the 11 active approved marketers in Georgia. As of February 5,
1999, more than 367,000 residential and small commercial customers had
elected to purchase natural gas services from those same marketers.
Commodity Sales Service Rate Issues
Pursuant to the Deregulation Act, regulated rates for natural gas
commodity sales service to AGLC customers (as opposed to delivery
service rates discussed above) ended on October 6, 1998. In the
deregulated environment, AGLC intended to price deregulated gas sales
in a manner that, at a minimum, would have allowed it to recover its
annual gas costs.
On January 5, 1999, the GPSC issued a Procedural and Scheduling Order
for the purpose of hearing evidence to consider whether unregulated
prices charged by AGLC for gas sales services subsequent to October 6,
1998 were constrained by market forces. The GPSC initiated the
proceeding in response to numerous complaints from customers who
received gas sales service from AGLC in November and December 1998.
Those complaints stemmed primarily from the effects of record warm
weather on November and December bills that, in many cases, reflected
higher fixed costs associated with gas sales and lower gas usage than
historical comparisons.
AGLC's gas sales rates were designed to enable the Company to recover
its fixed costs associated with gas sales from the customers for whom
the costs were incurred. AGLC intended to bill much of those fixed
costs during the winter, when consumption is typically higher, and
fewer of those fixed costs in the summer, when consumption is typically
lower. Under normal weather conditions, this billing approach would
have produced monthly bills in amounts similar to bills of
corresponding months in recent years. However, unseasonably warm
weather resulted in fixed costs comprising a higher percentage of
customers' bills due to lower gas usage by many customers in November
and December.
Page 17 of 27 Pages
<PAGE>
On January 26, 1999, AGLC entered into a joint stipulation with the
GPSC to resolve certain gas sales service issues. Among other
requirements in the stipulation, the Company has implemented a new rate
structure for gas sales, beginning with February 1999 bills, that more
closely reflects customers' actual gas usage which includes a demand
charge for fixed costs associated with gas sales that is entirely
volumetric. The new rate structure for gas sales service is intended to
ensure AGLC's recovery of its purchased gas costs incurred from October
6, 1998 to September 30, 1999 as accurately as possible without
creating any significant income or loss. The joint stipulation
agreement provides for a true-up of gas costs and revenues for fiscal
1999 for any amounts over or under a relatively small adjustable dead
band. To the extent that such overage or underage exceeds the
applicable dead band, AGLC will either refund to or collect from its
customers the applicable overage or underage that exists on September
30, 1999.
As part of the joint stipulation, AGLC also agreed to issue checks to
customers or credits to customer bills in the total amount of
approximately $14.7 million to lessen the effects of the Company's
earlier rate methodology. Of that amount, $8.2 million will be refunded
to AGLC customers based on the over-collection of gas costs during
fiscal 1998 before deregulation began and as reported in our balance
sheet as of December 31, 1998. The remaining $6.5 million will be
allocated during the second quarter to certain AGLC customers who were
most adversely affected by the change in AGLC's rate structure for gas
sales service.
Risk Management
AGLCs Gas Supply Plan for fiscal 1998 included limited gas supply
hedging activities. AGLC was authorized to begin an expanded program to
hedge up to one-half its estimated monthly winter wellhead purchases
and to establish a price for those purchases at an amount other than
the beginning-of-the-month index price. Such a program creates an
additional element of diversification and price stability. The
financial results of all hedging activities were passed through to
residential and small commercial customers under the PGA mechanism of
AGLC's rate schedules. Accordingly, the hedging program did not affect
our earnings.
During the first quarter of fiscal 1999, AGLC entered into certain
hedge agreements that will continue until the end of February 1999.
However, as part of the joint stipulation with the GPSC entered into in
January 1999 to resolve certain gas sales service issues, AGLC will not
participate in hedging activities for the remainder of the fiscal year
and all costs incurred for the fixed-price option agreements prior to
the date of the joint stipulation will be included in gas costs which
will be recovered from AGLC's customers.
AGLC Pipeline Safety
On January 8, 1998, the GPSC issued procedures and set a schedule for
hearings about alleged pipeline safety violations. On July 21, 1998,
the GPSC approved a settlement between AGLC and the Adversary Staff of
the GPSC that details a 10-year replacement program for approximately
2,300 miles of cast iron and bare steel pipelines. Over that 10-year
period, AGLC will recover from customers the costs related to the
program net of any cost savings resulting from the replacement program.
During the three months ended December 31, 1998, AGLC spent
approximately $5.4 million related to the pipeline replacement program.
Environmental
Before natural gas was available in the Southeast in the early 1930s,
AGLC manufactured gas from coal and other materials. Those
manufacturing operations were known as manufactured gas plants. Because
of recent environmental concerns, we are required to investigate
possible contamination at those plants and, if necessary, clean them
up. Additional information relating to environmental matters and
disclosures is contained below in the section entitled "Environmental
Matters".
Page 18 of 27 Pages
<PAGE>
We have two ways of recovering investigation and cleanup costs. First,
the GPSC has approved an "Environmental Response Cost Recovery Rider."
It allows us to recover our costs of investigation, testing, cleanup,
and litigation. Because of that rider, we have recorded an asset in the
same amount as our investigation and cleanup liability. The second way
we can recover costs is by exercising the legal rights we believe we
have to recover a share of our costs from other potentially responsible
parties - typically former owners or operators of the MGP sites.
Previously we also recovered costs by exercising legal rights we
believed we had to recover a share of our costs from various insurance
companies. We settled our final insurance company claim in January
1999.
Federal Regulatory Activity
Information related to federal regulatory activity is contained in our
Form 10-K for the year ended September 30, 1998 under the caption
"Federal Regulatory Matters".
Environmental Matters
Before natural gas was available in the Southeast in the early 1930s,
AGLC manufactured gas from coal and other materials. Those
manufacturing operations were known as "manufactured gas plants," or
"MGPs." Because of recent environmental concerns, we are required to
investigate possible contamination at those plants and, if necessary,
clean them up.
Through the years, AGLC has been associated with twelve MGP sites in
Georgia and three in Florida. Based on investigations to date, we
believe that some cleanup is likely at most of the sites. In Georgia,
the state Environmental Protection Division supervises the
investigation and cleanup of MGP sites. In Florida, the U.S.
Environmental Protection Agency has that responsibility.
For each of those sites, we estimated our share of the likely costs of
investigation and cleanup. We used the following process to do the
estimates: First, we eliminated the sites where we believe no cleanup
or further investigation is likely to be necessary. Second, we
estimated the likely future cost of investigation and cleanup at each
of the remaining sites. Third, for some sites, we estimated our likely
"share" of the costs. We developed our estimate based on any agreements
for cost sharing we have, the legal principles for sharing costs, our
evaluation of other entities' ability to pay, and other similar
factors.
We currently estimate that our total future cost of investigating and
cleaning up our MGP sites is between $47.0 million and $81.3 million.
Within that range, we cannot identify a single number as the "best"
estimate. We therefore have recorded the lower value, or $47.0 million,
as a liability as of December 31, 1998. We are in the process of
reviewing our estimates of the cost of investigation and clean up of
our MGP sites. We believe that the estimates will increase. At the
present time, however, we do not have sufficient information to
estimate the magnitude of that increase with a reasonable degree of
certainty.
We have two ways of recovering investigation and cleanup costs. First,
the GPSC has approved an "Environmental Response Cost Recovery Rider."
It allows us to recover our costs of investigation, testing, cleanup,
and litigation. Because of that rider, we have recorded an asset in the
same amount as our investigation and cleanup liability. On December 3,
1997, the GPSC issued a Rule Nisi ordering AGLC to show cause why the
GPSC should not take certain actions with respect to the rider.
Following hearings, the GPSC Staff and AGLC entered into a settlement
agreement on December 3, 1998, resolving the outstanding issues in the
Rule Nisi. On January 6, 1999, the GPSC issued an order approving the
settlement. The settlement is not expected to have a material effect on
the recovery of costs under the rider.
Page 19 of 27 Pages
<PAGE>
The second way we can recover costs is by exercising the legal rights
we believe we have to recover a share of our costs from other
potentially responsible parties - typically former owners or operators
of the MGP sites. Previously we also recovered costs by exercising
legal rights we believed we had to recover a share of our costs from
various insurance companies. We have been actively pursuing those
recoveries. We settled our final insurance company claim in January
1999. For the quarter ended December 31, 1998, we recovered $4.3
million from other potentially responsible parties and insurance
companies. As required by the rider, we retained $2.2 million of that
amount, and we credited the balance to our customers.
Year 2000 Readiness Disclosure
The widespread use by governments and businesses, including us, of
computer software that relies on two digits, rather than four digits,
to define the applicable year may cause computers, computer-controlled
systems, and equipment with embedded software to malfunction or
incorrectly process data as we approach and enter the year 2000.
Our Year 2000 Readiness Initiative
In view of the potential adverse impact of the "Year 2000" issue on our
business, operations, and financial condition, we have established a
cross-functional team to coordinate, and to report to management on a
regular basis about, our assessment, remediation planning, and plan
implementation processes directed to Year 2000. We also have engaged
independent consultants to assist us in the assessment, remediation,
planning, and implementation phases of our Year 2000 initiative. Our
Year 2000 initiative is proceeding on a schedule that management
believes will achieve Year 2000 readiness.
The mission of our Year 2000 initiative is to define and provide a
continuing process for assessment, remediation, planning, and plan
implementation to achieve a level of readiness that will meet the
challenges presented to us by the Year 2000 in a timely manner.
Achieving Year 2000 readiness does not mean correcting every Year 2000
limitation. Achieving Year 2000 readiness does mean that critical
systems, critical electronic assets, and relationships with key
business partners have been evaluated and are expected to be suitable
for continued use into and beyond the Year 2000, and that contingency
plans are in place.
Our Year 2000 readiness initiative involves a three-phase process. The
initiative is a continuing process with all phases of the initiative
progressing concurrently with respect to both IT and non-IT assets, as
defined below, and with respect to key business relationships. The
three phases of our Year 2000 initiative are as follows:
1. Assessment -Assessment involves identifying and inventorying
business assets and processes. It also involves determining the
Year 2000 readiness status of our assets and of key business
partners. Key business partners are those customers and suppliers
who we believe may be material to our business, results of
operations, or financial condition. In appropriate circumstances,
pre-remediation testing is conducted as a part of the assessment
phase. The assessment phase of our Year 2000 initiative includes
assessment for Year 2000 readiness of the following:
- information technology (IT) assets - Computer systems and
software maintained by our Information Systems (IS) Department;
- noninformation technology (non-IT) assets - including
microprocessors embedded in equipment, and information
technology purchased and maintained by business units other than
our IS Department; and
- key business partners (customers and suppliers).
Page 20 of 27 Pages
<PAGE>
2. Preparation of Remediation Plans - The purpose of this phase is to
develop plans which, when implemented, will enable assets and
business relationships to be Year 2000 ready. This phase involves
implementation planning and prioritizing the implementation of
remediation plans.
3. Implementation - This step involves the implementation of
remediation plans, including post-remediation testing and
contingency planning.
State of Readiness
We continue to assess the impact of the Year 2000 issue throughout our
business and operations, including our customer and supplier base. The
scope of our Year 2000 initiative includes AGL Resources and its
subsidiaries. Sonat Power Services, L.P., and Sonat Marketing, are not
within the scope of our Year 2000 initiative. We plan to address the
Year 2000 readiness of those joint ventures using the same processes we
use to assess the Year 2000 readiness of key business partners. (See
"Key Business Partners" below) The following is a description of the
progress of our Year 2000 initiative in all business units that are
within the scope of our Year 2000 initiative, with the exception of
SouthStar, and of Utilipro, Inc., a recently acquired subsidiary. With
respect to SouthStar, we have completed the assessment phase and are
beginning remediation planning. Management expects SouthStar's business
and operations to achieve Year 2000 readiness. The Year 2000 initiative
recently commenced with respect to Utilipro, Inc., and management
expects Utilipro's business and operations to achieve Year 2000
readiness.
IT Assets
Assessment of IT assets is complete. Remediation planning and
implementation are underway. As part of our IT assessment process, we
completed the assessment of our 79 mainframe and personal computer
systems. We deem 13 of those 79 systems to be critical systems. The
results of our Year 2000 initiative with respect to IT assets indicate
that, to date:
- 29 systems now are ready for Year 2000, including 12 of the 13
critical systems;
- nine systems are in testing to verify Year 2000
readiness;
- three systems, including one critical system, are in
remediation for purposes of correcting noncompliant Year 2000
code;
- three systems have been eliminated;
- five systems have been replaced, and
- 30 systems are scheduled for either testing, replacement,
remediation, or elimination in the future.
We expect our one critical IT asset that is not yet Year 2000 ready to
be Year 2000 ready by April 30, 1999. Remediation completion schedules
for achieving Year 2000 readiness of noncritical IT assets are expected
to extend through September 1999.
Non-IT Assets
Assessment of non-IT assets is complete. Our non-IT asset assessment
process involved the following:
- identifying business processes;
- identifying non-IT assets and defining the business process or
processes to which such assets relate;
- identifying the mission criticality of each non-IT asset and
business process; and
- documenting in a tracking database the existence, and the
mission-criticality, of each non-IT asset and business process.
Page 21 of 27 Pages
<PAGE>
We expect to complete remediation planning for critical non-IT assets
by March 15, 1999. The expected completion date for remediation plan
implementation for critical non-IT assets will depend on the results of
the remediation planning phase for non-IT assets, but is not expected
to extend beyond June 30, 1999.
Key Business Partners
We are contacting key business partners, including suppliers and
customers, to evaluate their Year 2000 readiness plans and status of
readiness. We have contacted over 1,400 suppliers by letter. That group
of suppliers includes suppliers whom we consider key business partners
as well as other selected suppliers. However, to date, we have not
received responses from the majority of suppliers we contacted. We have
begun following up by telephone with those key suppliers from whom we
have not yet received responses. We also initiated contact with more
than 2,500 commercial and industrial customers by personal or telephone
interview or by fax survey. That group of customers includes customers
whom we consider key business partners as well as other selected
customers. To date, we have not received responses from most of those
customers. Our first step in the process of following up with those key
customers who did not respond by January 1, 1999, was to categorize
those customers based on the amount of gas used and the revenue
generated by each of them. We have completed the categorizing process
and are about to begin following up by fax or telephone with key
customers.
We are assessing the state of readiness of key business partners who
have responded to our request for information and will continue to do
so as we receive additional responses. As a general matter, we, like
other businesses, are vulnerable to key business partners' inability to
achieve Year 2000 readiness. We cannot predict the outcome of our
business partners' readiness efforts. However, we plan to develop
contingency plans to mitigate risks associated with the Year 2000
readiness of certain business partners, including key business
partners. At this stage of our review of key business partners, we do
not have sufficient information to determine whether the Year 2000
readiness of key business partners is likely to have a material impact
on our business, results of operations, or financial condition.
Costs to Address Year 2000 Issues
Management intends to devote the resources necessary to achieve a level
of readiness that will meet our Year 2000 challenges in a timely
manner. Through December 31, 1998, our cumulative expenses in
connection with our Year 2000 assessment, remediation planning, and
plan implementation processes were approximately $ 3.8 million. Through
December 31, 1998, we had spent an additional $7.4 million for the
replacement of our general ledger and human resources information
systems. Our primary reason for replacing those systems was to achieve
increased efficiency and functionality. An added benefit of replacing
those systems was the avoidance of the costs of remediating Year 2000
problems associated with our previous general ledger and human
resources information systems. We have capitalized the costs of our new
general ledger and human resources information systems, in accordance
with our accounting policies and with generally accepted accounting
principles.
We expect to spend approximately $6 million in fiscal 1999 in
connection with our Year 2000 initiative. That estimate includes costs
associated with the use of outside consultants as well as hardware and
software costs. It also includes direct costs associated with employees
of our IS Department who work on the Year 2000 initiative. It does not
include costs associated with employees of other departments such as
Legal and Internal Audit, and of other business units, who are
involved, on a limited basis, in the Year 2000 initiative. Nor does the
estimate include our potential share of Year 2000 costs that may be
incurred by partnerships and joint ventures, other than Southstar, in
which we participate. The fiscal 1999 estimate is subject to change,
based on the results of our ongoing Year 2000 processes.
On June 30, 1998, the GPSC issued a rate case order in response to a
filing by AGLC. The GPSC provided for the deferral and amortization of
some Year 2000 costs over a five-year period, beginning
Page 22 of 27 Pages
<PAGE>
July 1, 1998. The portion of those costs that will be deferred in this
way includes costs that are required to be expensed under
generally accepted accounting principles and that are attributable to
AGLC. Going forward, we estimate that approximately 90% of our Year
2000 costs will be attributable to AGLC. At December 31, 1998, AGLC
had deferred total costs of approximately $2 million.
At present, the cost estimates associated with achieving Year 2000
readiness are not expected to materially impact our consolidated
financial statements. We will account for costs related to achieving
Year 2000 readiness in accordance with our accounting policies, with
regulatory treatment, and with generally accepted accounting
principles.
Risks of Year 2000 Issues
We are in the process of finalizing our most reasonably likely worst
case Year 2000 scenarios. As such, we are not yet able to comment on
whether the consequences of such scenarios could have a material impact
on our business, results of operations, or financial condition. The
process of defining our most reasonably likely worst case scenarios is
part of the contingency planning effort that is currently underway. Our
process for identifying our most reasonably likely worst case scenarios
includes the following:
- identifying core business processes;
- identifying key business partners (including suppliers and
customers);
- conducting Year 2000 business impact analyses; and - reviewing
experts' views of factors likely to contribute to such a
scenario.
To date, we have identified our core business processes. We have also
completed the majority of our Year 2000 business impact analyses for
the core business processes. We are in the process of finalizing our
contingency planning assumptions, including our most reasonably likely
worst case scenarios.
Although we are finalizing our most reasonably likely worst case
scenarios and our contingency planning assumptions, the contingency
planning process and the process of refining our most reasonably likely
worst case scenarios will be ongoing processes, requiring continuing
development and modification as we obtain additional information
regarding (a) our internal systems and equipment during the
implementation phase of our Year 2000 initiative, and (b) the status,
and the impact on us, of the Year 2000 readiness of others.
Page 23 of 27 Pages
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Business Continuity and Contingency Planning
We are developing Year 2000 contingency plans. Those plans, which are
intended to enable us to deliver an acceptable level of service despite
Year 2000 failures, include performing certain processes manually,
changing suppliers, and reducing or suspending certain noncritical
aspects of our operations. We expect our contingency planning effort to
focus on our potential internal risks as well as potential risks
associated with our suppliers and customers. Identifying our most
reasonably likely worst case scenarios as described above will define
the boundaries of our contingency planning effort. The contingency
planning process also includes, but is not limited to the following:
- identifying the nature of Year 2000 risks to understand the
business impact of those risks;
- identifying our minimal acceptable service levels; - identifying
alternative providers of goods and services; - identifying
necessary investments in additional back-up
equipment such as generators and communications equipment; and
- developing manual methods of performing critical functions
currently performed by electronic systems and equipment.
From February through June 1999, we expect to be testing and refining
our contingency plans, with a planned testing completion date of June
30, 1999. Although the expected completion date for our contingency
planning effort is June 30, 1999, during the last half of 1999 we will
update and refine our contingency plans, as needed, to reflect system
and business changes as they evolve.
Presently, management believes that its assessment, remediation
planning, plan implementation and contingency planning processes will
be effective to achieve Year 2000 readiness in a timely manner.
Forward-Looking Statements
The preceding "Year 2000 Readiness Disclosure" discussion contains
various forward-looking statements that represent our beliefs or
expectations regarding future events. When used in the "Year 2000
Readiness Disclosure" discussion, the words "believes," "intends,"
"expects," "estimates," "plans," "goals," and similar expressions are
intended to identify forward-looking statements. Forward-looking
statements include, without limitation, our expectations as to when we
will complete the assessment, remediation planning, and implementation
phases of our Year 2000 initiative as well as our Year 2000 contingency
planning; our estimated cost of achieving Year 2000 readiness; and our
belief that our internal systems and equipment will be Year 2000 ready
in a timely and appropriate manner. All forward-looking statements
involve a number of risks and uncertainties that could cause the actual
results to differ materially from the projected results. Factors that
may cause those differences include availability of information
technology resources; customer demand for our products and services;
continued availability of materials, services, and data from our
suppliers; the ability to identify and remediate all date-sensitive
lines of computer code and to replace embedded computer chips in
affected systems and equipment; the failure of others to timely achieve
appropriate Year 2000 readiness; and the actions or inaction of
governmental agencies and others with respect to Year 2000 problems.
Page 24 of 27 Pages
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
All financial instruments and positions held by AGL Resources described
below are held for purposes other than trading.
Interest Rate Risk
AGL Resources' exposure to market risk related to changes in interest
rates relates primarily to its borrowing activities. A hypothetical 10%
increase or decrease in interest rates related to AGL Resources
variable rate debt ($113.0 million as of December 31, 1998) would not
have a material effect on our results of operations or financial
condition over the next year. The fair value of AGL Resources'
long-term debt and capital securities are also affected by changes in
interest rates. The carrying value of AGL Resources' long-term debt and
capital securities has been the same for the past two years. A
hypothetical 10% increase or decrease in interest rates would not have
a material effect on the estimated fair value of our long-term debt or
capital securities. Additionally, the fair value of our long-term debt
and capital securities has not materially changed since September 30,
1998.
Page 25 of 27 Pages
<PAGE>
PART II -- OTHER INFORMATION
"Part II -- Other Information" is intended to supplement information
contained in the Annual Report on Form 10-K for the fiscal year ended
September 30, 1998, and should be read in conjunction therewith.
ITEM 1. LEGAL PROCEEDINGS
With regard to legal proceedings, AGL Resources is a party, as both
plaintiff and defendant, to a number of suits, claims and counterclaims on
an ongoing basis. Management believes that the outcome of all litigation in
which it is involved will not have a material adverse effect on the
consolidated financial statements of AGL Resources.
ITEM 5. OTHER INFORMATION
Information related to State Regulatory Activity, Federal Regulatory
Activity, and Environmental matters is contained in Item 2 of Part I under
the caption "Management's Discussion and Analysis of Results of Operations
and Financial Condition."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3 Bylaws, as amended and restated on January 15, 1999.
10.1 Seventh Amendment to the AGL Resources Inc. Long-Term
Stock Incentive Plan of 1990.
10.2 Extension of Service Agreements #904480 under Rate
Schedule FT; #904481 under Rate Schedule FT-NN; and
#S20140 under Rate Schedule CSS, all dated November 1,
1994, between Atlanta Gas Light Company and Southern
Natural Gas Company (Exhibits 10.30; 10.32 and 10.33,
respectively, AGL Resources Inc. Form 10-K for the
fiscal year ended September 30, 1998).
18 Independent Auditor's preferability letter concerning a
change in accounting method.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the quarterly
period ended December 31, 1998.
Page 26 of 27 Pages
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AGL Resources Inc.
(Registrant)
Date February 15, 1999 /s/ J Michael Riley
J. Michael Riley
Senior Vice President and Chief Financial
Officer
(Principal Accounting and Financial Officer)
Page 27 of 27 Pages
Exhibit 3
BYLAWS
OF
AGL RESOURCES INC.
ARTICLE I
SHAREHOLDERS
SECTION 1.1. Date, Time and Place of Meetings. Annual and special
meetings of the Shareholders shall be held on such date and at such time and
place, within or without the State of Georgia, as may be stated in the notice of
the meeting, or in a duly executed waiver of notice thereof. If no designation
is made, the place of the meeting shall be the principal executive offices of
the Corporation.
SECTION 1.2. Annual Meetings. The annual meeting of the Shareholders of
the Corporation shall be held each year for the purposes of electing Directors
and of transacting such other business as properly may be brought before the
meeting. To be properly brought before the meeting, business must be brought
before the meeting (i) by or at the direction of the Board of Directors or (ii)
by any Shareholder of the Corporation entitled to vote at the meeting who
complies with the procedures set forth in Section 1.2 of this Article; provided,
in each case, that such business proposed to be conducted is, under the law, an
appropriate subject for Shareholder action.
For business to be properly brought before an annual meeting by a
Shareholder, the Shareholder must give timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a Shareholder's notice must be
received by the Secretary at the principal executive offices of the Corporation
at least 120 calendar days before the first anniversary of the date that the
Corporation's proxy statement was released to Shareholders in connection with
the previous year's annual meeting of Shareholders. However, if no annual
meeting of Shareholders was held in the previous year or if the date of the
annual meeting of Shareholders has been changed by more than 30 calendar days
from the date contemplated at the time of the previous year's proxy statement,
the notice shall be received by the Secretary at the principal executive offices
of the Corporation not fewer than the later of (i) 150 calendar days prior to
the date of the contemplated annual meeting or (ii) the date which is 10
calendar days after the date of the first public announcement or other
notification to the Shareholders of the date of the contemplated annual meeting.
Such Shareholder's notice to the Secretary shall set forth with respect
to any proposal such Shareholder proposes to bring before the annual meeting (i)
a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting; (ii)
the name and address, as they appear on the Corporation's books, of the
Shareholder proposing such business; (iii) the class and number of shares of the
Corporation which are beneficially owned by such Shareholder; (iv) the dates
upon which the Shareholder acquired such shares; (v) documentary support for any
claim of beneficial ownership; (vi) any material interest of such Shareholder in
such business; (vii) a statement in support of the matter and, for proposals
sought to be included in the Corporation's proxy statement, any other
information required by Securities and Exchange Commission Rule 14a-8; and
(viii) as to each person whom the Shareholder proposes to nominate for election
or reelection as Director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of Directors
in an election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a Director if elected, and evidence satisfactory to the
Corporation that such nominee has no interests that would limit their ability to
fulfill their duties of office).
<PAGE>
In addition, if the Shareholder intends to solicit proxies from the
shareholders of the Corporation, such Shareholder shall notify the Corporation
of this intent in accordance with Securities and Exchange Commission Rule 14a-4
and/or Rule 14a-8.
SECTION 1.3. Special Meetings. The Corporation shall hold a special
meeting of Shareholders on call of the Board of Directors or the Executive
Committee, the Chairman of the Board of Directors, the President, or, upon
delivery to the Corporation's Secretary of a signed and dated written demand for
the meeting describing the purpose or purposes for the meeting, on call of the
holders of 100% of the votes entitled to be cast on any issue proposed to be
considered at the proposed special meeting. Only business within the purpose or
purposes described in the notice of special meeting required by Section 1.5
below may be conducted at a special meeting of the Shareholders.
For business to be properly brought before a special meeting by a
Shareholder, the Shareholder must give timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a Shareholder's notice must be
received by the Secretary at the principal executive offices of the Corporation
at least 120 calendar days prior to the date of the special meeting.
Such Shareholder's notice to the Secretary shall set forth with respect
to any proposal such Shareholder proposes to bring before the special meeting
(i) a brief description of the business desired to be brought before the special
meeting and the reasons for conducting such business at the special meeting;
(ii) the name and address, as they appear on the Corporation's books, of the
Shareholder proposing such business; (iii) the class and number of shares of the
Corporation which are beneficially owned by such Shareholder; (iv) the dates
upon which the Shareholder acquired such shares; (v) documentary support for any
claim of beneficial ownership; (vi) any material interest of such Shareholder in
such business; (vii) a statement in support of the matter and, for proposals
sought to be included in the Corporation's proxy statement, any other
information required by Rule 14a-8; and (viii) if the Shareholders requesting
the special meeting propose to nominate one or more persons for election or
reelection as Director, all information relating to such person that is required
to be disclosed in solicitations of proxies for election of Directors in an
election contest, or is otherwise required, in each case pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a Director if elected, and evidence reasonably satisfactory to the
Corporation that such nominee has no interests that would limit their ability to
fulfill their duties of office).
In addition, if the Shareholder intends to solicit proxies from the
shareholders of the Corporation, such Shareholder shall notify the Corporation
of this intent in accordance with Securities and Exchange Commission Rule 14a-4
and/Rule or 14a-8.
SECTION 1.4. Determination of Validity of Notice of Shareholder
Proposal for Business. The chairman of a meeting may, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of Sections 1.2 and 1.3 of
this Article, and, if he should so determine, he shall so declare to the meeting
and any such business so determined to be not properly brought before the
meeting shall not be transacted, or in the case of persons so nominated, not be
eligible for election.
SECTION 1.5. Notice of Meetings. The Secretary or an Assistant
Secretary shall deliver, either personally or by mailing it, postage prepaid, a
written notice of the place, day, and time of all meetings of the Shareholders
not less than ten (10) nor more than sixty (60) days before the meeting date to
each Shareholder of record entitled to vote at such meeting. Unless otherwise
required or permitted by law, written notice is effective when mailed, if mailed
with postage prepaid and correctly addressed to the Shareholder's address shown
in the Corporation's current record of Shareholders. It shall not be necessary
that notice of an annual meeting include a description of the purpose or
purposes for which the meeting is called. In the case of a special meeting, the
purpose or purposes for which the meeting is called shall be included in the
notice of the special meeting. If an annual or special Shareholders' meeting is
adjourned to a different date, time, or place, notice of the new date, time, or
place need not be given if the new date, time, or place is announced at
<PAGE>
the meeting before adjournment. However, if a new record date for the adjourned
meeting is or must be fixed under Section 1.9 herein, notice of the adjourned
meeting must be given to persons who are Shareholders as of the new record date.
SECTION 1.6. Record Date. The Board of Directors, in order to determine
the Shareholders entitled to notice of or to vote at any meeting of the
Shareholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or to receive payment of any dividend or
other distribution or allotment of any rights, or to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, shall fix in advance a record date that may not be more
than seventy (70) days before the meeting or action requiring a determination of
Shareholders. Only such Shareholders as shall be Shareholders of record on the
date fixed shall be entitled to such notice of or to vote at such meeting or any
adjournment thereof, or to receive payment of any such dividend or other
distribution or allotment of any rights, or to exercise any such rights in
respect of stock, or to take any such other lawful action, as the case may be,
notwithstanding any transfer of any stock on the books of the Corporation after
any such record date fixed as aforesaid. The record date shall apply to any
adjournment of the meeting except that the Board of Directors shall fix a new
record date for the adjourned meeting if the meeting is adjourned to a date more
than 120 days after the date fixed for the original meeting.
SECTION 1.6. Shareholders' List for Meeting. After fixing a record date
for a meeting, the Corporation shall prepare an alphabetical list of the names
of all Shareholders who are entitled to notice of the Shareholders' meeting. The
list shall be arranged by voting group (and within each voting group by class or
series of shares) and show the address of and number of shares held by each
Shareholder. The Corporation shall make the Shareholders' list available for
inspection by any Shareholder, his agent, or his attorney at the time and place
of the meeting.
SECTION 1.8. Quorum. Subject to any express provision of law or the
Articles of Incorporation, a majority of the votes entitled to be cast by all
shares voting together as a group shall constitute a quorum for the transaction
of business at all meetings of the Shareholders. Whenever a class of shares or
series of shares is entitled to vote as a separate voting group on a matter, a
majority of the votes entitled to be cast by each voting group so entitled shall
constitute a quorum for purposes of action on any matter requiring such separate
voting. Once a share is represented, either in person or by proxy, for any
purpose at a meeting other than solely to object to holding a meeting or
transacting business at the meeting, it is deemed present for quorum purposes
for the remainder of the meeting and for any adjournment of that meeting unless
a new record date is set for the adjourned meeting.
SECTION 1.9. Adjournment of Meetings. The holders of a majority of the
voting shares represented at a meeting, or the Chairman of the Board or the
President, whether or not a quorum is present, shall have the power to adjourn
the meeting from time to time, without notice other than announcement at the
meeting. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transac__d at
the meeting as originally notified. If after the adjournment a new record date
is fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each Shareholder of record entitled to vote at the adjourned meeting.
SECTION 1.10. Vote Required. When a quorum exists, action on a matter
(other than the election of Directors) by a voting group is approved if the
votes cast within the voting group favoring the action exceed the votes cast
opposing the action, unless the Articles of Incorporation, a bylaw authorized by
the Articles of Incorporation or express provision of law requires a greater
number of affirmative votes. Unless otherwise provided in the Articles of
Incorporation, Directors are elected by a plurality of the votes cast by the
shares entitled to vote in the election at a meeting at which a quorum is
present. Shareholders do not have the right to cumulate their votes unless the
Articles of Incorporation so provide.
SECTION 1.11. Voting Entitlement of Shares. Unless otherwise provided
in the Articles of Incorporation, each Shareholder, at every meeting of the
Shareholders, shall be entitled to cast one vote, either in person or by written
proxy, for each share standing in his or her name on the books of the
Corporation as of the record date. A
<PAGE>
Shareholder may vote his shares in person or by proxy. An appointment of proxy
is effective when received by the Secretary of the Corporation or other officer
or agent authorized to tabulate votes and is valid for eleven (11) months unless
a longer period is expressly provided in the appointment of proxy form. An
appointment of proxy is revocable by the Shareholder unless the appointment form
conspicuously states that it is irrevocable and the appointment is coupled with
an interest.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1. General Powers. Subject to the Articles of Incorporation,
and Bylaws approved by the Shareholders, all corporate powers shall be exercised
by or under the authority of, and the business and affairs of the Corporation
managed under the direction of, the Board of Directors.
SECTION 2.2. Number and Tenure. The Board of Directors shall consist of
at least five (5) members and not more than fifteen (15) members, the exact
number of Directors to be fixed from time to time by resolution of the Board of
Directors of the Corporation. No decrease in the number or minimum number of
Directors, through amendment of the Articles of Incorporation or of the Bylaws
or otherwise, shall have the effect of shortening the term of any incumbent
Director. The Board of Directors shall be divided into three classes as nearly
equal in number as possible, with the term of office of one class expiring each
year. At the first annual meeting of shareholders, the Directors shall be
divided into three classes, as nearly equal in size as may be, with the
Directors of one class to be elected to hold office for a term expiring at the
third annual meeting following the election and until their successors shall
have been duly elected and qualified; with the Directors of the second class to
be elected to serve for a term expiring at the second annual meeting following
the election and until their successors shall have been duly elected and
qualified; and the Directors of the third class to be elected to serve for a
term expiring at the first annual meeting following the election and until their
successors shall have been duly elected and qualified. Thereafter, Directors
shall be elected for terms of three years, and until their successors have been
duly elected and qualified or until there is a decrease in the number of
Directors.
SECTION 2.3. Qualifications of Directors. Directors shall be natural
persons who have attained the age of 18 years who shall own at least 100 shares
of the Common Stock of the Corporation but need not be residents of the State of
Georgia.
SECTION 2.3.1. Re-election After Termination of Principal Employment.
If any Director ceases to hold the position in his or her principal employment
profession, trade or calling that he or she held at he beginning of the current
term for which he or she was elected a Director, such person shall not be
eligible for re-election to the Board of Directors after the expiration of such
current term unless the Board of Directors decides that such person should be
eligible for re-election.
SECTION 2.3.2. Terminating Events; Honorary Directors. Any Director who
either (i) attains his or her seventieth (70th) birthday or (ii) retires from or
discontinues his or her employment with the Corporation, whichever first occurs,
shall thereafter, upon completion of the term for which he or she was elected a
Director, cease to be an active Director; provided, however, anyone who, upon
his or her retirement is Chairman of the Board or President of the Corporation
may, notwithstanding the above provisions of this Section, continue to serve as
an active Director until his attains his seventieth (70th) birthday, and
thereafter until completion of the term for which he or she was elected a
Director.
SECTION 2.3.3. Honorary Directors. Upon appointment by the Board of
Directors, a Director who ceases to be an active Director because of age or
retirement, or any other person who shall be so elected by the Board of
Directors, shall become an Honorary Director for such term or terms as the Board
of Directors may determine, but subject to removal from the position of Honorary
Director at any time at the pleasure of the Board. Except for the regular
<PAGE>
November meeting of the Board of Directors, Honorary Directors will not be
expected to attend meetings of the Board unless specially invited. The expenses
of Honorary Directors in attending such November meeting or any other meeting of
the Board of Directors to which they are specially invited will be reimbursed by
the Corporation but they will not receive fees for attending such meetings.
Honorary Directors may participate in an advisory capacity in all discussions
and deliberations of the Board of Directors, but shall have no vote at the
meetings which they attend in accordance with the foregoing provisions. An
Honorary Director shall not be included in any calculation of the number of
active Directors authorized and serving under Section 2.2.
SECTION 2.4. Vacancies. Unless the Articles of Incorporation provide
otherwise, if a vacancy occurs on the Board of Directors, including a vacancy
resulting from an increase in the number of Directors, the vacancy may be filled
only by the Board of Directors, or, if the Directors remaining in office
constitute fewer than a quorum of the Board, by the affirmative vote of a
majority of all Directors remaining in office. If the vacant office was held by
a Director elected by a voting group of Shareholders, only the remaining
Directors elected by that voting group are entitled to vote to fill the vacancy.
SECTION 2.5. Meetings. The Board of Directors shall meet annually
immediately following the annual meeting of Shareholders. The annual meeting of
the Board of Directors shall be held at the time and place, within or without
the State of Georgia, as may be stated in the notice of the meeting or in a duly
executed waiver of notice thereof. If no designation is made, the place of the
annual meeting shall be the principal executive offices of the Corporation.
Regular meetings of the Board of Directors or any committee may be held between
annual meetings without notice at such time and at such place, within or without
the State of Georgia, as from time to time shall be determined by the Board or
committee, as the case may be. A majority of the Board of Directors, the
Chairman of the Board, the President or the Executive Committee may call a
special meeting of the Directors at any time by giving each Director two (2)
days notice of the date, time and place of the meeting. Such notice may be given
orally or in writing in accordance with the provisions of Section 4.1. Unless
otherwise provided in the Articles of Incorporation, these Bylaws or by law,
neither the business to be transacted at, nor the purpose of, any regular or
special meeting need be specified in the notice or any waiver of notice.
SECTION 2.6. Quorum and Voting. At all meetings of the Board of
Directors or any committee thereof, a majority of the number of Directors
prescribed, or if no number is prescribed, the number in office immediately
before the meeting begins, shall constitute a quorum for the transaction of
business. The affirmative vote of a majority of the Directors present at any
meeting at which there is a quorum at the time of such act shall be the act of
the Board or of the committee, except as might be otherwise specifically
provided by statute or by the Articles of Incorporation or Bylaws. In the
absence of a quorum, the Directors present by majority vote may adjourn the
meeting from time to time without notice other than by verbal announcement at
the meeting until a quorum shall attend. At any such adjourned meeting at which
a quorum shall be present, any business may be transacted which might have been
transacted at the meeting as originally notified.
SECTION 2.7. Action Without Meeting. Unless the Articles of
Incorporation or Bylaws provide otherwise, any action required or permitted to
be taken at any meeting of the Board of Directors or any committee thereof may
be taken without a meeting if the action is taken by all members of the Board or
committee, as the case may be. The action must be evidenced by one or more
written consents describing the action taken, signed by each Director, and filed
with the minutes of the proceedings of the Board or committee or filed with the
corporate records.
SECTION 2.8. Remote Participation in a Meeting. Unless otherwise
restricted by the Articles of Incorporation or the Bylaws, any meeting of the
Board of Directors may be conducted by the use of any means of communication by
which all Directors participating may simultaneously hear each other during the
meeting. A Director participating in a meeting by this means is deemed to be
present in person at the meeting.
<PAGE>
SECTION 2.9. Compensation of Directors. The Board of Directors may fix
the compensation of the Directors for their services as Directors. Compensation
shall be fixed from time to time by a resolution of the Board of Directors, and
may be on the basis of an annual sum or a fixed sum for attendance at each
regular or special meeting and every adjournment thereof, or a combination of
these methods. Members may be reimbursed for all reasonable traveling expenses
incurred in attending meetings. No provision of these Bylaws shall be construed
to preclude any Director from serving the Corporation in any other capacity and
receiving compensation therefor.
SECTION 2.10. Removal of Directors by Shareholders. Subject to the
requirements of Section 14-2-808 of the Georgia Business Corporation Code (the
"Code") for the removal of Directors elected by cumulative voting, voting group
or staggered terms, any one or more Directors may be removed from office, only
with cause, at any meeting of Shareholders with respect to which notice of such
purpose has been given, by the affirmative vote of the holder or holders of a
majority of the outstanding shares of the Corporation.
SECTION 2.11. Nomination of Directors. Only persons who are nominated
in accordance with the following procedures shall be eligible for election as
Directors. Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of Shareholders (i) by the Board of
Directors or at the direction of the Board by any nominating committee or person
appointed by the Board or (ii) by any Shareholder of the Corporation entitled to
vote for the election of Directors at the meeting who complies with the notice
procedures set forth in Sections 1.2 and 1.3 of Article I of these Bylaws. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. Such notice to the Secretary shall set forth the information
required in Section 1.2 and 1.3 of Article I of these Bylaws. The Corporation
may require any proposed nominee to furnish such other information as reasonably
may be required by the Corporation to determine the eligibility of such proposed
nominee to serve as a Director of the Corporation. The chairman of the meeting
may, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the foregoing procedures, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
SECTION 2.15. Indemnification. The indemnification authorized
in the Articles of Incorporation shall be subject to the following provisions
and procedures:
SECTION 2.15.1. Determination of Eligibility for Indemnification. In
the case of actions brought by or in the right of the Corporation, a Director's
right to indemnification as authorized in the Articles of Incorporation shall be
determined:
(i) If there are two or more directors not at the time parties
to the proceeding ("Disinterested Directors"), by the board of
directors by a majority vote of all the Disinterested Directors (a
majority of whom shall for such purpose constitute a quorum), or by a
majority of the members of a committee of two or more Disinterested
Directors appointed by such a vote;
(ii) By special legal counsel:
(a) Selected in the manner prescribed in
paragraph (i) of this subsection; or
(b) If there are fewer than two
Disinterested Directors, the Board of
Directors (in which selection directors who
do not qualify as Disinterested Directors
may participate); or
(iii) By the shareholders, but shares owned by or voted under
the control of a director who at the time does not qualify as a
disinterested director may not be voted on the determination.
SECTION 2.15.2. Rights Not Exclusive. The rights to indemnification and
advance of expenses granted in the Articles of Incorporation and in these Bylaws
are not exclusive, and do not limit the Corporation's power to pay or
<PAGE>
reimburse expenses to which a Director may be entitled, whether by agreement
vote of shareholders or Disinterested Directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
office, and do not limit the Corporation's power to pay or reimburse expenses
incurred by a Director in connection with his appearance as a witness in a
proceeding at a time when he has not been made a named defendant or respondent
to the proceeding.
SECTION 2.15.3. Insurance. The Corporation and its officers shall have
the power to purchase and maintain insurance on behalf of an individual who is
or was a Director, officer, employee or agent of the Corporation or who, while a
Director, officer, employee, or agent of the Corporation, is or was serving as a
Director, officer, partner, trustee employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee benefit plan,
or other enterprise against liability asserted against or incurred by him in
that capacity or arising from his status as a Director, officer, employee or
agent, whether or not the Corporation would have the power to indemnify him
against the same liability under the provisions of these Bylaws.
SECTION 2.15.4. Reports to Shareholders. If the Corporation indemnifies
or advances expenses to a Director, otherwise than by action of the shareholders
or by an insurance carrier pursuant to insurance maintained by the Corporation
shall report the indemnification or advance in writing to the shareholders with
or before the notice of the next annual shareholders' meeting.
ARTICLE III
COMMITTEES
SECTION 3.1. Committees. The Board of Directors may, by resolution,
designate from among its members one or more committees, each committee to
consist of one or more Directors, except that committees appointed to take
action with respect to indemnification of Directors, Directors' conflicting
interest transactions or derivative proceedings shall consist of two or more
Directors qualified to serve pursuant to the Code. Any such committee, to the
extent specified by the Board of Directors, Articles of Incorporation or Bylaws,
shall have and may exercise all of the authority of the Board of Directors in
the management of the business affairs of the Corporation, except that it may
not (i) approve or propose to Shareholders action that the Code requires to be
approved by Shareholders; (ii) fill vacancies on the Board of Directors or any
of its committees; (iii) amend the Articles of Incorporation; (iv) adopt, amend,
or repeal Bylaws; or (v) approve a plan of merger not requiring Shareholder
approval. All action by any committee shall be reported to the Board of
Directors at its meeting next succeeding such action, and shall be subject to
revision and alteration by the Board of Directors, except that no rights of
third person shall be affected by any such revision or alteration. Vacancies in
any committee shall be filled by the Board of Directors.
SECTION 3.2. Meetings of Committees. Regular meetings of any committee
may be held without notice at such time and at such place, within or without the
State of Georgia, as from time to time shall be determined by such committee.
The Chairman of the Board of Directors, the President, the Board of Directors or
the committee by vote at a meeting, or by two members of any committee in
writing without a meeting, may call a special meeting of any such committee at
any time by giving each such committee member two (2) days notice of the date,
time and place of the meeting. Such notice may be given orally or in writing in
accordance with the provisions of Section 4.1. Unless otherwise provided in the
Articles of Incorporation, these Bylaws or by law, neither the business to be
transacted at, nor the purpose of, any regular or special meeting of any such
committee need be specified in the notice or any waiver of notice.
SECTION 3.3. Quorum of Committee. At all meetings of any committee a
majority of the total number of its members shall constitute a quorum for the
transaction of business. Except in cases in which it is by law, by the Articles
of Incorporation, by these Bylaws, or by resolution of the Board of Directors
otherwise provided, a majority of such quorum shall decide any questions that
may come before the meeting. In the absence of a quorum, the members of the
committee present by majority vote may adjourn the meeting from time to time,
without notice other than by verbal announcement at
<PAGE>
the meeting, until a quorum shall attend.
SECTION 3.4. Compensation of Committee Members. The Board of Directors
may fix the compensation of the Directors for their services as members of
committees of the Board of Directors. Compensation shall be fixed from time to
time by a resolution of the Board of Directors, and may be on the basis of an
annual sum or a fixed sum for attendance at each regular or special meeting and
every adjournment thereof, or a combination of these methods. Members of
committees shall be reimbursed for all reasonable traveling expenses incurred in
attending meetings. No provision of these Bylaws shall be construed to preclude
any Director from serving the Corporation in any other capacity and receiving
compensation therefor.
SECTION 3.5. Executive Committee. The Board of Directors, by resolution
adopted by a majority of the whole Board of Directors, may designate an
Executive Committee of three or more Directors, which designation shall include
the Chairman of the Board of Directors and the President. Each Director of the
Corporation who is not designated as a member of the Executive Committee hereby
is designated as an alternate member of the Executive Committee, who may act in
the place and stead of any absent member or members at any meeting of such
Executive Committee in the event (i) a quorum of the Executive Committee is not
present and (ii) the Chairman of the Board or, in his absence, the President,
appoints such alternate member to act for that meeting as a member of the
Executive Committee; and such alternate member shall serve only at the meeting
for which such appointment is made, but shall have at that meeting all the
powers of a regular member of the Executive Committee. During the intervals
between the meetings of the Board of Directors the Executive Committee shall
have and may exercise all of the authority of the Board of Directors in the
management of the business affairs of the Corporation to the extent authorized
by the resolution providing for such Executive Committee or by subsequent
resolution adopted by a majority of the whole Board of Directors, except that it
may not (i) approve or propose to Shareholders action that the Code requires to
be approved by Shareholders; (ii) fill vacancies on the Board of Directors or
any of its committees; (iii) amend the Articles of Incorporation; (iv) adopt,
amend, or repeal bylaws; or (v) approve a plan of merger not requiring
Shareholder approval.
SECTION 3.5.1. Honorary Members of Executive Committee. Upon
appointment by the Board of Directors, a Director who ceases to be an active
Director because of age or retirement, and who at the time has been a member of
the Executive Committee for twelve or more years, shall become an Honorary
Member of the Executive Committee for such term or terms as the Board of
Directors may determine, but subject to removal from the position of Honorary
Member of the Executive Committee at any time at the pleasure of the Board.
Honorary Members of the Executive Committee shall receive the customary fees for
attending regular meetings, and may participate in an advisory capacity in all
discussions and deliberations of the Executive Committee, but shall have no vote
at the meetings which they attend in accordance with the foregoing provisions.
An Honorary Member shall not be included in any calculation of the number of
active Directors authorized and serving under Section 3.5.
SECTION 3.6. Audit Committee. The Board of Directors, by resolution
adopted by a majority of the whole Board of Directors, may designate an Audit
Committee of four (4) or more Directors. The members of the Audit Committee
shall serve at the pleasure of the Board of Directors or until their successors
shall be duly designated. Each Director of the Corporation who is not designated
as a member of the Audit Committee hereby is designated as an alternate member
of the Audit Committee, who may act in the place and stead of any absent member
or members at any meeting of such Audit Committee in the event (i) a quorum of
the Audit Committee is not present and (ii) the Chairman of the Board or, in his
absence, the President, appoints such alternate member to act for that meeting
as a member of the Audit Committee; and such alternate member shall serve only
at the meeting for which such appointment is made, but shall have at that
meeting all the powers of a regular member of the Audit Committee. The Audit
Committee shall consider the choice of the independent public accountants for
the Corporation, shall review the planned scope of the audit and the results of
their examinations of the financial statements of the Corporation, their
opinions thereon and their recommendations with respect to accounting, internal
controls and other matters, shall convey information to and from the Board of
Directors and its independent public accountants and auditors, shall be
available for discussions of internal auditing problems and procedures, and
shall make their report to the Board of Directors or the Executive Committee, or
to both. The Audit Committee shall keep full and fair accounts of its
transactions. All action by the Audit Committee shall
<PAGE>
be reported to the Board of Directors at its meeting next succeeding such
action, and shall be subject to revision and alteration by the Board of
Directors; provided that no rights of third persons shall be affected by any
such revision or alteration. Vacancies in the Audit Committee shall be filled by
the Board of Directors.
SECTION 3.7. Nominating and Compensation Committee. The Board of
Directors, by resolution adopted by a majority of the whole Board of Directors,
may designate a Nominating and Compensation Committee of four (4) or more
Directors. The members of the Nominating and Compensation Committee shall serve
at the pleasure of the Board of Directors or until their successors shall be
duly designated. Each Director of the Corporation who is not designated as a
member of the Nominating and Compensation Committee hereby is designated as an
alternate member of the Nominating and Compensation Committee, who may act in
the place and stead of any absent member or members at any meeting of such
Nominating and Compensation Committee in the event (i) a quorum of the
Nominating and Compensation Committee is not present and (ii) the Chairman of
the Board or, in his absence, the President, appoints such alternate member to
act for that meeting as a member of the Nominating and Compensation Committee;
and such alternate member shall serve only at the meeting for which such
appointment is made, but shall have at that meeting all the powers of a regular
member of the Nominating and Compensation Committee. The Nominating and
Compensation Committee shall review and develop, with the Chief Executive
Officer, management succession and executive development plans; recommend to the
Board for election the officers of the Corporation and Atlanta Gas Light
Company, and the presidents of each of the other principal subsidiaries of the
Corporation; and review the performance of and recommend to the Board of
Directors the appropriate compensation level for such officers, including base
salaries, stock based compensation, other incentive compensation, and
perquisites. The Nominating and Compensation Committee also shall review and
recommend to the Board of Directors any changes in the various benefit programs
of the Corporation; and shall review the level of fees paid and the manner in
which fees are paid to members of the Corporation's Board of Directors and shall
make recommendations for adjustments as appropriate. The Nominating and
Compensation Committee also shall identify and recommend to the Board of
Directors the nominees for the Board. The Nominating and Compensation Committee
shall keep full and fair accounts of its transactions. All action by the
Nominating and Compensation Committee shall be reported to the Board of
Directors at its meeting next succeeding such action, and shall be subject to
revision and alteration by the Board of Directors; provided that no rights of
third persons shall be affected by any such revision or alteration. Vacancies in
the Nominating and Compensation Committee shall be filled by the Board of
Directors.
SECTION 3.8. Corporate Responsibility Committee. The Board of
Directors, by resolution adopted by a majority of the whole Board of Directors,
may designate a Corporate Responsibility Committee of four (4) or more
Directors. The members of the Corporate Responsibility Committee shall serve at
the pleasure of the Board of Directors or until their successors shall be duly
designated. Each Director of the Corporation who is not designated as a member
of the Corporate Responsibility Committee hereby is designated as an alternate
member of the Corporate Responsibility Committee, who may act in the place and
stead of any absent member or members at any meeting of such Corporate
Responsibility Committee in the event (i) a quorum of the Corporate
Responsibility Committee is not present and (ii) the Chairman of the Board or,
in his absence, the President, appoints such alternate member to act for that
meeting as a member of the Corporate Responsibility Committee; and such
alternate member shall serve only at the meeting for which such appointment is
made, but shall have at that meeting all the powers of a regular member of the
Corporate Responsibility Committee. The Corporate Responsibility Committee shall
make periodic reviews of pension plans (including the investment of funds); it
shall identify and monitor broad governmental, social and environmental trends
that could affect the Corporation's performance and the related interests of its
employees, shareholders, customers and the general public; it shall review and
monitor matters relating to employee and community health and safety; and it
shall review and monitor corporate policy with respect to charitable giving. The
results of said reviews shall be reported to the Board of Directors. The
Corporate Responsibility Committee shall keep full and fair accounts of its
transactions. All action by the Corporate Responsibility Committee shall be
reported to the Board of Directors at its meeting next succeeding such action,
and shall be subject to revision and alteration by the Board of Directors;
provided that no rights of third persons shall be affected by any such revision
or alteration. Vacancies in the Corporate Responsibility Committee shall be
filled by the Board of Directors.
<PAGE>
SECTION 3.9. Strategy and Finance Committee. The Board of Directors, by
resolution adopted by a majority of the whole Board of Directors, may designate
a Strategy and Finance Committee of four (4) or more Directors. The members of
the Strategy and Finance Committee shall serve at the pleasure of the Board of
Directors or until their successors shall be duly designated. Each Director of
the Corporation who is not designated as a member of the Strategy and Finance
Committee hereby is designated as an alternate member of the Strategy and
Finance Committee, who may act in the place and stead of any absent member or
members at any meeting of such Strategy and Finance Committee in the event (i) a
quorum of the Strategy and Finance Committee is not present and (ii) the
Chairman of the Board or, in his absence, the President, appoints such alternate
member to act for that meeting as a member of the Strategy and Finance
Committee; and such alternate member shall serve only at the meeting for which
such appointment is made, but shall have at that meeting all the powers of a
regular member of the Strategy and Finance Committee. The Strategy and Finance
Committee shall consider and make recommendations to the Board relating to short
and long term business objectives and strategies; strategic business
combinations; entry into new businesses; the Corporation's operating plans and
budgets for each fiscal year; the Corporation's capitalization; financing plans,
including short and long term needs for capital; and dividend policy. The
results of said reviews shall be reported to the Board of Directors. The
Strategy and Finance Committee shall keep full and fair accounts of its
transactions. All action by the Strategy and Finance Committee shall be reported
to the Board of Directors at its meeting next succeeding such action, and shall
be subject to revision and alteration by the Board of Directors; provided that
no rights of third persons shall be affected by any such revision or alteration.
Vacancies in the Strategy and Finance Committee shall be filled by the Board of
Directors.
ARTICLE IV
NOTICES
SECTION 4.1. Notice. Whenever, under the provisions of the Articles of
Incorporation or these Bylaws or by law, notice is required to be given to any
Director or Shareholder, such notice may be given in writing, by mail; by
telegram, telex or facsimile transmission; by other form of wire or wireless
communication; or by private carrier. Unless otherwise required or permitted by
law, such notice shall be deemed to be effective at the earliest of when
received, or when delivered, properly addressed, to the addressee's last known
principal place of business or residence; or five days after the same shall be
deposited in the United States mail if mailed with first-class postage prepaid
and correctly addressed; or on the date shown on the return receipt, if sent by
registered or certified mail, and the receipt is signed by or on behalf of the
addressee. Notice to any Director or Shareholder may also be oral if oral notice
is reasonable under the circumstances. Oral notice is effective when
communicated if communicated in a comprehensible manner. If these forms of
personal notice are impractical, notice may be communicated by a newspaper of
general circulation in the area where published, or by radio, television, or
other form of public broadcast communication.
SECTION 4.2. Waiver of Notice. Whenever any notice is required to be
given under provisions of the Articles of Incorporation or of these Bylaws or by
law, a waiver thereof, signed by the person entitled to notice and delivered to
the Corporation for inclusion in the minutes or filing with the corporate
records, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting and of all objections to the place or time of
the meeting or the manner in which it has been called or convened, except when
the person attends a meeting for the express purpose of stating, at the
beginning of the meeting, any such objection and, in the case of a Director,
does not thereafter vote for or assent to action taken at the meeting. Neither
the business to be transacted at nor the purpose of any regular or special
meeting of the Shareholders, Directors or a committee of Directors need be
specified in any written waiver of notice; provided, however, that any waiver of
notice of a meeting of Shareholders required with respect to a plan of merger or
a plan of consolidation shall be effective only upon compliance with Section
14-2-706(c) of the Code or successor provisions.
ARTICLE V
<PAGE>
OFFICERS
SECTION 5.1. Appointment. The Board of Directors at its first meeting
following the Annual Meeting of Shareholders shall elect such officers as it
shall deem necessary, including, for the Corporation and Atlanta Gas Light
Company, a Chairman of the Board, a President, a Secretary, a Treasurer, one or
more Vice Presidents (one or more of whom may be designated Executive Vice
President or Senior Vice President), Assistant Vice Presidents, Assistant
Secretaries and Assistant Treasurers. The Board of Directors at its first
meeting following the Annual Meeting of Shareholders also shall elect, for each
of the Corporation's major subsidiaries, a President. Each of the officers
elected by the Board shall exercise such powers and perform such duties as shall
be determined from time to time by the Board of Directors. Each such officer
shall hold office until the corresponding meeting of the Board of Directors in
the next year and until his successor shall have been duly elected and qualified
or until he shall have resigned or shall have been removed in the manner
provided in Section 5.2 of this Article V. Any number of offices may be held by
the same person unless the Articles of Incorporation or these Bylaws otherwise
provide. The appointment of an officer does not itself create contract rights.
SECTION 5.2. Resignation and Removal of Officers. An officer may resign
at any time by delivering notice to the Corporation and such resignation is
effective when the notice is delivered unless the notice specifies a later
effective date. The Board of Directors (except in the case of an officer elected
by the Board of Directors) or the Executive Committee or an officer upon whom
such power of removal may have been conferred may remove any officer at any time
with or without cause.
SECTION 5.3. Vacancies. Any vacancy in office resulting from any
cause may be filled by the Board of Directors at any regular or special meeting.
SECTION 5.4. Powers and Duties. Each officer has the authority and
shall perform the duties set forth below or, to the extent consistent with these
Bylaws, the duties prescribed by the Board of Directors or by direction of an
officer authorized by the Board of Directors to prescribe the duties of other
officers.
SECTION 5.4.1. Chairman of the Board of Directors. The Chairman of the
Board of Directors may be chosen from among the Directors of the Corporation and
need not be an Executive Officer or employee of the Corporation. The Chairman
shall preside at all meetings of the Board of Directors. He shall have the usual
powers and duties incident to the office of the chairman of the board of
directors of a corporation and such other powers and duties as from time to time
may be assigned to him by the Board of Directors.
SECTION 5.4.2. Chief Executive Officer. The Board of Directors may
designate as the Chief Executive Officer of the Corporation the President or any
other officer of the Corporation including the Chairman if the Chairman is a
full-time officer and employee of the Corporation. The Chief Executive Officer
of the Corporation shall have general and active management responsibility for
the business of the Corporation and shall see that all orders and resolutions of
the Board of Directors are carried into effect. The Chief Executive Officer
shall preside at all meetings of the shareholders. The Chief Executive Officer
shall be the Chairman of the Executive Committee and preside at all meetings of
that committee. Except where by law the signature of the President is required,
the Chief Executive Officer shall have the same powers as the President to sign
all authorized certificates, contracts, bonds, deeds, mortgages and other
instruments. He shall have the usual powers and duties incident to the position
of chief executive officer of a corporation and such other powers and duties as
from time to time may be assigned by the Board of Directors. The Board of
Directors may, or if it does not, the Chief Executive Officer may, from time to
time designate an Executive Officer of the Corporation to assume and perform the
duties and powers of the Chief Executive Officer during the absence or
disability of the Chief Executive Officer.
SECTION 5.4.3. President. The President shall be responsible for the
general supervision of the affairs of the Corporation and general and active
management of the financial affairs of the Corporation. He shall have the power
to make and execute certificates, contracts, bonds, deeds, mortgages and other
instruments on behalf of the Corporation,
<PAGE>
except in cases in which the signing thereof shall have been expressly delegated
to some other officer or agent of the Corporation and to delegate such power to
others. He also shall have such powers and perform such duties as are
specifically imposed on him by law and as may be assigned to him by the Board of
Directors. In the event there is no Chairman of the Board, the President shall
also have all the powers and authority that the Chairman is given in these
Bylaws or otherwise. During the absence or disability of the Chairman of the
Board, the President shall preside at all meetings of the Shareholders, the
Board of Directors and the Executive Committee. He shall have the usual powers
and duties incident to the office of a president of a corporation and such other
powers and duties as from time to time may be assigned to him by the Board of
Directors. If the Board of Directors designates the President as the Chief
Executive Officer of the Corporation, the President shall also have the powers
and duties of the Chief Executive Officer.
SECTION 5.4.4. Vice Presidents. The Executive Vice Presidents shall be
senior in authority among the Vice Presidents. During the absence or disability
of the President, the Board of Directors shall designate which of the Executive
Vice Presidents shall exercise all the powers and discharge all of the duties of
the President, provided, however, that if he is not a Director he shall not
preside at any meetings of the Board of Directors or the Executive Committee.
The Vice Presidents, shall perform such duties as vice presidents customarily
perform and shall perform such other duties and shall exercise such other powers
as the President or the Board of Directors may from time to time designate.
SECTION 5.4.5. Secretary. The Secretary shall attend all meetings of
the Shareholders and all meetings of the Board of Directors and shall record all
votes and minutes of all proceedings in books to be kept for that purpose, and
shall perform like duties for the standing committees when required. He shall
have custody of the corporate seal of the Corporation, shall have the authority
to affix the same to any instrument the execution of which on behalf of the
Corporation under its seal is duly authorized and shall attest to the same by
his signature whenever required. The Board of Directors may give general
authority to any other officer to affix the seal of the Corporation and to
attest to the same by his signature. The Secretary shall give, or cause to be
given, any notice required to be given of any meetings of the Shareholders, the
Board of Directors and of the standing committees when required. The Secretary
shall cause to be kept such books and records as the Board of Directors, the
Chairman of the Board or the President may require and shall cause to be
prepared, recorded, transferred, issued, sealed and canceled certificates of
stock as required by the transactions of the Corporation and its Shareholders.
The Secretary shall attend to such correspondence and shall perform such other
duties as may be incident to the office of a Secretary of a Corporation or as
may be assigned to him by the Board of Directors, the Chairman of the Board or
the President.
SECTION 5.4.6. Treasurer. The Treasurer shall be charged with the
management of financial affairs of the Corporation and shall have charge of and
be responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust
companies, or other depositaries as shall from time to time be selected by the
Board of Directors. He shall render to the President and to the Board of
Directors, whenever requested, an account of the financial condition of the
Corporation. In general, he shall perform such duties as treasurers usually
perform and shall perform such other duties and shall exercise such other powers
as the Board of Directors, the Chairman of the Board or the President may from
time to time designate and shall render to the Chairman of the Board, the
President and to the Board of Directors, whenever requested, an account of the
financial condition of the Corporation.
SECTION 5.4.7. Controller. The Controller shall have charge of and be
responsible for preparation of financial and management reports, budgeting, rate
material, property accounting, taxes and such other duties as are commonly
incident to the office of Controller. The Controller shall have such power and
duties as from time to time may be properly delegated by the President and such
other powers and duties as may from time to time be assigned by the Board of
Directors.
SECTION 5.4.8. Assistant Vice President, Assistant Secretary and
Assistant Treasurer. One or more Assistant Vice Presidents, Assistant
Secretaries and Assistant Treasurers, in the absence or disability of any Vice
President, the Secretary or the Treasurer, respectively, shall perform the
duties and exercise the powers of those offices, and, in general, they shall
perform such other duties as shall be assigned to them by the Board of Directors
or by the
<PAGE>
person appointing them. Specifically the Assistant Secretaries may affix the
corporate seal to all necessary documents and attest the signature of any
officer of the Corporation.
SECTION 5.4.9. Subordinate Officers. The Board of Directors may elect
such subordinate officers as it may deem desirable. Each such officer shall hold
office for such period, have such authority and perform such duties as the Board
of Directors may prescribe. The Board of Directors may from time to time
authorize any officer to appoint and remove subordinate officers and prescribe
the powers and duties thereof. The Board of Directors may from time to time
authorize the Chairman of the Board of Directors or the President to appoint any
employee or officer of the Corporation (except the President, the Secretary or
an Assistant Secretary elected by the Board of Directors) as an Assistant
Secretary of the Corporation, to prescribe the powers, term, duties and salary,
if any, of such Assistant Secretary, and to remove any Assistant Secretary thus
appointed.
SECTION 5.5. Officers Holding Two or More Offices. Any two of the above
mentioned offices, except those of President and Secretary or Assistant
Secretary, may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity if such
instrument be required by statute, by the Articles of Incorporation or by these
Bylaws to be executed, acknowledge or verified by any two or more officers.
SECTION 5.6. Compensation. The Board of Directors shall have power to
fix the compensation of all officers of the Corporation. It may authorize any
officer, upon whom the power of appointing subordinate officers may have been
conferred, to fix the compensation of such subordinate officers.
ARTICLE VI
CAPITAL STOCK
SECTION 6.1. Share Certificates. Unless the Articles of Incorporation
or these Bylaws provide otherwise, the Board of Directors may authorize the
issue of some or all of the shares of any or all of its classes or series with
or without certificates. Unless the Code provides otherwise, there shall be no
differences in the rights and obligations of Shareholders based on whether or
not their shares are represented by certificates.
In the event that the Board of Directors authorizes shares with
certificates, each certificate representing shares of stock of the Corporation
shall be in such form as shall be approved by the Board of Directors and shall
set forth upon the face thereof the name of the Corporation and that it is
organized under the laws of the State of Georgia, the name of the person to whom
the certificate is issued, and the number and class of shares and the
designation of the series, if any, the certificate represents. The Board of
Directors may designate any one or more officers to sign each share certificate,
either manually or by facsimile. In the absence of such designation, each share
certificate must be signed by the President or a Vice President and the
Secretary or an Assistant Secretary. If the person who signed a share
certificate, either manually or in facsimile, no longer holds office when the
certificate is issued, the certificate is nevertheless valid.
SECTION 6.2. Record of Shareholders. The Corporation or an agent
designated by the Board of Directors shall maintain a record of the
Corporation's Shareholders in a form that permits preparation of a list of names
and addresses of all Shareholders, in alphabetical order by class or shares
showing the number and class of shares held by each Shareholder. The Corporation
shall be entitled to treat the person in whose name shares are registered in the
records of the Corporation as the owner thereof for all purposes unless it
accepts for its records a nominee certificate naming a beneficial owner of
shares other than the record owner, and shall not otherwise be bound to
recognize any equitable or other claim to or interest in such shares except as
may be provided by law.
SECTION 6.3. Lost Certificates. In the event that a share certificate
is lost, stolen, mutilated or destroyed, the Board of Directors may direct that
a new certificate be issued in place of such certificate. When authorizing the
issue of a new certificate, the Board of Directors may require such proof of
loss as it may deem appropriate as a condition precedent to the issuance
thereof, including a requirement that the owner of such lost, stolen or
destroyed certificate, or his legal
<PAGE>
representative, advertise the same in such manner as the Board shall require
and/or that he give the Corporation a bond in such sum as the Board may direct
as indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
SECTION 6.4. Transfers of Shares. Transfers of shares of the capital
stock of the Corporation shall be made only upon the books of the Corporation by
the registered holder thereof, or by his duly authorized attorney, or with a
transfer clerk or transfer agent appointed as provided in Section 6.5 hereof,
and, in the case of a share represented by certificate, on surrender of the
certificate or certificates for such shares properly endorsed and the payment of
all taxes thereon. The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, to vote as such owner, and for all other purposes, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by law.
SECTION 6.5. Transfer Agents and Registrars. The Board of Directors may
establish such other regulations as it deems appropriate governing the issue,
transfer, conversion and registration of share certificates, including
appointment of transfer agents, clerks or registrars.
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.1. Indemnification of Officers, Employees and Agents. The
Corporation shall indemnify any officer who was or is made a party to or is
otherwise involved in any threatened, pending or completed action, suit or
proceeding, whether civil, derivative, criminal, administrative or investigative
(hereinafter, a "proceeding") to the same extent as it is obligated to indemnify
any Director of the Corporation, but without being subject to the same
procedural conditions imposed for the indemnification of Directors. The
Corporation may indemnify and advance expenses to an employee or agent who is
not a Director or officer to the extent permitted by the Articles of
Incorporation, the Bylaws or by law.
SECTION 7.2. Seal. The Corporation may have a seal, which shall be in
such form as the Board of Directors may from time to time determine. In the
event that the use of the seal is at any time inconvenient, the signature of an
officer of the Corporation, followed by the word "Seal" enclosed in parentheses,
shall be deemed the seal of the Corporation.
SECTION 7.3. Voting Shares in Other Corporations. In the absence of
other arrangements by the Board of Directors, shares of stock issued by another
corporation and owned or controlled by the Corporation, whether in a fiduciary
capacity or otherwise, may be voted by the President or any Vice President, in
the absence of action by the President, in the same order as they preside in the
absence of the President, or, in the absence of action by the President or any
Vice President, by any other officer of the Corporation, and such person may
execute the aforementioned powers by executing proxies and written waivers and
consents on behalf of the Corporation.
SECTION 7.4. Amendment of Bylaws. These Bylaws may be amended or
repealed and new bylaws may be adopted by the Board of Directors at any regular
or special meeting of the Board of Directors unless the Articles of
Incorporation or the Code reserve this power exclusively to the Shareholders in
whole or in part or the Shareholders, in amending or repealing the particular
bylaw, provide expressly that the Board of Directors may not amend or repeal
that bylaw. Unless the Shareholders have fixed a greater quorum or voting
requirement, these Bylaws also may be altered, amended or repealed and new
bylaws may be adopted, unless such action has been recommended by the Board of
Directors, by an affirmative vote of the holders of at least two-thirds of all
outstanding shares entitled to vote.
<PAGE>
SECTION 7.5. Execution of Bonds, Debentures, Evidences of Indebtedness,
Checks, drafts and other Obligations and Orders for Payment. The signatures of
any officer or officers of the Corporation executing a corporate bond, debenture
or other debt security of the Corporation or attesting the corporate seal
thereon, or upon any interest coupons annexed to any such corporate bond,
debenture or other debt security of the Corporation, and the corporate seal
affixed to any such bond, debenture or other debt security of the Corporation,
may be facsimiles, engraved or printed, provided that such bond, debenture or
other debt security of the Corporation is authenticated or countersigned with
the manual signature of an authorized officer of the corporate trustee
designated by the indenture or other agreement under which said security is
issued by a transfer agent, or registered by a registrar, other than the
Corporation itself, or an employee of the Corporation. If the person who signed
such, bond, debenture or other debt security of the Corporation, either manually
or in facsimile, no longer holds office when the certificate is issued, the
certificate is nevertheless valid.
SECTION 7.6. Business Combinations. All of the requirements of Sections
14-2-1131 to 1133, inclusive, of the Code, as now in effect and as hereafter
from time to time amended, shall be applicable to this Corporation and to any
business combination approved or recommended by the Board of Directors.
ARTICLE VIII
EMERGENCY BYLAWS
SECTION 8.1. Emergency Bylaws. This Article shall be operative during
any emergency resulting from some catastrophic event that prevents a quorum of
the Board of Directors or any committee thereof from being readily assembled (an
"emergency"), notwithstanding any different or conflicting provisions set forth
elsewhere in these Bylaws or in the Articles of Incorporation. To the extent not
inconsistent with the provisions of this Article, the bylaws set forth elsewhere
herein and the provisions of the Articles of Incorporation shall remain in
effect during such emergency, and upon termination of such emergency, the
provisions of this Article shall cease to be operative.
SECTION 8.2. Meetings. During any emergency, a meeting of the Board of
Directors or any committee thereof may be called by any Director, or by the
President, any Vice President, the Secretary or the Treasurer (the "Designated
Officers") of the Corporation. Notice of the time and place of the meeting shall
be given by any available means of communication by the person calling the
meeting to such of the Directors and/or Designated Officers as may be feasible
to reach. Such notice shall be given at such time in advance of the meeting as,
in the judgement of the person calling the meeting, circumstances permit.
SECTION 8.3 Quorum. At any meeting of the Board of Directors or any
committee thereof called in accordance with this Article, the presence or
participation of two Directors, one Director and a Designated Officer, or two
Designated Officers shall constitute a quorum for the transaction of business.
SECTION 8.4. Bylaws. At any meeting called in accordance with this
Article, the Board of Directors or committee thereof, as the case may be, may
modify, amend or add to the provisions of this Article so as to make any
provision that may be practical or necessary for the circumstance of the
emergency.
SECTION 8.5. Liability. Corporate action taken in good faith in
accordance with the emergency bylaws may not be used to impose liability on a
Director, officer, employee or agent of the Corporation.
SECTION 8.6. Repeal or Change. The provisions of this Article shall be
subject to repeal or change by further action of the Board of Directors or by
action of Shareholders, but no such repeal or change shall modify the provisions
of the immediately preceding section of this Article with regard to action taken
prior to the time of such repeal or change.
SEVENTH AMENDMENT TO THE
AGL RESOURCES INC.
LONG-TERM STOCK INCENTIVE PLAN OF 1990
This Seventh Amendment to the AGL Resources Inc. Long-Term Stock
Incentive Plan of 1990 (the "Plan") is made and entered into this 6th day of
November 1998, by AGL Resources Inc. (the "Company").
W I T N E S S E T H:
WHEREAS, the Company sponsors the Plan to provide incentive and to
encourage proprietary interest in the Company by its key employees, officers and
inside directors; and
WHEREAS, the Company believes that it is in the best interest of the
Company and its employees to amend the Plan to increase the number of shares
which may be subject to the Plan; and
WHEREAS, the Company desires to increase the number of shares available
under the Plan from 3,200,000 shares to 3,520,000 shares; and
WHEREAS, the Company desires that the maximum number of shares
available for issuance with respect to incentive stock options under the Plan
shall remain at 3,200,000; and
WHEREAS, Section 10 of the Plan provides that the Company may amend the
Plan at any time; and
WHEREAS, the Board of Directors of the Company has adopted a resolution
authorizing the amendment of the Plan;
NOW, THEREFORE BE IT RESOLVED, that, effective as of November 6, 1998,
the Plan hereby is amended as follows:
1.
Section 3 of the Plan is hereby amended by replacing the second
sentence thereof with the following sentence:
"Subject to readjustment in accordance with the provisions of
Section 8, the total number of shares of Common Stock for which Stock
Rights may be granted to persons participating in the Plan shall not
exceed in the aggregate 3,520,000 shares of Common Stock, less any
shares used as payment for SARs pursuant to Section 6(a); provided,
however, that no person participating in the Plan shall be granted
options and SARs with respect to more than 250,000 shares of Common
Stock (as adjusted) in any fiscal year; provided, further, that ISOs
may not be granted with respect to more than 3,200,000 shares of Common
Stock (as adjusted)."
<PAGE>
2.
Except as specifically set forth herein, the terms of the Plan shall
remain in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Seventh Amendment to
the Plan to be executed by its duly authorized officer as of the date first
above written.
AGL RESOURCES INC.
By: /s/ Melanie M. Plat
Title: Vice President and Corporate Secretary
Southern Natural Gas Company
Post Office Box 2563
Birmingham AL 35202 2563
205 325 7410
SOUTHERN NATURAL GAS
December 3, 1998
Mr. Mike Wingo
Atlanta Gas Light Company
Post Office Box 4569
Atlanta, Georgia 30302-4569
Dear Mr. Wingo:
Atlanta Gas Light Company ("Atlanta") and Southern Natural Gas Company
("Southern") are parties to a firm transportation agreement dated November 1,
1994 (#904480) for 5,173 Mcf/day ("FT Agreement"), a firm transportation
no-notice agreement dated November 1, 1994 (#904481) for 6,764 Mcf/day ("FT-NN
Agreement"), and a contract storage service agreement dated November 1, 1994
(#S20140) for 334,997 Mcf ("CSS Agreement"), as amended by Amendatory Agreement
dated March 1, 1995 (collectively, the "Agreements"). Pursuant to Section 4.1 of
each agreement, the agreement is effective through February 28, 1998, and may be
extended for successive terms of one year each year thereafter if the parties
mutually agree in writing to each yearly extension at least 60 days prior to the
end of the primary term or any subsequent yearly extension. Southern herewith
states its election to extend the Agreements for an additional term of one year,
commencing on March 1, 1999, and terminating on February 29, 2000. If Atlanta is
in agreement, please so indicate by signing both originals and returning one
original to Southern.
Very truly yours,
/s/ Larry E. Powell
Accepted and agreed to this 4th day of Accepted and agreed to this 3rd day of
December, 1998. December, 1998.
ATLANTA GAS LIGHT COMPANY SOUTHERN NATURAL GAS COMPANY
By: /s/ Mike P. Wingo By: /s/ Larry E. Powell
---------------------------------- ----------------------------------
Its:: Vice President Its: Sr. Vice President
A SONAT COMPANY
February 12, 1999
AGL Resources Inc.
303 Peachtree Street, N.E.
Atlanta, Georgia 30303
Dear Sirs/Madams:
At your request, we have read the description included in your Quarterly Report
on Form 10-Q to the Securities and Exchange Commission for the quarter ended
December 31, 1998, of the facts relating to the change in accounting for natural
gas inventories from first-in, first-out to weighted average cost. We believe,
on the basis of the facts so set forth and other information furnished to us by
appropriate officials of AGL Resources Inc. (the Company), that the accounting
change described in your Form 10-Q is an alternative accounting principle that
is preferable under the circumstances.
We have not audited any consolidated financial statements of the Company and its
subsidiaries as of any date or for any period subsequent to September 30, 1998.
Therefore, we are unable to express, and we do not express, an opinion on the
facts set forth in the above-mentioned Form 10-Q, on the related information
furnished to us by officials of the Company, or on the financial position,
results of operations, or cash flows of the Company as of any date or for any
period subsequent to September 30, 1998.
Yours truly,
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Atlanta, Georgia
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