<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): October 6, 2000
AGL RESOURCES INC.
(Exact Name of Registrant as Specified in Charter)
Georgia 1-14174 58-2210952
(State or Other Jurisdiction (Commission File No.) (IRS Employer
of Incorporation) Identification No.)
817 West Peachtree Street, NW, 10th Floor, Atlanta, Georgia 30308
(Address of Principal Executive Offices) (Zip Code)
(404) 584-9470
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
<PAGE>
This Current Report on Form 8-K/A amends Item 7 of the Current Report on
Form 8-K filed with the Securities and Exchange Commission on October 18, 2000.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired.
Virginia Natural Gas, Inc. Audited Financial Statements for the Year
Ended December 31, 1999
Virginia Natural Gas, Inc. Balance Sheets as of September 30, 2000
(Unaudited)
Virginia Natural Gas, Inc. Financial Statement of Income for the Nine
Months Ended September 30, 2000 and 1999 (Unaudited)
Virginia Natural Gas, Inc. Statement of Cash flows for the Nine Months
Ended September 30, 2000 and 1999 (Unaudited)
(b) Pro-Forma Financial Information.
Unaudited Pro Forma Combined Condensed Consolidated Balance Sheet as
of September 30, 2000
Unaudited Pro Forma Combined Condensed Statement of Consolidated
Income for the Twelve Months Ended September 30, 2000
Notes to the Unaudited Pro Forma Combined Condensed Consolidated
Financial Statements
(c) Exhibits.
None
2
<PAGE>
SIGNATURE
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 hereunto duly authorized.
AGL RESOURCES INC.
(Registrant)
/s/ Donald P. Weinstein
_________________________
Donald P. Weinstein
Senior Vice President and
Chief Financial Officer
Date: December 20, 2000
3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Virginia Natural Gas Inc.
In our opinion, the accompanying balance sheet and the related statements of
income and of cash flows present fairly, in all material respects, the financial
position of Virginia Natural Gas, Inc. (the Company) at December 31, 1999, and
the results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
March 24, 2000
Pittsburgh, Pennsylvania
4
<PAGE>
VIRGINIA NATURAL GAS, INC.
STATEMENT OF INCOME
(Thousands of Dollars)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
For the Year Ended December 31, 1999
-----------------------------------------------------------------------------------------------------------
<S> <C>
OPERATING REVENUES
Regulated gas sales....................................................................... $ 190,213
Gas transportation and storage............................................................ 6,116
Other..................................................................................... 6,506
----------
Total operating revenues (Note 5).................................................... 202,835
----------
OPERATING EXPENSES
Purchased gas............................................................................. 99,419
Operation expense (Note 7)................................................................ 47,349
Maintenance............................................................................... 6,195
Depreciation and amortization............................................................. 14,063
Taxes, other than income taxes............................................................ 10,387
----------
Subtotal............................................................................. 177,413
----------
Operating income before income taxes................................................. 25,422
Income taxes (Note 9)..................................................................... 4,868
----------
Operating income..................................................................... 20,554
----------
OTHER INCOME
Interest revenues......................................................................... 5
Merger expense (Note 2)................................................................... (4,567)
Other-net................................................................................. (40)
-----------
Total other income (deductions)...................................................... (4,602)
----------
Income before interest charges....................................................... 15,952
----------
INTEREST CHARGES
Interest on long-term debt................................................................ 6,490
Other interest expense.................................................................... 2,881
Allowance for funds used during construction.............................................. (183)
----------
Total interest charges............................................................... 9,188
----------
NET INCOME................................................................................ $ 6,764
==========
COMPREHENSIVE INCOME...................................................................... $ 6,764
==========
-----------------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
5
<PAGE>
VIRGINIA NATURAL GAS, INC.
BALANCE SHEET
(Thousands of Dollars)
--------------------------------------------------------------------------------
At December 31, 1999
--------------------------------------------------------------------------------
ASSETS
PROPERTY, PLANT AND EQUIPMENT (Note 6)
Gas utility and other plant........................................ $ 546,100
Accumulated depreciation and amortization.......................... (155,190)
---------
Net property, plant and equipment............................. 390,910
---------
CURRENT ASSETS
Cash and temporary cash investments................................ 231
Accounts receivable
Customers........................................................ 18,922
Unbilled revenues and other...................................... 17,198
Allowance for doubtful accounts.................................. (152)
Receivables from affiliated CNG companies.......................... 4,131
Inventories, at cost
Gas stored--(weighted average cost method)....................... 16,226
Materials and supplies (average cost method)..................... 537
Deferred income taxes--current (net) (Note 9)...................... 2,082
Prepayments and other current assets............................... 422
---------
Total current assets.......................................... 59,597
---------
REGULATORY AND OTHER ASSETS
Deferred charges and other assets (Notes 5 and 8).................. 5,590
---------
Total assets.................................................. $ 456,097
=========
STOCKHOLDER'S EQUITY AND LIABILITIES
CAPITALIZATION
Common stockholder's equity (Note 10)
Common stock, no par value
Authorized--10,000 shares; issued--5,273 shares............... $ 148,697
Capital in excess of par value................................... 57,603
Retained earnings (Note 11)...................................... 2,437
---------
Total common stockholder's equity............................. 208,737
Long-term debt payable to Parent Company (Note 12)................. 116,000
---------
Total capitalization.......................................... 324,737
---------
CURRENT LIABILITIES
Current maturities on long-term debt (Note 12)..................... -
Current maturities on long-term debt payable to Parent Company..... -
Accounts payable................................................... 12,030
Payables to affiliated CNG companies............................... 50,902
Estimated rate contingencies and refunds (Note 5).................. 1,638
Amounts payable to customers (Note 5).............................. 6,975
Taxes accrued...................................................... 1,860
Other current liabilities.......................................... 11,075
---------
Total current liabilities..................................... 84,480
---------
DEFERRED CREDITS
Deferred income taxes (Note 9)..................................... 15,265
Accumulated deferred investment tax credits........................ 2,684
Deferred credits and other liabilities (Notes 5, 8 and 9).......... 28,931
---------
Total deferred credits........................................ 46,880
---------
COMMITMENTS AND CONTINGENCIES (Note 15)
---------
Total stockholder's equity and liabilities.................... $ 456,097
=========
--------------------------------------------------------------------------------
The Notes to Financial Statements are an integral part of this statement.
6
<PAGE>
VIRGINIA NATURAL GAS, INC.
STATEMENT OF CASH FLOWS
(Thousands of Dollars)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
For the Year Ended December 31, 1999
---------------------------------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................................................. $ 6,764
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization......................................................... 14,063
Pension cost-net...................................................................... 4,041
Stock award amortization.............................................................. -
Deferred income taxes-net............................................................. 5,608
Investment tax credit................................................................. (152)
Changes in current assets and current liabilities
Accounts receivable-net............................................................. (4,239)
Receivables from affiliated CNG companies........................................... (2,935)
Inventories......................................................................... 5,487
Unrecovered gas costs............................................................... -
Accounts payable.................................................................... (9,448)
Payables to affiliated CNG companies................................................ (467)
Estimated rate contingencies and refunds............................................ (439)
Amounts payable to customers........................................................ 1,060
Taxes accrued....................................................................... 1,860
Other-net........................................................................... 1,769
Changes in other assets and other liabilities......................................... 105
-------------
Net cash provided by operating activities........................................... 23,077
-------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Plan construction and other property additions.......................................... (24,285)
Proceeds from dispositions of property, plant and equipment-net......................... 1,801
-------------
Net cash used in investing activities............................................... (22,484)
-------------
CASH FLOW USED IN FINANCING ACTIVITIES
Repayments of long-term debt............................................................ (4,000)
Long-term borrowings from Parent Company................................................ 3,682
Intrasystem money pool borrowings (repayments)-net...................................... 7,863
Dividends paid to Parent Company........................................................ (9,925)
-------------
Net cash used in financing activities............................................... (2,380)
-------------
Net increase (decrease) in cash and temporary cash in investments................... (1,787)
CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1........................................ 2,018
-------------
CASH AND TEMPORARY CASH INVESTMENTS AT DECEMBER 31...................................... $ 231
=============
SUPPLEMENTAL CASH FLOWS INFORMATION
Cash paid for
Interest (net of amounts capitalized)............................................... $ 8,584
Income taxes (net of refunds)....................................................... $ (3,601)
-------------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
7
<PAGE>
VIRGINIA NATURAL GAS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Virginia Natural Gas, Inc. (the Company) sells natural gas and provides
transportation and other services to residential, commercial and industrial
customers in Virginia. The Company is subject to accounting and rate regulation
by the Virginia State Corporation Commission (VSCC). Methods of allocating costs
to accounting periods by regulated companies may differ from methods generally
applied by nonregulated companies. However, when the accounting allocations
prescribed by the VSCC are used for ratemaking, the economic effects thereof
determine the application of generally accepted accounting principles.
Significant accounting policies of the Company within this framework are
summarized in this Note.
The Company conducts business in one operating segment, as defined by Statement
of Financial Accounting Standards (SFAS) No. 131. "Disclosures about Segments of
an Enterprise and Related Information."
Consolidated Natural Gas Company (CNG or Parent Company) owns all of the capital
stock of the Company. Effective January 28, 2000, CNG became a wholly-owned
subsidiary of Dominion Resources, Inc. (DRI) (See Note 16).
USE OF ESTIMATES
The financial statements reflect certain estimates and assumptions made by
management that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses for the periods
presented.
REVENUE RECOGNITION
Revenues from sales and transportation services are recognized in the same
period in which the related volumes are delivered to customers. The Company
bills and recognizes sales revenues from residential and certain commercial and
industrial customers on the basis of scheduled meter readings. In addition,
revenues are recorded for estimated deliveries of gas to these customers from
the meter reading date to the end of the accounting period. For wholesale and
other commercial and industrial customers, revenues are based upon actual
deliveries to the end of the period.
UNRECOVERED GAS COSTS
As permitted by the VSCC, the Company defers the difference between the cost of
gas (including certain related costs) and the amount of such costs included in
current rates. The differences are accounted for as either unrecovered gas costs
or amounts payable to customers. Unrecovered amounts are recognized as purchased
gas costs in future periods when the costs are recovered through adjusted rates.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
GAS UTILITY AND OTHER PLANT
The property, plant and equipment accounts consist almost entirely of
investment in gas plant which is stated at amounts required by the VSCC; such
amounts, in the aggregate, represent the cost to the Company. Additions and
betterments are charged to the property accounts at cost. Upon normal retirement
of a plant asset, its cost is charged to accumulated depreciation together with
costs of removal less salvage. Maintenance, repairs and related costs are
charged principally to expense as incurred.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are recorded over the estimated service lives of
plant assets by application of the straight-line method.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
The Company capitalizes the estimated costs of funds used during the
construction of major projects. Under regulatory practices, the Company is
permitted to include the costs capitalized in rate base for rate-making purposes
when the completed facilities are placed in service.
In determining the allowance for funds used during construction, the pretax
cost of borrowed funds used to finance construction expenditures was 5.25% in
1999.
8
<PAGE>
VIRGINIA NATURAL GAS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
INCOME TAXES
The current provision for income taxes of the Company is its portion of the
estimated consolidated tax based on a consolidated return filed by CNG. The
Company's portion has been determined pursuant to an intercompany tax
allocation agreement, as amended, entered into by CNG and its wholly-owned
subsidiaries as required by the Securities and Exchange Commission's (SEC)
Public Utility Holding Company Act of 1935 (PUHCA).
Investment tax credits which were required to be deferred by the VSCC are being
amortized as credits to income over the estimated service lives of the related
properties.
PENSION AND OTHER BENEFIT PROGRAMS
Substantially all employees of the Company are covered under CNG's qualified
noncontributory defined benefit pension plans. Benefits payable under the plans
are based primarily on each employee's year of service, age and base salary
during the five years prior to retirement. Net pension costs are determined by
an independent actuary, and the plans are funded on an annual basis to the
extent such funding is deductible under federal income tax regulations. Plan
assets consist primarily of equity securities, fixed income securities and
insurance contracts. The pension program also includes the payment of benefits
to certain retired executives under company-sponsored nonqualified employee
benefit plans. These nonqualified plans are funded through contributions to a
grantor trust. CNG also sponsors defined benefit postretirement plans, covering
both salaried and hourly employees and certain dependents of the Company, that
provide medical and life insurance coverage benefits. These benefits are
provided through insurance companies and other providers with the annual cash
outlays based on the claim experience of the related plans. Employees who retire
on or after attaining age 55 and having rendered at least 15 years of service,
or employees retiring on or after attaining age 65, are eligible to receive
benefits under the plans. The plans are both contributory and noncontributory,
depending on age, retirement date, the plan elected by the employee, and whether
the employee is covered under a collective bargaining agreement. Most of the
medical plans contain cost-sharing features such as deductibles and coinsurance.
For certain of the contributory medical plans, retiree contributions and cost-
sharing features are adjusted annually.
ENVIRONMENTAL EXPENDITURES
Environmental-related expenditures associated with current operations are
generally expensed as incurred. Expenditures for the assessment and/or
remediation of environmental conditions related to past operations are charged
to expense or are deferred pending probable recovery in future rate-making
proceedings. In this connection, a liability is recognized when the assessment
or remediation effort is probable and the future costs are estimable. Claims for
recovery of environmental-related costs from insurance carriers and other third
parties or through regulatory procedures are recognized separately as assets
when future recovery is considered probable.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 established standards for the reporting and
presentation of comprehensive income and its components. Comprehensive income
consists of net income and other comprehensive income. The Company had no other
comprehensive income for the year ended December 31, 1999.
TEMPORARY CASH INVESTMENTS
Temporary cash investments consist of short-term, highly liquid investments
that are readily convertible to cash and present no significant interest rate
risk. For purposes of the Statement of Cash Flows, temporary cash investments
are considered to be cash equivalents.
9
<PAGE>
VIRGINIA NATURAL GAS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. MERGER
On February 22, 1999, CNG and DRI announced that a definitive merger agreement
was approved by the boards of both companies.
On May 11, 1999, CNG announced that its Board of Directors had unanimously
approved an Amended and Restated Agreement and Plan of Merger with DRI.
On June 30, 1999 the shareholders of both CNG and DRI voted to approve the
merger of the two companies.
The Pennsylvania Public Utility Commission, the Public Service Commission of
West Virginia, the VSCC and the North Carolina Utilities Commission each
approved the merger. VSCC approval was based upon an agreement announced August
9, 1999, among CNG, DRI and the VSCC staff to sell or spin off the Company
within 12 months after the merger is completed. While not required for
consummation of the merger, the Public Utility Commission of Ohio filed a
statement with the SEC in support of the merger.
On November 5, 1999, the Federal Trade Commission (FTC) accepted a proposed
consent agreement that would allow DRI to acquire CNG, provided CNG divests the
Company to alleviate perceived anticompetitive effects that would result from
the merger.
The Federal Energy Regulatory Commission (FERC) voted on November 10, 1999, to
conditionally approve the merger. CNG and DRI filed a response with the FERC
accepting the conditions.
On December 15, 1999, the SEC approved the merger under the PUHCA. See Note 16.
Merger Expenses
Shareholder approval of the merger constituted a change of control as defined in
CNG's stock incentive plans. Accordingly, the vesting of stock options and
certain other stock awards was accelerated pursuant to the provisions of the
plans and/or award agreements. Also, the change of control effectively granted
limited stock appreciation rights to holders of vested stock options and certain
other stock awards. Specifically, the plan and/or award agreements permitted the
holder to elect, during the period July 1, 1999 through August 29, 1999, to
receive a cash payment in exchange for surrendering vested stock options and
awards. This provision covered outstanding vested stock options granted since
1989 to approximately 700 CNG employees, including certain employees of the
Company. The amount to be paid to the holders was based on the value determined
per the associated plans, which considered the option exercise price, award
value, and the change of control price as defined in the plans. Based on the
value of the vested options and awards surrendered and cashed out, the Company
recognized a charge to Other Income (Deductions) of $4.4 million.
3. RELATED PARTIES
The Company is an integrated member of the CNG System which is engaged in all
phases of the natural gas business. Principal relationships with the Parent
Company and other CNG wholly-owned subsidiaries include financing operations
through debt and stock issuance, participating in a system money pool (see Note
13), and receiving administrative and technical assistance for which costs are
allocated to the Company in accordance with a formal SEC-approved service
contract. For the year ended December 31, 1999, the Company incurred charges
amounting to $16.5 million, for services provided by CNG under this contract.
4. LINE OF BUSINESS
Substantially all operating revenues of the Company are derived from providing
gas sales and transportation service to customers in southeastern Virginia.
10
<PAGE>
5. RATE MATTERS
The Company accounts for its operations in accordance with SFAS No. 71,
"Accounting for the Effects of Certain Types of Regulation." When the accounting
allocations prescribed by the VSCC are used for ratemaking, the allocation of
costs among accounting periods by the Company resulted in the recognition of
regulatory assets and liabilities at December 31, 1999 as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
December 31, 1999
-------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C>
Regulatory assets:
Other postretirement benefits (Note 8).................................................. $ 2,221
Order 636 transition costs.............................................................. -
-------
Total regulatory assets............................................................... $ 2,221
Regulatory liabilities:
Amounts payable to customers (Note 1)................................................... $ 3,867
Estimated rate contingencies and refunds................................................ 1,638
Deferred income taxes (Note 9).......................................................... 1,445
Income taxes refundable to customers-net (Note 9)....................................... 513
-------
Total regulatory liabilities........................................................ $ 7,463
=======
-------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company assesses on an ongoing basis the recoverability of costs
recognized as regulatory assets and its ability to continue to apply SFAS No. 71
to its operations. In the event that all or a portion of the Company's
operations ceased to meet the requirements of SFAS No. 71, the Company would be
required to assess the carrying value of certain assets and liabilities
previously subject to regulation.
The amounts reported in the Balance Sheet under "Estimated rate contingencies
and refunds" of $1.6 million at December 31, 1999, are primarily refunds
received from suppliers and refundable to customers under regulatory procedures.
6. PROPERTY, PLANT AND EQUIPMENT
A summary of the total investment in property, plant and equipment follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
December 31, 1999
-------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C>
Plant in service......................................................................... $492,204
Construction work in progress............................................................ 25,626
Plant acquisition adjustments............................................................ 28,270
--------
Total investment in property, plant and equipment................................... $546,100
========
-------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
VIRGINIA NATURAL GAS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
7. WORKFORCE REDUCTION COSTS
During the fourth quarter of 1998, the Company recorded a provision for
severance and other employee-related costs in connection with actions to improve
efficiencies and reorganize business processes. Certain severance benefits were
enhanced under these programs and such programs were completed during 1999. As a
result of its workforce reduction actions, the Company recorded charges in 1999
amounting to $.6 million that reduced 1999 net income by $.4 million.
8. PENSION AND OTHER POSTRETIREMENT BENEFIT COSTS
The following table provides information regarding the Company's pension and
other postretirement benefit plan obligations, asset fair values and funded
status as of December 31, 1999:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
December 31, 1999 1999
--------------------------------------------------------------------------------------------
Other Postretirement
Pension Benefit Plans Benefit Plans
--------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
Benefit obligation..................... $(44,916) $(18,942)
Fair value of plan assets.............. 23,145 10,566
-------- --------
Funded status.......................... $(21,771) $ (8,376)
======== ========
Net amount recognized.................. $(21,240) $ (3,595)
--------------------------------------------------------------------------------------------
</TABLE>
The Company has nonqualified pension plans which do not have "plan assets"
as defined by generally accepted accounting principles. The total projected
benefit obligation for these plans was $.6 million at December 31, 1999, and is
included in the table above.
Pending the expected recovery of SFAS No. 106 costs and related deferrals
in regulatory proceedings, the Company has deferred the differences between SFAS
No. 106 costs and amounts included in rates. The Company has obtained approval
for recovery in rates from the VSCC for the increased level of expense resulting
from SFAS No. 106. The amount of SFAS No. 106 costs deferred at December 31,
1999 was $2.2 million. The VSCC has indicated that when SFAS No. 106 costs are
recovered in rates, amounts collected must be deposited in irrevocable trust
funds dedicated for the sole purpose of paying postretirement benefits.
Accordingly, the Company funds postretirement benefit costs via voluntary
employees' beneficiary associations (VEBAs). Assets held by the VEBAs consists
primarily of short-term fixed income securities.
Weighted average assumptions used in the determination of the benefit
obligations include the following:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
December 31, 1999 1999
---------------------------------------------------------------------------------------
Other
Pension Postretirement
Benefit Plans Benefit Plans
---------------------------------------------------------------------------------------
<S> <C> <C>
Discount rate.................................. 7.5% 7.5%
Expected return on plan assets................. 9.0% 6.5%
Rate of compensation increase:
Non-union.................................... 5.0% 5.0%
Union........................................ 4.0% 4.0%
---------------------------------------------------------------------------------------
</TABLE>
Net periodic benefit costs are determined by independent actuaries.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 1999
-----------------------------------------------------------------------------------------------------------
Other Postretirement
Pension Benefit Plans Benefit Plans
------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
Net periodic benefit cost....................... $4,085 $2,332
Employer contributions.......................... $ 111 $2,776
Participant contributions....................... $ - $ 63
Benefit payments................................ $2,706 $1,282
-----------------------------------------------------------------------------------------------------------
</TABLE>
For measurement purposes, a 5.0% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1999. The rate was assumed
to decrease to 4.75% for 2000 and remain at that level thereafter.
12
<PAGE>
VIRGINIA NATURAL GAS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
9. INCOME TAXES
"Income taxes" in the Statement of Income include the following:
-------------------------------------------------------------------------------
Year Ended December 31, 1999
-------------------------------------------------------------------------------
(In Thousands)
Current provision
Federal............................................ $ (588)
Deferred income taxes-net
Federal............................................ 5,608
Investment tax credit............................... (152)
------
Total............................................... $4,868
-------------------------------------------------------------------------------
Income taxes differed from the amounts shown in the next table that were
computed by applying the statutory federal income tax rate of 35% to reported
income before taxes. The reasons for the differences follow:
-------------------------------------------------------------------------------
Year Ended December 31, 1999
-------------------------------------------------------------------------------
(In Thousands)
Income before taxes................................. $11,632
Computed "expected" tax expense..................... $ 4,071
Increases (or reductions) in tax resulting from:
Investment tax credit............................. (152)
Amortization of acquisition adjustment............ 330
Miscellaneous..................................... 619
-------
Total income taxes.................................. $ 4,868
=======
Effective tax rate................................ 41.9%
-------------------------------------------------------------------------------
The current and noncurrent deferred income taxes reported in the Balance
Sheet at December 31, 1999 represent the net expected future tax consequences
attributable to temporary differences between the carrying amounts of nontax
assets and liabilities and their tax bases. These temporary differences and the
related tax effect were as follows:
------------------------------------------------------------------------------
December 31, 1999 1999
------------------------------------------------------------------------------
Deferred Deferred Income
Income Taxes Taxes-Current
------------------------------------------------------------------------------
(In Thousands)
Deferred tax liabilities:
Excess of tax over book depreciation............ $37,898 $ --
Other........................................... 3,232 --
------- ------
Total liabilities.............................. 41,130 --
------- ------
Deferred tax assets:
Tax basis step-up in connection with acquisition
by CNG......................................... 17,416 --
Net pension liability........................... 6,651 --
Deferred investment tax credits................. 1,445 --
Amounts payable to customers.................... -- 1,504
Supplier and other refunds...................... -- 578
Other........................................... 353 --
Valuation allowance............................. -- --
--------- ---------
Total assets................................... 25,865 2,082
--------- ---------
Total deferred tax liability (asset)........... $15,265 $(2,082)
========= =========
-------------------------------------------------------------------------------
A regulatory liability amounting to $.5 million has been recorded at
December 31,1999 representing the reduction to previously recorded deferred
income taxes associated with rate-regulated activities that are expected to be
refundable to customers, net of certain taxes collectible from customers. Also,
a regulatory liability corresponding to the recognition of additional deferred
income taxes not previously recorded because of past rate-making practices
amounting to $1.4 million has been recorded at December 31, 1999.
13
<PAGE>
VIRGINIA NATURAL GAS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
10. COMMON STOCKHOLDER'S EQUITY
A summary of the changes in stockholder's equity follows:
--------------------------------------------------------------------------------
Common Stock Issued
------------------- Capital in
Number Excess of Retained
of Shares Value Par Value Earnings
--------------------------------------------------------------------------------
(Dollars in Thousands)
Balance at December 31, 1998.... $5,273 $148,697 $57,603 $ 3,198
Net income...................... - - - 6,764
Cash dividends declared......... - - - (7,525)
------ -------- ------- -------
Balance at December 31, 1999.... $5,273 $148,697 $57,603 $ 2,437
====== ======== ======= =======
--------------------------------------------------------------------------------
11. DIVIDEND RESTRICTIONS
One of CNG's indentures relating to senior debenture issues imposes dividend
limitations on its subsidiaries, but at December 31, 1999, these limitations did
not restrict the Company's ability to pay dividends to CNG.
12. LONG-TERM DEBT
Long-term debt, excluding current maturities, follows:
--------------------------------------------------------------------------------
December 31, 1999
--------------------------------------------------------------------------------
(In Thousands)
Notes payable to CNG
6.20%, Non-negotiable notes maturing September 30, 2010.... $ 55,000
6.85%, Non-negotiable notes maturing September 30, 2026.... 24,000
7.50%, Non-negotiable notes maturing September 30, 2004.... 37,000
--------
Total............................................... $116,000
========
--------------------------------------------------------------------------------
The notes payable to CNG bear interest at rates predicated on and
substantially equal to the effective cost of money to CNG secured through the
issuance of its debt securities.
In addition to the notes payable to CNG, the Company had a 9.94% unsecured
loan due January 1, 1999. This $20.0 million loan has been repaid in five annual
installments of $4.0 million each beginning January 1, 1995, and was guaranteed
by CNG.
13. SYSTEM MONEY POOL AND SHORT-TERM BORROWINGS
CNG's subsidiaries, including the Company, participate in the System Money Pool
("Pool") which is administered by CNG Service Company, Inc., a wholly-owned
subsidiary of CNG, on behalf of the participants. The operation of the Pool was
authorized by the SEC in PUHCA Release No. 24128.
14
<PAGE>
VIRGINIA NATURAL GAS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Participants contribute the amount of their available funds to the Pool based on
cash flow projections. The short-term financing requirements of participants,
with the exception of CNG's Parent Company, are satisfied by advances from the
Pool. After satisfaction of the borrowing needs of participants and after any
possible prepayment of outstanding indebtedness, CNG Service Company, Inc., as
agent for the Pool, invests the excess funds on a short-term basis. Participants
providing funds to the Pool share in the interest earned on these investments on
a basis proportionate to their investment in the Pool. Participants borrowing
from the Pool pay interest generally at a rate equivalent to the effective cost
of short-term borrowings to CNG. Participants may withdraw their investments in
the Pool at any time. Borrowings from the Pool are payable on demand, and may be
prepaid at any time without premium or penalty. At December 31, 1999, the
Company had outstanding borrowings from the pool amounting to $46.7 million.
This amount is included in "Payables to affiliated CNG companies" on the Balance
Sheet.
There are no agreements or arrangements requiring compensating balances. Under
Company policy, bank deposits are maintained for normal operating purposes.
14. ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local laws and regulations
relating to the protection of the environment. These laws and regulations govern
both current and future operations and potentially extend to plant sites owned
or operated by the Company, or its predecessors. The Company has taken a
proactive position with respect to environmental concerns. As part of normal
business operations, the Company periodically monitors its properties and
facilities to identify and resolve potential environmental matters, and the
Company conducts general environmental audits on a continuing basis at its
operating facilities to monitor compliance with environmental laws and
regulations. As part of this process, voluntary surveys at Company sites have
been conducted to determine the extent of any possible contamination due to
hazardous substances and when contamination has been discovered remediation
efforts are undertaken.
In connection with CNG's acquisition of the Company from DRI in 1990, DRI and
the Company agreed to share in the cost of environmental mitigation measures, if
any, that may be necessary at any of four identified manufactured gas plant
sites within the Company's service territory. The Company's liability for all
four sites under the cost sharing provisions of the agreement with DRI is capped
at $8.0 million. As of December 31, 1999, the Company had incurred costs
amounting to $.6 million in connection with this agreement.
The exact nature of environmental issues which the Company may encounter in
the future cannot be predicted. Environmental liabilities may result in the
future as more stringent environmental laws and regulations are implemented and
as the Company obtains more specific information about its existing sites and
production facilities. At present, no estimate of any such additional liability,
or range of liability amounts, can be made. However, the amount of any such
liabilities could be material.
15. COMMITMENTS AND CONTINGENCIES
Lease arrangements of the Company are principally for office space, business
machines and transportation equipment. None of these arrangements, individually
or in the aggregate, are material capital leases. Rental expense incurred in
1999 was not material, and future rental payments required under leases in
effect at December 31, 1999, are not material. The Company's 2000 capital
spending program will amount to $27.0 million. In connection with the capital
spending program, the Company entered into certain contractual commitments. The
Company has claims and suits arising in the ordinary course of business pending
against it, but, in the opinion of management and counsel, the ultimate
liability will not have a material effect on its financial position, results of
operations or cash flows.
15
<PAGE>
VIRGINIA NATURAL GAS, INC.
NOTES TO FINANCIAL STATEMENTS (Concluded)
16. SUBSEQUENT EVENT
On January 28, 2000, DRI and CNG completed the merger of CNG into a subsidiary
of DRI.
16
<PAGE>
VIRGINIA NATURAL GAS, INC.
UNAUDITED CONDENSED
BALANCE SHEET AS OF SEPTEMBER 30, 2000
(IN THOUSANDS)
Cash $ 791
Accounts receivable 16,214
Receivables from affiliates 65
Inventories 33,088
Prepayments and other 492
Property, plant and equipment 525,746
Net plant acquisition adjustment 18,140
Accumulated depreciation (154,543)
Deferred income taxes 3,656
Regulatory and other 7,208
----------
Total assets $ 450,857
==========
Accounts payable $ 16,508
Current maturities on long-term debt 135,698
Amounts payable to customers 5,575
Rate contingencies 242
Payables to affiliates 5,244
Taxes accrued 7,393
Other current liabilities 16,746
Deferred income taxes 16,468
Pension and post retirement benefits liabilities 26,361
Deferred investment tax credit 2,571
Deferred credits and other liabilities 4,936
Common stockholders' equity 213,115
----------
Total liabilities and equity $ 450,857
==========
17
<PAGE>
VIRGINIA NATURAL GAS, INC.
UNAUDITED CONDENSED
STATEMENT OF INCOME FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999
(IN THOUSANDS)
2000 1999
--------- ---------
Operating revenues $158,210 $140,639
Cost of sales 81,450 62,017
--------- ---------
Operating margin 76,760 78,622
--------- ---------
Operation & maintenance expense 36,164 50,470
Depreciation and amortization 13,907 10,154
Taxes other than income taxes 7,716 7,504
--------- ---------
Operating income 18,973 10,494
--------- ---------
Other income (loss) 58 (9)
Interest expense 6,905 6,649
--------- ---------
Income before income taxes 12,126 3,836
--------- ---------
Income taxes 4,244 1,358
--------- ---------
Net income $ 7,882 $ 2,478
========= =========
18
<PAGE>
VIRGINIA NATURAL GAS, INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 7,882 $ 2,478
Adjustments to reconcile net income to net
cash flow from operating activities
Depreciation and amortization 9,482 10,154
Deferred income taxes 1,090 1,406
--------------------------------------------------------------------------------------------- -----------
18,454 14,038
Changes in certain assets and liabilities
Receivables 19,754 21,023
Inventories (16,325) 5,824
Accounts payable 4,478 (9,385)
Accounts payable to affiliates (41,592) (1,049)
Unrecovered gas costs -- (746)
Customer deposits (1,400) (5,915)
Accrued taxes 5,533 2,639
Other-net 3,379 3,621
--------------------------------------------------------------------------------------------- -----------
Net cash flow from (used in) operating activities (7,719) 30,050
--------------------------------------------------------------------------------------------- -----------
Cash Flows from Financing Activities
Net payments and borrowings of short-term debt 135,698 30,589
Payments of long-term debt (116,000) (37,318)
Dividends paid on common stock (3,504) (9,925)
--------------------------------------------------------------------------------------------- -----------
Net cash flow from (used in) financing activities 16,194 (16,654)
--------------------------------------------------------------------------------------------- -----------
Cash Flows from Investing Activities
Utility plant expenditures (7,915) (14,719)
--------------------------------------------------------------------------------------------- -----------
Net cash used in investing Activities (7,915) (14,719)
--------------------------------------------------------------------------------------------- -----------
Net increase (decrease) in cash and cash equivalents 560 (1,323)
Cash and cash equivalents at beginning of period 231 2,018
Cash and cash equivalents at end of period $ 791 $ 695
============================================================================================= ===========
Cash Paid During the Period for
Interest $ 6,905 $ 6,649
Income taxes $ -- $ 1,425
</TABLE>
19
<PAGE>
AGL RESOURCES INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
BALANCE SHEET AS OF SEPTEMBER 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
Virginia
AGL Natural Gas, Pro Forma Pro Forma
Resources Inc. Inc. Adjustments Combined
---------------------------------------------- -----------
<S> <C> <C> <C> <C>
Cash $ 2,000 $ 791 $ - $ 2,791
Accounts receivable 53,100 16,214 69,314
Receivables from affiliates 65 (65) B -
Inventories 37,200 33,088 70,288
Prepayments and other 7,400 492 7,892
Property, plant and equipment 2,459,700 525,746 2,985,446
Net plant acquisition adjustment 18,140 (18,140) D -
Accumulated depreciation (822,200) (154,543) (976,743)
Deferred income taxes - 3,656 (3,656) C -
2,450 I 2,450
Regulatory and other 282,700 7,208 289,908
Goodwill 158,061 G 158,061
------------------------ ----------
Total assets $2,019,900 $ 450,857 $2,609,407
======================== ==========
Short-term debt $ 141,200 $ - $ -- $ 141,200
Commercial paper borrowings 538,500 A 538,500
Accounts payable 34,000 16,508 50,508
Current maturities on long-term debt 20,000 135,698 (135,698) A 20,000
Amounts payable to customers - 5,575 5,575
Rate contingencies - 242 242
Payables to affiliates - 5,244 (5,244) B -
Taxes accrued - 7,393 (7,393) C -
Other current liabilities 89,600 16,746 7,000 I 113,346
Deferred income taxes 249,600 16,468 (16,468) C 249,600
Pension and post retirement benefits
liabilities 38,600 26,361 (26,361) F 38,600
Deferred investment tax credit 23,200 2,571 (2,571) C 23,200
Deferred credits and other liabilities 138,500 4,936 143,436
Long-term debt 590,000 - 590,000
Preferred stock 74,300 - 74,300
Common stockholders' equity 620,900 213,115 (213,115) E 620,900
------------------------ ----------
Total liabilities and equity $2,019,900 $ 450,857 $2,609,407
======================== ==========
</TABLE>
20
<PAGE>
AGL RESOURCES INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF CONSOLIDATED INCOME FOR THE TWELVE MONTHS ENDED
SEPTEMBER 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AGL Virginia Natural Pro Forma Pro Forma
Resources Inc. Gas, Inc. Adjustments Combined
-------------------------------------------- ----------
<S> <C> <C> <C> <C>
Operating revenues $607,400 $ 220,405 $ - $827,805
Cost of sales 111,900 110,319 222,219
------------------------------------------ ----------
Operating margin 495,500 110,086 605,586
------------------------------------------ ----------
Operation & maintenance expense 247,800 52,024 299,824
Depreciation and amortization 83,200 17,816 3,952 G 104,026
(941) D
Taxes other than income taxes 26,700 10,662 37,362
------------------------------------------ ----------
Operating income 137,800 29,584 (3,011) 164,374
------------------------------------------ ----------
Other income (loss) 28,200 (218) 27,982
Interest expense 51,600 9,444 28,251 A 89,295
Preferred stock dividends 6,100 - 6,100
------------------------------------------ ----------
Income before income taxes 108,300 19,922 (31,261) 96,961
------------------------------------------ ----------
Income taxes 37,200 7,754 (10,927) H 34,027
------------------------------------------ ----------
Net income $ 71,100 $ 12,168 $(20,334) $ 62,935
========================================== ==========
Earnings per share - Basic $ 1.29 $ 1.14
Earnings per share - Diluted $ 1.29 $ 1.14
</TABLE>
21
<PAGE>
Notes to the Unaudited Pro Forma Combined Condensed Consolidated Financial
Statements
The Unaudited Pro Forma Combined Condensed Consolidated Financial Statements of
AGL Resources Inc. ("AGL Resources") and Virginia Natural Gas, Inc. ("VNG")
illustrate the pro forma effect of the merger between AGL Resources and VNG (the
"Merger") accounted for as a purchase business combination. The Unaudited Pro
Forma Combined Condensed Consolidated Balance Sheet has been prepared as if such
transaction occurred on September 30, 2000; the Unaudited Pro Forma Combined
Condensed Statement of Consolidated Income for the twelve months ended
September 30, 2000 has been prepared as if such transaction occurred as of
October 1, 1999. The Unaudited Pro Forma Combined Condensed Consolidated
Financial Statements reflect AGL Resources having acquired 100% of the
outstanding capital stock of VNG for $533 million in cash.
A final determination of required purchase accounting adjustments has not been
completed; accordingly, the purchase accounting adjustments made in connection
with the development of the Pro Forma Combined Condensed Consolidated Financial
Statements are preliminary and have been made solely for purposes of developing
the pro forma combined financial information. The significant adjustments to the
pro forma financial position reflect (i) the commercial paper borrowings
incurred to finance the transaction, (ii) the excess of the purchase price over
the net assets acquired and liabilities assumed and (iii) an estimate of costs
associated with the involuntary termination of certain employees of VNG
identified as of October 1, 2000.
Management believes that the pro forma adjustments and underlying assumptions
reasonably present the significant pro forma effects of the Merger. Upon
completion of post-merger activities, the actual financial position and results
of operations of the combined entity may differ, perhaps significantly, from the
pro forma amounts reflected herein because of changes in operating results
between the dates of the pro forma financial information and the date on which
the purchase accounting adjustments are finalized. The Pro Forma Combined
Condensed Consolidated Financial Statements are not necessarily indicative of
actual operating results or financial position had the transactions occurred as
of the dates indicated above, nor do they purport to indicate operating results
or financial position which may be attained in the future.
The Unaudited Pro Forma Combined Condensed Consolidated Financial Statements do
not reflect the non-recurring costs associated with integrating the operations
of the two companies, nor any of the anticipated recurring savings arising from
the integration. Costs of integration will result in significant non-recurring
charges to the combined result of operations as a result of the consummation of
the Merger; however, the actual amount of such charges cannot be determined
until the transition plan relating to the integration of operations is
completed.
22
<PAGE>
Merger Financing
A. To reflect the issuance of $538.5 million of commercial paper borrowings to
finance the purchase price ($533 million) and related direct acquisition
costs ($5.5 million) of the Merger. The annual interest expense will be
approximately $37.7 million at an assumed annual interest rate of 7%. A
1/8% change in the interest rate would affect annual interest expense by
approximately $.7 million.
VNG long-term debt of $135.7 million at September 30, 2000 is not being
assumed. Interest expense recognized by VNG for debt not being assumed for
the twelve month period ended September 30, 1999 was $9.4 million.
Purchase Adjustments
B. To reflect the elimination of receivables and payables between VNG's
affiliates and VNG. Such amounts were settled prior to the Merger by the
Seller.
C. To reflect the elimination of income tax related items, including related
regulatory assets and liabilities. AGL Resources is acquiring all of the
issued and outstanding capital stock of VNG and is entering into an
election with the seller under Section 338(h)(10) of the Internal Revenue
Code. Under Section 338(h)(10), the sale of the stock is treated as a sale
of assets for income tax purposes and therefore no tax attributes carry
over to the buyer.
D. To reflect the elimination of the net plant acquisition adjustment and
related amortization recorded in connection with the acquisition of VNG by
Consolidated Natural Gas, Inc. and Dominion Resources, Inc.
E. To reflect the elimination of the acquired capital stock of VNG.
F. To reflect the funding of the pension plan prior to the Merger by the
Seller.
G. To record the excess of the purchase price of $533 million, plus direct
costs of the merger of $5.5 million (including fees of financial advisors,
legal counsel and independent auditors), over the net assets acquired and
liabilities assumed. Annual amortization of this excess over 40 years,
classified as goodwill, will be approximately $4 million.
Goodwill is calculated as follows (in millions):
Purchase price $ 533.0
Direct costs of the merger 5.5
Less: assets acquired (431.4)
Plus: liabilities assumed 51.0
-------
Goodwill $ 158.1
=======
23
<PAGE>
H. To reflect a reduction in income tax expense for the increase in interest
expense, amortization of goodwill and amortization of debt issuance
expenses at a statutory tax rate of 38.68%, offset by the elimination of
certain permanent tax items not being acquired as a result of the
338(h)(10) election.
I. To reflect an estimate of the costs associated with the involuntary
termination of certain employees of VNG as of October 1, 2000 and a
corresponding deferred tax asset. Management has developed and communicated
a plan regarding these terminations.
24
