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, 1999
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)
817 West Peachtree Street, N.E.
Suite 1000
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, 1999.
Common Stock, $5.00 Par Value
Shares Outstanding at December 31, 1999 56,952,069
<PAGE>
AGL RESOURCES INC.
Quarterly Report on Form 10-Q
For the Quarter Ended December 31, 1999
Table of Contents
Item Page
Number Number
PART I - FINANCIAL INFORMATION
1 Financial Statements (Unaudited)
Condensed Statements of Consolidated Income 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 24
PART II - OTHER INFORMATION
1 Legal Proceedings 25
4 Submission of Matters to a Vote of Security Holders 25
5 Other Information 25
6 Exhibits and Reports on Form 8-K 26
SIGNATURE 27
Page 2 of 27 Pages
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
FOR THE THREE MONTHS ENDED
DECEMBER 31, 1999 AND 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months
1999 1998
--------- --------
Operating Revenues ................................... $ 182.3 $ 323.9
Cost of Sales ........................................ 54.6 187.0
- -----------------------------------------------------------------------------
Operating Margin ................................ 127.7 136.9
Other Operating Expenses ............................. 94.2 89.2
- -----------------------------------------------------------------------------
Operating Income ................................ 33.5 47.7
Other Income (Loss) .................................. 6.9 (7.9)
- -----------------------------------------------------------------------------
Income Before Interest and Income Taxes ......... 40.4 39.8
Interest Expense and Preferred Stock Dividends
Interest expense ................................ 12.2 14.2
Dividends on preferred stock of subsidiary ...... 1.5 1.5
- -----------------------------------------------------------------------------
Total interest expense and preferred
stock dividends ............................ 13.7 15.7
- -----------------------------------------------------------------------------
Income Before Income Taxes ...................... 26.7 24.1
Income Taxes ......................................... 9.6 8.2
- -----------------------------------------------------------------------------
Net Income ...................................... $ 17.1 $ 15.9
=============================================================================
Earnings (Loss) per Common Share
Basic ........................................... $ 0.30 $ 0.28
Diluted ......................................... $ 0.30 $ 0.28
Weighted Average Number of Common
Shares Outstanding
Basic ........................................... 56.9 57.4
Diluted ......................................... 57.0 57.7
Cash Dividends Paid Per Share of
Common Stock .................................... $ 0.27 $ 0.27
See notes to condensed consolidated financial statements.
Page 3 of 27 Pages
<PAGE>
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
(Unaudited)
December September
31, 30,
ASSETS 1999 1999
Current Assets
Cash and cash equivalents ................... $ 4.2 $ 32.9
Receivables (less allowance for uncollectible
accounts of $5.7 at December 31, 1999
and $4.3 at September 30, 1999) ......... 51.4 50.7
Inventories
Natural gas stored underground .......... 20.6 47.3
Liquefied natural gas ................... 3.0 6.7
Other ................................... 11.4 12.9
Deferred purchased gas adjustment ........... 1.1 2.8
Other ....................................... 3.9 4.2
- ------------------------------------------------------------------------------
Total current assets .................... 95.6 157.5
- ------------------------------------------------------------------------------
Property, Plant and Equipment
Utility plant ............................... 2,300.4 2,274.3
Less accumulated depreciation .............. 772.4 757.1
- ------------------------------------------------------------------------------
Utility plant - net ..................... 1,528.0 1,517.2
- ------------------------------------------------------------------------------
Nonutility property ......................... 118.1 116.7
Less accumulated depreciation .............. 37.9 35.0
- ------------------------------------------------------------------------------
Nonutility property - net ............... 80.2 81.7
- ------------------------------------------------------------------------------
Total property, plant and equipment - net 1,608.2 1,598.9
- ------------------------------------------------------------------------------
Deferred Debits and Other Assets
Unrecovered environmental response costs .... 146.4 150.2
Investments in joint ventures ............... 41.8 28.2
Other ....................................... 38.4 34.5
- ------------------------------------------------------------------------------
Total deferred debits and other assets .. 226.6 212.9
- ------------------------------------------------------------------------------
Total Assets ...................................... $ 1,930.4 $ 1,969.3
==============================================================================
See notes to condensed consolidated financial statements.
Page 4 of 27 Pages
<PAGE>
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
(Unaudited)
December September
31, 30,
LIABILITIES AND CAPITALIZATION 1999 1999
Current Liabilities
Accounts payable - trade ........................ $ 34.6 $ 31.3
Short-term debt ................................. 59.0 1.5
Customer deposits ............................... 2.2 7.4
Interest ........................................ 12.6 26.0
Taxes ........................................... 28.7 30.1
Gas cost credits ................................ 2.0 37.9
Current portion of long-term debt ............... 10.0 50.0
Other ........................................... 28.2 38.7
- -------------------------------------------------------------------------------
Total current liabilities ................... 177.3 222.9
- -------------------------------------------------------------------------------
Accumulated Deferred Income Taxes ..................... 216.1 211.3
- -------------------------------------------------------------------------------
Long-Term Liabilities
Accrued environmental response costs ............ 102.4 102.4
Accrued postretirement benefits costs ........... 32.9 32.4
Deferred credits ................................ 49.8 49.2
Other ........................................... 6.0 5.3
- -------------------------------------------------------------------------------
Total long-term liabilities ................. 191.1 189.3
- -------------------------------------------------------------------------------
Capitalization
Long-term debt .................................. 610.0 610.0
Subsidiary obligated mandatorily redeemable
preferred securities ........................ 74.3 74.3
Common stockholders' equity, $5 par value,
shares issued of 57.8 at December 31, 1999
and September 30, 1999 ...................... 677.6 675.9
Less: Shares held in treasury, at cost
0.8 shares at December 31, 1999 and
0.7 shares at September 30, 1999 ........ (16.0) (14.4)
- -------------------------------------------------------------------------------
Total capitalization ........................ 1,345.9 1,345.8
- -------------------------------------------------------------------------------
Total Liabilities and Capitalization .................. $ 1,930.4 $1,969.3
===============================================================================
See notes to condensed consolidated financial statements.
Page 5 of 27 Pages
<PAGE>
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(IN MILLIONS)
(UNAUDITED)
Three Months
1999 1998
Cash Flows from Operating Activities
Net income ................................................ $ 17.1 $ 15.9
Adjustments to reconcile net income to net
cash flow from operating activities
Depreciation and amortization ....................... 21.2 21.0
Deferred income taxes ............................... 4.8 4.0
Other ............................................... (0.4) (0.3)
Changes in certain assets and liabilities
Receivables ......................................... (0.7) (92.9)
Inventories ......................................... 31.9 35.5
Accounts payable .................................... 3.3 22.6
Gas cost credits .................................... (35.9) --
Accrued interest .................................... (13.4) (11.2)
Other current liabilities ........................... (10.5) 10.0
Other-net ........................................... (6.8) (1.6)
- --------------------------------------------------------------------------------
Net cash flow from operating
activities ..................................... 10.6 3.0
- --------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net borrowings of debt .................................... 17.5 36.5
Sale of common stock, net of expenses and noncash dividends (2.4) 1.3
Sale of treasury shares ................................... 2.9 --
Purchase of treasury shares ............................... (4.5) --
Dividends paid on common stock ............................ (13.0) (12.9)
- --------------------------------------------------------------------------------
Net cash flow from financing
activities ..................................... 0.5 24.9
- --------------------------------------------------------------------------------
Cash Flows from Investing Activities
Utility plant expenditures ................................ (33.7) (25.5)
Non-utility property expenditures ......................... (1.6) (3.9)
Cash provided to joint ventures ........................... (9.4) --
Other ..................................................... 4.9 0.6
- --------------------------------------------------------------------------------
Net cash used in investing
activities ..................................... (39.8) (28.8)
- --------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents ........................... (28.7) (0.9)
Cash and cash equivalents at
beginning of period ............................ 32.9 0.9
- --------------------------------------------------------------------------------
Cash and cash equivalents at
end of period .................................. $ 4.2 $ --
================================================================================
Cash Paid During the Period for
Interest .................................................. $ 26.0 $ 25.5
Income taxes .............................................. $ 2.9 $ 0.1
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 ("AGLC")
and its wholly- owned subsidiary, Chattanooga Gas Company ("Chattanooga"), which
are both natural gas local distribution utilities. Additionally, AGL Resources
Inc. owns or has an interest in several non-utility subsidiaries and joint
ventures. AGL Resources Inc. and its subsidiaries are collectively referred to
as "AGL Resources."
In the opinion of management, the unaudited condensed 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, 1999. Due to the seasonal
nature of a portion of AGL Resources' businesses, the results of operations for
the three-month period are not necessarily indicative of results of operations
for a twelve-month period.
Management makes 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 Statements of
Consolidated Income during the reported 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. OVERVIEW OF THE TRANSITION FROM A REGULATED TO A COMPETITIVE BUSINESS
ENVIRONMENT
Pursuant to Georgia's 1997 Natural Gas Competition and Deregulation Act
("Deregulation Act"), AGLC unbundled various components of its services to
end-use customers. Historically, only large, interruptible commercial and
industrial customers had the option of purchasing natural gas from suppliers
other than AGLC and transporting such natural gas through AGLC's distribution
system for delivery. The Deregulation Act enabled AGLC to unbundle its delivery
service and other related services from the sale of natural gas for all
customers, thus allowing firm residential and small commercial customers to
purchase natural gas and other services from suppliers other than AGLC.
Effective October 1, 1999, virtually all of AGLC's 1.4 million customers in
Georgia were purchasing natural gas from marketers who were approved and
certificated ("certificated marketers") by the Georgia Public Service Commission
("GPSC"). As a result of the Deregulation Act, AGLC has become primarily a
provider of delivery service and other related services.
Page 7 of 27 Pages
<PAGE>
2. OVERVIEW OF THE TRANSITION FROM A REGULATED TO A COMPETITIVE BUSINESS
ENVIRONMENT (CONTINUED)
As a result of the transition to competition, 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 historical patterns due to
the provision of delivery services to end-use customers which are priced based
upon straight fixed variable ("SFV") rates. The effect of SFV rates is to spread
evenly throughout the year AGLC's recovery of its delivery service costs.
Although, when compared to corresponding quarters of prior years, the effect of
SFV rates is to shift utility delivery service revenues among quarters, AGLC's
annual delivery service revenues should remain relatively consistent with annual
delivery service revenues of prior years.
AGLC continues to provide intrastate delivery service through its existing
pipeline system to end-use customers in Georgia, but has exited the natural gas
sales function. AGLC's delivery of natural gas remains subject to the GPSC's
continued regulation of delivery rates, safety, access to AGLC's system, and
quality of service for all aspects of delivery service.
Certificated marketers, including AGL Resources' marketing affiliate, SouthStar
Energy Services LLC ("SouthStar"), compete to sell natural gas to end-use
customers at market-based prices. AGLC allocates delivery capacity to
certificated marketers in proportion to the number and size of residential and
small commercial customers served by each certificated marketer. Delivery
capacity that is not used on any day to serve residential and small commercial
customers is made available to large, interruptible commercial and industrial
customers. Similarly, AGLC has allocated to certificated marketers the majority
of the pipeline storage services that it has under contract, along with a
corresponding amount of inventory.
During the transition to competition, AGLC continued to provide gas sales
service to customers who had not yet switched to a certificated marketer.
Pursuant to a joint stipulation agreement with the GPSC, AGLC implemented a rate
structure for gas sales that ensured AGLC's recovery of its purchased gas costs
incurred from October 6, 1998 through September 30, 1999, without creating any
significant income or loss. The joint stipulation agreement provided for a
true-up for any profit or loss outside of a specified range during fiscal 1999.
During December 1999, as contemplated by the joint stipulation agreement, AGLC
paid $33 million in over-collected purchased gas costs to the GPSC. Since AGLC
paid the $33 million to the GPSC, the GPSC subsequently will coordinate with the
certificated marketers to provide customers with a credit on their marketer's
bill. To be eligible for the refund credit, the customer must have been on
AGLC's system on April 25, 1999, and still connected as of March 20, 2000. The
average refund per customer is expected to be approximately $24 to $26. (See Gas
Cost Credits in the Financial Condition section contained in Item 2 of Part I
under the caption "Management's Discussion and Analysis of Results of Operations
and Financial Condition.")
Also during the transition to competition, AGLC continued to bill end-use
customers who had not yet switched to certificated marketers for gas sales
service and for certain ancillary services. These ancillary services included
meter reading, billing, bill inquiry, payment processing, and collection
services. Once an end-use customer switched to a certificated marketer for gas
sales service, the Deregulation Act permitted AGLC to bill the marketer only for
the AGLC-provided ancillary services actually used by the marketer. AGLC was
unable, however, to eliminate all of the costs associated with the provision of
ancillary services as quickly as customers switched to certificated marketers
for natural gas sales, thereby creating an imbalance between revenues and
expenses.
Page 8 of 27 Pages
<PAGE>
2. OVERVIEW OF THE TRANSITION FROM A REGULATED TO A COMPETITIVE BUSINESS
ENVIRONMENT (CONTINUED)
The Deregulation Act provides marketing standards and rules of business practice
to ensure that the benefits of a competitive natural gas market are available to
all customers on AGLC's system. It imposes on certificated 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 certificated
marketers' uncollectible accounts and enables AGLC to expand its facilities to
serve the public interest.
3. EARNINGS PER COMMON SHARE AND COMMON STOCKHOLDERS' EQUITY
Basic earnings per common share is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per common share reflects the potential
dilution that could occur when common share equivalents are added to common
shares outstanding. AGL Resources' only common share equivalents are stock
options whose exercise prices were less than the average market price of the
common shares for the respective periods. As of December 31, 1999 and 1998,
respectively, options to purchase 2,657,818 and 22,252 shares of common stock
were outstanding, and were not included in the computation of diluted earnings
per common share because the exercise prices of those options were greater than
the average market price of the common shares for the respective periods.
On October 5, 1999, the Board of Directors of AGL Resources authorized a plan to
repurchase up to 3.6 million shares (6.3% of total outstanding as of September
30, 1999) of AGL Resources common stock over a period ending no later than
September 30, 2001. Open market purchases of the shares may be made from time to
time, subject to availability, and the repurchased shares will be held in
treasury.
During the three months ended December 31, 1999, AGL Resources repurchased
258,900 shares of common stock for a total of $4.5 million pursuant to the above
noted stock repurchase plan. During that same period, AGL Resources issued
158,476 shares of common stock under ResourcesDirect, a direct stock purchase
and dividend reinvestment plan; the Retirement Savings Plus Plan; the Long-Term
Incentive Plan; and the Non-Employee Directors Equity Compensation Plan.
4. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. AGL
Resources will adopt SFAS 133 on October 1, 2000. The impact of SFAS 133 on AGL
Resources' consolidated financial statements is under review and is currently
unknown.
5. ENVIRONMENTAL MATTERS
Before natural gas was widely available in the Southeast, AGLC manufactured gas
from coal and other fuels. Those manufacturing operations were known as
"manufactured gas plants," or "MGPs" which AGLC ceased operating in the 1950s.
Because of recent environmental concerns, AGLC is required to investigate
possible environmental contamination at those plants and, if necessary, clean up
any contamination.
Page 9 of 27 Pages
<PAGE>
5. ENVIRONMENTAL MATTERS (CONTINUED)
AGLC has been associated with nine MGP sites in Georgia and three in Florida.
Based on investigations to date, AGLC believes 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 the MGP sites, AGLC has estimated its share of the likely costs of
investigation and cleanup. AGLC currently estimates that its total future cost
of investigating and cleaning up its MGP sites is between $102.4 million and
$148.2 million. That range does not include other potential expenses, such as
unasserted property damage or personal injury claims or legal expenses for which
AGLC may be held liable but for which neither the existence nor the amount of
such liabilities can be reasonably forecast. Within that range, AGLC cannot
identify any single number as a "better" estimate of its likely future costs
because its actual future investigation and cleanup costs will be affected by a
number of contingencies that cannot be quantified at this time. Consequently, as
of December 31, 1999, AGLC has recorded the lower end of the range, or $102.4
million, as a liability, which remains unchanged from September 30, 1999, and a
corresponding regulatory asset.
6. SEGMENT INFORMATION
AGL Resources is organized into two operating segments: Utility and Non-utility.
Management evaluates segment performance based on net income, which includes the
effects of corporate expense allocations. There were no material inter-segment
sales during the quarters ended December 31, 1999 or 1998.
<TABLE>
<CAPTION>
Three Months Ended
December 31, 1999 December 31, 1998
(Millions of Dollars) Utility Non-utility Total Utility Non-utility Total
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues $ 171.3 $ 11.0 $ 182.3 $ 317.2 $ 6.7 $ 323.9
Depreciation and Amortization 17.8 3.4 21.2 17.6 3.4 21.0
Interest Expense 11.9 0.3 12.2 13.0 1.2 14.2
Interest Income 0.1 0.2 0.3 - - -
Equity in the Net Income
(Loss) of Joint Ventures - 4.8 4.8 - (7.9) (7.9)
Income Tax Expense (Benefit) 10.0 (0.4) 9.6 12.4 (4.2) 8.2
Net Income (Loss) 17.6 (0.5) 17.1 22.5 (6.6) 15.9
Capital Expenditures 33.7 1.6 35.3 25.5 3.9 29.4
</TABLE>
<TABLE>
<CAPTION>
Balance as of December 31, 1999 September 30, 1999
-------------------------------------- --------------------------------------
(Millions of Dollars) Utility Non-utility Total Utility Non-utility Total
<S> <C> <C> <C> <C> <C> <C>
Identifiable Assets (A) $ 1,782.8 $ 105.8 $ 1,888.6 $ 1,798.6 $ 142.5 $ 1,941.1
Investments in Joint Ventures 0.4 41.4 41.8 0.4 27.8 28.2
(A) Identifiable assets are those assets used in each segment's operations.
</TABLE>
Page 10 of 27 Pages
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 allows public companies to
provide cautionary remarks about forward-looking statements that they make in
documents that are filed with the Securities and Exchange Commission.
Forward-looking statements in our Management's Discussion and Analysis include
statements about the following:
- - Deregulation;
- - Concentration of credit risk;
- - Environmental investigations and cleanups; and
- - Quantitative and qualitative disclosures about market risk.
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;
- - Impact of changes in state and federal legislation and regulation on both
the gas and electric industries;
- - Effects and uncertainties of deregulation and competition, particularly in
markets where prices and providers historically have been regulated,
unknown risks related to nonregulated businesses, and unknown issues such
as the stability of certificated marketers;
- - Concentration of credit risk in certificated marketers;
- - Industry consolidation;
- - Changes in accounting policies and practices;
- - Interest rate fluctuations, financial market conditions, and economic
conditions, generally; and
- - Uncertainties about environmental issues and the related impact of such
issues.
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 natural gas local
distribution utilities;
- - AGL Energy Services, Inc. ("AGLE"), a gas supply services company; and
- - Several non-utility subsidiaries.
AGL Resources and its subsidiaries are collectively referred to as "AGL
Resources."
Page 11 of 27 Pages
<PAGE>
AGLC conducts its 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 bought and sold the natural gas that was supplied
to AGLC's customers during the deregulation transition period to full
competition in Georgia. Currently, AGLE buys and sells natural gas for
Chattanooga's customers.
AGLC comprises substantially all of AGL Resources' assets, revenues, and
earnings. The operations and activities of AGLC, AGLE, and Chattanooga,
collectively, are referred to as the "utility." The utility's total other
operating expenses include costs allocated from AGL Resources Inc.
AGL Resources currently owns or has an interest in the following non-utility
businesses:
- - SouthStar Energy Services LLC ("SouthStar"), a joint venture among a
subsidiary of AGL Resources and subsidiaries of Dynegy, Inc. and Piedmont
Natural Gas Company. SouthStar markets natural gas and related services to
residential and small commercial customers in Georgia and to industrial
customers in the Southeast. SouthStar began marketing natural gas to
customers in Georgia during the first quarter of fiscal 1999 under the
trade name "Georgia Natural Gas Services;"
- - AGL Investments, Inc., which currently manages certain non-utility
businesses including:
- AGL Propane, Inc. ("Propane"), which engages in the sale of propane
and related products and services in Georgia, Alabama, Tennessee and
North Carolina;
- Trustees Investments, Inc., which owns Trustees Gardens, a residential
and retail development located in Savannah, Georgia; and
- Utilipro, Inc. ("Utilipro"), in which AGL Resources has an 85%
ownership interest and which engages in the sale of integrated
customer care solutions and billing services to energy marketers in
the United States and Canada;
- - AGL Peaking Services, Inc., which owns a 50% interest in Etowah LNG Company
LLC ("Etowah"), a joint venture with Southern Natural Gas Company. Etowah
was formed for the purpose of constructing, owning, and operating a
liquefied natural gas peaking facility.
(The remainder of this page was intentionally left blank.)
Page 12 of 27 Pages
<PAGE>
RESULTS OF OPERATIONS
Three-Month Period Ended December 31, 1999 and 1998
In this section, the results of operations for the three-month periods ended
December 31, 1999 and 1998 are compared.
Operating Margin Analysis
(Dollars in Millions)
Three Months Ended
12/31/99 12/31/98 Favorable/(Unfavorable)
-------- -------- -------------------------
Operating Revenues
Utility $ 171.3 $ 317.2 $ (145.9) (46.0%)
Non-utility 11.0 6.7 4.3 64.2%
------- ------- --------- -------
Total $ 182.3 $ 323.9 $ (141.6) (43.7%)
======= ======= ========= =======
Cost of Sales
Utility $ 51.8 $ 184.9 $ 133.1 72.0%
Non-utility 2.8 2.1 (0.7) (33.3%)
------- ------- --------- -------
Total $ 54.6 $ 187.0 $ 132.4 70.8%
======= ======= ========= =======
Operating Margin
Utility $ 119.5 $ 132.3 $ (12.8) (9.7%)
Non-utility 8.2 4.6 3.6 78.3%
------- ------- --------- -------
Total $ 127.7 $ 136.9 $ (9.2) (6.7%)
======= ======= ========= =======
OPERATING REVENUES
Total operating revenues for the three months ended December 31, 1999 decreased
to $182.3 million from $323.9 million for the same period last year, a decrease
of 43.7%.
UTILITY. Utility operating revenues decreased to $171.3 million for the three
months ended December 31, 1999 from $317.2 million for the same period last
year. The decrease of $145.9 million in utility operating revenues was primarily
due to the following factors:
- - Due to Georgia's 1997 Natural Gas Competition and Deregulation Act
("Deregulation Act"), Georgia customers began to switch from AGLC to
certificated marketers for natural gas purchases beginning November 1,
1998. As of October 1, 1999, except for isolated circumstances, all of
AGLC's approximately 1.4 million Georgia customers had switched to or had
been assigned to certificated marketers. As a result, AGLC sold less gas.
The reduction in gas sold resulted in a net decrease of $133.1 million in
the utility's sales service revenues and a comparable decrease in the
utility's gas costs. This decrease was primarily due to the following
factors:
- A decrease of $143.8 million in the cost of gas sold to end-use
customers resulting from customer migration to certificated marketers.
Historically, AGLC recovered its actual gas costs, including carrying
costs related to storage gas inventories, from its customers;
- A decrease of $12.5 million associated with reduced levels of gas sold
outside of the utility's distribution system; and
- These decreases were partially offset by an increase in revenues due
to $22.2 million of sales of gas inventory to certificated marketers.
Page 13 of 27 Pages
<PAGE>
- - A decrease of $14.7 million in delivery service revenue due to the loss of
ancillary service revenues and certain transition revenues. Transition
revenues decreased $10.8 million due to customer migration to certificated
marketers. Additionally, AGLC's late payment fee revenue from end-use
customers decreased $5.5 million. This decrease was primarily due to AGLC
no longer billing end-use customers.
NON-UTILITY. Non-utility operating revenues increased to $11.0 million for the
three months ended December 31, 1999 from $6.7 million for the same period last
year. The net increase of $4.3 million was primarily due to the following
factors:
- - An increase of $3.3 million in Utilipro's operating revenues. Utilipro
engages in the sale of integrated customer care solutions to energy
marketers. Utilipro's growth in revenue over the previous year is primarily
due to the rapid customer growth experienced by Georgia's certificated
marketers; and
- - An increase of $1.3 million in Propane's operating revenues. The increase
is due to weather that was 21% colder than during the same period last
year. Additionally, the selling price per gallon increased compared with
the same period in fiscal 1999.
COST OF SALES
Total cost of sales decreased to $54.6 million for the three months ended
December 31, 1999 from $187.0 million for the same period last year, a decrease
of 70.8%.
UTILITY. The utility's cost of sales decreased to $51.8 million for the three
months ended December 31, 1999 from $184.9 million for the same period last
year. The decrease of $133.1 million in the utility's cost of sales was
primarily due to the same factors as described above. (See Utility section under
Operating Revenues.) This decrease was partially offset by an increase of $4.2
million in cost of gas sold in Chattanooga as a result of weather that was
colder than the prior year.
NON-UTILITY. Non-utility cost of sales increased to $2.8 million for the three
months ended December 31, 1999 from $2.1 million for the same period last year.
The increase was primarily due to an increase of $1.1 million in Propane's cost
of gas resulting from more gallons of propane sold as compared to the same
period last year. The increase in gallons sold was due to weather that was 21%
colder than during the same period last year.
OPERATING MARGIN
Total operating margin decreased to $127.7 million for the three months ended
December 31, 1999 from $136.9 million for the same period last year, a decrease
of 6.7%.
UTILITY. The utility's operating margin decreased to $119.5 million for the
three months ended December 31, 1999 from $132.3 million for the same period
last year. The decrease of $12.8 million was due primarily to a decrease of
$14.7 million in delivery service revenue due to the loss of ancillary service
revenues and certain transition revenues. Transition revenues decreased $10.8
million due to customer migration to certificated marketers. Additionally,
AGLC's late payment fee revenue from end-use customers decreased $5.5 million.
This decrease was primarily due to AGLC no longer billing end-use customers.
This decrease was partially offset by an increase of $2.2 million due to
continued customer growth.
Page 14 of 27 Pages
<PAGE>
The utility's operating margin as a percentage of operating revenues increased
to 69.8% for the three months ended December 31, 1999 from 41.7% for the same
period last year. This increase was primarily due to decreased revenues from gas
sales and a corresponding decrease in cost of gas resulting from deregulation.
This transition from the gas sales to delivery service function should not
effect AGLC's operating margin. However, since AGLC's costs associated with the
revenues derived from providing delivery and other related services are included
in total other operating expenses, AGLC's operating margin as a percentage of
operating revenues has increased from the same period last year.
NON-UTILITY. Non-utility operating margin increased to $8.2 million for the
three months ended December 31, 1999 from $4.6 million for the same period last
year, an increase of 78.3%. The increase is primarily due to an increase of $3.3
million in Utilipro's operating margin due to increased demand for customer care
services and customer growth. Because it is a service company, expenses related
to Utilipro are included in total other operating expenses. As a result, there
is an increase in operating revenue without a similar increase in cost of sales,
resulting in the increase in operating margin for the three months ended
December 31, 1999 as compared with the same period last year.
TOTAL OTHER OPERATING EXPENSES
Total other operating expenses increased to $94.2 million for the three months
ended December 31, 1999 from $89.2 million for the same period last year, an
increase of 5.6%.
Total Other Operating Expenses Analysis
(Dollars in Millions)
Three Months Ended
12/31/99 12/31/98 Favorable/(Unfavorable)
-------- -------- --------------------------
Total Other Operating
Expenses
Utility $ 81.8 $ 84.6 $ 2.8 3.3%
Non-utility 12.4 4.6 (7.8) (169.6%)
------- ------- --------- ---------
Total $ 94.2 $ 89.2 $ (5.0) (5.6%)
======= ======= ========= =========
UTILITY. Utility total other operating expenses decreased $2.8 million as
compared with the same period last year. The decrease was primarily due to a
$3.8 million decrease in customer service expenses related to meter reading,
billing, bill inquiry, payment processing and collection services resulting from
the migration of customers to certificated marketers. The decrease was partially
offset by an increase in depreciation expense of $0.5 million due to increased
depreciable property.
NON-UTILITY. Non-utility total other operating expenses increased $7.8 million
as compared with the same period last year primarily due to the following
factors:
- - An increase of $4.4 million in Utilipro's operating expenses due to
increased demand for services and strong customer growth as described
above. (See Non-utility section under Operating Revenues.); and
- - An increase of $2.0 million in operating expenses primarily due to charges
related to management restructuring.
Page 15 of 27 Pages
<PAGE>
OTHER INCOME/(LOSS)
Other income totaled $6.9 million for the three months ended December 31, 1999,
compared with other losses of $7.9 million for the same period last year. The
increase in other income of $14.8 million is primarily due to the following
factors:
- - AGL Resources' portion of SouthStar's income increased to $4.8 million from
a loss of $1.4 million, an increase of $6.2 million. The improved
performance by SouthStar is primarily due to an increase in customers
served and lower marketing expenses; and
- - During the first quarter of fiscal 1999, AGL Resources recorded pre-tax
losses related to its interests in Sonat Marketing Company L.P. ("Sonat
Marketing") and Sonat Power Marketing L.P. ("Sonat Power Marketing")
totaling approximately $6.5 million. AGL Resources sold its interests in
Sonat Marketing and Sonat Power Marketing during the fourth quarter of
fiscal 1999.
INTEREST EXPENSE
Interest expense decreased to $12.2 million for the three months ended December
31, 1999 from $14.2 million for the same period last year. The decrease of $2.0
million was primarily due to the following:
- - A decrease of $1.0 million resulting from decreased amounts of short-term
debt outstanding during the period; and
- - A decrease of approximately $1.0 million on customer deposits as a result
of customer migration to certificated marketers.
INCOME TAXES
Income tax expense increased to $9.6 million for the three months ended December
31, 1999 from $8.2 million for the same period last year. The increase in income
taxes of $1.4 million was due primarily to the increase in income before income
taxes compared to 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, 1999 was 36.0% as compared to 34.0% for the same period last year.
(The remainder of this page was intentionally left blank.)
Page 16 of 27 Pages
<PAGE>
FINANCIAL CONDITION
SEASONALITY OF BUSINESS
Historically, the utility business has been seasonal in nature, resulting in a
substantial increase in accounts receivable from customers from September 30 to
December 31 due to higher billings during colder weather. The utility used
natural gas stored underground to serve its customers during periods of colder
weather, resulting in a substantial decrease in gas inventories when comparing
December 31 with September 30. As a result of deregulation, the seasonality of
both expenses and revenues related to AGLC's Georgia operations has diminished
as end-use customers have migrated to certificated marketers. (See Note 2.
Overview of the Transition from a Regulated to a Competitive Business
Environment.)
Inventory of natural gas stored underground decreased $26.7 million during the
three months ended December 31, 1999. Natural gas stored underground decreased
primarily due to the assignment of most of AGLC's inventories to certificated
marketers in accordance with deregulation.
AGL Resources generally meets its liquidity requirements through operating cash
flow and the issuance of short-term debt. Short-term debt is utilized to meet
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 ranges up to $260 million.
Short-term debt increased $57.5 million to $59.0 million as of December 31, 1999
from $1.5 million as of September 30, 1999. The increase in short-term debt is
primarily due to the repayment of $40 million of AGLC's long-term debt, which
matured during the quarter. AGL Resources expects to be less dependent on
short-term debt since there is no need to replenish natural gas inventories
which have been assigned to certificated marketers in accordance with
deregulation.
Operating cash flow increased to $10.6 million for the three months ended
December 31, 1999 as compared to $3.0 million for the same period last year
primarily due to assignment of inventories to certificated marketers and a
decrease in gas accounts receivable due to the migration of customers to
certificated marketers. These increases in operating cash flow were partially
offset by a decrease in gas cost credits.
Management believes available credit will be sufficient to meet working capital
needs both on a short and long-term basis. However, capital needs depend on many
factors and AGL Resources may seek additional financing through debt or equity
offerings in the private or public markets at any time.
TRANSITION TO COMPETITION
UTILITY
The regulated rate structure under which AGLC unbundled its gas sales and
delivery service assumed that AGLC's costs associated with providing customer
service decreased each time a customer switched to a certificated marketer for
gas sales service, and such costs would be eliminated at the time the switch was
made. In fact, a significant portion of the costs associated with customer
service activities ("ancillary services"), including billing, bill inquiry,
payment processing and collection services, could not be eliminated for a period
of up to several months, during which AGLC continued to incur these expenses.
Page 17 of 27 Pages
<PAGE>
The accelerated pace of customer migration to certificated marketers also
required AGLC to incur additional customer service expenses, not originally
provided for in regulated rates, in order to maintain a high level of customer
service during the transition to competition. As a result, during fiscal 1999,
AGLC increased its staffing of customer service representatives and increased
other call center related expenses rather than reducing them.
At September 30, 1999, approximately 18% of AGLC's Georgia customers had not
been switched to certificated marketers. Such customers were switched on October
1, 1999, with the exception of approximately 15,000 customers who were switched
during the first quarter of fiscal 2000. Therefore, as of October 1, 1999,
almost all of AGLC's remaining customers were receiving service from
certificated marketers. AGLC's annual delivery service revenues for fiscal 1999
associated with providing ancillary services and certain transition revenues
were reduced by approximately $38.6 million as compared to fiscal 1998; however,
associated costs were not reduced by the same amount, resulting in an adverse
effect on net income. Transition revenues decreased $15.8 million due to
customer migration to certificated marketers. The remaining decrease of $22.8
million was primarily due to the timing of the implementation of the new
straight fixed variable ("SFV") rate structure for AGLC delivery service that
became effective during the fourth quarter of fiscal 1998. The impact of the
revenue and cost imbalance related to the transition to competition is expected
to continue into fiscal 2000.
AGLC is pursuing solutions to this revenue and cost imbalance aggressively,
including reducing or eliminating costs as quickly as possible, consistent with
prudent business practices, and increasing employee productivity at customer
call centers. The Deregulation Act authorizes an electing distribution company,
like AGLC, to recover prudently incurred costs that are found by the GPSC to be
"stranded" as a result of the transition to competition, and necessary to
provide a reasonable rate of return. On June 25, 1999, AGLC filed a request with
the GPSC for an accounting order (the "Order"), which would allow AGLC to defer
transition costs which are considered by AGLC to be "stranded." The Order, which
was approved on October 19, 1999, allows AGLC to defer these costs if such costs
are incurred from October 1, 1999 to September 30, 2000, and recovery is
necessary in order for AGLC to earn the 11% return on common stockholders'
equity approved by the GPSC in AGLC's last rate case. In order to be deferred,
the cost must also be one that:
- - AGLC is still incurring but, as a result of deregulation, is no longer
receiving revenue from the rate or rates which were set based on that cost;
- - Is prudently incurred; and
- - Cannot be mitigated.
As of December 31, 1999, AGLC has deferred $1.6 million in expenses related to
deregulation. A regulatory asset in that amount has been established under the
caption "Other Assets" on the Condensed Consolidated Balance Sheets.
NON-UTILITY
UTILIPRO. Utilipro engages in the sale of integrated customer care solutions to
energy marketers. The accelerated pace of customer migration to certificated
marketers has resulted in rapid customer growth and increased demand for
Utilipro's services. For the three months ended December 31, 1999, Utilipro's
operating revenues increased $3.3 million and total other operating expenses
increased $4.4 million compared with the same period for the previous year. This
trend of increasing operating revenues and expenses associated with increasing
demand for customer service is expected to continue in fiscal 2000 as Utilipro
continues to be in a start up mode. Therefore, management is considering several
strategic options in connection with AGL Resources' investment in Utilipro.
Page 18 of 27 Pages
<PAGE>
PROPANE. Management currently is evaluating strategic options related to AGL
Resources' propane operations, and anticipates that during fiscal 2000 its
propane operations will be either combined with propane operations of other
unrelated third parties in order to gain scale or be sold.
CONCENTRATION OF CREDIT RISK
AGLC has concentration of credit risk related to the provision of services to
certificated marketers. At September 30, 1998, AGLC billed approximately 1.4
million end-use customers in Georgia for its services. In contrast, at December
31, 1999, AGLC billed 15 certificated and active marketers in Georgia for
services. These 15 certificated marketers, in turn, bill the 1.4 million end-use
customers.
As of December 31, 1999, 68.8% of AGL Resources' total gas receivables were due
from 8 of the 15 certificated and active marketers and 5.6% were due from
end-use customers in Georgia who migrated to certificated marketers late in
fiscal 1999 or who were randomly assigned. Beginning October 1, 1999, only gas
receivables primarily attributable to Chattanooga will be due from end-use
customers. As a result, in fiscal 2000, a significantly higher percentage of AGL
Resources' total gas receivables will be due from Georgia certificated marketers
than was the case in prior years.
Several factors mitigate the risks to AGL Resources of the increased
concentration of credit that has resulted from deregulation. First, in order to
obtain a certificate from the GPSC, a certificated marketer must demonstrate to
the GPSC, among other things, that is possesses satisfactory financial and
technical capability to render the certificated service. Second, AGLC has
instituted certain practices and imposed certain requirements designed to reduce
credit risk. These include:
- - Pursuant to AGLC's tariff, each certificated marketer is required to
maintain security for its obligations to AGLC in an amount equal to at
least two times the marketer's estimated maximum monthly bill and in the
form of a cash deposit, letter of credit, surety bond or guaranty from a
creditworthy guarantor; and
- - Intrastate delivery service is billed in advance rather than in arrears.
AGLC also faces potential credit risk in connection with assignments to
certificated marketers of interstate pipeline transportation and storage
capacity. Although AGLC has assigned this capacity to the certificated
marketers, in the event that the certificated marketers fail to pay the
interstate pipelines for the capacity, the interstate pipelines would in all
likelihood seek repayment from AGLC. This risk is mitigated somewhat by the fact
that the interstate pipelines require the certificated marketers to maintain
security for their obligations to the interstates arising out of the assigned
capacity.
On October 26, 1999, Peachtree Natural Gas, LLC ("Peachtree"), one of the five
largest certificated marketers in Georgia based on customer count, filed for
protection under Chapter 11 of the United States Bankruptcy Code. As of the date
of Peachtree's bankruptcy filing, Peachtree owed AGLC approximately $14.3
million for pre-petition delivery service and other services and charges, and
AGLC held $11 million of surety bonds as security for Peachtree's obligations.
The amount owed to AGLC does not include amounts owed by Peachtree to interstate
pipelines for assigned capacity. Based upon information filed by Peachtree in
its bankruptcy proceeding, as of the date of Peachtree's filing, Peachtree owed
interstate pipelines approximately $1.8 million for assigned capacity. In
December 1999, Shell Energy Services Company, L.L.C. began serving the firm
customers formerly served by Peachtree. AGLC has been paid in full for all
post-petition delivery and other services provided by AGLC to Peachtree.
Page 19 of 27 Pages
<PAGE>
CAPITAL EXPENDITURES
Capital expenditures for construction of distribution facilities, purchase of
equipment, and other general improvements were $35.3 million for the three-month
period ended December 31, 1999 as compared to $29.4 million for the three-month
period ended December 31, 1998. The increase of $5.9 million is primarily
attributable to the capital expenditures incurred for the accelerated pipeline
replacement plan. (See AGLC Pipeline Safety section under State Regulatory
Activity.) Typically, funding for capital expenditures is provided through a
combination of internal sources and the issuance of short-term debt.
COMMON STOCK
During the three months ended December 31, 1999, AGL Resources repurchased
258,900 shares of common stock for a total of $4.5 million pursuant to a
previously announced stock repurchase plan. During that same period, AGL
Resources issued 158,476 shares of common stock under ResourcesDirect, a direct
stock purchase and dividend reinvestment plan; the Retirement Savings Plus Plan;
the Long-Term Incentive Plan; and the Non-Employee Directors Equity Compensation
Plan.
RATIOS
As of December 31, 1999, AGL Resources' capitalization ratios consisted of:
- - 45.7% long-term debt;
- - 5.5% preferred securities; and
- - 48.8% common equity.
GAS COST CREDITS
Gas cost credits decreased to $2.0 million as of December 31, 1999 from $37.9
million as of September 30, 1999. The decrease is primarily due to a $33 million
payment to the GPSC during December 1999, and payments totaling approximately
$2.5 million to buyout and terminate remaining long-term gas supply contracts.
In accordance with the January 26, 1999 joint stipulation agreement entered into
with the GPSC, AGLC recognized profits of $1.0 million in fiscal 1999 and
recorded a liability for the remaining over-collection of gas costs in
accordance with SFV rates. (See Note 2. Overview of the Transition from a
Regulated to a Competitive Business Environment.)
Since AGLC paid the $33 million to the GPSC, the GPSC subsequently will
coordinate with the certificated marketers to provide customers with a credit on
their marketer's bill. To be eligible for the refund credit, the customer must
have been on AGLC's system on April 25, 1999, and still connected as of March
20, 2000. The average refund per customer is expected to be approximately $24 to
$26.
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Page 20 of 27 Pages
<PAGE>
STATE REGULATORY ACTIVITY
FINAL RANDOM ASSIGNMENT
During the quarter ended December 31, 1999, AGLC completed the remaining random
assignment of customers to certificated marketers. Retail marketers now serve
all firm customers on the AGLC system. This final round of random assignment was
required due to the effects of timing and computer programming issues, which
prevented several thousand accounts from being assigned under the routine
procedures.
REGULATORY ACCOUNTING
AGL Resources has recorded regulatory assets and liabilities in its Condensed
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.
The Deregulation Act authorizes an electing distribution company, like AGLC, to
recover prudently incurred costs that are found by the GPSC to be "stranded" as
a result of the transition to competition, and necessary to provide a reasonable
rate of return. On June 25, 1999, AGLC filed a request with the GPSC for an
accounting order (the "Order"), which would allow AGLC to defer transition costs
which are considered by AGLC to be "stranded." The Order, which was approved on
October 19, 1999, allows AGLC to defer these costs if such costs are incurred
from October 1, 1999 to September 30, 2000, and recovery is necessary in order
for AGLC to earn the 11% return on common stockholders' equity approved by the
GPSC in AGLC's last rate case. In order to be deferred, the cost must also be
one that:
- - AGLC is still incurring but, as a result of deregulation, is no longer
receiving revenue from the rate or rates which were set based on that cost;
- - Is prudently incurred; and
- - Cannot be mitigated.
As of December 31, 1999, AGLC has deferred $1.6 million in expenses related to
deregulation. A regulatory asset in that amount has been established under the
caption "Other Assets" on the Condensed Consolidated Balance Sheets.
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 pipe. Over that 10-year period, AGLC will recover from customers, through
billings to certificated marketers, the costs related to the program net of any
cost savings from the replacement program.
Page 21 of 27 Pages
<PAGE>
During the three months ended December 31, 1999, approximately 55 miles of pipe
was replaced pursuant to the program. During that period, AGLC's capital
expenditures and operation and maintenance expenses related to the pipeline
replacement program were approximately $11.6 million and $2.2 million,
respectively. All such amounts will be recovered through a combination of SFV
rates and a regulatory mechanism.
On October 1, 1999, AGLC began recovering costs of the program through the
regulatory mechanism. The recovery for the first quarter of fiscal 2000 is
approximately $0.5 million.
ENVIRONMENTAL
AGLC has been associated with nine MGP sites in Georgia and three in Florida.
Based on investigations to date, AGLC believes that some cleanup is likely at
most of the sites. AGLC currently estimates that its total future cost of
investigating and cleaning up its MGP sites is between $102.4 million and $148.2
million. AGLC has two ways of recovering investigation and cleanup costs. First,
the GPSC has approved an "Environmental Response Cost Recovery Rider." It allows
the recovery of costs of investigation, testing, cleanup, and litigation.
Because of that rider, AGLC has recorded a regulatory asset in the same amount
as the recorded liability for investigation and cleanup. The second way AGLC can
recover costs is by exercising the legal rights AGLC believes it has to recover
a share of its costs from other potentially responsible parties, typically
former owners or operators of the MGP sites. AGLC has been actively pursuing
those recoveries. There were no material recoveries during the quarter ended
December 31, 1999.
FEDERAL REGULATORY ACTIVITY
FERC ORDER 636: TRANSITION COSTS SETTLEMENT AGREEMENTS.
The Federal Energy Regulatory Commission ("FERC") has required the utility, as
well as other interstate pipeline customers, to pay transition costs associated
with the separation of the suppliers' transportation and gas supply services.
Based on its pipeline suppliers' filings with the FERC, the utility estimates
the total portion of its transition costs from all its pipeline suppliers will
be approximately $107.9 million. As of December 31, 1999, approximately $105.8
million of those costs had been incurred and were being recovered primarily from
the utility's customers under rates charged for gas sales. AGLC's remaining
costs will be recovered from certificated marketers.
ENVIRONMENTAL MATTERS
Before natural gas was widely available in the Southeast, AGLC manufactured gas
from coal and other fuels. Those manufacturing operations were known as
"manufactured gas plants", or "MGPs" which AGLC ceased operating in the 1950s.
Because of recent environmental concerns, AGLC is required to investigate
possible environmental contamination at those plants and, if necessary, clean up
any contamination.
AGLC has been associated with nine MGP sites in Georgia and three in Florida.
Based on investigations to date, AGLC believes 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.
Page 22 of 27 Pages
<PAGE>
For each of the MGP sites, AGLC has estimated its share of the likely costs of
investigation and cleanup. AGLC currently estimates that its total future cost
of investigating and cleaning up its MGP sites is between $102.4 million and
$148.2 million. That range does not include other potential expenses, such as
unasserted property damage or personal injury claims or legal expenses for which
AGLC may be held liable but for which neither the existence nor the amount of
such liabilities can be reasonably forecast. Within that range, AGLC cannot
identify any single number as a "better" estimate of its likely future costs
because its actual future investigation and cleanup costs will be affected by a
number of contingencies that cannot be quantified at this time. Consequently, as
of December 31, 1999, AGLC has recorded the lower end of the range, or $102.4
million, as a liability, which remains unchanged from September 30, 1999, and a
corresponding regulatory asset. (See Environmental section under State
Regulatory Activity.)
YEAR 2000 READINESS DISCLOSURE
AGL Resources' Year 2000 initiative defined and provided a continuing process
for assessment, remediation planning, and plan implementation to achieve a level
of readiness that would meet the computer-related challenges presented by the
Year 2000 in a timely manner. Based on these efforts, AGL Resources considered
its critical systems, critical electronic assets, relationships with key
business partners, and contingency plans ready as of December 31, 1999. AGL
Resources suffered no material consequences due to the Year 2000 issue.
Through December 31, 1999, cumulative expenses in connection with AGL Resources'
Year 2000 assessment, remediation planning, and plan implementation processes
were approximately $7.7 million of which approximately $1.0 million was spent in
the first quarter of fiscal 2000. AGL Resources expects to spend approximately
$1.1 million for the Year 2000 initiative in fiscal 2000. These estimates
include costs associated with the use of outside consultants as well as hardware
and software costs. They also include direct costs associated with employees of
AGL Resources' 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, that are involved, on a limited
basis, in the Year 2000 initiative.
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Page 23 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 ($59.0
million outstanding as of December 31, 1999) would not have a material effect on
results of operations or financial condition over the next 12 months. The fair
value of AGL Resources' long-term debt and capital securities also are affected
by changes in interest rates. A hypothetical 10% increase or decrease in
interest rates would not have a material effect on the estimated fair value of
AGL Resources' long-term debt or capital securities. Additionally, the fair
value of outstanding long-term debt and capital securities has not materially
changed since September 30, 1999. During the first quarter of fiscal 2000, AGL
Resources paid-off $40.0 million of long-term debt.
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Page 24 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, 1999, 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. (See State Regulatory Activity, Federal Regulatory Activity, and
Environmental Matters contained in Item 2 of Part I under the caption
"Management's Discussion and Analysis of Results of Operations and Financial
Condition.") 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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."
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Page 25 of 27 Pages
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule.
(b) Reports on Form 8-K.
On October 6, 1999, AGL Resources filed a Current Report on Form 8-K dated
October 5, 1999, containing : "Item 7 - Exhibits"; Exhibit 99 - Form of
Press Release, dated October 5, 1999.
On October 27, 1999, AGL Resources filed a Current Report on Form 8-K dated
October 27, 1999, containing : "Item 7 - Exhibits"; Exhibit 99 - Form of
Press Release, dated October 27, 1999.
On November 19, 1999, AGL Resources filed a Current Report on Form 8-K
dated November 18, 1999, containing : "Item 7 - Exhibits"; Exhibit 99 -
Form of Press Release, dated November 18, 1999.
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Page 26 of 27 Pages
<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 thereunto duly authorized.
AGL Resources Inc.
(Registrant)
Date February 14, 2000 /s/ Donald P. Weinstein
Donald P. Weinstein
Senior Vice President and
Chief Financial Officer
(Principal Accounting and Financial Officer)
Page 27 of 27 Pages
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<CIK> 0001004155
<NAME> AGL RESOURCES INC.
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<S> <C>
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<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,528
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74
0
<LONG-TERM-DEBT-NET> 610
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