Exhibit FS-4.1
Notes to the Unaudited Pro Forma Combined Condensed Consolidated Financial
Statements Dated as of and ended June 30, 2000
The Unaudited Pro Forma Combined Condensed Consolidated Financial Statements of
AGL Resources and 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 June 30, 2000 and the
Unaudited Pro Forma Combined Condensed Statement of Consolidated Income for the
nine months ended June 30, 2000 has been prepared as if such transaction
occurred as of October 1, 1998. The Unaudited Pro Forma Combined Condensed
Consolidated Financial Statements reflect AGL Resources having acquired 100% of
the outstanding capital stock of VNG for $550 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 debt incurred to finance the
transaction and (ii) the excess of the purchase price over the net assets
acquired and liabilities assumed.
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.
Management believes that the unaudited condensed consolidated financial
statements from which the Pro Forma Combined Condensed Consolidated Financial
Statements are derived reflect all normal recurring adjustments necessary for a
fair statement of the results of the interim periods reflected.
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.
Merger Financing
A. To reflect the issuance of $558.8 million of long-term debt to finance the
purchase price ($550 million) and related direct acquisition costs ($5.5
million) of the Merger. The fees associated with this debt are expected to
be approximately $3.3 million and will be amortized over a 10-year period.
The annual interest expense will be approximately $44.7 million at an
assumed annual interest rate of 8%. A 1/8% change in the interest rate
would affect annual interest expense by approximately $.7 million.
VNG long-term debt of $116.0 million at June 30, 2000 is not being assumed.
Interest expense recognized by VNG for debt not being assumed for the
six-month period ended June 30, 2000 was $7.2 million and for the
twelve-month period ended December 31, 1999 was $9.2 million.
Purchase Adjustments
B. To reflect the elimination of receivables and payables between VNG's
affiliates and VNG. Such amounts will be 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 adjust acquired working capital to the agreed upon amount of $21.9
million. The Purchase Agreement states that working capital as of the
date of closing will be subject to an adjustment such that the amount
is equal to $21.9 million.
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 reflect the issuance of short-term debt for the financing of VNG's
natural gas stored underground and the related interest expense, assuming
an annual interest rate of 8%. A 1/8% change in the interest rate would
effect annual interest expense by less than $.1 million.
H. To record the excess of the purchase price of $550 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 $550.0
Direct costs of the merger 5.5
Less: assets acquired (449.1)
Plus: liabilities assumed 44.3
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Goodwill $150.7
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I. 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.
J. To reflect the elimination of the unfunded postretirement benefit
obligation and the establishment of a corresponding regulatory asset.
K. To reflect interest income, at an annual interest rate of 8%, on the cash
received from the working capital adjustment and the short-term debt issued
for the purchase of natural gas stored underground.
