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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, 1995
Commission file number 1-9905
ATLANTA GAS LIGHT COMPANY
(Exact name of registrant as specified in its charter)
GEORGIA 58-0145925
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
303 PEACHTREE STREET, NE 30308
ATLANTA, GEORGIA (Zip Code)
(Address of principal executive offices)
(404) 584-4000
(Registrant's telephone number, including area code)
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, 1995.
Common Stock, $5.00 Par Value
Shares Outstanding at December 31, 1995. . . . . . . . . . . . . .55,167,451
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ATLANTA GAS LIGHT COMPANY
Quarterly Report on Form 10-Q
For the Quarter Ended December 31, 1995
Table of Contents
Item Page
Number PART I FINANCIAL INFORMATION Number
1 Financial Statements
Condensed Consolidated Income Statements (Unaudited) for
the Three Months and Twelve Months Ended
December 31, 1995 and 1994 3
Condensed Consolidated Balance Sheets (Unaudited) at
December 31, 1995, December 31, 1994 and September 30, 1995 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Three Months and Twelve Months Ended
December 31, 1995 and 1994 6
Notes to Condensed Consolidated Financial Statements
(Unaudited) 7
2 Management's Discussion and Analysis of Results of
Operations and Financial Condition 9
PART II OTHER INFORMATION
1 Legal Proceedings 13
5 Other Information 13
6 Exhibits and Reports on Form 8-K 16
SIGNATURES 17
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND TWELVE MONTHS ENDED
DECEMBER 31, 1995 AND 1994
(MILLIONS, EXCEPT PER SHARE DATA)
Three Months Twelve Months
1995 1994 1995 1994
Operating Revenue. . . . . . . . $ 328.8 $ 328.8 $ 1,063.0 $ 1,166.8
Cost of Gas. . . . . . . . . . . 188.8 188.1 572.5 695.2
-------- -------- --------- ---------
Operating Margin. . . . . . . 140.0 140.7 490.5 471.6
-------- -------- --------- ---------
Other Operating Expenses:
Operating Expenses. . . . . . 80.8 81.5 327.3 322.2
Restructuring Costs . . . . . 44.5 25.8 44.5
-------- -------- --------- ---------
Total Other Operating
Expenses. . . . . . . . . . . 80.8 126.0 353.1 366.7
Income Taxes . . . . . . . . . . 17.2 0.6 32.6 21.1
-------- -------- --------- ---------
Operating Income. . . . . . . 42.0 14.1 104.8 83.8
-------- -------- --------- ---------
Other Income:
Other Income and Deductions . 1.6 1.4 2.3 5.0
Income Taxes. . . . . . . . . (0.6) (0.5) (0.8) (1.7)
-------- -------- --------- ---------
Other Income - Net. . . . . . 1.0 0.9 1.5 3.3
-------- -------- --------- ---------
Income Before Interest Charges . 43.0 15.0 106.3 87.1
Interest Charges . . . . . . . . 12.8 13.2 47.1 48.4
-------- -------- --------- ---------
Net Income . . . . . . . . . . . 30.2 1.8 59.2 38.7
Dividends on Preferred Stock . . 1.1 1.1 4.4 4.5
-------- -------- --------- ---------
Earnings Applicable to
Common Stock . . . . . . . . $ 29.1 $ 0.7 $ 54.8 $ 34.2
======== ======== ========= =========
Earnings Per Share of
Common Stock. . . . . . . . . $ 0.53 $ 0.01 $ 1.03 $ 0.68
Cash Dividends Paid Per Share of
Common Stock. . . . . . . . . $ 0.265 $ 0.26 $ 1.045 $ 1.04
Average Number of Common Shares
Outstanding (Millions). . . . 55.1 51.0 53.5 50.6
See notes to condensed consolidated financial statements.
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ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(MILLIONS)
December 31, September 30,
1995 1994 1995
ASSETS
Utility Plant. . . . . . . . . . . . . . $ 1,943.1 $ 1,847.5 $ 1,919.9
Less Accumulated Depreciation. . . . . . 595.8 559.0 583.3
--------- --------- ---------
Utility Plant - Net. . . . . . . . . . 1,347.3 1,288.5 1,336.6
--------- --------- ---------
Other Property and Investments (less
accumulated depreciation) . . . . . . . 45.1 18.7 46.3
--------- --------- ---------
Current Assets:
Cash and Cash Equivalents . . . . . . . 5.8 4.2 3.7
Receivables (less allowance for
uncollectible accounts of $5.2 at
December 31, 1995, $5.0 at December 31,
1994 and $4.4 at September 30, 1995). 206.1 187.5 69.3
Inventories:
Natural Gas Stored Underground . . . 87.4 103.9 111.2
Liquefied Natural Gas . . . . . . . 11.6 17.5 14.3
Materials and Supplies . . . . . . . 8.5 9.6 8.0
Other. . . . . . . . . . . . . . . . 2.0 6.2 2.6
Deferred Purchased Gas Adjustment . . . 7.5
Other . . . . . . . . . . . . . . . 9.2 8.4 10.9
--------- --------- ---------
Total Current Assets. . . . . . . . 338.1 337.3 220.0
--------- --------- ---------
Deferred Debits and Other Assets:
Unrecovered Environmental
Response Costs . . . . . . . . . . . . 34.7 29.4 34.9
Unrecovered Integrated Resource Plan
Costs . . . . . . . . . . . . . . . . . 7.5 12.8 9.9
Other . . . . . . . . . . . . . . . . . 24.7 26.6 26.9
--------- --------- ---------
Total Deferred Debits and Other
Assets. . . . . . . . . . . . . . . 66.9 68.8 71.7
--------- --------- ---------
Total. . . . . . . . . . . . . . $ 1,797.4 $ 1,713.3 $ 1,674.6
========= ========= =========
See notes to condensed consolidated financial statements.
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ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(MILLIONS)
December 31, September 30,
1995 1994 1995
CAPITALIZATION AND LIABILITIES
Capitalization:
Common Stock, $5 Par Value, Shares Issued and
Outstanding of 55.2 at December 31, 1995,
51.2 at December 31, 1994 and 54.9 at
September 30, 1995 . . . . . . . . $ 275.8 $ 128.0 $ 137.3
Premium on Capital Stock. . . . . . 163.7 245.8 297.7
Earnings Reinvested . . . . . . . . 136.8 137.5 122.3
--------- --------- ---------
Total Common Stock Equity. . . . 576.3 511.3 557.3
Preferred Stock, Cumulative $100 Par
or Stated Value, Shares Issued and
Outstanding of 0.6 at December 31,
1995, December 31, 1994 and
September 30, 1995 . . . . . . . 58.5 58.5 58.5
Long-Term Debt . . . . . . . . . . 554.5 554.5 554.5
--------- --------- ---------
Total Capitalization . . . . . . 1,189.3 1,124.3 1,170.3
--------- --------- ---------
Current Liabilities:
Redemption Requirements on Preferred
Stock . . . . . . . . . . . . . . 0.3 0.3 0.3
Long-Term Debt Due Within One Year. 15.0
Short-Term Debt . . . . . . . . . . 156.3 148.6 51.0
Accounts Payable. . . . . . . . . . 83.1 51.7 72.3
Deferred Purchased Gas Adjustment . 33.3 6.3
Customer Deposits . . . . . . . . . 29.8 29.6 29.5
Interest. . . . . . . . . . . . . . 17.5 17.4 25.4
Taxes . . . . . . . . . . . . . . . 10.9 14.4 3.7
Other . . . . . . . . . . . . . . . 34.9 21.8 42.4
--------- --------- ---------
Total Current Liabilities. . . . 332.8 332.1 230.9
--------- --------- ---------
Accrued Environmental Response Costs . 28.6 24.1 28.6
Accrued Pension Costs. . . . . . . . . 9.8 20.0 10.3
Accrued Postretirement Benefits Costs. 31.4 23.0 30.1
Deferred Credits . . . . . . . . . . . 64.5 68.3 65.6
Accumulated Deferred Income Taxes. . . 141.0 121.5 138.8
--------- --------- ---------
Total. . . . . . . . . . . . $ 1,797.4 $ 1,713.3 $ 1,674.6
========= ========= =========
See notes to condensed consolidated financial statements.
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ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS AND TWELVE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(MILLIONS)
Three Months Twelve Months
1995 1994 1995 1994
Cash Flows from Operating Activities:
Net Income . . . . . . . . . . .$ 30.2 $ 1.8 $ 59.2 $ 38.7
Adjustments to Reconcile Net Income
to Net Cash Flow from Operating
Activities:
Non-Cash Restructuring Costs . . 44.5 8.4 44.5
Depreciation and Amortization. . 16.6 15.7 63.4 59.9
Deferred Income Taxes. . . . . . 2.3 (13.1) 19.6 (2.6)
Non-Cash Compensation Expense. . 1.8 2.4 5.6 8.5
Other. . . . . . . . . . . . . . (0.6) (0.9) (2.1) (2.4)
Changes in Certain Assets and
Liabilities . . . . . . . . . . . . (114.8) (65.9) 6.9 37.0
------- ------- ------- -------
Net Cash Flow from Operating
Activities. . . . . . . . . . . (64.5) (15.5) 161.0 183.6
------- ------- ------- -------
Cash Flows from Financing Activities:
Short-Term Borrowings, Net . . . . 105.3 53.2 7.7 (80.9)
Redemptions of Long-Term Debt. . . (15.0)
Sale of Common Stock, Net of
Expenses . . . . . . . . . . . . 0.3 0.5 50.2 2.2
Sale of Long-Term Debt . . . . . . 59.7
Dividends . . . . . . . . . . . . (13.3) (11.9) (50.1) (47.5)
------- ------- ------- -------
Net Cash Flow from Financing
Activities . . . . . . . . . 92.3 41.8 (7.2) (66.5)
------- ------- ------- -------
Cash Flows from Investing Activities:
Utility Plant Expenditures. . . . . (27.1) (25.7) (122.2) (119.3)
Non-Utility Capital Expenditures. . 1.2 (0.9) 1.7 (1.0)
Investment in Joint Venture . . . . (32.6)
Cost of Property Removal,
Net of Salvage . . . . . . . . . . 0.2 1.2 0.9 3.1
------- ------- ------- -------
Net Cash Flow from Investing
Activities . . . . . . . . . (25.7) (25.4) (152.2) (117.2)
------- ------- ------- -------
Net Increase (Decrease) in Cash
and Cash Equivalents . . . . 2.1 0.9 1.6 (0.1)
Cash and Cash Equivalents at
Beginning of Period . . . . . 3.7 3.3 4.2 4.3
------- ------- ------- -------
Cash and Cash Equivalents at
End of Period . . . . . . . .$ 5.8 $ 4.2 $ 5.8 $ 4.2
======= ======= ======= =======
Cash Paid During the Period for:
Interest. . . . . . . . . . . . . .$ 20.8 $ 20.8 $ 48.4 $ 53.4
Income Taxes. . . . . . . . . . . .$ $ 8.3 $ 20.3 $ 26.3
See notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Unless noted specifically or otherwise required by the context, reference
to the "Company" includes Atlanta Gas Light Company (AGL) and its wholly
owned subsidiaries AGL Energy Services, Inc., AGL Investments, Inc.,
Chattanooga Gas Company (Chattanooga), Georgia Gas Company, Georgia Gas
Service Company, Georgia Energy Company and Trustees Investments, Inc.
The information contained in these condensed consolidated financial
statements and notes is unaudited, but reflects all normal recurring
accruals, which are, in the opinion of management, necessary for a fair
statement of the results of the interim periods reflected. Certain
information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to applicable rules and regulations
of the Securities and Exchange Commission. These financial statements
should be read in conjunction with the financial statements and the notes
thereto included in the annual reports on Form 10-K of the Company for
the fiscal years ended September 30, 1995 and 1994. Certain 1994 amounts
have been restated or reclassified for comparability with 1995 amounts.
In addition, on November 3, 1995, the Company's Board of Directors
declared a two-for-one stock split of the common stock effected in the
form of a 100% stock dividend to shareholders of record on November 17,
1995, and paid on December 1, 1995. The Company recorded a debit to
premium on capital stock and a credit to common stock of $137.5 million
to transfer the amount of the par value of the stock dividend to common
stock. All references to number of shares and to per share amounts in the
Condensed Consolidated Financial Statements and Management's Discussion
and Analysis of Results of Operations and Financial Condition have been
retroactively adjusted to reflect the stock dividend.
2. Since sales of natural gas are dependent to a large extent on weather,
the majority of the Company's income is realized during the winter
months. Earnings for a three-month period are not indicative of the
earnings for a twelve-month period.
On October 3, 1995, AGL implemented revised firm service rates pursuant
to an order on rehearing of the rate design issues of the Company's 1993
rate case that was issued by the Georgia Public Service Commission
(Georgia Commission) on September 25, 1995. Although revenue neutral
with respect to total annual revenues, the new rates shift margins from
heating months (November - March) into non-heating months, thereby
affecting the comparisons between interim earnings for fiscal 1996 and
1995. Annual operating margins for fiscal 1996 will not be affected by
the new rates.
3. AGL has identified nine sites in Georgia where it currently owns all or
part of a manufactured gas plant (MGP) site. In addition, AGL has
identified three other sites in Georgia which AGL does not now own, but
which may have been associated with the operation of MGPs by AGL or its
predecessors. There are three sites in Florida which have been
investigated by environmental authorities in connection with which the
Company may be contacted as a potentially responsible party.
Under a thorough analysis of potentially applicable requirements, the
Company has estimated that, under the most favorable circumstances
reasonably possible, the future cost of investigating and remediating its
former MGP sites could be as low as $28.6 million. Alternatively, the
Company has estimated that, under the least favorable circumstances
reasonably possible, the future cost of investigating and remediating its
former MGP sites could be as high as $109 million. The Company cannot
estimate at this time the amount of any other future expenses or
liabilities, or the impact on these estimates of future environmental
regulatory changes, that may be associated with or related to the MGP
sites, including expenses or liabilities relating to any litigation. At
the present time, no amount within the range can be identified as a
better estimate than any other estimate. Therefore, a liability for
the low end of this range and a corresponding regulatory asset have been
recorded in the financial statements.
The Georgia Commission has approved the recovery by AGL of Environmental
Response Costs, as defined below, pursuant to AGL's Environmental
Response Cost Recovery Rider (ERCRR). For purposes of the ERCRR,
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Environmental Response Costs include investigation, testing, remediation
and litigation costs and expenses or other liabilities relating to or
arising from MGP sites.
In connection with the ERCRR, the staff of the Georgia Commission has
undertaken a financial and management process audit related to the MGP
sites, clean-up activities at the sites and Environmental Response Costs
which have been incurred for purposes of the ERCRR. Although the result
of such audit is not known, management does not expect the audit to have
a significant effect on the Company's consolidated financial statements.
With regard to legal proceedings related to the former MGP sites, the
Company is or expects to be a party to claims or counterclaims on an
ongoing basis. Among such matters, the Company intends to continue to
pursue insurance coverage and contribution from potentially responsible
parties. Management currently believes that the outcome of MGP-related
litigation in which the Company is involved will not have a material
adverse effect on the financial condition and results of operations of
the Company.
See Part I, Item 2 and Part II, Item 5, "Other Information,"
"Environmental Matters," of this Form 10-Q for additional information
regarding environmental response activities associated with MGP sites.
4. The Company competes to supply natural gas to interruptible customers
who are capable of switching to alternative fuels, including fuel oil,
coal, propane, electricity and, in some cases, combustible wood
by-products. The Company also competes to supply gas to interruptible
customers who might otherwise seek to bypass the Company's distribution
system.
On February 17, 1995, the Georgia Commission approved a settlement that
permits the Company to negotiate contracts with customers who have the
option to bypass the Company's facilities and receive natural gas from
other suppliers. A bypass avoidance contract (Negotiated Contract) can
be renewable, provided that the initial term does not exceed five years,
unless a longer term is specifically authorized by the Georgia
Commission. The rate provided by the Negotiated Contract may be lower
than AGL's filed rate, but not less than AGL's marginal cost of service
to the potential Bypass Customer. Service pursuant to a Negotiated
Contract may commence without Georgia Commission action, once a copy of
the contract is filed with the Georgia Commission. Negotiated Contracts
may be rejected by the Georgia Commission within 90 days of filing;
absent such action, however, the Negotiated Contracts remain effective.
None of the 41 Negotiated Contracts filed with the Georgia Commission
have been rejected. The settlement also provides for a bypass loss
recovery mechanism to operate until the earlier of September 30, 1998,
or the effective date of new rates for AGL resulting from a general rate
case.
In addition to Negotiated Contracts, which are designed to serve
existing and potential Bypass Customers, the Company's Interruptible
Transportation and Sales Maintenance (ITSM) Rider continues to permit
discounts for short-term transactions to compete with alternative fuels.
Revenue shortfalls, if any, from interruptible customers as measured by
the test-year interruptible revenues determined by the Georgia Commission
in the Company's 1993 rate case will continue to be recovered under the
ITSM Rider.
The settlement approved by the Georgia Commission also provides that AGL
may file contracts (Special Contracts) for Georgia Commission approval if
the service cannot be provided through the ITSM Rider, existing rate
schedules or the Negotiated Contract procedures. An example of an
application for a Special Contract would be to provide for a long-term
service contract to compete with alternative fuels where physical bypass
was not the relevant competition. Currently, AGL has filed, and the
Georgia Commission has approved, Special Contracts with five industrial
customers.
5. In November 1994, the Company announced a corporate restructuring plan in
response to increased competition and the changes in the federal and
state regulatory environments in which the Company operates. The
restructuring plan provided for reengineering the Company's business
processes and streamlining the Company's statewide field organizations.
As a result of restructuring, the Company has combined offices and
established centralized customer service centers. During the twelve
months ended December 31, 1995, the Company reduced the number of
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employees by approximately 660 through voluntary retirement and severance
programs and attrition. Also during this period, the Company recorded
restructuring costs of $9.2 million (after income taxes) related to the
early retirement and severance programs, and $5.5 million (after income
taxes) related to office closings and costs to exit the Company's
appliance merchandising and real estate investment operations. The
Company has recorded total restructuring costs of $43.1 million (after
income taxes). As a result of the restructuring, the Company has
experienced considerable reductions in annual operating expenses from
the levels incurred in fiscal 1994.
6. On November 27, 1995, the Company filed a registration statement with the
Securities and Exchange Commission (SEC) and an application with the
Georgia Commission to form a holding company, AGL Resources, Inc. (AGL
Resources). AGL Resources would become the parent corporation of Atlanta
Gas Light Company and its subsidiaries. The Georgia Commission voted to
approve the holding company structure on February 6, 1996. In addition
to the SEC approval still required, the Company is seeking shareholder
approval of the reorganization at the 1996 annual shareholders meeting
on March 6, 1996.
If approved, holders of Atlanta Gas Light Company common stock will
become holders of AGL Resources common stock, and the present stock
certificates representing Atlanta Gas Light Company common stock will
represent AGL Resources common stock on a share-for-share basis. AGL
Resources common stock is expected to be approved for listing on the New
York Stock Exchange. If the remaining requisite approvals are obtained,
it is anticipated that the reorganization into holding company structure
will be completed during the second fiscal quarter of 1996.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Three-Month Periods Ended December 31, 1995 and 1994
Explained below are the major factors that had a significant effect on
results of operations for the three-month period ended December 31, 1995,
compared with the same period in 1994.
Operating revenues were $328.8 million for the three-month periods ended
December 31, 1995 and 1994. Although volumes of gas sold increased 29% as a
result of weather that was 82% colder during the three months ended December
31, 1995, compared with the same period in 1994, operating revenues were
unchanged primarily due to a decrease in the cost of the Company's gas supply
recovered from customers under the purchased gas provisions of the Company's
rate schedules, as explained in the following paragraph.
Cost of gas increased 0.4% for the three-month period ended December 31,
1995, compared with the same period in 1994 primarily due to increased
volumes of gas sold as a result of weather that was 82% colder than the same
period in 1994. The increase in cost of gas was offset substantially by a
decrease in the cost of the Company's gas supply recovered from customers
under the purchased gas provisions of the Company's rate schedules. The
decrease in the cost of the Company's gas supply was primarily due to a
decrease in the cost of gas withdrawn from underground storage. The Company
balances the cost of gas with revenues collected under the purchased gas
provisions of the Company's rate schedules. Underrecoveries or
overrecoveries of gas costs are deferred and recorded as current assets or
liabilities, thereby eliminating the effect that recovery of gas costs would
otherwise have on net income.
Operating margin decreased 0.5% for the three-month period ended December 31,
1995, compared with the same period in 1994 primarily due to revised firm
service rates, effective October 3, 1995, which shift margins from heating
months into non-heating months (see Note 2 to Notes to Condensed Consolidated
Financial Statements in this Form 10-Q). The decrease in operating margin
was offset partly by an increase of approximately 38,000 in the number of
customers served. The Company's Weather Normalization Adjustment Riders
stabilized operating margin at the level which would
<PAGE>
occur with normal weather for the three-month periods ended December 31, 1995
and 1994. As a result of the Weather Normalization Adjustment Riders,
weather conditions experienced do not have a significant impact on the
comparability of operating margin.
Operating expenses decreased 0.9% for the three-month period ended December
31, 1995, compared with the same period in 1994. Operating expenses for the
three-month period ended December 31, 1995, included an increase of $3.1
million in expenses related to the Company's Integrated Resource Plan (IRP)
which are recovered through an IRP Cost Recovery Rider approved by the
Georgia Commission. The Company balances IRP expenses which are included in
operating expenses with revenues collected under the rider, thereby
eliminating the effect that recovery of IRP expenses would otherwise have on
net income. Operating expenses excluding IRP expenses decreased 4.8%
primarily due to decreased labor costs as a result of the Company's recent
restructuring. Total other operating expenses decreased primarily due to
restructuring costs of $44.5 million recorded in the three-month period ended
December 31, 1994. See Note 5 to Notes to Condensed Consolidated Financial
Statements in this Form 10-Q.
Income taxes increased $16.7 million for the three-month period ended
December 31, 1995, compared with the same period in 1994 primarily due to
increased taxable income.
Interest charges decreased 3% for the three-month period ended December 31,
1995, compared with the same period in 1994 primarily due to decreased
amounts of long-term debt outstanding.
Net income for the three-month period ended December 31, 1995, was $30.2
million, compared with net income of $1.8 million in 1994. Earnings per
share of common stock were $.53 for the three-month period ended December 31,
1995, compared with earnings per share of $.01 in 1994. The increases in net
income and earnings per share were primarily due to (1) restructuring costs
of $28.4 million (after income taxes) included in the three-month period
ended December 31, 1994, (2) a decrease of $2.9 million in operating expenses
not recovered through rate riders as a result of the Company's recent
restructuring and (3) an increase of approximately 38,000 in the number of
customers served. The increase in earnings per share was partly offset by
(1) an increase in the number of common shares outstanding and (2) revised
firm service rates approved by the Georgia Commission which shift margins
from heating months (November - March) into non-heating months. See Note 2
to Notes to Condensed Consolidated Financial Statements in this Form 10-Q.
Twelve-Month Periods Ended December 31, 1995 and 1994
Explained below are the major factors that had a significant effect on
results of operations for the twelve-month period ended December 31, 1995,
compared with the same period in 1994.
Operating revenues decreased 8.9% for the twelve-month period ended December
31, 1995, compared with the same period in 1994 primarily due to a decrease
in the cost of the Company's gas supply recovered from customers under the
purchased gas provisions of the Company's rate schedules, as explained in the
following paragraph. The decrease in operating revenues was offset partly by
(1) increased volumes of gas sold and transported as a result of weather that
was 23% colder than the same period in 1994 and (2) an increase of
approximately 37,000 in the number of customers served.
Cost of gas decreased 17.7% for the twelve-month period ended December 31,
1995, compared with the same period in 1994 primarily due to a decrease in
the cost of the Company's gas supply recovered from customers under the
purchased gas provisions of the Company's rate schedules. The decrease in
the cost of the Company's gas supply was primarily due to decreases in (1)
the cost of gas purchased for system supply and (2) the cost of gas
withdrawn from underground storage. The decrease in cost of gas was offset
partly by increased volumes of gas sold and transported as a result of
weather that was 23% colder than the same period in 1994. The Company
balances the cost of gas with revenues collected under the purchased gas
provisions of the Company's rate schedules. Underrecoveries or
overrecoveries of gas costs are deferred and recorded as current assets or
liabilities, thereby eliminating the effect that recovery of gas costs would
otherwise have on net income.
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Operating margin increased 4.0% for the twelve-month period ended December
31, 1995, compared with the same period in 1994 primarily due to recovery of
increased expenses related to the Company's IRP which are recovered through
an IRP Cost Recovery Rider approved by the Georgia Commission. The Company
balances IRP expenses which are included in operating expenses with revenues
collected under the rider, thereby eliminating the effect that recovery of
IRP expenses would otherwise have on net income. Operating margin was also
positively affected by an increase of approximately 37,000 in the number of
customers served. The Company's Weather Normalization Adjustment Riders
stabilized operating margin at the level which would occur with normal
weather for the twelve-month periods ended December 31, 1995 and 1994. As a
result of the Weather Normalization Adjustment Riders, weather conditions
experienced do not have a significant impact on the comparability of
operating margin.
Operating expenses increased 1.6% for the twelve-month period ended December
31, 1995, compared with the same period in 1994 primarily due to an increase
of $17.2 million in expenses related to the Company's IRP which are
recovered through an IRP Cost Recovery Rider approved by the Georgia
Commission. Operating expenses excluding IRP expenses decreased 3.8%
primarily due to decreased labor costs as a result of the Company's recent
restructuring. Total other operating expenses decreased primarily due to a
decrease in restructuring costs of $18.7 million. See Note 5 to Notes to
Condensed Consolidated Financial Statements in this Form 10-Q.
Other income decreased $1.8 million for the twelve-month period ended
December 31, 1995, compared with the same period in 1994 due primarily to (1)
the recovery in 1994 of carrying costs not included in base rates related to
storage gas inventories, (2) decreased income from merchandise operations as
a result of the decision to exit the Company's appliance merchandising
operations in fiscal 1995 and (3) decreased income from propane operations.
Income taxes increased $10.6 million for the twelve-month period ended
December 31, 1995, compared with the same period in 1994 primarily due to
increased taxable income.
Interest charges decreased 2.7% for the twelve-month period ended December
31, 1995, compared with the same period in 1994 primarily due to decreased
amounts of long-term and short-term debt outstanding.
Net income for the twelve-month period ended December 31, 1995, was $59.2
million, compared with net income of $38.7 million in 1994. Earnings per
share of common stock were $1.03 for the twelve-month period ended December
31, 1995, compared with earnings per share of $.68 in 1994. The increases in
net income and earnings per share were primarily due to (1) a decrease in
restructuring costs of $12.5 million (after income taxes), (2) a decrease of
$9.7 million in operating expenses not recovered through rate riders as a
result of the Company's recent restructuring and (3) an increase of
approximately 37,000 in the number of customers served.
Financial Condition
The Company's business is highly seasonal in nature and typically shows a
substantial increase in accounts receivable from September 30 to December 31
as a result of colder weather. The Company also uses gas stored underground
and liquefied natural gas to serve its customers during periods of colder
weather. As a result, accounts receivable increased $136.8 million and
inventory of gas stored underground and liquefied natural gas decreased $26.5
million during the three months ended December 31, 1995. Accounts receivable
increased $18.6 million from December 31, 1994 to December 31, 1995,
primarily due to increased loans to customers resulting from financing
programs associated with the Company's IRP. Accounts payable increased $31.4
million from December 31, 1994, to December 31, 1995, primarily due to a
$23.9 million increase in accounts payable to gas suppliers.
The Company currently estimates that its portion of transition costs
resulting from Federal Energy Regulatory Commission (FERC) Order 636
restructuring proceedings from all of its pipeline suppliers, that have been
filed to be recovered to date could be as high as approximately $100.6
million. Such filings currently are pending before FERC for final approval,
and the transition costs are being collected subject to refund. Approximately
$75 million of such costs have been incurred by the Company as of December
31, 1995, and are being recovered from its customers under the purchased gas
provisions of the Company's rate schedules.
<PAGE>
Prior to the implementation of Order 636, the cost of bundled pipeline sales
service was reviewed and approved by FERC. Because of diminished review by
FERC following the implementation of Order 636, local distribution companies
such as the Company may face greater accountability and risks from their
purchasing practices for gas supply, transportation and storage services.
The purchasing practices of AGL are subject to review by the Georgia
Commission under legislation enacted by the Georgia General Assembly. The
legislation establishes procedures for review and approval of gas supply
plans for gas utilities and gas cost adjustment factors applicable to firm
service customers of gas utilities. Pursuant to AGL's approved gas supply
plan for fiscal year 1996, gas supply purchases are being recovered under the
purchased gas provisions of AGL's rate schedules. The plan also allows
recovery from the customers of AGL of Order 636 transition costs that are
currently being charged by the Company's pipeline suppliers. For further
discussion of the effects of FERC Order 636 on the Company, see Part II, Item
5, "Other Information," "Federal Regulatory Matters" of this Form 10-Q.
As noted above, the Company recovers the cost of gas under the purchased gas
provisions of the Company's rate schedules. The Company was in an
underrecovery position of $7.5 million as of December 31, 1995, and an
overrecovery position of $6.3 million as of September 30, 1995, and $33.3
million as of December 31, 1994. Under the provisions of the Company's rate
schedules, any underrecoveries or overrecoveries of gas costs are included in
current assets or liabilities and have no effect on net income.
The expenditures for plant and other property totaled $25.9 million and
$120.5 million for the three-month and twelve-month periods ended December
31, 1995, respectively. On August 31, 1995, the Company signed an agreement
with Sonat Inc. (Sonat) to form a joint venture to acquire the business of
Sonat Marketing Company, a wholly owned subsidiary of Sonat. The Company
invested $32.6 million in Sonat Marketing Company, L.P., for a 35% ownership
interest.
The Company has accrued liabilities of $28.6 million as of December 31, 1995,
compared with $24.1 million as of December 31, 1994, for future expenditures
which are expected to be made over a period of several years in connection
with or related to MGP sites. The Georgia Commission has approved the
recovery by the Company of Environmental Response Costs, as defined in Note 3
to Notes to Condensed Consolidated Financial Statements in this Form 10-Q,
commencing October 1, 1992, pursuant to the ERCRR. The staff of the Georgia
Commission has undertaken a financial and management process audit related to
the MGP sites, clean-up activities at the sites and Environmental Response
Costs which have been incurred for purposes of the ERCRR. Although the
result of such audit is not known, management does not expect the audit to
have a significant effect on the Company's consolidated financial statements.
See Part II, Item 5 - "Other Information," "Environmental Matters" in this
Form 10-Q.
On November 3, 1995, the Company's Board of Directors declared a two-for-one
stock split of the common stock effected in the form of a 100% stock dividend
to shareholders of record on November 17, 1995, and paid on December 1, 1995.
All references to number of shares and to per share amounts in the condensed
consolidated financial statements and related notes have been restated
retroactively to reflect the stock split.
On June 16, 1995, the Company issued and sold approximately 3.0 million
shares of its common stock, par value $5.00 per share, at a price of $16.81
per share, in an underwritten public offering. Net proceeds of $48.6 million
from that sale of common stock were used to finance the Company's capital
expenditure program and for other corporate purposes.
Long-term debt due within one year decreased $15 million for the twelve-month
period ended December 31, 1995, due to the maturity of $15 million of
Medium-Term Notes in January, 1995.
Short-term debt increased $105.3 million and $7.7 million for the three-month
and twelve-month periods ended December 31, 1995, respectively, to meet
increased working capital requirements.
On February 17, 1995, the Georgia Commission approved a settlement that
permits the Company to negotiate contracts with customers who have the option
to bypass the Company's facilities and receive natural gas from other
suppliers. A bypass avoidance contract (Negotiated Contract) can be
renewable, provided that the initial term does not exceed five years, unless
a longer term specifically is authorized by the Georgia Commission. The rate
provided by the Negotiated Contract may be lower than AGL's filed rate, but
not less than AGL's marginal cost of service to the potential Bypass
Customer. Service pursuant to a Negotiated Contract may commence without
Georgia Commission action, once
<PAGE>
a copy of the contract is filed with the Georgia Commission. Negotiated
Contracts may be rejected by the Georgia Commission within 90 days of filing;
absent such action, however, the Negotiated Contracts remain effective. None
of the 41 Negotiated Contracts filed with the Georgia Commission have been
rejected.
The Georgia Commission also approved a bypass loss recovery mechanism to
operate until the earlier of September 30, 1998, or until the effective date
of new rates for AGL resulting from a general rate case. See Note 4 to Notes
to Condensed Consolidated Financial Statements in this Form 10-Q.
PART II OTHER INFORMATION
Part II -- Other Information is intended to supplement information
contained in the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995 and should be read in conjunction therewith.
Item 1. Legal Proceedings
See Item 5.
Item 5. Other Information
Federal Regulatory Matters
Order No. 636
The Company currently estimates that its portion of transition costs (which
include unrecovered gas costs, gas supply realignment (GSR) costs and various
stranded costs resulting from unbundling of interstate pipeline sales
service) from all of its pipeline suppliers filed with the FERC to date to be
recovered could be as high as approximately $100.6 million. The Company's
estimate is based on the most recent estimates of transition costs filed by
its pipeline suppliers with the FERC and assumes Southern Natural Gas
Company's (Southern) restructuring settlement agreement is approved. Such
filings by the Company's pipeline suppliers are pending final FERC approval.
Approximately $74.7 million of transition costs have been incurred by the
Company as of December 31, 1995, and are being recovered from customers under
the purchased gas provisions of the Company's rate schedules. Details
concerning the status of the Order No. 636 restructuring proceedings
involving the pipelines that serve the Company directly are set forth below.
SOUTHERN GSR Cost Recovery Proceeding. The Company has entered into
a settlement agreement with Southern and other customers to resolve virtually
all pending Southern proceedings before the FERC and the courts. The FERC
approved the settlement on September 29, 1995, but the order approving the
settlement is subject to rehearing before the agency. The settlement would,
if approved by the FERC, resolve Southern's pending general rate proceedings,
which relate to Southern's rates charged from January 1, 1991, through the
present. The settlement provides for rate reductions and refund offsets
against GSR costs. It would also resolve Southern's Order No. 636 transition
cost proceedings and provide for revisions to Southern's tariff.
Southern filed on December 1, 1995 to recover an additional $39 million in
GSR costs from consenting parties to its March 15, 1995, restructuring
settlement, which has not yet received final approval by the FERC. These
costs include costs that Southern has incurred, or expects to incur by
December 31, 1996. On December 28, 1995, the FERC accepted Southern's
filings, subject to the outcome of Southern's restructuring settlement.
Southern continues to make quarterly and monthly transition cost filings to
recover costs from contesting parties to the settlement, and the FERC has
ordered that such costs may be recovered by Southern, subject to the outcome
of a hearing for contesting parties. Pending approval of the restructuring
settlement, however, GSR and other transition cost charges to the Company are
in accordance with the settlement. Assuming the settlement is approved, the
Company's share of Southern's transition costs is estimated to be $84.5
million. As of December 31, 1995, $66.4 million of such costs have already
been incurred by the Company.
<PAGE>
TENNESSEE GSR Cost Recovery Proceeding. Tennessee Gas Pipeline
Company (Tennessee) has continued to make quarterly GSR cost recovery filings
with the FERC. On December 15, 1995, Tennessee filed with the FERC to
recover an additional $16.1 million in GSR costs. The Company protested this
filing, but the FERC has not yet acted upon Tennessee's filing. The
Company's estimated liability for GSR costs as a result of Tennessee's
filings is approximately $8.7 million, subject to possible reduction based
upon the hearing FERC established to investigate Tennessee's costs. The
Company is actively participating in Tennessee's GSR cost recovery
proceeding. As of December 31, 1995, $4.7 million of such costs have already
been incurred by the Company.
FERC Rate Proceedings
SOUTH GEORGIA On December 20, 1995, the FERC issued an order affirming the
initial decision in South Georgia Natural Gas Company's (South Georgia) rate
case, holding that South Georgia's interruptible transportation (IT) rate
should be designed based on a 100% load factor on a prospective basis. AGL
supported the 100% load factor IT rate at the hearing in this proceeding. The
FERC's order is subject to possible rehearing requests by South Georgia and
the Georgia Industrial Group, which supported a 125% load factor IT rate
design.
The Company cannot predict the outcome of these federal proceedings nor can
it determine the ultimate effect, if any, such proceedings may have on the
Company.
State Regulatory Matters
Bypass and Other Competitive Issues
On February 17, 1995, the Georgia Commission approved a settlement that
permits the Company to negotiate contracts with customers who have the option
to bypass the Company's facilities and receive natural gas from other
suppliers. A bypass avoidance contract (Negotiated Contract) can be
renewable, provided the initial term does not exceed five years, unless a
longer term specifically is authorized by the Georgia Commission. The rate
provided by the Negotiated Contract may be lower than AGL's filed rate, but
not less than AGL's marginal cost of service to the potential Bypass
Customer. Service pursuant to a Negotiated Contract may commence without
Georgia Commission action, once a copy of the contract is filed with the
Georgia Commission. Negotiated Contracts may be rejected by the Georgia
Commission within 90 days of filing; absent such action, however, the
Negotiated Contracts remain effective. None of the 41 Negotiated Contracts
filed to date with the Georgia Commission have been rejected.
On January 8, 1996, proposed legislation was introduced in the Georgia
General Assembly which would allow local gas companies to negotiate contract
prices and terms for gas services to large commercial and industrial
customers without Georgia Commission mandated rates. The bill has been
approved by the House Public Services & Utilities Subcommittee and the House
Industry Committee.
Environmental Matters
AGL has identified nine sites in Georgia where it currently owns all or part
of an MGP site. In addition, AGL has identified three other sites in
Georgia which AGL does not now own, but which may have been associated with
the operation of MGPs by AGL or its predecessors. There are three sites in
Florida which have been investigated by environmental authorities in
connection with which the Company may be contacted as a potentially
responsible party.
Under a thorough analysis of potentially applicable requirements, the
Company has estimated that, under the most favorable circumstances reasonably
possible, the future cost of investigating and remediating its former MGP
sites could be as low as $28.6 million. Alternatively, the Company has
estimated that, under the least favorable circumstances reasonably possible,
the future cost of investigating and remediating its former MGP sites could
be as high as $109 million. The Company cannot estimate at this time the
amount of any other future expenses or liabilities, or the impact on these
estimates of future environmental regulatory changes, that may be associated
with or related to the MGP sites, including expenses or liabilities relating
to any litigation. At the present time, no amount within the range can be
identified as a better
<PAGE>
estimate than any other estimate. Therefore, a liability for the low end of
this range and a corresponding regulatory asset have been recorded in the
financial statements.
The Georgia Commission has approved the recovery by AGL of Environmental
Response Costs, as defined below, effective October 1, 1992, pursuant to
AGL's ERCRR. For purposes of the ERCRR, Environmental Response Costs include
investigation, testing, remediation and litigation costs and expenses or
other liabilities relating to or arising from MGP sites.
In connection with the ERCRR, the staff of the Georgia Commission has
undertaken a financial and management process audit related to the MGP sites,
clean-up activities at the sites and Environmental Response Costs which have
been incurred for purposes of the ERCRR. Although the result of such audit
is not known, management does not expect the audit to have a significant
effect on the Company's consolidated financial statements.
With regard to legal proceedings related to the former MGP sites, the Company
is or expects to be a party to claims or counterclaims on an ongoing basis.
Among such matters, the Company intends to continue to pursue insurance
coverage and contribution from potentially responsible parties. Management
currently believes that the outcome of MGP-related litigation in which the
Company is involved will not have a material adverse effect on the financial
condition and results of operations of the Company.
As a result of the ERCRR, the Company expects that it will be able to recover
all of its Environmental Response Costs. See Note 3 to Notes to Condensed
Consolidated Financial Statements in this Form 10-Q.
Recent Developments
Formation of Holding Company
On November 27, 1995, the Company filed a registration statement with the
Securities and Exchange Commission (SEC) and an application with the Georgia
Commission to form a holding company, AGL Resources Inc. (AGL Resources).
AGL Resources would become the parent corporation of Atlanta Gas Light
Company and its subsidiaries. The Georgia Commission voted to approve the
holding company structure on February 6, 1996. In addition to the SEC
approval still required, the Company is seeking shareholder approval of the
reorganization at the 1996 annual shareholders meeting on March 6, 1996.
If approved, holders of Atlanta Gas Light Company common stock will become
holders of AGL Resources common stock, and the present stock certificates
representing Atlanta Gas Light Company common stock will represent AGL
Resources common stock on a share-for-share basis. AGL Resources common stock
is expected to be approved for listing on the New York Stock Exchange. If
the remaining requisite approvals are obtained, it is anticipated that the
reorganization into holding company structure will be completed during the
second fiscal quarter of 1996.
The purpose of the formation of the holding company is to establish a more
efficient corporate structure for operating in the evolving energy
marketplace and separate the Company's regulated business from its
unregulated business. The proposed restructuring should result in greater
financial, managerial and organizational flexibility which will allow the
Company to adapt to the increasingly deregulated energy marketplace and to
take advantage of potential business opportunities.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10(a) - Firm Storage Agreement, effective January 1, 1996, between
the Company and Tennessee Gas Pipeline Company amending
Exhibit 10(z) and replacing Exhibit 10(u), Form 10-K for the
fiscal year ended September 30, 1995.
<PAGE>
10(b) - Firm Storage Agreement, effective January 1, 1996, between
Chattanooga Gas Company and Tennessee Gas Pipeline Company
amending Exhibit 10(aa) and replacing Exhibit 10(dd), Form
10-K for the fiscal year ended September 30, 1995.
27 - Financial Data Schedule
(b) Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Atlanta Gas Light Company
(Registrant)
Date February 14, 1996 /s/ Robert L. Goocher
Robert L. Goocher
Executive Vice President
Business Support
(Principal Financial Officer)
Date February 14, 1996 /s/ J. Michael Riley
J. Michael Riley
Vice President - Finance and Accounting
(Principal Accounting Officer)
<PAGE>
Exhibit 10a
(LETTERHEAD OF TENNESSEE GAS PIPELINE/TENNECO ENERGY APPEARS HERE)
December 13, 1995
Atlanta Gas Light Company
303 Peachtree Street
Atlanta, GA 30308-4239
Attn: Debbie McNeely
Dear Debbie:
This letter sets forth our agreement with respect to the amendments of the
Firm Storage Agreements No. 2031 and 3998 between Tennessee Gas Pipeline
(TGP) and Atlanta Gas Light Company (the "Parties"). Our agreement is as
follows:
1. The Agreement No. 3998 is hereby amended to increase the Maximum Storage
Quantity (MSQ) by 3,000,000 Dth effective January 1, 1996.
2. The Agreement No. 3998 is hereby amended to increase the Maximum Daily
Withdrawal (MDQ) on meter number 07-0020 (TGP-Portland Storage
Withdrawal) by 20,000 Dth/d effective January 1, 1996.
3. The Agreement No. 3998 is hereby amended to increase the Maximum Daily
Injection (MDI) on meter number 06-0020 (TGP-Portland Storage Injection)
by 20,000 Dth/d effective January 1, 1996.
4. The Agreement No. 2031 is hereby terminated effective December 31, 1995.
Please acknowledge your acceptance of the amendments by signing below and
returning to my attention the duplicate originals of the letter. Upon
execution by TGP, an original will be forwarded to your for your files.
Sincerely,
/s/ Craig S. Harris
Craig S. Harris
Sr. Customer Service Representative
TENNESSEE GAS PIPELINE
By: /s/ L. G. Williams
Director, Transportation Services
Central Region
ATLANTA GAS LIGHT COMPANY
By: /s/ Steven J. Gunther
Date: December 19, 1995
<PAGE>
Exhibit 10b
(LETTERHEAD OF TENNESSEE GAS PIPELINE/TENNECO ENERGY APPEARS HERE)
December 14, 1995
Chattanooga Gas Company
303 Peachtree Street
Atlanta, GA 30308-4239
Attn: Debbie McNeely
Dear Debbie:
This letter sets forth our agreement with respect to the amendments of the
Firm Storage Agreements No. 2027 and 3999 between Tennessee Gas Pipeline
(TGP) and Chattanooga Gas Company (the "Parties"). Our agreement is as
follows:
1. The Agreement No. 3999 is hereby amended to increase the Maximum Storage
Quantity (MSQ) by 1,845,000 Dth effective January 1, 1996.
2. The Agreement No. 3999 is hereby amended to increase the Maximum Daily
Withdrawal (MDQ) on meter number 07-0020 (TGP-Portland Storage
Withdrawal) by 12,300 Dth/d effective January 1, 1996.
3. The Agreement No. 3999 is hereby amended to increase the Maximum Daily
Injection (MDI) on meter number 06-0020 (TGP-Portland Storage Injection)
by 12,300 Dth/d effective January 1, 1996.
4. The Agreement No. 2027 is hereby terminated effective December 31, 1995.
Please acknowledge your acceptance of the amendments by signing below and
returning to my attention the duplicate originals of the letter. Upon
execution by TGP, an original will be forwarded to your for your files.
Sincerely,
/s/ Craig S. Harris
Craig S. Harris
Sr. Customer Service Representative
TENNESSEE GAS PIPELINE
By: /s/ L. G. Williams
Director, Transportation Services
Central Region
ATLANTA GAS LIGHT COMPANY
By: /s/ Steven J. Gunther
Date: December 19, 1995
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