(1) | Material changes from 2011 to 2012 are primarily due to the Nicor merger on December 9, 2011. See Note 3 to our consolidated financial statements under Item 8 herein for additional merger related information.
Dollars and shares in millions, except per share amounts | | 2011 (1) | | | 2010 | | | 2009 | | | 2008 | | | 2007 | | Income statement data | | | | | | | | | | | | | | | | Operating revenues | | $ | 2,338 | | | $ | 2,373 | | | $ | 2,317 | | | $ | 2,800 | | | $ | 2,494 | | Operating expenses | | | | | | | | | | | | | | | | | | | | | Cost of goods sold | | | 1,097 | | | | 1,164 | | | | 1,142 | | | | 1,654 | | | | 1,369 | | Operation and maintenance (2) | | | 490 | | | | 497 | | | | 497 | | | | 472 | | | | 451 | | Depreciation and amortization | | | 186 | | | | 160 | | | | 158 | | | | 152 | | | | 144 | | Nicor merger expenses (2) | | | 68 | | | | 6 | | | | 0 | | | | 0 | | | | 0 | | Taxes other than income taxes | | | 57 | | | | 46 | | | | 44 | | | | 44 | | | | 41 | | Total operating expenses | | | 1,898 | | | | 1,873 | | | | 1,841 | | | | 2,322 | | | | 2,005 | | Operating income | | | 440 | | | | 500 | | | | 476 | | | | 478 | | | | 489 | | Other income (expense) | | | 7 | | | | (1 | ) | | | 9 | | | | 6 | | | | 4 | | Earnings before interest and taxes (EBIT) (3) | | | 447 | | | | 499 | | | | 485 | | | | 484 | | | | 493 | | Interest expenses | | | 136 | | | | 109 | | | | 101 | | | | 115 | | | | 125 | | Earnings before income taxes | | | 311 | | | | 390 | | | | 384 | | | | 369 | | | | 368 | | Income taxes | | | 125 | | | | 140 | | | | 135 | | | | 132 | | | | 127 | | Net income | | | 186 | | | | 250 | | | | 249 | | | | 237 | | | | 241 | | Less net income attributable to the noncontrolling interest | | | 14 | | | | 16 | | | | 27 | | | | 20 | | | | 30 | | Net income attributable to AGL Resources Inc. | | $ | 172 | | | $ | 234 | | | $ | 222 | | | $ | 217 | | | $ | 211 | | Common stock data | | | | | | | | | | | | | | | | | | | | | Weighted average common shares outstanding basic | | | 80.4 | | | | 77.4 | | | | 76.8 | | | | 76.3 | | | | 77.1 | | Weighted average common shares outstanding diluted | | | 80.9 | | | | 77.8 | | | | 77.1 | | | | 76.6 | | | | 77.4 | | Total shares outstanding (4) | | | 117.0 | | | | 78.0 | | | | 77.5 | | | | 76.9 | | | | 76.4 | | Basic earnings per common share attributable to AGL Resources Inc. common shareholders | | $ | 2.14 | | | $ | 3.02 | | | $ | 2.89 | | | $ | 2.85 | | | $ | 2.74 | | Diluted earnings per common share – attributable to AGL Resources Inc. common shareholders | | $ | 2.12 | | | $ | 3.00 | | | $ | 2.88 | | | $ | 2.84 | | | $ | 2.72 | | Dividends declared per common share (5) | | $ | 1.90 | | | $ | 1.76 | | | $ | 1.72 | | | $ | 1.68 | | | $ | 1.64 | | Dividend payout ratio | | | 89 | % | | | 58 | % | | | 60 | % | | | 59 | % | | | 60 | % | Dividend yield (6) | | | 4.5 | % | | | 4.9 | % | | | 4.7 | % | | | 5.4 | % | | | 4.4 | % | Price range: | | | | | | | | | | | | | | | | | | | | | High | | $ | 43.69 | | | $ | 40.08 | | | $ | 37.52 | | | $ | 39.13 | | | $ | 44.67 | | Low | | $ | 34.08 | | | $ | 34.21 | | | $ | 24.02 | | | $ | 24.02 | | | $ | 35.24 | | Close (4) | | $ | 42.26 | | | $ | 35.85 | | | $ | 36.47 | | | $ | 31.35 | | | $ | 37.64 | | Market value (4) | | $ | 4,946 | | | $ | 2,800 | | | $ | 2,826 | | | $ | 2,411 | | | $ | 2,876 | | Statements of Financial Position data (4) | | | | | | | | | | | | | | | | | | | | | Total assets | | $ | 13,913 | | | $ | 7,520 | | | $ | 7,079 | | | $ | 6,710 | | | $ | 6,258 | | Property, plant and equipment – net | | | 7,900 | | | | 4,405 | | | | 4,146 | | | | 3,816 | | | | 3,566 | | Short-term debt | | | 1,338 | | | | 1,033 | | | | 602 | | | | 866 | | | | 580 | | Long-term debt | | | 3,561 | | | | 1,671 | | | | 1,974 | | | | 1,675 | | | | 1,675 | | Total debt | | | 4,899 | | | | 2,704 | | | | 2,576 | | | | 2,541 | | | | 2,255 | | Total equity | | | 3,339 | | | | 1,836 | | | | 1,819 | | | | 1,684 | | | | 1,708 | | Cash flow data | | | | | | | | | | | | | | | | | | | | | Net cash flow provided by operating activities | | $ | 451 | | | $ | 526 | | | $ | 592 | | | $ | 227 | | | $ | 377 | | Net cash flow used in investing activities | | | (1,339 | ) | | | (442 | ) | | | (476 | ) | | | (372 | ) | | | (253 | ) | Net cash flow (used in) provided by financing activities | | | 933 | | | | (86 | ) | | | (106 | ) | | | 142 | | | | (122 | ) | Net borrowings and (payments) of short-term debt | | | 91 | | | | 131 | | | | (264 | ) | | | 286 | | | | 52 | | Financial ratios (4) | | | | | | | | | | | | | | | | | | | | | Debt | | | 59 | % | | | 60 | % | | | 59 | % | | | 60 | % | | | 57 | % | Equity | | | 41 | % | | | 40 | % | | | 41 | % | | | 40 | % | | | 43 | % | Total | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | Return on average equity | | | 6.6 | % | | | 12.8 | % | | | 12.7 | % | | | 12.8 | % | | | 12.6 | % | | | | | | | | | | | | | | | | | | | | | |
(1) | Material changes from 2010 to 2011 are primarily due to the Nicor merger on December 9, 2011. The year ending December 31, 2011 includes only 22 days of Nicor activity from December 10, 2011 through December 31, 2011. See Note 3 for additional merger related information. |
(2) | Transaction expenses associated with the Nicor merger were excluded from operation and maintenance expenses.expenses and presented separately. |
(3) | This is a non-GAAP measurement. A reconciliation of EBIT to earnings before income taxes and net income is contained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - AGL Resources-Results of Operations.” |
(4) | As of the last day of the fiscal period. |
(5) | As a result of the Nicor merger, AGL Resources shareholders of record as of the close of business on December 8, 2011 received a pro rata dividend of $0.0989 for the stub period, accruingwhich accrued from November 19, 2011. For presentation purposes theThis amount in the table was rounded to $0.10.$0.10 in the table. |
(6)(4) | Dividends declared per common share during the fiscal period divided by market value per common share as of the last day of the fiscal period. |
(5) | As of the last day of the fiscal period. |
ITEM 7. MANAGEMENT'S7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Merger with Nicor On December 9, 2011, we closed the merger with Nicor. We are nowan energy services holding company whose principal business is the nation’s largestdistribution of natural gas-onlygas in seven states - Illinois, Georgia, Virginia, New Jersey, Florida, Tennessee and Maryland - through our seven natural gas distribution company basedutilities. We are also involved in several other businesses, some of which are complementary to the distribution of natural gas along with other unregulated businesses. Our operating segments consist of the following five operating and reporting segments – distribution operations, retail operations, wholesale services, midstream operations and cargo shipping and one non-operating segment - other. These segments are consistent with how management views and operates our business. The following table provides certain information on our segments.
| | EBIT | | | Assets | | | Capital Expenditures | | | | 2013 | | | 2012 | | | 2011 | | | 2013 | | | 2012 | | | 2011 | | | 2013 | | | 2012 | | | 2011 | | Distribution operations | | | 83 | % | | | 84 | % | | | 92 | % | | | 80 | % | | | 80 | % | | | 79 | % | | | 91 | % | | | 83 | % | | | 85 | % | Retail operations | | | 19 | | | | 18 | | | | 21 | | | | 5 | | | | 4 | | | | 4 | | | | 1 | | | | 1 | | | | 1 | | Wholesale services | | | (1 | ) | | | - | | | | 1 | | | | 8 | | | | 9 | | | | 9 | | | | - | | | | - | | | | - | | Midstream operations | | | (1 | ) | | | 2 | | | | 2 | | | | 5 | | | | 5 | | | | 5 | | | | 2 | | | | 8 | | | | 8 | | Cargo shipping | | | 2 | | | | 1 | | | | - | | | | 3 | | | | 3 | | | | 3 | | | | 2 | | | | 1 | | | | - | | Other | | | (2 | ) | | | (5 | ) | | | (16 | ) | | | (1 | ) | | | (1 | ) | | | - | | | | 4 | | | | 7 | | | | 6 | | Total | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
In 2013, our net income attributable to AGL Resources Inc. was $313 million an increase of $42 million compared to 2012 as we benefited from colder-than-normal weather as compared to the historically warm weather in 2012. Excluding weather, we achieved growth in our operating margins during 2013 primarily as a result of contributions from our regulatory infrastructure programs in distribution operations, targeted acquisition growth in retail operations and significant improvement in commercial activity in our wholesale services, as well as the gain on the sale of Compass Energy, offset by mark-to-market accounting hedge losses recorded during the second half of 2013. These losses are temporary and expected to be recovered primarily in 2014.
In 2014, our priorities are consistent with the direction we have taken the Company over the last three years. We will remain focused on efficient operations across all of our businesses, including offsetting inflationary pressures by aggressive cost controls, spreading costs across a broader customer count. The merger created a combined company with increased scalebase and scope in both regulated utility and non-regulated businessessizing our operations to properly reflect market challenges. Several of our specific business objectives are detailed as indicated below:follows:
· | Seven regulated natural gas distribution companies providing natural gas servicesDistribution Operations: Invest necessary capital to approximately 4.5 million customersenhance and maintain safety and reliability; remain a low-cost leader within the industry; opportunistically expand the system and capitalize on potential customer conversions. We intend to continue investing in Illinois,our regulatory infrastructure programs in Georgia, Virginia, New Jersey Florida,and Tennessee to minimize regulatory lag and Marylandthe recovery cycle. During 2014 we intend to submit a regulatory infrastructure program in Illinois, to become effective in January 2015. We continue to effectively manage costs and leverage our shared services model across our businesses to largely overcome inflationary effects. |
· | Over 1 millionRetail Operations: Maintain operating margins in Georgia and Illinois while continuing to expand into other profitable retail customersmarkets; integrate our warranty businesses and expand our overall market reach through partnership opportunities with our affiliates. We expect the Georgia retail market to remain highly competitive; however, our operating margins are forecasted to remain stable with modest growth from the acquisitions completed in the unregulated businesses2013 and expansion into new markets. |
· | Physical wholesale gas business delivering approximately 5.2 BcfWholesale Services: Maximize strong storage and transportation rollout value created in 2013; effectively perform on existing asset management agreements and expand customer base; and maintain cost structure in line with market fundamentals. We anticipate low volatility in certain areas of natural gas per dayour portfolio; however, volatility is expected to increase in the supply-constrained Northeast corridor. We further anticipate narrow seasonal storage spreads will continue to be challenges in 2014. |
· | Natural gasMidstream Operations: Optimize storage facilities that are expected to provide approximately 31.8 Bcf of working gas storage capacity in 2012portfolio, including expiring contracts, pursue LNG transportation opportunities and lower development expenses. |
· | Cargo Shipping: Improve profitability, continue increasing vessel utilization, improve margin per TEU, prudently deploy capital investment and diligently manage operating costs. |
As a result ofAdditionally, we will maintain our merger with Nicor some ofstrong balance sheet and liquidity profile, solid investment grade ratings and our businesses have been reclassifiedcommitment to different segments. Seesustainable annual dividend growth. For additional information on our operating segments, see Note 13 to our consolidated financial statements under Item 8 herein for additional segment information including recasted prior period information. The following table provides more information on our segments.
| | EBIT (2) | | | Assets (3) | | | Capital Expenditures (2) | | | | 2011 | | | 2010 | | | 2009 | | | 2011 | | | 2010 | | | 2009 | | | 2011 | | | 2010 | | | 2009 | | Distribution operations | | | 80 | % | | | 70 | % | | | 67 | % | | | 79 | % | | | 73 | % | | | 74 | % | | | 85 | % | | | 70 | % | | | 74 | % | Retail operations | | | 18 | | | | 21 | | | | 22 | | | | 4 | | | | 3 | | | | 4 | | | | 1 | | | | 1 | | | | 1 | | Wholesale services | | | 1 | | | | 10 | | | | 10 | | | | 9 | | | | 18 | | | | 16 | | | | 0 | | | | 0 | | | | 0 | | Midstream operations | | | 2 | | | | 1 | | | | 1 | | | | 4 | | | | 6 | | | | 5 | | | | 8 | | | | 25 | | | | 23 | | Cargo shipping | | | 0 | | | | n/a | | | | n/a | | | | 5 | | | | n/a | | | | n/a | | | | 0 | | | | n/a | | | | n/a | | Other (1) | | | (1 | ) | | | (2 | ) | | | 0 | | | | (1 | ) | | | 0 | | | | 1 | | | | 6 | | | | 4 | | | | 2 | | Total | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
(1) | The 2011 results exclude the effects of the $68 million of merger expenses which were reported within our other segment. |
(2) | The year ending December 31, 2011 only includes 22 days of Nicor activity from December 10, 2011 through December 31, 2011. |
(3) | The 2011 amounts include Nicor assets as of December 31, 2011. |
Over the last three years, on average, we have derived 72% of our operating segments’ EBIT from our regulated natural gas distribution business whose rates are approved by state regulatory commissions. We derived our remaining operating segment’s EBIT for the last three years principally from businesses that are complementary to our natural gas distribution business. These businesses include the sale of natural gas to retail customers, natural gas asset management and the operation of high-deliverability natural gas underground storage as ancillary activities to our regulated utility franchises.
The increased impact of the rate-regulated distribution operations segment on our overall business is expected to reduce our exposure to market fluctuations.
For additional information on the Nicor merger see Item 1- Business as well as Note 3 to our consolidated financial statements under Item 8 herein.
Legislative and regulatory update We continue to actively pursue a regulatory strategy that improves customer service and reduces the lag between our investments in infrastructure and the recovery of those investments through various rate mechanisms. If our rate design proposals are not approved, we will continue to work cooperatively with our regulators, legislators and others to create a framework that is conducive to our business goals and the interests of our customers and shareholders1, “Business”.
On December 20, 2011, the Virginia Commission approved an annual increase Results of $11 million in base rate revenues and established an authorized return on equity of 10% for Virginia Natural Gas with an overall return on rate base set at 7.38%. Additionally, $3.1 million of costs previously recovered through base rates will now be recovered through the company’s gas cost recovery rate. Customer’s bills will be credited to refund the difference between the final approved rates and interim rate increase, which began with usage on and after October 1, 2011. The new rate is expected to increase the average residential customer’s monthly bill by less than $3.50 per month depending on usage.
Customer growth initiatives While there has been some improvement in the economic conditions within the areas we serve, we continue to see higher rates of unemployment, depressed housing markets with high inventories, significantly reduced new home construction and a slow-down in new commercial development. As a result, we have experienced only slight customer gains in our distribution operations and retail operations segments throughout 2011. Our year-over-year consolidated utility customer gain rate was 0.1% in 2011, compared to a loss rate of (0.1)% for 2010. We anticipate overall competition and customer trends in 2012 to be similar to our 2011 results. In addition, for the full year 2011 Nicor Gas increased their customer count by 0.4% compared to 0.2% for 2010.Operations
We use a variety of targeted marketing programs to attract new customers and to retain existing customers. These efforts include working to add residential customers, multifamily complexes and commercial customers who use natural gas for purposes other than space heating, as well as evaluating and launching new natural gas related programs, products and services to enhance customer growth, mitigate customer attrition and increase operating revenues. These programs generally emphasize natural gas as the fuel of choice for customers and seek to expand the use of natural gas through a variety of promotional activities. On October 10, 2011, Georgia Natural Gas was named the exclusive natural gas partner for the Delta Air Lines Inc. Delta SkyMiles Program in Georgia. This is a long-term partnership and we expect it will help retain current customers as well as attract new customers from other Marketers in Georgia.
Natural gas price volatility Volatility in the natural gas market arises from a number of factors such as weather fluctuations or changes in supply or demand for natural gas in different regions of the country. The volatility of natural gas commodity prices has a significant impact on our customer rates, our long-term competitive position against other energy sources and the ability of our wholesale services segment to capture value from location and seasonal spreads. During 2008 and 2009, daily Henry Hub spot market prices for natural gas in the United States were extremely volatile. However, during 2010 and 2011, the volatility of natural gas prices has been significantly lower than it had been for several prior years. This is the result of a robust natural gas supply, the weak economy, mild weather and ample storage. Our natural gas acquisition strategy is designed to secure sufficient supplies of natural gas to meet the needs of our utility customers and to hedge gas prices to effectively manage costs, reduce price volatility and maintain a competitive advantage. Additionally, our hedging strategies and physical natural gas supplies in storage enable us to reduce earnings risk exposure due to higher gas costs.
It is possible that natural gas prices will remain low for an extended period based on current levels of excess supply relative to market demand for natural gas, in part due to abundant sources of new shale natural gas reserves and the lack of demand by commercial and industrial enterprises. However, as economic conditions improve, the demand for natural gas may increase, natural gas prices could rise and higher volatility could return to the natural gas markets. Consequently, we are working to reposition our wholesales services business model with respect to fixed costs and the types of contracts pursued and executed.
Hedges Changes in commodity prices subject a significant portion of our operations to earnings variability. Our non-utility businesses principally use physical and financial arrangements to reduce the risks associated with both weather-related seasonal fluctuations in market conditions and changing commodity prices. These economic hedges may not qualify, or are not designated for, hedge accounting treatment. As a result, our reported earnings for the wholesale services, retail operations and midstream operations segments reflect changes in the fair values of certain derivatives. These values may change significantly from period to period and are reflected as gains or losses within our operating revenues or our OCI for those derivative instruments that qualify and are designated as accounting hedges.
Seasonality The operating revenues and EBIT of our distribution operations, retail operations, wholesale services and cargo shipping segments are seasonal. During the Heating Season, natural gas usage and operating revenues are generally higher because more customers are connected to our distribution systems and natural gas usage is higher in periods of colder weather. Occasionally in the summer, wholesale services operating revenues are impacted due to peak usage by power generators in response to summer energy demands. Seasonality also affects the comparison of certain Statements of Financial Position items such as receivables, unbilled revenue, inventories and short-term debt across quarters. However, these items are comparable when reviewing our annual results.
Additionally, the revenues of our cargo shipping business are generally higher in the fourth quarter as our customers require more tourist-related shipments as the hotels, resorts, and cruise ships typically have increased occupancy rates commencing in the fourth quarter and increasing further into the first quarter and consumer spending increases during traditional holiday periods.
Approximately 71% of these segments’ operating revenues and 92% of these segments’ EBIT for the year ended December 31, 2011 were generated during the first and fourth quarters of 2011, and are reflected in our Consolidated Statements of Income for the quarters ended March 31, 2011 and December 31, 2011. Our base operating expenses, excluding cost of goods sold, interest expense and certain incentive compensation costs, are incurred relatively equally over any given year. Thus, our operating results can vary significantly from quarter to quarter as a result of seasonality.
We generate the majority of our operating revenues through the sale, distribution and storage of natural gas. We include in our consolidated revenues an estimate of revenues from natural gas distributed, but not yet billed, to residential, commercial and industrial customers from the date of the last bill to the end of the reporting period. No individual customer or industry accounts for a significant portion of our revenues. As a result of our merger with Nicor, our results of operations for the year ending December 31, 2011 includes 22 days of Nicor activity from December 10, 2011 through December 31, 2011. See Note 3 for additional merger related information and Note 13 to our consolidated financial statements under Item 8 herein for additional information regarding reclassification of our business segments. The following table provides more information regarding the components of our operating revenues.
In millions | | 2013 | | | 2012 | | | 2011 (1) | | Residential | | $ | 2,422 | | | $ | 2,011 | | | $ | 1,065 | | Commercial | | | 696 | | | | 656 | | | | 467 | | Transportation | | | 532 | | | | 492 | | | | 403 | | Shipping | | | 365 | | | | 342 | | | | 19 | | Industrial | | | 180 | | | | 262 | | | | 289 | | Other | | | 422 | | | | 159 | | | | 95 | | Total operating revenues | | $ | 4,617 | | | $ | 3,922 | | | $ | 2,338 | |
(1) | Our results of operations for the year ended December 31, 2011 includes 22 days of activity from the subsidiaries acquired from Nicor. |
In millions | | 2011 | | | 2010 | | | 2009 | | Residential | | $ | 1,065 | | | $ | 1,083 | | | $ | 1,091 | | Commercial | | | 467 | | | | 521 | | | | 467 | | Transportation | | | 403 | | | | 404 | | | | 378 | | Industrial | | | 289 | | | | 205 | | | | 185 | | Other | | | 114 | | | | 160 | | | | 196 | | Total operating revenues | | $ | 2,338 | | | $ | 2,373 | | | $ | 2,317 | |
We evaluate segment performance using the measures of EBIT and operating marginmargin. EBIT includes operating income and other income and expenses. Items that we do not include in EBIT are financing costs, including interest expense and income taxes, each of which include the effects of corporate expense allocations.we evaluate on a consolidated basis. Operating margin is a non-GAAP measure that is calculated as operating revenues minus cost of goods sold and revenue tax expense in distribution operations. Operating margin excludes operation and maintenance expense, depreciation and amortization, taxes other than income taxes, and the gain or loss on the sale of our assets.assets. These items are included in our calculation of operating income as reflected in our Consolidated Statements of Income. EBIT is also a non-GAAP measure that includes operating income and other income and expenses. Items that we do not include in EBIT are financing costs, including interest and debt expense and income taxes, each of which we evaluate on a consolidated basis.
We believe operating margin is a better indicator than operating revenues for the contribution resulting from customer growth in our distribution operations segment since the cost of goods sold and revenue tax expenses can vary significantly and are generally billed directly to our customers. We also consider operating margin to be a better indicator in our retail operations, wholesale services, midstream operations and cargo shipping segments since it is a direct measure of operating margin before overhead costs.
We believe EBIT is a useful measurement of our operating segments’ performance because it provides information that can be used to evaluate the effectiveness of our businesses from an operational perspective, exclusive of the costs to finance those activities and exclusive of income taxes, neither of which is directly relevant to the efficiency of those operations. You should not consider operating margin or EBIT an alternative to, or a more meaningful indicator of, our operating performance than operating income, or net income attributable to AGL Resources Inc. as determined in accordance with GAAP. In addition, our operating margin and EBIT measures may not be comparable to similarly titled measures of other companies.
We also believe presenting the non-GAAP measurements of basic and diluted earnings per share - as adjusted, which excludes Nicor merger-related expenses and the additional accrual for the Nicor Gas PBR issue, provides investors with an additional measure of our performance. Adjusted basic and diluted earnings per share should not be considered an alternative to, or a more meaningful indicator of our operating performance than our GAAP basic and diluted earnings per share. The following table reconciles operating revenue and operating margin to operating income and EBIT to earnings before income taxes and net income and our GAAP basic and diluted earnings per common share to our non-GAAP basic and diluted earnings per share – as adjusted, together with other consolidated financial information for the last three years.
In millions | | 2011 | | | 2010 | | | 2009 | | Operating revenues | | $ | 2,338 | | | $ | 2,373 | | | $ | 2,317 | | Cost of goods sold | | | (1,097 | ) | | | (1,164 | ) | | | (1,142 | ) | Revenue tax expense (1) | | | (9 | ) | | | 0 | | | | 0 | | Operating margin | | | 1,232 | | | | 1,209 | | | | 1,175 | | Operating expenses (2) | | | (733 | ) | | | (703 | ) | | | (699 | ) | Revenue tax expense (1) | | | 9 | | | | 0 | | | | 0 | | Nicor merger expenses (3) | | | (68 | ) | | | (6 | ) | | | 0 | | Operating income | | | 440 | | | | 500 | | | | 476 | | Other income (expense) | | | 7 | | | | (1 | ) | | | 9 | | EBIT | | | 447 | | | | 499 | | | | 485 | | Interest expenses | | | 136 | | | | 109 | | | | 101 | | Earnings before income taxes | | | 311 | | | | 390 | | | | 384 | | Income tax expenses | | | 125 | | | | 140 | | | | 135 | | Net income | | | 186 | | | | 250 | | | | 249 | | Less net income attributable to the noncontrolling interest | | | 14 | | | | 16 | | | | 27 | | Net income attributable to AGL Resources Inc. | | $ | 172 | | | $ | 234 | | | $ | 222 | |
In millions, except per share amounts | | 2013 | | | 2012 | | | 2011 | | Operating revenues | | $ | 4,617 | | | $ | 3,922 | | | $ | 2,338 | | Cost of goods sold | | | (2,332 | ) | | | (1,791 | ) | | | (1,097 | ) | Revenue tax expense (1) | | | (110 | ) | | | (85 | ) | | | (9 | ) | Operating margin | | | 2,175 | | | | 2,046 | | | | 1,232 | | Operating expenses (2) (3) | | | (1,610 | ) | | | (1,501 | ) | | | (744 | ) | Revenue tax expense (1) | | | 110 | | | | 85 | | | | 9 | | Gain on sale of Compass Energy | | | 11 | | | | - | | | | - | | Nicor merger expenses (2) | | | - | | | | (20 | ) | | | (57 | ) | Operating income | | | 686 | | | | 610 | | | | 440 | | Other income | | | 17 | | | | 24 | | | | 7 | | EBIT | | | 703 | | | | 634 | | | | 447 | | Interest expenses | | | (181 | ) | | | (184 | ) | | | (136 | ) | Earnings before income taxes | | | 522 | | | | 450 | | | | 311 | | Income tax expenses | | | (191 | ) | | | (164 | ) | | | (125 | ) | Net income | | | 331 | | | | 286 | | | | 186 | | Less net income attributable to the noncontrolling interest | | | 18 | | | | 15 | | | | 14 | | Net income attributable to AGL Resources Inc. | | $ | 313 | | | $ | 271 | | | $ | 172 | | Per common share data | | | | | | | | | | | | | Diluted earnings per common share attributable to AGL Resources Inc. common shareholders (4) | | $ | 2.64 | | | $ | 2.31 | | | $ | 2.12 | | Additional accrual for Nicor Gas PBR issue | | | - | | | | 0.04 | | | | - | | Transaction costs of Nicor merger (2) | | | - | | | | 0.11 | | | | 0.80 | | Diluted earnings per share - as adjusted | | $ | 2.64 | | | $ | 2.46 | | | $ | 2.92 | |
(1) | Adjusted for Nicor Gas’ revenue tax expenses, for Nicor Gas which are passed directly through to customers. |
(2) | Excludes transactionOperating expenses associated with the merger with Nicor of approximately $68 million ($55 million net of tax) in 2011 and $6 million ($4 million net of tax) in 2010. |
(3) | Transaction expenses associated with the Nicor merger are part of operating expenses, but are shown separately to better compare year-over-year results.results and include $20 million ($13 million net of tax) in 2012 and $57 million ($48 million net of tax) in 2011. Additionally, in 2011, transaction costs of the Nicor merger include debt issuance costs and interest expense on pre-funding the cash portion of the purchase consideration of $25 million ($16 million net of taxes). |
(3) | Total operating expenses in 2013 were unfavorably impacted by increased incentive compensation accruals of $37 million compared to the prior year. These amounts were above targeted levels in 2013. |
(4) | Sale of Compass Energy increased basic and diluted EPS by $0.04 in 2013. |
In 2011, our net income attributable to AGL Resources Inc. decreased by $62 million or 26% compared to last year. The decrease was primarily the result of approximately $68 million ($55 million net of tax) of transaction expenses associated with the merger with Nicor in 2011, which were expensed as incurred. We incurred approximately $6 million ($4 million net of tax) of Nicor transaction costs in 2010. Additionally, we experienced reduced EBIT at wholesale services and retail energy operations due to decreased average customer usage, warmer weather, losses associated with pipeline constraints in the Marcellus shale gas region and significantly lower natural gas volatility. This decrease was partially offset by higher EBIT at distribution operations due to increased revenues from new rates at Atlanta Gas Light and increased regulatory infrastructure program revenues at Atlanta Gas Light and Elizabethtown Gas. The decrease in our net income attributable to AGL Resources Inc. was also unfavorably impacted by increased interest expenses resulting from higher average debt outstanding, primarily the result of the additional long-term debt issuance used to fund the Nicor merger.
In 2010,2013 our net income attributable to AGL Resources Inc. increased by $12$42 million from the prior year primarily dueor 15% compared to increased EBIT at distribution operations largely due to new rates at Atlanta Gas Light and Elizabethtown Gas as well as the completion of the Hampton Roads project by Virginia Natural Gas. last year.
· | The overall increase was primarily the result of increased operating margin at distribution operations and retail operations due to weather that was both colder-than-normal and colder than the same period last year, increased regulatory infrastructure program revenues at Atlanta Gas Light, the acquisition of service contracts and residential and commercial energy customer relationships in our retail operations segment, as well as lower depreciation expense at Nicor Gas. |
· | The increase was unfavorably impacted by mark-to-market accounting hedge losses in our wholesale services segment during the second half of 2013, offset by higher commercial activity and the $11 million pre-tax gain on the sale of Compass Energy. |
· | Our midstream operations segment was unfavorable compared to 2012 due to the $8 million loss associated with the termination of the Sawgrass Storage project, as well as lower contracted firm rates at Jefferson Island and higher operating expenses at Golden Triangle, Central Valley and Pivotal LNG resulting from full year operations in 2013 as compared to partial year operations in 2012. |
· | Our cargo shipping segment added to the favorable variance due primarily to higher volumes, partially offset by decreased average TEU rates. |
· | Favorability year-over-year also was partially offset by higher incentive compensation expenses in most of our businesses as our incentive compensation expense was above targeted levels in 2013 based on improved financial and operational performance compared to significantly below targeted annual levels in 2012 due to below target performance. In addition, our bad debt expense increased at distribution operations and retail operations primarily as a result of colder weather combined with natural gas prices that were higher than in the same period of the prior year. |
· | In 2012 we recorded $20 million ($13 million net of tax) of Nicor merger related expenses. |
· | In 2013 our interest expense decreased by $3 million compared to 2012. This decrease was the result of overall lower interest rates mostly offset by higher average debt outstanding primarily as a result of issuing $500 million of senior notes in place of variable-rate debt. |
· | In 2013 our income tax expense increased by $27 million or 16% compared to 2012 primarily due to higher consolidated earnings, as previously discussed. Our effective tax rate was 38.0% in 2013 and 37.7% in 2012. Our estimated effective tax rate for 2014 is 37.9%. |
In 2012 our net income attributable to AGL Resources Inc. was also favorably impactedincreased by increased EBIT at wholesale services and our additional 15% ownership interest in SouthStar, which was effective January 1, 2010. This was partly offset by increased interest expense and decreased EBIT at retail operations, midstream operations and other. The decrease in EBIT at retail operations was mainly attributable$99 million or 58% compared to increased operating expenses. 2011. · | The increase was primarily the result of increased operating income at distribution operations, retail operations and cargo shipping as a result of the Nicor merger, and increased regulatory infrastructure program revenues at Atlanta Gas Light. |
· | This increase was partially offset by the effect of warmer-than-normal weather in our distribution operations and retail operations segments, and significantly lower margins at wholesale services resulting from mark-to-market accounting hedge losses. |
· | In 2011 we recorded $57 million ($48 million net of tax) of Nicor merger related expenses. |
· | In 2012 our interest expense increased by $48 million or 35% compared to 2011. This increase was the result of higher average debt outstanding primarily as a result of the additional long-term debt issued to fund the Nicor merger and the long-term debt assumed in the transaction. |
· | In 2012 our income tax expense increased by $39 million or 31% compared to the same period in 2011 primarily due to higher consolidated earnings. Our effective tax rate was 42.2% in 2011 primarily due to the non-deductible merger transaction expenses in 2011. |
The variances for each operating segment are contained within the year-over-year 2011 compared to year-over-year discussion on the following pages.
Interest expenseOperating metrics In 2011, our interest expense increased by approximately $27 million. This increase was primarily the result of our prefunding the cash portion of the merger consideration through the issuance of approximately $975 million of long-term debt during the year. This increased our annual interest expense by approximately $17 million. The remaining increase during 2011 related primarily to fees paid on our Term Loan Facility and our Bridge Facility.
The increase in our interest expenses of $8 million in 2010 compared to 2009 was primarily the result of fluctuations in short-term interest rates and higher average debt levels. The following table provides additional detail on interest expense for the last three years and the primary items that affect year-over-year change.
In millions | | 2011 | | | 2010 | | | 2009 | | Interest expenses | | $ | 136 | | | $ | 109 | | | $ | 101 | | Average debt outstanding (1) | | $ | 2,652 | | | $ | 2,393 | | | $ | 2,239 | | Average rate (2) | | | 5.1 | % | | | 4.6 | % | | | 4.5 | % |
(1) | Daily average of all outstanding debt. |
(2) | Increase in the 2011 average interest rate is due to our senior note issuances during the current year. |
Income tax expenseWeather Our income tax expense in 2011 decreased by $15 million or 11% compared to 2010. The decrease was primarily due to lower consolidated earnings as previously discussed. Our effective tax rate was 42.1% in 2011, 37.5% in 2010 and 37.8% in 2009. The increased effective tax rate in 2011 was primarily due to non-deductible merger transaction expenses. Our income tax expense in 2010 increased by $5 million or 4% compared to 2009 primarily due to higher consolidated earnings.
As a result of the authoritative guidance related to consolidations, income tax expense and our effective tax rate are determined from earnings before income taxes less net income attributable to the noncontrolling interest. For more information on our income taxes, including a reconciliation between the statutory federal income tax rate and our effective tax rate, see Note 12 to our consolidated financial statements under Item 8 herein.
Operating metrics Selected weather, customer and volume metrics for 2011, 2010 and 2009, which we consider to be some of the key performance indicators for our operating segments, are presented in the following tables. For the businesses that were acquired from the Nicor merger we only include the 22 days of activity from December 10, 2011 through December 31, 2011. We measure the effects of weather on our business through heating degree days.Heating Degree Days. Generally, increased heating degree daysHeating Degree Days result in greaterhigher demand for gas on our distribution systems. With the exception of Nicor Gas and Florida City Gas, we have various regulatory mechanisms, such as weather normalization mechanisms, which limit our exposure to weather changes within typical ranges in each of our utilities’ respective service areas.However, extendedour utility customers in Illinois and unusually mild weather duringretail operations’ customers in Georgia can be impacted by warmer or colder than normal weather. We have presented the Heating Season canDegree Day information for those locations in the following table.
| | | 2013 vs. | | | 2012 vs. | | | 2013 vs. | | | 2012 vs. | | | 2011 vs. | | Weather (Heating Degree Days) | | Year ended December 31, | | | 2012 | | | 2011 | | | normal | | | normal | | | normal | | | | Normal (1) | | | 2013 | | | 2012 | | | 2011 | | | colder (warmer) | | | colder (warmer) | | | colder (warmer) | | | colder (warmer) | | | colder (warmer) | | Year ended December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | Illinois (2) | | | 5,729 | | | | 6,305 | | | | 4,863 | | | | 5,892 | | | | 30 | % | | | (17 | )% | | | 10 | % | | | (15 | )% | | | 3 | % | Georgia | | | 2,600 | | | | 2,689 | | | | 1,934 | | | | 2,454 | | | | 39 | % | | | (21 | )% | | | 3 | % | | | (26 | )% | | | (6 | )% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Quarter ended December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Illinois (2) | | | 2,039 | | | | 2,383 | | | | 1,890 | | | | 1,810 | | | | 26 | % | | | 4 | % | | | 17 | % | | | (7 | )% | | | (11 | )% | Georgia | | | 1,009 | | | | 1,049 | | | | 878 | | | | 852 | | | | 19 | % | | | 3 | % | | | 4 | % | | | (13 | )% | | | (16 | )% |
(1) | Normal represents the ten-year average from January 1, 2003 through December 31, 2012, for Illinois at Chicago Midway International Airport, and for Georgia at Atlanta Hartsfield-Jackson International Airport as obtained from the National Oceanic and Atmospheric Administration, National Climatic Data Center. |
(2) | The 10-year average Heating Degree Days established by the Illinois Commission in our last rate case, is 2,020 for the fourth quarter and 5,600 for the 12 months from 1998 through 2007. |
During 2013 we experienced weather in Illinois that was 10% colder-than-normal and 30% colder than the same period in the prior year. Georgia also experienced 3% colder-than-normal weather, and 39% colder than the same period last year. For our Illinois weather risk associated with Nicor Gas, we implemented a corporate weather hedging program in the second quarter of 2013 that utilizes OTC weather derivatives to reduce the risk of lower operating margins potentially resulting from significantly warmer-than-normal weather. For January through April of 2014, we have purchased a significant negative impact on demandput option that would partially offset lower operating margins resulting from reduced customer usage in the event of warmer-than-normal weather, but would not be exercised in the event of colder-than-normal weather and, therefore, not offset higher margins if Heating Degree Days for natural gas. the period are at normal or colder-than-normal levels. We will continue to use available methods to mitigate our exposure to weather in Illinois for future periods.
Customers Our customer metrics highlight the average number of customers tofor which we provide services. Thisservices and are provided in the table below. The number of customers at distribution operations and energy customers at retail operations can be impacted by natural gas prices, economic conditions and competition from alternative fuels. Our energy customers at retail operations are primarily located in Georgia and Illinois.
Customers and service contracts | | Year ended December 31, | | | 2013 vs. 2012 change | | | 2012 vs. 2011 change | (average end-use, in thousands) | | 2013 | | | 2012 | | | 2011 | | | | # | | | % | | | | # | | | % | Distribution operations customers | | | 4,479 | | | | 4,459 | | | | 4,454 | | | | 20 | | | | 0.4 | % | | | 5 | | | | 0.1 | % | Retail operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Energy customers (1) | | | 619 | | | | 623 | | | | 578 | | | | (4 | ) | | | (1 | )% | | | 45 | | | | 8 | % | Service contracts (2) | | | 1,127 | | | | 684 | | | | 710 | | | | 443 | | | | 65 | % | | | (26 | ) | | | (4 | )% | Market share in Georgia | | | 31 | % | | | 32 | % | | | 33 | % | | | | | | | (3 | )% | | | | | | | (3 | )% |
(1) | A portion of the energy customers represents customer equivalents in Ohio, which are computed by the actual delivered volumes divided by the expected average customer usage. The decrease for the year ended 2012 is primarily due to our contract to serve approximately 50,000 customer equivalents that ended on April 1, 2012, which was partially offset by the increase due to the addition of approximately 33,000 residential and commercial customer relationships acquired in Illinois in June 2013. |
(2) | Increase primarily due to acquisition of approximately 500,000 service contracts on January 31, 2013. |
We anticipate overall utility customer growth trends for 2013 to continue in 2014 based on an expectation of continuing improvement in the economy and the continuing low natural gas prices. We use a variety of targeted marketing programs to attract new customers and to retain existing customers. These efforts include adding residential customers, multifamily complexes and commercial and industrial customers who use natural gas for purposes other than space heating, as well as evaluating and launching new natural gas related programs, products and services to enhance customer growth, mitigate customer attrition and increase operating revenues. These programs generally emphasize natural gas as the fuel of choice for customers and seek to expand the use of natural gas through a variety of promotional activities. We also target customer conversions to natural gas from other energy sources emphasizing the pricing advantage of natural gas. These programs focus on premises that could be connected to our distribution system at little or no cost to the customer. In cases where conversion cost can be a disincentive, we may employ rebate programs and other assistance to address customer cost issues.
Retail operations’ market share in Georgia has decreased slightly primarily as a result of a highly competitive marketing environment, which we expect will continue for the foreseeable future. In 2013 our retail operations segment expanded its energy customers and its service contracts through acquisitions and entering into new markets. We anticipate this expansion will provide growth opportunities in future years.
VolumeOur natural gas volume metrics for distribution operations and retail operations, present the effects of weather and our customers’ demand for natural gas.gas compared to prior year. Wholesale services’ daily physical sales volumes represent the daily average natural gas volumes sold to its customers. Within our midstream operations segment, our natural gas storage businesses seek to have a significant percentage of their working natural gas capacity under firm subscription, but also take into account current and expected market conditions. This allows our natural gas storage business to generate additional revenue during times of peak market demand for natural gas storage services, but retain some consistency with their earnings and maximize the value of the investments.
Additionally, our cargo shipping segment measures the volume of shipments during the period in TEUs. In 2013 we successfully increased our number of TEUs and therefore the utilization of our containers and vessels. Our volume metrics are presented in the following table: Weather | | | | | | | | | 2011 vs. | | | 2010 vs. | | | 2011 vs. | | | 2010 vs. | | | 2009 vs. | | Heating degree days (1) | | | Year ended December 31, | | | | | | 2010 | | | 2009 | | | normal | | | normal | | | normal | | | | Normal | | | 2011 | | | 2010 | | | 2009 | | | colder (warmer) | | | colder (warmer) | | | colder (warmer) | | | colder (warmer) | | | colder (warmer) | | Georgia | | | 2,679 | | | | 2,454 | | | | 3,209 | | | | 2,803 | | | | (24 | )% | | | 14 | % | | | (8 | )% | | | 20 | % | | | 5 | % | Virginia | | | 3,182 | | | | 2,945 | | | | 3,601 | | | | 3,312 | | | | (18 | )% | | | 9 | % | | | (7 | )% | | | 13 | % | | | 4 | % | New Jersey | | | 4,639 | | | | 4,275 | | | | 4,445 | | | | 4,755 | | | | (4 | )% | | | (7 | )% | | | (8 | )% | | | (4 | )% | | | 3 | % | Florida | | | 551 | | | | 310 | | | | 1,108 | | | | 548 | | | | (72 | )% | | | 102 | % | | | (44 | )% | | | 101 | % | | | (1 | )% | Tennessee | | | 3,085 | | | | 2,953 | | | | 3,594 | | | | 3,154 | | | | (18 | )% | | | 14 | % | | | (4 | )% | | | 16 | % | | | 2 | % | Maryland | | | 4,696 | | | | 4,489 | | | | 4,679 | | | | 4,783 | | | | (4 | )% | | | (2 | )% | | | (4 | )% | | | 0 | % | | | 2 | % | Ohio | | | 4,898 | | | | 4,656 | | | | 5,181 | | | | 4,919 | | | | (10 | )% | | | 5 | % | | | (5 | )% | | | 6 | % | | | 0 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2011 vs. | | | 2010 vs. | | | 2011 vs. | | | 2010 vs. | | | 2009 vs. | | | | | | | | Quarter ended December 31, | | | | | | | | 2010 | | | | 2009 | | | normal | | | normal | | | normal | | | | Normal | | | | 2011 | | | | 2010 | | | | 2009 | | | colder (warmer) | | | colder (warmer) | | | colder (warmer) | | | colder (warmer) | | | colder (warmer) | | Georgia | | | 1,036 | | | | 852 | | | | 1,187 | | | | 1,182 | | | | (28 | )% | | | 0 | % | | | (18 | )% | | | 15 | % | | | 14 | % | Virginia | | | 1,091 | | | | 853 | | | | 1,380 | | | | 1,065 | | | | (38 | )% | | | 30 | % | | | (22 | )% | | | 26 | % | | | (2 | )% | New Jersey | | | 1,620 | | | | 1,328 | | | | 1,720 | | | | 1,618 | | | | (23 | )% | | | 6 | % | | | (18 | )% | | | 6 | % | | | 0 | % | Florida | | | 174 | | | | 66 | | | | 365 | | | | 158 | | | | (82 | )% | | | 131 | % | | | (62 | )% | | | 110 | % | | | (9 | )% | Tennessee | | | 1,216 | | | | 1,104 | | | | 1,382 | | | | 1,283 | | | | (20 | )% | | | 8 | % | | | (9 | )% | | | 14 | % | | | 6 | % | Maryland | | | 1,673 | | | | 1,463 | | | | 1,822 | | | | 1,665 | | | | (20 | )% | | | 9 | % | | | (13 | )% | | | 9 | % | | | 0 | % | Ohio | | | 1,828 | | | | 1,563 | | | | 2,028 | | | | 1,893 | | | | (23 | )% | | | 7 | % | | | (14 | )% | | | 11 | % | | | 1 | % |
| | | | | | | | | | Customers (average end-use - in thousands) | | Year ended December 31, | | | 2011 vs. 2010 | | | 2010 vs. 2009 | | | | 2011 | | | 2010 | | | 2009 | | | % change | | | % change | | Distribution Operations | | | | | | | | | | | | | | | | Nicor Gas (2) | | | 2,188 | | | | n/a | | | | n/a | | | | n/a | % | | | n/a | % | Atlanta Gas Light | | | 1,541 | | | | 1,544 | | | | 1,549 | | | | (0.2 | ) | | | (0.3 | ) | Virginia Natural Gas | | | 278 | | | | 275 | | | | 273 | | | | 1.1 | | | | 0.7 | | Elizabethtown Gas | | | 276 | | | | 274 | | | | 273 | | | | 0.7 | | | | 0.4 | | Florida City Gas | | | 103 | | | | 103 | | | | 103 | | | | 0.0 | | | | 0.0 | | Chattanooga Gas | | | 62 | | | | 62 | | | | 62 | | | | 0.0 | | | | 0.0 | | Elkton Gas | | | 6 | | | | 6 | | | | 6 | | | | 0.0 | | | | 0.0 | | Total | | | 4,454 | | | | 2,264 | | | | 2,266 | | | | n/a | % | | | (0.1 | )% | | | | | | | | | | | | | | | | | | | | | | Retail Operations | | | | | | | | | | | | | | | | | | | | | Georgia | | | 485 | | | | 496 | | | | 504 | | | | (2 | )% | | | (2 | )% | Ohio and Florida (3) | | | 96 | | | | 77 | | | | 103 | | | | 25 | % | | | (25 | )% | Total | | | 581 | | | | 573 | | | | 607 | | | | 1 | % | | | (6 | )% | Market share in Georgia | | | 33 | % | | | 33 | % | | | 33 | % | | | 0 | % | | | 0 | % |
Volumes In billion cubic feet (Bcf) | | Year ended December 31, | | | 2011 vs. 2010 | | | 2010 vs. 2009 | | | | 2011 | | | 2010 | | | 2009 | | | % change | | | % change | | Distribution Operations (4) | | | | | | | | | | | | | | | | Firm | | | 247 | | | | 243 | | | | 218 | | | | 2 | % | | | 11 | % | Interruptible | | | 105 | | | | 99 | | | | 98 | | | | 6 | % | | | 1 | % | Total | | | 352 | | | | 342 | | | | 316 | | | | 3 | % | | | 8 | % | | | | | | | | | | | | | | | | | | | | | | Retail Operations | | | | | | | | | | | | | | | | | | | | | Georgia firm | | | 35 | | | | 46 | | | | 40 | | | | (24 | )% | | | 15 | % | Ohio and Florida | | | 9 | | | | 10 | | | | 11 | | | | (10 | )% | | | (9 | )% | | | | | | | | | | | | | | | | | | | | | | Wholesale Services | | | | | | | | | | | | | | | | | | | | | Daily physical sales (Bcf / day) (4) | | | 5.21 | | | | 4.57 | | | | 2.96 | | | | 14 | % | | | 54 | % |
| | As of December 31, | | | | 2011 | | | 2010 | | | 2009 | | Midstream Operations | | | | | | | | | | Working natural gas capacity | | | 13.5 | | | | 13.5 | | | | 7.5 | | % of capacity under subscription (5) | | | 68 | % | | | 51 | % | | | 67 | % |
Volumes | | | | | | | | | | | | | | | | | | Year ended December 31, | | | 2013 vs. 2012 | | 2012 vs. 2011 | | Distribution operations (In Bcf) | | 2013 | | | 2012 | | | 2011 | | | % change | | % change | | Firm | | | 720 | | | | 606 | | | | 247 | | | | 19 | % | | | 145 | % | Interruptible | | | 111 | | | | 107 | | | | 105 | | | | 4 | % | | | 2 | % | Total | | | 831 | | | | 713 | | | | 352 | | | | 17 | % | | | 103 | % | Retail operations (In Bcf) | | | | | | | | | | | | | | | | | | | | | Georgia firm | | | 38 | | | | 31 | | | | 35 | | | | 23 | % | | | (11 | )% | Illinois | | | 9 | | | | 8 | | | | - | | | | 13 | % | | | - | | Other (1) | | | 8 | | | | 8 | | | | 10 | | | | - | | | | (20 | )% | Wholesale services | | | | | | | | | | | | | | | | | | | | | Daily physical sales (Bcf/day) | | | 5.73 | | | | 5.54 | | | | 5.21 | | | | 3 | % | | | 6 | % | Cargo shipping (TEU’s - in thousands) | | | | | | | | | | | | | | | | | | | | | Shipments | | | 187 | | | | 170 | | | | n/a | | | | 10 | % | | | n/a | | | | As of December 31, | | | | | | | | | | | | | 2013 | | | | 2012 | | | | 2011 | | | | | | | | | | Midstream operations | | | | | | | | | | | | | | | | | | | | | Working natural gas capacity (in Bcf) | | | 31.8 | | | | 31.8 | | | | 13.5 | | | | | | | | | | % of firm capacity under subscription by third parties (2) | | | 33 | % | | | 46 | % | | | 68 | % | | | | | | | | |
(1) | Obtained from weather stations relevant to our service areas at the National OceanicIncludes Florida, Maryland, New York and Atmospheric Administration, National Climatic Data Center. Normal represents ten-year averages from January 1, 2002 through December 31, 2011. Does not include any heating degree data for Illinois.Ohio. |
(2) | Nicor Gas customer data is as of December 31, 2011. |
(3) | A portion of the Ohio customers represents customer equivalents, which are computed by the actual delivered volumes divided by the expected average customer usage. |
(4) | As of December 31, for each respective year, and represents volume information only from December 10, 2011 through December 31, 2011 for the entities acquired from Nicor. |
(5) | The percentage of capacity under subscription does not include 3.5 Bcf of capacity under contract with Sequent at December 31, 2013, 3 Bcf of capacity under contract with Sequent at December 31, 2012 and 4 Bcf of capacity under contract with Sequent at December 31, 2011 and 2 Bcf of capacity under contract with Sequent at December 31, 2010 and at December 31, 2009.2011. |
Segment information Operating margin, operating expenses and EBIT information for each of our segments are contained in the following tables for the last three years.
| | 2011 | | | 2010 | | | 2009 | | In millions | | Operating margin (1) | | | Operating expenses | | | EBIT (1) | | | Operating margin (1) | | | Operating expenses | | | EBIT (1) | | | Operating margin (1) | | | Operating expenses | | | EBIT (1) | | Distribution operations | | $ | 963 | | | $ | 557 | | | $ | 412 | | | $ | 879 | | | $ | 531 | | | $ | 352 | | | $ | 840 | | | $ | 522 | | | $ | 327 | | Retail operations | | | 168 | | | | 75 | | | | 93 | | | | 183 | | | | 80 | | | | 103 | | | | 181 | | | | 76 | | | | 105 | | Wholesale services | | | 57 | | | | 52 | | | | 5 | | | | 105 | | | | 57 | | | | 49 | | | | 111 | | | | 64 | | | | 47 | | Midstream operations | | | 37 | | | | 28 | | | | 9 | | | | 30 | | | | 24 | | | | 6 | | | | 22 | | | | 19 | | | | 3 | | Cargo shipping | | | 7 | | | | 8 | | | | 0 | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | Other (2) | | | 0 | | | | 72 | | | | (72 | ) | | | 12 | | | | 17 | | | | (11 | ) | | | 21 | | | | 18 | | | | 3 | | Consolidated | | $ | 1,232 | | | $ | 792 | | | $ | 447 | | | $ | 1,209 | | | $ | 709 | | | $ | 499 | | | $ | 1,175 | | | $ | 699 | | | $ | 485 | |
| | Operating Margin (1) (2) | | | Operating Expenses (2) (3) | | | EBIT (1) | | In millions | | 2013 | | | 2012 | | | 2011 (4) | | | 2013 | | | 2012 | | | 2011 (4) | | | 2013 (5) | | | 2012 | | | 2011 (4) | | Distribution operations | | $ | 1,660 | | | $ | 1,571 | | | $ | 963 | | | $ | 1,093 | | | $ | 1,048 | | | $ | 557 | | | $ | 582 | | | $ | 532 | | | $ | 412 | | Retail operations | | | 294 | | | | 247 | | | | 168 | | | | 157 | | | | 131 | | | | 75 | | | | 137 | | | | 116 | | | | 93 | | Wholesale services | | | 37 | | | | 50 | | | | 57 | | | | 52 | | | | 54 | | | | 52 | | | | (4 | ) | | | (3 | ) | | | 5 | | Midstream operations | | | 41 | | | | 46 | | | | 37 | | | | 46 | | | | 38 | | | | 28 | | | | (10 | ) | | | 10 | | | | 9 | | Cargo shipping | | | 143 | | | | 134 | | | | 7 | | | | 140 | | | | 137 | | | | 8 | | | | 12 | | | | 8 | | | | - | | Other | | | - | | | | (2 | ) | | | - | | | | 12 | | | | 28 | | | | 72 | | | | (14 | ) | | | (29 | ) | | | (72 | ) | Consolidated | | $ | 2,175 | | | $ | 2,046 | | | $ | 1,232 | | | $ | 1,500 | | | $ | 1,436 | | | $ | 792 | | | $ | 703 | | | $ | 634 | | | $ | 447 | |
(1) | These areOperating margin is a non-GAAP measures.measure. A reconciliation of operating revenue and operating margin to operating income and EBIT to earnings before income taxes and net income is contained in “Results of Operations” herein. Please note that our segments have changed as a result of our merger with Nicor and amounts from the periods presented have been reclassified between the segments to reflect these changes.Operations.” See Note 13 to our consolidated financial statements under Item 8 herein for additional segment information.
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(2) | The increase in operating expenses for 2011 is primarily due to $68 million in transaction expenses associated with the merger with Nicor. For more information see Note 3 to our consolidated financial statements under Item 8 herein. Additionally, includes intercompany eliminations. |
(3) | Operating margin and expense for 2011 are adjusted for revenue tax expense for Nicor Gas, which is passed directly through to customers. |
(3) | Includes $20 million and $57 million in Nicor merger transaction expenses for 2012 and 2011, respectively, and an $8 million accrual in 2012 for the Nicor Gas PBR issue. |
(4) | The 2011 amounts only include 22 days of Nicor activity from December 10, 2011 through December 31, 2011. |
(5) | EBIT for 2013 includes $11 million pre-tax gain on sale of Compass Energy in our wholesale services segment and an $8 million pre-tax loss associated with the termination of the Sawgrass Storage project within our midstream operations segment. |
The EBIT of our distribution operations, retail operations, wholesale services and cargo shipping segments are seasonal. During the Heating Season, natural gas usage and operating revenues are generally higher because more customers are connected to our distribution systems and natural gas usage is higher in periods of colder weather. Occasionally in the summer, wholesale services operating revenues are impacted due to peak usage by power generators in response to summer energy demands. Seasonality also affects the comparison of certain Consolidated Statements of Financial Position items across quarters, including receivables, unbilled revenue, inventories and short-term debt. However, these items are comparable when reviewing our annual results.
Additionally, the revenues of our cargo shipping business are generally higher in the fourth quarter, as our customers require more tourist-related shipments as the hotels, resorts, and cruise ships typically have increased occupancy rates commencing in the fourth quarter and increasing further into the first quarter as consumer spending increases during traditional holiday periods. Revenues are impacted during the fourth quarter by peak season surcharges in effect from early October through December.
Approximately 66% of these segments’ operating revenues and 69% of these segments’ EBIT for the year ended December 31, 2013 were generated during the first and fourth quarters of 2013, and are reflected in our Consolidated Statements of Income for the quarters ended March 31, 2013 and December 31, 2013. Our base operating expenses, excluding cost of goods sold, interest expense and certain incentive compensation costs, are incurred relatively equally over any given year. Thus, our operating results can vary significantly from quarter to quarter as a result of seasonality.
Distribution Operations
Our distribution operations segment is the largest component of our business and is subject to regulation and oversight by agencies in each of the seven states we serve. These agencies approve natural gas rates designed to provide us the opportunity to generate revenues to recover the cost of natural gas delivered to our customers and our fixed and variable costs such as depreciation, interest, maintenance and overhead costs, and to earn a reasonable return for our shareholders. With the exception of Atlanta Gas Light, our second largest utility, the earnings of our regulated utilities can be affected by customer consumption patterns that are a function of weather conditions, price levels for natural gas and general economic conditions that may impact our customers’ ability to pay for gas consumed. We have various mechanisms, such as weather normalization mechanisms at all of our utilities with the exception of Nicor Gas,and weather derivative instruments that limit our exposure to weather changes within typical ranges in all of our utilities’their respective service areas.areas. During 2013, colder-than-normal weather increased our operating margin at our utilities, primarily at Nicor Gas by $12 million compared to expected levels based on 10-year normal weather. During 2012, warmer-than-normal weather decreased our operating margin by $24 million.
In millions | | 2011 | | | 2010 | | EBIT – prior year | | $ | 352 | | | $ | 327 | | | | | | | | | | | Operating margin | | | | | | | | | Increased margin from Nicor Gas as a result the Nicor merger in December 2011 | | | 47 | | | | 0 | | Increased revenues from new rates and regulatory infrastructure program revenues at Atlanta Gas Light | | | 33 | | | | 9 | | Increased revenues from customer growth, higher usage and enhanced infrastructure program revenues at Elizabethtown Gas | | | 6 | | | | 6 | | Increased revenues from the Hampton Roads project at Virginia Natural Gas | | | 0 | | | | 21 | | (Decreased) increased revenues from usage at Florida City Gas due to weather | | | (2 | ) | | | 3 | | Decreased margins from gas storage carrying amounts at Atlanta Gas Light | | | (2 | ) | | | (1 | ) | Other | | | 2 | | | | 1 | | Increase in operating margin | | | 84 | | | | 39 | | | | | | | | | | | Operating expenses | | | | | | | | | Increased expenses for Nicor Gas as a result of the Nicor merger in December 2011 | | | 31 | | | | 0 | | Increased depreciation expense | | | 10 | | | | 4 | | Increased pension expense | | | 2 | | | | 4 | | (Decreased) increased payroll and incentive compensation expense | | | (14 | ) | | | 9 | | (Decreased) increased marketing costs | | | (1 | ) | | | 1 | | Decreased bad debt expenses | | | (4 | ) | | | (3 | ) | Increased (decreased) outside services and other expenses | | | 2 | | | | (6 | ) | Increase in operating expenses | | | 26 | | | | 9 | | Increase (decrease) in other income | | | 2 | | | | (5 | ) | EBIT - current year | | $ | 412 | | | $ | 352 | |
In millions | | 2013 | | | 2012 | | EBIT - prior year | | $ | 532 | | | $ | 412 | | | | | | | | | | | Operating margin | | | | | | | | | Increased revenues from regulatory infrastructure programs, primarily at Atlanta Gas Light | | | 31 | | | | 15 | | Increased operating margin from Nicor Gas as a result of the Nicor merger in December 2011 | | | - | | | | 581 | | Increased rider revenues primarily as a result of energy efficiency program recoveries at Nicor Gas | | | 19 | | | | 15 | | Increased (decreased) operating margin mainly driven by weather, customer usage and customer growth | | | 45 | | | | (6 | ) | (Decreased) margin from gas storage carrying amounts at Atlanta Gas Light | | | (5 | ) | | | 2 | | Other | | | (1 | ) | | | 1 | | Increase in operating margin | | | 89 | | | | 608 | | | | | | | | | | | Operating expenses | | | | | | | | | Increased (decreased) incentive compensation costs that reflect year over year performance | | | 37 | | | | (7 | ) | Increased rider expenses primarily as a result of energy efficiency programs at Nicor Gas | | | 19 | | | | 15 | | Increased depreciation expense as a result of increased PP&E from infrastructure additions and improvements | | | 15 | | | | 8 | | Increased (decreased) bad debt expenses as a result of change in natural gas prices and weather | | | 4 | | | | (5 | ) | Increased outside services and other expenses mainly as a result of maintenance programs | | | 3 | | | | 6 | | Increased expenses for Nicor Gas as a result of the Nicor merger in December 2011 | | | - | | | | 461 | | Decreased depreciation expense at Nicor Gas due to deprecation study approval effective August 30, 2013 | | | (19 | ) | | | - | | Decreased operation and maintenance expense at Nicor Gas related to the 2012 PBR accrual | | | (8 | ) | | | - | | (Decreased) increased pension and health benefits expenses primarily related to retiree health care costs and change in actuarial gains and losses | | | (6 | ) | | | 13 | | Increase in operating expenses | | | 45 | | | | 491 | | Increase in other income primarily from AFUDC equity from STRIDE Projects at Atlanta Gas Light | | | 6 | | | | 3 | | EBIT - current year | | $ | 582 | | | $ | 532 | |
In accordance with an order issued by the Georgia Commission, where AGL Resources makes a business acquisition that reduces the cost allocated or charged to Atlanta Gas Light for shared services, the net savings to Atlanta Gas Light will be shared equally between the firm customers of Atlanta Gas Light and our shareholders for a ten-year period. In December 2013 we filed a Report of Synergy Savings with the Georgia Commission in connection with the Nicor acquisition. If and when approved, the net savings should result in annual rate reductions to the firm customers of Atlanta Gas Light of $5 million. We expect the Georgia Commission to rule on the report in the second quarter of 2014.
Retail Operations
Our retail operations segment, which consists of SouthStar and several businesses that provide energy-related products and services to retail markets, also is weather sensitive and uses a variety of hedging strategies, such as weather derivative instruments and other risk management tools, to partially mitigate potential weather impacts. During 2013, colder-than-normal weather increased operating margin by $9 million. During 2012, warmer-than-normal weather decreased operating margin by $9 million. Additionally, during 2013, our retail operations’ EBIT was favorably impacted by $12 million as a result of the acquisition of additional customer and service contracts.
In millions | | 2011 | | | 2010 | | EBIT – prior year | | $ | 103 | | | $ | 105 | | | | | | | | | | | Operating margin | | | | | | | | | (Decreased) increased average customer usage and warmer than prior year weather, net of weather derivatives | | | (15 | ) | | | 9 | | Change in LOCOM adjustment | | | (5 | ) | | | 6 | | (Decreased) increased operating margins for Florida, Ohio and interruptible customers | | | (2 | ) | | | 1 | | Change in retail pricing plan mix and decrease in average number of customers | | | (4 | ) | | | (12 | ) | Increased (decreased) contributions from the management and optimization of storage and transportation assets, and from retail price spreads | | | 7 | | | | (1 | ) | Increased margin as a result of the Nicor merger in December 2011 | | | 5 | | | | 0 | | Other | | | (1 | ) | | | (1 | ) | (Decrease) increase in operating margin | | | (15 | ) | | | 2 | | | | | | | | | | | Operating expenses | | | | | | | | | (Decreased) bad debt expenses | | | (3 | ) | | | 0 | | (Decreased) increased legal expense | | | (4 | ) | | | 3 | | Increased expenses as a result of the Nicor merger in December 2011 | | | 3 | | | | 0 | | Other | | | (1 | ) | | | 1 | | (Decrease) increase in operating expenses | | | (5 | ) | | | 4 | | EBIT – current year | | $ | 93 | | | $ | 103 | |
In millions | | 2013 | | | 2012 | | EBIT - prior year | | $ | 116 | | | $ | 93 | | | | | | | | | | | Operating margin | | | | | | | | | Increased margin as a result of the Nicor merger in December 2011 | | | - | | | | 76 | | Increased (decreased) operating margin primarily related to average customer usage in Georgia due to demand and weather, net of weather hedges | | | 17 | | | | (10 | ) | Increased margin primarily due to acquisitions in January and June 2013 and expansions into additional retail energy markets | | | 35 | | | | - | | (Decrease) increase related to change in gas costs and from retail price spreads, partially offset by changes to customer portfolio | | | (11 | ) | | | 10 | | Storage inventory write-down (LOCOM) adjustment | | | 3 | | | | 1 | | Other | | | 3 | | | | 2 | | Increase in operating margin | | | 47 | | | | 79 | | | | | | | | | | | Operating expenses | | | | | | | | | Increased expenses as a result of the Nicor merger in December 2011 | | | - | | | | 59 | | Increased expenses primarily due to acquisitions in January and June 2013 | | | 23 | | | | - | | Increased (decreased) bad debt expenses related to change in natural gas prices and weather | | | 3 | | | | (5 | ) | Other | | | - | | | | 2 | | Increase in operating expenses | | | 26 | | | | 56 | | EBIT - current year | | $ | 137 | | | $ | 116 | |
Wholesale Services
Our wholesale services segment is involved in asset management and optimization, storage, transportation, producer and peaking services, natural gas supply, natural gas services and wholesale marketing. EBIT for our wholesale services segment is impacted by volatility in the natural gas market arising from a number of factors including weather fluctuations and changes in supply or demand for natural gas in different regions of the country. We principally use physical and financial arrangements to reduce the risks associated with fluctuations in market conditions and changing commodity prices. These economic hedges may not qualify, or are not designated for, hedge accounting treatment. As a result, our reported earnings for wholesale services reflect changes in the fair values of certain derivatives. These values may change significantly from period to period and are reflected as gains or losses within our operating revenues.
In millions | | 2011 | | | 2010 | | EBIT – prior year | | $ | 49 | | | $ | 47 | | | | | | | | | | | Operating margin | | | | | | | | | Change in storage hedge gains as a result of declining NYMEX natural gas prices | | | 8 | | | | 28 | | Increased (decreased) gains on transportation hedges from the narrowing of transportation basis spreads | | | 13 | | | | (42 | ) | Change in commercial activity | | | (45 | ) | | | 10 | | Change in LOCOM adjustment, net of hedging recoveries | | | (24 | ) | | | (2 | ) | Decrease in operating margin | | | (48 | ) | | | (6 | ) | | | | | | | | | | Operating expenses | | | | | | | | | Decreased incentive compensation costs | | | (5 | ) | | | (8 | ) | Other | | | 0 | | | | 1 | | Decrease in operating expenses | | | (5 | ) | | | 7 | | (Decreased) increased other income | | | (1 | ) | | | 1 | | EBIT – current year | | $ | 5 | | | $ | 49 | |
In millions | | 2013 | | | 2012 | | EBIT - prior year | | $ | (3 | ) | | $ | 5 | | | | | | | | | | | Operating margin | | | | | | | | | Change in commercial activity in 2013 largely driven by the withdrawal of a portion of the storage inventory economically hedged at the end of 2012, weather and increased cash optimization opportunities in the supply-constrained Northeast corridor | | | 84 | | | | 5 | | Change in value of storage hedges as a result of changes in NYMEX natural gas prices | | | (30 | ) | | | (23 | ) | Change in value of transportation and forward commodity hedges from price movements related to natural gas transportation positions (1) | | | (70 | ) | | | (11 | ) | Change in storage inventory LOCOM adjustment, net of estimated recoveries | | | 3 | | | | 22 | | Decrease in operating margin | | | (13 | ) | | | (7 | ) | | | | | | | | | | Operating expenses | | | | | | | | | Decreased expenses due to sale of Compass Energy in May 2013 | | | (4 | ) | | | - | | Increased payroll, benefits and incentive compensation costs, offset by lower other costs | | | 2 | | | | 2 | | (Decrease) increase in operating expenses | | | (2 | ) | | | 2 | | Gain on sale of Compass Energy | | | 11 | | | | - | | (Decrease) increase in other income | | | (1 | ) | | | 1 | | EBIT - current year | | $ | (4 | ) | | $ | (3 | ) |
(1) | 2011 excluded forward commodity hedge losses associated with counterparty bankruptcy and Marcellus take-away constraint losses. |
Change in Commercialcommercial activity The reductioncommercial activity at wholesale services includes recognized storage and transportation values that were generated in prior periods, which reflect the impact of prior period hedge gains and losses as associated physical transactions occur in the period. Additionally, the commercial activity includes operating margin generated and recognized in the current period. For 2013, commercial activity increased significantly due to
· | increased cash optimization opportunities related to certain of our transportation portfolio positions, particularly in the Northeastern U.S. |
· | the recognition of operating margin resulting from the withdrawal of storage inventory hedged at the end of 2012 that was included in the storage withdrawal schedule with a value of $27 million as of December 31, 2012 |
· | the effects of colder weather |
The 2012 change in commercial activity in 2011 reflects significantly lower natural gas price volatility impacting daily and intra-day storage and transportation spreads, as well aswas primarily due to losses associated with the forward purchase and sale of natural gas generally held for use under forward transportation contracts. Our wholesale services segment also incurred credit losses of $4 million duringin 2011 associated with a counterparty that filed for bankruptcy during the early partconstraints of the third quarter.
Natural gas shale production in the Northeast, specifically from the Marcellus region, resulted in pipeline capacity constraints. During the second half of 2011, our wholesale services segment experienced constraints for natural gas purchased from producers in the Marcellus shale gas producing region resultingand credit losses associated with a counterparty that filed for bankruptcy during 2011. Commercial activity in 2012 was also impacted by the saleabundance of natural gas atsupply due to shale production, which reduced price volatility and transportation spreads. Additionally, 2012 was one of the warmest years in recorded history causing a loss, higherreduction in customer demand and transportation costs and the costs to renegotiate certain of Sequent’s producer contracts. Total losses related to these constraints during 2011 were approximately $18 million.spreads.
Change in storage and transportation hedges Seasonal (storage) and geographical location (transportation) spreads continue to be significantly lower than in 2010 and overall natural gas price volatility remainedcontinued to remain low relative to historical periods. Storage hedge losses in 2013 are primarily due to the increase in natural gas prices during the fourth quarter of 2013 as compared to storage hedge gains last year resulting from a downward movement in the natural gas prices. Losses in our transportation hedge positions in 2013 are the result of widening transportation basis spreads, associated with colder-than-normal weather and higher demand during the second half of 2011. Gains2013 experienced at natural gas receipt and delivery points primarily in 2011the Northeast corridor related to natural gas transportation constraints in the region. These losses are temporary and 2010 were primarily due to significantly larger seasonal and geographical location spreads atbased on current expectations will be recovered in 2014 through 2016 (with the timemajority recognized in 2014) via the hedges of our storage and transportation positions were executed and the subsequent downward movementphysical flow of natural gas prices and collapseutilization of regionalthe contracted transportation spreads during 2011 and 2010.capacity.
The following table indicates the components of wholesale services’ operating margin for the periods presented.presented.
In millions | | 2011 | | | 2010 | | | 2009 | | | 2013 | | | 2012 | | | 2011 | | Commercial activity recognized | | $ | 32 | | | $ | 77 | | | $ | 67 | | | $ | 127 | | | $ | 43 | | | $ | 38 | | Gain on transportation hedges | | | 14 | | | | 1 | | | | 43 | | | Gain on storage hedges | | | 37 | | | | 29 | | | | 1 | | | (Loss) gain on transportation and forward commodity hedges | | | | (73 | ) | | | (3 | ) | | | 8 | | (Loss) gain on storage hedges | | | | (16 | ) | | | 14 | | | | 37 | | Inventory LOCOM adjustment, net of estimated current period recoveries | | | (26 | ) | | | (2 | ) | | | 0 | | | | (1 | ) | | | (4 | ) | | | (26 | ) | Operating margin | | $ | 57 | | | $ | 105 | | | $ | 111 | | | $ | 37 | | | $ | 50 | | | $ | 57 | |
For more information on Sequent’s expected operating revenues from its storage inventory and transportation and forward commodity hedges in 20122014 and discussion of commercial activity, see description of the inventory roll-out schedule in Item 1 “Business.” under the caption Wholesale Services.
Midstream Operations
Our midstream operations segment’s primary activity is our natural gasoperating non-utility storage business, which develops, acquires and operatespipeline facilities including the development, acquisition and operation of high-deliverability underground natural gas storage assets. While this business canOur midstream operations segment also generate additional revenue during timesincludes an equity investment in Sawgrass Storage, a joint venture between us and a privately held energy exploration and production company. The joint venture decided in December 2013 to terminate the development of peak market demand for natural gas storage services, the majority of our storage services are covered under medium to long-term contracts at a fixed market rate.Sawgrass Storage facility. For more information, onsee Note 10 to our operating segments, seeconsolidated financial statements under Item 1, “Business”.8 herein.
In millions | | 2011 | | | 2010 | | EBIT – prior year | | $ | 6 | | | $ | 3 | | | | | | | | | | | Operating margin | | | | | | | | | Increased revenues at Golden Triangle Storage as a result of the start of commercial service in September 2010 | | | 7 | | | | 4 | | Decreased revenues at Jefferson Island as a result of lower subscription rates | | | (2 | ) | | | 0 | | Other | | | 2 | | | | 4 | | Increase in operating margin | | | 7 | | | | 8 | | | | | | | | | | | Operating expenses and other loss | | | | | | | | | Increased operating and depreciation expenses at Golden Triangle Storage as a result of the start of commercial service in September 2010 | | | 7 | | | | 4 | | Decreased outside services and other expenses at Jefferson Island | | | 0 | | | | (2 | ) | Other – primarily lower project development costs in 2011 | | | (3 | ) | | | 3 | | Increase in operating expenses | | | 4 | | | | 5 | | EBIT – current year | | $ | 9 | | | $ | 6 | |
In millions | | 2013 | | | 2012 | | EBIT - prior year | | $ | 10 | | | $ | 9 | | | | | | | | | | | Operating margin | | | | | | | | | Decreased margin from Central Valley Storage as a result of hedge gains in 2012 that did not occur in 2013; increased in 2012 due to the Nicor merger in December 2011 | | | (2 | ) | | | 8 | | Decreased revenues at Jefferson Island as a result of lower subscription rates | | | (3 | ) | | | (4 | ) | Increased revenues primarily at Golden Triangle as a result of Cavern 2 beginning commercial service in 2012 and Cavern 1 working gas capacity project in 2013, as well as revenue due to entry into LNG markets | | | - | | | | 5 | | (Decrease) increase in operating margin | | | (5 | ) | | | 9 | | | | | | | | | | | Operating expenses | | | | | | | | | Increased expense from Central Valley Storage as a result of the Nicor Merger in December 2011 and the facility beginning commercial service during the second quarter of 2012 | | | 4 | | | | 7 | | Increased operating and depreciation expenses primarily due to entry into the LNG markets and Cavern 2 at Golden Triangle beginning commercial service in 2012 | | | 4 | | | | 3 | | Increase in operating expenses | | | 8 | | | | 10 | | | | | | | | | | | Impairment loss at Sawgrass Storage | | | (8 | ) | | | - | | Increase in other income from equity interest in Horizon Pipeline | | | 1 | | | | 2 | | Other (expense) income | | | (7 | ) | | | 2 | | EBIT - current year | | $ | (10 | ) | | $ | 10 | |
Cargo Shipping
Our cargo shipping segment’s primary activity is transporting containerized freightcargo in the Bahamas and the Caribbean, a region that has historically been characterized by modest market growth and intense competition. Such shipments consist primarily of southbound cargo such as building materials, food and other necessities for developers, distributors and residents in the region, as well as tourist-related shipments intended for use in hotels and resorts, and on cruise ships. The balance of the cargo consists primarily of interisland shipments of consumer staples and northbound shipments of apparel, rum and agricultural products. Other related services such as inland transportation and cargo insurance are also provided within the cargo shipping segment.
Caribbean. Our cargo shipping segment also includes an equity investment in Triton, a cargo container leasing business. Triton is a full-service global leasing company and an owner-lessorThe cargo shipping business reported EBIT of marine intermodal cargo containers. Profits and losses are generally allocated to investors capital accounts in proportion to their capital contributions. Our$8 million for the year ended December 31, 2012, including $11 million EBIT from our investment in Triton is accountedTriton. This was compared to an immaterial EBIT for under the equity method, andyear ended December 31, 2011, as it only reflected the 22 days following the close of our share of earnings is reported within “Other Income” on our Consolidated Statements of Income.merger with Nicor. For more information abouton our investment in Triton, see Note 10 to our consolidated financial statements under Item 8 herein.herein.
The cargo shipping business reported an immaterial EBIT for the 22 days following the close
In millions | | 2013 | | EBIT - prior year | | $ | 8 | | | | | | | Operating margin | | | | | TEU volume increased due to market share expansion and modest improvement in economic conditions in our service regions; leverage effect of volume increases on fuel expense | | | 21 | | Decreased average TEU rates due to changes in cargo mix and competitive pressures, partially offset by general ocean freight rate increases | | | (10 | ) | Other | | | (2 | ) | Increase in operating margin | | | 9 | | | | | | | Operating expenses | | | | | Increased operation and maintenance expenses | | | 6 | | Decreased depreciation expense | | | (3 | ) | Increase in operating expenses | | | 3 | | Decrease from equity investment income in Triton | | | (2 | ) | EBIT - current year | | $ | 12 | |
Overview The acquisition of natural gas and pipeline capacity, payment of dividends and funding of working capital requirementsneeds primarily related to our natural gas inventory are our most significant short-termshort-term financing requirements. The need for long-term capital is driven primarily by capital expenditures and maturities of long-term debt. The liquidity required to fund our working capital, capital expenditures and other cashthese short-term needs is primarily provided by our operating activities. Our short-term cash requirementsactivities, and any needs not met, by cash from operations are primarily satisfied with short-term borrowings under our commercial paper programs, which are supported by the AGL Credit Facility and the Nicor Gas Credit Facility.Facility. For more information on the seasonality of our short-term borrowings, see “Short-term Debt” later in this section.
The need for long-term capital is driven primarily by capital expenditures and maturities and refinancing of long-term debt. Periodically, we raise funds supporting our long-term cash needs from the issuance of long-term debt or equity securities. We regularly evaluate our funding strategy and profile to ensure that we have sufficient liquidity for our short-term and long-term needs in a cost-effective manner. Consistent with this strategy, in May 2013 we issued $500 million in 30-year senior notes with a 4.4% fixed interest rate.
Our capital market strategy has continued to focus on maintaining strong Consolidated Statements of Financial Position, ensuring ample cash resources and daily liquidity, accessing capital markets at favorable times as necessary, managing critical business risks and maintaining a balanced capital structure through the appropriate issuance of equity or long-term debt securities.
Our issuance of various securities,financing activities, including long-term and short-term debt and equity, isare subject to customary approval or review by state and federal regulatory bodies, including the various commissions of the states in which we conduct business the SEC and the FERC. Furthermore, a. Certain financing activities we undertake may also be subject to approval by state regulatory agencies. A substantial portion of our consolidated assets, earnings and cash flow areflows is derived from the operation of our regulated utility subsidiaries, whose legal authority to pay dividends or make other distributions to us is subject to regulation. Nicor Gas is restricted by regulation in the amount it can dividend or loan to affiliates and is not permitted to make money pool loans to affiliates. Dividends to AGL Resources are allowed only to the extent of Nicor Gas’ retained earnings balance, which was $465$499 million at December 31, 2011.2013.
We believe the amounts available to us under our senior notes,long-term debt, AGL Credit Facility and Nicor Gas Credit Facility, through the issuance of debt and equity securities, combined with cash provided by operating activities, will continue to allow us to meet our needs for working capital, pension contributions, constructionand retiree welfare benefits, capital expenditures, anticipated debt redemptions, interest payments on debt obligations, dividend payments common share repurchases and other cash needs through the next several years. Our ability to satisfy our working capital requirements and our debt service obligations, or fund planned capital expenditures, will substantially depend upon our future operating performance (which will be affected by prevailing economic conditions), and financial, business and other factors, some of which we are unable to control. These factors include, among others, regulatory changes, the price of and demand for natural gas, and operational risks.
As of December 31, 2011,2013 and 2012, we had approximately $71$80 million of cash and short and long-termshort-term investments on our Consolidated Statements of Financial Position that were generated fromheld by Tropical Shipping. This cash and the investments are indefinitely reinvested offshore and not available for use by the Company or our other operations and ifunless we repatriate all or a portion of Tropical Shipping’s earnings in the form of a dividend, wewhich would be subject to a significant amount of United StatesU.S. income tax. See Note 12 to our consolidated financial statements under Item 8 herein for additional information on our income taxes.
We will continue to evaluate our need to increase available liquidity based on our view of working capital requirements, including the impact of changes in natural gas prices, liquidity requirements established by rating agencies and other factors. See Item 1A, “Risk Factors,” for additional information on items that could impact our liquidity and capital resource requirements.
Merger Financing On December 9, 2011, we closed our merger with Nicor at which time each outstanding share of Nicor common stock, other than shares to be cancelled and Dissenting Shares, as defined in the Merger Agreement, was converted into the right to receive consideration of (i) 0.8382 of a share of AGL Resources common stock and (ii) $21.20 in cash. Fractional shares were paid in cash as were stock options and restricted stock units that were awarded to Nicor employees for pre-merger services. The total value of the consideration paid to Nicor common shareholders was approximately $2.5 billion based primarily upon the volume-weighted average price of AGL Resources common stock on the New York Stock Exchange on December 8, 2011, and the number of Nicor common shares outstanding as of the Effective Date, as defined in the Merger Agreement. Upon closing the merger, we assumed all of Nicor’s outstanding debt, the fair value of which was approximately $1.0 billion.
During 2011, we secured the permanent debt financing we used to pay the cash portion of the purchase consideration. This included approximately $200 million from our $500 million in senior notes that were issued in March 2011, $500 million in senior notes that were issued in September 2011, and $275 million in senior unsecured notes that were issued in the private placement market in October 2011.
As a result of the merger with Nicor, we assumed the first mortgage bonds of Nicor Gas, which at December 31, 2011 had principal balances totaling $500 million and maturity dates between 2016 and 2038. These bonds were recorded at their estimated fair value of $599 million on the date the merger closed. Additionally, we assumed $424 million in short-term debt upon closing the merger.
Credit Ratings Our borrowing costs and our ability to obtain adequate and cost effective financing are directly impacted by our credit ratings as well as the availability of financial markets. In addition, credit ratings are important to our counterparties when we engage in certain transactions including over-the-counter derivatives. It is our long-term objective to maintain or improve our credit ratings in order to manage our existing financing costs and enhance our ability to raise additional capital on favorable terms.
Credit ratings and outlooks are opinions subject to ongoing review by the rating agencies and may periodically change. Each rating should be evaluated independently of other ratings. The rating agencies regularly review our performance, prospects and financial condition and reevaluate their ratings of our long-term debt and short-term borrowings, our corporate ratings, including our ratings outlook. There is no guarantee that a rating will remain in effect for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency if, in its judgment, circumstances so warrant. A credit rating is not a recommendation to buy, sell or hold securities.
Factors we consider important in assessing our credit ratings include our Consolidated Statements of Financial Position leverage, capital spending, earnings, cash flow generation, available liquidity and overall business risks. We do not have any trigger events in our debt instruments that are tied to changes in our specified credit ratings or our stock price and have not entered into any agreements that would require us to issue equity based on credit ratings or other trigger events. The following table summarizes our credit ratings as of December 31, 2011.
| | AGL Resources | | | Nicor Gas | | | | S&P | | | Moody’s | | | Fitch | | | S&P | | | Moody’s | | | Fitch | | Corporate rating | | BBB+ | | | n/a | | | A- | | | BBB+ | | | n/a | | | A | | Commercial paper | | A-2 | | | P-2 | | | F2 | | | A-2 | | | P-2 | | | F-1 | | Senior unsecured | | BBB+ | | | Baa1 | | | A- | | | BBB+ | | | A3 | | | A+ | | Senior secured | | n/a | | | n/a | | | n/a | | | A | | | A1 | | | AA- | | Ratings outlook | | Stable | | | Stable | | | Stable | | | Stable | | | Stable | | | Stable | |
In December 2011, subsequent to the completion of our merger with Nicor, all three of the rating agencies reassessed their credit ratings for the post-merger company and its subsidiaries and noted the outlook is now stable. Fitch affirmed its ratings for both AGL Resources and Nicor Gas. S&P downgraded the corporate credit rating of AGL Resources from A- to BBB+ while downgrading the corporate credit rating of Nicor Gas from AA to BBB+. Moody’s affirmed the senior unsecured and short-term ratings of the legacy subsidiaries of AGL Resources while downgrading the senior unsecured rating of Nicor Gas from A2 to A3 and the commercial paper rating of Nicor Gas from P-1 to P-2.
The primary reason for the downgrade for AGL Resources was the increased financial leverage resulting from the merger and the resulting weakening of our consolidated credit metrics. The downgrade of Nicor Gas was primarily an attempt to conform the Nicor Gas credit ratings to those of the subsidiaries of AGL Resources. These credit rating changes are not expected to materially impact our borrowing costs. It is expected that long-term rating stability will depend on a reduction in leverage through successful merger integration and the realization of operating synergies.
Our credit ratings depend largely on our financial performance, and a downgrade in our current ratings, particularly below investment grade, would increase our borrowing costs and could limit our access to the commercial paper market. In addition, we would likely be required to pay a higher interest rate in future financings, and our potential pool of investors and funding sources could decrease.
Default Provisions Our debt instruments and other financial obligations include provisions that, if not complied with, could require early payment or similar actions. Our credit facilities contain customary events of default, including, but not limited to, the failure to pay any interest or principal when due, the failure to furnish financial statements within the timeframe established by each debt facility, the failure to comply with certain affirmative and negative covenants, cross-defaults to certain other material indebtedness in excess of specified amounts, incorrect or misleading representations or warranties, insolvency or bankruptcy, fundamental change of control, the occurrence of certain Employee Retirement Income Security Act events, judgments in excess of specified amounts and certain impairments to the guarantee.
Our credit facilities contain certain non-financial covenants that, among other things, restrict liens and encumbrances, loans and investments, acquisitions, dividends and other restricted payments, asset dispositions, mergers and consolidations, and other matters customarily restricted in such agreements.
Our credit facilities also includes a financial covenant that requires us to maintain a ratio of total debt to total capitalization of no more than 70% at the end of any fiscal month. This ratio, as defined within our debt agreements, includes standby letters of credit, performance/surety bonds and the exclusion of other comprehensive income pension adjustments. Adjusting for these items, the following table contains our debt-to-capitalization ratios for the periods presented, which are within our required and targeted ranges.
| | AGL Resources | | | Nicor Gas | | | | December 31, | | | December 31, | | | | 2011 | | | 2010 | | | 2011 | | Debt-to-capitalization ratio | | | 58 | % | | | 58 | % | | | 60 | % |
We were in compliance with all of our debt provisions and covenants, both financial and non-financial, as of December 31, 2011 and 2010.
Our ratio of total debt to total capitalization, on a consolidated basis, is typically greater at the beginning of the Heating Season as we make additional short-term borrowings to fund our natural gas purchases and meet our working capital requirements. We intend to maintain our ratio of total debt to total capitalization in a target range of 50% to 60%. Accomplishing this capital structure objective and maintaining sufficient cash flow are necessary to maintain attractive credit ratings. For more information on our default provisions see Note 8 to our consolidated financial statements under Item 8 herein. The components of our capital structure, as calculated from our Consolidated Statements of Financial Position, as of the dates indicated, are provided in the following table.
| | December 31, | | | | 2011 | | | 2010 | | Short-term debt | | | 16 | % | | | 23 | % | Long-term debt | | | 43 | | | | 37 | | Total debt | | | 59 | | | | 60 | | Equity | | | 41 | | | | 40 | | Total capitalization | | | 100 | % | | | 100 | % |
Cash Flows
The following table provides a summary of our operating, investing and financing cash flows for the last three years.
In millions | | 2011 | | | 2010 | | | 2009 | | Net cash provided by (used in): | | | | | Operating activities | | $ | 451 | | | $ | 526 | | | $ | 592 | | Investing activities | | | (1,339 | ) | | | (442 | ) | | | (476 | ) | Financing activities | | | 933 | | | | (86 | ) | | | (106 | ) | Net increase (decrease) in cash and cash equivalents | | | 45 | | | | (2 | ) | | | 10 | | Cash and cash equivalent at beginning of period | | | 24 | | | | 26 | | | | 16 | | Cash and cash equivalent at end of period | | $ | 69 | | | $ | 24 | | | $ | 26 | |
Cash Flow from Operating Activities We prepare our Consolidated Statements of Cash Flows using the indirect method. Under this method, we reconcile net income to cash flows from operating activities by adjusting net income for those items that impact net income but may not result in actual cash receipts or payments during the period. These reconciling items include depreciation and amortization, changes in derivative instrument assets and liabilities, deferred income taxes and changes in the Consolidated Statements of Financial Position for working capital from the beginning to the end of the period.
Year-over-year changes in our operating cash flows are primarily due to working capital changes within our distribution operations, retail operations and wholesale services segments resulting from the impact of weather, the price of natural gas, natural gas storage, the timing of customer collections, payments for natural gas purchases and deferred gas cost recoveries. The increase or decrease in the price of natural gas directly impacts the cost of gas stored in inventory.
2011 compared to 2010 In 2011, our net cash flow provided from operating activities was $451 million, a decrease of $75 million or 14% from 2010. This decrease was primarily a result of merger-related expenses in 2011 of $68 million and the payment of $22 million of Nicor deferred compensation plans and $12 million of Nicor financial advisor fees. Our gas and trade payables required $58 million more of cash compared to 2010, primarily related to our subsidiaries acquired as part of the Nicor merger. Additionally, we had a $69 million decrease in operating cash flow from loaned gas activities associated with park and loan gas transactions in part due to fewer opportunities resulting from a weakening of storage price differentials.
These decreases in our cash flow from operating activities were partially offset by $125 million increase in cash received from inventories. The $158 million is primarily due to Nicor Gas net inventory withdrawals of $89 million in the period after merger closing through December 31, 2011 and by overall lower average cost of gas inventory and lower volumes of gas inventory for our other subsidiaries.
2010 compared to 2009 In 2010, our net cash flow provided from operating activities was $526 million, a decrease of $66 million, or 11%, from 2009. This decrease was primarily a result of colder weather in the fourth quarter of 2010 as compared to 2009 within most of our service areas. As a result, the use of working capital for our gas receivables increased $134 million due to increased volumes sold to our customers.
We also refunded an additional $38 million to our utility customers for billed commodity costs compared to 2009 as natural gas commodity cost recovery rates charged to customers were reduced as under-recovered amounts were collected in part due to the decline in natural gas prices.
This increased use of operating cash flow was mostly offset by decreased working capital used by Sequent of $128 million for its energy marketing activities, resulting from the timing of payments for gas purchases relative to collections of accounts receivable and an increase in Sequent’s daily physical sales.
Cash Flow from Investing Activities Our net cash used in investing activities consisted primarily of our $912 million payment for the cash portion of the purchase consideration, net of cash that was acquired in the Nicor merger. Additionally, we incurred PP&E expenditures, the majority of which were within our distribution operations and midstream operations segments. Our estimated PP&E expenditures for 2012 and our actual PP&E expenditures incurred in 2011, 2010 and 2009 are shown within the following categories and are presented in the table below.
· | Distribution business – primarily includes new construction and infrastructure improvements
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· | Regulatory infrastructure programs – programs that update or expand our distribution systems and liquefied natural gas facilities to improve system reliability and meet operational flexibility and growth. These programs include the pipeline replacement program and STRIDE at Atlanta Gas Light and Elizabethtown Gas’ utility infrastructure enhancements program
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· | Pipeline projects – projects include (i) Hampton Roads, a Virginia Natural Gas’ pipeline project, which connects its northern and southern systems and (ii) Magnolia Pipeline, which diversifies our sources of natural gas by connecting our Georgia service territory to the Elba Island LNG terminal
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· | Natural gas storage – additional underground natural gas storage at Golden Triangle Storage, Jefferson Island and Central Valley
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· | Other – primarily includes cargo shipping, information technology and building and leasehold improvements
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In millions | | 2012 (1) | | | 2011 (2) | | | 2010 | | | 2009 | | Distribution business | | $ | 376 | | | $ | 159 | | | $ | 159 | | | $ | 132 | | Regulatory infrastructure programs | | | 286 | | | | 192 | | | | 186 | | | | 76 | | Pipeline projects | | | 0 | | | | 0 | | | | 3 | | | | 136 | | Natural gas storage | | | 66 | | | | 22 | | | | 114 | | | | 95 | | Other | | | 81 | | | | 54 | | | | 48 | | | | 37 | | Total | | $ | 809 | | | $ | 427 | | | $ | 510 | | | $ | 476 | |
(1) | Estimated PP&E expenditures. |
(2) | Only includes Nicor expenditures subsequent to the merger date of December 9, 2011. |
Our PP&E expenditures were $427 million for the year ended December 31, 2011, compared to $510 million for the same period in 2010. This decrease of $83 million, or 16%, was primarily due to a $98 million decrease in expenditures for the construction of the Golden Triangle Storage natural gas storage facility due to completion of base infrastructure spending and completion of the first cavern. This was partially offset by capital expenditures of $13 million at Nicor Gas and $6 million at Central Valley that were incurred subsequent to merger closing.
Our PP&E expenditures were $510 million for the year ended December 31, 2010, compared to $476 million for the same period in 2009. This increase of $34 million, or 7%, was primarily due to a $19 million increase in expenditures for the construction of the Golden Triangle Storage natural gas storage facility, $26 million in expenditures for Elizabethtown Gas’ utility infrastructure enhancements program, $84 million in expenditures for STRIDE and $38 million in other capital projects in distribution operations. This was offset by reduced expenditures of $133 million for the Hampton Roads and Magnolia projects, for which construction was substantially completed in 2009. The higher capital expenditures were further offset by $73 million in proceeds from the disposition of assets.
Our estimated expenditures for 2012 include discretionary spending for capital projects principally within the distribution business, regulatory infrastructure programs and other categories. We continually evaluate whether to proceed with these projects, reviewing them in relation to factors including our authorized returns on rate base, other returns on invested capital for projects of a similar nature, capital structure and credit ratings, among others. We will make adjustments to these discretionary expenditures as necessary based upon these factors.
Cash Flow from Financing Activities Our capitalization and financing strategy is intended to ensure that we are properly capitalized with the appropriate mix of equity and debt securities. This strategy includes active management of the percentage of total debt relative to total capitalization, appropriate mix of debt with fixed to floating interest rates (our variable debt target is 20% to 45% of total debt), as well as the term and interest rate profile of our debt securities.
On May 4, 2011, we entered into interest rate swaps with an aggregate notional amount of $250 million to effectively convert a portion of our $300 million 6.4% fixed-rate senior notes that mature July 2016 to a variable-rate obligation. As of December 31, 2011, we also held forward-starting interest rate swaps totaling $90 million that were redesignated as cash flow hedges upon the close of the merger. Under the terms of the swaps, we agree to pay a fixed swap rate and receive a floating rate based on LIBOR.
As of December 31, 2011,2013, our variable-rate debt was $1.7$1.4 billion, or 36%28%, of our total debt, compared to $892 million,$1.5 billion, or 33%32%, as of December 31, 2010. This increase2012. The decrease was primarily due to increaseddecreased commercial paper borrowings as of year-end and the $250 million interest rate swaps, both of which increased our ratio of variable rate debt. As of December 31, 2011, our commercial paper borrowings of $1.3 billion were 80% higher than the same time last year, primarily a result of the additional short-term debt that we assumed from the Nicor merger and higher working capital requirements.borrowings. For more information on our debt, see Note 8 to our consolidated financial statements under Item 8 herein.herein.
Our cash providedWe will continue to evaluate our need to increase available liquidity based on our view of working capital requirements, including the impact of changes in natural gas prices, liquidity requirements established by financing activities was $933 million in 2011 compared to cash used of $86 million in 2010. The increase in net cash flow provided by financing activities of $1.0 billion was primarily due torating agencies and other factors. See Item 1A, “Risk Factors,” for additional information on items that could impact our $1.3 billion of long-term debt issued, discussed below,liquidity and increased commercial paper borrowings of $91 million in 2011 compared to 2010. This was partially offset by payment for a senior note maturity of $300 million, decreased distribution to the noncontrolling interest of $11 million and increased dividends paid on common shares of $15 million.capital resource requirements.
Short-term Debt OurThe following table provides additional information on our short-term debt as of December 31, 2011 was comprised of borrowings under our commercial paper programs and current portions of our senior notes and capital leases.throughout the year.
In millions | | Year-end balance outstanding (1) | | | Daily average balance outstanding (2) | | | Minimum balance outstanding (2) | | | Largest balance outstanding (2) | | Commercial paper - AGL Capital (3) (4) | | $ | 869 | | | $ | 324 | | | $ | 0 | | | $ | 1,179 | | Commercial paper - Nicor Gas (5) | | | 452 | | | | 456 | | | | 410 | | | | 514 | | Senior notes | | | 15 | | | | 20 | | | | 0 | | | | 300 | | Capital leases | | | 2 | | | | 2 | | | | 2 | | | | 2 | | Term loan facility (3) | | | 0 | | | | 12 | | | | 0 | | | | 150 | | Total short-term debt | | $ | 1,338 | | | $ | 814 | | | $ | 412 | | | $ | 2,145 | |
In millions | | Year-end balance outstanding (1) | | | Daily average balance outstanding (2) | | | Minimum balance outstanding (2) | | | Largest balance outstanding (2) | | Commercial paper - AGL Capital | | $ | 857 | | | $ | 777 | | | $ | 380 | | | $ | 1,064 | | Commercial paper - Nicor Gas | | | 314 | | | | 99 | | | | - | | | | 340 | | Senior Notes - Current Portion | | | - | | | | 64 | | | | - | | | | 225 | | Capital leases - Current Portion | | | - | | | | - | | | | - | | | | 1 | | Total short-term debt and current portions of long-term debt and capital leases | | $ | 1,171 | | | $ | 940 | | | $ | 380 | | | $ | 1,630 | |
(1) | As of December 31, 2011.2013. |
(2) | For the yeartwelve months ended December 31, 2011, with the exception of the Nicor Gas commercial paper program, which is for the period December 10, 2011 – December 31, 2011.2013. The minimum and largest balances outstanding for each short-term debt instrument occurred at different times during the year and thus. Consequently, the total balances are not indicative of actual borrowings on any one day during the year. |
(3) | During 2011, our short-term debt balances were impacted by our $300 million senior notes, which matured in January 2011. These senior notes were initially repaid with a $150 million funding under our Term Loan Facility and borrowings under our AGL Capital commercial paper program. In February 2011, the Term Loan Facility was repaid through additional AGL Capital commercial paper borrowings at which time the Term Loan Facility expired. |
(4) | During 2011, we completed $1,275 million in senior note offerings to repay our maturing long-term debt of $300 million and for the approximate $980 million in cash payments made for the Nicor merger consideration. Prior to the closing of the merger, a portion of the proceeds were used to reduce outstanding AGL Capital commercial paper. |
(5) | We assumed approximately $424 million in commercial paper borrowings as of the closing of the Nicor merger. |
The largest, minimum and daily average balances borrowed under our commercial paper programs are important when assessing the intra-period fluctuationfluctuations of our short-term borrowings and potential liquidity risk. Our year-end short-term debt outstanding and our largest short-term debt balance outstanding were significantly higher than our average short-term debt outstanding during 2011The fluctuations are due to our seasonal cash requirements.requirements to fund working capital needs, in particular the purchase of natural gas inventory, margin calls and collateral.
Such cashCash requirements generally increase between June and December as we purchase natural gas in advance of the Heating Season. The timing differences of when we pay our suppliers for natural gas purchases and when we recover our costs from our customers through their monthly bills can significantly affect our cash requirements. Our short-term debt balances are typically reduced during the Heating Season, as a significant portion of our current assets, primarily natural gas inventories, are converted into cash.
Additionally, increasing natural gas commodity prices can have a significant impact on our commercial paper borrowings. Based on current natural gas prices and our expected injection plan, a $1 increase or decrease per thousand cubic feet of natural gas could result in a $200 million change of working capital requirements during the peak of the Heating Season. This range is sensitive to the timing of storage injections and withdrawals, collateral requirements and our portfolio position.The AGL Credit Facility and the Nicor Gas Credit Facility can be drawn upon to meet working capital and other general corporate needs. The interest rates payable on borrowings under these facilities are calculated either at the alternative base rate, plus an applicable margin, or LIBOR, plus an applicable interest margin. The applicable interest margin used in both interest rate calculations will vary according to AGL Capital’s and Nicor Gas’ current credit ratings. |
In November 2013, the lenders for our two credit facilities consented to our request to extend the maturity date of each facility by one year, in accordance with the terms of the respective agreements. The AGL Credit Facility and Nicor Gas Credit Facility maturity dates were extended to November 10, 2017 and December 15, 2017, respectively. The terms, conditions and pricing under the agreements remain unchanged. At December 31, 2013 and 2012, we had no outstanding borrowings under either credit facility. |
On November 10, 2011, the existing AGL Credit Facility was amended to increase the available principal to $1.3 billion in support of the AGL Capital commercial paper program. On December 15, 2011, Nicor Gas entered into a $700 million revolving credit facility to support the Nicor Gas commercial paper program. The AGL Credit Facility and the Nicor Gas Credit Facility can be drawn upon to meet working capital and other general corporate needs. The interest rates payable on borrowings under these facilities are calculated either at the alternative base rate, plus an applicable margin, or LIBOR, plus an applicable interest margin. The applicable interest margin used in both interest rate calculations will vary according to AGL Capital’s and Nicor Gas’ current credit ratings. At December 31, 2011, we had no outstanding borrowings under either of these facilities. SouthStar’s five-year $75 million unsecured credit facility expired in November 2011.
The timing of natural gas withdrawals is dependent on the weather and natural gas market conditions, both of which impact the price of natural gas. Increasing natural gas commodity prices can have a significant impact on our commercial paper borrowings. Based on current natural gas prices and our expected purchases during the upcoming injection season, we believe that we have sufficient liquidity to cover our working capital needs for the upcoming Heating Season.needs.
The lenders under our credit facilities and lines of credit are major financial institutions with approximately $2.2 billion of committed balances and all havehad investment grade credit ratings as of December 31, 2011.2013. It is possible that one or more lending commitments could be unavailable to us if the lender defaulted due to lack of funds or insolvency. However, based on our current assessment of our lenders’ creditworthiness, we believe the risk of lender default is minimal. Commercial paper borrowings reduce availability of these credit facilities.
Long-term Debt Our long-term debt matures more than one year from December 31, 2011,2013 and consistedconsists of medium-term notes: Series A, Series B, and Series C, which we issued under an indenture duringdated December 1989,1989; senior notes,notes; first mortgage bonds,bonds; and gas facility revenue bonds and capital leases.bonds.
Our long-term cash requirements primarily depend upon the level of capital expenditures, long-term debt maturities and decisions to refinance long-term debt. The following representstable summarizes our long-term debt activityissuances over the last three years.
| Issuance Date | | Amount (in millions) | | | Term (in years) | | | Interest rate | | Senior notes (1) | March 2011 | | $ | 500 | | | | 30 | | | | 5.9 | % | Senior notes (2) | September 2011 | | $ | 200 | | | | 30 | | | | 5.9 | % | Senior notes (2) | September 2011 | | $ | 300 | | | | 10 | | | | 3.5 | % | Senior notes – Series A (2) | October 2011 | | $ | 120 | | | | 5 | | | | 1.9 | % | Senior notes – Series B (2) | October 2011 | | $ | 155 | | | | 7 | | | | 3.5 | % | Gas facility revenue bonds (3) | October 2010 | | $ | 160 | | | | 11 – 21 | | | | reset daily | | Senior notes (4) | August 2009 | | $ | 300 | | | | 10 | | | | 5.25 | % |
| | Issuance Date | | | Amount (in millions) | | | Term (in years) | | | Interest rate | | Gas facility revenue bonds | | (1) | | | $ | 200 | | | | 10-20 | | | Floating rate | | Senior notes (2) | | May 2013 | | | $ | 500 | | | | 30 | | | | 4.4 | % | Senior notes - Series A (3) (4) | | October 2011 | | | $ | 120 | | | | 5 | | | | 1.9 | % | Senior notes - Series B (3) | | October 2011 | | | $ | 155 | | | | 7 | | | | 3.5 | % | Senior notes (3) | | September 2011 | | | $ | 200 | | | | 30 | | | | 5.9 | % | Senior notes (3) | | September 2011 | | | $ | 300 | | | | 10 | | | | 3.5 | % | Senior notes (5) | | March 2011 | | | $ | 500 | | | | 30 | | | | 5.9 | % |
(1) | During the first quarter of 2013, we refinanced the gas facility revenue bonds. We had no cash receipts or payments in connection with the refinancing. See Note 8 to our consolidated financial statements under Item 8 herein for more information. |
(2) | The net proceeds were used to repay oura portion of AGL Capital’s commercial paper, andincluding $225 million we borrowed to repay our senior notes that matured on April 15, 2013. |
(3) | The net proceeds were used to pay a portion of the cash consideration and expenses incurred in connection with the Nicor merger. |
(4) | In October 2014 the interest rate for these senior notes will change to a floating rate. |
(5) | The net proceeds were used to repay a portion of AGL Capital’s commercial paper, including $300 million inwe borrowed to repay our senior notes that matured on January 14, 2011. The remaining proceeds were used to pay a portion of the cash consideration and expenses incurred in connection with the Nicor merger. |
Credit Ratings Our borrowing costs and our ability to obtain adequate and cost-effective financing are directly impacted by our credit ratings, as well as the availability of financial markets. Credit ratings are important to our counterparties when we engage in certain transactions, including OTC derivatives. It is our long-term objective to maintain or improve our credit ratings in order to manage our existing financing costs and enhance our ability to raise additional capital on favorable terms.
Credit ratings and outlooks are opinions subject to ongoing review by the rating agencies and may periodically change. The rating agencies regularly review our financial performance and financial condition and reevaluate their ratings of our long-term debt and short-term borrowings, our corporate ratings and our ratings outlook. There is no guarantee that a rating will remain in effect for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency if, in its judgment, circumstances so warrant. A credit rating is not a recommendation to buy, sell or hold securities and each rating should be evaluated independently of other ratings.
Factors we consider important to assessing our credit ratings include our Consolidated Statements of Financial Position, leverage, capital spending, earnings, cash flow generation, available liquidity and overall business risks. We do not have any triggering events in our debt instruments that are tied to changes in our specified credit ratings or our stock price and have not entered into any agreements that would require us to issue equity based on credit ratings or other trigger events. As of December 31, 2013, if our credit rating had fallen below investment grade, we would have been required to provide collateral of $11 million to continue conducting business with certain customers. The following table summarizes our credit ratings as of January 31, 2014 and reflects upgrades by Moody’s for certain of our ratings compared to December 31, 2012.
(2) | The net proceeds were used | AGL Resources | | | Nicor Gas | | | | S&P | | | Moody’s | | | Fitch | | | S&P | | | Moody’s | | | Fitch | | Corporate rating | | BBB+ | | | | n/a | | | BBB+ | | | BBB+ | | | | n/a | | | | A | | Commercial paper | | | A-2 | | | | P-2 | | | | F2 | | | | A-2 | | | | P-1 | | | | F1 | | Senior unsecured | | BBB+ | | | | A3 | | | BBB+ | | | BBB+ | | | | A2 | | | | A+ | | Senior secured | | | n/a | | | | n/a | | | | n/a | | | | A | | | Aa3 | | | AA- | | Ratings outlook | | Stable | | | Stable | | | Stable | | | Stable | | | Stable | | | Stable | |
A downgrade in our current ratings, particularly below investment grade, would increase our borrowing costs and could limit our access to the commercial paper market. In addition, we would likely be required to pay a higher interest rate in future financings, and our potential pool of investors and funding sources could decrease.
Default Provisions Our debt instruments and other financial obligations include provisions that, if not complied with, could require early payment or similar actions. Our credit facilities contain customary events of default, including, but not limited to, the failure to comply with certain affirmative and negative covenants, cross-defaults to certain other material indebtedness and a change of control.
Our credit facilities contain certain non-financial covenants that, among other things, restrict liens and encumbrances, loans and investments, acquisitions, dividends and other restricted payments, asset dispositions, mergers and consolidations, and other matters customarily restricted in such agreements.
Our credit facilities each include a financial covenant that requires us to maintain a ratio of total debt to total capitalization of no more than 70% at the end of any fiscal month. However, we typically seek to maintain these ratios at levels between 50% and 60%, except for temporary increases related to the timing of acquisition and financing activities. Adjusting for these items, the following table contains our debt-to-capitalization ratios for December 31, which are below the maximum allowed.
| | AGL Resources | | | Nicor Gas | | | | 2013 | | | 2012 | | | 2013 | | | 2012 | | Debt-to-capitalization ratio as calculated from our Consolidated Statement of Financial Position | | | 58 | % | | | 59 | % | | | 54 | % | | | 55 | % | Adjustments (1) | | | (1 | ) | | | (1 | ) | | | 1 | | | | - | | Debt-to-capitalization ratio as calculated from our credit facilities | | | 57 | % | | | 58 | % | | | 55 | % | | | 55 | % |
(1) | As defined in credit facilities, includes standby letters of credit, performance/surety bonds and excludes accumulated OCI items related to pay a portion of thenon-cash pension adjustments, other post-retirement benefits liability adjustments and accounting adjustments for cash considerationflow hedges. |
We were in compliance with all of our debt provisions and covenants, both financial and non-financial, as of December 31, 2013 and 2012. For more information on our default provisions, see Note 8 to our consolidated financial statements under Item 8 herein.
Cash Flows
We prepare our Consolidated Statements of Cash Flows using the indirect method. Under this method, we reconcile net income to cash flows from operating activities by adjusting net income for those items that impact net income but may not result in actual cash receipts or payments during the period. These reconciling items include depreciation and amortization, changes in derivative instrument assets and liabilities, deferred income taxes, gains or losses on the sale of assets and changes in the Consolidated Statements of Financial Position for working capital from the beginning to the end of the period. The following table provides a summary of our operating, investing and financing cash flows for the last three years.
In millions | | 2013 | | | 2012 | | | 2011 | | Net cash provided by (used in): | | | | | Operating activities | | $ | 971 | | | $ | 1,003 | | | $ | 451 | | Investing activities | | | (876 | ) | | | (786 | ) | | | (1,339 | ) | Financing activities | | | (121 | ) | | | (155 | ) | | | 933 | | Net (decrease) increase in cash and cash equivalents | | | (26 | ) | | | 62 | | | | 45 | | Cash and cash equivalents at beginning of period | | | 131 | | | | 69 | | | | 24 | | Cash and cash equivalents at end of period | | $ | 105 | | | $ | 131 | | | $ | 69 | |
Cash Flow from Operating Activities 2013 compared to 2012 Our net cash flow provided by operating activities in 2013 was $971 million, a decrease of $32 million or 3% from 2012. The decrease was primarily related to decreased cash provided by (i) receivables, other than energy marketing, due to colder weather in 2013, which resulted in higher volumes primarily at distribution operations and retail operations that will be collected in future periods and (ii) deferred income taxes, due to the net change in mark to market activity at wholesale services combined with less cash provided from accelerated tax depreciation in 2013 than in 2012. This decrease in cash provided by operating activities was partially offset by increased cash provided by (i) lower payments for incentive compensation in 2013 as a result of reduced earnings in 2012 as compared to 2011 and (ii) trade payables, other than energy marketing, due to higher gas purchase volumes primarily at distribution operations and retail operations resulting from colder weather in 2013.
2012 compared to 2011 Our net cash flow provided by operating activities in 2012 was $1,003 million, an increase of $552 million or 122% from 2011. The increase was primarily related to the recovery of working capital from the companies acquired in the December 2011 merger with Nicor. Cash provided by operations changed $89 million driven by derivative financial instrument assets and liabilities, primarily a result of the change in forward NYMEX prices at wholesale services year-over-year, and $70 million driven by a decrease in Sequent's park and loan gas transactions due to lower volumes and decreased prices. Additionally, we had a $26 million increase in operating cash flow from Elizabethtown Gas’ recoverable derivative position as a result of changes in forward NYMEX prices. These increases were partially offset by a decrease in recovery of working capital during 2012 as a result of warmer-than-normal weather. Our increased operating cash flow in 2012 was also impacted by a decrease in cash used for margin deposits of $94 million due to the change in cash collateral value on our hedged positions and a $121 million decrease in trade payables mainly due to lower natural gas prices and purchased volumes in 2012.
Cash Flow from Investing Activities The increase in net cash flow used in investing activities was primarily a result of our $122 million acquisition of customer service contracts during the first quarter of 2013 and our $32 million acquisition of residential and commercial energy customer relationships in Illinois during the second quarter of 2013, both in our retail operations segment. This increase was partially offset by decreased spending for PP&E expenditures of $33 million, a net decrease in short-term investments of $12 million and $12 million from the sale of Compass Energy.
Our estimated PP&E expenditures for 2014 and our actual PP&E expenditures incurred in 2013, 2012 and 2011 are within the following categories and are quantified in the following table. · | Distribution business- primarily includes new construction and expenses incurred in connection with the Nicor merger.infrastructure improvements |
(3)· | We entered into new agreements with remarketing agentsRegulatory infrastructure programs- programs that update or expand our distribution systems and liquefied natural gas facilities to resell the bonds to investors,improve system reliability and established new letters of credit to provide credit enhancement to the bonds.meet operational flexibility and growth. These programs include STRIDE at Atlanta Gas Light, SAVE at Virginia Natural Gas, and an enhanced infrastructure program at Elizabethtown Gas |
(4)· | The net proceeds were usedNatural gas storage - underground natural gas storage facilities at Golden Triangle, Jefferson Island and Central Valley |
· | Other- primarily includes cargo shipping, information technology and building and leasehold improvements |
In millions | | 2014 (1) | | | 2013 | | | 2012 | | | 2011 (2) | | Distribution business | | $ | 503 | | | $ | 421 | | | $ | 371 | | | $ | 159 | | Regulatory infrastructure programs | | | 163 | | | | 226 | | | | 263 | | | | 192 | | Natural gas storage | | | 4 | | | | 6 | | | | 55 | | | | 22 | | Other | | | 120 | | | | 96 | | | | 93 | | | | 54 | | Total | | $ | 790 | | | $ | 749 | | | $ | 782 | | | $ | 427 | |
(1) | Estimated PP&E expenditures. |
(2) | Only includes Nicor expenditures subsequent to repay a portionthe merger date of our commercial paper.December 9, 2011. |
Our PP&E expenditures were $749 million for the year ended December 31, 2013, compared to $782 million for the same period in 2012.The decrease of $33 million, or 4%, was primarily due to decreased spending of $49 million on our natural gas storage projects consisting of $35 million at Central Valley and $14 million at Golden Triangle. Additionally, capital expenditures decreased $35 million for strategic projects and $16 million for utility infrastructure enhancement projects at Elizabethtown Gas. These decreases were partially offset by increased expenditures of $54 million for regulatory infrastructure programs at Atlanta Gas Light and $9 million for accelerated infrastructure replacement program projects at Virginia Natural Gas.
Our PP&E expenditures were $782 million for the year ended December 31, 2012, compared to $427 million for the same period in 2011.The increase of $355 million, or 83%, was primarily due to $188 million of PP&E expenditures at Nicor Gas and $31 million of PP&E expenditures at Central Valley, both of which were acquired through our merger with Nicor in December 2011. Additionally, capital expenditures increased $63 million for pipeline replacement projects, $21 million for i-SRP projects and $10 million for i-CGP projects at Atlanta Gas Light, as well as $16 million for accelerated infrastructure replacement program projects at Virginia Natural Gas.
Our estimated expenditures for 2014 include discretionary spending for capital projects principally within the distribution business, regulatory infrastructure programs, natural gas storage and other categories. We continuously evaluate whether or not to proceed with these projects, reviewing them in relation to various factors, including our authorized returns on rate base, other returns on invested capital for projects of a similar nature, capital structure and credit ratings, among others. We will make adjustments to these discretionary expenditures as necessary based upon these factors.
Cash Flow from Financing Activities During 2013, we refinanced $200 million of our outstanding tax-exempt gas facility revenue bonds, $180 million of which were previously issued by the New Jersey Economic Development Authority and $20 million of which were previously issued by Brevard County, Florida. The refinancing involved a combination of the issuance of $60 million of refunding bonds to and the purchase of $140 million of existing bonds by a syndicate of banks. Our relationship with the syndicate of banks regarding the bonds is governed by an agreement that contains representations, warranties, covenants and default provisions consistent with our other financing arrangements. All of the bonds remain floating-rate instruments and we anticipate interest expense savings of approximately $2 million annually over the 5.5 year term of the agreement. AGL Resources had no cash receipts or payments in connection with the refinancing. The letters of credit providing credit support for the retired bonds, along with other related agreements, were terminated as a result of the refinancing.
In April 2013, our $225 million 4.45% senior notes matured. Repayment of these senior notes was funded through our commercial paper program. In May 2013, we issued $500 million in 30-year senior notes with net proceeds of $494 million used to repay a portion of AGL Capital’s commercial paper, including $225 million we borrowed to repay our senior notes that matured in April 2013.
Nicor Merger Financing The total value of the consideration paid to Nicor common shareholders was $2.5 billion. Upon closing the merger, we assumed the first mortgage bonds of Nicor Gas, which at December 31, 2011 had principal balances totaling $500 million and maturity dates between 2016 and 2038. These bonds were recorded at their estimated fair value of $599 million on the date the merger closed. Additionally, we assumed $424 million in short-term debt upon closing the merger.
During 2011, we secured the permanent debt financing we used to pay the cash portion of the purchase consideration. This included approximately $200 million from our $500 million in senior notes that were issued in March 2011, $500 million in senior notes that were issued in September 2011, and $275 million in senior unsecured notes that were issued in the private placement market in October 2011.
For more information on our financing activities, see short and long-term debt within “Liquidity and Capital Resources.”
Noncontrolling Interest We recorded cash distributions for SouthStar’s dividend distributions to Piedmont of $17 million in 2013, $14 million in 2012 and $16 million in 2011 $27 million in 2010 and $20 million in 2009 in our Consolidated StatementStatements of Cash Flows as financing activities.activities. The primary reason for the reductionincrease in the distribution to Piedmont during the current year is duewas increased earnings for 2012 compared to 2011 and a distribution of excess working capital from the joint venture in 2013. Additionally, we received $22.5 million from Piedmont in 2013 to maintain their 15% ownership interest after we contributed our increased ownership percentage inIllinois Energy business to the SouthStar in 2010. The 2010 distribution was paid on 2009 earnings.joint venture.
Dividends on Common Stock Our common stock dividend payments were $222 million in 2013, $203 million in 2012 and $148 million in 2011, $133 million in 2010 and $127 million in 2009.2011. The increases were generally the result of the annual dividend increasesincrease of $0.04 per share for each of the last three years. However, as a result of the Nicor merger, AGL Resources shareholders of record as of the close of business on December 8, 2011 received a pro rata dividend of $0.0989 per share for the stub period, accruingwhich accrued from November 19, 2011 totalingand totaled $7 million. The dividend payments made in February 2012 were reduced by this stub period dividend. For information about restrictions on our ability to pay dividends on our common stock, see Note 9 to our consolidated financial statements under Item 8 herein.
In addition, in conjunction with the Nicor merger we issued 38.2 million shares
Treasury Shares In February 2006, our Board of Directors authorized a plan to purchase up to 8 million shares of our outstanding common stock over a five-year period. These purchases are intended principally to offset share issuances under our employee and non-employee director incentive compensation plans and our dividend reinvestment and stock purchase plans. Stock purchases under this program may be made in the open market or in private transactions at times and in amounts that we deem appropriate. There is no guarantee as to the exact number of common shares that we will purchase, and we can terminate or limit the program at any time. This program expired in January 2011.Contents
For the year ended December 31, 2011, we purchased 65,250 shares of our common stock at a weighted average cost of $36.25 per common share and an aggregate cost of $2 million. For the years ended December 31, 2010 and 2009, we did not purchase shares of our common stock. We currently anticipate holding the purchased shares as treasury shares. For more information on our common share repurchases see Item 5 “Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”
Shelf Registration On August 17, 2010,In July 2013, we filed a shelf registration statement with the SEC, which expires in 2013. Debt2016. Under this shelf registration statement, debt securities will be issued by AGL Capital and related guarantees issued under the shelf registration will be issued by AGL CapitalResources under an indenture dated as of February 20, 2001, as supplemented and modified, as necessary, among AGL Capital, AGL Resources and The Bank of New York Mellon Trust Company, N.A., as trustee. The indenture provides for the issuance from time to time of debt securities in an unlimited dollar amount and an unlimited number of series, subject to our AGL Credit Facility and Term Loan Facility financial covenantscovenant related to total debt to total capitalization. The debt securities will be guaranteed by AGL Resources.
On February 25, 2009, Nicor Gas filed a shelf registration with a capacity of $225 million with the SEC, which expires in March, 2012. First mortgage bonds issued under the shelf registration will be issued by Nicor Gas under an indenture dated as of January 1, 1954, as supplemented and modified, as necessary, among Northern Illinois Gas Company doing business as Nicor Gas Company and The Bank of New York Mellon Trust Company, N.A., as trustee. At December 31, 2011, Nicor Gas had the capacity to issue approximately $480 million of additional first mortgage bonds under the terms of its indenture.
Off-balance sheet arrangements We have certain guarantees, as further described in Note 11 to our consolidated financial statements under Item 8 herein. We believe the likelihood of any such payment under these guarantees is remote. No liability has been recorded for these guarantees.
Contractual Obligations and Commitments We have incurred various contractual obligations and financial commitments in the normal course of our operating and financing activitiesbusiness that are reasonably likely to have a material effect on liquidity or the availability of requirements for capital resources. Contractual obligations include future cash payments required under existing contractual arrangements, such as debt and lease agreements. These obligations may result from both general financing activities and from commercial arrangements that are directly supported by related revenue-producing activities. Contingent financial commitments represent obligations that become payable only if certain predefined events occur, such as financial guarantees, and include the nature of the guarantee and the maximum potential amount of future payments that could be required of us as the guarantor.
The following table illustrates our expected future contractual obligation payments such as debt and lease agreements, and commitments and contingencies as of December 31, 2011.2013.
| | | | | | | | | | | | | | | | | | | | 2017 & | | | | | | | | | | | | | | | | | | | | | 2019 & | | In millions | | Total | | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | thereafter | | | Total | | | 2014 | | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | thereafter | | Recorded contractual obligations: | | | | | | | | | | | | | | | | | | | | | | | Recorded contractual obligations: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Long-term debt (1) | | $ | 3,431 | | | $ | 0 | | | $ | 225 | | | $ | 0 | | | $ | 200 | | | $ | 545 | | | $ | 2,461 | | | $ | 3,706 | | | $ | - | | | $ | 200 | | | $ | 545 | | | $ | 22 | | | $ | 155 | | | $ | 2,784 | | Short-term debt (2) | | | 1,338 | | | | 1,338 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 1,171 | | | | 1,171 | | | | - | | | | - | | | | - | | | | - | | | | - | | Pipeline replacement program costs (3) | | | 276 | | | | 131 | | | | 145 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | Environmental remediation liabilities (3) | | | 327 | | | | 37 | | | | 66 | | | | 55 | | | | 45 | | | | 32 | | | | 92 | | | Environmental remediation liabilities (2) | | | | 447 | | | | 70 | | | | 82 | | | | 80 | | | | 48 | | | | 63 | | | | 104 | | Pipeline replacement program costs (2) | | | | 5 | | | | 5 | | | | - | | | | - | | | | - | | | | - | | | | - | | Total | | $ | 5,372 | | | $ | 1,506 | | | $ | 436 | | | $ | 55 | | | $ | 245 | | | $ | 577 | | | $ | 2,553 | | | $ | 5,329 | | | $ | 1,246 | | | $ | 282 | | | $ | 625 | | | $ | 70 | | | $ | 218 | | | $ | 2,888 | |
Unrecorded contractual obligations and commitments (4) (9) (10): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrecorded contractual obligations and commitments (3) (8): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pipeline charges, storage capacity and gas supply (5)(4) | | $ | 2,263 | | | $ | 781 | | | $ | 494 | | | $ | 269 | | | $ | 164 | | | $ | 85 | | | $ | 470 | | | $ | 2,298 | | | $ | 733 | | | $ | 507 | | | $ | 299 | | | $ | 138 | | | $ | 102 | | | $ | 519 | | Interest charges (6)(5) | | | 2,581 | | | | 169 | | | | 161 | | | | 158 | | | | 149 | | | | 137 | | | | 1,807 | | | | 2,899 | | | | 185 | | | | 175 | | | | 161 | | | | 147 | | | | 145 | | | | 2,086 | | Operating leases (7)(6) | | | 220 | | | | 32 | | | | 25 | | | | 20 | | | | 19 | | | | 18 | | | | 106 | | | | 233 | | | | 39 | | | | 34 | | | | 28 | | | | 25 | | | | 18 | | | | 89 | | Asset management agreements (8)(7) | | | 26 | | | | 11 | | | | 9 | | | | 3 | | | | 2 | | | | 1 | | | | 0 | | | | 19 | | | | 8 | | | | 5 | | | | 4 | | | | 2 | | | | - | | | | - | | Standby letters of credit, performance / surety bonds (9) | | | 22 | | | | 18 | | | | 4 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | Standby letters of credit, performance/surety bonds (8) | | | | 29 | | | | 29 | | | | - | | | | - | | | | - | | | | - | | | | - | | Other | | | 14 | | | | 5 | | | | 3 | | | | 2 | | | | 2 | | | | 2 | | | | 0 | | | | 15 | | | | 6 | | | | 3 | | | | 3 | | | | 2 | | | | 1 | | | | - | | Total | | $ | 5,126 | | | $ | 1,016 | | | $ | 696 | | | $ | 452 | | | $ | 336 | | | $ | 243 | | | $ | 2,383 | | | $ | 5,493 | | | $ | 1,000 | | | $ | 724 | | | $ | 495 | | | $ | 314 | | | $ | 266 | | | $ | 2,694 | |
(1) | Excludes the $99$82 million step up to fair value of first mortgage bonds, $18$16 million unamortized debt premium and $13$9 million interest rate swaps fair value adjustment. |
(2) | Includes current portion of long-term debt of $15 million which matures in June 2012. |
(3) | Includes charges recoverable through base rates or rate rider mechanisms. |
(4)(3) | In accordance with GAAP, these items are not reflected in our Consolidated Statements of Financial Position. |
(5)(4) | Includes charges recoverable through a natural gas cost recovery mechanism or alternatively billed to Marketers and demand charges associated with Sequent. The gas supply amountbalance includes amounts for Nicor Gas and SouthStar gas commodity purchase commitments of 6731 Bcf at floating gas prices calculated using forward natural gas prices as of December 31, 2011,2013, and is valued at $222$136 million. As we do for other subsidiaries, we provide guarantees to certain gas suppliers for SouthStar in support of payment obligations. |
(6)(5) | Floating rate interest charges are calculated based on the interest rate as of December 31, 20112013 and the maturity date of the underlying debt instrument. As of December 31, 2011,2013, we have $61$52 million of accrued interest on our Consolidated Statements of Financial Position that will be paid in 2012.2014. |
(7)(6) | We have certain operating leases with provisions for step rent or escalation payments and certain lease concessions. We account for these leases by recognizing the future minimum lease payments on a straight-line basis over the respective minimum lease terms, in accordance with authoritative guidance related to leases. Our operating leases are primarily for real estate. |
(8)(7) | Represent fixed-fee minimum payments for Sequent’s affiliated asset management agreements.agreements. |
(9)(8) | We provide guarantees to certain municipalities and other agencies and certain gas suppliers of SouthStar in support of payment obligations. |
(10) | Based on the current funding status of the plans, we would be required to make a minimum contribution to our pension plans of approximately $36 million in 2012. We may make additional contributions in 2012. |
Substitute natural gas In 2011, Illinois enacted laws that required Nicor Gas and other large gas utilities in Illinois to elect to either file rate cases with the Illinois Commission in 2012, 2014 and 2016 or sign contracts to purchase SNG to be produced from two coal gasification plants proposed to be constructed in Illinois.
On September 30, 2011, Nicor Gas signed an agreement to purchase approximately 25 Bcf of SNG annually from one of the proposed facilities for a 10-year term beginning as early as 2015. The price of the SNG under this contract could potentially be significantly more than market price. The counterparty has announced plans to construct a 60 Bcf per year coal gasification plant in southern Illinois.
On October 11, 2011, the IPA approved the form of a draft 30-year contract for the purchase by us of approximately 20 Bcf per year of SNG from the second proposed plant beginning as early as 2018. In November 2011, Nicor Gas filed a lawsuit against the IPA and the developer of this second proposed plant contending that the draft contract approved by the IPA does not conform to certain requirements of the enabling legislation. The lawsuit is pending in circuit court in DuPage County, Illinois. In accordance with the enabling legislation, the draft contract approved by the IPA for the second proposed plant was submitted to the Illinois Commission for further approvals by that regulatory body. The Illinois Commission issued an order on January 10, 2012 approving a final form of contract for the second plant. The final form of contract approved by the Illinois Commission modified the draft contract submitted by the IPA in various respects. Both we and the developer of the plant have filed applications for rehearing with the Illinois Commission seeking changes to the final form of contract it approved.
The price of the SNG that may be produced from both of the coal gasification plants may significantly exceed market prices and is dependent upon a variety of factors, including plant construction costs, and is currently not estimable. Illinois laws provided that prices paid for SNG purchase from the plants are to be considered prudent and not subject to review or disallowance by the Illinois Commission. For additional information regarding the SNG plant legislation see Note 11 to our consolidated financial statements under Item 8 herein.
Standby letters of credit and performance / performance/surety bonds. We also have incurred various financial commitments in the normal course of business. Contingent financial commitments represent obligations that become payable only if certain predefined events occur, such as financial guarantees, and the maximum potential amount of future payments that could be required of us as the guarantor. We would expect to fund these contingent financial commitments with operating and financing cash flows.
Pension and other retirement obligations. Generally, our funding policy is to contribute annually an amount that will at least equal the minimum amount required to comply with the Pension Protection Act. Additionally, weWe calculate any required pension contributions using the traditional unit credit cost method. However,method; however, additional voluntary contributions are made from time to time as considered necessary.periodically made. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. The contributions represent the portion of the other retirement costs which we are responsible for under the terms of our plan and minimum funding required by state regulatory commissions.
The state regulatory commissions in all of our jurisdictions, except Illinois, have phase-ins that defer a portion of the retirement benefit expenses for retirement plans other than pensions for future recovery. We recorded a regulatory asset for these future recoveries of $291$108 million as of December 31, 20112013 and $9$215 million as of December 31, 2010. In addition, we recorded a regulatory liability of $19 million as of December 31, 2011 and $6 million as of December 31, 2010 for our expected expenses under the AGL Postretirement Plan.2012. In Illinois, all accrued retirement plan expenses are recovered through base rates. See Note 6 to our consolidated financial statements under Item 8 herein for additional information about our pension and other retirement plans.plans.
In 2011, we contributed $56 million2013, no contributions were required to our qualified pension plans.plans. In 2010,2012, we contributed $31$40 million to these qualified pension plans. Effective December 31, 2012, we merged the NUI Pension and Nicor Pension plans into the AGL Pension plan. Based on the current fundingestimated funded status of these plans,the merged AGL Pension plan, we would bedo not expect any required to make a minimum contribution to the plans of approximately $36 millionplan in 2012.2014. We may, makeat times, elect to contribute additional contributions in 2012 in orderamounts to preserve the current level of benefits under these plans andAGL Pension Plan in accordance with the funding requirements of the Pension Protection Act.Act.
Critical Accounting Policies and Estimates
The preparation of our financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts in our consolidated financial statements and accompanying notes. Those judgments and estimates have a significant effect on our financial statements, because they result primarily fromdue to the need to make estimates about the effects of matters that are inherently uncertain. Actual results could differ from those estimates. We frequently re-evaluatereevaluate our judgments and estimates that are based upon historical experience and various other assumptions that we believe to be reasonable under the circumstances.
We believe that The following is a summary of our most critical accounting policies, which represent those that may involve a higher degree of uncertainty, judgment and complexity. Our significant accounting policies are described in Note 2 to our consolidated financial statements under Item 8 herein the following policies represent those that may involve a higher degree of uncertainty, judgment and complexity; these include Regulatory Infrastructure Program Liabilities, Environmental Remediation Liabilities, Derivatives and Hedging Activities, Goodwill and Intangible Assets, Contingencies, Pension and Other Retirement Plans and Income Taxes..
Regulatory Infrastructure Program LiabilitiesAccounting for Rate-Regulated Subsidiaries
We record regulatory assets and liabilities in our Consolidated Statementsaccount for the financial effects of Financial Positionregulation in accordance with authoritative guidance related to regulated entities. We recordentities whose rates are designed to recover the costs of providing service. In accordance with this guidance, incurred costs and estimated future expenditures that would otherwise be charged to expense in the current period are capitalized as regulatory assets when it is probable that such costs or expenditures will be recovered in rates in the future. Similarly, we recognize regulatory liabilities when it is probable that regulators will require customer refunds through future rates or when revenue is collected from customers for costsestimated expenditures that have not yet been deferred for whichincurred. Generally, regulatory assets are amortized into expense and regulatory liabilities are amortized into income over the period authorized by the regulatory commissions. At December 31, 2013, our regulatory assets were $899 million and regulatory liabilities were $1.7 billion. At December 31, 2012, our regulatory assets were $1.1 billion and regulatory liabilities were $1.6 billion.
We believe our regulatory assets are probable of recovery. Base rates are designed to provide both a recovery of cost and a return on investment during the period rates are in effect. As such, all of our regulatory assets recoverable through base rates are subject to review by the respective state regulatory commission during future recovery is probablerate proceedings. We are not aware of any evidence that these costs will not be recoverable through either rate riders or base rates, specifically authorizedand we believe that we will be able to recover such costs consistent with our historical recoveries. In the event that the provisions of authoritative guidance related to regulated operations were no longer applicable, we would recognize a write-off of regulatory assets that would result in a charge to net income and be classified as an extraordinary item. Additionally, while some regulatory liabilities would be written off, others may continue to be recorded as liabilities but not as regulatory liabilities.
Although the natural gas distribution industry is competing with alternative fuels, primarily electricity, our utility operations continue to recover their costs through cost-based rates established by athe state regulatory commission. We recordcommissions. As a result, we believe that the accounting prescribed under the guidance remains appropriate. It is also our opinion that all regulatory liabilities when it isassets are probable of recovery in future rate proceedings, and therefore we have not recorded any regulatory assets that revenues will be reduced for amounts that will be credited to customers through theare recoverable but are not yet included in base rates or contemplated in a rate making process.
By order of the Georgia Commission, our wholly owned subsidiary, Atlanta Gas Light began a pipeline replacement program to replace all bare steel and cast iron pipe in its system by December 2013. The order provides for recovery of all prudent costs incurred in the performance of the program, which Atlanta Gas Light has recorded as a regulatory asset. Atlanta Gas Light will recover from end-use customers, through billings to Marketers, the costs related to the program net of any cost savings from the program. All such amounts will be recovered through a combination of straight-fixed-variable rates and a pipeline replacement revenue rider. The regulatory asset has two components (i) the costs incurred to dateliabilities that do not represent revenue collected from customers for expenditures that have not yet been recoveredincurred are refunded to ratepayers through a rate riders, and (ii)rider or base rates. If the future expected costsregulatory liability is included in base rates, the amount is reflected as a reduction to be recovered throughthe rate riders.base in setting rates.
The determination of future expected costs associated with our pipeline replacement program liabilities involves judgment. To the extent that circumstances associated with regulatory balances change, the regulatory balances are adjusted accordingly. Factors that must be considered in estimating the future expected costs are:
· | projected capital expenditure spending, including labor and material costs |
· | the remaining pipeline footage to be replaced for remainder of the program |
· | changes in the regulatory environment or our completive position |
· | passage of new legislation |
· | changes in accounting guidance |
We recorded a long-term liability of $145 million as of December 31, 2011 and $166 million as of December 31, 2010, which represented engineering estimates for remaining capital expenditure costs in the pipeline replacement program. As of December 31, 2011, we had recorded a current liability of $131 million, representing expected pipeline replacement program expenditures for the next 12 months. We report these estimates on an undiscounted basis. If Atlanta Gas Light’s pipeline replacement program expenditures, subject to future recovery, were $10 million higher or lower its incremental expected annual revenues would have changed by approximately $1 million. Detailsmajority of our regulatory assets and liabilities are discussedincluded in base rates except for the recoverable regulatory infrastructure program costs, recoverable ERC, energy efficiency plans, the bad debt rider and accrued natural gas costs, which are recovered through specific rate riders on a dollar-for-dollar basis. The rate riders that authorize the recovery of regulatory infrastructure program costs and natural gas costs include both a recovery of cost and a return on investment during the recovery period. Nicor Gas’ rate riders for environmental costs and energy efficiency costs provide a return of investment and expense including short-term interest on reconciliation balances. However, there is no interest associated with the under or over collections of bad debt expense.
Our natural gas distribution operations and certain regulated transmission and storage operations meet the criteria of a cost-based, rate-regulated entity under accounting principles generally accepted in the U.S. Accordingly, the financial results of these operations reflect the effects of the ratemaking and accounting practices and policies of the various regulatory commissions to which we are subject.
As a result, certain costs that would normally be expensed under accounting principles generally accepted in the U.S. are permitted to be capitalized or deferred on the balance sheet because it is probable that they can be recovered through rates. Further, regulation may impact the period in which revenues or expenses are recognized. The amounts to be recovered or recognized are based upon historical experience and our understanding of the regulations.
Discontinuing the application of this method of accounting for regulatory assets and liabilities could significantly increase our operating expenses, as fewer costs would likely be capitalized or deferred on the balance sheet, which could reduce our net income. Assets and liabilities recognized as a result of rate regulation would be written off as extraordinary items in income for the period in which the discontinuation occurred. A write-off of all our regulatory assets and regulatory liabilities at December 31, 2013, would result in 6% and 15% decreases in total assets and total liabilities, respectively. For more information on our regulated assets and liabilities, see Note 2 3 to our consolidated financial statements under Item 8 herein.herein.
Environmental Remediation LiabilitiesImpairment of Goodwill and Long-Lived Assets, including Intangible Assets
Goodwill We do not amortize our goodwill, but test it for impairment at the reporting unit level during the fourth fiscal quarter or more frequently if impairment indicators arise. These indicators include, but are subjectnot limited to, legislationa significant change in operating performance, the business climate, legal or regulatory factors, or a planned sale or disposition of a significant portion of the business. A reporting unit is the operating segment, or a business one level below the operating segment (a component), if discrete financial information is prepared and regulationregularly reviewed by federal, statemanagement. Components are aggregated if they have similar economic characteristics.
As part of our impairment test, an initial assessment is made by comparing the fair value of a reporting unit with its carrying value, including goodwill. If the fair value is less than the carrying value, an impairment is indicated, and local authoritieswe must perform a second test to quantify the amount of the impairment. In the second test, we calculate the implied fair value of the goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the entire reporting unit determined in step one of the assessment. If the carrying value of the goodwill exceeds the implied fair value of the goodwill, we record an impairment charge. To estimate the fair value of our reporting units, we use two generally accepted valuation approaches, an income approach and a market approach, using assumptions consistent with respect to environmental matters. Additionally, we owned and operated a numbermarket participant’s perspective.
Under the income approach, fair value is determined based upon the present value of MGP sitesestimated future cash flows discounted at which hazardous substances may be present. In accordance with GAAP, we have established reserves for environmental remediation obligations when it is probablean appropriate risk-free rate that a liability existstakes into consideration the time value of money, inflation and the amountrisks inherent in ownership of the business being valued. These forecasts contain a degree of uncertainty, and changes in these projected cash flows could significantly increase or rangedecrease the estimated fair value of amounts can be reasonably estimated. We historically reported estimatesthe reporting unit. For the regulated reporting units, a fair recovery of and return on costs prudently incurred to serve customers is assumed. An unfavorable outcome in a rate case could cause the fair value of these reporting units to decrease. Key assumptions used in the income approach included return on equity for the regulated reporting units, long-term growth rates used to determine terminal values at the end of the discrete forecast period, and a discount rate. The discount rate is applied to estimated future environmental remediation costscash flows and is one of the most significant assumptions used to determine fair value under the income approach. As interest rates rise, the calculated fair values will decrease. The terminal growth rate is based on probabilistic modelsa combination of potential costs.historical and forecasted statistics for real gross domestic product and personal income for each utility service area.
Under the market approach, fair value is determined by applying market multiples to forecasted cash flows. This method uses metrics from similar publicly traded companies in the same industry to determine how much a knowledgeable investor in the marketplace would be willing to pay for an investment in a similar company.
The goodwill impairment testing develops a baseline test and performs a sensitivity analysis to calculate a reasonable valuation range. The sensitivities are derived by altering those assumptions which are subjective in nature and inherent to a discounted cash flows calculation. We presently report estimatesweight the results of future remediation costs on an undiscounted basis. These estimates contain various engineering uncertainties, and we continuously attemptthe two valuation approaches to refine these estimates. However, we have not yet performed these probabilistic models for allestimate the fair value of each reporting unit.
The significant assumptions that drive the estimated fair values of our sites in Illinois, which will be completed in 2012.
In Georgiareporting units are projected cash flows, discount rates, growth rates, weighted average cost of capital (WACC) and Florida, we have confirmed 14 former MGP sites where Atlanta Gas Light, or its predecessors, owned or operated all or partmarket multiples. Due to the subjectivity of these sites. Atlanta Gas Light’s environmental remediation liability is includedassumptions, we cannot provide assurance that future analyses will not result in its corresponding regulatory asset. impairment as a future impairment depends on market and economic factors affecting fair value.
Our recoveryannual goodwill impairment analysis in the fourth quarter of 2013 indicated that the estimated fair value of all but one of our reporting units with goodwill was in excess of the carrying value by approximately 20% to almost 500%, and none of these environmental remediation costsreporting units were at risk of failing step one of the impairment test.
Within our midstream operations segment, the estimated fair value of the storage and fuels reporting unit with $14 million of goodwill, exceeded its carrying value by less than 5% and is subjectat risk of failing the step one test. The discounted cash flow model used in the goodwill impairment test for this reporting unit assumed discrete period revenue growth through fiscal 2021 to review by the Georgia Commission, which may seek to disallowreflect the recovery of some expenses.subscription rates, stabilization of earnings and establishment of a reasonable base year off of which we estimated the terminal value. In the terminal year we assumed a long-term earnings growth rate of 2.5% that we believe is appropriate given the current economic and industry-specific expectations. As of the valuation date, we utilized a WACC of 7.0%, which we believe is appropriate as it reflects the relative risk, the time value of money, and is consistent with the peer group of this reporting unit as well as the discount rate that was utilized in our 2012 annual goodwill impairment test.
We have identified 26 sites in Illinois for which we may have some responsibility. Most of these sites are not presently owned by us. In accordance with Illinois Commission authorization, we have been recovering, and expect to continue to recover, these costs from our customers, subject to annual prudence reviews.
We have identified 6 former operating sites in New Jersey, where Elizabethtown Gas is currently conducting remediation activities with oversight from the New Jersey Department of Environmental Protection. The New Jersey BPU has authorized Elizabethtown Gas to recover prudently incurred remediation costscash flow forecast for the New Jersey properties through its remediation adjustment clause.
We also own remediation sitesstorage and fuels reporting unit assumed earnings growth over the next eight years. Should this growth not occur, this reporting unit will likely fail step one of a goodwill impairment test in a future period. Along with any reductions to our cash flow forecast, changes in other states. One site,key assumptions used in Elizabeth City, North Carolina, is subjectour 2013 annual impairment analysis may result in the requirement to an order by the North Carolina Department of Environment and Natural Resources. There are no cost recovery mechanisms for the environmental remediation sites in North Carolina.
We cannot perform precise engineering soil and groundwater cleanup estimates for certain of our former MGP sites. As we continueproceed to conduct the actual remediation and enter into cleanup contracts, we are increasingly able to provide conventional engineering estimatesstep two of the likely costs of many elements of the remediation program and the liabilities may increase as estimates are refined and remediation efforts proceed. The following table providesgoodwill impairment test in future periods. For more information, on our former operating sites:
In millions | | Cost estimate range | | | Amount recorded | | | Expected costs over next twelve months | | Illinois | | | $134 - $216 | | | $ | 134 | | | $ | 19 | | Georgia and Florida | | | 42 - 98 | | | | 58 | | | | 7 | | New Jersey | | | 124 - 174 | | | | 124 | | | | 9 | | North Carolina | | | 10 - 16 | | | | 11 | | | | 2 | | Total | | | $310 - $504 | | | $ | 327 | | | $ | 37 | |
(1) | Our ERC liabilities are customarily reported estimates of future remediation costs for our former operating sites that are contaminated based on probabilistic models of potential costs and on an undiscounted basis. However, we have not yet performed these probabilistic models for all of our sites in Illinois, which will be completed in 2012. |
In accordance with GAAP we have recorded the lower end of the range. Beyond 2012, these costs cannot be estimated and considerable variability remains in available estimates. Details of our environmental remediation costs are discussedsee “Acquisitions” in Note 2 and Note 11 to our consolidated financial statements under Item 8 herein.herein.
We will continue to monitor this reporting unit for impairment and note that continued declines in contracted capacity or subscription rates, declines for a sustained period at the current market rates or other changes to the key assumptions and factors used in this analysis may result in future failure of the step 1 goodwill impairment test and may also result in a future impairment of goodwill. If subscription rates and subscribed volumes decline, the estimated future cash flows will decrease from our current estimates. As of December 31, 2013, we estimate that 15% of our future cash flows will be received over the next 10 years, an additional 20% over the following 10 years and 65% in periods thereafter over the remaining useful lives of our storage facilities. The risk of impairment of the underlying long-lived assets is not estimated to be significant because the assets have long remaining useful lives and authoritative accounting guidance requires such assets to be tested for impairment based on the basis of undiscounted cash flows over their remaining useful lives.
Long-Lived Assets We depreciate or amortize our long-lived assets and other intangible assets, over their estimated useful lives. Currently, we have no indefinite-lived intangible assets. We assess our long-lived assets and other intangible assets for impairment whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable. When such events or circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value will be recovered through the expected future cash flows. An impairment is indicated if the carrying amount of a long-lived asset exceeds the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of the asset. If an impairment is indicated, we record an impairment loss equal to the difference between the carrying value and the fair value of the long-lived asset.
We determined that there were no long-lived asset impairments in 2013; however, if our storage facilities within midstream operations experience further natural gas price declines or a prolonged slow recovery, future analyses may result in an impairment of long-lived assets.
Derivatives and Hedging Activities
The authoritative guidance to determine whether a contract meets the definition of a derivative instrument, contains an embedded derivative requiring bifurcation, or qualifies for hedge accounting treatment are numerousis voluminous and complex. The treatment of a single contract may vary from period to period depending upon accounting elections, changes in our assessment of the likelihood of future hedged transactions or new interpretations of accounting guidance. As a result, judgment is required in determining the appropriate accounting treatment. In addition, the estimated fair value of derivative instruments may change significantly from period to period depending upon market conditions, and changes in hedge effectiveness may impact the accounting treatment.
The authoritative guidance related to derivatives and hedging requires that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded on the Consolidated Statements of Financial Position as either an asset or liability measured at its fair value. However, if the derivative transaction qualifies for and is designated as a normal purchase andor normal sale, it is exempted from the fair value accounting treatment and is, instead, subject to traditional accrual accounting. We utilize market data or assumptions that market participants would use in pricing the derivative asset or liability, including assumptions about risk and the risks inherent in the inputs of the valuation technique.
The authoritative accounting guidance requires that changes in the derivatives’ fair value are recognized concurrently in earnings unless specific hedge accounting criteria are met. If the derivatives meet those criteria, the guidance allows a derivatives’derivative gains and losses to offset related results onof the hedged item in the income statement in the case of a fair value hedge, or to record the gains and losses in OCI until the hedged transaction occurs in the case of a cash flow hedge. Additionally, the guidance requires that a company formally designate a derivative as a hedge as well as document and assess the effectiveness of derivatives associated with transactions that receive hedge accounting treatment.
Nicor Gas and Elizabethtown Gas utilize derivative instruments to hedge the price risk for the purchase of natural gas for customers. These derivatives are reflected at fair value and are not designated as accounting hedges. Realized gains or losses on such instruments are included in the cost of gas delivered and are passed through directly to customers, subject to review by the applicable state regulatory commissions, and therefore have no direct impact on earnings. Unrealized changes in the fair value of these derivative instruments are deferred as regulatory assets or liabilities.
We use derivative instruments primarily to reduce the impact to our results of operations due to the risk of changes in the price of natural gas. The fair value of natural gas derivative instruments we useused to manage exposures arising fromour exposure to changing natural gas prices reflects the estimated amounts that we would receive or pay to terminate or close the contracts at the reporting date, taking into account the current unrealized gains or losses on open contracts. For the derivatives utilized in retail operations and wholesale services that are not designated as accounting hedges, changes in fair value are reported as gains or losses in our results of operations in the period of change. Retail operations records derivative gains or losses arising from cash flow hedges in OCI and reclassifies them into earnings in the same period that the underlying hedged item is recognized in earnings.
Additionally, as required by the authoritative guidance, we are required to classify our derivative assets and liabilities based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.hierarchy. The determination of the fair value of our derivative instruments incorporates various factors required under the guidance. These factors include:
· | the credit worthiness of the counterparties involved and the impact of credit enhancements (such as cash deposits and letters of credit); |
· | events specific to a given counterpartycounterparty; and |
· | the impact of our nonperformance risk on our liabilities.liabilities. |
We have recorded derivative instrument assets of $314$119 million at December 31, 20112013 and $228$144 million at December 31, 2010.2012. Additionally, we have recorded derivative liabilities of $110$80 million at December 31, 20112013 and $48$39 million at December 31, 2010.2012. We recorded gainslosses on our Consolidated Statements of Income of $97 million in 2013 and gains of $10 million in 2012 and $24 million in 2011 and losses of $46 million in 2010 and $15 million in 2009.2011.
If there is a significant change in the underlying market prices or pricing assumptions we use in pricing our derivative assets or liabilities, we may experience a significant impact on our financial position, results of operations and cash flows. Our derivative and hedging activities are described in further detail in Note 2 and Note 5 to our consolidated financial statements under Item 8 herein and Item 1, “Business”.
Goodwill and Intangible Assets
Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. Our goodwill assets increased from $418 million to $1.8 billion and our intangible assets increased from $2 million to $105 million as a result of the Nicor merger. Our intangible assets at December 31, 2010 were $3 million, but tas a result of amortization during 2011 were $2 million as of the date of the Nicor merger. The fair values of intangible assets were assigned to the trade names and customer relationships at Nicor’s unregulated operations using a combination of the valuation approaches, including cost savings, multi-period excess earnings and relief from royalty approaches.
In accordance with the authoritative guidance, we evaluate our goodwill balances for impairment on an annual basis or more frequently if impairment indicators arise. These indicators include, but are not limited to, a significant change in operating performance, the business climate, legal or regulatory factors, or a planned sale or disposition of a significant portion of the business. We test goodwill impairment utilizing a fair value approach at a reporting unit level which generally equates to our operating segments as discussed in Note 13 to our consolidated financial statements under Item 8 herein. An impairment charge is recognized if the carrying value of a reporting unit’s goodwill exceeds its fair value.
Our goodwill impairment analysis for the years ended December 31, 2011 and 2010 indicated that the fair value of each reporting unit is substantially in excess of carrying value, and are not at risk of failing step one of the impairment evaluation. As a result, we did not recognize any goodwill impairment charges and do not anticipate taking goodwill impairment charges in the foreseeable future. Goodwill recorded from the Nicor merger totaled $1.4 billion, of which $1.2 billion was assigned to distribution operations, $124 million to retail operations, $77 million to cargo shipping, $2 million to midstream operations, $2 million to wholesale services and $8 million to other. For additional information see Note 3 to our consolidated financial statements under Item 8 herein.
Intangible assets from the Nicor merger totaled to $103 million, of which $85 million was assigned to retail operations and $18 million to cargo shipping. In accordance with the authoritative guidance, we amortize intangible assets over their useful lives as we currently have no indefinite-lived intangible assets. These assets are reviewed for impairment when indicators arise. When such events or circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value will be recovered through the expected future cash flows. In the event the sum of the expected future cash flows resulting from the use of the asset is less than the carrying value of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded. No impairment has been recognized.“Business.”
Contingencies
Our accounting policies for contingencies cover a variety of activities that are incurred in the normal course of business activities, includingand generally relate to contingencies for potentially uncollectible receivables, rate matters, and legal and environmental exposures. We accrue for these contingencies when our assessments indicate that it is probable that a liability has been incurred or an asset will not be recovered, and an amount can be reasonably estimated in accordance with authoritative guidance related to contingencies.estimated. We base our estimates for these liabilities on currently available facts and our estimates of the ultimate outcome or resolution of the liability in the future.
Actual results may differ from estimates, and estimates can be, and often are, revised either negatively or positively depending on actual outcomes or changes in the facts or expectations surrounding each potential exposure. Changes in the estimates related to contingencies could have a negative impact on our consolidated results of operations, cash flows or financial position. Our contingencies are further discussed in Note 11 to our consolidated financial statements under Item 8 herein.herein.
Pension and Other Retirement Plans
Our pension and other retirement plan costs and liabilities are determined on an actuarial basis and are affected by numerous assumptions and estimates. We annually review the estimates and assumptions underlying our pension and other retirement plan costs and liabilities and update them when appropriate.appropriate. The critical actuarial assumptions used to develop the required estimates for our pension and other retirement plans include the following key factors: ·expected return on plan assets; · the market value of plan assets; ·assumed mortality table; ·assumed health care costs; ·assumed compensation increases; ·assumed rates of retirement; and ·assumed rates of termination.
· | expected return on plan assets |
· | the market value of plan assets |
· | assumed mortality table |
· | assumed health care costs |
· | assumed compensation increases |
· | assumed rates of retirement |
· | assumed rates of termination |
The discount rate is utilized in calculating the actuarial present value of our pension and other retirement obligations and our annual net pension and other retirement costs. When establishing our discount rate, with the assistance of our actuaries, we consider certain market indices, including the Citigroup Pension Liability rate, the Moody’s Corporate AA long-term bond rate, other high-grade bond indices and aindices. The single equivalent discount rate which is derived by applying the appropriate spot rates based on high quality (AA or better) corporate bonds that have a yield higher than the regression mean yield curve, to the forecasted future cash flows in each year.year for each plan.
The expected long-term rate of return on assets is used to calculate the expected return on plan assets component of our annual pension and other retirement plans costs. We estimate the expected return on plan assets by evaluating expected bond returns, equity risk premiums, asset allocations, the effects of active plan management, the impact of periodic plan asset rebalancing and historical performance. We also consider guidance from our investment advisors in making a final determination of our expected rate of return on assets. To the extent the actual rate of return on assets realized over the course of a year is greater than or less than the assumed rate, that year’s annual pension or other retirement plan cost is not affected. Rather,affected; rather, this gain or loss reduces or increases future pension or other retirement plan costs.
Equity market performance and corporate bond rates have a significant effect on our reported results. Plan assets for the Nicor Gas pension plan are measured at fair value. For the AGL pension plan, market performance also effectsaffects our market-related value of plan assets (MRVPA), which is a calculated value and differs from the actual market value of plan assets. The MRVPA recognizes differences between the actual market value and expected market value of our plan assets and is determined by our actuaries using a five-year movingsmoothing weighted average methodology. Gains and losses on plan assets are spread through the MRVPA based on the five-year movingsmoothing weighted average methodology, which affects the expected return on plan assets component of pension expense.
In addition, differences between actuarial assumptions and actual plan resultsexperience are deferred and amortized into cost when the accumulated differences exceed 10% of the greater of the projected benefit obligation (PBO) or the MRVPA for the AGL pension plan and fair value of the assets for the Nicor Gas pension plan. If necessary, theThe excess, if any, is amortized over the average remaining service period of active employees.
During 2011,2013, we recorded net periodic benefit costs of $22$57 million (pre-capitalization) related to our defined pension and other retirement benefit plans. We estimate that in 2012,2014, we will record net periodic pension and other retirement benefit costs in the range of $54$38 million to $57$42 million (net of capitalization)(pre-capitalization), a $32$15 million to $35$19 million increasedecrease compared to 2011. Approximately $25 million to $27 million (net of capitalization) of the increase relates to the Nicor Gas retirement plans, which were acquired through the merger with Nicor. Accordingly, excluding the impacts of the additional costs from the Nicor Gas retirement plans, we anticipate that our net periodic pension and other retirement benefit costs to increase by $5 million to $7 million. Nicor Gas had recorded $19 million in net periodic benefit costs in 2011 prior to the completion of the merger.2013. In determining our estimated expenses for 2012,2014, our actuarial consultant assumed the following expected return on plan assets and discount ratesrates:
| | Pension plans | | | Other retirement plans | | | Pension plans | | | Other retirement plans | | Discount rate | | | 4.60 | % | | | 4.50 | % | | | 5.00 | % | | | 4.70 | % | Expected return on plan assets | | | 8.25% - 8.50 | % | | | 6.8% - 8.50 | % | | | 7.75 | % | | | 7.75 | % |
The actuarial assumptions we use may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal and retirement rates, and longer or shorter life spans of participants. The following table illustrates the effect of changing the critical actuarial assumptions for our pension and other retirement plans while holding all other assumptions constant.constant: Dollars in millions | | Percentage-point change in assumption | | | | | In millions | | Actuarial assumptions | | Percentage-point changeIncrease (decrease) in assumptionPBO/ APBO | | | Increase (decrease) in PBO/ APBO | | | Increase (decrease) in cost | | Expected long-term return on plan assets | | | +/- 1 | % | | $ | 0- / 0- | | | $ | (5)(9) / 59 | | Discount rate | | | +/- 1 | % | | $ | (161)(154) / 178171 | | | $ | (6)(13) / 613 | |
See Note 4 and Note 6 to our consolidated financial statements under Item 8 herein for additional information on our pension and other retirement plans.plans.
Income Taxes
The determination of our provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and taxable items. We account for income taxes in accordance with the authoritative guidance related to income taxes,, which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities. The guidance also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assetassets will not be realized.realized.
Deferred tax liabilities are estimated based on the expected future tax consequences of items recognized in the financial statements. Additionally, during the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. As a result, we recognize tax liabilities based on estimates of whether additional taxes and interest will be due. After application of the federal statutory tax rate to book income, judgment is required with respect to the timing and deductibility of expense in our income tax returns.
A deferred income tax liability is not recorded on undistributed foreign earnings that are expected, in our judgment, to be indefinitely reinvested offshore. We consider, among other factors, actual cash investments offshore as well as projected cash requirements in making this determination. Changes in our investment or repatriation plans or circumstances could result in a different deferred income tax liability.liability and we would be required to record a deferred tax liability of $31 million if we no longer asserted indefinite reinvestment of undistributed foreign earnings.
For state income tax and other taxes, judgment is also required with respect to the apportionment among the various jurisdictions. A valuation allowance is recorded if we expect that it is more likely than not that our deferred tax assets will not be realized. In addition, we operate within multiple tax jurisdictions and we are subject to auditaudits in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. We maintain a liability for the estimate of potential income tax exposure and, in our opinion, adequate provisions for income taxes have been made for all years.years reported.
We had a $3$22 million valuation allowance on $204$216 million of deferred tax assets ($147 million of long term and $69 million of current) as of December 31, 2011,2013, reflecting the expectation that most of these assets will be realized. Our gross long-term deferred tax liability totaled $1,646$1,800 million at December 31, 2011.2013. See Note 12 to our consolidated financial statements under Item 8 herein for additional information on our taxes.
We are required to determine whether tax benefits claimed or expected to be claimed on our tax return should be recorded in our consolidated financial statements. Under this guidance, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
Additionally, we recognize accrued interest related to uncertain tax positions in interest expense, and penalties in operating expense in the Consolidated Statements of Income. As of December 31, 2011,2013, we did not have a liability recorded for payment of interest and penalties associated with uncertain tax positions.
On May 12, 2011, the FASB issued authoritative guidance related to fair value measurements. The guidance expands the qualitative and quantitative disclosures for Level 3 significant unobservable inputs, permits the use of premiums and discounts to value an instrument if it is standard practice and limits best use valuation to non-financial assets and liabilities. This guidance will be effective for us beginning January 1, 2012. We do not expect the guidance to have a material impact on our consolidated financial statements.
On June 16, 2011, the FASB issued authoritative guidance related to comprehensive income. The guidance eliminates the option to present other comprehensive income in the Statements of Equity, but instead allows companies to elect to present net income and other comprehensive income in one continuous statement (Statements of Comprehensive Income) or in two consecutive statements. This guidance does not change any of the components of net income or other comprehensive income and earnings per share will still be calculated based on net income. This guidance will be effective for us beginning January 1, 2012, and will not have a material impact on our consolidated financial statements.
On September 15, 2011, the FASB issued authoritative guidance related to goodwill impairment testing. The guidance provides us with the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the normally required two-step quantitative impairment test is unnecessary. However, if we conclude otherwise, we are then required to proceed with the quantitative testing. The guidance allows us to bypass the qualitative assessment for any reporting unit in any period and proceed directly to quantitative testing and resume performing the qualitative assessment in any subsequent period. This guidance is effective for us on January 1, 2012, but early adoption is permitted. We adopted the guidance early and relied upon a qualitative assessment when performing our annual impairment test in the fourth quarter of 2011.
ITEM 7A.7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to risks associated with natural gas prices, interest rates, credit and fuel prices. Natural gas price risk is defined as the potential loss that we may incur as a result ofresults from changes in the fair value of natural gas. Interest rate risk results fromis caused by fluctuations in interest rates related to our portfolio of debt and equity instruments that we issue to provide financing and liquidity for our business. Credit risk results from the extension of credit throughout all aspects of our business but is particularly concentrated at Atlanta Gas Light in distribution operations and in wholesale services. Our fuelFuel price risk, is primarily in our cargo shipping whichsegment, is a product of the fluctuation in fuel prices; however, this risk is partially reduced through fuel surcharges. With the exception of fuel price risk in our cargo shipping segment, we use derivative instruments to manage these risks. Our use of derivative instruments is governed by a risk management policy, approved and monitored by our Risk Management Committee (RMC), which prohibits the use of derivatives for speculative purposes.
Our RMC is responsible for establishing the overall risk management policies and monitoring compliance with, and adherence to, the terms within these policies, including approval and authorization levels and delegation of these levels. Our RMC consists of members of senior management who monitor open natural gas price risk positions and other types of risk, corporate exposures, credit exposures and overall results of our risk management activities. It is chaired by our chief risk officer, who is responsible for ensuring that appropriate reporting mechanisms exist for the RMC to perform its monitoring functions.
Weather and Natural Gas Price RiskRisks
Distribution Operations Our utilities, excluding Atlanta Gas Light, are authorized to use natural gas cost recovery mechanisms that allow them to adjust their rates to reflect changes in the wholesale cost of natural gas and to ensure they recover 100% of the costs incurred in purchasing gas for their customers. Since Atlanta Gas Light does not sell natural gas directly to its end-use customers, it has no natural gas price risk.
Nicor Gas and Elizabethtown Gas enter into derivative instruments to hedge the impact of market fluctuations in natural gas prices for customers.customers. These derivatives are reflected at fair value and are not designated as hedges. Realized gains or losses on such instruments are included in the cost of gas delivered and are passed through directly to customers and therefore have no direct impact on earnings. UnrealizedRealized and unrealized changes in the fair value of these derivative instruments are deferred as regulatory assets or liabilities.liabilities until recovered from or credited to our customers.
For our Illinois weather risk associated with Nicor Gas, we implemented a corporate weather hedging program in the second quarter of 2013 that utilizes OTC weather derivatives to reduce the risk of lower operating margins potentially resulting from significantly warmer-than-normal weather. For more information, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Natural gas price volatility” and the subheading “Hedges” and Note 2 to the consolidated financial statements under Item 8 herein.
Retail Operationsand Wholesale Services We routinely utilize various types of derivative instruments to mitigate certain natural gas price and weather riskrisks inherent in the natural gas industry. These instruments include a variety of exchange-traded and OTC energy contracts, such as forward contracts, futures contracts, options contracts and swap agreements. This includes the active management ofRetail operations and wholesale services also actively manage storage positions through a variety of hedging transactions for the purpose of managing exposures arising from changing natural gas prices. We use theseThese hedging instruments are used to substantially lock in economic margins (as spreads between wholesale and retail natural gas prices widen between periods) and thereby minimize itsour exposure to declining operating margins.
Wholesale Services We routinely use various types of derivative instruments to mitigate certain natural gas price risks inherent in the natural gas industry. These instruments include a variety of exchange-traded and OTC energy contracts, such as forward contracts, futures contracts, options contracts and financial swap agreements.
Midstream Operations Central Valley and Golden Triangle StorageWe use derivative instruments to reduce theirour exposure to the risk of changes in the price of natural gas that will be purchased in future periods for pad gas, conditioning gas and additional volumes of gas used to de-water the cavernour caverns (de-water gas) during the construction of storage facilities.facilities. Pad gas includes volumes of non-working natural gas used to maintain the operational integrity of the caverns. Conditioning gas is used to ready a field for use and will be sold in connection with placing the storage facility into service. De-water gas is used to remove water from the cavern in anticipation of commercial service and will be sold after completion of de-watering. We also use derivative instruments for asset optimization purposes.
Consolidated The following tables include the fair values and average values of our consolidated derivative instruments as of the dates indicated. We base the average values on monthly averages for the 12 months ended December 31, 20112013 and 2010.2012.
| | Derivative instruments average values (1) at December 31, | | | Derivative instruments average values (1) at December 31, | | In millions | | 2011 | | | 2010 | | | 2013 | | | 2012 | | Asset | | $ | 211 | | | $ | 226 | | | $ | 107 | | | $ | 208 | | Liability | | | 76 | | | | 70 | | | | 49 | | | | 101 | |
(1) | Excludes cash collateral amounts. |
| | Derivative instruments fair values netted with cash collateral at December 31, | | | Derivative instruments fair values netted with cash collateral at December 31, | | In millions | | 2011 | | | 2010 | | | 2013 | | | 2012 | | Asset | | $ | 314 | | | $ | 228 | | | $ | 119 | | | $ | 144 | | Liability | | | 110 | | | | 48 | | | | 80 | | | | 39 | |
The following tables illustratetable illustrates the change in the net fair value of our derivative instruments during the twelve12 months ended December 31, 2013, 2012 and 2011, 2010 and 2009, and provide detailsprovides detail of the net fair value of contracts outstanding as of December 31, 2011, 20102013, 2012 and 2009.2011.
In millions | | 2011 | | | 2010 | | | 2009 | | | 2013 | | | 2012 | | | 2011 | | Net fair value of derivative instruments outstanding at beginning of period | | $ | 75 | | | $ | 121 | | | $ | 65 | | | $ | 36 | | | $ | 31 | | | $ | 55 | | Derivative instruments realized or otherwise settled during period | | | (74 | ) | | | (117 | ) | | | (54 | ) | | | (62 | ) | | | (61 | ) | | | (74 | ) | Net fair value of derivative instruments acquired during period | | | (5 | ) | | | 0 | | | | 50 | | | | - | | | | - | | | | (5 | ) | Change in net fair value of derivative instruments | | | 61 | | | | 71 | | | | 60 | | | | (56 | ) | | | 66 | | | | 55 | | Net fair value of derivative instruments outstanding at end of period | | | 57 | | | | 75 | | | | 121 | | | | (82 | ) | | | 36 | | | | 31 | | Netting of cash collateral | | | 147 | | | | 105 | | | | 57 | | | | 121 | | | | 69 | | | | 147 | | Cash collateral and net fair value of derivative instruments outstanding at end of period (1) | | $ | 204 | | | $ | 180 | | | $ | 178 | | | $ | 39 | | | $ | 105 | | | $ | 178 | |
(1) | Net fair value of derivative instruments outstanding includes $3 million premium and associated intrinsic value at December 31, 2011, less than $12013, $4 million at December 31, 20102012 and $2$3 million at December 31, 20092011 associated with weather derivatives. |
The sources of our net fair value at December 31, 2011,2013 are as follows.
In millions | | Prices actively quoted (Level 1) (1) | | | Significant other observable inputs (Level 2) (2) | | Mature through 2012 | | $ | (90 | ) | | $ | 126 | | Mature 2013 – 2014 | | | (15 | ) | | | 36 | | Mature 2015 – 2017 | | | (2 | ) | | | 2 | | Total derivative instruments (3) | | $ | (107 | ) | | $ | 164 | |
In millions | | Prices actively quoted (Level 1) (1) | | | Significant other observable inputs (Level 2) (2) | | Mature through 2014 | | $ | (43 | ) | | $ | (26 | ) | Mature 2015 - 2016 | | | (26 | ) | | | 15 | | Mature 2017 - 2018 | | | (2 | ) | | | - | | Total derivative instruments (3) | | $ | (71 | ) | | $ | (11 | ) |
(1) | Valued using NYMEX futures prices. |
(2) | Valued using basis transactions that represent the cost to transport natural gas from a NYMEX delivery point to the contract delivery point. These transactions are based on quotes obtained either through electronic trading platforms or directly from brokers. |
(3) | Excludes cash collateral amounts. |
Value-at-risk VaR Our VaR may not be comparable to that of other entities due to differences in the factors used to calculate VaR. Our VaR is determined on a 95% confidence interval and a 1-day holding period, which means that 95% of the time, the risk of loss in a day from a portfolio of positions is expected to be less than or equal to the amount of VaR calculated. Our open exposure is managed in accordance with established policies that limit market risk and require daily reporting of potential financial exposure to senior management, including the chief risk officer. Because we generally manage physical gas assets and economically protect our positions by hedging in the futures markets, our open exposure is generally immaterial, permitting us to operate within relatively low VaR limits.mitigated. We employ daily risk testing, using both VaR and stress testing, to evaluate the risks of our open positions. Our VaR is determined on a 95% confidence interval and a 1-day holding period. In simple terms, this means that 95% of the time, the risk of loss from a portfolio of positions is expected to be less than or equal to the amount of VaR calculated.
We actively monitor open commodity positions and the resulting VaR. We also continue to maintain a relatively matched book, where our total buy volume is close to our sell volume, with minimal open natural gas price risk. Based on a 95% confidence interval and employing a 1-day holding period, SouthStar’s portfolio of positions for the 12 months ended December 31, 2011, 20102013, 2012 and 20092011 were less than $0.1 million and Sequent had the following VaRs.VaRs.
In millions | | 2011 | | | 2010 | | | 2009 | | | 2013 | | | 2012 | | | 2011 | | Period end | | $ | 2.2 | | | $ | 1.6 | | | $ | 2.4 | | | $ | 4.7 | | | $ | 1.8 | | | $ | 2.2 | | 12-month average | | | 1.6 | | | | 1.3 | | | | 1.8 | | | | 2.3 | | | | 2.0 | | | | 1.6 | | High | | | 3.1 | | | | 3.0 | | | | 3.3 | | | | 4.9 | | | | 4.8 | | | | 3.1 | | Low | | | 0.8 | | | | 0.7 | | | | 0.7 | | | | 1.2 | | | | 1.1 | | | | 0.8 | |
Fuel Price Risk
Cargo Shipping Tropical Shipping’s objective is to reduce its exposure to higher fuel costs through fuel surcharges. However, these fuel surcharges do not entirely remove our entire risk in periods of increasing fuel prices and volatility, or increased competition.competition, and any relief may not be realized in the same period as the cost incurred. An increase of 10% in Tropical Shipping’s average cost per gallon for vessel fuel results in approximately $6 million of additional annual fuel expense. Fuel surcharges would be implemented to reduce the impact of the increased fuel expense.
Interest Rate Risk
Interest rate fluctuations expose our variable-rate debt to changes in interest expense and cash flows. Our policy is to manage interest expense using a combination of fixed-rate and variable-rate debt. Based on $1.7$1.4 billion of variable-rate debt outstanding at December 31, 2011,2013, a 100 basis point change in market interest rates would have resulted in an increase in pretaxpre-tax interest expense of $17$14 million on an annualized basis.
We have $300 million of 6.4% senior notes due in July 2016. In May 2011, we entered intoutilize interest rate swaps related to these senior notes to effectively convert $250 million from a fixed rate to a variable rate obligation. The interest rate resets quarterly based on LIBOR plus 3.9%.
As of December 31, 2011, we also held forward-starting interest rate swaps totaling $90 million that were redesignated as cash flow hedges upon the close of the merger. Under the terms of the swaps, we agree to pay a fixed swap rate and receive a floating rate based upon LIBOR.
Interest rate swaps help us achieve our desired mix of variable to fixed-rate debt. Our variable rate debt (i.e. variable debt target ofgenerally ranges from 20% to 45% of total debt). Anydebt. We also may use forward-starting interest rate swaps and interest rate lock agreements to lock in fixed interest rates on our forecasted issuances of debt. The objective of these hedges is to offset the variability of future payments associated with the interest rate on debt instruments we expect to issue. The gain or loss on thesethe interest rate swaps aredesignated as cash flow hedges is generally deferred in accumulated other comprehensive incomeOCI until settlement, at which point they areit is amortized to interest expense over the life of the related debt. For additional information, see Note 5 to our consolidated financial statements under Item 8 herein.herein.
In April 2013, we entered into two ten-year, $50 million fixed-rate forward-starting interest rate swaps to hedge any potential interest rate volatility prior to our issuance of senior notes in the second quarter 2013. The average interest rate on these swaps was 1.98%. Including $200 million of ten-year, 1.78% fixed-rate forward-starting interest rate swaps that were executed in December 2012, we had fixed-rate swaps totaling $300 million in notional value at an average interest rate of 1.85%. We designated the forward-starting interest rate swaps as cash flow hedges of our second quarter 2013 senior note issuance. The interest rate swaps were settled in May 2013, at which time we received $6 million in proceeds. The $6 million will be amortized to reduce interest expense over the first ten years of the 30-year senior notes.
Credit Risk
Distribution Operations Atlanta Gas Light has a concentration of credit risk, as it bills eleven12 certificated and active Marketers in Georgia for its services. The credit risk exposure to Marketers varies with the time of the year, with exposure at its lowest in the nonpeak summer months and highest in the peak winter months. Marketers are responsible for the retail sale of natural gas to end-use customers in Georgia. These retail functions include customer service, billing, collections, and the purchase and sale of the natural gas commodity. The provisions of Atlanta Gas Light’s tariff allow Atlanta Gas Light to obtain security support in an amount equal to a minimum of two times a Marketer’s highest month’s estimated bill from Atlanta Gas Light. For 2011,2013, the four largest Marketers based on customer count which includes SouthStar, accounted for approximately 30%16% of our consolidated operating margin and 38%21% of distribution operations’ operating margin.
Several factors are designed to mitigate our risks from the increased concentration of credit that has resulted from deregulation. In addition to the security support described above, Atlanta Gas Light bills intrastate delivery service to Marketers in advance rather than in arrears. We accept credit support in the form of cash deposits, letters of credit/surety bonds from acceptable issuers and corporate guarantees from investment-grade entities. The RMC reviews on a monthly basis the adequacy of credit support coverage, credit rating profiles of credit support providers and payment status of each Marketer. We believe that adequate policies and procedures have been put in place to properly quantify, manage and report on Atlanta Gas Light’s credit risk exposure to Marketers.
Atlanta Gas Light also faces potential credit risk in connection with assignments of interstate pipeline transportation and storage capacity to Marketers. Although Atlanta Gas Light assigns this capacity to Marketers, in the event that a Marketer fails to pay the interstate pipelines for the capacity, the interstate pipelines would in all likelihood seek repayment from Atlanta Gas Light.
Our gas distribution businesses offer options to help customers manage their bills, such as energy assistance programs for low-income customers and a budget payment plan that spreads gas bills more evenly throughout the year. Customer credit risk has been substantially mitigated at Nicor Gas by the bad debt rider approved by the Illinois Commission on February 2, 2010, which provides for the recovery from (or refund to) customers of the difference between Nicor Gas’ actual bad debt experience on an annual basis and the benchmark bad debt expense included in its rates for the respective year. For Virginia Natural Gas and Chattanooga Gas, we are allowed to recover the gas portion of bad debt write-offs through their gas recovery mechanisms.
Nicor Gas faces potential credit risk in connection with its natural gas supply sales and procurement activities to the extent a counterparty defaults on a contract to pay for or deliver at agreed-upon terms and conditions. To manage this risk, Nicor Gas maintains credit policies to determine and monitor the creditworthiness of its counterparties. In doing so, Nicor Gas seeks guarantees or collateral, in the form of cash or letters of credit, which limits its exposure to any oneindividual counterparty and enters into netting arrangements to mitigate counterparty credit risk.
Certain of our derivative instruments contain credit-risk-related or other contingent features that could increase the payments for collateral we post in the normal course of business when our financial instruments are in net liability positions. As of December 31, 20112013, for agreements with such features, our distribution operations derivative instruments with liability fair values totaled approximately $52$2 million, for which we had posted $17 million ofno collateral to our counterparties. If it was assumed that we had to post the maximum contractually specified collateral or settle the liability, we would have been required to pay approximately $33 million at December 31, 2011.
Retail Operations We obtain credit scores for our firm residential and small commercial customers using a national credit reporting agency, enrolling only those customers that meet or exceed our credit threshold. We consider potential interruptible and large commercial customers based on a reviewreviews of publicly available financial statements and review of commercially available credit reports. Prior to entering into a physical transaction, we also assign physical wholesale counterparties an internal credit rating and credit limit based on the counterparties’ Moody’s, S&P and Fitch ratings, commercially available credit reports and audited financial statements.
Wholesale Services We have established credit policies to determine and monitor the creditworthiness of counterparties, as well as the quality of pledged collateral. We also utilize master netting agreements whenever possible to mitigate exposure to counterparty credit risk. When we are engaged in more than one outstanding derivative transaction with the same counterparty and we also have a legally enforceable netting agreement with that counterparty, the “net” mark-to-market exposure represents the netting of the positive and negative exposures with that counterparty and a reasonable measure of our credit risk. We also use other netting agreements with certain counterparties with whom we conduct significant transactions. Master netting agreements enable us to net certain assets and liabilities by counterparty. We also net across product lines and against cash collateral, provided the master netting and cash collateral agreements include such provisions.
Additionally, we may require counterparties to pledge additional collateral when deemed necessary. We conduct credit evaluations and obtain appropriate internal approvals for oura counterparty’s line of credit before any transaction with the counterparty is executed. In most cases, the counterparty must have an investment grade rating, which includes a minimum long-term debt rating of Baa3 from Moody’s and BBB- from S&P. Generally, we require credit enhancements by way of guaranty, cash deposit or letter of credit for transaction counterparties that do not have investment grade ratings.
We have a concentration of credit risk as measured by itsour 30-day receivable exposure plus forward exposure. As of December 31, 2011,2013, excluding $11$8 million of customer deposits, our top 20 counterparties represented approximately 60%51% of the total counterparty exposure of $504$542 million derived by adding together the top 20 counterparties’ exposures, exclusive of customer deposits, and dividing by the total of our counterparties’ exposures..
As of December 31, 2011,2013, our counterparties, or the counterparties’ guarantors, had a weighted average S&P equivalent credit rating of BBB+A-, which is consistent with the prior year. The S&P equivalent credit rating is determined by a process of converting the lower of the S&P or Moody’s ratings to an internal rating ranging from 9 to 1, with 9 being equivalent to AAA/Aaa by S&P and Moody’s and 1 being D or Default by S&P and Moody’s. A counterparty that does not have an external rating is assigned an internal rating based on the strength of the financial ratios of that counterparty. To arrive at the weighted average credit rating, each counterparty is assigned an internal ratio, which is multiplied by their credit exposure and summed for all counterparties. The sum is divided by the aggregate total counterparties’ exposures, and this numeric value is then converted to an S&P equivalent. The following table shows our third-party natural gas contracts receivable and payable positions.positions.
| | As of December 31, | | | | Gross receivables | | | Gross payables | | In millions | | 2011 | | | 2010 | | | 2011 | | | 2010 | | Netting agreements in place: | | | | | | | | | | | | | Counterparty is investment grade | | $ | 395 | | | $ | 515 | | | $ | 255 | | | $ | 341 | | Counterparty is non-investment grade | | | 23 | | | | 11 | | | | 47 | | | | 40 | | Counterparty has no external rating | | | 184 | | | | 260 | | | | 288 | | | | 363 | | No netting agreements in place: | | | | | | | | | | | | | | | | | Counterparty is investment grade | | | 4 | | | | 2 | | | | 0 | | | | 0 | | Counterparty has no external rating | | | 1 | | | | 0 | | | | 0 | | | | 0 | | Amount recorded on Statements of Financial Position | | $ | 607 | | | $ | 788 | | | $ | 590 | | | $ | 744 | |
| | As of December 31, | | | | Gross receivables | | | Gross payables | | In millions | | 2013 | | | 2012 | | | 2013 | | | 2012 | | Netting agreements in place: | | | | | | | | | | | | | Counterparty is investment grade | | $ | 496 | | | $ | 485 | | | $ | 265 | | | $ | 282 | | Counterparty is non-investment grade | | | - | | | | 9 | | | | 10 | | | | 13 | | Counterparty has no external rating | | | 260 | | | | 175 | | | | 393 | | | | 315 | | No netting agreements in place: | | | | | | | | | | | | | | | | | Counterparty is investment grade | | | 29 | | | | 7 | | | | 2 | | | | 1 | | Counterparty has no external rating | | | 1 | | | | 1 | | | | 1 | | | | - | | Amount recorded on Consolidated Statements of Financial Position | | $ | 786 | | | $ | 677 | | | $ | 671 | | | $ | 611 | |
We have certain trade and credit contracts that have explicit minimum credit rating requirements. These credit rating requirements typically give counterparties the right to suspend or terminate credit if our credit ratings are downgraded to non-investment grade status. Under such circumstances, we would need to post collateral to continue transacting business with some of itsour counterparties. If such collateral were not posted, our ability to continue transacting business with these counterparties would be impaired. If our credit ratings had been downgraded to non-investment grade status, the required amounts to satisfy potential collateral demands under such agreements with our counterparties would have totaled $15$9 million at December 31, 2011,2013, which would not have a material impact to our consolidated results of operations, cash flows or financial condition.
ITEM 8.8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of AGL Resources Inc.:
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of AGL Resources Inc. and its subsidiaries at December 31, 20112013 and 2010,2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20112013 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011,2013, based on criteria established in the Internal Control - Integrated Framework(1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)(COSO 1992). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Overover Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Companycompany are being made only in accordance with authorizations of management and directors of the Company;company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’scompany’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded Nicor from its assessment of internal control over financial reporting as of December 31, 2011 because it was acquired by the Company in a purchase business combination during 2011. We have also excluded Nicor from our audit of internal control over financial reporting. Nicor is a wholly-owned subsidiary whose total assets and total revenues represent 47% and 9%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2011.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP Atlanta, GeorgiaGA February 22, 20126, 2014
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in the Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
On December 9, 2011, we completed our merger with Nicor. As permitted by the Securities and Exchange Commission, management has elected to exclude Nicor from management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2011. Assets and revenues of Nicor represent 47% and 9%, respectively, of our total assets and total revenues as reported in our consolidated financial statements as of and for the year ended December 31, 2011.
Based on our evaluation under the framework in the Internal Control –- Integrated Framework (1992) issued by COSO, our management concluded that our internal control over financial reporting was effective as of December 31, 2011,2013, in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
The effectiveness of our internal control over financial reporting has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report appearing herein.
February 22, 20126, 2014
/s/ John W.W. Somerhalder II John W. Somerhalder II Chairman, President and Chief Executive Officer
/s/ Andrew W. Evans Andrew W. Evans Executive Vice President and Chief Financial Officer
AGL Resources Inc.RESOURCES INC. AND SUBSIDIARIES
| | As of December 31, | | In millions | | 2011 | | | 2010 | | Current assets | | | | | | | Cash and cash equivalents (Note 2) | | $ | 69 | | | $ | 24 | | Short-term investments (Note 2) | | | 53 | | | | 0 | | Receivables | | | | | | | | | Energy marketing receivables | | | 607 | | | | 788 | | Gas | | | 364 | | | | 204 | | Unbilled revenues | | | 216 | | | | 173 | | Other | | | 112 | | | | 13 | | Less allowance for uncollectible accounts | | | 15 | | | | 16 | | Total receivables (Note 2) | | | 1,284 | | | | 1,162 | | Inventories | | | | | | | | | Natural gas stored underground | | | 702 | | | | 607 | | Other | | | 48 | | | | 32 | | Total inventories (Note 2) | | | 750 | | | | 639 | | Derivative instruments – current portion (Note 2, Note 4 and Note 5) | | | 248 | | | | 182 | | Recoverable regulatory infrastructure program costs – current portion (Note 2) | | | 48 | | | | 48 | | Recoverable environmental remediation costs – current portion (Note 2 and Note 11) | | | 7 | | | | 7 | | Recoverable postretirement benefits - current (Note 2 and Note 6) | | | 29 | | | | 0 | | Prepaid expenses | | | 164 | | | | 66 | | Other current assets | | | 94 | | | | 38 | | Total current assets | | | 2,746 | | | | 2,166 | | Long-term assets and other deferred debits | | | | | | | | | Property, plant and equipment | | | 9,779 | | | | 6,266 | | Less accumulated depreciation | | | 1,879 | | | | 1,861 | | Property, plant and equipment – net (Note 2) | | | 7,900 | | | | 4,405 | | Goodwill (Note 2 and Note 3) | | | 1,813 | | | | 418 | | Intangible assets (Note 2 and Note 3) | | | 105 | | | | 3 | | Recoverable regulatory infrastructure program costs (Note 2) | | | 305 | | | | 244 | | Recoverable environmental remediation costs (Note 2 and Note 11) | | | 351 | | | | 164 | | Recoverable postretirement benefits – long-term (Note 2 and Note 6) | | | 262 | | | | 0 | | Long-term investments (Note 2) | | | 128 | | | | 11 | | Derivative instruments (Note 2, Note 4 and Note 5) | | | 66 | | | | 46 | | Other | | | 237 | | | | 63 | | Total long-term assets and other deferred debits | | | 11,167 | | | | 5,354 | | Total assets | | $ | 13,913 | | | $ | 7,520 | |
| | As of December 31, | | In millions | | 2013 | | | 2012 | | Current assets | | | | | | | Cash and cash equivalents | | $ | 105 | | | $ | 131 | | Short-term investments | | | 50 | | | | 58 | | Receivables | | | | | | | | | Energy marketing | | | 786 | | | | 677 | | Gas | | | 385 | | | | 362 | | Unbilled revenues | | | 268 | | | | 235 | | Other | | | 119 | | | | 89 | | Less allowance for uncollectible accounts | | | 29 | | | | 28 | | Total receivables, net | | | 1,529 | | | | 1,335 | | Inventories | | | | | | | | | Natural gas | | | 637 | | | | 679 | | Other | | | 30 | | | | 29 | | Total inventories | | | 667 | | | | 708 | | Regulatory assets | | | 162 | | | | 145 | | Derivative instruments | | | 99 | | | | 130 | | Prepaid expenses | | | 65 | | | | 141 | | Other | | | 56 | | | | 20 | | Total current assets | | | 2,733 | | | | 2,668 | | Long-term assets and other deferred debits | | | | | | | | | Property, plant and equipment | | | 11,104 | | | | 10,478 | | Less accumulated depreciation | | | 2,323 | | | | 2,131 | | Property, plant and equipment, net | | | 8,781 | | | | 8,347 | | Goodwill | | | 1,888 | | | | 1,837 | | Regulatory assets | | | 737 | | | | 944 | | Intangible assets | | | 173 | | | | 96 | | Long-term investments | | | 119 | | | | 136 | | Pension assets | | | 117 | | | | 33 | | Derivative instruments | | | 20 | | | | 14 | | Other | | | 88 | | | | 66 | | Total long-term assets and other deferred debits | | | 11,923 | | | | 11,473 | | Total assets | | $ | 14,656 | | | $ | 14,141 | |
See Notes to Consolidated Financial Statements.
AGL Resources Inc.RESOURCES INC. AND SUBISIDIARIES Consolidated Statements of Financial PositionCONSOLIDATED STATEMENTS OF FINANCIAL POSITION - Liabilities and EquityLIABILITIES AND EQUITY
| | As of December 31, | | In millions, except share amounts | | 2011 | | | 2010 | | Current liabilities | | | | | | | Energy marketing trade payable (Note 2) | | $ | 590 | | | $ | 744 | | Short-term debt (Note 8) | | | 1,323 | | | | 733 | | Current portion of long-term debt (Note 8) | | | 15 | | | | 300 | | Accounts payable – trade | | | 294 | | | | 178 | | Accrued regulatory infrastructure program costs – current portion (Note 2) | | | 131 | | | | 62 | | Customer credit balances and deposits | | | 152 | | | | 52 | | Accrued wages and salaries | | | 52 | | | | 51 | | Accrued taxes | | | 49 | | | | 48 | | Derivative instruments – current portion (Note 2, Note 4 and Note 5) | | | 99 | | | | 44 | | Accrued interest (Note 11) | | | 61 | | | | 40 | | Accrued natural gas costs (Note 2) | | | 53 | | | | 23 | | Accrued environmental remediation liabilities – current portion (Note 2 and Note 11) | | | 37 | | | | 14 | | Other current liabilities | | | 228 | | | | 143 | | Total current liabilities | | | 3,084 | | | | 2,432 | | Long-term liabilities and other deferred credits | | | | | | | | | Long-term debt (Note 4 and Note 8) | | | 3,561 | | | | 1,671 | | Accumulated deferred income taxes (Note 2 and Note 12) | | | 1,445 | | | | 768 | | Accrued pension obligations (Note 4 and Note 6) | | | 238 | | | | 186 | | Accumulated removal costs (Note 2) | | | 1,321 | | | | 182 | | Accrued regulatory infrastructure program costs (Note 2) | | | 145 | | | | 166 | | Accrued environmental remediation liabilities (Note 2 and Note 11) | | | 290 | | | | 129 | | Accrued other retirement benefit costs (Note 4 and Note 6) | | | 320 | | | | 36 | | Derivative instruments (Note 2, Note 4 and Note 5) | | | 11 | | | | 4 | | Other long-term liabilities and other deferred credits | | | 159 | | | | 110 | | Total long-term liabilities and other deferred credits | | | 7,490 | | | | 3,252 | | Total liabilities and other deferred credits | | | 10,574 | | | | 5,684 | | Commitments, guarantees and contingencies (see Note 11) | | | | | | | | | Equity | | | | | | | | | | | | | | | | | | Common shareholders’ equity | | | | | | | | | Common stock, $5 par value; 750 million shares authorized | | | 586 | | | | 391 | | Additional paid in capital | | | 1,989 | | | | 631 | | Retained earnings | | | 967 | | | | 943 | | Accumulated other comprehensive income (loss) | | | (217 | ) | | | (150 | ) | Treasury shares | | | (7 | ) | | | (2 | ) | Total common shareholders’ equity (Note 9) | | | 3,318 | | | | 1,813 | | Noncontrolling interest (Note 10) | | | 21 | | | | 23 | | Total equity | | | 3,339 | | | | 1,836 | | Total liabilities and equity | | $ | 13,913 | | | $ | 7,520 | |
| | As of December 31, | | In millions, except share amounts | | 2013 | | | 2012 | | Current liabilities | | | | | | | Short-term debt | | $ | 1,171 | | | $ | 1,377 | | Energy marketing trade payables | | | 671 | | | | 611 | | Other accounts payable - trade | | | 432 | | | | 334 | | Regulatory liabilities | | | 183 | | | | 161 | | Customer deposits and credit balances | | | 136 | | | | 143 | | Accrued taxes | | | 85 | | | | 53 | | Derivative instruments | | | 75 | | | | 33 | | Accrued wages and salaries | | | 73 | | | | 34 | | Accrued environmental remediation liabilities | | | 70 | | | | 57 | | Accrued interest | | | 52 | | | | 53 | | Accrued regulatory infrastructure program costs | | | 5 | | | | 121 | | Current portion of long-term debt and capital leases | | | - | | | | 226 | | Other | | | 169 | | | | 135 | | Total current liabilities | | | 3,122 | | | | 3,338 | | Long-term liabilities and other deferred credits | | | | | | | | | Long-term debt | | | 3,813 | | | | 3,327 | | Accumulated deferred income taxes | | | 1,667 | | | | 1,588 | | Regulatory liabilities | | | 1,518 | | | | 1,477 | | Accrued pension and retiree welfare benefits | | | 404 | | | | 508 | | Accrued environmental remediation liabilities | | | 377 | | | | 387 | | Derivative instruments | | | 5 | | | | 6 | | Other | | | 74 | | | | 75 | | Total long-term liabilities and other deferred credits | | | 7,858 | | | | 7,368 | | Total liabilities and other deferred credits | | | 10,980 | | | | 10,706 | | Commitments, guarantees and contingencies (see Note 11) | | | | | | | | | Equity | | | | | | | | | Common shareholders’ equity | | | | | | | | | Common stock, $5 par value; 750,000,000 shares authorized; outstanding: 118,888,876 shares at December 31, 2013 and 117,855,075 shares at December 31, 2012 | | | 595 | | | | 590 | | Additional paid-in capital | | | 2,054 | | | | 2,014 | | Retained earnings | | | 1,126 | | | | 1,035 | | Accumulated other comprehensive loss | | | (136 | ) | | | (218 | ) | Treasury shares, at cost: 216,523 shares at December 31, 2013 and 2012 | | | (8 | ) | | | (8 | ) | Total common shareholders’ equity | | | 3,631 | | | | 3,413 | | Noncontrolling interest | | | 45 | | | | 22 | | Total equity | | | 3,676 | | | | 3,435 | | Total liabilities and equity | | $ | 14,656 | | | $ | 14,141 | |
See Notes to Consolidated Financial Statements.
AGL Resources Inc.RESOURCES INC. AND SUBISIDIARIES
| | Years ended December 31, | | | Years ended December 31, | | In millions, except per share amounts | | 2011 | | | 2010 | | | 2009 | | | 2013 | | | 2012 | | | 2011 | | Operating revenues (Note 2) | | $ | 2,338 | | | $ | 2,373 | | | $ | 2,317 | | | Operating revenues (includes revenue taxes of $112 for 2013, $86 for 2012 and $9 for 2011) | | | $ | 4,617 | | | $ | 3,922 | | | $ | 2,338 | | Operating expenses | | | | | | | | | | | | | | | | | | | | | | | | | Cost of goods sold (Note 2) | | | 1,097 | | | | 1,164 | | | | 1,142 | | | Cost of goods sold | | | | 2,332 | | | | 1,791 | | | | 1,097 | | Operation and maintenance | | | 490 | | | | 497 | | | | 497 | | | | 999 | | | | 921 | | | | 501 | | Depreciation and amortization (Note 2) | | | 186 | | | | 160 | | | | 158 | | | Nicor merger expenses (Note 3) | | | 68 | | | | 6 | | | | 0 | | | Depreciation and amortization | | | | 418 | | | | 415 | | | | 186 | | Nicor merger expenses | | | | - | | | | 20 | | | | 57 | | Taxes other than income taxes | | | 57 | | | | 46 | | | | 44 | | | | 193 | | | | 165 | | | | 57 | | Total operating expenses | | | 1,898 | | | | 1,873 | | | | 1,841 | | | | 3,942 | | | | 3,312 | | | | 1,898 | | Gain on sale of Compass Energy | | | | 11 | | | | - | | | | - | | Operating income | | | 440 | | | | 500 | | | | 476 | | | | 686 | | | | 610 | | | | 440 | | Other income (expense) | | | | | | | | | | | | | | Other income (expense), net | | | 7 | | | | (1 | ) | | | 9 | | | Other income, net | | | | 17 | | | | 24 | | | | 7 | | Interest expenses, net | | | (136 | ) | | | (109 | ) | | | (101 | ) | | | (181 | ) | | | (184 | ) | | | (136 | ) | Total other expense | | | (129 | ) | | | (110 | ) | | | (92 | ) | | | (164 | ) | | | (160 | ) | | | (129 | ) | Earnings before income taxes | | | 311 | | | | 390 | | | | 384 | | | | 522 | | | | 450 | | | | 311 | | Income tax expenses (Note 12) | | | 125 | | | | 140 | | | | 135 | | | Income tax expenses | | | | 191 | | | | 164 | | | | 125 | | Net income | | | 186 | | | | 250 | | | | 249 | | | | 331 | | | | 286 | | | | 186 | | Less net income attributable to the noncontrolling interest (Note 10) | | | 14 | | | | 16 | | | | 27 | | | Less net income attributable to the noncontrolling interest | | | | 18 | | | | 15 | | | | 14 | | Net income attributable to AGL Resources Inc. | | $ | 172 | | | $ | 234 | | | $ | 222 | | | $ | 313 | | | $ | 271 | | | $ | 172 | | Per common share data (Note 2) | | | | | | | | | | | | | | Basic earnings per common share attributable to AGL Resources Inc. common shareholders (Note 2) | | $ | 2.14 | | | $ | 3.02 | | | $ | 2.89 | | | Diluted earnings per common share attributable to AGL Resources Inc. common shareholders (Note 2) | | $ | 2.12 | | | $ | 3.00 | | | $ | 2.88 | | | Per common share data | | | | | | | | | | | | | | Basic earnings per common share attributable to AGL Resources Inc. common shareholders | | | $ | 2.65 | | | $ | 2.32 | | | $ | 2.14 | | Diluted earnings per common share attributable to AGL Resources Inc. common shareholders | | | $ | 2.64 | | | $ | 2.31 | | | $ | 2.12 | | Cash dividends declared per common share | | $ | 1.90 | | | $ | 1.76 | | | $ | 1.72 | | | $ | 1.88 | | | $ | 1.74 | | | $ | 1.90 | | Weighted average number of common shares outstanding (Note 2) | | | | | | | | | | | | | | Weighted average number of common shares outstanding | | | | | | | | | | | | | | Basic | | | 80.4 | | | | 77.4 | | | | 76.8 | | | | 117.9 | | | | 117.0 | | | | 80.4 | | Diluted | | | 80.9 | | | | 77.8 | | | | 77.1 | | | | 118.3 | | | | 117.5 | | | | 80.9 | |
See Notes to Consolidated Financial Statements.
AGL RESOURCES INC. AND SUBSIDIARIES
| Years ended December 31, | In millions | 2011 | | | 2010 | | | 2009 | Comprehensive income attributable to AGL Resources Inc. (net of tax) | | | | | | | | | Net income attributable to AGL Resources Inc. | | $ | 172 | | | $ | 234 | | | $ | 222 | Other comprehensive income (loss),net of tax | | | | | | | | | | | | Retirement plans (Note 4 and Note 6) | | | | | | | | | | | | Unrealized (loss) gain arising during the period | | | (65 | ) | | | (28 | ) | | | 17 | Cash flow hedges (Note 5) | | | | | | | | | | | | Derivative instruments unrealized losses arising during the period | | | (5 | ) | | | (14 | ) | | | (12 | Reclassification of realized derivative losses to net income | | | 3 | | | | 9 | | | | 13 | Other comprehensive (loss) income | | | (67 | ) | | | (33 | ) | | | 18 | Comprehensive income (Note 9) | | $ | 105 | | | $ | 201 | | | $ | 240 | | | | | | | | | | | | | Comprehensive income (loss) attributable to noncontrolling interest (net of tax) | | | | | | | | | | | | Net income attributable to noncontrolling interest (Note 9) | | $ | 14 | | | $ | 16 | | | $ | 27 | Cash flow hedges (Note 5) | | | | | | | | | | | | Derivative instruments unrealized losses arising during the period | | | (1 | ) | | | (1 | ) | | | (7 | Reclassification of realized derivative losses to in net income | | | 1 | | | | 2 | | | | 7 | Other comprehensive income | | | 0 | | | | 1 | | | | 0 | Comprehensive income (Note 9) | | $ | 14 | | | $ | 17 | | | $ | 27 | | | | | | | | | | | | | Total comprehensive income (net of tax) | | | | | | | | | | | | Net income | | $ | 186 | | | $ | 250 | | | $ | 249 | Other comprehensive income (loss),net of tax | | | | | | | | | | | | Retirement benefit plans (Note 4 and Note 6) | | | | | | | | | | | | Unrealized (loss) gain arising during the period | | | (65 | ) | | | (28 | ) | | | 17 | Cash flow hedges (Note 5) | | | | | | | | | | | | Derivative instruments unrealized losses arising during the period | | | (6 | ) | | | (15 | ) | | | (19 | Reclassification of realized derivative losses to net income | | | 4 | | | | 11 | | | | 20 | Other comprehensive (loss) income | | | (67 | ) | | | (32 | ) | | | 18 | Comprehensive income (Note 9) | | $ | 119 | | | $ | 218 | | | $ | 267 |
| | Years Ended December 31, | | In millions | | 2013 | | | 2012 | | | 2011 | | Net income | | $ | 331 | | | $ | 286 | | | $ | 186 | | Other comprehensive income (loss), net of tax | | | | | | | | | | | | | Retirement benefit plans, net of tax | | | | | | | | | | | | | Actuarial gain (loss) arising during the period (net of income tax of $46, $16 and $47) | | | 66 | | | | (17 | ) | | | (71 | ) | Prior service costs arising during the period (net of income tax of $1) | | | - | | | | 1 | | | | - | | Reclassification of actuarial losses to net benefit cost (net of income tax of $10, $9 and $7) | | | 15 | | | | 13 | | | | 9 | | Reclassification of prior service costs to net benefit cost (net of income tax of $2, $2 and $3) | | | (3 | ) | | | (2 | ) | | | (3 | ) | Retirement benefit plans, net | | | 78 | | | | (5 | ) | | | (65 | ) | Cash flow hedges, net of tax | | | | | | | | | | | | | Net derivative instrument gains (losses) arising during the period (net of income tax of $1 and $2) | | | 1 | | | | (2 | ) | | | (5 | ) | Reclassification of realized derivative losses to net income (net of income tax of $1, $3 and $1) | | | 3 | | | | 6 | | | | 3 | | Cash flow hedges, net | | | 4 | | | | 4 | | | | (2 | ) | Other comprehensive income (loss), net of tax | | | 82 | | | | (1 | ) | | | (67 | ) | Comprehensive income | | | 413 | | | | 285 | | | | 119 | | Less comprehensive income attributable to noncontrolling interest | | | 18 | | | | 15 | | | | 14 | | Comprehensive income attributable to AGL Resources Inc. | | $ | 395 | | | $ | 270 | | | $ | 105 | |
See Notes to Consolidated Financial Statements.
AGL RESOURCES INC. AND SUBSIDIARIES
| | AGL Resources Inc. Shareholders | | | | | | | | | | Common stock | | | Additional paid-in- | | | Retained | | | Accumulated other comprehensive | | | Treasury | | | Noncontrolling | | | | | In millions, except per share amounts | | Shares | | | Amount | | | capital | | | Earnings | | | loss | | | shares | | | interest | | | Total | | As of December 31, 2008 | | | 76.9 | | | $ | 390 | | | $ | 676 | | | $ | 763 | | | $ | (134 | ) | | $ | (43 | ) | | $ | 32 | | | $ | 1,684 | | Net income | | | 0.0 | | | | 0 | | | | 0 | | | | 222 | | | | 0 | | | | 0 | | | | 27 | | | | 249 | | Other comprehensive income (Note 9) | | | 0.0 | | | | 0 | | | | 0 | | | | 0 | | | | 18 | | | | 0 | | | | 0 | | | | 18 | | Dividends on common stock ($1.72 per share) | | | 0.0 | | | | 0 | | | | 0 | | | | (132 | ) | | | 0 | | | | 5 | | | | 0 | | | | (127 | ) | Distributions to noncontrolling interests (Note 10) | | | 0.0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (20 | ) | | | (20 | ) | Issuance of treasury shares (Note 9) | | | 0.6 | | | | 0 | | | | (4 | ) | | | (5 | ) | | | 0 | | | | 17 | | | | 0 | | | | 8 | | Stock-based compensation expense (net of tax) (Note 7) | | | 0.0 | | | | 0 | | | | 7 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 7 | | As of December 31, 2009 | | | 77.5 | | | $ | 390 | | | $ | 679 | | | $ | 848 | | | $ | (116 | ) | | $ | (21 | ) | | $ | 39 | | | $ | 1,819 | | Net income | | | 0.0 | | | | 0 | | | | 0 | | | | 234 | | | | 0 | | | | 0 | | | | 16 | | | | 250 | | Other comprehensive (loss) income (Note 9) | | | 0.0 | | | | 0 | | | | 0 | | | | 0 | | | | (33 | ) | | | 0 | | | | 1 | | | | (32 | ) | Dividends on common stock ($1.76 per share) | | | 0.0 | | | | 0 | | | | 0 | | | | (136 | ) | | | 0 | | | | 3 | | | | 0 | | | | (133 | ) | Purchase of additional 15% ownership interest in SouthStar (Note 10) | | | 0.0 | | | | 0 | | | | (51 | ) | | | 0 | | | | (1 | ) | | | 0 | | | | (6 | ) | | | (58 | ) | Distributions to noncontrolling interests (Note 10) | | | 0.0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (27 | ) | | | (27 | ) | Purchase of treasury shares (Note 9) | | | (0.2 | ) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (7 | ) | | | 0 | | | | (7 | ) | Issuance of treasury shares (Note 9) | | | 0.7 | | | | 1 | | | | (5 | ) | | | (3 | ) | | | 0 | | | | 22 | | | | 0 | | | | 15 | | Stock-based compensation expense (net of tax) (Note 7) | | | 0.0 | | | | 0 | | | | 8 | | | | 0 | | | | 0 | | | | 1 | | | | 0 | | | | 9 | | As of December 31, 2010 | | | 78.0 | | | $ | 391 | | | $ | 631 | | | $ | 943 | | | $ | (150 | ) | | $ | (2 | ) | | $ | 23 | | | $ | 1,836 | | Net income | | | 0.0 | | | | 0 | | | | 0 | | | | 172 | | | | 0 | | | | 0 | | | | 14 | | | | 186 | | Other comprehensive (loss) income (Note 9) | | | 0.0 | | | | 0 | | | | 0 | | | | 0 | | | | (67 | ) | | | 0 | | | | 0 | | | | (67 | ) | Dividends on common stock ($1.90 per share) | | | 0.0 | | | | 0 | | | | 0 | | | | (148 | ) | | | 0 | | | | 0 | | | | 0 | | | | (148 | ) | Distributions to noncontrolling interests (Note 10) | | | 0.0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (16 | ) | | | (16 | ) | Benefit, dividend reinvestment and stock purchase plans | | | 0.8 | | | | 4 | | | | 18 | | | | 0 | | | | 0 | | | | (3 | ) | | | 0 | | | | 19 | | Purchase of treasury shares (Note 9) | | | 0.0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (2 | ) | | | 0 | | | | (2 | ) | Issuance of shares for Nicor merger (Note 3) | | | 38.2 | | | | 191 | | | | 1,332 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 1,523 | | Stock-based compensation expense (net of tax) (Note 7) | | | 0.0 | | | | 0 | | | | 8 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 8 | | As of December 31, 2011 | | | 117.0 | | | $ | 586 | | | $ | 1,989 | | | $ | 967 | | | $ | (217 | ) | | $ | (7 | ) | | $ | 21 | | | $ | 3,339 | |
| | AGL Resources Inc. Shareholders | | | | | | | | | | Common stock | | | Additional paid-in | | | Retained | | | Accumulated other comprehensive | | | Treasury | | | Noncontrolling | | | | | In millions, except per share amounts | | Shares | | | Amount | | | capital | | | earnings | | | loss | | | shares | | | interest | | | Total | | As of December 31, 2010 | | | 78.0 | | | $ | 391 | | | $ | 631 | | | $ | 943 | | | $ | (150 | ) | | $ | (2 | ) | | $ | 23 | | | $ | 1,836 | | Net income | | | - | | | | - | | | | - | | | | 172 | | | | - | | | | - | | | | 14 | | | | 186 | | Other comprehensive loss | | | - | | | | - | | | | - | | | | - | | | | (67 | ) | | | - | | | | - | | | | (67 | ) | Dividends on common stock ($1.90 per share) | | | - | | | | - | | | | - | | | | (148 | ) | | | - | | | | - | | | | - | | | | (148 | ) | Distributions to noncontrolling interests | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (16 | ) | | | (16 | ) | Stock granted, share-based compensation, net of forfeitures | | | - | | | | - | | | | (11 | ) | | | - | | | | - | | | | - | | | | - | | | | (11 | ) | Stock issued, dividend reinvestment plan | | | 0.3 | | | | 1 | | | | 9 | | | | - | | | | - | | | | - | | | | - | | | | 10 | | Stock issued, share-based compensation, net of forfeitures | | | 0.5 | | | | 3 | | | | 20 | | | | - | | | | - | | | | (3 | ) | | | - | | | | 20 | | Purchase of treasury shares | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2 | ) | | | - | | | | (2 | ) | Issuance of shares for Nicor merger | | | 38.2 | | | | 191 | | | | 1,332 | | | | - | | | | - | | | | - | | | | - | | | | 1,523 | | Stock-based compensation expense, net of tax | | | - | | | | - | | | | 8 | | | | - | | | | - | | | | - | | | | - | | | | 8 | | As of December 31, 2011 | | | 117.0 | | | $ | 586 | | | $ | 1,989 | | | $ | 967 | | | $ | (217 | ) | | $ | (7 | ) | | $ | 21 | | | $ | 3,339 | | Net income | | | - | | | | - | | | | - | | | | 271 | | | | - | | | | - | | | | 15 | | | | 286 | | Other comprehensive loss | | | - | | | | - | | | | - | | | | - | | | | (1 | ) | | | - | | | | - | | | | (1 | ) | Dividends on common stock ($1.74 per share) | | | - | | | | - | | | | - | | | | (203 | ) | | | - | | | | - | | | | - | | | | (203 | ) | Distributions to noncontrolling interests | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (14 | ) | | | (14 | ) | Stock granted, share-based compensation, net of forfeitures | | | - | | | | - | | | | (10 | ) | | | - | | | | - | | | | - | | | | - | | | | (10 | ) | Stock issued, dividend reinvestment plan | | | 0.3 | | | | 1 | | | | 9 | | | | - | | | | - | | | | - | | | | - | | | | 10 | | Stock issued, share-based compensation, net of forfeitures | | | 0.6 | | | | 3 | | | | 19 | | | | - | | | | - | | | | (1 | ) | | | - | | | | 21 | | Stock-based compensation expense, net of tax | | | - | | | | - | | | | 7 | | | | - | | | | - | | | | - | | | | - | | | | 7 | | As of December 31, 2012 | | | 117.9 | | | $ | 590 | | | $ | 2,014 | | | $ | 1,035 | | | $ | (218 | ) | | $ | (8 | ) | | $ | 22 | | | $ | 3,435 | | Net income | | | - | | | | - | | | | - | | | | 313 | | | | - | | | | - | | | | 18 | | | | 331 | | Other comprehensive income | | | - | | | | - | | | | - | | | | - | | | | 82 | | | | - | | | | - | | | | 82 | | Dividends on common stock ($1.88 per share) | | | - | | | | - | | | | - | | | | (222 | ) | | | - | | | | - | | | | - | | | | (222 | ) | Contribution from noncontrolling interest | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 22 | | | | 22 | | Distributions to noncontrolling interests | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (17 | ) | | | (17 | ) | Stock granted, share-based compensation, net of forfeitures | | | - | | | | - | | | | (6 | ) | | | - | | | | - | | | | - | | | | - | | | | (6 | ) | Stock issued, dividend reinvestment plan | | | 0.3 | | | | 1 | | | | 10 | | | | - | | | | - | | | | - | | | | - | | | | 11 | | Stock issued, share-based compensation, net of forfeitures | | | 0.7 | | | | 4 | | | | 24 | | | | - | | | | - | | | | - | | | | - | | | | 28 | | Stock-based compensation expense, net of tax | | | - | | | | - | | | | 12 | | | | - | | | | - | | | | - | | | | - | | | | 12 | | As of December 31, 2013 | | | 118.9 | | | $ | 595 | | | $ | 2,054 | | | $ | 1,126 | | | $ | (136 | ) | | $ | (8 | ) | | $ | 45 | | | $ | 3,676 | |
See Notes to Consolidated Financial Statements. |
AGL Resources Inc.RESOURCES INC. AND SUBSIDIARIES
| | Years ended December 31, | | In millions | | 2011 | | | 2010 | | | 2009 | | Cash flows from operating activities | | | | | | | | | | Net income | | $ | 186 | | | $ | 250 | | | $ | 249 | | Adjustments to reconcile net income to net cash flow provided by operating activities | | | | | | | | | | | | | Depreciation and amortization (Note 2) | | | 186 | | | | 160 | | | | 158 | | Deferred income taxes (Note 12) | | | 214 | | | | 92 | | | | 105 | | Change in derivative instrument assets and liabilities (Note 4 and Note 5) | | | (24 | ) | | | (2 | ) | | | 11 | | Changes in certain assets and liabilities | | | | | | | | | | | | | Energy marketing receivables and trade payables, net (Note 2) | | | 27 | | | | 47 | | | | (81 | ) | Inventories (Note 2) | | | 158 | | | | 33 | | | | (9 | ) | Accrued expenses | | | (77 | ) | | | 7 | | | | 19 | | Trade payables, other than energy marketing | | | (70 | ) | | | (12 | ) | | | 1 | | Accrued natural gas costs (Note 2) | | | (3 | ) | | | (14 | ) | | | 24 | | Receivables, other than energy marketing (Note 2) | | | 45 | | | | (26 | ) | | | 108 | | Prepaid expenses | | | (98 | ) | | | 6 | | | | (21 | ) | Other – net | | | (93 | ) | | | (15 | ) | | | 28 | | Net cash flow provided by operating activities | | | 451 | | | | 526 | | | | 592 | | Cash flows from investing activities | | | | | | | | | | | | | Acquisition of Nicor Inc, net of cash acquired (Note 3) | | | (912 | ) | | | 0 | | | | 0 | | Expenditures for property, plant and equipment (Note 2) | | | (427 | ) | | | (510 | ) | | | (476 | ) | Proceeds from the disposition of assets | | | 0 | | | | 73 | | | | 0 | | Other | | | 0 | | | | (5 | ) | | | 0 | | Net cash flow used in investing activities | | | (1,339 | ) | | | (442 | ) | | | (476 | ) | Cash flows from financing activities | | | | | | | | | | | | | Issuances of senior notes (Note 8) | | | 1,014 | | | | 0 | | | | 297 | | Payment of senior notes (Note 8) | | | (300 | ) | | | 0 | | | | 0 | | Issuances of private placement bonds (Note 8) | | | 275 | | | | 0 | | | | 0 | | Proceeds from term loan facility | | | 150 | | | | 0 | | | | 0 | | Payments of term loan facility | | | (150 | ) | | | 0 | | | | 0 | | Benefit, dividend reinvestment and stock purchase plan | | | 19 | | | | 8 | | | | 8 | | Net payments and borrowings of short-term debt | | | 91 | | | | 131 | | | | (264 | ) | Issuances of variable rate gas facility revenue bonds (Note 8) | | | 0 | | | | 160 | | | | 0 | | Payments of gas facility revenue bonds (Note 8) | | | 0 | | | | (160 | ) | | | 0 | | Purchase of treasury shares (Note 9) | | | (2 | ) | | | (7 | ) | | | 0 | | Distribution to noncontrolling interest (Note 10) | | | (16 | ) | | | (27 | ) | | | (20 | ) | Purchase 15% ownership in SouthStar from Piedmont (Note 10) | | | 0 | | | | (58 | ) | | | 0 | | Dividends paid on common shares (Note 9) | | | (148 | ) | | | (133 | ) | | | (127 | ) | Net cash flow provided by (used in) by financing activities | | | 933 | | | | (86 | ) | | | (106 | ) | Net increase (decrease) in cash and cash equivalents | | | 45 | | | | (2 | ) | | | 10 | | Cash and cash equivalents at beginning of period | | | 24 | | | | 26 | | | | 16 | | Cash and cash equivalents at end of period | | $ | 69 | | | $ | 24 | | | $ | 26 | | Cash paid during the period for | | | | | | | | | | | | | Interest | | $ | 116 | | | $ | 107 | | | $ | 93 | | Income taxes | | $ | 12 | | | $ | 58 | | | $ | 50 | | Non cash transactions | | | | | | | | | | | | | Merger with Nicor, common stock issued 38.2 million shares, value | | $ | 1,523 | | | $ | 0 | | | $ | 0 | |
| | Years ended December 31, | | In millions | | 2013 | | | 2012 | | | 2011 | | Cash flows from operating activities | | | | | | | | | | Net income | | $ | 331 | | | $ | 286 | | | $ | 186 | | Adjustments to reconcile net income to net cash flow provided by operating activities | | | | | | | | | | | | | Depreciation and amortization | | | 418 | | | | 415 | | | | 186 | | Change in derivative instrument assets and liabilities | | | 66 | | | | 72 | | | | (17 | ) | Deferred income taxes | | | (7 | ) | | | 154 | | | | 214 | | Gain on sale of Compass Energy | | | (11 | ) | | | - | | | | - | | Changes in certain assets and liabilities | | | | | | | | | | | | | Trade payables, other than energy marketing | | | 92 | | | | 51 | | | | (68 | ) | Prepaid taxes | | | 70 | | | | 37 | | | | (88 | ) | Accrued expenses | | | 70 | | | | (22 | ) | | | (77 | ) | Inventories | | | 41 | | | | 42 | | | | 158 | | Accrued natural gas costs | | | 2 | | | | 37 | | | | (3 | ) | Receivables, other than energy marketing | | | (80 | ) | | | 19 | | | | 45 | | Energy marketing receivables and trade payables, net | | | (49 | ) | | | (49 | ) | | | 27 | | Other, net | | | 28 | | | | (39 | ) | | | (112 | ) | Net cash flow provided by operating activities | | | 971 | | | | 1,003 | | | | 451 | | Cash flows from investing activities | | | | | | | | | | | | | Acquisition of Nicor, net of cash acquired | | | - | | | | - | | | | (912 | ) | Expenditures for property, plant and equipment | | | (749 | ) | | | (782 | ) | | | (427 | ) | Acquisitions of assets | | | (154 | ) | | | - | | | | - | | Disposition of assets | | | 19 | | | | - | | | | - | | Other, net | | | 8 | | | | (4 | ) | | | - | | Net cash flow used in investing activities | | | (876 | ) | | | (786 | ) | | | (1,339 | ) | Cash flows from financing activities | | | | | | | | | | | | | Issuances of senior notes | | | 494 | | | | - | | | | 1,289 | | Benefit, dividend reinvestment and stock purchase plan | | | 33 | | | | 21 | | | | 19 | | Contribution from noncontrolling interest | | | 22 | | | | - | | | | - | | Payment of senior notes | | | (225 | ) | | | - | | | | (300 | ) | Dividends paid on common shares | | | (222 | ) | | | (203 | ) | | | (148 | ) | Net (repayments) issuances of commercial paper | | | (206 | ) | | | 56 | | | | 91 | | Distribution to noncontrolling interest | | | (17 | ) | | | (14 | ) | | | (16 | ) | Payment of medium-term notes | | | - | | | | (15 | ) | �� | | - | | Proceeds from termination of interest rate swap | | | - | | | | 17 | | | | - | | Proceeds from term loan facility | | | - | | | | - | | | | 150 | | Payments of term loan facility | | | - | | | | - | | | | (150 | ) | Other, net | | | - | | | | (17 | ) | | | (2 | ) | Net cash flow (used in) provided by financing activities | | | (121 | ) | | | (155 | ) | | | 933 | | Net (decrease) increase in cash and cash equivalents | | | (26 | ) | | | 62 | | | | 45 | | Cash and cash equivalents at beginning of period | | | 131 | | | | 69 | | | | 24 | | Cash and cash equivalents at end of period | | $ | 105 | | | $ | 131 | | | $ | 69 | | Cash paid (received) during the period for | | | | | | | | | | | | | Interest | | $ | 175 | | | $ | 174 | | | $ | 116 | | Income taxes | | | 120 | | | | (37 | ) | | | 12 | | Non cash transactions | | | | | | | | | | | | | Refinancing of gas facility revenue bonds | | $ | 200 | | | $ | - | | | $ | - | | Merger with Nicor, common stock issued 38.2 million shares | | | - | | | | - | | | | 1,523 | |
See Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
Note 1 – - Organization and Basis of Presentation
General
AGL Resources Inc. is an energy services holding company that conducts substantially all of its operations through its subsidiaries. Unless the context requires otherwise, references to “we,” “us,” “our,” the “company”“company,” or “AGL Resources” mean consolidated AGL Resources Inc. and its subsidiaries.
Business Combinations
On December 9, 2011, we closed our merger with Nicor and created a combined company with increased scale and scope in the distribution, storage and transportation of natural gas. See Note 3 for additional information.
Basis of Presentation
Our consolidated financial statements as of and for the period ended December 31, 20112013 are prepared in accordance with GAAP and under the rules of the SEC. Our consolidated financial statements include our accounts, the accounts of our wholly owned subsidiaries, the accounts of our majority-owned and other controlled subsidiaries and the accounts of our variable interest entity for which we are the primary beneficiary. For unconsolidated entities that we do not control, but exercise significant influence over, we primarily use the equity method of accounting and our proportionate share of income or loss is recorded on the Consolidated Statements of Income. See Note 10 for additional information. We have eliminated intercompany profits and transactions in consolidation except for intercompany profits where recovery of such amounts are probable under the affiliates’ rate regulation process.
Certain amounts from prior periods have been reclassified and revised to conform to the current-period presentation. The reclassifications and revisions had no material impact on our prior-period balances.
During 2013, we recorded a $4 million ($2 million net of tax) reduction to our interest expense to correct the amortization period of credit fees related to the execution of the AGL Credit Facility in 2010 and its subsequent amendment in 2011.
On December 9, 2011 we closed our merger with Nicor and created a combined company with increased scale and scope in the distribution, storage and transportation of natural gas. The businesses acquired in the merger are included in our consolidated financial statements for all of 2013 and 2012, and for 22 days of 2011.
Note 2 – - Significant Accounting Policies and Methods of Application
Cash and Cash Equivalents
Our cash and cash equivalents primarily consist primarily of cash on deposit, money market accounts and certificates of deposit ofheld by domestic subsidiaries with original maturities of three months or less.
Receivables As of December 31, 2013 and Allowance for Uncollectible Accounts
Our receivables primarily consist2012, we had $80 million of natural gas salescash and transportation services billed to residential, commercial, industrialshort and other customers. We bill customers monthly, and our accounts receivable are due within 30 days. For the majority of our receivables, we establish an allowance for doubtful accounts based on our collection experience and other factors. For receivables where we are aware of a specific customer’s inability or reluctance to pay, we record an allowance for doubtful accounts against amounts due to reduce the net receivable balance to the amount we reasonably expect to collect. However, if circumstances change, our estimate of the recoverability of accounts receivable could change as well. Circumstances that could affect our estimates include, but are not limited to, customer credit issues, the level of natural gas prices, customer deposits and general economic conditions. Customers’ accounts are written off once we deem them to be uncollectible.
Nicor Gas Credit risk exposure at Nicor Gas is mitigated by the bad debt rider approved by the Illinois Commission on February 2, 2010. The bad debt rider provides for the recovery from (or refund to) customers of the difference between Nicor Gas’ actual bad debt experience on an annual basis and the benchmark bad debt expense included in its rates for the respective year. For more information on the bad debt rider, see discussion in Regulatory Assets and Liabilities.
Atlanta Gas Light Concentration of credit risk occurs at Atlanta Gas Light for amounts billed for services and other costs to its customers, which consist of eleven Marketers in Georgia. The credit risk exposure to Marketers varies seasonally, with the lowest exposure in the nonpeak summer months and the highest exposure in the peak winter months. Marketers are responsible for the retail sale of natural gas to end-use customers in Georgia. The functions of the retail sale of gas include customer service, billings, collections, and the purchase and sale of natural gas. Atlanta Gas Light’s tariff allows it to obtain security support in an amount equal to no less than two times a Marketer’s highest month’s estimated bill from Atlanta Gas Light.
Investments
Ourlong-term investments in marketable securities are categorized at the date of acquisition as trading, held-to-maturity, or available-for-sale. Trading securities, which include money market funds, are carried at fair value and are classified as current assets unless held to satisfy a long-term obligation. We classify money market funds held by our non-United States subsidiaries as short-term investments and all others are classified as cash equivalents. Debt securities are categorized as held-to-maturity when our intent and ability is to hold the securities to maturity. Held-to-maturity securities are included in either short-term or long-term investments based upon their contractual maturity date. We carry held-to-maturity securities at amortized cost, which approximates fair value. Available-for-sale securities are carried at fair value, with unrealized gains and losses, net of tax, reported in common equity as a component of accumulated OCI. Available-for-sale securities are classified as noncurrent assets unless the intent is to sell the security within 12 months. The specific identification method is used to determine realized gains or losses on the sale of marketable securities. Investments in equity securities that do not have a readily determinable fair value and do not qualify for the equity method are carried at cost.
Our investments in debt and equity securities at December 31 are as follows:
In millions | | 2011 | | Money market funds | | $ | 59 | | Corporate bonds | | | 6 | | Other investments | | | 7 | | Total | | $ | 72 | |
Investments in debt and equity securities are classified on the Consolidated Statements of Financial Position at December 31 as follows:
In millions | | 2011 | | Cash equivalents | | $ | 9 | | Short-term investments | | | 53 | | Long-term investments | | | 10 | | Total | | $ | 72 | |
Investments categorized as trading (including money market funds) totaled $59 million at December 31, 2011. Corporate bondsheld by Tropical Shipping. These cash and certaininvestment amounts are available for use by us or our other investments are categorized as held-to-maturity. The contractual maturitiesoperations only if we repatriate a portion of the held-to-maturity investments at December 31, 2011 are as follows:
| | Years to maturity | | | | | In millions | | Less than 1 year | | | 1-5 years | | | 5-10 years | | | Total | | Held-to-maturity investments | | $ | 2 | | | $ | 5 | | | $ | 1 | | | $ | 8 | |
Our investments also include certain investments, including certificates of deposit and bank accounts, maintained to fulfill statutory or contractual requirements. These investments totaled $2 million at December 31, 2011. In addition, we hold a $3 million investment in a port facility development venture carried at cost. Gains or losses included inTropical Shipping’s earnings resulting from the sale of investments were not significant.
Inventories
Except for Nicor Gas, distribution operations records natural gas stored underground at WACOG. Nicor Gas’ inventory is carried at cost on a last-in-first-out (LIFO) basis. For our wholesale services and retail operations businesses, we account for natural gas inventory at the lower of WACOG or market price.
Based on the average cost of gas purchased in December 2011, the estimated replacement cost of Nicor Gas’ inventory at December 31, 2011 exceeded the LIFO cost by $189 million. During the 22 days of December 2011, Nicor Gas had an immaterial LIFO liquidation.
Our retail operations and wholesale services segments evaluate the weighted-average cost of their natural gas inventories against market prices to determine whether any declines in market prices below the WACOG are other-than-temporary. For any declines considered to be other-than-temporary, we record adjustments to reduce the weighted-average cost of the natural gas inventory to market price. Consequently, as a result of declining natural gas prices, Retail operations and wholesale services charged LOCOM adjustments to cost of goods sold, to reduce the value of their inventories to market value in the following amounts.
In millions | | 2011 | | | 2010 | | | 2009 | | Retail operations | | $ | 5 | | | $ | 0 | | | $ | 6 | | Wholesale services | | | 31 | | | | 8 | | | | 8 | |
In Georgia’s competitive environment, Marketers including SouthStar, sell natural gas to firm end-use customers at market-based prices. Partform of the unbundling process, which resulted from deregulationa dividend, and provides this competitive environment, is the assignment to Marketers of certain pipeline services that Atlanta Gas Light has under contract. Atlanta Gas Light assigns, onpay a monthly basis, the majority of the pipeline storage services that it has under contract to Marketers, along with a correspondingsignificant amount of inventory.U.S. income tax that has been previously deferred. See Note 12 for additional information on our income taxes.
Energy Marketing Receivables and Payables
Our wholesale services segment provides services to retail and wholesale marketers and utility and industrial customers. These customers, also known as counterparties, utilize netting agreements, which enable our wholesale services segment to net receivables and payables by counterparty.counterparty upon settlement. Wholesale services also nets across product lines and against cash collateral, provided the master netting and cash collateral agreements include such provisions. TheWhile the amounts due from, or owed to, wholesale services’ counterparties are settled net, butthey are recorded on a gross basis in our Consolidated Statements of Financial Position as energy marketing receivables and energy marketing payables.
Our wholesale services segment has some trade and credit contracts that have explicitcontain minimum credit rating requirements. These credit rating requirements typically give counterparties the right to suspend or terminate credit if our credit ratings are downgraded to non-investment grade status. Under such circumstances, wholesale services would need to post collateral to continue transacting business with some of its counterparties. No collateral has been posted under such provisions sinceTo date, our credit ratings have always exceeded the minimum requirements. As of December 31, 20112013 and December 31, 2010,2012, the collateral that wholesale services would have been required to post if our credit ratings had been downgraded to non-investment grade status would not have had a material impact to our consolidated results of operations, cash flows or financial condition. However, ifIf such collateral were not posted, wholesale services’ ability to continue transacting business with these counterparties would be negatively impacted.
Wholesale services has a concentration of credit risk for services it provides to marketers and to utility and industrial counterparties. This credit risk is generally concentrated in 20 of its counterparties and is measured by 30-day receivable exposure plus forward exposure, which is generally concentrated in 20 of its counterparties.exposure. We evaluate the credit risk of our counterparties using aan S&P equivalent credit rating, which is determined by a process of converting the lower of the S&P or Moody’s rating to an internal rating ranging from 9.009 to 1.00,1, with 9.009 being equivalent to AAA/Aaa by S&P and Moody’s and 1.001 being equivalent to D or D/Default by S&P and Moody’s. For a customer withoutA counterparty that does not have an external rating we assignis assigned an internal rating based on our analysis of the strength of its financial ratios. The following table provides additional information about wholesale services’ credit exposure at December 31, 2011,2013, excluding $11$8 million of customer deposits.
| | | Dollars in millions | | Total (1) | | | # of top counterparties | | | Concentration risk % | | | Total (1) | | | # of top counterparties | | | Concentration risk % | | Credit exposure | | $ | 304 | | | | 20 | | | | 60 | % | | $ | 274 | | | | 20 | | | | 51 | % |
(1) | Our counterparties or the counterparties’ guarantors had a weighted average S&P equivalent rating of BBB+A- at December 31, 2011. 2013. |
The weighted average credit rating is obtained by multiplying each customer’scounterparty’s assigned internal rating by its credit exposure and then addingsumming the individual results for all counterparties. That totalThe sum is divided by the aggregate total exposure. Thisexposure and this numeric value is then converted to an S&P equivalent.
We have established credit policies to determine and monitor the creditworthiness of counterparties, including requirements for posting of collateral or other credit security, as well as the quality of pledged collateral. Collateral or credit security is most often in the form of cash or letters of credit from an investment-grade financial institution, but may also include cash or United StatesU.S. government securities held by a trustee. When wholesale services is engaged in more than one outstanding derivative transaction with the same counterparty and it also has a legally enforceable netting agreement with that counterparty, the “net” mark-to-market exposure represents the netting of the positive and negative exposures with that counterparty andcombined with a reasonable measure of our credit risk. Wholesale services also uses other netting agreements with certain counterparties with whom it conducts significant transactions.
Receivables and Allowance for Uncollectible Accounts
Our other trade receivables consist primarily of natural gas sales and transportation services billed to residential, commercial, industrial and other customers. We bill customers monthly, and our accounts receivable are due within 30 days. For the majority of our receivables, we establish an allowance for doubtful accounts based on our collection experience and other factors. For our remaining receivables, if we are aware of a specific customer’s inability or reluctance to pay, we record an allowance for doubtful accounts against amounts due to reduce the receivable balance to the amount we reasonably expect to collect. If circumstances change, our estimate of the recoverability of accounts receivable could change as well. Circumstances that could affect our estimates include, but are not limited to, customer credit issues, customer deposits and general economic conditions. Customers’ accounts are written off once we deem them to be uncollectible.
Nicor Gas Credit risk exposure at Nicor Gas is mitigated by a bad debt rider approved by the Illinois Commission. The bad debt rider provides for the recovery from (or refund to) customers of the difference between Nicor Gas’ actual bad debt experience on an annual basis and the benchmark bad debt expense used to establish its base rates for the respective year. See Note 3 for additional information on the bad debt rider.
Atlanta Gas Light Concentration of credit risk occurs at Atlanta Gas Light for amounts billed for services and other costs to its customers, which consist of 12 Marketers in Georgia. The credit risk exposure to Marketers varies seasonally, with the lowest exposure in the nonpeak summer months and the highest exposure in the peak winter months. Marketers are responsible for the retail sale of natural gas to end-use customers in Georgia. The functions of the retail sale of gas include the purchase and sale of natural gas, customer service, billings and collections. We obtain credit security support in an amount equal to no less than two times a Marketer’s highest month’s estimated bill from Atlanta Gas Light.
Inventories
For our regulated utilities, except Nicor Gas, our natural gas inventories and the inventories we hold for Marketers in Georgia are carried at cost on a WACOG basis. In Georgia’s competitive environment, Marketers sell natural gas to firm end-use customers at market-based prices. Part of the unbundling process, which resulted from deregulation and provides this competitive environment, is the assignment to Marketers of certain pipeline services that Atlanta Gas Light has under contract. On a monthly basis, Atlanta Gas Light assigns the majority of the pipeline storage services that it has under contract to Marketers, along with a corresponding amount of inventory. Atlanta Gas Light also retains and manages a portion of its pipeline storage assets and related natural gas inventories for system balancing and to serve system demand. See Note 11 for information regarding a regulatory filing by Atlanta Gas Light related to gas inventory.
Nicor Gas’ inventory is carried at cost on a LIFO basis. Inventory decrements occurring during the year that are restored prior to year end are charged to cost of goods sold at the estimated annual replacement cost. Inventory decrements that are not restored prior to year end are charged to cost of goods sold at the actual LIFO cost of the layers liquidated. Since the cost of gas, including inventory costs, is charged to customers without markup, subject to Illinois Commission review, LIFO liquidations have no impact on net income. At December 31, 2013, the Nicor Gas LIFO inventory balance was $168 million. Based on the average cost of gas purchased in December 2013, the estimated replacement cost of Nicor Gas’ inventory at December 31, 2013 was $402 million, which exceeded the LIFO cost by $234 million.
Our retail operations, wholesale services, and midstream operations segments carry inventory at the lower of cost or market value, where cost is determined on a WACOG basis. For these segments, we evaluate the weighted average cost of their natural gas inventories against market prices to determine whether any declines in market prices below the WACOG are other than temporary. For any declines considered to be other than temporary, we record adjustments to reduce the weighted average cost of the natural gas inventory to market value. For the periods presented, we recorded LOCOM adjustments to cost of goods sold in the following amounts to reduce the value of our inventories to market value.
In millions | | 2013 | | | 2012 | | | 2011 | | Retail operations | | $ | 1 | | | $ | 3 | | | $ | 5 | | Wholesale services | | | 8 | | | | 19 | | | | 31 | | Midstream operations | | | - | | | | 1 | | | | - | |
Fair Value Measurements
We have financial and nonfinancial assets and liabilities subject to fair value measurement. The financial assets and liabilities measured and carried at fair value include cash and cash equivalents, and derivative assets and liabilities.The carrying values of cash and cash equivalents, receivables, short and long-term investments, derivative assets and liabilities, accounts payable, short-term debt, retirement plan assets, other current assets and liabilities, and accrued interest approximate fair value. See Note 4 for additional fair value disclosures.
As defined in the authoritative guidance related to fair value measurements and disclosures, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We utilize market data or assumptions that market participants would use in valuing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. We primarily apply the market approach for recurring fair value measurements to utilize the best available information. Accordingly, we use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. We are able to classify fair value balances based on the observance of those inputs. The guidance establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy defined by the guidance are as follows:
Level 1 Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Our Level 1 items consist of exchange-traded derivatives, money market funds and certain retirement plan assets.
Level 2 Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial and commodity instruments that are valued using valuation methodologies. These methodologies are primarily industry-standard methodologies that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. We obtain market price data from multiple sources in order to value some of our Level 2 transactions and this data is representative of transactions that occurred in the market place. As we aggregate our disclosures by counterparty, the underlying transactions for a given counterparty may be a combination of exchange-traded derivatives and values based on other sources.marketplace. Instruments in this category include shorter tenor exchange-traded and non-exchange-traded derivatives such as OTC forwards and options and certain retirement plan assets.
Level 3 Pricing inputs include significant unobservable inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result into determine management’s best estimate of fair value.value from the perspective of market participants. Level 3 instruments include those that may be more structured or otherwise tailored to customers’ needs. Our Level 3 assets and liabilities are primarily related to our retirement plan assets as described in Note 4 and Note 6. However, we have nonretirement plan Level 3 assets and liabilities that are described further in Note 3, Note 4 and Note 5. Transfers into and out of Level 3 reflect the liquidity at the relevant natural gas trading locations and dates, which affects the significance of unobservable inputs used in the valuation applied to natural gas derivatives. Our Level 3 assets, liabilities and any applicable transfers are primarily related to our pension and other retirement benefit plan assets as described in Note 3, Note 4 and Note 6. Transfers for retirement plan assets are described further in Note 4. We determine both transfers into and out of Level 3 using values at the end of the interim period in which the transfer occurred.
The authoritative guidance related to fair value measurements and disclosures also includes a two-step process to determine ifwhether the market for a financial asset is inactive andor a transaction is not distressed. Currently, this authoritative guidance does not affect us, as our derivative instruments are traded in active markets.
Derivative Instruments
Our policy is to classify derivative cash flows and gains and losses within the same financial statement category as the hedged item, rather than by the nature of the instrument.
Fair Value HierarchyAs required by the authoritative guidance, derivative Derivative assets and liabilities are classified in their entirety into the previously described fair value hierarchy levels based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. The determination of the fair values incorporates various factors required under the guidance. These factors include not only the credit standing of the counterparties involved and the impact of credit enhancements (such as cash deposits, letters of credit and priority interests), but also the impact of our own nonperformance risk on our liabilities. To mitigate the risk that a counterparty to a derivative instrument defaults on settlement or otherwise fails to perform under contractual terms, we have established procedures to monitor the creditworthiness of counterparties, seek guarantees or collateral back-upbackup in the form of cash or letters of credit and, in most instances, enter into netting arrangements. See Note 4 for additional fair value disclosures.
Netting of Cash Collateral and Derivative Assets and Liabilities under Master Netting Arrangements We maintain accounts with brokers to facilitate financial derivative transactions in support of our energy marketing and risk management activities. Based on the value of our positions in these accounts and the associated margin requirements, we may be required to deposit cash into these broker accounts.
Under authoritative guidance related to derivatives and hedging weWe have elected to net derivative assets and liabilities under master netting arrangements.arrangements on our Consolidated Statements of Financial Position. With that election, we are also required to offset on our Consolidated Statements of Financial Position cash collateral held in our broker accounts with the associated net fair value of the instruments in the accounts. See Note 54 for additional information about our cash collateral.
Natural Gas and Weather Derivative Instruments
The fair value of the natural gas and weather derivative instruments that we use to manage exposures arising from changing natural gas prices and weather risk reflects the estimated amounts that we would receive or pay to terminate or close the contracts at the reporting date, taking into account the current unrealized gains or losses on open contracts. We use external market quotes and indices to value substantially all of our derivative instruments. See Note 5 for additional derivative disclosures.
Distribution Operations Nicor Gas, subject to review by the Illinois Commission, and Elizabethtown Gas, in accordance with a directive from the New Jersey BPU, enter into derivative instruments to hedge the impact of market fluctuations in natural gas prices. In accordance with the authoritative guidance related to derivatives and hedging, such derivative transactions are accounted for at fair value each reporting period in our Consolidated Statements of Financial Position. In accordance with regulatory requirements, any realized gains and losses related to these derivatives are reflected in natural gas costs and ultimately included in billings to customers. Thus, hedgeAs previously noted, such derivative instruments are reported at fair value each reporting period in our Consolidated Statements of Financial Position. Hedge accounting is not elected and, in accordance with accounting guidance pertaining to rate-regulated entities, unrealized changes in the fair value of these derivative instruments are deferred or accrued as regulatory assets or liabilities.liabilities until the related revenue is recognized.
For our Illinois weather risk associated with Nicor Gas, also enters into swap agreementswe implemented a corporate weather hedging program in the second quarter of 2013 that utilizes OTC weather derivatives to reduce the earnings volatilityrisk of certain forecastedlower operating costs arisingmargins potentially resulting from fluctuationssignificantly warmer-than-normal weather in natural gas prices, such as the purchaseIllinois. For January through April of natural gas for use in its operations. These derivative instruments are carried at fair value. To the extent hedge accounting is not elected, changes in such fair values are immediately recorded2014, we have purchased a put option that would partially offset lower operating margins resulting from lower customer usage in the currentevent of warmer-than-normal weather, but would not be exercised in the event of colder-than-normal weather and, therefore, not offset higher margins if Heating Degree Days for the period as operation and maintenance expense.are at normal or colder-than-normal levels. We will continue to use available methods to mitigate our exposure to weather in Illinois for future periods.
Retail Operations We have designated a portion of theseour derivative instruments, consisting of financial swaps to manage the risk associated with forecasted natural gas purchases and sales, as cash flow hedges under the authoritative guidance related to derivatives and hedging.. We record derivative gains or losses arising from cash flow hedges in OCI and reclassify them into earnings in the same period as the settlement ofthat the underlying hedged item.item is recognized in earnings.
We currently have minimal hedge ineffectiveness defined as, which occurs when the gains or losses on the hedging instrument do notmore than offset the losses or gains on the hedged item. ThisAny cash flow hedge ineffectiveness is recorded in cost of goods sold in our Consolidated Statements of Income in the period in which it occurs. We have not designated the remainder of our derivative instruments as hedges under the authoritative guidance related to derivatives and hedgingfor accounting purposes and, accordingly, we record changes in the fair valuevalues of such instruments within cost of goods sold in our Consolidated Statements of Income in the period of change.
We also enter into weather derivative contracts as economic hedges of operating margins in the event of warmer-than-normal weather in the Heating Season. We accountExchange-traded options are carried at fair value, with changes reflected in operating revenues. Non exchange-traded options are accounted for these contracts using the intrinsic value method under the authoritative guidance related to financial instruments. These weather derivative instrumentsand do not qualify for hedge accounting hedge designation and changesdesignation. Changes in the intrinsic value for non exchange-traded contracts are also reflected in cost of goods sold onoperating revenues in our Consolidated Statements of Income.
Wholesale Services We purchase natural gas for storage when the difference in the current market price we pay to buy and transport natural gas plus the cost to store and finance the natural gas is less than the market price we can receive in the future, resulting in a positive net operating margin. We use NYMEX futures contracts and other OTC derivativescontracts to sell natural gas at that future price to substantially lock in the operating margin we will ultimately realize when the stored natural gas is sold.sold. We also enter into transactions to secure transportation capacity between delivery points in order to serve our customers and various markets. We use NYMEX futures and OTC contracts to capture the price differential or spread between the locations served by the capacity in order to substantially lock in the operating margin we will ultimately realize when we physically flow natural gas between delivery points. These futures contracts generally meet the definition of derivatives under the authoritative guidance related to derivatives and hedging and are accounted forcarried at fair value in our Consolidated Statements of Financial Position, with changes in fair value recorded in operating revenues in our Consolidated Statements of Income in the period of change. These futures contracts are not designated as hedges as may be permitted under the guidance.for accounting purposes.
The purchase, transportation, storage and sale of natural gas are accounted for on a weighted average cost or accrual basis, as appropriate, rather than on the fair value basis we utilize for the derivatives used to mitigate the natural gas price risk associated with our storage and transportation portfolio. We incur monthly demand charges for the contracted storage and transportation capacity, and payments associated with asset management agreements, and we recognize these demand charges and payments in our Consolidated Statements of Income in the period they are incurred. This difference in accounting methods can result in volatility in our reported earnings, even though the economic margin is essentially unchanged from the datedates the transactions were consummated. Midstream OperationsDebt During the construction of the storage caverns, Golden Triangle Storage uses derivative instruments to reduce its exposure to the risk of changes in the price of natural gas that will be purchased in future periods for pad gas.
Golden Triangle Storage’s derivative instruments have been used to economically hedge operational purchases and sales and do not qualify as cash flow hedges. The pad gas is considered to be a component of the storage cavern’s construction costs; as a result, any derivative gains or losses arising from the cash flow hedges will remain in accumulated OCI until the pad gas is sold, which will not occur until the storage caverns are decommissioned. The fair value of these derivative instruments currently have minimal hedge ineffectiveness which is recorded in cost of goods sold in our Consolidated Statements of Income in the period in which it occurs. Golden Triangle Storage began entering into these derivative transactions during 2009.
Debt
We estimate the fair value of debt using a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration, optionality and risk profile. In determining the market interest yield curve, we consider our currently assigned ratings for unsecured debt and the secured rating for the Nicor Gas first mortgage bonds.bonds.
Property, Plant and Equipment
A summary of our PP&E by classification as of December 31, 20112013 and 20102012 is provided in the following table.
In millions | | 2011 | | | 2010 | | Transmission and distribution | | $ | 7,579 | | | $ | 4,955 | | Cargo shipping | | | 146 | | | | n/a | | Storage | | | 931 | | | | 580 | | Other | | | 747 | | | | 484 | | Construction work in progress | | | 376 | | | | 247 | | Total gross PP&E | | | 9,779 | | | | 6,266 | | Less accumulated depreciation | | | 1,879 | | | | 1,861 | | Total net PP&E | | $ | 7,900 | | | $ | 4,405 | |
In millions | | 2013 | | | 2012 | | Transportation and distribution | | $ | 8,384 | | | $ | 7,992 | | Storage facilities | | | 1,170 | | | | 1,149 | | Shipping vessels and containers | | | 148 | | | | 145 | | Other | | | 854 | | | | 820 | | Construction work in progress | | | 548 | | | | 372 | | Total PP&E, gross | | | 11,104 | | | | 10,478 | | Less accumulated depreciation | | | 2,323 | | | | 2,131 | | Total PP&E, net | | $ | 8,781 | | | $ | 8,347 | |
Distribution Operations Our natural gas utilities’ PP&E consists of property and equipment that is currently in use, being held for future use and currently under construction. We report PP&E at its original cost, which includes:
· | material and laborlabor; |
· | construction overhead costscosts; |
· | an allowance for funds used during construction (AFUDC) which represents the estimated cost of funds, from both debtAFUDC; and, equity sources, used to finance the construction of major projects and is capitalized in rate base for ratemaking purposes when the completed projects are placed in service |
· | Nicor Gas’ pad gas –- the portion considered to be non-recoverable is recorded as depreciable PP&E, while the portion considered to be recoverable is recorded as non-depreciable PP&E. |
We recognize no gains or losses on depreciable utility property that is retired or otherwise disposed, as required under the composite depreciation method. Such gains and losses are ultimately refunded to, or recovered from, customers through future rate adjustments.adjustments. Our natural gas utilities also hold property, primarily land; this is not presently used and useful in utility operations and is not included in rate base. Upon sale, any gain or loss is recognized in other income.
Retail Operations, Wholesale Services, Midstream Operations, Cargo Shipping and Other PP&E includes property that is in use and under construction, and we report it at cost. We record a gain or loss within operation and maintenance expense for retired or otherwise disposed-of property. Natural gas in salt-dome storage at Jefferson Island and Golden Triangle Storage that is retained as pad gas is classified as non-depreciable PP&E and is valuedcarried at cost. Central Valley has two types of pad gas in its depleted reservoir storage facility. The first is non-depreciable PP&E, which is valuedcarried at cost, and the second is non-recoverable, toover which we have no contractual ownership.ownership.
Depreciation Expense
We compute depreciation expense for distribution operations by applying composite, straight-line rates (approved by the state regulatory agencies) to the investment in depreciable property. More information on our rates used and the rate method is provided in the following table.
| | 2011 | | | 2010 | | | 2009 | | | 2013 | | | 2012 | | | 2011 | | Atlanta Gas Light (1) | | | 2.6 | % | | | 2.5 | % | | | 2.5 | % | | | 2.6 | % | | | 2.6 | % | | | 2.6 | % | Chattanooga Gas (1) | | | 2.5 | % | | | 2.8 | % | | | 3.4 | % | | | 2.5 | % | | | 2.5 | % | | | 2.5 | % | Elizabethtown Gas (2) | | | 2.5 | % | | | 2.4 | % | | | 3.1 | % | | | 2.4 | % | | | 2.4 | % | | | 2.5 | % | Elkton Gas (2) | | | 2.4 | % | | | 2.3 | % | | | 2.1 | % | | | 2.4 | % | | | 2.4 | % | | | 2.4 | % | Florida City Gas (2) | | | 3.9 | % | | | 3.7 | % | | | 3.9 | % | | | 3.8 | % | | | 3.9 | % | | | 3.9 | % | Nicor Gas (2) | | | 4.1 | % | | | n/a | | | | n/a | | | Nicor Gas (2) (3) | | | | 3.1 | % | | | 4.1 | % | | | 4.1 | % | Virginia Natural Gas (1) | | | 2.5 | % | | | 3.0 | % | | | 2.6 | % | | | 2.5 | % | | | 2.5 | % | | | 2.5 | % |
(1) | Average composite straight-line depreciation rates for depreciable property, excluding transportation equipment, which may be depreciated in excess of useful life and recovered in rates. |
(2) | Composite straight-line depreciation rates. |
(3) | On October 23, 2013, the Illinois Commission approved a composite depreciation rate of 3.07%. The depreciation rate was effective as of August 30, 2013, the date the depreciation study was filed, and had the effect of reducing our 2013 depreciation expense by $19 million. |
WeFor our non-regulated segments, we compute depreciation expense on a straight-line basis over the following estimated useful lives of the assets.
In years | | Estimated useful life | | Transportation equipment(1) | | | 5 - 10 | | Cargo shipping-Shipping vessels | | | 20 - 25 | Cargo shipping- freight equipment and freight handling equipment | 8 - 18 | Storage caverns | | | 40 - 60 | | Other | | up to 40 |
(1) | May be depreciated in excess of useful life and recovered in rates. |
AFUDC and Capitalized Interest
Four of our utilitiesAtlanta Gas Light, Nicor Gas, Chattanooga Gas and Elizabethtown Gas are authorized by applicable state regulatory agencies or legislatures to capitalize the cost of debt and equity funds as part of the cost of PP&E construction projects in our Consolidated Statements of Financial Position. Nicor Gas does not have authorized AFUDC rates, but rather capitalizes AFUDC at the current actual cost of debt. The capital expenditures of our two other utilities do not qualify for AFUDC treatment. More information on our authorized or actual AFUDC rates is provided in the following table.
| | 2011 | | | 2010 | | | 2009 | | Atlanta Gas Light (1) | | | 8.10 | % | | | 8.10 | % | | | 8.53 | % | Chattanooga Gas (2) | | | 7.41 | % | | | 7.41 | % | | | 7.89 | % | Elizabethtown Gas (3) | | | 0.53 | % | | | 0.40 | % | | | 0.41 | % | Virginia Natural Gas (4) | | | 7.38 | % | | | 0 | % | | | 9.24 | % | AFUDC (in millions) (5) | | $ | 6 | | | $ | 3 | | | $ | 13 | |
| | 2013 | | | 2012 | | | 2011 | | Atlanta Gas Light | | | 8.10 | % | | | 8.10 | % | | | 8.10 | % | Nicor Gas (1) | | | 0.31 | % | | | 0.36 | % | | | 0.18 | % | Chattanooga Gas | | | 7.41 | % | | | 7.41 | % | | | 7.41 | % | Elizabethtown Gas (1) | | | 0.41 | % | | | 0.51 | % | | | 0.53 | % | AFUDC (in millions) (2) | | $ | 19 | | | $ | 9 | | | $ | 6 | |
(1) | New rate as of November 1, 2010. |
(2) | New rate as of June 1, 2010. |
(3) | Variable rate is determined by FERC method of AFUDC accounting. |
(4)(2) | Approved only for Hampton Roads construction project which ended in 2009. Virginia Natural Gas received no AFUDC interest for 2010 or 2011. |
(5) | ExpenseAmount recorded in the Consolidated Statements of Income. |
WithinThe capital expenditures of our midstream operations segment, weother three utilities do not qualify for AFUDC treatment.
Asset Retirement Obligations
We record a liability at fair value for an asset retirement obligation (ARO) when a legal obligation to retire the asset has been incurred, with an offsetting increase to the carrying value of the related asset. Accretion of the ARO due to the passage of time is recorded as an operating expense. We have recorded capitalized interest as partan ARO of the cost of the Golden Triangle Storage and Central Valley construction projects in our Consolidated Statements of Financial Position, and within interest expense in our Consolidated Statements of Income, in the amounts of $1 million in 2011, $5 million in 2010 and $3 million in 2009.
Goodwillat December 31, 2013 and Intangible Assets
Goodwill is the excess of the purchase price over2012 principally for our storage facilities. For our distribution PP&E, we cannot reasonably estimate the fair value of identifiable netthis obligation because we have determined that we have insufficient internal or industry information to reasonably estimate the potential settlement dates or costs.
Impairment of Assets
Our goodwill is not amortized, but is subject to an annual impairment test. Our other long-lived assets, acquired in business combinations. The fair values assigned to the trade name and customer relationshipincluding our finite-lived intangible assets, at Nicor’s unregulated operations were determined using a combinationrequire an impairment review when events or circumstances indicate that the carrying amount may not be recoverable. We base our evaluation of the cost savings,recoverability of other long-lived assets on the multi-period excess earningspresence of impairment indicators such as the future economic benefit of the assets, any historical or future profitability measurements and the relief-from-royalty approaches.other external market conditions or factors.
In accordance with the authoritative guidance, we evaluate our goodwill balances for impairment onGoodwill We perform an annual basisgoodwill impairment test on our reporting units that contain goodwill during the fourth quarter of each year, or more frequently if impairment indicators arise. These indicators include, but are not limited to, a significant change in operating performance, the business climate, legal or regulatory factors, or a planned sale or disposition of a significant portion of the business. We test goodwill impairment utilizing aTo estimate the fair value of our reporting units, we use two generally accepted valuation approaches, the income approach and the market approach, using assumptions consistent with a market participant’s perspective.
Under the income approach, fair value is estimated based on the present value of estimated future cash flows discounted at an appropriate risk-free rate that takes into consideration the time value of money, inflation and the risks inherent in ownership of the business being valued. The cash flow estimates contain a reporting-unit level which generally equates to our operating segments as discusseddegree of uncertainty, and changes in Note 13. An impairment charge is recognized if the carryingprojected cash flows could significantly increase or decrease the estimated fair value of a reporting unit’s goodwill exceeds its impliedunit. For the regulated reporting units, a fair value. See Note 3recovery of, and return on, costs prudently incurred to serve customers is assumed. An unfavorable outcome in a rate case could cause the fair value of these reporting units to decrease. Key assumptions used in the income approach include the return on equity for the regulated reporting units, long-term growth rates used to determine terminal values at the end of the discrete forecast period, current and future rates charged for contracted capacity and a rollforwarddiscount rate. The discount rate is applied to estimated future cash flows and is one of total goodwill by operating segment.the most significant assumptions used to determine fair value under the income approach. As interest rates rise, the calculated fair values will decrease. The terminal growth rate is based on a combination of historical and forecasted statistics for real gross domestic product and personal income for each utility service area. The estimated rates we will charge to customers for capacity in the storage caverns were based on internal and external rate forecasts.
Our goodwill impairment analysisUnder the market approach, fair value is estimated by applying multiples to forecasted cash flows. This method uses metrics from similar publicly-traded companies in the same industry, when available, to determine how much a knowledgeable investor in the marketplace would be willing to pay for an investment in a similar company.
We weight the years ended December 31, 2011 and 2010 was performed duringresults of the fourth quarter of each year and indicated thattwo valuation approaches to estimate the fair value of each reporting unit is substantiallyunit. Our goodwill impairment testing also develops a baseline test and performs a sensitivity analysis to calculate a reasonable valuation range. The sensitivities are derived by altering those assumptions that are subjective in nature and inherent to a discounted cash flows calculation.
The significant assumptions that drive the estimated values of our reporting units are projected cash flows, discount rates, growth rates, weighted average cost of capital (WACC) and market multiples. Due to the subjectivity of these assumptions, we cannot provide assurance that future analyses will not result in impairment, as a future impairment depends on market and economic factors affecting fair value. Our annual goodwill impairment analysis in the fourth quarter of 2013 indicated that the estimated fair values of all but one of our reporting units with goodwill were in excess of the carrying value,values by approximately 20% to almost 500%, and the reporting units arewere not at risk of failing Step 1step one of the impairment evaluation. As a result, we did not recognize anytest.
Within our midstream operations segment, the estimated fair value of our storage and fuels reporting unit with $14 million of goodwill, exceeded its carrying value by less than 5% and is at risk of failing the step one test. The discounted cash flow model used in the goodwill impairment charges.test for this reporting unit assumed discrete period revenue growth through fiscal 2021 to reflect the recovery of subscription rates, stabilization of earnings and establishment of a reasonable base year off of which we estimated the terminal value. In the terminal year we assumed a long-term earnings growth rate of 2.5% that we believe is appropriate given the current economic and industry specific expectations. As of the valuation date, we utilized a WACC of 7.0%, which we believe is appropriate as it reflects the relative risk, the time value of money, and is consistent with the peer group of this reporting unit as well as the discount rate that was utilized in our 2012 annual goodwill impairment test.
In accordanceThe cash flow forecast for the storage and fuels reporting unit assumed earnings growth over the next eight years. Should this growth not occur, this reporting unit may fail step one of a goodwill impairment test in a future period. Along with any reductions to our cash flow forecast, changes in other key assumptions used in our 2013 annual impairment analysis may result in the requirement to proceed to step two of the goodwill impairment test in future periods.
We will continue to monitor this reporting unit for impairment and note that continued declines in capacity or subscription rates, declines for a sustained period at the current market rates or other changes to the key assumptions and factors used in this analysis may result in a future impairment of goodwill. The risk of impairment of the underlying long-lived assets is not estimated to be significant because the assets have long remaining useful lives and authoritative accounting guidance werequires such assets to be tested for impairment on the basis of undiscounted cash flows over their remaining useful lives.
Changes in the amount of goodwill for the twelve months ended December 31, 2013 and 2012 are provided below.
In millions | | Distribution Operations | | | Retail Operations | | | Wholesale Services | | | Midstream Operations | | | Cargo Shipping | | | Other | | | Consolidated | | Goodwill - December 31, 2011 | | $ | 1,586 | | | $ | 124 | | | $ | 2 | | | $ | 16 | | | $ | 77 | | | $ | 8 | | | $ | 1,813 | | Adjustments to initial Nicor purchase price allocation and other | | | 54 | | | | (2 | ) | | | (2 | ) | | | (2 | ) | | | (16 | ) | | | (8 | ) | | | 24 | | Goodwill - December 31, 2012 | | | 1,640 | | | | 122 | | | | - | | | | 14 | | | | 61 | | | | - | | | | 1,837 | | 2013 acquisitions | | | - | | | | 51 | | | | - | | | | - | | | | - | | | | - | | | | 51 | | Goodwill - December 31, 2013 | | $ | 1,640 | | | $ | 173 | | | $ | - | | | $ | 14 | | | $ | 61 | | | $ | - | | | $ | 1,888 | |
Long-Lived Assets We depreciate or amortize our long-lived assets and other intangible assets over their useful lives. Currently, we have no significant indefinite-lived intangible assets. These long-lived assets and other intangible assets are reviewed for impairment when indicators arise, at which timeevents or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When such events or circumstances are present, we assess the recoverability of suchlong-lived assets by determining whether the carrying value will be recovered through expected future cash flows. InAn impairment is indicated if the eventcarrying amount of the long-lived asset exceeds the sum of the expectedundiscounted future cash flows resultingexpected to result from the use and eventual disposition of the assetasset. If an impairment is less than the carrying value of the asset,indicated, we record an impairment loss equal to the excessdifference between the carrying value and the fair value of the asset’slong-lived asset. We determined that there were no long-lived asset impairments in 2013, with the exception of Sawgrass Storage, for which we recorded an $8 million loss.
Intangible Assets Our intangible assets are presented in the following table and represent the estimated fair value at the date of acquisition of the acquired intangible assets in our businesses. As indicated previously, we perform an impairment review when impairment indicators are present. If present, we first determine whether the carrying value overamount of the asset is recoverable through the undiscounted future cash flows expected from the asset. If the carrying amount is not recoverable, we measure the impairment loss, if any, as the amount by which the carrying amount of the asset exceeds its fair value. The increase in our intangible assets of $91 million as of December 31, 2013 compared to the prior year was the result of two acquisitions within the retail operations segment. For more information, see “Acquisitions” in Note 2.
| | Weighted average | | | December 31, 2013 | | | December 31, 2012 | | In millions | | amortization period (in years) | | | Gross | | | Accumulated amortization | | | Net | | | Gross | | | Accumulated amortization | | | Net | | Customer relationships | | | | | | | | | | | | | | | | | | | | | | Retail operations | | | 13 | | | $ | 130 | | | $ | (15 | ) | | $ | 115 | | | $ | 53 | | | $ | (6 | ) | | $ | 47 | | Cargo shipping | | | 18 | | | | 6 | | | | - | | | | 6 | | | | 6 | | | | - | | | | 6 | | Trade names | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Retail operations | | | 13 | | | | 45 | | | | (6 | ) | | | 39 | | | | 30 | | | | (2 | ) | | | 28 | | Cargo shipping | | | 15 | | | | 15 | | | | (2 | ) | | | 13 | | | | 15 | | | | (1 | ) | | | 14 | | Wholesale services | | | - | | | | - | | | | - | | | | - | | | | 1 | | | | - | | | | 1 | | Total | | | | | | $ | 196 | | | $ | (23 | ) | | $ | 173 | | | $ | 105 | | | $ | (9 | ) | | $ | 96 | |
Amortization expense was $14 million in 2013, $9 million in 2012 and $0 in 2011. Amortization expense for the next five years is estimated to be as follows:
In millions | | | | 2014 | | $ | 16 | | 2015 | | | 16 | | 2016 | | | 16 | | 2017 | | | 15 | | 2018 | | | 15 | |
Accounting for Retirement Benefit Plans
We recognize the funded status of our plans as an asset or a liability on our Consolidated Statements of Financial Position, measuring the plans’ assets and obligations that determine our funded status as of the end of the fiscal year. We recognize, as a component of OCI, the changes in funded status that occurred during the year that are not yet recognized as part of net periodic benefit cost. Because substantially all of its retirement costs are recoverable through base rates, Nicor Gas generally defers any charge or credit to comprehensive income to a regulatory asset or liability until the period in which the costs are included in base rates, in accordance with the authoritative guidance for rate-regulated entities. The assets of our retirement plans are measured at fair value within the funded status and are classified in the fair value hierarchy in their entirety based on the lowest level of input that is recorded. No impairment has been recognized. We currentlysignificant to the fair value measurement.
In determining net periodic benefit cost, the expected return on plan assets component is determined by applying our expected return on assets to a calculated asset value, rather than to the fair value of the assets as of the end of the previous fiscal year. For more information, see Note 6. In addition, we have no material indefinite lived intangible assets.elected to amortize gains and losses caused by actual experience that differs from our assumptions into subsequent periods. The amount to be amortized is the amount of the cumulative gain or loss as of the beginning of the year, excluding those gains and losses not yet reflected in the calculated value, that exceeds 10 percent of the greater of the benefit obligation or the calculated asset value; and the amortization period is the average remaining service period of active employees.
Taxes
Income TaxesThe reporting of our assets and liabilities for financial accounting purposes differs from the reporting for income tax purposes. The principal differencesdifference between net income and taxable income relaterelates to the timing of deductions, primarily due to the benefits of tax depreciation since we generally depreciate assets for tax purposes over a shorter period of time than for book purposes. The determination of our provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and taxable items. We report the tax effects of depreciation and other temporary differences in those items as deferred income tax assets or liabilities in our Consolidated Statements of Financial Position in accordance with authoritative guidance related to income taxes.Position.
Income TaxesWe have two categories ofcurrent and deferred income taxes in our Consolidated Statements of Income: current and deferred.Income. Current income tax expense consists of federal and state income tax less applicable tax credits related to the current year. Deferred income tax expense is generally is equal to the changes in the deferred income tax liability and regulatory tax liability during the year.
Investment We have recorded current deferred income taxes of $43 million (net of a valuation allowance of $8 million) as of December 31, 2013 and Other Tax Credits Deferred investment tax credits associated with distribution operations are included$4 million as a regulatory liabilityof December 31, 2012 within other current assets in our Consolidated Statements of Financial Position. These investment tax credits are being amortized over the estimated life of the related properties as credits to income in accordance with regulatory requirements.Position.
Accumulated Deferred Income Tax Assets and Liabilities As noted above, we report some of our assets and liabilities differently for financial accounting purposes than we do for income tax purposes. We report the tax effects of the differences in those items as deferred income tax assets or liabilities in our Consolidated Statements of Financial Position. We measure these deferred income tax assets and liabilities using enacted income tax rates.
Regulatory Income Tax Liability For our regulated utilities we also measure deferred income tax assets and liabilities using enacted income tax rates. Thus, when the statutory income tax rate declines before a temporary difference has fully reversed, the deferred income tax liability must be reduced to reflect the newly enacted income tax rates. In accordance with authoritative guidance related to rate-regulated entities, the amount of such a reduction is transferred to our regulatory income tax liability, which we are amortizing over the lives of the related properties as the temporary difference reverses or approximately 30 years.
A deferred income tax liability is not recorded on undistributed foreign earnings that are expected to be indefinitely reinvested offshore. We consider, among other factors, actual cash investments offshore as well as projected cash requirements in making this determination. Changes in our investment or repatriation plans or circumstances could result in a different deferred income tax liability. We had $80 million of such cash and short-term investments on our Consolidated Statements of Financial Position as of December 31, 2013 and 2012. As of December 31, 2013, we would be required to record a deferred tax liability of $31 million if we no longer asserted indefinite reinvestment of undistributed foreign earnings.
Income Tax Benefits The authoritative guidance related to income taxes requires us to determine whether tax benefits claimed or expected to be claimed on our tax return should be recorded in our consolidated financial statements. Under this guidance, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained onupon examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. This guidance also addresses derecognition, classification, interest and penalties on income taxes, and accounting in interim periods.
Uncertain Tax Positions We recognize accrued interest related to uncertain tax positions in interest expense and penalties in operating expense in theour Consolidated Statements of Income. As of December 31, 2011, we did not have a liability recorded for payment of interest and penalties associated with uncertain tax positions.
Tax Collections We do not collect income taxes from our customers on behalf of governmental authorities. WeHowever, we do collect and remit various other taxes on behalf of various governmental authorities. We record these amounts in our Consolidated Statements of Financial Position. In other instances, we are allowed to recover from customers other taxes that are imposed upon us. We record such taxes as operating expenseexpenses and record the corresponding customer charges as revenue. These taxes were immaterial for all periods presented.operating revenues.
Revenues
Distribution operations We record revenues when goods or services are provided to customers. Those revenues are based on rates approved by the state regulatory commissions of our utilities.
As required by the Georgia Commission, in July 1998, Atlanta Gas Light began billingbills Marketers in equal monthly installments for each residential, commercial and industrial end-use customer’s distribution costs. AsAdditionally, as required by the Georgia Commission, effective February 1, 2001, Atlanta Gas Light implementedbills Marketers for capacity costs utilizing a seasonal rate design for the calculation of each residential end-use customer’s annual straight-fixed-variable (SFV) capacity charge, which is billed to Marketers and reflects the historic volumetric usage pattern for the entire residential class. Generally, this changeseasonal rate design results in residential customers being billed bybilling the Marketers for a higher capacity charge in the winter months and a lower charge in the summer months. This requirement has anmonths, which impacts our operating cash flow impact butflows. However, this seasonal billing requirement does not change revenue recognition. Asimpact our revenues, which are recognized on a result, Atlanta Gas Light continues to recognize its residentialstraight-line basis because the associated rate mechanism ensures that we ultimately collect the full annual amount of the SFV capacity revenues for financial reporting purposes in equal monthly installments.charges.
All of our utilities, with the exception of Atlanta Gas Light, have rate structures that include volumetric rate designs thatwhich allow recovery of certain costs throughbased on gas usage. Revenues from sales and transportation services are recognized in the same period in which the related volumes are delivered to customers. Revenues from residential and certain commercial and industrial customers are recognized on the basis of scheduled meter readings. Additionally, revenues are recordedrecognized for estimated deliveries of gas not yet billed to these customers, from the last bill date to the end of the accounting period. These are included in the Consolidated Statements of Financial Position as unbilled revenue. For other commercial and industrial customers and for all wholesale customers, revenues are based on actual deliveries to the end of the period.
The tariffs for Virginia Natural Gas, Elizabethtown Gas and Chattanooga Gas contain WNA’sWNAs that partially mitigate the impact of unusually cold or warm weather on customer billings and operating margin. The WNA’s purpose of a WNA is to reducemitigate the effect of weather on customer bills by reducing bills when winter weather is colder-than-normal and increasing bills when weather is warmer-than-normal. In addition, the tariffs for Virginia Natural Gas, Chattanooga Gas and Elkton Gas contain revenue normalization mechanisms that mitigate the impact of conservation and declining customer usage.
Revenue Taxes We charge customers for gas revenue and gas use taxes imposed on us and remit amounts owed to various governmental authorities. Our policy for gas revenue taxes is to record the amounts charged to customers, which for some taxes includes a small administrative fee, as operating revenues, and to record the related taxes incurred as operating expenses in our Consolidated Statements of Income. Our policy for gas use taxes is to exclude these taxes from revenue and expense, aside from a small administrative fee that is included in operating revenues. As a result, the amount recorded in operating revenues will exceed the amount recorded in operating expenses by the amount of administrative fees that are retained by the Company. Revenue taxes included in operating expenses were $110 million in 2013, $85 million in 2012 and $9 million in 2011.
Retail operations Revenues from natural gas sales and transportation services are recognized in the same period in which the related volumes are delivered to customers. Sales revenues from residential and certain commercial and industrial customers are recognized on the basis of scheduled meter readings. In addition, revenues are recordedrecognized for estimated deliveries of gas not yet billed to these customers, from the most recent meter reading date to the end of the accounting period. TheseThe related receivables are included in the Consolidated Statements of Financial Position as unbilled revenue. For other commercial and industrial customers and for all wholesale customers, revenues are based on actual deliveries during the period.
We recognize revenuerevenues on 12-month utility-bill management contracts as the lesser of cumulative earned or cumulative billed amounts. We recognize revenuerevenues for warranty and repair contracts on a straight-line basis over the contract term. RevenueRevenues for maintenance services isare recognized at the time such services are performed.
Wholesale services We record wholesale services’ revenues when services are provided to customers. Profits from sales between segments are eliminated in the other segment and are recognized as goods or services sold to end-use customers. Transactions that qualify as derivatives under authoritative guidance related to derivatives and hedging are recorded at fair value with changes in fair value recognized in earnings in the period of change and characterized as unrealized gains or losses. Gains and losses on derivatives held for energy trading purposes are required to be presented net in revenue.
Midstream operations We record operating revenues at Jefferson Islandfor storage and Golden Triangle Storagetransportation services in the period in which actual volumes are transported and storage services are provided. The majority of our storage services are covered under medium to long-term contracts at fixed market-based rates. We recognize our park and loan revenues ratably over the life of the contract.
Cargo shipping Revenues and related delivery costs are recognized at the time vessels depart from port. Insurance premiums are recognized when the vessel carrying the insured cargo reaches its port of destination and the insured cargo is released to the consignee. The portion of premiums not earned at the end of the year is recorded as unearned premiums.
Cost of goods sold
Distribution operationsExcluding Atlanta Gas Light, which does not sell natural gas to end-use customers, we charge our utility customers for natural gas consumed using natural gas cost recovery mechanisms set by the state regulatory agencies. Under these mechanisms, all prudently incurred natural gas costs are passed through to customers without markup, subject to regulatory review. Therefore, inIn accordance with the authoritative guidance for rate-regulated entities, we defer or accrue (that is, include as an asset or liability in the Consolidated Statements of Financial Position and exclude from, or include in, the Consolidated Statements of Consolidated Income, respectively) the difference between the actual cost of goods sold incurred and the amount of commodity revenue earned in a given period, such that no operating margin is recognized related to these costs. The deferred or accrued amount is either billed or refunded to our customers prospectively through adjustments to the commodity rate. Deferred natural gas costs are reflected as regulatory assets identified as recoverable natural gas costs, and accrued natural gas costs are reflected as regulatory liabilities which are identified as accrued natural gas costs within our Consolidated Statements of Financial Position.liabilities. For more information, see “Regulatory Assets and Liabilities” in Note 2.3.
Retail operations Our retail operations customers are charged for actual or estimated natural gas consumed. We also include withinWithin our cost of goods sold, we also include costs of fuel and lost and unaccounted for gas, adjustments to reduce the value of our inventories to market value and for gains and losses associated with certain derivatives. Costs to service our warranty and repair contract claims and costs associated with the installation of heating and cooling equipment are recorded to cost of goods sold.
Repair and maintenance expense
We record expense for repair and maintenance costs as incurred. This includes expenses for planned major maintenance, such as dry-docking the vessels owned by our cargo shipping business.
Operating leases
We have certain operating leases with provisions for step rent or escalation payments and certain lease concessions. We account for these leases by recognizing the future minimum lease payments on a straight-line basis over the respective minimum lease terms, in accordance with authoritative guidance related to leases. This accounting treatment does not affect the future annual operating lease cash obligations. For more information, see “Commitments, Guarantees and Contingencies” in Note 11.
Other income
Our other income is detailed in the following table. For more information on our equity investment income, see Note 10. In millions | | 2013 | | | 2012 | | | 2011 | | AFUDC - equity | | $ | 13 | | | $ | 6 | | | $ | 4 | | Equity investment income | | | 3 | | | | 13 | | | | 1 | | Other, net | | | 1 | | | | 5 | | | | 2 | | Total other income | | $ | 17 | | | $ | 24 | | | $ | 7 | |
Earnings Per Common Share
We compute basic earnings per common share attributable to AGL Resources Inc. common shareholders by dividing our net income attributable to AGL Resources Inc. by the daily weighted average number of common shares outstanding. Diluted earnings per common share attributable to AGL Resources Inc. common shareholders reflect the potential reduction in earnings per common share attributable to AGL Resources Inc. common shareholders that could occuroccurs when potentially dilutive common shares are added to common shares outstanding. The increase in weighted average shares in 2012 compared to 2011 is primarily due to the issuance of 38.2 million shares in connection with the Nicor merger on December 9, 2011. The effect of the additional shares was reduced as the shares were only outstanding for 22 days. We had 117.0 million shares outstanding as of December 31, 2011.
We derive our potentially dilutive common shares by calculating the number of shares issuable under restricted stock, restricted stock units and stock options. The vesting of certain shares of the restricted stock and restricted stock units depends on the satisfaction of certaindefined performance criteria. The future issuance of shares underlying the outstanding stock options depends on whether the exercise prices of the stock options are less than the average market price of the common shares forunderlying the options exceeds the respective periods. exercise prices of the stock options.
The following table shows the calculation of our diluted shares attributable to AGL Resources Inc. common shareholders for the periods presented, if performance units currently earned under the plan ultimately vest and if stock options currently exercisable at prices below the average market prices are exercised:exercised.
In millions (except per share amounts) | | 2011 | | | 2010 | | | 2009 | | | 2013 | | | 2012 | | | 2011 | | Net income attributable to AGL Resources Inc. | | $ | 172 | | | $ | 234 | | | $ | 222 | | | $ | 313 | | | $ | 271 | | | $ | 172 | | Denominator: | | | | | | | | | | | | | | | | | | | | | | | | | Basic weighted-average number of shares outstanding (1) | | | 80.4 | | | | 77.4 | | | | 76.8 | | | Basic weighted average number of shares outstanding (1) | | | | 117.9 | | | | 117.0 | | | | 80.4 | | Effect of dilutive securities | | | 0.5 | | | | 0.4 | | | | 0.3 | | | | 0.4 | | | | 0.5 | | | | 0.5 | | Diluted weighted-average number of shares outstanding | | | 80.9 | | | | 77.8 | | | | 77.1 | | | Diluted weighted average number of shares outstanding (2) | | | | 118.3 | | | | 117.5 | | | | 80.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | Basic and diluted earnings per share | | | | | | | | | | | | | | Earnings per share | | | | | | | | | | | | | | Basic | | $ | 2.14 | | | $ | 3.02 | | | $ | 2.89 | | | $ | 2.65 | | | $ | 2.32 | | | $ | 2.14 | | Diluted(2) | | $ | 2.12 | | | $ | 3.00 | | | $ | 2.88 | | | $ | 2.64 | | | $ | 2.31 | | | $ | 2.12 | | (1) Daily weighted average shares outstanding. | | (1) Daily weighted average shares outstanding. | | (2) There were no outstanding stock options excluded from the computation of diluted earnings per common share attributable to AGL Resources Inc. for any of the periods presented because their effect would have been anti-dilutive, as the exercise prices were greater than the average market price. | | (2) There were no outstanding stock options excluded from the computation of diluted earnings per common share attributable to AGL Resources Inc. for any of the periods presented because their effect would have been anti-dilutive, as the exercise prices were greater than the average market price. | |
Acquisitions
On January 31, 2013, our retail operations segment acquired approximately 500,000 service contracts and certain other assets from NiSource Inc. for $122 million. These service contracts provide home warranty protection solutions and energy efficiency leasing solutions to residential and small business utility customers and complement the retail business acquired in the Nicor merger. Intangible assets related to this acquisition are primarily customer relationships of $46 million and trade names of $16 million. The amortization periods are estimated to be 14 years for customer relationships and 10 years for trade names. The final allocation of the purchase price to the fair value of assets acquired and liabilities assumed is presented in the following table:
In millions | | | | Current assets | | $ | 3 | | PP&E | | | 12 | | Goodwill | | | 51 | | Intangible assets | | | 62 | | Current liabilities | | | (6 | ) | Total purchase price | | $ | 122 | |
On June 30, 2013, our retail operations segment acquired approximately 33,000 residential and commercial energy customer relationships in Illinois for $32 million. These customer relationships have been recorded as an intangible asset and are expected to be amortized on a straight-line basis over an estimated period of 14 to 16 years.
On December 9, 2011, we completed our $2.5 billion merger with Nicor that created a combined company with increased scale and scope in the distribution, storage and transportation of natural gas. The effects of Nicor’s results of operations and financial condition are reflected for the twelve months ended December 31, 2013 and 2012, while our 2011 results include activity from December 10, 2011 through December 31, 2011. This merger resulted in:
(1)Daily weighted average·
| The issuance of 38.2 million shares outstanding.of AGL Resources common stock |
· | Increased revenues in 2012 of $2,063 million |
· | Increased net income in 2012 of $70 million |
· | An increase to PP&E of $3,192 million |
· | An increase to goodwill and other intangible assets of $1,423 million and $103 million, respectively |
Sale of Compass Energy
On May 1, 2013 we sold Compass Energy, a non-regulated retail natural gas business supplying commercial and industrial customers, within our wholesale services segment. We received an initial cash payment of $12 million, which resulted in an $11 million pre-tax gain ($5 million net of tax). Under the terms of the purchase and sale agreement, we are eligible to receive contingent cash consideration up to $8 million with a guaranteed minimum receipt of $3 million that was recognized during 2013. The following table containsremaining $5 million of contingent cash consideration will be determined and would be received from the weighted average sharesbuyer annually over a five-year earn out period based upon the financial performance of Compass Energy.
Non-Wholly Owned Entities
We hold ownership interests in a number of business ventures with varying ownership structures. We evaluate all of our partnership interests and other variable interests to determine if each entity is a variable interest entity (VIE), as defined in the authoritative accounting guidance. If a venture is a VIE for which we are the primary beneficiary, we consolidate the assets, liabilities and results of operations of the entity. We reassess our conclusion as to whether an entity is a VIE upon certain occurrences, which are deemed reconsideration events under the guidance. We have concluded that the only venture that we are required to consolidate as a VIE, as we are the primary beneficiary, is SouthStar. On our Consolidated Statements of Financial Position, we recognize Piedmont’s share of the non-wholly owned entity as a separate component of equity entitled “noncontrolling interest.” Piedmont’s share of current operations is reflected in “net income attributable to outstanding stock options that were excluded from the computationnoncontrolling interest” on our Consolidated Statements of Income. The consolidation of SouthStar has no effect on our calculation of basic or diluted earnings per common share amounts, which are based upon net income attributable to AGL Resources Inc. because their effect would have been anti-dilutive, as the exercise prices were greater than the average market price:Inc.
| | December 31, | | In millions | | 2011 | | | 2010 | | | 2009 | | Twelve months ended | | | 0.0 | | | | 0.8 | | | | 2.0 | |
For entities that are not determined to be VIEs, we evaluate whether we have control or significant influence over the investee to determine the appropriate consolidation and presentation. Generally, entities under our control are consolidated, and entities over which we can exert significant influence, but do not control, are accounted for under the equity method of accounting. However, we also invest in partnerships and limited liability companies that maintain separate ownership accounts. All such investments are required to be accounted for under the equity method unless our interest is so minor that there is virtually no influence over operating and financial policies, as are all investments in joint ventures.
Investments accounted for under the equity method are included in long-term investments on our Consolidated Statements of Financial Position, and the equity income is recorded within other income on our Consolidated Statements of Income and was immaterial for all periods presented. For additional information, see Note 10.
Use of Accounting Estimates
The decreasepreparation of our financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our estimates may involve complex situations requiring a high degree of judgment either in the numberapplication and interpretation of shares that were excluded from the computation for the year ended December 31, 2011 and 2010 is the result of an increaseexisting literature or in the average market valuedevelopment of estimates that impact our common sharesfinancial statements. The most significant estimates relate to our rate-regulated subsidiaries, regulatory infrastructure program accruals, uncollectible accounts and other allowances for the years ended December 31, 2011 compared to 2010contingent losses, goodwill and 2009.intangible assets, retirement plan benefit obligations, derivative and hedging activities and provisions for income taxes. We evaluate our estimates on an ongoing basis and our actual results could differ from our estimates.
RegulatoryAccounting Developments
On January 1, 2013, we adopted ASU 2011-11, Disclosures about Offsetting Assets and Liabilities and ASU 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which require disclosures about offsetting and related arrangements in order to help financial statement users better understand the effect of those arrangements on our financial position. This guidance had no impact on our consolidated financial statements. See Note 4 for additional disclosures about our offsetting of derivative assets and liabilities.
On January 1, 2013, we adopted ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which requires enhanced disclosures of amounts reclassified out of accumulated other comprehensive income by component. This guidance had no impact on our consolidated financial statements. See Note 9 for additional disclosures relating to accumulated other comprehensive income.
We account for the financial effects of regulation in accordance with authoritative guidance related to regulated entities whose rates are designed to recover the costs of providing service. In accordance with this guidance, incurred costs and estimated future expenditures that would otherwise be charged to expense in the current period are capitalized as regulatory assets when it is probable that such costs or expenditures will be recovered in rates in the future. Similarly, we recognize regulatory liabilities when it is probable that regulators will require customer refunds through future rates or when revenue is collected from customers for estimated expenditures that have not yet been incurred. Generally, regulatory assets are amortized into expense and regulatory liabilities are amortized into income over the period authorized by the regulatory commissions. Our regulatory assets and liabilities and associated assets and liabilities as of December 31, are summarized in the following table.
In millions | | 2011 | | | 2010 | | | 2013 | | | 2012 | | Regulatory assets - current | | | | | | | | Regulatory assets | | | | | | | | Recoverable regulatory infrastructure program costs | | $ | 48 | | | $ | 48 | | | $ | 48 | | | $ | 47 | | Recoverable ERC | | | 7 | | | | 7 | | | | 45 | | | | 38 | | Recoverable seasonal rates | | | 10 | | | | 11 | | | Recoverable retirement benefit costs | | | 29 | | | | 0 | | | Recoverable pension and retiree welfare benefit costs | | | | 9 | | | | 19 | | Other | | | 37 | | | | 26 | | | | 60 | | | | 41 | | Total regulatory assets - current | | | 131 | | | | 92 | | | | 162 | | | | 145 | | Regulatory assets - long-term | | | | | | | | | | Recoverable ERC | | | | 433 | | | | 438 | | Recoverable pension and retiree welfare benefit costs | | | | 99 | | | | 196 | | Recoverable regulatory infrastructure program costs | | | 305 | | | | 244 | | | | 87 | | | | 167 | | Recoverable retirement benefit costs | | | 262 | | | | 9 | | | Recoverable ERC | | | 351 | | | | 164 | | | Unamortized losses on reacquired debt | | | 21 | | | | 11 | | | Long-term debt fair value adjustment | | | | 82 | | | | 90 | | Other | | | 140 | | | | 25 | | | | 36 | | | | 53 | | Total regulatory assets - long-term | | | 1,079 | | | | 453 | | | | 737 | | | | 944 | | Total regulatory assets | | $ | 1,210 | | | $ | 545 | | | $ | 899 | | | $ | 1,089 | | Regulatory liabilities - current | | | | | | | | | | Regulatory liabilities | | | | | | | | | | Accrued natural gas costs | | | $ | 92 | | | $ | 93 | | Bad debt over collection | | | | 41 | | | | 37 | | Accumulated removal costs | | $ | 14 | | | $ | 0 | | | | 27 | | | | 16 | | Accrued natural gas costs | | | 53 | | | | 23 | | | Bad debt rider | | | 30 | | | | 0 | | | Other | | | 15 | | | | 8 | | | | 23 | | | | 15 | | Total regulatory liabilities - current | | | 112 | | | | 31 | | | | 183 | | | | 161 | | Regulatory liabilities - long-term | | | | | | | | | | Accumulated removal costs | | | 1,321 | | | | 182 | | | | 1,445 | | | | 1,393 | | Regulatory income tax liability | | | 27 | | | | 15 | | | | 27 | | | | 27 | | Bad debt rider | | | 14 | | | | 0 | | | Unamortized investment tax credit | | | 32 | | | | 12 | | | | 26 | | | | 29 | | Bad debt over collection | | | | 17 | | | | 17 | | Other | | | 11 | | | | 16 | | | | 3 | | | | 11 | | Total regulatory liabilities - long-term | | | 1,405 | | | | 225 | | | | 1,518 | | | | 1,477 | | Total regulatory liabilities | | $ | 1,517 | | | $ | 256 | | | $ | 1,701 | | | $ | 1,638 | |
The increase of $665 million in regulatory assets includes $545 million related to the addition of Nicor Gas’ regulatory assets and the increase of $1,261 million in regulatory liabilities includes $1,330 million related to the addition of Nicor Gas’ regulatory liabilities.
Our regulatory assets are probable or recovery specifically authorized by a state regulatory commission.of recovery. Base rates are designed to provide both a recovery of cost and a return on investment during the period rates are in effect. As such, all of our regulatory assets recoverable through base rates are subject to review by the respective state regulatory commission during future rate proceedings. We are not aware of any evidence that these costs will not be recoverable through either rate riders or base rates, and we believe that we will be able to recover such costs consistent with our historical recoveries.
In the event that the provisions of authoritative guidance related to regulated operations were no longer applicable, we would recognize a write-off of regulatory assets that would result in a charge to net income and be classified as an extraordinary item.
Additionally, while some regulatory liabilities would be written-off,written off, others would continue to be recorded as liabilities, but not as regulatory liabilities.
Although the natural gas distribution industry is competing with alternative fuels, primarily electricity, our utility operations continue to recover their costs through cost-based rates established by the state regulatory commissions. As a result, we believe that the accounting prescribed under the guidance remains appropriate. It is also our opinion that all regulatory assets are recoverable in future rate proceedings, and therefore we have not recorded any regulatory assets that are recoverable but are not yet included in base rates or contemplated in a rate rider.rider or proceeding. The regulatory liabilities that do not represent revenue collected from customers for expenditures that have not yet been incurred are refunded to ratepayers through a rate rider or base rates. If the regulatory liability is included in base rates, the amount is reflected as a reduction to the rate base in settingused to periodically set base rates.
The majority of our regulatory assets and liabilities listed in the preceding table are included in base rates except for the recoverable regulatory infrastructure program costs, recoverable ERC, the bad debt rider, natural gas and accrued natural gasenergy efficiency costs, which are recovered through specific rate riders on a dollar-for-dollar basis. The rate riders that authorize the recovery of regulatory infrastructure program costs and natural gas costs include both a recovery of cost and a return on investment during the recovery period. Nicor Gas’ rate riders for environmental costs and energy efficiency costs also provide a return of investment and expense including short-term interest on investment during the period of recovery.reconciliation balances. However, there is no interest associated with the under or over collections of bad debt expense.
Nicor Gas’ pension and retiree welfare benefit costs have historically been considered in rate proceedings in the same period they are accrued under GAAP. As a regulated utility, Nicor Gas expects to continue rate recovery of the eligible costs of these defined benefit retirement plans and, accordingly, associated changes in the funded status of Nicor Gas’ plans have been deferred as a regulatory asset or liability until recognized in net income, instead of being recognized in OCI. The Illinois Commission presently does not allow Nicor Gas the opportunity to earn a return on its recoverable retirement benefit costs. Such costcosts are expected to be recovered over a period of 9 to 11 years. The regulatory assets related to debt are also not included in rate base, but the costs are recovered over the term of the debt through the authorized rate of return component of base rates.
Environmental Remediation Costs We are subject to federal, state and local laws and regulations governing environmental quality and pollution control. These laws and regulations require us to remove or remedy the effect on the environment of the disposal or release of specified substances at current and former operating sites. Our ERC liabilities are estimates of future remediation costs for investigation and clean upcleanup of our former operating sites that are contaminated. Our estimates are based on conventional engineering estimates and the use of probabilistic models of potential costs when such estimates cannot be made, on an undiscounted basis. As cleanup options and plans mature and cleanup contracts are entered into, we are increasingly able to provide conventional engineering estimates of the likely costs of many elements of the remediation at our former sites.program. These estimates contain various engineering uncertainties, butassumptions, which we continuously attempt to refine and update them.on an ongoing basis. These liabilities do not include other potential expenses, such as unasserted property damage claims, personal injury or natural resource damage claims, unbudgeted legal expenses or other costs for which we may be held liable but for which we cannot reasonably estimate an amount. However, we have not yet performed these probabilistic models for all of our sites in Illinois, which will be completed in 2012.
Our paid and accrued ERCsERC costs are not regulatory liabilities; however they are deferred inas a corresponding regulatory asset until the costs are recovered from customers. These recoverable ERC assets are a combination of accrued ERC liabilities and recoverable cash expenditures for investigation and cleanup costs. We primarily recover these deferred costs through three rate riders that authorize dollar-for-dollar recovery. TheWe expect to collect $45 million in revenues over the next 12 months, which is reflected as a current regulatory asset. We recovered $24 million in 2013, $13 million in 2012 and $5 million in 2011 from our ERC rate rider for Atlanta Gas Light only allows for recovery of the costs incurred over the subsequent five-year period. ERC associated with the investigation and remediation of Nicor Gas and Elizabethtown Gas remediation sites located in the states of Illinois and New Jersey are recovered under remediation adjustment clauses that include carrying cost on unrecovered expenditures. Forriders. The following table provides more information on the costs related to remediation of our ERC liabilities, see Note 11.former operating sites.
In millions | | # of sites | | | Probabilistic model cost estimates (2) | | | Engineering estimates (2) | | | Amount recorded | | | Expected costs over next 12 months | | Cost recovery period | Illinois (1) | | | 24 | | | $ | 209 - $458 | | | $ | 42 | | | $ | 251 | | | $ | 38 | | As incurred (3) | New Jersey | | | 6 | | | | 139 - 233 | | | | 6 | | | | 145 | | | | 18 | | 7 years (3) | Georgia and Florida | | | 13 | | | | 28 - 112 | | | | 8 | | | | 40 | | | | 7 | | 5 years | North Carolina | | | 1 | | | | n/a | | | | 11 | | | | 11 | | | | 7 | | No recovery | Total | | | 44 | | | $ | 376 - $803 | | | $ | 67 | | | $ | 447 | | | $ | 70 | | |
(1) | Nicor Gas and Commonwealth Edison Company are parties to an agreement to cooperate equally in cleaning up residue at 23 sites. |
(2) | Material cleanups have not been completed for 26 sites. Therefore precise estimates are not available for future cleanup costs and considerable variability remains in future cost estimates. |
(3) | Includes recovery of carrying costs on unrecovered expenditures. |
Bad Debt Rider Nicor Gas’ bad debt rider provides for the recovery from, (oror refund to)to, customers of the difference between Nicor Gas’ actual bad debt experience on an annual basis and thea benchmark bad debt expense includedof $63 million, as determined by the Illinois Commission in its rates for the respective year.February 2010. The benchmark, against which 2011 actual bad debt experience is compared, is approximately $63 million. Nicor Gas’ actual 2011 bad debt expense was $31 million, resulting in a refund to customers of $32 million which will be refunded between June 2012 and May 2013. The prior year’s bad debt riderover recovery is recorded withinas an increase to operating expenses on our Consolidated Statements of Income and the over, or under, recovery is recorded as a regulatory asset or liability on our Consolidated Statements of Financial Position.Position until refunded to customers. In the period refunded, operating expenses are reduced and the regulatory liability is reversed. The actual bad debt experience and resulting refunds are shown in the following table.
Other Regulatory Assets and Liabilities Our recoverable retirement benefit plan costs are recoverable through base rates over the next 2 to 21 years based on the remaining recovery period as designated by the applicable state regulatory commissions. Recoverable seasonal rates reflect the difference between the recognition of a portion of Atlanta Gas Light’s residential base rates revenues on a straight-line basis as compared to the collection of the revenues over a seasonal pattern. These amounts are fully recoverable through base rates within one year. | | Bad debt | | | Total | | | Amount refunded in | | | Amount to be refunded in | | In millions | | experience | | | refund | | | 2012 | | | 2013 | | | 2014 | | | 2015 | | 2013 | | $ | 21 | | | $ | 42 | | | $ | - | | | $ | - | | | $ | 25 | | | $ | 17 | | 2012 | | | 23 | | | | 40 | | | | - | | | | 24 | | | | 16 | | | | - | | 2011 | | | 31 | | | | 32 | | | | 19 | | | | 13 | | | | - | | | | - | |
Accumulated Removal Costs In accordance with regulatory treatment, our depreciation rates are comprised of two cost components –- historical cost net of estimated salvage, and the estimated cost of removal, or retirement,net of estimated salvage, of certain regulated properties. We collect these costs in base rates through straight-line depreciation expense, with a corresponding credit to accumulated depreciation. Because the accumulated estimated removal costs are not a generally accepted component of depreciation, but meet the requirements of authoritative guidance related to regulated operations, we have accounted for them as a regulatory liability and have reclassified them from accumulated depreciation to the accumulated removal costscost regulatory liability in our Consolidated Statements of Financial Position. In the rate setting process, the liability for these accumulated removal costs areis treated as a reduction to the net rate base upon which our regulated utilities have the opportunity to earn their allowed rate of return. Our accumulated removal costs increased $1.1 billion from December 31, 2010, principally related to Nicor Gas.
Regulatory Infrastructure Programs We have infrastructure improvement programs at several of our utilities. Descriptions of these are as follows.
Atlanta Gas LightBy order of the Georgia Commission (through a joint stipulation and a subsequent settlement agreement between Atlanta Gas Light and the Georgia Commission), Atlanta Gas Light began a pipeline replacement program to replace all bare steel and cast iron pipe in its system by December 2013. If Atlanta Gas Light does not perform in accordance with this order, it will be assessed certain nonperformance penalties. As of 2011, we have completed the replacement of all our cast iron pipes, and the remaining replacements are on schedule.
The order provides for recovery of all prudent costs incurred in the performance of the program, which Atlanta Gas Light has recorded as a regulatory asset. Atlanta Gas Light will recover from end-use customers, through billings to Marketers, the costs related to the program net of any cost savings from the program. All such amounts will be recovered through a combination of straight-fixed-variable rates and a pipeline replacement revenue rider. The regulatory asset has two components: (i) the revenues recognized to date that have not yet been recovered from customers through the rate riders, and (ii) the future expected costs to be recovered through the base rates.
· | the costs incurred to date that have not yet been recovered through the rate rider |
· | the future expected costs to be recovered through the rate rider |
Atlanta Gas Light has recorded a noncurrentcurrent regulatory asset of $48 million, which represents the expected future collectionamount of both expenditures already incurred andrecognized revenues expected future capital expenditures to be incurred throughcollected from customers over the remainder of the program.next 12 months. Atlanta Gas Light has also recorded a non-current asset of $305$87 million, which represents the expected amount to be collected from customers over the next 12 months.future collection of revenues already recognized. The amounts recovered from the pipeline replacement revenue rider during the last three years were:
As of December 31, 2011, Atlanta Gas Light had recorded a current liability of $131 million representing expected program expenditures for the next 12 months and a noncurrent liability of $145 million, representing expected program expenditures through the end of the program in 2013.
Atlanta Gas Light capitalizes and depreciates the capital expenditure costs incurred from the pipeline replacement program over the life of the assets. Operation and maintenance costs are expensed as incurred. Recoveries, which are recorded as revenue, are based on a formula that allows Atlanta Gas Light to recover operation and maintenance costs in excess of those included in its current base rates, depreciation expense and an allowed rate of return on capital expenditures. In the near term, the primary financial impact to Atlanta Gas Light from the pipeline replacement program is reduced cash flow from operating and investing activities, as the timing related to cost recovery does not match the timing of when costs are incurred. However, Atlanta Gas Light is allowed the recovery of carrying costs on the under-recovered balance resulting from the timing difference.
The Georgia Commission has also approved Atlanta Gas Light’sOur STRIDE program which is comprised of the ongoing pipeline replacement program, the new Integrated System Reinforcement Program (i-SRP) and, the new Integrated Customer Growth Program (i-CGP), the pipeline replacement program that ended in 2013, and a new component, the Integrated Vintage Plastic Replacement Program (i-VPR). The purpose of the i-SRP is to upgrade Atlanta Gas Light’sour distribution system and liquefied natural gas facilities in Georgia, improve itsour peak-day system reliability and operational flexibility, and create a platform to meet long-term forecasted growth. Our i-CGP authorizes Atlanta Gas Light to extend its pipeline facilities to serve customers in areas without pipeline access and create new economic development opportunities in Georgia. All related costs will be requiredrecovered through a surcharge. The STRIDE program requires us to file an updated ten-year forecast of infrastructure requirements under the i-SRP along with a new three-year construction plan every three years for review and approval by the Georgia Commission.
Under i-CGP,The purpose of the i-VPR program is to replace aging plastic pipe that was installed primarily in the mid-1960’s to the early 1980’s. We have identified approximately 3,300 miles of vintage plastic mains in our system that potentially should be considered for replacement over the next 15 - 20 years as it reaches the end of its useful life. On August 6, 2013, the Georgia Commission approved the replacement of 756 miles of vintage plastic pipe over four years at an estimated cost of $275 million. Additional reporting requirements and monitoring by the staff of the Georgia Commission were also included in the stipulation, which authorized Atlanta Gas Lighta phased-in approach to extend its pipeline facilities to serve customers without pipeline access and create new economic development opportunities in Georgia. The i-CGP was approved asfunding the program through a three-year pilot program under STRIDE, and all related costsmonthly rider surcharge of $0.48 per customer through December 2014. This will be recoveredincreased to $0.96 beginning in January 2015 and to $1.45 beginning in January 2016 and will continue through a surcharge.2025.
Elizabethtown Gas In 2009, the New Jersey BPU approved anthe enhanced infrastructure program for Elizabethtown Gas, which was created in response to the New Jersey Governor’s request for utilities to assist in the economic recovery by increasing infrastructure investments. In May 2011, the New Jersey BPU approved Elizabethtown Gas’ request to spend an additional $40 million under this program before the end of 2012. Costs associated with the investment in this program are recovered through periodic adjustments to base rates. We expectrates that are approved by the New Jersey BPU. In August 2013, the New Jersey BPU approved the recovery of investments under this program through a permanent adjustment to filebase rates.
Additionally, in August 2013, we received approval from the New Jersey BPU for an extension of the accelerated infrastructure replacement program that we filed in July 2012. The approval allows for infrastructure investment of $115 million over four years, effective as of September 1, 2013. Carrying charges on the additional capital expenditures will be deferred at a weighted average cost for capital of 6.65%. Unlike the previous program, there will be no adjustment to base rates for the investments under the extended program until Elizabethtown Gas files its next rate case. We agreed to file a general rate case by September 2016.
AccountingOn September 3, 2013, Elizabethtown Gas filed for Retirement Benefit Plansa Natural Gas Distribution Utility Reinforcement Effort (ENDURE), a program that will improve our distribution system’s resiliency against coastal storms and floods. Under the proposed plan, Elizabethtown Gas will invest $15 million in infrastructure and related facilities and communication planning over a one year period beginning January 2014. Elizabethtown Gas is proposing to accrue and defer carrying charges on the investment until its next rate case proceeding.
Virginia Natural Gas On June 25, 2012, the Virginia Commission approved SAVE, an accelerated infrastructure replacement program, which is expected to be completed over a five-year period.The authoritative guidance relatedprogram permits a maximum capital expenditure of $25 million per year, not to retirement benefits requiresexceed $105 million in total. SAVE is subject to annual review by the Virginia Commission. We began recovering program costs through a rate rider that was effective August 1, 2012. On May 1, 2013, we recognize all obligations relatedfiled our annual SAVE rate update detailing the first-year performance and our expected future budget, which is subject to defined benefit retirement plansreview and quantifyapproval by the plans’ funded statusVirginia Commission. The rate update was approved with minor modifications by the Virginia Commission on July 23, 2013 and became effective as an asset orof August 1, 2013. On May 1, 2013, the Virginia Commission approved our CARE plan, which includes a limited set of conservation programs and measures at a cost of $2 million over a three-year period. The CARE plan became effective June 1, 2013.
Investment Tax Credits Deferred investment tax credits associated with distribution operations are included as a regulatory liability onin our Consolidated Statements of Financial Position. The guidance further requires thatThese investment tax credits are being amortized over the estimated lives of the related properties as credits to income tax expense.
Regulatory Income Tax Liability For our regulated utilities, we also measure the plans’deferred income tax assets and obligations that determine our funded status asliabilities using enacted income tax rates. Thus, when the statutory income tax rate declines before a temporary difference has fully reversed, the deferred income tax liability must be reduced to reflect the newly enacted income tax rates. However, the amount of the endreduction is transferred to our regulatory income tax liability, which we are amortizing over the lives of the fiscal year. Werelated properties as the temporary differences reverse over approximately 30 years.
Other Regulatory Assets and Liabilities Our recoverable pension and retiree welfare benefit plan costs for our utilities other than Nicor Gas are expected to be recovered through base rates over the next 2 to 21 years, based on the remaining recovery periods as designated by the applicable state regulatory commissions. This category also requiredincludes recoverable seasonal rates, which reflect the difference between the recognition of a portion of Atlanta Gas Light’s residential base rates revenues on a straight-line basis as compared to recognize asthe collection of the revenues over a component of OCI the changes in funded status that occurred during the year thatseasonal pattern. These amounts are not yet recognized as part of net periodic benefit cost as explained in authoritative guidance related to retirement benefits. Because substantially all of its retirement costs arefully recoverable through base rates Nicor Gas generally defers any charge or credit to a regulatory asset or liability until the period in which the costs are included in base rates, in accordance with the authoritative guidance for rate-regulated entities. The assets of our retirement plans were accounted for at fair value and are classified in the fair value hierarchy in their entirety based on the lowest level of input that is significant to the fair value measurement.within one year.
Non-Wholly Owned EntitiesIn September 2013, Nicor Gas filed its second Energy Efficiency Plan, which outlines program offerings and therm reduction goals with spending of $93 million over the three-year period June 2014 through May 2017. Nicor Gas’ first Energy Efficiency Program is currently in its third year and will end in May 2014. Although there is no statutory deadline for approval of gas utility plans, Nicor Gas requested approval in the same five-month timeframe, or by March 1, 2014, as established by statute for electric utilities. The new plan must be implemented by June 1, 2014.
We hold ownership interests in a number of business ventures with varying ownership structures. We evaluate all of our partnership interests and other variable interests to determine if each entity is a variable interest entity (VIE), as defined in the authoritative accounting guidance. If a venture is a VIE for which we are the primary beneficiary, we consolidate the assets, liabilities and results of operations of the entity. We reassess our conclusion as to whether an entity is a VIE upon certain occurrences which are deemed reconsideration events under the guidance. For entities that are not determined to be VIEs, we evaluate whether we have control or significant influence over the joint venture to determine the appropriate consolidation and presentation. Generally, entities under our control are consolidated, and entities over which we can exert significant influence, but do not control, are accounted for under the equity method of accounting.
We have concluded that the only venture that we are required to consolidate as a VIE, as we are the primary beneficiary, is SouthStar. We recognize on our Consolidated Statements of Financial Position, Piedmont’s share of the non-wholly owned entity as a separate component of equity entitled “noncontrolling interest.” Piedmont’s share of current operations is reflected in “net income attributable to the noncontrolling interest” on our Consolidated Statements of Income. The authoritative guidance has no effect on our calculation of basic or diluted earnings per common share amounts, which are based upon net income attributable to AGL Resources Inc. For additional information, see Note 10.
We also invest in partnerships and limited liability companies that are accounted for under the equity method, but are not joint ventures. In accordance with the authoritative guidance, all such investments are required to use the equity method unless our interest is so minor that there is virtually no influence over operating and financial policies.
Investments accounted for under the equity method are included in long-term investments on our Consolidated Statements of Financial Position, and the equity income is recorded in equity investment income on our Consolidated Statements of Income and was immaterial for all periods presented. For additional information, see Note 10.
Use of Accounting Estimates
The preparation of our financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures. We based our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, and we evaluate our estimates on an ongoing basis. Our estimates may involve complex situations requiring a high degree of judgment either in the application and interpretation of existing literature or in the development of estimates that impact our financial statements. The most significant estimates relate to our pipeline replacement program accruals, environmental liability accruals, uncollectible accounts and other allowance for contingent losses, goodwill and intangible assets, retirement plan obligations, derivative and hedging activities and provisions for income taxes. Our actual results could differ from our estimates.
On December 9, 2011, we completed our merger with Nicor. In accordance with the Merger Agreement, each share of Nicor common stock outstanding at the Effective Date, other than shares cancelled and Dissenting Shares, as defined in the Merger Agreement, was converted into purchase consideration of (i) 0.8382 of a share of AGL Resources common stock and (ii) $21.20 in cash. Fractional shares were not issued in connection with the merger as Nicor shareholders who would have been entitled to receive a fraction of a share of AGL Resources common stock received cash settlements. Additionally, cash was paid to repurchase stock options and restricted stock units that were awarded for pre-merger services. Nicor’s previous shareholders own approximately 33% of the combined company. The value of the consideration paid to Nicor shareholders was calculated as follows:
In millions, except per share price | | | | Nicor shares outstanding at the Effective Date | | | 45.5 | | Exchange ratio | | | 0.8382 | | Number of shares of AGL Resources common stock issued | | | 38.2 | | Volume-weighted average price of AGL Resources common stock on December 8, 2011 | | $ | 39.90 | | Cost of equity issued | | $ | 1,523 | | | | | | | Nicor shares outstanding at the Effective Date | | | 45.5 | | Cash payment per share of Nicor common stock | | $ | 21.20 | | Cash paid for Nicor common shares outstanding | | $ | 966 | | Cash paid to repurchase outstanding equity awards | | $ | 14 | | Cost of debt issued | | $ | 980 | | Total purchase consideration | | $ | 2,503 | |
The preliminary allocation of the total consideration transferred in the merger to the fair value of assets acquired and liabilities assumed includes adjustments for the fair value of Nicor’s assets and liabilities, and was performed by a third-party independent valuation specialist. The preliminary allocation of the purchase price is presented in the following table.
In millions | | | | Current assets | | $ | 932 | | Property, plant and equipment | | | 3,202 | | Goodwill | | | 1,395 | | Other noncurrent assets, excluding goodwill | | | 791 | | Current liabilities | | | (1,170 | ) | Long-term debt | | | (599 | ) | Other noncurrent liabilities | | | (2,048 | ) | Total purchase consideration | | $ | 2,503 | |
The estimated fair values of the assets acquired and the liabilities assumed were determined based on the accounting guidance for fair value measurements under GAAP, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The estimated fair value measurements assume the highest and best use of the assets by market participants, considering the use of the asset that is physically possible, legally permissible and financially feasible at the measurement date. Modifications to the purchase price allocation may occur as a result of continuing review of the assumptions and estimates underlying the preliminary fair value adjustments of environmental site remediation and other adjustments.
The excess of the purchase price paid over the estimated fair values of the assets acquired and liabilities assumed was recognized as goodwill, which is not deductible for tax purposes. A preliminary rollforward of total goodwill recognized by segment in our Consolidated Statements of Financial Position is as follows:
In millions | | Distribution Operations | | | Retail Operations | | | Wholesale Services | | | Midstream Operations | | | Cargo Shipping | | | Other | | | Consolidated | | As of December 31, 2010 | | $ | 404 | | | $ | 0 | | | $ | 0 | | | $ | 14 | | | $ | 0 | | | $ | 0 | | | $ | 418 | | Merger with Nicor | | | 1,182 | | | | 124 | | | | 2 | | | | 2 | | | | 77 | | | | 8 | | | | 1,395 | | As of December 31, 2011 | | $ | 1,586 | | | $ | 124 | | | $ | 2 | | | $ | 16 | | | $ | 77 | | | $ | 8 | | | $ | 1,813 | |
The preliminary valuation of the additional intangible assets recorded as result of the merger is as follows:
In millions | | Preliminary Valuation | | Weighted-average amortization period | Trade names: | | | | | Retail Operations | | $ | 33 | | 15 years | Cargo Shipping | | | 15 | | 15 years | | | | | | | Customer relationships: | | | | | | Retail Operations | | | 52 | | 10 years | Cargo Shipping | | | 3 | | 18 years | Total | | $ | 103 | | |
The fair value measurements of intangible assets were primarily based on significant unobservable inputs and thus represent level 3 measurements as defined in accounting guidance for fair value measurements.
The following table summarizes the estimated fair value of the acquired receivables recorded in connection with the merger:
In millions | | | | Nicor accounts receivable at December 9, 2011 | | $ | 400 | | Cash flows not expected to be collected | | | 24 | | Fair value of acquired receivables | | $ | 376 | |
In connection with the merger, AGL Resources recorded merger transaction costs of approximately $68 million ($55 million net of tax) for the twelve months ended December 31, 2011, compared to $6 million ($4 million net of tax) for the same period in 2010. These costs were expensed as incurred and separately stated in our Consolidated Statements of Income. The merger transaction costs recognized for the twelve months ended December 31, 2011 includes $34 million ($31 million net of tax) of change in control and other benefit payments.
The amounts of revenue and earnings of Nicor included in our Consolidated Statements of Income for the period subsequent to the December 9, 2011 closing date are as follows:
In millions, except per share amounts | | December 10, 2011- December 31, 2011 | | Total revenues | | $ | 209 | | Net income (1) | | $ | (24 | ) | Basic earnings per common share | | $ | (0.30 | ) | Diluted earnings per common share | | $ | (0.30 | ) |
(1) | Includes change in control expenses of $31 million (net of taxes). |
Pro forma financial information The following unaudited pro forma financial information reflects our consolidated results of operations as if the merger with Nicor had taken place on January 1, 2010. The unaudited pro forma information has been calculated after conforming our accounting policies and adjusting Nicor’s results to reflect the depreciation and amortization that would have been charged assuming fair value adjustments to property, plant and equipment, debt and intangible assets had been applied on January 1, 2010, together with the consequential tax effects.
AGL Resources and Nicor together incurred approximately $86 million of costs directly related to the merger in the twelve months ended December 31, 2011 and $10 million for the same period in 2010. These expenses are excluded from the pro forma earnings presented below.
The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of results of operations that would have been achieved had the pro forma events taken place on the dates indicated, or the future consolidated results of operations of the combined company.
| | 12 months ended December 31 | | In millions, except per share amounts | | 2011 | | | 2010 | | Total revenues | | $ | 4,715 | | | $ | 5,083 | | Net income attributable to parent | | $ | 313 | | | $ | 343 | | Basic earnings per common share | | $ | 2.69 | | | $ | 2.97 | | Diluted earnings per common share | | $ | 2.68 | | | $ | 2.96 | |
Derivative InstrumentsRetirement benefit plans
The following table summarizes, by level within the fair value hierarchy, our derivative assets and liabilities that were accounted for at fair value on a recurring basis for the years ended December 31, 2011 and 2010. In millions | | December 31, 2011 | | | December 31, 2010 | | Natural gas derivatives | | Assets (1) | | | Liabilities | | | Assets (1) | | | Liabilities | | Quoted prices in active markets (Level 1) | | $ | 38 | | | $ | (145 | ) | | $ | 22 | | | $ | (71 | ) | Significant other observable inputs (Level 2) | | | 229 | | | | (68 | ) | | | 153 | | | | (29 | ) | Netting of cash collateral | | | 32 | | | | 115 | | | | 53 | | | | 52 | | Total carrying value (2) (3) | | $ | 299 | | | $ | (98 | ) | | $ | 228 | | | $ | (48 | ) | Interest rate derivatives | | | | | | | | | | | | | | | | | Significant other observable inputs (Level 2) | | $ | 13 | | | $ | (13 | ) | | $ | 0 | | | $ | 0 | |
(1) | $3 million of premium at December 31, 2011 and less than $1 million at December 31, 2010 associated with weather derivatives have been excluded as they are accounted for based on intrinsic value. |
(2) | There were no material unobservable inputs (level 3) for anyallocations of the periods presented. |
(3) | There were no material transfers between Level 1, Level2, or Level 3 for any of the periods presented. |
Money Market Funds
At December 31, 2011, we held $59 million in money market funds which are recorded at fair value and classified as Level 1 within the fair value hierarchy.
Retirement benefit plans
The target asset allocation of the Nicor Companies Pension and Retirement Plan (Nicor Gas Retirement Plan) is approximately 60% equity and 40% fixed income. The AGL Resources Inc. Retirement Plan (AGL Retirement Plan), the Employees’ Retirement Plan of NUI Corporation (NUI Retirement Plan), and the Health and Welfare Plan for Retirees and Inactive Employees of AGL Resources Inc. (AGL PostretirementWelfare Plan) target asset allocations arewere approximately 80%74% equity and 20%26% fixed income.income at December 31, 2013. The plans investments policy providesplans’ investment policies provide for some variation in these targets. The actual asset allocations of our retirement plans are presented in the following table by Level within the fair value hierarchy.
| | December 31, 2011 | | | December 31, 2013 | | | | Pension plans (1) | | | Other retirement plans | | | Pension plans (1) | | | Welfare plans | | In millions | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | % of total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | % of total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | % of total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | % of total | | Cash | | $ | 13 | | | $ | 0 | | | $ | 0 | | | $ | 13 | | | | 2 | % | | $ | 1 | | | $ | 0 | | | $ | 0 | | | $ | 1 | | | | 2 | % | | $ | 3 | | | $ | 1 | | | $ | - | | | $ | 4 | | | | - | % | | $ | 1 | | | $ | - | | | $ | - | | | $ | 1 | | | | 1 | % | Equity Securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. large cap (2) | | | 95 | | | | 134 | | | | 0 | | | | 229 | | | | 30 | % | | | 0 | | | | 34 | | | | 0 | | | | 34 | | | | 56 | % | | | 93 | | | | 205 | | | | - | | | | 298 | | | | 33 | % | | | - | | | | 52 | | | | - | | | | 52 | | | | 62 | % | U.S. small cap (2) | | | 53 | | | | 25 | | | | 0 | | | | 78 | | | | 10 | % | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | % | | | 72 | | | | 29 | | | | - | | | | 101 | | | | 11 | % | | | - | | | | - | | | | - | | | | - | | | | - | % | International companies (3) | | | 0 | | | | 107 | | | | 0 | | | | 107 | | | | 14 | % | | | 0 | | | | 10 | | | | 0 | | | | 10 | | | | 16 | % | | | - | | | | 139 | | | | - | | | | 139 | | | | 15 | % | | | - | | | | 14 | | | | - | | | | 14 | | | | 17 | % | Emerging markets (4) | | | 0 | | | | 25 | | | | 0 | | | | 25 | | | | 3 | % | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | % | | | - | | | | 34 | | | | - | | | | 34 | | | | 4 | % | | | - | | | | - | | | | - | | | | - | | | | - | % | Fixed income securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed income securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Corporate bonds (5) | | | 0 | | | | 191 | | | | 0 | | | | 191 | | | | 25 | % | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | % | | | - | | | | 207 | | | | - | | | | 207 | | | | 23 | % | | | - | | | | 17 | | | | - | | | | 17 | | | | 20 | % | Other (or gov’t/muni bonds) | | | 0 | | | | 28 | | | | 0 | | | | 28 | | | | 4 | % | | | 0 | | | | 16 | | | | 0 | | | | 16 | | | | 26 | % | | | - | | | | 29 | | | | - | | | | 29 | | | | 3 | % | | | - | | | | - | | | | - | | | | - | | | | - | % | Other types of investments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other types of investments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Global hedged equity (6) | | | 0 | | | | 0 | | | | 30 | | | | 30 | | | | 4 | % | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | % | | | - | | | | - | | | | 43 | | | | 43 | | | | 5 | % | | | - | | | | - | | | | - | | | | - | | | | - | % | Absolute return (7) | | | 0 | | | | 0 | | | | 34 | | | | 34 | | | | 5 | % | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | % | | | - | | | | - | | | | 39 | | | | 39 | | | | 4 | % | | | - | | | | - | | | | - | | | | - | | | | - | % | Private capital (8) | | | 0 | | | | 0 | | | | 25 | | | | 25 | | | | 3 | % | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | % | | | - | | | | - | | | | 22 | | | | 22 | | | | 2 | % | | | - | | | | - | | | | - | | | | - | | | | - | % | Total assets at fair value | | $ | 161 | | | $ | 510 | | | $ | 89 | | | $ | 760 | | | | 100 | % | | $ | 1 | | | $ | 60 | | | $ | 0 | | | $ | 61 | | | | 100 | % | | $ | 168 | | | $ | 644 | | | $ | 104 | | | $ | 916 | | | | 100 | % | | $ | 1 | | | $ | 83 | | | $ | - | | | $ | 84 | | | | 100 | % | % of fair value hierarchy | | | 21 | % | | | 67 | % | | | 12 | % | | | 100 | % | | | | | | | 2 | % | | | 98 | % | | | 0 | % | | | 100 | % | | | | | | | 19 | % | | | 70 | % | | | 11 | % | | | 100 | % | | | | | | | 1 | % | | | 99 | % | | | - | % | | | 100 | % | | | | |
| | December 31, 2010 | | | December 31, 2012 | | | | Pension plans (1) | | | Other retirement plans | | | Pension plans (1) | | | Welfare plans | | In millions | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | % of total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | % of total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | % of total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | % of total | | Cash | | $ | 7 | | | $ | 0 | | | $ | 0 | | | $ | 7 | | | | 2 | % | | $ | 1 | | | $ | 0 | | | $ | 0 | | | $ | 1 | | | | 1 | % | | $ | 14 | | | $ | 2 | | | $ | - | | | $ | 16 | | | | 2 | % | | $ | 1 | | | $ | - | | | $ | - | | | $ | 1 | | | | 1 | % | Equity Securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. large cap (2) | | | 91 | | | | 0 | | | | 0 | | | | 91 | | | | 26 | % | | | 0 | | | | 36 | | | | 0 | | | | 36 | | | | 57 | % | | | 69 | | | | 181 | | | | - | | | | 250 | | | | 30 | % | | | - | | | | 38 | | | | - | | | | 38 | | | | 55 | % | U.S. small cap (2) | | | 51 | | | | 0 | | | | 0 | | | | 51 | | | | 15 | % | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | % | | | 60 | | | | 22 | | | | - | | | | 82 | | | | 10 | % | | | - | | | | - | | | | - | | | | - | | | | - | % | International companies (3) | | | 0 | | | | 43 | | | | 0 | | | | 43 | | | | 12 | % | | | 0 | | | | 12 | | | | 0 | | | | 12 | | | | 19 | % | | | - | | | | 120 | | | | - | | | | 120 | | | | 14 | % | | | - | | | | 12 | | | | - | | | | 12 | | | | 18 | % | Emerging markets (4) | | | 0 | | | | 16 | | | | 0 | | | | 16 | | | | 4 | % | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | % | | | - | | | | 34 | | | | - | | | | 34 | | | | 4 | % | | | - | | | | - | | | | - | | | | - | | | | - | % | Fixed income securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed income securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Corporate bonds (5) | | | 0 | | | | 56 | | | | 0 | | | | 56 | | | | 16 | % | | | 0 | | | | 15 | | | | 0 | | | | 15 | | | | 23 | % | | | - | | | | 216 | | | | - | | | | 216 | | | | 26 | % | | | - | | | | 18 | | | | - | | | | 18 | | | | 26 | % | Other types of investments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other (or gov’t/muni bonds) | | | | - | | | | 30 | | | | - | | | | 30 | | | | 3 | % | | | - | | | | - | | | | - | | | | - | | | | - | % | Other types of investments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Global hedged equity (6) | | | 0 | | | | 0 | | | | 35 | | | | 35 | | | | 10 | % | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | % | | | - | | | | - | | | | 38 | | | | 38 | | | | 4 | % | | | - | | | | - | | | | - | | | | - | | | | - | % | Absolute return (7) | | | 0 | | | | 0 | | | | 30 | | | | 30 | | | | 9 | % | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | % | | | - | | | | - | | | | 36 | | | | 36 | | | | 4 | % | | | - | | | | - | | | | - | | | | - | | | | - | % | Private capital (8) | | | 0 | | | | 0 | | | | 22 | | | | 22 | | | | 6 | % | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | % | | | - | | | | - | | | | 23 | | | | 23 | | | | 3 | % | | | - | | | | - | | | | - | | | | - | | | | - | % | Total assets at fair value | | $ | 149 | | | $ | 115 | | | $ | 87 | | | $ | 351 | | | | 100 | % | | $ | 1 | | | $ | 63 | | | $ | 0 | | | $ | 64 | | | | 100 | % | | $ | 143 | | | $ | 605 | | | $ | 97 | | | $ | 845 | | | | 100 | % | | $ | 1 | | | $ | 68 | | | $ | - | | | $ | 69 | | | | 100 | % | % of fair value hierarchy | | | 42 | % | | | 33 | % | | | 25 | % | | | 100 | % | | | | | | | 1 | % | | | 99 | % | | | 0 | % | | | 100 | % | | | | | | | 17 | % | | | 72 | % | | | 11 | % | | | 100 | % | | | | | | | 1 | % | | | 99 | % | | | - | % | | | 100 | % | | | | |
(1) | Includes $6$9 million at December 31, 20112013 and $7$8 million at December 31, 20102012 of medical benefit (health and welfare) component for 401h accounts to fund a portion of the other retirement benefits. |
(2) | Includes funds that invest primarily in United StatesU.S. common stocks. |
(3) | Includes funds that invest primarily in foreign equity and equity-related securities. |
(4) | Includes funds that invest primarily in common stocks of emerging markets. |
(5) | Includes funds that invest primarily in investment grade debt and fixed income securities. |
(6) | Includes funds that invest in limited / general partnerships, managed accounts, and other investment entities issued by non-traditional firms or “hedge funds.” |
(7) | Includes funds that invest primarily in investment vehicles and commodity pools as a “fund of funds.” |
(8) | Includes funds that invest in private equity and small buyout funds, partnership investments, direct investments, secondary investments, directly / indirectly in real estate and may invest in equity securities of real estate related companies, real estate mortgage loans, and real-estate mezzanine loans. |
The following is a reconciliation of our retirement plan assets in Level 3 of the fair value hierarchy.hierarchy.
Fair value measurements using significant unobservable inputs – Level 3 | | | | | December 31, 2011 | | | Fair value measurements using significant unobservable inputs - Level 3 (1) | | In millions | | Global hedged equity | | | Absolute return | | | Private capital | | | Total | | | Global hedged equity | | | Absolute return | | | Private capital | | | Total | | Assets: | | | | | | | | | | | | | | Beginning balance | | $ | 35 | | | $ | 30 | | | $ | 22 | | | $ | 87 | | | | | | | | | | | | | | | | | Balance at December 31, 2011 | | | $ | 30 | | | $ | 34 | | | $ | 25 | | | $ | 89 | | Gains included in changes in net assets | | | (1 | ) | | | 1 | | | | 5 | | | | 5 | | | | 3 | | | | 2 | | | | 3 | | | | 8 | | Purchases | | | 2 | | | | 3 | | | | 1 | | | | 6 | | | | 15 | | | | - | | | | - | | | | 15 | | Sales | | | (6 | ) | | | 0 | | | | (3 | ) | | | (9 | ) | | | (10 | ) | | | - | | | | (5 | ) | | | (15 | ) | Ending balance | | $ | 30 | | | $ | 34 | | | $ | 25 | | | $ | 89 | | | Balance at December 31, 2012 | | | $ | 38 | | | $ | 36 | | | $ | 23 | | | $ | 97 | | Gains included in changes in net assets | | | | 5 | | | | 3 | | | | 4 | | | | 12 | | Purchases | | | | - | | | | - | | | | - | | | | - | | Sales | | | | - | | | | - | | | | (5 | ) | | | (5 | ) | Balance at December 31, 2013 | | | $ | 43 | | | $ | 39 | | | $ | 22 | | | $ | 104 | |
(1) There were no transfers out of Level 3, or between Level 1 and Level 2 for any of the periods presented.
Derivative Instruments
| | December 31, 2010 | | | In millions | | Global hedged equity | | | Absolute return | | | Private capital | | | Equity securities – international companies | | | | Total | | | Assets: | | | | | | | | | | | | | | | | | | Beginning balance | | $ | 33 | | | $ | 26 | | | $ | 13 | | | $ | 5 | | | $ | 77 | | Transfers out of Level 3 (1) | | | 0 | | | | 0 | | | | 0 | | | | (4 | ) | | | (4 | ) | Gains included in changes in net assets | | | 2 | | | | 2 | | | | 2 | | | | 0 | | | | 6 | | Purchases | | | 0 | | | | 14 | | | | 8 | | | | 0 | | | | 22 | | Issuances | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | Sales | | | 0 | | | | (12 | ) | | | (1 | ) | | | (1 | ) | | | (14 | ) | Settlements | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | Ending balance | | $ | 35 | | | $ | 30 | | | $ | 22 | | | $ | 0 | | | $ | 87 | | (1) Transferred to Level 2 as a result of change in investment vehicle and pricing inputs becoming directly observable. Transfers out of Level 3 are determined using values at the end of the period in which the transfer occurs. (2) There were no transfers between Level 1 and Level 2 for any of the periods presented. |
The following table summarizes, by level within the fair value hierarchy, our derivative assets and liabilities that were carried at fair value on a recurring basis in our Consolidated Statements of Financial Position as of the dates presented.
| | December 31, 2013 | | | December 31, 2012 | | In millions | | Assets (1) | | | Liabilities | | | Assets (1) | | | Liabilities | | Natural gas derivatives | | | | | | | | | | | | | Quoted prices in active markets (Level 1) | | $ | 6 | | | $ | (79 | ) | | $ | 8 | | | $ | (45 | ) | Significant other observable inputs (Level 2) | | | 67 | | | | (79 | ) | | | 96 | | | | (30 | ) | Netting of cash collateral | | | 43 | | | | 78 | | | | 33 | | | | 36 | | Total carrying value (2) (3) | | $ | 116 | | | $ | (80 | ) | | $ | 137 | | | $ | (39 | ) | Interest rate derivatives | | | | | | | | | | | | | | | | | Significant other observable inputs (Level 2) | | $ | - | | | $ | - | | | $ | 3 | | | $ | - | |
82(1) | $3 million of premium at December 31, 2013 and $4 million at December 31, 2012 associated with weather derivatives have been excluded as they are accounted for based on intrinsic value. |
(2) | There were no significant unobservable inputs (Level 3) for any of the periods presented. |
(3) | There were no significant transfers between Level 1, Level 2, or Level 3 for any of the periods presented. |
Money Market Funds
At December 31, 2013 and 2012, the fair values of our money market funds, which were recorded within short-term investments, were as follows:
In millions | | 2013 | | | 2012 | | Money market funds (1) | | $ | 48 | | | $ | 66 | |
(1) | Carried at fair value and classified as Level 1 within the fair value hierarchy. |
Debt
Our long-term debt is recorded at amortized cost, with the exception of Nicor Gas’ first mortgage bonds, which arewere recorded at their acquisition-date fair value. We estimate theThe fair value adjustment of our debt using a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration, optionality and risk profile.Nicor Gas’ first mortgage bonds is being amortized over the lives of the bonds. The following table presents the amortized costcarrying amount and fair value of our long-term debt foras of the following periods.dates.
| | As of December 31, | | | As of December 31, | In millions | | 2011 | | | 2010 | | | 2013 | | | 2012 | Long-term debt amortized cost (1) | | $ | 3,576 | | | $ | 1,971 | | | Long-term debt carrying amount | | | $ | 3,813 | | | $ | 3,553 | | Long-term debt fair value (1) | | $ | 3,938 | | | $ | 2,122 | | | | 3,956 | | | | 4,057 | |
(1) | (1) December 31, 2011 includes the debt assumed in the Nicor merger with a carryingFair value of $500 million,
as well as $15 million of medium-term notes that are due in June 2012. December 31, 2010 includes $300 million of senior notes repaid in January 2011. determined using Level 2 inputs. |
Derivative Instruments
Our risk management activities are monitored by our Risk Management Committee, which consists of members of senior management and is charged with reviewing and enforcing our risk management activities and policies. Our use of derivative instruments, including physical transactions, is limited to predefined risk tolerances associated with pre-existing or anticipated physical natural gas sales and purchases and system use and storage. We use the following types of derivative instruments and energy-related contracts to manage natural gas price, interest rate, weather, automobile fuel price and foreign currency risks:
· | and options contractscontracts; |
· | weather derivative contractscontracts; |
· | storage and transportation capacity transactionscontracts; and |
· | foreign currency forward contracts |
Certain of our derivative instruments contain credit-risk-related or other contingent features that could increase the payments forrequire us to post collateral we post in the normal course of business when our financial instruments are in net liability positions. As of December 31, 20112013 and 2012 for agreements with such features, derivative instruments with liability fair values totaled approximately $110$80 million and $39 million, respectively, for which we had posted no collateral to our counterparties. The maximum collateral that could be required with these features is $9 million. For more information, see “Energy Marketing Receivables and Payables” in Note 2. In addition, our energy marketing receivables and payables, which also have credit-risk-related or other contingent features, are discussed in Note 2. Our derivative instrument activities are included within operating cash flows as an adjustment to net income of $(24)$66 million, $72 million and $(17) million for the periods ended December 31, 2013, 2012 and 2011, respectively.
On April 4, 2013 we entered into two ten-year, $50 million fixed-rate forward-starting interest rate swaps to partially hedge any potential interest rate volatility prior to our issuance of the senior notes in the second quarter of 2013. The average interest rate on these swaps was 1.98%. Including existing $200 million of ten-year, 1.78% fixed-rate forward-starting interest rate swap hedges, which were executed on December 6, 2012, we had fixed-rate swaps totaling $300 million in 2011, $(2)notional value at an average interest rate of 1.85%. We designated the forward-starting interest rate swaps as cash flow hedges of our second quarter 2013 senior note issuance. The interest rate swaps were settled on May 16, 2013, the senior note issuance date, at which time we received $6 million in 2010 and $11proceeds. The $6 million in 2009.will be amortized to reduce interest expense over the first 10 years of the 30-year senior notes.
OnIn May 4, 2011, we entered into interest rate swaps with an aggregate notional amount of $250 millionrelated to effectively convert a portion of our fixed-rate interest obligation on the $300 million 6.40%of outstanding 6.4% senior notes due in July 15, 2016 that effectively converted $250 million from a fixed rate to a variable-ratevariable rate obligation. We pay a floatingOn September 6, 2012 we settled this $250 million fixed-rate to floating-rate interest rate equal to the three-month LIBOR plus 3.9%. We designated these interest rate swaps as fair value hedges. We also held forward-starting interest rate swaps with a notional amount totaling $90 million at December 31, 2011, that were redesignated as cash flow hedges upon the close of the merger. Under the terms of the swaps, we agree to pay a fixed swap rate and receive a floating rate based on a variable three-month LIBOR rate. We designated these interest rate swaps as cash flow hedges. swap.
The fair values of our interest rate swaps were reflected as a long-term derivative asset of $13 million and a short-term liability of $13$3 million at December 31, 2011.2012. For more information on our debt, see Note 8. The following table below summarizes the various ways in which we account for our derivative instruments and the impact on our Consolidated Financial Statements:consolidated financial statements: Accounting Treatment | Recognition and Measurement | StatementAccounting Treatment | Statements of Financial Position | Income Statement | Cash flow hedge | Derivative carried at fair value | Ineffective portion of the gain or loss on the derivative instrument is recognized in earnings | | Effective portion of the gain or loss on the derivative instrument is reported initially as a component of accumulated other comprehensive incomeOCI (loss) | Effective portion of the gain or loss on the derivative instrument is reclassified out of accumulated OCI (loss) and into earnings when the forecastedhedged transaction affects earnings | Fair value hedge | Derivative carried at fair value Changes in fair value of the hedged item are recorded as adjustments to the carrying amount of the hedged item | Gains or losses on the derivative instrument and the hedged item are recognized in earnings. As a result, to the extent the hedge is effective, the gains or losses will offset and there is no impact on earnings. Any hedge ineffectiveness will impact earnings.earnings | Not designated as hedges | Derivative carried at fair value | Realized and unrealized gains or losses on the derivative instrument are recognized in earnings | | Nicor Gas’ and Elizabethtown Gas’ unrealizedDistribution operations’ gains and losses on derivative instruments are deferred as regulatory assets or liabilities until included in natural gas costscost of goods sold | The gainGains or losslosses on these derivative instruments is reflected in natural gas costs and isare ultimately included in billings to customers and are recognized in cost of goods sold in the same period as the related revenues |
Quantitative Disclosures Related to Derivative Instruments
As of December 31, 2011 and 2010,the dates presented, our derivative instruments were comprised of both long and short natural gas positions. A long position is a contract to purchase natural gas, and a short position is a contract to sell natural gas. As of December 31, 2011 and 2010, weWe had a net long natural gas contracts position outstanding in the following quantities: Natural gas contracts | | | | | | | | | Distribution Operations (3) | | | All Other | | In Bcf | | December 31, 2011 (1) | | | December 31, 2010 | | | December 31, 2011 (1) | | | December 31, 2010 | | Hedge designation: | | | | | | | | | | | | | Cash flow | | | 0 | | | | 0 | | | | 5 | | | | 4 | | Not designated | | | 48 | | | | 18 | | | | 138 | | | | 202 | | Total | | | 48 | | | | 18 | | | | 143 | | | | 206 | | Hedge position: | | | | | | | | | | | | | | | | | Short | | | 0 | | | | 0 | | | | (1,680 | ) | | | (1,605 | ) | Long | | | 48 | | | | 18 | | | | 1,823 | | | | 1,811 | | Net long position | | | 48 | | | | 18 | | | | 143 | | | | 206 | |
| | | | | | | | | December 31, | | In Bcf (1) | | 2013 (2) | | | 2012 | | Hedge designation | | | | | | | Cash flow hedges | | | 6 | | | | 6 | | Not designated as hedges | | | 183 | | | | 96 | | Total hedges | | | 189 | | | | 102 | | Hedge position | | | | | | | | | Short position | | | (2,622 | ) | | | (1,955 | ) | Long position | | | 2,811 | | | | 2,057 | | Net long position | | | 189 | | | | 102 | |
(1) | Approximately 97% of these contracts have durations of two years or less and the remaining 3% expire in 3 to 6 years. |
(2) | Volumes related to Nicor Gas exclude variable-priced contracts, which are accounted for as derivatives, but whose fair values are not directly impacted by changes in commodity prices. |
(2) | Approximately 97% of these contracts have durations of two years or less and the remaining 3% expire between two and six years. |
Derivative Instruments on thein our Consolidated Statements of Financial Position
In accordance with regulatory requirements, gains and losses on derivative instruments used at Nicor Gas and Elizabethtown Gas in our distribution operations segment wereto hedge natural gas purchases for customer use are reflected in accrued natural gas costs within our Consolidated Statements of Financial Position.Position until billed to customers. The following amounts represent the net realized lossesgains (losses) related to these natural gas cost hedges for the yearyears ended December 31. | | | | | In millions | | 2011 | | | 2010 | | | 2013 | | | 2012 | | Nicor Gas | | $ | 3 | | | | n/a | | | $ | 4 | | | $ | (35 | ) | Elizabethtown Gas | | $ | 27 | | | $ | 35 | | | $ | (6 | ) | | $ | (28 | ) |
The following table presents the fair valuevalues and Statements of Financial Position classification of our derivative instruments:
| | | December 31, | | In millions | Statement of financial position location (1) (2) | | 2011 | | | 2010 | | Designated as cash flow and fair value hedges | | | | | | | | | | | | | | | Asset Instruments | | | | | | | Current natural gas contracts | Derivative instruments assets and liabilities – current portion | | $ | 9 | | | $ | 3 | | Noncurrent natural gas contracts | Derivative instruments assets and liabilities | | | 0 | | | | 0 | | Interest rate swap agreements | Derivative instruments assets – long-term portion | | | 13 | | | | 0 | | Liability Instruments | | | | | | | | | Current natural gas contracts | Derivative instruments assets and liabilities – current portion | | | (12 | ) | | | (5 | ) | Interest rate swap agreements | Derivative instruments liabilities – long-term portion | | | (13 | ) | | | 0 | | Total | | | | (3 | ) | | | (2 | ) | | | | | | | | | | | Not designated as cash flow hedges | | | | | | | | | | | | | | | | | | | Asset Instruments | | | | | | | | | Current natural gas contracts | Derivative instruments assets and liabilities – current portion | | | 728 | | | | 541 | | Noncurrent natural gas contracts | Derivative instruments assets and liabilities | | | 137 | | | | 105 | | | | | | | | | | | | Liability Instruments | | | | | | | | | Current natural gas contracts | Derivative instruments assets and liabilities – current portion | | | (689 | ) | | | (489 | ) | Noncurrent natural gas contracts | Derivative instruments assets and liabilities | | | (116 | ) | | | (80 | ) | Total | | | | 60 | | | | 77 | | Total derivative instruments | | $ | 57 | | | $ | 75 | |
(1) These amounts are netted within our Consolidated Statements of Financial Position. Some of our derivative instruments have asset positions which are presented as a liability in our Consolidated Statements of Financial Position and we have derivative instruments that have liability positions which are presented as an asset in our Consolidated Statementsclassifications of Financial Position.
(2) As required by the authoritative guidance related to derivatives and hedging, the fair value amounts above are presented on a gross basis. As a result, the amounts above do not include cash collateral held on deposit in broker margin accounts of $147 million as of December 31, 2011 and $105 million as of December 31, 2010. Accordingly, the amounts above will differ from the amounts presented on our Consolidated Statements of Financial Position and the fair value information presented for our derivative instruments in the recurring fair values table of Note 4.instruments:
| | | December 31, 2013 | | | December 31, 2012 | | In millions | Classification | | Assets | | | Liabilities | | | Assets | | | Liabilities | | Designated as cash flow hedges and fair value hedges | | | | | | | | | | | | | Natural gas contracts | Current | | $ | 3 | | | $ | (1 | ) | | $ | 1 | | | $ | (2 | ) | Interest rate swap agreements | Current | | | - | | | | - | | | | 3 | | | | - | | Total | | | | 3 | | | | (1 | ) | | | 4 | | | | (2 | ) | | | | | | | | | | | | | | | | | | Not designated as cash flow hedges | | | | | | | | | | | | | | | | | Natural gas contracts | Current | | | 691 | | | | (761 | ) | | | 394 | | | | (355 | ) | Natural gas contracts | Long-term | | | 206 | | | | (220 | ) | | | 45 | | | | (50 | ) | Total | | | | 897 | | | | (981 | ) | | | 439 | | | | (405 | ) | Gross amount of recognized assets and liabilities (1) | | | 900 | | | | (982 | ) | | | 443 | | | | (407 | ) | Gross amounts offset in our Consolidated Statements of Financial Position (2) | | | (781 | ) | | | 902 | | | | (299 | ) | | | 368 | | Net amounts of assets and liabilities presented in our Consolidated Statements of Financial Position (3) | | $ | 119 | | | $ | (80 | ) | | $ | 144 | | | $ | (39 | ) |
(1) | The gross amounts of recognized assets and liabilities are netted within our Consolidated Statements of Financial Position to the extent that we have netting arrangements with the counterparties. |
(2) | As required by the authoritative guidance related to derivatives and hedging, the gross amounts of recognized assets and liabilities above do not include cash collateral held on deposit in broker margin accounts of $121 million as of December 31, 2013 and $69 million as of December 31, 2012. Cash collateral is included in the “Gross amounts offset in our Consolidated Statements of Financial Position” line of this table. |
(3) | At December 31, 2013 and 2012 we held letters of credit from counterparties that would offset, under master netting arrangements, an insignificant portion of these assets. |
Derivative Instruments on the Consolidated Statements of Income
The following table presents the gain or (loss) onimpacts of our derivative instruments in our Consolidated Statements of Income for the twelve monthsyears ended December 31, 20112013, 2012 and 2010.2011.
| | December 31, | | In millions | | 2011 | | | 2010 | | | 2009 | | | | | | | | | | | | Designated as cash flow hedges | | | | | | | | | | Natural gas contracts – loss recognized in OCI | | | | | | | | | | Natural gas contracts – loss reclassified from OCI into cost of goods sold for settlement of hedged item | | $ | (6 | ) | | $ | (16 | ) | | $ | (31 | ) | Interest rate swaps – ineffectiveness recorded as an offset to interest expense | | | 3 | | | | 0 | | | | 0 | | | | | | | | | | | | | | | Not designated as hedges | | | | | | | | | | | | | Natural gas contracts – fair value adjustments recorded in operating revenues (1) | | | 40 | | | | (1 | ) | | | 21 | | Natural gas contracts – net gain fair value adjustments recorded in cost of goods sold (2) | | | 0 | | | | (2 | ) | | | 1 | | Natural gas contracts – net loss fair value adjustments recorded in operation and maintenance expense | | | (4 | ) | | | 0 | | | | 0 | | Total gains (losses) on derivative instruments | | $ | 33 | | | $ | (19 | ) | | $ | (9 | ) |
In millions | | 2013 | | | 2012 | | | 2011 | | | | | | | | | | | | Designated as cash flow hedges | | | | | | | | | | Natural gas contracts - loss reclassified from OCI to cost of goods sold | | $ | (1 | ) | | $ | (5 | ) | | $ | (6 | ) | Interest rate swaps – gain (loss) reclassified from OCI to interest expense | | | (3 | ) | | | (4 | ) | | | 2 | | Income tax benefit | | | 1 | | | | 3 | | | | 1 | | Net of tax | | | (3 | ) | | | (6 | ) | | | (3 | ) | | | | | | | | | | | | | | Not designated as hedges | | | | | | | | | | | | | Natural gas contracts - net fair value adjustments recorded in operating revenues (1) | | | (90 | ) | | | 34 | | | | 40 | | Natural gas contracts - net fair value adjustments recorded in cost of goods sold (2) | | | 2 | | | | (4 | ) | | | (4 | ) | Income tax benefit (expense) | | | 34 | | | | (11 | ) | | | (14 | ) | Net of tax | | | (54 | ) | | | 19 | | | | 22 | | Total (losses) gains on derivative instruments, net of tax | | $ | (57 | ) | | $ | 13 | | | $ | 19 | |
(1) | Associated with the fair value of existing derivative instruments at December 31, 2011, 20102013, 2012 and 2009.2011. |
(2) | Excludes losses recorded in cost of goods sold associated with weather derivatives of $5 million for the year ended December 31, 2013, $14 million for the year ended December 31, 2012 and $9 million for the year ended December 31, 2011 $27 million for the year ended December 31, 2010 and $6 million for the year ended December 31, 2009.. |
Any amounts recognized in operating income, related to ineffectiveness or due to a forecasted transaction that is no longer expected to occur, were immaterial for the years ended December 31, 2011, 20102013, 2012 and 2009.2011.
Our expected net lossgains to be reclassified from OCI into cost of goods sold, operation and maintenance expense, interest expense and operating revenues and recognized in our Consolidated Statements of Income over the next 12 months is $2 million. These pre-tax deferred lossesgains are recorded in OCI related to natural gas derivative contracts associated with retail operations’ and with Nicor Gas’ system use. The expected lossesgains are based upon the fair values of these financial instruments at December 31, 20112013.
Note 6 - Employee Benefit Plans
Oversight of Plans
The Retirement Plan Investment Committee (the Committee) appointed by our Board of Directors is responsible for overseeing the investments of our defined benefit retirement plans. Further, we have an Investment Policy (the Policy) for our pension and other retirement benefit plans whose goal is to preserve these plans’ capital and maximize investment earnings in excess of inflation within acceptable levels of capital market volatility. To accomplish this goal, the plans’ assets are managed to optimize long-term return while maintaining a high standard of portfolio quality and diversification.
We will continue to diversify retirement plan investments to minimize the risk of large losses in a single asset class. We do not have a concentration of assets in a single entity, industry, country, commodity or class of investment fund. The Policy’s permissible investments include domestic and international equities (including convertible securities and mutual funds), domestic and international fixed income securities (corporate and United States government obligations), cash and cash equivalents and other suitable investments.
Equity market performance and corporate bond rates have a significant effect on our reported funded status. Changes in the projected benefit obligation (PBO) and accumulated postretirement benefit obligation (APBO) are mainly driven by the assumed discount rate. Additionally, equity market performance has a significant effect on our market-related value of plan assets (MRVPA), which is used by the AGL Retirement Plan, and on the actual fair market value of plan assets, which is used by the Nicor Gas Retirement Plan (our two largest pension plans), to determine the expected return on the plan assets component of net annual pension cost. The MRVPA is a calculated value and differs from the actual market value of plan assets.value. Gains and losses on plan assets are spread through the MRVPA based on the five-year movingsmoothing weighted average methodology.
Nicor Gas’ pension and other retirement benefit costs have historically been considered in rate proceedings in the period they are accrued. As a regulated utility, Nicor Gas expects to continue rate recovery of the eligible costs of these defined benefit retirement plans and, accordingly, associated changes in the funded status of Nicor Gas’ plans have been deferred as a regulatory asset or liability until recognized in net income, instead of being recorded in accumulated OCI. However, to the extent Nicor Gas’ employees perform services for affiliates, and to the extent such employees are eligible to participate in these plans, the affiliates are charged for the cost of these benefits and changes in the funded status that are expected to be recovered from affiliates in the future are recorded in accumulated OCI.
Pension Benefits
We sponsor threethe AGL Plan, which is a tax-qualified defined benefit retirement plansplan for our eligible employees, the Nicor Gas Retirement Plan, the AGL Retirement Plan and the NUI Retirement Plan.employees. A defined benefit plan specifies the amount of benefits an eligible participant eventually will receive using information about the participant.participant, including information related to the participant’s earnings history, years of service and age. In 2012, we also sponsored two other tax-qualified defined benefit retirement plans for our eligible employees, a Nicor plan and a NUI plan. Effective as of December 31, 2012, the NUI plan and the Nicor plan were merged into the AGL Plan. The participants of the former Nicor and NUI plans are now being offered their benefits, as described below, through the AGL Plan.
We generally calculate the benefits under the AGL Plan based on age, years of service and pay. The Nicor Gas Retirementbenefit formula for the AGL Plan is currently a career average earnings formula. Participants who were employees as of July 1, 2000 and who were at least 50 years of age as of that date earned benefits until December 31, 2010 under a final average pay formula. Participants who were employed as of July 1, 2000, but did not satisfy the age requirement to continue under the final average earnings formula, transitioned to the career average earnings formula on July 1, 2000.
Effective January 1, 2012, the AGL Plan was frozen with respect to participation for non-union employees hired on or after that date. Such employees are entitled to employer provided benefits under their defined contribution plan that exceed defined contribution benefits for employees who participate in the defined benefit plan.
Participants in the former Nicor plan receive noncontributory defined benefit pension plan coveringbenefits. These benefits cover substantially all employees of Nicor Gas and its affiliates that adopted the Nicor plan, hired prior to 1998. Pension benefits are based on years of service and the highest average annual salary for management employees and job level for collectively bargained employees (referred to as pension bands). The benefit obligation related to collectively bargained benefits considers the past practice of regular benefit increases.
We generally calculate the benefits under the AGL Retirement Plan based on age, years of service and pay. The benefit formula for the AGL Retirement Plan is a career average earnings formula, except for participants who were employees as of July 1, 2000, and who were at least 50 years of age as of that date. For those participants, we used a final average earnings benefit formula, and used this benefit formula for such participants until December 31, 2010, at which time any of those participants who were still actively employed accrue future benefits under the career average earnings formula.
Effective January 1, 2012, the AGL Retirement Plan was frozen with respect to participation for non-union employees hired on or after that date. Such employees will be entitled to employer provided benefits under their defined contribution plan, that exceed defined contribution benefits for employees who participateParticipants in the defined benefit plan.
Theformer NUI Retirement Plan coversplan included substantially all of NUI Corporation’s employees who were employed on or before December 31, 2005 except. Florida City Gas union employees, who until February 2008 participated in a union-sponsored multiemployer plan. Pensionplan became eligible to participate in the AGL Plan in February 2008. The AGL Plan provides pension benefits areto these participants based on years of credited service and final average compensation as of the plan freeze date. Effective January 1, 2006,December 31, 2005, participation and benefit accrual under the NUI Retirement Plan were frozen. As of that date,January 1, 2006, former participants in that plan became eligible to participate in the AGL Retirement Plan. Florida City Gas union employees became eligible to participate in the AGL Retirement Plan in February 2008.
Other Defined Benefit RetirementWelfare Benefits
We sponsorUntil December 31, 2012, we sponsored two defined benefit retirementretiree health care plans for our eligible employees, the Health andAGL Welfare Plan for Retirees and Inactive Employees of AGL Resources Inc. (AGL Welfare Plan) and the Nicor Gas Welfare Benefit Plan (Nicor Welfare Plan). Eligibility for these benefits is based on age and years of service. Effective December 31, 2012, the Nicor Welfare Plan was terminated and as of January 1, 2013, all participants under that plan became eligible to participate in the AGL Welfare Plan. This change in plan participation eligibility did not affect the benefit terms. The Nicor Welfare Plan benefits described below are now being offered to such participants under the AGL Welfare Plan.
The AGL Welfare Plan includes medical coverage for all eligible AGL Resources employees who were employed as of June 30, 2002, if they reach the plan’s retirement age while working for us. In addition, the AGL Welfare Plan provides life insurance for all employees if they have ten years of service at retirement. The state regulatory commissions have approved phase-in plans that defer a portion of the related benefits expense for future recovery. The AGL Welfare Plan terms include a limit on the employer share of costs at limits based on the coverage tier, plan elected and salary level of the employee at retirement.
Medicare eligible retirees covered by the AGL Welfare Plan, including all of those at least age 65, receive benefits through our contribution to a retiree health reimbursement arrangement account. Additionally, on the pre-65 medical coverage of the AGL Welfare Plan our expected cost is determined by a retiree premium schedule based on salary level and years of service. Due to the cap, there is no impact on the periodic benefit cost or on our accumulated projected benefit obligation for a change in the assumed healthcare cost trend rate for this portion of the plan.
The plan provisions that are applicable to prior participants in the Nicor Gas providesWelfare Plan include health care and life insurance benefits to eligible retired employees under the Nicor Gas Welfare Benefit Plan that includesand include a limit on itsthe employer share of cost for employees hired after 1982.
We recorded a regulatory asset for anticipated future recoveries of $291 million as of December 31, 2011 and $9 million as of December 31, 2010. In addition, we recorded a regulatory liability of $19 million as of December 31, 2011 and $6 million as of December 31, 2010 for our expected expenses under the AGL Welfare Plan and the Nicor Gas Welfare Benefit Plan. We expect to pay $21 million of insurance claims for these plans in 2012, but we do not anticipate making any additional contributions.
Effective December 8, 2003, theThe Medicare Prescription Drug, Improvement and Modernization Act of 2003 was signed into law. This act provides for a prescription drug benefit under Medicare Part D as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. We determined thatPrescription drug coverage for the Nicor Gas Medicare-eligible population changed, effective January 1, 2013, from an employer-sponsored prescription drug benefitsplan with the Retiree Drug Subsidy to an Employer Group Waiver Plan (EGWP). The EGWP replaces the employer sponsored prescription drug plan. The expected savings is estimated to be approximately 12% of its plan are actuarially equivalent and accordingly have reflected the effects of the subsidy in the determination of the benefit obligation and annual net benefit.total Medicare eligible liability.
Effective July 1, 2009, Medicare eligible retirees covered by the AGL Welfare Plan, including all of those at least age 65, receive benefits through our contribution to a retiree health reimbursement arrangement account.
Effective January 1, 2010, enhancements were made to the pre-65 medical coverage of the AGL Welfare Plan by removing the current cap on our expected costs and implementing a new cap determined by the new retiree premium schedule based on salary level and years of service. Due to the cap, there is no impact on the periodic benefit cost or on our accumulated projected benefit obligation for the AGL Welfare Plan for a change in the assumed healthcare cost trend.
We also have a separate unfunded supplemental retirement healthcarehealth care plan that provides health care and life insurance benefits to employees of discontinued businesses. This plan is noncontributory with defined benefits. Net plan expenses were immaterial in 2011.2013 and 2012. The PBOAPBO associated with this plan was $2 million at December 31, 2013, and $3 million at December 31, 2011.2012.
Assumptions
We considered a variety of factors in determining and selecting our assumptions for the discount rate at December 31. We based our discount rates separately for each plan on an above-mean yield curve provided by our actuaries that is derived from a portfolio of high quality (rated AA or better) corporate bonds with a yield higher than the regression mean curve and the equivalent annuity cash flows.
The components of our pension and welfare costs are set forth in the following table.
| | Pension plans | | | Welfare plans | | Dollars in millions | | 2013 | | | 2012 | | | 2011 | | | 2013 | | | 2012 | | | 2011 | | Service cost | | $ | 29 | | | $ | 28 | | | $ | 14 | | | $ | 3 | | | $ | 4 | | | $ | 1 | | Interest cost | | | 43 | | | | 44 | | | | 29 | | | | 14 | | | | 16 | | | | 6 | | Expected return on plan assets | | | (62 | ) | | | (64 | ) | | | (33 | ) | | | (6 | ) | | | (5 | ) | | | (5 | ) | Net amortization of prior service credit | | | (2 | ) | | | (2 | ) | | | (2 | ) | | | (5 | ) | | | (3 | ) | | | (4 | ) | Recognized actuarial loss | | | 35 | | | | 34 | | | | 14 | | | | 8 | | | | 9 | | | | 2 | | Net periodic benefit cost | | $ | 43 | | | $ | 40 | | | $ | 22 | | | $ | 14 | | | $ | 21 | | | $ | - | | Assumptions used to determine benefit costs | | | | | | | | | | | | | | | | | | | | | | | | | Discount rate (1) | | | 4.2 | % | | | 4.6 | % | | | 5.4 | % | | | 4.0 | % | | | 4.5 | % | | | 5.2 | % | Expected return on plan assets (1) | | | 7.8 | % | | | 8.4 | % | | | 8.5 | % | | | 7.8 | % | | | 8.5 | % | | | 8.2 | % | Rate of compensation increase (1) | | | 3.7 | % | | | 3.7 | % | | | 3.7 | % | | | 3.8 | % | | | 3.8 | % | | | 3.7 | % | Pension band increase (2) | | | 2.0 | % | | | 2.0 | % | | | 2.0 | % | | | n/a | | | | n/a | | | | n/a | |
(1) | Rates are presented on a weighted average basis. |
(2) | Only applicable to the Nicor Gas union employees. |
The following tables present details about our pension and welfare plans.
| | Pension plans | | | Welfare plans | | Dollars in millions | | 2013 | | | 2012 | | | 2013 | | | 2012 | | Change in plan assets | | | | | | | | | | | | | Fair value of plan assets, January 1, | | $ | 837 | | | $ | 754 | | | $ | 77 | | | $ | 67 | | Actual return on plan assets | | | 134 | | | | 101 | | | | 16 | | | | 10 | | Employee contributions | | | - | | | | - | | | | 3 | | | | 1 | | Employer contributions | | | 1 | | | | 42 | | | | 19 | | | | 17 | | Benefits paid | | | (65 | ) | | | (59 | ) | | | (23 | ) | | | (19 | ) | Medicare Part D reimbursements | | | - | | | | - | | | | 1 | | | | 1 | | Plan curtailment and settlements | | | - | | | | (1 | ) | | | - | | | | - | | Fair value of plan assets, December 31, | | $ | 907 | | | $ | 837 | | | $ | 93 | | | $ | 77 | | Change in benefit obligation | | | | | | | | | | | | | | | | | Benefit obligation, January 1, | | $ | 1,046 | | | $ | 968 | | | $ | 354 | | | $ | 397 | | Service cost | | | 29 | | | | 28 | | | | 3 | | | | 4 | | Interest cost | | | 43 | | | | 44 | | | | 14 | | | | 17 | | Actuarial loss (gain) | | | (93 | ) | | | 66 | | | | (26 | ) | | | (22 | ) | Plan amendments | | | - | | | | - | | | | - | | | | (25 | ) | Medicare Part D reimbursements | | | - | | | | - | | | | 1 | | | | 1 | | Benefits paid | | | (65 | ) | | | (59 | ) | | | (23 | ) | | | (19 | ) | Employee contributions | | | - | | | | - | | | | 3 | | | | 1 | | Plan curtailment and settlements | | | - | | | | (1 | ) | | | - | | | | - | | Benefit obligation, December 31, | | $ | 960 | | | $ | 1,046 | | | $ | 326 | | | $ | 354 | | Funded status at end of year | | $ | (53 | ) | | $ | (209 | ) | | $ | (233 | ) | | $ | (277 | ) | Amounts recognized in the Consolidated Statements of Financial Position consist of | | | | | | | | | | | | | | | | | Long-term asset | | $ | 117 | | | $ | 33 | | | $ | - | | | $ | - | | Current liability | | | (2 | ) | | | (2 | ) | | | - | | | | (12 | ) | Long-term liability | | | (168 | ) | | | (240 | ) | | | (233 | ) | | | (265 | ) | Total liability at December 31, | | $ | (53 | ) | | $ | (209 | ) | | $ | (233 | ) | | $ | (277 | ) | Accumulated benefit obligation (1) | | $ | 902 | | | $ | 983 | | | | n/a | | | | n/a | | Assumptions used to determine benefit obligations | | | | | | | | | | | | | | | | | Discount rate | | | 5.0 | % | | | 4.2 | % | | | 4.7 | % | | | 4.0 | % | Rate of compensation increase | | | 3.7 | % | | | 3.7 | % | | | 3.7 | % | | | 3.7 | % | Pension band increase (2) | | | 2.0 | % | | | 2.0 | % | | | n/a | | | | n/a | |
(1) | APBO differs from the projected benefit obligation in that the APBO excludes the effect of salary and wage increases. |
(2) | Only applicable to the Nicor Gas union employees. |
A portion of the net benefit cost or credit related to these plans has been capitalized as a cost of constructing gas distribution facilities and the remainder is included in operation and maintenance expense.
Assumptions used to determine the health care benefit cost for the AGL Welfare Plan were as follows:
| | 2013 | | | 2012 | | Health care cost trend rate assumed for next year | | | 8.4 | % | | | 8.4 | % | Ultimate rate to which the cost trend rate is assumed to decline | | | 4.5 | % | | | 4.5 | % | Year that reaches ultimate trend rate | | | 2030 | | | | 2030 | |
Assumed health care cost trend rates can have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in the assumed health care cost trend rates for the AGL Welfare Plan would have the following effects:
In millions | | Effect on service and interest cost | | | Effect on benefit obligation | | 1% Health care cost trend rate increase | | $ | - | | | $ | 15 | | 1% Health care cost trend rate decrease | | | - | | | | (13 | ) |
As a result of a cap on expected cost for the AGL Welfare Plan, a one-percentage-point increase or decrease in the assumed health care trend does not materially affect periodic benefit cost or accumulated benefit obligation of the Plan.
The following table presents the amounts not yet reflected in net periodic benefit cost and included in net regulatory assets and accumulated OCI as of December 31, 2013 and 2012:
| | Net regulatory assets | | | Accumulated OCI | | | Total | | In millions | | Pension plans | | | Welfare plans | | | Pension plans | | | Welfare plans | | | Pension plans | | | Welfare plans | | December 31, 2013: | | | | | | | | | | | | | | | | | | | Prior service credit | | $ | - | | | $ | (20 | ) | | $ | (9 | ) | | $ | - | | | $ | (9 | ) | | $ | (20 | ) | Net loss | | | 61 | | | | 60 | | | | 210 | | | | 30 | | | | 271 | | | | 90 | | Total | | $ | 61 | | | $ | 40 | | | $ | 201 | | | $ | 30 | | | $ | 262 | | | $ | 70 | | December 31, 2012: | | | | | | | | | | | | | | | | | | | | | | | | | Prior service cost (credit) | | $ | - | | | $ | (24 | ) | | $ | (11 | ) | | $ | (2 | ) | | $ | (11 | ) | | $ | (26 | ) | Net loss | | | 146 | | | | 83 | | | | 324 | | | | 52 | | | | 470 | | | | 135 | | Total | | $ | 146 | | | $ | 59 | | | $ | 313 | | | $ | 50 | | | $ | 459 | | | $ | 109 | |
The 2014 estimated amortization out of regulatory assets or accumulated OCI for these plans are set forth in the following table.
| | Net Regulatory Asset | | | Accumulated OCI | | | Total | | In millions | | Pension plans | | | Welfare plans | | | Pension plans | | | Welfare plans | | | Pension plans | | | Welfare plans | | Amortization of prior service credit | | $ | - | | | $ | (3 | ) | | $ | (2 | ) | | $ | - | | | $ | (2 | ) | | $ | (3 | ) | Amortization of net loss | | | 7 | | | | 4 | | | | 13 | | | | 2 | | | | 20 | | | | 6 | |
We recorded a regulatory asset for anticipated future cost recoveries of $108 million as of December 31, 2013 and $215 million as of December 31, 2012.
The following table presents the gross benefit payments expected for the years ended December 31, 2014 through 2023 for our pension and other retirement plans. There will be benefit payments under these plans beyond 2023.
In millions | | Pension plans | | | Welfare plans | | 2014 | | $ | 56 | | | $ | 20 | | 2015 | | | 60 | | | | 20 | | 2016 | | | 63 | | | | 21 | | 2017 | | | 66 | | | | 22 | | 2018 | | | 68 | | | | 23 | | 2019-2023 | | | 366 | | | | 123 | |
Contributions
Our employees generally do not contribute to theseour pension and other retirement plans,plans; however, Nicor Gas and pre-65 AGL retirees make nominal contributions to their health care plan. We fund the qualified pension plans by contributing at least the minimum amount required by applicable regulations and as recommended by our actuary. However, we may also contribute in excess of the minimum required amount. As required by The Pension Protection Act of 2006 (the Act), we calculate the minimum amount of funding using the traditional unit credit cost method.
The Act contained new funding requirements for single-employer defined benefit pension plans and established a 100% funding target (over a 7-year amortization period) for plan years beginning after December 31, 2007. If certain conditions were met,In 2013 we had no required contributions to the Worker, Retiree and Employer Recovery Act of 2008 allowed us to measure our required minimum contributions based on a funding target of 100% in 2010 and 2011.merged AGL Plan. In 20112012 we contributed $56a combined $40 million to the AGL Retirement Plan and the NUI Retirement Plan. In 2010 we contributed $31 million to the AGL Retirement Plan and the NUI Retirement Plan. No contributions were made to the Nicor Gas Retirement Plan in 2011. For more information on our 2012 contributions to our pension plans, see Note 11.2012.
Assumptions
We consider a number of factors in determining and selecting assumptions for the overall expected long-term rate of return on plan assets. We consider the historical long-term return experience of our assets, the current and expected allocation of our plan assets, and expected long-term rates of return. We derive these expected long-term rates of return with the assistance of our investment advisors and generally base these rates on the various asset classes, our expected investments of plan assets and asset management. We base our expected allocation of plan assets on a diversified portfolio consisting of domestic and international equity securities, fixed income securities, real estate, private equity securities and alternative asset classes.
We consider a variety of factors in determining and selecting our assumptions for the discount rate at December 31. We based our discount rate on a yield curve provided by our actuaries that is derived from a portfolio of high quality (rated AA or better) corporate bonds and the equivalent annuity cash flows separately for each pension plan.
The following tables present details about our pension and other retirement plans.
| | Pension plans | | | Other retirement plans | | Dollars in millions | | 2011 | | | 2010 | | | 2011 | | | 2010 | | Change in plan assets | | | | | | | | | | | | | Fair value of plan assets, January 1, | | $ | 344 | | | $ | 303 | | | $ | 71 | | | $ | 63 | | Plan assets acquired in Nicor merger | | | 388 | | | | 0 | | | | 0 | | | | 0 | | Actual return on plan assets | | | (7 | ) | | | 37 | | | | (3 | ) | | | 8 | | Employer contributions | | | 58 | | | | 31 | | | | 8 | | | | 7 | | Benefits paid | | | (28 | ) | | | (27 | ) | | | (9 | ) | | | (7 | ) | Plan curtailment and settlements | | | (1 | ) | | | 0 | | | | 0 | | | | 0 | | Fair value of plan assets, December 31, | | $ | 754 | | | $ | 344 | | | $ | 67 | | | $ | 71 | | Change in benefit obligation | | | | | | | | | | | | | | | | | Benefit obligation, January 1, | | $ | 531 | | | $ | 463 | | | $ | 107 | | | $ | 101 | | Benefit obligations acquired in Nicor merger | | | 345 | | | | 0 | | | | 273 | | | | 0 | | Service cost | | | 14 | | | | 11 | | | | 1 | | | | 0 | | Interest cost | | | 29 | | | | 27 | | | | 6 | | | | 6 | | Actuarial loss | | | 78 | | | | 57 | | | | 18 | | | | 7 | | Medicare Part D reimbursements | | | 0 | | | | 0 | | | | 1 | | | | 0 | | Benefits paid | | | (28 | ) | | | (27 | ) | | | (9 | ) | | | (7 | ) | Plan curtailment and settlements | | | (1 | ) | | | 0 | | | | 0 | | | | 0 | | Benefit obligation, December 31, | | $ | 968 | | | $ | 531 | | | $ | 397 | | | $ | 107 | | Funded status at end of year | | $ | (214 | ) | | $ | (187 | ) | | $ | (330 | ) | | $ | (36 | ) | Amounts recognized in the Consolidated Statements of Financial Position consist of | | | | | | | | | | | | | | | | | Long-term asset | | $ | 26 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | Current liability | | | (2 | ) | | | (1 | ) | | | (14 | ) | | | 0 | | Long-term liability | | | (238 | ) | | | (186 | ) | | | (316 | ) | | | (36 | ) | Total liability at December 31, | | $ | (214 | ) | | $ | (187 | ) | | $ | (330 | ) | | $ | (36 | ) | Accumulated benefit obligation (2) | | $ | 910 | | | $ | 506 | | | | n/a | | | | n/a | | Supplemental information for underfunded pension plans included above as of December 31, 2011: | | | | | | | | | | | | | | | | | Aggregate benefit obligation | | $ | 604 | | | $ | 531 | | | | n/a | | | | n/a | | Aggregate accumulated benefit obligation | | | 570 | | | | 506 | | | | n/a | | | | n/a | | Aggregate fair value of plan assets | | $ | 363 | | | $ | 344 | | | | n/a | | | | n/a | | Assumptions used to determine benefit obligations | | | | | | | | | | | | | | | | | Discount rate | | | 4.6 | % | | | 5.4 | % | | | 4.5 | % | | | 5.2 | % | Rate of compensation increase | | | 3.7 | % | | | 3.7 | % | | | 3.7 | % | | | 3.7 | % | Pension band increase (1) | | | 2.0 | % | | | n/a | | | | n/a | | | | n/a | |
(1) | Only applicable to the Nicor Gas pension plan |
(2) | ABO differs from the projected benefit obligation in that the ABO excludes the effect of salary and wage increases. |
The components of our pension and other retirement benefit costs are set forth in the following table.
| | Pension plans | | | Other retirement plans | | Dollars in millions | | 2011 | | | 2010 | | | 2009 | | | 2011 | | | 2010 | | | 2009 | | Net benefit cost | | | | | | | | | | | | | | | | | | | Service cost | | $ | 14 | | | $ | 11 | | | $ | 8 | | | $ | 1 | | | $ | 0 | | | $ | 0 | | Interest cost | | | 29 | | | | 27 | | | | 26 | | | | 6 | | | | 6 | | | | 6 | | Expected return on plan assets | | | (33 | ) | | | (28 | ) | | | (29 | ) | | | (5 | ) | | | (5 | ) | | | (4 | ) | Net amortization of prior service cost | | | (2 | ) | | | (2 | ) | | | (2 | ) | | | (4 | ) | | | (4 | ) | | | (4 | ) | Recognized actuarial loss | | | 14 | | | | 10 | | | | 9 | | | | 2 | | | | 2 | | | | 2 | | Net periodic benefit cost | | $ | 22 | | | $ | 18 | | | $ | 12 | | | $ | 0 | | | $ | (1 | ) | | $ | 0 | | | | | | | | | | | | | | | | | | | | | | | | | | | Assumptions used to determine benefit costs | | | | | | | | | | | | | | | | | | | | | | | | | Discount rate (1) | | | 5.4 | % | | | 6.0 | % | | | 6.2 | % | | | 5.2 | % | | | 5.8 | % | | | 6.2 | % | Expected return on plan assets (1) | | | 8.5 | % | | | 8.8 | % | | | 9.0 | % | | | 8.2 | % | | | 8.8 | % | | | 9.0 | % | Rate of compensation increase(1) | | | 3.7 | % | | | 3.7 | % | | | 3.7 | % | | | 3.7 | % | | | 3.7 | % | | | 3.7 | % | Pension band increase (1) (2) | | | 2.0 | % | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | n/a | |
(1) | Rates are presented on a weighted average basis |
(2) | Only applicable to the Nicor Gas pension plan. |
A portion of the net benefit cost or credit related to these plans has been capitalized as a cost of constructing gas distribution facilities and the remainder is included in gas distribution operation and maintenance expense, net of amounts charged to affiliates.
Assumptions used to determine the 2011 health care benefit cost for the Nicor Gas Welfare Benefit Plan were as follows:
| | | | | | 2011 | | Health care cost trend rate assumed for next year | | | 8.60 | % | Ultimate rate to which the cost trend rate is assumed to decline | | | 4.50 | % | Year that reaches ultimate trend rate | | | 2030 | |
Assumed health care cost trend rates can have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in the assumed health care cost trend rates for the Nicor Gas Welfare Benefit Plan would have the following effects:
Dollars in millions | | Effect on service and interest cost | | | Effect on benefit obligation | | 1% Health care cost trend rate increase | | $ | 0 | | | $ | 26 | | 1% Health care cost trend rate decrease | | | 0 | | | | (22 | ) |
As a result of a cap on expected cost for the AGL Welfare Plan, a one-percentage-point increase or decrease in the assumed health care trend does not materially affect periodic benefit cost or accumulated benefit obligation of the Plan.
The following table presents the amounts not yet reflected in net periodic benefit cost and included in net regulatory assets and accumulated OCI as of December 31, 2011 and 2010:
| | Net regulatory assets | | | Accumulated OCI | | | Total | | In millions | | Pension plan | | | Other retirement plans | | | Pension plan | | | Other retirement plans | | | Pension plan | | | Other retirement plans | | | | | | | | | | | | | | | | | | | | | December 31, 2011: | | | | | | | | | | | | | | | | | | | Prior service cost (credit) | | $ | 1 | | | $ | 1 | | | $ | (13 | ) | | $ | (4 | ) | | $ | (12 | ) | | $ | (3 | ) | Net loss | | | 162 | | | | 118 | | | | 312 | | | | 51 | | | | 474 | | | | 170 | | Total | | $ | 163 | | | $ | 119 | | | $ | 299 | | | $ | 47 | | | $ | 462 | | | $ | 167 | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2010: | | | | | | | | | | | | | | | | | | | | | | | | | Prior service credit | | $ | 0 | | | $ | 0 | | | $ | (15 | ) | | $ | (8 | ) | | $ | (15 | ) | | $ | (8 | ) | Net loss | | | 0 | | | | 0 | | | | 226 | | | | 35 | | | | 226 | | | | 35 | | Total | | $ | 0 | | | $ | 0 | | | $ | 211 | | | $ | 27 | | | $ | 211 | | | $ | 27 | |
The 2012 estimated amortization out of regulatory assets or accumulated OCI for these plans are set forth in the following table.
| | Net Regulatory Asset | | | Accumulated OCI | | | Total | | In millions | | Pension plans | | | Other retirement plans | | | Pension plans | | | Other retirement plans | | | Pension plans | | | Other retirement plans | | Amortization of prior service credit | | $ | 0 | | | $ | 0 | | | $ | (2 | ) | | $ | (3 | ) | | $ | (2 | ) | | $ | (3 | ) | Amortization of net loss | | | 14 | | | | 8 | | | | 20 | | | | 3 | | | | 33 | | | | 11 | |
The following table presents the gross benefit payments expected for the years ended December 31, 2012 through 2021 for our pension and other retirement plans. There will be benefit payments under these plans beyond 2021.
In millions | | Pension plans | | | Other retirement plans | | | Expected Medicare subsidy | | 2012 | | $ | 56 | | | $ | 23 | | | $ | 2 | | 2013 | | | 55 | | | | 23 | | | | 2 | | 2014 | | | 59 | | | | 24 | | | | 2 | | 2015 | | | 62 | | | | 25 | | | | 2 | | 2016 | | | 64 | | | | 26 | | | | 2 | | 2017-2021 | | | 367 | | | | 144 | | | | 12 | |
Employee Savings Plan Benefits
We sponsor defined contribution retirement benefit plans that allow eligible participants to make contributions to their accounts up to specified limits. Under these plans, our matching contributions to participant accounts were $7$16 million in 2011, $72013, $14 million in 20102012 and $7 million in 2009.2011.
Note 7 – Stock-based and Other IncentiveStock-Based Compensation Plans and Agreements
General
We currently sponsorThe AGL Resources Inc. Omnibus Performance Incentive Plan, as amended and restated, and the following stock-basedLong-Term Incentive Plan (1999) provide for the grant of incentive and nonqualified stock options, stock appreciation rights, shares of restricted stock, restricted stock units, performance cash awards and other incentive compensation plansstock-based awards to officers and agreements:
| | Shares issuable upon exercise of outstanding stock options, warrants and rights (1) | | | Shares available for future issuance | | Details | Omnibus Performance Incentive Plan, as amended and restated (2) | | | 866,249 | | | | 4,787,707 | | Shares available for future issuance may be issued in the form of grants of incentive and nonqualified stock options, stock appreciation rights (SARs), shares of restricted stock, restricted stock units and performance cash awards to key employees. | Long-Term Incentive Plan (1999) (2) | | | 1,362,032 | | | | 0 | | Plan previously provided for grants of incentive and nonqualified stock options, shares of restricted stock and performance units to key employees. No future grants will be made except for reload options that may be granted under the plan's outstanding options. | Officer Incentive Plan | | | 5,000 | | | | 0 | | Grants of nonqualified stock options and shares of restricted stock to new-hire officers. | 2006 Non-Employee Directors Equity Compensation Plan | | | not applicable | | | | 119,954 | | Plan previously provided for grants of stock to non-employee directors in connection with non-employee director compensation (for annual retainer, chair retainer and for initial election or appointment). No future grants will be made under this plan. | 1996 Non-Employee Directors Equity Compensation Plan | | | 7,173 | | | | 0 | | Plan previously provided for grants of nonqualified stock options and stock to non-employee directors in connection with non-employee director compensation (for annual retainer and for initial election or appointment). The plan was amended in 2002 to eliminate the granting of stock options. No future grants will be made under this plan. | Employee Stock Purchase Plan | | | not applicable | | | | 332,205 | | Nonqualified, broad-based employee stock purchase plan for eligible employees. |
(1) | As of December 31, 2011. |
(2) | Includes 1,664,133 shares previously available under the Nicor Inc. 2006 Long term incentive plan, as amended, that were assumed and not available under the Omnibus Perfomance Plan, pursuant to NYSE rules. | key employees. Under the Omnibus Performance Incentive Plan, as of December 31, 2013, the number of shares issuable upon exercise of outstanding stock options, warrants and rights is 641,371 shares. Under the Long-Term Incentive Plan (1999) as of December 31, 2013, the number of shares issuable upon exercise of outstanding stock options, warrants and rights is 640,082 shares. The maximum number of shares available for future issuance under the Omnibus Performance Incentive Plan is 4,288,563 shares, which includes 1,697,363 shares previously available under the Nicor Inc. 2006 Long-Term Incentive Plan, as amended, pursuant to NYSE rules. No further grants will be made from the Long-Term Incentive Plan (1999) except for reload options that may be granted pursuant to the terms of certain outstanding options.
Accounting Treatment and Compensation Expense
We measure and recognize stock-based compensation expense for our stock-based awards over the requiredrequisite service period in our financial statements based on the estimated fair value at the date of grant for our stock-based awards using the modified prospective whichmethod. These stock awards include:
· | stock awardsand restricted stock awards; and |
· | performance units (restricted stock units, performance share units and performance cash units). |
Performance-based stock awards and performance units contain market conditions. Stock options, restricted stock awards and performance units also contain a service condition.
We estimate forfeitures over the requiredrequisite service period when recognizing compensation expense. These estimates are adjusted to the extent that actual forfeitures differ, or are expected to materially differ, from such estimates. The authoritative guidance requires excess tax benefits to be reported as a financing cash inflow. The difference between the proceeds from the exercise of our stock-based awards and the par value of the stock is recorded within premium on common stock.additional paid-in capital.
We granthave granted incentive and nonqualified stock options with a strike price equal to the fair market value on the date of the grant. Fair market value is defined under the terms of the applicable plans as the most recent closing price per share of AGL Resources common stock for the trading day immediately preceding the grant date, as reported in The Wall Street Journal. Stock options generally have a three-year vesting period.
The following table provides additional information on compensation costs and income tax benefits and excess tax benefits related to our cash and stock-based compensation awards.
In millions | | 2011 | | | 2010 | | | 2009 | | | 2013 | | | 2012 | | | 2011 | | Compensation costs (1) | | $ | 14 | | | $ | 11 | | | $ | 11 | | | $ | 22 | | | $ | 9 | | | $ | 14 | | Income tax benefits (1) | | | 1 | | | | 2 | | | | 2 | | | | 1 | | | | 1 | | | | 1 | | Excess tax benefits (2) | | | 1 | | | | 2 | | | | 2 | | | | - | | | | 1 | | | | 1 | |
(1) | Recorded in our Consolidated Statements of Income. |
(2) | Recorded in our Consolidated Statements of Cash Flows.Financial Position. |
Incentive and Nonqualified Stock Options
NonqualifiedThe stock options we granted generally expire 10 years after the date of grant. Participants realize value from option grants only to the extent that the fair market value of our common stock on the date of exercise of the option exceeds the fair market value of the common stock on the date of the grant.
As of December 31, 2011,2013 and 2012, we had an immaterial amount ofno unrecognized compensation costs related to stock options. Cash received from stock option exercises for 20112013 was $11$21 million, and the income tax benefits from stock option exercises were immaterial. Cash received from stock option exercises for 2012 was $7 million, and the income tax benefit from stock option exercises was $1 million. Intrinsic value for options is defined as the difference between the current market value and the grant price. The following tables summarize activity related to stock options for key employees and non-employee directors. As used in the table, intrinsic value for options means the difference between the current market value and the grant price.
Stock Options | | | | | | | | | | | | | | | Number of options | | | Weighted average exercise price | | | Weighted average remaining life (in years) | | | Aggregate intrinsic value (in millions) | | Outstanding – December 31, 2008 | | | 2,475,989 | | | $ | 34.52 | | | | | | | | Granted | | | 250,440 | | | | 31.09 | | | | | | | | Exercised | | | (119,126 | ) | | | 27.20 | | | | | | | | Forfeited | | | (55,735 | ) | | | 36.50 | | | | | | | | Outstanding – December 31, 2009 | | | 2,551,568 | | | $ | 34.48 | | | | | | | | Granted | | | 0 | | | | 0 | | | | | | | | Exercised | | | (296,008 | ) | | | 31.33 | | | | | | | | Forfeited | | | (26,448 | ) | | | 37.85 | | | | | | | | Outstanding – December 31, 2010 | | | 2,229,112 | | | $ | 34.85 | | | | 5.2 | | | | | Granted | | | 1,685 | | | | 42.19 | | | | 1.6 | | | | | Exercised | | | (383,646 | ) | | | 31.11 | | | | 3.0 | | | | | Forfeited | | | (23,997 | ) | | | 37.70 | | | | 5.4 | | | | | Outstanding – December 31, 2011 | | | 1,823,154 | | | $ | 35.61 | | | | 4.6 | | | $ | 12 | | Exercisable – December 31, 2011 | | | 1,747,656 | | | $ | 35.81 | | | | 4.5 | | | $ | 11 | | Exercisable – December 31, 2010 | | | 1,799,334 | | | $ | 34.92 | | | | 4.9 | | | $ | 4 | | Exercisable – December 31, 2009 | | | 1,767,248 | | | $ | 33.94 | | | | 5.3 | | | $ | 6 | | | | | | | |
| | | | | | | | | | | | | Unvested Stock Options | | | | | | | | | | | | | | | Number of unvested options | | | Weighted average exercise price | | | Weighted average remaining vesting period(in years) | | | Weighted average fair value | | Outstanding – December 31, 2010 | | | 429,778 | | | $ | 34.58 | | | | 0.5 | | | $ | 3.11 | | Granted | | | 1,685 | | | | 42.19 | | | | 0.0 | | | $ | 3.00 | | Forfeited | | | (3,190 | ) | | | 31.09 | | | | 0.6 | | | $ | 1.24 | | Vested | | | (352,775 | ) | | | 35.40 | | | | 0.0 | | | $ | 3.51 | | Outstanding – December 31, 2011 | | | 75,498 | | | $ | 31.09 | | | | 0.1 | | | $ | 1.24 | |
Stock Options | | | | | | | | | | | | | | | Number of options | | | Weighted average exercise price | | | Weighted average remaining life (in years) | | | Aggregate Intrinsic value (in millions) | | Outstanding - December 31, 2010 | | | 2,229,112 | | | $ | 34.85 | | | | | | | | Granted | | | 1,685 | | | | 42.19 | | | | | | | | Exercised | | | (383,646 | ) | | | 31.11 | | | | | | | | Forfeited | | | (23,997 | ) | | | 37.70 | | | | | | | | Outstanding - December 31, 2011 | | | 1,823,154 | | | $ | 35.61 | | | | | | | | Granted | | | - | | | | - | | | | | | | | Exercised | | | (234,844 | ) | | | 32.07 | | | | | | | | Forfeited | | | (59,720 | ) | | | 37.34 | | | | | | | | Outstanding - December 31, 2012 (1) | | | 1,528,590 | | | $ | 36.09 | | | | 3.7 | | | $ | 6 | | Granted | | | - | | | | - | | | | - | | | | | | Exercised | | | (617,358 | ) | | | 35.37 | | | | 2.3 | | | | | | Forfeited | | | (12,500 | ) | | | 38.36 | | | | 2.6 | | | | | | Outstanding - December 31, 2013 (1) (2) | | | 898,732 | | | $ | 36.55 | | | | 3.0 | | | $ | 10 | |
Information about outstanding and exercisable options as of December 31, 2011, is as follows.(1) | All options outstanding at December 31, 2013 and 2012 were exercisable. |
| | | | | | | | | | | Options outstanding | | | Options Exercisable | | Range of Exercise Prices | | | Number of options | | | Weighted average remaining contractual life (in years) | | | Weighted average exercise price | | | Number of options | | | Weighted average exercise price | | $ | 17.55 to $21.92 | | | | 6,410 | | | | 0.1 | | | $ | 21.28 | | | | 6,410 | | | $ | 21.28 | | $ | 21.93 to $26.30 | | | | 10,763 | | | | 1.0 | | | | 23.82 | | | | 10,763 | | | | 23.82 | | $ | 26.31 to $30.69 | | | | 84,375 | | | | 1.6 | | | | 26.93 | | | | 84,375 | | | | 26.93 | | $ | 30.70 to $35.08 | | | | 443,664 | | | | 5.0 | | | | 32.23 | | | | 368,166 | | | | 32.46 | | $ | 35.09 to $39.46 | | | | 1,234,766 | | | | 4.7 | | | | 37.41 | | | | 1,234,766 | | | | 37.41 | | $ | 39.47 to $43.85 | | | | 43,176 | | | | 5.0 | | | | 41.09 | | | | 43,176 | | | | 41.09 | | Outstanding - Dec. 31, 2011 | | | | 1,823,154 | | | | 4.6 | | | $ | 35.61 | | | | 1,747,656 | | | $ | 35.81 | |
(2) | The range of exercise prices for the options outstanding at December 31, 2013 was $30.70 to $43.85. |
We measure compensation expensecost related to stock options based on the fair value of these awards at their date of grant using the Black-Scholes option-pricing model. The following table shows the ranges for per share value and information about the underlying assumptions used in developing the grant date value for each of the grants made during 2011 and 2009. There were no options granted in 2010.
| | 2011 | | | 2009 | | Expected life (years) | | | 7 | | | | 7 | | United States Constant Maturity Treasury Rate used for risk-free interest rate % | | | 2.51 | % | | | 2.30 | % | Weighted average expected volatility % | | | 14.81 | % | | | 12.9 | % | Weighted average dividend yield % | | | 4.3 | % | | | 5.5 | % | Fair value of options granted - per share | | $ | 3.00 | | | $ | 1.24 | |
With2013 and 2012, and the implementationnumber of our share repurchase programoptions granted in 2006, we2011 was immaterial. We use shares purchased under thisour 2006 share repurchase program to satisfy share-based exercises to the extent that repurchased shares are available. Otherwise, we issue new shares from our authorized common stock.
Performance Units
The compensation cost of restricted stock unit awards is equal to the grant date fair value of the awards, recognized over the required service period, determined according to the authoritative guidance related to stock compensation. The dollar value of performance cash unit awards is equal to the grant date fair value of the awards measured against progress towards the performance measure, recognized over the required service period, determined according to the authoritative guidance related to stock compensation. No other assumptions are used to value these awards. In general, a performance unit is an award of the right to receive (i) an equal number of shares of our common stock, which we refer to as a restricted stock unit or (ii) cash, subject to the achievement of certain pre-established performance criteria, which we refer to as a performance cash unit. Performance units are subject to certain transfer restrictions and forfeiture upon termination of employment. The compensation cost of restricted stock unit awards is equal to the grant date fair value of the awards, recognized over the requisite service period, determined according to the authoritative guidance related to stock compensation. The compensation cost of performance cash unit awards is equal to the grant date fair value of the awards measured against progress towards the performance measure, recognized over the requisite service period. No other assumptions are used to value these awards.
Restricted Stock Units In general, a restricted stock unit is an award that represents the opportunity to receive a specified number of shares of our common stock, subject to the achievement of certain pre-established performance criteria. In 2011,2013, we granted to a select group a total of 134,510 43,830 restricted stock units to certain employees, all of which 126,920 of these units were outstanding as of December 31, 2011.2013. These restricted stock units had a performance measurement period that ended December 31, 2011, which was achieved, and a2013. The performance measure, which related to a basic earnings per common share attributable to AGL Resources Inc. common shareholders goal thatbefore interest, income tax, depreciation and amortization, was met. As such, the related restricted stock awards will occur in 2014.
Performance Cash Awards In general, a performance cash award represents the opportunity to receive cash, subject to the achievement of certain pre-established performance criteria. In 2011, we did not grant any performance cash awards. These awards have a performance measure that is related to annual growth in basic earnings per common share attributable to AGL Resources Inc. common shareholders and the average dividend yield. Accruals in connection with these grants are as follows:
In millions | Measurement period end date | | Accrued at Dec. 31, 2011 | | | Maximum aggregate payout | | Year of grant | | | | | | | | 2009 (1) | Dec. 31, 2011 | | $ | 1 | | | $ | 4 | |
(1) | Adjusted to reflect the effect of economic value created during the performance measurement period by our wholesale services segment. |
Performance Share Unit Awards
A performance share unit award represents the opportunity to receive cash and shares subject to the achievement of certain pre-established performance criteria. In 2011 weWe granted performance share unit awards to a select group ofcertain officers. These awards have a performance measure that relates to the company’sCompany’s relative total shareholder return relative to a group of peer companies. Accruals in connection with theseThe recorded liability and maximum potential liability related to the 2013, 2012 and 2011 grants are as follows:
In millions | Measurement period end date | | Accrued at Dec. 31, 2011 | | | Maximum aggregate payout | | Measurement period end date | | Fair value accrued at December 31, 2013 | | | Maximum aggregate payout | | Granted in 2010 | Dec. 31, 2012 | | $ | 4 | | | $ | 12 | | | Granted in 2011 | Dec. 31, 2013 | | $ | 2 | | | $ | 13 | | December 31, 2013 | | $ | 7 | | | $ | 12 | | Granted in 2012 | | December 31, 2014 | | $ | 6 | | | $ | 18 | | Granted in 2013 | | December 31, 2015 | | $ | 3 | | | $ | 18 | |
Stock and Restricted Stock Awards
The compensation cost of both stock awards and restricted stock awards is equal to the grant date fair value of the awards, recognized over the requiredrequisite service period and is determined in accordance with the authoritative guidance related to stock compensation.period. No other assumptions are used to value the awards. We refer to restricted stock as an award of our common stock that is subject to time-based vesting or achievement of performance measures. Restricted stock awards are subject to certain transfer restrictions and forfeiture upon termination of employment.
Stock Awards –- Non-Employee Directors Non-employee director compensation may be paid in shares of our common stock in connection with initial election, the annual retainer, and chair retainers, as applicable. Stock awards for non-employee directors are 100% vested and nonforfeitablenon-forfeitable as of the date of grant. The following table summarizes activity during 2011, relatedDuring 2013 we issued 26,915 shares with a weighted average fair value of $44.04 to stock awards for our non-employee directors.
| | Shares of restricted stock | | | Weighted average fair value | | Issued | | | 20,858 | | | $ | 40.62 | | Forfeited | | | 0 | | | | 0 | | Vested | | | 20,858 | | | $ | 40.62 | | Outstanding | | | 0 | | | | 0 | |
Restricted Stock Awards –- Employees The following table summarizes the restricted stock awards activity for our employees during the last threetwo years. | | Shares of restricted stock | | | Weighted average remaining vesting period (in years) | | | Weighted average fair value | | | Shares of restricted stock | | | Weighted average remaining vesting period (in years) | | | Weighted average fair value | | Outstanding – December 31, 2009 (1) | | | 341,245 | | | | | | $ | 33.93 | | | Outstanding - December 31, 2011 (1) | | | | 477,354 | | | | | | $ | 34.40 | | Issued | | | 205,030 | | | | | | | 36.34 | | | | 268,840 | | | | | | | 40.08 | | Forfeited | | | (16,153 | ) | | | | | | 34.13 | | | | (28,829 | ) | | | | | | 39.07 | | Vested | | | (129,222 | ) | | | | | | 35.19 | | | | (214,274 | ) | | | | | | 36.45 | | Outstanding – December 31, 2010 (1) | | | 400,900 | | | | 2.4 | | | $ | 30.80 | | | Outstanding - December 31, 2012 (1) | | | | 503,091 | | | | 1.8 | | | $ | 39.44 | | Issued | | | 311,600 | | | | 3.0 | | | | 39.48 | | | | 175,935 | | | | 2.8 | | | | 42.41 | | Forfeited | | | (25,784 | ) | | | 1.8 | | | | 36.22 | | | | (33,352 | ) | | | 2.0 | | | | 40.64 | | Vested | | | (209,362 | ) | | | 0 | | | | 34.68 | | | | (204,421 | ) | | | 0.0 | | | | 38.71 | | Outstanding – December 31, 2011 (1) (2) | | | 477,354 | | | | 2.6 | | | $ | 34.40 | | | Outstanding - December 31, 2013 (1) | | | | 441,253 | | | | 1.8 | | | $ | 40.82 | |
(1) | Subject to restriction. |
(2) | Includes 82,222 restricted shares with nonforfeitable dividend rights. |
Employee Stock Purchase Plan (ESPP)
Under theWe have a nonqualified, broad based ESPP employeesfor all eligible employees. As of December 31, 2013, there were 122,763 shares available for future issuance under this plan. Employees may purchase shares of our common stock in quarterly intervals at 85% of fair market value, and we record an expense for the 15% purchase price discount. Employee ESPP contributions may not exceed $25,000 per employee during any calendar year.
| 2011 | 2010 | 2009 | | 2013 | | | 2012 | | | 2011 | | Shares purchased on the open market | 65,843 | 60,017 | 63,847 | | | 103,343 | | | | 108,132 | | | | 65,843 | | Average per-share purchase price | $40.55 | $37.07 | $31.45 | | $ | 42.96 | | | $ | 38.96 | | | $ | 40.55 | | Purchase price discount | $401,346 | $333,639 | $298,968 | | Total purchase price discount | | | $ | 664,286 | | | $ | 618,278 | | | $ | 401,346 | |
Note 8- Debt and Credit Facilities
Our financing activities, including long-term and short-term debt, are subject to customary approval or review by state and federal regulatory bodies. Our wholly-owned subsidiary, AGL Capital, was established to provide for our ongoing financing needs through a commercial paper program, the issuance of various debt and hybrid securities and other financing arrangements. We fully and unconditionally guarantee all debt issued by AGL Capital. Nicor Gas is not permitted by regulation to make loans to affiliates or utilize AGL Capital for its financing needs. The following table provides maturity dates, year-to-date weighted-averageweighted average interest rates and amounts outstanding for our various debt securities and facilities that are included in our Consolidated Statements of Financial Position.
| | | | | December 31, 2011 | | | December 31, 2010 | | | | | | December 31, 2013 | | | December 31, 2012 | | Dollars in millions | | Year(s) due | | | Weighted- average interest rate | | | Outstanding | | | Weighted- average interest rate | | | Outstanding | | | Year(s) due | | | Weighted average interest rate (1) | | | Outstanding | | | Weighted average interest rate (1) | | | Outstanding | | Short-term debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial paper- AGL Capital | | 2012 | | | | 0.4 | % | | $ | 869 | | | | 0.4 | % | | $ | 732 | | | Commercial paper - AGL Capital (2) | | | 2014 | | | | 0.4 | % | | $ | 857 | | | | 0.5 | % | | $ | 1,063 | | Commercial paper- Nicor Gas(2) | | 2012 | | | | 0.4 | | | | 452 | | | | n/a | | | | n/a | | | 2014 | | | | 0.3 | | | | 314 | | | | 0.4 | | | | 314 | | Total short-term debt | | | | | | | 0.4 | % | | $ | 1,171 | | | | 0.5 | % | | $ | 1,377 | | Current portion of long-term debt and capital leases | | | | | | | | | | | | | | | | | | | | | Current portion of long-term debt | | 2012 | | | | 8.3 | | | | 15 | | | | 7.1 | | | | 300 | | | | n/a | | | | - | | | | - | | | | 4.6 | | | | 225 | | Current portion of capital leases | | 2012 | | | | 4.9 | | | | 2 | | | | 4.9 | | | | 1 | | | | n/a | | | | - | | | | - | | | | 4.9 | | | | 1 | | Total short-term debt and current portion of long-term debt and capital leases | | | | | | 0.7 | % | | $ | 1,338 | | | | 3.2 | % | | $ | 1,033 | | | Long-term debt – net of current portion | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total current portion of long-term debt and capital leases | | | | | | | | - | | | $ | - | | | | 4.6 | % | | $ | 226 | | Long-term debt - excluding current portion | | | | | | | | | | | | | | | | | | | | | | Senior notes | | | 2013-2041 | | | | 5.4 | % | | $ | 2,550 | | | | 5.5 | % | | $ | 1,275 | | | | 2015-2043 | | | | 5.0 | % | | $ | 2,825 | | | | 5.1 | % | | $ | 2,325 | | First mortgage bonds | | | 2016-2038 | | | | 5.6 | | | | 500 | | | | n/a | | | | n/a | | | | 2016-2038 | | | | 5.6 | | | | 500 | | | | 5.6 | | | | 500 | | Gas facility revenue bonds | | | 2022-2033 | | | | 1.2 | | | | 200 | | | | 1.3 | | | | 200 | | | | 2022-2033 | | | | 1.0 | | | | 200 | | | | 1.2 | | | | 200 | | Medium-term notes | | | 2017-2027 | | | | 7.8 | | | | 181 | | | | 7.8 | | | | 196 | | | | 2017-2027 | | | | 7.8 | | | | 181 | | | | 7.8 | | | | 181 | | First mortgage bonds fair value adjustment | | | 2016-2038 | | | | n/a | | | | 99 | | | | n/a | | | | n/a | | | Interest rate swaps fair value adjustment | | | 2016 | | | | n/a | | | | 13 | | | | n/a | | | | 0 | | | Capital leases | | | 2012 | | | | n/a | | | | 0 | | | | 4.9 | | | | 2 | | | Unamortized debt premium (discount), net | | | - | | | | n/a | | | | 18 | | | | n/a | | | | (2 | ) | | Total principal long-term debt | | | | | | | | 4.9 | % | | $ | 3,706 | | | | 5.0 | % | | $ | 3,206 | | Fair value adjustment of long-term debt (3) | | | | 2016-2038 | | | | n/a | | | | 91 | | | | n/a | | | | 103 | | Unamortized debt premium, net | | | | n/a | | | | n/a | | | | 16 | | | | n/a | | | | 18 | | Total non-principal long-term debt | | | | | | | | n/a | | | | 107 | | | | n/a | | | | 121 | | Total long-term debt | | | | | | | 5.0 | % | | $ | 3,561 | | | | 5.2 | % | | $ | 1,671 | | | | | | | | | | | $ | 3,813 | | | | | | | $ | 3,327 | | | | | | | | | | | | | | | | | | | | | | | | Total debt | | | | | | | 4.4 | % | | $ | 4,899 | | | | 4.6 | % | | $ | 2,704 | | | | | | | | | | | $ | 4,984 | | | | | | | $ | 4,930 | |
(1) | Interest rates are calculated based on the daily weighted average balance outstanding for the 12 months ended December 31, 2013 and 2012. |
(2) | As of December 31, 2013, the effective interest rates on our commercial paper borrowings were 0.4% for AGL Capital and 0.3% for Nicor Gas. |
(3) | See Note 4 for additional information on our fair value measurements. |
Short-term Debt
Our short-term debt at December 31, 20112013 and 20102012 was composed of borrowings under our commercial paper programs and current portions of our long-term debt and capital lease obligations.programs.
Commercial Paper Programs We maintain commercial paper programs at AGL Capital and at Nicor Gas that consist of short-term, unsecured promissory notes that are used in conjunction with cash from operations to fund our seasonal working capital requirements. Working capital needs fluctuate during the year and are highest during the injection period in advance of the Heating Season. The Nicor Gas commercial paper program supports working capital needs at Nicor Gas, while all of our other subsidiaries includingand SouthStar participate in the AGL Capital commercial paper program. At December 31, 2011,During 2013, our commercial paper maturities ranged from 1 to 123 days, and at December 31, 2013, remaining terms to maturity ranged from 2 to 99 days. During 2013, total borrowings and repayments netted to a payment of $206 million. For commercial paper issuances with original maturities over 3 to 58 days.months, borrowings and repayments were $374 million and $181 million, respectively.
AGL Credit FacilityFacilities On November 10, 2011, AGL Capital amended and restated its revolving credit facility to extend the maturity date to November 10, 2016 and to increase the revolving credit commitments to $1.3 billion. This credit facility can be drawn upon to support the AGL Capital commercial paper program and to provide the flexibility to meet ongoing working capital and other general purpose needs. The interest rate payable on borrowings under the AGL Credit Facility is calculated either at the alternative base rate, plus an applicable margin, or LIBOR, plus an applicable interest margin. The applicable interest margin used in both interest rate calculations will vary according to AGL Capital’s current credit ratings. At December 31, 2011,2013 and 2012, there were no outstanding borrowings under this facility.either the AGL Capital or Nicor Gas credit facilities.
In November 2013, the lenders for our two credit facilities consented to our request to extend the maturity date of each facility by one year, in accordance with the terms of the respective credit agreements. The AGL Credit Facility and Nicor Gas Credit Facility Onmaturity dates were extended to November 10, 2017 and December 15, 2011, Nicor Gas entered into a $700 million revolving credit facility, which matures on December 15, 2016.2017, respectively. The Nicor Gas Credit Facility replaced its previous three-year credit facilityterms, conditions and 364-day facility and can be drawn upon to support the Nicor Gas commercial paper program and to provide the flexibility to meet ongoing working capital and other general purpose needs. The interest rate payable on borrowingspricing under the Nicor Gas Credit Facility is calculated either at the alternative base rate, plus an applicable interest margin, or LIBOR, plus an applicable interest margin. The applicable interest margin used in both interest rate calculations will vary according to Nicor Gas’ current credit ratings. At December 31, 2011, there were no outstanding borrowings under this facility.
SouthStar Credit Facility SouthStar’s five-year $75 million unsecured credit facility expired on November 2, 2011. SouthStar used this line of credit for working capital and general corporate needs. SouthStar had no outstanding borrowings on this line of credit at December 31, 2010.
Current Portion of Long-Term Debt We have $15 million of medium-term notes, which are reported as current portion of long-term debt on our December 31, 2011 Consolidated Statements of Financial Position. Additionally, we had $300 million of senior notes, which are reported as current portion of long-term debt on our December 31, 2010 Consolidated Statements of Financial Position.agreements remain unchanged.
Current Portion of Long-term Debt and Capital Leases The current portion of our long-term debt at December 31, 2012 was composed of the current portions of our long-term debt and capital lease obligations. Our capital leases consistconsisted primarily of a sale/leaseback transaction of gas meters and other equipment that was completed in 2002 by Florida City Gas and will be repaid through 2012. Based onexpired in the terms ofsecond quarter 2013. In the lease agreement,second quarter 2012, Florida City Gas is required to insure the leased equipment during the lease term. At the expiration of the lease term, Florida City Gas hashad the option to purchase the leased meters from the lessor at their fair market value, which will be determined based on an arm’s-length transaction between an informed and willing buyer.but it did not exercise this option.
Long-term Debt
Our long-term debt at December 31, 20112013 and 20102012 consisted of medium-term notes: Series A, Series B, and Series C, which we issued under an indenture dated December 1, 1989,1989; senior notes,notes; first mortgage bonds,bonds; and gas facility revenue bonds and capital leases.bonds. Some of these issuances were completed in the private placement market. In determining that those specific bonds qualify for exemption from registration under Section 4(2) of the Securities Act of 1933, we relied on the facts that the bonds were offered only to a limited number of large institutional investors and each institutional investor that purchased the bonds represented that it was purchasing the bonds for its own account and not with a view to distribute them. We fully and unconditionally guarantee all of our senior notes. Additionally, substantially all of Nicor Gas’ properties are subject to the lien of the indenture securing its first mortgage bonds.
The majority of our long-term debt matures after fiscal year 2016.2018. The annual maturities of our long-term debt for the next five years and thereafter are as follows:
Year | | Amount (in millions) | | | Amount (in millions) | | 2012 | | $ | 17 | | | 2013 | | | 225 | | | 2014 | | | 0 | | | $ | - | | 2015 | | | 200 | | | | 200 | | 2016 | | | 545 | | | | 545 | | 2017 | | | | 22 | | 2018 | | | | 155 | | Thereafter | | | 2,461 | | | | 2,784 | | Total | | $ | 3,448 | | | $ | 3,706 | |
Senior Notes We had the followingOn May 16, 2013 we issued $500 million in 30-year senior notes with a fixed interest rate of 4.4%. The net proceeds were used to repay a portion of AGL Capital’s commercial paper, including $225 million we borrowed to repay our senior notes that matured on April 15, 2013. There were no senior note issuances in 2011.2012.
| Issuance Date | Amount (in millions) | Maturity date | Interest rate | Public offering (1) | March 16, 2011 | $500 | March 15, 2041 | 5.9% | Public offering (2) | September 15, 2011 | $200 | March 15, 2041 | 5.9% | Public offering (2) | September 15, 2011 | $300 | September 15, 2021 | 3.5% | Private placement – Series A (2) | October 27, 2011 | $120 | October 27, 2016 | 1.9% | Private placement – Series B (2) | October 27, 2011 | $155 | October 27, 2018 | 3.5% |
(1) | The net proceeds were used to repay our commercial paper and to repay our $300 million in senior notes that matured on January 14, 2011. The remaining proceeds were used for the cash consideration and expenses incurred in connection with the Nicor merger. |
(2) | The net proceeds were used to pay a portion of the cash consideration and expenses incurred in connection with the Nicor merger. |
Following our issuances of these senior notes we terminated the Bridge Facility.
Interest Rate Swaps On May 4, 2011, we entered into interest rate swaps with an aggregate notional amount of $250 million to effectively convert a portion of our $300 million 6.4% fixed-rate senior notes that mature July 15, 2016 to a variable-rate obligation. Under the terms of the swaps, the interest rates reset quarterly based on LIBOR plus 3.9%.
As of December 31, 2011, we also held forward-starting interest rate swaps totaling $90 million that were redesignated as cash flow hedges upon the close of the Nicor merger. Under the terms of the swaps, we agree to pay a fixed swap rate and receive a floating rate based on LIBOR.
First Mortgage Bonds As a result of the merger, weWe acquired the first mortgage bonds of Nicor Gas, which at December 31, 2011, had principal balances totaling $500 million. The fair value step-up of these bonds on December 9, 2011, the merger closing date, was $99 million, a step up to fair value that is reflected in our long-term debt. Nicor Gas has were issued first mortgage bonds through the public and private placement markets.markets, as a result of the 2011 merger.
Gas Facility Revenue Bonds We are party to a series of loan agreements with the New Jersey Economic Development Authority (NJEDA) under which the NJEDA has issued a series of gas facility revenue bonds. These gas revenue bonds are issued by state agencies or counties to investors, and proceeds from the issuance are then loaned to us. In June
During 2013 we refinanced $200 million of our outstanding tax-exempt gas facility revenue bonds, $180 million of which were previously issued by the New Jersey Economic Development Authority and September 2010,$20 million of which were previously issued by Brevard County, Florida. The refinancing involved a combination of the issuance of $60 million of refunding bonds to, and the purchase of $140 million of existing bonds by, a syndicate of banks. Our relationship with the syndicate of banks regarding the bonds is governed by an agreement that contains representations, warranties, covenants and default provisions consistent with those contained in similar financing documents of ours. All of the bonds are floating-rate instruments. We had no cash receipts or payments in connection with the refinancing. The letters of credit supportingproviding credit support for the gasoutstanding revenue bonds along with other related agreements were set to expire, and according to the termsterminated as a result of the bond indentures, we repurchased the bonds before the expiration of the letters of credit using the proceeds of AGL Capital commercial paper issuances.refinancing.
Financial and Non-Financial Covenants
The AGL Credit Facility and the Nicor Gas Credit Facility each include a financial covenant that requires us to maintain a ratio of total debt to total capitalization of no more than 70%; at the end of any fiscal month; however, our goal is to maintain this ratiothese ratios at levels between 50% and 60%. These ratios, as calculated in accordance with ourthe debt covenant includescovenants, include standby letters of credit and surety bonds and excludes other comprehensive incomeexclude accumulated OCI items related to non-cash pension adjustments.adjustments, welfare benefits liability adjustments and accounting adjustments for cash flow hedges. Adjusting for these items, the following table contains our debt-to-capitalization ratios for the periodsdates presented, which are within our required and targeted ranges.below the maximum allowed.
| | AGL Resources | | | Nicor Gas | | | | | December 31, | | | December 31, | | | | | 2011 | | | 2010 | | | 2011 | | | 2010 | | | Debt-to-capitalization ratio | | | 58 | % | | | 58 | % | | | 60 | % | | | n/a | |
| | AGL Resources | | | Nicor Gas | | | | December 31, | | | December 31, | | | | 2013 | | | 2012 | | | 2013 | | | 2012 | | Debt-to-capitalization ratio | | | 57 | % | | | 58 | % | | | 55 | % | | | 55 | % |
The credit facilities contain certain non-financial covenants that, among other things, restrict liens and encumbrances, loans and investments, acquisitions, dividends and other restricted payments, asset dispositions, mergers and consolidations and other matters customarily restricted in such agreements.We were in compliance with all existing debt provisions and covenants, both financial and non-financial, as
Default Provisions
Our credit facilities and other financial obligations include provisions that, if not complied with, could require early payment or similar actions. The most important default events include:
· | a maximum leverage ratio |
· | insolvency events and nonpayment of scheduled principal or interest payments |
· | acceleration of other financial obligations |
· | change of control provisions |
We have no triggertriggering events in our debt instruments that are tied to changes in our specified credit ratings or our stock price and have not entered into any transaction that requires us to issue equity based on credit ratings or other triggertriggering events. We were in compliance with all existing debt provisions and covenants, both financial and non-financial, as of December 31, 2013 and 2012.
Preferred Securities
At December 31, 20112013 and 2010,2012, we had 10 million shares of authorized, unissued Class A junior participating preferred stock, no par value, and 10 million shares of authorized, unissued preferred stock, no par value.
Treasury Shares
Our Board of Directors authorized us to purchase up to 8 million treasury shares through our repurchase plan, which expired on January 31, 2011. This plan was used to offset shares issued under our employee and non-employee director incentive compensation plans and our dividend reinvestment and stock purchase plans. Stock purchases under this plan were made in the open market or in private transactions at times, and in amounts that we deemed appropriate. We held the purchased shares as treasury shares and accounted for them using the cost method. In 2011, we spent $2 million to purchase less than 0.1 millionWe purchased no treasury shares at a weighted average price per share of $36.25. In 2010, we spent $7 million to purchase approximately 0.2 million treasury shares at a weighted average price per share of $36.01.in 2013 or 2012.
Dividends
Our common shareholders may receive dividends when declared at the discretion of our Board of Directors. Dividends may be paid in cash, stock or other form of payment, and payment of future dividends will depend on our future earnings, cash flow, financial requirements and other factors. As a result of the Nicor merger, AGL Resources shareholders on record as of the close of business on December 8, 2011, received a pro rata dividend for the stub period, accruing from November 19, 2011.
Additionally, we derive a substantial portion of our consolidated assets, earnings and cash flow from the operation of regulated utility subsidiaries, whose legal authority to pay dividends or make other distributions to us is subject to regulation. As with most other companies, the payment of dividends is restricted by laws in the states where we conduct business. In certain cases, our ability to pay dividends to our common shareholders is limited by (i) our ability to pay our debts as they become due in the usual course of business and satisfy our obligations under certain financing agreements, including our debt-to-capitalization covenant, (ii) our ability to maintain total assets below total liabilities, and (iii) our ability to satisfy our obligations to any preferred shareholders.
Accumulated Other Comprehensive Loss
Our share of comprehensive income (loss) includes net income and net income attributable to AGL Resources Inc. plus OCI, which includes changes in fair value of certain derivatives designated as cash flow hedges, certain changes in pension and other retirement benefit plans and reclassifications for amounts included in net income andless net income and OCI attributable to AGL Resources Inc.the noncontrolling interest. For more information on our derivative instruments, see Note 5. For more information on our pensions and retirement benefit obligations, see Note 6. Our other comprehensive income (loss) amounts are aggregated within our accumulated other comprehensive loss. The following table provides changes in the components of our accumulated other comprehensive loss balances, net of the related tax effects allocated to each component of OCI.
In millions | | Derivative instruments (1) | | | Pension & other retirement obligations (2) | | | Accumulated other comprehensive income (loss) | | As of Dec. 31, 2008 | | $ | (3 | ) | | $ | (131 | ) | | $ | (134 | ) | Other comprehensive income | | | 1 | | | | 17 | | | | 18 | | As of Dec. 31, 2009 | | | (2 | ) | | | (114 | ) | | | (116 | ) | Other comprehensive loss | | | (5 | ) | | | (28 | ) | | | (33 | ) | Purchase of additional 15% ownership interest in SouthStar | | | (1 | ) | | | 0 | | | | (1 | ) | As of Dec. 31, 2010 | | | (8 | ) | | | (142 | ) | | | (150 | ) | Other comprehensive loss | | | (2 | ) | | | (65 | ) | | | (67 | ) | As of Dec. 31, 2011 | | $ | (10 | ) | | $ | (207 | ) | | $ | (217 | ) | (1) Income taxes for the years ending December 31, 2011, 2010 and 2009 were immaterial. (2) Income taxes for the years ending December 31, 2011, 2010 and 2009 were $41 million, $20 million and $10 million, respectively. | |
In millions (1) | | Cash flow hedges | | | Retirement benefit plans | | | Total | | As of December 31, 2010 | | $ | (5 | ) | | $ | (145 | ) | | $ | (150 | ) | Other comprehensive loss | | | (2 | ) | | | (65 | ) | | | (67 | ) | As of December 31, 2011 | | | (7 | ) | | | (210 | ) | | | (217 | ) | Other comprehensive income (loss) | | | 4 | | | | (5 | ) | | | (1 | ) | As of December 31, 2012 | | | (3 | ) | | | (215 | ) | | | (218 | ) | Other comprehensive income, before reclassifications | | | 1 | | | | 66 | | | | 67 | | Amounts reclassified from accumulated other comprehensive loss | | | 3 | | | | 12 | | | | 15 | | As of December 31, 2013 | | $ | 1 | | | $ | (137 | ) | | $ | (136 | ) |
(1) | All amounts are net of income taxes. Amounts in parentheses indicate debits to accumulated other comprehensive loss. |
The following table provides details of the reclassifications out of accumulated other comprehensive loss for the year ended December 31, 2013 and the ultimate favorable (unfavorable) impact on net income.
In millions (1) | | | | | Cash flow hedges | | | | | Natural gas contracts | | $ | (1 | ) | Cost of goods sold | Interest rate contracts | | | (3 | ) | Interest expense, net | Total before income tax | | | (4 | ) | | Income tax benefit | | | 1 | | | Total cash flow hedges | | | (3 | ) | | Retirement benefit plan amortization of | | | | | | Actuarial losses | | | (25 | ) | See (2), below | Prior service credits | | | 5 | | See (2), below | Total before income tax | | | (20 | ) | | Income tax benefit | | | 8 | | | Total retirement benefit plans | | | (12 | ) | | Total reclassification for the period | | $ | (15 | ) | |
(1) | Amounts in parentheses indicate debits, or reductions, to profit/loss and credits to accumulated other comprehensive loss. Except for retirement benefit plan amounts, the profit/loss impacts are immediate. |
(2) | Amortization of these accumulated other comprehensive loss components is included in the computation of net periodic benefit cost. See Note 5 for additional details about net periodic benefit cost. |
As of December 31, 2011, we had ownership interests in SouthStar, Triton, Horizon Pipeline and Sawgrass Storage.
Variable Interest Entities
On a quarterly basis we evaluate all of our ownervariable interests in other entities, primarily ownership interests, to determine if they represent a variable interest entity (VIE) as defined by the authoritative accounting guidance on consolidation, and if so, which party is the primary beneficiary. We have determined that SouthStar, a joint venture owned by us and Piedmont, is the only VIE for which we are the primary beneficiary, which requires us to consolidate its assets, liabilities and Statements of Income. Earnings from SouthStar in 2011, 2010 and 2009 were allocated entirely in accordance with the ownership interests. We account for our ownership of SouthStar in accordance with authoritative accounting guidance which is fully described within Note 2.
SouthStar markets natural gas and related services under the trade name Georgia Natural Gas to retail customers primarily in Georgia, and under various other trade names to retail customers in Ohio, Florida and New York and to commercial and industrial customers, principally in Alabama, Florida, North Carolina, South Carolina and Tennessee. The primary risks associated with SouthStar are discussed in our risk factors included in Item 1A.
The following table illustrates the effect that our 2009 purchase of an additional 15% ownership percentage, which became effective in January 2010, had on our equity.
In millions | | Premium on common stock | | | Accumulated other comprehensive loss | | | Total | | Purchase of additional 15% ownership interest | | $ | (51 | ) | | $ | (1 | ) | | $ | (52 | ) |
Our conclusion that SouthStar is a VIE resulted from our equal voting rights with Piedmont not being proportional to our economic obligation to absorb 85% of losses or residual returns from the joint venture. We account for our ownership of SouthStar in accordance with authoritative accounting guidance which is described within Note 2. The primary risks associated with SouthStar are discussed in our risk factors included in Item 1A.
SouthStar markets natural gas and related services under the trade name Georgia Natural Gas to customers in Georgia, and under various other trade names to customers in Illinois, Ohio, Florida, Maryland, Michigan and New York. Following are additional factors we considered in determining that we have the power to direct SouthStar’s activities that most significantly impact its performance.
Our wholly owned subsidiary,subsidiaries, Nicor Gas and Atlanta Gas Light, providesprovide the following services, in accordance with Georgia Commission authorization thatwhich affect SouthStar’s operations:
· | provides meter reading services for SouthStar’s customers in Illinois and Georgia |
· | maintainsmaintenance and expandsexpansion of the natural gas infrastructure in Illinois and Georgia |
· | markets the benefits of natural gas, performs outreach to residential and commercial developers, offers natural gas appliance rebates and billboard and print advertising, all of which support SouthStar’s efforts to maintain and expand its residential, commercial and industrial customers in its largest market, Georgia |
· | assignsassigning storage and transportation capacity used in delivering natural gas to SouthStar’s customers |
Liquidity and capital resources
· | we provide guarantees forof SouthStar’s activities with, its counterparties,and its credit exposure to, its counterparties and to certain natural gas suppliers in support of SouthStar’s payment obligations |
· | support of SouthStar’s daily cash management activities and assistance ensuring SouthStar utilizeshas adequate liquidity and working capital resources by allowing SouthStar to utilize the AGL Capital commercial paper program for its liquidity and working capital requirements. We support SouthStar’s daily cash management activities and assistrequirements in accordance with ensuring SouthStar has adequate liquidity and working capital resourcesour services agreement. |
Back office functions
· | Accounting, information technology, credit and internal controls services in accordance with our services agreement we provide services to SouthStar with respect to accounting, information technology, credit and internal controls |
SouthStar’s financial results earnings are allocated entirely in accordance with the ownership interests and are seasonal in nature, with business depending to a great extent onthe majority occurring during the first and fourth quarters of each year. SouthStar’s current assets consist primarily of natural gas inventory, derivative instruments and receivables from its customers. SouthStar also has receivables from us due to its participation in AGL Capital’s commercial paper program. See Note 2 for additional discussions of SouthStar’s inventories. SouthStar’s restricted assets consist of customer deposits and were immaterial as of December 31, 2011 and 2010. SouthStar’s current liabilities consist primarily of accrued natural gas costs, other accrued expenses, customer deposits, derivative instruments and payables to us from its participation in AGL Capital’s commercial paper program.
As of December 31, 2011, SouthStar’s current assets, which approximate fair value, exceeded its current liabilities, long-term assets and other deferred debits, long-term liabilities and other deferred credits by approximately $56 million. SouthStar’s other contractual commitments and obligations, including operating leases and agreements with third party providers, do not contain terms that would trigger material financial obligations in the event that such contracts were terminated. As a result, our maximum exposure to a loss at SouthStar is considered to be immaterial. SouthStar’s creditors have no recourse to our general credit beyond our corporate guarantees we have provided to SouthStar’s counterparties and natural gas suppliers. We have provided no financial or other support that was not previously contractually required. With the exception of our corporate guarantees and the aforementioned limited protections related to goodwill and intangible assets, we have not entered into any arrangements that could require us to provide financial support to SouthStar.
Price and volume fluctuations of SouthStar’s natural gas inventories can cause significant variations in our working capital and cash flow from operations. Changes in our operating cash flows are also attributable to SouthStar’s working capital changes resulting from the impact of weather, the timing of customer collections, payments for natural gas purchases and cash collateral amounts that SouthStar maintains to facilitate its derivative instruments.
Cash flows used in our investing activities include capital expenditures for SouthStar for the year ended December 31, of $2 million for 2011, $3 million for 20102013, $1 million for 2012 and $2 million for 2009.2011. Cash flows used in our financing activities include SouthStar’s distribution to Piedmont for its portion of SouthStar’s annual earnings from the previous year. Generally, this distribution occurs in the first or second quarter of each fiscal year. For the yearyears ended December 31, 2013, 2012 and 2011, SouthStar distributed $17 million, $14 million and $16 million to Piedmont, and $27respectively.
On September 1, 2013 we contributed to SouthStar our Illinois retail energy businesses with approximately 108,000 customers. Additionally, Piedmont contributed to SouthStar $22.5 million duringin cash to maintain its 15% ownership in the year ended December 31, 2010. The decrease of $11 million was primarilyjoint venture. In connection with the resultcontribution of our increased ownership percentageIllinois retail energy businesses, we provided certain limited protections to Piedmont regarding the value of SouthStar in 2010.the contributed businesses related to goodwill and other intangible assets. Piedmont’s contribution is reflected as an increase to the noncontrolling interest on our Consolidated Statements of Financial Position and a financing activity on our Consolidated Statements of Cash Flows. These funds were used to reduce our commercial paper borrowings.
The following table provides additional information on SouthStar’s assets and liabilities as of the periodsdates presented, which are consolidated within our Consolidated Statements of Financial Position. | | December 31, 2011 | | | | | | December 31, 2010 | | | | | In millions | | Consolidated | | | SouthStar (1) | | | % (2) | | | Consolidated | | | SouthStar (1) | | | % (2) | | Current assets | | $ | 2,746 | | | $ | 210 | | | | 8 | % | | $ | 2,166 | | | $ | 239 | | | | 11 | % | Long-term assets and other deferred debits | | | 11,167 | | | | 9 | | | | 0 | | | | 5,356 | | | | 9 | | | | 0 | | Total assets | | $ | 13,913 | | | $ | 219 | | | | 2 | % | | $ | 7,522 | | | $ | 248 | | | | 3 | % | Current liabilities | | $ | 3,084 | | | $ | 77 | | | | 2 | % | | $ | 2,432 | | | $ | 93 | | | | 4 | % | Long-term liabilities and other deferred credits | | | 7,490 | | | | 0 | | | | 0 | | | | 3,252 | | | | 0 | | | | 0 | | Total Liabilities | | | 10,574 | | | | 77 | | | | 1 | | | | 5,684 | | | | 93 | | | | 2 | | Equity | | | 3,339 | | | | 142 | | | | 4 | | | | 1,836 | | | | 155 | | | | 8 | | Total liabilities and equity | | $ | 13,913 | | | $ | 219 | | | | 2 | % | | $ | 7,520 | | | $ | 248 | | | | 3 | % |
| | December 31, 2013 | | | December 31, 2012 | | In millions | | Consolidated | | | SouthStar (1) | | | | %(2) | | | Consolidated | | | SouthStar (1) | | | | %(2) | | Current assets | | $ | 2,733 | | | $ | 264 | | | | 10 | % | | $ | 2,668 | | | $ | 201 | | | | 8 | % | Goodwill and other intangible assets | | | 2,061 | | | | 139 | | | | 7 | | | | 1,933 | | | | - | | | | - | | Long-term assets and other deferred debit | | | 9,862 | | | | 12 | | | | - | | | | 9,540 | | | | 10 | | | | - | | Total assets | | $ | 14,656 | | | $ | 415 | | | | 3 | % | | $ | 14,141 | | | $ | 211 | | | | 1 | % | Current liabilities | | $ | 3,122 | | | $ | 95 | | | | 3 | % | | $ | 3,338 | | | $ | 62 | | | | 2 | % | Long-term liabilities and other deferred credits | | | 7,858 | | | | - | | | | - | | | | 7,368 | | | | - | | | | - | | Total liabilities | | | 10,980 | | | | 95 | | | | 1 | | | | 10,706 | | | | 62 | | | | 1 | | Equity | | | 3,676 | | | | 320 | | | | 9 | | | | 3,435 | | | | 149 | | | | 4 | | Total liabilities and equity | | $ | 14,656 | | | $ | 415 | | | | 3 | % | | $ | 14,141 | | | $ | 211 | | | | 1 | % |
| (1) These amounts reflect information for SouthStar and do not includeexclude intercompany eliminations and the balances of our wholly owned subsidiary with an 85% ownership interest in SouthStar. |
| (2) SouthStar’s percentage of the amount on our Consolidated Statements of Financial Position. |
The following table provides additional information about SouthStar’s revenues and expenses for the periods presented, which are consolidated within our Consolidated Statements of Income.
| | December 31, | | In millions | | 2013 | | | 2012 | | Operating revenues | | $ | 687 | | | $ | 576 | | Operating expenses | | | | | | | | | Cost of goods sold | | | 491 | | | | 411 | | Operation and maintenance | | | 72 | | | | 63 | | Depreciation and amortization | | | 5 | | | | 2 | | Taxes other than income taxes | | | 1 | | | | 2 | | Total operating expenses | | | 569 | | | | 478 | | Operating income | | $ | 118 | | | $ | 98 | |
Equity Method Investments
Triton We have an investment in Triton, a cargo container leasing company. Container equipment that is acquired by Triton is accounted for in tranches as defined in Triton’s operating agreement, and investors make capital contributions to Triton to invest in each of the tranches. As of December 31, 2011,2013 we had invested in seven tranches established by Triton.For the years ended December 31, 2013 and 2012, income from our equity method investment in Triton of $9 million and $11 million, respectively, was classified as other income on our Consolidated Statements of Income.
Horizon Pipeline We have a 50% owned joint venture with Natural Gas Pipeline Company of America that is regulated by the FERC. Horizon Pipeline operates an approximate 70-mile natural gas pipeline from Joliet, Illinois to near the Wisconsin/Illinois border. Nicor Gas typically contracts for 70% to 80% of the total capacity.
Sawgrass StorageWe haveown a 50% ownedinterest in Sawgrass Storage, a joint venture between us and a privately held energy exploration and production company. Sawgrass Storage was granted certification from the FERC in March 2012 for the development of an underground natural gas storage facility in Louisiana with Samson Contour Energy that30 Bcf of working gas capacity. The FERC certificate is currentlyset to expire in itsMarch 2014.
In December 2013, the joint venture decided to terminate the development stage. The purposeof this facility and recognized an impairment loss of $16 million, which reduced the carrying amount of the joint venture isventure’s long-lived assets to develop, operate and marketfair value. Consequently, we recognized our 50% interest in the servicesloss during the fourth quarter of a natural gas storage and pipeline facility2013, resulting in Louisiana.an $8 million ($5 million net of tax) charge to operating income.
OurThe carrying amounts of our investments that are accounted for under the equity method areat December 31 were as follows:
In millions | | 2011 | | | 2013 | | | 2012 | | Triton | | $ | 76 | | | $ | 70 | | | $ | 73 | | Horizon Pipeline | | | 18 | | | | 15 | | | | 17 | | Other(1) | | | 8 | | | | 1 | | | | 9 | | Total | | $ | 102 | | | $ | 86 | | | $ | 99 | |
(1) | Includes our investment in Sawgrass Storage of $1 million at December 31, 2013 and $9 million at December 31, 2012. |
Our net equity investment income for the twelve monthsyears ended December 31, 2013, 2012 and 2011, was approximately$3 million, $13 million and $1 million.million, respectively, which is reflected within other income on our Consolidated Statements of Income. The majority of our net equity investment income is attributable to our investment in Triton. For more information on our other income, see Note 2. During the same period,2013 we received an immaterial amountdistributions of dividends$17 million from our equity investees. investees and $14 million in 2012.
Note 11 - Commitments, Guarantees and Contingencies
We have incurred various contractual obligations and financial commitments in the normal course of our operating and financing activities that are reasonably likely to have a material effect on liquidity or the availability of capital resources. Contractual obligations include future cash payments required under existing contractual arrangements, such as debt and lease agreements. These obligations may result from both general financing activities and from commercial arrangements that are directly supported by related revenue-producing activities. The following table illustrates our expected future contractual payments such as debtunder our obligations and lease agreements, andother commitments as of December 31, 2011.2013.
| | | | | | | | | | | | | | | | | | | | 2017 & | | | | | | | | | | | | | | | | | | | | | 2019 & | | In millions | | Total | | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | thereafter | | | Total | | | 2014 | | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | thereafter | | Recorded contractual obligations: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Long-term debt (1) | | $ | 3,431 | | | $ | 0 | | | $ | 225 | | | $ | 0 | | | $ | 200 | | | $ | 545 | | | $ | 2,461 | | | $ | 3,706 | | | $ | - | | | $ | 200 | | | $ | 545 | | | $ | 22 | | | $ | 155 | | | $ | 2,784 | | Short-term debt (2) | | | 1,338 | | | | 1,338 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | Short-term debt | | | | 1,171 | | | | 1,171 | | | | - | | | | - | | | | - | | | | - | | | | - | | Environmental remediation liabilities (2) | | | | 447 | | | | 70 | | | | 82 | | | | 80 | | | | 48 | | | | 63 | | | | 104 | | Pipeline replacement program costs (3)(2) | | | 276 | | | | 131 | | | | 145 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 5 | | | | 5 | | | | - | | | | - | | | | - | | | | - | | | | - | | Environmental remediation liabilities (3) | | | 327 | | | | 37 | | | | 66 | | | | 55 | | | | 45 | | | | 32 | | | | 92 | | | Total | | $ | 5,372 | | | $ | 1,506 | | | $ | 436 | | | $ | 55 | | | $ | 245 | | | $ | 577 | | | $ | 2,553 | | | $ | 5,329 | | | $ | 1,246 | | | $ | 282 | | | $ | 625 | | | $ | 70 | | | $ | 218 | | | $ | 2,888 | |
Unrecorded contractual obligations and commitments (4) (9) (10): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pipeline charges, storage capacity and gas supply (5) | | $ | 2,263 | | | $ | 781 | | | $ | 494 | | | $ | 269 | | | $ | 164 | | | $ | 85 | | | $ | 470 | | Interest charges (6) | | | 2,581 | | | | 169 | | | | 161 | | | | 158 | | | | 149 | | | | 137 | | | | 1,807 | | Operating leases (7) | | | 220 | | | | 32 | | | | 25 | | | | 20 | | | | 19 | | | | 18 | | | | 106 | | Asset management agreements (8) | | | 26 | | | | 11 | | | | 9 | | | | 3 | | | | 2 | | | | 1 | | | | 0 | | Standby letters of credit, performance / surety bonds (9) | | | 22 | | | | 18 | | | | 4 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | Other | | | 14 | | | | 5 | | | | 3 | | | | 2 | | | | 2 | | | | 2 | | | | 0 | | Total | | $ | 5,126 | | | $ | 1,016 | | | $ | 696 | | | $ | 452 | | | $ | 336 | | | $ | 243 | | | $ | 2,383 | |
Unrecorded contractual obligations and commitments (3) (8): | | | | | | | | | | | | | | | | | | | | | | Pipeline charges, storage capacity and gas supply (4) | | $ | 2,298 | | | $ | 733 | | | $ | 507 | | | $ | 299 | | | $ | 138 | | | $ | 102 | | | $ | 519 | | Interest charges (5) | | | 2,899 | | | | 185 | | | | 175 | | | | 161 | | | | 147 | | | | 145 | | | | 2,086 | | Operating leases (6) | | | 233 | | | | 39 | | | | 34 | | | | 28 | | | | 25 | | | | 18 | | | | 89 | | Asset management agreements (7) | | | 19 | | | | 8 | | | | 5 | | | | 4 | | | | 2 | | | | - | | | | - | | Standby letters of credit, performance/surety bonds (8) | | | 29 | | | | 29 | | | | - | | | | - | | | | - | | | | - | | | | - | | Other | | | 15 | | | | 6 | | | | 3 | | | | 3 | | | | 2 | | | | 1 | | | | - | | Total | | $ | 5,493 | | | $ | 1,000 | | | $ | 724 | | | $ | 495 | | | $ | 314 | | | $ | 266 | | | $ | 2,694 | |
(1) | Excludes the $99$82 million step up to fair value of first mortgage bonds, $18$16 million unamortized debt premium and $13$9 million interest rate swaps fair value adjustment. |
(2) | Includes current portion of long-term debt of $15 million, which matures in June 2012 and current portion of capital leases. |
(3) | Includes charges recoverable through base rates or rate rider mechanisms. |
(4)(3) | In accordance with GAAP, these items are not reflected in our Consolidated Statements of Financial Position. |
(5)(4) | Includes charges recoverable through a natural gas cost recovery mechanism or alternatively billed to Marketers and demand charges associated with Sequent. The gas supply amountbalance includes amounts for Nicor Gas and SouthStar gas commodity purchase commitments of 6731 Bcf at floating gas prices calculated using forward natural gas prices as of December 31, 2011,2013, and is valued at $222$136 million. As we do for other subsidiaries, we provide guarantees to certain gas suppliers for SouthStar in support of payment obligations. |
(6)(5) | Floating rate interest charges are calculated based on the interest rate as of December 31, 20112013 and the maturity date of the underlying debt instrument. As of December 31, 2011,2013, we have $61$52 million of accrued interest on our Consolidated Statements of Financial Position that will be paid in 2012.2014. |
(7)(6) | We have certain operating leases with provisions for step rent or escalation payments and certain lease concessions. We account for these leases by recognizing the future minimum lease payments on a straight-line basis over the respective minimum lease terms, in accordance with authoritative guidance related to leases.GAAP. However, this lease accounting treatment does not affect the future annual operating lease cash obligations as shown herein. Our operating leases are primarily for real estate. |
(8)(7) | Represent fixed-fee minimum payments for Sequent’s affiliated asset management agreements. |
(9)(8) | We provide guarantees to certain municipalities and other agencies and certain gas suppliers of SouthStar in support of payment obligations. |
(10) | Based on the current funding status of the plans, we would be required to make a minimum contribution to our pension plans of approximately $36 million in 2012. We may make additional contributions in 2012. |
Substitute Natural Gas
On September 30,In 2011, Illinois enacted laws that required Nicor Gas signed an agreementand other large utilities in Illinois to elect to either sign contracts to purchase approximately 25 Bcf of SNG annually for a 10-year term beginning as early as 2015. The counterparty intends to construct a 60 Bcf per yearfrom coal gasification plant in southern Illinois. The project is expectedplants to be financed by the counterparty with external debt and equity. In addition, the final price of the SNG may exceed market prices and is dependent upon a variety of factors, including plant construction costs, and is not estimable. The price of the SNG under this contract could potentially be significantly more than market price. However, this agreement complies with anconstructed in Illinois statute that authorizes full recovery of the purchase costs; therefore we expect to recover such costs. Since the purchase agreement is contingent upon various milestones to be achieved by the counterparty to the agreement, our obligation is not certain at this time. While the purchase agreement is a variable interest in the counterparty, we have concluded, based on a qualitative evaluation, that we are not the primary beneficiary required to consolidate the counterparty. No amount has been recognized on our Statement of Financial Position in connectionor file rate cases with the purchase agreement.Illinois Commission in 2012, 2014 and 2016.
On October 11, 2011, the Illinois Power Agency (IPA) approved the form of a draft 30-year contract for the purchase by Nicor Gas of 20 Bcf per year of SNG from a second proposed plant beginning as early as 2018. 2018. The purchase price of the SNG that may be produced from this proposed coal gasification plant may significantly exceed market prices for natural gas and is expected to be dependent upon a variety of factors, including the developer’s financing, plant construction costs and volumes sold, which are currently not determinable. The Illinois law pertaining to this plant provides that the price paid for SNG purchased from the plant is to be considered prudent and not subject to review or disallowance by the Illinois Commission.
In November 2011, Nicor Gaswe filed a lawsuit against the IPA and the developer of this second proposed plant contending that the draft contract approved by the IPA does not conform to certain requirements of the enabling legislation. The lawsuit is pending in circuit court in DuPage County, Illinois. In accordance with the enabling legislation, the draft contract approved by the IPA for the second proposed plant was submitted to the Illinois Commission for further approvals by that regulatory body. The Illinois Commission issued an order on January 10, 2012 approving a final form of contract for the second plant. The final form of contract approved by the Illinois Commission modified the draft contract submitted by the IPA in various respects. BothWe have appealed the Illinois Commission’s decision to the circuit court in DuPage County, Illinois. As a result of pending litigation challenging aspects of the IPA and Illinois Commission decisions regarding the contract terms, we andhave not yet signed a contract with the developer ofto purchase SNG from the plant have filed applications for rehearing with the Illinois Commission seeking changes to the final form of contract it approved.proposed plant.
Contingencies and Guarantees
Contingent financial commitments, such as financial guarantees, represent obligations that become payable only if certain predefined events occur and include the nature of the guarantee and the maximum potential amount of future payments that could be required of us as the guarantor.occur. We have certain subsidiaries that enter into various financial and performance guarantees and indemnities providing assurance to third parties. We believe the likelihood of payment under our guarantees is remote. No liability has been recorded for such guarantees and indemnifications as the fair value is insignificant.
Financial guarantees Tropic Equipment Leasing Inc. (TEL)(TEL), a wholly owned subsidiary, holds our interest in Triton and has an obligation to restore to zero any deficit in its equity account for income tax purposes in the unlikely event that Triton is liquidated and a deficit balance remains. This obligation continues for the life of the Triton partnerships and any payment is effectively limited to the net assets of TEL, which were approximately $76$16 million at December 31, 2011.2013. We believe the likelihood of any such payment by TEL is remote. No liability has been recorded for this obligation.
Performance guarantees Nicor Services markets product warranty contracts that provide for the repair of heating, ventilation and air conditioning equipment, natural gas lines and other appliances within homes. Revenues from these product warranty contracts are recognized ratably over the coverage period, and related repair costs are charged to expense as incurred.
Indemnities In certain instances, we have undertaken to indemnify current property owners and others against costs associated with the effects and/or remediation of contaminated sites for which we may be responsible under applicable federal or state environmental laws, generally with no limitation as to the amount. These indemnifications relate primarily to ongoing coal tar cleanup, as discussed in Environmental Matters. We believe that the likelihood of payment under our other environmental indemnifications is remote. No liability has been recorded for such indemnifications.
Regulatory Matters
In December 2012, Atlanta Gas Light filed a petition with the Georgia Commission for approval to resolve an imbalance of approximately 4.8 Bcf of natural gas related to Atlanta Gas Light’s use of retained storage assets to operationally balance the system for the benefit of the natural gas market. We believe that any costs associated with resolving the imbalance should be recoverable from Marketers. The resolution of this imbalance will be decided by the Georgia Commission and we are unable to predict the ultimate outcome and recovery.
Environmental Matters
We are subject to federal, state and local laws and regulations governing environmental quality and pollution control. These laws and regulations require us to remove or remedy the effect on the environment of the disposal or release of specified substances at current and former operating sites. The following table provides more information on the costs related to remediation of our former operating sites.
In millions | | Cost estimate range | | | Amount recorded | | | Expected costs over next twelve months | | Georgia and Florida | | | $42 - $98 | | | $ | 58 | | | $ | 7 | | Illinois | | | 134 - 216 | | | | 134 | | | | 19 | | New Jersey | | | 124 - 174 | | | | 124 | | | | 9 | | North Carolina | | | 10 - 16 | | | | 11 | | | | 2 | | Total | | | $310 - $504 | | | $ | 327 | | | $ | 37 | |
We have confirmed 14 former operating sites in Georgia and Florida where Atlanta Gas Light, or its predecessors, owned or operated all or part of these sites. As of December 31, 2011, the soil and sediment remediation program was substantially completeSee Note 3 for all Georgia sites, except for a few remaining areas of recently discovered impact, although groundwater cleanup continues. Investigation is concluded for one phase of the Orlando, Florida site; however, the Environmental Protection Agency has not approved the cleanup plans. For elements of the Georgia and Florida sites where we still cannot provide engineering cost estimates, considerable variability remains in future cost estimates.
We have identified 6 former operating sites in New Jersey where Elizabethtown Gas owned or operated all or part of these sites. Material cleanups of these sites have not been completed nor are precise estimates available for future cleanup costs and therefore considerable variability remains in future cost estimates. We have also identified a site in North Carolina, which is subject to a remediation order by the North Carolina Department of Energy and Natural Resources, and there are no cost recovery mechanisms for the environmental remediation.
We have identified 26 sites in Illinois for which we have some responsibility. Nicor Gas and Commonwealth Edison Company are parties to an agreement to cooperate in cleaning up residue at many of these sites. The agreement allocates to Nicor Gas 51.73% of cleanup costs for 23 sites, no portion of the cleanup costs for 14 other sites and 50% of general remediation program costs that do not relate exclusively to particular sites. In addition to the sites from the agreement with Commonwealth Edison Company there are 3 sites in which we have sole responsibility. Information regarding preliminary site reviews has been presented to the Illinois Environmental Protection Agency for certain sites. More detailed investigations and remedial activities are complete, in progress or planned at many of these sites.
Our ERC liabilities are customarily reported estimates of future remediation costs for our former operating sites that are contaminated based on probabilistic models of potential costs and on an undiscounted basis. However, we have not yet performed these probabilistic models for all of our sites in Illinois, which will be completed in 2012. The results of the detailed site-by-site investigations will determine the extent additional remediation is necessary and provide a basis for estimating additional future costs. As of December 31, 2011, we had recorded a liability in connection with these matters of $134 million. In accordance with Illinois Commission authorization, we have been recovering, and expect to continue to recover, these costs from our customers, subject to annual prudence reviews.
Our ERC liabilities are included as a corresponding regulatory asset. These recoverable ERC assets are a combination of accrued ERC liabilities and recoverable cash expenditures for investigation and cleanup costs. We primarily recover these costs through rate riders and expect to collect $7 million in revenues over the next 12 months which is reflected as a current asset. We recovered $11 million in 2011, $13 million in 2010 and $20 million in 2009 from our ERC rate riders.
Litigationinformation.
We are involved in litigation arisingan investigation by the EPA regarding the applicable regulatory requirements for polychlorinated biphenyl in the normal course of business. Although in some cases the company is unable to estimate the amount of loss reasonably possible in addition to any amounts already recognized, it is possible that the resolution of these contingencies, either individually or in aggregate, will require the company to take charges against, or will result in reductions in, future earnings. It is the opinion of management that the resolution of these contingencies, either individually or in aggregate, could be material to earnings in a particular period but will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
SouthStar Litigation In February 2008, a class action lawsuit was filed in the Superior Court of Fulton County in the State of Georgia against Georgia Natural Gas alleging that it charged its customers of variable rate plans prices for natural gas that were in excess of the published price, failed to give proper notice regarding the availability of potentially lower price plans and that it changed its methodology for computing variable rates. Georgia Natural Gas asserts that no violation of law or Georgia Commission rules has occurred. This lawsuit was dismissed in September 2008. The plaintiffs appealed the dismissal of the lawsuit and, in May 2009, the Georgia Court of Appeals reversed the lower court’s order. In June 2009, Georgia Natural Gas filed a petition for reconsideration with the Georgia Supreme Court. In October 2009 the Georgia Supreme Court agreed to review the Court of Appeals’ decision. Accordingly, the Georgia Supreme Court held oral arguments in January 2010. In March 2010 the Georgia Supreme Court upheld the Court of Appeals’ decision. A settlement agreement was reached with the plaintiffs’ in December 2011. SouthStar asserts that no violation of law or Georgia Commission rules has occurred, however they agreed to settle in order to avoid the further expense and inconvenience of litigation.
Litigation Related to the Nicor Merger We were named as a defendant in several class action lawsuits brought by purported Nicor shareholders challenging Nicor’s merger with us. The complaints alleged that we aided and abetted alleged breaches of fiduciary duty by Nicor’s Board of Directors. The shareholder actions sought, among other things, declaratory and injunctive relief, including orders enjoining the defendants from completing the merger and, in certain circumstances, damages. This lawsuit was settled on December 7, 2011.
PBR Proceeding Nicor Gas’ PBR plan for natural gas costs went into effect in 2000 and was terminated January 1, 2003. Under this plan, Nicor Gas’ total gas supply costs were compared to a market-sensitive benchmark. Savings and losses relative to the benchmark were determined annually and shared equally with sales customers. The PBR plan is currently under review by the Illinois Commission as there are allegations that Nicor Gas acted improperly in connection with the PBR plan. On June 27, 2002, the Citizens Utility Board (CUB) filed a motion to reopen the record in the Illinois Commission’s proceedings to review the PBR plan (the “Illinois Commission Proceedings”). As a result of the motion to reopen, Nicor Gas, the staff of the Illinois Commission and CUB entered into a stipulation providing for additional discovery. The Illinois Attorney General’s Office (IAGO) has also intervened in this matter. In addition, the IAGO issued Civil Investigation Demands (CIDs) to CUB and the Illinois Commission staff. The CIDs ordered that CUB and the Illinois Commission staff produce all documents relating to any claims that Nicor Gas may have presented, or caused to be presented, false information related to its PBR plan. We have committed to cooperate fully in the reviews of the PBR plan.
The Nicor Board of Directors directed management to, among other things, make appropriate adjustments to account for, and fully address, the adverse consequences to ratepayers, and conduct a detailed study of the adequacy of internal accounting and regulatory controls. The adjustments were made in prior years’ financial statements resulting in a $25 million liability. Included in this $25 million liability is a $4 million loss contingency. A $2 million adjustment to the previously recorded liability, which is discussed below, was made in 2004 increasing the recorded liability to $27 million. By the end of 2003, we completed steps to correct the weaknesses and deficiencies identified in the detailed study of the adequacy of internal controls.
On February 5, 2003, CUB filed a motion for $27 million in sanctions against Nicor Gas in the Illinois Commission Proceedings. In that motion, CUB alleged that Nicor Gas’ responses to certain CUB data requests were false. Also on February 5, 2003, CUB stated in a press release that, in addition to $27 million in sanctions, it would seek additional refunds to consumers. On March 5, 2003, the Illinois Commission staff filed a response brief in support of CUB’s motion for sanctions. On May 1, 2003, the Administrative Law Judges assigned to the proceeding issued a ruling denying CUB’s motion for sanctions. CUB has filed an appeal of the motion for sanctions with the Illinois Commission, and the Illinois Commission has indicated that it will not rule on the appeal until the final disposition of the Illinois Commission Proceedings. It is not possible to determine how the Illinois Commission will resolve the claims of CUB or other parties to the Illinois Commission Proceedings.
In 2004, Nicor Gas became aware of additional information relating to the activities of individuals affecting the PBR plan for the period from 1999 through 2002, including information consisting of third party documents and recordings of telephone conversations from Entergy-Koch Trading, LP (EKT), a natural gas, storage and transportation trader and consultant with whom Nicor Gas did business under the PBR plan. Review of additional information completed in 2004 resulted in the $2 million adjustment to the previously recorded liability referenced above.
The evidentiary hearings on this matter were stayed in 2004 in order to permit the parties to undertake additional third party discovery from EKT. In December 2006, the additional third party discovery from EKT was obtained and the Administrative Law Judge issued a scheduling order that provided for Nicor Gas to submit direct testimony by April 13, 2007. Nicor Gas submitted direct testimony in April 2007, rebuttal testimony in April 2011 and surrebuttal testimony in December 2011. In surrebuttal testimony, we sought $6 million, which included interest due to us of $2 million, as of December 31, 2011. The staff of the Illinois Commission, IAGO and CUB submitted direct testimony to the Illinois Commission in April 2009 and rebuttal testimony in October 2011. In rebuttal testimony, the staff of the Illinois Commission, IAGO and CUB requested refunds of $85 million, $255 million and $305 million, respectively.
In February 2012, we committed to a stipulated resolution of issues with the staff of the Illinois Commission, which includes crediting Nicor Gas customers $64 million, but does not constitute an admission of fault. This resulted in a $37 million adjustment to the previously recorded $27 million liability referenced above. The stipulated resolution is not final and is subject to review and approval by the Illinois Commission. The CUB and IAGO are not parties to the stipulated resolution and continue to pursue their claims in the proceeding. Evidentiary hearings on this matter are scheduled to begin on February 28, 2012. The $64 million proposed credit is consistent with the estimated liability we recorded for this matter as part of our accounting for the merger with Nicor.
We are unable to predict the outcome of the Illinois Commission’s review or our potential exposure thereunder. Since the PBR plan and historical gas costs are still under Illinois Commission review, the final outcome could be materially different than the amounts reflected in our financial statements as of December 31, 2011.
Nicor Services Warranty Product Actions In the first quarter of 2011, three putative class actions were filed against Nicor Services and Nicor Gas, and in one case against Nicor. In September 2011, the three cases were consolidated into a single class action pending in state court in Cook County, Illinois. The plaintiffs purport to represent a class of customers of Nicor Gas who purchased appliance warranty and service plans from Nicor Services and/or a class of customers of Nicor Gas who purchased the Gas Line Comfort Guard product from Nicor Services. In the consolidated action, the plaintiffs variously allege that the marketing, sale and billing of the Nicor Services appliance warranty and service plans and Gas Line Comfort Guard violate the Illinois Consumer Fraud and Deceptive Business Practices Act, constitute common law fraud and result in unjust enrichment of Nicor Services and Nicor Gas. The plaintiffs seek, on behalf of the classes they purport to represent, actual and punitive damages, interest, costs, attorney fees and injunctive relief.distribution system. While we are unable to predict the outcome of these mattersthis matter or to reasonably estimate our potential exposure related thereto, if any, and have not recorded a liability associated with this contingency, the final disposition of this matter is not expected to have a material adverse impact on our liquidity or financial condition.
Litigation
We are involved in litigation arising in the normal course of business. Although in some cases we are unable to estimate the amount of loss reasonably possible in addition to any amounts already recognized, it is possible that the resolution of these contingencies, either individually or in aggregate, will require us to take charges against, or will result in reductions in, future earnings. Management believes that while the resolution of these contingencies, whether individually or in aggregate, could be material to earnings in a particular period, they will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
PBR Proceeding Nicor Gas’ PBR plan for natural gas costs went into effect in 2000 and was terminated effective January 1, 2003, following allegations that Nicor Gas acted improperly in connection with the plan. Under this plan, Nicor Gas’ total gas supply costs were compared to a market-sensitive benchmark. Savings and losses relative to the benchmark were determined annually and shared equally with sales customers. Since 2002 the amount of the savings and losses required to be shared has been disputed by the Citizens Utility Board (CUB) and others, with the Illinois Attorney General (IAG) intervening, and subject to extensive contested discovery and other regulatory proceedings before administrative law judges and the Illinois Commission. In 2009, the staff of the Illinois Commission, the staff of the IAG and CUB requested refunds of $85 million, $255 million and $305 million, respectively.
In February 2012, we committed to a stipulation with the staff of the Illinois Commission for a resolution of the dispute through the crediting to Nicor Gas customers of $64 million. On November 5, 2012, the administrative law judges issued a proposed order for a refund of $72 million. In the fourth quarter of 2012, we increased our accrual for this dispute by $8 million for a total of $72 million as a result of these developments and its effect on the estimated liability.
On June 7, 2013 the Illinois Commission issued an order requiring us to refund $72 million to current Nicor Gas customers over a 12-month period. On July 1, 2013 we began refunding customers the full $72 million through our PGA mechanism. The amount refunded is based upon natural gas throughput and $29 million was refunded in 2013. The CUB is continuing to pursue its claim.
Municipal Tax Matters Many municipalities in Nicor Gas’ service territory have enacted ordinances that impose taxes on gas sales to customers within municipal boundaries. Most of these municipal taxes are imposed on Nicor Gas based on revenues generated by Nicor Gas within the municipality. Other municipal taxes are imposed on natural gas consumers within the municipality but are collected from consumers and remitted to the municipality by us. A number of municipalities have instituted audits of Nicor Gas’ tax remittances. In May 2007, five of those municipalities filed an action against Nicor Gas in state court in DuPage County, Illinois relating to these tax audits. Following a dismissal of this action without prejudice by the trial court, the municipalities filed an amended complaint. The amended complaint seeks, among other things, compensation for alleged unpaid taxes. We are contesting the claims in the amended complaint. In December 2007, 25 additional municipalities, all represented by the same audit firm involved in the lawsuit, issued assessments to Nicor Gas claiming that it failed to provide information requested by the audit firm and owed the municipalities back taxes. We believe the assessments are improper and have challenged them. While we are unable to predict the outcome of these matters or to reasonably estimate our potential exposure related thereto, if any, and have not recorded a liability associated with this contingency, the final disposition of these matters is not expected to have a material adverse impact on our liquidity or financial condition.
On February 8, 2010, the IAGO issued a subpoena to Nicor Gas to provide documents in connection with an IAGO investigation pursuant to the Illinois Whistleblower Reward and Protection Act. On November 30, 2010, the IAGO issued Nicor Gas an amended request for information. According to the subpoena, the IAGO investigation relates to billing practices used with certain customer accounts involving government funds. While we believe the billing practices comply with Illinois Commission requirements, we are unable to predict the outcome of this matter or reasonably estimate its potential exposure, if any, and have not recorded a liability associated with this matter.
Other In addition to the matters set forth above, we are involved inwith legal or administrative proceedings before various courts and agencies with respect to general claims, taxes, environmental, gas cost prudence reviews and other matters. AlthoughWe are unable to determine the ultimate outcome of these other contingencies, wecontingencies. We believe that these amounts are appropriately reflected in our financial statements, including the recording of appropriate liabilities when reasonably estimable.
Income Tax Expense
The relative split between current and deferred taxes is due to a variety of factors including true ups of prior year tax returns, and most importantly, the timing of our property-related deductions. Components of income tax expense shown in the Consolidated Statements of Income are shown in the following table.
In millions | | 2011 | | | 2010 | | | 2009 | | | 2013 | | | 2012 | | | 2011 | | Current income taxes | | | | | | | | | | | | | | | | | | | Federal | | $ | (89 | ) | | $ | 37 | | | $ | 23 | | | $ | 166 | | | $ | 9 | | | $ | (89 | ) | State | | | 1 | | | | 12 | | | | 8 | | | | 35 | | | | 4 | | | | 1 | | Deferred income taxes | | | | | | | | | | | | | | | | | | | | | | | | | Federal | | | 196 | | | | 86 | | | | 94 | | | | 2 | | | | 134 | | | | 196 | | State | | | 18 | | | | 6 | | | | 11 | | | | (9 | ) | | | 20 | | | | 18 | | Amortization of investment tax credits | | | (1 | ) | | | (1 | ) | | | (1 | ) | | | (3 | ) | | | (3 | ) | | | (1 | ) | Total | | $ | 125 | | | $ | 140 | | | $ | 135 | | | $ | 191 | | | $ | 164 | | | $ | 125 | |
The reconciliations between the statutory federal income tax rate of 35%, the effective rate and the related amount of income tax expense for the years ended December 31, 2011, 2010 and 2009 onin our Consolidated Statements of Income are presented in the following table.
In millions | | 2011 | | | 2010 | | | 2009 | | | 2013 | | | 2012 | | | 2011 | | Computed tax expense at statutory rate | | $ | 109 | | | $ | 136 | | | $ | 134 | | | $ | 178 | | | $ | 158 | | | $ | 109 | | State income tax, net of federal income tax benefit | | | 14 | | | | 15 | | | | 16 | | | | 21 | | | | 19 | | | | 14 | | Sale of Compass Energy | | | | 6 | | | | - | | | | - | | Tax effect of net income attributable to the noncontrolling interest | | | (6 | ) | | | (6 | ) | | | (11 | ) | | | (7 | ) | | | (6 | ) | | | (6 | ) | Amortization of investment tax credits | | | (1 | ) | | | (1 | ) | | | (1 | ) | | | (3 | ) | | | (3 | ) | | | (1 | ) | Affordable housing credits | | | (1 | ) | | | (2 | ) | | | (2 | ) | | | (2 | ) | | | (2 | ) | | | (1 | ) | Flexible dividend deduction | | | (2 | ) | | | (2 | ) | | | (2 | ) | | | (2 | ) | | | (2 | ) | | | (2 | ) | Change in control payments | | | 9 | | | | 0 | | | | 0 | | | | - | | | | - | | | | 9 | | Merger transaction costs | | | 3 | | | | 0 | | | | 0 | | | | - | | | | - | | | | 3 | | Other – net | | | 0 | | | | 0 | | | | 1 | | | Total income tax expense on Consolidated Statements of Income | | $ | 125 | | | $ | 140 | | | $ | 135 | | | $ | 191 | | | $ | 164 | | | $ | 125 | |
Accumulated Deferred Income Tax Assets and Liabilities
We report some of our assets and liabilities differently for financial accounting purposes than we do for income tax purposes. We report the tax effects of the differences in those items as deferred income tax assets or liabilities in our Consolidated Statements of Financial Position. We measure the assets and liabilities using income tax rates that are currently in effect. Because of the regulated nature of the utilities’ business, we recorded a regulatory tax liability in accordance with authoritative guidance related to rate-regulated entities, which we are amortizing over approximately 30 years (see Note 2). Our deferred tax assets include $137 million related to an unfunded pension and other retirement benefit obligation, an increase of $43 million from 2010.
We have provided a valuation allowance for some of these items that reduce our net deferred tax assets to amounts we believe are more likely than not to be realized in future periods. With respect to our continuing operations, we have net operating losses in various jurisdictions. Components that give rise to the net non-current accumulated deferred income tax liability are as follows.
| | As of December 31, | | In millions | | 2011 | | | 2010 | | Accumulated deferred income tax liabilities | | | | | | | Property – accelerated depreciation and other property-related items | | $ | 1,418 | | | $ | 863 | | Mark to market | | | 22 | | | | 11 | | Investments in partnerships | | | 42 | | | | 0 | | Other | | | 91 | | | | 0 | | Acquisition intangibles | | | 34 | | | | 0 | | Undistributed earnings of foreign subsidiaries | | | 39 | | | | 0 | | Total accumulated deferred income tax liabilities | | | 1,646 | | | | 874 | | Accumulated deferred income tax assets | | | | | | | | | Deferred investment tax credits | | | 10 | | | | 4 | | Unfunded pension and other retirement benefit obligation | | | 137 | | | | 94 | | Other | | | 57 | | | | 11 | | Total accumulated deferred income tax assets | | | 204 | | | | 109 | | Valuation allowances (1) | | | (3 | ) | | | (3 | ) | Total accumulated deferred income tax assets, net of valuation allowance | | | 201 | | | | 106 | | Net accumulated deferred tax liability | | $ | 1,445 | | | $ | 768 | |
| | As of December 31, | | In millions | | 2013 | | | 2012 | | Accumulated deferred income tax liabilities | | | | | | | Property - accelerated depreciation and other property-related items | | $ | 1,613 | | | $ | 1,533 | | Undistributed earnings of foreign subsidiaries | | | 26 | | | | 30 | | Investments in partnerships | | | 18 | | | | 26 | | Acquisition intangibles | | | 15 | | | | 26 | | Mark-to-market | | | - | | | | 22 | | Other | | | 128 | | | | 126 | | Total accumulated deferred income tax liabilities | | | 1,800 | | | | 1,763 | | Accumulated deferred income tax assets | | | | | | | | | Unfunded pension and retiree welfare benefit obligation | | | 92 | | | | 145 | | Deferred investment tax credits | | | 7 | | | | 9 | | Mark-to-market | | | 4 | | | | - | | Other | | | 44 | | | | 43 | | Total accumulated deferred income tax assets | | | 147 | | | | 197 | | Valuation allowances (1) | | | (14 | ) | | | (22 | ) | Total accumulated deferred income tax assets, net of valuation allowance | | | 133 | | | | 175 | | Net non-current accumulated deferred tax liability | | $ | 1,667 | | | $ | 1,588 | |
(1) | ValuationThe total valuation allowance is $22 million, which is comprised of $3 million valuation allowance is due to the net operating losses onof a former non-operating subsidiary that are not allowed in New Jersey.Jersey and $19 million valuation allowance is related to our investment in Triton. In addition, $8 million of the total is classified as a valuation allowance against current deferred income tax assets. See Note 2 for more information regarding current deferred income taxes. |
To the extent foreign cargo shipping earnings are not repatriated to the United States,U.S., such earnings are not currently subject to taxation. In addition, to the extent such earnings are indefinitely reinvested offshore, no deferred income tax expense is recorded by us. At December 31, 2011,2013, we had approximately $39$26 million of deferred income tax liabilities related to approximately $104$75 million of cumulative undistributed earnings of our foreign subsidiaries. We have not recordedAt December 31, 2012, we had $30 million of deferred income taxes of approximately $31 million on approximately $89tax liabilities related to $87 million of cumulative undistributed earnings of our foreign subsidiaries. See Note 2 for more information about potential income taxes related to undistributed foreign earnings.
Tax Benefits
As of December 31, 20112013 and December 31, 2010,2012, we did not have a liability for unrecognized tax benefits. Based on current information, we do not anticipate that this will change materially in 2012.2014. As of December 31, 2011,2013, we did not have a liability recorded for payment of interest andor penalties associated with uncertain tax positions.positions nor did we have any such interest or penalties during 2013 or 2012.
We file a United StatesU.S. federal consolidated income tax return and various state income tax returns. We are no longer subject to income tax examinations by the Internal Revenue Service or in any state for years before 2007.2008.
Our operating segments comprise revenue-generating components of our company for which we produce separate financial information internally that we regularly use to make operating decisions and assess performance. Our determination of reportable segments considers the strategic operating units under which we manage sales of various products and services to customers in differing regulatory environments. We manage our businesses through five operating segments –- distribution operations, retail operations, wholesale services, midstream operations, cargo shipping and one non-operating segment, other.
Our distribution operations segment is the largest component of our business and includes natural gas local distribution utilities in seven states - Illinois, Georgia, Virginia, New Jersey, Florida, Tennessee and Maryland.states. These utilities construct, manage, and maintain intrastate natural gas pipelines and distribution facilities. Although the operations of our distribution operations segment are geographically dispersed, the operating subsidiaries within the distribution operations segment are regulated utilities, with rates determined by individual state regulatory commissions. These natural gas distribution utilities have similar economic and risk characteristics.
We are also involved in several related and complementary businesses. Our retail operations segment includes retail natural gas marketing to end-use customers primarily in Georgia as well as various businesses that market retail energy-related products and services to residential and small business customers in Illinois. Additionally, our retail operations segment provides warrantyhome protection solutions to customersproducts and customer move connection services for utilities.services. Our wholesale services segment includesengages in natural gas storage and gas pipeline arbitrage and related activities. Additionally, they provide natural gas asset management andand/or related logistics activitiesservices for each of our utilities, as well as for nonaffiliatednon-affiliated companies, natural gas storage arbitrage and related activities. Our midstream operations segment includes our non-utility storage and pipeline operations, includingthe development and operation of high-deliverability natural gas storage assets.
Our cargo shipping segment transports containerized freightcargo between Florida, the eastern coast of Canada, the Bahamas and the Caribbean region. TheOur cargo shipping segment also includes amounts related to cargo insurance coverage sold to itsour customers and other third parties. TheOur cargo shipping segment’s vessels are under foreign registry, and its containers are considered instruments of international trade. Although the majority of its long-lived assets are foreign owned and its revenues are derived from foreign operations, the functional currency is generally the United StatesU.S. dollar. Our cargo shipping segment also includes an equity investment in Triton, a cargo container leasing business. Profits and losses are generally allocated to investor’s capital accounts in proportion to their capital contributions. Our investment in Triton is accounted for under the equity method, and our share of earnings are reported within “Other Income” on our Consolidated Statements of Income.
Our other segment includes intercompany eliminations and aggregated subsidiaries that are not significant enough on a stand-alone basis and that do not fit into one of our other five operating segments.
We evaluate segment performance usingThe chief operating decision maker of the non-GAAPcompany is the Chairman, President and Chief Executive Officer who utilizes EBIT as the primary measure of profit and loss in assessing the results of our segments and operations. EBIT that includes operating income and other income and expenses, and equity investment income.expenses. Items we do not include in EBIT are income taxes and financing costs, including interest and debt expense, each of which we evaluate on a consolidated basis. We believe EBIT is a useful measurement of our performance because it provides information that can be used to evaluate the effectiveness of our businesses from an operational perspective, exclusive of the costs to finance those activities and exclusive of income taxes, neither of which is directly relevant to the efficiency of those operations.
You should not consider EBIT an alternative to, or a more meaningful indicator of, our operating performance than operating income or net income as determined in accordance with GAAP. In addition, our EBIT may not be comparable to a similarly titled measure of another company. The reconciliations of EBIT to operating income, earnings before income taxes and net income for 2011, 2010 and 2009 are presented below.
In millions | | 2011 | | | 2010 | | | 2009 | | Operating income | | $ | 440 | | | $ | 500 | | | $ | 476 | | Other (expense) income | | | 7 | | | | (1 | ) | | | 9 | | EBIT | | | 447 | | | | 499 | | | | 485 | | Interest expense | | | 136 | | | | 109 | | | | 101 | | Earnings before income taxes | | | 311 | | | | 390 | | | | 384 | | Income taxes | | | 125 | | | | 140 | | | | 135 | | Net income | | $ | 186 | | | $ | 250 | | | $ | 249 | |
Summarized Statements of Income, Statements of Financial Position and capital expenditure information by segment as of and for the years ended December 31, 2011, 20102013, 2012 and 20092011 are shown in the following tables. Please note that our segments have changed as a result of our merger with Nicor and amounts from the periods presented have been reclassified between the segments to reflect these changes.
2013 | | | | | | | | | | | | | | | | | | | | | | In millions | | Distribution operations | | | Retail operations | | | Wholesale services | | | Midstream operations | | | Cargo shipping | | | Other and intercompany eliminations (4) | | | Consolidated | | Operating revenues from external parties | | $ | 3,275 | | | $ | 858 | | | $ | 45 | | | $ | 74 | | | $ | 365 | | | $ | - | | | $ | 4,617 | | Intercompany revenues (1) | | | 182 | | | | - | | | | 13 | | | | - | | | | - | | | | (195 | ) | | | - | | Total operating revenues | | | 3,457 | | | | 858 | | | | 58 | | | | 74 | | | | 365 | | | | (195 | ) | | | 4,617 | | Operating expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cost of goods sold | | | 1,687 | | | | 564 | | | | 21 | | | | 33 | | | | 222 | | | | (195 | ) | | | 2,332 | | Operation and maintenance | | | 690 | | | | 132 | | | | 48 | | | | 24 | | | | 115 | | | | (10 | ) | | | 999 | | Depreciation and amortization | | | 346 | | | | 22 | | | | 1 | | | | 17 | | | | 19 | | | | 13 | | | | 418 | | Taxes other than income taxes | | | 167 | | | | 3 | | | | 3 | | | | 5 | | | | 6 | | | | 9 | | | | 193 | | Total operating expenses | | | 2,890 | | | | 721 | | | | 73 | | | | 79 | | | | 362 | | | | (183 | ) | | | 3,942 | | Gain on sale of Compass Energy | | | - | | | | - | | | | 11 | | | | - | | | | - | | | | - | | | | 11 | | Operating income (loss) | | | 567 | | | | 137 | | | | (4 | ) | | | (5 | ) | | | 3 | | | | (12 | ) | | | 686 | | Other income (expense) | | | 15 | | | | - | | | | - | | | | (5 | ) | | | 9 | | | | (2 | ) | | | 17 | | EBIT | | $ | 582 | | | $ | 137 | | | $ | (4 | ) | | $ | (10 | ) | | $ | 12 | | | $ | (14 | ) | | $ | 703 | | Identifiable and total assets (3) | | $ | 11,727 | | | $ | 694 | | | $ | 1,166 | | | $ | 713 | | | $ | 445 | | | $ | (89 | ) | | $ | 14,656 | | Capital expenditures | | $ | 684 | | | $ | 9 | | | $ | 2 | | | $ | 12 | | | $ | 18 | | | $ | 24 | | | $ | 749 | |
2012 | | | | | | | | | | | | | | | | | | | | | | In millions | | Distribution operations | | | Retail operations | | | Wholesale services | | | Midstream operations | | | Cargo shipping | | | Other and intercompany eliminations (4) | | | Consolidated | | Operating revenues from external parties | | $ | 2,710 | | | $ | 733 | | | $ | 58 | | | $ | 78 | | | $ | 342 | | | $ | 1 | | | $ | 3,922 | | Intercompany revenues (1) | | | 167 | | | | 2 | | | | 30 | | | | - | | | | - | | | | (199 | ) | | | - | | Total operating revenues | | | 2,877 | | | | 735 | | | | 88 | | | | 78 | | | | 342 | | | | (198 | ) | | | 3,922 | | Operating expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cost of goods sold | | | 1,221 | | | | 488 | | | | 38 | | | | 32 | | | | 208 | | | | (196 | ) | | | 1,791 | | Operation and maintenance | | | 642 | | | | 114 | | | | 48 | | | | 19 | | | | 109 | | | | (11 | ) | | | 921 | | Depreciation and amortization | | | 351 | | | | 13 | | | | 2 | | | | 14 | | | | 22 | | | | 13 | | | | 415 | | Nicor merger expenses (2) | | | - | | | | - | | | | - | | | | - | | | | - | | | | 20 | | | | 20 | | Taxes other than income taxes | | | 140 | | | | 4 | | | | 4 | | | | 5 | | | | 6 | | | | 6 | | | | 165 | | Total operating expenses | | | 2,354 | | | | 619 | | | | 92 | | | | 70 | | | | 345 | | | | (168 | ) | | | 3,312 | | Operating income (loss) | | | 523 | | | | 116 | | | | (4 | ) | | | 8 | | | | (3 | ) | | | (30 | ) | | | 610 | | Other income | | | 9 | | | | - | | | | 1 | | | | 2 | | | | 11 | | | | 1 | | | | 24 | | EBIT | | $ | 532 | | | $ | 116 | | | $ | (3 | ) | | $ | 10 | | | $ | 8 | | | $ | (29 | ) | | $ | 634 | | Identifiable and total assets (3) | | $ | 11,320 | | | $ | 511 | | | $ | 1,218 | | | $ | 720 | | | $ | 464 | | | $ | (92 | ) | | $ | 14,141 | | Capital expenditures | | $ | 649 | | | $ | 8 | | | $ | 3 | | | $ | 62 | | | $ | 7 | | | $ | 53 | | | $ | 782 | |
2011 In millions | | Distribution operations | | | Retail operations | | | Wholesale services | | | Midstream operations | | | Cargo shipping | | | Other and intercompany eliminations (4) | | | Consolidated | | Operating revenues from external parties | | $ | 1,451 | | | $ | 702 | | | $ | 95 | | | $ | 70 | | | $ | 19 | | | $ | 1 | | | $ | 2,338 | | Intercompany revenues (1) | | | 146 | | | | 0 | | | | 3 | | | | 0 | | | | 0 | | | | (149 | ) | | | 0 | | Total operating revenues | | | 1,597 | | | | 702 | | | | 98 | | | | 70 | | | | 19 | | | | (148 | ) | | | 2,338 | | Operating expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cost of goods sold | | | 625 | | | | 534 | | | | 41 | | | | 33 | | | | 12 | | | | (148 | ) | | | 1,097 | | Operation and maintenance | | | 362 | | | | 71 | | | | 48 | | | | 15 | | | | 7 | | | | (13 | ) | | | 490 | | Depreciation and amortization | | | 160 | | | | 2 | | | | 1 | | | | 10 | | | | 1 | | | | 12 | | | | 186 | | Nicor merger expenses (2) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 68 | | | | 68 | | Taxes other than income taxes | | | 44 | | | | 2 | | | | 3 | | | | 3 | | | | 0 | | | | 5 | | | | 57 | | Total operating expenses | | | 1,191 | | | | 609 | | | | 93 | | | | 61 | | | | 20 | | | | (76 | ) | | | 1,898 | | Operating income (loss) | | | 406 | | | | 93 | | | | 5 | | | | 9 | | | | (1 | ) | | | (72 | ) | | | 440 | | Other income | | | 6 | | | | 0 | | | | 0 | | | | 0 | | | | 1 | | | | 0 | | | | 7 | | EBIT | | $ | 412 | | | $ | 93 | | | $ | 5 | | | $ | 9 | | | $ | 0 | | | $ | (72 | ) | | $ | 447 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Identifiable and total assets (3) | | $ | 11,020 | | | $ | 501 | | | $ | 1,214 | | | $ | 635 | | | $ | 481 | | | $ | 62 | | | $ | 13,913 | | Goodwill | | $ | 1,586 | | | $ | 124 | | | $ | 2 | | | $ | 16 | | | $ | 77 | | | $ | 8 | | | $ | 1,813 | | Capital expenditures | | $ | 365 | | | $ | 2 | | | $ | 1 | | | $ | 35 | | | $ | 0 | | | $ | 24 | | | $ | 427 | |
2010
In millions | | Distribution operations | | | Retail operations | | | Wholesale services | | | Midstream operations | | | Cargo shipping | | | Other and intercompany eliminations (4) | | | Consolidated | | Operating revenues from external parties | | $ | 1,349 | | | $ | 840 | | | $ | 121 | | | $ | 46 | | | $ | 0 | | | $ | 17 | | | $ | 2,373 | | Intercompany revenues (1) | | | 145 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (145 | ) | | | 0 | | Total operating revenues | | | 1,494 | | | | 840 | | | | 121 | | | | 46 | | | | 0 | | | | (128 | ) | | | 2,373 | | Operating expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cost of goods sold | | | 615 | | | | 657 | | | | 16 | | | | 16 | | | | 0 | | | | (140 | ) | | | 1,164 | | Operation and maintenance | | | 358 | | | | 76 | | | | 52 | | | | 17 | | | | 0 | | | | (6 | ) | | | 497 | | Depreciation and amortization | | | 138 | | | | 2 | | | | 2 | | | | 5 | | | | 0 | | | | 13 | | | | 160 | | Nicor merger expenses (2) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 6 | | | | 6 | | Taxes other than income taxes | | | 35 | | | | 2 | | | | 3 | | | | 2 | | | | 0 | | | | 4 | | | | 46 | | Total operating expenses | | | 1,146 | | | | 737 | | | | 73 | | | | 40 | | | | 0 | | | | (123 | ) | | | 1,873 | | Operating income (loss) | | | 348 | | | | 103 | | | | 48 | | | | 6 | | | | 0 | | | | (5 | ) | | | 500 | | Other income (expense) | | | 4 | | | | 0 | | | | 1 | | | | 0 | | | | 0 | | | | (6 | ) | | | (1 | ) | EBIT | | $ | 352 | | | $ | 103 | | | $ | 49 | | | $ | 6 | | | $ | 0 | | | $ | (11 | ) | | $ | 499 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Identifiable and total assets (3) | | $ | 5,484 | | | $ | 259 | | | $ | 1,326 | | | $ | 471 | | | $ | 0 | | | $ | (20 | ) | | $ | 7,520 | | Goodwill | | $ | 404 | | | $ | 0 | | | $ | 0 | | | $ | 14 | | | $ | 0 | | | $ | 0 | | | $ | 418 | | Capital expenditures | | $ | 357 | | | $ | 3 | | | $ | 2 | | | $ | 126 | | | $ | 0 | | | $ | 22 | | | $ | 510 | |
2009 | | | | | | | | | | | | | | | | | | | | | | | In millions | | Distribution operations | | | Retail operations | | | Wholesale services | | | Midstream operations | | | Cargo shipping | | | Other and intercompany eliminations (4) | | | Consolidated | | | Distribution operations | | | Retail operations | | | Wholesale services | | | Midstream operations | | | Cargo shipping | | | Other and intercompany eliminations (4) | | | Consolidated | | Operating revenues from external parties | | $ | 1,348 | | | $ | 801 | | | $ | 121 | | | $ | 22 | | | $ | 0 | | | $ | 25 | | | $ | 2,317 | | | $ | 1,451 | | | $ | 702 | | | $ | 95 | | | $ | 70 | | | $ | 19 | | | $ | 1 | | | $ | 2,338 | | Intercompany revenues (1) | | | 138 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (138 | ) | | | 0 | | | | 146 | | | | - | | | | 3 | | | | - | | | | - | | | | (149 | ) | | | - | | Total operating revenues | | | 1,486 | | | | 801 | | | | 121 | | | | 22 | | | | 0 | | | | (113 | ) | | | 2,317 | | | | 1,597 | | | | 702 | | | | 98 | | | | 70 | | | | 19 | | | | (148 | ) | | | 2,338 | | Operating expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cost of goods sold | | | 646 | | | | 620 | | | | 10 | | | | 0 | | | | 0 | | | | (134 | ) | | | 1,142 | | | | 625 | | | | 534 | | | | 41 | | | | 33 | | | | 12 | | | | (148 | ) | | | 1,097 | | Operation and maintenance | | | 352 | | | | 71 | | | | 59 | | | | 15 | | | | 0 | | | | 0 | | | | 497 | | | | 362 | | | | 71 | | | | 48 | | | | 15 | | | | 7 | | | | (2 | ) | | | 501 | | Depreciation and amortization | | | 135 | | | | 4 | | | | 3 | | | | 3 | | | | 0 | | | | 13 | | | | 158 | | | | 160 | | | | 2 | | | | 1 | | | | 10 | | | | 1 | | | | 12 | | | | 186 | | Nicor merger expenses (2) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 57 | | | | 57 | | Taxes other than income taxes | | | 35 | | | | 1 | | | | 2 | | | | 1 | | | | 0 | | | | 5 | | | | 44 | | | | 44 | | | | 2 | | | | 3 | | | | 3 | | | | - | | | | 5 | | | | 57 | | Total operating expenses | | | 1,168 | | | | 696 | | | | 74 | | | | 19 | | | | 0 | | | | (116 | ) | | | 1,841 | | | | 1,191 | | | | 609 | | | | 93 | | | | 61 | | | | 20 | | | | (76 | ) | | | 1,898 | | Operating income (loss) | | | 318 | | | | 105 | | | | 47 | | | | 3 | | | | 0 | | | | 3 | | | | 476 | | | | 406 | | | | 93 | | | | 5 | | | | 9 | | | | (1 | ) | | | (72 | ) | | | 440 | | Other income (expense) | | | 9 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 9 | | | Other income | | | | 6 | | | | - | | | | - | | | | - | | | | 1 | | | | - | | | | 7 | | EBIT | | $ | 327 | | | $ | 105 | | | $ | 47 | | | $ | 3 | | | $ | 0 | | | $ | 3 | | | $ | 485 | | | $ | 412 | | | $ | 93 | | | $ | 5 | | | $ | 9 | | | $ | - | | | $ | (72 | ) | | $ | 447 | | Identifiable and total assets (3) | | $ | 5,222 | | | $ | 261 | | | $ | 1,168 | | | $ | 332 | | | $ | 0 | | | $ | 96 | | | $ | 7,079 | | | Goodwill | | $ | 404 | | | $ | 0 | | | $ | 0 | | | $ | 14 | | | $ | 0 | | | $ | 0 | | | $ | 418 | | | Capital expenditures | | $ | 354 | | | $ | 2 | | | $ | 1 | | | $ | 110 | | | $ | 0 | | | $ | 9 | | | $ | 476 | | | $ | 365 | | | $ | 2 | | | $ | 1 | | | $ | 35 | | | $ | - | | | $ | 24 | | | $ | 427 | |
(1) | Intercompany revenues – wholesaleWholesale services records its energy marketing and risk management revenues on a net basis and its total operating revenues include intercompany revenues of $417 million in 2013, $350 million in 2012 and $449 million in 2011, $473 million in 2010 and $425 million in 2009.2011. |
(2) | Transaction expenses associated with the Nicor merger are shown separately to better compare year-over-year results. |
(3) | Identifiable assets are those used indedicated to each segment’s operations. |
(4) | Our other segment’s assets consist primarily of cash and cash equivalents, property, plant and equipmentPP&E and the effect of intercompany eliminations. |
Note 14 –- Selected Quarterly Financial Data (Unaudited)
Our quarterly financial data for 2011, 2010 and 2009 are summarized below. The variance in our quarterly earnings is primarily the result of the seasonal nature of the distribution of natural gas to customers, the volatility within our primary business.wholesale services segment and the seasonality of our cargo shipping segment. During the Heating Season, natural gas usage and operating revenues are generally higher at our distribution operations and retail operations segments as more customers are connected to our distribution systems and natural gas usage is higher in periods of colder weather. However, our base operating expenses, excluding cost of goods sold, interest expense and certain incentive compensation costs, are incurred relatively uniformly over any given year. Thus, our operating results can vary significantly from quarter to quarter as a result of seasonality. The effects of seasonality on our quarterly earnings have been impacted by our Nicor merger as we have more customers within our distribution operations segment that are impacted by weather.
In millions, except per share amounts | | March 31 | | | June 30 | | | Sept. 30 | | | Dec. 31 | | 2011 | | | | | | | | | | | | | Operating revenues | | $ | 878 | | | $ | 375 | | | $ | 295 | | | $ | 790 | | Operating income | | | 238 | | | | 60 | | | | 24 | | | | 118 | | Net income (loss) attributable to AGL Resources Inc. | | | 124 | | | | 18 | | | | (3 | ) | | | 33 | | Basic earnings (loss) per common share attributable to AGL Resources Inc. common shareholders | | | 1.60 | | | | 0.23 | | | | (0.04 | ) | | | 0.37 | | Diluted earnings (loss) per common share attributable to AGL Resources Inc. common shareholders | | | 1.59 | | | | 0.23 | | | | (0.04 | ) | | | 0.37 | | 2010 | | | | | | | | | | | | | | | | | Operating revenues | | $ | 1,003 | | | $ | 359 | | | $ | 346 | | | $ | 665 | | Operating income | | | 253 | | | | 48 | | | | 62 | | | | 137 | | Net income attributable to AGL Resources Inc. | | | 134 | | | | 14 | | | | 22 | | | | 64 | | Basic earnings per common share attributable to AGL Resources Inc. common shareholders | | | 1.74 | | | | 0.17 | | | | 0.29 | | | | 0.82 | | Diluted earnings per common share attributable to AGL Resources Inc. common shareholders | | | 1.73 | | | | 0.17 | | | | 0.29 | | | | 0.81 | | 2009 | | | | | | | | | | | | | | | | | Operating revenues | | $ | 995 | | | $ | 377 | | | $ | 307 | | | $ | 638 | | Operating income | | | 230 | | | | 55 | | | | 43 | | | | 148 | | Net income attributable to AGL Resources Inc. | | | 119 | | | | 20 | | | | 12 | | | | 71 | | Basic earnings per common share attributable to AGL Resources Inc. common shareholders | | | 1.55 | | | | 0.26 | | | | 0.16 | | | | 0.92 | | Diluted earnings per share attributable to AGL Resources Inc. common shareholders | | | 1.55 | | | | 0.26 | | | | 0.16 | | | | 0.92 | |
Our 2013 operating revenues and operating income were higher than 2012. This was primarily as a result of colder-than-normal weather in 2013 compared to significantly warmer-than-normal weather in 2012. The increases in our operating revenues and operating income in 2012 compared to 2011 are primarily the result of the Nicor merger, which closed on December 9, 2011. See Note 2 and Note 13 for the impact the Nicor merger had on our segments, financial position and results of operations. Our quarterly financial data for 2013, 2012 and 2011 are summarized below.
In millions, except per share amounts | | March 31 | | | June 30 | | | September 30 | | | December 31 | | 2013 | | | | | | | | | | | | | Operating revenues | | $ | 1,709 | | | $ | 904 | | | $ | 675 | | | $ | 1,329 | | Operating income | | | 299 | | | | 122 | | | | 82 | | | | 183 | | EBIT | | | 304 | | | | 129 | | | | 89 | | | | 181 | | Net income | | | 164 | | | | 50 | | | | 28 | | | | 89 | | Net income attributable to AGL Resources Inc. | | | 154 | | | | 49 | | | | 28 | | | | 82 | | Basic earnings per common share attributable to AGL Resources Inc. common shareholders | | | 1.31 | | | | 0.41 | | | | 0.24 | | | | 0.69 | | Diluted earnings per common share attributable to AGL Resources Inc. common shareholders | | | 1.31 | | | | 0.41 | | | | 0.24 | | | | 0.68 | | 2012 | | | | | | | | | | | | | | | | | Operating revenues | | $ | 1,404 | | | $ | 686 | | | $ | 614 | | | $ | 1,218 | | Operating income | | | 262 | | | | 91 | | | | 54 | | | | 203 | | EBIT | | | 266 | | | | 100 | | | | 60 | | | | 208 | | Net income | | | 139 | | | | 35 | | | | 9 | | | | 103 | | Net income attributable to AGL Resources Inc. | | | 130 | | | | 34 | | | | 9 | | | | 98 | | Basic earnings per common share attributable to AGL Resources Inc. common shareholders | | | 1.12 | | | | 0.28 | | | | 0.08 | | | | 0.84 | | Diluted earnings per common share attributable to AGL Resources Inc. common shareholders | | | 1.11 | | | | 0.28 | | | | 0.08 | | | | 0.84 | | 2011 | | | | | | | | | | | | | | | | | Operating revenues | | $ | 878 | | | $ | 375 | | | $ | 295 | | | $ | 790 | | Operating income | | | 238 | | | | 60 | | | | 24 | | | | 118 | | EBIT | | | 239 | | | | 62 | | | | 25 | | | | 121 | | Net income (loss) | | | 134 | | | | 19 | | | | (4 | ) | | | 37 | | Net income (loss) attributable to AGL Resources Inc. | | | 124 | | | | 18 | | | | (3 | ) | | | 33 | | Basic earnings (loss) per common share attributable to AGL Resources Inc. common shareholders | | | 1.60 | | | | 0.23 | | | | (0.04 | ) | | | 0.37 | | Diluted earnings (loss) per common share attributable to AGL Resources Inc. common shareholders | | | 1.59 | | | | 0.23 | | | | (0.04 | ) | | | 0.37 | |
Our basic and diluted earnings per common share are calculated based on the weighted daily average number of common shares and common share equivalents outstanding during the quarter. Those totals differ from the basic and diluted earnings per common share attributable to AGL Resources Inc. common shareholders shown in the Consolidated Statements of Income, which are based on the weighted average number of common shares and common share equivalents outstanding during the entire year.
ITEM 9.9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). No system of controls, no matter how well-designed and operated, can provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide assurance that the system of controls has operated effectively in all cases. Our disclosure controls and procedures however are designed to provide reasonable assurance that the objectives of disclosure controls and procedures are met.
Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2011,2013, in providing a reasonable level of assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods in SEC rules and forms, including a reasonable level of assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
Other than changes resulting from the Nicor merger discussed below, thereThere were no changes in our internal control over financial reporting that occurred during the fourth quarter ended December 31, 2011,2013, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
On December 9, 2011, we completed our merger with Nicor. As permitted by the Securities and Exchange Commission, management has elected to exclude Nicor from management’s assessment of the effectiveness of our internal control over financial reporting for the year ended December 31, 2011.
Reports of Management and Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Management has assessed, and our independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited, our internal control over financial reporting as of December 31, 2011.2013. The unqualified reports of management and PricewaterhouseCoopers LLP thereon are included in Item 8 of this Annual Report on Form 10-K and are incorporated by reference herein.
None
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages and positions of our executive officers along with their business experience during the past five years. All officers serve at the discretion of our Board of Directors. All information is as of the date of the filing of this report.
Name, age and position with the company | Periods served | | | John W. Somerhalder II, Age 5658 | | Chairman, President and Chief Executive Officer | October 2007 –- Present | President and Chief Executive Officer | March 2006 – October 2007 | | | Ralph Cleveland, Age 49
| | Executive Vice President and President, Nicor Gas | December 2011 – Present | Executive Vice President, Engineering and Operations | December 2008 – December 2011 | Senior Vice President, Engineering and Operations | February 2005 – December 2008 | | | Andrew W. Evans, Age 4547 | | Executive Vice President and Chief Financial Officer | November 2010 –- Present | Executive Vice President, Chief Financial Officer and Treasurer | June 2009 –- November 2010 | Executive Vice President and Chief Financial Officer | May 2006 –- June 2009 | | | Henry P. Linginfelter, Age 5153 | | Executive Vice President, Distribution Operations | December 2011 –- Present | Executive Vice President, Utility Operations | June 2007 –- December 2011 | Senior Vice President, Mid-Atlantic Operations | November 2004 – June 2007 | | | Melanie M. Platt, Age 5759 | | Executive Vice President, and Chief People Officer | December 2011 –- Present | Senior Vice President, Human Resources and Marketing Communications | November 2008 –- December 2011 | Senior Vice President, Human Resources | September 2004 – November 2008 | | | Paul R. Shlanta, Age 5456 | | Executive Vice President, General Counsel and Chief Ethics and Compliance Officer | September 2005 –- Present | | | Peter I. Tumminello, Age 4951 | | Executive Vice President, Wholesale Services, and President Sequent | December 2011 –- Present | President, Sequent | April 2010 –- December 2011 | Executive Vice President, Business Development and Support, Sequent | February 2007 –- April 2010 | Vice President, Corporate Business Development | November 2005 – February 2007 | | |
The other information required by this item with respect to directors will be set forth under the captions “Proposal I1 -Election of Directors”Directors, -” “Corporate Governance - Ethics and Compliance Program,” – “Committees of the Board” and “- Audit“Audit Committee” in the Proxy Statement for our 20122014 Annual Meeting of Shareholders or in a subsequent amendment to this report. The information required by this item with respect to Section 16(a) beneficial ownership reporting compliance will be set forth under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement or subsequent amendment referred to above. All such information that is provided in the Proxy Statement is incorporated herein by reference.
The information required by this item will be set forth under the captions “Compensation and Management Development Committee Report,” “Compensation and Management Development Committee Interlocks and Insider Participation,” “Director Compensation,” “Compensation Discussion and Analysis” and “Executive Compensation” in the Proxy Statement or subsequent amendment referred to in Item 10 above. All such information that is provided in the Proxy Statement is incorporated herein by reference, except for the information under the caption “Compensation and Management Development Committee Report” which is specifically not so incorporated herein by reference.
ITEM 12.12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item will be set forth under the captions “Share Ownership”“Security Ownership of Certain Beneficial Owners and Management” and “Executive Compensation --- Equity Compensation Plan Information” in the Proxy Statement or subsequent amendment referred to in Item 10 above. All such information that is provided in the Proxy Statement is incorporated herein by reference.
ITEM 13.13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this item will be set forth under the captions “Corporate Governance –- Director Independence” and “- Policy on Related Person Transactions” and “Certain Relationships and Related Transactions” in the Proxy Statement or subsequent amendment referred to in Item 10 above. All such information that is provided in the Proxy Statement is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item will be set forth under the caption “Proposal 2 –- Ratification of the Appointment of PricewaterhouseCoopers LLP as Our Independent Registered Public Accounting Firm for 2012”2014” in the Proxy Statement or subsequent amendment to referred to in Item 10 above. All such information that is provided in the Proxy Statement is incorporated herein by reference.
ITEM 15.15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Documents Filed as Part of This Report.
(1) | Financial Statements IncludedIncluded in Item 8 are the following: |
· | Report of Independent Registered Public Accounting Firm |
· | Management’s Report on Internal Control Over Financial Reporting |
· | Consolidated Statements of Financial Position as of December 31, 20112013 and 20102012 |
· | Consolidated Statements of Income for the years ended December 31, 2011, 20102013, 2012 and 20092011 |
· | Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2011, 20102013, 2012 and 20092011 |
· | Consolidated Statements of Equity for the years ended December 31, 2011, 20102013, 2012 and 20092011 |
· | Consolidated Statements of Cash Flows for the years ended December 31, 2011, 20102013, 2012 and 20092011 |
· | Notes to Consolidated Financial Statements |
(2) Financial Statement Schedules
Financial Statement Schedule II. Valuation and Qualifying Accounts - Allowance for Uncollectible Accounts and Income Tax Valuations for Each of the Three Years in the Period Ended December 31, 2011.
2013.Schedules other than those referred to above are omitted and are not applicable or not required, or the required information is shown in the financial statements or notes thereto.
Where an exhibit is filed by incorporation by reference to a previously filed registration statement or report, such registration statement or report is identified in parentheses. The Commission file number reference for any exhibit incorporated by reference is 001-14174 unless otherwise indicated.
Exhibit Number | Description of Exhibit | Filer | The Filings Referenced for Incorporation by Reference | 2.1 | Agreement and Plan of Merger, among AGL Resources Inc., Apollo Acquisition Corp, Ottawa Acquisition LLC and Nicor Inc.,as amended, dated December 6, 2010 (Exhibit 2.1, | AGL Resources Inc. | December 7, 2010, Form 8-K, filed December 7, 2010).Exhibit 2.1 | | | 2.2 | Waiver entered into as of February 4, 2011 by and among | AGL Resources Inc., Apollo Acquisition Corp. and Nicor Inc. (Exhibit 2.1, AGL Resources Inc. | February 9, 2011, Form 8-K, filed February 9, 2011).Exhibit 2.1 | | |
3.1 | Amended and Restated Articles of Incorporation filed December 9, 2011 with the Secretary of State of the state of Georgia (Exhibit 3.1, | AGL Resources Inc. | December 13, 2011, Form 8-K, filed December 13, 2011). | | Exhibit 3.1 | 3.2 | Bylaws, as amended on December 9, 2011 (Exhibit 3.2, July 31, 2012 | AGL Resources Inc. | August 6, 2012, Form 8-K, filed December 13, 2011). | | Exhibit 3.1 | 4.1 | Specimen form of Common Stock certificate (Exhibit 4.1, | AGL Resources Inc. | September 30, 2007, Form 10-Q, for the fiscal quarter ended September 30, 2007).Exhibit 4.1 |
4.2.b4.2.a | SpecimenForm of AGL Capital Corporation 6.00% Senior Notes due 2034 (Exhibit 4.1, | AGL Resources Inc. | September 27, 2004, Form 8-K, filed September 27, 2004). | | Exhibit 4.1 | 4.2.b | Form of Guarantee of AGL Resources Inc. dated as of September 27, 2004 | AGL Resources | September 27, 2004, regarding the AGL Capital Corporation 6.00% Senior Notes due 2034 (Exhibit 4.3, AGL Resources Inc. Form 8-K, filed September 27, 2004). | | | Exhibit 4.3 | 4.3.a | Specimen AGL Capital Corporation 4.95% Senior Notes due 2015 (Exhibit 4.1, | AGL Resources Inc. | December 21, 2004, Form 8-K, filed December 21, 2004). | | Exhibit 4.1 | 4.3.b | Form of Guarantee of AGL Resources Inc. dated as of December 20, 2004 regarding the AGL Capital Corporation 4.95% Senior Notes due 2015 (Exhibit 4.3, | AGL Resources Inc. | December 21, 2004, Form 8-K, filed December 21, 2004). | | | Exhibit 4.3 | 4.4.a | Form of AGL Capital Corporation 6.375% Senior Notes due 2016 (Exhibit 4.1, | AGL Resources Inc. | December 14, 2007, Form 8-K, filed December 14, 2007). | | Exhibit 4.1 | 4.4.b | Form of Guarantee of AGL Resources Inc. dated as of December 14, 2007 | AGL Resources | December 14, 2007, regarding the AGL Capital Corporation 6.375% Senior Notes due 2016 (Exhibit 4.2, AGL Resources Inc. Form 8-K, filed December 14, 2007). | | Exhibit 4.2 | 4.5.a | Specimen AGL Capital Corporation 4.45% Senior Notes due 2013 (Exhibit 4.1.g, AGL Resources Inc. Form 10-K for the fiscal year ended December 31, 2007). | | | | 4.5.b | Form of Guarantee of AGL Resources Inc. dated as of July 2, 2003 regarding the AGL Capital Corporation 4.45% Senior Notes due 2013 (Exhibit 4.3.e, AGL Resources Inc. Form 10-K for the fiscal year ended December 31, 2007). | | | | 4.6.a | Specimen AGL Capital Corporation 5.25% Senior Notes due 2019 (Exhibit 4.1, | AGL Resources Inc. | August 10, 2009, Form 8-K, filed August 10, 2009).Exhibit 4.1 | 4.5.b | | 4.6.b | Form of Guarantee of AGL Resources Inc. dated as of August 10, 2009 | AGL Resources | August 10, 2009, regarding the AGL Capital Corporation 5.25% Senior Notes due 2019 (Exhibit 4.2, AGL Resources Inc. Form 8-K, filed August 2009).Exhibit 4.2 | 4.7.a.4.6.a | Form of AGL Capital Corporation 5.875% Senior Notes due 2041 (Exhibit | AGL Resources | March 21, 2011, Form 8-K, Exhibit 4.1 | 4.6.b | Guarantee of AGL Resources Inc. dated March 21, 2011 | AGL Resources | March 21, 2011, Form 8-K, filed March 21, 2011). | Exhibit 4.2 | 4.7.a | Form of AGL Capital Corporation 3.50% Senior Notes due 2021 | AGL Resources | September 20, 2011, Form 8-K, Exhibit 4.1 | 4.7.b | Form of Guarantee of AGL Resources Inc. dated as of March 21,September 2011 regarding the AGL Capital Corporation 5.875% Senior Notes due 2041 (Exhibit 4.2, | AGL Resources Inc. | September 20, 2011, Form 8-K, filed March 21, 2011). |
4.8.a | Form of AGL Capital Corporation 3.500% Senior Notes due 2021 (Exhibit 4.1, AGL Resources Inc. Form 8-K filed September 20, 2011). | Exhibit 4.2 | | | 4.8.b | Form of Guarantee of AGL Resources Inc. dated as of September 2011 regarding the AGL Capital Corporation 3.500% Senior Notes due 2021 (Exhibit 4.2, AGL Resources Inc. Form 8-K filed September 20, 2011). | | | | | 4.9.a4.8.a | Form of AGL Capital Corporation Series A Senior Notes due 2016 (Exhibit 4.1, | AGL Resources Inc. | September 7, 2011, Form 8-K, filed September 7, 2011). | Exhibit 4.1 | | | | 4.9.b4.8.b | Form of AGL Capital Corporation Series B Senior Notes due 2018 (Exhibit | AGL Resources | September 7, 2011, Form 8-K, Exhibit 4.2 | 4.9.a | AGL Capital Corporation 4.40% Senior Notes due 2043 | AGL Resources | May 16, 2013, Form 8-K, Exhibit 4.2 | 4.9.b | AGL Resources Inc. Guarantee related to the 4.40% Senior Notes due 2043 | AGL Resources | May 16, 2013, Form 8-K, filed September 7, 2011). | | | | Exhibit 4.2 | 4.10.a | Indenture dated as of December 1, 1989 between | Atlanta Gas Light Company and Bankers Trust Company, as Trustee (Exhibit 4(a), Atlanta Gas Light Company registration statement on | File No. 33-32274, Form S-3, No. 33-32274). | | Exhibit 4(a) | 4.10.b | First Supplemental Indenture dated as of March 16, 1992 between | Atlanta Gas Light Company and NationsBank of Georgia, National Association, as Successor Trustee (Exhibit 4(a), Atlanta Gas Light Company registration statement on | File No. 33-46419, Form S-3, No. 33-46419). | | Exhibit 4(a) | 4.11 | Indenture dated February 20, 2001 among AGL Capital Corporation, | AGL Resources Inc. and The Bank of New York, as Trustee (Exhibit 4.2, AGL Resources Inc. registration statement on Form S-3, filed on | September 17, 2001, No. 333-69500). | | |
4.12 | Indenture of Commonwealth Edison Company to Continental Illinois National Bank and Trust Company of Chicago, Trustee, dated as of January 1, 1954 (Exhibit 4.01, Northern Illinois Gas Company Form 10-K for the fiscal year ended December 31, 1995, File No. 1-7296). | | 333-69500, Form S-3, Exhibit 4.2 | 4.12.a | Indenture of Adoption of Northern Illinoisdated January 1, 1954 | Nicor Gas Company to Continental Illinois National Bank and Trust Company of Chicago, Trustee, | December 31, 1995, Form 10-K, Exhibit 4.01 | 4.12.b | Indenture dated February 9, 1954 (Exhibit 4.02, Northern Illinois | Nicor Gas Company Form 10-K for the fiscal year ended | December 31, 1995, File No. 1-7296).Form 10-K, Exhibit 4.02 | | | 4.12.b4.12.c | Supplemental Indenture dated February 15, 1998 of Northern Illinois | Nicor Gas Company to Harris Trust and Savings Bank, Trustee, under Indenture dated as of January 1, 1954 (Exhibit 4.19, Northern Illinois Gas Company Form 10-K for the fiscal year ended | December 31, 1997, File No. 1-7296).Form 10-K, Exhibit 4.19 | | | 4.12.c4.12.d | Supplemental Indenture dated May 15, 2001 of Northern Illinois | Nicor Gas Company to BNY Midwest Trust Company, Trustee, under Indenture dated as of January 1, 1954 (Exhibit 4.18, Northern Illinois Gas Company registration statement on Form S-3 filed | July 20, 2001, File No. 333-65486). | | | 4.12.d | Supplemental Indenture, dated December 1, 2003, of Northern Illinois Gas Company to BNY Midwest Trust Company, Trustee, under Indenture dated as of January 1, 1954 (Exhibit 4.09, Northern Illinois Gas Company333-65486, Form 10-K for the fiscal year ended December 31, 2003, File No. 1-7296). | | S-3, Exhibit 4.18 | 4.12.e | Supplemental Indenture dated December 1, 2003 of Northern Illinois | Nicor Gas Company to BNY Midwest Trust Company, Trustee, under Indenture dated as of January 1, 1954 (Exhibit 4.10, Northern Illinois Gas Company Form 10-K for the fiscal year ended | December 31, 2003, File No. 1-7296). | | Form 10-K, Exhibit 4.09 | 4.12.f | Supplemental Indenture dated December 1, 2003 of Northern Illinois | Nicor Gas Company to BNY Midwest Trust Company, Trustee, under Indenture dated as of January 1, 1954 (Exhibit 4.11, Northern Illinois Gas Company Form 10-K for the fiscal year ended | December 31, 2003, File No. 1-7296).Form 10-K, Exhibit 4.10 |
4.12.g | Supplemental Indenture dated December 1, 2006, of Northern Illinois2003 | Nicor Gas Company to BNY Midwest Trust Company, Trustee, under Indenture dated as of January 1, 1954 (Exhibit 4.11, Northern Illinois Gas Company | December 31, 2003, Form 10-K, for the fiscal year ended December 31, 2006, File No. 1-7296). | | Exhibit 4.11 | 4.12.h | Supplemental Indenture dated AugustDecember 1, 2008, of Northern Illinois2006 | Nicor Gas Company to BNY Mellon Trust Company, Trustee, under Indenture dated January 1, 1954 (Exhibit 4.01, Northern Illinois Gas Company | December 31, 2006, Form 10-Q for the fiscal quarter ended September 30, 2008, File No. 1-7296). | | 10-K, Exhibit 4.11 | 4.12.i | Supplemental Indenture dated July 23, 2009, of Northern IllinoisAugust 1, 2008 | Nicor Gas Company to BNY Mellon Trust Company, Trustee, under Indenture dated as of January 1, 1954 (Exhibit 4.01, Northern Illinois Gas Company | September 30, 2008, Form 10-Q, for the fiscal quarter ended June 30, 2009, File No. 1-7296). | | Exhibit 4.01 | 4.12.j | Supplemental Indenture dated July 23, 2009 | Nicor Gas | June 30, 2009, Form 10-Q, Exhibit 4.01 | 4.12.k | Supplemental Indenture dated February 1, 2011 of Northern Illinois | Nicor Gas Company to BNY Mellon Trust Company, Trustee, under Indenture dated as of January 1, 1954 (Exhibit 4.12, Northern Illinois Gas Company Form 10-K for the fiscal year ended | December 31, 2010, File No. 1-7296). |
Director Compensation Contracts, Plans and ArrangementsForm 10-K, Exhibit 4.12 | 4.12.l | Supplemental Indenture dated October 26, 2012 | Nicor Gas | September 30, 2012, Form 10-Q, Exhibit 4 | 10.1.a + | AGL Resources Inc. Amended and Restated 1996 Non-Employee Directors Equity Compensation Plan (Exhibit 10.1, AGL Resources Inc. Form 10-Q for the quarter ended September 30, 2002). | | | 10.1.b | First Amendment to the AGL Resources Inc. Amended and Restated 1996 Non-Employee Directors Equity Compensation Plan (Exhibit 10.1.o, AGL Resources Inc. Form 10-K for the fiscal year ended December 31, 2002). | | | 10.1.c | Second Amendment to the AGL Resources Inc. Amended and Restated 1996 Non-Employee Directors Equity Compensation Plan (Exhibit 10.1.k, AGL Resources Inc. Form 10-Q for the quarter ended June 30, 2007). | | | 10.1.d | AGL Resources Inc. 2006 Non-Employee Directors Equity Compensation Plan, amended and restated as of December 9, 2011 (Exhibit 10.2, | AGL Resources Inc. | December 15, 2011, Form 8-K, dated December 15, 2011).Exhibit 10.2 | 10.1.b + | | 10.1.e | AGL Resources Inc. 1998 Common Stock Equivalent Plan for Non-Employee Directors (Exhibit 10.1.b, | AGL Resources Inc. | December 31, 1997, Form 10-Q, for the quarter ended December 31, 1997).Exhibit 10.1.b | | | 10.1.f10.1.c + | First Amendment to the AGL Resources Inc. 1998 Common Stock Equivalent Plan for Non-Employee Directors (Exhibit 10.5, | AGL Resources Inc. | March 31, 2000, Form 10-Q, for the quarter ended March 31, 2000).Exhibit 10.5 | | | 10.1.g10.1.d + | Second Amendment to the AGL Resources Inc. 1998 Common Stock Equivalent Plan for Non-Employee Directors (Exhibit 10.4, | AGL Resources Inc. | September 30, 2002, Form 10-Q, for the quarter ended September 30, 2002).Exhibit 10.4 |
| | 10.1.h10.1.e + | Third Amendment to the AGL Resources Inc. 1998 Common Stock Equivalent Plan for Non-Employee Directors (Exhibit 10.5, | AGL Resources Inc. | September 30, 2002, Form 10-Q, for the quarter ended September 30, 2002).Exhibit 10.5 | | | 10.1.i10.1.f + | Fourth Amendment to the AGL Resources Inc. 1998 Common Stock Equivalent Plan for Non-Employee Directors (Exhibit 10.1.m, | AGL Resources Inc. | June 30, 2007, Form 10-Q, for the quarter ended June 30, 2007).Exhibit 10.1.m | | | 10.1.j10.1.g + | Fifth Amendment to the AGL Resources Inc. 1998 Common Stock Equivalent Plan for Non-Employee Directors. (Exhibit 10.1.l, Directors | AGL Resources Inc. | December 31, 2008, Form 10-K, for the fiscal year ended December 31, 2008).Exhibit 10.1.l | | | 10.1.k10.1.h + | Form of Stock Award Agreement for Non-Employee Directors (Exhibit 10.1.aj, | AGL Resources Inc. | December 31, 2004, Form 10-K, for the fiscal year ended December 31, 2004).Exhibit 10.1.aj | | | 10.1.l10.1.i + | Form of Nonqualified Stock Option Agreement for Non-Employee Directors (Exhibit 10.1.ak, | AGL Resources Inc. | December 31, 2004, Form 10-K, for the fiscal year ended December 31, 2004).Exhibit 10.1.ak | | | 10.1.m10.1.j + | Form of Director Indemnification Agreement dated April 28, 2004 between | AGL Resources Inc., on behalf of itself and the Indemnities named therein (Exhibit 10.3, AGL Resources Inc. | June 30, 2004, Form 10-Q, for the quarter ended June 30, 2004).Exhibit 10.3 | 10.1.k + | |
Executive Compensation Contracts, Plans and Arrangements
| | | 10.1.aa | AGL Resources Inc. Long-Term Incentive Plan, (1999), as amended and restated as of January 1, 2002 (Exhibit 99.2, | AGL Resources Inc. | March 31, 2002, Form 10-Q, for the quarter ended March 31, 2002). | Exhibit 99.2 | | | | 10.1.ab10.1.l + | First amendment to the AGL Resources Inc. Long-Term Incentive Plan, (1999), as amended and restated (Exhibit 10.1.b, | AGL Resources Inc. | December 31, 2004, Form 10-K, for the fiscal year ended December 31, 2004). | Exhibit 10.1.b | | | | 10.1.ac10.1.m + | Second amendment to the AGL Resources Inc. Long-Term Incentive Plan, (1999), as amended and restated (Exhibit 10.1.l, | AGL Resources Inc. | June 30, 2007, Form 10-Q, for the quarter ended June 30, 2007). | Exhibit 10.1.l | | | | 10.1.ad10.1.n + | Third amendment to the AGL Resources Inc. Long-Term Incentive Plan, (1999), as amended and restated. (Exhibit 10.1.ad, restated | AGL Resources Inc. | December 31, 2008, Form 10-K, for the fiscal year ended December 31, 2008). | Exhibit 10.1.ad | 10.1.o + | | | 10.1.ae | AGL Resources Omnibus Performance Incentive Plan, as Amendedamended and Restated (Annex A of restated | AGL Resources Inc.'s | March 14, 2011, Schedule 14A, File No. 001-14174, filed with the Securities and Exchange Commission on March 14, 2011). | Annex A | 10.1.p + | Form of Restricted Stock Unit Agreement under Omnibus Performance Incentive Plan, as amended and Restated | AGL Resources | December 31, 2011, Form 10-K, Exhibit 10.1.ae | 10.1.af10.1.q + | Form of Restricted Stock Agreement under Omnibus Performance Incentive Plan, as Amendedamended and Restated. | | | | | 10.1.agrestated | AGL Resources Inc. | December 31, 2011, Form 10-K, Exhibit 10.1.af | 10.1.r + | Form of Performance Share Unit Award under Omnibus Performance Incentive Plan, as amended and restated | AGL Resources | Filed herewith | 10.1.s + | 2007 Omnibus Performance Incentive Plan | AGL Resources | March 19, 2007, Schedule 14A, Annex A | 10.1.t + | First Amendment to the 2007 Omnibus Performance Incentive Plan, (Annex A of as amended and restated | AGL Resources Inc.’s Schedule 14A, File No. 001-14174, filed with the Securities and Exchange Commission on March 19, 2007). | December 31, 2008, Form 10-K, Exhibit 10.1.ai | | | | 10.1.ah | First Amendment to the AGL Resources Inc. 2007 Omnibus Performance Incentive Plan (Exhibit 10.1.ai, AGL Resources Inc. Form 10-K for the fiscal year ended December 31, 2008). | | | | | 10.1.ai10.1.u + | Form of Incentive Stock Option Agreement - AGL Resources Inc.– 2007 Omnibus Performance Incentive Plan (Exhibit 10.1.b, | AGL Resources Inc. | June 30, 2007, Form 10-Q, for the quarter ended June 30, 2007). | Exhibit 10.1.b | | | | 10.1.aj10.1.v + | Form of Nonqualified Stock Option Agreement - AGL Resources Inc.– 2007 Omnibus Performance Incentive Plan (Exhibit 10.1.c, | AGL Resources Inc. | June 30, 2007, Form 10-Q, for the quarter ended June 30, 2007). | Exhibit 10.1.c | | | | 10.1.ak | Form of Performance Cash Award Agreement - AGL Resources Inc. 2007 Omnibus Performance Incentive Plan (Exhibit 10.1.al, AGL Resources Inc. Form 10-K for the fiscal year ended December 31, 2009). | | | | | 10.1.al | Form of Restricted Stock Agreement (performance based) - AGL Resources Inc. 2007 Omnibus Performance Incentive Plan (Exhibit 10.1.e, AGL Resources Inc. Form 10-Q for the quarter ended June 30, 2007). | |
| | | 10.1.am | Form of Restricted Stock Agreement (time based) - AGL Resources Inc. 2007 Omnibus Performance Incentive Plan (Exhibit 10.1.f, AGL Resources Inc. Form 10-Q for the quarter ended June 30, 2007). | | | | | 10.1.an | Form of Restricted Stock Unit Agreement - AGL Resources Inc. 2007 Omnibus Performance Incentive Plan (Exhibit 10.1.ao, AGL Resources Form 10-K for the fiscal year ended December 31, 2009). | | | | | 10.1.ao | Form of Stock Appreciation Rights Agreement - AGL Resources Inc. 2007 Omnibus Performance Incentive Plan (Exhibit 10.1.h, AGL Resources Inc. Form 10-Q for the quarter ended June 30, 2007). | | | | | 10.1.ap10.1.w + | Form of Incentive Stock Option Agreement and Nonqualified Stock Option Agreement and Restricted Stock Agreement for key employees (Exhibit 10.1, (LTIP) | AGL Resources Inc. | September 30, 2004, Form 10-Q, for the quarter ended September 30, 2004). | Exhibit 10.1 | | | | 10.1.aq | Form of Performance Unit Agreement for key employees (Exhibit 10.1.e, AGL Resources Inc. Form 10-K for the fiscal year ended December 31, 2004). | | | | | 10.1.ar10.1.x + | Forms of Nonqualified Stock Option Agreement without the reload provision (LTIP and Officer Plan) (Exhibit 10.1, (LTIP) | AGL Resources Inc. | March 18, 2005, Form 8-K, filed March 18, 2005). | Exhibit 10.1 | | | | 10.1.as 10.1.y + | Form of Nonqualified Stock Option Agreement with the reload provision (Officer Incentive Plan) (Exhibit 10.2, | AGL Resources Inc. | March 18, 2005, Form 8-K, filed March 18, 2005). | Exhibit 10.2 | 10.1.z + | | | 10.1.at | Form of Restricted Stock Unit Agreement and Performance Cash Unit Agreement for key employees (Exhibit 10.2 and 10.3, respectively, AGL Resources Inc. Form 8-K filed February 24, 2006). | | | | | 10.1.au | AGL Resources Inc. Nonqualified Savings Plan as amended and restated as of January 1, 2009. (Exhibit 10.1.av, 2009 | AGL Resources Inc. | December 31, 2008, Form 10-K, for the fiscal year ended December 31, 2008). | Exhibit 10.1.av | 10.1.aa + | First Amendment to the Nonqualified Savings Plan | AGL Resources | Filed herewith | 10.1.av10.1.ab + | Form of Second Amendment to the Nonqualified Savings Plan | AGL Resources Inc. Annual Incentive Plan. | Filed herewith | 10.1.ac + | Third Amendment to the Nonqualified Savings Plan | AGL Resources | Filed herewith | 10.1.aw10.1.ad + | Description of Supplemental Executive Retirement Plan for John W. Somerhalder II. (Exhibit 10.1.ay, II | AGL Resources Inc. | December 31, 2008, Form 10-K, for the fiscal year ended December 31, 2008).Exhibit 10.1.ay | 10.1.ae + | | 10.1.ax | AGL Resources Inc. Excess Benefit Plan as amended and restated as of January 1, 2009. (Exhibit 10.1.az, 2009 | AGL Resources Inc. | December 31, 2008, Form 10-K, for the fiscal year ended December 31, 2008). | Exhibit 10.1.az | | | | 10.1.ay10.1.af + | Form of Continuity Agreement dated December 1, 2011, by and between 19, 2013 | AGL Resources Inc., on behalf of itself and AGL Services Company (its wholly owned subsidiary) and certain officers, including John W. Somerhalder II, Andrew W. Evans, Henry P. Linginfelter, Paul R. Shlanta and Peter I. Tumminello (Exhibit 10.1, AGL Resources Inc. | December 19, 2013, Form 8-K, filed December 7, 2011). | Exhibit 10.1 | | | | | 10.1.az10.1.ag + | Description of compensation for each of John W. Somerhalder II, Andrew W. Evans, Henry P. Linginfelter, Paul R. Shlanta and Peter I. Tumminello (our Named Executive Officers for the year ended December 31, 2010) incorporated herein by reference to the 2013) | AGL Resources | Compensation Discussion and Analysis section of the AGL Resources Inc. Proxy Statement for the Annual Meeting of Shareholders held May 3, 2011April 30, 2013 filed on March 14, 2011). | | | | | | |
10.2 | Guaranty Agreement, effective December 13, 2005, by and between Atlanta Gas Light Company and AGL Resources Inc. (Exhibit 10.2, AGL Resources Inc. Form 10-K for the fiscal year ended December 31, 2006). | | | | | | 15, 2013. | 10.2.a | Form of Commercial Paper Dealer Agreement between AGL Capital Corporation, as Issuer, | AGL Resources Inc., as Guarantor, and the Dealers named therein, dated | September 25,30, 2000, (Exhibit 10.79, AGL Resources Inc. Form 10-K, for the fiscal year ended September 30, 2000). | | Exhibit 10.79 | | | | |
10.2.b | Guarantee of AGL Resources Inc., dated October 5, 2000 of payments on promissory notes issued by AGL Capital Corporation (AGLCC) pursuant to the Issuing and Paying Agency Agreement dated September 25, 2000, between AGLCC and The Bank of New York (Exhibit 10.80, | AGL Resources Inc. | September 30, 2000, Form 10-K, for the fiscal year ended September 30, 2000). | | | | | | | 10.2.c | Issuing and Paying Agency Agreement, dated September 25, 2000, between AGL Capital Corporation and The Bank of New York (Exhibit 10.81, AGL Resources Inc. Form 10-K for the fiscal year ended September 30, 2000). | | | | | | Exhibit 10.80 | 10.4 | Note Purchase Agreement dated August 31, 2011 by and among AGL Capital Corporation as issuer, | AGL Resources Inc. as guarantor and each of the note purchasers signatory thereto (Exhibit 10.1, AGL Resources Inc. | September 7, 2011, Form 8-K, filed September 7, 2011). | | Exhibit 10.1 | 10.5 | Final Allocation Agreement dated January 3, 2008 | Nicor | December 31, 2007, Form 10-K, Exhibit 10.64 | 10.5.a10.6 | Second Amended and Restated Master Environmental Management ServicesLimited Liability Company Agreement dated July 25, 2002 by and between Atlanta Gas Light Company and The RETEC Group, Inc. (Exhibit 10.2, AGL Resources Inc. Form 10-Q for the quarter ended June 30, 2003). (Confidential treatment pursuant to 17 CFR Sections 200.80 (b) and 240.24-b has been granted regarding certain portions of this exhibit, which portions have been filed separately with the Commission). | | | | | | | 10.5.b | Modification to the Amended and Restated Master Environmental Management Services Agreement, dated February 1, 2005 by and between Atlanta Gas Light Company and The RETEC Group, Inc. (Exhibit 10.6.b, AGL Resources Inc. Form 10-K for the fiscal year ended December 31, 2008). | | | | | | | 10.5.c | Term Extension to the Amended and Restated Master Environmental Management Services Agreement, dated August 1, 2005 by and between Atlanta Gas Light Company and The RETEC Group, Inc. (Exhibit 10.6.c, AGL Resources Inc. Form 10-K for the fiscal year ended December 31, 2008). | | | | | | | 10.5.d | Modification to the Amended and Restated Master Environmental Management Services Agreement, dated June 30, 2005 by and between Atlanta Gas Light Company and The RETEC Group, Inc. (Exhibit 10.6.d, AGL Resources Inc. Form 10-K for the fiscal year ended December 31, 2008). | | | | | | | 10.5.e | Second Modification to the Amended and Restated Master Environmental Management Services Agreement, dated February 1, 2006 by and between Atlanta Gas Light Company and The RETEC Group, Inc. (Exhibit 10.6.e, AGL Resources Inc. Form 10-K for the fiscal year ended December 31, 2008). | | | | | | | 10.5.f | Third Modification to the Amended and Restated Master Environmental Management Services Agreement, dated February 1, 2008 by and between Atlanta Gas Light Company and The RETEC Group, Inc. (Exhibit 10.6.f, AGL Resources Inc. Form 10-K for the fiscal year ended December 31, 2008). | | | | | | | 10.5.g | Fourth Modification to the amended and Restated Master Environmental Management Services Agreement dated as of February 1, 2009 by and between Atlanta Gas Light Company and the RETEC Group, Inc. (Exhibit 10.6, AGL Resources Inc. Form 10-Q for the quarter ended March 31, 2009). | | | | | 10.5.h | Environmental Services Agreement, dated July 16, 2009, by and between Atlanta Gas Light Company and MACTEC Engineering and Consulting, Inc. (Exhibit 10.2, AGL Resources Inc. Form 10-Q for the quarter ended September 30, 2009). | | | | | 10.6.a | SouthStar Energy Services LLC Amended and Restated Agreement, dated April 1, 2004September 6, 2013 by and between Georgia Natural Gas Company and Piedmont Energy Company (Exhibit 10, | AGL Resources Inc. | September 30, 2013, Form 10-Q, for the quarter ended March 31, 2004). | | | | | 10.6.b | Third Amendment to Amended and Restated Limited Liability Company Agreement, dated July 29, 2009, by and between Georgia Natural Gas Company and Piedmont Energy Company (ExhibitExhibit 10 AGL Resources Inc. Form 10-Q for the quarter ended June 30, 2009). | |
| | | 10.7 | Credit Facility,Agreement dated as of December 15, 2011 among Northern Illinois Gas Company, an Illinois corporation, as borrower, the several banks and other financial institutions or entities from time to time parties to this Agreement, as lenders, SunTrust Bank, as administrative agent and lender, Wells Fargo Bank, National Association and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as co-syndication agents and lenders, and JPMorgan Chase Bank, N.A. and U.S. Bank National Association, as co-documentation agents and lenders (Exhibit 10.1, (1) | AGL Resources Inc. | December 15, 2011, Form 8-K, filed December 15, 2011). | | | | Exhibit 10.1 | 10.8.a | Amended and Restated Credit Agreement dated as of November 10, 2011 among (2) | AGL Resources Inc., as guarantor, AGL Capital Corporation, as borrower, Wells Fargo Bank, National Association, as administrative agent and issuing lender, SunTrust Bank and JPMorgan Chase Bank, N.A., as co-syndication agents, JPMorgan Chase Bank, N.A. as issuing lender, Bank of America, N.A. and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as co-documentation agents, and the several banks and other financial institutions or entities from time to time party thereto (Exhibit 10.1, AGL Resources Inc. | November 17, 2011, Form 8-K, filed November 17, 2011). | | | | Exhibit 10.1 | 10.8.b | Guarantee Agreement dated as of November 10, 2011 made by | AGL Resources Inc., as guarantor, in favor of Wells Fargo | November 17, 2011, Form 8-K, Exhibit 10.2 | 10.9 | Bank National Association, as administrative agent for the several banks and other financial institutions or entities from time to time party to the Amended and Restated CreditRate Mode Covenants Agreement, dated as of the date thereof, among February 26, 2013 | AGL Resources Inc., AGL Capital Corporation, the lenders named therein, and Wells Fargo Bank, National Association, as administrative agent (Exhibit 10.2, AGL Resources Inc. | March 1, 2013, Form 8-K, filed November 17, 2011). | Exhibit 10.1 | 10.10 | | | 10.9.a | Credit Agreement as of September 15, 2010 by and among AGL Resources Inc., AGL Capital Corporation, Wells Fargo Bank, National Association, as administrative agent, Wells Fargo Securities, LLC, Banc of America Securities LLC and SunTrust Robinson Humphrey, Inc., as joint arrangers and joint bookrunners, and the several other banks and other financial institutions named therein, Bank of America, N.A. and SunTrust Bank, as Co-Syndication Agents, and The Bank of Tokyo-Mitsubishi, UFJ, Ltd., and JPMorgan Chase Bank, N.A., as Co-Documentation Agents (Exhibit 10.1, AGL Resources Inc. Form 8-K filed September 20, 2010). | | | | | 10.9.b | First Amendment as of December 21, 2010 to Credit Agreement as of September 15, 2010 by and among AGL Resources Inc., AGL Capital Corporation, Wells Fargo Bank, National Association, as administrative agent, Wells Fargo Securities, LLC, Banc of America Securities LLC and SunTrust Robinson Humphrey, Inc., as joint arrangers and bookrunners, and the several other banks and other financial institutions named therein, Bank of America, N.A. and SunTrust Bank, as co-syndication agents, and The Bank of Tokyo-Mitsubishi, UFJ, Ltd., and JPMorgan Chase Bank, N.A., as co-documentation agents (Exhibit 10.5, AGL Resources Inc. Form 8-K filed December 23, 2010). | | | | | 10.9.c | Second Amendment as of August 11, 2011 to Credit Agreement as of September 15, 2010, as amended, by and among AGL Capital Corporation, AGL Resources Inc., Wells Fargo Bank, National Association, as administrative agent, and the several lenders named therein (Exhibit 10.3, AGL Resources Inc. Form 10-Q for the quarter ended September 30, 2011). | | | | | 10.10.d | Guarantee, dated as of September 15, 2010 made by AGL Resources Inc., the guarantor, in favor of Wells Fargo Bank, National Association, as administrative agent for the lenders parties to the CreditLoan Agreement dated as of September 15, 2010, among Guarantor, AGL Capital Corporation, the borrower, the lenders named therein, and Wells Fargo Bank, National Association, as administrative agent (Exhibit 10.2, February 1, 2013 | AGL Resources Inc. | March 1, 2013, Form 8-K, filed September 20, 2010). | Exhibit 10.2 | 10.11 | | | 10.11.a | Bridge Term Loan Credit Agreement dated as of December 21, 2010 among March 1, 2013 | AGL Resources Inc., AGL Capital Corporation, Goldman Sachs Bank USA, as administrative agent, sole lead arranger and sole bookrunner, SunTrust Bank, N.A. and Wells Fargo Bank, National Association, as co-syndication agents, Bank of America, N.A. and Morgan Stanley Senior Funding, Inc., as co-documentation agents, and the several lenders named therein (Exhibit 10.1, AGL Resources Inc. | March 27, 2013, Form 8-K, filed December 23, 2010). | Exhibit 10.1 | 10.12 | | | 10.11.b | First Amendment as of August 11, 2011 to Bridge TermAmended and Restated Loan Credit Agreement as of December 21, 2010 by and among AGL Capital Corporation, AGL Resources Inc., Goldman Sachs Bank USA, as administrative agent, and the several lenders named therein (Exhibit 10.2, AGL Resources Inc. Form 10-Q for the quarter ended September 30, 2011). | | | | | 10.11.c | Guarantee, dated as of December 21, 2010, made by AGL Resources Inc. in favor of Goldman Sachs Bank USA, as administrative agent for the several banks and other financial institutions or entities from time to time party to the Bridge Term Loan Credit Agreement dated as of the date thereof, among March 1, 2013 | AGL Resources Inc., AGL Capital Corporation, the Lenders, and Goldman Sachs Bank USA, as Administrative Agent (Exhibit 10.2, AGL Resources Inc. | March 27, 2013, Form 8-K, filed December 23, 2010). | |
| | Exhibit 10.2 | 10.12.a 10.13 | TermAmended and Restated Loan Credit Agreement dated as of December 21, 2010 among March 1, 2013 | AGL Resources Inc., AGL Capital Corporation, Goldman Sachs Bank USA, as administrative agent, sole lead arranger and sole bookrunner, JPMorgan Chase Bank, N.A. and Bank of America, N.A., as co-syndication agents, The Royal Bank of Scotland PLC and Morgan Stanley Senior Funding, Inc., as co-documentation agents, and the several lenders named therein. (Exhibit 10.3, AGL Resources Inc. | March 27, 2013, Form 8-K, filed December 23, 2010).Exhibit 10.3 | 10.14 | | | | | 10.12.b | Guarantee, dated as of December 21, 2010, made by AGL Resources Inc. in favor of Goldman Sachs Bank USA, as administrative agent for the several banksAmended and other financial institutions or entities from time to time party to the TermRestated Loan Credit Agreement dated as of the date thereof, among March 1, 2013 | AGL Resources Inc., AGL Capital Corporation, the Lenders, and Goldman Sachs Bank USA, as Administrative Agent (Exhibit 10.4, AGL Resources Inc. | March 27, 2013, Form 8-K, filed December 23, 2010). | | | | | 10.13.a | Reimbursement Agreement dated as of October 14, 2010, by and among Pivotal Utility Holdings, Inc., AGL Resources Inc., JPMorgan Chase Bank, N.A., as administrative agent and lead arranger, and the several other banks and other financial institutions named therein (Exhibit 10.1, AGL Resources Inc. Form 10-Q for the quarter ended September 30, 2010). | | | | | 10.13.b | First Amendment dated as of December 17, 2010 to Reimbursement Agreement dated as of October 14, 2010, by and among Pivotal Utility Holdings, Inc., AGL Resources Inc., JPMorgan Chase Bank, N.A., as administrative agent and lead arranger, and the several other banks and other financial institutions named therein (Exhibit 10.9, AGL Resources Inc. Form 8-K, dated December 23, 2010). | | | | | 10.13.c | Second Amendment dated as of August 11, 2011 to Reimbursement Agreement dated as of October 14, 2010, as amended, by and among Pivotal Utility Holdings, Inc., AGL Resources Inc., JPMorgan Chase Bank, N.A., as administrative agent and lead arranger, and the several other banks and other financial institutions named therein (ExhibitExhibit 10.4 AGL Resources Inc. Form 10-Q for the quarter ended September 30, 2011). | | | | | 10.14.a | Reimbursement Agreement dated as of October 14, 2010, by and among Pivotal Utility Holdings, Inc., AGL Resources Inc., The Bank of Tokyo-Mitsubishi UFJ, Ltd, New York Branch, as administrative agent and lead arranger, and the several other banks and other financial institutions named therein. (Exhibit 10.2, AGL Resources Inc. Form 10-Q for the quarter ended September 30, 2010). | | | | | 10.14.b | First Amendment, dated as of December 17, 2010 to Reimbursement Agreement dated as of October 14, 2010, by and among Pivotal Utility Holdings, Inc., AGL Resources Inc., and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as administrative agent and lead arranger, and the several other banks and other financial institutions named therein (Exhibit 10.8, AGL Resources Inc. Form 8-K, dated December 23, 2010). | | | | | 10.14.c | Second Amendment dated as of August 11, 2011 to Reimbursement Agreement dated as of October 14, 2010, as amended, by and among Pivotal Utility Holdings, Inc., AGL Resources Inc., JPMorgan Chase Bank, N.A., as administrative agent and lead arranger, and the several other banks and other financial institutions named therein (Exhibit 10.5, AGL Resources Inc. Form 10-Q for the quarter ended September 30, 2011). | | | | | 10.15.a | Reimbursement Agreement dated as of October 14, 2010, by and among Pivotal Utility Holdings, Inc., AGL Resources Inc., The Bank of Tokyo-Mitsubishi UFJ, Ltd, New York Branch, as administrative agent and lead arranger, and the several other banks and other financial institutions named therein. (Exhibit 10.3, AGL Resources Inc. Form 10-Q for the quarter ended September 30, 2010). | | | | | 10.15.b | First Amendment dated as of December 17, 2010 to Reimbursement Agreement dated as of October 14, 2010, by and among Pivotal Utility Holdings, Inc., AGL Resources Inc., and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as administrative agent and lead arranger, and the several other banks and other financial institutions named therein (Exhibit 10.7, AGL Resources Inc. Form 8-K, dated December 23, 2010). | | | | | 10.15.c | Second Amendment dated as of August 11, 2011 to Reimbursement Agreement dated as of October 14, 2010, as amended, by and among Pivotal Utility Holdings, Inc., AGL Resources Inc., The Bank of Tokyo-Mitsubishi UFJ, Ltd, New York Branch, as administrative agent and lead arranger, and the several other banks and other financial institutions named therein (Exhibit 10.6, AGL Resources Inc. Form 10-Q for the quarter ended September 30, 2011). | | | | | 10.16.a | Reimbursement Agreement dated as of October 14, 2010, by and among Pivotal Utility Holdings, Inc., AGL Resources Inc., JPMorgan Chase Bank, N.A., as administrative agent and lead arranger, and the several other banks and other financial institutions named therein. (Exhibit 10.4, AGL Resources Inc. Form 10-Q for the quarter ended September 30, 2010). | | | | | | | 10.16.b | First Amendment, dated as of December 17, 2010 to Reimbursement Agreement dated as of October 14, 2010, by and among Pivotal Utility Holdings, Inc., AGL Resources Inc. and JPMorgan Chase Bank, N.A., as administrative agent and the several other banks and other financial institutions named therein (Exhibit 10.6, AGL Resources Inc. Form 8-K, dated December 23, 2010). | | | | | | | 10.16.c | Second Amendment dated as of August 11, 2011 to Reimbursement Agreement dated as of October 14, 2010, as amended, by and among Pivotal Utility Holdings, Inc., AGL Resources Inc., JPMorgan Chase Bank, N.A., as administrative agent and lead arranger, and the several other banks and other financial institutions named therein (Exhibit 10.7, AGL Resources Inc. Form 10-Q for the quarter ended September 30, 2011). | | | |
| | | | | 12 | Statement of Computation of Ratio of Earnings to Fixed Charges.Charges | AGL Resources | | | | | | | Filed herewith | 14 | AGL Resources Inc. Code of Ethics for itsthe Chief Executive Officer and its Senior Financial Officers (Exhibit 14, | AGL Resources Inc. | December 31, 2004, Form 10-K, for the year ended December 31, 2004). | | | | | | | | Exhibit 14 | 21 | Subsidiaries of AGL Resources Inc. | AGL Resources | | | | | | | Filed herewith | 23 | Consent of PricewaterhouseCoopers LLP independent registered public accounting firm. | AGL Resources | | | | | | | Filed herewith | 24 | Powers of Attorney (included | AGL Resources | Included on signature page hereto). | | | | | | | | | hereto | 31.1 | Certification of John W. Somerhalder II pursuant to Rule 13a – 14(a). | AGL Resources | | | | | | | | | Filed herewith | 31.2 | Certification of Andrew W. Evans pursuant to Rule 13a – 14(a). | AGL Resources | | | | | | | | | Filed herewith | 32.1 | Certification of John W. Somerhalder II pursuant to 18 U.S.C. Section 1350. | AGL Resources | | | | | | | | | Filed herewith | 32.2 | Certification of Andrew W. Evans pursuant to 18 U.S.C. Section 1350. | AGL Resources | | | Filed herewith |
101.INS | XBRL Instance Document. (1) | Document | AGL Resources | Filed herewith | 101.SCH | XBRL Taxonomy Extension Schema. (1) | Schema | AGL Resources | Filed herewith | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase. (1) Linkbase | AGL Resources | Filed herewith | 101.DEF | XBRL Taxonomy Definition Linkbase. (1) | Linkbase | AGL Resources | Filed herewith | 101.LAB | XBRL Taxonomy Extension Labels Linkbase. (1) | Linkbase | AGL Resources | Filed herewith | 101.PRE | XBRL Taxonomy Extension Presentation Linkbase. (1) Linkbase | AGL Resources | Filed herewith |
+ Management contract, compensatory plan or arrangement.
(1) | | ) | In November 2013, the Credit Agreement commitment terms were extended to a maturity date of December 15, 2017 via an approved extension request. |
Attached as Exhibit 101 | (2 | ) | In November 2013, the Amended and Restated Credit Agreement commitment terms were extended to this Annual Report are the following documents formatted in extensible business reporting language (XBRL): (i) Document and Entity Information; (ii) Consolidated Statementsa maturity date of Financial Position at December 31, 2011 and 2010; (iii) Consolidated Statements of Income for the years ended December 31, 2011, 2010 and 2009; (iv) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2011, 2010 and 2009; (v) Consolidated Statements of Equity for the years ended December 31, 2011, 2010 and 2009; (vi) Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009; and (vii) Notes to Consolidated Financial Statements.Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability. We also make available on our web site the Interactive Data Files submitted as Exhibit 101 to this Annual Report. November 10, 2017 via an approved extension request. |
(b) | Exhibits filed as part of this report. | | | | See Item 15(a)(3). | | | (c) | Financial statement schedules filed as part of this report. See Item 15(a)(2). |
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned;undersigned, thereunto duly authorized, on February 7, 2012.6, 2014.
AGL RESOURCES INC.
By: /s/ John W. Somerhalder II John W. Somerhalder II Chairman, President and Chief Executive Officer
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints John W. Somerhalder II, Andrew W. Evans, Paul R. Shlanta and Bryan E. Seas, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K for the year ended December 31, 2011,2013, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of February 7, 2012. Signatures | Title | | | /s/ John W. Somerhalder II | Chairman, President and Chief Executive Officer (Principal Executive Officer) | John W. Somerhalder II | | | /s/ Andrew W. Evans | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | Andrew W. Evans | | | /s/ Bryan E. Seas | Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) | Bryan E. Seas | | | /s/ Sandra N. Bane | Director | Sandra N. Bane | | | | /s/ Thomas D. Bell, Jr.Jr. | Director | Thomas D. Bell, Jr. | | | /s/ Norman R. Bobins | Director | Norman R. Bobins | | | | /s/ Charles R. Crisp | Director | Charles R. Crisp | | | | /s/ Brenda J. Gaines | Director | Brenda J. Gaines | | | | /s/ Arthur E. Johnson | Director | Arthur E. Johnson | | | | | /s/ Wyck A. Knox, Jr. | Director | Wyck A. Knox, Jr. | | /s/ Dennis M. Love | Director | Dennis M. Love | Director | | | /s/ Charles H. McTier | Director | Charles H. McTier | | | | /s/ Dean R. O’Hare | Director | Dean R. O’Hare | | | | /s/ Armando J. Olivera | Director | Armando J. Olivera | | | | /s/ John E. Rau | Director | John E. Rau | | | | /s/ James A. Rubright | Director | James A. Rubright | | | | /s/ Bettina M. Whyte | Director | Bettina M. Whyte | | | | /s/ Henry C. Wolf | Director | Henry C. Wolf | | | | | |
AGL Resources Inc. and Subsidiaries
VALUATION AND QUALIFYING ACCOUNTS - FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011.2013.
| | | | | Additions | | | | | | | | | | | | Additions | | | | | | | | Description | | Balance at beginning of period | | | Charged to costs and expenses | | | Charged to other accounts | | | Deductions | | | Balance at end of period | | | 2009 | | | | | | | | | | | | | | | | | In millions | | | Balance at beginning of period | | | Charged to costs and expenses | | | Charged to other accounts | | | Deductions | | | Balance at end of period | | 2011 | | | | | | | | | | | | | | | | | Allowance for uncollectible accounts | | $ | 16 | | | $ | 25 | | | $ | 0 | | | $ | (27 | ) | | $ | 14 | | | $ | 16 | | | $ | 20 | | | $ | - | | | $ | (19 | ) | | $ | 17 | | Income tax valuation | | | 3 | | | | 0 | | | | 0 | | | | 0 | | | | 3 | | | | 3 | | | | - | | | | - | | | | - | | | | 3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2010 | | | | | | | | | | | | | | | | | | | | | | 2012 | | | | | | | | | | | | | | | | | | | | | | Allowance for uncollectible accounts | | $ | 14 | | | $ | 22 | | | $ | 0 | | | $ | (20 | ) | | $ | 16 | | | $ | 17 | | | $ | 25 | | | $ | 3 | | | $ | (17 | ) | | $ | 28 | | Income tax valuation | | | 3 | | | | 0 | | | | 0 | | | | 0 | | | | 3 | | | | 3 | | | | - | | | | 19 | | | | - | | | | 22 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2011 | | | | | | | | | | | | | | | | | | | | | | 2013 | | | | | | | | | | | | | | | | | | | | | | Allowance for uncollectible accounts | | $ | 16 | | | $ | 20 | | | $ | 0 | | | $ | (19 | ) | | $ | 17 | | | $ | 28 | | | $ | 37 | | | $ | - | | | $ | (36 | ) | | $ | 29 | | Income tax valuation | | | 3 | | | | 0 | | | | 0 | | | | 0 | | | | 3 | | | | 22 | | | | - | | | | - | | | | - | | | | 22 | |
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