Commission File Number | Registrant, State of Incorporation, Address And Telephone Number | I.R.S. Employer Identification No. |
1-3526 | The Southern Company (A Delaware Corporation) 30 Ivan Allen Jr. Boulevard, N.W. Atlanta, Georgia 30308 (404) 506-5000 | 58-0690070 |
[ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
[ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
[ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
[ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 9.01. | Financial Statements and Exhibits. |
99.1 | Unaudited condensed consolidated financial statements as of June 30, 2016 and 2015, and for the three and six months ended June 30, 2016 and 2015 of Southern Company Gas. |
99.2 | Unaudited pro forma condensed combined consolidated financial information. |
Date: August 8, 2016 | THE SOUTHERN COMPANY | |||
By | /s/Melissa K. Caen | |||
Melissa K. Caen Corporate Secretary | ||||
As of | ||||||||||||
In millions | June 30, 2016 | December 31, 2015 | June 30, 2015 | |||||||||
Current assets | ||||||||||||
Cash and cash equivalents | $ | 15 | $ | 19 | $ | 25 | ||||||
Receivables | ||||||||||||
Energy marketing | 429 | 445 | 430 | |||||||||
Natural gas, unbilled revenues and other | 355 | 516 | 445 | |||||||||
Less allowance for uncollectible accounts | 38 | 29 | 46 | |||||||||
Total receivables, net | 746 | 932 | 829 | |||||||||
Inventories | ||||||||||||
Natural gas | 398 | 622 | 395 | |||||||||
Other | 29 | 29 | 26 | |||||||||
Total inventories | 427 | 651 | 421 | |||||||||
Derivative instruments, including cash collateral | 100 | 206 | 158 | |||||||||
Current deferred income taxes | 63 | — | 26 | |||||||||
Prepaid expenses | 60 | 218 | 51 | |||||||||
Regulatory assets | 47 | 68 | 48 | |||||||||
Other | 16 | 21 | 14 | |||||||||
Total current assets | 1,474 | 2,115 | 1,572 | |||||||||
Long-term assets and other deferred debits | ||||||||||||
Property, plant and equipment | 13,039 | 12,566 | 11,903 | |||||||||
Less accumulated depreciation | 2,891 | 2,775 | 2,524 | |||||||||
Property, plant and equipment, net | 10,148 | 9,791 | 9,379 | |||||||||
Goodwill | 1,813 | 1,813 | 1,827 | |||||||||
Regulatory assets | 679 | 670 | 642 | |||||||||
Intangible assets | 101 | 109 | 112 | |||||||||
Other | 273 | 256 | 303 | |||||||||
Total long-term assets and other deferred debits | 13,014 | 12,639 | 12,263 | |||||||||
Total assets | $ | 14,488 | $ | 14,754 | $ | 13,835 |
As of | ||||||||||||
In millions, except share and per share amounts | June 30, 2016 | December 31, 2015 | June 30, 2015 | |||||||||
Current liabilities | ||||||||||||
Short-term debt | $ | 114 | $ | 1,010 | $ | 459 | ||||||
Current portion of long-term debt | 575 | 545 | 125 | |||||||||
Energy marketing trade payables | 436 | 418 | 455 | |||||||||
Other accounts payable – trade | 278 | 255 | 272 | |||||||||
Accrued expenses | 221 | 200 | 183 | |||||||||
Regulatory liabilities | 156 | 134 | 154 | |||||||||
Customer deposits and credit balances | 143 | 165 | 115 | |||||||||
Derivative instruments, including cash collateral | 65 | 44 | 43 | |||||||||
Accrued environmental remediation liabilities | 59 | 67 | 83 | |||||||||
Temporary LIFO liquidation | 49 | — | 38 | |||||||||
Current deferred income taxes | — | 31 | — | |||||||||
Other | 109 | 131 | 120 | |||||||||
Total current liabilities | 2,205 | 3,000 | 2,047 | |||||||||
Long-term liabilities and other deferred credits | ||||||||||||
Long-term debt | 3,709 | 3,275 | 3,452 | |||||||||
Accumulated deferred income taxes | 1,992 | 1,912 | 1,780 | |||||||||
Regulatory liabilities | 1,627 | 1,611 | 1,622 | |||||||||
Accrued pension and retiree welfare benefits | 513 | 515 | 526 | |||||||||
Accrued environmental remediation liabilities | 379 | 364 | 346 | |||||||||
Other | 89 | 102 | 73 | |||||||||
Total long-term liabilities and other deferred credits | 8,309 | 7,779 | 7,799 | |||||||||
Total liabilities and other deferred credits | 10,514 | 10,779 | 9,846 | |||||||||
Commitments, guarantees and contingencies (see Note 11) | ||||||||||||
Contingently redeemable noncontrolling interest | 41 | — | — | |||||||||
Equity | ||||||||||||
Common stock, $5 par value; 750,000,000 shares authorized; outstanding: 120,741,810 shares at June 30, 2016, 120,376,721 shares at December 31, 2015, and 120,081,995 shares at June 30, 2015 | 605 | 603 | 601 | |||||||||
Additional paid-in capital | 2,133 | 2,099 | 2,099 | |||||||||
Retained earnings | 1,424 | 1,421 | 1,425 | |||||||||
Accumulated other comprehensive loss | (221 | ) | (186 | ) | (169 | ) | ||||||
Treasury shares, at cost: 216,523 shares at June 30, 2016, December 31, 2015, and June 30, 2015 | (8 | ) | (8 | ) | (8 | ) | ||||||
Total common shareholders’ equity | 3,933 | 3,929 | 3,948 | |||||||||
Noncontrolling interest | — | 46 | 41 | |||||||||
Total equity | 3,933 | 3,975 | 3,989 | |||||||||
Total liabilities, redeemable noncontrolling interest and equity | $ | 14,488 | $ | 14,754 | $ | 13,835 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
In millions, except per share amounts | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Operating revenues (includes revenue taxes of $17 and $57 for the three and six months ended June 30, 2016, respectively, and $18 and $74 for the three and six months ended June 30, 2015, respectively) | $ | 571 | $ | 674 | $ | 1,905 | $ | 2,395 | ||||||||
Operating expenses | ||||||||||||||||
Cost of goods sold | 191 | 222 | 769 | 1,157 | ||||||||||||
Operation and maintenance | 213 | 209 | 454 | 458 | ||||||||||||
Depreciation and amortization | 104 | 98 | 206 | 195 | ||||||||||||
Taxes other than income taxes | 37 | 38 | 99 | 114 | ||||||||||||
Merger-related expenses | 53 | — | 56 | — | ||||||||||||
Total operating expenses | 598 | 567 | 1,584 | 1,924 | ||||||||||||
Operating (loss) income | (27 | ) | 107 | 321 | 471 | |||||||||||
Other income | 3 | 4 | 6 | 7 | ||||||||||||
Interest expense, net | (48 | ) | (42 | ) | (95 | ) | (86 | ) | ||||||||
(Loss) income before income taxes | (72 | ) | 69 | 232 | 392 | |||||||||||
Income tax (benefit) expense | (24 | ) | 25 | 87 | 143 | |||||||||||
Net (loss) income | (48 | ) | 44 | 145 | 249 | |||||||||||
Less net income attributable to noncontrolling interest | 3 | 2 | 14 | 14 | ||||||||||||
Net (loss) income attributable to Southern Company Gas | $ | (51 | ) | $ | 42 | $ | 131 | $ | 235 | |||||||
Per common share information attributable to Southern Company Gas | ||||||||||||||||
Basic (loss) earnings per common share | $ | (0.43 | ) | $ | 0.35 | $ | 1.09 | $ | 1.97 | |||||||
Diluted (loss) earnings per common share | $ | (0.43 | ) | $ | 0.35 | $ | 1.09 | $ | 1.96 | |||||||
Cash dividends declared per common share | $ | 0.53 | $ | 0.51 | $ | 1.06 | $ | 1.02 | ||||||||
Weighted average number of common shares outstanding | ||||||||||||||||
Basic | 120.3 | 119.5 | 120.2 | 119.4 | ||||||||||||
Diluted | 120.5 | 119.8 | 120.5 | 119.7 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
In millions | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Net (loss) income | $ | (48 | ) | $ | 44 | $ | 145 | $ | 249 | |||||||
Other comprehensive (loss) income, net of tax | ||||||||||||||||
Retirement benefit plans, net of tax | ||||||||||||||||
Reclassification of actuarial losses to net benefit cost (net of income tax of $2 and $4 for the three and six months ended June 30, 2016, respectively, and $2 and $4 for the three and six months ended June 30, 2015, respectively) | 2 | 4 | 5 | 7 | ||||||||||||
Retirement benefit plans, net | 2 | 4 | 5 | 7 | ||||||||||||
Cash flow hedges, net of tax | ||||||||||||||||
Net derivative (loss) gain arising during the period (net of income tax of $7 and $23 for the three and six months ended June 30, 2016, respectively, and $16 and $17 for the three and six months ended June 30, 2015, respectively) | (12 | ) | 25 | (41 | ) | 27 | ||||||||||
Reclassification of realized derivative gain to net income (net of income tax of less than $1 for the three and six months ended June 30, 2016 and 2015) | 2 | 4 | 1 | 4 | ||||||||||||
Cash flow hedges, net | (10 | ) | 29 | (40 | ) | 31 | ||||||||||
Other comprehensive (loss) income, net of tax | (8 | ) | 33 | (35 | ) | 38 | ||||||||||
Comprehensive (loss) income | (56 | ) | 77 | 110 | 287 | |||||||||||
Less comprehensive income attributable to noncontrolling interest | 3 | 3 | 14 | 15 | ||||||||||||
Comprehensive (loss) income attributable to Southern Company Gas | $ | (59 | ) | $ | 74 | $ | 96 | $ | 272 |
Southern Company Gas | |||||||||||||||||||||||||||||||
Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive loss | Treasury shares | Noncontrolling interest | Total | |||||||||||||||||||||||||
In millions, except per share amounts | Shares | Amount | |||||||||||||||||||||||||||||
Balance as of December 31, 2014 | 119.6 | $ | 599 | $ | 2,087 | $ | 1,312 | $ | (206 | ) | $ | (8 | ) | $ | 44 | $ | 3,828 | ||||||||||||||
Net income | — | — | — | 235 | — | — | 14 | 249 | |||||||||||||||||||||||
Other comprehensive income | — | — | — | — | 37 | — | 1 | 38 | |||||||||||||||||||||||
Dividends on common stock ($1.02 per share) | — | — | — | (122 | ) | — | — | — | (122 | ) | |||||||||||||||||||||
Distribution to noncontrolling interest | — | — | — | — | — | — | (18 | ) | (18 | ) | |||||||||||||||||||||
Stock granted, share-based compensation, net of forfeitures | — | — | (13 | ) | — | — | — | — | (13 | ) | |||||||||||||||||||||
Stock issued, dividend reinvestment plan | 0.1 | 1 | 5 | — | — | — | — | 6 | |||||||||||||||||||||||
Stock issued, share-based compensation, net of forfeitures | 0.4 | 1 | 14 | — | — | — | — | 15 | |||||||||||||||||||||||
Share-based compensation expense, net of tax | — | — | 6 | — | — | — | — | 6 | |||||||||||||||||||||||
Balance as of June 30, 2015 | 120.1 | $ | 601 | $ | 2,099 | $ | 1,425 | $ | (169 | ) | $ | (8 | ) | $ | 41 | $ | 3,989 |
Southern Company Gas | |||||||||||||||||||||||||||||||
Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive loss | Treasury shares | Noncontrolling interest | Total | |||||||||||||||||||||||||
In millions, except per share amounts | Shares | Amount | |||||||||||||||||||||||||||||
Balance as of December 31, 2015 | 120.4 | $ | 603 | $ | 2,099 | $ | 1,421 | $ | (186 | ) | $ | (8 | ) | $ | 46 | $ | 3,975 | ||||||||||||||
Net income attributable to Southern Company Gas | — | — | — | 131 | — | — | — | 131 | |||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | (35 | ) | — | — | (35 | ) | |||||||||||||||||||||
Dividends on common stock ($1.06 per share) | — | — | — | (128 | ) | — | — | — | (128 | ) | |||||||||||||||||||||
Stock granted, share-based compensation, net of forfeitures | — | — | (9 | ) | — | — | — | — | (9 | ) | |||||||||||||||||||||
Stock issued, dividend reinvestment plan | — | — | 6 | — | — | — | — | 6 | |||||||||||||||||||||||
Stock issued, share-based compensation, net of forfeitures | 0.3 | 2 | 15 | — | — | — | — | 17 | |||||||||||||||||||||||
Share-based compensation expense, net of tax | — | — | 22 | — | — | — | — | 22 | |||||||||||||||||||||||
Reclassification of noncontrolling interest | — | — | — | — | — | — | (46 | ) | (46 | ) | |||||||||||||||||||||
Balance as of June 30, 2016 | 120.7 | $ | 605 | $ | 2,133 | $ | 1,424 | $ | (221 | ) | $ | (8 | ) | $ | — | $ | 3,933 |
Six Months Ended June 30, | ||||||||
In millions | 2016 | 2015 | ||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 145 | $ | 249 | ||||
Adjustments to reconcile net income to net cash flow provided by operating activities | ||||||||
Depreciation and amortization | 206 | 195 | ||||||
Change in derivative instrument assets and liabilities | 136 | 42 | ||||||
Deferred income taxes | 8 | 27 | ||||||
Changes in certain assets and liabilities | ||||||||
Inventories, net of temporary LIFO liquidation | 273 | 333 | ||||||
Prepaid and miscellaneous taxes | 187 | 150 | ||||||
Receivables, other than energy marketing | 174 | 363 | ||||||
Energy marketing receivables and trade payables, net | 34 | 27 | ||||||
Trade payables, other than energy marketing | 26 | (41 | ) | |||||
Accrued natural gas costs, net | 11 | 43 | ||||||
Accrued expenses | (20 | ) | (28 | ) | ||||
Other, net | (67 | ) | 125 | |||||
Net cash flow provided by operating activities | 1,113 | 1,485 | ||||||
Cash flows from investing activities: | ||||||||
Expenditures for property, plant and equipment | (548 | ) | (452 | ) | ||||
Other, net | (11 | ) | 5 | |||||
Net cash flow used in investing activities | (559 | ) | (447 | ) | ||||
Cash flows from financing activities: | ||||||||
Issuance of long-term debt | 596 | — | ||||||
Distribution to noncontrolling interest | (19 | ) | (18 | ) | ||||
Payment of long-term debt | (125 | ) | (200 | ) | ||||
Dividends paid on common shares | (128 | ) | (122 | ) | ||||
Net repayments of commercial paper | (896 | ) | (716 | ) | ||||
Other, net | 14 | 12 | ||||||
Net cash flow used in financing activities | (558 | ) | (1,044 | ) | ||||
Net decrease in cash and cash equivalents | (4 | ) | (6 | ) | ||||
Cash and cash equivalents at beginning of period | 19 | 31 | ||||||
Cash and cash equivalents at end of period | $ | 15 | $ | 25 | ||||
Cash paid (received) during the period for | ||||||||
Interest | $ | 119 | $ | 93 | ||||
Income taxes | (100 | ) | (57 | ) |
• | our outstanding restricted stock units, restricted stock awards and non-employee director stock awards were deemed fully vested and were canceled and converted into the right to receive an amount in cash equal to the product of (i) the total number of shares of our common stock subject to such award and (ii) the merger consideration of $66 per share; |
• | our outstanding stock options, all of which were fully vested, were canceled and converted into the right to receive an amount in cash equal to the product of (i) the total number of shares of our common stock subject to such options and (ii) the excess of the merger consideration of $66 per share over the applicable exercise price per share of such options; and |
• | each outstanding award of performance share units was converted into an award of Southern Company's restricted stock units. The conversion ratio was the product of (i) the greater of (a) 125% of the number of units underlying such award based on target level achievement of all relevant performance goals and (b) the number of units underlying such award based on the actual level of achievement of all relevant performance goals against target and (ii) an exchange ratio based on the merger consideration of $66 per share as compared to the volume-weighted average price per share of Southern Company common stock, on the same terms and conditions relating to vesting schedule and payment terms, and otherwise on similar terms and conditions, as were applicable to such performance share unit awards, subject to certain exceptions. |
• | rate credits of $18 million to be paid to customers in New Jersey and Maryland; |
• | sharing of merger savings with customers in Georgia starting in 2020; |
• | phasing-out the use of the Nicor name or logo by our retail energy subsidiaries in conducting non-utility business in Illinois; |
• | reaffirming that Elizabethtown Gas will file a base rate case no later than September 1, 2016, with another base rate case no later than three years after the 2016 rate case; |
• | requiring Elkton Gas to file a base rate case within 2 years of closing the merger; and |
• | there is no restriction on our other utilities ability to file future rate cases. |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
In millions | 2016 | 2015 | 2016 | 2015 | ||||||||||||
LOCOM adjustments | $ | — | $ | — | $ | 3 | $ | 10 |
In millions | Distribution operations | Retail operations | Midstream operations | Consolidated | ||||||||||||
Goodwill - June 30, 2015 | $ | 1,640 | $ | 173 | $ | 14 | $ | 1,827 | ||||||||
Impairment (1) | — | — | (14 | ) | (14 | ) | ||||||||||
Goodwill - December 31, 2015 | 1,640 | 173 | — | 1,813 | ||||||||||||
Goodwill - June 30, 2016 | $ | 1,640 | $ | 173 | $ | — | $ | 1,813 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
In millions, except per share amounts | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Net (loss) income attributable to Southern Company Gas | $ | (51 | ) | $ | 42 | $ | 131 | $ | 235 | |||||||
Denominator | ||||||||||||||||
Basic weighted average number of shares outstanding (1) | 120.3 | 119.5 | 120.2 | 119.4 | ||||||||||||
Effect of dilutive securities | 0.2 | 0.3 | 0.3 | 0.3 | ||||||||||||
Diluted weighted average number of shares outstanding (2) | 120.5 | 119.8 | 120.5 | 119.7 | ||||||||||||
(Loss) earnings per common share attributable to Southern Company Gas | ||||||||||||||||
Basic (loss) earnings per common share | $ | (0.43 | ) | $ | 0.35 | $ | 1.09 | $ | 1.97 | |||||||
Diluted (loss) earnings per common share | $ | (0.43 | ) | $ | 0.35 | $ | 1.09 | $ | 1.96 |
(1) | Daily weighted average shares outstanding. |
(2) | Excludes all outstanding stock options whose effect would have been anti-dilutive. |
• | accounting for a share-based compensation performance target that could be achieved after the requisite service period; |
• | consolidation of other legal entities into our financial statements; |
• | accounting for fees paid in connection with arrangements with cloud-based software providers; and |
• | reducing the diversity in fair value measurements hierarchy disclosures. |
In millions | June 30, 2016 | December 31, 2015 | June 30, 2015 | |||||||||
Regulatory assets | ||||||||||||
Recoverable ERC | $ | 18 | $ | 31 | $ | 27 | ||||||
Recoverable pension and retiree welfare benefit costs | 12 | 12 | 11 | |||||||||
Unrecovered weather normalization | 9 | — | 1 | |||||||||
Deferred natural gas costs | — | 6 | — | |||||||||
Recoverable seasonal rates | — | 10 | — | |||||||||
Other | 8 | 9 | 9 | |||||||||
Regulatory assets – current | 47 | 68 | 48 | |||||||||
Recoverable ERC | 386 | 370 | 350 | |||||||||
Recoverable pension and retiree welfare benefit costs | 109 | 113 | 105 | |||||||||
Recoverable regulatory infrastructure program costs | 84 | 83 | 77 | |||||||||
Long-term debt fair value adjustment | 63 | 66 | 70 | |||||||||
Other | 37 | 38 | 40 | |||||||||
Regulatory assets – long-term | 679 | 670 | 642 | |||||||||
Total regulatory assets | $ | 726 | $ | 738 | $ | 690 | ||||||
Regulatory liabilities | ||||||||||||
Accumulated removal costs | $ | 52 | $ | 53 | $ | 25 | ||||||
Bad debt over collection | 49 | 42 | 27 | |||||||||
Accrued natural gas costs | 29 | 24 | 67 | |||||||||
Deferred seasonal rates | 8 | — | 8 | |||||||||
Other | 18 | 15 | 27 | |||||||||
Regulatory liabilities – current | 156 | 134 | 154 | |||||||||
Accumulated removal costs | 1,552 | 1,538 | 1,544 | |||||||||
Regulatory income tax liability | 24 | 27 | 27 | |||||||||
Bad debt over collection | 23 | 21 | 18 | |||||||||
Unamortized investment tax credit | 19 | 20 | 21 | |||||||||
Other | 9 | 5 | 12 | |||||||||
Regulatory liabilities – long-term | 1,627 | 1,611 | 1,622 | |||||||||
Total regulatory liabilities | $ | 1,783 | $ | 1,745 | $ | 1,776 |
In millions | June 30, 2016 | December 31, 2015 | June 30, 2015 | |||||||||
Atlanta Gas Light (1) | $ | 106 | $ | 103 | $ | 126 | ||||||
Virginia Natural Gas | 12 | 12 | 11 | |||||||||
Elizabethtown Gas | 5 | 4 | 3 | |||||||||
Nicor Gas | 3 | 3 | 1 | |||||||||
Total | $ | 126 | $ | 122 | $ | 141 |
(1) | In October 2015, Atlanta Gas Light received an order from the Georgia Commission, which included a final determination of the true-up recovery related to the PRP that allows Atlanta Gas Light to recover $144 million of the $178 million of incurred and allowed costs that were deferred for future recovery. |
Dollars in millions | # of sites | Probabilistic model cost estimates | Engineering-based cost estimates | Amount recorded | Expected costs over next 12 months | Cost recovery period | |||||||||||||
Illinois (1) | 26 | $206 - $470 | $ | 46 | $ | 252 | $ | 27 | As incurred | ||||||||||
New Jersey | 6 | 111 - 190 | 8 | 119 | 14 | 7 years | |||||||||||||
Georgia and Florida | 13 | 38 - 64 | 24 | 62 | 18 | 5 years | |||||||||||||
North Carolina (2) | 1 | n/a | 5 | 5 | — | No recovery | |||||||||||||
Total | 46 | $355 - $724 | $ | 83 | $ | 438 | $ | 59 |
(1) | Nicor Gas is responsible in whole or in part for 26 MGP sites, two of which have been remediated and their use is no longer restricted by the environmental condition of the property. Nicor Gas and Commonwealth Edison Company are parties to an agreement to cooperate in cleaning up residue at 23 of the sites. Nicor Gas’ allocated share of cleanup costs for these sites is 52%. |
(2) | We have no regulatory recovery mechanism for the site in North Carolina and there is no amount included within our regulatory assets. Changes in estimated costs are recognized in income during the period of change. |
June 30, 2016 | December 31, 2015 | June 30, 2015 | ||||||||||||||||||||||
In millions | Assets (1) | Liabilities | Assets (1) | Liabilities | Assets (1) | Liabilities | ||||||||||||||||||
Quoted prices in active markets (Level 1) | $ | 17 | $ | (80 | ) | $ | 53 | $ | (63 | ) | $ | 3 | $ | (53 | ) | |||||||||
Significant other observable inputs (Level 2) | 50 | (76 | ) | 122 | (46 | ) | 128 | (45 | ) | |||||||||||||||
Netting of counterparty offset and cash collateral | 43 | 77 | 33 | 63 | 64 | 53 | ||||||||||||||||||
Total carrying value (2) | $ | 110 | $ | (79 | ) | $ | 208 | $ | (46 | ) | $ | 195 | $ | (45 | ) |
(1) | Balances of $5 million at June 30, 2016, $10 million at December 31, 2015 and $2 million at June 30, 2015, associated with certain weather derivatives have been excluded, as they are accounted for based on intrinsic value rather than fair value. |
(2) | There were no significant unobservable inputs (Level 3) or significant transfers between Level 1, Level 2 or Level 3 for any of the dates presented. |
In millions | June 30, 2016 | December 31, 2015 | June 30, 2015 | |||||||||
Long-term debt carrying amount | $ | 4,284 | $ | 3,820 | $ | 3,577 | ||||||
Long-term debt fair value (1) | 4,836 | 4,066 | 3,857 |
(1) | Fair value determined using Level 2 inputs. |
In Bcf (1) | June 30, 2016 (2) | December 31, 2015 | June 30, 2015 | ||||||
Cash flow hedges | 4 | 5 | 6 | ||||||
Not designated as hedges | 38 | (14 | ) | 24 | |||||
Total volumes | 42 | (9 | ) | 30 | |||||
Short position – cash flow hedges | (5 | ) | (6 | ) | (8 | ) | |||
Short position – not designated as hedges | (3,092 | ) | (3,089 | ) | (2,930 | ) | |||
Long position – cash flow hedges | 9 | 11 | 14 | ||||||
Long position – not designated as hedges | 3,130 | 3,075 | 2,954 | ||||||
Net long (short) position | 42 | (9 | ) | 30 |
(1) | Volumes related to Nicor Gas exclude variable-priced contracts, which are carried at fair value, but whose fair values are not directly impacted by changes in commodity prices. |
(2) | 97% of these contracts have durations of two years or less and 3% expire between two and five years. |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
In millions | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Nicor Gas | $ | (10 | ) | $ | (18 | ) | $ | (12 | ) | $ | (21 | ) | ||||
Elizabethtown Gas | (4 | ) | (4 | ) | (10 | ) | (8 | ) |
June 30, 2016 | December 31, 2015 | June 30, 2015 | ||||||||||||||||||||||||
In millions | Classification | Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | |||||||||||||||||||
Designated as cash flow hedges | ||||||||||||||||||||||||||
Natural gas contracts | Current | $ | 4 | $ | (4 | ) | $ | 3 | $ | (5 | ) | $ | — | $ | (4 | ) | ||||||||||
Natural gas contracts | Long-term | — | (1 | ) | — | (2 | ) | — | (1 | ) | ||||||||||||||||
Interest rate swap agreements | Current | — | (30 | ) | 9 | — | 24 | — | ||||||||||||||||||
Interest rate swap agreements | Long-term | — | — | — | — | 23 | — | |||||||||||||||||||
Total designated as cash flow hedges | $ | 4 | $ | (35 | ) | $ | 12 | $ | (7 | ) | $ | 47 | $ | (5 | ) | |||||||||||
Not designated as hedges | ||||||||||||||||||||||||||
Natural gas contracts | Current | $ | 520 | $ | (557 | ) | $ | 751 | $ | (672 | ) | $ | 473 | $ | (481 | ) | ||||||||||
Natural gas contracts | Long-term | 83 | (99 | ) | 179 | (187 | ) | 92 | (91 | ) | ||||||||||||||||
Total not designated as hedges | $ | 603 | $ | (656 | ) | $ | 930 | $ | (859 | ) | $ | 565 | $ | (572 | ) | |||||||||||
Gross amounts of recognized assets and liabilities (1) (2) | $ | 607 | $ | (691 | ) | $ | 942 | $ | (866 | ) | $ | 612 | $ | (577 | ) | |||||||||||
Gross amounts offset on our unaudited Condensed Consolidated Balance Sheets (2) | (492 | ) | 612 | (724 | ) | 820 | (415 | ) | 532 | |||||||||||||||||
Net amounts of assets and liabilities presented on our unaudited Condensed Consolidated Balance Sheets (3) | $ | 115 | $ | (79 | ) | $ | 218 | $ | (46 | ) | $ | 197 | $ | (45 | ) |
(1) | The gross amounts of recognized assets and liabilities are netted within our unaudited Condensed Consolidated Balance Sheets 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 do not include cash collateral held on deposit in broker margin accounts of $120 million as of June 30, 2016, $96 million as of December 31, 2015, and $117 million as of June 30, 2015. Cash collateral is included in the “Gross amounts offset on our unaudited Condensed Consolidated Balance Sheets” line of this table. |
(3) | As of June 30, 2016, December 31, 2015, and June 30, 2015, we held letters of credit from counterparties that under master netting arrangements would offset an insignificant portion of these assets. |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||
In millions | 2016 | 2015 | 2016 | 2015 | |||||||||||||
Designated as cash flow hedges (1) | |||||||||||||||||
Natural gas contracts - net loss reclassified from OCI into cost of goods sold | $ | (1 | ) | $ | (3 | ) | $ | (1 | ) | $ | (4 | ) | |||||
Natural gas contracts - net loss reclassified from OCI into operation and maintenance expense | — | (1 | ) | — | (1 | ) | |||||||||||
Interest rate swaps - net (loss) gain reclassified from OCI into interest expense | (1 | ) | — | — | 1 | ||||||||||||
Total designated as cash flow hedges, net of tax | (2 | ) | (4 | ) | (1 | ) | (4 | ) | |||||||||
Not designated as hedges (1) | |||||||||||||||||
Natural gas contracts - net fair value adjustments recorded in operating revenues | (93 | ) | 3 | (73 | ) | (21 | ) | ||||||||||
Natural gas contracts - net fair value adjustments recorded in cost of goods sold (2) | 5 | 1 | 4 | (1 | ) | ||||||||||||
Income tax | 33 | (1 | ) | 26 | 9 | ||||||||||||
Total not designated as hedges, net of tax | (55 | ) | 3 | (43 | ) | (13 | ) | ||||||||||
Total losses on derivative instruments, net of tax | $ | (57 | ) | $ | (1 | ) | $ | (44 | ) | $ | (17 | ) |
(1) | Associated with the fair value of derivative instruments held at June 30, 2016 and 2015. |
(2) | Excludes gains (losses) recorded in cost of goods sold associated with weather derivatives of less than $1 million and $3 million for the three and six months ended June 30, 2016, respectively, and $1 million and $(1) million for the three and six months ended June 30, 2015, respectively, as they are accounted for based on intrinsic value rather than fair value. |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
In millions | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Service cost (1) | $ | 7 | $ | 7 | $ | 13 | $ | 14 | ||||||||
Interest cost (1) | 11 | 12 | 21 | 23 | ||||||||||||
Expected return on plan assets | (17 | ) | (17 | ) | (33 | ) | (33 | ) | ||||||||
Net amortization of prior service credit | (1 | ) | — | (1 | ) | (1 | ) | |||||||||
Recognized actuarial loss | 7 | 7 | 13 | 15 | ||||||||||||
Net periodic pension benefit cost | $ | 7 | $ | 9 | $ | 13 | $ | 18 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
In millions | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Service cost (1) | $ | — | $ | — | $ | 1 | $ | 1 | ||||||||
Interest cost (1) | 2 | 3 | 5 | 6 | ||||||||||||
Expected return on plan assets | (1 | ) | (2 | ) | (3 | ) | (4 | ) | ||||||||
Net amortization of prior service credit | — | (1 | ) | (1 | ) | (1 | ) | |||||||||
Recognized actuarial loss | 1 | 2 | 2 | 3 | ||||||||||||
Net periodic welfare benefit cost | $ | 2 | $ | 2 | $ | 4 | $ | 5 |
June 30, 2016 | June 30, 2015 | |||||||||||||||||||
Dollars in millions | Year(s) due | Weighted average interest rate (1) | Outstanding | December 31, 2015 | Weighted average interest rate (1) | Outstanding | ||||||||||||||
Short-term debt | ||||||||||||||||||||
Commercial paper - Southern Company Gas Capital (2) | 2016 | 0.8 | % | $ | 20 | $ | 471 | 0.5 | % | $ | 269 | |||||||||
Commercial paper - Nicor Gas (2) | 2016 | 0.6 | 94 | 539 | 0.4 | 190 | ||||||||||||||
Total short-term debt | 0.7 | % | $ | 114 | $ | 1,010 | 0.4 | % | $ | 459 | ||||||||||
Current portion of long-term debt (3) | 2016 | 4.6 | % | $ | 575 | $ | 545 | 4.6 | % | $ | 125 | |||||||||
Long-term debt - excluding current portion | ||||||||||||||||||||
Senior notes | 2019-2043 | 4.9 | % | $ | 2,650 | $ | 2,455 | 5.0 | % | $ | 2,625 | |||||||||
First mortgage bonds | 2019-2038 | 5.8 | 625 | 375 | 5.9 | 375 | ||||||||||||||
Gas facility revenue bonds | 2022-2033 | 1.1 | 200 | 200 | 0.9 | 200 | ||||||||||||||
Medium-term notes | 2017-2027 | 7.8 | 181 | 181 | 7.8 | 181 | ||||||||||||||
Total principal long-term debt | 4.9 | % | $ | 3,656 | $ | 3,211 | 4.9 | % | $ | 3,381 | ||||||||||
Unamortized fair value adjustment | n/a | n/a | $ | 63 | $ | 68 | n/a | $ | 74 | |||||||||||
Unamortized debt premium, net | n/a | n/a | 14 | 16 | n/a | 16 | ||||||||||||||
Unamortized debt issuance costs | n/a | n/a | (24 | ) | (20 | ) | n/a | (19 | ) | |||||||||||
Total non-principal long-term debt | n/a | n/a | $ | 53 | $ | 64 | n/a | $ | 71 | |||||||||||
Total long-term debt - excluding current portion | n/a | $ | 3,709 | $ | 3,275 | n/a | $ | 3,452 | ||||||||||||
Total debt | n/a | $ | 4,398 | $ | 4,830 | n/a | $ | 4,036 |
(1) | Interest rates are calculated based on the daily weighted average balance outstanding for the six months ended June 30, 2016 and 2015. |
(2) | As of June 30, 2016, the effective interest rates on our commercial paper were 0.7% for Southern Company Gas Capital and 0.5% for Nicor Gas. |
(3) | Balance as of June 30, 2016 includes $275 million of senior notes subject to potential prepayment in August 2016 due to a change of control provision. |
Southern Company Gas | Nicor Gas | |||||||||||||||||
June 30, 2016 | December 31, 2015 | June 30, 2015 | June 30, 2016 | December 31, 2015 | June 30, 2015 | |||||||||||||
Debt covenants (1) | 52 | % | 54 | % | 49 | % | 45 | % | 56 | % | 49 | % |
(1) | As defined in our credit facilities, these ratios include standby letters of credit and performance/surety bonds and exclude accumulated OCI items related to non-cash pension adjustments, welfare benefits liability adjustments and accounting for cash flow hedges. |
• | a maximum leverage ratio; |
• | insolvency events and/or nonpayment of scheduled principal or interest payments; |
• | acceleration of other financial obligations; and |
• | change of control provisions. |
2016 | 2015 | |||||||||||||||||||||||
In millions (1) | Cash flow hedges | Retirement benefit plans | Total | Cash flow hedges | Retirement benefit plans | Total | ||||||||||||||||||
For the three months ended June 30 | ||||||||||||||||||||||||
As of beginning of period | $ | (28 | ) | $ | (185 | ) | $ | (213 | ) | $ | (4 | ) | $ | (197 | ) | $ | (201 | ) | ||||||
OCI, before reclassifications | (12 | ) | — | (12 | ) | 25 | — | 25 | ||||||||||||||||
Amounts reclassified from accumulated OCI | 2 | 2 | 4 | 3 | 4 | 7 | ||||||||||||||||||
Net current-period other comprehensive (loss) income | (10 | ) | 2 | (8 | ) | 28 | 4 | 32 | ||||||||||||||||
As of end of period | $ | (38 | ) | $ | (183 | ) | $ | (221 | ) | $ | 24 | $ | (193 | ) | $ | (169 | ) | |||||||
For the six months ended June 30 | ||||||||||||||||||||||||
As of beginning of period | $ | 2 | $ | (188 | ) | $ | (186 | ) | $ | (6 | ) | $ | (200 | ) | $ | (206 | ) | |||||||
OCI, before reclassifications | (41 | ) | — | (41 | ) | 27 | — | 27 | ||||||||||||||||
Amounts reclassified from accumulated OCI | 1 | 5 | 6 | 3 | 7 | 10 | ||||||||||||||||||
Net current-period other comprehensive (loss) income | (40 | ) | 5 | (35 | ) | 30 | 7 | 37 | ||||||||||||||||
As of end of period | $ | (38 | ) | $ | (183 | ) | $ | (221 | ) | $ | 24 | $ | (193 | ) | $ | (169 | ) |
(1) | All amounts are net of income taxes and noncontrolling interest. Amounts in parentheses indicate debits to accumulated other comprehensive loss. |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
In millions (1) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Cash flow hedges | ||||||||||||||||
Cost of goods sold (natural gas contracts) | $ | (1 | ) | $ | (3 | ) | $ | (1 | ) | $ | (4 | ) | ||||
Operation and maintenance expense (natural gas contracts) | — | (1 | ) | — | (1 | ) | ||||||||||
Interest expense (interest rate contracts) | (1 | ) | — | — | 1 | |||||||||||
Cash flow hedges, net of income tax | (2 | ) | (4 | ) | (1 | ) | (4 | ) | ||||||||
Less noncontrolling interest | — | (1 | ) | — | (1 | ) | ||||||||||
Total cash flow hedges, net of income tax | (2 | ) | (3 | ) | (1 | ) | (3 | ) | ||||||||
Retirement benefit plans | ||||||||||||||||
Operation and maintenance expense (actuarial losses) (2) | (4 | ) | (6 | ) | (9 | ) | (11 | ) | ||||||||
Total retirement benefit plans | (4 | ) | (6 | ) | (9 | ) | (11 | ) | ||||||||
Income tax benefit | 2 | 2 | 4 | 4 | ||||||||||||
Total retirement benefit plans, net of income tax | (2 | ) | (4 | ) | (5 | ) | (7 | ) | ||||||||
Total reclassification for the period | $ | (4 | ) | $ | (7 | ) | $ | (6 | ) | $ | (10 | ) |
(1) | Amounts in parentheses indicate debits, or reductions, to our net income and credits to accumulated other comprehensive loss. Except for retirement benefit plan amounts, the net income impacts are immediate. |
(2) | Amortization of these accumulated other comprehensive loss components is included in the computation of net periodic benefit cost. See Note 7 herein for additional details about net periodic benefit cost. |
In millions | |||
Balance as of December 31, 2015 | $ | — | |
Reclassification of noncontrolling interest | 46 | ||
Net income attributable to noncontrolling interest | 14 | ||
Distribution to noncontrolling interest | (19 | ) | |
Balance as of June 30, 2016 | $ | 41 |
June 30, 2016 | December 31, 2015 | June 30, 2015 | |||||||||||||||||||||||||||||||
In millions | Consolidated | SouthStar | % | Consolidated | SouthStar | % | Consolidated | SouthStar | % | ||||||||||||||||||||||||
Current assets | $ | 1,474 | $ | 199 | 14 | % | $ | 2,115 | $ | 245 | 12 | % | $ | 1,572 | $ | 192 | 12 | % | |||||||||||||||
Goodwill and other intangible assets | 1,914 | 111 | 6 | 1,922 | 114 | 6 | 1,939 | 117 | 6 | ||||||||||||||||||||||||
Long-term assets and other deferred debits | 11,100 | 17 | — | 10,717 | 16 | — | 10,324 | 17 | — | ||||||||||||||||||||||||
Total assets | $ | 14,488 | $ | 327 | 2 | % | $ | 14,754 | $ | 375 | 3 | % | $ | 13,835 | $ | 326 | 2 | % | |||||||||||||||
Current liabilities | $ | 2,205 | $ | 37 | 2 | % | $ | 3,000 | $ | 54 | 2 | % | $ | 2,047 | $ | 40 | 2 | % | |||||||||||||||
Long-term liabilities and other deferred credits | 8,309 | 1 | — | 7,779 | — | — | 7,799 | 1 | — | ||||||||||||||||||||||||
Total liabilities | 10,514 | 38 | — | 10,779 | 54 | 1 | 9,846 | 41 | — | ||||||||||||||||||||||||
Contingently redeemable noncontrolling interest | 41 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Equity | 3,933 | 289 | 7 | 3,975 | 321 | 8 | 3,989 | 285 | 7 | ||||||||||||||||||||||||
Total liabilities, redeemable noncontrolling interest and equity | $ | 14,488 | $ | 327 | 2 | % | $ | 14,754 | $ | 375 | 3 | % | $ | 13,835 | $ | 326 | 2 | % |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
In millions | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Operating revenues | $ | 118 | $ | 122 | $ | 372 | $ | 433 | ||||||||
Operating expenses | ||||||||||||||||
Cost of goods sold | 77 | 89 | 234 | 292 | ||||||||||||
Operation and maintenance | 18 | 18 | 40 | 41 | ||||||||||||
Depreciation and amortization | 2 | 3 | 4 | 5 | ||||||||||||
Taxes other than income taxes | 1 | — | 1 | 1 | ||||||||||||
Total operating expenses | 98 | 110 | 279 | 339 | ||||||||||||
Operating income | $ | 20 | $ | 12 | $ | 93 | $ | 94 |
In millions | June 30, 2016 | December 31, 2015 | June 30, 2015 | |||||||||
Triton | $ | 46 | $ | 49 | $ | 53 | ||||||
PennEast Pipeline | 15 | 9 | 3 | |||||||||
Horizon Pipeline | 14 | 14 | 14 | |||||||||
Atlantic Coast Pipeline | 14 | 7 | 4 | |||||||||
Other | 1 | 1 | 1 | |||||||||
Total | $ | 90 | $ | 80 | $ | 75 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
In millions | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Triton | $ | 1 | $ | 1 | $ | 1 | $ | 1 | ||||||||
Horizon Pipeline | — | — | 1 | 1 |
In millions | Distribution operations | Retail operations | Wholesale services (1) | Midstream operations | Other | Intercompany eliminations | Consolidated | |||||||||||||||||||||
Operating revenues from external parties | $ | 509 | $ | 149 | $ | (95 | ) | $ | 10 | $ | 2 | $ | (4 | ) | $ | 571 | ||||||||||||
Intercompany revenues | 38 | — | — | — | — | (38 | ) | — | ||||||||||||||||||||
Total operating revenues | 547 | 149 | (95 | ) | 10 | 2 | (42 | ) | 571 | |||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||
Cost of goods sold | 144 | 83 | 1 | 4 | — | (41 | ) | 191 | ||||||||||||||||||||
Operation and maintenance | 164 | 31 | 14 | 6 | — | (2 | ) | 213 | ||||||||||||||||||||
Depreciation and amortization | 89 | 5 | 1 | 5 | 4 | — | 104 | |||||||||||||||||||||
Taxes other than income taxes | 33 | 1 | 1 | 1 | 1 | — | 37 | |||||||||||||||||||||
Merger-related expenses | — | — | — | — | 53 | — | 53 | |||||||||||||||||||||
Total operating expenses | 430 | 120 | 17 | 16 | 58 | (43 | ) | 598 | ||||||||||||||||||||
Operating income (loss) | 117 | 29 | (112 | ) | (6 | ) | (56 | ) | 1 | (27 | ) | |||||||||||||||||
Other income | 2 | — | — | 1 | — | — | 3 | |||||||||||||||||||||
EBIT | $ | 119 | $ | 29 | $ | (112 | ) | $ | (5 | ) | $ | (56 | ) | $ | 1 | $ | (24 | ) | ||||||||||
Capital expenditures | $ | 280 | $ | 2 | $ | 1 | $ | 25 | $ | 5 | $ | — | $ | 313 |
In millions | Distribution operations | Retail operations | Wholesale services (1) | Midstream operations | Other | Intercompany eliminations | Consolidated | |||||||||||||||||||||
Operating revenues from external parties | $ | 506 | $ | 153 | $ | 4 | $ | 11 | $ | 3 | $ | (3 | ) | $ | 674 | |||||||||||||
Intercompany revenues | 40 | — | — | — | — | (40 | ) | — | ||||||||||||||||||||
Total operating revenues | 546 | 153 | 4 | 11 | 3 | (43 | ) | 674 | ||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||
Cost of goods sold | 166 | 95 | — | 2 | — | (41 | ) | 222 | ||||||||||||||||||||
Operation and maintenance | 160 | 34 | 11 | 6 | — | (2 | ) | 209 | ||||||||||||||||||||
Depreciation and amortization | 83 | 6 | 1 | 4 | 4 | — | 98 | |||||||||||||||||||||
Taxes other than income taxes | 34 | 1 | — | 1 | 2 | — | 38 | |||||||||||||||||||||
Total operating expenses | 443 | 136 | 12 | 13 | 6 | (43 | ) | 567 | ||||||||||||||||||||
Operating income (loss) | 103 | 17 | (8 | ) | (2 | ) | (3 | ) | — | 107 | ||||||||||||||||||
Other income | 3 | — | — | — | 1 | — | 4 | |||||||||||||||||||||
EBIT | $ | 106 | $ | 17 | $ | (8 | ) | $ | (2 | ) | $ | (2 | ) | $ | — | $ | 111 | |||||||||||
Capital expenditures | $ | 248 | $ | 2 | $ | — | $ | 7 | $ | 7 | $ | — | $ | 264 |
In millions | Distribution operations | Retail operations | Wholesale services (1) | Midstream operations | Other | Intercompany eliminations | Consolidated | |||||||||||||||||||||
Operating revenues from external parties | $ | 1,492 | $ | 435 | $ | (32 | ) | $ | 25 | $ | 4 | $ | (19 | ) | $ | 1,905 | ||||||||||||
Intercompany revenues | 83 | — | — | — | — | (83 | ) | — | ||||||||||||||||||||
Total operating revenues | 1,575 | 435 | (32 | ) | 25 | 4 | (102 | ) | 1,905 | |||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||
Cost of goods sold | 608 | 245 | 4 | 10 | — | (98 | ) | 769 | ||||||||||||||||||||
Operation and maintenance | 349 | 68 | 30 | 13 | (2 | ) | (4 | ) | 454 | |||||||||||||||||||
Depreciation and amortization | 178 | 11 | 1 | 9 | 7 | — | 206 | |||||||||||||||||||||
Taxes other than income taxes | 89 | 2 | 2 | 2 | 4 | — | 99 | |||||||||||||||||||||
Merger-related expenses | — | — | — | — | 56 | — | 56 | |||||||||||||||||||||
Total operating expenses | 1,224 | 326 | 37 | 34 | 65 | (102 | ) | 1,584 | ||||||||||||||||||||
Operating income (loss) | 351 | 109 | (69 | ) | (9 | ) | (61 | ) | — | 321 | ||||||||||||||||||
Other income | 2 | — | 1 | 3 | — | — | 6 | |||||||||||||||||||||
EBIT | $ | 353 | $ | 109 | $ | (68 | ) | $ | (6 | ) | $ | (61 | ) | $ | — | $ | 327 | |||||||||||
Total assets | $ | 12,499 | $ | 672 | $ | 753 | $ | 744 | $ | 9,493 | $ | (9,673 | ) | $ | 14,488 | |||||||||||||
Capital expenditures | $ | 484 | $ | 4 | $ | 1 | $ | 43 | $ | 16 | $ | — | $ | 548 |
In millions | Distribution operations | Retail operations | Wholesale services (1) | Midstream operations | Other | Intercompany eliminations | Consolidated | |||||||||||||||||||||
Operating revenues from external parties | $ | 1,791 | $ | 494 | $ | 94 | $ | 30 | $ | 9 | $ | (23 | ) | $ | 2,395 | |||||||||||||
Intercompany revenues | 96 | — | — | — | — | (96 | ) | — | ||||||||||||||||||||
Total operating revenues | 1,887 | 494 | 94 | 30 | 9 | (119 | ) | 2,395 | ||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||
Cost of goods sold | 942 | 305 | 9 | 12 | 5 | (116 | ) | 1,157 | ||||||||||||||||||||
Operation and maintenance | 345 | 71 | 35 | 12 | (2 | ) | (3 | ) | 458 | |||||||||||||||||||
Depreciation and amortization | 165 | 12 | 1 | 9 | 8 | — | 195 | |||||||||||||||||||||
Taxes other than income taxes | 105 | 2 | 1 | 2 | 4 | — | 114 | |||||||||||||||||||||
Total operating expenses | 1,557 | 390 | 46 | 35 | 15 | (119 | ) | 1,924 | ||||||||||||||||||||
Operating income (loss) | 330 | 104 | 48 | (5 | ) | (6 | ) | — | 471 | |||||||||||||||||||
Other income | 4 | — | — | 1 | 2 | — | 7 | |||||||||||||||||||||
EBIT | $ | 334 | $ | 104 | $ | 48 | $ | (4 | ) | $ | (4 | ) | $ | — | $ | 478 | ||||||||||||
Total assets | $ | 11,796 | $ | 636 | $ | 806 | $ | 686 | $ | 9,190 | $ | (9,279 | ) | $ | 13,835 | |||||||||||||
Capital expenditures | $ | 418 | $ | 4 | $ | 1 | $ | 10 | $ | 19 | $ | — | $ | 452 |
In millions | Third party gross revenues | Intercompany revenues | Total gross revenues | Less gross gas costs | Operating revenues | ||||||||||||
Three months ended June 30, 2016 | $ | 1,061 | 58 | 1,119 | 1,214 | $ | (95 | ) | |||||||||
Three months ended June 30, 2015 | $ | 1,291 | 89 | 1,380 | 1,376 | $ | 4 | ||||||||||
Six months ended June 30, 2016 | $ | 2,500 | 143 | 2,643 | 2,675 | $ | (32 | ) | |||||||||
Six months ended June 30, 2015 | $ | 3,436 | 239 | 3,675 | 3,581 | $ | 94 |
In millions | Distribution operations | Retail operations | Wholesale services | Midstream operations | Other | Intercompany eliminations | Consolidated | |||||||||||||||||||||
Total assets | $ | 12,517 | $ | 686 | $ | 935 | $ | 692 | $ | 9,664 | $ | (9,740 | ) | $ | 14,754 |
• | the accompanying notes to the Unaudited Pro Forma Condensed Combined Consolidated Financial Statements; |
• | the consolidated financial statements of Southern Company as of and for the year ended December 31, 2015 included in Southern Company’s Annual Report on Form 10-K; |
• | the consolidated financial statements of Southern Company as of and for the three months ended March 31, 2016 and as of and for the three and six months ended June 30, 2016 included in Southern Company’s Quarterly Reports on Form 10-Q; |
• | the consolidated financial statements of Southern Company Gas as of and for the year ended December 31, 2015 included in Southern Company Gas’ Annual Report on Form 10-K and attached as Exhibit 99.1 to Southern Company’s Current Report on Form 8-K dated May 5, 2016; |
• | the consolidated financial statements of Southern Company Gas as of and for the three months ended March 31, 2016 and as of and for the three and six months ended June 30, 2016 included in Southern Company Gas’ Quarterly Reports on Form 10-Q and attached as Exhibit 99.2 to Southern Company’s Current Report on Form 8-K dated May 5, 2016 and Exhibit 99.1 to Southern Company’s Current Report on Form 8-K dated August 8, 2016, respectively. |
Southern Company | Southern Company Gas | Pro Forma Adjustments | Pro Forma Combined | ||||||||||||
(in millions, except per share data) | |||||||||||||||
Operating Revenues: | $ | 8,451 | $ | 1,905 | $ | (17 | ) | (a)(b) | $ | 10,339 | |||||
Operating Expenses: | |||||||||||||||
Fuel | 1,934 | — | (10 | ) | (a) | 1,924 | |||||||||
Purchased power | 354 | — | — | 354 | |||||||||||
Cost of sales — gas operations | — | 769 | — | 769 | |||||||||||
Cost of sales — other | 77 | — | — | 77 | |||||||||||
Other operations and maintenance | 2,206 | 510 | (89 | ) | (c) | 2,627 | |||||||||
Depreciation and amortization | 1,110 | 206 | 4 | (d) | 1,320 | ||||||||||
Taxes other than income taxes | 511 | 99 | — | 610 | |||||||||||
Estimated loss on Kemper IGCC | 134 | — | — | 134 | |||||||||||
Total operating expenses | 6,326 | 1,584 | (95 | ) | 7,815 | ||||||||||
Operating Income | 2,125 | 321 | 78 | 2,524 | |||||||||||
Other Income and (Expense): | |||||||||||||||
Allowance for equity funds used during construction | 98 | — | — | 98 | |||||||||||
Interest expense, net | (539 | ) | (95 | ) | (73 | ) | (e) | (707 | ) | ||||||
Other income (expense), net | (57 | ) | 6 | 30 | (c) | (21 | ) | ||||||||
Total other income and (expense) | (498 | ) | (89 | ) | (43 | ) | (630 | ) | |||||||
Earnings Before Income Taxes | 1,627 | 232 | 35 | 1,894 | |||||||||||
Income taxes | 494 | 87 | 24 | (f) | 605 | ||||||||||
Consolidated net income | 1,133 | 145 | 11 | 1,289 | |||||||||||
Dividends on preferred and preference stock of subsidiaries | 23 | — | — | 23 | |||||||||||
Net income attributable to noncontrolling interests | 13 | 14 | — | 27 | |||||||||||
Consolidated Net Income After Dividends on Preferred and Preference Stock of Subsidiaries and Net Income Attributable to Noncontrolling Interests | $ | 1,097 | $ | 131 | $ | 11 | $ | 1,239 | |||||||
Common Stock Data: | |||||||||||||||
Earnings per share (EPS) — | |||||||||||||||
Basic EPS | $ | 1.19 | $ | 1.32 | |||||||||||
Diluted EPS | $ | 1.18 | $ | 1.31 | |||||||||||
Average number of shares of common stock outstanding: | |||||||||||||||
Basic | 925 | 13 | (g) | 938 | |||||||||||
Diluted | 931 | 13 | (g) | 944 |
Southern Company | Southern Company Gas | Pro Forma Adjustments | Pro Forma Combined | ||||||||||||
(in millions, except per share data) | |||||||||||||||
Operating Revenues: | $ | 17,489 | $ | 3,941 | $ | (61 | ) | (a)(b) | $ | 21,369 | |||||
Operating Expenses: | |||||||||||||||
Fuel | 4,750 | — | (47 | ) | (a) | 4,703 | |||||||||
Purchased power | 645 | — | — | 645 | |||||||||||
Cost of goods sold — gas operations | — | 1,645 | — | 1,645 | |||||||||||
Other operations and maintenance | 4,416 | 958 | (71 | ) | (c) | 5,303 | |||||||||
Depreciation and amortization | 2,034 | 397 | 8 | (d) | 2,439 | ||||||||||
Taxes other than income taxes | 997 | 181 | — | 1,178 | |||||||||||
Goodwill impairment | — | 14 | — | 14 | |||||||||||
Estimated loss on Kemper IGCC | 365 | — | — | 365 | |||||||||||
Total operating expenses | 13,207 | 3,195 | (110 | ) | 16,292 | ||||||||||
Operating Income | 4,282 | 746 | 49 | 5,077 | |||||||||||
Other Income and (Expense): | |||||||||||||||
Allowance for equity funds used during construction | 226 | 4 | — | 230 | |||||||||||
Interest expense, net | (817 | ) | (173 | ) | (194 | ) | (e) | (1,184 | ) | ||||||
Other income (expense), net | (62 | ) | 9 | 14 | (c) | (39 | ) | ||||||||
Total other income and (expense) | (653 | ) | (160 | ) | (180 | ) | (993 | ) | |||||||
Earnings Before Income Taxes | 3,629 | 586 | (131 | ) | 4,084 | ||||||||||
Income taxes | 1,194 | 213 | (45 | ) | (f) | 1,362 | |||||||||
Consolidated net income | 2,435 | 373 | (86 | ) | 2,722 | ||||||||||
Dividends on preferred and preference stock of subsidiaries | 54 | — | — | 54 | |||||||||||
Net income attributable to noncontrolling interests | 14 | 20 | — | 34 | |||||||||||
Consolidated Net Income After Dividends on Preferred and Preference Stock of Subsidiaries and Net Income Attributable to Noncontrolling Interests | $ | 2,367 | $ | 353 | $ | (86 | ) | $ | 2,634 | ||||||
Common Stock Data: | |||||||||||||||
Earnings per share (EPS) — | |||||||||||||||
Basic EPS | $ | 2.60 | $ | 2.82 | |||||||||||
Diluted EPS | $ | 2.59 | $ | 2.81 | |||||||||||
Average number of shares of common stock outstanding: | |||||||||||||||
Basic | 910 | 24 | (g) | 934 | |||||||||||
Diluted | 914 | 24 | (g) | 938 |
Southern Company | Southern Company Gas | Pro Forma Adjustments | Pro Forma Combined | ||||||||||||
(in millions) | |||||||||||||||
Current Assets: | |||||||||||||||
Cash and cash equivalents | $ | 1,897 | $ | 15 | $ | (27 | ) | (h) | $ | 1,885 | |||||
Restricted cash and cash equivalents | 7,963 | — | (7,963 | ) | (h) | — | |||||||||
Receivables | 2,130 | 784 | — | 2,914 | |||||||||||
Accumulated provision for uncollectible accounts | (14 | ) | (38 | ) | — | (52 | ) | ||||||||
Fossil fuel stock | 798 | 398 | — | 1,196 | |||||||||||
Materials and supplies | 1,210 | 29 | — | 1,239 | |||||||||||
Prepaid expenses | 563 | 60 | — | 623 | |||||||||||
Other regulatory assets, current | 531 | 47 | — | 578 | |||||||||||
Other current assets | 71 | 179 | — | 250 | |||||||||||
Total current assets | 15,149 | 1,474 | (7,990 | ) | 8,633 | ||||||||||
Property, Plant, and Equipment: | |||||||||||||||
Property, plant, and equipment | 88,671 | 13,039 | (353 | ) | (i) | 101,357 | |||||||||
Less accumulated depreciation | 24,778 | 2,891 | — | 27,669 | |||||||||||
Total property, plant, and equipment | 63,893 | 10,148 | (353 | ) | 73,688 | ||||||||||
Other Property and Investments: | |||||||||||||||
Nuclear decommissioning trusts, at fair value | 1,578 | — | — | 1,578 | |||||||||||
Leveraged leases | 763 | — | — | 763 | |||||||||||
Goodwill | 264 | 1,813 | 4,520 | (j) | 6,597 | ||||||||||
Intangibles | 490 | 101 | 336 | (k) | 927 | ||||||||||
Miscellaneous property and investments | 230 | — | — | 230 | |||||||||||
Total other property and investments | 3,325 | 1,914 | 4,856 | 10,095 | |||||||||||
Deferred Charges and Other Assets: | |||||||||||||||
Other regulatory assets, deferred | 7,260 | 679 | 167 | (l) | 8,106 | ||||||||||
Other deferred charges and assets | 1,246 | 273 | — | 1,519 | |||||||||||
Total deferred charges and other assets | 8,506 | 952 | 167 | 9,625 | |||||||||||
Total Assets | $ | 90,873 | $ | 14,488 | $ | (3,320 | ) | $ | 102,041 |
Southern Company | Southern Company Gas | Pro Forma Adjustments | Pro Forma Combined | ||||||||||||
(in millions) | |||||||||||||||
Current Liabilities: | |||||||||||||||
Securities due within one year | $ | 2,724 | $ | 575 | $ | — | $ | 3,299 | |||||||
Notes payable | 1,372 | 114 | — | 1,486 | |||||||||||
Accounts payable | 1,493 | 714 | — | 2,207 | |||||||||||
Customer deposits | 408 | 143 | — | 551 | |||||||||||
Accrued expenses | 1,264 | 221 | — | 1,485 | |||||||||||
Regulatory liabilities | 115 | 156 | — | 271 | |||||||||||
Other current liabilities | 1,138 | 282 | — | 1,420 | |||||||||||
Total current liabilities | 8,514 | 2,205 | — | 10,719 | |||||||||||
Long-term Debt | 35,368 | 3,709 | 552 | (m) | 39,629 | ||||||||||
Deferred Credits and Other Liabilities: | |||||||||||||||
Accumulated deferred income taxes | 12,563 | 1,992 | (281 | ) | (n) | 14,274 | |||||||||
Employee benefit obligations | 2,485 | 513 | 211 | (o) | 3,209 | ||||||||||
Asset retirement obligations | 4,129 | 3 | — | 4,132 | |||||||||||
Regulatory liabilities | 1,672 | 1,627 | — | 3,299 | |||||||||||
Other deferred credits and liabilities | 2,531 | 465 | — | 2,996 | |||||||||||
Total deferred credits and other liabilities | 23,380 | 4,600 | (70 | ) | 27,910 | ||||||||||
Total Liabilities | 67,262 | 10,514 | 482 | 78,258 | |||||||||||
Redeemable Preferred Stock of Subsidiaries | 118 | — | — | 118 | |||||||||||
Redeemable Noncontrolling Interest | 47 | 41 | 119 | (p) | 207 | ||||||||||
Common Stockholders’ Equity: | 22,015 | 3,933 | (3,921 | ) | (q) | 22,027 | |||||||||
Preferred and Preference Stock of Subsidiaries | 609 | — | — | 609 | |||||||||||
Noncontrolling Interest | 822 | — | — | 822 | |||||||||||
Total Stockholders’ Equity | 23,446 | 3,933 | (3,921 | ) | 23,458 | ||||||||||
Total Liabilities and Stockholders’ Equity | $ | 90,873 | $ | 14,488 | $ | (3,320 | ) | $ | 102,041 |
(in millions) | |||
Current assets | $ | 1,474 | |
Property, plant, and equipment | 9,795 | ||
Goodwill | 6,333 | ||
Intangible assets | 436 | ||
Regulatory assets | 846 | ||
Other assets | 273 | ||
Current liabilities | (2,205 | ) | |
Other liabilities | (4,529 | ) | |
Long-term debt | (4,261 | ) | |
Noncontrolling interests | (160 | ) | |
Total purchase price | $ | 8,002 |
(a) | Operating Revenues and Fuel Expense–Reflects the elimination of sales and purchases between Southern Company and Southern Company Gas of $10 million and $47 million for the six months ended June 30, 2016 and the year ended December 31, 2015, respectively. |
(b) | Operating Revenues–Reflects the annual amortization of the fair value adjustment associated with various transport and storage executory contracts over a weighted-average life of 5 years. See adjustment (k) to the pro forma balance sheet for additional information. |
(c) | Other Operations and Maintenance and Other Income (Expense), Net–Reflects the elimination of transaction costs incurred by Southern Company of $63 million for the six months ended June 30, 2016 ($33 million in Other Operations and Maintenance and $30 million in Other Income (Expense), Net) and $41 million for the year ended December 31, 2015 ($27 million in Other Operations and Maintenance and $14 million in Other Income (Expense), Net). Also reflects the elimination of transaction costs incurred by Southern Company Gas of $56 million for the six months ended June 30, 2016 and $44 million for the year ended December 31, 2015 in Other Operations and Maintenance. These costs have been eliminated as they will have no ongoing impact on the results of the combined entity. |
(d) | Depreciation and Amortization–Reflects the amortization of identifiable intangible assets related to customer relationships and trade names on a straight-line basis (over weighted-average remaining lives of 8 to 18 years) and an adjustment to depreciation expense based on the valuation adjustment for property, plant, and equipment (over a weighted-average life of 30 years). See adjustments (k) and (i), respectively, to the pro forma balance sheet for additional information. |
(e) | Interest Expense–Reflects additional interest expense of $91 million for the six months ended June 30, 2016 and $230 million for the year ended December 31, 2015 as a result of Southern Company borrowing $6.8 billion in May 2016 to fund the purchase of Southern Company Gas at the actual weighted average borrowing rate of 3.37%, which includes the impact of related interest rate derivative instruments. |
(f) | Income Taxes–Reflects the income tax effects of the pro forma adjustments calculated using an estimated statutory income tax rate of 38.5 percent, after adjustment for nondeductible expenses. |
(g) | Earnings Per Share–Pro forma earnings per share is computed as pro forma net income after dividends on preferred and preference stock and net income available to noncontrolling interests along with the pro forma impact of the issuance of an additional 24 million shares of Southern Company common stock in the first six months of 2016 for proceeds of $1.16 billion used to fund the purchase price of Southern Company Gas. The pro forma impact on the weighted average shares outstanding was 13 million shares for the six months ended June 30, 2016 and 24 million shares for the year ended December 31, 2015. |
(h) | Cash–Reflects the use of $7.99 billion of cash, including restricted cash, to fund a portion of the purchase price. |
(i) | Property, Plant, and Equipment–Represents the fair value adjustment related to Southern Company Gas’ unregulated property, plant, and equipment. |
(j) | Goodwill–Reflects the elimination of Southern Company Gas’ historical goodwill balance of $1.8 billion and the establishment of goodwill of $6.3 billion based on the preliminary estimate of the excess of the purchase price paid over the fair value of Southern Company Gas’ assets acquired and liabilities assumed, calculated as follows: |
(in millions) | |||
Purchase price | $ | 8,002 | |
Less: Fair value of net assets acquired | 1,669 | ||
Less: Southern Company Gas’ existing goodwill | 1,813 | ||
Pro forma goodwill adjustment | $ | 4,520 |
(k) | Intangible Assets–Reflects the preliminary estimates of the incremental value of intangible assets consisting of customer relationship and trade names of $266 million and the fair value adjustment for transport and storage executory contracts of $70 million. |
(l) | Regulatory Assets–Reflects a $167 million adjustment to offset the preliminary estimate of the fair value adjustment of debt at the regulated utilities of Southern Company Gas, which are assumed to continue collecting interest expense through regulated rates equal to the stated interest rate on currently outstanding debt. |
(m) | Long-term Debt–Reflects the preliminary estimate of the fair value adjustment of $552 million to increase Southern Company Gas’ outstanding debt, $167 million of which is related to its regulated utilities and $385 million is associated with its unregulated businesses. |
(n) | Deferred Income Taxes-Long-term–Reflects additional estimated deferred tax liabilities attributable to the fair value adjustments (excluding goodwill). Adjustment is based on the combined companies’ estimated post-merger composite statutory tax rate of 38.5 percent. The assumed effective tax rate does not take into account any possible future tax events that may impact the combined company. |
(o) | Employee Benefit Obligations–Reflects an adjustment of $211 million to record Southern Company Gas’ pension benefits and other postretirement employee benefits’ plan assets and obligations at estimated fair values. |
(p) | Redeemable Noncontrolling Interest–Reflects the fair value of Southern Company Gas’ redeemable noncontrolling interest in SouthStar Energy Services, LLC representing a 15% interest in the entity. |
(q) | Common Stockholders’ Equity–Reflects the elimination of Southern Company Gas’ historical equity balance of $3.9 billion and additional purchase consideration of $12 million resulting from the exchange of Southern Company share-based payment awards for certain outstanding Southern Company Gas awards. |