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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended March 31, 2016
 
 
 
Commission File Number 1-14174
 
AGL RESOURCES INC.
Ten Peachtree Place NE, Atlanta, Georgia 30309
404-584-4000
 
Georgia
58-2210952
(State of incorporation)
(I.R.S. Employer Identification No.)
 
 
AGL Resources Inc. (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
AGL Resources Inc. has submitted electronically and posted on its corporate website every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.
AGL Resources Inc. is a large accelerated filer and is not a shell company.
 
The number of shares of AGL Resources Inc.’s common stock, $5.00 Par Value, outstanding as of April 29, 2016, was 120,680,030.




AGL RESOURCES INC.
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2016

TABLE OF CONTENTS
 
 
Page
 
Item Number.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



GLOSSARY OF KEY TERMS
2015 Form 10-K
Our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on February 11, 2016
AGL Capital
AGL Capital Corporation
AGL Credit Facility
$1.3 billion credit agreement entered into by AGL Capital to support its commercial paper program
AGL Resources
AGL Resources Inc., together with its consolidated subsidiaries
Atlanta Gas Light
Atlanta Gas Light Company
Atlantic Coast Pipeline
Atlantic Coast Pipeline, LLC
Bcf
Billion cubic feet
Central Valley
Central Valley Gas Storage, LLC
CUB
Citizens Utility Board
EBIT
Earnings before interest and taxes, the primary measure of our reportable segments’ profit or loss, which includes operating income and other income and excludes interest on debt and income tax expense
ERC
Environmental remediation costs
FASB
Financial Accounting Standards Board
FERC
Federal Energy Regulatory Commission
Fitch
Fitch Ratings
Florida Commission
Florida Public Service Commission, the state regulatory agency for Florida City Gas
GAAP
Accounting principles generally accepted in the United States of America
Georgia Commission
Georgia Public Service Commission, the state regulatory agency for Atlanta Gas Light
Golden Triangle
Golden Triangle Storage, Inc.
Heating Degree Days
A measure of weather, calculated when the average daily temperatures are less than 65 degrees Fahrenheit
Heating Season
The period from November through March when natural gas usage and operating revenues are generally higher
Horizon Pipeline
Horizon Pipeline Company, LLC
Illinois Commission
Illinois Commerce Commission, the state regulatory agency for Nicor Gas
Jefferson Island
Jefferson Island Storage & Hub, LLC
LIFO
Last-in, first-out
LOCOM
Lower of weighted average cost or current market price
Marketers
Marketers selling retail natural gas in Georgia and certificated by the Georgia Commission
Maryland Commission
Maryland Public Service Commission, the state regulatory agency for Elkton Gas
Merger Agreement
Agreement and Plan of Merger entered into on August 23, 2015 by Southern Company, AMS Corp., a subsidiary of Southern Company, and AGL Resources
MGP
Manufactured Gas Plant
Moody’s
Moody’s Investors Service
New Jersey BPU
New Jersey Board of Public Utilities, the state regulatory agency for Elizabethtown Gas
Nicor Gas
Northern Illinois Gas Company, doing business as Nicor Gas Company
Nicor Gas Credit Facility
$700 million credit facility entered into by Nicor Gas to support its commercial paper program
NYMEX
New York Mercantile Exchange, Inc.
OCI
Other comprehensive income
Operating margin
A non-GAAP measure of income, calculated as operating revenues minus cost of goods sold and revenue tax expense
PennEast Pipeline
PennEast Pipeline Company, LLC
PGA
Purchased gas adjustment
Piedmont
Piedmont Natural Gas Company, Inc.
Pivotal Utility
Pivotal Utility Holdings, Inc., doing business as Elizabethtown Gas, Elkton Gas and Florida City Gas
PRP
Pipeline Replacement Program, Atlanta Gas Light's 15-year infrastructure replacement program, which ended in December 2013
S&P
Standard & Poor’s Ratings Services
SEC
Securities and Exchange Commission
Sequent
Sequent Energy Management, L.P.
Southern Company
The Southern Company
SouthStar
SouthStar Energy Services, LLC
Triton
Triton Container Investments, LLC
U.S.
The United States of America
VaR
Value-at-risk
VIE
Variable interest entity
Virginia Commission
Virginia State Corporation Commission, the state regulatory agency for Virginia Natural Gas
Virginia Natural Gas
Virginia Natural Gas, Inc.
WACOG
Weighted average cost of gas



PART I – FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITIED)
 
 
As of
In millions, except share and per share amounts
 
March 31, 2016
 
December 31, 2015
 
March 31, 2015
Current assets
 
 
 
 
 
 
Cash and cash equivalents
 
$
20

 
$
19

 
$
41

Receivables
 
 

 
 

 
 

Natural gas, unbilled revenues and other
 
564

 
516

 
834

Energy marketing
 
365

 
445

 
611

Less allowance for uncollectible accounts
 
36

 
29

 
48

Total receivables, net
 
893

 
932

 
1,397

Inventories
 
335

 
651

 
302

Derivative instruments, including cash collateral
 
160

 
206

 
189

Prepaid expenses
 
62

 
218

 
38

Regulatory assets
 
50

 
68

 
63

Other
 
17

 
21

 
49

Total current assets
 
1,537

 
2,115

 
2,079

Long-term assets and other deferred debits
 
 

 
 

 
 

Property, plant and equipment
 
12,777

 
12,566

 
11,689

Less accumulated depreciation
 
2,833

 
2,775

 
2,515

Property, plant and equipment, net
 
9,944

 
9,791

 
9,174

Goodwill
 
1,813

 
1,813

 
1,827

Regulatory assets
 
661

 
670

 
634

Intangible assets
 
105

 
109

 
116

Other
 
276

 
256

 
289

Total long-term assets and other deferred debits
 
12,799

 
12,639

 
12,040

Total assets
 
$
14,336

 
$
14,754

 
$
14,119

Current liabilities
 
 

 
 

 
 

Short-term debt
 
$
557

 
$
1,010

 
$
526

Current portion of long-term debt
 
470

 
545

 
75

Energy marketing trade payables
 
363

 
418

 
586

Other accounts payable – trade
 
250

 
255

 
285

Accrued expenses
 
231

 
200

 
259

Regulatory liabilities
 
159

 
134

 
168

Customer deposits and credit balances
 
141

 
165

 
109

Accrued environmental remediation liabilities
 
68

 
67

 
93

Derivative instruments, including cash collateral
 
64

 
44

 
48

Temporary LIFO liquidation
 
48

 

 
87

Current deferred income taxes
 
20

 
31

 

Other
 
118

 
131

 
135

Total current liabilities
 
2,489

 
3,000

 
2,371

Long-term liabilities and other deferred credits
 
 

 
 

 
 

Long-term debt
 
3,273

 
3,275

 
3,505

Accumulated deferred income taxes
 
1,921

 
1,912

 
1,738

Regulatory liabilities
 
1,632

 
1,611

 
1,612

Accrued pension and retiree welfare benefits
 
513

 
515

 
526

Accrued environmental remediation liabilities
 
355

 
364

 
326

Other
 
83

 
102

 
77

Total long-term liabilities and other deferred credits
 
7,777

 
7,779

 
7,784

Total liabilities and other deferred credits
 
10,266

 
10,779

 
10,155

Commitments, guarantees and contingencies (see Note 11)
 


 


 


Contingently redeemable noncontrolling interest
 
38

 

 

Equity
 
 

 
 

 
 

Common stock, $5 par value; 750,000,000 shares authorized; outstanding: 120,679,004 shares at March 31, 2016, 120,376,721 shares at December 31, 2015, and 119,927,459 shares at March 31, 2015
 
604

 
603

 
601

Additional paid-in capital
 
2,110

 
2,099

 
2,090

Retained earnings
 
1,539

 
1,421

 
1,444

Accumulated other comprehensive loss
 
(213
)
 
(186
)
 
(201
)
Treasury shares, at cost: 216,523 shares at March 31, 2016, December 31, 2015, and March 31, 2015
 
(8
)
 
(8
)
 
(8
)
Total common shareholders’ equity
 
4,032

 
3,929

 
3,926

Noncontrolling interest
 

 
46

 
38

Total equity
 
4,032

 
3,975

 
3,964

Total liabilities, redeemable noncontrolling interest and equity
 
$
14,336

 
$
14,754

 
$
14,119

See Notes to Condensed Consolidated Financial Statements (Unaudited).



AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 
 
Three Months Ended March 31,
In millions, except per share amounts
 
2016
 
2015
Operating revenues (includes revenue taxes of $40 and $56 for the three months ended March 31, 2016 and 2015, respectively)
 
$
1,334

 
$
1,721

Operating expenses
 
 

 
 

Cost of goods sold
 
578

 
935

Operation and maintenance
 
241

 
249

Depreciation and amortization
 
102

 
97

Taxes other than income taxes
 
62

 
76

Merger-related expenses
 
3

 

Total operating expenses
 
986

 
1,357

Operating income
 
348

 
364

Other income
 
3

 
3

Interest expense, net
 
(47
)
 
(44
)
Income before income taxes
 
304

 
323

Income tax expense
 
111

 
118

Net income
 
193

 
205

Less net income attributable to noncontrolling interest
 
11

 
12

Net income attributable to AGL Resources
 
$
182

 
$
193

Per common share information
 
 

 
 

Basic earnings per common share attributable to AGL Resources
 
$
1.52

 
$
1.62

Diluted earnings per common share attributable to AGL Resources
 
$
1.51

 
$
1.62

Cash dividends declared per common share
 
$
0.53

 
$
0.51

Weighted average number of common shares outstanding
 

 
 

Basic
 
120.1

 
119.3

Diluted
 
120.4

 
119.6

See Notes to Condensed Consolidated Financial Statements (Unaudited).



AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)

 
 
Three Months Ended March 31,
In millions
 
2016
 
2015
Net income
 
$
193

 
$
205

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 $2 for the three months ended March 31, 2016 and 2015, respectively)
 
3

 
3

Retirement benefit plans, net
 
3

 
3

Cash flow hedges, net of tax
 
 

 
 

Net derivative (loss) gain arising during the period (net of income tax of $16 and $1 for the three months ended March 31, 2016 and 2015, respectively)
 
(29
)
 
2

Reclassification of realized derivative gain to net income (net of income tax of less than $1 million)
 
(1
)
 

Cash flow hedges, net
 
(30
)
 
2

Other comprehensive (loss) income, net of tax
 
(27
)
 
5

Comprehensive income
 
166

 
210

Less comprehensive income attributable to noncontrolling interest
 
11

 
12

Comprehensive income attributable to AGL Resources
 
$
155

 
$
198

See Notes to Condensed Consolidated Financial Statements (Unaudited).



AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
 
 
AGL Resources Shareholders
 
 
 
 
 
 
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
 

 

 

 
193

 

 

 
12

 
205

Other comprehensive income
 

 

 

 

 
5

 

 

 
5

Dividends on common stock ($0.51 per share)
 

 

 

 
(61
)
 

 

 

 
(61
)
Distribution to noncontrolling interest
 

 

 

 

 

 

 
(18
)
 
(18
)
Stock granted, share-based compensation, net of forfeitures
 

 

 
(12
)
 

 

 

 

 
(12
)
Stock issued, dividend reinvestment plan
 
0.1

 

 
3

 

 

 

 

 
3

Stock issued, share-based compensation, net of forfeitures
 
0.2

 
2

 
10

 

 

 

 

 
12

Share-based compensation expense, net of tax
 

 

 
2

 

 

 

 

 
2

Balance as of March 31, 2015
 
119.9

 
$
601

 
$
2,090

 
$
1,444

 
$
(201
)
 
$
(8
)
 
$
38

 
$
3,964

 
 
AGL Resources Shareholders
 
 
 
 
 
 
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 AGL Resources
 

 

 

 
182

 

 

 

 
182

Other comprehensive loss
 

 

 

 

 
(27
)
 

 

 
(27
)
Dividends on common stock ($0.53 per share)
 

 

 

 
(64
)
 

 

 

 
(64
)
Stock granted, share-based compensation, net of forfeitures
 

 

 
(9
)
 

 

 

 

 
(9
)
Stock issued, dividend reinvestment plan
 

 

 
3

 

 

 

 

 
3

Stock issued, share-based compensation, net of forfeitures
 
0.3

 
1

 
14

 

 

 

 

 
15

Share-based compensation expense, net of tax
 

 

 
3

 

 

 

 

 
3

Reclassification of noncontrolling interest
 

 

 

 

 

 

 
(46
)
 
(46
)
Balance as of March 31, 2016
 
120.7

 
$
604

 
$
2,110

 
$
1,539

 
$
(213
)
 
$
(8
)
 
$

 
$
4,032

See Notes to Condensed Consolidated Financial Statements (Unaudited).



AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

 
 
Three Months Ended March 31,
In millions
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
Net income
 
$
193

 
$
205

Adjustments to reconcile net income to net cash flow provided by operating activities
 
 

 
 

Depreciation and amortization
 
102

 
97

Change in derivative instrument assets and liabilities
 
51

 
33

Deferred income taxes
 
15

 
5

Changes in certain assets and liabilities
 
 

 
 

Inventories, net of temporary LIFO liquidation
 
364

 
501

Prepaid and miscellaneous taxes
 
231

 
267

Energy marketing receivables and trade payables, net
 
25

 
(23
)
Accrued natural gas costs, net
 

 
22

Trade payables, other than energy marketing
 
(8
)
 
(13
)
Receivables, other than energy marketing
 
(39
)
 
(24
)
Accrued expenses
 
(53
)
 
(54
)
Other, net
 
(40
)
 
104

Net cash flow provided by operating activities
 
841

 
1,120

Cash flows from investing activities:
 
 

 
 

Expenditures for property, plant and equipment
 
(235
)
 
(188
)
Other, net
 
(3
)
 
4

Net cash flow used in investing activities
 
(238
)
 
(184
)
Cash flows from financing activities:
 
 

 
 

Net repayments of commercial paper
 
(453
)
 
(649
)
Payment of long-term debt
 
(75
)
 
(200
)
Dividends paid on common shares
 
(64
)
 
(61
)
Distribution to noncontrolling interest
 
(19
)
 
(18
)
Other, net
 
9

 
2

Net cash flow used in financing activities
 
(602
)
 
(926
)
Net increase in cash and cash equivalents
 
1

 
10

Cash and cash equivalents at beginning of period
 
19

 
31

Cash and cash equivalents at end of period
 
$
20

 
$
41

Cash paid (received) during the period for
 
 

 
 

Interest
 
$
53

 
$
57

Income taxes
 
(132
)
 
(140
)
See Notes to Condensed Consolidated Financial Statements (Unaudited).



AGL RESOURCES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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,” or “AGL Resources” mean consolidated AGL Resources Inc. and its subsidiaries.
Our Condensed Consolidated Balance Sheet as of December 31, 2015 was derived from our audited consolidated financial statements. We have prepared the accompanying unaudited condensed consolidated financial statements under the rules and regulations of the SEC. In accordance with such rules and regulations, we have condensed or omitted certain information and notes that would typically be included in our annual audited financial statements. Our unaudited condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are, in the opinion of management, necessary for a fair statement of our financial results for the interim periods and should be read in conjunction with our consolidated financial statements and related notes included in Item 8 of our 2015 Form 10-K.
Due to the seasonal nature of our business and other factors, our results of operations and our financial condition for the periods presented are not necessarily indicative of the results of operations or financial condition to be expected for, or as of, any other period.
Basis of Presentation
Our unaudited condensed consolidated financial statements include our accounts, the accounts of our wholly owned subsidiaries and the accounts of our VIE for which we are the primary beneficiary. For unconsolidated entities that we do not control, we use the equity method of accounting and our proportionate share of income or loss is recorded on our unaudited Condensed Consolidated Statements of Income. See Note 10 for additional information on our non-wholly owned entities. We have eliminated intercompany profits and transactions in consolidation except for intercompany profits where recovery of such amounts is probable under the affiliates’ rate regulation process.
Certain amounts from prior periods have been reclassified to conform to the current period presentation. These reclassifications had no material impact on our prior period balances.
Note 2 - Proposed Merger with Southern Company
On August 23, 2015, we entered into the Merger Agreement with Southern Company and a new wholly owned subsidiary of Southern Company (Merger Sub), providing for the merger of Merger Sub with and into AGL Resources, with us surviving as a wholly owned, direct subsidiary of Southern Company. At the effective time of the merger, which is expected to occur in the second half of 2016, each share of our common stock, other than certain excluded shares, will convert into the right to receive $66 in cash, without interest, less any applicable withholding taxes.
We and Southern Company have made joint filings seeking regulatory approval with all of the required state regulatory agencies. Completion of the merger remains subject to various closing conditions, including (i) the receipt of remaining required regulatory approvals from the Illinois Commission and New Jersey BPU, and such approvals having become final orders and (ii) the absence of a judgment, order, decision, injunction, ruling or other finding or agency requirement of a governmental entity prohibiting the closing of the merger.
To date, the proposed merger has been approved by the Maryland Commission, the Georgia Commission, the California Public Utilities Commission, the Virginia Commission and our shareholders. Additionally, we received consent from the Federal Communications Commission to transfer parent company control of radio licenses held by certain of our subsidiaries and the waiting period under the Hart-Scott-Rodino Act has expired.
On April 28, 2016, Southern Company, AGL Resources, Nicor Gas, the Illinois Attorney General’s Office, and the CUB filed a settlement agreement with the Illinois Commission that resolves all remaining contested issues with regards to the merger approval. This settlement agreement, along with the other resolved matters, is still subject to approval by the Illinois Commission.
The Merger Agreement contains certain termination rights for each party. In addition, the Merger Agreement, in certain circumstances, provides for the payment by AGL Resources of a $201 million termination fee to Southern Company and, in certain circumstances, provides for the reimbursement of expenses up to $5 million upon termination of the erger Agreement (which reimbursement would reduce on a dollar-for-dollar basis any termination fee subsequently paid by us). As of March 31, 2016, we had recorded no liability for termination fees.
During the three months ended March 31, 2016, we recorded $3 million ($2 million, net of tax) of merger-related costs on the accompanying unaudited Condensed Consolidated Statements of Income, which consisted primarily of legal expenses and additional share-based compensation expenses associated with the proposed merger. These costs are treated as tax deductible since the requisite closing conditions to the merger have not yet been satisfied. Once the merger is closed, we will evaluate the tax deductibility of all merger-related costs and adjust for any non-deductible amounts in the effective tax rate.



Note 3 - Significant Accounting Policies and Methods of Application
Our significant accounting policies are described in Note 3 to our consolidated financial statements and related notes included in Item 8 of our 2015 Form 10-K. There have been no significant changes to our accounting policies during the three months ended March 31, 2016.
Use of Accounting Estimates
The preparation of our financial statements in conformity with GAAP requires us to use judgment and make estimates 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 application and interpretation of existing accounting literature or in the development of estimates that impact our financial statements. The most significant estimates relate to the accounting for our rate-regulated subsidiaries, goodwill and other intangible assets, derivatives and hedging activities, uncollectible accounts and other allowances for contingent losses, retirement plan benefit obligations and provisions for income taxes. We evaluate our estimates on an ongoing basis, and our actual results could differ from our estimates.
Inventories
For our regulated utilities, except Nicor Gas, natural gas inventories and the inventories we hold for Marketers in Georgia are carried at cost on a WACOG basis.
Nicor Gas’ inventory is carried at cost on a LIFO basis. Under the LIFO method, inventory decrements occurring during the year that are expected to be restored prior to year-end are charged to cost of goods sold at the estimated annual replacement cost, and the difference between this cost and the actual liquidated LIFO layer cost is recorded as a temporary LIFO liquidation on our unaudited Condensed Consolidated Balance Sheets. Interim inventory decrements that are not expected to be restored prior to year-end are charged to cost of goods sold at the actual LIFO cost of the layers liquidated. The inventory decrement as of March 31, 2016 is expected to be restored prior to year-end and the inventory decrement as of March 31, 2015 was restored prior to December 31, 2015.
Our retail operations, wholesale services and midstream operations segments carry inventory at LOCOM, where cost is determined on a WACOG basis. For the periods presented, we recorded LOCOM adjustments to cost of goods sold in the following amounts to reduce the value of our natural gas inventories to market value.
 
 
Three Months Ended March 31,
In millions
 
2016
 
2015
LOCOM adjustments
 
$
3

 
$
10

Goodwill
We perform an annual impairment test on our reporting units that contain goodwill during the fourth fiscal quarter of each year or more frequently if impairment indicators arise. The amounts of goodwill as of March 31, 2016 and 2015, and December 31, 2015 are provided in the following table.
In millions
 
Distribution operations
 
Retail operations
 
Midstream operations
 
Consolidated
Goodwill - March 31, 2015
 
$
1,640

 
$
173

 
$
14

 
$
1,827

Impairment (1)
 

 

 
(14
)
 
(14
)
Goodwill - December 31, 2015
 
1,640

 
173

 

 
1,813

Goodwill - March 31, 2016
 
$
1,640

 
$
173

 
$

 
$
1,813

(1) Based on the result of an interim impairment test performed as of September 30, 2015, we recorded a non-cash impairment charge of the full $14 million ($9 million, net of tax) of goodwill at midstream operations.
Earnings per Common Share
The following table shows the calculation of our diluted shares attributable to AGL Resources for the periods presented as if performance units currently earned under the plan ultimately vest and as if stock options currently exercisable at prices below the average market prices are exercised.



 
 
Three Months Ended March 31,
In millions, except per share amounts
 
2016
 
2015
Net income attributable to AGL Resources
 
$
182

 
$
193

Denominator:
 
 

 
 

Basic weighted average number of shares outstanding (1)
 
120.1

 
119.3

Effect of dilutive securities
 
0.3

 
0.3

Diluted weighted average number of shares outstanding (2)
 
120.4

 
119.6

Earnings per common share
 
 

 
 

Basic earnings per common share attributable to AGL Resources
 
$
1.52

 
$
1.62

Diluted earnings per common share attributable to AGL Resources
 
$
1.51

 
$
1.62

(1)
Daily weighted average shares outstanding.
(2)
Excludes all outstanding stock options whose effect would have been anti-dilutive.
Accounting Developments
Accounting standards adopted in 2016
Effective January 1, 2016, we adopted the accounting guidance described below, none of which had a material impact on our unaudited condensed consolidated financial statements. For additional information on these accounting standards, see Note 3 to our consolidated financial statements and related notes included in Item 8 of our 2015 Form 10-K.
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.
Other newly issued accounting standards and updated authoritative guidance
In March 2016, the FASB issued updated authoritative guidance related to accounting for certain aspects of share-based payment transactions. The new guidance changes the income tax accounting related to the tax "windfall" or "shortfall" on share-based compensation, increases the tax withholding level allowed before triggering liability classification of the award and allows for a policy election to account for forfeitures as they occur. This guidance is effective for us beginning January 1, 2017, and early adoption is permitted. We are currently evaluating the potential impact of this new guidance.
In February 2016, the FASB issued updated authoritative guidance related to accounting for lease transactions. The new guidance will require all organizations that use leased assets, referred to as "lessees," to recognize all leases with terms of more than 12 months on the balance sheet as right of use assets and corresponding liabilities. Lessees will continue to recognize lease expense based on classification of the lease, using a straight-line expense pattern for operating leases and a front-loaded expense pattern for financing leases. The accounting for lessors is substantially equivalent to the existing guidance. It also requires additional disclosures, both qualitative and quantitative, including amount, timing, and uncertainty of cash flows arising from leases. The new guidance is effective for us beginning January 1, 2019 and must be applied using the modified retrospective approach to each prior period presented. Early adoption of this new guidance is permitted. We are currently evaluating the potential impact of this new guidance.
In January 2016, the FASB issued updated authoritative guidance related to classification and measurement of financial instruments. The amendments modify the accounting and presentation for certain financial liabilities and equity investments not consolidated or reported using the equity method. The guidance is effective for us beginning January 1, 2018, and limited early adoption is permitted. We are currently evaluating the potential impact of this new guidance, but do not anticipate that it will have a material impact on our consolidated financial statements.
In November 2015, the FASB issued updated authoritative guidance related to the balance sheet classification of deferred taxes, which requires companies to present deferred income tax assets and deferred income tax liabilities as noncurrent on a classified balance sheet instead of the current requirement to separate deferred income tax liabilities and assets into current and noncurrent amounts. The guidance is effective for us beginning January 1, 2017, and early application is permitted either prospectively or retrospectively. We have determined that this new guidance will not have a material impact on our consolidated financial statements.
In July 2015, the FASB issued an update to authoritative guidance to simplify the measurement of certain inventories. Under the new guidance, inventories are required to be measured at the lower of cost and net realizable value, the latter representing the estimated selling price in the ordinary course of business, reduced by costs of completion, disposal and transportation. Under current guidance, inventories are required to be measured at the lower of cost or market, but depending upon specific circumstances, market could refer to replacement cost, net realizable value, or net realizable value reduced by a normal profit margin. The amendments do not apply to inventories carried on a LIFO basis, which for us applies only to our Nicor Gas inventories. The guidance is to be applied prospectively, is effective for us beginning January 1, 2017, and early adoption is permitted. We are currently evaluating the potential impact of this new guidance.



In May 2014, the FASB issued an update to authoritative guidance related to revenue from contracts with customers. The update replaces most of the existing guidance with a single set of principles for recognizing revenue from contracts with customers. In July 2015, the FASB delayed the effective date by one year and the guidance will now be effective for us beginning January 1, 2018. Early adoption of the standard is permitted, but not before the original effective date of December 15, 2016. The new guidance must be applied retrospectively to each prior period presented or via a cumulative effect upon the date of initial application. We have not determined the impact of this new guidance, nor have we selected a transition method.
Note 4 - Regulated Operations
The accounting policies for our regulated operations are described within "Regulated Operations" in Note 3 to our consolidated financial statements and related notes included in Item 8 of our 2015 Form 10-K. Our regulatory assets and liabilities reflected within our unaudited Condensed Consolidated Balance Sheets as of the dates presented are summarized in the following table.
In millions
 
March 31, 2016
 
December 31, 2015
 
March 31, 2015
Regulatory assets
 
 
 
 
 
 
Recoverable ERC
 
$
21

 
$
31

 
$
37

Recoverable pension and retiree welfare benefit costs
 
12

 
12

 
11

Deferred natural gas costs
 
2

 
6

 
7

Recoverable seasonal rates
 

 
10

 

Other
 
15

 
9

 
8

Regulatory assets – current
 
50

 
68

 
63

Recoverable ERC
 
364

 
370

 
331

Recoverable pension and retiree welfare benefit costs
 
111

 
113

 
108

Recoverable regulatory infrastructure program costs
 
83

 
83

 
73

Long-term debt fair value adjustment
 
64

 
66

 
72

Other
 
39

 
38

 
50

Regulatory assets – long-term
 
661

 
670

 
634

Total regulatory assets
 
$
711

 
$
738

 
$
697

Regulatory liabilities
 
 

 
 

 
 

Accumulated removal costs
 
$
53

 
$
53

 
$
25

Bad debt over collection
 
47

 
42

 
30

Accrued natural gas costs
 
20

 
24

 
53

Deferred seasonal rates
 
20

 

 
20

Other
 
19

 
15

 
40

Regulatory liabilities – current
 
159

 
134

 
168

Accumulated removal costs
 
1,551

 
1,538

 
1,524

Bad debt over collection
 
28

 
21

 
19

Regulatory income tax liability
 
26

 
27

 
27

Unamortized investment tax credit
 
19

 
20

 
22

Other
 
8

 
5

 
20

Regulatory liabilities – long-term
 
1,632

 
1,611

 
1,612

Total regulatory liabilities
 
$
1,791

 
$
1,745

 
$
1,780

Base rates are designed to provide the opportunity to recover cost and earn 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 agency during future rate proceedings. We are not aware of 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.



Unrecognized Ratemaking Amounts The following table illustrates our authorized ratemaking amounts that are not recognized on our unaudited Condensed Consolidated Balance Sheets. These amounts are primarily composed of an allowed equity rate of return on assets associated with certain of our regulatory infrastructure programs. These amounts will be recognized as revenues in our financial statements in the periods they are billable to our customers.
In millions
 
March 31, 2016
 
December 31, 2015
 
March 31, 2015
Atlanta Gas Light (1)
 
$
105

 
$
103

 
$
119

Virginia Natural Gas
 
12

 
12

 
12

Elizabethtown Gas
 
4

 
4

 
2

Nicor Gas
 
3

 
3

 

Total
 
$
124

 
$
122

 
$
133

(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.
Deferred/Accrued Natural Gas Costs We charge our utility customers for natural gas consumed using natural gas cost recovery mechanisms established 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. We defer or accrue the difference between the actual cost of gas 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.
Environmental Remediation Costs We are subject to federal, state and local laws and regulations governing environmental quality and pollution control that require us to remove or remedy the effect on the environment of the disposal or release of specified substances at our current and former operating sites, substantially all of which is related to former MGP sites. The ERC assets and liabilities are associated with our distribution operations segment and remediation costs are generally recoverable from customers through rate mechanisms approved by regulators. Accordingly, both costs incurred to remediate the former MGP sites, plus the future estimated cost recorded as liabilities, net of amounts previously collected, are recognized as a regulatory asset until recovered from customers.
Our accrued environmental remediation liabilities are estimates of future remediation costs for investigation and cleanup of our current and former operating sites that are contaminated. These estimates are determined using engineering-based estimates and probabilistic models of potential costs when such estimates cannot be made, on an undiscounted basis. These estimates contain various assumptions, which we refine and update 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, legal expenses or other costs for which we may be held liable but for which we cannot reasonably estimate an amount.
Our accrued environmental remediation liabilities are not regulatory liabilities; however, the associated expenses are deferred as corresponding regulatory assets until the costs are recovered from customers. We primarily recover these deferred costs through rate riders that authorize dollar-for-dollar recovery. We expect to collect $21 million in revenues over the next 12 months, which is reflected as a current regulatory asset. The following table provides additional information on the estimated costs to remediate our current and former operating sites as of March 31, 2016.
In millions
 
# of sites
 
Probabilistic model
cost estimates
 
Engineering-based
 estimates
 
Amount
recorded
 
Expected costs over next 12 months
 
Cost recovery period
Illinois (1)
 
26

 
$200 - $457
 
$
46

 
$
246

 
$
30

 
As incurred
New Jersey
 
6

 
115 - 195
 
7

 
122

 
25

 
7 years
Georgia and Florida
 
13

 
29 - 52
 
21

 
50

 
13

 
5 years
North Carolina (2)
 
1

 
n/a
 
5

 
5

 

 
No recovery
Total
 
46

 
$344 - $704
 
$
79

 
$
423

 
$
68

 
 
(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.
Regulatory Infrastructure Programs An update to our infrastructure improvement programs at our utilities is as follows.
Virginia Natural Gas In March 2016, the Virginia Commission approved an extension to our original Steps to Advance Virginia's Energy (SAVE) program, under which Virginia Natural Gas is allowed to invest up to $210 million on qualifying infrastructure projects through 2021 to replace more than 200 miles of aging pipeline infrastructure.



Note 5 - Fair Value Measurements
The methods used to determine the fair values of our assets and liabilities are described within "Fair Value Measurements" in Note 3 to our consolidated financial statements and related notes included in Item 8 of our 2015 Form 10-K.
Derivative Instruments
The following table summarizes, by level within the fair value hierarchy, our derivative assets and liabilities that were carried at fair value, net of counterparty offset and collateral, on a recurring basis on our unaudited Condensed Consolidated Balance Sheets as of the dates presented. See Note 6 herein for additional information on our derivative instruments.
 
 
March 31, 2016
 
December 31, 2015
 
March 31, 2015
In millions
 
Assets (1)
 
Liabilities
 
Assets (1)
 
Liabilities
 
Assets (1)
 
Liabilities
Quoted prices in active markets (Level 1)
 
$

 
$
(96
)
 
$
53

 
$
(63
)
 
$

 
$
(106
)
Significant other observable inputs (Level 2)
 
108

 
(65
)
 
122

 
(46
)
 
108

 
(52
)
Netting of counterparty offset and cash collateral
 
69

 
96

 
33

 
63

 
104

 
106

Total carrying value (2)
 
$
177

 
$
(65
)
 
$
208

 
$
(46
)
 
$
212

 
$
(52
)
(1)
Balances of $9 million at March 31, 2016, $10 million at December 31, 2015 and $1 million at March 31, 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.
Debt
Our long-term debt is recorded at amortized cost, with the exception of Nicor Gas’ first mortgage bonds, which are recorded at their acquisition-date fair value. We amortize the fair value adjustment of Nicor Gas’ first mortgage bonds over the lives of the bonds. The following table lists the carrying amount and fair value of our long-term debt as of the dates presented.
In millions
 
March 31, 2016
 
December 31, 2015
 
March 31, 2015
Long-term debt carrying amount (1)
 
$
3,743

 
$
3,820

 
$
3,580

Long-term debt fair value (2)
 
4,156

 
4,066

 
4,102

(1)
The change in the March 31, 2015 balance is related to our adoption of new accounting guidance in 2015 that resulted in the reclassification of debt issuance costs from other long-term assets to offset the related debt balances in long-term debt.
(2)
Fair value determined using Level 2 inputs.
Note 6 - Derivative Instruments
Our objectives and strategies for using derivative instruments, and the related accounting policies and methods used to determine their fair values are described within "Fair Value Measurements" in Note 3 to our consolidated financial statements and related notes included in Item 8 of our 2015 Form 10-K. See Note 5 herein for additional information on the fair value of our derivative instruments. Certain of our derivative instruments contain credit-risk-related or other contingent features that could require us to post collateral in the normal course of business when our financial instruments are in net liability positions. As of March 31, 2016, December 31, 2015 and March 31, 2015, for agreements with such features, derivative instruments with liability fair values totaled $65 million, $46 million and $52 million, respectively, for which we had posted no collateral to our counterparties as we exceed the minimum credit rating requirements. As of March 31, 2016, the maximum collateral that could have been required with these features was less than $1 million. For additional information on our credit-risk-related contingent features, see “Energy Marketing Receivables and Payables” in Note 3 to our consolidated financial statements and related notes included in Item 8 of our 2015 Form 10-K. Our derivative instrument activities are included within operating cash flows as increases to net income of $51 million and $33 million for the three months ended March 31, 2016 and 2015, respectively.
Quantitative Disclosures Related to Derivative Instruments
Our derivative instruments include 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 the dates presented, we had natural gas contracts outstanding in the following quantities:
In Bcf  (1)
 
March 31, 2016 (2)
 
December 31, 2015
 
March 31, 2015
Cash flow hedges
 
5

 
5

 
9

Not designated as hedges
 
81

 
(14
)
 
231

Total volumes
 
86

 
(9
)
 
240

Short position – cash flow hedges
 
(6
)
 
(6
)
 
(6
)
Short position – not designated as hedges
 
(2,974
)
 
(3,089
)
 
(2,735
)
Long position – cash flow hedges
 
11

 
11

 
15

Long position – not designated as hedges
 
3,055

 
3,075

 
2,966

Net long (short) position
 
86

 
(9
)
 
240

(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)
99% of these contracts have durations of two years or less and 1% expire between two and five years.




Derivative Instruments on our Unaudited Condensed Consolidated Balance Sheets
In accordance with regulatory requirements, gains and losses on derivative instruments used in hedging activities of natural gas purchases for customer use at distribution operations are reflected in accrued natural gas costs within our unaudited Condensed Consolidated Balance Sheets until they are billed to customers. The following amounts deferred as a regulatory asset or liability on our unaudited Condensed Consolidated Balance Sheets are included in the net realized gains (losses) related to these natural gas cost hedging activities as of the periods presented.
 
 
Three Months Ended March 31,
In millions
 
2016
 
2015
Nicor Gas
 
$
(2
)
 
$
(3
)
Elizabethtown Gas
 
(6
)
 
(4
)
The following table presents the fair values and unaudited Condensed Consolidated Balance Sheets classifications of our derivative instruments as of the dates presented.
 
 
 
 
March 31, 2016
 
December 31, 2015
 
March 31, 2015
In millions
 
Classification
 
Assets
 
Liabilities
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Designated as cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
 
Natural gas contracts
 
Current
 
$
1

 
$
(4
)
 
$
3

 
$
(5
)
 
$

 
$
(6
)
Natural gas contracts
 
Long-term
 

 
(1
)
 

 
(2
)
 

 
(1
)
Interest rate swap agreements
 
Current
 

 
(36
)
 
9

 

 
1

 

Interest rate swap agreements
 
Long-term
 

 

 

 

 
3

 

Total designated as cash flow hedges
 
$
1

 
$
(41
)
 
$
12

 
$
(7
)
 
$
4

 
$
(7
)
Not designated as hedges
 
 

 
 

 
 

 
 

 
 

 
 

Natural gas contracts
 
Current
 
$
419

 
$
(432
)
 
$
751

 
$
(672
)
 
$
557

 
$
(592
)
Natural gas contracts
 
Long-term
 
92

 
(83
)
 
179

 
(187
)
 
98

 
(109
)
Total not designated as hedges
 
$
511

 
$
(515
)
 
$
930

 
$
(859
)
 
$
655

 
$
(701
)
Gross amounts of recognized assets and liabilities (1) (2)
 
$
512

 
$
(556
)
 
$
942

 
$
(866
)
 
$
659

 
$
(708
)
Gross amounts offset on our unaudited Condensed Consolidated Balance Sheets (2)
 
(326
)
 
491

 
(724
)
 
820

 
(446
)
 
656

Net amounts of assets and liabilities presented on our unaudited Condensed Consolidated Balance Sheets (3)
 
$
186

 
$
(65
)
 
$
218

 
$
(46
)
 
$
213

 
$
(52
)
(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 $165 million as of March 31, 2016, $96 million as of December 31, 2015, and $210 million as of March 31, 2015. Cash collateral is included in the “Gross amounts offset on our unaudited Condensed Consolidated Balance Sheets” line of this table.
(3)
As of March 31, 2016, December 31, 2015, and March 31, 2015, we held letters of credit from counterparties that under master netting arrangements would offset an insignificant portion of these assets.
Derivative Instruments on the Unaudited Condensed Consolidated Statements of Income
The following table presents the impacts of our derivative instruments on our unaudited Condensed Consolidated Statements of Income for the periods presented.
 
 
Three Months Ended March 31,
In millions
 
2016
 
2015
Designated as cash flow hedges (1)
 
 
 
 
Natural gas contracts - net loss reclassified from OCI into cost of goods sold
 
$

 
$
(1
)
Interest rate swaps - net gain reclassified from OCI into interest expense
 
1

 
1

Total designated as cash flow hedges, net of tax
 
1

 

Not designated as hedges (1)
 
 

 
 

Natural gas contracts - net fair value adjustments recorded in operating revenues
 
20

 
(24
)
Natural gas contracts - net fair value adjustments recorded in cost of goods sold (2)
 
(1
)
 
(2
)
Income tax
 
(7
)
 
10

Total not designated as hedges, net of tax
 
12

 
(16
)
Total gains (losses) on derivative instruments, net of tax
 
$
13

 
$
(16
)
(1)
Associated with the fair value of derivative instruments held at March 31, 2016 and 2015.
(2)
Excludes gains (losses) recorded in cost of goods sold associated with weather derivatives of $3 million and $(2) million for the three months ended March 31, 2016 and 2015, respectively, as they are accounted for based on intrinsic value rather than fair value.
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 three months ended March 31, 2016 and 2015. Our expected net losses to be



reclassified from OCI into cost of goods sold, operation and maintenance expense, interest expense and operating revenues to be recognized on our unaudited Condensed Consolidated Statements of Income over the next 12 months are $4 million. These deferred losses are related to natural gas derivative contracts associated with retail operations’ and Nicor Gas’ system use and our interest rate swaps. The expected losses are based upon the fair values of these financial instruments at March 31, 2016. The effective portions of gains and losses on derivative instruments qualifying as cash flow hedges that were recognized in OCI during the periods are presented on our unaudited Condensed Consolidated Statements of Income. See Note 9 for these amounts.
There have been no other significant changes to our derivative instruments, as described in Note 3, Note 5, Note 6 and Note 10 to our consolidated financial statements and related notes included in Item 8 of our 2015 Form 10-K.
Note 7 - Employee Benefit Plans
Pension Benefits
We sponsor the AGL Resources Inc. Retirement Plan, a tax-qualified defined benefit retirement plan for our eligible employees, which is described in Note 7 to our consolidated financial statements and related notes included in Item 8 of our 2015 Form 10-K. Following are the components of our pension costs for the periods indicated.
 
 
Three Months Ended March 31,
In millions
 
2016
 
2015
Service cost (1)
 
$
6

 
$
7

Interest cost (1)
 
10

 
11

Expected return on plan assets
 
(16
)
 
(16
)
Net amortization of prior service credit
 

 
(1
)
Recognized actuarial loss
 
6

 
8

Net periodic pension benefit cost
 
$
6

 
$
9

(1) Effective January 1, 2016, we use a spot rate approach to estimate the service cost and interest cost components. Historically, we estimated these components using a single weighted-average discount rate.
Welfare Benefits
The benefits of our Health and Welfare Plan for Retirees and Inactive Employees of AGL Resources Inc. are described in Note 7 to our consolidated financial statements and related notes included in Item 8 of our 2015 Form 10-K. Following are the components of our welfare costs for the periods indicated.
 
 
Three Months Ended March 31,
In millions
 
2016
 
2015
Service cost (1)
 
$
1

 
$
1

Interest cost (1)
 
3

 
3

Expected return on plan assets
 
(2
)
 
(2
)
Net amortization of prior service credit
 
(1
)
 

Recognized actuarial loss
 
1

 
1

Net periodic welfare benefit cost
 
$
2

 
$
3

(1) Effective January 1, 2016, we use a spot rate approach to estimate the service cost and interest cost components. Historically, we estimated these components using a single weighted-average discount rate.




Note 8 - Debt and Credit Facilities
The following table provides maturity dates or ranges, year-to-date weighted average interest rates and amounts outstanding for our various debt securities and facilities for the periods presented. We fully and unconditionally guarantee all debt issued by AGL Capital and the gas facility revenue bonds issued by Pivotal Utility. Additionally, substantially all of Nicor Gas' properties are subject to the lien of the indenture securing its first mortgage bonds. For additional information on our debt and credit facilities, see Note 9 to our consolidated financial statements and related notes included in Item 8 of our 2015 Form 10-K.
 
 
 
 
March 31, 2016
 
 
 
March 31, 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 - AGL Capital (2)
 
2016
 
0.8
%
 
$
204

 
$
471

 
0.5
%
 
$
176

Commercial paper - Nicor Gas (2)
 
2016
 
0.6

 
353

 
539

 
0.4

 
350

Total short-term debt
 
 
 
0.7
%
 
$
557

 
$
1,010

 
0.4
%
 
$
526

Current portion of long-term debt
 
2016
 
5.2
%
 
$
470

 
$
545

 
2.9
%
 
$
75

Long-term debt - excluding current portion
 
 
 
 

 
 

 
 

 
 

 
 

Senior notes
 
2018-2043
 
4.9
%
 
$
2,455

 
$
2,455

 
5.0
%
 
$
2,625

First mortgage bonds
 
2019-2038
 
5.9

 
375

 
375

 
6.0

 
425

Gas facility revenue bonds
 
2022-2033
 
1.1

 
200

 
200

 
0.8

 
200

Medium-term notes
 
2017-2027
 
7.8

 
181

 
181

 
7.8

 
181

Total principal long-term debt
 
 
 
4.8
%
 
$
3,211

 
$
3,211

 
4.9
%
 
$
3,431

Unamortized fair value adjustment of long-term debt
 
n/a
 
n/a

 
66

 
68

 
n/a

 
77

Unamortized debt premium, net
 
n/a
 
n/a

 
16

 
16

 
n/a

 
16

Unamortized debt issuance costs
 
n/a
 
n/a

 
(20
)
 
(20
)
 
n/a

 
(19
)
Total non-principal long-term debt
 
n/a
 
n/a

 
$
62

 
$
64

 
n/a

 
$
74

Total long-term debt - excluding current portion
 
 
 
 

 
$
3,273

 
$
3,275

 
 

 
$
3,505

Total debt
 
 
 
 

 
$
4,300

 
$
4,830

 
 

 
$
4,106

(1)
Interest rates are calculated based on the daily weighted average balance outstanding for the three months ended March 31, 2016 and 2015.
(2)
As of March 31, 2016, the effective interest rates on our commercial paper borrowings were 0.8% for AGL Capital and 0.6% for Nicor Gas.
Commercial Paper Programs
We maintain commercial paper programs at AGL Capital and at Nicor Gas that consist of short-term, unsecured promissory notes 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. Nicor Gas’ commercial paper program supports working capital needs at Nicor Gas, while all of our other subsidiaries and SouthStar participate in AGL Capital’s commercial paper program. During the first three months of 2016, our commercial paper maturities ranged from 1 to 59 days, and at March 31, 2016, remaining terms to maturity ranged from 1 to 46 days. During the first three months of 2016, there were no commercial paper issuances with original maturities over three months.
Long-Term Debt
On February 1, 2016, $75 million of Nicor Gas first mortgage bonds matured and were repaid using the proceeds from commercial paper borrowings.
On January 23, 2015, we executed $800 million in notional value of 10-year and 30-year fixed-rate forward-starting interest rate swaps to hedge potential interest rate volatility prior to our senior note issuance in the fourth quarter of 2015 and our anticipated issuances in 2016. We have designated the forward-starting interest rate swaps, which are settled on the respective debt issuance dates, as cash flow hedges. We settled $200 million of these interest rate swaps on November 18, 2015, in conjunction with the aforementioned senior note issuance. We performed a qualitative assessment of effectiveness on the remaining interest rate swaps as of March 31, 2016 and concluded that the remaining hedges are highly effective.
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 month. The following table contains our debt-to-capitalization ratios for the dates presented, which are below the maximum allowed.



 
 
AGL Resources
 
Nicor Gas
 
 
March 31, 2016
 
December 31, 2015
 
March 31, 2015
 
March 31, 2016
 
December 31, 2015
 
March 31, 2015
Debt covenants (1)
 
50
%
 
54
%
 
50
%
 
47
%
 
56
%
 
54
%
(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.
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.
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 the following:
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.
We have no 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 transaction that requires us to issue equity based on credit ratings or other triggering events. We were in compliance with all existing debt provisions and covenants, both financial and non-financial, for all periods presented.
Note 9 - Equity
Our other comprehensive income (loss) amounts are aggregated within accumulated other comprehensive loss on our unaudited Condensed Consolidated Balance Sheets. The following table provides changes in the components of our accumulated other comprehensive loss balances, net of the related income tax effects.
 
 
2016
 
2015
In millions (1)
 
Cash flow hedges
 
Retirement benefit plans
 
Total
 
Cash flow hedges