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SEC Filings

10-Q
SOUTHERN CO GAS filed this Form 10-Q on 11/04/2016
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Merger-Related Expenses
Third Quarter 2016 vs. Third Quarter 2015
 
Combined Year-to-Date 2016 vs. Year-to-Date 2015
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$—
 
—%
 
$56
 
160.0%
In the third quarter 2016 and 2015, Merger-related expenses were $35 million. For combined year-to-date 2016, Merger-related expenses were $91 million compared to $35 million in the corresponding period in 2015. Merger-related expenses in 2016 include $18 million in rate credits provided to Elizabethtown Gas customers during the third quarter 2016 as a condition of the Merger. Additional transaction costs for the third quarter and combined year-to-date 2016 include $2 million and $33 million, respectively, for financial advisory fees, legal expenses, and other Merger-related costs, and $15 million and $40 million, respectively, for additional compensation-related expenses, including accelerated vesting of share-based compensation expenses and change in control compensation charges.
See Note (I) to the Condensed Consolidated Financial Statements herein for additional information relating to the Merger.
Interest Expense, Net of Amounts Capitalized
Third Quarter 2016 vs. Third Quarter 2015
 
Combined Year-to-Date 2016 vs. Year-to-Date 2015
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$(4)
 
(9.3)%
 
$6
 
4.7%
In the third quarter 2016, interest expense, net of amounts capitalized was $39 million compared to $43 million for the corresponding period in 2015. The decrease was primarily due to the impact of pushdown accounting to fair value long-term debt of $10 million, partially offset by higher interest expense of $5 million as a result of new debt issuances.
For combined year-to-date 2016, interest expense, net of amounts capitalized was $135 million compared to $129 million for the corresponding period in 2015. The increase was primarily due to debt issuances in late 2015 and in 2016, net of repayments, of $11 million and an increase in regulatory infrastructure program expenses of $4 million as Southern Company Gas expensed previously deferred interest with the corresponding recovery in revenue, partially offset by the impact of pushdown accounting to fair value long-term debt of $10 million.
See Note (E) to the Condensed Consolidated Financial Statements herein for additional information relating to debt issuances and repayments.
Earnings from Equity Method Investments
Third Quarter 2016 vs. Third Quarter 2015
 
Combined Year-to-Date 2016 vs. Year-to-Date 2015
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$27
 
N/M
 
$27
 
N/M
N/M - not meaningful
In the third quarter 2016, earnings from equity method investments were $29 million compared to $2 million for the corresponding period in 2015. For combined year-to-date 2016, earnings from equity method investments were $31 million compared to $4 million for the corresponding period in 2015. The increases were due to $27 million of earnings from the investment in SNG in September 2016, which included the recognition of a contract termination fee.
See Notes (I) and (K) to the Condensed Consolidated Financial Statements herein for additional information relating to this investment.
Income Taxes
Third Quarter 2016 vs. Third Quarter 2015
 
Combined Year-to-Date 2016 vs. Year-to-Date 2015
(change in millions)
 
(% change)
 
(change in millions)
 
(% change)
$—
 
—%
 
$(56)
 
(37.3)%
In both the third quarters 2016 and 2015, income taxes were $7 million. For combined year-to-date 2016, income taxes were $94 million compared to $150 million in the corresponding period in 2015. The effective tax rates in 2016 were impacted by the nondeductibility of certain Merger-related expenses and other charges, which were re-assessed in the second and third quarters 2016 and resulted in additional income tax expense of $11 million for combined year-to-date 2016. Also contributing to the decrease were lower pre-tax earnings.
See Note (G) to the Condensed Consolidated Financial Statements herein for additional information regarding income taxes.


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