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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

FINANCIAL CONDITION AND LIQUIDITY
Overview
See Management’s Discussion and Analysis – Liquidity and Capital Resources – "Overview" of Southern Company Gas in Item 7 of the Form 10-K for additional information. As a result of the Merger that closed on July 1, 2016, the results reported herein include disclosure of the combined predecessor and successor periods. The combined data consists of predecessor information for the period January 1, 2016 through June 30, 2016 and successor information for the period July 1, 2016 through September 30, 2016. See OVERVIEW – "Merger With Southern Company" herein for additional information.
Southern Company Gas' financial condition remained stable at September 30, 2016. Southern Company Gas intends to continue to monitor its access to short-term and long-term capital markets as well as bank credit agreements to meet future capital and liquidity needs. See "Capital Requirements and Contractual Obligations," "Sources of Capital," and "Financing Activities" herein for additional information.
By regulation, Nicor Gas is restricted, to the extent of its retained earnings balance, in the amount it can dividend or loan to affiliates and is not permitted to make money pool loans to affiliates. Elizabethtown Gas is restricted by its dividend policy as established by the New Jersey BPU in the amount it can dividend to its parent company to the extent of 70% of its quarterly net income. Additionally, as stipulated in the New Jersey BPU's order approving the Merger, Southern Company Gas is prohibited from paying dividends to its parent company, Southern Company, if Southern Company Gas' senior unsecured debt rating falls below investment grade. As of September 30, 2016, the amount of subsidiary retained earnings and net income available to dividend totaled $649 million.
Net cash provided from operating activities totaled $0.8 billion for combined year-to-date 2016 compared to $1.4 billion for the corresponding period in 2015. The decrease was primarily due to lower volume of natural gas sales and higher natural gas for sale during 2016 compared to 2015 as a result of warmer weather and the timing of recoveries of related gas costs and weather normalization adjustments from customers. Additionally, a voluntary pension contribution was made during the third quarter 2016. Net cash used for investing activities totaled $2.3 billion for combined year-to-date 2016 primarily due to investments in Southern Company Gas' ownership interest in SNG and infrastructure programs as well as spending for other rate-based investments at gas distribution operations. Net cash provided from financing activities totaled $1.5 billion for combined year-to-date 2016 primarily due to capital contributions received from Southern Company to fund the investment in SNG and proceeds received from debt issuances in 2016. Cash flows from financing activities vary from period to period based on capital needs and the maturity or redemption of securities.
Significant balance sheet changes for combined year-to-date 2016 include increases of $7.0 billion in paid-in capital, $4.1 billion in goodwill associated with the Merger, $2.0 billion in long-term debt primarily related to issuances of senior notes and first mortgage bonds, $1.5 billion in equity investments in unconsolidated subsidiaries related to the investment in SNG, and $0.5 billion in property, plant, and equipment due to capital expenditures at gas distribution operations, as well as a decrease of $0.4 billion in notes payable primarily due to the use of debt securities issuances for recent funding needs.
Capital Requirements and Contractual Obligations
See Management’s Discussion and Analysis – Liquidity and Capital Resources – "Cash Flow from Investing Activities" and "Contractual Obligations and Commitments" of Southern Company Gas in Item 7 of the Form 10-K for a description of Southern Company Gas' capital requirements for its infrastructure programs, scheduled maturities of long-term debt, as well as the related interest, environmental remediation obligations, pipeline charges, storage capacity and gas supply, leases, asset management agreements, standby letters of credit, performance/surety bonds, and other purchase commitments. Approximately $142 million will be required through September 30, 2017 to fund maturities of long-term debt. See "Sources of Capital" herein for additional information.
Southern Company Gas' capital investment is currently estimated to total $1.7 billion for 2017, $1.8 billion for 2018, $1.7 billion for 2019, $1.3 billion for 2020, and $1.2 billion for 2021.
The regulatory infrastructure programs and other construction programs are subject to periodic review and revision, and actual costs may vary from these estimates because of numerous factors. These factors include: changes in business conditions; changes in FERC rules and regulations; state regulatory approvals; changes in legislation; the cost and efficiency of labor, equipment, and materials; project scope and design changes; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. See Note 4 to the consolidated financial statements of Southern Company Gas in Item 8 of the Form 10-K and Note (B) to the Condensed Consolidated Financial Statements herein for information regarding additional factors that may impact infrastructure investment expenditures.
Sources of Capital
Southern Company Gas plans to obtain the funds to meet its future capital needs through operating cash flows, short-term debt borrowings under its commercial paper programs, external securities issuances, and equity contributions from Southern Company. However, the amount, type, and timing of any future financings, if needed, depend upon regulatory approval, prevailing market conditions, and other factors. See Management’s Discussion and Analysis – "Liquidity and Capital Resources" of Southern Company Gas in Item 7 of the Form 10-K for additional information.


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