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SEC Filings

10-Q
SOUTHERN CO GAS filed this Form 10-Q on 11/04/2016
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)


Derivatives in Non-Designated Hedging Relationships
 
 
 
 
 
 
 
 
 
 
 
Gain (Loss)
 
 
 
 
Successor
 
 
Predecessor
Derivative Category
 
Statements of Income Location
 
July 1, 2016 through September 30, 2016
 
 
January 1, 2016 through June 30, 2016
 
Three Months Ended September 30, 2015
 
Nine Months Ended September 30, 2015
 
 
 
 
(millions)
 
 
(millions)
Energy-related derivatives
 
Natural gas revenues (*)
 
$

 
 
$
(1
)
 
$
29

 
$
7

 
 
Cost of natural gas
 
6

 
 
(62
)
 
1

 
3

Total derivatives in non-designated hedging relationships
 
$
6

 
 
$
(63
)
 
$
30

 
$
10

(*) Excludes gains (losses) recorded in natural gas revenues associated with weather derivatives of $3 million for the predecessor period January 1, 2016 through June 30, 2016 and of $(1) million for the predecessor nine months ended September 30, 2015. There were no amounts recorded for the successor period July 1, 2016 through September 30, 2016 and the predecessor three months ended September 30, 2015.
Contingent Features
Southern Company Gas does not have any credit arrangements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade. There are certain derivatives that could require collateral, but not accelerated payment, in the event of a credit rating change below BBB- and/or Baa3. At September 30, 2016, Southern Company Gas had $111 million of collateral posted with derivative counterparties.
At September 30, 2016, the fair value of derivative liabilities with contingent features and the maximum potential collateral requirements arising from the credit-risk-related contingent features were immaterial.
Generally, collateral may be provided by guaranty, letter of credit, or cash. If collateral is required, fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral are not offset against fair value amounts recognized for derivatives executed with the same counterparty.
Southern Company Gas is exposed to losses related to financial instruments in the event of counterparties' nonperformance. Southern Company Gas only enters into agreements and material transactions with counterparties that have investment grade credit ratings by Moody's and S&P or with counterparties who have posted collateral to cover potential credit exposure. Southern Company Gas has also established risk management policies and controls to determine and monitor the creditworthiness of counterparties in order to mitigate Southern Company Gas' exposure to counterparty credit risk.
Southern Company Gas also utilizes master netting agreements whenever possible to mitigate exposure to counterparty credit risk. When Southern Company Gas is engaged in more than one outstanding derivative transaction with the same counterparty and it also has a legally enforceable netting agreement with that counterparty, the "net" mark-to-market exposure represents the netting of the positive and negative exposures with that counterparty and a reasonable measure of Southern Company Gas' credit risk. Southern Company Gas also uses other netting agreements with certain counterparties with whom it conducts significant transactions. Master netting agreements enable Southern Company Gas to net certain assets and liabilities by counterparty. Southern Company Gas also nets across product lines and against cash collateral, provided the master netting and cash collateral agreements include such provisions. Southern Company Gas may require counterparties to pledge additional collateral when deemed necessary. Therefore, Southern Company Gas does not anticipate a material adverse effect on the financial statements as a result of counterparty nonperformance.
(I) MERGER AND ACQUISITION
Merger with Southern Company
On July 1, 2016, Southern Company Gas completed its previously announced Merger with Southern Company. A wholly-owned, direct subsidiary of Southern Company merged with and into Southern Company Gas, with Southern Company Gas surviving as a wholly-owned, direct subsidiary of Southern Company.
At the effective time of the Merger, each share of Southern Company Gas common stock, other than certain excluded shares, was converted into the right to receive $66 in cash, without interest. Also at the effective time of the Merger:
Southern Company Gas' 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 Southern Company Gas' common stock subject to such award and (ii) the Merger consideration of $66 per share;
Southern Company Gas' 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 Southern Company Gas' 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


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