EX-99.4 8 exhibit_99-4.htm EXHIBIT 99.4 exhibit_99-4.htm
Exhibit 99.4
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION
 
The Unaudited Pro Forma Condensed Combined Consolidated Financial Statements (sometimes referred to as pro forma financial statements) have been derived from the historical consolidated financial statements of AGL Resources Inc. (AGL Resources) and Nicor Inc. (Nicor).
 
The Unaudited Pro Forma Condensed Combined Consolidated Statements of Income (sometimes referred to as pro forma statements of income) for the nine months ended September 30, 2011, and for the year ended December 31, 2010, give effect to the merger as if it were completed on January 1, 2010. The Unaudited Pro Forma Condensed Combined Statement of Financial Position (sometimes referred to as pro forma balance sheet) as of September 30, 2011, gives effect to the merger as if it were completed on September 30, 2011.
 
The historical consolidated financial information has been adjusted in the pro forma financial statements to give effect to pro forma events that are: (i) directly attributable to the merger; (ii) factually supportable; and (iii) with respect to the pro forma statements of income, expected to have a continuing impact on the combined results of AGL Resources and Nicor. As such, the impact from merger-related expenses is not included in the accompanying pro forma statements of income. However, the impact of these expenses is reflected in the pro forma balance sheet as a decrease to retained earnings. Further, the pro forma financial statements do not reflect any cost savings (or associated costs to achieve such savings) from operating efficiencies, synergies or other restructuring that could result from the merger.
 
The acquisition of Nicor common stock by AGL Resources in the merger will be accounted for in accordance with the acquisition method of accounting and the regulations of the SEC. The final purchase price will be computed using (i) Nicor’s outstanding shares immediately prior to the effective time of the merger, and the market value of AGL Resources’ common stock issued in connection with the merger based on the volume-weighted average price of AGL Resources’ common stock the business day immediately preceding the effective time of the merger, (ii) the cost of debt issued based on Nicor’s outstanding shares immediately preceding the effective time of the merger and the commitment to pay cash of $21.20 per Nicor common share and (iii) the cash payment to settle shares outstanding under Nicor’s stock compensation plans.
 
Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes, which should be read in connection with the pro forma financial statements. Since the pro forma financial statements have been prepared based on preliminary estimates, the final amounts recorded may differ materially from the information presented. These estimates are subject to change pending further review of the assets acquired and liabilities assumed.
 
The pro forma financial statements have been presented for illustrative purposes only and are not necessarily indicative of results of operations and financial position that would have been achieved had the pro forma events taken place on the dates indicated, or the future consolidated results of operations or financial position of the combined company.
 
The following pro forma financial statements should be read in conjunction with:
·  
The accompanying notes to the Unaudited Pro Forma Condensed Combined Consolidated Financial Statements;
·  
The consolidated financial statements of AGL Resources as of and for the year ended December 31, 2010, included in AGL Resources’ Form 10-K;
·  
The unaudited condensed consolidated interim financial statements of AGL Resources as of and for the nine months ended September 30, 2011, included in AGL Resources’ Form 10-Q;
·  
The consolidated financial statements of Nicor as of and for the year ended December 31, 2010, included in Nicor’s Form 10-K;
·  
The unaudited condensed consolidated interim financial statements of Nicor as of and for the nine months ended September 30, 2011, included in Nicor’s Form 10-Q;
·  
Information contained in, or incorporated by reference in our joint proxy statement/prospectus filed with the SEC on April 28, 2011.
 
 
 
 
 
AGL RESOURCES INC. AND NICOR INC.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF INCOME
For the Nine Months Ended September 30, 2011
   
AGL
          
Pro Forma
    
Pro Forma
  
   
Resources
    
Nicor (a)
    
Adjustments
    
Combined
  
   
(In millions, except per share amounts)
  
                                 
OPERATING REVENUES
  
$
1,548
    
$
1,862
    
$
- 
    
$
3,410
  
OPERATING EXPENSES:
                                
Cost of gas
    
701
      
944
      
-
      
1,645
  
Operation and maintenance
    
363
      
502
      
(29)
 (b)
    
836
  
Depreciation and amortization
    
126
      
155
      
9
 (c)
    
290
  
Taxes other than income taxes
    
36
      
 142
      
-
      
178
  
Total operating expenses
    
1,226
      
 1,743
      
(20)
      
2,949
  
OPERATING INCOME
    
322
      
119
      
20
 
    
461
  
Interest expense
    
(92)
      
(24)
      
(24)
 (d)
    
(140)
  
Other income
    
4
      
13
      
-
      
17
  
INCOME BEFORE INCOME TAXES
    
234
      
108
      
(4)
 
    
338
  
INCOME TAXES
    
85
      
38
      
(2)
 (e)
    
121
  
NET INCOME
    
149
      
70
      
(2)
 
    
217
  
Less: net income attributable to the noncontrolling interest
    
10
 
    
-
      
-
      
10
 
NET INCOME ATTRIBUTABLE TO PARENT
  
$
139
    
$
70
    
$
(2)
 
  
$
207
  
BASIC EARNINGS PER SHARE OF COMMON STOCK
  
$
1.79
    
$
1.52
            
$
1.78
  
WEIGHTED-AVERAGE NUMBER OF BASIC SHARES OUTSTANDING
    
77.9
      
45.9
      
(7.8)
 (f)
    
116.0
  
DILUTED EARNINGS PER SHARE OF COMMON STOCK
  
$
1.78
    
$
1.52
            
$
1.78
  
WEIGHTED-AVERAGE NUMBER OF DILUTED SHARES OUTSTANDING
    
78.4
      
45.9
      
(7.8)
 (f)
    
116.5
  
See accompanying Notes to the Pro Forma Condensed Combined Consolidated Financial Statements, which are an integral part of these statements.

 
 
 

AGL RESOURCES INC. AND NICOR INC.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 2010
   
AGL 
          
Pro Forma
    
Pro Forma
  
   
Resources
    
Nicor (a)
    
Adjustments
    
Combined
  
   
(In millions, except per share amounts)
  
                                 
OPERATING REVENUES
  
$
2,373
    
$
2,710
    
$
-
    
$
5,083
  
Cost of gas
    
1,164
      
1,406
      
-
      
2,570
  
Operation and maintenance
    
503
      
692
      
(10)
 (b)
    
1,185
  
Depreciation and amortization
    
160
      
203
      
12
 (c)
    
375
  
Taxes other than income taxes
    
46
      
173
      
-
      
219
  
Total operating expenses
    
1,873
      
2,474
      
2
      
4,349
  
OPERATING INCOME
    
500
      
236
      
(2)
 
    
734
  
Interest expense
    
(109)
      
(37)
      
(40)
 (d)
    
(186)
  
Other (loss) income
    
(1)
      
9
      
-
      
8
  
INCOME BEFORE INCOME TAXES
    
390
      
208
      
(42)
 
    
556
  
INCOME TAXES
    
140
      
70
      
(10)
 (e)
    
200
  
NET INCOME
    
250
      
138
      
(32)
 
    
356
  
Less: net income attributable to the noncontrolling interest
    
16
 
    
-
      
-
      
16
 
NET INCOME ATTRIBUTABLE TO PARENT
  
$
234
    
$
138
    
$
(32)
 
  
$
340
  
BASIC EARNINGS PER SHARE OF COMMON STOCK
  
$
3.02
    
$
3.02
            
$
2.94
  
WEIGHTED-AVERAGE NUMBER OF BASIC SHARES OUTSTANDING
    
77.4
      
45.7
      
(7.6)
 (f)
    
115.5
  
DILUTED EARNINGS PER SHARE OF COMMON STOCK
  
$
3.00
    
$
3.02
            
$
2.93
  
WEIGHTED-AVERAGE NUMBER OF DILUTED SHARES OUTSTANDING
    
77.8
      
45.7
      
(7.6)
 (f)
    
115.9
  
See accompanying Notes to the Pro Forma Condensed Combined Consolidated Financial Statements, which are an integral part of these statements.

 
 
 

AGL RESOURCES INC. AND NICOR INC.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As of September 30, 2011
   
AGL
          
Pro Forma
    
Pro Forma
  
   
Resources
    
Nicor (a)
    
Adjustments
    
Combined
  
         
(In millions)
        
ASSETS
Current Assets:
                                
Cash and cash equivalents
  
$
165
    
$
42
    
$
(145)
  (l)
  
$
62
  
Total receivables, net of allowance
    
639
      
232
      
-
      
871
  
Inventories, net
    
635
      
240
      
 -
      
875
  
Derivative financial instruments
    
148
      
50
      
-
      
198
  
Recoverable regulatory assets 
    
85
      
49
      
-
      
134
  
Other current assets
    
129
      
175
      
-
      
304
  
     
1,801
      
788
      
(145)
      
2,444
  
                                 
Property, plant and equipment, net
    
4,635
      
3,106
      
6
 (g)
    
7,747
  
Goodwill
    
418
      
27
      
1,322
 (h)
    
1,767
  
Recoverable regulatory assets
    
529
      
247
      
121
  (i)
    
897
  
Derivative financial instruments
    
38
      
12
      
-
      
50
  
Other
    
38
      
230
      
161
 (j)
    
429
  
                                 
   
$
7,459
    
$
4,410
    
$
1,465
    
$
13,334
  
                                 
 
LIABILITIES AND EQUITY
Current Liabilities:
                                
Short-term debt
  
$
2
    
$
313
    
$
578
  (l)
  
$
893
  
Accounts payable
    
710
      
253
      
-
      
963
  
Current portion of long-term debt
    
15
      
-
      
-
      
15
  
Accrued expenses
    
87
      
70
      
36
 (k)
    
193
  
Derivative financial instruments
    
45
      
80
      
-
      
125
  
Accrued regulatory liabilities
    
174
      
46
      
-
      
220
  
Other current liabilities
    
107
      
162
      
-
      
269
  
     
1,140
      
924
      
614
      
2,678
  
                                 
Long-term debt
    
2,687
      
499
 
    
396
 (l)
    
3,582
  
Accumulated deferred income taxes
    
895
 
    
437
 
    
61
 (m)
    
1,393
  
Accrued regulatory liabilities
    
592
      
910
      
-
      
1,502
  
Accrued pension and postretirement expenses
    
180
      
233
      
-
      
413
  
Derivative financial instruments
    
14
 
    
7
      
-
      
21
 
Other long-term liabilities and other deferred credits
    
70
      
298
      
-
      
 368
  
     
4,438
      
2,384
      
457
      
7,279
  
                                 
Equity:
                                
Common shareholders’ equity
    
1,864
      
1,102
      
394
 (n)
    
3,360
  
Noncontrolling interest
    
17
      
-
      
-
      
17
  
     
1,881
      
1,102
      
394
      
3,377
  
                                 
   
$
7,459
    
$
4,410
    
$
1,465
    
$
13,334
  
See accompanying Notes to the Pro Forma Condensed Combined Consolidated Financial Statements, which are an integral part of these statements.

 
 
 

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
 
Note 1.
Basis of Pro Forma Presentation
 
The pro forma statements of income for the nine months ended September 30, 2011, and for the year ended December 31, 2010, give effect to the merger as if it were completed on January 1, 2010. The pro forma statement of financial position as of September 30, 2011, gives effect to the merger as if it were completed on September 30, 2011.
 
The pro forma financial statements have been derived from the historical consolidated financial statements of AGL Resources and Nicor. Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the pro forma financial statements. Since the pro forma financial statements have been prepared based upon preliminary estimates, the final amounts recorded may differ materially from the information presented. These estimates are subject to change pending further review of the assets acquired and liabilities assumed.
 
The merger is reflected in the pro forma financial statements as being accounted for based on the guidance provided by Accounting Standards Codification (ASC) 805 (sometimes referred to as ASC 805), Business Combinations. Under the acquisition method, the preliminary purchase price is calculated as described in Note 2 to the pro forma financial statements. In accordance with ASC 805, the assets acquired, and the liabilities assumed, have been measured at fair value. The fair value measurements utilize estimates based on key assumptions of the merger, including prior acquisition experience, benchmarking of similar acquisitions and historical and current market data. The pro forma adjustments included herein may be revised as additional information becomes available and as additional analyses are performed. The final purchase price allocation may differ materially from the information presented.
 
Estimated transaction costs have been excluded from the pro forma statements of income as they reflect non-recurring charges directly related to the merger. However, the anticipated transaction costs are reflected in the pro forma balance sheet, as an adjustment to accrued expenses and a reduction to retained earnings. Further, the pro forma financial statements do not reflect any cost savings (or associated costs to achieve such savings) from operating efficiencies, synergies or other restructuring that could result from the merger.

For the purpose of measuring the estimated fair value of the assets acquired and liabilities assumed, as reflected in the pro forma financial statements, AGL Resources has applied ASC 820, Fair Value Measurements and Disclosures, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
 
Note 2.  
Preliminary Purchase Price
 
AGL Resources acquired all of the outstanding shares of Nicor’s common stock. The preliminary purchase price for the merger is as follows:

 
Cost of equity issued
      
Nicor shares outstanding at December 9, 2011 (millions)
     45.5  
Exchange ratio
     0.8382  
Number of shares of AGL Resources issued (millions)
     38.1  
Volume-weighted average price of AGL Resources common stock on December 8, 2011
   $ 39.90  
Cost of equity issued (millions)
   $ 1,520  
         
Cash payment for shares outstanding
        
Nicor shares outstanding at December 9, 2011  (millions)
     45.5  
Cash payment per share of Nicor common stock
   $ 21.20  
Cash payment for Nicor shares outstanding (millions)
   $  965   
         
Additional shares outstanding under Nicor’s stock compensation plans granted prior to the execution of the merger agreement (millions)
     0.6  
Cash payment per additional Nicor share outstanding (millions)
   $ 54.64  
Cost to settle additional Nicor shares outstanding (millions)
   $ 33  
Total cash payment for shares outstanding (millions)
   $ 998  
Total preliminary purchase price (millions)
   $ 2,518  
 
The preliminary purchase price was computed using (i) Nicor’s shares outstanding immediately prior to the effective time of the merger and the market value of AGL Resources’ common stock issued in connection with the merger based on the volume-weighted average price of AGL Resources’ common stock on December 8, 2011, (ii) the cost of debt issued based on Nicor’s shares outstanding immediately preceding the effective time of the merger and the commitment to pay cash of $21.20 per Nicor common share and (iii) the cash payment to settle the additional shares outstanding under Nicor’s stock compensation plans. The cash payment per additional share was calculated based on the exchange ratio multiplied by the volume-weighted average price of AGL Resources common stock on December 8, 2011, plus $21.20.

Note 3.
Pro Forma Adjustments
 
The pro forma adjustments included in the pro forma financial statements are as follows:

Adjustments to Pro Forma Financial Statements

(a) AGL Resources and Nicor historical presentation — Based on the amounts reported in the Consolidated Statements of Income and Statements of Financial Position of AGL Resources and Nicor,  certain financial line items included in Nicor’s historical presentation have been reclassified to corresponding line items included in AGL Resources’ historical presentation. These reclassifications have no material impact on the historical operating income, net income, earnings available to parent, total assets, liabilities or shareholder’s equity reported by AGL Resources or Nicor.

Additionally, based on AGL Resources’ review of Nicor’s summary of significant accounting policies disclosed in Nicor’s financial statements and preliminary discussions with Nicor management, the nature and amount of any adjustments to the historical financial statements of Nicor to conform its accounting policies to those of AGL Resources are not expected to be material. Further review of Nicor’s accounting policies and financial statements may result in revisions to Nicor’s policies and classifications to conform to AGL Resources, some of which may be material.
 
The allocation of the preliminary purchase price to the fair values of assets acquired and liabilities assumed includes pro forma adjustments for the fair value of Nicor’s assets and liabilities. The final allocation of the purchase price could differ materially from the preliminary allocation used for the Unaudited Pro Forma Condensed Combined Consolidated Statement of Financial Position. The allocation of the preliminary purchase price is as follows (in millions):

 
Current assets
   $ 788  
Property, plant and equipment
     3,112  
Goodwill
     1,349  
Other noncurrent assets, excluding goodwill
     769  
Current liabilities
     (934 )
Noncurrent liabilities
     (2,566 )
Preliminary purchase price
   $ 2,518  
 
Adjustments to Pro Forma Condensed Combined Consolidated Statements of Income
 
(b) Operation and maintenance — Represents a decrease in operation and maintenance expense by removing the non-recurring transaction costs incurred by AGL Resources and Nicor through September 30, 2011, and December 31, 2010.

(c) Provision for depreciation and amortization, net — Represents the net incremental depreciation expense and incremental amortization of identified intangibles resulting from the pro forma fair value adjustments to Nicor’s unregulated property, plant and equipment and intangible assets. The estimates are preliminary, subject to change and could vary materially from the actual adjustment.

(d) Interest expense — Represents an increase in interest expense as the result of AGL Resources’ debt issuances to make a cash payment of $998 million to fund the requirement to pay $21.20 for each outstanding common share of Nicor and to settle the additional shares outstanding under Nicor’s stock compensation plans.
 
(e) Income taxes — Represents the adjustment to the income tax expense to reflect a combined consolidated estimated statutory income tax rate of 37%.
 
(f) Shares outstanding — Reflects the elimination of Nicor’s common stock offset by issuance of approximately 38.1 million shares of AGL Resources common stock. This share issuance does not consider that fractional shares will be paid in cash. The pro forma weighted-average number of basic shares outstanding is calculated by adding AGL Resources’ weighted-average number of basic shares of common stock outstanding for the nine months ended September 30, 2011, and the year ended December 31, 2010, to the number of AGL Resources’ shares issued as a result of the merger. The pro forma weighted-average number of diluted shares outstanding is calculated by adding AGL Resources’ weighted-average number of diluted shares of common stock outstanding for the nine months ended September 30, 2011, and the year ended December 31, 2010, to the number of AGL Resources’ shares issued as a result of the merger.
 
   
Nine Months Ended September 30, 2011
    
Year Ended
December 31, 2010
  
Basic (millions):
            
AGL Resources weighted-average number of basic shares outstanding
     77.9       77.4  
Equivalent Nicor common shares after exchange
     38.1       38.1  
      116.0       115.5  
Diluted (millions):
                
AGL Resources weighted-average number of diluted shares outstanding
     78.4       77.8  
Equivalent Nicor common shares after exchange
     38.1       38.1  
      116.5       115.9  

Adjustments to Pro Forma Condensed Combined Consolidated Balance Sheet
 
(g) Property, Plant and Equipment — Reflects a $6 million increase to record Nicor’s unregulated property, plant and equipment to the estimated fair value. The estimate is preliminary, subject to change and could vary materially from the actual adjustment.
 
(h) Goodwill — Reflects the preliminary estimate of the excess of the purchase price paid over the fair value of Nicor’s assets acquired and liabilities assumed. The preliminary purchase price of the transaction, based on the volume-weighted average price of AGL Resources common stock on the NYSE on December 8, 2011, and the excess purchase price over the fair value of the assets acquired and liabilities assumed is calculated as follows (in millions):

Preliminary purchase price
   $ 2,518  
Less: Fair value of net assets acquired
     1,169  
Less: Nicor existing goodwill
     27  
Pro forma goodwill adjustment
   $ 1,322  
 
(i) Regulatory assets — Represents the estimated fair value adjustment of $121 million, based on prevailing market prices at September 30, 2011, associated with AGL Resources assuming Nicor’s debt.

(j) Other assets — Represents (i) the estimated fair value adjustment of $146 million associated with customer relationships and trade names of Nicor, (ii) the estimated fair value adjustment of $13 million related to investments in equity method joint ventures and (iii) the estimated debt issuance costs of $2 million. The customer relationships and trade names are expected to be amortized on a straight-line basis over their estimated remaining useful lives, while the debt issuance costs are expected to be amortized on a straight-line basis over the lives of the various debt instruments. The estimated lives of these assets are as follows:

Asset
Amortization Period
Customer relationships
15 years
Trade names
5 – 19 years
Debt issuance costs
5 – 30 years

(k) Accrued expenses — Reflects the accrual for estimated non-recurring transaction costs of $41 million to be incurred after September 30, 2011, partially offset by the current portion of income tax expense of $5 million.

             
(l) Debt — In connection with the merger agreement, AGL Resources assumed all of Nicor’s outstanding debt. The pro forma adjustment to short-term debt reflects the re-issuance of $700 million of commercial paper which was previously repaid as a result of our 2011 debt financings and $23 million of commercial paper borrowings necessary to complete the payment of the cash portion of the purchase consideration, less the $145 million adjustment to reduce AGL Resources’ cash balance to an amount that would have been  maintained if the merger-related financing was not secured prior to the balance sheet date. The pro forma adjustment to long-term debt reflects the issuance of $975 million of debt by AGL Resources, less approximately $700 million that had been secured as of September 30, 2011 that was used to help finance the merger, and the fair value adjustment of Nicor’s debt based on prevailing market prices at September 30, 2011 of $121 million. Subsequent to September 30, 2011, AGL Resources completed an issuance of $275 million in senior unsecured notes with various institutional investors in the private placement market.
 
(m) Accumulated deferred income taxes — Represents the estimated deferred tax liability, based on AGL Resources’ estimated post-merger composite statutory tax rate of 37% multiplied by the fair value adjustments recorded to the assets acquired and liabilities assumed, excluding goodwill. This estimated tax rate is different from AGL Resources’ effective tax rate for the nine months ended September 30, 2011, which includes other tax charges or benefits, and does not take into account any historical or possible future tax events that may impact the combined company.

(n) Equity — The pro forma balance sheet reflects the elimination of Nicor’s historical equity balance, recognition of additional 38.1 million AGL Resources common shares issued and adjustment to reduce retained earnings by $24 million (net of tax) for the remaining estimated non-recurring transaction costs. These transaction costs are shown as an adjustment to retained earnings to reflect the impact of accounting guidance applicable to business combinations, which requires that these costs be expensed. Estimated transaction costs have been excluded from the pro forma income statements as they reflect non-recurring charges directly related to the merger.