10 Peachtree Place NE Atlanta, GA 30309 |
Securities and Exchange Commission Division of Corporation Finance 100 F Street N.E. Washington, D.C. 20549 | |
Attn: | Jennifer Thompson Accounting Branch Chief Office of Consumer Products |
Re: | Southern Company Gas | |
Form 10-K for the Fiscal Year Ended December 31, 2015 (“Form 10-K”) | ||
Filed February 11, 2016 | ||
Form 10-Q for the Quarterly Period Ended September 30, 2016 (“Form 10-Q”) | ||
Filed November 4, 2016 | ||
File No. 1-14174 |
1. | We note your disclosure indicating that debt securities issued through your wholly-owned finance subsidiary AGL Capital are fully and unconditionally |
2. | The presentation of your predecessor and successor periods on a combined basis for the year-to-date period ended September 30, 2016 does not appear to be appropriate due to the change in basis in the underlying financial statements. Please revise your current presentation and discussion of results of operations here and throughout your filing to separately present the predecessor and successor periods with a clear delineation and explanation of the differences between the two periods. You may wish to consider whether such disclosure should be supplemented by pro forma financial information presented in a format consistent with Article 11 of Regulation S-X. Such information, including any discussion on a pro forma basis, should only be provided on a supplemental basis to the stand-alone discussion of the GAAP operating results for the successor and predecessor periods. |
3. | On page 14, you present what appears to be a non-GAAP income statement to reconcile your non-GAAP measures operating margin and EBIT. Please revise your presentation to reconcile your non-GAAP measures without providing what appears to be a full income statement. See Question 102.10 of the updated Non-GAAP Compliance and Disclosure Interpretations issued on May 17, 2016. |
Successor | Predecessor | Successor | Predecessor | ||||||||||||||||||
July 1, 2016 | January 1, 2016 | ||||||||||||||||||||
Third Quarter | Third Quarter | through September 30, | through June 30, | Year-to-Date | |||||||||||||||||
2016 | 2015 | 2016 | 2016 | 2015 | |||||||||||||||||
(in millions) | (in millions) | (in millions) | (in millions) | ||||||||||||||||||
Operating Income | $ | 12 | $ | 59 | $ | 12 | $ | 321 | $ | 530 | |||||||||||
Other operating expenses (A) | 396 | 379 | 396 | 815 | 1,146 | ||||||||||||||||
Revenue tax expense (B) | (8 | ) | (8 | ) | (8 | ) | (56 | ) | (81 | ) | |||||||||||
Adjusted Operating Margin | $ | 400 | $ | 430 | $ | 400 | $ | 1,080 | $ | 1,595 |
(A) | Adjusted for the following operating expenses: other operations and maintenance, depreciation and amortization, taxes other than income taxes, and merger-related expenses. |
(B) | Adjusted for Nicor Gas' revenue tax expenses, which are passed through directly to customers. |
Successor | Predecessor | Successor | Predecessor | ||||||||||||||||||
July 1, 2016 | January 1, 2016 | ||||||||||||||||||||
Third Quarter | Third Quarter | through September 30, | through June 30, | Year-to-Date | |||||||||||||||||
2016 | 2015 | 2016 | 2016 | 2015 | |||||||||||||||||
(in millions) | (in millions) | (in millions) | (in millions) | ||||||||||||||||||
Consolidated Net Income Attributable to Southern Company Gas | $ | 4 | $ | 11 | $ | 4 | $ | 131 | $ | 246 | |||||||||||
Net income attributable to | |||||||||||||||||||||
noncontrolling interest | — | 1 | — | 14 | 15 | ||||||||||||||||
Income taxes | 7 | 7 | 7 | 87 | 150 | ||||||||||||||||
Interest expense, net of amounts | |||||||||||||||||||||
capitalized | 39 | 43 | 39 | 96 | 129 | ||||||||||||||||
EBIT | $ | 50 | $ | 62 | $ | 50 | $ | 328 | $ | 540 |
4. | Please revise to begin your reconciliations with GAAP results rather than non-GAAP results. See Question 102.10 of the updated Non-GAAP Compliance and Disclosure Interpretations issued on May 17, 2016. |
5. | We note that you present a non-GAAP measure entitled “operating margin,” which appears similar to the term used in US GAAP, “gross margin.” Please tell us how your presentation complies with Item 10(e)(1)(ii)(E) of Regulation S-K, which prohibits using titles for non-GAAP measures that are the same as, or confusingly similar to, titles or descriptions used for GAAP financial measures. |
6. | We note that the segment measure of profitability reported in your financial statements pursuant to ASC 280 is segment EBIT. In this section, you present non-GAAP “operating margin” by segment. Please refer to the guidance in Question 104.03 of the Compliance and Disclosure Interpretations on Non-GAAP Financial Measures revised May 17, 2016 and revise to comply with Item 10(e)(1) of Regulation S-K for all of your non-GAAP measures, including “operating margin” by segment. |
Successor | |||||||||||||||||||||
Third Quarter 2016 | |||||||||||||||||||||
Gas distribution | Gas marketing | Wholesale gas | Gas midstream | Intercompany | |||||||||||||||||
operations | services | services | operations | All other | elimination | Consolidated | |||||||||||||||
(in millions) | |||||||||||||||||||||
Operating Income | $ | 69 | $ | (6 | ) | $ | (18 | ) | $ | (4 | ) | $ | (29 | ) | $ | — | $ | 12 | |||
Other operating expenses (a) | 292 | 51 | 10 | 13 | 31 | (1 | ) | 396 | |||||||||||||
Revenue tax expense (B) | (8 | ) | — | — | — | — | — | (8 | ) | ||||||||||||
Adjusted Operating Margin | $ | 353 | $ | 45 | $ | (8 | ) | $ | 9 | $ | 2 | $ | (1 | ) | $ | 400 |
Predecessor | |||||||||||||||||||||
Third Quarter 2015 | |||||||||||||||||||||
Gas distribution | Gas marketing | Wholesale gas | Gas midstream | Intercompany | |||||||||||||||||
operations | services | services | operations | All other | elimination | Consolidated | |||||||||||||||
(in millions) | |||||||||||||||||||||
Operating Income | $ | 85 | $ | 11 | $ | 18 | $ | (16 | ) | $ | (39 | ) | $ | — | $ | 59 | |||||
Other operating expenses (a) | 264 | 37 | 15 | 25 | 39 | (1 | ) | 379 | |||||||||||||
Revenue tax expense (B) | (8 | ) | — | — | — | — | — | (8 | ) | ||||||||||||
Adjusted Operating Margin | $ | 341 | $ | 48 | $ | 33 | $ | 9 | $ | — | $ | (1 | ) | $ | 430 |
Successor | |||||||||||||||||||||
July 1, 2016 through September 30, 2016 | |||||||||||||||||||||
Gas distribution | Gas marketing | Wholesale gas | Gas midstream | All | Intercompany | ||||||||||||||||
operations | services | services | operations | other | elimination | Consolidated | |||||||||||||||
(in millions) | |||||||||||||||||||||
Operating Income | $ | 69 | $ | (6 | ) | $ | (18 | ) | $ | (4 | ) | $ | (29 | ) | $ | — | $ | 12 | |||
Other operating expenses (a) | 292 | 51 | 10 | 13 | 31 | (1 | ) | 396 | |||||||||||||
Revenue tax expense (B) | (8 | ) | — | — | — | — | — | (8 | ) | ||||||||||||
Adjusted Operating Margin | $ | 353 | $ | 45 | $ | (8 | ) | $ | 9 | $ | 2 | $ | (1 | ) | $ | 400 |
Predecessor | |||||||||||||||||||||
January 1, 2016 through June 30, 2016 | |||||||||||||||||||||
Gas distribution | Gas marketing | Wholesale gas | Gas midstream | All | Intercompany | ||||||||||||||||
operations | services | services | operations | other | elimination | Consolidated | |||||||||||||||
(in millions) | |||||||||||||||||||||
Operating Income | $ | 351 | $ | 109 | $ | (69 | ) | $ | (9 | ) | $ | (61 | ) | $ | — | $ | 321 | ||||
Other operating expenses (a) | 616 | 81 | 33 | 24 | 65 | (4 | ) | 815 | |||||||||||||
Revenue tax expense (B) | (56 | ) | — | — | — | — | — | (56 | ) | ||||||||||||
Adjusted Operating Margin | $ | 911 | $ | 190 | $ | (36 | ) | $ | 15 | $ | 4 | $ | (4 | ) | $ | 1,080 |
Predecessor | |||||||||||||||||||||
Year-to-Date 2015 | |||||||||||||||||||||
Gas distribution | Gas marketing | Wholesale gas | Gas midstream | Intercompany | |||||||||||||||||
operations | services | services | operations | All other | elimination | Consolidated | |||||||||||||||
(in millions) | |||||||||||||||||||||
Operating Income | $ | 415 | $ | 115 | $ | 66 | $ | (21 | ) | $ | (45 | ) | $ | — | $ | 530 | |||||
Other operating expenses (a) | 879 | 122 | 52 | 48 | 49 | (4 | ) | 1,146 | |||||||||||||
Revenue tax expense (B) | (81 | ) | — | — | — | — | — | (81 | ) | ||||||||||||
Adjusted Operating Margin | $ | 1,213 | $ | 237 | $ | 118 | $ | 27 | $ | 4 | $ | (4 | ) | $ | 1,595 | ||||||
(A) Adjusted for the following operating expenses: other operations and maintenance, depreciation and amortization, taxes other than income taxes, and merger-related expenses. | |||||||||||||||||||||
(B) Adjusted for Nicor Gas' revenue tax expenses, which are passed through directly to customers. |
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