AGL RESOURCES INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2004

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-14174

AGL RESOURCES INC.
(Exact name of registrant as specified in its charter)

Georgia	58-2210952
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Ten Peachtree Place NE, Atlanta, Georgia 30309
(Address and zip code of principal executive offices)
(Zip Code)

404-584-4000
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No __

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class		Outstanding as of July 23, 2004
Common Stock, $5.00 Par Value		64,946,102

AGL RESOURCES INC.

Form 10-Q

For the Quarterly Period Ended June 30, 2004

TABLE OF CONTENTS

Item Number		Page(s)
	Glossary of key terms and referenced accounting standards	3-4

	PART I - FINANCIAL INFORMATION

1	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	5-6
	Condensed Consolidated Statements of Income	7
	Condensed Consolidated Statements of Common Shareholders’ Equity	8
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements
	Note 1 – Accounting Policies and Methods of Application	10-12
	Note 2 – Recent Accounting Pronouncements	13-14
	Note 3 – Risk Management	15-17
	Note 4 – Regulatory Assets and Liabilities	18-19
	Note 5 – Pension and Other Postretirement Benefits	20
	Note 6 – Financing	21
	Note 7 – Commitments and Contingencies	22
	Note 8 – Segment Information	23
	Note 9 – Subsequent Events	24
2	Management's Discussion and Analysis of Financial Condition and Results of Operations
	Cautionary Statement Regarding Forward-Looking Statements	26
	Summary	27-32
	Results of Operations
	Distribution Operations	33-36
	Wholesale Services	37-42
	Energy Investments	43-47
	Corporate	48
	Liquidity and Capital Resources	49-53
	Critical Accounting Policies	54-55
	Accounting Developments	56
3	Quantitative and Qualitative Disclosures About Market Risk	57-58
4	Controls and Procedures	60

	PART II - OTHER INFORMATION

1	Legal Proceedings	61
2	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	61
3	Defaults Upon Senior Securities	61
4	Submission of Matters to a Vote of Security Holders	61
5	Other Information	61
6	Exhibits and Reports on Form 8-K	62

	SIGNATURE	63

GLOSSARY OF KEY TERMS

AGLC	Atlanta Gas Light Company
AGL Capital	AGL Capital Corporation
AGL Networks	AGL Networks, LLC
AGSC	AGL Services Company
CGC	Chattanooga Gas Company
Corporate	Nonoperating segment, which includes AGSC, AGL Capital and Pivotal
Credit Facility	Credit agreement supporting our commercial paper program
Distribution operations	Segment that includes AGLC, VNG and CGC
EBIT	Earnings before interest and taxes, a non-GAAP measure that includes operating income, other income, equity in SouthStar’s income in 2003, donations, minority interest in 2004 and gain on sales of assets. Excludes interest and tax expense; as an indicator of our operating performance, EBIT should not be considered an alternative to, or more meaningful than, operating income or net income as determined in accordance with GAAP
Energy investments	Segment that consists primarily of SouthStar, US Propane (and its investment in Heritage) and AGL Networks
ERC	Environmental response costs
FASB	Financial Accounting Standards Board
FIN	FASB Interpretation Number
GAAP	Accounting principles generally accepted in the United States of America
GPSC	Georgia Public Service Commission
LNG	Liquefied natural gas
Marketers	Georgia Public Service Commission-certificated marketers selling retail natural gas in Georgia
Medium-Term notes	Notes issued by AGLC scheduled to mature in 2004 through 2027 bearing interest rates ranging from 6.55% to 8.7%
MGP	Manufactured gas plant
NYMEX	New York Mercantile Exchange, Inc.
Operating margin	A non-GAAP measure of income, calculated as revenues minus cost of gas, that excludes operation and maintenance expense, depreciation and amortization, taxes other than income taxes, and the gain on the sale of our Caroline Street campus; these items are included in our calculation of operating income as reflected in our statements of consolidated income; operating margin should not be considered an alternative to, or more meaningful than, operating income or net income as determined in accordance with GAAP
PGA	Purchased gas adjustment
Pivotal	Pivotal Energy Development
PRP	Pipeline replacement program
PUHCA	Public Utility Holding Company Act of 1935, as amended
RMC	AGL Resources’ Risk Management Committee
SEC	Securities and Exchange Commission
Sequent	Sequent Energy Management, L.P.
Senior notes	Notes issued by AGL Capital scheduled to mature in 2011 through 2013 bearing interest rates ranging from 4.45% to 7.125%
SFAS	Statement of Financial Accounting Standards
SouthStar	SouthStar Energy Services LLC
Trust Preferred Securities	Trust preferred securities subject to mandatory redemption
Trusts	AGL Capital Trust I and AGL Capital Trust II
US Propane	US Propane LP
VNG	Virginia Natural Gas, Inc.
VSCC	Virginia State Corporation Commission
Wholesale services	Segment that consists primarily of Sequent
WNA	Weather normalization adjustment

REFERENCED ACCOUNTING STANDARDS

APB 25	Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”
ARB 51	Accounting Research Bulletin No. 51, “Consolidated Financial Statements”
EITF 99-02	Emerging Issues Task Force Issue No. 99-02, “Accounting for Weather Derivatives”
EITF 02-03	Emerging Issues Task Force Issue No. 02-03, “Issues Involved in Accounting for Contracts under EITF Issue No. 98-10, ‘Accounting for Contracts Involved in Energy Trading and Risk Management Activities’”
FIN 46 & FIN 46R	FASB Interpretation No. 46, “Consolidation of Variable Interest Entities”
FSP 106-1	FASB Staff Position No. 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003”
FSP 106-2	FASB Staff Position No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003”
SFAS 66	SFAS No. 66, “Accounting for Sales of Real Estate”
SFAS 71	SFAS No. 71, “Accounting for the Effects of Certain Types of Regulation”
SFAS 123	SFAS No. 123, “Accounting for Stock-Based Compensation”
SFAS 133	SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”
SFAS 149	SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”

Item 1. Financial Statements

AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

In millions	June 30, 2004	December 31, 2003	June 30, 2003
Current assets
Cash and cash equivalents	$54	$17	$3
Receivables (less allowance for uncollectible accounts of $17 million at June 30, 2004, $2 million at December 31, 2003 and $3 million at June 30, 2003)	414	394	276
Unbilled revenues	42	40	5
Inventories	259	210	168
Unrecovered environmental response costs – current	26	24	24
Unrecovered pipeline replacement program costs – current	24	22	18
Energy marketing and risk management assets	21	13	12
Other	10	22	6
Total current assets	850	742	512
Property, plant and equipment
Property, plant and equipment	3,476	3,402	3,390
Less accumulated depreciation	1,067	1,050	1,165
Property, plant and equipment-net	2,409	2,352	2,225
Deferred debits and other assets
Unrecovered pipeline replacement program costs	381	410	437
Goodwill	177	177	176
Unrecovered environmental response costs	141	155	155
Investments in Trusts	10	-	-
Unrecovered postretirement benefit costs	9	9	11
Investments in equity interests	-	101	112
Other	33	26	25
Total deferred debits and other assets	751	878	916
Total assets	$4,010	$3,972	$3,653

See Notes to Condensed Consolidated Financial Statements (Unaudited).

AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

In millions	June 30, 2004	December 31, 2003	June 30, 2003
Current liabilities
Payables	$535	$403	$387
Short-term debt	161	306	147
Accrued pipeline replacement program costs – current	90	82	67
Accrued expenses	53	54	60
Accrued environmental response costs – current	37	40	48
Current portion of long-term debt	34	77	95
Energy marketing and risk management liabilities	11	17	11
Other	95	69	71
Total current liabilities	1,016	1,048	886
Accumulated deferred income taxes	413	376	344
Long-term liabilities
Accrued pipeline replacement program costs	285	323	365
Accumulated removal costs	104	102	-
Accrued postretirement benefit costs	51	51	51
Accrued pension obligations	27	39	67
Accrued environmental response costs	25	43	38
Other	13	11	9
Total long-term liabilities	505	569	530
Deferred credits	74	77	71
Commitments and contingencies (Note 7)
Minority interest	29	-	-
Capitalization
Senior and Medium-Term notes	728	731	697
Notes payable to Trusts	234	-	-
Subsidiaries’ obligated mandatorily redeemable preferred securities	-	225	228
Total long-term debt	962	956	925
Common shareholders’ equity, $5 par value; 750,000,000 shares authorized	1,011	946	897
Total capitalization	1,973	1,902	1,822
Total liabilities and capitalization	$4,010	$3,972	$3,653

See Notes to Condensed Consolidated Financial Statements (Unaudited).

AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(UNAUDITED)

	Three months		Six Months
In millions, except per share amounts	2004	2003