AGL Resources Reports First Quarter Earnings
ATLANTA--April 22, 2003--AGL Resources Inc.
(NYSE: ATG) today reported income before the cumulative effect of a
change in accounting principle of $59.6 million, or $0.99 per basic
share ($0.98 per diluted share), for the first quarter of 2003.
Net income after the cumulative effect of a change in accounting
principle for the quarter was $51.8 million, or $0.86 per basic share
($0.85 per diluted share). Comparable quarterly earnings for 2002 were
$50.1 million of net income or $0.90 per basic share ($0.89 per
diluted share). Weighted average basic shares outstanding were 60.3
million at March 31, 2003, an increase of 4.6 million, or about 8.3
percent, from March 31, 2002. Shares outstanding increased as a result
of the Company's 6.4 million share offering completed on February 14,
2003.
"We hit on all eight cylinders," said Paula G. Rosput, chairman,
president and chief executive officer of AGL Resources. "During the
first quarter, we strengthened our balance sheet, expanded our
ownership interest in SouthStar, increased our business base at
Sequent, turned in profitable results at AGL Networks, and continued
to improve the annuity quality of our core distribution business. As a
result of these developments, we are comfortable confirming our
earlier guidance for 2003 of $1.85 to $1.90 per share, even after
taking into account the effects of our equity offering and the
one-time accounting charge related to the adoption of EITF 02-03."
The key drivers of earnings improvement for the quarter as
compared to the prior year were:
-- $9.5 million of increased EBIT from the distribution
operations segment, primarily due to an increase in operating
margin at Virginia Natural Gas that reflects the effect of the
experimental weather normalization adjustment and colder
weather as compared to the first quarter of 2002.
-- $14.9 million of increased EBIT from the wholesale services
segment, primarily due to the optimization of its growing base
of transportation and storage assets coupled with the
significant volatility brought on by colder weather and higher
wholesale gas prices in the quarter as compared to the first
quarter of 2002.
-- Earnings also were enhanced by lower corporate interest
expense of $2.9 million for the quarter.
These earnings improvements were offset by:
-- Decreased earnings in the energy investments segment
principally due to an $11.4 million decrease in other income
from SouthStar as a result of a $7.0 million adjustment to
inventory in the first quarter of 2002 that increased EBIT for
that quarter and lower margins from retail gas sales in the
first quarter of this year. The reduction at SouthStar was
partially offset by a $1.7 million increase in AGL Network's
EBIT and a $1.0 million increase in other income from US
Propane compared to the previous year quarter. AGL Networks'
improvement was primarily due to the recognition of revenue
from a sales-type lease entered into in the first quarter of
2003 and results in a swing to profitability for AGL Networks.
-- An increase in income taxes of $10.6 million as a result of
higher earnings and a higher effective tax rate resulting from
higher state taxes.
-- A $7.8 million after-tax charge resulting from the cumulative
effect of a change in accounting principle for the quarter
resulting from the final provisions of Emerging Issues Task
Force (EITF) 02-03, which rescinded EITF 98-10, "Accounting
for Contracts Involved in Energy Trading and Risk Management
Activities."
DISTRIBUTION OPERATIONS
The distribution operations segment performed well in the first
quarter 2003, contributing earnings before interest and taxes (EBIT)
of $80.9 million for the quarter, a $9.5 million increase over the
$71.4 million in first quarter 2002. This increase is principally due
to an increase in operating margins of $7.9 million to $171.5 million
for the quarter as compared with $163.6 million in the same period
last year. The increase in operating margin in the first quarter of
2003 was primarily due to Virginia Natural Gas, which had increased
margin of $8.9 million, reflecting the effect of the experimental
weather normalization adjustment, which was approved by the Virginia
State Corporation Commission in November 2002. Additionally, VNG's
operating margins in the first quarter of 2002 were lower due to
warmer weather, when VNG operated without the weather normalization
adjustment. Heating degree days in the Hampton Roads region in
Virginia were 1,962 for the first quarter of 2003, an increase of 25
percent over the prior year quarter. These positive impacts were
partially offset by decreased margins of $1.0 million at Atlanta Gas
Light Company resulting from an expected reduction in operating
revenues due to lower rates under the performance-based rate plan
(approved by the Georgia Public Service Commission in April 2002),
offset by increased revenues from the pipeline replacement program.
Distribution operations reduced costs and overhead, resulting in a
$2.9 million decline in operating expenses, from $94.9 million in 2002
to $92.0 million in 2003. The primary drivers were lower depreciation
expense resulting from new depreciation rates established as a part of
the performance-based rate plan at AGLC, decreases in outside
consultant costs offset by higher bad debt expense caused by higher
gas costs in 2003 as compared to 2002.
WHOLESALE SERVICES
The wholesale services segment, comprised primarily of Sequent,
contributed $20.7 million in EBIT for the quarter, compared to $5.8
million last year, a $14.9 million increase resulting from the
optimization of transportation and storage assets, coupled with
increased commodity margins common in a volatile market environment.
The volatile market resulted from colder weather and the reduction of
gas storage volumes across the market as the winter progressed during
the quarter. Sequent also sold substantially all of its inventory
during the quarter, which was previously recorded on a mark-to-market
basis under the now rescinded EITF 98-10, resulting in $12.6 million
of realized earnings before interest and taxes during the quarter for
transactions previously recorded on a mark-to-market basis in prior
periods.
ENERGY INVESTMENTS
The energy investments segment realized EBIT of $16.0 million for
the current quarter as compared to $24.7 million in the same period
one year ago. The $8.7 million decrease in EBIT year-over-year
reflects an $11.4 million decrease in earnings contribution from
SouthStar. The decrease is the result of a one-time inventory
adjustment recorded in the first quarter of 2002, which increased EBIT
by $7 million, and lower margins on gas sales in the first quarter of
this year, primarily due to higher and more volatile gas prices. This
decrease was partially offset by positive EBIT contributions for the
current quarter, representing a year-over-year increase in EBIT of
$1.7 million from AGL Networks, reflecting the execution of a
sales-type lease during first quarter 2003 and increased monthly
recurring contract revenues, offset by increased operating expenses as
compared to the prior year's first quarter. Additionally, AGL
Resources' investment in Heritage Propane (NYSE:HPG), through US
Propane, contributed increased EBIT of $1.0 million as compared to
2002.
CORPORATE
Corporate EBIT increased $1.5 million compared with the previous
year primarily due to the establishment of reserves during the prior
year quarter. Consolidated interest expense decreased by $2.9 million
for the first quarter of 2003, principally due to lower average
interest rates as well as lower average debt balances due to the
repayment of debt from proceeds generated from the equity offering and
lower working capital needs for the quarter as compared to last year.
These increases were offset by an increase in consolidated income
taxes of $10.6 million primarily due to higher earnings before income
taxes and an increase in the effective tax rate resulting from new
state tax legislation.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
Results for the quarter also were impacted by a change in
accounting principle as a result of the final provisions of EITF
02-03, which rescinded EITF 98-10, "Accounting for Contracts Involved
in Energy Trading and Risk Management Activities." As a result, all
energy-trading contracts that do not meet the requirements of SFAS
133, "Accounting for Derivative Instruments and Hedging Activities,"
will be recorded at their historical cost and reported on an accrual
basis, resulting in the recognition of earnings or losses at the time
of contract settlement or termination. Pursuant to the adoption of
EITF 02-03, Sequent adjusted, on the balance sheet, the fair value of
its non-derivative trading instruments to zero by taking a pre-tax
charge of $12.6 million that also had the effect of lowering net
income by $7.8 million on a one-time basis.
Sequent's activities are generally related to physical gas assets
(principally gas storage capacity contracts) and its non-derivative
trading book generally has short-dated positions. In response to
higher and more volatile gas prices, Sequent sold during the quarter
substantially all of its inventory that was outstanding at December
31, 2002 and recorded on a mark-to-market basis at that time. The
realization from the sale of this inventory resulted in $12.6 million
of earnings before interest and taxes for the first quarter of 2003.
INCREASE IN SHARES OUTSTANDING
Average shares outstanding increased by 4.6 million shares to 60.3
million shares, primarily as a result of the issuance of 6.4 million
shares on February 14, 2003 in conjunction with the company's equity
offering. As a result of the issuance, earnings per share for the
current quarter reflect a $0.06 per share dilutive effect. The
proceeds from the equity offering of approximately $137 million were
used to retire short-term debt. As a result of the offering, and
strong cash flow generation during the quarter of approximately $115
million, the company has reduced its debt-to-capitalization ratio from
67 percent (as of December 31, 2002) to 57 percent (as of March 31,
2003).
Earnings Conference Call Webcast: The AGL Resources first quarter
2003 earnings conference call, scheduled for April 22, 2003, at 2 p.m.
(EDT), can be accessed via the AGL Resources website at
www.aglresources.com. The call will address the company's financial
results for the quarter ended March 31, 2003, as well as other general
corporate updates. The call will be archived on the website through
the close of business on April 29, 2003.
AGL Resources Inc. (NYSE: ATG) is an Atlanta-based energy services
holding company. Its utility subsidiaries - Atlanta Gas Light Company,
Virginia Natural Gas and Chattanooga Gas Company - serve approximately
1.9 million customers in three states. Houston-based subsidiary
Sequent Energy Management provides asset management services,
including the wholesale trading, marketing, gathering and
transportation of natural gas. As a member of the SouthStar
partnership, AGL Resources markets natural gas to consumers in Georgia
under the Georgia Natural Gas brand. AGL Networks, the company's
telecommunications subsidiary, owns and operates a fiber optic network
in Atlanta and Phoenix. For more information, visit
www.aglresources.com.
This press release contains forward-looking statements. AGL
Resources wishes to caution readers that the assumptions, which form
the basis for the forward-looking statements, include many factors
that are beyond AGL Resources' ability to control or estimate
precisely. Those factors include, but are not limited to, the
following: changes in industrial, commercial, and residential growth
in the service territories of AGL Resources Inc. and its subsidiaries;
changes in price and demand for natural gas and related products;
impact of changes in state and federal legislation and regulation,
including various state public service commissions and the Federal
Energy Regulatory Commission orders, on the gas and electric
industries and on AGL Resources, including the impact of Atlanta Gas
Light Company's performance based rate plan; effects and uncertainties
of deregulation and competition, particularly in markets where prices
and providers historically have been regulated, unknown risks related
to nonregulated businesses, and unknown issues such as the stability
of certificated marketers; impact of Georgia's Natural Gas Consumers'
Relief Act of 2002; concentration of credit risk in certificated
marketers and wholesale services' counterparties; excess network
capacity and demand/growth for dark fiber in metro network areas of
AGL Networks' customers; AGL Networks' introduction and market
acceptance of new technologies and products, as well as the adoption
of new networking standards; ability of AGL Networks to produce
sufficient capital to fund its business; ability to negotiate new
contracts with telecommunications providers for the provision of AGL
Networks' dark-fiber services; industry consolidation; performance of
equity and bond markets and the impact on pension fund costs; impact
of acquisitions and divestitures; changes in accounting policies and
practices issued periodically by accounting standard-setting bodies;
direct or indirect effects on AGL Resources' business, financial
condition or liquidity resulting from a change in the company's credit
ratings or the credit ratings of its competitors or counterparties;
interest rate fluctuations, financial market conditions, and general
economic conditions; uncertainties about environmental issues and the
related impact of such issues; impact of changes in weather upon the
temperature-sensitive portions of the business; and other risks
described in our documents on file with the Securities and Exchange
Commission.
AGL Resources Inc.
Condensed Statements of Consolidated Income
For the Three Months Ended
March 31, 2003 and 2002
(In millions, except per share amounts)
Three Months
---------------------------------
3/31/2003 3/31/2002 Fav/(Unfav)
---------- --------- -----------
Operating Revenues $351.4 $269.3 $82.1
Cost of Sales 148.6 97.1 (51.5)
---------- --------- -----------
Operating Margin 202.8 172.2 30.6
Total Operating Expenses 102.4 100.8 (1.6)
---------- --------- -----------
Operating Income 100.4 71.4 29.0
Other (Loss) Income 17.1 28.9 (11.8)
---------- --------- -----------
Earnings Before Interest & Taxes 117.5 100.3 17.2
Interest Expense 19.8 22.7 2.9
---------- --------- -----------
Earnings Before Income Taxes 97.7 77.6 20.1
Income Taxes 38.1 27.5 (10.6)
---------- --------- -----------
Income Before Cumulative Effect of
Change in Accounting Principle 59.6 50.1 9.5
Cumulative Effect of Change in
Accounting Principle (7.8) - (7.8)
---------- --------- -----------
Net Income $51.8 $50.1 $1.7
========== ========= ===========
EPS Before Cumulative Effect of
Change
in Accounting Principle
Basic $0.99 $0.90 $0.09
Diluted $0.98 $0.89 $0.09
EPS
Basic $0.86 $0.90 $(0.04)
Diluted $0.85 $0.89 $(0.04)
Shares Outstanding
Basic 60.3 55.7 4.6
Diluted 60.7 56.0 4.7
AGL Resources Inc.
EBIT Schedule
For the Three Months Ended
March 31, 2003 and 2002
(In millions, except per share amounts)
Three Months
---------------------------------
3/31/2003 3/31/2002 Fav/(Unfav)
---------- --------- -----------
Distribution Operations $80.9 $71.4 $9.5
Wholesale Services 20.7 5.8 14.9
Energy Investments 16.0 24.7 (8.7)
Corporate (0.1) (1.6) 1.5
---------- --------- -----------
Consolidated EBIT 117.5 100.3 17.2
---------- --------- -----------
Interest Expense 19.8 22.7 2.9
Income Taxes 38.1 27.5 (10.6)
---------- --------- -----------
Income Before Cumulative Effect of
Change in Accounting Principle 59.6 50.1 9.5
Cumulative Effect of Change in
Accounting Principle (7.8) - (7.8)
---------- --------- -----------
Net Income $51.8 $50.1 $1.7
---------- --------- -----------
Earnings per Common Share Before
Cumulative
Effect of Change in Accounting
Principle
Basic $0.99 $0.90 $0.09
========== ========= ===========
Diluted $0.98 $0.89 $0.09
========== ========= ===========
Earnings per Common Share
Basic $0.86 $0.90 $(0.04)
========== ========= ===========
Diluted $0.85 $0.89 $(0.04)
========== ========= ===========
CONTACT: AGL Resources, Atlanta
Financial/Media Contact
Steve Cave, 404/584-3801
SOURCE: AGL Resources
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