AGL Resources Reports 2003 Earnings; Strong Performance in Each Business Segment Drives 2003 Increase; Company Reaffirms 2004 Guidance
ATLANTA--Jan. 28, 2004--AGL Resources Inc. (NYSE:
ATG) today reported 2003 full-year net income of $127.9 million, or
$2.03 per basic share ($2.01 per diluted share), compared with $103.0
million, or $1.84 per basic share ($1.82 per diluted share) in 2002.
Excluding the impact of a gain on the sale of company property, net of
a related charitable contribution, but including the cumulative effect
of a change in accounting principle, 2003 earnings would have been
$1.95 per basic share ($1.93 per diluted share). The company had
previously provided 2003 earnings guidance in the range of $1.91 to
$1.96, factoring in the effects of these items. Net income for 2003,
excluding the gain on the property sale and net of the charitable
contribution, was $123.1 million, a 20 percent increase over the
$103.0 million reported in 2002. As a result of the company's equity
offering in February 2003, results for 2003 are based on weighted
average shares outstanding of 63.1 million, while 2002 results were
based on weighted average shares outstanding of 56.1 million.
Strong performances in the company's major business units,
including Distribution Operations, Wholesale Services and its
SouthStar Energy Services joint venture drove 2003 earnings results.
Lower corporate expenses, primarily the result of lower interest
expense reflecting a favorable interest rate environment, also
enhanced results.
"We were right on track to the finish line in 2003," said Paula G.
Rosput, chairman, president and chief executive officer of AGL
Resources. "Value-oriented investors can count on us to maintain the
pace in 2004."
For the fourth quarter of 2003, earnings were $0.54 per basic and
diluted share, compared with $0.55 per basic and diluted share
reported in the fourth quarter of 2002. Improved earnings from
Distribution Operations and SouthStar Energy Services primarily drove
fourth-quarter 2003 results. Earnings from the Distribution Operations
segment increased due mainly to higher operating margins and customer
growth. SouthStar's improvement resulted in large part from higher
margins, AGL Resources' increased ownership interest in the joint
venture, and the resolution of the earnings sharing provisions in the
partnership agreement with Piedmont Energy. These improved results for
the quarter were partly offset by a decrease in earnings at Sequent,
principally resulting from the accounting effect of transactions
executed to economically hedge Sequent's gas storage inventory, and to
a lesser extent, increased overhead costs. The effect of the
accounting change stems from the company's application of EITF 02-03,
which requires non-derivative energy trading transactions to be
accounted for on an accrual, rather than mark-to-market, basis.
KEY 2003 DRIVERS BY SEGMENT
-- The Distribution Operations segment continued to perform well
during 2003, contributing EBIT of $246.8 million, compared
with a 2002 EBIT contribution of $224.4 million. Excluding a
net $13.5 million pre-tax gain on the sale of company property
and the related charitable contribution, the Distribution
Operations segment EBIT for 2003 was $233.3 million, a 4
percent increase over 2002. The increase was primarily due to
higher operating margins, driven by higher customer usage and
a net increase in the average number of connected customers.
Total operating expenses for 2003 were $366.7 million,
compared to $362.5 million in 2002. The increase in operating
expenses principally reflects higher overhead costs, including
an increase in building lease expenses.
-- The Wholesale Services segment contributed $19.6 million in
EBIT for the year compared to $9.1 million in 2002, a 115
percent increase. The earnings improvement resulted primarily
from increased activity related to optimization of
transportation and storage assets, coupled with increased
commodity margins. Sequent's results were affected by EITF
02-03, which rescinded EITF 98-10 and resulted in inventory,
which had previously been recorded on a mark-to-market basis,
being recorded on an accrual basis. The cumulative effect of
this accounting change resulted in a positive impact to EBIT
of $6.5 million, after regulatory sharing, in 2003. Higher
operating margins at Sequent also reflect a 26 percent
increase in physical volumes sold during the year and a
significant expansion of Sequent's business into the Midwest,
mid-Atlantic and Northeast natural gas markets. Earnings at
Sequent were offset by increased operating expenses related to
the expansion of the business and improvements in technology
systems.
-- The Energy Investments segment contributed $43.1 million in
EBIT in 2003, compared to $23.6 million in 2002, an 83 percent
increase. SouthStar Energy Services accounted for the majority
of the segment's improved results. SouthStar's improved
contribution to earnings resulted from higher operating
margins and reduced bad debt and operating expenses, as well
as AGL Resources' increased ownership percentage (from 50
percent to 70 percent) in the joint venture. Results at
SouthStar also reflect the settlement of the disproportionate
earnings sharing issue with Piedmont Energy in the fourth
quarter 2003. The agreement resulted in AGL Resources
recognizing an additional $5.9 million of equity earnings for
the 12 months ended December 31, 2003, and resolves all
outstanding issues related to disproportionate sharing between
the two partners in SouthStar. The agreement also provided for
a cash distribution of $40 million to the owners on December
31, 2003, of which $34 million was allocated to AGL Resources.
-- The Corporate segment EBIT contribution decreased by $1.3
million in 2003, primarily the result of assets retired during
2003, of which the majority related to the write-off on the
sale of company property during the third quarter of 2003; and
increased corporate overhead costs in 2003. These results were
offset by prior charges taken in 2002 related to the
cancellation of a technology project, write-off of a
management software project, and employee severance costs.
INTEREST EXPENSE AND INCOME TAXES
Interest expense in 2003 was $75.6 million, about $10.4 million
lower than in 2002. A favorable interest rate environment, lower
average debt balances, and the retirement of certain higher-interest
debt obligations combined to lower the company's interest expense
relative to the previous year. 2003 income taxes of $86.8 million were
significantly higher than the $58.0 million recorded in 2002, and
reflect the higher earnings year-over-year and a higher projected
effective tax rate for 2003.
EARNINGS OUTLOOK
In November 2003, AGL Resources forecasted 2004 full-year earnings
per share of between $2.01 and $2.10. The company reaffirms this
earnings guidance for the year.
Earnings Conference Call Webcast: The AGL Resources
fourth-quarter/year-end 2003 earnings conference call, scheduled for
January 28, 2004, at 3:30 p.m. (ET), can be accessed via the AGL
Resources website at www.aglresources.com. The call will address the
company's financial results for 2003. The webcast replay of the call
will be available on the website through the close of business on
February 6, 2004. Financial information about the fiscal year ended
2003, including the reconciliation of certain non-GAAP financial
measures mentioned during the webcast, is available on the company's
website at www.aglresources.com under the "investor information"
section.
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 more than 1.8
million customers in three states. Houston-based subsidiary Sequent
Energy Management provides natural gas asset management services,
including wholesale trading, marketing, gathering and transportation
services as well as third-party asset management. 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 fiber optic
networks in Atlanta and Phoenix. For more information, visit
www.aglresources.com.
This press release contains forward-looking statements. Company
management cautions readers that the assumptions, which form the basis
for the forward-looking statements, include many factors that are
beyond company management's 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 company's
service territories and those of the company's subsidiaries; changes
in price and demand for natural gas and related products; impact of
changes in state and federal legislation and regulation, including
various orders of the state public service commissions and the Federal
Energy Regulatory Commission, on the gas and electric industries and
on the company, 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 the company's wholesale services segment's
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 the
company's business, financial condition or liquidity resulting from a
change in the company's credit ratings or the credit ratings of the
company's 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 company's business; and other
risks described in the company's documents on file with the Securities
and Exchange Commission.
Supplemental Information
Company management evaluates segment financial performance based
on earnings before interest and taxes (EBIT), which includes the
effects of corporate expense allocations. EBIT is a non-GAAP measure,
which does not include financing costs, debt and interest expense,
income taxes and the cumulative effect of changes in accounting
principles. The company evaluates each of these items on a
consolidated level, and believes EBIT is a useful measurement of our
performance because it provides information that can be used to
evaluate the effectiveness of our businesses from an operational
perspective, exclusive of the costs to finance those activities and
exclusive of income taxes, neither of which is directly relevant to
the efficiency of those operations.
Operating margin is a non-GAAP measure of income, calculated as
revenues minus cost of gas, excluding 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 the company's calculation of operating income. The
company believes operating margin is a better indicator than operating
revenues of the top-line contribution resulting from customer growth,
since cost of gas is generally passed directly through to customers.
EBIT and operating margin should not be considered as alternatives
to, or more meaningful indicators of, the company's operating
performance than operating income or net income as determined in
accordance with accounting principles generally accepted in the United
States of America. In addition, the company's EBIT or operating margin
may not be comparable to similarly titled measures of another company.
The following tables reconcile EBIT and operating margin to
operating income.
AGL Resources Inc.
Condensed Statements of Consolidated Income
For the Three and Twelve Months Ended
December 31, 2003 and 2002
(In millions, except per share amounts)
Three Months Twelve Months
---------------------- ----------------------
12/31/ 12/31/ Fav/ 12/31/ 12/31/ Fav/
2003 2002 (Unfav) 2003 2002 (Unfav)
------- ------ ------- ------- ------ -------
Operating Revenues $ 278.3 $ 251.1 $ 27.2 $ 983.7 $ 877.2 $106.5
Cost of Gas 116.2 89.7 (26.5) 339.4 268.2 (71.2)
Operation and
Maintenance Expenses 75.0 69.6 (5.4) 282.7 274.1 (8.6)
Depreciation and
Amortization 22.8 22.1 (0.7) 91.4 89.1 (2.3)
Taxes Other Than Income 6.6 7.5 0.9 27.8 29.3 1.5
------- ------ ------- ------- ------ -------
Total Operating Expenses 220.6 188.9 (31.7) 741.3 660.7 (80.6)
Gain on Sale of Caroline
Street Campus - - - 15.9 - 15.9
------- ------ ------- ------- ------ -------
Operating Income 57.7 62.2 (4.5) 258.3 216.5 41.8
Equity in Earnings of
SouthStar 16.7 4.5 12.2 45.9 27.0 18.9
Other Income 1.2 3.8 (2.6) 1.9 3.5 (1.6)
Contribution to AGL
Resources Private
Foundation, Inc. - - - (8.0) - (8.0)
------- ------ ------- ------- ------ -------
Earnings Before Interest
& Taxes 75.6 70.5 5.1 298.1 247.0 51.1
Interest Expense 18.3 20.7 2.4 75.6 86.0 10.4
------- ------ ------- ------- ------ -------
Earnings Before Income
Taxes 57.3 49.8 7.5 222.5 161.0 61.5
Income Taxes 22.3 18.6 (3.7) 86.8 58.0 (28.8)
------- ------ ------- ------- ------ -------
Income Before Cumulative
Effect of
Change in Accounting
Principle 35.0 31.2 3.8 135.7 103.0 32.7
Cumulative Effect of
Change in Accounting
Principle - - - (7.8) - (7.8)
------- ------ ------- ------- ------ -------
Net Income $ 35.0 $ 31.2 $ 3.8 $ 127.9 $ 103.0 $ 24.9
======= ======= ====== ======= ======= ======
EPS Before Cumulative
Effect of Change
in Accounting Principle
Basic $ 0.54 $ 0.55 $(0.01)$ 2.15 $ 1.84 $ 0.31
Diluted $ 0.54 $ 0.55 $(0.01)$ 2.13 $ 1.82 $ 0.31
EPS
Basic $ 0.54 $ 0.55 $(0.01)$ 2.03 $ 1.84 $ 0.19
Diluted $ 0.54 $ 0.55 $(0.01)$ 2.01 $ 1.82 $ 0.19
Shares Outstanding
Basic 64.3 56.5 7.8 63.1 56.1 7.0
Diluted 65.2 57.1 8.1 63.7 56.6 7.1
AGL Resources Inc.
EBIT Schedule
For the Three and Twelve Months Ended
December 31, 2003 and 2002
(In millions, except per share amounts)
Three Months Twelve Months
---------------------- ----------------------
12/31/ 12/31/ Fav/ 12/31/ 12/31/ Fav/
2003 2002 (Unfav) 2003 2002 (Unfav)
------- ------ ------- ------- ------ -------
Distribution Operations $ 64.4 $ 60.4 $ 4.0 $ 246.8 $ 224.4 $ 22.4
Wholesale Services (2.3) 4.3 (6.6) 19.6 9.1 10.5
Energy Investments 16.5 5.5 11.0 43.1 23.6 19.5
Corporate (3.0) 0.3 (3.3) (11.4) (10.1) (1.3)
------- ------- ------ ------- ------- ------
Consolidated EBIT 75.6 70.5 5.1 298.1 247.0 51.1
------- ------- ------ ------- ------- ------
Interest Expense 18.3 20.7 2.4 75.6 86.0 10.4
Income Taxes 22.3 18.6 (3.7) 86.8 58.0 (28.8)
------- ------- ------ ------- ------- ------
Income Before Cumulative
Effect of Change in
Accounting Principle 35.0 31.2 3.8 135.7 103.0 32.7
Cumulative Effect of
Change in Accounting
Principle - - - (7.8) - (7.8)
------- ------- ------ ------- ------- ------
Net Income $ 35.0 $ 31.2 $ 3.8 $ 127.9 $ 103.0 $ 24.9
------- ------- ------ ------- ------- ------
Earnings per Common Share Before
Cumulative Effect of Change
in Accounting Principle
Basic $ 0.54 $ 0.55 $(0.01)$ 2.15 $ 1.84 $ 0.31
======= ======= ====== ======= ======= ======
Diluted $ 0.54 $ 0.55 $(0.01)$ 2.13 $ 1.82 $ 0.31
======= ======= ====== ======= ======= ======
Earnings per Common
Share
Basic $ 0.54 $ 0.55 $(0.01)$ 2.03 $ 1.84 $ 0.19
======= ======= ====== ======= ======= ======
Diluted $ 0.54 $ 0.55 $(0.01)$ 2.01 $ 1.82 $ 0.19
======= ======= ====== ======= ======= ======
AGL Resources Inc.
Reconciliation of Operating Margin to Operating Revenues
For the Three and Twelve Months Ended
December 31, 2003 and 2002
(In millions, except per share amounts)
Three Months Twelve Months
---------------------- ---------------------
12/31/ 12/31/ Fav/ 12/31/ 12/31/ Fav/
2003 2002 (Unfav) 2003 2002 (Unfav)
------- ------ ------- ------- ------ -------
Operating Revenues $ 278.3 $ 251.1 $ 27.2 $ 983.7 $ 877.2 $106.5
Cost of Gas 116.2 89.7 (26.5) 339.4 268.2 (71.2)
------- ------ ------- ------- ------ -------
Operating Margin $ 162.1 $ 161.4 $ 0.7 $ 644.3 $ 609.0 $ 35.3
======= ======= ====== ======= ======= ======
CONTACT: AGL Resources, Atlanta
Financial Contact:
Steve Cave, 404-584-3801
or
Media Contact:
Nick Gold, 404-584-3457
SOURCE: AGL Resources Inc.
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