AGL Resources Reports Third Quarter Earnings
ATLANTA--Oct. 27, 2004--AGL Resources Inc. (NYSE:
ATG) today reported third quarter 2004 net income of $20 million, or
$0.31 per basic share ($0.31 per diluted share), compared with $22
million, or $0.35 per basic share ($0.34 per diluted share), reported
in the third quarter of 2003. The company's results reflect improved
earnings in its Distribution Operations segment and lower corporate
interest expense, which offset lower earnings in the Energy
Investments and Wholesale Services segments during the quarter. For
comparison purposes, earnings for the third quarter of 2003 included a
$5 million (after-tax), or $0.08 per basic share, net gain associated
with the sale of company property and a related charitable
contribution to a private foundation. After deducting this gain,
earnings for the third quarter of 2003 were $0.27 per basic share.
"We're in the final stage of the year with solid business
results," said Paula Rosput Reynolds, chairman, president and chief
executive officer. "Given the unprecedented volatility in gas markets,
however, there's a lot of landscape yet to cover. We will keep
pedaling hard to deliver another strong year of performance for both
shareholders and customers."
QUARTERLY RESULTS BY BUSINESS SEGMENT
Distribution Operations
The Distribution Operations segment contributed EBIT of $48
million, compared with $44 million in third quarter 2003 (excluding
the previously mentioned gain on the sale of company property net of
the related charitable contribution). The Distribution Operations
business had improved operating margins of $3 million that were due in
part to an increase in the average number of connected customers (to
1.824 million from 1.815 million in the third quarter 2003). Atlanta
Gas Light contributed to the EBIT results due to higher pipeline
replacement revenue and additional carrying charges for gas stored for
marketers as a result of the higher average cost of stored gas. Total
segment operating expenses for the quarter of $87 million were $2
million lower than in the third quarter 2003.
The Distribution Operations business continued to strengthen its
performance relative to key operating metrics. On an EBIT-per-customer
basis, the segment improved to $26 for the third quarter 2004,
compared with $24 for the same period in 2003, an 8 percent increase.
Wholesale Services
The Wholesale Services segment's EBIT contribution in the third
quarter declined by approximately $2 million relative to the third
quarter 2003. However, volumes increased by about 40 percent during
the 2004 quarter (to 2.1 Bcf/day from 1.5 Bcf/day in the 2003
quarter), primarily the result of new customer activity. Third-quarter
volatility and seasonal activity resulted in strong economic margins
for Sequent, but these margins were offset by the accounting treatment
for forward inventory hedges. The company has 6.5 billion cubic feet
(Bcf) of gas in storage, scheduled to be withdrawn in the next five
months. As a result, these economic margins will be reflected in
Sequent's results in future periods, namely in the fourth quarter 2004
and first quarter 2005. Sequent's operating expenses were up about $1
million relative to third quarter 2003 as a result of increased
personnel and increased costs associated with the implementation of a
new energy trading and risk management system and Sarbanes-Oxley 404
compliance.
Energy Investments
The Energy Investments segment contributed EBIT of $1 million for
the third quarter of 2004, compared with $4 million for the same
period in 2003. The decline reflects lower commodity margins at
SouthStar. Also, 2003 third-quarter results included a positive $2
million adjustment recorded by SouthStar to reduce accrued gas costs
that is not reflected in 2004 third-quarter results. Operating
expenses in the Energy Investments segment also increased in third
quarter 2004, reflecting higher expenses at SouthStar for marketing
efforts and Sarbanes-Oxley 404 compliance.
SouthStar's results are now consolidated with AGL Resources'
financial statements. During the quarter ended March 31, 2004, AGL
Resources adopted Financial Accounting Standards Board (FASB)
Interpretation No. (FIN) 46R, Consolidation of Variable Interest
Entities, which resulted in our consolidation of SouthStar's financial
results with AGL Resources' financial statements beginning January 1,
2004.
To facilitate year-over-year comparisons, the third quarter 2004
10-Q filed today with the Securities and Exchange Commission includes
unaudited pro forma condensed consolidated balance sheet and income
statement information, presented as if SouthStar's balances were
consolidated with AGL Resources' results for the three and nine months
ended September 30, 2003.
INTEREST EXPENSE AND INCOME TAXES
Interest expense for the third quarter 2004 was $17 million, down
$2 million from the same period in 2003. The decrease was a result of
lower average debt balances and the early redemption of higher-cost
Medium-Term notes in 2003. The company's debt-to-capitalization ratio
as of September 30, 2004 was 55 percent, down from 59 percent as of
September 30, 2003.
Third quarter 2004 income taxes were $9 million, a $6 million
decrease from the same period in 2003. The decrease in income tax
expense was primarily due to the decrease in earnings before income
taxes and adjustments resulting from our annual comparison of our
filed tax returns versus our related income tax accruals. Adjustments
totaling approximately $3 million were recorded in the third quarter
2004 resulting from the comparison of our 2003 tax return filed in
September 2004 to our income taxes accrued in 2003.
YEAR-TO-DATE RESULTS
For the nine months ended September 30, 2004, net income was $107
million, or $1.66 per basic share ($1.64 per diluted share), compared
with $93 million, or $1.48 per basic share ($1.47 per diluted share)
for the same period in 2003. After deducting the $5 million
(after-tax) impact of the previously mentioned gain and related
donation, earnings for the nine months ended September 30, 2003, were
$1.41 per basic share ($1.39 per diluted share). Weighted average
shares outstanding for the nine months ended September 30, 2004, were
64.8 million, up from 62.6 million in the prior-year period.
Operating margins increased $98 million for the nine months ended
September 30, 2004, from $482 million in the prior year to $580
million in 2004. The increase resulted primarily from the
consolidation of SouthStar's results and improved operating margin in
Distribution Operations from customer growth, higher pipeline
replacement revenue and additional carrying costs on storage inventory
charged to the retail marketers in Georgia due to a higher average
cost of stored gas. The increased margins were offset, however, by
lower margins in Wholesale Services, primarily as a result of lower
volatility, as well as lower margins associated with storage due to a
higher weighted average cost of gas in inventory during the 2004
period relative to the 2003 period.
Consolidated EBIT (excluding the gain on the property sale and
related charitable contribution) for the nine months ended September
30, 2004, was $220 million, compared with $215 million during the same
period in 2003. The increase reflects increased contributions from
Distribution Operations and Energy Investments, offset by lower
results in Wholesale Services and higher corporate expenses
year-over-year.
2004 EARNINGS OUTLOOK
AGL Resources has provided earnings guidance for full-year 2004 in
the range of $2.01 to $2.10 per share. Based on its year-to-date
results and current expectations for the fourth quarter, the company
is revising its earnings guidance upward to a range of $2.10 to $2.17
per share.
Earnings Conference Call Webcast: The AGL Resources third-quarter
2004 earnings conference call and webcast, scheduled for Wednesday,
October 27, at 2:30 p.m. (ET), can be accessed via the investor
relations section of the AGL Resources website at
www.aglresources.com. The webcast replay of the call will be available
on the website through the close of business on Thursday, November 4.
The telephone replay of the call can be accessed by dialing (888)
286-8010, using passcode 92671297. International callers should dial
(617) 801-6888, and use the same passcode.
AGL Resources Inc.
AGL Resources Inc. (NYSE: ATG) is an Atlanta-based energy services
holding company. Its utility subsidiaries - Atlanta Gas Light,
Virginia Natural Gas and Chattanooga Gas - 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 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'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 and postretirement funding costs; changes in accounting
policies and practices issued periodically by accounting
standard-setting bodies; the enactment of new auditing standards, or
interpretations of existing auditing standards, by the Public Company
Accounting Oversight Board which could adversely affect our ability to
comply with the requirements of Section 404 of the Sarbanes-Oxley Act
of 2002; 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; impact of litigation; impact of changes in
prices on the margins achievable in the unregulated retail gas
marketing business; impact of acquisitions and divestitures, including
(1) the risk that our business and the businesses of NUI Corporation
(NUI) and Jefferson Island Storage & Hub L.L.C. will not be integrated
successfully or such integration may be more difficult, time-consuming
or costly than expected, (2) expected revenue synergies and cost
savings from the acquisitions may not be fully realized or realized
within the expected time frame, (3) revenues following the
acquisitions may be lower than expected, (4) the ability to obtain
governmental approvals of the NUI acquisition, or on the proposed
terms and schedule, (5) the risk that AGL Resources may be unable to
obtain financing necessary to consummate the acquisition of NUI, or
that the terms of such financing may be onerous, and (6) the risk that
any financing plan may have the effect of diluting shareholder value
in the near term; 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. Items that are not included
in EBIT are financing costs, including 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, and taxes other than income
taxes. 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.
A reconciliation of non-GAAP financial measures referenced in this
press release and otherwise in the earnings conference call and
webcast is attached to this press release and is available on the
company's website at www.aglresources.com under the "investor
information" section.
AGL Resources Inc.
Condensed Statements of Consolidated Income
For the Three and Nine Months Ended
September 30, 2004 and 2003
(In millions, except per share amounts)
Three Months
---------------------------------
---------- ---------- -----------
9/30/2004 9/30/2003 Fav/(Unfav)
---------- ---------- -----------
Operating Revenues $262 $165 $97
Cost of Gas 105 28 (77)
Operation and Maintenance Expenses 83 66 (17)
Depreciation and Amortization 23 23 -
Taxes Other Than Income 5 6 1
---------- ---------- -----------
Total Operating Expenses 216 123 (93)
Gain on Sale of Caroline Street
Campus - 16 (16)
---------- ---------- -----------
Operating Income 46 58 (12)
Equity in Earnings of SouthStar - 5 (5)
Contribution to AGL Resources Private
Foundation, Inc. - (8) 8
Other Income (Loss) - 1 (1)
Minority Interest - - -
---------- ---------- -----------
Earnings Before Interest & Taxes 46 56 (10)
Interest Expense 17 19 2
---------- ---------- -----------
Earnings Before Income Taxes 29 37 (8)
Income Taxes 9 15 6
---------- ---------- -----------
Income Before Cumulative Effect of
Change in Accounting Principle 20 22 (2)
Cumulative Effect of Change in
Accounting Principle - - -
---------- ---------- -----------
Net Income $20 $22 $(2)
========== ========== ===========
EPS Before Cumulative Effect of
Change in Accounting Principle
Basic $0.31 $0.35 $(0.04)
Diluted $0.31 $0.34 $(0.03)
EPS
Basic $0.31 $0.35 $(0.04)
Diluted $0.31 $0.34 $(0.03)
Shares Outstanding
Basic 65.1 64.0 1.1
Diluted 65.8 64.8 1.0
Nine Months
---------------------------------
---------- ---------- -----------
9/30/2004 9/30/2003 Fav/(Unfav)
---------- ---------- -----------
Operating Revenues $1,206 $704 $502
Cost of Gas 626 222 (404)
Operation and Maintenance Expenses 257 208 (49)
Depreciation and Amortization 71 68 (3)
Taxes Other Than Income 20 21 1
---------- ---------- -----------
Total Operating Expenses 974 519 (455)
Gain on Sale of Caroline Street
Campus - 16 (16)
---------- ---------- -----------
Operating Income 232 201 31
Equity in Earnings of SouthStar - 29 (29)
Contribution to AGL Resources Private
Foundation, Inc. - (8) 8
Other Income (Loss) 2 1 1
Minority Interest (14) - (14)
---------- ---------- -----------
Earnings Before Interest & Taxes 220 223 (3)
Interest Expense 49 57 8
---------- ---------- -----------
Earnings Before Income Taxes 171 166 5
Income Taxes 64 65 1
---------- ---------- -----------
Income Before Cumulative Effect of
Change in Accounting Principle 107 101 6
Cumulative Effect of Change in
Accounting Principle - (8) 8
---------- ---------- -----------
Net Income $107 $93 $14
========== ========== ===========
EPS Before Cumulative Effect of
Change in Accounting Principle
Basic $1.66 $1.61 $0.05
Diluted $1.64 $1.59 $0.05
EPS
Basic $1.66 $1.48 $0.18
Diluted $1.64 $1.47 $0.17
Shares Outstanding
Basic 64.8 62.6 2.2
Diluted 65.5 63.2 2.3
AGL Resources Inc.
EBIT Schedule
For the Three and Nine Months Ended
September 30, 2004 and 2003
(In millions, except per share amounts)
Three Months
---------------------------------
---------- ---------- -----------
9/30/2004 9/30/2003 Fav/(Unfav)
---------- ---------- -----------
Distribution Operations $48 $57 $(9)
Wholesale Services (1) 1 (2)
Energy Investments 1 4 (3)
Corporate (2) (6) 4
---------- ---------- -----------
Consolidated EBIT 46 56 (10)
---------- ---------- -----------
Interest Expense 17 19 2
Income Taxes 9 15 6
---------- ---------- -----------
Income Before Cumulative Effect of
Change in Accounting Principle 20 22 (2)
Cumulative Effect of Change in
Accounting Principle - - -
---------- ---------- -----------
Net Income $20 $22 $(2)
---------- ---------- -----------
Earnings per Common Share Before Cumulative
Effect of Change in Accounting Principle
Basic $0.31 $0.35 $(0.04)
========== ========== ===========
Diluted $0.31 $0.34 $(0.03)
========== ========== ===========
Earnings per Common Share
Basic $0.31 $0.35 $(0.04)
========== ========== ===========
Diluted $0.31 $0.34 $(0.03)
========== ========== ===========
Nine Months
---------------------------------
---------- ---------- -----------
9/30/2004 9/30/2003 Fav/(Unfav)
---------- ---------- -----------
Distribution Operations $179 $182 $(3)
Wholesale Services 6 22 (16)
Energy Investments 42 27 15
Corporate (7) (8) 1
---------- ---------- -----------
Consolidated EBIT 220 223 (3)
---------- ---------- -----------
Interest Expense 49 57 8
Income Taxes 64 65 1
---------- ---------- -----------
Income Before Cumulative Effect of
Change in Accounting Principle 107 101 6
Cumulative Effect of Change in
Accounting Principle - (8) 8
---------- ---------- -----------
Net Income $107 $93 $14
---------- ---------- -----------
Earnings per Common Share Before Cumulative
Effect of Change in Accounting Principle
Basic $1.66 $1.61 $0.05
========== ========== ===========
Diluted $1.64 $1.59 $0.05
========== ========== ===========
Earnings per Common Share
Basic $1.66 $1.48 $0.18
========== ========== ===========
Diluted $1.64 $1.47 $0.17
========== ========== ===========
AGL Resources Inc.
Reconciliation of Operating Margin to Operating Revenues
For the Three and Nine Months Ended
September 30, 2004 and 2003
(In millions, except per share amounts)
Three Months
---------------------------------
---------- ---------- -----------
9/30/2004 9/30/2003 Fav/(Unfav)
---------- ---------- -----------
Operating Revenues $262 $165 $97
Cost of Gas 105 28 (77)
---------- ---------- -----------
Operating Margin $157 $137 $20
========== ========== ===========
Nine Months
---------------------------------
---------- ---------- -----------
9/30/2004 9/30/2003 Fav/(Unfav)
---------- ---------- -----------
Operating Revenues $1,206 $704 $502
Cost of Gas 626 222 (404)
---------- ---------- -----------
Operating Margin $580 $482 $98
========== ========== ===========
CONTACT: AGL Resources, Atlanta
Investor Relations
Steve Cave, 404-584-3801
or
Media
Nick Gold, 404-584-3457 or 404-275-9501
SOURCE: AGL Resources Inc.
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