AGL Resources Reports Third Quarter Earnings and Raises 2005 Earnings Guidance
ATLANTA--Oct. 27, 2005--AGL Resources (NYSE: ATG)
today reported third quarter 2005 net income of $15 million compared
with $20 million reported for the third quarter of 2004. Net income
for the nine months ended Sept. 30, 2005 was $127 million, a $20
million increase over the $107 million reported for the nine months
ended Sept. 30, 2004. Based on year-to-date earnings, the continued
success with the integration of the NUI and Jefferson Island Storage &
Hub (JISH) acquisitions, and a continued favorable outlook for solid
results across the various businesses, AGL Resources is revising its
2005 earnings guidance upward to a range of $2.35 to $2.45, a 10 cent
increase to the company's previously provided range of $2.25 to $2.35.
"This was the quarter when all of our time and effort in
preparedness paid off for both investors and customers," said Paula
Rosput Reynolds, chairman, president and chief executive officer of
AGL Resources. "We generated solid results out of all of our
businesses during the quarter and delivered superior value in our
energy services and underground storage operations from market
conditions surrounding two successive hurricanes."
The $5 million decrease in third quarter 2005 net income as
compared to third quarter 2004 is largely driven by increased interest
expense associated with the debt incurred to finance the company's
acquisitions of NUI and JISH as well as increased seasonal variation
in utility sales relative to the year earlier quarter. The company's
results for the third quarter 2005 reflect improved earnings in its
Retail Energy Operations and Energy Investments segments, offset by
losses in the Wholesale Services segment generated by the accounting
treatment on gas inventory that has been economically hedged. The
company's results from its Distribution Operations segment improved
slightly as compared to last year, reflecting improved performance at
Atlanta Gas Light, Virginia Natural Gas and Chattanooga Gas.
The earnings generated $0.19 per basic and diluted share for the
third quarter of 2005, reflecting the effect of the company's
11-million share equity issuance in November 2004. The company
reported $0.31 per basic and diluted share for the third quarter of
2004. Earnings per share for the 2005 quarter are based on weighted
average shares outstanding of 77.5 million, while 2004 third quarter
earnings per share were based on weighted average shares outstanding
of 65.1 million.
The company's consolidated earnings before interest and taxes
(EBIT) for the third quarter of 2005 were $52 million, a $6 million or
13 percent improvement over the $46 million in the same period last
year.
QUARTERLY RESULTS BY BUSINESS SEGMENT
Distribution Operations
The Distribution Operations segment's EBIT contribution of $49
million in the third quarter 2005 increased $1 million as compared to
the third quarter 2004. Elizabethtown Gas, Elkton Gas and Florida City
Gas, acquired from NUI in November 2004, contributed net seasonal
losses of $2 million offset by increased EBIT contributions from
Atlanta Gas Light, Virginia Natural Gas and Chattanooga Gas Company.
Operating margin was $168 million for the quarter, up $33 million
or 24 percent from the same period last year, of which $31 million
came from Elizabethtown Gas, Elkton Gas and Florida City Gas. Atlanta
Gas Light's operating margin was higher as a result of higher revenues
from the pipeline replacement program and gas stored for marketers.
The remainder of the improved operating margin came from customer
growth in the Atlanta Gas Light, Chattanooga Gas and Virginia Natural
Gas service territories. The customer growth at Atlanta Gas Light
offset the $1 million reduction in third quarter 2005 operating
revenues resulting from the June 10, 2005 Settlement Agreement with
the Georgia Public Service Commission (GPSC) resolving Atlanta Gas
Light's 2004-2005 rate case. Total operating expenses increased $33
million or 38 percent as compared to last year, primarily due to the
addition of Elizabethtown Gas, Elkton Gas and Florida City Gas, which
contributed $32 million of the increase.
The Distribution Operations segment continued during the quarter
to integrate Elizabethtown Gas, Elkton Gas and Florida City Gas. The
execution of the company's original acquisition integration plans is
virtually complete. One of the key performance metrics used by the
company to measure the success of the integration has been operations
and maintenance expense (O&M)-per-customer, which for the total
segment is $38 for the third quarter 2005. On an annualized basis,
this equates to $152 per customer and is equivalent to the segment's
annual 2004 O&M-per-customer metric (excluding Elizabethtown Gas,
Elkton Gas and Florida City Gas).
Retail Energy Operations
Retail Energy Operations, comprised of SouthStar Energy Services,
contributed EBIT of $7 million in third quarter 2005 as compared to $2
million in the prior year quarter, an increase of $5 million. The
increased EBIT contribution was driven largely by increased operating
margins of $6 million and a $1 million decrease in total operating
expenses offset by the amount the company records as minority interest
in SouthStar's earnings, which increased $2 million relative to the
prior year quarter due to increased SouthStar earnings.
Operating margin increased due to higher commodity margins in the
third quarter 2005, reflecting larger spreads between wholesale and
retail prices as well as higher interruptible customer operating
margins and gains on hedging transactions. The increased operating
margin was offset by lower operating revenues from late payment fees
in 2005 resulting from an increase in the minimum balance (from $10 to
$30) on which SouthStar is allowed to charge a late fee in accordance
with new GPSC regulations.
The Retail Energy Operations segment is a new operating segment
established in the first quarter of 2005. Previously, SouthStar was
included in the Energy Investments operating segment. AGL Resources
added this new operating segment in accordance with the requirements
of Statement of Financial Accounting Standards No 131, Disclosures
about Segments of an Enterprise and Related Information, in order to
provide more transparency and visibility into the results and
operations of SouthStar, as well as the results and operations of
those businesses comprising the Energy Investments segment, including
JISH and Pivotal Propane of Virginia.
Wholesale Services
The Wholesale Services segment's EBIT contribution in the third
quarter declined by approximately $5 million relative to the third
quarter 2004 primarily due to a $2 million decrease in operating
margin and a $3 million increase in operating expenses. Operating
margin for the third quarter 2005 was negatively affected by an
average increase in forward NYMEX gas prices during the current year
quarter of $6 per MMBtu (million British thermal units) as compared to
a 70 cent per MMBtu increase in forward NYMEX gas prices in third
quarter 2004. These increases in gas prices resulted in mark-to-market
accounting losses on hedged storage positions during the current and
prior year quarter of approximately $35 million and $3 million (both
net of regulatory sharing), respectively. The 2005 losses are to be
offset by operating margin expected to be recognized through the
segment's earnings during the quarters ending Dec. 31, 2005 and Mar.
31, 2006 when the inventory is physically withdrawn from storage as
based on Wholesale Services' anticipated inventory withdrawal schedule
and forward NYMEX gas prices at Sept. 30, 2005. These mark-to-market
accounting losses during the third quarter 2005 were partially offset
by increased operating margin on physical gas sales and transportation
transactions as a result of increased volatility during the quarter as
compared to last year largely due to hurricanes Katrina and Rita.
Operating expenses increased primarily as a result of higher
payroll costs due to increased headcount and a temporary relocation of
portions of Sequent's operations during Hurricane Rita. Additionally,
depreciation expense increased during the third quarter 2005 as
compared to the prior year quarter due to the implementation of
Sequent's new Energy Trading and Risk Management system that was not
in service in the third quarter of 2004.
Energy Investments
The Energy Investments segment contributed EBIT of $5 million for
the third quarter of 2005 compared to a $1 million loss in the third
quarter of 2004. This $6 million improvement was driven by $4 million
in EBIT contributions from the 2004 acquisition of JISH, as well as $1
million in EBIT contribution from Pivotal Propane of Virginia which
became operational in April 2005. AGL Networks also contributed a $1
million increase in EBIT due to improved operating margins.
INTEREST EXPENSE AND INCOME TAXES
Interest expense for the third quarter of 2005 was $27 million
compared with $17 million in the third quarter of 2004. The $10
million, or 59 percent, increase reflects $7 million of additional
interest expense associated with the NUI and JISH acquisition debt and
$3 million from higher short-term interest rates as well as from
increased borrowings under the company's commercial paper program due
to the injection of gas inventory storages during the summer months.
The cost of these gas storage injections increased during the third
quarter 2005 as compared to last year due to higher gas prices and the
injection of gas storages for Elizabethtown Gas, Elkton Gas and
Florida City Gas, which the company did not own in the third quarter
of 2004. Average debt outstanding for the nine months ended Sept. 30,
2005 was $1.8 billion, a $0.6 billion increase over the prior year's
average outstanding debt of $1.2 billion. The company's
debt-to-capitalization ratio as of Sept. 30, 2005, was 57 percent,
slightly up from the 55 percent as of Sept. 30, 2004, but down from 58
percent as of Dec. 31, 2004.
Third quarter 2005 income taxes of $10 million increased $1
million as compared to the third quarter of 2004. Favorable income tax
adjustments totaling approximately $3 million were recorded in the
third quarter of 2004 due to the comparison of the company's 2003 tax
return filed in September 2004 to its income taxes accrued in 2003,
resulting in increased income tax expense in the third quarter 2005 as
compared to the prior year quarter. This increase in income tax
expense for third quarter 2005 was offset by a decrease in income tax
expense primarily due to a $4 million decrease in earnings before
income taxes during the current year quarter as compared to the prior
year quarter.
YEAR-TO-DATE RESULTS
For the nine months ended Sept. 30, 2005, earnings per share were
$1.64 per basic share ($1.62 per diluted share), compared with $1.66
per basic share ($1.64 per diluted share) for the nine months ended
Sept. 30, 2004. Weighted average shares outstanding for the nine
months ended Sept. 30, 2005, were 77.2 million, up 19 percent from the
64.8 million in the prior year period, as a result of the company's
11-million share equity offering in November 2004 and the exercise of
stock options.
Operating margin increased $184 million or 32 percent for the nine
months ended Sept. 30, 2005, from $580 million in the prior year to
$764 million in 2005. The increase resulted primarily from the 2004
acquisitions of NUI and JISH and improved margins from Retail Energy
Operations, Energy Investments and Distribution Operations due to
higher pipeline replacement revenue, additional carrying costs charged
to the retail marketers in Georgia for volumes of gas in storage and
customer growth. Operating margin at Wholesale Services for the nine
months ended Sept. 30, 2005 decreased $2 million as compared to last
year.
Consolidated EBIT for the nine months ended Sept. 30, 2005, was
$285 million, up $65 million or 30 percent from the prior year period,
of which $43 million relates to EBIT contributions from the
acquisitions of NUI and JISH. The increase also reflects improved
contributions from Distribution Operations, Retail Energy Operations
and Energy Investments. Wholesale Services' EBIT decreased $6 million
due to decreased operating margins and increased operating expenses.
2005 EARNINGS OUTLOOK
AGL Resources is increasing its 2005 earnings outlook to an
expectation of earnings per share pf $2.35 to $2.45, up 10 cents per
share from its previously reported guidance of $2.25 to $2.35 per
share. This earnings expectation is based on the assumption that gas
prices at Dec. 31, 2005 do not change materially from currently
prevailing prices and the company's anticipated remaining fourth
quarter storage inventory withdrawal schedule as of Sept. 30, 2005
does not change due to weather or other market conditions. The
occurrence of either of these events could materially impact earnings,
and could result in earnings for 2005 significantly above or below the
outlook.
Earnings Conference Call Webcast: To gain more insight to the
statements contained herein, the AGL Resources third quarter 2005
earnings conference call and webcast, scheduled for Friday, Oct. 28,
at 9 a.m. (EDT), 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 Friday, Nov. 4. The telephone replay of the call can be
accessed by dialing (888) 286-8010, using passcode 29364924.
International callers should dial (617) 801-6888, and use the same
passcode.
About AGL Resources
AGL Resources (NYSE: ATG), an Atlanta-based energy services
holding company, serves 2.3 million customers in six states through
its utility subsidiaries - Atlanta Gas Light, Elizabethtown Gas in New
Jersey, Virginia Natural Gas, Florida City Gas, Chattanooga Gas, and
Elkton Gas in Maryland. A Fortune 1000 company that ranks number 46 in
the Fortune gas and electric utilities sector, AGL Resources reported
2004 revenue of $1.8 billion and net income of $153 million. The
company also owns Houston-based Sequent Energy Management, an asset
manager serving natural gas wholesale customers throughout the Eastern
and Midwestern United States. As a 70 percent owner in the SouthStar
partnership, AGL Resources markets natural gas to customers 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. The company also owns and operates Jefferson
Island Storage & Hub, a high-deliverability natural gas storage
facility near the Henry Hub in Louisiana. For more information, visit
www.aglresources.com.
Forward-Looking Statements
Certain expectations and projections regarding our future
performance referenced in this press release are forward-looking
statements. Forward-looking statements involve matters that are not
historical facts and because these statements involve anticipated
events or conditions, forward-looking statements often include words
such as "anticipate," "assume," "can," "could," "estimate," "expect,"
"forecast," "future," "indicate," "intend," "may," "outlook," "plan,"
"predict," "project," "seek," "should," "target," "will," "would," or
similar expressions. Our expectations are not guarantees and are based
on currently available competitive, financial and economic data along
with our operating plans. While we believe our expectations are
reasonable in view of the currently available information, our
expectations are subject to future events, risks and uncertainties,
and there are several factors - many beyond our control - that could
cause results to differ significantly from our expectations. Such
events, risks and uncertainties include, but are not limited to,
changes in price, supply and demand for natural gas and related
products, impact of changes in state and federal legislation and
regulation, actions taken by government agencies on rates and other
matters, concentration of credit risk, utility and energy industry
consolidation, impact of acquisitions and divestitures, direct or
indirect effects on AGL Resources' business, financial condition or
liquidity resulting from a change in our credit ratings or the credit
ratings of our counterparties or competitors, interest rate
fluctuations, financial market conditions and general economic
conditions, uncertainties about environmental issues and the related
impact of such issues, impacts of changes in weather upon the
temperature-sensitive portions of the business, impacts of natural
disasters such as hurricanes upon the supply and price of natural gas,
acts of war or terrorism, and other factors which are provided in
detail in our filings with the Securities and Exchange Commission,
which we incorporate by reference in this press release.
Forward-looking statements are only as of the date they are made, and
we do not undertake any obligation to update these statements to
reflect subsequent changes.
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
(accounting principles generally accepted in the United States of
America) financial measure. Items that are not included in EBIT are
financing costs, including debt and interest expense and income taxes.
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 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 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 GAAP. In addition, the company's EBIT or operating
margin may not be comparable to similarly titled measures of another
company.
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 Relations
section.
AGL Resources Inc.
Condensed Statements of Consolidated Income
For the Three and Nine Months Ended
September 30, 2005 and 2004
(In millions, except per share amounts)
Three Months Nine Months
-------------------------- ---------------------------
Fav/ Fav/
9/30/2005 9/30/2004 (Unfav) 9/30/2005 9/30/2004 (Unfav)
--------- --------- ------- --------- --------- -------
Operating
Revenues $393 $262 $131 $1,736 $1,206 $530
Cost of Gas 191 105 (86) 972 626 (346)
Operation and
Maintenance
Expenses 106 83 (23) 334 257 (77)
Depreciation and
Amortization 33 23 (10) 99 71 (28)
Taxes Other Than
Income 9 5 (4) 30 20 (10)
------- ------ ------- ------ ------- ------
Total Operating
Expenses 339 216 (123) 1,435 974 (461)
------- ------ ------- ------ ------- ------
Operating Income 54 46 8 301 232 69
Other Income
(Loss) - - - 2 2 -
Minority
Interest (2) - (2) (18) (14) (4)
------- ------ ------- ------ ------- ------
Earnings Before
Interest &
Taxes 52 46 6 285 220 65
Interest Expense 27 17 (10) 79 49 (30)
------- ------ ------- ------ ------- ------
Earnings Before
Income Taxes 25 29 (4) 206 171 35
Income Taxes 10 9 (1) 79 64 (15)
------- ------ ------- ------ ------- ------
Net Income $15 $20 $(5) $127 $107 $20
======= ====== ======= ====== ======= ======
Earnings Per
Common Share
Basic $0.19 $0.31 $(0.12) $1.64 $1.66 $(0.02)
Diluted $0.19 $0.31 $(0.12) $1.62 $1.64 $(0.02)
Shares
Outstanding
Basic 77.5 65.1 12.4 77.2 64.8 12.4
Diluted 78.1 65.8 12.3 77.8 65.5 12.3
AGL Resources Inc.
EBIT Schedule
For the Three and Nine Months Ended
September 30, 2005 and 2004
(In millions, except per share amounts)
Three Months Nine Months
-------------------------- ---------------------------
Fav/ Fav/
9/30/2005 9/30/2004 (Unfav) 9/30/2005 9/30/2004 (Unfav)
--------- --------- ------- --------- --------- -------
Distribution
Operations $49 $48 $1 $224 $179 $45
Retail Energy
Operations 7 2 5 53 41 12
Wholesale
Services (6) (1) (5) - 6 (6)
Energy
Investments 5 (1) 6 15 1 14
Corporate (3) (2) (1) (7) (7) -
------- ------ ------- ------ ------- ------
Consolidated
EBIT 52 46 6 285 220 65
------- ------ ------- ------ ------- ------
Interest Expense 27 17 (10) 79 49 (30)
Income Taxes 10 9 (1) 79 64 (15)
------- ------ ------- ------ ------- ------
Net Income $15 $20 $(5) $127 $107 $20
======= ====== ======= ====== ======= ======
Earnings per
Common Share
Basic $0.19 $0.31 $(0.12) $1.64 $1.66 $(0.02)
======= ====== ======= ====== ======= ======
Diluted $0.19 $0.31 $(0.12) $1.62 $1.64 $(0.02)
======= ====== ======= ====== ======= ======
AGL Resources Inc.
Reconciliation of Operating Margin to Operating Revenues
For the Three and Nine Months Ended
September 30, 2005 and 2004
(In millions, except per share amounts)
Three Months Nine Months
-------------------------- ---------------------------
Fav/ Fav/
9/30/2005 9/30/2004 (Unfav) 9/30/2005 9/30/2004 (Unfav)
--------- --------- ------- --------- --------- -------
Operating
Revenues $393 $262 $131 $1,736 $1,206 $530
Cost of Gas 191 105 (86) 972 626 (346)
------- ------ ------- ------ ------- ------
Operating Margin $202 $157 $45 $764 $580 $184
======= ====== ======= ====== ======= ======
CONTACT: AGL Resources, Atlanta
Media Relations
Nick Gold, 404-584-3457
Cellular: 404-275-9501
ngold@aglresources.com
or
Investor Relations
Brian Little, 404-584-4414
Cellular: 404-227-5648
blittle@aglresources.com
SOURCE: AGL Resources
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