AGL Resources Reports 2006 Earnings, Initiates 2007 Guidance and Increases Dividend 11 Percent
- Fiscal 2006 earnings results of $2.72 per diluted share are up 10
percent over fiscal 2005 results of $2.48 per diluted share, and above
First Call mean estimates of $2.67 per diluted share
- 2006 results driven by strong contributions from Wholesale Services and
Distribution Operations segments
- AGL Resources expects fiscal 2007 earnings to be in the range of $2.75
to $2.85 per share
- AGL Resources Board of Directors approves 11 percent increase in
dividend to an annual rate of $1.64 per share
ATLANTA, Feb. 1 -- AGL Resources Inc. (NYSE: ATG)
today reported fiscal 2006 net income of $212 million, or $2.73 per basic
share ($2.72 per diluted share), compared to $193 million, or $2.50 per basic
share ($2.48 per diluted share) reported for the prior year.
The company previously had provided 2006 earnings guidance in the range of
$2.65 to $2.70 per share. However, stronger-than-expected fourth-quarter
results in the wholesale services business drove earnings above the
anticipated guidance range.
"We have a balanced portfolio of businesses that complement each other
well," said John W. Somerhalder II, president and chief executive officer of
AGL Resources Inc. "The unprecedented warm weather and margin pressure on our
utilities during the year was more than offset by the exceptional performance
from our wholesale business and our continued strong operating performance of
our distribution businesses. We continue to focus on the things we do well -
improving our operating efficiency, reducing operating costs and capturing
value from market volatility. As a result, we are well positioned to continue
our track record of earnings growth in 2007."
Dividend Increased 11 Percent
AGL Resources also announced that its board of directors approved an 11
percent increase in the annual dividend rate to $1.64 per share from the
previous annual rate of $1.48 per share. The new rate is effective with the
dividend payable Mar. 1, 2007 to shareholders of record on Feb. 16, 2007. The
increase marks the fifth time in the last four years the company has raised
its dividend rate.
"Our board's decision to increase the dividend reflects our continued
strong financial performance and the long-term sustainability of our earnings
growth," said Somerhalder.
2006 RESULTS BY BUSINESS SEGMENT
Distribution Operations
The Distribution Operations segment's earnings before interest and taxes
(EBIT) increased $11 million to $310 million in 2006. Operating margin
decreased $7 million compared with the prior year as a result of warmer
weather affecting customer usage and the loss of operating margin
contributions from our former appliance businesses in New Jersey and Florida
from which we exited in 2005.
Compared to the previous year, weather was 18 percent warmer in our New
Jersey territory; 17 percent warmer in our Virginia territory; and 16 percent
warmer in our Florida territory. The margin impact of warmer weather in these
three service areas was $9 million, while the margin impact from exiting the
appliance businesses was $3 million. These impacts were offset partially by
increased margin at Atlanta Gas Light of $6 million from higher charges to
marketers for the storage of natural gas and increased pipeline replacement
revenues, although the storage margins were largely offset in our consolidated
results by the associated impact of higher interest expense required to carry
the higher inventory balances.
Total operating expenses decreased $19 million compared to the previous
year. The primary drivers of the lower operating expenses were reduced
payroll and facilities expenses related to the integration of the former NUI
utilities; reduced expenses resulting from exiting of the appliance businesses
and gains on the sale of certain utility properties in 2006; and savings
related to lower outside services, information technology and other general
corporate costs. These lower expenses were offset partially by increased
marketing expenses for Atlanta Gas Light and higher depreciation and property
tax expense.
The Distribution Operations segment continued to improve its performance
as measured by its key operating metrics. The average number of end-use
customers in 2006 was 2.25 million, compared with 2.24 million in 2005. On an
EBIT-per-customer basis, the segment improved to $138 for 2006, compared with
$133 in 2005. Operation and maintenance expenses per customer declined to
$156 in 2006, as compared with $166 in 2005.
Retail Energy Operations
The Retail Energy Operations segment, consisting of SouthStar Energy
Services, contributed EBIT of $63 million in 2006, equivalent to its 2005
contribution. SouthStar's operating margin increased $10 million, primarily
as a result of improved retail operating margins of $6 million and from higher
storage margins due to the optimization of storage and transportation assets
and effective risk management, contributing an increase of $4 million. Retail
margins were driven by improved retail price spreads in 2006 as compared to
2005 and higher operating margins resulting from an increase in the average
number of customers, partly offset by lower consumption due to weather that
was approximately 10 percent warmer than last year and customer conservation.
Storage margins were driven largely by gains on physical storage as well as
gains on weather derivatives and other hedging instruments but were negatively
impacted in the current year due to a $6 million lower-of-cost-or-market
inventory adjustment to reduce the carrying value of SouthStar's inventory to
current market prices.
Operating expenses increased $7 million primarily due to higher bad debt
expense, as well as higher depreciation and outside service costs associated
with technology projects and slightly higher corporate overhead costs.
Minority interest increased $1 million as a result of higher operating income
in 2006 as compared with 2005. Additionally, a $2 million charitable
contribution made in the first quarter 2006 lowered the segment's EBIT as
compared to last year.
Wholesale Services
The Wholesale Services segment, consisting of Sequent Energy Management,
contributed $90 million in EBIT in 2006, a $41 million increase over its 2005
results. The increase reflects favorable market conditions and arbitrage
opportunities throughout the year.
Operating margin increased by $47 million, due primarily to improved
commercial opportunities associated with higher seasonal storage spreads
during the first half of 2006 and above-average temperatures during the late
summer months. These conditions helped to offset the mild weather during the
winter and early summer, and the lower level of hurricane activity experienced
in the Gulf of Mexico this year as compared with 2005. Additionally, the 2006
results were positively impacted by forward NYMEX prices moving downward and
the narrowing of future seasonal spreads, resulting in the recognition of $41
million of gains on Sequent's economic storage hedges. In contrast, during
the prior-year period, an increase in forward NYMEX prices resulted in the
recognition of $7 million of hedge losses. Sequent also recognized a $12
million gain in 2006 associated with financial instruments used to hedge its
transportation capacity. There were no significant gains or losses associated
with transportation hedges recognized in 2005.
The positive impact from price movements in 2006 was offset partially by
required lower-of-cost-or-market inventory adjustments of $43 million, as
Sequent reduced the carrying value of its inventory to current market prices.
Of those adjustments, $22 million, primarily related to adjustments recorded
during the second and third quarters of 2006, was recovered and recognized in
our operating revenues during 2006 as the inventory was physically withdrawn
from storage and sold, and the original economic results were realized as the
related hedging derivatives were settled.
Sequent's operating expenses increased $7 million, primarily the result of
higher payroll, benefits and incentive compensation associated with an
increase in personnel and stronger financial performance during the year as
compared to last year. These increases were offset partially by lower outside
services costs.
Energy Investments
The Energy Investments segment's EBIT contribution declined $9 million in
2006 as compared with 2005. Operating margins declined $4 million, primarily
due to the loss of operating margin from certain former NUI assets sold in
2005. Improved operating margins at Jefferson Island Storage & Hub, AGL
Networks and Pivotal Propane (Virginia), which did not go into commercial
operation until the second quarter of 2005, partially offset the loss of
operating margin contributions from the former NUI assets.
Operating expenses increased $3 million, primarily due to higher business
development expenses and higher operating costs at Jefferson Island Storage &
Hub, offset by lower expenses related to the sale of the former NUI assets in
2005.
INTEREST EXPENSE AND INCOME TAXES
Interest expense for 2006 was $123 million, up $14 million over the prior
year. The increase primarily reflects higher average debt outstanding, mainly
the result of increased working capital requirements associated with higher
inventory balances, as well as the impact of higher short-term interest rates.
The company's debt-to-capitalization ratio as of Dec. 31, 2006 was 57 percent,
compared with 59 percent as of Dec. 31, 2005.
Income taxes in 2006 were $129 million, compared with $117 million in
2005. The increase mainly reflects additional income tax expense resulting
from higher corporate earnings year-over-year.
FOURTH-QUARTER RESULTS
For the fourth quarter of 2006, net income was $47 million, or $0.60 per
basic and diluted share, compared with $66 million, or $0.86 per basic share
($0.85 per diluted share) during the prior-year period. The variance between
the two quarters was mainly driven by the timing and pattern of earnings
recognition at Sequent, as well as a $3 million EBIT improvement in the
distribution operations segment.
2007 EARNINGS OUTLOOK
AGL Resources expects its 2007 earnings to be in the range of $2.75 to
$2.85 per share. This earnings expectation assumes normal weather and average
volatility in natural gas prices. However, changes in these events or other
circumstances the company cannot anticipate could materially impact earnings,
and could result in earnings for 2007 significantly above or below this
outlook.
EARNINGS CONFERENCE CALL/WEBCAST
To gain more insight to the statements contained herein, the AGL Resources
2006 earnings conference call and webcast, scheduled for Thursday, Feb. 1, at
9 a.m. (ET), can be accessed via the Investor Relations section of the AGL
Resources Web site at www.aglresources.com, or by dialing (877) 433-3881 (in
the United States) or (617) 213-5518 (outside the United States), and using
the confirmation code 84605843. The webcast replay of the call will be
available on the Web site through the close of business on Friday, Feb. 9. The
telephone replay of the call can be accessed by dialing (888) 286-8010, using
passcode 84516821. International callers should dial (617) 801-6888 and use
the same passcode.
About AGL Resources
AGL Resources (NYSE: ATG), an Atlanta-based energy services company,
serves more than 2.2 million customers in six states. The company also
owns Houston-based Sequent Energy Management, an asset manager serving
natural gas wholesale customers throughout the nation. As a 70 percent
owner in the SouthStar partnership, AGL Resources markets natural gas to
consumers in Georgia under the Georgia Natural Gas brand. 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; the
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; the impact 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 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 Twelve Months Ended
December 31, 2006 and 2005
Unaudited
(In millions, except per share amounts)
Three Months Twelve Months
12/31/06 12/31/05 Fav/(Unfav) 2006 2005 Fav/(Unfav)
Operating
Revenues $ 707 $ 993 $ (286) $ 2,621 $ 2,718 $ (97)
Cost of Gas 418 665 247 1,482 1,626 144
Operation and
Maintenance
Expenses 132 143 11 473 477 4
Depreciation and
Amortization 37 34 (3) 138 133 (5)
Taxes Other Than
Income 10 10 -- 40 40 --
Total Operating
Expenses 597 852 255 2,133 2,276 143
Operating Income 110 141 (31) 488 442 46
Other Income
(Loss) 1 (3) 4 (1) (1) --
Minority Interest (4) (4) -- (23) (22) (1)
Earnings Before
Interest & Taxes 107 134 (27) 464 419 45
Interest Expense 32 30 (2) 123 109 (14)
Earnings Before
Income Taxes 75 104 (29) 341 310 31
Income Taxes 28 38 10 129 117 (12)
Net Income $ 47 $ 66 $ (19) $ 212 $ 193 $ 19
Earnings Per
Common Share
Basic $ 0.60 $0.86 $ (0.26) $ 2.73 $ 2.50 $ 0.23
Diluted $ 0.60 $0.85 $ (0.25) $ 2.72 $ 2.48 $ 0.24
Shares
Outstanding
Basic 77.4 77.7 (0.3) 77.6 77.3 0.3
Diluted 77.7 78.2 (0.5) 78.0 77.8 0.2
AGL Resources Inc.
EBIT Schedule
For the Three and Twelve Months Ended
December 31, 2006 and 2005
Unaudited
(In millions, except per share amounts)
Three Months Twelve Months
12/31/06 12/31/05 Fav/(Unfav) 2006 2005 Fav/(Unfav)
Distribution
Operations $ 78 $ 75 $ 3 $310 $ 299 $ 11
Retail Energy
Operations 11 10 1 63 63 --
Wholesale Services 17 49 (32) 90 49 41
Energy Investments 3 4 (1) 10 19 (9)
Corporate (2) (4) 2 (9) (11) 2
Consolidated EBIT 107 134 (27) 464 419 45
Interest Expense 32 30 (2) 123 109 (14)
Income Taxes 28 38 10 129 117 (12)
Net Income $ 47 $ 66 $(19) $212 $ 193 $ 19
Earnings per
Common Share
Basic $0.60 $0.86 $(0.26) $2.73 $ 2.50 $ 0.23
Diluted $0.60 $0.85 $(0.25) $2.72 $ 2.48 $ 0.24
AGL Resources Inc.
Reconciliation of Operating Margin to Operating Revenues
For the Three and Twelve Months Ended
December 31, 2006 and 2005
Unaudited
(In millions)
Three Months Twelve Months
12/31/06 12/31/05 Fav/(Unfav) 2006 2005 Fav/(Unfav)
Operating
Revenues $ 707 $993 $(286) $2,621 $2,718 $ (97)
Cost of Gas 418 665 247 1,482 1,626 144
Operating
Margin $ 289 $328 $ (39) $1,139 $1,092 $ 47
SOURCE AGL Resources Inc.
CONTACT: Media, Robin Keegan, +1-404-584-3946, or cell, +1-404-783-1758,
or rkeegan@aglresources.com, or Financial, Steve Cave, +1-404-584-3801, or
cell, +1-678-642-4258, or scave@aglresources.com, both of AGL Resources Inc.
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