AGL Resources Reports Second Quarter Earnings
ATLANTA--July 29, 2004--AGL Resources Inc.
(NYSE:ATG) today reported second quarter 2004 net income of $21
million, or $0.34 per basic share ($0.33 per diluted share), compared
with $19 million, or $0.30 per basic share ($0.29 per diluted share),
reported in the second quarter of 2003. The company's consolidated
earnings before interest and taxes (EBIT) were $51 million, compared
with $49 million in the same period last year.
The company's results reflect improved earnings in its
Distribution Operations and Energy Investments segments, which offset
lower earnings in the Wholesale Services segment during the quarter.
"We're pedaling hard, but our results put us right where we
expected to be at mid-course," said Paula G. Rosput, chairman,
president and chief executive officer of AGL Resources. "Despite
encountering a few hills along the way, we're demonstrating our record
of repeatable performance."
Quarterly Results by Business Segment
Distribution Operations
The Distribution Operations segment contributed EBIT of $49
million, compared with $44 million in second quarter 2003. The
increased EBIT was partly due to an increase in the average number of
connected customers (to 1.862 million from 1.852 million in the second
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. Total operating expenses for the quarter
of $92 million were roughly equal to second quarter 2003. Capital
requirements, including manufactured gas plant (MGP) expenditures, for
the quarter were $59 million, up from $40 million in the same period
in 2003. This increase reflects the replacement of larger diameter
pipe under the mandated pipeline replacement program in Georgia.
Wholesale Services
The Wholesale Services segment's EBIT contribution in the second
quarter declined by approximately $5 million relative to the second
quarter 2003. Despite a 17 percent increase in volumes (to 2.0 Bfc/day
from 1.7 Bfc/day in 2003), Sequent's margins were compressed as a
result of lower volatility in the natural gas market, resulting in
fewer storage arbitrage opportunities in the second quarter of 2004
relative to the same period in 2003. Operating expenses at Sequent
were relatively flat year-over-year.
Energy Investments
The Energy Investments segment contributed EBIT of $9 million for
the second quarter of 2004, compared with $7 million in the second
quarter of 2003. The segment's results were driven primarily by the
sale of a residential and retail development located in Savannah,
Georgia and adjacent to a former manufactured gas plant (MGP) site
owned by Atlanta Gas Light. The net proceeds from the sale were $6
million, of which $4 million was credited back to Atlanta Gas Light's
environmental response cost rider program, reducing future billings to
Atlanta Gas Light customers. The remaining $2 million was recognized
as a gain. Additionally, contributions from Heritage Propane increased
$2 million relative to the same period last year, as a result of a $1
million gain on the sale of the company's remaining investment units
versus prior year operating losses.
Lower retail margins at SouthStar Energy Services resulted in a
decline in EBIT contribution from that business during the quarter,
from $9 million in 2003 to $7 million in 2004. The decline was the
result of unusually strong margins and higher usage due to colder
weather during April 2003 that were not achieved at the same level in
the second quarter 2004.
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 beginning
January 1, 2004.
To facilitate year-over-year comparisons, the second quarter 2004
10-Q filed today with the Securities and Exchange Commission includes
unaudited pro forma condensed consolidated balance sheet and income
statements, presented as if SouthStar's balances were consolidated
with AGL Resources results for the three and six months ended June 30,
2003.
Interest Expense and Income Taxes
Interest expense for the second quarter 2004 was $16 million, down
$2 million from the same period in 2003. The decrease reflects
favorable interest rates and lower average debt balances during the
period. The company's debt-to-capitalization ratio as of June 30,
2004, was 53 percent, down from 57 percent as of June 30, 2003.
Second quarter 2004 income taxes were $14 million, a $2 million
increase over the same period in 2003. The higher income taxes
resulted primarily from higher earnings before income taxes for the
quarter.
Year-to-Date Results
For the six months ended June 30, 2004, net income was $87
million, or $1.35 per basic share ($1.33 per diluted share), compared
with $71 million, or $1.14 per basic share ($1.13 per diluted share),
after the $8 million cumulative effect of the accounting change
related to the adoption of EITF 02-03 in the first quarter 2003.
Weighted average shares outstanding for the six months ended June 30,
2004, were 64.7 million, up 5 percent from the 61.9 million in the
prior-year period, as a result of the company's 6.4 million share
equity offering in February 2003, and an additional 1.2 million shares
related to the exercise of stock options.
Operating margins increased $78 million for the six months ended
June 30, 2004, from $345 million in the prior year to $423 million in
2004. The increase resulted primarily from the consolidation of
SouthStar's results and increased margin in Distribution Operations
from customer growth, higher pipeline replacement revenue and
additional carrying costs charged to the retail marketers in Georgia
for increased volumes of gas in storage. The increased margins were
offset, however, by lower margins in Wholesale Services, primarily as
a result of lower volatility in the first quarter of 2004, as well as
lower margins associated with storage due to a higher weighted average
cost of gas in inventory during the period relative to the first
quarter of 2003.
Consolidated EBIT for the six months ended June 30, 2004, was $174
million, up $7 million from the previous year. 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
In November 2003, AGL Resources provided earnings guidance for
full-year 2004 in the range of $2.01 and $2.10 per share. The company
reaffirms this earnings guidance for the year.
Earnings Conference Call Webcast: The AGL Resources second-quarter
2004 earnings conference call and webcast, scheduled for Thursday,
July 29, 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 Thursday, August 5. 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 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'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; 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 NUI Corporation (NUI) 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 merger may not be fully realized or realized
within the expected time frame, (3) revenues following the merger may
be lower than expected, (4) the ability to obtain governmental
approvals of the merger, or on the proposed terms and schedule, and
(5) the failure of NUI's shareholders to approve the merger; (6) the
risk that AGL Resources may be unable to obtain financing necessary to
consummate the acquisition, or that the terms of such financing may be
onerous; (7) 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 Six Months Ended
June 30, 2004 and 2003
(In millions, except per share amounts)
Three Months Six Months
--------------------------- ---------------------------
------- ------- ----------- ------- ------- -----------
6/30/04 6/30/03 Fav/(Unfav) 6/30/04 6/30/03 Fav/(Unfav)
------- ------- ----------- ------- ------- -----------
Operating
Revenues $ 294 $ 187 $ 107 $ 945 $ 539 $ 406
Cost of Gas 129 46 (83) 522 194 (328)
Operation and
Maintenance
Expenses 81 70 (11) 174 142 (32)
Depreciation
and
Amortization 24 23 (1) 48 45 (3)
Taxes Other
Than Income 7 7 - 15 15 -
------- ------- ----------- ------- ------- -----------
Total Operating
Expenses 241 146 (95) 759 396 (363)
------- ------- ----------- ------- ------- -----------
Operating
Income 53 41 12 186 143 43
Equity in
Earnings of
SouthStar - 10 (10) - 24 (24)
Other Income
(Loss) 1 (2) 3 2 - 2
Minority
Interest (3) - (3) (14) - (14)
------- ------- ----------- ------- ------- -----------
Earnings Before
Interest &
Taxes 51 49 2 174 167 7
Interest
Expense 16 18 2 32 38 6
------- ------- ----------- ------- ------- -----------
Earnings Before
Income Taxes 35 31 4 142 129 13
Income Taxes 14 12 (2) 55 50 (5)
------- ------- ----------- ------- ------- -----------
Income Before
Cumulative
Effect of
Change in
Accounting
Principle 21 19 2 87 79 8
Cumulative
Effect of
Change in
Accounting
Principle - - - - (8) 8
------- ------- ----------- ------- ------- -----------
Net Income $ 21 $ 19 $ 2 $ 87 $ 71 $ 16
======= ======= =========== ======= ======= ===========
EPS Before
Cumulative
Effect of
Change in
Accounting
Principle
Basic $0.34 $0.30 $0.04 $1.35 $1.27 $0.08
Diluted $0.33 $0.29 $0.04 $1.33 $1.26 $0.07
EPS
Basic $0.34 $0.30 $0.04 $1.35 $1.14 $0.21
Diluted $0.33 $0.29 $0.04 $1.33 $1.13 $0.20
Shares Outstanding
Basic 64.8 63.5 1.3 64.7 61.9 2.8
Diluted 65.6 64.2 1.4 65.5 62.4 3.1
AGL Resources Inc.
EBIT Schedule
For the Three and Six Months Ended
June 30, 2004 and 2003
(In millions, except per share amounts)
Three Months Six Months
--------------------------- ---------------------------
------- ------- ----------- ------- ------- -----------
6/30/04 6/30/03 Fav/(Unfav) 6/30/04 6/30/03 Fav/(Unfav)
------- ------- ----------- ------- ------- -----------
Distribution
Operations $ 49 $ 44 $ 5 $ 131 $ 125 $ 6
Wholesale
Services (5) - (5) 7 21 (14)
Energy
Investments 9 7 2 41 23 18
Corporate (2) (2) - (5) (2) (3)
------- ------- ----------- ------- ------- -----------
Consolidated
EBIT 51 49 2 174 167 7
------- ------- ----------- ------- ------- -----------
Interest Expense 16 18 2 32 38 6
Income Taxes 14 12 (2) 55 50 (5)
------- ------- ----------- ------- ------- -----------
Income Before
Cumulative
Effect of
Change in
Accounting
Principle 21 19 2 87 79 8
Cumulative
Effect of
Change in
Accounting
Principle - - - - (8) 8
------- ------- ----------- ------- ------- -----------
Net Income $ 21 $ 19 $ 2 $ 87 $ 71 $ 16
------- ------- ----------- ------- ------- -----------
Earnings per Common Share Before
Cumulative Effect of Change in
Accounting Principle
Basic $ 0.34 $ 0.30 $ 0.04 $ 1.35 $ 1.27 $ 0.08
======= ======= =========== ======= ======= ===========
Diluted $ 0.33 $ 0.29 $ 0.04 $ 1.33 $ 1.26 $ 0.07
======= ======= =========== ======= ======= ===========
Earnings per
Common Share
Basic $ 0.34 $ 0.30 $ 0.04 $ 1.35 $ 1.14 $ 0.21
======= ======= =========== ======= ======= ===========
Diluted $ 0.33 $ 0.29 $ 0.04 $ 1.33 $ 1.13 $ 0.20
======= ======= =========== ======= ======= ===========
AGL Resources Inc.
Reconciliation of Operating Margin to Operating Revenues
For the Three and Six Months Ended
June 30, 2004 and 2003
(In millions, except per share amounts)
Three Months Six Months
----------------------------- -----------------------------
-------- -------- ----------- -------- -------- -----------
6/30/04 6/30/03 Fav/(Unfav) 6/30/04 6/30/03 Fav/(Unfav)
-------- -------- ----------- -------- -------- -----------
Operating
Revenues $ 294 $ 187 $ 107 $ 945 $ 539 $ 406
Cost of Gas 129 46 (83) 522 194 (328)
-------- -------- ----------- -------- -------- -----------
Operating
Margin $ 165 $ 141 $ 24 $ 423 $ 345 $ 78
======== ======== =========== ======== ======== ===========
CONTACT: AGL Resources Inc.
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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