AGL Resources Reports First Quarter Earnings and Announces Executed Agreement to Sell Certain NUI Assets; Impact of NUI Utilities and Jefferson Island Storage Drive Growth
ATLANTA--April 27, 2005--AGL Resources Inc.
(NYSE: ATG) today reported first quarter 2005 net income of $88
million, or $1.15 per basic share ($1.14 per diluted share), compared
with $66 million, or $1.02 per basic share ($1.00 per diluted share)
reported in the first quarter of 2004. The company's results reflect
earnings contributions from the performance of the NUI Corporation
(NUI) assets (principally Elizabethtown Gas and Florida City Gas) and
Jefferson Island Storage & Hub, all of which were acquired in the
fourth quarter 2004. As a result of the company's 11-million share
equity offering in November 2004, earnings results for the year are
based on weighted average shares outstanding of 76.9 million, while
2003 first quarter results were based on weighted average shares
outstanding of 64.6 million.
"We are hitting our stride early in the year," said Paula Rosput
Reynolds, Chairman, President and Chief Executive Officer. "We
promised all stakeholders we would integrate our acquisitions quickly.
This quarter's performance reflects that we are substantially on track
for earnings accretion and best-in-class operations this year."
Improved earnings at SouthStar Energy Services, and Distribution
Operations (exclusive of NUI contributions) also drove the
year-over-year increase in earnings. These improved results for the
quarter were offset by higher corporate interest and income tax
expenses. In addition, results were affected by a decrease in earnings
at Sequent relative to the first quarter 2004.
QUARTERLY RESULTS BY BUSINESS SEGMENT
Distribution Operations
The Distribution Operations segment contributed earnings before
interest and taxes (EBIT) of $123 million, compared with $82 million
reported in first quarter 2004, a $41 million or 50% year-over-year
increase, of which $34 million came from NUI. The remaining increase
in EBIT was primarily the result of higher income at Atlanta Gas
Light, Chattanooga Gas and Virginia Natural Gas.
Operating margin was $253 million for the quarter, up $73 million
from the same period last year. The increase was primarily the result
of the acquisition of NUI, which contributed $70 million and increases
in revenue from Atlanta Gas Light's pipeline replacement program, gas
stored for marketers and customer growth, offset by decreased
operating margins at Virginia Natural Gas due to lower usage per
degree day. Total operating expenses increased $32 million relative to
the same period in the prior year, primarily due to NUI, offset by
lower operating expenses at Virginia Natural Gas, in part due to lower
bad debt expense.
Retail Energy Operations
The Retail Energy Operations segment, which is comprised of
SouthStar Energy Services, is a new operating segment for financial
reporting purposes. Previously, SouthStar was included in the Energy
Investments operating segment. The Company added this new operating
segment in accordance with the requirements of Statement of Financial
Accounting Standard No 131, Disclosures about Segments of an
Enterprise and Related Information, in order to not only provide more
transparency and visibility into the results and operations of
SouthStar, but also into the results and operations of those remaining
subsidiaries comprising the Energy Investments segment, including
Jefferson Island Storage & Hub and Pivotal Propane of Virginia.
Retail Energy Operations contributed EBIT of $40 million in first
quarter 2005 as compared to $33 million in the comparable prior year
quarter, an increase of $7 million or 21%. The increased EBIT
contribution was driven largely by increased operating margins of $9
million resulting from higher commodity margins in the first quarter
2005, reflecting larger spreads between wholesale and retail prices
and favorable asset management revenues. These results were offset by
decreased margins resulting from weather that was 7 percent warmer
than the first quarter of 2004. Total operating expenses were flat on
a year-over-year basis, but the amount the company records for
minority interest in SouthStar's earnings increased $2 million due to
increased SouthStar earnings.
Wholesale Services
The Wholesale Services segment contributed $4 million in EBIT for
the first quarter 2005, down 67% from $12 million for the same period
last year. The $8 million decline is primarily due to decreased
operating margins of $9 million as compared to the prior year.
Operating margins for the first quarter 2005 were negatively affected
by the decline in forward NYMEX gas prices at the end of 2004, which
accelerated the recognition of $5 million in operating margins into
the fourth quarter 2004 that was originally expected to be recognized
in the first quarter 2005. Additionally, by refilling the storage
capacity early in 2005 and locking in economic values, the unit
experienced mark-to-market accounting losses of $8 million on hedged
storage positions due to the relative increase in forward NYMEX gas
prices at the end of first quarter 2005. This negative effect on
operating margins was offset in part by improved performance in
Sequent's origination business in the Northeast due to higher
transportation spreads.
Wholesale Services' operating expenses decreased $1 million from
the prior year comparable quarter primarily due to higher costs
incurred in the first quarter 2004 related to the implementation of
the Energy Trading and Risk Management (ETRM) system and
Sarbanes-Oxley 404 compliance efforts versus the first quarter 2005.
These reduced expenses were partially offset by higher payroll costs
due to increased headcount.
Energy Investments
The Energy Investments segment contributed increased EBIT of $4
million for the first quarter 2005 as compared to the first quarter
2004, primarily driven by the EBIT contribution of $4 million from
Jefferson Island Storage & Hub (JISH).
Corporate
The Corporate segment EBIT contribution improved by $2 million in
first quarter 2005 compared to the prior year period. These results
reflect the current year favorable impact of a $2 million loss
recorded in the prior year period associated with the retirement of
information systems and technology assets, partially offset by a net
increase in corporate operating expenses due in part to NUI and to
technology expenses the company incurred during the current year
quarter in conjunction with major projects to improve service delivery
in its utilities.
INTEREST EXPENSE AND INCOME TAXES
Interest expense for the first quarter 2005 was $26 million,
compared with $16 million in first quarter 2004. The $10 million, or
63% increase reflects $8 million of additional interest expense
associated with the NUI and JISH acquisition debt and $2 million from
higher short-term interest rates. Average debt outstanding for the
first quarter 2005 was $1.8 billion, a $0.6 billion increase over the
prior year quarter's average outstanding debt balance of $1.2 billion.
The company's debt-to-capitalization ratio as of March 31, 2005, was
53 percent, down substantially from 58 percent as of December 31,
2004.
First quarter 2005 income taxes were $55 million, a $14 million
increase over first quarter 2004, primarily due to higher corporate
earnings for the quarter.
SALE OF NUI ASSETS
A purchase and sales agreement (PSA) was executed with Duke Energy
Gas Transmission (DEGT) to sell the company's 50 percent interest in
Saltville Gas Storage Company, LLC (Saltville Storage), an interstate
storage facility, as well as its wholly owned interests in Virginia
Gas Pipeline and Virginia Gas Storage. DEGT is currently the other 50
percent partner in Saltville LLC.
AGL Resources acquired these assets, located in Virginia, in
November 2004 when it purchased NUI Corporation. The company will
retain the local distribution company that it acquired in the NUI
transaction, Virginia Gas Distribution Company, which has 270
customers, and will also retain the name Virginia Gas Company under
which these companies currently operate.
After operating the facilities for several months and conducting a
careful evaluation of several proposals with respect to Saltville
Storage and the Virginia Gas storage and pipeline businesses, the
company concluded that selling these assets makes strategic sense and
this transaction enables the company to focus its efforts and capital
on areas that are more closely aligned with its existing distribution
businesses and Pivotal-related operations and projects."
Duke Energy Saltville Gas Storage, LLC will be the sole owner of
Saltville Storage when the sale is completed. With approximately 2 Bcf
of capacity, the Saltville storage facility strategically connects to
Duke Energy's East Tennessee Natural Gas interstate system and its
Patriot pipeline.
AGL Resources will receive, subject to working capital
adjustments, $62 million in cash at closing and will use the proceeds
to repay debt and for other general corporate purposes. The
transaction is not expected to have a material impact on AGL
Resources' earnings. Closing of the transaction, which is subject to
regulatory approvals, including approval from the Virginia State
Corporation Commission, is expected in the third quarter 2005.
Earnings Conference Call Webcast: The AGL Resources 2005 first
quarter earnings conference call and webcast, scheduled for Wednesday,
April 27, 2005, at 4:30 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 Wednesday, May 4,
2005. The telephone replay of the call can be accessed by dialing
(888) 286-8010, using passcode 75269020. 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 East
and Midwest. As a 70 percent owner in 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. 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. Officers may also make verbal statements to analysts,
investors, regulators, the media and others that are forward-looking.
Forward-looking statements involve matters that are not historical
facts, such as projections of our financial performance, management's
goals and strategies for our business and assumptions regarding the
foregoing. Because these statements involve anticipated events or
conditions, forward-looking statements often include words such as
"anticipate," "assume," "believe," "can," "could," "estimate,"
"expect," "forecast," "indicate," "intend," "may," "plan," "predict,"
"project,"future," "seek," "should," "target," "will," "would," or
similar expressions. Do not unduly rely on forward-looking statements.
They represent our expectations about the future and are not
guarantees. Our expectations are based on currently available
competitive, financial and economic data along with our operating
plans. While we believe that 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. In addition to the important
factors described in this press release and in our filings with the
Securities and Exchange Commission, which we incorporate by reference
in this press release, the following are among the important factors
that could cause our business, results of operations or financial
condition in the future to differ significantly from those expressed
in the forward-looking statements:
-- changes in industrial, commercial and residential growth in
AGL Resources' service territories;
-- changes in price, supply and demand for natural gas and
related products;
-- impact of changes in state and federal legislation and
regulation, including orders of various state public service
commissions and of the Federal Energy Regulatory Commission on
the gas and electric industries and on AGL Resources;
-- actions taken by government agencies, including decisions on
base rate increase requests by state regulators;
-- the ultimate impact of the Sarbanes-Oxley Act of 2002 and any
future changes in accounting regulations or practices in
general with respect to public companies, the energy industry
or AGL Resources' operations specifically;
-- the enactment of new accounting standards, or interpretations
of existing accounting standards, by the Financial Accounting
Standards Board or the Securities and Exchange Commission, or
SEC, that could impact the way AGL Resources records revenues,
assets and liabilities, which in turn could adversely affect
reported results of operations;
-- the enactment of new auditing standards, or interpretations of
existing auditing standards, by the Public Company Accounting
Oversight Board which could adversely affect AGL Resources'
ability to comply with the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002;
-- effects and uncertainties of deregulation and competition,
particularly in markets where prices and providers
historically have been regulated, and unknown issues following
deregulation such as the stability of the Georgia retail gas
market, including risks related to energy marketing and risk
management;
-- concentration of credit risk in marketers that are
certificated by the Georgia Public Service Commission to sell
retail natural gas in Georgia, as well as concentration of
credit risk in customers of our wholesale services segment;
-- utility and energy industry consolidation;
-- performance of equity and bond markets and the impact on
pension and post-retirement funding costs;
-- impact of acquisitions and divestitures, including:
-- the risk that the businesses of NUI Corporation and/or
Pivotal Jefferson Island Storage & Hub, LLC will not be
integrated successfully with AGL Resources or that such
integrations may be more difficult, time-consuming or
costly than expected;
-- material deficiencies in NUI's internal controls that AGL
Resources must address and resolve;
-- revenues following the acquisitions may be lower than
expected;
-- expected revenue synergies and cost savings from these two
acquisitions may not be fully realized or realized within
the expected time frame;
-- 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;
-- impact of ongoing investigations and litigation;
-- impact of changes in prices on the margins achievable in the
unregulated retail gas marketing business;
-- increases in competition in the markets served by AGL
Resources;
-- the availability and price of insurance;
-- the general effects of deregulation of the energy markets,
including industry restructuring and unbundling of services;
-- the ability to attract and retain key executives and
employees;
-- fluctuations in energy commodity prices;
-- acts of war or terrorism;
-- AGL Resources' ability to control operating expenses and to
achieve efficiencies in its existing and acquired operations;
-- AGL Resources' ability to continue to modernize its current
and acquired distribution infrastructures as scheduled and
budgeted; and
-- other risks described in AGL Resources' documents on file with
the SEC.
There also may be other factors that could cause results to differ
significantly from our expectations. 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, 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 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.
Any required 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 Months Ended
March 31, 2005 and 2004
(In millions, except per share amounts)
Three Months
---------------------------------
3/31/2005 3/31/2004 Fav/(Unfav)
----------- ----------- -----------
Operating Revenues $ 912 $ 651 $ 261
Cost of Gas 572 393 (179)
Operation and Maintenance Expenses 115 93 (22)
Depreciation and Amortization 33 24 (9)
Taxes Other Than Income 11 8 (3)
----------- ----------- -----------
Total Operating Expenses 731 518 (213)
----------- ----------- -----------
Operating Income 181 133 48
Other Income 1 1 -
Minority Interest (13) (11) (2)
----------- ----------- -----------
Earnings Before Interest & Taxes 169 123 46
Interest Expense 26 16 (10)
----------- ----------- -----------
Earnings Before Income Taxes 143 107 36
Income Taxes 55 41 (14)
----------- ----------- -----------
Net Income $ 88 $ 66 $ 22
=========== =========== ===========
EPS
Basic $ 1.15 $ 1.02 $0.13
Diluted $ 1.14 $ 1.00 $0.14
Shares Outstanding
Basic 76.9 64.6 12.3
Diluted 77.6 65.4 12.2
AGL Resources Inc.
EBIT Schedule
For the Three Months Ended
March 31, 2005 and 2004
(In millions, except per share amounts)
Three Months
----------------------------------
3/31/2005 3/31/2004 Fav/(Unfav)
----------- ----------- -----------
Distribution Operations $ 123 $ 82 $ 41
Retail Energy Operations 40 33 7
Wholesale Services 4 12 (8)
Energy Investments 5 1 4
Corporate (3) (5) 2
----------- ----------- -----------
Consolidated EBIT 169 123 46
----------- ----------- -----------
Interest Expense 26 16 (10)
Income Taxes 55 41 (14)
----------- ----------- -----------
Net Income $ 88 $ 66 $ 22
=========== =========== ===========
Earnings per Common Share
Basic $ 1.15 $ 1.02 $ 0.13
=========== =========== ===========
Diluted $ 1.14 $ 1.00 $ 0.14
=========== =========== ===========
AGL Resources Inc.
Reconciliation of Operating Margin to
Operating Revenues
For the Three Months Ended
March 31, 2005 and 2004
(In millions, except per share amounts)
Three Months
-----------------------------------
3/31/2005 3/31/2004 Fav/(Unfav)
----------- ----------- -----------
Operating Revenues $ 912 $ 651 $ 261
Cost of Gas 572 393 (179)
---------- ----------- -----------
Operating Margin $ 340 $ 258 $ 82
=========== =========== ===========
CONTACT: AGL Resources, Atlanta
Investor Relations
Brian Little, 404/584-4414
blittle@aglresources.com
or
Media Relations
Nick Gold, 404/584-3457
Cellular: 404/275-9501
ngold@aglresources.com
SOURCE: AGL Resources Inc.
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