AGL Resources Reports Third-Quarter 2006 Earnings and Increases 2006 Guidance
- Third-quarter 2006 earnings per share of $0.46 versus third-quarter
2005 earnings per share of $0.19
- Year-to-date results of $2.13 per share vs. $1.64 per share for the
same period in 2005
- AGL Resources increases 2006 earnings guidance to a range of $2.65 to
$2.70 per share
ATLANTA, Oct. 26 -- AGL Resources Inc. (NYSE: ATG)
today reported third-quarter 2006 earnings of $36 million, or $0.46 per basic
share, compared with $15 million, or $0.19 per basic share, reported for the
same period in 2005.
Third-quarter results were due primarily to higher earnings in the
company's Wholesale Services segment. This drove a $38 million increase in
consolidated earnings before interest and taxes (EBIT) relative to the prior-
year period. Distribution Operations also contributed slightly higher EBIT as
compared to last year.
Year-to-date earnings for the nine months ended Sept. 30, 2006, were $165
million, or $2.13 per share, compared with $127 million, or $1.64 per share,
for the same period in 2005. These results were driven primarily by improved
contributions from the Wholesale Services segment, as well as higher earnings
in Distribution Operations, offset by lower results in the Retail Energy
Operations and Energy Investments segments.
"Our wholesale business has created a significant amount of economic
value," said John W. Somerhalder II, president and chief executive officer of
AGL Resources. "The decline in natural gas prices during the third quarter
resulted in the recognition of a substantial portion of that value through
gains on our transportation and storage hedges. These price conditions had
the opposite effect on our retail operations segment, as the wholesale and
retail businesses hedge different exposures.
"We have seen strong performance from our utility businesses throughout
the year, despite the impacts of warmer weather and lower customer usage in
several of our service areas," Somerhalder said. "Our results year-to-date
put us on track to exceed the previously provided earnings guidance for 2006,
and we are now increasing that guidance to better reflect our expectations for
the year."
Earnings Guidance
Based on AGL Resources' year-to-date earnings results and its outlook for
the remainder of the year, the company is increasing its fiscal year 2006
earnings guidance to a range of $2.65 to $2.70 per share, from its previous
guidance range of $2.55 to $2.65 per share.
Third-Quarter and Year-to-Date Results by Operating Segment
Distribution Operations
The Distribution Operations segment contributed EBIT of $50 million for
the third quarter 2006, up slightly over the prior-year period. Operating
margin decreased $1 million, primarily due to the loss of operating margin
contributions from the company's former appliance businesses in New Jersey and
Florida and lower operating margins from decreased industrial consumption at
Chattanooga Gas. Operating expenses decreased $3 million, primarily due to
lower costs this quarter resulting from workforce and facilities
restructurings in 2005.
For the nine months ended Sept. 30, 2006, Distribution Operations' EBIT
was $232 million, up $8 million over the prior-year period. Operating margin
decreased $8 million, primarily as a result of lower customer usage and the
loss of margin from the sale of the New Jersey and Florida appliance
businesses in 2005. Operating expenses for the period decreased $17 million
compared to the prior year. Generally, this occurred because of lower
expenses associated with restructuring and business process improvement
initiatives implemented in 2005 and 2006.
Retail Energy Operations
The Retail Energy Operations segment had a $2 million EBIT loss for the
quarter, compared with a $7 million EBIT contribution during the same period
last year. The lower results were largely driven by the expensing of hedges
during the quarter, as compared to hedge gains recorded during the third
quarter of last year. In addition, the segment had lower margins as a result
of lower interruptible revenues and lower average customer usage as compared
to the prior year. Operating expenses were relatively flat year-over-year.
For the nine months ended Sept. 30, 2006, the Retail Energy Operations
segment contributed EBIT of $52 million, down slightly from the same period in
2005. Operating margins increased $10 million. The increase was driven
primarily by strong asset optimization, offset somewhat by lower average
customer usage due to warmer weather and customer conservation. Operating
expenses were up $9 million during the period relative to last year, primarily
due to higher bad debt expense, as well as higher depreciation expense and
outside service costs associated with technology projects. Additionally, the
lower EBIT as compared to last year reflects a $2 million charitable
contribution made in the first quarter 2006.
Wholesale Services
The Wholesale Services segment (Sequent) contributed $40 million of EBIT
for the third quarter of 2006, a $46 million improvement over the prior-year
period, in which the segment reported a $6 million EBIT loss. A $53 million
increase in operating margin resulted from the recognition of gains related to
Sequent's storage and transportation hedges compared to hedge losses reported
in the prior-year period. These gains and losses are largely a function of
natural gas price movements relative to our hedging activities for this
segment.
The significant decline in forward NYMEX (New York Mercantile Exchange)
prices for natural gas during the third quarter of 2006 resulted in the
recognition of $38 million in gains associated with the financial instruments
used to hedge Sequent's inventory positions. In contrast, during the third
quarter of 2005, forward NYMEX prices increased significantly, resulting in
the recognition of $46 million in losses associated with Sequent's inventory
hedges. This amount almost completely neutralized the actual results of the
third quarter last year.
The operating margin increase was offset by a $20 million lower-of-cost-
or-market (LOCOM) accounting adjustment recorded in the third quarter of 2006.
Sequent was required to make the LOCOM adjustment as natural gas prices
declined to a level lower than that of Sequent's weighted average inventory
cost. Wholesale Services will realize its original economic margin, despite
the effects of decreasing natural gas prices, when gas is withdrawn and sold
from storage. Operating expenses increased $7 million, primarily due to
higher costs associated with incentive compensation, resulting from Sequent's
earnings growth.
Through Sept. 30, 2006, the Wholesale Services segment's EBIT contribution
was up $73 million over the prior-year period. These results reflect an $87
million increase in operating margin, driven by improved opportunities to
capture storage margins during the first half of 2006. Similar to the third-
quarter 2006 results, Sequent's year-to-date reported results were positively
impacted by forward NYMEX prices moving downward and the narrowing of future
seasonal spreads, which resulted in the recognition of $49 million of gains on
its storage hedges, compared to $49 million of losses last year. These
results were offset somewhat by LOCOM adjustments of $33 million made during
the period (and included in cost of sales). Sequent's year-to-date operating
expenses increased $14 million, primarily due to a higher number of employees
and additional incentive compensation costs directly related to stronger
financial performance during the period.
Energy Investments
Energy Investments' EBIT contribution of $3 million for the third quarter
of 2006 was down $2 million relative to the prior-year quarter. Operating
margin was flat, while operating expenses increased $2 million, mainly due to
project development expenses.
Through Sept. 30, 2006, Energy Investments' EBIT contribution of $7
million was down $8 million from the prior-year period. The decrease mainly
reflects the loss of operating margin from certain former NUI assets sold in
2005. Operating expenses were $2 million higher than the same period in 2005,
primarily due to project development costs, offset by lower expenses
associated with the 2005 sale of certain former NUI assets.
Interest and Income Taxes
Interest expense for the third-quarter 2006 was $32 million, up $5 million
over the same period last year. On a year-to-date basis, interest expense of
$91 million in 2006 reflects a $12 million increase over the prior-year
period. The increase for both periods primarily reflects higher average debt
outstanding, primarily related to higher inventory balances, as well as the
impact of higher short-term interest rates. The company's debt-to-
capitalization ratio as of Sept. 30, 2006, was 57 percent.
Third-quarter 2006 income taxes were $22 million, compared to $10 million
during the prior-year quarter. Year-to-date 2006 income taxes were $101
million, compared with $79 million in 2005. The increases reflect higher pre-
tax income for each respective period.
Share Repurchase Update
AGL Resources repurchased 730,500 shares under its share repurchase plan
during the nine months ended Sept. 30, 2006, at a weighted average price of
$36.19. In February 2006, the AGL Resources board of directors authorized a
plan to repurchase up to 8 million shares of the company's outstanding common
stock over a five-year period. The plan authorized the company to purchase
its shares on the open market or in private transactions, based on market and
other conditions. This authorization was primarily to offset any dilutive
impact of annual share issuances under employee and non-employee director
incentive compensation plans and dividend reinvestment and stock purchase
plans.
Earnings Conference Call/Webcast
AGL Resources' quarterly conference call with the investment community
will be held on Thursday, Oct. 26 at 4:30 p.m. (EDT). The webcast can be
accessed via the investor relations section of the company's Web site at
www.aglresources.com. Investors who would like to participate in the call can
dial 800/322-2803 in the United States or 617/614-4925 outside the United
States. The confirmation code is 26436159. The webcast will include audio of
the conference call as well as a slide presentation referred to by AGL
Resources management during the call. The slide presentation will be
available for download at www.aglresources.com/investor/webcasts.aspx.
For those unable to listen during the live webcast, a replay of the
conference call will be available by dialing 888/286-8010 in the United States
or 617/801-6888 outside the United States, with a confirmation code of
69170625. A replay of the call also will be available on the investor
relations section of the company's Web site for seven days.
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.
Ranked by Forbes as one of the 10 Best Managed Utilities and No. 250 in the
Forbes Platinum 400 as well as No. 647 on the Fortune 1000 and No. 40 in the
Fortune gas and electric utilities sector in 2006, AGL Resources reported
revenue of $2.7 billion and net income of $193 million in 2005. 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 Pivotal
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 Nine Months Ended
September 30, 2006 and 2005
(In millions, except per share amounts)
Three Months Nine Months
09/30/ 09/30/ Fav/ 09/30/ 09/30/ Fav/
2006 2005 (Unfav) 2006 2005 (Unfav)
Operating Revenues $434 $393 $41 $1,914 $1,736 $178
Cost of Gas 190 191 1 1,064 972 (92)
Operation and Maintenance
Expenses 111 106 (5) 341 334 (7)
Depreciation and
Amortization 33 33 - 101 99 (2)
Taxes Other Than Income 10 9 (1) 30 30 -
Total Operating Expenses 344 339 (5) 1,536 1,435 (101)
Operating Income 90 54 36 378 301 77
Other Income (Loss) - - - (2) 2 (4)
Minority Interest - (2) 2 (19) (18) (1)
Earnings Before Interest &
Taxes 90 52 38 357 285 72
Interest Expense 32 27 (5) 91 79 (12)
Earnings Before Income
Taxes 58 25 33 266 206 60
Income Taxes 22 10 (12) 101 79 (22)
Net Income $36 $15 $21 $165 $127 $38
Earnings Per Common Share
Basic $0.46 $0.19 $0.27 $2.13 $1.64 $0.49
Diluted $0.46 $0.19 $0.27 $2.12 $1.62 $0.50
Shares Outstanding
Basic 77.5 77.5 - 77.6 77.2 0.4
Diluted 77.9 78.1 (0.2) 78.1 77.8 0.3
AGL Resources Inc.
EBIT Schedule
For the Three and Nine Months Ended
September 30, 2006 and 2005
(In millions, except per share amounts)
Three Months Nine Months
09/30/ 09/30/ Fav/ 09/30/ 09/30/ Fav/
2006 2005 (Unfav) 2006 2005 (Unfav)
Distribution
Operations $50 $49 $1 $232 $224 $8
Retail Energy
Operations (2) 7 (9) 52 53 (1)
Wholesale Services 40 (6) 46 73 - 73
Energy Investments 3 5 (2) 7 15 (8)
Corporate (1) (3) 2 (7) (7) -
Consolidated EBIT 90 52 38 357 285 72
Interest Expense 32 27 (5) 91 79 (12)
Income Taxes 22 10 (12) 101 79 (22)
Net Income $36 $15 $21 $165 $127 $38
Earnings per Common
Share
Basic $0.46 $0.19 $0.27 $2.13 $1.64 $0.49
Diluted $0.46 $0.19 $0.27 $2.12 $1.62 $0.50
AGL Resources Inc.
Reconciliation of Operating Margin to Operating Revenues
For the Three and Nine Months Ended
September 30, 2006 and 2005
(In millions, except per share amounts)
Three Months Nine Months
09/30/ 09/30/ Fav/ 09/30/ 09/30/ Fav/
2006 2005 (Unfav) 2006 2005 (Unfav)
Operating Revenues $434 $393 $41 $1,914 $1,736 $178
Cost of Gas 190 191 1 1,064 972 (92)
Operating Margin $244 $202 $42 $850 $764 $86
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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