AGL
Resources Reports Second Quarter 2011 Earnings
- Diluted
earnings per share (EPS) of $0.23 versus $0.17 in
second quarter 2010; Non-GAAP diluted EPS of $0.33 excludes Nicor Inc. merger expenses
- Second
quarter 2011 earnings before interest and taxes (EBIT) of $62 million compared
to $48 million in 2010
- First
half 2011 diluted EPS of $1.82 (GAAP) / $1.96 (non-GAAP);
First half EBIT of $301 million
- Nicor Inc.
proposed merger remains on track to close in second half of 2011
AGL
Resources Inc. (NYSE: AGL) today reported second quarter net income of $18
million, or $0.23 per basic and diluted share, compared to net income
of $14 million, or $0.17 per basic and diluted share, reported
for the same period last year. Excluding the effect of $0.10 per
share of costs related to the proposed merger announced inDecember
2010 with Nicor Inc., the second quarter 2011
non-GAAP EPS was $0.33 per basic and diluted share.
"We are
pleased to announce another quarter of solid results. In addition to strong performance
at our regulated utility businesses, our non-utility businesses are employing
effective strategies to partially mitigate the effects of the current
environment of low natural gas price volatility," said John W. Somerhalder II, AGL Resources Chairman, President and Chief
Executive Officer. "As we progress through the year, our top priorities
remain consistent operations and closing our merger with Nicor.
We have secured all major regulatory approvals with the exception of the
Illinois Commerce Commission (ICC). The ICC review process is ongoing and we
participated in hearings in mid-July. Our integration teams are working
diligently to ensure that we are prepared on Day 1 to continue the efficient,
safe and reliable service that AGL Resources and Nicor
have historically provided to customers."
Said Andrew
W. Evans, AGL Resources Executive Vice President and Chief Financial Officer,
"In the second quarter, AGL Resources' utility businesses achieved a ten
percent increase in EBIT compared to last year. This performance is indicative
of our culture of expense control coupled with ongoing investment in the safety
and reliability of our distribution systems. Our unregulated businesses posted
solid quarterly results as well: recognized commercial activity at Sequent
strengthened year-to-year; SouthStar's results were
consistent with 2010 despite a highly competitive Georgia market; and
we added new contracts at our storage facilities." Continued Evans,
"We also have made significant progress in our financing related to the Nicor merger. We are finalizing documentation with various
institutional investors for a $275 million private placement
transaction, and we now have lined-up about 50 percent of the financing
requirements for the cash portion of the merger."
BUSINESS
SEGMENT RESULTS
Distribution
Operations
The
distribution operations segment contributed EBIT of $76 million for
the second quarter of 2011, an increase of 10% compared to $69 million for
the same period in 2010. Operating margin increased $10 million, primarily
driven by an $8 million increase in operating revenues at Atlanta Gas
Light resulting from the rate decision in October 2010 and higher
regulatory infrastructure program revenues. Additionally, Elizabethtown Gas'
revenues increased by $2 million as a result of increased customer
usage and higher regulatory infrastructure program revenues.
Operating
expenses increased $3 million relative to the prior-year period,
driven mainly by higher compensation and benefit costs as well as an increase
in depreciation expenses.
Year-to-date
through June 30, 2011, the distribution operations segment contributed
EBIT of $217 million, compared to$205 million in 2010. Operating
margin was higher by $21 million in 2011 and expenses were up $8
million. The factors influencing second quarter 2011 performance are largely
the same drivers of year-to-date results.
Retail
Energy Operations
The retail
energy operations segment, consisting of SouthStar
Energy Services, contributed EBIT of $1 million for the second
quarter of 2011, equal to that reported for the same period in 2010. Operating
margin declined by $1 million as a result of continued high levels of
competition and more customers choosing lower margin plans in Georgia, and
a decline in revenues from the optimization of storage and transportation
assets. Operating expenses decreased $1 million, mainly due to lower bad
debt and compensation expenses.
Year-to-date
through June 30, 2011, the retail energy operations segment contributed
EBIT of $69 million, compared to$75 million in 2010. Operating margin
was lower by $8 million and expenses were lower by $2 million.
The factors influencing second quarter 2011 performance are largely the same
drivers of year-to-date results, with the addition of lower customer usage in
the first quarter of 2011 that resulted from warmer weather on a year-over-year
basis.
Wholesale Services
The
wholesale services segment, consisting primarily of Sequent Energy Management,
reported an EBIT loss of $5 million in second quarter of 2011,
compared to a loss of $20 million reported for the second quarter of
2010. Operating margin increased $17 million for the second quarter
of 2011 as compared to the prior-year period largely driven by the changes in
value of instruments used to hedge storage and transportation positions,
resulting in a $16 million quarter-over-quarter improvement. Sequent
further experienced a $1 million increase in commercial activity
compared to the prior-year period. Changes in natural gas prices and
transportation spreads caused Sequent to record storage and transportation
hedge gains totaling $8 million during the second quarter of 2011 as
compared to $8 million in hedge losses during the second quarter of
2010.
Operating
expenses increased $2 million compared to the prior-year period,
mainly due to increased incentive compensation and other expenses.
Year-to-date
through June 30, 2011, the wholesale services segment contributed EBIT of $28
million, compared to $23 million in 2010. Operating margin was higher
by $8 million largely driven by higher commercial activity offset by
lower hedge gains. Operating expenses were higher by $3 million due
to the same factors influencing second quarter 2011 performance.
Through the
hedging of physical natural gas inventory storage balances, Sequent has $11
million of economic value as of June 30, 2011 compared to $25
million at the same point last year. The year-over-year decline in
economic value is driven by reduced volatility and lower storage price
differentials in the wholesale natural gas market and lower storage inventory
balances as compared to last year. This economic value is expected to be
recognized as operating revenues in 2011 and 2012 when the projected storage
withdrawals occur. This withdrawal schedule can change in response to changes
in market conditions, including changes in forward NYMEX natural gas prices.
The lower
price differentials in the wholesale natural gas market for storage and
transportation coupled with lower volatility are expected to continue to impact
Sequent's earnings and results of operations. Sequent
expects to partially mitigate these impacts by continuing to grow its asset
portfolio, build its fee-based services and maintain focus on cost control to
support growth in these areas.
Energy
Investments
The energy
investments segment, consisting primarily of AGL Resources' non-utility natural
gas storage facilities, contributed EBIT of $1 million for the second
quarter of 2011, compared to no EBIT contribution during the prior-year period.
The divestiture of the AGL Networks business on July 1, 2010 resulted
in a loss recognized in the second quarter 2010 of $3 million, which was
offset by the EBIT contribution from the business for the same period.
Year-to-date
through June 30, 2011, the energy investments segment contributed EBIT of $2
million, compared to $3 million in 2010. Operating margin was lower
by $7 million and operating and other expenses were lower by $6
million. The sale of AGL Networks was the primary driver of year-to-date
results.
INTEREST
EXPENSE AND INCOME TAXES
Net interest
expense for the second quarter of 2011 was $32 million, up $6 million from
the second quarter of 2010. The increase in interest expense resulted from
higher average debt outstanding, primarily the result of the additional
long-term debt issuance in March 2011, a portion of which is anticipated
to be used for funding the proposed Nicor merger. Net
interest expense year-to-date of $61 million was $7 million higher
than the prior year due to the same factors that influenced the second quarter.
Income taxes
for the second quarter of 2011 were $11 million, a $3 million increase
compared to the second quarter of 2010, reflecting higher consolidated earnings
for the quarter relative to the prior year. Income taxes through June 30,
2011 were $87 million compared to $90 million for the
same period in 2010.
2011 EARNINGS
OUTLOOK
AGL
Resources continues to expect its 2011 earnings to be in the range of $3.10
to $3.20 per diluted share. This earnings expectation assumes normal
weather and average volatility in natural gas prices and excludes all effects
from the proposed merger with Nicor. However,
unanticipated changes in these events or other circumstances could materially
impact earnings, and could result in earnings for 2011 significantly above or
below this outlook.
EARNINGS
CONFERENCE CALL/WEBCAST
AGL
Resources will hold a conference call to discuss its second quarter 2011
results on August 3 at 9 a.m. Eastern Daylight Savings Time. The
conference call will be webcast, and can be accessed via the Investor Relations
section of the company's Web site (www.aglresources.com), or by dialing 800-638-4930 if
calling from the U.S., or 617-614-3944 if
dialing from outside of the U.S. (Passcode: 88594155). 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 (Passcode: 71932502). A replay of the call also will be
available on the Investor Relations section of the company's Web site for seven
days following the call.
About AGL Resources
AGL
Resources (NYSE: AGL), an Atlanta-based energy services company, serves
approximately 2.3 million customers in six states. The company also owns Houston-based
Sequent Energy Management, an asset manager serving natural gas wholesale
customers throughout North America. As an 85-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 and
Golden Triangle Storage in Texas. For more information, visithttp://www.aglresources.com/.
Forward-Looking Statements
Certain
expectations and projections regarding our future performance referenced in
this press release, in other reports or statements we file with the SEC or
otherwise release to the public, and on our website, are forward-looking
statements. Senior officers and other employees 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 statements regarding our future operations,
prospects, strategies, financial condition, economic performance (including
growth and earnings), industry conditions and demand for our products and
services. Because these statements involve anticipated events or conditions,
forward-looking statements often include words such as "anticipate,"
"assume," "believe," "can," "could,"
"estimate," "expect," "forecast,"
"future," "goal," "indicate," "intend,"
"may," "outlook," "plan," "potential,"
"predict," "project," "seek," "should,"
"target," "would," or similar expressions. Forward-looking
statements contained in this press release include, without limitation, the
quotes from John W. Somerhalder II and Andrew
W. Evans, the statement concerning how the Company expects to mitigate the
impact of market conditions on Sequent's earnings and
results of operations under the heading "Business Segment Results - Wholesale
Services," the statement that the Company intends to use the proceeds of
long-term debt issuance to fund the proposed Nicor
merger under the heading "Business Segment Results - Interest Expense and
Income Taxes," and the information under the heading "2011 Earnings
Outlook." 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 including changes related to
climate change; actions taken by government agencies on rates and other
matters; concentration of credit risk; utility and energy industry
consolidation; the impact on cost and timeliness of construction projects by
government and other approvals, development project delays, adequacy of supply
of diversified vendors, unexpected change in project costs, including the cost
of funds to finance these projects; the impact of acquisitions and
divestitures; direct or indirect effects on our 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, including disruptions in the capital markets and
lending environment and the current economic uncertainty; general economic
conditions; uncertainties about environmental issues and the related impact of
such issues; the impact of changes in weather, including climate change, on the
temperature-sensitive portions of our business; the impact of natural disasters
such as hurricanes on 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 and on operating margin. EBIT is a non-GAAP (accounting principles
generally accepted in the United States of America) financial measure that
includes operating income, other income and expenses. 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 operating 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.
In addition,
in this press release AGL Resources has presented its earnings per share
excluding expenses incurred with respect to the proposed Nicor
merger. As the company does not routinely engage in transactions of the
magnitude of the proposed Nicor merger, and consequently
does not regularly incur transaction-related expenses of correlative size, the
company believes presenting EPS excluding Nicor
merger expenses provides investors with an additional measure of AGL Resources'
core operating performance.
EBIT, operating
margin and EPS excluding merger expenses should not be considered as
alternatives to, or more meaningful indicators of, the company's operating
performance than operating income, net income attributable to AGL Resources
Inc. or EPS as determined in accordance with GAAP. In addition, the company's
EBIT, operating margin and non-GAAP EPS 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 Web site athttp://www.aglresources.com/ under the Investor Relations
section.
AGL
Resources Inc.
Condensed
Consolidated Statements of Income
Unaudited
|
|
|
|
|
For the
three months ended
|
|
|
In millions, except per share amounts
|
June
30, 2011
|
June
30, 2010
|
Fav
/ (Unfav)
|
|
Operating revenues
|
$375
|
$359
|
$16
|
|
Operating expenses
|
|
|
|
|
Cost of gas
|
134
|
141
|
7
|
|
Operation
and maintenance expenses
|
127
|
119
|
(8)
|
|
Depreciation
and amortization expenses
|
42
|
39
|
(3)
|
|
Taxes other than income taxes
|
12
|
12
|
-
|
|
Total operating expenses
|
315
|
311
|
(4)
|
|
Operating income
|
60
|
48
|
12
|
|
Other income
|
2
|
-
|
2
|
|
Earnings before interest and taxes
|
62
|
48
|
14
|
|
Interest expenses, net
|
32
|
26
|
(6)
|
|
Earnings before income
taxes
|
30
|
22
|
8
|
|
Income tax expense
|
11
|
8
|
(3)
|
|
Net income
|
19
|
14
|
5
|
|
Less net income attributable to
the noncontrolling interest
|
1
|
-
|
(1)
|
|
Net income attributable to AGL
Resources Inc.
|
$18
|
$14
|
$4
|
|
|
|
|
|
|
Earnings per common share
|
|
|
|
|
Basic
|
$0.23
|
$0.17
|
$0.06
|
|
Diluted
|
$0.23
|
$0.17
|
$0.06
|
|
|
|
|
|
|
Weightedaverage shares outstanding
|
|
|
|
|
Basic
|
77.9
|
77.4
|
(0.5)
|
|
Diluted
|
78.5
|
77.8
|
(0.7)
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest and
|
For the
three months ended
|
|
|
taxes by segment(in
millions)
|
June 30, 2011
|
June 30, 2010
|
Fav
/ (Unfav)
|
|
Distribution operations
|
$76
|
$69
|
$7
|
|
Retail energy operations
|
1
|
1
|
-
|
|
Wholesale services
|
(5)
|
(20)
|
15
|
|
Energy investments
|
1
|
-
|
1
|
|
Corporate
|
(11)
|
(2)
|
(9)
|
|
Consolidated earnings before
interest and taxes
|
$62
|
$48
|
$14
|
|
|
|
|
|
|
|
|
AGL
Resources Inc.
Condensed
Consolidated Statements of Income
Unaudited
|
|
|
|
|
For the
six months ended
|
|
|
In millions, except per share amounts
|
June
30, 2011
|
June
30, 2010
|
Fav
/ (Unfav)
|
|
Operating revenues
|
$1,253
|
$1,362
|
$(109)
|
|
Operating expenses
|
|
|
|
|
Cost of gas
|
589
|
712
|
123
|
|
Operation
and maintenance expenses
|
258
|
244
|
(14)
|
|
Depreciation
and amortization expenses
|
83
|
79
|
(4)
|
|
Taxes other than income taxes
|
25
|
26
|
1
|
|
Total operating expenses
|
955
|
1,061
|
106
|
|
Operating income
|
298
|
301
|
(3)
|
|
Other income
|
3
|
2
|
1
|
|
Earnings before interest and taxes
|
301
|
303
|
(2)
|
|
Interest expenses, net
|
61
|
54
|
(7)
|
|
Earnings before income
taxes
|
240
|
249
|
(9)
|
|
Income tax expense
|
87
|
90
|
3
|
|
Net income
|
153
|
159
|
(6)
|
|
Less net income attributable to
the noncontrolling interest
|
11
|
11
|
-
|
|
Net income attributable to AGL
Resources Inc.
|
$142
|
$148
|
$(6)
|
|
|
|
|
|
|
Earnings per common share
|
|
|
|
|
Basic
|
$1.83
|
$1.91
|
$(0.08)
|
|
Diluted
|
$1.82
|
$1.90
|
$(0.08)
|
|
|
|
|
|
|
Weightedaverage shares outstanding
|
|
|
|
|
Basic
|
77.8
|
77.3
|
(0.5)
|
|
Diluted
|
78.3
|
77.7
|
(0.6)
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest and
|
For the
six months ended
|
|
|
taxes by segment(in
millions)
|
June 30, 2011
|
June 30, 2010
|
Fav
/ (Unfav)
|
|
Distribution operations
|
$217
|
$205
|
$12
|
|
Retail energy operations
|
69
|
75
|
(6)
|
|
Wholesale services
|
28
|
23
|
5
|
|
Energy investments
|
2
|
3
|
(1)
|
|
Corporate
|
(15)
|
(3)
|
(12)
|
|
Consolidated earnings before
interest and taxes
|
$301
|
$303
|
$(2)
|
|
|
|
|
|
|
|
|
AGL
Resources Inc.
Reconciliation
of Operating Margin to Operating Revenues
Unaudited
|
|
|
|
|
For the
three months ended
|
|
|
In millions
|
June
30, 2011
|
June
30, 2010
|
Fav
/ (Unfav)
|
|
Operating revenues
|
$375
|
$359
|
$16
|
|
Cost of gas
|
134
|
141
|
7
|
|
Operating margin
|
$241
|
$218
|
$23
|
|
|
|
|
|
|
|
|
|
|
|
For the
six months ended
|
|
|
In millions
|
June
30, 2011
|
June
30, 2010
|
Fav
/ (Unfav)
|
|
Operating revenues
|
$1,253
|
$1,362
|
$(109)
|
|
Cost of gas
|
589
|
712
|
123
|
|
Operating margin
|
$664
|
$650
|
$14
|
|
|
|
|
|
|
|
|
SOURCE: AGL Resources
Inc.