AGL Resources Inc. today reported net income for 2011 of $172 million, or $2.14 per basic and $2.12 per diluted share, compared to $234 million, or $3.02 per basic and $3.00 per diluted share, reported in 2010. Excluding Nicor merger-related expenses of $64 million (after tax), adjusted EPS for 2011 was $2.92 per diluted share. GAAP and adjusted results for both the full year and the fourth quarter include 22 days of contribution from Nicor following the completion of the acquisition on December 9, 2011.

Fourth quarter 2011 net income was $33 million, or $0.37 per basic and diluted share, compared to net income of $64 million, or $0.82 per basic and $0.81 per diluted share, reported for the same period last year. Excluding Nicor merger expenses of $45 million (after tax), adjusted EPS for the fourth quarter of 2011 was $0.87 per diluted share and $0.86 per diluted share for the fourth quarter of 2010.

Consolidated earnings before interest and taxes (EBIT) were $447 million for 2011, a decrease of 10% compared to $499 million in the prior year. EBIT for the fourth quarter of 2011 for AGL Resources was $121 million, compared to $135 million in the fourth quarter of 2010.

"Our business performed well during 2011, with particularly strong results from our utility operations, which contributed 79 percent of operating EBIT during the year. Despite these solid results, however, our wholesale business continued to struggle in this environment of low natural gas price volatility and its earnings contribution was significantly lower than our expectation," said John W. Somerhalder II, AGL Resources Chairman, President and Chief Executive Officer. "We completed the Nicor acquisition in December and integration is well underway. Our expectations for merger-related efficiencies remain intact, however we expect ongoing challenges in many of our non-utility businesses in 2012."

"Year over year, our 2011 consolidated EBIT, excluding merger-related expenses,   increased modestly by two percent. Our results were affected primarily by the negative impact of persistently narrow transportation and storage spreads in the wholesale market. Our 2012 guidance range of $2.80-$2.95 reflects our expectation that these conditions will remain in place throughout the year," said Andrew W. Evans, AGL Resources Executive Vice President and Chief Financial Officer. "We continue to have a solid balance sheet and strong credit metrics and ratings, as well as good liquidity to fund future capital investments, with a particular bias toward regulated projects with good returns and minimal regulatory lag on investment recovery."

With the completion of the Nicor merger, financial reporting segments for AGL Resources have been modified to the following: distribution operations, retail operations, wholesale services, midstream operations, cargo shipping and other (a non-operating segment).

BUSINESS SEGMENT RESULTS

Distribution Operations

The distribution operations segment, which includes all legacy AGL Resources utilities as well as Nicor Gas, contributed EBIT of $412 million in 2011, an increase of 17% compared to $352 million in 2010. Operating margin increased over 2010 by $84 million, primarily driven by $47 million in operating margin from the inclusion of Nicor Gas and $39 million in margin improvement from new rates and infrastructure programs at Atlanta Gas Light and Elizabethtown Gas.

Operating expenses increased $26 million relative to the prior-year period, driven mainly by $31 million in increased expense resulting from the addition of Nicor Gas as well as higher depreciation expenses due to more assets in service. These higher expenses were partially offset by lower incentive compensation costs resulting from lower corporate earnings.

During the fourth quarter of 2011, the distribution segment contributed EBIT of $127 million, an increase of 35% compared to $94 million for the same period in 2010. Operating margin increased $53 million, primarily driven by a $47 million operating margin increase from the inclusion of Nicor Gas.  

Operating expenses during the fourth quarter of 2011 increased $21 million relative to the prior-year period, driven mainly by $31 million in increased expenses resulting from the addition of Nicor Gas. Again, these expenses were partially offset by lower incentive compensation costs.

Retail Operations

The retail operations segment, which consists of SouthStar Energy Services as well as Nicor Services, Nicor Solutions and Nicor Advanced Energy, reported EBIT of $93 million for 2011, a decrease of 10% compared to $103 million in 2010. Operating margin decreased by $15 million due largely to reduced average customer usage and warmer than prior year weather. Operating expenses were lower by $5 million as a result of lower legal and bad debt expenses.

During the fourth quarter of 2011, EBIT for the retail segment was $29 million, a decrease of 22% compared to $37 million for the same period in 2010. Operating margin decreased by $8 million due primarily to reduced average customer usage and warmer than prior year weather. In addition, due to declines in natural gas prices during the fourth quarter, the retail segment recorded a $5 million lower-of-cost-or-market (LOCOM) inventory adjustment. Operating expenses for the quarter were flat year-over-year.

Wholesale Services

The wholesale services segment, consisting primarily of Sequent Energy Management and Nicor Enerchange, reported EBIT of $5 million for 2011, compared to $49 million in 2010. Operating margin decreased $48 million largely driven by reduced commercial activity ($23 million) and take-away constraints experienced by Sequent in the Marcellus shale region ($18 million) and credit losses of $4 million. Low natural gas price volatility throughout much of the year resulted in lower storage and transportation spreads and diminished asset optimization opportunities. Sequent also recorded a $24 million increase in LOCOM adjustments, net of current period recoveries. These losses were partially offset by a $21 million increase in storage and transportation hedge gains. Operating expenses for the wholesale segment were lower by $5 million due primarily to decreased incentive compensation expenses.

During the fourth quarter of 2011, the wholesale segment recorded EBIT of $14 million, an increase of 27% compared to $11 million for the same period in 2010. Operating margin decreased $1 million for the fourth quarter of 2011 as compared to the prior-year period, largely driven by a $49 million increase in storage and transportation hedge gains, offset by lower commercial activity of $28 million and a $22 million increase in LOCOM adjustments. Operating expenses for the wholesale segment decreased $4 million compared to the prior-year period, mainly due to decreased incentive compensation expenses.

Midstream Operations

The midstream operations segment, consisting primarily of our natural gas storage facilities including Jefferson Island Storage and Hub, Golden Triangle Storage and Central Valley, contributed EBIT of $9 million for 2011, an increase of 50% compared to 2010. Operating margin for 2011 was higher by $7 million, primarily as a result of increased revenues from having a full year of operations at Golden Triangle Storage Cavern 1. Operating expenses increased by $4 million primarily as a result of higher depreciation expense at Golden Triangle Storage, offset in part by lower project development costs in 2011.

During the fourth quarter of 2011, the midstream segment contributed EBIT of $3 million, compared to EBIT of $2 million during the prior-year period.

Cargo Shipping

As a result of the Nicor merger, our cargo shipping segment consists primarily of Tropical Shipping, a containerized cargo shipping company serving the Bahamas and Caribbean regions. The cargo shipping segment did not have a material impact on AGL Resources' consolidated results for the 22 days of ownership in 2011.

INTEREST EXPENSE AND INCOME TAXES

Interest expense for 2011 of $136 million was $27 million higher than 2010, primarily due to higher average debt outstanding as a result of the additional long-term debt issuances of $975 million used to fund the Nicor merger. In the fourth quarter of 2011, interest expense was $44 million, up $15 million from the fourth quarter of 2010, also due to higher average debt outstanding.

Income tax expense for 2011 was $125 million compared to $140 million for 2010, reflecting lower consolidated earnings. Income tax expense was $40 million for the fourth quarter of 2011 compared to $36 million the fourth quarter of 2010, driven mainly by a higher effective tax rate in 2011.  The higher rate was the result of non-deductible merger transaction expenses. 

2012 EARNINGS OUTLOOK

AGL Resources expects its 2012 earnings to be in the range of $2.80 to $2.95 per diluted share. The Company's guidance assumes achievement of anticipated efficiencies related to corporate overhead and non-utility businesses post-acquisition, normal weather conditions, continued low volatility in natural gas prices, with no material impact to earnings from the effect of forward natural gas price movements on storage and transportation hedges in the Wholesale Services segment. EPS guidance also assumes average diluted shares outstanding of approximately 117.5 million and an effective tax rate of 37.9%. Additionally, the earnings expectations exclude integration expenses related to the merger with Nicor.

Unanticipated changes in these events or other circumstances could materially impact earnings, and could result in earnings for 2012 significantly above or below this outlook. Factors that could cause such changes are described below in Forward-Looking Statements and in other company documents on file with the Securities and Exchange Commission.

AGL Resources will hold its annual analyst day on March 20, 2012, at the New York Stock Exchange. At that time, segment-specific earnings expectations will be issued by the company. Please RSVP to investor relations if you would like to attend the meeting.