OREANDA-NEWS. AGL Resources Inc. (NYSE: GAS) today reported fourth quarter 2015 net income from continuing operations, excluding merger expenses, of $112 million, or $0.94 per diluted share, compared to $148 million, or $1.24 per share, for the same period in 2014.

2015 net income from continuing operations excluding merger expenses and a goodwill impairment charge was $388 million, or $3.24 per diluted share, compared to $562 million, or $4.71 per share, in 2014.

"Despite significantly warmer temperatures in many of our service territories in the fourth quarter of 2015, we exceeded our earnings expectations for the full year (excluding merger expenses and the goodwill impairment) due to strong performance across all of our businesses. For example, year-over-year EBIT in our largest segment - distribution operations - rose approximately 3 percent on a weather-normalized basis, and our wholesale services business reported its second-best year since inception with annual EBIT of $108 million," said Andrew W. Evans, President and Chief Executive Officer of AGL Resources. "Of course the biggest driver of shareholder value in 2015 was our agreement to merge with Southern Company. We have filed merger approval applications in all required jurisdictions and look forward to closing the transaction in the second half of 2016."

Earnings per Share (EPS):

    Three Months Ended December 31,   Twelve Months Ended December 31,
Per share information   2015   2014   2015   2014
Diluted EPS - consolidated   $ 0.89     $ 1.24     $ 2.94     $ 4.04  
Less: discontinued operations   -     -     -     (0.67 )
Diluted EPS - continuing operations   0.89     1.24     2.94     4.71  
Add: merger expenses   0.05     -     0.23     -  
Add: goodwill impairment   -     -     0.07     -  
Diluted EPS - continuing operations adjusted for merger expenses and goodwill impairment   0.94     1.24     3.24     4.71  
Less: wholesale services   0.22     0.58     0.55     2.16  
Diluted EPS - continuing operations adjusted for merger expenses, goodwill impairment and wholesale services   $ 0.72     $ 0.66     $ 2.69     $ 2.55  

  
Earnings Before Interest and Taxes (EBIT):

In millions   4Q 2015   4Q 2014   Variance   EBIT Contribution
Distribution operations   $ 160     $ 153     $ 7     67 %
Retail operations   37     30     7     15  
Wholesale services   42     114     (72 )   18  
Midstream operations   (3 )   (3 )   -     -  
Other (1)   (16 )   (2 )   (14 )   -  
Total   $ 220     $ 292     $ (72 )   100 %
Total - excluding merger expenses   $ 229     $ 292     $ (63 )    

 

In millions   2015   2014   Variance   EBIT Contribution
Distribution operations   $ 580     $ 581     $ (1 )   69 %
Retail operations   152     132     20     18  
Wholesale services (2)   108     422     (314 )   13  
Midstream operations (3)   (23 )   (17 )   (6 )   -  
Other (1)   (58 )   (9 )   (49 )   -  
Total   $ 759     $ 1,109     $ (350 )   100 %
Total - excluding merger expenses and goodwill impairment   $ 817     $ 1,109     $ (292 )    

  1. EBIT for the three and twelve months ended December 31, 2015 includes merger expenses of $9 million and $44 million, respectively.

  2. Average annual economic earnings expectation for wholesale services is $50 million. YTD 2015 and 2014 results reflect wholesale services' ability to generate significant upside in periods of market volatility.

  3. EBIT for the year ended December 31, 2015 includes a goodwill impairment charge of $14 million.

Excluding merger expenses, for the quarter ended December 31, 2015, the primary driver of the $63 million quarter-over-quarter decrease in EBIT was lower operating margin in the wholesale services segment (operating margin in 2014 reflected $49 million in higher hedge gains as compared to 2015).

Excluding wholesale services and merger expenses, fourth quarter 2015 EBIT increased by $9 million due primarily to the following:
·         Increased operating margin from infrastructure replacement programs of $16 million in the distribution operations segment; and
·         Higher net operating margin of $6 million at the retail operations segment related to lower derivative hedge losses; partially offset by:
·         A negative impact in operating margin from warmer weather (vs. prior year) of $6 million primarily in the distribution operations and retail operations segments; and
·         Higher depreciation expense in the distribution operations segment of $6 million due to additional assets placed in service.

Excluding merger expenses and a goodwill impairment charge, EBIT for the twelve months ended December 31, 2015 declined by $292 million. The primary driver of the year-over-year decrease in EBIT was lower operating margin in the wholesale services segment (as noted above, operating margin in 2014 reflected record commercial activity resulting from the extreme cold weather experienced in 2014).

Excluding wholesale services, merger expenses and the impairment of goodwill, 2015 annual EBIT increased by $22 million due primarily to the following:
·         Increased operating margin from infrastructure replacement programs of $34 million in the distribution operations segment;
·         Lower outside service costs of $13 million in the distribution operations and retail operations segments;
·         Higher operating margin related to non-weather-related customer usage and growth of $13 million in the distribution operations segment; and
·         Higher operating margin of $12 million in the retail operations segment related to the recovery of hedge losses recorded in 2014; partially offset by:
·         Higher depreciation expense in the distribution operations segment of $19 million due to additional assets placed in service; and
·         A negative impact in operating margin from warmer weather (vs. prior year) resulting in a decrease in weather-related customer usage of $29 million, net of hedging, primarily in the distribution operations and retail operations segments.

INTEREST EXPENSE, INCOME TAXES AND NONCONTROLLING INTEREST

  • Interest expense for the fourth quarter of 2015 was $45 million, an increase of $1 million compared to the fourth quarter of 2014.  Interest expense was $173 million for 2015, a decrease of $6 million compared to 2014, due to lower interest rates on commercial paper borrowings.

  • Income tax expense for the fourth quarter of 2015 was $63 million, a decrease of $33 million compared to the fourth quarter of 2014. Income tax expense for 2015 was $213 million, a decrease of $137 million compared to 2014. These decreases were driven by lower taxable income relative to the prior year.

  • Net income attributable to noncontrolling interest was $5 million and $4 million for the fourth quarter of 2015 and 2014, respectively, and $20 million and $18 million for the years ended 2015 and 2014, respectively. This reflects the 15% share of earnings attributable to the company's SouthStar Energy Services joint venture partner and the increases were due to higher net income earned during 2015.

SOUTHERN COMPANY / AGL RESOURCES MERGER UPDATES

The proposed merger is subject to approval by certain regulatory authorities and other customary closing conditions. As of December 31, 2015, Southern Company and AGL Resources have made joint filings seeking regulatory approval of the merger with all of the required state regulatory agencies. At a special shareholder meeting held on November 19, 2015, the proposed merger was approved by our shareholders. On December 4, 2015, the applicable waiting period under the Hart-Scott-Rodino Act expired.