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AGL Resources Inc. (NYSE:GAS)

AGL Resources Inc Annual Shareholder Meeting

May 01, 2012 10:00 am ET

Executives

John Somerhalder - Chairman, President and Chief Executive Officer

Myra Bierria - Vice President and Corporate Secretary AGL Resources

Sandra Bane - Retired Audit Partner, KPMG, LLP

Analysts

John Somerhalder

Good morning, ladies and gentlemen. I am John Somerhalder and welcome to the 2012 Annual Meeting of our shareholders. As Chairman, President and Chief Executive Officer of the company, I will preside at the meeting and Myra Bierria, our Corporate Secretary will serve as a secretary for this meeting.

I now call meeting to order. Our first order business is to determine whether a quorum is present and recognize the inspector of election.

Myra Bierria

A quorum exists when a majority of the shares entitled to vote are represented either a person or by proxy as of the record date of February 22, 2012, the total number of outstanding shares of common stock of the company entitled to vote was 117,199,306.

The total of 101,078,989 shares of common stock constituting approximately 86.25% of the outstanding shares of common stock of the company entitled to vote are represented at this meeting.

Each holder of common stock is entitled to one vote for each share of common stock held as of record, as of February 22, 2012.

John Somerhalder

Quorum of the outstanding shares of common stock is present or represented by proxy, and therefore I declare the polls open for voting and the meeting open for business to be considered a set forth in the notice of the 2012 annual meeting of shareholders and a proxy statement.

Ms. Belinda Massafra, a representative of Broadridge Financial Solutions Inc. has been appointed as the Inspector of Election for this meeting to resolve any issues related to the shares to be voted or the proxy cards, to count the votes and to certify the vote on the proposals.

I am pleased today to introduce the directors of your company, and I have asked the directors to stand as I introduce you. All of our directors, as you know, are nominees for election this year.

First, Sandra Bane, former Audit Partner with KPMG, and Sandra could not be here unfortunately because of some circumstances, but she is participating via phone. Sandy?

Sandra Bane

Yes. Good morning.

John Somerhalder

Thank you for joining us.

Sandra Bane

You are welcome.

John Somerhalder

Tom Bell, Chairman of Mesa Capital Partners, LLC and Secure America, LLC, Norman Bobins, President and CEO of Norman Bobins Consulting, LLC and Chairman of the PrivateBank, Chicago, Charles Crisp, Former President and Chief Executive Officer of Coral Energy, LLC, subsidiary of Shell Oil Company, Brenda Gaines, former CEO of Diners Club North America, a division of Citigroup, Arthur Johnson, our Lead Director and former Senior Vice President, Corporate Strategic Development of Lockheed Martin Corporation. Wyck Knox, a retired partner and former Chairman of the Executive Committee of the law firm of Kilpatrick, Townsend & Stockton, Dennis Love, President and CEO of Printpack, Inc. Charles Pete McTier, former President of the Robert W. Woodruff Foundation, Dean O'Hare, former Chairman and CEO of Chubb Corporation, Armando Olivera, President and CEO of Florida Power & Light Company, John Rau, President and CEO of Miami Corporation in Chicago, Jim Rubright, Chairman of the Board and CEO of RockTenn Company, Bettina Whyte, Managing Director and Senior Advisor, Alvarez & Marsal Holdings, LLC, Hank Wolf, former Vice Chairman and CFO of Norfolk Southern Corporation, and I am also a director and a nominee.

I am pleased also to announce a number of our officers. Again, I would ask you to stand as I introduce you. Drew Evans, Executive Vice President and Chief Financial Officer, Hank Linginfelter, Executive Vice President of the Distribution Operations, Ralph Cleveland, Executive Vice President and President of Nicor Gas, Melanie Platt, Executive Vice President and Chief People Officer, Paul Shlanta, Executive Vice President, General Counsel and Chief Ethics and Compliance Officer, Pete Tumminello, Executive Vice President, Wholesale Services, and President of Sequent Energy Management, Bryan Batson, Senior Vice President, of Commercial Operations, Mike Braswell, President of Retail Energy and President and CEO of SouthStar Energy Services, Jeff Brown, Senior Vice President and Deputy General Counsel, Steve Cittadine, President, Storage and Fuels, Jodi Gidley, Senior Vice President, Mid-Atlantic Operations and President of Elizabethtown Gas, Elkton Gas and Virginia Gas, Marshall Lang, Senior Vice President, Marketing, Sequent Energy, Ron Lepionka, Senior Vice President and Chief Audit Executive, Steve Lindsey, Senior Vice President, Southern Operations and President of Chattanooga Gas and Atlanta Gas Light and Florida City Gas, Brian Little, our Senior Vice President and CFO of Sequent Energy Management, Mike Pellicci, President, Tropical Shipping, Beth Reese, Senior Vice President and President, Retail Services, Bryan Seas, Senior Vice President and Chief Accounting Officer, Dave Smith, Senior Vice President, Human Resources, Joe Surber, Senior Vice President and Chief Information Officer, Jay Sutton, Senior Vice President, Operations Services, and Melvin Williams, Senior Vice President, Planning and Business Services, and there are a number of other officers in the room. I would now ask you to stand as a group. Thank you.

As our guest this morning, we have from PricewaterhouseCoopers, Allen Crawford. PricewaterhouseCoopers audited our 2011 financial statements and has been selected by our audit committee to conduct the audit of the company for 2012. Mr. Crawford, an accountant with PricewaterhouseCoopers will be available to answer questions about the financial statement and the audit during that portion of the meeting set aside later for general discussion. Mr. Crawford also will have the opportunity to make a statement on behalf of PricewaterhouseCoopers if he desires to do so.

Now, to the instructions for the rules of conduct during the meeting. You should have registered at the desk in the lobby as you entered the meeting. If there are any of you who have not registered, would you please step over to the desk and sign the register? Each of you should have an agenda for the meeting on your chair. On the reverse side of the agenda is the list of the rules of conduct for the meeting and we ask each participant to abide by those rules.

As stated in the rules of conduct, shareholders should not address the meeting until recognized. If you want to ask a question or speak during the meeting, please raise your hand. After being recognized, identify yourself and your status as a shareholder or representative of a shareholder, and then ask your question or state your point.

As stated in the rules of conduct, we ask that you restrict your remarks during the formal meeting to the items on the agenda, the agenda that is before you and that you limit your remarks in all cases to two to three minutes.

Thank you for your corporation with those rules.

Ms. Bierria, the Corporate Secretary has the following documents, which she will incorporate into the minutes of this meeting. Those are the notice of the 2012 Annual Meeting of Shareholders, including the proxy statement and the forms of proxy cards mailed with the notice, certificate of Broadridge Financial Solutions, Inc. certifying that was timely mailed to all shareholders of record as of the close of business on February 22, 2012 and certified list of all registered holders of the common stock of record as of the close of business on February 22, 2012. I also request that Corporate Secretary present the minutes of the Annual Meeting of the Shareholders held on May 3, 2011, and a special meeting of shareholders held on June 14, 2011.

We have three items of business to be voted on by the shareholders this year as described in the notice of the meeting and the joint proxy statement and those three are elect 15 directors to survey one-year term until the 2013 Annual Meeting of Shareholders, ratify the appointment of PricewaterhouseCoopers, LLP as our independent, registered public accounting firm for 2012, and approve a non-binding resolution to approve the compensation of our named executive officers.

Before we proceed, is there anyone who would like to vote in person? If you previously voted by proxy you do not need to vote by ballet today unless you want to change your vote. I will now entertain a motion that the following resolution related to the election of directors be submitted to the shareholders and recommended for approval and that is resolved that the following persons hereby are elected as directors of the company to serve for terms expiry at the 2013 Annual Meeting of the Shareholders and until their successors are duly elected and qualified or until their earlier resignation or removal. Those individuals are Sandra Bane, Tom Bell, Norman Bobins, Charles Crisp, Brenda Gaines, Arthur Johnson, Wyck Knox, Dennis Love, Pete McTier, Dean O'Hare, Armando Olivera, John Rau, Jim Rubright, John Somerhalder, Bettina Whyte and Hank Wolf. Is there a motion to approve the resolution? Is there a second?

Myra Bierria

I second the motion.

John Somerhalder

Thank you. Second proposal is the ratification of the audit committee's appointment of PricewaterhouseCoopers, LLP, as our independent registered public accounting firm for 2012. I will now entertain a motion that the following resolution be submitted to the shareholders and recommended for their approval.

Resolved shareholders hereby ratifying approve the appointment by the audit committee of PricewaterhouseCoopers, LLP as the company's independent registered public accounting firm for 2012. Is there a motion? Is there a second?

Myra Bierria

I second the motion.

John Somerhalder

The third proposal is the adoption of a non-binding resolution to approve the compensation of our named executive officers. I will now entertain a motion that the following resolution should be submitted to the shareholders and recommended for their approval. Resolve the company shareholders hereby approve on an advisory basis, the compensation of the named executive officers as disclosed in the company’s proxy statement for the 2012 Annual Meeting of the Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including a compensation discussion and analysis, the accompanying compensation tables and the related narrative disclosure included in the proxy statement. Is there a motion? Is there a second?

Unidentified Analyst

I second the motion.

John Somerhalder

Thank you.

No further business is scheduled to come before the shareholders, so this completes the formal presentation of the proposals and I hereby declare the polls closed. I will now proceed to the vote totals. Ms. Bierria, do you have the proxy totals?

Myra Bierria

Yes. I have received the vote totals from the Inspector of Election. As proxy Mr. Shlanta casts votes representing 59,329,780 shares of common stock for the resolution to elect the 15 directors. This represents the minimum number of shares voted for any one of the nominees and each nominee has received the majority of the votes cast.

Mr. Shlanta also casts votes representing 99,752,335 shares of common stock for the ratification of the appointment of PricewaterhouseCoopers, LLC as the company's independent registered public accounting firm for 2012 which exceeds the number of votes cast against the proposal. Mr. Shlanta also casts votes representing 77,515,450 shares of common stocks for the non-binding resolution to approve the compensation of our next executive officers which exceeds the number of votes cast against the proposal.

John Somerhalder

I hereby declare that the 15 persons nominated have been elected as directors. The appointment of PricewaterhouseCoopers as our independent registered public accounting firm for 2012 has been ratified and approved and the non-binding resolution to approve the compensation of our named executive officers has been approved.

That concludes the formal items on the agenda for today's meetings. I have some concluding remarks, and then we'll have a question and answer period, but first I will entertain a motion that we adjourn the formal portion of the Annual Meeting. Is there a second?

Myra Bierria

I second the motion.

John Somerhalder

All in favor, say aye.

Unidentified Analyst

Aye.

John Somerhalder

Any opposed? I hereby declare the Annual Meeting adjourned, and I would like to again welcome you and welcome your continued support of AGL Resources.

Now, we will turn to the informal part of the meeting. I will start by making a few brief remarks about the company's financial and operating results for 2011 and the first quarter of 2012 as well as providing an outlook for the remainder of the 2012.

First, let me point out that a number of the statements that we will make are forward-looking, and as you know there are a number of circumstances that can change, we list those items in our documents that we file with the Securities and Exchange Commission, our 10-K and 10-Q filings. Also, we use some measures that are non-GAAP. Those are reconciled back to GAAP measures and you can look at that on our website aglresources.com.

In 2011, we achieved a number of significant operational regulatory and financial milestones in our business and as most of you know, in December, we completed the most significant transaction in the company's history, the merger with Nicor, Inc.

You have seen some of the numbers resulting from the combination and those are 4.5 million customers, almost 80,000 pipelines, physical aspects and operations in 10 states with our corporate headquarters in Atlanta, our new distribution headquarters in Naperville and our wholesale and midstream businesses headquartered in Houston.

Importantly, while we were combining these two strong companies in 2011, we also achieved total shareholder return of 24% for the year outpacing our peer group and significantly outperforming the broad market.

From an earnings per share perspective, when you exclude cost of $64 million related to the Nicor merger, we earned $2.92 on a non-GAAP basis in 2011. Our performance included very strong growth from our distribution operations business, which encompasses our regulated utilities. These results were in large part due to solid regulatory outcomes over the past several years many of which are centered around the continued safety and reliability of our system as well as focused on customer services.

Our retail business primarily, our Virginia Natural Gas unit saw another year of very stable results. However, due to an over supplied natural gas and extremely low price volatility, our wholesale and storage businesses were extremely challenged during the year and contributed only a combined 3% of our total earnings before interest and tax. While these challenging market fundamentals have persisted throughout this year as well, we continue to work to adopt our businesses to create value under what could be a new normal in our industry at least over the next several years.

On the next slide, you can see that our operating EBIT, excluding merger expenses actually increased in 2011 compared to the prior year. As I just noted, you can see the segment contribution percentages on the chart on the left-hand-side of the page. Clearly, the largest contributor continues to come from our regulated utilities. This slide shows a snapshot of our three-year total shareholder return relative to our peer group. Our return over this time period was 56%.

This compares favorably to other local distribution companies in the group, which average about 47% over the same time period. When you include some company such as OneOk and NiSource who have somewhat different business models than we do, we underperform that expanded group which we turned about 77% over that same three-year time period.

Here you can see the track record of dividend growth over the years. Our management team and our board of directors know the importance of strong dividends for you, our shareholders, and this chart illustrates the commitment to dividend growth. We also know that given our recent inclusion in the S&P 500, following the closure of the Nicor merger, our declared dividend is a significant focus for a growing number of our shareholders. The board has taken a deliberate approach to growing dividends at a reasonable and sustained pace and at this point we are very consistent with the peer group average.

We remain continually focused on the amount of dividend that is supported by earnings out of our distribution business in particular as that business contains the most stable earnings and cash flow from the company. While the board makes all final decisions with regards to the dividend, it has been our practice to increase dividends for the past 10 years. Our priority and objectives noted on the last slide of our presentation are pretty straightforward and very much in line with our priorities over the last several years.

For our distribution business, we look to leverage our model of centralized services across all of our utilities ultimately helping to offset inflationary pressures and keeping cost as low as possible for our customers. We will work to make necessary capital investments to maintain the safety and reliability of our system and we hope to accomplish this through regulatory mechanisms that allow us to recover our cost with minimal lag in the regulatory recovery cycle.

For the retail business, we look to maintain a stable and leading market share position in Georgia. We also have some new opportunities on the retail front that have come about through Nicor's retail business when we added that to our compliment. We will be looking to leverage our combined expertise as we move forward in that business unit. As mentioned, wholesale market fundamentals remain challenging and that we have seen pricing for natural gas at 10-year lows.

While this environment supports lower cost and lower utilities for our utility customers, it does present some challenges for Sequent, our wholesale business. However, we are continuing to view various aspects of the business to fund cost savings and revenue opportunities and we are, as you will see in minute, off to a good start in 2012 despite a challenging market environment.

In our Midstream segment, we have two new facilities that we expect to come online by the middle of the year, Golden Triangle Storage, Cavern 2 in Texas and Central Valley gas storage facility in California. The completion of these projects will mark the combination of several years of construction and a significant capital investment in this part of our business.

The storage rates continue to be lower than what we had anticipated when we started construction. We will be looking to lay contracts of varying price levels and duration to optimize the value of these facilities and ensure that we will be prepared to capitalize on a return to more normal set of fundamentals in this business.

With the Nicor acquisition, we also own a cargo shipping business that focuses on interisland transportation in the Caribbean and the Bahamas. These businesses are challenged in recent years, which in you might expect given a weak economy and slow tours. We are focused on maintain and growing market share in these areas that we serve while controlling our operating cost. We anticipate a slow recovery in this business and our outlook certainly is dependent in large part on the pace of economic recovery in North America over the next couple of years.

Finally, it is also and always one of our primary objectives to effectively control our expenses and maintain a solid balance sheet. Upon completion of the Nicor merger and associated financing, our debt-to-cap levels remain much the same as past years, and we both lengthened our average debt maturity as well as lowering our average long-term financing cost.

Through 2011, although it was a milder year in the debt market, our refinancing and Nicor-related financing went very smoothly and produced benefits and help to benefit our balance sheet.

Wrapping up our prepared remarks today, you may have seen that earlier this morning, we issued a press release and filed our 10-Q with the SEC detailing our first quarter results. As you might expect the warm weather in the first quarter and that continued all the way through March had a significant impact on our earnings.

We reported $1.16 per diluted share, excluding the residual merger expenses. Had we experienced normal weather, adjusted those for normal weather, that would have been increase of about $0.11 per share. While the results are not what we had hoped for in terms of the first quarter performance, if you look at factors we were able to influence. Things like corporate overhead expenses and our other business performance. We are on track with our expectations for the year. We will host our investor call this afternoon to address the first quarter in greater detail and we hope that you can join us via webcast or by conference call.

I want to again to thank each of you, our shareholders, for your support of the company, your time today and your interest in AGL Resources.

I would now invite comments and questions, so the floor is now opened for the Q&A and comment.

Question-and-Answer Session

John Somerhalder

Yes?

Unidentified Analyst

Go ahead and tell us about the first quarter. Now, you can't address it a bit (inaudible) you already.

John Somerhalder

Yes. We did issue a press release and filed our Q, and what they don't show, (Inaudible), it is a $1.16 per share of earnings. That's adjusted for that, but we still had some remaining stocks associated with the merger. Then there is also $1.11 on a GAAP basis, so it's still $1.16. Essentially what we saw was all of our businesses performing as expected, but that was based up on our expectations where we knew that, as an example was Tropical Shipping.

We saw that the economy in the Caribbean is still challenged. We had based our estimates on that. If we look at our retail businesses and our wholesale business, we set guidance based upon our new understanding of those fundamentals and essentially in all those areas plus our ability to reduce cost, we saw that in total we met or we neared our expectations. Where we did see an impact, we were primarily in two areas and that was related to weather.

In the Illinois market, it was remarkably mild. It was about 19% milder than normal in our Illinois market. That impacted our margin in that business by about $30 million and then we saw very mild conditions in Georgia, and even though that doesn't impact our utility, Georgia Natural Gas is impacted. They do have weather hedges and other ways to mitigate, so the impact was around $8 million, so the combination resulted in about $0.11 impact to our earnings.

The rest of our business tracking closed to our expectations and things that we control like savings, tracking very close to our expectation. So not the result we would like as the weather impact, but on the things we control, we feel very good about the performance for the first quarter and we'll go into more detail and you can look more on the releases that just went out this morning. Yes?

Unidentified Analyst

I'm a shareholder. My wife and I own suitable shares of AGL. (Inaudible) dividend is great and everything is going fine there, but that the concern is Fidelity has a rating of all the stock on exchange, okay? The analysts are saying they are bearish on AGL stock. Comment is it because of this warm weather and/or is it the merger? Why would they be very bearish as a total?

John Somerhalder

Yes. I will answer that one in general rather than just focusing on one set of comments, but there are two factors that had impacted the industry and our company. With that we still have analysts that are not as bearish as you have indicated. However, with the low gas prices that is very favorable to most of our business for the long-term.

It's very good for our customers, and we like the situation of abundance. It's good for country. It's good for the industry in the long run. In our view it's good for our business in total. However with those very low prices and more importantly the oversupply of natural gas and the perception that there is abundant gas in all circumstances, it does challenge our energy marketing and trading and our storage business.

The good thing is, demand is strong for natural gas in this environment and continues to grow for a lot of reasons, both price and then also because of the environmental benefits, the fact that it's domestic so the demand side looks very good. The oversupply is where the industry is challenged and what we see is the rig count has now moved significantly lower where at least most of the experts are predicting a more balanced market moving forward. So I think many people who are looking our stock know that even though long-term our business is very solid, in the short-term, we have that challenge.

That not only challenges our energy market and trading business, it challenges our storage business that we are investing in. So I think that set of fundamentals is why we have some analysts that are, certainly in the near-term, concerned about those factors. We feel very good about the strength long-term and our ability to execute long-term.

If there are no further questions, I very much appreciate your attendance and thank you, all for your support of the company. With that, we'll conclude the meeting.

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