PGL Peoples Energy Corp

Peoples Energy (NYSE:PGL) today reported fourth quarter and full year fiscal 2005 earnings (loss) of $(0.06) and $2.05 per diluted share, respectively, compared to earnings (loss) of $(0.27) and $2.18 for the comparable periods last year. Operating income improved for both periods compared to the prior year, due to lower restructuring charges. Fiscal 2005 results for both the quarter and year were adversely affected by larger than expected oil and gas hedge ineffectiveness due to hurricanes Katrina and Rita, the application of fair value hedge accounting for a portion of the company's retail segment storage activities, and other year-end accounting adjustments. In total, these items negatively impacted fourth quarter and full year income by about $0.25 per share, compared to recently communicated estimates. Ongoing operating income (non-GAAP), which excludes the impact of the company's 2004 organizational restructuring, was down slightly for the quarter and essentially flat for the full year compared to the prior year periods. Management believes that ongoing results are useful for year over year comparisons since restructuring charges of the magnitude indicated are infrequent and affect the comparability of operating results. Ongoing results are used internally to measure performance against budget and in reports for management and the board of directors. While ongoing operating income for the full year was essentially unchanged from a year ago, higher interest expense, a higher effective tax rate and increased shares outstanding contributed to lower ongoing net income and earnings per share compared to last year. Results are summarized below as reported in accordance with generally accepted accounting principles (GAAP) and on an ongoing (non-GAAP) basis before the effects of charges related to the restructuring. -0- *T Three Months Ended September 30 (millions, except per share amounts)(a) ----------------------------------------------- Ongoing - Before Effects of Restructuring Restructuring- As Reported (non-GAAP) Related Charge (GAAP) --------------- --------------- --------------- Operating Income (Loss) 2005 2004 2005 2004 2005 2004 ------- ------- ------- ------- ------- ------- Gas Distribution $(9.4) $(7.0) $(9.4) $(7.0) Oil and Gas Production (2.8) 10.3 (2.8) 10.3 Power Generation 14.2 12.3 14.2 12.3 Midstream Services 5.8 3.6 5.8 3.6 Retail Energy Services (2.1) (2.0) (2.1) (2.0) Corporate and Other 2.1 (8.0) $0.1 $(17.0) 2.2 (25.0) ------- ------- ------- ------- ------- ------- Total Operating Income (Loss) $7.8 $9.2 $0.1 $(17.0) $7.9 $(7.8) Net Income (Loss) $(2.4) $(0.1) $0.0 $(10.2) $(2.3) $(10.3) Net Income (Loss) per diluted share $(0.06) $0.00 $0.00 $(0.27) $(0.06) $(0.27) Fiscal Year Ended September 30 (millions, except per share amounts)(a) ----------------------------------------------- Ongoing - Before Effects of Restructuring Restructuring- As Reported (non-GAAP) Related Charge (GAAP) --------------- --------------- --------------- Operating Income (Loss) 2005 2004 2005 2004 2005 2004 ------- ------- ------- ------- ------- ------- Gas Distribution $129.0 $135.0 $129.0 $135.0 Oil and Gas Production 16.9 41.5 16.9 41.5 Power Generation 18.8 11.4 18.8 11.4 Midstream Services 14.0 11.2 14.0 11.2 Retail Energy Services 11.7 6.8 11.7 6.8 Corporate and Other (8.9) (24.6) $(13.1) $(17.0) (22.1) (41.6) ------- ------- ------- ------- ------- ------- Total Operating Income (Loss) $181.3 $181.4 $(13.1) $(17.0) $168.1 $164.4 Net Income (Loss) $86.1 $91.8 $(7.9) $(10.2) $78.1 $81.6 Net Income (Loss) per diluted share $2.26 $2.45 $(0.21) $(0.27) $2.05 $2.18 (a) Numbers may not sum due to rounding *T "Despite a number of positives, including the success of our organizational restructuring and a 50% increase in the operating results of our Midwest-based diversified businesses, our overall financial performance in fiscal 2005 was disappointing," said Thomas M. Patrick, Chairman, President, and CEO of Peoples Energy. "Our balance sheet and liquidity remain strong, and we are taking the appropriate actions to restore earnings to more acceptable levels - most notably, after 10 years without rate increases, we will be seeking rate relief and other rate structure reforms for our utilities that should improve profitability in 2007 and better position them for the future." Fiscal 2005 Operational Highlights -- -- Ongoing operating income was essentially flat compared to a year ago, with higher contributions from the company's Midwest-based diversified businesses, lower corporate expenses, and gains on asset sales offsetting lower Gas Distribution and Oil and Gas Production results -- Operating income for the company's Midwest-based diversified businesses - Retail, Midstream, and Power - increased 50% over the prior year to $44.4 million, driven by strong energy marketing results and lower expenses in the power segment -- Labor-related savings associated with the company's 2004 organizational restructuring approximated $19 million, most of which occurred in the gas distribution and corporate segments. This amount exceeded the company's original estimate of $15 million. -- Weather was nearly 9% warmer than normal and 4% warmer than a year ago, while demand unrelated to weather declined approximately 3% from 2004, reflecting ongoing conservation measures by utility customers. The combined impact on utility deliveries of warmer weather (net of weather insurance benefits) and conservation negatively impacted operating income by about $19 million compared to plan (or $0.30 per share) and about $9 million (or $0.15 per share) compared to the prior year. -- Oil and gas production volumes were down approximately 12% in fiscal 2005 compared to a year ago, as the company's drilling program was hampered by well performance issues, rig availability, and other timing delays. The production segment did not benefit in fiscal 2005 from higher commodity prices, as realized prices were constrained by a high percentage of volumes hedged, as well as adverse basis impacts on net realized prices. Notable Fourth Quarter Items -- -- While hurricanes Katrina and Rita minimally affected production volumes, fourth quarter Oil and Gas Production results were negatively impacted by a larger than expected $7.7 million mark-to-market accounting loss related to hedge ineffectiveness, as the September hurricanes caused much wider than normal differentials between NYMEX prices and field prices. Assuming differentials return to more normal levels, a portion of this loss would reverse in fiscal 2006. -- Fair value hedge accounting is now being applied to certain retail storage inventory volumes. Accordingly, a $3.1 million fourth quarter mark-to-market loss was recorded in the Retail Energy Services segment. As these hedged inventory volumes are withdrawn from storage in fiscal 2006 at their intended profit margin, this accounting loss will reverse. -- Trigen-Peoples, a 50% owned equity investment, completed the sale of its district energy plant assets. The company's portion of the gain on this sale totaled about $7 million. In addition, Peoples Gas completed the sale of certain utility property, for a gain of $2.3 million. -- The administrative law judge in Peoples Gas' 2001 gas charge case before the Illinois Commerce Commission (ICC) recommended a gas cost disallowance of $118.6 million. Peoples Gas strongly disagrees with the proposed Order. It continues to believe that its gas purchasing activities were appropriate and reasonable and will aggressively pursue all legal remedies before the ICC and, if necessary, the appropriate courts of review. Peoples Gas did, however, record a $2.2 million liability for amounts related to certain issues that it is no longer contesting. -- The company announced in September that its utility units, Peoples Gas and North Shore Gas, will file rate proposals with the ICC this winter requesting increases in their delivery rates. The company has previously stated that it expects its requested increases for the combined utilities to approximate $90 to $115 million. Under the Commission's normal processes, any rate increases would not impact financial results until fiscal 2007. Gas Distribution. Seasonal operating losses totaled $9.4 million for the fourth quarter, compared to $7.0 million in the year-ago period. Results benefited from lower labor and depreciation expenses, as well as the inclusion in the year ago period of a $6.9 million charge related to account reconciliations. However, these benefits were more than offset by higher non-labor costs and other miscellaneous items. For the fiscal year, operating income totaled $129.0 million, compared to $135.0 in the prior year. Operating income was adversely affected by about $9 million compared to last year due to warmer weather (net of weather insurance) and customer conservation. Deliveries declined 5% from a year ago to 218 Bcf. Weather was 8.7% or 562 degree days warmer than normal and 3.7% or 226 degree days warmer than last year. Labor costs declined $11 million, reflecting the company's successful organizational restructuring last fall. In addition, depreciation expense declined $7 million, primarily due to the implementation of new depreciation rates, as previously disclosed. Comparisons with the prior year also benefited from the inclusion in last year's results of the $6.9 million reconciliation adjustment noted above. However, these reductions were mostly offset by higher non-labor expenses and other miscellaneous non-operating items. Oil and Gas Production. An operating loss of $2.8 million was incurred in the fourth quarter, compared to operating income of $10.3 million in the year ago period. Well performance and timing delays in the drilling program continued to negatively impact comparisons with the prior year, as production volumes fell 11%. Despite higher market prices, net realized prices declined due to high hedge percentages, as well as the previously noted mark-to-market hedge ineffectiveness charge of $7.7 million resulting from wider than normal differentials between NYMEX and field prices. Operating expenses increased from a year ago due primarily to higher production taxes and administrative expenses. For the fiscal year, operating income totaled $16.9 million, versus $41.5 million a year ago. Production decreased 12% due to natural production decline coupled with lower than expected production increases from the company's drilling program. The drilling program was negatively impacted by well performance issues, wells deferred or delayed due to rig availability, and other timing delays. Net equivalent realized price declined to $4.14 per MCFE, reflecting mark-to-market hedge ineffectiveness charges, and a high percentage of volumes hedged. Operating costs increased slightly for the year, as higher lease operating expenses, production taxes, and administrative expenses more than offset lower exploration and depletion expenses. During the fourth quarter, the company drilled 11 wells, bringing the total for the year to 49 wells, with an overall success rate of 94%. As of September 2005, approximately 75-85% of estimated natural gas production was hedged for fiscal 2006. The following table summarizes fourth quarter and fiscal year operating statistics for the Oil and Gas Production segment: -0- *T Three Months Ended Fiscal Year Ended September 30, September 30, ------------------------ ------------------------ % % 2005 2004 Change 2005 2004 Change ------- ------- -------- ------- ------- -------- Average daily production: Gas (MMCFD) 59.8 64.3 (7.0) 59.6 67.0 (11.0) Oil (MBD) 0.9 1.5 (40.0) 1.2 1.5 (20.0) Gas equivalent (MMCFED) 65.5 73.5 (10.9) 66.6 Net realized price: 76.1 (12.5) Gas ($/MCF) $3.12 $4.37 (28.6) $4.15 $4.44 (6.5) Oil ($/BBL) $13.99 $28.55 (51.0) $24.10 $26.85 (10.2) Gas equivalent ($/MCFE) $3.05 $4.41 (30.8) $4.14 $4.44 (6.8) Percentage hedged Gas 99% 104% 98% 94% Oil 107% 80% 99% 77% *T Power Generation. Operating income totaled $14.2 million and $18.8 million on a quarter and yearly basis, respectively, improvements of $1.9 million and $7.4 million from the year-ago periods. The increases largely resulted from the impact of lower depreciation expense on equity investment income for the Elwood Generation facility, as well as lower other expenses. Midstream Services. Operating income totaled $5.8 million and $14.0 million for the quarter and full year, respectively, increases of $2.2 million and $2.7 million from the same periods a year ago. Improved quarter and year-to-date results primarily reflect higher hub volumes and operating income. Retail Energy Services. Seasonal operating losses for the quarter were essentially unchanged from a year ago, while full year operating income rose more than 70% to $11.7 million. Segment results for both periods benefited from improved gas and electric unit margins in the company's retail energy marketing unit, while the full year also benefited from increased sales volumes. In addition, comparisons with prior periods were positively impacted by improved operating results from the company's Energy Home Services unit and the inclusion in the year-ago fourth quarter of a $1.1 million impairment charge related to the company's exit from the distributed generation business. Offsetting these benefits was a $3.1 million mark-to-market loss related to the application of fair value hedge accounting to certain retail storage inventory transactions. The company uses derivatives to mitigate commodity price risk and substantially lock in the profit margin that it will ultimately realize when inventory volumes are withdrawn from storage. Under fair value accounting, which this segment is now using for certain storage activity, the inventory is marked to market using spot prices, while the derivatives used to mitigate the risk of changes in inventory value are marked to market using forward prices. When the spot price of natural gas changes disproportionately to the forward price, the difference is recorded in operating results. As a result, earnings are subject to volatility, even when the underlying expected profit margin over the duration of the contracts is unchanged. The volatility resulting from this accounting can be significant from period to period, as it was in the fourth quarter. This accounting loss will reverse next year as the volumes are withdrawn from storage. Corporate and Other. Corporate and Other expenses declined $27.2 million for the quarter and $19.6 million for the full year compared to the year-ago periods. Comparisons with the year-ago periods were affected by charges related to the company's restructuring, as shown earlier in the summary tables. Absent these charges, results improved $10.1 million for the quarter and $15.7 million for the year. The improvement in both periods reflects lower labor costs stemming from last year's restructuring, higher costs allocated to the operating segments, and a $7 million fourth quarter gain related to the sale of assets by its equity investment, Trigen-Peoples District Energy. Financial. Interest expense increased $0.7 million for the quarter and $2.2 million for the year compared to a year ago, due primarily to higher interest rates. Quarter and fiscal year results were adversely affected by $0.05 and $0.15, respectively, versus last year, due to tax expense adjustments in both years. For fiscal 2005, the effective tax rate was 36.4%, in line with expectations, and up from last year's 31.7% rate. Higher average common shares outstanding, while not materially affecting the quarter-to-quarter comparison, had a $0.04 per share negative effect on the year-to-date period compared to last year. At September 30, 2005, total debt was 53.0% of total debt plus equity, up slightly from 52.3% a year ago. Outlook. The company continues to estimate that fiscal 2006 earnings will be in the range of $2.25 to $2.45 per share, consistent with management's estimates presented at its September analyst conferences in New York and Boston. The analyst presentation, discussing the fiscal 2006 outlook in more detail, can be accessed at the "Investors" section of the company's website, www.PeoplesEnergy.com. Key assumptions underlying the forecast include a return to normal weather, a NYMEX strip price of $8.00 per MMBTU, a 2.25% utility bad debt rate, and substantially higher expenses in the gas distribution segment. The forecast also assumes ongoing growth in operating income from the company's diversified energy businesses, and gains on asset sales totaling $0.10 to $0.20 per share. Oil and Gas production segment assumptions include a mid-year, $75 million acquisition. Other key assumptions for the company include higher interest expense, a 33% effective tax rate, and higher average common shares outstanding. Capital expenditures are projected to approximate $260 million, including $120 million in gas distribution and the remainder primarily in oil and gas production. Finally, the outlook also excludes any potential financial impacts from the outcome of the 2001 gas charge case. "While high gas prices and operating costs in our core gas distribution business will present near-term challenges in fiscal 2006, I remain very positive about our company's longer term outlook," added Patrick. "Upcoming utility rate cases, after more than a decade without rate increases, should help to restore earnings in the gas distribution segment in fiscal 2007 and beyond. They will also provide us the opportunity to seek rate structure reforms that would help to stabilize earnings and customer bills and allow us to further modernize our distribution infrastructure. Meanwhile, the growth prospects and value creation potential of our diversified energy businesses continue to be excellent, and our financial condition remains strong." Earnings Conference Call. Peoples Energy will hold a conference call to discuss financial results for fiscal 2005 on Friday, October 28, 2005, at 10:30 a.m. Central (11:30 a.m. Eastern). To listen to the webcast both live and in replay visit the "Investors" section of the Peoples Energy website at www.PeoplesEnergy.com and select the Live Webcast icon on the Corporate Overview page. A replay of the call can also be accessed by dialing 1-800-642-1687, reference number 9906610. The telephone replay will be available approximately two hours after completion of the call through November 2, 2005. The webcast replay will be available through October 2006. Peoples Energy, a member of the S&P 500, is a diversified energy company consisting of five primary business segments: Gas Distribution, Oil and Gas Production, Power Generation, Midstream Services, and Retail Energy Services. The Gas Distribution business serves about 1 million utility customers in Chicago and northeastern Illinois. Visit the Peoples Energy website at PeoplesEnergy.com. Forward-Looking Information. This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Generally, the words "may", "could", "project", "believe", "anticipate", "estimate", "plan", "forecast", "will be", and similar words identify forward-looking statements. Actual results could differ materially from such expectations because of many uncertainties, including, but not limited to: adverse decisions in proceedings before the Illinois Commerce Commission concerning the prudence review of the utility subsidiaries' gas purchases; the future health of the United States and Illinois economies; the timing and extent of changes in interest rates and energy commodity prices, including but not limited to the effect of gas prices on cost of gas supplies, accounts receivable and the provision for uncollectible accounts, interest expense and earnings from the oil and gas production segment; adverse resolution of material litigation; effectiveness of the Company's risk management policies and the creditworthiness of customers and counterparties; regulatory developments in the United States, Illinois and other states where the Company does business; changes in the nature of the Company's competition resulting from industry consolidation, legislative change, regulatory change and other factors, as well as action taken by particular competitors; operational factors affecting the Company's gas distribution, power generation and oil and gas production segments; the Company's success in identifying diversified business segment projects on financially acceptable terms and generating earnings from projects in a reasonable time; Aquila Inc.'s financial ability to perform under its power sales agreements with Elwood Energy LLC; drilling and production risks and the inherent uncertainty of oil and gas reserve estimates; weather related energy demand; and terrorist activities. Also, projections to future periods of the effectiveness of internal control over financial reporting are subject to the risk that controls may become inadequate because of the application of, or changes in, accounting rules or interpretations, changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Some of the uncertainties that may affect future results are discussed in more detail in Peoples Energy's most recent Form 10-K filed with the SEC under Item 1 - Business and Item 7 - Management's Discussion and Analysis, as such information may be updated by subsequent filings under the Securities Exchange Act of 1934. All forward-looking statements included in this press release are based upon information presently available, and Peoples Energy assumes no obligation to update any forward-looking statements. (Financial Tables Follow) -0- *T Preliminary PEOPLES ENERGY CORPORATION FINANCIAL HIGHLIGHTS (Unaudited) Financial Data ---------------------------------------------------------------------- Three Months Ended September 30, -------------------------------- (In Thousands, Except Per-Share Amounts) 2005 2004 ---------------- --------------- Revenues $379,337 $327,157 Equity Investment Income $23,004 $13,732 Operating Income $7,870 ($7,826) Net Income ($2,314) ($10,314) Earnings Per Share - Basic ($0.06) ($0.27) Earnings Per Share - Diluted ($0.06) ($0.27) Average Shares Outstanding - Basic 38,136 37,648 Average Shares Outstanding - Diluted 38,299 37,799 -------------------------------- Fiscal Year Ended September 30, -------------------------------- (In Thousands, Except Per-Share Amounts) 2005 2004 ---------------- --------------- Revenues $2,599,585 $2,260,199 Equity Investment Income $31,232 $19,842 Operating Income $168,146 $164,351 Net Income $78,133 $81,564 Earnings Per Share - Basic $2.06 $2.19 Earnings Per Share - Diluted $2.05 $2.18 Average Shares Outstanding - Basic 37,977 37,318 Average Shares Outstanding - Diluted 38,140 37,490 Common Stock Data ---------------------------------------------------------------------- September 30, -------------------------------- 2005 2004 ---------------- --------------- Annualized dividend rate $2.18 $2.16 Dividend yield 5.5% 5.2% Book value per share $20.97 $23.06 Market price $39.36 $41.68 Market price as a percent of book value 188% 181% ---------------------------------------------------------------------- Peoples Energy Corporation Preliminary Summary of Selected Operating Data (Unaudited) ---------------------------------------------------------------------- Three Months Ended Fiscal Year Ended September 30, September 30, ----------------------- ----------------------- 2005 2004 2005 2004 ---------------------------------------------- ----------------------- Gas Distribution Margin (in thousands) Total Gas Distribution revenues $163,578 $150,454 $1,678,012 $1,494,464 Less: Gas costs 77,767 68,762 1,034,376 868,518 ----------- ----------- ----------- ----------- Gross margin (1) 85,811 81,692 643,636 625,946 Less: Revenue taxes and surcharges 15,271 13,293 150,325 138,841 Environmental costs recovered 2,709 2,242 30,437 17,384 ----------- ----------- ----------- ----------- Net margin (1) $67,831 $66,157 $462,874 $469,721 ---------------------------------------------------------------------- Gas Distribution Deliveries (MDth) Gas sales - Residential 6,891 7,667 110,429 116,939 - Commercial 1,726 1,706 19,349 20,303 - Industrial 281 296 3,607 3,597 Transportation 11,235 11,101 84,297 88,463 ----------- ----------- ----------- ----------- Total Gas Distribution Deliveries 20,133 20,770 217,682 229,302 ---------------------------------------------------------------------- Weather Heating degree days - actual 38 89 5,865 6,091 Heating degree days - percent colder (warmer) than normal (68.3%) (25.8%) (8.7%) (5.2%) ---------------------------------------------------------------------- Number of Gas Distribution Customers (average) Gas sales - Residential 891,051 884,415 894,894 892,846 - Commercial 46,686 45,827 46,663 45,635 - Industrial 2,869 2,868 2,886 2,893 Transportation 24,877 23,865 24,625 24,410 ----------- ----------- ----------- ----------- Total Gas Distribution Customers 965,483 956,975 969,068 965,784 ---------------------------------------------------------------------- Retail Energy Services Gas sales sendout (MDth) 5,950 6,328 49,923 47,965 Number of gas customers (at September 30) 23,389 24,744 23,389 24,744 Electric sales sendout (Mwh) 398 355 1,397 1,113 Number of electric customers (at September 30) 2,268 1,901 2,268 1,901 Total Retail Energy Services Customers (at September 30) 25,657 26,645 25,657 26,645 ---------------------------------------------------------------------- Midstream Services Wholesale volumes sold (MDth) 18,384 17,642 66,290 60,262 Hub volumes delivered (MDth) 4,217 3,753 22,784 19,381 ---------------------------------------------------------------------- Employees (at September 30) Gas Distribution 1,708 1,851 1,708 1,851 Diversified Businesses 130 129 130 129 Corporate Support 344 390 344 390 ----------- ----------- ----------- ----------- Total Employees 2,182 2,370 2,182 2,370 ---------------------------------------------------------------------- Megawatt Capacity (at September 30) 800 805 800 805 ---------------------------------------------------------------------- (1) As used above, net margin is not a financial measure computed under GAAP. Gross margin is the GAAP measure most closely related to net margin. Management believes net margin to be useful in understanding the Gas Distribution segment's operations because the utility subsidiaries are allowed, under their tariffs, to recover gas costs, revenue taxes and environmental costs from their customers on a dollar-for-dollar basis. Peoples Energy Corporation Preliminary Summary of Selected Operating Data (Unaudited) (continued) ---------------------------------------------------------------------- Three Months Ended Fiscal Year Ended September 30, September 30, ----------------------- ----------------------- 2005 2004 2005 2004 ---------------------------------------------------------------------- Oil and Gas Production Average daily production: Gas (MMCFD) 59.8 64.3 59.6 67.0 Oil (MBD) 0.9 1.5 1.2 1.5 Gas equivalent (MMCFED) 65.5 73.5 66.6 76.1 Average index price: Gas ($/MMBTU) - Henry Hub $8.53 $5.75 $7.15 $5.51 Oil ($/BBL) $63.19 $43.88 $53.62 $37.13 Average hedge price: Gas ($/MMBTU) $5.02 $4.75 $4.96 $4.66 Oil ($/BBL) $26.62 $26.60 $27.47 $26.39 Percentage hedged: Gas 99% 104% 98% 94% Oil 107% 80% 99% 77% Net realized price: (1) Gas ($/MCF) $3.12 $4.37 $4.15 $4.44 Oil ($/BBL) $13.99 $28.55 $24.10 $26.85 Gas Equivalent ($/MCFE) $3.05 $4.41 $4.14 $4.44 Oil & Gas Production Hedge Position (2) Volume Hedged Wtd. Avg. Prices (MMBTU)/(MBO) ($MMBTU)/($BBL) ----------------------- ----------------------- Fiscal 2006 ----------- Gas --- Swaps (63%) 10,667,500 $5.02 Collars (37%) 6,387,500 $4.44 - $5.56 ----------------------- 17,055,000 (3) $4.80 - $5.22 Oil --- Swaps 299 (4) $27.65 (1) Net realized prices reflect the impact of all hedges, including mark-to-market derivatives and basis differentials and are not NYMEX-equivalent prices. (2) As of October 1, 2005. (3) Approximately 75-85% based on projected 2006 production. (4) Approximately 85-95% based on projected 2006 production. Peoples Energy Corporation Preliminary Consolidated Statements of Income (Unaudited) ---------------------------------------------------------------------- Three Months Ended Fiscal Year Ended September 30, September 30, ----------------------- ----------------------- (In Thousands, Except Per-Share Amounts) 2005 2004 2005 2004 ---------------------------------------------------------------------- Revenues $379,337 $327,157 $2,599,585 $2,260,199 Operating Expenses: Cost of energy sold 264,877 207,581 1,805,369 1,467,777 Operation and maintenance, excluding restructuring and environmental costs 78,091 71,930 321,712 326,894 Restructuring costs (75) 17,000 13,141 17,000 Environmental costs 2,709 2,242 30,437 17,384 Depreciation, depletion and amortization 27,572 29,505 110,920 119,145 Taxes, other than income taxes 23,728 21,529 184,269 170,037 Losses (Gains) on property sales (2,431) (1,072) (3,177) (2,547) ----------- ----------- ----------- ----------- Total Operating Expenses 394,471 348,715 2,462,671 2,115,690 Equity investment income 23,004 13,732 31,232 19,842 ---------------------------------------------------------------------- Operating Income 7,870 (7,826) 168,146 164,351 Other income and expense - net 1,747 1,172 5,306 3,472 Interest expense 12,676 12,005 50,615 48,426 ---------------------------------------------------------------------- Income Before Income Taxes (3,059) (18,659) 122,837 119,397 Income tax expense (745) (8,345) 44,704 37,833 ---------------------------------------------------------------------- Net Income $(2,314) $(10,314) $78,133 $81,564 ====================================================================== Average Shares of Common Stock Outstanding Basic 38,136 37,648 37,977 37,318 Diluted 38,299 37,799 38,140 37,490 ---------------------------------------------------------------------- Earnings Per Share of Common Stock Basic $(0.06) $(0.27) $2.06 $2.19 Diluted $(0.06) $(0.27) $2.05 $2.18 ---------------------------------------------------------------------- Peoples Energy Corporation Preliminary Consolidated Balance Sheets (Unaudited) ---------------------------------------------------------------------- (In Thousands) At September 30, 2005 2004 ---------------------------------------------------------------------- Assets Capital Investments: Property, plant and equipment $3,213,641 $3,124,287 Less - Accumulated depreciation, depletion and amortization 1,266,352 1,220,102 ----------- ----------- Net property, plant and equipment 1,947,289 1,904,185 Investments in equity investees 136,019 135,819 Other investments 26,041 23,921 ----------- ----------- Total Capital Investments - Net 2,109,349 2,063,925 Customer Accounts Receivable - net of reserves 246,393 190,379 Other Current Assets 652,238 361,982 ----------- ----------- Total Current Assets 898,631 552,361 Other Assets 559,486 478,504 ----------- ----------- Total Assets $3,567,466 $3,094,790 ====================================================================== Capitalization and Liabilities Common Stockholders' Equity: Common stock $409,060 $391,159 Treasury stock (6,677) (6,677) Retained earnings 546,237 550,908 Accumulated other comprehensive income (loss) (148,466) (65,307) ----------- ----------- Total Common Stockholders' Equity 800,154 870,083 Long-Term Debt 895,583 897,377 ----------- ----------- Total Capitalization 1,695,737 1,767,460 Current Liabilities Short-term debt 8,148 55,625 Accounts Payable 236,212 144,709 Other Current Liabilities 657,327 335,782 ----------- ----------- Total Current Liabilities 901,687 536,116 Deferred Credits and Other Liabilities 970,042 791,214 ----------- ----------- Total Capitalization and Liabilities $3,567,466 $3,094,790 ====================================================================== Preliminary Peoples Energy Corporation Business Segments (Unaudited) ---------------------------------------------------------------------- Gas Oil and Gas Power Midstream (In Thousands) Distribution Production Generation Services ---------------------------------------------------------------------- Three Months Ended September 30, 2005 Revenues $163,579 $18,355 $- $154,319 Depreciation, depletion and amortization 15,555 11,168 - 111 Equity investment income - 1,105 14,769 - Operating income (loss) (1) (9,422) (2,770) 14,224 5,755 ---------------------------------------------------------------------- Three Months Ended September 30, 2004 Revenues $150,453 $29,862 $- $104,993 Depreciation, depletion and amortization 17,498 11,245 32 112 Equity investment income (loss) - 609 12,898 - Operating income (loss) (6,991) 10,250 12,307 3,601 ---------------------------------------------------------------------- Fiscal Year Ended September 30, 2005 Revenues $1,678,012 $100,602 $- $519,661 Depreciation, depletion and amortization 61,894 45,764 1 446 Equity investment income - 2,403 20,944 - Operating income (loss) (1) 128,977 16,853 18,760 13,966 ---------------------------------------------------------------------- Fiscal Year Ended September 30, 2004 Revenues $1,494,464 $123,777 $- $362,853 Depreciation, depletion and amortization 68,939 47,338 127 448 Equity investment income (loss) - 3,729 15,481 - Operating income (loss) 135,018 41,537 11,353 11,243 ---------------------------------------------------------------------- Retail Corporate Energy and (In Thousands) Services Other Adjustments Total ---------------------------------------------------------------------- Three Months Ended September 30, 2005 Revenues $59,783 $- $(16,699) $379,337 Depreciation, depletion and amortization 442 34 262 27,572 Equity investment income - 7,129 - 23,003 Operating income (loss) (1) (2,112) 6,478 (4,283) 7,870 ---------------------------------------------------------------------- Three Months Ended September 30, 2004 Revenues $52,801 $(32) $(10,920) $327,157 Depreciation, depletion and amortization 441 3 173 29,504 Equity investment income (loss) - 225 - 13,732 Operating income (loss) (1,982) 32 (25,042) (7,825) ---------------------------------------------------------------------- Fiscal Year Ended September 30, 2005 Revenues $394,946 $- $(93,636) $2,599,585 Depreciation, depletion and amortization 1,697 138 980 110,920 Equity investment income - 7,885 - 31,232 Operating income (loss) (1) 11,652 5,703 (27,765) 168,146 ---------------------------------------------------------------------- Fiscal Year Ended September 30, 2004 Revenues $323,428 $257 $(44,580) $2,260,199 Depreciation, depletion and amortization 1,767 15 511 119,145 Equity investment income (loss) - 632 - 19,842 Operating income (loss) 6,820 143 (41,763) 164,351 ---------------------------------------------------------------------- (1) Corporate results include the effects of $0.1 million in credits and $13.1 million in charges for the respective fiscal 2005 three- and twelve-month periods related to the company's 2004 organizational restructuring. *T