Note 10 - Segment Information

6 Months Ended

Jun. 30, 2012

Segment Reporting Disclosure [Text Block]

Note 10 – Segment Information

Our operating segments have changed as a result of our merger with Nicor and amounts from prior periods have been reclassified between the segments to reflect these changes. Our results for the three and six months ended June 30, 2012 include the activity of the Nicor legacy companies whereas our results for the three and six months ended June 30, 2011 do not. Our operating segments comprise revenue-generating components of our company for which we produce separate financial information internally that we regularly use to make operating decisions and assess performance. Our determination of reportable segments considers the strategic operating units under which we manage sales of various products and services to customers in differing regulatory environments. We manage our businesses through five operating segments – distribution operations, retail operations, wholesale services, midstream operations, cargo shipping and one non-operating segment, other.

Our distribution operations segment is the largest component of our business and includes natural gas local distribution utilities in seven states - Illinois, Georgia, Virginia, New Jersey, Florida, Tennessee and Maryland. These utilities construct, manage, and maintain intrastate natural gas pipelines and distribution facilities. Although the operations of our distribution operations segment are geographically dispersed, the operating subsidiaries within the distribution operations segment are regulated utilities, with rates determined by individual state regulatory commissions. These natural gas distribution utilities have similar economic and risk characteristics.

We are also involved in several related and complementary businesses. Our retail operations segment includes retail natural gas marketing to end-use customers primarily in Georgia as well as various businesses that market retail energy-related products and services to residential and small business customers in Illinois. Additionally, our retail operations segment provides warranty protection solutions to customers and customer move connection services for utilities. Our wholesale services segment includes natural gas asset management and related logistics activities for each of our utilities, except Nicor Gas, as well as for nonaffiliated companies, natural gas storage arbitrage and related activities. Our midstream operations segment includes our non-utility storage and pipeline operations, including the development and operation of high-deliverability natural gas storage assets.

Our cargo shipping segment transports containerized freight between Florida, the eastern coast of Canada, the Bahamas and the Caribbean region. The cargo shipping segment also includes amounts related to cargo insurance coverage sold to its customers and other third parties. The cargo shipping segment’s vessels are under foreign registry, and its containers are considered instruments of international trade. Although the majority of its long-lived assets are foreign owned and its revenues are derived from foreign operations, the functional currency is generally the United States dollar. Our cargo shipping segment also includes an equity investment in Triton, a cargo container leasing business. Profits and losses are generally allocated to investors’ capital accounts in proportion to their capital contributions. Our investment in Triton is accounted for under the equity method, and our share of earnings is reported within “Other Income” on our unaudited Condensed Consolidated Statements of Income.

Our other segment includes intercompany eliminations and aggregated subsidiaries that are not significant enough on a stand-alone basis and that do not fit into one of our other five operating segments.

We evaluate segment performance using the non-GAAP measure of EBIT that includes operating income, other income and expenses, and equity investment income. Items we do not include in EBIT are income taxes and financing costs, including interest and debt expense, each of which we evaluate on a consolidated basis. We believe 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.

You should not consider EBIT an alternative to, or a more meaningful indicator of, our operating performance than operating income or net income as determined in accordance with GAAP. In addition, our EBIT may not be comparable to a similarly titled measure of another company. The reconciliations of EBIT to operating income, earnings before income taxes and net income for the three and six months ended June 30, 2012 and 2011, are presented below.

	Three months ended June 30,				Six months ended June 30,
In millions	2012		2011		2012		2011
Operating income	$	91	$	60	$	353	$	298
Other income		9		2		13		3
EBIT		100		62		366		301
Interest expense, net		45		32		92		61
Earnings before income taxes		55		30		274		240
Income taxes		20		11		100		87
Net income	$	35	$	19	$	174	$	153

Information by segment on our Statements of Financial Position as of December 31, 2011, is as follows:

In millions	Identifiable and total assets (1)		Goodwill
Distribution operations	$	11,020	$	1,586
Retail operations		501		124
Wholesale services		1,214		2
Midstream operations		635		16
Cargo shipping		481		77
Other (2)		62		8
Consolidated	$	13,913	$	1,813

(1) Identifiable assets are those assets used in each segment’s operations.

(2)  Our other segment’s assets consist primarily of cash and cash equivalents and PP&E and reflect the effect of intercompany eliminations.

Summarized Statements of Income, Statements of Financial Position and capital expenditure information by segment as of and for the three and six months ended June 30, 2012 and 2011 are shown in the following tables. Note that our segments have changed as a result of our merger with Nicor and amounts from prior periods have been reclassified between the segments to reflect these changes.

Three months ended June 30, 2012

In millions	Distribution operations		Retail operations		Wholesale services			Midstream operations		Cargo shipping			Other and intercompany eliminations (3)			Consolidated
Operating revenues from external parties	$	449	$	136	$	7		$	18	$	80		$	(4	)	$	686
Intercompany revenues (1)		41		0		0			0		0			(41	)		0
Total operating revenues		490		136		7			18		80			(45	)		686
Operating expenses
Cost of goods sold		131		93		4			7		51			(46	)		240
Operation and maintenance		152		25		11			4		26			0			218
Depreciation and amortization		86		3		0			4		6			3			102
Nicor merger expenses		0		0		0			0		0			3			3
Taxes other than income taxes		25		1		1			2		1			2			32
Total operating expenses		394		122		16			17		84			(38	)		595
Operating income (loss)		96		14		(9	)		1		(4	)		(7	)		91
Other income		4		0		0			1		3			1			9
EBIT	$	100	$	14	$	(9	)	$	2	$	(1	)	$	(6	)	$	100
Capital expenditures	$	146	$	2	$	0		$	17	$	1		$	13		$	179

 Three months ended June 30, 2011

In millions	Distribution operations		Retail operations		Wholesale services			Midstream operations		Cargo shipping		Other and intercompany eliminations (3)			Consolidated
Operating revenues from external parties	$	236	$	117	$	9		$	11	$	0	$	2		$	375
Intercompany revenues (1)		41		0		0			0		0		(41	)		0
Total operating revenues		277		117		9			11		0		(39	)		375
Operating expenses
Cost of goods sold		70		100		1			2		0		(39	)		134
Operation and maintenance		89		15		12			4		0		(1	)		119
Depreciation and amortization		36		0		1			2		0		3			42
Nicor merger expenses		0		0		0			0		0		8			8
Taxes other than income taxes		9		1		0			1		0		1			12
Total operating expenses		204		116		14			9		0		(28	)		315
Operating income (loss)		73		1		(5	)		2		0		(11	)		60
Other income		1		0		0			0		0		1			2
EBIT	$	74	$	1	$	(5	)	$	2	$	0	$	(10	)	$	62
Capital expenditures	$	87	$	0	$	1		$	8	$	0	$	6		$	102

Six months ended June 30, 2012

In millions	Distribution operations		Retail operations		Wholesale services		Midstream operations		Cargo shipping			Other and intercompany eliminations (3)			Consolidated
Operating revenues from external parties	$	1,443	$	399	$	71	$	34	$	164		$	(21	)	$	2,090
Intercompany revenues (1)		87		0		0		0		0			(87	)		0
Total operating revenues		1,530		399		71		34		164			(108	)		2,090
Operating expenses
Cost of goods sold		660		259		34		12		101			(107	)		959
Operation and maintenance		325		57		24		9		54			(6	)		463
Depreciation and amortization		174		7		1		6		12			6			206
Nicor merger expenses		0		0		0		0		0			13			13
Taxes other than income taxes		82		2		2		3		3			4			96
Total operating expenses		1,241		325		61		30		170			(90	)		1,737
Operating income (loss)		289		74		10		4		(6	)		(18	)		353
Other income		5		0		0		1		6			1			13
EBIT	$	294	$	74	$	10	$	5	$	0		$	(17	)	$	366
Identifiable and total assets (2)	$	10,829	$	452	$	895	$	685	$	471		$	(58	)	$	13,274
Goodwill	$	1,586	$	124	$	2	$	16	$	77		$	8		$	1,813
Capital expenditures	$	268	$	4	$	0	$	59	$	1		$	18		$	350

Six months ended June 30, 2011

In millions	Distribution operations		Retail operations		Wholesale services		Midstream operations		Cargo shipping		Other and intercompany eliminations (3)			Consolidated
Operating revenues from external parties	$	741	$	407	$	62	$	41	$	0	$	2		$	1,253
Intercompany revenues (1)		79		0		0		0		0		(79	)		0
Total operating revenues		820		407		62		41		0		(77	)		1,253
Operating expenses
Cost of goods sold		338		301		4		23		0		(77	)		589
Operation and maintenance		179		35		28		8		0		(2	)		248
Depreciation and amortization		72		1		1		4		0		5			83
Nicor merger expenses		0		0		0		0		0		10			10
Taxes other than income taxes		18		1		1		2		0		3			25
Total operating expenses		607		338		34		37		0		(61	)		955
Operating income (loss)		213		69		28		4		0		(16	)		298
Other income		2		0		0		0		0		1			3
EBIT	$	215	$	69	$	28	$	4	$	0	$	(15	)	$	301
Identifiable and total assets (2)	$	5,592	$	189	$	1,038	$	476	$	0	$	(78	)	$	7,217
Goodwill	$	404	$	0	$	0	$	14	$	0	$	0		$	418
Capital expenditures	$	167	$	1	$	1	$	15	$	0	$	12		$	196

(1) Intercompany revenues – wholesale services records its energy marketing and risk management revenues on a net basis and its total operating revenues include intercompany revenues of $49 million and $137 million for the three and six months ended June 30, 2012 and $102 million and $249 million for the three and six months ended June 30, 2011.

(2) Identifiable assets are those used in each segment’s operations.

(3) Our other segment’s assets consist primarily of cash and cash equivalents, PP&E and the effect of intercompany eliminations.