AGL Resources, Inc. (GAS)

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Nicor Inc. (GAS)

Q3 2009 Earnings Call Transcript

October 30, 2009 9:30 am ET

Executives

Russ Strobel – Chairman, President and CEO

Kary Brunner – Director, IR

Rick Hawley – EVP and CFO

Analysts

Igor Grinman – Zimmer Lucas Partners

Dave Parker – Robert W. Baird

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Nicor third quarter earnings conference call. My name is Jeff and I will be your operator for today. (Operator instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Russ Strobel, Chairman, President and CEO. Please proceed, sir.

Russ Strobel

Jeff, thanks. Good morning to everyone and thank you for joining us. With me this morning are Rick Hawley, our chief financial officer; and Kary Brunner, our director of investor relations. We are going to discuss our 2009 third quarter and year-to-date financial results and our annual outlook for 2009 earnings. When we are done with our remarks, we will be happy to take your questions.

Let's now turn things over to Kary.

Kary Brunner

Thanks, Russ. First, I would like to remind you that this call will include certain forward-looking statements about the operations and expectations of our company's subsidiaries and affiliates. Although we believe our representations are based on reasonable assumptions, actual results may vary materially from stated expectations. Information concerning the factors that could cause materially different results can be found in our periodic filings with the Securities and Exchange Commission and in this morning's press release.

As we reported in our press release this morning, preliminary third quarter 2009 diluted earnings per share were $0.30 compared to $0.03 per share for the same period in 2008. For the nine months ended period, diluted earnings per share were $1.77 compared to a $1.58 per share in 2008.

Let me now turn things over to Rick for the discussion of our 2009 results and our outlook for the remainder of the year.

Rick Hawley

Thanks, Kary, good morning everyone. Compared to 2008, third quarter 2009 diluted earnings per share reflect improved operating income in the company's gas distribution and other energy related businesses and improved corporate results offset by lower operating income in the company's shipping business. The third quarter comparisons also reflect a lower effective income tax rate partially offset by lower pretax equity investment income in 2009.

For the year to date period 2009 versus 2008, comparisons reflect higher operating income in the company’s gas distribution and other energy related businesses, partially offset by lower operating results in the company’s shipping business, and lower corporate operating results. The nine-month ended comparisons also reflect lower interest income and a higher income tax effective rate partially offset by higher equity investment income in 2009.

Our year to date gas distribution business results reflect the benefit of the new rates that became effective in the second quarter of this year, year to date comparisons reflect decreased natural gas deliveries due to lower demand unrelated to weather and 2% warmer weather in 2009 compared to 2008. While both years were colder than normal, 2008 was a just bit more so.

Gas distribution operating results were also impacted by higher operating and maintenance cost, due primarily to increased pay roll and benefit related cost, and the absence of prior year legal recoveries recorded in the second quarter of 2008. These increases were partially offset by lower bad debt expenses attributable to lower natural gas prices and lower net franchise costs for the year. Finally, year to date 2009 gas distribution operating income compared to 2008 reflected higher depreciation expense.

Looking ahead, we are expecting Nicor Gas to deliver solid 2009 operating results, due primarily to the benefits of the rate case approved in March and subsequently updated earlier this month with the rate case rehearing decision combined with continued success in our cost control efforts.

Moving to our shipping segment, Tropical’s year to date operating income was lower than 2008 due to the continued adverse impacts of the challenging economic environment on volume shipped. Management of Tropical continues to make operational adjustments focused on shipping schedules and asset utilizations while implementing cost containment initiatives that have been successful in reducing the impact of lower volumes. We believe success in these and other efforts will allow Tropical to provide solid earnings for the year despite the volume shortfalls.

Our other energy ventures year to date 2009 reported income was up compared to last year, due primarily to higher income at our retail products and services business and our wholesale natural gas marketing business. We currently estimate that both businesses will perform at least in line with earlier expectations. Nine months ended 2009 corporate operating results compared to 2008 were lower, due primarily to the absence of a prior year legal recovery partially offset by lower legal and business development costs and the weather related impact of certain of our retail utility bill management products.

As a reminder, certain of our utility bill management products provide a natural and partial offset to the weather risk of our gas distribution business. In the nine months ended 2009, the corporate segment recorded a $2.8 million pretax cost associated with this hedge compared to a $3.6 million pretax related cost in the same period of 2008. The amount of the offset will vary depending on a number of factors but has typically ranged from around 35% to 65% of our gas company's annual weather impact.

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