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Nicor Inc. (GAS)
Q3 2010 Earnings Conference Call
November 2, 2010 9:30 AM ET
Russ Strobel – Chairman, President & CEO
Kary Brunner – EVP and CFO
Rick Hawley – Director, IR
Previous Statements by GAS
» Nicor Inc. Q2 2010 Earnings Call Transcript
» Nicor Inc. Q1 2010 Earnings Call Transcript
» Nicor Q4 2009 Earnings Call Transcript
» Nicor Inc. Q3 2009 Earnings Call Transcript
Thanks, Francine, and thank you all for joining us. With me today on the call are Rick Hawley, our CFO, and Kary Brunner, our Director of Investor Relations. This morning we’ll discuss our 2010 Q3 financial results and our annual outlook for 2010 earnings. When we’ve completed our remarks we will be happy to take your questions. Let me now turn things over to Kary.
Thanks, Russ. First I’d like to remind you that this call will include certain forward-looking statements about the operations and expectations of our company, 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 Q3 2010 diluted earnings per share were $0.30, compared to $0.30 per share for the same period in 2009. For the nine month ended period, diluted earnings per share were $2.15 compared to $1.77 per share in 2009. Results for the three and nine months ended September 30th, 2010, included the positive effects of a reserve adjustment of approximately $1.3 million pretax related to our mercury inspection and repair program. Let me now turn things over to Rick, for the discussion of our 2010 results, and our outlook for the remainder of the year.
Thanks, Kary. Good morning everyone. Excluding the mercury item that Kary just mentioned, Q3 2010 diluted earnings per share compared to 2009 reflected higher operating income at our gas distribution and other energy related businesses, partially offset by lower operating income at our shipping businesses and lower corporate operating results. For the year to date period 2010 versus 2009 comparisons, excluding the aforementioned mercury item, reflected higher operating income at our gas distribution and other energy related businesses, as well as improved corporate operating results partially offset by lower operating income at our shipping business. The nine month ended comparisons also reflected lower pretax equity investment income and a higher effective income tax rate in 2010.
Gas distribution operating results for the Q3 and year to date 2010 periods were up compared to 2009. Year to date comparisons reflected the benefit of the rate relief approved in 2009, partially offset by decreased natural gas deliveries due to 10% warmer weather in 2010 compared to 2009, and lower interest on customer balances. Year to date gas distribution operating results were also impacted by lower operating and maintenance costs including lower company use and storage related gas costs, lower pension expense, and lower reported bad debt expense. As we’ve mentioned in previous calls, a bad debt tracker was approved in February, 2010, allowing Nicor Gas to recognize a $31.7 million pretax benefit in the Q1 of 2010 attributable to 2008’s and 2009’s net under-recovery of bad debt expense. The benchmark against which 2010 actual bad debt expense will be compared to is approximately $63 million.
The key takeaways from an economic perspective versus the bookkeeping that you will see for bad debt is that in 2010 we received $32 million pretax benefit for the years 2008 and 2009 as I just mentioned, and our 2010 annual costs net of (inaudible) revenue and excluding the $32 million will be $63 million. Finally, year to date 2010 gas distribution operating income, compared to 2009, reflected higher depreciation expense.
Nicor Gas’ annual outlook for 2010 operating results remains in line with our earlier expectations, which as we indicated in our August call, we expect to be higher than last year’s levels. With Illinois difficult economy, we have seen modest declines versus our budget and weather-normalized demand, but we have managed our costs effectively through the first nine months of the year in order to mitigate this negative impact. As a result, we continue to expect a solid performance by Nicor Gas.
Moving on to our shipping segment, Tropical had Q3 operating income lower than 2009 and lower than our earlier expectations. As we have discussed in previous calls, we are seeing softness in our volumes and rates due to the effect of the challenging market economics in the Caribbean and the Bahamas. While we believe we are generally maintaining our market position, overall demand appears to be down. Tropical’s management implemented a number of initiatives in 2009 and 2010 focused on revenue enhancement, asset utilization, and reduction of controllable costs to offset the negative impact of lower than anticipated results. These initiatives have partially but not entirely reduced the negative bottom line effect of lower than expected revenues. As a result, we currently estimate that Tropical’s full year 2010 after tax earnings will be approximately $18 million.