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Nicor Inc. (GAS)

Q4 2010 Earnings Call

February 23, 2011 9:30 am ET

Executives

Russ M. Strobel - Chairman, President and Chief Executive Officer

Kary D. Brunner - Director Investor Relations

Richard L. Hawley - Executive Vice President and Chief Financial Officer

Analysts

Mark Barnett - Morningstar

Edward Calkins - Great Lakes Advisors

Craig Shere - Tuohy Brothers Investment

Matthew Ligas - Copia Capital

Christopher Bassett - Decade Capital

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Nicor Forth Quarter 2010 Earnings Call. My name is Crystal and I’ll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, today’s 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 of Nicor. Please proceed.

Russ M. Strobel

Crystal, thank you, and good morning, all, and thank you for joining us. With me today are Rick Hawley, our CFO, and Kary Brunner, our Director of Investor Relations. This morning we’re going to discuss our 2010 financial results and our annual earnings outlook for 2011. When we finish. we’ll be happy to take your questions.

Before we get into the numbers, let me touch briefly on our merger with AGL Resources. As you all know, in December of 2010, we entered into a merger agreement with AGL Resources. This merger will combine two great companies. We believe the merger will establish a platform for growth that is superior to what either company could achieve on its own. I am pleased that this transaction provides our shareholders with a significant upfront premium for their shares and an ownership interest in a combined company that we believe provides real upside potential for future growth.

In addition, AGL Resources will establish its national gas distribution headquarters in Illinois and has also agreed to maintain for a period of at least three years a comparable headcount of full-time equivalent employees at Nicor Gas’ distribution business. AGL Resources has also agreed to continue Nicor’s long-standing record of support for philanthropic and civic causes in the communities that we serve.

Most importantly, our $2.2 million natural gas utility customers will be able to continue to rely on the same local gas company with a well-deserved reputation for providing safe, reliable, cost-effective service and the same people whom they have come to know and to trust. The completion of the transaction is subject to the customary conditions including, among others, regulatory and shareholder approvals by both companies.

In January 2011, we and AGL Resources filed a joint application with the Illinois Commerce Commission for approval of the merger. The ICC has 11 months to act upon the application, which would take us to mid-December 2011. You can find additional information relating to the proposed merger and the joint proxy statement and prospectus contained in the S-4 registration statement filed by AGL Resources on February 4, 2011.

With that, let me now turn things over to Kary as we begin to get into the numbers.

Kary D. Brunner

Thanks, Russ, and good morning, everyone. First, I’d like to remind you that this call includes 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 12 months ended December 31, 2010, diluted earnings per share were $3.02, compared to $2.98 per share for the same period in 2009. 2010 results 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 annual outlook for 2011.

Richard L. Hawley

Thanks, Kary. Good morning, everyone. Excluding the mercury item that Kary just mentioned, 12 months ended 2010 diluted earnings per share compared to 2009 reflected higher operating income at our gas distribution business, partially offset by lower operating income at our shipping and our other energy-related businesses and lower corporate operating results.

The full-year comparisons also reflected lower pretax equity investment income and a higher effective income tax rate in 2010. Reported earnings included a reduction of approximately $0.06 for merger-related costs incurred in the fourth quarter. Without those costs, earnings for the year would have been $3.08 and earnings for the quarter around $0.93.

Our 2010 gas distribution operating income was up compared to 2009. Full-year comparisons reflected the 2010 benefit of a full year of rate relief approved in 2009, partially offset by decreased natural gas deliveries due to a 6% warmer weather in 2010 compared to 2009, lower interest on customer balances, and lower demand unrelated to weather. Regarding the weather variance, while both years were colder than normal, 2009 was just more so.

2010 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, lower billing and call center related costs, and lower costs on legal matters, partially offset by higher bad debt expense related to 2010 operations.

As we have 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 first quarter of 2010 attributable to 2008 and 2009’s net under-recovery of bad debt expense. The benchmark against which 2010 actual bad debt expense was compared is approximately $63 million.

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