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Nicor Inc. (GAS)

Q1 2011 Earnings Call

May 4, 2011 9:30 am ET

Executives

Rick Hawley - EVP & CFO

Kary Brunner - Director of IR

Analysts

David Grumhaus - Copia

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Nicor's First Quarter 2011 Earnings Call. My name is Stacy and I will be your conference moderator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today, Mr. Rick Hawley, Nicor's Executive Vice President and Chief Financial Officer.

Rick Hawley

Thanks Stacy. Good morning and thanks for joining us. I am Rick Hawley, Executive Vice President and Chief Financial Officer of Nicor. Joining me is Kary Brunner, our Director of Investor Relations. Russ Strobel, our Chairman, President and CEO is sidelined this morning with laryngitis and will not be participating on the call this morning.

This morning we will discuss our 2011 first quarter financial results and our annual earnings outlook for 2011 earnings. When we have completed our remarks we will be happy to take your questions.

Before we get into the numbers, let me touch briefly on our proposed merger with AGL Resources. As you know, in December 2010, we entered into a merger agreement with AGL Resources. The completion of the transaction subject to the customary conditions including among others, regulatory and shareholder approvals by both companies.

In the first quarter, we and AGL Resources initiated the regulatory approval processes through filings with the California Public Utilities Commission and the Illinois Commerce Commission.

Last week, the ICC staff and several other interveners that are participating in the proceeding submitted their initial testimony. That testimony recommended that the ICC deny our joint application or impose various requirements on us as conditions of approval. We plan to submit our rebuttal testimony to the ICC in late May.

Let me just say this. Nicor has always placed the utmost importance on our mission of providing safe and reliable service to our customers. This merger will not change that mission. In fact, customers can rest assured they will continue to receive the same reliable, cost effective service from the combined company.

In addition, we and AGL Resources believe that the combined company will serve customers better and more efficiently through the benefits of our greater scale and scope and as we share best practices. A merger of these two great companies will create a leading natural gas distribution company which will be headquartered here in Illinois. Importantly, AGL Resources has also committed to maintaining jobs at Nicor Gas to ensure quality service levels remain consistent as well as continuing Nicor's tradition of contributing to the well-being of Illinois by honoring our current philanthropic commitments.

In early April, we also filed our Hart-Scott-Rodino notification with the Federal Trade Commission and Department of Justice. On April 18, we were granted early termination of that HSR waiting period. We are currently planning to seek shareholder approval for the merger at our June 14 special shareholders' meeting. You can find additional information relating to the proposed merger in the joint proxy statement and prospectus contained in the S4 registration statement that was filed with the Securities and Exchange Commission by AGL Resources and is expected to be mailed to shareholders next week.

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

Kary Brunner

Thanks Rick, and good morning everyone. First, I would like to remind that this call includes certain forward-looking statements about the operation 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, this morning, preliminary three months ended March 31, 2011 diluted earnings per share were $0.98 compared to $1.33 per share for the same period in 2010. Excluding the approximately $0.42 per share one time benefit related to the bad debt tracker last year's first quarter result would have been about $0.91 per share.

Let me now turn things back over to Rick for the discussion of our first quarter results and our annual outlook for 2011.

Rick Hawley

Thanks Kary. Three months ended 2011 diluted earnings per share compared to 2010 reflected lower operating results at our Gas Distribution and Shipping businesses as well as lower corporate operating results, partially offset by higher operating income at our other energy related businesses. The first quarter comparisons also reflected higher pretax equity investment income, lower interest expense and a lower effective income tax rate in 2011. Reported earnings included a reduction of approximately $0.02 a share for merger related costs.

Our first quarter 2011 Gas Distribution operating income was down compared to 2010, due to the absence of $31.7 million pretax benefit recognized in the first quarter of 2010 associated with the implementation of the bad debt tracker. This benefit was attributable to 2008 and 2009’s net under recovery of bad debt expense and was reported in 2010 as a reduction in operating and maintenance expense. If you exclude this item from 2010, operating income at the gas distribution company was up in 2011. First quarter Gas Distribution operating income comparisons also reflected increased natural gas deliveries due to 6% colder weather in 2011 compared to 2010, lower bad debt expense related to 2011 operations, and lower companies use in start related gas costs, partially offset by higher depreciation expense.

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