EX-99.1 2 earningsrelease.htm 6/30/07 EARNINGS RELEASE 6/30/07 Earnings Release
 
Nicor Inc. Logo
FOR IMMEDIATE RELEASE                 FOR MORE INFORMATION
July 31, 2007                        Contact: Mark Knox, re: N-983
                                                                                                                                      630 388-2529
                              Media Contact: Richard Caragol
                                                                                                                      630 388-2686

NICOR ANNOUNCES 2007 PRELIMINARY SECOND QUARTER EARNINGS AND AFFIRMS 2007 ANNUAL OUTLOOK

Naperville, IL - Nicor Inc. (NYSE: GAS) today reported second-quarter 2007 preliminary net income, operating income and diluted earnings per common share of $18.0 million, $29.9 million and $.40, respectively. This compares to net income, operating income and diluted earnings per common share for the second quarter in 2006 of $8.5 million, $16.9 million and $.19, respectively.

The second quarter 2006 financial results included a $10 million ($.22 per share and non-deductible for tax purposes) charge associated with a United States Securities and Exchange Commission (SEC) inquiry. Absent the impact of this item, 2006 second quarter results would have been $.41 per share.

Earnings for the 2007 second quarter, compared to 2006, reflect the absence of last year’s charge associated with the SEC inquiry. Earnings for the 2007 second quarter also reflect higher operating results in the company’s other energy-related ventures, partially offset by lower operating results in the company’s gas distribution and shipping businesses, lower corporate operating income (before consideration of the 2006 charge associated with the SEC inquiry) and the absence of certain income tax benefits recognized last year.
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For the six months ended June 30, 2007, preliminary net income, operating income and diluted earnings per common share were $65.2 million, $106.5 million and $1.44, respectively. This compares to net income, operating income and diluted earnings per common share for the same period in 2006 of $52.4 million, $83.0 million and $1.18, respectively.

Both year-to-date periods were impacted by noteworthy items. 2007 results for the six-month period included a first quarter reduction to the company’s previously established mercury reserve, and mercury-related cost recoveries, which aggregate approximately $8 million pretax ($.11 per share after-tax). Absent the impact of these two mercury items, 2007 six-month results would have been approximately $1.34 per share. 2006 results for the six-month period included the effects of a first quarter pretax cost recovery associated with the company’s mercury inspection and repair program of $3.8 million ($.05 per share after-tax) and the second quarter charge associated with the SEC inquiry of $10 million ($.22 per share and non-deductible for tax purposes). Absent the impact of these items, 2006 six-month results would have been $1.35 per share.
 
Earnings for the 2007 six-month period, compared to 2006, reflect the effects of the aforementioned mercury items and the absence of last year’s charge associated with the SEC inquiry. 2007 earnings for the six-month period also reflect higher operating results in the company’s gas distribution business (before consideration of the mercury-related items) and other energy-related ventures, partially offset by lower operating results in the company’s shipping business and lower corporate income (before consideration of the 2006 charge associated with the SEC inquiry). The six-month period comparisons were also impacted by higher average common shares outstanding in 2007 and the absence of certain income tax benefits recognized in 2006.
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“Year-to-date results for our operating companies generally compare favorably to last year. We estimate full year consolidated results will be consistent with our previous guidance,” said Russ M. Strobel, Nicor’s chairman, president and chief executive officer. “Full year results continue to be dependent on success with ongoing initiatives in our businesses, including cost control activities at our gas distribution business, and continued success in managing margins in the face of less than expected volumes in our shipping business.”

Details regarding second quarter and six months ended June 30, 2007 financial results compared to 2006 follow:
·  
For the 2007 second quarter, gas distribution operating income decreased to $13.8 million from $16.2 million in 2006. The quarter reflected:
 
-
The impact of decreased property sale gains ($1.7 million); higher operating and maintenance costs ($1.5 million) due to higher bad debt expense; and higher depreciation expense ($1.4 million).
 
-
Partially offsetting these factors was the impact of increased natural gas deliveries due to colder weather (approximately $2 million).
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·  
For the six months ended June 30, 2007 gas distribution operating income increased to $84.7 million from $74.6 million in 2006. The year-to-date period reflected:
 
-
The positive effect of higher mercury-related benefits compared to last year ($4.4 million).
 
-
The positive impact of increased natural gas deliveries due to colder weather compared to last year (approximately $12 million); increased natural gas deliveries due to demand unrelated to weather (approximately $7 million); and lower operating and maintenance costs ($1.5 million) due to decreased storage-related natural gas costs and natural gas and fuel costs to operate company equipment and facilities, offset in part by higher bad debt and payroll expense.
 
-
Partially offsetting these positive factors were lower average distribution rates (approximately $7 million, including the negative impact of about $2 million attributable to the Illinois Commerce Commission’s (ICC) rate order rehearing decision that went into effect in April 2006); the impact of customer interest (approximately $5 million); decreased property sale gains ($1.8 million); and higher depreciation expense ($2.8 million).

·  
For the 2007 second quarter, shipping operating income decreased to $8.3 million from $8.7 million in 2006. For the six months ended June 30, 2007, shipping operating income decreased to $18.2 million from $19.0 million in 2006. Declines in both periods were due to higher operating costs; partially offset by increased revenues resulting from higher volumes shipped. Increased operating costs for the 2007 second quarter and six-month periods, compared to 2006, were due primarily to higher transportation-related costs attributable to higher volumes shipped, increased employee-related costs and higher leased equipment costs.
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·  
For the 2007 second quarter, other energy ventures operating income increased to $8 million from $1.1 million in 2006 due to improved operating results in the company’s wholesale natural gas marketing business and retail energy-related products and services businesses. For the six months ended June 30, 2007, other energy-related ventures operating income increased to $5.3 million compared to an operating loss of $6.2 million in 2006 due to higher operating results in the company’s wholesale natural gas marketing business and retail energy-related products and services businesses.

Improved 2007 second quarter operating results, as compared to 2006, in the company’s wholesale natural gas marketing business were due primarily to positive fair value adjustments related to derivative instruments used to hedge purchases and sales of natural gas inventory. Improved 2007 six-month ended operating results, as compared to 2006, in the company’s wholesale natural gas marketing business reflected favorable costing of physical sales activity and improved results from risk management activities associated with hedging the product risks of the utility-bill management contracts offered by the company’s retail energy-related products and services businesses; partially offset by the absence of last year’s significant positive fair value adjustments related to derivative instruments used to hedge purchases and sales of natural gas inventory.

The company uses derivative instruments to economically hedge purchases and sales of natural gas inventory. Such derivative instruments are used to mitigate commodity price risk in order to substantially lock-in the profit margin that will ultimately be realized from the withdrawal and sale of natural gas in storage. Earnings at the wholesale natural gas marketing business can be subject to volatility as the fair value of derivatives change, even when the underlying expected profit margin is largely unchanged. The volatility resulting from these adjustments can be significant from period to period.
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Improved 2007 second quarter operating results, as compared to 2006, in the company’s retail energy-related products and services businesses were due to higher revenues due to the recognition of previously deferred revenues associated with its utility-bill management contracts and improved average contract margin. Improved 2007 six-month ended operating results, as compared to 2006, in the company’s retail energy-related products and services businesses were due primarily to an increase in customer contracts.

·  
Corporate operating results for both the 2006 second quarter and six-month ended period included the previously discussed $10 million charge relating to the SEC inquiry. Corporate 2007 second quarter results also included a less favorable weather-related impact associated with certain of the company’s retail utility-bill management products of $0.5 million pretax, compared to the 2006 second quarter of $1.2 million pretax. Corporate 2007 six-month ended operating results included the unfavorable weather-related impact associated with certain of the company’s retail utility-bill management products of $0.1 million pretax, compared to the favorable weather impact on such businesses in the 2006 six-month period of $6.4 million pretax. Under terms of a corporate swap agreement, benefits or costs resulting from variances in normal weather associated with retail energy-related products are recorded primarily in corporate operating results.

·  
2006 second quarter and six-month financial results were also favorably impacted by tax adjustments associated with tax audits (approximately $1 million after-tax).
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·  
Effective January 2006, the company reorganized certain of its shipping and related operations. This reorganization allows the company to take advantage of certain provisions of the American Jobs Creation Act of 2004 that provide the opportunity for tax savings subsequent to the date of the reorganization. In connection with these activities, the full year 2006 reflected a net income tax benefit of $5.2 million from the elimination of certain deferred taxes, of which $6.0 million was recorded in the first quarter of 2006. In 2006, the company incurred $4.7 million in income tax expense associated with these activities, $2.0 million of which was recorded in the first six months of 2006.  

2007 Earnings Outlook
 
The company also announced that its estimate for 2007 diluted earnings per common share is in the range of $2.76 to $2.96, including a positive impact of $.11 per share from the 2007 first quarter mercury-related reserve adjustment and cost recovery. Excluding the impact of these items, estimated diluted earnings per common share would be $2.65 to $2.85. These estimates remain unchanged from earlier guidance provided in the company’s earnings release on April 27, 2007 in connection with first quarter 2006 results. Consistent with prior guidance, the annual outlook excludes, among other things, any future impacts associated with the ICC’s Performance-Based Rate plan/Purchased Gas Adjustment review, other contingencies, or changes in tax law. The company also indicated that its estimate does not reflect the additional variability in earnings due to fair value accounting adjustments in its businesses and other impacts that could occur because of future volatility in the natural gas markets. While these items could materially affect 2007 earnings, they are not currently estimable. The company's 2007 estimate assumes normal weather for the remainder of the year.
 
The company will provide updates to its annual earnings outlook only as part of its quarterly and annual earnings releases.
 
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Conference Call
As previously announced, the company will hold a conference call to discuss its second quarter 2007 financial results and 2007 outlook. The conference call will be this morning, Tuesday, July 31, 2007 at 8:30 a.m. central, 9:30 a.m. eastern time. To hear the conference call live, please logon to Nicor’s corporate website at www.nicor.com, choose “Investor” and then select the webcast icon on the Overview page. A replay of the call will be available until 10:30 a.m. central time, Tuesday, August 14, 2007. To access the recording, call (888) 286-8010, or (617) 801-6888 for callers outside the United States, and enter reservation number 80833027. The call will also be archived on Nicor’s corporate website for 90 days.

Nicor Inc. (NYSE: GAS) is a holding company and is a member of the Standard & Poor’s 500 Index. Its primary business is Nicor Gas, one of the nation’s largest natural gas distribution companies.  Nicor owns Tropical Shipping, a containerized shipping business serving the Caribbean region and the Bahamas. In addition, the company owns and has an equity interest in several energy-related businesses. For more information, visit the Nicor Web site at www.nicor.com.
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Caution Concerning Forward-Looking Statements
This document includes certain forward-looking statements about the expectations of Nicor and its subsidiaries and affiliates. Although Nicor believes these statements are based on reasonable assumptions, actual results may vary materially from stated expectations. Such forward-looking statements may be identified by the use of forward-looking words or phrases such as “anticipate,” “believe,” “expect,” “intend,” “may,” “planned,” “potential,” “should,” “will,” “would,” “project,” “estimate,” “ultimate,” or similar phrases. Actual results may differ materially from those indicated in the company’s forward-looking statements due to the direct or indirect effects of legal contingencies (including litigation) and the resolution of those issues, including the effects of an ICC review, and undue reliance should not be placed on such statements.

Other factors that could cause materially different results include, but are not limited to, weather conditions; natural disasters; natural gas and other fuel prices; fair value accounting adjustments; inventory valuation; health care costs; insurance costs or recoveries; legal costs; borrowing needs; interest rates; credit conditions; economic and market conditions; accidents, leaks, equipment failures, service interruptions, environmental pollution, and other operating risks; tourism and construction in the Bahamas and Caribbean region; energy conservation; legislative and regulatory actions; tax rulings or audit results; asset sales; significant unplanned capital needs; future mercury-related charges or credits; changes in accounting principles, interpretations, methods, judgments or estimates; performance of major customers, transporters, suppliers and contractors; labor relations; and acts of terrorism.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release. Nicor undertakes no obligation to publicly release any revision to these forward-looking statements to reflect events or circumstances after the date of this release.
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Nicor Inc.
                  
                   
PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS
              
Unaudited (millions, except per share data)
                  
                   
 
  
Three months ended
  
Six months ended
  
   
June 30
  
June 30
  
   
2007
  
2006
  
2007
  
2006
  
                   
Operating revenues
  
$
556.9
  
$
451.3
  
$
1,891.6
  
$
1,770.7
  
                           
Operating expenses
                          
   Gas distribution
                          
       Cost of gas
    
281.6
   
194.1
   
1,230.0
   
1,150.8
 
       Operating and maintenance
    
62.1
   
60.6
   
141.8
   
143.3
 
       Depreciation
    
41.5
   
40.1
   
83.0
   
80.2
 
       Taxes, other than income taxes
    
33.2
   
29.4
   
109.1
   
106.2
 
       Mercury-related costs (recoveries), net
    
-
   
.2
   
(8.0
)
  
(3.6
)
       Property sale gains
    
(.8
)
  
(2.5
)
  
(.8
)
  
(2.6
)
    Shipping
    
88.7
   
85.8
   
177.9
   
170.8
 
   Other energy ventures
    
37.1
   
35.6
   
116.4
   
107.3
 
    Litigation charge
    
-
   
10.0
   
-
   
10.0
 
   Other corporate expenses and eliminations
    
(16.4
)
  
(18.9
)
  
(64.3
)
  
(74.7
)
 
    
527.0
   
434.4
   
1,785.1
   
1,687.7
 
                           
Operating income
    
29.9
   
16.9
   
106.5
   
83.0
 
Interest expense, net of amounts capitalized
    
10.1
   
9.1
   
23.9
   
24.4
 
Equity investment income, net
    
1.2
   
2.2
   
2.0
   
3.8
 
Interest income
    
3.2
   
3.3
   
4.8
   
5.4
 
Other income, net
    
-
   
.2
   
.2
   
.4
 
                           
Income before income taxes
   
24.2
   
13.5
   
89.6
   
68.2
 
                           
Income tax expense
    
6.2
   
5.0
   
24.4
   
15.8
 
                           
                           
Net income
  
$
18.0
  
$
8.5
  
$
65.2
  
$
52.4
  
                           
Average shares of common stock outstanding
                          
       Basic
    
45.2
   
44.5
   
45.1
   
44.4
 
       Diluted
    
45.3
   
44.6
   
45.2
   
44.5
 
                           
Earnings per average share of common stock
                          
       Basic
  
$
.40
  
$
.19
  
$
1.45
  
$
1.18
  
       Diluted
  
$
.40
  
$
.19
  
$
1.44
  
$
1.18
  


Nicor Inc.
                          
                           
PRELIMINARY FINANCIAL HIGHLIGHTS
                          
Unaudited (millions, except per share data)
                          
                           
     
Three months ended
    
Six months ended 
  
     
June 30 
    
June 30 
  
     
2007
    
2006
    
2007
    
2006
  
                           
Operating revenues
                          
       Gas distribution
  
$
431.4
  
$
338.1
  
$
1,639.8
  
$
1,548.9
  
       Shipping
    
97.0
   
94.5
   
196.1
   
189.8
 
       Other energy ventures
    
45.1
   
36.7
   
121.7
   
101.1
 
       Corporate and eliminations
    
(16.6
)
  
(18.0
)
  
(66.0
)
  
(69.1
)
   
$
556.9
  
$
451.3
  
$
1,891.6
  
$
1,770.7
  
                           
Operating income (loss)
                          
       Gas distribution
  
$
13.8
  
$
16.2
  
$
84.7
  
$
74.6
  
       Shipping
    
8.3
   
8.7
   
18.2
   
19.0
 
       Other energy ventures
    
8.0
   
1.1
   
5.3
   
(6.2
)
       Corporate and eliminations
    
(.2
)
  
(9.1
)
  
(1.7
)
  
(4.4
)
   
$
29.9
  
$
16.9
  
$
106.5
  
$
83.0
  
                           
Net income
  
$
18.0
  
$
8.5
  
$
65.2
  
$
52.4
  
                           
                           
Average shares of common stock outstanding
                          
       Basic
    
45.2
   
44.5
   
45.1
   
44.4
 
       Diluted
    
45.3
   
44.6
   
45.2
   
44.5
 
                           
Earnings per average share of common stock
                          
       Basic
  
$
.40
  
$
.19
  
$
1.45
  
$
1.18
  
       Diluted
  
$
.40
  
$
.19
  
$
1.44
  
$
1.18
  


Nicor Inc.
        
Preliminary Operating Statistics Page 1 of 2
Gas Distribution
                          
Unaudited
                          
 
  
 Three months ended 
  
 Six months ended
  
 
  
June 30 
    
June 30
  
     
2007
    
2006
    
2007
    
2006
  
Operating revenues (millions)
                          
   Sales - Residential
  
$
281.0
  
$
217.8
  
$
1,116.2
  
$
1,070.7
  
                Commercial
    
74.2
   
45.8
   
267.5
   
245.4
 
                Industrial
    
7.3
   
4.1
   
30.0
   
29.2
 
     
362.5
   
267.7
   
1,413.7
   
1,345.3
 
   Transportation - Residential
    
7.3
   
6.5
   
19.6
   
15.8
 
                                 Commercial
    
11.6
   
16.7
   
42.4
   
41.9
 
                                 Industrial
    
7.8
   
9.5
   
20.2
   
19.5
 
                                 Other
    
1.5
   
.5
   
9.4
   
.9
 
     
28.2
   
33.2
   
91.6
   
78.1
 
   Other revenues - Revenue taxes
    
28.9
   
26.0
   
101.2
   
98.6
 
                                 Environmental cost recovery
    
1.6
   
1.3
   
7.1
   
6.4
 
                                 Chicago Hub
    
2.2
   
3.3
   
9.7
   
5.8
 
                                 Other
    
8.0
   
6.6
   
16.5
   
14.7
 
     
40.7
   
37.2
   
134.5
   
125.5
 
   
$
431.4
  
$
338.1
  
$
1,639.8
  
$
1,548.9
  
Deliveries (Bcf)
                          
   Sales - Residential
    
24.8
   
24.7
   
124.3
   
107.7
 
                Commercial
    
7.1
   
5.7
   
30.1
   
24.7
 
                Industrial
    
.7
   
.5
   
3.5
   
3.0
 
     
32.6
   
30.9
   
157.9
   
135.4
 
   Transportation - Residential
    
2.4
   
2.2
   
12.1
   
9.5
 
                                 Commercial
    
11.7
   
11.9
   
48.8
   
45.7
 
                                 Industrial
    
23.7
   
24.0
   
56.6
   
54.7
 
     
37.8
   
38.1
   
117.5
   
109.9
 
     
70.4
   
69.0
   
275.4
   
245.3
 
                           
Degree days
    
636
   
560
   
3,654
   
3,217
 
Warmer than normal
                         
   Degree days
    
(51
)
  
(127
)
  
(33
)
  
(470
)
   Percent (1)
    
(7
)
  
(18
)
  
(1
)
  
(13
)
                           
Average gas cost per Mcf sold
  
$
8.58
  
$
6.22
  
$
7.69
  
$
8.46
  
                           
Customers at June 30 (thousands) (2)
                          
   Sales - Residential
    
1,799
   
1,804
             
                Commercial
    
125
   
123
             
                Industrial
    
7
   
7
             
     
1,931
   
1,934
             
   Transportation - Residential
    
169
   
153
             
                                 Commercial
    
55
   
57
             
                                 Industrial
    
6
   
6
             
     
230
   
216
             
     
2,161
   
2,150
             
                           
(1) Normal weather for Nicor Gas' service territory, for the purposes of this report, is considered to be 5,830 degree days per year.
      
(2) The company redefined the customer count methodology in April 2006 in conjunction with its new customer care and billing system.


Nicor Inc.
        
Preliminary Operating Statistics Page 2 of 2
Shipping
                          
Unaudited
  
 Three months ended
  
 Six months ended
  
 
  
 June 30
  
 June 30
  
     
2007
    
2006
    
2007
    
2006
  
                           
Operating revenues (millions)
  
$
97.0
  
$
94.5
  
$
196.1
  
$
189.8
  
                           
Operating income (millions)
  
$
8.3
  
$
8.7
  
$
18.2
  
$
19.0
  
                           
Twenty-foot equivalent units (TEU)
                         
   shipped (thousands)
    
50.5
   
48.2
   
101.3
   
97.3
 
                           
Revenue per TEU
  
$
1,923
  
$
1,963
  
$
1,936
  
$
1,951
  
                           
Ports served
    
27
   
27
             
                           
Vessels operated
   
18
   
18