NiSource ( NI)

Q4 2010 Earnings Call

February 1, 2011 9:00 am ET

Executives

Glen Kettering - SVP Corporate Affairs

Bob Skaggs - President and CEO

Steve Smith - EVP, CFO

Analysts

Paul Ridzon - KeyBanc

Carl Kirst - BMO Capital

Faisel Khan - Citigroup

James Dobson - Wunderlich Securities

Jonathan Lefebvre - Wells Fargo

Elvira Scotto - Credit Suisse

Ben Sung - Luminus Management

Paul Patterson - Glenrock Associates

Josh Golden - JPMorgan

Ashar Khan - Visium Asset Management

Presentation

Glen Kettering - SVP Corporate Affairs

Bob Skaggs - President and CEO

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the fourth quarter 2010 NiSource earnings conference call. My name is [Danielle] and I will be your operator for today.

At this time, all participants are in listen-only mode and later we will conduct a question-and-answer session. (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. Glen Kettering, Senior Vice President of Corporate Affairs. Please proceed.

Glen Kettering

Thank you and good morning. On behalf of NiSource, I'd like to welcome you to our quarterly analyst call. Joining me this morning are Bob Skaggs, President and Chief Executive Officer; Steve Smith, Executive Vice President and Chief Financial Officer; and Randy Hulen, Managing Director of Investor Relations.

As you know, the focus of today's call is to review our financial performance for the fourth quarter and full year of 2010 and to provide a business update. We'll then open the call to your questions. At times during the call, we will refer to the supplemental slides available on our website at nisource.com.

I'd like to remind you that some of the statements made on this conference call will be forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. Information concerning such risks and uncertainties is included in the MD&A and Risk Factors sections of our periodic SEC filings.

Now I'll turn the call over to Bob Skaggs.

Bob Skaggs

Thanks, Glen. Good morning and thanks for joining us. Today we'll cover several key points before opening the line to your questions.

First, I'll address NiSource's strong overall performance for 2010. As you can see, the team once again delivered financial results in line with our earnings guidance while taking significant steps towards meeting customer needs, creating shareholder value and generating long-term sustainable earnings growth.

I'll also touch on the foundational actions taken during 2010 to strengthen NiSource's financial profile and enhance our ability to fund a wide array of attractive infrastructure modernization and growth investment opportunities.

Finally, I'll outline our 2011 earnings guidance, which reflects our continued commitment to sustainable earnings growth and underscores the underlying strength of NiSource's core businesses in the markets that we serve.

So first let's turn to our 2010 results. For the year, we continued to see positive customer benefits, enhanced shareholder value and sustainable earnings growth from NiSource's well-established infrastructure investment-driven strategy.

During 2010, our team executed on a broad array of key regulatory and financial initiatives, infrastructure enhancement programs and new growth projects. These achievements, combined with improved margins and increased usage in our industrial electric markets, enabled us to deliver on our earnings commitments for the fourth consecutive year.

For 2010, that means delivering earnings squarely in line with the increased non-GAAP range of the $1.20 to $1.25 per share that we provided when we reported earnings for the third quarter. Notably, we achieved these results while remaining responsive to the needs of our customers and other key stakeholders.

On slide three of the supplemental slides, you can see that NiSource delivered 2010 net operating earnings, non-GAAP, of about $340 million, or $1.22 per share, compared to $1.07 per share last year, representing a 14% increase over 2009.

Our earnings release and supplemental slides spell out the details regarding our improved 2010 results. But here are just a few highlights.

We saw materially improved industrial margins and usage in our electric business, which helped boost operating earnings by more than $50 million over 2009. In addition, our gas distribution infrastructure enhancements and regulatory initiatives helped generate more than $50 million in [added] revenues.

In our gas pipeline and storage business, the successful completion of growth projects helped increase demand marginal revenues by more than $20 million over 2009 despite the fact that a number of our projects were in service for only a portion of the year. These results reflect the core strength of our business plan, the focus of our team as well as continued signs of resilience in our key markets.

Going forward, I'm convinced that NiSource's established infrastructure investment-driven strategy will continue to generate positive results for our company, our customers and our investors. We remain committed to this strategy and are focused on executing it in a disciplined, thoughtful manner.

Turning to slide four, this slide highlights several key initiatives Steve Smith and our finance team completed during 2010. These efforts significantly strengthened our financial profile and positioned us to fund our compelling array of infrastructure investment opportunities.

Most notably, in September, we completed a $400 million equity offering. This offering, which was structured as a forward sale arrangement aligns with and strongly supports our targeted annual capital investment level, which I'm pleased to note for 2011 is targeted at up to $1.1 billion.

In addition, in December, we successfully tendered nearly $275 million in debt and concurrently executed a 30-year debt offering of $250 million. This will reduce our interest expense by about $10 million in 2011 and extends the maturity of our debt profile.

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