Operator: Good day, ladies and gentlemen and welcome to this Piedmont Natural Gas Year End 2010 Earnings Conference. Just a reminder that today's call is being recorded.
At this time, I'd like to turn the call over to Mr. Nick Giaimo, Head of Investor Relations. Please go ahead, sir.
Nick Giaimo - IR: Thank you, Lisa. Good morning, everyone and thank you for joining the Piedmont Natural Gas year end 2010 earnings conference call. This call is open to the general public and is being webcast live over the Internet. If you would like to access the webcast of this call or view the slides of the accompanying presentation, please visit our website at piedmontng.com and choose the 'For Investors' link. On the right hand side of that page you will find the appropriate links.
On the call today presenting prepared remarks we have Dave Dzuricky, Senior Vice President and Chief Financial Officer. Other officers of the Company are also in attendance to take your questions. At the conclusion of the prepared remarks, we will open the call to take your questions.
Finally, this call may include forward-looking statements and actual results may materially differ from those statements. More information about the risks and uncertainties relating to these forward-looking statements may be found in Piedmont's latest Form 10-K.
With that I'll turn the call over to Dave.
David J. Dzuricky - SVP and CFO: Thanks, Nick and Happy New Year to everybody. Good morning and thank you for joining us for our year end 2010 earnings conference call. Before we begin, let me give you a brief update on Tom Skains, our Chairman, President, and Chief Executive Officer.
As you all know, Tom underwent elective surgery yesterday to repair a genetic abnormality in a cerebral blood vessel. I'm very pleased to report that the surgery was a success. Tom's recovering at the moment and we expect him back in three to four weeks.
In the interim, I've been delegated Tom's managerial responsibilities, while Malcolm Everett, Piedmont's Independent Lead Director has assumed the Board Chairman role. Tom asked me to take a moment and thank you all for the support and well wishes he's received over the last few weeks.
At Piedmont, we filed our 2010 10-K and issued our yearend earnings release on December 23. This morning, I'm going to talk about our 2010 accomplishment and provide you with the general update on the Company then I'll move into a more detailed discussion of our 2010 financial results and our 2011 guidance.
I'll begin on slide 2, since Nick has already covered the first slide. Very proud of our team's accomplishment in 2010, during a year of continuing economic challenges, we were able once again to achieve record net income and earnings per share, including the gain on the sale of half of our ownership interest in SouthStar to AGL Resources.
While the housing markets remained stagnant, we added nearly 11,000 customers of which almost 20% was residential conversions. We also announced $379 million project portfolio with Progress Energy and Duke Energy to provide natural gas transportation service to five power generation facilities in North Carolina.
In addition, we used proceeds from our sale of SouthStar to reduce average shares outstanding for the year by 1 million. Then, finally, we once again demonstrated our financial strength by raising our quarterly dividend in 2010 for the 32nd consecutive year.
Allow me to speak to these accomplishments in a bit more detail. Slide 3 shows our 2010 earnings of $142 million which was 16% higher than in 2009. The $49.7 million pre-tax gain from the sale of SouthStar as well as lower interest expense were somewhat offset by lower margin due mostly to gas cost adjustments, higher expenses due to higher employee expenses and lower contributions from SouthStar.
Excluding the gain on the sale of SouthStar, earnings for 2010 appeared substantially lower than in 2009, however, adjusting for the ownership change in SouthStar for a normalized level of amounts due from customers that benefited interest expense in 2009 and for weather and accounting adjustments that affected margin, earnings were slightly higher in 2010 and in 2009.
On slide 4, we highlighted our gross customer additions for the year, while new customer additions were lower than last year we’re very pleased to have added 10,975 customers in this environment, a gross growth rate of 1.1%.
In addition to our continued work on residential conversions, we’ve seen some stabilization in our residential new construction markets which we see as the first step towards an overall improvement in the economy of our service territory. As a result, we’re forecasting a gross customer addition growth rate in 2011 of 1.2%.
Moving to slide 5. Back in May, we introduced our Power Generation Project Portfolio which consists of five executed contracts to provide Duke Energy and Progress Energy with natural transportation service to new combined-cycle generation plants in North Carolina. These projects will total $379 million in capital expenditures from 2010 to 2013.
Since our last update we've completed work at Progress' Richmond facility and Duke's Buck facility. All of the other projects in the portfolio are progressing well and remain on track for their targeted completion dates.
On slide 6, we've updated our capital expenditure forecast for 2011 through 2013, including the breakout of when we will spend the $379 million associated with our Power Generation Project Portfolio.
As you can see, most of that spend will occur in 2011 and 2012. These forecasted figures include AFUDC balances and may be subject to some further refinement. Overall, these projects and the associated expenditures will allow us to grow the Company even during this period of muted small volume customer growth.
Slide 7, demonstrates how our consistent financial performance allows us to reward our shareholders.
In 2010 we raised our dividends for the 32nd consecutive year. We are committed to long-term shareholder value and understand the importance for the growing dividend to our shareholders.
As for details on the income statement let’s start with slide 8. Margin of $553 million decreased almost 2% compared to 2009 due to net gas cost adjustments, lower margin from secondary market transactions and lower contribution from residential and commercial customers due to warmer weather in months not covered by our weather normalization adjustment causes in South Carolina and Tennessee. This was somewhat offset by customer growth.
On the expense side, slide 9, O&M of $220 million was 6% higher than last year, due to various increases in employee-related expenses, including higher payroll and incentive expense and higher pension expense. Contract labor was also higher mostly due to the rebranding effort we announced at the beginning of the year.
On slide 10, income from the joint ventures was $29 million in 2010, 14% lower than in 2009 due to the change in our ownership percentage of SouthStar effective January 1 of this year. However, excluding the effect of the ownership change, income from joint ventures would have been higher than in 2009.
Slide 11, shows utility interest charges for the year at $44 million, 6% lower than last year. The decline in net interest expense was due to higher AFUDC on several major projects, lower interest expense on long-term debt due to lower amounts outstanding, and lower interest expense on short-term debt due to lower rates and borrowings. This was partially offset by a decrease in interest income due to lower amounts due from our customers. All other income statement categories tracked along their normal trends.
Finally, in the earnings release, we reaffirmed our fiscal year 2011 guidance for the $1.50 to $1.60 per share that we initially issued in November. Our guidance range includes gross customer additions of 1.2%, a $1 million margin increase in South Carolina under the Rate Stabilization Act mechanism, and a 2.3% increase in O&M expense due to higher payroll, pension and medical costs.
Capital expenditures are expected to be $313 million in 2011, a $146 million of which will be for power generation projects. On the financing side, we are planning to close on our new $650 million three-year revolving credit facility later this month. In addition, we will be refinancing our 6.25% long-term insured quarterly notes in June of this year, with lower cost long-term debt. We don't anticipate the need to issue any additional long-term debt until 2012.
Finally, on behalf of Tom and the entire executive management team, I'd like to express my appreciation to all of our employees who are dedicated to performance excellence, high-quality customer service and safe and reliable utility operations. It's their effort that led us to a successful 2010.
With that I'll turn the call back over to Nick.
Nick Giaimo - IR: Thanks, Dave. Lisa, we're now ready to open the call for questions.
Operator: There appear to be no questions today. I’ll turn the conference back over to our speakers for any additional or closing remarks.
Nick Giaimo - IR: All right, thanks, Lisa. This concludes our year end 2010 earnings conference call. We thank you all for joining us this morning.
Operator: Once again, ladies and gentlemen that does conclude today’s conference. Thank you all for your participation.
Operator: The event is not accompanied by Q&A