(Source: PRNewswire-FirstCall)
CHICAGO, Aug. 5 /PRNewswire-FirstCall/ -- Integrys Energy Group, Inc. recognized net income attributed to common shareholders on a GAAP (generally accepted accounting principles) basis of $34.7 million ($0.45 diluted earnings per share) for the quarter ended June 30, 2009, compared with net income attributed to common shareholders on a GAAP basis of $24.1 million ($0.31 diluted earnings per share) for the quarter ended June 30, 2008.
Second quarter 2009 net income attributed to common shareholders of $34.7 million included $14.4 million of certain after-tax items, consisting of $26.3 million of after-tax non-cash gains related to derivative and inventory accounting activities at Integrys Energy Services, Inc., partially offset by $11.9 million of after-tax expenses related to restructuring activities at Integrys Energy Services. Second quarter 2008 net income attributed to common shareholders of $24.1 million included $9.1 million of after-tax non-cash losses related to derivative and inventory accounting activities at Integrys Energy Services, and a $6.5 million after-tax non-cash goodwill impairment loss related to the natural gas utility segment. Exclusive of these certain after-tax items recognized in the second quarters of 2009 and 2008, Integrys Energy Group's earnings would have decreased quarter-over-quarter, to net income attributed to common shareholders of $20.3 million ($0.26 diluted earnings per share) for the quarter ended June 30, 2009, from net income attributed to common shareholders of $39.7 million ($0.52 diluted earnings per share) for the quarter ended June 30, 2008.
"Our core utility operations continue to perform well, despite the recessionary economic environment," said Charles Schrock, President and Chief Executive Officer of Integrys Energy Group. "We are executing our strategy to strengthen our balance sheet through the Integrys Energy Services divestiture, and the Integrys Energy Services of Canada Corp. transaction announced in July will result in a roughly $300 million reduction in our collateral support requirements. Long-term growth will be driven by our core regulated utilities, as we make operational improvements and complete rate cases, and as the Integrys Energy Services divestiture activity enhances our ability to fund regulated investment opportunities."
Highlights: -- Financial results at the natural gas utility segment improved 55.9% quarter-over-quarter, primarily related to a $6.5 million after-tax non-cash goodwill impairment loss recorded in the second quarter of 2008. -- Quarter-over-quarter, net income attributed to common shareholders at the electric utility segment increased 13.4%, driven by additional revenues recorded to generate the residential and small commercial and industrial margins approved in the 2009 rate case (i.e. - decoupling), higher margin from wholesale customers, and an increase in retail electric rates, partially offset by the negative impact on earnings of lower electric sales volumes to residential and commercial and industrial customers. -- Net income attributed to common shareholders in the amount of $11.4 million was recognized at Integrys Energy Services during the second quarter of 2009, representing a 26.7% increase over the same quarter in 2008. Higher earnings were primarily driven by non-cash accounting gains generally due to the partial recovery of non-cash accounting losses related to derivative fair value and inventory valuation adjustments recorded in prior periods, as well as an increase in realized retail electric margins, partially offset by a decrease in realized natural gas margins, restructuring expenses recorded in the second quarter of 2009, and higher quarter-over-quarter operating and maintenance expense. Details regarding Integrys Energy Group's financial results for the quarters ended June 30 are as follows: Integrys Energy Group's GAAP Results (Millions, except per share amounts) 2009 2008 Change ---- ---- ------ Net income attributed to common shareholders $34.7 $24.1 44.0% Basic earnings per share $0.45 $0.31 45.2% Diluted earnings per share $0.45 $0.31 45.2% Average shares of common stock Basic 76.8 76.6 0.3% Diluted 76.8 76.9 (0.1%) ---- ---- ----- Significant factors impacting the change in earnings and earnings per share were as follows: -- A net loss of $4.1 million was recognized at the regulated natural gas utility segment during the second quarter of 2009, compared with a net loss of $9.3 million recognized during the same quarter in 2008. The $5.2 million decrease in the net loss was driven by: - A non-cash after-tax goodwill impairment loss of $6.5 million recorded in the second quarter of 2008 related to North Shore Gas Company. - An approximate $3 million ($1.8 million after-tax) net positive quarter-over-quarter impact on margin as a result of rates, primarily related to rate increases at Michigan Gas Utilities Corporation and Minnesota Energy Resources Corporation. Partially offsetting the above increases: - Operating and maintenance expenses increased $3.3 million ($2.0 million after-tax), primarily related to a $3.1 million ($1.9 million after-tax) increase in pension and other postretirement expenses and a $3.0 million ($1.8 million after-tax) increase in injuries and damages expense, partially offset by a $3.1 million ($1.9 million after-tax) reduction in bad debt expense. The reduction in bad debt expense was driven by an average 57% decrease in the per-unit cost of natural gas sold by the natural gas utilities in the second quarter of 2009, compared with the same quarter in 2008. - A 12.1% decrease in natural gas throughput volumes, attributed to the negative impact of the general economic slowdown, drove an approximate $2 million ($1.2 million after-tax) negative quarter-over-quarter impact on the natural gas utility segment margin. This quarter-over-quarter decrease in margin included the impact of decoupling mechanisms that were first effective for The Peoples Gas Light and Coke Company (Peoples Gas) and North Shore Gas on March 1, 2008, and for Wisconsin Public Service on January 1, 2009. Under decoupling, these utilities are allowed to defer the difference between the actual and rate case authorized delivery charge components of margin from certain customers and adjust future rates in accordance with rules applicable to each jurisdiction. The decoupling mechanism for Wisconsin Public Service's natural gas utility includes an annual $8.0 million pre-tax ceiling for the deferral of any excess or shortfall from the rate-case authorized margin. Approximately $3 million of additional revenues were recognized due to a shortfall from the rate-case authorized margin during the six months ended June 30, 2009. -- During the second quarter of 2009, the regulated electric utility segment recognized net income attributed to common shareholders of $22.9 million, compared with net income attributed to common shareholders of $20.2 million during the same quarter in 2008. The $2.7 million change was driven by: - An approximate $5 million ($3.0 million after-tax) increase in margin from wholesale customers related to an increase in contracted sales volumes with a large existing customer and an increase in demand charges to wholesale customers to recover costs related to the Weston 4 generation plant. - An approximate $4 million ($2.4 million after-tax) increase in margin from the effect of the July 4, 2008 fuel surcharge that was incorporated into Wisconsin Public Service's 2009 non-fuel base retail electric rates. - Electric utility earnings related to residential and commercial and industrial customers increased $4 million ($2.4 million after-tax) during the quarter ended June 30, 2009, compared with the same quarter in 2008. This quarter-over-quarter impact on the electric utility margin included the impact of a decoupling mechanism that first became effective for Wisconsin Public Service on January 1, 2009. Under decoupling, Wisconsin Public Service is allowed to defer the difference between its actual margin and the rate case authorized margin recognized from residential and small commercial and industrial customers. In the second quarter of 2009, the difference between the actual and authorized margin was approximately $8 million ($4.8 million after-tax); therefore, Wisconsin Public Service recognized a regulatory asset under decoupling for this difference. Sales volumes related to all electric residential and commercial and industrial customers declined 5.2% quarter-over-quarter, resulting in an approximate $4 million ($2.4 million after-tax) negative impact on margin, attributed to the general economic slowdown. It is important to note that the rate order for this four-year pilot program for electric decoupling has an annual $14.0 million pre-tax ceiling for the deferral of any excess or shortfall from the rate-case authorized margin. This ceiling was reached in the second quarter of 2009; therefore, no additional decoupling deferral can be recorded if there are any additional shortfalls from authorized margin for the remainder of the year. - Partially offsetting the above increases was a $2.0 million after-tax increase in electric maintenance expense and a $1.2 million after-tax increase in pension and other postretirement costs. The increase in electric maintenance expense was driven by major planned outages at the Weston 4 generation plant and the Pulliam generation plant in the second quarter of 2009, compared with fewer planned outages during the same period in 2008. -- Net income attributed to common shareholders at Integrys Energy Services increased $2.4 million, from earnings of $9.0 million for the quarter ended June 30, 2008, to earnings of $11.4 million for the same quarter in 2009, driven by: - A $35.4 million after-tax increase in Integrys Energy Services' margin quarter-over-quarter related to non-cash activity, due to a $63.7 million after-tax increase related to non-cash activity associated with natural gas operations, partially offset by a $28.3 million after-tax decrease related to non-cash activity associated with electric operations. An overview of this non-cash activity is provided below. Non-cash natural gas operations: The market price of natural gas declined modestly in the second quarter of 2009, decreasing approximately 1% from March 31, 2009 to June 30, 2009, driving additional negative after-tax non-cash lower-of-cost-or-market inventory adjustments of $4.2 million for the quarter ended June 30, 2009. These lower-of-cost-or-market adjustments were required to reflect natural gas in storage at June 30, 2009 at its net realizable value, as required by GAAP. Quarter-over-quarter, the natural gas withdrawn from storage and sold to customers had a $32.6 million lower cost basis as a result of lower-of-cost-or-market adjustments recorded in prior periods.
