UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 1-7296
NORTHERN ILLINOIS GAS COMPANY
(Exact name of registrant as specified in its charter)
Illinois 36-2863847
(State of incorporation) (I.R.S. Employer
Identification No.)
1844 Ferry Road
Naperville, Illinois 60563-9600
(Address of principal (Zip Code)
executive offices)
(708)983-8888
(Registrant's telephone number)
Registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form with a reduced disclosure
format.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Shares of common stock, par value $5, outstanding at July 31, 1995, were
15,232,414, all of which are owned by NICOR Inc.
Northern Illinois Gas Page i
Table of Contents
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited) 1
Consolidated Statement of Income -
Three, Six and Twelve Months Ended
June 30, 1995 and 1994 2
Consolidated Statement of Cash Flows -
Six and Twelve Months Ended
June 30, 1995 and 1994 3
Consolidated Balance Sheet -
June 30, 1995 and 1994, and
December 31, 1994 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
Part II. Other Information
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
Signature 11
Exhibit Index 12
Selected terms:
Mcf, Bcf - Thousand cubic feet, billion cubic feet.
Degree days - Number of degrees by which the daily
mean temperature falls below 65 degrees
Fahrenheit.
FERC - Federal Energy Regulatory Commission.
Ill.C.C. - Illinois Commerce Commission.
Northern Illinois Gas Page 1
PART I - Financial Information
Item 1. Financial Statements
The following condensed unaudited financial statements of Northern
Illinois Gas have been prepared by the company pursuant to the
rules and regulations of the Securities and Exchange Commission
(SEC). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to SEC rules and regulations. The condensed
financial statements should be read in conjunction with the
financial statements and the notes thereto included in the
company's latest Annual Report on Form 10-K.
The information furnished reflects, in the opinion of the company,
all adjustments (consisting only of normal recurring adjustments)
necessary for a fair statement of the results for the interim
periods presented. Because of seasonal and other factors, the
results for the interim periods presented are not necessarily
indicative of the results to be expected for the full fiscal year.
<TABLE>
Northern Illinois Gas Page 2
Consolidated Statement of Income (Unaudited)
(Millions)
<CAPTION>
Three months ended Six months ended Twelve months ended
June 30 June 30 June 30
1995 1994 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $ 208.9 $ 231.3 $ 778.3 $ 974.4 $1,258.8 $1,623.9
Operating expenses
Cost of gas 106.0 129.8 481.1 657.4 748.6 1,079.4
Operating and maintenance 37.3 37.1 75.0 75.8 148.1 147.3
Depreciation 16.0 14.8 57.5 52.0 95.5 88.7
Taxes, other than income taxes 19.0 21.0 65.5 78.9 98.6 120.3
Income taxes 7.9 7.2 29.4 33.5 45.7 54.3
186.2 209.9 708.5 897.6 1,136.5 1,490.0
Operating income 22.7 21.4 69.8 76.8 122.3 133.9
Other income (expense)
Interest income 2.0 .7 2.1 .8 2.6 .8
Other, net .3 (.1) .6 .2 2.2 1.1
Income taxes on other income (.9) (.2) (1.1) (.4) (1.8) (.7)
1.4 .4 1.6 .6 3.0 1.2
Interest expense
Interest on debt, net of amounts
capitalized 8.9 8.5 19.4 18.0 39.1 37.4
Other .1 .4 .3 .7 .1 1.3
9.0 8.9 19.7 18.7 39.2 38.7
Net income 15.1 12.9 51.7 58.7 86.1 96.4
Dividends on preferred stock .2 .2 .2 .3 .5 .5
Earnings applicable to common stock $ 14.9 $ 12.7 $ 51.5 $ 58.4 $ 85.6 $ 95.9
<F1>
Note: Northern Illinois Gas is a wholly owned subsidiary of NICOR Inc. Earnings per share information is
therefore omitted.
<F2>
The accompanying notes are an integral part of this statement.
</TABLE>
<TABLE>
Northern Illinois Gas Page 3
Consolidated Statement of Cash Flows (Unaudited)
(Millions)
<CAPTION>
Six months ended Twelve months ended
June 30 June 30
1995 1994 1995 1994
Operating activities
<S> <C> <C> <C> <C>
Net income $ 51.7 $ 58.7 $ 86.1 $ 96.4
Adjustments to reconcile net income to net
cash flow provided from operating activities:
Depreciation 57.5 52.0 95.5 88.7
Deferred income tax expense 2.6 2.5 1.0 3.1
111.8 113.2 182.6 188.2
Change in working capital items and other:
Accounts receivable, less allowances 115.8 154.4 20.7 (3.8)
Gas in storage 58.3 75.2 (10.3) (.9)
Deferred/accrued gas costs 54.9 49.8 27.4 57.1
Accounts payable (26.0) (25.5) 26.2 30.0
Accrued taxes 4.8 (6.1) (8.0) (7.0)
Temporary LIFO liquidation 30.7 50.1 (19.4) (7.2)
Gas refunds due customers 43.3 1.6 42.4 (.5)
Other (2.0) 2.8 (4.9) (1.4)
Net cash flow provided from operating activities 391.6 415.5 256.7 254.5
Investing activities
Capital expenditures (60.2) (54.9) (165.6) (133.2)
Other .2 (.1) .8 .6
Net cash flow used for investing activities (60.0) (55.0) (164.8) (132.6)
Financing activities
Net proceeds from issuing long-term debt - - 99.1 49.0
Disbursements to retire long-term debt - - (50.0) (78.8)
Repayments of short-term borrowings, net (188.2) (273.0) - -
Dividends paid (37.0) (38.7) (76.6) (74.0)
Other (.5) (.8) (.2) (.4)
Net cash flow used for financing activities (225.7) (312.5) (27.7) (104.2)
Net increase in cash and cash equivalents 105.9 48.0 64.2 17.7
Cash and cash equivalents, beginning of period 6.8 .5 48.5 30.8
Cash and cash equivalents, end of period $ 112.7 $ 48.5 $ 112.7 $ 48.5
<F1>
The accompanying notes are an integral part of this statement.
</TABLE>
<TABLE>
Northern Illinois Gas Page 4
Consolidated Balance Sheet (Unaudited)
(Millions)
<CAPTION>
June 30 December 31 June 30
Assets 1995 1994 1994
<S> <C> <C> <C>
Gas distribution plant, at cost $ 2,766.5 $ 2,693.4 $ 2,594.7
Less accumulated depreciation 1,143.1 1,094.8 1,060.9
1,623.4 1,598.6 1,533.8
Other property and investments, net of accumulated
depletion of $34.4, $34.4 and $36.3, respectively 8.1 7.9 8.0
Current assets
Cash and cash equivalents - Other 48.1 6.8 -
- Affiliates 64.6 - 48.5
Accounts receivable, less allowances of $6.1,
$4.4 and $7.4, respectively 86.4 202.2 107.1
Gas in storage, at last-in, first-out (LIFO) cost 11.7 91.2 22.6
Deferred gas costs - 34.6 7.1
Other 23.9 25.7 23.4
234.7 360.5 208.7
Other assets 54.5 50.5 42.3
$ 1,920.7 $ 2,017.5 $ 1,792.8
Capitalization and Liabilities
Capitalization
Long-term debt $ 446.6 $ 446.4 $ 446.7
Preferred stock
Redeemable 9.1 9.6 9.6
Nonredeemable 1.4 1.4 1.4
Common equity
Common stock 76.2 76.2 76.2
Paid-in capital 107.9 107.8 107.8
Retained earnings 499.5 502.0 487.4
1,140.7 1,143.4 1,129.1
Current liabilities
Long-term obligations due within one year 50.5 50.5 .5
Short-term borrowings - 188.2 -
Accounts payable 204.7 230.7 178.5
Gas refunds due customers 45.6 2.3 3.2
Accrued interest 37.7 37.7 37.6
Temporary LIFO liquidation 30.7 - 50.1
Accrued gas costs 20.3 - -
Accrued taxes 16.2 11.4 24.2
Other 17.2 - 19.9
422.9 520.8 314.0
Deferred credits and other liabilities
Deferred income taxes 166.6 163.4 160.6
Regulatory income tax liability 88.6 89.9 93.6
Unamortized investment tax credits 51.7 53.5 54.9
Other 50.2 46.5 40.6
357.1 353.3 349.7
$ 1,920.7 $ 2,017.5 $ 1,792.8
<F1>
The accompanying notes are an integral part of this statement.
</TABLE>
Northern Illinois Gas Page 5
Notes To Consolidated Financial Statements (Unaudited)
ACCOUNTING POLICIES
Depreciation. Depreciation is calculated using a straight-line method for
the calendar year. For interim periods, depreciation is allocated based on
gas deliveries.
Gas in Storage. Gas in storage injections and withdrawals are valued using
the last-in, first-out (LIFO) method on a calendar-year basis. For interim
periods, the difference between current replacement cost and the LIFO cost
for quantities of gas temporarily withdrawn from storage is recorded in cost
of gas as a temporary LIFO liquidation.
CASH FLOW INFORMATION
Income taxes paid, net of refunds, and interest paid, net of amounts
capitalized, for the periods ended June 30 were (millions):
Six months Twelve months
1995 1994 1995 1994
Income taxes paid $20.9 $33.2 $57.0 $59.9
Interest paid 19.2 17.8 38.1 38.5
REGULATORY MATTERS
Rate Proceeding. On May 8, 1995, Northern Illinois Gas filed with the
Ill.C.C. for a 5.4 percent, $73 million general rate increase. The company
is seeking a rate of return on original-cost rate base of 10.67 percent,
which reflects a 12.95 percent cost of common equity. The requested general
rate increase is needed to recover costs associated with enhancements to the
company's underground storage and delivery system, other capital costs and
rising operating costs. The filing also proposes revisions to some services
provided to commercial and industrial customers. The Ill.C.C. has up to 11
months to decide the case.
LONG-TERM DEBT
In July 1995, Northern Illinois Gas retired $50 million of 5-1/2% unsecured
Notes. The company financed the retirement with general corporate funds.
CONTINGENCIES
The company is involved in legal or administrative proceedings before
various courts and agencies with respect to rates, taxes and other matters.
Northern Illinois Gas Page 6
Notes To Consolidated Financial Statements (Unaudited)
(Concluded)
CONTINGENCIES (Concluded)
Current environmental laws may require cleanup of certain former gas
manufacturing plant sites. Northern Illinois Gas currently owns 15
properties and formerly owned or leased 13 properties believed to be the
location of such sites. The company has presented information regarding
preliminary reviews of the 28 sites to the Illinois Environmental Protection
Agency. More detailed investigations are currently in progress or planned
for 1995 at several of the 28 sites. At three of these sites, the current
owner or lessee is seeking to allocate cleanup costs to all former owners,
including Northern Illinois Gas.
The results of continued testing and analysis should determine to what
extent remediation is necessary and may provide a basis for estimating any
additional costs to be incurred. While such costs, based on industry
experience, could be significant, the company believes that any such costs
not recovered from prior owners and other sources will be recoverable by
Northern Illinois Gas through its rates. This conclusion is based upon,
among other things, an Ill.C.C. authorization allowing recovery of such
costs by the company and a generic order issued by the Ill.C.C. in September
1992. The generic order states that Illinois utilities may pass through
prudently incurred gas manufacturing plant cleanup costs to ratepayers over
a five-year period, but denies the utilities' request to recover capital
costs on the uncollected balances. In December 1993, the generic order was
upheld by the Illinois Appellate Court. In January 1994, the company began
recovery of cleanup costs from its customers in accordance with an Ill.C.C.-
approved cost recovery plan. In April 1994, the Illinois Supreme Court
agreed to hear an appeal filed by a consumer group. The consumer group
argued that no cleanup costs should be recoverable from ratepayers.
Northern Illinois Gas and other utilities argued that they should be
entitled to recover capital costs in addition to cleanup costs. On April
20, 1995, the Illinois Supreme Court issued an opinion upholding the
utilities' positions and returned the matter to the Ill.C.C.
Although unable to determine the outcome of these contingencies, management
believes that appropriate accruals have been recorded. Final disposition of
these matters is not expected to have a material impact on the company's
financial condition or results of operations.
Northern Illinois Gas Page 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should be read in conjunction with the Management's
Discussion and Analysis section of the Northern Illinois Gas 1994 Annual
Report on Form 10-K.
RESULTS OF OPERATIONS
Net income for the second quarter of 1995 rose $2.2 million to $15.1 million
from the corresponding 1994 period primarily due to the positive impact of
colder weather. For the six- and twelve-month periods, net income decreased
$7 million and $10.3 million to $51.7 million and $86.1 million,
respectively, primarily due to the impact of warmer weather and higher
depreciation.
Operating revenues decreased $22.4 million, $196.1 million and $365.1
million in the three-, six- and twelve-month periods, respectively,
principally due to lower natural gas costs which are passed through to sales
customers. The impact of warmer weather also contributed to the decrease in
the six- and twelve-month periods.
Margin, defined as operating revenues less cost of gas and revenue taxes, is
shown in the following table, for the periods ended June 30. The primary
cause for the variation in margin is weather, which was colder for the
second quarter but warmer in the six- and twelve-month periods.
Three months Six months Twelve months
1995 1994 1995 1994 1995 1994
Margin (millions) $ 87.2 $ 83.8 $241.9 $248.5 $429.8 $442.2
Margin per Mcf
delivered 1.00 1.01 .83 .83 .87 .86
Depreciation expense increased in each period primarily as a result of plant
additions.
Interest on debt increased due to higher borrowing levels in the quarter,
higher interest rates in the twelve-month period and both factors for the
year-to-date period. Other interest expense declined in each period as a
result of lower interest on income tax adjustments.
Interest income increased for each period due to increased investment levels
and higher interest rates.
Northern Illinois Gas Page 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
FINANCIAL CONDITION
Net cash flow from operating activities decreased $23.9 million to $391.6
million for the six-month period as the timing of recovery of gas costs from
customers more than offset the receipt of $40 million in purchased gas
refunds. Net cash flow from operations may fluctuate widely from one
interim period to another due to the seasonal nature of Northern Illinois
Gas' business. The company generally relies on short-term financing to meet
temporary working capital needs.
The company maintains short-term credit agreements with major domestic and
foreign banks. At June 30, 1995, these agreements, which serve as backup
for the issuance of commercial paper, totaled $250 million. The company had
no commercial paper outstanding.
In July 1995, Northern Illinois Gas retired $50 million of 5-1/2% unsecured
Notes. The company financed the retirement with general corporate funds.
RATE PROCEEDING
On May 8, 1995, Northern Illinois Gas filed with the Ill.C.C. for a
5.4 percent, $73 million general rate increase. The company is seeking a
rate of return on original-cost rate base of 10.67 percent, which reflects a
12.95 percent cost of common equity. The requested general rate increase is
needed to recover costs associated with enhancements to the company's
underground storage and delivery system, other capital costs and rising
operating costs. The filing also proposes revisions to some services
provided to commercial and industrial customers. The Ill.C.C. has up to 11
months to decide the case.
OTHER MATTERS
In January 1994, the company began recovery of gas manufacturing plant
cleanup costs from its customers in accordance with an Ill.C.C.-approved
cost recovery plan. In April 1994, the Illinois Supreme Court agreed to
hear an appeal filed by a consumer group. The consumer group argued that no
cleanup costs should be recoverable from ratepayers. Northern Illinois Gas
and other utilities argued that they should be entitled to recover capital
costs in addition to cleanup costs. On April 20, 1995, the Illinois Supreme
Court issued an opinion upholding the utilities' positions and returned the
matter to the Ill.C.C. For further information, see Contingencies beginning
on page 5.
Although unable to determine the outcome of this matter, management believes
that the appropriate accrual has been recorded. Final disposition of this
matter is not expected to have a material impact on the company's financial
condition or results of operations.
<TABLE>
Northern Illinois Gas Page 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Concluded)
OPERATING STATISTICS
Changes in weather can have a material effect on operating results; selected weather statistics are in the table
below. Operating revenues, deliveries and other data are as follows:
<CAPTION>
Three months ended Six months ended Twelve months ended
June 30 June 30 June 30
1995 1994 1995 1994 1995 1994
Operating revenues (millions):
Sales
<S> <C> <C> <C> <C> <C> <C>
Residential $ 131.7 $ 148.3 $ 499.5 $ 626.6 $ 812.2 $1,053.5
Commercial 31.9 36.2 132.6 178.8 213.7 298.9
Industrial 4.7 6.4 23.0 37.5 35.7 58.6
168.3 190.9 655.1 842.9 1,061.6 1,411.0
Transportation
Commercial 8.6 7.3 27.8 24.0 45.5 41.6
Industrial 13.5 11.0 32.5 27.2 56.5 50.9
22.1 18.3 60.3 51.2 102.0 92.5
Revenue taxes and other 18.5 22.1 62.9 80.3 95.2 120.4
$ 208.9 $ 231.3 $ 778.3 $ 974.4 $1,258.8 $1,623.9
Deliveries (Bcf):
Sales
Residential 33.1 28.9 133.1 138.8 210.1 228.9
Commercial 8.3 7.2 35.3 39.9 55.9 65.8
Industrial 1.4 1.4 6.6 8.9 10.1 13.8
42.8 37.5 175.0 187.6 276.1 308.5
Transportation
Commercial 9.2 8.3 34.4 32.1 56.5 54.1
Industrial 35.3 36.8 83.2 80.8 159.3 151.3
44.5 45.1 117.6 112.9 215.8 205.4
87.3 82.6 292.6 300.5 491.9 513.9
Gas cost per Mcf sold $ 2.35 $ 3.39 $ 2.66 $ 3.45 $ 2.63 $ 3.44
Weather statistics:
Degree days 726 629 3,692 4,022 5,535 6,357
Percent colder (warmer) than normal 6 (8) (4) 5 (10) 4
Customers at end of period (thousands):
Sales
Residential 1,638.7 1,608.0
Commercial 140.6 140.5
Industrial 11.5 11.5
1,790.8 1,760.0
Transportation
Commercial 16.1 14.1
Industrial 2.4 2.2
18.5 16.3
1,809.3 1,776.3
</TABLE>
Northern Illinois Gas Page 10
PART II - Other Information
Item 1. Legal Proceedings
For information concerning legal proceedings, see Contingencies in
Notes to Consolidated Financial Statements beginning on page 5,
which is incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index on page 12 filed herewith.
(b) The company did not file a report on Form 8-K during the second
quarter of 1995.
Northern Illinois Gas Page 11
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Northern Illinois Gas Company
Date August 10, 1995 By DAVID L. CYRANOSKI
David L. Cyranoski
Senior Vice President, Secretary
and Controller
Northern Illinois Gas Page 12
Exhibit Index
Exhibit
Number Description of Document
12.01 Computation of Consolidated Ratio of Earnings to Fixed Charges.
27.01 Financial Data Schedule.
<TABLE>
Northern Illinois Gas Company
Form 10-Q
Exhibit 12.01
NORTHERN ILLINOIS GAS COMPANY
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
(Thousands)
<CAPTION>
Twelve
Months Ended
June 30 Year Ended December 31
1995 1994 1993 1992 1991 1990
Earnings available to cover
fixed charges:
<S> <C> <C> <C> <C> <C> <C>
Net income $ 86,127 $ 93,078 $ 94,935 $ 91,239 $ 91,368 $ 85,397
Add: Income taxes 47,476 50,958 52,890 49,578 47,664 45,217
Fixed charges 38,948 37,729 40,960 41,648 40,969 40,654
Allowance for funds used
during construction (275) (151) (64) (915) (700) (51)
Total $ 172,276 $ 181,614 $ 188,721 $ 181,550 $ 179,301 $ 171,217
Fixed charges:
Interest on debt $ 38,417 $ 36,726 $ 38,949 $ 39,773 $ 36,270 $ 34,345
Other interest charges and
amortization of debt discount,
premium and expense, net 531 1,003 2,011 1,875 4,699 6,309
Total $ 38,948 $ 37,729 $ 40,960 $ 41,648 $ 40,969 $ 40,654
Ratio of earnings to fixed charges 4.42 4.81 4.61 4.36 4.38 4.21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME, THE CONSOLIDATED BALANCE SHEET AND THE
CONSOLIDATED STATEMENT OF CASH FLOW AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUN-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1623
<OTHER-PROPERTY-AND-INVEST> 8
<TOTAL-CURRENT-ASSETS> 235
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 55
<TOTAL-ASSETS> 1921
<COMMON> 76
<CAPITAL-SURPLUS-PAID-IN> 108
<RETAINED-EARNINGS> 500
<TOTAL-COMMON-STOCKHOLDERS-EQ> 684
9
1
<LONG-TERM-DEBT-NET> 446
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 50
1
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 730
<TOT-CAPITALIZATION-AND-LIAB> 1921
<GROSS-OPERATING-REVENUE> 778
<INCOME-TAX-EXPENSE> 29
<OTHER-OPERATING-EXPENSES> 679
<TOTAL-OPERATING-EXPENSES> 708
<OPERATING-INCOME-LOSS> 70
<OTHER-INCOME-NET> 2
<INCOME-BEFORE-INTEREST-EXPEN> 72
<TOTAL-INTEREST-EXPENSE> 20
<NET-INCOME> 52
0
<EARNINGS-AVAILABLE-FOR-COMM> 52
<COMMON-STOCK-DIVIDENDS> 54
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 392
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0
<FN>
<F1>NORTHERN ILLINOIS GAS IS A WHOLLY OWNED SUBSIDIARY OF NICOR INC.
EARNING PER SHARE INFORMATION IS THEREFORE OMITTED.
</FN>
</TABLE>
