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 March 31, 1996
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 April 30, 1996, 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 and Twelve Months Ended
March 31, 1996 and 1995 2
Consolidated Statement of Cash Flows -
Three and Twelve Months Ended
March 31, 1996 and 1995 3
Consolidated Balance Sheet -
March 31, 1996 and 1995, and
December 31, 1995 4
Notes to the 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:
Ill.C.C. - Illinois Commerce Commission.
Mcf, Bcf - Thousand cubic feet, billion cubic feet.
Degree days - Number of degrees by which the daily
mean temperature falls below 65 degrees
Fahrenheit.
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 Twelve months ended
March 31 March 31
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Operating revenues $ 652.5 $ 569.4 $1,395.8 $1,281.2
Operating expenses
Cost of gas 439.4 375.1 851.5 772.4
Operating and maintenance 39.3 37.7 156.7 148.0
Depreciation 46.3 41.5 103.6 94.2
Taxes, other than income taxes 51.5 46.6 105.9 100.6
Income taxes 24.3 21.4 51.5 44.9
600.8 522.3 1,269.2 1,160.1
Operating income 51.7 47.1 126.6 121.1
Other income (expense)
Interest income - .1 2.4 1.3
Other, net .3 .2 1.2 1.6
Income taxes on other income (.1) (.1) (1.3) (1.1)
.2 .2 2.3 1.8
Interest expense
Interest on debt, net of amounts capitalized 10.6 10.5 38.1 38.8
Other .3 .1 1.0 .2
10.9 10.6 39.1 39.0
Net income 41.0 36.7 89.8 83.9
Dividends on preferred stock .1 .2 .5 .5
Earnings applicable to common stock $ 40.9 $ 36.5 $ 89.3 $ 83.4
<F1>
Note: Northern Illinois Gas is a wholly owned subsidiary of NICOR Inc. Earnings and dividends 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>
Three months ended Twelve months ended
March 31 March 31
1996 1995 1996 1995
Operating activities
<S> <C> <C> <C> <C>
Net income $ 41.0 $ 36.7 $ 89.8 $ 83.9
Adjustments to reconcile net income to net
cash flow provided from operating activities:
Depreciation 46.3 41.5 103.6 94.2
Deferred income tax expense (benefit) (.3) 1.2 3.5 .8
Change in working capital items and other:
Accounts receivable, less allowances (45.4) (6.0) (80.0) 70.4
Gas in storage 54.2 67.0 (5.8) (9.7)
Deferred/accrued gas costs (63.7) 74.2 (112.0) 45.9
Accounts payable 10.7 (63.1) 124.1 8.0
Accrued taxes 32.5 26.4 8.9 (22.4)
Temporary LIFO liquidation 96.7 80.7 16.0 (46.4)
Gas refunds due customers (10.4) 44.7 (33.2) 47.0
Other (3.1) (5.4) (.2) .5
Net cash flow provided from operating activities 158.5 297.9 114.7 272.2
Investing activities
Capital expenditures (18.5) (26.9) (143.8) (167.0)
Other - - .3 .5
Net cash flow used for investing activities (18.5) (26.9) (143.5) (166.5)
Financing activities
Net proceeds from issuing long-term debt - - 49.5 99.1
Disbursements to retire long-term debt (50.0) - (100.0) (50.0)
Short-term borrowings (repayments), net (68.9) (188.2) 82.7 (10.0)
Dividends paid (21.0) (19.7) (72.7) (79.2)
Other (.1) (.1) (.5) (.6)
Net cash flow used for financing activities (140.0) (208.0) (41.0) (40.7)
Net increase (decrease) in cash and cash equivalents - 63.0 (69.8) 65.0
Cash and cash equivalents, beginning of period - 6.8 69.8 4.8
Cash and cash equivalents, end of period $ - $ 69.8 $ - $ 69.8
<F1>
The accompanying notes are an integral part of this statement.
</TABLE>
<TABLE>
Northern Illinois Gas Page 4
Consolidated Balance Sheet (Unaudited)
(Millions)
<CAPTION>
March 31 December 31 March 31
Assets 1996 1995 1995
<S> <C> <C> <C>
Gas distribution plant, at cost $2,867.1 $2,851.8 $2,737.6
Less accumulated depreciation 1,226.1 1,182.2 1,133.3
1,641.0 1,669.6 1,604.3
Other property and investments, net of accumulated
depletion of $34.4 8.5 8.4 8.2
Current assets
Cash and cash equivalents - Other - - 37.7
- Affiliates - - 32.1
Accounts receivable, less allowances of $7.4,
$4.7 and $6.2, respectively 288.2 242.8 208.2
Deferred gas costs 72.4 8.7 -
Gas in storage, at last-in, first-out (LIFO) cost 8.8 63.0 3.0
Other 22.9 25.1 23.6
392.3 339.6 304.6
Other assets 67.3 69.1 53.0
$2,109.1 $2,086.7 $1,970.1
Capitalization and Liabilities
Capitalization
Long-term debt $ 421.3 $ 446.2 $ 446.5
Preferred stock
Redeemable 9.1 9.1 9.6
Nonredeemable 1.4 1.4 1.4
Common equity
Common stock 76.2 76.2 76.2
Paid-in capital 107.9 107.9 107.8
Retained earnings 514.2 516.0 501.7
1,130.1 1,156.8 1,143.2
Current liabilities
Long-term obligations due within one year 25.5 50.5 50.5
Short-term borrowings 82.7 151.6 -
Accounts payable 291.7 281.0 167.6
Temporary LIFO liquidation 96.7 - 80.7
Accrued taxes 46.7 14.2 37.8
Accrued interest 31.7 37.4 30.4
Gas refunds due customers 13.8 24.2 47.0
Accrued gas costs - - 39.6
Other 21.8 - 17.2
610.6 558.9 470.8
Deferred credits and other liabilities
Deferred income taxes 173.2 172.8 165.0
Regulatory income tax liability 85.6 86.5 89.3
Unamortized investment tax credits 50.3 50.8 53.0
Other 59.3 60.9 48.8
368.4 371.0 356.1
$2,109.1 $2,086.7 $1,970.1
<F1>
The accompanying notes are an integral part of this statement.
</TABLE>
Northern Illinois Gas Page 5
Notes To The 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. In April 1996, the composite depreciation rate increased to
4.1 percent from 3.7 percent.
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 March 31 were (millions):
Three months Twelve months
1996 1995 1996 1995
Income taxes paid $ .9 $ (.6) $46.6 $66.2
Interest paid 16.4 17.8 36.9 38.2
REGULATORY MATTERS
Rate Proceeding. On April 3, 1996, the Ill.C.C. granted Northern Illinois
Gas a $33.7 million general rate increase, of which $12 million relates to
the change in the company's composite depreciation rate noted above. The
order, effective April 11, 1996, allows the company a rate of return on
original-cost rate base of 9.67 percent, which reflects an 11.13 percent
cost of common equity. The new rate structure will allow Northern Illinois
Gas to recover a larger proportion of its fixed costs during warmer months.
The overall result is that the company's earnings will be less sensitive to
the effects of weather and the seasonal variations in quarterly earnings
will be reduced.
Several parties, including Northern Illinois Gas, have filed Requests for
Rehearing, which are pending before the Ill.C.C.. The Ill.C.C. has up to 20
days after receipt to act on the rehearing requests.
LONG-TERM DEBT
In March 1996, $50 million of 4-1/2% First Mortgage Bonds matured. The
maturity was financed 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 The Consolidated Financial Statements (Unaudited)
(Concluded)
CONTINGENCIES (Concluded)
Until the early 1950s, manufactured gas facilities were operated in the
Northern Illinois Gas service territory. Manufactured gas is now known to
have created various by-products that may still be present at these sites.
Current environmental laws may require cleanup of these former manufactured
gas plant sites ("MGPs"). The company has identified up to 40 properties in
its service territory believed to be the location of such sites. Of these
40 properties, Northern Illinois Gas currently owns 15 and formerly owned or
leased 13. The remaining 12 were never owned or leased by the company.
Information has been presented regarding preliminary reviews of the
company's currently owned and formerly owned or leased properties to the
Illinois Environmental Protection Agency. More detailed investigations are
currently in progress or planned at many of these sites. At certain sites,
the current owners are seeking to allocate cleanup costs to former owners or
lessees, 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 future costs which, based on industry experience, could be
significant. Costs are currently being recovered pursuant to Ill.C.C.
authorization.
On December 20, 1995, Northern Illinois Gas filed suit against certain
insurance carriers in the Circuit Court of Cook County. This suit seeks to
declare the insurance carriers liable under policies in effect primarily
between the years 1954 and 1985 for costs incurred or to be incurred for
environmental cleanup of former manufactured gas plant sites. Presently,
management cannot predict the timing or outcome of this lawsuit. Any
recoveries from such litigation or other sources will be flowed back to the
company's customers.
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 1995 Annual
Report on Form 10-K.
RESULTS OF OPERATIONS
Net income for the three- and twelve-month periods increased $4.3 million
and $5.9 million to $41 million and $89.8 million, respectively, due to an
increase in natural gas deliveries resulting from colder weather and higher
demand unrelated to weather, partially offset by an increase in
depreciation. The impact of increased deliveries on the twelve-month period
was also partially offset by higher operating and maintenance expenses.
Revenues for the three- and twelve-month periods increased $83.1 million and
$114.6 million, respectively, primarily due to the increase in deliveries
noted above. The recovery from customers of lower natural gas costs
partially offset the positive impact of increased deliveries on revenues for
the twelve-month period.
Margin, defined as operating revenues less cost of gas and revenue taxes, is
shown in the following table for the periods ended March 31. Margin
increased $14.1 million and $30.1 million for the three- and twelve-month
periods, respectively, due to the positive impact of colder weather and
higher demand unrelated to weather. The decrease in margin per Mcf
delivered in the twelve-month period related to several factors, including
the impact of lower margin deliveries due to both colder weather and
increased deliveries to other utilities.
Three months Twelve months
1996 1995 1996 1995
Margin (Millions) $168.8 $154.7 $456.4 $426.3
Margin per Mcf
delivered .74 .75 .82 .88
Operating and maintenance expense increased $8.7 million for the twelve-
month period primarily due to higher administrative and general costs.
Depreciation expense increased in both periods primarily due to the change
in the plant composite depreciation rate and plant additions. For further
information on the change in the plant composite depreciation rate, see
Accounting Policies on page 5.
Interest income increased in the twelve-month period due to increased
investment levels and higher interest rates.
The effective income tax rate rose to 37 percent from 35.4 percent for the
twelve-month period primarily due to less excess deferred taxes turning
around.
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 $139.4 million and
$157.5 million for the three- and twelve-month periods, respectively,
primarily due to the timing of gas cost recoveries and the impact of a 1995
gas pipeline refund. 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 March 31, 1996, these agreements, which serve as backup
for the issuance of commercial paper, totaled $250 million and the company
had $82.7 million of commercial paper outstanding. At March 31, 1996, the
unused lines of credit under these credit agreements were $167.3 million.
In March 1996, $50 million of 4-1/2% First Mortgage Bonds matured. The
maturity was financed with general corporate funds.
RATE PROCEEDING
On April 3, 1996, the Ill.C.C. granted Northern Illinois Gas a $33.7
million, 2.8 percent general rate increase effective April 11, 1996. For
further information, see Regulatory Matters on page 5.
<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 Twelve months ended
March 31 March 31
1996 1995 1996 1995
Operating revenues (Millions):
Sales
<S> <C> <C> <C> <C>
Residential $ 417.5 $ 367.8 $ 899.6 $ 828.7
Commercial 117.4 100.7 234.5 218.1
Industrial 23.1 18.3 40.6 37.5
558.0 486.8 1,174.7 1,084.3
Transportation
Commercial 20.3 19.2 51.4 44.3
Industrial 17.9 19.0 61.5 53.9
38.2 38.2 112.9 98.2
Revenue taxes and other 56.3 44.4 108.2 98.7
$ 652.5 $ 569.4 $1,395.8 $1,281.2
Deliveries (Bcf):
Sales
Residential 115.0 99.9 246.6 205.9
Commercial 31.9 27.0 64.2 54.8
Industrial 6.7 5.2 11.9 10.1
153.6 132.1 322.7 270.8
Transportation
Commercial 33.8 25.1 72.7 55.6
Industrial 42.2 48.0 159.8 160.8
76.0 73.1 232.5 216.4
229.6 205.2 555.2 487.2
Gas cost per Mcf sold $ 2.79 $ 2.77 $ 2.55 $ 2.78
Weather statistics:
Degree days 3,249 2,966 6,394 5,438
Percent colder (warmer) than normal 1.8 (6.5) 4.2 (11.3)
Customers at end of period (Thousands):
Sales
Residential 1,668.0 1,639.3
Commercial 142.4 142.0
Industrial 11.7 11.7
1,822.1 1,793.0
Transportation
Commercial 17.4 15.9
Industrial 2.5 2.3
19.9 18.2
1,842.0 1,811.2
</TABLE>
Northern Illinois Gas Page 10
PART II - Other Information
Item 1. Legal Proceedings
For information concerning legal proceedings, see Contingencies
in Notes to the Consolidated Financial Statements 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 first
quarter of 1996.
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 May 8, 1996 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
March 31 Year Ended December 31
1996 1995 1994 1993 1992 1991
Earnings available to cover fixed charges:
<S> <C> <C> <C> <C> <C> <C>
Net income $ 89,782 $ 85,448 $ 93,078 $ 94,935 $ 91,239 $ 91,368
Add: Income taxes 54,162 49,881 50,958 52,890 49,578 47,664
Fixed charges 39,663 39,400 37,729 40,960 41,648 40,969
Allowance for funds used
during construction (911) (911) (151) (64) (915) (700)
Total $ 182,696 $ 173,818 $ 181,614 $ 188,721 $ 181,550 $ 179,301
Fixed charges:
Interest on debt $ 38,226 $ 38,129 $ 36,726 $ 38,949 $ 39,773 $ 36,270
Other interest charges and
amortization of debt discount,
premium and expense, net 1,437 1,271 1,003 2,011 1,875 4,699
Total $ 39,663 $ 39,400 $ 37,729 $ 40,960 $ 41,648 $ 40,969
Ratio of earnings to fixed charges 4.61 4.41 4.81 4.61 4.36 4.38
</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 FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1641
<OTHER-PROPERTY-AND-INVEST> 9
<TOTAL-CURRENT-ASSETS> 392
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 67
<TOTAL-ASSETS> 2109
<COMMON> 76
<CAPITAL-SURPLUS-PAID-IN> 108
<RETAINED-EARNINGS> 514
<TOTAL-COMMON-STOCKHOLDERS-EQ> 698
9
1
<LONG-TERM-DEBT-NET> 421
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 83
<LONG-TERM-DEBT-CURRENT-PORT> 25
1
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 871
<TOT-CAPITALIZATION-AND-LIAB> 2109
<GROSS-OPERATING-REVENUE> 653
<INCOME-TAX-EXPENSE> 24
<OTHER-OPERATING-EXPENSES> 577
<TOTAL-OPERATING-EXPENSES> 601
<OPERATING-INCOME-LOSS> 52
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> 52
<TOTAL-INTEREST-EXPENSE> 11
<NET-INCOME> 41
0
<EARNINGS-AVAILABLE-FOR-COMM> 41
<COMMON-STOCK-DIVIDENDS> 43
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 159
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0
<FN>
<F1>NORTHERN ILLINOIS GAS IS A WHOLLY OWNED SUBSIDIARY OF NICOR INC.
EARNINGS AND DIVIDENDS PER SHARE INFORMATION IS THEREFORE OMITTED.
</FN>
</TABLE>
