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, 1997
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)
(630) 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, 1997, 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, 1997 and 1996 2
Consolidated Statement of Cash Flows -
Three and Twelve Months Ended
March 31, 1997 and 1996 3
Consolidated Balance Sheet -
March 31, 1997 and 1996, and
December 31, 1996 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 - The extent to which the daily average
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
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Operating revenues $ 819.9 $ 652.5 $1,777.7 $1,395.8
Operating expenses
Cost of gas 605.5 439.4 1,175.0 851.5
Operating and maintenance 37.4 39.3 154.6 156.7
Depreciation 48.7 46.3 114.2 103.6
Taxes, other than income taxes 60.0 51.5 125.9 105.9
Income taxes 20.9 24.3 59.8 51.5
772.5 600.8 1,629.5 1,269.2
Operating income 47.4 51.7 148.2 126.6
Other income (expense)
Interest income - - .1 2.4
Other, net .1 .3 1.8 1.2
Income taxes on other income - (.1) (.4) (1.3)
.1 .2 1.5 2.3
Interest expense
Interest on debt, net of amounts capitalized 12.5 10.6 46.4 38.1
Other .3 .3 2.5 1.0
12.8 10.9 48.9 39.1
Net income 34.7 41.0 100.8 89.8
Dividends on preferred stock .1 .1 .5 .5
Earnings applicable to common stock $ 34.6 $ 40.9 $ 100.3 $ 89.3
<F1>
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
1997 1996 1997 1996
Operating activities
<S> <C> <C> <C> <C>
Net income $ 34.7 $ 41.0 $ 100.8 $ 89.8
Adjustments to reconcile net income to net
cash flow provided from operating activities:
Depreciation 48.7 46.3 114.2 103.6
Deferred income tax expense (benefit) 1.8 (.3) 1.1 3.5
Change in working capital items and other:
Accounts receivable, less allowances (56.2) (45.4) (71.6) (80.0)
Gas in storage 109.6 54.2 .2 (5.8)
Deferred/accrued gas costs 123.3 (63.7) 144.6 (112.0)
Accounts payable (132.2) 10.7 (132.4) 124.1
Accrued taxes 27.4 32.5 (2.8) 8.9
Temporary LIFO liquidation 95.0 96.7 (1.7) 16.0
Other .7 (13.5) (12.5) (33.4)
Net cash flow provided from operating activities 252.8 158.5 139.9 114.7
Investing activities
Capital expenditures (18.4) (18.5) (107.6) (143.8)
Other (.2) - 1.7 .3
Net cash flow used for investing activities (18.6) (18.5) (105.9) (143.5)
Financing activities
Net proceeds from issuing long-term debt - - 74.2 49.5
Disbursements to retire long-term debt (25.0) (50.0) (25.0) (100.0)
Short-term borrowings (repayments), net (168.2) (68.9) 33.3 82.7
Dividends paid (32.9) (21.0) (103.7) (72.7)
Other - (.1) (.3) (.5)
Net cash flow used for financing activities (226.1) (140.0) (21.5) (41.0)
Net increase (decrease) in cash and cash equivalents 8.1 - 12.5 (69.8)
Cash and cash equivalents, beginning of period 4.4 - - 69.8
Cash and cash equivalents, end of period $ 12.5 $ - $ 12.5 $ -
Supplemental information
Income taxes paid, net of refunds $ - $ .9 $ 65.9 $ 46.6
Interest paid, net of amounts capitalized 19.1 16.4 54.6 36.9
<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 1997 1996 1996
<S> <C> <C> <C>
Gas distribution plant, at cost $2,958.2 $2,942.8 $2,867.1
Less accumulated depreciation 1,327.2 1,280.9 1,226.1
1,631.0 1,661.9 1,641.0
Other property and investments, net of accumulated
depletion of $14.5, $14.5 and $34.4, respectively 8.8 8.8 8.5
Current assets
Cash and cash equivalents 12.5 4.4 -
Accounts receivable, less allowances of $8.9
$6.1 and $7.4, respectively 359.8 303.6 288.2
Gas in storage, at last-in, first-out (LIFO) cost 8.6 118.2 8.8
Deferred gas costs - 51.1 72.4
Other 25.9 28.2 22.9
406.8 505.5 392.3
Other assets 70.5 69.0 67.3
$2,117.1 $2,245.2 $2,109.1
Capitalization and Liabilities
Capitalization
Long-term debt $ 470.8 $ 495.5 $ 421.3
Preferred stock
Redeemable 8.6 8.6 9.1
Nonredeemable 1.4 1.4 1.4
Common equity
Common stock 76.2 76.1 76.2
Paid-in capital 107.9 107.9 107.9
Retained earnings 507.7 498.4 514.2
1,172.6 1,187.9 1,130.1
Current liabilities
Long-term obligations due within one year 25.5 25.5 25.5
Short-term borrowings 116.0 284.2 82.7
Accounts payable 159.3 291.5 291.7
Temporary LIFO liquidation 95.0 - 96.7
Accrued gas costs 72.2 - -
Accrued taxes 43.9 16.5 46.7
Accrued interest 25.4 31.9 31.7
Other 32.6 34.2 35.6
569.9 683.8 610.6
Deferred credits and other liabilities
Deferred income taxes 180.5 179.5 173.2
Regulatory income tax liability 83.2 83.8 85.6
Unamortized investment tax credits 47.9 48.4 50.3
Other 63.0 61.8 59.3
374.6 373.5 368.4
$2,117.1 $2,245.2 $2,109.1
<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 was
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.
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 a change in the
company's composite depreciation rate. The new rate structure, effective
April 11, 1996, allows Northern Illinois Gas to recover a larger proportion
of its fixed costs during warmer months. An appeal by the company and other
parties, of certain issues contained in the Ill.C.C. Order, is currently
pending before the Third District Appellate Court of Illinois.
LONG-TERM DEBT
In February 1997, $25 million of 5-1/2% First Mortgage Bonds matured.
CONTINGENCIES
The company is involved in legal or administrative proceedings before
various courts and agencies with respect to rates, taxes and other matters.
Until the early 1950s, certain 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. The company has identified up to 40
properties in its service territory believed to be the location of such
sites. Of these properties, Northern Illinois Gas currently owns 15 and
formerly owned or leased 13. The remaining properties were never owned or
leased by the company. Information regarding preliminary reviews of the
company's currently owned and formerly owned or leased properties has been
presented to the Illinois Environmental Protection Agency. More detailed
investigations are either currently in progress or planned at many of these
sites. 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. Since 1994, the company has been recovering these costs from
its customers in accordance with Ill.C.C. authorization.
Northern Illinois Gas Page 6
Notes to the Consolidated Financial Statements (Unaudited)
(Concluded)
CONTINGENCIES (Concluded)
At certain sites, the current owners are seeking to allocate cleanup costs
to former owners or lessees, including Northern Illinois Gas.
On December 20, 1995, Northern Illinois Gas filed suit in the Circuit Court
of Cook County against insurance carriers seeking recovery of environmental
cleanup costs of certain former manufactured gas plant sites. Presently,
management cannot predict the 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 1996 Annual
Report on Form 10-K.
RESULTS OF OPERATIONS
Net income for the first quarter of 1997 was $34.7 million compared with
$41 million in the first quarter of 1996. The decrease was due mainly to
the impact of rate design changes resulting from last year's rate order and
the impact of weather that was warmer than the prior year. The rate design
changes, implemented in April 1996, shifted revenues from cold-weather
months to warm-weather months. For the twelve months ended March 31, 1997,
net income rose to $100.8 million from $89.8 million a year ago. The
increase was due to the impact of the 1996 rate order.
Operating revenues increased $167.4 million to $819.9 million and
$381.9 million to $1,777.7 million for the three- and twelve-month periods,
respectively. For both periods, the increase was due primarily to
significantly higher natural gas supply costs, which are recovered from
customers.
Margin, defined as operating revenues less cost of gas and revenue taxes,
which are both passed directly through to customers, is shown in the
following table for periods ended March 31. For the three-month
period, margin decreased due mainly to the impact of rate design changes
resulting from last year's rate order and the impact of weather that was
warmer than the prior year. For the twelve-month period, both margin and
margin per Mcf delivered increased due primarily to the impact of the
April 1996 rate order.
Three months Twelve months
1997 1996 1997 1996
Margin (Millions) $159.6 $168.8 $493.3 $456.4
Margin per Mcf
delivered .74 .74 .91 .82
Operating and maintenance expenses declined in both periods due, in part, to
ongoing cost control initiatives.
Depreciation expense increased in both periods due primarily to the change
in the composite depreciation rate and plant additions. For further
information on the change in the composite depreciation rate, see Accounting
Policies on page 5.
Interest income decreased in the twelve-month period due to lower investment
levels.
Northern Illinois Gas Page 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
RESULTS OF OPERATIONS (Concluded)
Interest expense increased in both periods due primarily to higher borrowing
levels.
FINANCIAL CONDITION
Net cash flow from operating activities increased $94.3 million and
$25.2 million for the three- and twelve-month periods, respectively, due
primarily to the timing of gas cost recoveries. Net cash flow from
operations may swing sharply 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 increases in working
capital needs.
The company maintains short-term credit agreements with major domestic and
foreign banks. At March 31, 1997, these agreements, which serve as backup
for the issuance of commercial paper, totaled $273 million and the company
had $108.7 million of commercial paper outstanding. At March 31, 1997, the
unused lines of credit under these credit agreements were $164.3 million.
In February 1997, $25 million of 5-1/2% First Mortgage Bonds matured.
<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 materially affect operating results. Operating revenues, deliveries, weather
statistics and other data are presented below:
<CAPTION>
Three months ended Twelve months ended
March 31 March 31
1997 1996 1997 1996
Operating revenues (Millions):
Sales
<S> <C> <C> <C> <C>
Residential $ 534.5 $ 417.5 $1,157.1 $ 899.6
Commercial 158.9 117.4 323.5 234.5
Industrial 28.5 23.1 59.8 40.6
721.9 558.0 1,540.4 1,174.7
Transportation
Commercial 18.2 20.3 53.7 51.4
Industrial 13.8 17.9 49.9 61.5
32.0 38.2 103.6 112.9
Revenue taxes and other 66.0 56.3 133.7 108.2
$ 819.9 $ 652.5 $1,777.7 $1,395.8
Deliveries (Bcf):
Sales
Residential 106.7 115.0 238.7 246.6
Commercial 31.1 31.9 66.2 64.2
Industrial 5.0 6.7 13.3 11.9
142.8 153.6 318.2 322.7
Transportation
Commercial 28.3 33.8 68.0 72.7
Industrial 43.8 42.2 155.8 159.8
72.1 76.0 223.8 232.5
214.9 229.6 542.0 555.2
Average gas cost per Mcf sold $ 4.17 $ 2.79 $ 3.61 $ 2.55
Weather statistics:
Degree days 3,102 3,203 6,328 6,348
Percent colder (warmer) than normal (1.8) 1.4 3.5 4.0
Customers at end of period (Thousands):
Sales
Residential 1,695.1 1,668.0
Commercial 142.9 142.4
Industrial 11.6 11.7
1,849.6 1,822.1
Transportation
Commercial 18.3 17.4
Industrial 2.7 2.5
21.0 19.9
1,870.6 1,842.0
</TABLE>
Northern Illinois Gas Page 10
PART II - Other Information
Item 1. Legal Proceedings
For information concerning legal proceedings, see Rate Proceeding
and Contingencies in Notes to the Consolidated Financial
Statements beginning on page 5, which are 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 1997.
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 13, 1997 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
1997 1996 1995 1994 1993 1992
Earnings available to cover fixed charges:
<S> <C> <C> <C> <C> <C> <C>
Net income $ 100,834 $ 107,106 $ 85,448 $ 93,078 $ 94,935 $ 91,239
Add: Income taxes 60,126 63,579 49,881 50,958 52,890 49,578
Fixed charges 48,714 46,747 39,400 37,729 40,960 41,648
Allowance for funds used
during construction (11) (5) (911) (151) (64) (915)
Total $ 209,663 $ 217,427 $ 173,818 $ 181,614 $ 188,721 $ 181,550
Fixed charges:
Interest on debt $ 45,753 $ 43,762 $ 38,129 $ 36,726 $ 38,949 $ 39,773
Other interest charges and
amortization of debt discount,
premium and expense, net 2,961 2,985 1,271 1,003 2,011 1,875
Total $ 48,714 $ 46,747 $ 39,400 $ 37,729 $ 40,960 $ 41,648
Ratio of earnings to fixed charges 4.30 4.65 4.41 4.81 4.61 4.36
</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-31-1996
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1631
<OTHER-PROPERTY-AND-INVEST> 9
<TOTAL-CURRENT-ASSETS> 407
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 70
<TOTAL-ASSETS> 2117
<COMMON> 76
<CAPITAL-SURPLUS-PAID-IN> 108
<RETAINED-EARNINGS> 508
<TOTAL-COMMON-STOCKHOLDERS-EQ> 692
9
1
<LONG-TERM-DEBT-NET> 471
<SHORT-TERM-NOTES> 7
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 109
<LONG-TERM-DEBT-CURRENT-PORT> 25
1
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 802
<TOT-CAPITALIZATION-AND-LIAB> 2117
<GROSS-OPERATING-REVENUE> 820
<INCOME-TAX-EXPENSE> 21
<OTHER-OPERATING-EXPENSES> 751
<TOTAL-OPERATING-EXPENSES> 772
<OPERATING-INCOME-LOSS> 48
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> 48
<TOTAL-INTEREST-EXPENSE> 13
<NET-INCOME> 35
0
<EARNINGS-AVAILABLE-FOR-COMM> 35
<COMMON-STOCK-DIVIDENDS> 25
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 253
<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>
