UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1844 Ferry Road
Naperville, Illinois 60563-9600
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (630) 983-8888
Registrant meets the conditions set forth in General Instruction J(1)(a)
and (b) of Form 10-K and is therefore filing this Form with the reduced
disclosure format.
Securities registered pursuant to Sections 12(b) or 12(g) of the Act: None
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 .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
Shares of common stock, par value $5, outstanding at February 28, 1997, were
15,232,414 all of which are owned by NICOR Inc.
Northern Illinois Gas Page i
Table of Contents
Item No. Page
Part I
1. Business................................................... 1
2. Properties................................................. 5
3. Legal Proceedings.......................................... 5
4. Submission of Matters to a Vote of Security Holders........ *
Part II
5. Market for Registrant's Common Equity and Related
Stockholder Matters...................................... 5
6. Selected Financial Data.................................... *
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 6
8. Financial Statements and Supplementary Data................ 12
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................... 26
Part III
10. Directors and Executive Officers of the Registrant......... *
11. Executive Compensation..................................... *
12. Security Ownership of Certain Beneficial Owners
and Management........................................... *
13. Certain Relationships and Related Transactions............. *
Part IV
14. Exhibits, Financial Statement Schedule, and Reports
on Form 8-K.............................................. 26
Signatures................................................. 28
Supplemental Information................................... 29
Exhibit Index.............................................. 30
Selected abbreviations:
FERC - Federal Energy Regulatory Commission
Ill.C.C. - Illinois Commerce Commission
Mcf, Bcf - Thousand cubic feet, billion cubic feet
* The Registrant meets the conditions set forth in General Instruction
J(1)(a) and (b) of Form 10-K and is therefore omitting the information
called for by the otherwise required Item.
Northern Illinois Gas Page 1
PART I
Item 1. Business
Northern Illinois Gas, formed in 1954, is a wholly owned subsidiary of
NICOR Inc., a holding company.
GENERAL
Northern Illinois Gas is one of the nation's largest gas distribution
utilities. The company delivers natural gas to about 1.9 million customers,
including transportation service, gas storage and gas supply backup to
approximately 21,000 commercial and industrial customers who purchase their
own gas supplies. The company has approximately 2,200 employees. The
company's service territory spans over 17,000 square miles, covering more
than 600 communities and adjacent areas in 35 counties and encompasses most
of the northern third of Illinois, excluding the city of Chicago. Northern
Illinois Gas maintains franchise agreements with 474 municipalities with
terms ranging up to 50 years. More than 65 percent, or approximately 315
franchise agreements, will expire in 15 years or more. Only 23 agreements,
or 5 percent, will expire in less than five years. These agreements allow
the company to construct, operate and maintain distribution facilities in
the municipalities served.
The Northern Illinois Gas service territory has a stable economic base that
provides strong and balanced demand among residential, commercial and
industrial customers. Residential customers account for about 45 percent of
the company's total gas deliveries, while industrial and commercial
customers account for approximately 30 percent and 25 percent of deliveries,
respectively. In addition, the company's industrial and commercial
customer base is well-diversified, lessening the impact of industry-specific
economic swings. See Operating Statistics on page 9 for operating revenues,
deliveries and customers by customer classification.
Gas deliveries are seasonal since approximately 50 percent are used for
space heating. Typically, 70 percent to 75 percent of deliveries and
revenues occur from October through March.
CUSTOMER SERVICES
In addition to gas sales to all customer classes, Northern Illinois Gas
provides transportation, storage and backup services to commercial and
industrial customers who purchase their own gas supplies. Transportation
service provides customers the opportunity to lower their overall costs by
purchasing gas directly and transporting it to their facilities through the
company's distribution system. The company provides transportation
customers with supply backup which may vary from zero to 100 percent.
Northern Illinois Gas makes about 35 Bcf, or nearly one quarter of company-
owned storage capacity, available to its transportation customers.
Northern Illinois Gas Page 2
Item 1. Business (continued)
In recent years, Northern Illinois Gas has developed several nontraditional
activities that are intended to maximize the value of the company's assets,
expertise and customer base. These activities included: providing
transportation service to neighboring pipelines and gas distribution
companies; providing a variety of hub services to buyers and sellers of
natural gas; and providing storage services to customers, gas marketers and
others; selling space to outside vendors for direct-mail inserts in customer
bills; and providing water meter reading and other services to
municipalities.
SOURCES OF GAS SUPPLY
Northern Illinois Gas purchases gas supplies on a deregulated basis directly
from producers, marketers and affiliates of pipelines. Pipeline
transportation and purchased storage services are contracted for at rates
regulated by the FERC.
Northern Illinois Gas has been able to obtain sufficient supplies of natural
gas to meet customer requirements. The company believes natural gas supply
availability will be sufficient to meet market demands in the foreseeable
future.
Gas supply. Northern Illinois Gas maintains a diversified portfolio of gas
supply contracts. Firm gas supply contracts are diversified by supplier,
producing region, quantity, available transportation, contract length and
contract expiration date. Contract pricing is generally tied to published
price indices so as to approximate current market prices. The contracts
also generally provide for the payment of fixed demand charges to ensure the
availability of supplies on any given day. At the end of 1996, the company
had about 45 firm gas supply contracts, of which nearly 60 percent of the
the contracted volumes will expire in 1997 and the remainder by 2001.
The company also purchases gas supplies on the spot market to fulfill its
supply requirements or to take advantage of favorable short-term pricing.
The sources of gas purchased for the past three years were:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
Source Bcf % Bcf % Bcf %
<S> <C> <C> <C> <C> <C> <C>
Firm gas supply 189.7 54.3 237.4 78.2 246.8 84.6
Spot gas 159.8 45.7 66.2 21.8 44.8 15.4
349.5 100.0 303.6 100.0 291.6 100.0
</TABLE>
Northern Illinois Gas Page 3
Item 1. Business (continued)
Customers served under the company's transportation service tariffs purchase
their own gas supplies. Approximately 40 percent of the gas that the
company delivered in 1996 was purchased by transportation customers directly
from producers and marketers rather than from the company.
Pipeline transportation contracts. Northern Illinois Gas is directly
connected to five interstate pipelines which provide access to most of the
major natural gas producing regions in North America. The company's primary
firm transportation contracts with these pipelines at the end of 1996 are
summarized below:
<TABLE>
<CAPTION>
Total maximum
Year of service daily contract
agreement capacity
Major pipelines expiration (Bcf)
Natural Gas Pipeline Company
<S> <C> <C>
of America 2000 .92(a)
Midwestern Gas Transmission
Company 2000 .29
Northern Natural Gas Company 1999/2000 .19
<F1>
1.40
(a) Excludes .49 Bcf of delivered storage service.
</TABLE>
The company contracts for transportation capacity necessary to meet peak day
requirements. Contracted capacity that is temporarily not needed can be
released in the secondary market under FERC-mandated capacity release
provisions, with proceeds reducing the company's cost of gas charged to
customers.
Storage. Northern Illinois Gas owns and operates seven underground gas
storage facilities. This storage system is one of the largest in the gas
distribution industry and is able to meet up to 60 percent of the company's
peak day deliveries and approximately 30 percent of its normal winter
deliveries. On an annual basis, the company cycles about 130 Bcf of gas
through its storage fields. In addition to the company-owned facilities,
Northern Illinois Gas purchases about 43 Bcf of storage service from
interstate pipelines and other storage facility operators. Storage
facilities provide supply flexibility, improve reliability of deliveries and
reduce costs.
COMPETITION/DEMAND
Northern Illinois Gas is one of the largest utility energy suppliers in
Illinois, delivering about one-third of all utility energy consumed in the
state. About 95 percent of all single-family homes in Northern Illinois
Gas' service territory are heated with natural gas. The company's gas
services compete with other forms of energy, such as electricity and oil.
Significant factors that impact demand for gas include weather, economic
conditions and the price of gas relative to competitive fuels.
Northern Illinois Gas Page 4
Item 1. Business (concluded)
The natural gas industry has been going through deregulation at both the
federal and state levels for several years. Deregulation has also recently
spread to the electric utility industry, and many electric utilities have
begun reducing their costs in anticipation of increased competition.
Although Northern Illinois Gas' traditional pricing advantage compared to
electricity may decrease as the price of electricity declines, the company
expects to maintain a pricing advantage in the foreseeable future.
Additional information on competition and demand is presented in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, on pages 6 and 7.
REGULATION
Northern Illinois Gas is regulated by the Ill.C.C. which establishes the
rules and regulations governing utility rates and services in Illinois.
Rates are designed to allow the company to recover its costs and provide an
opportunity to earn a fair return on investment.
The cost of gas the company purchases for customers is recovered through a
monthly gas supply charge, which accounts for approximately 70 percent of a
typical residential customer's annual bill. The company's cost of gas is
passed on to the customer with no markup.
In April 1996, the Ill.C.C. granted Northern Illinois Gas a 2.8 percent,
$33.7 million general rate increase. In August 1996, Northern Illinois Gas
filed a performance-based rate plan with the Ill.C.C. for gas supply costs
and in January 1997 announced its intention to withdraw the filing. For
further information relating to these items, see Regulatory Matters on
page 20.
ENVIRONMENTAL MATTERS
Information with respect to environmental matters is presented in the
Contingencies section of the Notes to the Consolidated Financial Statements
on pages 24 and 25.
Northern Illinois Gas Page 5
Item 2. Properties
The company's properties are located in the territory described under
Item 1 and are suitable, adequate and utilized in its operations.
The gas distribution, transmission and storage system includes approximately
28,000 miles of steel, plastic and cast iron main; approximately 25,000
miles of steel, plastic/aluminum composite, plastic and copper service pipe
connecting the mains to customers' premises; and seven underground storage
fields. Other properties include buildings, land, motor vehicles, meters,
regulators, compressors, construction equipment, tools, and communication,
computer and office equipment.
The principal real properties are held under easements, permits, licenses or
in fee. Land in fee is owned for essentially all administrative offices and
for certain transmission mains and underground storage fields. Substantial-
ly all properties are subject to the lien of the indenture securing the
company's first mortgage bonds.
Item 3. Legal Proceedings
For information concerning legal proceedings, see Regulatory Matters on
page 20 and Contingencies on pages 24 and 25 in Notes to the Consolidated
Financial Statements, which are incorporated herein by reference.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
All of the outstanding common stock of Northern Illinois Gas is owned by
NICOR Inc. There is no public trading market for the company's common
stock. During 1996 and 1995, the company declared quarterly common
dividends totaling $124.1 million and $70.9 million, respectively.
Northern Illinois Gas Page 6
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
FACTORS AFFECTING BUSINESS PERFORMANCE
The following factors can impact year-to-year comparisons and may affect the
future performance of Northern Illinois Gas.
Since approximately 50 percent of gas deliveries are used for space heating,
fluctuations in weather can have a significant impact on year-to-year
comparisons of operating income and cash flow. In addition, significant
changes in gas prices or economic conditions can impact gas usage. However,
Northern Illinois Gas' large residential customer base provides relative
stability during weak economic periods. Also, the industrial and commercial
customer base is well-diversified, lessening the impact of industry-specific
economic swings.
Northern Illinois Gas competes with other suppliers of energy based on such
factors as price, service and reliability. The company is well-positioned
to deal with the possibility of fuel switching by customers because it has
rates and services designed to compete against alternative fuels and because
of its competitively priced supply of gas. In addition, the company has a
rate which allows negotiation with potential bypass customers and no
customer has bypassed since the rate became effective in 1987. Northern
Illinois Gas also offers commercial and industrial customers flexibility and
alternatives in rates and service, increasing its ability to compete in
these markets.
Direct connection to five interstate pipelines and extensive underground
storage capacity allow the company to maintain rates that are among the
lowest in the nation, while also providing transportation customers with
direct access to gas supplies and storage services. Northern Illinois Gas'
storage capabilities enable the company to minimize purchases of premium-
cost pipeline services. In addition, in an effort to ensure supply
reliability, the company purchases gas from several different producing
regions under varied contract terms.
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Year-end customers (Thousands) 1,863.0 1,833.5 1,802.7
Margin per Mcf delivered $ .90 $ .83 $ .86
Average gas cost per Mcf sold $ 2.99 $ 2.52 $ 3.16
Degree days (Normal 6,116) 6,429 6,111 5,865
</TABLE>
Northern Illinois Gas has been able to increase gas deliveries in recent
years in part because of more diversified uses of natural gas. The majority
of the company's growth in the past has been driven by customer additions.
However, diversified uses, such as large-tonnage gas air conditioning and
gas-fired cogeneration, are expected to continue to contribute to Northern
Illinois Gas' growth in deliveries.
Beyond efforts to increase natural gas deliveries in its service territory,
Northern Illinois Gas is working to increase profitability through
nontraditional activities. During 1996, these nontraditional activities
included: providing transportation service to neighboring pipelines and gas
distribution companies; providing a variety of hub services to buyers and
sellers of natural gas; and providing storage services to customers, gas
marketers and others.
Northern Illinois Gas Page 7
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
The natural gas industry has been going through deregulation at both the
federal and state levels for several years. Deregulation has also recently
spread to the electric utility industry, and many electric utilities have
begun reducing their costs in anticipation of increased competition.
Although Northern Illinois Gas' traditional pricing advantage compared to
electricity may decrease as the price of electricity declines, the company
expects to maintain a pricing advantage in the foreseeable future. Ongoing
efforts to maintain this pricing advantage include: continuing to reduce
fixed gas supply and pipeline transportation costs; reducing the level of
capital spending from historic levels while maintaining or improving system
integrity; and reducing operating and maintenance expenses while increasing
the level of customer satisfaction.
Northern Illinois Gas is regulated by the Ill.C.C. which establishes the
rules and regulations governing utility rates and services in Illinois.
Rates are designed to allow the company to recover its costs and provide an
opportunity to earn a fair return on investment. Changes in the regulatory
environment could affect the longer-term performance of Northern Illinois
Gas.
In April 1996, the Ill.C.C. granted Northern Illinois Gas a 2.8 percent,
$33.7 million general rate increase. In August 1996, Northern Illinois Gas
filed a performance-based rate plan with the Ill.C.C. for gas supply costs
and in January 1997 announced its intention to withdraw the filing. For
further information relating to these items, see Regulatory Matters on page
20.
The company is conducting environmental investigations at former gas
manufacturing plant sites. 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. For further information, see Contingencies on pages 24 and 25.
RESULTS OF OPERATIONS
Net income increased $21.7 million in 1996 to $107.1 million as the impact
of a general rate increase and an increase in deliveries of natural gas more
than offset higher depreciation. Higher deliveries were attributable to the
positive impact of weather that was 5 percent colder than in 1995, demand
growth among existing customers and customer additons. In 1995, net income
decreased $7.7 million to $85.4 million as higher depreciation, increased
operating and maintenance expenses, a higher effective tax rate and a
decrease in other income more than offset the impact of higher demand
unrelated to weather.
Revenues. Operating revenues of $1,610.2 million were up 23 percent due to
the recovery from customers of higher natural gas supply costs, an increase
in deliveries and the impact of the rate order. Higher deliveries were
attributable to the positive impact of colder weather, demand growth among
existing customers and customer additions. In 1995, operating revenues of
$1,312.7 million were down 10 percent as a result of the recovery from
customers of lower gas costs.
Northern Illinois Gas Page 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Margin. Margin, defined as operating revenues less cost of gas and revenue
taxes, which are both passed directly through to customers, rose
$60.2 million to $502.5 million in 1996 due primarily to the positive effect
of the rate order and the impact of higher deliveries. In 1995, margin rose
$10.2 million to $442.3 million due to increased deliveries. Margin per Mcf
delivered in 1996 rose primarily as a result of the rate order. In 1995,
margin per Mcf delivered was adversely affected by an increase in lower
margin deliveries for electric power generation.
Operating and Maintenance. In 1995, operating and maintenance expenses rose
$6.1 million to $155.1 million. The increase was due to several factors,
including a higher pension provision, increased expenditures for information
technology and costs associated with the company's rate filing.
Depreciation. Depreciation rose 13 percent to $111.8 million in 1996 due to
an increase in the composite depreciation rate and plant additions. For
further information on the change in the composite depreciation rate, see
Accounting Policies on page 19. In 1995, depreciation increased 10 percent
to $98.8 million mainly as a result of plant additions.
Other income. Other income decreased $.5 million in 1996 to $1.7 million as
the impact of lower investment levels on interest income more than offset
a $1.8 million gain on property sales. In 1995, other income decreased
$2.5 million to $2.2 million as a result of a 1994 gain of $4.2 million on
property sales.
Interest expense. In 1996, interest expense rose $8.1 million to
$47 million due primarily to higher borrowing levels.
Income taxes. The effective combined federal and state income tax rate was
37.2 percent, 36.9 percent and 35.4 percent for 1996, 1995 and 1994,
respectively. The increase from 1994 was primarily the result of less
excess deferred taxes turning around.
Northern Illinois Gas Page 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
<TABLE>
<CAPTION>
Operating Statistics
1996 1995 1994
Operating revenues (Millions)
Sales
<S> <C> <C> <C> <C> <C>
Residential $ 1,040.2 $ 849.8 $ 939.2
Commercial 281.9 217.8 260.0
Industrial 54.4 35.9 50.2
1,376.5 1,103.5 1,249.4
Transportation
Commercial 55.7 50.3 41.8
Industrial 54.0 62.5 51.2
109.7 112.8 93.0
Revenue taxes and other 124.0 96.4 112.6
$ 1,610.2 $ 1,312.7 $ 1,455.0
Deliveries (Bcf)
Sales
Residential 247.0 231.4 215.8
Commercial 67.0 59.3 60.5
Industrial 15.0 10.5 12.4
329.0 301.2 288.7
Transportation
Commercial 73.5 64.0 54.2
Industrial 154.1 165.6 156.9
227.6 229.6 211.1
556.6 530.8 499.8
Year-end customers (Thousands)
Sales
Residential 1,688.5 1,660.6 1,632.0
Commercial 142.1 141.7 141.5
Industrial 11.6 11.6 11.6
1,842.2 1,813.9 1,785.1
Transportation
Commercial 18.1 17.1 15.3
Industrial 2.7 2.5 2.3
20.8 19.6 17.6
1,863.0 1,833.5 1,802.7
</TABLE>
Northern Illinois Gas Page 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
FINANCIAL CONDITION AND LIQUIDITY
Overall, Northern Illinois Gas' financial condition is sound. Long-term
debt continues to be about 40 percent of capitalization. The company's
ratio of earnings to fixed charges was 4.7, 4.4, and 4.8 for the years ended
December 31, 1996, 1995 and 1994, respectively.
The company believes it has access to adequate resources to meet planned
capital expenditures, debt redemptions, dividends and working capital needs.
These resources include net cash flow from operating activities, access to
capital markets and unused lines of credit.
Operating. Net cash flow from operating activities was $45.6 million in
1996, $254.1 million in 1995 and $280.6 million in 1994. The 1996 decrease
was due to the impact of increased gas in storage, the timing of the
recovery of gas costs from customers, a 1995 gas pipeline refund and a
return to normal levels of customer advance payments. The 1995 decrease
from 1994 was due primarily to the timing of gas cost recoveries.
The working capital component of net cash flow from operating activities can
swing sharply from year to year due primarily to certain factors, including
weather, the timing of collections from customers and gas-purchasing
practices. The company generally relies on short-term financing to meet
temporary increases in working capital needs.
Investing. Capital expenditures were $107.7 million in 1996 compared with
$152.2 million in 1995 and $160.3 million in 1994. Capital expenditures in
1995 and 1994 were higher than normal due to the construction of the Elgin-
Volo transmission and storage system improvement, a two-year, $65 million
project. Reduced 1996 capital expenditures also reflect continuing cost
management efforts. Capital spending in 1997 is projected to be about
$105 million.
Financing. Northern Illinois Gas' long-term debt outstanding was
$495.5 million, $446.2 million and $446.4 million at December 31, 1996, 1995
and 1994, respectively. Long-term debt as a percent of capitalization was
41.7 percent, 38.6 percent and 39 percent at year-end 1996, 1995 and 1994,
respectively.
Long-term debt. In August 1996, Northern Illinois Gas sold $75 million of
6.45% First Mortgage Bonds due in 2001. The net proceeds from the sale of
the bonds replenished corporate funds which were used for the March 1996
maturity of $50 million of 4-1/2% First Mortgage Bonds and for general
corporate purposes.
Northern Illinois Gas Page 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (concluded)
In October 1995, Northern Illinois Gas issued $50 million of 7.26% First
Mortgage Bonds due in 2025. The net proceeds of the sale replenished
corporate funds which were used for the maturity of $50 million of 5-1/2%
unsecured notes due in July 1995.
In August 1994, Northern Illinois Gas issued $50 million of 8-1/4% First
Mortgage Bonds due in 2024. The net proceeds from the sale of the bonds
were used for general corporate purposes, including construction programs.
In July 1994, Northern Illinois Gas redeemed $50 million of 8.70% First
Mortgage Bonds due in 1995 with proceeds from the issuance of $50 million of
5-1/2% unsecured notes due in July 1995.
Northern Illinois Gas filed a $225 million First Mortgage Bond shelf
registration statement with the Securities and Exchange Commission in 1994,
of which $100 million remained available for issuance at December 31, 1996.
The net proceeds from any securities issued are expected to be used for the
refinancing of certain outstanding debt, for construction programs to the
extent not provided by internally generated funds and for general corporate
purposes.
In 1997, Northern Illinois Gas anticipates issuing, depending upon market
conditions, $50 million of debt to finance maturing debt and for general
corporate purposes.
Short-term debt. Northern Illinois Gas maintains short-term credit
agreements with major domestic and foreign banks. At December 31, 1996,
these agreements, which serve as backup for the issuance of commercial
paper, totaled $273 million. The company had $273 million and
$151.6 million of commercial paper outstanding at year-end 1996 and 1995,
respectively.
Common and preferred stock. The company paid dividends of $91.8 million,
$71.4 million and $78.3 million in 1996, 1995 and 1994 respectively.
Northern Illinois Gas Page 12
Item 8. Financial Statements and Supplementary Data
Page
Report of Independent Public Accountants 13
Financial Statements:
Consolidated Statement of Income 14
Consolidated Statement of Cash Flows 15
Consolidated Balance Sheet 16
Consolidated Statement of Capitalization 17
Consolidated Statement of Retained Earnings 18
Notes to the Consolidated Financial Statements 19
Northern Illinois Gas Page 13
Report of Independent Public Accountants
To Northern Illinois Gas Company:
We have audited the accompanying consolidated balance sheet and statement of
capitalization of NORTHERN ILLINOIS GAS COMPANY (an Illinois corporation and
a wholly owned subsidiary of NICOR Inc.) and subsidiary company as of
December 31, 1996 and 1995, and the related consolidated statements of
income, retained earnings and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements and the schedule
referred to below are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements and
the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Northern Illinois Gas
Company and subsidiary company as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedule
listed in the accompanying index (page 26) is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not
part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Chicago, Illinois
January 28, 1997
<TABLE>
<CAPTION>
Northern Illinois Gas Page 14
Consolidated Statement of Income
(Millions)
Year Ended December 31
1996 1995 1994
<S> <C> <C> <C>
Operating revenues $ 1,610.2 $ 1,312.7 $ 1,455.0
Operating expenses
Cost of gas 1,008.9 787.2 929.1
Operating and maintenance 156.6 155.1 149.0
Depreciation 111.8 98.8 90.0
Taxes, other than income taxes 117.4 100.9 112.0
Income taxes 63.1 48.6 48.3
1,457.8 1,190.6 1,328.4
Operating income 152.4 122.1 126.6
Other income (expense)
Interest income .1 2.5 1.3
Other, net 2.1 1.0 6.1
Income taxes on other income (.5) (1.3) (2.7)
1.7 2.2 4.7
Interest expense
Interest on debt, net of amounts capitalized 44.4 38.1 37.7
Other 2.6 .8 .5
47.0 38.9 38.2
Net income 107.1 85.4 93.1
Dividends on preferred stock .5 .5 .6
Earnings applicable to common stock $ 106.6 $ 84.9 $ 92.5
<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 15
Consolidated Statement of Cash Flows
(Millions)
<CAPTION>
Year Ended December 31
1996 1995 1994
Operating activities
<S> <C> <C> <C>
Net income $ 107.1 $ 85.4 $ 93.1
Adjustments to reconcile net income to net
cash flow provided from operating activities:
Depreciation 111.8 98.8 90.0
Deferred income tax expense (benefit) (.9) 5.0 .8
Change in working capital items and other:
Accounts receivable, less allowances (60.8) (40.6) 59.3
Gas in storage (55.2) 7.0 6.6
Deferred gas costs (42.4) 25.9 22.3
Accounts payable 10.5 50.3 26.7
Gas refunds due customers (22.9) 21.9 .7
Other (1.6) .4 (18.9)
Net cash flow provided from operating activities 45.6 254.1 280.6
Investing activities
Capital expenditures (107.7) (152.2) (160.3)
Other 1.9 .3 .5
Net cash flow used for investing activities (105.8) (151.9) (159.8)
Financing activities
Net proceeds from issuing long-term debt 74.2 49.5 99.1
Disbursements to retire long-term debt (50.0) (50.0) (50.0)
Short-term borrowings (repayments), net 132.6 (36.6) (84.8)
Dividends paid (91.8) (71.4) (78.3)
Other (.4) (.5) (.5)
Net cash flow provided from (used for) financing
activities 64.6 (109.0) (114.5)
Net increase (decrease) in cash and cash equivalents 4.4 (6.8) 6.3
Cash and cash equivalents, beginning of year - 6.8 .5
Cash and cash equivalents, end of year $ 4.4 $ - $ 6.8
Supplemental information
Income taxes paid, net of refunds $ 66.9 $ 45.0 $ 69.2
Interest paid, net of amounts capitalized 51.8 38.3 36.7
<F1>
The accompanying notes are an integral part of this statement.
</TABLE>
<TABLE>
Northern Illinois Gas Page 16
Consolidated Balance Sheet
(Millions, except share data)
<CAPTION>
December 31
Assets 1996 1995
<S> <C> <C>
Gas distribution plant, at cost $ 2,942.8 $ 2,851.8
Less accumulated depreciation 1,280.9 1,182.2
1,661.9 1,669.6
Other property and investments, net of accumulated
depletion of $14.5 and $34.4, respectively 8.8 8.4
Current assets
Cash and cash equivalents 4.4 -
Accounts receivable, less allowances of $6.1
and $4.7, respectively 303.6 242.8
Gas in storage, at last-in, first-out cost 118.2 63.0
Deferred gas costs 51.1 8.7
Other 28.2 25.1
505.5 339.6
Other assets 69.0 69.1
$ 2,245.2 $ 2,086.7
Capitalization and Liabilities
Capitalization
Long-term debt $ 495.5 $ 446.2
Preferred stock
Redeemable 8.6 9.1
Nonredeemable 1.4 1.4
Common equity
Common stock, par value $5, authorized 25,000,000 shares
(reserved for conversion 32,365 shares), outstanding
15,232,414 shares 76.1 76.2
Paid-in capital 107.9 107.9
Retained earnings 498.4 516.0
1,187.9 1,156.8
Current liabilities
Long-term obligations due within one year 25.5 50.5
Short-term borrowings 284.2 151.6
Accounts payable 291.5 281.0
Accrued interest 31.9 37.4
Gas refunds due customers 1.3 24.2
Other 49.4 14.2
683.8 558.9
Deferred credits and other liabilities
Deferred income taxes 179.5 172.8
Regulatory income tax liability 83.8 86.5
Unamortized investment tax credits 48.4 50.8
Other 61.8 60.9
373.5 371.0
$ 2,245.2 $ 2,086.7
<F1>
The accompanying notes are an integral part of this statement.
</TABLE>
<TABLE>
Northern Illinois Gas Page 17
Consolidated Statement of Capitalization
(Millions, except share data)
<CAPTION>
December 31
1996 1995
Long-term debt
First mortgage bonds
Maturity Interest rate
<S> <C> <S> <C> <C>
1996 4.50 % $ - $ 50.0
1997 5.50 25.0 25.0
1998 5.875 25.0 25.0
1999 6.25 25.0 25.0
2000 5.875 50.0 50.0
2001 6.45 75.0 -
2019 9.0 50.0 50.0
2021 8.875 50.0 50.0
2022 8.25 75.0 75.0
2023 7.375 50.0 50.0
2024 8.25 50.0 50.0
2025 7.26 50.0 50.0
525.0 500.0
Less: Amount due within one year 25.0 50.0
Unamortized debt discount, net of premium 4.5 3.8
495.5 41.7% 446.2 38.6%
Preferred stock, cumulative, par value $100, authorized
800,000 shares
Redeemable preferred stock, 4.48% and 5.00% series,
outstanding 63,000 and 28,000 shares, respectively,
in 1996, and 66,000 and 30,000 shares, respectively,
in 1995 9.1 9.6
Less amount due within one year .5 .5
8.6 .7 9.1 .8
Nonredeemable preferred stock, 4.60% and 5.00%
convertible series, outstanding 8,750 and 5,258
shares, respectively, in 1996 and 1995 1.4 .1 1.4 .1
Common equity
Common stock 76.1 76.2
Paid-in capital 107.9 107.9
Retained earnings 498.4 516.0
682.4 57.5 700.1 60.5
$ 1,187.9 100.0% $ 1,156.8 100.0%
<F1>
The accompanying notes are an integral part of this statement.
</TABLE>
<TABLE>
Northern Illinois Gas Page 18
Consolidated Statement of Retained Earnings
(Millions)
<CAPTION>
Year Ended December 31
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year $ 516.0 $ 502.0 $ 487.2
Net income 107.1 85.4 93.1
623.1 587.4 580.3
Dividends declared on:
Common stock 124.1 70.9 77.7
Preferred stock .6 .5 .6
124.7 71.4 78.3
Balance at end of year $ 498.4 $ 516.0 $ 502.0
<F1>
The accompanying notes are an integral part of this statement.
</TABLE>
Northern Illinois Gas Page 19
Notes to the Consolidated Financial Statements
Northern Illinois Gas is one of the nation's largest gas distribution
companies, serving almost 1.9 million customers in a service territory that
encompasses most of the northern third of Illinois, excluding the city of
Chicago.
ACCOUNTING POLICIES
General. Northern Illinois Gas is a wholly owned subsidiary of NICOR Inc.
Northern Illinois Gas and its affiliates reimburse each other for
transactions between the companies.
Consolidation. The consolidated financial statements include the accounts
of Northern Illinois Gas and its subsidiary. All significant intercompany
balances and transactions have been eliminated. The preparation of the
consolidated financial statements requires management to make estimates that
affect the reported amounts. Actual results could differ from those
estimates. Certain reclassifications were made to conform the prior years'
financial statements to the current year presentation.
Regulation. Northern Illinois Gas is regulated by the Ill.C.C. which
establishes the rules and regulations governing utility rates and services
in Illinois. The company applies accounting standards that recognize the
economic effects of rate regulation and, accordingly, has recorded
regulatory assets and liabilities. At December 31, 1996, the company had a
net regulatory liability of about $25 million.
Operating revenues and gas costs. The cost of gas purchased, adjusted for
inventory activity, is reflected in volumetric charges to customers through
operation of the Uniform Purchased Gas Adjustment Clause (PGA). Any
difference between PGA revenues and recoverable gas costs is deferred or
accrued with a corresponding decrease or increase in cost of gas. This
difference is amortized as it is collected from or refunded to customers
through the PGA.
Depreciation. Property, plant and equipment are depreciated over estimated
useful lives on a straight-line basis. In April 1996, the composite
depreciation rate was increased to 4.1 percent from 3.7 percent.
Income taxes. Deferred income taxes are provided for temporary differences
between the tax basis of an asset or liability and its reported amount in
the financial statements. Although the federal investment tax credit has
been eliminated, Northern Illinois Gas continues to amortize prior deferred
amounts to income over the lives of the applicable properties.
Cash and cash equivalents. The company considers investments purchased with
a maturity of three months or less to be cash equivalents.
Receivable credit risk. The company has a diversified base of customers,
typical for its industry, and prudent creditworthiness policies which limit
risk.
Northern Illinois Gas Page 20
Notes to the Consolidated Financial Statements (continued)
REGULATORY MATTERS
Rate proceedings. 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 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 are now less sensitive to the effects of weather
and seasonal variations in quarterly earnings are now reduced.
In May 1996, the Ill.C.C. denied requests for rehearing filed by several
parties, including Northern Illinois Gas. The company and other parties
have subsequently appealed certain aspects of the Ill.C.C.'s order to the
Third District Appellate Court of Illinois.
On August 15, 1996, Northern Illinois Gas filed a performance-based rate
plan with the Ill.C.C. for gas supply costs. The filing was in response to
a recent amendment to the Illinois Public Utilities Act which allows
utilities to propose programs consisting of alternatives to traditional
cost-of-service regulation. In January 1997, the company announced its
intention to withdraw the filing after concluding that a performance-based
rate program is not likely under Illinois law at this time.
FERC Order 636. In April 1992, the FERC issued Order 636 which
substantially restructured the interstate sale and transportation of gas.
The FERC authorized pipelines to recover transition costs, such as gas
supply realignment and certain other costs, caused by compliance with
Order 636. The company estimates that the total transition costs from all
pipeline transporters could approximate $300 million. However, the ultimate
level of costs is dependent upon the future market price of natural gas,
pipeline negotiations with producers and other factors. Approximately
$220 million of such costs has been recorded, of which $213 million has been
paid to the pipeline transporters, subject to refund. Since 1994, the
company has been recovering these costs through the PGA in accordance with
Ill.C.C. authorization. As such, Order 636 will not have a material impact
on the company's financial condition or results of operations.
GAS IN STORAGE
Based on the average cost of gas purchased in December 1996 and 1995, the
estimated replacement cost of gas in inventory at December 31, 1996 and 1995
exceeded the last-in, first-out cost by approximately $351 million and
$161 million, respectively.
Northern Illinois Gas Page 21
Notes to the Consolidated Financial Statements (continued)
INCOME TAXES
<TABLE>
The components of income tax expense are presented below:
<CAPTION>
(Millions) 1996 1995 1994
Current
<S> <C> <C> <C>
Federal $ 55.8 $ 40.1 $ 44.3
State 11.1 7.5 8.3
66.9 47.6 52.6
Deferred
Federal (1.8) 3.2 (.1)
State .9 1.8 .9
(.9) 5.0 .8
Amortization of investment
tax credits, net (2.4) (2.7) (2.4)
Income tax expense $ 63.6 $ 49.9 $ 51.0
</TABLE>
The temporary differences which gave rise to significant portions of the net
deferred tax liability at December 31, 1996 and 1995 were as follows:
(Millions) 1996 1995
Deferred tax liabilities
Property, plant and equipment $ 236.4 $ 236.4
Other 9.4 3.9
245.8 240.3
Deferred tax assets
Unamortized investment tax credits 31.8 33.6
Regulatory income tax liability 20.6 21.0
Other 32.2 26.5
84.6 81.1
Net deferred tax liability $ 161.2 $ 159.2
<TABLE>
The effective combined federal and state income tax rate was 37.2 percent,
36.9 percent and 35.4 percent in 1996, 1995 and 1994, respectively.
Differences between federal income taxes computed using the statutory rate
and reported income tax expense are shown below:
<CAPTION>
(Millions) 1996 1995 1994
Federal income taxes using
<S> <C> <C> <C>
statutory rate $ 59.7 $ 47.4 $ 50.4
State income taxes, net 7.9 6.7 6.3
Timing differences reversed
at originating tax rates (2.0) (2.4) (.7)
Amortization of investment
tax credits (2.5) (2.6) (2.7)
Other, net .5 .8 (2.3)
Income tax expense $ 63.6 $ 49.9 $ 51.0
</TABLE>
Northern Illinois Gas Page 22
Notes to the Consolidated Financial Statements (continued)
POSTRETIREMENT BENEFITS
Pension benefits. Northern Illinois Gas maintains non-contributory defined
benefit pension plans covering substantially all employees. Pension
benefits consider job level or the highest average salary earned during five
consecutive years of employment and years of service. The plans are
generally funded to the extent deductible for federal income tax purposes.
Plan assets are invested primarily in corporate and government securities.
<TABLE>
Net periodic pension cost (benefit) included:
<CAPTION>
(Millions) 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 7.7 $ 6.4 $ 7.0
Interest cost 19.8 19.3 18.5
Loss (return) on plan assets (61.9) (61.5) (17.1)
Net amortization and deferral 26.8 27.0 (19.4)
$ (7.6) $ (8.8) $ (11.0)
Expected long-term rate of return
on plan assets 8.5% 9.0% 8.5%
</TABLE>
The following table reflects the funded status of the pension plans at
October 1, 1996 and 1995 reconciled to amounts recorded in the financial
statements at December 31, 1996 and 1995, respectively:
(Millions) 1996 1995
Vested benefits $ 192.6 $ 217.8
Nonvested benefits 21.4 25.7
Accumulated benefit obligation 214.0 243.5
Effect of assumed increase in
compensation level 31.3 32.5
Projected benefit obligation 245.3 276.0
Plan assets at market value 381.9 379.4
Plan assets in excess of projected
benefit obligation 136.6 103.4
Unrecognized net gain (64.5) (40.7)
Unrecognized net transition asset (20.1) (23.9)
Unrecognized prior service cost 4.1 4.5
Other 1.9 3.4
Prepaid pension cost $ 58.0 $ 46.7
Weighted average discount rate 7.5% 7.5%
Rate of compensation increase 3.5-5 4-5
Northern Illinois Gas has historically amended the collectively bargained
pension plan every two to three years so that such pension benefits are
based on the most current wages. Northern Illinois Gas intends, subject to
collective bargaining, to continue making similar amendments to the plan.
These future amendments have been anticipated and are reflected in the
projected benefit obligation and pension expense.
Northern Illinois Gas Page 23
Notes to the Consolidated Financial Statements (continued)
Other postretirement benefits. Health care and life insurance benefits are
provided for retired employees if they become eligible for retirement while
working for Northern Illinois Gas. The plans are generally funded to the
extent deductible for federal income tax purposes. Plan assets are invested
primarily in corporate and government securities.
<TABLE>
Net periodic postretirement benefit cost included:
<CAPTION>
(Millions) 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 2.6 $ 2.3 $ 2.3
Interest cost 9.0 9.0 8.1
Loss (return) on plan assets (1.6) (1.8) (.4)
Amortization of transition obligation 3.7 3.7 3.7
Net amortization and deferral .5 1.0 (.1)
$ 14.2 $ 14.2 $ 13.6
Expected long-term rate of return
on plan assets 8.5% 9.0% 8.5%
</TABLE>
<TABLE>
The following table reflects the funded status of the postretirement health
care and life insurance plans at October 1, 1996 and 1995 reconciled to
amounts recorded in the financial statements at December 31, 1996 and 1995,
respectively:
<CAPTION>
(Millions) 1996 1995
Accumulated postretirement benefit
obligation (APBO):
<S> <C> <C> <C> <C>
Retirees $ 79.2 $ 76.9
Fully eligible active plan participants 12.0 16.9
Other active plan participants 29.0 29.6
Total APBO 120.2 123.4
Plan assets at market value 13.4 11.5
APBO in excess of plan assets (106.8) (111.9)
Unrecognized transition obligation 59.8 63.5
Unrecognized prior service cost (1.2) (1.2)
Unrecognized net loss 4.1 12.8
Other (.6) (2.1)
Accrued postretirement benefit cost $ (44.7) $ (38.9)
Weighted average discount rate 7.5% 7.5%
Rate of compensation increase 3.5-5 4-5
</TABLE>
The health care cost trend rate for pre-Medicare benefits was assumed to be
9 percent for 1997, declining to 5 percent for 2001 and remaining at that
level thereafter. The health care cost trend rate for post-Medicare
benefits was assumed to be 6 percent for 1997, declining to 5 percent for
1998 and remaining at that level thereafter. Increasing the assumed health
care cost trend rate by 1 percentage point would increase the APBO as of
December 31, 1996, by about $16 million, the aggregate of the service and
interest cost components of 1996 net postretirement health care costs by
$2 million, and operating expense by $1.5 million, after capitalization.
Northern Illinois Gas Page 24
Notes to the Consolidated Financial Statements (continued)
SHORT- AND LONG-TERM DEBT
<TABLE>
The company's short-term borrowings consist primarily of commercial paper.
The balance and weighted average interest rate at December 31 were as
follows:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance (Millions) $ 273.0 $ 151.6 $ 188.2
Weighted average interest rate 5.36% 5.68% 5.92%
</TABLE>
The company establishes lines of credit with major domestic and foreign
banks to support outstanding commercial paper. At December 31, 1996, lines
of credit totaled $273 million, all of which served as backup for commercial
paper borrowings. Commitment fees of up to .07 percent per annum were paid
on these lines. All credit agreements have variable interest-rate options
tied to short-term markets.
Bank cash balances averaged $2.3 million during 1996, which partially
compensated for the cost of maintaining accounts and other banking services.
Such demand balances may be withdrawn at any time.
First mortgage bonds are secured by liens on substantially all gas
distribution property and franchises.
Interest on debt was net of amounts capitalized of $.9 million and
$.2 million in 1995 and 1994, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The recorded amount of short-term borrowings approximates fair value because
of the short maturity of the instruments. Based on quoted market interest
rates, the recorded amount of the long-term debt outstanding, including
current maturities, also approximates fair value.
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
Northern Illinois Gas Page 25
Notes to the Consolidated Financial Statements (concluded)
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.
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 certain insurance carriers seeking recovery of
environmental cleanup costs of 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.
QUARTERLY RESULTS (UNAUDITED)
Quarterly results fluctuate due mainly to the seasonal nature of the gas
distribution business. Northern Illinois Gas' restructured rates, effective
April 11, 1996, result in the shifting of some revenues from cold-weather
quarters to warm-weather quarters.
<TABLE>
<CAPTION>
1996 Quarter Ended
(Millions) Mar. 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
Operating revenues $652.5 $284.7 $161.0 $512.0
Operating income 51.7 33.9 24.1 42.7
Net income 41.0 22.6 12.8 30.7
1995 Quarter Ended
Mar. 31 June 30 Sept. 30 Dec. 31
Operating revenues $569.4 $208.9 $117.5 $416.9
Operating income 47.1 22.7 12.3 39.9
Net income 36.7 15.1 4.0 29.7
</TABLE>
Northern Illinois Gas Page 26
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on
Form 8-K
(a) 1) Financial Statements:
See Item 8, Financial Statements and Supplementary Data, on
page 12 filed herewith, for a list of financial statements.
2) Financial Statement Schedule:
Schedule
Number Page
Report of Independent Public Accountants 13
II Valuation and Qualifying Accounts 27
Schedules other than those listed are omitted because they are
either not required or not applicable.
3) Exhibits Filed:
See Exhibit Index on pages 30 through 32 filed herewith.
(b) The company did not file a report on Form 8-K during the fourth
quarter of 1996.
<TABLE>
Northern Illinois Gas Page 27
Schedule II
VALUATION AND QUALIFYING ACCOUNTS
(Millions)
<CAPTION>
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Charged Balance at
beginning costs and to Other end of
Description of period expenses accounts Deductions(a) period
1996
Allowance
for uncollectible
<S> <C> <C> <C> <C> <C> <S> <C> <C> <C> <C>
accounts receivable $ 4.7 $ 11.0 $ - $ 9.6 $ 6.1
1995
Allowance
for uncollectible
accounts receivable $ 4.4 $ 7.3 $ - $ 7.0 $ 4.7
1994
Allowance
for uncollectible
accounts receivable $ 5.5 $ 8.2 $ - $ 9.3 $ 4.4
<F1>
(a) Accounts receivable written off, net of recoveries.
</TABLE>
Northern Illinois Gas Page 28
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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 March 25, 1997 By DAVID L. CYRANOSKI
David L. Cyranoski
Senior Vice President,
Secretary and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 25, 1997.
Signature Title
THOMAS L. FISHER Chairman, President, Chief
Thomas L. Fisher Executive Officer and Director
DAVID L. CYRANOSKI Senior Vice President,
David L. Cyranoski Secretary and Controller and
Principal Financial Officer
ROBERT M. BEAVERS, JR.* Director
BRUCE P. BICKNER* Director
JOHN H. BIRDSALL, III* Director
W. H. CLARK* Director
JOHN E. JONES* Director
DENNIS J. KELLER* Director
CHARLES S. LOCKE* Director
SIDNEY R. PETERSEN* Director
DANIEL R. TOLL* Director
PATRICIA A. WIER* Director
*By GEORGE M. BEHRENS
George M. Behrens (Attorney-in-fact)
Northern Illinois Gas Page 29
Supplemental Information
Supplemental Information to be Furnished With Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act:
No annual report has been sent to security holders as Northern Illinois Gas
is a wholly owned subsidiary of NICOR Inc. Proxy solicitation material,
dated January 26, 1996 and March 11, 1996, for the purpose of voting on the
adoption of certain proposed amendments to the indenture dated as of
January 1, 1954, was furnished to the Commission as Exhibit 99.01 to the
Northern Illinois Gas Company 1995 Form 10-K. Supplemental proxy
solicitation material, dated April 11, 1996, is furnished to the Commission
as Exhibit 99.01 hereto. Amendments approved at the May 10, 1996 meeting of
bondholders are reflected in the supplemental indenture incorporated by
reference in this Form 10-K as Exhibit 4.16. No other proxy solicitation
material has been sent to security holders of Northern Illinois Gas with
respect to any annual or other meetings of security holders.
Northern Illinois Gas Page 30
Exhibit Index
Exhibit
Number Description of Document
3.01 * Articles of Incorporation of the company. (File
No. 1-7296, Form 10-K for 1980, Exhibit 3-01.)
3.02 * Amendment to Articles of Incorporation of the company. (File
No. 1-7296, Form 10-Q for June 1994, Exhibit 3.01.)
3.03 * By-Laws of the company as amended by the company's Board of
Directors on May 3, 1995. (File No. 1-7296, Form 10-Q for March
1995, Exhibit 3(ii).01.)
4.01 * Indenture of Commonwealth Edison Company to Continental Illinois
National Bank and Trust Company of Chicago, Trustee, dated as of
January 1, 1954. (File No. 1-7296, Form 10-K for 1995,
Exhibit 4.01.)
4.02 * Indenture of Adoption of the company to Continental Illinois
National Bank and Trust Company of Chicago, Trustee, dated
February 9, 1954. (File No. 1-7296, Form 10-K for 1995,
Exhibit 4.02.)
4.03 * Supplemental Indenture, dated June 1, 1963, of the company to
Continental Illinois National Bank and Trust Company of Chicago,
Trustee, under Indenture dated as of January 1, 1954. (File
No. 2-21490, Form S-9, Exhibit 2-8.)
4.04 * Supplemental Indenture, dated May 1, 1966, of the company to
Continental Illinois National Bank and Trust Company of Chicago,
Trustee, under Indenture dated as of January 1, 1954. (File
No. 2-25292, Form S-9, Exhibit 2-4.)
4.05 * Supplemental Indenture, dated June 1, 1971, of the company to
Continental Illinois National Bank and Trust Company of Chicago,
Trustee, under Indenture dated as of January 1, 1954. (File
No. 2-44647, Form S-7, Exhibit 2-03.)
4.06 * Supplemental Indenture, dated April 30, 1976, between NICOR Inc.
and Continental Illinois National Bank and Trust Company of
Chicago, Trustee, under Indenture dated as of January 1, 1954.
(File No. 2-56578, Form S-9, Exhibit 2-25.)
4.07 * Supplemental Indenture, dated April 30, 1976, of the company to
Continental Illinois National Bank and Trust Company of Chicago,
Trustee, under Indenture dated as of January 1, 1954. (File
No. 2-56578, Form S-9, Exhibit 2-21.)
4.08 * Supplemental Indenture, dated July 1, 1989, of the company to
Continental Bank, National Association, Trustee, under Indenture
dated as of January 1, 1954. (File No. 1-7296, Form 8-K for June
1989, Exhibit 4-01.)
Northern Illinois Gas Page 31
Exhibit Index (continued)
Exhibit
Number Description of Document
4.09 * Supplemental Indenture, dated August 15, 1991, of the company to
Continental Bank, National Association, Trustee, under Indenture
dated as of January 1, 1954. (File No. 1-7296, Form 8-K for
August 1991, Exhibit 4-01.)
4.10 * Supplemental Indenture, dated July 15, 1992, of the company to
Continental Bank, National Association, Trustee, under Indenture
dated as of January 1, 1954. (File No. 1-7296, Form 10-Q for
June 1992, Exhibit 4-01.)
4.11 * Supplemental Indenture, dated February 1, 1993, of the company to
Continental Bank, National Association, Trustee, under Indenture
dated as of January 1, 1954. (File No. 1-7296, Form 10-K for
1992, Exhibit 4-17.)
4.12 * Supplemental Indenture, dated May 1, 1993, of the company to
Continental Bank, National Association, Trustee, under Indenture
dated as of January 1, 1954. (File No. 1-7296, Form 10-Q for
March 1993, Exhibit 4-02.)
4.13 * Supplemental Indenture, dated July 1, 1993, of the company to
Continental Bank, National Association, Trustee, under Indenture
dated as of January 1, 1954. (File No. 1-7296, Form 10-Q for
June 1993, Exhibit 4-01.)
4.14 * Supplemental Indenture, dated August 15, 1994, of the company to
Continental Bank, Trustee, under Indenture dated as of January 1,
1954. (File No. 1-7296, Form 10-Q for September 1994,
Exhibit 4.01.)
4.15 * Supplemental Indenture, dated October 15, 1995, of the company to
Bank of America Illinois, Trustee, under Indenture dated as of
January 1, 1954. (File No. 1-7296, Form 10-Q for September 1995,
Exhibit 4.01.)
4.16 * Supplemental Indenture, dated May 10, 1996, of the company to
Harris Trust and Savings Bank, Trustee, under Indenture dated as
of January 1, 1954. (File No. 1-7296, Form 10-Q for June 1996,
Exhibit 4.01.)
4.17 * Supplemental Indenture, dated August 1, 1996, of the company to
Harris Trust and Savings Bank, Trustee, under Indenture dated as
of January 1, 1954. (File No. 1-7296, Form 10-Q for June 1996,
Exhibit 4.02.)
Northern Illinois Gas Page 32
Exhibit Index (concluded)
Exhibit
Number Description of Document
12.01 Computation of Consolidated Ratio of Earnings to Fixed Charges.
23.01 Consent of Independent Public Accountants.
24.01 Powers of Attorney.
27.01 Financial Data Schedule.
99.01 Supplemental Proxy Solicitation Material, dated April 11, 1996.
* These exhibits have been previously filed with the Securities and Exchange
Commission as exhibits to registration statements or to other filings with
the Commission and are incorporated herein as exhibits by reference. The
file number and exhibit number of each such exhibit, where applicable, are
stated in parentheses in the description of such exhibit.
Under written request, the company will furnish free of charge a copy of
any exhibit. Requests should be sent to Investor Relations at the
corporate headquarters.
<TABLE>
Northern Illinois Gas Company
Form 10-K
Exhibit 12.01
NORTHERN ILLINOIS GAS COMPANY
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
(Thousands)
<CAPTION>
Year Ended December 31
1996 1995 1994 1993 1992
Earnings available to cover fixed charges:
<S> <C> <C> <C> <C> <C>
Net income $ 107,106 $ 85,448 $ 93,078 $ 94,935 $ 91,239
Add: Income taxes 63,579 49,881 50,958 52,890 49,578
Fixed charges 46,747 39,400 37,729 40,960 41,648
Allowance for funds used
during construction (5) (911) (151) (64) (915)
Total $ 217,427 $ 173,818 $ 181,614 $ 188,721 $ 181,550
Fixed charges:
Interest on debt $ 43,762 $ 38,129 $ 36,726 $ 38,949 $ 39,773
Other interest charges and
amortization of debt discount,
premium and expense, net 2,985 1,271 1,003 2,011 1,875
Total $ 46,747 $ 39,400 $ 37,729 $ 40,960 $ 41,648
Ratio of earnings to fixed charges 4.65 4.41 4.81 4.61 4.36
</TABLE>
Northern Illinois Gas Company
Form 10-K
Exhibit 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report, dated January 28, 1997, included in this
Form 10-K, into the company's previously filed Form S-3 Registration
Statement in connection with the Northern Illinois Gas Company
$225,000,000 First Mortgage Bond shelf filing (No. 33-77812).
ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Chicago, Illinois
March 25, 1997
Northern Illinois Gas Company
Form 10-K
Exhibit 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director, Officer, or Director and Officer
of Northern Illinois Gas Company, an Illinois corporation, does hereby
constitute and appoint D. L. CYRANOSKI and G. M. BEHRENS, and each of them,
the undersigned's true and lawful attorneys and agents, each with full power
and authority (acting alone and without the other) to execute in the name
and on behalf of the undersigned as such Director, Officer, or Director and
Officer, the 1996 Annual Report on Form 10-K (and such amendment or
amendments thereto as may be necessary) to be filed pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that
such attorneys and agents, or any of them, may do or cause to be done by
virtue of these presents.
IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney
this 28th day of January, 1997.
ROBERT M. BEAVERS, JR.
Robert M. Beavers, Jr.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director, Officer, or Director and Officer
of Northern Illinois Gas Company, an Illinois corporation, does hereby
constitute and appoint D. L. CYRANOSKI and G. M. BEHRENS, and each of them,
the undersigned's true and lawful attorneys and agents, each with full power
and authority (acting alone and without the other) to execute in the name
and on behalf of the undersigned as such Director, Officer, or Director and
Officer, the 1996 Annual Report on Form 10-K (and such amendment or
amendments thereto as may be necessary) to be filed pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that
such attorneys and agents, or any of them, may do or cause to be done by
virtue of these presents.
IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney
this 28th day of January, 1997.
BRUCE P. BICKNER
Bruce P. Bickner
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director, Officer, or Director and Officer
of Northern Illinois Gas Company, an Illinois corporation, does hereby
constitute and appoint D. L. CYRANOSKI and G. M. BEHRENS, and each of them,
the undersigned's true and lawful attorneys and agents, each with full power
and authority (acting alone and without the other) to execute in the name
and on behalf of the undersigned as such Director, Officer, or Director and
Officer, the 1996 Annual Report on Form 10-K (and such amendment or
amendments thereto as may be necessary) to be filed pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that
such attorneys and agents, or any of them, may do or cause to be done by
virtue of these presents.
IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney
this 28th day of January, 1997.
JOHN H. BIRDSALL, III
John H. Birdsall, III
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director, Officer, or Director and Officer
of Northern Illinois Gas Company, an Illinois corporation, does hereby
constitute and appoint D. L. CYRANOSKI and G. M. BEHRENS, and each of them,
the undersigned's true and lawful attorneys and agents, each with full power
and authority (acting alone and without the other) to execute in the name
and on behalf of the undersigned as such Director, Officer, or Director and
Officer, the 1996 Annual Report on Form 10-K (and such amendment or
amendments thereto as may be necessary) to be filed pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that
such attorneys and agents, or any of them, may do or cause to be done by
virtue of these presents.
IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney
this 28th day of January, 1997.
W. H. CLARK
W. H. Clark
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director, Officer, or Director and Officer
of Northern Illinois Gas Company, an Illinois corporation, does hereby
constitute and appoint D. L. CYRANOSKI and G. M. BEHRENS, and each of them,
the undersigned's true and lawful attorneys and agents, each with full power
and authority (acting alone and without the other) to execute in the name
and on behalf of the undersigned as such Director, Officer, or Director and
Officer, the 1996 Annual Report on Form 10-K (and such amendment or
amendments thereto as may be necessary) to be filed pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that
such attorneys and agents, or any of them, may do or cause to be done by
virtue of these presents.
IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney
this 28th day of January, 1997.
JOHN E. JONES
John E. Jones
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director, Officer, or Director and Officer
of Northern Illinois Gas Company, an Illinois corporation, does hereby
constitute and appoint D. L. CYRANOSKI and G. M. BEHRENS, and each of them,
the undersigned's true and lawful attorneys and agents, each with full power
and authority (acting alone and without the other) to execute in the name
and on behalf of the undersigned as such Director, Officer, or Director and
Officer, the 1996 Annual Report on Form 10-K (and such amendment or
amendments thereto as may be necessary) to be filed pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that
such attorneys and agents, or any of them, may do or cause to be done by
virtue of these presents.
IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney
this 28th day of January, 1997.
DENNIS J. KELLER
Dennis J. Keller
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director, Officer, or Director and Officer
of Northern Illinois Gas Company, an Illinois corporation, does hereby
constitute and appoint D. L. CYRANOSKI and G. M. BEHRENS, and each of them,
the undersigned's true and lawful attorneys and agents, each with full power
and authority (acting alone and without the other) to execute in the name
and on behalf of the undersigned as such Director, Officer, or Director and
Officer, the 1996 Annual Report on Form 10-K (and such amendment or
amendments thereto as may be necessary) to be filed pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that
such attorneys and agents, or any of them, may do or cause to be done by
virtue of these presents.
IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney
this 28th day of January, 1997.
CHARLES S. LOCKE
Charles S. Locke
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director, Officer, or Director and Officer
of Northern Illinois Gas Company, an Illinois corporation, does hereby
constitute and appoint D. L. CYRANOSKI and G. M. BEHRENS, and each of them,
the undersigned's true and lawful attorneys and agents, each with full power
and authority (acting alone and without the other) to execute in the name
and on behalf of the undersigned as such Director, Officer, or Director and
Officer, the 1996 Annual Report on Form 10-K (and such amendment or
amendments thereto as may be necessary) to be filed pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that
such attorneys and agents, or any of them, may do or cause to be done by
virtue of these presents.
IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney
this 28th day of January, 1997.
SIDNEY R. PETERSEN
Sidney R. Petersen
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director, Officer, or Director and Officer
of Northern Illinois Gas Company, an Illinois corporation, does hereby
constitute and appoint D. L. CYRANOSKI and G. M. BEHRENS, and each of them,
the undersigned's true and lawful attorneys and agents, each with full power
and authority (acting alone and without the other) to execute in the name
and on behalf of the undersigned as such Director, Officer, or Director and
Officer, the 1996 Annual Report on Form 10-K (and such amendment or
amendments thereto as may be necessary) to be filed pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that
such attorneys and agents, or any of them, may do or cause to be done by
virtue of these presents.
IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney
this 28th day of January, 1997.
DANIEL R. TOLL
Daniel R. Toll
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director, Officer, or Director and Officer
of Northern Illinois Gas Company, an Illinois corporation, does hereby
constitute and appoint D. L. CYRANOSKI and G. M. BEHRENS, and each of them,
the undersigned's true and lawful attorneys and agents, each with full power
and authority (acting alone and without the other) to execute in the name
and on behalf of the undersigned as such Director, Officer, or Director and
Officer, the 1996 Annual Report on Form 10-K (and such amendment or
amendments thereto as may be necessary) to be filed pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that
such attorneys and agents, or any of them, may do or cause to be done by
virtue of these presents.
IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney
this 28th day of January, 1997.
PATRICIA A. WIER
Patricia A. Wier
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statement of income, the consolidated balance sheet, the
consolidated statement of retained earnings 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> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,662
<OTHER-PROPERTY-AND-INVEST> 9
<TOTAL-CURRENT-ASSETS> 505
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 69
<TOTAL-ASSETS> 2,245
<COMMON> 76
<CAPITAL-SURPLUS-PAID-IN> 108
<RETAINED-EARNINGS> 498
<TOTAL-COMMON-STOCKHOLDERS-EQ> 682
9
1
<LONG-TERM-DEBT-NET> 496
<SHORT-TERM-NOTES> 11
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 273
<LONG-TERM-DEBT-CURRENT-PORT> 25
1
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 747
<TOT-CAPITALIZATION-AND-LIAB> 2,245
<GROSS-OPERATING-REVENUE> 1,610
<INCOME-TAX-EXPENSE> 63
<OTHER-OPERATING-EXPENSES> 1,395
<TOTAL-OPERATING-EXPENSES> 1,458
<OPERATING-INCOME-LOSS> 152
<OTHER-INCOME-NET> 2
<INCOME-BEFORE-INTEREST-EXPEN> 154
<TOTAL-INTEREST-EXPENSE> 47
<NET-INCOME> 107
0
<EARNINGS-AVAILABLE-FOR-COMM> 107
<COMMON-STOCK-DIVIDENDS> 124
<TOTAL-INTEREST-ON-BONDS> 36
<CASH-FLOW-OPERATIONS> 46
<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>
Northern Illinois Gas Company
Form 10-K
Exhibit 99.01
Northern Illinois Gas
April 11, 1996
Dear Northern Illinois Gas Company Bondholder:
Northern Illinois Gas Company is committed to maintaining an
excellent relationship with its bondholders. The proposed
Indenture amendments are intended to increase the Company's
flexibility when issuing new series of first mortgage bonds,
eliminate various obsolete provisions and otherwise bring the
Indenture into greater conformity with modern debt indentures.
Some of our bondholders have expressed concern about proposed
item 8, Modifications of Indenture. This amendment would
permit the Company and the Trustee to make changes in the
Indenture if such changes do not, in the opinion of the Board
of Directors, adversely affect the rights of bondholders.
In the interest of maintaining our bondholders' confidence,
the company deletes the proposed
item 8 Modifications of Indenture from the Proxy Statement.
We urge you to vote for the proposed Indenture amendments.
Sincerely,
RICHARD J. LANNON
Richard J. Lannon
Vice President & Treasurer
Attachment
NORTHERN ILLINOIS GAS COMPANY
ADJOURNMENT NOTICE TO
MEETING OF BONDHOLDERS
RESCHEDULED FOR MAY 10, 1996
Notice is hereby given that the February 27, 1996 meeting
of holders of all series of Northern Illinois Gas Company
First Mortgage Bonds (the "Bonds") has been adjourned due to
the lack of a quorum and has been rescheduled for May 10,
1996, at the Harris Trust and Savings Bank, 6th Floor, 111
West Monroe Street, Chicago, Illinois, at 3:00 p.m., for the
purpose of voting on the adoption of certain proposed
amendments to the Indenture, dated as of January 1, 1954,
under which the Bonds were issued. The proposed amendments,
which are described in the Proxy Statement of the Company that
was previously sent to bondholders, are intended to increase
the Company's flexibility when issuing new series of Bonds,
eliminate various obsolete provisions and otherwise bring the
Indenture into greater conformity with modern debt indentures.
If you have any questions or need additional documents,
please call Morrow & Co., 1-800-662-5200.
NORTHERN ILLINOIS GAS COMPANY
April 11, 1996
IMPORTANT
In order that there be a proper representation at the
meeting, you are urged to vote, sign, have acknowledged and
mail your proxy even though you plan to attend. If you attend
the meeting you may, if you wish, vote personally on all
matters brought before the meeting.
Your prompt action in returning your proxy will be
greatly appreciated.
April 11, 1996
SUPPLEMENT TO PROXY STATEMENT
Set forth below is a summary of all of the proposed
amendments to be considered at the May 10, 1996 Bondholder
meeting.
PROPOSED AMENDMENTS
1. Definition of Board of Directors. The term
"Board of Directors" is redefined to include any duly
authorized committee of the Board of Directors. (Section
1.09)
2. Definition of Authorized Newspaper. The term
"authorized newspaper" is redefined to eliminate the
requirement that the newspaper in which notices to bondholders
are required to be included be published in the city in which
it is circulated. (Section 1.31)
3. Principal Office of Trustee. The requirement
that the Trustee under the Indenture have its principal place
of business located in the City of Chicago is eliminated.
(Sections 1.32, 17.05 and 17.06)
4. Delegation of Authority to Issue New Bonds to
Officers. The Board of Directors is authorized to delegate
to one or more officers of NI-Gas the authority to issue
additional series of bonds under the Indenture and to
establish the terms of such additional series. (Sections 4.17
and 6.04)
5. Release of Property. The requirement that the
Board of Directors authorize the release of property mortgaged
under the Indenture is eliminated with respect to property
having a fair value of not more than $300,000. The remaining
provisions of the Indenture governing property releases,
including the requirement that cash in an amount equal to the
fair value of the property to be released be deposited with
the Trustee (subject to reduction in the manner provided by
the Indenture), are not affected. (Section 10.03)
6. Publication of Notice. The requirement that
certain notices to bondholders be published in an authorized
newspaper in the cities of Chicago and New York is eliminated
in those circumstances where all outstanding bonds are
registered bonds. (Sections 17.06, 17.07 and 19.08)
7. Action by Bondholders. A provision enabling
bondholders to take action under the Indenture, including the
approval of amendments to the Indenture where bondholder
approval is required, without the necessity of calling a
formal meeting of bondholders is included.
(Section 19.11)
For details of the proposed amendments, refer to the
Proxy Statement dated January 26, 1996 which was previously
sent to bondholders.
Upon adoption of a resolution approving the proposed
amendments, the Company and the Trustee will execute a
supplemental indenture to the Indenture affecting the proposed
amendments.
If you have any questions, please call the following
individual at the Company.
GLORIA K. ANDERSON (708) 983-8676 EXT. 2685.
NORTHER ILLINOIS GAS COMPANY
April 11, 1996
