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, 1998
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
(Doing business as Nicor 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)
The 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, 1998, were
15,232,414, all of which are owned by Nicor Inc.
Nicor Gas Company 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, 1998 and 1997 2
Consolidated Statement of Cash Flows -
Three and Twelve Months Ended
March 31, 1998 and 1997 3
Consolidated Balance Sheet -
March 31, 1998 and 1997, and
December 31, 1997 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.
Nicor Gas Company Page 1
PART I - Financial Information
Item 1. Financial Statements
The following condensed unaudited financial statements of Nicor 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>
Nicor Gas Company Page 2
Consolidated Statement of Income (Unaudited)
(Millions)
<CAPTION>
Three months ended Twelve months ended
March 31 March 31
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Operating revenues $ 504.2 $ 819.9 $1,414.8 $1,777.7
Operating expenses
Cost of gas 318.2 605.5 841.7 1,175.0
Operating and maintenance 34.0 37.4 147.5 154.6
Depreciation 49.5 48.7 117.5 114.2
Taxes, other than income taxes 42.9 60.0 106.8 125.9
Income taxes 17.5 20.9 58.1 59.8
462.1 772.5 1,271.6 1,629.5
Operating income 42.1 47.4 143.2 148.2
Other income (expense)
Interest income - - 1.4 .1
Other, net 1.6 .1 8.8 1.8
Income taxes on other income (.6) - (3.8) (.4)
1.0 .1 6.4 1.5
Interest expense
Interest on debt, net of amounts capitalized 12.3 12.5 45.7 46.4
Other .3 .3 1.2 2.5
12.6 12.8 46.9 48.9
Net income 30.5 34.7 102.7 100.8
Dividends on preferred stock .1 .1 .5 .5
Earnings applicable to common stock $ 30.4 $ 34.6 $ 102.2 $ 100.3
<F1>
Nicor 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>
Nicor Gas Company Page 3
Consolidated Statement of Cash Flows (Unaudited)
(Millions)
<CAPTION>
Three months ended Twelve months ended
March 31 March 31
1998 1997 1998 1997
Operating activities
<S> <C> <C> <C> <C>
Net income $ 30.5 $ 34.7 $ 102.7 $ 100.8
Adjustments to reconcile net income to net cash flow
provided from operating activities:
Depreciation 49.5 48.7 117.5 114.2
Deferred income tax expense (benefit) 2.5 1.8 8.9 1.1
Change in working capital items and other:
Accounts receivable, less allowances 61.7 (56.2) 100.1 (71.6)
Gas in storage 116.0 109.6 10.2 .2
Deferred/accrued gas costs 5.6 123.3 (41.5) 144.6
Accounts payable (31.0) (132.2) 23.7 (132.4)
Temporary LIFO liquidation 53.6 95.0 (41.4) (1.7)
Other (14.4) 28.1 (54.7) (15.3)
Net cash flow provided from operating activities 274.0 252.8 225.5 139.9
Investing activities
Capital expenditures (19.7) (18.4) (103.1) (107.6)
Other 1.9 (.2) 12.9 1.7
Net cash flow used for investing activities (17.8) (18.6) (90.2) (105.9)
Financing activities
Net proceeds from issuing long-term debt 49.4 - 148.5 74.2
Disbursements to retire long-term debt (104.5) (25.0) (157.1) (25.0)
Short-term borrowings (repayments), net (163.0) (168.2) (24.4) 33.3
Dividends paid (31.7) (32.9) (107.9) (103.7)
Other - - (.5) (.3)
Net cash flow used for financing activities (249.8) (226.1) (141.4) (21.5)
Net increase (decrease) in cash and cash equivalents 6.4 8.1 (6.1) 12.5
Cash and cash equivalents, beginning of period - 4.4 12.5 -
Cash and cash equivalents, end of period $ 6.4 $ 12.5 $ 6.4 $ 12.5
Supplemental information
Income taxes paid, net of refunds $ .9 $ - $ 57.1 $ 65.9
Interest paid, net of amounts capitalized 32.8 19.1 61.0 54.6
<F1>
The accompanying notes are an integral part of this statement.
</TABLE>
<TABLE>
Nicor Gas Company Page 4
Consolidated Balance Sheet (Unaudited)
(Millions)
<CAPTION>
March 31 December 31 March 31
Assets 1998 1997 1997
<S> <C> <C> <C>
Gas distribution plant, at cost $3,028.3 $3,012.3 $2,958.2
Less accumulated depreciation 1,429.1 1,382.3 1,327.2
1,599.2 1,630.0 1,631.0
Other property and investments, net of accumulated
depletion of $14.5 3.9 4.3 8.8
Current assets
Cash and cash equivalents 6.4 - 12.5
Accounts receivable, less allowances of $8.3
$7.6 and $8.9, respectively 259.7 321.4 359.8
Gas in storage, at last-in, first-out (LIFO) cost 11.8 127.8 8.6
Other 22.3 22.0 25.9
300.2 471.2 406.8
Other assets 93.3 83.7 70.5
$1,996.6 $2,189.2 $2,117.1
Capitalization and Liabilities
Capitalization
Long-term debt $ 471.3 $ 520.9 $ 470.8
Preferred stock
Redeemable 8.1 8.1 8.6
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 500.5 497.4 507.7
1,165.4 1,211.8 1,172.6
Current liabilities
Long-term obligations due within one year 25.5 25.5 25.5
Short-term borrowings 91.6 254.6 116.0
Accounts payable 183.0 214.0 159.3
Temporary LIFO liquidation 53.6 - 95.0
Accrued gas costs 30.7 25.1 72.2
Dividends payable 27.3 31.7 25.4
Accrued interest 10.5 30.9 25.4
Other 29.4 18.9 51.1
451.6 600.7 569.9
Deferred credits and other liabilities
Deferred income taxes 188.1 184.6 180.5
Regulatory income tax liability 81.0 81.7 83.2
Unamortized investment tax credits 45.7 46.2 47.9
Other 64.8 64.2 63.0
379.6 376.7 374.6
$1,996.6 $2,189.2 $2,117.1
<F1>
The accompanying notes are an integral part of this statement.
</TABLE>
Nicor Gas Company 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.
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.
NEW ACCOUNTING PRONOUNCEMENT
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. This statement provides guidance on
accounting for the costs of computer software developed or obtained for
internal use and is required to be adopted no later than the company's 1999
fiscal year. The company plans to modify its method of capitalization of
such costs by adopting this statement prospectively on January 1, 1999. The
company is currently evaluating this statement but does not expect it to
have a material impact on its financial condition or results of operations.
LONG-TERM DEBT
In February 1998, Nicor Gas issued $50 million of 6.58% First Mortgage Bonds
due in 2028. A portion of the net proceeds from the sale replenished
corporate funds used for the February 1998 maturity of $25 million of 5-7/8%
First Mortgage Bonds. The remainder, along with other corporate funds, was
used to redeem $75 million of 8-1/4% First Mortgage Bonds in March 1998.
CONTINGENCIES
The company is involved in legal or administrative proceedings before
various courts and agencies with respect to rates, taxes and other matters.
Current environmental laws may require cleanup of certain former
manufactured gas plant sites. To date, Nicor Gas has identified about 40
properties for which it may, in part, be responsible. The majority of these
properties are not presently owned by the company. Information regarding
preliminary site reviews has been presented to the Illinois Environmental
Protection Agency. More detailed investigations and remedial activities are
either in progress or planned at many of these sites. The results of
continued testing and analysis should determine to what extent additional
remediation is necessary and may provide a basis for estimating any
additional future costs which, based on industry experience, could be
significant. In accordance with Ill.C.C. authorization, the company has
been recovering these costs from its customers.
Nicor Gas Company Page 6
Notes to the Consolidated Financial Statements (Unaudited) (Concluded)
On December 20, 1995, Nicor Gas filed suit in the Circuit Court of Cook
County against certain 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.
Nicor Gas Company 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 Nicor Gas Company 1997 Annual Report
on Form 10-K.
RESULTS OF OPERATIONS
Net income for the first quarter of 1998 was $30.5 million compared with
$34.7 million in the first quarter of 1997. The decrease was due to the
impact of 17 percent warmer weather partially offset by a 9 percent
reduction in operating and maintenance expenses. For the twelve-months
ended March 31, net income rose to $102.7 million from $100.8 million a year
ago due primarily to nonoperating factors and reduced operating and
maintenance expenses which more than offset the negative impact of 10
percent warmer weather.
Operating revenues decreased $315.7 million to $504.2 million and
$362.9 million to $1,414.8 million for the three- and twelve-month periods,
respectively. For both periods, the decrease was due primarily to lower gas
supply costs, which are passed through to customers, and the impact of
warmer weather. At 586 degree days warmer than normal, this year's first
quarter was the second warmest this century.
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 the periods ended March 31. Margin decreased in both
periods due to the impact of warmer weather. The increase in margin per Mcf
delivered was due, in part, to the impact of a reduction in lower margin
deliveries due to warmer weather.
Three months Twelve months
1998 1997 1998 1997
Margin (Millions) $148.3 $159.6 $484.7 $493.3
Margin per Mcf delivered .79 .74 .93 .91
Operating and maintenance expenses decreased 9 percent to $34 million and
5 percent to $147.5 million for the three- and twelve-month periods,
respectively, due, in part, to lower retirement benefits costs, resulting
principally from favorable pension fund investment returns. The three-month
period was also positively impacted by a reduction in the provision for
uncollectible accounts related to lower operating revenues.
Other income increased $.9 million and $4.9 million for the three- and
twelve-month periods, respectively, due primarily to additional gains from
property sales.
Nicor Gas Company Page 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
FINANCIAL CONDITION
Net cash flow from operating activities increased $21.2 million and
$85.6 million for the three- and twelve-month periods, respectively, due
primarily to the timing of gas cost recoveries. The working capital
component of net cash flow from operating activities can swing sharply due
primarily to certain gas distribution 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.
The company maintains short-term credit agreements with major domestic and
foreign banks. At March 31, 1998, these agreements, which serve as backup
for the issuance of commercial paper, totaled $250 million and the company
had $90 million of commercial paper outstanding. At March 31, 1998, the
unused lines of credit under these credit agreements were $160 million.
In February 1998, Nicor Gas issued $50 million of 6.58% First Mortgage Bonds
due in 2028. A portion of the net proceeds from the sale replenished
corporate funds used for the February 1998 maturity of $25 million of 5-7/8%
First Mortgage Bonds. The remainder, along with other corporate funds, was
used to redeem $75 million of 8-1/4% First Mortgage Bonds in March 1998.
NEW ACCOUNTING PRONOUNCEMENT
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. This statement is not expected to
have a material impact on the company's financial condition or results of
operations. For further information, see New Accounting Pronouncement on
page 5.
<TABLE>
Nicor Gas Company 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
1998 1997 1998 1997
Operating revenues (Millions):
Sales
<S> <C> <C> <C> <C>
Residential $ 329.7 $ 534.5 $ 921.1 $1,157.1
Commercial 89.5 158.9 245.5 323.5
Industrial 13.7 28.5 42.0 59.8
432.9 721.9 1,208.6 1,540.4
Transportation
Commercial 16.8 18.2 53.9 53.7
Industrial 10.5 13.8 45.1 49.9
27.3 32.0 99.0 103.6
Revenue taxes and other 44.0 66.0 107.2 133.7
$ 504.2 $ 819.9 $1,414.8 $1,777.7
Deliveries (Bcf):
Sales
Residential 87.9 106.7 214.5 238.7
Commercial 22.9 31.1 56.9 66.2
Industrial 3.7 5.0 11.6 13.3
114.5 142.8 283.0 318.2
Transportation
Commercial 26.1 28.3 63.8 68.0
Industrial 48.1 43.8 172.3 155.8
74.2 72.1 236.1 223.8
188.7 214.9 519.1 542.0
Average gas cost per Mcf sold $ 2.76 $ 4.17 $ 2.92 $ 3.61
Weather statistics:
Degree days 2,573 3,102 5,725 6,328
Percent colder (warmer) than normal (19) (2) (6) 3
Customers at end of period (Thousands):
Sales
Residential 1,720.4 1,695.1
Commercial 143.7 142.9
Industrial 11.1 11.6
1,875.2 1,849.6
Transportation
Commercial 19.2 18.3
Industrial 3.1 2.7
22.3 21.0
1,897.5 1,870.6
</TABLE>
Nicor Gas Company Page 10
PART II - Other Information
Item 1. Legal Proceedings
For information concerning legal proceedings, see Contingencies
in Notes to the Consolidated Financial Statements beginning on
page 5, which is incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index on page 12 filed herewith.
(b) The company did not file a report on Form 8-K during the first
quarter of 1998.
Nicor Gas Company 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.
Nicor Gas Company
Date May 13, 1998 By DAVID L. CYRANOSKI
David L. Cyranoski
Senior Vice President,
Secretary and Controller
Nicor Gas Company 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>
Nicor Gas Company
Form 10-Q
Exhibit 12.01
NICOR GAS COMPANY
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
(Thousands)
<CAPTION>
Twelve
Months Ended
March 31 Year Ended December 31
1998 1997 1996 1995 1994 1993
Earnings available to cover fixed charges:
<S> <C> <C> <C> <C> <C> <C>
Net income $ 102,710 $ 106,922 $ 107,106 $ 85,448 $ 93,078 $ 94,935
Add: Income taxes 61,918 64,714 63,579 49,881 50,958 52,890
Fixed charges 46,617 46,886 46,747 39,400 37,729 40,960
Allowance for funds used
during construction (22) (11) (5) (911) (151) (64)
Total $ 211,223 $ 218,511 $ 217,427 $ 173,818 $ 181,614 $ 188,721
Fixed charges:
Interest on debt $ 44,961 $ 45,246 $ 43,762 $ 38,129 $ 36,726 $ 38,949
Other interest charges and
amortization of debt discount,
premium and expense, net 1,656 1,640 2,985 1,271 1,003 2,011
Total $ 46,617 $ 46,886 $ 46,747 $ 39,400 $ 37,729 $ 40,960
Ratio of earnings to fixed charges 4.53 4.66 4.65 4.41 4.81 4.61
</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-31-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,599
<OTHER-PROPERTY-AND-INVEST> 4
<TOTAL-CURRENT-ASSETS> 300
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 94
<TOTAL-ASSETS> 1,997
<COMMON> 76
<CAPITAL-SURPLUS-PAID-IN> 108
<RETAINED-EARNINGS> 501
<TOTAL-COMMON-STOCKHOLDERS-EQ> 685
8
1
<LONG-TERM-DEBT-NET> 471
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 92
<LONG-TERM-DEBT-CURRENT-PORT> 25
1
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 714
<TOT-CAPITALIZATION-AND-LIAB> 1,997
<GROSS-OPERATING-REVENUE> 504
<INCOME-TAX-EXPENSE> 18
<OTHER-OPERATING-EXPENSES> 444
<TOTAL-OPERATING-EXPENSES> 462
<OPERATING-INCOME-LOSS> 42
<OTHER-INCOME-NET> 1
<INCOME-BEFORE-INTEREST-EXPEN> 43
<TOTAL-INTEREST-EXPENSE> 13
<NET-INCOME> 30
0
<EARNINGS-AVAILABLE-FOR-COMM> 30
<COMMON-STOCK-DIVIDENDS> 27
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 274
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>NICOR GAS IS A WHOLLY OWNED SUBSIDIARY OF NICOR INC. EARNINGS PER SHARE
INFORMATION IS THEREFORE OMITTED.
</FN>
</TABLE>
