UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
I.R.S Employer
Commission Registrant, State of Incorporation, Identification
File Number Address and Telephone Number Number
-------------- ------------------------------------- -------------------
1-7296 Northern Illinois Gas Company 36-2863847
(Doing business as Nicor Gas
Company)
(An Illinois Corporation)
1844 Ferry Road
Naperville, Illinois 60563-9600
(630) 983-8888
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 July 31, 2000, were
15,232,414, all of which are owned by Nicor Inc.
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Nicor Gas Company Page i
Table of Contents
Part I - Financial Information
Item 1. Financial Statements (Unaudited) ............................... 1
Consolidated Statement of Income:
Three and six months ended
June 30, 2000 and 1999 ........................................ 2
Consolidated Statement of Cash Flows:
Six months ended
June 30, 2000 and 1999 ........................................ 3
Consolidated Balance Sheet:
June 30, 2000 and 1999, and
December 31, 1999 ............................................. 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 6. Exhibits and Reports on Form 8-K ............................... 10
Signature ...................................................... 11
Exhibit Index .................................................. 12
Glossary
Degree day.....The extent to which the daily average temperature falls
below 65 degrees Fahrenheit. Normal weather for Nicor Gas'
service territory is about 6,100 degree days per year.
ICC............Illinois Commerce Commission, the agency that regulates investor-
owned Illinois utilities.
Mcf, Bcf ......Thousand cubic feet, billion cubic feet.
PBR............Performance-based rate, a plan that provides economic incentives
based on performance.
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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. Results for the
interim periods presented are not necessarily indicative of the results to be
expected for the full fiscal year due to seasonal and other factors.
Nicor Gas Company Page 2
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Consolidated Statement of Income (Unaudited)
(millions)
Three months ended Six months ended
June 30 June 30
--------------------- --------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Operating revenues $ 262.1 $ 203.4 $ 834.5 $ 716.1
--------- --------- --------- ---------
Operating expenses
Cost of gas 133.7 84.5 502.2 402.9
Operating and maintenance 38.4 38.3 78.9 77.4
Depreciation 21.1 20.4 74.0 71.6
Taxes, other than income taxes 22.4 20.2 69.1 62.5
Income taxes 14.0 11.4 33.6 30.2
--------- --------- --------- ---------
229.6 174.8 757.8 644.6
--------- --------- --------- ---------
Operating income 32.5 28.6 76.7 71.5
--------- --------- --------- ---------
Other income (expense)
Other, net 1.2 1.4 2.7 1.6
Income taxes on other income (.4) (.5) (1.0) (.6)
--------- --------- --------- ---------
.8 .9 1.7 1.0
--------- --------- --------- ---------
Interest expense
Interest on debt, net of
amounts capitalized 8.5 9.6 19.4 20.3
Other .1 (.6) .3 (.2)
--------- --------- --------- ---------
8.6 9.0 19.7 20.1
--------- --------- --------- ---------
Net income 24.7 20.5 58.7 52.4
Dividends on preferred stock .1 .1 .2 .2
--------- --------- --------- ---------
Earnings applicable to
common stock $ 24.6 $ 20.4 $ 58.5 $ 52.2
========= ========= ========= =========
The accompanying notes are an integral part of this statement.
Nicor Gas Company Page 3
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Consolidated Statement of Cash Flows (Unaudited)
(millions)
Six months ended
June 30
--------------------
2000 1999
--------- ---------
Operating activities
Net income $ 58.7 $ 52.4
Adjustments to reconcile net income to net cash flow
provided from operating activities:
Depreciation 74.0 71.6
Deferred income tax expense (.4) 2.1
Change in assets and liabilities:
Receivables, less allowances 124.8 122.1
Gas in storage 10.7 96.0
Deferred/accrued gas costs (25.6) (27.9)
Accounts payable 23.5 (12.3)
Temporary LIFO liquidation 105.7 59.2
Postretirement benefits (14.4) (8.4)
Other 18.0 .9
--------- ---------
Net cash flow provided from operating activities 375.0 355.7
--------- ---------
Investing activities
Capital expenditures (56.0) (48.8)
Other .3 (.2)
--------- ---------
Net cash flow used for investing activities (55.7) (49.0)
--------- ---------
Financing activities
Net proceeds from issuing long-term debt 49.9 99.6
Disbursements to retire long-term debt (50.0) (102.7)
Short-term borrowings (repayments), net (277.8) (214.5)
Dividends paid (51.2) (46.6)
Other (.5) (.5)
--------- ---------
Net cash flow used for financing activities (329.6) (264.7)
--------- ---------
Net (decrease) increase in cash and cash equivalents (10.3) 42.0
Cash and cash equivalents, beginning of period 10.3 31.5
--------- ---------
Cash and cash equivalents, end of period $ - $ 73.5
========= =========
Supplemental information
Income taxes paid, net of refunds $ 26.9 $ 29.7
Interest paid, net of amounts capitalized 20.6 20.0
The accompanying notes are an integral part of this statement.
Nicor Gas Company Page 4
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Consolidated Balance Sheet (Unaudited)
(millions)
June 30 December 31 June 30
2000 1999 1999
----------- ----------- ----------
Assets
Gas distribution plant, at cost $ 3,240.3 $ 3,200.3 $ 3,144.6
Less accumulated depreciation 1,649.7 1,589.6 1,551.7
----------- ----------- ----------
1,590.6 1,610.7 1,592.9
----------- ----------- ----------
Current assets
Cash and cash equivalents - 10.3 73.5
Receivables, less allowances of $8.6,
$6.1 and $7.6, respectively 191.7 316.5 114.0
Gas in storage, at last-in,
first-out (LIFO) 11.4 22.1 9.5
Deferred gas costs 41.5 15.9 -
Other 24.1 23.0 22.6
----------- ----------- ----------
268.7 387.8 219.6
----------- ----------- ----------
Other assets 148.1 138.7 121.0
----------- ----------- ----------
$ 2,007.4 $ 2,137.2 $ 1,933.5
=========== =========== ==========
Capitalization and Liabilities
Capitalization
Long-term debt $ 421.9 $ 421.7 $ 471.3
Preferred stock 8.0 8.5 8.5
Common equity
Common stock 76.1 76.1 76.2
Paid-in capital 108.0 108.0 108.0
Retained earnings 520.8 491.2 494.7
----------- ----------- ----------
1,134.8 1,105.5 1,158.7
----------- ----------- ----------
Current liabilities
Long-term obligations due within one year 50.5 50.5 50.5
Short-term borrowings 25.0 302.8 -
Accounts payable 266.6 243.1 230.6
Temporary LIFO liquidation 105.7 - 59.2
Accrued gas costs - - 2.0
Dividends payable - 22.1 26.3
Other 28.7 27.0 20.7
----------- ----------- ----------
476.5 645.5 389.3
----------- ----------- ----------
Deferred credits and other liabilities
Deferred income taxes 205.1 202.3 201.2
Regulatory income tax liability 72.8 74.8 76.6
Unamortized investment tax credits 41.9 42.7 43.0
Other 76.3 66.4 64.7
----------- ----------- ----------
396.1 386.2 385.5
----------- ----------- ----------
$ 2,007.4 $ 2,137.2 $ 1,933.5
=========== =========== ==========
The accompanying notes are an integral part of this statement.
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Nicor Gas Company Page 5
Notes to the Consolidated Financial Statements (Unaudited)
ACCOUNTING POLICIES
Weather insurance. On an interim basis, estimated weather insurance benefits are
recorded based on a comparison of actual year-to-date degree days to an
allocation of annual insured degree days. Second quarter and year-to-date
operating revenues include $.4 million and $7.3 million of estimated insurance
benefits that will partially reverse if the weather remains normal for the
remainder of the year.
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 at cost on
a 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
and in current liabilities as a temporary LIFO liquidation.
Receivable credit risk. Nicor Gas has a diversified customer base and prudent
credit policies to mitigate risk. At June 30, 2000, approximately $34 million of
Nicor Gas' accounts receivable balance was due from one natural gas marketing
company. Appropriate financial assurance has been obtained for this receivable.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities. The company has
substantially completed an evaluation of the statement, as amended, and plans to
adopt it on January 1, 2001. Implementation is not expected to have a material
impact on the company's financial condition or results of operations.
Derivative instruments are primarily utilized in the natural gas procurement
function. Realized gains or losses are passed directly through to customers
through operation of the company's Uniform Purchased Gas Adjustment Clause. As
such, changes in the fair value of these derivative instruments will be deferred
or accrued as a regulatory asset or liability until realized.
PERFORMANCE-BASED RATE PLAN
On January 1, 2000, Nicor Gas' performance-based rate (PBR) plan for natural gas
costs went into effect. Under the PBR, Nicor Gas' total gas supply costs will be
compared to a market-sensitive benchmark. Savings and losses relative to the
benchmark will be shared equally with customers. After two years, the plan will
be subject to Illinois Commerce Commission (ICC) review.
Results of the company's PBR plan are determined annually. On an interim basis,
the company records an estimate of results attributable to the period. Nicor Gas
recorded $1.0 million and $2.2 million of estimated PBR results as other income
for the three- and six-month periods, respectively.
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Nicor Gas Company Page 6
Notes to the Consolidated Financial Statements (Unaudited) (Concluded)
LONG-TERM DEBT
In January 2000, Nicor Gas issued $50 million of adjustable rate unsecured notes
due in 2001 at an initial rate of 6.11% to fund the redemption of $50 million of
unsecured notes at 5.065% that matured in January 2000.
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 ICC authorization,
the company has been recovering these costs from its customers.
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. Nicor Gas has reached a
settlement with one of the insurance carriers. In February 2000, the court
dismissed the company's case on summary judgment motions by certain defendants.
The company filed an appeal in March 2000. Management cannot predict the outcome
of the lawsuit against the remaining insurance carriers. Any recoveries will be
refunded 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.
SUBSEQUENT EVENT
In July 2000, Nicor Gas sold real estate at a gain of $3.8 million, which will
be included in other income during the third quarter of 2000.
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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 1999 Annual Report on Form
10-K.
RESULTS OF OPERATIONS
Net income for the three and six months ended June 30, 2000, is $24.7 million
and $58.7 million, respectively, compared with $20.5 million and $52.4 million,
respectively, for the same periods in 1999. Improvements in both periods are
primarily a result of increases in operating income and contributions from the
gas cost performance-based rate plan.
Operating revenues. Operating revenues for the second quarter increased $58.7
million to $262.1 million due to higher natural gas prices, which are passed
directly through to customers, and the impact of colder weather. Year-to-date
operating revenues increased $118.4 million to $834.5 million as the impact of
higher natural gas prices more than offset the effect of warmer weather.
Year-to-date gas distribution revenues also include $7.3 million of estimated
weather insurance benefits that will partially reverse if the weather remains
normal for the rest of the year.
Margin. Margin, defined as operating revenues less cost of gas and revenue
taxes, which are both passed directly through to customers, increased for the
three and six months ended June 30, 2000, by $ 7.1 million to $110.3 million and
$11.9 million to $272.3 million, respectively. Improvements for both periods
reflect income related to a significant construction project and customer
additions. Quarter results also reflect the impact of colder weather. Although
weather for the six-month period was warmer than last year, its adverse effect
on operating results was more than offset by the company's weather insurance
coverage in 2000. The insurance limits earnings volatility and ensures that the
net impact of weather in 2000 will be an improvement over 1999.
Operating and maintenance. Operating and maintenance expense for the six-month
period increased $1.5 million. Several factors, including the cost of weather
insurance, more than offset the positive impact of lower retirement-benefit
costs, which resulted principally from favorable pension fund investment
returns.
Nonoperating items. Other income remained essentially unchanged for the quarter
as the estimated gain from the company's performance-based rate (PBR) plan was
offset by reduced interest income. For the year-to-date period, estimated PBR
gains more than offset lower interest income.
In July 2000, Nicor Gas sold real estate at a gain of $3.8 million, which will
be included in other income during the third quarter of 2000. The Company
continues to assess its nonstrategic real estate holdings, and is evaluating the
potential to maximize the value from these holdings through additional property
sales or development over the next several years.
Interest on debt for the three- and six-month periods decreased due to lower
interest rates in both periods and reduced average borrowings in the second
quarter.
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Nicor Gas Company Page 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
FINANCIAL CONDITION AND LIQUIDITY
Operating. Net cash flow from operating activities increased $19.3 million to
$375.0 million for the six months ended June 30, 2000, due primarily to changes
in working capital items. Working capital can swing sharply due to certain
factors including weather, the price of gas, 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.
Financing. The company maintains short-term credit agreements with major
domestic and foreign banks. At June 30, 2000, these agreements, which serve as
backup for the issuance of commercial paper, totaled $275.0 million and the
company had $25.0 million of commercial paper outstanding.
In January 2000, Nicor Gas issued $50 million of adjustable rate unsecured notes
due in 2001 at an initial rate of 6.11% to fund the redemption of $50 million of
unsecured notes at 5.065% that matured in January 2000.
OTHER
New Accounting Pronouncement. In June 1998, the Financial Accounting Standards
Board issued Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities. The company has substantially completed an evaluation of the
impact the statement will have on the company's financial condition and results
of operations and has concluded that it will not be material. For further
information see New Accounting Pronouncement on page 5.
Nicor Gas Company Page 9
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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, customers and other statistics are presented below.
Three months ended Six months ended
June 30 June 30
--------------------- --------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Operating revenues (millions):
Sales
Residential $ 171.1 $ 128.2 $ 558.4 $ 472.4
Commercial 30.1 25.1 106.0 101.7
Industrial 4.3 3.2 15.4 15.0
--------- --------- --------- ---------
205.5 156.5 679.8 589.1
--------- --------- --------- ---------
Transportation
Residential 1.3 .3 2.2 .3
Commercial 15.6 13.8 40.4 36.3
Industrial 10.9 9.8 22.8 21.4
Other 1.4 1.1 3.7 2.2
--------- --------- --------- ---------
29.2 25.0 69.1 60.2
--------- --------- --------- ---------
Revenue taxes and other 27.4 21.9 85.6 66.8
--------- --------- --------- ---------
$ 262.1 $ 203.4 $ 834.5 $ 716.1
========= ========= ========= =========
Deliveries (Bcf):
Sales
Residential 28.7 26.3 118.9 126.7
Commercial 5.2 5.4 22.3 26.5
Industrial .7 .6 3.4 4.2
--------- --------- --------- ---------
34.6 32.3 144.6 157.4
--------- --------- --------- ---------
Transportation
Residential .5 .1 1.4 .1
Commercial 13.5 12.0 50.2 46.1
Industrial 37.2 41.0 81.4 87.0
--------- --------- --------- ---------
51.2 53.1 133.0 133.2
--------- --------- --------- ---------
85.8 85.4 277.6 290.6
========= ========= ========= =========
Customers at end of period (thousands):
Sales
Residential 1,722.9 1,729.7
Commercial 93.0 104.2
Industrial 6.2 7.1
--------- ---------
1,822.1 1,841.0
--------- ---------
Transportation
Residential 55.9 17.0
Commercial 72.5 59.6
Industrial 7.7 6.9
--------- ---------
136.1 83.5
--------- ---------
1,958.2 1,924.5
========= =========
Other statistics:
Degree days 619 491 3,204 3,365
Colder (warmer) than normal (10)% (29)% (17)% (13)%
Average gas cost per Mcf sold $ 3.80 $ 2.54 $ 3.44 $ 2.53
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Nicor Gas Company Page 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index on page 12 filed herewith.
(b) The company did not file a report on Form 8-K during the second quarter
of 2000.
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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 August 8, 2000 By KATHLEEN L. HALLORAN
-------------- ---------------------------
Kathleen L. Halloran
Executive Vice President,
Finance and Administration
and Secretary
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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.
