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 March 31, 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 April 30, 2000, were
15,232,414, all of which are owned by Nicor Inc.
<PAGE>
Nicor Gas Company Page i
Table of Contents
Part I - Financial Information
Item 1. Financial Statements (Unaudited) ............................... 1
Consolidated Statement of Income:
Three months ended
March 31, 2000 and 1999 ....................................... 2
Consolidated Statement of Cash Flows:
Three months ended
March 31, 2000 and 1999 ....................................... 3
Consolidated Balance Sheet:
March 31, 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 1. Legal Proceedings .............................................. 9
Item 6. Exhibits and Reports on Form 8-K ............................... 9
Signature ...................................................... 10
Exhibit Index .................................................. 11
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.
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.
<PAGE>
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
- -------------------------------------------------------------------------------
Consolidated Statement of Income (Unaudited)
(millions)
Three months ended
March 31
--------------------
2000 1999
--------- ---------
Operating revenues $ 572.4 $ 512.6
--------- ---------
Operating expenses
Cost of gas 368.5 318.3
Operating and maintenance 40.5 39.1
Depreciation 52.9 51.2
Taxes, other than income taxes 46.7 42.3
Income taxes 19.6 18.8
--------- ---------
528.2 469.7
--------- ---------
Operating income 44.2 42.9
--------- ---------
Other income (expense)
Other, net 1.6 .3
Income taxes on other income (.6) (.1)
--------- ---------
1.0 .2
--------- ---------
Interest expense
Interest on debt, net of amounts capitalized 11.0 10.8
Other .1 .4
--------- ---------
11.1 11.2
--------- ---------
Net income 34.1 31.9
Dividends on preferred stock .1 .1
--------- ---------
Earnings applicable to common stock $ 34.0 $ 31.8
========= =========
The accompanying notes are an integral part of this statement.
Nicor Gas Company Page 3
- -------------------------------------------------------------------------------
Consolidated Statement of Cash Flows (Unaudited)
(millions)
Three months ended
March 31
--------------------
2000 1999
--------- ---------
Operating activities
Net income $ 34.1 $ 31.9
Adjustments to reconcile net income to net cash flow
provided from operating activities:
Depreciation 52.9 51.2
Deferred income tax expense - .7
Change in assets and liabilities:
Receivables, less allowances 76.4 (.8)
Gas in storage 13.8 98.4
Deferred/accrued gas costs 26.1 10.0
Accounts payable (56.0) (67.6)
Temporary LIFO liquidation 111.1 67.4
Postretirement benefits (7.3) (3.7)
Other 40.1 24.2
--------- ---------
Net cash flow provided from operating activities 291.2 211.7
--------- ---------
Investing activities
Capital expenditures (26.8) (20.9)
--------- ---------
Net cash flow used for investing activities (26.8) (20.9)
--------- ---------
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 (234.4) (172.5)
Dividends paid (22.1) (20.2)
--------- ---------
Net cash flow used for financing activities (256.6) (195.8)
--------- ---------
Net increase (decrease) in cash and cash equivalents 7.8 (5.0)
Cash and cash equivalents, beginning of period 10.3 31.5
--------- ---------
Cash and cash equivalents, end of period $ 18.1 $ 26.5
========= =========
Supplemental information
Income taxes paid, net of refunds $ - $ -
Interest paid, net of amounts capitalized 13.0 12.8
The accompanying notes are an integral part of this statement.
Nicor Gas Company Page 4
- -------------------------------------------------------------------------------
Consolidated Balance Sheet (Unaudited)
(millions)
March 31 December 31 March 31
2000 1999 1999
----------- ----------- ----------
Assets
Gas distribution plant, at cost $ 3,223.4 $ 3,200.3 $ 3,131.8
Less accumulated depreciation 1,639.8 1,589.6 1,545.3
----------- ----------- ----------
1,583.6 1,610.7 1,586.5
----------- ----------- ----------
Current assets
Cash and cash equivalents 18.1 10.3 26.5
Receivables, less allowances of $8.1,
$6.1 and $8.2, respectively 240.1 316.5 236.9
Gas in storage, at last-in,
first-out (LIFO) cost 8.3 22.1 7.1
Deferred gas costs - 15.9 -
Other 24.8 23.0 24.4
----------- ----------- ----------
291.3 387.8 294.9
----------- ----------- ----------
Other assets 129.7 138.7 117.4
----------- ----------- ----------
$ 2,004.6 $ 2,137.2 $ 1,998.8
=========== =========== ==========
Capitalization and liabilities
Capitalization
Long-term debt $ 421.8 $ 421.7 $ 471.1
Preferred stock 8.5 8.5 9.0
Common equity
Common stock 76.1 76.1 76.2
Paid-in capital 108.0 108.0 108.0
Retained earnings 496.1 491.2 500.5
----------- ----------- ----------
1,110.5 1,105.5 1,164.8
----------- ----------- ----------
Current liabilities
Long-term obligations due within one year 50.5 50.5 50.5
Short-term borrowings 68.4 302.8 42.0
Accounts payable 187.1 243.1 175.3
Temporary LIFO liquidation 111.1 - 67.4
Accrued gas costs 10.2 - 39.9
Dividends payable 29.1 22.1 26.4
Other 49.0 27.0 47.8
----------- ----------- ----------
505.4 645.5 449.3
----------- ----------- ----------
Deferred credits and other liabilities
Deferred income taxes 203.8 202.3 198.5
Regulatory income tax liability 73.8 74.8 77.6
Unamortized investment tax credits 42.3 42.7 43.6
Other 68.8 66.4 65.0
----------- ----------- ----------
388.7 386.2 384.7
----------- ----------- ----------
$ 2,004.6 $ 2,137.2 $ 1,998.8
=========== =========== ==========
The accompanying notes are an integral part of this statement.
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 year-to-date degree days to insured degree
days for the same period. First quarter operating revenue includes $6.9 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 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 and in
current liabilities as a temporary LIFO liquidation.
PERFORMANCE-BASED RATE PLAN
On January 1, 2000, Nicor Gas' performance-based rate 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 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. In the
first quarter, Nicor Gas recorded $1.2 million of estimated PBR gains as other
income.
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 more than 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, which
oversees the company's investigations and remedial actions. More detailed
investigations and remedial activities have
<PAGE>
Nicor Gas Company Page 6
Notes to the Consolidated Financial Statements (Unaudited) (Concluded)
either been completed, are in progress or are being 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.
<PAGE>
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 first quarter of 2000 was $34.1 million, compared with $31.9
million in 1999. Factors contributing to this increase include the positive
impact of customer additions and contributions from the company's
performance-based rate plan. Although weather was 10 percent warmer than last
year, its adverse effect on operating results was mitigated by the company's
weather insurance policy.
Operating revenues. Operating revenues increased $59.8 million to $572.4 million
in the first quarter from $512.6 million a year ago as the impact of higher gas
prices, which are passed directly through to customers, more than offset the
impact of lower deliveries due to warmer weather. First quarter revenues also
include $6.9 million of estimated weather insurance benefits that will partially
reverse if the weather remains normal for the remainder 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 $4.8
million to $162 million in the first quarter. This increase is attributable to a
combination of factors including customer additions, higher margin deliveries
and positive contributions from supply-related services.
Operating and maintenance. Operating and maintenance expense increased $1.4
million in the first quarter to $40.5 million. Significant factors contributing
to this change include the cost of weather insurance and reduced bad debt
expense.
Nonoperating items. Other income increased $.8 million to $1 million in the
first quarter. The improvement reflects a $1.2 million estimated gain from the
company's performance-based rate plan.
FINANCIAL CONDITION AND LIQUIDITY
Operating cash flows. Net cash flow provided from operating activities increased
$79.5 million to $291.2 million in the first quarter from $211.7 million in the
prior period. Year-to-year changes in operating cash flow result largely from
fluctuations in working capital items because of 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. Nicor Gas maintains short-term credit agreements with major domestic
and foreign banks. At March 31, 2000, these agreements, which serve as backup
for the issuance of commercial paper, totaled $275 million and the company had
$66.5 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.
Nicor Gas Company Page 8
- -------------------------------------------------------------------------------
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
March 31
--------------------
2000 1999
--------- ---------
Operating revenues (millions)
Sales
Residential $ 387.3 $ 344.2
Commercial 76.0 76.6
Industrial 11.0 11.8
--------- ---------
474.3 432.6
--------- ---------
Transportation
Residential .9 -
Commercial 24.8 22.5
Industrial 11.9 11.6
Other 2.2 1.1
--------- ---------
39.8 35.2
--------- ---------
Revenue taxes and other 58.3 44.8
--------- ---------
$ 572.4 $ 512.6
========= =========
Deliveries (Bcf)
Sales
Residential 90.2 100.4
Commercial 17.2 21.2
Industrial 2.6 3.6
--------- ---------
110.0 125.2
--------- ---------
Transportation
Residential .9 -
Commercial 36.7 34.1
Industrial 44.2 46.0
--------- ---------
81.8 80.1
--------- ---------
191.8 205.3
========= =========
Customers at end of period (thousands)
Sales
Residential 1,763.7 1,747.7
Commercial 111.1 129.7
Industrial 7.5 9.2
--------- ---------
1,882.3 1,886.6
--------- ---------
Transportation
Residential 16.0 -
Commercial 56.0 35.3
Industrial 6.5 4.9
--------- ---------
78.5 40.2
--------- ---------
1,960.8 1,926.8
========= =========
Other statistics
Degree days 2,595 2,874
Colder (warmer) than normal (19)% (9)%
Average gas cost per Mcf sold $ 3.32 $ 2.52
<PAGE>
Nicor Gas Company Page 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For information concerning legal proceedings, see Contingencies 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 11 filed herewith.
(b) The company did not file a report on Form 8-K during the first quarter of
2000.
<PAGE>
Nicor Gas Company Page 10
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 12, 2000 By KATHLEEN L. HALLORAN
--------------------- ----------------------------
Kathleen L. Halloran
Executive Vice President
Finance and Administration
and Secretary
<PAGE>
Nicor Gas Company Page 11
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 Year ended December 31
March 31, -------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
-------------- ------------- ------------- ------------- ------------- -------------
Earnings available to cover fixed charges:
<S> <C> <C> <C> <C> <C> <C>
Net income $ 98,274 $ 96,142 $ 94,119 $ 106,922 $ 107,106 $ 85,448
Add:Income taxes 57,307 55,896 55,299 64,714 63,579 49,881
Fixed charges 38,887 38,914 44,870 46,886 46,747 39,400
Allowance for funds used
during construction (136) (118) (269) (11) (5) (911)
-------------- ------------- ------------- ------------- ------------- -------------
$ 194,332 $ 190,834 $ 194,019 $ 218,511 $ 217,427 $ 173,818
============== ============= ============= ============= ============= =============
Fixed charges:
Interest on debt $ 39,414 $ 39,245 $ 42,624 $ 45,246 $ 43,762 $ 38,129
Other interest charges and
amortization of debt discount,
premium, and expense, net (527) (331) 2,246 1,640 2,985 1,271
-------------- ------------- ------------- ------------- ------------- -------------
$ 38,887 $ 38,914 $ 44,870 $ 46,886 $ 46,747 $ 39,400
============== ============= ============= ============= ============= =============
Ratio of earnings to fixed charges 5.00 4.90 4.32 4.66 4.65 4.41
============== ============= ============= ============= ============= =============
</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-31-2000
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,584
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 291
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 130
<TOTAL-ASSETS> 2,005
<COMMON> 76
<CAPITAL-SURPLUS-PAID-IN> 108
<RETAINED-EARNINGS> 496
<TOTAL-COMMON-STOCKHOLDERS-EQ> 680
8
1
<LONG-TERM-DEBT-NET> 422
<SHORT-TERM-NOTES> 2
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 66
<LONG-TERM-DEBT-CURRENT-PORT> 50
1
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 775
<TOT-CAPITALIZATION-AND-LIAB> 2,005
<GROSS-OPERATING-REVENUE> 572
<INCOME-TAX-EXPENSE> 20
<OTHER-OPERATING-EXPENSES> 508
<TOTAL-OPERATING-EXPENSES> 528
<OPERATING-INCOME-LOSS> 44
<OTHER-INCOME-NET> 1
<INCOME-BEFORE-INTEREST-EXPEN> 45
<TOTAL-INTEREST-EXPENSE> 11
<NET-INCOME> 34
0
<EARNINGS-AVAILABLE-FOR-COMM> 34
<COMMON-STOCK-DIVIDENDS> 29
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 291
<EPS-BASIC> 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>
