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 September 30, 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 1-7297
NICOR INC.
(Exact name of registrant as specified in its charter)
Illinois 36-2855175
(State of incorporation) (I.R.S. Employer
Identification No.)
1844 Ferry Road
Naperville, Illinois 60563-9600
(Address of principal (Zip Code)
executive offices)
(630) 305-9500
(Registrant's telephone number)
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 $2.50, outstanding at October 31, 1998,
were 47,627,772.
Nicor Inc. Page i
Table of Contents
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited) 1
Consolidated Statement of Income -
Three, Nine and Twelve Months Ended
September 30, 1998 and 1997 2
Consolidated Statement of Cash Flows -
Nine and Twelve Months Ended
September 30, 1998 and 1997 3
Consolidated Balance Sheet -
September 30, 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 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
Exhibit Index 18
Selected Terms:
Ill.C.C. - Illinois Commerce Commission.
Mcf, Bcf - Thousand cubic feet, billion cubic feet.
TEU - Twenty-foot equivalent unit.
Degree days - The extent to which the daily average
temperature falls below 65 degrees
Fahrenheit.
Nicor Inc. Page 1
PART I - Financial Information
Item 1. Financial Statements
The following condensed unaudited financial statements of Nicor
Inc. 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 Inc. Page 2
Consolidated Statement of Income (Unaudited)
(Millions, except per share data)
<CAPTION>
Three months ended Nine months ended Twelve months ended
September 30 September 30 September 30
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $ 203.2 $ 209.2 $1,036.9 $1,412.9 $1,616.6 $2,005.8
Operating expenses
Cost of gas 52.1 58.2 466.3 813.9 816.6 1,180.8
Operating and maintenance 81.7 82.7 246.0 245.4 341.0 338.6
Depreciation 18.7 16.9 95.7 92.1 134.8 130.3
Taxes, other than income taxes 11.8 12.8 76.1 97.0 106.1 127.9
164.3 170.6 884.1 1,248.4 1,398.5 1,777.6
Operating income 38.9 38.6 152.8 164.5 218.1 228.2
Other income (expense)
Interest income .7 .8 1.9 2.5 2.3 2.8
Other, net 2.9 2.0 10.2 4.7 18.8 8.6
3.6 2.8 12.1 7.2 21.1 11.4
Income before interest on debt
and income taxes 42.5 41.4 164.9 171.7 239.2 239.6
Interest on debt, net of
amounts capitalized 11.0 11.5 34.4 35.2 48.3 48.8
Income before income taxes 31.5 29.9 130.5 136.5 190.9 190.8
Income taxes 10.9 10.4 45.2 47.9 66.4 67.0
Net income 20.6 19.5 85.3 88.6 124.5 123.8
Dividends on preferred stock .1 .1 .2 .2 .3 .4
Earnings applicable to common stock $ 20.5 $ 19.4 $ 85.1 $ 88.4 $ 124.2 $ 123.4
Average shares of
common stock
Basic 47.7 48.5 47.9 48.9 48.0 49.1
Diluted 47.9 48.7 48.1 49.1 48.2 49.2
Earnings per average share
of common stock
Basic $ .43 $ .40 $ 1.78 $ 1.81 $ 2.59 $ 2.52
Diluted .43 .40 1.77 1.80 2.58 2.51
Dividends declared per share
of common stock $ .37 $ .35 $ 1.11 $ 1.05 $ 1.46 $ 1.38
<F1>
The accompanying notes are an integral part of this statement.
</TABLE>
<TABLE>
Nicor Inc. Page 3
Consolidated Statement of Cash Flows (Unaudited)
(Millions)
<CAPTION>
Nine months ended Twelve months ended
September 30 September 30
1998 1997 1998 1997
Operating activities
<S> <C> <C> <C> <C>
Net income $ 85.3 $ 88.6 $ 124.5 $ 123.8
Adjustments to reconcile net income to net cash flow
provided from operating activities:
Depreciation 95.7 92.1 134.8 130.3
Deferred income tax expense (benefit) 12.1 (11.6) 9.4 3.6
Change in working capital items and other:
Receivables, less allowances 209.0 185.5 8.9 (12.4)
Gas in storage 8.2 (27.0) 39.0 (10.2)
Deferred/accrued gas costs (4.0) 61.7 10.5 53.0
Accounts payable 32.8 (70.5) 11.3 27.5
Other (50.6) (12.9) (44.7) (14.6)
Net cash flow provided from operating activities 388.5 305.9 293.7 301.0
Investing activities
Capital expenditures (94.7) (73.7) (134.0) (115.3)
Short-term investments (2.4) - (9.9) (5.4)
Other (14.3) (6.8) (6.0) (3.5)
Net cash flow used for investing activities (111.4) (80.5) (149.9) (124.2)
Financing activities
Net proceeds from issuing long-term debt 99.0 49.7 148.4 49.7
Disbursements to retire long-term debt (129.9) (25.0) (182.5) (25.0)
Short-term borrowings (repayments), net (164.9) (169.3) (8.7) (79.4)
Dividends paid (52.6) (50.8) (69.6) (67.3)
Disbursements to reacquire stock (25.4) (40.6) (34.2) (55.2)
Other .4 1.1 .7 2.2
Net cash flow used for financing activities (273.4) (234.9) (145.9) (175.0)
Net increase (decrease) in cash and cash equivalents 3.7 (9.5) (2.1) 1.8
Cash and cash equivalents, beginning of period 5.2 20.5 11.0 9.2
Cash and cash equivalents, end of period $ 8.9 $ 11.0 $ 8.9 $ 11.0
Supplemental information
Income taxes paid, net of refunds $ 32.5 $ 43.4 $ 55.4 $ 62.9
Interest paid, net of amounts capitalized 38.6 41.0 48.0 47.7
<F1>
The accompanying notes are an integral part of this statement.
</TABLE>
<TABLE>
Nicor Inc. Page 4
Consolidated Balance Sheet (Unaudited)
(Millions)
<CAPTION>
September 30 December 31 September 30
Assets 1998 1997 1997
Current assets
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 8.9 $ 5.2 $ 11.0
Short-term investments, at cost which approximates market 22.6 20.2 12.7
Receivables, less allowances of $7.2,
$8.6 and $8.8, respectively 145.6 354.6 154.5
Gas in storage, at last-in, first-out cost 119.6 127.8 145.2
Other 33.1 27.0 25.5
329.8 534.8 348.9
Property, plant and equipment, at cost
Gas distribution 3,089.6 3,026.8 3,014.0
Shipping 258.2 240.4 238.6
Other 1.0 .5 .6
3,348.8 3,267.7 3,253.2
Less accumulated depreciation 1,616.8 1,531.9 1,502.0
1,732.0 1,735.8 1,751.2
Other assets 157.8 124.0 116.9
$ 2,219.6 $ 2,394.6 $ 2,217.0
Liabilities and Capitalization
Current liabilities
Long-term obligations due within one year $ .9 $ 25.4 $ 25.4
Short-term borrowings 114.0 278.9 122.7
Accounts payable 274.7 241.9 263.4
Accrued gas costs 21.1 25.1 10.6
Other 37.5 50.3 31.0
448.2 621.6 453.1
Deferred credits and other liabilities
Deferred income taxes 233.1 214.9 214.2
Regulatory income tax liability 79.3 81.7 82.1
Unamortized investment tax credits 44.7 46.2 46.8
Other 105.8 129.6 135.3
462.9 472.4 478.4
Capitalization
Long-term debt 550.2 550.2 550.1
Preferred stock
Redeemable 6.2 6.3 6.3
Nonredeemable .1 .1 .1
Common equity
Common stock 119.1 120.5 121.1
Retained earnings 632.9 623.5 607.9
1,308.5 1,300.6 1,285.5
$ 2,219.6 $ 2,394.6 $ 2,217.0
<F1>
The accompanying notes are an integral part of this statement.
</TABLE>
Nicor Inc. Page 5
Notes to the Consolidated Financial Statements (Unaudited)
ACCOUNTING POLICIES
Depreciation for the gas distribution segment is calculated using a
straight-line method for the calendar year. For interim periods,
depreciation is allocated based on gas deliveries.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. Gains or losses resulting from changes in the
values of those derivatives are to be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. This
statement requires adoption no later than the first quarter of the company's
2000 fiscal year and must be adopted as a cumulative effect of a change in
accounting principle. Implementation of this statement is not expected to
have a material impact on the company's financial condition or results of
operations.
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.
Implementation of this statement is not expected to have a material impact
on the company's financial condition or results of operations.
LONG-TERM DEBT
In July 1998, Nicor Gas redeemed $25 million of 6-1/4% First Mortgage Bonds
due in 1999. The early debt retirement was financed with short-term
borrowings.
In June 1998, Nicor Gas issued $50 million of 5-3/4% First Mortgage Bonds
due in 2003. The net proceeds from the sale, together with the proceeds
from the February 1998 sale of $50 million of 6.58% First Mortgage Bonds due
in 2028 and other corporate funds, replenished funds used for the March 1998
redemption of $75 million of 8-1/4% First Mortgage Bonds due in 2022 and the
February 1998 maturity of $25 million of 5-7/8% First Mortgage Bonds.
Nicor Inc. Page 6
Notes to the Consolidated Financial Statements (Unaudited)
(Concluded)
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.
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 Inc. Page 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
OVERVIEW
The following discussion should be read in conjunction with the Management's
Discussion and Analysis section of the Nicor 1997 Annual Report on
Form 10-K.
Nicor's third quarter 1998 diluted earnings per common share were $.43
compared with $.40 a year ago due to gains on real estate sales and the
positive impact of a stock repurchase program. Related net income was
$20.6 million compared with $19.5 million in 1997.
Diluted earnings per common share for the nine months ended September 30,
1998, were $1.77 compared with $1.80 a year ago despite weather that was 23
percent warmer. Positive factors included a reduction in operating and
maintenance expenses in the gas distribution segment, a significant increase
in deliveries of natural gas for electric power generation and improved
operating results in the shipping segment. Favorable nonoperating factors
included gains on real estate sales and the impact of a stock repurchase
program. Related net income was $85.3 million compared with $88.6 million.
Diluted earnings per common share for the twelve months ended September 30,
1998, rose to $2.58 from $2.51 a year ago. Related net income was $124.5
million compared with $123.8 million. The positive factors noted above more
than offset the negative impact of weather that was 17 percent warmer than
the prior year.
Operating income (loss) for the periods ended September 30 by business
segment was:
Three months Nine months Twelve months
(Millions) 1998 1997 1998 1997 1998 1997
Gas distribution $ 34.9 $ 35.0 $138.1 $151.4 $196.8 $211.6
Shipping 5.1 5.2 17.5 16.5 26.4 21.7
Corporate and other (1.1) (1.6) (2.8) (3.4) (5.1) (5.1)
$ 38.9 $ 38.6 $152.8 $164.5 $218.1 $228.2
The following summarizes operating income comparisons by business segment:
- - Gas distribution operating income for the three-month period was
about the same as a year ago. For the nine- and twelve-month
periods, operating income decreased $13.3 million and $14.8 million,
respectively, due to the adverse impact of unusually warm weather,
partially offset by reduced operating and maintenance expenses.
- - Shipping operating income for the three-month period was essentially
unchanged from a year ago despite the adverse impact of Hurricane
Georges in September 1998. For the nine- and twelve-month periods,
operating income increased $1 million and $4.7 million,
respectively, due primarily to higher volumes shipped.
Nicor Inc. Page 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
RESULTS OF OPERATIONS
Details of various financial and operating information by segment can be
found in the tables on pages 14 and 15. The following summarizes the major
changes in Nicor's revenues and expenses.
Operating revenues decreased $376 million and $389.2 million for the nine-
and twelve-month periods, respectively. For both periods, the decrease was
due primarily to lower revenues in the gas distribution segment, resulting
principally from lower natural gas supply costs, which are passed directly
through to customers, and lower deliveries of natural gas related to
significantly warmer weather.
Gas distribution 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 September 30. For the nine-
and twelve-month periods, margin decreased due to the negative impact of
warmer weather. Margin per Mcf delivered decreased in the three-month
period due to additional lower-margin deliveries for electric power
generation. In the nine- and twelve-month periods, margin per Mcf delivered
increased as the impact of a reduction in lower-margin deliveries due to
warmer weather more than offset the effect of additional deliveries for
electric power generation.
Three months Nine months Twelve months
1998 1997 1998 1997 1998 1997
Gas distribution
margin (Millions) $ 89.6 $ 88.1 $341.3 $356.7 $480.6 $499.5
Margin per Mcf
delivered 1.28 1.35 .98 .95 .93 .91
Operating and maintenance expenses increased in the nine- and twelve-month
periods due primarily to higher volume related costs in the shipping segment
which more than offset lower costs in the gas distribution segment.
Operating and maintenance expenses were lower in the gas distribution
segment due primarily to lower retirement benefit costs, resulting
principally from favorable pension fund investment returns.
Depreciation expense increased in the nine- and twelve-month periods
primarily due to gas plant additions.
Other income increased in each period due to gains on real estate sales.
Nicor Inc. Page 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
FINANCIAL CONDITION
Net cash flow from operating activities increased $82.6 million for the
nine-month period due primarily to changes in working capital items in the
gas distribution segment. 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.
Nicor and its gas distribution subsidiary maintain short-term credit
agreements with major domestic and foreign banks. At September 30, 1998,
these agreements, which serve as backup for the issuance of commercial
paper, totaled $280 million, and the company had $114 million of commercial
paper outstanding. At September 30, 1998, the unused lines of credit under
these credit agreements were $166 million.
In 1998, Nicor committed an additional $10 million to a low income housing
tax credit fund and invested $15 million to expand the company's equity
interest in a cargo container leasing business.
In July 1998, Nicor Gas redeemed $25 million of 6-1/4% First Mortgage Bonds
due in 1999. The early debt retirement was financed with short-term
borrowings.
In June 1998, Nicor Gas issued $50 million of 5-3/4% First Mortgage Bonds
due in 2003. The net proceeds from the sale, together with the proceeds
from the February 1998 sale of $50 million of 6.58% First Mortgage Bonds due
in 2028 and other corporate funds, replenished funds used for the March 1998
redemption of $75 million of 8-1/4% First Mortgage Bonds due in 2022 and the
February 1998 maturity of $25 million of 5-7/8% First Mortgage Bonds.
Under an existing common stock repurchase program, Nicor purchased and
retired 600,200 common shares during the first nine months of 1998 at an
aggregate cost of $24.1 million.
Effective with the dividend paid on May 1, 1998, Nicor's quarterly dividend
on common stock was increased 5.7 percent to 37 cents per share.
Nicor Inc. Page 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
YEAR 2000
The following disclosure contains forward-looking statements. Nicor's
ability to meet its objectives identified below is dependent upon several
factors that could cause actual results to differ materially from those set
forth below, including the timely provision of necessary upgrades and
modifications by suppliers and contractors. In addition, Nicor cannot
guarantee that third parties on whom it depends for essential services will
convert their critical systems and processes in a timely manner. Each of
the components of the company's Year 2000 project is progressing and the
company believes it is taking all reasonable and appropriate steps necessary
to be able to operate successfully in the year 2000 and beyond. The
following summarizes the company's preparedness for the Year 2000.
Nicor Gas. Nicor Gas has established a company-wide initiative to identify,
evaluate and address Year 2000 issues. A team has been assembled that
includes an officer-level steering committee, full-time staff members and
representatives from key areas of the company. In addition to this team of
employees, the company utilizes consultants to assist in the Year 2000
project and belongs to an industry alliance which facilitates the sharing of
information among companies. Work is progressing in the following phases:
inventory, assessment, remediation, testing and contingency planning. The
company's Year 2000 effort, which began in early 1996, encompasses mainframe
systems, client-server and desktop systems, telecommunications, embedded
systems and third parties.
Mainframe Systems. Nicor Gas' mainframe hardware and most core business
applications, which include customer service, billing and payroll, fall into
this category. System inventory and assessment are complete. Mainframe
remediation is nearly complete, with all but two systems remediated, tested
and in production. The remaining two systems, which are internal payroll
and benefits systems, are scheduled to be in production by the first quarter
of 1999. A number of systems have been or are being replaced by Year 2000
compliant systems on client-server platforms. While hardware failure
contingency plans have been established, plans to address possible extended
failures of critical software will be developed by mid 1999.
Client-server and Desktop Systems. Nicor Gas has completed an inventory of
its client-server and desktop systems. Assessment of these systems is
substantially complete. Many of the systems are new and were designed to be
compliant. Remediation and testing are scheduled to be completed by mid
1999. Most functional areas have already developed contingency plans to
perform their responsibilities in the event of failure. Contingency plans
to address possible longer-term disruptions are scheduled to be completed by
the third quarter of 1999.
Nicor Inc. Page 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Telecommunications. An inventory of telecommunication issues, which involve
data and voice communications, has also been completed. Assessment is
scheduled to be completed by year-end 1998. Remediation in some areas has
been done through upgrading hardware and software. Further remediation and
testing are scheduled to be completed by mid 1999. Contingency plans exist
for many short duration outages, and by the third quarter of 1999, the
company expects to have addressed any potentially more severe problems which
may occur.
Embedded Systems. The company has performed a system level inventory of
embedded systems, which include items such as process controls in the
storage and transmission operations, building security, air conditioning,
heating and elevator systems. The company is now concentrating on a more
detailed inventory and assessment at the component level in critical areas
and expects this to be completed by the first quarter of 1999. It is
estimated that approximately 90 percent of the components identified are
Year 2000 compliant. Remediation has begun and is expected to be completed
by mid 1999. Testing plans for critical processes are being formulated and
testing is expected to be completed by mid 1999. In critical gas supply and
storage areas, disaster recovery plans exist and are being updated for
various potential Year 2000 scenarios.
Third Parties. Nicor Gas is currently contacting entities with whom it has
a material relationship, such as natural gas suppliers, pipelines, electric
utilities, telecommunication service providers, banks and other suppliers of
goods and services, to determine their state of readiness. Based on their
responses, Nicor Gas will consider new business relationships with
alternative providers of products and services as necessary and to the
extent alternatives are available. Assessment is scheduled to be completed
in early 1999, necessary actions taken by mid 1999, and contingency planning
completed by the third quarter of 1999.
Costs. Nicor Gas has incurred operating expenses of approximately $2 million
through September 30, 1998, and currently estimates an additional $3 million
to $4 million will be incurred in connection with its Year 2000 efforts.
The company has also incurred less than $1 million in capital improvement
costs to date that would have been required in the normal course of
business, but were incurred sooner than originally planned. The company
currently estimates that as much as an additional $5 million in capital
improvement costs may be incurred to support this project. The timing of
expenditures is not indicative of readiness efforts or progress to date.
Risks. The company relies on the producers of natural gas and suppliers of
interstate transportation capacity to deliver natural gas to the company's
distribution system. External infrastructure, such as electric, telephone
and water service, is necessary for the company's basic operations as well
as the operations of many of its customers.
Nicor Inc. Page 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
With respect to Nicor Gas' operations, those over which it has direct
control, the company believes the most significant potential risks involve:
its ability to use electronic devices to control and operate its
distribution system, its ability to respond appropriately to customers'
calls for information and assistance, and its ability to maintain its
internal network of computer systems. The company's Year 2000 project is
designed to concentrate its efforts on these critical areas.
Should any third party with which the company has a material relationship
fail, or should Nicor Gas' actions prove to be less than completely
effective, the impact could become a significant challenge to the company's
ability to operate its distribution system and communicate with its
customers. It could also have a material adverse financial impact,
including but not limited to, lost operating revenues, increased operating
costs and claims from customers related to business interruption. Because
of the uncertainties related to this matter, the company continues to
develop contingency plans.
Contingency Planning. The company's Year 2000 contingency planning
encompasses business continuity both within the company and in the external
business environment. As part of normal business practice, the company
maintains plans to follow during emergencies. For example, many of the
components involved in the gas distribution system can be manually
overridden, and customer calls can be handled at an alternate site. The
company continues to develop contingency plans that will address a variety
of scenarios that could emerge and expects that effort to continue through
1999.
Other Nicor Affiliates. Affiliates other than Nicor Gas are also managed as
part of the Year 2000 project with similar action plans. Most of the Year
2000 issues in these businesses are similar to those of Nicor Gas. These
affiliates, being relatively small ventures, appear to be impacted in only
minor ways, with the exception of Tropical Shipping. Tropical Shipping is
remediating its main cargo tracking program and has particular concerns with
Caribbean inter-island communications. Tropical's overall schedule calls
for remediation activities to be completed by mid 1999, and contingency
plans to be completed by the third quarter of 1999. Costs for remediation
are not expected to be significant.
Nicor Inc. Page 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
OTHER
Strategic Alliance. In July 1998, Nicor and Dynegy Inc. (formerly NGC
Corporation) announced the formation of a strategic alliance to jointly
pursue wholesale power generation projects. The alliance will focus on the
Midwest market. Potential customers include industrial businesses,
utilities and municipalities.
Pipeline Projects. In April 1998, Northern States Power (NSP) announced its
withdrawal from the Viking Voyageur Pipeline project. Despite the exit of
NSP, Nicor and TransCanada Pipelines (TransCanada) continued to jointly
evaluate options that would meet the growing needs of the Midwest market.
In September 1998, after analyzing alternatives, Nicor and TransCanada
agreed to no longer pursue this project because of an inability to obtain
adequate commitments from prospective shippers. These events did not have a
material impact on the company's financial condition or results of
operations.
New Accounting Pronouncements. In June 1998, the Financial Accounting
Standards Board issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. 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. These statements are not expected to have a material impact
on the company's financial condition or results of operations. For further
information, see New Accounting Pronouncements on page 5.
Customer SelectSM Pilot Program. In September 1998, the Ill.C.C. approved
Nicor Gas' plans for the second year of its pilot program, Customer Select.
In the first year, 20,000 small commercial and industrial customers enrolled
in the program. Beginning January 1999, up to an additional 40,000
commercial and industrial customers, and as many as 80,000 residential
customers in select communities will have the opportunity to choose their
natural gas supplier.
<TABLE>
Nicor Inc. Page 14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
OPERATING STATISTICS
Gas Distribution
Changes in weather can materially affect operating results. Operating revenues, deliveries, weather
statistics and other data are presented below.
<CAPTION>
Three months ended Nine months ended Twelve months ended
September 30 September 30 September 30
1998 1997 1998 1997 1998 1997
Operating revenues (Millions):
Sales
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential $ 96.0 $ 93.4 $ 562.2 $ 776.3 $ 911.8 $1,112.6
Commercial 17.2 21.1 138.0 219.8 233.1 314.5
Industrial 2.3 5.0 20.9 44.7 33.0 65.2
115.5 119.5 721.1 1,040.8 1,177.9 1,492.3
Transportation
Commercial 11.8 9.3 40.1 38.6 57.0 55.6
Industrial 9.2 10.8 28.2 34.9 41.6 48.5
21.0 20.1 68.3 73.5 98.6 104.1
Revenue taxes and other 11.5 11.5 77.6 100.8 106.0 130.6
$ 148.0 $ 151.1 $ 867.0 $1,215.1 $1,382.5 $1,727.0
Deliveries (Bcf):
Sales
Residential 15.1 15.7 128.8 157.5 204.6 238.2
Commercial 2.7 3.6 31.8 44.8 52.0 67.0
Industrial .5 1.5 5.4 10.6 7.7 16.6
18.3 20.8 166.0 212.9 264.3 321.8
Transportation
Commercial 8.1 6.3 44.2 44.6 65.6 66.7
Industrial 43.5 37.9 136.6 119.6 185.0 158.9
51.6 44.2 180.8 164.2 250.6 225.6
69.9 65.0 346.8 377.1 514.9 547.4
Average gas cost per Mcf sold $ 2.71 $ 2.45 $ 2.79 $ 3.57 $ 3.05 $ 3.40
Weather statistics:
Degree days 18 51 3,123 4,046 5,331 6,387
Percent colder (warmer) than normal (79.5) (42.0) (20.6) 2.8 (12.8) 4.4
Customers at end of period (Thousands):
Sales
Residential 1,718.8 1,690.2
Commercial 124.5 140.0
Industrial 8.9 11.1
1,852.2 1,841.3
Transportation
Commercial 36.5 18.7
Industrial 5.0 2.9
41.5 21.6
1,893.7 1,862.9
</TABLE>
<TABLE>
Nicor Inc. Page 15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Concluded)
OPERATING STATISTICS (Concluded)
Shipping
<CAPTION>
Three months ended Nine months ended Twelve months ended
September 30 September 30 September 30
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues (Millions) $ 52.5 $ 51.7 $ 161.2 $ 153.0 $ 221.4 $ 206.6
Operating income (Millions) $ 5.1 $ 5.2 $ 17.5 $ 16.5 $ 26.4 $ 21.7
TEUs shipped (Thousands)
Southbound 27.5 27.1 85.5 78.1 117.4 105.0
Northbound 4.3 3.7 11.5 10.9 15.1 14.4
Interisland 2.1 3.9 7.1 9.7 11.4 12.0
33.9 34.7 104.1 98.7 143.9 131.4
Revenue per TEU $ 1,511 $ 1,440 $ 1,508 $ 1,491 $ 1,500 $ 1,511
Ports served 23 27
Vessels owned 14 14
</TABLE>
Nicor Inc. Page 16
PART II - Other Information
Item 1. Legal Proceedings
For information concerning legal proceedings, see Contingencies in
Notes to the Consolidated Financial Statements on page 6, which is
incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index on page 18 filed herewith.
(b) The company did not file a report on Form 8-K during the third
quarter of 1998.
Nicor Inc. Page 17
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 Inc.
Date November 12, 1998 By DAVID L. CYRANOSKI
David L. Cyranoski
Senior Vice President,
Secretary and Treasurer
Nicor Inc. Page 18
Exhibit Index
Exhibit
Number Description of Document
27.01 Financial Data Schedule.
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,617
<OTHER-PROPERTY-AND-INVEST> 115
<TOTAL-CURRENT-ASSETS> 330
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 158
<TOTAL-ASSETS> 2,220
<COMMON> 119
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 633
<TOTAL-COMMON-STOCKHOLDERS-EQ> 752
6
0
<LONG-TERM-DEBT-NET> 521
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 29
<COMMERCIAL-PAPER-OBLIGATIONS> 114
<LONG-TERM-DEBT-CURRENT-PORT> 1
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 797
<TOT-CAPITALIZATION-AND-LIAB> 2,220
<GROSS-OPERATING-REVENUE> 1,037
<INCOME-TAX-EXPENSE> 45
<OTHER-OPERATING-EXPENSES> 884
<TOTAL-OPERATING-EXPENSES> 929
<OPERATING-INCOME-LOSS> 108
<OTHER-INCOME-NET> 11
<INCOME-BEFORE-INTEREST-EXPEN> 119
<TOTAL-INTEREST-EXPENSE> 34
<NET-INCOME> 85
0
<EARNINGS-AVAILABLE-FOR-COMM> 85
<COMMON-STOCK-DIVIDENDS> 53
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 386
<EPS-PRIMARY> 1.78
<EPS-DILUTED> 1.77
</TABLE>
