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 June 30, 1999
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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1844 Ferry Road
Naperville, Illinois 60563-9600
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 305-9500
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 July 31, 1999,
were 47,148,514.
Nicor Inc. Page i
Table of Contents
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited) ....................... 1
Consolidated Statement of Income -
Three and Six Months Ended
June 30, 1999 and 1998 ............................... 2
Consolidated Statement of Cash Flows -
Six Months Ended
June 30, 1999 and 1998 ............................... 3
Consolidated Balance Sheet -
June 30, 1999 and 1998,
and December 31, 1998 ................................ 4
Notes to the Consolidated Financial Statements ......... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations ........................................... 7
Item 3. Quantitative and Qualitative Disclosures
about Market Risk .................................... 16
Part II. Other Information
Item 1. Legal Proceedings ...................................... 16
Item 4. Submission of Matters to a Vote of
Security Holders ..................................... 16
Item 6. Exhibits and Reports on Form 8-K ....................... 16
Signature .............................................. 17
Exhibit Index .......................................... 18
Glossary
Degree day - The extent to which the daily average temperature falls below
65 degrees Fahrenheit.
ICC - Illinois Commerce Commission.
Mcf, Bcf - Thousand cubic feet, billion cubic feet.
TEU - Twenty-foot equivalent unit.
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. 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.
<TABLE>
Nicor Inc. Page 2
Consolidated Statement of Income (Unaudited)
(millions, except per share data)
<CAPTION>
Three months ended Six months ended
June 30 June 30
1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $ 271.8 $ 271.3 $ 848.2 $ 833.6
Operating expenses
Cost of gas 95.4 96.1 421.4 414.3
Operating and maintenance 86.2 82.1 172.9 164.2
Depreciation 24.6 23.6 79.6 77.0
Taxes, other than income taxes 21.1 20.6 64.4 64.2
227.3 222.4 738.3 719.7
Operating income 44.5 48.9 109.9 113.9
Other income (expense), net 6.5 4.9 13.1 8.5
Income before interest on debt
and income taxes 51.0 53.8 123.0 122.4
Interest on debt, net of amounts
capitalized 10.4 10.4 22.4 23.5
Income before income taxes 40.6 43.4 100.6 98.9
Income taxes 14.1 14.9 35.1 34.2
Net income 26.5 28.5 65.5 64.7
Dividends on preferred stock .1 .1 .2 .2
Earnings applicable to common stock $ 26.4 $ 28.4 $ 65.3 $ 64.5
Average shares of common stock
outstanding
Basic 47.4 47.9 47.4 48.0
Diluted 47.5 48.2 47.6 48.2
Earnings per average share of
common stock
Basic $ .56 $ .59 $ 1.38 $ 1.34
Diluted .56 .59 1.37 1.34
Dividends declared per share of
common stock $ .39 $ .37 $ .78 $ .74
<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>
Six months ended
June 30
1999 1998
Operating activities
<S> <C> <C> <C> <C>
Net income $ 65.5 $ 64.7
Adjustments to reconcile net income to net cash flow
provided from operating activities:
Depreciation 79.6 77.0
Deferred income tax expense 11.8 9.4
Change in assets and liabilities:
Receivables, less allowances 124.1 193.1
Gas in storage 94.7 111.6
Deferred/accrued gas costs (27.9) (8.1)
Accounts payable (11.9) (11.5)
Temporary LIFO liquidation 59.2 24.2
Other (17.7) (41.2)
Net cash flow provided from operating activities 377.4 419.2
Investing activities
Capital expenditures (63.1) (52.7)
Short-term investments 25.3 (5.7)
Other (3.8) (7.6)
Net cash flow used for investing activities (41.6) (66.0)
Financing activities
Net proceeds from issuing long-term debt 100.6 99.1
Disbursements to retire long-term debt (102.7) (104.5)
Short-term borrowings (repayments), net (217.0) (278.9)
Dividends paid (36.2) (34.8)
Disbursements to reacquire stock (8.1) (17.0)
Other (.2) (.1)
Net cash flow used for financing activities (263.6) (336.2)
Net increase in cash and cash equivalents 72.2 17.0
Cash and cash equivalents, beginning of period 13.0 5.2
Cash and cash equivalents, end of period $ 85.2 $ 22.2
Supplemental information
Income taxes paid, net of refunds $ 25.6 $ 23.1
Interest paid, net of amounts capitalized 22.4 25.4
<F1>
The accompanying notes are an integral part of this statement.
</TABLE>
<TABLE>
Nicor Inc. Page 4
Consolidated Balance Sheet (Unaudited)
(millions)
<CAPTION>
June 30 December 31 June 30
1999 1998 1998
Assets
Current assets
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 85.2 $ 13.0 $ 22.2
Short-term investments, at cost
which approximates market 30.5 55.8 25.9
Receivables, less allowances of $8.7,
$6.3 and $8.4, respectively 139.9 264.0 161.5
Gas in storage, at last-in, first-out (LIFO) cost 10.8 105.5 16.2
Other 26.5 26.4 29.2
292.9 464.7 255.0
Property, plant and equipment, at cost
Gas distribution 3,144.6 3,119.7 3,066.9
Shipping 270.6 258.9 244.1
Other 1.8 1.2 .8
3,417.0 3,379.8 3,311.8
Less accumulated depreciation 1,703.5 1,648.0 1,602.0
1,713.5 1,731.8 1,709.8
Other assets 185.2 168.1 151.4
$ 2,191.6 $ 2,364.6 $ 2,116.2
Liabilities and capitalization
Current liabilities
Long-term obligations due within one year $ 51.2 $ 1.2 $ 25.5
Short-term borrowings 17.5 234.5 -
Accounts payable 258.4 270.3 232.6
Temporary LIFO liquidation 59.2 - 24.2
Accrued gas costs 2.0 29.9 17.0
Other 37.2 43.0 41.2
425.5 578.9 340.5
Deferred credits and other liabilities
Deferred income taxes 253.3 238.9 228.3
Regulatory income tax liability 76.6 78.6 80.1
Unamortized investment tax credits 43.0 44.1 45.2
Other 98.9 101.5 106.7
471.8 463.1 460.3
Capitalization
Long-term debt 508.7 557.3 551.2
Preferred stock 6.3 6.3 6.3
Common equity
Common stock 118.3 118.8 119.6
Retained earnings 661.0 640.2 638.3
1,294.3 1,322.6 1,315.4
$ 2,191.6 $ 2,364.6 $ 2,116.2
<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. 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.
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 June 1999, the Financial Accounting Standards Board approved an amendment
to Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities. The amendment defers the effective date of the statement one
year, requiring adoption no later than the first quarter of the company's
2001 fiscal year. Implementation of this statement is not expected to have a
material impact on the company's financial condition or results of
operations.
BUSINESS SEGMENT INFORMATION
Financial data by business segment is presented below:
Three months ended Six months ended
June 30 June 30
(millions) 1999 1998 1999 1998
Operating revenues
Gas distribution $ 203.4 $ 214.8 $ 716.1 $ 719.1
Shipping 54.7 53.6 108.5 108.7
Other Nicor ventures 13.7 2.9 23.6 5.8
$ 271.8 $ 271.3 $ 848.2 $ 833.6
Operating income (loss)
Gas distribution $ 40.0 $ 43.7 $ 101.6 $ 103.2
Shipping 5.0 6.0 9.4 12.4
Other Nicor ventures (.2) (.7) - (1.1)
Corporate and eliminations (.3) (.1) (1.1) (.6)
$ 44.5 $ 48.9 $ 109.9 $ 113.9
REGULATORY MATTERS
Performance-Based Rate Filing. In March 1999, Nicor Gas filed a performance-
based rate plan for natural gas supply costs with the ICC. The plan would
establish economic incentives for Nicor Gas when purchasing gas supplies for
customers, and amounts above or below a market benchmark would be shared with
customers. The ICC is required to rule on the proposal by early November
and, if approved in a manner acceptable to Nicor Gas, the company intends to
implement the plan next January.
Nicor Inc. Page 6
Notes to the Consolidated Financial Statements (Unaudited) (Concluded)
Customer Select Program. In July 1999, Nicor Gas filed a request with the
ICC to expand Customer Select, the company's three-year pilot program that
allows more customers to choose their natural gas commodity supplier. If
approved, an additional 170,000 single-family residential customers will be
eligible to participate in the program. During the first two phases of the
program, more than 60,000 residential, commercial and industrial customers
enrolled, accounting for about 25 Bcf in annual deliveries of natural gas.
In all instances, Nicor Gas will continue to deliver natural gas to the
customer, read customer meters, maintain the distribution system and respond
to emergencies.
LONG-TERM DEBT
In July 1999, Nicor Gas called for redemption $50 million of 8.25% First
Mortgage Bonds due in 2024.
In January 1999, Nicor Gas sold $50 million of First Mortgage Bonds at 5.37%
due in 2009 and $50 million of unsecured notes at 5.065% due in 2000 to fund
the redemption of First Mortgage Bonds as follows: $50 million at 5.875% due
in 2000 and $50 million at 7.375% due in 2023.
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. 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
The following discussion should be read in conjunction with the Management's
Discussion and Analysis section of the Nicor 1998 Annual Report on Form 10-K.
SUMMARY
Nicor's second quarter 1999 diluted earnings per common share were $.56,
compared with $.59 in 1998, as the company's gas distribution and shipping
segments recorded lower operating results. Net income for the quarter was
$26.5 million, compared with $28.5 million in 1998.
For the six months ended June 30, 1999, diluted earnings per common share of
$1.37 compared favorably with $1.34 a year ago. Significant factors
contributing to the earnings increase included a gain on the first quarter
sale of an electronic energy trading system and improved financial results
from unregulated energy ventures. These factors more than offset lower
operating results in the gas distribution and shipping segments. Net income
for the six-month period was $65.5 million compared with $64.7 million in
1998.
Operating income (loss) by major business segment was:
Three months ended Six months ended
June 30 June 30
(millions) 1999 1998 1999 1998
Gas distribution $ 40.0 $ 43.7 $ 101.6 $ 103.2
Shipping 5.0 6.0 9.4 12.4
Corporate and other (.5) (.8) (1.1) (1.7)
$ 44.5 $ 48.9 $ 109.9 $ 113.9
The following summarizes operating income comparisons for major business
segments:
Gas distribution operating income for the quarter decreased $3.7 million
due primarily to higher operating and maintenance expenses. For the six-
month period, operating income declined $1.6 million as the positive
impact of higher deliveries was more than offset by other factors,
including higher operating and maintenance expenses and depreciation.
Shipping operating income decreased $1 million for the quarter and
$3 million for the six months ended June 30, 1999. Quarter and year-to-
date results were adversely affected by decreased margins related
primarily to increased competition in the Eastern Caribbean and lower
charter revenues, which more than offset the 5 percent growth in volumes
shipped.
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 discussion
summarizes the major items impacting Nicor's earnings.
Nicor Inc. Page 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Operating revenues. Operating revenues by major business segment were:
Three months ended Six months ended
June 30 June 30
(millions) 1999 1998 1999 1998
Gas distribution $ 203.4 $ 214.8 $ 716.1 $ 719.1
Shipping 54.7 53.6 108.5 108.7
Corporate and other 13.7 2.9 23.6 5.8
$ 271.8 $ 271.3 $ 848.2 $ 833.6
For the three-month period, gas distribution revenues were less than the
prior year due to lower gas prices, which are passed directly through to
customers. Revenues generated from Nicor's wholesale gas trading business
accounted for the increase in corporate and other. For the six-month period,
revenues increased $14.6 million due to revenues from Nicor's wholesale gas
trading business. Lower gas prices in the gas distribution segment were
essentially offset by the impact of colder weather.
Gas distribution margin. Gas distribution margin, defined as operating
revenues less cost of gas and revenue taxes, which are both passed directly
through to customers, and margin per Mcf delivered are shown in the following
table:
Three months ended Six months ended
June 30 June 30
1999 1998 1999 1998
Margin (millions) $ 103.2 $ 103.4 $ 260.4 $ 251.7
Margin per Mcf delivered 1.21 1.17 .90 .91
Margin rose $8.7 million in the six-month period due to increased deliveries
related primarily to colder weather. Margin per Mcf increased in the three-
month period due primarily to a decrease in lower-margin deliveries for
electric power generation.
Operating and maintenance. Operating and maintenance expenses increased
$4.1 million and $8.7 million for the three- and six-month periods,
respectively, due primarily to higher costs in the gas distribution segment
relating, in part, to information technology costs. Higher bad debt expense
in the gas distribution segment also contributed to the increase in the six-
month period.
Nonoperating items. Other income increased $1.6 million and $4.6 million for
the three- and six-month periods, respectively. Positive factors for both
periods included a gain from unwinding a forward interest rate agreement, the
positive impact of reversing accrued interest expense as a result of a
settlement and higher interest income due to increased investment levels.
The year-to-date period also benefitted from a first quarter gain on the sale
of Nicor's interest in an electronic energy trading system. These positive
factors exceeded the gain on real estate sales in the prior year's three- and
six-month periods.
Interest expense decreased in the six-month period due to reduced average
borrowing levels and lower interest rates.
Nicor Inc. Page 9
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 decreased $41.8 million
for the six months ended June 30, 1999, due primarily to changes in working
capital items in the gas distribution segment. Working capital can swing
sharply due to certain gas distribution 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.
Investing. In the second quarter of 1999, Nicor committed an additional
$12 million to expand its cargo container leasing investment.
Financing. Nicor and its gas distribution subsidiary maintain short-term
credit agreements with major domestic and foreign banks. At June 30, 1999,
these agreements, which serve as backup for the issuance of commercial paper,
totaled $330 million and the company had $17.5 million of commercial paper
outstanding.
In July 1999, Nicor Gas called for redemption $50 million of 8.25% First
Mortgage Bonds due in 2024.
In January 1999, Nicor Gas sold $50 million of First Mortgage Bonds at 5.37%
due in 2009 and $50 million of unsecured notes at 5.065% due in 2000 to fund
the redemption of First Mortgage Bonds as follows: $50 million at 5.875% due
in 2000 and $50 million at 7.375% due in 2023.
In the second quarter of 1999, Nicor completed the $50 million common stock
repurchase program initiated in June 1997 and announced another $50 million
common stock repurchase program. Purchases under the new program are being
made as market conditions permit through open market transactions and to the
extent cash flow is available after other investment opportunities.
During the first six months of 1999, the company purchased and retired
211,300 common shares at an aggregate cost of $8 million under these
programs.
Effective with the dividend paid on May 1, 1999, Nicor's quarterly dividend
on common stock was increased to 39 cents per share. This payment represents
an annual rate of $1.56 per share, which is 5.4 percent higher than the $1.48
per share established with the May 1, 1998 dividend.
YEAR 2000 READINESS
The Year 2000 issue arose because many existing computer programs use only
the last two digits to refer to a year. If date-sensitive devices
incorrectly read the year 2000 and assume it to be 1900, many computer
systems and software applications, as well as embedded chips, could fail or
produce erroneous results.
Nicor Inc. Page 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
This disclosure contains forward-looking statements. In connection with the
Safe Harbor provisions of the Private Securities Litigation Reform Act of
1995, the company cautions that, while it believes such statements to be
reasonable and makes them in good faith, actual results may vary. Nicor's
ability to meet its objectives identified below is dependent upon several
factors, 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
remediate 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. In 1996, Nicor Gas 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. The company's Year 2000 effort encompasses
mainframe systems, client-server and desktop systems, telecommunications,
embedded systems and third parties. This effort consists of the following
phases: inventory, assessment, remediation, testing and contingency planning.
Mainframe Systems. Nicor Gas' mainframe hardware and most core business
applications, which include customer service, billing and payroll, fall into
this category. System inventory, assessment, remediation and testing are
complete. A number of systems have been replaced by Year 2000 compliant
systems on client-server platforms. During the second quarter of 1999, the
company performed additional testing of all critical systems at a remote
site. In addition, outside consultants completed independent verification of
program code for its critical mainframe systems to confirm proper
remediation. A few minor errors were identified and are being corrected and
tested. Hardware and software failure contingency plans have been
established.
Client-server and Desktop Systems. Nicor Gas has completed an inventory and
assessment of its client-server and desktop systems. Many of the systems are
new and were designed to be compliant. Remediation and testing are complete
with the exception of a few minor applications that are dependent on upgrades
or modifications by software vendors. These items are scheduled to be
completed and tested during the third quarter of 1999. Functional areas have
developed contingency plans to perform their responsibilities in the event of
failure. Contingency plans to address possible longer-term disruptions have
been updated and are scheduled for testing in 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. Inventory and assessment of telecommunication issues,
which involve data and voice communications, have also been completed.
Remediation has been accomplished through upgrading hardware and software.
Testing has been completed. Contingency plans have been updated, and by the
end of the third quarter of 1999 these plans will be tested. In addition to
the telecommunications issues over which it has direct control, the company
has worked closely with telecommunication service providers to assist in the
development and execution of additional testing procedures and the
formulation of contingency plans. These efforts are scheduled to be
completed by the end of the third quarter of 1999.
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. A more detailed inventory and assessment of about 2,200
items at the component level in critical areas has been completed and
independently verified and validated by outside consultants. Less than 5
percent of the inventoried items appeared to require remediation. Virtually
all items have been remediated and tested with a few items remaining to be
fixed and tested during the third quarter of 1999. In critical gas supply
and storage areas, disaster recovery plans exist and have been updated for
various potential Year 2000 scenarios.
Third Parties. Nicor Gas has contacted, through written communication,
entities with which 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 and the results of
ongoing communications, Nicor Gas will consider new business relationships
with alternative providers of products and services as necessary and to the
extent alternatives are available.
In addition to written communications, the company has met directly with
interstate pipelines and gas suppliers, upon which the company has
historically been materially dependent, and certain large industrial
customers to determine their state of readiness. Further communications and
meetings have also been conducted with other critical vendors and suppliers.
Additional meetings and assessment of communications and any resulting
necessary actions are scheduled to be completed during the third quarter of
1999. Testing of updated contingency plans is scheduled to be completed by
the end of the third quarter of 1999.
Costs. Nicor Gas has incurred operating expenses of approximately $4 million
through June 30, 1999, and estimates an additional $2 million may be incurred
in connection with its Year 2000 efforts. These amounts represent costs
incurred relating to hardware and software modifications and replacements,
internal information technology resources devoted solely to the effort, and
outside consultants. 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.
Nicor Inc. Page 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
The company estimates that as much as an additional $1 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.
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 alternate sites. The
company has updated its contingency plans that address a variety of scenarios
that could emerge and expects testing and further refinement of plans to
continue throughout 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 has
remediated its main cargo-tracking program and has particular concerns with
Caribbean interisland communications. Tropical's overall remediation
activities are virtually complete. Final testing and contingency plans are
scheduled to be completed by the end of the third quarter of 1999. Costs for
remediation are not significant.
Nicor Inc. Page 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
OTHER
Performance-Based Rate Filing. In March 1999, Nicor Gas filed a performance-
based rate plan for natural gas supply costs with the ICC. For further
information see Regulatory Matters beginning on page 5.
Customer Select Program. In July 1999, Nicor Gas filed a request with the
ICC to expand Customer Select, the company's three-year pilot program that
allows more customers to choose their natural gas commodity supplier. For
further information see Regulatory Matters beginning on page 5.
Power Generation. In June 1999, Nicor announced that it will not participate
in or make any financial investment in the Rocky Road Power Plant project in
northern Illinois. Rocky Road is a 250-megawatt, natural gas-fueled power
generation facility. Nicor Gas is providing gas transportation services to
the facility.
New Accounting Pronouncement. In June 1999, the Financial Accounting
Standards Board approved an amendment to defer the effective date of
Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities. For further information see New Accounting Pronouncement on
page 5.
Market Risk. The company is exposed to market risk in the normal course of
its business operations, including the risk of loss arising from adverse
changes in natural gas commodity prices and interest rates. There has been
no material change in the company's exposure to market risk since
December 31, 1998.
<TABLE>
Nicor Inc. Page 14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
GAS DISTRIBUTION STATISTICS
Changes in weather can materially affect operating results. Operating revenues,
deliveries, customers and other statistics are presented below.
<CAPTION>
Three months ended Six months ended
June 30 June 30
1999 1998 1999 1998
Operating revenues (millions):
Sales
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential $ 128.2 $ 136.5 $ 472.4 $ 466.2
Commercial 25.1 31.3 101.7 120.9
Industrial 3.2 5.0 15.0 18.6
156.5 172.8 589.1 605.7
Transportation
Residential .4 - .4 -
Commercial 14.7 11.5 38.1 28.3
Industrial 9.9 8.5 21.7 19.0
25.0 20.0 60.2 47.3
Revenue taxes and other 21.9 22.0 66.8 66.1
$ 203.4 $ 214.8 $ 716.1 $ 719.1
Deliveries (Bcf):
Sales
Residential 26.3 25.8 126.7 113.7
Commercial 5.4 6.2 26.5 29.0
Industrial .6 1.2 4.2 4.9
32.3 33.2 157.4 147.6
Transportation
Residential .1 - .1 -
Commercial 12.0 10.0 46.1 36.1
Industrial 41.0 44.9 87.0 93.1
53.1 54.9 133.2 129.2
85.4 88.1 290.6 276.8
Customers at end of period (thousands):
Sales
Residential 1,729.7 1,718.6
Commercial 104.2 125.2
Industrial 7.1 9.0
1,841.0 1,852.8
Transportation
Residential 17.0 -
Commercial 59.6 36.9
Industrial 6.9 5.0
83.5 41.9
1,924.5 1,894.7
Other statistics:
Degree days 491 532 3,365 3,105
Colder (warmer) than normal (28.6)% (22.7)% (12.5)% (19.3)%
Average gas cost per Mcf sold $ 2.54 $ 2.90 $ 2.53 $ 2.80
</TABLE>
<TABLE>
Nicor Inc. Page 15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Concluded)
SHIPPING STATISTICS
<CAPTION>
Three months ended Six months ended
June 30 June 30
1999 1998 1999 1998
TEUs shipped (thousands):
<S> <C> <C> <C> <C>
Southbound 29.7 28.6 59.9 58.0
Northbound 4.6 4.0 9.2 7.2
Interisland 2.3 2.1 4.5 5.0
36.6 34.7 73.6 70.2
Other statistics:
Revenue per TEU $ 1,493 $ 1,509 $ 1,475 $ 1,507
Ports served 23 23
Vessels owned 13 14
</TABLE>
Nicor Inc. Page 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For quantitative and qualitative disclosures about market risk, see Market
Risk on page 13, which is incorporated herein by reference.
PART II - Other Information
Item 1. Legal Proceedings
For information concerning legal proceedings, see Regulatory Matters
beginning on page 5 and Contingencies on page 6, which are incorporated
herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the company was held on April 15, 1999,
for the purpose of electing the Board of Directors. Proxies for the meeting
were solicited pursuant to Section 14(a) of the Securities Exchange Act of
1934 and there was no solicitation in opposition to management's
solicitation. The results of the voting as reported below are for shares
eligible to vote as of the record date, February 12, 1999. There were no
"broker nonvotes."
All of management's nominees for directors as listed in the proxy statement
were elected as indicated below:
Shares Shares
voted voted
Nominee FOR WITHHELD
Robert M. Beavers, Jr. 39,780,721 375,605
Bruce P. Bickner 39,744,739 408,277
John H. Birdsall, III 39,791,330 369,863
Thomas A. Donahoe 39,760,774 388,681
Thomas L. Fisher 39,783,993 380,360
John E. Jones 39,692,775 441,704
Dennis J. Keller 39,781,644 379,086
Charles S. Locke 39,666,455 466,990
Sidney R. Petersen 39,693,595 439,470
John Rau 39,775,129 383,499
Patricia A. Wier 39,750,620 402,921
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 second
quarter of 1999.
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 August 11, 1999 By DAVID L. CYRANOSKI
David L. Cyranoski
Senior Vice President,
Secretary, Treasurer and Controller
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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,593
<OTHER-PROPERTY-AND-INVEST> 121
<TOTAL-CURRENT-ASSETS> 293
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 185
<TOTAL-ASSETS> 2,192
<COMMON> 118
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 661
<TOTAL-COMMON-STOCKHOLDERS-EQ> 779
6
0
<LONG-TERM-DEBT-NET> 471
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 37
<COMMERCIAL-PAPER-OBLIGATIONS> 18
<LONG-TERM-DEBT-CURRENT-PORT> 51
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 830
<TOT-CAPITALIZATION-AND-LIAB> 2,192
<GROSS-OPERATING-REVENUE> 848
<INCOME-TAX-EXPENSE> 35
<OTHER-OPERATING-EXPENSES> 738
<TOTAL-OPERATING-EXPENSES> 773
<OPERATING-INCOME-LOSS> 75
<OTHER-INCOME-NET> 13
<INCOME-BEFORE-INTEREST-EXPEN> 88
<TOTAL-INTEREST-EXPENSE> 23
<NET-INCOME> 65
0
<EARNINGS-AVAILABLE-FOR-COMM> 65
<COMMON-STOCK-DIVIDENDS> 37
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 377
<EPS-BASIC> 1.38
<EPS-DILUTED> 1.37
</TABLE>
