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 September 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
<TABLE>
Commission Registrant, State of Incorporation, I.R.S Employer
File Number Address and Telephone Number Identification Number
- -------------------- ----------------------------------------------------- --------------------------
<S> <C> <C>
1-7297 Nicor Inc. 36-2855175
(An Illinois Corporation)
1844 Ferry Road
Naperville, Illinois 60563-9600
(630) 305-9500
</TABLE>
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, 1999, were
47,047,097.
<PAGE>
Nicor Inc. Page i
Table of Contents
Part I - Financial Information
Item 1. Financial Statements (Unaudited) .................... 1
Consolidated Statement of Income:
Three and nine months ended
September 30, 1999 and 1998 ...................... 2
Consolidated Statement of Cash Flows:
Nine months ended
September 30, 1999 and 1998 ...................... 3
Consolidated Balance Sheet:
September 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 ................................ 15
Part II - Other Information
Item 1. Legal Proceedings ................................... 15
Item 6. Exhibits and Reports on Form 8-K .................... 15
Signature ........................................... 16
Exhibit Index ....................................... 17
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.
<PAGE>
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 Nine months ended
September 30 September 30
------------------------------ -----------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Operating revenues $ 227.3 $ 203.2 $ 1,075.5 $ 1,036.9
------------- ------------- ------------- -------------
Operating expenses
Cost of gas 69.6 52.1 491.0 466.3
Operating and maintenance 87.3 81.7 260.2 246.0
Depreciation 19.2 18.7 98.9 95.7
Taxes, other than income taxes 13.1 11.8 77.5 76.1
------------- ------------- ------------- -------------
189.2 164.3 927.6 884.1
------------- ------------- ------------- -------------
Operating income 38.1 38.9 147.9 152.8
Other income (expense), net 2.0 3.6 15.2 12.1
------------- ------------- ------------- -------------
Income before interest on debt
and income taxes 40.1 42.5 163.1 164.9
Interest on debt, net of amounts
capitalized 9.9 11.0 32.3 34.4
------------- ------------- ------------- -------------
Income before income taxes 30.2 31.5 130.8 130.5
Income taxes 10.4 10.9 45.5 45.2
------------- ------------- ------------- -------------
Net income 19.8 20.6 85.3 85.3
Dividends on preferred stock .1 .1 .3 .2
------------- ------------- ------------- -------------
Earnings applicable to common stock $ 19.7 $ 20.5 $ 85.0 $ 85.1
============= ============= ============= =============
Average shares of common stock
outstanding
Basic 47.2 47.7 47.3 47.9
Diluted 47.3 47.9 47.5 48.1
Earnings per average share of
common stock
Basic $ .42 $ .43 $ 1.80 $ 1.78
Diluted .42 .43 1.79 1.77
Dividends declared per share of
common stock $ .39 $ .37 $ 1.17 $ 1.11
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
September 30
-----------------------------
1999 1998
------------- -------------
Operating activities
<S> <C> <C>
Net income $ 85.3 $ 85.3
Adjustments to reconcile net income to net cash flow
provided from operating activities:
Depreciation 98.9 95.7
Deferred income tax expense 18.2 12.1
Change in assets and liabilities:
Receivables, less allowances 118.4 209.0
Gas in storage 37.9 8.2
Deferred/accrued gas costs (63.7) (4.0)
Accounts payable 71.0 32.8
Other (40.6) (50.6)
------------- -------------
Net cash flow provided from operating activities 325.4 388.5
------------- -------------
Investing activities
Capital expenditures (101.1) (94.7)
Short-term investments 24.4 (2.4)
Other (8.9) (14.3)
------------- -------------
Net cash flow used for investing activities (85.6) (111.4)
------------- -------------
Financing activities
Net proceeds from issuing long-term debt 101.5 99.0
Disbursements to retire long-term debt (156.6) (129.9)
Short-term borrowings (repayments), net (108.0) (164.9)
Dividends paid (54.8) (52.6)
Disbursements to reacquire stock (14.6) (25.4)
Other (.1) .4
------------- -------------
Net cash flow used for financing activities (232.6) (273.4)
------------- -------------
Net increase in cash and cash equivalents 7.2 3.7
Cash and cash equivalents, beginning of period 13.0 5.2
------------- -------------
Cash and cash equivalents, end of period $ 20.2 $ 8.9
============= =============
Supplemental information
Income taxes paid, net of refunds $ 37.6 $ 32.5
Interest paid, net of amounts capitalized 33.4 38.6
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
1999 1998 1998
--------------- ---------------- ---------------
Assets
Current assets
<S> <C> <C> <C>
Cash and cash equivalents $ 20.2 $ 13.0 $ 8.9
Short-term investments, at cost which
approximates market 31.4 55.8 22.6
Receivables, less allowances of $7.5,
$6.3 and $7.2, respectively 145.6 264.0 145.6
Gas in storage, at last-in, first-out cost 67.6 105.5 119.6
Deferred gas costs 33.8 - -
Other 43.9 26.4 33.1
--------------- ---------------- ---------------
342.5 464.7 329.8
--------------- ---------------- ---------------
Property, plant and equipment, at cost
Gas distribution 3,171.3 3,119.7 3,089.6
Shipping 272.3 258.9 258.2
Other 2.0 1.2 1.0
--------------- ---------------- ---------------
3,445.6 3,379.8 3,348.8
Less accumulated depreciation 1,714.4 1,648.0 1,616.8
--------------- ---------------- ---------------
1,731.2 1,731.8 1,732.0
--------------- ---------------- ---------------
Other assets 203.1 168.1 157.8
--------------- ---------------- ---------------
$ 2,276.8 $ 2,364.6 $ 2,219.6
=============== ================ ===============
Liabilities and capitalization
Current liabilities
Long-term obligations due within one year $ 73.8 $ 1.2 $ .9
Short-term borrowings 126.5 234.5 114.0
Accounts payable 341.3 270.3 274.7
Accrued gas costs - 29.9 21.1
Other 36.3 43.0 37.5
--------------- ---------------- ---------------
577.9 578.9 448.2
--------------- ---------------- ---------------
Deferred credits and other liabilities
Deferred income taxes 261.5 238.9 233.1
Regulatory income tax liability 75.7 78.6 79.3
Unamortized investment tax credits 42.7 44.1 44.7
Other 101.8 101.5 105.8
--------------- ---------------- ---------------
481.7 463.1 462.9
--------------- ---------------- ---------------
Capitalization
Long-term debt 436.7 557.3 550.2
Preferred stock 6.3 6.3 6.3
Common equity
Common stock 117.8 118.8 119.1
Retained earnings 656.4 640.2 632.9
--------------- ---------------- ---------------
1,217.2 1,322.6 1,308.5
--------------- ---------------- ---------------
$ 2,276.8 $ 2,364.6 $ 2,219.6
=============== ================ ===============
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
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 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:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
--------------------------- ---------------------------
(millions) 1999 1998 1999 1998
------------- ------------ ------------ -------------
Operating revenues
<S> <C> <C> <C> <C>
Gas distribution $ 161.8 $ 148.0 $ 877.9 $ 867.0
Shipping 55.5 52.5 164.0 161.2
Other Nicor ventures 11.3 2.7 34.9 8.7
Corporate and eliminations (1.3) - (1.3) -
------------- ------------ ------------ -------------
$ 227.3 $ 203.2 $ 1,075.5 $ 1,036.9
============= ============ ============ =============
Operating income (loss)
Gas distribution $ 35.4 $ 34.9 $ 137.1 $ 138.1
Shipping 4.5 5.1 13.9 17.5
Other Nicor ventures (.1) - (.1) (1.1)
Corporate and eliminations (1.7) (1.1) (3.0) (1.7)
------------- ------------ ------------ -------------
$ 38.1 $ 38.9 $ 147.9 $ 152.8
============= ============ ============ =============
</TABLE>
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 late November
and, if approved in a manner acceptable to Nicor Gas, the company intends to
implement the plan next January.
Customer Select(R). In September 1999, Nicor Gas received approval from the ICC
to expand Customer Select, the company's voluntary pilot program which offers
customers a choice of natural gas commodity suppliers. An additional 170,000
single-family residential customers in select communities will be eligible to
participate in the program in 2000. 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,
<PAGE>
Nicor Inc. Page 6
Notes to the Consolidated Financial Statements (Unaudited) (Concluded)
read customer meters, maintain the distribution system, ensure safety and
respond to service and emergency calls.
LONG-TERM DEBT
In August 1999, Nicor Gas redeemed $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.
<PAGE>
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 third quarter 1999 diluted earnings per common share were $.42, down
slightly from $.43 in 1998. Net income for the quarter was $19.8 million,
compared with $20.6 million in 1998.
For the nine months ended September 30, 1999, diluted earnings per common share
increased to $1.79, from $1.77 a year ago, as common stock repurchases have
reduced the number of shares outstanding. Net income was unchanged at $85.3
million as lower operating results were offset by nonoperating factors.
<TABLE>
Operating income (loss) by major business segment was:
<CAPTION>
Three months ended Nine months ended
September 30 September 30
--------------------------- ---------------------------
(millions) 1999 1998 1999 1998
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Gas distribution $ 35.4 $ 34.9 $ 137.1 $ 138.1
Shipping 4.5 5.1 13.9 17.5
Corporate and other (1.8) (1.1) (3.1) (2.8)
------------- ------------ ------------ -------------
$ 38.1 $ 38.9 $ 147.9 $ 152.8
============= ============ ============ =============
</TABLE>
The following summarizes operating income comparisons for major business
segments:
o Gas distribution operating income for the nine months ended September 30,
1999, decreased $1 million. Though deliveries of natural gas increased 4
percent during the first nine months of this year, the positive impact of
higher deliveries was more than offset by other factors, including higher
operating and maintenance expense and depreciation.
o Shipping operating income decreased $.6 million for the quarter and $3.6
million for the nine months ended September 30, 1999. Quarter and
year-to-date results were negatively impacted by competitive pressures on
pricing - primarily in the Eastern Caribbean, higher operating expenses and
a decline in charter income. These factors more than offset the additional
revenues generated from increased volumes shipped.
RESULTS OF OPERATIONS
Details of various financial and operating information by segment can be found
in the tables on pages 13 and 14. The following discussion summarizes the major
items impacting Nicor's earnings.
<PAGE>
Nicor Inc. Page 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
<TABLE>
Operating revenues. Operating revenues by major business segment were:
<CAPTION>
Three months ended Nine months ended
September 30 September 30
--------------------------- ---------------------------
(millions) 1999 1998 1999 1998
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Gas distribution $ 161.8 $ 148.0 $ 877.9 $ 867.0
Shipping 55.5 52.5 164.0 161.2
Corporate and other 10.0 2.7 33.6 8.7
------------- ------------ ------------ -------------
$ 227.3 $ 203.2 $ 1,075.5 $ 1,036.9
============= ============ ============ =============
</TABLE>
For the three-month period, gas distribution revenues increased from the prior
year due primarily to higher natural 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 nine-month
period, consolidated revenues increased $38.6 million due to revenues generated
from Nicor's wholesale gas trading business and higher revenues in the gas
distribution segment. Gas distribution revenues increased as the impact of
colder weather more than offset lower natural gas prices.
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:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
--------------------------- ---------------------------
1999 1998 1999 1998
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Margin (millions) $ 92.6 $ 89.6 $ 353.0 $ 341.3
Margin per Mcf delivered 1.32 1.28 .98 .98
</TABLE>
Margin rose $3 million in the three-month period due, in part, to the positive
impact of colder weather. Margin per Mcf delivered increased in the quarter due
mainly to a decline in lower-margin deliveries for electric power generation.
For the nine-month period, margin increased $11.7 million due to higher
deliveries which were attributable to 10 percent colder weather, increased usage
among existing customers and the addition of new customers.
Operating and maintenance. Operating and maintenance expense increased $5.6
million in the three-month period due primarily to higher volume-related
expenses in the shipping segment and increased credit and collection activities
in the gas distribution segment. For the nine-month period, operating and
maintenance expense increased $14.2 million due primarily to higher information
technology costs and increased credit and collection activities in the gas
distribution segment and higher volume-related costs in the shipping segment.
Nonoperating items. Other income decreased $1.6 million in the three-month
period due to a decline in real estate sales. For the nine-month period, other
income increased $3.1 million as the impact of lower real estate sales was more
than offset by several positive factors, including a gain on the sale of Nicor's
interest in an electronic energy trading system and higher interest income due
to increased investment levels. The company continues to assess its nonstrategic
real estate holdings, and is evaluating the potential to maximize the value of
these holdings through additional property sales or development over the next
several years.
<PAGE>
Nicor Inc. Page 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Interest expense decreased in both periods due to lower interest rates and
reduced average borrowing levels.
FINANCIAL CONDITION AND LIQUIDITY
Operating. Net cash flow from operating activities decreased $63.1 million for
the nine months ended September 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. During 1999, Nicor invested an additional $12 million in cargo
container leasing.
Financing. Nicor and its gas distribution subsidiary maintain short-term credit
agreements with major domestic and foreign banks. At September 30, 1999, these
agreements, which serve as backup for the issuance of commercial paper, totaled
$342.5 million and the company had $126.5 million of commercial paper
outstanding.
In August 1999, Nicor Gas redeemed $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
nine months of 1999, the company purchased and retired 393,300 common shares at
an aggregate cost of about $15 million.
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.
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
<PAGE>
Nicor Inc. Page 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
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 component of the company's Year 2000 project has progressed as planned and
the company believes it is taking all necessary steps 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 has utilized consultants to assist in the Year 2000 project and belongs
to an industry alliance that 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, testing and
contingency planning are complete. A number of systems have been replaced by
Year 2000 compliant systems on client-server platforms. During the second and
third 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 the company's critical mainframe systems to
confirm proper remediation. The few minor errors that were identified have been
corrected and tested.
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 minor items will be completed by the
end of 1999. Functional areas have developed and tested contingency plans to
perform their responsibilities in the event of disruption.
Telecommunications. The company has completed all phases of its Year 2000 effort
relating to telecommunication issues, which involve data and voice
communications. In addition to the telecommunication issues over which it has
direct control, the company has worked closely with telecommunication service
providers to develop and execute test procedures and to formulate contingency
plans.
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. All such items have been
remediated and tested. In critical gas supply and storage areas, disaster
recovery plans exist which have been updated and tested for various potential
Year 2000 scenarios.
<PAGE>
Nicor Inc. Page 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Third Parties. Nicor Gas has contacted entities with which it has a material
relationship to determine their state of readiness. These entities include, but
are not limited to, natural gas suppliers, interstate pipelines, electric
utilities, telecommunication service providers, banks, industrial customers and
other suppliers of goods and services. In addition, the company has met directly
with interstate pipelines, natural gas suppliers and certain large industrial
customers. Based upon ongoing communications, Nicor Gas will consider new
business relationships, as necessary, with alternative product and service
providers, to the extent alternatives are available. Contingency plans to
address potential disruption of the receipt of goods and services have been
completed.
Costs. Nicor Gas has incurred operating expenses of approximately $4.5 million
through September 30, 1999, and estimates less than an additional $1 million may
be incurred in connection with its Year 2000 efforts. These amounts represent
costs incurred that are related 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.
The company estimates that any additional capital improvement costs to support
this project will not be significant.
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.
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 was 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 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 update, test and refine its 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 in the gas
distribution system can be manually overridden, and customer calls can be
handled at alternate sites. The company has updated and tested its contingency
plans that address scenarios that could emerge and expects further refinement
and testing of these plans throughout the remainder of 1999.
During the third quarter of 1999, Nicor Gas conducted a Year 2000 preparedness
drill to test and further evaluate its contingency plans and to demonstrate its
ability to respond to potential issues effectively and quickly. The drill,
conducted with interstate pipelines and other natural gas utilities, simulated
the loss of communications, electricity and gas supply. The drill was
successful.
Nicor Inc. Page 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
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's overall remediation
activities are complete. Although the company has particular concerns with
Caribbean interisland communications, it believes it has taken the necessary
steps to address this issue. Costs for remediation are not significant.
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(R). In September 1999, Nicor Gas received approval from the ICC
to expand Customer Select, the company's voluntary pilot program which offers
customers a choice of natural gas commodity suppliers. For further information
see Regulatory Matters beginning on page 5.
Nicor Energy. In September 1999, Nicor Energy was certified as an Alternative
Retail Electric Supplier by the ICC. Certification allows Nicor Energy to supply
electricity to Illinois businesses as part of a statewide program that allows
business customers to remain with their current utility or to switch electric
commodity suppliers. Nicor Energy has already contracted to supply electricity
to several hundred customers.
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 13
- -------------------------------------------------------------------------------------------------------------------
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 Nine months ended
September 30 September 30
------------------------------ ------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
Operating revenues (millions):
Sales
<S> <C> <C> <C> <C>
Residential $ 103.6 $ 96.0 $ 576.1 $ 562.2
Commercial 16.3 17.2 118.0 138.0
Industrial 2.4 2.3 17.4 20.9
------------- ------------- ------------- -------------
122.3 115.5 711.5 721.1
------------- ------------- ------------- -------------
Transportation
Residential .7 - 1.0 -
Commercial 13.6 11.8 51.8 40.1
Industrial 11.3 9.2 33.0 28.2
------------- ------------- ------------- -------------
25.6 21.0 85.8 68.3
------------- ------------- ------------- -------------
Revenue taxes and other 13.9 11.5 80.6 77.6
------------- ------------- ------------- -------------
$ 161.8 $ 148.0 $ 877.9 $ 867.0
============= ============= ============= =============
Deliveries (Bcf):
Sales
Residential 15.1 15.1 141.9 128.8
Commercial 2.4 2.7 28.9 31.8
Industrial .5 .5 4.6 5.4
------------- ------------- ------------- -------------
18.0 18.3 175.4 166.0
------------- ------------- ------------- -------------
Transportation
Residential .2 - .2 -
Commercial 9.3 8.1 55.5 44.2
Industrial 42.4 43.5 129.4 136.6
------------- ------------- ------------- -------------
51.9 51.6 185.1 180.8
------------- ------------- ------------- -------------
69.9 69.9 360.5 346.8
============= ============= ============= =============
Customers at end of period (thousands):
Sales
Residential 1,733.7 1,718.8
Commercial 104.0 124.5
Industrial 7.0 8.9
------------- -------------
1,844.7 1,852.2
------------- -------------
Transportation
Residential 16.6 -
Commercial 58.4 36.5
Industrial 6.7 5.0
------------- -------------
81.7 41.5
------------- -------------
1,926.4 1,893.7
============= =============
Other statistics:
Degree days 67 18 3,432 3,123
Colder (warmer) than normal (23.9)% (79.5)% (12.8)% (20.6)%
Average gas cost per Mcf sold $ 3.31 $ 2.71 $ 2.61 $ 2.79
</TABLE>
<TABLE>
Nicor Inc. Page 14
- -------------------------------------------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Concluded)
SHIPPING STATISTICS
<CAPTION>
Three months ended Nine months ended
September 30 September 30
------------------------------ ------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
TEUs shipped (thousands):
<S> <C> <C> <C> <C>
Southbound 30.3 27.5 90.2 85.5
Northbound 4.4 4.3 13.6 11.5
Interisland 1.9 2.1 6.4 7.1
------------- ------------- ------------- -------------
36.6 33.9 110.2 104.1
============= ============= ============= =============
Other statistics:
Revenue per TEU $ 1,512 $ 1,511 $ 1,487 $ 1,508
Ports served 23 23
Vessels owned 13 14
</TABLE>
<PAGE>
Nicor Inc. Page 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For quantitative and qualitative disclosures about market risk, see Market Risk
on page 12, 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 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index on page 17 filed herewith.
(b) The company did not file a report on Form 8-K during the third
quarter of 1999.
<PAGE>
Nicor Inc. Page 16
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 10, 1999 By DAVID L. CYRANOSKI
------------------------------ -----------------------
David L. Cyranoski
Senior Vice President,
Secretary, Treasurer and Controller
<PAGE>
Nicor Inc. Page 17
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-31-1999
<PERIOD-END> SEP-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,612
<OTHER-PROPERTY-AND-INVEST> 119
<TOTAL-CURRENT-ASSETS> 343
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 203
<TOTAL-ASSETS> 2,277
<COMMON> 118
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 656
<TOTAL-COMMON-STOCKHOLDERS-EQ> 774
6
0
<LONG-TERM-DEBT-NET> 422
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 15
<COMMERCIAL-PAPER-OBLIGATIONS> 127
<LONG-TERM-DEBT-CURRENT-PORT> 74
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 859
<TOT-CAPITALIZATION-AND-LIAB> 2,277
<GROSS-OPERATING-REVENUE> 1,076
<INCOME-TAX-EXPENSE> 46
<OTHER-OPERATING-EXPENSES> 928
<TOTAL-OPERATING-EXPENSES> 974
<OPERATING-INCOME-LOSS> 102
<OTHER-INCOME-NET> 15
<INCOME-BEFORE-INTEREST-EXPEN> 117
<TOTAL-INTEREST-EXPENSE> 32
<NET-INCOME> 85
0
<EARNINGS-AVAILABLE-FOR-COMM> 85
<COMMON-STOCK-DIVIDENDS> 55
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 325
<EPS-BASIC> 1.80
<EPS-DILUTED> 1.79
</TABLE>
