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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
I.R.S Employer
Commission File Registrant, State of Incorporation, Identification
Number Address and Telephone Number Number
- ------------------- -------------------------------------------- -----------------
1-7297 Nicor Inc. 36-2855175
(An Illinois Corporation)
1844 Ferry Road
Naperville, Illinois 60563-9600
(630) 305-9500
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, par value $2.50 per share, New York Stock Exchange
including Preference Stock purchase rights Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of February 29, 2000, 46,707,099 common shares were outstanding. The
aggregate market value of voting securities held by non-affiliates of the
registrant was approximately $1.4 billion.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the company's 2000 Annual Meeting Definitive Proxy Statement, dated
March 8, 2000, are incorporated by reference into Part III.
Nicor Inc. Page i
Table of Contents
Item No.
Part I
1. Business ............................................................ 1
2. Properties .......................................................... 5
3. Legal Proceedings.................................................... 5
4. Submission of Matters to a Vote of Security Holders.................. 5
Executive Officers of the Registrant................................. 6
Part II
5. Market for Registrant's Common Equity and Related Stockholder Matters 7
6. Selected Financial Data ............................................. 8
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 9
7A. Quantitative and Qualitative Disclosures about Market Risk........... 18
8. Financial Statements and Supplementary Data ......................... 19
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................................ 35
Part III
10. Directors and Executive Officers of the Registrant................... 35
11. Executive Compensation............................................... 35
12. Security Ownership of Certain Beneficial Owners and Management....... 35
13. Certain Relationships and Related Transactions....................... 35
Part IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..... 36
Signatures........................................................... 38
Exhibit Index........................................................ 39
Glossary
Degree day........The extent to which the daily average temperature
falls below 65 degrees Fahrenheit. Normal weather for Nicor
Gas' service territory is about 6,100 degree days.
FERC..............Federal Energy Regulatory Commission, the agency that
regulates the interstate transportation of natural gas, oil
and electricity.
HVAC..............Heating, ventilating and air conditioning.
ICC...............Illinois Commerce Commission, the agency that regulates
investor-owned Illinois utilities.
Mcf, MMcf, Bcf ...Thousand cubic feet, million cubic feet, billion cubic feet.
PBR...............Performance-based rate, a plan that provides economic
incentives based on performance.
TEU...............Twenty-foot equivalent unit, a measure of volume in
containerized shipping equal to one 20-foot-long container.
Nicor Inc. Page 1
PART I
Item 1. Business
Nicor Inc. (Nicor), incorporated in 1976, is a holding company. Its principal
subsidiaries are Northern Illinois Gas Company (doing business as Nicor Gas
Company), one of the nation's largest distributors of natural gas, and Tropical
Shipping, a leading transporter of containerized freight in the Caribbean. Gas
distribution is Nicor's primary business, representing approximately 90 percent
of consolidated operating income and assets. Nicor also owns several
energy-related subsidiaries and is a partner in Nicor Energy, a provider of
unregulated energy products and services. Nicor had approximately 3,400
employees at year-end 1999.
Financial information on Nicor's major business segments is included in Business
Segment and Geographic Information beginning on page 31. Certain terms used
herein are defined in the glossary on page i.
GAS DISTRIBUTION
General
Nicor Gas, a regulated natural gas distribution utility, serves more than 1.9
million customers, in a service territory that encompasses most of the northern
third of Illinois, excluding the city of Chicago. The company's service
territory is diverse and has grown steadily over the years, providing the
company with a well-balanced mix of residential, commercial and industrial
customers. In 1999, residential customers accounted for about 41 percent of
natural gas deliveries, while commercial and industrial customers accounted for
about 24 percent and 35 percent, respectively. Nicor Gas' large residential
customer base provides relative stability during weak economic periods. In
addition, the company's industrial and commercial customer base is well
diversified, lessening the impact of industry-specific economic swings. See Gas
Distribution Statistics on page 15 for operating revenues, deliveries and
customers by customer classification.
Gas deliveries are seasonal since about one-half are used for space heating.
Typically, about 70 percent of deliveries and revenues occur from October
through March. Fluctuations in weather can have a significant impact on
year-to-year comparisons of operating income and cash flow. To provide
protection from the financial impact of unusually warm weather, Nicor Gas
purchased a weather insurance policy which will protect 2000 earnings and cash
flow if weather for the year is more than 6.5 percent warmer than normal.
Nicor Gas maintains franchise agreements with most of the communities it serves,
allowing it to construct, operate and maintain distribution facilities in those
communities. Franchise agreement terms range up to 50 years. Currently, less
than 5 percent of the agreements will expire within five years. The company has
approximately 2,300 employees.
Customer Services
In addition to gas sales to all customer classes, Nicor Gas provides
transportation service to commercial and industrial customers who purchase their
own gas supplies. Beginning in 1999, the company's Customer Select(R) voluntary
pilot program allowed residential customers in certain communities to choose
their natural gas supplier. Nicor Gas supports full customer choice and is
presently evaluating providing all customers the ability to choose their natural
gas supplier. Additional information on the program is
Nicor Inc. Page 2
Item 1. Business (continued)
presented in Factors Affecting Business Performance beginning on page 13.
Transportation customers have options that include the use of the company's
storage system, the choice of individual or group billing, and the ability to
choose varying supply backup levels and service options. The company receives a
margin generally comparable to gas sales for transportation service with full
supply backup.
In recent years, Nicor Gas has been pursuing several nontraditional activities.
These activities include finding innovative ways to utilize its physical assets
by providing natural gas storage and transmission-related services to marketers,
other gas distribution companies and electric power generation facilities.
Sources of Gas Supply
Nicor Gas purchases gas supplies on a deregulated basis directly from producers
and marketers. Pipeline transportation and purchased storage services are
contracted for at rates regulated by the FERC. Firm pipeline capacity and
purchased storage services held by the company that are temporarily not needed
can be released in the secondary market under FERC-mandated capacity release
provisions, with proceeds reducing the company's cost of gas charged to
customers.
The company's peak day requirements are met through utilization of company-owned
storage facilities, firm pipeline capacity, purchased storage services and other
supply arrangements. Nicor Gas has been able to obtain sufficient supplies of
natural gas to meet customer requirements. The company believes natural gas
supply availability will be sufficient to meet market demands in the foreseeable
future.
Gas supply. Nicor Gas maintains a diversified portfolio of gas supply contracts.
Firm gas supply contracts are diversified by supplier, producing region,
quantity and available transportation. Contract pricing is generally tied to
published price indices so as to approximate current market prices. The
contracts also generally provide for the payment of fixed demand charges to
ensure the availability of supplies on any given day and are generally
negotiated annually.
The company also purchases gas supplies on the spot market to fulfill its supply
requirements or to take advantage of favorable short-term pricing. Spot gas
purchases accounted for about one-half of the company's total gas purchases in
the last three years.
Customers served under the company's transportation service tariffs purchase
their own gas supplies. About one-half of the gas that the company delivered in
1999 was purchased by transportation customers directly from producers and
marketers rather than from the company.
Pipeline transportation. Nicor Gas is directly connected to six interstate
pipelines which provide access to most of the major natural gas producing
regions in North America. The company's primary firm transportation contracts
are with: Natural Gas Pipeline Company of America, which accounts for about
two-thirds of the contracted capacity, Midwestern Gas Transmission Company and
Northern Natural Gas Company. Nearly all of the contracted capacity will expire
by 2004.
Storage. Nicor Gas owns and operates seven underground gas storage facilities.
This storage system is one of the largest in the gas distribution industry and
is designed to meet about 55 percent of the company's peak day deliveries and
approximately 30 percent of its normal winter deliveries. On an annual basis,
about 130 Bcf of gas is cycled through the company's storage fields. In addition
to the company-owned facilities, Nicor Gas purchases about 40 Bcf of storage
service. Storage provides supply
Nicor Inc. Page 3
Item 1. Business (continued)
flexibility, improves reliability of deliveries and allows the company to
maintain rates that are among the lowest in the nation.
Competition/Demand
Nicor Gas is one of the largest utility energy suppliers in Illinois, delivering
about one-third of all utility energy consumed in the state. About 97 percent of
all single-family homes in Nicor Gas' service territory are heated with natural
gas. The company's gas services compete with other forms of energy, such as
electricity and oil, based on such factors as price, service and reliability.
Significant factors that impact demand for natural gas include weather, economic
conditions and the price of gas relative to competitive fuels.
The energy industry has undergone fundamental changes over the past several
years. In 1997, Illinois adopted legislation directing the process of
deregulating the state's electric utility industry. Although Nicor Gas'
traditional pricing advantage compared to electricity may decrease as the price
of electricity declines, the company expects to maintain a pricing advantage in
the foreseeable future.
Additional information on competition and demand is presented in Factors
Affecting Business Performance beginning on page 13.
Regulation
Nicor Gas is regulated by the ICC, which establishes the rules and regulations
governing utility rates and services in Illinois. Rates are generally designed
to allow the company to recover its costs and provide an opportunity to earn a
fair return for its investors. Changes in the regulatory environment could
affect the longer-term performance of Nicor Gas.
The cost of gas the company purchases for customers is recovered through a
monthly gas supply charge, which accounts for approximately 70 percent of a
typical residential customer's annual bill. The company's cost of gas is passed
on to the customer without markup.
On January 1, 2000, Nicor Gas' performance-based rate (PBR) plan for natural gas
costs went into effect. Under the PBR, Nicor Gas' total gas supply costs will be
compared to a benchmark tied to a market index. Savings and losses relative to
the benchmark will be shared equally with customers. At the end of two years,
the plan will be subject to ICC review. Additional information on the plan is
presented in Factors Affecting Business Performance beginning on page 13.
Customer Select, a voluntary pilot program that offers customers a choice of
natural gas suppliers, is in its third year. Additional information on the
program is presented in Factors Affecting Business Performance beginning on page
13.
Properties
The gas distribution, transmission and storage system includes approximately
30,000 miles of steel, plastic and cast iron main; approximately 27,000 miles of
steel, plastic/aluminum composite, plastic and copper service pipe connecting
the mains to customers' premises; and seven underground storage fields.
Nicor Inc. Page 4
Item 1. Business (concluded)
Other properties include buildings, land, motor vehicles, meters, regulators,
compressors, construction equipment, tools, communication and computer
equipment, software and office equipment.
The principal real properties are held under easements, permits, licenses or in
fee. Land in fee is owned for essentially all administrative offices and for
certain transmission mains and underground storage fields. Substantially all
properties are subject to the lien of the indenture securing the company's first
mortgage bonds.
SHIPPING
Tropical Shipping is one of the largest containerized cargo carriers in the
Caribbean, a region characterized by modest market growth and intense
competition. Tropical Shipping's financial results can be significantly affected
by general economic conditions in the United States and the Caribbean. The
company's shipments consist primarily of southbound cargo such as building
materials, food and other necessities for developers, manufacturers and
residents in the Caribbean, as well as tourist-related shipments intended for
use in hotels and resorts, and on cruise ships. The balance of Tropical
Shipping's cargo consists of northbound shipments of agricultural products and
apparel, and interisland shipments. The company also provides additional related
services including inland transportation and cargo insurance.
Tropical Shipping's owned fleet consists of 13 vessels with a container capacity
totaling approximately 3,100 TEUs. In 1999, Tropical Shipping ordered the
construction of two vessels to replace chartered capacity and to support growth.
In addition, the company owns containers, container-handling equipment, chassis
and other equipment. Real property, a significant portion of which is leased,
includes office buildings, cargo handling facilities and warehouses located in
the United States, as well as in some of the ports served.
Additional information about Tropical Shipping's business is presented in
Factors Affecting Business Performance beginning on page 13.
OTHER NICOR VENTURES
Nicor is continually looking for opportunities to provide products and services
that will meet customers' energy needs. Additional information pertaining to
these ventures is presented in Factors Affecting Business Performance beginning
on page 13.
ENVIRONMENTAL MATTERS
For information on environmental matters, see Contingencies on page 34.
Nicor Inc. Page 5
Item 2. Properties
Information with respect to this item concerning Nicor and its major
subsidiaries' properties is included in Item 1, Business, beginning on page 1,
and is incorporated herein by reference. These properties are suitable, adequate
and utilized in the company's operations.
Item 3. Legal Proceedings
On December 20, 1995, Nicor Gas filed suit in the Circuit Court of Cook County
against certain insurance carriers seeking recovery of environmental cleanup
costs of certain former manufactured gas plant sites. Nicor Gas has reached a
settlement with one of the insurance carriers. On February 10, 2000, the Circuit
Court of Cook County dismissed the company's case on summary judgement motions
by certain defendants. The company plans to appeal. For further information, see
Contingencies on page 34, which is incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Nicor Inc. Page 6
Executive Officers of the Registrant
Executive officers of the company are elected annually by the Board of
Directors.
Name Age Current Position and Background
- -------------------- ----- -----------------------------------------------
Thomas L. Fisher 55 Chairman, Nicor and Nicor Gas (since 1996);
Chief Executive Officer, Nicor (since 1995)
and Nicor Gas (since 1988); and President,
Nicor (since 1994) and Nicor Gas (since
1988).
Philip S. Cali 52 Executive Vice President Operations, Nicor
and Nicor Gas (since 1999); Senior Vice
President Operations, Nicor Gas (1995-1999);
and Vice President Engineering, Codes and
Environmental Affairs, Nicor Gas (1994-1995).
Kathleen L. Halloran 47 Executive Vice President Finance and
Administration, Nicor and Nicor Gas (since
1999); Senior Vice President Administration,
Nicor Gas (1998-1999); Senior Vice President
Information Services, Rates and Human
Resources, Nicor Gas (1996-1998); Vice
President Information Services, Rates and
Human Resources, Nicor Gas (1995-1996); and
Vice President Information Services and
Rates, Nicor Gas (1994-1995).
David L. Cyranoski 56 Senior Vice President, Nicor and Nicor Gas
(since 1995); Secretary, Nicor (since 1992)
and Nicor Gas (since 1993); Treasurer, Nicor
and Nicor Gas (since 1998); Controller, Nicor
(since 1999, 1992-1998) and Nicor Gas (since
1999, 1984-1998); and Vice President, Nicor
(1992-1995) and Nicor Gas (1984-1995).
George M. Behrens 44 Vice President Administration, Nicor Gas
(since 1999); Vice President and Controller,
Nicor and Nicor Gas (1998-1999); Vice
President Accounting, Nicor Gas (1996-1998);
and Vice President and Treasurer, Tropical
Shipping (1991-1996).
Claudia J. Colalillo 50 Vice President Human Resources and Corporate
Communications, Nicor and Nicor Gas (since
1998); Senior Vice President Organizational
Development, May & Speh, Inc. (provider of
technology-based information management
services) (1995-1998); and Vice President
Human Resources, May & Speh, Inc. (1992-1995).
Nicor Inc. Page 7
Executive Officers of the Registrant (concluded)
Name Age Current Position and Background
- --------------------- ----- ----------------------------------------------
Daniel R. Dodge 46 Vice President Business Development, Nicor
and Nicor Gas (since 1998); and Vice
President Business and Asset Development,
MidCon Corp. (diversified energy company with
gas pipeline and power marketing operations)
(1994-1998).
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Nicor common stock is listed on the New York and Chicago Stock Exchanges. At
February 29, 2000, there were approximately 31,500 common stockholders of
record. On March 16, 2000, the Board of Directors declared a quarterly dividend
on its common stock of 41.5 cents per share, payable May 1, 2000, to
stockholders of record March 31, 2000. This payment represents an annual rate of
$1.66 per share.
Stock price Dividends
-------------------------------
Quarter High Low declared
- ---------------- --------------- --------------- ----------
1999
First $ 42-15/16 $ 34-11/16 $ .39
Second 39-1/2 34-1/8 .39
Third 40 35-11/16 .39
Fourth 39-3/8 31-3/16 .39
1998
First $ 43-3/8 $ 38-7/8 $ .37
Second 43-3/16 37-1/2 .37
Third 41-15/16 37-1/8 .37
Fourth 44-7/16 40-3/8 .37
Nicor Inc. Page 8
- -------------------------------------------------------------------------------
Item 6. Selected Financial Data
Year ended December 31
---------------------------------------------------
(millions, except per
share data) 1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
Operating revenues $ 1,615.2 $ 1,465.1 $ 1,992.6 $ 1,850.7 $ 1,480.1
Operating income $ 212.0 $ 208.6 $ 229.8 $ 233.1 $ 189.8
Net income
Continuing operations $ 124.4 $ 116.4 $ 127.9 $ 121.2 $ 99.8
Discontinued operations - - - 15.0 -
--------- --------- --------- --------- ---------
$ 124.4 $ 116.4 $ 127.9 $ 136.2 $ 99.8
========= ========= ========= ========= =========
Basic earnings per common
share
Continuing operations $ 2.63 $ 2.43 $ 2.62 $ 2.42 $ 1.96
Discontinued operations - - - .30 -
--------- --------- --------- --------- ---------
$ 2.63 $ 2.43 $ 2.62 $ 2.72 $ 1.96
========= ========= ========= ========= =========
Diluted earnings per common
share
Continuing operations $ 2.62 $ 2.42 $ 2.61 $ 2.41 $ 1.96
Discontinued operations - - - .30 -
--------- --------- --------- --------- ---------
$ 2.62 $ 2.42 $ 2.61 $ 2.71 $ 1.96
========= ========= ========= ========= =========
Dividends declared per
common share $ 1.56 $ 1.48 $ 1.40 $ 1.32 $ 1.28
Property, plant and
equipment
Gross $ 3,483.1 $ 3,379.8 $ 3,267.7 $ 3,192.7 $ 3,110.4
Net 1,735.2 1,731.8 1,735.8 1,771.9 1,779.3
Total assets $ 2,451.8 $ 2,364.6 $ 2,394.6 $ 2,438.6 $ 2,259.1
Capitalization
Long-term debt, net of
current maturities $ 436.1 $ 557.3 $ 550.2 $ 518.0 $ 468.7
Redeemable preferred stock 6.3 6.3 6.4 7.5 8.9
Common equity 787.7 759.0 744.0 729.6 687.6
--------- --------- --------- --------- ---------
$ 1,230.1 $ 1,322.6 $ 1,300.6 $ 1,255.1 $ 1,165.2
========= ========= ========= ========= =========
Nicor Inc. Page 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The purpose of this financial review is to explain changes in Nicor's operating
results and financial condition from 1997 to 1999, and to discuss business
trends and uncertainties that might affect Nicor. Certain terms used herein are
defined in the glossary on page i.
SUMMARY
Nicor's two major business segments are gas distribution and shipping, with gas
distribution representing approximately 90 percent of consolidated operating
income and assets.
Nicor's 1999 diluted earnings per common share increased to $2.62 from $2.42 a
year ago, due primarily to a positive contribution from nonoperating items and
improved gas distribution operating results. Net income increased $8 million to
$124.4 million. Nicor's 1998 diluted earnings per common share were $2.42, down
from $2.61 in 1997, as lower operating results in the gas distribution segment
were partially offset by improved operating results in the shipping segment. Net
income of $116.4 million decreased $11.5 million from 1997. Per share results in
both years also benefited from the company's common stock repurchase programs.
Operating income. Operating income (loss) by major business segment is presented
below:
(millions) 1999 1998 1997
------------ ------------ ------------
Gas distribution $ 191.7 $ 185.5 $ 210.1
Shipping 22.5 27.6 25.3
Corporate and other (2.2) (4.5) (5.6)
------------ ------------ ------------
$ 212.0 $ 208.6 $ 229.8
============ ============ ============
The following summarizes operating income comparisons for major business
segments:
o Gas distribution operating income increased $6.2 million in 1999 due to
higher deliveries related primarily to 9 percent colder weather. The
positive impact of higher deliveries was partially offset by increased
operating and maintenance expenses and depreciation. In 1998, gas
distribution operating income decreased $24.6 million due to the impact of
weather that was 23 percent warmer than the prior year, partially offset by
a 4 percent reduction in operating and maintenance expenses.
o Shipping operating income decreased $5.1 million in 1999, reflecting
increased pressures on pricing, higher operating expenses and a decline in
charter revenues. These factors more than offset the additional revenues
generated from record volumes shipped. In 1998, shipping operating income
rose $2.3 million to a record $27.6 million due to a 4 percent increase in
volumes shipped and higher average rates.
o Corporate and other operating income was up $2.3 million in 1999 due to
better results at Nicor's unregulated energy ventures.
Nonoperating items. In 1999, other income increased $7.7 million to $23.2
million as several positive factors, including interest benefits on tax-related
matters and a gain on the sale of Nicor's interest in an electronic energy
trading system, more than offset a decline in real estate sales and the
write-off of
Nicor Inc. Page 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
software development costs. Nicor's retail energy services joint venture also
contributed to the improvement.
Interest expense decreased 3 percent in 1999 to $45.1 million and 5 percent in
1998 to $46.6 million due primarily to refinancing at lower interest rates and
reduced average borrowing levels.
RESULTS OF OPERATIONS
Details of various financial and operating information by segment can be found
in the tables throughout this review. The following discussion summarizes the
major items impacting Nicor's results of operations.
Operating revenues. Operating revenues by major business segment are presented
below:
(millions) 1999 1998 1997
------------ ------------ ------------
Gas distribution $ 1,326.2 $ 1,229.0 $ 1,730.5
Shipping 229.9 224.5 213.1
Corporate and other 59.1 11.6 49.0
------------ ------------ ------------
$ 1,615.2 $ 1,465.1 $ 1,992.6
============ ============ ============
Nicor's operating revenues increased $150.1 million in 1999. Gas distribution
revenues increased $97.2 million due to higher deliveries of natural gas, and
higher natural gas prices which are passed directly through to customers.
Partially offsetting this increase was the impact of customers switching from
sales to transportation service. Shipping revenues rose by $5.4 million as the
impact of record volumes shipped more than offset a decline in charter revenue
and lower average prices. Revenues generated from Nicor's wholesale gas
marketing business accounted for the increase in the corporate and other
category.
In 1998, Nicor's operating revenues decreased to $1,465.1 million from $1,992.6
million as gas distribution revenues were down significantly from 1997 due
principally to lower natural gas prices and lower deliveries of natural gas.
Shipping revenues rose 5 percent in 1998 due to additional volumes shipped and
higher average rates. Corporate and other revenues decreased in 1998 as the
company's retail energy services business became part of a 50-percent owned
joint venture that is accounted for under the equity method.
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:
1999 1998 1997
------------ ------------ ------------
Margin (millions) $ 487.2 $ 469.4 $ 496.0
Margin per Mcf delivered .96 .96 .91
Weather was the largest factor impacting the fluctuation in margin during 1999
and 1998, and margin per Mcf delivered in 1998. Margin per Mcf delivered was
unchanged in 1999 as the impact of a reduction in lower-margin electric
generation deliveries offset the effect of weather.
Nicor Inc. Page 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Operating and maintenance. In 1999, operating and maintenance expenses increased
$18 million to $356 million due to higher volume-related costs in the shipping
segment and higher costs in the gas distribution segment caused, in part, by
higher information technology spending levels. The $2.3 million decrease in 1998
to $338 million was despite 5 percent higher costs in the shipping segment
related to an increase in volumes shipped. Lower retirement-benefits costs in
the gas distribution segment, resulting principally from favorable pension fund
investment returns, contributed to the overall decrease in operating and
maintenance expenses in 1998.
Depreciation. Depreciation increased 3 percent in 1999 to $140.3 million and 4
percent in 1998 to $136.5 million due primarily to gas plant additions.
FINANCIAL CONDITION AND LIQUIDITY
The company believes it has access to adequate resources to meet its needs for
capital expenditures, debt and stock redemptions, dividend payments and working
capital. These resources include net cash flow from operating activities, access
to capital markets, lines of credit and short-term investments.
Operating cash flows. Net cash flow provided from operating activities was
$205.7 million, $368.4 million and $211.1 million in 1999, 1998 and 1997,
respectively. Year-to-year changes in operating cash flow result largely from
fluctuations in working capital items occurring mainly in the gas distribution
segment because of factors including weather, the price of gas, the timing of
collections from customers and gas purchasing practices. The company generally
relies on short-term financing to meet temporary increases in working capital
needs.
Capital expenditures. Capital expenditures by major business segment are
presented below:
Estimated
(millions) 2000 1999 1998 1997
------------ ------------ ------------ ------------
Gas distribution $ 135 $ 127.4 $ 112.6 $ 101.8
Shipping 45 26.0 23.3 10.9
Corporate and other - .6 .3 .3
------------ ------------ ------------ ------------
$ 180 $ 154.0 $ 136.2 $ 113.0
============ ============ ============ ============
The following summarizes capital expenditure comparisons for major business
segments:
o Gas distribution capital expenditures rose in 1999 due primarily to
enhancements to the company's operating system. In 1998, the increase was due
largely to expenditures for information technology.
o Shipping segment capital expenditures increased in 1999 due, in part, to costs
for the replacement of a warehouse which is expected to be completed in 2000. In
1998, the increase in expenditures related primarily to the replacement of
leased freight equipment with owned equipment. In both periods, expenditures for
information technology also contributed to the increase. The higher expenditures
expected in 2000 are related to the warehouse construction and progress payments
for the construction of two vessels. These vessels are expected to be delivered
in late 2001 and early 2002 at a total cost of about $40 million.
Nicor Inc. Page 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Other investments. Nicor invested $12 million, $15 million and $8 million in
1999, 1998 and 1997, respectively, in a cargo container leasing business. The
company also invested $2 million, $8 million and $7 million in 1999, 1998 and
1997, respectively, in affordable housing tax credit funds.
Financing activities. Nicor has earned the highest long-term debt ratings given
in the gas distribution industry and maintains relatively low debt percentages
and high interest coverage ratios.
1999 1998 1997
------------ ----------- ----------
Long-term debt, net of current maturities,
as a percent of capitalization 35.5% 42.1% 42.3%
Times interest earned, before income taxes 5.2 4.8 5.0
Long-term debt. Nicor Gas has $250 million of First Mortgage Bonds remaining
available for issuance under a December 1998 shelf registration filing. Net
proceeds from securities issued are typically used for the refinancing of
certain outstanding First Mortgage Bonds, for construction programs to the
extent not provided by internally generated funds and for general corporate
purposes.
In January 2000, Nicor Gas issued $50 million of adjustable rate unsecured notes
due in 2001 at an initial rate of 6.11% to fund the redemption of $50 million of
unsecured notes at 5.065% due in 2000.
During 1999, Nicor Gas issued $50 million of First Mortgage Bonds at 5.37% due
in 2009 and $50 million of unsecured notes at 5.065% due in 2000. Redemptions of
First Mortgage Bonds during 1999 were as follows: $50 million at 5.875% due in
2000, $50 million at 7.375% due in 2023 and $50 million at 8.25% due in 2024.
In 1998, Nicor Gas issued First Mortgage Bonds as follows: $50 million at 5.75%
due in 2003 and $50 million at 6.58% due in 2028. Redemptions of First Mortgage
Bonds during 1998 were as follows: $25 million at 5.875% due in 1998, $25
million at 6.25% due in 1999 and $75 million at 8.25% due in 2022.
During 1997, Nicor Gas issued First Mortgage Bonds as follows: $50 million at
6.75% due in 2002 and $50 million at 7.375% due in 2027. Redemptions of First
Mortgage Bonds during 1997 were as follows: $25 million at 5.5% due in 1997 and
$50 million at 9% due in 2019.
Short-term debt. Nicor and Nicor Gas maintain short-term credit agreements with
major domestic and foreign banks. At December 31, 1999, these agreements, which
serve as backup for the issuance of commercial paper, totaled $342.5 million.
The company had $342.5 million and $234.5 million of commercial paper
outstanding at year-end 1999 and 1998, respectively.
Common stock. 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 these programs are made
as market conditions permit through open market transactions and to the extent
cash flow from operations is available after other investment opportunities. The
company purchased and retired .6 million, .7 million and 1.3 million shares in
1999, 1998 and 1997, respectively, at a cost of $23 million, $28 million and $45
million. At December 31, 1999, approximately $32 million remained authorized for
the repurchase of common stock under the existing program. Over the past decade,
the company has repurchased over 20 percent of its outstanding stock.
Nicor Inc. Page 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Nicor increased its quarterly common stock dividend rate during 1999 by 5.4
percent, which was the twelfth consecutive year of an increase. The company paid
dividends of $72.9 million, $70 million and $67.5 million in 1999, 1998 and
1997, respectively.
Other. Restrictions imposed by regulatory agencies and loan agreements limiting
the amount of subsidiary net assets that can be transferred to Nicor are not
expected to have a material impact on the company's ability to meet its cash
obligations.
FACTORS AFFECTING BUSINESS PERFORMANCE
The following factors can impact year-to-year comparisons and may affect the
future performance of Nicor's businesses.
Gas distribution. Nicor Gas, a regulated natural gas distribution utility,
serves more than 1.9 million customers in a service territory that encompasses
most of the northern third of Illinois, excluding the city of Chicago. The
region's economy is diverse and has grown steadily over the years, providing
Nicor Gas with a well-balanced mix of residential, commercial and industrial
customers. In 1999, residential, commercial and industrial customers accounted
for about 41 percent, 24 percent and 35 percent of natural gas deliveries,
respectively.
Since about one-half of gas deliveries are used for space heating, fluctuations
in weather can have a significant impact on year-to-year comparisons of
operating income and cash flow. To provide protection from the financial impact
of unusually warm weather, Nicor Gas purchased a weather insurance policy which
will protect 2000 earnings and cash flow if weather for the year is more than
6.5 percent warmer than normal.
In addition to the impact of weather, significant changes in gas prices or
economic conditions can impact gas usage. However, Nicor Gas' large residential
customer base provides relative stability during weak economic periods. Also,
the industrial and commercial customer base is well diversified, lessening the
impact of industry-specific economic swings.
Nicor Gas competes with other energy suppliers based on such factors as price,
service and reliability. The company is well positioned to deal with the
possibility of fuel switching by customers because it has rates and services
designed to compete against alternative fuels and because of its competitively
priced supply of gas. In addition, the company has a rate which allows
negotiation with potential bypass customers, and no customer has bypassed since
the rate became effective in 1987. Nicor Gas also offers commercial and
industrial customers flexibility and alternatives in rates and service,
increasing its ability to compete in these markets.
Direct connection to six interstate pipelines and extensive underground storage
capacity allow the company to maintain rates that are among the lowest in the
nation, while also providing transportation customers with direct access to gas
supplies and storage services. In addition, in an effort to ensure supply
reliability, the company purchases gas from several different producing regions
under varied contract terms.
Nicor Inc. Page 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Nicor Gas' growth in deliveries has traditionally come from a combination of
customer additions and increased usage among existing commercial and industrial
customers. Deliveries to power generation facilities have also contributed to
growth. While the company anticipates continued growth in deliveries
attributable to these factors, a partial offset is expected by customers'
installation of more energy-efficient equipment.
On January 1, 2000, Nicor Gas' performance-based rate (PBR) plan for natural gas
costs went into effect. Under the PBR, Nicor Gas' total gas supply costs will be
compared to a benchmark tied to a market index. Savings and losses relative to
the benchmark will be shared equally with customers. Transportation customers
who are responsible for their own gas supplies are not affected by the PBR plan.
Assuming a benchmark of $1 billion, each one-percent deviation from the
benchmark would affect net income by about $3 million. At the end of two years,
the plan will be subject to ICC review.
In another regulatory development, Nicor Gas received approval from the ICC in
1999 to expand Customer Select(R), a voluntary pilot program that offers
customers a choice of natural gas suppliers. Customer Select is in its third
year and now all commercial and industrial customers, as well as more than
250,000 residential customers in 16 communities, are eligible to participate. In
the program's first two years, about 30 percent of eligible business customers
and 20 percent of eligible residential customers signed up. The choice of
another natural gas commodity supplier has no impact on Nicor Gas' operating
income, and in all cases, Nicor Gas continues to deliver the natural gas, read
meters, maintain its distribution system, ensure safety and respond to service
and emergency calls. Nicor Gas supports full customer choice and is presently
evaluating providing all customers the ability to choose their natural gas
supplier.
In order to generate additional contributions to earnings growth, Nicor Gas has
been pursuing several nontraditional activities. The Chicago area has become a
major market hub for natural gas, and demand for storage and
transmission-related services by marketers, other gas distribution companies and
for electric power generation is expected to increase significantly. In
addition, the company continues to assess its nonstrategic real estate holdings,
and is evaluating the potential to maximize the value from these holdings
through additional property sales or development over the next several years.
Nicor Gas is regulated by the ICC, which establishes the rules and regulations
governing utility rates and services in Illinois. Rates are generally designed
to allow the company to recover its costs and provide an opportunity to earn a
fair return for its investors. Further changes in the regulatory environment
could affect the longer-term performance of Nicor Gas.
Nicor Inc. Page 15
- -------------------------------------------------------------------------------
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Gas Distribution Statistics
1999 1998 1997
--------- --------- ---------
Operating revenues (millions)
Sales
Residential $ 899.8 $ 813.6 $ 1,126.0
Commercial 172.3 189.4 314.8
Industrial 24.5 27.5 56.8
--------- --------- ---------
1,096.6 1,030.5 1,497.6
--------- --------- ---------
Transportation
Residential 1.7 - -
Commercial 70.3 57.2 55.3
Industrial 43.7 39.2 48.3
Other 4.2 1.6 .1
--------- --------- ---------
119.9 98.0 103.7
--------- --------- ---------
Revenue taxes and other 109.7 100.5 129.2
--------- --------- ---------
$ 1,326.2 $ 1,229.0 $ 1,730.5
========= ========= =========
Deliveries (Bcf)
Sales
Residential 209.0 192.4 233.2
Commercial 39.8 44.3 65.2
Industrial 6.1 7.1 12.9
--------- --------- ---------
254.9 243.8 311.3
--------- --------- ---------
Transportation
Residential .9 - -
Commercial 82.1 67.5 66.0
Industrial 170.2 175.7 168.0
--------- --------- ---------
253.2 243.2 234.0
--------- --------- ---------
508.1 487.0 545.3
========= ========= =========
Year-end customers (thousands)
Sales
Residential 1,753.0 1,737.6 1,710.0
Commercial 108.9 127.9 143.0
Industrial 7.4 9.1 11.1
--------- --------- ---------
1,869.3 1,874.6 1,864.1
--------- --------- ---------
Transportation
Residential 16.2 - -
Commercial 57.2 35.9 18.7
Industrial 6.6 5.0 3.0
--------- --------- ---------
80.0 40.9 21.7
--------- --------- ---------
1,949.3 1,915.5 1,885.8
========= ========= =========
Other statistics
Degree days (normal 6,116) 5,272 4,834 6,254
Colder (warmer) than normal (14)% (21)% 2%
Average gas cost per Mcf sold $ 2.93 $ 2.76 $ 3.54
Nicor Inc. Page 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Shipping. Tropical Shipping is one of the largest containerized cargo carriers
in the Caribbean, a region characterized by modest market growth and intense
competition. Tropical Shipping has a reputation for providing quality, on-time
delivery service--a reputation that has helped the company establish a dominant
position in many of the markets it serves, which include the Bahamas, Cayman
Islands, Dominican Republic, Virgin Islands and Eastern Caribbean. The company
is the top carrier of U.S. exports from the East Coast to the Caribbean.
Tropical Shipping's financial results can be significantly affected by general
economic conditions in the United States and the Caribbean. The company's
shipments consist primarily of southbound cargo such as building materials, food
and other necessities for developers, manufacturers and residents in the
Caribbean, as well as tourist-related shipments intended for use in hotels and
resorts, and on cruise ships. The balance of Tropical Shipping's cargo consists
of northbound shipments of agricultural products and apparel, and interisland
shipments.
The Caribbean marketplace is very competitive with global carriers recently
establishing a presence in several markets that Tropical Shipping serves.
Additionally, the Ocean Shipping Reform Act, which allows confidential contracts
between shipping companies and their customers, created the potential for
further price competition when it went into effect during 1999. Tropical
Shipping is continuing to meet these challenges by focusing on superior customer
service, controlling costs, and maximizing the efficiency and value of its
vessel fleet and shore assets. In 1999, Tropical Shipping ordered the
construction of two vessels to replace chartered capacity and to support growth.
The vessels are expected to be delivered in late 2001 and early 2002. The
company is also replacing its Miami warehouse with a larger and more flexible
facility. The company's strategy for growth includes pursuing opportunities to
increase volumes in markets it already serves and to expand geographically
within the region. Tropical Shipping's expansion efforts could also include
strategic acquisitions of other shipping companies.
Shipping Statistics
1999 1998 1997
------------ ------------ ------------
TEUs shipped (thousands)
Southbound 126.5 119.4 110.0
Northbound 17.6 16.1 14.5
Interisland 8.3 8.7 14.0
------------ ------------ ------------
152.4 144.2 138.5
============ ============ ============
Other statistics
Revenue per TEU $ 1,508 $ 1,526 $ 1,488
Ports served 23 23 26
Vessels owned 13 13 14
Nicor Inc. Page 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Other Nicor ventures. Nicor is involved in several unregulated ventures that
leverage the company's reputation, location, assets and expertise into other
income-producing opportunities. These ventures include retail energy services,
natural gas supply services, pipeline projects and other energy-related
opportunities. An update on Nicor's unregulated ventures follows:
Retail energy services. Nicor Energy, a 50-percent owned joint venture, was
formed in 1997 to offer natural gas, electricity and related retail services to
customers throughout the Midwest as markets are deregulated. The company is a
leading retail natural gas marketer in the Midwest, supplying natural gas to
more than 50,000 customers in Illinois and Indiana. The company also began
selling electricity to Illinois customers in 1999 as part of a statewide program
that allows business customers to switch electricity suppliers.
Gas supply services. Nicor's system flexibility and location on the interstate
pipeline grid have allowed the company to develop several business ventures that
provide services to interstate pipelines, other gas distribution companies,
electric power generators, and gas marketers and brokers. Through Nicor
Enerchange, the company is building a niche wholesale natural gas marketing
business and providing hub management services. Nicor has also utilized its
supply assets as part of the nontraditional activities within its regulated gas
distribution business.
Pipeline projects. In January 2000, Nicor signed an agreement to become an equal
partner in the planned Horizon Pipeline with Natural Gas Pipeline Company of
America, a subsidiary of Kinder Morgan, Inc. The proposed $75 million natural
gas pipeline will originate in Joliet, Illinois and extend 74 miles to McHenry
County in northern Illinois. Subject to FERC approval, construction of the
pipeline will begin in spring of 2001, with completion anticipated in 2002. The
strategic location of the pipeline will enable Nicor to accommodate growth in
its traditional gas distribution business, and it will also put the company in
excellent position to supply natural gas for the new electric power generation
projects being proposed in northern Illinois.
Power generation opportunities. Nicor plans to participate in the market for
electric power generation needs. An important requirement of any large power
generation project is managing daily gas supply needs and Nicor is well
positioned to provide the necessary storage and supply-related services in
northern Illinois. In the mid-size market, Nicor is well established as a
contractor for power generation projects.
Other ventures. In addition, Nicor has a number of other energy-related
businesses engaged in activities such as developing the market for natural gas
vehicles, offering residential and commercial HVAC service contracts, and
providing product testing, development and commercialization. Nicor will
continue to explore these and other opportunities to build upon its expertise in
the energy industry.
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.
Commodity price risk. The company has established policies and procedures
governing the management of commodity price risks and the use of derivative
commodity instruments to hedge its exposure to such risks. A risk management
committee exists to oversee compliance with such policies and procedures.
Nicor Inc. Page 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (concluded)
Nicor's regulated utility, Nicor Gas, is generally not exposed to market risk
caused by changes in commodity prices. This is due to current Illinois rate
regulation governing the recovery of all prudently incurred natural gas supply
costs from customers. Although the company has a PBR plan for natural gas costs,
the plan does not expose the company to commodity price risk because actual gas
costs are compared to a market-based benchmark as opposed to a fixed benchmark.
Additional information about the PBR plan is presented on page 14.
Nicor's unregulated energy businesses are subject to natural gas commodity price
risk, arising primarily from fixed price purchase and sale agreements and gas in
storage inventories. Derivative commodity instruments such as futures, options,
forwards and swaps may be used to hedge this risk. Open positions are restricted
by policy to an immaterial amount. To manage the credit risk inherent in the
company's commodity price risk management programs, the company contracts with
creditworthy counterparties and limits its exposure to any one counterparty.
Interest rate risk. The company is also exposed to changes in interest rates,
primarily as a result of its short- and long-term debt. The company manages its
interest rate risk primarily by issuing long-term fixed-rate debt with varying
maturities and refinancing certain debt. For further information about debt
securities, interest rates and fair values, see the Consolidated Statement of
Capitalization on page 24 and Short- and Long-Term Debt and Fair Value of
Financial Instruments on page 27.
New accounting pronouncements. 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. The company plans
to adopt this statement on January 1, 2001 and does not expect it to have a
material impact on its financial condition or results of operations. For further
information, see New Accounting Pronouncements beginning on page 26.
Year 2000 rollover. Nicor's preparation for the rollover to January 1, 2000
proved successful as no interruptions in service to customers or disruptions of
normal business operations were experienced. Since inception of the company's
efforts in 1996, about $6 million has been incurred for hardware and software
modifications and replacements, internal information technology resources
devoted solely to the Year 2000 effort and outside consultants. Although the
company does not anticipate any issues relating to the year 2000 to arise, the
company maintains contingency plans to address scenarios that could still
emerge.
Other contingencies. The company is involved in legal or administrative
proceedings before various courts and agencies with respect to rates, taxes and
other matters. In addition, the company is conducting environmental
investigations and remedial activities at former manufactured gas plant sites.
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. For further information, see
Contingencies on page 34.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
For disclosures about market risk, see Market Risk beginning on page 17, which
is incorporated herein by reference.
Nicor Inc. Page 19
Item 8. Financial Statements and Supplementary Data
Page
Report of Independent Public Accountants.................................. 20
Financial Statements:
Consolidated Statement of Income...................................... 21
Consolidated Statement of Cash Flows.................................. 22
Consolidated Balance Sheet............................................ 23
Consolidated Statement of Capitalization.............................. 24
Consolidated Statement of Common Equity............................... 25
Notes to the Consolidated Financial Statements........................ 26
Nicor Inc. Page 20
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Nicor Inc.:
We have audited the accompanying consolidated balance sheet and statement of
capitalization of Nicor Inc. (an Illinois corporation) and subsidiary companies
as of December 31, 1999 and 1998, and the related consolidated statements of
income, common equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements and the schedule referred to
below are the responsibility of the company's management. Our responsibility is
to express an opinion on these financial statements and the schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nicor Inc. and subsidiary
companies as of December 31, 1999 and 1998, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1999, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedule on page
37 is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Chicago, Illinois
January 27, 2000
Nicor Inc. Page 21
- -------------------------------------------------------------------------------
Consolidated Statement of Income
(millions, except per share data)
Year ended December 31
--------------------------------
1999 1998 1997
--------- --------- ---------
Operating revenues $ 1,615.2 $ 1,465.1 $ 1,992.6
--------- --------- ---------
Operating expenses
Cost of gas 802.3 682.7 1,164.2
Operating and maintenance 356.0 338.0 340.3
Depreciation 140.3 136.5 131.2
Taxes, other than income taxes 104.6 99.3 127.1
--------- --------- ---------
1,403.2 1,256.5 1,762.8
--------- --------- ---------
Operating income 212.0 208.6 229.8
Other income (expense), net 23.2 15.5 16.2
--------- --------- ---------
Income before interest on debt and income taxes 235.2 224.1 246.0
Interest on debt, net of amounts capitalized 45.1 46.6 49.1
--------- --------- ---------
Income before income taxes 190.1 177.5 196.9
Income taxes 65.7 61.1 69.0
--------- --------- ---------
Net income 124.4 116.4 127.9
Dividends on preferred stock .3 .3 .4
--------- --------- ---------
Earnings applicable to common stock $ 124.1 $ 116.1 $ 127.5
========= ========= =========
Average shares of common stock
Basic 47.3 47.9 48.8
Diluted 47.4 48.1 48.9
Earnings per average share of common stock
Basic $ 2.63 $ 2.43 $ 2.62
Diluted 2.62 2.42 2.61
The accompanying notes are an integral part of this statement.
Nicor Inc. Page 22
- -------------------------------------------------------------------------------
Consolidated Statement of Cash Flows
(millions)
Year ended December 31
--------------------------------
1999 1998 1997
--------- --------- ---------
Operating activities
Net income $ 124.4 $ 116.4 $ 127.9
Adjustments to reconcile net income to net
cash flow
provided from operating activities:
Depreciation 140.3 136.5 131.2
Deferred income tax expense (benefit) 14.4 18.6 (14.3)
Changes in assets and liabilities:
Receivables, less allowances (95.8) 90.6 (14.6)
Gas in storage 74.5 22.3 3.8
Deferred/accrued gas costs (45.8) 4.8 76.2
Accounts payable 12.1 28.4 (92.0)
Postretirement benefits (16.5) (19.2) (7.9)
Other (1.9) (30.0) .8
--------- --------- ---------
Net cash flow provided from operating
activities 205.7 368.4 211.1
--------- --------- ---------
Investing activities
Capital expenditures (154.0) (136.2) (113.0)
Short-term investments 26.1 (35.6) (7.5)
Other (7.4) (19.9) (5.7)
--------- --------- ---------
Net cash flow used for investing activities (135.3) (191.7) (126.2)
--------- --------- ---------
Financing activities
Net proceeds from issuing long-term debt 101.5 107.3 106.3
Disbursements to retire long-term debt (156.9) (129.9) (77.6)
Short-term borrowings (repayments), net 109.7 (44.4) (13.1)
Dividends paid (73.2) (70.3) (67.8)
Disbursements to reacquire stock (23.1) (33.4) (49.4)
Other 1.1 1.8 1.4
--------- --------- ---------
Net cash flow used for financing activities (40.9) (168.9) (100.2)
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 29.5 7.8 (15.3)
Cash and cash equivalents, beginning of year 13.0 5.2 20.5
--------- --------- ---------
Cash and cash equivalents, end of year $ 42.5 $ 13.0 $ 5.2
========= ========= =========
Supplemental information
Income taxes paid, net of refunds $ 46.2 $ 42.9 $ 66.6
Interest paid, net of amounts capitalized 45.5 49.1 50.5
The accompanying notes are an integral part of this statement.
Nicor Inc. Page 23
- -------------------------------------------------------------------------------
Consolidated Balance Sheet
(millions)
December 31
------------------------
1999 1998
----------- ----------
Assets
Current assets
Cash and cash equivalents $ 42.5 $ 13.0
Short-term investments, at cost which approximates
market 29.7 55.8
Receivables, less allowances of $7.1 and $6.3,
respectively 359.8 264.0
Gas in storage 31.0 105.5
Deferred gas costs 15.9 -
Other 29.1 26.4
----------- ----------
508.0 464.7
----------- ----------
Property, plant and equipment, at cost
Gas distribution 3,200.3 3,119.7
Shipping 280.8 258.9
Other 2.0 1.2
----------- ----------
3,483.1 3,379.8
Less accumulated depreciation 1,747.9 1,648.0
----------- ----------
1,735.2 1,731.8
----------- ----------
Other assets 208.6 168.1
----------- ----------
$ 2,451.8 $ 2,364.6
=========== ==========
Liabilities and capitalization
Current liabilities
Long-term obligations due within one year $ 74.2 $ 1.2
Short-term borrowings 344.2 234.5
Accounts payable 282.4 270.3
Accrued gas costs - 29.9
Other 44.9 43.0
----------- ----------
745.7 578.9
----------- ----------
Deferred credits and other liabilities
Deferred income taxes 266.6 238.9
Regulatory income tax liability 74.8 78.6
Unamortized investment tax credits 42.7 44.1
Other 91.9 101.5
----------- ----------
476.0 463.1
----------- ----------
Capitalization
Long-term debt 436.1 557.3
Preferred stock 6.3 6.3
Common equity 787.7 759.0
----------- ----------
1,230.1 1,322.6
----------- ----------
$ 2,451.8 $ 2,364.6
=========== ==========
The accompanying notes are an integral part of this statement.
Nicor Inc. Page 24
- -------------------------------------------------------------------------------
Consolidated Statement of Capitalization
(millions, except share data)
December 31
-------------------------------------
1999 1998
------------------ -----------------
First Mortgage Bonds
Maturity Interest rate
-------- ---------
2000 5.875% $ - $ 50.0
2001 6.45 75.0 75.0
2002 6.75 50.0 50.0
2003 5.75 50.0 50.0
2009 5.37 50.0 -
2021 8.875 50.0 50.0
2023 7.375 - 50.0
2024 8.25 - 50.0
2025 7.26 50.0 50.0
2027 7.375 50.0 50.0
2028 6.58 50.0 50.0
--------- --------
425.0 525.0
Less: Unamortized debt discount,
net of premium 3.3 4.2
--------- --------
421.7 34.3 % 520.8 39.4 %
--------- --------
Other long-term debt
Notes payable due 2000, 6.83% 22.5 22.5
Notes payable due 2000, 5.065% 50.0 -
Other 16.1 15.2
--------- --------
88.6 37.7
Less: Amount due within one year 74.2 1.2
--------- --------
14.4 1.2 36.5 2.7
--------- --------
Preferred and preference stock
Cumulative, $50 par value, 1,600,000
preferred shares authorized; and
cumulative, without par value,
20,000,000 preference shares
authorized
Redeemable preferred stock, 4.48%
and 5.00% series, 125,223
shares outstanding 6.3 .5 6.3 .5
--------- --------
Common equity
Common stock, $2.50 par value,
160,000,000 shares authorized
(4,822,428 and 4,854,542 shares
reserved for conversion and other
purposes and 46,890,301 and
47,513,714 shares outstanding,
respectively) 117.2 118.8
Retained earnings 670.5 640.2
--------- --------
787.7 64.0 759.0 57.4
--------- ------- ---------- ------
$1,230.1 100.0 % $ 1,322.6 100.0%
========= ======= ========== ======
The accompanying notes are an integral part of this statement.
Nicor Inc. Page 25
- -------------------------------------------------------------------------------
Consolidated Statement of Common Equity
(millions, except per share data)
Year ended December 31
--------------------------------
1999 1998 1997
--------- --------- ---------
Common stock
Balance at beginning of year $ 118.8 $ 120.5 $ 123.7
Issued and converted stock .1 .3 .2
Reacquired and cancelled stock (1.7) (2.0) (3.4)
--------- --------- ---------
Balance at end of year 117.2 118.8 120.5
--------- --------- ---------
Paid-in capital
Balance at beginning of year - - 23.8
Issued and converted stock 1.2 3.0 2.9
Reacquired and cancelled stock (1.2) (3.0) (26.7)
--------- --------- ---------
Balance at end of year - - -
--------- --------- ---------
Retained earnings
Balance at beginning of year 640.2 623.5 582.1
Net income 124.4 116.4 127.9
Dividends on common stock ($1.56, $1.48
and $1.40 per share, respectively) (73.6) (70.6) (68.0)
Dividends on preferred stock (.3) (.3) (.4)
Reacquired and cancelled stock (20.2) (28.8) (18.1)
--------- --------- ---------
Balance at end of year 670.5 640.2 623.5
--------- --------- ---------
$ 787.7 $ 759.0 $ 744.0
========= ========= =========
The accompanying notes are an integral part of this statement.
Nicor Inc. Page 26
Notes to the Consolidated Financial Statements
ACCOUNTING POLICIES
Consolidation. The consolidated financial statements include the accounts of
Nicor and its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Use of estimates. The preparation of the financial statements requires
management to make estimates that affect reported amounts. Actual results could
differ from those estimates.
Reclassifications. Certain reclassifications have been made to conform the prior
years' financial statements to the current year's presentation.
Regulation. Nicor Gas is regulated by the ICC which establishes the rules and
regulations governing utility rates and services in Illinois. The company
applies accounting standards that recognize the economic effects of rate
regulation and, accordingly, has recorded regulatory assets and liabilities. The
company had net regulatory liabilities at December 31, 1999 and 1998 of about
$40 million and $95 million, respectively.
Operating revenues and gas costs. Gas distribution revenues are recorded when
gas is delivered to customers. The cost of gas purchased, adjusted for inventory
activity, is reflected in volumetric charges to customers through operation of
the Uniform Purchased Gas Adjustment Clause (PGA). Any difference between PGA
revenues and recoverable gas costs is deferred or accrued with a corresponding
decrease or increase to cost of gas. This difference is amortized as it is
collected from or refunded to customers through the PGA.
In the shipping segment, revenues and related delivery costs are recorded at the
time vessels depart from port.
Depreciation. Property, plant and equipment are depreciated over estimated
useful lives on a straight-line basis. The gas distribution composite
depreciation rate is 4.1 percent.
Income taxes. Deferred income taxes are provided for temporary differences
between the tax basis of an asset or liability and its reported amount in the
financial statements. Although the federal investment tax credit has been
eliminated, Nicor Gas continues to amortize prior deferred amounts to income
over the lives of the applicable properties.
Cash and cash equivalents. The company considers investments purchased with a
maturity of three months or less to be cash equivalents.
Receivable credit risk. Nicor's major subsidiaries have diversified customer
bases and prudent credit policies which mitigate risk.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities. In June
1999, the FASB issued Statement No. 137, which deferred the effective date of
FASB Statement No. 133. Statement No. 133 requires that an entity recognize all
derivatives as either assets or liabilities on the balance sheet and measure
those instruments
Nicor Inc. Page 27
Notes to the Consolidated Financial Statements (continued)
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. Statement No. 133, as amended,
requires adoption no later than the first quarter of the company's 2001 fiscal
year and must be adopted as a cumulative effect of a change in accounting
principle. The company plans to adopt this statement on January 1, 2001.
Implementation is not expected to have a material impact on the company's
financial condition or results of operations.
GAS IN STORAGE
The gas distribution segment's inventory is carried at cost on a last-in,
first-out (LIFO) basis. Based on the average cost of gas purchased in December
1999 and 1998, the estimated replacement cost of inventory at December 31, 1999
and 1998, exceeded the LIFO cost by $172.4 million and $159.1 million,
respectively.
Nicor's wholesale gas marketing business carries its inventory at market value.
At December 31, 1999, the market value of the inventory was $8.9 million.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The recorded amount of short-term investments and short-term borrowings
approximates fair value because of the short maturity of the instruments. Based
on quoted market interest rates, the recorded amount of long-term debt
outstanding, including current maturities, also approximates fair value.
SHORT- AND LONG-TERM DEBT
The company maintains short-term credit agreements with major domestic and
foreign banks. These agreements, which serve as backup for the issuance of
commercial paper, totaled $342.5 million at December 31, 1999. Commitment fees
of up to .08 percent per annum were paid on these lines. All credit agreements
have variable interest rate options tied to short-term markets.
The company had $342.5 million and $234.5 million of commercial paper
outstanding with a weighted average interest rate of 5.9 percent and 5.6 percent
at December 31, 1999 and 1998, respectively.
Bank cash balances averaged about $3 million during 1999, which partially
compensated for the cost of maintaining accounts and other banking services.
Such demand balances may be withdrawn at any time.
First mortgage bonds are secured by liens on substantially all gas distribution
property.
Nicor Inc. Page 28
Notes to the Consolidated Financial Statements (continued)
INCOME TAXES
The components of income tax expense are presented below:
(millions) 1999 1998 1997
------------ ------------ ------------
Current
Federal $ 44.3 $ 36.4 $ 71.3
State 8.2 7.9 14.1
------------ ------------ ------------
52.5 44.3 85.4
------------ ------------ ------------
Deferred
Federal 13.9 16.6 (8.4)
State .5 2.0 (5.9)
------------ ------------ ------------
14.4 18.6 (14.3)
------------ ------------ ------------
Amortization of investment
tax credits, net (1.5) (2.1) (2.2)
Foreign taxes .3 .3 .1
------------ ------------ ------------
Income tax expense $ 65.7 $ 61.1 $ 69.0
============ ============ ============
The temporary differences which gave rise to the net deferred tax liability at
December 31, 1999 and 1998, are as follows:
(millions) 1999 1998
----------- -----------
Deferred tax liabilities
Property, plant and equipment $ 222.9 $ 231.7
Investment in foreign subsidiaries 43.8 43.5
Investment in partnerships 24.5 8.5
Other 31.9 15.5
------------ ------------
323.1 299.2
------------ ------------
Deferred tax assets
Unamortized investment tax credits 27.8 29.0
Regulatory income tax liability 18.6 19.7
Other 20.2 23.4
------------ ------------
66.6 72.1
------------ ------------
Net deferred tax liability $ 256.5 $ 227.1
============ ============
The effective combined federal and state income tax rate was 34.6 percent, 34.4
percent and 35.1 percent in 1999, 1998 and 1997, respectively. Differences
between federal income taxes computed using the statutory rate and reported
income tax expense are shown below:
(millions) 1999 1998 1997
------------ ------------ ------------
Federal income taxes using
statutory rate $ 66.5 $ 62.1 $ 68.9
State income taxes, net 6.3 6.7 5.6
Other, net (7.1) (7.7) (5.5)
------------ ------------ ------------
Income tax expense $ 65.7 $ 61.1 $ 69.0
============ ============ ============
Nicor Inc. Page 29
Notes to the Consolidated Financial Statements (continued)
STOCK-BASED COMPENSATION
Nicor has a long-term incentive compensation plan which permits the granting of
stock options, restricted stock and alternate stock rights to key executives and
managerial employees, as well as an employee stock purchase plan. The company
does not recognize compensation expense for these plans. If compensation expense
for these plans had been recognized based on the fair value of awards at the
grant dates, the impact on the company's net income and earnings per share would
not have been material.
Long-term incentive compensation plan. The company may grant options for up to
3.5 million shares and has granted options on 1.7 million shares through
December 31, 1999. The stock option exercise price equals the stock's market
price on the date of grant. Options are vested after one year, generally become
exercisable after three years and expire after ten years.
A summary of stock option activity is presented below:
Weighted
average
Number of exercise
shares price
------------ ------------
Options outstanding at:
December 31, 1996 627,500 $ 26.41
------------
Granted 134,400 32.25
Exercised (63,500) 24.77
Cancelled (25,500) 28.29
------------
December 31, 1997 672,900 27.70
------------
Granted 113,500 40.56
Exercised (158,100) 26.05
Cancelled (4,500) 40.63
------------
December 31, 1998 623,800 30.37
------------
Granted 149,000 38.06
Exercised (3,500) 28.25
Cancelled (7,500) 38.06
------------
December 31, 1999 761,800 31.81
------------
Options exercisable at:
December 31, 1997 212,000 $ 27.71
December 31, 1998 264,500 26.25
December 31, 1999 383,900 26.87
Stock options outstanding at December 31, 1999, had exercise prices ranging from
$19.63 to $40.69 and a weighted average remaining contractual life of seven
years.
The weighted average fair value of options granted in 1999 and 1998 is $3.52 and
$4.52, respectively. The fair value of each option was estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions used for grants in 1999 and 1998, respectively: dividend yield of
4.6 percent and 3.9 percent; volatility of 14.7 percent and 14.5 percent;
risk-free interest rate of 5.2 percent and 5.6 percent; and expected periods
outstanding of three years for both years.
There were no shares of restricted stock or alternate stock rights outstanding
at December 31, 1999.
Nicor Inc. Page 30
Notes to the Consolidated Financial Statements (continued)
Employee stock purchase plan. Under the employee stock purchase plan, the
company may sell up to 1.5 million shares of common stock to its employees and
has sold about 858,000 shares through December 31, 1999. Under the terms of this
plan, eligible employees may purchase shares at 90 percent of the stock's market
price. The company sold about 28,400 shares and 19,900 shares to employees in
1999 and 1998, respectively. The weighted average market value of shares sold in
1999 and 1998 was $36.71 and $42.88, respectively.
POSTRETIREMENT BENEFITS
Nicor Gas maintains noncontributory defined benefit pension plans covering
substantially all employees hired prior to January 1, 1998 and provides health
care and life insurance benefits to eligible retired employees. Certain
employees' postretirement health care benefits have been capped to a defined
annual per capita medical cost. The following table sets forth the components of
the changes in the plans' benefit obligations and assets for the years ended
October 1 and reconciles the October 1 funded status to the prepaid (accrued)
benefit cost recorded in the financial statements at December 31:
Pension benefits Other benefits
-------------------------- -------------------------
(millions) 1999 1998 1999 1998
------------- ------------ ------------ ------------
Change in benefit obligation
Benefit obligation at beginning of
period $ 242.3 $ 223.9 $ 118.3 $ 115.0
Service cost 6.4 6.7 1.3 1.3
Interest cost 15.7 16.0 7.7 8.3
Actuarial (gain) loss (25.8) 18.5 (1.0) .9
Participant contributions - - .6 .7
Benefits paid (23.8) (22.8) (10.8) (7.9)
------------- ------------ ------------ ------------
Benefit obligation at end of period 214.8 242.3 116.1 118.3
------------- ------------ ------------ ------------
Change in plan assets
Fair value of plan assets at
beginning of period 401.7 422.6 16.6 16.6
Actual return on plan assets 67.1 1.5 2.8 -
Employer contributions .3 .4 10.2 7.2
Participant contributions - - .6 .7
Benefits paid (23.8) (22.8) (10.8) (7.9)
------------- ------------ ------------ ------------
Fair value of plan assets at end of
period 445.3 401.7 19.4 16.6
------------- ------------ ------------ ------------
Funded status 230.5 159.4 (96.7) (101.7)
Unrecognized net actuarial (gain)
loss (119.0) (61.7) 3.9 6.4
Unrecognized transition (asset)
obligation (8.6) (12.5) 40.2 43.2
Unrecognized prior service cost 3.0 3.3 - -
Other 4.7 3.2 (1.1) .8
------------- ------------ ------------ ------------
Prepaid (accrued) benefit cost $ 110.6 $ 91.7 $ (53.7) $ (51.3)
============= ============ ============ ============
Assumptions used in the computations included the following:
Pension benefits Other benefits
--------------------------- ---------------------------
1999 1998 1999 1998
------------- ------------- ------------- ------------
Discount rate 7.50% 6.75% 7.50% 6.75%
Expected return on plan assets 9.00 9.00 9.00 9.00
Rate of compensation increase 4.00 4.00 4.00 4.00
Nicor Inc. Page 31
Notes to the Consolidated Financial Statements (continued)
For measurement purposes, the health care cost trend rate for pre-Medicare
benefits was assumed to be 7 percent for 2000, declining to 5 percent by 2004
and remaining at that level thereafter. The health care cost trend rate for
post-Medicare benefits was assumed to be 5 percent.
Net periodic benefit cost (credit) included the following components:
Pension benefits Other benefits
----------------------------- -----------------------------
(millions) 1999 1998 1997 1999 1998 1997
--------- --------- --------- --------- --------- ---------
Service cost $ 6.4 $ 6.7 $ 6.5 $ 1.3 $ 1.3 $ 1.7
Interest cost 15.7 16.0 17.6 7.7 8.3 8.3
Expected return on plan
assets (35.3) (35.1) (31.6) (1.6) (1.4) (1.2)
Recognized net actuarial gain (1.8) (4.7) (1.6) - - -
Amortization of unrecognized
transition (asset) obligation (3.8) (3.8) (3.8) 3.1 3.1 3.3
Amortization of prior service
cost .3 .4 .4 - - -
--------- --------- --------- --------- --------- ---------
Net periodic benefit cost
(credit) $ (18.5) $ (20.5) $ (12.5) $ 10.5 $ 11.3 $ 12.1
========= ========= ========= ========= ========= =========
Assumed health care cost trend rates can have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in the
assumed health care cost trend rates would have the following effects:
One-percent
-------------------------
(millions) Increase Decrease
------------ ------------
Effect on total of service and
interest cost components $ 1.1 $ (.9)
Effect on benefit obligation 12.0 (10.1)
BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
Nicor is a holding company that through its wholly owned subsidiaries, Nicor Gas
and Tropical Shipping, operates in two separately managed reportable segments:
gas distribution and shipping. The gas distribution segment, Nicor's principal
business, serves more than 1.9 million customers in a service territory that
encompasses most of the northern third of Illinois, excluding the city of
Chicago. The shipping segment transports containerized freight between Florida
and the Caribbean. Other Nicor ventures include energy-related businesses that
participate in the following activities: wholesale marketing of natural gas;
natural gas supply services; power generation; product testing, development and
commercialization for the natural gas industry; and providing residential and
commercial HVAC service contracts.
Nicor evaluates segment performance based on operating income. Intercompany
billing among segments is based on direct and indirect costs incurred. Financial
data by business segment is presented on the following page:
Nicor Inc. Page 32
- -------------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (continued)
Other Corporate
Gas Nicor and Consol-
distribution Shipping ventures eliminations idated
- -------------------------------------------------------------------------------
(millions)
Operating revenues
1999 $1,326.2 $ 229.9 $ 61.0 $ (1.9) $ 1,615.2
1998 1,229.0 224.5 11.6 - 1,465.1
1997 1,730.5 213.1 58.7 (9.7) 1,992.6
Operating income (loss)
1999 $ 191.7 $ 22.5 $ 1.3 $ (3.5) $ 212.0
1998 185.5 27.6 (1.9) (2.6) 208.6
1997 210.1 25.3 (1.0) (4.6) 229.8
Interest on debt, net
1999 $ 40.4 $ 1.3 $ .2 $ 3.2 $ 45.1
1998 43.4 1.3 .2 1.7 46.6
1997 45.9 1.9 .2 1.1 49.1
Income taxes
1999 $ 55.9 $ 8.3 $ 2.6 $ (1.1) $ 65.7
1998 55.3 10.2 (.9) (3.5) 61.1
1997 64.7 9.1 (.5) (4.3) 69.0
Property, plant and
equipment, net
1999 $ 1,610.7 $ 123.2 $ 1.3 $ - $ 1,735.2
1998 1,617.8 113.3 .7 - 1,731.8
1997 1,629.9 105.6 .3 - 1,735.8
Capital expenditures
1999 $ 127.4 $ 26.0 $ .6 $ - $ 154.0
1998 112.6 23.3 .3 - 136.2
1997 101.8 10.9 .3 - 113.0
Depreciation
1999 $ 123.9 $ 16.1 $ .3 $ - $ 140.3
1998 120.8 15.4 .3 - 136.5
1997 116.6 14.2 .4 - 131.2
See Gas Distribution Statistics on page 15 for disclosure of sales and
transportation revenues in the gas distribution segment.
Tropical Shipping's vessels are under foreign registry and its containers are
considered instruments of international trade. Although the majority of its
long-lived assets are foreign owned and its revenues are derived from foreign
operations, the functional currency is generally the U.S. dollar.
Nicor Inc. Page 33
Notes to the Consolidated Financial Statements (continued)
DISCONTINUED OPERATIONS
The company maintains a reserve for the remaining costs related to discontinued
contract drilling, oil and gas exploration, inland barging and extractive
operations. The reserve will continue to be evaluated as the remaining medical
benefit, legal, tax and other contingencies are resolved. Due to the long-term
nature of the medical benefit obligation, no adjustment to the reserve is
anticipated in the near future.
COMMON STOCK
Shareholder rights plan. In 1997, the company's Board of Directors adopted a
shareholder rights plan. Under the plan, shareholders of record on September 30,
1997, were assigned one right for each share of Nicor common stock held. The
rights will be exercisable only if a person acquires, or announces a tender
offer that would result in, ownership of 10 percent or more of Nicor's common
stock. If a person acquires beneficial ownership of 10 percent or more of
Nicor's common stock, all holders of rights other than the acquiring person will
be entitled to purchase Nicor common stock at a 50 percent discount from the
market price. Nicor may redeem the rights at $.01 per right at any time before
someone becomes a 10 percent beneficial owner. The rights expire on September
30, 2007.
Changes in common shares. Changes in common shares outstanding are summarized
below:
(millions) 1999 1998 1997
------------ ------------ ------------
Beginning of year 47.5 48.2 49.5
Issued and converted - .1 .1
Reacquired and cancelled (.6) (.8) (1.4)
------------ ------------ ------------
End of year 46.9 47.5 48.2
============ ============ ============
Through common stock repurchase programs, Nicor has purchased and retired .6
million, .7 million and 1.3 million shares in 1999, 1998 and 1997, respectively.
REGULATORY MATTERS
On January 1, 2000, Nicor Gas' performance-based rate (PBR) plan for natural gas
costs went into effect. Under the PBR, Nicor Gas' total gas supply costs will be
compared to a benchmark tied to a market index. Savings and losses relative to
the benchmark will be shared equally with customers. At the end of two years,
the plan will be subject to ICC review.
COMMITMENTS
The company has committed about $40 million for the construction of two vessels.
Payments are scheduled as construction progresses over the next three years.
Nicor Inc. Page 34
Notes to the Consolidated Financial Statements (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 more than 40 properties for
which it may, in part, be responsible. The majority of these properties are not
presently owned by the company. Information regarding preliminary site reviews
has been presented to the Illinois Environmental Protection Agency, which
oversees the company's investigations and remedial actions. More detailed
investigations and remedial activities have either been completed, are in
progress or are being planned at many of these sites. The results of continued
testing and analysis should determine to what extent additional remediation is
necessary and may provide a basis for estimating any additional future costs
which, based on industry experience, could be significant. In accordance with
ICC authorization, the company has been recovering these costs from its
customers.
On December 20, 1995, Nicor Gas filed suit in the Circuit Court of Cook County
against certain insurance carriers seeking recovery of environmental cleanup
costs of certain former manufactured gas plant sites. Nicor Gas has reached a
settlement with one of the insurance carriers. In January 2000, the court stated
it would dismiss the company's case on summary judgment motions by certain
defendants. If dismissed by written order, the company plans to appeal.
Management cannot predict the outcome of the lawsuit against the remaining
insurance carriers. Any recoveries will be refunded to the company's customers.
Although unable to determine the outcome of these contingencies, management
believes that appropriate accruals have been recorded. Final disposition of
these matters is not expected to have a material impact on the company's
financial condition or results of operations.
QUARTERLY RESULTS (UNAUDITED)
Quarterly results fluctuate due mainly to the seasonal nature of the gas
distribution business.
Quarter ended
---------------------------------------------------
(millions, except per share data) Mar. 31 June 30 Sept. 30 Dec. 31
------------ ------------ ------------ ------------
1999
Operating revenues $ 576.4 $ 271.8 $ 227.3 $ 539.7
Operating income 65.4 44.5 38.1 64.0
Net income 39.0 26.5 19.8 39.1
Earnings per common share
Basic .82 .56 .42 .83
Diluted .82 .56 .42 .83
1998
Operating revenues $ 562.3 $ 271.3 $ 203.2 $ 428.2
Operating income 64.9 48.9 38.9 55.8
Net income 36.2 28.5 20.6 31.1
Earnings per common share
Basic .75 .59 .43 .65
Diluted .75 .59 .43 .65
Nicor Inc. Page 35
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Items 10. and 11. Directors and Executive Officers of the Registrant and
Executive Compensation
Information on directors, Section 16(a) Beneficial Ownership Reporting
Compliance and executive compensation is contained on pages 2 through 6, 8 and
14 through 19 of the Definitive Proxy Statement, dated March 8, 2000, and is
incorporated herein by reference. Information relating to the executive officers
of the registrant is provided on pages 6 and 7 in Part I of this document.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information about shares beneficially owned by directors and executive officers
is contained on pages 7 and 8 of the Definitive Proxy Statement, dated March 8,
2000, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
None.
Nicor Inc. Page 36
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1) Financial Statements:
See Item 8, Financial Statements and Supplementary Data, on page 19
filed herewith, for a list of financial statements.
2) Financial Statement Schedules:
Schedule
Number Page
Report of Independent Public Accountants 20
II Valuation and Qualifying Accounts 37
Schedules other than those listed are omitted because they are not
applicable.
3) Exhibits Filed:
See Exhibit Index beginning on page 39 filed herewith.
(b) The company did not file a report on Form 8-K during the fourth quarter of
1999.
Nicor Inc. Page 37
- -------------------------------------------------------------------------------
Schedule II
VALUATION AND QUALIFYING ACCOUNTS
(millions)
Additions
--------------------
Balance at Charged to Charged to Balance
beginning costs and other at end
Description of period expenses accounts Deductions of period
- ------------------- -------- -------- -------- -------- --------
1999
- -------
Allowance
for uncollectible
accounts receivable $ 6.3 $ 12.5 $ - $ 11.7 (a) $ 7.1
Reserve for estimated
future costs related
to discontinued
businesses (b) 6.3 - .1 (c) - 6.4
1998
- -------
Allowance
for uncollectible
accounts receivable $ 8.6 $ 13.6 $ - $ 15.9 (a) $ 6.3
Reserve for estimated
future costs related
to discontinued
businesses (b) 11.7 - - 5.4 (c) 6.3
1997
- -------
Allowance
for uncollectible
accounts receivable $ 7.7 $ 16.0 $ - $ 15.1 (a) $ 8.6
Reserve for estimated
future costs related
to discontinued
businesses (b) 14.5 - - 2.8 (c) 11.7
(a) Accounts receivable written off, net of recoveries.
(b) Excludes the related reserve for federal and state income taxes.
(c) Net receipts, expenditures, operating results, gains and losses related to
discontinued businesses credited or charged to reserve.
Nicor Inc. Page 38
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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 March 20, 2000 By DAVID L. CYRANOSKI
------------------------- -----------------------------
David L. Cyranoski
Senior Vice President,
Secretary, Treasurer and
Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 20, 2000.
Signature Title
- --------------------------------------------- ---------------------------
THOMAS L. FISHER
- ---------------------------------------------
Thomas L. Fisher Chairman, President and
(Principal Executive Officer) Chief Executive Officer
KATHLEEN L. HALLORAN
- ---------------------------------------------
Kathleen L. Halloran Executive Vice President
(Principal Financial Officer) Finance and Administration
DAVID L. CYRANOSKI
- ---------------------------------------------
David L. Cyranoski Senior Vice President,
(Principal Accounting Officer) Secretary,Treasurer and
Controller
ROBERT M. BEAVERS, JR.* Director
BRUCE P. BICKNER* Director
JOHN H. BIRDSALL, III* Director
THOMAS A. DONAHOE* Director
DENNIS J. KELLER* Director
CHARLES S. LOCKE* Director
WILLIAM A. OSBORN* Director
SIDNEY R. PETERSEN* Director
JOHN RAU* Director
PATRICIA A. WIER* Director
* By MARIANNE T. LORENZ
Marianne T. Lorenz
(Attorney-in-fact)
Nicor Inc. Page 39
Exhibit Index
Exhibit
Number Description of Document
3.01 * Articles of Incorporation of the company. (File No. 2-55451, Form S-14,
Nicor Inc., Exhibit 1-03 and Exhibit B of Amendment No. 1 thereto.)
3.02 * Amendment to Articles of Incorporation of the company. (Proxy Statement
dated April 20, 1979, Nicor Inc., Item 3 thereto.)
3.03 * Amendment to Articles of Incorporation of the company. (File No. 2-68777,
Form S-16, Nicor Inc., Exhibit 2-01.)
3.04 * Amendment to Articles of Incorporation of the company. (File No. 1-7297,
Form 10-K for 1985, Nicor Inc., Exhibit 3-03.)
3.05 * Amendment to Articles of Incorporation of the company. (Proxy Statement
dated March 12, 1987, Nicor Inc., Exhibit A and Exhibit B thereto.)
3.06 * Amendment to Articles of Incorporation of the company. (File No. 1-7297,
Form 10-K for 1992, Nicor Inc., Exhibit 3-06.)
3.07 * Amendments to Articles of Incorporation of the company. (Proxy Statement
dated March 9, 1994, Nicor Inc., Exhibit A-1 and Exhibit B thereto.)
3.08 * Amendment to Articles of Incorporation of the company. (Proxy Statement
dated March 6, 1998, Nicor Inc., Item 2 thereto.)
3.09 * By-Laws of the company as amended by the company's board of Directors on
May 3, 1995. (File No. 1-7297, Form 10-Q for March 1995, Nicor Inc., Exhibit
3(ii).01.)
4.01 * Indenture of Commonwealth Edison Company to Continental Illinois National
Bank and Trust Company of Chicago, Trustee, dated as of January 1, 1954. (File
No. 1-7296, Form 10-K for 1995, Nicor Gas, Exhibit 4.01.)
4.02 * Indenture of Adoption of Nicor Gas to Continental Illinois National Bank
and Trust Company of Chicago, Trustee, dated February 9, 1954. (File No. 1-7296,
Form 10-K for 1995, Nicor Gas, Exhibit 4.02.)
4.03 * Supplemental Indenture, dated June 1, 1963, of Nicor Gas to Continental
Illinois National Bank and Trust Company of Chicago, Trustee, under Indenture
dated as of January 1, 1954. (File No. 2-21490, Form S-9, Nicor Gas, Exhibit
2-8.)
4.04 * Supplemental Indenture, dated May 1, 1966, of Nicor Gas to Continental
Illinois National Bank and Trust Company of Chicago, Trustee, under Indenture
dated as of January 1, 1954. (File No. 2-25292, Form S-9, Nicor Gas, Exhibit
2-4.)
Nicor Inc. Page 40
Exhibit Index (continued)
Exhibit
Number Description of Document
4.05 * Supplemental Indenture, dated June 1, 1971, of Nicor Gas to Continental
Illinois National Bank and Trust Company of Chicago, Trustee, under Indenture
dated as of January 1, 1954. (File No. 2-44647, Form S-7, Nicor Gas, Exhibit
2-03.)
4.06 * Supplemental Indenture, dated April 30, 1976, between the company and
Continental Illinois National Bank and Trust Company of Chicago, Trustee, under
Indenture dated as of January 1, 1954. (File No. 2-56578, Form S-9, Nicor Gas,
Exhibit 2-25.)
4.07 * Supplemental Indenture, dated April 30, 1976, of Nicor Gas to Continental
Illinois National Bank and Trust Company of Chicago, Trustee, under Indenture
dated as of January 1, 1954. (File No. 2-56578, Form S-9, Nicor Gas, Exhibit
2-21.)
4.08 * Supplemental Indenture, dated August 15, 1991, of Nicor Gas to
Continental Bank, National Association, Trustee, under Indenture dated as of
January 1, 1954. (File No. 1-7296, Form 8-K for August 1991, Nicor Gas, Exhibit
4-01.)
4.09 * Supplemental Indenture, dated October 15, 1995, of Nicor Gas to Bank of
America Illinois, Trustee, under Indenture dated as of January 1, 1954. (File
No. 1-7296, Form 10-Q for September 1995, Nicor Gas, Exhibit 4.01.)
4.10 * Supplemental Indenture, dated May 10, 1996, of Nicor Gas to Harris Trust
and Savings Bank, Trustee, under Indenture dated as of January 1, 1954. (File
No. 1-7296, Form 10-Q for June 1996, Nicor Gas, Exhibit 4.01.)
4.11 * Supplemental Indenture, dated August 1, 1996, of Nicor Gas to Harris
Trust and Savings Bank, Trustee, under Indenture dated as of January 1, 1954.
(File No. 1-7296, Form 10-Q for June 1996, Nicor Gas, Exhibit 4.02.)
4.12 * Supplemental Indenture, dated June 1, 1997, of Nicor Gas to Harris Trust
and Savings Bank, Trustee, under Indenture dated as of January 1, 1954. (File
No. 1-7296, Form 10-Q for June 1997, Nicor Gas, Exhibit 4.01.)
4.13 * Shareholder Rights Agreement, dated September 9, 1997, between the
company and Harris Trust and Savings Bank, as Rights Agent. (File No. 1-7297,
Form 8-K for September 1997, Nicor Inc., Exhibit 1.)
4.14 * Supplemental Indenture, dated October 15, 1997, of Nicor Gas to Harris
Trust and Savings Bank, Trustee, under Indenture dated as of January 1, 1954.
(File No. 1-7296, Form 10-Q for September 1997, Nicor Gas, Exhibit 4.01.)
4.15 * Supplemental Indenture, dated February 15, 1998, of Nicor Gas to Harris
Trust and Savings Bank, Trustee, under Indenture dated as of January 1, 1954.
(File No. 1-7296, Form 10-K for 1997, Nicor Gas, Exhibit 4.19.)
Nicor Inc. Page 41
Exhibit Index (continued)
Exhibit
Number Description of Document
4.16 * Supplemental Indenture, dated June 1, 1998, of Nicor Gas to Harris Trust
and Savings Bank, Trustee, under Indenture dated as of January 1, 1954. (File
No. 1-7296, Form 10-Q for June 1998, Nicor Gas, Exhibit 4.01.)
4.17 * Supplemental Indenture, dated February 1, 1999, of Nicor Gas to Harris
Trust and Savings Bank, Trustee, under Indenture dated as of January 1, 1954.
(File No. 1-7296, Form 10-K for 1998, Nicor Gas, Exhibit 4.19.)
Other debt instruments are omitted in accordance with Item 601(b)(4)(iii)(A) of
Regulation S-K. Copies of such agreements will be furnished to the Commission
upon request.
10.01 * 1984 Nicor Officers' Capital Accumulation Plan Participation Agreement.
(File No. 1-7297, Form 10-K for 1988, Nicor Inc., Exhibit 10-10.)
10.01(a) * 1985 Nicor Officers' Capital Accumulation Plan Participation
Agreement. (File No. 1-7297, Form 10-K for 1988, Nicor Inc., Exhibit 10-10(a).)
10.02 * 1984 Nicor Directors' Capital Accumulation Plan Participation Agreement.
(File No. 1-7297, Form 10-K for 1983, Nicor Inc., Exhibit 10-13.)
10.02(a) * 1985 Nicor Directors' Capital Accumulation Plan Participation
Agreement. (File No. 1-7297, Form 10-K for 1984, Nicor Inc., Exhibit 10-13(a).)
10.03 * Directors' Deferred Compensation Plan. (File No. 1-7297, Form 10-K for
1983, Nicor Inc., Exhibit 10-16.)
10.04 * Directors' Pension Plan. (File No. 1-7297, Form 10-K for 1985, Nicor
Inc., Exhibit 10-18.)
10.05 * Flexible Spending Account for Executives. (File No. 1-7297, Form 10-K
for 1986, Nicor Inc., Exhibit 10-20.)
10.06 * Amendment and Restatement of the Nicor Gas Incentive Compensation Plan.
(File No. 1-7297, Form 10-K for 1986, Nicor Inc., Exhibit 10-21.)
10.07 * Nicor Inc. 1989 Long-Term Incentive Plan. (Filed with Nicor Inc. Proxy
Statement, dated April 20, 1989, Exhibit A.)
10.08 * Nicor Gas Supplementary Retirement Plan. (File No. 1-7297, Form 10-K for
1989, Nicor Inc., Exhibit 10-24.)
10.09 * Nicor Gas Supplementary Savings Plan. (File No. 1-7297, Form 10-K for
1989, Nicor Inc., Exhibit 10-25.)
Nicor Inc. Page 42
Exhibit Index (continued)
Exhibit
Number Description of Document
10.10 * Nicor Salary Deferral Plan. (File No. 1-7297, Form 10-K for 1989, Nicor
Inc., Exhibit 10-29.)
10.11 * Nicor Inc. Stock Deferral Plan. (File No. 1-7297, Form 10-Q for
September 1996, Nicor Inc., Exhibit 10.01.)
10.12 * Amendment to Nicor Inc. Stock Deferral Plan. (File No. 1-7297, Form 10-K
for 1997, Nicor Inc., Exhibit 10.22.)
10.13 * Nicor Inc. 1995 Directors' Stock Plan. (File No. 1-7297, Form 10-Q for
September 1996, Nicor Inc., Exhibit 10.02.)
10.14 * 1995 Long-Term Incentive Program. (File No. 1-7297, Form 10-K for 1994,
Nicor Inc., Exhibit 10.17.)
10.15 * 1997 Long-Term Incentive Program. (File No. 1-7297, Form 10-Q for March
1997, Nicor Inc., Exhibit 10.01.)
10.16 * Nicor Inc. 1997 Long-Term Incentive Plan. (Filed as an appendix to the
Nicor Inc. Proxy Statement, dated March 6, 1997.)
10.17 * 1998 Long-Term Incentive Program. (File No. 1-7297, Form 10-K for 1997,
Nicor Inc., Exhibit 10.25.)
10.18 * 1999 Nicor Incentive Compensation Plan. (File No. 1-7297, Form 10-K for
1998, Nicor Inc. , Exhibit 10.24.)
10.19 * 1999 Nicor Gas Incentive Compensation Plan. (File No. 1-7297, Form 10-K
for 1998, Nicor Inc., Exhibit 10.25.)
10.20 * 1999 Long-Term Incentive Program. (File No. 1-7297, Form 10-K for 1998,
Nicor Inc. Exhibit 10.26.)
10.21 2000 Nicor Incentive Compensation Plan.
10.22 2000 Nicor Gas Incentive Compensation Plan.
10.23 2000 Long-Term Incentive Program.
10.24 Security Payment Plan.
10.25 Letter Agreement, executed January 19, 2000, between Mr. Nardi and Nicor
Inc.
Nicor Inc. Page 43
Exhibit Index (concluded)
Exhibit
Number Description of Document
10.26 Resolutions adopted by the Board of Directors on December 7, 1999 amending
the Nicor Inc. Stock Deferral Plan and amending the definition of change in
control in the Long-Term Incentive Plan, Salary Deferral Plan and the Capital
Accumulation Plan.
10.27 Summary of proposed change in control agreements between Nicor and Mr.
Fisher, Mr. Cali and Ms. Halloran (incorporated by reference to the third
paragraph under "Change in Control Arrangements" of Nicor Inc. Proxy Statement
dated March 8, 2000, Nicor Inc., File No. 1-7297.)
Exhibits 10.01 through 10.27 constitute management contracts and compensatory
plans and arrangements required to be filed as exhibits to this Form pursuant to
Item 14(c) of Form 10-K.
21.01 * Subsidiaries. (File No. 69-228, Form U-3A-2 for 1999, Nicor Inc., Item
1.)
23.01 Consent of Independent Public Accountants.
24.01 Powers of Attorney.
27.01 Financial Data Schedule.
99.01 * Form of Letter to Shareholders relating to Shareholder Rights Agreement.
(File No. 1-7297, Form 8-K for September 1997, Nicor Inc., Exhibit 2.)
* These exhibits have been previously filed with the Securities and Exchange
Commission as exhibits to registration statements or to other filings with
the Commission and are incorporated herein as exhibits by reference. The
file number and exhibit number of each such exhibit, where applicable, are
stated, in parentheses, in the description of such exhibit.
Upon written request, the company will furnish free of charge a copy of any
exhibit. Requests should be sent to Investor Relations at the corporate
headquarters.