Attached files
file | filename |
---|---|
EX-31.02 - NICOR INC. EXHIBIT 31.02 CERTIFICATION - NICOR INC | nicorinc3102certification.htm |
EX-10.09 - 364-DAY CREDIT AGREEMENT - NICOR INC | nicorinc1009-364daycredit.htm |
EX-31.01 - NICOR INC. EXHIBIT 31.01 CERTIFICATION - NICOR INC | nicorinc3101certification.htm |
EX-32.01 - NICOR INC. EXHIBIT 32.01 CERTIFICATION - NICOR INC | nicorinc3201certification.htm |
EX-32.02 - NICOR INC. EXHIBIT 32.02 CERTIFICATION - NICOR INC | nicorinc3202certification.htm |
EX-10.08 - 3 YEAR CREDIT AGREEMENT - NICOR INC | nicorinc1008-3yearcredit.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
[X]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For the quarterly period ended March 31, 2010 |
or
[ ]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
|
Commission
File Number 1-7297
NICOR
INC.
(Exact
name of registrant as specified in its charter)
Illinois
|
36-2855175
|
(State
of Incorporation)
|
(I.R.S.
Employer
|
Identification
No.)
|
1844
Ferry Road
|
|
Naperville,
Illinois 60563-9600
|
(630)
305-9500
|
(Address
of principal executive offices) (Zip Code)
|
(Registrant’s
telephone number, including area
code)
|
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 whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months. Yes [ ] No
[ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in rule 12b-2 of the Exchange
Act.
Large
accelerated filer [X]
|
Accelerated
filer
[ ]
|
Non-accelerated
filer [ ]
|
Smaller
reporting
company [ ]
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date. Common stock, par value
$2.50, outstanding at April 26, 2010, were 45,271,489 shares.
ii
|
|||
Part
I - Financial Information
|
|||
Item
1.
|
Financial
Statements (Unaudited)
|
||
1
|
|||
2
|
|||
3
|
|||
4
|
|||
Item
2.
|
22
|
||
Item
3.
|
33
|
||
Item
4.
|
34
|
||
Part
II - Other Information
|
|||
Item
1.
|
34
|
||
Item
2.
|
34
|
||
Item
6.
|
35
|
||
36
|
ALJs. Administrative
Law Judges.
ARO. Asset retirement
obligation.
Chicago Hub. A
venture of Nicor Gas, which provides natural gas storage and
transmission-related services to marketers and other gas distribution
companies.
Degree day. The
extent to which the daily average temperature falls below 65 degrees
Fahrenheit. Normal weather for Nicor Gas’ service territory, for
purposes of this report, is considered to be 5,600 degree days.
EN Engineering. EN
Engineering, L.L.C., a previously owned joint
venture that provides engineering and consulting services. Nicor sold
its ownership on March 31, 2009.
FERC. Federal
Energy Regulatory Commission, the agency that regulates the interstate
transportation of natural gas, oil and electricity.
Health Care
Act. Patient Protection and Affordable Care Act and the Health
Care and Education Reconciliation Act of 2010.
ICC. Illinois
Commerce Commission, the agency that establishes the rules and regulations
governing utility rates and services in Illinois.
IDR. Illinois Department
of Revenue.
IRS. Internal
Revenue Service.
Jobs Act. American
Jobs Creation Act of 2004.
LIBOR. London
Inter-bank Offered Rate.
LIFO. Last-in,
first-out.
Mcf, MMcf,
Bcf. Thousand cubic feet, million cubic feet, billion cubic
feet.
Nicor. Nicor Inc.,
or the registrant.
Nicor Advanced
Energy. Prairie Point Energy, L.L.C. (doing business as Nicor
Advanced Energy), a wholly owned business that provides natural gas and related
services on an unregulated basis to residential and small commercial
customers.
Nicor
Enerchange. Nicor Enerchange, L.L.C., a wholly owned business
that engages in wholesale marketing of natural gas supply services primarily in
the Midwest, administers the Chicago Hub for Nicor Gas, serves commercial and
industrial customers in the Chicago market area, and manages Nicor Solutions’
and Nicor Advanced Energy’s product risks, including the purchase of natural gas
supplies.
Nicor Gas. Northern
Illinois Gas Company (doing business as Nicor Gas Company) is a regulated wholly
owned public utility business and one of the nation’s largest distributors of
natural gas.
Nicor
Services. Nicor Energy Services Company, a wholly owned business
that provides customer move connection services for utilities and product
warranty contracts, heating, ventilation and air conditioning repair,
maintenance and installation services and equipment to retail markets, including
residential and small commercial customers.
Nicor
Solutions. Nicor Solutions, L.L.C., a wholly owned business
that offers residential and small commercial customers energy-related products
that provide for natural gas cost stability and management of their utility
bill.
NYMEX. New York
Mercantile Exchange.
PBR. Performance-based
rate, a regulatory plan which ended on January 1, 2003, that provided economic
incentives based on natural gas cost performance.
PGA. Purchased Gas
Adjustment, a rate rider that passes natural gas costs directly through to
customers without markup, subject to ICC review.
Rider. A rate
adjustment mechanism that is part of a utility’s tariff which authorizes it to
provide specific services or assess specific charges.
SEC. The United
States Securities and Exchange Commission.
TEL. Tropic
Equipment Leasing, Inc., a wholly owned subsidiary of Nicor, holds the company’s
interest in Triton.
TEU. Twenty-foot
equivalent unit, a measure of volume in containerized shipping equal to one
20-foot-long container.
Triton. Triton
Container Investments L.L.C., a cargo container leasing company in which Nicor
Inc. has an investment.
Tropical
Shipping. A wholly owned business and a carrier of
containerized freight in the Bahamas and the Caribbean region.
U.S. United States
of America.
Part
I - FINANCIAL INFORMATION
|
|||||||
Item
1. Financial
Statements
|
|||||||
Nicor
Inc.
|
|||||||
(millions,
except per share data)
|
|||||||
Three
months ended
|
|||||||
March
31
|
|||||||
2010
|
2009
|
||||||
Operating
revenues
|
|||||||
Gas
distribution (includes revenue taxes of $73.9 and $74.7,
respectively)
|
$ | 1,068.8 | $ | 984.0 | |||
Shipping
|
83.5 | 89.4 | |||||
Other
energy ventures
|
65.7 | 77.1 | |||||
Corporate
and eliminations
|
(25.1 | ) | (39.7 | ) | |||
Total
operating revenues
|
1,192.9 | 1,110.8 | |||||
Operating
expenses
|
|||||||
Gas
distribution
|
|||||||
Cost
of gas
|
787.9 | 716.4 | |||||
Operating
and maintenance
|
63.8 | 90.6 | |||||
Depreciation
|
46.0 | 44.4 | |||||
Taxes,
other than income taxes
|
77.9 | 78.8 | |||||
Shipping
|
84.0 | 82.8 | |||||
Other
energy ventures
|
61.3 | 74.5 | |||||
Other
corporate expenses and eliminations
|
(24.0 | ) | (36.6 | ) | |||
Total
operating expenses
|
1,096.9 | 1,050.9 | |||||
Operating
income
|
96.0 | 59.9 | |||||
Interest
expense, net of amounts capitalized
|
9.0 | 9.3 | |||||
Equity
investment income, net
|
1.5 | 11.7 | |||||
Interest
income
|
.2 | .6 | |||||
Other
income, net
|
.2 | .2 | |||||
Income
before income taxes
|
88.9 | 63.1 | |||||
Income
tax expense, net of benefits
|
28.4 | 19.3 | |||||
Net
income
|
$ | 60.5 | $ | 43.8 | |||
Average
shares of common stock outstanding
|
|||||||
Basic
|
45.4 | 45.4 | |||||
Diluted
|
45.6 | 45.4 | |||||
Earnings
per average share of common stock
|
|||||||
Basic
|
$ | 1.33 | $ | .97 | |||
Diluted
|
1.33 | .96 | |||||
Dividends
declared per share of common stock
|
$ | .465 | $ | .465 | |||
The
accompanying notes are an integral part of these
statements.
|
Nicor
Inc.
|
||||||||
(millions)
|
||||||||
Three
months ended
|
||||||||
March
31
|
||||||||
2010
|
2009
|
|||||||
Operating
activities
|
||||||||
Net
income
|
$ | 60.5 | $ | 43.8 | ||||
Adjustments
to reconcile net income to net cash flow provided from operating
activities:
|
||||||||
Depreciation
|
50.6 | 49.0 | ||||||
Deferred
income tax expense (benefit)
|
(4.2 | ) | 3.2 | |||||
Gain
on sale of equity investment
|
- | (10.1 | ) | |||||
Changes
in assets and liabilities:
|
||||||||
Receivables,
less allowances
|
(44.1 | ) | 99.3 | |||||
Gas
in storage
|
113.5 | 188.1 | ||||||
Deferred/accrued
gas costs
|
36.6 | (.5 | ) | |||||
Derivative
instruments
|
72.4 | 63.6 | ||||||
Margin
accounts - derivative instruments
|
(48.1 | ) | (73.4 | ) | ||||
Other
assets
|
8.7 | 17.1 | ||||||
Accounts
payable
|
(117.3 | ) | (151.9 | ) | ||||
Customer
credit balances and deposits
|
(57.8 | ) | (58.8 | ) | ||||
Temporary
LIFO inventory liquidation
|
229.9 | 197.1 | ||||||
Other
liabilities
|
24.7 | (1.2 | ) | |||||
Other
items
|
(1.1 | ) | 6.8 | |||||
Net
cash flow provided from operating activities
|
324.3 | 372.1 | ||||||
Investing
activities
|
||||||||
Additions
to property, plant & equipment
|
(42.4 | ) | (51.2 | ) | ||||
Proceeds
from maturities of held-to-maturity securities
|
.5 | .6 | ||||||
Net
decrease in other short-term investments
|
6.6 | 1.7 | ||||||
Proceeds
from sale of equity investment
|
- | 13.0 | ||||||
Net
cash flow used for investing activities
|
(35.3 | ) | (35.9 | ) | ||||
Financing
activities
|
||||||||
Repayments
of long-term debt
|
- | (50.0 | ) | |||||
Net
repayments of commercial paper
|
(266.0 | ) | (255.9 | ) | ||||
Dividends
paid
|
(21.2 | ) | (21.1 | ) | ||||
Borrowing
against cash surrender value of life insurance policies
|
- | 3.4 | ||||||
Other
financing activities
|
.4 | - | ||||||
Net
cash flow used for financing activities
|
(286.8 | ) | (323.6 | ) | ||||
Net
increase in cash and cash equivalents
|
2.2 | 12.6 | ||||||
Cash
and cash equivalents, beginning of period
|
55.7 | 26.0 | ||||||
Cash
and cash equivalents, end of period
|
$ | 57.9 | $ | 38.6 | ||||
The
accompanying notes are an integral part of these
statements.
|
Nicor
Inc.
|
||||||||||||
(millions)
|
||||||||||||
March
31
|
December
31
|
March
31
|
||||||||||
2010
|
2009
|
2009
|
||||||||||
Assets
|
||||||||||||
Current
assets
|
||||||||||||
Cash
and cash equivalents
|
$ | 57.9 | $ | 55.7 | $ | 38.6 | ||||||
Short-term
investments
|
70.9 | 78.0 | 67.8 | |||||||||
Receivables,
less allowances of $52.0, $33.0 and $52.8, respectively
|
536.2 | 492.1 | 590.8 | |||||||||
Gas
in storage
|
23.7 | 137.2 | 20.4 | |||||||||
Derivative
instruments
|
54.3 | 30.9 | 61.2 | |||||||||
Margin
accounts - derivative instruments
|
81.4 | 46.1 | 191.4 | |||||||||
Other
|
122.3 | 163.3 | 128.1 | |||||||||
Total
current assets
|
946.7 | 1,003.3 | 1,098.3 | |||||||||
Property,
plant and equipment, at cost
|
||||||||||||
Gas
distribution
|
4,614.9 | 4,598.2 | 4,488.6 | |||||||||
Shipping
|
335.1 | 330.0 | 322.9 | |||||||||
Other
|
38.8 | 32.8 | 27.5 | |||||||||
4,988.8 | 4,961.0 | 4,839.0 | ||||||||||
Less
accumulated depreciation
|
2,046.4 | 2,021.9 | 1,969.5 | |||||||||
Total
property, plant and equipment, net
|
2,942.4 | 2,939.1 | 2,869.5 | |||||||||
Long-term
investments
|
130.5 | 128.8 | 130.2 | |||||||||
Other
assets
|
399.2 | 364.5 | 479.0 | |||||||||
Total
assets
|
$ | 4,418.8 | $ | 4,435.7 | $ | 4,577.0 | ||||||
Liabilities and
Capitalization
|
||||||||||||
Current
liabilities
|
||||||||||||
Long-term
debt due within one year
|
$ | 75.0 | $ | - | $ | - | ||||||
Short-term
debt
|
228.0 | 494.0 | 484.0 | |||||||||
Accounts
payable
|
236.6 | 353.9 | 259.4 | |||||||||
Customer
credit balances and deposits
|
83.9 | 141.7 | 128.5 | |||||||||
Temporary
LIFO inventory liquidation
|
229.9 | - | 197.1 | |||||||||
Derivative
instruments
|
151.2 | 72.3 | 219.1 | |||||||||
Other
|
154.7 | 106.2 | 114.4 | |||||||||
Total
current liabilities
|
1,159.3 | 1,168.1 | 1,402.5 | |||||||||
Deferred
credits and other liabilities
|
||||||||||||
Regulatory
asset retirement liability
|
815.2 | 796.8 | 763.2 | |||||||||
Deferred
income taxes
|
415.9 | 409.9 | 399.8 | |||||||||
Health
care and other postretirement benefits
|
200.0 | 199.7 | 197.0 | |||||||||
Asset
retirement obligation
|
184.1 | 191.6 | 186.9 | |||||||||
Other
|
143.1 | 133.6 | 177.3 | |||||||||
Total
deferred credits and other liabilities
|
1,758.3 | 1,731.6 | 1,724.2 | |||||||||
Commitments
and contingencies
|
||||||||||||
Capitalization
|
||||||||||||
Long-term
obligations
|
||||||||||||
Long-term
debt, net of unamortized discount
|
423.3 | 498.2 | 448.1 | |||||||||
Mandatorily
redeemable preferred stock
|
.1 | .1 | .6 | |||||||||
Total
long-term obligations
|
423.4 | 498.3 | 448.7 | |||||||||
Common
equity
|
||||||||||||
Common
stock
|
113.2 | 113.1 | 113.0 | |||||||||
Paid-in
capital
|
56.7 | 54.6 | 51.4 | |||||||||
Retained
earnings
|
920.3 | 881.0 | 852.9 | |||||||||
Accumulated
other comprehensive loss, net
|
(12.4 | ) | (11.0 | ) | (15.7 | ) | ||||||
Total
common equity
|
1,077.8 | 1,037.7 | 1,001.6 | |||||||||
Total
capitalization
|
1,501.2 | 1,536.0 | 1,450.3 | |||||||||
Total
liabilities and capitalization
|
$ | 4,418.8 | $ | 4,435.7 | $ | 4,577.0 | ||||||
The
accompanying notes are an integral part of these
statements.
|
Nicor
Inc.
1.
|
BASIS
OF PRESENTATION
|
The
unaudited Condensed Consolidated Financial Statements of Nicor have been
prepared by the company pursuant to the rules and regulations of the
SEC. Certain information and note disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted pursuant to SEC
rules and regulations. The unaudited Condensed Consolidated Financial
Statements and Notes should be read in conjunction with the financial statements
and the notes thereto included in the company’s 2009 Annual Report on Form
10-K.
The
information furnished reflects, in the opinion of the company, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair statement
of the results for the interim periods presented. Results for the
interim periods presented are not necessarily indicative of the results to be
expected for the full fiscal year due to seasonal and other
factors.
The
company’s management evaluated subsequent events for potential recognition and
disclosure through the date the financial statements were issued.
2.
|
ACCOUNTING
POLICIES
|
Gas in
storage. Nicor Gas’ inventory is carried at cost on a LIFO
basis. Inventory decrements occurring during interim periods that are
expected to be restored prior to year-end are charged to cost of gas at the
estimated annual replacement cost, and the difference between this cost and the
actual LIFO layer cost is recorded on the balance sheet as a temporary LIFO
inventory liquidation. Interim inventory decrements not expected to
be restored prior to year-end are charged to cost of gas at the actual LIFO cost
of the layers liquidated. The inventory decrement as of March 31,
2010 is expected to be restored prior to year-end.
Nicor
Enerchange’s inventory is carried at the lower of weighted-average cost or
market (market is represented by the cash price per the close of business on the
last trading day of the period). In the first quarter of 2010 and
2009, Nicor Enerchange recorded charges of $5.0 million and $2.8 million,
respectively, resulting from a lower of cost or market valuation.
Regulatory assets and
liabilities. Nicor Gas is regulated by the ICC, which
establishes the rules and regulations governing utility rates and services in
Illinois. As a rate-regulated company, Nicor Gas is required to
recognize the economic effects of rate regulation and, accordingly, has recorded
regulatory assets and liabilities. Regulatory assets represent
probable future revenue associated with certain costs that are expected to be
recovered from customers through rate riders or base rates, upon approval by the
ICC. Regulatory liabilities represent probable future reductions in
revenues collected from ratepayers through a rate rider or base rates, or
probable future expenditures. If Nicor Gas’ operations become no
longer subject to rate regulation, a write-off of net regulatory liabilities
would be required.
The
company had regulatory assets and liabilities as follows (in
millions):
March
31
|
December
31
|
March
31
|
||||||||||
2010
|
2009
|
2009
|
||||||||||
Regulatory
assets - current
|
||||||||||||
Regulatory
postretirement asset
|
$ | 20.6 | $ | 20.6 | $ | 23.3 | ||||||
Deferred
gas costs
|
- | 24.9 | 15.4 | |||||||||
Deferred
bad debt costs
|
28.3 | - | - | |||||||||
Other
|
6.9 | 5.4 | 1.4 | |||||||||
Regulatory
assets - noncurrent
|
||||||||||||
Regulatory
postretirement asset
|
191.5 | 195.4 | 227.5 | |||||||||
Deferred
gas costs
|
20.6 | 4.4 | 39.1 | |||||||||
Deferred
environmental costs
|
19.9 | 18.1 | 15.0 | |||||||||
Unamortized
losses on reacquired debt
|
14.0 | 14.2 | 15.1 | |||||||||
Other
|
13.3 | 8.9 | 13.3 | |||||||||
$ | 315.1 | $ | 291.9 | $ | 350.1 |
Regulatory
liabilities - current
|
||||||||||||
Regulatory
asset retirement liability
|
$ | 14.5 | $ | 14.5 | $ | 15.0 | ||||||
Accrued
gas costs
|
27.9 | - | - | |||||||||
Other
|
8.2 | 2.7 | - | |||||||||
Regulatory
liabilities - noncurrent
|
||||||||||||
Regulatory
asset retirement liability
|
815.2 | 796.8 | 763.2 | |||||||||
Regulatory
income tax liability
|
21.2 | 39.1 | 45.5 | |||||||||
Other
|
3.8 | .8 | .8 | |||||||||
$ | 890.8 | $ | 853.9 | $ | 824.5 |
All items
listed above are classified in Other on the Condensed Consolidated Balance
Sheets, with the exception of the noncurrent portion of the Regulatory asset
retirement liability, which is stated separately.
The ICC
does not presently allow Nicor Gas the opportunity to earn a return on its
regulatory postretirement asset. This regulatory postretirement asset
is expected to be recovered from ratepayers over a period of approximately 10 to
12 years. The regulatory assets related to debt are not included in
rate base, but are recovered over the term of the debt through the rate of
return authorized by the ICC. Nicor Gas is allowed to recover and is
required to pay, using short-term interest rates, the carrying costs related to
temporary under or overcollections of natural gas costs and certain
environmental costs charged to its customers.
Revenue recognition.
Nicor Gas accrues revenues for estimated deliveries to customers from the
date of their last bill until the balance sheet date. Receivables
include accrued unbilled revenues of $102.8 million, $141.0 million and $89.7
million at March 31, 2010, December 31, 2009 and March 31, 2009, respectively,
related primarily to gas distribution operations.
Nicor Gas
classifies revenue taxes billed to customers as operating revenues and related
taxes incurred as operating expenses. Revenue taxes included in
operating expense for the three months ended March 31, 2010 and 2009 were $72.9
million and $73.6 million, respectively.
Derivative
instruments.
Cash flows from derivative
instruments are recognized in the Condensed Consolidated Statements of Cash
Flows, and gains and losses are recognized in the Condensed Consolidated
Statements of Operations, in the same categories as the underlying
transactions.
Cash flow
hedge accounting may be elected only for highly effective hedges, based upon an
assessment, performed at least quarterly, of the historical and probable future
correlation of cash flows from the derivative instrument to changes in the
expected future cash flows of the hedged item. To the extent cash
flow hedge accounting is applied, the effective portion of any changes in the
fair value of the derivative instruments is reported as a component of
accumulated other comprehensive income. Ineffectiveness, if any, is
immediately recognized in operating income. The amount in accumulated
other comprehensive income is reclassified to earnings when the forecasted
transaction is recognized in the Condensed Consolidated Statement of Operations,
even if the derivative instrument is sold, extinguished or terminated prior to
the transaction occurring. If the forecasted transaction is no longer
expected to occur, the amount in accumulated other comprehensive income is
immediately reclassified to operating income.
Nicor
Gas. Derivative instruments, such as futures contracts,
options and swap agreements, are utilized primarily in the purchase of natural
gas for customers. These derivative instruments are reflected at fair
value. Realized gains or losses on such instruments are included in
the cost of gas delivered and are passed directly through to customers, subject
to ICC review, and therefore have no direct impact on
earnings. Unrealized changes in the fair value of these derivative
instruments are deferred as regulatory assets or liabilities.
At times,
Nicor Gas enters into futures contracts, options, swap agreements and
fixed-price purchase agreements to reduce the earnings volatility of certain
forecasted operating costs arising from fluctuations in natural gas prices, such
as the purchase of natural gas for use in company operations. These
derivative instruments are carried at fair value, unless they qualify for the
normal purchases and normal sales exception, in which case they are carried at
cost. To the extent hedge accounting is not elected, changes in such
fair values are immediately recorded in the current period as operating and
maintenance expense.
Nicor
Enerchange. Derivative instruments, such as futures contracts,
options, forward contracts, swap agreements and other energy-related contracts
are held by Nicor’s wholesale natural gas marketing business, Nicor Enerchange,
for trading purposes. Certain of these derivative instruments are
used to economically hedge price risk associated with inventories of natural
gas, fixed-price purchase and sale agreements and other future natural gas
commitments. Nicor Enerchange records such derivative instruments at
fair value and generally does not elect hedge accounting. As a
result, changes in derivative fair values may have a material impact on Nicor’s
financial statements. Other derivative instruments are used by Nicor
Enerchange to hedge price risks related to certain utility-bill management
products. These derivative instruments are carried at fair value and
cash flow hedge accounting may or may not be elected.
Nicor. For derivative
instruments that were designated as hedges of interest payments on 30-year bonds
issued by Nicor Gas in December 2003, the amount of loss deferred at settlement
in accumulated other comprehensive income is being amortized to interest expense
on a straight-line basis over the remaining life of the bonds.
In March
2010, Nicor entered into a forward-starting interest rate swap to hedge the risk
associated with the interest payments attributable to the probable issuance of
long-term fixed-rate debt in 2012 to finance the development of a natural gas
storage facility. Under the terms of the swap, Nicor agrees to pay a
fixed swap rate and receive a floating rate based on LIBOR. The swap
is accounted for as a cash flow hedge, therefore, any changes in the fair value
of the swap that are deferred in accumulated other comprehensive income will
subsequently be amortized over the term of the fixed-rate debt as an adjustment
to interest expense.
Credit risk and
concentrations. Nicor’s major subsidiaries have diversified
customer bases and the company believes that it maintains prudent credit
policies which mitigate customer receivable, supplier performance and derivative
counterparty credit risk. The company is
exposed to credit risk in the event a customer or supplier defaults on a
contract to pay for or deliver product at agreed-upon terms and conditions, or a
counterparty to a derivative instrument defaults on a settlement or otherwise
fails to perform under contractual terms. To manage this risk, the
company has established procedures to determine and monitor the creditworthiness
of counterparties, to seek guarantees or collateral back-up in the form of cash
or letters of credit, to acquire credit insurance in certain instances, and to
limit its exposure to any one counterparty. Nicor also, in some
instances, enters into netting arrangements to mitigate counterparty credit
risk. Credit losses are accrued when probable and reasonably
estimable.
On
February 2, 2010, the ICC approved a bad debt rider that was filed in 2009 by
Nicor Gas. The bad debt rider provides for the recovery from (or
refund to) customers of the difference between the actual bad debt expense Nicor
Gas incurs on an annual basis and the benchmark bad debt expense included in its
rates for the respective year.
3. INVESTMENTS
The
company’s investments are as follows (in millions):
March
31
|
December
31
|
March
31
|
||||||||||
2010
|
2009
|
2009
|
||||||||||
Money
market funds
|
$ | 111.8 | $ | 121.1 | $ | 90.2 | ||||||
Corporate
bonds
|
.8 | 1.3 | 4.3 | |||||||||
Other
investments
|
5.0 | 4.8 | 3.2 | |||||||||
$ | 117.6 | $ | 127.2 | $ | 97.7 |
Investments
are classified on the Condensed Consolidated Balance Sheets as follows (in
millions):
March
31
|
December
31
|
March
31
|
||||||||||
2010
|
2009
|
2009
|
||||||||||
Cash
equivalents
|
$ | 41.2 | $ | 43.8 | $ | 26.0 | ||||||
Short-term
investments
|
70.9 | 78.0 | 67.8 | |||||||||
Long-term
investments
|
5.5 | 5.4 | 3.9 | |||||||||
$ | 117.6 | $ | 127.2 | $ | 97.7 |
Investments
categorized as trading (including money market funds) totaled $113.8 million,
$122.7 million and $91.5 million at March 31, 2010, December 31, 2009 and March
31, 2009, respectively. Corporate bonds are categorized as
held-to-maturity. The contractual maturities of the held-to-maturity
corporate bonds at March 31, 2010 are as follows (in millions):
Years to
maturity
Less
than
1
year
|
1-5
Years
|
Total
|
||||||||
$ | .2 | $ | .6 | $ | .8 |
Nicor’s
investments also include certain restricted investments, including certificates
of deposit and bank accounts, maintained to fulfill statutory or contractual
requirements. These investments totaled $3.0 million, $3.1 million
and $1.9 million at March 31, 2010, December 31, 2009 and March 31, 2009,
respectively.
There
were no gains or losses on the sale of investments for the periods ended March
31, 2010 and 2009, respectively.
4.
|
SHORT-TERM
AND LONG-TERM DEBT
|
In
February 2009, the $50 million 5.37 percent First Mortgage Bond series matured
and was retired. In July
2009, Nicor Gas, through a private placement, issued $50 million First Mortgage
Bonds at 4.70 percent, due in 2019.
In April
2010, Nicor Gas established a $400 million, 364-day revolver, expiring April
2011 to replace the $550 million, 364-day revolver, which was set to expire in
May 2010 and Nicor and Nicor Gas established a $600 million, three-year
revolver, expiring April 2013 to replace the $600 million, five-year revolver,
which was set to expire in September 2010. These facilities were
established with major domestic and foreign banks and serve as backup for the
issuance of commercial paper. The company had $228 million, $494
million and $484 million of commercial paper borrowings outstanding at March 31,
2010, December 31, 2009 and March 31, 2009, respectively.
In March
2010, Nicor entered into a $50 million notional forward-starting interest rate
swap to hedge the risk associated with the interest payments attributable to the
probable issuance of long-term fixed-rate debt in 2012 to finance the
development of a natural gas storage facility. Under the terms of the
swap, Nicor agrees to pay a fixed swap rate and receive a floating rate based on
LIBOR.
The
company believes it is in compliance with all debt covenants.
5. INCOME
TAXES
The
effective income tax rate for the three months ended March 31, 2010 increased to
32.0 percent from 30.6 percent in the prior-year period. The higher
effective income tax rate for the three months ended March 31, 2010 is due
primarily to higher forecasted annual pretax income (which causes a higher
effective income tax rate since permanent differences and tax credits are a
smaller share of pretax income), lower forecasted annual undistributed foreign
earnings and the unfavorable impact of the tax law change with respect to
Medicare Part D subsidies. Partially offsetting these factors were
favorable tax reserve adjustments recognized in the first quarter of
2010.
In March
2010, the Health Care Act was signed into law resulting in comprehensive health
care reform legislation. The Health Care Act contains a provision
that eliminates the tax deduction related to Medicare Part D subsidies received
after 2012. Federal subsidies are provided to sponsors of retiree
health benefit plans, such as Nicor Gas, that provide a benefit that is at least
actuarially equivalent to the benefits under Medicare Part D. Such
subsidies have reduced the company’s actuarially determined projected benefit
obligation and annual net periodic benefit costs. Due to the change
in taxation, in the first quarter of 2010 Nicor Gas reduced deferred tax assets
by $17.5 million, reversed an existing regulatory income tax liability of $10.0
million, established a regulatory income tax asset of $7.0 million and
recognized a $0.5 million charge to income tax expense. Beginning in
2010, the change in taxation will also reduce earnings by an estimated $1.5
million annually for periods subsequent to the enactment date.
In 2006,
the company reorganized certain shipping and related operations. The
reorganization allows the company to take advantage of certain provisions of the
Jobs Act that provide the opportunity for tax savings subsequent to the date of
the reorganization. Generally, to the extent foreign shipping
earnings are not repatriated to the United States, such earnings are not
expected to be subject to current taxation. In addition, to the
extent such earnings are determined to be indefinitely reinvested offshore, no
deferred income tax expense would be recorded by the company. For the
three months ended March 31, 2010 and 2009, income tax expense (benefit) has not
been provided on approximately ($3) million and $5 million, respectively, of
foreign company shipping earnings (loss). As of March 31, 2010, Nicor
has not recorded deferred income taxes of approximately $57 million on
approximately $162 million of cumulative undistributed foreign
earnings.
The
company's major tax jurisdictions include the United States and Illinois, with
tax returns examined by the IRS and IDR, respectively. At March 31,
2010, the years that remain subject to examination include years beginning after
2006 for the IRS and years beginning after 2005 for the IDR. The
company’s liability for unrecognized tax benefits was $4.4 million at March 31,
2010 of which about $3 million, if recognized, would impact the company’s
effective income tax rate. The decrease in the liability for
unrecognized tax benefits from $9.6 million at December 31, 2009 is due
primarily to the settlement of an item concerning the timing of inclusion in
taxable income of recoveries for environmental clean-up expenditures, lapses of
statute of limitations and other tax reserve adjustments. The company
believes that it is reasonably possible that a change in the liability for
unrecognized tax benefits could occur within 12 months, potentially decreasing
it by $4 million.
The
balance of unamortized investment tax credits at March 31, 2010, December 31,
2009 and March 31, 2009 was $24.7 million, $25.2 million and $25.4 million,
respectively.
6. FAIR
VALUE MEASUREMENTS
The fair
value of assets and liabilities that are measured on a recurring basis are
categorized in the table below (in millions) into three broad levels (with Level
1 considered the most reliable) based upon the valuation inputs.
Quoted
prices in active markets
|
Significant
observable inputs
|
Significant
unobservable inputs
|
||||||||||||||
(Level
1)
|
(Level
2)
|
(Level
3)
|
Total
|
|||||||||||||
March
31, 2010
|
||||||||||||||||
Assets
|
||||||||||||||||
Money
market funds
|
$ | 111.8 | $ | - | $ | - | $ | 111.8 | ||||||||
Commodity
derivatives
|
26.4 | 38.0 | 4.8 | 69.2 | ||||||||||||
$ | 138.2 | $ | 38.0 | $ | 4.8 | $ | 181.0 | |||||||||
Liabilities
|
||||||||||||||||
Commodity
derivatives
|
$ | 101.2 | $ | 75.1 | $ | 12.4 | $ | 188.7 | ||||||||
December 31, 2009 | ||||||||||||||||
Assets | ||||||||||||||||
Money market funds | $ | 121.1 | $ | - | $ | - | $ | 121.1 | ||||||||
Commodity derivatives | 14.6 | 16.8 | 8.8 | 40.2 | ||||||||||||
$ | 135.7 | $ | 16.8 | $ | 8.8 | $ | 161.3 | |||||||||
Liabilities | ||||||||||||||||
Commodity derivatives | $ | 54.2 | $ | 29.3 | $ | 3.8 | $ | 87.3 | ||||||||
March 31, 2009 | ||||||||||||||||
Assets | ||||||||||||||||
Money market funds | $ | 90.2 | $ | - | $ | - | $ | 90.2 | ||||||||
Commodity derivatives | 35.1 | 20.4 | 17.0 | 72.5 | ||||||||||||
$ | 125.3 | $ | 20.4 | $ | 17.0 | $ | 162.7 | |||||||||
Liabilities | ||||||||||||||||
Commodity derivatives | $ | 225.1 | $ | 42.0 | $ | 1.3 | $ | 268.4 |
When
available and appropriate, the company uses quoted market prices in active
markets to determine fair value and classifies such items within Level
1. For derivatives, Level 1 values include only those derivative
instruments traded on the NYMEX. The company enters into
over-the-counter instruments with values that are similar to, and correlate
with, quoted prices for exchange-traded instruments in active markets; the fair
value of these over-the-counter items consider credit risk and are classified
within Level 2. In certain instances, the company may be required to
determine a fair value using significant unobservable inputs such as indicative
broker prices; the resulting valuation is classified as Level 3.
The net
fair value of derivatives relates largely to Nicor Gas. The majority
of derivatives held by Nicor Gas are for the purpose of hedging natural gas
purchases for its customers, and therefore their fair values do not affect net
income, as their settlement is passed directly through to customers without
markup, subject to ICC review. The change in fair value for these
derivatives is accounted for through regulatory assets and
liabilities.
The
following table presents a reconciliation of the Level 3 beginning and ending
net derivative asset (liability) balances for the three months ended March 31
(in millions):
2010
|
2009
|
|||||||
Beginning
of period
|
$ | 5.0 | $ | 1.6 | ||||
Net
realized/unrealized gains (losses)
|
||||||||
Included
in regulatory assets and liabilities
|
(1.3 | ) | (.1 | ) | ||||
Included
in net income
|
(6.3 | ) | 9.4 | |||||
Settlements,
net of issuances
|
.8 | 1.1 | ||||||
Transfers
into Level 3
|
- | 4.2 | ||||||
Transfers
out of Level 3
|
(5.8 | ) | (.5 | ) | ||||
End
of period
|
$ | (7.6 | ) | $ | 15.7 | |||
Net
realized/unrealized gains (losses) included in net income are attributable to
Nicor Enerchange and are classified as operating revenues. At March
31, 2010, net unrealized gains (losses) included in net income relating to
derivatives still held were ($9.6) million.
Transfers
into and out of Level 3 reflect the liquidity at the relevant natural gas
trading locations which affects the significance of unobservable inputs used in
the valuation. In 2010, in accordance with new accounting guidance, the
company elected to determine both transfers in and out of Level 3 using values
at the end of the interim period in which the transfer occurred. In
2009, transfers into Level 3 were determined using beginning of period values
and transfers out of Level 3 were determined using end of period
values.
Nicor
maintains margin accounts related to financial derivative
transactions. The company’s policy is not to offset the fair value of
assets and liabilities recognized for derivative instruments or any related
margin account. The following table represents the balances of margin
accounts related to derivative instruments (in millions):
March
31
|
December
31
|
March
31
|
||||||||||
2010
|
2009
|
2009
|
||||||||||
Assets
|
||||||||||||
Margin
accounts – derivative instruments
|
$ | 81.4 | $ | 46.1 | $ | 191.4 | ||||||
Other
– noncurrent
|
26.6 | 13.8 | 45.7 | |||||||||
In
addition, the recorded amount of restricted short and long-term investments and
short-term borrowings approximates fair value. Long-term debt
outstanding, including current maturities, is recorded at the principal balance
outstanding, net of unamortized discounts. The principal balance of
Nicor Gas’ First Mortgage Bonds outstanding at March 31, 2010, December 31, 2009
and March 31, 2009 was $500 million, $500 million and $450 million,
respectively. Based on quoted prices or market interest rates, the
fair value of the company’s First Mortgage Bonds outstanding was approximately
$530 million at March 31, 2010, $543 million at December 31, 2009 and $453
million at March 31, 2009.
7.
|
DERIVATIVE
INSTRUMENTS
|
A
description of the company’s objectives and strategies for using derivative
instruments, and related accounting policies, is included in Note 2 – Accounting
Policies – Derivative instruments and Credit risk and
concentrations. All derivatives recognized on the Condensed
Consolidated Balance Sheets are measured at fair value, as described in Note 6 –
Fair Value Measurements.
Condensed Consolidated Balance
Sheets. Derivative assets and liabilities are shown in the
table below (in millions):
March
31
|
December
31
|
March
31
|
||||||||||
2010
|
2009
|
2009
|
||||||||||
Derivatives
designated as hedging instruments
|
||||||||||||
Assets
|
||||||||||||
Derivative
instruments
|
$ | - | $ | .3 | $ | - | ||||||
Liabilities
|
||||||||||||
Derivative
instruments
|
$ | 2.8 | $ | 1.0 | $ | 6.1 | ||||||
Other
– noncurrent
|
.2 | - | .5 | |||||||||
$ | 3.0 | $ | 1.0 | $ | 6.6 | |||||||
Derivatives
not designated as hedging instruments
|
||||||||||||
Assets
|
||||||||||||
Derivative
instruments
|
$ | 54.3 | $ | 30.6 | $ | 61.2 | ||||||
Other
– noncurrent
|
14.9 | 9.3 | 11.3 | |||||||||
$ | 69.2 | $ | 39.9 | $ | 72.5 | |||||||
Liabilities
|
||||||||||||
Derivative
instruments
|
$ | 148.4 | $ | 71.3 | $ | 213.0 | ||||||
Other
– noncurrent
|
37.3 | 15.0 | 48.8 | |||||||||
$ | 185.7 | $ | 86.3 | $ | 261.8 |
Volumes. As of
March 31, 2010, December 31, 2009 and March 31, 2009, Nicor Gas held outstanding
derivative contracts of approximately 67 Bcf, 64 Bcf and 75 Bcf, respectively to
hedge natural gas purchases for customer use, with hedges spanning approximately
three years for each of the respective periods. Commodity price-risk
exposure arising from Nicor Enerchange’s activities and Nicor Gas’ natural gas
purchases for company use is mitigated with derivative instruments that total to
a net long position of 0.6 Bcf, net short position of 1.3 Bcf and net long
position of 0.4 Bcf as of March 31, 2010, December 31, 2009 and March 31, 2009,
respectively. The above volumes exclude contracts such as
variable-priced contracts and basis swaps, which are accounted for as
derivatives but whose fair values are not directly impacted by changes in
commodity prices.
In March
2010, Nicor entered into a $50 million notional forward-starting interest rate
swap to hedge the risk associated with the interest payments attributable to the
probable issuance of long-term fixed-rate debt in 2012 to finance the
development of a natural gas storage facility. Under the terms of the
swap, Nicor agrees to pay a fixed swap rate and receive a floating rate based on
LIBOR. At March 31, 2010, the fair value of the swap agreement was
immaterial.
Condensed Consolidated Statements of
Operations - cash
flow hedges. Changes in the fair value of derivatives
designated as a cash flow hedge are recognized in other comprehensive income
until the hedged transaction is recognized in the Condensed Consolidated
Statements of Operations. Cash flow hedges used by the company’s
other energy ventures, to hedge utility-bill management products, are eventually
recognized within operating revenues. Cash flow hedges used by Nicor
Gas, to hedge purchases of natural gas for company use, are eventually recorded
within operating and maintenance expense.
Cash flow
hedges affected accumulated other comprehensive income as shown in the following
table (in millions):
Three
months ended
March
31
|
||||||||
2010
|
2009
|
|||||||
Pretax
gain (loss) recognized in other comprehensive income (effective
portion)
|
$ | (3.0 | ) | $ | (6.5 | ) |
The
pretax gain (loss) reclassified from accumulated other comprehensive income into
income (effective portion) is shown in the following table (in
millions):
Three
months ended
March
31
|
||||||||
Location
|
2010
|
2009
|
||||||
Operating
revenues
|
$ | (.4 | ) | $ | (8.3 | ) | ||
Operating
and maintenance
|
(.3 | ) | (4.5 | ) | ||||
$ | (.7 | ) | $ | (12.8 | ) |
As of
March 31, 2010, December 31, 2009 and March 31, 2009, the time horizon of cash
flow hedges of natural gas purchases for Nicor Gas company use and for
utility-bill management products sold by Nicor’s other energy ventures span
approximately two years for each of the respective periods. For these
hedges, the total pretax loss deferred in accumulated other comprehensive income
at March 31, 2010, December 31, 2009 and March 31, 2009 was $3.1 million ($1.9
million after taxes), $0.9 million ($0.5 million after taxes) and $7.1 million
($4.3 million after taxes), respectively. At the respective reporting
dates, substantially all of these amounts were expected to be reclassified to
earnings within the next 12 months.
Condensed Consolidated Statements of
Operations - derivatives not designated as hedges. The
earnings of the company are subject to volatility for those derivatives not
designated as hedges. Non-designated derivatives used by the
company’s other energy ventures, to hedge energy trading activities and
utility-bill management products, are recorded in operating
revenues. Non-designated derivatives used by Nicor Gas, to hedge
purchases of natural gas for company use, are recorded within operating and
maintenance expense. Pretax net gain (loss) recognized in income are
summarized in the table below (in millions):
Three
months ended
March
31
|
||||||||
Location
|
2010
|
2009
|
||||||
Operating
revenues
|
$ | (1.0 | ) | $ | (.8 | ) | ||
Operating
and maintenance
|
(.9 | ) | (1.7 | ) | ||||
$ | (1.9 | ) | $ | (2.5 | ) |
Nicor
Gas’ derivatives to hedge the purchase of natural gas for its customers are also
not designated as hedging instruments. Gains or losses on these
derivatives are not recognized in pretax earnings, but are deferred as
regulatory assets or liabilities until the related revenue is
recognized. Net losses of $90.3 million and $117.1 million were
recognized in regulatory assets for the three months ended March 31, 2010 and
2009, respectively.
Credit-risk-related contingent
features. Provisions within certain derivative agreements
require the company to post collateral if the company’s net liability position
exceeds a specified threshold. Also, certain derivative agreements
contain credit-risk-related contingent features, whereby the company would be
required to provide additional collateral or pay the amount due to the
counterparty when a credit event occurs, such as if the company’s credit rating
was to be lowered. As of March 31, 2010, December 31, 2009 and March
31, 2009 for agreements with such features, derivative contracts with liability
fair values totaled approximately $43 million, $20 million and $38 million,
respectively, for which the company had posted no collateral to its
counterparties. If it was assumed that the company had to post the
maximum contractually specified collateral or settle the liability, the company
would have been required to pay approximately $42 million, $19 million and $37
million at March 31, 2010, December 31, 2009 and March 31, 2009, respectively.
8.
|
POSTRETIREMENT
BENEFITS
|
Nicor Gas
maintains a noncontributory defined benefit pension plan covering substantially
all employees hired prior to 1998. Pension benefits are based on
years of service and the highest average salary for management employees and job
level for collectively bargained employees (referred to as pension
bands). The benefit obligation related to collectively bargained
benefits considers the company’s past practice of regular benefit
increases. Nicor Gas also provides health care and life insurance
benefits to eligible retired employees under a plan that includes a limit on the
company’s share of cost for employees hired after 1982.
The
company’s postretirement benefit costs have historically been considered in rate
proceedings in the period they are accrued. As a regulated utility,
Nicor Gas expects continued rate recovery of the eligible costs of its defined
benefit postretirement plans and, accordingly, associated changes in the plan’s
funded status have been deferred as a regulatory asset or liability until
recognized in net income, instead of being recorded in accumulated other
comprehensive income. However, to the extent Nicor Gas employees
perform services for non-regulated affiliates and to the extent such employees
are eligible to participate in these plans, the affiliates are charged for the
cost of these benefits and the changes in the funded status relating to these
employees are recorded in accumulated other comprehensive income.
About
one-fourth of the net benefit cost related to these plans has been capitalized
as a cost of constructing gas distribution facilities and the remainder is
included in gas distribution operating and maintenance expense, net of amounts
charged to affiliates. Net benefit cost included the following
components (in millions):
Pension
benefits
|
Health
care and other benefits
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Three
months ended March 31
|
||||||||||||||||
Service
cost
|
$ | 2.4 | $ | 2.2 | $ | .6 | $ | .6 | ||||||||
Interest
cost
|
4.0 | 4.1 | 3.0 | 3.0 | ||||||||||||
Expected
return on plan assets
|
(7.2 | ) | (6.3 | ) | - | - | ||||||||||
Recognized
net actuarial loss
|
3.0 | 3.8 | 1.0 | 1.1 | ||||||||||||
Amortization
of prior service cost
|
.1 | .1 | - | - | ||||||||||||
Net
benefit cost
|
$ | 2.3 | $ | 3.9 | $ | 4.6 | $ | 4.7 |
The
decrease in postretirement benefit expense in 2010 compared to 2009 is due to
the positive impact on the value of plan assets of the partial capital market
recovery in 2009, which was somewhat offset by the negative impact of a decrease
in the discount rate.
The
company is evaluating the provisions of the Health Care Act and will evaluate
future interpretations to determine the impact it may have on the company’s
future results of operations, cash flows and financial condition.
9.
|
EQUITY
INVESTMENT INCOME, NET
|
Equity
investment income includes investment income from Triton of $1.4 million and
$1.2 million for the three months ended March 31, 2010 and 2009,
respectively. Nicor received cash distributions from equity investees
for the three months ended March 31, 2010 and 2009 of $2.5 million and $2.8
million, respectively. On March 31, 2009, the company sold its
50-percent interest in EN Engineering. The company’s share of the
sale price was $16.0 million, with an additional $1.5 million which is
contingent on EN Engineering’s 2010 performance and would be due in
2011. After closing costs and other adjustments, Nicor received cash
of $13.0 million and recorded a gain on the sale of $10.1 million.
10.
|
COMPREHENSIVE
INCOME
|
Total
comprehensive income is as follows (in millions):
Three
months ended
|
||||||||
March
31
|
||||||||
2010
|
2009
|
|||||||
Net
income
|
$ | 60.5 | $ | 43.8 | ||||
Other
comprehensive income (loss), after tax
|
(1.4 | ) | 4.0 | |||||
Total
comprehensive income
|
$ | 59.1 | $ | 47.8 |
Other
comprehensive income (loss) consists primarily of net unrealized gains and
losses from derivative financial instruments accounted for as cash flow
hedges.
11. BUSINESS
SEGMENT INFORMATION
Financial
data by reportable segment is as follows (in millions):
Nicor
Inc.
|
||||||||
Business
Segments - Financial Data
|
||||||||
Three
months ended
|
||||||||
March
31
|
||||||||
2010
|
2009
|
|||||||
Gas
distribution
|
||||||||
Operating
revenues
|
||||||||
External
customers
|
$ | 1,050.0 | $ | 964.8 | ||||
Intersegment
|
18.8 | 19.2 | ||||||
$ | 1,068.8 | $ | 984.0 | |||||
Operating
income
|
$ | 93.2 | $ | 53.8 | ||||
Shipping
|
||||||||
Operating
revenues
|
||||||||
External
customers
|
$ | 83.5 | $ | 89.4 | ||||
Intersegment
|
- | - | ||||||
$ | 83.5 | $ | 89.4 | |||||
Operating
income (loss)
|
$ | (0.5 | ) | $ | 6.6 | |||
Other
Energy Ventures
|
||||||||
Wholesale
marketing
|
||||||||
Operating
revenues
|
||||||||
External
customers
|
$ | 5.6 | $ | (2.3 | ) | |||
Intersegment
|
5.7 | 20.0 | ||||||
$ | 11.3 | $ | 17.7 | |||||
Operating
income
|
$ | 4.7 | $ | 9.7 | ||||
Other
|
||||||||
Operating
revenues
|
||||||||
External
customers
|
$ | 53.8 | $ | 58.9 | ||||
Intersegment
|
0.6 | 0.5 | ||||||
$ | 54.4 | $ | 59.4 | |||||
Operating
loss
|
$ | (0.3 | ) | $ | (7.1 | ) | ||
Corporate
and eliminations
|
||||||||
Operating
revenues
|
||||||||
External
customers
|
$ | - | $ | - | ||||
Intersegment
|
(25.1 | ) | (39.7 | ) | ||||
$ | (25.1 | ) | $ | (39.7 | ) | |||
Operating
loss
|
$ | (1.1 | ) | $ | (3.1 | ) | ||
Consolidated
|
||||||||
Operating
revenues
|
||||||||
External
customers
|
$ | 1,192.9 | $ | 1,110.8 | ||||
Intersegment
|
- | - | ||||||
$ | 1,192.9 | $ | 1,110.8 | |||||
Operating
income
|
$ | 96.0 | $ | 59.9 |
Intersegment
revenues include gas distribution revenues related to customers entering into
utility-bill management contracts with Nicor Solutions and wholesale marketing
revenues from the sale of natural gas to Nicor Advanced Energy. Under
the utility-bill management contracts, Nicor Solutions bills a fixed amount to a
customer, regardless of changes in natural gas prices or weather, and in
exchange pays the customer’s utility bills from Nicor Gas. Nicor
Advanced Energy provides natural gas and related services on an unregulated
basis to residential and small commercial customers and purchases most of its
natural gas supplies from Nicor Enerchange. Intersegment revenues are
eliminated in the Condensed Consolidated Financial Statements.
Costs
associated with Nicor’s other energy ventures’ utility-bill management contracts
attributable to colder than normal weather for the three months ended March 31,
2010 and 2009 were $1.3 million and $2.6 million, respectively. This
cost is recorded primarily at the corporate level as a result of an agreement
between the parent company and certain of its subsidiaries. The
weather impact of these contracts generally serves to partially offset the gas
distribution segment’s weather risk.
12. REGULATORY
PROCEEDINGS
Rate proceeding. On
March 25, 2009, the ICC issued an order approving an increase in base revenues
of approximately $69 million, a rate of return on rate base of 7.58 percent and
a rate of return on equity of 10.17 percent. The order also approved
an energy efficiency rider. Nicor Gas placed the rates approved in
the March 25, 2009 order into effect on April 3, 2009.
On April
24, 2009, Nicor Gas filed a request for rehearing with the ICC concerning the
capital structure contained in the ICC’s rate order contending the company’s
return on rate base should be higher. On May 13, 2009, the ICC agreed
to conduct a rehearing. On October 7, 2009, the ICC issued its
decision on rehearing in which it increased the annual base revenues approved
for Nicor Gas in the March 25, 2009 order by approximately $11 million,
increasing the rate of return on rate base to 8.09 percent. Nicor Gas
placed the rates approved in the rehearing decision into effect on a prospective
basis on October 15, 2009. Therefore, the total annual base revenue
increase authorized in the rate case originally filed by the company in April
2008 is approximately $80 million.
Bad debt rider. In
September 2009, Nicor Gas filed for approval of a bad debt rider with the ICC
under an Illinois state law which took effect in July 2009. On
February 2, 2010, the ICC issued an order approving the company’s proposed bad
debt rider. This rider provides for recovery from customers of the
amount over the benchmark for bad debt expense established in the company’s rate
cases. It also provides for refunds to customers if bad debt expense
is below such benchmarks.
As a
result of the February 2010 order, Nicor Gas recorded in the first quarter of
2010 a net recovery related to 2008 and 2009 of $31.7 million; substantially all
of this amount is expected to be collected in 2010. The benchmark,
against which 2010 actual bad debt expense will be compared, is approximately
$63 million.
Petition for Re-approval of Operating
Agreement. On July 1, 2009, Nicor Gas filed a petition seeking
re-approval from the ICC of the operating agreement that governs many
inter-company transactions between Nicor Gas and its affiliates. The
petition was filed pursuant to a requirement contained in the ICC order
approving the company’s most recent general rate increase and requested that the
operating agreement be re-approved without change. A number of
parties have intervened in the proceeding and are seeking modifications to the
operating agreement to restrict or prohibit certain services Nicor Gas and its
affiliates currently are permitted to provide to one another. Nicor
Gas does not believe these proposed modifications are appropriate and intends to
oppose them. If certain of the proposed modifications to the
operating agreement are required by the ICC, they could adversely impact the
company’s results of operations, cash flows and financial
condition.
13.
|
GUARANTEES
AND INDEMNITIES
|
Nicor and
certain subsidiaries enter into various financial and performance guarantees and
indemnities providing assurance to third parties.
Financial
guarantees. TEL has an obligation to restore to zero any
deficit in its equity account for income tax purposes in the unlikely event that
Triton is liquidated and a deficit balance remains. This obligation
continues for the life of the Triton partnerships and any payment is effectively
limited to the assets of TEL, which were approximately $7 million at March 31,
2010. Nicor believes the likelihood of any such payment by TEL is
remote. No liability has been recorded for this
obligation.
Performance guarantees.
Nicor Services markets product warranty contracts that provide for the
repair of heating, ventilation and air conditioning equipment, natural gas lines
and other appliances within homes. Revenues from these product
warranty contracts are recognized ratably over the coverage period, and related
repair costs are charged to expense as incurred. Repair expenses of
$2.4 million and $1.9 million were incurred in the three months ended March 31,
2010 and 2009, respectively.
Indemnities. In
certain instances, Nicor has undertaken to indemnify current property owners and
others against costs associated with the effects and/or remediation of
contaminated sites for which the company may be responsible under applicable
federal or state environmental laws, generally with no limitation as to the
amount. These indemnifications relate primarily to ongoing coal tar
cleanup, as discussed in 14 – Contingencies – Manufactured Gas Plant
Sites. Nicor believes that the likelihood of payment under its other
environmental indemnifications is remote. No liability has been
recorded for such indemnifications.
Nicor has
also indemnified, to the fullest extent permitted under the laws of the State of
Illinois and any other applicable laws, its present and former directors,
officers and employees against expenses they may incur in connection with
litigation they are a party to by reason of their association with the
company. There is generally no limitation as to the amount.
During 2007, the SEC filed a civil injunctive action against three former
officers of Nicor relating to the PBR Plan. Defense costs that are
being incurred by these former officers in connection with the SEC action
currently are being tendered to, and paid by, the company’s
insurer. While the company does not expect to incur significant costs
relating to the indemnification of present and former directors, officers and
employees after taking into account available insurance, it is not possible to
estimate the maximum future potential payments.
14.
CONTINGENCIES
The following contingencies of Nicor are in various stages of investigation or disposition. Although in some cases the company is unable to estimate the amount of loss reasonably possible in addition to any amounts already recognized, it is possible that the resolution of these contingencies, either individually or in aggregate, will require the company to take charges against, or will result in reductions in, future earnings. It is the opinion of management that the resolution of these contingencies, either individually or in aggregate, could be material to earnings in a particular period but is not expected to have a material adverse impact on Nicor’s liquidity or financial condition.
PBR Plan. Nicor
Gas’ PBR plan for natural gas costs went into effect in 2000 and was terminated
by the company effective January 1, 2003. Under the PBR plan, Nicor
Gas’ total gas supply costs were compared to a market-sensitive
benchmark. Savings and losses relative to the benchmark were
determined annually and shared equally with sales customers. The PBR
plan is currently under ICC review. There are allegations that the company
acted improperly in connection with the PBR plan, and the ICC and others are
reviewing these allegations. On June 27, 2002, the Citizens Utility
Board (“CUB”) filed a motion to reopen the record in the ICC’s proceedings to
review the PBR plan (the “ICC Proceedings”). As a result of the
motion to reopen, Nicor Gas, the staff of the ICC and CUB entered into a
stipulation providing for additional discovery. The Illinois Attorney
General’s Office (“IAGO”) has also intervened in this matter. In
addition, the IAGO issued Civil Investigation Demands (“CIDs”) to
CUB and
the ICC staff. The CIDs ordered that CUB and the ICC staff produce
all documents relating to any claims that Nicor Gas may have presented, or
caused to be presented, false information related to its PBR
plan. The company has committed to cooperate fully in the reviews of
the PBR plan.
In
response to these allegations, on July 18, 2002, the Nicor Board of Directors
appointed a special committee of independent, non-management directors to
conduct an inquiry into issues surrounding natural gas purchases, sales,
transportation, storage and such other matters as may come to the attention of
the special committee in the course of its investigation. The special
committee presented the report of its counsel (“Report”) to Nicor’s Board of
Directors on October 28, 2002.
In
response, the Nicor Board of Directors directed the company’s management to,
among other things, make appropriate adjustments to account for, and fully
address, the adverse consequences to ratepayers of the items noted in the
Report, and conduct a detailed study of the adequacy of internal accounting and
regulatory controls. The adjustments were made in prior years’
financial statements resulting in a $24.8 million liability. Included
in such $24.8 million liability is a $4.1 million loss contingency. A
$1.8 million adjustment to the previously recorded liability, which is discussed
below, was made in 2004 increasing the recorded liability to $26.6
million. Nicor Gas estimates that there is $26.9 million due to the
company from the 2002 PBR plan year, which has not been recognized in the
financial statements due to uncertainties surrounding the PBR
plan. In addition, interest due to the company on certain components
of these amounts has not been recognized in the financial statements due to the
same uncertainties. By the end of 2003, the company completed steps to
correct the weaknesses and deficiencies identified in the detailed study of the
adequacy of internal controls.
Pursuant
to the agreement of all parties, including the company, the ICC re-opened the
1999 and 2000 purchased gas adjustment filings for review of certain
transactions related to the PBR plan and consolidated the reviews of the
1999-2002 purchased gas adjustment filings with the PBR plan
review.
On
February 5, 2003, CUB filed a motion for $27 million in sanctions against the
company in the ICC Proceedings. In that motion, CUB alleged that
Nicor Gas’ responses to certain CUB data requests were false. Also on
February 5, 2003, CUB stated in a press release that, in addition to $27 million
in sanctions, it would seek additional refunds to consumers. On March
5, 2003, the ICC staff filed a response brief in support of CUB’s motion for
sanctions. On May 1, 2003, the ALJs assigned to the proceeding issued
a ruling denying CUB’s motion for sanctions. CUB has filed an appeal
of the motion for sanctions with the ICC, and the ICC has indicated that it will
not rule on the appeal until the final disposition of the ICC
Proceedings. It is not possible to determine how the ICC will resolve
the claims of CUB or other parties to the ICC Proceedings.
In 2004,
the company became aware of additional information relating to the activities of
individuals affecting the PBR plan for the period from 1999 through 2002,
including information consisting of third party documents and recordings of
telephone conversations from Entergy-Koch Trading, LP (“EKT”), a natural gas,
storage and transportation trader and consultant with whom Nicor did business
under the PBR plan. Review of additional information completed in
2004 resulted in the $1.8 million adjustment to the previously recorded
liability referenced above.
The
evidentiary hearings on this matter were stayed in 2004 in order to permit the
parties to undertake additional third party discovery from EKT. In
December 2006, the additional third party discovery from EKT was obtained and
the ALJs issued a scheduling order that provided for Nicor Gas to submit direct
testimony by April 13, 2007. In its direct testimony, Nicor Gas seeks
a reimbursement of approximately $6 million, which includes interest due to the
company, as noted above, of $1.6 million, as of March 31, 2007. In
September 2009, the staff of the ICC, IAGO and CUB submitted direct testimony to
the ICC requesting refunds of $109 million, $255 million and $286 million,
respectively. No date has been set for evidentiary hearings on this
matter.
Nicor is
unable to predict the outcome of the ICC’s review or the company’s potential
exposure thereunder. Because the PBR plan and historical gas costs
are still under ICC review, the final outcome could be materially different than
the amounts reflected in the company’s financial statements as of March 31,
2010.
Mercury. Nicor Gas
has incurred, and expects to continue to incur, costs related to its historical
use of mercury in various kinds of company equipment.
As of
March 31, 2010, Nicor Gas had remaining an estimated liability of $2.0 million
related to inspection, cleanup and legal defense costs. This
represents management’s best estimate of future costs based on an evaluation of
currently available information. Actual costs may vary from this
estimate. Nicor Gas remains a defendant in several private lawsuits,
all in the Circuit Court of Cook County, Illinois, seeking a variety of
unquantified damages (including bodily injury and property damages) allegedly
caused by mercury spillage resulting from the removal of mercury-containing
regulators. Potential liabilities relating to these claims have been
assumed by a contractor’s insurer subject to certain limitations.
The final
disposition of these mercury-related matters is not expected to have a material
adverse impact on the company’s liquidity or financial condition.
Manufactured Gas Plant
Sites. Manufactured gas plants were used in the 1800’s and
early to mid 1900’s to produce manufactured gas from coal, creating a coal tar
byproduct. Current environmental laws may require the cleanup of coal
tar at certain former manufactured gas plant sites.
Nicor Gas
has identified properties for which it may have some
responsibility. Most of these properties are not presently owned by
the company. Nicor Gas and Commonwealth Edison Company (“ComEd”) are
parties to an agreement to cooperate in cleaning up residue at many of these
properties. The agreement allocates to Nicor Gas 51.73 percent of
cleanup costs for 24 sites, no portion of the cleanup costs for 14 other sites
and 50 percent of general remediation program costs that do not relate
exclusively to particular sites. Information regarding preliminary
site reviews has been presented to the Illinois Environmental Protection Agency
for certain properties. More detailed investigations and remedial
activities are complete, in progress or planned at many of these
sites. The results of the detailed site-by-site investigations will
determine the extent additional remediation is necessary and provide a basis for
estimating additional future costs. As of March 31, 2010, the company
had recorded a liability in connection with these matters of $28.2
million. In accordance with ICC authorization, the company has been
recovering, and expects to continue to recover, these costs from its customers,
subject to annual prudence reviews.
In April
2002, Nicor Gas was named as a defendant, together with ComEd, in a lawsuit
brought by the Metropolitan Water Reclamation District of Greater Chicago (the
“MWRDGC”) under the Federal Comprehensive Environmental Response, Compensation
and Liability Act seeking recovery of past and future remediation costs and a
declaration of the level of appropriate cleanup for a former manufactured gas
plant site in Skokie, Illinois now owned by the MWRDGC. In January
2003, the suit was amended to include a claim under the Federal Resource
Conservation and Recovery Act. The suit was filed in the United
States District Court for the Northern District of
Illinois. Management cannot predict the outcome of this litigation or
the company’s potential exposure thereto, if any, and has not recorded a
liability associated with this contingency.
Since
costs and recoveries relating to the cleanup of manufactured gas plant sites are
passed directly through to customers in accordance with ICC regulations, subject
to an annual ICC prudence review, the final disposition of manufactured gas
plant matters is not expected to have a material impact on the company’s
financial condition or results of operations.
Municipal Tax
Matters. Many municipalities in Nicor Gas’ service territory
have enacted ordinances that impose taxes on gas sales to customers within
municipal boundaries. Most of these municipal taxes are imposed on
Nicor Gas based on revenues generated by Nicor Gas within the
municipality. Other municipal taxes are imposed on natural gas
consumers within the municipality but are collected from consumers and remitted
to the municipality by Nicor Gas. A number of municipalities have
instituted audits of Nicor Gas’ tax remittances. In May 2007, five of
those municipalities filed an action against Nicor Gas in state court in DuPage
County, Illinois relating to these tax audits. Following a dismissal
of this action without prejudice by the trial court, the municipalities filed an
amended complaint. The amended complaint seeks, among other things,
compensation for alleged unpaid taxes. Nicor Gas is contesting the
claims in the amended complaint. In December 2007, 25 additional
municipalities, all represented by the same audit firm involved in the lawsuit,
issued assessments to Nicor Gas claiming that it failed to provide information
requested by the audit firm and owed the municipalities back
taxes. Nicor Gas believes the assessments are improper and has
challenged them. While the company is unable to predict the outcome
of these matters or to reasonably estimate its potential exposure related
thereto, if any, and has not recorded a liability associated with this
contingency, the final disposition of these matters is not expected to have a
material adverse impact on the company’s liquidity or financial
condition.
Other. In addition to
the matters set forth above, the company is involved in legal or administrative
proceedings before various courts and agencies with respect to general claims,
taxes, environmental, gas cost prudence reviews and other
matters. Although unable to determine the ultimate outcome of these
other contingencies, management believes that these amounts are appropriately
reflected in the financial statements, including the recording of appropriate
liabilities when reasonably estimable.
The
following discussion should be read in conjunction with the Management’s
Discussion and Analysis section of the Nicor 2009 Annual Report on Form
10-K. Results for the interim periods presented are not necessarily
indicative of the results to be expected for the full fiscal year due to
seasonal and other factors.
SUMMARY
Nicor is
a holding company. Gas distribution is Nicor’s primary
business. Nicor’s subsidiaries include Nicor Gas, one of the nation’s
largest distributors of natural gas, and Tropical Shipping, a transporter of
containerized freight in the Bahamas and the Caribbean region. Nicor
also owns several energy-related ventures, including Nicor Services, Nicor
Solutions and Nicor Advanced Energy, which provide energy-related products and
services to retail markets, and Nicor Enerchange, a wholesale natural gas
marketing company. Nicor also has equity interests in a cargo
container leasing business, a FERC-regulated natural gas pipeline and certain
affordable housing investments.
Net
income and diluted earnings per common share are presented below (in millions,
except per share data):
Three
months ended
|
||||||||
March
31
|
||||||||
2010
|
2009
|
|||||||
Net
income
|
$ | 60.5 | $ | 43.8 | ||||
Diluted
earnings per common share
|
$ | 1.33 | $ | .96 |
Comparisons
of the three months ended results reflect higher operating income in the
company’s gas distribution business and other energy-related businesses and
improved corporate operating results, partially offset by lower operating
results in the company’s shipping business, lower equity investment income and a
higher effective income tax rate in 2010.
Rate proceeding. On
March 25, 2009, the ICC issued an order approving an increase in base revenues
of approximately $69 million, a rate of return on rate base of 7.58 percent and
a rate of return on equity of 10.17 percent. The order also approved
an energy efficiency rider. Nicor Gas placed the rates approved in
the March 25, 2009 order into effect on April 3, 2009.
On April
24, 2009, Nicor Gas filed a request for rehearing with the ICC concerning the
capital structure contained in the ICC’s rate order contending the company’s
return on rate base should be higher. On May 13, 2009, the ICC agreed
to conduct a rehearing. On October 7, 2009, the ICC issued its
decision on rehearing in which it increased the annual base revenues approved
for Nicor Gas in the March 25, 2009 order by approximately $11 million,
increasing the rate of return on rate base to 8.09 percent. Nicor Gas
placed the rates approved in the rehearing decision into effect on a prospective
basis on October 15, 2009. Therefore, the total annual base revenue
increase authorized in the rate case originally filed by the company in April
2008 is approximately $80 million.
Bad debt rider. In
September 2009, Nicor Gas filed for approval of a bad debt rider with the ICC
under an Illinois state law which took effect in July 2009. On
February 2, 2010, the ICC issued an order approving the company’s proposed bad
debt rider. This rider provides for recovery from customers of the
amount over the benchmark for bad debt expense established in the company’s rate
cases. It also provides for refunds to customers if bad debt expense
is below such benchmarks.
As a
result of the February 2010 order, Nicor Gas recorded in the first quarter of
2010 a net recovery related to 2008 and 2009 of $31.7 million; substantially all
of this amount is expected to be collected in 2010. The benchmark,
against which 2010 actual bad debt expense will be compared, is approximately
$63 million.
Health Care Reform
Legislation. The Health Care Act contains a provision that
eliminates the tax deduction related to Medicare Part D subsidies received after
2012. Federal subsidies are provided to sponsors of retiree health
benefit plans, such as Nicor Gas, that provide a benefit at least actuarially
equivalent to the benefits under Medicare Part D. Such subsidies have
reduced the company’s actuarially determined projected benefit obligation and
annual net periodic benefit costs. Due to the change in taxation, in
the first quarter of 2010 Nicor Gas reduced deferred tax assets by $17.5
million, reversed an existing regulatory income tax liability of $10.0 million,
established a regulatory income tax asset of $7.0 million and recognized a $0.5
million charge to income tax expense. Beginning in 2010, the change
in taxation will also reduce earnings by an estimated $1.5 million annually for
periods subsequent to the enactment date.
The
company is evaluating the other provisions of the Health Care Act and will
evaluate future interpretations to determine the impact it may have on the
company’s future results of operations, cash flows and financial
condition.
Capital market
environment. The volatility in the capital markets over the
past two years has caused general concern over the valuations of investments,
exposure to increased credit risk and pressures on liquidity. The
company continues to review its investments, exposure to credit risk and sources
of liquidity and does not currently expect any future material adverse impacts
relating to this past volatility.
Operating
income. Operating income (loss) by the company’s major
businesses is presented below (in millions):
Three
months ended
|
||||||||
March
31
|
||||||||
2010
|
2009
|
|||||||
Gas
distribution
|
$ | 93.2 | $ | 53.8 | ||||
Shipping
|
(.5 | ) | 6.6 | |||||
Other
energy ventures
|
4.4 | 2.6 | ||||||
Corporate
and eliminations
|
(1.1 | ) | (3.1 | ) | ||||
$ | 96.0 | $ | 59.9 |
The
following summarizes operating income (loss) comparisons by the company’s major
businesses:
·
|
Gas
distribution operating income increased $39.4 million for the three months
ended March 31, 2010 compared to the prior year due primarily to lower
operating and maintenance expense ($26.8 million decrease of which $31.7
million relates to the net under-recovery of bad expense discussed
previously) and higher gas distribution margin ($14.0 million increase),
partially offset by higher depreciation expense ($1.6 million
increase).
|
·
|
Shipping
operating results decreased $7.1 million for the three months ended March
31, 2010 compared to the prior year due to lower operating revenues ($5.9
million decrease) and higher operating costs ($1.2 million
increase). Lower operating revenues were attributable to lower
average rates. Operating costs were higher due primarily to higher
transportation-related costs, partially offset by lower charter
costs.
|
·
|
Nicor’s
other energy ventures operating income increased $1.8 million for the
three months ended March 31, 2010 compared to the prior year due primarily
to higher operating income at Nicor’s energy-related products and services
businesses ($6.6 million increase), partially offset by lower operating
results at Nicor’s wholesale natural gas marketing business, Nicor
Enerchange ($5.0 million decrease). Higher operating
income at Nicor’s energy-related products and services businesses was due
to lower operating expenses ($11.6 million decrease), partially offset by
lower operating revenues ($5.0 million decrease). Lower
operating income at Nicor Enerchange was due to unfavorable costing of
physical sales activity and unfavorable results from the company’s risk
management services associated with hedging the product risks of the
utility-bill management contracts offered by Nicor’s energy-related
products and services businesses, partially offset by favorable changes in
valuations of derivative instruments used to hedge purchases and sales of
natural gas inventory.
|
Nicor
Enerchange uses derivatives to mitigate commodity price risk in order to
substantially lock-in the profit margin that will ultimately be
realized. A source of commodity price risk arises as Nicor Enerchange
purchases and holds natural gas in storage to earn a profit margin from its
ultimate sale. However, gas stored in inventory is required to be
accounted for at the lower of weighted-average cost or market, whereas the
derivatives used to reduce the risk associated with a change in the value of the
inventory are carried at fair value, with changes in fair value recorded in
operating results in the period of change. In addition, Nicor
Enerchange also uses derivatives to mitigate the commodity price risks of the
utility-bill management products offered by Nicor’s energy-related products and
services businesses. The gains and losses associated with the
utility-bill management products are recognized in the months that the services
are provided. However, the underlying derivatives used to hedge the
price exposure are carried at fair value. For derivatives that either
do not meet the requirements for hedge accounting or for which hedge accounting
is not elected, the changes in fair value are recorded in operating results in
the period of change. As a result, earnings are subject to volatility
as the fair value of derivatives change. The volatility resulting
from this accounting can be significant from period to period.
·
|
Corporate
and eliminations operating results improved $2.0 million for the three
months ended March 31, 2010 compared to the prior year due to lower costs
of a natural weather hedge associated with the utility-bill management
products offered by Nicor’s energy-related products and services
businesses ($1.3 million decrease) and an insurance recovery on a
previously settled legal matter ($0.7 million). The company
recorded $1.3 million of costs associated with the natural weather hedge
in the current year compared to $2.6 million of costs recorded in the
prior year. Benefits or costs resulting from variances from
normal weather related to these products are recorded primarily at the
corporate level as a result of an agreement between the parent company and
certain of its subsidiaries. The weather impact of these
contracts generally serves to partially offset the gas distribution
business’ weather risk. The amount of the offset attributable
to the utility-bill management products marketed by Nicor’s other energy
ventures will vary depending upon a number of factors including the time
of year, weather patterns, the number of customers for these products and
the market price for natural gas.
|
RESULTS
OF OPERATIONS
Details
of various financial and operating information by major business can be found in
the tables throughout this review. The following discussion
summarizes the major items impacting Nicor’s operating income.
Operating
revenues. Operating revenues by the company’s major businesses
are presented below (in millions):
Three
months ended
|
||||||||
March
31
|
||||||||
2010
|
2009
|
|||||||
Gas
distribution
|
$ | 1,068.8 | $ | 984.0 | ||||
Shipping
|
83.5 | 89.4 | ||||||
Other
energy ventures
|
65.7 | 77.1 | ||||||
Corporate
and eliminations
|
(25.1 | ) | (39.7 | ) | ||||
$ | 1,192.9 | $ | 1,110.8 |
Gas
distribution operating revenues are impacted by changes in natural gas costs,
which are passed directly through to customers without markup, subject to ICC
review. Gas distribution operating revenues increased $84.8 million
for the three months ended March 31, 2010 compared to the prior year due
primarily to higher natural gas costs (approximately $115 million increase) and
the impact of the increase in base rates (approximately $14 million increase),
partially offset by warmer weather (approximately $50 million
decrease).
Shipping
operating revenues decreased $5.9 million for the three months ended March 31,
2010 compared to the prior year due primarily to lower average rates ($5.8
million decrease).
Nicor’s
other energy ventures operating revenues decreased $11.4 million for the three
months ended March 31, 2010 compared to the prior year due to lower operating
revenues at Nicor Enerchange ($6.4 million decrease) and at Nicor’s
energy-related products and services businesses ($5.0 million
decrease). Lower operating revenues at Nicor Enerchange were due to
unfavorable costing of physical sales activity and unfavorable results from the
company’s risk management services associated with hedging the product risks of
the utility-bill management contracts offered by Nicor’s energy-related products
and services businesses, partially offset by favorable changes in valuations of
derivative instruments used to hedge purchases and sales of natural gas
inventory. Lower operating revenues at Nicor’s energy-related
products and services businesses were due to lower average revenue per
utility-bill management contract, partially offset by higher average contract
volumes.
Corporate
and eliminations reflects primarily the elimination of revenues against Nicor
Solutions’ expenses for customers purchasing the utility-bill management
products.
Gas distribution
margin. Nicor utilizes a measure it refers to as “gas
distribution margin” to evaluate the operating income impact of gas distribution
revenues. Gas distribution revenues include natural gas costs, which
are passed directly through to customers without markup, subject to ICC review,
and revenue taxes, for which Nicor Gas earns a small administrative
fee. These items often cause significant fluctuations in gas
distribution revenues, with equal and offsetting fluctuations in cost of gas and
revenue tax expense, with no direct impact on gas distribution
margin. The 2009 rate orders included a franchise gas cost recovery
rider and a rider to recover the costs associated with energy efficiency
programs. Additionally, in February 2010 the ICC approved the
company’s bad debt rider. As a result, changes in revenue included in
gas distribution margin attributable to these items are expected to generally be
offset by changes within operating and maintenance expense.
A
reconciliation of gas distribution revenues and margin follows (in
millions):
Three
months ended
|
||||||||
March
31
|
||||||||
2010
|
2009
|
|||||||
Gas
distribution revenues
|
$ | 1,068.8 | $ | 984.0 | ||||
Cost
of gas
|
(787.9 | ) | (716.4 | ) | ||||
Revenue
tax expense
|
(72.9 | ) | (73.6 | ) | ||||
Gas
distribution margin
|
$ | 208.0 | $ | 194.0 |
Gas
distribution margin increased $14.0 million for the three months ended March 31,
2010 compared to the prior year due to the impact of the increase in base rates
(approximately $14 million increase) and higher revenue from cost recovery
riders ($5.6 million attributable to the energy efficiency program and $3.4
million attributable to the bad debt rider), partially offset by the impact of
warmer weather (approximately $5 million decrease) and lower interest on
customer balances (approximately $2 million decrease).
Gas distribution operating and
maintenance expense. Gas distribution operating and
maintenance expense decreased $26.8 million for the
three months ended March 31, 2010 compared to the prior year due primarily to
lower bad debt expense ($22.7 million decrease) and lower company use and
storage-related gas costs ($6.5 million decrease), partially offset by costs
associated with the energy efficiency program ($5.6 million). Bad
debt expense for three months ended March 31, 2010 was $1.4 million compared to
$24.1 million in the prior year. Bad debt expense in 2010 includes
the recognition of the $31.7 million benefit associated with the net under
recovery of bad debt expense from 2008 and 2009; $29.7 million, based on gas
distribution revenues recognized in the quarter, of the approximately $63
million annual expense assumed to be collected through base rates; and $3.4
million of expense which is equal to the revenue billed under the bad debt
rider.
Shipping operating
expenses. Shipping operating expenses increased $1.2 million
for the three months ended March 31, 2010 compared to the prior year due to
higher transportation-related costs ($3.5 million increase, largely attributable
to higher fuel prices) and higher repairs and maintenance costs ($0.7 million
increase), partially offset by lower charter costs ($3.0 million
decrease).
Other energy ventures
operating
expenses. Other energy ventures operating expenses decreased
$13.2 million for the three months ended March 31, 2010 compared to the prior
year due primarily to a decrease in operating expenses at Nicor’s energy-related
products and services businesses ($11.6 million decrease). The
decrease in operating expenses at Nicor’s energy-related products and services
businesses was due to lower average cost per utility-bill management contract,
partially offset by higher average contract volumes.
Interest
expense. Interest expense decreased $0.3 million for the
three months ended March 31, 2010 compared to the prior year due to lower
interest on income tax matters ($0.7 million decrease), partially offset by
higher bank commitment fees ($0.4 million increase).
Net equity investment
income. Net equity investment income decreased $10.2 million
for the three months ended March 31, 2010 compared to the prior
year. On March 31, 2009, the company sold its 50-percent interest in
EN Engineering and recognized a gain on the sale of $10.1 million.
Interest
income. Interest income decreased $0.4 million for the three
months ended March 31, 2010 compared to the prior year due primarily to lower
interest on income tax matters ($0.3 million decrease).
Income tax
expense. In 2006, the company reorganized certain shipping and
related operations. The reorganization allows the company to take
advantage of certain provisions of the Jobs Act that provide the opportunity for
tax savings subsequent to the date of the reorganization. Generally,
to the extent foreign shipping earnings are not repatriated to the United
States, such earnings are not expected to be subject to current
taxation. In addition, to the extent such earnings are determined to
be indefinitely reinvested offshore, no deferred income tax expense would be
recorded by the company. For the three months ended March 31, 2010
and 2009, income tax expense (benefit) has not been provided on approximately
($3) million and $5 million, respectively, of foreign company shipping earnings
(loss). As of March 31, 2010, Nicor has not recorded deferred income
taxes of approximately $57 million on approximately $162 million of cumulative
undistributed foreign earnings.
The
effective income tax rate for the three months ended March 31, 2010 increased to
32.0 percent from 30.6 percent in the prior-year period. The higher
effective income tax rate for the three months ended March 31, 2010 is due
primarily to higher forecasted annual pretax income (which causes a higher
effective income tax rate since permanent differences and tax credits are a
smaller share of pretax income), lower forecasted annual undistributed foreign
earnings and the unfavorable impact of the tax law change with respect to
Medicare Part D subsidies. Partially offsetting these factors were
favorable tax reserve adjustments recognized in the first quarter of
2010.
Nicor
Inc.
|
||||||||
Gas
Distribution Statistics
|
||||||||
Three
months ended
|
||||||||
March
31
|
||||||||
2010
|
2009
|
|||||||
Operating revenues
(millions)
|
||||||||
Sales
|
||||||||
Residential
|
$ | 715.9 | $ | 648.1 | ||||
Commercial
|
185.3 | 167.8 | ||||||
Industrial
|
21.9 | 19.5 | ||||||
923.1 | 835.4 | |||||||
Transportation
|
||||||||
Residential
|
14.3 | 14.3 | ||||||
Commercial
|
24.6 | 27.3 | ||||||
Industrial
|
10.5 | 10.2 | ||||||
Other
|
1.4 | 3.6 | ||||||
50.8 | 55.4 | |||||||
Other
revenues
|
||||||||
Revenue
taxes
|
73.9 | 74.7 | ||||||
Environmental
cost recovery
|
6.9 | 5.7 | ||||||
Chicago
Hub
|
1.5 | 2.0 | ||||||
Other
|
12.6 | 10.8 | ||||||
94.9 | 93.2 | |||||||
$ | 1,068.8 | $ | 984.0 | |||||
Deliveries
(Bcf)
|
||||||||
Sales
|
||||||||
Residential
|
90.7 | 96.3 | ||||||
Commercial
|
24.0 | 24.8 | ||||||
Industrial
|
3.0 | 3.0 | ||||||
117.7 | 124.1 | |||||||
Transportation
|
||||||||
Residential
|
11.2 | 12.2 | ||||||
Commercial
|
36.4 | 38.6 | ||||||
Industrial
|
29.8 | 30.3 | ||||||
77.4 | 81.1 | |||||||
195.1 | 205.2 | |||||||
Customers at end of period
(thousands)
|
||||||||
Sales
|
||||||||
Residential
|
1,775 | 1,769 | ||||||
Commercial
|
132 | 132 | ||||||
Industrial
|
8 | 8 | ||||||
1,915 | 1,909 | |||||||
Transportation
|
||||||||
Residential
|
213 | 219 | ||||||
Commercial
|
49 | 52 | ||||||
Industrial
|
5 | 5 | ||||||
267 | 276 | |||||||
2,182 | 2,185 | |||||||
Other
statistics
|
||||||||
Degree
days
|
3,026 | 3,185 | ||||||
Colder
than normal (1)
|
4% | 10% | ||||||
Average
gas cost per Mcf sold
|
$ | 6.57 | $ | 5.64 | ||||
(1)
Normal weather for Nicor Gas' service territory, for purposes of this
report, is considered to be 5,600 degree days.
|
Shipping
Statistics
Three
months ended
|
||||||||
March
31
|
||||||||
2010
|
2009
|
|||||||
TEUs
shipped (thousands)
|
42.5 | 42.6 | ||||||
Revenue
per TEU
|
$ | 1,963 | $ | 2,100 | ||||
At
end of period
|
||||||||
Ports
served
|
25 | 25 | ||||||
Vessels
operated
|
15 | 16 |
FINANCIAL
CONDITION AND LIQUIDITY
The
company believes it has access to adequate resources to meet its needs for
capital expenditures, debt 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. Capital market conditions are not currently expected to
have a material adverse impact on the company’s ability to access
capital.
Operating cash
flows. Net cash flow provided from operating activities
decreased $47.8
million for the three months ended March 31, 2010 compared to the prior
year. The gas distribution business is highly seasonal and operating
cash flow may fluctuate significantly during the year and from year-to-year due
to factors such as weather, natural gas prices, the timing of collections from
customers, natural gas purchasing, and storage and hedging
practices. The company relies on short-term financing to meet
seasonal increases in working capital needs. Cash requirements
generally increase over the last half of the year due to increases in natural
gas purchases, gas in storage and accounts receivable. During the
first half of the year, positive cash flow generally results from the sale of
gas in storage and the collection of accounts receivable. This cash
is typically used to substantially reduce, or eliminate, short-term debt during
the first half of the year.
Nicor
maintains margin accounts related to financial derivative
transactions. These margin accounts may cause large fluctuations in
cash needs or sources in a relatively short period of time due to daily
settlements resulting from changes in natural gas futures prices. The
company manages these fluctuations with short-term borrowings and
investments.
Investing
activities. Net cash flow used for investing activities
decreased $0.6 million for the three months ended March 31, 2010 compared to the
prior year.
On March
31, 2009, the company sold its 50-percent interest in EN
Engineering. The company’s share of the sale price was $16.0 million,
with an additional $1.5 million which is contingent on EN Engineering’s 2010
performance and would be due in 2011. After closing costs and other
adjustments, Nicor received cash of $13.0 million and recorded a gain on the
sale of $10.1 million.
Financing
activities. The current credit ratings for Nicor and Nicor Gas
have not changed since the filing of the 2009 Annual Report on Form 10-K.
Long-term debt. In
February 2009, the $50 million 5.37 percent First Mortgage Bond series matured
and was retired. In July 2009, Nicor Gas, through a private
placement, issued $50 million in First Mortgage Bonds at 4.70 percent, due in
2019.
In March
2010, Nicor entered into a $50 million notional forward-starting interest rate
swap to hedge the risk associated with the interest payments attributable to the
probable issuance of long-term fixed-rate debt in 2012 to finance the
development of a natural gas storage facility. Under the terms of the
swap, Nicor agrees to pay a fixed swap rate and receive a floating rate based on
LIBOR.
The
company believes it is in compliance with all debt covenants. Nicor’s
long-term debt agreements do not include ratings triggers or material adverse
change provisions.
Short-term
debt. In April 2010, Nicor Gas established a $400 million,
364-day revolver, expiring April 2011 to replace the $550 million, 364-day
revolver, which was set to expire in May 2010 and Nicor and Nicor Gas
established a $600 million, three-year revolver, expiring April 2013 to replace
the $600 million, five-year revolver, which was set to expire in September
2010. These facilities were established with major domestic and
foreign banks and serve as backup for the issuance of commercial
paper. The company had $228 million, $494 million and $484 million of
commercial paper borrowings outstanding at March 31, 2010, December 31, 2009 and
March 31, 2009, respectively. The company expects that funding from
commercial paper and related backup line-of-credit agreements will continue to
be available in the foreseeable future.
Dividends. Nicor
maintained its quarterly common stock dividend rate of $0.465 per common share
during the three months ended March 31, 2010. This quarterly dividend
rate was also applicable in 2009. The company paid dividends on its
common stock of approximately $21 million for the three months ended March 31,
2010 and 2009. Nicor currently has no contractual or regulatory
restrictions on the payment of dividends.
OTHER
MATTERS
Recent Illinois
Legislation. In July 2009, a new Illinois state law took
effect that requires utility companies to participate in bill payment assistance
programs for low-income customers. Funding for the programs is
expected to be provided largely through federal and state government
contributions, as well as through an increase in monthly utility-customer
charges. The bill payment assistance program for low-income customers
was implemented on a pilot basis beginning in 2009. The legislation
also requires utilities to develop and implement energy efficiency measures to
obtain prescribed reductions in customer deliveries. Funding for the
energy efficiency program, excluding the adverse impact on Nicor Gas of lower
deliveries and resulting reduced margin, will be through a rate adjustment
mechanism. Energy efficiency plans are required to be submitted for
approval to the ICC no later than October 1, 2010.
Petition for Re-approval of Operating
Agreement. On July 1, 2009, Nicor Gas filed a petition seeking
re-approval from the ICC of the operating agreement that governs many
inter-company transactions between Nicor Gas and its affiliates. The
petition was filed pursuant to a requirement contained in the ICC order
approving the company’s most recent general rate increase and requested that the
operating agreement be re-approved without change. A number of
parties have intervened in the proceeding and are seeking modifications to the
operating agreement to restrict or prohibit certain services Nicor Gas and its
affiliates currently are permitted to provide to one another. Nicor
Gas does not believe these proposed modifications are appropriate and intends to
oppose them. If certain of the proposed modifications to the
operating agreement are required by the ICC, they could adversely impact the
company’s results of operations, cash flows and financial
condition.
CONTINGENCIES
PBR plan. Nicor
Gas’ PBR plan for natural gas costs went into effect in 2000 and was terminated
by the company effective January 1, 2003. Under the PBR plan, Nicor
Gas’ total gas supply costs were compared to a market-sensitive
benchmark. Savings and losses relative to the benchmark were
determined annually and shared equally with sales customers. The PBR
plan is currently under ICC review. There are allegations that the
company acted improperly in connection with the PBR plan, and the ICC and others
are reviewing these allegations. On June 27, 2002, the Citizens
Utility Board (“CUB”) filed a motion to reopen the record in the ICC’s
proceedings to review the PBR plan (the “ICC Proceedings”). As a
result of the motion to reopen, Nicor Gas, the staff of the ICC and CUB entered
into a stipulation providing for additional discovery. The Illinois
Attorney General’s Office (“IAGO”) has also intervened in this
matter. In addition, the IAGO issued Civil Investigation Demands
(“CIDs”) to CUB and the ICC staff. The CIDs ordered that CUB and the
ICC staff produce all documents relating to any claims that Nicor Gas may have
presented, or caused to be presented, false information related to its PBR
plan. The company has committed to cooperate fully in the reviews of
the PBR plan.
In
response to these allegations, on July 18, 2002, the Nicor Board of Directors
appointed a special committee of independent, non-management directors to
conduct an inquiry into issues surrounding natural gas purchases, sales,
transportation, storage and such other matters as may come to the attention of
the special committee in the course of its investigation. The special
committee presented the report of its counsel (“Report”) to Nicor’s Board of
Directors on October 28, 2002. A copy of the Report is available at
the Nicor website and has been previously produced to all parties in the ICC
Proceedings.
In
response, the Nicor Board of Directors directed the company’s management to,
among other things, make appropriate adjustments to account for, and fully
address, the adverse consequences to ratepayers of the items noted in the
Report, and conduct a detailed study of the adequacy of internal accounting and
regulatory controls. The adjustments were made in prior years’
financial statements resulting in a $24.8 million liability. Included
in such $24.8 million liability is a $4.1 million loss contingency. A
$1.8 million adjustment to the previously recorded liability, which is discussed
below, was made in 2004 increasing the recorded liability to $26.6
million. Nicor Gas estimates that there is $26.9 million due to the
company from the 2002 PBR plan year, which has not been recognized in the
financial statements due to uncertainties surrounding the PBR
plan. In addition, interest due to the company on certain components
of these amounts has not been recognized in the financial statements due to the
same uncertainties. By the end of 2003, the company completed steps
to correct the weaknesses and deficiencies identified in the detailed study of
the adequacy of internal controls.
Pursuant
to the agreement of all parties, including the company, the ICC re-opened the
1999 and 2000 purchased gas adjustment filings for review of certain
transactions related to the PBR plan and consolidated the reviews of the
1999-2002 purchased gas adjustment filings with the PBR plan
review.
On
February 5, 2003, CUB filed a motion for $27 million in sanctions against the
company in the ICC Proceedings. In that motion, CUB alleged that
Nicor Gas’ responses to certain CUB data requests were false. Also on
February 5, 2003, CUB stated in a press release that, in addition to $27 million
in sanctions, it would seek additional refunds to consumers. On March
5, 2003, the ICC staff filed a response brief in support of CUB’s motion for
sanctions. On May 1, 2003, the ALJs assigned to the proceeding issued
a ruling denying CUB’s motion for sanctions. CUB has filed an appeal
of the motion for sanctions with the ICC, and the ICC has indicated that it will
not rule on the appeal until the final disposition of the ICC
Proceedings. It is not possible to determine how the ICC will resolve
the claims of CUB or other parties to the ICC Proceedings.
In 2004,
the company became aware of additional information relating to the activities of
individuals affecting the PBR plan for the period from 1999 through 2002,
including information consisting of third party documents and recordings of
telephone conversations from Entergy-Koch Trading, LP (“EKT”), a natural gas,
storage and transportation trader and consultant with whom Nicor did business
under the PBR plan. Review of additional information completed in
2004 resulted in the $1.8 million adjustment to the previously recorded
liability referenced above.
The
evidentiary hearings on this matter were stayed in 2004 in order to permit the
parties to undertake additional third party discovery from EKT. In
December 2006, the additional third party discovery from EKT was obtained and
the ALJs issued a scheduling order that provided for Nicor Gas to submit direct
testimony by April 13, 2007. In its direct testimony, Nicor Gas seeks
a reimbursement of approximately $6 million, which includes interest due to the
company, as noted above, of $1.6 million, as of March 31, 2007. In
September 2009, the staff of the ICC, IAGO and CUB submitted direct testimony to
the ICC requesting refunds of $109 million, $255 million and $286 million,
respectively. No date has been set for evidentiary hearings on this
matter.
Nicor is
unable to predict the outcome of the ICC’s review or the company’s potential
exposure thereunder. Because the PBR plan and historical gas costs
are still under ICC review, the final outcome could be materially different than
the amounts reflected in the company’s financial statements as of March 31,
2010.
Mercury. Information
about mercury contingencies is presented in Item 1 – Notes to the Condensed
Consolidated Financial Statements – Note 14 – Contingencies –
Mercury.
Manufactured gas plant
sites. The company is conducting environmental investigations
and remedial activities at former manufactured gas plant
sites. Additional information about these sites is presented in Item
1 – Notes to the Condensed Consolidated Financial Statements – Note 14 –
Contingencies – Manufactured Gas Plant Sites.
Municipal tax
matters. Information about municipal tax contingencies is
presented in Item 1 – Notes to the Condensed Consolidated Financial Statements –
Note 14 – Contingencies – Municipal Tax Matters.
Other. The company is involved
in legal or administrative proceedings before various courts and agencies with
respect to general claims, taxes, environmental, gas cost prudence reviews and
other matters. See Item 1 – Notes to the Condensed Consolidated
Financial Statements – Note 14 – Contingencies – Other.
CRITICAL
ACCOUNTING ESTIMATES
See Item
7 – Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Critical Accounting Estimates in the 2009 Annual Report on Form
10-K for a discussion of the company’s critical accounting
estimates.
CAUTION
CONCERNING FORWARD-LOOKING STATEMENTS
This
document includes certain forward-looking statements about the expectations of
Nicor and its subsidiaries and affiliates. Although Nicor believes
these statements are based on reasonable assumptions, actual results may vary
materially from stated expectations. Such forward-looking statements
may be identified by the use of forward-looking words or phrases such as
“anticipate,” “believe,” “expect,” “intend,” “may,” “planned,” “potential,”
“should,” “will,” “would,” “project,” “estimate,” “ultimate,” or similar
phrases. Actual results may differ materially from those indicated in
the company’s
forward-looking statements due to the direct or indirect effects of legal
contingencies (including litigation) and the resolution of those issues,
including the effects of an ICC review, and undue reliance should not be placed
on such statements.
Other
factors that could cause materially different results include, but are not
limited to, weather conditions; natural disasters; natural gas and other fuel
prices; fair value accounting adjustments; inventory valuation; health care
costs; insurance costs or recoveries; legal costs; borrowing needs; interest
rates; credit conditions; economic and market conditions; accidents, leaks,
equipment failures, service interruptions, environmental pollution, and other
operating risks; tourism and construction in the Bahamas and Caribbean region;
energy conservation; legislative and regulatory actions; tax rulings or audit
results; asset sales; significant unplanned capital needs; future
mercury-related charges or credits; changes in accounting principles,
interpretations, methods, judgments or estimates; performance of major
customers, transporters, suppliers and contractors; labor relations; and acts of
terrorism.
Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of this filing. Nicor undertakes no
obligation to publicly release any revision to these forward-looking statements
to reflect events or circumstances after the date of this filing.
Nicor 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 and fuel
commodity prices and interest rates. Nicor’s practice is to manage
these risks utilizing derivative instruments and other methods, as deemed
appropriate.
There has
been no material change in the company’s exposure to market risk since the
filing of the 2009 Annual Report on Form 10-K.
Item
4. Controls and
Procedures
The
company carried out an evaluation under the supervision and with the
participation of the company’s management, including its Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
the company’s disclosure controls and procedures as of the end of the period
covered by this Quarterly Report on Form 10-Q (the “Evaluation”).
In
designing and evaluating the disclosure controls and procedures, management
recognizes that any disclosure controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management is required to apply its judgment in
evaluating the cost-benefit relationship of possible disclosure controls and
procedures. These disclosure controls and procedures are designed so
that required information is accumulated and communicated to the registrant’s
management, including its principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required
disclosures. Based on the Evaluation, the company’s Chief Executive
Officer and Chief Financial Officer concluded that the company’s disclosure
controls and procedures, as of the end of the period covered by this Quarterly
Report on Form 10-Q, were effective at the reasonable assurance level to ensure
that information required to be disclosed by the company in reports that it
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in United
States Securities and Exchange Commission rules and forms.
There has
been no change in the company’s internal controls over financial reporting
during the company’s most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the company’s internal control over
financial reporting.
PART
II - OTHER INFORMATION
Item
1. Legal
Proceedings
See Part
I, Item 1 – Notes to the Condensed Consolidated Financial Statements – Note 12 –
Regulatory Proceedings and Note 14 – Contingencies, which is incorporated herein
by reference.
In 2001,
Nicor announced a $50 million common stock repurchase program, under which Nicor
may purchase its common stock as market conditions permit through open market
transactions and to the extent cash flow is available after other cash needs and
investment opportunities. There have been no repurchases under this
program during the first three months of 2010 or 2009. As of March
31, 2010, $21.5 million remained authorized for the repurchase of common
stock.
Item
6. Exhibits
Exhibit
|
||
Number
|
Description of Document
|
|
3.01
|
*
|
Amended
and Restated Articles of Incorporation of Nicor Inc., as further amended
by the amendment filed with the Illinois Secretary of State on June 2,
2008. (File No. 1-7297, Form 10-Q for June 30, 2008, Nicor Inc., Exhibit
3.01.)
|
3.02
|
*
|
Nicor
Inc. Amended and Restated By-laws effective as of July 24,
2008. (File No. 1-7297, Form 8-K for July 28, 2008, Nicor Inc.,
Exhibit 3.1.)
|
3.03
|
*
|
Nicor
Inc. Amendment to Amended and Restated By-laws. (File No.
1-7297, Form 8-K for November 20, 2008, Nicor Inc., Exhibit
3.1.)
|
10.01
|
*
|
Restricted
Stock Unit Agreement between Nicor Inc. and Russ M.
Strobel. (File No. 1-7297, Form 8-K for March 26, 2010, Nicor
Inc., Exhibit 10.01.)
|
10.02
|
*
|
Form
of Restricted Stock Unit Agreement. (File No. 1-7297, Form 8-K
for March 26, 2010, Nicor Inc., Exhibit 10.02.)
|
10.03
|
*
|
Restricted
Stock Unit Agreement between Nicor Inc. and Rick Murrell. (File
No. 1-7297, Form 8-K for March 26, 2010, Nicor Inc., Exhibit
10.03.)
|
10.04
|
*
|
Form
of Amendment to 2007, 2008 and 2009 Restricted Stock Unit
Agreements. (File No. 1-7297, Form 8-K for March 26, 2010,
Nicor Inc., Exhibit 10.04.)
|
10.05
|
*
|
Form
of Performance Cash Unit Agreement. (File No. 1-7297, Form 8-K
for March 26, 2010, Nicor Inc., Exhibit 10.05.)
|
10.06
|
*
|
Performance
Cash Unit Agreement between Nicor Inc. and Rick Murrell. (File
No. 1-7297, Form 8-K for March 26, 2010, Nicor Inc., Exhibit
10.06.)
|
10.07
|
*
|
2010
Long-Term Incentive Program. (File No. 1-7297, Form 8-K for
March 26, 2010, Nicor Inc., Exhibit 10.07.)
|
10.08
|
||
10.09
|
||
31.01
|
||
31.02
|
||
32.01
|
||
32.02
|
*
|
These
exhibits have been previously filed with the SEC as exhibits to
registration statements or to other filings with the SEC 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.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Nicor
Inc.
|
|||
May
3, 2010
|
/s/
KAREN K. PEPPING
|
||
(Date)
|
Karen
K. Pepping
|
||
Vice
President and Controller
|
|||
(Principal
Accounting Officer and
|
Duly
Authorized Officer)
|
36