UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-7296
NORTHERN ILLINOIS GAS COMPANY
(Doing Business as NICOR GAS COMPANY)
(Exact name of registrant as specified in its charter)
Illinois 36-2863847
(State of Incorporation) (I.R.S. Employer
Identification Number)
1844 Ferry Road
Naperville, Illinois 60563-9600 (630) 983-8888
(Address of principal executive offices) (Registrant's telephone number)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Act). Yes [ ] No [X]
All shares of common stock are owned by Nicor Inc.
Table of Contents
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Item No. Description Page No.
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Part I
------
1. Business .......... .............................................. 1
2. Properties ....................................................... 4
3. Legal Proceedings................................................. 4
4. Submission of Matters to a Vote of Security Holders................*
Part II
-------
5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.................4
6. Selected Financial Data ...........................................*
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 5
7A. Quantitative and Qualitative Disclosures about Market Risk........18
8. Financial Statements and Supplementary Data.......................19
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..............................41
9A. Controls and Procedures...........................................41
Part III
--------
10. Directors and Executive Officers of the Registrant.................*
11. Executive Compensation.............................................*
12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters........................*
13. Certain Relationships and Related Transactions.....................*
14. Principal Accountant Fees and Services............................44
Part IV
-------
15. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K......................................................45
Signatures........................................................47
Supplemental Information..........................................48
Exhibit Index.....................................................49
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* The Registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore omitting the information called for by the otherwise required item.
Glossary
--------
Degree day.......The extent to which the daily average temperature falls below
65 degrees Fahrenheit. Normal weather for Nicor Gas' service
territory is about 6,000 degree days per year.
FERC.............Federal Energy Regulatory Commission, the agency that regulates
the interstate transportation of natural gas, oil and
electricity.
ICC..............Illinois Commerce Commission, the agency that regulates
investor-owned Illinois utilities.
Mcf, MMcf, Bcf...Thousand cubic feet, million cubic feet, billion cubic feet.
PBR..............Performance-based rate, a regulatory plan that provided
economic incentives based on natural gas cost performance.
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Nicor Gas Company Page 1 ------------------------------------------------------------------------------ |
PART I
Northern Illinois Gas Company (doing business as Nicor Gas Company (Nicor Gas)), an Illinois corporation formed in 1954, is a wholly owned subsidiary of Nicor Inc. (Nicor), a holding company. Certain terms used herein are defined in the glossary on page i.
GENERAL
Nicor Gas, a regulated natural gas distribution utility, serves over two million customers in a service territory that encompasses most of the northern third of Illinois, excluding the city of Chicago. The company's service territory is diverse and its customer base has grown steadily over the years, providing the company with a well-balanced mix of residential, commercial and industrial customers. Residential customers typically account for approximately 45 to 50 percent of natural gas deliveries, while commercial and industrial customers each typically account for about 25 to 30 percent. See Gas Distribution Statistics on page 8 for operating revenues, deliveries and number of customers by customer classification. Nicor Gas had approximately 2,300 employees at year-end 2003.
Nicor Gas maintains franchise agreements with most of the communities it serves, allowing it to construct, operate and maintain distribution facilities in those communities. Franchise agreement terms range up to 50 years. Currently, about 10 percent of the agreements will expire within five years.
Nicor Gas' gas costs are passed directly through to customers without markup, subject to Illinois Commerce Commission (ICC) review. Accordingly, changes in gas costs impact revenues but have no direct impact on operating income. Nicor Gas' operating income is derived primarily from the delivery rather than the sale of natural gas to customers.
Customers have the option of purchasing their own gas supplies, with delivery of the gas by Nicor Gas. The larger of these transportation customers also have options that include the use of Nicor Gas' storage system and the ability to choose varying supply backup levels. The choice of transportation service as compared to gas sales service results in less revenue for Nicor Gas but has no impact on net operating results.
Nicor Gas also has nontraditional gas supply-related ventures, including the Chicago Hub, which provides natural gas storage and transmission-related services to marketers and other gas distribution companies.
SOURCES OF NATURAL GAS SUPPLY
Nicor Gas purchases natural gas supplies in the open market by contracting directly with producers and marketers. Pipeline transportation and purchased storage services are regulated by the Federal Energy Regulatory Commission (FERC). When contracted services are temporarily not needed, Nicor Gas may release the services in the secondary market under FERC-mandated capacity release provisions, with proceeds reducing the company's cost of gas charged to customers.
Peak-use requirements are met through utilization of company-owned storage facilities, pipeline transportation capacity, purchased storage services and other supply sources, arranged by either Nicor Gas or its transportation customers. Nicor Gas has been able to obtain sufficient supplies of natural gas to meet customer requirements. The company believes natural gas supply and pipeline capacity will be sufficiently available to meet market demands in the foreseeable future.
Natural gas supply. Nicor Gas maintains a diversified portfolio of natural gas supply contracts. Supply contracts are diversified by supplier, producing region, quantity and available transportation. Contract pricing is generally tied to published price indices so as to approximate current market prices, although at times the company may fix the price of a portion of its supply portfolio. These supply contracts also generally provide for the payment of fixed demand charges to ensure the availability of supplies on any given day and are typically negotiated annually.
The company also purchases gas supplies on the spot market to fulfill its supply requirements or to take advantage of favorable short-term pricing. Spot gas purchases accounted for about one-half of the company's total gas purchases in the last three years.
As noted previously, transportation customers purchase their own gas supplies. About one-half of the gas that the company delivers is purchased by transportation customers directly from producers and marketers rather than from the company.
Pipeline transportation. Nicor Gas is directly connected to eight interstate pipelines, providing access to most of the major natural gas producing regions in North America. The company's primary transportation contracts are with Natural Gas Pipeline Company of America (NGPL), Northern Natural Gas Company (NNG), Tennessee Gas Pipeline Company (TGPL), Midwestern Gas Transmission Company (MGT) and ANR Pipeline (ANR). In 2003, new transportation contracts with NGPL, TGPL and MGT became effective, with terms generally into 2006. The contract with NNG will expire in 2004 and Nicor Gas is negotiating a renewal of this agreement. The contract with ANR will also expire in 2004 and Nicor Gas expects to negotiate a renewal. In 2002, Nicor Gas also began receiving service under a 10-year transportation agreement with Horizon Pipeline, a 50/50 joint venture between Nicor and NGPL.
Storage. Nicor Gas owns and operates seven underground natural gas storage facilities. This storage system is one of the largest in the gas distribution industry. With about 140 Bcf of annual storage capacity, the system is designed to meet about 55 percent of the company's estimated peak-day deliveries and approximately 30 percent of its normal winter deliveries. In addition to company-owned facilities, Nicor Gas has about 40 Bcf of purchased storage services under contracts with NGPL that expire in 2006 and 2007. Storage provides supply flexibility, improves the reliability of deliveries and can mitigate the risk associated with seasonal price movements.
COMPETITION/DEMAND
Nicor Gas is the largest natural gas distributor in Illinois. Substantially all single-family homes in Nicor Gas' service territory are heated with natural gas. In the commercial and industrial markets, the company's natural gas services compete with other forms of energy, such as electricity, coal, propane and oil, based on such factors as price, service, reliability and environmental impact. Other significant factors that impact demand for natural gas include weather and economic conditions.
Natural gas deliveries are temperature-sensitive and seasonal since about one-half of all deliveries are used for space heating. Typically, about 70 percent of deliveries and revenues occur from October through March. Fluctuations in weather have the potential to significantly impact year-to-year comparisons of operating income and cash flow.
In 2001, 2002 and the first quarter of 2003, Nicor Gas purchased earnings protection against the impact of significantly warmer-than-normal or colder-than-normal weather. No agreement is in effect for the 2003/2004 heating season.
Nicor Gas' large residential customer base provides for a relatively stable level of natural gas deliveries during weak economic conditions. The company's industrial and commercial customer base is well diversified, lessening the impact of industry-specific economic swings.
During periods of high natural gas prices, deliveries of natural gas can be negatively affected by conservation and the use of alternative energy sources. While natural gas prices have fluctuated greatly over the last several years, natural gas has traditionally maintained a pricing advantage over electricity and it is expected to maintain an advantage in the foreseeable future.
Additional information on competition and demand is presented in Management's Discussion and Analysis - Factors That May Affect Business Performance beginning on page 13.
REGULATION
Nicor Gas is regulated by the ICC, which establishes the rules and regulations governing utility rates and services in Illinois. Certain rates are updated monthly and designed to recover specific cost categories, such as gas supply and environmental costs, subject to annual regulatory reviews. Base rates, on the other hand, are designed to allow the company an opportunity to recover its other costs and to earn a fair return for its investors. Nicor Gas has the option to seek ICC approval for base rate increases. Once started, a rate relief proceeding generally takes about one year. Significant changes in the regulations applicable to Nicor Gas or its affiliates, or the regulatory environment in general, could affect the performance of Nicor Gas.
The cost of gas the company purchases for customers is recovered through a monthly gas supply charge, which accounted for approximately 80 percent of a typical residential customer's annual bill in the last three years. As already noted, the company's cost of gas is passed on to customers without markup, subject to ICC review.
A performance-based rate (PBR) plan for natural gas costs was in effect from 2000 through 2002. 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 results of the PBR plan are currently under ICC review. Additional information on the plan and the ICC review are presented in Management's Discussion and Analysis - Contingencies - Performance-Based Rate Plan beginning on page 16.
AVAILABLE INFORMATION
Nicor Gas files various reports with the Securities and Exchange Commission (SEC). These reports include the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 15 (d) of the Securities Exchange Act of 1934. Nicor Gas makes all of these reports available without charge to the public on the investor relations section of Nicor's Web site at www.nicor.com as soon as reasonably practicable after Nicor Gas files them with, or furnishes them to, the SEC.
Additional information about Nicor Gas' business is presented in Management's Discussion and Analysis of Financial Condition and Results of Operations.
The company's properties are located in the territory described under Item 1, Business, and are suitable, adequate and utilized in its operations.
The gas distribution, transmission and storage system includes approximately 31,000 miles of steel, plastic and cast iron main; approximately 1.9 million steel, plastic/aluminum composite, plastic and copper services connecting the mains to customers' premises; and seven underground storage fields.
Other properties include buildings, land, motor vehicles, meters, regulators, compressors, construction equipment, tools, communication and computer equipment, software, and office equipment.
Most of the company's distribution and transmission property, and underground storage fields are located on property owned by others and used by the company through easements, permits or licenses. The company owns most of the buildings housing its administrative offices and the land on which they sit.
Substantially all properties are subject to the lien of the indenture securing the company's first mortgage bonds.
See the Notes to the Consolidated Financial Statements - Note 15 Contingencies, which are incorporated herein by reference.
PART II
All of the outstanding common stock of Nicor Gas is owned by Nicor Inc. There is no public trading market for the company's common stock. During 2003 and 2002, the company declared dividends on its common stock totaling $65 million and $85 million, respectively.
The purpose of this financial review is to explain changes in Nicor Gas' operating results and financial condition from 2001 to 2003 and to discuss business trends and uncertainties that might affect Nicor Gas. Certain terms used herein are defined in the glossary on page i. The discussion is organized into five sections - Summary, Results of Operations, Financial Condition and Liquidity, Critical Accounting Estimates, and Factors That May Affect Business Performance.
SUMMARY
Nicor Gas, a wholly owned subsidiary of Nicor Inc., is one of the nation's largest natural gas distribution companies and typically represents approximately 85 percent of Nicor Inc.'s operating income.
Nicor Gas' net income was $83.0 million, $109.1 million and $98.8 million in 2003, 2002 and 2001, respectively.
Results for 2003 were lower as compared to 2002 due mainly to lower operating income. Operating income decreased $25.2 million in 2003 due primarily to increased operating and maintenance expenses ($20.5 million), lower Chicago Hub results ($8.1 million), and higher depreciation ($5.9 million). Operating income also reflects $17.8 million of mercury-related insurance recoveries in 2003 as compared to $29 million of mercury-related insurance recoveries and reserve reductions in 2002. The impact of weather colder than the prior year was an increase in operating income of about $3 million. These factors are discussed in more detail in the Results of Operations section which follows.
Net income was higher in 2002 compared with 2001 due primarily to mercury cost recoveries, increased natural gas deliveries, lower losses related to the PBR plan, and decreased interest expense. Overall results were negatively impacted by higher operating costs, including lower pension credits, increased legal and accounting costs in 2002, higher depreciation and higher health care costs.
RESULTS OF OPERATIONS
The following discussion summarizes the major items impacting Nicor Gas' results of operations.
Operating revenues. Operating revenues increased nearly 50 percent to $2.4 billion in 2003 compared to $1.6 billion in 2002 due primarily to higher natural gas costs, which are passed directly through to customers without markup, subject to Illinois Commerce Commission (ICC) review. The revenue effect of higher natural gas costs was approximately $680 million. Revenues also increased in 2003 by about $40 million due to colder weather. While residential deliveries rose on colder weather, industrial deliveries fell due largely to lower power-generation load affected by mild summer weather.
Operating revenues decreased from $2.1 billion in 2001 to $1.6 billion in 2002 due primarily to significantly lower average natural gas costs. The revenue effect of the lower average natural gas costs, estimated to be approximately $575 million, was partially offset by the impact of colder weather on deliveries ($85 million) in 2002 compared to 2001.
Margin. Nicor Gas utilizes a measure it refers to as "margin" to evaluate the operating income impact of gas distribution revenues. Gas distribution revenues include gas costs, which are passed directly through to customers without markup, subject to ICC review, and revenue taxes, for which Nicor Gas earns only a small administrative fee. These items often cause significant fluctuations in gas distribution revenues, and yet they have virtually no direct impact on gas distribution operating income. Therefore, Nicor Gas excludes these items in evaluating performance. A reconciliation of gas distribution revenues and margin is as follows (in millions):
2003 2002 2001
---------- ----------- ----------
Revenues $ 2,351.6 $ 1,594.8 $ 2,105.6
Cost of gas (1,692.7) (970.1) (1,477.5)
Revenue tax expense (130.9) (92.4) (109.0)
---------- ----------- ----------
Margin $ 528.0 $ 532.3 $ 519.1
========== =========== ==========
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Negatively impacting margin in 2003 was a smaller contribution from the Chicago Hub and other nontraditional gas supply-related activities ($10.9 million) and lower industrial deliveries, mainly for power generation ($2.9 million). The company believes commercial and industrial deliveries were unfavorably impacted by general economic conditions and higher natural gas prices. Positively impacting margin were increased customer finance and late payment charges ($8 million) related to higher natural gas prices in 2003. Increased deliveries due to colder weather than the prior year (about $7 million), partially offset by an unfavorable variance from the company's weather hedge in 2003 compared to 2002 ($3.5 million), also positively impacted margin.
Margin increased $13.2 million in 2002 from 2001. Contributing to the 2002 improvement were the positive effects of increased natural gas deliveries unrelated to weather ($6.6 million) and colder weather (about $4 million), and increased contributions from the Chicago Hub ($2.3 million). These positive factors were partially offset by lower revenues from customer finance and late payment charges ($4.8 million). The reduction of revenues from customer finance and late payment charges was related to lower levels of customer receivables arising from reduced natural gas prices in 2002.
Operating and maintenance. The increase in operating and maintenance expense for 2003 of $20.5 million was due primarily to higher pension costs ($9.7 million), higher insurance expense ($4.2 million), increased bad debt expense ($4.1 million), increased natural gas costs to operate company equipment and facilities ($3.2 million), and higher health care costs ($2.7 million). These negative factors were partially offset by lower expenses related to the review of the company's PBR plan ($6.2 million).
Operating and maintenance expense for 2002 and 2001 was $199.6 million and $177.1 million, respectively. The $22.5 million increase reflects smaller pension credits ($14.1 million), increased legal and accounting costs related primarily to the PBR plan review ($8.7 million) and increased health care costs ($3.5 million). These increases were partially offset by lower natural gas costs to operate company equipment and facilities ($4.2 million).
Operating and maintenance expense included pension credits of $9.2 million and $23.3 million in 2002 and 2001, respectively. Pension expense for 2003 was $.5 million. For more details concerning fluctuations in pension credits, see the Factors That May Affect Business Performance - Pension Investment Returns section.
Mercury-related costs (recoveries), net. Mercury-related costs (recoveries), net reflects the estimated costs, credits and recoveries associated with the company's mercury inspection and repair program. In 2003, 2002 and 2001, Nicor Gas reached agreements with insurers and independent contractors whereby the company recovered approximately $18 million, $20 million and $3 million, respectively, of mercury-related costs. In addition, in each of 2002 and 2001, a $9 million adjustment lowered the mercury-related reserve and reduced operating expense. Additional information about the company's mercury inspection and repair program is presented in the Notes to the Consolidated Financial Statements - Note 15 Contingencies - Mercury Program.
Other income (expense). Pretax other income (expense) decreased $.7 million in 2003 compared to 2002 due to lower property sale gains ($3.7 million) and lower interest income ($1.2 million), partially offset by the absence of PBR plan losses compared to 2002 ($4.1 million). Pretax other income (expense) increased $7.0 million in 2002. Contributing to the 2002 improvement were lower PBR plan losses compared to 2001 ($10.7 million). Additional information related to the PBR plan is described in the Contingencies - Performance-Based Rate Plan section beginning on page 16. Other income (expense) for 2002 was negatively impacted by lower interest income ($1.6 million) compared to 2001.
Property sale gains and losses vary from year-to-year depending upon property sales activity. The company continues to assess its ownership of real estate holdings and anticipates an increase in property sale activity in 2004.
Interest expense. Interest on debt remained essentially unchanged in 2003. The impact of higher average borrowing levels was offset by the positive effect of lower interest rates. Interest on debt decreased $10.3 million in 2002 due to lower average borrowing levels and interest rates in 2002 compared to 2001.
Operating Statistics
2003 2002 2001
--------- --------- ---------
Operating revenues (millions)
Sales
Residential $ 1,611.9 $ 1,057.4 $ 1,486.4
Commercial 351.7 209.4 274.6
Industrial 51.2 32.5 41.5
--------- --------- ---------
2,014.8 1,299.3 1,802.5
--------- --------- ---------
Transportation
Residential 22.7 16.3 9.5
Commercial 71.6 75.6 75.0
Industrial 41.7 45.8 45.6
Other 12.0 7.6 7.5
--------- --------- ---------
148.0 145.3 137.6
--------- --------- ---------
Other revenues
Revenue taxes 134.0 95.3 112.3
Environmental cost recovery 31.3 24.6 15.6
Chicago Hub 7.3 15.4 13.0
Other 16.2 14.9 24.6
--------- --------- ---------
188.8 150.2 165.5
--------- --------- ---------
$ 2,351.6 $ 1,594.8 $ 2,105.6
========= ========= =========
Deliveries (Bcf)
Sales
Residential 214.9 212.9 201.5
Commercial 46.7 41.6 37.2
Industrial 7.0 6.9 5.9
--------- --------- ---------
268.6 261.4 244.6
--------- --------- ---------
Transportation
Residential 16.6 11.0 6.1
Commercial 87.8 97.5 89.2
Industrial 121.2 149.2 135.3
--------- --------- ---------
225.6 257.7 230.6
--------- --------- ---------
494.2 519.1 475.2
========= ========= =========
Year-end customers (thousands)
Sales
Residential 1,745.2 1,733.6 1,766.5
Commercial 114.5 108.9 102.7
Industrial 7.3 7.0 6.7
--------- --------- ---------
1,867.0 1,849.5 1,875.9
--------- --------- ---------
Transportation
Residential 145.1 126.8 58.1
Commercial 58.3 62.4 66.0
Industrial 6.2 6.7 7.1
--------- --------- ---------
209.6 195.9 131.2
--------- --------- ---------
2,076.6 2,045.4 2,007.1
========= ========= =========
Other statistics
Degree days (normal 6000) 6,068 5,779 5,422
Colder (warmer) than normal 1% (4)% (10)%
Average gas cost per Mcf sold $ 6.24 $ 3.67 $ 6.00
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Nicor Gas Company Page 9 ------------------------------------------------------------------------------ |
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.
Operating cash flows. 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, and natural gas purchasing and storage practices. The company relies on short-term financing to meet seasonal increases in working capital needs. Cash requirements generally increase during the third and fourth quarters due to increases in natural gas purchases, gas in storage and accounts receivable. During the first and second quarters, positive cash flow generally occurs from the sale of gas in storage and the collection of accounts receivable. This cash is typically used to reduce short-term debt to near zero during the second quarter.
Net cash flow (used for) provided from operating activities was $(52.4) million, $221.7 million and $437.5 million in 2003, 2002 and 2001, respectively. Operating cash flow for 2003 was negative due primarily to changes in working capital items. Two decisions in 2003 were the primary factors underlying the working capital changes. First, the company significantly increased the quantity of owned gas in storage at December 31, 2003 as compared to December 31, 2002. In addition, to reduce associated costs, the company chose to fund a significant portion of those purchases through short-term borrowings (which are shown outside the operating segment, in the financing segment, of the Consolidated Statements of Cash Flows) instead of accounts payable. As noted in the financing activities section of Management's Discussion and Analysis, the company had increased its short-term debt borrowing capacity in anticipation of these two and other factors (including higher gas costs), accommodating the funding of these decisions without impacting the level of long-term borrowing. The company believes that operating cash flow will be positive in 2004, as inventory and accounts payable balances at year-end 2004 should be comparable to year-end 2003.
In the fourth quarter of 2003, Nicor Gas received an income tax refund of approximately $100 million attributable to a tax loss carryback associated with a change in tax accounting methods, subject to future Internal Revenue Service review and approval. Decisions by taxing authorities may significantly impact the company's cash flow.
Operating cash flow was significantly lower in 2002 compared to 2001 due primarily to changes in accounts receivable, accrued/deferred gas costs and accounts payable balances associated with natural gas price volatility.
Investing activities. Capital expenditures were $172.9 million in 2003 compared with $169.5 million in 2002 and $149.8 million in 2001. Increased costs in 2003 for public main improvements of $8 million and higher capitalized pension costs of $3 million were offset by a $6 million decrease in supply operations expenditures compared with 2002. Supply operations expenditures in 2002 included the acquisition of a compressor for a storage facility. Gas distribution capital expenditures were higher in 2002 than in 2001 due primarily to the acquisition of the compressor and $6 million of higher capitalized employee benefit costs. Capital spending in 2004 is estimated to be about $170 million.
Financing activities. Nicor Gas has long-term debt ratings that are among the highest in the gas distribution industry. As of the filing date of this report, the credit ratings as assigned by Standard and Poor's Ratings Services (S&P), Moody's Investors Service (Moody's) and Fitch Ratings (Fitch) are as follows.
S&P Moody's Fitch
-------- -------- --------
Commercial Paper A-1+ P-1 F1+
First Mortgage Bonds AA Aa3 AA
Unsecured Credit Facility AA- n/a n/a
Senior Unsecured Debt AA A1 AA-
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In 2003, Moody's downgraded Nicor Gas' First Mortgage Bonds from Aa1 to Aa3, and Nicor Gas' senior unsecured debt from Aa2 to A1. In 2002, Fitch downgraded Nicor Gas' First Mortgage Bonds from AA+ to AA, and Nicor Gas' senior unsecured debt from AA to AA-. As of December 31, 2003, S&P's ratings outlook for the company was Stable while Moody's and Fitch's ratings outlooks were Negative.
Nicor Gas' debt-related financial statistics at December 31 include:
2003 2002 2001
-------- -------- --------
Long-term debt, net of current maturities,
as a percent of capitalization 44.4% 39.2% 43.0%
Times interest earned, before income taxes 4.5 5.7 5.4
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Long-term debt. The company typically uses the net proceeds from long-term debt for refinancing outstanding debt, construction programs to the extent not provided by internally generated funds, and general corporate purposes. At December 31, 2003, the company had the capacity to issue about another $350 million of First Mortgage Bonds under the terms of its indenture, of which $75 million was available for immediate issuance under a July 2001 shelf registration filing. Nicor Gas is in compliance with its debt covenants and believes it will continue to remain so. Nicor Gas' long-term debt agreements do not include ratings triggers or material adverse change provisions.
In 2003, Nicor Gas issued the following First Mortgage Bonds: $50 million due in 2023 at 5.80%, $50 million due in 2032 at 5.90%, and $50 million due in 2033 at 5.90%. Retirements of First Mortgage Bonds in 2003 were as follows: $50 million due in 2003 at 5.75% and $50 million due in 2027 at 7.375%.
In April 2003, Nicor Gas refinanced $50 million of 3% unsecured notes due in April 2003 with $50 million of 1.6% unsecured notes due and paid in October 2003.
In 2001, Nicor Gas issued the following First Mortgage Bonds: $50 million due in 2006 at 5.55%, $75 million due in 2008 at 5.875%, $75 million due in 2011 at 6.625%, and $50 million due in 2016 at 7.2%. Retirements of First Mortgage Bonds in 2001 were as follows: $75 million due in 2001 at 6.45%, $50 million due in 2002 at 6.75%, $50 million due in 2021 at 8.875%, and $50 million due in 2025 at 7.26%. During 2001, Nicor Gas also retired $50 million of variable-rate unsecured notes.
Short-term debt. The company relies on short-term financing to meet temporary operating cash flow needs resulting from seasonal changes in working capital. Nicor Gas maintains short-term line of credit agreements with major domestic and foreign banks. These agreements, which serve as backup for the issuance of commercial paper, allow for borrowings of up to $1 billion through March 2004 and $500 million thereafter through September 2004. Commitment fees paid in advance totaled $2.5 million and are being amortized over the respective terms of the agreements as interest expense. The company had $575 million and $315 million of commercial paper borrowings outstanding at December 31, 2003 and 2002, respectively.
Under the company's 2003/2004 short-term line of credit agreements, if (1) Nicor's or Nicor Gas' ratio of consolidated indebtedness to capitalization (including short-term debt) exceeds 65% at the end of the first, second or third fiscal quarter, or 70% at December 31, 2003, or (2) Nicor's or Nicor Gas' twelve-months-ended interest rate coverage ratio is less than 3 to 1 at the end of any fiscal quarter during the term of the credit agreements, banks representing two-thirds of the commitments may declare any amounts due immediately payable and/or terminate the commitments to make advances to the company. The company is in compliance with these covenants at December 31, 2003. The company expects that commercial paper and the related backup line of credit agreements funding will continue to be available in the foreseeable future.
Common stock. The company paid dividends of $71 million, $109 million and $72 million in 2003, 2002 and 2001, respectively.
Contractual obligations. As of December 31, 2003, Nicor Gas had contractual obligations with payments due as follows (in millions):
Payments due by period
--------------------------------------------
Less More
Than 1 1-3 3-5 than 5
Total Year years years years
-------- ------- ------- ------- -------
Purchase obligations $1,181.4 $ 602.6 $ 372.4 $ 162.2 $ 44.2
Long-term debt 500.0 - 50.0 75.0 375.0
Operating leases 2.4 .7 .9 .7 .1
Other long-term
obligations 5.6 .5 1.0 1.0 3.1
-------- ------- ------- ------- -------
$1,689.4 $ 603.8 $ 424.3 $ 238.9 $ 422.4
======== ======= ======= ======= =======
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Purchase obligations consist primarily of natural gas transportation and storage contracts, and natural gas purchase agreements. Purchase obligations also include obligations to purchase natural gas at future market prices, calculated using December 31, 2003 NYMEX futures prices.
Operating leases are primarily for office space and equipment. Rental expense under operating leases was $1.3 million, $2.3 million and $1.5 million in 2003, 2002 and 2001, respectively. Other long-term obligations consist primarily of redeemable preferred stock.
CRITICAL ACCOUNTING ESTIMATES
Nicor Gas prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States, which regularly require Nicor Gas' management to exercise judgment in the selection and application of accounting methods. The application of accounting methods includes making estimates using subjective assumptions and judgments about matters that are inherently uncertain.
The use of estimates and the selection of accounting policies affect Nicor Gas' reported results and financial condition. The company has adopted several significant accounting policies and is required to make significant accounting estimates that are important to understanding its financial statements and are described throughout the Notes to the Consolidated Financial Statements.
Although there are numerous areas in which Nicor Gas' management makes significant accounting estimates, it believes its critical estimates are those that require management's most difficult and subjective or complex judgments. Nicor Gas management has a practice of reviewing its critical accounting estimates and policy decisions with the audit committee of its board of directors. Its critical estimates typically involve loss contingencies, derivative instruments, credit risk and unbilled revenues because they are estimates which could materially impact Nicor Gas' financial statements.
Loss contingencies. In accordance with Statement of Financial Accounting Standards No. 5, Nicor Gas records contingent losses as liabilities when a loss is both probable and the amount or range of loss, including related legal defense costs, is reasonably estimable. When only a range of potential loss is estimable, the company records a liability for the minimum anticipated loss. Nicor Gas is involved in various legal and regulatory proceedings and is exposed to various loss contingencies. These loss contingencies are in some cases resolved in stages over time, estimates may change significantly from period to period, and the company's ultimate obligations may differ materially from its estimates. Of particular note is the PBR plan contingency described in the Notes to the Consolidated Financial Statements - Note 15 Contingencies.
Derivative instruments. The rules for determining whether a contract meets the definition of a derivative instrument or qualifies for hedge accounting treatment are numerous and complex. The treatment of a single contract may vary from period to period depending upon accounting elections, changes in management's assessment of the likelihood of future hedged transactions or new interpretations of accounting rules. As a result, management judgment is required in the determination of the appropriate accounting treatment. In addition, the estimated fair value of derivative instruments may change significantly from period to period depending upon market projections, and changes in hedge effectiveness may impact the accounting treatment. These determinations and changes in estimates may have a material impact on reported results.
Credit risk. Nicor Gas is required to estimate credit risk in establishing allowances for doubtful accounts. Actual credit losses could vary materially from Nicor Gas' estimates. Nicor Gas' estimated allowance for doubtful accounts at December 31, 2003, 2002 and 2001 was $19.4 million, $14.4 million and $9.6 million, respectively, as presented on Schedule II on page 46.
Unbilled revenues. Nicor Gas estimates revenues for gas deliveries not yet billed to customers from the last billing date to month-end (unbilled revenues). Unbilled revenue estimates are dependent upon a number of factors which require management judgment, including projections of gas costs, weather and customer usage. These estimates are adjusted when actual billings occur, and changes in estimates can be material. Estimated unbilled revenues at December 31, 2003, 2002 and 2001 were $139 million, $142.4 million and $88.1 million, respectively.
FACTORS THAT MAY AFFECT BUSINESS PERFORMANCE
The following factors can impact year-to-year comparisons and may affect the future performance of Nicor Gas.
General. Nicor Gas, a regulated natural gas distribution utility, serves over two million customers in a service territory that encompasses most of the northern third of Illinois, excluding the city of Chicago. The region's economy is diverse and its customer base has grown steadily over the years, providing Nicor Gas with a well-balanced mix of residential, commercial and industrial customers. In 2003, residential, commercial and industrial customers accounted for approximately 45 percent, 30 percent and 25 percent of natural gas deliveries, respectively.
Weather. Natural gas deliveries are temperature-sensitive and seasonal since about one-half of all deliveries are used for space heating. Typically, about 70 percent of deliveries and revenues occur from October through March. Fluctuations in weather have the potential to significantly impact year-to-year comparisons of operating income and cash flow.
In 2001, 2002 and the first quarter of 2003, Nicor Gas purchased earnings protection against the impact of significantly warmer-than-normal or colder-than-normal weather. No agreement is in effect for the 2003/2004 heating season. It is estimated that in 2004 a 100-degree-day variation from normal weather (about 6,000 degree days per year) may affect Nicor Gas' net income by about $1 million. The company will continue to evaluate its coverage options to determine whether any weather protection should be purchased.
Demand and natural gas prices. In addition to the impact of weather, significant changes in economic conditions or natural gas prices can impact customer gas usage. However, Nicor Gas' large residential customer base provides relative stability during weak economic periods, and the industrial and commercial customer base is well diversified, lessening the impact of industry-specific economic swings.
Nicor Gas' growth in natural gas deliveries has traditionally come from customer additions and increased usage by commercial and industrial customers. In 2003 commercial and industrial deliveries were unfavorably impacted by general economic conditions. The company is uncertain as to the long-term impact of this factor.
Changes in the price of natural gas have no direct impact on gas distribution margin since gas costs are passed directly through to customers without markup, subject to ICC review. However, high natural gas prices can have an adverse effect on accounts receivable collections, customer demand, company-use gas expenses, financing costs and customer service expenses.
Competition. Nicor Gas competes with other energy suppliers based on such factors as price, service and reliability. The company believes that it is well positioned to deal with the possibility of fuel switching by customers because it has rates and services designed to compete against alternative fuels. In addition, the company has a rate that allows negotiation with potential bypass customers, and no customer has bypassed the Nicor Gas system since the rate became effective in 1987. Nicor Gas also offers commercial and industrial customers alternatives in rates and service, increasing its ability to compete in these markets.
Storage and supply. Nicor Gas has a direct connection to eight interstate pipelines and extensive underground storage capacity that provides the company and its transportation customers with flexibility and alternatives for natural gas supply procurement and storage services. In addition, in an effort to ensure supply reliability, the company purchases gas from several different producing regions under varied contract terms.
Customer choice of commodity supplier. Since March 2002, all Nicor Gas customers have had a choice of natural gas suppliers. Previously, supplier choice was available to all industrial and commercial customers and about 15 percent of residential customers. The choice of another natural gas commodity supplier has no direct impact on gas distribution margin because natural gas costs are passed directly through to customers without markup, subject to ICC review. Nicor Gas continues to deliver the natural gas, maintain its distribution system and respond to emergencies.
Customer credit risk. Nicor Gas has a diversified customer base, which limits its exposure to concentrations of credit risk in any one industry or income class. The company believes that it maintains prudent credit policies, subject to ICC regulations. Customers also have options to help them manage their bills, such as energy assistance programs for low-income customers and a budget payment plan that spreads gas bills more evenly throughout the year. However, high natural gas prices can increase the risk of customer nonpayment. Nicor Gas experienced increasing bad debt expense in the past three years due in part to high natural gas prices and increasingly adverse credit experience consistent with general market conditions. It is expected that high natural gas prices will continue in 2004. See also the Credit Risk section on page 16.
Pension investment returns. Nicor Gas maintains a noncontributory defined benefit pension plan covering substantially all employees hired prior to 1998. For actuarial valuation purposes, Nicor Gas utilizes an October 1 measurement date to determine the company's pension expense or credit for the subsequent calendar year. During the 12 months ended September 30, 2002, the pension plans experienced poor investment returns consistent with general market conditions, negatively impacting the company's 2003 operating income. The company's pension credit (expense) included in operating income was $(.5) million, $9.2 million and $23.3 million in 2003, 2002 and 2001, respectively. Pension credits represented 5 percent and 14 percent of Nicor Gas' net income in 2002 and 2001, respectively.
The October 1, 2003 actuarial valuation reflected higher asset values which, absent any plan or accounting rule changes, will lead to a pension credit for 2004, increasing operating income by about $3 million. Actuarial assumptions affecting 2004 include an expected rate of return on plan assets of 8.50% and a discount rate of 6.00%, reduced from 8.75% and 6.75%, respectively, for 2003. Anticipated impacts of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 have not yet been estimated by Nicor Gas.
The pension plans are adequately funded, and recent market performance is not expected to impact participant benefits or future company contributions. However, substantial declines in market performance or changes to actuarial assumptions could require future company contributions.
Nontraditional activities. Nicor Gas continues to pursue nontraditional activities, including the Chicago Hub, which provides natural gas transportation and storage services. The Chicago area is a major market hub for natural gas, and demand exists for storage and transmission-related services by marketers, other gas distribution companies and electric power-generation facilities. During 2003, 2002 and 2001, the Chicago Hub contributed to operating income $7.3 million, $15.4 million and $13 million, respectively. The 2003 decline reflects primarily unfavorable general market conditions, including less liquidity in the market.
Regulation. Nicor Gas is regulated by the ICC, which establishes the rules and regulations governing utility rates and services in Illinois. Certain rates are updated monthly and designed to recover specific past costs, such as gas supply and environmental costs, subject to an annual prudence review. Base rates, on the other hand, are designed to allow the company an opportunity to recover its costs and to earn a fair return for its investors. Nicor Gas has the option to seek ICC approval for a base rate increase. Once started, a rate relief proceeding generally takes about one year. The company's last rate increase was in 1996. Significant changes in the regulations applicable to Nicor Gas or its affiliates, or the regulatory environment in general, could affect the performance of Nicor Gas. Information regarding certain ICC proceedings is presented within the Notes to the Consolidated Financial Statements - Note 15 Contingencies - Performance-Based Rate Plan.
Labor negotiations. The current labor contract between Nicor Gas and the International Brotherhood of Electrical Workers (IBEW) Local 19 expires on February 29, 2004. The current agreement covers approximately 1,500 physical and clerical employees of Nicor Gas. As of the filing date of this report, negotiations between IBEW representatives and the company continue. Nicor Gas believes that there are adequate contingency plans in the event of a work stoppage, which the company currently does not expect.
Market risk. The company is exposed to market risk in the normal course of its business operations, including the risk of loss arising from adverse changes in natural gas commodity prices, credit conditions and interest rates. It is Nicor Gas' practice to manage these risks utilizing derivative instruments and other methods, as deemed appropriate.
Commodity price risk. With regard to commodity price risk, the company has established policies and procedures governing the management of such risks and the use of derivative instruments to hedge its exposure to such risks. A risk management committee oversees compliance with such policies and procedures.
Nicor Gas is not directly exposed to market risk caused by changes in commodity prices because of Illinois rate regulation allowing for the recovery of prudently incurred natural gas supply costs from customers. However, substantial increases in natural gas prices may indirectly impact Nicor Gas' earnings by increasing the cost of gas used by the company, bad debt expense and other operating expenses. Higher natural gas prices may also lead to lower customer gas consumption and margin. The company is mitigating these risks through the use of fixed-price purchase agreements, futures contracts and swap agreements.
Credit risk. The company is also exposed to credit risk in the event a counterparty, customer or supplier defaults on a contract to pay for or deliver product at agreed-upon terms and conditions. To manage this risk, the company has established procedures to determine and monitor the creditworthiness of counterparties, to require guarantees or collateral back-up, and to limit its exposure to any one counterparty. In some instances, Nicor Gas enters into netting arrangements to mitigate counterparty credit risk.
Interest rate risk. Nicor Gas is exposed to changes in interest rates. The company manages its interest rate risk by issuing long-term fixed-rate debt with varying maturities, refinancing certain debt and periodically hedging the interest rate on anticipated borrowings. For further information about debt securities, interest rates and fair values, see the Financial Statements - Consolidated Statements of Capitalization and the Notes to the Consolidated Financial Statements - Note 7 Fair Value of Financial Instruments and the Notes to the Consolidated Financial Statements - Note 6 Short-Term and Long-Term Debt.
Contingencies. The following contingencies of Nicor Gas 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 Gas' liquidity or financial condition.
Performance-based rate 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 is currently under Illinois Commerce Commission (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 Cook County State's Attorney Office (CCSAO), the staff of the ICC and CUB entered into a stipulation providing for additional discovery. The Illinois Attorney General's Office has also intervened in this matter. In addition, the Illinois Attorney General's Office 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. Parties who were plaintiffs in a dismissed class action proceeding against the company could potentially intervene in these proceedings. 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. The findings of the Report include:
o Certain transactions increased customer costs in the aggregate amount of
approximately $15 million.
o No improper Nicor affiliated-party transactions or improper hedging
activities were identified.
o Inadvertent accounting errors occurred, sometimes to the benefit of customers
and sometimes to the benefit of Nicor Gas.
o No criminal activity or fraud was identified.
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 financial statements resulting in a $24.1 million liability at December 31, 2003. Included in such $24.1 million adjustments is a $4.1 million loss contingency. In addition, 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. The net of these items results in a $2.8 million reimbursement the company is seeking as of December 31, 2003, pending resolution of the proceedings discussed below. The company has taken steps throughout 2003 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, the CCSAO and CUB filed a motion for $27 million in sanctions against the company in the ICC Proceedings. In that motion, CCSAO and 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 Administrative Law Judges issued a ruling denying CUB and CCSAO'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 CCSAO, CUB or other parties to the ICC Proceedings.
In November 2003, the ICC staff, CUB, CCSAO and the Illinois Attorney General's Office (IAGO) filed their respective direct testimony in the ICC Proceedings. The ICC staff is seeking refunds to customers of approximately $108 million and CUB and CCSAO are jointly seeking refunds to customers of approximately $143 million. The IAGO direct testimony alleges adjustments in a range from $145 million to $190 million. The IAGO testimony as filed is presently unclear as to the amount which IAGO seeks to have refunded to customers. Nicor Gas filed rebuttal testimony in January 2004, which is consistent with the findings of the special committee Report and, as noted above, seeks a reimbursement to Nicor Gas of approximately $2.8 million.
Nicor is unable to predict the outcome of any of the foregoing reviews 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 December 31, 2003.
SEC and U.S. Attorney Inquiries. In 2002, the staff of the United States Securities and Exchange Commission (SEC) informed the company that the SEC is conducting a formal inquiry regarding the PBR plan. A representative of the Office of the United States Attorney for the Northern District of Illinois has notified the company that that office is conducting an inquiry on the same matter that the SEC is investigating, and a grand jury is also reviewing this matter. Nicor Gas is unable to predict the outcome of these inquiries or Nicor Gas' potential exposure related thereto and has not recorded a liability associated with the outcome of this contingency.
Mercury. Future operating results may be impacted by adjustments to the company's estimated mercury liability or by related recoveries. Additional information about mercury contingencies is presented in the Notes to the Consolidated Financial Statements - Note 15 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 the Notes to the Consolidated Financial Statements - Note 15 Contingencies - Manufactured Gas Plant Sites.
Other contingencies. The company is involved in legal or administrative proceedings before various courts and agencies with respect to general claims, rates, taxes, environmental and other matters. See the Notes to the Consolidated Financial Statements - Note 15 Contingencies.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This document includes certain forward-looking statements about the expectations of Nicor Gas. Although Nicor Gas 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," 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 gas prices; health care costs; insurance costs; legal costs; borrowing needs; interest rates; credit conditions; economic and market conditions; 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, methods, judgments or estimates; performance of major 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 Gas undertakes no obligation to publicly release any revision to these forward-looking statements to reflect events or circumstances after the date of this filing.
For disclosures about market risk, see the Market Risk section on page 15, which is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
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Page
----
Independent Auditors' Report.....................................20
Financial Statements:
Consolidated Statements of Operations.........................21
Consolidated Statements of Cash Flows.........................22
Consolidated Balance Sheets...................................23
Consolidated Statements of Capitalization.....................24
Consolidated Statements of Retained Earnings..................25
Consolidated Statements of Comprehensive Income...............25
Notes to the Consolidated Financial Statements................26
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Nicor Gas Company Page 20 ------------------------------------------------------------------------------ |
INDEPENDENT AUDITORS' REPORT
To the Shareholder and Board of Directors of Northern Illinois Gas Company
We have audited the accompanying consolidated balance sheets and statements of capitalization of Northern Illinois Gas Company and subsidiary (the Company) as of December 31, 2003 and 2002, and the related consolidated statements of operations, retained earnings, comprehensive income, and cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2). These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Northern Illinois Gas Company and subsidiary as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, in 2003, the Company changed its method of classifying future removal costs of utility property, plant and equipment.
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 19, 2004
Nicor Gas Company Page 21
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Consolidated Statements of Operations
(millions)
Year ended December 31
-----------------------------
2003 2002 2001
--------- --------- ---------
Operating revenues (includes revenue taxes of
$134.0, $95.3, and $112.3, respectively) $ 2,351.6 $ 1,594.8 $ 2,105.6
--------- --------- ---------
Operating expenses
Cost of gas 1,692.7 970.1 1,477.5
Operating and maintenance 220.1 199.6 177.1
Depreciation 143.5 137.6 132.4
Taxes, other than income taxes 147.3 109.5 125.5
Mercury-related costs (recoveries), net (17.8) (29.0) (12.2)
Income taxes 47.4 63.4 58.9
--------- --------- ---------
2,233.2 1,451.2 1,959.2
--------- --------- ---------
Operating income 118.4 143.6 146.4
--------- --------- ---------
Other income (expense)
Other, net 2.0 2.7 (4.3)
Income taxes on other income (.6) (.9) 1.9
--------- --------- ---------
1.4 1.8 (2.4)
--------- --------- ---------
Interest expense
Interest on debt, net of amounts capitalized 35.2 34.3 44.6
Other 1.6 2.0 .6
--------- --------- ---------
36.8 36.3 45.2
--------- --------- ---------
Net income 83.0 109.1 98.8
Dividends on preferred stock .2 .3 .4
--------- --------- ---------
Earnings applicable to common stock $ 82.8 $ 108.8 $ 98.4
========= ========= =========
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The accompanying notes are an integral part of these statements.
Nicor Gas Company Page 22
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Consolidated Statements of Cash Flows
(millions)
December 31
---------------------------
2003 2002 2001
-------- -------- -------
Operating activities
Net income $ 83.0 $ 109.1 $ 98.8
Adjustments to reconcile net income to
net cash flow provided from
operating activities:
Depreciation 143.5 137.6 132.4
Deferred income tax expense 136.7 32.3 16.0
Gain on sale of property, plant and equipment (.4) (4.1) (3.9)
Changes in assets and liabilities:
Receivables, less allowances (16.2) (101.8) 279.6
Gas in storage (190.5) 13.4 (10.4)
Deferred/accrued gas costs (20.3) (40.7) 183.5
Prepaid pension costs - (12.8) (32.0)
Other assets 6.2 (52.9) 20.4
Accounts payable (153.9) 64.0 (194.0)
Accrued mercury-related costs (1.5) (13.6) (41.0)
Other liabilities (39.9) 89.0 (11.5)
Other .9 2.2 (.4)
-------- -------- -------
Net cash flow (used for) provided from
operating activities (52.4) 221.7 437.5
-------- -------- -------
Investing activities
Capital expenditures (172.9) (169.5) (149.8)
Net proceeds from the sale of property,
plant and equipment .4 4.2 4.0
-------- -------- -------
Net cash flow used for investing activities (172.5) (165.3) (145.8)
-------- -------- -------
Financing activities
Net proceeds from issuing long-term debt 147.8 49.9 247.2
Disbursements to retire long-term debt (152.4) - (279.5)
Short-term borrowings (repayments), net 260.0 48.0 (88.6)
Dividends paid (71.3) (109.4) (72.3)
Other (.4) (.4) (.5)
-------- -------- -------
Net cash flow provided from (used for)
financing activities 183.7 (11.9) (193.7)
-------- -------- -------
Net (decrease) increase in cash and cash equivalents (41.2) 44.5 98.0
Cash and cash equivalents, beginning of year 182.2 137.7 39.7
-------- -------- -------
Cash and cash equivalents, end of year $ 141.0 $ 182.2 $ 137.7
======== ======== =======
Supplemental information
Income taxes paid (refunded), net $ (59.5) $ 17.5 $ 30.1
Interest paid, net of amounts capitalized 39.1 32.2 44.9
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The accompanying notes are an integral part of these statements.
Nicor Gas Company Page 23
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Consolidated Balance Sheets
(millions)
December 31
--------------------
2003 2002
--------- ---------
Assets
------
Gas distribution plant, at cost $ 3,694.8 $ 3,558.1
Less accumulated depreciation 1,349.6 1,910.1
--------- ---------
2,345.2 1,648.0
--------- ---------
Current assets
Cash and cash equivalents - affiliates 97.5 115.3
Cash and cash equivalents - other 43.5 66.9
Receivables, less allowances of $19.4 and
$14.4, respectively 384.9 382.4
Receivables - affiliates 24.4 10.7
Gas in storage, at last-in, first-out cost 209.1 18.6
Deferred income taxes 41.9 31.4
Other 27.5 12.2
--------- ---------
828.8 637.5
--------- ---------
Prepaid pension costs 177.1 177.1
Other assets 66.6 82.2
--------- ---------
$ 3,417.7 $ 2,544.8
========= =========
Capitalization and Liabilities
------------------------------
Capitalization
Long-term obligations
Long-term bonds and notes $ 495.1 $ 396.2
Mandatorily redeemable preferred stock 5.1 -
--------- ---------
500.2 396.2
--------- ---------
Preferred stock
Mandatorily redeemable preferred stock - 5.6
Non-redeemable preferred stock 1.4 1.4
--------- ---------
1.4 7.0
--------- ---------
Common equity
Common stock 76.2 76.2
Paid-in capital 108.1 108.0
Retained earnings 442.3 424.5
Accumulated other comprehensive loss (1.5) (.9)
--------- ---------
625.1 607.8
--------- ---------
1,126.7 1,011.0
--------- ---------
Current liabilities
Long-term obligations due within one year .5 100.5
Short-term borrowings 575.0 315.0
Accounts payable 307.8 461.7
Accrued gas costs 47.0 67.3
Accrued dividends payable 15.0 21.1
Other 31.5 51.4
--------- ---------
976.8 1,017.0
--------- ---------
Deferred credits and other liabilities
Accrued removal costs 670.0 -
Deferred income taxes 414.5 253.5
Regulatory income tax liability 48.4 62.2
Unamortized investment tax credits 35.6 37.5
Other 145.7 163.6
--------- ---------
1,314.2 516.8
--------- ---------
$ 3,417.7 $ 2,544.8
========= =========
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The accompanying notes are an integral part of these statements.
Nicor Gas Company Page 24
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Consolidated Statements of Capitalization
(millions, except share data)
December 31
--------------------------------------
2003 2002
----------------- -------------------
First Mortgage Bonds
5.75% Series due 2003 $ - $ 50.0
5.55% Series due 2006 50.0 50.0
5.875% Series due 2008 75.0 75.0
5.37% Series due 2009 50.0 50.0
6.625% Series due 2011 75.0 75.0
7.20% Series due 2016 50.0 50.0
5.80% Series due 2023 50.0 -
7.375% Series due 2027 - 50.0
6.58% Series due 2028 50.0 50.0
5.90% Series due 2032 50.0 -
5.90% Series due 2033 50.0 -
------- -------
500.0 450.0
Less: Amount due within one year - 50.0
Unamortized debt discount,
net of premium 4.9 3.8
------- -------
495.1 43.9% 396.2 39.2%
------- -------
Long-term notes
Note payable due 2003 at
variable interest rate - 50.0
Less amount due within one year - 50.0
------- -------
- - - -
------- -------
Preferred stock, cumulative, $100 par
value, 800,000 shares authorized
Mandatorily redeemable preferred
stock, 4.48% and 5.00% series,
56,000 shares outstanding in 2003
and 61,000 shares outstanding in
2002. 5.6 6.1
Less amount due within one year .5 .5
------- -------
5.1 .5 5.6 .6
------- -------
Nonredeemable preferred stock,
4.60% and 5.00% convertible
series, 14,008 shares
outstanding 1.4 .1 1.4 .1
------- -------
Common equity
Common stock, $5 par value,
25,000,000 shares authorized,
32,365 shares reserved for
conversion and 15,232,414
shares outstanding 76.2 76.2
Paid-in capital 108.1 108.0
Retained earnings 442.3 424.5
Accumulated other comprehensive
income (loss)
Cash flow hedges - .5
Minimum pension liability (1.5) (1.4)
------- -------
(1.5) (.9)
------- -------
625.1 55.5 607.8 60.1
-------- ------ -------- ------
$1,126.7 100.0% $1,011.0 100.0%
======== ====== ======== ======
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The accompanying notes are an integral part of these statements.
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Consolidated Statements of Retained Earnings
(millions)
Year ended December 31
---------------------------
2003 2002 2001
-------- ------- --------
Balance at beginning of year $ 424.5 $ 400.7 $ 392.3
Net income 83.0 109.1 98.8
Dividends declared on common stock (65.0) (85.0) (90.0)
Dividends declared on preferred stock (.2) (.3) (.4)
-------- ------- --------
Balance at end of year $ 442.3 $ 424.5 $ 400.7
======== ======= ========
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Consolidated Statements of Comprehensive Income
(millions)
Year ended December 31
---------------------------
2003 2002 2001
-------- ------- --------
Net income $ 83.0 $ 109.1 $ 98.8
Other comprehensive income (loss), before tax
Gain (loss) on cash flow hedges, net (2.8) 2.0 (.6)
Reclassifications to net income 1.9 (.7) -
Decrease (increase) to minimum pension
liability (.1) (.6) (.3)
-------- ------- --------
(1.0) .7 (.9)
Related income tax expense .4 (.3) .4
-------- ------- --------
Other comprehensive income, net of tax (.6) .4 (.5)
-------- ------- --------
Comprehensive income $ 82.4 $ 109.5 $ 98.3
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|
The accompanying notes are an integral part of these statements.
Nicor Gas is one of the nation's largest distributors of natural gas, serving over two million customers in a service territory that encompasses most of the northern third of Illinois, excluding the city of Chicago.
1. ACCOUNTING POLICIES
General. Nicor Gas is a wholly owned subsidiary of Nicor Inc. Nicor Gas and its affiliates reimburse each other for transactions between the companies.
Consolidation. The consolidated financial statements include the accounts of Nicor Gas and its subsidiary. All significant intercompany balances and transactions have been eliminated.
Use of estimates. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates that affect reported amounts. Actual results could differ from those estimates, and such differences could be material. Accounting estimates requiring significant management judgment involve accruals for legal, regulatory, environmental, and tax loss contingencies, the identification and valuation of derivative instruments, unbilled revenues, postretirement benefits, income taxes, and the allowance for doubtful accounts.
Reclassifications. Certain reclassifications have been made to conform the prior years' financial statements to the current year presentation.
Cash and cash equivalents. The company considers investments purchased with an initial maturity of three months or less, or that are due on demand from an affiliate (labeled "Cash and cash equivalents - affiliates" on the Consolidated Balance Sheets), to be cash equivalents.
Regulatory assets and liabilities. Nicor Gas is regulated by the Illinois Commerce Commission (ICC), which establishes the rules and regulations governing utility rates and services in Illinois. The company applies accounting standards that recognize the economic effects of rate regulation and, accordingly, has recorded regulatory assets and liabilities. The company had regulatory assets (liabilities) at December 31 as follows (in millions):
2003 2002
---------- ----------
Accrued removal costs $ (670.0) $ (625.0)
Accrued gas costs (47.0) (67.3)
Regulatory income tax liability (48.4) (62.2)
Unamortized loss on reacquired debt 20.9 19.0
Deferred environmental costs 37.0 54.7
---------- ----------
$ (707.5) $ (680.8)
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|
Estimated accrued removal costs were classified in accumulated depreciation at December 31, 2002 and as a noncurrent liability at December 31, 2003. The unamortized loss on reacquired debt and deferred environmental costs are classified in other noncurrent assets.
Derivative instruments. At Nicor Gas, derivative instruments are utilized primarily in the procurement of natural gas for customers. Realized gains or losses on such derivatives are included in the cost of gas delivered and are passed directly through to customers, subject to ICC review, having no direct impact on earnings. Unrealized changes in the fair value of these derivative instruments are deferred as regulatory assets or liabilities and classified as deferred or accrued gas costs, respectively.
At times, Nicor Gas enters into futures contracts, options and swap agreements to reduce the earnings impact of certain forecasted operating costs arising from fluctuations in natural gas prices. To the extent that hedge accounting is elected, unrealized changes in the fair market value of these derivative instruments are reported as a component of accumulated other comprehensive income or loss. When the forecasted expenses are incurred, the accumulated other comprehensive income or loss component is reclassified to operating and maintenance expense.
Through the first quarter of 2003, Nicor Gas held weather-related swap agreements to limit the earnings impact of weather fluctuations. The benefits or losses on these agreements were recorded in operating revenues.
The company generally classifies cash flows from derivatives in the same category as cash flows from the related hedged item.
Credit risk. Nicor Gas has a diversified customer base and prudent credit policies which mitigate customer receivable and derivative counterparty credit risk.
Operating revenues and gas costs. Operating revenues are recorded when gas is delivered to customers. In accordance with ICC regulations, the cost of gas delivered is charged to customers without markup, although the timing of cost recovery can vary, and is subject to ICC review. Temporary undercollections and overcollections of gas costs are deferred or accrued as a regulatory asset or liability with a corresponding decrease or increase to cost of gas, respectively.
Legal defense costs. Nicor Gas accrues future legal defense costs associated with loss contingencies in the period in which it is determined that such costs are probable of being incurred and are reasonably estimable.
Depreciation. Property, plant and equipment are depreciated over estimated useful lives on a straight-line basis. The composite depreciation rate is 4.1 percent, which includes estimated future removal costs.
Revenue taxes. Nicor Gas classifies revenue taxes billed to customers as operating revenues and related taxes due as operating expenses. Revenue taxes included in operating expense for 2003, 2002 and 2001 were $130.9 million, $92.5 million and $108.9 million, respectively.
Income taxes. Nicor Gas files a consolidated federal income tax return with Nicor Inc. Income taxes are allocated to Nicor Gas based upon the tax liability which would have been incurred on a separate company basis. Deferred income taxes are provided for temporary differences between the tax basis of an asset or liability and its reported amount in the financial statements. Nicor Gas amortizes prior investment tax credits and regulatory income tax liabilities to income over the lives of the related properties.
2. OTHER ACCOUNTING CHANGES
Asset retirement obligations. In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (FAS) No. 143, Accounting for Asset Retirement Obligations. This standard requires entities to record the fair value of a liability for an asset retirement obligation in the period in which the obligation is incurred. When the liability is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. This standard became effective on January 1, 2003.
The obligation of retiring gas distribution, transmission, storage and certain general plant assets at Nicor Gas meets the definition of a legal obligation under FAS 143. However, the company has determined that due to the indefinite life of such assets a fair value liability is generally not measurable. On January 1, 2003, a $3.5 million asset retirement obligation for the expected replacement of inside mercury regulators was recorded at Nicor Gas. Certain costs associated with the retirement of other items at Nicor companies, including polychlorinated biphenyls, underground storage tanks and asbestos abatement, are determined to be immaterial or cannot be measured at this time.
Nicor Gas continues its practice of accruing for future removal costs through depreciation, subject to cost-of-service utility rate regulation, even when a legal asset retirement obligation does not exist under FAS 143 or its fair value cannot be measured. Through December 31, 2003, the company had accrued and recovered about $670 million associated with the future removal of these long-lived assets. During 2003, in conjunction with the adoption of FAS 143, Nicor Gas reclassified accrued removal costs from accumulated depreciation to other noncurrent liabilities.
Derivative Instruments and Hedging Activities. In April 2003, the FASB issued FAS 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. FAS 149 amends and addresses financial accounting and reporting for derivative instruments under FAS 133. The Statement was generally effective prospectively for contracts entered into or modified after June 30, 2003. The only impact of adoption on July 1, 2003, was that certain natural gas commodity contracts at Nicor Gas no longer qualify for the normal purchases and sales exception and must be recorded at fair value, with an offsetting regulatory asset or liability classified as deferred or accrued gas costs. The application of this standard has not had a material impact on the company's financial position or results of operations.
Accounting for Certain Financial Instruments. In May 2003, the FASB issued FAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. FAS 150 requires certain freestanding financial instruments, such as mandatorily redeemable preferred stock, to be initially measured at fair value and classified as liabilities. The provisions of FAS 150 are effective for Nicor Gas beginning July 1, 2003. Upon adoption, Nicor Gas prospectively reclassified approximately $6 million of redeemable preferred stock to a liability and related dividends to interest expense. If Nicor Gas called the mandatorily redeemable preferred shares for redemption at December 31, 2003, Nicor Gas would have to pay Nicor, the holder, approximately $6 million. The application of this standard did not have a material impact on the company's financial position or results of operations.
3. NEW ACCOUNTING PRONOUNCEMENT
In December 2003, the FASB issued Interpretation 46(R), Consolidation of Variable Interest Entities (FIN 46R). FIN 46R addresses the application of Accounting Research Bulletin 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. The company believes that FIN 46R will have no impact on its financial position or results of operations.
4. ACCRUED UNBILLED REVENUES
Receivables include accrued unbilled revenues of $139 million and $142.4 million at December 31, 2003 and 2002, respectively. Nicor Gas accrues revenues for estimated deliveries to customers from the date of their last bill until the balance sheet date.
5. GAS IN STORAGE
Based on the average cost of gas purchased in December 2003 and 2002, the estimated replacement cost of inventory at December 31, 2003 and 2002, exceeded the last-in, first-out cost by $341.6 million and $311.2 million, respectively. During 2002, Nicor Gas liquidated LIFO layers at an average cost of $1.32 per Mcf. The company's average purchase price in 2002 was $2.01 per Mcf higher than the average LIFO liquidation rate. Applying LIFO cost in valuing the liquidation, as opposed to using the average gas purchase rate, decreased 2002 cost of gas by $20.3 million. As the cost of gas including inventory costs is charged to customers without markup, the amount had no impact on net income.
6. SHORT-TERM AND LONG-TERM DEBT
In December 2003, Nicor Gas issued the following First Mortgage Bonds: $50 million due in 2023 at 5.80%, $50 million due in 2032 at 5.90%, and $50 million due in 2033 at 5.90%. Additionally, in December 2003, Nicor Gas redeemed $50 million of 7.375% First Mortgage Bonds due in 2027. In June 2003, Nicor Gas retired $50 million of 5.75% First Mortgage Bonds due in 2003.
In April 2003, Nicor Gas refinanced $50 million of 3% unsecured notes due in April 2003 with $50 million of 1.6% unsecured notes due and paid in October 2003.
The company maintains short-term line of credit agreements with major domestic and foreign banks. At December 31, 2003, these agreements, which serve as backup for the issuance of commercial paper, allowed for borrowings of up to $1 billion through March 2004 and $500 million thereafter through September 2004. Commitment fees paid in advance totaling $2.5 million are being amortized over the respective term of the agreements as interest expense.
The company had $575 million and $315 million of commercial paper outstanding with a weighted average interest rate of 1.1% and 1.6% at December 31, 2003 and 2002, respectively.
Under the company's 2003/2004 short-term line of credit agreements, if (1) Nicor's or Nicor Gas' ratio of consolidated indebtedness to capitalization (including short-term debt) exceeds 65% at the end of the first, second or third fiscal quarter, or 70% at December 31, 2003, or (2) Nicor's or Nicor Gas' twelve-months-ended interest rate coverage ratio is less than 3 to 1 at the end of any fiscal quarter during the term of the credit agreements, banks representing two-thirds of the commitments may declare any amounts due immediately payable and/or terminate the commitments to make advances to the company. The company is in compliance with these covenants at December 31, 2003.
Bank cash balances averaged about $2 million during 2003, which partially compensated for the cost of maintaining accounts and other banking services. Such demand balances may be withdrawn at any time.
First Mortgage Bonds are secured by liens on substantially all property.
Interest expense is reported net of amounts capitalized. The interest expense capitalized for the years ended December 31, 2003, 2002 and 2001 was $.2 million, $.4 million and $.2 million, respectively.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The recorded amount of short-term investments and short-term borrowings approximates fair value because of the short maturity of the instruments. Long-term debt outstanding, including current maturities, is recorded at the principal balance outstanding. The principal balance of Nicor's First Mortgage Bonds outstanding at December 31, 2003 and 2002 was $500 million and $450 million, respectively. Based on quoted market interest rates, the fair value of the company's First Mortgage Bonds outstanding, including current maturities, was approximately $530 million and $480 million at December 31, 2003 and 2002, respectively.
8. INCOME TAXES
The components of income tax expense (benefit) are presented below (in millions):
2003 2002 2001
-------- --------- ---------
Current
Federal $ (73.0) $ 27.3 $ 33.0
State (13.7) 6.1 10.1
-------- --------- ---------
(86.7) 33.4 43.1
-------- --------- ---------
Deferred
Federal 113.5 26.8 15.7
State 23.2 5.5 .3
-------- --------- ---------
136.7 32.3 16.0
-------- --------- ---------
Amortization of investment tax
credits, net (2.0) (1.4) (2.1)
-------- --------- ---------
Income tax expense (benefit), net $ 48.0 $ 64.3 $ 57.0
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Nicor Gas Company Page 31 ------------------------------------------------------------------------------ |
The temporary differences which gave rise to the net deferred tax liability at December 31, 2003 and 2002, were as follows (in millions):
2003 2002
-------- --------
Deferred tax liabilities
Property, plant and equipment $ 399.0 $ 236.0
Employee benefits 32.6 37.6
Other 24.3 20.1
-------- ---------
455.9 293.7
-------- ---------
Deferred tax assets
Unamortized investment tax credits 22.8 24.0
Regulatory income tax liability 10.2 15.2
Accrued mercury-related costs 8.7 9.0
Alternative minimum tax credits 17.7 -
Other 23.9 23.4
-------- ---------
83.3 71.6
-------- ---------
Net deferred tax liability $ 372.6 $ 222.1
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The effective combined federal and state income tax rate was 37 percent in 2003, 2002 and 2001. Differences between federal income taxes computed using the statutory rate and reported income tax expense are shown below (in millions):
2003 2002 2001
--------- --------- ---------
Federal income taxes using statutory rate $ 45.9 $ 60.7 $ 54.5
State income taxes, net 6.6 8.3 6.8
Tax credits (2.3) (2.3) (2.3)
Regulatory income tax liability (2.1) (2.0) (2.1)
Other, net (.1) (.4) .1
-------- --------- ---------
Income tax expense (benefit), net $ 48.0 $ 64.3 $ 57.0
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In the fourth quarter of 2003, Nicor Gas received an income tax refund of approximately $100 million attributable to a tax loss carryback associated with a change in tax accounting methods, subject to future Internal Revenue Service review and approval.
9. 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 highest average salary for management employees and job level for unionized employees. The benefit obligation related to collectively bargained benefits considers the company's past practice of regular benefit increases to reflect current wages. 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 most future retirees. The company's accrued postretirement benefit costs have historically been considered in rate proceedings.
The following tables set forth the changes in the plans' benefit obligations and assets, and reconciles the October 1 funded status of the plans to the prepaid (accrued) benefit cost recorded on the balance sheet at December 31 (in millions):
Pension benefits Other benefits
--------------------- ------------------
2003 2002 2003 2002
---------- ---------- --------- --------
Change in benefit obligation
Benefit obligation at
beginning of period $ 252.0 $ 237.5 $ 169.3 $ 141.9
Service cost 7.4 7.2 2.0 1.5
Interest cost 16.3 16.5 11.1 9.9
Actuarial loss 21.3 14.0 27.7 29.2
Participant contributions - - .7 1.3
Plan amendments - .3 (26.7) -
Benefits paid (23.9) (23.5) (10.5) (14.5)
---------- ---------- --------- --------
Benefit obligation at end of period 273.1 252.0 173.6 169.3
---------- ---------- --------- --------
Change in plan assets
Fair value of plan assets at
beginning of period 337.9 399.7 13.1 19.7
Actual gain (loss) on plan assets 69.6 (38.3) 2.2 (1.3)
Employer contributions - - 6.2 7.9
Participant contributions - - .7 1.3
Benefits paid (23.9) (23.5) (10.5) (14.5)
---------- ---------- --------- --------
Fair value of plan assets at
end of period 383.6 337.9 11.7 13.1
---------- ---------- --------- --------
Funded status 110.5 85.9 (161.9) (156.2)
Unrecognized net actuarial loss 62.3 86.3 84.4 60.7
Unrecognized prior service cost 4.3 4.9 - -
Unrecognized transition obligation - - 1.2 30.9
Other - - (1.5) (3.3)
---------- ---------- --------- --------
Recognized prepaid (accrued)
benefit cost $ 177.1 $ 177.1 $ (77.8) $ (67.9)
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The accumulated benefit obligation for pension benefits, a measure which excludes the effect of salary and wage increases, was $233.1 million and $213 million at October 1, 2003 and 2002, respectively. The accrued benefit cost for health care and life insurance benefits is classified as an other noncurrent liability. In 2003, the company amended the retiree health care benefit plan to improve consistency of benefits among participant groups and reduce the company's share of plan costs effective January 1, 2004.
About one-fourth of the net periodic benefit cost or credit 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 periodic benefit cost (credit) included the following components (in millions):
Pension benefits Other benefits
---------------------- ---------------------
2003 2002 2001 2003 2002 2001
------- ------ ------- ------- ------ ------
Service cost $ 7.4 $ 7.2 $ 6.5 $ 2.0 $ 1.5 $ 1.2
Interest cost 16.3 16.5 16.4 11.1 9.9 8.4
Expected return on plan
assets (28.7) (36.0) (44.3) (1.2) (1.8) (2.1)
Recognized net actuarial
(gain) loss 4.3 - (7.4) 2.9 1.0 -
Amortization of unrecognized
transition (asset) obligation - (1.0) (3.8) 3.1 3.1 3.1
Amortization of prior
service cost .7 .5 .6 - - -
------ ------ ------- ------- ------ ------
Net periodic benefit
cost (credit) $ - $(12.8) $(32.0) $ 17.9 $ 13.7 $ 10.6
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Assumptions used to determine benefit obligations at October 1 included the following:
Pension benefits Other benefits
------------------- -------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Discount rate 6.00% 6.75% 6.00% 6.75%
Rate of compensation increase 4.00 4.00 4.00 4.00
|
Assumptions used to determine net periodic benefit cost for the years ended December 31 included the following:
Pension benefits Other benefits
---------------------- ---------------------
2003 2002 2001 2003 2002 2001
------- ------ ------- ------- ------ ------
Discount rate 6.75% 7.25% 7.75% 6.75% 7.25% 7.75%
Expected return on assets 8.75 9.25 9.25 8.75 9.25 9.25
Rate of compensation increase 4.00 4.00 4.00 4.00 4.00 4.00
|
Nicor Gas establishes its expected return-on-asset assumption by considering projected 20-year returns for each investment asset category. Projected returns are calculated by an independent firm via a probability-based model. The company has elected to apply this assumption to the fair value of plan assets, rather than to a rolling-average fair value, in calculating the expected return on plan assets component of net periodic benefit cost.
Assumptions used to determine other benefit obligations at October 1 were as follows:
2003 2002
-------- --------
Health care cost trend rate 9.5% 11.0%
Rate to which the cost trend rate is assumed
to decline (the ultimate rate) 5.0% 5.0%
Years to reach ultimate rate 4 4
|
Nicor Gas Company Page 34 ------------------------------------------------------------------------------ |
Assumptions used to determine other net benefit cost for the years ended December 31 were as follows:
2003 2002 2001
-------- -------- --------
Health care cost trend rate - Pre-65 11.0% 10.0% 6.5%
Health care cost trend rate - Post-65 11.0% 7.5% 5.0%
Rate to which the cost trend rate is
assumed to decline (the ultimate rate) 5.0% 5.0% 5.0%
Years to reach ultimate rate 4 4 3
|
Assumed health care cost trend rates can have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in the assumed health care cost trend rates would have the following effects (in millions):
One-percent
-----------------------
Increase Decrease
----------- -----------
Effect on total of service and interest cost
components $ 1.4 $ (1.2)
Effect on benefit obligation 18.8 (15.8)
|
The recently enacted Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) provides a prescription drug benefit as well as a federal subsidy to sponsors of certain retiree health care benefit plans. As allowed by FASB Staff Position No. 106-1, Nicor Gas has elected to defer reflecting the effects of the Act on the accumulated benefit obligation and net periodic postretirement benefit cost in these financial statements and accompanying notes. The company's deferral election expires upon the occurrence of any event that triggers a required remeasurement of plan assets or obligations, or upon the issuance of specific authoritative guidance on the accounting for the federal subsidy. Such guidance is pending and when issued could require the company to adjust previously reported information.
The company's investment objective relating to pension plan assets is to have a high probability of meeting its obligations without additional cash contributions. The company's investment strategy is to maintain an asset mix near its target asset allocation and to rebalance the portfolio monthly if the actual allocation deviates from the target by two or more percentage points. The following table sets forth the target allocation and actual percentage of plan assets by asset category:
Target Percentage of Plan
Allocation Assets at October 1
------------- -----------------------
Asset Category 2004 2003 2002
------------------- ------------- ----------- -----------
Equity securities 70% 70% 69%
Debt securities 30 29 31
Real estate and other - 1 -
------------- ----------- -----------
Total 100% 100% 100%
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|
The company does not expect to contribute to its pension plan in 2004 and expects to contribute about $10 million to its other postretirement benefit plan in 2004.
Nicor Gas also has a separate unfunded supplemental retirement plan. The supplemental retirement plan is noncontributory with defined benefits and plan costs of $.8 million, $.9 million and $.8 million in 2003, 2002 and 2001, respectively. The benefit obligation of the plan was $6.6 million and $6.2 million at December 31, 2003 and 2002, respectively.
The company also sponsors defined contribution plans covering substantially all domestic employees. These plans provide for employer matching contributions. The total cost of these plans was $4.4 million, $4.5 million and $3.9 million in 2003, 2002 and 2001, respectively.
10. DIVIDEND AND OTHER RESTRICTIONS
Nicor Gas is restricted by regulation in the amount it can dividend or loan to affiliates. Dividends are allowed only to the extent of Nicor Gas' retained earnings balance. The balance of cash advances from Nicor Gas to an affiliate at any time shall not exceed the unused balance of funds actually available to that affiliate under its existing bank credit agreements or its commercial paper facilities with unaffiliated third parties.
11. OTHER INCOME (EXPENSE), NET
Other income (expense), net included the following (in millions):
2003 2002 2001
-------- --------- --------
Performance-based rate plan $ - $ (4.1) $ (14.8)
Interest income 1.5 2.7 4.3
Gains on sale of property, plant and
equipment .4 4.1 3.9
Other income .9 .5 2.7
Other expense (.8) (.5) (.4)
-------- --------- --------
$ 2.0 $ 2.7 $ (4.3)
======== ========= ========
|
12. RELATED PARTY TRANSACTIONS
In the ordinary course of business, under the terms of an agreement approved by the ICC, Nicor Gas enters into transactions with Nicor and its other wholly owned subsidiaries for the use of facilities and services. The charges for these transactions are cost-based, except where the charging party has a prevailing price for which the facility or service is provided to the general public. In addition, Nicor charges Nicor Gas and its other wholly owned subsidiaries for the cost of corporate overheads. For the years ended December 31, 2003, 2002 and 2001 Nicor Gas had net charges to affiliates of $4.7 million, $2.1 million and $6.4 million, respectively.
Under the terms of an ICC order, Nicor Gas routinely enters into transactions with Nicor Enerchange, a wholesale natural gas marketing subsidiary of Nicor, for the purchase and sale of natural gas, transportation and storage services. For the years ended December 31, 2003, 2002 and 2001, net charges to (from) Nicor Enerchange were $.1 million, $12.5 million and $(6.8) million, respectively.
Horizon Pipeline is a 50/50 joint venture between Nicor and Natural Gas Pipeline Company of America (NGPL) that operates, since mid-2002, a FERC regulated natural gas pipeline in northern Illinois. Horizon Pipeline charged Nicor Gas $10.4 million and $6.6 million for the years ended December 31, 2003 and 2002, respectively, for natural gas transportation under rates that have been accepted by FERC.
Nicor Gas purchases engineering and corrosion services from Nicor Technologies, a subsidiary of Nicor. Nicor Gas was charged $4.4 million and $4.6 million for these services for the years ended December 31, 2003 and 2002, respectively.
13. GUARANTEES
Nicor Gas had outstanding letters of credit and surety bonds totaling approximately $5 million at December 31, 2003 and 2002. The letters of credit and surety bonds typically act as a guarantee of payment or performance to certain third parties in accordance with specified terms and conditions.
14. CONTRACTUAL OBLIGATIONS
As of December 31, 2003, Nicor Gas had contractual obligations with payments due
as follows (in millions):
Payments due by year
----------------------------------------------------
After
2004 2005 2006 2007 2008 2008 Total
------ ------ ------ ------ ------ ------ ---------
Purchase obligations $602.6 $257.6 $114.8 $ 83.0 $ 79.2 $ 44.2 $ 1,181.4
Long-term debt - - 50.0 - 75.0 375.0 500.0
Operating leases .7 .5 .4 .4 .3 .1 2.4
Other long-term
obligations .5 .5 .5 .5 .5 3.1 5.6
------ ------ ------ ------ ------ ------ ---------
|
Purchase obligations consist primarily of natural gas transportation and storage contracts, and natural gas purchase agreements. Purchase obligations also include obligations to purchase natural gas at future market prices, calculated using December 31, 2003 NYMEX futures prices.
Operating leases are primarily for office space and equipment. Rental expense under operating leases was $1.3 million, $2.3 million and $1.5 million in 2003, 2002 and 2001, respectively. Other long-term obligations consist primarily of redeemable preferred stock.
15. CONTINGENCIES
The following contingencies of Nicor Gas 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 Gas' liquidity or financial condition.
Performance-Based Rate (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 Illinois Commerce Commission (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 Cook County State's Attorney Office (CCSAO), the staff of the ICC and CUB entered into a stipulation providing for additional discovery. The Illinois Attorney General's Office has also intervened in this matter. In addition, the Illinois Attorney General's Office 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. Parties who were plaintiffs in a dismissed class action proceeding against the company could potentially intervene in these proceedings. 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 financial statements resulting in a $24.1 million liability at December 31, 2003. Included in such $24.1 million adjustments is a $4.1 million loss contingency. In addition, 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. The net of these items results in a $2.8 million reimbursement the company is seeking as of December 31, 2003, pending resolution of the proceedings discussed below. The company has taken steps throughout 2003 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, the CCSAO and CUB filed a motion for $27 million in sanctions against the company in the ICC Proceedings. In that motion, CCSAO and 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 Administrative Law Judges issued a ruling denying CUB and CCSAO'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 CCSAO, CUB or other parties to the ICC Proceedings.
In November 2003, the ICC staff, CUB, CCSAO and the Illinois Attorney General's Office (IAGO) filed their respective direct testimony in the ICC Proceedings. The ICC staff is seeking refunds to customers of approximately $108 million and CUB and CCSAO are jointly seeking refunds to customers of approximately $143 million. The IAGO direct testimony alleges adjustments in a range from $145 million to $190 million. The IAGO testimony as filed is presently unclear as to the amount which IAGO seeks to have refunded to customers. Nicor Gas filed rebuttal testimony in January 2004, which is consistent with the findings of the special committee Report and, as noted above, seeks a reimbursement to Nicor Gas of approximately $2.8 million.
Nicor Gas is unable to predict the outcome of any of the foregoing reviews 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 December 31, 2003.
SEC and U.S. Attorney Inquiries. In 2002, the staff of the United States Securities and Exchange Commission (SEC) informed the company that the SEC is conducting a formal inquiry regarding the PBR plan. A representative of the Office of the United States Attorney for the Northern District of Illinois has notified the company that that office is conducting an inquiry on the same matter that the SEC is investigating, and a grand jury is also reviewing this matter. Nicor Gas is unable to predict the outcome of these inquiries or Nicor Gas' potential exposure related thereto and has not recorded a liability associated with the outcome of this contingency.
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.
Nicor Gas is a defendant in several private lawsuits, all in the Circuit Courts of Cook and DuPage Counties, Illinois, claiming a variety of unquantified damages (including bodily injury, property and punitive damages) allegedly caused by mercury-containing regulators. Under the terms of a class action settlement agreement, Nicor Gas will continue, until 2006, to provide medical screening to persons exposed to mercury from its equipment, and will use its best efforts to replace any remaining inside residential mercury regulators by 2005. The class action settlement permitted class members to "opt out" of the settlement and pursue their claims individually. Nicor is currently defending claims brought by 28 households.
As of December 31, 2003, Nicor Gas had remaining an estimated liability of $21.9 million, representing management's best estimate of future costs, including potential liabilities relating to remaining lawsuits, based on an evaluation of currently available information. Actual costs may vary from this estimate. The company will continue to reassess its estimated obligation and will record any necessary adjustment, which could be material to operating results in the period recorded.
Nicor Gas continues to pursue recovery from insurers and independent contractors that had performed work for the company, but believes that it has now collected the majority of such recoveries. When received, these recoveries are recorded as a reduction to gas distribution operating expense. Nicor Gas recovered approximately $18 million and $20 million of pretax mercury-related costs, net of legal fees, from insurers and independent contractors in 2003 and 2002, respectively.
The final disposition of these mercury-related matters is not expected to have a material adverse impact on the company's 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.
To date, Nicor Gas has identified about 40 properties for which it may, in part, be responsible. Most of these properties are not presently owned by the company. Information regarding preliminary site reviews has been presented to the Illinois Environmental Protection Agency (IEPA) 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 determine the extent additional remediation is necessary and provide a basis for estimating additional future costs which, based on industry experience, could be significant. In accordance with ICC authorization, the company is and has been recovering these costs from its customers, subject to annual prudence reviews.
In December 2001, a purported class action lawsuit was filed against Exelon Corporation, Commonwealth Edison Company and Nicor Gas in the Circuit Court of Cook County alleging, among other things, that the ongoing cleanup of a former manufactured gas plant site in Oak Park, Illinois is inadequate. Since then, additional lawsuits have been filed related to this same former manufactured gas plant site. These lawsuits seek, in part, unspecified damages for property damage, nuisance, and various personal injuries that allegedly resulted from exposure to contaminants allegedly emanating from the site, and punitive damages. Management cannot predict the outcome of this litigation or the company's potential exposure thereto and has not recorded a liability associated with this contingency.
In April 2002, Nicor Gas was named as a defendant, together with Commonwealth Edison Company, 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 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.
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, rates, taxes, environmental, and other matters. Although unable to determine the ultimate outcome of these other contingencies, management believes that it has recorded appropriate liabilities when reasonably estimable.
16. QUARTERLY RESULTS (UNAUDITED)
Summarized quarterly financial data is presented below (in millions).
Quarter ended
----------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
--------- --------- ---------- ---------
2003
----
Operating revenues $ 1,096.7 $ 379.5 $ 223.4 $ 652.0
Operating income 50.4 26.4 6.2 35.5
Net income (loss) 41.5 18.5 (2.8) 25.8
2002
----
Operating revenues $ 516.5 $ 282.0 $ 172.7 $ 623.6
Operating income 38.2 30.1 34.0 41.3
Net income 32.6 20.9 25.8 29.8
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Effective January 1, 2003, Nicor Gas began using the straight-line method for allocating annual depreciation to interim periods. Nicor Gas' 2002 results include depreciation allocated based upon the level of weather-normalized gas deliveries. While this change had a significant impact on quarterly results, it has no impact on depreciation for the full year. Had 2002 depreciation been allocated on a straight-line basis, it is estimated that depreciation expense would have been lower by approximately $22 million and $7 million in the first and fourth quarters of 2002, respectively, and higher by approximately $12 million and $17 million in the second and third quarters of 2002, respectively.
The fourth quarter of 2002 included the positive impact of a $9 million pretax mercury reserve adjustment and the negative impact of establishing a $4.1 million pretax loss contingency reserve related to the PBR plan review.
On May 3, 2002, Nicor Gas filed a Form 8-K announcing that its Board of Directors dismissed Arthur Andersen LLP and engaged Deloitte & Touche LLP as its new independent auditors. This disclosure has been previously reported.
Attached as exhibits 31.1 and 31.2 to this Annual Report are certifications of the company's CEO and the CFO required in accord with Section 302 of the Sarbanes-Oxley Act of 2002 (the "Section 302 Certifications"). This portion of our Annual Report on Form 10-K discloses the results of our evaluation of our disclosure controls and procedures as of December 31, 2003 referred to in paragraphs (4) and (5) of the Section 302 Certification and should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.
In July 2002, in response to allegations that Nicor Gas acted improperly in connection with its performance-based rate plan for natural gas costs, 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 and storage, and certain other matters. In addition, following up on the work of the committee, the Nicor Board of Directors later directed Nicor's management to, among other things, (a) undertake a reaudit of the Nicor and Nicor Gas financial statements for the years 1999 through 2001 and a review of subsequent quarterly periods, (b) amend any filings with the SEC as necessary, and (c) conduct a detailed study of the adequacy of internal accounting and regulatory controls. See Notes to Consolidated Financial Statements - Contingencies.
To assist management in assessing the control environment and related issues associated with Nicor's natural gas supply, transport, storage and marketing activities, including Nicor Gas Hub administration and Nicor Enerchange trading ("gas supply activities"), Nicor retained a consulting firm in the fourth quarter of 2002 with experience in internal controls and the energy industry that is not and has not been the company's external auditor.
Through this review of gas supply activities ("gas supply review"), it was observed that:
o Although key controls have been designed to facilitate the complete and
accurate capture and processing of gas supply activities, many control
activities are not standardized. As such, the reliability and effectiveness
of these control processes are dependent on interpretation and execution by
business unit personnel.
o Existing processes provide limited oversight and monitoring to ensure that
transaction activities and control procedures are performed reliably and
consistent with management expectations.
o As a result, gas supply activities are not adequately documented, are overly
dependent on people, and are not supported by formal training or
communication of controls.
In light of the foregoing, and reflecting the consultant's work related to gas supply activities, management concluded that the following steps related to gas supply activities should be undertaken:
o Enhance the effectiveness of corporate governance and independent oversight
of gas supply activities by creating a formal risk management function and
expanding senior management oversight through the company's risk management
committee.
o Enhance senior management monitoring and oversight of gas supply activities
by creating formal reporting frameworks designed to effectively communicate
performance, existing risk profile/position, and compliance with
policies/procedures.
o Enhance the communication of senior management's expectations regarding
objectives, risk tolerances, and business practices in connection with gas
supply activities by creating codified and standardized policies and
procedures for these activities.
o Given the high degree of regulatory oversight and review over gas supply
activities, develop formal documentation and retention standards for key
decision-making and transaction activities that are subject to regulatory
review.
o For each business unit responsible for gas supply contract negotiation and
execution, establish a dedicated contract administration function as well as
a contract compliance program.
o Develop formal contracting standards, including practices and procedures
surrounding contract execution, contract review and approval and contract
modification.
In May 2002, the company engaged new accountants, Deloitte & Touche LLP ("D&T"), who were asked in October 2002 to audit the company's 1999, 2000 and 2001 restated financial statements in addition to its audit of the company's 2002 financial statements. In connection with the completion of its audit of, and the issuance of an unqualified report on Nicor's and Nicor Gas' restated financial statements for the years ended December 31, 1999, 2000 and 2001, D&T issued a letter dated February 28, 2003 (the "D&T Letter"), in which it identified to management and the Audit Committee of the Board of Directors certain deficiencies that existed in the design or operation of Nicor Gas' internal accounting controls which, considered collectively, constituted a material weakness in Nicor Gas' internal controls pursuant to standards established by the American Institute of Certified Public Accountants. Such deficiencies at Nicor Gas' regulated gas purchasing operations included significant weaknesses in the design of controls surrounding execution, monitoring and accounting for gas commodity, transportation, storage and related contracts due, in part, to the lack of a centralized independent back office for these activities. D&T also concluded that these weaknesses had resulted in errors that affected gas purchase costs, inventory, regulatory assets and liabilities, and results of the performance-based rate plan, and led to a restatement of Nicor's and Nicor Gas' financial statements. D&T made the following recommendations to Nicor and Nicor Gas with respect to these deficiencies:
o Establish a centralized, independent back office function for gas supply
activities, staffed with an adequate number of appropriately skilled
individuals.
o Charge the gas supply back office function with responsibility for, among
other matters, contract analysis to determine correct accounting treatment,
ensuring that contract terms are followed, overseeing the contract approval
process and contract administration.
The company carried out an evaluation under the supervision and with the participation of the company's management, including its principal executive officer and principal 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 Annual Report on Form 10-K (the "Evaluation").
During the course of the Evaluation, the company's principal executive officer and principal financial officer took note of, and considered as part of the company's disclosure controls and procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934), additional procedures performed and controls instituted by the company subsequent to the receipt of the D&T Letter (the "Additional Procedures") to supplement its internal controls in order to mitigate the effect of the weaknesses and deficiencies identified in the gas supply review and the D&T Letter and to prevent misstatements or omissions in its consolidated financial statements resulting from such factors. In designing and evaluating the disclosure controls and procedures, management recognizes that any 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 controls and procedures. 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 Annual Report on Form 10-K, including the Additional Procedures, 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 SEC rules and forms.
Management has considered the matters referred to above, D&T's recommendations with respect thereto and the gas supply review in connection with management's general evaluation of the company's internal controls in particular and its disclosure controls and procedures generally. The company has accepted the recommendations identified in the D&T Letter and in the gas supply review. The company's management assigned a high priority to the short-term and long-term correction of the internal control weaknesses and deficiencies identified by D&T and in the gas supply review, and has implemented changes to the company's policies, procedures, systems and personnel to address these issues. The company's management has implemented the following changes based upon the D&T Letter and the gas supply review:
o The company has dedicated additional internal audit and external resources to
the assessment of the internal controls of the company.
o New policies with respect to the approval and authorization of all
transactions related to gas supply activities and affiliated transactions
have been developed and implemented.
o Gas supply purchasing testing is being regularly performed to verify that
prices are consistent with market rates.
o Personnel in gas supply accounting now report directly to the company's
Controller.
o The company's Risk Management Committee has increased its oversight level,
and a new Chief Risk Officer position has been established.
o Substantial effort has been put forth on documentation and implementation of
appropriate processes, procedures and controls.
o The company has implemented, and will continue to implement, controls
designed to ensure compliance with regulatory rules and mandates.
o New contract administration processes have been implemented to provide a more
effective method of contract administration.
The steps taken throughout 2003 to correct the weaknesses and deficiencies identified in the gas supply review and the D&T Letter constitute significant changes in internal controls over financial reporting in the fourth quarter of 2003. The company will continue to review and implement enhancements to improve the effectiveness of its disclosure controls and procedures and will take further actions as dictated by such continuing reviews.
PART III
The following is a summary of the fees billed to Nicor Gas by Deloitte & Touche LLP for professional services rendered for the years ended December 31, 2003 and 2002 (in millions):
Fee Category 2003 Fees 2002 Fees
---------------- --------- ---------
Audit Fees $ .5 $ 1.4
Audit-Related Fees .1 -
Tax Fees - -
All Other Fees - -
--------- --------
Total Fees $ .6 $ 1.4
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Audit Fees. Consists of fees for professional services rendered for the audit of Nicor Gas' financial statements, review of the interim financial statements included in quarterly reports, and services in connection with statutory and regulatory filings and preparation of comfort letters for debt issues.
Audit-Related Fees. Consists of fees for assurance and related services that are reasonably related to the performance of the audit of Nicor Gas' financial statements and are not reported under "Audit Fees." These services include employee benefit plan audits and consultations concerning financial accounting and reporting standards.
Tax Fees. None.
All Other Fees. None.
Audit Committee Pre-Approval Policies and Procedures
In accordance with the Sarbanes-Oxley Act of 2002, the Audit Committee's policy is to pre-approve all audit and non-audit services provided by Deloitte & Touche LLP. On an ongoing basis, management of Nicor Gas defines and communicates specific projects and categories of service for which the advance approval of the Audit Committee is requested. The Audit Committee reviews these requests and advises management if the Committee approves the engagement of Deloitte & Touche LLP. On a periodic basis, Nicor Gas' management reports to the Audit Committee the actual spending for such projects and services compared to the approved amounts. In 2003, all services provided by Deloitte & Touche LLP were approved in advance by the Committee.
PART IV
See Item 8, Financial Statements and Supplementary Data, on page 19 filed herewith, for a list of financial statements.
2) Financial Statement Schedules:
Schedule
Number Page
-------- ----
Independent Auditors' Report 20
II Valuation and Qualifying Accounts 46
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Schedules other than those listed are omitted because they are not applicable.
3) Exhibits Filed:
See Exhibit Index beginning on page 49 filed herewith.
(b) On November 21, 2003, Nicor Gas filed a Form 8-K, under Item 5, regarding a press release dated November 21, 2003 announcing key executive appointments.
On December 2, 2003, Nicor Gas filed a Form 8-K, under Item 5, regarding the company's Registration Statement on Form S-3 (Registration No.333-65486).
On December 5, 2003, Nicor Gas filed a Form 8-K, under Items 5 and 7, regarding a Prospectus Supplement dated December 4, 2003.
On December 9, 2003, Nicor Gas filed a Form 8-K, under Item 7, regarding the company's Registration Statement on Form S-3 (Registration No.333-65486).
Nicor Gas Company Page 46
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Schedule II
VALUATION AND QUALIFYING ACCOUNTS
(millions)
Additions
-----------------------
Balance at Charged to Charged to Balance
beginning costs and other at end
Description of period expenses accounts Deductions of period
---------------------- ---------- ---------- ---------- ---------- ---------
2003
----
Allowance for
uncollectible
accounts receivable $ 14.4 $ 29.8 $ - $ 24.8 (a) $ 19.4
Accrued mercury-related
costs 23.4 - - 1.5 (b) 21.9
2002
----
Allowance for
uncollectible
accounts receivable $ 9.6 $ 25.7 $ - $ 20.9 (a) $ 14.4
Accrued mercury-related
costs 37.0 - - 13.6 (c) 23.4
2001
----
Allowance for
uncollectible
accounts receivable $ 13.4 $ 23.3 $ - $ 27.1 (a) $ 9.6
Accrued mercury-related
costs 78.0 - - 41.0 (c) 37.0
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(a) Accounts receivable written off, net of recoveries.
(b) Expenditures.
(c) Expenditures and reserve reduction to reflect new estimate.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Nicor Gas Company
Date February 19, 2004 /s/ RICHARD L. HAWLEY
----------------- ---------------------
Richard L. Hawley
Executive Vice President and
Chief Financial Officer
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 19, 2004.
Signature Title
-------------------------------- -------------------------------
/s/ RUSS M. STROBEL
-------------------
Russ M. Strobel President and Chief Executive Officer
(Principal Executive Officer)
/s/ RICHARD L. HAWLEY
---------------------
Richard L. Hawley Executive Vice President and
(Principal Financial Officer) Chief Financial Officer
/s/ JEFFREY L. METZ
-------------------
Jeffrey L. Metz Vice President and Controller
(Principal Accounting Officer)
ROBERT M. BEAVERS, JR.* Director
BRUCE P. BICKNER* Director
JOHN H. BIRDSALL, III* Director
THOMAS A. DONAHOE* Director
THOMAS L. FISHER* Director
JOHN E. JONES* Director
DENNIS J. KELLER* Director
WILLIAM A. OSBORN* Director
JOHN RAU* Director
JOHN F. RIORDAN* Director
PATRICIA A. WIER* Director
* By /s/ JEFFREY L. METZ
-------------------
Jeffrey L. Metz
(Attorney-in-fact)
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Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act:
No annual report or proxy material has been sent to security holders as Nicor Gas is a wholly owned subsidiary of Nicor Inc.
Nicor Gas Company Page 49 ------------------------------------------------------------------------------ Exhibit Index ------------- Exhibit Number Description of Document ------- ----------------------------------------------------------------- |
3.01 * Articles of Incorporation of the company. (File No. 1-7296, Form 10-K for 1980, Exhibit 3-01.)
3.02 * Amendment to Articles of Incorporation of the company. (File No. 1-7296, Form 10-Q for June 1994, Exhibit 3.01.)
3.03 By-Laws of the company as amended by the company's Board of Directors on January 15, 2004.
4.01 * Indenture of Commonwealth Edison Company to Continental Illinois National Bank and Trust Company of Chicago, Trustee, dated as of January 1, 1954. (File No. 1-7296, Form 10-K for 1995, Exhibit 4.01.)
4.02 * Indenture of Adoption of the company to Continental Illinois National Bank and Trust Company of Chicago, Trustee, dated February 9, 1954. (File No. 1-7296, Form 10-K for 1995, Exhibit 4.02.)
4.03 * Supplemental Indenture, dated February 15, 1998,
of the company to Harris Trust and Savings Bank,
Trustee, under Indenture dated as of January 1, 1954.
(File No. 1-7296, Form 10-K for 1997, Exhibit 4.19.)
4.04 * Supplemental Indenture, dated February 1, 1999, of the company to Harris Trust and Savings Bank, Trustee, under Indenture dated as of January 1, 1954. (File No. 1-7296, Form 10-K for 1998, Exhibit 4.19.)
4.05 * Supplemental Indenture, dated February 1, 2001, of the company to BNY Midwest Trust Company, Trustee, under Indenture dated as of January 1, 1954. (File No. 1-7296, Form 10-K for 2000, Exhibit 4.17.)
4.06 * Supplemental Indenture, dated May 15, 2001, of the company to BNY Midwest Trust Company, Trustee, under Indenture dated as of January 1, 1954. (File No. 1-7296, Form 10-Q for June 2001, Exhibit 4.01.)
4.07 * Supplemental Indenture, dated August 15, 2001, of the company to BNY Midwest Trust Company, Trustee, under Indenture dated as of January 1, 1954. (File No. 1-7296, Form 10-Q for September 2001, Exhibit 4.01.)
4.08 * Supplemental Indenture, dated December 15, 2001, of the company to BNY Midwest Trust Company, Trustee, under Indenture dated as of January 1, 1954. (File No. 1-7296, Form 10-K for 2001, Exhibit 4.20.)
4.09 Supplemental Indenture, dated December 1, 2003, of the company to BNY Midwest Trust Company, Trustee, under Indenture dated as of January 1, 1954.
Nicor Gas Company Page 50
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Exhibit Index (concluded)
-------------------------
Exhibit
Number Description of Document
------- -----------------------------------------------------------------
4.10 Supplemental Indenture, dated December 1, 2003, of the company to
BNY Midwest Trust Company, Trustee, under Indenture dated as of
January 1, 1954.
4.11 Supplemental Indenture, dated December 1, 2003, of the company to
BNY Midwest Trust Company, Trustee, under Indenture dated as of
January 1, 1954.
12.01 Computation of Consolidated Ratio of Earnings to Fixed Charges.
18.01 * Preferability Letter regarding Change in Accounting of Interim
Depreciation. (File No. 1-7296, Form 10-Q for March 2003,
Exhibit 18.01.)
23.01 Independent Auditors' Consent.
24.01 Powers of Attorney.
31.1 Rule 13a-14(a)/15d-14(a) Certification.
31.2 Rule 13a-14(a)/15d-14(a) Certification.
32.1 Section 1350 Certification.
32.2 Section 1350 Certification.
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* These exhibits have been previously filed with the Securities and Exchange Commission as exhibits to registration statements or to other filings with the Commission and are incorporated herein as exhibits by reference. The file number and exhibit number of each such exhibit, where applicable, are stated, in parentheses, in the description of such exhibit.
Upon written request, the company will furnish free of charge a copy of any exhibit. Requests should be sent to Investor Relations at the corporate headquarters.
Nicor Gas Company Form 10-K Exhibit 3.03
NICOR GAS COMPANY
ARTICLE I.
STOCK AND TRANSFERS.
SECTION 1. Each holder of fully paid stock shall be entitled to a certificate or certificates of stock stating the number and class of shares, and the designation of the series, if any, which such certificate represents. All certificates of stock shall be signed by the Chairman, the President or a Vice President and by the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer, provided that in case any officer who has signed any certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Company with the same effect as if such officer had not ceased to be such at the date of its issue. All certificates of stock may be sealed with the seal of the Company or a facsimile of such seal.
SECTION 2. Shares of stock shall be transferable only on the books of the Company, and, except as hereinafter provided or as otherwise required by law, shall be transferred only upon proper endorsement and surrender of the certificates theretofore issued therefor. If an outstanding certificate of stock shall be lost, destroyed or stolen, the holder thereof may have a new certificate upon producing evidence satisfactory to the Secretary or an Assistant Secretary of the Company of such loss, destruction or theft, and, if required by the Secretary or an Assistant Secretary upon furnishing to the Company, a bond of indemnity deemed sufficient by the Secretary or an Assistant Secretary, against claims under the outstanding certificate.
SECTION 3. The
certificates for each class or series of stock shall be numbered and a record
shall be made of the name and address of the person to whom each certificate is
issued, the number of shares represented by the certificate and the number and
date of the certificate. All certificates exchanged or returned to the Company
for transfer shall be cancelled.
SECTION 4. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders, or stockholders entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the Board of Directors may fix in advance a date as the record date for any such determination of stockholders, such date in any case to be not more than sixty days and, for a meeting of stockholders, not less than ten days, or in the case of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets, not less than twenty days, immediately preceding such meeting. If no record date is fixed for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders, or stockholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this Section, such determination shall apply to any adjournment thereof.
ARTICLE II.
MEETINGS OF STOCKHOLDERS.
SECTION 1. The regular annual meeting of the stockholders of the Company for the election of Directors and for the transaction of such other business as may come before the meeting shall be held on the third Thursday in April of each year, or on such other date of each
year as the Board of Directors may determine. Each such regular annual meeting and each special meeting of the stockholders shall be held at such place as the Board of Directors may determine.
SECTION 2. Special meetings of the stockholders may be called by the Chairman, the President, the Board of Directors, a majority of the Directors individually or the holders of not less than one-fifth of all the outstanding shares entitled to vote on the matter for which the meeting is called.
SECTION 3. Written notice stating the place, day and hour of each meeting of the stockholders and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than sixty days before the date of the meeting, or, in the case of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets not less than twenty nor more than sixty days before the date of the meeting either personally or by mail, by or at the direction of the Chairman, the President, the Secretary or the persons calling the meeting, to each stockholder of record entitled to vote at the meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the stockholder at his address as it appears upon the records of the Company, with postage thereon prepaid.
SECTION 4. At all meetings of the stockholders a majority of the outstanding shares of stock entitled to vote on a matter, excluding such shares as may be owned by the Company, represented in person or by proxy, shall constitute a quorum for consideration of such matter at a meeting of stockholders; provided that if less than a majority of the outstanding shares are represented at the meeting, a majority of the shares so represented may adjourn the meeting at any time without further notice. If a quorum is present, the affirmative vote of a majority of the
shares represented at the meeting and
entitled to vote on a matter shall be the act of the stockholders, unless the
vote of a greater number or voting by classes is required by The Business
Corporation Act of 1983 of the State of Illinois (hereinafter referred to as the
Act) or the Articles of Incorporation of the Company.
SECTION 5. At every meeting of the stockholders, each outstanding share of stock regardless of class shall be entitled to one vote upon each matter voted upon, and such vote may in all cases be given by proxy. In all elections for Directors every stockholder shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are Directors to be elected, or to cumulate such votes and give to one candidate as many votes as shall equal the number of Directors to be elected multiplied by the number of his shares of stock, or to distribute such cumulative votes in any proportion among any number of candidates.
SECTION 6. Within twenty days after the record date for a meeting of stockholders or ten days before such meeting, whichever is earlier, the Secretary shall make a true and complete list, in alphabetical order, of all the stockholders of the Company entitled to vote at the meeting, together with the address of each and the number of shares held by each.
SECTION 7. The Chairman and the Secretary of the Company shall, when present, act as Chairman and Secretary, respectively, of each meeting of the stockholders.
ARTICLE III.
BOARD OF DIRECTORS.
SECTION 1. Unless the Board of Directors determines otherwise, the number of Directors of the Company shall be not less than eight nor more than thirteen. The number of
Directors may be fixed or changed from time to time within the foregoing minimum and maximum by the Directors without further amendment of these by-laws. The Directors shall be elected at each annual meeting of the stockholders, but if for any reason the election shall not be held at an annual meeting, it may be subsequently held at any special meeting of the stockholders called for that purpose after proper notice. Each Director, including one elected to fill a vacancy or elected as a result of an increase in the number of Directors, shall hold office until the next succeeding annual meeting or until his successor shall have been elected and qualified. Any vacancy occurring in the Board of Directors and any directorship to be filled by reason of an increase in the number of Directors may be filled by election at an annual meeting or at a special meeting of stockholders called for that purpose; provided, however, that any vacancy arising between meetings of stockholders by reason of an increase in the number of Directors or otherwise may be filled by the Board of Directors. A decrease in the number of Directors does not shorten an incumbent Director's term. Directors need not be residents of the State of Illinois or stockholders of the Company.
SECTION 2. Regular meetings of the
Board of Directors shall be held at such time and place as shall from time to
time be determined by the Board of Directors. Notice of such meeting, stating
the time and place at which it will be held, shall be given to each Director
personally, by telephone or by facsimile transmission at least one day, or by
depositing such notice in the mails properly addressed, at least two days before
the day of such meeting.
SECTION 3. Special meetings of the Board of Directors may be called at any time by the Chairman, the President or by any two Directors and shall be held at such place as shall be specified in the notice for such meeting. Notice of every special meeting of the Board stating the time and place at which such meeting will be held, shall be given to each Director personally, by
telephone or by
facsimile transmission at least one day, or by depositing such notice in the
mails properly addressed, at least two days before the day of such meeting.
SECTION 4. A majority of the number of Directors then in office shall constitute a quorum for the transaction of business at any meeting of the Board; provided that if less than a quorum is present at the meeting, a majority of the Directors present may adjourn the meeting at any time without further notice. At all meetings of the Board of Directors at which a quorum is present, a majority vote of those present shall be decisive of all questions before the meeting.
SECTION 5. The Board of Directors, by the affirmative vote of a majority of the Directors then in office, and irrespective of any personal interest of any of its members, shall have authority to establish reasonable compensation of all Directors for services to the Company as Directors, officers or otherwise.
SECTION 6. Any action required to be taken at a meeting of the Board of Directors, or any other action which may be taken at a meeting of the Board of Directors or of any committee thereof, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the Directors entitled to vote with respect to the subject matter thereof, or by all the members of such committee, as the case may be.
SECTION 7. Members of the Board of Directors or of any committee thereof may participate in and act at any meeting of such Board or committee through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other. Participation in such a meeting shall constitute attendance and presence in person at the meeting of the person or persons so participating.
ARTICLE IV.
COMMITTEES.
SECTION 1. There shall be an Executive Committee of not less than five members consisting of the Chairman of the Company, the President and not less than three other Directors. The chairman of the Committee shall be the Chairman of the Company or another Director elected or designated by the Board of Directors. The Board of Directors shall, at its first meeting after the annual meeting of the stockholders in each year, by resolution adopted by a majority of the number of Directors then in office designate the chairman and the regular members of the Committee and the remaining Directors who shall constitute alternates to serve temporarily, and as far as practicable in rotation, as members of the Committee in place of any of the regular members who, at any time, may be unable to serve. The Chairman of the Company, the President or the Directors calling a meeting of the Committee shall call upon alternates to serve as herein provided. When any alternate serves, the minutes of the meeting shall record the name of the regular member in whose place he serves. Each Director designated as a regular member of the Executive Committee shall serve as such for one year or until his successor shall have been designated. The Executive Committee shall, when the Board is not in session, have and may exercise all of the authority of the Board of Directors in the management of the Company, except as limited by Section 3 of this Article IV. Vacancies in the membership of the Executive Committee shall be filled by the Board of Directors. The Executive Committee shall keep minutes of the proceedings at its meetings and such minutes shall be distributed to the Directors at or before the next meeting of the Board thereafter.
SECTION 2. A majority of the number of the Directors then in office may from time to time appoint, or authorize the appointment of, other committees, standing or special, from among
its own number and confer such powers upon such committees, except as limited by Section 3 of this Article IV, and revoke such powers and terminate the existence of such committees, as the Board at its pleasure may determine. All such committees may have such number of members as the Board of Directors designates.
SECTION 3. Neither the Executive Committee nor any other committee of the Board of Directors shall (i) authorize distributions, except for dividends to be paid with respect to shares of any preferred or special classes or any series thereof; (ii) approve or recommend to stockholders any act the Act requires to be approved by the stockholders; (iii) fill vacancies on the Board or any of its committees; (iv) elect or remove officers or fix the compensation of any member of the committee; (v) adopt, amend or repeal the by-laws; (vi) approve a plan of merger not requiring stockholder approval; (vii) authorize or approve the reacquisition of shares except according to a general formula or method prescribed by the Board; (viii) authorize or approve the issuance or sale, or contract for sale, of shares or determine the designation and relative rights, preferences, and limitations of a series of shares, except that the Board may direct a committee to fix the specific terms of the issuance or sale or contract for sale or the number of shares to be allocated to particular employees under an employee benefit plan; or (ix) amend, alter, or repeal, or take any action inconsistent with any resolution or action of the Board if the resolution or action of the Board provides by its terms that it shall not be amended, altered or repealed by a committee.
SECTION 4. Meetings of any committee may be called at any time by the Chairman of the Company, the President, or by any Director who is a member of the committee, and shall be held at such place as shall be designated in the notice of such meeting. Notice of each committee meeting stating the time and place at which such meeting will be held shall be given to each
member of the committee
personally, by telephone or by facsimile transmission at least one day, or by
depositing such notice in the mails properly addressed, at least two days before
the day of such meeting. A majority of the members of a committee shall
constitute a quorum thereof; provided that if less than a quorum is present at a
meeting, a majority of the Directors present may adjourn the meeting at any time
without further notice. A majority vote of those present at each meeting of a
committee at which a quorum is present shall be decisive of all questions before
the meeting. Each member of a committee, not receiving a salary from the
Company, or any affiliated company, shall be paid such fee for attendance at
each meeting as the Board of Directors may from time to time by resolution
determine.
ARTICLE V.
OFFICERS.
SECTION 1. There shall be elected by the Board of Directors, at its first meeting after the annual election of Directors in each year if practicable, the following principal officers of the Company, namely: a Chairman, who shall be a Director of the Company, a President, such number of Vice Presidents as the Board at the time may decide upon, a Secretary and a Treasurer. The Chairman and/or President can be the Chief Executive Officer as determined by the Board. The Board may also provide for such other officers and prescribe for each of them such duties as in its judgment may from time to time be desirable in the conduct of the affairs of the Company. Any two or more offices may be held by the same person; one person may be an assistant in any two or more offices. All officers shall hold their respective offices until the first meeting of the Board of Directors after the next succeeding annual election of Directors or until their successors shall have been elected, but any officer may be removed from office by the
Board of Directors whenever in its judgment the best interests of the Company will be served thereby.
SECTION 2. The Chairman shall,
when present, preside at all meetings of the stockholders and of the Board of
Directors. He shall also, when present, preside at all meetings of the Executive
Committee unless the Board has designated another Director as Chairman of such
Committee. . If the Chairman is designated as the Chief Executive Officer of the
Company, the Chairman shall have the general management and direction, subject
to the control of the Board of Directors and the Executive Committee, of the
affairs of the Company. He shall have power to appoint any and all officers,
agents and employees of the Company not required by these by-laws to be elected
or appointed directly by the Board of Directors. He shall have power to accept
the resignation of or to discharge any and all officers, agents and employees of
the Company not elected or appointed directly by the Board of Directors. When
the Board of Directors is not in session, he shall have power to accept the
resignation or suspend the authority of any and all officers, agents and
employees of the Company elected or appointed directly by the Board of
Directors, subject, however, to the pleasure of the Board of Directors at its
next meeting. He shall sign all papers and documents to which his signature may
be necessary or appropriate and shall have such other powers and duties as
usually devolve upon the chief executive officer of a corporation, and such
further powers and duties as may be prescribed for him by the Board of Directors
or the Executive Committee.
SECTION 3. The President shall act in a general executive capacity. If the Chairman is designated as the Chief Executive Officer, the President shall assist the Chairman in the administration and operation of the Company's business and general supervision of its policies and affairs. The President shall, in the absence of or because of the inability to act of the
Chairman, perform all duties of the Chairman and preside at all
meetings of stockholders and of the Board of Directors. The President may sign,
alone or with the Secretary, or an Assistant Secretary, or any other proper
officer of the Company authorized by the Board of Directors, certificates,
contracts, and other instruments of the Company as authorized by the Board of
Directors.
If the President is designated as the Chief Executive Officer, the
President shall have the general management and direction, subject to the
control of the Board of Directors and the Executive Committee, of the affairs of
the Company. He shall have power to appoint any and all officers, agents and
employees of the Company not required by these by-laws to be elected or
appointed directly by the Board of Directors. He shall have power to accept the
resignation of or to discharge any and all officers, agents and employees of the
Company not elected or appointed directly by the Board of Directors. When the
Board of Directors is not in session, he shall have power to accept the
resignation or suspend the authority of any and all officers, agents and
employees of the Company elected or appointed directly by the Board of
Directors, subject, however, to the pleasure of the Board of Directors at its
next meeting. He shall sign all papers and documents to which his signature may
be necessary or appropriate and shall have such other powers and duties as
usually devolve upon the chief executive officer of a corporation, and such
further powers and duties as may be prescribed for him by the Board of Directors
or the Executive Committee. In the absence or disability of the Chairman, the
President shall have the powers and perform the duties of the Chairman.
SECTION 4. Each of the Vice Presidents shall have such powers and duties as may be prescribed for him by the Board of Directors, the Executive Committee, the President, or the officer to whom he reports.
SECTION 5. The Secretary shall attend all meetings of the stockholders, of the Board of Directors and of the Executive Committee, shall keep a true and faithful record thereof in proper books to be provided for that purpose, and shall have the custody and care of the corporate seal, records, minute books and stock books of the Company, and of such other books and papers as in the practical business operations of the Company shall naturally belong in the office or custody of the Secretary or as shall be placed in his custody by order of the Board of Directors or the Executive Committee. He shall keep a suitable record of the addresses of stockholders and shall, except as may be otherwise required by statute or these by-laws, sign and issue all notices required for meetings of stockholders, of the Board of Directors and of the Executive Committee. In the case of a special meeting of the stockholders called by the requisite number of stockholders or by a majority of the Directors individually, and in the case of a special meeting of the Board of Directors or a meeting of the Executive Committee, called by any two Directors, the Secretary may, and if so requested by the persons calling the meeting shall, include the names of such persons in the notice of the meeting. He shall sign all papers to which his signature may be necessary or appropriate, shall affix and attest the seal of the Company to all instruments requiring the seal, and shall have such other powers and duties as are commonly incidental to the office of Secretary and as may be prescribed for him by the Board of Directors, the Executive Committee, the Chief Executive Officer, or the officer to whom he reports.
SECTION 6. The Treasurer shall have such powers and duties as are commonly incidental to the office of Treasurer and as may be prescribed for him by the Board of Directors, the Executive Committee, the Chief Executive Officer, or the officer to whom he reports.
SECTION 7. Assistant officers may be elected by the Board of Directors or appointed by the Chief Executive Officer or the President. Each assistant officer shall assist the officer whom he is elected or appointed to assist and shall for such purpose have the powers of such officer. In the absence or disability of any officer, his duties shall, except as otherwise ordered by the Board of Directors or Executive Committee, temporarily devolve upon such assistant officer as shall be designated by the Chief Executive Officer.
ARTICLE I.
MISCELLANEOUS.
SECTION 1. Whenever any notice is required to be given under the provision of these by-laws or under the provisions of the Articles of Incorporation of the Company or under the provisions of the Act, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance at any meeting shall constitute waiver of notice thereof unless the person at the meeting objects to the holding of the meeting because proper notice was not given.
SECTION 2. Any and all shares of stock of any corporation owned by the Company and any and all voting trust certificates owned by the Company calling for or representing shares of stock of any corporation may be voted at any meeting of the stockholders of such corporation or at any meeting of the holders of such certificates, as the case may be, by the Chairman, the President, a Vice President, the Secretary or the Treasurer upon any question which may be
presented at such meeting, and any such officer may, on behalf of the Company, waive any notice required to be given of the calling of such meeting without notice. The Chairman, the President, a Vice President, the Secretary and the Treasurer shall have authority to give to any person a written proxy in the name of the Company and under its corporate seal, to vote any or all shares of stock or any or all certificates owned by the Company upon any question that may be presented at any such meeting of stockholders or certificate holders, with full power to waive any notice of the calling of such meeting and consent to the holding of such meeting without notice.
SECTION 3. The fiscal year of the Company shall begin on the first day of January and end on the last day of December in each year.
ARTICLE II.
AMENDMENT OR REPEAL OF BY-LAWS.
These by-laws may be made, altered, amended or repealed by the stockholders or the Board of Directors.
Nicor Gas Company Form 10-K Exhibit 4.09
Supplemental Indenture
DATED AS OF DECEMBER 1, 2003
NORTHERN ILLINOIS GAS COMPANY
TO
BNY MIDWEST TRUST COMPANY
TRUSTEE UNDER INDENTURE DATED AS OF
JANUARY 1, 1954 AND SUPPLEMENTAL
INDENTURES THERETO
FIRST MORTGAGE BONDS
5.80% SERIES DUE DECEMBER 1, 2023
This instrument was prepared by George M. Behrens, 1844 Ferry Road, Naperville, Illinois 60563-9600
Return to: Nicor Gas
Attn: Joe Johnson
P.O. Box 190
Aurora, IL 60507-0190
|
THIS SUPPLEMENTAL INDENTURE, dated as of the first day of December, 2003, between NORTHERN ILLINOIS GAS COMPANY, a corporation organized and existing under the laws of the State of Illinois (hereinafter called the "Company"), and BNY MIDWEST TRUST COMPANY, an Illinois trust company (hereinafter called the "Trustee"), as successor Trustee under an Indenture dated as of January 1, 1954, as supplemented by Supplemental Indentures dated, respectively, February 9, 1954, April 1, 1956, June 1, 1959, July 1, 1960, June 1, 1963, July 1, 1963, August 1, 1964, August 1, 1965, May 1, 1966, August 1, 1966, July 1, 1967, June 1, 1968, December 1, 1969, August 1, 1970, June 1, 1971, July 1, 1972, July 1, 1973, April 1, 1975, April 30, 1976, April 30, 1976, July 1, 1976, August 1, 1976, December 1, 1977, January 15, 1979, December 1, 1981, March 1, 1983, October 1, 1984, December 1, 1986, March 15, 1988, July 1, 1988, July 1, 1989, July 15, 1990, August 15, 1991, July 15, 1992, February 1, 1993, March 15, 1993, May 1, 1993, July 1, 1993, August 15, 1994, October 15, 1995, May 10, 1996, August 1, 1996, June 1, 1997, October 15, 1997 February 15, 1998, June 1, 1998, February 1, 1999, February 1, 2001, May 15, 2001, August 15, 2001 and December 15, 2001, such Indenture dated as of January 1, 1954, as so supplemented, being hereinafter called the "Indenture."
WITNESSETH:
WHEREAS, the Indenture provides for this issuance from time to time thereunder, in series, of bonds of the Company for the purposes and subject to the limitations therein specified; and
WHEREAS, the Company desires, by this Supplemental Indenture, to create an additional series of bonds to be issuable under the Indenture, such bonds to be designated "First Mortgage Bonds, 5.80% Series due December 1, 2023" (hereinafter called the "bonds of this Series"), and the terms and provisions to be contained in the bonds of this Series or to be otherwise applicable thereto to be as set forth in this Supplemental Indenture; and
WHEREAS, the forms, respectively, of the bonds of this Series, and the Trustee's certificate to be endorsed on all bonds of this Series, are to be substantially as follows:
(FORM OF FACE OF BOND)
THIS SECURITY IS A GLOBAL BOND WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO NORTHERN ILLINOIS
GAS COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
NO. RU-_______ $________
CUSIP No.__________
NORTHERN ILLINOIS GAS COMPANY
First Mortgage Bond, 5.80% Series due December 1, 2023
NORTHERN ILLINOIS GAS COMPANY, an Illinois corporation (hereinafter called the "Company"), for value received, hereby promises to pay to or registered assigns, the sum of Dollars, on the first day of December, 2023, and to pay to the registered owner hereof interest on said sum from the date hereof until said sum shall be paid, at the rate of five and eighty hundredths per centum (5.80%) per annum, payable semiannually on the first day of June and the first day of December in each year. Both the principal of and the interest on this bond shall be payable at the office or agency of the Company in the City of Chicago, State of Illinois, or, at the option of the registered owner, at the office or agency of the Company in the Borough of Manhattan, The City and State of New York, in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts. Any installment of interest on this bond may, at the Company's option, be paid by mailing checks for such interest payable to or upon the written order of the person entitled thereto to the address of such person as it appears on the registration books.
So long as there is no existing default in the payment of interest on this bond, the interest so payable on any interest payment date will be paid to the person in whose name this bond is registered on May 15 or November 15 (whether or not a business day), as the case may be, next preceding such interest payment date. If and to the extent that the Company shall default in the payment of interest due on such interest payment date, such defaulted interest shall be paid to the person in whose name this bond is registered on the record date fixed, in advance, by the Company for the payment of such defaulted interest.
Additional provisions of this bond are set forth on the reverse hereof.
This bond shall not be entitled to any security or benefit under the Indenture or be valid or become obligatory for any purpose unless and until it shall have been authenticated by the execution by the Trustee, or its successor in trust under the Indenture, of the certificate endorsed hereon.
IN WITNESS WHEREOF, Northern Illinois Gas Company has caused this bond to be executed in its name by its President, manually or by facsimile signature, and has caused its corporate seal to be impressed hereon or a facsimile thereof to be imprinted hereon and to be attested by its Assistant Secretary, manually or by facsimile signature.
Dated:_______________
NORTHERN ILLINOIS GAS COMPANY
BY:__________________________
President
ATTEST:
(FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION)
This bond is one of the bonds of the series designated therein, referred to and described in the within-mentioned Supplemental Indenture dated as of December 1, 2003.
BNY MIDWEST TRUST COMPANY,
TRUSTEE
BY:________________________
Authorized Officer
(FORM OF REVERSE SIDE OF BOND)
This bond is one, of the series hereinafter specified, of the bonds issued and to be issued in series from time to time under and in accordance with and secured by an Indenture dated as of January 1, 1954, to BNY Midwest Trust Company, as Trustee, as supplemented by certain indentures supplemental thereto, executed and delivered to the Trustee; and this bond is one of a series of such bonds, designated "Northern Illinois Gas Company First Mortgage Bonds, 5.80% Series due December 1, 2023 ("herein called "bonds of this Series"), the issuance of which is provided for by a Supplemental Indenture dated as of December 1, 2003 (hereinafter called the "Supplemental Indenture"), executed and delivered by the Company to the Trustee. The term "Indenture", as hereinafter used, means said Indenture dated as of January 1, 1954, and all indentures supplemental thereto (including, without limitation, the Supplemental Indenture) from time to time in effect. Reference is made to the Indenture for a description of the property mortgaged and pledged, the nature and extent of the security, the rights of the holders and registered owners of said bonds, of the Company and of the Trustee in respect of the security, and the terms and conditions governing the issuance and security of said bonds.
With the consent of the Company and to the extent permitted by and as provided in the Indenture, modifications or alterations of the Indenture or of any supplemental indenture and of the rights and obligations of the Company and of the holders and registered owners of the bonds may be made, and compliance with any provision of the Indenture or of any supplemental indenture may be waived, by the affirmative vote of the holders and registered owners of not less than sixty-six and two-thirds per centum (66 2/3%) in principal amount of the bonds then outstanding under the Indenture, and by the affirmative vote of the holders and registered owners of not less than sixty-six and two-thirds per centum (66 2/3%) in principal amount of the bonds of any series then outstanding under the Indenture and affected by such modification or alteration, in case one or more but less than all of the series of bonds then outstanding under the Indenture are so affected, but in any case excluding bonds disqualified from voting by reason of the Company's interest therein as provided in the Indenture; subject, however, to the condition, among other conditions stated in the Indenture, that no such
modification or alteration shall be made which, among other things, will permit the extension of the time or times of payment of the principal of or the interest or the premium, if any, on this bond, or the reduction in the principal amount hereof or in the rate of interest or the amount of any premium hereon, or any other modification in the terms of payment of such principal, interest or premium, which terms of payment are unconditional, or, otherwise than as permitted by the Indenture, the creation of any lien ranking prior to or on a parity with the lien of the Indenture with respect to any of the mortgaged property, all as more fully provided in the Indenture.
The bonds of this Series may be called for redemption by the Company, as a
whole at any time or in part from time to time, at a redemption price equal to
the greater of (i) 100% of the principal amount of the bonds of this Series to
be redeemed or (ii) the sum of the present values of the remaining scheduled
payments of principal and interest thereon (exclusive of interest accrued to the
date of redemption) discounted, at the then current Treasury Rate (as defined in
the Supplemental Indenture) plus 12.5 basis points, to the date of redemption on
a semiannual basis (assuming a 360-day year consisting of twelve 30-day months)
plus, in each case, accrued and unpaid interest on the principal amount being
redeemed to the date of redemption.
Notice of each redemption shall be mailed to all registered owners not less
than thirty nor more than forty-five days before the redemption date.
In case of certain completed defaults specified in the Indenture, the principal of this bond may be declared or may become due and payable in the manner and with the effect provided in the Indenture.
No recourse shall be had for the payment of the principal of or the interest or the premium, if any, on this bond, or for any claim based hereon, or otherwise in respect hereof or of the Indenture, to or against any incorporator, stockholder, officer or director, past, present or future, of the Company or of any predecessor or successor corporation, either directly or through the Company or such predecessor or successor corporation, under any constitution or statute or rule of law, or by the enforcement of any assessment or penalty, or otherwise, all such liability of incorporators, stockholders, directors and officers being waived and released by the registered owner hereof by the acceptance of this bond and being likewise waived and released by the terms of the Indenture, all as more fully provided therein.
This bond is transferable by the registered owner hereof, in person or by duly authorized attorney, at the office or agency of the Company in the City of Chicago, State of Illinois, or, at the option of registered owner, at the office or agency of the Company in the Borough of Manhattan, The City and State of New York, upon surrender and cancellation of this bond; and thereupon a new registered bond or bonds without coupons of the same aggregate principal amount and series will, upon the payment of any transfer tax or taxes payable, be issued to the transferee in exchange herefor. The Company shall not be required to exchange or transfer this bond if this bond or a portion hereof has been selected for redemption.
(END OF BOND FORM)
and
WHEREAS, all acts and things necessary to make this Supplemental Indenture, when duly executed and delivered, a valid, binding and legal instrument in accordance with its terms, and for the purposes herein expressed, have been done and performed, and the execution and delivery of this Supplemental Indenture have in all respects been duly authorized;
NOW, THEREFORE, in consideration of the premises and of the sum of one dollar paid by the Trustee to the Company, and for other good and valuable consideration, the receipt of which is hereby acknowledged, for the purpose of securing the due and punctual payment of the principal of and the interest and premium, if any, on all bonds which shall be issued under the Indenture, and for the purpose of securing the faithful performance and observance of all the covenants and conditions set forth in the Indenture and in all indentures supplemental thereto, the Company by these presents does grant, bargain, sell, transfer, assign, pledge, mortgage, warrant and convey unto BNY Midwest Trust Company, as Trustee, and its successor or successors in the trust hereby created, all property, real and personal (other than property expressly excepted from the lien and operation of the Indenture), which, at the actual date of execution and delivery of this Supplemental Indenture, is solely used or held for use in the operation by the Company of its gas utility system and in the conduct of its gas utility business and all property, real and personal, used or useful in the gas utility business (other than property expressly excepted form the lien and operation of the Indenture) acquired by the Company after the actual date of execution and delivery of this Supplemental Indenture or (subject to the provisions of Section 16.03 of the Indenture) by any successor corporation after such execution and delivery, and it is further agreed by and between the Company and the Trustee as follows:
ARTICLE I.
BONDS OF THIS SERIES
SECTION 1. The bonds of this Series shall, as hereinbefore recited, be designated as the Company's "First Mortgage Bonds, 5.80% Series due December 1, 2023". The bonds of this Series will be initially limited to $50,000,000 in aggregate principal amount, exclusive of bonds of such series authenticated and delivered pursuant to Section 4.12 of the Indenture. The Company may, without the consent of the holders of the bonds of this Series, increase the principal amount of the bonds of this Series by issuing additional bonds of this Series in the future on the same terms and conditions, except for any differences in the issue price and interest accrued
prior to the issue date of the additional bonds of this Series and with the same CUSIP numbers as the bonds of this Series initially issued. Any additional bonds of this Series would rank equally and ratably with the bonds of this Series initially issued and would be treated as a single series of bonds for all purposes under the Indenture.
SECTION 2. The bonds of this Series shall be registered bonds without coupons, and the form of such bonds, and of the Trustee's certificate of authentication to be endorsed on all bonds of this Series, shall be substantially as hereinbefore recited, respectively.
SECTION 3. The bonds of this Series shall be issued in the denomination of $1,000 each and in such integral multiple or multiples thereof as shall be determined and authorized by the Board of Directors of the Company or by any officer of the Company authorized by the Board of Directors to make such determination, the authorization of the denomination of any bond to be conclusively evidenced by the execution thereof on behalf of the Company. The bonds of this Series shall be numbered RU-1 and consecutively upwards, or in such other appropriate manner as shall be determined and authorized by the Board of Directors of the Company.
All bonds of this Series shall be dated December 1, 2003 except that each bond issued on or after the first payment of interest thereon shall be dated as of the date of the interest payment date thereof to which interest shall have been paid on the bonds of such series next preceding the date of issue, unless issued on an interest payment date to which interest shall have been so paid, in which event such bonds shall be dated as of the date of issue; provided, however, that bonds issued on or after November 15 and before the next succeeding December 1 or on or after May 15 and before the next succeeding June 1 shall be dated the next succeeding interest payment date if interest shall have been paid to such date. All bonds of this Series shall mature December 1, 2023 and shall bear interest at the rate of 5.80% per annum until the principal thereof shall be paid. Such interest shall be calculated on the basis of a 360-day year consisting of twelve 30-day months and shall be payable semi-annually on the first day of June and the first day of December in each year, beginning June 1, 2004. So long as there is no existing default in the payment of interest on the bonds of this Series, such interest shall be payable to the person in whose name each such bond is registered on the November 15 or May 15 (whether or not business day), as the case may be, next preceding the respective interest payment dates; provided, however, if and to the extent that the Company shall default in the payment of interest due on such interest payment date, such defaulted interest shall be paid to the person in whose name each such bond is registered on the record date fixed, in advance, by the Company for the payment of such defaulted interest. Interest will accrue on overdue interest installments at the rate of 5.80% per annum.
The principal of and interest and premium, if any, on the bonds of this Series shall be payable in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts, and shall be payable at the office or agency of the Company in the City of Chicago, State of Illinois, or, at the option of the registered owner, at the office or agency of the Company in the Borough of Manhattan, The City and State of New York. Any installment of interest on the bonds may, at the Company's option, be paid by mailing checks for such interest payable to or upon the written order of the person entitled thereto to the address of such person as it appears on the registration books. The bonds of this Series shall be registrable, transferable and exchangeable in the manner provided in Sections 4.08 and 4.09 of the Indenture, at either of such offices or agencies. With respect to a Global Bond (as defined herein), the Company may make payments of principal of, premium, if any, and interest, if any, on such Global Bond pursuant to and in accordance with such arrangements as are agreed upon by the Company and the depositary for such Global Bond.
SECTION 4. The bonds of this Series, upon the mailing of notice and in the manner provided in Section 7.01 of the Indenture (except that no published notice shall be required for the bonds of this Series) and with the effect provided in Section 7.02 thereof, shall be redeemable at the option of the Company, as a whole at any time or in part from time to time, at a redemption price equal to the greater of (i) 100% of the principal amount of the bonds of this Series to be redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the date of redemption) discounted, at the then current Treasury Rate plus 12.5 basis points, to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) plus, in each case, accrued and unpaid interest of the principal amount being redeemed to the date of redemption.
"Treasury Rate" means, with respect to any redemption date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the bonds of this Series to be redeemed that would be used, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the bonds of this Series.
"Comparable Treasury Price" means, with respect to any redemption date, (i) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (ii) if the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such quotations.
"Independent Investment Banker" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company.
"Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day preceding such redemption date.
"Reference Treasury Dealer" means each of Banc One Capital Markets, Inc. and its successors and three other nationally recognized investment banking firms that are Primary Treasury Dealers specified from time to time by the Company; provided, however, that if any of the foregoing shall cease to be a Primary Treasury Dealer, the Company shall replace it with another Primary Treasury Dealer.
"Primary Treasury Dealer" means a primary U.S. government securities dealer in New York City.
"Business Day" means, for purpose of this Section 4, any day other than a Saturday or Sunday and other than a day on which banking institutions in Chicago, Illinois or New York, New York are authorized or obligated by law or executive order to close.
SECTION 5. No sinking fund is to be provided for the bonds of this Series.
SECTION 6. (a) The bonds of this Series shall be issued initially in the
form of one or more global bonds (each such global bond, a "Global Bond") to or
on behalf of The Depository Trust Company ("DTC"), as depositary therefor, and
registered in the name of DTC or its nominee. Any bonds of this Series to be
issued or transferred to, or to be held by or on behalf of, DTC as such
depositary or such nominee (or any successor of such nominee) for such purpose
shall bear the depositary legends in substantially the form set forth at the top
of the form of bonds of this Series in this Supplemental Indenture, unless
otherwise agreed by the Company, and, in the case of a successor depositary,
such legend or legends as such depositary and/or the Company shall require and
to which they shall agree, in each case such agreement to be confirmed in
writing to the Trustee.
(b) Notwithstanding any other provision of this Section 6 or of Section
4.08 of the Indenture, except as contemplated by the provisions of Section 6(c)
hereof, a Global Bond may be transferred, in whole but not in part and in the
manner provided in Section 4.08 of the Indenture, only to a nominee of the
depositary for such Global Bond, or to DTC, or to a successor depositary for
such Global Bond selected or approved by the Company, or to a nominee of such
successor depositary.
(c) (1) If at any time the depositary for a Global Bond notifies the Company that it is unwilling or unable to continue as the depositary for such Global Bond or if at any time the depositary for a Global Bond shall no longer be eligible or in good standing under any applicable statute or regulation, the Company shall appoint a successor depositary with respect to such Global Bond. If a successor depositary for such Global Bond is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such ineligibility, the Company will execute, and the Trustee, upon receipt of an order of the Company for the authentication and delivery of bonds of this Series in the form of definitive certificates in exchange for such Global Bond, will authenticate and deliver, without service charge, bonds of this Series in the form of definitive certificates of like tenor and terms in an aggregate principal amount equal to the principal amount of the Global Bond in exchange for such Global Bond. Such bonds of this Series will be issued to and registered in the name of such person or persons as are specified by the depositary.
(2) The Company may at any time and in its sole discretion determine that any bonds of this Series issued or issuable in the form of one or more Global Bonds shall no longer be represented by such global bond or bonds. In any such event the Company will execute, and the Trustee, upon receipt of an order of the Company for the authentication and delivery of bonds of this Series in the form of definitive certificates in exchange in whole or in part for such Global Bond or Global Bonds, will authenticate and deliver, without service charge, to each person specified by the depositary, bonds of this Series in the form of definitive certificates of like tenor and terms in an aggregate principal amount equal to the principal amount of such Global Bond or the aggregate principal amount of such Global Bonds in exchange for such Global Bond or Global Bonds.
(3) If the Company so elects in an officers' certificate, the depositary may surrender bonds of this Series issued in the form of a Global Bond in exchange in whole or in part for bonds of this Series in the form of definitive certificates of like tenor and terms on such terms as are acceptable to the Company and such Depositary. Thereupon the Company shall execute, and the Trustee shall authenticate and deliver, without service charge, (A) to each person specified by such depositary a new Global Bond or Global Bonds of this Series of like tenor and terms and any authorized denomination as requested by such person in aggregate principal amount equal to and in exchange for such person's beneficial interest in the Global Bond, and (B) to such depositary a new Global Bond of like tenor and terms and in an authorized denomination equal to the difference, if any, between the principal amount of the surrendered Global Bond and the aggregate principal amount of bonds delivered to holders thereof.
(4) Within seven days after the occurrence and continuance of a completed default with respect to the bonds of this Series, the Company shall execute, and the Trustee shall authenticate and deliver, bonds of this Series in definitive registered form in any authorized denominations and in aggregate principal amount equal to the principal amount of such Global Bonds in exchange for such Global Bonds.
(5) In any exchange provided for in any of Section 6(c)(1), Section
6(c)(2), Section 6(c)(3) or Section 6(c)(4), the Company shall execute and the
Trustee shall authenticate and deliver bonds of this Series in the form of
definitive certificates in authorized denominations. Upon the exchange of the
entire principal amount of a Global Bond for bonds of this Series in the form of
definitive certificates, such Global Bond shall be canceled by the Trustee.
Except as provided in Section 6(c)(3), bonds of this Series issued in exchange
for a Global Bond pursuant to this Section 6 shall be registered in such names
and in such authorized denominations as the depositary for such Global Bond,
acting pursuant to instructions from its direct or indirect participants or
otherwise, shall instruct the Trustee. Provided that the Company and the Trustee
have so agreed, the Trustee shall deliver such bonds of this Series to the
persons in whose names the bonds of this Series are so to be registered.
(6) Any endorsement of a Global Bond to reflect the principal amount thereof, or any increase or decrease in such principal amount, shall be made in such manner and by such person or persons as shall be specified in or pursuant to any applicable letter of representations or other arrangement entered into with, or procedures of, the depositary with respect to such Global Bond or in the order of the Company delivered or to be delivered pursuant to the Indenture with respect thereto. Subject to the provisions of the Indenture, the Trustee shall deliver and redeliver any such Global Bond in the manner and upon instructions given by the person or persons specified in or pursuant to any applicable letter of representations or other arrangement entered into with, or procedures of, the depositary with respect to such Global Bond or in any applicable order of the Company. If an order of the Company pursuant to the Indenture is so delivered, any instructions by the Company with respect to such Global Bond contained therein shall be in writing but need not be accompanied by or contained in an officers' certificate and need not be accompanied by an opinion of counsel.
ARTICLE II.
MISCELLANEOUS PROVISIONS
SECTION 1. This Supplemental Indenture is executed by the Company and the Trustee pursuant to provisions of Section 4.02 of the Indenture and the terms and conditions hereof shall be deemed to be a part of the terms and conditions of the Indenture for any and all purposes. The Indenture, as heretofore supplemented and as supplemented by this Supplemental Indenture, is in all respects ratified and confirmed.
SECTION 2. This Supplemental Indenture shall bind and, subject to the provisions of Article XVI of the Indenture, inure to the benefit of the respective successors and assigns of the parties hereto.
SECTION 3. Although this Supplemental Indenture is dated as of December 1, 2003, it shall be effective only from and after the actual time of its execution and delivery by the Company and the Trustee on the date indicated by their respective acknowledgements hereto.
SECTION 4. This Supplemental Indenture may be simultaneously executed in any number of counterparts, and all such counterparts executed and delivered, each as an original, shall constitute but one and the same instrument.
IN WITNESS WHEREOF, Northern Illinois Gas Company has caused this Supplemental Indenture to be executed in its name by its Vice President and Treasurer, and its corporate seal to be hereunto affixed and attested by its Assistant Secretary, and BNY Midwest Trust Company, as Trustee under the Indenture, has caused this Supplemental Indenture to be executed in its name by one of its Assistant Vice Presidents, and its seal to be hereunto affixed and attested by one of its Assistant Secretaries, all as of the day and year first above written.
NORTHERN ILLINOIS GAS COMPANY
BY: /S/ GEORGE M. BEHRENS
---------------------------
GEORGE M. BEHRENS
Vice President and Treasurer
ATTEST:
/S/ MARK KNOX
-------------------------------
MARK KNOX
Assistant Secretary
|
BNY MIDWEST TRUST COMPANY,
as Trustee
BY: /S/ D.G. DONOVAN
---------------------
D.G. DONOVAN
Assistant Vice President
ATTEST:
/S/ C. POTTER
-------------------------------
C. POTTER
Assistant Secretary
|
SS
- STATE OF ILLINOIS } :
COUNTY OF DUPAGE }
I, Jennifer M. Dziewior, a Notary Public in the State aforesaid, DO HEREBY CERTIFY that George M. Behrens, Vice President and Treasurer of Northern Illinois Gas Company, an Illinois corporation, one of the parties described in and which executed the foregoing instrument, and Mark Knox, Assistant Secretary of said corporation, who are both personally known to me to be the same persons whose names are subscribed to the foregoing instrument as such Vice President and Treasurer and Assistant Secretary, respectively, and who are both personally known to me to be the Vice President and Treasurer and an Assistant Secretary, respectively, of said corporation, appeared before me this day in person and severally acknowledged that they signed, sealed, executed and delivered said instrument as their free and voluntary act as such Vice President and Treasurer and Assistant Secretary, respectively, of said corporation, and as the free and voluntary act of said corporation, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal this 5th day of December, 2003 A.D.
/S/ JENNIFER M. DZIEWIOR
--------------------------
Notary Public
|
My Commission expires June 19, 2007.
SS
- STATE OF ILLINOIS } :
COUNTY OF COOK }
I, A. Hernandez, a Notary Public in and for the said County, in the State aforesaid, DO HEREBY CERTIFY that D.G. Donovan, Assistant Vice President of BNY Midwest Trust Company, an Illinois trust company, one of the parties described in and which executed the foregoing instrument, and C. Potter, an Assistant Secretary of said trust company, who are both personally known to me to be the same persons whose names are subscribed to the foregoing instrument as such Assistant Vice President and Assistant Secretary, respectively, and who are both personally known to me to be an Assistant Vice President and an Assistant Secretary, respectively, of said trust company, appeared before me this day in person and severally acknowledged that they signed, sealed, executed and delivered said instrument as their free and voluntary act as such Assistant Vice President and Assistant Secretary, respectively, of said trust company, and as the free and voluntary act of said trust company, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal this 5th day of December, 2003 A.D.
/S/ A. HERNANDEZ
-------------------------
Notary Public
|
My Commission expires July 8, 2007.
RECORDING DATA
This Supplemental Indenture was recorded on December 8, 9 and 10, 2003, in the office of the Recorder of Deeds in certain counties in the State of Illinois, as follows:
County Document No. --------- ------------ Cook 0334344141 Adams 200319157 Boone 2003R20357 Bureau 03-10345 Carroll 480426 Champaign 2003R53444 DeKalb 2003-034956 DeWitt 206630 DuPage R2003-462781 Ford 228168 Grundy 427538 Hancock 2003-5246 Henderson 158145 Henry 20-0315435 Iroquois 03R7180 JoDaviess 308238 Kane 2003K209925 Kankakee 200331526 Kendall 03 42678 Lake 5449578 LaSalle R2003-41727 Lee 2003-12465 Livingston 551525 McHenry 2003R0163064 McLean 200360868 Mercer 341295 Ogle 0321220 Piatt 314631 Pike 03-4574 Rock Island 2003-46818 Stephenson 200300050952 Tazewell 200300045007 Vermilion 20074 Whiteside 16704-2003 Will R2003297381 Winnebago 3111335 Woodford 313285 |
Nicor Gas Company Form 10-K Exhibit 4.10
Supplemental Indenture
DATED AS OF DECEMBER 1, 2003
NORTHERN ILLINOIS GAS COMPANY
TO
BNY MIDWEST TRUST COMPANY
TRUSTEE UNDER INDENTURE DATED AS OF
JANUARY 1, 1954 AND SUPPLEMENTAL
INDENTURES THERETO
FIRST MORTGAGE BONDS
5.90% SERIES DUE DECEMBER 1, 2032
This instrument was prepared by George M. Behrens, 1844 Ferry Road, Naperville, Illinois 60563-9600
Return to: Nicor Gas
Attn: Joe Johnson
P.O. Box 190
Aurora, IL 60507-0190
|
THIS SUPPLEMENTAL INDENTURE, dated as of the first day of December, 2003,
between NORTHERN
ILLINOIS GAS COMPANY, a corporation organized and existing under the laws of
the State of Illinois (hereinafter called the "Company"), and BNY MIDWEST
TRUST COMPANY, an Illinois trust company (hereinafter called the "Trustee"),
as successor Trustee under an Indenture dated as of January 1, 1954, as
supplemented by Supplemental Indentures dated, respectively, February 9,
1954, April 1, 1956, June 1, 1959, July 1, 1960, June 1, 1963, July 1, 1963,
August 1, 1964, August 1, 1965, May 1, 1966, August 1, 1966, July 1, 1967,
June 1, 1968, December 1, 1969, August 1, 1970, June 1, 1971, July 1, 1972,
July 1, 1973, April 1, 1975, April 30, 1976, April 30, 1976, July 1, 1976,
August 1, 1976, December 1, 1977, January 15, 1979, December 1, 1981, March
1, 1983, October 1, 1984, December 1, 1986, March 15, 1988, July 1, 1988,
July 1, 1989, July 15, 1990, August 15, 1991, July 15, 1992, February 1,
1993, March 15, 1993, May 1, 1993, July 1, 1993, August 15, 1994, October
15, 1995, May 10, 1996, August 1, 1996, June 1, 1997, October 15, 1997
February 15, 1998, June 1, 1998, February 1, 1999, February 1, 2001, May 15,
2001, August 15, 2001 and December 15, 2001, such Indenture dated as of
January 1, 1954, as so supplemented, being hereinafter called the
"Indenture."
WITNESSETH:
WHEREAS, the Indenture provides for this issuance from time to time
thereunder, in series, of bonds of the Company for the purposes and subject to
the limitations therein specified; and
WHEREAS, the Company desires, by this Supplemental Indenture, to create an
additional series of bonds to be issuable under the Indenture, such bonds to be
designated "First Mortgage Bonds, 5.90% Series due December 1, 2032"
(hereinafter called the "bonds of this Series"), and the terms and provisions to
be contained in the bonds of this Series or to be otherwise applicable thereto
to be as set forth in this Supplemental Indenture; and
WHEREAS, the forms, respectively, of the bonds of this Series, and the
Trustee's certificate to be endorsed on all bonds of this Series, are to be
substantially as follows:
(FORM OF FACE OF BOND)
THIS SECURITY IS A GLOBAL BOND WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO NORTHERN ILLINOIS
GAS COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
NO. RU-_______ $__________
CUSIP No.________________
NORTHERN ILLINOIS GAS COMPANY
First Mortgage Bond, 5.90% Series due December 1, 2032
NORTHERN ILLINOIS GAS COMPANY, an Illinois corporation (hereinafter called
the "Company"), for value received, hereby promises to pay to or
registered assigns, the sum of Dollars, on the first day of December, 2032,
and to pay to the registered owner
hereof interest on said sum from the date hereof until said sum shall be paid,
at the rate of five and ninety hundredths per centum (5.90%) per annum, payable
semiannually on the first day of June and the first day of December in each
year. Both the principal of and the interest on this bond shall be payable at
the office or agency of the Company in the City of Chicago, State of Illinois,
or, at the option of the registered owner, at the office or agency of the
Company in the Borough of Manhattan, The City and State of New York, in any coin
or currency of the United States of America which at the time of payment is
legal tender for the payment of public and private debts. Any installment of
interest on this bond may, at the Company's option, be paid by mailing checks
for such interest payable to or upon the written order of the person entitled
thereto to the address of such person as it appears on the registration books.
So long as there is no existing default in the payment of interest on this bond, the interest so payable on any interest payment date will be paid to the person in whose name this bond is registered on May 15 or November 15 (whether or not a business day), as the case may be, next preceding such interest payment date. If and to the extent that the Company shall default in the payment of interest due on such interest payment date, such defaulted interest shall be paid to the person in whose name this bond is registered on the record date fixed, in advance, by the Company for the payment of such defaulted interest.
Additional provisions of this bond are set forth on the reverse hereof.
This bond shall not be entitled to any security or benefit under the Indenture or be valid or become obligatory for any purpose unless and until it shall have been authenticated by the execution by the Trustee, or its successor in trust under the Indenture, of the certificate endorsed hereon.
IN WITNESS WHEREOF, Northern Illinois Gas Company has caused this bond to be executed in its name by its President, manually or by facsimile signature, and has caused its corporate seal to be impressed hereon or a facsimile thereof to be imprinted hereon and to be attested by its Assistant Secretary, manually or by facsimile signature.
Dated: __________________
NORTHERN ILLINOIS GAS COMPANY
BY: __________________________
President
ATTEST:
(FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION)
This bond is one of the bonds of the series designated therein, referred to and described in the within-mentioned Supplemental Indenture dated as of December 1, 2003.
BNY MIDWEST TRUST COMPANY,
TRUSTEE
BY: _____________________________
Authorized Officer
(FORM OF REVERSE SIDE OF BOND)
This bond is one, of the series hereinafter specified, of the bonds issued and to be issued in series from time to time under and in accordance with and secured by an Indenture dated as of January 1, 1954, to BNY Midwest Trust Company, as Trustee, as supplemented by certain indentures supplemental thereto, executed and delivered to the Trustee; and this bond is one of a series of such bonds, designated "Northern Illinois Gas Company First Mortgage Bonds, 5.90% Series due December 1, 2032 ("herein called "bonds of this Series"), the issuance of which is provided for by a Supplemental Indenture dated as of December 1, 2003 (hereinafter called the "Supplemental Indenture"), executed and delivered by the Company to the Trustee. The term "Indenture", as hereinafter used, means said Indenture dated as of January 1, 1954, and all indentures supplemental thereto (including, without limitation, the Supplemental Indenture) from time to time in effect. Reference is made to the Indenture for a description of the property mortgaged and pledged, the nature and extent of the security, the rights of the holders and registered owners of said bonds, of the Company and of the Trustee in respect of the security, and the terms and conditions governing the issuance and security of said bonds.
With the consent of the Company and to the extent permitted by and as provided in the Indenture, modifications or alterations of the Indenture or of any supplemental indenture and of the rights and obligations of the Company and of the holders and registered owners of the bonds may be made, and compliance with any provision of the Indenture or of any supplemental indenture may be waived, by the affirmative vote of the holders and registered owners of not less than sixty-six and two-thirds per centum (66-2/3%) in principal amount of the bonds then outstanding under the Indenture, and by the affirmative vote of the holders and registered owners of not less than sixty-six and two-thirds per centum (66-2/3%) in principal amount of the bonds of any series then outstanding under the Indenture and affected by such modification or alteration, in case one or more but less than all of the series of bonds then outstanding under the Indenture are so affected, but in any case excluding bonds disqualified from voting by reason of the Company's interest therein as provided in the Indenture; subject, however, to the condition, among other conditions stated in the Indenture, that no such modification or alteration shall be made which, among other things, will permit the extension of the time or times of payment of the principal of or the interest or the premium, if any, on this bond, or the reduction in the principal amount hereof or in the rate of interest or the amount of any premium hereon, or any other modification in the terms of payment of such principal, interest or premium, which terms of payment are unconditional, or, otherwise than as permitted by the Indenture, the creation of any lien ranking prior to or on a parity with the lien of the Indenture with respect to any of the mortgaged property, all as more fully provided in the Indenture.
The bonds of this Series may be called for redemption by the Company, as a
whole at any time or in part from time to time, at a redemption price equal to
the greater of (i) 100% of the principal amount of the bonds of this Series to
be redeemed or (ii) the sum of the present values of the remaining scheduled
payments of principal and interest thereon (exclusive of interest accrued to the
date of redemption) discounted, at the then current Treasury Rate (as defined in
the Supplemental Indenture) plus 15 basis points, to the date of redemption on a
semiannual basis (assuming a 360-day year consisting of twelve 30-day months)
plus, in each case, accrued and unpaid interest on the principal amount being
redeemed to the date of redemption.
Notice of each redemption shall be mailed to all registered owners not less
than thirty nor more than forty-five days before the redemption date.
In case of certain completed defaults specified in the Indenture, the principal of this bond may be declared or may become due and payable in the manner and with the effect provided in the Indenture.
No recourse shall be had for the payment of the principal of or the interest or the premium, if any, on this bond, or for any claim based hereon, or otherwise in respect hereof or of the Indenture, to or against any incorporator, stockholder, officer or director, past, present or future, of the Company or of any predecessor or successor corporation, either directly or through the Company or such predecessor or successor corporation, under any constitution or statute or rule of law, or by the enforcement of any assessment or penalty, or otherwise, all such liability of incorporators, stockholders, directors and officers being waived and released by the registered owner hereof by the acceptance of this bond and being likewise waived and released by the terms of the Indenture, all as more fully provided therein.
This bond is transferable by the registered owner hereof, in person or by duly authorized attorney, at the office or agency of the Company in the City of Chicago, State of Illinois, or, at the option of registered owner, at the office or agency of the Company in the Borough of Manhattan, The City and State of New York, upon surrender and cancellation of this bond; and thereupon a new registered bond or bonds without coupons of the same aggregate principal amount and series will, upon the payment of any transfer tax or taxes payable, be issued to the transferee in exchange herefor. The Company shall not be required to exchange or transfer this bond if this bond or a portion hereof has been selected for redemption.
(END OF BOND FORM)
and
WHEREAS, all acts and things necessary to make this Supplemental Indenture, when duly executed and delivered, a valid, binding and legal instrument in accordance with its terms, and for the purposes herein expressed, have been done and performed, and the execution and delivery of this Supplemental Indenture have in all respects been duly authorized;
NOW, THEREFORE, in consideration of the premises and of the sum of one dollar paid by the Trustee to the Company, and for other good and valuable consideration, the receipt of which is hereby acknowledged, for the purpose of securing the due and punctual payment of the principal of and the interest and premium, if any, on all bonds which shall be issued under the Indenture, and for the purpose of securing the faithful performance and observance of all the covenants and conditions set forth in the Indenture and in all indentures supplemental thereto, the Company by these presents does grant, bargain, sell, transfer, assign, pledge, mortgage, warrant and convey unto BNY Midwest Trust Company, as Trustee, and its successor or successors in the trust hereby created, all property, real and personal (other than property expressly excepted from the lien and operation of the Indenture), which, at the actual date of execution and delivery of this Supplemental Indenture, is solely used or held for use in the operation by the Company of its gas utility system and in the conduct of its gas utility business and all property, real and personal, used or useful in the gas utility business (other than property expressly excepted form the lien and operation of the Indenture) acquired by the Company after the actual date of execution and delivery of this Supplemental Indenture or (subject to the provisions of Section 16.03 of the Indenture) by any successor corporation after such execution and delivery, and it is further agreed by and between the Company and the Trustee as follows:
ARTICLE I.
BONDS OF THIS SERIES
SECTION 1. The bonds of this Series shall, as hereinbefore recited, be designated as the Company's "First Mortgage Bonds, 5.90% Series due December 1, 2032". The bonds of this Series will be initially limited to $50,000,000 in aggregate principal amount, exclusive of bonds of such series authenticated and delivered pursuant to Section 4.12 of the Indenture. The Company may, without the consent of the holders of the bonds of this Series, increase the principal amount of the bonds of this Series by issuing additional bonds of this Series in the future on the same terms and conditions, except for any differences in the issue price and interest accrued prior to the issue date of the additional bonds of this Series and with the same CUSIP numbers as the bonds of this Series initially issued. Any additional bonds of this Series would rank equally and ratably with the bonds of this Series initially issued and would be treated as a single series of bonds for all purposes under the Indenture.
SECTION 2. The bonds of this Series shall be registered bonds without coupons, and the form of such bonds, and of the Trustee's certificate of authentication to be endorsed on all bonds of this Series, shall be substantially as hereinbefore recited, respectively.
SECTION 3. The bonds of this Series shall be issued in the denomination of $1,000 each and in such integral multiple or multiples thereof as shall be determined and authorized by the Board of Directors of the Company or by any officer of the Company authorized by the Board of Directors to make such determination, the authorization of the denomination of any bond to be conclusively evidenced by the execution thereof on behalf of the Company. The bonds of this Series shall be numbered RU-1 and consecutively upwards, or in such other appropriate manner as shall be determined and authorized by the Board of Directors of the Company.
All bonds of this Series shall be dated December 1, 2003 except that each bond issued on or after the first payment of interest thereon shall be dated as of the date of the interest payment date thereof to which interest shall have been paid on the bonds of such series next preceding the date of issue, unless issued on an interest payment date to which interest shall have been so paid, in which event such bonds shall be dated as of the date of issue; provided, however, that bonds issued on or after November 15 and before the next succeeding December 1 or on or after May 15 and before the next succeeding June 1 shall be dated the next succeeding interest payment date if interest shall have been paid to such date. All bonds of this Series shall mature December 1, 2032 and shall bear interest at the rate of 5.90% per annum until the principal thereof shall be paid. Such interest shall be calculated on the basis of a 360-day year consisting of twelve 30-day months and shall be payable semi-annually on the first day of June and the first day of December in each year, beginning June 1, 2004. So long as there is no existing default in the payment of interest on the bonds of this Series, such interest shall be payable to the person in whose name each such bond is registered on the November 15 or May 15 (whether or not business day), as the case may be, next preceding the respective interest payment dates; provided, however, if and to the extent that the Company shall default in the payment of interest due on such interest payment date, such defaulted interest shall be paid to the person in whose name each such bond is registered on the record date fixed, in advance, by the Company for the payment of such defaulted interest. Interest will accrue on overdue interest installments at the rate of 5.90% per annum.
The principal of and interest and premium, if any, on the bonds of this Series shall be payable in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts, and shall be payable at the office or agency of the Company in the City of Chicago, State of Illinois, or, at the option of the registered owner, at the office or agency of the Company in the Borough of Manhattan, The City and State of New York. Any installment of interest on the bonds may, at the Company's option, be paid by mailing checks for such interest payable to or upon the written order of the person entitled thereto to the address of such person as it appears on the registration books. The bonds of this Series shall be registrable, transferable and exchangeable in the manner provided in Sections 4.08 and 4.09 of the Indenture, at either of such offices or agencies.
With respect to a Global Bond (as defined herein), the Company may make payments of principal of, premium, if any, and interest, if any, on such Global Bond pursuant to and in accordance with such arrangements as are agreed upon by the Company and the depositary for such Global Bond.
SECTION 4. The bonds of this Series, upon the mailing of notice and in the manner provided in Section 7.01 of the Indenture (except that no published notice shall be required for the bonds of this Series) and with the effect provided in Section 7.02 thereof, shall be redeemable at the option of the Company, as a whole at any time or in part from time to time, at a redemption price equal to the greater of (i) 100% of the principal amount of the bonds of this Series to be redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the date of redemption) discounted, at the then current Treasury Rate plus 15 basis points, to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) plus, in each case, accrued and unpaid interest of the principal amount being redeemed to the date of redemption.
"Treasury Rate" means, with respect to any redemption date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the bonds of this Series to be redeemed that would be used, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the bonds of this Series.
"Comparable Treasury Price" means, with respect to any redemption date, (i) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (ii) if the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such quotations.
"Independent Investment Banker" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company.
"Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day preceding such redemption date.
"Reference Treasury Dealer" means each of Banc One Capital Markets, Inc. and its successors and three other nationally recognized investment banking firms that are Primary Treasury Dealers specified from time to time by the Company; provided, however, that if any of the foregoing shall cease to be a Primary Treasury Dealer, the Company shall replace it with another Primary Treasury Dealer.
"Primary Treasury Dealer" means a primary U.S. government securities dealer in New York City.
"Business Day" means, for purpose of this Section 4, any day other than a Saturday or Sunday and other than a day on which banking institutions in Chicago, Illinois or New York, New York are authorized or obligated by law or executive order to close.
SECTION 5. No sinking fund is to be provided for the bonds of this Series.
SECTION 6. (a) The bonds of this Series shall be issued initially in the
form of one or more global bonds (each such global bond, a "Global Bond") to or
on behalf of The Depository Trust Company ("DTC"), as depositary therefor, and
registered in the name of DTC or its nominee. Any bonds of this Series to be
issued or transferred to, or to be held by or on behalf of, DTC as such
depositary or such nominee (or any successor of such nominee) for such purpose
shall bear the depositary legends in substantially the form set forth at the top
of the form of bonds of this Series in this Supplemental Indenture, unless
otherwise agreed by the Company, and, in the case of a successor depositary,
such legend or legends as such depositary and/or the Company shall require and
to which they shall agree, in each case such agreement to be confirmed in
writing to the Trustee.
(b) Notwithstanding any other provision of this Section 6 or of Section
4.08 of the Indenture, except as contemplated by the provisions of Section 6(c)
hereof, a Global Bond may be transferred, in whole but not in part and in the
manner provided in Section 4.08 of the Indenture, only to a nominee of the
depositary for such Global Bond, or to DTC, or to a successor depositary for
such Global Bond selected or approved by the Company, or to a nominee of such
successor depositary.
(c) (1) If at any time the depositary for a Global Bond notifies the Company that it is unwilling or unable to continue as the depositary for such Global Bond or if at any time the depositary for a Global Bond shall no longer be eligible or in good standing under any applicable statute or regulation, the Company shall appoint a successor depositary with respect to such Global Bond. If a successor depositary for such Global Bond is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such ineligibility, the Company will execute, and the Trustee, upon receipt of an order of the Company for the authentication and delivery of bonds of this Series in the form of definitive certificates in exchange for such Global Bond, will
authenticate and deliver, without service charge, bonds of this Series in the form of definitive certificates of like tenor and terms in an aggregate principal amount equal to the principal amount of the Global Bond in exchange for such Global Bond. Such bonds of this Series will be issued to and registered in the name of such person or persons as are specified by the depositary.
(2) The Company may at any time and in its sole discretion determine that any bonds of this Series issued or issuable in the form of one or more Global Bonds shall no longer be represented by such global bond or bonds. In any such event the Company will execute, and the Trustee, upon receipt of an order of the Company for the authentication and delivery of bonds of this Series in the form of definitive certificates in exchange in whole or in part for such Global Bond or Global Bonds, will authenticate and deliver, without service charge, to each person specified by the depositary, bonds of this Series in the form of definitive certificates of like tenor and terms in an aggregate principal amount equal to the principal amount of such Global Bond or the aggregate principal amount of such Global Bonds in exchange for such Global Bond or Global Bonds.
(3) If the Company so elects in an officers' certificate, the depositary may surrender bonds of this Series issued in the form of a Global Bond in exchange in whole or in part for bonds of this Series in the form of definitive certificates of like tenor and terms on such terms as are acceptable to the Company and such Depositary. Thereupon the Company shall execute, and the Trustee shall authenticate and deliver, without service charge, (A) to each person specified by such depositary a new Global Bond or Global Bonds of this Series of like tenor and terms and any authorized denomination as requested by such person in aggregate principal amount equal to and in exchange for such person's beneficial interest in the Global Bond, and (B) to such depositary a new Global Bond of like tenor and terms and in an authorized denomination equal to the difference, if any, between the principal amount of the surrendered Global Bond and the aggregate principal amount of bonds delivered to holders thereof.
(4) Within seven days after the occurrence and continuance of a completed default with respect to the bonds of this Series, the Company shall execute, and the Trustee shall authenticate and deliver, bonds of this Series in definitive registered form in any authorized denominations and in aggregate principal amount equal to the principal amount of such Global Bonds in exchange for such Global Bonds.
(5) In any exchange provided for in any of Section 6(c)(1), Section
6(c)(2), Section 6(c)(3) or Section 6(c)(4), the Company shall execute and the
Trustee shall authenticate and deliver bonds of this Series in the form of
definitive certificates in authorized denominations. Upon the exchange of the
entire principal amount of a Global Bond for bonds of this Series in the form of
definitive certificates, such Global Bond shall be canceled by the Trustee.
Except as provided in Section 6(c)(3), bonds of this Series issued in exchange
for a Global Bond pursuant to this Section 6 shall be registered in such names
and in such authorized denominations as the depositary for such Global Bond,
acting pursuant to instructions from its direct or indirect participants or
otherwise, shall instruct the Trustee. Provided that the Company and the Trustee
have so agreed, the Trustee shall deliver such bonds of this Series to the
persons in whose names the bonds of this Series are so to be registered.
(6) Any endorsement of a Global Bond to reflect the principal amount
thereof, or any increase or decrease in such principal amount, shall be made in
such manner and by such person or persons as shall be specified in or pursuant
to any applicable letter of representations or other arrangement entered into
with, or procedures of, the depositary with respect to such Global Bond or in
the order of the Company delivered or to be delivered pursuant to the Indenture
with respect thereto. Subject to the provisions of the Indenture, the Trustee
shall deliver and redeliver any such Global Bond in the manner and upon
instructions given by the person or persons specified in or pursuant to any
applicable letter of representations or other arrangement entered into with, or
procedures of, the depositary with respect to such Global Bond or in any
applicable order of the Company. If an order of the Company pursuant to the
Indenture is so delivered, any instructions by the Company with respect to such
Global Bond contained therein shall be in writing but need not be accompanied by
or contained in an officers' certificate and need not be accompanied by an
opinion of counsel.
ARTICLE II.
MISCELLANEOUS PROVISIONS
SECTION 1. This Supplemental Indenture is executed by the Company and the Trustee pursuant to provisions of Section 4.02 of the Indenture and the terms and conditions hereof shall be deemed to be a part of the terms and conditions of the Indenture for any and all purposes. The Indenture, as heretofore supplemented and as supplemented by this Supplemental Indenture, is in all respects ratified and confirmed.
SECTION 2. This Supplemental Indenture shall bind and, subject to the provisions of Article XVI of the Indenture, inure to the benefit of the respective successors and assigns of the parties hereto.
SECTION 3. Although this Supplemental Indenture is dated as of December 1, 2003, it shall be effective only from and after the actual time of its execution and delivery by the Company and the Trustee on the date indicated by their respective acknowledgements hereto.
SECTION 4. This Supplemental Indenture may be simultaneously executed in any number of counterparts, and all such counterparts executed and delivered, each as an original, shall constitute but one and the same instrument.
IN WITNESS WHEREOF, Northern Illinois Gas Company has caused this Supplemental Indenture to be executed in its name by its Vice President and Treasurer, and its corporate seal to be hereunto affixed and attested by its Assistant Secretary, and BNY Midwest Trust Company, as Trustee under the Indenture, has caused this Supplemental Indenture to be executed in its name by one of its Assistant Vice Presidents, and its seal to be hereunto affixed and attested by one of its Assistant Secretaries, all as of the day and year first above written.
NORTHERN ILLINOIS GAS COMPANY
BY: /S/ GEORGE M. BEHRENS
--------------------------
George M. Behrens
Vice President and Treasurer
ATTEST:
/S/ MARK KNOX
-------------------------------
Mark Knox
Assistant Secretary
|
BNY MIDWEST TRUST COMPANY,
as Trustee
BY: /S/ D.G. DONOVAN
------------------
D.G. Donovan
Assistant Vice President
ATTEST:
/S/ C. POTTER
-------------------------------
C. Potter
Assistant Secretary
|
SS
- STATE OF ILLINOIS } :
COUNTY OF DUPAGE }
I, Jennifer Dziewior, a Notary Public in the State aforesaid, DO HEREBY CERTIFY that George M. Behrens, Vice President and Treasurer of Northern Illinois Gas Company, an Illinois corporation, on of the parties described in and which executed the foregoing instrument, and Mark Knox, Assistant Secretary of said corporation, who are both personally known to me to be the same persons whose names are subscribed to the foregoing instrument as such Vice President and Treasurer and Assistant Secretary, respectively, and who are both personally known to me to be the Vice President and Treasurer and an Assistant Secretary, respectively, of said corporation, appeared before me this day in person and severally acknowledged that they signed, sealed, executed and deliver said instrument as their free and voluntary act as such Vice President and Treasurer and Assistant Secretary, respectively, of said corporation, and as the free and voluntary act of said corporation, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal this 5th day of December, 2003 A.D.
/S/ JENNIFER M. DZIEWIOR
----------------------------
Notary Public
|
My Commission expires June 19, 2007.
SS
- STATE OF ILLINOIS } :
COUNTY OF COOK }
I, A. Hernandez, a Notary Public in and for the said County, in the State aforesaid, DO HEREBY CERTIFY that D.G. Donovan, Assistant Vice President of BNY Midwest Trust Company, an Illinois trust company, one of the parties described in and which
executed the foregoing instrument, and C. Potter, an Assistant Secretary of said trust company, who are both personally known to me to be the same persons whose names are subscribed to the foregoing instrument as such Assistant Vice President and Assistant Secretary, respectively, and who are both personally known to me to be an Assistant Vice President and an Assistant Secretary, respectively, of said trust company, appeared before me this day in person and severally acknowledged that they signed, sealed, executed and delivered said instrument as their free and voluntary act as such Assistant Vice President and Assistant Secretary, respectively, of said trust company, and as the free and voluntary act of said trust company, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal this 5th day of December, 2003 A.D.
/S/ A. HERNANDEZ -------------------- Notary Public |
My Commission expires July 8, 2006.
RECORDING DATA
This Supplemental Indenture was recorded on December 8, 9 and 10, 2003, in the office of the Recorder of Deeds in certain counties in the State of Illinois, as follows:
County Document No. --------- ------------- Cook 0334344142 Adams 200319158 Boone 2003R20358 Bureau 03-10346 Carroll 480425 Champaign 2003R53445 DeKalb 2003-034957 DeWitt 206631 DuPage R2003-462782 Ford 228169 Grundy 427539 Hancock 2003-5247 Henderson 158146 Henry 20-0315434 Iroquois 03R7181 JoDaviess 308239 Kane 2003K209926 Kankakee 200331527 Kendall 03 42679 Lake 5449579 LaSalle R2003-41728 Lee 2003-12466 Livingston 551523 McHenry 2003R0163065 McLean 200360869 Mercer 341294 Ogle 0321221 Piatt 314632 Pike 03-4575 Rock Island 2003-46819 Stephenson 200300050953 Tazewell 200300045008 Vermilion 20075 Whiteside 16705-2003 Will R2003297382 Winnebago 3111336 Woodford 313286 |
Nicor Gas Company Form 10-K Exhibit 4.11
Supplemental Indenture
DATED AS OF DECEMBER 1, 2003
NORTHERN ILLINOIS GAS COMPANY
TO
BNY MIDWEST TRUST COMPANY
TRUSTEE UNDER INDENTURE DATED AS OF
JANUARY 1, 1954 AND SUPPLEMENTAL
INDENTURES THERETO
FIRST MORTGAGE BONDS
5.90% SERIES DUE DECEMBER 1, 2033
This instrument was prepared by George M. Behrens, 1844 Ferry Road, Naperville, Illinois 60563-9600
Return to:
Nicor Gas
Attn: Joe Johnson
P.O. Box 190
Aurora, IL 60507-0190
THIS SUPPLEMENTAL INDENTURE, dated as of the first day of December, 2003, between NORTHERN ILLINOIS GAS COMPANY, a corporation organized and existing under the laws of the State of Illinois (hereinafter called the "Company"), and BNY MIDWEST TRUST COMPANY, an Illinois trust company (hereinafter called the "Trustee"), as successor Trustee under an Indenture dated as of January 1, 1954, as supplemented by Supplemental Indentures dated, respectively, February 9, 1954, April 1, 1956, June 1, 1959, July 1, 1960, June 1, 1963, July 1, 1963, August 1, 1964, August 1, 1965, May 1, 1966, August 1, 1966, July 1, 1967, June 1, 1968, December 1, 1969, August 1, 1970, June 1, 1971, July 1, 1972, July 1, 1973, April 1, 1975, April 30, 1976, April 30, 1976, July 1, 1976, August 1, 1976, December 1, 1977, January 15, 1979, December 1, 1981, March 1, 1983, October 1, 1984, December 1, 1986, March 15, 1988, July 1, 1988, July 1, 1989, July 15, 1990, August 15, 1991, July 15, 1992, February 1, 1993, March 15, 1993, May 1, 1993, July 1, 1993, August 15, 1994, October 15, 1995, May 10, 1996, August 1, 1996, June 1, 1997, October 15, 1997 February 15, 1998, June 1, 1998, February 1, 1999, February 1, 2001, May 15, 2001, August 15, 2001 and December 15, 2001, such Indenture dated as of January 1, 1954, as so supplemented, being hereinafter called the "Indenture."
WITNESSETH:
WHEREAS, the Indenture provides for this issuance from time to time thereunder, in series, of bonds of the Company for the purposes and subject to the limitations therein specified; and
WHEREAS, the Company desires, by this Supplemental Indenture, to create an additional series of bonds to be issuable under the Indenture, such bonds to be designated "First Mortgage Bonds, 5.90% Series due December 1, 2033" (hereinafter called the "bonds of this Series"), and the terms and provisions to be contained in the bonds of this Series or to be otherwise applicable thereto to be as set forth in this Supplemental Indenture; and
WHEREAS, the forms, respectively, of the bonds of this Series, and the Trustee's certificate to be endorsed on all bonds of this Series, are to be substantially as follows:
(FORM OF FACE OF BOND)
THIS SECURITY IS A GLOBAL BOND WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO NORTHERN ILLINOIS GAS COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
NO. RU-_____________
$________
CUSIP No.______
NORTHERN ILLINOIS GAS COMPANY
First Mortgage Bond, 5.90% Series due December 1, 2033
NORTHERN ILLINOIS GAS COMPANY, an Illinois corporation (hereinafter called the "Company"), for value received, hereby promises to pay to or registered assigns, the sum of Dollars, on the first day of December, 2033, and to pay to the registered owner hereof interest on said sum from the date hereof until said sum shall be paid, at the rate of five and ninety hundredths per centum (5.90%) per annum, payable semiannually on the first day of June and the first day of December in each year. Both the principal of and the interest on this bond shall be payable at the office or agency of the Company in the City of Chicago, State of Illinois, or, at the option of the registered owner, at the office or agency of the Company in the Borough of Manhattan, The City and State of New York, in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts. Any installment of interest on this bond may, at the Company's option, be paid by mailing checks for such interest payable to or upon the written order of the person entitled thereto to the address of such person as it appears on the registration books.
So long as there is no existing default in the payment of interest on this bond, the interest so payable on any interest payment date will be paid to the person in whose name this bond is registered on May 15 or November 15 (whether or not a business day), as the case may be, next preceding such interest payment date. If and to the extent that the Company shall default in the payment of interest due on such interest payment date, such defaulted interest shall be paid to the person in whose name this bond is registered on the record date fixed, in advance, by the Company for the payment of such defaulted interest.
Additional provisions of this bond are set forth on the reverse hereof.
This bond shall not be entitled to any security or benefit under the Indenture or be valid or become obligatory for any purpose unless and until it shall have been authenticated by the execution by the Trustee, or its successor in trust under the Indenture, of the certificate endorsed hereon.
IN WITNESS WHEREOF, Northern Illinois Gas Company has caused this bond to be executed in its name by its President, manually or by facsimile signature, and has caused its corporate seal to be impressed hereon or a facsimile thereof to be imprinted hereon and to be attested by its Assistant Secretary, manually or by facsimile signature.
Dated:_____________________
NORTHERN ILLINOIS GAS COMPANY
BY:____________________________
President
ATTEST:
(FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION)
This bond is one of the bonds of the series designated therein, referred to and described in the within-mentioned Supplemental Indenture dated as of December 1, 2003.
BNY MIDWEST TRUST COMPANY,
TRUSTEE
BY:___________________________
Authorized Officer
(FORM OF REVERSE SIDE OF BOND)
This bond is one, of the series hereinafter specified, of the bonds issued and to be issued in series from time to time under and in accordance with and secured by an Indenture dated as of January 1, 1954, to BNY Midwest Trust Company, as Trustee, as supplemented by certain indentures supplemental thereto, executed and delivered to the Trustee; and this bond is one of a series of such bonds, designated "Northern Illinois Gas Company First Mortgage Bonds, 5.90% Series due December 1, 2033 ("herein called "bonds of this Series"), the issuance of which is provided for by a Supplemental Indenture dated as of December 1, 2003 (hereinafter called the "Supplemental Indenture"), executed and delivered by the Company to the Trustee. The term "Indenture", as hereinafter used, means said Indenture dated as of January 1, 1954, and all indentures supplemental thereto (including, without limitation, the Supplemental Indenture) from time to time in effect. Reference is made to the Indenture for a description of the property mortgaged and pledged, the nature and extent of the security, the rights of the holders and registered owners of said bonds, of the Company and of the Trustee in respect of the security, and the terms and conditions governing the issuance and security of said bonds.
With the consent of the Company and to the extent permitted by and as provided in the Indenture, modifications or alterations of the Indenture or of any supplemental indenture and of the rights and obligations of the Company and of the holders and registered owners of the bonds may be made, and compliance with any provision of the Indenture or of any supplemental indenture may be waived, by the affirmative vote of the holders and registered owners of not less than sixty-six and two-thirds per centum (66 2/3%) in principal amount of the bonds then outstanding under the Indenture, and by the affirmative vote of the holders and registered owners of not less than sixty-six and two-thirds per centum (66 2/3%) in principal amount of the bonds of any series then outstanding under the Indenture and affected by such modification or alteration, in case one or more but less than all of the series of bonds then outstanding under the Indenture are so affected, but in any case excluding bonds disqualified from voting by reason of the Company's interest therein as provided in the Indenture; subject, however, to the condition, among other conditions stated in the Indenture, that no such modification or alteration shall be made which, among other things, will permit the extension of the time or times of payment of the
principal of or the interest or the premium, if any, on this bond, or the reduction in the principal amount hereof or in the rate of interest or the amount of any premium hereon, or any other modification in the terms of payment of such principal, interest or premium, which terms of payment are unconditional, or, otherwise than as permitted by the Indenture, the creation of any lien ranking prior to or on a parity with the lien of the Indenture with respect to any of the mortgaged property, all as more fully provided in the Indenture.
The bonds of this Series may be called for redemption by the Company, as a whole at any time or in part from time to time, at a redemption price equal to the greater of (i) 100% of the principal amount of the bonds of this Series to be redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the date of redemption) discounted, at the then current Treasury Rate (as defined in the Supplemental Indenture) plus 15 basis points, to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) plus, in each case, accrued and unpaid interest on the principal amount being redeemed to the date of redemption.
Notice of each redemption shall be mailed to all registered owners not less
than thirty nor more than forty-five days before the redemption date.
In case of certain completed defaults specified in the Indenture, the
principal of this bond may be declared or may become due and payable in the
manner and with the effect provided in the Indenture.
No recourse shall be had for the payment of the principal of or the interest or the premium, if any, on this bond, or for any claim based hereon, or otherwise in respect hereof or of the Indenture, to or against any incorporator, stockholder, officer or director, past, present or future, of the Company or of any predecessor or successor corporation, either directly or through the Company or such predecessor or successor corporation, under any constitution or statute or rule of law, or by the enforcement of any assessment or penalty, or otherwise, all such liability of incorporators, stockholders, directors and officers being waived and released by the registered owner hereof by the acceptance of this bond and being likewise waived and released by the terms of the Indenture, all as more fully provided therein.
This bond is transferable by the registered owner hereof, in person or by duly authorized attorney, at the office or agency of the Company in the City of Chicago, State of Illinois, or, at the option of registered owner, at the office or agency of the Company in the Borough of Manhattan, The City and State of New York, upon surrender and cancellation of this bond; and thereupon a new registered bond or bonds without coupons of the same aggregate principal amount and series will, upon the payment of any transfer tax or taxes payable, be issued to the transferee in exchange herefor. The Company shall not be required to exchange or transfer this bond if this bond or a portion hereof has been selected for redemption.
(END OF BOND FORM)
and
WHEREAS, all acts and things necessary to make this Supplemental Indenture, when duly executed and delivered, a valid, binding and legal instrument in accordance with its terms, and for the purposes herein expressed, have been done and performed, and the execution and delivery of this Supplemental Indenture have in all respects been duly authorized;
NOW, THEREFORE, in consideration of the premises and of the sum of one dollar paid by the Trustee to the Company, and for other good and valuable consideration, the receipt of which is hereby acknowledged, for the purpose of securing the due and punctual payment of the principal of and the interest and premium, if any, on all bonds which shall be issued under the Indenture, and for the purpose of securing the faithful performance and observance of all the covenants and conditions set forth in the Indenture and in all indentures supplemental thereto, the Company by these presents does grant, bargain, sell, transfer, assign, pledge, mortgage, warrant and convey unto BNY Midwest Trust Company, as Trustee, and its successor or successors in the trust hereby created, all property, real and personal (other than property expressly excepted from the lien and operation of the Indenture), which, at the actual date of execution and delivery of this Supplemental Indenture, is solely used or held for use in the operation by the Company of its gas utility system and in the conduct of its gas utility business and all property, real and personal, used or useful in the gas utility business (other than property expressly excepted form the lien and operation of the Indenture) acquired by the Company after the actual date of execution and delivery of this Supplemental Indenture or (subject to the provisions of Section 16.03 of the Indenture) by any successor corporation after such execution and delivery, and it is further agreed by and between the Company and the Trustee as follows:
ARTICLE I.
BONDS OF THIS SERIES
SECTION 1. The bonds of this Series shall, as hereinbefore recited, be designated as the Company's "First Mortgage Bonds, 5.90% Series due December 1, 2033". The bonds of this Series will be initially limited to $50,000,000 in aggregate principal amount, exclusive of bonds of such series authenticated and delivered pursuant to Section 4.12 of the Indenture. The Company may, without the consent of the holders of the bonds of this Series, increase the principal amount of the bonds of this Series by issuing additional bonds of this Series in the future on the same terms and conditions, except for any differences in the issue price and interest accrued prior to the issue date of the additional bonds of this Series and with the same CUSIP numbers as the bonds of this Series initially issued. Any additional bonds of this Series would rank equally and ratably with the bonds of this Series initially issued and would be treated as a single series of bonds for all purposes under the Indenture.
SECTION 2. The bonds of this Series shall be registered bonds without coupons, and the form of such bonds, and of the Trustee's certificate of authentication to be endorsed on all bonds of this Series, shall be substantially as hereinbefore recited, respectively.
SECTION 3. The bonds of this Series shall be issued in the denomination of $1,000 each and in such integral multiple or multiples thereof as shall be determined and authorized by the Board of Directors of the Company or by any officer of the Company authorized by the Board of Directors to make such determination, the authorization of the denomination of any bond to be conclusively evidenced by the execution thereof on behalf of the Company. The bonds of this Series shall be numbered RU-1 and consecutively upwards, or in such other appropriate manner as shall be determined and authorized by the Board of Directors of the Company.
All bonds of this Series shall be dated December 1, 2003 except that each bond issued on or after the first payment of interest thereon shall be dated as of the date of the interest payment date thereof to which interest shall have been paid on the bonds of such series next preceding the date of issue, unless issued on an interest payment date to which interest shall have been so paid, in which event such bonds shall be dated as of the date of issue; provided, however, that bonds issued on or after November 15 and before the next succeeding December 1 or on or after May 15 and before the next succeeding June 1 shall be dated the next succeeding interest payment date if interest shall have been paid to such date. All bonds of this Series shall mature December 1, 2033 and shall bear interest at the rate of 5.90% per annum until the principal thereof shall be paid. Such interest shall be calculated on the basis of a 360-day year consisting of twelve 30-day months and shall be payable semi-annually on the first day of June and the first day of December in each year, beginning June 1, 2004. So long as there is no existing default in the payment of interest on the bonds of this Series, such interest shall be payable to the person in whose name each such bond is registered on the November 15 or May 15 (whether or not business day), as the case may be, next preceding the respective interest payment dates; provided, however, if and to the extent that the Company shall default in the payment of interest due on such interest payment date, such defaulted interest shall be paid to the person in whose name each such bond is registered on the record date fixed, in advance, by the Company for the payment of such defaulted interest. Interest will accrue on overdue interest installments at the rate of 5.90% per annum.
The principal of and interest and premium, if any, on the bonds of this Series shall be payable in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts, and shall be payable at the office or agency of the Company in the City of Chicago, State of Illinois, or, at the option of the registered owner, at the office or agency of the Company in the Borough of Manhattan, The City and State of New York. Any installment of interest on the bonds may, at the Company's option, be paid by mailing checks for such interest payable to or upon the written order of the person entitled thereto to the address of such person as it appears on the registration books. The bonds of this Series shall be registrable, transferable and exchangeable in the manner provided in Sections 4.08 and 4.09 of the Indenture, at either of such offices or agencies. With respect to a Global Bond (as defined herein), the Company may make payments of principal of, premium, if any, and interest, if any, on such Global Bond pursuant to and in accordance with such arrangements as are agreed upon by the Company and the depositary for such Global Bond.
SECTION 4. The bonds of this Series, upon the mailing of notice and in the manner provided in Section 7.01 of the Indenture (except that no published notice shall be required for the bonds of this Series) and with the effect provided in Section 7.02 thereof, shall be redeemable at the option of the Company, as a whole at any time or in part from time to time, at a redemption price equal to the greater of (i) 100% of the principal amount of the bonds of this Series to be redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the date of redemption) discounted, at the then current Treasury Rate plus 15` basis points, to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) plus, in each case, accrued and unpaid interest of the principal amount being redeemed to the date of redemption.
"Treasury Rate" means, with respect to any redemption date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the bonds of this Series to be redeemed that would be used, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the bonds of this Series.
"Comparable Treasury Price" means, with respect to any redemption date, (i) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (ii) if the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such quotations.
"Independent Investment Banker" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company.
"Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day preceding such redemption date.
"Reference Treasury Dealer" means each of Banc One Capital Markets, Inc. and its successors and three other nationally recognized investment banking firms that are Primary Treasury Dealers specified from time to time by the Company; provided, however, that if any of the foregoing shall cease to be a Primary Treasury Dealer, the Company shall replace it with another Primary Treasury Dealer.
"Primary Treasury Dealer" means a primary U.S. government securities dealer in New York City.
"Business Day" means, for purpose of this Section 4, any day other than a Saturday or Sunday and other than a day on which banking institutions in Chicago, Illinois or New York, New York are authorized or obligated by law or executive order to close.
SECTION 5. No sinking fund is to be provided for the bonds of this Series.
SECTION 6. (a) The bonds of this Series shall be issued initially in the
form of one or more global bonds (each such global bond, a "Global Bond") to or
on behalf of The Depository Trust Company ("DTC"), as depositary therefor, and
registered in the name of DTC or its nominee. Any bonds of this Series to be
issued or transferred to, or to be held by or on behalf of, DTC as such
depositary or such nominee (or any successor of such nominee) for such purpose
shall bear the depositary legends in substantially the form set forth at the top
of the form of bonds of this Series in this Supplemental Indenture, unless
otherwise agreed by the Company, and, in the case of a successor depositary,
such legend or legends as such depositary and/or the Company shall require and
to which they shall agree, in each case such agreement to be confirmed in
writing to the Trustee.
(b) Notwithstanding any other provision of this Section 6 or of Section
4.08 of the Indenture, except as contemplated by the provisions of Section 6(c)
hereof, a Global Bond may be transferred, in whole but not in part and in the
manner provided in Section 4.08 of the Indenture, only to a nominee of the
depositary for such Global Bond, or to DTC, or to a successor depositary for
such Global Bond selected or approved by the Company, or to a nominee of such
successor depositary.
(c) (1) If at any time the depositary for a Global Bond notifies the Company that it is unwilling or unable to continue as the depositary for such Global Bond or if at any time the depositary for a Global Bond shall no longer be eligible or in good standing under any applicable statute or regulation, the Company shall appoint a successor depositary with respect to such Global Bond. If a successor depositary for such Global Bond is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such ineligibility, the Company will execute, and the Trustee, upon receipt of an order of the Company for the authentication and delivery of bonds of this Series in the form of definitive certificates in exchange for such Global Bond, will authenticate and deliver, without service charge, bonds of this Series in the form of definitive certificates of like tenor and terms in an aggregate principal amount equal to the principal amount of the Global Bond in exchange for such Global Bond. Such bonds of this Series will be issued to and registered in the name of such person or persons as are specified by the depositary.
(2) The Company may at any time and in its sole discretion determine that any bonds of this Series issued or issuable in the form of one or more Global Bonds shall no longer be represented by such global bond or bonds. In any such event the Company will execute, and the Trustee, upon receipt of an order of the Company for the authentication and delivery of bonds of this Series in the form of definitive certificates in exchange in whole or in part for such Global Bond or Global Bonds, will authenticate and deliver, without service charge, to each person specified by the depositary, bonds of this Series in the form of definitive certificates of like tenor and terms in an aggregate principal amount equal to the principal amount of such Global Bond or the aggregate principal amount of such Global Bonds in exchange for such Global Bond or Global Bonds.
(3) If the Company so elects in an officers' certificate, the depositary may surrender bonds of this Series issued in the form of a Global Bond in exchange in whole or in part for bonds of this Series in the form of definitive certificates of like tenor and terms on such terms as are acceptable to the Company and such Depositary. Thereupon the Company shall execute, and the Trustee shall authenticate and deliver, without service charge, (A) to each person specified by such depositary a new Global Bond or Global Bonds of this Series of like tenor and terms and any authorized denomination as requested by such person in aggregate principal amount equal to and in exchange for such person's beneficial interest in the Global Bond, and (B) to such depositary a new Global Bond of like tenor and terms and in an authorized denomination equal to the difference, if any, between the principal amount of the surrendered Global Bond and the aggregate principal amount of bonds delivered to holders thereof.
(4) Within seven days after the occurrence and continuance of a completed default with respect to the bonds of this Series, the Company shall execute, and the Trustee shall authenticate and deliver, bonds of this Series in definitive registered form in any authorized denominations and in aggregate principal amount equal to the principal amount of such Global Bonds in exchange for such Global Bonds.
(5) In any exchange provided for in any of Section 6(c)(1), Section
6(c)(2), Section 6(c)(3) or Section 6(c)(4), the Company shall execute and the
Trustee shall authenticate and deliver bonds of this Series in the form of
definitive certificates in authorized denominations. Upon the exchange of the
entire principal amount of a Global Bond for bonds of this Series in the form of
definitive certificates, such Global Bond shall be canceled by the Trustee.
Except as provided in Section 6(c)(3), bonds of this Series issued in exchange
for a Global Bond pursuant to this Section 6 shall be registered in such names
and in such authorized denominations as the depositary for such Global Bond,
acting pursuant to instructions from its direct or indirect participants or
otherwise, shall instruct the Trustee. Provided that the Company and the Trustee
have so agreed, the Trustee shall deliver such bonds of this Series to the
persons in whose names the bonds of this Series are so to be registered.
(6) Any endorsement of a Global Bond to reflect the principal amount thereof, or any increase or decrease in such principal amount, shall be made in such manner and by such person or persons as shall be specified in or pursuant to any applicable letter of representations or other arrangement entered into with, or procedures of, the depositary with respect to such Global Bond or in the order of the Company delivered or to be delivered pursuant to the Indenture with respect thereto. Subject to the provisions of the Indenture, the Trustee shall deliver and redeliver any such Global Bond in the manner and upon instructions given by the person or persons specified in or pursuant to any applicable letter of representations or other arrangement entered into with, or procedures of, the depositary with respect to such Global Bond or in any applicable order of the Company. If an order of the Company pursuant to the Indenture is so delivered, any instructions by the Company with respect to such Global Bond contained therein shall be in writing but need not be accompanied by or contained in an officers' certificate and need not be accompanied by an opinion of counsel.
ARTICLE II.
MISCELLANEOUS PROVISIONS
SECTION 1. This Supplemental Indenture is executed by the Company and the Trustee pursuant to provisions of Section 4.02 of the Indenture and the terms and conditions hereof shall be deemed to be a part of the terms and conditions of the Indenture for any and all purposes. The Indenture, as heretofore supplemented and as supplemented by this Supplemental Indenture, is in all respects ratified and confirmed.
SECTION 2. This Supplemental Indenture shall bind and, subject to the provisions of Article XVI of the Indenture, inure to the benefit of the respective successors and assigns of the parties hereto.
SECTION 3. Although this Supplemental Indenture is dated as of December 1, 2003, it shall be effective only from and after the actual time of its execution and delivery by the Company and the Trustee on the date indicated by their respective acknowledgements hereto.
SECTION 4. This Supplemental Indenture may be simultaneously executed in any number of counterparts, and all such counterparts executed and delivered, each as an original, shall constitute but one and the same instrument.
IN WITNESS WHEREOF, Northern Illinois Gas Company has caused this Supplemental Indenture to be executed in its name by its Vice President and Treasurer, and its corporate seal to be hereunto affixed and attested by its Assistant Secretary, and BNY Midwest Trust Company, as Trustee under the Indenture, has caused this Supplemental Indenture to be executed in its name by one of its Assistant Vice Presidents, and its seal to be hereunto affixed and attested by one of its Assistant Secretaries, all as of the day and year first above written.
NORTHERN ILLINOIS GAS COMPANY
BY: /S/ GEORGE M. BEHRENS
-------------------------
GEORGE M. BEHRENS
Vice President and Treasurer
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ATTEST:
/S/ MARK KNOX
----------------------------
MARK KNOX
Assistant Secretary
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BNY MIDWEST TRUST COMPANY,
as Trustee
BY: /S/ D.G. DONOVAN
----------------------
D.G. DONOVAN
Assistant Vice President
ATTEST:
/S/ C. POTTER
----------------------------
C. POTTER
Assistant Secretary
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SS
STATE OF ILLINOIS } :
COUNTY OF DUPAGE }
|
I, Jennifer M. Dziewior, a Notary Public in the State aforesaid, DO HEREBY CERTIFY that George M. Behrens, Vice President and Treasurer of Northern Illinois Gas Company, an Illinois corporation, one of the parties described in and which executed the foregoing instrument, and Mark Knox, Assistant Secretary of said corporation, who are both personally known to me to be the same persons whose names are subscribed to the foregoing instrument as such Vice President and Treasurer and Assistant Secretary, respectively, and who are both personally known to me to be the Vice President and Treasurer and an Assistant Secretary, respectively, of said corporation, appeared before me this day in person and severally acknowledged that they signed, sealed, executed and delivered said instrument as their free and voluntary act as such Vice President and Treasurer and Assistant Secretary, respectively, of said corporation, and as the free and voluntary act of said corporation, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal this 5th day of December, 2003 A.D.
/S/ JENNIFER M. DZIEWIOR
---------------------------
Notary Public
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My Commission expires June 19, 2007.
SS
- STATE OF ILLINOIS } :
COUNTY OF COOK }
I, A. Hernandez, a Notary Public in and for the said County, in the State aforesaid, DO HEREBY CERTIFY that D.G. Donovan, Assistant Vice President of BNY Midwest Trust Company, an Illinois trust company, one of the parties described in and which executed the foregoing instrument, and C. Potter, an Assistant Secretary of said trust company, who are both personally known to me to be the same persons whose names are subscribed to the foregoing instrument as such Assistant Vice President and Assistant Secretary, respectively, and who are both personally known to me to be an Assistant Vice President and an Assistant Secretary, respectively, of said trust company, appeared before me this day in person and severally acknowledged that they signed, sealed, executed and delivered said instrument as their free and voluntary act as such Assistant Vice President and Assistant Secretary, respectively, of said trust company, and as the free and voluntary act of said trust company, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal this 5th day of December, 2003 A.D.
/S/ A. HERNANDEZ
---------------------------
Notary Public
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My Commission expires July 8, 2006.
RECORDING DATA
This Supplemental Indenture was recorded on December 8, 9 and 10, 2003, in the office of the Recorder of Deeds in certain counties in the State of Illinois, as follows:
County Document No. -------- ------------- Cook 0334344143 Adams 200319159 Boone 2003R20359 Bureau 03-10347 Carroll 480427 Champaign 2003R53446 DeKalb 2003-034958 DeWitt 206632 DuPage R2003-462783 Ford 228170 Grundy 427540 Hancock 2003-5248 Henderson 158147 Henry 20-0315436 Iroquois 03R7182 JoDaviess 308240 Kane 2003K209927 Kankakee 200331528 Kendall 03 42680 Lake 5449580 LaSalle R2003-41729 Lee 2003-12467 Livingston 551524 McHenry 2003R0163066 McLean 200360870 Mercer 341296 Ogle 0321222 Piatt 314633 Pike 03-4576 Rock Island 2003-46817 Stephenson 200300050954 Tazewell 200300045009 Vermilion 20076 Whiteside 16706-2003 Will R2003297383 Winnebago 3111337 Woodford 313287 |
Nicor Gas Company
Form 10-K
Exhibit 12.01
Nicor Gas Company
Computation of Consolidated Ratio of Earnings to Fixed Charges
(thousands)
Year Ended December 31
------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------ ------------ ----------- ------------ ------------
Earnings available to cover
fixed charges:
Net income $ 83,000 $ 109,139 $ 98,806 $ 12,584 $ 96,010
Add: Income taxes 48,035 64,325 57,000 520 55,809
Fixed charges 37,047 36,711 45,431 44,863 38,917
Allowance for funds used
during construction (220) (395) (241) (363) (118)
------------ ------------ ----------- ------------ -----------
$ 167,862 $ 209,780 $ 200,996 $ 57,604 $ 190,618
============ ============ =========== ============ ===========
Fixed charges:
Interest on debt $ 33,934 $ 33,037 $ 43,542 $ 42,365 $ 39,245
Other interest charges and
amortization of debt discount,
premium, and expense, net 3,113 3,674 1,889 2,498 (328)
------------ ------------ ----------- ------------ -----------
$ 37,047 $ 36,711 $ 45,431 $ 44,863 $ 38,917
============ ============ =========== ============ ===========
Ratio of earnings to fixed charges 4.53 5.71 4.42 1.28 4.90
============ ============ =========== ============ ===========
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Nicor Gas Company Form 10-K Exhibit 23.01
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No. 333-65486 of Northern Illinois Gas Company on Form S-3 of our report (which expresses an unqualified opinion and includes an explanatory paragraph related to a change in method of classifying future removal costs of utility property, plant and equipment, described in Note 2), dated February 19, 2004, appearing in this Annual Report on Form 10-K of Northern Illinois Gas Company for the year ended December 31, 2003.
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 19, 2004
Nicor Gas Company Form 10-K Exhibit 24.01
POWER OF ATTORNEY
The undersigned, a Director, Officer, or Director and Officer of Nicor Inc. and Northern Illinois Gas Company (doing business as Nicor Gas Company), Illinois corporations, hereby authorizes any officer of Nicor Inc. and each of them, to execute in the name and on behalf of the undersigned as such Director, Officer, or Director and Officer, the 2003 Annual Report on Form 10-K of Nicor Inc. and Nicor Gas Company (and any amendments thereto) to be filed pursuant to the Securities Exchange Act of 1934.
Date: January 15, 2004 /s/ ROBERT M. BEAVERS, JR. ------------------------------- Robert M. Beavers, Jr. |
POWER OF ATTORNEY
The undersigned, a Director, Officer, or Director and Officer of Nicor Inc. and Northern Illinois Gas Company (doing business as Nicor Gas Company), Illinois corporations, hereby authorizes any officer of Nicor Inc. and each of them, to execute in the name and on behalf of the undersigned as such Director, Officer, or Director and Officer, the 2003 Annual Report on Form 10-K of Nicor Inc. and Nicor Gas Company (and any amendments thereto) to be filed pursuant to the Securities Exchange Act of 1934.
Date: January 15, 2004 /s/ BRUCE P. BICKNER --------------------- Bruce P. Bickner |
POWER OF ATTORNEY
The undersigned, a Director, Officer, or Director and Officer of Nicor Inc. and Northern Illinois Gas Company (doing business as Nicor Gas Company), Illinois corporations, hereby authorizes any officer of Nicor Inc. and each of them, to execute in the name and on behalf of the undersigned as such Director, Officer, or Director and Officer, the 2003 Annual Report on Form 10-K of Nicor Inc. and Nicor Gas Company (and any amendments thereto) to be filed pursuant to the Securities Exchange Act of 1934.
Date: January 15, 2004 /s/ JOHN H. BIRDSALL, III ------------------------------- John H. Birdsall, III |
POWER OF ATTORNEY
The undersigned, a Director, Officer, or Director and Officer of Nicor Inc. and Northern Illinois Gas Company (doing business as Nicor Gas Company), Illinois corporations, hereby authorizes any officer of Nicor Inc. and each of them, to execute in the name and on behalf of the undersigned as such Director, Officer, or Director and Officer, the 2003 Annual Report on Form 10-K of Nicor Inc. and Nicor Gas Company (and any amendments thereto) to be filed pursuant to the Securities Exchange Act of 1934.
Date: January 15, 2004 /s/ THOMAS A. DONAHOE ------------------------------- Thomas A. Donahoe |
POWER OF ATTORNEY
The undersigned, a Director, Officer, or Director and Officer of Nicor Inc. and Northern Illinois Gas Company (doing business as Nicor Gas Company), Illinois corporations, hereby authorizes any officer of Nicor Inc. and each of them, to execute in the name and on behalf of the undersigned as such Director, Officer, or Director and Officer, the 2003 Annual Report on Form 10-K of Nicor Inc. and Nicor Gas Company (and any amendments thereto) to be filed pursuant to the Securities Exchange Act of 1934.
Date: January 15, 2004 /s/ THOMAS L. FISHER -------------------------- Thomas L. Fisher |
POWER OF ATTORNEY
The undersigned, a Director, Officer, or Director and Officer of Nicor Inc. and Northern Illinois Gas Company (doing business as Nicor Gas Company), Illinois corporations, hereby authorizes any officer of Nicor Inc. and each of them, to execute in the name and on behalf of the undersigned as such Director, Officer, or Director and Officer, the 2003 Annual Report on Form 10-K of Nicor Inc. and Nicor Gas Company (and any amendments thereto) to be filed pursuant to the Securities Exchange Act of 1934.
Date: January 15, 2004 /s/ JOHN E. JONES ------------------------------- John E. Jones |
POWER OF ATTORNEY
The undersigned, a Director, Officer, or Director and Officer of Nicor Inc. and Northern Illinois Gas Company (doing business as Nicor Gas Company), Illinois corporations, hereby authorizes any officer of Nicor Inc. and each of them, to execute in the name and on behalf of the undersigned as such Director, Officer, or Director and Officer, the 2003 Annual Report on Form 10-K of Nicor Inc. and Nicor Gas Company (and any amendments thereto) to be filed pursuant to the Securities Exchange Act of 1934.
Date: January 15, 2004 /s/ DENNIS J. KELLER -------------------------- Dennis J. Keller |
POWER OF ATTORNEY
The undersigned, a Director, Officer, or Director and Officer of Nicor Inc. and Northern Illinois Gas Company (doing business as Nicor Gas Company), Illinois corporations, hereby authorizes any officer of Nicor Inc. and each of them, to execute in the name and on behalf of the undersigned as such Director, Officer, or Director and Officer, the 2003 Annual Report on Form 10-K of Nicor Inc. and Nicor Gas Company (and any amendments thereto) to be filed pursuant to the Securities Exchange Act of 1934.
Date: January 15, 2004 /s/ WILLIAM A. OSBORN ------------------------------- William A. Osborn |
POWER OF ATTORNEY
The undersigned, a Director, Officer, or Director and Officer of Nicor Inc. and Northern Illinois Gas Company (doing business as Nicor Gas Company), Illinois corporations, hereby authorizes any officer of Nicor Inc. and each of them, to execute in the name and on behalf of the undersigned as such Director, Officer, or Director and Officer, the 2003 Annual Report on Form 10-K of Nicor Inc. and Nicor Gas Company (and any amendments thereto) to be filed pursuant to the Securities Exchange Act of 1934.
Date: January 15, 2004 /s/ JOHN RAU -------------- John Rau |
POWER OF ATTORNEY
The undersigned, a Director, Officer, or Director and Officer of Nicor Inc. and Northern Illinois Gas Company (doing business as Nicor Gas Company), Illinois corporations, hereby authorizes any officer of Nicor Inc. and each of them, to execute in the name and on behalf of the undersigned as such Director, Officer, or Director and Officer, the 2003 Annual Report on Form 10-K of Nicor Inc. and Nicor Gas Company (and any amendments thereto) to be filed pursuant to the Securities Exchange Act of 1934.
Date: January 15, 2004 /s/ JOHN F. RIORDAN ------------------------------- John F. Riordan |
POWER OF ATTORNEY
The undersigned, a Director, Officer, or Director and Officer of Nicor Inc. and Northern Illinois Gas Company (doing business as Nicor Gas Company), Illinois corporations, hereby authorizes any officer of Nicor Inc. and each of them, to execute in the name and on behalf of the undersigned as such Director, Officer, or Director and Officer, the 2003 Annual Report on Form 10-K of Nicor Inc. and Nicor Gas Company (and any amendments thereto) to be filed pursuant to the Securities Exchange Act of 1934.
Date: January 15, 2004 /s/ RUSS M. STROBEL -------------------------- Russ M. Strobel |
POWER OF ATTORNEY
The undersigned, a Director, Officer, or Director and Officer of Nicor Inc. and Northern Illinois Gas Company (doing business as Nicor Gas Company), Illinois corporations, hereby authorizes any officer of Nicor Inc. and each of them, to execute in the name and on behalf of the undersigned as such Director, Officer, or Director and Officer, the 2003 Annual Report on Form 10-K of Nicor Inc. and Nicor Gas Company (and any amendments thereto) to be filed pursuant to the Securities Exchange Act of 1934.
Date: January 15, 2004 /s/ PATRICIA A. WIER -------------------------- Patricia A. Wier |
Nicor Gas Company Form 10-K Exhibit 31.1
CERTIFICATION
I, Russ M. Strobel, President and Chief Executive Officer of Nicor Gas Company, certify that:
1) I have reviewed this annual report on Form 10-K of Nicor Gas Company;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date February 19, 2004 /s/ RUSS M. STROBEL
----------------- -------------------
Russ M. Strobel
President and
Chief Executive Officer
|
Nicor Gas Company Form 10-K Exhibit 31.2
CERTIFICATION
I, Richard L. Hawley, Executive Vice President and Chief Financial Officer of Nicor Gas Company, certify that:
1) I have reviewed this annual report on Form 10-K of Nicor Gas Company;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date February 19, 2004 /s/ RICHARD L. HAWLEY
----------------- ---------------------
Richard L. Hawley
Executive Vice President and
Chief Financial Officer
|
Nicor Gas Company Form 10-K Exhibit 32.1
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Nicor Gas Company (the "Company") hereby certifies, to such officer's knowledge, that:
(i) the accompanying Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: February 19, 2004 /s/ RUSS M. STROBEL
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Russ M. Strobel
President and
Chief Executive Officer
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Nicor Gas Company Form 10-K Exhibit 32.2
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Nicor Gas Company (the "Company") hereby certifies, to such officer's knowledge, that:
(i) the accompanying Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: February 19, 2004 /s/ RICHARD L. HAWLEY
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Richard L. Hawley
Executive Vice President and
Chief Financial Officer
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