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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000072020-02-000004.txt : 20020415
<SEC-HEADER>0000072020-02-000004.hdr.sgml : 20020415
ACCESSION NUMBER: 0000072020-02-000004
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 20011231
FILED AS OF DATE: 20020308
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: NICOR INC
CENTRAL INDEX KEY: 0000072020
STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924]
IRS NUMBER: 362855175
STATE OF INCORPORATION: IL
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-07297
FILM NUMBER: 02571220
BUSINESS ADDRESS:
STREET 1: 1844 FERRY RD
CITY: NAPERVILLE
STATE: IL
ZIP: 60563
BUSINESS PHONE: 6303059500
MAIL ADDRESS:
STREET 1: PO BOX 3014
CITY: NAPERVILLE
STATE: IL
ZIP: 60566-7014
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>nicor10k.txt
<DESCRIPTION>NICOR INC. 2001 2001 10-K
<TEXT>
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, 2001
or
[ ]Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
I.R.S.
Registrant, State of Employer
Commission Incorporation, Identification
File Number Address and Telephone Number Number
- -------------- -------------------------------- -------------
1-7297 Nicor Inc. 36-2855175
(An Illinois Corporation)
1844 Ferry Road
Naperville, Illinois 60563-9600
(630) 305-9500
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------------------------------ ---------------------------
Common Stock, par value $2.50 per share, New York Stock Exchange
including Preference Stock purchase rights Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
----
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
As of February 28, 2002, 44,290,402 common shares were outstanding. The
aggregate market value of voting securities held by non-affiliates of the
registrant was approximately $1.9 billion.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the company's 2002 Annual Meeting Definitive Proxy Statement, dated
March 8, 2002, are incorporated by reference into Part III.
<PAGE>
Nicor Inc. Page i
- ----------------------------------------------------------------------------
Table of Contents
Item No.
Part I
1. Business ............................................... 1
2. Properties ............................................. 5
3. Legal Proceedings....................................... 5
4. Submission of Matters to a Vote of Security Holders..... 5
Executive Officers of the Registrant.................... 6
Part II
5. Market for Registrant's Common Equity and Related
Stockholder Matters .................................... 7
6. Selected Financial Data ................................ 8
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 9
7A. Quantitative and Qualitative Disclosures about
Market Risk ..........................................22
8. Financial Statements and Supplementary Data ............23
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................44
Part III
10. Directors and Executive Officers of the Registrant......45
11. Executive Compensation..................................45
12. Security Ownership of Certain Beneficial Owners and
Management ...........................................45
13. Certain Relationships and Related Transactions..........45
Part IV
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K ........................................45
Signatures..............................................47
Exhibit Index...........................................48
Glossary
Degree day......The extent to which the daily average temperature falls
below 65 degrees Fahrenheit. Normal weather for Nicor Gas'
service territory is about 6,100 degree days.
FERC............Federal Energy Regulatory Commission, the agency that
regulates the interstate transportation of natural
gas, oil and electricity.
ICC.............Illinois Commerce Commission, the agency that
regulates investor-owned Illinois utilities.
Mcf, MMcf, Bcf..Thousand cubic feet, million cubic feet, billion cubic feet.
PBR.............Performance-based rate, a plan that provides economic
incentives based on performance.
TEU.............Twenty-foot equivalent unit, a measure of volume in
containerized shipping equal to one 20-foot-long
container.
<PAGE>
Nicor Inc. Page 1
- ----------------------------------------------------------------------------
PART I
Item 1. Business
Nicor Inc. (Nicor), incorporated in 1976, is a holding company. Its principal
subsidiaries are Northern Illinois Gas Company (doing business as Nicor Gas
Company), one of the nation's largest distributors of natural gas, and Tropical
Shipping, a leading transporter of containerized freight in the Caribbean. Gas
distribution is Nicor's primary business, representing approximately 90 percent
of consolidated operating income and assets in a typical year. Nicor also owns
several other energy-related ventures, including a 50 percent interest in Nicor
Energy, a retail energy marketing joint venture. Nicor had approximately 3,400
employees at year-end 2001.
Financial information on Nicor's major business segments is included in Business
Segment and Geographic Information beginning on page 38. Certain terms used
herein are defined in the glossary on page i.
GAS DISTRIBUTION
General
Nicor Gas, a regulated natural gas distribution utility, serves 2 million
customers, in a service territory that encompasses most of the northern third of
Illinois, excluding the city of Chicago. The company's service territory is
diverse and has grown steadily over the years, providing the company with a
well-balanced mix of residential, commercial and industrial customers. In 2001,
residential customers accounted for approximately 45 percent of natural gas
deliveries, while commercial and industrial customers accounted for about 25
percent and 30 percent, respectively. Nicor Gas' large residential customer base
provides relative stability during weak economic periods. In addition, the
company's industrial and commercial customer base is well diversified, lessening
the impact of industry-specific economic swings. See Gas Distribution Statistics
on page 18 for operating revenues, deliveries and number of customers by
customer classification. The company has approximately 2,300 employees.
Gas deliveries are seasonal since about one-half are used for space heating.
Typically, about 70 percent of deliveries and revenues occur from October
through March. Fluctuations in weather have the potential to significantly
impact year-to-year comparisons of operating income and cash flow. To provide
protection from the financial impact of unusually warm weather, Nicor Gas
entered into an agreement with a third party designed to protect the company's
2002 earnings and cash flow if weather is warmer than 5,700 degree days. To
partially offset the cost of this earnings protection, Nicor Gas has also agreed
to pay this party if weather for 2002 is colder than 6,100 degree days, which is
approximately normal for Nicor Gas' service territory. Under the terms of these
agreements, the maximum payout or receipt is limited to $10 million.
Nicor Gas maintains franchise agreements with most of the communities it serves,
allowing it to construct, operate and maintain distribution facilities in those
communities. Franchise agreement terms range up to 50 years. Currently, less
than 5 percent of the agreements will expire within five years.
In addition to gas sales to all customer classes, Nicor Gas provides
transportation service to commercial and industrial customers who purchase their
own gas supplies. Beginning in 1999, the company's Customer Select(R) voluntary
pilot program also allowed residential customers in certain communities to
Nicor Inc. Page 2
- ----------------------------------------------------------------------------
Item 1. Business (continued)
choose their natural gas supplier. In January 2002, the company received final
approval from the Illinois Commerce Commission (ICC) to make its Customer Select
program available to all of its customers beginning in March 2002. Additional
information on the program is presented under the heading Unbundling of Services
on page 16. Transportation customers have options that include the use of the
company's storage system and the ability to choose varying supply backup levels.
The company receives a margin generally comparable to gas sales for
transportation service with full supply backup.
In recent years, Nicor Gas has been pursuing several nontraditional activities.
These activities include finding innovative ways to utilize its physical assets
by providing natural gas storage and transmission-related services to marketers,
other gas distribution companies and electric power-generation facilities.
Sources of 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 contracted for at rates regulated by the Federal Energy
Regulatory Commission (FERC). Firm pipeline capacity and purchased storage
services held by the company that are temporarily not needed can be released in
the secondary market under FERC-mandated capacity release provisions, with
proceeds reducing the company's cost of gas charged to customers.
The company's peak-day requirements are met through utilization of company-owned
storage facilities, firm pipeline capacity, purchased storage services and other
supply arrangements. Nicor Gas has been able to obtain sufficient supplies of
natural gas to meet customer requirements. The company believes natural gas
supply availability will be sufficient to meet market demands in the foreseeable
future.
Natural gas supply. Nicor Gas maintains a diversified portfolio of natural gas
supply contracts. Firm supply contracts are diversified by supplier, producing
region, quantity and available transportation. Contract pricing is generally
tied to published price indices so as to approximate current market prices. The
contracts also generally provide for the payment of fixed demand charges to
ensure the availability of supplies on any given day and are generally
negotiated annually.
The company also purchases gas supplies on the spot market to fulfill its supply
requirements or to take advantage of favorable short-term pricing. Spot gas
purchases accounted for about one-half of the company's total gas purchases in
the last three years.
Customers served under the company's transportation service tariffs purchase
their own gas supplies. About one-half of the gas that the company delivered in
2001 was purchased by transportation customers directly from producers and
marketers rather than from the company.
Pipeline transportation. Nicor Gas is directly connected to seven interstate
pipelines which provide access to most of the major natural gas producing
regions in North America. The company's primary firm transportation contracts
are with: Natural Gas Pipeline Company of America, Northern Natural Gas Company,
Tennessee Gas Pipeline Company and Midwestern Gas Transmission Company. All of
the capacity covered by these contracts will expire by 2004 and Nicor Gas
anticipates that some or all of these contracts will be renewed. Nicor Gas has
also entered into a 10-year firm transportation agreement beginning in 2002 with
the Horizon Pipeline, a 50/50 joint venture between Nicor and Natural Gas
Pipeline Company of America.
Nicor Inc. Page 3
- ----------------------------------------------------------------------------
Item 1. Business (continued)
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 top 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 purchases about 40 Bcf of storage services.
Storage provides supply flexibility and improves reliability of deliveries.
Competition/Demand
Nicor Gas is one of the largest utility energy suppliers in Illinois, delivering
about one-third of all utility energy consumed in the state. Substantially all
single-family homes in Nicor Gas' service territory are heated with natural gas.
The company's natural gas services compete with other forms of energy, such as
electricity and oil, based on such factors as price, service, reliability and
environmental impact. Significant factors that impact demand for natural gas
include weather, economic conditions and the price of natural gas.
The energy industry has undergone fundamental changes over the past several
years. In 1997, Illinois adopted legislation directing the process of
deregulating the state's electric utility industry. Nearly all customers will be
given a choice of electric supplier beginning in May 2002. While natural gas
prices fluctuated greatly over the last two years, Nicor Gas has traditionally
maintained a pricing advantage over electricity and expects to maintain an
advantage in the foreseeable future.
Additional information on competition and demand is presented in Factors
Affecting Business Performance beginning on page 15.
Regulation
Nicor Gas is regulated by the ICC, which establishes the rules and regulations
governing utility rates and services in Illinois. Rates are generally designed
to allow the company to recover its costs and provide an opportunity to earn a
fair return for its investors. 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 75 percent of a
typical residential customer's annual bill in the last three years. The
company's cost of gas is passed on to the customer without markup.
Nicor Gas' performance-based rate (PBR) plan for natural gas costs went into
effect January 1, 2000. Under the PBR plan, Nicor Gas' total gas supply costs
are compared to a market-sensitive benchmark. Annual savings and losses relative
to the benchmark are shared equally with customers. In 2002, the plan is subject
to ICC review as prescribed by Illinois law. Nicor Gas continues to operate
under the current PBR plan while the review is being conducted. The review
process is expected to conclude in the fourth quarter of 2002. Additional
information on the plan is presented under the heading Performance-Based Rate
Plan beginning on page 15.
Customer Select is a program that offers customers a choice of natural gas
suppliers. Additional information on the program is presented under the heading
Unbundling of Services on page 16.
Nicor Inc. Page 4
- ----------------------------------------------------------------------------
Item 1. Business (concluded)
Properties
The gas distribution, transmission and storage system includes approximately
31,000 miles of steel, plastic and cast iron main; approximately 28,000 miles of
steel, plastic/aluminum composite, plastic and copper service pipe 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.
SHIPPING
Tropical Shipping is one of the largest containerized cargo carriers in the
Caribbean, a region characterized by modest market growth and intense
competition. Tropical Shipping's financial results can be significantly affected
by general economic conditions in the United States, the Caribbean region and
Canada. The company is a major carrier of exports from the east coast of the
United States and Canada to the Caribbean region. The company's shipments
consist primarily of southbound cargo such as building materials, food and other
necessities for developers, manufacturers and residents in the Caribbean, as
well as tourist-related shipments intended for use in hotels and resorts, and on
cruise ships. The balance of Tropical Shipping's cargo consists of northbound
shipments of apparel and agricultural products, and interisland shipments. The
company also provides additional related services including inland
transportation and cargo insurance.
Tropical Shipping's fleet consists of 11 owned vessels and 6 chartered vessels
with a container capacity totaling approximately 5,300 TEUs. In 1999, Tropical
Shipping ordered the construction of two vessels to replace older owned and
chartered vessels, and to support growth. The first vessel was placed into
service in late 2001, and the second vessel was delivered in early 2002. In
addition, the company owns containers, container-handling equipment, chassis and
other equipment. Real property, approximately half of which is leased, includes
office buildings, cargo handling facilities and warehouses located in the United
States, Canada, and in some of the ports served.
Additional information about Tropical Shipping's business is presented under
Shipping on page 19.
OTHER ENERGY VENTURES
Nicor has several smaller ventures that provide products and services that meet
customers' energy needs. Additional information pertaining to these ventures is
presented under Other Energy Ventures on page 20.
ENVIRONMENTAL MATTERS
For information on environmental matters, see Contingencies beginning on page
41.
Nicor Inc. Page 5
- ----------------------------------------------------------------------------
Item 2. Properties
Information with respect to this item concerning Nicor and its major
subsidiaries' properties is included in Item 1, Business, beginning on page 1,
and is incorporated herein by reference. These properties are suitable, adequate
and utilized in the company's operations.
Item 3. Legal Proceedings
See Contingencies beginning on page 41, which is incorporated herein by
reference.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
Nicor Inc. Page 6
- ----------------------------------------------------------------------------
Executive Officers of the Registrant
Executive officers of the company are elected annually by the Board of
Directors.
Name Age Current Position and Background
- ------------------------- ---- ----------------------------------
Thomas L. Fisher 57 Chairman, Nicor and Nicor Gas
(since 1996); Chief Executive
Officer, Nicor (since 1995) and
Nicor Gas (since 1988); and
President, Nicor (since 1994)
and Nicor Gas (since 1988).
Philip S. Cali 54 Executive Vice President
Operations, Nicor and Nicor Gas
(since 1999); and Senior Vice
President Operations, Nicor Gas
(1995-1999).
Kathleen L. Halloran 49 Executive Vice President Finance
and Administration, Nicor and
Nicor Gas (since 1999); Senior
Vice President Administration,
Nicor Gas (1998-1999); Senior
Vice President Information
Services, Rates and Human
Resources, Nicor Gas
(1996-1998); and Vice President
Information Services, Rates and
Human Resources, Nicor Gas
(1995-1996).
Russ M. Strobel 49 Executive Vice President,
General Counsel and Corporate
Secretary, Nicor and Nicor Gas
(since 2002), Senior Vice
President, General Counsel and
Corporate Secretary, Nicor and
Nicor Gas (2000-2002); Partner,
Altheimer & Gray (2000); and
Partner, Jenner & Block
(1986-2000).
George M. Behrens 46 Vice President Administration
and Treasurer, Nicor and Nicor
Gas (since 2000); Vice President
Administration, Nicor and Nicor Gas
(1999-2000); Vice President and Controller,
Nicor and Nicor Gas (1998-1999); Vice
President Accounting, Nicor Gas (1996-1998);
and Vice President and Treasurer, Tropical
Shipping (1991-1996).
<PAGE>
Nicor Inc. Page 7
- ----------------------------------------------------------------------------
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Nicor common stock is listed on the New York and Chicago Stock Exchanges. At
February 28, 2002, there were approximately 27,500 common stockholders of
record.
Stock price
------------------ Dividends
Quarter High Low declared
---------- -------- -------- ---------
2001
First $ 42.38 $ 35.12 $ .44
Second 39.90 35.95 .44
Third 39.74 34.00 .44
Fourth 42.00 37.52 .44
2000
First $ 36.38 $ 29.38 $ .415
Second 37.50 32.06 .415
Third 40.06 32.13 .415
Fourth 43.88 32.19 .415
--------------------------------------------
Nicor Inc. Page 8
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Item 6. Selected Financial Data
Year ended December 31
-----------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(millions, except per
share data)
Operating revenues $2,544.1 $2,298.1 $1,615.2 $1,465.1 $1,992.6
Operating income $ 243.5 $ 94.1 $ 212.0 $ 208.6 $ 229.8
Net income $ 143.7 $ 46.7 $ 124.4 $ 116.4 $ 127.9
Earnings per common share
Basic $ 3.18 $ 1.01 $ 2.63 $ 2.43 $ 2.62
Diluted 3.17 1.00 2.62 2.42 2.61
Dividends declared per
common share $ 1.76 $ 1.66 $ 1.56 $ 1.48 $ 1.40
Property, plant and equipment
Gross $3,733.0 $3,576.6 $3,483.1 $3,379.8 $3,267.7
Net 1,768.6 1,729.6 1,735.2 1,731.8 1,735.8
Total assets $2,574.8 $2,887.0 $2,452.3 $2,364.6 $2,394.6
Capitalization
Long-term debt, net of
current maturities $ 446.4 $ 347.1 $ 436.1 $ 557.3 $ 550.2
Redeemable preferred stock 6.1 6.3 6.3 6.3 6.4
Common equity 727.6 707.0 787.1 759.0 744.0
-------- -------- -------- -------- --------
$1,180.1 $1,060.4 $1,229.5 $1,322.6 $1,300.6
======== ======== ======== ======== ========
<PAGE>
Nicor Inc. Page 9
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Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Financial Review
The purpose of this financial review is to explain changes in Nicor's operating
results and financial condition from 1999 to 2001, and to discuss business
trends and uncertainties that might affect Nicor. Certain terms used herein are
defined in the glossary on page i.
Summary
Nicor's two major subsidiaries, Nicor Gas and Tropical Shipping, operate in two
business segments - gas distribution and shipping. The gas distribution segment
represents about 90 percent of consolidated operating income and assets in a
typical year.
Net income and diluted earnings per common share are presented below:
2001 2000 1999
-------- -------- --------
Net income (millions) $ 143.7 $ 46.7 $ 124.4
Diluted earnings per share 3.17 1.00 2.62
Nicor's net income and earnings per share changed dramatically over the
three-year period due mainly to one significant item. An unusual charge of $148
million was recorded as operating expense in 2000 to establish a reserve related
to Nicor Gas' mercury inspection and repair program. A $9 million adjustment
lowered the mercury-related reserve and reduced operating expense in 2001.
Operating expense was also reduced by partial recoveries from insurers and
contractors in 2001. For details of Nicor Gas' mercury inspection and repair
program, see page 41. Excluding these unusual mercury-related impacts, Nicor's
diluted earnings per share and net income were $3.01 and $136.3 million,
respectively, in 2001 and $2.94 and $136.4 million, respectively, in 2000.
Excluding the mercury-related impacts, operating income for 2001 declined at
both major business segments. Nicor's other energy ventures also posted a
decrease in operating income in 2001. Nonoperating results for 2001 reflect
increased interest income from higher short-term investment balances, lower
interest expense due to lower rates and improved results from Nicor's retail
energy marketing joint venture. The increase in net income, excluding
mercury-related impacts, for 2000 compared with 1999 is the result of improved
operating results for all business segments.
Per share results in both 2001 and 2000 benefited from the company's common
stock repurchase programs.
Operating income. Operating income (loss) by business segment is presented below
(in millions):
2001 2000 1999
-------- -------- --------
Gas distribution $ 223.7 $ 64.9 $ 191.7
Shipping 17.6 25.7 22.5
Other energy ventures 4.9 6.5 1.3
Corporate and eliminations (2.7) (3.0) (3.5)
-------- -------- --------
$ 243.5 $ 94.1 $ 212.0
======== ======== ========
<PAGE>
Nicor Inc. Page 10
- ----------------------------------------------------------------------------
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
The following summarizes operating income comparisons by business segment:
o Gas distribution operating income increased significantly in 2001 when
compared to the prior year. However, excluding the effect of the unusual
mercury-related impacts, gas distribution operating income decreased slightly
from $212.9 million in 2000 to $211.4 million in 2001. Operating results for
2001 reflect increased contributions from the Chicago Hub, which provides gas
supply-related services, and from the company's performance-based rate (PBR)
plan. These improvements were more than offset by certain increased operating
expenses related to higher natural gas prices in the first quarter, the
impact of reduced deliveries and increased depreciation. In 2000, gas
distribution operating income, excluding the effect of the unusual
mercury-related charge, was $21.2 million higher than in 1999. The 2000
improvement primarily relates to higher gas deliveries, contributions from
the PBR plan and increased income from power-generation services. Results for
2000 also reflect increased operating and maintenance expenses and
depreciation.
o A slowdown in the U.S. and Caribbean economies resulted in a decrease in
containerized shipping operating income of $8.1 million in 2001. The negative
impact of lower volumes shipped in 2001 more than offset the positive effects
of slightly higher average rates and lower operating and maintenance
expenses. Containerized shipping operating income was $3.2 million higher in
2000 than in 1999. The improvement in 2000 was primarily a result of record
volumes shipped due to strong economic conditions in the Caribbean region and
growth in tourism, and modest average rate improvements.
o Operating income from Nicor's other energy ventures decreased $1.6 million in
2001. Improved operating results from Nicor Services, a retail energy-related
products and services business, were more than offset by a decline in
operating income from Nicor's technology business. Operating income from
other energy ventures increased $5.2 million in 2000 to $6.5 million due to
better results from Nicor's technology, wholesale natural gas marketing and
retail energy-related products and services businesses.
Other income. Other income was $18.5 million in 2001, up $2.9 million from 2000.
Increased interest income from larger short-term investment balances and
improved results from Nicor Energy, a retail energy marketing joint venture,
were partially offset by decreased property sale gains in 2001. Other income for
2000 was $15.6 million, down from $23.2 million in 1999, which included a
favorable interest adjustment related to tax settlements. Results for 2000
reflect the positive impact of higher property sale gains and improved results
from equity investments in both Nicor Energy and a cargo container leasing
business.
Interest expense. Interest expense decreased in 2001 primarily due to lower
interest rates. Interest expense increased in 2000 compared with 1999 due to
increased average borrowing levels. Increased gas procurement costs and costs
associated with the mercury program contributed to the higher borrowing levels
in 2000.
Income taxes. The 24 percent effective income tax rate for 2000 varied from its
historic level of about 34 percent due to the effect of the unusual charge by
Nicor Gas related to the mercury program.
Nicor Inc. Page 11
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Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
2002 Outlook. Management currently estimates 2002 diluted earnings per common
share to be in the range of $3.10 to $3.25, assuming normal weather and
excluding any mercury-related adjustments. Although management believes the
foregoing forward-looking statement about its earnings expectations is based on
reasonable assumptions, actual results may vary materially from stated
expectations. Other factors that could cause materially different results
include, but are not limited to, natural gas prices, interest rates, borrowing
needs, credit conditions, economic and market conditions, legislative and
regulatory actions, asset sales, and PBR plan results.
Results of Operations
Details of various financial and operating information by segment can be found
in the tables throughout this review. The following discussion summarizes the
major items impacting Nicor's results of operations.
Operating revenues. Operating revenues by business segment are presented below
(in millions):
2001 2000 1999
-------- -------- --------
Gas distribution $2,120.8 $1,896.0 $1,326.2
Shipping 230.3 248.3 229.9
Other energy ventures 230.4 169.9 61.0
Corporate and eliminations (37.4) (16.1) (1.9)
-------- -------- --------
$2,544.1 $2,298.1 $1,615.2
======== ======== ========
Nicor's operating revenues were about $2.5 billion in 2001. The increase in gas
distribution revenues from the prior period was due primarily to significantly
higher first quarter natural gas costs and related revenue taxes, which are both
passed directly through to customers without markup in accordance with Illinois
Commerce Commission (ICC) regulations. The decline in shipping revenues reflects
lower volumes compared to a year ago. Reduced volumes were due to a slowdown in
the economy, which has resulted in lower construction and tourist-related
shipments in the Caribbean region. The increase in revenues for other energy
ventures was due primarily to the impact of higher natural gas prices on Nicor's
wholesale natural gas marketing business, Nicor Enerchange. Nicor Services and
Nicor's energy system design and construction businesses also contributed to the
increase in other energy ventures.
Nicor's operating revenues rose sharply from $1.6 billion in 1999 to almost $2.3
billion in 2000. Gas distribution revenues increased over 40 percent compared to
1999, reflecting significantly higher natural gas prices and related revenue
taxes, increased deliveries resulting from colder weather and customer
additions, and benefits generated from the PBR plan. Shipping revenues rose by
$18.4 million, or 8 percent, in 2000 due to record volumes and slightly higher
average rates. The 2000 increase in other energy ventures was due primarily to
higher natural gas prices at Nicor Enerchange.
The elimination of natural gas sales from Nicor Enerchange to Nicor Gas is
reflected in corporate and eliminations.
Nicor Inc. Page 12
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Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Gas distribution margin. Gas distribution margin, defined as operating revenues
less cost of gas and revenue taxes, which are both passed directly through to
customers without markup, increased $3.6 million in 2001 to $522.5 million, and
increased $31.7 million in 2000 to $518.9 million. Positively affecting margin
for 2001 were greater customer finance charges, and larger contributions from
the Chicago Hub and the PBR plan. Negatively impacting 2001 results were lower
customer demand, the higher cost of natural gas used to operate company
equipment and facilities, and the absence of income relating to a large
construction project recorded in 2000. Reduced customer demand for natural gas
resulted from warmer weather, energy conservation and economic conditions. The
negative impact of warmer weather in 2001 versus 2000 was nearly offset by
benefits from the company's weather hedge. Improvements in 2000 compared with
1999 reflect first-year results from the PBR plan, the impact of colder weather,
customer additions and the income relating to the large construction project.
Operating and maintenance. In 2001, operating and maintenance expenses were
relatively unchanged compared to 2000. Decreased volumes shipped and actions
taken by management to respond to the economic slowdown resulted in lower
operating and maintenance expenses in the shipping segment. The shipping segment
improvement was offset by increased operating expenses at Nicor's other energy
ventures and in the gas distribution segment. Higher operating and maintenance
expenses at Nicor's other energy ventures were primarily associated with an
increased volume of activity and revenues. The increase in the gas distribution
segment was due primarily to higher bad debt expense resulting from higher
natural gas prices. In 2000, operating and maintenance expenses increased $30.9
million to $386.9 million due largely to higher volume-related expenses in the
shipping segment. Increased bad debt expense and weather protection costs in the
gas distribution segment also contributed to the increase. In the gas
distribution segment, operating and maintenance expenses were partially offset
by pension credits, net of capitalization, of $15.0 million, $19.9 million and
$13.3 million in 2001, 2000 and 1999, respectively.
Other operating expense. Other operating expense reflects estimated costs,
credits and recoveries associated with the company's mercury inspection and
repair program. Additional information about this program is presented under the
heading Mercury Program beginning on page 41.
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. Net cash flow provided from operating activities was
$491.0 million, $231.4 million and $205.7 million in 2001, 2000 and 1999,
respectively. Year-to-year changes in operating cash flow result largely from
fluctuations in working capital items occurring mainly in the gas distribution
segment because of factors including weather, the price of natural gas, the
timing of collections from customers and gas purchasing practices. Operating
cash flows increased significantly in 2001 due primarily to changes in accounts
receivable and accounts payable balances associated with natural gas price
volatility. The company generally relies on short-term financing to meet
temporary increases in working capital needs.
<PAGE>
Nicor Inc. Page 13
- ----------------------------------------------------------------------------
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Capital expenditures. Capital expenditures by business segment are presented
below (in millions):
Estimated
2002 2001 2000 1999
--------- -------- -------- --------
Gas distribution $ 155 $ 149.8 $ 124.6 $ 127.4
Shipping 20 34.8 33.8 26.0
Other energy ventures 5 1.1 - .6
--------- -------- -------- --------
$ 180 $ 185.7 $ 158.4 $ 154.0
========= ======== ======== ========
Gas distribution capital expenditures were higher in 2001 than in 2000 and 1999
due primarily to increased information technology projects and improvements to
the company's operating system. The estimated increase in 2002 capital
expenditures is related primarily to higher capitalized employee benefit costs.
Shipping segment capital expenditures increased in 2001 and 2000 due primarily
to the construction of two vessels. Expenditures for information technology also
contributed to the increase in both periods. Lower expenditures are expected in
2002 as vessel construction is completed.
Other investments. Nicor invested $10 million, $10 million and $12 million in
2001, 2000 and 1999, respectively, in a cargo container leasing business and
will likely invest again in 2002. Nicor's equity investment in this business at
December 31, 2001 was $57.8 million.
At December 31, 2001, Nicor had $22.6 million of short-term notes at market
interest rates due from Horizon Pipeline, a 50/50 joint venture between Nicor
and Natural Gas Pipeline Company of America. The notes cover a portion of the
initial costs of construction of the pipeline. Horizon Pipeline intends to
ultimately finance the project with partnership equity and third-party
non-recourse debt. Nicor's equity investment in this business at December 31,
2001 was $.9 million. Nicor's equity investment in 2002 is expected to be $15
million to $20 million. Additional information about the Horizon Pipeline is
presented on page 20.
At December 31, 2001, Nicor also had $8.6 million of short-term notes receivable
at market interest rates due from Nicor Energy. Nicor's equity investment in
this business at December 31, 2001 was $5.1 million. Additional information
about transactions with Nicor Energy is presented in the Related Parties
Transactions note beginning on page 40.
Financing activities. Nicor Gas has the highest long-term debt ratings given in
the gas distribution industry. Nicor's financial statistics include:
2001 2000 1999
-------- -------- --------
Long-term debt, net of current
maturities, as a percent of capitalization 37.8% 32.7% 35.5%
Times interest earned, before income taxes 5.7 2.2 5.2
Interest coverage for 2000 was negatively affected by the unusual
mercury-related charge.
Nicor Inc. Page 14
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Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Long-term debt. At December 31, 2001, Nicor Gas had $225 million of First
Mortgage Bonds remaining available for issuance under a July 2001 shelf
registration filing. Net proceeds from securities issued are typically used for
refinancing outstanding First Mortgage Bonds, construction programs to the
extent not provided by internally generated funds, and general corporate
purposes.
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%. Nicor Gas also retired $50 million of variable-rate unsecured notes due
in 2001. As a result of these activities, Nicor's weighted average interest rate
for long-term debt at December 31, 2001 was 6.3% compared with 6.8% at December
31, 2000.
In January 2000, Nicor Gas issued $50 million of variable-rate unsecured notes
due in 2001 at an initial rate of 6.11% to fund the redemption of $50 million of
unsecured notes at 5.065% due in 2000.
During 1999, Nicor Gas issued $50 million of First Mortgage Bonds at 5.37% due
in 2009 and $50 million of unsecured notes at 5.065% due in 2000. Redemptions of
First Mortgage Bonds during 1999 were as follows: $50 million at 5.875% due in
2000, $50 million at 7.375% due in 2023 and $50 million at 8.25% due in 2024.
Short-term debt. Nicor and Nicor Gas maintain short-term line of credit
agreements with major domestic and foreign banks. At December 31, 2001, these
agreements, which serve as backup for the issuance of commercial paper, totaled
$475 million. Nicor had $277 million and $442 million of commercial paper
outstanding at year-end 2001 and 2000, respectively. The company expects that
this source of short-term funding will continue to be available in the
foreseeable future.
Common stock. In 2001, Nicor completed a $50 million common stock repurchase
program initiated in the third quarter of 2000 and announced a new $50 million
common stock repurchase program. Purchases are being made as market conditions
permit through open market transactions and to the extent cash flow is available
after other cash needs and investment opportunities. The company purchased and
retired 1.1 million, 1.4 million and .6 million common shares in 2001, 2000 and
1999, respectively, at a cost of $42 million, $50 million and $23 million,
respectively. At December 31, 2001, approximately $40 million remained
authorized for the repurchase of common stock under the existing program. Since
January 1990, the company has repurchased over one-quarter of its outstanding
stock.
Nicor increased its quarterly common stock dividend rate during 2001 by 6
percent, which was the fourteenth consecutive annual increase. The company paid
dividends on its common stock of $78.5 million, $75.7 million and $72.9 million
in 2001, 2000 and 1999, respectively.
Commitments. For a summary of Nicor's contractual obligations refer to the
Contractual Obligations note on page 41. In addition to its contractual
obligations, Nicor could be required to provide funding on behalf of related
parties under guarantee arrangements if certain contingent events occur. These
guarantees are described in the Related Party Transactions note beginning on
page 40.
Other. Restrictions imposed by regulatory agencies and loan agreements limiting
the amount of subsidiary net assets that can be transferred to Nicor are not
expected to have a material impact on the company's ability to meet its cash
obligations.
Nicor Inc. Page 15
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Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
FACTORS AFFECTING BUSINESS PERFORMANCE
The following factors can impact year-to-year comparisons and may affect the
future performance of Nicor's businesses.
Gas distribution. Nicor Gas, a regulated natural gas distribution utility,
serves 2 million customers in a service territory that encompasses most of the
northern third of Illinois, excluding the city of Chicago. The region's economy
is diverse and has grown steadily over the years, providing Nicor Gas with a
well-balanced mix of residential, commercial and industrial customers. In 2001,
residential, commercial and industrial customers accounted for approximately 45
percent, 25 percent and 30 percent of natural gas deliveries, respectively.
Weather. Since about one-half of gas deliveries are used for space heating,
fluctuations in weather have the potential to significantly impact year-to-year
comparisons of operating income and cash flow. In 2000, Nicor Gas began
purchasing protection against the impact of significant weather fluctuations.
For 2002, Nicor Gas has entered into an agreement with a third party to protect
the company's earnings if weather is warmer than 5,700 degree days. To partially
offset the cost of this earnings protection, Nicor Gas has also agreed to pay
this party if weather for 2002 is colder than 6,100 degree days, which
approximates normal weather. Under the terms of these agreements, the maximum
payout or receipt is limited to $10 million, which is equivalent to
approximately 500 degree days. As a result, this weather hedge limits the
earnings impact of large variations in weather. Nicor estimates that, excluding
weather protection, every 100-degree-day variation in weather has an impact on
earnings per share of approximately 2-1/2 cents.
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 existing commercial and
industrial customers, including power-generation facilities. Although commercial
and industrial deliveries declined in 2001, the company anticipates continued
long-term growth attributable to these factors. A partial offset is expected as
customers install more energy-efficient equipment.
Natural gas prices have decreased significantly since the extraordinarily high
prices seen during late 2000 and early 2001. Changes in the price of natural gas
have no direct impact on Nicor Gas' margin since gas costs are passed directly
through to customers without markup. However, the unprecedented level of last
winter's natural gas prices had an adverse effect on accounts receivable
collections, customer demand, company gas usage expenses, financing costs and
customer service expenses.
Performance-based rate plan. Nicor Gas' PBR plan for natural gas costs went into
effect in 2000. Under the PBR plan, Nicor Gas' total gas supply costs are
compared to a benchmark tied to a market index. Savings and losses relative to
the benchmark are shared equally with sales customers. Transportation customers,
who are responsible for their own gas supplies, are generally not affected by
the PBR plan. Assuming a gas cost benchmark of $1 billion, each one-percent
deviation from the benchmark would
Nicor Inc. Page 16
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Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
affect net income by about $3 million. Generally, changing natural gas market
prices will not significantly affect PBR plan risk since the PBR benchmark is
tied to market prices. However, unusually high natural gas prices may impact PBR
plan results since any performance variance from the benchmark may be
significantly greater in magnitude.
In 2002, the PBR plan is subject to ICC review as prescribed by Illinois law.
Nicor Gas continues to operate under the current PBR plan while the review is
being conducted. The review process is expected to conclude in the fourth
quarter of 2002.
Competition. Nicor Gas competes with other energy suppliers based on such
factors as price, service and reliability. The company is well positioned to
deal with the possibility of fuel switching by customers because it has rates
and services designed to compete against alternative fuels. 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. Direct connection to seven interstate pipelines and
extensive underground storage capacity provide 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.
Unbundling of services. In January 2002, the company received final approval
from the ICC to make its Customer Select(R) program available to all of its
customers beginning in March 2002. Previously, the program was available to all
industrial and commercial customers and about 15 percent of Nicor Gas'
residential customers. In the program's first four years, about one-third of
eligible business customers and one-quarter of eligible residential customers
signed up. Under the program, customers are able to acquire their natural gas
supplies from third-party marketers. The choice of another natural gas commodity
supplier has no direct impact on Nicor Gas' distribution margin because natural
gas costs are passed directly through to customers without markup. 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 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 evenly throughout the year. However, unusually high
natural gas prices can increase the risk of customer nonpayment.
Nicor Gas experienced increased bad debt expense in both 2001 and 2000 primarily
due to significantly higher natural gas prices. Assuming current price levels,
the company anticipates a reduction in bad debt expense in 2002.
Pension investment returns. Nicor Gas maintains noncontributory defined benefit
pension plans 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, 2001, the pension plans
experienced poor investment returns consistent with general market conditions,
which will negatively impact the
Nicor Inc. Page 17
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Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
company's pension credit and operating income in 2002. The pension plans are
adequately funded, and recent market performance is not expected to impact
participant benefits or future company contributions.
Nontraditional activities. In order to generate additional contributions to
earnings growth, Nicor Gas continues to pursue several nontraditional
activities, including the Chicago Hub, which provides interruptible
transportation and storage services. The Chicago area has become a major market
hub for natural gas, and demand for storage- and transmission-related services
by marketers, other gas distribution companies and electric power-generation
facilities is expected to continue to increase.
Nicor Gas also continues to assess its ownership of real estate holdings.
Regulation. Nicor Gas is regulated by the ICC, which establishes the rules and
regulations governing utility rates and services in Illinois. Rates are
generally designed to allow the company to recover its costs and provide an
opportunity to earn a fair return for its investors. 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.
Nicor Inc. Page 18
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Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Gas Distribution Statistics
2001 2000 1999
-------- -------- --------
Operating revenues (millions)
Sales
Residential $1,486.4 $1,353.9 $ 899.8
Commercial 274.6 236.0 172.3
Industrial 41.5 37.0 24.5
-------- -------- --------
1,802.5 1,626.9 1,096.6
-------- -------- --------
Transportation
Residential 9.5 6.7 1.7
Commercial 75.0 78.9 70.3
Industrial 45.6 47.5 43.7
Other 7.5 6.2 4.2
-------- -------- --------
137.6 139.3 119.9
-------- -------- --------
Other revenues
Revenue taxes 112.3 101.7 84.6
Performance-based rate plan 14.9 12.2 -
Chicago Hub 13.4 6.3 6.0
Other 40.1 9.6 19.1
-------- -------- --------
180.7 129.8 109.7
-------- -------- --------
$2,120.8 $1,896.0 $1,326.2
======== ======== ========
Deliveries (Bcf)
Sales
Residential 201.5 219.0 209.0
Commercial 37.2 38.4 39.8
Industrial 5.9 6.2 6.1
-------- -------- --------
244.6 263.6 254.9
-------- -------- --------
Transportation
Residential 6.1 4.4 .9
Commercial 89.2 94.0 82.1
Industrial 135.3 163.9 170.2
-------- -------- --------
230.6 262.3 253.2
-------- -------- --------
475.2 525.9 508.1
======== ======== ========
Year-end customers (thousands)
Sales
Residential 1,766.5 1,746.3 1,753.0
Commercial 102.7 98.9 108.9
Industrial 6.7 6.6 7.4
-------- -------- --------
1,875.9 1,851.8 1,869.3
-------- -------- --------
Transportation
Residential 58.1 52.8 16.2
Commercial 66.0 68.7 57.2
Industrial 7.1 7.4 6.6
-------- -------- --------
131.2 128.9 80.0
-------- -------- --------
2,007.1 1,980.7 1,949.3
======== ======== ========
Other statistics
Degree days 5,422 5,717 5,272
Average gas cost per Mcf sold $ 6.05 $ 4.80 $ 2.93
<PAGE>
Nicor Inc. Page 19
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Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Shipping. Tropical Shipping is one of the largest containerized cargo carriers
in the Caribbean region. Tropical Shipping has a reputation for providing
quality, on-time delivery service -- a reputation that has helped the company
establish a dominant position in most of the markets it serves. The company is a
major carrier of exports from the east coast of the United States and Canada to
the Caribbean region.
The company's shipments consist primarily of southbound cargo such as building
materials, food and other necessities for developers, manufacturers and
residents in the Caribbean, as well as tourist-related shipments intended for
use in hotels and resorts and on cruise ships. The balance of Tropical
Shipping's cargo consists of northbound shipments of agricultural products and
apparel, and interisland shipments.
In October 2001, Tropical Shipping acquired the container assets of Kent Line
International. With this acquisition, Tropical Shipping began offering Canadian
customers an all-water service from Saint John in New Brunswick, Canada, to
Tropical Shipping's network of Caribbean destinations. The acquisition has the
potential to increase Tropical Shipping's annual volumes by about 10 percent.
Tropical Shipping's financial results can be affected significantly by general
economic conditions in the United States, the Caribbean region and Canada.
Economic development in the Caribbean is expected to be supported by the 1999
Caribbean Basin Trade Partnership Act, which is intended to give Caribbean
markets parity with those markets operating under the North American Free Trade
Agreement (NAFTA) in terms of manufacturing and trade incentives.
The Caribbean marketplace is very competitive, with global carriers having
established a presence in several markets that Tropical Shipping serves.
Additionally, the Ocean Shipping Reform Act, which allows confidential contracts
between shipping companies and their customers, created the potential for
further price competition when it went into effect during 1999. Tropical
Shipping is continuing to meet these challenges by focusing on superior customer
service, controlling costs, and maximizing the efficiency and utilization of its
vessel fleet and shore assets. In 1999, Tropical Shipping ordered the
construction of two vessels to replace older owned and chartered vessels, and to
support growth. The first vessel was placed into service in late 2001, and the
second vessel was delivered in early 2002.
Shipping Statistics
2001 2000 1999
-------- -------- --------
TEUs shipped (thousands)
Southbound 120.9 136.6 126.5
Northbound 17.5 17.9 17.6
Interisland 7.3 6.9 8.3
-------- -------- --------
145.7 161.4 152.4
======== ======== ========
Other statistics
Revenue per TEU $ 1,579 $ 1,523 $ 1,508
Ports served 21 22 23
Vessels operated 17 16 17
<PAGE>
Nicor Inc. Page 20
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Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Other energy ventures. Nicor is involved in several other energy ventures that
leverage the company's reputation, location, assets and expertise into new
income-producing opportunities. These ventures include Nicor Services, Nicor
Enerchange, Nicor Energy, Horizon Pipeline and other energy-related businesses.
Nicor Services. Nicor Services provides energy-related products and services for
retail markets, including residential and small business. The company currently
offers service contracts covering the maintenance or repair of inside gas
piping, heating and air conditioning equipment, and other appliances. Nicor
Services contributed $3.5 million in operating income in 2001, compared with $1
million in 2000.
Nicor Enerchange. Nicor Enerchange is a natural gas marketing company formed in
1998 to engage in wholesale marketing and trading of natural gas supply services
in the Midwest. Nicor Enerchange also administers the Chicago Hub for a fee. The
company focuses on opportunities that allow it to leverage its knowledge of
natural gas movement in and around the Midwest. Nicor Enerchange contributed
$3.2 million of operating income in 2001, compared with $3 million in 2000.
Nicor Energy. Nicor Energy is a 50/50 joint venture with Dynegy Inc. that was
formed in 1997 to offer natural gas, electricity and related energy services
primarily to retail customers in the Midwest region. Nicor Energy continues to
operate as Nicor and Dynegy are in the process of renegotiating their joint
venture agreement, which expires in mid-2002. Since Nicor Energy's prices are
not regulated, it may profit or lose from the sale of natural gas or electricity
as a commodity.
Several developments are expanding Nicor Energy's potential markets. Beginning
in March 2002, the ICC will allow all customers in Nicor Gas' service territory
the choice of natural gas suppliers. In addition, supplier choice in the
Illinois electric market will include residential customers for the first time
beginning in May 2002. Nicor Energy is also expanding its presence elsewhere in
Illinois and in other midwestern states as unbundling progresses. Nicor Energy
has the opportunity to grow its customer base with the market, which could
positively affect its operating results. Nicor Energy was modestly profitable in
2001 and 2000, generating pretax nonoperating income for Nicor of $2.4 million
and $1.4 million, respectively.
Horizon Pipeline. Horizon Pipeline is a 50/50 joint venture between Nicor and
Natural Gas Pipeline Company of America. The joint venture is constructing and
will operate a 74-mile, 36-inch pipeline from Joliet, Illinois to near the
Wisconsin/Illinois border at an estimated cost of $80 million. The pipeline
capacity is nearly fully subscribed under 10-year agreements, with Nicor Gas
having contracted for approximately 80 percent of the 380 MMcf per day initial
capacity. Construction of the pipeline commenced in October 2001, and the
pipeline is expected to be operational in 2002.
Nicor Inc. Page 21
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Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Market risk. The company is exposed to market risk in the normal course of its
business operations, including the risk of loss arising from adverse changes in
natural gas commodity prices and interest rates. It is Nicor's practice to
manage these risks utilizing derivative instruments and other methods, as deemed
appropriate.
Commodity price risk. The company has established policies and procedures
governing the management of commodity price risks and the use of derivative
commodity instruments to hedge its exposure to such risks. A risk management
committee oversees compliance with such policies and procedures. As a measure of
Nicor's direct exposure to commodity price risk, every 10 percent change in
natural gas prices at December 31, 2001 would have had about a $100,000 impact
on Nicor's earnings.
Nicor's regulated utility, Nicor Gas, is generally not exposed to market risk
caused by changes in commodity prices because of Illinois rate regulation
allowing for the recovery of natural gas supply costs from customers. Although
the company has a PBR plan for natural gas costs, the plan does not directly
expose the company to commodity price risk because actual gas costs are compared
to a market-sensitive benchmark as opposed to a fixed benchmark.
Substantial increases in natural gas prices may 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. The company is addressing these risks by using fixed-rate
purchase agreements, futures contracts and swap agreements to reduce the
financial impacts arising from natural gas price changes.
Nicor's other energy businesses are subject to natural gas commodity price risk,
arising primarily from fixed-price purchase and sale agreements and natural gas
inventories. Derivative commodity instruments such as futures, options, forwards
and swaps may be used to hedge this risk. Open unhedged positions are restricted
by policy to an immaterial amount.
Counterparty credit risk. The company is also exposed to credit risk in the
event a hedging transaction counterparty 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 and limits its exposure to any one
counterparty. Nicor is also in the process of entering into master netting
arrangements to mitigate counterparty credit risk.
In late 2001, Enron Corporation, an energy trading company, filed for bankruptcy
protection. Nicor's potential financial exposure to the Enron companies for
existing receivables for natural gas sales, hedging and trading activities is
under $5 million. After considering existing obligations to Enron, the company
has a net current liability to the Enron companies. Nicor believes that it has
the right to set off receivables against amounts owed to the Enron companies.
Interest rate risk. Nicor is also exposed to changes in interest rates,
primarily as a result of its short- and long-term debt. The company manages its
interest rate risk 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 Consolidated Statements of Capitalization on page
28, the Fair Value of Financial Instruments note on page 32 and the Short- and
Long-Term Debt note on page 35.
Nicor Inc. Page 22
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Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (concluded)
New accounting pronouncements. The Financial Accounting Standards Board issued a
few key accounting pronouncements in 2001. The implementation of these standards
is not expected to have a material impact on Nicor's financial position or
results of operations. For further information about these pronouncements, see
New Accounting Pronouncements beginning on page 31.
Discontinued operations. The company maintains a $13.4 million reserve for
estimated costs related to discontinued contract drilling, oil and gas
exploration, inland barging and extractive operations. The reserve will continue
to be evaluated as remaining contingencies are resolved.
Mercury program. Future operating results may be impacted by adjustments to the
company's estimated mercury program liability of $37 million, or by
mercury-related recoveries. Any such adjustments or recoveries could be material
to operating results in the period recorded. Additional information about this
program is presented under the heading Mercury Program beginning on page 41.
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 under the heading
Manufactured Gas Plant Sites on page 43.
Other contingencies. The company is involved in legal or administrative
proceedings before various courts and agencies with respect to rates, taxes and
other matters. Although unable to determine the outcome of these contingencies,
management believes that appropriate accruals have been recorded. Final
disposition of these matters is not expected to have a material impact on the
company's financial condition or results of operations.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
For disclosures about market risk, see Market Risk on page 21, which is
incorporated herein by reference.
<PAGE>
Nicor Inc. Page 23
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Item 8. Financial Statements and Supplementary Data
Page
Report of Independent Public Accountants.........................24
Financial Statements:
Consolidated Statements of Operations.........................25
Consolidated Statements of Cash Flows.........................26
Consolidated Balance Sheets...................................27
Consolidated Statements of Capitalization.....................28
Consolidated Statements of Common Equity......................29
Consolidated Statements of Comprehensive Income...............29
Notes to the Consolidated Financial Statements................30
<PAGE>
Nicor Inc. Page 24
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Report of Independent Public Accountants
To the Shareholders and Board of Directors of Nicor Inc.:
We have audited the accompanying consolidated balance sheets and statements of
capitalization of Nicor Inc. (an Illinois corporation) and subsidiary companies
as of December 31, 2001 and 2000, and the related consolidated statements of
operations, common equity, comprehensive income and cash flows for each of the
three years in the period ended December 31, 2001. These financial statements
and the schedule referred to below are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements and the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nicor Inc. and subsidiary
companies as of December 31, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2001, in conformity with accounting principles generally accepted in the
United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedule on page
46 is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 21, 2002
Nicor Inc. Page 25
- ----------------------------------------------------------------------------
Consolidated Statements of Operations
(millions, except per share data)
Year ended December 31
-----------------------------
2001 2000 1999
-------- -------- --------
Operating revenues $2,544.1 $2,298.1 $1,615.2
-------- -------- --------
Operating expenses
Cost of gas 1,648.1 1,403.8 802.3
Operating and maintenance 386.4 386.9 356.0
Depreciation 148.8 144.3 140.3
Taxes, other than income taxes 129.5 121.0 104.6
Other (12.2) 148.0 -
-------- -------- --------
2,300.6 2,204.0 1,403.2
-------- -------- --------
Operating income 243.5 94.1 212.0
Other income (expense), net 18.5 15.6 23.2
-------- -------- --------
Income before interest expense
and income taxes 262.0 109.7 235.2
Interest expense, net of amounts
capitalized 44.9 48.6 45.1
-------- -------- --------
Income before income taxes 217.1 61.1 190.1
Income taxes 73.4 14.4 65.7
-------- -------- --------
Net income 143.7 46.7 124.4
Dividends on preferred stock .3 .3 .3
-------- -------- --------
Earnings applicable to common stock $ 143.4 $ 46.4 $ 124.1
======== ======== ========
Average shares of common stock outstanding
Basic 45.1 46.2 47.3
Diluted 45.2 46.3 47.4
Earnings per average share of common stock
Basic $ 3.18 $ 1.01 $ 2.63
Diluted 3.17 1.00 2.62
The accompanying notes are an integral part of these statements.
Nicor Inc. Page 26
- ----------------------------------------------------------------------------
Consolidated Statements of Cash Flows
(millions)
Year ended December 31
------------------------------
2001 2000 1999
-------- -------- --------
Operating activities
Net income $ 143.7 $ 46.7 $ 124.4
Adjustments to reconcile net income
to net cash flow provided from
operating activities:
Depreciation 148.8 144.3 140.3
Deferred income tax expense (benefit) 45.9 (15.6) 14.4
Changes in assets and liabilities:
Receivables, less allowances 304.7 (299.0) (95.8)
Gas in storage 3.2 (.8) 74.5
Deferred/accrued gas costs 149.1 (33.3) (45.8)
Accounts payable (210.7) 324.2 12.1
Prepaid pension costs (21.6) (26.6) (16.5)
Accrued mercury-related costs (41.0) 78.0 -
Other (31.1) 13.5 (1.9)
-------- -------- --------
Net cash flow provided from
operating activities 491.0 231.4 205.7
-------- -------- --------
Investing activities
Capital expenditures (185.7) (158.4) (154.0)
Net decrease (increase) in
short-term investments 8.8 (13.3) 26.1
Loans to joint ventures (30.0) (1.2) -
Other (9.6) 5.4 (7.4)
-------- -------- --------
Net cash flow used for
investing activities (216.5) (167.5) (135.3)
-------- -------- --------
Financing activities
Net proceeds from issuing long-term debt 247.2 49.9 101.5
Disbursements to retire long-term debt (279.5) (72.5) (156.9)
Short-term borrowings (repayments),net (165.0) 97.8 109.7
Dividends paid (78.8) (75.9) (73.2)
Disbursements to reacquire stock (46.3) (51.9) (23.1)
Other 2.8 2.0 1.1
-------- -------- --------
Net cash flow used for
financing activities (319.6) (50.6) (40.9)
-------- -------- --------
Net (decrease) increase in cash
and cash equivalents (45.1) 13.3 29.5
Cash and cash equivalents, beginning of year 55.8 42.5 13.0
-------- -------- --------
Cash and cash equivalents, end of year $ 10.7 $ 55.8 $ 42.5
======== ======== ========
Supplemental information
Income taxes paid, net of refunds $ 16.6 $ 30.6 $ 46.2
Interest paid, net of amounts capitalized 46.9 50.6 45.5
The accompanying notes are an integral part of these statements.
Nicor Inc. Page 27
- ----------------------------------------------------------------------------
Consolidated Balance Sheets
(millions)
December 31
--------------------
2001 2000
-------- --------
Assets
Current assets
Cash and cash equivalents $ 10.7 $ 55.8
Short-term investments, at cost which
approximates market 34.2 43.0
Receivables, less allowances of $12.3
and $14.5, respectively 354.6 659.3
Notes receivable - joint ventures 31.2 1.2
Gas in storage 28.6 31.8
Deferred gas costs - 49.2
Deferred income taxes 33.9 51.7
Other 24.7 23.1
-------- --------
517.9 915.1
-------- --------
Property, plant and equipment, at cost
Gas distribution 3,425.6 3,292.8
Shipping 304.6 281.8
Other 2.8 2.0
-------- --------
3,733.0 3,576.6
Less accumulated depreciation 1,964.4 1,847.0
-------- --------
1,768.6 1,729.6
-------- --------
Prepaid pension costs 164.3 142.7
Other assets 124.0 99.6
-------- --------
$2,574.8 $2,887.0
======== ========
Liabilities and Capitalization
Current liabilities
Long-term obligations due within one year $ - $ 125.0
Short-term borrowings 277.0 442.0
Accounts payable 395.9 606.6
Accrued gas costs 99.9 -
Accrued mercury-related costs 7.0 78.0
Other 46.6 59.9
-------- --------
826.4 1,311.5
-------- --------
Deferred credits and other liabilities
Deferred income taxes 328.8 296.6
Regulatory income tax liability 66.3 70.4
Unamortized investment tax credits 39.0 41.1
Accrued mercury-related costs 30.0 -
Other 104.2 107.0
-------- --------
568.3 515.1
-------- --------
Capitalization
Long-term debt 446.4 347.1
Preferred stock 6.1 6.3
Common equity 727.6 707.0
-------- --------
1,180.1 1,060.4
-------- --------
$2,574.8 $2,887.0
======== ========
The accompanying notes are an integral part of these statements.
Nicor Inc. Page 28
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Consolidated Statements of Capitalization
(millions, except share data)
December 31
--------------------------------
2001 2000
-------------- --------------
First Mortgage Bonds
Maturity Interest rate
-------- -------------
2001 6.4% $ - $ 75.0
2002 6.75 - 50.0
2003 5.75 50.0 50.0
2006 5.55 50.0 -
2008 5.875 75.0 -
2009 5.37 50.0 50.0
2011 6.625 75.0 -
2016 7.20 50.0 -
2021 8.875 - 50.0
2025 7.26 - 50.0
2027 7.375 50.0 50.0
2028 6.58 50.0 50.0
-------- --------
450.0 425.0
Less: Amount due within one year - 75.0
Unamortized debt discount,
net of premium 3.6 2.9
-------- --------
446.4 37.8% 347.1 32.7%
-------- --------
Other long-term debt
Notes payable due in 2001 at
variable interest rate - 50.0
Less amount due within one year - 50.0
-------- --------
- - - -
-------- --------
Preferred and preference stock
Cumulative, $50 par value, 1,600,000
preferred shares authorized; and
cumulative, without par value,
20,000,000 preference shares
authorized (120,757 and 125,223
shares of redeemable preferred stock,
4.48% and 5.00% series,
outstanding, respectively) 6.1 .5 6.3 .6
-------- --------
Common equity
Common stock, $2.50 par value,
160,000,000 shares authorized
(4,517,156 and 4,767,796 shares
reserved for conversion and
other purposes, and 44,397,787
and 45,491,458 shares
outstanding, respectively 111.0 113.7
Retained earnings 616.9 594.2
Accumulated other
comprehensive income
Cash flow hedges .7 -
Minimum pension liability (1.0) (.8)
Foreign currency
translation adjustments - (.1)
-------- --------
(.3) (.9)
-------- --------
727.6 61.7 707.0 66.7
-------- ----- -------- -----
$1,180.1 100.0% $1,060.4 100.0%
======== ===== ======== =====
The accompanying notes are an integral part of these statements.
Nicor Inc. Page 29
- ----------------------------------------------------------------------------
Consolidated Statements of Common Equity
(millions, except per share data)
Year ended December 31
------------------------------
2001 2000 1999
-------- -------- --------
Common stock
Balance at beginning of year $ 113.7 $ 117.2 $ 118.8
Issued and converted stock .5 .2 .1
Reacquired and cancelled stock (3.2) (3.7) (1.7)
-------- -------- --------
Balance at end of year 111.0 113.7 117.2
-------- -------- --------
Paid-in capital
Balance at beginning of year - - -
Issued and converted stock 1.5 1.8 1.2
Reacquired and cancelled stock (1.5) (1.8) (1.2)
-------- -------- --------
Balance at end of year - - -
-------- -------- --------
Retained earnings
Balance at beginning of year 594.2 670.5 640.2
Net income 143.7 46.7 124.4
Dividends on common stock ($1.76, $1.66
and $1.56 per share, respectively) (79.1) (76.4) (73.6)
Dividends on preferred stock (.3) (.3) (.3)
Reacquired and cancelled stock (41.6) (46.3) (20.2)
-------- -------- --------
Balance at end of year 616.9 594.2 670.5
-------- -------- --------
Accumulated other comprehensive income (loss)
Balance at beginning of year (.9) (.6) (.8)
Other comprehensive income (loss) .6 (.3) .2
-------- -------- --------
Balance at end of year (.3) (.9) (.6)
-------- -------- --------
$ 727.6 $ 707.0 $ 787.1
======== ======== ========
The accompanying notes are an integral part of these statements.
Consolidated Statements of Comprehensive Income
(millions)
Year ended December 31
----------------------------
2001 2000 1999
-------- -------- --------
Net income $ 143.7 $ 46.7 $ 124.4
Other comprehensive income (loss), net of taxes
Gain (loss) on cash flow hedges, net .6 - -
Reclassification adjustment .1 - -
Decrease (increase) to minimum pension liability (.2) (.2) .2
Foreign currency translation adjustment .1 (.1) -
-------- -------- --------
.6 (.3) .2
-------- -------- --------
Comprehensive income $ 144.3 $ 46.4 $ 124.6
======== ======== ========
The accompanying notes are an integral part of these statements.
<PAGE>
Nicor Inc. Page 30
- ----------------------------------------------------------------------------
Notes to the Consolidated Financial Statements
ACCOUNTING POLICIES
Consolidation. The consolidated financial statements include the
accounts of Nicor Inc. and its subsidiaries. Nicor's key
subsidiaries are described in the Business Segment and Geographic
Information note beginning on page 38. All significant
intercompany balances and transactions have been eliminated.
Use of estimates. The preparation of the financial statements requires
management to make estimates that affect reported amounts. Actual results could
differ from those estimates, and such differences could be material. Accounting
estimates requiring significant management judgment include accrued unbilled
revenue, prepaid and accrued postretirement benefits, the allowance for doubtful
accounts, and liabilities for discontinued businesses and the Nicor Gas mercury
inspection and repair program.
Reclassifications. Certain reclassifications have been made to
conform the prior years' financial statements to the current
year's presentation.
Regulation. Nicor Gas is regulated by the 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 and liabilities of
$34.9 million and $173.2 million, respectively, at December 31, 2001 and $74.2
million and $70.5 million, respectively, at December 31, 2000.
Operating revenues and gas costs. Gas distribution 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. 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. Nicor Gas classifies revenue
taxes billed to customers as operating revenues and related taxes due as
operating expenses.
In the shipping segment, revenues and related delivery costs are recorded at the
time vessels depart from port.
Depreciation. Property, plant and equipment are depreciated over estimated
useful lives on a straight-line basis. The gas distribution composite
depreciation rate is 4.1 percent. The estimated useful lives of vessels range
from 15 to 25 years.
Equity investments. The company invests in several partnerships and
limited-liability companies that are accounted for under the equity method.
Related pretax investment results are recorded in other income, and investment
balances are classified as other long-term assets.
Income taxes. Deferred income taxes are provided for temporary differences
between the tax basis of an asset or liability and its reported amount in the
financial statements. In the gas distribution segment, prior investment tax
credits and regulatory income tax liabilities are amortized to income over the
lives of related properties. In the shipping segment, income taxes have not been
provided on approximately $6 million of cumulative undistributed foreign
earnings through December 31, 2001, which are considered by management to be
indefinitely invested in foreign operations.
Nicor Inc. Page 31
- ----------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (continued)
Cash and cash equivalents. The company considers investments purchased with an
initial maturity of three months or less to be cash equivalents.
Derivative instruments. At Nicor Gas, derivative instruments are primarily
utilized for natural gas procurement. Realized gains or losses on such
derivatives are included in the cost of gas delivered and are therefore passed
directly through to customers, having no direct impact on earnings. As such,
unrealized changes in the fair value of these derivative instruments are being
deferred or accrued as a regulatory asset or liability.
In 2001 and 2000, Nicor Gas held derivatives to limit the earnings impact of
weather fluctuations. Since these instruments settle on December 31 of each
year, any benefits recorded in those years did not involve a fair value
estimation.
Derivative instruments and other energy-related contracts are used by Nicor's
wholesale natural gas marketing business, Nicor Enerchange, to hedge price risk
associated with inventories of natural gas and fixed-price purchase and sale
agreements. This business records its entire portfolio of derivative
instruments, other energy-related contracts and physical inventories at fair
value. Fair values are determined from quoted market prices and other external
sources, where available, or are estimated using internal models. These
estimates are not material to Nicor's financial statements. Contracts are
generally short term and open positions are limited by policy to an immaterial
amount.
Nicor periodically utilizes derivative instruments to reduce interest rate risk
associated with the anticipated issuance of debt. Unrealized changes in the fair
market value of these derivative instruments are reported as a component of
accumulated other comprehensive income. Upon settlement of the derivative
instrument and issuance of the debt, accumulated other comprehensive income is
amortized to interest expense over the life of the debt instrument.
Credit risk. Nicor's major subsidiaries have diversified customer bases and
prudent credit policies which mitigate customer receivable and derivative
counterparty credit risk.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (FAS) No. 141, Business Combinations, and No.
142, Goodwill and Other Intangible Assets. FAS 141 is effective for business
combinations completed after June 30, 2001, and FAS 142 is effective for 2002.
Nicor had a goodwill balance of $6.4 million at December 31, 2001, primarily in
the shipping segment. Goodwill amortization was insignificant in 2001. The
implementation of these standards did not have a material impact on the
company's financial position or results of operations.
In August 2001, the FASB issued FAS 143, Accounting for Asset Retirement
Obligations. The 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 is effective for 2003. The implementation of this standard
is not expected to have a material impact on the company's financial position or
results of operations.
Nicor Inc. Page 32
- ----------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (continued)
In October 2001, the FASB issued FAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Statement 144 requires that long-lived assets be
measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or in discontinued operations. The
standard is effective for 2002 and is generally to be applied prospectively. The
implementation of this standard did not have a material impact on the company's
financial position or results of operations.
GAS IN STORAGE
Gas distribution segment inventory is carried at cost on a last-in, first-out
(LIFO) basis. Based on the average cost of gas purchased in December 2001 and
2000, the estimated replacement cost of inventory at December 31, 2001 and 2000
exceeded the LIFO cost by $139.6 million and $491.7 million, respectively.
Nicor Enerchange carries its inventory at fair value. At December 31, 2001 and
2000, the market value of the inventory was $11.4 million and $12.5 million,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The recorded amount of short-term investments and short-term borrowings
approximates fair value because of the short maturity of the instruments. Based
on quoted market interest rates, the recorded amount of long-term debt
outstanding, including current maturities, also approximates fair value.
INCOME TAXES
The components of income tax expense (benefit) are presented below (in
millions):
2001 2000 1999
-------- -------- --------
Current
Federal $ 22.9 $ 29.3 $ 44.3
State 6.3 1.9 8.2
-------- -------- --------
29.2 31.2 52.5
-------- -------- --------
Deferred
Federal 42.4 (12.2) 13.9
State 3.5 (3.4) .5
-------- -------- --------
45.9 (15.6) 14.4
-------- -------- --------
Amortization of investment tax (2.1) (1.5) (1.5)
credits, net
Foreign taxes .4 .3 .3
-------- -------- --------
Income tax expense, net $ 73.4 $ 14.4 $ 65.7
======== ======== ========
Nicor Inc. Page 33
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Notes to the Consolidated Financial Statements (continued)
The temporary differences which gave rise to the net deferred tax liability at
December 31, 2001 and 2000, are as follows (in millions):
2001 2000
-------- --------
Deferred tax liabilities
Property, plant and equipment $ 215.5 $ 217.5
Investment in foreign subsidiaries 47.7 48.5
Investment in partnerships 60.8 39.3
Employee benefits 26.6 18.7
Other 24.6 29.5
-------- --------
375.2 353.5
-------- --------
Deferred tax assets
Unamortized investment tax credits 25.3 26.6
Regulatory income tax liability 16.3 17.4
Accrued mercury-related costs 14.7 30.9
Other 24.0 33.7
-------- --------
80.3 108.6
-------- --------
Net deferred tax liability $ 294.9 $ 244.9
======== ========
The effective combined federal and state income tax rate was 33.8 percent, 23.6
percent and 34.6 percent in 2001, 2000 and 1999, respectively. Differences
between federal income taxes computed using the statutory rate and reported
income tax expense are shown below (in millions):
2001 2000 1999
-------- -------- --------
Federal income taxes using statutory $ 76.0 $ 21.4 $ 66.5
rate
State income taxes, net 6.4 (.3) 6.3
Undistributed foreign earnings (2.1) - -
Tax credits (4.5) (4.3) (3.8)
Regulatory income tax liability (2.1) (2.4) (2.1)
Other, net (.3) - (1.2)
-------- -------- --------
Income tax expense, net $ 73.4 $ 14.4 $ 65.7
======== ======== ========
STOCK-BASED COMPENSATION
Nicor has a long-term incentive compensation plan that permits the granting of
stock options, restricted stock and alternate stock rights to key executives and
managerial employees, as well as an employee stock purchase plan.
Long-term incentive compensation plan. The company may grant options for up to
3.5 million shares and has granted options on 2.1 million shares through
December 31, 2001. The stock option exercise price equals the stock's market
price on the date of grant. Options vest after one year, generally become
exercisable after three years, and expire after ten years.
Nicor Inc. Page 34
- ----------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (continued)
A summary of stock option activity is presented below:
Weighted
Number average
of exercise
shares price
-------- ----------
Options outstanding at:
December 31, 1998 623,800 $ 30.37
Granted 149,000 38.06
Exercised (3,500) 28.25
Cancelled (7,500) 38.06
--------
December 31, 1999 761,800 31.81
Granted 251,500 32.37
Exercised (33,200) 27.44
Cancelled (78,000) 32.13
--------
December 31, 2000 902,100 32.10
Granted 173,500 36.81
Exercised (208,800) 27.46
Cancelled (2,500) 36.82
--------
December 31, 2001 864,300 34.15
--------
Options exercisable at:
December 31, 1999 383,900 $ 26.87
December 31, 2000 434,100 28.38
December 31, 2001 322,800 32.65
Stock options outstanding at December 31, 2001, had exercise prices ranging from
$24.63 to $40.69 and a weighted average remaining contractual life of seven
years.
The weighted-average fair value of options granted in 2001, 2000 and 1999 was
$5.01, $3.25 and $3.52, respectively. The fair value of each option was
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions:
2001 2000 1999
-------- -------- --------
Expected volatility 23.5% 16.8% 14.7%
Dividend yield 5.4% 5.7% 4.6%
Risk-free interest rate 4.6% 6.4% 5.2%
Expected period outstanding (years) 4 3 3
The company does not recognize compensation expense for stock options. If
compensation expense for the stock options had been recognized based on the fair
value of awards at the grant dates, the impact on the company's net income and
earnings per share would have been $.5 million and $.01, respectively.
There were no shares of restricted stock or alternate stock rights outstanding
at December 31, 2001 under the long-term incentive compensation plan.
Employee stock purchase plan. Under the employee stock purchase plan, the
company may sell up to 1.5 million shares of common stock to its employees and
has sold about 978,000 shares through December 31, 2001. Under the terms of this
plan, eligible employees may purchase shares at 90 percent of the stock's market
price. The company sold about 25,400 shares, 28,900 shares and 28,400 shares to
employees in 2001, 2000 and 1999, respectively. The weighted-average market
value of shares sold in 2001, 2000 and 1999 was $37.80, $33.01 and $36.71,
respectively.
Nicor Inc. Page 35
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Notes to the Consolidated Financial Statements (continued)
SHORT- AND LONG-TERM DEBT
The company maintains short-term lines of credit with major domestic and foreign
banks. These lines, which serve as backup for the issuance of commercial paper,
totaled $475 million at December 31, 2001. Commitment fees of up to .08 percent
per annum were paid on these lines. All lines of credit have variable interest
rates tied to short-term markets.
The company had $277 million and $442 million of commercial paper outstanding
with a weighted average interest rate of 2.9 percent and 6.5 percent at December
31, 2001 and 2000, respectively.
Bank cash balances averaged about $5 million during 2001, which partially
compensated for the cost of maintaining accounts and other banking services.
Such demand balances may be withdrawn at any time.
First Mortgage Bonds are secured by liens on substantially all gas distribution
property.
Interest expense was net of amounts capitalized of $1.1 million, $1.1 million
and $.4 million in 2001, 2000 and 1999, respectively.
POSTRETIREMENT BENEFITS
Nicor Gas maintains noncontributory defined benefit pension plans covering
substantially all employees hired prior to 1998 and provides health care and
life insurance benefits to eligible retired employees. Most employees'
postretirement health care benefits have been capped to a defined annual per
capita medical cost. The following table sets forth the changes in the plans'
benefit obligations and assets, and reconciles the funded status of the plans to
the prepaid (accrued) benefit cost recorded on the balance sheet at December 31
(in millions):
Nicor Inc. Page 36
- ----------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (continued)
Pension benefits Other benefits
------------------- -------------------
2001 2000 2001 2000
-------- -------- -------- --------
Change in benefit obligation
Benefit obligation at
beginning of period $ 211.5 $ 209.4 $ 112.6 $ 116.1
Service cost 6.5 5.3 1.2 1.2
Interest cost 16.5 14.9 8.4 8.4
Actuarial loss (gain) 32.0 7.1 29.1 (5.3)
Participant contributions - - .8 .7
Plan amendments - 3.0 - -
Benefits paid (29.0) (28.2) (10.2) (8.5)
-------- -------- -------- --------
Benefit obligation at end
of period 237.5 211.5 141.9 112.6
-------- -------- -------- --------
Change in plan assets
Fair value of plan assets
at beginning of period 489.2 445.3 22.6 19.4
Actual gain (loss) on
plan assets (60.5) 72.1 (2.9) 3.2
Employer contributions - - 9.4 7.8
Participant contributions - - .8 .7
Benefits paid (29.0) (28.2) (10.2) (8.5)
-------- -------- -------- --------
Fair value of plan assets
at end of period 399.7 489.2 19.7 22.6
-------- -------- -------- --------
Funded status 162.2 277.7 (122.2) (90.0)
Unrecognized net
actuarial (gain) loss (2.0) (135.9) 29.4 (4.7)
Unrecognized transition
(asset) obligation (1.0) (4.8) 34.0 37.1
Unrecognized prior service cost 5.1 5.7 - -
Other - - (1.8) 1.2
-------- -------- -------- --------
Prepaid (accrued) benefit cost $ 164.3 $ 142.7 $ (60.6) $ (56.4)
======== ======== ======== ========
Net periodic benefit cost (credit) included the following components (in
millions):
Pension benefits Other benefits
---------------------- --------------------
2001 2000 1999 2001 2000 1999
------ ------ ------ ------ ------ ------
Service cost $ 6.5 $ 5.3 $ 6.2 $ 1.2 $ 1.2 $ 1.3
Interest cost 16.5 14.9 15.3 8.4 8.4 7.7
Expected return on plan assets (44.3) (39.1) (35.3) (2.1) (1.8) (1.6)
Recognized net
actuarial (loss) gain 2.9 (5.9) (1.9) - - -
Amortization of unrecognized
transition (asset)
obligation (3.8) (3.9) (3.9) 3.1 3.1 3.1
Amortization of prior
service cost .6 .4 .4 - - -
------ ------ ------ ------ ------ ------
Net periodic benefit
cost (credit) $(21.6) $(28.3) $(19.2) $ 10.6 $ 10.9 $ 10.5
====== ====== ====== ====== ====== ======
Assumptions used in the computations included the following:
Pension benefits Other benefits
------------------ ------------------
2001 2000 2001 2000
-------- -------- -------- --------
Discount rate 7.25% 7.75% 7.25% 7.75%
Expected return on plan assets 9.25 9.25 9.25 9.25
Rate of compensation increase 4.00 4.00 4.00 4.00
For measurement purposes, the health care cost trend rate for pre-Medicare
benefits was assumed to be 10 percent for 2002, declining to 5 percent by 2007
and remaining at that level thereafter. The health care
Nicor Inc. Page 37
- ----------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (continued)
cost trend rate for post-Medicare benefits was assumed to be 7.5 percent for
2002, declining to 5 percent by 2006 and remaining at that level thereafter.
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 $ 1.0 $ (.8)
Effect on benefit obligation 14.1 (11.9)
Nicor Gas also has a separate unfunded supplemental retirement plan. The plan is
noncontributory with defined benefits. Plan costs were $.8 million, $.6 million
and $.7 million in 2001, 2000 and 1999, respectively. The benefit obligation of
the plan was $6.4 million and $5.7 million at December 31, 2001 and 2000,
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 $5.3 million, $5.1 million and $4.7 million in
2001, 2000 and 1999, respectively.
COMMON STOCK
Shareholder rights plan. Under a shareholder rights plan, shareholders are
assigned one right for each share of Nicor common stock held. The rights will be
exercisable only if a person acquires, or announces a tender offer that would
result in ownership of, 10 percent or more of Nicor's common stock. If a person
acquires beneficial ownership of 10 percent or more of Nicor's common stock, all
holders of rights other than the acquiring person will be entitled to purchase
Nicor common stock at a 50 percent discount from the market price. Nicor may
redeem the rights at $.01 per right at any time before someone becomes a 10
percent beneficial owner. The rights expire on September 30, 2007.
Changes in common shares. Changes in common shares outstanding are summarized
below (in millions):
2001 2000 1999
-------- -------- --------
Beginning of year 45.5 46.9 47.5
Issued and converted .2 .1 -
Reacquired and cancelled (1.3) (1.5) (.6)
-------- -------- --------
End of year 44.4 45.5 46.9
======== ======== ========
Through common stock repurchase programs, Nicor has purchased and retired 1.1
million, 1.4 million and .6 million shares in 2001, 2000 and 1999, respectively.
Nicor Inc. Page 38
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Notes to the Consolidated Financial Statements (continued)
BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
Nicor is a holding company that through its wholly owned subsidiaries, Nicor Gas
and Tropical Shipping, operates primarily in two separately managed reportable
segments: gas distribution and shipping. The gas distribution segment, Nicor's
principal business, serves 2 million customers in a service territory that
encompasses most of the northern third of Illinois, excluding the city of
Chicago. The shipping segment transports containerized freight between Florida,
Canada and the Caribbean. Nicor's other energy ventures operate in the Midwest
region and include businesses that market: energy-related products and services
at retail to residential and small business consumers (Nicor Services); natural
gas at the wholesale level (Nicor Enerchange); and energy, both natural gas and
electricity, at the retail level (Nicor Energy, a 50- percent-owned joint
venture).
Tropical Shipping's vessels are under foreign registry, and its containers are
considered instruments of international trade. Although the majority of its
long-lived assets are foreign owned, and its revenues are derived from foreign
operations, the functional currency is generally the U.S. dollar.
Nicor evaluates segment performance based on operating income. Intercompany
billing among segments is generally based on direct and indirect costs incurred
unless a market price is available. Financial data by business segment is
presented on the following page (in millions):
Nicor Inc. Page 39
- ----------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (continued)
Other Corporate
Gas energy and
distribution Shipping ventures eliminations Consolidated
------------ -------- -------- ------------ ------------
Operating revenues
2001 $ 2,120.8 $ 230.3 $ 230.4 $ (37.4) $ 2,544.1
2000 1,896.0 248.3 169.9 (16.1) 2,298.1
1999 1,326.2 229.9 61.0 (1.9) 1,615.2
Operating income (loss)
2001 $ 223.7 $ 17.6 $ 4.9 $ (2.7) $ 243.5
2000 64.9 25.7 6.5 (3.0) 94.1
1999 191.7 22.5 1.3 (3.5) 212.0
Equity investment income (loss)
2001 $ (.1) $ - $ 2.5 $ 1.3 $ 3.7
2000 (.3) - 1.5 2.0 3.2
1999 - - (.3) .8 .5
Interest expense, net of
amounts capitalized
2001 $ 44.1 $ .6 $ .4 $ (.2) $ 44.9
2000 43.9 .8 .6 3.3 48.6
1999 40.4 1.3 .2 3.2 45.1
Income taxes
2001 $ 70.5 $ 5.3 $ 3.0 $ (5.4) $ 73.4
2000 6.8 10.2 3.1 (5.7) 14.4
1999 55.9 8.3 2.6 (1.1) 65.7
Property, plant and
equipment, net
2001 $ 1,620.7 $ 146.1 $ 1.5 $ .3 $ 1,768.6
2000 1,600.8 127.8 1.0 - 1,729.6
1999 1,610.7 123.2 1.3 - 1,735.2
Capital expenditures
2001 $ 149.8 $ 34.8 $ 1.1 $ - $ 185.7
2000 124.6 33.8 - - 158.4
1999 127.4 26.0 .6 - 154.0
Depreciation
2001 $ 132.4 $ 16.1 $ .3 $ - $ 148.8
2000 128.1 15.9 .3 - 144.3
1999 123.9 16.1 .3 - 140.3
See Gas Distribution Statistics on page 18 for disclosure of sales and
transportation revenues in the gas distribution segment. The operating revenues
of other energy ventures include $34.6 million and $14.9 million of revenues
from the sale of natural gas to Nicor Gas in 2001 and 2000, respectively.
Nicor Inc. Page 40
- ----------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (continued)
DISCONTINUED OPERATIONS
The company maintains a $13.4 million reserve for the remaining costs related to
discontinued contract drilling, oil and gas exploration, inland barging and
extractive operations. The reserve will continue to be evaluated as the
remaining contingencies are resolved.
INVESTMENTS IN UNCONSOLIDATED AFFILIATES
Nicor has several investments that are accounted for using the equity method.
These investments include a 50-percent interest in Nicor Energy and Horizon
Pipeline, and smaller percentage interests in a cargo container leasing company
and affordable housing partnerships. The following table provides unaudited,
combined and condensed financial information for all such investments as if
Nicor held a 100 percent interest (in millions):
2001 2000 1999
-------- -------- --------
Revenues $ 807.6 $ 606.2 $ 347.8
Pretax income 11.6 8.7 1.5
Current assets 331.6 289.4 154.6
Total assets 2,036.9 1,808.4 1,414.7
Current liabilities 229.6 185.8 82.0
Total liabilities 1,608.3 1,402.2 1,108.0
REGULATORY MATTERS
Performance-based rate plan. On January 1, 2000, Nicor Gas' performance-based
rate (PBR) plan for natural gas costs went into effect. Under the PBR plan,
Nicor Gas' total gas supply costs are compared to a market-sensitive benchmark.
Savings and losses relative to the benchmark are shared equally with customers.
Nicor recorded $14.9 million and $12.2 million for its share of PBR plan results
as operating revenue in 2001 and 2000, respectively. In 2002, the plan is
subject to ICC review.
Customer choice of commodity supplier. In January 2002, Nicor Gas received final
approval from the ICC to expand its Customer Select(R) program to include all
customers beginning in March 2002. The program is currently available to all
industrial and commercial customers and about 15 percent of residential
customers. Under the program, customers are able to acquire their natural gas
supplies from third-party marketers. The choice of another natural gas commodity
supplier has no direct impact on Nicor Gas' margin because natural gas costs are
passed through to customers without markup. Nicor Gas continues to deliver the
natural gas, maintain its distribution system and respond to emergencies.
RELATED PARTY TRANSACTIONS
At December 31, 2001, Nicor had $22.6 million of short-term notes receivable at
market interest rates due from Horizon Pipeline, a 50/50 joint venture between
Nicor and Natural Gas Pipeline Company of America. The notes cover a portion of
the initial construction costs of the pipeline. Horizon Pipeline intends to
ultimately finance the project with partnership equity and non-recourse third
party debt.
Nicor has a 50 percent interest in Nicor Energy L.L.C., a joint venture that
markets natural gas and electricity to customers in the Midwest region,
primarily in Illinois. At December 31, 2001, Nicor had $8.6 million of
short-term notes receivable at market interest rates due from Nicor Energy.
Nicor also guarantees up to $15 million of the joint venture's borrowings under
a line of credit, and up to $34
Nicor Inc. Page 41
- -----------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (continued)
million of Nicor Energy's accounts payable and performance commitments. As of
December 31, 2001 and 2000, Nicor had guaranteed $14.3 million and $11.3 million
under the line of credit.
CONTRACTUAL OBLIGATIONS
As of December 31, 2001, Nicor had contractual obligations with payments due as
follows (in millions):
after
2002 2003 2004 2005 2006 2006 Total
------ ------ ------ ------ ------ ------ -------
Long-term debt $ - $ 50.0 $ - $ - $ 50.0 $350.0 $450.0
Unconditional
purchase obligations 129.4 78.9 30.6 10.4 10.4 54.4 314.1
Operating leases 13.3 8.7 2.0 1.9 1.4 7.7 35.0
Other long-term
obligations 2.7 3.0 3.0 2.9 2.8 6.5 20.9
------ ------ ------ ------ ------ ------ ------
$145.4 $140.6 $ 35.6 $ 15.2 $ 64.6 $418.6 $820.0
====== ====== ====== ====== ====== ====== ======
Unconditional purchase obligations primarily consist of transportation and
storage contracts in the gas distribution segment. This includes a 10-year
transportation agreement between Nicor Gas and Horizon Pipeline totaling $103.7
million.
Operating leases are primarily for vessels, containers and equipment in the
shipping segment, and for office space and equipment in the gas distribution
segment. Rental expense under operating leases was $14.6 million, $14.5 million
and $12.3 million in 2001, 2000 and 1999, respectively.
In 1999, Tropical Shipping committed about $40 million for the construction of
two vessels. One of the vessels was placed into service during 2001, and the
second vessel was delivered in early 2002. Through December 31, 2001, the
company had made construction payments of $28.9 million. Remaining commitments
were paid in early 2002.
CONTINGENCIES
Mercury program. Nicor Gas has incurred, and expects to continue to incur,
significant costs related to its historical use of mercury in various kinds of
company equipment.
Prior to 1961, gas regulators containing small quantities of mercury were
installed in homes. These gas regulators reduce the pressure of natural gas flow
from the service line to the inside of the home. During the third quarter of
2000, the company learned that in certain instances some mercury was spilled or
left in residences.
As a result, in September 2000, Nicor Gas was named as a defendant in a civil
lawsuit (the "Attorney General's Lawsuit") brought by the Illinois Attorney
General and the State's Attorneys of Cook, DuPage and Will Counties seeking,
among other things, to compel the company to inspect and clean up all homes and
other sites that may have been affected by mercury from company equipment. The
Circuit Court of Cook County hearing this action entered two preliminary
injunctions requiring Nicor Gas, among other things, to conduct inspections and,
where necessary, to clean up mercury, to pay for relocating residents until
cleanup is completed, and to pay for medical screening of potentially affected
persons. Potentially affected homes are being inspected using mercury vapor
analyzers. Nicor Gas has called on every such
<PAGE>
Nicor Inc. Page 42
- -----------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (continued)
home, although it still has been unable to gain entry to some homes.
Approximately 1,060 homes have been found to have traces of mercury requiring
cleanup.
On October 10, 2001 Nicor Gas entered into a settlement agreement with respect
to the Attorney General's Lawsuit, and on the same date the Circuit Court of
Cook County entered an order approving the settlement. Under the settlement,
Nicor Gas will pay a total of approximately $2.25 million over a 5-year period.
Of this amount, $.4 million will be used to reimburse the plaintiffs for their
costs and the balance will be used to fund environmental programs. In addition,
Nicor Gas will continue for a period of five years to provide medical screening
to persons who may have been exposed to mercury from Nicor Gas equipment.
Nicor Gas is also the subject of an Administrative Order, and an amendment
thereto, issued during the third quarter of 2000 by the U.S. Environmental
Protection Agency (EPA) pursuant to Section 106 of the Comprehensive
Environmental Response, Compensation and Liabilities Act. The order requires the
company, among other things, to develop and implement work plans to address
mercury spills at recycling centers where mercury regulators may have been
taken, at company facilities where regulators and mercury may have been
temporarily stored and at commercial/industrial sites where mercury-containing
equipment may have been used in metering facilities. Pursuant to the injunctions
and the EPA Administrative Order, Nicor Gas has completed the work described
above for all affected recycling centers, commercial/industrial sites and
company facilities. On July 12, 2001, Nicor Gas received a Notice of Completion
letter from the EPA regarding the work performed under the Section 106
Administrative Order.
In addition to the matters described above, Nicor Gas has been named a defendant
in several private lawsuits, all in the Circuit Court of Cook County, claiming a
variety of unquantified damages (including bodily injury, property and punitive
damages) allegedly caused by mercury-containing regulators. One of the lawsuits
involves five previous class actions that have been consolidated before a single
judge. On October 10, 2001, Nicor Gas entered into an agreement to settle the
class action litigation. Under the terms of that agreement, Nicor Gas will pay a
total of approximately $1.85 million, will continue for a period of five years
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 within four years. The class action settlement permits class
members to "opt out" of the settlement and pursue their claims individually. On
February 7, 2002, the Circuit Court of Cook County entered a final order
approving the class action settlement.
Nicor Gas charged $148 million to other operating expense in the third quarter
of 2000 for estimated obligations related to the previously described work and
for legal defense costs. A $9 million adjustment lowered the mercury-related
reserve and reduced other operating expense in the third quarter of 2001. The
adjustment reflects more recent experience which indicates a lower number of
homes expected to be found with traces of mercury requiring cleanup and a lower
average cleanup and repair cost. Through December 31, 2001, the company has
incurred $102 million in associated costs, leaving a $37 million liability. The
remaining liability represents 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.
The company has certain insurance policies, has notified its insurers, and is
vigorously pursuing recovery of mercury-related costs pursuant to its insurance
coverage. In January 2001, the company filed suit in
Nicor Inc. Page 43
- -----------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (continued)
the Circuit Court of Cook County against certain of its insurance carriers for a
declaration that the company's mercury-related losses are covered, and for the
recovery of those losses. Nicor Gas is also pursuing certain insurance
recoveries through arbitration. In addition, some of the removals of mercury-
containing regulators were conducted by independent contractors working for the
company. In November 2000, the company filed suit in the Circuit Court of Cook
County seeking indemnification and contribution from these contractors. Through
December 31, 2001, Nicor Gas has recovered, net of related expenses, $3.2
million from certain insurance carriers of the company and its independent
contractors. These recoveries have been recorded as a reduction to other
operating expense. At this stage, it is not possible to estimate the likelihood
of additional recoveries from insurance carriers or other third parties related
to the mercury spills, and Nicor Gas has not recorded any such amounts as assets
in its financial statements.
Nicor Gas will not seek recovery of the costs associated with these mercury
spills from its customers, and any proceeds from insurance carriers or third
parties will be retained by the company to offset costs incurred.
It is management's opinion, taking into account the above information and
uncertainties, including currently available information concerning the
company's existing and potential obligations, insurance coverage, possible
recoveries from third parties and available financial resources, that costs
associated with the mercury spills will not have a material adverse effect on
the liquidity or financial position of the company.
Manufactured gas plant sites. Gas manufacturing plants were used by Nicor Gas'
predecessor companies in the early 1900's to produce natural gas from coal,
producing 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. The majority of these properties are not presently owned by the
company. Information regarding preliminary site reviews has been presented to
the Illinois Environmental Protection Agency. More detailed investigations and
remedial activities are either in progress or planned at many of these sites.
The results of continued testing and analysis should determine to what extent
additional remediation is necessary and may provide a basis for estimating any
additional future costs which, based on industry experience, could be
significant. In accordance with ICC authorization, the company has been
recovering these costs from its customers.
In December 1995, Nicor Gas filed suit in the Circuit Court of Cook County
against certain insurance carriers seeking recovery of environmental cleanup
costs of certain former manufactured gas plant sites. Nicor Gas reached a
settlement with one of the insurance carriers, and in February 2000, the court
dismissed the company's case on summary judgment motions by certain other
defendants. The company filed an appeal in March 2000. In May of 2001, Nicor Gas
reached a recovery settlement with certain insurance carriers who were involved
in this appeal. Management cannot predict the outcome of the lawsuit against the
remaining insurance carriers. Recoveries are refunded to the company's
customers.
In December 2001, a putative 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 proposed residential cleanup
of a manufactured gas plant site in Oak Park, Illinois was inadequate. The
lawsuit claims that houses might have to be razed or removed and asks that
residents be compensated for the alleged loss in the value of their homes.
Management cannot predict the outcome of this litigation.
Nicor Inc. Page 44
- ----------------------------------------------------------------------------
Notes to the Consolidated Financial Statements (concluded)
Since costs and recoveries relating to the cleanup of these manufactured gas
plant sites are passed directly through to customers in accordance with ICC
regulations, the final disposition of these matters is not expected to have a
material impact on the company's financial condition or results of operations.
Other. The company is involved in legal or administrative
proceedings before various courts and agencies with respect to
rates, taxes and other matters.
Although unable to determine the outcome of these other contingencies,
management believes that appropriate accruals have been recorded. Final
disposition of these matters is not expected to have a material impact on the
company's financial condition or results of operations.
QUARTERLY RESULTS (UNAUDITED)
Summarized quarterly financial data is presented below (in millions, except per
share data).
Quarter ended
-----------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
--------- --------- ---------- ---------
2001
Operating revenues $ 1,473.7 $ 373.0 $ 244.4 $ 453.0
Operating income 68.0 52.9 53.4 69.2
Net income 38.8 26.7 33.0 45.2
Earnings per common share
Basic .85 .59 .73 1.01
Diluted .85 .59 .73 1.01
2000
Operating revenues $ 659.3 $ 348.4 $ 301.0 $ 989.4
Operating income (loss) 70.2 55.4 (101.0) 69.5
Net income (loss) 38.8 30.6 (62.7) 39.9
Earnings (loss) per common share
Basic .83 .66 (1.37) .87
Diluted .83 .66 (1.37) .87
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Nicor Inc. Page 45
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PART III
Items 10. and 11. Directors and Executive Officers of the Registrant and
Executive Compensation
Information on directors, Section 16(a) Beneficial Ownership Reporting
Compliance and executive compensation is contained on pages 2 through 6, 9 and
14 through 19 of the Definitive Proxy Statement, dated March 8, 2002, and is
incorporated herein by reference. Information relating to the executive officers
of the registrant is provided on page 6 in Part I of this document.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information about shares beneficially owned by directors and executive officers
is contained on pages 7 through 9 of the Definitive Proxy Statement, dated March
8, 2002, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information about certain relationships and related transactions is contained on
page 24 of the Definitive Proxy Statement, dated March 8, 2002, and is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) 1) Financial Statements:
See Item 8, Financial Statements and Supplementary Data, on page 23
filed herewith, for a list of financial statements.
2) Financial Statement Schedules:
Schedule
Number Page
Report of Independent Public Accountants 24
II Valuation and Qualifying Accounts 46
Schedules other than those listed are omitted because they are not
applicable.
3) Exhibits Filed:
See Exhibit Index beginning on page 48 filed herewith.
(b) The company did not file a report on Form 8-K during the
fourth quarter of 2001.
Nicor Inc. Page 46
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Schedule II
VALUATION AND QUALIFYING ACCOUNTS
(millions)
Additions
------------------
Balance at Charged to Charged Balance
beginning costs and to other Deduct- at end
Description of period expenses accounts ions of period
- ----------------- --------- ---------- -------- ------- ----------
2001
- ------
Allowance for
uncollectible accounts
receivabable $ 14.5 $ 26.1 - $ 28.3 (a) $ 12.3
Reserve for estimated
future costs related
to discontinued
businesses 14.8 - - 1.4 (b) 13.4
Accrued mercury-related
costs 78.0 - - 41.0 (c) 37.0
2000
- ------
Allowance for
uncollectible accounts
receivable $ 7.1 $ 17.5 - $ 10.1 (a) $ 14.5
Reserve for estimated
future costs related
to discontinued
businesses 12.8 - 2.0 (b) - 14.8
Accrued mercury-related
costs - 148.0 - 70.0 (c) 78.0
1999
- ------
Allowance for
uncollectible accounts
receivable $ 6.3 $ 12.5 $ - $ 11.7 (a) $ 7.1
Reserve for estimated
future costs related
to discontinued
businesses 13.3 - - .5 (b) 12.8
Accrued mercury-related
costs - - - - -
(a) Accounts receivable written off, net of recoveries.
(b) Net receipts, expenditures, operating results, gains and losses related to
discontinued businesses credited or charged to reserve.
(c) Expenditures and reductions charged to reserve.
<PAGE>
Nicor Inc. Page 47
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Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Nicor Inc.
Date March 8, 2002 By /s/ KATHLEEN L. HALLORAN
------------------------ -------------------------
Kathleen L. Halloran
Executive Vice President Finance
and Administration
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 8, 2002.
Signature Title
- -------------------------------- -------------------------------
/s/ THOMAS L. FISHER
- --------------------------------
Thomas L. Fisher Chairman, President and
(Principal Executive Officer) Chief Executive Officer
/s/ KATHLEEN L. HALLORAN
- --------------------------------
Kathleen L. Halloran Executive Vice President
(Principal Financial and Finance and Administration
Accounting Officer)
ROBERT M. BEAVERS, JR.* Director
BRUCE P. BICKNER* Director
JOHN H. BIRDSALL, III* Director
THOMAS A. DONAHOE* 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)
Nicor Inc. Page 48
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Exhibit Index
Exhibit
Number Description of Document
- ------ -------------------------------------------------------------
3.01 * Articles of Incorporation of the company. (File
No. 2-55451, Form S-14, Nicor Inc., Exhibit 1-03 and
Exhibit B of Amendment No. 1 thereto.)
3.02 * Amendment to Articles of Incorporation of the
company. (Proxy Statement dated April 20, 1979, Nicor
Inc., Item 3 thereto.)
3.03 * Amendment to Articles of Incorporation of the
company. (File No. 2-68777, Form S-16, Nicor Inc.,
Exhibit 2-01.)
3.04 * Amendment to Articles of Incorporation of the
company. (File No. 1-7297, Form 10-K for 1985, Nicor
Inc., Exhibit 3-03.)
3.05 * Amendment to Articles of Incorporation of the
company. (Proxy Statement dated March 12, 1987, Nicor
Inc., Exhibit A and Exhibit B thereto.)
3.06 * Amendment to Articles of Incorporation of the
company. (File No. 1-7297, Form 10-K for 1992, Nicor
Inc., Exhibit 3-06.)
3.07 * Amendments to Articles of Incorporation of the
company. (Proxy Statement dated March 9, 1994, Nicor
Inc., Exhibit A-1 and Exhibit B thereto.)
3.08 * Amendment to Articles of Incorporation of the
company. (Proxy Statement dated March 6, 1998, Nicor
Inc., Item 2 thereto.)
3.09 * By-Laws of the company as amended by the company's
Board of Directors on May 3, 1995. (File No. 1-7297,
Form 10-Q for March 1995, Nicor Inc., Exhibit 3(ii).01.)
4.01 * Indenture of Commonwealth Edison Company to
Continental Illinois National Bank and Trust Company of
Chicago, Trustee, dated as of January 1, 1954. (File
No. 1-7296, Form 10-K for 1995, Nicor Gas, Exhibit
4.01.)
4.02 * Indenture of Adoption of Nicor Gas to Continental
Illinois National Bank and Trust Company of Chicago,
Trustee, dated February 9, 1954. (File No. 1-7296,
Form 10-K for 1995, Nicor Gas, Exhibit 4.02.)
4.03 * Supplemental Indenture, dated June 1, 1963, of
Nicor Gas to Continental Illinois National Bank and
Trust Company of Chicago, Trustee, under Indenture
dated as of January 1, 1954. (File No. 2-21490, Form
S-9, Nicor Gas, Exhibit 2-8.)
4.04 * Supplemental Indenture, dated May 1, 1966, of
Nicor Gas to Continental Illinois National Bank and
Trust Company of Chicago, Trustee, under Indenture
dated as of January 1, 1954. (File No. 2-25292, Form
S-9, Nicor Gas, Exhibit 2-4.)
<PAGE>
Nicor Inc. Page 49
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Exhibit Index (continued)
Exhibit
Number Description of Document
- ------ -------------------------------------------------------------
4.05 * Supplemental Indenture, dated June 1, 1971, of
Nicor Gas to Continental Illinois National Bank and
Trust Company of Chicago, Trustee, under Indenture
dated as of January 1, 1954. (File No. 2-44647, Form
S-7, Nicor Gas, Exhibit 2-03.)
4.06 * Supplemental Indenture, dated April 30, 1976,
between the company and Continental Illinois National
Bank and Trust Company of Chicago, Trustee, under
Indenture dated as of January 1, 1954. (File No.
2-56578, Form S-9, Nicor Gas, Exhibit 2-25.)
4.07 * Supplemental Indenture, dated April 30, 1976, of
Nicor Gas to Continental Illinois National Bank and
Trust Company of Chicago, Trustee, under Indenture
dated as of January 1, 1954. (File No. 2-56578, Form
S-9, Nicor Gas, Exhibit 2-21.)
4.08 * Supplemental Indenture, dated August 15, 1991, of
Nicor Gas to Continental Bank, National Association,
Trustee, under Indenture dated as of January 1, 1954.
(File No. 1-7296, Form 8-K for August 1991, Nicor Gas, Exhibit 4-01.)
4.09 * Supplemental Indenture, dated October 15, 1995, of Nicor Gas to
Bank of America Illinois, Trustee, under Indenture dated as of
January 1, 1954. (File No. 1-7296, Form 10-Q for September 1995,
Nicor Gas, Exhibit 4.01.)
4.10 * Supplemental Indenture, dated May 10, 1996, of Nicor Gas to Harris
Trust and Savings Bank, Trustee, under Indenture dated as of January
1, 1954. (File No. 1-7296, Form 10-Q for June 1996, Nicor Gas,
Exhibit 4.01.)
4.11 * Supplemental Indenture, dated August 1, 1996, of Nicor Gas to
Harris Trust and Savings Bank, Trustee, under Indenture dated as of
January 1, 1954. (File No. 1-7296, Form 10-Q for June 1996, Nicor
Gas, Exhibit 4.02.)
4.12 * Supplemental Indenture, dated June 1, 1997, of Nicor Gas to Harris
Trust and Savings Bank, Trustee, under Indenture dated as of January
1, 1954. (File No. 1-7296, Form 10-Q for June 1997, Nicor Gas,
Exhibit 4.01.)
4.13 * Shareholder Rights Agreement, dated September 9,
1997, between the company and Harris Trust and Savings
Bank, as Rights Agent. (File No. 1-7297, Form 8-K for
September 1997, Nicor Inc., Exhibit 1.)
4.14 * Supplemental Indenture, dated October 15, 1997, of Nicor Gas to
Harris Trust and Savings Bank, Trustee, under Indenture dated as of
January 1, 1954. (File No. 1-7296, Form 10-Q for September 1997,
Nicor Gas, Exhibit 4.01.)
4.15 * Supplemental Indenture, dated February 15, 1998, of Nicor Gas to
Harris Trust and Savings Bank, Trustee, under Indenture dated as of
January 1, 1954. (File No. 1-7296, Form 10-K for 1997, Nicor Gas,
Exhibit 4.19.)
<PAGE>
Nicor Inc. Page 50
- ----------------------------------------------------------------------------
Exhibit Index (continued)
Exhibit
Number Description of Document
- ------ -------------------------------------------------------------
4.16 * Supplemental Indenture, dated June 1, 1998, of Nicor Gas to Harris
Trust and Savings Bank, Trustee, under Indenture dated as of January
1, 1954. (File No. 1-7296, Form 10-Q for June 1998, Nicor Gas,
Exhibit 4.01.)
4.17 * Supplemental Indenture, dated February 1, 1999, of Nicor Gas to
Harris Trust and Savings Bank, Trustee, under Indenture dated as of
January 1, 1954. (File No. 1-7296, Form 10-K for 1998, Nicor Gas,
Exhibit 4.19.)
4.18 * Supplemental Indenture, dated February 1, 2001, of Nicor Gas to BNY
Midwest Trust Company, Trustee, under Indenture dated as of January
1, 1954. (File No. 1-7296, Form 10-K for 2000, Nicor Gas, Exhibit
4.17.)
4.19 * Supplemental Indenture, dated May 15, 2001, of Nicor Gas to BNY
Midwest Trust Company, Trustee, under Indenture dated as of January
1, 1954. (File No. 1-7296, Form 10-Q for June 2001, Nicor Gas,
Exhibit 4.01.)
4.20 * Supplemental Indenture, dated August 15, 2001, of Nicor Gas to BNY
Midwest Trust Company, Trustee, under Indenture dated as of January
1, 1954. (File No. 1-7296, Form 10-Q for September 2001, Nicor Gas,
Exhibit 4.01.)
4.21 * Supplemental Indenture, dated December 15, 2001, of Nicor Gas to
BNY Midwest Trust Company, Trustee, under Indenture dated as of
January 1, 1954. (File No. 1-7296, Form 10-K for 2001, Nicor Gas,
Exhibit 4.20.)
Other debt instruments are omitted in accordance with Item
601(b)(4)(iii)(A) of Regulation S-K. Copies of such agreements will
be furnished to the Commission upon request.
10.01 * 1984 Nicor Officers' Capital Accumulation Plan
Participation Agreement. (File No.
1-7297, Form 10-K for 1988, Nicor Inc., Exhibit 10-10.)
10.01(a)* 1985 Nicor Officers' Capital Accumulation Plan
Participation Agreement. (File No.
1-7297, Form 10-K for 1988, Nicor Inc., Exhibit
10-10(a).)
10.02 * 1984 Nicor Directors' Capital Accumulation Plan
Participation Agreement. (File No.
1-7297, Form 10-K for 1983, Nicor Inc., Exhibit 10-13.)
10.02(a)* 1985 Nicor Directors' Capital Accumulation Plan
Participation Agreement. (File No.
1-7297, Form 10-K for 1984, Nicor Inc., Exhibit
10-13(a).)
10.03 * Directors' Deferred Compensation Plan. (File No.
1-7297, Form 10-K for 1983, Nicor Inc., Exhibit 10-16.)
10.04 * Directors' Pension Plan. (File No. 1-7297, Form 10-K
for 1985, Nicor Inc., Exhibit 10-18.)
Nicor Inc. Page 51
- ----------------------------------------------------------------------------
Exhibit Index (continued)
Exhibit
Number Description of Document
- ------ -------------------------------------------------------------
10.05 * Flexible Spending Account for Executives. (File No.
1-7297, Form 10-K for 1986, Nicor Inc., Exhibit 10-20.)
10.06 * Amendment and Restatement of the Nicor Gas Incentive
Compensation Plan. (File No. 1-7297, Form 10-K for
1986, Nicor Inc., Exhibit 10-21.)
10.07 * Nicor Inc. 1989 Long-Term Incentive Plan. (Filed with
Nicor Inc. Proxy Statement, dated April 20, 1989,
Exhibit A.)
10.08 * Nicor Salary Deferral Plan. (File No. 1-7297, Form
10-K for 1989, Nicor Inc., Exhibit 10-29.)
10.09 * Nicor Inc. Stock Deferral Plan. (File No. 1-7297, Form
10-Q for September 1996, Nicor Inc., Exhibit 10.01.)
10.10 * Amendment to Nicor Inc. Stock Deferral Plan. (File No.
1-7297, Form 10-K for 1997, Nicor Inc., Exhibit 10.22.)
10.11 * Nicor Inc. 1995 Directors' Stock Plan. (File No.
1-7297, Form 10-Q for September 1996, Nicor Inc.,
Exhibit 10.02.)
10.12 * 1997 Long-Term Incentive Program. (File No. 1-7297,
Form 10-Q for March 1997, Nicor Inc., Exhibit 10.01.)
10.13 * Nicor Inc. 1997 Long-Term Incentive Plan. (Filed as
appendix to the Nicor Inc. Proxy Statement, dated March
6, 1997.)
10.14 * 1999 Long-Term Incentive Program. (File No. 1-7297,
Form 10-K for 1998, Nicor Inc.,
Exhibit 10.26.)
10.15 * 2000 Nicor Incentive Compensation Plan. (File No.
1-7297, Form 10-K for 1999, Nicor Inc., Exhibit 10.21.)
10.16 * 2000 Nicor Gas Incentive Compensation Plan. (File No.
1-7297, Form 10-K for 1999, Nicor Inc., Exhibit 10.22.)
10.17 * 2000 Long-Term Incentive Program. (File No. 1-7297,
Form 10-K for 1999, Nicor Inc., Exhibit 10.23.)
10.18 * Security Payment Plan. (File No. 1-7297,
Form 10-K for 1999, Nicor Inc., Exhibit
10.24.)
Nicor Inc. Page 52
- ----------------------------------------------------------------------------
Exhibit Index (continued)
Exhibit
Number Description of Document
- ------ -------------------------------------------------------------
10.19 * Amendment and Restatement of Nicor Gas
Supplementary Retirement Plan. (File No. 1-7297, Form 10-Q for
March 2000, Nicor Inc., Exhibit 10.01.)
10.20 * Amendment and Restatement of Nicor Gas Supplementary Savings Plan.
(File No. 1-7297, Form 10-Q for March 2000, Nicor Inc.,
Exhibit 10.02.)
10.21 * First Amendment to Nicor Salary Deferral Plan. (File No. 1-7297,
Form 10-Q for March 2000, Nicor Inc., Exhibit 10.03.)
10.22 * First Amendment to Agreements Restating 1984 and 1985 Nicor Capital
Accumulation Plan Participation Agreements for Officers and
Directors. (File No. 1-7297, Form 10-Q for March 2000, Nicor Inc.,
Exhibit 10.04.)
10.23 * First Amendment to Nicor 1989 Long -Term Incentive Plan.
(File No. 1-7297, Form 10-Q for March 2000, Nicor Inc.,
Exhibit 10.05.)
10.24 * First Amendment to Nicor 1997 Long -Term Incentive Plan.
(File No. 1-7297, Form 10-Q for March 2000, Nicor Inc.,
Exhibit 10.06.)
10.25 * Second Amendment to Nicor Stock Deferral Plan. (File No. 1-7297,
Form 10-Q for March 2000, Nicor Inc., Exhibit 10.07.)
10.26 * Form of Change-in-Control Agreement, dated June 2, 2000, between
Nicor Inc. and Mr. Cali and Ms. Halloran. (File No. 1-7297,
Form 10-Q for June 2000, Nicor Inc., Exhibit 10.01.)
10.27 * Change-in-Control Agreement, dated June 2, 2000, between Nicor Inc.
and Mr. Fisher. (File No. 1-7297, Form 10-K for 2000, Nicor Inc.,
Exhibit 10.28.)
10.28 * Change-in-Control Agreement, dated June 2, 2000, between Nicor Inc.
and Mr. Behrens. (File No. 1-7297, Form 10-K for 2000, Nicor Inc.,
Exhibit 10.29.)
10.29 * 2001 Long-Term Incentive Program. (File No. 1-7297, Form 10-Q for
March 2001, Nicor Inc., Exhibit 10.01.)
10.30 * 2001 Incentive Compensation Plan. (File No. 1-7297, Form 10-Q for
March 2001, Nicor Inc., Exhibit 10.02.)
10.31 Change-in-Control Agreement, dated December 20, 2000, between
Nicor Inc. and Mr. Strobel.
10.32 Supplemental Retirement Benefit Agreement between Nicor Inc.
and Mr. Strobel.
Nicor Inc. Page 53
- -----------------------------------------------------------------------------
Exhibit Index (concluded)
Exhibit
Number Description of Document
- ------ -------------------------------------------------------------
Exhibits 10.01 through 10.32 constitute management contracts and
compensatory plans and arrangements required to be filed as exhibits
to this Form pursuant to Item 14(c) of Form 10-K.
21.01 * Subsidiaries. (File No. 69-228, Form U-3A-2 for 2001,
Nicor Inc., Item 1.)
23.01 Consent of Independent Public Accountants.
24.01 Powers of Attorney.
99.01 * Form of Letter to Shareholders relating to Shareholder
Rights Agreement. (File No.1-7297, Form 8-K for September 1997,
Nicor Inc., Exhibit 2.)
* These exhibits have been previously filed with the Securities and Exchange
Commission as exhibits to registration statements or to other filings with
the Commission and are incorporated herein as exhibits by reference. The file
number and exhibit number of each such exhibit, where applicable, are stated,
in parentheses, in the description of such exhibit.
Upon written request, the company will furnish free of charge a copy of any
exhibit. Requests should be sent to Investor Relations at the corporate
headquarters.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>4
<FILENAME>exh1031cic.txt
<DESCRIPTION>EXHIBIT 10.31 CHANGE IN CONTROL AGREEMENT
<TEXT>
Nicor Inc.
Form 10-K
Exhibit 10.31
CHANGE-IN-CONTROL AGREEMENT
THIS AGREEMENT dated as of December 20, 2000 (the "Agreement
Date") is made by and among Nicor Inc. (the "Company"), an
Illinois corporation, and Russ M. Strobel (the "Executive").
ARTICLE I
PURPOSES
The Board of Directors of the Company (the "Board") has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company and Nicor Gas will have the continued services of the Executive, despite
the possibility or occurrence of a Change in Control of the Company. The Board
believes it is imperative to reduce the distraction of the Executive that would
result from the personal uncertainties caused by a pending or threatened Change
in Control, to encourage the Executive's full attention and dedication to the
Company and Nicor Gas, and to provide the Executive with compensation and
benefits arrangements upon a Change in Control which are competitive with those
of similarly-situated corporations. This Agreement is intended to accomplish
these objectives.
ARTICLE II
CERTAIN DEFINITIONS
When used in this Agreement, the terms specified below shall have the
following meanings:
2.1 The "Agreement Term" shall begin on the Agreement Date and shall
continue through December 31, 2001. As of December 31, 2001, and on each
December 31 thereafter, the Agreement Term shall automatically be extended for
one additional year unless, not later than the preceding June 30, either party
shall have given notice that such party does not wish to extend the Agreement
Term. If a Change in Control shall have occurred during the Agreement Term (as
it may be extended from time to time), the Agreement Term shall continue for a
period ending on the two-year anniversary of the date of the Change in Control,
but if the Termination Date (as defined below) occurs during that two-year
period, then the Agreement Term shall continue until the end of the Severance
Period (as defined below). Unless the Termination Date occurs during the
two-year period after a Change in Control so that the Agreement Term is extended
to include the Severance Period, as provided in the immediately preceding
sentence, the Agreement Term shall not extend beyond the two-year anniversary of
the Change in Control.
2.2 "Effective Date" means the first date during the Agreement Term on
which a Change in Control occurs.
2.3 "Change in Control" means:
2.3.1The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of any shares of Common Stock of the Company or any voting securities
of the Company entitled to vote generally in the election of directors if,
as a result of such acquisition, such person owns 20% or more of either
(i) the outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock"), or (ii) the combined voting power of
the outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection
2.3.1, the following acquisitions shall not constitute a Change in
Control: (A) any acquisition by the Company, (B) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company (a "Company Plan"),
or (C) any acquisition by any corporation pursuant to a transaction which
complies with subsections 2.3.3.1, 2.3.3.2 and 2.3.3.3 of this definition;
provided further, that for purposes of clause (A), if any Person (other
than the Company or any Company Plan) shall become the beneficial owner of
20% or more of the Outstanding Company Common Stock or 20% or more of the
Outstanding Company Voting Securities by reason of an acquisition by the
Company, and such Person shall, after such acquisition by the Company,
become the beneficial owner of any additional shares of the Outstanding
Company Common Stock or any additional Outstanding Company Voting
Securities (other than pursuant to any dividend reinvestment plan or
arrangement maintained by the Company) and such beneficial ownership is
publicly announced, such additional beneficial ownership shall constitute
a Change in Control; or
2.3.2Individuals who, as of the date hereof, constitute the Board of
Directors of the Company (for purposes of this Section 2.3, the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Incumbent Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or publicly
threatened election contest (as such terms are used in Rule 14a-11
promulgated under the Exchange Act) or other actual or publicly threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board of Directors of the Company; or
2.3.3Consummation, including receipt of any necessary regulatory
approval, of (i) a reorganization, merger, consolidation or other business
combination involving the Company or (ii) the sale or other disposition of
more than 50% of the operating assets of the Company (determined on a
consolidated basis), other than in connection with a sale-leaseback or
other arrangement resulting in the continued utilization of such assets
(or the operating products of such assets) by the Company (any transaction
described in part (i) or (ii) being referred to as a "Corporate
Transaction"); excluding, however, a Corporate Transaction pursuant to
which:
2.3.3.1 all or substantially all of the individuals and entities
who are the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Corporate Transaction beneficially own,
directly or indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the ultimate parent
entity resulting from such Corporate Transaction (including, without
limitation, an entity which, as a result of such transaction, owns
the Company or all or substantially all of the assets of the Company
either directly or through one or more subsidiaries) in substantially
the same proportions as their ownership, immediately prior to such
Corporate Transaction of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be;
2.3.3.2 no Person (other than the Company, any Company Plan or
related trust, the corporation resulting from such Corporate
Transaction, and any Person which beneficially owned, immediately
prior to such Corporate Transaction, directly or indirectly, 20% or
more of the Outstanding Company Common Stock or the Outstanding
Company Voting Securities, as the case may be) will beneficially own,
directly or indirectly, 20% or more of, respectively, the then
outstanding common stock of the ultimate parent entity resulting from
such Corporate Transaction or the combined voting power of the then
outstanding voting securities of such entity; and
2.3.3.3 individuals who were members of the Incumbent Board will
constitute at least a majority of the members of the board of
directors of the ultimate parent entity resulting from such Corporate
Transaction; or
2.3.4A tender offer (for which a filing has been made with the
Securities and Exchange Commission (the "SEC") which purports to comply
with the requirements of Section 14(d) of the Exchange Act and the
corresponding SEC rules) is made for the stock of the Company, which has
not been negotiated and approved by the Board, provided that in case of a
tender offer described in this subsection 2.3.4, the Change in Control
will be deemed to have occurred at the first time during the offer period
when the Person (as defined in subsection 2.3.1, above) making the offer
beneficially owns or has accepted for payment stock of the Company with
20% or more of the combined voting power of the then Outstanding Company
Voting Securities; or
2.3.5Approval by the shareholders of the Company of a
plan of complete liquidation or dissolution of the Company.
2.3.6For purposes of this Section 2.3, (i) the term
"Company" shall mean Nicor Inc. and shall include any
Successor to Nicor Inc.; and (ii) the term "Successor to
Nicor Inc." shall mean any corporation, partnership, joint
venture or other entity that succeeds to the interests of
Nicor Inc. by means of a merger, consolidation, or other
restructuring that does not constitute a Change in Control
under paragraphs 2.3.1, 2.3.3 or 2.3.4 above.
2.3.7By entering into this Agreement, the Executive irrevocably
consents to the modification of the definition of "Change in Control"
(including "change in control") in all Employee Benefit Arrangements (as
defined below), by substituting for such definition in each such Employee
Benefit Arrangement the definition of "Change in Control" set forth above,
with such substitution to be effective on the first date this Agreement
has been signed by both the Company and the Executive. For purposes of the
preceding sentence, the term "Employee Benefit Arrangement" shall mean
each agreement with the Executive to which the Company or any Subsidiary
is a party, and each plan or arrangement maintained by the Company or any
Subsidiary, and including any awards outstanding under any such agreement,
plan, or arrangement, to the extent that such award, agreement, plan, or
arrangement contains a definition of "Change in Control"" However, to the
extent that the Employee Benefit Arrangement provides for an award based
on common stock of the Company (including, without limitation, an award of
stock options or shares of restricted stock), and such Employee Benefit
Arrangement provides that vesting or exercisability of such award will
occur at the time of the Change in Control (rather than the occurrence of
a subsequent event, such as termination of employment), the definition of
"Change in Control" that is substituted for the definition in such
Employee Benefit Arrangement shall be the definition of "Change in
Control" set forth above, except that Section 2.3.4 shall be modified by
adding, at the end of such Section, immediately prior to the word "or,"
the following: "provided, however, that the Change in Control shall occur
three (3) business days before such tender offer is to terminate, unless
the offer is withdrawn first, if the Person making the offer could own, by
the terms of the offer plus any shares beneficially owned by that Person,
stock with 50% or more of the combined voting power of the then
Outstanding Company Voting Securities when the offer (and any subsequent
offering period) terminates;"
2.3.8By entering into this Agreement, the Executive irrevocably
consents to the amendment of the Nicor Inc. Stock Deferral Plan to provide
for distribution, as soon as practicable following a Change in Control, of
any amounts which may then be deferred for the Executive under such plan.
2.4 "Code" means the Internal Revenue Code of 1986, as
amended.
2.5 "Employment Period" means the period commencing on the Effective Date
and ending on the two-year anniversary of that date.
2.6 "Incentive Plan" shall have the meaning set forth in
Section 3.2.2.
2.7 "Notice of Termination" means a written notice given in accordance
with Section 11.8 which sets forth (a) the specific termination provision in
this Agreement relied upon by the party giving such notice, (b) in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under such termination provision, and (c) if the
Termination Date is other than the date of receipt of such Notice of
Termination, the Termination Date.
2.8 "Plans" shall have the meaning set forth in
Section 3.2.3.
2.9 A "Potential Change in Control" shall exist during any period in which
the circumstances described in Sections 2.9.1, 2.9.2, or 2.9.3 exist (provided,
however, that a Potential Change in Control shall cease to exist not later than
the occurrence of a Change in Control):
2.9.1The Company enters into an agreement, the consummation of which
would result in the occurrence of a Change in Control, provided that a
Potential Change in Control described in this Section 2.9.1 shall cease to
exist upon the expiration or other termination of all such agreements.
2.9.2Any person (including the Company) publicly announces an
intention to take or to consider taking actions the consummation of which
would constitute a Change in Control; provided that a Potential Change in
Control described in this Section 2.9.2 shall cease to exist upon the
withdrawal of such intention, or upon a reasonable determination by the
Board that there is no reasonable chance that such actions would be
consummated.
2.9.3The Board adopts a resolution to the effect that, for purposes
of this Agreement, a Potential Change in Control exists; provided that a
Potential Change in Control described in this Section 2.9.3 shall cease to
exist upon a reasonable determination by the Board that the reasons that
gave rise to the resolution providing for the existence of a Potential
Change in Control have expired or no longer exist.
2.10 "Severance Incentive" means the greater of (i) the target annual
incentive under an Incentive Plan applicable to the Executive for the
Performance Period in which the Termination Date occurs, or (ii) the average of
the actual annual incentives paid (or payable, to the extent not previously
paid) to the Executive under the applicable Incentive Plan for each of the two
calendar years preceding the calendar year in which the Termination Date occurs.
2.11 "Severance Period" means the period beginning on the Executive's
Termination Date and ending on the third anniversary thereof; provided, however,
that no Severance Period will occur unless the Executive's Termination Date
occurs under circumstances described in Section 5.1 (relating to termination by
the Executive for Good Reason or by the Company and Nicor Gas other than for
Cause or Permanent Disability).
2.12 "Subsidiary" shall mean any corporation, partnership, joint venture
or other entity during any period in which at least a fifty percent interest in
such entity is owned, directly or indirectly, by the Company (or a successor to
the Company).
2.13 "Termination Date" means the first day on or after which the
Executive is not employed by the Company or Nicor Gas; provided, however, that
(a) if the Company and Nicor Gas terminate the Executive's employment other than
for Cause or Disability (as defined in Section 4.1.2), then the Termination Date
shall be the date of receipt of the Notice of Termination and (b) if the
Executive's employment is terminated by reason of death or Disability, then the
Termination Date shall be the date of death of the Executive or the Disability
Effective Date (as defined in Section 4.1.1), as the case may be.
2.14 "Welfare Plans" shall have the meaning set forth in
Section 3.2.4.
ARTICLE III
TERMS OF EMPLOYMENT
3.1 Position and Duties.
-------------------
3.1.1The Company hereby agrees to cause the Company and/or Nicor Gas
to continue the Executive's employment during the Employment Period and,
subject to Article IV of this Agreement, the Executive agrees to remain in
the employ of the Company and Nicor Gas, as applicable, subject to the
terms and conditions hereof. During the Employment Period, (i) the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those
held, exercised and assigned to the Executive at any time during the
90-day period immediately preceding the Effective Date, and (ii) the
Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Effective Date or any
office or location less than 25 miles from such location.
3.1.2During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and Nicor Gas, as
applicable, and, to the extent necessary to discharge the responsibilities
assigned to the Executive hereunder, to use the Executive's reasonable
best efforts to perform faithfully and efficiently such responsibilities.
During the Employment Period it shall not be a violation of this Agreement
for the Executive (i) to serve on corporate, civic or charitable boards or
committees, (ii) to deliver lectures, fulfill speaking engagements or
teach at educational institutions and (iii) to manage personal
investments, to the extent that such other activities do not, in the
reasonable judgment of the Chief Executive Officer of the Company (the
"CEO"), inhibit or prohibit the performance of the Executive's duties
under this Agreement, or conflict in any material way with the business of
the Company or any Subsidiary; provided, however, that the Executive shall
not serve on the board of any business, or hold any other position with
any business, without the consent of the CEO.
<PAGE>
3.2 Compensation.
3.2.1Base Salary. During the Employment Period, the Executive shall
receive an annual base salary ("Annual Base Salary"), which shall be paid
at an annual rate at least equal to twelve times the highest monthly base
salary paid or payable, including any base salary which has been earned
but deferred, to the Executive by the Company in respect of the
twelve-month period immediately preceding the month in which the Effective
Date occurs. During the Employment Period, the Annual Base Salary shall be
reviewed no more than twelve months after the last salary increase awarded
to the Executive prior to the Effective Date and, thereafter, at least
annually, and shall be increased at any time and from time to time as
shall be substantially consistent with increases in base salary awarded to
other senior executives of the Company. Annual Base Salary shall not be
reduced after any such increase unless such reduction is part of a policy,
program or arrangement applicable to senior executives of the Company and
of any successor entity, and the term Annual Base Salary as used in this
Agreement shall refer to Annual Base Salary as so increased. Any increase
in Annual Base Salary shall not limit or reduce any other obligation of
the Company to the Executive under this Agreement.
3.2.2Annual Incentive. In addition to Annual Base Salary, the Company
shall pay or cause to be paid to the Executive an incentive award (the
"Annual Incentive") for each Performance Period or portion thereof which
falls within the Employment Period. "Performance Period" means each period
of time designated in accordance with any annual incentive award
arrangement ("Incentive Plan") which is based upon performance and
approved by the Board or any committee of the Board, or in the absence of
any Incentive Plan or any such designated period of time, Performance
Period shall mean each calendar year. The Executive's target and maximum
Annual Incentive with respect to any Performance Period shall not be less
than the target and maximum annual incentive award payable with respect to
the Executive under the Company's annual incentive program as in effect
immediately preceding the Effective Date.
3.2.3Incentive, Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all incentive,
savings and retirement plans, practices, policies and programs ("Plans")
applicable generally to other senior executives of the Company, but in no
event shall such Plans provide the Executive with incentive opportunities
(measured with respect to long-term and special incentives, to the extent,
if any, that such distinctions are applicable) or savings and retirement
benefits which are less favorable, in the aggregate, than the greater of
(i) those provided by the Company for the Executive under such Plans as in
effect at any time during the 90-day period immediately preceding the
Effective Date, or (ii) those provided generally at any time after the
Effective Date to other senior executives of the Company.
3.2.4Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs ("Welfare Plans") provided
by the Company (including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group life,
accidental death and travel accident insurance benefits), but in no event
shall such Welfare Plans provide the Executive with benefits which are
less favorable, in the aggregate, than the greater of (i) those provided
by the Company for the Executive under such Welfare Plans as were in
effect at any time during the 90-day period immediately preceding the
Effective Date, or (ii) those provided generally at any time after the
Effective Date to other senior executives of the Company.
3.2.5Other Employee Benefits. During the Employment Period, the
Executive shall be entitled to other employee benefits and perquisites in
accordance with the most favorable plans, practices, programs and policies
of the Company, as in effect with respect to the Executive at any time
during the 90-day period immediately preceding the Effective Date, or if
more favorable, as in effect generally with respect to other senior
executives of the Company.
3.2.6Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the policies, practices and
procedures of the Company as in effect with respect to the Executive at
any time during the 90-day period immediately preceding the Effective
Date, or if more favorable, as in effect generally with respect to other
senior executives of the Company.
3.2.7Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial
and other assistance, as in effect with respect to the Executive at any
time during the 90-day period immediately preceding the Effective Date, or
if more favorable, as provided generally with respect to other senior
executives of the Company.
3.2.8Paid Time Off. During the Employment Period, the Executive shall
be entitled to paid time off in accordance with the plans, policies,
programs and practices of the Company as in effect with respect to the
Executive at any time during the 90-day period immediately preceding the
Effective Date, or if more favorable, as provided generally with respect
to other senior executives of the Company.
3.2.9Subsidiaries. To the extent that immediately prior to the
Effective Date, the Executive has been on the payroll of, and participated
in the incentive or employee benefit plans of, a Subsidiary of the
Company, the references to the Company contained in Sections 3.2.1 through
3.2.8 and the other sections of this Agreement referring to benefits to
which the Executive may be entitled shall be read to refer to such
Subsidiary.
<PAGE>
ARTICLE IV
TERMINATION OF EMPLOYMENT
4.1 Disability.
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4.1.1During the Agreement Term, the Company and Nicor Gas may
terminate the Executive's employment upon the Executive's Permanent
Disability (as defined in Section 4.1.2) by giving the Executive or his
legal representative, as applicable, (1) written notice in accordance with
Section 11.8 of the Company's or Nicor Gas', as applicable, intention to
terminate the Executive's employment pursuant to this section, and (2) a
certification of the Executive's Permanent Disability by a physician
selected by the Company or Nicor Gas or its insurers and reasonably
acceptable to the Executive or the Executive's legal representative. The
Executive's employment shall terminate effective on the 30th day (the
"Permanent Disability Effective Date") after the Executive's receipt of
such notice unless, before the Permanent Disability Effective Date, the
Executive shall have resumed the full-time performance of the Executive's
duties. During the period in which the Executive has a Disability, the
Company or Nicor Gas, as applicable, may appoint a temporary replacement
to assume the Executive's responsibilities.
4.1.2The Executive shall be considered to have a "Permanent
Disability" during any period in which he has a Disability (as defined
below); provided, however, that the Executive shall not be considered to
have "Permanent Disability" until (i) for a period of 180 consecutive
days, the Executive, as a result of a Disability, is incapable, after
reasonable accommodation, of performing his duties under this Agreement on
a full-time basis; (ii) such Disability is reasonably expected to continue
for at least another 90 days; and (iii) at the Executive's Termination
Date, he is eligible for income replacement benefits under the Company's
or Nicor Gas' long-term disability plan. The Executive shall be considered
to have a "Disability" during any period in which he has a physical or
mental disability which renders him incapable, after reasonable
accommodation, of performing his duties under this Agreement.
4.2 Death. The Executive's employment shall terminate automatically upon
the Executive's death during the Agreement Term.
4.3 Cause. The Company or Nicor Gas, as applicable, may terminate the
Executive's employment during the Employment Period for Cause. For purposes of
this Agreement, "Cause" means:
4.3.1the Executive's willful commission of acts or omissions which
have, have had, or are likely to have a material adverse effect on the
business, operations, financial condition or reputation of the Company or
Nicor Gas;
4.3.2the Executive's conviction (including a plea of guilty or nolo
contendere) of a felony or any crime of fraud, theft, dishonesty or moral
turpitude; or
4.3.3the Executive's material violation of any statutory or common
law duty of loyalty to the Company or Nicor Gas.
For purposes of this Agreement, no act, or failure to act, on the part of
the Executive shall be considered "willful" unless it is done, or omitted
to be done, by the Executive in bad faith or without reasonable belief
that the Executive's action or omission was in the best interests of the
Company or Nicor Gas. Any act, or failure to act, pursuant to direction
provided by the person to whom the Executive reports, or provided by a
resolution duly adopted by the Board, or pursuant to advice of counsel for
the Company or Nicor Gas, shall be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the best
interests of the Company or Nicor Gas. The cessation of employment of the
Executive shall not be deemed to be for Cause unless and until there shall
have been delivered to the Executive a copy of a resolution duly adopted
by the affirmative vote of not less than 60% of the entire membership of
the Board at a meeting of such Board called and held for such purpose
(after reasonable notice is provided to the Executive and the Executive is
given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the
Executive has engaged in conduct described in this Section 4.3 and
specifying the particulars thereof in detail.
4.4 Good Reason. During the Employment Period, the Executive's employment
may be terminated by the Executive for Good Reason. For purposes of this
Agreement, "Good Reason" means any material breach of this Agreement by the
Company or Nicor Gas, including:
4.4.1the failure to maintain the Executive in the office or position,
or in a substantially equivalent office or position, held by the Executive
immediately prior to the Change in Control;
4.4.2a material adverse alteration in the nature or
scope of the Executive's position, duties, functions,
responsibilities or authority;
4.4.3a material reduction of the Executive's salary,
incentive compensation or benefits;
4.4.4the failure of any successor to the Company to
assume this Agreement, or a material breach of the Agreement
by the Company or its successor;
4.4.5a relocation of more than 25 miles of (i) the Executive's
principal workplace, or (ii) the principal offices of the Company or Nicor
Gas, as applicable, (if such offices are the Executive's principal
workplace), in each case without the consent of the Executive;
4.4.6the Company or Nicor Gas, as applicable, requiring the Executive
to engage in travel that is materially greater than the Executive's travel
obligations during the one-year period immediately prior to the Change in
Control; or
4.4.7any failure by the Company or Nicor Gas, as applicable, to
comply with any of the provisions of Section 3.2 of this Agreement, other
than an isolated, insubstantial and inadvertent failure not occurring in
bad faith and which is remedied by the Company or Nicor Gas, as
applicable, promptly after receipt of notice thereof given by the
Executive;
provided, however, that an act or omission of the Company or Nicor Gas, as
applicable, shall not constitute Good Reason: (i) unless the Executive gives the
Company or Nicor Gas, as applicable, written notice of such act or omission and
the Company or Nicor Gas, as applicable, fails to cure such act or omission
within the 30-day period after such notice, or (ii) if the Executive first
acquired knowledge of such act or omission more than 6 months before the
Executive gives the Company or Nicor Gas, as applicable, such notice, or (iii)
if the Executive has consented in writing to such act or omission in a document
that makes specific reference to this Section 4.4.
4.5 Without Cause During a Potential Change in Control. If the Executive's
employment is terminated by the Company and Nicor Gas, as applicable, without
Cause during a Potential Change in Control, and such date of termination occurs
not more than 180 days prior to the occurrence of a Change in Control and the
Executive establishes by reasonable evidence that such termination of employment
was materially connected with and in anticipation of the Change in Control, then
the Executive shall be entitled to receive the benefits that would have been
provided under Section 5.1, determined as though:
4.5.1the Executive were rehired by the Company and Nicor Gas, as
applicable, immediately prior to the Change in Control at the salary rate
equal to the Executive's highest salary rate during the one-year period
prior to the date of the Change in Control, and with other Company and
Nicor Gas compensation and benefit arrangements comparable to those
provided to comparable executives of the Company and Nicor Gas;
4.5.2the Executive's employment were terminated by the Company and
Nicor Gas without Cause immediately after the Change in Control; and
4.5.3this Agreement were in full force and effect at the time of the
Change in Control, and at the time of the Executive's deemed termination
of employment.
4.6 Right of Resignation and Termination. This Agreement does not
constitute a guarantee of continued employment at any time, but instead provides
for certain rights and benefits for the Executive during his employment
following the occurrence of a Change in Control, and in the event his employment
with the Company and Nicor Gas, as applicable, terminates under the
circumstances described herein. The Company and Nicor Gas, as applicable, may
terminate the employment of the Executive at any time for any reason, without
breach of this Agreement, subject to its obligations set forth in Article V and
elsewhere in this Agreement. The Executive may resign from the Company and Nicor
Gas, as applicable, for Good Reason, or for any other reason, without breach of
this Agreement, subject to the Executive's obligations set forth in this
Agreement; provided that, in the event of a resignation without Good Reason, the
Executive shall provide at least four weeks advance notice of such resignation
to the Company and Nicor Gas, as applicable. Notwithstanding the foregoing
provisions in this Section 4.6, the Company and Nicor Gas, as applicable, may
suspend the Executive from performing his duties under this Agreement following
the delivery of a Notice of Termination by the Executive without Good Reason;
provided, however, that during the period of suspension (which shall end on the
Termination Date), the Executive shall continue to be treated as employed by the
Company and Nicor Gas, as applicable, for other purposes, and his rights to
compensation or benefits shall not be reduced by reason of the suspension.
ARTICLE V
OBLIGATIONS OF THE COMPANY UPON TERMINATION
5.1 If by the Executive for Good Reason or by the Company and Nicor Gas,
as Applicable, Other Than for Cause or Permanent Disability. If, during the
Employment Period, the Company and Nicor Gas, as applicable, shall terminate the
Executive's employment other than for Cause or Permanent Disability, or if the
Executive shall terminate employment for Good Reason, the Company's and Nicor
Gas' obligations to the Executive shall be as set forth in this Section 5.1. As
a precondition to fulfilling such obligations, the Company shall require the
Executive to execute and deliver a release prepared by the Company and providing
for the Executive's release of any and all claims against the Company and its
Subsidiaries (and those acting on behalf of them) that may have arisen on or
before the date of the release, which release shall contain such other
reasonable and customary terms as are specified by the Company. Notwithstanding
any other provision of this section to the contrary, to the extent any portion
of such release is subject to the seven-day revocation period prescribed by the
Age Discrimination in Employment Act, as amended, or to any similar revocation
period in effect on the Termination Date, no payment shall be due under this
Section 5.1 until such revocation period has expired without such revocation
occurring.
5.1.1The Company shall, within five business days of such termination
of employment, pay the Executive a cash payment equal to the sum of the
following amounts:
5.1.1.1 to the extent not previously paid, the
Annual Base Salary and any accrued paid time off
through the Termination Date;
5.1.1.2 an amount equal to the product of (i) the Annual
Incentive (as defined in Section 3.2.2) at target for any Performance
Period in which the Termination Date occurs multiplied by (ii) a
fraction, the numerator of which is the number of days the Executive
was actually employed by the Company during such Performance Period,
and the denominator of which is the number of days in the Performance
Period; or, if greater, the amount of any Annual Incentive otherwise
payable to the Executive with respect to a Performance Period in
which the Termination Date occurs, which payment shall be in full
settlement of Annual Incentive amounts due with respect to any such
Performance Period; and
5.1.1.3 all amounts previously deferred by or accrued to the
benefit of the Executive under any nonqualified deferred compensation
plan sponsored by the Company (including, without limitation, any
vested amounts deferred under incentive plans), together with any
accrued earnings thereon, and not yet paid by the Company; and
5.1.1.4 an amount equal to the product of (A) three (3)
multiplied by (B) the sum of (i) the Executive's Annual Base Salary,
and (ii) the Severance Incentive.
5.1.2For purposes of each of the Executive's stock options granted
under the Company's Long Term Incentive Plan (the "LTIP"), any successor
plan, or otherwise, that is or becomes exercisable on the Termination
Date, the Executive's termination of employment shall be disregarded, and
each such option shall continue to be exercisable as though the
Executive's employment had continued through the last day on which such
option would be exercisable in the absence of such employment termination
(such earlier date being referred to herein as the "Applicable Expiration
Date"). This Section 5.1.2 shall be applicable notwithstanding any term of
any plan, arrangement, or agreement providing for early expiration of the
option because of the Executive's termination of employment, except for an
amendment adopted in accordance with Section 11.7 of this Agreement and
that by its specific terms amends this Agreement.
5.1.3On the Termination Date (i) the Executive shall become fully
vested in, and may thereupon and until the Applicable Expiration Date of
such stock incentive awards exercise in whole or in part, any and all
stock incentive awards granted to the Executive under the LTIP, any
successor plan or otherwise which have not become exercisable as of the
Termination Date; (ii) all dividend performance units previously awarded
to the Executive shall become fully vested, and a prorated calculation of
the target value of all such units shall be done as of the Termination
Date and full payment of such prorated target value shall be made by the
Company within 30 days after the Termination Date; and (iii) the Executive
shall become fully vested at the prorated target level in any other cash
incentive awards granted for the performance period in which the
Termination Date occurs under the LTIP, a successor plan or otherwise
which have not, as of the Termination Date, become fully vested.
5.1.4All forfeiture conditions that as of the Termination Date are
applicable to any deferred stock unit, restricted stock or restricted
share units awarded to the Executive by the Company pursuant to the LTIP,
a successor plan or otherwise shall lapse immediately (to the extent such
awards are outstanding immediately prior to the Termination Date).
5.1.5During the Severance Period (or until such later date as any
Welfare Plan of the Company may specify), the Company shall continue to
provide to the Executive and the Executive's family welfare benefits
(including, without limitation, medical, prescription, dental, disability,
individual life and group life insurance benefits) which are at least as
favorable as those provided under the most favorable Welfare Plans of the
Company applicable (i) with respect to the Executive and his family during
the 90-day period immediately preceding the Termination Date, or (ii) with
respect to other senior executives and their families during the Severance
Period. In determining benefits under such Welfare Plans, the Executive's
annual compensation attributable to base salary and incentives for any
plan year or calendar year, as applicable, shall be deemed to be not less
than the Executive's Annual Base Salary and Target Annual Incentive. The
cost of the welfare benefits provided under this Section 5.1.5 shall not
exceed the cost of such benefits to the Executive immediately before the
Termination Date or, if less, the Effective Date. Notwithstanding the
foregoing, if the Executive obtains comparable coverage under any Welfare
Plans sponsored by another employer, then the amount of coverage required
to be provided by the Company hereunder shall be reduced by the amount of
coverage provided by such other employer's Welfare Plans. The Executive's
rights under this Section shall be in addition to and not in lieu of any
post-termination continuation coverage or conversion rights the Executive
may have pursuant to applicable law, including, without limitation,
continuation coverage required by Section 4980B of the Code. For purposes
of determining eligibility for (but not the time of commencement of)
retiree benefits under any Welfare Plans of the Company, the Executive
shall be considered (i) to have remained employed until the last day of
the Severance Period and to have retired on the last day of such period,
and (ii) to have attained the age the Executive would have attained on the
last day of the Severance Period.
5.1.6If the Executive participates in the Company's nonqualified
supplemental executive retirement plan ("SERP"), the amount payable under
subsection 5.1.1.4 of this Agreement shall be taken into account for
purposes of determining the amount of benefits to which the Executive is
entitled under the SERP; provided that such amount shall be taken into
account as though it was earned equally over the Severance Period, and
further provided that the Executive shall be deemed to have attained the
age he or she would have attained as of the last day of the Severance
Period, and completed the number of years of service he or she would have
completed as of the last day of the Severance Period. The Severance Period
shall be taken into account for purposes of determining the amount of and
eligibility to begin to receive benefits under the SERP.
5.1.7On the Termination Date (i) the Executive shall become fully
vested in all contributions made by the Company on behalf of the Executive
under the Company's Savings Investment Plan (the "SIP") or any
supplemental or successor plan, if applicable, and (ii) the Company shall
immediately make an additional contribution to the SIP (or, if such
contribution is not permitted under the terms of the SIP, to a
non-qualified plan providing benefits comparable to the benefits provided
under the SIP) or any supplemental or successor plan, if applicable, equal
to the aggregate maximum matching contributions which the Company would
have made on behalf of the Executive to the SIP or any supplemental or
successor plan, if applicable, for the Severance Period, calculated as if
the amount payable under subsection 5.1.1.4 of this Agreement had been
earned equally over the Severance Period and the Executive had made the
maximum allowable voluntary contributions to the SIP or any supplemental
or successor plan, if applicable. In addition, if the Executive is not
eligible to participate in the Company's defined benefit retirement plan,
the Company shall also contribute to the SIP or any supplemental or
successor plan, if applicable, on the Termination Date an amount equal to
the aggregate additional "retirement growth" contributions which the
Company would have made on behalf of the Executive for the Severance
Period if the amount payable under subsection 5.1.1.4 of this Agreement
had been earned equally over the Severance Period.
5.1.8The Company shall, at its sole expense, as incurred, pay on
behalf of the Executive all fees and costs charged by a nationally
recognized outplacement firm selected by the Company (subject to approval
by the Executive, which shall not be withheld unreasonably) to provide
outplacement service.
5.2 If by the Company and Nicor Gas for Cause. If the Company and Nicor
Gas, as applicable, terminates the Executive's employment for Cause during the
Employment Period, this Agreement shall terminate without further obligation by
the Company and Nicor Gas, as applicable, to the Executive, other than the
obligation immediately to pay the Executive in cash the Executive's Annual Base
Salary through the Termination Date, plus any accrued paid time off, in each
case to the extent not previously paid.
5.3 If by the Executive Other Than for Good Reason. If the Executive
terminates employment during the Employment Period other than for Good Reason
(including, but not by way of limitation, voluntary retirement other than for
Good Reason), and other than for Disability or death, this Agreement shall
terminate without further obligation by the Executive or by the Company, other
than the obligation of the Company immediately to pay the Executive in cash the
Executive's Annual Base Salary through the Termination Date, plus any accrued
paid time off, in each case to the extent not previously paid.
5.4 If by the Company and Nicor Gas, as applicable, for Permanent
Disability. If the Company and Nicor Gas, as applicable, and Nicor Gas, as
applicable, terminates the Executive's employment by reason of the Executive's
Permanent Disability during the Employment Period, this Agreement shall
terminate without further obligation to the Executive, other than:
5.4.1the Company's obligation immediately to pay the Executive in
cash all amounts specified in Sections 5.1.1.1, 5.1.1.2 and 5.1.1.3, in
each case, to the extent unpaid as of the Termination Date (such amounts
collectively, the "Accrued Obligations"), and
5.4.2the Executive's right after the Permanent Disability Effective
Date to receive disability and other benefits at least equal to the
greater of (i) those provided under the most favorable disability Plans
applicable to disabled senior executives of the Company in effect
immediately before the Termination Date, or (ii) those provided under the
most favorable disability Plans of the Company in effect at any time
during the 90-day period immediately before the Effective Date.
5.5 If upon Death. If the Executive's employment is terminated by reason
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligation to the Executive's legal representatives
under this Agreement, other than the obligation immediately to pay the
Executive's estate or beneficiary in cash all Accrued Obligations.
Notwithstanding anything in this Agreement to the contrary, the Executive's
family shall be entitled to receive benefits at least equal to the most
favorable benefits provided under Plans of the Company to the surviving families
of senior executives of the Company, but in no event shall such Plans provide
benefits which in each case are less favorable, in the aggregate, than the most
favorable of those provided by the Company to the Executive under such Plans in
effect at any time during the 90-day period immediately before the Effective
Date.
ARTICLE VI
CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY
6.1 Gross-up for Certain Taxes.
--------------------------
6.1.1If it is determined by the Company's independent auditors that
any benefit received or deemed received by the Executive from the Company
pursuant to this Agreement or otherwise, whether or not in connection with
a Change in Control (such monetary or other benefits collectively, the
"Potential Parachute Payments") is or will become subject to any excise
tax under Section 4999 of the Code or any similar tax payable under any
United States federal, state, local or other law (such excise tax and all
such similar taxes collectively, "Excise Taxes"), then the Company shall,
subject to Sections 6.6 and 6.7, within five business days after such
determination, pay the Executive an amount (the "Gross-up Payment") equal
to the product of:
(a) the amount of such Excise Taxes multiplied by
(b) the Gross-up Multiple (as defined in Section 6.4). The
Gross-up Payment is intended to compensate the Executive
for all Excise Taxes payable by the Executive with respect
to the Potential Parachute Payments and any federal, state,
local or other income or other taxes or Excise Taxes
payable by the Executive with respect to the Gross-up
Payment.
6.1.2The determination of the Company's independent auditors
described in Section 6.1.1, including the detailed calculations of the
amounts of the Potential Parachute Payments, Excise Taxes and Gross-up
Payment and the assumptions relating thereto, shall be set forth in a
written certificate of such auditors (the "Company Certificate") delivered
to the Executive. The Executive or the Company may at any time request the
preparation and delivery to the Executive of a Company Certificate. The
Company shall cause the Company Certificate to be delivered to the
Executive as soon as reasonably possible after such request.
6.2 Determination by the Executive.
------------------------------
6.2.1If (i) the Company shall fail to deliver a Company Certificate
to the Executive within 30 days after its receipt of his written request
therefor, or (ii) at any time after the Executive's receipt of a Company
Certificate, the Executive disputes either (x) the amount of the Gross-up
Payment set forth therein, or (y) the determination set forth therein to
the effect that no Gross-up Payment is due (whether by reason of Section
6.7 or otherwise), then the Executive may elect to require the Company to
pay a Gross-up Payment in the amount determined by the Executive as set
forth in an Executive Counsel Opinion (as defined in Section 6.5). Any
such demand by the Executive shall be made by delivery to the Company of a
written notice which specifies the Gross-up Payment determined by the
Executive (together with the detailed calculations of the amounts of
Potential Parachute Payments, Excise Taxes and Gross-up Payment and the
assumptions relating thereto) and an Executive Counsel Opinion regarding
such Gross-up Payment (such written notice and opinion collectively, the
"Executive's Determination"). Within 30 days after delivery of an
Executive's Determination to the Company, the Company shall either (i) pay
the Executive the Gross-up Payment set forth in Executive's Determination
(less the portion thereof, if any, previously paid to Executive by the
Company) or (ii) deliver to the Executive a Company Certificate and a
Company Counsel Opinion (as defined in Section 6.5), and pay the Executive
the Gross-up Payment specified in such Company Certificate. If for any
reason the Company fails to comply with the preceding sentence, the
Gross-up Payment specified in the Executive's Determination shall be
controlling for all purposes.
6.2.2If the Executive does not request a Company Certificate, and the
Company does not deliver a Company Certificate to the Executive, then (i)
the Company shall, for purposes of Section 6.7, be deemed to have
determined that no Gross-up Payment is due, and (ii) the Executive shall
not pay any Excise Taxes in respect of Potential Parachute Payments,
except in accordance with Sections 6.6.1 or 6.6.4.
6.3 Additional Gross-up Amounts. If for any reason it is later determined
(whether pursuant to the subsequently-enacted provisions of the Code, final
regulations or published rulings of the IRS, a final judgment of a court of
competent jurisdiction, a determination of the Company's independent auditors
set forth in a Company Certificate or, subject to the last two sentences of
Section 6.2.1, an Executive's Determination) that the amount of Excise Taxes
payable by the Executive is greater than the amount determined by the Company or
the Executive pursuant to Section 6.1 or 6.2, as applicable, then the Company
shall, subject to Sections 6.6 and 6.7, pay the Executive an amount (which shall
also be deemed a Gross-up Payment) equal to the product of:
(a) the sum of (1) such additional Excise Taxes and (2) any
interest, fines, penalties, expenses or other costs incurred by
the Executive as a result of having taken a position in
accordance with determination made pursuant to Section 6.1 or
6.2, as applicable,
multiplied by
(b) the Gross-up Multiple.
6.4 Gross-up Multiple. The Gross-up Multiple shall equal a fraction, the
numerator of which is one (1.0), and the denominator of which is one (1.0) minus
the lesser of (i) the sum, expressed as a decimal fraction, of the effective
marginal tax rates of all federal, state, local and other income and other taxes
and any Excise Taxes applicable to the Gross-up Payment; or (ii) 0.80, it being
intended that the Gross-up Multiple shall in no event exceed five (5.0). (If
different rates of tax are applicable to various portions of a Gross-up Payment,
the weighted average of such rates shall be used.)
6.5 Opinion of Counsel. "Executive Counsel Opinion" means an opinion of
nationally-recognized executive compensation counsel to the effect (i) that the
amount of the Gross-up Payment determined by the Executive pursuant to Section
6.2 is the amount that a court of competent jurisdiction, based on a final
judgment not subject to further appeal, is most likely to decide to have been
calculated in accordance with this Article and applicable law and (ii) if the
Company has previously delivered a Company Certificate to the Executive, that
there is no reasonable basis or no substantial authority for the calculation of
the Gross-up Payment set forth in the Company Certificate. "Company Counsel
Opinion" means an opinion of nationally-recognized executive compensation
counsel to the effect that (i) the amount of the Gross-up Payment set forth in
the Company Certificate is the amount that a court of competent jurisdiction,
based on a final judgment not subject to further appeal, is most likely to
decide to have been calculated in accordance with this Article and applicable
law and (ii) for purposes of Section 6662 of the Code, the Executive has
substantial authority to report on his federal income tax return the amount of
Excise Taxes set forth in the Company Certificate.
6.6 Amount Increased or Contested.
-----------------------------
6.6.1The Executive shall notify the Company in writing (an
"Executive's Notice") of any claim by the IRS or other taxing authority
(an "IRS Claim") that, if successful, would require the payment by the
Executive of Excise Taxes in respect of Potential Parachute Payments in an
amount in excess of the amount of such Excise Taxes determined in
accordance with Section 6.1 or 6.2, as applicable. Such Executive's Notice
shall include the nature and amount of such IRS Claim, the date on which
such IRS Claim is due to be paid (the "IRS Claim Deadline"), and a copy of
all notices and other documents or correspondence received by the
Executive in respect of such IRS Claim. The Executive shall give the
Executive's Notice as soon as practicable, but no later than the earlier
of (i) ten business days after the Executive first obtains actual
knowledge of such IRS Claim or (ii) five business days after the IRS Claim
Deadline; provided, however, that the Executive's failure to give such
notice shall affect the Company's obligations under this Article only to
the extent that the Company is actually prejudiced by such failure. If at
least one business day before the IRS Claim Deadline the Company shall:
6.6.1.1 deliver to the Executive a Company Certificate to the
effect that the IRS Claim has been reviewed by the Company's
independent auditors and, notwithstanding the IRS Claim, the amount
of Excise Taxes, interest and penalties payable by the Executive is
either zero or an amount less than the amount specified in the IRS
Claim,
6.6.1.2 pay to the Executive an amount (which shall also be
deemed a Gross-up Payment) equal to the positive difference between
(x) the product of the amount of Excise Taxes, interest and penalties
specified in the Company Certificate, if any, multiplied by the
Gross-up Multiple, and (y) the portion of such product, if any,
previously paid to the Executive by the Company, and
6.6.1.3 direct the Executive pursuant to Section 6.6.4 to
contest the balance of the IRS Claim, then the Executive shall pay
only the amount, if any, of Excise Taxes, interest and penalties
specified in the Company Certificate. In no event shall the Executive
pay an IRS Claim earlier than 30 days after having given an
Executive's Notice to the Company (or, if sooner, the IRS Claim
Deadline).
6.6.2At any time after the payment by the Executive of any amount of
Excise Taxes or related interest or penalties in respect of Potential
Parachute Payments (whether or not such amount was based upon a Company
Certificate or an Executive's Determination), the Company may in its
discretion require the Executive to pursue a claim for a refund (a "Refund
Claim") of all or any portion of such Excise Taxes, interest or penalties
as the Company may specify by written notice to the Executive.
6.6.3If the Company notifies the Executive in writing that the
Company desires the Executive to contest an IRS Claim or to pursue a
Refund Claim, the Executive shall:
6.6.3.1 give the Company all information that it reasonably
requests in writing from time to time relating to such IRS Claim or
Refund Claim, as applicable,
6.6.3.2 take such action in connection with such IRS Claim or
Refund Claim, as applicable, as the Company reasonably requests in
writing from time to time, including accepting legal representation
with respect thereto by an attorney selected by the Company, subject
to the approval of the Executive (which approval shall not be
unreasonably withheld or delayed),
6.6.3.3 cooperate with the Company in good faith to contest such
IRS Claim or pursue such Refund Claim, as applicable,
6.6.3.4 permit the Company to participate in any
proceedings relating to such IRS Claim or Refund Claim,
as applicable, and
6.6.3.5 contest such IRS Claim or prosecute such Refund Claim,
as applicable, to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate
courts, as the Company may from time to time determine in its
discretion.
The Company shall control all proceedings in connection with such IRS
Claim or Refund Claim, as applicable, and in its discretion may cause
the Executive to pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the IRS or other taxing
authority in respect of such IRS Claim or Refund Claim, as
applicable; provided that (i) any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive relating to the IRS Claim is limited solely to such IRS
Claim, (ii) the Company's control of the IRS Claim or Refund Claim,
as applicable, shall be limited to issues with respect to which a
Gross-up Payment would be payable, and (iii) the Executive shall be
entitled to settle or contest, as the case may be, any other issue
raised by the IRS or other taxing authority.
6.6.4The Company may at any time in its discretion direct the
Executive to (i) contest the IRS Claim in any lawful manner or (ii) pay
the amount specified in an IRS Claim and pursue a Refund Claim; provided,
however, that if the Company directs the Executive to pay an IRS Claim and
pursue a Refund Claim, the Company shall advance the amount of such
payment to the Executive on an interest-free basis and shall indemnify the
Executive, on an after-tax basis, for any income or other applicable taxes
or Excise Tax, and any related interest or penalties imposed with respect
to such advance.
6.6.5The Company shall pay directly all legal, accounting and other
costs and expenses (including additional interest and penalties) incurred
by the Company or the Executive in connection with any IRS Claim or Refund
Claim, as applicable, and shall indemnify the Executive, on an after-tax
basis, for any income or other applicable taxes, Excise Tax and related
interest and penalties imposed on the Executive as a result of such
payment of costs and expenses.
6.7 Refunds. If, after the receipt by the Executive of any payment or
advance of Excise Taxes advanced by the Company pursuant to Section 6.6, the
Executive receives any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section 6.6)
promptly pay the Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by the Company pursuant to Section 6.6, a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such determination within 30 days after the
Company receives written notice of such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-up Payment
required to be paid. Any contest of a denial of refund shall be controlled by
Section 6.6.
ARTICLE VII
EXPENSES AND INTEREST
7.1 Legal Fees and Other Expenses.
-----------------------------
7.1.1If the Executive incurs legal fees or other expenses in an
effort to secure, preserve, establish entitlement to, or obtain benefits
under this Agreement (including, without limitation, the fees and other
expenses of the Executive's legal counsel in connection with the delivery
of the Executive Counsel opinion referred to in Section 6.5), the Company
shall, regardless of the outcome of such effort, promptly reimburse the
Executive on a current basis for such fees and expenses following the
Executive's written submission of a request for reimbursement together
with evidence that such fees and expenses were incurred.
7.1.2If the Executive does not prevail (after exhaustion of all
available judicial remedies) in respect of a claim by the Executive or by
the Company hereunder, and the Company establishes before a court of
competent jurisdiction, by clear and convincing evidence, that the
Executive had no reasonable basis for his claim hereunder, or for his
response to the Company's claim hereunder, and acted in bad faith, no
further reimbursement for legal fees and expenses shall be due to the
Executive in respect of such claim and the Executive shall refund any
amounts previously reimbursed hereunder with respect to such claim.
7.2 Interest. If the Company and Nicor Gas, as applicable, does not pay
any amount due to the Executive under this Agreement within three days after
such amount became due and owing, interest shall accrue on such amount from the
date it became due and owing until the date of payment at an annual rate equal
to 200 basis points above the base commercial lending rate published in The Wall
Street Journal in effect from time to time during the period of such nonpayment.
ARTICLE VIII
NO SET-OFF OR MITIGATION
8.1 No Set-off by Company. The Executive's right to receive when due the
payments and other benefits provided for under this Agreement is absolute,
unconditional and subject to no set-off, counterclaim or legal or equitable
defense. Any claim which the Company may have against the Executive, whether for
a breach of this Agreement or otherwise, shall be brought in a separate action
or proceeding and not as part of any action or proceeding brought by the
Executive to enforce any rights against the Company under this Agreement.
8.2 No Mitigation. The Executive shall not have any duty to mitigate the
amounts payable by the Company and Nicor Gas, as applicable, under this
Agreement by seeking new employment following termination. Except as
specifically otherwise provided in this Agreement, all amounts payable pursuant
to this Agreement shall be paid without reduction regardless of any amounts of
salary, compensation or other amounts which may be paid or payable to the
Executive as the result of the Executive's employment by another employer.
ARTICLE IX
NON-EXCLUSIVITY OF RIGHTS
9.1 Waiver of Other Severance Rights. Except as may be otherwise
specifically provided in an amendment of this Section 9.1 adopted in accordance
with Section 11.7 of this Agreement, the Executive's rights under Section 5.1 of
this Agreement shall be in lieu of any benefits that may be otherwise payable to
or on behalf of the Executive pursuant to the terms of any severance pay
arrangement of the Company or any Subsidiary or any other, similar arrangement
of the Company or any Subsidiary providing benefits upon involuntary termination
of employment and shall also be in lieu of any benefits under the Nicor Inc.
Executive/Key Employee Severance Benefits Program (notwithstanding any provision
of that program to the contrary); provided, however, that this Section 9.1 shall
not affect the Executive's rights to receive any benefits with respect to a
termination of employment that occurs outside of the Employment Period.
9.2 Other Rights. Except as provided in Section 9.1, this Agreement shall
not prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plans provided by the Company or any of its
Subsidiaries and for which the Executive may qualify, nor shall this Agreement
limit or otherwise affect such rights as the Executive may have under any other
agreements with the Company or any of its Subsidiaries. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any plan
of the Company or any of its Subsidiaries and any other payment or benefit
required by law at or after the Termination Date shall be payable in accordance
with such Plan or applicable law except as expressly modified by this Agreement.
ARTICLE X
CONFIDENTIALITY
10.1 Confidentiality. The Executive acknowledges that it is the policy of
the Company and its Subsidiaries to maintain as secret and confidential all
valuable and unique information and techniques acquired, developed or used by
the Company and its Subsidiaries relating to their business, operations,
employees and customers, which gives the Company and its Subsidiaries a
competitive advantage in the transmission, distribution, marketing, or sale of
natural gas or in the energy services industry and other businesses in which the
Company and its Subsidiaries are engaged ("Confidential Information"). The
Executive recognizes that all such Confidential Information is the sole and
exclusive property of the Company and its Subsidiaries, and that disclosure of
Confidential Information would cause damage to the Company and its Subsidiaries.
The Executive agrees that, except as required by the duties of his employment
with the Company or its Subsidiaries and except in connection with enforcing the
Executive's rights under this Agreement or if compelled by a court or
governmental agency, he will not, without the consent of the Company,
disseminate or otherwise disclose any Confidential Information obtained during
his employment with the Company or its Subsidiaries until such time as such
information has been disclosed publicly by the Company or one of its
Subsidiaries, or with its consent, or is otherwise a matter of public knowledge
(unless the Executive has reason to know that such information became a matter
of public knowledge through an unauthorized disclosure).
10.2 Remedy. The Executive and the Company specifically agree that, in the
event that the Executive shall breach his obligations under this Article X, the
Company and its Subsidiaries will suffer irreparable injury and shall be
entitled to injunctive relief therefor, and shall not be precluded from pursuing
any and all remedies it may have at law or in equity for breach of such
obligations; provided, however, that such breach shall not in any manner or
degree whatsoever limit, reduce or otherwise affect the obligations of the
Company or Nicor Gas, as applicable, under this Agreement, and in no event shall
an asserted breach of the Executive's obligations under this Article X
constitute a basis for deferring or withholding any amounts otherwise payable to
the Executive under this Agreement.
ARTICLE XI
MISCELLANEOUS
11.1 No Assignability. This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
11.2 Successors. Before or upon the consummation of any Change in Control,
the Company shall obtain from each individual, group or entity, if any, that
becomes a successor of the Company by reason of the Change in Control, the
unconditional written agreement of such individual, group or entity to assume
this Agreement and to perform all of the obligations of the Company hereunder.
11.3 Payments to Beneficiary. If the Executive dies before receiving
amounts to which the Executive is entitled under this Agreement, such amounts
shall be paid in a lump sum to the beneficiary designated in writing by the
Executive, or if none is so designated, to the Executive's estate.
11.4 Nonalienation of Benefits. Benefits payable under this Agreement
shall not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, charge, garnishment, execution or levy of any
kind, either voluntary or involuntary, before actually being received by the
Executive, and any such attempt to dispose of any right to benefits payable
under this Agreement shall be void.
11.5 Severability. If any one or more articles, sections or other portions
of this Agreement are declared by any court or governmental authority to be
unlawful or invalid, such unlawfulness or invalidity shall not serve to
invalidate any article, section or other portion not so declared to be unlawful
or invalid. Any article, section or other portion so declared to be unlawful or
invalid shall be construed so as to effectuate the terms of such article,
section or other portion to the fullest extent possible while remaining lawful
and valid.
11.6 Arbitration. Any and all disputes between the parties hereto arising
out of this Agreement (other than disputes related to Article VI or to an
alleged breach of the covenant contained in Article X) shall be settled by
arbitration before an impartial arbitrator pursuant to the rules and regulations
of the American Arbitration Association (AAA) pertaining to the arbitration of
commercial disputes. Either party may invoke the right to arbitration. The
arbitrator shall be selected by means of the parties striking alternatively from
a panel of seven arbitrators supplied by the Chicago office of AAA. The
Arbitrator shall have the authority to interpret and apply the provisions of
this Agreement, consistent with Section 11.10 below. The decision of the
arbitrator shall be final and binding upon the parties. Judgment may be entered
on the award in any court of competent jurisdiction. The arbitrator's fees and
expenses shall be borne by the Company.
11.7 Amendments. This Agreement shall not be altered, amended or modified
except by written instrument executed by the Company and the Executive.
11.8 Notices. All notices and other communications under this Agreement
shall be in writing and delivered by hand, by a nationally-recognized commercial
delivery service, or by first-class registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
Russ M. Strobel
44 Woodley Road
Winnetka, IL 60093
If to the Company:
Nicor Inc.
1844 Ferry Road
Naperville, Illinois 60563-9600
Attn:Claudia J. Colalillo
or to such other address as either party shall have furnished to the other in
writing. Notice and communications shall be effective when actually received by
the addressee.
11.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.10Governing Law. This Agreement is intended to be interpreted and
construed in accordance with the laws of the State of Illinois, without regard
to its choice of law principles.
11.11Captions. The captions of this Agreement are not a
--------
part of the provisions hereof and shall have no force or effect.
11.12Number and Gender. Wherever from the context it appears appropriate,
each term stated in either the singular or plural shall include the singular and
the plural, and pronouns stated in either the masculine, the feminine or the
neuter gender shall include the masculine, feminine and neuter genders.
11.13Tax Withholding. The Company or Nicor Gas, as applicable, may
withhold from any amounts payable under this Agreement any federal, state or
local taxes that are required to be withheld pursuant to any applicable law or
regulation.
11.14No Waiver. A waiver of any provision of this Agreement shall not be
deemed a waiver of any other provision, and any waiver of any default as to any
such provision shall not be deemed a waiver of any later default as to that or
any other provision.
11.15Entire Agreement. This Agreement contains the entire understanding of
the Company, Nicor Gas and the Executive with respect to its subject matter.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement as of the date first above written.
-----------------------------
Russ M. Strobel
Nicor Inc.
By:
Chairman, President and CEO
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>5
<FILENAME>exh1032supplemental.txt
<DESCRIPTION>EXHIBIT 10.32 SUPPLEMENTAL RETIREMENT
<TEXT>
Nicor Inc.
Form 10-K
Exhibit 10.32
Supplemental Retirement Benefit Agreement
THIS AGREEMENT, dated as of this 1st day of January, 2001, (the
"Effective Date"), by and between NICOR Inc., an Illinois
corporation, (the "Company"), and Russ M. Strobel (the
"Executive"),
WITNESSETH THAT
WHEREAS, in consideration of services to be performed by the Executive for the
Company, the Company and the Executive wish to enter into this Agreement
relating to supplemental benefits to be provided to the Executive by the
Company;
NOW, THEREFORE, IT IS AGREED, by and between the Company and the Executive as
follows:
1. Retirement Income. Subject to the following provisions of this Agreement, the
Executive shall be entitled to an annual Retirement Benefit of $50,000
multiplied by the Vesting Percentage at the date payment commences. Payments
shall commence on the first day of the month next following the later of the
Executive's sixtieth birthday or Termination Date and shall be payable for
the Executive's life.
2. Vesting Percentage. The Vesting Percentage shall be
------------------
determined from the following schedule:
Completed Years of Vested
Continuous Service Percentage
Less than three
years Null
Three years 50 percent
Four years 75 percent
Five or more years 100 percent
Continuous Service shall commence on the Executive's date of hire by the
Company.
3. Default Form of Payment. Unless otherwise elected as provided in paragraph
(6), the Retirement Benefit shall be paid as an Actuarially Equivalent Single
Lump Sum. The Actuarial Equivalent Single Lump Sum shall be determined and
paid as soon as administratively feasible following the Termination Date, and
no further benefits will be provided under this Agreement.
4. Termination Date. The Executive's "Termination Date" is the
----------------
date on which his employment with the Company terminates for
any reason.
5. Actuarially Equivalent Single Lump Sum. The "Actuarially Equivalent Single
Lump Sum" shall be determined (i) as the actuarial equivalent of a single
life annuity equal to the Retirement Benefit, assuming payments would
commence on the first day of the month immediately following the later of the
Executive's sixtieth birthday or the Executive's Termination Date and would
be payable for the Executive's life. The Actuarially Equivalent Single Lump
Sum shall be determined as of the first day of the month following the
Termination Date using the lump sum factors under the Nicor Gas Retirement
Plan (the "Retirement Plan").
6. Optional Payment Forms. Notwithstanding the provisions of paragraph (3), the
Executive may elect payment of his Retirement Benefit in any form of payment
available under the Retirement Plan; provided, however, that any such
election or revocation of any such election shall be effective only to the
extent that it is made at least one year prior to the Termination Date. The
amount of the Optional Payment Form shall be the actuarial equivalent of the
Retirement Benefit, determined by applying the factors in use by the
Retirement Plan at the Termination Date.
7. Change of Control. If the Company becomes obligated to provide benefits under
Section 5.1 of the Change-in-Control Agreement between the Company and the
Executive dated December 20, 2000 (the "Change-in-Control Agreement"), as the
result of termination of employment by the Executive for Good Reason or by
the Company and Nicor Gas, as applicable, other than for Cause or Permanent
Disability (as these terms are defined in the Change-in-Control Agreement),
then the Severance Period defined under the Change-in-Control Agreement shall
be taken into account for purposes of determining the Vesting Percentage
under this agreement. The Retirement Benefit shall not otherwise be modified
by benefits provided under Section 5.1 of the Change-in-Control Agreement, or
the Severance Period under the Change-in-Control Agreement, notwithstanding
Section 5.1.6 of the Change-in-Control Agreement.
8. Permanent Disability. If the Executive's employment terminates as the result
of Permanent Disability as defined in the Change-in-Control Agreement, the
Permanent Disability Effective Date as defined in the Change-of-Control
Agreement shall be the Termination Date for all purposes under this
agreement, including determination of the Vesting Percentage.
9. Death. If the Termination Date occurs as the result of
-----
death while employed by the Company, no benefits shall be
payable under this Agreement.
10. Cause. If Termination Date occurs "for cause," as defined
------
in the Change-in-Control Agreement, while employed by the
Company, no benefits shall be payable under this Agreement.
11. Inclusion in Nicor Gas Supplementary Retirement Plan (the "SRET"). The
Executive shall be a Limited Participant in the SRET. The Benefits payable
under this Agreement shall be paid from the SRET. The benefits payable to the
Executive under the SRET shall be determined solely in accordance with, and
in all respects subject to and paid in accordance with, this Agreement.
12. Heirs and Successors. This Agreement shall be binding upon, and inure to the
benefit of, the heirs, executors and legal representatives of the Executive
and the Company and its successors and assigns, and upon any person
acquiring, whether by merger, consolidation, purchase of assets or otherwise,
all or substantially all of the Company's assets and business.
13. Benefit May Not Be Assigned or Alienated. The benefit
----------------------------------------
payable to any person under this Agreement may not be
voluntarily or involuntarily assigned or alienated.
14. Applicable Laws. This Agreement shall be interpreted and
---------------
administered in accordance with the laws of the State of
Illinois, without regard to its choice of law principles.
15. Entire Agreement and Amendment. This Agreement constitutes the entire
Agreement between the Executive and the Company with respect to supplemental
retirement benefits, and supersedes all prior agreements, verbal and written,
that may have been made by the parties hereto. This Agreement may be amended
or cancelled by mutual agreement of the parties hereto in writing without the
consent of any other person and, so long as the Executive lives, no person,
other than the parties hereto, shall have any rights under or interest in
this Agreement or the subject matter hereof.
16. Severability. If any one or more paragraphs or other portions of this
Agreement are declared by any court or governmental authority to be unlawful
or invalid, such unlawfulness or invalidity shall not serve to invalidate any
paragraph or other portion not so declared to be unlawful or invalid. Any
paragraph or other portion so declared to be unlawful or invalid shall be
construed so as to effectuate the terms of such paragraph or other portion to
the fullest extent possible while remaining lawful and valid.
17. Notices. All notices and other communications under this Agreement shall be
in writing and delivered by hand, by a nationally-recognized commercial
delivery service, or by first-class registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Russ M. Strobel
44 Woodley Road
Winnetka, IL 60093
If to the Company:
Nicor Inc.
1844 Ferry Road
Naperville, IL 60563-9600
Attn: Claudia J.Colalillo
18. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed as original, but
all of which together shall constitute one and the same
instrument.
19. Captions. The captions of this Agreement are not a part of
--------
the provisions hereof and shall have no force or effect.
20. Tax Withholding. The Company may withhold from any amounts
---------------
payable under this Agreement any federal, state, or local taxes
that are required to be withheld pursuant to any applicable law
or regulation.
21. No Waiver. A waiver of any provision of this Agreement
---------
shall not be deemed a waiver of any other provision, and any
waiver of any default as to any such provision shall not be
deemed a waiver of any later default as to that or any other
provision.
IN WITNESS WHEREOF, the Executive and the Company have executed this Agreement
as of the date first above written.
----------------------------
Russ M. Strobel
Nicor Inc.
By:_________________________
Chairman, President and CEO
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>6
<FILENAME>exh2301consent.txt
<DESCRIPTION>EXHIBIT 23.01 CONSENT OF ARTHUR ANDERSEN
<TEXT>
Nicor Inc.
Form 10-K
Exhibit 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our report, dated January 21, 2002,
included in this Form 10-K, into the company's previously filed
Form S-3 Registration Statement in connection with the Nicor
Automatic Dividend Reinvestment and Stock Purchase Plan (No.
33-56871), and Form S-8 Registration Statements in connection
with the Nicor Employee Stock Purchase Plan (No. 33-1732), the
Nicor Gas Savings Investment Plan (No. 33-56867), the Nicor Gas
Thrift Plan (No. 33-60689), the Birdsall Retirement Savings Plan
(No. 333-28579), the Nicor 1989 Long-Term Incentive Plan (No.
33-31029) and the Nicor 1997 Long-Term Incentive Plan (No.
333-28699).
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 8, 2002
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-24
<SEQUENCE>7
<FILENAME>exh2401powers.txt
<DESCRIPTION>EXHIBIT 24.01 POWER OF ATTORNEY
<TEXT>
Nicor Inc.
Form 10-K
Exhibit 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director, Officer, or Director and
Officer of Nicor Inc., an Illinois corporation, does hereby
constitute and appoint J. L. METZ and M. T. LORENZ, and each of
them, the undersigned's true and lawful attorneys and agents,
each with full power and authority (acting alone and without the
other) to execute in the name and on behalf of the undersigned as
such Director, Officer, or Director and Officer, the 2001 Annual
Report on Form 10-K (and such amendment or amendments thereto as
may be necessary) to be filed pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of
substitution and revocation in the premises; and hereby ratifying
and confirming all that such attorneys and agents, or any of
them, may do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney this
17th day of January, 2002.
/s/ ROBERT M. BEAVERS, JR.
-------------------------------
Robert M. Beavers, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director, Officer, or Director and
Officer of Nicor Inc., an Illinois corporation, does hereby
constitute and appoint J. L. METZ and M. T. LORENZ, and each of
them, the undersigned's true and lawful attorneys and agents,
each with full power and authority (acting alone and without the
other) to execute in the name and on behalf of the undersigned as
such Director, Officer, or Director and Officer, the 2001 Annual
Report on Form 10-K (and such amendment or amendments thereto as
may be necessary) to be filed pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of
substitution and revocation in the premises; and hereby ratifying
and confirming all that such attorneys and agents, or any of
them, may do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney this
17th day of January, 2002.
/s/ BRUCE P. BICKNER
--------------------------
Bruce P. Bickner
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director, Officer, or Director and
Officer of Nicor Inc., an Illinois corporation, does hereby
constitute and appoint J. L. METZ and M. T. LORENZ, and each of
them, the undersigned's true and lawful attorneys and agents,
each with full power and authority (acting alone and without the
other) to execute in the name and on behalf of the undersigned as
such Director, Officer, or Director and Officer, the 2001 Annual
Report on Form 10-K (and such amendment or amendments thereto as
may be necessary) to be filed pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of
substitution and revocation in the premises; and hereby ratifying
and confirming all that such attorneys and agents, or any of
them, may do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney this
17th day of January, 2002.
/s/ JOHN H. BIRDSALL, III
-------------------------------
John H. Birdsall, III
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director, Officer, or Director and
Officer of Nicor Inc., an Illinois corporation, does hereby
constitute and appoint J. L. METZ and M. T. LORENZ, and each of
them, the undersigned's true and lawful attorneys and agents,
each with full power and authority (acting alone and without the
other) to execute in the name and on behalf of the undersigned as
such Director, Officer, or Director and Officer, the 2001 Annual
Report on Form 10-K (and such amendment or amendments thereto as
may be necessary) to be filed pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of
substitution and revocation in the premises; and hereby ratifying
and confirming all that such attorneys and agents, or any of
them, may do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney this
17th day of January, 2002.
/s/ THOMAS A. DONAHOE
--------------------------
Thomas A. Donahoe
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director, Officer, or Director and
Officer of Nicor Inc., an Illinois corporation, does hereby
constitute and appoint J. L. METZ and M. T. LORENZ, and each of
them, the undersigned's true and lawful attorneys and agents,
each with full power and authority (acting alone and without the
other) to execute in the name and on behalf of the undersigned as
such Director, Officer, or Director and Officer, the 2001 Annual
Report on Form 10-K (and such amendment or amendments thereto as
may be necessary) to be filed pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of
substitution and revocation in the premises; and hereby ratifying
and confirming all that such attorneys and agents, or any of
them, may do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney this
17th day of January, 2002.
/s/ JOHN E. JONES
--------------------------
John E. Jones
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director, Officer, or Director and
Officer of Nicor Inc., an Illinois corporation, does hereby
constitute and appoint J. L. METZ and M. T. LORENZ, and each of
them, the undersigned's true and lawful attorneys and agents,
each with full power and authority (acting alone and without the
other) to execute in the name and on behalf of the undersigned as
such Director, Officer, or Director and Officer, the 2001 Annual
Report on Form 10-K (and such amendment or amendments thereto as
may be necessary) to be filed pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of
substitution and revocation in the premises; and hereby ratifying
and confirming all that such attorneys and agents, or any of
them, may do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney this
17th day of January, 2002.
/s/ DENNIS J. KELLER
--------------------------
Dennis J. Keller
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director, Officer, or Director and
Officer of Nicor Inc., an Illinois corporation, does hereby
constitute and appoint J. L. METZ and M. T. LORENZ, and each of
them, the undersigned's true and lawful attorneys and agents,
each with full power and authority (acting alone and without the
other) to execute in the name and on behalf of the undersigned as
such Director, Officer, or Director and Officer, the 2001 Annual
Report on Form 10-K (and such amendment or amendments thereto as
may be necessary) to be filed pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of
substitution and revocation in the premises; and hereby ratifying
and confirming all that such attorneys and agents, or any of
them, may do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney this
17th day of January, 2002.
/s/ WILLIAM A. OSBORN
--------------------------
William A. Osborn
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director, Officer, or Director and
Officer of Nicor Inc., an Illinois corporation, does hereby
constitute and appoint J. L. METZ and M. T. LORENZ, and each of
them, the undersigned's true and lawful attorneys and agents,
each with full power and authority (acting alone and without the
other) to execute in the name and on behalf of the undersigned as
such Director, Officer, or Director and Officer, the 2001 Annual
Report on Form 10-K (and such amendment or amendments thereto as
may be necessary) to be filed pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of
substitution and revocation in the premises; and hereby ratifying
and confirming all that such attorneys and agents, or any of
them, may do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney this
17th day of January, 2002.
/s/ JOHN RAU
--------------------------
John Rau
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director, Officer, or Director and
Officer of Nicor Inc., an Illinois corporation, does hereby
constitute and appoint J. L. METZ and M. T. LORENZ, and each of
them, the undersigned's true and lawful attorneys and agents,
each with full power and authority (acting alone and without the
other) to execute in the name and on behalf of the undersigned as
such Director, Officer, or Director and Officer, the 2001 Annual
Report on Form 10-K (and such amendment or amendments thereto as
may be necessary) to be filed pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of
substitution and revocation in the premises; and hereby ratifying
and confirming all that such attorneys and agents, or any of
them, may do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney this
17th day of January, 2002.
/s/ JOHN F. RIORDAN
--------------------------
John F. Riordan
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director, Officer, or Director and
Officer of Nicor Inc., an Illinois corporation, does hereby
constitute and appoint J. L. METZ and M. T. LORENZ, and each of
them, the undersigned's true and lawful attorneys and agents,
each with full power and authority (acting alone and without the
other) to execute in the name and on behalf of the undersigned as
such Director, Officer, or Director and Officer, the 2001 Annual
Report on Form 10-K (and such amendment or amendments thereto as
may be necessary) to be filed pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of
substitution and revocation in the premises; and hereby ratifying
and confirming all that such attorneys and agents, or any of
them, may do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto signed this Power of Attorney this
17th day of January, 2002.
/s/ PATRICIA A. WIER
--------------------------
Patricia A. Wier
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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