01—Abstract
Summary
Summary of the 10-K filed February 22, 2002. Cited figures are marked; the original filing is the authoritative source.
NiSource Inc. (NI) is an energy holding company whose subsidiaries provide natural gas, electricity and other services to approximately 3.7 million customers across a corridor from the Gulf Coast through the Midwest to New England.
The company completed its roughly $6 billiona acquisition of Columbia Energy Group on November 1, 2000, which made it the largest natural gas distribution company east of the Rocky Mountains by number of customers. Results for 2001 and 2000 are not comparable because 2001 includes twelve months of Columbia while 2000 included only November and December. For 2001, NiSource reported net income of $216.2 million, or $1.05 basic per share, compared with $150.9 million, or $1.12 per share, in 2000.
Income from continuing operations was $212.1 millionb, or $1.03 per share, and after non-recurring items was $249.6 million, or $1.22 per share. Gross revenues rose to $9,458.7 million from $6,030.7 million, and total assets declined to $17,374.1 million from $19,682.7 million. Investors should note several pressures disclosed in the filing.
Fitch downgraded NiSource's long-term debt ratings on December 6, 2001, and Moody's placed the company under review for possible downgrade and later downgraded the senior unsecured ratings to Baa3 on February 1, 2002, which constrained its access to the commercial paper market. Dividends paid per share were $1.16c in 2001 against a return on average common equity of 6.3%, and the filing shows a dividend payout ratio of 110.5%. Short-term borrowings were $1,854.3 million at year-end 2001, and the company used its $2.5 billion revolving credit facility to refinance commercial paper.
Management stated its intent to improve liquidity through divestitures of the Indianapolis Water Company and SM&P, additional note issuances and equity sales. Operationally, the filing points to weather that was 12% warmer than normal in the Gas Distribution territory, an industrial downturn including steel-sector bankruptcies, a December 2001 decision to indefinitely shut down the Mitchell Station, a $28.7 milliond restructuring charge, and a $17.8 million pre-tax charge tied to Enron's bankruptcy.
Capital expenditures were $679.2 million in 2001, and the 2002 program is projected at $650.8 million. Pending litigation includes the Grynberg and Quinque royalty cases, and the Whiting Clean Energy project at Primary Energy is expected to operate at a loss.
02—Key points
Key Highlights
- Net income of $216.2 million, or $1.05 basic per share, in 2001, versus $150.9 million, or $1.12 per share, in 2000; 2001 and 2000 are not comparable due to the November 1, 2000 Columbia acquisition.
- Gross revenues of $9,458.7 million in 2001, up from $6,030.7 million in 2000, and operating income of $1,008.9 million versus $557.4 million.
- Fitch downgraded NiSource's long-term debt ratings on December 6, 2001; Moody's downgraded senior unsecured debt to Baa3 on February 1, 2002, significantly constraining commercial paper access.
- Dividend payout ratio of 110.5% in 2001 with return on average common equity of 6.3%; quarterly common dividend of $0.29 per share declared for February 2002.
- Short-term borrowings of $1,854.3 million at year-end 2001, including $850.0 million drawn under the 3-year credit facility after commercial paper maturities were refinanced.
- Weather 12% warmer than normal, a $28.7 million restructuring charge, a $17.8 million Enron-related charge, and the indefinite shutdown of the 502 mw Mitchell Station.
- Pending sale of Indianapolis Water Company for $515.0 million and SM&P for $37.9 million, with the SM&P sale closed January 28, 2002.
03—Questions
Frequently Asked Questions
How did NiSource perform financially in 2001?
NiSource reported 2001 net income of $216.2 million, or $1.05 per basic share, up from $150.9 million, or $1.12 per share, in 2000. Income from continuing operations was $212.1 million, or $1.03 per share. The company notes that the comparison is affected by the Columbia acquisition, which contributed twelve months of results in 2001 versus two months in 2000.
What are the main credit concerns for investors?
Fitch downgraded NiSource's long-term debt ratings on December 6, 2001 and later affirmed them with a negative outlook. Moody's placed ratings under review for possible downgrade on December 7, 2001 and downgraded senior unsecured debt to Baa3 on February 1, 2002. The filing says these actions significantly constrained access to the A2/P3 commercial paper market, and collateral could be required under certain trading and surety agreements if ratings fall further.
How is NiSource planning to strengthen its balance sheet?
The company intends to improve liquidity through proceeds from the divestiture of the Indianapolis Water Company and SM&P, the issuance of additional notes, and the sale of equity after resolution of its pending Indiana Utility Regulatory Commission rate investigation. It is also preparing to renew its $1.25 billion 364-day credit facility due March 22, 2002, and projects 2002 capital expenditures of $650.8 million, $28.4 million lower than 2001.
What operational risks affected results in 2001?
Weather was 12% warmer than normal in the Gas Distribution territory, reducing net revenues by approximately $63.0 million. Industrial demand fell, including steel-industry bankruptcies such as LTV and Bethlehem Steel, and the Primary Energy Ironside project was affected by LTV's idling of its mill. The Whiting Clean Energy project is projected to operate at an after-tax loss of approximately $16.0 million in 2002.
What legal and environmental matters are disclosed?
Columbia faces Grynberg False Claims Act royalty cases and the Quinque class action in Kansas, along with the Kershaw royalty suit in New York. A Gas Distribution environmental reserve of approximately $68.2 million has been recorded, and total environmental reserves across the company were approximately $167.3 million. Northern Indiana expects NOx control compliance costs of $200 to $300 million over the next two years. Management does not expect these matters to have a material adverse effect on the company's financial position.
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