01—Abstract
Summary
Summary of the 10-K filed March 12, 2004. Cited figures are marked; the original filing is the authoritative source.
NiSource Inc. is an energy holding company whose subsidiaries provide natural gas, electricity and other products and services to approximately 3.7 million customers from the Gulf Coast through the Midwest to New England.
For 2003, the company reported gross revenues of $6,246.6 milliona, net revenues of $3,060.3 million and operating income of $1,116.3 million, but net income fell to $85.2 million, or $0.33 per share, from $372.5 million, or $1.77 per share, in 2002. The decline was driven by a $331.7 million after-tax loss from discontinued operations, mainly the sale of its exploration and production unit, CER, for $330.0 million, and the sale of PEI subsidiaries. Income from continuing operations was $425.7 million, or $1.64 per share.
The company describes its business as virtually 100% rate-regulated operating income, with segments in Gas Distribution, Gas Transmission and Storage, Electric Operations and Other Operations. Management focused on deleveraging and balance sheet repair during 2003. Interest expense, net decreased $51.7 millionb, debt was reduced by retiring $1.28 billion and reissuing $1.35 billion at lower rates, and the company's investment grade credit ratings were affirmed with stable outlooks by Moody's, Fitch and Standard and Poor's.
The common dividend was reduced to $0.92c per share annualized from $1.16, which management said was aimed at debt reduction, cash flow and core business reinvestment. Total long-term debt rose to $5,993.4 million at year end from $4,849.5 million, while total assets declined to $16,623.8 million from $17,942.6 million. Cash flow from continuing operations was $614.4 million, and 2004 capital expenditures are projected at $518.6 million.
Key risks flagged in the filing include regulatory changes (notably a March 11, 2004 Ohio PUCO order that could reduce operating income by approximately $20 milliond annually in 2005 through 2007), a Northern Indiana plan to address the idled Mitchell Station, pending litigation including a Virginia Natural Gas FERC complaint seeking more than $37 million, and royalty class actions in West Virginia. Contractual obligations total $7,474.5 million and total commercial commitments $6,632.6 million at December 31, 2003.
02—Key points
Key Highlights
- Net income was $85.2 million, or $0.33 per share, versus $372.5 million, or $1.77 per share, in 2002, primarily due to a $331.7 million after-tax loss from discontinued operations.
- Income from continuing operations was $425.7 million, or $1.64 per share, compared with $398.1 million, or $1.89 per share, in 2002.
- Gross revenues were $6,246.6 million and operating income was $1,116.3 million for 2003, compared with $5,319.8 million and $1,152.2 million in 2002.
- Quarterly dividend was reduced; the annual dividend was cut to $0.92 per share from $1.16 beginning with the November 2003 payment, aimed at debt reduction and core business reinvestment.
- Divested non-core assets including the exploration and production unit CER for $330.0 million and PEI steel-related assets for approximately $325.4 million, reducing debt.
- Credit ratings were affirmed with stable outlooks: Moody's at Baa3, Fitch at BBB for NiSource, and Standard and Poor's at BBB.
- Long-term debt increased to $5,993.4 million from $4,849.5 million, while total assets decreased to $16,623.8 million from $17,942.6 million.
03—Questions
Frequently Asked Questions
Why did NiSource's reported earnings fall so sharply in 2003?
Net income was $85.2 million, or $0.33 per share, compared with $372.5 million, or $1.77 per share, in 2002. The main driver was a $331.7 million after-tax loss from discontinued operations, including a $301.2 million after-tax loss on the sale of the exploration and production unit CER and a $29.1 million loss on the sale of six PEI subsidiaries. Income from continuing operations was $425.7 million, or $1.64 per share.
Why did NiSource cut its common dividend?
Beginning with the November 2003 dividend, NiSource reduced its annual dividend to $0.92 per share from $1.16 per share. The filing says this was in line with objectives of ongoing debt reduction, cash flow and core business reinvestment, and that the prior dividend yield and payout ratio were higher than industry averages.
What is NiSource doing to strengthen its balance sheet?
The company sold non-core assets, including CER for $330.0 million and PEI steel-related assets for approximately $325.4 million, and retired $1.28 billion of debt while reissuing $1.35 billion at lower rates. Interest expense, net decreased $51.7 million in 2003. Its investment grade credit ratings were affirmed with stable outlooks.
What regulatory and legal risks could affect future results?
A March 11, 2004 Ohio PUCO order modified Columbia of Ohio's stipulation and could potentially reduce operating income by approximately $20 million annually in 2005 through 2007. Northern Indiana faces a review of options for the idled Mitchell Station and the expiration of its union contracts on May 31, 2004. Litigation includes a Virginia Natural Gas FERC complaint seeking damages exceeding $37 million and a class action certified in West Virginia over royalty deductions.
How much capital does NiSource plan to spend and how is it funded?
Capital expenditures were $572.5 million in 2003 and are projected at $518.6 million for 2004, a decrease of 9%, or $53.9 million, mainly due to lower estimated NOx compliance spending. Net cash flows from continuing operations were $614.4 million in 2003, and the company had $443.1 million of credit available under its credit facilities at year end.
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