01—Abstract
Summary
Summary of the 10-K filed March 5, 2008. 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 3.8 million customers from the Gulf Coast through the Midwest to New England.
Its business segments are Gas Distribution Operations, Gas Transmission and Storage Operations, Electric Operations and Other Operations. Net revenues were $3,263.7 milliona in 2007, up $139.1 million from 2006, and operating income was $931.9 million. Income from continuing operations was $312.0 million, or $1.14 per basic share, versus $313.5 million, or $1.15, in 2006.
Net income was $321.4 millionb, or $1.17 per basic share. Management cites favorable weather, higher firm capacity reservation fees at the transmission business and the Whiting Clean Energy facility as drivers, partly offset by higher operating expenses, a $33.5 million Northern Indiana purchased-power settlement, a $40.6 million loss on early debt extinguishment and an unbilled revenue correction. The filing discloses a material weakness in internal control over financial reporting related to Northern Indiana's unbilled revenue estimating process, and Deloitte & Touche issued an adverse opinion on internal control.
Total consolidated indebtedness was $6,689.3 millionc at year-end, and Standard and Poor's lowered NiSource's senior unsecured rating to BBB- in December 2007, one notch above junk, while Moody's placed its outlook on negative. Management projects 2008-2010 earnings from continuing operations of $1.23 to $1.35 per share and capital expenditures of $1,356.9 million for 2008. Key contingencies include a $404.3 million jury verdict in the Tawney royalty case, against which NiSource has not reserved the $270 million punitive portion, and a pending sale of Northern Utilities and Granite State Gas to Unitil Corporation for $160 million plus working capital.
02—Key points
Key Highlights
- Net income of $321.4 million ($1.17 per basic share) in 2007, versus $282.2 million in 2006; income from continuing operations was $312.0 million ($1.14 per share), slightly below $313.5 million in 2006.
- Net revenues rose $139.1 million to $3,263.7 million, helped by roughly $90 million of favorable weather and higher firm capacity reservation fees at Gas Transmission and Storage.
- Material weakness in internal control over financial reporting at Northern Indiana's unbilled revenue estimate; auditor Deloitte & Touche issued an adverse opinion on internal control, and management expects remediation in the first half of 2008.
- Credit ratings pressure: S&P lowered senior unsecured ratings to BBB- in December 2007 with a stable outlook, Moody's affirmed Baa3 with a negative outlook, and a further downgrade by either would take the ratings below investment grade.
- Total consolidated indebtedness of $6,689.3 million at December 31, 2007; the debt-to-capitalization covenant ratio was 56.9% against a 70% limit.
- Capital program of $1,356.9 million projected for 2008, up $573.7 million from 2007, mainly for new generation (Sugar Creek CCGT, estimated at $329 million) and pipeline growth projects.
- Pending $65 million after-tax loss expected in Q1 2008 from the sale of Northern Utilities and Granite State Gas to Unitil for $160 million plus working capital, and a $404.3 million Tawney royalty verdict under appeal.
03—Questions
Frequently Asked Questions
How did NiSource perform financially in 2007?
Net income was $321.4 million, or $1.17 per basic share, up from $282.2 million in 2006. Income from continuing operations was $312.0 million, or $1.14 per share, compared with $313.5 million, or $1.15 per share, in 2006. Net revenues increased $139.1 million to $3,263.7 million, driven mainly by weather and transmission capacity fees, while operating expenses, interest and a $40.6 million debt redemption premium reduced the gains.
What is the status of the company's internal controls?
Management concluded that internal control over financial reporting was not effective as of December 31, 2007, because of a material weakness in Northern Indiana's unbilled revenue estimating process. Northern Indiana used incorrect customer usage data for several years, reducing net revenues by $25.5 million in the fourth quarter of 2007. Management expects the weakness to be remediated during the first half of 2008.
What are the main risks to the credit profile and debt?
Total consolidated indebtedness was $6,689.3 million at year-end 2007. S&P lowered its senior unsecured rating to BBB- in December 2007, and Moody's changed its outlook to negative. A further downgrade by S&P or Moody's would result in below-investment-grade ratings. Some agreements require about $40 million of additional collateral upon a ratings-trigger downgrade, and the company expects to issue more than $500 million of long-term debt in 2008.
What are the largest pending legal and regulatory exposures?
The most significant is the Tawney royalty class action in West Virginia, where a jury returned a $404.3 million verdict in January 2007, including $270 million in punitive damages. NiSource has not established a reserve for the punitive portion and is appealing. Other exposures include an EPA Notice of Violation against Northern Indiana alleging unpermitted boiler modifications, and a Pennsylvania proposed consent order with proposed penalties.
What growth and spending plans does NiSource describe?
NiSource plans capital spending of $1,356.9 million in 2008, including the planned purchase of the Sugar Creek CCGT facility for an estimated $329 million. Gas transmission growth projects include the Millennium Pipeline, targeted for November 2008, the Hardy Storage project and the Eastern Market Expansion, expected in service by spring 2009. Management projects 2008-2010 earnings from continuing operations of $1.23 to $1.35 per share, assuming normal weather and no significant one-time items.
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