01—Abstract
Summary
Summary of the 10-K filed February 27, 2009. Cited figures are marked; the original filing is the authoritative source.
NiSource Inc. reported 2008 net income of $79.0 milliona, or $0.29 per basic share, down sharply from $321.4 million, or $1.17 per share, in 2007.
The decline was driven by a $290.8 millionb loss from discontinued operations, largely from an adjustment of $188.0 million for the Tawney litigation and after-tax losses of $108.2 million on dispositions. Income from continuing operations rose to $369.8 million, or $1.35 per basic share, from $302.9 million, helped by higher gas distribution net revenues and a lower income tax rate of 33.4%. Total gross revenues were $8.87 billion and net revenues were $3.24 billion, up $55.6 million from 2007.
The company is a holding company whose subsidiaries provide natural gas and electricity to about 3.8 million customers from the Gulf Coast to New England. Management states that virtually 100% of operating income comes from rate-regulated businesses. Total consolidated indebtedness was $7,576.7 millionc at December 31, 2008, and the debt-to-capitalization ratio was 61.6% against covenant limits of 70% and 75%.
Standard and Poor's changed its outlook to negative, and Fitch lowered its ratings on February 4, 2009, though all ratings remain investment grade. Key near-term items include a Tawney settlement of up to $338.8 milliond, pension expense expected to rise by about $100 million in 2009, and 2009 earnings guidance of $1.00 to $1.10 per basic share.
Management reduced its projected 2009 financing requirement from nearly $1 billion to about $500 million, and it secured a two-year term loan with bank commitments of $265 million. Northern Indiana's electric base rate case, with final hearings planned for July 2009, could also affect results.
02—Key points
Key Highlights
- 2008 net income of $79.0 million ($0.29 per basic share) versus $321.4 million ($1.17) in 2007, reflecting a $290.8 million loss from discontinued operations.
- Income from continuing operations of $369.8 million ($1.35 per basic share), up from $302.9 million ($1.10) in 2007.
- Tawney litigation settlement of up to $338.8 million, with a $188.0 million after-tax adjustment recorded in 2008 discontinued operations.
- Total consolidated indebtedness of $7,576.7 million; debt-to-capitalization ratio of 61.6% versus covenant maximums of 70% and 75%.
- Credit ratings remain investment grade, but Standard and Poor's outlook is negative, Moody's outlook is negative, and Fitch lowered NiSource's rating to BBB-.
- 2009 pension expense is expected to rise by about $100 million, and 2009 earnings are guided to $1.00 to $1.10 per basic share.
- Capital expenditures of $1,306.6 million in 2008 (including the $329.7 million Sugar Creek purchase), with 2009 projected at $800.0 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2008, NiSource kept $0.01.
- Revenue$8.88B100.0%
- Cost of revenue−$5.63B63.4%
- Gross profit$3.25B36.6%
- Operating costs−$2.33B26.2%
- Operating income$919.0M10.3%
- Interest, other & tax−$840.0M9.5%
- Net income$79.0M0.9%
Where FY2008 revenue went
$8.88B- Cost of revenue: $5.63B, 63% of revenue
- Operating costs: $2.33B, 26% of revenue
- Net income: $79.0M, 0.9% of revenue
- Interest, other & tax: $840.0M, 9.5% of revenue
Kept 0.9% as net incomeNet income $79.0M · 0.9%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 27, 2009Financial Statements
| Revenue | $8.88B |
| Gross Profit | $3.25B |
| Operating Expenses | $2.34B |
| Operating Income | $919.00M |
| Interest Expense | $380.00M |
| Net Income | $79.00M |
| EPS (Basic) | $0.29 |
| EPS (Diluted) | $0.29 |
| Shares Outstanding (Basic) | 274.00M |
| Shares Outstanding (Diluted) | 275.40M |
05—Questions
Frequently Asked Questions
Why did net income fall so sharply in 2008?
Net income fell to $79.0 million from $321.4 million mainly because of discontinued operations. The company recorded a $290.8 million loss from those operations, including a $188.0 million adjustment for the Tawney litigation and after-tax losses of $108.2 million on the sale of Whiting Clean Energy, Northern Utilities and Granite State Gas. Income from continuing operations actually increased to $369.8 million.
What is the Tawney litigation and what does it cost NiSource?
Tawney is a West Virginia class action over natural gas royalties involving Columbia Natural Resources, a former NiSource subsidiary sold in 2003. A jury verdict of $404.3 million was later settled for $380 million, and NiSource's share is up to $338.8 million. The company paid $25 million in 2008, funded $60.5 million more by January 13, 2009, and has issued a $254 million letter of credit to cover the remaining payments in 2009.
How much debt does NiSource carry and is it at risk of covenant problems?
Total consolidated indebtedness was $7,576.7 million at December 31, 2008. The debt-to-capitalization ratio was 61.6%, below the 70% covenant under the revolving credit and term loan facilities and the 75% covenant in the 2005 private placement. A significant charge, such as a goodwill impairment, could affect the capitalization covenant. The filing also notes that a ratings downgrade below investment grade would increase borrowing costs and collateral requirements.
What is NiSource's 2009 outlook and financing plan?
Management guides to 2009 earnings from continuing operations of $1.00 to $1.10 per basic share. The main headwinds are a pension expense increase of about $100 million (24 cents per share) and interest expense rising by about $50 million. To reduce the 2009 financing requirement from nearly $1 billion to about $500 million, the company plans to cut capital spending to $800 million and reduce working capital needs. It also has a two-year term loan at LIBOR plus 538 basis points.
What is the Northern Indiana electric rate case and why does it matter?
Northern Indiana requested an increase in base electric rates designed to produce additional gross margin of $85.7 million annually, including recovery of the Sugar Creek plant. The case is the first electric base rate case in 20 years. Final hearings are planned to begin July 27, 2009, and new rates are anticipated to take effect in early 2010 if no settlement is reached. The outcome could materially affect electric segment results and investor sentiment.
06—Continue