01—Abstract
Summary
Summary of the 10-K filed February 20, 2019. Cited figures are marked; the original filing is the authoritative source.
NiSource Inc. reported a 2018 net loss available to common shareholders of $65.6 milliona, or $0.18 per basic share, compared with net income of $128.5 million, or $0.39 per share, in 2017.
The decline was driven primarily by expenses related to the Greater Lawrence Incident, a September 13, 2018 series of fires and explosions in Massachusetts involving Columbia of Massachusetts. During 2018 the company recorded a loss of approximately $757 millionb for third-party claims and approximately $266 million for other incident-related expenses, and it expects total third-party claim costs of $757 million to $790 million and other incident-related costs of $330 million to $345 million. Operating income fell to $124.7 million from $921.2 million, while total operating revenues rose to $5,114.5 million from $4,874.6 million.
The company is an energy holding company whose subsidiaries are fully regulated natural gas and electric utilities serving approximately 4.0 million customers in seven states, with reportable segments in Gas Distribution Operations and Electric Operations. Management cites an estimated $30 billionc in long-term regulated utility infrastructure investments and expects capital expenditures of approximately $1.6 to $1.7 billion in 2019. Liquidity stood at $974.6 million at December 31, 2018, and total consolidated indebtedness was $9,132.6 million.
Credit ratings were placed on negative outlook at S&P (BBB+) in September 2018 due to the incident, and the company faces an SEC investigation, a U.S. Attorney criminal investigation, an NTSB investigation, and private class action suits related to the incident. The company also raised significant equity and preferred capital in 2018, including a $606.0 milliond private placement of common stock, $400.0 million of Series A preferred stock and $500.0 million of Series B preferred stock, and it declared a quarterly common dividend of $0.20 per share payable February 20, 2019.
02—Key points
Key Highlights
- Net loss available to common shareholders of $65.6 million, or $(0.18) per basic share, in 2018 versus net income of $128.5 million, or $0.39 per share, in 2017.
- Operating income fell to $124.7 million from $921.2 million, driven by Greater Lawrence Incident expenses; Gas Distribution Operations posted an operating loss of $254.1 million.
- Recorded approximately $757 million for third-party claims and approximately $266 million for other incident-related expenses tied to the Greater Lawrence Incident; estimated total third-party claim costs of $757 million to $790 million.
- Total operating revenues increased to $5,114.5 million from $4,874.6 million, and Electric Operations operating income rose to $386.1 million from $367.4 million.
- Liability insurance of approximately $800 million and property insurance of approximately $300 million; total incident expenses have exceeded available liability coverage, and $135 million of insurance recoveries were recorded.
- Raised capital in 2018 including a $606.0 million gross common stock private placement, $400.0 million Series A preferred stock and $500.0 million Series B preferred stock.
- Estimated $30 billion in long-term regulated utility infrastructure investments; 2019 capital expenditures expected at $1.6 to $1.7 billion. The company is also retiring coal units at R.M. Schahfer by 2023 and Michigan City by 2028 under its 2018 Integrated Resource Plan.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2018, NiSource lost $0.01.
- Revenue$4.99B100.0%
- Cost of revenue$123.4M2.5%
- Gross profit$5.11B102.5%
- Operating costs−$4.99B100.0%
- Operating income$124.7M2.5%
- Interest, other & tax−$175.3M3.5%
- Net income−$50.6M1.0%
Where FY2018 revenue went
$4.99B- Operating costs: $3.11B, 62% of revenue
- Cost of revenue: $1.76B, 35% of revenue
- Operating income: $124.7M, 2.5% of revenue
Kept 2.5% as operating incomeOperating income $124.7M · 2.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 20, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $4.99B$4.87B | +2.4% |
| Cost of Revenue | $1.76B$1.52B | +16.0% |
| Gross Profit | $5.11B$4.87B | +4.9% |
| Operating Expenses | $4.99B$3.95B | +26.2% |
| Operating Income | $124.70M$921.20M | −86.5% |
| Interest Expense | $353.30M$353.20M | 0.0% |
| Net Income | -$50.60M$128.50M | −139.4% |
| EPS (Basic) | $-0.18$0.39 | −146.2% |
| EPS (Diluted) | $-0.18$0.39 | −146.2% |
| Shares Outstanding (Basic) | 356.49M329.39M | +8.2% |
| Shares Outstanding (Diluted) | 356.49M330.76M | +7.8% |
05—Questions
Frequently Asked Questions
Why did NiSource swing from profit to a loss in 2018?
The loss was primarily due to expenses related to the Greater Lawrence Incident restoration, dilution from preferred stock dividend commitments, and other changes in operating income. These were partially offset by the effects of implementing the TCJA and higher losses on early extinguishment of long-term debt recorded in 2017.
What is the financial exposure from the Greater Lawrence Incident?
The company recorded about $757 million for third-party claims and about $266 million for other incident-related expenses in 2018. It estimates total third-party claim costs of $757 million to $790 million and other incident-related costs of $330 million to $345 million. Pipeline replacement is estimated at $220 million to $230 million in total, and the company has committed to an approximately $150 million program to install over-pressurization protection devices.
How much insurance coverage does NiSource have for the incident, and is it sufficient?
The company maintains liability insurance of approximately $800 million and property insurance of approximately $300 million. Total incident-related expenses have exceeded the available liability coverage, and certain damages such as fines and penalties may be excluded. As of December 31, 2018, $135 million of insurance recoveries had been recorded, of which $5 million was collected in 2018.
How strong is NiSource's liquidity and credit profile?
At December 31, 2018, net available liquidity was $974.6 million, and the debt-to-capitalization ratio was 61.4% against covenant maximums of 70% and 75%. Standard & Poor's changed its outlook on NiSource's BBB+ rating to negative in September 2018 due to potential impacts of the incident, while Moody's (Baa2) and Fitch (BBB) outlooks remained stable.
What are the main regulatory and legal risks going forward?
The company faces an NTSB investigation, a criminal investigation by the U.S. Attorney's Office for the District of Massachusetts, an SEC investigation announced February 11, 2019, Massachusetts DPU inquiries and orders, and private class action lawsuits. The outcomes are uncertain, and the company states that it is unable to estimate the amount of reasonably possible losses from potential civil or criminal penalties.
06—Continue