NiSource Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. NiSource is a regulated energy holding company with gas distribution, gas transmission and storage, and electric operations. Results are seasonal; first-quarter gas results are typically affected by winter weather. Financial statements are unaudited.
Financial performance
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Gross revenues | $1,794.3 million | $1,648.9 million |
| Net revenues (gross revenues less cost of sales) | $1,106.6 million | $1,021.5 million |
| Operating income | $428.1 million | $397.7 million |
| Income from continuing operations | $215.4 million | $192.5 million |
| Net income | $260.5 million | $193.4 million |
| Basic / diluted EPS | $0.84 / $0.83 | $0.68 / $0.66 |
| Operating cash flow | $449.1 million | $480.0 million |
| Capital expenditures | $369.3 million | $291.8 million |
- Net revenues increased $85.1 million (8.3%) and operating income rose $30.4 million (7.6%). Operating income as a percentage of net revenues was approximately 38.7%, versus 38.9% a year earlier.
- Continuing-operations EPS was $0.69 basic, compared with $0.68. Net income and total EPS also benefited from discontinued operations, including a $36.4 million after-tax gain on sale.
- By segment, operating income was $234.1 million for Gas Distribution (up $23.8 million), $133.5 million for Columbia Pipeline Group (down $5.1 million), and $65.2 million for Electric Operations (up $19.0 million).
Balance sheet, liquidity and debt
- At March 31, 2013, cash and cash equivalents were $101.4 million; total assets were $21.64 billion; and stockholders’ equity was $5.69 billion.
- Long-term debt excluding current maturities was $6.80 billion; current long-term debt was $89.3 million; and short-term borrowings were $1.13 billion, up from $776.9 million at year-end. Short-term borrowings included $686.5 million of commercial paper and $444.7 million of receivables-securitization borrowings.
- Management reported net available liquidity of $896.6 million. The $1.5 billion revolving credit facility had no borrowings outstanding; $795.2 million of credit was reported available. Commercial paper is supported by that facility.
- Operating cash flow declined $30.9 million year over year, primarily due to working-capital timing, including receivables. Cash from continuing operating activities was $437.3 million. Capital spending increased, principally for pipeline growth and modernization and electric environmental projects.
Material changes and management commentary
- Colder weather contributed an estimated $40.9 million increase in income from continuing operations versus Q1 2012. Gas Distribution heating degree days were 29% higher year over year and 1% colder than normal.
- Gas Distribution net revenues increased $44.0 million, mainly due to weather and regulatory/service programs. Electric net revenues increased $15.7 million, including environmental cost recovery, transmission upgrade revenue and weather. Columbia Pipeline Group net revenues rose $26.8 million, while its operating income fell as operating costs increased.
- Management attributed higher operating and maintenance costs partly to regulatory trackers, which generally have offsetting revenue effects, and to higher employee, administrative and outside-service expenses.
- NiSource projects 2013 capital expenditures of approximately $1.8 billion and said operating income, credit facilities, commercial paper and capital-market access should provide adequate capital for 2013. The filing provides no specific full-year earnings or EPS guidance.
Outlook, significant transactions and risks
- NiSource is pursuing pipeline modernization and growth projects, including a five-year Columbia Transmission modernization plan with approximately $1.5 billion of planned investment, and multiple Marcellus/Utica-related expansions. The Big Pine project entered service in April 2013. The company also described major electric pollution-control investments.
- After quarter-end, NiSource Finance issued $750 million of 4.80% senior unsecured notes due 2044. In March, it redeemed $420.3 million of 6.15% notes. A bank term loan was amended in April to increase it to $325 million and extend maturity to 2016.
- Regulatory matters include Pennsylvania’s proposed $55.3 million annual rate-case settlement, approved Ohio rider changes and filings, and a Columbia Transmission customer settlement. The latter involved $88.1 million of customer refunds paid in March and lower depreciation rates; its modernization plan includes a capital cost recovery mechanism.
- Environmental remediation reserves were approximately $155.3 million at quarter-end. Northern Indiana estimated $835 million to $865 million of capital improvements for certain environmental mandates, which it believes will likely be recoverable from ratepayers. Some regulatory compliance costs remain uncertain or cannot yet be estimated; recovery is not assured.
- Other risks identified include weather, energy commodity and counterparty conditions, regulatory and legislative changes, environmental requirements, litigation and pension funding. A gas explosion in Massachusetts remained under investigation; management expected associated costs to be substantially insured and not material. Management said there were no material changes to the risk factors in the 2012 Form 10-K.
- A one-time $20.7 million pension settlement charge was recorded in Q1. The sale of Retail Services’ service-plan and leasing businesses generated the $36.4 million after-tax gain; a separate $17.5 million reimbursement was recorded in discontinued operations. The business sale and reimbursement make reported net income less indicative of recurring performance.
Key facts for investors to verify
- Whether continuing earnings growth persists after separating weather effects and the discontinued-operation gain and settlement.
- Progress, spending and regulatory recovery for the approximately $1.8 billion 2013 capital program, pipeline projects and electric environmental upgrades.
- Outcomes and timing of pending rate cases and trackers, and the financial effects of the Columbia Transmission settlement.
- Liquidity and refinancing needs as short-term borrowings rise, including the commercial-paper and receivables-securitization facilities.
- Environmental reserve adequacy, compliance costs and potential recovery from customers; also monitor the Massachusetts incident investigation and insurance recovery.