NiSource Inc. — FY2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. This annual filing covers the full year, not only the fourth quarter. NiSource is an energy holding company serving approximately 3.8 million customers through natural gas distribution, gas transmission and storage, and electric operations.
Financial performance
| Metric | FY2014 | FY2013 | Change |
|---|---|---|---|
| Gross revenues | $6,470.6 million | $5,657.3 million | Up 14.4% |
| Net revenues | $4,246.4 million | $3,841.8 million | Up 10.5% |
| Operating income | $1,262.4 million | $1,143.4 million | Up 10.4% |
| Income from continuing operations | $530.7 million | $490.9 million | Up 8.1% |
| Net income | $530.0 million | $532.1 million | Down 0.4% |
| Diluted EPS | $1.67 | $1.70 | Down 1.8%; continuing-operations EPS rose to $1.67 from $1.57 |
| Operating margin on net revenues | 29.7% | 29.8% | Approximately flat |
Segment operating income: Gas Distribution Operations $537.0 million (2013: $445.4 million); Columbia Pipeline Group Operations $490.7 million (2013: $441.4 million); Electric Operations $282.7 million (2013: $265.5 million). Growth reflected regulatory and infrastructure-recovery programs, new pipeline capacity and firm contracts, mineral-rights activity, and higher industrial electric usage.
Cash flow and investment: Cash from operating activities was $1,319.6 million, down from $1,436.8 million, principally because of an income-tax refund received in 2013. Cash capital expenditures were $2,028.5 million; the broader capital-expenditure and other-investing-activities measure was $2,183.5 million. Management forecast that broader measure at approximately $2,404.8 million for 2015.
Debt and liquidity: Consolidated indebtedness was $9,999.4 million at year-end, including $1,576.9 million of short-term borrowings. Cash and cash equivalents were $25.4 million. NiSource reported $692.7 million of available credit under its revolving facility and a 62% debt-to-capitalization ratio, below the 70% covenant limit. Long-term debt, excluding current maturities, was $8,155.9 million. Interest expense, net, increased to $443.6 million from $414.8 million.
Other measures: Total assets were $24,866.3 million and stockholders’ equity was $6,175.3 million. The effective tax rate increased to 36.9% from 34.8%. The company paid $1.02 per share in common dividends in 2014 and declared a $0.26 quarterly dividend payable in February 2015.
Material changes and unusual items
- Net revenues rose $404.6 million. Gas Distribution contributed $197.1 million of growth, Columbia Pipeline Group $167.5 million, and Electric Operations $41.3 million. Colder weather increased Gas Distribution net revenues by approximately $18.4 million.
- Operating expenses increased $296.3 million, including higher labor and administrative costs, separation-related and pipeline-safety services, depreciation, and regulatory-tracker costs. Many tracker costs were offset by corresponding revenues.
- Net income was slightly lower despite higher continuing-operations income, largely because 2013 included a $34.9 million after-tax gain on discontinued-business dispositions; 2014 discontinued operations recorded a $0.7 million loss.
- Gains on mineral-interest conveyances were $34.5 million in 2014 versus $7.3 million in 2013; mineral-rights royalty revenue increased to $43.8 million from $21.2 million. Approximately $19.6 million of conveyance gains remained deferred pending future performance obligations.
- On February 11, 2015, after year-end, Columbia Pipeline Partners LP completed an IPO and received $1,170.0 million in net proceeds. NiSource announced in September 2014 a planned, expected mid-2015 separation of Columbia Pipeline Group; completion remained conditional and was not assured.
Outlook, risks, and contingencies
- Management stated it expected adequate capital to fund 2015 operations and investment needs through operating cash flow, credit facilities, commercial paper, debt agreements, and capital-market access. No consolidated earnings guidance is stated in the provided filing text.
- Key risks include substantial debt and refinancing needs, interest-rate and credit-rating exposure, regulatory decisions and cost recovery, environmental compliance costs, weather and energy demand, aging infrastructure and project execution, and competition or changing natural-gas production and transportation markets.
- The proposed separation could be delayed, fail to qualify as tax-free, or not be completed. Separation could also change NiSource’s asset base, diversification, credit profile, liquidity, and ability to fund dividends and debt service.
- Environmental remediation accruals were approximately $128.4 million at year-end. The company estimated that MGP remediation costs could vary by as much as $25 million beyond its recorded estimate. Additional compliance costs for greenhouse-gas, air, water, and coal-ash requirements were not estimable in the filing.
- The Springfield, Massachusetts gas explosion caused injuries; the company believed losses were substantially insured and any uninsured amount would not materially affect consolidated statements. NIPSCO’s transmission-upgrade reimbursement dispute remained subject to further proceedings, though management did not expect a material impact. The filing states no material impact was expected from currently asserted legal claims generally.
- Pension and other postretirement plans were underfunded by $421.1 million and $251.0 million, respectively. The pension shortfall widened from $260.9 million in 2013, primarily due to lower discount rates and updated mortality assumptions.
Most important facts for investors to verify
- Progress, tax treatment, financing arrangements, and final conditions for the planned Columbia Pipeline Group separation.
- Whether forecast 2015 capital spending of approximately $2.4 billion is funded without weakening credit metrics or liquidity.
- Debt maturities, short-term borrowing levels, interest costs, covenant headroom, and the effect of ratings changes or separation-related financing.
- Sustainability of continuing-operations earnings growth after separating weather effects, regulatory trackers, mineral-rights gains, and other unusual items.
- Regulatory recovery and ultimate cash costs for environmental remediation, generation compliance, and infrastructure programs; also track pension funding and the identified legal and regulatory proceedings.
The financial statements received an unqualified audit opinion, and the auditor reported effective internal control over financial reporting as of December 31, 2014.