NiSource Inc. — 2013 Form 10-K Summary
Business context and reporting period. NiSource is a regulated energy holding company serving approximately 3.8 million customers across seven states, with natural gas distribution, interstate pipeline and storage, and northern Indiana electric operations. This filing reports the fiscal year ended December 31, 2013; it is an annual report, not a standalone fourth-quarter filing. Results are seasonal, particularly for gas demand and cash flows.
Key financial results
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Gross revenues | $5,657.3 million | $5,030.9 million | +12.4% |
| Net revenues (revenue less cost of sales) | $3,841.8 million | $3,514.0 million | +$327.8 million |
| Operating income | $1,143.4 million | $1,040.1 million | +$103.3 million |
| Income from continuing operations | $490.9 million | $408.8 million | +$82.1 million |
| Net income | $532.1 million | $416.1 million | +$116.0 million |
| Diluted EPS | $1.70 | $1.39 | +$0.31 |
| Cash from operating activities | $1,436.8 million | $1,275.5 million | +$161.3 million |
| Capital expenditures and other investing activities (reported segment measure) | $2,046.0 million | $1,585.1 million | +$460.9 million |
Operating income was approximately 29.8% of net revenues, compared with 29.6% in 2012. The filing does not present a consolidated gross-profit margin using a conventional cost-of-revenue definition. Cash used in investing activities was $1,891.4 million and financing activities provided $445.1 million. Cash and cash equivalents ended the year at $26.8 million.
Segment performance
- Gas Distribution: net revenues were $1,634.1 million, up $140.3 million; operating income was $445.4 million, up $54.1 million. Colder weather contributed approximately $47.6 million to net revenue growth.
- Columbia Pipeline Group: net revenues were $1,179.4 million, up $179.0 million; operating income was $441.4 million, up $43.0 million. Growth reflected trackers, the prior-year customer settlement’s current-period effects, new projects, and mineral royalties.
- Electric Operations: net revenues were $1,022.4 million, up $8.6 million; operating income was $265.5 million, up $14.7 million. Environmental capital recovery and customer margins contributed, partly offset by lower environmental trackers and emission-allowance revenue.
Debt, liquidity and capital resources
Consolidated indebtedness was $8,834.0 million at year-end, including $7,593.2 million of long-term debt excluding current maturities, $542.1 million due within one year, and $698.7 million of short-term borrowings. The debt-to-capitalization ratio was 60.0%, below the 70% revolving-facility and term-loan covenant limit. NiSource reported approximately $1.6 billion of net available liquidity. Its revolving facility was expanded to $2.0 billion and extended to September 2018; there were no facility borrowings at year-end. Commercial paper outstanding was $433.6 million, and receivables-securitization borrowings were $265.1 million.
Capital expenditures and other investing activities are projected at approximately $2.15 billion for 2014, including $817.3 million for Gas Distribution, $807.3 million for Columbia Pipeline Group, and $456.1 million for Electric Operations. The 2014 forecast is not earnings guidance. The company paid $0.98 per share in dividends during 2013; the board declared a $0.25 quarterly dividend in January 2014.
Material changes, outlook and commentary
- Continuing-operations income rose 20.1%, with higher regulated rates and recovery mechanisms, pipeline growth, and colder weather among the principal drivers. Employee and administrative expenses rose $60.5 million; depreciation and amortization increased $15.4 million.
- Net income included a $34.9 million after-tax gain on the sale of Retail Services’ service-plan and leasing businesses. NiSource also sold its unregulated commercial and industrial gas-marketing portfolio in September 2013; the sale generated a $1.5 million after-tax loss included in the disposition line.
- Operating cash flow benefited from a $255.9 million improvement in income-tax receivables, primarily reflecting an IRS refund. Accordingly, the year’s cash-flow increase should be assessed alongside working-capital movements.
- Columbia Transmission’s modernization program plans approximately $1.5 billion of investment over five years. Its approved capital-cost recovery mechanism began billing in February 2014; the first-period revenue requirement was approximately $38.9 million. A separate base-rate reduction of about $25 million annually also began in 2014.
- Management said existing operating income is generated predominantly by regulated businesses and expected available operating cash, credit facilities, commercial paper, and capital-market access to fund 2014 operations and investment. No consolidated 2014 earnings or EPS forecast is provided in the supplied filing text.
Risks, contingencies and unusual items
- Risks include significant leverage and refinancing needs, regulatory decisions and cost-recovery timing, environmental compliance and remediation, weather variability, aging infrastructure, major project execution and cost overruns, interest rates, pension funding, commodity and counterparty risks, cyber threats, and severe weather or other operational disruptions.
- Environmental remediation reserves were approximately $143.9 million at year-end. The company identified 67 former manufactured-gas-plant sites with probable liability and said estimated remediation costs could vary by as much as $25 million beyond the recorded estimate.
- NIPSCO estimated approximately $860 million of environmental investments at its generating facilities, with about $277 million remaining to be spent; recovery from customers is expected but depends on regulatory mechanisms. Some emerging air, water, and coal-ash requirements had costs that the company said could not yet be estimated.
- A February 2014 Columbia Gulf pipeline rupture in Adair County, Kentucky caused no reported fatalities or serious injuries and no material commercial disruption; investigation was ongoing. The company expected related costs to be substantially covered by insurance.
- The 2012 Springfield, Massachusetts gas explosion caused injuries and property damage. The utility was cooperating with investigations and expected insurance to cover substantially related costs; uncovered amounts were not expected to be material.
- Industrial customers filed a FERC complaint seeking a lower MISO transmission return on equity; NiSource said the potential impact and timing could not be estimated. Debt downgrades could increase collateral needs and financing costs; estimated collateral triggered by specified rating thresholds was approximately $35.4 million.
- The filing reports audited financial statements with an unqualified audit opinion and effective internal control over financial reporting. It identifies no unresolved SEC staff comments and no material legal proceedings under Item 3.
Important facts for investors to verify
- How much of continuing-earnings growth is sustainable regulated-rate or contracted growth versus weather, trackers, and other timing effects.
- Whether the $2.15 billion 2014 investment plan is completed on schedule and within budget, and how much is recovered promptly through approved mechanisms.
- Debt maturities, refinancing costs, liquidity availability, covenant headroom, and the effect of ratings changes on collateral requirements.
- Actual cash generation after capital spending, particularly the effect of tax refunds and other working-capital fluctuations.
- Environmental remediation estimates and recovery prospects, including the remaining generating-plant compliance investments and uncertain future rules.
- Developments and any material costs arising from the Adair County rupture, Springfield incident, or MISO ROE complaint.
- Whether 2014 operating results support the declared dividend and the planned capital program; the filing gives no explicit earnings guidance.