NiSource Inc Reports Operating Results (10-Q)
Nisource Inc has a market cap of $4.85 billion; its shares were traded at around $17.45 with a P/E ratio of 14.9 and P/S ratio of 0.7. The dividend yield of Nisource Inc stocks is 5.3%.NI is in the portfolios of Brian Rogers of T Rowe Price Equity Income Fund, Bruce Kovner of Caxton Associates, Paul Tudor Jones of The Tudor Group, Jeremy Grantham of GMO LLC, Jim Simons of Renaissance Technologies LLC, Steven Cohen of SAC Capital Advisors, Mario Gabelli of GAMCO Investors.
Highlight of Business Operations:Net revenues were $257.2 million for the third quarter of 2010, an increase of $51.8 million from the same period in 2009, primarily due to an increase of approximately $32 million as a result of warmer weather and increased industrial margins of $10.2 million. Additionally, there was a $5.6 million increase in environmental trackers that are partly offset in operating expense and a $4.1 million increase in off-system sales.
At Northern Indiana, sales revenues and customer billings are adjusted for amounts related to under and over-recovered fuel and purchased power from prior periods per regulatory order. These amounts are primarily reflected in the Other gross revenues statistic provided at the beginning of this segment discussion. The adjustment to Other gross revenues for the three and nine months ended September 30, 2010 was a revenue increase of $12.9 million and $44.0 million, respectively, compared to a decrease of $2.1 million and $24.0 million for the three and nine months ended September 30, 2009, respectively.
Net revenues were $672.2 million for the nine months ended September 30, 2010, an increase of $108.9 million from the same period in 2009. This increase was due to higher margins, primarily industrial and residential, of $42.5 million and warmer weather of approximately $34 million. Additionally, there was an increase in off-system sales of $15.8 million, including an adjustment of $9.0 million to reduce off-system sales in 2009 resulting from a FAC settlement. The remaining increase in net revenues is a result of a $15.1 million increase in environmental trackers that are partly offset in operating expense.
Operating income for the third quarter of 2010 was $95.9 million, an increase of $52.4 million from the same period in 2009, due to the increase in net revenues described as well as lower operating expenses. Operating expenses decreased $0.6 million due to a decrease of $6.0 million related to a revision to the environmental reserve and a decrease of $3.2 million in restructuring costs which were recorded during the third quarter of 2009. These decreases were partially offset by increased employee and administration costs of $3.1 million, electric generation costs of $2.6 million, other taxes (primarily property tax) of $2.5 million, and depreciation costs of $1.9 million.
Operating income for the nine months ended September 30, 2010 was $190.6 million, an increase of $106.8 from the same period in 2009, due to higher net revenues discussed above, partially offset by an increase in operating expenses. Operating expenses increased $2.1 million due to an increase in taxes (primarily property) of $6.7 million and increased depreciation costs of $5.4 million. Additionally, there were increased environmental costs, including trackers, of $1.7 million, which are partially offset in revenues. These increases in expense were partially offset by a decrease of $7.0 million for a legal reserve, which was recorded in 2009, and a decrease of $3.2 million in restructuring costs recorded in 2009.
The Plaintiffs, who are West Virginia landowners, filed a lawsuit in early 2003 in the West Virginia Circuit Court for Roane County, West Virginia (the Trial Court) against CNR alleging that CNR underpaid royalties on gas produced on their land by improperly deducting post-production costs and not paying a fair value for the gas. Plaintiffs also claimed that Defendants fraudulently concealed the deduction of post-production charges. In December 2004, the Trial Court granted Plaintiffs motion to add NiSource and Columbia as Defendants. The Trial Court later certified the case as a class action that includes any person who, after July 31, 1990, received or is due royalties from CNR (and its predecessors or successors) on lands lying within the boundary of the state of West Virginia. Although NiSource sold CNR in 2003, NiSource remained obligated to manage this litigation and was responsible for the majority of any damages awarded to Plaintiffs. On January 27, 2007, the jury hearing the case returned a verdict against all Defendants in the amount of $404.3 million inclusive of both compensatory and punitive damages; Defendants subsequently filed their Petition for Appeal, which was later amended, with the West Virginia Supreme Court of Appeals (the Appeals Court), which refused the petition on May 22, 2008. On August 22, 2008, Defendants filed Petitions to the United States Supreme Court for writ of certiorari. Given the Appeals Courts earlier refusal of the appeal, NiSource adjusted its reserve in the second quarter of 2008 to reflect the portion of the Trial Court judgment for which NiSource would be responsible, inclusive of interest. This amount was included in Legal and environmental reserves, on the Consolidated Balance Sheet as of December 31, 2008. On October 24, 2008, the Trial Court preliminarily approved a Settlement Agreement with a total settlement amount of $380 million. The settlement received final approval by the Trial Court on November 22, 2008. NiSources share of the settlement liability is up to $338.8 million. NiSource complied with its obligations under the Settlement Agreement to fund $85.5 million in the qualified settlement fund by January 13, 2009. Additionally, NiSource provided a letter of credit on January 13, 2009 in the amount of $254 million and thereby complied with its obligation to secure the unpaid portion of the settlement, which has since been drawn down as settlement payments have been made. The Trial Court entered its Order discharging the judgment on January 20, 2009 and is supervising the administration of the settlement proceeds. As of September 30, 2010, NiSource had contributed a total of $328.2 million into the qualified settlement fund, $277.3 million of which was contributed prior to December 31, 2009. As of September 30, 2010, $10.6 million of the maximum settlement liability had not been paid. The remaining balance of the letter of credit is sufficient to cover any remaining payments under the Settlement Agreement. NiSource will be required to make additional payments, pursuant to the settlement, upon notice from the Class Administrator.
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