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As Filed with the United States Securities and Exchange Commission on March 30,
2001.
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____ to ______
Commission file number 001-161689
NISOURCE INC.
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(Exact name of registrant as specified in its charter)
Delaware 35-2108964
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
801 East 86th Avenue 46410
Merrillville, Indiana ------------------------
------------------------- (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code 219-853-5200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Shares New York, Chicago and Pacific
Preferred Share Purchase Rights New York, Chicago and Pacific
Obligations Pursuant to Support New York
Agreements with NiSource Capital Markets, Inc.
Corporate Premium Income Equity Securities New York
Stock Appreciation Income Linked Securities New York
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
---- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of February 28, 2001, 206,394,868 Common Shares were outstanding. The
aggregate market value of the Common Shares (based upon the February 28, 2001,
closing price of $28.63 on the New York Stock Exchange) held by non-affiliates
was approximately $5,800,000,000.00.
Documents Incorporated by Reference
Part III of this report incorporates by reference specific portions of the
Registrant's Notice of Annual Meeting and Proxy Statement dated March 12, 2001
relating to the Annual Meeting of Stockholders to be held on April 11, 2001.
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CONTENTS
Page
Part I No.
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Item 1. Business....................................................... 3
Item 2. Properties..................................................... 7
Item 3. Legal Proceedings.............................................. 8
Item 4. Submission of Matters to a Vote of Security Holders............ 9
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters........................................... 12
Item 6. Selected Financial Data........................................ 14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 15
Item 8. Financial Statements and Supplementary Data.................... 39
Item 9. Change In and Disagreements with Accountants on Accounting and
Financial Disclosure.......................................... 88
Part III
Item 10. Directors and Executive Officers of the Registrant............. 88
Item 11. Executive Compensation......................................... 88
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................... 88
Item 13. Certain Relationships and Related Transactions................. 88
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K...................................................... 89
Signatures.............................................................. 90
Exhibits................................................................ 91
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PART I
ITEM 1. BUSINESS
NiSource Inc. (NiSource) is an energy holding company that provides natural gas,
electricity and other products and services to 3.6 million customers located
within the energy corridor that runs from the Gulf Coast through the Midwest to
New England. NiSource, organized as an Indiana holding company in 1987 under the
name of NIPSCO Industries, Inc., changed its name to NiSource Inc. on April 14,
1999. In connection with the acquisition of Columbia Energy Group (Columbia) on
November 1, 2000, as discussed below, NiSource became a Delaware corporation.
NiSource is a registered holding company under the Public Utility Holding
Company Act of 1935, as amended, (1935 Act) and derives substantially all its
revenues and earnings from the operating results of its 27 direct subsidiaries.
On November 1, 2000, NiSource completed its acquisition of Columbia for an
aggregate consideration of approximately $6 billion, with 30% of the
consideration paid in common stock with the remaining 70% paid in cash and Stock
Appreciation Income Linked Securities(SM) (SAILS(SM)) which are units each
consisting of a zero coupon debt security coupled with a forward equity contract
in NiSource shares. NiSource also assumed approximately $2 billion in Columbia
debt. As a result of the acquisition, NiSource is the largest natural gas
distribution company operating east of the Rocky Mountains, as measured by
number of customers. NiSource's principal subsidiaries include Columbia, a
vertically-integrated natural gas distribution, transmission, storage and
exploration and production holding company whose subsidiaries provide service to
customers in the Midwest, the Mid-Atlantic and the Northeast; and Northern
Indiana Public Service Company (Northern Indiana), a vertically-integrated gas
and electric company providing service to customers in northern Indiana; and Bay
State Gas Company (Bay State), a natural gas distribution company serving
customers in New England.
NiSource's primary business segments are: gas distribution; electric operations;
gas transmission and storage; exploration and production; energy marketing; and
other products and services.
Gas Distribution Operations
NiSource's natural gas distribution operations serve more than 3.2 million
customers in 9 states and operate over 54,048 miles of pipeline. Through its
wholly owned subsidiary, Columbia, NiSource owns five distribution subsidiaries
that provide natural gas to approximately 2.1 million residential, commercial
and industrial customers in Ohio, Pennsylvania, Virginia, Kentucky and Maryland.
NiSource also distributes natural gas to approximately 751,000 customers in
northern Indiana through three subsidiaries: Northern Indiana, Kokomo Gas and
Fuel Company and Northern Indiana Fuel and Light Company, Inc. Additionally,
NiSource's subsidiary, Bay State, distributes natural gas to more than 320,000
customers in areas of Massachusetts, Maine and New Hampshire. The distribution
subsidiaries pursue initiatives that give residential and small commercial
customers the opportunity to choose their natural gas suppliers and to use the
distribution subsidiaries for transportation service. This ability to choose a
supplier was previously limited to larger commercial and industrial customers.
See Item 2, page 7 and Item 7, pages 21 through 27 for additional information.
Electric Operations
NiSource generates and distributes electricity to the public through its
subsidiary Northern Indiana to 430,052 customers in 21 counties in the northern
part of Indiana. Northern Indiana owns and operates four coal-fired electric
generating stations with a net capability of 3,179 megawatts (mw), four gas
fired combustion turbine generating units with a net capability of 203 mw and
two hydroelectric generating plants with a net capability of 10 mw. In total
these facilities provide for a total system net capability of 3,392 mw. Northern
Indiana is interconnected with five neighboring electric utilities. During the
year ended December 31, 2000, Northern Indiana generated 94.8% and purchased
5.2% of its electric requirements. See Item 2, page 7 and Item 7, pages 27
through 31 for additional information.
Gas Transmission and Storage Operations
NiSource's gas transmission and storage subsidiaries own and operate
approximately 15,880 miles of interstate pipelines and operate one of the
nation's largest underground natural gas storage systems capable of storing
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approximately 670 billion cubic feet (Bcf) of natural gas. Through its
subsidiaries, Columbia Gas Transmission Corporation (Columbia Transmission) and
Columbia Gulf Transmission Company (Columbia Gulf), it owns and operates an
interstate pipeline network extending from offshore in the Gulf of Mexico to
Lake Erie, New York and the eastern seaboard. Together, Columbia Transmission
and Columbia Gulf serve customers in 15 northeastern, mid-Atlantic, mid-western
and southern states and the District of Columbia. The gas transmission and
storage subsidiaries are engaged in several projects that will expand their
service territory and throughput. The largest such project is the proposed
442-mile Millennium Pipeline Project in which Columbia Transmission is
participating. As proposed, the project will transport approximately 700 Bcf of
natural gas per day from the Lake Erie region to eastern markets. This project
is currently awaiting approval by the Federal Energy Regulatory Commission
(FERC). See Item 2, page 7 and Item 7, pages 31 through 34 for additional
information.
Exploration and Production Operations
NiSource's Columbia Energy Resources, Inc. (Columbia Resources), is an
exploration and production subsidiary that explores for, develops, gathers and
produces natural gas and oil in Appalachia and Canada. As of December 31, 2000,
Columbia Resources has net proven gas and oil reserve holdings of 1.1 trillion
cubic feet equivalent and owns and operates 6,200 miles of gathering pipelines.
See Item 2, page 7 and Item 7, pages 34 through 35 for additional information.
Energy Marketing Operations
NiSource provides non-regulated energy marketing and services through its wholly
owned subsidiary EnergyUSA, Inc. These operations provide a variety of
energy-related services, including gas marketing and asset management services
to local distribution companies (LDCs), wholesale, commercial and industrial
customers. In April 1999, NiSource acquired TPC Corporation and renamed it
EnergyUSA-TPC Corp. (TPC). TPC primarily provides energy related asset
management and asset portfolio replacement opportunities for LDCs and fuel
requirement services for electric utilities, independent power producers and
cogeneration facilities. In 1999, TPC assumed the operations of another NiSource
subsidiary, which provides natural gas sales and management services to
industrial and commercial customers engaged in natural gas marketing activities
and provides gas supply to Northern Indiana, Kokomo Gas and Fuel Company and
Northern Indiana Fuel and Light Company, Inc. under spot and /or term contracts.
See item 7, pages 35 through 36 for additional information.
Other Products and Services
NiSource develops power projects through its subsidiary, Primary Energy, Inc.
(Primary Energy) which works with industrial customers in managing the
engineering, construction, operation and maintenance of "inside the fence"
cogeneration plants that provide cost-effective, long-term sources of energy for
energy-intensive facilities. NiSource has also invested in a number of
distributed generation technologies including fuel cells and microturbine
ventures. NiSource is also building a dark-fiber optics telecommunications
network primarily along its pipeline rights-of-way between New York and
Washington D.C. NiSource is pursuing strategic alternatives for its
telecommunications network and has recently exited the pipeline construction
business and is in the process of selling the line locating and marking
business. See Item 2, page 8 and Item 7, pages 36 through 38 for additional
information.
Divestiture of Non-Core Assets
In connection with the Columbia acquisition, NiSource sold or is divesting
certain businesses judged to be non-core to the company's energy strategy.
Subsequent to the announcement of the Columbia acquisition, NiSource sold Market
Hub Partners L.P., a company that owns and operates salt cavern gas storage
facilities in Texas and Louisiana. In February 2001, NiSource settled a lawsuit
related to MHP operations for an immaterial amount. Also during 2000, Columbia
completed the divestiture of its interest in the Cove Point LNG facilities, its
natural gas-fired electric power plants and its electric generation business,
and NiSource sold its pipeline construction subsidiary. On January 31, 2001,
NiSource announced a definitive agreement to sell the stock and assets of
Columbia Propane Corporation to AmeriGas Partners, L.P. (AmeriGas) for
approximately $208 million, including $53 million of AmeriGas partnership common
units. Through its subsidiary IWC Resources Corporation, NiSource supplies water
to residential, commercial and industrial customers and for fire protection
service in Indianapolis, Indiana and surrounding areas. As part of the
Securities and Exchange Commission's order approving the Columbia merger,
NiSource has been ordered to divest its water utility business by November 2003.
As a result of Management's formal
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ITEM 3. LEGAL PROCEEDINGS (continued)
divestiture plan, the water utility business is reported as discontinued
operations. NiSource is pursuing the sale of Columbia's petroleum businesses and
smaller non-core businesses. NiSource is also pursuing the sale of its
underground utility locating and marking business. See Discontinued Operations
in Item 7, page 18 and Item 8 pages 55 through 56 for additional information.
Growth Strategy
NiSource is focused on becoming the premier energy company serving customers
throughout the energy-intensive corridor that extends from the supply areas in
the Gulf Coast through the consumption centers in the Midwest, Mid-Atlantic and
Northeast. This corridor includes 30% of the nation's population and 40% of its
energy consumption. NiSource believes natural gas will be the fuel preferred by
customers to meet the corridor's growing energy needs. The Columbia acquisition
furthers this strategy by combining NiSource's natural gas distribution assets
in Indiana and New England with Columbia's natural gas distribution, storage and
exploration and production assets in Ohio, the Mid-Atlantic and Appalachia and
Columbia's interstate transmission assets.
Competition and Changes in the Regulatory Environment
The regulatory frameworks applicable to NiSource's regulated operations, at both
the state and federal levels, are undergoing fundamental changes. These changes
have impacted and will continue to have an impact on NiSource's operations,
structure and profitability. At the same time, competition within the gas and
electric industries will create opportunities to compete for new customers and
revenues. Management continually seeks new ways to be more competitive and
profitable in this changing environment, including partnering on energy projects
with major industrial customers, converting some of its generating units to
allow use of lower cost low sulfur coal, providing its gas customers with
increased customer choice for new products and services, acquiring companies
that will provide improved economies of scale and efficiencies and developing
new energy-related products for residential, commercial and industrial
customers.
Natural Gas Competition. Open access to natural gas supplies over interstate
pipelines and the deregulation of the commodity price of gas has led to
tremendous change in the energy markets, which continue to evolve. During the
past few years, LDC customers and marketers began to purchase gas directly from
producers and marketers and an open competitive market for gas supplies emerged.
This separation or "unbundling" of the transportation and other services offered
by pipelines and LDCs allows customers to select the service they want
independent from the purchase of the commodity. NiSource's gas distribution
subsidiaries are involved in programs that provide residential customers the
opportunity to purchase their natural gas requirements from third parties and
use the NiSource gas distribution subsidiaries for transportation services only.
It is likely that, over time, distribution companies will have a very limited
merchant commodity sales function. At the same time that the natural gas markets
are evolving, the markets for competing energy sources are also changing.
Electric Competition. In 1996, the FERC ordered that all public utilities
owning, controlling or operating electric transmission lines to file
non-discriminatory open-access tariffs and offer wholesale electricity suppliers
and marketers the same transmission service they provide themselves. In 1997,
FERC approved Northern Indiana's open-access transmission tariff. In December
1999, FERC issued a final rule addressing the formation and operation of
Regional Transmission Organizations (RTOs). The rule was intended to eliminate
pricing inequities in the provision of wholesale transmission service. NiSource
does not believe that compliance with the new rules will be material to its
future earnings. In February 2001, Northern Indiana became a member of the
Alliance RTO in formation. The Alliance RTO expects to be in full operation
prior to FERC's December 15, 2001 deadline. Although wholesale customers
currently represent a small portion of Northern Indiana's electricity sales, it
intends to continue its efforts to retain and add wholesale customers by
offering competitive rates and also intends to expand the customer base for
which it provides transmission services.
NiSource's other operations also experience competition for energy sales and
related services from third party providers. NiSource meets these challenges
through innovative programs aimed at providing energy products and services at
competitive prices while also providing new services that are responsive to the
evolving energy market and customer requirements.
See Competition in Item 7, page 21 for additional information.
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ITEM 3. LEGAL PROCEEDINGS (continued)
Financing Flexibility
NiSource Finance Corp. (NiSource Finance) is a wholly owned special purpose
finance subsidiary of NiSource that engages in financing activities to raise
funds for the business operations of NiSource and its subsidiaries. NiSource
Finance was incorporated in February 2000 under the laws of the State of
Indiana. NiSource Finance's obligations under debt security issues are fully and
unconditionally guaranteed by NiSource.
To finance the acquisition of Columbia, NiSource Finance arranged a $6 billion
364-day acquisition facility with a syndicate of banks. NiSource Finance repaid
$2.65 billion of acquisition related commercial paper from the issuance of
private placement notes. In addition, $280.9 million of commercial paper was
repaid from the proceeds of an equity issuance.
Prior to the establishment of NiSource Finance, NiSource Capital Markets, Inc.,
(Capital Markets) a first-tier subsidiary of NiSource, engaged in financing
activities for NiSource and certain of its subsidiaries. Management expects to
merge Capital Markets into NiSource Finance during 2001, subject to obtaining
required consents and approvals. Once necessary consents and approvals are
obtained, management intends for NiSource to conduct all future financing
through NiSource Finance.
NiSource has arranged a new $2.5 billion revolving credit facility with a
syndicate of banks for future working capital requirements. The new facility
refinanced and consolidated essentially all of NiSource's existing short-term
credit facilities into one credit facility, through NiSource Finance.
As of December 31, 2000, and December 31, 1999, $2,078.8 million and $299.6
million of commercial paper was outstanding, respectively. The weighted average
interest rate on commercial paper outstanding as of December 31, 2000, was
7.44%. In addition, NiSource had notes payable of $417.9 million and $351.8
million outstanding at December 31, 2000, and December 31, 1999, respectively,
at a weighted average interest rate of 7.78% for 2000 and 6.61% for 1999.
See the Liquidity and Capital Resources section of Item 7 on pages 18 through 19
and Item 8 pages 67 through 69 for additional information.
The Management's Discussion and Analysis, including statements regarding market
risk sensitive instruments, contains "forward-looking statements," within the
meaning of Section 27A of the Securities Act of 1933, as
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amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Investors and prospective investors should understand that many factors govern
whether any forward-looking statement contained herein will be or can be
realized. Any one of those factors could cause actual results to differ
materially from those projected. These forward-looking statements include, but
are not limited to, statements concerning NiSource's plans, proposed
dispositions, objectives, expected performance, expenditures and recovery of
expenditures through rates, stated on either a consolidated or segment basis,
and any and all underlying assumptions and other statements that are other than
statements of historical fact. From time to time, NiSource may publish or
otherwise make available forward-looking statements of this nature. All such
subsequent forward-looking statements, whether written or oral and whether made
by or on behalf of NiSource, are also expressly qualified by these cautionary
statements. All forward-looking statements are based on assumptions that
management believes to be reasonable; however, there can be no assurance that
actual results will not differ materially. Realization of NiSource's objectives
and expected performance is subject to a wide range of risks and can be
adversely affected by, among other things, increased competition in deregulated
energy markets, weather, fluctuations in supply and demand for energy
commodities, successful consummation of proposed acquisitions and dispositions,
growth opportunities for NiSource's regulated and nonregulated businesses,
dealings with third parties over whom NiSource has no control, actual operating
experience of acquired assets, NiSource's ability to integrate acquired
operations into its operations, the regulatory process, regulatory and
legislative changes, changes in general economic, capital and commodity market
conditions, and counter-party credit risk, many of which are beyond the control
of NiSource. In addition, the relative contributions to profitability by each
segment, and the assumptions underlying the forward-looking statements relating
thereto, may change over time.
Other Relevant Business Information
NiSource's customer base is broadly diversified, with no single customer
accounting for a significant portion of revenues.
As of January 31, 2001, NiSource had 14,418 full-time employees of which 4,423
were subject to collective bargaining agreements.
NiSource's subsidiaries are subject to extensive federal, state and local laws
and regulations relating to environmental matters. These laws and regulations,
which are constantly changing, require expenditures for corrective action at
various operating facilities, waste disposal sites and former gas manufacturing
sites for conditions resulting from past practices that have subsequently become
subject to environmental regulation. Information relating to environmental
matters is detailed in Item 7, pages 24 through 25, 28 through 29, 32 through
33, and 37, and Item 8, Note 18F on pages 71 through 76.
For a listing of certain subsidiaries of NiSource refer to Exhibit 21.
ITEM 2. PROPERTIES
Discussed below are the principal properties held by NiSource and its
subsidiaries as of December 31, 2000.
GAS DISTRIBUTION OPERATIONS. NiSource's gas distribution operations owns and
operates a total of 54,048 miles of pipelines. This included (i) for the five
distribution subsidiaries of its Columbia system, 32,796 miles of pipelines
3,300 acres of underground storage, 8 storage wells and one compressor station
with 800 horsepower (hp) of installed capacity, (ii) for its Northern Indiana
system 14,005 miles of pipelines and 2 compressor stations with a total of 6,000
hp, (iii) for its Bay State system 5,607 miles of pipelines, (iv) for its
Northern Indiana Fuel and Light system 864 miles of pipelines, and (v) for its
Kokomo Gas and Fuel system 776 miles of pipelines. The physical properties of
the NiSource gas utilities are located throughout Ohio, Indiana, Pennsylvania,
Virginia, Kentucky, Maryland, Massachusetts, Maine and New Hampshire. NiSource's
gas distribution system is primarily located on or under public streets, and
other public places or on private property not owned by the company, with
easements from or consent of the respective owners.
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ELECTRIC OPERATIONS. Northern Indiana owns and operates four coal-fired electric
generating stations with net capabilities of 3,179 mw, two hydroelectric
generating plants with net capabilities of 10 mw and four gas-fired combustion
turbine generating units with net capabilities of 203 mw, for a total system net
capability of 3,392 mw. It has 288 substations with an aggregate transformer
capacity of 23,023,700 kilovolts (kva). Its transmission system, with voltages
from 34,500 to 345,000 volts, consists of 3,091 circuit miles of line. The
electric distribution system extends into 21 counties and consists of 7,800
circuit miles of overhead and 1,646 cable miles of underground primary
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distribution lines operating at various voltages from 2,400 to 12,500 volts.
Northern Indiana has distribution transformers having an aggregate capacity of
11,638,066 kva and 447,784 electric watt-hour meters.
GAS TRANSMISSION AND STORAGE OPERATIONS. At December 31, 2000, Columbia
Transmission had 863,994 acres of underground storage, 3,235 storage wells,
10,577 miles of transmission pipelines and 107 compressor stations with 586,625
hp of installed capacity. These operations were located in Delaware, Kentucky,
Maryland, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Virginia and
West Virginia. Columbia Gulf had 4,116 miles of transmission pipelines and 13
compressor stations with 483,2000 hp of installed capacity. Columbia Gulf's
operations were located Kentucky, Louisiana, Mississippi, Tennessee, Texas and
Wyoming.
EXPLORATION AND PRODUCTION OPERATIONS. At December 31, 2000, Columbia Resources
had net proven gas and oil reserve holdings of 1.1 trillion cubic feet
equivalent and had financial interests in approximately 8,000 wells. In
addition, Columbia Resources owns and operates approximately 6,200 miles of
gathering pipelines and 53 compressor stations with 45,972 hp of installed
capacity.
OTHER PRODUCTS AND SERVICES. Through its subsidiaries, NiSource owns Southlake
Complex, a 325,000 square foot office building located in Merrillville, Indiana
and a golf course, surrounding residential development and land held for resale
in Testator, Indiana.
CHARACTER OF OWNERSHIP. Substantially all of the properties of Northern Indiana
are subject to the lien of its First Mortgage Indentures. The principal offices
and properties of NiSource and its subsidiaries are held in fee and are free
from other encumbrances, subject to minor exceptions, none of which are of such
a nature as to impair substantially the usefulness of such properties. Many of
the offices in various communities served are occupied by subsidiaries of
NiSource under leases. All properties are subject to liens for taxes,
assessments and undetermined charges (if any) incidental to construction. It is
NiSource's practice regularly to pay such amounts, as and when due, unless
contested in good faith. In general, the electric lines, gas pipelines and
related facilities are located on land not owned in fee but are covered by
necessary consents of various governmental authorities or by appropriate rights
obtained from owners of private property. NiSource does not, however, generally
have specific easements from the owners of the property adjacent to public
highways over, upon or under which its electric lines and gas pipelines are
located. At the time each of the principal properties was purchased a title
search was made. In general, no examination of titles as to rights-of-way for
electric lines, gas pipelines or related facilities was made, other than
examination, in certain cases, to verify the grantors' ownership and the lien
status thereof.
ITEM 3. LEGAL PROCEEDINGS
1. United States of America ex rel. Jack J. Grynberg v. Columbia Gas
Transmission Corp. et. al., CA No. 97-2091-K, E.D. La.
The plaintiff filed a complaint under the False Claims Act, on behalf of
the United States of America, against approximately seventy pipelines,
including Columbia Gulf. The plaintiff claimed that the defendants had
submitted false royalty reports to the government (or caused others to
do so) by mismeasuring the volume and heating content of natural gas
produced on Federal land and Indian lands. Plaintiff's original
complaint was dismissed without prejudice for misjoinder of parties and
for failing to plead fraud with specificity. The plaintiff then filed
over sixty-five new False Claims Act complaints against over 330
defendants in numerous Federal courts. One of those complaints was filed
in the Federal District Court for the Eastern District of Louisiana
against Columbia and thirteen affiliated entities. Plaintiff's second
complaint repeats the mismeasurement claims previously made and adds
valuation claims alleging that the defendants have undervalued natural
gas for royalty purposes in various ways, including sales to affiliated
entities at artificially low prices. Most of the Grynberg cases were
transferred to Federal court in Wyoming, in 1999. In December, 1999, the
Columbia defendants filed a motion to dismiss plaintiff's second
complaint primarily based on a failure to plead fraud with specificity.
A hearing was held on the motion in March 2000 but the court has not yet
ruled.
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ITEM 3. LEGAL PROCEEDINGS (continued)
2. Quinque Operating Co. et al v. Gas Pipelines et al., Case No. 99 C 30
Stevens County, Kansas
Plaintiff filed an amended complaint in Stevens County, Kansas state
court against over 200 natural gas measurers, mostly natural gas
pipelines, including the Columbia and fourteen affiliated entities. The
allegations in Quinque are similar to those made in Grynberg; however,
Quinque broadens the claims to cover all oil and gas leases (other than
the Federal and Indian leases that are the subject of Grynberg). Quinque
asserts a breach of contract claim, negligent or intentional
misrepresentation, civil conspiracy, common carrier liability,
conversion, violation of a variety of Kansas statutes and other common
law causes of action. Quinque purports to be a nationwide class action
filed on behalf of all similarly situated gas producers, royalty owners,
overriding royalty owners, working interest owners and certain state
taxing authorities. The defendant had previously removed the case to
Federal court. On January 12, 2001, the Federal court remanded the case
to state court.
3. Vivian K. Kershaw et al. v. Columbia Natural Resources, Inc., et al.,
CA No. 00-CV-246C(H), W.D.N.Y.
In February 2000, plaintiff filed a complaint in New York state court
against Columbia Natural Resources (CNR) and Columbia Gas Transmission
Corporation (Columbia Transmission). The complaint alleges that Kershaw
owns an interest in an oil and gas lease in New York and that the
defendants have underpaid royalties on those leases by, among other
things, failing to base royalties on the price at which natural gas is
sold to the end user and by improperly deducting post-production costs.
The complaint also seeks class action status on behalf of all royalty
owners in oil and gas leases operated by CNR. Plaintiff seeks the
alleged royalty underpayments and punitive damages. Columbia removed the
case to federal court in March 2000. The Federal court has now remanded
Kershaw back to New York state court.
4. Anthony Gonzalez, et al. v. National Propane Corporation, et al. Case
No. 97 L 15857, Circuit Court of Cook County, Illinois.
On December 11, 1997, Plaintiffs Anthony Gonzalez, Helen Pieczynski, as
Special Administrator of the Estate of Edmund Pieczynski, deceased,
Michael Brown and Stephen Pieczynski filed a multiple-count complaint
for personal injuries in the Circuit Court of Cook County, Illinois
against National Propane Corporation and the Estate of Edmund Pieczynski
sounding in strict tort liability and negligence. Plaintiff's complaint
arises from an explosion and fire which occurred in a Wisconsin vacation
cottage in 1997. National Propane, L.P. filed a third-party complaint
for contribution against Natural Gas Odorizing and Phillips Petroleum
Company. Written discovery has been completed and the parties are
conducting oral discovery of the fact witnesses. There has been no trial
date set in the matter, and the next court date is June 27, 2001, at
which time further scheduling of discovery will occur.
5. Columbia Gas Transmission Corp. v. Consolidation Coal Co., et al. C.A.
No. 99-2071, W.D.PA. On December 21, 1999, Columbia Transmission filed a
complaint against Consolidation Coal Co. and McElroy Coal Co.
(collectively, Consol), seeking declaratory and permanent injunctive
relief enjoining Consol from pursuing its current plan to conduct
longwall mining through Columbia Transmission's Victory Storage Field
(Victory) in northern West Virginia. The complaint was served on April
10, 2000. Consol's current plans to longwall mine through the Victory
would destroy certain infrastructure of Victory, including all of
Columbia Transmission's storage wells in the path of the mining. The
parties are holding discussions concerning resolution of this matter. On
December 8, 2000, the court denied Consol's Motion to Dismiss for
protective order, and discovery by the parties has been initiated.
6. McElroy Coal Company v. Columbia Gas Transmission Corporation, No. 5-01
CV 18, N.D. WV. On February 12, 2001, McElroy Coal Company (McElroy), an
affiliate of Consolidation Coal Co., filed a complaint against Columbia
Transmission in Federal court in Wheeling, West Virginia. The West
Virginia complaint seeks declaratory and injunctive relief as to
McElroy's alleged right to mine coal within Victory and Columbia
Transmission's obligation to take all necessary measures to permit
McElroy to longwall mine. The complaint also seeks compensation for the
inverse condemnation of any coal that cannot be mined due to Columbia
Transmission's Victory operations. Except for the claim of inverse
condemnation, McElroy's West Virginia complaint appears to be virtually
identical to Consolidation Coal Co.'s counterclaim to Columbia
Transmission's Federal court action in Pennsylvania. We are currently
evaluating McElroy's West Virginia complaint and Columbia Transmission's
potential responses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
SUPPLEMENTAL ITEM--EXECUTIVE OFFICERS OF THE REGISTRANT. THE FOLLOWING IS A LIST
OF THE EXECUTIVE OFFICERS OF THE REGISTRANT, INCLUDING THEIR NAMES, AGES AND
OFFICES HELD, AS OF MARCH 27, 2001.
YEARS WITH
NAME AGE NISOURCE OFFICE(s) HELD IN PAST 5 YEARS
---- --- -------- ------------------------------
Gary L. Neale................... 61 11 Chairman, President and Chief Executive Officer of
NiSource Inc. since March 1993.
10
11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (continued)
SUPPLEMENTAL ITEM--EXECUTIVE OFFICERS OF THE REGISTRANT
YEARS WITH
NAME AGE NISOURCE OFFICE(s) HELD IN PAST 5 YEARS
---- --- -------- ------------------------------
Stephen P. Adik................. 57 14 Vice Chairman of NiSource Inc. since November 2000.
Senior Executive Vice President, Chief Financial Officer
and Treasurer of NiSource Inc. since February 1999.
Executive Vice President, Chief Financial Officer and
Treasurer of NiSource Inc. from January 1994 to January
1999.
Catherine G. Abbott............. 50 1 Group President, Pipeline Operations of NiSource Inc. since
November 2000.
Chief Executive Officer and President of Columbia Gas
Transmission Corporation and Chief Executive Officer of
Columbia Gulf Transmission Company since January 1996.
Principal with Gem Energy Consulting, Inc. from 1995 to
January 1996.
James M. Clarke................. 42 3 Senior Vice President, Risk Management and Capital
Allocation of NiSource Inc. since November 2000.
Vice President of Risk Management & Capital Allocation of
NiSource Inc. from June 200 to November 2000.
Risk Management Officer from February 1998 to May 2000.
Prior thereto head of equity trading at DRW Investments.
Peter V. Fazio, Jr. ............ 60 1 Executive Vice President and General Counsel of NiSource
Inc. since November 2000.
Partner in the law firm of Schiff, Hardin and Waite since 1984.
Francis P. Girot, Jr. .......... 56 20 Vice President and Treasurer of NiSource Inc. since
November 2000.
Treasurer of Northern Indiana Public Service Company and
NiSource Corporate Services Company since July 1996. Prior
thereto, Treasurer of Northern Indiana Public Service
Company.
11
12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (continued)
SUPPLEMENTAL ITEM--EXECUTIVE OFFICERS OF THE REGISTRANT
YEARS WITH
NAME AGE NISOURCE OFFICE(s) HELD IN PAST 5 YEARS
---- --- -------- ------------------------------
Jeffrey W. Grossman............. 49 1 Vice President and Controller of NiSource Inc. since
November 2000.
Vice President and Controller of Columbia Energy Group from
May 1996 to October 2000.
Prior thereto, Assistant Controller of Columbia Energy
Group.
Dennis W. McFarland............. 48 1 Vice President, Finance and Planning of NiSource Inc. since
November 2000.
Senior Vice President of Finance and Planning of Columbia Gas
of Ohio March 1996 to November 2000.
Vice President, Corporate Planning of Columbia Gas of Ohio
prior thereto.
Patrick J. Mulchay.............. 59 38 Group President, Merchant Energy of NiSource Inc. since
November 2000.
Executive Vice President of NiSource Inc. and Operating
Officer at Northern Indiana Public Service Company since
February 1999.
Executive Vice President and Chief Operating Officer at
Northern Indiana Public Service Company from July 1996
to January 1999.
Executive Vice President and Chief Operating Officer of
Electric Operations at Northern Indiana Public Service
Company from January 1994 to July 1996.
Michael W. O'Donnell............ 56 1 Executive Vice President and Chief Financial Officer of
NiSource Inc. since November 2000.
Senior Vice President and Chief Financial Officer of
Columbia and Columbia Energy Group Service Corporation
since October 1993.
12
13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (continued)
SUPPLEMENTAL ITEM--EXECUTIVE OFFICERS OF THE REGISTRANT
YEARS WITH
NAME AGE NISOURCE OFFICE(s) HELD IN PAST 5 YEARS
---- --- -------- ------------------------------
Stephen P. Smith................ 40 1 President and Chief Operating Officer of NiSource Corporate
Services and President, Business Services of NiSource Inc.
since November 2000.
Deputy Chief Financial Officer for Columbia Energy Group from
December 1999 to November 2000.
Senior Vice President and Chief Financial Officer Columbia Gas
Transmission Corporation and Columbia Gulf Transmission Company
from February 1997 to December 1999.
Vice President of Business Development at Columbia Gas Transmission
Corporation from June 1996 to February 1997.
Prior thereto Director of Business Development for Western
Europe at Enron Corporation.
Mark D. Wycoff ................. 39 9 President, Energy Technologies of NiSource Inc. since November 2000.
Vice President of Human Resources of NiSource Inc. from June 1998 to
November 2000.
Assistant Treasurer of NiSource Inc. from September 1997 to November
2000.
Prior thereto NiSource Development Principal since January 1994.
Joseph L. Turner, Jr. .......... 64 15 Senior Vice President of NiSource Inc. since November
2000. President of Primary Energy and Senior Vice President
of Major Accounts at Northern Indiana Public Service Company since
January 1996.
Prior thereto, Group Vice President, Major Accounts of
Northern Indiana Public Service Company.
Jeffrey W. Yundt................ 55 21 Group President, Energy Distribution of NiSource Inc. since
November 2000.
Executive Vice President of NiSource and President and
Chief Executive Officer at Bay State Gas Company from
February 1999 to November 2000.
Executive Vice President and Chief Operating Officer of
EnergyUSA, and President of NI Energy Services, Inc. from
July 1996 to January 1999.
Executive Vice President and Chief Operating Officer of Gas
Services at Northern Indiana Public Service Company from
January 1994 to June 1996.
13
14
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
NiSource's common shares are listed and traded on the New York, Chicago and
Pacific stock exchanges. The table below indicates the high and low sales price
of NiSource's common shares, on the composite tape, during the periods
indicated.
2000 1999
--------------------- ------------------------
High Low High Low
--------- -------- ----------- ---------
First Quarter 21 5/16 12 13/16 30 1/2 25 7/8
Second Quarter 19 1/8 16 7/16 28 1/8 25 13/16
Third Quarter 26 5/16 18 9/16 26 7/8 21 3/4
Fourth Quarter 31 1/2 23 11/16 23 16 9/16
As of February 28, 2001, NiSource had 51,608 common shareholders of record.
On November 1, 2000, NiSource issued 72,452,733 common shares in exchange for
Columbia shares in connection with the Columbia acquisition and canceled
26,409,670 common shares of treasury stock. On November 27, 2000, NiSource
issued 11.5 million new common shares with the proceeds used to reduce
borrowings under the NiSource Finance acquisition credit facility.
The policy of the Board has been to declare cash dividends on a quarterly basis
payable on or about the 20th day of February, May, August and November. NiSource
paid quarterly common dividends of $0.255 per share during 1999 and quarterly
common dividends of $0.27 per share during 2000. At its January 2001 meeting,
the Board increased the quarterly common dividend to $0.29 per share, payable on
February 20, 2001.
Holders of NiSource's common shares are entitled to receive dividends when, as
and if declared by the Board out of funds legally available. Although the Board
currently intends to consider the payment of regular quarterly cash dividends on
common shares, the timing and amount of future dividends will depend on the
earnings of NiSource's subsidiaries, their financial condition, cash
requirements, regulatory restrictions and any restrictions in financing
agreements and other factors deemed relevant by the Board.
The following limitations on payment of dividends and issuance of preferred
stock apply to Northern Indiana:
When any bonds are outstanding under its First Mortgage Indenture, Northern
Indiana may not pay cash dividends on its stock (other than preferred or
preference stock) or purchase or retire common shares, except out of earned
surplus or net profits computed as required under the provisions of the
maintenance and renewal fund. At December 31, 2000, Northern Indiana had
approximately $186.2 million of retained earnings (earned surplus) available for
the payment of dividends. Future common share dividends by Northern Indiana will
depend upon adequate retained earnings, adequate future earnings and the absence
of adverse developments.
So long as any shares of Northern Indiana's cumulative preferred stock are
outstanding, no cash dividends shall be paid on its common shares in excess of
75% of the net income available for the preceding calendar year, unless the
aggregate of the capital applicable to stocks subordinate as to assets and
dividends, would equal or exceed 25% of the sum of all obligations evidenced by
bonds, notes, debentures or other securities, plus the total capital and
surplus. At December 31, 2000, the sum of the capital applicable to stocks
subordinate to the cumulative preferred stock plus the surplus was equal to 42%
of the total capitalization including surplus.
14
15
ITEM 6. SELECTED FINANCIAL DATA
SELECTED SUPPLEMENTAL INFORMATION
Year Ended December 31, ($ in millions) 2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------
Gross Revenues
Gas Distribution 1,806.8 831.6 609.6 800.8 799.4
Electric 1,557.4 1,346.3 1,426.6 1,015.4 1,022.2
Gas Transmission and Storage 363.7 120.0 - - -
Energy Marketing 1,942.8 697.1 594.9 383.8 116.4
Other Products and Services 360.0 278.5 212.8 322.3 49.9
---------------------------------------------------------------------------------------------------------
Total Gross Revenues 6,030.7 3,273.5 2,843.9 2,522.3 1,987.9
---------------------------------------------------------------------------------------------------------
Net Revenues 1,948.0 1,392.7 1,152.6 1,146.8 1,115.9
Operating Income 567.8 437.9 402.7 390.0 386.3
Net Income 156.9 160.4 193.9 190.8 176.7
Shares outstanding at the end of the year 205,553 124,139 117,531 124,312 119,611
Number of common shareholders 52,085 40,741 36,277 37,373 35,339
Basic Earnings Per Share ($)
Continuing operations 1.09 1.24 1.56 1.48 1.44
Income from discontinued operations 0.07 0.05 0.04 0.06 0.00
---------------------------------------------------------------------------------------------------------
Basic Earnings Per Share 1.16 1.29 1.60 1.54 1.44
---------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share ($)
Continuing operations 1.08 1.22 1.55 1.47 1.43
Income from discontinued operations 0.07 0.05 0.04 0.06 0.00
---------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share 1.15 1.27 1.59 1.53 1.43
---------------------------------------------------------------------------------------------------------
Return on average common equity 6.6% 12.8% 16.1% 16.1% 15.9%
Times interest earned (pre-tax) 1.77 2.20 3.26 3.48 3.62
Dividends paid per share 1.08 1.02 0.96 0.90 0.84
Dividend payout ratio 93.1% 79.1% 60.0% 58.4% 58.3%
Market values during the year:
High 31.500 30.500 33.625 24.938 20.125
Low 12.813 16.563 24.750 19.000 17.625
Close 30.750 17.875 30.437 24.719 19.813
Book value of common shares 16.61 10.90 9.78 10.17 9.20
Market-to-book ratio at year end 185.1% 163.9% 311.2% 243.1% 215.4%
Total Assets 19,696.8 6,428.6 4,595.4 4,618.2 4,288.9
Capital expenditures 365.8 293.9 198.3 179.0 207.9
Capitalization
Common shareholders' equity 3,415.2 1,353.5 1,149.7 1,264.8 1,100.5
Preferred and preference stock 132.7 139.6 142.0 144.5 142.4
Company-obligated mandatorily redeemable
preferred securities of subsidiary
trust holding solely Company debentures 345.0 345.0 - - -
Long-Term debt 5,802.7 1,775.8 1,555.8 1,555.7 1,127.1
---------------------------------------------------------------------------------------------------------
Total Capitalization 9,695.6 3,613.9 2,847.5 2,965.0 2,370.0
---------------------------------------------------------------------------------------------------------
Number of employees 14,674 7,399 6,035 5,984 4,168
15
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INDEX PAGE
--------------------------------------------------------------------------------------------------
Consolidated Review................................................................ 15
Liquidity and Capital Resources.................................................... 18
Market Risk Sensitive Instruments and Positions.................................... 19
Gas Distribution Operations........................................................ 21
Electric Operations................................................................ 27
Gas Transmission and Storage Operations............................................ 31
Exploration and Production Operations.............................................. 34
Energy Marketing Operations ....................................................... 35
Other Products and Services........................................................ 36
--------------------------------------------------------------------------------------------------
The Management's Discussion and Analysis, including statements regarding market
risk sensitive instruments, contains "forward-looking statements," within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Investors and
prospective investors should understand that many factors govern whether any
forward-looking statement contained herein will be or can be realized. Any one
of those factors could cause actual results to differ materially from those
projected. These forward-looking statements include, but are not limited to,
statements concerning NiSource's plans, proposed dispositions, objectives,
expected performance, expenditures and recovery of expenditures through rates,
stated on either a consolidated or segment basis, and any and all underlying
assumptions and other statements that are other than statements of historical
fact. From time to time, NiSource may publish or otherwise make available
forward-looking statements of this nature. All such subsequent forward-looking
statements, whether written or oral and whether made by or on behalf of
NiSource, are also expressly qualified by these cautionary statements. All
forward-looking statements are based on assumptions that management believes to
be reasonable; however, there can be no assurance that actual results will not
differ materially. Realization of NiSource's objectives and expected performance
is subject to a wide range of risks and can be adversely affected by, among
other things, increased competition in deregulated energy markets, weather,
fluctuations in supply and demand for energy commodities, successful
consummation of proposed acquisitions and dispositions, growth opportunities for
NiSource's regulated and nonregulated businesses, dealings with third parties
over whom NiSource has no control, actual operating experience of acquired
assets, NiSource's ability to integrate acquired operations into its operations,
the regulatory process, regulatory and legislative changes, changes in general
economic, capital and commodity market conditions, and counter-party credit
risk, many of which are beyond the control of NiSource. In addition, the
relative contributions to profitability by each segment, and the assumptions
underlying the forward-looking statements relating thereto, may change over
time.
ACQUISITION OF COLUMBIA ENERGY GROUP
On November 1, 2000, NiSource completed its acquisition of Columbia Energy Group
(Columbia) for an aggregate consideration of approximately $6 billion, with 30%
of the consideration paid in common stock and 70% of the consideration paid in
cash and Stock Appreciation Income Linked Securities(sm), referred to as
SAILS(sm), which are units consisting of a zero coupon debt security coupled
with a forward equity contract for NiSource shares. NiSource also assumed
approximately $2 billion of Columbia debt. As a result of the Columbia
acquisition, NiSource is a super-regional energy holding company that provides
natural gas, electricity and other products and services to 3.6 million
customers located within the energy corridor that runs from the Gulf Coast
through the Midwest to New England.
CONSOLIDATED REVIEW
For the twelve months ended December 31, 2000, NiSource reported income from
continuing operations of $147.1 million, or $1.09 per share, compared to $153.9
million, or $1.24 per share, in 1999. All per share amounts are reflected on
basic common shares. After adjusting for non-recurring items as reflected on the
table below, income for continuing operations was $253.9 million, or $1.89 per
share, in 2000 and $172 million, or $1.38 per share, in
16
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
1999. In the fourth quarter of 2000, NiSource issued approximately 72.5 million
common shares to shareholders of Columbia as part of the consideration for the
acquisition of Columbia and an additional 11.5 million shares for cash,
17
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
the proceeds of which were used to repay a portion of the short-term borrowings
incurred as a result of the acquisition.
The results for 2000 and 1999 are not directly comparable, due to the Columbia
acquisition completed on November 1, 2000. Results for 2000 included Columbia's
net income for November and December of approximately $90 million. Results were
favorably impacted by improved results from EnergyUSA, Inc. higher
weather-related natural gas deliveries and electric sales and a $23.8 million
after-tax gain on the sale of NiSource's interests in Market Hub Partners, L.P.
(MHP) in September 2000. Results were negatively impacted by approximately $67.4
million of costs in 2000 and $8.1 million in 1999 related to the Columbia merger
and $63.2 million of expense in 2000 and $18.3 million for 1999 for the
write-down of certain assets. In 1999, a favorable adjustment of $8.3 million
after-tax was recorded for an insurance settlement associated with clean-up
activities for manufactured gas plant sites. Additional expense was also
incurred in the current period related to restructuring activities and the
amortization of goodwill and higher interest and facility fees on borrowings.
Income from Continuing Operations before Non-recurring Items
--------------------------------------------------------------------
Twelve months ended December 31, (in millions, except per share amounts) 2000 1999
----------------------------------------------------------------------------------------------------------
Income from Continuing Operations as Reported $147.1 $153.9
Adjustments for non-recurring items:
-Costs related to Columbia merger 67.4 8.1
-Write-down of assets 63.2 18.3
-Gain on sale of MHP (23.8) -
-Insurance settlement - (8.3)
----------------------------------------------------------------------------------------------------------
Total Adjustments for Non-recurring Items 106.8 18.1
----------------------------------------------------------------------------------------------------------
Income from Continuing Operations after Adjustments $253.9 $172.0
----------------------------------------------------------------------------------------------------------
Earnings Per Basic Common Share $ 1.89 $ 1.38
----------------------------------------------------------------------------------------------------------
Income from continuing operations for 1999 of $153.9 million decreased $34.7
million from 1998. The 1999 and 1998 periods are not directly comparable due to
the acquisition of Bay State Gas Company (Bay State) in February 1999 and
EnergyUSA-TPC Corp. (TPC) in April 1999. As natural gas businesses, Bay State
and TPC record a substantial portion of their revenues during the winter heating
season. The timing of these acquisitions, the seasonal nature of these
operations and a milder-than-normal heating season resulted in lower earnings
for the year. Income from continuing operations for 1999 reflected stronger
operating results from NiSource's electric business along with continued
customer growth. Results included after-tax charges of $8.1 million in
connection with NiSource's acquisition of Columbia. NiSource also recorded
additional expense in 1999 associated with adverse economic conditions that
impacted equity investments, the most significant of which was related to a
charge against the carrying value the oil and gas properties due to lower
prices, and the decision to abandon a number of non-core businesses and
facilities.
As a condition of approving the acquisition of Columbia, the Securities and
Exchange Commission required NiSource to divest its water operations by November
2003. Consequently, these operations are currently being prepared for sale and
are reflected in discontinued operations. These discontinued operations resulted
in after-tax income of $9.8 million for 2000, $6.5 million in 1999 and $5.3
million for 1998. Taking into account income from continuing operations and
results from discontinued operations, NiSource reported 2000 net income of
$156.9 million, or $1.16 per share, $160.4 million, or $1.29 per share for 1999
and $193.9 million, or $1.60 per share for 1998.
Net Revenues
Net revenues for 2000 of $1,948 million, increased $555.3 million over 1999 due
in part to $433.1 million from the inclusion of Columbia's operations for the
last two months of 2000 and an increase of $41.4 million for the full year
18
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
effect of Bay State. Also contributing to the increase were improved margins on
electric and wholesale natural gas sales, gas and power trading activities and
increased sales to commercial and industrial customers.
For 1999, net revenues were $1,392.7 million, an increase of $240.1 million over
the year earlier due largely to $161.2 million of net revenues from Bay State
and increased gas deliveries to residential and commercial customers reflecting
colder weather during 1999. In addition, net revenues improved due to increased
electric margins on wholesale sales, increased power trading activity and
increased electric sales to residential and commercial customers, as a result of
warmer weather in the third quarter of 1999. These improvements were tempered by
reduced deliveries to industrial customers.
Expenses
Operating expenses of $1,380.2 million for 2000 increased $425.4 million over
1999. Operation and maintenance expense was $250.7 million higher due primarily
to the inclusion of Columbia's results for November and December 2000 and the
full year effect of Bay State. Higher expense in 2000 compared to 1999 was also
attributable to costs related to restructuring activities that were implemented
in 2000 to improve efficiencies and higher employee related costs. In addition,
$65.8 million of expense was recorded in 2000 to reflect losses on the sale of
certain assets. In 1999, expense was reduced $13 million due to a favorable
insurance adjustment related to manufactured gas plant site clean-up costs.
Depreciation, amortization and depletion expense increased $79.1 million
reflecting Columbia's operations for the last two months of 2000, the
amortization of goodwill associated with the Columbia acquisition and the full
year effect of Bay State as well as additional plant in service for the other
operations. Taxes other than income were $43.1 million higher also primarily due
to the inclusion of Columbia for the last two months of 2000 and the full year
effect of Bay State.
Operating expenses in 1999 of $954.8 million increased $204.9 million over 1998,
of which $127.3 million was due to the acquisition of Bay State in February
1999. Also increasing operating expenses were generally higher operating costs
for NiSource's other operations, increased employee related costs and increased
expenses for distributed generation and fuel cell research and development.
These higher costs were partially offset by a $13 million insurance settlement
in 1999 related to clean-up costs for a manufactured gas plant site. Operation
and maintenance expenses increased $136.9 million over 1998 due in large part to
the inclusion of $79.1 million of expenses related to ten months of Bay State's
operations in 1999. Depreciation, amortization and depletion expenses increased
$53.2 million in 1999 over 1998, primarily from the inclusion of $36.2 million
of depreciation and amortization for Bay State and increased depreciation
expense due to additional plant in service. Taxes other than income increased
$14.8 million in 1999 compared to 1998 primarily as the result of the Bay State
acquisition, which added $12 million of other tax expense in 1999.
Other Income (Deductions)
-------------------------
Twelve Months Ended December 31, (in millions) 2000 1999 1998
------------------------------------------------------------------------------------------------
Interest expense, net $(304.5) $(155.4) $(120.2)
Minority interests (20.4) (17.7) (0.7)
Preferred stock dividends (7.8) (8.1) (8.3)
Other, net 42.1 (20.6) 9.5
------------------------------------------------------------------------------------------------
Total Other Income (Deductions) $(290.6) $(201.8) $(119.7)
------------------------------------------------------------------------------------------------
Other Income (Deductions) in 2000 reduced income $290.6 million compared to a
reduction in income of $201.8 million in 1999. Interest expense, net increased
$149.1 million over 1999 due to additional borrowings incurred as a result of
the acquisition of Columbia, the full year effect of interest on the $160
million in Puttable Reset Securities (PURS) issued in September 1999 and
increased short-term borrowings. Also increasing expense were costs associated
with facility fees and the ineffective component of interest rate hedges that
were charged to interest expense. See Note 8 of the Notes to Consolidated
Financial Statements for additional information. In 2000, dividends paid on
Company-obligated mandatorily redeemable preferred securities was $20.4 million,
an increase of $2.7 million from 1999, which reflects the full year effect in
2000, of these securities which were issued in February 1999. Other, net,
increased $62.7 million primarily reflecting a $51.9 million gain on the sale of
19
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
NiSource's indirect interests in MHP in September 2000. In 1999, a $16.5 million
non-recurring charge was recorded associated with the carrying value of oil and
gas properties and a loss that resulted from a decision to abandon certain
businesses and facilities that were not consistent with NiSource's strategic
direction.
Other Income (Deductions) reduced income in 1999 by $201.8 million and in 1998
by $119.7 million. Interest expense, net for 1999 of $155.4 million increased
$35.2 million over 1998. This increase reflects the inclusion of interest
charges for Bay State of $19 million, interest on the September 1999 issuance of
PURS and increased interest expense on additional short-term borrowings. In
1999, minority interests increased $17 million due to dividends paid on
Company-obligated mandatorily redeemable preferred securities issued in February
1999. Other, net decreased $30.1 million in 1999 over 1998 primarily reflecting
the 1999 charge against the carrying value of the oil and gas properties and the
loss resulting from the abandonment of certain assets, as discussed above.
Income Taxes
Income taxes increased $47.9 million in 2000 over 1999 and decreased $12.2
million in 1999 from 1998 primarily as a result of changes in pre-tax income and
timing differences for certain deferred tax issues. The effective income tax
rate was 46.9%, 34.8% and 33.4% in 2000, 1999 and 1998, respectively. See Note 9
of the Notes to Consolidated Financial Statements for additional information.
Discontinued Operations
Discontinued operations reflected after-tax income of $9.8 million, or $0.07 per
share, in 2000 compared to after-tax income of $6.5 million, or $0.05 per share,
in 1999 and $5.3 million, or $0.04 per share in 1998. Income on discontinued
operations reflects results for NiSource's water operations.
LIQUIDITY AND CAPITAL RESOURCES
Generally, cash flow from operations has provided sufficient liquidity to meet
current operating requirements. A significant portion of NiSource's operations,
most notably in the gas and electric distribution businesses, are subject to
seasonal fluctuations in cash flow. During the heating season, which is
primarily from November through March, cash receipts from gas sales and
transportation services typically exceed cash requirements. In the summer
months, cash receipts for electric sales normally exceed requirements. During
other periods of the year, cash on hand, together with external short-term and
long-term financing, is used to purchase gas to place in storage for heating
season deliveries, perform necessary maintenance of facilities, make capital
improvements in plant and expand service into new areas.
As mentioned previously, on November 1, 2000, NiSource completed the acquisition
of Columbia for approximately $6 billion, plus the assumption of approximately
$2 billion of Columbia debt. The acquisition was accomplished through the
creation of a new holding company. Each NiSource common share was exchanged for
one common share of the new holding company. Each Columbia share was exchanged
for $70 in cash plus $2.60 principal amount of a unit issued by the new holding
company, referred to as SAILS(SM), that consist of a zero coupon debt security
coupled with a forward equity contract or, at the election of the Columbia
shareholder, 3.04414 shares in new holding company stock, up to 30% of the
outstanding shares of Columbia. It was necessary to prorate the stock elections
because the elections were made for more than 30% of Columbia's outstanding
shares.
To complete the acquisition of Columbia, NiSource, through its NiSource Finance
Corp. subsidiary, arranged a $6 billion 364-day acquisition facility with a
syndicate of banks. On November 1, 2000, the closing date of the acquisition,
the facility supported $4.1 billion of commercial paper issued to finance the
Columbia acquisition. At December 31, 2000, the facility supported $1.1 billion
of commercial paper issued to finance the Columbia acquisition.
Subsequent to the November 1, 2000 Columbia acquisition, NiSource reduced its
acquisition related commercial paper borrowings through the issuance of $2.5
billion of privately placed notes, completed on November 10, 2000. This issuance
included $750 million of three-year notes paying a 7.5% coupon and maturing on
November 15, 2003, $750 million of five-year notes paying a 7.625% coupon and
maturing on November 15, 2005, and $1 billion
20
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
of ten-year notes paying a 7.875% coupon and maturing on November 15, 2010.
Subsequently, an additional $150 million of five-year notes were issued, bearing
a 7.625% coupon and maturing on November 15, 2005.
On November 27, 2000, NiSource issued 11.5 million new shares of NiSource common
stock at an offering price of $25.25 per share. The $280.9 million of net
proceeds were used to repay commercial paper.
NiSource has arranged a new $2.5 billion revolving credit facility with a
syndicate of banks for future working capital requirements. The new facility has
refinanced and consolidated essentially all of NiSource's existing short-term
credit facilities as discussed above, into one credit facility, through its
NiSource Finance Corp. subsidiary.
As of December 31, 2000, and December 31, 1999, $2,078.8 million and $299.6
million of commercial paper was outstanding, respectively. The weighted average
interest rate on commercial paper outstanding as of December 31, 2000, was
7.44%. In addition, NiSource had notes payable of $417.9 million and $351.8
million outstanding at December 31, 2000, and December 31, 1999, respectively,
at a weighted average interest rate of 7.78% for 2000 and 6.61% for 1999.
In September 1999, Capital Markets issued $160 million of PURS in an
underwritten public offering. The PURS were unsecured debentures of Capital
Markets and ranked equally with all other unsecured and unsubordinated debt of
Capital Markets. On September 28, 2000, all $160 million PURS were redeemed by
NiSource at par.
As of December 31, 2000, NiSource had $128.5 million of standby letters of
credit outstanding. At December 31, 1999, NiSource did not have any letters of
credit outstanding. See Note 15 of the Notes to the Consolidated Financial
Statements for more information.
21
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Capital Expenditures
The table below reflects actual capital expenditures by segment for 2000 and
1999 and an estimate for year 2001:
(in millions) 2001 2000 1999
-------------------------------------------------------------------------------------------------
Gas Distribution $ 208.0 $ 138.3 $ 145.2
Electric 120.0 132.2 134.0
Gas Transmission and Storage 132.0 50.3 -
Exploration and Production 132.0 22.7 -
Energy Marketing 1.0 1.2 0.7
Other Products and Services 22.0 21.1 14.0
Corporate 35.0 - -
-------------------------------------------------------------------------------------------------
Total $ 650.0 $ 365.8 $ 293.9
-------------------------------------------------------------------------------------------------
For 2000, capital expenditures were $365.8 million, an increase of $71.9 million
over 1999. The increase includes approximately $126.4 million for Columbia's
capital expenditures for the last two months of 2000, partially offset by the
elimination of the NiSource program to address the year 2000 issues. The gas
distribution subsidiaries' program includes investments to extend service to new
areas and develop future markets, as well as expenditures to ensure safe,
reliable and improved service. The electric program includes projects that will
increase generating capacity, and enhance transmission capacity while improving,
replacing and upgrading equipment to ensure safe and reliable service to a
growing customer base. The largest portion of the gas transmission and storage
segment's investments are made to ensure the safety and reliability of the
pipelines and for market expansion activities. The exploration and production
segment's capital expenditures are primarily for drilling and production
activities.
For 2001, NiSource's estimated capital expenditure program is $650 million,
approximately $284.2 million higher than the 2000 program. This increase is
primarily due to the inclusion of a full year of capital expenditures for
Columbia.
Future commitments, with respect to the construction program, are expected to be
met through internally generated funds.
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
Risk is an inherent part of NiSource's energy businesses and activities. The
extent to which NiSource properly and effectively identifies, assesses, monitors
and manages each of the various types of risk involved in its businesses is
critical to its profitability. NiSource seeks to identify, assess, monitor and
manage, in accordance with defined policies and procedures, the following
principal risks involved in NiSource's energy businesses: commodity market risk,
interest rate risk and credit risk. Risk management at NiSource is a
multi-faceted process with independent oversight that requires constant
communication, judgment and knowledge of specialized products and markets.
NiSource's senior management takes an active role in the risk management process
and has developed policies and procedures that require specific administrative
and business functions to assist in the identification, assessment and control
of various risks. In recognition of the increasingly varied and complex nature
of the energy business, NiSource's risk management policies and procedures
continue to evolve and are subject to ongoing review and modification.
NiSource is exposed to risk through its various business activities, including
trading risks and non-trading risks. The non-trading risks to which NiSource is
exposed include interest rate risk and commodity price risk of its subsidiaries
and certain gas marketing activities. The market risk resulting from trading
activities consists primarily of commodity price risk. NiSource's risk
management policy permits the use of certain financial instruments to manage its
market risk, including futures, forwards, options and swaps. Risk management at
NiSource is defined as the process by which the organization ensures that the
risks to which it is exposed are the risks to which it desires to be exposed to
achieve its primary business objectives. NiSource employs various analytic
techniques to measure and monitor its market risks, including value-at-risk
(VaR) and instrument sensitivity to market factors. VaR
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23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
represents the potential loss or gain for an instrument or portfolio from
adverse changes in market factors, for a specified time period and at a
specified confidence level.
Non-Trading Risks
Currently, commodity price risk resulting from non-trading activities at
NiSource's rate-regulated subsidiaries is limited, since current regulations
allow recovery of prudently incurred purchased power, fuel and gas costs through
the rate-making process. As the utility industry undergoes deregulation,
however, these operations may be providing services without the benefit of the
traditional rate-making process and, therefore, will be more exposed to
commodity price risk. Additionally, NiSource enters into certain sales contracts
with customers based upon a fixed sales price and varying volumes, which are
ultimately dependent upon the customer's supply requirements. NiSource utilizes
derivative financial instruments to reduce the commodity price risk based on
modeling techniques to anticipate these future supply requirements.
Subsidiaries in NiSource's exploration and production segment are also exposed
to market risk due primarily to fluctuations in commodity prices. In order to
help minimize this risk, NiSource has adopted a policy that provides for
commodity hedging activities to help ensure stable cash flow, favorable prices
and margins. Financial instruments authorized for use by NiSource for hedging
include futures, swaps and options.
NiSource is exposed to interest rate risk as a result of changes in interest
rates on borrowings under revolving credit agreements and lines of credit. These
instruments have interest rates that are indexed to short-term market interest
rates. At December 31, 2000, and December 31, 1999, the combined borrowings
outstanding under these facilities totaled $2,496.7 million and $651.3 million,
respectively. Based upon average borrowings under these agreements during 2000
and 1999, an increase in short-term interest rates of 100 basis points (1%)
would have increased interest expense by $15.7 million and $4.9 million for the
twelve months ending December 31, 2000, and December 31, 1999, respectively.
Due to the nature of the industry, credit risk is a factor in many of NiSource's
business activities. In sales and trading activities, credit risk arises because
of the possibility that a counterparty will not be able or willing to fulfill
its obligations on a transaction on or before settlement date. In derivative
activities, credit risk arises when counterparties to derivative contracts, such
as interest rate swaps, are obligated to pay NiSource the positive fair value or
receivable resulting from the execution of contract terms. Exposure to credit
risk is measured in terms of both current and potential exposure. Current credit
exposure is generally measured by the notional or principal value of financial
instruments and direct credit substitutes, such as commitments and standby
letters of credit and guarantees. Current credit exposure includes the positive
fair value of derivative instruments. Because many of NiSource's exposures vary
with changes in market prices, NiSource also estimates the potential credit
exposure over the remaining term of transactions through statistical analyses of
market prices. In determining exposure, NiSource considers collateral and master
netting agreements, which are used to reduce individual counterparty risk.
Trading Risks
NiSource employs a VaR model to assess the market risk of its energy trading
portfolios. Market risk refers to the risk that a change in the level of one or
more market prices, rates, indices, volatilities, correlations or other market
factors, such as liquidity, will result in losses for a specified position or
portfolio. NiSource estimates the one-day VaR across all trading groups that
utilize derivatives using either Monte Carlo simulation or variance/covariance
at a 95% confidence level. Based on the results of the VaR analysis, the daily
market exposure for power trading on an average, high and low basis was $0.8
million, $2.7 million and effectively zero, respectively, at December 31, 2000.
The daily VaR for the gas trading portfolio on an average, high and low basis
was $2.3 million, $8.1 million and $0.5 million at December 31, 2000,
respectively. NiSource implemented a VaR methodology in 1999 to introduce
additional market sophistication and to recognize the developing complexity of
its businesses.
See Statement of Consolidated Long-Term Debt for additional information related
to NiSource's long-term debt outstanding and "Fair Value of Financial
Instruments" in Note 17 of the Notes to the Consolidated Financial Statements
for current market valuation of long-term debt. Refer to "Summary of Significant
Accounting Policies-Accounting for Risk Management Activities" and "Risk
Management Activities" in Notes 2Q and 8, respectively, of Notes to the
Consolidated Financial Statements for further discussion of NiSource's risk
management.
23
24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
OTHER INFORMATION
Presentation of Segment Information
As a result of the recent acquisition of Columbia, beginning with this report
NiSource revised its presentation of primary business segment information.
Columbia's gas transmission and storage and exploration and production
businesses are now reported as business segments of NiSource. Columbia's gas
distribution operations have been merged with NiSource's gas distribution
business. Other products and services develop unregulated power projects as well
as other energy-related businesses. Prior periods have been restated to reflect
these changes.
Competition
The regulatory environment applicable to NiSource's rate-regulated subsidiaries
continues to undergo fundamental changes. These changes have previously had, and
will continue to have an impact on NiSource's operations, structure and
profitability. At the same time, competition within the energy industry will
create opportunities to compete for new customers and revenues. Management has
taken steps to become more competitive and profitable in this changing
environment. These initiatives include partnering on energy projects with major
industrial customers, providing its customers with increased choice for new
products and services, acquiring companies that increase NiSource's scale of
operations and establishing subsidiaries that develop new energy-related
products for residential, commercial and industrial customers, including the
development of distributed generation technologies.
GAS DISTRIBUTION OPERATIONS
NiSource's natural gas distribution operations (Gas Distribution) serve more
than 3.2 million customers in 9 states. Through its wholly owned subsidiary,
Columbia, NiSource owns five distribution subsidiaries that provide natural gas
to approximately 2.1 million residential, commercial and industrial customers in
Ohio, Pennsylvania, Virginia, Kentucky and Maryland. NiSource also distributes
natural gas to approximately 751,000 customers in northern Indiana through three
subsidiaries: Northern Indiana, Kokomo Gas and Fuel Company and Northern Indiana
Fuel and Light Company, Inc. Additionally, NiSource's subsidiaries, Bay State
and its subsidiary Northern Utilities, Inc., distribute natural gas to more than
320,000 customers in areas of Massachusetts, Maine, and New Hampshire.
Regulatory Matters
At the Federal level, gas industry deregulation began in the mid-1980s when the
Federal Energy Regulatory Commission (FERC) required interstate pipelines to
provide nondiscriminatory transportation services pursuant to unbundled rates.
This regulatory change permitted large industrial and commercial customers to
purchase their gas supplies either from a local distribution company (LDC) or
directly from competing producers and marketers, which would then use the LDC's
facilities to transport the gas. More recently, the focus of deregulation in the
gas industry has shifted to retail customers at the state level.
NiSource pursues initiatives that give retail customers the opportunity to
purchase natural gas directly from marketers and to use Gas Distribution's
facilities for transportation services. These opportunities are being pursued
through regulatory initiatives in all of its jurisdictions. Once fully
implemented, these programs would reduce Gas Distribution's commodity sales
function and provide all customer classes with the opportunity to obtain gas
supplies from alternative merchants. As these programs expand to all customers,
regulations will have to be implemented to provide for the recovery of
transition capacity costs and other transition costs incurred by a utility
serving as the supplier of last resort if the marketing company cannot supply
the gas. Transition capacity costs are created as customers enroll in these
programs and purchase their gas from other suppliers, leaving the Gas
Distribution subsidiaries with pipeline capacity it has contracted for, but no
longer needs. The state commissions in jurisdictions served by Gas Distribution
are at various stages in addressing these issues and other transition
considerations. Gas Distribution is currently recovering, or has the opportunity
to recover, the costs resulting from the unbundling of its services and believes
that most of such future costs and costs resulting from being the supplier of
last resort will be mitigated or recovered.
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25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
In December 1999, the Public Utilities Commission of Ohio (PUCO) approved a
request from Columbia Gas of Ohio, Inc. (Columbia of Ohio) that extends Columbia
of Ohio's Customer CHOICE(SM) program through October 31, 2004, freezes base
rates through October 31, 2004, and resolves the issue of transition capacity
costs. Under the agreement, Columbia of Ohio would assume total financial risk
for mitigation of transition capacity costs at no additional cost to customers.
Columbia of Ohio has the opportunity to utilize non-traditional revenue sources
as a means of offsetting the costs. Columbia of Ohio extended its Customer
CHOICE(SM) program to all of its nearly 1.3 million customers in mid-1998 and
there are now over 470,850 customers participating, including approximately
429,000 residential customers.
In April 1999, Columbia Gas of Kentucky, Inc. (Columbia of Kentucky) filed an
application with the Kentucky Public Service Commission (KPSC), seeking approval
to initiate a residential and small commercial transportation program. In
January 2000, the KPSC approved Columbia of Kentucky's application, but did not
renew Columbia of Kentucky's gas cost incentive program originally approved in
1996. Columbia of Kentucky filed for a rehearing of the order during the first
quarter of 2000. On May 19, 2000, the KPSC issued an order affirming its
original decision to deny continuation of the gas cost incentive program. As an
alternative, an incentive sharing mechanism was approved that allows Columbia of
Kentucky to retain 25% of annual off-system sales over the term of the pilot
program. Additionally, Columbia of Kentucky will remain responsible for
mitigating transition capacity costs through the utilization of non-traditional
revenues. Columbia of Kentucky began customer enrollment in the pilot program in
September 2000, for gas deliveries beginning November 1, 2000. The program is
scheduled to run through 2004. Currently, Columbia of Kentucky has approximately
14,000 customers enrolled and participating in its CHOICE(SM) program.
The tightening of supply in the natural gas market over the last half of 2000,
along with the resultant increase in price of natural gas, has caused several
marketers to default on their obligation to deliver gas to Columbia of Ohio and
Columbia of Kentucky under both the traditional and CHOICE(SM) transportation
programs. Columbia of Ohio and Columbia of Kentucky have terminated marketers
with 19,500 customers in traditional transportation programs and customers of
CHOICE(SM)
Columbia of Ohio is also a party to two lawsuits involving Energy Max, one of
the terminated marketers. A customer in Toledo, Ohio filed the first suit on
October 18, 2000 against both Energy Max and Columbia of Ohio, asking that the
complaint be certified as a class action (Hull v. Columbia Gas of Ohio and
Energy Max). The plaintiff is seeking to recover the difference between what he
would have paid for gas under his Energy Max contract, and what he is paying
under Columbia of Ohio's gas cost recovery rate. On January 26, 2001, Columbia
of Ohio filed its Answer and a Motion to Dismiss. Energy Max has not filed an
answer and is subject to a motion for default judgment. The second suit was
filed by Columbia of Ohio against Energy Max on January 2, 2001 in Youngstown,
Ohio (Columbia Gas of Ohio v. Energy Max). In this case, Columbia of Ohio is
seeking to recover in excess of $340,000 from Energy Max due to its non-delivery
of gas in Columbia of Ohio's traditional transportation program. Columbia of
Ohio has been given the right to bill the end users for their gas consumption
during the months of November and December 2000. The Ohio Office of Consumers'
Counsel has also filed a complaint at the PUCO against certain marketers, but
Columbia of Ohio is not a party to these complaints at this time.
In Pennsylvania, legislation was passed in June 1999 that allows consumers
statewide to choose their natural gas supplier. Under the legislation, all
Pennsylvania natural gas utilities, upon approval of the Pennsylvania Public
Utility Commission (PPUC), offered all of their customers the opportunity to
choose a supplier by July 1, 2000. Before offering choice programs to customers,
each company was required to submit a restructuring plan to the PPUC. In 1999,
Columbia Gas of Pennsylvania, Inc. (Columbia of Pennsylvania) filed a statewide
restructuring plan with the PPUC, which was subsequently approved.
In 1997, the Indiana Utility Regulatory Commission (IURC) approved Northern
Indiana's Alternative Regulatory Plan (ARP), which implemented new rates and
services that included, among other things, unbundling of services for
additional customer classes (primarily residential and commercial users),
negotiated services and prices, a gas cost incentive mechanism, and a price
protection program. The gas cost incentive mechanism allows Northern Indiana to
share any cost savings or cost increases with its customers based upon a
comparison of Northern Indiana's actual gas supply portfolio cost to a
market-based benchmark price. The gas cost incentive mechanism
25
26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
was reviewed with the Office of Utility Consumer Counselor (OUCC) in December of
2000, and an agreement to extend the program in phases through 2004 was reached.
The agreement is subject to approval by the IURC. During the phase-in period,
Northern Indiana offered customer choice to all 660,000 residential and 50,000
commercial customers throughout its gas service territory. In addition, as
Northern Indiana has allowed residential and commercial customers to designate
alternative gas suppliers, it has also offered new services to all classes of
customers including price protection, negotiated sales and services, gas lending
and parking, and new storage services. As of the end of 2000, 15,711 customers
were enrolled in Northern Indiana's customer choice program.
In 1999, the Virginia State Corporation Commission (VSCC) gave Columbia Gas of
Virginia, Inc. (Columbia of Virginia), approval to offer all of its 175,000
residential and commercial customers the opportunity to choose their natural gas
suppliers. Columbia of Virginia has been providing a pilot transportation
program in the Gainesville market area of Northern Virginia since late 1997.
There are now over 7,500 customers participating in the pilot program.
In August 1998, the Maryland Public Service Commission approved a two-year
continuation of Columbia Gas of Maryland, Inc.'s (Columbia of Maryland) Customer
CHOICESM program which allows all of its nearly 32,000 customers to select a
natural gas supplier other than Columbia of Maryland. There are approximately
2,400 customers participating in the program.
Bay State implemented unbundled rates and services for all 24,092 of its
commercial and industrial customers in 1993, and launched one of the nation's
earliest residential and small commercial-industrial customer choice pilot
programs in 1996. The Bay State pilot, concluded on November 1, 2000, when all
Massachusetts gas utilities made unbundled gas service available to all customer
classes pursuant to new statewide model terms and conditions approved by the
Massachusetts Department of Telecommunications and Energy. As of December 31,
2000, Bay State had 8,691 customers enrolled in the program.
In New Hampshire, Northern Utilities, Inc. (Northern Utilities) introduced
unbundled tariffs and services for all commercial-industrial customers in 1994.
Currently there are approximately 87 customers enrolled in the program. In 1998,
the New Hampshire Public Utilities Commission (NHPUC) formed a collaborative
group to investigate the merits of further unbundling and advise the NHPUC
accordingly. The collaborative group has recommended new model terms and
conditions and regulations designed to make unbundled services available to all
commercial-industrial customers statewide on May 1, 2001, with consideration of
residential unbundling at a later date.
In Maine, Northern Utilities introduced unbundled rates and services for large
commercial-industrial customers in December 1995 and expanded the availability
to all daily metered commercial and industrial customers on November 1, 1999. In
June 1999, the Maine Public Utilities Commission opened an inquiry into the
potential merits of further regulatory changes related to unbundling. Comments
from all participating parties were submitted at the time of the technical
session in July 1999. This inquiry was intended to investigate all the key
elements of full customer choice and will include a review of customer choice
programs in Massachusetts and New Hampshire. Northern Utilities is currently
awaiting the Commission's proposed model terms and conditions as the next step.
FERC Order 637
The Federal Energy Regulatory Commission (FERC) issued Order 637 on February 9,
2000. The order sets forth revisions to FERC regulations governing short-term
natural gas transportation services and policies governing the regulation of
interstate natural gas pipelines. Among other things, the order lifts the price
cap for short-term capacity release by pipeline customers for an experimental
period ending September 1, 2002.
Gas Distribution is actively engaged in settlement discussions with all of their
pipeline suppliers as well as with other major customers on those pipeline
systems in an effort to resolve issues raised by the pipelines' pro forma
compliance filings regarding FERC Orders 637 and subsequent Orders 637A and 637B
(collectively referred to as Order 637). Participants in these discussions
reflect all segments of the industry.
Based on the progress of those discussions to date, Gas Distribution believes
that implementation of FERC Order 637 initiatives will generally not take place
prior to the winter of 2001-2002. Also given the degree of compromise
26
27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
that will be required of all segments of the industry, management believes that
implementation will not have a material affect upon Gas Distribution costs,
operations or income. Gas Distribution is currently in the process of evaluating
the potential changes and impact Order 637 may have on operations; however, it
is not anticipated that the implementation of Order 637 will have a material
impact on NiSource's consolidated results.
Environmental Matters
REMEDIATION. Several Gas Distribution subsidiaries are a "potentially
responsible party" (PRP) at waste disposal sites under the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA) (commonly known
as Superfund) and similar state laws, including at former manufactured gas plant
(MGP) sites which such subsidiaries, or their corporate predecessors, own or
owned and operated. Gas Distribution subsidiaries may be required to share in
the cost of clean-up of such sites. In addition, some Gas Distribution
subsidiaries have corrective action liability under the Resource Conservation
and Recovery Act (RCRA) for closure and clean-up costs associated with
underground storage tanks.
Gas Distribution is party to or otherwise involved in clean-up of three waste
disposal sites under Superfund or similar state laws. For one of these sites the
potential liability is de minimis and, for the other two, the final costs of
clean-up have not yet been determined. As site investigations and clean-ups
proceed, waste disposal site liability is reviewed periodically and adjusted as
additional information becomes available.
A program has been instituted to identify and investigate former MGP sites where
Gas Distribution subsidiaries or predecessors are the current or former owner.
The investigation has identified 85 such sites. Initial investigation has been
conducted at 39 sites. Investigation activities have been completed at 26 of the
39 sites and remedial measures have been selected or implemented at these sites.
Only those site investigation, characterization and remediation costs currently
known and determinable can be considered "probable and reasonably estimable"
under Statement of Financial Accounting Standards No. 5, "Accounting for
Contingencies" (SFAS No. 5).
As costs become probable and reasonably estimable, the associated reserves will
be adjusted as appropriate. NiSource is unable, at this time, to accurately
estimate the time frame and potential costs of the entire program. Management
expects that as characterization is completed and approved by the EPA,
additional remediation work is performed and more facts become available,
NiSource will be able to develop a probable and reasonable estimate for the
entire program or a major portion thereof consistent with Securities and
Exchange Commission's Staff Accounting Bulletin No. 92, SFAS No. 5, and American
Institute of Certified Public Accountants Statement of Position 96-1.
NiSource intends to continue to evaluate its facilities and properties with
respect to environmental laws and regulations and take any required corrective
action. To the extent site investigations have been conducted, remediation plans
developed and the responsibility for remediation established, the appropriate
estimated liabilities have been recorded. A regulatory asset has been recorded
to the extent environmental expenditures are expected to be recovered through
rates.
As of December 31, 2000, a reserve of approximately $24 million has been
recorded to cover probable environmental response actions. The ultimate
liability in connection with these sites will depend upon many factors,
including the volume of material contributed to the site, years of ownership or
operation, the number of other PRPs and their financial viability and the extent
of environmental response actions required. Based upon investigations and
management's understanding of current environmental laws and regulations,
NiSource believes that any environmental response actions required, after
consideration of insurance coverage, contributions from other PRPs and rate
recovery, will not have a material effect on its financial position or results
of operations.
MERCURY PROGRAM. Until the 1960s, gas regulators containing small quantities of
mercury were installed in homes on some natural gas systems. The purpose of
these regulators was to reduce the pressure of the natural gas flowing from the
service line for use inside of the home.
In 2000, several unaffiliated gas distribution companies were involved in highly
publicized testing and clean-up programs resulting from mercury spills
associated with the removal of gas regulators containing mercury. A
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28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
number of the NiSource gas distribution subsidiaries historically utilized gas
regulators that contained small quantities of mercury. All NiSource subsidiaries
have implemented a program for reviewing their procedures for managing gas
regulators containing mercury. While this program is currently underway, it has
not identified any significant problems associated with past or current use or
removal of mercury regulators. Information generated to date shows that certain
NiSource gas distribution subsidiaries have a small number or no
mercury-containing gas regulators in service. NiSource gas distribution
subsidiaries that still utilize gas regulators containing mercury have programs
in place to ensure the proper management of gas regulators containing mercury,
including ensuring that any accidental mercury spills associated with
maintenance or removal of these regulators are detected and properly cleaned up.
NiSource subsidiaries have received and responded to inquiries about the current
and historical use of gas regulators containing mercury from regulatory agencies
in Kentucky and Pennsylvania. In addition, on December 7, 2000, the
Environmental Protection Agency (EPA) Region V sent letters to all NiSource
subsidiaries in Indiana and Ohio asking each of them to "review its records and
address any concerns or issues associated with mercury regulators, manometers,
or any other mercury-containing measuring devices." We believe that the program
described in the preceding paragraph will be sufficient to satisfy the EPA's
request.
Voluntary Early Retirement Program
As a result of NiSource's ongoing review of its various business units, the
acquisition of Columbia, the utilization of improved technologies and process
improvement initiatives, management has identified a number of ways to improve
efficiency. As discussed below, NiSource implemented a Voluntary Early
Retirement Program (VERP) to reduce staffing levels.
In September 2000, NiSource announced the introduction of a VERP for certain
subsidiaries. Approximately 110 employees were eligible. During the acceptance
period that began on October 12, 2000, and closed on November 25, 2000, 80
employees elected early retirement. The majority of the retirements occurred on
January 1, 2001. NiSource recorded expense of $8 million in the fourth quarter
of 2000 related to this VERP.
Following the acquisition of Columbia on November 1, 2000, a VERP was offered to
employees of Columbia's gas distribution subsidiaries. The acceptance period
ended on December 22, 2000, at which time 64 employees elected early retirement
with the majority of the retirements also occurring on January 1, 2001. The
total fourth quarter 2000 cost of this VERP was $4.7 million.
Retirement costs for these employees are funded through the pension plan.
Deliveries
Due to the acquisition of Columbia on November 1, 2000, total sales and
transportation deliveries for 2000 of 594.1 billion cubic feet (Bcf), increased
160.8 Bcf over 1999. This increase was primarily attributed to the inclusion of
Columbia's five gas distribution subsidiaries for the last two months of 2000
which contributed 133 Bcf to the total sales and transportation for that year
and added over 2.1 million customers.
Sales and transportation deliveries in 1999 for the Gas Distribution operations
were 141.1 Bcf and 253.0 Bcf, respectively. Compared to 1998, this was an
increase of 42.9 Bcf for sales and 75.2 Bcf for transportation due largely to
the inclusion of Bay State's results for 10 months of 1999 and 12% colder
weather.
Net Revenues
Net revenues for 2000 of $740 million increased $280.6 million over 1999 due
primarily to the inclusion of Columbia's Gas distribution operations for the
last two months of 2000 and the full year effect of Bay State. Also improving
net revenues were increased sales due to colder weather in the last quarter of
2000.
For 1999, net revenues were $459.4 million, an increase of $184.2 million over
1998 as a result of the inclusion of ten months of Bay State's operations,
together with increased sales to residential and commercial customers due to
colder weather in 1999, which was partially offset by decreased deliveries to
industrial customers. Also improving net revenues were additional revenues from
transportation services.
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29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Operating Income
Operating income of $225.4 million for 2000 increased $110 million over 1999
reflecting two months of Columbia's operations and the full year effect of Bay
State. Tempering these improvements was $16.9 million of expense in 2000 for the
write-down of certain assets in preparation for sale and approximately $6.9
million of expense related to the amortization of goodwill attributable to the
acquisition of Columbia, restructuring costs and higher employee related costs.
These higher costs were partially offset by lower customer related expenses.
In 1999, a $13 million favorable adjustment was recorded for an insurance
settlement related to clean-up costs for manufactured gas plant sites. Operating
income of $115.4 million for 1999 increased $50.3 million over 1998. The
improvement was primarily attributable to ten months of Bay State's operations
and the $13 million favorable insurance settlement mentioned above, partially
offset by higher employee related costs.
GAS DISTRIBUTION OPERATIONS RESULTS (UNAUDITED)
Year Ended December 31, (in millions) 2000 1999 1998
-------------------------------------------------------------------------------------------------------------
NET REVENUES
Sales revenues $ 1,983.9 $ 969.7 $ 651.3
Less: Cost of gas sold 1,481.7 630.3 376.1
-------------------------------------------------------------------------------------------------------------
Net Sales Revenues 502.2 339.4 275.2
-------------------------------------------------------------------------------------------------------------
Net Transportation Revenues 237.8 120.0 -
-------------------------------------------------------------------------------------------------------------
Net Revenues 740.0 459.4 275.2
-------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Operation and maintenance 282.1 193.5 113.1
Depreciation and amortization 147.3 115.4 74.7
Loss on asset impairments 16.9 - -
Other taxes 68.3 35.1 22.3
-------------------------------------------------------------------------------------------------------------
Total Operating Expenses 514.6 344.0 210.1
-------------------------------------------------------------------------------------------------------------
Operating Income $ 225.4 $ 115.4 $ 65.1
-------------------------------------------------------------------------------------------------------------
GAS DISTRIBUTION OPERATING HIGHLIGHTS
2000 1999 1998
---------------------------------------------------------------------------------------------------------------
THROUGHPUT (Bcf)
Sales
Residential 140.5 90.6 62.2
Commercial 56.5 37.7 23.5
Industrial and Other 15.1 12.8 12.5
---------------------------------------------------------------------------------------------------------------
Total Sales 212.1 141.1 98.2
Transportation 352.0 253.0 177.8
---------------------------------------------------------------------------------------------------------------
Total Throughput 564.1 394.1 276.0
Off-System Sales 30.0 39.2 31.6
---------------------------------------------------------------------------------------------------------------
Total Sold and Transported 594.1 433.3 307.6
---------------------------------------------------------------------------------------------------------------
CUSTOMERS (SERVED AT YEAR END)
Sales
Residential 2,352,219 939,426 675,782
Commercial 216,361 85,632 53,061
Industrial and Other 6,032 3,857 3,872
---------------------------------------------------------------------------------------------------------------
Total Sales Customers 2,574,612 1,028,915 732,715
Transportation 636,442 42,306 6,685
---------------------------------------------------------------------------------------------------------------
Total Customers 3,211,054 1,071,221 739,400
---------------------------------------------------------------------------------------------------------------
DEGREE DAYS
Actual 5,132 5,593 5,097
Normal 5,324 6,104 6,104
---------------------------------------------------------------------------------------------------------------
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30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
ELECTRIC OPERATIONS
NiSource generates and distributes electricity, through its subsidiary Northern
Indiana, to approximately 430,052 customers in 21 counties in the northern part
of Indiana. Northern Indiana owns and operates four coal-fired electric
generating stations with a net capability of 3,179 mw, four gas-fired combustion
turbine generating units with a net capability of 203 mw and two hydroelectric
generating plants with a net capability of 10 mw. These facilities provide for a
total system net capability of 3,392 mw. Northern Indiana is interconnected with
five neighboring electric utilities.
Market Conditions
The regulatory frameworks applicable to electric operations are undergoing
fundamental changes. These changes have previously had, and will continue to
have an impact on NiSource's electric operations, structure and profitability.
At the same time, competition within the industry will create opportunities to
compete for new customers and revenues. Management has taken steps to become
more competitive and profitable in this changing environment, including
converting some of its generating units to allow use of lower cost, low sulfur
coal and improving the transmission interconnections with neighboring electric
utilities.
Regulatory Matters
FERC issued Order No. 888-A in 1996 which required all public utilities owning,
controlling or operating transmission lines to file non-discriminatory
open-access tariffs and offer wholesale electricity suppliers and marketers the
same transmission service they provide themselves. On June 30, 2000, the D.C.
Circuit Court of Appeals upheld FERC's open access orders in all major respects.
In 1997, FERC approved Northern Indiana's open-access transmission tariff. On
December 20, 1999, FERC issued Order 2000 addressing the formation and operation
of Regional Transmission Organizations (RTOs). The rule is intended to eliminate
pricing inequities in the provision of wholesale transmission service. On
October 16, 2000, NiSource filed with the FERC indicating that it is committed
to joining an RTO and in February 2001, Northern Indiana became a member of the
Alliance RTO in formation. The Alliance RTO expects to be fully operational by
FERC's December 15, 2001, deadline. Although wholesale customers currently
represent a small portion of Northern Indiana's electricity sales, it intends to
continue its efforts to retain and add wholesale customers by offering
competitive rates and also intends to expand the customer base for which it
provides transmission services.
At the state level, during 1999 and 2000, discussions were held with the other
investor-owned utilities in Indiana and with other segments of the Indiana
electric industry regarding the technical and economic aspects of possible
legislation leading to greater customer choice. A consensus was not reached.
Therefore, NiSource and this year's session, currently in progress did not
support legislation regarding electric restructuring during the 2000 session of
the Indiana General Assembly. Discussions are ongoing with all segments of the
Indiana electric industry in an attempt to reach a consensus on electric
restructuring legislation.
During the course of a regularly scheduled review, referred to as a Level 1
review, the staff of the Indiana Utility Regulatory Commission (IURC) made a
preliminary determination, based on unadjusted historical financial information
filed by Northern Indiana, that Northern Indiana was earning returns that were
in excess of its last rate order and generally established standards. Despite
holding meetings with the IURC staff during 2000 to explain several adjustments
that needed to be made to the filed information to make such an analysis
meaningful, the staff has recommended that a formal investigation be performed.
The IURC has ordered that an investigation begin. Management is unable at this
time to determine if a broader analysis, which would be performed through a
formal investigation, could result in a rate adjustment that would be higher or
lower than currently allowed rates. Management intends to vigorously oppose any
efforts to reduce rates that may result from this investigation.
Environmental Matters
AIR. The Clean Air Act Amendments of 1990 (CAAA) impose limits to control acid
rain on the emission of sulfur dioxide and nitrogen oxides (NOx) which became
fully effective in 2000. All of Northern Indiana's facilities are in compliance
with the sulfur dioxide and NOx limits.
The CAAA also contain other provisions that could lead to limitations on
emissions of hazardous air pollutants and other air pollutants (including NOx as
discussed below), which may require significant capital expenditures for
30
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
control of these emissions. Until specific rules are issued that affect Northern
Indiana's facilities, what these requirements will be or the costs of complying
with these requirements cannot be predicted.
During 1998, the EPA issued a final rule, the NOx State Implementation Plan
(SIP) call, requiring certain states, including Indiana, to reduce NOx levels
from several sources, including industrial and utility boilers. The EPA stated
that the intent of the rule is to lower regional transport of ozone impacting
other states' ability to attain the federal ozone standard. According to the
rule, the State of Indiana must issue regulations implementing the control
program. The State of Indiana, as well as some other states, filed a legal
challenge in December 1998 to the EPA NOx SIP call rule. Lawsuits have also been
filed against the rule by various groups, including utilities. In a March 3,
2000 decision, the United States Court of Appeals for the D.C. Circuit ruled
largely in favor of the EPA's regional NOx plan and on June 22, 2000, the court
extended the deadline for the state plan submittals implementing the EPA NOx SIP
call to October 30, 2000. A petition for a hearing before the United States
Supreme Court was denied on March 5, 2001. In anticipation of this outcome the
State of Indiana superseded its February 2000, proposed NOx control plan
designed to address Indiana's ozone nonattainment areas and regional ozone
transport, by initiating rulemaking on a more stringent rule compliant with the
EPA's NOx SIP call rule. That rulemaking is expected to be finalized by
mid-summer 2001. Northern Indiana is actively involved in the review of and
comment on the proposed Indiana rules.
In spite of the state's efforts, on December 18, 2000, the EPA sent Indiana and
10 other NOx SIP call states and the District of Columbia deficiency notices for
their failure to submit final rules by the October 30, 2000 deadline. Because
Indiana has been working with the EPA and is expected to finalize its rule by
mid-summer 2001, no additional adverse requirements are expected. Any NOx
emission limitations resulting from the Indiana rules are expected to be more
restrictive than those imposed on electric utilities under the CAAA's acid rain
NOx reduction program described above. NiSource is evaluating any potential
requirements that could result from the rules as implemented by the State of
Indiana. NiSource believes that the costs relating to compliance with any new
standards may be substantial, but such costs are dependent upon the ultimate
control program agreed to by the targeted states and the EPA and are not
currently reasonably estimable. NiSource is continuing its programs to reduce
NOx emissions at Northern Indiana' electric facilities and will continue to
closely monitor developments in this area.
In a matter related to the NOx SIP call, several northeastern states have filed
petitions with the EPA under Section 126 of the Clean Air Act. The petitions
allege harm and request relief from sources of emissions in the Midwest that
allegedly cause or contribute to ozone nonattainment in their states. NiSource
is monitoring the EPA's decisions on these petitions and existing litigation to
determine the impact of these developments on programs to reduce NOx emissions
at Northern Indiana's electric facilities.
The EPA issued final rules revising the National Ambient Air Quality Standards
for ozone and particulate matter in July 1997. On May 14, 1999, the United
States Court of Appeals for the D.C. Circuit remanded the new rules for both
ozone and particulate matters to the EPA. The Court of Appeals decision was
appealed to the Supreme Court, which heard oral arguments on November 7, 2000.
The Supreme Court rendered a complex ruling on February 27, 2001 that will
require some issues to be resolved by the D.C. Circuit Court and EPA before
final rulemaking occurs. Consequently, final rules specifying a compliance
level, deadline, and controls necessary for compliance are not expected in the
near future. Resulting rules could require additional reductions in sulfur
dioxide, particulate matter and NOx emissions from coal-fired boilers (including
Northern Indiana's electric generating stations) beyond measures discussed
above. Final implementation methods will be set by the EPA as well as state
regulatory authorities. NiSource believes that the costs relating to compliance
with any new limits may be substantial but are dependent upon the ultimate
control program agreed to by the targeted states and the EPA and are currently
not reasonably estimable. NiSource will continue to closely monitor developments
in this area, however, the exact nature of the impact of the new standards on
its operations will not be known for some time.
In a letter dated September 15, 1999, the Attorney General of the State of New
York alleged that Northern Indiana violated the Clean Air Act by constructing a
major modification of one of its electric generating stations without obtaining
pre-construction permits required by the Prevention of Significant Deterioration
(PSD) program. The major modification allegedly took place at the R. M. Schahfer
Station when, "in approximately 1995-1997,
31
32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Northern Indiana upgraded the coal handling system at Unit 14 at the plant."
While Northern Indiana is investigating these allegations, it does not believe
that the alleged modifications required pre-construction review under the PSD
program and believes that all appropriate permits were acquired.
Initiatives are being discussed both in the United States and worldwide to
reduce so-called "greenhouse gases" such as carbon dioxide, a by-product of
burning fossil fuels. Reduction of such emissions could result in significant
capital outlays or operating expenses for Northern Indiana.
On December 20, 2000, by notice in the Federal Register, the EPA issued a
finding that the regulation of emissions of mercury and other air toxics from
coal and oil-fired electric steam generating units is necessary and appropriate.
The EPA expects to issue proposed regulations by December 15, 2003, and
finalized regulations by December 15, 2004. The potential impact, if any, to
NiSource's financial results that may occur because of any potential new
regulations concerning emissions of mercury and other air toxics is unknown at
this time.
REMEDIATION. Northern Indiana is a PRP at four waste disposal sites under CERCLA
and similar state laws, and may be required to share in the cost of clean-up of
such sites. In addition, Northern Indiana has corrective action liability under
RCRA for closure and clean-up costs associated with treatment, storage, and
disposal units. As of December 31, 2000, a reserve of approximately $2 million
has been recorded to cover probable environmental response actions at these
sites. The ultimate liability in connection with these sites will depend upon
many factors, including the volume of material contributed to the site, years of
ownership of operations, the number of other PRPs and their financial viability
and the extent of environmental response required. Based upon investigations and
management's understanding of current environmental laws and regulations,
NiSource believes that any environmental response required will not have a
material effect on its financial position or results of operations.
Sales
Electric sales for 2000 of 17.5 billion kilowatt-hours (kwh) decreased 899.5
million kwh, or 5% as compared to 1999 due primarily to reduced residential
sales reflecting cooler weather and reduced wholesale sales. The basic steel
industry accounted for approximately 32% of electric sales in 2000.
In 1999, electric sales of 18.4 billion kwh decreased 11.1 billion kwh, or 38%
from 1998 due primarily to lower wholesale and power trading.
Net Revenues
In 2000, electric net revenues of $812.4 million increased by $10 million over
1999 due largely to higher sales rates in effect. The average revenue per kwh
sold increased 2% over 1999 to 6.08 cents per kwh for 2000, while the cost of
fuel for electric generation in 2000 decreased $7 million compared to 1999
reflecting decreased fuel costs. The average cost per kwh generated decreased 4%
from 1999 to 1.41 cents per kwh in 2000.
Electric net revenues for 1999 of $802.4 million, increased by $35.3 million
over 1998 primarily as a result of a decrease in the cost of sales. The average
revenue per kwh sold increased 26% from 1998 to 5.97 cents per kwh in 1999. The
cost of fuel for electric generation in 1999 decreased $1.5 million compared to
1998 primarily reflecting an average cost of 1.47 cents per kwh in 1999, a
decrease of 3% from 1998.
Operating Income
Operating income for 2000 of $364 million was relatively unchanged from 1999, as
higher net revenues, as discussed above, were offset by higher operating
expenses attributable to generally increased operating costs and higher
depreciation expense as a result of additional plant in service. These higher
expenses were partially offset by lower other taxes.
For 1999, operating income of $363.4 million, increased by $14.8 million from
1998, reflecting higher net revenues, as discussed above, tempered by higher
operating expenses due in large part to increased employee related costs and
higher gross receipts and property taxes.
32
33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
ELECTRIC OPERATIONS RESULTS (UNAUDITED)
Year Ended December 31, (in millions) 2000 1999 1998
-----------------------------------------------------------------------------------------------------------
NET REVENUES
Sales revenues $1,559.9 $1,348.9 $1,430.0
Less: Cost of sales 747.5 546.5 662.9
-----------------------------------------------------------------------------------------------------------
Net Revenues 812.4 802.4 767.1
-----------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Operation and maintenance 237.7 227.4 210.1
Depreciation 162.7 158.5 156.8
Other taxes 48.0 53.1 51.6
-----------------------------------------------------------------------------------------------------------
Total Operating Expenses 448.4 439.0 418.5
-----------------------------------------------------------------------------------------------------------
Operating Income $ 364.0 $ 363.4 $ 348.6
-----------------------------------------------------------------------------------------------------------
ELECTRIC OPERATING HIGHLIGHTS
2000 1999 1998
--------------------------------------------------------------------------------------------------------------
SALES (000 Megawatt-hours)
Residential 2,953.3 2,996.7 2,936.8
Commercial 3,373.4 3,292.1 3,159.1
Industrial 9,484.1 9,186.1 8,782.4
Wholesale and power trading 1,546.9 2,765.4 14,480.6
Other 121.8 138.7 121.6
--------------------------------------------------------------------------------------------------------------
Total Sales 17,479.5 18,379.0 29,480.5
--------------------------------------------------------------------------------------------------------------
CUSTOMERS (Served at year end)
Residential 379,908 376,483 372,383
Commercial 46,637 45,821 44,960
Industrial 2,662 2,677 2,736
Wholesale and power trading 44 44 46
Other 806 815 822
--------------------------------------------------------------------------------------------------------------
Total Customers 430,057 425,840 420,947
--------------------------------------------------------------------------------------------------------------
GAS TRANSMISSION AND STORAGE OPERATIONS
NiSource's gas transmission and storage segment primarily consists of the
operations of Columbia Gas Transmission Corporation (Columbia Transmission),
Columbia Gulf Transmission Company (Columbia Gulf) and Columbia Pipeline
Corporation. In total NiSource owns a pipeline network of approximately 15,880
miles extending from offshore in the Gulf of Mexico to Lake Erie, New York and
the eastern seaboard. Together they serve customers in fifteen northeastern,
mid-Atlantic, midwestern and southern states, as well as the District of
Columbia. In addition,
33
34
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Columbia Transmission operates one of the nation's largest underground natural
gas storage systems. Throughput for Columbia Gulf reflects mainline
transportation services from Rayne, Louisiana to Leach, Kentucky and short-haul
transportation services from the Gulf of Mexico to Rayne, Louisiana.
Proposed Millennium Pipeline Project
The proposed Millennium Pipeline Project (Millennium Project), in which Columbia
Transmission is participating and will serve as developer and operator, will
transport western gas supplies to northeast and mid-Atlantic markets. The
442-mile pipeline will connect to TransCanada Pipe Lines Ltd. at a new Lake Erie
export point and transport approximately 700,000 Dth per day to eastern markets.
There are currently eight shippers who have signed agreements for a significant
portion, in aggregate, of the available capacity. Based on delays attributed to
the regulatory approval process at the FERC, the Millennium Project sponsors
have advised the FERC of a revised in-service date of November 1, 2002.
The sponsors of the proposed Millennium Project are Columbia Transmission,
Westcoast Energy, Inc., TransCanada Pipe Lines, Ltd. and MCN Energy Group, Inc.
Volunteer Pipeline
On April 14, 1999, Columbia Gulf, MCN Energy Group, Inc. and AGL Resources, Inc.
announced the start of an open season on the proposed Volunteer Pipeline
(Volunteer). They were offering approximately 250,000 Dth per day of capacity in
a natural gas pipeline extending approximately 160 miles from an interconnection
near Portland, Tennessee to an interconnection near Chattanooga, Tennessee.
Volunteer anticipates additional interconnections with several pipeline
companies including Columbia Gulf who will also serve as operator of the new
pipeline facilities.
At the end of the open season in May 1999, nearly a dozen companies requested
more than 440,000 dth per day of capacity on Volunteer. Following the conclusion
of the open season, several power developers in Georgia also expressed interest
in obtaining capacity in the Volunteer pipeline. Volunteer expects to provide
firm natural gas transportation from the mid-continent into the Atlanta, Georgia
market, and other southeastern markets. Volunteer is currently in the process of
negotiating with potential shippers, and the timing of a FERC construction
application is contingent upon a final determination of market demand based upon
these negotiations. Volunteer is exploring several construction options and
timelines that would have the pipeline in place to meet market demand as it
evolves. Subsequent to the open session, AGL Resources, Inc. withdrew its
participation in the project.
Mainline '99
Columbia Gulf filed an application with the FERC in June 1998, for authority to
increase the maximum certificated capacity of its mainline facilities. Columbia
Gulf's largest expansion of its mainline facilities, referred to as Mainline
'99, was authorized by the FERC in February 1999. The Mainline '99 project has
increased Columbia Gulf's certificated capacity to nearly 2.2 billion cubic feet
per day (Bcf/day) by replacing certain compressor units and increasing the
horsepower capacity of other compressor stations. Appeals challenging the FERC's
authorization of the Mainline '99 facilities have been filed and are currently
pending before the United States Court of Appeals for the District of Columbia.
Effect of LDC Unbundling Services
NiSource's gas transmission and storage subsidiaries compete with other
interstate pipelines for the transportation and storage of natural gas. Since
the issuance of FERC Order No. 636, various states throughout Columbia
Transmission's service area have initiated proceedings dealing with open access
and unbundling of LDC services. Among other things, unbundling involves
providing all LDCs with the choice of what entity will serve as transporter as
well as merchant supplier. While the scope and timing of these various
unbundling initiatives varies from state to state, retail choice programs are
being extended to increasing numbers of LDC customers throughout Columbia
Transmission's market area.
Among the issues being addressed in the state unbundling proceedings is the
treatment of the pipeline transmission and storage agreements that have
underpinned the traditional LDC merchant function. In the case of Columbia
Transmission and Columbia Gulf, contracts covering the majority of their firm
transportation and storage quantities
34
35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
with LDCs have primary terms that extend to October 31, 2004. Management fully
expects that the LDCs, or those entities to which pipeline capacity may be
assigned as a result of the LDC unbundling process, will continue to fulfill
their obligations under these contracts. However, in view of the changing market
and regulatory environment, NiSource's transmission companies have commenced the
process of discussing long-term transportation and storage service needs with
their firm customers. Those discussions could result in the restructuring of
some of these contracts on mutually agreeable terms prior to 2004.
Columbia Gulf Voluntary Severance Plan
Columbia Gulf announced a voluntary severance plan (VSP) on September 19, 2000,
for its workforce to assist in the elimination of approximately 70 positions.
The positions were eliminated by December 31, 2000. The cost of the VSP was
approximately $6.6 million and was recognized in the fourth quarter of 2000.
Environmental Matters
REMEDIATION. Columbia Transmission continues to conduct assessment,
characterization and remediation activities at specific sites under a 1995 EPA
Administrative Order by Consent (AOC). The program pursuant to the AOC covers
approximately 240 facilities, approximately 13,000 liquid removal points,
approximately 2,200 mercury measurement stations and about 3,700 storage well
locations. As of December 31, 2000, field characterization has been performed at
almost all of these sites, with the exception of the storage well locations.
Site characterization reports and remediation plans, which must be submitted to
the EPA for approval, are in various stages of development and completion.
Characterization of the storage well locations were initiated in the fall of
2000 and are yet to be completed. Significant remediation has taken place at
mercury measurement stations, liquid removal point sites, and at a limited
number of the 240 facilities.
Only those site investigation, characterization and remediation costs currently
known and determinable can be considered "probable and reasonably estimable"
under Statement of Financial Accounting Standards No. 5, "Accounting for
Contingencies" (SFAS No. 5). As costs become probable and reasonably estimable,
the associated reserves will be adjusted as appropriate. Columbia Transmission
is unable, at this time, to accurately estimate the time frame and potential
costs of the entire program. Management expects that as characterization is
completed and approved by the EPA, additional remediation work is performed and
more facts become available, Columbia Transmission will be able to develop a
probable and reasonable estimate for the entire program or a major portion
thereof, consistent with Securities and Exchange Commission's Staff Accounting
Bulletin No. 92, SFAS No. 5, and American Institute of Certified Public
Accountants Statement of Position 96-1.
At the end of 2000, the remaining environmental liability recorded on the
balance sheet for the gas transmission and storage operations was $104.5
million. Columbia Transmission's environmental cash expenditures are expected to
be approximately $16 million in 2001 and to remain at this level in the
foreseeable future. These expenditures will be charged against the previously
recorded liability. A regulatory asset has been recorded to the extent
environmental expenditures are expected to be recovered through rates.
Management does not believe that Columbia Transmission's environmental
expenditures will have a material adverse effect on NiSource's operations,
liquidity or financial position, based on known facts, existing laws,
regulations, Columbia Transmission's cost recovery settlement with customers and
the long time period over which expenditures will be made.
In addition, predecessor companies of Columbia Transmission may have been
involved in the operation of manufactured gas plants. When such plants were
abandoned, material used and created in the process was sometimes buried at the
site. Columbia Transmission is as yet unable to determine if it will become
liable for any characterization or remediation costs at such sites.
Results of Operations
As part of the acquisition of Columbia that was completed on November 1, 2000,
Columbia Transmission and Columbia Gulf became wholly owned subsidiaries of
NiSource.
Throughput for the last two months of 2000 was 304.4 Bcf. For November and
December 2000, operating revenues, which are primarily derived from
transportation and storage services, were $161.7 million and operating income
was
35
36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
$61.5 million. Included in operating expense was approximately $8.1 million
of goodwill amortization associated with the acquisition of Columbia.
GAS TRANSMISSION AND STORAGE OPERATIONS RESULTS (UNAUDITED)
Two Months Ended December 31, (in millions) 2000
---------------------------------------------------------------------------------------------------------
OPERATING REVENUES
Transportation revenues $ 128.1
Storage revenues 29.9
Other revenues 3.7
---------------------------------------------------------------------------------------------------------
Total Operating Revenues 161.7
---------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Operation and maintenance 65.1
Depreciation and amortization 26.1
Other taxes 9.0
---------------------------------------------------------------------------------------------------------
Total Operating Expenses 100.2
---------------------------------------------------------------------------------------------------------
Operating Income $ 61.5
---------------------------------------------------------------------------------------------------------
GAS TRANSMISSION AND STORAGE OPERATING HIGHLIGHTS
2000
-------------------------------------------------------------------------------------------------------------
THROUGHPUT (Mdth)
Transportation
Columbia Transmission
Market area 269.8
Columbia Gulf
Mainline 111.0
Short-haul 27.5
Intrasegment eliminations (103.9)
-------------------------------------------------------------------------------------------------------------
Total Throughput 304.4
-------------------------------------------------------------------------------------------------------------
EXPLORATION AND PRODUCTION OPERATIONS
NiSource's exploration and production subsidiary, Columbia Energy Resources,
Inc. (Columbia Resources), is one of the largest independent natural gas and oil
producers in the Appalachian Basin and also has production operations in Canada.
Columbia Resources was acquired as part of the Columbia acquisition on November
1, 2000. Columbia Resources produced nearly 10 Bcf equivalents (Bcfe) of natural
gas and oil in the last two months of 2000, has financial interests in 8,000
wells, and has net proven gas and oil reserve holdings of 1.1 trillion cubic
feet equivalent
36
37
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
at December 31, 2000. Columbia Resources also owns and operates
approximately 6,200 miles of gathering pipelines.
Columbia Resources seeks to achieve asset and profit growth primarily through
expanded drilling activities. Though only owned by NiSource for the last two
months of 2000, for purposes of presenting a meaningful description of its
operations, the drilling activity is discussed on an annual 2000 basis. For
2000, Columbia Resource's drilling activity resulted in the discovery of 78.6
net Bcfe of gas and oil reserves. For 1999, reserves of 69.5 Bcfe were
developed. Through December 2000, Columbia Resources has participated in 259
gross (239 net) wells with a success rate of 85 percent compared to 263 gross
(240) net wells with a success rate of 82 percent in 1999.
Forward Sale of Natural Gas
On August 24, 2000, Columbia Resources entered into an agreement with Mahonia II
Limited (Mahonia), whereby Columbia Resources agreed to sell 111.7 Bcf of
natural gas to Mahonia for the period August 2000 through July 2005.
Voluntary Early Retirement Program
In September 2000, Columbia Resources announced the introduction of a VERP.
Approximately 100 employees of Columbia Resources were eligible for the program,
which provided a retirement incentive for active employees who were age fifty
and above with at least five years of service as of January 1, 2001. The
acceptance period ended on December 22, 2000, with approximately 81 employees
electing to participate at a cost of $5.3 million.
Results of Operations
Gas production was 9.5 Bcf for the last two months of 2000, while oil and
liquids production was 26,500 barrels. During this period, approximately 90% of
Columbia Resources' natural gas production was hedged or committed through fixed
price contracts at an average price of $3.78 per Mcf. Operating revenues totaled
$41.1 million and operating income was $15.6 million for this two month period.
EXPLORATION AND PRODUCTION OPERATIONS RESULTS (UNAUDITED)
Two Months Ended December 31, (in millions) 2000
------------------------------------------------------------------------------------------------
OPERATING REVENUES
Gas revenues $ 37.9
Other revenues 3.2
------------------------------------------------------------------------------------------------
Total Operating Revenues 41.1
------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Operation and maintenance 13.4
Depreciation, amortization and depletion 9.1
Other taxes 3.0
------------------------------------------------------------------------------------------------
Total Operating Expenses 25.5
------------------------------------------------------------------------------------------------
Operating Income $ 15.6
------------------------------------------------------------------------------------------------
37
38
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
EXPLORATION AND PRODUCTION OPERATING HIGHLIGHTS
2000
----------------------------------------------------------------------------------------------------
PROVED RESERVES
Gas (Bcf) 1,087.9
Oil and Liquids (000 barrels) 389.0
----------------------------------------------------------------------------------------------------
PRODUCTION
Gas (Bcf) 9.5
Oil and Liquids (000 barrels) 26.5
----------------------------------------------------------------------------------------------------
AVERAGE PRICES
Gas (per Mcf)* $ 3.98
Oil and Liquids (per barrel) $ 29.59
----------------------------------------------------------------------------------------------------
* Includes the effect of hedging activities as discussed in Note 8 of Notes to
Consolidated Financial Statements.
ENERGY MARKETING OPERATIONS
NiSource provides non-regulated energy marketing and services through its wholly
owned subsidiaries EnergyUSA, Inc. and its subsidiary TPC and NESI Energy
Marketing LLC (NEM). These operations consist of a variety of energy-related
services, including gas and power marketing and asset management services to
LDCs, wholesale, commercial and industrial customers. In April 1999, NiSource
acquired TPC Corporation and renamed it EnergyUSA-TPC Corporation. TPC primarily
provides energy related asset management and asset portfolio replacement
opportunities for LDCs and fuel requirement services for electric utilities,
independent power producers and cogeneration facilities. In 1999, TPC assumed
the operations of NEM, which provides natural gas sales and management services
to industrial and commercial customers, engaged in natural gas marketing
activities and provides gas supply to Northern Indiana, Kokomo Gas and Northern
Indiana Fuel and Light under spot and /or term contracts.
Net Revenues
Net revenues for 2000 of $70.4 million increased $50.5 million over 1999
primarily due to the addition of significant asset management contracts in the
TPC portfolio and the full year effect in 2000 of TPC operations.
Net revenues for 1999 of $19.9 million increased $10.8 million over 1998
primarily due to the addition of TPC operations.
Operating Loss
Energy marketing had an operating loss for 2000 of $2 million compared to an
operating loss of $15.5 million for 1999. The improvement was due primarily to
higher revenues as discussed above. This improvement was partially offset by
$14.4 million of expense recorded for the loss on certain assets in preparation
for sale and increased operating expenses attributable to the full year effect
of TPC's operations.
38
39
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
An operating loss of $15.5 million for 1999 increased $13.4 million over 1998
due largely to higher operating expense attributable to increased staffing
levels that resulted from the significant growth of the marketing operations in
2000. The impact of these higher costs was tempered by improved net revenues, as
discussed above.
39
40
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
ENERGY MARKETING OPERATIONS RESULTS (UNAUDITED)
Year Ended December 31, (in millions) 2000 1999 1998
----------------------------------------------------------------------------------------------
NET REVENUES
Sales revenues $ 2,103.3 $ 774.7 $ 644.3
Less: Cost of products purchased 2,032.9 754.8 635.2
----------------------------------------------------------------------------------------------
Net Revenues 70.4 19.9 9.1
----------------------------------------------------------------------------------------------
OPERATING EXPENSES
Operation and maintenance 44.4 29.5 10.3
Depreciation 11.8 5.0 0.6
Loss on asset impairments 14.4 - -
Other taxes 1.8 0.9 0.3
----------------------------------------------------------------------------------------------
Total Operating Expenses 72.4 35.4 11.2
----------------------------------------------------------------------------------------------
Operating Loss $ (2.0) $ (15.5) $ (2.1)
----------------------------------------------------------------------------------------------
OTHER PRODUCTS AND SERVICES
NiSource develops power projects through its subsidiary, Primary Energy, Inc.
(Primary Energy) which works with industrial customers in managing the
engineering, construction, operation and maintenance of "inside the fence"
cogeneration plants that provide cost-effective, long-term sources of energy for
energy-intensive facilities. NiSource has also invested in a number of
distributed generation technologies including fuel cells and microturbine
ventures. NiSource is also building a dark-fiber optics telecommunications
network primarily along its pipeline rights-of-way between New York and
Washington D.C. NiSource is pursuing strategic alternatives for its
telecommunications network and has recently exited the pipeline construction
business and is in the process of selling the line locating and marking
business.
Primary Energy
Primary Energy develops, builds, owns, operates and manages industrial based
energy projects. The focus of the company is to develop on-site,
industrial-based energy solutions for large complexes having multiple energy
flows, such as, electricity, steam, by-product fuels or heated water. Through
its subsidiaries, Primary Energy has entered into agreements with several of
NiSource's largest industrial customers, principally steel mills and a refinery,
to service a portion of their energy needs. In order to serve its customers
under the agreements, and to have electricity available for the wholesale
market, Primary Energy, through its subsidiaries, has entered into certain
operating lease commitments to lease these energy-related projects, which have a
combined capacity of 393 mw in operation and 575 mw under construction.
NiSource, through subsidiaries, guarantees certain of Primary Energy's
obligations under each lease, which are included in the amount disclosed in the
Operating Leases in Note 18(G) of Notes to Consolidated Financial Statements.
Telecommunications Network Environmental Matters
In spring 2000, Columbia Transmission Communication Corporation (Transcom)
received directives from Philadelphia District of the U.S. Army Corps of
Engineers (Philadelphia District) and an administrative order from Pennsylvania
Department of Environmental Protection (PA DEP) addressing alleged violations of
federal and state laws resulting from construction activities associated with
Transcom's laying fiber optic cable along portions of a route between
Washington, D.C. and New York City. The order and directives required Transcom
to largely cease construction activities. On September 18, 2000, Transcom
entered into a voluntary settlement agreement with the Philadelphia District
under which Transcom contributed $1.2 million to the Pennsylvania chapter of the
Nature Conservancy and the Philadelphia District lifted its directives. As a
result of the voluntary agreement with the Philadelphia District and
communications with the PA DEP, the Maryland Department of the Environment and
the Baltimore District of the US Army Corps of Engineers, work in Pennsylvania
and Maryland is now ongoing. Transcom cannot predict the effect of the ongoing
discussions on the completion schedule for the project, nor the nature or amount
of total remedies that may be sought in connection with the foregoing
construction activities.
40
41
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Net Revenues
Net revenues for year 2000 for other products and services of $114.7 million
decreased $7.3 million from 1999, due largely to lower margins from line
locating and marking activity partially offset by increased margins from
cogeneration activities.
Net revenues of $122 million for 1999 increased $9.6 million over 1998
reflecting a new energy-related project that began commercial operations in
August 1998 and increased pipeline construction activity.
Operating Income
Operating income for 2000 of $6.6 million, decreased $12.5 million reflecting
lower net revenues, as discussed above, together with higher operating expense
as a result of increased costs for line locating and marking activities and
pipeline construction operations. In addition, the last two months of 2000
include start-up costs related to Transcom's construction of its
telecommunications network.
Operating income of $19.1 million for 1999 increased $15 million over 1998 due
to improved net revenues and reduced operation and maintenance costs.
OTHER PRODUCTS AND SERVICES RESULTS (UNAUDITED)
Year Ended December 31, (in millions) 2000 1999 1998
-----------------------------------------------------------------------------------------------------
NET REVENUES
Products and services revenue $259.3 $ 242.9 $ 211.0
Less: Cost of products purchased 144.6 120.9 98.6
-----------------------------------------------------------------------------------------------------
Net Revenues 114.7 122.0 112.4
-----------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Operation and maintenance 88.8 85.2 93.4
Depreciation and amortization 12.6 11.5 8.7
Other taxes 6.7 6.2 6.2
-----------------------------------------------------------------------------------------------------
Total Operating Expenses 108.1 102.9 108.3
-----------------------------------------------------------------------------------------------------
Operating Income (Loss) $ 6.6 $ 19.1 $ 4.1
-----------------------------------------------------------------------------------------------------
41
42
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
-------------------------------------------------------------------------------
Report of Independent Public Accountants................................ 40
Statements of Consolidated Income....................................... 41
Statements of Consolidated Cash Flows................................... 42
Consolidated Balance Sheets............................................. 43
Statements of Consolidated Capitalization............................... 45
Statements of Consolidated Long-Term Debt............................... 46
Statements of Consolidated Common Shareholders' Equity.................. 47
Notes to Consolidated Financial Statements.............................. 49
Schedule I ............................................................. 81
Schedule II............................................................. 85
-------------------------------------------------------------------------------
42
43
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF NISOURCE INC.:
We have audited the accompanying consolidated balance sheets and statements of
consolidated capitalization and long-term debt of NiSource Inc. and subsidiaries
as of December 31, 2000 and 1999, and the related statements of consolidated
income, common shareholders' equity and cash flows for each of the three years
in the period ended December 31, 2000. These consolidated financial statements
and the schedules referred to below are the responsibility of NiSource's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of NiSource
Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules listed in the
Index to Item 8, Financial Statements and Supplementary Data, are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not part of the basic consolidated financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic consolidated financial statements taken
as a whole.
Chicago, Illinois Arthur Andersen LLP
January 30, 2001
43
44
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
STATEMENTS OF CONSOLIDATED INCOME
Year Ended December 31, (in millions, except per share
amounts)
2000 1999 1998
-------------------------------------------------------------------------------------------------
NET REVENUES
Gas distribution $ 1,806.8 $ 831.6 $ 609.6
Electric 1,557.4 1,346.3 1,426.6
Gas transmission and storage 363.7 120.0 -
Energy marketing 1,942.8 697.1 594.9
Other products and services 360.0 278.5 212.8
-------------------------------------------------------------------------------------------------
Gross Revenues 6,030.7 3,273.5 2,843.9
Cost of Sales 4,082.7 1,880.8 1,691
-------------------------------------------------------------------------------------------------
Total Net Revenues 1,948.0 1,392.7 1,152.6
-------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Operation and maintenance 801.7 564.3 427.4
Depreciation, amortization and depletion 374.1 295.0 241.8
Loss on asset impairment 65.8 - -
Other taxes 138.6 95.5 80.7
-------------------------------------------------------------------------------------------------
Total Operating Expenses 1,380.2 954.8 749.9
-------------------------------------------------------------------------------------------------
OPERATING INCOME 567.8 437.9 402.7
-------------------------------------------------------------------------------------------------
OTHER INCOME (DEDUCTIONS)
Interest expense, net (304.5) (155.4) (120.2)
Minority interests (20.4) (17.7) (0.7)
Preferred stock dividends of subsidiaries (7.8) (8.1) (8.3)
Other, net 42.1 (20.6) 9.5
--------------------------------------------------------------------------------------------------
Total Other Income (Deductions) (290.6) (201.8) (119.7)
--------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 277.2 236.1 283.0
INCOME TAXES 130.1 82.2 94.4
-------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 147.1 153.9 188.6
-------------------------------------------------------------------------------------------------
INCOME FROM DISCONTINUED OPERATIONS - NET OF TAX 9.8 6.5 5.3
-------------------------------------------------------------------------------------------------
NET INCOME $ 156.9 $ 160.4 $ 193.9
-------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE
Continuing operations $ 1.09 $ 1.24 $ 1.56
Income from discontinued operations 0.07 0.05 0.04
-------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE $ 1.16 $ 1.29 $ 1.60
-------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE
Continuing operations $ 1.08 $ 1.22 $ 1.55
Income from discontinued operations 0.07 0.05 0.04
-------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE $ 1.15 $ 1.27 $ 1.59
-------------------------------------------------------------------------------------------------
DIVIDENDS DECLARED PER COMMON SHARE $ 1.080 $ 1.035 $ 0.975
-------------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING (THOUSANDS) 134,470 124,343 120,778
DILUTED AVERAGE COMMON SHARES (THOUSANDS) 135,811 125,339 121,335
-------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
44
45
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
STATEMENTS OF CONSOLIDATED CASH FLOWS
Year Ended December 31, (in millions) 2000 1999 1998
-------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income $ 156.9 $ 160.4 $ 193.9
Adjustments to reconcile net
income to net cash from
continuing operations
Depreciation, depletion, and amortization 374.2 293.0 241.1
Net changes in price risk management
activities (89.8) 10.4 -
Deferred income taxes 34.7 (17.3) (31.2)
Gain on asset disposition (55.4) (7.5) (4.6)
Income from discontinued operations (9.8) (6.6) (5.3)
Asset impairment 65.8 28.3 -
Deferred revenue (8.0) - -
Other, net 33.8 (6.0) (0.2)
-------------------------------------------------------------------------------------------------
502.4 454.7 393.7
Changes in components of working capital, net of effect from acquisitions of
businesses:
Accounts receivable, net (753.0) 52.7 (31.3)
Inventories 13.0 46.4 (20.2)
Accounts payable 629.4 (128.6) 13.3
Accrued taxes (46.9) (6.4) (10.7)
(Under) Overrecovered gas and fuel costs (198.5) (12.8) 53.2
Exchange gas receivable/payable 58.6 - -
Deferred revenue 14.2 - -
Other accruals (131.5) 3.8 (14.6)
Other working capital (65.9) 8.3 64.6
-------------------------------------------------------------------------------------------------
Net Cash from Continuing Operations 21.8 418.1 448.0
Net Cash from Discontinued Operations (28.7) - -
-------------------------------------------------------------------------------------------------
Net Cash from Operating Activities (6.9) 418.1 448.0
-------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (365.6) (313.0) (219.1)
Acquisition of businesses (5,654.5) (725.8) -
Proceeds from disposition of assets 535.2 29.8 10.4
Other investing activities, net 9.2 (49.1) (16.2)
-------------------------------------------------------------------------------------------------
Net Investing Activities (5,475.7) (1,058.1) (224.9)
-------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of long-term debt 2,629.3 189.2 47.4
Retirement of long-term debt (488.1) (201.0) (94.6)
Change in short-term debt 1,655.4 229.1 166.1
Retirement of preferred shares (6.9) (2.4) (2.4)
Proceeds from Corporate Premium Income
Equity Securities, net - 334.7 -
Issuance of common stock 2,042.1 324.9 10.4
Acquisition of treasury stock (65.9) (126.5) (204.0)
Dividends paid - common shares (131.8) (125.7) (116.4)
Other financing activities, net - 0.5 0.5
-------------------------------------------------------------------------------------------------
Net Financing Activities 5,634.1 622.8 (194.0)
-------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 151.5 (17.2) 29.1
Cash and cash equivalents at beginning of year 41.5 58.7 29.6
-------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 193.0 $ 41.5 $ 58.7
-------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized 244.5 152.7 112.5
Cash paid for income taxes 227.0 115.8 115.1
-------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
45
46
CONSOLIDATED BALANCE SHEETS
ASSETS as of December 31, (in millions) 2000 1999
------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Utility Plant $ 15,825.3 $ 7,490.7
Accumulated depreciation and amortization (7,299.4) (3,318.5)
------------------------------------------------------------------------------------------------------
Net utility plant 8,525.9 4,172.2
------------------------------------------------------------------------------------------------------
Gas and oil producing properties, full cost method
United States cost center 923.6 -
Canadian cost center 19.7 -
Accumulated depletion (9.1) -
------------------------------------------------------------------------------------------------------
Net gas and oil producing properties 934.2 -
------------------------------------------------------------------------------------------------------
Other property, at cost, less accumulated depreciation 86.6 424.3
------------------------------------------------------------------------------------------------------
Net Property, Plant and Equipment 9,546.7 4,596.5
------------------------------------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
Net assets of discontinued operations 560.4 245.4
Unconsolidated affiliates 96.1 151.7
Assets held for sale 33.5 -
Other investments 54.1 32.7
------------------------------------------------------------------------------------------------------
Total Investments 744.1 429.8
------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents 193.0 41.5
Accounts receivable (less reserve of $43.3 and $30.4, respectively) 1,490.2 368.1
Other receivables 23.5 15.7
Gas inventory 322.5 63.7
Underrecovered gas and fuel costs 396.1 90.9
Materials and supplies, at average cost 68.7 62.0
Electric production fuel, at average cost 15.6 32.0
Price risk management assets 1,568.5 90.7
Exchange gas receivable 615.9 -
Prepayments and other 223.6 41.4
------------------------------------------------------------------------------------------------------
Total Current Assets 4,917.6 806.0
------------------------------------------------------------------------------------------------------
OTHER ASSETS
Regulatory assets 517.1 206.4
Intangible assets, less accumulated amortization 3,603.6 125.8
Deferred charges and other 367.7 264.1
------------------------------------------------------------------------------------------------------
Total Other Assets 4,488.4 596.3
------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 19,696.8 $ 6,428.6
------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
46
47
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTS DATA (continued)
CONSOLIDATED BALANCE SHEETS
Capitalization and Liabilities as of December 31, (in millions) 2000 1999
---------------------------------------------------------------------------------------------------
CAPITALIZATION
Common Stock Equity $ 3,415.2 $ 1,353.5
Preferred Stocks--
Subsidiary Companies
Series without mandatory redemption provisions 83.6 85.6
Series with mandatory redemption provisions 49.1 54.0
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely Company debentures 345.0 345.0
Long-term debt, excluding amounts due within one year 5,802.7 1,775.8
---------------------------------------------------------------------------------------------------
Total Capitalization 9,695.6 3,613.9
---------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt 64.8 173.5
Short term borrowings 2,496.7 651.3
Accounts payable 1,117.1 255.8
Dividends declared on common and preferred stocks 1.0 34.5
Customer deposits 32.1 27.1
Taxes accrued 189.3 33.6
Interest accrued 78.0 29.9
Price risk management liabilities 1,529.2 113.0
Refunds due customers within one year 13.5 7.5
Other regulatory liabilities - current 8.6 -
Exchange gas payable 360.5 -
Current deferred revenue 451.5 -
Other accruals 551.1 142.6
---------------------------------------------------------------------------------------------------
Total Current Liabilities 6,893.4 1,468.8
---------------------------------------------------------------------------------------------------
OTHER LIABILITIES AND DEFERRED CREDITS
Deferred income taxes 1,806.2 962.3
Deferred investment tax credits 114.3 90.6
Customer advances 21.1 19.1
Deferred credits 337.3 92.0
Noncurrent deferred revenue 498.0 -
Accrued liability for postretirement benefits 272.5 143.5
Other noncurrent liabilities 58.4 38.4
---------------------------------------------------------------------------------------------------
Total Other 3,107.8 1,345.9
---------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (see notes) - -
---------------------------------------------------------------------------------------------------
TOTAL CAPITALIZATION AND LIABILITIES $ 19,696.8 $ 6,428.6
---------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
47
48
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
STATEMENTS OF CONSOLIDATED CAPITALIZATION
As of December 31, (in millions) 2000 1999
---------------------------------------------------------------------------------------------------------------
Common shareholders' equity $ 3,415.2 $1,353.5
---------------------------------------------------------------------------------------------------------------
Preferred Stocks, which are redeemable solely at option of issuer:
Subsidiary companies--
Cumulative preferred stock--$100 par value--
4-1/4% series--209,035 and 209,051 shares
outstanding, respectively 20.9 20.9
4-1/2% series--79,996 shares outstanding 8.0 8.0
4.22% series--106,198 shares outstanding 10.6 10.6
4.88% series--100,000 shares outstanding 10.0 10.0
7.44% series--41,890 shares outstanding 4.2 4.2
7.50% series--34,842 shares outstanding 3.5 3.5
Premium and other 2.8 4.8
Cumulative preferred stock--no par value--
Adjustable Rate Series A (stated value--
$50 per share), 473,285 shares outstanding 23.6 23.6
---------------------------------------------------------------------------------------------------------------
Series without mandatory redemption provisions 83.6 85.6
---------------------------------------------------------------------------------------------------------------
Redeemable Preferred Stocks, subject to mandatory
redemption requirements or whose redemption is
outside the control of issuer:
Subsidiary companies--
Cumulative preferred stock--$100 par value--
8.85% series--0 and 37,500 shares
outstanding, respectively - 3.7
7-3/4% series--22,244 and 27,798 shares
outstanding, respectively 2.2 2.8
8.35% series--39,000 and 45,000 shares
outstanding, respectively 3.9 4.5
Cumulative preferred stock--no par value--
6.50% series--430,000 shares outstanding 43.0 43.0
---------------------------------------------------------------------------------------------------------------
Series with mandatory redemption provisions 49.1 54.0
---------------------------------------------------------------------------------------------------------------
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely Company debentures 345.0 345.0
---------------------------------------------------------------------------------------------------------------
Long-term debt 5,802.7 1,775.8
---------------------------------------------------------------------------------------------------------------
Total Capitalization $ 9,695.6 $3,613.9
---------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
48
49
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
STATEMENTS OF CONSOLIDATED LONG-TERM DEBT
As of December 31, (in millions) 2000 1999
-------------------------------------------------------------------------------------------------------------
NiSource Inc.:
Debentures due November 1, 2006, with interest imputed at 7.78% $ 108.5 $ -
-------------------------------------------------------------------------------------------------------------
Bay State Gas Company:
Medium Term Notes--
Interest rates between 6.00% and 9.20% with a weighted
average interest rate of 6.96% and maturities between
June 28, 2002 and February 15, 2028 168.5 183.5
Northern Utilities:
Revolving Credit Agreement--due March 17, 2001 - 25.0
Medium Term Notes--Interest rates of 6.93% and 9.70%
with a weighted average interest rate of 8.69% and
maturities of September 1, 2010 and September 1, 2031 20.5 21.3
-------------------------------------------------------------------------------------------------------------
Total long-term debt of Bay State Gas Company 189.0 229.8
-------------------------------------------------------------------------------------------------------------
Columbia Energy Group:
Debentures -
6.61% Series B - due November 28, 2002 281.5 -
6.80% Series C - due November 28, 2005 281.5 -
7.05% Series D - due November 28, 2007 281.5 -
7.32% Series E - due November 28, 2010 281.5 -
7.42% Series F - due November 28, 2015 281.5 -
7.62% Series G - due November 28, 2025 229.2 -
-------------------------------------------------------------------------------------------------------------
Total 1,636.7 -
Unamortized discount on long-term debt (130.5) -
Subsidiary debt--Capitalized lease obligations 2.4 -
-------------------------------------------------------------------------------------------------------------
Total long-term debt of Columbia Energy Group 1,508.6 -
-------------------------------------------------------------------------------------------------------------
EnergyUSA, Inc. and subsidiaries:
Notes Payable--
Interest rates between 6.12% and 12.00% with a weighted
average interest rate of 8.71% and various maturities
between September 6, 2003 and February 6, 2010 2.3 154.3
-------------------------------------------------------------------------------------------------------------
Total long-term debt of EnergyUSA, Inc. 2.3 154.3
-------------------------------------------------------------------------------------------------------------
NiSource Capital Markets, Inc.:
Subordinated Debentures--Series A, 7-3/4%, due March 31, 2026 75.0 75.0
Senior Notes Payable--6.78%, due December 1, 2027 75.0 75.0
Medium-term notes--
Issued at interest rates between 7.38% and 7.99%, with
a weighted average interest rate of 7.66% and various
maturities between April 1, 2004 and May 5, 2027 300.0 300.0
-------------------------------------------------------------------------------------------------------------
Total long-term debt of NiSource Capital Markets, Inc. 450.0 450.0
-------------------------------------------------------------------------------------------------------------
NiSource Development Company, Inc.:
NDC Douglas Properties, Inc.--Notes Payable--
Interest rates between 6.72% and 8.38% with a weighted average
interest rate of 7.90% and maturities through January 1, 2008 16.9 21.3
-------------------------------------------------------------------------------------------------------------
Total long-term debt of NiSource Development Company, Inc. 16.9 21.3
-------------------------------------------------------------------------------------------------------------
NiSource Finance Corp.:
Long -Term Notes -
7 1/2% -- due November 15, 2003 750.0 -
7 5/8% -- due November 15, 2005 900.0 -
7 7/8% -- due November 15, 2010 1,000.0 -
Unamortized discount on long-term debt (24.4) -
-------------------------------------------------------------------------------------------------------------
Total long-term debt of NiSource Finance Corp. 2,625.6 -
-------------------------------------------------------------------------------------------------------------
Northern Indiana Public Service Company:
First mortgage bonds--
Series T, 7-1/2%--due April 1, 2002 38.0 38.5
Series NN, 7.10%--due July 1, 2017 55.0 55.0
Pollution control notes and bonds--
Issued at interest rates between 4.55% and 5.70%, with
a weighted average interest rate of 4.78% and various
maturities between October 1, 2003 and April 1, 2019 233.5 237.0
Medium-term notes--
Issued at interest rates between 6.50% and 7.69%, with a
weighted average interest rate of 7.06% and various
maturities between June 3, 2002 and August 4, 2027 578.0 593.0
Unamortized premium and discount on long-term debt, net (2.7) (3.1)
-------------------------------------------------------------------------------------------------------------
Total long-term debt of Northern Indiana Public Service
Company 901.8 920.4
-------------------------------------------------------------------------------------------------------------
Total long-term debt, excluding amount due within one year $5,802.7 $1,775.8
-------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
49
50
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
STATEMENTS OF CONSOLIDATED COMMON SHAREHOLDERS' EQUITY
Additional
Common Treasury Paid-In
(in millions) Shares Shares Capital
------------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1998 $ 870.9 $ (363.9) $ 89.8
Comprehensive Income:
Net income
Other comprehensive income, net of tax:
Gain/loss on available for sale securities:
Unrealized (net of income tax of $0.9)
Realized (net of income tax of $1.3)
Gain/loss on foreign currency translation:
Unrealized
Realized
------------------------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income
Dividends:
Common shares
Treasury shares acquired (204.0) -
Issued:
Employee stock purchase plan 0.3 0.9
Long-term incentive plan 8.6 0.6
Amortization of unearned compensation
Other 3.0
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $ 870.9 $ (559.0) $ 94.3
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net income
Other comprehensive income, net of tax:
Gain/loss on available for sale securities:
Unrealized (net of income tax of $1.1
Realized (net of income tax of $0.4)
Gain/loss on foreign currency translation:
Unrealized
Realized
------------------------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income
Dividends:
Common shares
Treasury shares acquired (126.5)
Issued:
Employee stock purchase plan 0.5 1.1
Long-term incentive plan 3.9 0.2
Other acquisition 2.7 0.9
Bay State acquisition 205.9 109.7
Amortization of unearned compensation
Equity contracts (34.0)
Other 2.2
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ 870.9 $ (472.5) $ 174.4
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net income
Other comprehensive income, net of tax:
Gain/loss on available for sale securities:
Unrealized (net of income tax of $2.4)
Realized (net of income tax of $1.3)
Gain/loss on foreign currency translation:
Unrealized
Realized
------------------------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income
Dividends:
Common shares
Treasury shares acquired (65.9)
Issued:
Columbia acquisition 0.7 1,760.5
Reduction of credit facility 0.1 280.8
Long-term incentive plan - 22.7 2.2
Long-term incentive plan - 22.7 2.2
Formation of new NiSource (869.7) 515.1 354.6
Amortization of unearned compensation
Equity contracts 7.7
Other 0.6 4.9
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 $ 2.0 $ - $ 2,585.1
------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Unearned Other
Retained Employee Comprehensive
(in millions) Earnings Compensation Income
---------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1998 $ 667.8 $ (2.6) $ 2.8
Comprehensive Income:
Net income 193.9
Other comprehensive income, net of tax:
Gain/loss on available for sale securities:
Unrealized (net of income tax of $0.9) 1.4
Realized (net of income tax of $1.3) (2.2)
Gain/loss on foreign currency translation:
Unrealized (1.2)
Realized 0.2
---------------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income
Dividends:
Common shares (116.6)
Treasury shares acquired
Issued:
Employee stock purchase plan
Long-term incentive plan (1.1)
Amortization of unearned compensation 1.9
Other (0.8)
---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $ 744.3 $ (1.8) $ 1.0
---------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net income 160.4
Other comprehensive income, net of tax:
Gain/loss on available for sale securities:
Unrealized (net of income tax of $1.1 1.8
Realized (net of income tax of $0.4) 0.7
Gain/loss on foreign currency translation:
Unrealized 0.6
Realized 1.0
---------------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income
Dividends:
Common shares (129.1)
Treasury shares acquired
Issued:
Employee stock purchase plan
Long-term incentive plan (0.6)
Other acquisition
Bay State acquisition
Amortization of unearned compensation 3.5
Equity contracts
Other (1.1)
---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ 774.5 $ 1.1 $ 5.1
---------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net income 156.9
Other comprehensive income, net of tax:
Gain/loss on available for sale securities:
Unrealized (net of income tax of $2.4) (3.2)
Realized (net of income tax of $1.3) 2.1
Gain/loss on foreign currency translation:
Unrealized 0.4
Realized -
---------------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income
Dividends:
Common shares (98.3)
Treasury shares acquired
Issued:
Columbia acquisition
Reduction of credit facility
Long-term incentive plan (14.0)
Long-term incentive plan (14.0)
Formation of new NiSource
Amortization of unearned compensation 6.8
Equity contracts
Other (3.3)
---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 $ 829.8 $ (6.1) $ 4.4
---------------------------------------------------------------------------------------------------------------------------
Comprehensive
(in millions) Total Income
----------------------------------------------------------------------------------------------------------
Balance, January 1, 1998 $ 1,264.8
Comprehensive Income:
Net income 193.9 $ 193.9
Other comprehensive income, net of tax:
Gain/loss on available for sale securities:
Unrealized (net of income tax of $0.9) 1.4 1.4
Realized (net of income tax of $1.3) (2.2) (2.2)
Gain/loss on foreign currency translation:
Unrealized (1.2) (1.2)
Realized 0.2 0.2
----------------------------------------------------------------------------------------------------------
Total Comprehensive Income $ 192.1
Dividends:
Common shares (116.6)
Treasury shares acquired (204.0)
Issued:
Employee stock purchase plan 1.2
Long-term incentive plan 8.1
Amortization of unearned compensation 1.9
Other 2.2
----------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $ 1,149.7
----------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net income 160.4 $ 160.4
Other comprehensive income, net of tax:
Gain/loss on available for sale securities:
Unrealized (net of income tax of $1.1 1.8 1.8
Realized (net of income tax of $0.4) 0.7 0.7
Gain/loss on foreign currency translation:
Unrealized 0.6 0.6
Realized 1.0 1.0
----------------------------------------------------------------------------------------------------------
Total Comprehensive Income $ 164.5
Dividends:
Common shares (129.1)
Treasury shares acquired (126.5)
Issued:
Employee stock purchase plan 1.6
Long-term incentive plan 3.5
Other acquisition 3.6
Bay State acquisition 315.6
Amortization of unearned compensation 3.5
Equity contracts (34.0)
Other 1.1
----------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ 1,353.5
----------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net income 156.9 $ 156.9
Other comprehensive income, net of tax:
Gain/loss on available for sale securities:
Unrealized (net of income tax of $2.4) (3.2) (3.2)
Realized (net of income tax of $1.3) 2.1 2.1
Gain/loss on foreign currency translation:
Unrealized 0.4 0.4
Realized - -
----------------------------------------------------------------------------------------------------------
Total Comprehensive Income $ 156.2
Dividends:
Common shares (98.3)
Treasury shares acquired (65.9)
Issued:
Columbia acquisition 1,761.2
Reduction of credit facility 280.9
Long-term incentive plan 10.9
Long-term incentive plan 10.9
Formation of new NiSource -
Amortization of unearned compensation 6.8
Equity contracts 7.7
Other 2.2
----------------------------------------------------------------------------------------------
Balance, December 31, 2000 $ 3,415.2
----------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
50
51
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
STATEMENTS OF CONSOLIDATED COMMON SHAREHOLDERS' EQUITY (CONTINUED)
SHARES
Common Treasury
(in thousands) Shares Shares
------------------------------------------------------------------
Balance January 1, 1998 147,784 (23,472)
Treasury shares acquired (7,310)
Issued:
Employee stock purchase plan 43
Long-term incentive plan 485
------------------------------------------------------------------
Balance December 31, 1998 147,784 (30,254)
------------------------------------------------------------------
Treasury shares acquired (4,821)
Issued:
Employee stock purchase plan 60
Long-term incentive plan 194
Bay State acquisition 11,042
Other acquisition 134
------------------------------------------------------------------
Balance December 31, 1999 147,784 (23,645)
------------------------------------------------------------------
Treasury shares cancelled (26,410) 26,410
Treasury shares acquired (3,971)
Issued:
Columbia acquisition 72,453
Stock issuance 11,500
Employee stock purchase plan 62
Long-term incentive plan 226 1,144
------------------------------------------------------------------
Balance December 31, 2000 205,553 -
------------------------------------------------------------------
51
52
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. HOLDING COMPANY STRUCTURE
NiSource Inc. (NiSource) is an energy holding company that provides natural gas,
electricity and other products and services to 3.6 million customers located
within the energy corridor that runs from the Gulf Coast through the Midwest to
New England. NiSource, organized as an Indiana holding company in 1987 under the
name of NIPSCO Industries, Inc., changed its name to NiSource Inc. on April 14,
1999. Subsequent to the completion of the acquisition of Columbia Energy Group
(Columbia) on November 1, 2000, as discussed in Note 3 below, NiSource became a
Delaware corporation. NiSource is a registered holding company under the Public
Utility Holding Company Act of 1935, as amended (1935 Act), and derives
substantially all its revenues and earnings from the operating results of its 15
direct subsidiaries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of NiSource and its majority-owned subsidiaries after the
elimination of all intercompany accounts and transactions. Investments for which
at least a 20% interest is owned and certain joint ventures are accounted for
under the equity method. Investments with less than a 20% interest are accounted
for under the cost method. Certain reclassifications were made to conform the
prior years' financial statements to the current presentation.
B. DILUTED AVERAGE COMMON SHARES COMPUTATION. Basic earnings per share (EPS) is
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. The
weighted average shares outstanding for diluted EPS include the incremental
effect of the various long-term incentive compensation plans. For 2000, the
weighted average shares outstanding for diluted EPS also includes the
incremental effect of another forward equity contract associated with the Stock
Appreciation Income Linked Securities(SM) (SAILS(SM)). For 1999, the incremental
effect of common shares associated with the equity forward share purchase
contract, calculated under the reverse treasury stock method is also included in
the weighted average shares outstanding for diluted EPS. See Note 12B for
description of the equity forward share purchase contract.
The numerator in calculating both basic and diluted EPS for each year is
reported net income. The computation of diluted average common shares follows:
Diluted Average Common Shares Computation 2000 1999 1998
------------------------------------------------------- ------------- ------------- ------------------
Denominator (thousands)
Basic average common shares outstanding 134,470 124,343 120,778
Dilutive potential common shares 1,341 996 557
------------------------------------------------------- ------------- ------------- ------------------
DILUTED AVERAGE COMMON SHARES 135,811 125,339 121,335
------------------------------------------------------- ------------- ------------- ------------------
C. CASH AND CASH EQUIVALENTS. NiSource considers all highly liquid
short-term investments to be cash equivalents.
D. BASIS OF ACCOUNTING FOR RATE-REGULATED SUBSIDIARIES. Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation" (SFAS No. 71), provides that rate-regulated subsidiaries account for
and report assets and liabilities consistent with the economic effect of the way
in which regulators establish rates, if the rates established are designed to
recover the costs of providing the regulated service and if the competitive
environment makes it probable that such rates can be charged and collected.
NiSource's rate-regulated subsidiaries follow the accounting and reporting
requirements of SFAS No. 71. Certain expenses and credits subject to utility
regulation or rate determination normally reflected in income are deferred on
the balance sheet and are recognized in income as the related amounts are
included in service rates and recovered from or refunded to customers. In the
event that regulation significantly changes the opportunity for NiSource to
recover its costs in the future, all or a portion of NiSource's regulated
operations may no longer meet the criteria for the
52
53
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
application of SFAS No. 71. In such event, a write-down of all or a portion of
NiSource's existing regulatory assets and liabilities could result, unless some
form of transition cost recovery is established by the appropriate regulatory
body which would meet the requirements under generally accepted accounting
principles for continued accounting as regulatory assets during such recovery
period. If NiSource will not be able to continue to apply the provisions of SFAS
No. 71, NiSource will have to apply the provisions of SFAS No. 101 "Regulated
Enterprises - Accounting for the Discontinuation of Application of FASB
Statement No. 71." In management's opinion, NiSource's regulated subsidiaries
will be subject to SFAS No. 71 for the foreseeable future.
Net regulatory assets and liabilities were comprised of the following items:
At December 31, (in millions) 2000 1999
------------------------------------------------------------------------------------------------
ASSETS
Reacquisition premium on debt (see Note 14) $ 36.2 $ 39.7
R. M. Schahfer Unit 17 and Unit 18 carrying
charges and deferred depreciation (see Note 2G) 49.7 53.9
Bailly scrubber carrying charges and deferred
depreciation (see Note 2G) 6.4 7.3
Postemployment and other postretirement costs
(see Note 10) 211.2 67.2
Retirement income plan costs 21.1 -
Environmental costs 88.8 -
FERC Order No. 636 transition costs 7.9 -
Net regulatory effects of accounting for income
taxes (see Note 2R) 75.7 20.7
Underrecovered gas and fuel costs 396.1 86.7
Depreciation (see Note 2G) 39.9 -
Other 37.6 14.1
------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 970.6 $ 289.6
------------------------------------------------------------------------------------------------
LIABILITIES
Rate refunds and reserves $ 13.5 $ 7.5
Other 8.6 -
------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 22.1 $ 7.5
------------------------------------------------------------------------------------------------
Regulatory assets of approximately $803.8 million are not presently included in
the rate base and consequently are not earning a return on investment. These
regulatory assets are being recovered through cost of service. The remaining
recovery periods generally range from 1 to 15 years. Regulatory assets of
approximately $196.6 million require specific rate action. All regulatory assets
are probable of recovery.
E. UTILITY PLANT AND OTHER PROPERTY AND RELATED DEPRECIATION AND MAINTENANCE.
Property, plant and equipment (principally utility plant) are stated at cost.
The cost of utility and other plant of the rate-regulated subsidiaries includes
an allowance for funds used during construction (AFUDC). Property, plant and
equipment of other subsidiaries includes interest during construction (IDC). The
2000 before-tax rates for AFUDC and IDC were 6.4% and 6.8%, respectively. The
1999 and 1998 before-tax rates for AFUDC were 5.5% and 6.0%, respectively.
The regulated subsidiaries provide depreciation on a straight-line method over
the remaining service lives of the electric, gas and common properties.
The depreciation provisions for utility plant, as a percentage of the original
cost, for the periods ended, December 31, 2000, 1999 and 1998 were as follows:
2000 1999 1998
------------------------------------------------------------------------------------------------
Electric 3.7% 3.7% 3.7%
Gas 4.6% 4.4% 5.1%
------------------------------------------------------------------------------------------------
53
54
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
The regulated subsidiaries follow the practice of charging maintenance and
repairs, including the cost of removal of minor items of property, to expense as
incurred. When property that represents a retired unit is replaced or removed,
the cost of such property is credited to utility plant, and such cost, together
with the cost of removal less salvage, is charged to the accumulated provision
for depreciation.
Net utility plant includes amounts allocated to utility plant in excess of the
original cost as part of purchase price allocations associated with the
acquisition of certain utility businesses, net of accumulated depreciation. Net
plant acquisition adjustments were $553.4 million and $568.3 million at December
31, 2000, and December 31, 1999, respectively, and are being amortized over
forty-year periods from the respective dates of acquisition.
F. GAS AND OIL PRODUCING PROPERTIES. NiSource's subsidiaries engaged in
exploring for and developing gas and oil reserves follow the full cost method of
accounting. In accordance with generally accepted accounting principles, the oil
and gas properties were written up to their fair value as of November 1, 2000.
Under the full cost method of accounting, all productive and nonproductive costs
directly identified with acquisition, exploration and development activities
including certain payroll and other internal costs are capitalized. Depletion is
based upon the ratio of current year revenues to expected total revenues,
utilizing current prices, over the life of production. If such capitalized costs
exceed the sum of the estimated present value of the net future gas and oil
revenues and the lower of cost or estimated value of unproved properties, an
amount equivalent to the excess is charged to current depletion expense. Gains
or losses on the sale or other disposition of gas and oil properties are
normally recorded as adjustments to capitalized costs, except in the case of a
sale of a significant amount of properties, which would be reflected in the
income statement.
G. CARRYING CHARGES AND DEFERRED DEPRECIATION. Upon completion of R. M. Schahfer
Units 17 and 18, Northern Indiana Public Service Company (Northern Indiana)
capitalized the carrying charges and deferred depreciation in accordance with
orders of the Indiana Utility Regulatory Commission (IURC) until the cost of
each unit was allowed in rates. Such carrying charges and deferred depreciation
are being amortized over the remaining life of each unit.
Northern Indiana has capitalized carrying charges and deferred depreciation and
certain operating expenses relating to its scrubber service agreement for its
Bailly Generating Station in accordance with an order of the IURC. The
accumulated balance of the deferred costs and related carrying charges is being
amortized over the remaining life of the scrubber service agreement.
In Columbia Gas of Ohio, Inc.'s (Columbia of Ohio) 1999 rate agreement, the
Public Utilities Commission of Ohio (PUCO) authorized Columbia of Ohio to revise
its depreciation accrual rates for the period January 1, 1999 through December
31, 2004. The revised depreciation rates are lower than those which would have
been utilized if Columbia of Ohio were not subject to regulation. The amount of
depreciation that would have been recorded for 2000 had Columbia of Ohio not
been subject to rate regulation is $34.6 million, a $21.2 million increase over
the $13.4 million reflected in rates. Accordingly, a regulatory asset has been
established in the amount of $39.9 million at December 31, 2000.
H. AMORTIZATION OF SOFTWARE COSTS. External and incremental internal costs
associated with computer software developed for internal use are capitalized.
Capitalization of such costs commences upon the completion of the preliminary
stage of the project. Once the installed software is ready for its intended use,
such capitalized costs are amortized on a straight-line basis over a period of
five to ten years.
I. INTANGIBLE ASSETS. Intangible assets are recorded at cost and are amortized
on a straight-line basis. The excess of cost over the fair value of the net
assets acquired in an acquisition is recorded as goodwill. Goodwill assets of
$3.6 billion and $125.7 million are reported at December 31, 2000, and December
31, 1999, respectively. The goodwill associated with the Columbia acquisition is
being amortized over forty years, while goodwill associated with other
acquisitions is being amortized over a weighted average period of twenty-seven
years. Other intangible assets, generally representing agreements not to
compete, were approximately $6.9 million and $12.8 million at December 31, 2000,
and December 31, 1999, respectively, and are being amortized over periods of
four to eight years. The recoverability of intangible assets is assessed on a
periodic basis to confirm that expected future cash
54
55
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
flows will be sufficient to support the recorded intangible assets. Accumulated
amortization of intangible assets at December 31, 2000, and December 31, 1999,
was approximately $20.7 million and $9.9 million, respectively.
J. REVENUE RECOGNITION. Except as discussed below, revenues are recorded as
products and services are delivered. However, utility revenues are billed to
customers monthly on a cycle basis. Revenues are recorded on the accrual basis
and include an estimate for electric and gas delivered. Cash received in advance
from sales of commodities to be delivered in the future is recorded as deferred
revenue and recognized as income upon delivery of the commodity. Effective
January 1, 1999, revenues relating to energy trading operations are recorded
based upon changes in the fair values, net of reserves, of the related energy
trading contracts.
K. ESTIMATED RATE REFUNDS. Certain rate-regulated subsidiaries collect revenues
subject to refund pending final determination in rate proceedings. In connection
with such revenues, estimated rate refund liabilities are recorded which reflect
management's current judgment of the ultimate outcome of the proceedings. No
provisions are made when, in the opinion of management, the facts and
circumstances preclude a reasonable estimate of the outcome.
L. ACCOUNTS RECEIVABLE SALES PROGRAM. NiSource enters into agreements with third
parties to sell certain accounts receivable without recourse. These sales are
reflected as reductions of account receivable in the accompanying consolidated
balance sheets and as operating cash flows in the accompanying statements of
consolidated cash flows. The costs of this program, which are based upon the
purchasers' level of investment and borrowing costs, are charged to other income
in the accompanying statements of consolidated income.
M. USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
N. FUEL ADJUSTMENT CLAUSE. All metered electric rates contain a provision for
adjustment in charges for electric energy to reflect increases and decreases in
the cost of fuel and the fuel cost of purchased power through operation of a
fuel adjustment clause. As prescribed by order of the IURC applicable to metered
retail rates, the adjustment factor has been calculated based on the estimated
cost of fuel and the fuel cost of purchased power in a future three month
period. If two statutory requirements relating to expense and return levels are
satisfied, any under recovery or over recovery caused by variances between
estimated and actual cost in a given three month period will be included in a
future filing. Northern Indiana records any under recovery or over recovery as a
current regulatory asset or current liability until such time as it is billed or
refunded to its customers. The fuel adjustment factor is subject to a quarterly
hearing by the IURC and remains in effect for a three month period.
O. GAS COST ADJUSTMENT CLAUSE. NiSource's gas distribution subsidiaries defer
differences between gas purchase costs and the recovery of such costs in
revenues, and adjust future billings for such deferrals on a basis consistent
with applicable state approved tariff provisions.
P. NATURAL GAS IN STORAGE. Both the last-in, first-out (LIFO) inventory
methodology and the weighted average methodology are used to value natural gas
in storage. Based on the average cost of gas using the LIFO method in December
2000 and December 1999, the estimated replacement cost of gas in storage at
December 31, 2000, and December 31, 1999, exceeded the stated LIFO cost by
$791.1 million and $48.9 million, respectively. Inventory valued using LIFO was
$257.2 million and $23.0 million at December 31, 2000, and December 31, 1999,
respectively. Inventory valued using the weighted average methodology was $65.3
million and $40.8 million at December 31, 2000, and December 31, 1999,
respectively.
Q. ACCOUNTING FOR RISK MANAGEMENT ACTIVITIES. NiSource is exposed to commodity
price risk in its natural gas and electric operations. A variety of
commodity-based derivative financial instruments are utilized to reduce this
price risk. When these derivatives are used to reduce price risk in non-trading
operations such as activities in gas supply for regulated gas utilities, certain
customer choice programs for residential customers and other retail customer
activity, gains and losses on these derivative financial instruments are
deferred as assets and liabilities and are recognized in earnings concurrent
with the disposition of the underlying physical commodity. In certain
55
56
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
circumstances, a derivative financial instrument will serve to hedge the
acquisition cost of natural gas injected into storage. In this situation, the
gain or loss on the derivative financial instrument is deferred as part of the
cost basis of gas in storage and recognized upon the ultimate disposition of the
gas. If a derivative financial instrument contract is terminated early because
it is probable that a transaction or forecasted transaction will not occur, any
gain or loss as of such date is immediately recognized in earnings. If a
derivative financial instrument is terminated for other economic reasons, any
gains or losses as of the termination date are deferred and recorded when the
associated transaction or forecasted transaction affects earnings.
NiSource's exploration and production company utilizes commodity price swaps and
basis swaps. Swaps are negotiated and executed over-the-counter and are
structured to provide the same risk protection as futures and options. Basis
swaps are used to manage risk by fixing the basis or differential that exists
between a delivery location index and the commodity futures prices. Premiums
paid for option agreements are included as current assets in the consolidated
balance sheets until they are exercised or expire. Margin requirements for
natural gas are also recorded as current assets. Unrealized gains and losses on
all futures contracts are deferred on the consolidated balance sheets as either
current assets or other deferred credits. Realized gains and losses from the
settlement of natural gas futures, options and swaps are included in revenues
concurrent with the associated physical transaction.
NiSource also uses derivative financial instruments in connection with trading
activities at its power trading and certain gas marketing and trading
operations. These derivatives, along with the related physical contracts, are
recorded at fair value pursuant to Emerging Issues Task Force (EITF) Issue No.
98-10, "Accounting for Energy Trading and Risk Management Activities." Because
the majority of trading activities started in 1999, the impact of adopting EITF
Issue No. 98-10 on January 1, 1999 was insignificant. Transactions related to
electric utility system load management do not qualify as a trading activity
under EITF Issue No. 98-10 and are accounted for on an accrual basis. NiSource
refers to this activity as Power Management.
R. INCOME TAXES AND INVESTMENT TAX CREDITS. NiSource records income taxes to
recognize full interperiod tax allocations. Under the liability method of income
tax accounting, deferred income taxes are recognized for the tax consequences of
temporary differences by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax basis of existing assets and liabilities.
Previously recorded investment tax credits of the regulated subsidiaries were
deferred and are being amortized over the life of the related properties to
conform with regulatory policy.
S. ENVIRONMENTAL EXPENDITURES. NiSource accrues for costs associated with
environmental remediation obligations when such costs are probable and can be
reasonably estimated, regardless of when expenditures are made. The undiscounted
estimated future expenditures are based on currently enacted laws and
regulations, existing technology and, when possible, site-specific costs. The
reserve is adjusted as further information is developed or circumstances change.
Rate-regulated subsidiaries applying SFAS No. 71 establish a regulatory asset on
the balance sheet to the extent that future recovery of environmental
remediation costs is probable through the regulatory process.
T. STOCK OPTIONS AND AWARDS. Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS No. 123), encourages, but
does not require, entities to adopt the fair value method of accounting for
stock-based compensation plans. This statement, if adopted would require the
value of the option at the date of grant be amortized over the vesting period of
the option. NiSource continues to apply Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB Opinion No. 25).
3. ACQUISITIONS
On November 1, 2000, NiSource completed its acquisition of Columbia for an
aggregate consideration of approximately $6 billion, primarily consisting of
72.4 million shares of in common stock valued at $1,761 million, approximately
$3,888 million paid in cash and SAILS(SM) (units each consisting of a zero
coupon debt security coupled with a forward equity contract in NiSource shares)
valued at $114 million. NiSource also assumed approximately $2 billion in
Columbia debt. NiSource has accounted for the acquisition in accordance with the
56
57
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
purchase method of accounting as of the effective date of the transaction. The
purchase price has been allocated to the assets and liabilities acquired based
on the fair value of those assets and liabilities as of the acquisition date.
Based upon the nature of the regulatory environment in which Columbia's rate
regulated subsidiaries operate, the fair value of rate regulated assets and
liabilities are generally considered to be historical cost. The excess of the
aggregate purchase price over the estimated fair value of the net assets
acquired, approximately $3.6 billion, has been reflected as goodwill in the
consolidated financial statements and is being amortized on a straight-line
basis over forty years. NiSource may make adjustments to the allocation of the
purchase price during 2001 for changes in its preliminary evaluations and
assumptions based on review of additional information and the ultimate
resolution of contingencies existing at the acquisition date. NiSource does not
anticipate that the final evaluation of these issues will materially affect the
allocation of the purchase price.
Assets acquired and liabilities assumed in the acquisition of Columbia were
comprised of the following:
(in billions) 2000
-----------------------------------------------------------------------------------------------
ASSETS ACQUIRED:
Utility plant, net of accumulated depreciation $ 4.3
Oil and gas properties, net of accumulated depletion 1.0
Intangible assets 3.6
Other current assets 1.9
Other noncurrent assets 0.5
-----------------------------------------------------------------------------------------------
TOTAL ASSETS 11.3
LIABILITIES ASSUMED:
Long-term debt 1.8
Short-term debt 0.2
Other current liabilities 1.6
Other noncurrent liabilities 1.7
-----------------------------------------------------------------------------------------------
TOTAL LIABILITIES 5.3
-----------------------------------------------------------------------------------------------
NET ASSETS ACQUIRED $ 6.0
-----------------------------------------------------------------------------------------------
On February 12, 1999, the acquisition of Bay State Gas Company (Bay State) was
completed for approximately $560.1 million in cash and NiSource common shares.
The $237.7 million cash portion was partially financed by the issuance of
Corporate Premium Income Equity Securities (Corporate PIES) (See Note 16). The
acquisition was accounted for as a purchase, and the purchase price was
allocated to the assets acquired and liabilities assumed based on their
estimated fair values.
On a pro forma basis, NiSource's consolidated results of operations for the
twelve months ended December 31, 2000 and December 31, 1999, assuming the
acquisition of Columbia occurred on January 1, 1999, would have been:
UNAUDITED
Twelve Months Ended December 31, ($ in millions) 2000 1999
---------------------------------------------------------------------------------------------------------------
Operating revenue 8,069.7 6,106.9
Operating income 1,038.5 1,032.5
Net income 153.4 132.5
---------------------------------------------------------------------------------------------------------------
On April 1, 1999, NiSource acquired the stock of TPC Corporation, a
Houston-based natural gas marketing and storage company, for approximately $150
million in cash. The acquisition was accounted for as a purchase, with the
purchase price allocated to the assets and liabilities acquired based on their
estimated fair values, including estimates with respect to the tax bases of
certain assets acquired. As a result of the TPC Corporation acquisition,
NiSource had an indirect investment in the amount of $126.0 million,
representing a 77.3% interest in Market Hub Partners, L.P. (MHP). In the fourth
quarter of 1999, NiSource acquired the remaining interests in MHP. On September
18, 2000, NiSource sold its ownership interests in MHP to Duke Energy Gas
Transmission for $250 million in cash plus the assumption of $150 million in
debt. This transaction resulted in a pre-tax gain of $51.9 million, which is
reflected as
57
58
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
a component of other, net under other income (deductions) in the accompanying
statements of consolidated income. Results for periods presented prior to the
acquisition of TPC are not impacted significantly by pro forma results of TPC
applied to those periods.
4. RESTRUCTURING ACTIVITIES
During 2000, NiSource developed and began the implementation of a plan to
restructure its operations as a result of the acquisitions discussed above. The
restructuring plan included a severance program, a transition plan to implement
operational efficiency throughout NiSource's operations and a voluntary early
retirement program.
As a result of the restructuring plan, it is estimated that approximately 900
management, professional, administrative and technical positions have been or
will be eliminated. In October 2000, NiSource recorded pre-tax charges of $5.8
million in operating expense representing severance and related benefits costs.
This charge included $5.1 million of estimated termination benefits. In
addition, NiSource assumed $66.9 million in liabilities related to the
restructuring of Columbia's operations representing severance and related
benefits costs and relocation of certain operations. As of December 31, 2000,
approximately 383 employees had been terminated as a result of the restructuring
plan. At December 31, 2000, the consolidated balance sheets reflected a
liability of $65.4 million related to the restructuring plan.
5. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
The Securities and Exchange Commission (SEC) in its order approving the merger
with Columbia required NiSource to divest its water utilities within three years
from the date of the merger. In January 2001, NiSource completed its formal plan
to dispose of its water utilities within one year to comply with the SEC order.
The water utilities operations are reported as discontinued operations.
Results from discontinued operations of the water utilities are provided in the
following table:
Twelve months ended December 31, ($ in millions) 2000 1999 1998
-----------------------------------------------------------------------------------------------
REVENUES FROM DISCONTINUED OPERATIONS 104.7 105.1 90.0
-----------------------------------------------------------------------------------------------
Income from discontinued operations 35.1 14.7 11.7
Income taxes 25.3 8.2 6.4
-----------------------------------------------------------------------------------------------
NET INCOME FROM DISCONTINUED OPERATIONS 9.8 6.5 5.3
-----------------------------------------------------------------------------------------------
On May 22, 2000, as a result of its ongoing strategic assessment, Columbia
announced that it decided to sell Columbia Propane Corporation (Columbia
Propane), a propane marketer. Columbia also announced its decision to sell
Columbia Petroleum Corporation (Columbia Petroleum), a diversified petroleum
distribution company. On January 31, 2001, Columbia signed a definitive
agreement to sell the stock and assets of Columbia Propane to AmeriGas Partners
L.P. (AmeriGas) for approximately $208 million, including $53 million of
AmeriGas partnership common units. The transaction, subject to customary
conditions, including Hart-Scott Rodino regulatory approval, is likely to close
early in 2001. The net assets of the water utilities, Columbia Propane and
Columbia Petroleum are reported as net assets of discontinued operations on the
consolidated balance sheets.
58
59
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
The net assets of the discontinued operations were as follows:
As of December 31, (in millions) 2000 1999
-----------------------------------------------------------------------------------------------
NET ASSETS OF DISCONTINUED OPERATIONS
Accounts receivable, net $ 107.8 $ 13.7
Property, plant and equipment, net 891.3 650.1
Other assets 173.8 51.6
Current liabilities (148.2) (65.8)
Debt (169.4) (199.4)
Other liabilities (294.9) (204.8)
-----------------------------------------------------------------------------------------------
NET ASSETS OF DISCONTINUED OPERATIONS $ 560.4 $ 245.4
-----------------------------------------------------------------------------------------------
Subsequent to the merger, certain other assets were written down to their fair
value. The write-down of $65.8 million, reported as Loss on Asset Impairment in
the Income Statement, left a remaining carrying amount of $33.5 million reported
as Assets Held for Sale on the Balance Sheet as of December 31, 2000. The assets
impaired were those belonging to a utility line locating company included in the
Other segment, an investment in a company included in the Gas Distribution
segment and other energy related assets included in the Gas Marketing segment.
6. IMPACT OF ACCOUNTING STANDARDS
A. SFAS NO. 133 - ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," in June 1998 and SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities--Deferral of the Effective
Date of FASB Statement No. 133" in June 1999 and SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities - an amendment of
FASB Statement No. 133" in June 2000. Statement No. 133 as amended standardizes
the accounting for derivative instruments, including certain derivative
instruments embedded in hybrid contracts, by requiring that a company recognize
those items as assets or liabilities in the balance sheet and measure them at
fair value. The standard also suggests in certain circumstances commodity based
contracts may qualify as derivatives. Special accounting within this statement
generally provides for matching of the timing of gain or loss recognition of
derivative instruments qualifying as a hedge with the recognition of changes in
the fair value of the hedged asset or liability through earnings, and requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting treatment. The statement also
provides that the effective portion of a hedging instrument's gain or loss on a
forecasted transaction be initially reported in other comprehensive income and
subsequently reclassified into earnings when the hedged forecasted transaction
affects earnings. Unless those specific hedge accounting criteria are met, SFAS
No. 133 requires that changes in derivatives' fair value be recognized currently
in earnings.
NiSource is a party to a number of contracts that have elements of a derivative
instrument. These contracts include, among others, binding purchase orders,
contracts which provide for the delivery of natural gas, and service contracts
that require the counterparty to provide commodity storage, transportation or
capacity service to meet normal sales commitments. Although many of these
contracts have the requisite elements of a derivative instrument, NiSource
believes these contracts are not subject to the accounting requirements of SFAS
133 because they provide for the delivery of products or services in quantities
that are expected to be used in the normal course of operating the business or
the value of the contract is directly associated with the price or value of a
service. Other contracts do not meet the definition of a derivative instrument
because these represent requirements-based commitments.
The adoption of this statement on January 1, 2001 is estimated to result in a
cumulative after-tax increase to net income of approximately $5 million and an
after-tax reduction to other comprehensive income of approximately $20 million.
The adoption is also estimated to result in approximately $195 million of
derivatives to be recognized on the consolidated balance sheets as assets and
approximately $220 million of derivatives to be recognized as liabilities.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
B. SFAS NO. 140 - ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES. In September 2000, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities." This statement replaces FASB Statement No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
(SFAS No. 125) It revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires certain
disclosures, but it carries over most of SFAS No. 125's provisions without
reconsideration.
This statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. Those
standards are based on consistent application of a financial-components approach
that focuses on control. Under that approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls and
the liabilities it has incurred, derecognizes financial assets when control has
been surrendered, and derecognizes liabilities when extinguished. This statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings.
C. SAB NO. 101 - REVENUE RECOGNITION IN FINANCIAL STATEMENTS. December 1999, the
SEC issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in
Financial Statements." This SAB summarizes certain of the SEC Staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. In June 2000, the SEC issued SAB No. 101B, which delayed
the implementation of SAB 101 until no later than the fourth fiscal quarter of
fiscal years beginning after December 15, 1999. As a result of the application
of SAB 101, NiSource restated certain results of its power trading operations on
a gross basis. This resulted in an increase in 2000 revenues of $485.2 million
and cost of sales of $472.9 million. 1999 revenues increased $237.8 million and
cost of sales increased $230.4 million as a result of the implementation. This
restatement resulted in no change to operating income.
7. REGULATORY MATTERS
FUEL ADJUSTMENT CLAUSE. On August 18, 1999, the IURC issued a generic order
(Generic Order) which established new guidelines for the recovery of purchased
power costs through fuel adjustment clauses. The IURC ruled that each utility
had to establish a "benchmark" which is the utility's highest on-system fuel
cost per kilowatt-hour (kwh) during the most recent annual period. The IURC
stated that if the weekly average of a utility's purchased power costs were less
than the "benchmark," these costs per kwh should be considered net energy costs
which are presumed "fuel costs included in purchased power." If the weekly
average of a utility's purchased power costs exceeded the "benchmark," the
utility would need to submit additional evidence demonstrating the
reasonableness of these costs. The Office of Utility Consumer Counselor (OUCC)
appealed the Generic Order to the Indiana Court of Appeals. Northern Indiana
applied the Generic Order's guidelines to purchased power transactions sought to
be recovered for February, March and April 2000.
By an order issued February 23, 2000, the IURC approved the recovery of Northern
Indiana's purchased power transactions during the months of July, August and
September 1999. Northern Indiana and the OUCC filed petitions for
reconsideration of the February 23, 2000 Order.
On June 30, 2000, Northern Indiana and the OUCC filed a joint motion to withdraw
petitions for reconsideration and requested IURC approval of a Stipulation and
Agreement (Agreement). The Agreement establishes a recovery mechanism for
certain purchase power transactions for the months of July, August and September
2000 that will be utilized in lieu of the IURC's Generic Order guidelines. The
Agreement calls for Northern Indiana to return, by an adjustment to fuel
adjustment clause factors, $1.8 million to retail ratepayers during the period
from November 2000 through April 2001. Northern Indiana has established a
reserve for these amounts. By its order issued August 9, 2000, the IURC approved
the Agreement. On September 5, 2000, the Indiana Court of Appeals issued an
order approving a joint stipulation for dismissal, with prejudice, of the OUCC's
appeal of the Generic Order.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
GAS COST ADJUSTMENT CLAUSE. On August 11, 1999, the IURC approved a flexible gas
cost adjustment mechanism for Northern Indiana. Under the new procedure, the
demand component of the adjustment factor will be determined, after hearings and
IURC approval, and made effective on November 1 of each year. The demand
component will remain in effect for one year until a new demand component is
approved by the IURC. The commodity component of the adjustment factor will be
determined by monthly filings, which will become effective on the first day of
each calendar month, subject to refund. The monthly filings do not require IURC
approval but will be reviewed by the IURC during the annual hearing that will
take place regarding the demand component filing. Northern Indiana made its
annual filing on September 1, 2000.
Northern Indiana's gas cost adjustment factor also includes a gas cost incentive
mechanism (GCIM) which allows the sharing of any cost savings or cost increases
with customers based on a comparison of actual gas supply portfolio cost to a
market-based benchmark price.
OTHER. During the course of a regularly scheduled review, referred to as a Level
1 review, the staff of the IURC made a preliminary determination, based on
unadjusted historical financial information filed by Northern Indiana's electric
operations, that Northern Indiana was earning returns that were in excess of its
last rate order and generally established standards. Despite holding meetings
with the IURC staff during 2000 to explain several adjustments that needed to be
made to the filed information to make such an analysis meaningful, the staff has
recommended that a formal investigation be performed. The IURC has ordered that
an investigation begin. Management is unable at this time to determine if a
broader analysis, which would be performed through a formal investigation, could
result in a rate adjustment that would be higher or lower than currently allowed
rates. Management intends to vigorously oppose any efforts to reduce rates that
may result from this investigation.
8. RISK MANAGEMENT ACTIVITIES
NiSource uses certain commodity-based derivative financial instruments to manage
certain risks inherent in its business. NiSource's senior management takes an
active role in the risk management process and has developed policies and
procedures that require specific administrative and business functions to assist
in the identification, assessment and control of various risks. The open
positions resulting from risk management activities are managed in accordance
with strict policies which limit exposure to market risk and require daily
reporting to management of potential financial exposure.
NiSource uses futures contracts, options and swaps to hedge a portion of its
price risk associated with its non-trading activities in gas supply for its
regulated gas utilities, certain customer choice programs for residential
customers and other retail customer activity. At December 31, 2000, NiSource had
futures contracts representing the hedge of natural gas sales in the notional
amount of 10.7 billion cubic feet (Bcf) resulting in a deferred gain of $26.5
million.
NiSource's trading operations include the activities of its power trading
business and non-affiliated transactions associated with TPC. NiSource employs a
value-at-risk (VaR) model to assess the market risk of its energy trading
portfolios. NiSource estimates the one-day VaR across all trading groups, which
utilize derivatives using either Monte Carlo simulation or variance/covariance,
at a 95% confidence level. Based on the results of the VaR analysis, the daily
market exposure for power trading on an average, high and low basis was $0.8
million, $2.7 million and effectively zero and $0.4 million, $1.2 million and
$0.01 million during 2000 and 1999, respectively. The daily VaR for the gas
trading portfolio on an average, high and low basis was $2.3 million, $8.1
million and $0.5 million and $1.3 million, $2.1 million and $0.4 million during
2000 and 1999, respectively. NiSource implemented a VaR methodology in 1999 to
introduce additional market sophistication and to recognize the developing
complexity of its businesses.
The fair market value of NiSource electric trading assets and liabilities were
$30.9 million and $42.6 million, respectively, at December 31, 2000, and $31.7
million and $54 million, respectively, at December 31, 1999. The average fair
market value of electric trading assets and liabilities were $36.6 million and
$60 million, respectively, at December 31, 2000, and $20.9 million and $32.4
million, respectively, at December 31, 1999. The fair market
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
value of NiSource gas trading assets and liabilities were $1,578 million and
$1,526 million, respectively, at December 31, 2000. The average fair market
value of gas trading assets and liabilities were $520.8 million and $507.5
million, respectively, for the year ended December 31, 2000. The fair market
value of NiSource gas trading assets and liabilities were both $59 million at
December 31, 1999. December 1999 was the first month NiSource recorded gas
trading assets and liabilities, therefore, there is no average to report for the
year ended December 1999.
NiSource has recorded electric trading revenues and cost of sales of $485.2
million and $472.9 million, respectively, at December 31, 2000. NiSource has
recorded electric trading revenues and cost of sales of $237.8 million and
$230.4 million, respectively, at December 31, 1999. NiSource has recorded gas
trading revenues and cost of sales of $2,032.8 million and $1,994.9 million,
respectively, at December 31, 2000. NiSource has recorded gas trading revenues
and cost of sales of $390.4 million and $388.2 million, respectively, at
December 31, 1999.
Unrealized gains and losses on NiSource's trading portfolio are recorded as
price risk management assets and liabilities. The market prices used to value
price risk management activities reflect the best estimate of market prices
considering various factors, including closing exchange and over-the-counter
quotations and price volatility factors underlying the commitments. The
accompanying Consolidated Balance Sheets reflects price risk management assets
of $1,608.9 million and $90.7 million at December 31, 2000 and December 31,
1999, respectively, of which $1,568.5 million and $90.7 million were included in
"Price risk management assets" and $40.4 million and effectively zero were
included under the caption "Prepayments and other" included in the Current
Assets at December 31, 2000 and December 31, 1999, respectively. The
accompanying Consolidated Balance Sheets also reflects price risk management
liabilities (including net option premiums) of $1,568.6 million and $113.0
million of which $1,529.2 million and $113.0 million were included in "Price
risk management liabilities" and $39.4 million and effectively zero were
included in "Other noncurrent liabilities" at December 31, 2000 and December 31,
1999, respectively.
NiSource's exploration and production company hedged a portion of its gas
production that was subject to price volatility. At December 31, 2000, there
were 7,676 open contracts representing a notional quantity amounting to 67.3 Bcf
of commodity contracts for natural gas production through December 2002 at an
average price of $3.66 per Mcf. Also at December 31, 2000, there were 23,009
open contracts representing a notional quantity amounting to 201.8 Bcf of basis
contracts through 2005 at an average price of $.22 per Mcf. A total of $188.6
million of unrealized losses have been deferred on the consolidated balance
sheets, at December 31, 2000, with respect to these open contracts. During the
year ended December 31, 2000, $13.2 million of losses were realized on contracts
settled.
NiSource entered into forward interest rate swaps to hedge the interest rate
risk exposure associated with $1.6 billion of its anticipated financing of the
Columbia acquisition debt. The swaps had an effective date of March 30, 2001.
The interest rate swaps on the $600 million notional amount was scheduled to
terminate on March 30, 2006, the interest rate swap on the $500 million notional
amount was scheduled to terminate on March 30, 2011 and the interest rate swap
on the $500 million amount was scheduled to terminate on March 30, 2031.
Financing for the Columbia acquisition was completed on November 14, 2000, as a
result, the interest rate swaps referred to above were terminated early and the
ineffective component of the change in the value of the swaps was charged to
expense in the fourth quarter of 2000.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
9. INCOME TAXES
The components of income tax expense are as follows:
Year Ended December 31, (in millions) 2000 1999 1998
-------------------------------------------------------------------------------------------------------
Income Taxes
Current
Federal $ 81.3 $ 86.4 $ 109.0
State 14.2 13.1 16.5
-------------------------------------------------------------------------------------------------------
Total Current 95.5 99.5 125.5
-------------------------------------------------------------------------------------------------------
Deferred
Federal 39.3 (9.5) (22.2)
State 3.1 (0.2) (1.7)
-------------------------------------------------------------------------------------------------------
Total Deferred 42.4 (9.7) (23.9)
-------------------------------------------------------------------------------------------------------
Deferred Investment Credits (7.8) (7.6) (7.2)
-------------------------------------------------------------------------------------------------------
Income Taxes Included in Continuing Operations 130.1 82.2 94.4
-------------------------------------------------------------------------------------------------------
Income Taxes Related to Discontinued Operations 21.9 8.2 6.4
-------------------------------------------------------------------------------------------------------
Total Income Taxes $ 152.0 $ 90.4 $ 100.8
-------------------------------------------------------------------------------------------------------
Total income taxes from continuing operations are different from the amount that
would be computed by applying the statutory Federal income tax rate to book
income before income tax. The major reasons for this difference are as follows:
Year Ended December 31, (in millions) 2000 1999 1998
-----------------------------------------------------------------------------------------------------------
Book income from Continuing Operations before income
taxes $277.2 $236.1 $283.0
Tax expense at statutory Federal income tax rate 97.0 35.0% 82.6 35.0% 99.1 35.0%
Increases (reductions) in taxes resulting from:
Book depreciation over related tax depreciation 2.8 1.0 3.9 1.6 4.0 1.4
Amortization of deferred investment tax credits (7.8) (2.8) (7.6) (3.2) (7.2) (2.5)
State income taxes, net of federal income tax
benefit 10.2 3.7 8.3 3.5 9.1 3.2
Reversal of deferred taxes provided at rates in
excess of the current federal income tax rate (4.4) (1.6) (5.5) (2.3) (6.5) (2.3)
Low-income housing credits (5.8) (2.1) (4.5) (1.9) (3.8) (1.3)
Nondeductible amounts related to amortization of
intangible assets and plant acquisition adjustments 8.8 3.2 0.4 0.2 0.4 0.1
Basis and stock sale differences 19.2 6.9 0.0 0.0 0.0 0.0
Other, net 10.1 3.6 4.6 1.9 (0.6) (0.2)
-----------------------------------------------------------------------------------------------------------
INCOME TAXES FROM CONTINUING OPERATIONS $130.1 46.9% $82.2 34.8% $94.4 33.4%
-----------------------------------------------------------------------------------------------------------
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64
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Deferred income taxes result from temporary differences between the financial
statement carrying amounts and the tax basis of existing assets and liabilities.
The principal components of NiSource's net deferred tax liability are as
follows:
At December 31, (in millions) 2000 1999
-----------------------------------------------------------------------------------------------
Deferred tax liabilities
Accelerated depreciation and other property differences $ 1,776.1 $ 943.8
Unrecovered gas & fuel costs 138.1 16.7
Other regulatory assets 23.4 27.6
Prepaid pension and other benefits 63.9 64.9
Premiums and discounts associated with long term debt 58.8 15.1
-----------------------------------------------------------------------------------------------
Total Deferred Tax Liabilities 2,060.3 1,068.1
-----------------------------------------------------------------------------------------------
Deferred tax assets
Deferred investment tax credits (50.8) (35.0)
Other postretirement/postemployment benefits (63.0) (53.3)
Gas Inventory (15.9) -
Tax loss carryforwards (32.7) -
Other (77.5) (25.0)
-----------------------------------------------------------------------------------------------
Total Deferred Tax Assets (239.9) (113.3)
-----------------------------------------------------------------------------------------------
Less: Deferred income taxes related to current assets and 14.2 (7.5)
liabilities
-----------------------------------------------------------------------------------------------
NON-CURRENT DEFERRED TAX LIABILITY $ 1,806.2 $ 962.3
-----------------------------------------------------------------------------------------------
10. PENSION AND OTHER POSTRETIREMENT BENEFITS
Noncontributory, defined benefit retirement plans cover the majority of
employees. Benefits under the plans reflect the employees' compensation, years
of service and age at retirement.
NiSource provides certain health care and life insurance benefits for certain
retired employees. The majority of employees may become eligible for these
benefits if they reach retirement age while working for NiSource.
The expected cost of such benefits is accrued during the employees' years of
service. Current rates of rate regulated companies include postretirement
benefit costs on an accrual basis, including amortization of the regulatory
assets that arose prior to inclusion of these costs in rates. Cash contributions
are remitted to grantor trusts.
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65
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Beginning in 2000, NiSource is reflecting the information presented below as of
September 30 rather than December 31. The effect of utilizing September 30
rather than December 31 is not significant. The following tables provide a
reconciliation of the plans' funded status and amounts reflected in NiSource's
Consolidated Balance Sheets at December 31:
PENSION BENEFITS OTHER BENEFITS
(in millions) 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 971.9 $ 928.5 $ 226.5 $ 213.6
Service cost 24.3 18.6 6.7 4.7
Interest cost 84.5 68.2 21.4 16.3
Plan participants' contributions - - 0.4 1.2
Plan amendments 0.5 - - -
Additional liability for disabled participants - - 2.4 -
Actuarial (gain) loss (33.0) (57.9) (4.1) (16.6)
Acquisition of Business 760.8 78.7 255.4 23.2
Special termination benefits 8.0 - - -
Benefits paid (48.2) (64.2) (11.6) (15.9)
-------------------------------------------------------------------------------------------------
Benefit obligation at end of year 1,768.8 971.9 497.1 226.5
-------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 1,207.0 970.1 30.0 2.9
Actual return on plan assets 49.5 168.3 0.5 2.5
Employer contributions 40.5 40.7 9.8 12.7
Plan participants' contributions - - 0.4 1.2
Acquisition of business 1,012.1 92.1 140.3 26.6
Benefits paid (48.2) (64.2) (11.6) (15.9)
-------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year 2,260.9 1,207.0 169.4 30.0
-------------------------------------------------------------------------------------------------
Funded status of plan at end of year 492.1 235.1 (327.7) (196.5)
Unrecognized actuarial net gain (390.9) (151.6) (135.5) (108.8)
Unrecognized prior service cost 90.9 55.4 5.6 3.5
Unrecognized transition obligation 18.7 22.4 144.6 156.6
Fourth quarter contributions 0.3 - 7.0 -
-------------------------------------------------------------------------------------------------
PREPAID (ACCRUED) BENEFIT COST $ 211.1 $ 161.3 $ (306.0) $(145.2)
-------------------------------------------------------------------------------------------------
PENSION BENEFITS OTHER BENEFITS
----------------- -----------------
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE ASSUMPTIONS AS OF
SEPTEMBER 30,
Discount rate assumption 8.00% 7.75% 8.00% 7.75%
Compensation growth rate assumption 4.50% 4.50% 4.50% 4.50%
Medical cost trend assumption N/A n/a 5.25% 5.00%
Assets earnings rate assumption 9.00% 9.00% 9.00% 9.00%
-------------------------------------------------------------------------------------------------
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66
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
The following table provides the components of the plans expense for each of the
three years:
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
(in millions) 2000 1999 1998 2000 1999 1998
----------------------------------------- --------- -------- ---------- -------- ------- --------
NET PERIODIC COST
Service cost $ 24.3 $ 18.6 $ 15.9 $ 6.7 $ 4.4 $ 4.7
Interest cost 84.5 68.2 59.3 21.4 16.3 14.0
Expected return on assets (123.9) (93.9) (81.3) (3.5) (2.3) ( 0.2)
Amortization of transition obligation 6.2 6.3 5.4 12.0 12.0 10.9
Amortization of prior service cost 7.0 6.3 4.5 0.3 0.3 0.3
Amortization of (gain) loss (5.3) - - (5.9) (5.6) ( 5.8)
Special termination benefits 8.0 - - - - -
----------------------------------------- --------- -------- ---------- -------- ------- --------
NET PERIODIC BENEFITS COST (BENEFIT) $ 0.8 $ 5.5 $ 3.8 $ 31.0 $ 25.4 $ 23.6
----------------------------------------- --------- -------- ---------- -------- ------- --------
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
1% point 1% point
increase decrease
-------------------------------------------------------------------- ------------- --------------
Effect on service and interest components of net periodic cost $ 2.8 $ (3.0)
Effect on accumulated postretirement benefit obligation $ 21.5 $ (29.3)
-------------------------------------------------------------------- ------------- --------------
11. AUTHORIZED CLASSES OF CUMULATIVE PREFERRED AND PREFERENCE STOCKS
NiSource--20,000,000 shares--Preferred-- $0.01 par value. 4,000,000 shares are
designated Series A Junior Participating Preferred Shares and are reserved for
issuance pursuant to the Share Purchase Rights Plan described in Common Shares.
The authorized classes of par value and no par value cumulative preferred and
preference stocks of Northern Indiana are as follows: Cumulative Preferred--$100
par value--2,400,000 shares; Cumulative Preferred--no par value--3,000,000
shares; Cumulative Preference--$50 par value--2,000,000 shares (none
outstanding); and Cumulative Preference--no par value--3,000,000 shares (none
outstanding).
The preferred shareholders of Northern Indiana have no voting rights, except in
the event of default on the payment of four consecutive quarterly dividends, or
as required by Indiana law to authorize additional preferred shares, or by the
Articles of Incorporation in the event of certain merger transactions.
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67
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
The redemption prices at December 31, 2000, for the cumulative preferred stock,
which is redeemable solely at the option of Northern Indiana, in whole or in
part, at any time upon thirty days' notice, were as follows:
Redemption
Price Per
Series Share
-------------------------------------------------------------------- ------------- ------------
Northern Indiana Public Service Company:
Cumulative preferred stock - $100 par value - 4-1/4% $ 101.20
4-1/2% $ 100.00
4.22% $ 101.60
4.88% $ 102.00
7.44% $ 101.00
7.50% $ 101.00
Cumulative preferred stock - no par value - adjustable rate(6.00%
at December 31, 2000), Series A (stated value $50 per share) $ 50.00
-------------------------------------------------------------------- ------------- ------------
The redemption prices at December 31, 2000, as well as sinking fund provisions,
for the cumulative preferred stock subject to mandatory redemption requirements,
or whose redemption is outside the control of Northern Indiana, were as follows:
Redemption Price Sinking Fund or Mandatory
Series Per Share Redemption Provisions
------------------------------------ --------------------------- ----------------------------------------
Cumulative preferred stock - $100 par value -
8.35% $102.95, reduced 3,000 shares on or before July 1;
periodically increasing to 6,000 shares
beginning in 2004; noncumu-
lative option to double
amount each year
7-3/4% $103.70, reduced 2,777 shares on or before December
periodically 1; noncumulative option to double
amount each year
Cumulative preferred stock - No par value -
6.50% $100.00 on October 14, 2002 430,000 shares on October 14, 2002
------------------------------------ --------------------------- ----------------------------------------
Sinking fund requirements with respect to redeemable preferred stocks
outstanding at December 31, 2000, for each of the four years subsequent to
December 31, 2001 were as follows:
Year Ending December 31, ($ in millions)
------------------------------------------------------------------------------------------------
2002 43.6
2003 0.6
2004 0.9
2005 0.9
------------------------------------------------------------------------------------------------
12. COMMON SHARES
As of December 31, 2000, NiSource has 400,000,000 of authorized common shares
with a $0.01 par value. All references to numbers of common shares reported,
including per share amounts and stock option data, have been adjusted to reflect
the two-for-one stock split effective February 20, 1998.
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68
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
A. SHAREHOLDER RIGHTS PLAN. The Board of Directors of NiSource has adopted a
Shareholder Rights Plan. Each Right, when exercisable, would initially entitle
the holder to purchase from NiSource one one-hundredth of a share of Series A
Junior Participating Preferred Stock, with $0.01 par value, at a price of $60
per one one-hundredth of a share. In certain circumstances, if an acquirer
obtained 25% of NiSource's outstanding shares, or merged into NiSource or merged
NiSource into the acquirer, the Rights would entitle the holders to purchase
NiSource's or the acquirer's common shares for one-half of the market price. The
Rights will not dilute NiSource's common shares nor affect earnings per share
unless they become exercisable for common shares. The Plan was not adopted in
response to any specific attempt to acquire control of NiSource. The Rights are
not currently exercisable.
B. EQUITY FORWARD SHARE PURCHASE CONTRACT. During the second quarter of 1999, a
forward purchase contract was entered into covering the purchase of up to 5% of
NiSource's outstanding common shares. At the end of each quarterly period during
the term of the forward purchase contract, NiSource had the option, but not the
obligation, to settle the forward purchase contract with respect to all or a
portion of the common shares held by the counterparty. The counterparty informed
NiSource that approximately 5.6 million shares had been purchased at a weighted
average cost of $26.90 per share. NiSource had the option to settle with the
counterparty by means of physical, net cash or net share settlement. On a
quarterly basis, NiSource paid the counterparty a fee based on the amount paid
for common shares purchased by the counterparty, and the counterparty remitted
dividends received on shares owned. All such amounts paid and remitted under the
contract are reflected in equity contract costs of common shareholders' equity.
On December 26, 2000 the contract was terminated and a new agreement was entered
into that allowed NiSource to cash settle with the counterparty. The fair value
of the new agreement was recorded on the balance sheet as of December 31, 2000.
13. LONG-TERM INCENTIVE PLANS
There are two long-term incentive plans for key management employees that were
approved by shareholders on April 13, 1988 (1988 Plan) and April 13, 1994 (1994
Plan). The 1988 Plan, as amended and restated, and the 1994 Plan, as amended and
restated, were re-approved by shareholders on April 14, 1999. The Plans permit
the following types of grants, separately or in combination: nonqualified stock
options, incentive stock options, restricted stock awards, stock appreciation
rights and performance units. Under the Plans, the exercise price of each option
equals the market price of common stock on the date of grant. Each option has a
maximum term of ten years and vests one year from the date of grant.
The 1988 Plan provided for the issuance of up to 5.0 million common shares to
key employees through April 1998. On January 29, 2000, the Board of Directors of
NiSource approved certain additional amendments to the 1994 Plan and on June 1,
2000, the 1994 Plan, as amended and restated, was approved by shareholders at
the 2000 Annual Meeting of Shareholders of NiSource. The amended and restated
1994 Plan provides for the issuance of up to 11 million shares through April
2004, and permits contingent stock awards and dividend equivalents payable on
grants of options, stock appreciation rights (SARs), performance units and
contingent stock awards. At December 31, 2000, there were 9,578,000 shares
reserved for future awards under the amended and restated 1994 Plan.
In connection with the acquisition of Bay State (see Note 3), all outstanding
Bay State nonqualified stock options were replaced with NiSource nonqualified
stock options. The replacement of such options did not change their original
vesting provisions, terms or fair values. Information regarding these options
can be found in the following tables about changes in nonqualified stock options
under the caption "converted." In connection with the acquisition of Columbia,
not options were converted or assumed.
SARs may be granted only in tandem with stock options on a one-for-one basis and
are payable in cash, common shares, or a combination thereof. Restricted stock
awards are restricted as to transfer and are subject to forfeiture for specific
periods from the date of grant. Restrictions on shares awarded in 1995 lapsed on
January 27, 2000 and vested at 116% of the number awarded, due to attaining
specific earnings per share and stock appreciation goals. Restrictions on shares
awarded in 1998 lapsed two years from date of grant and vested at 100% of the
number awarded. Restrictions on shares awarded in 2000 lapse three years from
date of grant and vesting may vary from 0% to 200% of the number awarded,
subject to specific performance goals. If a participant's employment is
terminated
68
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
prior to vesting other than by reason of death, disability or retirement,
restricted shares are forfeited. There were 667,500 and 513,500 restricted
shares outstanding at December 31, 2000 and December 31, 1999, respectively.
The Nonemployee Director Stock Incentive Plan, which was approved by
shareholders, provides for the issuance of up to 200,000 common shares to
nonemployee directors. The Plan provides for awards of common shares which vest
in 20% increments per year, with full vesting after five years. The Plan also
allows for the award of nonqualified stock options, subject to immediate vesting
in the event of the director's death or disability, or a change in control of
NiSource. If a director's service on the Board is terminated for any reason
other than retirement at or after age seventy, death or disability, any common
shares not vested as of the date of termination are forfeited. As of December
31, 2000, 81,500 shares had been issued under the Plan.
These plans are accounted for under APB Opinion No. 25, under which no
compensation cost has been recognized for nonqualified stock options. The
compensation cost that was charged against net income for restricted stock
awards was $6.8 million $3.5 million and $1.9 million for three years ended
December 31, 2000, 1999 and 1998, respectively.
Transactions for the three years ended December 31, 2000, are as follows:
Weighted Average
Options Option Price ($)
-------------------------------------------------------------------------------------
Outstanding at December 31, 1997 2,535,400 16.41
Granted 607,000 29.22
Exercised (457,700) 14.88
Cancelled (33,400) 16.07
-------------------------------------------------------------------------------------
Outstanding at December 31, 1998 2,651,300 19.61
Granted 744,750 24.59
Converted 740,780 15.03
Exercised (171,374) 14.03
Cancelled (17,000) 28.45
-------------------------------------------------------------------------------------
Outstanding at December 31, 1999 3,948,456 19.90
Granted 1,235,000 20.97
Exercised (603,073) 14.95
Cancelled (117,500) 23.88
-------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 2000 4,462,883 20.76
-------------------------------------------------------------------------------------
EXERCISABLE AT DECEMBER 31, 2000 3,253,133 20.69
-------------------------------------------------------------------------------------
The following table summarizes information on stock options outstanding and
exercisable at December 31, 2000:
Options Outstanding Options Exercisable
-------------------------------------------- ---------------------------------
Weighted Weighted
Average Average
Range of Exercise Exercise Remaining Weighted Average
Prices Per Share Number Price Per Contractual Life Number Exercise Price
($) Outstanding Share ($) in Years Exercisable Per Share ($)
------------------- ------------- ------------ ----------------- -------------- ------------------
11.46 - 16.60 1,177,127 15.02 2.8 1,177,127 15.02
16.61 - 24.60 2,718,756 21.48 8.3 1,509,006 21.90
24.61 - 29.22 567,000 29.22 7.7 567,000 29.22
------------------- ------------- ------------ ----------------- -------------- ------------------
11.46 - 29.22 4,462,883 20.76 6.7 3,253,133 20.69
------------------- ------------- ------------ ----------------- -------------- ------------------
At December 31, 1997, there were 11,200 SARs outstanding with an option price of
$5.47. There were no SARs outstanding at December 31, 2000, 1999 or 1998.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Had compensation cost been determined consistent with the provisions of the SFAS
No. 123 fair value method (See Note 2T), NiSource's net income and earnings per
share would have been the pro forma amounts below:
Year Ended December 31 ($ in millions, except per
share data) 2000 1999 1998
------------------------------------------------------- ------------- ------------ ------------
Net Income
As reported 156.9 160.4 193.9
Pro forma 153.7 158.8 192.8
Earnings per share
Basic - as reported 1.16 1.29 1.60
- pro forma 1.14 1.27 1.60
Diluted - as reported 1.15 1.27 1.59
- pro forma 1.13 1.27 1.59
Weighted average fair value of options granted during
the year 4.61 3.66 4.28
------------------------------------------------------- ------------- ------------ ------------
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with a dividend yield of 4.86%. The following
assumptions used for grants in 2000, 1999 and 1998:
AUGUST JANUARY August August
2000 2000 1999 1998
---------------------- ------------------- -------------------- ---------------- --------------
Expected Life 5.8 YRS. 5.4 YRS. 5.25 yrs. 5.40 yrs.
Interest Rate 6.06% 6.6% 5.87% 5.29%
Volatility 26.16% 28.98% 15.72% 13.09%
---------------------- ------------------- -------------------- ---------------- --------------
14. LONG-TERM DEBT
In November 2000, NiSource Inc., through its NiSource Finance Corp. subsidiary,
issued $2.5 billion of private placement notes, providing a layer of permanent
financing for the acquisition of Columbia. This issuance included $750.0 million
of three-year notes bearing a 7.50% coupon and maturing on November 15, 2003;
$750.0 million of five-year notes bearing a 7.625% coupon and maturing on
November 15, 2005; and $1.0 billion of ten-year notes bearing a 7.875% coupon
and maturing on November 15, 2010. Subsequently, an additional $150.0 million of
five-year notes were issued, bearing a 7.625% coupon and maturing on November
15, 2005.
Also during November 2000, NiSource issued 55.5 million SAILS(SM) as a portion
of the consideration payable in the acquisition of Columbia (See Note 3). The
SAILS(SM) were issued as one unit consisting of two separate instruments: a
debenture with a stated amount of $2.60 and a purchase contract requiring the
holder to purchase for $2.60 cash, an amount of NiSource common shares based on
a settlement rate that is indexed to the market price of NiSource common stock.
The purchase contract settlement date will be the fourth anniversary of
completion of merger date or earlier if there is a change in control of NiSource
before that date. The purchase contracts may not be settled prior to the
purchase contract settlement date. The debentures have been pledged to secure
the holders' obligation to purchase common shares under the purchase contract.
Sinking fund requirements and maturities of long-term debt outstanding at
December 31, 2000, for each of the four years subsequent to December 31, 2001,
were as follows:
($ in millions)
-----------------------------------------------------------------------------------------------
2002 400.7
2003 901.7
2004 226.5
2005 1,297.7
------------------------------------------------------------------------------------------------
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Unamortized debt expense, premium and discount on long-term debt applicable to
outstanding bonds are being amortized over the lives of such bonds.
Reacquisition premiums have been deferred and are being amortized. These
premiums are not earning a return during the recovery period.
The financial obligations of Capital Markets are subject to a Support Agreement
between NiSource and Capital Markets, under which NiSource has committed to make
payments of interest and principal on Capital Markets' obligations in the event
of a failure to pay by Capital Markets. Restrictions in the Support Agreement
prohibit recourse on the part of Capital Markets' creditors against the stock
and assets of Northern Indiana that are owned by NiSource. Under the terms of
the Support Agreement, in addition to the cash flow of cash dividends paid to
NiSource by any of its consolidated subsidiaries, the assets of NiSource, other
than the stock and assets of Northern Indiana, are available as recourse for the
benefit of Capital Markets' creditors. The carrying value of the assets of
NiSource, other than the assets of Northern Indiana, was $15.8 billion at
December 31, 2000.
Columbia has entered into interest rate swap agreements to modify the interest
characteristics of its outstanding long-term debt. At December 31, 2000,
Columbia has outstanding four interest rate swap agreements effective through
November 28, 2002, on $200 million notional amounts of its 6.61% Series B
Debentures due November 28, 2002. In addition, Columbia has outstanding an
interest rate swap agreement effective through November 28, 2005, on a $100
million notional amount of its 6.80% Series C Debentures due November 28, 2005.
Under the terms of the agreements, Columbia pays interest based on a floating
rate index and receives interest based on a fixed rate. The effect of these
agreements is to modify the interest rate characterization of a portion of
Columbia's long-term debt from fixed to variable. The effect of these interest
rate swaps on interest expense in 2000 and 1999 was immaterial.
15. SHORT-TERM BORROWINGS
Acquisition Financing
In November 2000, NiSource Inc., through its NiSource Finance Corp. subsidiary,
entered into a new $6.0 billion 364-day acquisition facility with a syndicate of
banks. The facility was put in place to finance the Company's $6.0 billion
acquisition of the Columbia Energy Group, which was consummated on November 1,
2000. Borrowings under the facility have been guaranteed by NiSource, Inc. On
November 1, 2000, the facility supported $4.1 billion of commercial paper issued
by NiSource Finance Corp. to finance the Columbia acquisition. At December 31,
2000, the facility supported the remaining $1.1 billion of commercial paper
originally issued in connection with the Columbia acquisition.
Subsequent to the November 1, 2000 Columbia acquisition, the Company reduced its
acquisition related commercial paper borrowings through the issuance of $2.65
billion of private placement notes, completed in the fourth quarter of 2000.
On November 27, 2000, the Company issued 11.5 million new shares of NiSource,
Inc. common stock at an offering price of $25.25 per share. The $280.9 million
of net proceeds were used to reduce borrowings under the NiSource Finance Corp.
acquisition credit facility.
Other Credit Facilities
Columbia maintains two unsecured revolving credit facilities consisting of an
$850.0 million 364-day revolving credit agreement that expires in October 2001,
and a $50.0 million Letter of Credit Facility that expires in October 2001. At
December 31, 2000, the facility supported $521 million (net of $3 million of
discount) of commercial paper borrowings that had a weighted average interest
rate of 7.76%.
NiSource's financing subsidiary, NiSource Capital Markets, Inc., may borrow
under a $200.0 million 364-day revolving credit facility that expires on July 5,
2001. At December 31, 2000, the facility supported $171.3 million of commercial
paper borrowings that had a weighted average interest rate of 7.86%. NiSource
Capital Markets, Inc. also maintains multiple uncommitted lines of credit
totaling $203.0 million. At December 31, 2000, there were
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
$188.0 million of borrowings outstanding under these uncommitted lines of credit
with a weighted average interest rate of 7.96%.
Northern Indiana may borrow under a $200.0 million 364-day revolving credit
facility that expires in September 2001. At December 31, 2000, the facility
supported $196.2 million of commercial paper borrowings that had a weighted
average interest rate of 7.03%. Northern Indiana also maintains multiple
uncommitted lines of credit totaling $178.0 million. At December 31, 2000, there
were $174.9 million of borrowings outstanding under these uncommitted lines of
credit with a weighted average interest rate of 7.70%.
Bay State may borrow under two separate committed lines of credit totaling
$115.0 million of which $55 million was outstanding at December 31, 2000 with a
weighted average interest rate of 7.38%. At December 31, 2000, the committed
lines supported $110.0 million of commercial paper borrowings that had a
weighted average interest rate of 7.35%.
Permanent Credit Facility
NiSource is in the process of arranging a new $2.5 billion revolving credit
facility with a syndicate of banks for future working capital requirements. The
new facility will refinance and consolidate essentially all of NiSource's
existing short-term credit facilities (discussed above) into one credit facility
at the holding company level, through its NiSource Finance Corp. subsidiary.
NiSource expects to have this new facility in place early in 2001.
In September 1999, Capital Markets issued $160 million PURS in an underwritten
public offering. The PURS were unsecured debentures of Capital Markets and
ranked equally with all other unsecured and un-subordinated debt of Capital
Markets. On September 28, 2000, all $160 million PURS were redeemed by NiSource
at par.
As of December 31, 2000, NiSource had $128.5 million of letters of credit
outstanding. At December 31, 1999, NiSource had no letters of credit
outstanding.
Short-term borrowings were as follows:
At December 31 (in millions) 2000 1999
---------------------------------------------------------------------------------------------------------------
Commercial paper weighted average interest rate of 7.44% for 2000. $2,078.8 $ 299.5
---------------------------------------------------------------------------------------------------------------
Notes payable weighted average interest rate of 7.78% and 7.44%, respectively. 417.9 351.8
Total short-term borrowings $2,496.7 $ 651.3
---------------------------------------------------------------------------------------------------------------
16. CORPORATE PREMIUM INCOME EQUITY SECURITIES AND COMPANY-OBLIGATED
MANDATORILY REDEEMABLE PREFERRED SECURITIES OF TRUST HOLDING SOLELY
COMPANY DEBENTURES
In February 1999, NiSource completed an underwritten public offering of
Corporate Premium Income Equity Securities (Corporate PIES). The net proceeds of
approximately $334.7 million were primarily used to fund the cash portion of the
consideration payable in the acquisition of Bay State, and to repay short-term
indebtedness.
The Corporate PIES were offered as one unit comprised of two separable
instruments. The first component consists of stock purchase contracts to
purchase, four years from the date of issuance, common shares at a face value of
$50. The second component consists of mandatorily redeemable preferred
securities (Preferred Securities) which represent an undivided beneficial
ownership interest in the assets of NIPSCO Capital Trust I (Capital Trust). The
Preferred Securities have a stated liquidation amount of $50. The sole assets of
Capital Trust are subordinated debentures (Debentures) of Capital Markets that
earn interest at the same rates as the Preferred Securities to which they
relate, and certain rights under related guarantees by Capital Markets. The
Preferred Securities have been pledged to secure the holders' obligation to
purchase common shares under the stock purchase contracts.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
The distributions paid on Preferred Securities are presented under the caption
"Minority Interests" in NiSource's Statements of Consolidated Income. The
amounts outstanding are presented under the caption "Company-obligated
mandatorily redeemable preferred securities of subsidiary trust holding solely
company debentures" in NiSource's Consolidated Balance Sheets. At December 31,
2000, there were 6.9 million 5.9% Preferred Securities outstanding with Capital
Trust assets of $345 million.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate fair
value:
INVESTMENTS. Where feasible, the fair value of investments is estimated based on
market prices for those or similar investments.
LONG-TERM DEBT/PREFERRED STOCK AND PREFERRED SECURITIES. The fair values of
these securities are estimated based on the quoted market prices for the same or
similar issues or on the rates offered for securities of the same remaining
maturities. Certain premium costs associated with the early settlement of
long-term debt are not taken into consideration in determining fair value.
The carrying values and estimated fair values of financial instruments were as
follows:
CARRYING ESTIMATED Carrying Estimated
AMOUNT FAIR VALUE Amount Fair value
At December 31, ($ in millions) 2000 2000 1999 1999
-----------------------------------------------------------------------------------------------------
Long-term Investments 57.4 56.5 48.7 49.0
Long-term debt (including current portion) 5,867.5 5,291.7 1,949.2 1,808.8
Preferred stock (including current portion) 132.7 107.1 139.6 119.7
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely Company debentures 345.0 372.6 345.0 248.8
-----------------------------------------------------------------------------------------------------
A portion of the long-term debt relates to utility operations. The Utilities are
subject to regulation and gains or losses may be included in rates over a
prescribed amortization period, if in fact settled at amounts approximating
those above.
In October 1999, Columbia of Ohio entered into an agreement to sell, without
recourse, substantially all of its trade accounts receivable to Columbia
Accounts Receivable Corporation (CARC), a wholly owned subsidiary of Columbia.
At the same time, CARC entered into an agreement, with a third party, Canadian
Imperial Bank of Commerce (CIBC), to sell a percentage ownership interest in a
defined pool of accounts receivable (Sales Program). Under this Sales Program,
CARC can transfer an undivided interest in a designated pool of its accounts
receivable on an ongoing basis up to a maximum of $125 million until April 30,
2001, at which time the maximum decreases to $100 million. The amount available
at any measurement date varies based upon the level of eligible receivables.
Under this agreement, approximately $108 million of receivables were sold as of
December 31, 2000.
Under a separate agreement, in conjunction with the Sales Program, Columbia of
Ohio acts as agent for CIBC, the ultimate purchaser of the receivables, by
performing record keeping and cash collection functions for the accounts
receivable sold by CARC. Columbia of Ohio receives a fee, which provides
adequate compensation, for such services.
Northern Indiana may sell up to $100 million of certain of its accounts
receivable to Citibank under a sales agreement, without recourse, which expires
May 2003. Northern Indiana has sold $100 million under this agreement.
73
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Under a separate agreement, in conjunction with the sales agreement, Northern
Indiana acts as agent for Citibank, by performing record keeping and cash
collection functions for the accounts receivable sold to Citibank. Northern
Indiana receives a fee, which provides adequate compensation, for such services.
18. OTHER COMMITMENTS AND CONTINGENCIES
A. CAPITAL EXPENDITURES. NiSource expects that approximately $650 million will
be expended for construction purposes during 2001. Substantial commitments have
been made in connection with this construction program.
B. SERVICE AGREEMENTS. Northern Indiana has entered into a service agreement
with Pure Air, a general partnership between Air Products and Chemicals, Inc.
and Mitsubishi Heavy Industries America, Inc., under which Pure Air provides
scrubber services to reduce sulfur dioxide emissions for Units 7 and 8 at Bailly
Generating Station. Services under this contract commenced on June 15, 1992,
with annual charges approximating $20 million. The agreement provides that,
assuming various performance standards are met by Pure Air, a termination
payment would be due if Northern Indiana terminates the agreement prior to the
end of the twenty-year contract period.
C. ASSETS UNDER LIEN. Substantially all of Columbia Transmission's properties
have been pledged to Columbia as security for debt owed by Columbia Transmission
to Columbia. The first mortgage bonds of Northern Indiana constitute a first
mortgage lien on certain utility property and franchises.
D. GUARANTEES AND INDEMNITIES. Primary Energy, Inc. (Primary) arranges
energy-related projects for large energy-intensive customers and provides
expertise in managing the engineering, construction, operation and maintenance
of such projects. Through its subsidiaries, Primary has entered into agreements
with several of NiSource's largest industrial customers to service a portion of
their energy needs. Primary has entered into certain operating lease commitments
to lease these energy-related projects. NiSource, principally through Capital
Markets, guarantees certain of Primary's obligations under each lease, which are
included in the amount disclosed in the Operating Leases in Note 18G.
In connection with the purchase of National Propane Partners, L.P. (National
Propane) interests, Columbia has provided an indemnity to reimburse the former
Managing General Partner for income taxes that would be due if certain actions
by Columbia result in the recognition of certain types of income or gain by the
former Managing General Partner.
E. OTHER LEGAL PROCEEDINGS. In the normal course of its business, NiSource and
its subsidiaries have been named as defendants in various legal proceedings. In
the opinion of management, the ultimate disposition of these currently asserted
claims will not have a material adverse impact on NiSource's consolidated
financial position or results of operations.
F. ENVIRONMENTAL MATTERS:
GENERAL. The operations of NiSource are subject to extensive and evolving
federal, state and local environmental laws and regulations intended to protect
the public health and the environment. Such environmental laws and regulations
affect operations as they relate to impacts on air, water and land.
GAS DISTRIBUTION. Several Gas Distribution subsidiaries are a "potentially
responsible party" (PRP) at waste disposal sites under the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA) (commonly known
as Superfund) and similar state laws, including at former manufactured gas plant
(MGP) sites which it, or its corporate predecessors, own or owned or operated.
Gas Distribution subsidiaries may be required to share in the cost of clean-up
of such sites. In addition, some Gas Distribution subsidiaries have corrective
action liability under the RCRA for closure and clean-up costs associated with
underground storage tanks.
Gas Distribution is party to or otherwise involved in clean-up of three waste
disposal sites under Superfund or similar state laws. For some such sites, the
potential liability is de minimis and, for others, the final costs of clean-
74
75
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
up have not yet been determined. As site investigations and clean-ups proceed,
waste disposal site liability is reviewed periodically and adjusted as
additional information becomes available.
A program has been instituted to identify and investigate former MGP sites where
Gas Distribution subsidiaries or predecessors thereof are the current or former
owner. The investigation has identified 85 such sites. Initial investigation has
been conducted at 39 sites. Investigation activities have been completed at 26
sites and remedial measures have been selected or implemented at 26 sites. Only
those site investigation, characterization and remediation costs currently known
and determinable can be considered "probable and reasonably estimable" under
Statement of Financial Accounting Standards No. 5, "Accounting for
Contingencies" (SFAS No. 5).
NiSource intends to continue to evaluate its facilities and properties with
respect to environmental laws and regulations and take any required corrective
action. To the extent site investigations have been conducted, remediation plans
developed and the responsibility for remediation established, the appropriate
estimated liabilities have been recorded. A regulatory asset has been recorded
to the extent environmental expenditures are expected to be recovered through
rates.
As of December 31, 2000, a reserve of approximately $24 million has been
recorded to cover probable environmental response actions. The ultimate
liability in connection with these sites will depend upon many factors,
including the volume of material contributed to the site, years of ownership or
operation, the number of other PRPs and their financial viability and the extent
of environmental response actions required. Based upon investigations and
management's understanding of current environmental laws and regulations,
NiSource believes that any environmental response actions required, after
consideration of insurance coverage, contributions from other PRPs and rate
recovery, will not have a material effect on its financial position or results
of operations.
MERCURY PROGRAM. Until the 1960s, gas regulators containing small quantities of
mercury were installed in homes on some natural gas systems. The purpose of
these regulators was to reduce the pressure of the natural gas flowing from the
service line for use inside of the home.
In 2000, several non-NiSource gas distribution companies were involved in highly
publicized testing and clean-up programs resulting from mercury spills
associated with the removal of gas regulators containing mercury. A number of
the NiSource gas distribution subsidiaries are known to have utilized gas
regulators that contained small quantities of mercury. All NiSource subsidiaries
have implemented a program for reviewing their procedures for managing gas
regulators containing mercury. While this program is currently underway, it has
not identified any significant problems associated with past or current use or
removal of mercury regulators. Information generated to date shows that a number
of NiSource gas distribution subsidiaries have a small number or no
mercury-containing gas regulators in service. Other NiSource gas distribution
subsidiaries, which still utilize gas regulators containing mercury, have
programs in place to ensure the proper management of gas regulators containing
mercury, including ensuring that any accidental mercury spills associated with
maintenance or removal of these regulators are detected and properly cleaned up.
NiSource subsidiaries have received and responded to inquiries about the current
and historical use of gas regulators containing mercury from regulatory agencies
in Kentucky and Pennsylvania. In addition, on December 7, 2000, the EPA Region V
sent letters to all NiSource subsidiaries in Indiana and Ohio asking each of
them to "review its records and address any concerns or issues associated with
mercury regulators, manometers, or any other mercury-containing measuring
devices." We believe that the program described in the preceding paragraph will
be sufficient to satisfy the EPA's request. We currently believe that any
liability associated with the current or historical use of gas regulators
containing mercury will not have a material effect on its financial position or
results of operations.
ELECTRIC OPERATIONS. The Clean Air Act Amendments of 1990 (CAAA) impose limits
to control acid rain on the emission of sulfur dioxide and nitrogen oxides (NOx)
which became fully effective in 2000. All of Northern Indiana's facilities are
in compliance with the sulfur dioxide and NOx limits.
The CAAA also contain other provisions that could lead to limitations on
emissions of hazardous air pollutants and other air pollutants (including NOx as
discussed below), which may require significant capital expenditures for
75
76
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
control of these emissions. Until specific rules have been issued that affect
Northern Indiana's facilities, what these requirements will be or the costs of
complying with these requirements cannot be predicted.
During 1998, the EPA issued a final rule, the NOx State Implementation Plan
(SIP) call, requiring certain states, including Indiana, to reduce NOx levels
from several sources, including industrial and utility boilers. The EPA stated
that the intent of the rule is to lower regional transport of ozone impacting
other states' ability to attain the federal ozone standard. According to the
rule, the State of Indiana must issue regulations implementing the control
program. The State of Indiana, as well as some other states, filed a legal
challenge in December 1998 to the EPA NOx SIP call rule. Lawsuits have also been
filed against the rule by various groups, including utilities. In a March 3,
2000, decision, the United States Court of Appeals for the D.C. Circuit ruled
largely in favor of the EPA's regional NOx plan and on June 22, 2000, the court
extended to October 30, 2000, the deadline for the state plan submittals
implementing the EPA NOx SIP Call. A petition for a hearing before the United
States Supreme Court was denied on March 5, 2001. In anticipation of this
outcome the State of Indiana superceded its February 2000, proposed NOx control
plan designed to address Indiana's ozone nonattainment areas and regional ozone
transport, by initiating rulemaking on a more stringent rule compliant with the
EPA's NOx SIP call rule. That rulemaking is expected to be finalized by
mid-summer 2001. NiSource is actively involved in the review and comment of the
proposed Indiana rules.
In spite of the state's efforts, on December 18, 2000, the EPA sent Indiana and
10 other SIP call states and the District of Columbia deficiency notices for
their failure to submit final rules by the October 30, 2000 deadline. Because
Indiana has been working with the EPA and is expected to finalize its rule by
mid-summer 2001, no additional adverse requirements are expected. Any NOx
emission limitations resulting from the Indiana rules are expected to be more
restrictive than those imposed on electric utilities under the CAAA's acid rain
NOx reduction program described above. NiSource is evaluating any potential
requirements that could result from the rules as implemented by the State of
Indiana. NiSource believes that the costs relating to compliance with the new
standards may be substantial, but such costs are dependent upon the ultimate
control program agreed to by the targeted states and the EPA and are not
currently reasonably estimable. NiSource is continuing its programs to reduce
NOx emissions at Northern Indiana' electric facilities and will continue to
closely monitor developments in this area.
In a related matter to the NOx SIP call, several Northeastern states have filed
petitions with the EPA under Section 126 of the Clean Air Act. The petitions
allege harm and request relief from sources of emissions in the Midwest that
allegedly cause or contribute to ozone nonattainment in their states. NiSource
is monitoring the EPA's decisions on these petitions and existing litigation to
determine the impact of these developments on programs to reduce NOx emissions
at Northern Indiana's electric facilities.
The EPA issued final rules revising the National Ambient Air Quality Standards
for ozone and particulate matter in July 1997. On May 14, 1999, the United
States Court of Appeals for the D.C. Circuit remanded the new rules for both
ozone and particulate matters to the EPA. The Court of Appeals decision was
appealed to the Supreme Court which heard oral arguments on November 7, 2000.
The Supreme Court rendered a complex ruling on February 27, 2001 that will
require some issues to be resolved by the D.C. Circuit Court and EPA before
final rulemaking occurs. Consequently, final rules specifying a compliance
level, deadline, and controls necessary for compliance are not expected in the
near future. Resulting rules could require additional reductions in sulfur
dioxide, particulate matter and NOx emissions from coal-fired boilers (including
Northern Indiana's electric generating stations) beyond measures discussed
above. Final implementation methods will be set by the EPA as well as state
regulatory authorities. NiSource believes that the costs relating to compliance
with any new limits may be substantial but are dependent upon the ultimate
control program agreed to by the targeted states and the EPA. NiSource will
continue to closely monitor developments in this area however the exact nature
of the impact of the new standards on its operations will not be known for some
time.
In a letter dated September 15, 1999, the Attorney General of the State of New
York alleged that Northern Indiana violated the Clean Air Act by constructing a
major modification of one of its electric generating stations without obtaining
pre-construction permits required by the Prevention of Significant Deterioration
(PSD) program. The major modification allegedly took place at the R. M. Schahfer
Station when, "in approximately 1995-1997, Northern Indiana's upgraded the coal
handling system at Unit 14 at the plant." While Northern Indiana is
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77
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
investigating these allegations, the company does not believe that the
modifications required pre-construction review under the PSD program and
believes that all appropriate permits were acquired.
Initiatives are being discussed both in the United States and worldwide to
reduce so-called "greenhouse gases" such as carbon dioxide, a by-product of
burning fossil fuels. Reduction of such emissions could result in significant
capital outlays or operating expenses for Northern Indiana.
On December 20, 2000, notice in the Federal Register, the EPA issued a finding
that the regulation of emissions of mercury and other air toxics from coal and
oil-fired electric steam generating units is necessary and appropriate. The EPA
expects to issue proposed regulations by December 15, 2003, and finalized by
December 15, 2004. The potential impact, if any, to NiSource's consolidated
results that may occur because of any potential new regulations concerning
emissions of mercury and other air toxics is unknown at this time.
REMEDIATION. Northern Indiana is a PRP at four waste disposal sites under CERCLA
and similar state laws, and may be required to share in the cost of clean-up of
such sites. In addition, Northern Indiana has corrective action liability under
the RCRA for closure and clean-up costs associated with treatment, storage, and
disposal units. As of December 31, 2000, a reserve of approximately $2.0 million
has been recorded to cover probable environmental response actions at these
sites. The ultimate liability in connection with these sites will depend upon
many factors, including the volume of material contributed to the site, the
number of other PRPs and their financial viability and the extent of corrective
actions required. Based upon investigations and management's understanding of
current environmental laws and regulations, NiSource believes that any
corrective actions required will not have a material effect on the its financial
position or results of operations.
GAS TRANSMISSION . Columbia Transmission continues to conduct assessment,
characterization and remediation activities at specific sites under a 1995 the
EPA Administrative Order by Consent (AOC). The program pursuant to the AOC
covers approximately 240 facilities, approximately 13,000 liquid removal points,
approximately 2,200 mercury measurement stations and about 3,700 storage well
locations. As of December 31, 2000, field characterization has been performed at
almost all of these sites, with the exception of the storage well locations.
Site characterization reports and remediation plans which must be submitted to
the EPA for approval, are in various stages of development and completion.
Characterization of the storage well locations were initiated in the fall of
2000 and are yet to be completed. Significant remediation has taken place at
mercury measurement stations, liquid removal point sites, and at a limited
number of the 240 facilities. Only those site investigation, characterization
and remediation costs currently known and determinable can be considered
"probable and reasonably estimable" under Statement of Financial Accounting
Standards No. 5, "Accounting for Contingencies" (SFAS No. 5).
As costs become probable and reasonably estimable, the associated reserves will
be adjusted as appropriate. Columbia Transmission is unable, at this time, to
accurately estimate the time frame and potential costs of the entire program.
Management expects that as characterization is completed and approved by the
EPA, additional remediation work is performed and more facts become available,
Columbia Transmission will be able to develop a probable and reasonable estimate
for the entire program or a major portion thereof consistent with U.S.
Securities and Exchange Commission's Staff Accounting Bulletin No. 92, SFAS No.
5, and American Institute of Certified Public Accountants Statement of Position
96-1.
At the end of 2000, the remaining liability recorded on the balance sheet for
the transmission and storage operations was $104.5 million. Columbia
Transmission's environmental cash expenditures are expected to be approximately
$16 million in 2001 and to remain at this level in the foreseeable future. These
expenditures will be charged against the previously recorded liability. A
regulatory asset has been recorded to the extent environmental expenditures are
expected to be recovered through rates. Management does not believe that
Columbia Transmission's environmental expenditures will have a material adverse
effect on its operations, liquidity or financial position, based on known facts,
existing laws, regulations, its cost recovery settlement with customers and the
long time period over which expenditures will be made.
In addition, predecessor companies of Columbia Transmission may have been
involved in the operation of manufactured gas plants. When such plants were
abandoned, material used and created in the process was
77
78
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
sometimes buried at the site. As of the date of this report, Columbia
Transmission is unable to determine if it will become liable for any
characterization or remediation costs at such sites.
TELECOMMUNICATIONS NETWORKS. In spring 2000, Columbia Transmission
Communications Corporation (Transcom) received directives from the Philadelphia
District of the U.S. Army Corps of Engineers (Philadelphia District) and an
administrative order from the Pennsylvania Department of Environmental
Protection (PA DEP) addressing alleged violations of federal and state laws
resulting from construction activities associated with Transcom's laying of
fiber optic cable along portions of a route between Washington, D.C. and New
York City. The order and directives required Transcom to largely cease
construction activities. In September 2000, Transcom entered into a voluntary
settlement agreement with the Philadelphia District and contributed $1.2 million
to the Pennsylvania chapter of the Nature Conservancy and the Philadelphia
District lifted its directives halting work. Transcom has also had discussions
with the Maryland Department of Environment and the Baltimore District of the
U.S. Army Corps of Engineers regarding its construction activities in the state
of Maryland. Construction is ongoing in Pennsylvania and Maryland. Transcom
cannot predict the nature or amount of total remedies that may be sought in
connection with the foregoing construction activities.
DISCONTINUED OPERATIONS. Columbia Propane's primary environmental issues relate
to former manufactured gas plant sites acquired in the acquisition of National
Propane for which accruals have been made. Investigations are currently underway
at one site. One other known former manufactured gas plant site is inactive. It
is possible that former manufactured gas plant sites exist at two other National
Propane properties. Management does not believe that Columbia Propane's
environmental expenditures will have a material adverse effect on NiSource's
consolidated financial results.
NiSource's discontinued wastewater and water operations are subject to pollution
control and water quality control regulations. Under the Federal Clean Water Act
and state regulations, National Pollutant Discharge Elimination System permits
must be obtained for water discharges and water treatment stations. These
facilities either have permits for their water discharge or they have applied
for a permit renewal of any expiring permits. These permits continue in effect
pending review of the current applications.
Under the Federal Safe Drinking Water Act (SDWA), the Water Utilities are
subject to regulation by the EPA for the quality of water sold and treatment
techniques used to make the water potable. The EPA promulgates
nationally-applicable maximum contaminant levels (MCLs) for contaminants found
in drinking water. Management believes the Water Utilities are currently in
compliance with all MCLs promulgated to date. The EPA has continuing authority,
however, to issue additional regulations under the SDWA. In August 1996,
Congress amended the SDWA to allow the EPA more authority to weigh the costs and
benefits of regulations being considered in some, but not all, cases. In
December 1998, the EPA promulgated two National Primary Drinking Water rules,
the Interim Enhanced Surface Water Treatment Rule and the Disinfectants and
Disinfection Byproducts Rule. The Water Utilities must comply with these rules
by December 2001. Management does not believe that significant changes will be
required to the Water Utilities' operations to comply with these rules; however,
some cost expenditures for equipment modifications or enhancements may be
necessary to comply with the Interim Enhanced Surface Water Treatment Rule.
Additional rules are anticipated to be promulgated under the 1996 amendments.
Compliance with such standards could be costly and require substantial changes
in the Water Utilities' operations.
Under a 1991 law enacted by the Indiana legislature, a water utility may
petition the IURC for prior approval of its plans and estimated expenditures
required to comply with the provisions of, and regulations under, the Federal
Clean Water Act and SDWA. Upon obtaining such approval, a water utility may
include such costs in its rate base for rate-making purposes, to the extent its
estimated costs are approved by the IURC, and recover its costs of developing
and implementing the approved plans if statutory standards are met. The capital
costs for such new systems, equipment or facilities or modifications of existing
facilities may be included in a water utility's rate base upon completion of
construction of the project or any part thereof. Such an addition to rate base,
however, would effect a change in water rates. NiSource's principal water
utility, Indianapolis Water Company (IWC), has agreed to a moratorium on water
rate increases until 2002. Therefore, recovery of any increased costs discussed
above may not be timely.
78
79
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
ENVIRONMENTAL RESERVES. It is management's continued intent to address
environmental issues in cooperation with regulatory authorities in such a manner
as to achieve mutually acceptable compliance plans. However, there can be no
assurance that fines and penalties will not be incurred. Management expects most
environmental assessment and remediation costs to be recoverable through rates
for certain of NiSource companies.
As of December 31, 2000, a reserve of approximately $130.5 million has been
recorded to cover probable corrective actions at sites where NiSource has
environmental remediation liability. The ultimate liability in connection with
these sites will depend upon many factors, including the volume of material
contributed to the site, the number of the other PRPs and their financial
viability, the extent of corrective actions required and rate recovery. Based
upon investigations and management's understanding of current environmental laws
and regulations, NiSource believes that any corrective actions required, after
consideration of insurance coverages, contributions from other PRPs and rate
recovery, will not have a material effect on its financial position or results
of operations.
G. OPERATING LEASES. Payments made in connection with operating leases are
primarily charged to operation and maintenance expense as incurred. Such amounts
were $57.4 million in 2000, $48.5 million in 1999 and $22.1 million in 1998.
Future minimum rental payments required under operating leases that have initial
or remaining noncancelable lease terms in excess of one year are:
($ in millions)
-----------------------------------------------------------------------------------------------
2001 81.3
2002 125.6
2003 140.3
2004 82.3
2005 80.2
After 721.4
-----------------------------------------------------------------------------------------------
H. PURCHASE COMMITMENTS. NiSource has service agreements that provide for
pipeline capacity, transportation and storage services. These agreements which
have expiration dates ranging from 2001 to 2014, provide for NiSource to pay
fixed monthly charges. The estimated aggregate amounts of such payments at
December 31, 2000, were:
($ in millions)
-----------------------------------------------------------------------------------------------
2001 97.2
2002 75.5
2003 54.0
2004 45.3
2005 35.4
After 152.4
-----------------------------------------------------------------------------------------------
19. OTHER, NET
Year Ended December 3l, (in millions) 2000 1999 1998
-----------------------------------------------------------------------------------------------
Interest income $ 18.7 $ 6.5 $ 7.4
Gain on sale of assets 55.4 7.5 1.5
Miscellaneous (32.0) (34.6) 0.6
-----------------------------------------------------------------------------------------------
TOTAL OTHER, NET $ 42.1 $ (20.6) $ 9.5
-----------------------------------------------------------------------------------------------
79
80
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
20. INTEREST EXPENSE, NET
Year Ended December 31, (in millions) 2000 1999 1998
-----------------------------------------------------------------------------------------------
Interest on long-term debt $ 136.6 $ 119.5 $ 106.6
Interest on short-term debt 166.6 31.5 12.2
Discount on prepayment transactions 7.9 4.7 4.3
Other (2.7) 0.4 (2.3)
Allowance for borrowed funds used
and interest during construction (3.9) (0.7) (0.6)
-----------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE, NET $ 304.5 $ 155.4 $ 120.2
-----------------------------------------------------------------------------------------------
21. SEGMENTS OF BUSINESS
Operating segments are defined as components of an enterprise for which separate
financial information is available and is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance.
NiSource's operations are divided into six primary business segments. The gas
distribution segment provides natural gas service and transportation for
residential, commercial and industrial customers in Ohio, Pennsylvania,
Virginia, Kentucky, Maryland, Northern Indiana and certain areas of
Massachusetts, Maine and New Hampshire. The electric operations segment provides
electric service in 21 counties in the northern part of Indiana. Although the
electric segment has a diversified base of residential and commercial customers,
substantial portions of their industrial deliveries are dependent on the basic
steel industry. The gas transmission and storage segment offers transportation
and storage services for local distribution companies, marketers and industrial
and commercial customers located in northeastern, mid-Atlantic, midwestern and
southern states and the District of Columbia. The exploration and production
segment explores for, develops, produces and markets gas and oil in the United
States and in Canada. The energy marketing segment provides energy-related
services including gas marketing and asset management services to LDCs,
wholesale, commercial and industrial customers. The other products and services
segment participates in the development of non-rate regulated power projects,
real estate, telecommunications and other businesses.
The current segment structure is not significantly different than segments
reported prior to the merger. Previous periods did not include a transmission
and storage or an exploration and production segment but did include a water
utilities segment. As discussed in Note 5, the water utilities business is being
reported as discontinued operations. With the adoption of the new segment
alignment an additional change has been to focus on operating income as the
primary financial measure for segments as opposed to a form of EBIT used in
prior periods.
The following tables provide information about business segments. NiSource uses
operating income as its primary measurement for each of the reported segments
and makes decisions on finance, dividends and taxes at the corporate level on a
consolidated basis. Revenues include intersegment sales to affiliated
subsidiaries, which are eliminated when consolidated. Affiliated sales are
recognized on the basis of prevailing market or regulated prices. Operating
income is derived from revenues and expenses directly associated with each
segment.
80
81
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
(in millions) 2000 1999 1998
-------------------------------------------------------------------------------------------------
REVENUES
Gas Distribution
Unaffiliated $ 2,083.8 $ 976.1 $ 630.9
Intersegment 137.9 113.6 20.4
-------------------------------------------------------------------------------------------------
TOTAL 2,221.7 1,089.7 651.3
-------------------------------------------------------------------------------------------------
Electric
Unaffiliated 1,557.4 1,346.3 1,426.6
Intersegment 2.5 2.6 3.4
-------------------------------------------------------------------------------------------------
TOTAL 1,559.9 1,348.9 1,430.0
-------------------------------------------------------------------------------------------------
Gas Transmission and Storage
Unaffiliated 109.7 - -
Intersegment 52.0 - -
-------------------------------------------------------------------------------------------------
TOTAL 161.7 - -
-------------------------------------------------------------------------------------------------
Exploration and Production
Unaffiliated 41.1 - -
Intersegment - - -
-------------------------------------------------------------------------------------------------
TOTAL 41.1 - -
-------------------------------------------------------------------------------------------------
Energy Marketing
Unaffiliated 1,963.8 715.6 582.8
Intersegment 139.5 59.1 61.5
-------------------------------------------------------------------------------------------------
TOTAL 2,103.3 774.7 644.3
-------------------------------------------------------------------------------------------------
Other Products and Services
Unaffiliated 181.9 191.3 165.8
Intersegment 77.4 51.6 45.2
-------------------------------------------------------------------------------------------------
TOTAL 259.3 242.9 211.0
-------------------------------------------------------------------------------------------------
Adjustments and eliminations
Intersegment (316.3) (182.7) (92.7)
-------------------------------------------------------------------------------------------------
CONSOLIDATED $ 6,030.7 $ 3,273.5 $ 2,843.9
-------------------------------------------------------------------------------------------------
81
82
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
(in millions) 2000 1999 1998
---------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS)
Gas Distribution $ 225.4 $ 115.4 $ 65.1
Electric 364.0 363.4 348.6
Gas Transmission and Storage 61.5 - -
Exploration and Production 15.6 - -
Energy Marketing (2.0) (15.5) (2.1)
Other Products and Services 6.6 19.1 4.1
Corporate (115.3) (44.9) (13.1)
Adjustments and eliminations 12.0 0.4 0.1
---------------------------------------------------------------------------------------------------
CONSOLIDATED $ 567.8 $ 437.9 $ 402.7
---------------------------------------------------------------------------------------------------
DEPRECIATION AMORTIZATION & DEPLETION
Gas Distribution $ 147.3 $ 115.4 $ 74.7
Electric 162.7 158.5 156.8
Gas Transmission and Storage 26.1 - -
Exploration and Production 9.1 - -
Energy Marketing 11.8 5.0 0.6
Other Products and Services 12.6 11.5 8.7
Corporate 4.5 4.6 0.9
Adjustments and eliminations - - 0.1
---------------------------------------------------------------------------------------------------
CONSOLIDATED $ 374.1 $ 295.0 $ 241.8
---------------------------------------------------------------------------------------------------
ASSETS
Gas Distribution $ 6,135.8 $ 2,559.4 $1,192.2
Electric 2,722.0 2,595.4 2,592.8
Gas Transmission and Storage 2,934.4 - -
Exploration and Production 960.6 - -
Energy Marketing 2,222.7 641.0 177.9
Other Products and Services 744.7 382.5 348.2
Corporate 10,174.1 1,615.6 672.3
Adjustments and eliminations (6,197.5) (1,365.3) (388.0)
---------------------------------------------------------------------------------------------------
CONSOLIDATED $ 19,696.8 $ 6,428.6 $4,595.4
---------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES
Gas Distribution $ 138.3 $ 145.2 $ 63.0
Electric 132.2 134.0 124.0
Gas Transmission and Storage 50.3 - -
Exploration and Production 22.7 - -
Energy Marketing 1.2 0.7 -
Other Products and Services 21.1 14.0 11.3
Corporate - - -
---------------------------------------------------------------------------------------------------
CONSOLIDATED $ 365.8 $ 293.9 $ 198.3
---------------------------------------------------------------------------------------------------
82
83
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
22. QUARTERLY FINANCIAL DATA
Quarterly financial data does not always reveal the trend of NiSource's business
operations due to nonrecurring items and seasonal weather patterns which affect
earnings and related components of net revenues and operating income.
First Second Third Fourth
($ in millions, except per share data) Quarter Quarter Quarter Quarter
-------------------------------------------------------------------------------------------------------
2000
Gross Revenues 1,106.4 1,003.1 1,179.4 2,741.8
Operating Income 174.7 83.2 95.8 214.1
Income (Loss) from Continuing
Operations 79.1 21.4 46.8 (0.2)
Income from Discontinued Operations
net of taxes 0.5 2.0 5.2 2.1
Net Income 79.6 23.4 52.0 1.9
Basic Earnings Per Share of Common Stock
Continuing Operations 0.64 0.18 0.39 -
Discontinued Operations - 0.01 0.04 0.01
-------------------------------------------------------------------------------------------------------
Basic Earnings per Share 0.64 0.19 0.43 0.01
-------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share of Common Stock
Continuing Operations 0.62 0.17 0.38 -
Discontinued Operations - 0.01 0.04 0.01
-------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share 0.62 0.18 0.42 0.01
-------------------------------------------------------------------------------------------------------
1999
Gross Revenues 870.8 707.3 777.7 917.7
Operating Income 154.3 79.0 95.3 109.3
Income from Continuing Operations 77.9 21.2 23.4 31.4
Income (Loss) from Discontinued Operations -
net of taxes (1.3) 1.7 4.6 1.5
Net Income 76.6 22.9 28.0 32.9
Basic Earnings (Loss) Per Share of Common Stock
Continuing Operations 0.63 0.17 0.19 0.25
Discontinued Operations (0.01) 0.01 0.03 0.01
-------------------------------------------------------------------------------------------------------
Basic Earnings Per Share 0.62 0.18 0.22 0.26
-------------------------------------------------------------------------------------------------------
Diluted Earnings (Loss) Per Share of Common Stock
Continuing Operations 0.63 0.17 0.19 0.24
Discontinued Operations (0.01) 0.01 0.03 0.01
-------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share 0.62 0.18 0.22 0.25
-------------------------------------------------------------------------------------------------------
83
84
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC. AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET
As of December 31, (in millions) 2000 1999
-----------------------------------------------------------------------------------------------
ASSETS
Other property, at cost, less accumulated depreciation $17.2 $16.6
Investments and Other Assets:
Net assets of discontinued operations 560.4 245.4
Assets held for sale 33.5 0.0
Investments in subsidiary companies 7,172.6 1,715.3
-----------------------------------------------------------------------------------------------
Total Investments 7,766.5 1,960.7
-----------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 3.5 3.3
Amounts receivable from subsidiaries 468.9 76.5
Prepayments 37.9 81.3
-----------------------------------------------------------------------------------------------
Total Current Assets 510.3 161.1
-----------------------------------------------------------------------------------------------
Other (principally notes receivable from associated companies) 483.5 591.3
-----------------------------------------------------------------------------------------------
TOTAL ASSETS $8,777.5 $2,729.7
===============================================================================================
CAPITALIZATION AND LIABILITIES
Capitalization:
Common Stock Equity $3,415.2 $1,353.5
Long-term debt, excluding amounts due within one year 108.5 0.0
-----------------------------------------------------------------------------------------------
Total Capitalization 3,523.7 1,353.5
-----------------------------------------------------------------------------------------------
Current Liabilities 182.1 88.3
Other (principally notes payable to associated companies) 5,071.7 1,287.9
TOTAL CAPITALIZATION AND LIABILITIES $8,777.5 $2,729.7
===============================================================================================
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85
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC. AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF INCOME
Year ended December 31, (in millions, except per share
amounts) 2000 1999 1998
-----------------------------------------------------------------------------------------------
Equity in net earnings of subsidiaries $267.1 $214.6 $206.2
-----------------------------------------------------------------------------------------------
Other income (deductions):
Administrative and general expenses (86.5) (42.4) (14.2)
Interest income 51.6 41.1 31.9
Interest expense (141.5) (88.1) (48.4)
Other, net (2.6) (8.1) 1.0
-----------------------------------------------------------------------------------------------
(179.0) (97.5) (29.7)
-----------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 88.1 117.1 176.5
Income taxes (59.0) (36.8) (12.1)
-----------------------------------------------------------------------------------------------
Income from continuing operations 147.1 153.9 188.6
-----------------------------------------------------------------------------------------------
Income from discontinued operations - net of tax 9.8 6.5 5.3
-----------------------------------------------------------------------------------------------
NET INCOME $156.9 $160.4 $193.9
===============================================================================================
Average common shares outstanding (thousands) 134,470 124,343 120,778
Basic earnings per share
Continuing operations $1.09 $1.24 $1.56
Income from discontinued operations 0.07 0.05 0.04
-----------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE $1.16 $1.29 $1.60
===============================================================================================
Diluted earnings per share
Continuing operations $1.08 $1.22 $1.55
Income from discontinued operations 0.07 0.05 0.04
-----------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE $1.15 $1.27 $1.59
===============================================================================================
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86
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS
Year ended December 31, (in millions, except per share
amounts) 2000 1999 1998
-------------------------------------------------------------------------------------------------
Net cash provided in operating activities $ (152.0) $ 167.3 $ 177.5
-------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired (5,654.5) (550.2)
Acquisition of Minority Interest
Construction Work in Progress 0.7 (8.7) (7.4)
Sale of property (0.1)
Proceeds from disposition of assets 68.3
Investments at cost (10.0)
-------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (5,585.5) (568.9) (7.5)
-------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Issuance of common shares 2,042.1 314.5 10.4
Increase(decrease) in notes payable to subsidiaries 3,785.0 585.2 175.0
Increase in notes receivable from subsidiaries 108.3 (253.0) (31.0)
Cash dividends paid on common shares (131.8) (125.6) (116.4)
Acquistion of treasury shares (65.9) (126.4) (204.0)
Other
-------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 5,737.7 394.7 (166.0)
-------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 0.2 (6.9) 4.0
Cash and cash equivalents at beginning of year 3.3 10.2 6.2
-------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 3.5 $ 3.3 $ 10.2
=================================================================================================
86
87
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC. AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. DIVIDENDS FROM SUBSIDIARIES
Cash dividends paid to NiSource Inc. (NiSource) by its consolidated
subsidiaries were (in millions of dollars): $302.2, $239.2 and $207.6 in 2000,
1999 and 1998, respectively.
2. NOTES TO CONDENSED FINANCIAL STATEMENTS
See Item 8. on pages 49 through 80 for the full text of notes to the
Consolidated Financial Statements.
87
88
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
TWELVE MONTHS ENDED DECEMBER 31, 2000
ADDITIONS DEDUCTIONS
----------------------- FOR PURPOSES
BALANCE CHARGED TO CHARGED FOR WHICH BALANCE
JAN.1, COSTS AND TO OTHER RESERVES DEC. 31,
DESCRIPTION ($ IN MILLIONS) 2000 ACQUISITIONS EXPENSES ACCOUNT SALE OF ASSETS WERE CREATED 2000
------------------------------------------------------------------------------------------------------------------------------------
Reserves Deducted in Consolidated
Balance Sheet from Assets to Which
They Apply:
Reserve for accounts receivable.. $30.4 $ 15.0 $ 94.7 $ 1.2 $ 0.2 $ 97.8 $ 43.3
Reserve for other investments.... $24.7 $ - $ 21.5 $ - $ - $ 2.8 $ 43.4
Reserves Classified Under Reserve
Section of Consolidated Balance
Sheet:
Injuries and damages reserve.............. $13.0 $ - $ 6.5 $ - $ 1.2 $ 6.9 $ 11.4
Environmental reserves........... $23.8 $ 110.0 $ 1.8 $ - $ - $ 5.1 $ 130.5
Restructuring reserve............ $ - $ 66.9 $ 5.8 $ - $ - $ 7.3 $ 65.4
Other............................ $ 4.1 $ - $ 0.5 $ - $ - $ - $ 4.6
-----------------------------------------------------------------------------------------------------------------------------------
88
89
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
TWELVE MONTHS ENDED DECEMBER 31, 1999
ADDITIONS DEDUCTIONS
---------------------- FOR PURPOSES
BALANCE CHARGED TO CHARGED FOR WHICH BALANCE
JAN.1, COSTS AND TO OTHER RESERVES DEC. 31,
DESCRIPTION ($ IN MILLIONS) 1999 ACQUISITIONS EXPENSES ACCOUNT SALE OF ASSETS WERE CREATED 1999
-----------------------------------------------------------------------------------------------------------------------------------
Reserves Deducted in Consolidated
Balance Sheet from Assets to Which
They Apply:
Reserve for accounts receivable....... $ 9.0 $ 8.9 $ 28.4 $ - $ - $ 15.7 $ 30.6
Reserve for investments, at equity.... $ 1.0 $ - $ 23.9 $ - $ - $ 0.2 $ 24.7
Reserves Classified Under Reserve
Section of Consolidated Balance
Sheet:
Injuries and damages reserve................. $ 7.4 $ 5.2 $ 8.7 $ - $ - $ 8.3 $ 13.0
Environmental reserves................ $ 19.1 $ 6.0 $ 3.9 $ - $ - $ 5.2 $ 23.8
Restructuring reserve................. $ - $ - $ - $ - $ - $ - $ -
Other................................. $ 7.1 $ - $ 0.2 $ - $ - $ 3.2 $ 4.1
-----------------------------------------------------------------------------------------------------------------------------------
89
90
NISOURCE INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
TWELVE MONTHS ENDED DECEMBER 31, 1998
ADDITIONS DEDUCTIONS
---------------------- FOR PURPOSES
BALANCE CHARGED TO CHARGED FOR WHICH BALANCE
JAN. 1, COSTS AND TO OTHER RESERVES DEC. 31,
DESCRIPTION ($ IN MILLIONS) 1998 ACQUISITIONS EXPENSES ACCOUNT SALE OF ASSETS WERE CREATED 1998
------------------------------------------------------------------------------------------------------------------------------------
Reserves Deducted in Consolidated
Balance Sheet from Assets to Which
They Apply:
Reserve for accounts receivable..... $ 5.9 $ - $ 14.6 $ - $ - $ 11.5 $ 9.0
Reserve for investments, at equity.. $ 1.8 $ - $ - $ - $ - $ 0.8 $ 1.0
Reserves Classified Under Reserve
Section of Consolidated Balance
Sheet:
Injuries and damages reserve........ $ 6.5 $ - $ 5.7 $ - $ - $ 4.8 $ 7.4
Environmental reserves.............. $ 19.4 $ - $ 5.1 $ - $ - $ 5.4 $ 19.1
Restructuring reserve............... $ - $ - $ - $ - $ - $ - $ -
Other............................... $ 3.9 $ - $ 3.2 $ - $ - $ - $ 7.1
------------------------------------------------------------------------------------------------------------------------------------
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91
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There has not been a change of accountants nor any disagreements concerning
accounting and financial disclosure within the past two years.
PART III
Item 10. Directors and Executive Officers of the Registrant Information
regarding executive officers is included as a supplemental item at the end of
Item 4 of Part I of this Form 10-K.
Information regarding directors is included at pages 2-5 in the Notice of Annual
Meeting and Proxy Statement dated March 12, 2001, for the Annual Meeting of
Stockholders to be held on April 11, 2001, which information is incorporated by
reference.
Item 11. Executive Compensation
Information regarding executive compensation is included at pages 7-9 and 11-16
in the Notice of Annual Meeting and Proxy Statement dated March 12, 2001, for
the Annual Meeting of Stockholders to be held on April 11, 2001, which
information is incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners and
management is included at page 6 in the Notice of Annual Meeting and Proxy
Statement dated March 12, 2001, for the Annual Meeting of Stockholders to be
held on April 11, 2001, which information is incorporated by reference.
Item 13. Certain Relationships and Related Transactions
Not Applicable
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92
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Exhibits
The exhibits filed herewith as a part of this report on Form 10-K are listed
on the Exhibit Index included on pages 91 through 98. Each management
contract or compensatory plan or arrangement of NiSource listed on the
Exhibit Index is separately identified by an asterisk.
Financial Statement Schedules
All of the financial statements and financial statement schedules filed as a
part of the Annual Report on Form 10-K are included in Item 8.
Reports on Form 8-K
Financial
Item Statements
Reported Included Date of Event Date Filed
-------- --------- ----------------------- --------------------------
2,5,7 YES November 1, 2000 November 1, 2000 (amendment filed November 30, 2000)
7 NO November 2, 2000 November 3, 2000
9 NO November 6, 2000 November 6, 2000 (amendment filed November 7, 2000)
5 NO November 7, 2000 November 7, 2000
5, 7 NO November 14, 2000 December 1, 2000
5 NO November 21, 2000 November 21, 2000
92
93
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
NiSource Inc.
--------------------------------
(Registrant)
Date March 27, 2001 By: /s/ GARY L. NEALE
----------------------------- --------------------------------------------------------
Gary L. Neale
Chairman, President and Chief Executive Officer, and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
/s/ GARY L. NEALE Chairman, President and Chief March 27, 2001
---------------------------------- Executive Officer, and Director
Gary L. Neale (Principal Executive Officer)
/s/ STEPHEN P. ADIK Vice Chairman and Director March 27, 2001
----------------------------------
Stephen P. Adik
/s/ STEVEN C. BEERING Director March 27, 2001
----------------------------------
Steven C. Beering
/s/ ARTHUR J. DECIO Director March 27, 2001
----------------------------------
Arthur J. Decio
/s/ DENNIS E. FOSTER Director March 27, 2001
----------------------------------
Dennis E. Foster
/s/ JEFFREY W. GROSSMAN Vice President and Controller March 27, 2001
---------------------------------- (Principal Accounting Officer)
Jeffrey W. Grossman
/s/ JAMES T. MORRIS Director March 27, 2001
----------------------------------
James T. Morris
/s/ MICHAEL W. O'DONNELL Executive Vice President and March 27, 2001
---------------------------------- Chief Financial Officer
Michael W. O'Donnell (Principal Financial Officer)
/s/ IAN M. ROLLAND Director March 27, 2001
----------------------------------
Ian M. Rolland
/s/ JOHN W. THOMPSON Director March 27, 2001
----------------------------------
John W. Thompson
/s/ ROBERT J. WELSH Director March 27, 2001
----------------------------------
Robert J. Welsh
/s/ DR. CAROLYN Y. WOO Director March 27, 2001
----------------------------------
Dr. Carolyn Y. Woo
/s/ ROGER A. YOUNG Director March 27, 2001
----------------------------------
Roger A. Young
93
94
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF ITEM
------ -------------------
(2.1) Agreement and Plan of Merger dated as of February 27, 2000, as
amended and restated as of March 31, 2000, among Columbia Energy
Group, NiSource Inc., New NiSource Inc., Parent Acquisition Corp.,
Company Acquisition Corp. and NiSource Finance Corp (incorporated by
reference to Annex I to the joint proxy statement/prospectus dated
April 24, 2000, filed as a part of the Registration Statement on Form
S-4 (No. 333-33896)).
(3.1) Amended and Restated Certificate of Incorporation of NiSource Inc.,
effective October 31, 2000, as amended November 1, 2000 (incorporated
by reference to Exhibit 3.1 to the NiSource Inc. Current Report on
Form 8-K dated November 1, 2000).
(3.2) Amended and Restated By-Laws of NiSource Inc.**
(4.1) Indenture dated August 1, 1939 between Northern Indiana Public
Service Company (Northern Indiana) and Trustees (incorporated by
reference to Exhibit 7 to the Northern Indiana Registration Statement
(Registration No. 2-5178)).
(4.2) Third Supplemental Indenture dated August 1, 1943 (incorporated by
reference to Exhibit 7-C to the Northern Indiana Registration
Statement (Registration No. 2-5178)).
(4.3) Eighteenth Supplemental Indenture dated September 1, 1967
(incorporated by reference to Exhibit 1 to the Northern Indiana
Current Report on Form 8-K dated October 9, 1967).
(4.4) Nineteenth Supplemental Indenture dated October 1, 1968 (incorporated
by reference to Exhibit 1 to the Northern Indiana Current Report on
Form 8-K dated November 8, 1968).
(4.5) Twenty-third Supplemental Indenture dated March 31, 1972
(incorporated by reference to Exhibit 2 to the Northern Indiana
Current Report on Form 8-K dated May 5, 1972).
(4.6) Thirty-third Supplemental Indenture dated June 1, 1980 (incorporated
by reference to Exhibit 1 to the Northern Indiana Quarterly Report on
Form 10-Q for the quarter ended June 30, 1980).
(4.7) Forty-first Supplemental Indenture dated July 1, 1991 (incorporated
by reference to Exhibit 1 to the Northern Indiana Current Report on
Form 8-K dated March 25, 1992).
(4.8) Indenture dated as of March 1, 1988, between Northern Indiana and
Manufacturers Hanover Trust Company, as Trustee (incorporated by
reference to Exhibit 4 to the Northern Indiana Registration Statement
(Registration No. 33-44193)).
(4.9) First Supplemental Indenture dated as of December 1, 1991, between
Northern Indiana and Manufacturers Hanover Trust Company, as Trustee
(incorporated by reference to Exhibit 4.1 to the Northern Indiana
Registration Statement (Registration No. 33-63870)).
(4.10) Memorandum of Agreement with City of Michigan City, Indiana
(incorporated by reference to Exhibit 7 to the Northern Indiana
Registration Statement (Registration No. 2-48531)).
** Exhibit filed herewith.
94
95
EXHIBIT INDEX (continued)
EXHIBIT
NUMBER DESCRIPTION OF ITEM
------ -------------------
(4.11) Financing Agreement No. 1 dated November 1, 1988, between Northern
Indiana and Jasper County, Indiana regarding $37,000,000 Series 1988A
Pollution Control Refunding Revenue Bonds. Identical Financing
agreements between Northern Indiana and Jasper County, Indiana
provide for the issuance of $47,000,000 Series 1988B, $46,000,000
Series 1988C and $24,000,000 Series 1988D Pollution Control Refunding
Revenue Bonds (incorporated by reference to Exhibit 8 to the Northern
Indiana Current Report on Form 8-K dated March 16, 1989).
(4.12) Financing Agreement dated July 1, 1991, with Jasper County, Indiana
regarding $55,000,000 Series 1991 Collateralized Pollution Control
Refunding Revenue Bonds (incorporated by reference to Exhibit 3 to
the Northern Indiana Current Report on Form 8-K dated March 25,
1992).
(4.13) Financing Agreement dated August 1, 1994, with Jasper County, Indiana
regarding $10,000,000 Series 1994A, $18,000,000 Series 1994B and
$41,000,000 Series 1994C Pollution Control Refunding Revenue Bonds
(incorporated by reference to Exhibit 4.16 to the Northern Indiana
Annual Report on Form 10-K for year ended December 31, 1994).
(4.14) Indenture between NIPSCO Industries, Inc., NIPSCO Capital Markets,
Inc. and Chemical Bank as Trustees dated February 1, 1996
(incorporated by reference to Exhibit 1 to the NIPSCO Industries,
Inc. Registration Statement (Registration No. 33-65285)).
(4.15) Rights Agreement, dated November 1, 2000, between NiSource Inc. and
ChaseMellon Shareholder Services, L.L.C., as rights agent.
(incorporated by reference to Exhibit 4.1 to the NiSource Inc.
Current Report on Form 8-K dated November 1, 2000).
(4.16) Indenture Agreement between NIPSCO Industries, Inc., NIPSCO Capital
Markets, Inc. and Chase Manhattan Bank as trustee dated February 14,
1997 (incorporated by reference to Exhibit 4.1 to the NIPSCO
Industries, Inc. Registration Statement (Registration No.
333-22347)).
(4.17) Fourteenth Supplemental Indenture dated as of January 15, 1978,
between the Fidelity Bank, and IWC, including as Appendix A the
"Restatement of Principal Indenture of Indianapolis Water Company,"
which, except as otherwise specified, restates the granting clauses
and all other sections contained in the First Mortgage dated July 1,
1936, between Fidelity-Philadelphia Trust Company and IWC as amended
by the Fourth, Fifth, Sixth, Eighth, Twelfth and Fourteenth
Supplemental Indentures (incorporated by reference to Exhibit 4-B1 to
IWC's Annual Report on Form 10-K for the year ended December 31,
1980).
(4.18) Eleventh Supplemental Indenture dated as of December 1, 1971
(incorporated by reference to Exhibit 4-B6 to IWC's Annual Report on
Form 10-K for the year ended December 31, 1980).
(4.19) Seventeenth Supplemental Indenture dated as of March 1, 1989, between
Fidelity Bank, National Association and IWC (incorporated by
reference to Exhibit 4-A9 to the IWC Resources Corporation (IWCR)
Annual Report on Form 10-K for the year ended December 31, 1988).
(4.20) Eighteenth Supplemental Indenture dated as of March 1, 1989, between
Fidelity Bank, National Association and IWC (incorporated by
reference to Exhibit 4-A10 to IWCR's Annual Report on Form 10-K for
the year ended December 31, 1988).
(4.21) Nineteenth Supplemental Indenture dated as of June 1, 1989, between
Fidelity Bank, National Association and IWC (incorporated by
reference to Exhibit 4-A9 to IWCR's Registration Statement
(Registration No. 33-43939)).
95
96
EXHIBIT
NUMBER DESCRIPTION OF ITEM
------ -------------------
(4.22) Twentieth Supplemental Indenture dated as of December 1, 1992,
between Fidelity Bank, National Association and IWC (incorporated by
reference to Exhibit 4-A9 to IWCR's Annual Report on Form 10-K for
the year ended December 31, 1992).
(4.23) Twenty-first Supplemental Indenture dated as of December 1, 1992,
between Fidelity Bank, National Association and IWC (incorporated by
reference to Exhibit 4-A10 to IWCR's Annual Report on Form 10-K for
the year ended December 31, 1992).
(4.24) Twenty-second Supplemental Indenture dated as of April 1, 1993,
between IWC and Fidelity Bank, National Association (incorporated by
reference to Exhibit 4.15 to IWCR's Annual Report on Form 10-K for
the year ended December 31, 1993).
(4.25) Indenture of Trust dated as of December 1, 1992, between City of
Indianapolis, Indiana, and IWC to National City Bank, Indiana, as
Trustee (incorporated by reference to Exhibit 10-J to IWCR's Annual
Report on Form 10-K for the year ended December 31, 1992).
(4.26) Loan Agreement dated as of December 1, 1992, between IWC and City of
Indianapolis, Indiana (incorporated by reference to Exhibit 10-K to
IWCR's Annual Report on Form 10-K for the year ended December 31,
1992).
(4.27) Guaranty Agreement dated as of December 1, 1992, between IWCR and
National City Bank, Indiana, as Trustee (incorporated by reference to
Exhibit 10-L to IWCR's Annual Report on Form 10-K for the year ended
December 31, 1992).
(4.28) Indenture of Trust, City of Indianapolis, Indiana, and IWC to
National City Bank, Indiana, as Trustee, dated as of April 1, 1993
(incorporated by reference to Exhibit 4.14 to IWCR's Annual Report on
Form 10-K for the year ended December 31, 1993).
(4.29) Loan Agreement dated as of April 1, 1993, between IWC and the City of
Indianapolis (incorporated by reference to Exhibit 10.11 to IWCR's
Annual Report on Form 10-K for the year ended December 31, 1993).
(4.30) Guaranty Agreement between IWCR and National City Bank, Indiana, as
Trustee, dated as of April 1, 1993 (incorporated by reference to
Exhibit 10.12 to IWCR's Annual Report on Form 10-K for the year ended
December 31, 1993).
(4.31) Note Agreement dated as of March 1, 1994, between IWCR and American
United Life Insurance Company (incorporated by reference to Exhibit
10.12 to IWCR's Annual Report on Form 10-K for the year ended
December 31, 1992).
(4.32) Indenture of Trust of Town of Fishers and IWC to National City Bank
of Indiana, As Trustee, dated as of July 15, 1998 (including Form of
$30,000,000 Town of Fishers, Indiana Economic Development Water
Facilities Refunding Revenue bond, series 1998 (Indianapolis Water
Company Project) (incorporated by reference to Exhibit 4.1 to NIPSCO
Industries, Inc.'s Quarterly Report on Form 10-Q for the period ended
September 30, 1998).
(4.33) Indenture of Trust of City of Indianapolis, Indiana and IWC to
National City Bank of Indiana, As Trustee, dated as of July 15, 1998
(including Form of $10,000,000 City of Indianapolis, Indiana Economic
Development Water Facilities Refunding Revenue Bonds, Series 1998
(Indianapolis Water Company Project) (incorporated by reference to
Exhibit 4.2 to NIPSCO Industries, Inc.'s Quarterly Report on Form
10-Q for the period ended September 30, 1998).
96
97
EXHIBIT
NUMBER DESCRIPTION OF ITEM
------ -------------------
(4.34) Certificate of Trust of NIPSCO Capital Trust I by and among Chase
Manhattan Bank Delaware, The Chase Manhattan Bank, Stephen P. Adik,
Francis P. Girot, Jr., and Arthur A. Paquin dated December 17, 1998
(incorporated by reference to Exhibit 4.6 to the NIPSCO Industries,
Inc. Registration Statement on Form S-3 dated December 18, 1998).
(4.35) Amended and Restated Declaration of Trust of NIPSCO Capital Trust I
by and among NIPSCO Capital Markets, Inc., The Chase Manhattan Bank,
Chase Manhattan Bank Delaware, Stephen P. Adik, Francis P. Girot,
Jr., and Arthur A. Paquin dated February 16, 1999 (incorporated by
reference to Exhibit 4.35 to the NiSource Inc. Annual Report on Form
10-K for the period ended December 31, 1999).
(4.36) First Supplemental Indenture dated February 16, 1999, by and among
NIPSCO Capital Markets, Inc., NIPSCO Industries, Inc., and the Chase
Manhattan Bank, as Trustee (incorporated by reference to Exhibit 4.36
to the NiSource Inc. Annual Report on Form 10-K for the period ended
December 31, 1999).
(4.37) Purchase Contract Agreement by and among NIPSCO Industries, Inc. and
The Chase Manhattan Bank, as Purchase Contract Agent, dated February
16, 1999 (incorporated by reference to Exhibit 4.37 to the NiSource
Inc. Annual Report on Form 10-K for the period ended December 31,
1999).
(4.38) Pledge Agreement by and among NIPSCO Industries, Inc., The First
National Bank of Chicago, as Collateral Agent and Securities
Intermediary, and The Chase Manhattan Bank, As Purchase Contract
Agent dated February 16, 1999 (incorporated by reference to Exhibit
4.38 to the NiSource Inc. Annual Report on Form 10-K for the period
ended December 31, 1999).
(4.39) Remarketing Agreement dated February 16, 1999, among NIPSCO
Industries, Inc., NIPSCO Capital Markets, Inc., NIPSCO Capital Trust
I, and Lehman Brothers Inc., as Remarketing Agent (incorporated by
reference to Exhibit 4.39 to the NiSource Inc. Annual Report on Form
10-K for the period ended December 31, 1999).
(4.40) Indenture, dated November 1, 2000, between NiSource Inc. and The
Chase Manhattan Bank, as trustee (incorporated by reference to
Exhibit 4.3 to the NiSource Inc. Current Report on Form 8-K dated
November 1, 2000).
(4.41) First Supplemental Indenture, dated November 1, 2000, between
NiSource Inc. and The Chase Manhattan Bank, as trustee (incorporated
by reference to Exhibit 4.4 to the NiSource Inc. Current Report on
Form 8-K dated November 1, 2000).
(4.42) Purchase Contract Agreement, dated November 1, 2000, between NiSource
Inc. and The Chase Manhattan Bank, as purchase contract agent
(incorporated by reference to Exhibit 4.5 to the NiSource Inc.
Current Report on Form 8-K dated November 1, 2000).
(4.43) Pledge Agreement, dated November 1, 2000, between NiSource Inc., Bank
One, National Association, as collateral agent, Bank One, National
Association, as securities intermediary, and The Chase Manhattan
Bank, as purchase contract agent (incorporated by reference to
Exhibit 4.6 to the NiSource Inc. Current Report on Form 8-K dated
November 1, 2000).
(4.44) Remarketing Agreement, dated November 1, 2000, between NiSource Inc.
and Credit Suisse First Boston Corporation, as remarketing Agent
(incorporated by reference to Exhibit 4.7 to the NiSource Inc.
Current Report on Form 8-K dated November 1, 2000).
97
98
EXHIBIT
NUMBER DESCRIPTION OF ITEM
------ -------------------
(4.45) Second Supplemental Indenture, dated as of November 1, 2000, among
NiSource Capital Markets, Inc., NiSource Inc., New NiSource Inc., and
The Chase Manhattan Bank, as trustee.**
(4.46) First Supplemental Indenture, dated as of November 1, 2000, among
NiSource Capital Markets, Inc., NiSource Inc., and The Chase
Manhattan Bank, as trustee.**
(4.47) Supplemental Agreement dated November 1, 2000, between NiSource Inc.,
The Chase Manhattan Bank, as purchase contract agent, and The First
National Bank of Chicago, as collateral agent and securities
intermediary.**
(4.48) 364-Day Revolving Credit Agreement, dated as of November 1, 2000,
among NiSource Finance Corp., as Borrower, NiSource Inc. and New
NiSource Inc., as Guarantors, Credit Suisse First Boston and Barclays
Bank PLC, as Co-Syndication Agents and lenders, Credit Suisse First
Boston, as Administrative Agent, and Barclays Bank PLC, as
Documentation Agent. (incorporated by reference to Exhibit 10.1 to
the NiSource Inc. Current Report on Form 8-K dated November 1, 2000).
(4.49) Indenture, dated November 14, 2000, among NiSource Finance Corp.,
NiSource Inc., as guarantor, and The Chase Manhattan Bank, as Trustee
(incorporated by reference to Exhibit 4.3 to the NiSource Inc. Form
S-3, dated January 17, 2001 (Registration No. 333-49330)).
(4.50) Indenture between The Columbia Gas System, Inc. and Marine Midland
Bank, N.A. Trustee, dated as of November 28, 1995 (incorporated by
reference to Exhibit 4-S to the Columbia Gas System Registration
Statement (Registration No. 33-64555)).
(4.51) First Supplemental Indenture, between The Columbia Gas System, Inc.
and Marine Midland Bank, N.A. Trustee, dated as of November 28, 1995
(incorporated by reference to Exhibit 4-T to the Columbia Gas System
Registration Statement (Registration No. 33-64555)).
(4.52) Second Supplemental Indenture, between The Columbia Gas System, Inc.,
and Marine Midland Bank, N.A. Trustee, dated as of November 28, 1995
(incorporated by reference to Exhibit 4-U to the Columbia Gas System
Registration Statement (Registration No. 33-64555)).
(4.53) Third Supplemental Indenture, between The Columbia Gas System, Inc.
and Marine Midland Bank, N.A. Trustee, dated as of November 28, 1995
(incorporated by reference to Exhibit 4-V to the Columbia Gas System
Registration Statement (Registration No. 33-64555)).
(4.54) Fourth Supplemental Indenture, between The Columbia Gas System, Inc.
and Marine Midland Bank, N.A. Trustee, dated as of November 28, 1995
(incorporated by reference to Exhibit 4-W to the Columbia Gas System
Registration Statement (Registration No. 33-64555)).
(4.55) Fifth Supplemental Indenture, between The Columbia Gas System, Inc.
and Marine Midland Bank, N.A. Trustee, dated as of November 28, 1995
(incorporated by reference to Exhibit 4-X to the Columbia Gas System
Registration Statement (Registration No. 33-64555)).
(4.56) Fifth Supplemental Indenture, between The Columbia Gas System, Inc.
and Marine Midland Bank, N.A. Trustee, dated as of November 28, 1995
(incorporated by reference to Exhibit 4-X to the Columbia Gas System
Registration Statement (Registration No. 33-64555)).
** Exhibit filed herewith.
99
99
EXHIBIT
NUMBER DESCRIPTION OF ITEM
------ -------------------
(4.57) Sixth Supplemental Indenture, between The Columbia Gas System, Inc.
and Marine Midland Bank, N.A. Trustee, dated as of November 28, 1995
(incorporated by reference to Exhibit 4-Y to the Columbia Gas System
Registration Statement (Registration No. 33-64555)).
(4.58) Seventh Supplemental Indenture, between The Columbia Gas System, Inc.
and Marine Midland Bank, N.A., Trustee, dated as of November 28, 1995
(incorporated by reference to Exhibit 4-Z to the Columbia Gas System
Registration Statement (Registration No. 33-64555)).
(4.59) Instrument of Resignation, Appointment and Acceptance dated as of
March 1, 1999, between Columbia Energy Group and Marine Midland Bank,
as Resigning Trustee and The First National Bank of Chicago, as
Successor Trustee (incorporated by reference to Exhibit 4-I to the
Columbia Energy Group Annual Report on Form 10-K for the period ended
December 31, 1998).
(4.60) 3-Year Revolving Credit Agreement, dated as of March 23, 2001, among
NiSource Finance Corp., as Borrower, NiSource Inc., as Guarantor, the
Lead Arrangers, Arrangers, Senior Managing Agents, Managers, and
Lenders party thereto, as Lenders, Credit Suisse First Boston, as
Syndication Agent, Bank One, National Association (Main Office,
Chicago), Citibank, N.A., Toronto Dominion (Texas), Inc. as
Co-Documentation Agents, Barclays Bank PLC, as Administrative Agent
and LC Bank, Barclays Capital and Credit Suisse First Boston, as Lead
Arrangers and Barclays Capital, as Sole Book Runner. **
(4.61) First Amendment to Financing Agreement No. 1, dated as of November 1,
2000, between Jasper County and Northern Indiana regarding Series
1988A Pollution Control Refunding Revenue Bonds. Northern Indiana
entered into identical First Amendments to Financing Agreements Nos.
2, 3 and 4, each dated as of November 1, 2000, between Jasper County
and Northern Indiana in connection with the Series 1988B, 1988C and
1988D Pollution Control Refunding Revenue bonds.**
(4.62) First Amendment to Financing Agreement, dated as of November 1, 2000
between Jasper County, Indiana and Northern Indiana regarding the
Series 1994A, 1994B and 1994C Pollution Control Refunding Revenue
Bonds.**
(10.1) Supplemental Life Insurance Plan effective January 1, 1991
(incorporated by reference to Exhibit 2 to the NIPSCO Industries,
Inc. Current Report on Form 8-K dated March 25, 1992).*
(10.2) Executive Deferred Compensation Plan effective December 1, 1990
(incorporated by reference to Exhibit 3 to the NIPSCO Industries,
Inc. Current Report on Form 8-K dated March 25, 1992).*
(10.3) Form of Change in Control and Termination Agreements and Schedule of
Parties to the Agreements**
(10.4) Nonemployee Director Stock Incentive Plan of NIPSCO Industries, Inc.
(As Amended and Restated Effective February 1, 1998, incorporated by
reference to exhibit 10.3 to the NIPSCO Industries, Inc. Annual
Report on Form 10-K for the year ended December 31, 1998)*
(10.5) First Amendment to NiSource Inc. Nonemployee Director Stock Incentive
Plan (Effective April 1, 1999) (incorporated by reference to Exhibit
10.5 to the NiSource Inc. Annual Report on Form 10-K for the period
ended December 31, 1999).*
(10.6) NiSource Inc. Long-Term Incentive Plan (As Amended and Restated
Effective April 14, 1999) (incorporated by reference to Exhibit 10.6
to the NiSource Inc. Annual Report on Form 10-K for the period ended
December 31, 1999).*
* Management contract or compensatory plan or arrangement of NiSource Inc.
** Exhibit filed herewith.
99
100
EXHIBIT INDEX (continued)
EXHIBIT
NUMBER DESCRIPTION OF ITEM
------ -------------------
(10.7) Amended and Restated Pension Plan Provisions effective January 1,
1989 (incorporated by reference to Exhibit 17 to the Northern Indiana
Current Report on Form 8-K dated March 25, 1992).*
(10.8) NiSource Inc. 1994 Long-Term Incentive Plan (As Amended and Restated
Effective January 1, 2000) (incorporated by reference to Annex VI to
the joint proxy statement/prospectus dated April 24, 2000, filed as a
part of the Registration Statement on Form S-4 (No. 333-33896)).*
(10.9) NIPSCO Industries, Inc. Directors' Charitable Gift Program effective
September 27, 1994 (incorporated by reference to Exhibit 10.8 to the
NiSource Annual Report on Form 10-K for the year ended December 31,
1996).*
(10.10) Employment Agreement (incorporated by reference to Exhibit 10.13 to
the NIPSCO Industries, Inc. Annual Report on Form 10-K for the year
ended December 31, 1997).*
(10.11) Executive Supplemental Pension Agreement (incorporated by reference
to Exhibit 10.14 the NIPSCO Industries, Inc. Annual Report on Form
10-K for the year ended December 31, 1997).*
(10.12) Agreement dated October 18, 1971, between IWC and Department of
Public Works of the City of Indianapolis, Indiana, regarding the
purchase of water at Eagle Creek Reservoir (incorporated by reference
to Exhibit 5 to IWC's Registration Statement (Registration Statement
No. 2-55201)).
(10.13) Letter Agreement dated October 25, 1999, between Mr. Roger A. Young
and NiSource Inc. (incorporated by reference to Exhibit 10.1 to
NiSource Inc.'s Quarterly Report on Form 10-Q for the period ended
September 30, 1999).*
(10.14) Letter Agreement dated April 9, 1999, between Mr. Joseph L. Turner,
Jr. and NiSource Inc. (incorporated by reference to Exhibit 10.2 to
NiSource Inc.'s Quarterly Report on Form 10-Q for the period ended
September 30, 1999).*
(10.15) Amended and Restated Indenture of Mortgage and Deed of Trust by
Columbia Gas Transmission Corporation to Wilmington Trust Company,
dated as of November 28, 1995 (incorporated by reference to Exhibit
10-AF to the Columbia Energy Group Annual Report on Form 10-K for the
period ended December 31, 1995).
(10.16) $50,000,000 Amended and Restated Credit Agreement dated October 11,
2000, among Columbia Energy Group and certain banks party thereto and
Citibank, N.A. as Administrative and Syndication Agent (incorporated
by reference to Exhibit 10-CQ to the Columbia Energy Group Annual
Report on Form 10-K for the period ended September 30, 2000).
(10.17) $850,000,000 Amended and Restated Credit Agreement dated October 11,
2000, among Columbia Energy Group and certain banks party thereto and
Citibank, N.A. as Administrative and Syndication Agent (incorporated
by reference to Exhibit 10-CR to the Columbia Energy Group Annual
Report on Form 10-K for the period ended September 30, 2000).
(10.18) Annual Incentive Compensation Plan of The Columbia Gas System, Inc.,
as amended, dated as of November 16, 1988 (incorporated by reference
to Exhibit 10-BB to Columbia Energy Group's Annual Report on Form
10-K for the period ended December 31, 1988).
* Management contract or compensatory plan or arrangement of NiSource Inc.
100
101
EXHIBIT
NUMBER DESCRIPTION OF ITEM
------ -------------------
(10.19) Memorandum of Understanding among the Millennium Pipeline Project
partners (Columbia Transmission, West Coast Energy, MCN Investment
Corp. and TransCanada Pipelines Limited) dated December 1, 1997
(incorporated by reference to Exhibit 10-CF to Columbia Energy
Group's Annual Report on Form 10-K for the period ended December 31,
1998).
(10.20) Agreement of Limited Partnership of Millennium Pipeline Company, L.P.
dated May 31, 1998 (incorporated by reference to Exhibit 10-CG to
Columbia Energy Group's Annual Report on Form 10-K for the period
ended December 31, 1998).
(10.21) Contribution Agreement Between Columbia Gas Transmission Corporation
and Millennium Pipeline Company, L.P. dated July 31, 1998
(incorporated by reference to Exhibit 10-CH to Columbia Energy
Group's Annual Report on Form 10-K for the period ended December 31,
1998).
(10.22) Regulations of Millennium Pipeline Management Company, L.L.C. dated
May 31, 1998 (incorporated by reference to Exhibit 10-CI to Columbia
Energy Group's Annual Report on Form 10-K for the period ended
December 31, 1998).
(10.23) Nonemployee Director Retirement Plan (incorporated by reference to
Exhibit 10.16 to the NiSource Inc. Annual Report on Form 10-K for the
period ended December 31, 1999).*
(10.24) Nonemployee Director Restricted Stock Unit Plan (Effective January 1,
1999) (incorporated by reference to Exhibit 10.17 to the NiSource
Inc. Annual Report on Form 10-K for the period ended December 31,
1999).*
(10.25) First Amendment to Nonemployee Director Restricted Stock Unit Plan
(Effective April 1, 1999) (incorporated by reference to Exhibit 10.18
to the NiSource Inc. Annual Report on Form 10-K for the period ended
December 31, 1999).
(10.26) Supplemental Executive Retirement Plan (incorporated by reference to
Exhibit 10.19 to the NiSource Inc. Annual Report on Form 10-K for the
period ended December 31, 1999).*
(10.27) Pension Restoration Plan of The Columbia Gas System, Inc., amended
October 9, 1991 (incorporated by reference to Exhibit 10-P of
Columbia Energy Group's Annual Report on Form 10-K for the period
ended December 31, 1991).
(10.28) Thrift Restoration Plan of The Columbia Gas System, Inc. dated
January 1, 1989 (incorporated by reference to Exhibit 10-Q of
Columbia Energy Group's Annual Report on Form 10-K for the period
ended December 31, 1988).
(10.29) Agreement dated December 18, 2000 between Catherine G. Abbott and
NiSource Inc.**
(12) Ratio of Earnings to Fixed Charges.**
(21) List of Subsidiaries.**
(23) Consent of Arthur Andersen LLP.**
* Management contract or compensatory plan or arrangement of NiSource Inc.
**Exhibit filed herewith.
References made herein to Columbia Energy Group filings can be found at
Commission File Number 001-01098 and references made to NiSource Inc. filings
made prior to November 1, 2000 can be found at Commission File Number 001-09779.
101