As Filed with the United States Securities and Exchange Commission on February
28, 2003.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 1)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
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 001-16189
NISOURCE INC.
-------------
(Exact name of registrant as specified in its charter)
Delaware 35-2108964
--------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
801 East 86th Avenue
Merrillville, Indiana 46410
--------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (877) 647-5990
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
---------------------------------------- -----------------------------
Common Stock New York, Chicago and Pacific
Preferred Share Purchase Rights New York, Chicago and Pacific
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] or 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]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] or No[ ]
The aggregate market value of Common Stock (based upon the June 28, 2002,
closing price of $21.83 on the New York Stock Exchange) held by non-affiliates
was approximately $4,498,623,003.44.
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 relating to the Annual
Meeting of Stockholders to be held on May 20, 2003.
EXPLANATORY NOTE
This report is an amendment to the NiSource Inc. Form 10-K for the year ended
December 31, 2002. Item 8 of the report is being amended because, in footnote
26, "Exploration and Production Activities" the Historical Results of
Operations table was omitted during the EDGARization process. The electronic
version is being amended to include the omitted table. In addition, Item 15 is
being amended to include the updated consent of NiSource's external auditors,
Deloitte & Touche LLP.
Except as described above, no other change has been made to the NiSource Inc.
Form 10-K filed on March 3, 2003.
2
CONTENTS
Page
No.
-------
Part II
Item 8. Financial Statements and Supplementary Data...................................... 45
Part III
Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K.................. 102
Signatures.................................................................................. 103
Certifications.............................................................................. 104
Exhibits.................................................................................... 106
2
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
NISOURCE INC.
INDEX PAGE
----- ----
Independent Auditor's Report.............................................. 46
Statements of Consolidated Income......................................... 47
Consolidated Balance Sheets............................................... 48
Statements of Consolidated Cash Flows..................................... 50
Statements of Consolidated Capitalization................................. 51
Statements of Consolidated Long-Term Debt................................. 52
Statements of Consolidated Common Stockholders' Equity.................... 54
Notes to Consolidated Financial Statements................................ 56
Schedule I................................................................ 95
Schedule II............................................................... 99
45
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
INDEPENDENT AUDITORS' REPORT
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, 2002 and 2001, and the related statements of consolidated
income, common stockholders' equity and cash flows for each of the three years
in the period ended December 31, 2002. Our audits also included the financial
statement schedules listed in the index at Item 8. These financial statements
and financial statement schedules are the responsibility of NiSource's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, such consolidated financial statements referred to above present
fairly, in all material respects, the financial position of NiSource Inc. and
subsidiaries as of December 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
As explained in Note 2Q to the financial statements, effective January 1, 2001,
NiSource Inc. adopted Statement of Financial Accounting Standards No. 133,
"Accounting for Derivatives Instruments and Hedging Activities," as amended. As
explained in Note 2I to the financial statements, effective January 1, 2002,
NiSource adopted SFAS 142, "Goodwill and Other Intangible Assets."
Deloitte & Touche LLP
Chicago, Illinois
February 13, 2003
46
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
STATEMENTS OF CONSOLIDATED INCOME
Year Ended December 31, (in millions, except per share amounts) 2002 2001 2000
--------- --------- ---------
NET REVENUES
Gas Distribution $ 2,890.4 $ 3,849.9 $ 1,879.6
Gas Transmission and Storage 1,011.9 996.6 375.8
Electric 1,103.6 1,862.4 1,557.4
Exploration and Production 155.7 156.9 37.4
Other 1,330.7 2,595.2 2,179.2
--------- --------- ---------
Gross Revenues 6,492.3 9,461.0 6,029.4
Cost of Sales 3,163.3 6,054.1 4,081.7
--------- --------- ---------
Total Net Revenues 3,329.0 3,406.9 1,947.7
--------- --------- ---------
OPERATING EXPENSES
Operation and maintenance 1,288.2 1,438.2 810.4
Depreciation, depletion and amortization 574.0 641.3 376.1
Loss (gain) on sale or impairment of assets (27.2) (0.1) 10.3
Other taxes 291.3 294.6 138.6
--------- --------- ---------
Total Operating Expenses 2,126.3 2,374.0 1,335.4
--------- --------- ---------
OPERATING INCOME 1,202.7 1,032.9 612.3
--------- --------- ---------
OTHER INCOME (DEDUCTIONS)
Interest expense, net (526.1) (598.0) (304.5)
Minority interest (20.4) (20.4) (20.4)
Dividend requirements on preferred stock of subsidiaries (6.8) (7.5) (7.8)
Other, net 10.2 10.2 (11.4)
--------- --------- ---------
Total Other Income (Deductions) (543.1) (615.7) (344.1)
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 659.6 417.2 268.2
INCOME TAXES 233.9 190.8 126.3
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 425.7 226.4 141.9
--------- --------- ---------
Income (loss) from Discontinued Operations - net of taxes (9.4) (14.2) 9.0
Net loss on the Disposition of Discontinued Operations - net of taxes (43.8) -- --
Change in Accounting - net of taxes -- 4.0 --
--------- --------- ---------
NET INCOME $ 372.5 $ 216.2 $ 150.9
========= ========= =========
BASIC EARNINGS (LOSS) PER SHARE ($)
Continuing operations $ 2.02 $ 1.10 $ 1.05
Discontinued operations (0.25) (0.07) 0.07
Change in accounting -- 0.02 --
--------- --------- ---------
BASIC EARNINGS PER SHARE $ 1.77 $ 1.05 $ 1.12
--------- --------- ---------
DILUTED EARNINGS (LOSS) PER SHARE ($)
Continuing operations $ 2.00 $ 1.08 $ 1.04
Discontinued operations (0.25) (0.07) 0.07
Change in accounting -- 0.02 --
--------- --------- ---------
DILUTED EARNINGS PER SHARE $ 1.75 $ 1.03 $ 1.11
--------- --------- ---------
BASIC AVERAGE COMMON SHARES OUTSTANDING (MILLIONS) 211.0 205.3 134.5
DILUTED AVERAGE COMMON SHARES (MILLIONS) 212.8 209.8 135.8
--------- --------- ---------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
47
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
CONSOLIDATED BALANCE SHEETS
As of December 31, (in millions) 2002 2001
--------- ---------
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Utility Plant $16,435.0 $15,991.4
Accumulated depreciation and amortization (7,998.2) (7,616.5)
--------- ---------
Net utility plant 8,436.8 8,374.9
--------- ---------
Gas and oil producing properties, successful efforts method
United States cost center 1,056.3 1,011.5
Canadian cost center 5.9 22.4
Accumulated depletion (122.7) (74.6)
--------- ---------
Net gas and oil producing properties 939.5 959.3
--------- ---------
Other property, at cost, less accumulated depreciation 691.7 679.0
--------- ---------
Net Property, Plant and Equipment 10,068.0 10,013.2
--------- ---------
INVESTMENTS AND OTHER ASSETS
Assets of discontinued operations 79.2 509.2
Unconsolidated affiliates 118.8 124.0
Assets held for sale 26.1 15.4
Other investments 50.7 47.8
--------- ---------
Total Investments 274.8 696.4
--------- ---------
CURRENT ASSETS
Cash and cash equivalents 54.3 118.1
Restricted cash 1.9 9.8
Accounts receivable (less reserve of $53.7 and $52.7, respectively) 580.1 667.5
Unbilled revenue (less reserve of $3.5 and $3.8, respectively) 305.2 262.7
Gas inventory 255.3 377.7
Underrecovered gas and fuel costs 149.9 134.6
Materials and supplies, at average cost 65.9 73.3
Electric production fuel, at average cost 39.0 29.1
Price risk management assets 66.6 249.7
Exchange gas receivable 120.8 186.8
Prepayments and other 229.5 228.1
--------- ---------
Total Current Assets 1,868.5 2,337.4
--------- ---------
OTHER ASSETS
Price risk management assets 116.9 69.3
Regulatory assets 608.8 517.1
Goodwill 3,707.6 3,735.7
Intangible assets 57.3 2.2
Deferred charges and other 195.0 463.1
--------- ---------
Total Other Assets 4,685.6 4,787.4
--------- ---------
TOTAL ASSETS $16,896.9 $17,834.4
========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
48
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
CONSOLIDATED BALANCE SHEETS
As of December 31, (in millions) 2002 2001
--------- ---------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common Stock Equity $ 4,174.9 $ 3,469.4
Preferred Stocks --
Series without mandatory redemption provisions 81.1 83.6
Series with mandatory redemption provisions 3.8 5.0
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 5,018.0 6,301.5
--------- ---------
Total Capitalization 9,622.8 10,204.5
--------- ---------
CURRENT LIABILITIES
Current redeemable preferred stock subject to mandatory
redemption -- 43.0
Current portion of long-term debt 1,232.6 423.6
Short-term borrowings 913.1 1,854.3
Accounts payable 521.6 613.4
Dividends declared on common and preferred stocks 1.1 1.8
Customer deposits 65.2 50.3
Taxes accrued 242.1 247.5
Interest accrued 88.3 79.6
Overrecovered gas and fuel costs 13.1 49.3
Price risk management liabilities 44.9 243.1
Exchange gas payable 411.9 287.2
Current deferred revenue 130.2 89.0
Other accruals 513.3 669.1
--------- ---------
Total Current Liabilities 4,177.4 4,651.2
--------- ---------
OTHER LIABILITIES AND DEFERRED CREDITS
Price risk management liabilities 3.2 10.8
Deferred income taxes 1,861.7 1,725.0
Deferred investment tax credits 96.3 105.3
Deferred credits 145.0 133.5
Noncurrent deferred revenue 305.4 435.4
Accrued liability for postretirement and pension benefits 417.2 288.9
Liabilities of discontinued operations 2.1 18.3
Other noncurrent liabilities 265.8 261.5
--------- ---------
Total Other 3,096.7 2,978.7
--------- ---------
COMMITMENTS AND CONTINGENCIES -- --
--------- ---------
TOTAL CAPITALIZATION AND LIABILITIES $16,896.9 $17,834.4
--------- ---------
49
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
Year Ended December 31, (in millions) 2002 2001 2000
-------- -------- --------
OPERATING ACTIVITIES
Net income $ 372.5 $ 216.2 $ 150.9
Adjustments to reconcile net income to net cash from
continuing operations:
Depreciation, depletion, and amortization 574.0 641.3 376.1
Net changes in price risk management activities (22.3) (42.0) (89.8)
Asset impairment -- 0.1 65.8
Deferred income taxes and investment tax credits 114.1 (37.0) 35.2
Deferred revenue (88.9) (425.1) (8.0)
Stock Compensation expense 27.1 30.0 6.8
Gain on sale of assets (27.2) (11.0) (55.4)
Income from change in accounting -- (4.0) --
Gain on sale of discontinued operations 43.8 -- --
Income from discontinued operations 9.4 14.2 (9.0)
Other, asset items (6.5) (49.1) 17.6
Other, liability items 27.0 24.5 9.4
Changes in assets and liabilities, net of effect from acquisitions of
businesses:
Accounts receivable, net 102.7 551.5 (754.3)
Inventories 66.8 (73.3) 13.0
Accounts payable (91.6) (495.5) 629.4
Taxes accrued (5.4) 142.1 (51.1)
(Under) Overrecovered gas and fuel costs (51.5) 312.3 (198.5)
Exchange gas receivable/payable 190.7 355.8 58.6
Other accruals (136.5) 157.0 (131.5)
Other assets 44.7 (267.2) (79.1)
Other liabilities 45.7 53.5 (16.8)
-------- -------- --------
Net Cash Flows from Continuing Operations 1,188.6 1,094.3 (30.7)
Net Cash Flows from Discontinued Operations (16.2) (34.0) (28.7)
-------- -------- --------
Net Cash Flows from Operating Activities 1,172.4 1,060.3 (59.4)
-------- -------- --------
INVESTING ACTIVITIES
Capital expenditures (621.9) (644.1) (357.3)
Acquisition of businesses -- -- (5,654.5)
Proceeds from disposition of assets 419.2 227.9 535.2
Other investing activities -- (7.0) 9.2
-------- -------- --------
Net Cash Flows from Investing Activities (202.7) (423.2) (5,467.4)
-------- -------- --------
FINANCING ACTIVITIES
Issuance of long-term debt -- 300.0 2,629.3
Retirement of long-term debt (532.1) (93.0) (488.1)
Change in short-term debt (941.2) (642.5) 1,655.4
Retirement of preferred shares (46.7) (1.1) (6.9)
Issuance of common stock 734.9 15.1 2,042.1
Acquisition of treasury stock (6.9) -- (65.9)
Dividends paid - common shares (241.5) (239.0) (131.8)
-------- -------- --------
Net Cash Flows from Financing Activities (1,033.5) (660.5) 5,634.1
-------- -------- --------
Increase (decrease) in cash and cash equivalents (63.8) (23.4) 107.3
Cash and cash equivalents at beginning of year 118.1 141.5 34.2
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 54.3 $ 118.1 $ 141.5
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized 496.6 518.0 244.5
Interest capitalized 4.3 4.3 3.9
Cash paid for income taxes 118.8 250.2 227.0
-------- -------- --------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
50
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
STATEMENTS OF CONSOLIDATED CAPITALIZATION
As of December 31, (in millions) 2002 2001
--------- ---------
Common shareholders'
equity $ 4,174.9 $ 3,469.4
--------- ---------
Preferred Stocks, which are redeemable solely at option of issuer:
Northern Indiana Public Service Company -- Cumulative preferred stock --
$100 par value --
4-1/4% series -- 209,035 outstanding 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 on preferred stock and other 0.3 2.8
Cumulative preferred stock -- no par value -- Adjusted rate series A
(stated value -- $50 per share),
473,285 shares outstanding 23.6 23.6
--------- ---------
Series without mandatory redemption provisions 81.1 83.6
--------- ---------
Redeemable Preferred Stocks, subject to mandatory redemption requirements or
whose redemption is outside the control of issuer:
Northern Indiana Public Service Company -- Cumulative preferred stock --
$100 par value --
7-3/4% series -- 11,136 and 16,690 shares outstanding, respectively 1.1 1.7
8.35% series -- 27,000 and 33,000 shares outstanding, respectively 2.7 3.3
--------- ---------
Series with mandatory redemption provisions 3.8 5.0
--------- ---------
Company-obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely Company debentures 345.0 345.0
--------- ---------
Long-term debt 5,018.0 6,301.5
--------- ---------
TOTAL CAPITALIZATION $ 9,622.8 $10,204.5
--------- ---------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
51
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
STATEMENTS OF CONSOLIDATED LONG-TERM DEBT
As of December 31, (in millions) 2002 2001
-------- --------
NiSource Inc.:
Debentures due November 1, 2006, with interest imputed at 5.88% (SAILS(SM)) $ 126.0 $ 116.9
-------- --------
Bay State Gas Company:
Medium-Term Notes--
Interest rates between 6.26% and 9.20% with a weighted average interest
rate of 7.08% and maturities between June 21, 2005 and
February 15, 2028 80.5 95.5
Northern Utilities:
Medium-Term Note--Interest rate of 6.93% and maturity of September 1, 2010 5.8 5.8
Medium-Term Note--Interest rate of 9.70% and maturity of September 1, 2031 -- 13.0
-------- --------
Total long-term debt of Bay State Gas Company 86.3 114.3
-------- --------
Columbia Energy Group:
Debentures--
6.80% Series C - due November 28, 2005 281.5 281.5
7.05% Series D - due November 28, 2007 281.5 281.5
7.32% Series E - due November 28, 2010 281.5 281.5
7.42% Series F - due November 28, 2015 281.5 281.5
7.62% Series G - due November 28, 2025 229.2 229.2
Fair value adjustment of debentures for interest rate swap agreements 30.6 --
-------- --------
Total 1,385.8 1,355.2
Unamortized discount on long-term debt (108.0) (118.7)
Subsidiary debt--Capital lease obligations 2.0 2.2
-------- --------
Total long-term debt of Columbia Energy Group 1,279.8 1,238.7
-------- --------
Primary Energy, Inc.
Long-Term Notes--
Whiting Clean Energy, Inc.--Interest rate of 8.18% and maturity of June 20, 2011 302.4 284.4
Ironside--Interest rate of 8.00% and maturity of September 30, 2012 -- 60.7
Capital Lease Obligation--
Portside Energy Corporation 51.0 52.5
Cokenergy, Inc. 117.6 123.1
-------- --------
Total long-term debt of Primary Energy, Inc. 471.0 520.7
-------- --------
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
-------- --------
Indianapolis Water Company:
Medium-term notes--
Medium-Term Notes--Interest rates of 5.99% and 6.61% with a weighted
average interest rate of 6.34% and maturities of
February 1, 2009 and February 1, 2019 -- 80.0
-------- --------
Total long-term debt of Indianapolis Water Company -- 80.0
-------- --------
NiSource Development Company, Inc.:
NDC Douglas Properties, Inc.--Notes Payable--
Interest rate between 7.69% and 8.38% with a weighted average interest rate
of 8.11% and various maturities between
January 1, 2004 and January 1, 2008 5.1 8.2
-------- --------
Total long-term debt of NiSource Development Company, Inc. 5.1 8.2
-------- --------
52
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
STATEMENTS OF CONSOLIDATED LONG-TERM DEBT (CONTINUED)
As of December 31, (in millions) 2002 2001
-------- --------
NiSource Finance Corp.:
Long-Term Notes--
5-3/4% - due April 15, 2003 -- 300.0
7-1/2% - due November 15, 2003 -- 750.0
7-5/8% - due November 15, 2005 900.0 900.0
7-7/8% - due November 15, 2010 1,000.0 1,000.0
Unamortized discount on long-term debt (13.6) (20.4)
-------- --------
Total long-term debt of NiSource Finance Corp, Inc. 1,886.4 2,929.6
-------- --------
Northern Indiana Public Service Company:
First mortgage bonds--
Series NN, 7.10% - due July 1, 2017 55.0 55.0
Pollution control notes and bonds--
Issued at interest rates between 1.14% and 1.40%, with a weighted average
interest rate of 1.28% and various maturities between
November 1, 2007 and April 1, 2019 223.0 229.0
Medium-term notes--
Issued at interest rates between 6.50% and 7.69%, with a weighted average
interest rate of 7.19% and various maturities between
July 8, 2004 and August 4, 2027 437.5 561.5
Unamortized premiums and discount on long-term debt, net (2.1) (2.4)
-------- --------
Total long-term debt of Northern Indiana Public Service Company 713.4 843.1
-------- --------
Total long-term debt, excluding amount due within one year $5,018.0 $6,301.5
-------- --------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
53
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
STATEMENTS OF CONSOLIDATED COMMON STOCKHOLDERS' EQUITY
ADDITIONAL ACCUM
COMMON TREASURY PAID-IN RETAINED OTHER COMP COMP
(in millions) STOCK STOCK CAPITAL EARNINGS OTHER INCOME TOTAL INCOME
------- -------- -------- ---------- ------ ---------- -------- ------
BALANCE JANUARY 1, 2000 $ 870.9 $ (472.5) $ 174.4 $ 774.4 $ 1.1 $ 5.1 $1,353.4
------- -------- -------- ---------- ------ ---------- -------- ------
Comprehensive Income:
Net Income 150.9 150.9 $150.9
Other comprehensive income, net of tax:
Gain/loss on available for sale securities:
Unrealized (3.2) (3.2) (3.2)
Realized 2.1 2.1 2.1
Gain/loss on foreign currency translation:
Unrealized 0.4 0.4 0.4
------- -------- -------- ---------- ------ ---------- -------- ------
Total comprehensive income $150.2
Dividends:
Common stock (98.3) (98.3)
Treasury stock acquired (65.9) (65.9)
Issued:
Columbia acquisition 0.7 1,760.5 1,761.2
Reduction of credit facility 0.1 280.8 280.9
Long-term incentive plan -- 22.7 14.4 (26.2) 10.9
Formation of new NiSource (869.7) 515.1 354.6 --
Amortization of unearned compensation 6.8 6.8
Equity contract costs 7.7 7.7
Other 0.6 4.9 (3.3) 2.2
------- -------- -------- ---------- ------ ---------- -------- ------
BALANCE DECEMBER 31, 2000 $ 2.0 $ 0.0 $2,597.3 $ 823.7 $(18.3) $ 4.4 $3,409.1
------- -------- -------- ---------- ------ ---------- -------- ------
Comprehensive Income:
Net Income 216.2 216.2 $216.2
Other comprehensive income, net of tax:
Gain/loss on available for sale securities:
Unrealized (3.2) (3.2) (3.2)
Realized 0.8 0.8 0.8
Gain/loss on foreign currency translation:
Unrealized (0.9) (0.9) (0.9)
Net unrealized gains on derivatives
qualifying as cash flow hedges 50.1 50.1 50.1
------- -------- -------- ---------- ------ ---------- -------- ------
Total comprehensive income $263.0
Dividends:
Common stock (239.7) (239.7)
Treasury stock acquired
Issued:
Employee stock purchase plan 1.3 1.3
Long-term incentive plan 0.1 40.6 (31.5) 9.2
Amortization of unearned compensation 30.0 30.0
Equity contract costs (1.9) (1.9)
Other (1.6) (1.6)
------- -------- -------- ---------- ------ ---------- -------- ------
BALANCE DECEMBER 31, 2001 $ 2.1 $ 0.0 $2,637.3 $ 798.6 $(19.8) $ 51.2 $3,469.4
------- -------- -------- ---------- ------ ---------- -------- ------
Comprehensive Income:
Net Income 372.5 372.5 $372.5
Other comprehensive income, net of tax:
Gain/loss on available for sale securities:
Unrealized (6.0) (6.0) (6.0)
Realized 0.3 0.3 0.3
Net unrealized gains on derivatives
qualifying as cash flow hedges 17.7 17.7 17.7
Minimum pension liability adjustment (203.7) (203.7) (203.7)
------- -------- -------- ---------- ------ ---------- -------- ------
Total comprehensive income $180.8
Dividends:
Common stock (240.8) (240.8)
Treasury stock acquired (6.9) (6.9)
Issued:
Common stock issuance 0.4 734.3 734.7
Employee stock purchase plan 0.9 0.9
Long-term incentive plan 17.0 (0.7) 16.3
Amortization of unearned compensation 19.9 19.9
Other 0.6 0.6
------- -------- -------- ---------- ------ ---------- -------- ------
BALANCE DECEMBER 31, 2002 $ 2.5 $ (6.9) $3,389.5 $ 930.9 $ (0.6) $ (140.5) $4,174.9
------- -------- -------- ---------- ------ ---------- -------- ------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
54
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
STATEMENTS OF CONSOLIDATED COMMON STOCKHOLDERS' EQUITY (CONTINUED)
COMMON TREASURY
SHARES (IN THOUSANDS) SHARES SHARES
------- --------
BALANCE JANUARY 1, 2000 147,784 (23,645)
------- -------
Treasury stock acquired (3,971)
Issued:
Columbia acquisition 72,453 --
Stock issuance 11,500 --
Employee stock purchase plan -- 62
Long-term incentive plan 226 1,144
Treasury stock cancelled (26,410) 26,410
------- -------
BALANCE DECEMBER 31, 2000 205,553 --
------- -------
Issued:
Employee stock purchase plan 46 --
Long-term incentive plan 1,893 --
------- -------
BALANCE DECEMBER 31, 2001 207,492 --
------- -------
Treasury stock acquired (350)
Issued:
Stock issuance 41,400
Employee stock purchase plan 43 --
Long-term incentive plan 275 --
------- -------
BALANCE DECEMBER 31, 2002 249,210 (350)
------- -------
55
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. HOLDING COMPANY STRUCTURE
NiSource Inc. (NiSource), a Delaware corporation, is a holding company whose
subsidiaries provide natural gas, electricity and other products and services to
approximately 3.7 million customers located within a corridor that runs from the
Gulf Coast through the Midwest to New England. 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 holding company registered under
the Public Utility Holding Company Act of 1935, as amended. NiSource derives
substantially all of 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, certain joint ventures and limited partnership
interests of more than 3% are accounted for under the equity method. Except
where noted above, investments with less than a 20% interest are accounted for
under the cost method.
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 shares of common stock outstanding for the period.
The weighted average shares outstanding for diluted EPS include the incremental
effects of the various long-term incentive compensation plans and the forward
equity contracts associated with the Stock Appreciation Income Linked
Securities(SM) (SAILS(SM)) and the Corporate Premium Income Equity Securities
(Corporate PIES).
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 2002 2001 2000
------- ------- -------
Denominator (thousands)
Basic average common shares outstanding 211,009 205,300 134,470
Dilutive potential common shares
Nonqualified stock options 130 575 307
Shares contingently issuable under employee stock plans 880 1,723 410
SAILS(SM) 458 1,251 --
Shares restricted under employee stock plans 297 847 624
Corporate PIES -- 61 --
------- ------- -------
Diluted Average Common Shares 212,774 209,757 135,811
------- ------- -------
C. CASH AND CASH EQUIVALENTS. NiSource considers all investments with
original maturities of three months or less to be cash equivalents. NiSource
reports amounts deposited in brokerage accounts for margin requirements in the
restricted cash balance sheet caption.
D. BASIS OF ACCOUNTING FOR RATE-REGULATED SUBSIDIARIES. NiSource's
rate-regulated subsidiaries follow the accounting and reporting requirements of
Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the
Effects of Certain Types of Regulation" (SFAS No. 71). 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 it is probable that such rates can be charged and
collected. 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.
56
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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. If transition cost recovery was
approved by the appropriate regulatory bodies that would meet the requirements
under generally accepted accounting principles for continued accounting as
regulatory assets and liabilities during such recovery period, the regulatory
assets and liabilities would be reported at the recoverable amounts. If unable
to continue to apply the provisions of SFAS No. 71, NiSource would be required
to apply the provisions of SFAS No. 101, "Regulated Enterprises - Accounting for
the Discontinuation of Application of Financial Accounting Standards Board
(FASB) Statement No. 71." In management's opinion, NiSource's regulated
subsidiaries will be subject to SFAS No. 71 for the foreseeable future.
Regulatory assets and liabilities were comprised of the following items:
At December 31, (in millions) 2002 2001
------ ------
ASSETS
Reacquisition premium on debt $ 29.4 $ 32.7
R. M. Schahfer Unit 17 and Unit 18 carrying charges and
deferred depreciation (see Note 2G) 45.4 49.7
Bailly scrubber carrying charges and deferred depreciation
(see Note 2G) 5.2 6.1
Postemployment and other postretirement costs (see Note 11) 179.5 198.6
Retirement income plan costs 16.8 15.5
Environmental costs 56.4 73.5
Regulatory effects of accounting for income taxes (See Note 2R) 232.4 169.9
Underrecovered gas and fuel costs 149.9 134.6
Depreciation (see Note 2G) 85.3 64.5
Uncollectible accounts receivable deferred for future recovery 22.5 19.5
Other 83.8 62.2
------ ------
TOTAL ASSETS $906.6 $826.8
------ ------
LIABILITIES
Rate refunds and reserves $ 10.2 $ 15.1
Overrecovered gas and fuel costs 13.1 49.3
Regulatory effects of accounting for income taxes 73.2 75.5
Other 12.8 18.3
------ ------
TOTAL LIABILITIES $109.3 $158.2
------ ------
Regulatory assets of approximately $482.4 million are not presently included in
rate base and consequently are not earning a return on investment. These
regulatory assets are being recovered as components of cost of service over
periods generally ranging from 1 to 12 years. Regulatory assets of approximately
$157.3 million require specific rate action.
E. UTILITY PLANT AND OTHER PROPERTY AND RELATED DEPRECIATION AND MAINTENANCE.
Property, plant and equipment (principally utility plant) are stated at cost.
The rate-regulated subsidiaries record depreciation using composite rates on a
straight-line basis over the remaining service lives of the electric, gas and
common properties.
For rate-regulated companies, an allowance for funds used during construction
(AFUDC) is capitalized on all classes of property except organization, land,
autos, office equipment, tools and other general property purchases. The
allowance is applied to construction costs for that period of time between the
date of the expenditure and the date on which such project is completed and
placed in service. For non-regulated companies, interest during construction
(IDC) is capitalized pursuant to SFAS No. 34, "Capitalization of Interest Cost."
The pre-tax rates for AFUDC and IDC were 2.8% and 7.5% in 2002, 6.6% and 6.8% in
2001, and 6.4% and 6.8% in 2000. The decline in the 2002 AFUDC rate, as compared
with 2001, was due to lower short-term interest rates and the use of short-term
borrowings to fund construction efforts.
57
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The depreciation provisions for utility plant, as a percentage of the original
cost, for the periods ended December 31, 2002, 2001 and 2000 were as follows:
2002 2001 2000
---- ---- ----
Electric 3.6 3.7 3.7
Gas 3.0 3.0 4.6
---- ---- ----
The cogeneration facilities owned or owned in-substance by Primary Energy, Inc.
(Primary Energy) are being depreciated on a straight-line basis over a 40-year
useful life.
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 (mainly Bay State), net of accumulated
depreciation. These amounts were $522.7 million and $535.2 million at December
31, 2002, and December 31, 2001, respectively, and are being amortized over
forty-year periods from the respective dates of acquisition.
F. GAS AND OIL PRODUCING PROPERTIES. NiSource accounts for the acquisition,
exploration and development activities related to oil and gas reserves using
the successful efforts method. Under the successful efforts method of
accounting,except for property acquisition costs, only costs associated with
specific discovered reserves are capitalized. Capitalized costs include mineral
interests in properties, wells and related equipment and facilities. support
equipment, and uncompleted wells, Duplerion expense is equal to annual
production multiplied by the depletion rate per unit that is derived by
spreading the total costs capitalized under successful efforts over the number
of units expected to be extracted over the life of the reserves on a lease
basis.
G. CARRYING CHARGES AND DEFERRED DEPRECIATION. Upon completion of units 17
and 18 at the R. M. Schahfer Generating Station, 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), pending the inclusion of the cost of each unit in rates. Such
carrying charges and deferred depreciation are being amortized over the
remaining service 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 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 and, accordingly, a
regulatory asset has been established for the difference. The amount of
depreciation that would have been recorded for 2002 had Columbia of Ohio not
been subject to rate regulation was $35.0 million, a $20.8 million increase over
the $13.4 million reflected in rates. The amount of depreciation that would have
been recorded for 2001 had Columbia of Ohio not been subject to rate regulation
was $37.1 million, a $24.5 million increase over the $12.6 million reflected in
rates. The balance of the regulatory asset was $85.3 million as of December 31,
2002.
58
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 each project in accordance with Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." 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. The excess of cost over the fair value of the net
assets acquired in the Columbia acquisition was recorded as goodwill. Although
the goodwill was being amortized over forty years, beginning January 1, 2002
goodwill amortization was discontinued pursuant to SFAS No. 142, "Goodwill and
Other Intangible Assets" (SFAS No. 142). Goodwill assets of $3.7 billion were
reported at December 31, 2002. In addition, NiSource had approximately $57.3
million of intangible assets recorded at December 31, 2002, which reflected the
additional minimum liability associated with the unrecognized service cost of
the pension plans pursuant to SFAS No. 87, "Employers' Accounting for Pensions."
J. REVENUE RECOGNITION. With the exception of amounts recognized for energy
trading activities, revenues are recorded as products and services are
delivered. Utility revenues are billed to customers monthly on a cycle basis.
Revenues are recorded on the accrual basis and include estimates for electricity
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 commodities.
Revenues relating to energy trading operations are recorded based upon changes
in the fair values, net of reserves, of the related energy trading contracts.
Changes in the fair values of energy trading contracts are recognized in
revenues net of associated costs. Transactions resulting in physical delivery
are recorded on a gross basis with related costs recognized in cost of sales.
Beginning with financial statements issued for the first quarter 2003, NiSource
will display revenues associated with trading activities net of related costs
pursuant to EITF Issue No. 02-03 "Issues Involved in Accounting for Derivative
Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and
Risk Management Activities" (EITF No. 02-03), whether or not resulting in
physical delivery. All periods will be adjusted to conform to the net
presentation.
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 reflects management's current judgment of the ultimate outcomes 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 accounts receivable in the accompanying
consolidated balance sheets and as operating cash flows in the accompanying
statements of consolidated cash flows. The costs of these programs, 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 accounting principles generally accepted in the United States 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 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
costs in a given three-month period will be included in a future filing. The
differences are recognized in income when rates are adjusted to accommodate the
differences. Northern
59
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Indiana records any under-recovery or over-recovery as a current regulatory
asset or 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
most 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. The application of different methodologies is due to the acquisition
of Bay State Gas Company (Bay State). Bay State uses the weighted average cost
of gas method, as approved by state regulators, in setting its rates while both
Northern Indiana and the Columbia subsidiaries use the LIFO methodology when
setting rates in their respective jurisdictions. Inventory valued using LIFO was
$230.2 million and $300.4 million at December 31, 2002, and December 31, 2001,
respectively. Based on the average cost of gas using the LIFO method, the
estimated replacement cost of gas in storage at December 31, 2002 and December
31, 2001, exceeded the stated LIFO cost by $281.6 million and $71.2 million,
respectively. Inventory valued using the weighted average methodology was $25.1
million at December 31, 2002 and $77.3 million at December 31, 2001.
Additionally, at December 31, 2001 EnergyUSA-TPC (TPC) had natural gas in
storage at a fair value of $30.1 million reflected in price risk management
assets.
Q. ACCOUNTING FOR RISK MANAGEMENT ACTIVITIES. SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activity" (SFAS No. 133), establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 requires an entity to
recognize all derivatives as either assets or liabilities on the balance sheet
at fair value, unless such contracts are exempted as normal under the provisions
of the standard. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and resulting designation.
NiSource adopted SFAS No. 133 effective January 1, 2001, resulting in a
cumulative after-tax increase to net income of approximately $4.0 million and an
after-tax reduction to other comprehensive income of approximately $17.0
million.
If certain conditions are met, a derivative may be specifically designated as
(a) a hedge of the exposure to changes in the fair value of a recognized asset
or liability or an unrecognized firm commitment, or (b) a hedge of the exposure
to variable cash flows of a forecasted transaction. In order for a derivative
contract to be designated as a hedge, the relationship between the hedging
instrument and the hedged item or transaction must be highly effective. The
effectiveness test is performed at the inception of the hedge and each reporting
period thereafter, throughout the period that the hedge is designated. Any
amounts determined to be ineffective are recognized currently in earnings.
Unrealized and realized gains and losses are recognized each period as
components of other comprehensive income, regulatory assets and liabilities or
earnings depending on the nature of such derivatives. For subsidiaries that
utilize derivatives for cash flow hedges, the effective portions of the gains
and losses are recorded to other comprehensive income and are recognized in
earnings concurrent with the disposition of the hedged risks. If a forecasted
transaction corresponding to a cash flow hedge is not expected to occur, the
accumulated gains or losses on the derivative are recognized currently in
earnings. For fair value hedges, the gains and losses are recorded in earnings
each period along with the change in the fair value of the hedged item. As a
result of the rate-making process, the rate-regulated subsidiaries generally
record gains and losses as regulatory liabilities or assets and recognize such
gains or losses in earnings when accommodated in rates.
Energy trading activities refers to energy contracts entered into with the
objective of generating profits on, or from exposure to, shifts or changes in
market prices. NiSource evaluates the contracts of its trading operations in
accordance with the criteria for derivative contracts under SFAS No. 133.
Through 2002, trading contracts not meeting the criteria to be accounted for as
derivatives under SFAS No. 133 were recorded at fair value under EITF Issue No
98-10, "Accounting for Energy Trading and Risk Management Activities" (EITF No.
98-10). EITF No. 98-10 indicates that when certain trading criteria are met,
energy contracts, including "energy-related contracts" such as tolling,
transportation and storage contracts, should be accounted for at fair value
(marked to market) along with any related derivative contracts. The resulting
gains and losses resulting from marking the contracts to fair value are included
currently in earnings. During an October 25, 2002 EITF meeting, EITF No. 98-10
was rescinded effective immediately for contracts entered into after that date,
and beginning January 1, 2003 for existing trading contracts.
60
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
R. INCOME TAXES AND INVESTMENT TAX CREDITS. NiSource records income taxes to
recognize full interperiod tax allocations. Under the liability method, 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 tax bases 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 to regulatory policy.
S. ENVIRONMENTAL EXPENDITURES. NiSource accrues for costs associated with
environmental remediation obligations when the incurrence of such costs is
probable and the amounts can be reasonably estimated, regardless of when the
expenditures are actually made. The undiscounted estimated future expenditures
are based on currently enacted laws and regulations, existing technology and
site-specific costs. The liability is adjusted as further information is
discovered or circumstances change. Rate-regulated subsidiaries applying SFAS
No. 71 establish regulatory assets 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. SFAS 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.
The fair value method would require the amortization of the fair value of
stock-based compensation at the date of grant over the related vesting period.
NiSource continues to apply the intrinsic value method of Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No.
25), for awards granted under its stock-based compensation plans. The following
table illustrates the effect on net income and EPS as if NiSource had applied
the fair value recognition provisions of SFAS No. 123 to stock-based employee
compensation.
Year Ended December 31, ($ in millions, except per share data) 2002 2001 2000
----- ----- -----
NET INCOME
As reported 372.5 216.2 150.9
Less: Total stock-based employee compensation expense
determined under the fair value based method for all
awards, net of tax 6.4 6.1 2.7
Pro forma 366.1 210.1 148.2
EARNINGS PER SHARE
Basic - as reported 1.77 1.05 1.12
- pro forma 1.74 1.02 1.10
Diluted - as reported 1.75 1.03 1.11
- pro forma 1.72 1.00 1.09
----- ----- -----
U. SYNTHETIC LEASES RELATED TO COGENERATION PROJECTS. Primary Energy is
currently involved in six projects, which produce electricity, steam or thermal
energy on the sites of industrial customers. Five projects generate energy from
process streams or fuel provided by the industrial customers. The energy is then
delivered to the industrial customers under long-term contracts providing for
tolling fees or processing fees. One project, Whiting Clean Energy, uses natural
gas to produce electricity for sale in the wholesale markets and is expected to
provide steam for industrial use. While two projects, Ironside and North Lake,
are now directly owned by NiSource, generally the facilities are owned by
unaffiliated special purpose entities.
Prior to the issuance of the June 30, 2002 financial statements, the assets and
related debt associated with these projects were not included in NiSource's
consolidated financial statements, which treatment was approved by NiSource's
former independent public accountants. However, NiSource determined in
consultation with Deloitte & Touche, its independent public accountants, that
certain language contained in the operative agreements for four of the projects
did not support characterization of those transactions as off-balance-sheet
operating leases under EITF Issue No. 97-1, "Implementation Issues in Accounting
for Lease Transactions, Including Those Involving Special Purpose Entities," and
EITF Issue No. 97-10 "The Effect of Lessee Involvement in Asset Construction"
(EITF No. 97-10). Certain provisions in the operative documents for two
transactions (Whiting Clean Energy and Ironside), which were subject to EITF No.
97-10, could be interpreted to transfer substantial construction period risks to
the lessee, resulting in Primary Energy being deemed the owner of the projects.
Certain provisions in the other two
61
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
leases (Cokenergy and Portside) could be interpreted to require the inclusion of
certain default-related obligations in minimum lease payments, resulting in the
characterization of those leases as capital leases.
At June 30, 2002, as a result of this determination, NiSource changed the
characterization of the leases associated with the four projects from synthetic
leases to assets owned in substance (for Whiting Clean Energy and Ironside) and
capital leases (for Cokenergy and Portside) for financial reporting purposes.
As of December 31, 2002, NiSource recognized approximately $491.0 million of
assets and the related debt on its balance sheet related to the projects
remaining under leases. The comparative 2001 balance sheet has been adjusted to
conform to the 2002 presentation. The cumulative effect of the change in
characterization of $4.1 million after-tax was recognized in income in 2002.
One project (Lakeside) continues to be accounted for as an off-balance-sheet
synthetic lease. Beginning in the third quarter of 2003, the special purpose
entity will likely be consolidated by NiSource as a variable interest entity
under Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN
46). See Note 6 for further information.
V. EXCISE TAXES. NiSource accounts for excise taxes that are customer
liabilities by separately stating on its invoices the tax to its customers and
recording amounts invoiced as liabilities payable to the applicable taxing
jurisdiction. These types of taxes, comprised largely of sales taxes collected,
are presented on a net basis affecting neither revenues nor cost of sales.
NiSource accounts for other taxes for which it is liable by recording a
liability for the expected tax with a corresponding charge to "Other Taxes"
expense.
W. EQUITY FORWARD CONTRACTS. NiSource accounts for equity forward contracts
on its own common shares as permanent equity consistent with the provisions of
EITF Issue No. 00-19, "Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Company's Own Stock" (EITF No. 00-19).
Accordingly, such contracts are recorded in equity at fair value at the date of
inception and changes in fair value are not recognized as long as the contracts
continue to be classified as equity.
3. ACQUISITIONS
On November 1, 2000, NiSource completed its acquisition of Columbia for an
aggregate consideration of approximately $6 billion, primarily consisting of
$3,888 million in cash, 72.4 million shares of common stock valued at $1,761
million 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 accounted for the acquisition in accordance with the purchase method of
accounting. The excess of the aggregate purchase price over the estimated fair
value of the net assets acquired, approximately $3.8 billion, has been reflected
as goodwill in the consolidated financial statements. The goodwill was being
amortized on a straight-line basis over forty years through 2001; however, the
amortization was discontinued effective January 1, 2002 pursuant to the adoption
of SFAS No. 142. The remaining goodwill balances were $3,707.6 million and
$3,735.7 million at December 31, 2002 and December 31, 2001, respectively.
On a pro forma basis, NiSource's consolidated results of operations for the
twelve months ended December 31, 2000, assuming the acquisition of Columbia had
occurred on January 1, 2000, would have been:
UNAUDITED
Twelve Months Ended December 31, ($ in millions) 2000
-------
Gross revenues 8,069.7
Operating income 1,001.8
Net income 131.3
-------
62
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. RESTRUCTURING ACTIVITIES
During 2000, NiSource developed and began the implementation of a plan to
restructure its operations. The restructuring plan included a severance program,
a transition plan to implement operational efficiencies throughout NiSource's
operations and a voluntary early retirement program. During 2001, the
restructuring initiative was continued with the addition of a plan to
restructure the operations within NiSource's Gas Distribution and Electric
Operations segments. In December 2001, NiSource announced its plan to
indefinitely shut down the Dean H. Mitchell Generating Station located in Gary,
Indiana.
During 2002, NiSource developed a new reorganization initiative, which resulted
in the elimination of approximately 450 positions throughout the organization
mainly affecting executive and other management-level employees. NiSource
accrued approximately $41.3 million of salaries and benefits associated with the
eliminated positions during 2002. As of December 31, 2002, 246 of the
approximately 450 employees were terminated.
For all of the plans, a total of approximately 1,750 management, professional,
administrative and technical positions have been identified for elimination. As
of December 31, 2002, approximately 1,400 employees had been terminated, of whom
approximately 670 employees were terminated during 2002. At December 31, 2002
and December 31, 2001, the consolidated balance sheets reflected liabilities of
$49.6 million and $58.3 million related to the restructuring plans,
respectively. During 2002, 2001 and 2000, $36.7 million, $29.4 million and $7.6
million of benefits were paid as a result of the restructuring plans,
respectively. Additionally, during 2002, the restructuring plan liability was
reduced by $13.3 million due to a reduction in estimated expenses related to
previous reorganization initiatives. The net pretax charge for 2002 was $28.0
million. NiSource accrued approximately $28.7 million and $6.1 million during
2001 and 2000, respectively.
5. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
During the fourth quarter of 2002, NiSource decided to exit the
telecommunications business. The results of operations related to Columbia
Transmission Communications Corporation (Transcom) were displayed as
discontinued operations for all periods presented and were reflected as net
assets and net liabilities of discontinued operations on the consolidated
balance sheet at December 31, 2002.
On April 30, 2002, NiSource sold the water utility assets of the Indianapolis
Water Company (IWC) and other assets of IWC Resources Corporation and its
subsidiaries to the City of Indianapolis for $540.0 million, which included
$157.5 million in IWC debt and the redemption of $2.5 million of IWC preferred
stock. As a result of this transaction, NiSource recorded an after-tax gain of
$7.5 million in the second quarter 2002. The gain included a tax benefit of
$33.2 million resulting from the reduction of a deferred tax liability no longer
required. NiSource also sold its interest in White River Environmental
Partnership (WREP), which was an IWC investment, to the other partners for $8.0
million. The sales price of WREP approximated book value. The divestiture of the
water utilities was required as part of the order of the U.S. Securities and
Exchange Commission approving the November 2000 acquisition of Columbia. The
water utilities' operations are reported as discontinued operations.
Results from discontinued operations of Transcom and the water utilities are
provided in the following table:
Twelve months ended December 31, ($ in millions) 2002 2001 2000
----- ----- -----
REVENUES FROM DISCONTINUED OPERATIONS 32.7 106.3 104.8
----- ----- -----
Income (Loss) from discontinued operations (18.5) (18.9) 30.5
Income taxes (9.1) (4.7) 21.5
----- ----- -----
NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS (9.4) (14.2) 9.0
----- ----- -----
On January 28, 2003, NiSource announced that its subsidiary Columbia Natural
Resources, Inc. (CNR) sold its interest in a natural gas exploration and
production joint venture in New York State representing 39.3 billion cubic feet
(Bcf) in reserves and approximately 6.0 Bcf of production for approximately
$95.0 million. The assets of CNR's interest in the joint venture are reported as
assets held for sale on the consolidated balance sheet at December 31, 2002.
63
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On July 1, 2002, TPC, a wholly-owned subsidiary, sold its net obligations under
a significant portion of its gas forward transaction portfolio, physical storage
inventory and associated agreements to a third party. In accordance with the
terms of the agreement, NiSource paid $6.8 million to settle the net
obligations. As a result of the sale, a $3.1 million pre-tax gain was recorded
in the third quarter 2002.
On January 28, 2002, NiSource sold all of the issued and outstanding capital
stock of SM&P Utility Resources, Inc. (SM&P), a wholly-owned subsidiary of
NiSource, to The Laclede Group, Inc. for $37.9 million. SM&P operates an
underground line locating and marking service in ten midwestern states. In the
first quarter 2002, NiSource recognized an after-tax gain of $12.5 million
related to the sale. The net assets of SM&P were reported as assets held for
sale on the consolidated balance sheet at December 31, 2001.
On August 21, 2001, Columbia sold Columbia Propane Corporation and its
subsidiaries to AmeriGas Partners L.P. for approximately $196.0 million,
consisting of $152.0 million of cash and $44.0 million of AmeriGas partnership
common units. On December 11, 2001, NiSource sold the common units in a public
offering for $48.5 million. NiSource has also sold substantially all the assets
of Columbia Petroleum Corporation, a diversified petroleum distribution company.
The net assets and net liabilities of discontinued operations and net assets and
net liabilities held for sale were as follows:
As of December 31, (in millions) 2002 2001
------ ------
ASSETS (LIABILITIES) HELD FOR SALE AND NET ASSETS OF
DISCONTINUED OPERATIONS
Accounts receivable, net $ 33.7 $ 53.6
Property, plant and equipment, net 36.9 786.1
Other assets 73.6 154.6
Current liabilities (18.1) (146.7)
Debt (4.8) (78.7)
Other liabilities (16.0) (244.3)
------ ------
Assets (Liabilities) Held for Sale and Net Assets of
Discontinued Operations 105.3 524.6
------ ------
LIABILITIES HELD FOR SALE AND LIABILITIES OF
DISCONTINUED OPERATIONS
Current liabilities (2.1) (18.3)
------ ------
Liabilities Held for Sale and Liabilities of Discontinued Operations (2.1) (18.3)
------ ------
NET ASSETS AND NET LIABILITIES HELD FOR SALE AND NET ASSETS
AND NET LIABILITIES OF DISCONTINUED OPERATIONS $103.2 $506.3
------ ------
6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS NOS. 141 AND 142 - BUSINESS COMBINATIONS AND GOODWILL AND OTHER INTANGIBLE
ASSETS. In July 2001, the FASB issued SFAS No. 141, "Business Combinations"
(SFAS No. 141), and SFAS No. 142. The key requirements of the two interrelated
Statements include mandatory use of the purchase method of accounting for
business combinations, discontinuance of goodwill amortization, a revised
framework for testing for goodwill impairment at a "reporting unit" level, and
new criteria for the identification and potential amortization of other
intangible assets. Other changes to existing accounting standards involve the
amount of goodwill to be used in determining the gain or loss on the disposal of
assets and a requirement to test goodwill for impairment at least annually.
The adoption of SFAS No. 142 on January 1, 2002 resulted in an increase in
operating income of $93.1 million for the year ending December 31, 2002,
reflecting the effects of discontinuing the amortization of goodwill. Net income
would have been $309.3 million, or $1.51 per basic share for 2001 and $166.4
million, or $1.24 per basic share for 2000 had NiSource discontinued the
amortization of goodwill effective January 1, 2000. NiSource adopted the
provisions of SFAS No. 141 on July 1, 2001.
64
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Pursuant to the requirements of SFAS No. 142, NiSource has aggregated the
subsidiaries acquired in the acquisition of Columbia into two distinct reporting
units, one within the Gas Distribution segment and one within the Transmission
and Storage segment, for the purpose of testing goodwill for impairment. At
December 31, 2002, goodwill was $1,713.5 million for the Gas Distribution
reporting unit and $1,994.1 million for the Transmission and Storage reporting
unit. NiSource completed its analysis of the transitional goodwill impairment
test as of June 30, 2002. The results indicated that no impairment charge was
required.
SFAS NO. 143 - ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS. In July 2001, the
FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" (SFAS
No. 143). SFAS No. 143 requires entities to record the fair value of a liability
for an asset retirement obligation in the period in which it is incurred. When
the liability is initially recorded, the entity capitalizes the cost, thereby
increasing the carrying amount of the related long-lived asset. Over time, the
liability is accreted, and the capitalized cost is depreciated over the useful
life of the related asset. The rate-regulated subsidiaries will defer the
difference between the amount recognized for depreciation and accretion and
the amount collected in rates as required pursuant to SFAS No. 71. SFAS No. 143
is effective for NiSource beginning January 1, 2003.
NiSource currently estimates that the adoption of SFAS No. 143 on January 1,
2003 will result in the recognition of total asset retirement obligation
liabilities of approximately $54.3 million. The combined amount for depreciation
and accretion for 2003 is estimated to total to $4.4 million of this amount,
$0.9 million is related to rate-regulated subsidiaries and will be deferred as a
regulatory asset. NiSource will also recognize a charge to discontinued
operations of $0.2 million for asset retirement obligations associated with the
telecommunications network.
NiSource undertook an effort to identify the assets impacted by SFAS No.
143, align the assets with types of asset retirement obligations and develop a
plan for measurement of the obligations for each asset group. Retirement
obligations were identified at each of the business segments.
For the Gas Distribution segment, the groups of assets reviewed for retirement
obligations include distribution and service pipelines (almost all of which are
on permanent easements), gas meters, underground gas storage facilities, propane
gas facilities and underground storage tanks. Although the pipelines,
underground gas storage facilities, propane gas facilities and underground
storage tanks on owned property have certain legal obligations to remove the
assets upon retirement, the lives of the assets are presently indeterminate and
therefore, the liabilities are not quantifiable. Regulatory requirements in
certain states require a particular number or percentage of meters be removed
each year. The meters may be refurbished and reused or disposed of. No legal
obligation exists to dispose of the removed meters; therefore, no liability
would be recognized related to retirement obligations for meters. For
underground gas storage tanks on leased property, where a determinate life
exists, the cost to remove and dispose of the tanks is minimal.
Transmission and Storage segment assets include pipelines, storage fields and
wells, storage tanks, compressor stations and offshore pipeline and platform
facilities in the Gulf of Mexico. From an operational viewpoint, the onshore
pipelines, related compressor stations and storage fields and wells presently
have indeterminate lives and, therefore, the liabilities related to retirement
obligations are not quantifiable. The compressor stations have legal obligations
associated with their retirement involving the removal of facilities. The
pipeline facilities are generally on land leased through permanent easements,
which are silent with regard to removal. The pipelines are generally retired in
place. Retirement obligations are quantifiable for the removal of facilities
related to certain storage fields where Federal Energy Regulatory Commission
(FERC) approval for abandonment has been obtained and compressor stations that
have been shut down. Obligations to remove offshore platforms and cut, cap and
fill offshore pipelines exist upon retirement.
The Electric segment has legal or contractual obligations associated with the
retirement of a landfill; a fly ash pond; reservoirs and dams; and the disposal
of certain chemicals and oils used in the substations, transformers, coal
railcars, and oil-filled equipment on electric towers and overhead conductors.
The lives of some of these facilities and equipment are presently indeterminate;
therefore the associated liabilities are not quantifiable. Leased coal railcars
have a determinate life. At the end of the lease terms, NiSource will incur
costs to ensure the proper disposal of oils and return the railcars to
contractually required condition. Water towers at the hydroelectric facilities
are planned for demolition within 2004. Some costs will be incurred for the
removal and disposal of lead-based paints and other contaminants associated with
the towers.
65
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Exploration and Production segment has retirement obligations for compressor
stations, wells and well pipelines on either owned or leased land, treatment and
injection facilities and disposal wells. The compressor stations presently have
indeterminate lives; therefore an estimate of the liability for the associated
retirement obligations is not calculable. The other facilities generally have
determinate lives and liabilities will be measured for the estimated retirement
obligations. NiSource estimates that most of the retirement obligations
associated with its assets will be related to exploration and production assets
primarily due to the large number of wells.
The Other segment includes Primary Energy which has certain legal and
contractual obligations associated with the ground leases related to its
facilities. The obligations generally involve the removal of all buildings and
equipment above and below grade. Two of the projects require the removal of all
buildings and equipment to grade only. Because the assets are subject to ground
leases, the lives are determinate and the liability would be estimable.
SFAS NO. 146 - ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." The Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)" (EITF No. 94-3). The standard will be
effective for exit or disposal activities initiated after December 2002.
NiSource does not expect the Statement to have a material effect on its
financial condition or results of operations. The costs associated with
NiSource's restructuring plans initiated in 2002 were recorded in conformity
with EITF No. 94-3.
EITF ISSUE NO. 02-03 - ISSUES INVOLVED IN ACCOUNTING FOR DERIVATIVE CONTRACTS
HELD FOR TRADING PURPOSES AND CONTRACTS INVOLVED IN ENERGY TRADING AND RISK
MANAGEMENT ACTIVITIES AND EITF ISSUE NO. 98-10 - ACCOUNTING FOR CONTRACTS
INVOLVED IN ENERGY TRADING AND RISK MANAGEMENT ACTIVITIES. On October 25, 2002,
the EITF reached a final consensus in EITF No. 02-03 that gains and losses
(realized or unrealized) on all derivative instruments within the scope of SFAS
No. 133 should be shown net in the income statement, whether or not settled
physically, if the derivative instruments are held for trading purposes. For
purposes of the consensus, energy trading activities encompass contracts entered
into with the objective of generating profits on, or exposure to, shifts in
market prices. This consensus is effective for financial statements issued for
periods beginning after December 15, 2002. Nisource will reevaluate its
portfolio of contracts in order to determine which contracts will be required to
be reported net in accordance with the provisions of the consensus. Although
EITF No. 02-03 will result in equal and offsetting reductions to revenues and
cost of sales, NiSource operating income will remain unchanged for all periods
presented.
The task force also reached a consensus to rescind EITF No. 98-10 and preclude
mark-to-market accounting for energy trading contracts that are not derivatives
pursuant to SFAS No. 133. This consensus will be effective for fiscal periods
beginning after December 15, 2002, for energy trading and energy-related
contracts that existed on or before October 25, 2002 that remain in effect at
the date the consensus is initially applied (January 1, 2003 for NiSource).
Contracts entered into after October 25, 2002, will be analyzed pursuant to a
generally accepted accounting principles hierarchy, excluding EITF No. 98-10.
Since NiSource is no longer involved in gas-related trading activities and has
minimal power trading activities, it does not expect the rescission of EITF No.
98-10 to have a material effect on its financial condition or results of
operations.
FASB INTERPRETATION NO. 45 - GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS
FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS. In
November of 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" (FIN 45). FIN 45 elaborates on the disclosures to be
made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also clarifies that
a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and initial measurement provisions of FIN 45
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The disclosure requirements in FIN 45 are effective for
financial statements of interim or annual periods ending after December 15,
66
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2002. NiSource does not expect FIN 45 to have a material impact on its financial
position or results of operations. Refer to "Other Commitments and Contingencies
- Guarantees and Indemnities" in Note 19D for further discussion of NiSource's
guarantees.
SFAS NO. 148 - ACCOUNTING FOR STOCK-BASED COMPENSATION -- TRANSITION AND
DISCLOSURE. In December of 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure" (SFAS No. 148). SFAS No.
148 amends SFAS No. 123 to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
amendments to SFAS No. 123 are effective for financial statements for fiscal
years ending after December 15, 2002. NiSource adopted the disclosure provisions
of SFAS No. 148 on December 31, 2002 and continues to account for its
stock-based compensation under APB No. 25. The adoption of the Statement had no
impact on NiSource's financial position or results of operations. See Notes 2T
and 14 for further discussion regarding NiSource's stock-based compensation
plans and related accounting matters.
FASB INTERPRETATION NO. 46 - CONSOLIDATION OF VARIABLE INTEREST ENTITIES. On
January 17, 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities". FIN 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or is entitled to receive
a majority of the entity's residual returns. A company that consolidates a
variable interest entity is called the primary beneficiary of that entity. In
general, a variable interest entity is a corporation, partnership, trust, or any
other legal structure used for business purposes that either (a) does not have
equity investors with voting rights, or (b) has equity investors that do not
provide sufficient financial resources for the entity to support its activities.
FIN 46 also requires various disclosures about variable interest entities that
the company is not required to consolidate but in which it has a significant
variable interest.
The consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation requirements apply to
existing entities in the first fiscal year or interim period beginning after
June 15, 2003. Certain of the disclosure requirements apply in all financial
statements issued after January 31, 2003, regardless of when the variable
interest entity was established.
At December 31, 2002, Primary Energy had four projects (Whiting Clean Energy,
Cokenergy, Portside and Lakeside) that were leased from unrelated variable
interest entities. Of the four projects, one of the projects (Whiting Clean
Energy) was reflected on NiSource's consolidated balance sheets as an asset
owned in substance and two projects (Cokenergy and Portside) were accounted for
as capital leases. The remaining leased project (Lakeside) was treated as an
off-balance-sheet, 15-year operating lease and was not included in NiSource's
consolidated balance sheets.
The Lakeside project was constructed on an industrial customer's site and was
designed to process steam from the customer's facilities to generate up to 161
megawatts of electric power and provide process steam to the customer. As part
of the lease agreement with the variable interest entity, an event of project
termination would accelerate maturity of the underlying debt requiring Primary
Energy to pay the unamortized lease value, which was $41.3 million at December
31, 2002. If the project ownership and financing structure remains in its
present form, the variable interest entity, including the unamortized debt and
related assets associated with the Lakeside project, would be consolidated by
NiSource beginning in the third quarter 2003. NiSource believes that the
consolidation of the portions of the variable interest entities, related to the
other three leased projects, not already reflected in its consolidated financial
statements would be immaterial to its financial position and results of
operations.
7. ELECTRIC AND GAS OPERATIONS REGULATORY MATTERS
On June 20, 2002, a settlement agreement was filed with the IURC regarding the
Northern Indiana electric rate review. On September 23, 2002, the IURC issued an
order adopting most aspects of the settlement. The order provides that electric
customers of Northern Indiana will receive an amount intended to approximate
$55.0 million each year in credits to their electric bills for 49 months,
beginning on July 1, 2002. The order also provides that 60% of any future
earnings beyond a specified cap will be retained by Northern Indiana. Pursuant
to the IURC
67
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
order, Northern Indiana, as authorized, began to amortize one-half of its rate
review expenses for this proceeding over a 49-month period. The remaining rate
review expenses were charged to income in the third quarter of 2002.
On October 23, 2002, the IURC denied a petition for reconsideration of the
settlement order filed on October 15, 2002 by fourteen residential customers.
Therefore, Northern Indiana electric customers began to receive credits starting
with their November monthly bill. The November bill included credits for the
customers' consumption beginning on July 1, 2002. Credits amounting to $28.1
million were recognized for electric customers for 2002. In addition, the order
required Northern Indiana to establish and fund an escrow account to cover the
litigation costs of certain of the parties to the electric rate review. The
escrow account was established and fully funded with $1.8 million in the fourth
quarter. The order adopting the settlement is currently being appealed to the
Indiana Court of Appeals by both the Citizen Action Coalition of Indiana and the
fourteen residential customers.
Northern Indiana submitted its quarterly fuel adjustment clause filing for the
twelve-month period ended September 30, 2002, which requires a sharing of
earnings in excess of allowed earnings as outlined in the IURC order regarding
the electric rate review settlement. The IURC issued an order related to the
filing on January 29, 2002 taking exception to Northern Indiana's proposed
sharing calculation. The proposed calculation prorated the amount to be shared
with the customers based on the amount of time the rate credit was in effect
during the twelve-month period. Northern Indiana has filed with the IURC, a
request for a rehearing and reconsideration of the order in that proceeding.
Northern Indiana believes its calculation for the amount of sharing is
appropriate. Regardless of the outcome, the settlement of this issue will not
have a material impact on NiSource's financial position or results of
operations.
On August 11, 1999, the IURC approved a flexible gas cost adjustment mechanism
for Northern Indiana. Under the 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's gas cost adjustment factor also includes a
gas cost incentive mechanism 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. Northern Indiana made its
annual filing on August 29, 2002. The IURC approved implementation of interim
rates, subject to refund, effective November 1, 2002. Another party has filed
testimony indicating that some gas costs should not be recovered. A hearing is
scheduled for March 13, 2003. Management intends to vigorously oppose any
efforts to reduce the recovery of gas costs.
In 1995 Northern Indiana filed an Open Access Transmission Tariff (OATT) in FERC
Docket No. ER96-399 with FERC as required in FERC Order No. 888. The OATT
established, subject to refund, rates that Northern Indiana could charge all of
its customers for transmission of electric power across Northern Indiana's
electric transmission facilities. The FERC established an administrative
proceeding before one of its administrative law judges to examine the filing and
to inquire into the appropriateness of the rates. Although the proceeding
continued to litigation with regard to certain customers, Northern Indiana
reached a settlement with its largest transmission customer, Wabash Valley Power
Association (WVPA), which established rates to be charged to WVPA and eliminated
any refund liability on behalf of Northern Indiana for transmission service
provided to WVPA. In the remaining portion of the proceeding, on December 30,
2002, the FERC issued an order that, among other things, reduced the rate base
and rate of return allowed to Northern Indiana regarding its OATT, thus creating
a refund liability for Northern Indiana. Northern Indiana did not seek rehearing
of the FERC's December 30, 2002 order. Thus under FERC procedures, Northern
Indiana is required to submit a compliance filing, currently due by March 17,
2003 which will establish rates and services in compliance with the FERC's order
and report on the magnitude of any refund liability resulting to Northern
Indiana as a result of the proceeding. Northern Indiana is in the process of
determining the refund liability resulting from the FERC Opinion.
68
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. RISK MANAGEMENT ACTIVITIES
NiSource uses commodity-based derivative financial instruments to manage certain
risks in its business. NiSource accounts for its derivatives under SFAS No. 133
and, through 2002, accounted for any trading contracts that did not qualify as
derivatives accounted for under SFAS No. 133 pursuant to EITF No. 98-10.
HEDGING ACTIVITIES. The activity for the years 2002 and 2001 affecting other
comprehensive income, with respect to cash flow hedges included the following:
(in millions, net of tax) 2002 2001
-------- --------
Net unrealized gains (loss) on derivatives qualifying as cash
flow hedges at the beginning of the period $ 50.1 $ (17.0)
Unrealized hedging gains (loss) arising during the period on
derivatives qualifying as cash flow hedges 24.7 69.7
Reclassification adjustment for net loss (gain) included in net income (7.0) (2.6)
-------- --------
Net unrealized gains on derivatives qualifying as cash flow hedges at the end of the period $ 67.8 $ 50.1
-------- --------
Unrealized gains and losses on NiSource's hedges were recorded as price risk
management assets and liabilities along with unrealized gains and losses on
NiSource's trading portfolio. The accompanying Consolidated Balance Sheets
reflected price risk management assets related to unrealized gains and losses on
hedges of $167.1 million and $66.7 million at December 31, 2002 and 2001,
respectively, of which $50.2 million and $16.4 million were included in "Current
Assets" and $116.9 million and $50.3 million were included in "Other Assets."
Price risk management liabilities related to unrealized gains and losses on
hedges (including net option premiums) were $31.6 million and $10.5 million at
December 31, 2002 and 2001, respectively, of which $28.4 million and $10.5
million were included in "Current Liabilities," and in 2002, $3.2 million was
included in "Other Liabilities and Deferred Credits."
During 2002 and 2001, a net loss of $0.7 million and a net gain of $0.7 million,
net of tax, was recognized in earnings due to the change in value of certain
derivative instruments primarily representing time value, and there were no
components of the derivatives' fair values excluded in the assessment of hedge
effectiveness. Also during 2002 and 2001, NiSource reclassified $0.7 million and
$2.4 million related to its cash flow hedges of natural gas production from
other comprehensive income to earnings, due to the probability that certain
forecasted transactions would not occur. It is anticipated that during the next
twelve months the expiration and settlement of cash flow hedge contracts will
result in income recognition of amounts currently classified in other
comprehensive income of approximately $16.4 million, net of tax.
For regulatory incentive purposes, the Columbia gas distribution subsidiaries
(Columbia LDCs) enter into contracts that allow counterparties the option to
sell gas to Columbia LDCs at first of the month prices for a particular month of
delivery. Columbia LDCs charge the counterparties a fee for this option. The
changes in the fair value of the options are primarily due to the changing
expectations of the future intra-month volatility of gas prices. Columbia LDCs
defer a portion of the change in the fair value of the options as either a
regulatory asset or liability in accordance with SFAS No. 71. The remaining
change is recognized currently in earnings.
Northern Indiana offers a Price Protection Service as an alternative to the
standard gas cost recovery mechanism. This service provides Northern Indiana
customers with the opportunity to either lock in their gas cost or place a cap
on the total cost that could be charged for any future month specified. In order
to hedge the anticipated physical future purchases associated with these
obligations, Northern Indiana purchases New York Mercantile Exchange (NYMEX)
futures and options contracts that correspond to a fixed or capped price and the
associated delivery month. The NYMEX futures and options contracts are
designated as cash flow hedges.
Northern Utilities, Inc. has implemented a hedging program designed to fix a
portion of their gas supply costs for the coming year of service. In order to
fix these costs, Northern Utilities purchases NYMEX futures that correspond to
the associated delivery month. Since any gains or losses on the fair value of
these derivatives are passed through to the ratepayer directly, the forward
value of these derivatives is offset by either a regulatory asset or liability.
69
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Northern Indiana and Bay State also engage in writing options that potentially
obligate them to purchase or sell gas at the holder's discretion at some future
market-based price. These written options are derivative instruments, must be
marked to fair value and do not meet the requirement for hedge accounting
treatment. Northern Indiana also uses NYMEX derivative contracts to minimize its
gas costs. These contracts do not qualify for hedge accounting and must be
marked to fair value. Because these derivatives are used within the framework of
its gas cost incentive mechanism, regulatory assets or liabilities are recorded
to offset the change in the fair value of these derivatives.
CNR has engaged in commodity and basis swaps to hedge the anticipated future
sale of natural gas. These contracts are derivatives and are designated as cash
flow hedges of anticipated future sales.
Columbia Energy Services, Inc. (Columbia Energy Services) has fixed price gas
delivery commitments to three municipalities in the United States. Columbia
Energy Services entered into a forward purchase agreement with a gas supplier,
wherein the supplier will fulfill the delivery obligation requirements at a
slight premium to index. In order to hedge this anticipated future purchase of
gas from the gas supplier, Columbia Energy Services entered into commodity swaps
priced at the locations designated for physical delivery. These swaps are
designated as cash flow hedges of the anticipated purchases
Columbia has entered into interest rate swap agreements to modify the interest
characteristics of its outstanding long-term debt. The effect of these
agreements is to modify the interest rate characteristics of a portion of
Columbia's long-term debt from fixed to variable. On September 3, 2002, Columbia
entered into new fixed-to-variable interest rate swap agreements for a combined
notional amount of $281.5 million with three counterparties effective as of
September 5, 2002. Columbia will receive payments based upon a fixed 7.32%
interest rate and pay a floating interest amount based on U.S. 6-month LIBOR-BBA
plus 2.66 percent per annum. There was no exchange of premium at inception of
the swaps. The swaps contain mirror-image call provisions that allow the
counterparties to cancel the agreements beginning November 28, 2005 through the
stated maturity date. In addition, each party has the one-time right to cancel
the swaps on September 5, 2007 at mid-market.
As a result of the interest rate swap transactions, $663.0 million of Columbia's
long-term debt is now subject to fluctuations in interest rates. The interest
rate swaps are designated as fair value hedges. The effectiveness of the
interest rate swaps in offsetting the exposure to changes in the debt's fair
value is measured using the short-cut method pursuant to SFAS No. 133. Columbia
had no net gain or loss recognized in earnings due to ineffectiveness during
2002 or 2001.
MARKETING AND TRADING ACTIVITIES. Effective July 1, 2002, TPC sold a significant
portion of its net obligations under its gas forward transaction portfolio,
physical storage inventory and associated agreements to a third party. Prior to
the sale, TPC's operations included the activities of its gas and power trading
businesses. Beginning with the effective date of the sale, the primary remaining
operations associated with TPC include commercial and industrial gas sales
(including arranging supply), gas supply and power marketing associated with
NiSource's single merchant cogeneration facility, marketing a portion of the gas
produced from NiSource's exploration and production operations and power
trading. With the exception of power trading and one remaining gas trading deal,
which expired in October 2002, since July 1, 2002 the gas-related activities at
TPC have no longer been considered trading activities, and all positions were
marked to fair value pursuant to SFAS No. 133.
The fair market values of NiSource's power trading assets and liabilities were
$16.4 million and $16.4 million, respectively, at December 31, 2002 and $60.3
million and $59.4 million, respectively, at December 31, 2001. At December 31,
2002, there were no gas trading contracts remaining. The fair market values of
NiSource's gas trading assets and liabilities were $192.0 million and $184.0
million, respectively, at December 31, 2001.
NiSource recorded power trading revenues and cost of sales of $601.2 million and
$601.5 million, respectively, for the year ended December 31, 2002. NiSource
recorded power trading revenues and cost of sales of $981.0 million and $962.5
million, respectively, for the year ended December 31, 2001. Power trading
revenues and cost of sales were $485.2 million and $472.9 million, respectively,
for the year ended December 31, 2000. NiSource recorded gas marketing and
trading revenues and cost of sales of $481.5 million and $480.1 million,
respectively, for the year
70
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ended December 31, 2002. NiSource recorded gas marketing and trading revenues
and cost of sales of $2,146.1 million and $2,147.2 million, respectively, for
the year ended December 31, 2001. Gas marketing and trading revenues and cost of
sales were $1,893.3 million and $1,855.4 million, respectively, for the year
ended December 31, 2000.
9. EQUITY INVESTMENT SUBSIDIARIES
Certain investments of NiSource are accounted for under the equity method of
accounting. All investments shown as limited partnerships are limited
partnership interests. The following is a list of NiSource's equity investments
at December 31, 2002.
% of Voting
Power or
Investee Type of Investment Interest Held
-------- ------------------ -------------
Binghamton Cogeneration Limited Partnership Limited Partnership 10.0
Binghamton Cogeneration Limited Partnership Limited Partnership 23.3
Bittersweet Pointe, L.P. Limited Partnership 99.0
Bristol Resources Production Company, L.L.C. LLC Membership 64.0
Chicago South Shore & South Bend Railroad Co. General Partnership 40.0
CID Equity Capital III, L.P. Limited Partnership 2.0
Douglas Pointe Associates, L.P. Limited Partnership 99.0
Douglas Pointe II Associates, L.P. Limited Partnership 99.0
Douglas Pointe III Associates, L.L.C. LLC Membership 99.0
Dunedin I, L.L.C. LLC Membership 99.0
Dunedin II, L.L.C. LLC Membership 99.0
EnerTek Partners, LP Limited Partnership 16.5
Hebron Pointe, L.L.C. LLC Membership 99.0
House Investments - Midwest Corporate Tax Credit Fund, L.P. Limited Partnership 99.0
Illinois Indiana Development Company, L.L.C. LLC Membership 40.0
Kingsmill Development Co., L.L.C. LLC Membership 99.9
Laredo Nueces Pipeline Company Common Shares 50.0
MidTex Gas Storage Company, L.L.P. Limited Partnership 31.0
Millennium Pipeline Company, L.P. Limited Partnership 47.0
Millennium Pipeline Management Company, L.L.C. LLC Membership 47.5
N Squared Aviation, L.L.C. LLC Membership 33.3
Nth Power Technologies Fund II, L.P. Limited Partnership 4.1
Nth Power Technologies Fund II-A, L.P. Limited Partnership 5.4
PCI Associates Limited Partnership 50.0
Prestwick Square of Fort Wayne Associates, L.P. Limited Partnership 99.9
Robertson, L.L.C. LLC Membership 99.0
SunPower Corporation Preferred Shares 14.7
The Wellingshire Joint Venture General Partnership 50.0
Utech Climate Challenge Fund, L.P. Limited Partnership 17.9
Woodland Crossing, L.L.C. LLC Membership 99.0
71
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES
The components of income tax expense were as follows:
Year Ended December 31, (in millions) 2002 2001 2000
------ ------ ------
INCOME TAXES
Current
Federal $122.6 $195.5 $ 81.2
State (2.8) 32.3 14.2
------ ------ ------
Total Current 119.8 227.8 95.4
------ ------ ------
Deferred
Federal 84.2 (34.2) 35.6
State 38.9 6.2 3.1
------ ------ ------
Total Deferred 123.1 (28.0) 38.7
------ ------ ------
Deferred Investment Credits (9.0) (9.0) (7.8)
------ ------ ------
INCOME TAXES INCLUDED IN CONTINUING OPERATIONS $233.9 $190.8 $126.3
------ ------ ------
Total income taxes from continuing operations were 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 were as follows:
Year Ended December 31, (in millions) 2002 2001 2000
---------------- ---------------- ----------------
Book income from Continuing Operations before
income taxes $ 659.6 $ 417.2 $ 268.2
Tax expense at statutory Federal income tax rate 230.9 35.0% 146.0 35.0% 93.9 35.0%
Increases (reductions) in taxes resulting from:
Book depreciation over related tax depreciation (2.2) (0.3) (0.1) - (1.6) (0.6)
Amortization of deferred investment tax credits (9.0) (1.3) (9.0) (2.2) (7.8) (2.9)
State income taxes, net of federal income tax 23.4 3.5 25.0 6.0 10.2 3.8
benefit
Low-income housing / Section 29 credits (7.0) (1.1) (7.0) (1.7) (5.8) (2.2)
Nondeductible amounts related to amortization of
intangible assets and plant acquisition - - 33.1 7.9 8.8 3.3
adjustments
Basis and stock sale differences - - - - 19.2 7.2
Other, net (2.2) (0.3) 2.8 0.7 9.4 3.5
------- ---- ------- ---- ------- ----
INCOME TAXES FROM CONTINUING OPERATIONS $ 233.9 35.5% $ 190.8 45.7% $ 126.3 47.1%
------- ---- ------- ---- ------- ----
72
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes resulted 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 were as
follows:
At December 31, (in millions) 2002 2001
-------- --------
DEFERRED TAX LIABILITIES
Accelerated depreciation and other property differences $1,842.0 $1,829.9
Unrecovered gas & fuel costs 46.7 28.1
Other regulatory assets 238.4 193.0
SFAS No. 133 and price risk adjustments 40.6 18.8
Premiums and discounts associated with long-term debt 48.4 56.0
-------- --------
Total Deferred Tax Liabilities 2,216.1 2,125.8
-------- --------
DEFERRED TAX ASSETS
Deferred investment tax credits and other regulatory liabilities (62.4) (63.6)
Pension and other postretirement/postemployment benefits (167.7) (93.7)
Environmental liabilities (41.2) (44.6)
Other accrued liabilities (53.2) (62.5)
Other, net (37.8) (117.1)
-------- --------
Total Deferred Tax Assets (362.3) (381.5)
-------- --------
Less: Deferred income taxes related to current assets and liabilities (7.9) 19.3
-------- --------
NON-CURRENT DEFERRED TAX LIABILITY $1,861.7 $1,725.0
-------- --------
On June 28, 2002, the governor of Indiana signed into law legislation that
increases the Indiana Corporate Income tax rate from 4.5% to 8.5% effective
January 1, 2003. As a result, NiSource recorded an additional deferred income
tax liability of $65.9 million (net) in the second quarter 2002 to reflect the
impact of the increased tax rate. NiSource's regulated subsidiaries recorded a
regulatory asset in the amount of $65.0 million to reflect the probable
collection of the increased tax liability though future rates. The overall
impact on income tax expense in the second quarter was an increase of $0.9
million.
11. 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. Additionally, 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.
For most plans, cash contributions are remitted to grantor trusts. In 2000,
NiSource began using September 30 as its measurement date rather than December
31 for its pension and postretirement benefit plans.
Due to the decline in the equity markets, the fair value of NiSource's pension
fund assets, as measured at September 30, 2002, has decreased since 2001. In
addition, the discount rate used to measure the accumulated benefit obligation
has decreased, resulting in an increase in the estimated minimum liability. In
accordance with SFAS No. 87, "Employers' Accounting for Pensions," NiSource
recorded a minimum pension liability adjustment at September 30, 2002. The
adjustment resulted in a decrease to prepaid pension costs of $271.9 million, an
increase in intangible assets of $57.3 million, an increase to retirement
benefit liabilities of $126.1 million, an increase to deferred income tax assets
of $137.0 million and a decrease to other comprehensive income of $203.7 million
after-tax. Primarily due to the decline in plan assets, NiSource expects pension
expense for 2003 to increase $42.8 million over the amount recognized in 2002.
Although NiSource expects market returns to revert to normal levels as
demonstrated in historical periods, NiSource may be required to provide
additional funding for the obligations if returns on plan assets fall short of
the assumed 9.0% long-term rate.
73
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following tables provide a reconciliation of the plans' funded status and
amounts reflected in NiSource's Consolidated Balance Sheets at December 31 based
on a September 30 measurement date:
PENSION BENEFITS OTHER BENEFITS
---------------------- --------------------
(in millions) 2002 2001 2002 2001
-------- -------- -------- --------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $1,740.3 $1,777.2 $ 519.3 $ 497.1
Service cost 39.5 45.9 11.3 13.4
Interest cost 125.8 139.3 33.3 39.6
Plan participants' contributions -- -- 1.1 1.3
Plan amendments 1.1 (9.7) (14.0) 8.5
Actuarial (gain) loss 194.3 (32.8) 23.2 (1.5)
Settlement (gain) loss -- 15.8 -- --
Curtailment (gain) loss -- (5.0) -- (11.2)
Settlement payments -- (76.2) -- --
Benefits paid (152.7) (114.2) (32.9) (27.9)
-------- -------- -------- --------
BENEFIT OBLIGATION AT END OF YEAR $1,948.3 $1,740.3 $ 541.3 $ 519.3
-------- -------- -------- --------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $1,847.5 $2,265.2 $ 144.2 $ 169.4
Actual return on plan assets (92.0) (230.5) (7.0) (35.7)
Employer contributions 48.3 3.2 32.9 37.1
Plan participants' contributions -- -- 1.1 1.3
Settlement payments -- (76.2) -- --
Benefits paid (152.7) (114.2) (32.9) (27.9)
-------- -------- -------- --------
FAIR VALUE OF PLAN ASSETS AT END OF YEAR $1,651.1 $1,847.5 $ 138.3 $ 144.2
-------- -------- -------- --------
Funded status $ (297.2) $ 107.2 $ (403.0) $ (375.1)
Contributions made after measurement
date and before fiscal year end 0.2 -- 7.7 5.9
Unrecognized actuarial (gain) loss 493.9 49.4 (34.8) (83.5)
Unrecognized prior service cost 54.7 63.5 1.9 15.2
Unrecognized transition obligation 5.5 11.9 116.5 130.5
-------- -------- -------- --------
NET AMOUNT RECOGNIZED AT END OF YEAR $ 257.1 $ 232.0 $ (311.7) $ (307.0)
-------- -------- -------- --------
AMOUNTS RECOGNIZED IN THE STATEMENT OF
FINANCIAL POSITION CONSIST OF:
Prepaid benefit cost $ -- $ --
Accrued benefit liability (141.1) --
Intangible asset 57.3 --
Accumulated other comprehensive income 340.9 --
-------- --------
NET AMOUNT RECOGNIZED AT END OF YEAR $ 257.1 $ --
-------- --------
OTHER COMPREHENSIVE INCOME ATTRIBUTABLE TO CHANGE
IN ADDITIONAL MINIMUM LIABILITY RECOGNITION $ 339.3 $ --
-------- --------
74
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PENSION BENEFITS OTHER BENEFITS
-------------------- --------------------
2002 2001 2002 2001
---- ---- ---- ----
WEIGHTED-AVERAGE ASSUMPTIONS AS OF SEPTEMBER 30,
Discount rate assumption 7.0% 7.5% 7.0% 7.5%
Compensation growth rate assumption 4.0% 4.5% 4.0% 4.5%
Medical cost trend assumption - - 5.5% 5.5%
Assets earnings rate assumption * 9.0% 9.0% 9.0% 9.0%
---- ---- ---- ----
* Two of the several established medical trusts and the trust established for
life insurance are subject to taxation which results in an after-tax asset
earnings rate that is less than 9.00%
The following table provides the components of the plans' net periodic benefits
cost (benefit) for each of the three years:
PENSION BENEFITS OTHER BENEFITS
------------------------------ ----------------------------
(in millions) 2002 2001 2000 2002 2001 2000
------ ------ ------ ------ ------ ------
NET PERIODIC COST
Service cost $ 39.5 $ 45.9 $ 24.6 $ 11.3 $ 13.4 $ 6.7
Interest cost 125.8 139.3 84.9 33.3 39.6 21.4
Expected return on assets (161.1) (198.2) (124.1) (10.0) (11.5) (3.5)
Amortization of transitional obligation 6.3 6.5 6.2 11.8 11.9 12.0
Amortization of prior service cost 9.9 10.3 7.1 1.5 0.5 0.3
Recognized actuarial (gain) loss 1.4 (12.7) (5.3) (8.5) (7.8) (5.9)
Special termination benefits -- -- 8.0 -- -- --
Settlement (gain) loss -- (8.4) -- -- -- --
------ ------ ------ ------ ------ ------
NET PERIODIC BENEFITS COST (BENEFIT) $ 21.8 $(17.3) $ 1.4 $ 39.4 $ 46.1 $ 31.0
------ ------ ------ ------ ------ ------
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
(in millions) increase decrease
--------- ---------
Effect on service and interest components of net periodic cost $ 6.5 $ (5.6)
Effect on accumulated postretirement benefit obligation $ 55.7 $ (50.0)
--------- ---------
12. AUTHORIZED CLASSES OF CUMULATIVE PREFERRED AND PREFERENCE STOCKS
NiSource has 20,000,000 authorized shares of Preferred with a $0.01 par value,
of which 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 Note 13B.
The authorized classes of par value and no par value cumulative preferred and
preference stocks of Northern Indiana are as follows: 2,400,000 shares of
Cumulative Preferred with a $100 par value; 3,000,000 shares of Cumulative
Preferred with no par value; 2,000,000 shares of Cumulative Preference with a
$50 par value (none outstanding); and 3,000,000 shares of Cumulative Preference
with no par value (none outstanding).
The preferred stockholders 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.
75
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The redemption prices at December 31, 2002, 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
Series Price per 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, 2002), Series A (stated value $50 per share) $ 50.00
The redemption prices at December 31, 2002, 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 Sinking Fund or Mandatory
Series Price per Share Redemption Provisions
------ --------------- ---------------------
Cumulative preferred stock - $100 par value -
8.35% $102.46, reduced periodically 3,000 shares on or before
July 1; increasing to 6,000
shares beginning in 2004;
noncumulative option to
double amount each year
7-3/4% $103.35, reduced periodically 2,777 shares on or before
December 1; noncumulative
option to double amount
each year
Sinking fund requirements with respect to redeemable preferred stocks
outstanding at December 31, 2002, for each of the subsequent five years were as
follows:
Year Ending December 31, ($ in millions)
2003 0.6
2004 0.9
2005 0.9
2006 0.9
2007 0.9
13. COMMON STOCK
As of December 31, 2002, NiSource had 400,000,000 authorized shares of common
stock with a $0.01 par value.
A. EQUITY OFFERING. In November 2002, NiSource issued 41.4 million shares of
common stock at a per-share price of $18.30 ($17.75 on a net basis). The net
proceeds of approximately $734.9 million were used to reduce debt.
B. SHAREHOLDER RIGHTS PLAN. The Board of Directors of NiSource has adopted a
Shareholder Rights Plan, pursuant to which one right accompanies each share of
common stock. 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
76
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the market price. The rights will not dilute NiSource's common stock nor affect
EPS unless they become exercisable for common stock. The plan was not adopted in
response to any specific attempt to acquire control of NiSource. The rights are
not currently exercisable.
14. LONG-TERM INCENTIVE PLANS
NiSource currently issues long-term incentive grants to key management employees
under a long-term incentive plan approved by stockholders on April 13, 1994
(1994 Plan). The 1994 Plan, as amended and restated, permits the following types
of grants, separately or in combination: nonqualified stock options, incentive
stock options, restricted stock awards, stock appreciation rights (SARs),
performance units, contingent stock awards and dividend equivalents payable on
grants of options, performance units and contingent stock awards. Each option
has a maximum term of ten years and vests one year from the date of grant. SARs
may be granted only in tandem with stock options on a one-for-one basis and are
payable in cash, common stock, or a combination thereof.
The amended and restated 1994 Plan provides for the issuance of up to 21 million
shares through December 31, 2005. At December 31, 2002, there were 10,558,706
shares reserved for future awards under the amended and restated 1994 Plan. In
connection with the acquisition of Columbia, no options were converted or
assumed.
Restricted stock awards are restricted as to transfer and are subject to
forfeiture for specific periods from the date of grant. Restricted stock grants
made in 2001 and 2000 were exchanged in 2001 for new grants equal to 150% of the
shares of common stock subject to the original grants. Restricted stock issued
in conjunction with the new grants generally will vest over a period of years
beginning on December 31, 2002, and for the Chief Executive Officer, the awards
will vest after the year of death, disability, termination without cause, change
of control or retirement. Shares subject to the new grants must be held until
December 31, 2004. If a participant's employment is terminated prior to vesting
other than by reason of death, disability or retirement, restricted shares are
forfeited. There were 861,740 and 1,991,643 restricted shares outstanding at
December 31, 2002 and December 31, 2001, respectively.
At December 31, 2002, NiSource had 913,527 outstanding awards under a contingent
stock plan. The terms of the awards contain a provision that varies the number
of shares to be issued based on the level of attainment of certain stock
performance targets. In 2002, based on the performance of NiSource's common
stock through December 31, 2002, NiSource recorded expense of $7.3 million
related to the plan.
NiSource established a time accelerated restricted stock restricted stock award
plan (TARSAP), which governs restricted stock awards beginning with the January
1, 2003 grants. Under the plan, key executives are granted awards of restricted
stock that generally vest over a period of six years or at age 62 if an employee
would become age 62 within 6 years. If certain predetermined criteria involving
measures of total shareholder return are met, as measured at the end of the
third year after the grant date, the awards vest at that point. On January 1,
2003, 732,029 grants were issued under the TARSAP.
The Nonemployee Director Stock Incentive Plan, which was approved by
stockholders, provides for the issuance of up to 200,000 shares of common stock
to nonemployee directors. The Plan provides for awards of common stock, 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
shares of common stock not vested as of the date of termination are forfeited.
As of December 31, 2002, 95,300 shares had been issued under the Plan. An
Amended and Restated Nonemployee Director Stock Incentive Plan, which provides
for the issuance of up to 500,000 shares of common stock, in addition to those
described above, and permits the granting of restricted stock units, has been
approved by the board and will be submitted to the shareholders for approval at
the 2003 annual meeting of shareholders.
The long-term incentive plans have been accounted for using the intrinsic value
method under APB No. 25. The compensation cost that was charged against net
income for restricted stock awards was $19.9 million; $30.0 million and $6.8
million for years ended December 31, 2002, 2001 and 2000, respectively. On
January 1, 2001, NiSource granted 1.7 million employee stock options with an
identical exercise price that was less than fair market value at the time of the
grant. NiSource recorded a pre-tax charge of $6.9 million in 2001 related to
this option grant.
77
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Transactions for the three years ended December 31, 2002, were as follows:
Weighted Average
Options Option Price ($)
------- ----------------
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
Granted 1,725,105 25.92
Exercised (563,908) 17.40
Cancelled (141,014) 25.93
--------- -----
Outstanding at December 31, 2001 5,483,066 22.62
Granted 2,190,745 21.80
Exercised (307,978) 15.47
Cancelled (401,080) 24.06
--------- -----
OUTSTANDING AT DECEMBER 31, 2002 6,964,753 22.59
EXERCISABLE AT DECEMBER 31, 2002 5,017,914 22.90
--------- -----
The following table summarizes information on stock options outstanding and
exercisable at December 31, 2002:
Options Outstanding Options Exercisable
-------------------------------------------------------- -------------------------------
Weighted Average Weighted Average Weighted Average
Range of Exercise Number Exercise Price Remaining Contractual Number Exercise Price
Prices Per Share ($) Outstanding Per Share ($) Life in Years Exercisable Per Share ($)
-------------------- ----------- ---------------- --------------------- ----------- ----------------
$14.37 - $14.61 186,900 14.38 1.6 186,900 14.38
$14.62 - $17.53 432,400 16.40 1.6 432,400 16.40
$17.54 - $20.45 721,376 18.73 5.5 683,200 18.66
$20.46 - $23.38 2,474,866 21.30 7.6 1,128,578 21.63
$23.39 - $26.30 2,650,711 25.18 7.6 2,088,336 25.58
$26.31 - $29.22 498,500 29.22 5.0 498,500 29.22
--------- ----- --- --------- -----
6,964,753 22.59 6.6 5,017,914 22.90
--------- ----- --- --------- -----
There were no SARs outstanding at December 31, 2002, 2001 or 2000.
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with a dividend yield of 4.9-6.0%. The
weighted average fair value of options granted was $6.03, $8.44 and $4.61 during
the years 2002, 2001 and 2000, respectively. The following assumptions were used
for grants in 2002, 2001 and 2000:
2002 2001 2000
---- ---- ----
Expected Life 5.8 YRS 5.6 yrs 5.4-5.8 yrs
Interest Rate 4.4-5.1% 4.0-4.9% 6.1-6.6%
Volatility 40.7-42.0% 27.5-28.4% 26.2-29.0%
15. LONG-TERM DEBT
In November 2000, NiSource, through its NiSource Finance Corp. (NiSource
Finance) subsidiary, issued $2.5 billion of notes, providing long-term 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. The notes are guaranteed by NiSource.
78
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As a portion of the consideration payable in the acquisition of Columbia,
NiSource issued 55.5 million SAILS(SM). 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, a
fractional number of shares of NiSource common stock based on a settlement rate
indexed to the market price of NiSource common stock. The purchase contract
settlement date will be on November 1, 2004 or earlier if there is a change in
control of NiSource before that date. The debentures, which mature on November
1, 2006, have been pledged to secure the holders' obligation to purchase common
stock under the purchase contract.
The value of the consideration received (Columbia shares) was allocated between
the debenture and the stock purchase contract consistent with the provisions of
APB Opinion No. 14, "Accounting for Convertible Debt and Debt issued with Stock
Purchase Warrants" (APB No. 14). Payments under the debenture were $144.4
million nominally and were discounted at a market interest rate to reflect a
fair value of $107.0 million at the date of issuance. The debentures are
reflected as a component of long-term debt on NiSource's consolidated balance
sheet. The value of the forward equity contracts at the date of issuance was
determined to be $7.4 million. The value of the stock purchase contracts was
reflected as a component of equity, consistent with the provisions of EITF Issue
No. 96-13, "Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in a Company's Own Stock" (EITF No. 96-13) (at that time)
and, subsequently, EITF No. 00-19.
Sinking fund requirements and maturities of long-term debt outstanding at
December 31, 2002, for each of the five years subsequent to December 31, 2002
were as follows:
Year Ending December 31, ($ in millions)
----------------------------------------
2003 1,232.6
2004 200.2
2005 1,328.9
2006 201.6
2007 402.3
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.
Of NiSource's $5,018.0 million of long-term debt at December 31, 2002, $450.0
million was issued by NiSource's affiliate, NiSource Capital Markets, Inc.
(Capital Markets). 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 Market's
obligations in the event of a failure to pay by Capital Markets. 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 Market's creditors. The carrying value of the assets of
NiSource, other than the assets of Northern Indiana, was $13.4 billion at
December 31, 2002.
Columbia has entered into interest rate swap agreements for $663.0 million of
its outstanding long-term debt. The effect of these agreements is to modify the
interest rate characteristics of a portion of Columbia's long-term debt from
fixed to variable. See Note 8 for further information regarding the interest
rate swaps.
16. SHORT-TERM BORROWINGS
During March 2002, NiSource Finance negotiated a $500 million 364-day credit
agreement with a syndicate of banks, led by Barclays Capital, which expires on
March 20, 2003. This facility replaced the expiring $1.25 billion 364-day credit
facility and complements NiSource's existing $1.25 billion three-year facility
that expires on March 23, 2004. NiSource will not renew the 364-day facility,
which expires on March 20, 2003. In addition, the $1.25 billion three-year
facility that expires on March 23, 2004 is being amended to allow for the
aggregate letters of credit outstanding under this agreement to be increased
from $150 million to $400 million. The reduction in NiSource's short-term
borrowing needs is attributable to the sales of IWCR, SM&P, the exploration and
production joint venture, the proceeds from the November 2002 equity offering,
and positive operating cash flows.
79
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 2002, NiSource had $171.7 million of letters of credit
outstanding. At December 31, 2001, NiSource had $51.7 million of letters of
credit outstanding.
Short-term borrowings were as follows:
At December 31, (in millions) 2002 2001
======================================================================================================================
Commercial paper weighted average interest rate of 2.25% for 2002. $ 150.0 $ 1,004.3
Credit facility (3-Year Facility) borrowings weighted average interest rate of
2.107% at December 31, 2002 763.1 850.0
----------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM BORROWINGS $ 913.1 $ 1,854.3
----------------------------------------------------------------------------------------------------------------------
17. CORPORATE PIES AND COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF TRUST HOLDING SOLELY COMPANY DEBENTURES
In February 1999, NiSource completed an underwritten public offering of
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, shares of common stock at a face
value of $50. The second component consists of mandatorily redeemable preferred
securities, which represent an undivided beneficial ownership interest in the
assets of NiSource Capital Trust I (Capital Trust). The preferred securities
have a stated liquidation amount of $50. The sole assets of Capital Trust are
subordinated 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 stock under the
stock purchase contracts.
The proceeds of the offering were allocated between the preferred securities and
the stock purchase contract consistent with the provisions of APB No. 14. The
terms of the stock purchase contract provided for an initial fair value of zero
and the cash received from the offering was allocated to the preferred security.
The preferred securities were reflected in the mezzanine section of the balance
sheet with the caption, "Company-obligated, mandatorily redeemable preferred
securities of subsidiary trust holding solely company debentures," reflecting a
full consolidation of the NiSource Capital Trust. The stock purchase contracts
were reflected as a component of equity, consistent with the provisions of EITF
No. 96-13 (at that time) and, subsequently, EITF No. 00-19. The quarterly
contract payments due under the stock purchase contracts were accrued at
inception, discounted appropriately, and charged to shareholders' equity.
Distributions paid on the preferred securities were presented under the caption
"Minority Interest" in NiSource's Statements of Consolidated Income. At December
31, 2002 and December 31, 2001, there were 6.9 million 5.9% preferred securities
outstanding with Capital Trust assets of $345.0 million.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate fair
value:
INVESTMENTS. Where feasible, the fair value of investments is estimated based on
market prices for those or similar investments.
LONG-TERM DEBT, PREFERRED STOCK AND PREFERRED SECURITIES. The fair values of
these securities are estimated based on the quoted market prices for the same or
similar issues or on the rates offered for securities of the same remaining
maturities. Certain premium costs associated with the early settlement of
long-term debt are not taken into consideration in determining fair value.
80
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The carrying values and estimated fair values of financial instruments were as
follows:
CARRYING ESTIMATED Carrying Estimated
AMOUNT FAIR VALUE Amount Fair Value
At December 31, ($ in millions) 2002 2002 2001 2001
------ ---------- ------ ----------
Long-term investments 49.7 49.2 44.5 44.3
Long-term debt (including current portion) 6,250.6 6,715.5 6,725.1 7,054.1
Preferred stock (including current portion) 85.5 64.6 132.2 114.0
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely Company debentures 345.0 265.0 345.0 313.6
In October 1999, Columbia of Ohio entered into an agreement to sell, without
recourse, a majority 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 the 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 $200.0 million, $75.0 million or $50.0
million, as determined by the seasonal fluctuation in Columbia of Ohio's account
receivable balances and the mutual consent of both parties. The amount available
at any measurement date varies based upon the level of eligible receivables.
Under this agreement, approximately $99.5 million of receivables were sold as of
December 31, 2002.
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, without recourse, up to $100 million of certain of
its accounts receivable under a sales agreement, which expires May 2003.
Northern Indiana has sold $100 million under this agreement.
Under a separate agreement, in conjunction with the sales agreement, Northern
Indiana acts as agent, by performing record keeping and cash collection
functions for the accounts receivable sold. Northern Indiana receives a fee,
which provides adequate compensation, for such services.
NiSource's accounts receivable programs qualify for sale accounting based upon
the conditions met in SFAS No. 140 "Accounting for Transfers and Servicing of
Financial Asset and Extinguishments of Liabilities." In the agreements, all
transferred assets have been isolated from the transferor and put presumptively
beyond the reach of the transferor and its creditors, even in bankruptcy or
other receivership. NiSource does not retain any interest in the receivables
under both agreements.
19. OTHER COMMITMENTS AND CONTINGENCIES
A. CAPITAL EXPENDITURES. NiSource expects that approximately $647.8
million will be expended for construction purposes during 2003.
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 the 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 terminated the agreement
prior to the end of the twenty-year contract period.
C. ASSETS UNDER LIEN. Substantially all of Columbia Gas Transmission
Corporation's (Columbia Transmission) 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.
81
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
D. GUARANTEES AND INDEMNITIES. As a part of normal business, NiSource and
certain subsidiaries enter into various agreements providing financial or
performance assurance to third parties on behalf of certain subsidiaries. Such
agreements include guarantees and stand-by-letters of credit. These agreements
are entered into primarily to support or enhance the creditworthiness otherwise
attributed to a subsidiary on a stand-alone basis, thereby facilitating the
extension of sufficient credit to accomplish the subsidiaries' intended
commercial purposes. The total commercial commitments in existence at December
31, 2002 and the years in which they expire were:
(in millions) 2003 2004 2005 2006 2007 After
------------- ---- ---- ---- ---- ---- -----
Guarantees of subsidiaries debt $1,050.0 $ 131.9 $ 930.0 $ 40.0 $ 29.0 $1,725.0
Guarantees supporting commodity
transactions of subsidiaries 462.6 -- 61.1 1,037.8 47.9 178.8
Other guarantees 130.0 -- 51.1 -- -- 250.9
Lines of credit 150.0 763.1 -- -- -- --
Letters of credit 52.9 4.9 1.2 -- -- 117.0
----------------------------------------------------------------------------------------------------------
Total commercial commitments $1,845.5 $ 899.9 $1,043.4 $1,077.8 $ 76.9 $2,271.7
----------------------------------------------------------------------------------------------------------
NiSource has guaranteed the payment of $3.9 billion of debt for various wholly
owned subsidiaries including the obligations of NiSource Finance and through a
support agreement, the obligations of Capital Markets. The debt is recorded on
NiSource's consolidated balance sheet. The subsidiaries are required to comply
with certain financial covenants under the debt indenture. NiSource would be
obligated to pay the debt's principal and related interest in the event of
default. Currently, NiSource does not anticipate its subsidiaries will have any
difficulty maintaining compliance. In addition, NiSource Finance maintains lines
of credit with financial institutions. At December 31, 2002, the outstanding
balance recorded on the consolidated balance sheet and guaranteed by NiSource
amounted to $913.1 million.
Additionally, NiSource has issued guarantees, which support up to approximately
$1.8 billion in commodity-related payments for its subsidiaries involved in
energy marketing and forward gas sales activities. These guarantees were
provided to counterparties in order to facilitate physical and financial
transactions in gas, electricity and related transactions, commodities and
services. To the extent liabilities exist under the commodity-related contracts
subject to these guarantees, such liabilities are included in the consolidated
balance sheets.
NiSource has issued standby letters of credit of approximately $176.0 million
through financial institutions for the benefit of third parties that have
extended credit to certain subsidiaries. If a subsidiary does not pay amounts
when due under covered contracts, the beneficiary may present its claim for
payment to the financial institution, which will in turn request payment from
NiSource.
NiSource has purchase and sale agreements guarantees totaling $142.5 million,
which guarantee performance of seller's covenants, agreements, obligations,
liabilities, representations and warranties under the agreements. No amounts
related to the purchase and sale agreements guarantees are reflected in the
consolidated balance sheet.
Management believes that the likelihood NiSource would be required to perform or
otherwise incur any significant losses associated with any of these guarantees
is remote.
Primary Energy continues to lease four of the projects in which it participates,
three of which are recognized on the consolidated balance sheets as capital
leases or assets owned in substance. NiSource through Capital Markets, has
guaranteed or in substance guaranteed most lease payments to the special purpose
entity lessors, including regular lease payments, accelerated lease payments
on an event of default, and payment obligations, including residual guarantee
amounts, at the end of lease terms. In the case of an event of default, a lessor
can accelerate the full, unamortized amount of the lessor's funding. The total
guarantees outstanding for all the projects at December 31, 2002 are $573.8
million. As of December 31, 2002, approximately $505.9 million of debt for the
four projects is included in NiSource's consolidated balance sheet.
82
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At the end of an initial lease term, Primary Energy has the right to purchase
the facility for the unamortized amount of the lessor's funding. If Primary
Energy cannot satisfy return conditions, it is required to purchase the facility
at such price. If Primary Energy determines not to purchase the facility and
it can satisfy the return conditions, the Lessee may be responsible for a
residual guarantee amount. One project (Lakeside) remains under an operating
lease. The total guarantee outstanding for the project at December 31, 2002 was
approximately $34.3 million.
A subsidiary of Primary Energy is a 50% partner in a partnership that operates a
coal pulverization facility. The partnership has entered into a lease of a 50%
undivided interest in the facility. NiSource has entered into a guarantee of all
of the obligations of the partnership under the lease. In an event of default,
the partnership will be required to pay a stipulated amount under the lease.
This amount was approximately $33.5 million as of December 31, 2002.
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.
F. INTERNAL REVENUE SERVICE (IRS) AUDIT. During 2002, NiSource reached a
settlement with the IRS on all remaining issues for tax years 1992 through 1998.
The field audit of tax years 1999 and 2000 is expected to begin in March 2003.
For Columbia, the Revenue Agent's Report for years 1996 and 1997 was
revised and reissued on December 10, 2002. Negotiations resulted in a
payment of $7.9 million that was made to the United States Treasury in December
2002 in settlement of tax and interest related to all remaining issues. The
field audit of Columbia's 1998 through 2000 tax years began in February 2002.
Management believes adequate reserves have been established for issues related
to these and subsequently filed returns.
G. 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 "potentially
responsible parties" (PRPs) 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
previously 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 Resource Conservation
and Recovery Act (RCRA) for closure and clean-up costs associated with
underground storage tanks and under the Toxic Substances Control Act for clean
up of polychlorinated biphenyls released at various facilities.
Gas Distribution subsidiaries are parties 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 and as additional information becomes available, the waste
disposal site liability is reviewed and adjusted, as necessary.
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 program has identified 84 such sites. Initial investigation has been
conducted at 40 sites. Of these sites, additional investigation activities have
been completed or are in progress at 34 sites and remedial measures have been
implemented or completed at 19 sites. Only those site investigation,
characterization and remediation costs currently known and determinable can be
considered "probable and reasonably estimable" under SFAS No. 5, "Accounting for
Contingencies" (SFAS No. 5). As costs become probable and reasonably estimable,
reserves will be adjusted as appropriate. As reserves are recorded, regulatory
assets are recorded to the extent environmental expenditures are expected to be
recovered through rates. NiSource is
83
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
unable, at this time, to accurately estimate the time frame and potential costs
of the entire program. Management expects that, as characterization is
completed, 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 the Security
Exchange Commission's Staff Accounting Bulletin No. 92 (SAB No. 92) which covers
accounting and disclosures relating to loss contingencies, SFAS No. 5, and
American Institute of Certified Public Accountants SOP 96-1, "Environmental
Remediation Liabilities" (SOP No.96-1).
As of December 31, 2002, a reserve of approximately $65.9 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.
GAS TRANSMISSION AND STORAGE. Columbia Transmission continues to conduct
characterization and remediation activities at specific sites under a 1995
Environmental Protection Agency (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. Field characterization had been
performed at all sites. Site characterization reports and remediation plans,
which must be submitted to the EPA for approval, are in various stages of
development and completion. Remediation has been completed at the mercury
measurement stations, liquid removal point sites and storage well locations and
at a 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 SFAS No. 5. As costs become probable and reasonably estimable, the
associated reserves will be adjusted as appropriate. During 2002, Columbia
Transmission completed a sufficient number of the characterization reports and
remediation plans to adjust its original estimate for the entire program. As a
result, the liability was reduced by $15.5 million. The estimate may be adjusted
as additional work is completed consistent with SAB No. 92, SFAS No. 5, and SOP
No. 96-1.
Columbia Transmission and Columbia Gulf are PRPs at several waste disposal
sites. The potential liability is believed to be de minimis, however, the final
allocation of clean-up costs has yet to be determined. As site investigations
and clean-ups proceed and as additional information becomes available, waste
disposal site liability is reviewed periodically and adjusted.
At December 31, 2002, the remaining environmental liability recorded on the
balance sheet of Gas Transmission was $61.3 million. Future 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 time period over which expenditures will be made.
ELECTRIC OPERATIONS.
AIR. In December 2001, the EPA approved regulations developed by the State of
Indiana to comply with EPA's nitrogen oxide (NOx) State Implementation Plan
(SIP) call. The NOx SIP call requires certain states, including Indiana, to
reduce NOx levels from several sources, including industrial and utility
boilers, to lower regional transport of ozone. The NOx emission limitations in
the Indiana rules are more restrictive than those imposed on electric utilities
under the Clean Air Act Amendments of 1990 (CAAA) acid rain NOx reduction
program. Compliance with the NOx limits contained in these rules is required by
May 31, 2004. Northern Indiana plans to install Selective Catalytic Reduction
NOx reduction technology at each of its active generating stations to comply
with the rules and estimates capital costs will range from $200.0 to $250.0
million. Actual compliance costs may vary depending on a number of factors
including market demand/resource constraints, uncertainty of future equipment
and construction costs, and the potential need for additional control
technology.
84
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The EPA issued final rules revising the National Ambient Air Quality Standards
for ozone and particulate matter in July 1997. Industry and others challenged
these rules. On March 26, 2002, the United States Court of Appeals for the D.C.
Circuit largely upheld the ambient air standards as challenged. Consequently,
designation of areas not attaining the standards, promulgation of rules
specifying a compliance level, compliance deadline, and controls necessary for
compliance will be completed over the next few years, which will likely change
air emissions compliance requirements. 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).
The EPA and state regulatory authorities will set final implementation
requirements. 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.
During 1999, the EPA initiated enforcement actions against several electric
utilities alleging violations of the new source review provisions of the CAAA
and subsequently has issued additional information collection requests to many
other utilities. Northern Indiana has also received and responded to information
requests from the EPA on this subject over the last two years, most recently in
June 2002. At this time, NiSource is unable to predict the result of EPA's
review of Northern Indiana's information responses.
In November 2002, EPA announced reforms to the New Source Review rules that
include two components. The first, a final rule, does not appear to
significantly impact Northern Indiana. However, upon official publication of the
rules by EPA on December 31, 2002, nine northeastern states filed a legal
challenge against the final rule in the U.S. District Court of Appeals for
District of Columbia. The second component is a proposed rule that is subject to
further public comment and revision before finalization; therefore, Northern
Indiana is unable at this time to evaluate its potential impacts on operations.
Northern Indiana will continue to closely monitor the developments related to
both rules for potential impacts.
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.
The CAAA also contain other provisions that could lead to limitations on
emissions of hazardous air pollutants. In response to the CAAA requirements, on
December 20, 2000, 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 of these potential new regulations is unknown at this time.
The EPA is in the process of developing a program to address regional haze. The
Bush administration announced that the EPA would move forward with rules that
mandate the states to require power plants built between 1962 and 1977 to
install the "best available retrofit technology" (BART). The BART program will
target for control by 2013 those pollutants that limit visibility, namely
particulate, sulfur dioxide and/or nitrogen oxides. Until the program is
developed, Northern Indiana cannot predict the cost of complying with these
rules.
WATER. The Great Lakes Water Quality Initiative (GLI) program is expected to add
new water quality standards for facilities that discharge into the Great Lakes
watershed, including Northern Indiana's three electric generating stations
located on Lake Michigan. The State of Indiana has promulgated its regulations
for this water discharge permit program and has received final EPA approval. As
promulgated, the regulations would provide the Indiana Department of
Environmental Management (IDEM) with the authority to grant water quality
criteria variances and exemptions for non-contact cooling water. However, the
EPA revised the variance language and other minor provisions of IDEM's GLI rule.
The EPA by and large left the non-contact cooling water exemption intact;
however, a separate agreement between the EPA and IDEM on interpretation of this
exemption still leaves uncertainty as to its impact. The EPA change to the
variance rule prompted litigation by the affected industrial parties and an
agreement on the non-contact cooling water exemption has been reached with
EPA/IDEM. Northern Indiana expects that IDEM will issue a proposed permit
renewal for each of its lakeside stations. Pending issuance of these permits,
the costs of complying with there requirements cannot be predicted at this time.
85
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
REMEDIATION. Northern Indiana is a PRP at three waste disposal sites under
CERCLA and similar state laws, and shares in the cost of their cleanup with
other PRPs. At one site, the remediation plan has been implemented and long-term
monitoring is ongoing. At another site, investigations are ongoing and final
costs of clean up have not yet been determined. At the third site, Northern
Indiana has recently entered into an EPA Administrative Order on Consent to
perform a removal action in the vicinity of a third party, state-permitted
landfill where Northern Indiana contracted for fly ash disposal. EPA and IDEM
are currently evaluating the potential for remedial action at this site. As
investigations and clean-ups proceed at each of these sites, and as additional
information becomes available, waste disposal site liability is reviewed
periodically and adjusted. In addition, Northern Indiana has corrective action
liability under the RCRA for closure and clean-up costs associated with
treatment, storage and disposal sites. As of December 31, 2002, a reserve of
approximately $1.2 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 the its financial position
or results of operations.
OTHER.
PRIMARY ENERGY. On June 26, 2002, EPA issued a Notice of Violation (NOV) to
three companies involved with a project at Ispat Inland Inc.'s East Chicago,
Indiana facility, including Primary Energy's subsidiary, Cokenergy. The NOV
alleges violations of the construction permit requirements of the Clean Air Act.
At issue is whether air emissions permitting requirements for major sources
applied to the construction of the project in 1997. Cokenergy representatives
met with EPA in mid-September 2002 to discuss the details of the allegations. At
the September meeting, the EPA indicated they would issue a request for
additional information, as well as provide substantiation for the NOV. No
requests or information have come from the EPA. Cokenergy maintains its belief
that the project was properly permitted by the IDEM and pending further
discussion with EPA, cannot predict whether any fines or penalties will be
assessed or if additional compliance costs will be incurred.
In December 2002, Primary Energy received notice from IDEM that it is reviewing
the required removal efficiency for Cokenergy's main stack desulfurization unit.
IDEM is exploring this as part of a rule revision to support redesignation of
Lake County, Indiana to attainment of the sulfur dioxide National Ambient Air
Quality Standards. Until this rulemaking is finalized, Primary cannot predict if
additional compliance costs will be incurred.
DISCONTINUED OPERATIONS. NiSource affiliates have retained environmental cleanup
liability associated with some of its former operations including those of
propane, petroleum and certain local gas distribution companies. The most
significant environmental liability relates to a former MGP site. The remainder
of the liability is associated with former petroleum operations.
The ultimate liability in connection with these sites will depend upon many
factors including the extent of environmental response actions required, other
PRPs and their financial viability, and indemnification from previous facility
owners. Only those corrective action costs currently known and determinable can
be considered "probable and reasonably estimable" under SFAS No. 5 and
consistent with SOP No. 96-1. As costs become probable and reasonably estimable,
reserves will be adjusted as appropriate. NiSource believes that any
environmental response actions required at former operations, for which it is
ultimately liable, after consideration of insurance coverage and contributions
from other PRPs, will not have a material adverse effect on NiSource's financial
position.
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 NiSource companies.
86
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 2002, a reserve of approximately $132.1 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.
H. OPERATING LEASES. Payments made in connection with operating leases are
primarily charged to operation and maintenance expense as incurred. Such amounts
were $79.0 million in 2002, $132.4 million in 2001 and $57.4 million in 2000.
Future minimum rental payments required under operating leases that have initial
or remaining noncancellable lease terms in excess of one year are:
($ in millions)
2003 56.3
2004 51.1
2005 47.6
2006 45.0
2007 43.6
After 173.9
------------------------------------------------------------------------
Total operating leases 417.5
------------------------------------------------------------------------
I. PURCHASE COMMITMENTS. NiSource has service agreements that provide for
pipeline capacity, transportation and storage services. These agreements, which
have expiration dates ranging from 2003 to 2014, require NiSource to pay fixed
monthly charges. The estimated aggregate amounts of such payments at December
31, 2002, were:
($ in millions)
2003 144.3
2004 202.0
2005 156.4
2006 119.3
2007 107.2
After 596.7
-----------------------------------------------------------------------
Total purchase commitments 1,325.9
-----------------------------------------------------------------------
20. ENRON BANKRUPTCY FILING
On December 2, 2001, Enron Corp. filed for protection from creditors under
Chapter 11 of the United States Bankruptcy Code. NiSource has certain exposure
to Enron as a result of hedging and trading activities and providing services to
Enron at NiSource's gas pipeline and gas distribution subsidiaries. Prior to
Enron's bankruptcy filing, NiSource had basis and commodity swaps, pipeline
transportation and storage agreements, physical commodity contracts for natural
gas, electricity and coal, and SO2 trading agreements in place with Enron as the
counterparty. All contracts, with the exception of the pipeline transportation
and storage agreements and a contract to supply gas to choice customers of the
Columbia of Ohio gas distribution subsidiary, were terminated by NiSource at the
end of November 2001. NiSource recorded a pre-tax charge of $17.8 million in
2001 related to the Enron bankruptcy filing. In 2002, an additional pre-tax
charge of $4.7 million was recognized. It is not anticipated that the final
disposition of Enron's liability to NiSource will have a significant effect on
income.
87
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21. OTHER COMPREHENSIVE INCOME
The following table displays the components of Other Comprehensive Income.
Year Ended December 31, (in millions) 2002 2001
------------------------------------- ---- ----
Foreign currency translation adjustment $ (1.5) $ (1.5)
Gain (loss) on available for sale securities (3.1) 2.6
Net unrealized gains (losses) on cash flow hedges 67.8 50.1
Minimum pension liability adjustment (203.7) -
------------------------------------------------------------------------------------------
TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET $ (140.5) $ 51.2
------------------------------------------------------------------------------------------
22. OTHER, NET
Year Ended December 31, (in millions) 2002 2001 2000
------------------------------------- ---- ---- ----
Interest income 14.6 18.8 18.7
Miscellaneous (4.4) (8.6) (30.1)
----------------------------------------------------------------------------------------------------------
TOTAL OTHER, NET $ 10.2 $ 10.2 (11.4)
----------------------------------------------------------------------------------------------------------
23. INTEREST EXPENSE, NET
Year Ended December 31, (in millions) 2002 2001 2000
------------------------------------- ---- ---- ----
Interest on long-term debt $ 451.9 $ 438.6 $ 136.6
Interest on short-term borrowings 57.6 145.4 166.6
Discount on prepayment transactions 21.0 20.5 8.0
Allowance for borrowed funds used
and interest during construction (4.3) (4.3) (3.9)
Other (0.1) (2.2) (2.8)
---------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE, NET $ 526.1 $ 598.0 $ 304.5
---------------------------------------------------------------------------------------------------------
24. SEGMENTS OF BUSINESS
Operating segments are components of an enterprise for which separate financial
information is available that 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 five 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, Indiana, Massachusetts, Maine and New Hampshire.
The Gas Transmission and Storage segment offers gas 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 Electric Operations segment
provides electric service in 21 counties in the northern part of Indiana. The
Exploration and Production segment explores for, develops and produces gas and
oil in the United States. The Other segment primarily includes gas marketing,
power marketing and trading and ventures focused on distributed power generation
technologies, including cogeneration facilities, fuel cells and storage systems.
During 2002, NiSource re-aligned its reportable segments to reflect the decision
to significantly scale back its merchant operations. Electric wholesale and
wheeling results were moved from the Merchant segment to the Electric segment.
The remaining Merchant segment operations were merged into the Other segment.
The telecommunications operations were moved from the Other segment to
discontinued operations due to NiSource's decision to exit the
telecommunications business. As a result of the realignment, all periods have
been adjusted to reflect the new segments.
88
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. Segment revenues include intersegment sales to affiliated
subsidiaries, which are eliminated in consolidation. Affiliated sales are
recognized on the basis of prevailing market, regulated prices or at levels
provided for under contractual agreements. Operating income is derived from
revenues and expenses directly associated with each segment.
(in millions) 2002 2001 2000
------------- ---- ---- ----
REVENUES
GAS DISTRIBUTION
Unaffiliated $ 3,290.8 $ 4,239.7 $ 2,084.5
Intersegment 19.6 40.6 67.4
-------- -------- --------
Total 3,310.4 4,280.3 2,151.9
--------- --------- ---------
GAS TRANSMISSION AND STORAGE
Unaffiliated 621.8 634.7 116.8
Intersegment 300.4 329.0 114.8
------- -------- --------
Total 922.2 963.7 231.6
--------- --------- ---------
ELECTRIC OPERATIONS
Unaffiliated 1,104.3 1,061.7 1,070.1
Intersegment 33.1 2.8 2.6
------- ------- -------
Total 1,137.4 1,064.5 1,072.7
--------- --------- ---------
EXPLORATION AND PRODUCTION
Unaffiliated 176.7 170.4 40.6
Intersegment 33.9 65.3 0.5
-------- -------- --------
Total 210.6 235.7 41.1
--------- --------- ---------
OTHER
Unaffiliated 1,283.8 3,348.0 2,702.2
Intersegment 46.1 103.3 72.2
--------- --------- ---------
Total 1,329.9 3,451.3 2,774.4
--------- --------- ----------
Adjustments and eliminations (418.2) (534.5) (242.3)
-------- -------- ---------
CONSOLIDATED REVENUES $ 6,492.3 $ 9,461.0 $ 6,029.4
--------- --------- ---------
89
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in millions) 2002 2001 2000
OPERATING INCOME (LOSS)
Gas Distribution $ 459.1 $ 380.8 $ 241.0
Gas Transmission and Storage 398.3 349.0 45.7
Electric 322.3 340.7 353.0
Exploration and Production 41.7 51.9 5.4
Other (34.3) (53.8) 80.4
Corporate 4.3 (10.9) (114.9)
Adjustments and eliminations 11.3 (24.8) 1.7
--------- --------- --------
CONSOLIDATED $ 1,202.7 $ 1,032.9 $ 612.3
--------- --------- --------
DEPRECIATION AMORTIZATION & DEPLETION
Gas Distribution $ 189.2 $ 228.8 $ 146.7
Gas Transmission and Storage 109.4 161.4 27.7
Electric 172.2 166.8 162.8
Exploration and Production 66.7 63.1 11.0
Other 26.4 10.2 23.4
Corporate 10.3 10.4 4.5
Adjustments and eliminations (0.2) 0.6 -
--------- --------- --------
CONSOLIDATED $ 574.0 $ 641.3 $ 376.1
--------- --------- --------
ASSETS
Gas Distribution $ 5,391.9 $ 5,368.6 $ 5,792.7
Gas Transmission and Storage 2,849.6 2,911.8 3,026.2
Electric 2,882.3 3,012.5 3,251.2
Exploration and Production 1,173.4 1,181.3 946.6
Other 1,440.4 1,309.7 2,474.9
Corporate 9,581.6 13,249.4 13,275.0
Adjustments and eliminations (6,422.3) (9,198.9) (9,079.5)
--------- --------- --------
CONSOLIDATED $ 16,896.9 $ 17,834.4 $ 19,687.1
--------- --------- --------
CAPITAL EXPENDITURES
Gas Distribution $ 196.4 $ 211.3 $ 138.3
Gas Transmission and Storage 128.0 137.4 50.3
Electric 197.8 134.7 132.2
Exploration and Production 90.8 118.8 22.7
Other 5.9 77.0 22.3
--------- --------- --------
CONSOLIDATED $ 618.9 $ 679.2 $ 365.8
--------- --------- --------
90
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
25. QUARTERLY FINANCIAL DATA (UNAUDITED)
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
-------------------------------------- ------- ------- ------- -------
2002
Gross revenues 2,208.2 1,375.9 1,066.8 1,841.4
Operating Income 521.2 165.6 186.0 329.9
Income (Loss) from Continuing Operations 243.8 22.6 25.4 133.9
Income from Discontinued Operations -
net of taxes (1.6) 2.4 (2.2) (51.8)
Net Income 242.2 25.0 23.2 82.1
Basic Earnings Per Share of Common Stock
Continuing Operations 1.19 0.11 0.12 0.59
Discontinued Operations (0.01) 0.01 (0.01) (0.23)
------- ------- ------- -------
Basic Earnings Per Share 1.18 0.12 0.11 0.36
------- ------- ------- -------
Diluted Earnings Per Share of Common Stock
Continuing Operations 1.17 0.11 0.12 0.59
Discontinued Operations (0.01) 0.01 (0.01) (0.23)
------- ------- ------- -------
Diluted Earnings Per Share 1.16 0.12 0.11 0.36
------- ------- ------- -------
2001
Gross revenues 3,859.5 1,939.1 1,628.6 2,033.8
Operating Income 467.3 167.4 130.5 267.7
Income (Loss) from Continuing Operations 179.9 (1.7) (19.5) 67.7
Income from Discontinued Operations -
net of taxes (2.0) (9.9) (1.5) (0.8)
Change in Accounting- net of taxes 4.0 - - -
Net Income 181.9 (11.6) (21.0) 66.9
Basic Earnings Per Share of Common Stock
Continuing Operations 0.88 (0.01) (0.09) 0.33
Discontinued Operations (0.01) (0.05) (0.01) -
Change in accounting 0.02 - - -
------- ------- ------- -------
Basic Earnings Per Share 0.89 (0.06) (0.10) 0.33
------- ------- ------- -------
Diluted Earnings Per Share of Common Stock
Continuing Operations 0.86 (0.01) (0.09) 0.33
Discontinued Operations (0.01) (0.05) (0.01) (0.01)
Change in accounting 0.02 - - -
------- ------- ------- -------
Diluted Earnings Per Share 0.87 (0.06) (0.10) 0.32
------- ------- ------- -------
91
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
26. EXPLORATION AND PRODUCTION ACTIVITIES (UNAUDITED)
Reserve information contained in the following tables is based on management's
estimates, which were reviewed by the independent consulting firm of
Schlumberger Data and Consulting Services. Reserves are reported as net working
interest. Gross revenues are reported after deduction of royalty interest
payments. The following information begins with the year 2001, due to NiSource's
acquisition of Columbia Resources toward the end of 2000. Although NiSource has
Canadian holdings, no significant costs or reserves are associated with those
properties.
RESERVE QUANTITY INFORMATION
UNITED STATES
----------------------------------------------
Oil & Other
Gas Liquids
Proved Reserves (Bcf) (000 Bbls)
------- -------
RESERVES AS OF DECEMBER 31, 2000 1,098.6 1,221
Revisions of previous estimate (90.8) (106)
Extensions, discoveries and other additions 62.2 -
Production (54.0) (213)
Sale of reserves-in-place (3.2) (7)
------- ------
RESERVES AS OF DECEMBER 31, 2001 1,012.8 895
Revisions of previous estimate 70.3 672
Extensions, discoveries and other additions 124.7 31
Production (54.2) (202)
------- ------
RESERVES AS OF DECEMBER 31, 2002 1,153.6 1,396
------- ------
Reserves Held for Sale (a) 39.3 -
Proved developed reserves as of December 31,
2001 729.0 728
2002 819.9 1,262
------- ------
(a) The amount shown as Reserves Held for Sale is included in the total
Reserves as of December 31, 2002.
CAPITALIZED COSTS
UNITED STATES
($ in millions) 2002 2001
CAPITALIZED COSTS AT YEAR END
Proved properties 968.1 916.6
Unproved properties (a) 88.2 94.9
------- -------
Total capitalized costs 1,056.3 1,011.5
Accumulated depletion (119.3) (66.9)
------- -------
NET CAPITALIZED COSTS 937.0 944.6
------- -------
COSTS CAPITALIZED DURING YEAR
Acquisition properties
Proved 1.5 2.0
Unproved 6.2 6.7
Exploration 5.8 7.2
Development 62.5 57.0
------- -------
COSTS CAPITALIZED 76.0 72.9
------- -------
(a) Represents expenditures associated with properties on which evaluations
have not been completed.
92
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OTHER EXPLORATION AND PRODUCTION DATA
UNITED STATES
----------------------
$ in millions) 2002 2001
-------------- ---- ----
Average sales price per Mcf of gas ($)(a) 3.45 4.04
Average sales price per barrel of oil and other liquids ($) 19.01 22.52
Production (lifting) cost per dollar of gross revenue ($) 0.17 0.16
Depletion rate per dollar of gross revenue ($) 0.31 0.25
----- -----
(a) Includes the effect of hedging activities
HISTORICAL RESULTS OF OPERATIONS
UNITED STATES
------------------------
($ in millions) 2002 2001
--------------- ---- ----
Gross revenues
Unaffiliated 156.9 157.4
Affiliated 33.9 65.4
Production costs 32.7 35.7
Depletion 59.7 56.3
Successful Efforts Expense 12.2 21.9
Income tax expense 32.7 41.9
----------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS 53.5 67.0
----------------------------------------------------------------------------------------------------
Results of operations for exploration and production activities exclude
administrative and general costs, corporate overhead and interest expense.
Income tax expense is expressed at statutory rates less Section 29 credits.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
UNITED STATES
($ in millions) 2002 2001
--------------- ---- ----
Future cash inflows 6,076.7 3,158.8
Future production costs (1,045.3) (793.5)
Future development costs (421.6) (311.8)
Future income tax expense (1,861.1) (642.7)
--------- -------
Future net cash flows 2,748.7 1,410.8
Less: 10% discount 1,738.1 797.3
--------- -------
STANDARDIZED MEASURE OF DISCOUNTED
FUTURE NET CASH FLOW 1,010.6 613.5
--------- -------
Future cash inflows are computed by applying year-end prices to estimated future
production of proved gas and oil reserves. Future expenditures (based on
year-end costs) represent those costs to be incurred in developing and producing
the reserves. Discounted future net cash flows are derived by applying a 10%
discount rate, as required by the Financial Accounting Standards Board, to the
future net cash flows. This data is not intended to reflect the actual economic
value of NiSource's gas and oil producing properties or the true present value
of estimated future cash flows since many arbitrary assumptions are used. The
data does provide a means of comparison among companies through the use of
standardized measurement techniques.
93
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of the components resulting in changes in the standardized
measure of discounted cash flows attributable to proved gas and oil reserves for
the year ending December 31, 2002 follows. The Exploration and Production
Operations segment became a part of NiSource operations on November 1, 2000, as
a result of the Columbia acquisition and consequently, the years are not
comparable, therefore the 2001 reconciliation has been omitted.
UNITED STATES
($ in millions) 2002
--------------- ----
BEGINNING OF YEAR 613.5
--------
Gas and oil sales net of production costs (158.1)
Net changes in prices and production costs 844.3
Change in future development costs (65.8)
Extensions, discoveries and other additions, net of related costs 173.9
Revisions of previous estimates, net of related costs 139.1
Accretion of discount 87.1
Net change in income taxes (404.9)
Timing of production and other changes (218.5)
--------
END OF YEAR 1,010.6
--------
94
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC. AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET
As of December 31, (in millions) 2002 2001
-------------------------------- ---- ----
ASSETS
Other property, at cost, less accumulated depreciation $ 12.4 $ 21.3
Investments and Other Assets:
Net assets of discontinued operations 79.2 509.0
Assets held for sale 26.1 15.4
Investments in subsidiary companies 7,798.6 7,259.1
---------- ----------
Total Investments 7,903.9 7,783.5
---------- ----------
Current Assets:
Cash and cash equivalents 1.3 7.8
Amounts receivable from subsidiaries 666.1 577.6
Deferred taxes 111.5 27.3
Prepayments 0.1 0.1
---------- ----------
Total Current Assets 779.0 612.8
---------- ----------
Other (principally notes receivable from associated companies) 28.5 32.8
---------- ----------
TOTAL ASSETS $ 8,723.8 $ 8,450.4
========== ==========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity $ 4,174.9 $ 3,469.4
Long-term debt, excluding amounts due within one year 125.9 116.9
---------- ----------
Total Capitalization 4,300.8 3,586.3
---------- ----------
Current Liabilities 81.9 144.9
Other (principally notes payable to associated companies) 4,341.1 4,719.2
---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES $ 8,723.8 $ 8,450.4
---------- ----------
95
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL 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) 2002 2001 2000
--------------------------------------------------------------- ---- ---- ----
Equity in net earnings of subsidiaries $ 581.6 $ 368.9 $ 312.2
-------- -------- --------
Other income (deductions):
Administrative and general expenses (21.8) (12.4) (52.1)
Loss on asset impairment - (9.2) (65.8)
Gain on sale of assets/property 19.5 - -
Interest income 9.0 32.3 51.6
Interest expense (292.1) (78.5) (141.5)
Other, net (10.5) (116.5) (22.3)
-------- -------- --------
(295.9) (184.3) (230.1)
-------- -------- --------
Income from continuing operations before income taxes 285.7 184.6 82.1
Income taxes (86.8) (27.5) (59.0)
-------- -------- --------
Income from continuing operations 372.5 212.1 141.1
-------- -------- --------
Income from discontinued operations - net of tax - 0.1 9.8
Change in accounting - net of taxes - 4.0 -
-------- -------- --------
NET INCOME $ 372.5 $ 216.2 $ 150.9
======== ======== ========
Average common shares outstanding (thousands) 211,009 205,301 134,470
Basic earnings per share
Continuing operations $ 2.02 $ 1.10 $ 1.05
Income from discontinued operations (0.25) (0.07) 0.07
Change in accounting -- 0.02 -
-------- -------- --------
BASIC EARNINGS PER SHARE $ 1.77 $ 1.05 $ 1.12
======== ======== ========
Diluted earnings per share
Continuing operations $ 2.00 $ 1.08 $ 1.04
Income from discontinued operations (0.25) (0.07) 0.07
Change in accounting - 0.02 -
-------- -------- --------
DILUTED EARNINGS PER SHARE $ 1.75 $ 1.03 $ 1.11
======== ======== ========
96
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL 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) 2002 2001 2000
--------------------------------------------------------------- ---- ---- ----
Net cash provided in operating activities $ 119.8 $ 521.2 $ (152.0)
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired - - (5,654.5)
Construction work in progress - (2.0) 0.7
Proceeds from disposition of assets 35.6 - 68.3
Investments at cost (261.9) (2.7) -
-------- -------- ---------
Net cash provided by (used in) investing activities (226.3) (4.7) (5,585.5)
-------- -------- ---------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Issuance of common shares 734.9 (0.1) 2,042.1
Increase (decrease) in notes payable to subsidiaries (298.0) (364.9) 3,785.0
Increase in notes receivable from subsidiaries (88.5) 90.8 108.3
Cash dividends paid on common shares (241.5) (238.0) (131.8)
Acquisition of treasury shares (6.9) - (65.9)
-------- -------- ---------
Net cash provided by (used in) financing activities 100.0 (512.2) 5,737.7
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents (6.5) 4.3 0.2
Cash and cash equivalents at beginning of year 7.8 3.5 3.3
-------- -------- ---------
Cash and cash equivalents at end of year $ 1.3 $ 7.8 $ 3.5
-------- -------- ---------
97
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL 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 by its consolidated subsidiaries were (in
millions of dollars): $444.4, $248.0 and $302.2 in 2002, 2001 and 2000,
respectively. In addition, NiSource received (in millions of dollars): $15.7,
$7.0 and $16.3 in 2002, 2001 and 2000, respectively in cash distributions from
equity investments.
2. NOTES TO CONDENSED FINANCIAL STATEMENTS
See Item 8 for the full text of notes to the Consolidated Financial Statements.
98
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
TWELVE MONTHS ENDED DECEMBER 31, 2002
Additions Deductions for
Charged to Charged Purposes for
Balance Costs and to Other Sale of which Reserves Balance
Description ($ in millions) Jan. 1, 2001 Acquisitions Expenses Account Assets were Created Dec. 31, 2002
--------------------------- ------------ ------------ -------- ------- ------ ------------ -------------
Reserves Deducted in Consolidated Balance
Sheet from Assets to Which They Apply:
Reserve for accounts receivable 56.5 - 54.3 46.4 - 100.0 57.2
Reserve for other investments 25.6 - (0.5) 4.3 - - 29.4
Reserves Classified Under Reserve Section
of Consolidated Balance Sheet:
Environmental reserves 167.4 - (8.4) - - 26.9 132.1
Restructuring reserve 58.3 - 41.3 (13.3) - 36.7 49.6
Reserve for cost of operational gas 13.7 - (6.8) - - 2.9 4.0
Accumulated provision for rate refund 1.5 - 0.8 0.4 - 1.0 1.7
Unpaid medical claims 2.9 - - - - - 2.9
Gas air conditioning development
funding reserve 1.3 - - - - - 1.3
Amount owed for purchase
gas imbalance 0.4 - - - - - 0.4
Construction project reserve 3.2 - - - - - 3.2
Additions Deductions for
Charged to Charged Purposes for
Balance Costs and to Other Sale of which Reserves Balance
Description ($ in millions) Jan. 1, 2001 Acquisitions Expenses Account Assets were Created Dec. 31, 2001
--------------------------- ------------ ------------ -------- ------- ------ ------------ -------------
Reserves Deducted in Consolidated
Balance Sheet from Assets to
Which They Apply:
Reserve for accounts receivable 41.8 -- 61.8 59.3 -- 106.4 56.5
Reserve for other investments 43.4 -- 7.0 4.0 14.4 14.4 25.6
Reserves Classified Under Reserve Section
of Consolidated Balance Sheet:
Environmental reserves 130.5 -- 54.9 -- -- 18.0 167.4
Restructuring reserve 65.4 (6.4) 28.7 -- -- 29.4 58.3
Reserve for cost of operational gas 1.2 -- 19.8 -- -- 7.3 13.7
Accumulated provision for rate refund 1.5 -- -- -- -- -- 1.5
Unpaid medical claims 2.9 -- -- -- -- -- 2.9
Gas air conditioning development
funding reserve 1.3 -- -- -- -- -- 1.3
Amount owed for purchase gas imbalance 0.4 -- -- -- -- -- 0.4
Construction project reserve 1.8 -- -- 1.4 -- -- 3.2
99
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued)
NISOURCE INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
TWELVE MONTHS ENDED DECEMBER 31, 2000
Additions Deductions for
Charged to Charged Purposes for
Balance Costs and to Other Sale of which Reserves Balance
Description ($ in millions) Jan. 1, 2000 Acquisitions Expenses Account Assets were Created Dec. 31, 2001
--------------------------- ------------ ------------ -------- ------- ------ ------------ -------------
Reserves Deducted in Consolidated Balance
Sheet from Assets to Which They Apply:
Reserve for accounts receivable 30.4 15.0 93.2 1.2 0.2 97.8 41.8
Reserve for other investments 24.7 - 21.5 - - 2.8 43.4
Reserves Classified Under Reserve
Section of Consolidated Balance Sheet:
Environmental reserves 23.8 110.0 1.8 - - 5.1 130.5
Restructuring reserve - 66.9 6.1 - - 7.6 65.4
Reserve for cost of operational gas 1.2 - - - - - 1.2
Accumulated provision for rate refund 0.5 - 1.0 - - - 1.5
Unpaid medical claims 2.9 - - - - - 2.9
Gas air conditioning development
funding reserve 1.3 - - - - - 1.3
Amount owed for purchase gas imbalance 0.4 - - - - - 0.4
Construction project reserve 0.6 - 1.2 - - - 1.8
100
ITEM 15 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. 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
The following reports on Form 8-K were filed during the fourth quarter of 2002.
Financial
Item Reported Statements Included Date of Event Date Filed
------------- ------------------- ------------- ----------
5,7 No 10/28/2002 11/1/2002
9 No 11/3/2002 11/4/2002
5,7 No 11/6/2002 11/7/2002
102
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused Amendment No. 1 to this report to be signed on
its behalf by the undersigned, hereunto duly authorized.
NiSource Inc.
----------------------------------------
(Registrant)
Date March 7, 2003 By: /s/ Jeffrey W. Grossman
----------------------- ----------------------------------------
Jeffrey W. Grossman
Vice President and Controller
(Principal Accounting Officer)
103
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gary L. Neale, certify that:
1. I have reviewed this annual report on Form 10-K/A of NiSource
Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operation and cash flows of the registrant as of,
and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a) All significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this annual report whether there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: March 7, 2003 By: /s/ Gary L. Neale
---------------------------------------
Gary L. Neale
Chief Executive Officer
104
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael W. O'Donnell, certify that:
1. I have reviewed this annual report on Form 10-K/A of NiSource
Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operation and cash flows of the registrant as of,
and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a) All significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this annual report whether there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: March 7, 2003 By: /s/ Michael W. O'Donnell
-------------------------------------
Michael W. O'Donnell
Chief Financial Officer
105
EXHIBIT INDEX
NISOURCE INC.
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 (incorporated by reference
to Exhibit 3.2 to the NiSource Inc. Annual Report on Form 10-K for the
year ended December 31, 2001).
(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) 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).
(4.3) 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).
(4.4) 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)).
(4.5) 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)).
(4.6) 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)).
(4.7) 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).
(4.8) 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).
(4.9) 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).
106
EXHIBIT INDEX (continued)
NISOURCE INC.
(4.10) 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)).
(4.11) 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).
(4.12) 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)).
(4.13) 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)
(4.14) 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).
(4.15) 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).
(4.16) 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).
(4.17) 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).
(4.18) 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).
(4.19) 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 (incorporated by reference to
Exhibit 4.45 to the NiSource Inc. Annual Report on Form 10-K for the
period ended December 31, 2000).
(4.20) First Supplemental Indenture, dated as of November 1, 2000, among
NiSource Capital Markets, Inc., NiSource Inc., and The Chase
Manhattan Bank, as trustee (incorporated by reference to Exhibit 4.46
to the NiSource Inc. Annual Report on Form 10-K for the period ended
December 31, 2000).
(4.21) 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 (incorporated by reference to Exhibit 4.47 to the
NiSource Inc. Annual Report on Form 10-K for the period ended
December 31, 2000).
107
EXHIBIT INDEX (continued)
NiSOURCE, INC.
(4.22) 364-Day Revolving Credit Agreement, dated as of March 21, 2002, among
NiSource Finance Corp., as Borrower, NiSource Inc., as Guarantor, the
Lenders party thereto, as Lenders, 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 (incorporated by reference to Exhibit 4.48 to NiSource Inc.'s
Quarterly Report on Form 10-Q for the period ended March 31, 2002).
(4.23) 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)).
(4.24) 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)).
(4.25) 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)).
(4.26) 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)).
(4.27) 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)).
(4.28) 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)).
(4.29) 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)).
(4.30) 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.
(4.31) 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 (incorporated by
reference to Exhibit 4.60 to the NiSource Inc. Annual Report on Form
10-K for the period ended December 31, 2000).
(4.32) 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 (incorporated by
reference to Exhibit 4.61 to the NiSource, Inc. Annual Report on Form
10-K for the period ended December 31, 2000).
108
EXHIBIT INDEX (continued)
NiSOURCE INC.
(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) NiSource Inc. Executive Deferred Compensation Plan effective November
1, 2000 (incorporated by reference to Exhibit 10.2 to the NiSource
Inc. Annual Report on Form 10-K for the period ended December 31,
2002).*
(10.3) Columbia Energy Group Deferred Compensation Plan amended and effective
July 1, 1998 (incorporated by reference to Exhibit 10.3 to the
NiSource, Inc. Annual Report on Form 10-K for the period ended
December 31, 2002).*
(10.4) Form of Change in Control and Termination Agreements and Schedule of
Parties to the Agreements (incorporated by reference to Exhibit 10.4
to the NiSource Inc. Annual Report on Form 10-K for the period ended
December 31, 2002).*
(10.5) Nonemployee Director Stock Incentive Plan of NiSource Inc. (As Amended
July 7, 2002 and Restated Effective July 1, 2002) (incorporated by
reference to Exhibit 10.5 to the NiSource Inc. Annual Report on Form
10-K for the period ended December 31, 2002).*
(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).*
(10.7) 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)).*
(10.8) First and Second Amendments to the NiSource Inc. 1994 Long Term
Incentive Plan (incorporated by reference to Exhibit 10.9 to the
NiSource Inc. Annual Report on Form 10-K for the year ended December
31, 2001).*
(10.9) Third and Fourth Amendment to the NiSource Inc. 1994 Long Term
Incentive Plan (incorporated by reference to Exhibit 10.9 to the
NiSource Inc. Annual Report on Form 10-K for the period ended December
31, 2002).*
(10.10) Letter Agreement dated December 16, 2002, between Patrick J. Mulchay
and NiSource Corporate Services Company (incorporated by reference to
Exhibit 10.10 to the NiSource Inc. Annual Report on Form 10-K for the
period ended December 31, 2002).* ***
(10.11) Letter Agreement dated August 28, 2002, as amended November 4, 2002,
between Jeffrey W. Yundt and NiSource Corporate Services Company
(incorporated by reference to Exhibit 10.11 to the NiSource Inc.
Annual Report on Form 10-K for the period ended December 31, 2002).*
***
(10.12) 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).*
(10.13) 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).
* Management contract or compensatory plan or arrangement of NiSource
Inc.
** Exhibit filed herewith.
*** Confidential portions of this exhibit have been redacted and filed
separately with the Commission pursuant to a confidential treatment
request in accordance with Rule 24b-2 of the Securities Exchange Act
of 1934, as amended.
109
EXHIBIT INDEX (continued)
NISOURCE INC.
(10.14) $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).
(10.15) $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).
(10.16) 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).
(10.17) 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).
(10.18) 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).
(10.19) 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).
(10.20) 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).
(10.21) Nonemployee Director Retirement Plan, as amended and restated
effective January 1, 2002 (incorporated by reference to Exhibit 10.21
to the NiSource Inc. Annual Report on Form 10-K for the period ended
December 31, 2002).*
(10.22) Supplemental Executive Retirement Plan effective June 1, 2002
(incorporated by reference to Exhibit 10.22 to the NiSource Inc.
Annual Report on Form 10-K for the period ended December 31, 2002).*
(10.23) Bay State Gas Company Supplemental Executive Retirement Plan restated
January 1, 1992 (incorporated by reference to Exhibit 10.23 to the
NiSource Inc. Annual Report on Form 10-K for the period ended
December 31, 2002).*
(10.24) Pension Restoration Plan of The Columbia Gas System, Inc., amended
and restated March 1, 1997 (incorporated by reference to Exhibit 10.27
of the NiSource Inc. Quarterly Report on Form 10-Q for the period
ended September 30, 2001).*
(10.25) Thrift Restoration Plan for The Columbia Energy Group, as amended and
restated effective January 1, 2000 (incorporated by reference to
Exhibit 10.28 to the NiSource Inc. Quarterly Report or Form 10-Q for
the period ended September 30, 2001).*
(10.26) Agreement dated December 18, 2000 between Catherine G. Abbott and
NiSource Inc. (incorporated by reference to Exhibit 10.29 to the
NiSource Inc. Annual Report on Form 10-K for the period ended
December 31, 2000).*
* Management contract or compensatory plan or arrangement of NiSource Inc.
110
EXHIBIT INDEX (continued)
NISOURCE INC.
(10.27) NiSource Inc. Executive Severance Policy, effective June 1, 2002
(incorporated by reference to Exhibit 10.27 to the NiSource Inc.
Annual Report on Form 10-K for the period ended December 31, 2002).*
(10.28) NiSource Inc. Annual Incentive Plan, effective as of January 1, 2002
(incorporated by reference to Exhibit 10.28 to the NiSource Inc.
Annual Report on Form 10-K for the period ended December 31, 2002).*
(10.29) Natural Gas Advance Sale Contract, dated December 1, 1999, between
Columbia Natural Resources, Inc. and Mahonia II Limited (incorporated
by reference to Exhibit 10.30 to the NiSource Inc. Quarterly Report on
Form 10-Q for the period ended March 31, 2001).
(10.30) First Amendment to Natural Gas Advance Sale Contract (dated December
1, 1999), effective March 30, 2001, between Columbia Natural
Resources, Inc. and Mahonia II Limited (incorporated by reference to
Exhibit 10.31 to the NiSource Inc. Quarterly Report on Form 10-Q for
the period ended March 31, 2001).
(10.31) Natural Gas Advance Sale Contract, dated August 24, 2000, between
Columbia Natural Resources, Inc. and Mahonia II Limited (incorporated
by reference to Exhibit 10.32 to the NiSource Inc. Quarterly Report on
Form 10-Q for the period ended March 31, 2001).
(10.32) First Amendment to Natural Gas Advance Sale Contract (dated August 24,
2000), effective March 30, 2001, between Columbia Natural Resources,
Inc. and Mahonia II Limited (incorporated by reference to Exhibit
10.33 to the NiSource Inc. Quarterly Report on Form 10-Q for the
period ended March 31, 2001).
(10.33) Form of Agreement between NiSource Inc. and certain officers of
Columbia Energy Group and schedule of parties to such Agreements
(incorporated by reference to Exhibit 10.33 to the NiSource Inc.
Annual Report on Form 10-K for the period ended December 31, 2002).*
(10.34) NiSource Inc. Directors' Charitable Gift Program effective January 1,
2001 (incorporated by reference to Exhibit 10.35 to the NiSource Inc.
Quarterly Report on Form 10-Q for the period ended June 30, 2001).*
(10.35) Letter Agreement between NiSource Corporate Services Company and S.
LaNette Zimmerman, dated July 15, 2002 (incorporated by reference to
Exhibit 10.35 to the NiSource Inc. Annual Report on Form 10-K for the
period ended December 31, 2002).*
(10.36) Consulting Agreement, effective February 2002, between Jeffrey W.
Yundt and NiSource Corporate Services Company (incorporated by
reference to Exhibit 10.36 to the NiSource Inc. Annual Report on Form
10-K for the period ended December 31, 2002).*
(12) Ratio of Earnings to Fixed Charges, (incorporated by reference to
Exhibit 12 to the NiSource Inc. Annual Report on Form 10-K for the
period ended December 31, 2002).
(16) Letter from Arthur Andersen LLP regarding change in certifying
accountant (incorporated by reference to Exhibit 16 to the NiSource
Inc. Current Report on Form 8-K dated May 21, 2002).
(21) List of Subsidiaries (incorporated by reference to Exhibit 21 to the
NiSource Inc. Annual Report on Form 10-K for the period ended December
31, 2002).
(23.1) Consent of Deloitte & Touche LLP.**
* Management contract or compensatory plan or arrangement of NiSource Inc.
** Exhibit filed herewith.
111
EXHIBIT INDEX (continued)
NISOURCE INC.
(23.2) Written consent, dated February 5, 2003, to the filing and use of
information contained in such letter report, in Reports and
Registration Statements filed during 2002, of Schlumberger Data and
Consulting Services independent petroleum and natural gas consultants
(incorporated by reference to Exhibit 23.2 to the NiSource Inc. Annual
Report on Form 10-K for the period ended December 31, 2002).
(99.1) Certification of Gary L. Neale, Chief Executive Officer, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. **
(99.2) Certification of Michael W. O'Donnell, Chief Financial Officer,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. **
** 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.
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