Sustained Outrage

NiSource: The glass is half full

NiSource, the Indiana energy company that owns Charleston-based Columbia Gas Transmission Co., had a pretty darned good year in 2008, according to its Feb. 4 press release.

The company earned $369.8 million from continuing operations — up $67 million or 22 percent from its 2007 profits, the report says.

Stockholders — the folks these announcements presumably are aimed at — should have been encouraged to see that yearly income per share of stock from continuing operations rose at a similar rate, almost 23 percent.

Things look a little less rosy in the very first paragraph, where NiSource says net operating income for 2008 ($348.5 million) fell slightly compared to 2007 — about 4 percent.

NiSource, you’ll recall, announced a few weeks later it was cutting 95 jobs in Charleston and 75 more elsewhere in the state, as our Eric Eyre reported. In its press release,<co link> it said the job cuts were among “several structural changes designed to enhance operation efficiency, support growth initiatives, and maintain safe, reliable service to customers.”

And yes, NiSource once owned, then sold, Columbia Gas’ former well drilling and production unit here, now owned by Chesapeake Energy. That probably didn’t work out so well, as you’ll see below.

robertskaggs1.jpgBut company president and CEO Robert C. Skaggs Jr. (left) sounded plenty upbeat in his canned remarks on Feb. 4:

Across virtually every key dimension of our business, our teams made excellent progress in executing on our business strategy in 2008. In what proved to be an extraordinary year for us and so many businesses, we were able to hit our key financial and business targets and continue building a foundation for sustainable investment-driven growth. These were outstanding achievements, especially in light of current difficult economic and financial conditions.

Here’s the thing, though: NiSource didn’t really make $369.8 million last year, or even $348.5 million. It made $79 million.

I didn’t figure this out until I was checking the company’s results at Morningstar.com, a financial information service I like. Morningstar showed that yearly net income suddenly dropped off steeply in 2008 — to $79 million.

That didn’t sound like the number NiSource reported. So I checked NiSource’s figures again, and figured out why I was confused. Careful readers may have already picked up on it.

NiSource reported net operating earnings, and income from continuing operations, whereas Morningstar reported net income. Each has a different meaning and, as you can see, paints a different picture of how the company did.

Cutting into the company’s $369.8 million income from continuing operations were two big items — what are often called one-time events: A $170.9 million loss from discontinued operations and a $119.9 million loss on disposition of discontinued operations. If you add (or subtract) these two, you get the net income. That’s the true bottom line.

(In its discussion of discontinued operations, the company says it recorded an accrual — but doesn’t say how much — related to the Tawney lawsuit in West Virginia. That’s the Roane County case in which a jury awarded $404 million to gas well landowners. NiSource and Chesapeake agreed to settle the case late last year, with NiSource on the hook for up to $328.8 million.)

I’m no financial expert, but I believe most analysts agree that net income is the figure that best represents a company’s financial performance, which is why services like Morningstar and others use it and not some other figure.

NiSource, to be sure, did report its net income for 2008. It’s at the bottom of page 14 of the 18-page report, in a table of numbers titled Consolidated Income Statement.

This table comes after five other long tables: Consolidated Net Operating Earnings; Segment Operating Earnings; Segment Volumes and Statistical Data; Schedule 1 – Reconciliation of Net Operating Earnings to GAAP; and Schedule 2 – Quarterly Adjustments by Segment from Operating Earnings to GAAP for Quarter ended December 31, 2008.

It also follows more than six pages of text that discuss the financial data. As far as I can tell, nowhere in the text do company officials mention the net income.

By the way, the transmission and storage segment — the one that laid off a quarter of its workforce less than four weeks later — did just fine in 2008, the company reported:

Gas Transmission and Storage Operations reported operating earnings of $376.7 million versus operating earnings of $371.8 million in 2007. The increase resulted primarily from lower operating expenses. Operating expenses decreased by $4.1 million due to lower legal reserves and insurance costs partially offset by higher employee and administrative expenses.

NiSource got more than 40 percent of its operating income last year from its transmission and storage operations. Apparently that wasn’t good enough.

I’m not sure there’s a right or wrong way to present financial data. Companies choose which figures they wish to highlight. Analysts, services like Morningstar and reporters present their data as they see fit.

I remember getting a call from a PR woman from a regional bank a few years ago, wondering why I reported the company’s net income when they touted income from continuing operations in their press release. She implied I’d made a mistake.

Some companies seem to have one-time events — like losses or gains from discontinued operations — nearly every year. You can’t just pretend they don’t happen.

It reminds of the old joke: Other than that, Mrs. Lincoln, how did you like the play?