By KEVIN NEVERS

NiSource Inc. finished 2008 with a strong fourth quarter, but that showing was unable to salvage the rest of the year.

Today the company reported a net income for 2008 of $79 million or 29 cents basic earnings per share, compared to $321.4 million or $1.17 basic earning per share in 2007.

In fact NiSource reported a much improved income from continuing operations last year—$369.8 million in 2008, compared to $302.9 million in 2007—but got nailed by losses from discontinued operations and on the disposition of discontinued operations, totaling $290.8 million. In 2007, in contrast, the company reported a total income of $18.5 million from discontinued operations and on the disposition of discontinued operations.

Those losses included an after-tax loss of $108.1 million or 39 cents per share associated with the accounting in 2008 of Northern Utilities, Granite State Gas Transmission, and Whiting Clean Energy as discontinued operations; and an unspecified accrual related to the Tawney class-action lawsuit in West Virginia, settled in the fourth quarter by an agreement under which NiSource will pay no more than $338.8 million.

For the fourth quarter of 2008, meanwhile, NiSource reported a net income of $162 million or 59 cents basic earnings per share,  compared to a net income of $67 million of 24 cents basic earnings per share in the year-ago period.

“Across virtually every key dimension of our business, our teams made excellent progress in executing on our business strategy in 2008,” NiSource President and CEO Robert Skaggs Jr. said. “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. Having said that, we fully appreciate the challenges that lie ahead and we are focused on managing them effectively.”

Skaggs noted that NiSource delivered 2008 earning with the company’s guidance range of $1.25 to $1.35 per share.

2008 Highlights

•NiSource sold Northern Utilities and Granite State Gas Transmission for approximately $200 million, including working capital.

•NiSource sold Whiting Clean Energy for $217, including working capital.

•In September the company supplemented its $1.5 billion revolving credit facility with a new six-month $500 million credit facility. “That facility helped ensure ample liquidity to accommodate the company’s seasonal cash flow requirements and to provide near-term funding flexibility related to the Tawney settlement,” NiSource said.

•To make all payments related to the $338.8 million Tawney settlement, the company plans to issue unsecured corporate debt up to $500 million and is in discussions with a syndicate of banks concerning a two-year term issuance maturing in April 2011. “I am confident we will be successful in maintaining an adequate liquidity position for NiSource going forward,” Skaggs said. “With the aggressive steps we have already taken and a series of measures in process, we are well on our way to meeting this year’s financing requirements.”

Outlook

The “most significant impact on NiSource’s near-term earnings outlook,” the statement said, “relates to an increase in pension expenses of about $100 million, or about 24 cents per share, in 2009 due to the deterioration in global securities markets in 2008. In addition, interest expense is expected to increase over 2008 levels by approximately 12 cents per share.”

To mitigate the effect of the downturn, the company said, several initiatives have been implemented, including reducing O&M expenses, limiting the hiring and replacement of employees, freezing base compensation for NiSource senior executives, and postponing most exempt employee pay increases.

“Our portfolio of regulated assets and our balanced business plan are better suited than many to weather the current economic and financial market conditions,” Skaggs said. “Having said that, we are by no means immune to these conditions and we are taking meaningful steps to address their impact on our company.”

NiSource has issued a 2009 guidance for basic earnings per share from continuing operations of $1.00 to $1.10 per share.

Operating Income 2008

•Gas distribution: $334.9 million ($325 million 2007)

•Gas transmission and storage: $369.7 million ($362 million 2007).

•Electric: $219.2 million ($261.5 million 2007).

•Other: $2.2 million ($700,000 2007).

•Corporate: an operating loss of $8.3 million (an operating loss of $32.5 million 2007).

•Total: $917 million ($916.7 million 2007).

Operating Income

Fourth Quarter 2008

•Gas distribution: $146.5 million ($98.6 million year-ago).

*Gas transmission and storage: $104.7 million ($112.6 million year-ago).

•Electric: $48.7 million ($38.3 million year-ago).

•Other: $700,000 ($1.9 million year-ago).

•Corporate: an operating loss of $1.9 million (an operating loss of $18.7 million year-ago).

•Total: $298.7 million ($232.7 million year-ago).

Posted 2/4/2009