Vectren 2008 Annual Report Download - page 102

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100
measurements; however, the standard will impact how other fair value based GAAP is applied. Subsequently, the
FASB issued FSP FAS 157-2 which delayed the effective date of SFAS 157 for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually) to fiscal years beginning after November 15, 2008. The Company adopted SFAS
157 on January 1, 2008, except as it applies to those nonfinancial assets and nonfinancial liabilities as described in
FSP FAS 157-2. The partial adoption of SFAS 157 did not materially impact Vectren’s financial position, results
of operations or cash flows. The potential impact of applying SFAS 157 to its nonfinancial assets and liabilities is
not expected to have a material impact on the Company’s consolidated financial statements.
Vectren measures certain financial instruments, primarily derivatives, at fair value on a recurring basis. SFAS 157
defines a hierarchy for disclosing fair value measurements based primarily on the level of public data used in
determining fair value. Level 1 inputs include quoted market prices in active markets for identical assets or
liabilities; Level 2 inputs include inputs other than Level 1 inputs that are directly or indirectly observable; and
Level 3 inputs include unobservable inputs using estimates and assumptions developed in-house, which reflect what
a market participant would use to determine fair value. At December 31, 2008, other than $75 million invested in
money market funds and included in Cash and cash equivalents, the Company had no material assets or liabilities
recorded at fair value outstanding and none outstanding valued using Level 3 inputs. The money market
investments are valued using Level 1 inputs. As of December 31, 2007, the Company had derivatives in
Prepayments and other current assets managing synfuel risk totaling $22.8 million and totaling $2.6 million in
other derivative instruments. In addition, there was $8.9 million in Accrued liabilities related to derivatives
managing interest rate risk.
SFAS 159
Also on January 1, 2008, the Company adopted SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities – Including an Amendment of FASB Statement No. 115” (SFAS 159). SFAS 159 permitted
entities to choose to measure many financial instruments and certain other items at fair value. The Company did
not choose to apply the option provided in SFAS 159 to any of its eligible items; therefore, its adoption did not
have any impact on the Company’s financial statements or results of operations.
Fair Value of Other Financial Instruments
The carrying values and estimated fair values of the Company's other financial instruments follow:
Carrying
Amount
Est. Fair
Value
Carrying
Amount
Est. Fair
Value
Long-term debt 1,372.8$ 1,251.0$ 1,249.0$ 1,236.6$
Short-term borrowings & notes payable 519.5 519.5 557.0 557.0
(In millions)
2008 2007
At December 31,
Certain methods and assumptions must be used to estimate the fair value of financial instruments. The fair value of
the Company's long-term debt was estimated based on the quoted market prices for the same or similar issues or on
the current rates offered to the Company for instruments with similar characteristics. Because of the maturity dates
and variable interest rates of short-term borrowings, its carrying amount approximates its fair value.
Under current regulatory treatment, call premiums on reacquisition of long-term debt are generally recovered in
customer rates over the life of the refunding issue or over a 15-year period. Accordingly, any reacquisition would
not be expected to have a material effect on the Company's results of operations.
Because of the customized nature of notes receivable investments and lack of a readily available market, it is not
practical to estimate the fair value of these financial instruments at specific dates without considerable effort and
costs. At December 31, 2008 and 2007, the fair value for these financial instruments was not estimated.