Vectren 2008 Annual Report Download - page 54

Download and view the complete annual report

Please find page 54 of the 2008 Vectren annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 123

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123

52
continue to account for its activities based on the criteria set forth in SFAS No. 71 “Accounting for the Effects of
Certain Types of Regulation” (SFAS 71). Based on the Company’s current review, it believes its regulatory assets
are probable of recovery. If all or part of the Company's operations cease to meet the criteria of SFAS 71, a write
off of related regulatory assets and liabilities could be required. In addition, the Company would be required to
determine any impairment to the carrying value of its utility plant and other regulated assets and liabilities. In the
unlikely event of a change in the current regulatory environment, such write-offs and impairment charges could be
significant.
Financial Condition
Within Vectren’s consolidated group, Utility Holdings funds the short-term and long-term financing needs of the
Utility Group operations, and Vectren Capital Corp (Vectren Capital) funds short-term and long-term financing
needs of the Nonutility Group and corporate operations. Vectren Corporation guarantees Vectren Capital’s debt,
but does not guarantee Utility Holdings’ debt. Vectren Capital’s long-term and short-term obligations outstanding
at December 31, 2008 approximated $183 million and $327 million, respectively. Utility Holdings’ outstanding
long-term and short-term borrowing arrangements are jointly and severally guaranteed by Indiana Gas, SIGECO,
and VEDO. Utility Holdings’ long-term and short-term obligations outstanding at December 31, 2008
approximated $823 million and $192 million, respectively. Additionally, prior to Utility Holdings’ formation,
Indiana Gas and SIGECO funded their operations separately, and therefore, have long-term debt outstanding
funded solely by their operations.
The Company’s common stock dividends are primarily funded by utility operations. Nonutility operations have
demonstrated profitability and the ability to generate cash flows. These cash flows are primarily reinvested in other
nonutility ventures, but are also used to fund a portion of the Company’s dividends, and from time to time may be
reinvested in utility operations or used for corporate expenses.
The credit ratings of the senior unsecured debt of Utility Holdings and Indiana Gas, at December 31, 2008, are A-
/Baa1 as rated by Standard and Poor's Ratings Services (Standard and Poor’s) and Moody’s Investors Service
(Moody’s), respectively. The credit ratings on SIGECO's secured debt are A/A3. Utility Holdings’ commercial
paper has a credit rating of A-2/P-2. The current outlook of both Moody’s and Standard and Poor’s is stable. A
security rating is not a recommendation to buy, sell, or hold securities. The rating is subject to revision or
withdrawal at any time, and each rating should be evaluated independently of any other rating. Standard and Poor’s
and Moody’s lowest level investment grade rating is BBB- and Baa3, respectively.
The Company’s consolidated equity capitalization objective is 45-55 percent of long-term capitalization. This
objective may have varied, and will vary, depending on particular business opportunities, capital spending
requirements, execution of long-term financing plans and seasonal factors that affect the Company’s operations.
The Company’s equity component was 50 percent of long-term capitalization at both December 31, 2008, and
2007. Long-term capitalization includes long-term debt, including current maturities and debt subject to tender, as
well as common shareholders’ equity.
As of December 31, 2008, the Company was in compliance with all financial covenants.
Available Liquidity in Current Credit Conditions
As noted below, in 2008 the Company completed permanent financing transactions, including the issuance of $125
million in long-term debt; $125 million in common stock; and an expansion of $120 million in the level of short-
term borrowing capacity for its nonutility operations. These transactions have increased the level of unutilized
short-term borrowing capacity. This unutilized short-term debt capacity, when coupled with expected internally
generated funds and any additional long-term financings undertaken, should provide sufficient liquidity over the
next twelve to twenty four months to fund anticipated capital expenditures, investments, and debt security
redemptions.
Regarding debt redemptions, they are insignificant in 2009, and $48 million is due in 2010. In addition, holders of
certain debt instruments have the one-time option to put them to the Company. Debt subject to these put provisions
total $80 million in 2009 and $10 million in 2010.