Vectren 2008 Annual Report Download - page 80

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78
1998 through 2001 without challenging tax credit calculations. Generally, the statute of limitations for the IRS to
audit a tax return is three years from filing. Therefore tax credits utilized in 2005 – 2007 are still subject to IRS
examination. However, avenues remain where the IRS could challenge tax credits for the years prior to 2005. As
a partner of Pace Carbon, Vectren has reflected cumulative synfuel tax credits of approximately $101 million in its
consolidated results, of which approximately $45 million were generated since 2004. To date, Vectren has been in
a position to utilize all of the credits generated.
Synfuel tax credits were only available when the price of oil was less than a base price specified by the Internal
Revenue Code, as adjusted for inflation. Because of high oil prices in 2007, only $6.0 million of the approximate
$23.1 million in tax credits generated were reflected as a reduction to the Company’s income tax expense. In 2006
high oil prices also phased out synfuel tax credits. Of the $21.5 million tax credits generated in 2006, only $14.0
million are reflected as a reduction to the Company’s income tax expense.
The Company executed several financial contracts to hedge oil price risk. Income statement activity associated
with these contracts was gain of $13.4 million in 2007 and a loss of $4.7 million in 2006. This activity is reflected
in Other-net. Impairment charges related to the investment in Pace Carbon approximating $9.5 million were
recorded in Other-net in 2006.
Synfuel-related results, inclusive of equity method losses and their related tax benefits as well as the tax credits and
other related activity, were earnings of $6.8 million in 2007 and a loss of $5.3 million in 2006.
The following is summarized financial information as to the assets, liabilities, and results of operations of Pace
Carbon. For the year ended December 31, 2007, revenues, operating loss, and net loss were (in millions) $471.1,
($158.8), and ($240.2), respectively. For the year ended December 31, 2006, revenues, operating loss, and net loss
were (in millions) $389.7, ($175.5), and ($176.8), respectively. As of December 31, 2007, current assets,
noncurrent assets, current liabilities, and noncurrent liabilities were (in millions) $65.3, $67.3, $50.8, and $48.6,
respectively.
6. Utilicom Networks, LLC & Related Entities Disposition in 2006
The Company had an approximate 2 percent equity interest and a convertible subordinated debt investment in
Utilicom Networks, LLC (Utilicom). The Company also had an approximate 19 percent equity interest in
SIGECOM Holdings, Inc. (Holdings), which was formed by Utilicom to hold interests in SIGECOM, LLC
(SIGECOM). SIGECOM provided broadband services, such as cable television, high-speed internet, and advanced
local and long distance phone services, to the greater Evansville, Indiana area. The Company accounted for its
investments in Utilicom and Holdings using the cost method of accounting.
In August 2006, SIGECOM’s majority owner and the Company sold their interests in SIGECOM to
WideOpenWest, LLC. Resulting from the sale, the Company recorded a loss of $1.3 million after tax in 2006.
Proceeds to the Company, which includes the settlement of notes receivable, approximated $45 million and were
received in 2007.
7. Miller Pipeline Corporation Acquisition in 2006
Effective July 1, 2006, the Company purchased the remaining 50 percent ownership in Miller Pipeline Corporation
(Miller), making Miller a wholly owned subsidiary. The results of Miller’s operations, formerly accounted for
using the equity method, have been included in consolidated results since July 1, 2006. Based on current
accounting rules, Miller is consolidated on a prospective basis only. Prior periods were not restated.
Miller, originally founded in 1953, performs natural gas and water distribution, transmission, and construction
repair and rehabilitation primarily in the Midwest and the repair and rehabilitation of gas, water, and wastewater
facilities nationwide. Miller’s customers include Vectren’s utilities.
While the acquisition of Miller has not been material to the overall financial statements, consolidating Miller
resulted in, among other impacts, increases in Nonutility revenue totaling $105.7 million in 2007 compared to 2006
and increases in Other operating expense totaling $90.9 million in 2007 compared to 2006.