Vectren 2010 Annual Report Download - page 33

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31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Executive Summary of Consolidated Results of Operations
In this discussion and analysis, the Company analyzes contributions to consolidated earnings and earnings per share from its
Utility Group and Nonutility Group separately since each operates independently requiring distinct competencies and business
strategies, offers different energy and energy related products and services, and experiences different opportunities and risks.
Nonutility Group operations are discussed below as primary operations and other operations. Primary nonutility operations
denote areas of management’s forward looking focus.
The Utility Group generates revenue primarily from the delivery of natural gas and electric service to its customers. The primary
source of cash flow for the Utility Group results from the collection of customer bills and the payment for goods and services
procured for the delivery of gas and electric services. The activities of and revenues and cash flows generated by the Nonutility
Group are closely linked to the utility industry, and the results of those operations are generally impacted by factors similar to
those impacting the overall utility industry. In addition, there are other operations, referred to herein as Corporate and Other,
that include unallocated corporate expenses such as advertising and charitable contributions, among other activities.
The Company has in place a disclosure committee that consists of senior management as well as financial management. The
committee is actively involved in the preparation and review of the Company’s SEC filings.
Net income and earnings per share, in total and by group, for the years ended December 31, 2010, 2009, and 2008 follow:
(In millions, except per share data) 2010 2009 2008
Net income 133.7$ 133.1$ 129.0$
Attributed to:
Utility Group 123.9$ 107.4$ 111.1$
Nonutility Group 9.8 25.8 18.9
Corporate & Other - (0.1) (1.0)
Basic earnings per share 1.65$ 1.65$ 1.65$
Attributed to:
Utility Group 1.53$ 1.33$ 1.42$
Nonutility Group 0.12 0.32 0.24
Corporate & Other - - (0.01)
Year Ended December 31,
Results
For the year ended December 31, 2010, consolidated net income was $133.7 million, or $1.65 per share, compared to earnings
of $133.1 million, or $1.65 per share in 2009 and $129.0 million, or $1.65 per share in 2008.
Utility Group
In 2010, the Utility Group’s earnings were $123.9 million, compared to earnings of $107.4 million in 2009 and $111.1 million in
2008. The increase in 2010 compared to 2009 results from the return of large customer usage, summer cooling weather that
was significantly warmer than normal and the prior year, and lower operating expenses. Utility Group results were down only
modestly in 2009 compared to 2008, even after considering the impacts of the recession on large customer usage and
wholesale power sales and mild cooling weather. The years presented have also been impacted by increased depreciation
expense and interest expense associated with rate base growth, increased revenues associated with regulatory initiatives,
volatile market values associated with investments related to benefit plans, and changes in the effective tax rate.
Margin in the Company’s electric and the Ohio natural gas service territory, which was not fully protected by straight fixed
variable rate design in 2009 and 2008, is impacted by weather. During 2010, cooling weather was 34 percent warmer than
normal and 49 percent warmer than the prior year. Due primarily to the extreme cooling weather, management estimates the
margin impact of weather to be approximately $10.4 million favorable, or $0.08 per share, compared to normal temperatures.
Compared to 2009 which was impacted by mild cooling weather, the margin impact is estimated to be $14.2 million, or $0.10