Vectren 2010 Annual Report Download - page 95

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93
Debt Guarantees
Vectren Corporation guarantees Vectren Capital’s long-term and short-term debt, which totaled $410 million and $71 million,
respectively, at December 31, 2010. Utility Holdings’ currently outstanding long-term and short-term debt is jointly and severally
guaranteed by Indiana Gas, SIGECO, and VEDO. Utility Holdings’ long-term debt, including current maturities, and short-term
debt outstanding at December 31, 2010, totaled $919 million and $47 million, respectively.
Covenants
Both long-term and short-term borrowing arrangements contain customary default provisions; restrictions on liens, sale-
leaseback transactions, mergers or consolidations, and sales of assets; and restrictions on leverage and interest coverage,
among other restrictions. As an example, the Vectren Capital’s short-term debt agreement expiring in 2013 contains a covenant
that the ratio of consolidated total debt to consolidated total capitalization will not exceed 65 percent. As of December 31, 2010,
the Company was in compliance with all financial covenants.
11. Common Shareholders’ Equity
Common Stock Offering
In February 2007, the Company sold 4.6 million authorized but previously unissued shares of its common stock to a group of
underwriters in an SEC-registered primary offering at a price of $28.33 per share. The transaction generated proceeds, net of
underwriting discounts and commissions, of approximately $125.7 million. The Company executed an equity forward sale
agreement (equity forward) in connection with the offering, and therefore, did not receive proceeds at the time of the equity
offering. The equity forward allowed the Company to price an offering under market conditions existing at that time, and to
better match the receipt of the offering proceeds and the associated share dilution with the implementation of regulatory
initiatives.
On June 27, 2008, the Company physically settled the equity forward by delivering the 4.6 million shares, receiving proceeds of
approximately $124.9 million. The slight difference between the proceeds generated by the public offering and those received
by the Company were due to adjustments defined in the equity forward agreement including: 1) daily increases in the forward
sale price based on a floating interest factor equal to the federal funds rate, less a 35 basis point fixed spread, and 2) structured
quarterly decreases to the forward sale price that align with expected Company dividend payments.
Vectren transferred the proceeds to Utility Holdings, and Utility Holdings used the proceeds to repay short-term debt obligations
incurred primarily to fund its capital expenditure program. The proceeds received were recorded as an increase to Common
Stock in Common Shareholders’ Equity and are presented in the Statement of Cash Flows as a financing activity.
Authorized, Reserved Common and Preferred Shares
At December 31, 2010 and 2009, the Company was authorized to issue 480.0 million shares of common stock and 20.0 million
shares of preferred stock. Of the authorized common shares, approximately 5.5 million shares at December 31, 2010 and 6.6
million shares at December 31, 2009, were reserved by the board of directors for issuance through the Company’s share-based
compensation plans, benefit plans, and dividend reinvestment plan. At December 31, 2010 and 2009, there were 392.8 million
and 392.3 million, respectively, of authorized shares of common stock and all authorized shares of preferred stock, available for
a variety of general corporate purposes, including future public offerings to raise additional capital and for facilitating
acquisitions.
12. Earnings Per Share
The Company uses the two class method to calculate earnings per share (EPS). The two class method is an earnings
allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to
common shareholders. Under the two-class method, earnings for a period are allocated between common shareholders and
participating security holders based on their respective rights to receive dividends as if all undistributed book earnings for the
period were distributed. Basic EPS is computed by dividing net income attributable to only the common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS includes the impact of stock options and
other equity based instruments to the extent the effect is dilutive.