Vectren 2008 Annual Report Download - page 57

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55
Comparison of Historical Sources & Uses of Liquidity
Operating Cash Flow
The Company's primary source of liquidity to fund working capital requirements has been cash generated from
operations, which totaled $423.2 million in 2008, compared to $298.1 million in 2007 and $310.2 million in 2006.
In 2008 cash flow from operating activities increased $125.1 million compared to 2007. Higher levels of deferred
taxes due primarily to federal stimulus plans authorizing bonus depreciation on qualifying capital expenditures
increased cash flow approximately $52.6 million. Working capital changes generated cash of $9.2 million in 2008
compared to cash used of $27.0 million in 2007. The increase in cash from working capital results primarily from
the permanent reduction of natural gas inventory associated with VEDO’s exit of the merchant function, offset by
growth in recoverable fuel balances. The remaining increase in operating cash flow is primarily due to the cash
collection of previously deferred regulatory assets.
While net income increased substantially in 2007 compared to 2006, cash flow from operating activities decreased
$12.1 million. The decrease was primarily a result of changes in working capital accounts and lower distributions
from equity method investments compared to the prior year. Working capital changes used cash of $27.0 million in
2007 compared to cash generated of $16.6 million in 2006. Distributions from equity method investments, which
principally consist of dividends from ProLiance, decreased approximately $15.0 million due to primarily to a $10.4
million special dividend from ProLiance in 2006. In 2007 the Company also increased its pension contributions,
which resulted in a decrease to operating cash flow, compared to 2006. These decreases were partially offset by the
higher earnings in 2007 as well as increased deferred taxes.
Financing Cash Flow
Although working capital requirements are generally funded by cash flow from operations, the Company uses
short-term borrowings to supplement working capital needs when accounts receivable balances are at their highest
and gas storage is refilled. Additionally, short-term borrowings are required for capital projects and investments
until they are financed on a long-term basis.
Net cash flow generated from financing activities were $51.8 million in 2008. The increased cash generated from
financing activities during 2008 compared to 2007 is reflective of the impact of completed long-term financing
transactions, including the issuance of common stock and long term debt. In 2007 compared to 2006, financing
activities reflect short-term and long-term debt proceeds and stock option proceeds offset by debt payments and
dividends.
In 2008, Vectren settled an equity forward contract receiving proceeds of approximately $124.9 million, and Utility
Holdings issued $125 million of senior unsecured securities and used those proceeds to refinance certain capital
projects originally financed with short-term borrowings. Also, during the first quarter of 2008, the Company
mitigated its exposure to auction rate debt markets. In 2006, Utility Holdings issued $100 million of senior
unsecured securities and used those proceeds to retire higher coupon long-term debt. These transactions are more
fully described below.
Vectren Capital Short Term Debt Issuance
On September 11, 2008, Vectren Capital entered into a 364-day $120 million credit agreement that was syndicated
with 7 banks. The agreement provides for revolving loans and letters of credit up to $120 million. Borrowings
under the agreement may be at a floating rate or a Eurodollar rate. Current floating rate advances would be priced
at the greater of the Federal Funds Rate plus 0.5 percent or the Prime Rate. Current Eurodollar advances, based on
Vectren's current credit rating, would expect to be priced at the appropriate LIBOR rate plus 0.65 percent.
Vectren Common Stock Issuance
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