Vectren 2010 Annual Report Download - page 59

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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 $384.8 million in 2010, compared to $449.6 million in 2009 and $423.2 million in 2008.
The $64.8 million decrease in operating cash flow in 2010 compared to 2009 is primarily due to much a greater level of cash
generated from working capital in 2009 offset by a special dividend from ProLiance totaling approximately $30 million and higher
net income and non-cash charges in 2010.
In 2009, operating cash flows increased $26.4 million compared to 2008 due to increased cash generated from consolidated
companies. This is evident from a $51.7 million year over year increase in net income before the impacts of depreciation,
deferred taxes, equity in earnings of unconsolidated affiliates and other non-cash charges. Due principally to lower gas costs,
changes in working capital generated $34.2 million of additional cash flow year over year. These increases were offset by
additional cash uses associated with noncurrent assets and liabilities. This increased usage is primarily related to a $23.4
million increase in pension and other retirement plan contributions.
Tax payments in the periods presented were favorably impacted by federal legislation extending bonus depreciation and a
change in the tax method for recognizing repair and maintenance activities. Federal legislation extending bonus depreciation
continues at 100 percent of qualifying capital expenditures in 2011 and 50 percent in 2012. The Company estimates a
significant portion of planned capital expenditures in 2011 and 2012 will qualify for this bonus treatment.
Financing Cash Flow
During 2010, 2009 and 2008, net cash flow associated with financing activities is reflective of management’s ongoing effort to
rely less on short-term borrowing arrangements. Over the last three years, the Company’s operating cash flow funded over 80
percent of capital expenditures and dividends in those years, including 100 percent funded in 2010. Recently completed long-
term financing transactions have allowed for the repayment of over $400 million in short term borrowings over the past two
years, including over $300 million repaid in 2009. In addition, these long-term financing transactions have financed other capital
expenditures on a long-term basis. During the first quarter of 2008, the Company mitigated its exposure to auction rate debt
markets. These transactions are more fully described below.
Vectren Capital Corp. 2010 Debt Issuance
On December 15, 2010, the Company and Vectren Capital executed a private placement Note Purchase Agreement pursuant to
which various institutional investors agreed to purchase the following tranches of notes from Vectren Capital: (i) $75 million
3.48% Senior Notes, Series A due 2017, and (ii) $50 million 4.53% Senior Notes, Series B due 2025. These Senior Notes are
unconditionally guaranteed by Vectren. The proceeds from the issuance replaced $48 million debt maturities due in December
2010 and permanently financed some nonutility investments originally financed with short-term borrowings. These notes have
no sinking fund requirements and interest payments are due semi-annually. The proceeds from the sale of the notes, net of
issuance costs, totaled approximately $124.2 million. These notes contain customary representations, warranties and
covenants, including a leverage covenant consistent with leverage covenants contained in other Vectren Capital borrowing
arrangements.
Vectren Capital Corp. 2009 Debt Issuance
On March 11, 2009, Vectren and Vectren Capital executed a private placement Note Purchase Agreement (the “2009 Note
Purchase Agreement”) pursuant to which various institutional investors purchased the following tranches of notes from Vectren
Capital: (i) $30 million in 6.37 percent senior notes, Series A due 2014, (ii) $60 million in 6.92 percent senior notes, Series B due
2016 and (iii) $60 million in 7.30 percent senior notes, Series C due 2019. These senior notes are unconditionally guaranteed by
Vectren, the parent of Vectren Capital. These notes have no sinking fund requirements and interest payments are due semi-
annually. The proceeds from the sale of the notes, net of issuance costs, totaled approximately $149.0 million. The 2009 Note
Purchase Agreement contains customary representations, warranties and covenants, including a leverage covenant consistent
with leverage covenants contained in other Vectren Capital borrowing arrangements. On March 11, 2009, Vectren and Vectren
Capital also entered into a first amendment with respect to prior note purchase agreements for the remaining outstanding
Vectren Capital debt, other than the $22.5 million series due in 2010, to conform the covenants in certain respects to those
contained in the 2009 Note Purchase Agreement.