Vectren 2012 Annual Report Download - page 61

Download and view the complete annual report

Please find page 61 of the 2012 Vectren annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 132

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132

59
Comparison of Historical Sources & Uses of Liquidity
Operating Cash Flow
The Company's primary source of liquidity to fund capital requirements has been cash generated from operations, which totaled
$387.4 million in 2012, compared to $416.9 million in 2011 and $384.8 million in 2010.
The $29.5 million decrease in operating cash flow in 2012 compared to 2011 is primarily due to greater working capital needs to
support growth in the Infrastructure Services segment and lower cash generated by the Coal Mining segment . The deferral for
future recovery of certain coal costs pursuant to a regulatory order is the primary use of cash impacting the change in
noncurrent assets. Increased earnings overall, along with lower contributions to employee benefit plans in 2012, somewhat
offset these decreases.
In 2011, operating cash flows increased $32.1 million compared to 2010. This increase was primarily due to a much greater
level of cash utilized from working capital in 2010 and increased earnings and non-cash charges in 2011. These increases were
partially offset by a higher level of employer contributions to pension and postretirement plans in 2011.
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 allowing bonus depreciation on
qualifying capital expenditures was increased to 100 percent for 2011, 50 percent for 2012, and continues at 50 percent for
2013. A significant portion of the Company’s capital expenditures qualify for this bonus treatment.
Financing Cash Flow
Net cash flow required for financing activities was $19.6 million, $99.0 million, and $117.3 million for the years ending December
31, 2012, 2011, and 2010, respectively. Financing activity across all periods reflects the Company’s utilization of the long-term
capital markets in the current low interest rate environment. Since 2010, the Company has refinanced at lower rates
approximately $455 million of maturing or callable long-term debt. These lower rates began to favorably impact interest
expense in the fourth quarter of 2011, and more noticeably decreased interest expense in 2012. The Company’s operating cash
flow funded approximately 80 percent of capital expenditures and dividends in 2012 and over 95 percent in 2011 and 2010.
Recently completed long-term financing transactions are more fully described below.
Vectren Capital Term Loan
On November 1, 2012, Vectren Capital entered into a $100 million three year term loan agreement. Loans under the term loan
agreement bear interest at either a Eurodollar rate or base rate plus a fixed adder, as defined in the loan agreement. Interest
periods are variable and may range from seven days to six months. The proceeds from this debt transaction were used to repay
short-term borrowings outstanding under Vectren Capital's credit facility, some of which resulted from the 2012 maturity of
Vectren Capital's $60 million fixed rate senior unsecured notes. The loan agreement is guaranteed by Vectren Corporation and
includes customary representations, warranties and covenants, including a leverage covenant consistent with leverage
covenants contained in other Vectren Capital borrowing arrangements.
Utility Holdings 2012 Debt Transactions
On February 1, 2012, Utility Holdings issued $100 million of senior unsecured notes at an interest rate of 5.00 percent per
annum and with a maturity date of February 3, 2042. The notes were sold to various institutional investors pursuant to a private
placement note purchase agreement executed in November 2011 with a delayed draw feature. These senior notes are
unsecured and jointly and severally guaranteed by Utility Holdings’ regulated utility subsidiaries, SIGECO, Indiana Gas, and
VEDO. The proceeds from the sale of the notes, net of issuance costs, totaled approximately $99.5 million. These notes have
no sinking fund requirements and interest payments are due semi-annually. These notes contain customary representations,
warranties and covenants, including a leverage covenant consistent with leverage covenants contained in other Utility Holdings’
borrowing arrangements. As of December 31, 2011, the Company had reclassified $100 million of short-term borrowings as
long-term debt to reflect those borrowings were refinanced with the proceeds received. The proceeds received from the
issuance of the senior notes were used to refinance VUHI’s $96.2 million 5.95 percent senior notes due 2036, that were called
at par and retired on Nov. 21, 2011.