Vectren Reports Quarterly Loss

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Evansville-based Vectren Corp. (NYSE: VVC) is reporting a second quarter net loss of $5.8 million, compared to a profit of $25.6 million for the same period the previous year. The utility says the results include expenses from the sale of assets of ProLiance Energy LLC, which it jointly owned with Citizens Energy Group in Indianapolis.

July 31, 2013

News Release

Evansville, Ind. -- Vectren Corporation (NYSE: VVC) today reported net income for the quarter, excluding results of ProLiance Holdings, LLC (ProLiance), of $27.1 million or $0.33 per share, compared to $30.8 or $0.38 per share during the second quarter of 2012. For the six months ended June 30, 2013, net income excluding the results of ProLiance, was $81.5 million or $0.99 per share, compared to $88.0 million or $1.08 per share in the prior year.

As previously reported, on June 18, 2013, ProLiance exited the natural gas marketing business by disposing of certain of the net assets, along with the long term pipeline and storage commitments, of its gas marketing subsidiary, ProLiance Energy, LLC. As a result of this transaction and subject to final working capital adjustment, the company recorded its share of the loss on the disposition, termination of long term pipeline and storage commitments, and related transaction and other costs totaling ($43.6) million pre-tax, or ($26.8) million net of tax, during the second quarter of 2013. The company also reflected its share of the operating losses of ProLiance, totaling ($6.1) million in the second quarter of 2013 and ($10.7) million for the year to date period. Reported consolidated results for the second quarter of 2013 was a net loss of ($5.8) million, or ($0.07) per share, compared to net income of $25.6 million, or $0.31 per share, for the three months ended June 30, 2012. For the six months ended June 30, 2013, consolidated net income was $44.0 million, or $0.53 per share, compared to $76.9 million, or $0.94 per share for the six months ended June 30, 2012.

Summary results

•Utility earnings were $24.2 million, or $0.29 per share, in the second quarter of 2013, compared to $20.1 million, or $0.24 per share, in 2012. Year to date net income for the utility group is $79.3 million or $0.96 per share, compared with $76.1 million or $0.93 per share for the year to date 2012.

•Nonutility earnings, excluding ProLiance, were $3.2 million in the second quarter of 2013, compared to $10.9 million in 2012. For the year to date period, nonutility earnings, excluding ProLiance, were $2.4 million compared to $12.0 million in the prior year.

•Through announced and executed financing transactions, the Utility Group continues to execute on its debt refinancing plans in order to lower on-going interest expense.

"We continue to be pleased with the performance of our utility operations as it outperformed 2012 for both the quarter and year-to-date," said Carl L. Chapman, Vectren's chairman, president and CEO. "For our nonutility group, Infrastructure Services' results also exceeded last year's performance for the first half of the year as the demand for infrastructure replacement continues. During the quarter, we completed the exit of the natural gas marketing business through ProLiance's disposition of the assets of ProLiance Energy. We think this move is important as we continue to focus on providing the most value to investors. Finally, though we are disappointed with the financial results of our coal mining operation, we are hopeful that results will improve through the ramp up of the Oaktown operations and continued focus on cost reductions at Prosperity."

2013 earnings guidance affirmed

As previously announced, consolidated earnings in 2013 are expected to be $1.90 to $2.10 per share, excluding results from ProLiance. The company expects 2013 Utility Group earnings to be within a range of $1.65 to $1.75 per share, and the Nonutility Group earnings to be in a range of $0.20 to $0.40 per share, excluding results from ProLiance.

Guidance ranges are based on assumptions and information currently available, but changes in these assumptions or other circumstances could materially impact earnings and result in earnings for 2013 significantly above or below this guidance. These targeted ranges are subject to such factors discussed below under "Forward-Looking Statements."

ProLiance natural gas marketing exit

As previously reported, on June 18, 2013, ProLiance exited the natural gas marketing business through the disposition of certain of the net assets, along with the long term pipeline and storage commitments, of its gas marketing subsidiary, ProLiance Energy, LLC to a subsidiary of Energy Transfer Partners. As a result of this transaction and subject to any final adjustment for working capital, the company recorded its share of the loss on the disposition, termination of long term pipeline and storage commitments, and related transaction and other costs totaling ($43.6) million before tax, or ($26.8) million net of tax, during the second quarter of 2013.

During the second quarter ended June 30, 2013, results related to the company's share of ProLiance's results, which include financing costs, income taxes, and other holding company costs and inclusive of the loss associated with exiting the business as discussed above, were a loss of ($32.9) million, compared to a loss of ($5.2) million in 2012. During the six months ended June 30, 2013, results related to ProLiance were a loss of ($37.5) million, compared to a loss of ($11.1) million in 2012.

At June 30, 2013, ProLiance had approximately $52.4 million of members' investment remaining on its balance sheet, supported by its investment in LA Storage, formerly named Liberty Gas Storage, LLC, (Liberty) of $35.4 million, two midstream assets, and a small amount of working capital. The company's remaining investment in ProLiance at June 30, 2013 totals $31.9 million and is comprised of $21.8 million of equity and a $10.1 million note receivable.

Utility Group financing transactions

During the second quarter of 2013, approximately $111 million of Southern Indiana Gas and Electric's (SIGECO or Vectren South) tax-exempt long-term debt was redeemed at par plus accrued interest. Approximately $62 million of tax-exempt long-term debt was reissued on April 26, 2013, at interest rates that are fixed to maturity, receiving proceeds, net of issuance costs, of approximately $60 million. The terms are $22.2 million at 4 percent per annum due in 2038, and $39.6 million at 4.05 percent per annum due in 2043. The remaining approximately $49 million of the called debt is held by VUHI and planned for remarketing in the third quarter of 2013.

On April 1, 2013, VUHI executed an early redemption at par of $121.6 million 6.25 percent senior unsecured notes due in 2039. This debt was refinanced on June 5, 2013, with proceeds from a private placement note purchase agreement entered into on Dec. 20, 2012, with a delayed draw feature. It provides for the following tranches of notes: (i) $45 million 3.2 percent senior guaranteed notes, due June 5, 2028, and (ii) $80 million 4.25 percent senior guaranteed notes, due June 5, 2043. The notes are unconditionally guaranteed by Indiana Gas Company, Inc., SIGECO and Vectren Energy Delivery of Ohio, Inc.

On July 25, 2013, VUHI announced that it priced $150 million of 10 year senior unsecured notes. The notes were sold to various institutional investors through the private placement market and included a delayed draw feature. VUHI will issue $150 million of 3.72 percent senior notes due Dec. 5, 2023. The proceeds received from the issuance of the senior notes will be used to refinance $100 million of existing 5.25 percent senior notes that mature August 1, 2013, for capital expenditures, and for general corporate purposes. Subject to the satisfaction of customary conditions precedent, the notes will be funded on or about De