Vectren Posts Third Quarter Profit

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Evansville-based Vectren Corp. (NYSE: VVC) is reporting third quarter net income of $42.8 million, compared to $39.3 million for the same period a year earlier. The utility has also affirmed its full-year guidance. November 7, 2013

News Release

EVANSVILLE, IN -- 11/07/13 -- Vectren Corporation (NYSE: VVC) today reported net income for the quarter of $42.8 million, or $0.52 per share, compared to $41.7 million, excluding results of ProLiance Holdings, LLC (ProLiance), or $0.50 per share, during the third quarter of 2012. Excluding results of ProLiance, for the nine months ended September 30, 2013, net income was $124.3 million, or $1.51 per share, compared to $129.7 million or $1.58 per share in the prior year. Results excluding ProLiance reflect ProLiance's exit from the natural gas marketing business on June 18, 2013 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. For the three and nine months ended September 30, 2013, consolidated net income was $42.8 million, or $0.52 per share, and $86.8 million, or $1.05 per share, respectively, compared to $39.3 million, or $0.48 per share, and $116.2 million, or $1.42 per share for the three and nine months ended September 30, 2012, respectively.

Summary results

Utility Group earnings were $25.3 million, or $0.31 per share, in the third quarter of 2013, compared to $26.4 million, or $0.32 per share, in 2012. For the nine months, Utility Group net income was $104.6 million, or $1.27 per share, compared to $102.5 million, or $1.25 per share, for the same period in 2012.

Nonutility Group earnings were $17.5 million, or $0.21 per share, in the third quarter of 2013, compared to $15.6 million, excluding ProLiance, or $0.18 per share, in 2012. For the year-to-date period, Nonutility Group earnings, excluding ProLiance, were $19.9 million, or $0.24 per share, compared to $27.6 million, or $0.33 per share, in the prior year.

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

"I am pleased to report that Vectren's results remain on plan for the year. Both our Utility Group and our Nonutility Group continue to perform in line with expectations. Our Infrastructure Services business continues to exceed our expectations year to date, which helps offset lower results from our Coal Mining business," said Carl L. Chapman, Vectren's chairman, president and CEO.

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."

Utility Group financing transactions

On August 13, 2013, approximately $49 million of tax-exempt debt was remarketed by Southern Indiana Gas and Electric Company (SIGECO) with a fixed interest rate of 1.95 percent per annum until September 13, 2017. Net proceeds of $48.3 million were received on August 28, 2013.

On August 22, 2013, Vectren Utility Holdings, Inc. (VUHI) entered into a private placement note purchase agreement pursuant to which institutional investors have agreed to purchase $150 million of senior guaranteed notes with a fixed interest rate of 3.72 percent per annum, due December 5, 2023. The notes will be unconditionally guaranteed by VUHI's three utilities, Indiana Gas Company, Inc., SIGECO, and Vectren Energy Delivery of Ohio, Inc. (VEDO). The proceeds received from the issuance of the senior notes will be used to refinance $100 million of 5.25 percent senior notes that matured 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 December 5, 2013, as a result of a delayed draw feature.

As a result of the utility refinancings completed in 2011, 2012, and 2013, significant annualized interest savings are expected to be realized. Interest expense at VUHI for 2013 is expected to be approximately $65 million, down from approximately $80 million in 2011.

Utility Group discussion

In the third quarter of 2013, the Utility Group earnings were $25.3 million, compared to $26.4 million in 2012. For the nine months ended September 30, 2013, Utility Group earnings were $104.6 million, compared to $102.5 million in 2012. The improved year-to-date 2013 results are primarily related to increased gas utility margins from small and large customers, return on electric transmission investment, and lower interest expense.

Gas Utility Services

The Gas Utility Services operating segment, which is comprised of Vectren's gas operations, reported a seasonal loss of ($3.8) million during the third quarter of 2013, compared to a loss of ($2.7) million in the third quarter of 2012. The third quarter 2013 results were lower primarily due to increased depreciation expense associated with plant placed into service during the year. For the nine months ended September 30, 2013, Gas Utility Services' earnings were $37.2 million, compared to earnings of $36.1 million in 2012. Results in 2013 have been favorably impacted by small customer growth and increased large customer margin, offset by higher depreciation expense and operating costs. Though higher year-to-date, operating costs are being managed to be generally flat to the original 2012 targeted levels on an annual basis, over time. Results also continue to be favorably impacted by returns earned on increased investment in bare steel and cast iron pipe replacements, particularly in Ohio, and by lower interest expense.

Following is information related to the earnings from Gas Utility Services for the three and nine months ended September 30, 2013. Identified items are presented after the impact of income taxes.

Electric Utility Services

The Electric Utility Services operating segment is comprised of Vectren's electric distribution business and includes the company's power generating and wholesale power operations. During the third quarter of 2013, Electric Utility Services earnings were $26.6 million, flat to the same period in 2012. Electric Utility Services earned $60.1 million year-to-date in 2013, compared to earnings of $59.4 million for the nine months ended September 30, 2012. In both the third quarter and year-to-date periods, results were favorably impacted by lower interest expense offset by lower electric small customer margin resulting from conservation initiatives, net of lost margin recovery, and cooling weather that was significantly warmer in 2012 as compared to 2013. The 2012 results reflect refunds to customers pursuant to statutory net operating income limits. No such refunds have occurred or are expected in 2013.

Other operations

The Utility Group also earns a return on shared assets through currently approved rates as if portions of the assets were in the rate base of each utility. Such shared assets include customer billing systems and the customer contact center, as examples. In the third quarter of 2013, earnings were $2.5 million, about flat compared to 2012. In the nine months ended September 30, 2013, earnings from these operations were $7.3 million compared to $7.0 million in 2012.

Nonutility Group discussion

All amounts included in this section are after tax. Results reported by