Vectren Reports Second Quarter Earnings

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Evansville-based Vectren Corp. (NYSE: VVC) is reporting second quarter net income of $30.1 million, compared to $27.1 million for the same period the previous year. The utility says, assuming a normal winter, it remains confident of meeting earning expectations. August 5, 2014

News Release

EVANSVILLE, Ind. -- Vectren Corporation (NYSE: VVC) today reported net income for the second quarter of 2014, of $30.1 million, or $0.37 per share, excluding the results of Coal Mining, compared to net income of $27.1 million, or $0.33 per share, in the second quarter of 2013. For the six months ended June 30, 2014, net income was $82.4 million or $1.00 per share, excluding the results of Coal Mining, compared to $81.5 million, or $0.99 per share for the six months ended June 30, 2013. The 2013 results exclude the results of ProLiance Holdings, LLC (ProLiance). As previously reported, ProLiance exited the gas marketing business in June 2013.

On July 1, 2014, the company announced it had reached an agreement to sell its wholly owned coal mining subsidiary, Vectren Fuels, Inc., to Sunrise Coal, LLC, an Indiana-based, wholly owned subsidiary of Hallador Energy Company, which owns and operates coal mines in the Illinois Basin. During the second quarter of 2014, the company recorded an estimated loss, including sale-related costs, of approximately $20 million, after tax, related to the sale. The transaction is expected to close in the third quarter of 2014. Total results from Coal Mining, inclusive of the estimated loss on the sale, were a loss of ($18.2) million in the second quarter of 2014, and year-to-date, were a loss of ($19.3) million.

Vectren consolidated results, as reported, for the second quarter of 2014 were net income of $11.9 million, or $0.14 per share, compared to a net loss of ($5.8) million, or ($0.07) per share, for the three months ended June 30, 2013. For the six months ended June 30, 2014, consolidated net income, as reported, was $63.1 million, or $0.76 per share, compared to $44.0 million, or $0.53 per share for the six months ended June 30, 2013. Management evaluates financial results exclusive of transaction costs and operating results, in the year of disposition, of businesses sold. As reflected above, in anticipation of the transaction expected to close in the third quarter of 2014, results from Coal Mining have been excluded from 2014 results and the results from the company's investment in ProLiance have been excluded from 2013 results. Management believes excluding these items provides a useful representation of the overall results of ongoing operations.

Summary and highlights of results

-Utility Group earnings were $22.9 million, or $0.28 per share, in the second quarter of 2014, compared to $24.2 million, or $0.29 per share, in 2013. Year-to-date net income for the utility group was $84.2 million or $1.02 per share, compared with $79.3 million or $0.96 per share for the year-to-date period in 2013.

-Nonutility Group earnings were $7.4 million in the second quarter of 2014, excluding Coal Mining results, compared to $3.2 million in 2013. For the year-to-date period, nonutility results, were a net loss of ($1.2) million, or ($0.01) per share, excluding Coal Mining results, compared to net income of $2.4 million, or $0.03 per share in the 2013 period. The 2013 results exclude the results of ProLiance.

-Consolidated earnings guidance range was updated to $2.25 to $2.35 per share, excluding Coal Mining results.

"The Utility Group performance for the year continues to be very strong and, as a result, we are increasing the 2014 earnings guidance for the utility group. Excluding the impacts from coal mining in 2014, the Nonutility Group improved second quarter results were largely driven by increased earnings in our infrastructure services business as compared to last year. The severe winter weather has certainly impacted the year-to-date results from the infrastructure services business, but we remain very confident in our ability to meet our initial earnings expectations for that business this year, assuming normal weather. We continue to see strong demand for services in this business," said Carl Chapman, Vectren's chairman, president and CEO.

"We are also pleased an agreement for the sale of the coal mining business was reached with Sunrise Coal. We look forward to the closing of that transaction in the third quarter of 2014. This will complete our exit of commodity-based nonutility businesses, and we believe the remaining businesses have better growth potential with less volatility," added Chapman.

2014 earnings guidance updated

The company updated its 2014 guidance to expected consolidated earnings of $2.25 to $2.35 per share, excluding the results from Coal Mining. This compares to the previously announced consolidated guidance range of $2.15 to $2.35 per share. The company now expects 2014 Utility Group earnings to be within a range of $1.75 to $1.85 per share, an increase of $0.05 per share from the previously communicated range. The Nonutility Group earnings expectation for 2014 continues to be in a range of $0.45 to $0.55 per share, excluding the results from Coal Mining.

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 2014 significantly above or below this guidance. These targeted ranges are subject to such factors discussed below under "Forward-Looking Statements."

Utility Group discussion

The Utility Group consists of the company's regulated utility operations and other operations that provide information technology and other support services to those regulated operations. The company segregates its regulated utility operations between a Gas Utility Services operating segment and an Electric Utility Services operating segment. The Gas Utility Services segment provides natural gas distribution and transportation services to nearly two-thirds of Indiana and west-central Ohio. The Electric Utility Services segment provides electric distribution and transmission services to southwestern Indiana and includes its power generating and wholesale power operations. The Utility Group also earns a return on shared assets, such as customer billing systems and the customer contact center, used by the company's utility operations.

For the three months ended June 30, 2014, the Utility Group earnings were $22.9 million, compared to $24.2 million in 2013. In the six months ended June 30, 2014, the Utility Group earned $84.2 million, compared to $79.3 million in 2013. The year-to-date increase is driven by increased electric margins associated with weather, as well as returns from Ohio gas infrastructure replacement programs. These increases, however, have been offset somewhat by increased operating expenses in both the quarter and year-to-date periods driven by weather-related maintenance stemming from the harsh winter and performance-based compensation expense.

Gas Utility Services

The Gas Utility Services operating segment, which is comprised of Vectren's Indiana North and South gas operations and Vectren Ohio, earned $0.7 million during the second quarter of 2014, compared to earnings of $2.9 million in the second quarter of 2013. In the six months ended June 30, 2014, Gas Utility Services earned $39.0 million, compared to earnings of $41.0 million in 2013. Though margin increased in 2014 from small customer growth and the returns from the Ohio infrastructure replacement programs, the increase in margin was offset primarily by higher operating expenses driven by weather-related maintenance of the gas system and by increased performance-based compensation expense. Likewise, the quarter results were negatively impacted by similar higher costs.

Other Operations

The Utility Group also earns a return on shared assets through curr