Vectren Posts Higher Profit

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Evansville-based Vectren Corp. (NYSE: VVC) is reporting third quarter net income of $49.4 million, compared to $42.8 million for the same period last year. Chief Executive Officer Carl Chapman says the utility group continued "very strong" performance. November 7, 2014

News Release

EVANSVILLE, Ind. - Vectren Corporation (NYSE: VVC) today reported net income for the third quarter of 2014, of $49.4 million, or $0.60 per share, excluding the results of Coal Mining, compared to net income of $42.8 million, or $0.52 per share, in the third quarter of 2013. For the nine months ended Sept. 30, 2014, net income was $131.8 million or $1.60 per share, excluding the results of Coal Mining, compared to $124.3 million, or $1.51 per share for the nine months ended Sept. 30, 2013. The 2013 results exclude the results of ProLiance Holdings, LLC (ProLiance), prior to its sale of certain of the net assets of ProLiance Energy, LLC, its gas marketing subsidiary, in June 2013.

On July 1, 2014, Vectren 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. On Aug. 29, 2014, the transaction closed. At June 30, 2014, the company recorded an estimated loss on the sale, including costs to sell, of approximately ($32) million, or ($20) million after tax. Results as of Sept. 30, 2014, inclusive of the loss on the sale, were losses of ($2.1) million and ($21.4) million, net of tax, for the quarter and year-to-date periods, respectively.

Vectren consolidated results, as reported, for the third quarter of 2014 were net income of $47.3 million, or $0.57 per share, compared to net income of $42.8 million, or $0.52 per share, for the three months ended Sept. 30, 2013. For the nine months ended Sept. 30, 2014, consolidated net income, as reported, was $110.4 million, or $1.34 per share, compared to $86.8 million, or $1.05 per share for the nine months ended Sept. 30, 2013.

Management evaluates financial results exclusive of transaction costs and operating results, in the year of disposition, related to businesses sold. As reflected above, results from Coal Mining have been excluded from 2014 results, and the results from 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 2014 results

Utility Group earnings were $24.3 million, or $0.30 per share, in the third quarter of 2014, compared to $25.3 million, or $0.31 per share, in 2013. Year-to-date net income for the utility group was $108.5 million or $1.32 per share, compared with $104.6 million or $1.27 per share for the year-to-date period in 2013.

Nonutility Group earnings were $23.7 million, or $0.29 per share, in the third quarter of 2014, excluding Coal Mining results, compared to $17.5 million, or $0.21 per share, in 2013. For the year-to-date period, nonutility results were earnings of $22.5 million, or $0.27 per share, excluding Coal Mining results, compared to net income of $19.9 million, or $0.24 per share in the 2013 period. The 2013 results exclude the results of ProLiance.

"The Utility Group performance for the year continues to be very strong. Excluding the impacts from Coal Mining in 2014, the Nonutility Group improved third quarter results were largely driven by increased earnings in our infrastructure services business as compared to last year. Severe winter weather experienced in early 2014 has certainly impacted the year-to-date results from the infrastructure services business, but we continue to see strong demand for services in this business, and assuming normal weather for the remainder of the year, we expect to generally hit our initial expectations for this business," said Carl Chapman, Vectren's chairman, president and CEO.

2014 earnings guidance affirmed

The company affirms its 2014 guidance expectation to be consolidated earnings of $2.25 to $2.35 per share, excluding the results from Coal Mining. The company continues to expect 2014 Utility Group earnings to be within a range of $1.75 to $1.85 per share and the Nonutility Group earnings for 2014 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."

2015 outlook

In a separate announcement, the company also reported today its Board of Directors declared a quarterly dividend of $0.38 per share, up 5.6 percent from the current quarterly dividend of $0.36 per share. This equates to an annualized dividend of $1.52 per share, up from the current annualized dividend of $1.44 per share. This marks the 55th consecutive year Vectren and its predecessor companies have increased the annual dividends paid. Further, the company also has updated its long-term financial targets and has established earnings guidance for 2015 at $2.40 to $2.55 per share, which were also reported in this separate announcement.

Discussion of 2014 quarter and year-to-date Utility Group results

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 Sept. 30, 2014, the Utility Group earnings were $24.3 million, compared to $25.3 million in 2013. In the nine months ended Sept. 30, 2014, the Utility Group earned $108.5 million, compared to $104.6 million in 2013. The quarter-over-quarter decrease was primarily related to higher operating expenses. The year-to-date increase is primarily a result of increased gas and electric margins, offset by higher operating expenses driven by increased performance-based compensation expense, as well as weather-related gas system maintenance from the harsh winter.

Gas Utility Services

The Gas Utility Services operating segment, which is comprised of Vectren's Indiana North and South gas operations and Vectren Ohio, reported a seasonal loss of ($5.1) million during the third quarter of 2014, compared to a loss of ($3.8) million in the third quarter of 2013. In the nine months ended Sept. 30, 2014, Gas Utility Services earned $33.9 million, compared to earnings of $37.2 million in 2013. Customer margin increased in both the quarter and year-to-date periods in 2014 from the returns earned on the Ohio infrastructure replacement programs and from small customer growth in the year-to-date period. The increase in margin was offset by higher operating expenses driven by weather-related maintenance of the gas system in the year-to-date period and by increased performance-based compensation expense in both the quarter and year-to-date periods.

Electric Utility Services

The Electric Utility Services operating segment is comprised of Vectren South's electric distribution and transmission business