Edgar Filing: VECTREN UTILITY HOLDINGS INC

vuhi_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008

[_]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________

Commission file number: 1-16739

VECTREN UTILITY HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

INDIANA		35-2104850
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

One Vectren Square, Evansville, Indiana, 47708

(Address of principal executive offices)

(Zip Code)

812-491-4000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No __

Table of Contents

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer □ Accelerated filer □

Non-accelerated filer ý (Do not check if a smaller reporting company) Smaller reporting company □

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes □ No ý

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock- Without Par Value	10	April 30, 2008
Class	Number of Shares	Date

Definitions

AFUDC: allowance for funds used during construction	MW: megawatts
APB: Accounting Principles Board	MWh / GWh: megawatt hours / thousands of megawatt hours (gigawatt hours)
EITF: Emerging Issues Task Force	NOx: nitrogen oxide
FASB: Financial Accounting Standards Board	OCC: Ohio Office of the Consumer Counselor
FERC: Federal Energy Regulatory Commission	OUCC: Indiana Office of the Utility Consumer Counselor
IDEM: Indiana Department of Environmental Management	PUCO: Public Utilities Commission of Ohio
IURC: Indiana Utility Regulatory Commission	SFAS: Statement of Financial Accounting Standards
MCF / BCF: thousands / billions of cubic feet	USEPA: United States Environmental Protection Agency
MDth / MMDth: thousands / millions of dekatherms	Throughput: combined gas sales and gas transportation volumes
MMBTU: millions of British thermal units

Access to Information

Vectren Corporation makes available all SEC filings and recent annual reports free of charge, including those of its wholly owned subsidiaries, through its website at www.vectren.com, or by request, directed to Investor Relations at the mailing address, phone number, or email address that follows:

Mailing Address:

One Vectren Square

Evansville, Indiana 47708

Phone Number:

(812) 491-4000

Investor Relations Contact:

Steven M. Schein

Vice President, Investor Relations

sschein@vectren.com

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Item Number		Page Number
	PART I. FINANCIAL INFORMATION
1	Financial Statements (Unaudited)
	Vectren Utility Holdings, Inc. and Subsidiary Companies
	Consolidated Condensed Balance Sheets	4-5
	Consolidated Condensed Statements of Income	6
	Consolidated Condensed Statements of Cash Flows	7
	Notes to Unaudited Consolidated Condensed Financial Statements	8
2	Management’s Discussion and Analysis of Results of Operations and Financial Condition	21
3	Quantitative and Qualitative Disclosures About Market Risk	33
4	Controls and Procedures	33

	PART II. OTHER INFORMATION
1	Legal Proceedings	33
1A	Risk Factors	33
6	Exhibits	34
	Signatures	35

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VECTREN UTILITY HOLDINGS, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited – In millions)

	March 31,		December 31,
	2008		2007

ASSETS

Current Assets
Cash & cash equivalents	$	21.1	$	11.7
Accounts receivable - less reserves of $3.5 &
$2.7, respectively		194.3		137.1
Receivables due from other Vectren companies		0.7		17.9
Accrued unbilled revenues		109.5		140.6
Inventories		54.5		134.9
Prepayments & other current assets		26.5		93.3
Total current assets		406.6		535.5

Utility Plant
Original cost		4,108.6		4,062.9
Less: accumulated depreciation & amortization		1,546.2		1,523.2
Net utility plant		2,562.4		2,539.7

Investments in unconsolidated affiliates		0.2		0.2
Other investments		25.6		24.7
Nonutility property - net		178.1		176.2
Goodwill - net		205.0		205.0
Regulatory assets		146.1		151.7
Other assets		10.4		10.7
TOTAL ASSETS	$	3,534.4	$	3,643.7

The accompanying notes are an integral part of these consolidated condensed financial statements.

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VECTREN UTILITY HOLDINGS, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited – In millions)

	March 31,		December 31,
	2008		2007

LIABILITIES & SHAREHOLDER'S EQUITY

Current Liabilities
Accounts payable	$	84.6	$	138.7
Accounts payable to affiliated companies		65.7		66.9
Payables to other Vectren companies		19.6		34.2
Refundable fuel & natural gas costs		23.8		27.2
Accrued liabilities		219.5		138.9
Short-term borrowings		135.6		385.9
Total current liabilities		548.8		791.8

Long-Term Debt - Net of Current Maturities &
Debt Subject to Tender		1,146.2		1,062.6

Deferred Income Taxes & Other Liabilities
Deferred income taxes		295.1		286.9
Regulatory liabilities		309.4		307.2
Deferred credits & other liabilities		107.4		104.8
Total deferred credits & other liabilities		711.9		698.9

Commitments & Contingencies (Notes 8 - 10)

Common Shareholder's Equity
Common stock (no par value)		638.2		638.2
Retained earnings		489.1		451.9
Accumulated other comprehensive income		0.2		0.3
Total common shareholder's equity		1,127.5		1,090.4

TOTAL LIABILITIES & SHAREHOLDER'S EQUITY	$	3,534.4	$	3,643.7

The accompanying notes are an integral part of these consolidated condensed financial statements.

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VECTREN UTILITY HOLDINGS, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Unaudited – In millions)

	Three Months Ended March 31,
	2008		2007
OPERATING REVENUES
Gas utility	$	633.6	$	584.1
Electric utility		127.2		108.1
Other		0.6		0.4
Total operating revenues		761.4		692.6

OPERATING EXPENSES
Cost of gas sold		462.0		424.5
Cost of fuel & purchased power		46.0		40.6
Other operating		74.0		67.2
Depreciation & amortization		40.7		39.2
Taxes other than income taxes		26.2		24.2
Total operating expenses		648.9		595.7

OPERATING INCOME		112.5		96.9

OTHER INCOME - NET		2.0		2.7

INTEREST EXPENSE		20.8		19.4

INCOME BEFORE INCOME TAXES		93.7		80.2

INCOME TAXES		35.7		29.3

NET INCOME	$	58.0	$	50.9

The accompanying notes are an integral part of these consolidated condensed financial statements.

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VECTREN UTILITY HOLDINGS, INC. AND SUBSIDIARY COMPANIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited – In millions)

	Three Months Ended March 31,
	2008		2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	58.0	$	50.9

Adjustments to reconcile net income to cash from operating activities:
Depreciation & amortization		40.7			39.2
Deferred income taxes & investment tax credits		8.9			(1.4	)
Expense portion of pension & postretirement periodic benefit cost		0.6			0.5
Provision for uncollectible acccounts		4.6			5.4
Other non-cash charges - net		1.0			(1.0	)
Changes in working capital accounts:
Accounts receivable, including to Vectren companies
& accrued unbilled revenue		(13.5	)		(28.7	)
Inventories		80.4			74.0
Recoverable/refundable fuel & natural gas costs		(3.4	)		5.5
Prepayments & other current assets		66.9			68.4
Accounts payable, including to Vectren companies
& affiliated companies		(69.9	)		(88.2	)
Accrued liabilities		88.5			54.7
Changes in noncurrent assets		7.2			4.3
Changes in noncurrent liabilities		(0.1	)		(1.6	)
Net cash flows from operating activities		269.9			182.0
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long term debt		171.4			-
Requirements for:
Dividends to parent		(20.8	)		(19.1	)
Retirement of long-term debt, including premiums paid		(103.2	)		-
Net change in short-term borrowings		(250.3	)		(121.3	)
Net cash flows from financing activities		(202.9	)		(140.4	)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from other investing activities		0.1			0.1
Requirements for:
Capital expenditures, excluding AFUDC equity		(56.7	)		(58.0	)
Other investing activities		(1.0	)		-
Net cash flows from investing activities		(57.6	)		(57.9	)
Net change in cash & cash equivalents		9.4			(16.3	)
Cash & cash equivalents at beginning of period		11.7			28.5
Cash & cash equivalents at end of period	$	21.1		$	12.2

The accompanying notes are an integral part of these consolidated condensed financial statements.

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VECTREN UTILITY HOLDINGS, INC. AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

1.	Organization and Nature of Operations

Vectren Utility Holdings, Inc. (Utility Holdings or the Company), an Indiana corporation, serves as the intermediate holding company for Vectren Corporation’s (Vectren) three operating public utilities: Indiana Gas Company, Inc. (Indiana Gas or Vectren North), Southern Indiana Gas and Electric Company (SIGECO or Vectren South), and the Ohio operations (VEDO or Vectren Ohio). Utility Holdings also has other assets that provide information technology and other services to the three utilities. Vectren is an energy holding company headquartered in Evansville, Indiana. Vectren and Utility Holdings are holding companies as defined by the Energy Policy Act of 2005 (Energy Act).

Indiana Gas provides energy delivery services to over 569,000 natural gas customers located in central and southern Indiana. SIGECO provides energy delivery services to over 141,000 electric customers and approximately 112,000 gas customers located near Evansville in southwestern Indiana. SIGECO also owns and operates electric generation to serve its electric customers and optimizes those assets in the wholesale power market. Indiana Gas and SIGECO generally do business as Vectren Energy Delivery of Indiana. The Ohio operations provide energy delivery services to approximately 319,000 natural gas customers located near Dayton in west central Ohio. The Ohio operations are owned as a tenancy in common by Vectren Energy Delivery of Ohio, Inc. (VEDO), a wholly owned subsidiary of Utility Holdings (53 percent ownership), and Indiana Gas (47 percent ownership). The Ohio operations generally do business as Vectren Energy Delivery of Ohio.

2.	Basis of Presentation

The interim consolidated condensed financial statements included in this report have been prepared by the Company, without audit, as provided in the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted as provided in such rules and regulations. The Company believes that the information in this report reflects all adjustments necessary to fairly state the results of the interim periods reported. These consolidated condensed financial statements and related notes should be read in conjunction with the Company’s audited annual consolidated financial statements for the year ended December 31, 2007, filed with the SEC February 28, 2008 on Form 10-K. Because of the seasonal nature of the Company’s utility operations, the results shown on a quarterly basis are not necessarily indicative of annual results.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

3.	Subsidiary Guarantor and Consolidating Information

The Company’s three operating utility companies, SIGECO, Indiana Gas, and VEDO are guarantors of Utility Holdings’ $515 million in short-term credit facilities, of which $136 million is outstanding at March 31, 2008, and Utility Holdings’ $825 million unsecured senior notes outstanding at March 31, 2008. The guarantees are full and unconditional and joint and several, and Utility Holdings has no subsidiaries other than the subsidiary guarantors. However, Utility Holdings does have operations other than those of the subsidiary guarantors. Pursuant to Article 3-10 of Regulation S-X, disclosure of the results of operations and balance sheets of the subsidiary guarantors separate from the parent company’s operations is required. Following are consolidating financial statements including information on the combined operations of the subsidiary guarantors separate from the other operations of the parent company.

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Condensed Consolidating Balance Sheet as of March 31, 2008 (in millions):


ASSETS	Subsidiary		Parent
	Guarantors		Company		Eliminations			Consolidated
Current Assets
Cash & cash equivalents	$	15.1	$	6.0	$	-		$	21.1
Accounts receivable - less reserves		194.3		-		-			194.3
Receivables due from other Vectren companies		37.0		68.1		(104.4	)		0.7
Accrued unbilled revenues		109.5		-		-			109.5
Inventories		53.9		0.6		-			54.5
Prepayments & other current assets		27.8		10.1		(11.4	)		26.5
Total current assets		437.6		84.8		(115.8	)		406.6
Utility Plant
Original cost		4,108.6		-		-			4,108.6
Less: accumulated depreciation & amortization		1,546.2		-		-			1,546.2
Net utility plant		2,562.4		-		-			2,562.4
Investments in consolidated subsidiaries		-		1,180.9		(1,180.9	)		-
Notes receivable from consolidated subsidiaries		-		700.3		(700.3	)		-
Investments in unconsolidated affiliates		0.2		-		-			0.2
Other investments		19.9		5.7		-			25.6
Non-utility property - net		4.7		173.4		-			178.1
Goodwill - net		205.0		-		-			205.0
Regulatory assets		119.9		26.2		-			146.1
Other assets		14.2		0.4		(4.2	)		10.4
TOTAL ASSETS	$	3,363.9	$	2,171.7	$	(2,001.2	)	$	3,534.4

LIABILITIES & SHAREHOLDER'S EQUITY	Subsidiary		Parent
	Guarantors		Company		Eliminations			Consolidated
Current Liabilities
Accounts payable	$	80.3	$	4.3	$	-		$	84.6
Accounts payable to affiliated companies		65.7		-		-			65.7
Payables to other Vectren companies		32.5		-		(12.9	)		19.6
Refundable fuel & natural gas costs		23.8		-		-			23.8
Accrued liabilities		216.0		14.9		(11.4	)		219.5
Short-term borrowings		-		135.6		-			135.6
Short-term borrowings from other Vectren companies		54.6		36.9		(91.5	)		-
Total current liabilities		472.9		191.7		(115.8	)		548.8
Long-Term Debt
Long-term debt - net of current maturities &
debt subject to tender		323.0		823.2		-			1,146.2
Long-term debt due to Utility Holdings		700.3		-		(700.3	)		-
Total long-term debt - net		1,023.3		823.2		(700.3	)		1,146.2
Deferred Income Taxes & Other Liabilities
Deferred income taxes		277.6		17.5		-			295.1
Regulatory liabilities		304.2		5.2		-			309.4
Deferred credits & other liabilities		105.0		6.6		(4.2	)		107.4
Total deferred credits & other liabilities		686.8		29.3		(4.2	)		711.9
Common Shareholder's Equity
Common stock (no par value)		776.3		638.2		(776.3	)		638.2
Retained earnings		404.4		489.1		(404.4	)		489.1
Accumulated other comprehensive income		0.2		0.2		(0.2	)		0.2
Total common shareholder's equity		1,180.9		1,127.5		(1,180.9	)		1,127.5
TOTAL LIABILITIES & SHAREHOLDER'S EQUITY	$	3,363.9	$	2,171.7	$	(2,001.2	)	$	3,534.4

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Condensed Consolidating Balance Sheet as of December 31, 2007 (in millions):

ASSETS	Subsidiary		Parent
	Guarantors		Company		Eliminations			Consolidated
Current Assets
Cash & cash equivalents	$	6.5	$	5.2	$	-		$	11.7
Accounts receivable - less reserves		136.3		0.8		-			137.1
Receivables due from other Vectren companies		0.1		276.6		(258.8	)		17.9
Accrued unbilled revenues		140.6		-		-			140.6
Inventories		133.8		1.1		-			134.9
Prepayments & other current assets		87.3		10.5		(4.5	)		93.3
Total current assets		504.6		294.2		(263.3	)		535.5
Utility Plant
Original cost		4,062.9		-		-			4,062.9
Less: accumulated depreciation & amortization		1,523.2		-		-			1,523.2
Net utility plant		2,539.7		-		-			2,539.7
Investments in consolidated subsidiaries		-		1,147.0		(1,147.0	)		-
Notes receivable from consolidated subsidiaries		-		589.4		(589.4	)		-
Investments in unconsolidated affiliates		0.2		-		-			0.2
Other investments		18.9		5.8		-			24.7
Non-utility property - net		4.8		171.4		-			176.2
Goodwill - net		205.0		-		-			205.0
Regulatory assets		130.3		21.4		-			151.7
Other assets		14.8		0.5		(4.6	)		10.7
TOTAL ASSETS	$	3,418.3	$	2,229.7	$	(2,004.3	)	$	3,643.7


LIABILITIES & SHAREHOLDER'S EQUITY	Subsidiary		Parent
	Guarantors		Company		Eliminations			Consolidated
Current Liabilities
Accounts payable	$	132.6	$	6.1	$	-		$	138.7
Accounts payable to affiliated companies		66.9		-		-			66.9
Payables to other Vectren companies		49.6		0.1		(15.5	)		34.2
Refundable fuel & natural gas costs		27.2		-		-			27.2
Accrued liabilities		123.4		20.0		(4.5	)		138.9
Short-term borrowings		-		385.9		-			385.9
Short-term borrowings from
other Vectren companies		243.3		-		(243.3	)		-
Total current liabilities		643.0		412.1		(263.3	)		791.8
Long-Term Debt
Long-term debt - net of current maturities &
debt subject to tender		364.2		698.4		-			1,062.6
Long-term debt due to Utility Holdings		589.4		-		(589.4	)		-
Total long-term debt - net		953.6		698.4		(589.4	)		1,062.6
Deferred Income Taxes & Other Liabilities
Deferred income taxes		270.0		16.9		-			286.9
Regulatory liabilities		301.8		5.4		-			307.2
Deferred credits & other liabilities		102.9		6.5		(4.6	)		104.8
Total deferred credits & other liabilities		674.7		28.8		(4.6	)		698.9
Common Shareholder's Equity
Common stock (no par value)		776.3		638.2		(776.3	)		638.2
Retained earnings		370.4		451.9		(370.4	)		451.9
Accumulated other comprehensive income		0.3		0.3		(0.3	)		0.3
Total common shareholder's equity		1,147.0		1,090.4		(1,147.0	)		1,090.4
TOTAL LIABILITIES & SHAREHOLDER'S EQUITY	$	3,418.3	$	2,229.7	$	(2,004.3	)	$	3,643.7

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Condensed Consolidating Statement of Income for the three months ended March 31, 2008 (in millions):

	Subsidiary		Parent		Eliminations &
	Guarantors		Company		Reclassifications			Consolidated
OPERATING REVENUES
Gas utility	$	633.6	$	-	$	-		$	633.6
Electric utility		127.2		-		-			127.2
Other		-		11.7		(11.1	)		0.6
Total operating revenues		760.8		11.7		(11.1	)		761.4
OPERATING EXPENSES
Cost of gas sold		462.0		-		-			462.0
Cost of fuel & purchased power		46.0		-		-			46.0
Other operating		84.7		-		(10.7	)		74.0
Depreciation & amortization		35.2		5.4		0.1			40.7
Taxes other than income taxes		25.8		0.4		-			26.2
Total operating expenses		653.7		5.8		(10.6	)		648.9
OPERATING INCOME		107.1		5.9		(0.5	)		112.5
OTHER INCOME (EXPENSE)
Equity in earnings of consolidated companies		-		54.9		(54.9	)		-
Other income (expense) – net		1.1		12.1		(11.2	)		2.0
Total other income (expense)		1.1		67.0		(66.1	)		2.0
Interest expense		18.0		14.5		(11.7	)		20.8
INCOME BEFORE INCOME TAXES		90.2		58.4		(54.9	)		93.7
Income taxes		35.3		0.4		-			35.7
NET INCOME	$	54.9	$	58.0	$	(54.9	)	$	58.0

Condensed Consolidating Statement of Income for the three months ended March 31, 2007 (in millions):

	Subsidiary		Parent			Eliminations &
	Guarantors		Company			Reclassifications			Consolidated
OPERATING REVENUES
Gas utility	$	584.1	$	-		$	-		$	584.1
Electric utility		108.1		-			-			108.1
Other		-		9.7			(9.3	)		0.4
Total operating revenues		692.2		9.7			(9.3	)		692.6
OPERATING EXPENSES
Cost of gas sold		424.5		-			-			424.5
Cost of fuel & purchased power		40.6		-			-			40.6
Other operating		74.9		-			(7.7	)		67.2
Depreciation & amortization		33.4		5.8			-			39.2
Taxes other than income taxes		23.9		0.3			-			24.2
Total operating expenses		597.3		6.1			(7.7	)		595.7
OPERATING INCOME		94.9		3.6			(1.6	)		96.9
OTHER INCOME (EXPENSE)
Equity in earnings of consolidated companies		-		48.6			(48.6	)		-
Other income (expense) – net		0.9		10.8			(9.0	)		2.7
Total other income (expense)		0.9		59.4			(57.6	)		2.7
Interest expense		16.5		13.5			(10.6	)		19.4
INCOME BEFORE INCOME TAXES		79.3		49.5			(48.6	)		80.2
Income taxes		30.7		(1.4	)		-			29.3
NET INCOME	$	48.6	$	50.9		$	(48.6	)	$	50.9

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Condensed Consolidating Statement of Cash Flows for the three months ended March 31, 2008 (in millions):


	Subsidiary			Parent
	Guarantors			Company			Eliminations			Consolidated

NET CASH FLOWS FROM OPERATING ACTIVITIES	$	200.3		$	69.6		$	-		$	269.9

CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt - net of issuance costs & hedging proceeds		171.4			111.1			(111.1	)		171.4
Requirements for:
Dividends to parent		(20.8	)		(20.8	)		20.8			(20.8	)
Retirement of long-term debt, including premiums paid		(103.2	)		-			-			(103.2	)
Net change in short-term borrowings, including to other
Vectren companies		(188.7	)		(213.4	)		151.8			(250.3	)
Net cash flows from financing activities		(141.3	)		(123.1	)		61.5			(202.9	)

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from
Consolidated subsidiary distributions		-			20.8			(20.8	)		-
Other investing activities		-			0.1			-			0.1
Requirements for:
Capital expenditures, excluding AFUDC equity		(49.4	)		(7.3	)		-			(56.7	)
Other investing activities		(1.0	)		-			-			(1.0	)
Net change in notes receivable to other Vectren companies		-			40.7			(40.7	)		-
Net cash flows from investing activities		(50.4	)		54.3			(61.5	)		(57.6	)
Net change in cash & cash equivalents		8.6			0.8			-			9.4
Cash & cash equivalents at beginning of period		6.5			5.2			-			11.7
Cash & cash equivalents at end of period	$	15.1		$	6.0		$	-		$	21.1

Condensed Consolidating Statement of Cash Flows for the three months ended March 31, 2007 (in millions):


	Subsidiary			Parent
	Guarantors			Company			Eliminations			Consolidated

NET CASH FLOWS FROM OPERATING ACTIVITIES	$	140.4		$	41.6		$	-		$	182.0

CASH FLOWS FROM FINANCING ACTIVITIES
Requirements for:
Dividends to parent		(19.1	)		(19.1	)		19.1			(19.1	)
Net change in short-term borrowings, including to other
Vectren companies		(67.9	)		(93.5	)		40.1			(121.3	)
Net cash flows from financing activities		(87.0	)		(112.6	)		59.2			(140.4	)

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from		-			19.1			(19.1	)		-
Consolidated subsidiary distributions		-			0.1			-			0.1
Other investing activities
Requirements for:
Capital expenditures, excluding AFUDC equity		(49.5	)		(8.5	)		-			(58.0	)
Net change in notes receivable to other Vectren companies		-			40.1			(40.1	)		-
Net cash flows from investing activities		(49.5	)		50.8			(59.2	)		(57.9	)
Net change in cash & cash equivalents		3.9			(20.2	)		-			(16.3	)
Cash & cash equivalents at beginning of period		5.7			22.8			-			28.5
Cash & cash equivalents at end of period	$	9.6		$	2.6		$	-		$	12.2

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4.	Excise and Utility Receipts Taxes

Excise taxes and a portion of utility receipts taxes are included in rates charged to customers. Accordingly, the Company records these taxes collected from customers as a component of operating revenues, which totaled $19.3 million and $18.0 million at March 31, 2008 and 2007, respectively. Expenses associated with excise and utility receipts taxes are recorded as a component of Taxes other than income taxes.

5.	Comprehensive Income

Comprehensive income consists of the following:


	Three Months Ended March 31,
(In millions)	2008			2007
Net income	$	58.0		$	50.9
Cash flow hedges
Reclassifications to net income		0.2			0.4
Income tax benefit (expense)		(0.1	)		(0.1	)
Total comprehensive income	$	58.1		$	51.2

6.	Transactions with Other Vectren Companies

Support Services and Purchases

Vectren provides corporate and general and administrative services to the Company and allocates costs to the Company, including costs for share-based compensation and for pension and other postretirement benefits that are not directly charged to subsidiaries. These costs have been allocated using various allocators, including number of employees, number of customers and/or the level of payroll, revenue contribution and capital expenditures. Allocations are based on cost. Utility Holdings received corporate allocations totaling $23.4 million and $21.4 million for the three months ended March 31, 2008 and 2007, respectively.

Vectren Fuels, Inc.

Vectren Fuels, Inc., a wholly owned subsidiary of Vectren, owns and operates coal mines from which SIGECO purchases fuel used for electric generation. The Company has priced the coal consistent with letter agreements with the OUCC regarding the price of coal that is charged by Fuels to SIGECO. Amounts paid for such purchases for the three months ended March 31, 2008 and 2007 totaled $28.0 million and $27.0 million, respectively.

Miller Pipeline Corporation

Miller Pipeline Corporation (Miller) performs natural gas and water distribution, transmission, and construction repair and rehabilitation primarily in the Midwest and the repair and rehabilitation of gas, water, and wastewater facilities nationwide. Miller’s customers include Utility Holdings’ utilities. Amounts paid by Utility Holdings and its subsidiaries for the three months ended March 31, 2008 and 2007 totaled $9.5 million and $3.6 million, respectively.

7.	Transactions with ProLiance Holdings, LLC

ProLiance Holdings, LLC (ProLiance), a nonutility energy marketing affiliate of Vectren and Citizens Gas and Coke Utility (Citizens Gas), provides services to a broad range of municipalities, utilities, industrial operations, schools, and healthcare institutions located throughout the Midwest and Southeast United States. ProLiance’s customers include the Company’s Indiana utilities and Vectren’s nonutility gas supply operations as well as Citizens Gas. ProLiance’s primary businesses include gas marketing, gas portfolio optimization, and other portfolio and energy management services.

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Purchases from ProLiance for resale and for injections into storage for the three months ended March 31, 2008 and 2007, totaled $206.7 million and $203.5 million, respectively. Amounts owed to ProLiance at March 31, 2008 and December 31, 2007, for those purchases were $65.7 million and $66.9 million, respectively, and are included in Accounts payable to affiliated companies in the Consolidated Balance Sheets. The Company purchased approximately 79 percent and 75 percent of its gas through ProLiance during the quarters ended March 31, 2008 and 2007, respectively. Amounts charged by ProLiance for gas supply services are established by supply agreements with each Indiana utility which have been approved by the IURC through 2011. ProLiance no longer provides portfolio administration services to the Ohio operations.

8.	Debt Offering in 2008 and Transactions Involving Auction Rate Securities

Utility Holdings Debt Issuance

In March 2008, Utility Holdings issued at par $125 million in 6.25 percent senior unsecured notes due April 1, 2039 (2039 Notes). The 2039 Notes are guaranteed by Utility Holdings’ three utilities: SIGECO, Indiana Gas, and VEDO. These guarantees are full and unconditional and joint and several.

The 2039 Notes have no sinking fund requirements, and interest payments are due monthly. The notes may be called by Utility Holdings, in whole or in part, at any time on or after April 1, 2013, at 100 percent of principal amount plus accrued interest. During 2007, Utility Holdings entered into several interest rate hedges with an $80 million notional amount. Upon issuance of the notes, these instruments were settled resulting in the payment of approximately $9.6 million, which was recorded as a Regulatory asset pursuant to existing regulatory orders. The value paid is being amortized as an increase to interest expense over the life of the issue. The proceeds from the sale of the 2039 Notes, settlement of the hedging arrangements, and payments of issuance costs totaled approximately $111.1 million.

Auction Rate Mode Securities

In February 2008, SIGECO provided notice to the current holders of approximately $103 million of tax-exempt auction rate mode long-term debt of its plans to convert that debt from its current auction rate mode into a daily interest rate mode. In March 2008, the debt was tendered at 100 percent of the principal amount plus accrued interest. During March 2008, SIGECO remarketed approximately $61.8 million of these investments at interest rates that are fixed to maturity, receiving proceeds, net of issuance costs, of approximately $60.3 million. The terms are $22.6 million at 5.15 percent due in 2023, $22.2 million at 5.35 percent due in 2030 and $17.0 million at 5.45 percent due in 2041. The remaining $41.2 million continues to be held in treasury and is expected to be remarketed at some future date.

9. Commitments & Contingencies

The Company is party to various legal proceedings arising in the normal course of business. In the opinion of management, there are no legal proceedings, except those discussed herein, pending against the Company that are likely to have a material adverse effect on its financial position or results of operations.

10. Environmental Matters

Clean Air/Climate Change

In March of 2005 USEPA finalized two new air emission reduction regulations. The Clean Air Interstate Rule (CAIR) is an allowance cap and trade program requiring further reductions in Nitrogen Oxides (NOx) and Sulfur Dioxide (SO2) emissions from coal-burning power plants. The Clean Air Mercury Rule (CAMR) is an allowance cap and trade program requiring further reductions in mercury emissions from coal-burning power plants. Both sets of regulations require emission reductions in two phases. The first phase deadline for both rules is 2010 (2009 for NOx under CAIR), and the second phase deadline for compliance with the emission reductions required under CAIR is 2015, while the second phase deadline for compliance with the emission reduction requirements of CAMR is 2018. However, on February 8, 2008, the US Court of Appeals for the District of Columbia vacated the federal CAMR regulations. At this time it is uncertain how this decision will affect Indiana’s recently finalized CAMR implementation program.

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To comply with Indiana’s implementation plan of the Clean Air Act of 1990 and to further comply with CAIR and CAMR of 2005, SIGECO has received authority from the IURC to invest in clean coal technology. Using this authorization, SIGECO has invested approximately $307 million in pollution control equipment, including Selective Catalytic Reduction (SCR) systems and fabric filters. SCR technology is the most effective method of reducing NOx emissions where high removal efficiencies are required and fabric filters control particulate matter emissions. These investments were included in rate base for purposes of determining new base rates that went into effect on August 15, 2007. Prior to being included in base rates, return on investments made and recovery of related operating expenses were recovered through a rider mechanism.

Further, the IURC granted SIGECO authority to invest in an SO2 scrubber at its generating facility that is jointly owned with ALCOA (the Company’s portion is 150 MW). The order, as updated with an increased spending level, allows SIGECO to recover an approximate 8 percent return on up to $92 million, excluding AFUDC, in capital investments through a rider mechanism which is updated every six months for actual costs incurred. The Company may file periodic updates with the IURC requesting modification to the spending authority. As of March 31, 2008, the Company has invested approximately $62 million in this project. The Company expects the SO2 scrubber will be operational in 2009. At that time, operating expenses including depreciation expense associated with the scrubber will also be recovered through a rider mechanism.

Once the SO2 scrubber is operational, SIGECO’s coal fired generating fleet will be 100 percent scrubbed for SO2 and 90 percent controlled for NOx, and mercury emissions will be reduced to meet the CAMR mercury reduction standards described in the original 2005 emission reduction regulations. The use of SCR technology positions the Company to be in compliance with the CAIR deadlines specifying reductions in NOx emissions by 2009 and further reductions by 2015. SIGECO's investments in scrubber, SCR and fabric filter technology should position it to comply with reasonable mercury reduction requirements should CAMR regulations be further modified.

If legislation requiring reductions in carbon dioxide and other greenhouse gases or legislation mandating energy from renewable sources is adopted, such regulation could substantially affect both the costs and operating characteristics of the Company’s fossil fuel generating plants. At this time and in the absence of final legislation, compliance costs and other effects associated with reductions in greenhouse gas emissions or obtaining renewable energy sources remain uncertain.

SIGECO is studying renewable energy alternatives, and on April 9, 2007, filed a green power rider in order to allow customers to purchase green power and to obtain approval of a contract to purchase 30 MW of power generated by wind energy. The wind contract has been approved by the IURC. Future filings with the IURC with regard to new generation and/or further environmental compliance plans will include evaluation of potential carbon requirements.

Environmental Remediation Efforts

In the past, Indiana Gas, SIGECO, and others operated facilities for the manufacture of gas. Given the availability of natural gas transported by pipelines, these facilities have not been operated for many years. Under currently applicable environmental laws and regulations, those that operated these facilities may now be required to take remedial action if certain contaminants are found above the regulatory thresholds at these sites.

Indiana Gas identified the existence, location, and certain general characteristics of 26 gas manufacturing and storage sites for which it may have some remedial responsibility. Indiana Gas completed a remedial investigation/feasibility study (RI/FS) at one of the sites under an agreed order between Indiana Gas and the IDEM, and a Record of Decision was issued by the IDEM in January 2000. Indiana Gas submitted the remainder of the sites to the IDEM's Voluntary Remediation Program (VRP) and is currently conducting some level of remedial activities, including groundwater monitoring at certain sites, where deemed appropriate, and will continue remedial activities at the sites as appropriate and necessary.

Indiana Gas accrued the estimated costs for further investigation, remediation, groundwater monitoring, and related costs for the sites. While the total costs that may be incurred in connection with addressing these sites cannot be determined at this time, Indiana Gas has recorded costs that it reasonably expects to incur totaling approximately $21 million.

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The estimated accrued costs are limited to Indiana Gas’ share of the remediation efforts. Indiana Gas has arrangements in place for 19 of the 26 sites with other potentially responsible parties (PRP), which serve to limit Indiana Gas’ share of response costs at these 19 sites to between 20 percent and 50 percent. With respect to insurance coverage, Indiana Gas has received and recorded settlements from all known insurance carriers under insurance policies in effect when these plants were in operation in an aggregate amount approximating $20 million.

In October 2002, SIGECO received a formal information request letter from the IDEM regarding five manufactured gas plants that it owned and/or operated and were not enrolled in the IDEM’s VRP. In October 2003, SIGECO filed applications to enter four of the manufactured gas plant sites in IDEM's VRP. The remaining site is currently being addressed in the VRP by another Indiana utility. SIGECO added those four sites into the renewal of the global Voluntary Remediation Agreement that Indiana Gas has in place with IDEM for its manufactured gas plant sites. That renewal was approved by the IDEM in February 2004. SIGECO is also named in a lawsuit filed in federal district court in May 2007, involving another site subject to potential environmental remediation efforts.

SIGECO has filed a declaratory judgment action against its insurance carriers seeking a judgment finding its carriers liable under the policies for coverage of further investigation and any necessary remediation costs that SIGECO may accrue under the VRP program and/or related to the site subject to the May 2007 lawsuit. While the total costs that may be incurred in connection with addressing these sites cannot be determined at this time, SIGECO has recorded costs that it reasonably expects to incur totaling approximately $8 million. With respect to insurance coverage, SIGECO has received and recorded settlements from insurance carriers under insurance policies in effect when these sites were in operation in an aggregate amount approximating the costs it expects to incur.

Environmental remediation costs related to Indiana Gas’ and SIGECO’s manufactured gas plants and other sites have had no material impact on results of operations or financial condition since costs recorded to date approximate PRP and insurance settlement recoveries. While the Company’s utilities have recorded all costs which they presently expect to incur in connection with activities at these sites, it is possible that future events may require some level of additional remedial activities which are not presently foreseen and those costs may not be subject to PRP or insurance recovery.

11. Rate & Regulatory Matters

Vectren North (Indiana Gas Company, Inc.) Gas Base Rate Order Received

On February 13, 2008, the Company received an order from the IURC which approved the settlement agreement reached in its Vectren North gas rate case. The order provided for a base rate increase of $16.3 million and an ROE of 10.2 percent, with an overall rate of return of 7.8 percent on rate base of approximately $793 million. The order also provides for the recovery of $10.6 million of costs through separate cost recovery mechanisms rather than base rates.

Further, additional expenditures for a multi-year bare steel and cast iron capital replacement program will be afforded certain accounting treatment that mitigates earnings attrition from the investment between rate cases. The accounting treatment allows for the continuation of the accrual for allowance for funds used during construction (AFUDC) and the deferral of depreciation expense after the projects go in service but before they are included in base rates. To qualify for this treatment, the annual expenditures are limited to $20 million and the treatment cannot extend beyond four years on each project.

With this order, the Company has in place for its North gas territory weather normalization, a conservation and lost margin recovery tariff, tracking of gas cost expense related to bad debts and unaccounted for gas through the existing gas cost adjustment mechanism, and tracking of pipeline integrity management expense.

Vectren Energy Delivery of Ohio, Inc. (VEDO) Gas Base Rate Case Filing

In November 2007, the Company filed with the PUCO a request for an increase in its base rates and charges for VEDO’s distribution business in its 17-county service area in west central Ohio. The filing indicates that an increase in base rates of approximately $27 million is necessary to cover the ongoing cost of operating, maintaining and expanding the approximately 5,200-mile distribution system used to serve 318,000 customers.

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In addition, the Company is seeking to increase the level of the monthly service charge as well as extending the lost margin recovery mechanism currently in place to be able to encourage customer conservation and is also seeking approval of expanded conservation-oriented programs, such as rebate offerings on high-efficiency natural gas appliances for existing and new home construction, to help customers lower their natural gas bills. The Company is also seeking approval of a multi-year bare steel and cast iron capital replacement program.

The Company anticipates an order from the PUCO in late 2008.

Vectren South (SIGECO) Electric Base Rate Order Received

On August 15, 2007, the Company received an order from the IURC which approved its Vectren South electric rate case. The settlement agreement provides for an approximate $60.8 million electric rate increase to cover the Company’s cost of system growth, maintenance, safety and reliability. The settlement provides for, among other things: recovery of ongoing costs and deferred costs associated with the MISO; operations and maintenance (O&M) expense increases related to managing the aging workforce, including the development of expanded apprenticeship programs and the creation of defined training programs to ensure proper knowledge transfer, safety and system stability; increased O&M expense necessary to maintain and improve system reliability; benefit to customers from the sale of wholesale power by sharing equally with customers any profit earned above or below $10.5 million of wholesale power margin; recovery of and return on the investment in past demand side management programs to help encourage conservation during peak load periods; timely recovery of the Company’s investment in certain new electric transmission projects that benefit the MISO infrastructure; an overall rate of return of 7.32 percent on rate base of approximately $1,044 million and an allowed return on equity (ROE) of 10.4 percent.

Vectren South (SIGECO) Gas Base Rate Order Received

On August 1, 2007, the Company received an order from the IURC which approved its Vectren South gas rate case. The order provided for a base rate increase of $5.1 million and an ROE of 10.15 percent, with an overall rate of return of 7.20 percent on rate base of approximately $122 million. The settlement also provides for the recovery of $2.6 million of costs through separate cost recovery mechanisms rather than base rates.

Further, additional expenditures for a multi-year bare steel and cast iron capital replacement program will be afforded certain accounting treatment that mitigates earnings attrition from the investment between rate cases. The accounting treatment allows for the continuation of the accrual for allowance for funds used during construction (AFUDC) and the deferral of depreciation expense after the projects go in service but before they are included in base rates. To qualify for this treatment, the annual expenditures are limited to $3 million and the treatment cannot extend beyond three years on each project.

With this order, the Company now has in place for its South gas territory weather normalization, a conservation and lost margin recovery tariff, tracking of gas cost expense related to bad debts and unaccounted for gas through the existing gas cost adjustment mechanism, and tracking of pipeline integrity expense.

Ohio Lost Margin Recovery/Conservation Filings

In 2005, the Company filed conservation programs and conservation adjustment trackers in Ohio designed to help customers conserve energy and reduce their annual gas bills. The proposed programs allow the recovery of costs promoting the conservation of natural gas through conservation trackers that work in tandem with a lost margin recovery mechanism. These mechanisms are designed to allow the recovery of the distribution portion of rates from residential and commercial customers based on the level of customer revenues established in VEDO’s last general rate case.

In June 2007, the Public Utilities Commission of Ohio (PUCO) approved a settlement that provides for the implementation of a lost margin recovery mechanism and a related conservation program for VEDO. This order confirms the guidance the PUCO previously provided in a September 2006 decision. The conservation program, as outlined in the September 2006 PUCO order and as affirmed in this order, provides for a two year, $2 million total conservation program to be paid by the Company, as well as a sales reconciliation rider intended to be a recovery mechanism for the difference between the weather normalized revenues actually collected by the Company and the revenues approved by the PUCO in the Company’s most recent rate case. Approximately 60 percent of the Company’s Ohio customers are eligible for the conservation programs. The Ohio Consumer Counselor (OCC) and another intervener requested a rehearing of the June 2007 order and the PUCO granted that request in order to have additional time to consider the merits of the request. In accordance with accounting authorization previously provided by the PUCO, the Company began recognizing the impact of the September 2006 order on October 1, 2006, and has recognized cumulative revenues of $5.6 million. The OCC appealed the PUCO’s accounting authorization to the Ohio Supreme Court, but that appeal has been dismissed as premature pending the PUCO’s consideration of issues raised in the OCC’s request for rehearing. Since October 1, 2006, the Company has been ratably accruing its $2 million commitment.

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MISO

Since February 2002 and with the IURC’s approval, the Company has been a member of the Midwest Independent System Operator, Inc. (MISO), a FERC approved regional transmission organization. The MISO serves the electrical transmission needs of much of the Midwest and maintains operational control over the Company’s electric transmission facilities as well as that of other Midwest utilities.

Since April 1, 2005, the Company has been an active participant in the MISO energy markets, biddings its owned generation into the Day Ahead and Real Time markets and procuring power for its retail customers at Locational Marginal Pricing (LMP) as determined by the MISO market. The Company is typically in a net sales position with MISO and is only occasionally in a net purchase position. Net positions are determined on an hourly basis. When the Company is a net seller such net revenues are included in Electric Utility revenues and when the Company is a net purchaser such net purchases are included in Cost of fuel and purchased power. The Company also receives transmission revenue that results from other members’ use of the Company’s transmission system. These revenues are also included in Electric Utility revenues. Generally, costs charged by the MISO are recovered via base rates or tracking mechanisms.

As a result of MISO’s operational control over much of the Midwestern electric transmission grid, including SIGECO’s transmission facilities, SIGECO’s continued ability to import power, when necessary, and export power to the wholesale market has been, and may continue to be, impacted. Given the nature of MISO’s policies regarding use of transmission facilities, as well as ongoing FERC initiatives, and a pending Day 3 market, where MISO plans to provide bid-based regulation and contingency operating reserve markets, it is difficult to predict near term operational impacts. In March 2008, MISO announced that the Day 3 ancillary services market would begin in September 2008. The Company has asked the IURC to approve its participation in Day 3 and to approve recovery of costs associated therewith.

The need to expend capital for improvements to the transmission system, both to SIGECO’s facilities as well as to those facilities of adjacent utilities, over the next several years is expected to be significant. The Company will timely recover its investment in certain new electric transmission projects that benefit the MISO infrastructure at a FERC approved rate of return.

12. Fair Value Measurements

SFAS 157

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements; however, the standard will impact how other fair value based GAAP is applied. In February 2008, the FASB issued FSP FAS 157-2 which delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. The Company adopted SFAS 157 on January 1, 2008, except as it applies to those nonfinancial assets and nonfinancial liabilities as described in FSP FAS 157-2. The partial adoption of SFAS 157 did not materially impact the Company’s financial position, results of operations or cash flows. The Company is currently evaluating the potential impact the application of SFAS 157 to its nonfinancial assets and liabilities will have on its consolidated financial statements.

The Company measures certain financial instruments, primarily derivatives, at fair value on a recurring basis. SFAS 157 defines a hierarchy for disclosing fair value measurements based primarily on the level of public data used in determining fair value. Level 1 inputs include quoted market prices in active markets for identical assets or liabilities; Level 2 inputs include inputs other than Level 1 inputs that are directly or indirectly observable; and Level 3 inputs include unobservable inputs using estimates and assumptions developed in-house, which reflect what a market participant would use to determine fair value. The fair value of financial assets and liabilities was determined using the following inputs at March 31, 2008:

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									Fair value at
	As of March 31, 2008								December 31,
In millions	Fair Value		Level 1		Level 2		Level 3		2007

Derivative assets/(liabilities):
Regulated gas supply contracts	$	0.3	$	0.3	$	-	$	-	$	-
Interest rate related contracts		-		-		-		-		(8.9	)
Other		0.9		-		-		0.9		2.6

Included in:
Prepayments and other current assets	$	1.2	$	0.3	$	-	$	0.9	$	2.6
Accrued liabilities		-		-		-		-		8.9

Derivatives classified as “other” and which are valued using level 3 valuation inputs, are held by a cost-based and rate regulated utility. Gains and losses associated with marking the instruments to market are recorded as a regulatory asset or liability until recovered from ratepayers.

SFAS 159

Also on January 1, 2008, the Company adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115” (SFAS 159). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not choose to apply the option provided in SFAS 159 to any of its eligible items; therefore, its adoption did not have any impact on the Company’s financial statements or results of operations.

13.	Segment Reporting

The Company’s operations consist of regulated operations and other operations that provide information technology and other support services to those regulated operations. The Company segregates its regulated operations into 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 to west central Ohio. The Electric Utility Services segment provides electric distribution services primarily to southwestern Indiana, and includes the Company’s power generating and asset optimization operations. The Company manages its regulated operations as separated between Energy Delivery, which includes the gas and electric transmission and distribution functions, and Power Supply, which includes the power generating and marketing operations. In total, regulated operations supply natural gas and /or electricity to over one million customers. In total, the Company has three operating segments as defined by SFAS 131 “Disclosure About Segments of an Enterprise and Related Information” (SFAS 131). Net income is the measure of profitability used by management for all operations. Information related to the Company’s business segments is summarized below:


	Three Months Ended March 31,
(In millions)	2008			2007
Revenues
Gas Utility Services	$	633.6		$	584.1
Electric Utility Services		127.2			108.1
Other Operations		11.7			9.7
Eliminations		(11.1	)		(9.3	)
Consolidated Revenues	$	761.4		$	692.6


Profitability Measure - Net Income
Gas Utility Services	$	42.3		$	37.9
Electric Utility Services		12.6			10.7
Other Operations		3.1			2.3
Total Net Income	$	58.0		$	50.9

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14.	Impact of Recently Issued Accounting Guidance

SFAS 141 (Revised 2007)

In December 2007, the FASB issued SFAS No. 141, “Business Combinations” (SFAS 141R). SFAS 141R establishes principles and requirements for how the acquirer of an entity (1) recognizes and measures the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree (2) recognizes and measures acquired goodwill or a bargain purchase gain and (3) determines what information to disclose in its financial statements in order to enable users to assess the nature and financial effects of the business combination. SFAS 141R applies to all transactions or other events in which one entity acquires control of one or more businesses and applies to all business entities. SFAS 141R applies prospectively to business combinations with an acquisition date on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early adoption is not permitted. The Company will adopt SFAS 141R on January 1, 2009, and because the provisions of this standard are applied prospectively, the impact to the Company cannot be determined until the transactions occur.

SFAS 160

In December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements-an Amendment of ARB No. 51” (SFAS 160). SFAS 160 establishes accounting and reporting standards that require that the ownership percentages in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented separately from the parent’s equity in the equity section of the consolidated balance sheet; the amount of consolidated net income attributable to the parent and the noncontrolling interest to be clearly identified and presented on the face of the consolidated income statement; that changes in the parent’s ownership interest while it retains control over its subsidiary be accounted for consistently; that when a subsidiary is deconsolidated, any retained noncontrolling equity investment be initially measured at fair value; and that sufficient disclosure is made to clearly identify and distinguish between the interests of the parent and the noncontrolling owners. SFAS 160 applies to all entities that prepare consolidated financial statements, except for non-profit entities. SFAS 160 is effective for fiscal years beginning after December 31, 2008. Early adoption is not permitted. The Company will adopt SFAS 160 on January 1, 2009, and is currently assessing the impact this statement will have on its financial statements and results of operations.