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 September 30, 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	October 31, 2008
Class	Number of Shares	Date

Definitions

AFUDC: allowance for funds used during construction	MMBTU: millions of British thermal units
APB: Accounting Principles Board	MW: megawatts
EITF: Emerging Issues Task Force	MWh / GWh: megawatt hours / thousands of megawatt hours (gigawatt hours)
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

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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Table of Contents

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	23
3	Quantitative and Qualitative Disclosures about Market Risk	38
4	Controls and Procedures	38

	PART II. OTHER INFORMATION
1	Legal Proceedings	38
1A	Risk Factors	39
6	Exhibits	39
	Signatures	40

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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)


	September 30,		December 31,
	2008		2007

ASSETS
Current Assets
Cash & cash equivalents	$	8.0	$	11.7
Accounts receivable - less reserves of $4.2 &
$2.7, respectively		86.4		137.1
Receivables due from other Vectren companies		0.3		17.9
Accrued unbilled revenues		35.0		140.6
Inventories		203.7		134.9
Recoverable fuel & natural gas costs		28.7		-
Prepayments & other current assets		133.6		93.3
Total current assets		495.7		535.5

Utility Plant
Original cost		4,226.4		4,062.9
Less: accumulated depreciation & amortization		1,590.6		1,523.2
Net utility plant		2,635.8		2,539.7

Investments in unconsolidated affiliates		0.2		0.2
Other investments		23.6		24.7
Nonutility property - net		180.6		176.2
Goodwill		205.0		205.0
Regulatory assets		141.5		151.7
Other assets		9.3		10.7
TOTAL ASSETS	$	3,691.7	$	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)


	September 30,		December 31,
	2008		2007

LIABILITIES & SHAREHOLDER'S EQUITY

Current Liabilities
Accounts payable	$	132.3	$	138.7
Accounts payable to affiliated companies		48.1		66.9
Payables to other Vectren companies		64.0		34.2
Refundable fuel & natural gas costs		6.9		27.2
Accrued liabilities		211.3		138.9
Short-term borrowings		113.2		385.9
Long-term debt subject to tender		80.0		-
Total current liabilities		655.8		791.8
Long-Term Debt - Net of Current Maturities &
Debt Subject to Tender		1,065.6		1,062.6
Deferred Income Taxes & Other Liabilities
Deferred income taxes		323.2		286.9
Regulatory liabilities		313.0		307.2
Deferred credits & other liabilities		101.1		104.8
Total deferred credits & other liabilities		737.3		698.9
Commitments & Contingencies (Notes 10 - 12)
Common Shareholder's Equity
Common stock (no par value)		763.0		638.2
Retained earnings		469.9		451.9
Accumulated other comprehensive income		0.1		0.3
Total common shareholder's equity		1,233.0		1,090.4

TOTAL LIABILITIES & SHAREHOLDER'S EQUITY	$	3,691.7	$	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		Nine Months
			Ended September 30,		Ended September 30,
			2008	2007	2008	2007
OPERATING REVENUES
	Gas utility		$ 143.9	$ 114.0	$ 1,002.4	$ 890.0
	Electric utility		147.9	143.6	402.3	361.6
	Other		0.6	0.4	1.8	1.3
		Total operating revenues	292.4	258.0	1,406.5	1,252.9

OPERATING EXPENSES
	Cost of gas		80.2	52.9	686.0	592.0
	Cost of fuel & purchased power		48.7	50.5	143.2	129.5
	Other operating		69.2	65.6	217.7	198.4
	Depreciation & amortization		41.6	40.4	123.2	119.4
	Taxes other than income taxes		11.7	11.3	51.8	49.6
		Total operating expenses	251.4	220.7	1,221.9	1,088.9

OPERATING INCOME			41.0	37.3	184.6	164.0

OTHER INCOME - NET			0.7	1.3	4.9	6.2
INTEREST EXPENSE			19.6	20.8	59.5	58.8

INCOME BEFORE INCOME TAXES			22.1	17.8	130.0	111.4

INCOME TAXES			8.5	7.1	49.6	41.8

NET INCOME			$ 13.6	$ 10.7	$ 80.4	$ 69.6

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)


					Nine Months Ended September 30,
					2008	2007
CASH FLOWS FROM OPERATING ACTIVITIES
	Net income				$ 80.4	$ 69.6
	Adjustments to reconcile net income to cash from operating activities:
		Depreciation & amortization			123.2	119.4
		Deferred income taxes & investment tax credits			39.0	4.1
		Expense portion of pension & postretirement periodic benefit cost			1.9	2.9
		Provision for uncollectible acccounts			11.8	11.5
		Other non-cash charges - net			8.9	3.1
		Changes in working capital accounts:
			Accounts receivable, including to Vectren companies
				& accrued unbilled revenue	162.1	121.4
			Inventories		(72.2)	(28.3)
			Recoverable/refundable fuel & natural gas costs		(49.0)	(7.5)
			Prepayments & other current assets		(43.6)	(18.2)
			Accounts payable, including to Vectren companies
				& affiliated companies	12.9	(59.9)
			Accrued liabilities		78.3	(15.5)
		Changes in noncurrent assets			3.2	(10.2)
		Changes in noncurrent liabilities			(14.8)	(19.3)
			Net cash flows from operating activities		342.1	173.1
CASH FLOWS FROM FINANCING ACTIVITIES
	Proceeds from:
		Capital contribution from parent			124.9	-
		Proceeds from long-term debt, net of issuance costs			171.1	-
	Requirements for:
		Dividends to parent			(62.4)	(57.4)
		Retirement of long-term debt, including premiums paid			(104.0)	(6.5)
	Net change in short-term borrowings				(272.7)	82.1
			Net cash flows from financing activities		(143.1)	18.2
CASH FLOWS FROM INVESTING ACTIVITIES
	Proceeds from other investing activities				2.5	0.3
	Requirements for:
		Capital expenditures, excluding AFUDC equity			(204.1)	(213.1)
		Other investing activities			(1.1)	-
			Net cash flows from investing activities		(202.7)	(212.8)
Net change in cash & cash equivalents					(3.7)	(21.5)
Cash & cash equivalents at beginning of period					11.7	28.5
Cash & cash equivalents at end of period					$ 8.0	$ 7.0

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 normal and recurring 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 Securities and Exchange Commission 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 $113 million is outstanding at September 30, 2008, and Utility Holdings’ $824 million unsecured senior notes outstanding at September 30, 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 September 30, 2008 (in millions):


ASSETS			Subsidiary	Parent	Eliminations &
			Guarantors	Company	Reclassifications	Consolidated
Current Assets
	Cash & cash equivalents		$ 4.2	$ 3.8	$ -	$ 8.0
	Accounts receivable - less reserves		86.4	-	-	86.4
	Receivables due from other Vectren companies		96.9	232.5	(329.1)	0.3
	Accrued unbilled revenues		35.0	-	-	35.0
	Inventories		198.5	5.2	-	203.7
	Recoverable fuel & natural gas costs		28.7	-	-	28.7
	Prepayments & other current assets		125.2	12.3	(3.9)	133.6
		Total current assets	574.9	253.8	(333.0)	495.7
Utility Plant
Original cost			4,226.4	-	-	4,226.4
Less: accumulated depreciation & amortization			1,590.6	-	-	1,590.6
Net utility plant			2,635.8	-	-	2,635.8
Investments in consolidated subsidiaries			-	1,155.5	(1,155.5)	-
Notes receivable from consolidated subsidiaries			-	699.5	(699.5)	-
Investments in unconsolidated affiliates			0.2	-	-	0.2
Other investments			18.0	5.6	-	23.6
Nonutility property - net			4.4	176.2	-	180.6
Goodwill			205.0	-	-	205.0
Regulatory assets			116.0	25.5	-	141.5
Other assets			12.5	0.3	(3.5)	9.3
TOTAL ASSETS			$ 3,566.8	$ 2,316.4	$ (2,191.5)	$ 3,691.7
LIABILITIES & SHAREHOLDER'S EQUITY			Subsidiary	Parent	Eliminations &
			Guarantors	Company	Reclassifications	Consolidated
Current Liabilities
	Accounts payable		$ 128.9	$ 3.4	$ -	$ 132.3
	Accounts payable to affiliated companies		48.1	-	-	48.1
	Payables to other Vectren companies		87.8	1.2	(25.0)	64.0
	Refundable fuel & natural gas costs		6.9	-	-	6.9
	Accrued liabilities		199.7	15.5	(3.9)	211.3
	Short-term borrowings		0.2	113.0	-	113.2
	Short-term borrowings from
		other Vectren companies	208.4	95.7	(304.1)	-
	Long-term debt subject to tender		80.0	-	-	80.0
		Total current liabilities	760.0	228.8	(333.0)	655.8
Long-Term Debt
	Long-term debt - net of current maturities &
		debt subject to tender	243.1	822.5	-	1,065.6
	Long-term debt due to Utility Holdings		699.5	-	(699.5)	-
		Total long-term debt - net	942.6	822.5	(699.5)	1,065.6
Deferred Income Taxes & Other Liabilities
	Deferred income taxes		303.2	20.0	-	323.2
	Regulatory liabilities		308.1	4.9	-	313.0
	Deferred credits & other liabilities		97.4	7.2	(3.5)	101.1
		Total deferred credits & other liabilities	708.7	32.1	(3.5)	737.3
Common Shareholder's Equity
	Common stock (no par value)		776.3	763.0	(776.3)	763.0
	Retained earnings		379.1	469.9	(379.1)	469.9
	Accumulated other comprehensive income		0.1	0.1	(0.1)	0.1
		Total common shareholder's equity	1,155.5	1,233.0	(1,155.5)	1,233.0
TOTAL LIABILITIES & SHAREHOLDER'S EQUITY			$ 3,566.8	$ 2,316.4	$ (2,191.5)	$ 3,691.7

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


ASSETS			Subsidiary	Parent	Eliminations &
			Guarantors	Company	Reclassifications	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
Nonutility property - net			4.8	171.4	-	176.2
Goodwill			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	Eliminations &
			Guarantors	Company	Reclassifications	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 VUHI		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 September 30, 2008 (in millions):


	Subsidiary			Parent		Eliminations &
	Guarantors			Company		Reclassifications			Consolidated
OPERATING REVENUES
Gas utility	$	143.9		$	-	$	-			143.9
Electric utility		147.9			-		-			147.9
Other		-		$	11.7		(11.1	)		0.6
Total operating revenues		291.8			11.7		(11.1	)		292.4
OPERATING EXPENSES
Cost of gas		80.2			-		-			80.2
Cost of fuel & purchased power		48.7			-		-			48.7
Other operating		79.0			1.0		(10.8	)		69.2
Depreciation & amortization		35.7			5.8		0.1			41.6
Taxes other than income taxes		11.3			0.4		-			11.7
Total operating expenses		254.9			7.2		(10.7	)		251.4
OPERATING INCOME		36.9			4.5		(0.4	)		41.0
OTHER INCOME (EXPENSE) - NET
Equity in earnings of consolidated companies		-			11.4		(11.4	)		-
Other income (expense) – net		(0.1	)		13.3		(12.5	)		0.7
Total other income (expense) - net		(0.1	)		24.7		(23.9	)		0.7
Interest expense		18.5			14.0		(12.9	)		19.6
INCOME BEFORE INCOME TAXES		18.3			15.2		(11.4	)		22.1
Income taxes		6.9			1.6		-			8.5
NET INCOME	$	11.4		$	13.6	$	(11.4	)	$	13.6

Condensed Consolidating Statement of Income for the three months ended September 30, 2007 (in millions):


	Subsidiary			Parent			Eliminations &
	Guarantors			Company			Reclassifications			Consolidated
OPERATING REVENUES
Gas utility	$	114.0		$	-		$	-		$	114.0
Electric utility		143.6			-			-			143.6
Other		-			10.1			(9.7	)		0.4
Total operating revenues		257.6			10.1			(9.7	)		258.0
OPERATING EXPENSES
Cost of gas		52.9			-			-			52.9
Cost of fuel & purchased power		50.5			-			-			50.5
Other operating		74.3			-			(8.7	)		65.6
Depreciation & amortization		34.5			5.8			0.1			40.4
Taxes other than income taxes		10.1			1.2			-			11.3
Total operating expenses		222.3			7.0			(8.6	)		220.7
OPERATING INCOME		35.3			3.1			(1.1	)		37.3
OTHER INCOME (EXPENSE) - NET
Equity in earnings of consolidated companies		-			10.2			(10.2	)		-
Other income (expense) – net		(0.2	)		12.1			(10.6	)		1.3
Total other income (expense) - net		(0.2	)		22.3			(20.8	)		1.3
Interest expense		17.7			14.8			(11.7	)		20.8
INCOME BEFORE INCOME TAXES		17.4			10.6			(10.2	)		17.8
Income taxes		7.2			(0.1	)		-			7.1
NET INCOME	$	10.2		$	10.7		$	(10.2	)	$	10.7

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Condensed Consolidating Statement of Income for the nine months ended September 30, 2008 (in millions):


	Subsidiary		Parent		Eliminations &
	Guarantors		Company		Reclassifications			Consolidated
OPERATING REVENUES
Gas utility	$	1,002.4	$	-	$	-		$	1,002.4
Electric utility		402.3		-		-			402.3
Other		-		35.2		(33.4	)		1.8
Total operating revenues		1,404.7		35.2		(33.4	)		1,406.5
OPERATING EXPENSES
Cost of gas		686.0		-		-			686.0
Cost of fuel & purchased power		143.2		-		-			143.2
Other operating		250.1		-		(32.4	)		217.7
Depreciation & amortization		106.3		16.7		0.2			123.2
Taxes other than income taxes		50.7		1.0		0.1			51.8
Total operating expenses		1,236.3		17.7		(32.1	)		1,221.9
OPERATING INCOME		168.4		17.5		(1.3	)		184.6
OTHER INCOME (EXPENSE) - NET
Equity in earnings of consolidated companies		-		71.2		(71.2	)		-
Other income (expense) – net		2.7		37.8		(35.6	)		4.9
Total other income (expense) - net		2.7		109.0		(106.8	)		4.9
Interest expense		54.3		42.1		(36.9	)		59.5
INCOME BEFORE INCOME TAXES		116.8		84.4		(71.2	)		130.0
Income taxes		45.6		4.0		-			49.6
NET INCOME	$	71.2	$	80.4	$	(71.2	)	$	80.4

Condensed Consolidating Statement of Income for the nine months ended September 30, 2007 (in millions):


	Subsidiary		Parent			Eliminations &
	Guarantors		Company			Reclassifications			Consolidated
OPERATING REVENUES
Gas utility	$	890.0	$	-		$	-		$	890.0
Electric utility		361.6		-			-			361.6
Other		-		30.3			(29.0	)		1.3
Total operating revenues		1,251.6		30.3			(29.0	)		1,252.9
OPERATING EXPENSES
Cost of gas		592.0		-			-			592.0
Cost of fuel & purchased power		129.5		-			-			129.5
Other operating		224.2		-			(25.8	)		198.4
Depreciation & amortization		101.8		17.3			0.3			119.4
Taxes other than income taxes		47.7		1.8			0.1			49.6
Total operating expenses		1,095.2		19.1			(25.4	)		1,088.9
OPERATING INCOME		156.4		11.2			(3.6	)		164.0
OTHER INCOME (EXPENSE) - NET
Equity in earnings of consolidated companies		-		65.6			(65.6	)		-
Other income (expense) – net		2.5		33.5			(29.8	)		6.2
Total other income (expense) - net		2.5		99.1			(95.4	)		6.2
Interest expense		50.6		41.6			(33.4	)		58.8
INCOME BEFORE INCOME TAXES		108.3		68.7			(65.6	)		111.4
Income taxes		42.7		(0.9	)		-			41.8
NET INCOME	$	65.6	$	69.6		$	(65.6	)	$	69.6

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Condensed Consolidating Statement of Cash Flows for the nine months ended September 30, 2008 (in millions):


	Subsidiary			Parent			Eliminations &
	Guarantors			Company			Reclassifications			Consolidated
NET CASH FLOWS FROM OPERATING ACTIVITIES	$	305.2		$	36.9		$	-		$	342.1

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from
Capital contribution from parent		-			124.9			-			124.9
Long-term debt, net of issuance costs		171.1			111.1			(111.1	)		171.1
Requirements for:
Dividends to parent		(62.4	)		(62.4	)		62.4			(62.4	)
Retirement of long-term debt, including premiums paid		(104.0	)		(1.0	)		1.0			(104.0	)
Net change in short-term borrowings, including to other
Vectren companies		(130.6	)		(177.0	)		34.9			(272.7	)
Net cash flows from financing activities		(125.9	)		(4.4	)		(12.8	)		(143.1	)

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from
Consolidated subsidiary distributions		-			62.4			(62.4	)		-
Other investing activities		2.3			0.2			-			2.5
Requirements for:
Capital expenditures, excluding AFUDC equity		(182.8	)		(21.3	)		-			(204.1	)
Other investing activities		(1.1	)		-			-			(1.1	)
Net change in notes receivable to other Vectren companies		-			(75.2	)		75.2			-
Net cash flows from investing activities		(181.6	)		(33.9	)		12.8			(202.7	)
Net change in cash & cash equivalents		(2.3	)		(1.4	)		-			(3.7	)
Cash & cash equivalents at beginning of period		6.5			5.2			-			11.7
Cash & cash equivalents at end of period	$	4.2		$	3.8		$	-		$	8.0

Condensed Consolidating Statement of Cash Flows for the nine months ended September 30, 2007 (in millions):


	Subsidiary			Parent			Eliminations &
	Guarantors			Company			Reclassifications			Consolidated
NET CASH FLOWS FROM OPERATING ACTIVITIES	$	144.3		$	28.8		$	-		$	173.1

CASH FLOWS FROM FINANCING ACTIVITIES
Requirements for:
Dividends to parent		(57.4	)		(57.4	)		57.4			(57.4	)
Retirement of long-term debt		(6.5	)		-			-			(6.5	)
Net change in short-term borrowings		105.2			82.1			(105.2	)		82.1
Net cash flows from financing activities		41.3			24.7			(47.8	)		18.2

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from consolidated subsidiary distributions		-			57.4			(57.4	)		-
Proceeds from other investing activities		-			0.3			-			0.3
Requirements for:
Capital expenditures, excluding AFUDC equity		(186.2	)		(26.9	)		-			(213.1	)
Net change in notes receivable to other Vectren companies		-			(105.2	)		105.2			-
Net cash flows from investing activities		(186.2	)		(74.4	)		47.8			(212.8	)
Net change in cash & cash equivalents		(0.6	)		(20.9	)					(21.5	)
Cash & cash equivalents at beginning of period		5.7			22.8						28.5
Cash & cash equivalents at end of period	$	5.1		$	1.9		$	-		$	7.0

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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 received as a component of operating revenues, which totaled $5.2 million and $4.9 million, respectively for the three months ended September 30, 2008 and 2007. For the nine months ended September 30, 2008 and 2007, these taxes totaled $31.6 million and $29.6 million, 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: