Company Quick10K Filing
Quick10K
Vectren Utility Holdings
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-02-01 M&A, Shareholder Rights, Control, Officers, Amend Bylaw, Other Events, Exhibits
8-K 2019-02-01
8-K 2019-01-30 Other Events
8-K 2019-01-16 Other Events, Exhibits
8-K 2018-12-31 Officers, Exhibits
8-K 2018-12-14 Suspend Trading, Exhibits
8-K 2018-12-12 Officers, Exhibits
8-K 2018-11-09 Regulation FD, Exhibits
8-K 2018-11-06 Earnings, Exhibits
8-K 2018-10-11 Other Events, Exhibits
8-K 2018-10-05 Other Events, Exhibits
8-K 2018-08-22 Other Events
8-K 2018-08-08 Officers, Exhibits
8-K 2018-08-02 Earnings, Exhibits
8-K 2018-07-30 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-07-16 Other Events
8-K 2018-06-18 Other Events
8-K 2018-05-18 Regulation FD, Exhibits
8-K 2018-05-16 Officers, Exhibits
8-K 2018-05-02 Earnings, Exhibits
8-K 2018-04-21 Enter Agreement, Regulation FD, Exhibits
8-K 2018-03-01 Other Events, Exhibits
8-K 2018-02-27 Regulation FD, Exhibits
8-K 2018-02-21 Other Events, Exhibits
8-K 2018-02-16 Other Events, Exhibits
8-K 2017-12-31 Regulation FD, Exhibits
LZB La-Z-Boy 1,580
RCKT Rocket Pharmaceuticals 951
DZSI Dasan Zhone Solutions 204
BBW Build A Bear Workshop 74
NAKD Naked Brand Group Limited 14
AVHI AV Homes 0
BMTM Bright Mountain Media 0
FCRE FC Global Realty 0
WEB web.com 0
KORS Michael Kors 0
AVU 2018-09-30
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 vuhi9302018ex311.htm
EX-31.2 vuhi9302018ex312.htm
EX-32 vuhi9302018ex32.htm

Vectren Utility Holdings Earnings 2018-09-30

AVU 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 vuhi930201810q.htm 10-Q - VUHI 09.30.18 10-Q Document

                            
                    

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q


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


For the quarterly period ended September 30, 2018
OR

[_]
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, IN 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. ý Yes  o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
ý Yes   o No




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 o                                                                                                        Accelerated filer o
Non-accelerated filer ý (Do not check if a smaller reporting company)                              Smaller reporting company o
Emerging Growth Company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes     ý No

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, 2018
Class
 
Number of Shares
 
Date

Access to Information

Vectren Corporation makes available all SEC filings and recent annual reports, including those of its wholly owned subsidiaries, free of charge through its website at www.vectren.com as soon as reasonably practicable after electronically filing or furnishing the reports to the SEC, 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:
David E. Parker Director, Investor Relations vvcir@vectren.com

Definitions
The Administration: Executive Office of the President of the United States
IRP: Integrated Resource Plan
AFUDC: allowance for funds used during construction
IURC:  Indiana Utility Regulatory Commission
ASC: Accounting Standards Codification
kV: Kilovolt
ASU: Accounting Standards Update
MCF / BCF: thousands / billions of cubic feet
BTU / MMBTU:  British thermal units / millions of BTU
MDth / MMDth: thousands / millions of dekatherms
DOT:  Department of Transportation
MISO: Midcontinent Independent System Operator
EPA:  Environmental Protection Agency
MW:  megawatts
FAC: Fuel Adjustment Clause
MWh / GWh:  megawatt hours / thousands of megawatt hours (gigawatt hours)
FASB:  Financial Accounting Standards Board
OUCC:  Indiana Office of the Utility Consumer Counselor
FERC:  Federal Energy Regulatory Commission
PHMSA: Pipeline and Hazardous Materials Safety Administration
GAAP: Generally Accepted Accounting Principles
PUCO:  Public Utilities Commission of Ohio
GCA: Gas Cost Adjustment
XBRL:  eXtensible Business Reporting Language
IDEM:  Indiana Department of Environmental Management
 

1


                            
                    

Table of Contents


Item
Number
 
Page
Number
 
PART I.  FINANCIAL INFORMATION
 
1
 
 
Vectren Utility Holdings, Inc. and Subsidiary Companies
 
 
 
 
 
2
3
4
 
 
 
 
PART II.  OTHER INFORMATION
 
1
1A
2
3
4
5
6
 


2


                            
                    

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

VECTREN UTILITY HOLDINGS, INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited – In millions)

 
September 30,
2018
 
December 31,
2017
ASSETS
 
 
 
Current Assets
 
 
 
Cash & cash equivalents
$
7.0

 
$
9.8

     Accounts receivable - less reserves of $3.2 & $3.9, respectively
82.2

 
109.5

Accrued unbilled revenues
42.3

 
123.7

Inventories
100.8

 
117.5

Recoverable fuel & natural gas costs
7.8

 
19.2

Prepayments & other current assets
37.2

 
32.7

Total current assets
277.3

 
412.4

Utility Plant
 

 
 

Original cost
7,394.5

 
7,015.4

Less:  accumulated depreciation & amortization
2,850.9

 
2,738.7

Net utility plant
4,543.6

 
4,276.7

Investments in unconsolidated affiliates
0.2

 
0.2

Other investments
30.7

 
26.7

Nonutility plant - net
202.5

 
198.6

Goodwill
205.0

 
205.0

Regulatory assets
366.6

 
314.0

Other assets
64.0

 
64.2

TOTAL ASSETS
$
5,689.9

 
$
5,497.8



















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

3


                            
                    


VECTREN UTILITY HOLDINGS, INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited – In millions)

 
September 30,
2018
 
December 31,
2017
LIABILITIES & SHAREHOLDER'S EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
125.2

 
$
221.8

Payables to other Vectren companies
29.2

 
33.3

Accrued liabilities
176.9

 
154.0

Short-term borrowings
225.3

 
179.5

Current maturities of long-term debt

 
100.0

Total current liabilities
556.6

 
688.6

Long-Term Debt - Net of Current Maturities
1,729.6

 
1,479.5

 
 
 
 
Deferred Credits & Other Liabilities
 

 
 

Deferred income taxes
483.1

 
457.5

Regulatory liabilities
938.7

 
937.2

Deferred credits & other liabilities
220.5

 
212.2

Total deferred credits & other liabilities
1,642.3

 
1,606.9

Commitments & Contingencies (Notes 9 - 12)


 


Common Shareholder's Equity
 

 
 

Common stock (no par value)
879.2

 
877.5

Retained earnings
882.2

 
845.3

Total common shareholder's equity
1,761.4

 
1,722.8

TOTAL LIABILITIES & SHAREHOLDER'S EQUITY
$
5,689.9

 
$
5,497.8






















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

4


                            
                    

VECTREN UTILITY HOLDINGS, INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited – In millions)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
OPERATING REVENUES
 
 
 
 
 
 
 
Gas utility
$
122.1

 
$
120.4

 
$
600.7

 
$
557.2

Electric utility
160.0

 
159.2

 
437.4

 
433.0

Other
0.1

 
0.1

 
0.2

 
0.2

Total operating revenues
282.2

 
279.7

 
1,038.3

 
990.4

OPERATING EXPENSES
 

 
 

 
 
 
 
Cost of gas sold
24.5

 
23.9

 
211.4

 
174.0

Cost of fuel & purchased power
47.5

 
44.1

 
137.7

 
128.8

Other operating
83.5

 
82.0

 
265.6

 
250.4

Depreciation & amortization
63.4

 
59.0

 
186.3

 
174.3

Taxes other than income taxes
13.5

 
12.6

 
47.5

 
40.1

Total operating expenses
232.4

 
221.6

 
848.5

 
767.6

OPERATING INCOME
49.8

 
58.1

 
189.8

 
222.8

Other income - net
9.2

 
8.1

 
27.9

 
21.4

Interest expense
20.3

 
18.3

 
60.3

 
53.5

INCOME BEFORE INCOME TAXES
38.7

 
47.9

 
157.4

 
190.7

Income taxes
5.7

 
17.1

 
24.6

 
68.5

NET INCOME
$
33.0

 
$
30.8

 
$
132.8

 
$
122.2

























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

5


                            
                    

VECTREN UTILITY HOLDINGS, INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited – In millions)
 
Nine Months Ended
 
September 30,
 
2018
 
2017
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
132.8

 
$
122.2

Adjustments to reconcile net income to cash from operating activities:
 
 
 
 Depreciation & amortization
186.3

 
174.3

 Deferred income taxes & investment tax credits
11.1

 
72.0

 Expense portion of pension & postretirement benefit cost
3.3

 
2.6

 Provision for uncollectible accounts
4.7

 
4.0

 Other non-cash items - net
1.4

 
(3.3
)
 Changes in working capital accounts:
 
 
 
  Accounts receivable & accrued unbilled revenues
104.0

 
90.0

  Inventories
16.7

 
(1.4
)
  Recoverable/refundable fuel & natural gas costs
11.4

 

  Prepayments & other current assets
(4.3
)
 
(5.8
)
         Accounts payable, including to Vectren companies
            & affiliated companies
(111.0
)
 
(79.0
)
  Accrued liabilities
22.9

 
(1.8
)
Cash to fund pension & postretirement plans
(6.7
)
 

Changes in noncurrent assets
(33.1
)
 
(26.3
)
Changes in noncurrent liabilities
(18.3
)
 
(9.3
)
Net cash from operating activities
321.2

 
338.2

CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

Proceeds from:
 

 
 

Long-term debt - net of issuance costs
249.3

 
99.2

Additional capital contribution
1.7

 
44.6

Requirements for:
 

 
 

Dividends to parent
(96.0
)
 
(92.5
)
Retirement of long-term debt
(100.0
)
 

Net change in short-term borrowings
45.8

 
17.3

Net cash from financing activities
100.8

 
68.6

CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

Proceeds from other collections

 
2.8

Requirements for:


 
 
Capital expenditures, excluding AFUDC equity
(424.8
)
 
(411.7
)
Other costs

 
(2.4
)
Changes in restricted cash

 
0.9

Net cash from investing activities
(424.8
)
 
(410.4
)
Net change in cash & cash equivalents
(2.8
)
 
(3.6
)
Cash & cash equivalents at beginning of period
9.8

 
9.4

Cash & cash equivalents at end of period
$
7.0

 
$
5.8





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

6


                            
                    

VECTREN UTILITY HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1.
Organization and Nature of Operations

Vectren Utility Holdings, Inc. (the Company, Utility Holdings or VUHI), an Indiana corporation, was formed on March 31, 2000, to serve as the intermediate holding company for Vectren Corporation’s (Vectren or the Company's parent) three operating public utilities:  Indiana Gas Company, Inc. (Indiana Gas or Vectren Energy Delivery of Indiana - North), Southern Indiana Gas and Electric Company (SIGECO or Vectren Energy Delivery of Indiana - South), and Vectren Energy Delivery of Ohio, Inc. (VEDO).  Herein, 'the Company' may also refer to Indiana Gas Company, Inc., Southern Indiana Gas and Electric Company, Inc. and/or Vectren Energy Delivery of Ohio, Inc. The Company also has other assets that provide information technology and other services to the three utilities.  Vectren, an Indiana corporation, is an energy holding company headquartered in Evansville, Indiana and was organized on June 10, 1999.  Both Vectren and the Company are holding companies as defined by the Energy Policy Act of 2005 (Energy Act).

Indiana Gas provides energy delivery services to approximately 598,000 natural gas customers located in central and southern Indiana. SIGECO provides energy delivery services to approximately 146,000 electric customers and approximately 112,000 gas customers located near Evansville in southwestern Indiana.  SIGECO also owns and operates electric generation assets 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.  VEDO provides energy delivery services to approximately 320,000 natural gas customers located near Dayton in west-central Ohio.

Merger with CenterPoint Energy, Inc.
On April 21, 2018, Vectren entered into an Agreement and Plan of Merger (the “Merger Agreement”), with CenterPoint Energy, Inc., a Texas corporation (“CenterPoint”), and Pacer Merger Sub, Inc., an Indiana corporation and wholly owned subsidiary of CenterPoint (“Merger Sub”). Pursuant to the Merger Agreement, and subject to the terms and conditions of the agreement, Merger Sub will merge with and into Vectren (the “Merger”), with Vectren continuing as the surviving corporation and becoming a wholly owned subsidiary of CenterPoint.

Subject to the terms and conditions in the Merger Agreement, upon closing, each share of common stock of Vectren shall be converted into the right to receive $72.00 in cash without interest.

Vectren, CenterPoint and Merger Sub each have made various representations, warranties and covenants in the Merger Agreement. Among other things, Vectren has agreed, subject to certain exceptions, to conduct its businesses in the ordinary course, consistent with past practice, from the date of the Merger Agreement until closing, and not to take certain actions prior to the closing of the Merger without the approval of CenterPoint. Vectren has made certain additional customary covenants, including, subject to certain exceptions: (1) to cause a meeting of Vectren's shareholders to be held to consider approval of the Merger Agreement, (2) not to solicit proposals relating to alternative business combination transactions and not to participate in discussions concerning, or furnish information in connection with, alternative business combination transactions and (3) not to withdraw its recommendation to Vectren’s shareholders regarding the Merger. In addition, subject to the terms of the Merger Agreement, Vectren, CenterPoint and Merger Sub are required to use reasonable best efforts to obtain all required regulatory approvals, which will include clearance under federal antitrust laws and certain approvals by federal regulatory bodies, including the Federal Energy Regulatory Commission ("FERC"), subject to certain exceptions, including such efforts not result in a "Burdensome Condition" (as defined in the Merger Agreement). While approval of the Merger Agreement is not required by the Indiana Utility Regulatory Commission ("IURC") or the Public Utilities Commission of Ohio ("PUCO"), informational filings have been made with each commission.

Consummation of the Merger is subject to various conditions, including: (1) approval of the shareholders of Vectren, (2) expiration or termination of the applicable Hart-Scott-Rodino Act waiting period, (3) receipt of all required regulatory and statutory approvals without the imposition of a "Burdensome Condition," (4) absence of any law or order prohibiting the consummation of the Merger and (5) other customary closing conditions, including (a) subject to materiality qualifiers, the accuracy of each party's representations and warranties, (b) each party's compliance in all material respects with its

7


                            
                    

obligations and covenants under the Merger Agreement and (c) the absence of a material adverse effect with respect to Vectren and its subsidiaries.

The Merger Agreement contains certain termination rights for both Vectren and CenterPoint, including if the Merger is not consummated by April 21, 2019 (subject to extension for an additional six months if all conditions to closing, other than the conditions related to obtaining regulatory approvals, have been satisfied). The Merger Agreement also provides for certain termination rights for each of Vectren and CenterPoint, and provides that, upon termination of the Merger Agreement under certain specified circumstances, CenterPoint would be required to pay a termination fee of $210 million to Vectren, and under other specified circumstances Vectren would be required to pay CenterPoint a termination fee of $150 million.

On June 15, 2018, Vectren and CenterPoint submitted their filings with the FERC and initiated informational proceedings with regulators in Indiana and Ohio. Further, on June 18, 2018, Vectren and CenterPoint submitted their filings pursuant to the Hart-Scott-Rodino Act and the Federal Communications Commission. On June 26, 2018, CenterPoint and Vectren received notice from the Federal Trade Commission granting early termination of the waiting period under the Hart-Scott-Rodino Act.
On July 16, 2018, Vectren filed a definitive proxy statement, and a Form 8-K including supplemental disclosures to the proxy statement, with the Securities and Exchange Commission in connection with the Merger. On July 24, 2018, the Federal Communications Commission provided the final approvals for the transfer of control of the Vectren subsidiaries which hold radio licenses. At the special shareholders meeting held on August 28, 2018, the Merger Agreement and the Merger, as well as other matters relating to the proposed Merger, were voted on and approved by Vectren's shareholders. On October 5, 2018, the FERC issued an order indicating its approval of the Merger. In Indiana, the IURC held a hearing on October 17, 2018 on Vectren's informational filing. Final briefs are to be filed by December 21, 2018, and an order is expected in early 2019. A similar informational filing was made in Ohio and, though a hearing before the PUCO is not anticipated, an order is expected in early 2019, as well. As of November 6, 2018, seven purported Vectren shareholders have filed lawsuits under the federal securities laws in the United States District Court for the Southern District of Indiana challenging the adequacy of the disclosures made in Vectren's proxy statement in connection with the Merger as discussed in Note 9. Subject to receipt of remaining approvals, Vectren continues to anticipate that the closing of the Merger will occur no later than the first quarter of 2019.

2.
Basis of Presentation

The interim condensed consolidated 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 and include a review of subsequent events through the date the financial statements were issued.  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 information in this report reflects all adjustments which are, in the opinion of management, necessary to fairly state the interim periods presented, inclusive of adjustments that are normal and recurring in nature.  These interim condensed consolidated 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, 2017, filed with the Securities and Exchange Commission on March 8, 2018, 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.
Revenue

In May 2014, the FASB issued new accounting guidance, ASC 606, Revenue from Contracts with Customers, to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP. The amendments in this guidance state an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This new guidance

8


                            
                    

requires enhanced disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized.

On January 1, 2018, the Company adopted the new accounting standard and all the related amendments (“new revenue standard”) to all contracts not complete at the date of initial application using the modified retrospective method, which resulted in no cumulative adjustment to retained earnings. The Company expects ongoing application to continue to be immaterial to financial condition and net income. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

Substantially all the Company’s revenues are within the scope of the new revenue standard.

Revenue Policy
Revenue is recognized when obligations under the terms of a contract with the customer are satisfied. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. The satisfaction of performance obligation occurs when the transfer of goods and services occur, which may be at a point in time or over time; resulting in revenue being recognized over the course of the underlying contract or at a single point in time based upon the delivery of services to customers. The Company determines that disaggregating revenue into customer class, as discussed further below, achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

The Company provides commodity service to customers at rates, charges, and terms and conditions included in tariffs approved by regulators. The Company’s utilities bill customers on a monthly basis and have the right to consideration from customers in an amount that corresponds directly with the performance obligation satisfied to date. The performance obligation is satisfied and revenue is recognized upon the delivery of services to customers. The Company records revenues for services and goods delivered but not billed at the end of an accounting period in Accrued unbilled revenues, derived from estimated unbilled consumption and tariff rates. The Company's revenues are also adjusted for the effects of regulation including tracked operating expenses, infrastructure replacement mechanisms, decoupling mechanisms, and lost margin recovery. Decoupling and lost margin recovery mechanisms are considered alternative revenue programs, which are excluded from the scope of the new revenue standard. Revenues from alternative revenue programs are not material to any reporting period. Customers are billed monthly and payment terms, set by the regulator, require payment within a month of billing. The Company's revenues are not subject to significant returns, refunds, or warranty obligations.

In the following table, the Company's revenue is disaggregated by customer class.
(In millions)
 
Three Months Ended
Nine Months Ended
 
September 30, 2018
September 30, 2018
Gas Utility Services
 
 
 
   Residential
 
$
80.9

$
400.9

   Commercial
 
23.7

136.4

   Industrial
 
15.6

56.1

   Other
 
1.9

7.3

      Total Gas Utility Services
 
$
122.1

$
600.7

 
 
 
 
Electric Utility Services
 
 
 
   Residential
 
$
63.1

$
163.5

   Commercial
 
40.3

112.1

   Industrial
 
43.3

121.7

   Other
 
13.3

40.1

      Total Electric Utility Services
 
$
160.0

$
437.4



9


                            
                    

Contract Balances
The Company does not have any material contract balances (right to consideration for services already provided or obligations to provide services in the future for consideration already received) as of January 1, 2018 or September 30, 2018. Substantially all of the Company's accounts receivable results from contracts with customers.

Remaining Performance Obligations
In accordance with the optional exemptions available under the new revenue standard, the Company has not disclosed the value of unsatisfied performance obligations from contracts for which revenue is recognized at the amount to which the Company has the right to invoice for goods provided and services performed. Substantially all of the Company's contracts with customers are eligible for this exemption.

4.
Subsidiary Guarantor and Consolidating Information

The Company’s three operating utility companies, SIGECO, Indiana Gas, and VEDO, are guarantors of the Company's $400 million in short-term credit facilities, of which $225 million was outstanding at September 30, 2018, and the Company's $1.345 billion in unsecured senior notes outstanding at September 30, 2018.  The guarantees are full and unconditional and joint and several, and the Company has no subsidiaries other than the subsidiary guarantors.  However, it does have operations other than those of the subsidiary guarantors.  Pursuant to Item 3-10 of Regulation S-X, disclosure of the results of operations and balance sheets of the subsidiary guarantors, which are wholly owned, separate from the parent company’s operations is required.  Following are condensed consolidating financial statements including information on the combined operations of the subsidiary guarantors separate from the other operations of the parent company.  Pursuant to a tax sharing agreement, consolidating tax effects, which are calculated on a separate return basis, are reflected at the parent level.


10


                            
                    

Condensed Consolidating Balance Sheet as of September 30, 2018 (in millions):
 ASSETS
Subsidiary
 
Parent
 
Eliminations &
 
 
 
Guarantors
 
Company
 
Reclassifications
 
Consolidated
Current Assets
 
 
 
 
 
 
 
Cash & cash equivalents
$
5.2

 
$
1.8

 
$

 
$
7.0

Accounts receivable - less reserves
82.0

 
0.2

 

 
82.2

Intercompany receivables
7.5

 
167.6

 
(175.1
)
 

Accrued unbilled revenues
42.3

 

 

 
42.3

Inventories
100.7

 
0.1

 

 
100.8

Recoverable fuel & natural gas costs
7.8

 

 

 
7.8

Prepayments & other current assets
34.4

 
8.0

 
(5.2
)
 
37.2

Total current assets
279.9

 
177.7

 
(180.3
)
 
277.3

Utility Plant
 

 
 

 
 

 
 

Original cost
7,394.3

 
0.2

 

 
7,394.5

Less:  accumulated depreciation & amortization
2,850.9

 

 

 
2,850.9

Net utility plant
4,543.4

 
0.2

 

 
4,543.6

Investments in consolidated subsidiaries

 
1,776.4

 
(1,776.4
)
 

Notes receivable from consolidated subsidiaries

 
1,220.0

 
(1,220.0
)
 

Investments in unconsolidated affiliates
0.2

 

 

 
0.2

Other investments
30.3

 
0.4

 

 
30.7

Nonutility plant - net
1.6

 
200.9

 

 
202.5

Goodwill - net
205.0

 

 

 
205.0

Regulatory assets
351.8

 
14.8

 

 
366.6

Other assets
62.4

 
1.6

 

 
64.0

TOTAL ASSETS
$
5,474.6

 
$
3,392.0

 
$
(3,176.7
)
 
$
5,689.9

 
 
 
 
 
 
 
 
LIABILITIES & SHAREHOLDER'S EQUITY
Subsidiary
 
Parent
 
Eliminations &
 
 

 
Guarantors
 
Company
 
Reclassifications
 
Consolidated
Current Liabilities
 

 
 

 
 

 
 

Accounts payable
$
118.5

 
$
6.7

 
$

 
$
125.2

Intercompany payables
14.5

 

 
(14.5
)
 

Payables to other Vectren companies
29.2

 

 

 
29.2

Accrued liabilities
162.6

 
19.5

 
(5.2
)
 
176.9

Short-term borrowings

 
225.3

 

 
225.3

Intercompany short-term borrowings
153.1

 
7.5

 
(160.6
)
 

Total current liabilities
477.9

 
259.0

 
(180.3
)
 
556.6

Long-Term Debt
 

 
 

 
 

 
 

     Long-term debt
384.3

 
1,345.3

 

 
1,729.6

Long-term debt due to VUHI
1,220.0

 

 
(1,220.0
)
 

Total long-term debt - net
1,604.3

 
1,345.3

 
(1,220.0
)
 
1,729.6

Deferred Credits & Other Liabilities
 

 
 

 
 

 
 

Deferred income taxes
459.4

 
23.7

 

 
483.1

Regulatory liabilities
937.6

 
1.1

 

 
938.7

Deferred credits & other liabilities
219.0

 
1.5

 

 
220.5

Total deferred credits & other liabilities
1,616.0

 
26.3

 

 
1,642.3

Common Shareholder's Equity
 

 
 

 
 

 
 

Common stock (no par value)
892.2

 
879.2

 
(892.2
)
 
879.2

Retained earnings
884.2

 
882.2

 
(884.2
)
 
882.2

Total common shareholder's equity
1,776.4

 
1,761.4

 
(1,776.4
)
 
1,761.4

TOTAL LIABILITIES & SHAREHOLDER'S EQUITY
$
5,474.6

 
$
3,392.0

 
$
(3,176.7
)
 
$
5,689.9


11


                            
                    

Condensed Consolidating Balance Sheet as of December 31, 2017 (in millions):
ASSETS
Subsidiary
 
Parent
 
Eliminations &
 
 
 
Guarantors
 
Company
 
Reclassifications
 
Consolidated
Current Assets
 
 
 
 
 
 
 
Cash & cash equivalents
$
8.2

 
$
1.6

 
$

 
$
9.8

Accounts receivable - less reserves
109.2

 
0.3

 

 
109.5

Intercompany receivables

 
227.5

 
(227.5
)
 

Accrued unbilled revenues
123.7

 

 

 
123.7

Inventories
117.5

 

 

 
117.5

Recoverable fuel & natural gas costs
19.2

 

 

 
19.2

Prepayments & other current assets
28.9

 
12.6

 
(8.8
)
 
32.7

Total current assets
406.7

 
242.0

 
(236.3
)
 
412.4

Utility Plant
 

 
 

 
 

 
 

Original cost
7,015.4

 

 

 
7,015.4

Less:  accumulated depreciation & amortization
2,738.7

 

 

 
2,738.7

Net utility plant
4,276.7

 

 

 
4,276.7

Investments in consolidated subsidiaries

 
1,741.0

 
(1,741.0
)
 

Notes receivable from consolidated subsidiaries

 
970.7

 
(970.7
)
 

Investments in unconsolidated affiliates
0.2

 

 

 
0.2

Other investments
26.3

 
0.4

 

 
26.7

Nonutility plant - net
1.6

 
197.0

 

 
198.6

Goodwill - net
205.0

 

 

 
205.0

Regulatory assets
298.7

 
15.3

 

 
314.0

Other assets
62.5

 
1.8

 
(0.1
)
 
64.2

TOTAL ASSETS
$
5,277.7

 
$
3,168.2

 
$
(2,948.1
)
 
$
5,497.8

 
 
 
 
 
 
 
 
LIABILITIES & SHAREHOLDER'S EQUITY
Subsidiary
 
Parent
 
Eliminations &
 
 

 
Guarantors
 
Company
 
Reclassifications
 
Consolidated
Current Liabilities
 

 
 

 
 

 
 

Accounts payable
$
179.4

 
$
42.4

 
$

 
$
221.8

Intercompany payables
8.3

 

 
(8.3
)
 

Payables to other Vectren companies
25.2

 
8.1

 

 
33.3

Accrued liabilities
147.7

 
15.1

 
(8.8
)
 
154.0

Short-term borrowings

 
179.5

 

 
179.5

Intercompany short-term borrowings
120.2

 

 
(120.2
)
 

     Current maturities of long-term debt

 
100.0

 

 
100.0

Current maturities of long-term debt due to VUHI
99.0

 

 
(99.0
)
 

Total current liabilities
579.8

 
345.1

 
(236.3
)
 
688.6

Long-Term Debt
 

 
 

 
 

 
 

     Long-term debt - net of current maturities &
 
 
 
 
 
 
 
           debt subject to tender
384.5

 
1,095.0

 

 
1,479.5

Long-term debt due to VUHI
970.7

 

 
(970.7
)
 

Total long-term debt - net
1,355.2

 
1,095.0

 
(970.7
)
 
1,479.5

Deferred Credits & Other Liabilities
 

 
 

 
 

 
 

Deferred income taxes
455.3

 
2.2

 

 
457.5

Regulatory liabilities
936.1

 
1.1

 

 
937.2

Deferred credits & other liabilities
210.3

 
2.0

 
(0.1
)
 
212.2

Total deferred credits & other liabilities
1,601.7

 
5.3

 
(0.1
)
 
1,606.9

Common Shareholder's Equity
 

 
 

 
 

 
 

Common stock (no par value)
890.7

 
877.5

 
(890.7
)
 
877.5

Retained earnings
850.3

 
845.3

 
(850.3
)
 
845.3

Total common shareholder's equity
1,741.0

 
1,722.8

 
(1,741.0
)
 
1,722.8

TOTAL LIABILITIES & SHAREHOLDER'S EQUITY
$
5,277.7

 
$
3,168.2

 
$
(2,948.1
)
 
$
5,497.8


12


                            
                    


Condensed Consolidating Statement of Income for the three months ended September 30, 2018 (in millions):
 
 
 
 
 
 
 
 
 
Subsidiary
Guarantors
 
Parent
Company
 
Eliminations &
Reclassifications
 
Consolidated
OPERATING REVENUES
 
 
 
 
 
 
 
   Gas utility
$
122.1

 
$

 
$

 
$
122.1

   Electric utility
160.0

 

 

 
160.0

   Other

 
11.8

 
(11.7
)
 
0.1

       Total operating revenues
282.1

 
11.8

 
(11.7
)
 
282.2

OPERATING EXPENSES
 
 
 
 
 
 
 
   Cost of gas sold
24.5

 

 

 
24.5

   Cost of fuel & purchased power
47.5

 

 

 
47.5

   Other operating
95.1

 

 
(11.6
)
 
83.5

   Depreciation & amortization
56.3

 
7.1

 

 
63.4

   Taxes other than income taxes
13.0

 
0.5

 

 
13.5

       Total operating expenses
236.4

 
7.6

 
(11.6
)
 
232.4

OPERATING INCOME
45.7

 
4.2

 
(0.1
)
 
49.8

Other income - net
9.0

 
14.6

 
(14.4
)
 
9.2

Interest expense
19.1

 
15.7

 
(14.5
)
 
20.3

INCOME BEFORE INCOME TAXES
35.6

 
3.1

 

 
38.7

Income taxes
5.7

 

 

 
5.7

Equity in earnings of consolidated companies, net of tax

 
29.9

 
(29.9
)
 

NET INCOME
$
29.9

 
$
33.0

 
$
(29.9
)
 
$
33.0


Condensed Consolidating Statement of Income for the three months ended September 30, 2017 (in millions):
 
 
 
 
 
 
 
 
 
Subsidiary
Guarantors
 
Parent
Company
 
Eliminations &
Reclassifications
 
Consolidated
OPERATING REVENUES
 
 
 
 
 
 
 
   Gas utility
$
120.4

 
$

 
$

 
$
120.4

   Electric utility
159.2

 

 

 
159.2

   Other

 
11.4

 
(11.3
)
 
0.1

       Total operating revenues
279.6

 
11.4

 
(11.3
)
 
279.7

OPERATING EXPENSES
 
 
 
 
 
 
 
   Cost of gas sold
23.9

 

 

 
23.9

   Cost of fuel & purchased power
44.1

 

 

 
44.1

   Other operating
93.2

 

 
(11.2
)
 
82.0

   Depreciation & amortization
52.5

 
6.5

 

 
59.0

   Taxes other than income taxes
12.1

 
0.5

 

 
12.6

       Total operating expenses
225.8

 
7.0

 
(11.2
)
 
221.6

OPERATING INCOME
53.8

 
4.4

 
(0.1
)
 
58.1

Other income - net
7.7

 
12.7

 
(12.3
)
 
8.1

Interest expense
17.2

 
13.5

 
(12.4
)
 
18.3

INCOME BEFORE INCOME TAXES
44.3

 
3.6

 

 
47.9

Income taxes
16.1

 
1.0

 

 
17.1

Equity in earnings of consolidated companies, net of tax

 
28.2

 
(28.2
)
 

NET INCOME
$
28.2

 
$
30.8

 
$
(28.2
)
 
$
30.8



13


                            
                    

Condensed Consolidating Statement of Income for the nine months ended September 30, 2018 (in millions):
 
 
 
 
 
 
 
 
 
Subsidiary
Guarantors
 
Parent
Company
 
Eliminations &
Reclassifications
 
Consolidated
OPERATING REVENUES
 
 
 
 
 
 
 
   Gas utility
$
600.7

 
$

 
$

 
$
600.7

   Electric utility
437.4

 

 

 
437.4

   Other

 
35.3

 
(35.1
)
 
0.2

       Total operating revenues
1,038.1

 
35.3

 
(35.1
)
 
1,038.3

OPERATING EXPENSES
 
 
 
 
 
 
 
   Cost of gas sold
211.4

 

 

 
211.4

   Cost of fuel & purchased power
137.7

 

 

 
137.7

   Other operating
300.2

 

 
(34.6
)
 
265.6

   Depreciation & amortization
165.3

 
20.9

 
0.1

 
186.3

   Taxes other than income taxes
45.9

 
1.6

 

 
47.5

       Total operating expenses
860.5

 
22.5

 
(34.5
)
 
848.5

OPERATING INCOME
177.6

 
12.8

 
(0.6
)
 
189.8

Other income - net
27.0

 
42.8

 
(41.9
)
 
27.9

Interest expense
56.4

 
46.4

 
(42.5
)
 
60.3

INCOME BEFORE INCOME TAXES
148.2

 
9.2

 

 
157.4

Income taxes
25.2

 
(0.6
)
 

 
24.6

Equity in earnings of consolidated companies, net of tax

 
123.0

 
(123.0
)
 

NET INCOME
$
123.0

 
$
132.8

 
$
(123.0
)
 
$
132.8


Condensed Consolidating Statement of Income for the nine months ended September 30, 2017 (in millions):
 
 
 
 
 
 
 
 
 
Subsidiary
Guarantors
 
Parent
Company
 
Eliminations &
Reclassifications
 
Consolidated
OPERATING REVENUES
 
 
 
 
 
 
 
   Gas utility
$
557.2

 
$

 
$

 
$
557.2

   Electric utility
433.0

 

 

 
433.0

   Other

 
34.2

 
(34.0
)
 
0.2

       Total operating revenues
990.2

 
34.2

 
(34.0
)
 
990.4

OPERATING EXPENSES
 
 
 
 
 
 
 
   Cost of gas sold
174.0

 

 

 
174.0

   Cost of fuel & purchased power
128.8

 

 

 
128.8

   Other operating
283.8

 

 
(33.4
)
 
250.4

   Depreciation & amortization
154.9

 
19.3

 
0.1

 
174.3

   Taxes other than income taxes
38.7

 
1.4

 

 
40.1

       Total operating expenses
780.2

 
20.7

 
(33.3
)
 
767.6

OPERATING INCOME
210.0

 
13.5

 
(0.7
)
 
222.8

Other income - net
20.4

 
36.9

 
(35.9
)
 
21.4

Interest expense
51.0

 
39.1

 
(36.6
)
 
53.5

INCOME BEFORE INCOME TAXES
179.4

 
11.3

 

 
190.7

Income taxes
66.8

 
1.7

 

 
68.5

Equity in earnings of consolidated companies, net of tax

 
112.6

 
(112.6
)
 

NET INCOME
$
112.6

 
$
122.2

 
$
(112.6
)
 
$
122.2



14


                            
                    


Condensed Consolidating Statement of Cash Flows for the nine months ended September 30, 2018 (in millions):
 
Subsidiary
Guarantors
 
Parent
Company
 
Eliminations
 
Consolidated
NET CASH PROVIDED BY OPERATING ACTIVITIES
$
298.3

 
$
22.9

 
$

 
$
321.2

 CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

 
 

 
 

Proceeds from:
 

 
 

 
 

 
 

Long-term debt - net of issuance costs
124.7

 
250.3

 
(125.7
)
 
249.3

Additional capital contribution from parent
1.6

 
1.7

 
(1.6
)
 
1.7

Requirements for:
 

 
 

 
 

 
 

Dividends to parent
(89.2
)
 
(96.0
)
 
89.2

 
(96.0
)
       Retirement of long term debt

 
(100.0
)
 

 
(100.0
)
Net change in intercompany short-term borrowings
(66.1
)
 
7.4

 
58.7

 

Net change in short-term borrowings

 
45.8

 

 
45.8

Net cash used in financing activities
(29.0
)
 
109.2

 
20.6

 
100.8

 CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

 
 

 
 

Proceeds from:
 

 
 

 
 

 
 

Consolidated subsidiary distributions

 
89.2

 
(89.2
)
 

Requirements for:
 
 
 

 
 

 
 

Capital expenditures, excluding AFUDC equity
(389.2
)
 
(35.6
)
 

 
(424.8
)
Consolidated subsidiary investments

 
(1.6
)
 
1.6

 

Net change in long-term intercompany notes receivable
124.3

 
(250.0
)
 
125.7

 

Net change in short-term intercompany notes receivable
(7.4
)
 
66.1

 
(58.7
)
 

Net cash used in investing activities
(272.3
)
 
(131.9
)
 
(20.6
)
 
(424.8
)
Net change in cash & cash equivalents
(3.0
)
 
0.2

 

 
(2.8
)
Cash & cash equivalents at beginning of period
8.2

 
1.6

 

 
9.8

Cash & cash equivalents at end of period
$
5.2

 
$
1.8

 
$

 
$
7.0


Condensed Consolidating Statement of Cash Flows for the nine months ended September 30, 2017 (in millions):
 
Subsidiary
Guarantors
 
Parent
Company
 
Eliminations
 
Consolidated
NET CASH PROVIDED BY OPERATING ACTIVITIES
$
293.8

 
$
44.4

 
$

 
$
338.2

CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

 
 

 
 

Proceeds from:
 

 
 

 
 

 
 

Long-term debt, net of issuance costs
24.7

 
99.4

 
(24.9
)
 
99.2

Additional capital contribution from parent
44.6

 
44.6

 
(44.6
)
 
44.6

Requirements for:
 
 
 
 
 
 
 
Dividends to parent
(54.9
)
 
(92.5
)
 
54.9

 
(92.5
)
Net change in intercompany short-term borrowings
44.4

 
(5.8
)
 
(38.6
)
 

Net change in short-term borrowings

 
17.3

 

 
17.3

Net cash used in financing activities
58.8

 
63.0

 
(53.2
)
 
68.6

 CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

 
 

 
 

Proceeds from:
 

 
 

 
 

 
 

Consolidated subsidiary distributions

 
54.9

 
(54.9
)
 

Other collections
2.8

 

 

 
2.8

Requirements for:
 

 
 

 
 

 
 

Capital expenditures, excluding AFUDC equity
(363.3
)
 
(48.4
)
 

 
(411.7
)
       Consolidated subsidiary investments

 
(44.6
)
 
44.6

 

       Other costs
(2.4
)
 

 

 
(2.4
)
Changes in restricted cash
0.9

 

 

 
0.9

Net change in long-term intercompany notes receivable

 
(24.9
)
 
24.9

 

Net change in short-term intercompany notes receivable
5.8

 
(44.4
)
 
38.6

 

Net cash used in investing activities
(356.2
)
 
(107.4
)
 
53.2

 
(410.4
)
Net change in cash & cash equivalents
(3.6
)
 

 

 
(3.6
)
Cash & cash equivalents at beginning of period
7.6

 
1.8

 

 
9.4

Cash & cash equivalents at end of period
$
4.0

 
$
1.8

 
$

 
$
5.8


15


                            
                    

5.
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 billed to customers, which totaled $5.4 million and $5.3 million in the three months ended September 30, 2018 and 2017, respectively, as a component of operating revenues. During the nine months ended September 30, 2018 and 2017, these taxes totaled $22.2 million and $20.2 million, respectively. Expenses associated with excise and utility receipts taxes are recorded as a component of Taxes other than income taxes.

6.
Supplemental Cash Flow Information

As of September 30, 2018 and December 31, 2017, the Company had accruals related to utility and nonutility plant purchases totaling approximately $39.4 million and $27.5 million, respectively.

7.
Transactions with Other Vectren Companies and Affiliates

Vectren Infrastructure Services Corporation (VISCO)
VISCO, a wholly owned subsidiary of the Company's parent, provides underground pipeline construction and repair services. VISCO's customers include the Company's utilities and fees incurred by the Company totaled $40.9 million and $46.5 million for the three months ended September 30, 2018 and 2017, respectively, and for the nine months ended September 30, 2018 and 2017 totaled $105.2 million and $123.9 million, respectively. Amounts owed to VISCO at September 30, 2018 and December 31, 2017 are included in Payables to other Vectren companies in the Condensed Consolidated Balance Sheets.

Support Services & Purchases
The Company's parent provides corporate and general and administrative services to the Company and allocates certain 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 are allocated using various allocators, including number of employees, number of customers and/or the level of payroll, revenue contribution and capital expenditures.  Allocations are at cost.  For the three months ended September 30, 2018 and 2017, the company received corporate allocations totaling $11.4 million and $16.4 million, respectively. For the nine months ended September 30, 2018 and 2017, the Company received corporate allocations totaling $40.7 million and $49.8 million, respectively.

The Company does not have share-based compensation plans and pension or other postretirement plans separate from the Company's parent and allocated costs include participation in the plans of the Company's parent. The allocation methodology for retirement costs is consistent with FASB guidance related to “multiemployer” benefit accounting.

Income Taxes
On December 22, 2017, the United States government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“TCJA”). The TCJA makes broad and complex changes to the Internal Revenue Code (“IRC”), many of which were effective on January 1, 2018, including, but not limited to, (1) reducing the Federal corporate income tax rate from 35 percent to 21 percent, (2) eliminating the use of bonus depreciation for regulated utilities, while permitting full expensing of qualified property for non-regulated entities, (3) eliminating the domestic production activities deduction previously allowable under Section 199 of the IRC, (4) creating a new limitation on the deductibility of interest expense for non-regulated businesses, (5) eliminating the corporate Alternative Minimum Tax (“AMT”) and changing how existing AMT credits can be realized, (6) limiting the deductibility of certain executive compensation, (7) restricting the deductibility of entertainment and lobbying-related expenses, (8) requiring regulated entities to employ the average rate assumption method (“ARAM”) to refund excess deferred taxes created by the rate change to their customers, and (9) changing the rules regarding taxability of contributions made by government or civic groups.

The Company's gas and electric utilities currently recover corporate income tax expense in approved rates charged to customers. The IURC and the PUCO both issued orders which initiated proceedings to investigate the impact of the TCJA on utility companies and customers within each state. In addition, both Commissions have ordered each utility to establish regulatory assets and liabilities to record all estimated impacts of tax reform starting January 1, 2018. The Company is

16


                            
                    

complying with both orders. As of September 30, 2018, the Company has established $35.7 million in liabilities associated with the rate impacts of tax reform, including $5.2 million in Regulatory Liabilities and $30.5 million in Accrued Liabilities.

In Indiana, an order was issued by the IURC on February 16, 2018, outlining the process the utility companies are to follow. In accordance with the order, the Company filed March 26, 2018 for proposed changes to its rates and charges to consider the impact of the lower corporate federal income tax rate. The IURC approved an initial reduction to the Company’s current rates and charges, effective June 1, 2018, to capture the immediate impact of the lower corporate federal income tax rate. Also, on June 1, 2018, a settlement agreement, reached between the Company, the Indiana Office of the Utility Consumer Counselor (OUCC), and a coalition of industrial customers, was filed with the IURC. The settlement agreement resolves all the proposed changes to rates as a result of the TCJA, specifically regarding the refund of excess deferred taxes and the refund of the regulatory liabilities established starting January 1, 2018. The IURC issued an order on August 29, 2018 approving the settlement agreement. The refund of excess deferred taxes and regulatory liabilities will commence in November 2018 for the Company's Indiana electric customers and in January 2019 for the Company's Indiana gas customers.

In Ohio, on October 24, 2018, the PUCO issued an Order requiring all utilities to file by January 1, 2019 for a request to adjust rates to reflect the impact of the TCJA. In compliance with this Order and consistent with VEDO comments submitted within this proceeding, VEDO will make a filing later this year to address its proposal for the refund of TCJA impacts, with a request to consolidate the proceeding with its pending base rate case filed on March 30, 2018.

8.
Financing Activities

SIGECO Variable Rate Tax-Exempt Bonds
On March 1, 2018 and May 1, 2018, the Company, through SIGECO, executed first and second amendments to a Bond Purchase and Covenants Agreement originally signed in September 2017.  These amendments provided SIGECO the ability to remarket bonds that were callable from current bondholders on those dates. Pursuant to these amendments, lenders purchased the following SIGECO bonds on March 1 and May 1, respectively:
2013 Series A Notes with a principal of $22.2 million and final maturity date of March 1, 2038; and
2013 Series B Notes with a principal of $39.6 million and final maturity date of May 1, 2043.

Prior to the call, the 2013 Series A Notes had an interest rate of 4.0% and the 2013 Series B Notes had an interest rate of 4.05%.  The bonds converted to a variable rate based on the one month LIBOR through May 1, 2023.

The Company has now remarketed $152 million of tax exempt bonds through the Bonds Purchase and Covenants Agreement, which is the agreement’s full capacity.  Bonds remarketed through the Bond Purchase and Covenants Agreement in 2017 were:
2013 Series C Notes with a principal of $4.6 million and final maturity date of January 1, 2022;
2013 Series D Notes with a principal of $22.5 million and final maturity date of March 1, 2024;
2013 Series E Notes with a principal of $22.0 million and final maturity date of May 1, 2037; and
2014 Series B Notes with a principal of $41.3 million and final maturity date of July 1, 2025.

These bonds also have a variable interest rate based on the one month LIBOR through May 1, 2023.

The Company, through SIGECO, executed forward starting interest rate swaps during 2017 providing that on January 1, 2020, the Company will begin hedging the variability in interest rates on the 2013 Series A, B, and E Notes through final maturity dates. The swaps contain customary terms and conditions and generally provide offset for changes in the one month LIBOR rate. Other interest rate variability that may arise through the Bond Purchase and Covenants Agreement, such as variability caused by changes in tax law or SIGECO’s credit rating, among others, may result in an actual interest rate above or below the anticipated fixed rate. Regulatory orders require SIGECO to include the impact of its interest rate risk management activities, such as gains and losses arising from these swaps, in its cost of capital utilized in rate cases and other periodic filings.

Utility Holdings Term Loan
On July 30, 2018, Utility Holdings executed a term loan agreement and closed a two-year term loan with two banking partners. The term loan agreement provides for a $250 million draw at closing and $50 million on or prior to December 31, 2018. Proceeds from the term loan have been utilized to pay a $100 million August 1, 2018, debt maturity and for general utility

17


                            
                    

purposes. The term loan’s interest rate is currently priced at one month LIBOR, plus a credit spread, which is subject to change based on changes in Utility Holdings’ credit rating. A change in credit rating would add approximately 10 basis points, per rating notch, to the existing rate. In addition, the term loan contains a provision that should Utility Holdings or any of its subsidiaries execute certain capital market transactions, and subject to certain other conditions, the outstanding balance is subject to mandatory prepayment. The term loan is jointly and severally guaranteed by Utility Holdings' wholly-owned operating companies, SIGECO, Indiana Gas, and VEDO.

Utility Holdings Borrowing Arrangements
The Merger would constitute a “Change of Control” under the note agreements pursuant to which Senior Notes issued by Utility Holdings in an aggregate principal amount of $1.025 billion were issued. While the Merger would not result in an event of default under such note agreements, upon the consummation of the Merger the issuer would be required to offer to repurchase these notes at 100% of the principal amount thereof plus accrued interest.

The Merger will represent an event of default pursuant to Utility Holdings' short-term credit facility, and Utility Holdings is in process of seeking a waiver from the facility bank group of this event of default. If a waiver is not obtained, upon closing of the merger, CenterPoint will fund the obligations associated with the credit facility.
   
9.
Commitments & Contingencies

Commitments
The Company's regulated utilities have both firm and non-firm commitments, some of which are between five and twenty year agreements to purchase natural gas, electricity, and coal, as well as certain transportation and storage rights. Costs arising from these commitments, while significant, are pass-through costs, generally collected dollar-for-dollar from retail customers through regulator-approved cost recovery mechanisms.

Letters of Credit
The Company from time to time, through its subsidiaries, issues letters of credit that support consolidated operations. At September 30, 2018, letters of credit outstanding total $8.6 million.

Legal & Regulatory Proceedings
The Company is party to various legal proceedings, audits, and reviews by taxing authorities and other government agencies arising in the normal course of business. In the opinion of management, there are no legal proceedings or other regulatory reviews or audits pending against the Company, including those described below, that are likely to have a material adverse effect on its financial condition, results of operations or cash flows.

Litigation Related to the Merger
As of November 6, 2018, seven purported Vectren shareholders have filed lawsuits under the federal securities laws in the United States District Court for the Southern District of Indiana challenging the adequacy of the disclosures made in Vectren's proxy statement in connection with the merger. These cases are captioned Kuebler v. Vectren Corp., et al., Case No. 3:18-cv-00113-RLY-MPB (S.D. Ind.) (the “Kuebler Action”), Danigelis v. Vectren Corp., et al., Case No. 3:18-cv-00114-RLY-MPB (S.D. Ind.) (the “Danigelis Action”), Scarantino v. Vectren Corp., et al., Case No. 3:18-cv-00115-RLY-MPB (S.D. Ind.) (the “Scarantino Action”), Stein v. Vectren Corp., et al., Case No. 3:18-cv-00117-RLY-MPB (S.D. Ind.) (the “Stein Action”), Nisenshal v. Vectren Corp., et al., Case No. 3:18-cv-00121-RLY-MPB (S.D. Ind.) (the “Nisenshal Action”), VonSalzen v. Vectren Corp., et al., Case No. 3:18-cv-00122-RLY-MPB (S.D. Ind.) (the “VonSalzen Action”), and Kent v. Vectren Corp., et al., Case No. 1:18-cv-02263-SEB-TAB (S.D. Ind.) (the “Kent Action,” referred to together with the preceding actions, as the "Actions"). The Kuebler Action, the Danigelis Action, the Scarantino Action, the Nisenshal Action, and the Kent Action are asserted on behalf of putative classes of Vectren shareholders, while the Stein Action and the VonSalzen Action are brought only on behalf of their respective named plaintiffs.