EX 99-1
Vectren Corporation
P.O. Box 209
Evansville, IN 47702-0209
July 9, 2003
FOR IMMEDIATE RELEASE
Vectren Corporation adjusts 2003 earnings guidance and addresses recent
announcements related to the production of synthetic fuel
Evansville, Indiana - Vectren Corporation (NYSE:VVC) today said it expects its
2003 consolidated earnings to be below previously announced expectations
primarily due to the complete write-off of two investments, totaling
approximately $4.5 million after tax. Those investments were in an entity that
processes fly ash into building material and a small broadband entity unrelated
to the company's investment in Utilicom Networks.
Vectren's current expectation for 2003 is in the range of $1.65 to $1.75 per
share, including the potential impact of any permanent financing to be completed
in 2003. This guidance is down $0.10 per share from previous announcements due
primarily to the investment write-offs and the impact of the economy, which has
rebounded more slowly than expected. Results for the second quarter of 2003 are
to be released July 22, 2003, and are expected to be below street estimates due
to milder weather in the second quarter and the additional second quarter
charges associated with the investment write-offs. A detailed discussion of the
second quarter results and guidance for the year will be held in Vectren's
scheduled web-cast and teleconference on July 23.
Synthetic Fuel
In other news, Vectren commented on its investment in synthetic fuel operations
in light of recent announcements related to activity in the industry. As
background, Vectren's Coal Mining operations is comprised of Vectren Fuels
(Fuels), which includes its coal mines and related operations and Vectren
Synfuels, Inc. (Synfuels). Synfuels holds one limited partnership unit (an 8.3%
interest) in Pace Carbon Synfuels Investors, LP (Pace Carbon), a Delaware
limited partnership formed to develop, own and operate four projects to produce
and sell coal-based synthetic fuel utilizing Covol technology. Under Section 29
of the Internal Revenue Code, manufacturers receive a tax credit for every ton
of synthetic fuel sold. To qualify for the credits, the synthetic fuel must meet
three primary conditions: 1) there must be a significant chemical change in the
coal feedstock, 2) the product must be sold to an unrelated person, and 3) the
production facility must have been placed in service before July 1, 1998.
In past rulings, the Internal Revenue Service (IRS) has concluded that the
synthetic fuel produced at the Pace Carbon facilities should qualify for Section
29 tax credits. The IRS issued a private letter ruling with respect to the four
projects on November 11, 1997, and subsequently issued an updated private letter
ruling on September 23, 2002. During June 2001, the IRS began a tax audit of
Pace Carbon for the 1998 tax year and later expanded the audit to include tax
years 1999 and 2000. The IRS has requested numerous extensions to the statute of
limitations for the years under audit, but has not advised Pace Carbon of any
intention to disallow credits.
As a partner in Pace Carbon, Vectren has reflected total tax credits under
Section 29 in its consolidated results through March 31, 2003 of approximately
$25 million. Vectren has been in a position to fully utilize the credits
generated and continues to project full utilization. In addition, Fuels receives
synfuel related fees from synfuel producers unrelated to Pace Carbon for a
portion of its coal production.
For fiscal years 2003 and 2004, Vectren has forecast the net income contribution
from synfuels to be approximately $11 to $13 million. This reflects results from
the investment in Pace Carbon as well as synfuel fees, which are expected to be
20-30% of the total synfuel contribution. The increased contribution in 2003
over prior years is primarily due to the relocation and restart of the fourth
plant owned by Pace Carbon and increased synfuel fees at Fuels.
On June 27, 2003, the IRS announced that it has reason to question the
scientific validity of certain test procedures and results that have been
presented to it by certain taxpayers with an interest in synfuel operations.
Accordingly, the IRS has suspended the issuance of private letter rulings
concerning whether a significant chemical change has occurred. In addition, the
IRS indicated that it may revoke existing private letter rulings that relied on
the procedures and results under review if it determines that those test
procedures and results do not demonstrate that a significant chemical change has
occurred.
Vectren does not know the specific nature of the synfuel production procedures
and results that are being reviewed by the IRS. At this time, Vectren cannot
predict the outcome of the IRS's review, when the review will be completed or
the ultimate impact, if any, of the review relative to Vectren's investments in
Pace Carbon. Vectren believes that it is justified in its reliance on the
private letter rulings for the Pace Carbon facilities, that the test results
that Pace Carbon presented to the IRS in connection with its private letter
rulings are scientifically valid, and that Pace Carbon has operated its
facilities in compliance with its private letter rulings and Section 29 of the
Internal Revenue Code.
About Vectren
Vectren Corporation is an energy and applied technology holding company
headquartered in Evansville, Indiana. Vectren's energy delivery subsidiaries
provide gas and/or electricity to over one million customers in adjoining
service territories that cover nearly two-thirds of Indiana and west central
Ohio. Vectren's non-regulated subsidiaries and affiliates currently offer
energy-related products and services to customers throughout the surrounding
region. These services include energy marketing; coal mining; utility
infrastructure services; and broadband communication services. To learn more
about Vectren, visit www.vectren.com.
Safe Harbor for Forward Looking Statements
This document contains forward-looking statements, which are based on
management's beliefs and assumptions that derive from information currently
known by management. Vectren wishes to caution readers that actual results could
differ materially from those contained in this document. Additional detailed
information concerning a number of factors that could cause actual results to
differ materially from the information that is provided to you is readily
available in our report Form 10-K as amended on Form 10-K/A filed with the
Securities and Exchange Commission on June 18, 2003.
Investor Contact Steven M. Schein, (812) 491-4209, sschein@vectren.com
Media Contact Jeffrey W. Whiteside, (812) 491-4205, jwhiteside@vectren.com
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