-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OB9IC/NHqMqvcrUYrCyiEB9G0vejdIh4JBTUXlf5MGsWRTR1extXsAKW3dYTSoXU OCNO2heSWNMGuuXgLji9jA== 0000893220-99-000567.txt : 19990512 0000893220-99-000567.hdr.sgml : 19990512 ACCESSION NUMBER: 0000893220-99-000567 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990511 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONECTIV INC CENTRAL INDEX KEY: 0001029590 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 510377417 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-13895 FILM NUMBER: 99616613 BUSINESS ADDRESS: STREET 1: 800 KING STREET P O BOX 231 CITY: WILMINGTON STATE: DE ZIP: 19899 BUSINESS PHONE: 3024293114 MAIL ADDRESS: STREET 1: 800 KING ST STREET 2: P O BOX 231 CITY: WILMINGTON STATE: DE ZIP: 19899 8-K 1 FORM 8-K CONECTIV 1 CURRENT REPORT ON FORM 8-K PURSUANT TO SECTIONS 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): May 11, 1999 Conectiv (Exact Name of Registrant as Specified in Charter) Delaware 1-13895 51-0377417 (State of Other Jurisdiction (Commission File Number) (IRS Employer of Incorporation) Identification No.) 800 King Street, P.O. Box 231 Wilmington, Delaware 19899 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code (302) 429-3114 None (Former Name or Former Address, if Changed since Last Report) 2 FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 (the "Litigation Reform Act") provides a "safe harbor" for forward-looking statements to encourage such disclosures without the threat of litigation, provided those statements are identified as forward-looking and are accompanied by meaningful, cautionary statements identifying important factors that could cause the actual results to differ materially from those projected in the statement. Forward-looking statements have been made in this Report. Such statements are based on beliefs of Conectiv's (the "Company") management ("Management") as well as assumptions made by and information currently available to Management. When used herein, the words "will," "anticipate," "estimate," "expect," "believe," "objective," and similar expressions are intended to identify forward-looking statements. In addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements, factors that could cause actual results to differ materially from those contemplated in any forward-looking statements include, among others, the following: deregulation of energy supply and the unbundling of delivery services; an increasingly competitive marketplace; results of any asset dispositions; sales retention and growth; federal and state regulatory actions; future litigation results; costs of construction; operating restrictions; increased costs and construction delays attributable to environmental regulations; nuclear decommissioning and the availability of reprocessing and storage facilities for spent nuclear fuel; and credit market concerns. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing list of factors pursuant to the Litigation Reform Act should not be construed as exhaustive or as an admission regarding the adequacy of disclosures made prior to the effective date of the Litigation Reform Act. Item 5. Other Events Conectiv announced today that, due to changes in the regulatory environment in the electric utility industry, it is undertaking several strategic initiatives designed to maximize stockholder value and position Conectiv for future growth. These initiatives include: (1) a recapitalization of Conectiv through a share buyback in order to employ a more efficient capital structure appropriate for a competitive environment; (2) a reduction in the quarterly dividend on the Company's Common Stock, par value $0.01 per share (the "Shares"), designed to balance total shareholder return between stock appreciation and dividend yield (the "Dividend Policy Change"); (3) a realignment of Conectiv's generation business by pursuing the potential sale of approximately 2,200 megawatts of nuclear and non-strategic baseload fossil generation, with safeguards to assure continued energy reliability; (4) a focus on value creation through growth of Conectiv's regulated electric and gas delivery business, the energy business and the telecommunications business; and (5) the implementation of a new productivity improvement and cost reduction program aimed at positioning the Company to have a more competitive cost structure without any reduction in quality and service. Conectiv is offering to purchase up to 14 million Shares (including the associated preferred stock purchase rights (the "Rights") issued pursuant to the Rights Agreement, dated as 3 of April 23, 1998 (the "Rights Agreement"), between the Company and Conectiv Resource Partners, Inc., as the Rights Agent), at a price not greater than $25.50 nor less than $23.50 per Share in cash, as specified by tendering stockholders, upon the terms and subject to the conditions set forth in the Offer to Purchase and the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"). The Offer to Purchase and related Letter of Transmittal have been included as Exhibits (a)(1) and (a)(2), respectively, to the Issuer Tender Offer Statement on Schedule 13E-4 to be filed on May 11, 1999 by the Company with the Securities and Exchange Commission ("SEC") in connection with the Offer. The Company will, upon the terms and subject to the conditions of the Offer, determine a single per Share price (not greater than $25.50 nor less than $23.50 per Share), net to the seller in cash (the "Purchase Price"), that it will pay for Shares validly tendered and not withdrawn pursuant to the Offer, taking into account the number of Shares so tendered and the prices specified by tendering stockholders. The Company will select the lowest Purchase Price that will allow it to purchase 14 million Shares (or such lesser number of Shares as are validly tendered and not withdrawn) at a price not greater than $25.50 nor less than $23.50 per Share. The Company reserves the right, in its sole discretion, to purchase more than 14 million Shares pursuant to the Offer. The Offer, the proration period and withdrawal rights expire at 12:00 Midnight, New York City time, on Tuesday, June 8, 1999, unless the Company extends the Offer. Shares tendered pursuant to the Offer may also be withdrawn, unless accepted for payment by the Company pursuant to the Offer, after 12:00 Midnight, New York City time, on Wednesday, July 7, 1999. Although the Company is not offering to purchase shares of its Class A Common Stock, par value $0.01 per share ("Class A Common Stock"), as a result of the Offer, holders of Class A Common Stock may elect, in accordance with the terms of the Restated Certificate of Incorporation of the Company and the Rights Agreement, to convert each share of Class A Common Stock (and associated preferred stock purchase rights issued pursuant to the Rights Agreement) into 1.59997 Shares (and 1.59997 associated Rights) and to tender such Shares (and associated Rights) pursuant to the Offer, provided, however, that any such election and conversion will be effective only with respect to such Shares (and associated Rights) as are actually accepted for purchase by the Company pursuant to the Offer. Assuming that the Company purchases 14 million Shares pursuant to the Offer at the maximum specified purchase price of $25.50 per Share, the Company expects the maximum aggregate cost, including all fees and expenses applicable to the Offer, to be approximately $360 million. The Company anticipates that substantially all of the funds necessary to pay such amounts will be financed with proceeds of the issuance of $250 million of medium term notes (the "Note Offering") and the balance through the issuance of commercial paper borrowings supported by the Credit Agreement dated as of February 4, 1998 and the Credit Agreement dated as of February 19, 1999, in each case, among the Company and the several lenders party to each such agreement. The Company intends to file Amendment No. 1 to its Registration Statement on Form S-3 (file No. 33-72251) with respect to the Note Offering with the SEC on May 11, 1999. 4 Conectiv's Board of Directors intends to reduce per share dividends on the Shares to an amount equal to 40% to 60% of the Company's earnings per Share, which is expected to result in a quarterly dividend of $0.22 per Share as compared to the previous quarterly dividend level of $0.385 per Share, subject to declaration by the Company's Board of Directors and evaluation from time to time based on the results of operations, financial condition, capital requirements and other relevant considerations. The Company's Board of Directors intends that the quarterly dividend on shares of Class A Common Stock will remain $0.80 per share ($3.20 annualized rate) until March 31, 2001, subject to, among other things, declaration by Conectiv's Board of Directors and the obligations of the Board of Directors to consider the financial condition and regulatory environment of the Company and the results of its operations. The summary unaudited consolidated pro forma financial information, included as Exhibit 99.1 hereto, and incorporated by reference herein, gives effect to the purchase of Shares pursuant to the Offer, including the related incurrence of indebtedness, and the Dividend Policy Change, based on certain assumptions described therein and in the related notes. Such summary unaudited consolidated pro forma financial information does not purport to be indicative of the operating results that would actually have been obtained, or operating results that may be obtained in the future, or the financial position that would have resulted had the purchase of the Shares pursuant to the Offer, including the related incurrence of indebtedness, and the Dividend Policy Change been completed at the dates indicated therein. On May 11, 1999, Conectiv issued a press release regarding, among other things, the Offer and the Dividend Policy Change. A copy of Conectiv's press release dated May 11, 1999 has been filed with this Current Report on Form 8-K as Exhibit 99.2 and is incorporated by reference herein. Item 7. Pro Forma Financial Statements and Exhibits. (a) Not applicable (b) Not applicable (c) Exhibits 99.1 Summary Unaudited Consolidated Pro Forma Financial Statements. 99.2 Press Release issued by the Company dated May 11, 1999. 5 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CONECTIV Date: May 11, 1999 By: /s/ John C. van Roden ________________________ John C. van Roden Senior Vice President and Chief Financial Officer 6 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION PAGE 99.1 Summary Unaudited Consolidated Pro Forma Financial Statements. 99.2 Press Release issued by the Company dated May 11, 1999. EX-99.1 2 SUMMARY UNAUDITED CONSOLIDATED 1 EXHIBIT 99.1 Summary Unaudited Consolidated Pro Forma Financial Statements. The following summary unaudited consolidated pro forma financial statements give effect to the purchase of shares of Common Stock, par value $0.01 per share ("Shares"), of Conectiv, a Delaware corporation (the "Company"), pursuant to the Company's offer to purchase 14 million Shares at a price not greater than $25.50 nor less than $23.50 per Share in cash (the "Offer"), including the related incurrence of indebtedness, and the reduction in the dividend on the Shares, based on certain assumptions described below and in the related Notes below. The Summary Unaudited Consolidated Pro Forma Balance Sheets give effect to the purchase of Shares pursuant to the Offer, including the related incurrence of indebtedness, as though such events occurred as of the respective dates of such balance sheets. The Summary Unaudited Consolidated Pro Forma Statements of Income for the three-month period ended March 31, 1999 and for the year ended December 31, 1998 give effect to the purchase of Shares pursuant to the Offer, including the related incurrence of indebtedness, and the reduction in the dividend on the Shares as though such events occurred on January 1, 1999 and March 1, 1998, respectively. The summary unaudited consolidated pro forma financial statements should be read in conjunction with the historical consolidated financial information of the Company and does not purport to be indicative of the operating results that would actually have been obtained, or operating results that may be obtained in the future, or the financial position that would have resulted had the purchase of the Shares pursuant to the Offer, including the related incurrence of indebtedness, and the reduction in the dividend on the Shares been completed at the dates indicated. The pro forma adjustments assume the following: (A) The issuance by the Company of $357.0 million of debt at an average interest rate of 7%, including (a) $250.0 million of medium term notes ("Notes") having an average life of 5 years, and (b) $107.0 million of commercial paper; and the payment by the Company of $1.7 million in fees and expenses relating to the issuance of the Notes. (B) The realization of an income tax benefit resulting from interest expense on the debt and amortization of debt issuance expenses, based on an effective income tax rate of 40.85%. (C) The use by the Company of proceeds from the debt issuance to purchase 14,000,000 Shares at $25 1/2 per Share in the Offer, including Shares purchased as the result of the conversion of shares of Class A Common Stock; and the payment by the Company of $3.0 million of related Offer expenses. (D) The payment of dividends on Shares at $0.22 per Share per quarter, or $0.88 per Share per year. (E) A decrease in the number of outstanding shares of Class A Common Stock due to the conversion of shares of Class A Common Stock to Shares and purchase of Shares by the Company in the Offer, assuming each share of Class A Common Stock was converted to 1.59997 Shares. A reduction in the Class A Common Stock's percentage of earnings from the Atlantic Utility Group (as defined in the Company's Restated Certificate of Incorporation) that exceed $40.0 million per year from 30% to 27.2% is assumed for the three months ended March 31, 1999 and 27.3% for the twelve months ended December 31, 1998. (F) The number of Shares purchased from holders of Class A Common Stock who elect to convert shares of Class A Common Stock to Shares was assumed to be equal to the quotient of (a) the number of shares of Class A Common Stock outstanding multiplied by the Class A Common Stock conversion ratio, divided by (b) (i) the number of Shares outstanding as of the date Shares are assumed to be purchased under the Offer, and (ii) the number of shares of Class A Common Stock outstanding multiplied by the Class A Common Stock conversion ratio, multiplied by (c) the 14,000,000 Shares purchased in the Offer. The balance of the 14,000,000 Shares purchased is assumed to be from holders of Shares other than the Shares attributed to the conversion of Class A Common Stock. 1 2 CONECTIV AND SUBSIDIARIES SUMMARY UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEETS AS OF MARCH 31, 1999 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- ---------- ASSETS Current assets............................................ $ 765,956 $ (4,700)(1) $ 761,256 Investments............................................... 405,653 -- 405,653 Property, plant and equipment............................. 4,475,390 -- 4,475,390 Deferred charges and other assets......................... 487,584 1,700(2) 489,284 ---------- -------- ---------- Total assets.............................................. $6,134,583 $ (3,000) $6,131,583 ========== ======== ========== CAPITALIZATION AND LIABILITIES Current liabilities....................................... $1,159,529 $107,000(3) $1,266,529 Deferred credits and other liabilities.................... 1,141,330 -- 1,141,330 Capitalization............................................ -- Common stockholders' equity............................. 1,848,210 (360,000)(4) 1,488,210 Preferred stock of subsidiaries......................... 284,883 -- 284,883 Long-term debt.......................................... 1,700,631 250,000(5) 1,950,631 ---------- -------- ---------- 3,833,724 (110,000) 3,723,724 ---------- -------- ---------- Total capitalization and liabilities...................... $6,134,583 $ (3,000) $6,131,583 ========== ======== ========== Common shares outstanding (000) Shares.................................................. 100,589 (12,677)(6) 87,912 Class A common stock.................................... 6,561 (827)(7) 5,734 Book value per common share............................... $ 17.25 (8) $ 15.89
The Notes to Summary Unaudited Consolidated Pro Forma Financial Statements are an integral part of this statement. 2 3 CONECTIV AND SUBSIDIARIES SUMMARY UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1999 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- --------- Operating revenues................................... $946,585 $946,585 Operating expenses................................... 844,047 844,047 -------- -------- Operating income..................................... 102,538 102,538 -------- -------- Other income......................................... 23,113 23,113 -------- -------- Interest expense..................................... 38,694 6,333(9) 45,027 -------- -------- -------- Preferred stock dividend requirements of subsidiaries....................................... 4,948 4,948 -------- -------- Income before income taxes........................... 82,009 (6,333) 75,676 -------- -------- -------- Income taxes......................................... 33,314 (2,587)(10) 30,727 -------- -------- -------- Net income........................................... $ 48,695 $ (3,746) $ 44,949 ======== ======== ======== Earnings applicable to common stock Shares............................................. $ 47,358 $ (3,621)(11) $ 43,737 Class A common stock............................... 1,337 (125)(11)(b) 1,212 -------- -------- -------- $ 48,695 $ (3,746) $ 44,949 ======== ======== ======== Average shares outstanding (000) Shares............................................. 100,532 (12,677)(12) 87,855 -------- -------- -------- Class A common stock............................... 6,561 (827)(13) 5,734 -------- -------- -------- Earnings per average share -- basic and diluted Shares............................................. $ 0.47 $ 0.03(14) $ 0.50 -------- -------- -------- Class A common stock............................... $ 0.20 $ 0.01(14) $ 0.21 -------- -------- -------- Dividends declared per share Shares............................................. $ 0.385 $ (0.165)(15) $ 0.22 -------- -------- -------- Class A common stock............................... $ 0.80 $ -- $ 0.80 -------- -------- -------- Ratio of earnings to fixed charges(a)................ 2.71 (16) 2.40
- --------------- (a) For the twelve months ended March 31, 1999. The Notes to Summary Unaudited Consolidated Pro Forma Financial Statements are an integral part of this statement. 3 4 CONECTIV AND SUBSIDIARIES SUMMARY UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEETS AS OF DECEMBER 31, 1998 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- ---------- ASSETS Current assets....................................... $ 723,872 $ (4,700)(1) $ 719,172 Investments.......................................... 387,678 -- 387,678 Property, plant and equipment........................ 4,480,387 -- 4,480,387 Deferred charges and other assets.................... 495,737 1,700(2) 497,437 ---------- --------- ---------- Total assets......................................... $6,087,674 $ (3,000) $6,084,674 ========== ========= ========== CAPITALIZATION AND LIABILITIES Current liabilities.................................. $1,081,791 $ 107,000(3) $1,188,791 Deferred credits and other liabilities............... 1,131,277 -- 1,131,277 Capitalization Common stockholders' equity........................ 1,843,161 (360,000)(4) 1,483,161 Preferred stock of subsidiaries.................... 284,883 -- 284,883 Long-term debt..................................... 1,746,562 250,000(5) 1,996,562 ---------- --------- ---------- 3,874,606 (110,000) 3,764,606 ---------- --------- ---------- Total capitalization and liabilities................. $6,087,674 $ (3,000) $6,084,674 ========== ========= ========== Common shares outstanding (000) Shares............................................. 100,517 (12,682)(6) 87,835 Class A common stock............................... 6,561 (824)(7) 5,737 Book value per common share.......................... $ 17.21 --(8) $ 15.85
The Notes to Summary Unaudited Consolidated Pro Forma Financial Statements are an integral part of this statement. 4 5 CONECTIV AND SUBSIDIARIES SUMMARY UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- ---------- Operating revenues........................... $3,071,606 $3,071,606 Operating expenses........................... 2,684,691 2,684,691 ---------- ---------- Operating income............................. 386,915 386,915 ---------- ---------- Other income................................. 36,860 36,860 ---------- ---------- Interest expense............................. 149,431 $ 21,108(17) 170,539 ---------- -------- ---------- Preferred stock dividend requirements of subsidiaries............................... 15,326 15,326 ---------- ---------- Income before income taxes................... 259,018 (21,108) 237,910 ---------- -------- ---------- Income taxes................................. 105,817 (8,623)(10) 97,194 ---------- -------- ---------- Net income................................... $ 153,201 $(12,485) $ 140,716 ========== ======== ========== Earnings applicable to common stock Shares..................................... $ 141,292 $(11,413)(18) $ 129,879 Class A common stock....................... 11,909 (1,072)(18)(b) 10,837 ---------- -------- ---------- $ 153,201 $(12,485) $ 140,716 ========== ======== ========== Average shares outstanding (000) Shares..................................... 94,338 (10,568)(12) 83,770 ---------- -------- ---------- Class A common stock....................... 6,561 (824)(13) 5,737 ---------- -------- ---------- Earnings per average share-basic and diluted Shares..................................... $ 1.50 $ 0.05(14) $ 1.55 ---------- -------- ---------- Class A common stock....................... $ 1.82 $ 0.07(14) $ 1.89 ---------- -------- ---------- Dividends declared per share Shares..................................... $ 1.54 $ (0.66)(15) $ 0.88 ---------- -------- ---------- Class A common stock....................... $ 3.20 $ -- $ 3.20 ---------- -------- ---------- Ratio of earnings to fixed charges........... 2.38 (16) 2.09
The Notes to Summary Unaudited Consolidated Pro Forma Financial Statements are an integral part of this statement. 5 6 NOTES TO SUMMARY UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (1) Represents the effects on cash of the following: (a) Proceeds from issuance of debt: $250 million of Notes and $107 million of commercial paper. $ 357,000 (b) Debt issuance costs paid. (1,700) (c) 14,000,000 Shares redeemed at $25 1/2 per Share. (357,000) (d) Represents assumed costs of Offer. (3,000) --------- $ (4,700) ========= (2) Represents assumed costs of issuing $250 million of Notes with a five-year average life. (3) Represents assumed amount of funds used to purchase Shares which are raised from issuing commercial paper. (4) (a) 14,000,000 Shares are assumed to be repurchased at $25 1/2 per Share. $(357,000) (b) Represents assumed costs of Offer. (3,000) --------- $(360,000) ========= (5) Represents the assumed amount of funds used to purchase Shares which are raised from issuing Notes with a five-year average life. (6) Represents the assumed purchase of Shares excluding the Shares purchased due to the conversion of Class A Common Stock. (7) Represents the assumed number of shares of Class A Common Stock which are converted to Shares. (8) The book value per common share is equal to total common stockholders' equity divided by the number of total Shares and shares of Class A Common Stock outstanding. (9) (a) Quarterly interest expense on $357 million of 7.0% debt issued on January 1, 1999. $ 6,248 (b) Quarterly amortization of the assumed debt issuance costs of $1.7 million amortized over the five-year average life of the Notes. 85 --------- $ 6,333 ========= (10) Income tax benefit of debt interest expense and amortization of debt issuance expenses based on an effective income tax rate of 40.85%. (11) (a) Represents the pro forma effect on net income of the debt issuance. $ (3,746) (b) Represents assumed increase in earnings available for Shares, (and decrease in earnings available for Class A Common Stock) due to the decrease in percentage allocable to shares of Class A Common Stock of earnings from the Atlantic Utility Group in excess of $40 million per year from 30% to 27.2%, due to fewer shares of Class A Common Stock outstanding. 125 --------- $ (3,621) ========= (12) Represents the decrease in the number of average Shares outstanding due to the purchase of Shares in the Offer other than Shares attributed to conversion of Class A Common Stock. (13) Represents the decrease in the number of average shares of Class A Common Stock outstanding due to the shares of Class A Common Stock which are converted to Shares in the Offer. (14) Pro forma earnings per average share were computed based on pro forma earnings and pro forma average shares outstanding.
6 7 (15) The quarterly dividend rate is assumed to decrease from $0.385 per Share to $0.22 per Share. The annual dividend rate is assumed to decrease from $1.54 per Share to $0.88 per Share. (16) The pro forma ratio of earnings to fixed charges is based on the historical ratio of earnings to fixed charges adjusted for the pro forma increase in annual interest expense. (17) (a) Ten-twelfths of annual interest expense on $357 million of 7.0% debt assumed to have been issued on March 1, 1998, the Merger date. $ 20,825 (b) Ten-twelfths of annual amortization of the assumed debt issuance costs of $1.7 million amortized over the five-year average life of the debt. 283 --------- $ 21,108 ========= (18) (a) Represents the pro forma effect on net income of the debt issuance. $ (12,485) (b) Represents assumed increase in earnings available for Shares (and decrease in earnings available for Class A Common Stock) due to the decrease in percentage allocable to shares of Class A Common Stock of earnings from the Atlantic Utility Group in excess of $40 million per year from 30% to 27.3%, due to fewer shares of Class A Common Stock outstanding. 1,072 --------- $ (11,413) =========
7 EX-99.2 3 PRESS RELEASE ISSUED BY THE CO. DATED MAY 11, 1999 1 Exhibit 99.2 NEWS RELEASE [LOGO] Contact: Investor Relations, Bob Marshall (302) 429-3114 Public Affairs, Mary Rucci (302) 429-3334 CONECTIV ANNOUNCES STRATEGIC AND FINANCIAL INITIATIVES FOR GROWTH SHARE BUYBACK, DIVIDEND REDUCTION, SALE OF GENERATING ASSETS, GROWTH IN TELECOMMUNICATIONS AND UTILITY BUSINESSES, MAJOR COST REDUCTION EFFORTS WILMINGTON, May 11, 1999 -- With its major regulatory issues becoming more certain, Conectiv (NYSE:CIV and CIV.A) today announced several strategic initiatives designed to increase shareholder value and position Conectiv for future growth. These initiatives continue to expand Conectiv's focus on achieving superior total shareholder returns by providing improved earnings growth. The growth focus is in Conectiv's utility transmission and distribution business, investments in its telecommunications business and higher returns on the strategic energy business. The initiatives include: - - A recapitalization of Conectiv through a buyback of approximately 14 percent of outstanding common stock in order to employ a more efficient capital structure appropriate for a competitive environment; - - An intention by the Board of Directors to reduce the quarterly CIV common stock dividend from $0.385 to $0.22, to balance total shareholder return between stock appreciation and dividend yield. The dividend policy for Class A Common Stock remains unchanged, currently a quarterly dividend of $.80 ($3.20 annualized) per share; - - A realignment of Conectiv's generation business by pursuing the potential sale of approximately 2,200 megawatts of nuclear and non-strategic baseload fossil generation, with safeguards to assure continued energy reliability; (more) 2 - - A focus on value creation through growth of Conectiv's regulated electric and gas delivery business, its energy business and telecommunications business; - - The implementation of a new productivity improvement and cost reduction program aimed at positioning the company to have a more competitive cost structure without any reduction in quality and service. "This accelerates Conectiv's progression toward being a leading provider of vital services to customers in an expanded regional market. The first step of this journey was the merger of Delmarva Power and Atlantic Energy to create Conectiv. The second was the deregulation of the energy markets in the areas we serve. Third, we created a number of new businesses. This is the next step in the transformation of Conectiv from a regulated to a highly competitive enterprise," explained Howard Cosgrove, Conectiv Chairman, CEO and President. DIVIDEND POLICY AND RECAPITALIZATION In order to improve Conectiv's financial flexibility and position it as a growth-oriented investment, Conectiv's Board of Directors intends to reduce its CIV common stock dividend and recapitalize its balance sheet. The dividend policy remains unchanged for the Class A common stock. The Board intends to reduce the CIV common stock dividend from $1.54 to $0.88, effective with the expected declaration of the next quarterly dividend, on June 29, 1999. According to John van Roden, Conectiv's CFO, "The company is targeting a payout ratio of 40% to 60%. This is more consistent with companies operating in a competitive environment, and transitions Conectiv away from the traditionally higher payout ratios typical of the regulated utility industry." The recapitalization will be accomplished through a "Dutch Auction" self-tender offer, beginning May 11, 1999 and ending June 8, 1999. Conectiv plans to buy back up to 14 million of its outstanding CIV common shares. Shareholders will have the opportunity to tender their shares within a price range established by the Company of $23.50 to $25.50. The recapitalization will not affect the capital structures of Conectiv's wholly owned subsidiaries, Delmarva Power & Light Company and Atlantic City Electric Company. The transaction will be financed through the issuance of long- and short-term debt of Conectiv, with the consolidated credit ratios expected to return to current levels within 2-3 years, as the result of the lower annual dividend payout and anticipated receipt of cash from asset sales. (more) 3 Van Roden emphasized, "We are positioning Conectiv's stock for market value growth. With our solid earnings prospects, and the effect of reduced shares outstanding, Conectiv is positioned to achieve improved growth in earnings per share." Cosgrove further noted "We believe our tender offer will allow those shareholders who desire a more income-oriented investment to exit on favorable terms. On the other hand, we believe that shareholders who retain their shares will benefit from owning a greater interest in a highly competitive company with outstanding growth opportunities." SALES OF GENERATING PLANTS In response to changes in the legal and regulatory environment in the states that it serves, Conectiv plans to sell approximately 2,200 megawatts of its nuclear and non-strategic baseload fossil generation assets. Cosgrove explained, "This sale will accomplish two main goals. First, it will raise case for debt repayment and new investments more likely to fulfill our corporate vision. Second, we will realize gains that offset our stranded costs from generation plants. Conectiv intends to retain certain generation plants that it considers to be strategic to its energy business and assure reliability for its customers throughout the evolution of the competitive electric supply markets. "This approach reflects our belief that we must concentrate on becoming a provider of multiple vital services under a common brand, rather than use our generation resources to compete in the commodity wholesale business," Cosgrove said. Conectiv's generating asset divestiture is expected to occur upon acceptable terms by midyear 2000. Conectiv will work with its affected employees to provide as many opportunities as possible. STRATEGIC FOCUS The foundation of Conectiv's growth opportunities is its energy, telecommunications and regulated electric and gas delivery. These areas comprise the company's vital services focus and allow Conectiv to concentrate on deepening customer relationships within its growing region. The energy business will be centered on 2,000 megawatts of flexible, low-cost generation that back Conectiv's merchant capabilities. Conectiv also will focus resources on growing its facilities-based telecommunications business, taking advantage of the many high growth opportunities including internet and high speed DSL (digital subscriber line) that will be available to customers later this year. "Conectiv Communications today has more than 50,000 access lines and has achieved dramatic growth in a short time. We are excited about continuing that growth," stated Cosgrove. "At the same time, the regulated electric and gas delivery business will provide continued strong cash flows and will be the basis for expanded vital services growth beyond regulated delivery. In conjunction with our delivery business, (more) 4 Conectiv will continue to be a major provider of energy throughout the Mid-Atlantic region." PRODUCTIVITY IMPROVEMENT AND COST REDUCTIONS Conectiv has simultaneously initiated a comprehensive cost improvement program with a renewed focus on improving productivity and continuing merger synergies in its core business processes with a goal of $25 million in cost reductions over the next 12 to 18 months. Over the longer term, the company plans to review all business processes and expenses to accelerate process improvements and achieve cost productivity that can be sustained. "In order to compete in a deregulated environment, we must continuously reduce costs and improve productivity without any reduction in quality and service or impact to our customers as we continue to grow. This type of effort and coordination will enable Conectiv to develop sustainable benefits in a competitive marketplace," Cosgrove stated. SUMMARY Van Roden summarized the goals of the strategic and financial initiatives announced today by saying that they "should provide Conectiv with sufficient funds to invest in the areas of strategic focus that provide higher return on equity and earnings accretion, while maintaining a prudent balance between debt and equity in our capital structure. This action also should preserve the financial flexibility necessary to accommodate future cash needs and focus on improving total shareholder return." Cosgrove added, "Today's announcement is the next step in Conectiv's transformation from a regulated public utility to a regional provider of vital services. It is a course of action that is consistent with both our strategic focus and is in the best interests of our shareholders and customers. The current repayment of capital to shareholders is a tangible expression of the Board's and management's confidence in the Company and provides greater assurance to shareholders that strategic undertakings will be value-enhancing." Conectiv is a regional provider of vital services, emphasizing electric and gas delivery, energy and telecommunications. ************************************ The dealer manager for the share repurchase offer is The Blackstone Group, L.P. The information agent is D.F. King & Co., Inc. Copies of the Offer to Purchase and related materials, dated May 11, 1999, will be mailed to all Conectiv shareholders. The terms of the offer and procedures for tendering are explained in detail in these materials. Shareholders are urged to carefully read these materials prior to making any decision with respect to the offer. Additional copies of the material can be obtained from the information agent by calling 1-800-207-3156. (more) 5 FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 (the "Litigation Reform Act") provides a "safe harbor" for forward-looking statements to encourage such disclosures without the threat of litigation, provided those statements are identified as forward-looking and are accompanied by meaningful, cautionary statements identifying important factors that could cause the actual results to differ materially from those projected in the statement. Forward-looking statements have been made in this Press Release. Such statements are based on beliefs of the Company's management ("Management") as well as assumptions made by and information currently available to Management. When used herein, the words "will," "anticipate," "estimate," "expect," "objective," and similar expressions are intended to identify forward-looking statements. In addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements, factors that could cause actual results to differ materially from those contemplated in any forward-looking statements include, among others, the following: deregulation of energy supply and the unbundling of delivery services; an increasingly competitive marketplace; results of any asset dispositions; sales retention and growth; federal and state regulatory actions; future litigation results; costs of construction; operating restrictions; increased costs and construction delays attributable to environmental regulations; nuclear decommissioning and the availability of reprocessing and storage facilities for spent nuclear fuel; and credit market concerns. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing list of factors pursuant to the Litigation Reform Act should not be construed as exhaustive or as admission regarding the adequacy of disclosures made by the Company prior to the effective date of the Litigation Reform Act. ###www.conectiv.com### -----END PRIVACY-ENHANCED MESSAGE-----