EX-99 10 0010.txt 2000 CONECTIV PRO FORMA FINANCIAL STATEMENTS EXHIBIT 99 2000 CONECTIV PRO FORMA FINANCIAL STATEMENTS - GENERATION ASSET SALE AND TRANSFER BACKGROUND In 1999, the electric utility businesses of Delmarva Power & Light Company (DPL) and Atlantic City Electric Company (ACE) were restructured pursuant to legislation enacted in Delaware, Maryland and New Jersey and orders issued by the Delaware Public Service Commission (DPSC), Maryland Public Service Commission (MPSC), and New Jersey Board of Public Utilities (NJBPU). This restructuring of DPL's and ACE's electric utility businesses are discussed in Notes 1, 7, 10, 11 and 17 to the Consolidated Financial Statements, included in Item 8 of Part II, and "Electric Utility Industry Restructuring," within Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A), included in Item 7 of Part II. In connection with electric utility industry restructuring and Conectiv's "mid- merit" strategy, as discussed under "Mid-Merit Electric Generation" in the MD&A, Conectiv is realigning the mix of electric generating plants owned by its subsidiaries. DPL and ACE have entered into agreements to sell their nuclear and non-strategic baseload fossil electric generating plants. On December 29, 2000, DPL sold its ownership interests in nuclear electric generating plants. As of December 31, 2000, the electric generating plants which were subject to agreements for sale had 2,203.5 megawatts of capacity and a net book value of $423.2 million, excluding the nuclear decommissioning liability included in accumulated depreciation. The agreements for the sale of the electric generating plants provide for an aggregate sales price of approximately $811 million, before certain adjustments and selling expenses, as discussed in Note 14 to the Consolidated Financial Statements included in Item 8 of Part II. Upon the sale of the ownership interests of ACE in nuclear electric generating units, ACE will transfer its nuclear decommissioning funds to the purchasers who will assume full responsibility for decommissioning such units. The sales of the electric generating plants are expected to take place during 2001. However, as discussed in Note 14 to the Consolidated Financial Statements included in Item 8 of Part II, there can be no assurances that the sales will be completed. Effective July 1, 2000, DPL and ACE contributed to Conectiv electric generating plants with 1,501 and 502, respectively, megawatts of capacity. Then, Conectiv transferred the electric generating plants to subsidiaries of Conectiv Energy Holding Company (CEH). CEH and its subsidiaries are engaged in non-regulated electricity production and sales, energy trading, and marketing. DESCRIPTION OF PRO FORMA FINANCIAL INFORMATION The following consolidated financial statements for Conectiv are filed with this Exhibit: . Unaudited Pro Forma Balance Sheet at December 31, 2000, and . Unaudited Pro Forma Statement of Income for the Year Ended December 31, 2000. The following major assumptions were made in preparing these pro forma financial statements: . For purposes of the pro forma balance sheet, the sales of nuclear and non-strategic baseload fossil electric generation plants were all assumed to occur as of December 31, 2000. . For purposes of the pro forma statement of income, the sales and transfers described above were assumed to occur as of January 1, 2000. As a result, expenses related to generation assets assumed to be sold were eliminated. -1- . Replacement energy and capacity were assumed to be purchased from the PJM Interconnection, L.L.C. (PJM). The energy costs were based on an hourly PJM Locational Marginal Price (LMP) and the capacity costs were based on semi-annual weighted average PJM capacity rates. . Under its rates for electricity supplied to utility customers, ACE was assumed to be permitted to earn a return on the stranded costs resulting from the power plant sales and to no longer earn a return on the power plants sold. . Revenues which resulted from the Wholesale Transaction Confirmation Letter Agreements during 2000, as discussed in Note 15 to the Consolidated Financial Statements, were assumed to have not been earned due to the assumed sale of the nuclear power plants on January 1, 2000. . For the portion of 2000 that the electricity supply operations of DPL in Maryland were still subject to regulation (January 1 through June 30, 2000) customer rates were assumed to be adjusted to remove amounts for a return on generation rate base and to add amounts for recovery of replacement power costs. . The proceeds from the sale of nuclear and non-strategic baseload fossil electric generation plants by Conectiv's subsidiaries were assumed to be used to repay short-term and long-term debt, after considering expected debt retirement costs and tax payments on the gain on the sale of the electric generation assets. . The transfer of the decommissioning trusts as a result of the sale of the ownership interests of ACE in nuclear generation units was assumed to occur on a non-taxable basis. . The net pro forma gain from the sale of ACE's generation units, except for the Deepwater generation unit, was recorded as a reduction to recoverable stranded costs. The net loss of approximately $38 million which is expected to result from the sale of the Deepwater generation unit was recorded as an extraordinary charge in the 4th quarter of 1999. A pro forma adjustment resulting from the recognition of unamortized investment tax credits which are recognized upon completion of the sale was credited to retained earnings. . The net pro forma gain from the sale of DPL's generation units was credited to retained earnings. . The transfer of strategic generating assets from Conectiv's utility subsidiaries to subsidiaries of CEH was assumed to occur on January 1, 2000, at book value, on a non-taxable basis. . An effective tax rate of 40% was utilized to calculate the income tax effects of adjustments to the pro forma income statement. These pro forma financial statements have been prepared for comparative purposes only and do not purport to be indicative of operations or financial condition which would have actually resulted if the sale and transfer of generation assets or other related transactions occurred on the dates of the periods presented, or which may result in the future. Further, these pro forma financial statements have been prepared using information available at the date of this filing. As a result, certain amounts indicated herein are preliminary in nature and, therefore, will be subject to adjustment in the future. -2- DESCRIPTION OF PRO FORMA ADJUSTMENTS The Unaudited Pro Forma Statement of Income and Balance Sheet filed with this Exhibit reflect the following adjustments: Adjustments to the Statement of Income: 1. A net decrease in "Electric revenues" due to (i) no revenues from the operations of the deregulated Deepwater generation unit and the nuclear plants under the "Wholesale Transaction Confirmation Letter Agreements," and (ii) no return earned on generation rate base of divested plants, partly offset by a return earned on the stranded costs of ACE and recovery of replacement power costs in DPL's Maryland jurisdiction. 2. Increases in "Electric fuel and purchased energy and capacity" primarily because the cost increase from Conectiv's subsidiaries purchasing all energy and capacity requirements to meet their retail load exceeded the cost decrease from no longer purchasing fuel for the electric generating units. 3. Decreases in other operating expenses as a result of the sale of certain generation assets by Conectiv's subsidiaries. 4. A decrease in "Interest charges" as a result of retirement of debt after the sale of certain generation assets. Balance Sheet Adjustments: 1. A net increase to "Cash and cash equivalents" primarily as a result of net proceeds received from the sale of certain generation units, less cash used for the retirement of certain debt issues. 2. A decrease to "Fuel" and "Materials and supplies" inventories as a result of the sale of certain generation assets. 3. A decrease to "Funds held by trustee" as a result of the transfer of nuclear decommissioning trust funds to the buyers of the nuclear generation assets. 4. A decrease to "Property, plant and equipment" and "Construction work-in-progress" as a result of the sale of certain generation assets. 5. A decrease to "Accumulated Depreciation" as a result of the sale of certain generation assets and the assumption of the nuclear decommissioning obligations of ACE by the purchasers of the nuclear plants. 6. Decreases to "Leased nuclear fuel, at amortized cost", "Current capital lease obligation", and "Long-term capital lease obligation" as a result of the sale of the nuclear fuel to the buyers of the nuclear generation assets and the corresponding liquidation of the capital lease obligation. 7. Decrease to "Recoverable stranded costs" and an increase to "Regulatory Liability for New Jersey income tax benefit" due to the sale of certain generation assets of ACE, which are subject to stranded cost recovery. As a result of an expected net gain from the sale of such assets, there is a decrease in recoverable stranded costs. 8. Decreases to "Other deferred charges" and "Other deferred credits and Other Liabilities" as a result of the sale of certain generation assets. -3- 9. Decrease to "Short-term debt" and "Long-term debt" due to assumed repayment of debt with the net sales proceeds expected to be available after debt retirement costs and tax payments on the gain on the sale of the electric generation assets. 10. Changes to "Taxes Accrued", "Deferred income taxes, net" and "Deferred investment tax credits" as a result of the sale of certain generation assets. 11. Net increase to "Retained Earnings" as a result of an expected net gain from the sale of certain generation assets. -4- CONECTIV UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME YEAR ENDED DECEMBER 31, 2000
--------------------------------------------------- Reported Adjustments Pro Forma --------------------------------------------------- (Dollars in Thousands) OPERATING REVENUES Electric $ 2,906,342 $ (77,353) (1) $ 2,828,989 Gas 1,529,785 1,529,785 Other services 592,997 592,997 ------------ ---------- ------------ 5,029,124 (77,353) 4,951,771 ------------ ---------- ------------ OPERATING EXPENSES Electric fuel and purchased energy and capacity 1,613,579 220,515 (2) 1,834,094 Gas purchased 1,445,911 1,445,911 Other services' cost of sales 504,615 504,615 Special charges 25,162 25,162 Gain on sale of interest in nuclear plants (16,612) (16,612) Operation and maintenance 627,667 (146,601) (3) 481,066 Depreciation and amortization 260,082 (62,542) (3) 197,540 Taxes other than income taxes 80,886 (2,077) (3) 78,809 ------------ ---------- ------------ 4,541,290 9,295 4,550,585 ------------ ---------- ------------ OPERATING INCOME 487,834 (86,648) 401,186 ------------ ---------- ------------ OTHER INCOME 49,495 49,495 ------------ ---------- ------------ INTEREST EXPENSE Interest charges 223,445 (50,574) (4) 172,871 Capitalized interest and allowance for borrowed funds during construction (10,843) (10,843) ------------ ---------- ------------ 212,602 (50,574) 162,028 ------------ ---------- ------------ PREFERRED STOCK DIVIDEND REQUIREMENTS OF SUBSIDIARIES 20,383 20,383 ------------ ---------- ------------ INCOME BEFORE INCOME TAXES 304,344 (36,074) 268,270 INCOME TAXES 133,514 (14,430) 119,084 ------------ ---------- ------------ NET INCOME $ 170,830 $ (21,644) $ 149,186 ============ ========== ============ INCOME (LOSS) APPLICABLE TO: Common Stock $ 164,719 $ (21,057) $ 143,662 Class A common stock 6,111 (587) 5,524 ------------ ---------- ------------ Total $ 170,830 $ (21,644) $ 149,186 ============ ========== ============ AVERAGE SHARES OUTSTANDING (000): Common Stock 83,686 83,686 Class A common stock 5,742 5,742 INCOME (LOSS) PER AVERAGE SHARE, BASIC AND DILUTED Common Stock $ 1.97 $ (0.25) $ 1.72 Class A common stock $ 1.06 $ (0.10) $ 0.96
-5- CONECTIV UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEETS DECEMBER 31, 2000
----------------------------------------------------------- Reported Adjustments Pro Forma ----------------------------------------------------------- (Dollars in Thousands) ASSETS Current Assets Cash and cash equivalents $ 123,562 $ 94,185 (1) $ 217,747 Accounts receivable, net of allowance of $31,339 792,843 792,843 Inventories, at average cost Fuel (coal, oil and gas) 54,578 (11,429) (2) 43,149 Materials and supplies 62,675 (3,982) (2) 58,693 Deferred energy supply costs 22,094 22,094 Prepayments 23,354 23,354 Deferred income taxes, net 13,155 13,155 --------------- ---------------- ---------------- 1,092,261 78,774 1,171,035 --------------- ---------------- ---------------- Investments Investment in leveraged leases 53,706 53,706 Funds held by trustee 122,387 (109,777) (3) 12,610 Other investments 70,780 70,780 --------------- ---------------- ---------------- 246,873 (109,777) 137,096 --------------- ---------------- ---------------- Property, Plant and Equipment Electric generation 1,576,550 (827,425) (4) 749,125 Electric transmission and distribution 2,711,907 2,711,907 Gas transmission and distribution 277,650 277,650 Other electric and gas facilities 390,313 390,313 Telecommunications, thermal systems, and other property, plant, and equipment 251,567 251,567 --------------- ---------------- ---------------- 5,207,987 (827,425) 4,380,562 Less: Accumulated depreciation 2,179,951 (516,088) (5) 1,663,863 --------------- ---------------- ---------------- Net plant in service 3,028,036 (311,337) 2,716,699 Construction work-in-progress 406,884 (2,853) (4) 404,031 Leased nuclear fuel, at amortized cost 28,352 (28,352) (6) - Goodwill, net of accumulated amortization of $33,437 344,514 344,514 --------------- ---------------- ---------------- 3,807,786 (342,542) 3,465,244 --------------- ---------------- ---------------- Deferred Charges and Other Assets Recoverable stranded costs 988,153 (46,757) (7) 941,396 Deferred recoverable income taxes 84,730 84,730 Unrecovered purchased power costs 14,487 14,487 Unrecovered New Jersey state excise tax 10,360 10,360 Deferred debt refinancing costs 20,656 20,656 Deferred other postretirement benefit costs 29,981 29,981 Prepaid pension costs 69,963 69,963 Unamortized debt expense 25,553 25,553 License fees 21,956 21,956 Other 65,236 (13,819) (8) 51,417 --------------- ---------------- ---------------- 1,331,075 (60,576) 1,270,499 --------------- ---------------- ---------------- Total Assets $ 6,477,995 $ (434,121) $ 6,043,874 =============== ================ ================
-6- CONECTIV UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEETS DECEMBER 31, 2000
----------------------------------------------------------- Reported Adjustments Pro Forma ----------------------------------------------------------- (Dollars in Thousands) CAPITALIZATION AND LIABILITIES Current Liabilities Short-term debt $ 709,530 $ (58,389) (9) $ 651,141 Long-term debt due within one year 100,721 100,721 Variable rate demand bonds 158,430 158,430 Accounts payable 490,887 490,887 Taxes accrued 10,877 79,185 (10) 90,062 Interest accrued 45,296 45,296 Dividends payable 27,111 27,111 Deferred energy supply costs 34,650 34,650 Current capital lease obligation 15,591 (15,480) (6) 111 Above-market purchased energy contracts and other electric restructuring liabilities 23,891 23,891 Other 107,025 (1,170) 105,855 --------------- ---------------- ---------------- 1,724,009 4,146 1,728,155 --------------- ---------------- ---------------- Deferred Credits and Other Liabilities Other postretirement benefits obligation 90,335 90,335 Deferred income taxes, net 823,094 65,414 (10) 888,508 Deferred investment tax credits 64,316 (18,458) (10) 45,858 Regulatory liability for New Jersey income tax benefit 49,262 5,174 (7) 54,436 Above-market purchased energy contracts and other electric restructuring liabilities 103,575 (6,813) (8) 96,762 Deferred gain on termination of purchased energy contract 74,968 74,968 Long-term capital lease obligation 13,744 (12,872) (6) 872 Other 67,751 (12,309) (8) 55,442 --------------- ---------------- ---------------- 1,287,045 20,136 1,307,181 --------------- ---------------- ---------------- Capitalization Common stock: $0.01 per share par value 150,000,000 shares authorized; 82,859,779 shares outstanding 830 830 Class A common stock, $0.01 per share par value; 10,000,000 shares authorized; 5,742,315 share outstanding 57 57 Additional paid-in capital - - common stock 1,028,780 1,028,780 Additional paid-in capital - - Class A common stock 93,738 93,738 Retained earnings 42,768 185,761 (11) 228,529 Treasury shares, at cost, 130,604 shares (2,688) (2,688) Unearned compensation (1,172) (1,172) Accumulated other comprehensive income (2,044) (2,044) --------------- ---------------- ---------------- Total common stockholders' equity 1,160,269 185,761 1,346,030 Preferred stock and securities of subsidiaries: Not subject to mandatory redemption 95,933 95,933 Subject to mandatory redemption 188,950 188,950 Long-term debt 2,021,789 (644,164) (9) 1,377,625 --------------- ---------------- ---------------- 3,466,941 (458,403) 3,008,538 --------------- ---------------- ---------------- --------------- ---------------- ---------------- Total Capitalization and Liabilities $ 6,477,995 $ (434,121) $ 6,043,874 =============== ================ ================
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