-----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, U1WBCYrnICLxHB6LkYOm5V0X3Pw8KulxOOYmYzwEBXz7CIq5YZNz80OwMw9gTggX /Q+t+Q6oBNO/D9TZgubzeg== 0000927356-99-000780.txt : 19990503 0000927356-99-000780.hdr.sgml : 19990503 ACCESSION NUMBER: 0000927356-99-000780 CONFORMED SUBMISSION TYPE: DEFA14A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19990430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DOMINION RESOURCES INC /VA/ CENTRAL INDEX KEY: 0000715957 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 541229715 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEFA14A SEC ACT: SEC FILE NUMBER: 001-08489 FILM NUMBER: 99607557 BUSINESS ADDRESS: STREET 1: 901 E BYRD ST, WEST TOWER STREET 2: P O BOX 26532 CITY: RICHMOND STATE: VA ZIP: 23219 BUSINESS PHONE: 8047755700 MAIL ADDRESS: STREET 1: P O BOX 26532 STREET 2: 901 EAST BYRD STREET CITY: RICHMOND STATE: VA ZIP: 23261 DEFA14A 1 ADDITIONAL DEFINITIVE PROXY SOLICITING MATERIALS UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 14A Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [_] Check the appropriate box: [_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14A-6(E)(2)) [_] Definitive Proxy Statement [X] Definitive Additional Materials [_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12 Dominion Resources, Inc. - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: ------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: ------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): ------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: ------------------------------------------------------------------------- (5) Total fee paid: ------------------------------------------------------------------------- [_] Fee paid previously with preliminary materials. [_] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: ------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: ------------------------------------------------------------------------- (3) Filing Party: ------------------------------------------------------------------------- (4) Date Filed: April 30, 1999 ------------------------------------------------------------------------- Notes: Reg. (S) 240.14a-101. SEC 1913 (3-99) [Dominion Resources Logo] [CNG Logo] "A Marriage Made In Heaven" Investor/Analyst Meetings April - May 1999 [Dominion Resources Logo] [CNG Logo] Note to potential users of the following information - -------------------------------------------------------------------------------- This material contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. The Forward-looking statements are subject to various risks and uncertainties. Discussion of factors that could cause actual results to differ materially from management's projections, forecasts, estimates and expectations may include factors that are beyond the company's ability to control or estimate precisely, such as estimates of future market conditions and the behavior of other market participants. Other factors include, but are not limited to, weather conditions, economic conditions in the company's service territory, fluctuations in energy-related commodity prices, conversion activity, other marketing efforts and other uncertainties. Other risk factors are detailed from time to time in the two companies' SEC reports. The information provided herein is for purposes of providing analysts general guidance and a framework for modeling the combined entity created by the Dominion Resources - CNG merger. Certain third party assumptions and estimates, such as Zack's earnings estimates, are provided for your convenience and are deemed to be within an acceptable range of reasonableness, but are not endorsed by Dominion Resources or Consolidated Natural Gas. You should take this information as general guidance only and apply your own judgement in assessing the reasonableness of modeling inputs and assumptions. In addition, refer to the forward-looking statement contained at the front of this presentation and to the joint S-4 registration statement filed on April 5, 1999. Notes: 2 [Dominion Resources Logo] [CNG Logo] Purpose of Today's Meeting - -------------------------------------------------------------------------------- We're going to discuss the: . WHAT . HOW and . WHEN of creating the nation's premier fully integrated electric and gas company Notes: 3 [Dominion Resources Logo] [CNG Logo] WHAT are we doing? - -------------------------------------------------------------------------------- . Creating one of the nation's largest fully integrated energy companies positioned to be a winner in the competitive new world . Maximizing shareholder value by growing earnings and cash flow ------------------------------ . Providing customers expanded options for low-cost energy . Creating opportunities for our employees to grow and be part of an industry leader Notes: 4 [Dominion Resources Logo] [CNG Logo] Focused Strategy: MAIN to Maine Forty Percent of US Energy Consumption [Map of United States highlighting Northeastern quadrant] Notes: 5 [Dominion Resources Logo] [CNG Logo] DRI and CNG Combined Footprint* Platform for Success Combined footprint map showing where listed assets are located: . 3.9 million customers . 20,000 MW power generation portfolio . 5,000 miles of electric transmission lines . 7,600 miles of gas transmission lines . more than 300 Bcfe production . more than 3.0 Tcfe reserves *Excludes Canadian and Rocky Mountain reserves Notes: 6 [Dominion Resources Logo] [CNG Logo] Combined Company Footprint Retail Access by State . Gas Customers in Core States - CNG customers: 1.9M - Others: 8.4M ----- - Total market potential: 10.3M . Electric Customers in Core States - Virginia Power customers: 2.0M - Others: 15.5M ----- - Total market potential: 17.5M Map of northeastern United States and legend which contains icons for; Combined Service Territory Gas/Electric Overlap Territory Independent Power Gas Pipelines Storage Field Status of Retail Access: Electric Only Gas Only Gas and Electric Notes: 7 [Dominion Resources Logo] [CNG Logo] Combined - E&P Opportunities . Estimated proved reserves approximately 3 Tcfe . Annual production more than 300 Bcfe . Balanced reserves . 10th largest independent E&P Company Map of United States and part of Canada highlighting reserves location Notes: 8 [Dominion Resources Logo] [CNG Logo] Combined Storage and Arbitrage Opportunities - -------------------------------------------------------------------------------- CNG DRI/CNG Combined Flowchart showing CNG producing, storing Flowchart showing DRI/CNG producing, Gas or Selling Gas storing Gas,Selling Gas or Using Gas to Generate Electricity <-"Gas"-> <-"BTUs"-> . Power Development Potential 3,000 - 4,000 MW next 3-5 years. . Long-term Potential 8,000 MW Legend which contains icons for: Notes: Gas production Gas storage Gas sales Using gas to generate electricity 9 [Dominion Resources Logo] [CNG Logo] HOW we are going to. . . . Grow earnings 8-10% Grow . Fund capital expenditures -> and Shareholder . Maintain the dividend Value . Link employee compensation to Shareholder value Notes: 10 [Dominion Resources Logo] [CNG Logo] Expected Earnings Growth - -------------------------------------------------------------------------------- Bar graph showing earnings growth from 1999-2004 as indicated in the following chart* 1999 : 919 2000 : 1,027 2001 : 1,144 2002 : 1,234 2003 : 1,305 2004 : 1,407 *Net income ($ Millions) ("9% Growth Rate") Notes: 11 [Dominion Resources Logo] [CNG Logo] Expected EPS and Payout Ratio - -------------------------------------------------------------------------------- Graph showing EPS, Dividend and Payout Ratio from 1999-2004 as indicated in the following chart EPS Dividend Payout Ratio --- -------- ------------ 1999 : $ 3.00 $ 2.58 86% 2000 : $ 3.02 $ 2.58 85% 2001 : $ 3.37 $ 2.58 77% 2002 : $ 3.63 $ 2.58 71% 2003 : $ 3.84 $ 2.58 67% 2004 : $ 4.14 $ 2.58 62% Notes: 12 [Dominion Resources Logo] [CNG Logo] Expected Cash Flow - -------------------------------------------------------------------------------- Bar graph showing Operating Cash Flow and Cash Flow After Dividends and Regulated Capex from 1999-2004 as indicated in the following chart Cash flow after dividends* Operating cash flow* and regulated Capex -------------------- ------------------- 1999 : 2,035 325 2000 : 2,180 311 2001 : 2,326 452 2002 : 2,501 762 2003 : 2,620 948 2004 : 2,745 1,073 *Cash flow ($ Millions) Notes: 13 [Dominion Resources Logo] [CNG Logo] Expected Cash Flow - -------------------------------------------------------------------------------- Bar graph comparing Operating Cash Flow and Net New Financing from 1999-2004 as indicated in the following chart Portion* of Growth Capex requiring net new Dividend* Regulated Capex* Growth Capex* financing --------- ---------------- ------------- --------- 1999 : 688 1,022 1,243 (918) 2000 : 878 991 1,341 (1,030) 2001 : 878 997 1,127 (675) 2002 : 878 862 988 (226) 2003 : 878 794 1,059 (111) 2004 : 878 794 1,073 0 *Cash flow ($ Millions) Notes: 14 [Dominion Resources Logo] [CNG Logo] Expected Equity to Total Capitalization - -------------------------------------------------------------------------------- Bar graph showing Equity to Total Capitalization (%) from 1999-2004 as indicated in the following chart 1999 : 43.9% 2000 : 42.1% 2001 : 41.5% 2002 : 42.0% 2003 : 43.0% 2004 : 44.3% Notes: 15 [Dominion Resources Logo] [CNG Logo] Earnings growth drivers - Regulated Businesses - -------------------------------------------------------------------------------- . Virginia Power deregulation story . Customer growth . Cost control/merger synergies . Regulated capital expenditures control 1999* 2004* - ----- ----- $680 $850 *Net income ($ Millions) Notes: 16 [Dominion Resources Logo] [CNG Logo] Earnings growth drivers - E&P - -------------------------------------------------------------------------------- . Finding and developing costs . Lifting costs . Production growth . Merger synergies 1999* 2004* - ----- ----- $125 $250 *Net income ($ Millions) Notes: 17 [Dominion Resources Logo] [CNG Logo] Earnings growth drivers - Electric Generation - -------------------------------------------------------------------------------- . New site development / leveraging CNG infrastructure . Gas / electric arbitrage . Exploiting opportunities in high cost markets 1999* 2004* - ----- ----- $20 $40 * Net income ($ Millions) Notes: 18 [Dominion Resources Logo] [CNG Logo] Earnings growth drivers - Retail and Wholesale Marketing - -------------------------------------------------------------------------------- . Incumbent customer base in deregulating markets . Existing low cost source of power . Leveraging low cost new generation sources . Existing trading skills at Virginia Power 1999* 2004* - ---- ---- $20 $150 *Net income ($ Millions) Notes: 19 [Dominion Resources Logo] [CNG Logo] Sources of Expected Net Income Growth - -------------------------------------------------------------------------------- Bar graph showing sources of expected net income growth through 2004, as indicated in the following chart 2004* CAGR off Earnings ---- ----------------- 1999 Earnings Base 919.1 Regulated Business 169.4 4% E & P 125.9 Generation, DCI & Other 62.1 7% including regulated business, E & P, generation, DCI and other Wholesale\Retail marketing 130.4 9% (total) *Net income ($ Millions) Notes: 20 [Dominion Resources Logo] [CNG Logo] Expected Net Income by Segment - -------------------------------------------------------------------------------- 1999 2004 ---- ---- $915 $1,410 Pie Charts showing income breakdown as indicated in the following charts
Description $ Description $ - ----------- --- ------------ -- Regulated $680 Regulated $470 E&P $125 Deregulated Va. Power $380 Generation & Marketing $ 40 E&P $250 Other $ 70 Generation & Marketing $190 Other $120
Notes: 21 [Dominion Resources Logo] [CNG Logo] Projected Capex By Business 1999-2004 Total - -------------------------------------------------------------------------------- Pie Chart showing projected Capex (1999-2004 Total) as indicated in the following table
Description % $ --- ----- Regulated 45 4.4 b E&P 35 3.5 b DCI/Corp/Other 10 1.2 b Generation 10 0.8 b Retail & Wholesale Mktg. less than 1 0.1 b
Total Projected Capex, 1999 - 2004: $10 Billion Notes: 22 [Dominion Resources Logo] [CNG Logo] Improved Expected Earnings Profile =P/E Multiple Expansion - -------------------------------------------------------------------------------- Bar chart comparing "Stand Alone" EPS growth (5-6% Growth) vs. "Combined" earnings growth (8-10% Growth) from 1999-2004 as indicated in the following table Stand-Alone Combined ----------- -------- 1999 : $ 2.99 - 2000 : $ 3.32 $ 3.15 2001 : $ 3.43 $ 3.45 2002 : $ 3.54 $ 3.65 2003 : $ 3.66 $ 3.90 2004 : $ 3.77 $ 4.30 Stand Alone - Based on analyst projections per First Call and Zacks Combined - Stand alone adjusted for assumed merger synergies Notes: 23 [Dominion Resources Logo] [CNG Logo] Market P/E Ratio and Projected EPS Growth Rate Major Electric & Gas Companies - -------------------------------------------------------------------------------- Regression analysis graph comparing P/E Ratio to EPS Growth Rate (Zack's Estimate) P/E For 9% Growth P/E For 5% Growth Imputed multiple expansion Company = 16.4 Company = 13.2 -> for post-merger Dominion = 3 Notes: 24 [Dominion Resources Logo] [CNG Logo] "Show Me the Money" How we expect to create more shareholder value together than we can alone Current Dominion Resources Shareholder Perspective D-Stand Alone D-Combined with CNG ------------- ------------------- [Bar charts comparing stand alone "Target" price to combined "Target" price as reflected in the following chart] Recent Price "Target"(1) Recent Price "Target"(2) ------------ ----------- ------------ ----------- $38.00 $70.00 (84% total $38.00 $90.50 (138% total shareholder return; shareholder return; CAGR =11%) CAGR = 15%) (1) Includes reinvested dividends and projected stock price based on Zack's EPS estimate (2004) times P/E multiple of 13.2 (2) Includes reinvested dividends and projected stock price based on Zack's EPS estimate (2004) + merger synergies times P/E multiple of 16.4 Notes: 25 [Dominion Resources Logo] [CNG Logo] "Show Me the Money" How we expect to create more shareholder value together than we can alone Current CNG Shareholder Perspective CNG-Stand Alone CNG-Combined with D --------------- ------------------- [Bar charts comparing stand alone "Target" price to combined "Target" price as reflected in the following chart] Recent Price "Target"(1) Recent Price "Target"(2) ------------ ----------- ------------ ----------- $53.00 $109.00 (106% total $53.00 $134.00 (153% total shareholder return; shareholder return; CAGR = 13%) CAGR = 17%) (1) Includes reinvested dividends and projected stock price based on Zack's EPS estimate (2004) times P/E multiple of 16.4 (2) Includes reinvested dividends and projected stock price based on Zack's EPS estimate (2004) + merger synergies times P/E multiple of 16.4 Notes: 26 [Dominion Resources Logo] [CNG Logo] WHEN are we going to do it? - -------------------------------------------------------------------------------- . We are working together NOW to identify opportunities . We will implement many revenue enhancement opportunities prior to deal closing through joint ventures - Example: D-CNG power generation joint venture . We plan to obtain all approvals and close deal by end of 1999 - See Appendix for approval time lines Notes: 27 [Dominion Resources Logo] [CNG Logo] "A Marriage Made In Heaven" Notes: 28 [Dominion Resources Logo] [CNG Logo] APPENDIX . Synergy details . Modeling assumptions . Transition process . Approval timelines . April 14, 1999 press release on the D-CNG power generation joint venture . April 5, 1999 blast fax on the merger S-4 filing Notes: 29 [Dominion Resources Logo] [CNG Logo] Note to potential users of the following information This material contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. The Forward-looking statements are subject to various risks and uncertainties. Discussion of factors that could cause actual results to differ materially from management's projections, forecasts, estimates and expectations may include factors that are beyond the company's ability to control or estimate precisely, such as estimates of future market conditions and the behavior of other market participants. Other factors include, but are not limited to, weather conditions, economic conditions in the company's service territory, fluctuations in energy-related commodity prices, conversion activity, other marketing efforts and other uncertainties. Other risk factors are detailed from time to time in the two companies' SEC reports. The information provided herein is for purposes of providing analysts general guidance and a framework for modeling the combined entity created by the Dominion Resources - CNG merger. Certain third party assumptions and estimates, such as Zack's earnings estimates, are provided for your convenience and are deemed to be within an acceptable range of reasonableness, but are not endorsed by Dominion Resources or Consolidated Natural Gas. You should take this information as general guidance only and apply your own judgement in assessing the reasonableness of modeling inputs and assumptions. In addition, refer to the forward-looking statement contained at the front of this presentation and to the joint S-4 registration statement filed on April 5, 1999. Notes: 30 [Dominion Resources Logo] [CNG Logo] Combined Financial Strengths CNG DRI Combined -------------------------------- . Revenue $ 2.7 B $ 6.1 B $ 8.8 B . Equity Market Capitalization $ 5.4 B $ 8.2 B $ 14.5 B* . 1998 Earnings $287.7 M $ 535.6 M $ 823.3 M . Dividend per Share $ 1.94 $ 2.58 $ 2.58 . Total Debt Ratio 38% 51% 48% . Total Assets $ 6.4 B $ 17.5 B $ 23.9 B . Employees 6,400 11,000 17,400 . Customers (Millions) 1.9 2.0 3.9 * Includes acquisition premium Notes: 31 [Dominion Resources Logo] [CNG Logo] "Show me the money" How we expect to create more Shareholder Value together than we can alone - --------------------------------------------------------------------------------
D CNG Combined Stand Combined Stand (CNG) Alone (D Perspective) Alone Perspective ----- --------------- ----- ------------ Earnings per share (2004) $3.79 $ 4.15 $ 5.66 $4.15 P/E Multiple x13.2 x16.4 x16.4 x16.4 ----- ------ ------ ----- Share Price Target $50.0 $ 68.0 $ 93.0 $68x1.52(1)=$103.5 Cumulative Dividends(2)(1999-2004) $20.0 $ 22.5 $ 16.0 $ 30.5 ----- ------ ------ ------ Share Price + Dividends $70.0 $ 90.5 $109.0 $134.0 Recent Stock Price 38 38 53 53 Total Shareholder Return 84% vs. 138% 106% vs. 153% Compound Annual Growth 11% 15% 13% 17%
(1) Exchange Ratio (2) Includes reinvestment of dividends in stock Notes: 32 FINANCIAL ASSUMPTIONS DRI/CNG COMBINED Proforma Cash Flow
1999 2000 2001 2002 2003 2004 CAGR ---- ---- ---- ---- ---- ---- ---- Net Income (First Call/Zacks plus synergies) 915 1,020 1,145 1,235 1,305 1,410 9.0% Depreciation 1,080 1,130 1,165 1,265 1,315 1,355 ------- ------- ------- ------- ------- ------- OPERATING CASH FLOW $ 1,995 $ 2,150 $ 2,310 $ 2,500 $ 2,620 $ 2,765 6.7% Cap Ex-Regulated Businesses (1) $ 1,025 $ 995 $ 1,000 $ 865 $ 795 $ 795 Cap Ex-Growth Businesses 1,245 1,340 1,125 985 1,065 1,090 Cash Flow Before Dividends ($275) ($185) $ 185 $ 650 $ 760 $ 880 & Financing DIVIDENDS $ 690 $ 880 $ 880 $ 880 $ 880 $ 880 Cash Flow Before Financing ($ 965) ($ 1,065) ($ 695) ($ 230) ($ 120) $ 0 DIVIDEND PAYOUT RATIO 75% 86% 77% 71% 67% 62% Capital Structure (as of 12/31) Debt $ 9,105 $10,170 $10,865 $11,095 $11,215 $11,215 Preferred $ 1,075 $ 1,075 $ 1,075 $ 1,075 $ 1,075 $ 1,075 Common Equity (2) $ 7,965 $ 8,105 $ 8,370 $ 8,725 $ 9,150 $ 9,680 Total Capitalization $18,145 $19,350 $20,310 $20,895 $21,440 $21,970 Ratios: Debt 50.2% 52.6% 53.5% 53.1% 52.3% 51.0% Preferred 5.9% 5.6% 5.3% 5.1% 5.0% 4.9% EQUITY 43.9% 41.9% 41.2% 41.8% 42.7% 44.1%
Notes: 1-Capital to maintain regulated businesses 2-No new equity FINANCIAL ASSUMPTIONS Street Estimates Prior To Merger Announcement - ---------------------------------------------
1999 2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- ---- EPS: DRI $ 2.99 $ 3.32 $ 3.43 $ 3.55 $ 3.66 $ 3.79 CNG $ 3.53 $ 3.99 $ 4.33 $ 4.95 $ 5.22 $ 5.66
Based on First Call consensus for 1999 and 2000 prior to merger announcement, and Zack's 5-year growth estimate for 2001 and beyond, also prior to announcement.
Net Income 1999 2000 2001 2002 2003 2004 - ---------- ---- ---- ---- ---- ---- ---- DRI: EPS $ 2.99 $ 3.32 $ 3.43 $ 3.55 $ 3.66 $ 3.79 Shares Outstanding 194.5 194.5 194.5 194.5 194.5 194.5 Net Income $ 580 $ 645 $ 665 $ 690 $ 715 $ 735 CNG: EPS $ 3.53 $ 3.99 $ 4.33 $ 4.95 $ 5.22 $ 5.66 Shares Outstanding 95.6 95.6 95.6 95.6 95.6 95.6 Net Income $ 335 $ 380 $ 415 $ 475 $ 500 $ 540
FINANCIAL ASSUMPTIONS
Net Income By Business Segment - ------------------------------ DRI: 1999 2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- ---- Virginia Power $ 415 $ 450 $ 460 $ 475 $ 490 $ 505 Wholesale Marketing $ 20 $ 25 $ 25 $ 25 $ 25 $ 25 Dominion Energy: E&P $ 40 $ 55 $ 65 $ 70 $ 70 $ 75 Power Generation $ 20 $ 15 $ 15 $ 15 $ 20 $ 20 Dominion Capital $ 75 $ 90 $ 90 $ 95 $ 100 $ 105 Corporate/Other $ 10 $ 10 $ 10 $ 10 $ 10 $ 5 ------ ------ ------ ------ ------ ------ Total DRI Net Income $ 580 $ 645 $ 665 $ 690 $ 715 $ 735 CNG: Gas Distribution $ 145 $ 150 $ 155 $ 160 $ 165 $ 180 Gas Transmission $ 120 $ 120 $ 125 $ 130 $ 135 $ 140 E&P $ 80 $ 95 $ 105 $ 135 $ 140 $ 155 Retail Marketing $ 0 $ 5 $ 5 $ 10 $ 15 $ 25 Corporate/Other ($ 10) $ 10 $ 25 $ 40 $ 45 $ 40 ----- ------ ------ ------ ------ ------ Total CNG Net Income $ 335 $ 380 $ 415 $ 475 $ 500 $ 540 Combined Total, Before Synergies Regulated $ 680 $ 720 $ 740 $ 765 $ 790 $ 825 E&P $ 120 $ 150 $ 170 $ 205 $ 210 $ 230 Power Generation $ 20 $ 15 $ 15 $ 15 $ 20 $ 20 Retail & Wholesale Marketing $ 20 $ 30 $ 30 $ 35 $ 40 $ 50 Capital/Corporate/Other $ 75 $ 110 $ 125 $ 145 $ 155 $ 150 ----- ------ ------ ------ ------ ------ Total Combined Net Income, Before Synergies $ 915 $1,025 $1,080 $1,165 $1,215 $1,275
FINANCIAL ASSUMPTIONS
Depreciation by Business Segment - -------------------------------- DRI: 1999 2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- ---- Virginia Power $ 570 $ 595 $ 610 $ 635 $ 665 $ 680 Wholesale Marketing $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Dominion Energy: E&P $ 75 $ 75 $ 75 $ 85 $ 95 $ 105 Power Generation $ 35 $ 45 $ 40 $ 45 $ 50 $ 60 Dominion Capital $ 25 $ 25 $ 25 $ 25 $ 25 $ 30 Corporate/Other $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------- ------ ------ ------ ------ ------ Total DRI Depreciation $ 705 $ 740 $ 750 $ 790 $ 835 $ 875 CNG: Gas Distribution $ 75 $ 80 $ 85 $ 85 $ 90 $ 90 Gas Transmission $ 60 $ 65 $ 65 $ 70 $ 70 $ 70 E&P $ 220 $ 235 $ 245 $ 300 $ 295 $ 300 Retail Marketing $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Corporate/Other $ 10 $ 15 $ 15 $ 20 $ 25 $ 15 ------- ------ ------ ------ ------ ------ Total CNG Depreciation $ 365 $ 395 $ 410 $ 475 $ 480 $ 475 Capex by Business Segment - ------------------------- DRI: 1999 2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- ---- Virginia Power $ 840 $ 795 $ 800 $ 665 $ 585 $ 585 Wholesale Marketing $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Dominion Energy: E&P $ 215 $ 205 $ 225 $ 145 $ 165 $ 165 Power Generation $ 125 $ 150 $ 115 $ 120 $ 135 $ 135 Dominion Capital $ 395 $ 375 $ 105 $ 60 $ 110 $ 105 Corporate/Other $ 5 $ 0 $ 0 $ 0 $ 0 $ 0 ------ ------ ------ ----- ------ ------ Total DRI Capex $1,580 $1,525 $1,245 $ 990 $ 995 $ 990 CNG: Gas Distribution $ 130 $ 120 $ 120 $ 120 $ 120 $ 120 Gas Transmission $ 55 $ 80 $ 80 $ 80 $ 90 $ 90 E&P $ 370 $ 475 $ 490 $ 525 $ 545 $ 575 Retail Marketing $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Corporate/Other $ 135 $ 85 $ 85 $ 85 $ 90 $ 90 ------ ------ ------ ----- ------ ------ Total CNG Capex $ 690 $ 760 $ 775 $ 810 $ 845 $ 875
FINANCIAL ASSUMPTIONS COST REDUCTIONS AND REVENUE ENHANCEMENTS - ----------------------------------------
2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- Pre-Tax Synergies: Regulated Cost Reductions $ 15 $ 35 $ 40 $ 40 $ 45 (Net of Rate Reductions) E&P Enhancements $ 10 $ 25 $ 25 $ 25 $ 30 New Electric Generation $ 0 $ 10 $ 15 $ 35 $ 35 Wholesale Gas & Electricity $ 15 $ 30 $ 30 $ 30 $ 30 Retail Gas & Electricity $ 15 $ 25 $ 40 $ 60 $120 ---- ---- ---- ---- ---- Total Pre-Tax Synergies $ 55 $125 $150 $190 $260 Cost of Financing Synergies and Additional Dividends ($ 10) ($ 25) ($ 40) ($ 50) ($ 55) Transaction Costs ($ 50) $ 0 $ 0 $ 0 $ 0 ---- ---- ---- ---- ---- Net Pre-Tax Merger Impacts ($ 5) $100 $110 $140 $205 Less: Tax(@ 35%) $ 0 ($ 35) ($ 40) ($ 50) ($ 70) ---- ---- ---- ---- ---- Net Income Impact ($ 5) $ 65 $ 70 $ 90 $135
COMBINED FINANCIALS - -------------------
2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- Net Income $1,020 $1,145 $1,235 $1,305 $1,410 Shares Outstanding 340 340 340 340 340 EPS $ 3.00 $ 3.37 $ 3.63 $ 3.84 $ 4.15 Dividend Rate $ 2.58 $ 2.58 $ 2.58 $ 2.58 $ 2.58 Dividend Payout Ratio 86% 77% 71% 67% 62%
Reported EPS figures above include extraordinary one-time merger transaction costs of $50 million pre-tax in 2000 or $0.10 per share and exclude SFAS71 income of $21 million after-tax or $0.06 per share in 2000, and $0.07 per share in 2001 through 2007. Therefore, operating earnings are expected to be $3.16, $3.44, $3.70, $3.91 and $4.22 in years 2000 through 2004 respectively. FINANCIAL ASSUMPTIONS COMBINED FINANCIAL DETAILS
Net Income 1999 2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- ---- Regulated Businesses $ 680 $ 730 $ 765 $ 790 $ 815 $ 850 E&P $ 125 $ 155 $ 180 $ 220 $ 225 $ 250 Electric Generation $ 20 $ 15 $ 20 $ 25 $ 40 $ 40 Retail & Wholesale Marketing $ 20 $ 50 $ 65 $ 80 $ 100 $ 150 DCI, Corporate, Other $ 70 $ 70 $ 115 $ 120 $ 125 $ 120 ------ ------ ------ ------ ------ ------ Total Net Income $ 915 $1,020 $1,145 $1,235 $1,305 $1,410 Capex Regulated Businesses $1,025 $ 995 $1,000 $ 865 $ 795 $ 795 E&P $ 585 $ 680 $ 715 $ 670 $ 710 $ 740 Electric Generation $ 125 $ 180 $ 200 $ 150 $ 135 $ 135 Retail & Wholesale Marketing $ 0 $ 20 $ 20 $ 20 $ 20 $ 20 DCI, Corporate, Other $ 535 $ 460 $ 190 $ 145 $ 200 $ 195 ------ ------ ------ ------ ------ ------ Total Capex $2,270 $2,335 $2,125 $1,850 $1,860 $1,885
WHEN . Putting companies together / creating synergies . Regulatory and shareholder approvals Notes: 39 [Dominion Resources Logo] [CNG Logo] Transition Functions . Steering Committee - Manage process - Corporate strategy - Board - Articulate strategy - Communications - Restructuring Board . Transition Teams - Consolidate - not reengineer - Analyze and make recommendations on specifically defined areas - - Synergy Teams - Revenue Enhancement Teams - Consultants Notes: 40 [Dominion Resources Logo] [CNG Logo] Chart of Steering Committee Transition Team, as detailed on the following four pages Notes: 41 [Dominion Resources Logo] [CNG Logo] Synergy
Customer Service Information Human Corporate/Support Team Systems and Resources Services ---- --------- -------- Technology ---------- Call Centers Systems Support Procurement Meter Reading Systems Development Legal services Billing Systems Integration External Affairs Credit & Collection Data Center Accounting Remittance Processing Telecommunications Finance Treasury IT Corporate Secretary Regulatory
Notes: 42 [Dominion Resources Logo] [CNG Logo] Revenue Enhancement Chart showing the following revenue enhancement areas: Electricity and Gas Retail Program ---------------------------------- New Electric Retail Wholesale E & P International Generation Gas & Electric Trading Trading Onshore Large Customers Offshore Notes: 43 [Dominion Resources Logo] [CNG Logo] Delivery System Transportation System --------------- --------------------- Best Practice Best Practice Notes: 44 [Dominion Resources Logo] [CNG Logo] Deal Closing
Regulatory Strategy Communications Legal Accounting Treasury - ------------------- -------------- ----- ---------- -------- Filings Internal Proxy, Etc. Negotiations External Government IR Affairs
Notes: 45 [Dominion Resources Logo] [CNG Logo] Shareholder and Regulatory Approvals Projected Timeline 4/99 Mail Proxy 6/99 Shareholder Approval Notes: 46 [Dominion Resources Logo] [CNG Logo] Shareholder and Regulatory Approvals Projected Timeline 4/99 1935 Act Filing 6/99 Commission Review 12/31/99 Approval Notes: 47 [Dominion Resources Logo] [CNG Logo] Shareholder and Regulatory Approvals Projected Timeline 4/99 FERC Filing 6/99 Commission Review 10/99 Approval Notes: 48 [Dominion Resources Logo] [CNG Logo] Shareholder and Regulatory Approvals Projected Timeline 4/99 HSR Filing 6/99 Commission Review 10/99 Approval Notes: 49 [Dominion Resources Logo] [CNG Logo] Shareholder and Regulatory Approvals Projected Timeline 4/99 Other Federal Filings NRC FCC 10/99 Approvals Notes: 50 [Dominion Resources Logo] [CNG Logo] Shareholder and Regulatory Approvals Projected Timeline 4/99 State Filings NC PA OH (Informational) VA WVA 10/99 Approvals Notes: 51 [LETTERHEAD OF DOMINION RESOURCES APPEARS HERE] FOR IMMEDIATE RELEASE DOMINION RESOURCES, CNG ENTER AGREEMENT --------------------------------------- TO DEVELOP POWER GENERATION ALONG CNG PIPELINE SYSTEM ----------------------------------------------------- RICHMOND, Va. and PITTSBURGH, April 14, 1999 - Dominion Resources Inc. (NYSE: D) and a subsidiary of Consolidated Natural Gas Company (NYSE: CNG) today announced that they have signed an agreement to develop natural gas-fired power generation facilities along CNG's natural gas pipeline system. Under terms of an exclusive interim alliance agreement signed today, Dominion Resources and CNG Power Company will identify and evaluate potential sites for development of facilities along CNG's natural gas pipeline network in Ohio, Pennsylvania, New York, West Virginia and Virginia. Dominion Resources and CNG affiliates will develop, own, operate and maintain the facilities on a 50-50 ownership basis. At present, the companies have identified 45 potential development sites, a number the alliance expects to broaden. Negotiations are under way with major turbine manufacturers for pricing and delivery of 10 turbines over a period of the next two to three years. Letters of intent and memoranda of understanding with the selected manufacturers are expected to be signed this month. Power generated by the facilities will be marketed by The Wholesale Power Group of Dominion Resources. The group nearly tripled its wholesale megawatt-hour sales in 1998 compared to 1997, increasing volume from about 20 million megawatt-hours to more than 60 million megawatt-hours. The Wholesale Power Group is increasingly active in natural gas wholesale trading and is now marketing a portion of CNG production. (MORE) In a joint statement, Thos. E. Capps, Dominion Resources chairman, president and chief executive officer, and George A. Davidson Jr., CNG chairman and chief executive officer, said: "This alliance agreement continues the momentum created by the announcement of the planned merger of our two companies. It is a first step in combining Dominion Resources' and CNG's complementary asset bases and skills sets in electric power and natural gas to enhance value across the energy production chain. Successful execution of this alliance agreement will further position us to efficiently serve the growing energy needs across a region that accounts for 40 percent of the nation's energy demand. In February, Dominion Resources, based in Richmond, Va., and CNG, based in Pittsburgh, signed a $25 billion merger agreement to create the nations' fourth largest electric and natural gas company. The merger is expected to be completed later this year or early next year. # # # CONTACTS: Dominion Resources - ------------------ Media: Mark Lazenby (804) 819-2042 Hunter Applewhite (804) 819-2043 Analysts: Tom Wohlfarth (804) 819-2150 Suzette Mata (804) 819-2154 CNG - --- Media: Chet Wade (412) 690-1361 Dan Donovan (412) 690-1370 Analysts: Jim Garrett (412) 690-1485 Dan Zajdel (412) 690-1241 [LETTERHEAD OF DOMINION RESOURCES APPEARS HERE] April 5, 1999 To the Financial Community: DRI-CNG MERGER: -------------- JOINT S-4 REGISTRATION STATEMENT FILING --------------------------------------- This morning, Dominion Resources and Consolidated Natural Gas filed a joint Form S-4 Registration Statement with the Securities and Exchange Commission regarding the proposed merger. The companies plan to host a conference call within the next week to review details of the filing with the financial community. A separate announcement on the conference call will be forthcoming by blast fax. The following information is provided as advance information and to help answer key questions concerning the registration statement. 1. What does the S-4 filing say with regard to dividend policy? The current annual dividend for Dominion Resources is $2.58 per share. Dominion Resources' targeted payout ratio of dividends to earnings is 70-75%. At present, the payout ratio is higher. Dominion Resources' business plan projects that the targeted ratio will be achieved within two years post-closing through earnings growth. Therefore, Dominion Resources dividend will be maintained at its current level. 2. Why is DRI registering as a holding company? After further analysis of 1998 results and consultation with counsel and the SEC staff, it has become apparent to management that retaining the Section 3(a)(1) exemption would be difficult. Furthermore, registration should permit the company to expand its growth to more geographic areas. 3. Can the combined DRI-CNG system meet the criteria for registration? In particular, does the 1935 Act permit a combination electric and gas company like DRI/CNG? Yes, the companies have been advised by counsel that registration should be permitted. The companies believe that the combination of DRI's and CNG's electric and gas operations is consistent with the requirements of the 1935 Act as interpreted by the Securities and Exchange Commission in recent decisions involving the combination of electric and gas operations under newly formed registered holding companies. 4. Will registering as a holding company impact the timing of the SEC approval and the ability to obtain the necessary state approvals for the merger? No. DRI and CNG are seeking to obtain all necessary approvals for the merger and to close the merger by the end of the year. DRI and CNG do not expect that registration of DRI as a holding company will result in delay in obtaining such approvals. Please note that CNG is already a registered holding company operating in the states of Virginia, West Virginia, Pennsylvania and Ohio. Thus, the state commissions in these states are already familiar with the nature of regulation under the 1935 Act. 5. Will DRI, as a registered holding company, be permitted to retain its diversified operations, in particular its financial services businesses? The companies have strong grounds for retaining all of their existing diversified businesses, many of which are permitted activities for registered holding companies. They will request SEC approval to do that, or in the alternative, request that the SEC retain jurisdiction over that question for review at a later time. The SEC may, however, as a condition to its approval of the merger, require divestiture of certain non-utility businesses of DRI which are unrelated to utility operations. In the past, when divestiture has been ordered, the SEC has allowed a reasonable time within which to effect divestiture. 6. Will registration of DRI limit DRI's ability to expand its international operations? No. Registered holding companies are expressly permitted by Section 33 of the 1935 Act to acquire and hold investments in international utility operations. The SEC does regulate some aspects of the way a registered holding company finances those acquisitions and operations. 7. How will registration of DRI affect current outstanding CNG debt or the way DRI raises capital? The transition teams are in the process of analyzing financing options for the combined companies under both alternative merger structures, as part of the ongoing transition effort. However, no decision has yet been made with respect to this issue. 2 8. How will registration affect DRI's operations and growth prospects on an ongoing basis? DRI and CNG believe their combination is in the best interest of shareholders and customers. Registration as a holding company is necessary to complete the transaction and to permit the combined company to aggressively grow and operate in more than one state. Thus, registration offers flexibility to expand operations rather than to artificially limit operations to only one state. THIS BLAST-FAX CONTAINS FORWARD-LOOKING STATEMENTS WHICH ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES. DISCUSSION OF FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM MANAGEMENT'S PROJECTIONS, FORECASTS, ESTIMATES AND EXPECTATIONS IS CONTAINED IN THE COMPANY'S SEC FILINGS, INCLUDING THE SUBJECT FORM S-4 REGISTRATION STATEMENT. CONTACTS: THOMAS P. WOHLFARTH 804-819-2150 SUZETTE M. S. MATA 804-819-2154 JOSEPH G. O'HARE 804-819-2156 3 [Dominion Resources Logo] The Columbia Gas Proposal [Dominion Resources Logo] The Columbia Gas Proposal - -------------------------------------------------------------------------------- . Savings numbers and regulatory retention inflated - 2/3 cost savings retained (at 50%, dilutive beyond 5 years) . Double digit dilution for 3 years based on. . . - $260 million interest on $3.7 billion in debt, - $64 million in dividends on $800 million in preferred, - $135 million goodwill and breakup fee amortization . Dividend cut ($.80 v. $1.94) v. dividend increase to $3.92 . Cash component is taxable . Up to 20 months to close the deal v. 8-12 months . Anti-trust problems for CG - CNG . Leveraged balance sheet will constrain growth [Dominion Resources Logo] Relative Value of Proposals at Year-End 1999 [Bar chart showing relative value of D-CNG v. CG-CNG] D - CNG CG - CNG ------- -------- $78.67 $62.58 ------- ------- $16.35 [2] $3.34 [5] +$62.32 [1] +$63.64 [4] +($4.40) [3] [1] 1.52 x $41.00 [2] PV of dividends over five years [3] Tax impact [4] $70.00 CG offer discounted 1 year at 10% [5] PV of dividends over five years [Dominion Resources Logo] The Columbia Gas Proposal [Dominion Resources Logo] The Columbia Gas Proposal - -------------------------------------------------------------------------------- . Savings numbers and regulatory retention inflated - 2/3 cost savings retained (at 50%, dilutive beyond 5 years) . Double digit dilution for 3 years based on. . . - $260 million interest on $3.7 billion in debt, - $64 million in dividends on $800 million in preferred, - $135 million goodwill and breakup fee amortization . Dividend cut ($.80 v. $1.94) v. dividend increase to $3.92 . Cash component is taxable . Up to 20 months to close the deal v. 8-12 months . Anti-trust problems for CG - CNG . Leveraged balance sheet will constrain growth [Dominion Resources Logo] Columbia Gas/CNG - Earned Return on Equity - -------------------------------------------------------------------------------- Bar chart comparing ROE as indicated in the following table Earned 14.2% Authorized 12.2% Proformed Earned w/50% Regulatory Retention 17.3% Proformed Earned w/67% Regulatory Retention 18.4% [Dominion Resources Logo] The Columbia Gas Proposal [Dominion Resources Logo] The Columbia Gas Proposal - -------------------------------------------------------------------------------- . Savings numbers and regulatory retention probably inflated - 2/3 cost savings retained (at 50%, dilutive beyond 5 years) . Double digit dilution for 3 years assuming. . . - $260 million interest on $3.7 billion in debt, - $64 million in dividends on $800 million in preferred, - $135 million goodwill and breakup fee amortization . Dividend cut ($.80 from $1.94) v. dividend increase to $3.92 . Cash component is taxable . Up to 20 months to close the deal v. 8-12 months . Potential anti-trust problems for CG - CNG . Leveraged balance sheet could constrain growth [Dominion Resources Logo] Consolidated Natural Gas Relative Value of Proposals at Year-End 1999 Bar chart showing relative value of proposals at Year-End 1999 D / CNG Transaction [1] CG / CNG Transaction [2] ----------------------- ------------------------ Total Value per share as of 12/31/99: Total Value per share as of 12/31/99: $61.18 $66.60 $58.10 $62.50 ------ ------ ------- ------ $61.18 [3] $66.60 [4] $62.50 [5] $62.50 +($4.40) [6] Taxable Investor Tax Exempt Investor [1] D / CNG transaction assumed to close as of 12/31/99. [2] CG / CNG transaction assumed to close as of 12/31/00. [3] 1.52 exchange ratio x D 4/22/99 closing price of $40.25. [4] 1.52 exchange ratio x D 2/18/99 pre-announcement closing price of $43.82. [5] $70.00 CG proposal discounted 1 year at 12%. There is no assurance that the transaction would be worth $70.00 at closing due to the stock component with a collar. [6] Reflects tax impact associated with CG proposal. [Dominion Resources Logo] Consolidated Natural Gas Relative Value of Proposals at Year-End 1999 (Including value of dividend - 1st year) Bar chart showing relative value of proposals at Year-End 1999 including 1st year dividend D / CNG Transaction [1] CG / CNG Transaction [2] ----------------------- ------------------------ Total Value per share as of 12/31/99: Total Value pershare as of 12/31/99: $65.10 $70.52 $60.04 $64.44 ------- ------- ------- ------- $3.92 [7] $3.92 [7] $1.94 [8] $1.94 [8] +$61.18 [3] +$66.60 [4] +$62.50 [5] +$62.50 +($4.40) [6] Taxable Investor Tax Exempt Investor [1] D / CNG transaction assumed to close as of 12/31/99. [2] CG / CNG transaction assumed to close as of 12/31/00. [3] 1.52 exchange ratio x D 4/22/99 closing price of $40.25. [4] 1.52 exchange ratio x D 2/18/99 pre-announcement closing price of $43.82. [5] $70.00 CG proposal discounted 1 year at 12%. There is no assurance that the transaction would be worth $70.00 at closing due to the stock component with a collar. [6] Reflects tax impact associated with CG proposal. [7] D dividend of $2.58 x 1.52 exchange ratio. [8] Current CNG dividend. [Dominion Resources Logo] Consolidated Natural Gas Relative Value of Proposals at Year-End 1999 (Including value of dividend -5 years) Bar chart showing relative value of proposals at Year-End 1999 including value of dividend - 5 years D / CNG Transaction [1] CG / CNG Transaction [2] ----------------------- ------------------------ Total Value per share as of 12/31/99: Total Value per share as of 12/31/99: $77.04 $82.46 $62.47 $66.87 ------- ------- ------- ------- $15.86 [7] $15.86 [7] $4.37 [8] $4.37 [8] +$61.18 [3] +$66.60 [4] +$62.50 [5] +$62.50 +($4.40) [6] Taxable Investor Tax Exempt Investor [1] D / CNG transaction assumed to close as of 12/31/99. [2] CG / CNG transaction assumed to close as of 12/31/00. [3] 1.52 exchange ratio x D 4/22/99 closing price of $40.25. [4] 1.52 exchange ratio x D 2/18/99 pre-announcement closing price of $43.82. [5] $70.00 CG proposal discounted 1 year at 12%. There is no assurance that the transaction would be worth $70.00 at closing due to the stock component with a collar. [6] Reflects tax impact associated with CG proposal. [7] PV of D dividend of $2.58 x 1.52 exchange ratio for 5 years. [8] PV of CNG / CG dividend for 5 years. [Dominion Resources Logo] Virginia Restructuring Legislation Key Elements of Virginia Legislation - -------------------------------------------------------------------------------- . Generation deregulated in 2002 . No forced divestiture of assets . Rate cap through June 2007 . No ROE / earnings cap - efficiencies / growth to bottom line . "Stranded cost" recovery through capped rates or wires charge Historic Cost of Regulation - -------------------------------------------------------------------------------- Graph showing Regulated earnings (unadjusted for inflation*) from 1989 through 1998, as indicated in the following table 1989: 375.2 1990: 392.2 1991: 435.9 1992: 423.8 1993: 466.9 1994: 404.9 1995: 388.7 1996: 421.8 1997: 433.4 1998: 395.1 * $ Millions Historic Cost: Allowed Return Less Than Others - -------------------------------------------------------------------------------- Bar graph showing allowed returns v. actual return as indicated in the chart below Company Allowed Actual - ------- ------- ------ CP&L 12.8% 13.7% Duke Energy 12.4% 15.7% Florida Progress 12.0% 15.5% FPL Group 12.0% 13.3% TECO Energy 12.8% 14.4% Dominion Resources 11.4% 10.1% -----END PRIVACY-ENHANCED MESSAGE-----