-----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, VYIDtxMe2tcs1DXva/b9YiS4F7SEdC+KpZX2LtfLqTLPmLZ0Ysva7AyrrsknoPK/ Qm1nfsomytwBhPxs7H0xJA== 0001012870-98-001303.txt : 19980515 0001012870-98-001303.hdr.sgml : 19980515 ACCESSION NUMBER: 0001012870-98-001303 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLANTIC CITY ELECTRIC CO CENTRAL INDEX KEY: 0000008192 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 210398280 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03559 FILM NUMBER: 98619204 BUSINESS ADDRESS: STREET 1: 6801 BLACK HORSE PIKE CITY: EGG HARBOR TOWNSHIP STATE: NJ ZIP: 08232 BUSINESS PHONE: 6096454100 MAIL ADDRESS: STREET 1: PO BOX 1264 CITY: PLEASANTVILLE STATE: NJ ZIP: 08232 10-Q 1 ATLANTIC CITY ELECTRIC COMPANY FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 -------------- Commission file number 1-3559 ATLANTIC CITY ELECTRIC COMPANY ------------------------------ (Exact name of registrant as specified in its charter) New Jersey 21-0398280 ---------- ---------- (States of incorporation) (I.R.S. Employer 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 ------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of May 14, 1998 Conectiv owns all of the 18,320,937 outstanding shares of Common Stock of Atlantic City Electric Company. ATLANTIC CITY ELECTRIC COMPANY, INC. ------------------------------------ Table of Contents -----------------
Page No. -------- Part I. Financial Information: Consolidated Statements of Income for the three months ended March 31, 1998 and 1997 1 Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 2-3 Consolidated Statements of Cash Flows for the three months ended March 31, 1998 and 1997 4 Notes to Consolidated Financial Statements 5-7 Management's Discussion and Analysis of Financial Condition and Results of Operations 8-11 Part II. Other Information and Signature 12-17
i PART 1. FINANCIAL INFORMATION ATLANTIC CITY ELECTRIC COMPANY, INC. ------------------------------------ CONSOLIDATED STATEMENTS OF INCOME (Dollars in Thousands) (Unaudited)
Three Months Ended March 31, --------------------- 1998 1997 ---- ---- OPERATING REVENUES Electric $237,429 $241,493 Other services 520 1,929 -------- -------- 237,949 243,422 -------- -------- OPERATING EXPENSES Electric fuel and purchased energy 72,912 61,857 Purchased electric capacity 47,926 48,255 Employee separation & Merger-related costs 51,479 - Operation and maintenance 45,817 35,813 Cost of sales - Other services 4,220 1,895 Depreciation 22,927 20,562 Taxes other than income taxes 10,491 27,662 -------- -------- 255,772 196,044 -------- -------- OPERATING (LOSS) INCOME (17,823) 47,378 -------- -------- OTHER INCOME Allowance for equity funds used during construction 143 264 Other income 1,461 1,472 -------- -------- 1,604 1,736 -------- -------- INTEREST EXPENSE Interest charges 15,537 15,814 Allowance for borrowed funds used during construction and capitalized interest (250) (262) -------- -------- 15,287 15,552 -------- -------- DIVIDENDS ON PREFERRED SECURITIES OF A SUBSIDIARY TRUST 1,444 1,444 -------- -------- (LOSS) INCOME BEFORE INCOME TAXES (32,950) 32,118 INCOME TAXES (12,213) 11,747 -------- -------- NET (LOSS) INCOME (20,737) 20,371 DIVIDENDS ON PREFERRED STOCK 1,000 1,410 -------- -------- (LOSS) EARNINGS APPLICABLE TO COMMON STOCK $(21,737) $ 18,961 ======== ========
See accompanying Notes to Consolidated Financial Statements. 1 ATLANTIC CITY ELECTRIC COMPANY, INC. ------------------------------------ CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) (Unaudited)
March 31, December 31, 1998 1997 --------------- ---------------- ASSETS ------ CURRENT ASSETS Cash and cash equivalents $ 24,057 $ 20,765 Accounts receivable 117,823 126,148 Inventories, at average cost: Fuel (coal and oil) 20,450 22,670 Material and supplies 22,396 20,893 Emission allowances 6,489 6,489 Prepayments 1,052 7,753 Deferred energy costs 19,886 27,424 ---------- ---------- 212,153 232,142 ---------- ---------- NONUTILITY PROPERTY AND INVESTMENTS Nonutility property, net 8,390 8,517 Funds held by trustee 87,108 83,977 Other investments 109 9 ---------- ---------- 95,607 92,503 ---------- ---------- UTILITY PLANT, AT ORIGINAL COST Electric 2,589,592 2,591,825 Less: Accumulated depreciation 963,151 945,921 ---------- ---------- Net utility plant in service 1,626,441 1,645,904 Construction work-in-progress 115,954 106,806 Leased property, net 35,730 38,795 ---------- ---------- 1,778,125 1,791,505 --------- ---------- DEFERRED CHARGES AND OTHER ASSETS Unrecovered other post-retirement employee benefit costs 36,851 37,476 Unamortized debt costs 13,653 13,416 Deferred debt refinancing costs 29,464 30,002 Deferred recoverable income taxes 85,858 85,858 Unrecovered purchased power costs 61,775 66,264 Unrecovered state excise taxes 42,764 45,154 Prepaid pension 6,368 7,609 Other 31,208 34,826 ---------- ---------- 307,941 320,605 ---------- ---------- TOTAL ASSETS $2,393,826 $2,436,755 ========== ==========
See accompanying Notes to Consolidated Financial Statements. 2 ATLANTIC CITY ELECTRIC COMPANY, INC. ------------------------------------ CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) (Unaudited)
March 31, December 31, 1998 1997 -------------- --------------- CAPITALIZATION AND LIABILITIES ------------------------------ CURRENT LIABILITIES Short-term debt $ 18,200 $ 55,675 Long-term debt due within one year 8,575 - Preferred Stock due within one year 10,000 - Accounts payable 20,757 19,665 Taxes accrued 2,249 5,922 Interest accrued 14,410 19,562 Dividends declared 21,407 21,215 Current capital lease obligation 561 653 Employee separation & Merger-related accrued costs 25,908 - Other 56,729 59,188 ---------- ---------- 178,796 181,880 ---------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES Deferred income taxes, net 352,652 362,213 Deferred investment tax credits 43,409 44,043 Long-term capital lease obligation 35,920 39,077 Accrued other post-retirement employee benefit costs 48,685 37,476 Other 20,471 21,339 ---------- ---------- 501,137 504,148 ---------- ---------- CAPITALIZATION Common stock 54,963 54,963 Additional paid-in capital 492,872 493,161 Retained earnings 192,770 234,909 ---------- ---------- Total common shareholder's equity 740,605 783,033 Preferred stock subject to mandatory redemption 23,950 33,950 Preferred stock not subject to mandatory redemption 30,000 30,000 Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Company debentures 70,000 70,000 Long-term debt 849,338 833,744 ---------- ---------- 1,713,893 1,750,727 ---------- ---------- TOTAL CAPITALIZATION AND LIABILITIES $2,393,826 $2,436,755 ========== ==========
See accompanying Notes to Consolidated Financial Statements. 3 ATLANTIC CITY ELECTRIC COMPANY, INC. ------------------------------------ CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
Three Months Ended March 31, ---------------------------------- 1998 1997 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income $(20,737) $ 20,371 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 22,927 20,562 Investment tax credit adjustments, net (634) (634) Deferred income taxes, net (9,561) (1,569) Prepaid Excise Taxes - (68,758) Unrecovered purchased power costs 4,489 4,280 Unrecovered state excise taxes 2,390 2,390 Employee separation & Merger-related costs 43,238 - Net change in: Accounts receivable 8,325 4,209 Inventories 717 2,003 Accounts payable 1,092 (13,208) Other current assets & liabilities 4,951 (7,626) Other, net 332 5,488 -------- -------- Net cash provided (used) by operating activities 57,529 (32,492) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (16,915) (19,313) Nuclear decommissioning trust fund deposits (1,606) (1,606) Other, net 7,637 (1,312) -------- -------- Net cash used by investing activities (10,884) (22,231) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends: Common (20,404) (20,214) Preferred (1,000) (1,410) Issuances: Long-term debt 85,000 15,000 Redemptions: Long-term debt (50,000) - Net change in short-term debt (53,900) 62,550 Other, net (3,049) (1,775) -------- -------- Net cash (used) provided by financing activities (43,353) 54,151 -------- -------- Net change in cash and cash equivalents 3,292 (572) Cash and cash equivalents at beginning of period 20,765 7,927 -------- -------- Cash and cash equivalents at end of period $ 24,057 $ 7,355 ======== ========
See accompanying Notes to Consolidated Financial Statements. 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ 1. FINANCIAL STATEMENT PRESENTATION -------------------------------- The consolidated financial statements include the accounts of Atlantic City Electric Company (the Company) and its wholly-owned subsidiary. The statements reflect all adjustments necessary in the opinion of the Company for a fair presentation of interim results. They should be read in conjunction with the Company's 1997 Annual Report on Form 10-K and Part II of this report on Form 10-Q for additional relevant information. Certain reclassifications, not affecting net income, have been made to conform amounts for the three months ended March 31, 1997 to the current presentation. Primarily, the operating results of nonutility activities were reclassified from "Other Income" into other classifications within the income statement. Revenues from "Other services" includes revenues from these nonutility activities of the Company. Reclassifications have also been made within the balance sheet to conform to current year reporting. 2. MERGER WITH DELMARVA POWER & LIGHT COMPANY ------------------------------------------ As previously reported, on March 1, 1998, Atlantic Energy, Inc. (AEI) merged with Delmarva Power & Light Company (DPL). Prior to the merger transactions (the Merger) which formed Conectiv--a holding company, AEI owned the Company and Atlantic Energy Enterprises (AEE). As a result of the Merger, AEI was merged out of existence, and Conectiv owns the Company, AEE, DPL, and the nonutility subsidiaries formerly held by DPL. The merger was accounted for under the purchased method as a tax-free, stock- for-stock transaction with DP&L as the acquirer. Under the terms of the agreement, AEI shareholders received 0.75 shares of Conectiv's common stock and 0.125 shares of Conectiv's Class A common stock for each share of AEI stock held. DP&L shareholders received one share of Conectiv's common stock for each share of DP&L common stock held. Under the terms of the Board of Public Utilities (BPU) approval of the merger, approximately 75% or $15.75 million of the Company's total average projected merger savings will be returned to the Company's customers for an overall merger-related customer rate reduction of 1.7%. In the first quarter of 1998, the Company recorded the financial effects of enhanced retirement offers and other employee separation programs utilized to achieve workforce reductions concurrent with the merger. The Company expects a reduction of approximately 450 positions, of which about 175 employee separations have actually occurred. The employee separation programs and other merger-related costs resulted in a $51.5 million pre-tax charge to expense (or $30.9 million after taxes). The pre-tax expenses are shown on the Consolidated Statements of Income as "Employee separation & Merger-related costs." As of March 31, 1998, $8.2 million of the $51.5 million expense had been paid, $25.9 million was reflected as a current liability, $11.7 million increased the liability for other post-retirement benefits and $5.7 million was included in other balance sheet classifications. 5 3. DEBT ---- On January 7, 1998 the Company issued $85 million in secured medium term notes with maturities of 5 to 8 years and interest rates of 6.00% to 6.19%. The proceeds were primarily used to redeem $50 million in medium term notes, due January 1998 with interest rates of 6.35% and 6.37%, and short-term debt. 4. RATES ----- As previously disclosed in Note 4 to the Consolidated Financial Statements of the Company's Annual Report on Form 10-K, the Company's electric base rates were reduced by $15.75 million for expected merger-related costs savings passed on to the Company's customers, effective with the merger. This decrease, offset in part by a $5.0 million rate increase for recovery of expenses associated with post-retirement benefits other than pensions, resulted in a $10.75 million reduction of electric base rate revenues beginning March 1, 1998. 5. CONTINGENCIES ------------- Environmental Matters - --------------------- The Company is subject to regulation with respect to the environmental effects of its operations, including air and water quality control, solid and hazardous waste disposal, and limitation on land use by various federal, regional, state, and local authorities. The disposal of hazardous substances can result in costs to clean up facilities found to be contaminated due to past disposal practices. Federal and state statutes authorize governmental agencies to compel responsible parties to clean up certain abandoned or uncontrolled hazardous waste sites. The Company does not expect such future costs to have a material effect on its financial position or results of operations. Insurance Programs - ------------------ Nuclear - ------- The Company is a member of certain insurance programs that provide coverage for contamination and property damage to members' nuclear generating plants. Facilities at Peach Bottom, Salem, and Hope Creek stations are insured against property damage losses up to $2.8 billion per site under these programs. In addition, the Company is a member of an insurance program which provides coverage for the cost of replacement power during prolonged outages of nuclear units caused by certain specific conditions. The premium for this coverage is subject to retrospective assessment for adverse loss experience. The maximum amount of retroactive premiums the Company could be assessed for losses during the current policy year is $4.4 million under these programs. The Price-Anderson provisions of the Atomic Energy Act of 1954, as amended by the Price-Anderson Amendments Act of 1988, govern liability and indemnification for nuclear incidents. All nuclear facilities could be assessed, after exhaustion of private insurance, up to $79.28 million, per reactor, per incident, payable at $10 million per year. Based on its ownership of nuclear facilities, ACE could be assessed up to an aggregate of $27.6 million per incident. This amount would be payable at an aggregate of $3.48 million per year, per incident. 6 6. SUPPLEMENTAL CASH FLOW INFORMATION ----------------------------------
Three Months Ended March 31, Cash paid for: 1998 1997 ---- ---- (dollars in thousands) Interest, net of amounts capitalized $20,717 $18,514 Income taxes, net of refunds - $ 3,373
7 MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------ EARNINGS SUMMARY - ---------------- The Company's operations resulted in a net loss of $21.7 million for the three months ended March 31, 1998 compared to net income of $19.0 million for the three months ended March 31, 1997. Merger-related charges decreased after tax earnings by $30.9 million. Excluding the merger-related charges, the Company earned $9.2 million, a $9.8 million decrease compared to the same period of the previous year. The decrease was primarily due to milder winter weather's adverse effect on electric sales and increased operations and maintenance expenses. MERGER IMPACT - ------------- As previously reported, on March 1, 1998, Atlantic Energy, Inc. (AEI) merged with Delmarva Power & Light Company (DPL). Prior to the merger transactions (the Merger) which formed Conectiv--a holding company, AEI owned the Company and Atlantic Energy Enterprises (AEE). As a result of the Merger, AEI was merged out of existence, and Conectiv owns the Company, AEE, DPL, and the nonutility subsidiaries formerly held by DPL. Under the terms of the Board of Public Utilities (BPU) approval of the merger, approximately 75% or $15.75 million of the Company's total average projected merger savings will be returned to the Company's customers for an overall merger-related customer rate reduction of 1.7%. The balance of merger related savings realized will positively impact earnings of the Company. In the first quarter of 1998, the Company recorded the financial effects of enhanced retirement offers and other employee separation programs utilized to achieve workforce reductions concurrent with the merger. The Company expects a reduction of approximately 450 positions. The employee separation programs and other merger-related costs resulted in a $51.5 million pre-tax charge to expense (or $30.9 million after taxes). The pre-tax expenses are shown on the Consolidated Statements of Income as "Employee separation & Merger-related costs." As of March 31, 1998, $8.9 million of the $51.5 million expense had been paid, $25.9 million was reflected as a current liability, $11.7 million increased the liability for other post-retirement benefits and $5.0 million was in other balance sheet classifications. ELECTRIC UTILITY INDUSTRY RESTRUCTURING AND STRANDED COSTS - ---------------------------------------------------------- For background information concerning restructuring the electric utility industry in New Jersey refer to page 3 of the Company's 1997 Report on Form 10- K. Updates to previously disclosed information are shown below. . Restructuring hearings began on April 27, 1998 and are scheduled to be completed by May 22, 1998. The BPU is expected to issue a final order during this summer. Currently, the BPU does not have the legal authority to enact a restructuring plan without legislative changes. Implementation of a restructuring plan had been planned for October 1998, but is now more likely to occur in early-to mid-1999. . With respect to information previously filed by the Company concerning stranded costs and unbundled rates, the Office of Administrative Law (OAL) is expected to render a decision by May 15, 1998. The OAL's decision will then be sent to the BPU for review. 8 Liquidity and Capital Resources - ------------------------------- Net cash provided by operating activities was $57.5 million for the three months ended March 31, 1998 compared to cash usage of $32.5 million for the three months ended March 31, 1997. The $90.0 million increase in net cash provided by operating activities was primarily due to changes in New Jersey law related to taxation of sales of electricity, which among other things, eliminated the annual prepayment of state excise tax in March 1998. In March 1997, the Company prepaid $91.1 million of state excise taxes. On an interim basis, the Company finances construction costs and other capital requirements in excess of internally generated funds through the issuance of unsecured short-term debt, consisting of commercial paper and notes from banks. As of March 31, 1998, the Company had authority to issue $150 million in short-term debt. On January 7, 1998, the Company issued $85 million in secured medium term notes with maturities of 5 to 8 years and interest rates of 6.00% to 6.19%. The proceeds were primarily used to redeem $50 million in medium term notes, due January 1998 with interest rates of 6.35% and 6.37%, and short-term debt. During the first quarter of 1998, the Company repaid $53.9 million of short-term debt with internally generated funds and proceeds from the medium term notes issuance. RESULTS OF OPERATIONS: - --------------------- Electric Revenues Details of the changes in the various components of electric revenues for the three months ended March 31, 1998, as compared to the same period in 1997 are shown below (dollars in millions):
Three Months Variance -------- Non-fuel (Base Rate) Revenues $(15.7) Fuel Revenues (0.2) Interchange Revenues (5.9) Merchant Revenues 17.7 ----- Total $ (4.1) ======
Electric non-fuel revenues decreased $15.7 million for the three month period primarily due to changes in New Jersey tax law related to sales of electricity, eliminating the gross receipts and franchise tax, and expanding the state sales and use tax to sales of electric power (see Note 2 of the Consolidated Financial Statements of the Company's 1997 Annual Report on Form 10-K for further details). The sales and use tax reduced Base Rate revenues by $10.5 million for the three months ended March 31, 1998 because amounts billed to customers for this tax are recorded as a current liability instead of revenues. This revenue reduction did not affect earnings due to a corresponding $10.5 million decrease in taxes other than income taxes. As previously disclosed in Note 4 of the Consolidated Financial Statements of the Company's 1997 Annual Report on Form 10-K, Base Rate revenues were also reduced by the merger-related costs savings passed on to the Company's customers effective with the merger. This decrease, offset in part by a rate increase for recovery of expenses associated with post-retirement benefits other than pensions, reduced Base Rate revenues an additional $1.0 million. Total kilowatt-hour (kWh) sales for the three months were virtually unchanged from the same period of the previous year, due primarily to significantly milder weather for the current period, which offset additional kWh sales attributable to economic growth and other factors. 9 Merchant revenues, which represent bulk power sales and are not subject to price regulation, increased $17.7 million, reflecting the Company's continued development of this new business opportunity. The margin provided by the wholesale market revenues in excess of the related energy costs is relatively small due to the competitive nature of bulk power sales. Other Services Revenues - ----------------------- Other services revenue represents the Company's initiative to enter the non- regulated marketplace with a variety of energy related services, including energy management services. Electric Fuel and Purchased Energy Expenses - ------------------------------------------- Electric fuel and purchased energy expenses increased $11.1 million for the three month period, due to the increased energy purchases related to wholesale market sales and increased recognition of energy expenses pursuant to the Company's Levelized Energy Clause. For the three months ended March 31, 1998, the Company's output for load within its service territory was provided by 28.6% coal generation, 45.8% net purchased power, 1.2% oil and gas generation and 24.4% nuclear generation. Merger-Related Separation Expenses - ---------------------------------- Merger-related employee separation, benefit, relocation and retirement expenses of $51.5 million were recorded in March 1998. See Note 2 of the Consolidated Financial Statements for further details on the merger and merger-related expenses. Operation and Maintenance Expenses - ---------------------------------- Operation and maintenance expenses increased $10.0 million for the three-month period, primarily due to increased operations and maintenance expenses at Salem Station and certain indirect merger-related expenses. Taxes Other Than Income Taxes - ----------------------------- Taxes other than income taxes decreased $17.2 million for the three month period, due primarily to the changes in the New Jersey tax laws discussed in "Electric Revenues," eliminating the state gross receipts and franchise tax. Earnings were not affected by this decrease due to related changes in electric revenues and income tax expense resulting from the tax law change. 10 Ratio of Earnings to Fixed Charges - ---------------------------------- The Company's ratios of earnings to fixed charges and earnings to fixed charges and preferred stock dividends under the SEC Method are shown below:
12 Months Ended Year Ended December 31, March 31, ----------------------------------------------- 1998 1997 1996 1995 1994 1993 ---------- ---- ---- ---- ---- ---- Ratio of Earnings to: Fixed Charges (1) 2.34 2.83 2.58 3.17 3.05 3.37 Fixed Charges and Preferred Stock Dividends (1) 2.10 2.57 2.14 2.42 2.25 2.46
(1) For the 12 months ended March 31, 1998, excluding the pre-tax $51.5 million charge for employee separation and other merger-related costs, the ratio of earnings to fixed charges is 3.04 and the ratio of earnings to fixed charges and preferred dividends is 2.72. Under the SEC Method, earnings, including AFUDC, have been computed by adding income taxes and fixed charges to net income. Fixed charges include gross interest expense, the estimated interest component of rentals, and dividends on preferred securities of a subsidiary trust. For the ratio of earnings to fixed charges and preferred stock dividends, preferred stock dividends represent annualized preferred stock dividend requirements multiplied by the ratio that pre-tax income bears to net income. FORWARD-LOOKING STATEMENTS - -------------------------- The Private Securities Litigation Reform Act of 1995 (Litigation Reform Act) provides a "safe harbor" for forward looking statements to encourage such disclosure 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 management's beliefs, 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 and the unbundling of energy supplies and services; an increasingly competitive energy marketplace; sales retention and growth; federal and state regulatory actions; costs of construction; operating restrictions; increased cost and construction delays attributable to environmental regulations; nuclear decommissioning and the availability of reprocessing and storing 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 review of factors pursuant to the Litigation Reform Act should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by the Company prior to the effective date of the Litigation Reform Act. 11 PART II. OTHER INFORMATION -------------------------- ITEM 1. LEGAL PROCEEDINGS - ------------------------- Atlantic County Landfill Clean-up Site - -------------------------------------- As previously reported in the Company's 1997 Annual Report on Form 10-K, the Company has been identified as one of a number of parties allegedly responsible for the placement of certain hazardous substances in a landfill in Atlantic County, New Jersey. Although a remedial action work plan has not been completed to date, the Company now foresees additional future contributions for clean-up of this site to be approximately $850,000. It is not anticipated that any additional future contributions, if any, would be significant. ITEM 5. OTHER INFORMATION - ------------------------- Salem Nuclear Generating Station - -------------------------------- After receiving authorization from the Nuclear Regulatory Commission, Public Service Electric and Gas returned Salem Unit 1 to service on April 17, 1998. The unit's restart marked the end of a prolonged outage which began in the second quarter of 1995, and resulted in replacement of the unit's steam generators and improvements in operations, maintenance, and safety. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ---------------------------------------- Exhibits - -------- Exhibit 12-A, Computation of Ratio of Earnings to Fixed Charges Exhibit 12-B, Computation of Ratio of Earnings to Fixed Charges and Preferred Dividends Exhibit 27, Financial Data Schedule Reports On Form 8-K - ------------------- On February 27, 1998 the Company filed an 8-K announcing that the SEC had approved the merger between AEI and DP&L. On March 3, 1998 the Company filed an 8-K which included Items 6, 7 and 8 of the Company's 1997 Form 10-K. On March 5, 1998 the Company filed an 8-K which reported the change in control, change in auditors and the effective date of the merger. 12 SIGNATURE 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 thereunto duly authorized. Atlantic City Electric Company ------------------------------ (Registrant) Date: May 14, 1998 /s/ B. S. Graham ------------ ----------------------------------------- B. S. Graham, Senior Vice President and Chief Financial Officer 13 EXHIBIT INDEX
Exhibit Page Number Number ------- ------ Computation of ratio of earnings to fixed charges 12-A 15 Computation of ratio of earnings to fixed charges and preferred dividends 12-B 16 Financial Data Schedule 27 17
14 EX-12.A 2 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12-A Atlantic City Electric Company Ratio of Earnings to Fixed Charges ---------------------------------- (Dollars in Thousands) ----------------------
12 Months Ended March 31, Year Ended December 31, ------------------------------------------------------------------------- 1998 1997 1996 1995 1994 1993 ------------- ------------- ------------- ------------- ------------- ------------- Net income $ 52,479 $ 85,747 $ 75,017 $ 98,752 $ 93,174 $ 108,026 ------------- ------------- ------------- ------------- ------------- ------------- Income taxes 46,616 50,442 36,958 48,277 36,130 45,893 ------------- ------------- ------------- ------------- ------------- ------------- Fixed charges: Interest on long-term debt including amortization of discount, premium and expense 63,969 64,501 64,847 62,879 58,460 61,018 Other interest 3,579 3,574 4,019 4,364 4,148 3,884 Preferred dividend require- ments of subsidiary trust 5,775 5,775 1,428 - - - ------------- ------------- ------------- ------------- ------------- ------------- Total fixed charges 73,323 73,850 70,294 67,243 62,608 64,902 ------------- ------------- ------------- ------------- ------------- ------------- Nonutility capitalized interest (1,186) (1,215) (1,091) (1,372) (1,028) (871) ------------- ------------- ------------- ------------- ------------- ------------- Earnings before income taxes and fixed charges $ 171,232 $ 208,824 $ 181,178 $ 212,900 $ 190,884 $ 217,950 ============= ============= ============= ============= ============= ============= Ratio of earnings to fixed charges 2.34 2.83 2.58 3.17 3.05 3.37
For purposes of computing the ratio, earnings are net income plus income taxes and fixed charges, less nonutility capitalized interest. Fixed charges consist of interest on long- and short-term debt, amortization of debt discount, premium, and expense, dividends on preferred securities of a subsidiary trust, and the interest factor associated with the Company's major leases. 15 EX-12.B 3 COMP. OF RATIO OF EARN. TO FIX. CHG. AND PRE. DIV Exhibit 12-B Atlantic City Electric Company Ratio of Earnings to Fixed Charges and Preferred Dividends ---------------------------------------------------------- (Dollars in Thousands) ----------------------
12 Months Ended March 31, Year Ended December 31, ------------------------------------------------------------------------- 1998 1997 1996 1995 1994 1993 ------------- ------------- ------------- ------------- ------------- ------------- Net income $ 52,479 $ 85,747 $ 75,017 $ 98,752 $ 93,174 $ 108,026 ------------- ------------- ------------- ------------- ------------- ------------- Income taxes 46,616 50,442 36,958 48,277 36,130 45,893 ------------- ------------- ------------- ------------- ------------- ------------- Fixed charges: Interest on long-term debt including amortization of discount, premium and expense 63,969 64,501 64,847 62,879 58,460 61,018 Other interest 3,579 3,574 4,019 4,364 4,148 3,884 Preferred dividend require- ments of susidiary trust 5,775 5,775 1,428 - - - ------------- ------------- ------------- ------------- ------------- ------------- Total fixed charges 73,323 73,850 70,294 67,243 62,608 64,902 ------------- ------------- ------------- ------------- ------------- ------------- Nonutility capitalized interest (1,186) (1,215) (1,091) (1,372) (1,028) (871) ------------- ------------- ------------- ------------- ------------- ------------- Earnings before income taxes and fixed charges $ 171,232 $ 208,824 $ 181,178 $ 212,900 $ 190,884 $ 217,950 ============= ============= ============= ============= ============= ============= Fixed charges 73,323 73,850 70,294 67,243 62,608 64,902 Preferred dividend requirement 8,264 7,506 14,214 20,839 22,212 23,723 ------------- ------------- ------------- ------------- ------------- ------------- $ 81,587 $ 81,356 $ 84,508 $ 88,082 $ 84,820 $ 88,625 ============= ============= ============= ============= ============= ============= Ratio of earnings to fixed charges 2.10 2.57 2.14 2.42 2.25 2.46
For purposes of computing the ratio, earnings are net income plus income taxes and fixed charges, less nonutility capitalized interest. Fixed charges consist of interest on long- and short-term debt, amortization of debt discount, premium, and expense, dividends on preferred securities of a subsidiary trust, and the interest factor associated with the Company's major leases. Preferred dividend requirements represent annualized preferred dividend requirements multiplied by the ratio that pre-tax income bears to net income. 16 EX-27 4 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME FROM THE COMPANY'S 1ST QUARTER 1998 10-Q AS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 PER-BOOK 1,778,125 95,607 212,153 307,941 0 2,393,826 54,963 492,872 192,770 740,605 23,950 100,000 849,338 18,200 0 0 8,575 10,000 35,920 561 606,677 2,393,826 237,949 (12,213) 255,772 243,559 (5,610) 1,604 (4,006) 16,731 (20,737) 1,000 (21,737) 20,404 0 57,529 0 0
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