-----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, U5/cY4KJOSqPWhRETfIIgvCcD86X2FI6tIZQNFiNpuSb1hToeyjC26BwX5S7/rnP 2XoonrRlH8Ng9hrZeYLJPA== 0001021408-01-509699.txt : 20020410 0001021408-01-509699.hdr.sgml : 20020410 ACCESSION NUMBER: 0001021408-01-509699 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011109 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: 1934 Act SEC FILE NUMBER: 001-03559 FILM NUMBER: 1779283 BUSINESS ADDRESS: STREET 1: 800 KING STREET STREET 2: PO BOX 231 CITY: WILMINGTON STATE: DE ZIP: 19899 BUSINESS PHONE: 6096454100 MAIL ADDRESS: STREET 1: 800 KING STREET STREET 2: PO BOX 231 CITY: WILMINGTON STATE: DE ZIP: 19899 10-Q 1 d10q.txt 3RD QUARTER FORM 10-Q UNITED STATES 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 September 30, 2001 ------------------ OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-3559 Atlantic City Electric Company ------------------------------ (Exact name of registrant as specified in its charter) New Jersey 21-0398280 ---------- ---------- (State 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 302-429-3018 ------------ 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: All 18,320,937 issued and outstanding shares of Atlantic City Electric Company common stock, $3 per share par value, are owned by Conectiv. Atlantic City Electric Company ------------------------------ Table of Contents -----------------
Page ---- Part I. Financial Information: Item 1. Financial Statements Consolidated Statements of Income for the three and nine months ended September 30, 2001, and September 30, 2000................... 1 Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000.................................................. 2-3 Consolidated Statements of Cash Flows for the nine months ended September 30, 2001, and September 30, 2000................... 4 Notes to Consolidated Financial Statements......................... 5-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................ 11-17 Item 3. Quantitative and Qualitative Disclosures About Market Risk.......... 17 Part II. Other Information Item 1. Legal Proceedings.................................................. 18 Item 6. Exhibits and Reports on Form 8-K................................... 18 Signature..................................................................... 18
i Part 1. FINANCIAL INFORMATION Item 1. Financial Statements ATLANTIC CITY ELECTRIC COMPANY ------------------------------ CONSOLIDATED STATEMENTS OF INCOME (Dollars in Thousands) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ---------------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- OPERATING REVENUES $ 404,876 $ 282,966 $ 936,291 $ 728,101 ---------- ---------- ---------- ---------- OPERATING EXPENSES Electric fuel and purchased energy and capacity 246,905 122,692 507,052 317,827 Operation and maintenance 63,056 59,922 186,278 181,474 Depreciation and amortization 21,869 24,360 65,417 75,667 Taxes other than income taxes 10,747 9,869 28,635 27,919 ---------- ---------- ---------- ---------- 342,577 216,843 787,382 602,887 ---------- ---------- ---------- ---------- OPERATING INCOME 62,299 66,123 148,909 125,214 ---------- ---------- ---------- ---------- OTHER INCOME 2,361 2,422 8,103 5,438 ---------- ---------- ---------- ---------- INTEREST EXPENSE Interest charges 15,423 18,683 47,693 57,520 Allowance for borrowed funds used during construction and capitalized interest (216) (185) (477) (544) ---------- ---------- ---------- ---------- 15,207 18,498 47,216 56,976 ---------- ---------- ---------- ---------- PREFERRED DIVIDEND REQUIREMENTS ON PREFERRED SECURITIES OF SUBSIDIARY TRUSTS 1,905 1,905 5,714 5,714 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 47,548 48,142 104,082 67,962 INCOME TAXES 19,841 19,987 43,746 24,121 ---------- ---------- ---------- ---------- NET INCOME 27,707 28,155 60,336 43,841 DIVIDENDS ON PREFERRED STOCK 308 534 1,374 1,599 ---------- ---------- ---------- ---------- EARNINGS APPLICABLE TO COMMON STOCK $ 27,399 $ 27,621 $ 58,962 $ 42,242 ========== ========== ========== ==========
See accompanying Notes to Consolidated Financial Statements. -1- ATLANTIC CITY ELECTRIC COMPANY ----------------------------- CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) (Unaudited)
September 30, December 31, 2001 2000 ------------- ------------ ASSETS Current Assets Cash and cash equivalents $ 16,676 $ 156,071 Accounts receivable, net of allowances of $6,826 and $4,423, respectively 184,262 140,785 Inventories, at average cost 18,382 13,604 Deferred income taxes, net 2,971 15,750 Prepayments 18,432 1,738 ------------- ------------ 240,723 327,948 ------------- ------------ Investments 119,289 112,501 ------------- ------------ Property, Plant and Equipment Electric generation 142,382 142,243 Electric transmission and distribution 1,276,579 1,255,184 Other electric facilities 116,724 119,782 Other property, plant, and equipment 5,772 5,772 ------------- ------------ 1,541,457 1,522,981 Less: Accumulated depreciation 678,488 640,103 ------------- ------------ Net plant in service 862,969 882,878 Construction work-in-progress 74,375 50,247 Leased nuclear fuel, at amortized cost 19,549 28,352 ------------- ------------ 956,893 961,477 ------------- ------------ Deferred Charges and Other Assets Recoverable stranded costs 937,175 958,883 Deferred energy supply costs 93,205 - Unrecovered purchased power costs 12,989 14,487 Deferred recoverable income taxes 12,630 13,978 Unrecovered New Jersey state excise taxes 588 10,360 Deferred debt refinancing costs 11,681 12,409 Deferred other postretirement benefit costs 28,107 29,981 Unamortized debt expense 12,623 12,842 Other 33,522 26,516 ------------- ------------ 1,142,520 1,079,456 ------------- ------------ Total Assets $ 2,459,425 $ 2,481,382 ============= ============
See accompanying Notes to Consolidated Financial Statements. -2- ATLANTIC CITY ELECTRIC COMPANY ------------------------------ CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) (Unaudited)
September 30, December 31, 2001 2000 ------------- ------------ CAPITALIZATION AND LIABILITIES Current Liabilities Short-term debt $ 24,445 $ - Long-term debt due within one year 107,200 97,200 Variable rate demand bonds 22,600 22,600 Accounts payable 58,046 50,744 Taxes accrued - 10,243 Interest accrued 11,094 18,193 Dividends payable 6,302 17,871 Current capital lease obligation 15,480 15,480 Deferred energy supply costs - 34,650 Above-market purchased energy contracts and other electric restructuring liabilities 7,263 7,586 Other 27,384 30,268 ------------- ------------ 279,814 304,835 ------------- ------------ Deferred Credits and Other Liabilities Deferred income taxes, net 445,214 405,385 Regulatory liability for New Jersey income tax benefit 49,262 49,262 Above-market purchased energy contracts and other electric restructuring liabilities 16,676 16,744 Deferred investment tax credits 33,966 35,851 Long-term capital lease obligation 4,069 12,872 Pension benefit obligation 29,695 26,948 Other postretirement benefit obligation 35,118 37,614 Other 32,465 28,918 ------------- ------------ 646,465 613,594 ------------- ------------ Capitalization Common stock, $3 par value; shares authorized: 25,000,000; shares outstanding: 18,320,937 54,963 54,963 Additional paid-in capital 410,194 410,194 Retained earnings 146,580 114,962 ------------- ------------ Total common stockholder's equity 611,737 580,119 Preferred stock not subject to mandatory redemption 6,231 6,231 Preferred stock subject to mandatory redemption 12,450 23,950 Preferred securities of subsidiary trusts subject to mandatory redemption 95,000 95,000 Long-term debt 807,728 857,653 ------------- ------------ 1,533,146 1,562,953 ------------- ------------ Commitments and Contingencies (Note 8) ------------- ------------ Total Capitalization and Liabilities $ 2,459,425 $ 2,481,382 ============= ============
See accompanying Notes to Consolidated Financial Statements. -3- ATLANTIC CITY ELECTRIC COMPANY ------------------------------ CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
Nine Months Ended September 30, ------------------------------ 2001 2000 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 60,336 $ 43,841 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 74,251 85,134 Investment tax credit adjustments, net (1,885) (2,529) Deferred income taxes, net 53,956 (2,610) Deferred energy supply costs (127,855) (1,392) Net change in: Accounts receivable (44,541) (16,234) Inventories (4,778) 3,342 Prepaid New Jersey sales & excise taxes (3,215) (15,672) Accounts payable 7,302 (10,410) Taxes accrued (18,674) 88,483 Other current assets and liabilities (1) (15,031) 6,011 Other, net 10,973 7,091 ------------- ------------- Net cash (used) / provided by operating activities (9,161) 185,055 ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (50,383) (40,465) Deposits to nuclear decommissioning trust funds (825) (405) Other, net (2,421) (2,236) ------------- ------------- Net cash used by investing activities (53,629) (43,106) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid on common stock (38,913) (50,482) Dividends paid on preferred stock (1,374) (1,799) Long-term debt redeemed (40,000) (46,000) Preferred stock redeemed (11,500) - Principal portion of capital lease payments (8,835) (9,467) Net change in short-term debt 24,445 (30,000) Other, net (428) - ------------- ------------- Net cash used by financing activities (76,605) (137,748) ------------- ------------- Net change in cash and cash equivalents (139,395) 4,201 Cash and cash equivalents at beginning of period 156,071 81,456 ------------- ------------- Cash and cash equivalents at end of period $ 16,676 $ 85,657 ============= =============
(1) Other than debt and deferred income taxes classified as current. See accompanying Notes to Consolidated Financial Statements. -4- ATLANTIC CITY ELECTRIC COMPANY ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Unaudited) Note 1. Financial Statement Presentation - ------- -------------------------------- The consolidated condensed interim financial statements contained herein include the accounts of Atlantic City Electric Company (ACE) and its wholly owned subsidiaries and reflect all adjustments, consisting of only normal recurring adjustments, necessary in the opinion of management for a fair presentation of interim results. In accordance with regulations of the Securities and Exchange Commission (SEC), disclosures that would substantially duplicate the disclosures in ACE's 2000 Annual Report on Form 10-K have been omitted. Accordingly, ACE's consolidated condensed interim financial statements contained herein should be read in conjunction with ACE's 2000 Annual Report on Form 10-K. On July 20, 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that business combinations initiated after June 30, 2001 be accounted for under the purchase method of accounting and does not permit the use of the pooling of interests method of accounting for business combinations. Under SFAS No. 142, goodwill that has not been included in the rates of a regulated utility subject to SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation," will no longer be amortized. Intangible assets other than goodwill which have finite useful lives will continue to be amortized under SFAS No. 142. Goodwill and other intangible assets will be tested periodically for impairment. If an impairment occurs, then a charge to earnings would result. SFAS No. 142 will be effective January 1, 2002 for companies with a calendar fiscal year, including ACE. Since no goodwill or intangible assets are on ACE's balance sheet, the adoption of SFAS No. 141 and SFAS No. 142 is not expected to immediately effect ACE's financial statements. On August 9, 2001, the FASB issued SFAS No. 143, "Accounting For Asset Retirement Obligations," which establishes the accounting requirements for asset retirement obligations (ARO) associated with tangible long-lived assets. If a legal obligation for an ARO exists, then SFAS No. 143 requires recognition of a liability, capitalization of the cost associated with the ARO, and allocation of the capitalized cost to expense. The initial measurement of an ARO is based on the fair value of the obligation, which may result in a gain or loss upon the settlement of the ARO. If the requirements of SFAS No. 71 are met, a regulated entity shall also recognize a regulatory asset or liability for timing differences between financial reporting and rate-making in the recognition of the period costs associated with an ARO. SFAS No. 143 will be effective January 1, 2003 for companies with a calendar fiscal year, including ACE. Upon adoption of SFAS No. 143, the difference between the net amount recognized in the balance sheet under SFAS No. 143 and the net amount previously recognized in the balance sheet will be recognized as the cumulative effect of a change in accounting principle. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which requires that one accounting model be used for long-lived assets to be disposed of by sale and broadens discontinued operations to include more disposal transactions. Under SFAS No. 144, operating losses of discontinued operations are recognized in the period in which they occur, instead of accruing future operating losses before they occur. SFAS No. 144 will become effective on January 1, 2002. -5- ACE is currently evaluating SFAS No. 141, 142, 143, and 144 and cannot predict the impact that these standards may have on its financial position or results of operations; however, any such impact could be material. Note 2. Supplemental Cash Flow Information - ------- ---------------------------------- Nine Months Ended September 30, ---------------------- 2001 2000 ------- -------- (Dollars in thousands) Cash paid (received) for: Interest, net of amounts capitalized $53,684 $ 60,024 Income taxes, net of refunds $10,425 $(68,444) For the nine months ended September 30, 2000, ACE received federal and state income tax refunds of $79.3 million and made estimated tax payments of $10.9 million, resulting in $68.4 million of net income tax refunds received. The income tax refund was related to the tax benefit associated with ACE's payment of $228.5 million on December 28, 1999 to terminate ACE's purchase of electricity under a contract with the Pedricktown Co-generation Limited Partnership (Pedricktown). For additional information concerning the contract termination, see Note 8 to the Consolidated Financial Statements included in Item 8 of Part II of ACE's 2000 Annual Report on Form 10-K. Note 3. Income Taxes - ------- ------------ The amount computed by multiplying "Income before income taxes" by the federal statutory rate is reconciled in the table below to income tax expense.
Three Months Ended September 30, Nine Months Ended September 30, ----------------------------------- ----------------------------------- 2001 2000 2001 2000 ---------------- ---------------- ---------------- --------------- Amount Rate Amount Rate Amount Rate Amount Rate -------- ----- -------- ----- -------- ----- -------- ---- (Dollars in Thousands) Statutory federal income tax expense $16,642 35% $16,850 35% $36,429 35% $23,787 35% State income taxes, net of federal benefit 3,175 7 3,178 7 7,095 7 4,972 7 Depreciation 704 1 625 1 2,112 1 1,875 3 Investment tax credit amortization (628) (1) (628) (1) (1,885) (1) (2,529) (4) Resolution of income tax matters * - - - - - - (4,554) (7) Other, net (52) (38) (5) 570 1 -------- ----- -------- ----- -------- ----- -------- ---- $ 19,841 42% $ 19,987 42% $ 43,746 42% $ 24,121 35% ======== ===== ======== ===== ======== ===== ======== ====
* Reflects a change in estimate of previously accrued income taxes due to resolution of uncertainties. -6- Note 4. Regulatory Matters - ------- ------------------ An update to the information previously reported in Note 7 to the Consolidated Financial Statements included in Item 8 of Part II of ACE's 2000 Annual Report on Form 10-K is presented below. New Jersey Electric Utility Industry Restructuring Final Decision and Order As previously disclosed, the New Jersey Board of Public Utilities (NJBPU) issued a Summary Order to ACE in July 1999 concerning restructuring ACE's electricity supply business and indicated that a more detailed order would be issued at a later time. The Final Decision and Order of the NJBPU, dated March 30, 2001, for ACE was publicly posted on the NJBPU's internet website in mid-May 2001. Management believes that the substantive provisions of the Final Decision and Order are not materially different from the substantive provisions of the Summary Order filed with and discussed in ACE's Form 8-K filing dated July 15, 1999. Petition for Securitization of Stranded Costs As previously disclosed in Note 7 to the Consolidated Financial Statements included in Item 8 of Part II of ACE's 2000 Annual Report on Form 10-K, New Jersey's Electric Discount and Energy Competition Act (the New Jersey Act) permits securitization of stranded costs through the issuance of transition bonds. On June 25, 2001, ACE filed a petition with the NJBPU, seeking the authority to: (i) issue through a special purpose entity up to $2 billion in transition bonds in one or more series; (ii) collect from ACE's customers a non- bypassable, per kilowatt-hour (kWh) delivered, transition bond charge (TBC) sufficient to fund principal and interest payments on the bonds and related expenses and fees; (iii) collect from ACE's customers a separate non-bypassable, per kWh delivered, charge for recovery of the income tax expense associated with the revenues from the TBC; and (iv) sell "bondable transition property," which is the irrevocable right to collect TBC, to a special purpose financing entity. The transition bonds are expected to be issued after the NJBPU issues a bondable stranded costs rate order (Financing Order) establishing "bondable transition property," as provided for in the New Jersey Act. To facilitate the issuance of transition bonds, ACE formed Atlantic City Electric Transition Funding LLC (ACE Transition Funding) on March 28, 2001. Assuming that the NJBPU issues a Financing Order containing terms and conditions satisfactory to ACE, subsequent to issuance of such order, ACE Transition Funding is expected to issue transition bonds and use the proceeds to purchase the bondable transition property from ACE. The New Jersey Act requires utilities, including ACE, to use the proceeds from the sale of bondable transition property to redeem debt or equity or both, restructure purchased power contracts with non-utility generators, or otherwise reduce costs in order to decrease regulated electricity rates. NJBPU Order On Stranded Costs For Nuclear Electric Generating Units On September 17, 2001, the NJBPU issued a Decision and Order concerning the stranded costs associated with ACE's ownership interests in nuclear electric generating plants. The NJBPU determined the amount of such stranded costs eligible for recovery by ACE to be approximately $298 million, after income taxes, (or $504 million before income taxes) as of December 31, 1999, subject to further adjustments. The NJBPU also found that ACE shall have the opportunity to recover the eligible stranded costs through its market transition charge, in a time frame and manner to be determined by NJBPU. -7- Basic Generation Service The New Jersey Act requires electric utilities to supply electricity to Basic Generation Service (BGS) customers for at least the first three years from the start of customer choice of electricity suppliers, or until July 31, 2002. On June 29, 2001, New Jersey electric utilities, including ACE, filed with the NJBPU a proposal to use an auction process to procure electricity supply for BGS customers. ACE and the other New Jersey electric utilities proposed that the BGS supply period, which would be subject to the auction, be the final year of the transition period provided for in the New Jersey Act (August 1, 2002-July 31, 2003). Under the proposal, ACE, as agent for its BGS customers, would pay for electricity from the suppliers selected by the auction process and the costs associated with this supply would be subject to the regulated cost-based, rate- recovery mechanism for BGS. ACE would continue to collect BGS revenues. Note 5. Agreements for the Sale of Electric Generating Plants - ------- ----------------------------------------------------- For information concerning agreements for the sale of the electric generating plants of ACE, see Note 11 to the Consolidated Financial Statements included in Item 8 of Part II of ACE's 2000 Annual Report on Form 10-K. For information about the sale of ACE's interests in nuclear electric generating plants after September 30, 2001, see Note 10 to the Consolidated Financial Statements. As of September 30, 2001, ACE's fossil fuel-fired electric generating plants (Deepwater Station, Conemaugh and Keystone Stations and B.L. England Station) that are under agreements for sale to NRG Energy, Inc. (NRG) had an agreed upon total sales price of approximately $178 million (before certain adjustments and expenses), a net book value of approximately $116 million and electric generating capacity of 740 MW. Any gain that may be realized on the sale of these plants is expected to reduce the amount of stranded costs to be recovered from ACE's utility customers. Effective June 22, 2001, ACE and NRG agreed to amendments to the agreements for the sale of fossil fuel-fired electric generating plants of ACE, including extension of the termination dates of the sale agreements. On October 25, 2001, the NJBPU re-opened the record for additional proceedings concerning the sale of ACE's fossil fuel-fired electric generating plants. The focus of the supplementary proceedings will be to supplement and update the record as to whether the proposed sale price of the fossil fuel-fired electric generating plants reflects the current market price of the assets and other related issues. The supplementary proceedings are scheduled to conclude in the first quarter of 2002, and the sale, if approved on terms satisfactory to ACE and NRG, would be expected to close within a reasonable time thereafter. ACE cannot predict the outcome of these proceedings. Note 6. Redemption of Preferred Stock - ------- ----------------------------- Under mandatory redemption provisions, ACE redeemed 115,000 shares of its $7.80 annual dividend rate preferred stock on May 1, 2001 at the $100 per share stated value or $11.5 million in total. -8- Note 7. Debt - ------- ---- The $24.4 million balance of short-term debt outstanding as of September 30, 2001 had a 3.2% interest rate. On May 15, 2001, ACE redeemed $10 million of 7.0%, Medium Term Notes at maturity. On August 1, 2001, ACE redeemed $30 million of 6.81% Medium Term Notes at maturity. Note 8. Contingencies - ------- ------------- Environmental Matters ACE 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. Costs may be incurred 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. ACE is a potentially responsible party at a state superfund site and has agreed, along with other responsible parties, to remediate the site pursuant to an Administrative Consent Order with the New Jersey Department of Environmental Protection (NJDEP). ACE is also a defendant in an action to recover costs at a federal superfund site in Gloucester County, New Jersey. ACE's liability for clean-up costs is affected by the activities of these governmental agencies and private land-owners, the nature of past disposal practices, the activities of others (including whether they are able to contribute to clean-up costs), and the scientific and other complexities involved in resolving clean-up related issues (including whether ACE or a corporate predecessor is responsible for conditions on a particular parcel). There is $4.0 million included in ACE's current liabilities as of September 30, 2001 ($1.0 million as of December 31, 2000) for remediation activities at these sites. ACE does not expect such future costs to have a material effect on its financial position or results of operations. On July 11, 2001, the NJDEP denied ACE's request to renew a permit variance, effective through July 30, 2001, that authorized Unit 1 at the B.L. England station to burn coal containing greater than 1% sulfur. ACE has appealed the denial. The NJDEP has issued a stay of the denial to authorize ACE to operate Unit 1 with the current fuel until February 28, 2002 and an addendum to the permit/certificate to operate authorizing a trial burn of coal with a sulfur content less than 2.6%. Management is not able to predict the outcome of ACE's appeal. Nuclear Insurance As discussed in Note 10 to the Consolidated Financial Statements, on October 18, 2001, ACE sold its ownership interests in nuclear electric generating plants and the related nuclear fuel to PSEG Nuclear LLC (as assignee of PSEG Power LLC) and Exelon Generation Company, LLC (as assignee of PECO Energy Company). In conjunction with the ownership interests of ACE in Peach Bottom Atomic Power Station (Peach Bottom), Salem Nuclear Generating Station (Salem), and Hope Creek Nuclear Generating Station (Hope Creek), ACE could be assessed for a portion of any third-party claims associated with an incident at any commercial nuclear power plant in the United States which occurred before the sales of ACE's ownership interests in nuclear electric generating plants on October 18, 2001. Under the provisions of the Price Anderson Act, if third-party claims relating to such an incident exceed $200 million (the amount of primary insurance), ACE could be assessed up to $30.7 million on an aggregate basis for such third-party claims. -9- The co-owners of Peach Bottom, Salem, and Hope Creek maintain property insurance coverage of approximately $1.8 billion for each unit for loss or damage to the units, including coverage for decontamination expense and premature decommissioning. An industry mutual insurance company (NEIL) provides replacement power cost coverage to members in the event of a major accidental outage at a nuclear power plant. Under these coverages, ACE is subject to potential retrospective loss experience assessments of up to $1.9 million on an aggregate basis for events that occurred before the sales of ACE's ownership interests in nuclear electric generating plants on October 18, 2001. Other On October 24, 2000, the City of Vineland, New Jersey, filed an action in a New Jersey Superior Court to acquire ACE electric distribution facilities located within the City limits by eminent domain. The City has offered approximately $11 million for these assets, including the right to provide electric service in this area. ACE believes that, properly evaluated, the assets sought by the City are worth approximately $40 million. The City's Superior Court action has been dismissed, based on the failure to hold a referendum, and the City has appealed this decision. On November 6, 2001, the City held a referendum and City residents voted to approve the City's proposal to acquire ACE electric distribution facilities located within the City limits. Management cannot predict the outcome of this matter. Note 9. Business Segments - ------- ----------------- Conectiv's organizational structure and management reporting information is aligned with Conectiv's business segments, irrespective of the subsidiary, or subsidiaries, through which a business is conducted. Businesses are managed based on lines of business, not legal entity. Business segment information is not produced, or reported, on a subsidiary by subsidiary basis. Thus, as a Conectiv subsidiary, no business segment information (as defined by SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information") is available for ACE on a stand-alone basis. However, ACE's principal business is expected to be the transmission and distribution of electricity upon completion of the sale of the electric generating plants of ACE. The transfer of the combustion turbines to Conectiv effective July 1, 2000, resulted in electricity transmission and distribution representing a greater proportion of ACE's business. Note 10. Subsequent Event - -------- ---------------- On October 18, 2001, ACE sold its ownership interests in nuclear electric generating plants and the related nuclear fuel to PSEG Nuclear LLC (as assignee of PSEG Power LLC) and Exelon Generation Company, LLC (as assignee of PECO Energy Company) for approximately $30 million, subject to additional adjustment. ACE's interests in the nuclear units that were sold included a 7.51% (164 MW) interest in Peach Bottom, a 7.41% interest (167 MW) in Salem and a 5.0% interest (52 MW) in Hope Creek. Subsequent to the sale, ACE used approximately $21 million of the proceeds to repay the lease obligations related to the nuclear fuel. In accordance with the sales agreements, ACE transferred its nuclear decommissioning funds and related obligation for decommissioning to the purchasers. -10- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 disclosures without the threat of litigation, provided those statements are identified as forward-looking and are accompanied by meaningful, cautionary statements identifying important factors that could cause the actual results to differ materially from those projected in the statement. Forward-looking statements have been made in this report. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. When used herein, the words "intend," "will," "anticipate," "estimate," "expect," "believe," 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: the effects of deregulation of energy supply and the unbundling of delivery services; the ability to enter into purchased power agreements on acceptable terms; market demand and prices for energy, capacity, and fuel; weather variations affecting energy usage; operating performance of power plants; an increasingly competitive marketplace; results of any asset dispositions; sales retention and growth; federal and state regulatory actions; future litigation results; costs of construction; operating restrictions; increased costs and construction delays attributable to environmental regulations; and credit market concerns. ACE undertakes no obligation to publicly update or revise any forward- looking statements, whether as a result of new information, future events or otherwise. The foregoing list of factors pursuant to the Litigation Reform Act should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made prior to the effective date of the Litigation Reform Act. Earnings Results Summary - ------------------------ Earnings applicable to common stock were $27.4 million for the third quarter of 2001, compared to $27.6 million for the third quarter of 2000. More electricity was purchased during the third quarter of 2001 than in the third quarter of 2000, primarily due to ACE's "Wholesale Transaction Confirmation Letter Agreements" (Letter Agreements), under which ACE sold its interest in the kWh output of nuclear electric generating plants to the companies that operate the plants. Although ACE incurred higher costs in supplying its BGS customers as a result of purchasing more power, ACE's earnings were not affected because ACE's revenues reflect BGS costs, due to the regulated cost-based, rate-recovery mechanism for BGS (as discussed in Notes 1 and 7 to the Consolidated Financial Statements included in Item 8 of Part II of ACE's 2000 Annual Report on Form 10- K). Earnings applicable to common stock increased by $16.7 million to $58.9 million for the nine months ended September 30, 2001, from $42.2 million for the nine months ended September 30, 2000. The $16.7 million earnings increase was mainly due to higher volumes of regulated electricity sales and deliveries, reflecting higher electricity usage related to weather and growth in the number of customers. Due to increased volumes of purchased power, ACE incurred higher average energy costs in serving its BGS customers, but earnings were not affected because additional revenues were recognized pursuant to the rate- recovery mechanism for BGS. The earnings increase also reflects higher other income, lower depreciation and amortization expenses and lower interest expense. The variances that positively affected earnings were partly offset by the effects of a higher effective income tax rate and the transfer of the combustion turbine electric generating units to Conectiv on July 1, 2000. -11- New Jersey Electric Utility Industry Restructuring - -------------------------------------------------- Final Decision and Order As previously disclosed, the New Jersey Board of Public Utilities (NJBPU) issued a Summary Order to ACE in July 1999 concerning restructuring ACE's electricity supply business and indicated that a more detailed order would be issued at a later time. The Final Decision and Order of the NJBPU, dated March 30, 2001, for ACE was publicly posted on the NJBPU's internet website in mid-May 2001. Management believes that the substantive provisions of the Final Decision and Order are not materially different from the substantive provisions of the Summary Order filed with and discussed in ACE's Form 8-K filing dated July 15, 1999. Petition for Securitization of Stranded Costs As previously disclosed in Note 7 to the Consolidated Financial Statements included in Item 8 of Part II of ACE's 2000 Annual Report on Form 10-K, New Jersey's Electric Discount and Energy Competition Act (the New Jersey Act) permits securitization of stranded costs through the issuance of transition bonds. On June 25, 2001, ACE filed a petition with the NJBPU, seeking the authority to: (i) issue through a special purpose entity up to $2 billion in transition bonds in one or more series; (ii) collect from ACE's customers a non- bypassable, per kilowatt-hour (kWh) delivered, transition bond charge (TBC) sufficient to fund principal and interest payments on the bonds and related expenses and fees; (iii) collect from ACE's customers a separate non-bypassable, per kWh delivered, charge for recovery of the income tax expense associated with the revenues from the TBC; and (iv) sell "bondable transition property," which is the irrevocable right to collect TBC, to a special purpose financing entity. The transition bonds are expected to be issued after the NJBPU issues a bondable stranded costs rate order (Financing Order) establishing "bondable transition property," as provided for in the New Jersey Act. To facilitate the issuance of transition bonds, ACE formed Atlantic City Electric Transition Funding LLC (ACE Transition Funding) on March 28, 2001. Assuming that the NJBPU issues a Financing Order containing terms and conditions satisfactory to ACE, subsequent to issuance of such order, ACE Transition Funding is expected to issue transition bonds and use the proceeds to purchase the bondable transition property from ACE. The New Jersey Act requires utilities, including ACE, to use the proceeds from the sale of bondable transition property to redeem debt or equity or both, restructure purchased power contracts with non-utility generators, or otherwise reduce costs in order to decrease regulated electricity rates. NJBPU Order On Stranded Costs For Nuclear Electric Generating Units On September 17, 2001, the NJBPU issued a Decision and Order concerning the stranded costs associated with ACE's ownership interests in nuclear electric generating plants. The NJBPU determined the amount of such stranded costs eligible for recovery by ACE to be approximately $298 million, after income taxes, (or $504 million before income taxes) as of December 31, 1999, subject to further adjustments. The NJBPU also found that ACE shall have the opportunity to recover the eligible stranded costs through its market transition charge, in a time frame and manner to be determined by NJBPU. -12- Basic Generation Service The New Jersey Act requires electric utilities to supply electricity to BGS customers for at least the first three years from the start of customer choice of electricity suppliers, or until July 31, 2002. On June 29, 2001, New Jersey electric utilities, including ACE, filed with the NJBPU a proposal to use an auction process to procure electricity supply for BGS customers. ACE and the other New Jersey electric utilities proposed that the BGS supply period, which would be subject to the auction, be the final year of the transition period provided for in the New Jersey Act (August 1, 2002-July 31, 2003). Under the proposal, ACE, as agent for its BGS customers, would pay for electricity from the suppliers selected by the auction process and the costs associated with this supply would be subject to the regulated cost-based, rate-recovery mechanism for BGS. ACE would continue to collect BGS revenues. Agreements for the Sale of Electric Generating Plants - ----------------------------------------------------- For information concerning agreements for the sale of the electric generating plants of ACE, see Note 11 to the Consolidated Financial Statements included in Item 8 of Part II of ACE's 2000 Annual Report on Form 10-K. Fossil fuel-fired Electric Generating Plants As of September 30, 2001, ACE's fossil fuel-fired plants (Deepwater Station, Conemaugh and Keystone Stations and B.L. England Station) that are under agreements for sale to NRG Energy, Inc. (NRG) had an agreed upon total sales price of approximately $178 million (before certain adjustments and expenses), a net book value of approximately $116 million and electric generating capacity of 740 MW. Any gain that may be realized on the sale of these plants is expected to reduce the amount of stranded costs to be recovered from ACE's utility customers. Effective June 22, 2001, ACE and NRG agreed to amendments to the sale agreements including extension of the termination dates of the sale agreements. On October 25, 2001, the NJBPU re-opened the record for additional proceedings concerning the sale of ACE's fossil fuel-fired plants. The focus of the supplementary proceedings will be to supplement and update the record as to whether the proposed sale price of the fossil generating plants reflects the current market price of the assets and other related issues. The supplementary proceedings are scheduled to conclude in the first quarter of 2002 and the sale, if approved on terms satisfactory to ACE and NRG, would be expected to close within a reasonable time thereafter. ACE cannot predict the outcome of these proceedings. Nuclear Electric Generating Plants On October 18, 2001, ACE sold its ownership interests in nuclear electric generating plants and the related nuclear fuel to PSEG Nuclear LLC (as assignee of PSEG Power LLC) and Exelon Generation Company, LLC (as assignee of PECO Energy Company) for approximately $30 million, subject to additional adjustment. ACE's interests in the nuclear units that were sold included a 7.51% (164 MW) interest in Peach Bottom, a 7.41% interest (167 MW) in Salem and a 5.0% interest (52 MW) in Hope Creek. Subsequent to the sale, ACE used approximately $21 million of the proceeds to repay the lease obligations related to the nuclear fuel. In accordance with the sales agreements, ACE transferred its nuclear decommissioning funds and related obligation for decommissioning to the purchasers. -13- Operating Revenues - ------------------ Three Months Ended Nine Months Ended September 30, September 30, -------------------- ------------------- 2001 2000 2001 2000 ------ ------ ------ ------ (Dollars in millions) Regulated electric revenues $401.8 $273.0 $923.3 $685.1 Non-regulated electric revenues 2.0 5.8 8.7 34.1 Other revenues 1.1 4.2 4.3 8.9 ------ ------ ------ ------ Total operating revenues $404.9 $283.0 $936.3 $728.1 ====== ====== ====== ====== The table above shows the amounts of electric revenues earned that are subject to price regulation (regulated) and that are not subject to price regulation (non-regulated). "Regulated electric revenues" include revenues for delivery (transmission and distribution) service and BGS. "Regulated electric revenues" increased by $128.8 million for the three months ended September 30, 2001 and $238.2 million for the nine months ended September 30, 2001 due to the following factors:
Increase (Decrease) in Regulated Electric Revenues ----------------------------- Three Months Nine Months ------------ ----------- (Dollars in Millions) Additional revenues recognized under the regulated cost-based rate-recovery mechanism for BGS $ 71.2 $ 120.9 Increased retail and interchange sales and other * 57.6 117.3 ------------ ----------- $ 128.8 $ 238.2 ============ ===========
* These increases were primarily due to higher volumes of regulated electricity sales and deliveries attributed to growth in the number of customers, higher electricity usage from warmer summer weather and colder winter weather, and revenues from electricity supplied to customers that switched back to ACE from other electricity suppliers. "Non-regulated electric revenues" decreased by approximately $25.4 million for the nine months ended September 30, 2001 mainly due to the transfer of the combustion turbine electric generating units to Conectiv on July 1, 2000. Operating Expenses - ------------------ Electric Fuel and Purchased Energy and Capacity "Electric fuel and purchased energy and capacity" increased $124.2 million and $189.2 million for the three months and nine months ended September 30, 2001, respectively, mainly due to increased volumes of electricity purchased, primarily due to ACE's Letter Agreements, under which ACE sold its interest in the kWh output of nuclear electric generating plants to the companies that operate the plants. For more information concerning the letter agreements, see Note 12 to the Consolidated Financial Statements in Item 8 of Part II of ACE's 2000 Annual Report on Form 10-K. -14- Operation and Maintenance Expenses Operation and maintenance expenses increased $3.1 million and $4.8 million for the three months and nine months ended September 30, 2001, respectively, mainly due to increasing the allowance for uncollectible accounts receivable. Depreciation and amortization Depreciation and amortization expenses decreased $2.5 million and $10.3 million for the three months and nine months ended September 30, 2001, respectively, mainly due to expiration of the amortization of a regulatory asset for purchased capacity costs. Other Income - ------------ Other income increased $2.7 million for the nine months ended September 30, 2001 primarily due to a higher average investment balance in Conectiv's money pool, and also due to interest income accrued on the regulatory asset for deferred BGS costs, which represents amounts to be recovered from customers in the future. A portion of ACE's BGS costs were not recovered from customers during 2001 due to customer rate levels, which caused the balance for the deferred energy supply costs to change from a liability to an asset, during the second quarter of 2001. Interest Expense - ---------------- Interest expense, net of amounts capitalized, decreased $3.2 million and $9.8 million for the three months and nine months ended September 30, 2001, respectively, due to less interest expense attributed to deferred energy supply costs, lower interest rates on ACE's $228.5 million loan associated with the Pedricktown contract buyout, the redemption of $10.0 million and $30.0 million of 6.81%-7.0% Medium Term Notes on May 15, 2001 and August 1, 2001, respectively, and other miscellaneous decreases. Income Taxes - ------------ Income taxes increased $19.6 million for the nine months ended September 30, 2001 mainly due to higher income before income taxes and also because the effective income tax rate for the same period last year had been decreased by a change in estimate of previously accrued income taxes due to resolution of uncertainties. Liquidity and Capital Resources - -------------------------------- Due to $9.2 million of cash used by operating activities, $53.6 million of cash used by investing activities, and $76.6 million of cash used by financing activities, cash and cash equivalents decreased by $139.4 million during the nine months ended September 30, 2001. Net cash from operating activities decreased by $194.2 million, to $9.2 million of cash used by operations for the nine months ended September 30, 2001, from $185.0 million of cash provided by operations for the nine months ended September 30, 2000. The decrease in net cash from operating activities was primarily due to higher amounts of electricity purchased during the nine months ended September 30, 2001 and income tax refunds received during the nine months ended September 30, 2000. -15- Investing activities used $53.6 million of net cash during the nine months ended September 30, 2001 primarily due to $50.4 million of capital expenditures, which were primarily for the electric transmission and distribution systems of ACE. Cash Flows From Financing Activities for the nine months ended September 30, 2001 used $76.6 million of cash mainly due to the following: $38.9 million of dividends paid on ACE's common stock held by Conectiv; the redemptions of $40.0 million of 6.81%-7.0% Medium Term Notes and $11.5 million of preferred stock ($7.80 annual dividend rate per each $100 share), $8.8 million of capital lease principal payments, and $24.4 million of cash provided from issuing short-term debt. ACE's capital structure, expressed as a percentage of total capitalization, is shown below as of September 30, 2001 and December 31, 2000.
September 30, December 31, 2001 2000 ---------- ---------- Common stockholder's equity 36.3% 34.5% Preferred stock and preferred trust securities 6.7% 7.4% Long-term debt and variable rate demand bonds 49.2% 52.3% Short-term debt and current maturities of long-term debt 7.8% 5.8%
ACE's ratio of earnings to fixed charges and ratio of earnings to fixed charges and preferred stock dividends under the SEC Methods are shown below. See Exhibit 12-A, Ratio of Earnings to Fixed Charges, and Exhibit 12-B, Ratio of Earnings to Fixed Charges and Preferred Dividends, for additional information.
9 Months Ended Year Ended December 31, September 30, ---------------------------- 2001 2000 1999 1998 1997 1996 ---------- ---- ---- ---- ---- ---- Ratio of Earnings to Fixed Charges (SEC Method) 2.85 2.03 2.57 1.66 2.84 2.59 Ratio of Earnings to Fixed Charges and Preferred Stock Dividends (SEC Method) 2.74 1.95 2.44 1.55 2.58 2.16
New Accounting Standards - ------------------------ On July 20, 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that business combinations initiated after June 30, 2001 be accounted for under the purchase method of accounting and does not permit the use of the pooling of interests method of accounting for business combinations. Under SFAS No. 142, goodwill that has not been included in the rates of a regulated utility subject to SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation," will no longer be amortized. Intangible assets other than goodwill which have finite useful lives will continue to be amortized under SFAS No. 142. Goodwill and other intangible assets will be tested periodically for impairment. If an impairment occurs, then a charge to earnings would result. SFAS No. 142 will be effective January 1, 2002 for companies with a calendar fiscal year, including ACE. Since no goodwill or intangible assets are on ACE's balance sheet, the adoption of SFAS No. 141 and SFAS No. 142 is not expected to immediately effect ACE's financial statements. -16- On August 9, 2001, the FASB issued SFAS No. 143, "Accounting For Asset Retirement Obligations," which establishes the accounting requirements for asset retirement obligations (ARO) associated with tangible long-lived assets. If a legal obligation for an ARO exists, then SFAS No. 143 requires recognition of a liability, capitalization of the cost associated with the ARO, and allocation of the capitalized cost to expense. The initial measurement of an ARO is based on the fair value of the obligation, which may result in a gain or loss upon the settlement of the ARO. If the requirements of SFAS No. 71 are met, a regulated entity shall also recognize a regulatory asset or liability for timing differences between financial reporting and rate-making in the recognition of the period costs associated with an ARO. SFAS No. 143 will be effective January 1, 2003 for companies with a calendar fiscal year, including ACE. Upon adoption of SFAS No. 143, the difference between the net amount recognized in the balance sheet under SFAS No. 143 and the net amount previously recognized in the balance sheet will be recognized as the cumulative effect of a change in accounting principle. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which requires that one accounting model be used for long-lived assets to be disposed of by sale and broadens discontinued operations to include more disposal transactions. Under SFAS No. 144, operating losses of discontinued operations are recognized in the period in which they occur, instead of accruing future operating losses before they occur. SFAS No. 144 will become effective on January 1, 2002. ACE is currently evaluating SFAS No. 141, 142, 143, and 144 and cannot predict the impact that these standards may have on its financial position or results of operations; however, any such impact could be material. Item 3. Quantitative and Qualitative Disclosures About Market Risk - ------- ---------------------------------------------------------- As previously disclosed under "Quantitative and Qualitative Disclosures About Market Risk" on page II-13 to ACE's 2000 Annual Report on Form 10-K, ACE is subject to market risks, including interest rate risk, equity price risk, and commodity price risk. There were no material changes in ACE's level of market risks as of September 30, 2001 compared to December 31, 2000. -17- PART II. OTHER INFORMATION Item 1. Legal Proceedings - ------- ----------------- Information reported under the heading "Other" in Note 8 to the Consolidated Financial Statements under Item 1 in Part I herein, concerning an action filed in a New Jersey Superior Court by the City of Vineland, is incorporated by reference. Item 6. Exhibits and Reports on Form 8-K - ------- -------------------------------- (a) Exhibits - ------------ Exhibit 10-B, Second Amendment to the Purchase and Sale Agreement by and between Atlantic City Electric Company and NRG Energy, Inc., dated as of October 31, 2001 (wholly owned electric generating plants) (Filed herewith). Exhibit 10-C, Second Amendment to the Purchase and Sale Agreement by and between Atlantic City Electric Company and NRG Energy, Inc., dated as of October 31, 2001 (jointly owned electric generating plants) (Filed herewith). Exhibit 12-A, Ratio of Earnings to Fixed Charges (filed herewith) Exhibit 12-B, Ratio of Earnings to Fixed Charges and Preferred Dividends (filed herewith) (b) Reports on Form 8-K - ----------------------- No Current Reports on Form 8-K were filed during the third quarter of 2001. 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: November 9, 2001 /s/ John C. van Roden ---------------- -------------------------------------------- John C. van Roden, Chief Financial Officer -18- Exhibit Index ------------- Exhibit 10-B, Second Amendment to the Purchase and Sale Agreement by and between Atlantic City Electric Company and NRG Energy, Inc., dated as of October 31, 2001 (wholly owned electric generating plants) (Filed herewith). Exhibit 10-C, Second Amendment to the Purchase and Sale Agreement by and between Atlantic City Electric Company and NRG Energy, Inc., dated as of October 31, 2001 (jointly owned electric generating plants) (Filed herewith). Exhibit 12-A, Ratio of Earnings to Fixed Charges Exhibit 12-B, Ratio of Earnings to Fixed Charges and Preferred Dividends EX-10.B 3 dex10b.txt AMENDMENT TO PURCHASE AND SALE AGREEMENT EXHIBIT 10-B ------------ ACE WHOLLY OWNED AGREEMENT SECOND AMENDMENT TO THE PURCHASE AND SALE AGREEMENT BY AND BETWEEN ATLANTIC CITY ELECTRIC COMPANY AND NRG ENERGY, INC. SECOND AMENDMENT TO THE PURCHASE AND SALE AGREEMENT (the "Second Amendment") by and between Atlantic City Electric Company, a New Jersey corporation ("ACE" or "Seller"), and NRG Energy, Inc., a Delaware corporation ("Buyer"), dated as of October 31, 2001. Seller and Buyer may each be referred to herein individually as a "Party" and collectively as the "Parties." Capitalized terms used and not otherwise defined in this Second Amendment shall have the respective meanings assigned to them in the Amended Agreement (as defined below). WHEREAS, Seller and Buyer are Parties to the Purchase and Sale Agreement, dated as of January 18, 2000 (the "Agreement"), and the Amendment to the Agreement, dated as of June 22, 2001 (the "First Amendment" and, together with the Agreement, the "Amended Agreement"), providing for the sale and assignment by Seller of the Purchased Assets and the Assumed Liabilities and the purchase and assumption by Buyer of the Purchased Assets and the Assumed Liabilities, upon the terms and conditions set forth in the Amended Agreement; and WHEREAS, the Closing of the transactions contemplated by the Amended Agreement and the ACE Related Purchase Agreement, as amended, has been unexpectedly delayed; and WHEREAS, as a result of the delay of the Closing, the Parties desire to further amend the Amended Agreement as set forth herein and the ACE Related Purchase Agreement, as amended, as set forth in the amendment thereto, which is being entered into simultaneously with this Second Amendment, to, among other things, extend the termination date of the Amended Agreement and the ACE Related Purchase Agreement, as amended. NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Seller and Buyer hereby agree as follows: ARTICLE I Amendment of Certain Provisions of the Amended Agreement -------------------------------------------------------- Section 1.1 Certain Definitions. Section 1.1 of the Agreement is ------------------- hereby amended to include the following additional provision: "(165) "Special Access Agreement" means the easement and license agreement ------------------------- between Buyer and Seller, or any Affiliate thereof, to be delivered at the Closing, pursuant to which Buyer will provide Seller, or an Affiliate thereof, with rights with respect to certain Excluded Assets, comprised of microwave antennae, transmission lines and associated equipment located at the B.L. England Station, relating to the transmission and delivery of electric power or the operation of B.L. England Station." Section 1.2 Deliveries by Seller. Section 3.6(f) is hereby -------------------- amended and restated in its entirety to read as follows: "(f) The Access Agreement and the Special Access Agreement, in each case, duly executed by Seller, or an Affiliate thereof, and in recordable form;" Section 1.3 Deliveries by Buyer. Section 3.7(e) is hereby ------------------- amended and restated in its entirety to read as follows: "(e) The Access Agreement and the Special Access Agreement, in each case, duly executed by Buyer and in recordable form;" 2 Section 1.4 Certain Representations and Warranties of Seller. ------------------------------------------------- Section 4.2 of the Agreement is hereby amended and restated in its entirety to read as follows: "Seller has full corporate power and authority to execute and deliver this Agreement and each Additional Agreement to which it is a party and to consummate the transactions contemplated hereby and thereby. Except for the approval of the respective provisos to clauses (iii) and (iv) of Section 9.1(b) hereof by the Board of Directors of Seller, the execution and delivery by Seller of this Agreement and each Additional Agreement to which it is a party and the consummation by Seller of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action required on the part of Seller. This Agreement has been duly and validly executed and delivered by Seller and, subject to the receipt of Seller's Required Regulatory Approvals, this Agreement constitutes, and upon the execution and delivery by Seller of each Additional Agreement to which it is a party, each such Additional Agreement will constitute, the legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar Laws affecting or relating to enforcement of creditors' rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity)." Section 1.5 Certain Covenants of the Parties. -------------------------------- (a) Section 6.5 of the Agreement is hereby amended to include the following additional provisions: "(e) Without limiting the generality of Section 6.5(b) of the Agreement, from and after the date of this Second Amendment, Seller and Buyer shall reasonably cooperate with each other to supplement the testimony provided to the NJBPU prior to the date hereof." "(f) Seller and Buyer shall use their respective Commercially Reasonable Efforts to promptly enter into a Joint Defense Agreement relating to B.L. England Station, in form and substance satisfactory to each of Seller and Buyer. Notwithstanding any provision of such Joint Defense Agreement to the contrary, the provisions of this Agreement shall govern and control any 3 conflict or inconsistency between or among the provisions hereof and the provisions of such Joint Defense Agreement." (b) Article VI of the Agreement is hereby amended to include the following additional provision: "Section 6.18 Special Access Agreement. Without limiting the generality of ------------------------- Section 6.4(a), Buyer and Seller shall prepare, negotiate and enter into, or cause to be entered into, the Special Access Agreement, in form and substance satisfactory to each of Buyer and Seller, on or prior to the Closing Date." Section 1.6 Certain Termination Provisions. Section 9.1(b) of the ------------------------------ Agreement, as amended by Section 1.9 of the First Amendment, is hereby amended and restated in its entirety to read as follows: "This Agreement may be terminated by Seller, on the one hand, or Buyer, on the other hand, upon written notice to the other Party, (i) at any time prior to the Closing if any court of competent jurisdiction shall have issued an order, judgment or decree permanently restraining, enjoining or otherwise prohibiting the Closing, and such order, judgment or decree shall have become final and nonappealable; (ii) at any time prior to the Closing if any Law shall have been enacted or issued by any Governmental Authority which, directly or indirectly, prohibits the consummation of the transactions contemplated by this Agreement or by any Additional Agreement; (iii) solely with respect to the Deepwater Station Transactions, at any time after December 31, 2001, if the Closing of the Deepwater Station Transactions shall not have occurred on or before such date, provided, however, that neither Seller nor Buyer shall be permitted to so terminate this Agreement, solely with respect to the Deepwater Station Transactions, at any time prior to March 1, 2002, if the Board of Directors of Seller shall have approved this proviso to this clause (iii) on or prior to December 31, 2001; or (iv) solely with respect to the B.L. England Station Transactions, at any time after December 31, 2001, if the Closing of the B.L. England Station Transactions shall not have occurred on or before such date, provided, however, that neither Seller nor Buyer shall be permitted to so terminate this Agreement, solely with respect to the B.L. England Station Transactions, at any time prior to March 1, 2002, if the Board of Directors of Seller shall have approved this proviso to this clause (iv) on or prior to December 31, 2001; and, provided, 4 further, that the right to terminate this Agreement under Section 9.1(b)(iii) or Section 9.1(b)(iv) shall not be available to any Party whose breach of this Agreement has caused, or resulted in, the failure of the Closing to occur on or before such applicable date." ARTICLE II Release, Waiver and Additional Provisions ----------------------------------------- Section 2.1 Release and Waiver of Claims Against Seller Parties. ---------------------------------------------------- (a) Buyer and each of its Affiliates hereby unconditionally and irrevocably releases, acquits and forever discharges Seller and its Affiliates, shareholders, officers, directors, employees, agents, representatives, successors and assigns (collectively, the "Seller Parties"), -------------- effective as of the date hereof, of and from, and hereby unconditionally and irrevocably waives, any and all claims, demands, debts, losses, costs, expenses, proceedings, judgments, damages, actions, causes of action, suits, contracts, agreements, obligations, accounts and liabilities of any kind or character whatsoever, known or unknown, suspected or unsuspected, in contract or in tort, at law or in equity ("Claims"), that the Buyer or any of its Affiliates alone or with any other Person had, now has, or might hereafter have against the Seller Parties or any of them jointly and/or severally, for or by reason of any matter, circumstance, event, action, omission, cause or thing whatsoever occurring or existing on or before the date of this Second Amendment, arising under, relating to or in connection with the Amended Agreement (or any of the Exhibits or Schedules thereto) and which are set forth in Schedule 2.1 to this Second ------------ Amendment. (b) Buyer hereby represents and warrants to Seller that, as of the date of this Second Amendment, to Buyer's knowledge, Buyer does not have any Claims against any Seller Party, other than as set forth in Schedule -------- 2.1 to this Second Amendment, which Claims have been released and waived pursuant to Section 2.1(a). 5 Section 2.2 Release and Waiver of Claims Against Buyer Parties. -------------------------------------------------- (a) Seller and each of its Affiliates hereby unconditionally and irrevocably releases, acquits and forever discharges Buyer and its Affiliates, shareholders, officers, directors, employees, agents, representatives, successors and assigns (collectively, the "Buyer Parties"), effective as of the date hereof, of and from, and hereby unconditionally and irrevocably waives, any and all Claims, that the Seller or any of its Affiliates alone or with any other Person had, now has, or might hereafter have against the Buyer Parties or any of them jointly and/or severally, for or by reason of any matter, circumstance, event, action, omission, cause or thing whatsoever occurring or existing on or before the date of this Second Amendment, arising under, relating to or in connection with the Amended Agreement (or any of the Exhibits or Schedules thereto) and which are set forth in Schedule 2.2 to this -------- Second Amendment. (b) Seller hereby represents and warrants to Buyer that, as of the date of this Second Amendment, to Seller's knowledge, Seller does not have any Claims against any Buyer Party, other than as set forth in Schedule 2.2 -------- to this Second Amendment, which Claims have been released and waived pursuant to Section 2.2(a). Section 2.3 Disclosed Matters. Pursuant to Section 6.7 of the ----------------- Agreement, Buyer and Seller hereby acknowledge and agree that the supplemental or amended disclosure set forth in the Schedules to the Amended Agreement being delivered by Seller to Buyer contemporaneously with this Second Amendment and dated as of the date hereof shall, for purposes of the Amended Agreement, as further amended hereby, including for purposes of determining whether the conditions to Closing set forth in Article VII of the Agreement are satisfied, be deemed to have been disclosed as of January 18, 2000. 6 ARTICLE III Miscellaneous Provisions ------------------------ Section 3.1 Amendment and Modification. Subject to applicable Law, -------------------------- this Second Amendment may be amended, supplemented or otherwise modified only by written agreement entered into by all Parties. Section 3.2 Waiver of Compliance; Consents. To the extent ------------------------------ permitted by applicable Law, any failure of any of the Parties to comply with any covenant, agreement or condition set forth herein may be waived by the Party entitled to the benefit thereof only by a written instrument signed by such Party, but any such waiver shall not operate as a waiver of, or estoppel with respect to, any prior or subsequent failure to comply therewith. Section 3.3 Notices. All notices and other communications hereunder ------- shall be in writing and shall be given in accordance with Section 10.8 of the Agreement. Section 3.4 Assignment. This Second Amendment shall be binding upon ---------- and inure to the benefit of the Parties and their respective successors and permitted assigns, but neither this Second Amendment nor any of the rights, interests, obligations or remedies hereunder shall be assigned by any Party hereto, including by operation of law, without the prior written consent of the other Parties, nor is this Second Amendment intended to confer upon any other Person any rights, interests, obligations or remedies hereunder. Without limiting the generality of the foregoing, no provision of this Second Amendment shall create any third-party beneficiary rights in any Employee or former employee of Seller (including any beneficiary or dependent thereof) in respect of continued employment or resumed employment, and no provision of this Second Amendment shall create any rights in any such Persons in respect of any benefits that may be provided, directly or indirectly, under any employee benefit plan or arrangement except as expressly provided for thereunder. Notwithstanding the foregoing, (i) Seller may assign all or any portion of its rights, interests, obligations and remedies hereunder to Conectiv, a Delaware corporation, or any of Conectiv's wholly owned subsidiaries; provided, however, that no such ----------------- assignment shall (A) materially impair or delay the consummation of the transactions contemplated hereby or by the Amended Agreement or (B) relieve or discharge Seller from any of its obligations hereunder or under the Amended Agreement; and (ii) Buyer may assign all or any portion of its 7 EX-10.C 4 dex10c.txt AMENDMENT TO THE PURCHASE AND SALE AGREEMENT EXHIBIT 10-C ------------ ACE JOINTLY OWNED AGREEMENT SECOND AMENDMENT TO THE PURCHASE AND SALE AGREEMENT BY AND BETWEEN ATLANTIC CITY ELECTRIC COMPANY AND NRG ENERGY, INC. SECOND AMENDMENT TO THE PURCHASE AND SALE AGREEMENT (the "Second Amendment") by and between Atlantic City Electric Company, a New Jersey corporation ("ACE" or "Seller"), and NRG Energy, Inc., a Delaware corporation ("Buyer"), dated as of October 31, 2001. Seller and Buyer may each be referred to herein individually as a "Party" and collectively as the "Parties." Capitalized terms used and not otherwise defined in this Second Amendment shall have the respective meanings assigned to them in the Amended Agreement (as defined below). WHEREAS, Seller and Buyer are Parties to the Purchase and Sale Agreement, dated as of January 18, 2000 (the "Agreement"), and the Amendment to the Agreement, dated as of June 22, 2001 (the "First Amendment" and, together with the Agreement, the "Amended Agreement"), providing for the sale and assignment by Seller of the Purchased Assets and the Assumed Liabilities and the purchase and assumption by Buyer of the Purchased Assets and the Assumed Liabilities, upon the terms and conditions set forth in the Amended Agreement; and WHEREAS, the Closing of the transactions contemplated by the Amended Agreement and the ACE Related Purchase Agreement, as amended, has been unexpectedly delayed; and WHEREAS, as a result of the delay of the Closing, the Parties desire to further amend the Amended Agreement as set forth herein and the ACE Related Purchase Agreement, as amended, as set forth in the amendment thereto, which is being entered into simultaneously with this Second Amendment, to, among other things, extend the termination date of the Amended Agreement and the ACE Related Purchase Agreement, as amended. NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Seller and Buyer hereby agree as follows: ARTICLE 1 Amendment of Certain Provisions of the Amended Agreement -------------------------------------------------------- Section 1.1 Certain Representations and Warranties of Seller ------------------------------------------------ Section 4.2 of the Agreement is hereby amended and restated in its entirety to read as follows: "Seller has full corporate power and authority to execute and deliver this Agreement and each Additional Agreement to which it is a party and to consummate the transactions contemplated hereby and thereby. Except for the approval of the proviso to clauses (iii) of Section 9.1(b) hereof by the Board of Directors of Seller, the execution and delivery by Seller of this Agreement and each Additional Agreement to which it is a party and the consummation by Seller of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action required on the part of Seller. This Agreement has been duly and validly executed and delivered by Seller and, subject to the receipt of Seller's Required Regulatory Approvals, this Agreement constitutes, and upon the execution and delivery by Seller of each Additional Agreement to which it is a party, each such Additional Agreement will constitute, the legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar Laws affecting or relating to enforcement of creditors' rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity)." 2 Section 1.2 Certain Covenants of the Parties. Section 6.4 of the -------------------------------- Agreement is hereby amended to include the following additional provisions: "(e) Without limiting the generality of Section 6.4(b) of the Agreement, from and after the date of this Second Amendment, Seller and Buyer shall reasonably cooperate with each other to supplement the testimony provided to the NJBPU prior to the date hereof." Section 1.3 Certain Termination Provisions. Section 9.1(b) of the ------------------------------ Agreement, as amended by Section 1.3 of the First Amendment, is hereby amended and restated in its entirety to read as follows: "This Agreement may be terminated by Seller, on the one hand, or Buyer, on the other hand, upon written notice to the other Party, (i) at any time prior to the Closing if any court of competent jurisdiction shall have issued an order, judgment or decree permanently restraining, enjoining or otherwise prohibiting the Closing, and such order, judgment or decree shall have become final and nonappealable; (ii) at any time prior to the Closing if any Law shall have been enacted or issued by any Governmental Authority which, directly or indirectly, prohibits the consummation of the transactions contemplated by this Agreement or by any Additional Agreement; or (iii) at any time after December 31, 2001, if the Closing shall not have occurred on or before such date, provided, however, that neither Seller nor Buyer shall be permitted to so terminate this Agreement at any time prior to March 1, 2002, if the Board of Directors of Seller shall have approved this proviso to this clause (iii) on or prior to December 31, 2001; and, provided, further, that the right to terminate this Agreement under Section 9.1(b)(iii) shall not be available to any Party whose breach of this Agreement has caused, or resulted in, the failure of the Closing to occur on or before such applicable date." ARTICLE II Release, Waiver and Additional Provisions ----------------------------------------- 3 Section 2.1 Release and Waiver of Claims Against Seller Parties. --------------------------------------------------- (a) Buyer and each of its Affiliates hereby unconditionally and irrevocably releases, acquits and forever discharges Seller and its Affiliates, shareholders, officers, directors, employees, agents, representatives, successors and assigns (collectively, the "Seller Parties"), effective as of the -------------- date hereof, of and from, and hereby unconditionally and irrevocably waives, any and all claims, demands, debts, losses, costs, expenses, proceedings, judgments, damages, actions, causes of action, suits, contracts, agreements, obligations, accounts and liabilities of any kind or character whatsoever, known or unknown, suspected or unsuspected, in contract or in tort, at law or in equity ("Claims"), that the Buyer or any of its Affiliates alone or with any other Person had, now has, or might hereafter have against the Seller Parties or any of them jointly and/or severally, for or by reason of any matter, circumstance, event, action, omission, cause or thing whatsoever occurring or existing on or before the date of this Second Amendment, arising under, relating to or in connection with the Amended Agreement (or any of the Exhibits or Schedules thereto) and which are set forth in Schedule 2.1 to this Second Amendment. -------- (b) Buyer hereby represents and warrants to Seller that, as of the date of this Second Amendment, to Buyer's knowledge, Buyer does not have any Claims against any Seller Party, other than as set forth in Schedule 2.1 to this -------- Second Amendment, which Claims have been released and waived pursuant to Section 2.1(a). Section 2.2 Release and Waiver of Claims Against Buyer Parties. --------------------------------------------------- (a) Seller and each of its Affiliates hereby unconditionally and irrevocably releases, acquits and forever discharges Buyer and its Affiliates, shareholders, officers, directors, employees, agents, representatives, successors and assigns (collectively, the "Buyer Parties"), effective as of the date hereof, of and from, and hereby unconditionally and irrevocably waives, any and all Claims, that the Seller or any of its Affiliates alone or with any other Person had, now has, or might hereafter have against the Buyer Parties or any of them jointly and/or severally, for or by reason of any matter, circumstance, event, action, omission, cause or thing whatsoever occurring or existing on or before the date of this Second Amendment, arising under, relating to or in connection with the Amended Agreement (or any of the Exhibits or Schedules thereto) and which are set forth in Schedule 2.2 to this Second Amendment. -------- 4 (b) Seller hereby represents and warrants to Buyer that, as of the date of this Second Amendment, to Seller's knowledge, Seller does not have any Claims against any Buyer Party, other than as set forth in Schedule 2.2 to -------- this Second Amendment, which Claims have been released and waived pursuant to Section 2.2(a). Section 2.3 Disclosed Matters. Pursuant to Section 6.6 of the ----------------- Agreement, Buyer and Seller hereby acknowledge and agree that the supplemental or amended disclosure set forth in the Schedules to the Amended Agreement being delivered by Seller to Buyer contemporaneously with this Second Amendment and dated as of the date hereof shall, for purposes of the Amended Agreement, as further amended hereby, including for purposes of determining whether the conditions to Closing set forth in Article VII of the Agreement are satisfied, be deemed to have been disclosed as of January 18, 2000. ARTICLE III Miscellaneous Provisions ------------------------ Section 3.1 Amendment and Modification. Subject to applicable Law, -------------------------- this Second Amendment may be amended, supplemented or otherwise modified only by written agreement entered into by all Parties. Section 3.2 Waiver of Compliance; Consents. To the extent -------------------------------- permitted by applicable Law, any failure of any of the Parties to comply with any covenant, agreement or condition set forth herein may be waived by the Party entitled to the benefit thereof only by a written instrument signed by such Party, but any such waiver shall not operate as a waiver of, or estoppel with respect to, any prior or subsequent failure to comply therewith. Section 3.3 Notices. All notices and other communications hereunder ------- shall be in writing and shall be given in accordance with Section 10.8 of the Agreement. 5 Section 3.4 Assignment. This Second Amendment shall be binding upon ---------- and inure to the benefit of the Parties and their respective successors and permitted assigns, but neither this Second Amendment nor any of the rights, interests, obligations or remedies hereunder shall be assigned by any Party hereto, including by operation of law, without the prior written consent of the other Parties, nor is this Second Amendment intended to confer upon any other Person any rights, interests, obligations or remedies hereunder. Without limiting the generality of the foregoing, no provision of this Second Amendment shall create any third-party beneficiary rights in any Employee or former employee of Seller (including any beneficiary or dependent thereof) in respect of continued employment or resumed employment, and no provision of this Second Amendment shall create any rights in any such Persons in respect of any benefits that may be provided, directly or indirectly, under any employee benefit plan or arrangement except as expressly provided for thereunder. Notwithstanding the foregoing, (i) Seller may assign all or any portion of its rights, interests, obligations and remedies hereunder to Conectiv, a Delaware corporation, or any of Conectiv's wholly owned subsidiaries; provided, however, that no such ----------------- assignment shall (A) materially impair or delay the consummation of the transactions contemplated hereby or by the Amended Agreement or (B) relieve or discharge Seller from any of its obligations hereunder or under the Amended Agreement; and (ii) Buyer may assign all or any portion of its rights, interests, obligations and remedies hereunder to (A) any of its wholly owned subsidiaries or (B) a trustee, lending institution or other Person solely for purposes of financing the transactions contemplated hereby; provided, however, ----------------- that no such assignment shall (A) materially impair or delay the consummation of the transactions contemplated hereby or by the Amended Agreement or (B) relieve or discharge Buyer from any of its obligations hereunder or under the Amended Agreement. Section 3.5 Governing Law. This Second Amendment shall be governed ------------- by and construed in accordance with the laws of the State of Delaware (without giving effect to conflicts of law principles) as to all matters, including validity, construction, effect, performance and remedies. Venue in any and all suits, actions and proceedings related to the subject matter of this Second Amendment shall be in the state and federal courts located in and for the State of Delaware (the "Courts"), which shall have exclusive jurisdiction for such ------ purpose, and the Parties hereby irrevocably submit to the exclusive jurisdiction of such courts and irrevocably waive the defense of an inconvenient forum to the maintenance of any such suit, action or proceeding. Service of process may be made in any manner recognized by such Courts. Each of the Parties hereby irrevocably waives its right to a jury trial 6 EX-12.A 5 dex12a.txt RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12-A Atlantic City Electric Company Ratio of Earnings to Fixed Charges ---------------------------------- (Dollars in Thousands)
9 Months Ended Year Ended December 31, September 30, ----------------------------------------------------------------------- 2001 2000 1999 1998 1997 1996 ------------- ------------ ------------ ------------ ------------ ------------ Income before extraordinary item $ 60,336 $ 54,434 $ 63,930 $ 30,276 $ 85,747 $ 75,017 ------------- ------------ ------------ ------------ ------------ ------------ Income taxes 43,746 36,746 49,326 18,178 50,442 36,958 ------------- ------------ ------------ ------------ ------------ ------------ Fixed charges: Interest on long-term debt including amortization of discount, premium and expense 47,693 76,178 60,562 63,940 64,501 64,847 Other interest 2,795 4,518 3,837 3,435 3,574 4,019 Preferred dividend requirements of subsidiary trusts 5,714 7,619 7,634 6,052 5,775 1,428 ------------- ------------ ------------ ------------ ------------ ------------ Total fixed charges 56,202 88,315 72,033 73,427 73,850 70,294 ------------- ------------ ------------ ------------ ------------ ------------ Earnings before extraordinary item, income taxes and $160,284 $179,495 $185,289 $121,881 $210,039 $182,269 fixed charges ============= ============ ============ ============ ============ ============ Ratio of earnings to fixed charges 2.85 2.03 2.57 1.66 2.84 2.59
For purposes of computing the ratio, earnings are income before extraordinary item plus income taxes and fixed charges. Fixed charges consist of interest on long- and short-term debt, amortization of debt discount, premium, and expense, dividends on preferred securities of subsidiary trusts, and the estimated interest component of rentals. EX-12.B 6 dex12b.txt RATIO OF EARNINGS TO FIXED CHARGES & PREFERRED DIV Exhibit 12-B Atlantic City Electric Company Ratio of Earnings to Fixed Charges and Preferred Dividends ---------------------------------------------------------- (Dollars in Thousands)
9 Months Ended Year Ended December 31, September 30, ------------------------------------------------------------------------ 2001 2000 1999 1998 1997 1996 ------------ ------------ ------------ ------------ ------------ ------------ Income before extraordinary item $60,336 $54,434 $63,930 $30,276 $85,747 $75,017 ------------ ------------ ------------ ------------ ------------ ------------ Income taxes 43,746 36,746 49,326 18,178 50,442 36,958 ------------ ------------ ------------ ------------ ------------ ------------ Fixed charges: Interest on long-term debt including amortization of discount, premium and expense 47,693 76,178 60,562 63,940 64,501 64,847 Other interest 2,795 4,518 3,837 3,435 3,574 4,019 Preferred dividend requirements of subsidiary trusts 5,714 7,619 7,634 6,052 5,775 1,428 ------------ ------------ ------------ ------------ ------------ ------------ Total fixed charges 56,202 88,315 72,033 73,427 73,850 70,294 ------------ ------------ ------------ ------------ ------------ ------------ Earnings before extraordinary item, income taxes and fixed charges $160,284 $179,495 $185,289 $121,881 $210,039 $182,269 ============ ============ ============ ============ ============ ============ Fixed charges $56,202 $88,315 $72,033 $73,427 $73,850 $70,294 Preferred dividend requirements 2,370 3,571 3,777 5,289 7,506 14,214 ------------ ------------ ------------ ------------ ------------ ------------ $58,572 $91,886 $75,810 $78,716 $81,356 $84,508 ============ ============ ============ ============ ============ ============ Ratio of earnings to fixed charges and preferred dividends 2.74 1.95 2.44 1.55 2.58 2.16
For purposes of computing the ratio, earnings are income before extraordinary item plus income taxes and fixed charges. Fixed charges consist of interest on long- and short-term debt, amortization of debt discount, premium, and expense, dividends on preferred securities of subsidiary trusts, and the estimated interest component of rentals. Preferred dividend requirements represent annualized preferred dividend requirements multiplied by the ratio that pre-tax income bears to net income. -----END PRIVACY-ENHANCED MESSAGE-----