EX-99 6 dex99.txt PRO FORMA FINANCIAL STATEMENTS EXHIBIT 99 2000 ATLANTIC CITY ELECTRIC COMPANY PRO FORMA FINANCIAL STATEMENTS - GENERATION ASSET SALE AND TRANSFER BACKGROUND In 1999, the electric utility business of Atlantic City Electric Company (ACE) was restructured pursuant to legislation enacted in New Jersey and a Summary Order issued by the New Jersey Board of Public Utilities (NJBPU). The restructuring of ACE's electric utility business is discussed in Notes 1, 6, 7, 8 and 14 to the Consolidated Financial Statements, included in Item 8 of Part II, and "Electric Utility Industry Restructuring," within Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A), included in Item 7 of Part II. Conectiv is realigning the mix of electric generating plants owned by its subsidiaries in connection with electric utility industry restructuring and its "mid-merit" electric generation strategy. ACE has entered into agreements to sell its nuclear and non-strategic baseload fossil fuel-fired electric generating plants. As of December 31, 2000, all the electric generating plants of ACE were subject to agreements for sale and the plants had 1,122.7 megawatts of capacity and a net book value of $132.1 million, excluding the nuclear decommissioning liability included in accumulated depreciation. The agreements for the sale of the electric generating plants provide for an aggregate sales price of approximately $189 million, before certain adjustments and selling expenses, as discussed in Note 11 to the Consolidated Financial Statements included in Item 8 of Part II. Upon the sale of the ownership interests of ACE in nuclear electric generating units, ACE will transfer its nuclear decommissioning funds to the purchasers who will assume full responsibility for decommissioning such units. The sales of the electric generating plants are expected to take place during 2001. However, as discussed in Note 11 to the Consolidated Financial Statements included in Item 8 of Part II, there can be no assurances that the sales will be completed. Effective July 1, 2000, ACE contributed at net book value to Conectiv combustion turbine electric generating units with 502 megawatts of capacity. Then, Conectiv transferred the electric generating plants to a subsidiary of Conectiv Energy Holding Company (CEH). CEH and its subsidiaries are engaged in non-regulated electricity production and sales, energy trading, and marketing. DESCRIPTION OF PRO FORMA FINANCIAL INFORMATION The following Consolidated Financial Statements for ACE are filed with this Exhibit: . Unaudited Pro Forma Consolidated Balance Sheet at December 31, 2000, and . Unaudited Pro Forma Consolidated Statement of Income for the Year Ended December 31, 2000. The following major assumptions were made in preparing these pro forma Consolidated Financial Statements: . For purposes of the pro forma Consolidated Balance Sheet, the sales of nuclear and non-strategic baseload fossil fuel-fired electric generating plants were all assumed to occur as of December 31, 2000. . For purposes of the pro forma Consolidated Statement of Income, the sales and transfer described above were assumed to occur as of January 1, 2000. As a result, expenses related to generation assets assumed to be sold were eliminated. . The contribution of the combustion turbines of ACE to Conectiv was assumed to be at net book value, on a non-taxable basis. -1- . Replacement energy and capacity were assumed to be purchased from the PJM Interconnection, L.L.C. (PJM). The energy costs were based on an hourly PJM Locational Marginal Price (LMP) and the capacity costs were based on semi- annual weighted average PJM capacity rates. . Under its rates for electricity supplied to utility customers, ACE was assumed to be permitted to earn a return on the stranded costs resulting from the sale of the power plants and to no longer earn a return on the power plants sold. . Revenues which resulted from the Wholesale Transaction Confirmation Letter Agreements during 2000, as discussed in Note 12 to the Consolidated Financial Statements, were assumed to have not been earned due to the assumed sale of the nuclear power plants on January 1, 2000. . Revenues earned from plants contributed to Conectiv on July 1, 2000 were assumed to not have been earned, based on an assumed transfer date of January 1, 2000 for the pro forma Consolidated Statement of Income. . The proceeds from the sale of the nuclear and non-strategic baseload fossil electric generation plants of ACE were assumed to be used to repay long-term debt, after considering expected debt retirement costs. . The transfer of the decommissioning trusts as a result of the sale of the ownership interests of ACE in nuclear electric generating units was assumed to occur on a non-taxable basis. . The net pro forma gain from the sale of ACE's generation units, except for the Deepwater generation unit, was recorded as a reduction to recoverable stranded costs. The net loss of approximately $38 million which is expected to result from the sale of the Deepwater generation unit was recorded as an extraordinary charge in the 4th quarter of 1999. A pro forma adjustment resulting from the recognition of unamortized investment tax credits which are recognized upon completion of the sale was credited to retained earnings. . An effective tax rate of 40% was utilized to calculate the income tax effects of adjustments to the pro forma Consolidated Statement of Income. These pro forma Consolidated Financial Statements have been prepared for comparative purposes only and do not purport to be indicative of operations or financial condition which would have actually resulted if the sale and transfer of generation assets or other related transactions occurred on the dates of the periods presented, or which may result in the future. Further, these pro forma Consolidated Financial Statements have been prepared using information available at the date of this filing. As a result, certain amounts indicated herein are preliminary in nature and, therefore, will be subject to adjustment in the future. DESCRIPTION OF PRO FORMA ADJUSTMENTS The Unaudited Pro Forma Consolidated Statement of Income and Consolidated Balance Sheet filed with this Exhibit reflect the following adjustments: Adjustments to the Consolidated Statement of Income: 1. A net decrease in "Electric revenues" due to (i) no revenues from the operations of deregulated electric generating units (contributed to Conectiv) and the nuclear plants under the "Wholesale Transaction Confirmation Letter Agreements," and (ii) no return earned on generation rate base of divested plants, partly offset by a return earned on stranded costs. 2. A net increase in "Electric fuel and purchased energy and capacity" primarily because the cost increase from ACE purchasing all energy and capacity requirements to meet its retail load exceeded the cost -2- decrease from no longer purchasing fuel for the electric generating units sold and contributed to Conectiv. 3. Decreases in other operating expenses as a result of the sale and transfer of the electric generating plants of ACE. 4. A decrease in "Interest charges" as a result of retirement of long-term debt after the sale of the electric generating plants of ACE. Adjustments to the Consolidated Balance Sheet: 1. A net increase to "Cash and cash equivalents" primarily as a result of net proceeds received from the sale of the electric generating plants, less cash used for the retirement of long-term debt. 2. A decrease to "Fuel" inventories as a result of the sale of the electric generating plants. 3. An increase in "Taxes receivable" and a decrease in "Taxes accrued" due to the tax benefit associated with the tax loss on the sale of the electric generating plants. 4. A decrease to "Investments" as a result of the transfer of nuclear decommissioning trust funds to the buyers of the nuclear generation assets. 5. A decrease to "Property, plant and equipment" and "Construction work-in- progress" as a result of the sale of the electric generating plants and related assets. 6. A decrease to "Accumulated Depreciation" as a result of the sale of the electric generating plants and the assumption of the nuclear decommissioning obligations of ACE by the purchasers of the nuclear plants. 7. Decreases to "Leased nuclear fuel, at amortized cost", "Current capital lease obligation", and "Long-term capital lease obligation" as a result of the sale of the nuclear fuel to the buyers of the nuclear electric generating units and the corresponding liquidation of the capital lease obligation. 8. Decrease to "Recoverable stranded costs" and an increase to "Regulatory Liability for New Jersey income tax benefit" due to the sale of the electric generating plants of ACE, which are subject to stranded cost recovery. As a result of an expected net gain from the sale of such assets, there is a decrease in recoverable stranded costs. 9. Changes to "Deferred income taxes, net," "Deferred investment tax credits," "Above-market purchased energy contracts and other electric restructuring liabilities," and "Other Deferred Credits and Other Liabilities" as a result of the sale of the electric generating plants. 10. Net increase to "Retained Earnings" as a result of reversal of the unamortized investment tax credit balance associated with the deregulated Deepwater plant, at the time of its sale. 11. Decrease to "Long-term debt" due to assumed repayment of debt with net sale proceeds assumed to be available after payment of debt retirement costs. -3- ATLANTIC CITY ELECTRIC COMPANY UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME YEAR ENDED DECEMBER 31, 2000
------------- ------------- ------------- Reported Adjustments Pro Forma ------------- ------------- ------------- (Dollars in Thousands) OPERATING REVENUES $ 968,383 $ (74,362) (1) $ 894,021 ------------- ------------- ------------- OPERATING EXPENSES Electric fuel and purchased energy and capacity 420,737 72,357 (2) 493,094 Operation and maintenance 243,682 (83,006) (3) 160,676 Depreciation and amortization 101,527 (37,264) (3) 64,263 Taxes other than income taxes 35,913 (1,322) (3) 34,591 ------------- ------------- ------------- 801,859 (49,235) 752,624 ------------- ------------- ------------- OPERATING INCOME 166,524 (25,127) 141,397 ------------- ------------- ------------- OTHER INCOME 7,808 7,808 ------------- ------------- ------------- INTEREST EXPENSE Interest charges 76,178 (12,394) (4) 63,784 Allowance for borrowed funds used during construction and capitalized interest (645) (645) ------------- ------------- ------------- 75,533 (12,394) 63,139 ------------- ------------- ------------- PREFERRED DIVIDEND REQUIREMENTS ON PREFERRED SECURITIES OF SUBSIDIARY TRUSTS 7,619 7,619 ------------- ------------- ------------- INCOME BEFORE INCOME TAXES 91,180 (12,733) 78,447 INCOME TAXES 36,746 (5,093) 31,653 ------------- ------------- ------------- NET INCOME 54,434 (7,640) 46,794 DIVIDENDS ON PREFERRED STOCK 2,132 2,132 ------------- ------------- ------------- EARNINGS APPLICABLE TO COMMON STOCK $ 52,302 $ (7,640) $ 44,662 ============= ============= =============
4 ATLANTIC CITY ELECTRIC COMPANY UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEETS DECEMBER 31, 2000
Reported Adjustments Pro Forma ----------- ------------- ------------ (Dollars in Thousands) ASSETS Current Assets Cash and cash equivalents $ 8,117 $ 4,000 (1) $ 12,117 Accounts receivable net of allowance of $4,423 140,785 140,785 Investment in Conectiv money pool 147,954 147,954 Inventories, at average cost Fuel (coal and oil) 6,818 (117)(2) 6,701 Materials and supplies 6,786 6,786 Deferred income taxes, net 15,750 15,750 Taxes receivable - 42,521 (3) 42,521 Prepayments 1,738 1,738 ------------- ------------ ------------- 327,948 46,404 374,352 ------------- ------------ ------------- Investments 112,501 (109,399)(4) 3,102 ------------- ------------ ------------- Property, Plant and Equipment Electric generation 142,243 (142,243)(5) - Electric transmission and distribution 1,255,184 (6,021)(5) 1,249,163 Other electric facilities 119,782 119,782 Other property, plant, and equipment 5,772 5,772 ------------- ------------ ------------- 1,522,981 (148,264) 1,374,717 Less: Accumulated depreciation 640,103 (126,345)(6) 513,758 ------------- ------------ ------------- Net plant in service 882,878 (21,919) 860,959 Construction work-in-progress 50,247 (514)(5) 49,733 Leased nuclear fuel, at amortized cost 28,352 (28,352)(7) - ------------- ------------ ------------- 961,477 (50,785) 910,692 ------------- ------------ ------------- Deferred Charges and Other Assets Recoverable stranded costs, net 958,883 (46,757)(8) 912,126 Unrecovered purchased power costs 14,487 14,487 Deferred recoverable income taxes 13,978 13,978 Unrecovered New Jersey state excise taxes 10,360 10,360 Deferred debt refinancing costs 12,409 12,409 Deferred other postretirement benefit costs 29,981 29,981 Unamortized debt expense 12,842 12,842 Other 26,516 26,516 ------------- ------------ ------------- 1,079,456 (46,757) 1,032,699 ------------- ------------ ------------- Total Assets $ 2,481,382 $ (160,537) $ 2,320,845 ============= ============ =============
5 ATLANTIC CITY ELECTRIC COMPANY UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEETS DECEMBER 31, 2000
----------- ------------ ---------- Reported Adjustments Pro Forma ----------- ------------ ---------- (Dollars in Thousands) CAPITALIZATION AND LIABILITIES Current Liabilities Short-term debt $ - $ - Long-term debt due within one year 97,200 97,200 Variable rate demand bonds 22,600 22,600 Accounts payable 50,744 50,744 Taxes accrued 10,243 $ (10,243) (3) - Interest accrued 18,193 18,193 Dividends payable 17,871 17,871 Current capital lease obligation 15,480 (15,480) (7) - Deferred energy supply costs 34,650 34,650 Above-market purchased energy contracts and other electric restructuring liabilities 7,586 7,586 Other 30,268 (1,170) 29,098 ------------ ---------- ------------- 304,835 (26,893) 277,942 ------------ ---------- ------------- Deferred Credits and Other Liabilities Deferred income taxes, net 405,385 81,143 (9) 486,528 Regulatory liability for New Jersey income tax benefit 49,262 5,174 (8) 54,436 Above-market purchased energy contracts and other electric restructuring liabilities 16,744 (6,813) (9) 9,931 Deferred investment tax credits 35,851 (14,188) (9) 21,663 Long-term capital lease obligation 12,872 (12,872) (7) - Pension benefit obligation 26,948 26,948 Other postretirement benefit obligation 37,614 37,614 Other 28,918 (9,789) (9) 19,129 ------------ ------------- ------------- 613,594 42,655 656,249 ------------ ------------- ------------- 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 114,962 3,330 (10) 118,292 ------------ ------------- ------------- Total common stockholder's equity 580,119 3,330 583,449 Preferred stock not subject to mandatory redemption 6,231 6,231 Preferred stock subject to mandatory redemption 23,950 23,950 Preferred securities of subsidiary trusts subject to mandatory redemption 95,000 95,000 Long-term debt 857,653 (179,629) (11) 678,024 ------------ ------------- ------------- 1,562,953 (176,299) 1,386,654 ------------ ------------- ------------- Total Capitalization and Liabilities $ 2,481,382 $ (160,537) $ 2,320,845 ============ ============= =============
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