EXHIBIT 99
CONECTIV PRO FORMA FINANCIAL STATEMENTS - GENERATION ASSET SALE
General
In 1999, the electric utility businesses of Delmarva Power & Light Company (DPL)
and Atlantic City Electric Company (ACE) were restructured pursuant to
legislation enacted in Delaware, Maryland and New Jersey and orders issued by
the Delaware Public Service Commission (DPSC), Maryland Public Service
Commission (MPSC), and New Jersey Board of Public Utilities (NJBPU). The
restructurings of the electric utility businesses of DPL and ACE are discussed
in Conectiv's 2001 Annual Report on Form 10-K in Notes 1, 7, 10, 11 and 15 to
the Consolidated Financial Statements, included in Item 8 of Part II.
In connection with electric utility industry restructuring and Conectiv's
"mid-merit" strategy, as discussed under "Mid-Merit Electric Generation" in
Management's Discussion & Analysis of Financial Condition and Results of
Operations of Conectiv's 2001 Annual Report on Form 10-K, Conectiv has altered
the focus of its electric generation operations by building new "mid-merit"
electric generating plants and selling electric generating plants designed to
serve baseload demand.
Electric Generating Plants Sold During 2001
As discussed in Note 13 to the Consolidated Financial Statements included in
Item 8 of Part II of Conectiv's 2001 Annual Report on Form 10-K, on June 22,
2001, the ownership interests of DPL and another Conectiv subsidiary in plants
and related inventory that had a net carrying value of $310.8 million and
electric generating capacity of 1,080.8 megawatts (MW) were sold to NRG Energy,
Inc. (NRG) for cash proceeds of approximately $641.7 million, subject to final
adjustments for inventory and other items. A gain of $297.1 million before taxes
($175.0 million after taxes or $2.12 per share of common stock) resulted from
these sales and is included in operating revenues in the 2001 Consolidated
Statement of Income.
Also, on October 18, 2001, ACE sold for $29.6 million its 7.51% (164 MW)
interest in Peach Bottom Atomic Power Station (Peach Bottom), 7.41% interest
(167 MW) in Salem Nuclear Generating Station (Salem) and 5.0% interest (52 MW)
in Hope Creek Nuclear Generating Station (Hope Creek) and the related nuclear
fuel to the utilities that operate the plants. ACE's trust funds and obligation
for decommissioning the plants were transferred to the purchasers in conjunction
with the sale. The net assets sold had a carrying value of $27.3 million, which
reflects a write-down in 1999 related to discontinuing Statement of Financial
Accounting Standards No. 71, "Accounting For the Effects of Certain Types of
Regulation" (SFAS No. 71). ACE used $20.5 million of the proceeds to repay the
lease obligations related to the nuclear fuel. There was a $2.4 million pre-tax
gain on the sale, which did not affect earnings due to the terms of the 1999
restructuring of the electricity generation business of ACE; instead, the
pre-tax gain on the sale decreased the balance of deferred recoverable stranded
costs.
Agreements for Sale of Electric Generating Plants
As discussed in Note 13 to the Consolidated Financial Statements included in
Item 8 of Part II of Conectiv's 2001 Annual Report on Form 10-K, as of December
31, 2001, ACE's fossil fuel-fired electric generating plants (Deepwater Station,
Conemaugh and Keystone Stations and B.L. England Station) were under agreements
for sale to NRG for approximately $178 million (before adjustments for
inventories, expenses, and other items). The plants to be sold have electric
generating capacity of 740 MW, and as of December 31, 2001, the carrying value
of the plants was approximately $111 million. Due to the terms of ACE's electric
utility restructuring in 1999 and expected sales proceeds, (i) the loss expected
to be realized on the sale of the Deepwater Station was included in the
extraordinary charge to earnings in 1999, (ii) the loss expected to be realized
on the sale of the B.L. England Station is included in recoverable stranded
costs, and (iii) any net gain that may be realized on the sale of ACE's
interests in Conemaugh and Keystone Stations is expected to reduce the amount of
stranded costs to be recovered from ACE's utility customers.
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Description of Pro Forma Financial Information
The following consolidated financial statements for Conectiv are filed with this
Exhibit:
o Unaudited Pro Forma Consolidated Balance Sheet at December 31, 2001, and
o Unaudited Pro Forma 2001 Consolidated Statement of Income.
The following major assumptions were made in preparing these pro forma financial
statements:
o For purposes of the Pro Forma Consolidated Balance Sheet, (i) ACE's
fossil fuel-fired electric generating plants that are subject to the
agreements for sale, as discussed in Note 13 to the Consolidated
Financial Statements included in Item 8 of Part II of Conectiv's 2001
Annual Report on Form 10-K, were assumed to be sold as of December 31,
2001, and (ii) the proceeds from the sale of ACE's fossil fuel-fired
electric generating plants were assumed to be used to repay short-term
and long-term debt, after considering expected debt retirement costs and
tax payments on the gain on the sale of the electric generating plants.
o For purposes of the Pro Forma 2001 Consolidated Statement of Income, the
following sales and expected sale were assumed to have occurred on
January 1, 2001: (i) the sale of the ownership interests of DPL and
another Conectiv subsidiary on June 22, 2001 in electric generating
plants (1,080.8 MW), (ii) the sale of ACE's ownership interests in
nuclear electric generating plants (383 MW) on October 18, 2001, and
(iii) the expected sale of ACE's fossil fuel-fired electric generating
plants (740 MW), which were under agreements for sale as of December 31,
2001. As a result, expenses related to the electric generating plants
that were assumed to be sold were eliminated for the period of operations
during 2001.
o To replace the kilowatt-hours produced by the electric generating plants
that were assumed to be sold, 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 average PJM capacity rates.
o Under its rates for electricity supplied to utility customers, ACE was
assumed to be permitted to earn a return on the stranded costs resulting
from the power plant sales and to no longer earn a return on the power
plants sold.
o Revenues which resulted from the Wholesale Transaction Confirmation
Letter Agreements during 2001, as discussed in Note 13 to the
Consolidated Financial Statements included in Item 8 of Part II of
Conectiv's 2001 Annual Report on Form 10-K, were assumed not to have been
earned due to the assumption that the nuclear power plants were sold on
January 1, 2001.
o The net pro forma gain from the sale of ACE's fossil fuel-fired electric
generating plants was primarily recorded as a reduction to recoverable
stranded costs. A gain on the Deepwater electric generating plant
(primarily due to depreciation subsequent to the 1999 write-down
associated with discontinuing the application of SFAS No. 71 to ACE's
electric generation business) and the recognition of unamortized deferred
investment tax credits were credited to retained earnings.
o An effective tax rate of 40% was utilized to calculate the income tax
effects of adjustments to the Pro Forma 2001 Consolidated Statement of
Income.
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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 of generation
assets or other related transactions occurred on the dates of the period
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 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 the deregulated electric generating units, and (ii) no
revenues earned under the "Wholesale Transaction Confirmation Letter
Agreements" from ACE's interests in the nuclear electric generating plants.
2. An increase in "Electric fuel and purchased energy and capacity" primarily
because the cost increase from Conectiv's subsidiaries purchasing all
energy and capacity requirements to meet their retail load exceed the cost
decrease from no longer purchasing fuel for the electric generating units.
3. Decreases in other operating expenses as a result of the assumed sales of
certain electric generating plants as of January 1, 2001.
4. A decrease in the amount of "Deferred electric service costs" associated
with ACE's Basic Generation Service because (i) for ratemaking purposes,
the total return earned on the stranded costs of ACE is less than the total
return earned on the generation rate base of ACE's divested plants, and
(ii) there is a net reduction in the operating expenses associated with
supplying ACE's load, which results in a related reduction in the operating
expenses deferred. For additional information, see "Basic Generation
Service" in Note 10 to the Consolidated Financial Statements included in
Item 8 of Part II of Conectiv's 2001 Annual Report on Form 10-K.
5. A decrease in "Interest charges" as a result of retirement of debt due to
the sale of certain electric generating plants.
6. A decrease in income taxes due to the decrease in income before income
taxes.
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 certain electric generating plants,
less cash used for the retirement of short-term and long-term debt.
2. Net decreases in "Fuel" and "Materials and supplies" inventories, "Funds
held by trustee," "Property, plant and equipment," and "Other" within
"Deferred Charges and Other Assets," as a result of the sale of certain
electric generating plants.
3. A decrease in "Recoverable stranded costs, net" due to an expected net
gain on ACE's interests in Conemaugh and Keystone Stations, which, along
with ACE's B.L. England Station and ACE's former interests in nuclear
electric generating plants, are subject to stranded cost recovery.
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4. Decreases to "Short-term debt" and "Long-term debt" because the proceeds
from the sale of ACE's fossil fuel-fired electric generating plants were
assumed to be used to repay short-term and long-term debt, after
considering expected debt retirement costs and tax payments on the gain
on the sale of the electric generating plants.
5. Changes to "Taxes Accrued", "Deferred income taxes, net," "Deferred
investment tax credits," and "Other" within "Deferred Credits and Other
Liabilities" as a result of the sale of certain electric generating
plants.
6. A gain on the Deepwater electric generating plant, primarily due to
depreciation subsequent to the 1999 write-down associated with
discontinuing the application of SFAS No. 71 to ACE's electric generation
business, and the recognition of unamortized deferred investment tax
credits was credited to retained earnings.
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CONECTIV
UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 2001
Reported Adjustments Pro Forma
----------------- ------------------- -----------------
(Dollars in Thousands)
OPERATING REVENUES
Electric $ 3,538,653 $ (70,329) (1) $ 3,468,324
Gains on sales of electric generating plants 297,140 297,140
Gas 1,466,467 1,466,467
Other services 487,795 487,795
----------------- ------------------- -----------------
5,790,055 (70,329) 5,719,726
----------------- ------------------- -----------------
OPERATING EXPENSES
Electric fuel and purchased energy and capacity 2,529,761 74,671 (2) 2,604,432
Gas purchased 1,431,998 1,431,998
Other services' cost of sales 410,169 - 410,169
Operation and maintenance 499,227 (100,091) (3) 399,136
Depreciation and amortization 228,503 (43,826) (3) 184,677
Taxes other than income taxes 74,372 (1,533) (3) 72,839
Deferred electric service costs (143,190) 45,271 (4) (97,919)
----------------- ------------------- -----------------
5,030,840 (25,508) 5,005,332
----------------- ------------------- -----------------
OPERATING INCOME 759,215 (44,821) 714,394
----------------- ------------------- -----------------
OTHER INCOME 61,721 - 61,721
----------------- ------------------- -----------------
INTEREST EXPENSE
Interest charges 187,728 (21,029)(5) 166,699
Capitalized interest and allowance for borrowed
funds during construction (16,534) (16,534)
----------------- ------------------- -----------------
171,194 (21,029) 150,165
----------------- ------------------- -----------------
PREFERRED STOCK DIVIDEND
REQUIREMENTS OF SUBSIDIARIES 18,734 - 18,734
----------------- ------------------- -----------------
INCOME BEFORE INCOME TAXES 631,008 (23,792) 607,216
INCOME TAXES 253,486 (9,517) (6) 243,969
----------------- ------------------- -----------------
NET INCOME $377,522 ($14,275) $363,247
================= =================== =================
INCOME (LOSS) APPLICABLE TO:
Common Stock $ 366,400 $ (11,770) $ 354,630
Class A common stock 11,122 (2,505) 8,617
----------------- ------------------- -----------------
Total $ 377,522 $ (14,275) $ 363,247
================= =================== =================
AVERAGE SHARES OUTSTANDING (000):
Common Stock 82,704 82,704
Class A common stock 5,742 5,742
Basic Income Per Average Share of
Common Stock $ 4.43 $(0.14) $4.29
Diluted Income Per Average Share of $ 4.41 $(0.14) $4.27
Common Stock
Basic and Diluted Income Per Average
Share of Class A Common Stock $ 1.94 $(0.44) $1.50
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CONECTIV
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEETS
December 31, 2001
Reported Adjustments Pro Forma
--------------- ---------------- ------------------
(Dollars in Thousands)
ASSETS
Current Assets
Cash and cash equivalents $52,871 $ 20,328 (1) $73,199
Accounts receivable, net of allowance
of $32,162 636,404 636,404
Inventories, at average cost
Fuel (coal, oil and gas) 81,448 (20,331) (2) 61,117
Materials and supplies 44,604 (1,839) (2) 42,765
Deferred energy supply costs 25,525 25,525
Prepayments 80,188 80,188
--------------- ---------------- ------------------
921,040 (1,842) 919,198
--------------- ---------------- ------------------
Investments
Investment in leveraged leases 45,314 45,314
Funds held by trustee 12,136 (3,590) (2) 8,546
Other investments 60,845 60,845
--------------- ---------------- ------------------
118,295 (3,590) 114,705
--------------- ---------------- ------------------
Property, Plant and Equipment
Electric generation 1,067,464 (136,152) (2) 931,312
Electric transmission and distribution 2,792,615 (1,007) (2) 2,791,608
Gas transmission and distribution 291,052 291,052
Other electric and gas facilities 363,373 363,373
Other property, plant, and equipment 181,838 181,838
--------------- ---------------- ------------------
4,696,342 (137,159) 4,559,183
Less: Accumulated depreciation 1,784,170 (19,879) (2) 1,764,291
--------------- ---------------- ------------------
Net plant in service 2,912,172 (117,280) 2,794,892
Construction work-in-progress 584,440 584,440
Goodwill, net of accumulated amortization
of $42,817 330,579 330,579
--------------- ---------------- ------------------
3,827,191 (117,280) 3,709,911
--------------- ---------------- ------------------
Deferred Charges and Other Assets
Regulatory assets:
Recoverable stranded costs, net 944,529 (27,971) (3) 916,558
Other non-current regulatory assets 276,659 276,659
Prepaid pension costs 91,891 91,891
Unamortized debt expense 25,513 25,513
License fees 20,581 20,581
Other 34,664 1,104 (2) 35,768
--------------- ---------------- ------------------
1,393,837 (26,867) 1,366,970
--------------- ---------------- ------------------
Total Assets $6,260,363 $ (149,579) $6,110,784
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CONECTIV
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEETS
December 31, 2001
Reported Adjustments Pro Forma
-------------- --------------- --------------------
(Dollars in Thousands)
CAPITALIZATION AND LIABILITIES
Current Liabilities
Short-term debt $1,039,820 $ (44,951) (4) $994,869
Long-term debt due within one year 397,963 (120,001) (4) 277,962
Variable rate demand bonds 158,430 158,430
Accounts payable 351,382 351,382
Taxes accrued 4,081 20,328 (5) 24,409
Derivative instruments 87,876 87,876
Other current liabilities 197,109 197,109
-------------- --------------- --------------------
2,236,661 (144,624) 2,092,037
-------------- --------------- --------------------
Deferred Credits and Other Liabilities
Other postretirement benefits obligation 89,836 89,836
Deferred income taxes, net 843,039 (718) (5) 842,321
Deferred investment tax credits 49,542 (7,114) (5) 42,428
Regulatory liability for New Jersey income tax benefit 49,262 49,262
Above-market purchased energy contracts
and other electric restructuring liabilities 85,326 85,326
Derivative instruments 28,852 28,852
Other 43,736 (4,648) (5) 39,088
-------------- --------------- --------------------
1,189,593 (12,480) 1,177,113
-------------- --------------- --------------------
Capitalization
Common stock: $0.01 per share par value;
150,000,000 shares authorized; shares outstanding - -
82,957,613 actual and pro forma 830 830
Class A common stock, $0.01 per share par value;
10,000,000 shares authorized; shares outstanding - -
5,742,315 actual and pro forma 57 57
Additional paid-in capital - - common stock 1,027,790 1,027,790
Additional paid-in capital - - Class A common stock 93,738 93,738
Retained earnings 209,336 7,525 (6) 216,861
Unearned compensation (1,719) (1,719)
Accumulated other comprehensive loss (65,931) (65,931)
-------------- --------------- --------------------
Total common stockholders' equity 1,264,101 7,525 1,271,626
Preferred stock and securities of subsidiaries:
Not subject to mandatory redemption 35,813 35,813
Subject to mandatory redemption 12,450 12,450
Company obligated mandatorily redeemable preferred securities
of subsidiary trusts holding solely company debentures 165,000 165,000
Long-term debt 1,356,003 1,356,003
Long-term capital lease obligation 742 742
-------------- --------------- --------------------
2,834,109 7,525 2,841,634
-------------- --------------- --------------------
-------------- --------------- --------------------
Total Capitalization and Liabilities $6,260,363 $(149,579) $6,110,784
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