SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[X] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
DOMINION RESOURCES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
[GRAPHIC]
Merger Questions & Answers
- --------------------------
Listed below are the most frequently asked questions regarding the merger of
Dominion Resources and Consolidated Natural Gas. Answers are included directly
below each question.
1. Why have the two companies decided to merge?
The Boards of Directors and management of Dominion Resources and Consolidated
Natural Gas believe the merger will help position the combined company to become
the nation's premier provider of electricity and natural gas. They also believe
the merger will provide benefits that neither company could achieve on its own
and growth opportunities and financial flexibility that will benefit the
company's, shareholders, customers and employees. When completed, the merger
will make Dominion Resources the largest fully integrated natural gas and
electric utility in the nation.
2. How will the merger affect my dividends?
Your dividend will be unaffected by the merger. Dominion Resources has
reaffirmed its commitment to maintain the current dividend of $2.58 per share.
3. What do I need to do now?
After reviewing the joint proxy statement and prospectus, vote your shares. You
may vote by Internet, telephone or mail. The instructions can be found on the
proxy card that was mailed to you. Please do not send in your stock
certificates. You must wait to receive an Election Form, which will be sent to
you shortly before closing. Closing will occur after the necessary shareholder
and regulatory approvals have been received. At that time, you will have the
opportunity to elect either cash or stock or a combination of both in exchange
for your Dominion Resources stock. Please review the proxy statement for a more
detailed explanation of your choices. Detailed instructions for making your
election will be sent with the Election Form.
4. When is the merger expected to be completed?
We expect the merger to be completed by year's end.
Our records show that we have not received your vote. There's an easier
------
way to vote your Dominion Resources, Inc.
24 Hours a Day - 7 Days a Week
- --------------------------------------------------------------------------------
Vote by Telephone
- --------------------------------------------------------------------------------
It's fast, convenient and your vote is immediately confirmed and posted
Using a touch-tone telephone, call the toll-free number which appears
on the top left corner of your enclosed Voting Instruction Form.
Just follow these four easy steps:
- --------------------------------------------------------------------------------
1. Read the accompanying Dominion Resources, Inc. Proxy Statement and
Voting Instruction Form.
2. Call the toll-free number located on the top left corner of your Voting
Instruction Form.
3. Enter your 12-digit Control Number Located on your Voting Instruction
Form.
4. Follow the simple recorded instructions.
- --------------------------------------------------------------------------------
Your vote is important!
Call 24 hours a day
- --------------------------------------------------------------------------------
Vote by Internet
- --------------------------------------------------------------------------------
It's fast, convenient and your vote is immediately confirmed and
posted. In addition, you can elect to receive all future materials by
Internet.
Go to website:
WWW.PROXYVOTE.COM
Just follow these four easy steps:
- --------------------------------------------------------------------------------
1. Read the accompanying Dominion Resources, Inc. Proxy Statement and
Voting Instruction Form.
2. Go to the website www.proxyvote.com
3. Enter your 12-digit Control Number located on your Voting Instruction
Form.
4. Follow the simple instructions.
- --------------------------------------------------------------------------------
Your vote is important!
Go to WWW.PROXYVOTE.COM
24 hours a day
If you vote by telephone or Internet, do not return your Voting Instruction Form
---
Thank you for your vote!
Dear Employees of Dominion Resources and Consolidated Natural Gas,
Please accept our heartfelt thanks. Despite the added work and uncertainty
inherent in a merger of this magnitude, you have done an outstanding job. We are
making excellent progress in completing the merger while continuing to provide
our customers with superior value and service. This is a tribute to each of you
for your dedication and skill.
In addition, we want to update you on where things stand -- something beyond
the regular editions of the "Convergence" newsletter.
As you know, our new company will be the largest fully integrated electric and
gas utility in the United States. We have set out on a visionary course in the
rapidly evolving energy industry. By being able to offer both natural gas and
electric service, we expect to provide millions of consumers with the benefits
of competitive choice: lower cost, better service and more options.
We recently announced some concrete examples of why the combination of our two
companies makes so much sense for our employees, customers and shareholders. We
presented plans for four gas-fired electric generating facilities to be built
together by Dominion Resources and CNG along CNG's interstate gas pipeline and
storage network. These are just the first of many opportunities we envision for
company growth. We are committed to building long-term value.
We are also on track in the merger approval process. Shareholders of both
companies are scheduled to vote on the merger June 30. Response by both Dominion
Resources and CNG shareholders to the restructured merger agreement thus far has
been very positive. We encourage all Dominion and CNG employees who are
shareholders to join in voting for the merger.
And there continues to be good news on the regulatory front. The Virginia State
Corporation Commission last month declared our application to be complete and
promises a decision by this fall. The approval process in the other states is
also going well and we filed our application with the Federal Energy Regulatory
Commission on June 7. In fact, we expect to have all regulatory approvals this
autumn.
The creation of any meaningful venture presents challenges and problems, but
these challenges can be met and problems solved with lasting benefits. We have
already seen evidence of that in this merger. We are confident that with your
continued help and support, we will build the nation's premier energy company
- -- a model 21st century corporation of which we can all be proud.
Sincerely,
/s/ Thos. E. Capps
/s/ George A. Davidson, Jr.
[Dominion Resources Logo] [CNG Logo]
"A Marriage Made In Heaven"
Investor/Analyst Meetings
June 1999
[Dominion Resources Logo] [CNG Logo]
Note to potential users
of the following information
- --------------------------------------------------------------------------------
This material contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934. The Forward-looking statements are
subject to various risks and uncertainties. Discussion of factors that could
cause actual results to differ materially from management's projections,
forecasts, estimates and expectations may include factors that are beyond the
company's ability to control or estimate precisely, such as estimates of future
market conditions and the behavior of other market participants. Other factors
include, but are not limited to, weather conditions, economic conditions in the
company's service territory, fluctuations in energy-related commodity prices,
conversion activity, other marketing efforts and other uncertainties. Other
risk factors are detailed from time to time in the two companies' SEC reports.
The information provided herein is for purposes of providing analysts general
guidance and a framework for modeling the combined entity created by the
Dominion Resources - CNG merger. Certain third party assumptions and estimates,
such as Zack's earnings estimates, are provided for your convenience and are
deemed to be within an acceptable range of reasonableness, but are not endorsed
by Dominion Resources or Consolidated Natural Gas.
You should take this information as general guidance only and apply your own
judgement in assessing the reasonableness of modeling inputs and assumptions.
In addition, refer to the forward-looking statement contained at the front of
this presentation and to the joint S-4 registration statement filed on May 21,
1999.
Notes:
2
[Dominion Resources Logo] [CNG Logo]
Key Points to Remember
- --------------------------------------------------------------------------------
. Maintain the dividend
. Grow earnings 8% to 10%
. Lower payout ratio through earnings growth
. Generate cash flow to fund regulated Capex and grow company
Notes:
3
[Dominion Resources Logo] [CNG Logo]
Today's Presentation
- --------------------------------------------------------------------------------
I
. Where we're focusing
. What we're building
. When we're doing it
II
. Our expected financial results
III
. How we'll accomplish it
Notes:
4
[Dominion Resources Logo] [CNG Logo]
Focused Strategy: MAIN to Maine
Forty Percent of US Energy Consumption
[Map of United States highlighting Northeastern quadrant]
Notes:
5
[Dominion Resources Logo] [CNG Logo]
Dominion Resources Footprint
[Footprint map showing where listed areas are located]
. 2.0 million customers
. 20,000 Mw power generation portfolio
. 5,000 miles of electric transmission lines
. 1.2 Tcfe in reserves
. greater than 100 Bcfe annual production
Legend which contains icons for:
Virginia Power service area
Independent power
Gas & oil production
Gas marketing offices
6
[Dominion Resources Logo] [CNG Logo]
CNG Footprint
[Footprint map showing where listed assets are located]
. 1.9 million customers
. 7,600 miles of gas transmission lines
. greater than 200 Bcfe annual production
. 1.7 Tcfe reserves
Legend which contains icons for:
Gas service area
Gas pipelines
Storage field
Gas & oil production
7
[Dominion Resources Logo] [CNG Logo]
The Combined*Footprint
A Platform for Success
Combined footprint map showing where listed assets are located:
. 3.9 million customers
. 20,000 MW power generation portfolio
. 5,000 miles of electric transmission lines
. 7,600 miles of gas transmission lines
. more than 300 Bcfe production
. more than 3.0 Tcfe reserves
*Excludes Canadian and Rocky Mountain reserves
Notes:
8
[Dominion Resources Logo] [CNG Logo]
Combined Company Footprint
Retail Access by State
. Gas Customers in Core States
- CNG customers: 1.9M
- Others: 8.4M
-----
- Total market potential: 10.3M
. Electric Customers in Core States
- Virginia Power customers: 2.0M
- Others: 15.5M
-----
- Total market potential: 17.5M
Map of northeastern United States and legend which contains icons for;
Combined Service Territory
Gas/Electric Overlap Territory
Independent Power
Gas Pipelines
Storage Field
Status of Retail Access:
Electric Only
Gas Only
Gas and Electric
Notes:
9
[Dominion Resources Logo] [CNG Logo]
Balanced E&P Portfolio
. Estimated proved reserves approximately 3 Tcfe
. Annual production more than 300 Bcfe
. Balanced reserves
. One of the top 10 independent E&P companies
Map of United States and part of Canada highlighting reserves location
Notes:
10
[Dominion Resources Logo] [CNG Logo]
Balanced Generation Portfolio
- --------------------------------------------------------------------------------
Type Mw %
- ---- -- -
Nuclear 3,392 17%
Coal 6,513 33%
Hydro 1,595 8%
Gas/oil 3,693 19%
NUGs/purchased 4,515 23%
Other 22 0%
-- --
Subtotals 19,730 100%
Internationals 738
---
Totals 20,468
Notes:
11
[Dominion Resources Logo] [CNG Logo]
We're Already Moving:
Generation Alliance Update
- --------------------------------------------------------------------------------
[Map of United States showing sites of four projects announced}
. Exclusive alliance to build gas-fired generation along CNG pipeline
. 4 projects in 3 states announced
. Up to 2,400 MW by mid-2002
--Pennsylvania
--Ohio
--West Virginia
. 46 potential sites along CNG pipeline identified
. Option to purchase 10 gas-fired turbines, plan to purchase 14
. Power development potential: 3,000-4,000 MW next 3-5 years
. Long-term potential: 8,000 MW
Notes:
12
[Dominion Resources Logo] [CNG Logo]
We're Already Moving:
Transmission Alliance Update
[Map of the Northeastern-most part of the United States highlighting service
areas for Virginia Power, American Electric Power, First Energy, Consumers
Energy and Detroit Edison]
Notes:
13
[Dominion Resources Logo] [CNG Logo]
We're Already Moving:
Regulatory Filings Update
- --------------------------------------------------------------------------------
. All filings have been made
. All necessary approvals expected by year-end
--Filed with FERC June 7
--Expect approvals from Pennsylvania, West Virginia and North Carolina
within 30-60 days --Virginia decision by November 17
Notes:
14
[Dominion Resources Logo] [CNG Logo]
II.
- --------------------------------------------------------------------------------
. Our expected financial results
Notes:
15
[Dominion Resources Logo] [CNG Logo]
Expected EPS Growth
- --------------------------------------------------------------------------------
Bar graph showing earnings per share growth from 1999-2004 as
indicated in the following chart*
1999 : $3.05
2000 : $3.31
2001 : $3.48
2002 : $3.89
2003 : $4.22
2004 : $4.66
*Earnings per share
("9% Growth Rate")
Notes:
16
[Dominion Resources Logo] [CNG Logo]
Expected EPS and Payout Ratio
- --------------------------------------------------------------------------------
Graph showing EPS, Dividend and Payout Ratio from 1999-2004 as
indicated in the following chart
EPS Dividend Payout Ratio
--- -------- ------------
1999 : $ 3.05 $ 2.58 84%
2000 : $ 3.31 $ 2.58 81%
2001 : $ 3.48 $ 2.58 74%
2002 : $ 3.89 $ 2.58 66%
2003 : $ 4.22 $ 2.58 61%
2004 : $ 4.66 $ 2.58 55%
Notes:
17
[Dominion Resources Logo] [CNG Logo]
Expected Cash Flow
- --------------------------------------------------------------------------------
Bar graph showing Operating Cash Flow and Cash Flow After Dividends and
Regulated Capex from 1999-2004 as indicated in the following chart
Cash flow after dividends*
Operating cash flow* and regulated Capex
-------------------- -------------------
1999 : 2,005 290
2000 : 2,020 400
2001 : 2,120 500
2002 : 2,320 835
2003 : 2,450 1,035
2004 : 2,595 1,180
*Cash flow ($ Millions)
Notes:
18
[Dominion Resources Logo] [CNG Logo]
Expected Cash Flow
- --------------------------------------------------------------------------------
Bar graph comparing Operating Cash Flow and Net New Financing from 1999-2004 as
indicated in the following chart
Portion*
of Growth
Capex
requiring
net new
Dividend* Regulated Capex* Growth Capex* financing
--------- ---------------- ------------- ---------
1999 : 681 1,022 1,208 (918)
2000 : 625 991 1,430 (1,030)
2001 : 619 997 1,175 (675)
2002 : 620 862 1,061 (226)
2003 : 620 794 1,066 (111)
2004 : 620 794 985 0
*Cash flow ($ Millions)
Notes:
19
[Dominion Resources Logo] [CNG Logo]
Expected Equity to Total Capitalization
- --------------------------------------------------------------------------------
Bar graph showing Equity to Total Capitalization (%) from 1999-2004 as
indicated in the following chart
1999 : 32.5%
2000 : 37.2%
2001 : 36.9%
2002 : 37.7%
2003 : 38.9%
2004 : 43.5%
Notes:
20
[Dominion Resources Logo] [CNG Logo]
III. How we expect to:
- --------------------------------------------------------------------------------
. Maintain the dividend
. Grow earnings 8% to 10%
. Lower the payout ratio
. Generate cash flows to fund regulated Capex and grow the company
Notes:
21
[Dominion Resources Logo] [CNG Logo]
Combined Storage and Arbitrage Opportunities
- --------------------------------------------------------------------------------
CNG DRI/CNG Combined
Flowchart showing CNG producing, storing Flowchart showing DRI/CNG producing,
Gas or Selling Gas storing Gas,Selling Gas or Using Gas
to Generate Electricity
<-"Gas"-> <-"BTUs"->
. Power Development Potential 3,000 -
4,000 MW next 3-5 years.
. Long-term Potential 8,000 MW
Legend which contains icons for:
Notes: Gas production
Gas storage
Gas sales
Using gas to generate electricity
22
[Dominion Resources Logo] [CNG Logo]
Forward Price Curve -
$/Mwhr (PJM-5x16)
- --------------------------------------------------------------------------------
[Line graph plotting the Pennsylvania/New Jersey/Maryland price curve (based on
peak 5-day, 16-hour production) and Virginia Power's marginal cost for July 1999
- - June 2000, as indicated in the following chart]
Date PJM - 5x16* Marginal Cost*
---- ----------- --------------
July 99 79 30
Aug 99 66 28
Sep 99 36 24
Oct 99 25 20
Nov 99 25 19
Dec 99 26 24
Jan 00 32 23
Feb 00 31 23
Mar 00 27 22
Apr 00 26 20
May 00 30 22
June 00 43 25
* $ per Mwhr
Notes:
23
[Dominion Resources Logo] [CNG Logo]
Potential Value of Leveraging
Existing Low-Cost Generation (12 Months)
- --------------------------------------------------------------------------------
[Bar graph plotting potential increase in gross margin as indicated in the
following chart]
Summer Months $45-50 million
Off-summer Months $25-30 million
Total $70-80 million
Assumptions:
Summer price range: $45-80/Mwhr
Off-summer price range: $25-35/Mwhr
Summer marginal cost: $25-30/Mwhr
Off-summer marginal cost: $19-24/Mwhr
Notes:
24
[Dominion Resources Logo] [CNG Logo]
Complete Transition
to Competition in Virginia
- --------------------------------------------------------------------------------
A platform for earnings growth:
. Generation deregulated in 2002
. No forced divestiture of assets
. Rate cap through June 2007
. No ROE/earnings cap
--efficiencies/growth to bottom line
. "Stranded cost" recovery through capped rates or wires charge
Notes:
25
Historic
Cost of Regulation
- --------------------------------------------------------------------------------
[Line graph showing regulated earnings for Virginia Power from 1989-1998 as
indicated in the following chart]
Date $ Millions
---- ----------
1989 410.7
1990 445.7
1991 459.9
1992 444.5
1993 516.6
1994 478.2
1995 425.0
1996 472.1
1997 555.8
1998 535.9
Notes:
26
Historic Cost:
Allowed Return Less Than Others
- --------------------------------------------------------------------------------
[Bar graph depicting actual and allowed ROE as indicated in the following chart]
Company Allowed Actual
- ------- ------- ------
CP&L 12.8% 13.7%
Duke Energy 12.4% 15.7%
Florida Progress 12.0% 15.5%
FPL Group 12.0% 13.3%
TECO Energy 12.8% 14.4%
Dominion Resources 11.4% 10.1%
Notes:
27
[Dominion Resources Logo] [CNG Logo]
Earnings growth drivers - Regulated Businesses
- --------------------------------------------------------------------------------
. Virginia Power deregulation story
. Customer growth
. Cost control/merger synergies
. Regulated capital expenditures control
1999* 2004*
- ----- -----
$685 $870
*Net income ($ Millions)
Earnings projections exclude net financial impacts associated with the amended
agreement.
Notes:
28
[Dominion Resources Logo] [CNG Logo]
Earnings growth drivers - E&P
- --------------------------------------------------------------------------------
. Finding and developing costs
. Lifting costs
. Production growth
. Merger synergies
1999* 2004*
- ----- -----
$130 $290
*Net income ($ Millions)
Earnings projections exclude net financial impacts associated with the amended
agreement.
Notes:
29
[Dominion Resources Logo] [CNG Logo]
Earnings growth drivers - Electric Generation
- --------------------------------------------------------------------------------
. New site development / leveraging CNG infrastructure
. Gas / electric arbitrage
. Capitalize on opportunities in high cost markets
1999* 2004*
- ----- -----
$20 $40
* Net income ($ Millions)
Earnings projections exclude net financial impacts associated with the amended
agreement.
Notes:
30
[Dominion Resources Logo] [CNG Logo]
Earnings growth drivers - Retail and Wholesale Marketing
- --------------------------------------------------------------------------------
. The key to Dominion's future as low-cost producer
. Existing wholesale trading/skills at Virginia Power, home of large and
successful wholesale Power Group
. Existing retail sales skills at CNG, now successfully attacking new electric
markets
1999* 2004*
- ---- ----
$20 $150
*Net income ($ Millions)
Projected earnings exclude net financial impacts associated with the amended
agreement.
Notes:
31
[Dominion Resources Logo] [CNG Logo]
And. . .
- --------------------------------------------------------------------------------
[Drawing of "Help Wanted" section of newspaper and coffee mug]
We're hiring a first-class, nationally recognized marketing expert to spearhead
this effort.
Notes:
32
[Dominion Resources Logo] [CNG Logo]
Sources of Expected EPS Growth
- --------------------------------------------------------------------------------
Bar graph showing sources of expected earnings per share growth through 2004,
as indicated in the following chart
2004* CAGR off Earnings
---- -----------------
1999 Earnings Base $3.05
Leverage impacts + sale of DCI $0.16
Regulated Business $0.54 4%
E & P $0.47
Generation $0.06 7% including regulated
business, E & P,
generation, DCI and other
Wholesale\Retail marketing $0.38 9% (total)
Notes:
33
[Dominion Resources Logo] [CNG Logo]
Expected EPS by Segment
- --------------------------------------------------------------------------------
1999 2004
---- ----
$3.05 $4.66
Pie Charts showing earnings per share breakdown as indicated in the following
charts
Description $ Description $
- ----------- --- ------------ --
Regulated $2.28 Regulated $1.59
E&P $0.41 Deregulated Va. Power $1.24
Generation & Marketing $0.13 E&P $0.94
Other $0.23 Generation & Marketing $0.62
Other $0.27
2004 earnings projections include allocation of impacts associated with amended
agreement.
Notes:
34
[Dominion Resources Logo] [CNG Logo]
Improved Expected Earnings Profile
=P/E Multiple Expansion
- --------------------------------------------------------------------------------
Bar chart comparing "Stand Alone" EPS growth (5-6% Growth) vs. "Combined"
earnings growth (8-10% Growth) from 1999-2004 as indicated in the following
table
Stand-Alone Combined
----------- --------
1999 : $ 2.99 -
2000 : $ 3.32 $ 3.31
2001 : $ 3.43 $ 3.48
2002 : $ 3.55 $ 3.89
2003 : $ 3.66 $ 4.22
2004 : $ 3.79 $ 4.66
Stand Alone - Based on analyst projections per First Call and Zacks
Combined - net of synergies
Notes:
35
[Dominion Resources Logo] [CNG Logo]
Market P/E Ratio and Projected EPS Growth Rate Major Electric & Gas Companies
- --------------------------------------------------------------------------------
Regression analysis graph comparing P/E Ratio to EPS Growth Rate
(Zack's Estimate)
P/E For 9% Growth P/E For 5% Growth Imputed multiple expansion
Company = 16.4 Company = 13.2 -> for post-merger
Dominion = 3
Notes:
36
[Dominion Resources Logo] [CNG Logo]
Projected Capex By Business
1999-2004 Total
- --------------------------------------------------------------------------------
Pie Chart showing projected Capex (1999-2004 Total) as indicated in the
following table
Description % $
--- -----
Regulated 46 5.5 b
E&P 34 4.1 b
Other 11 1.3 b
Generation 8 0.9 b
Retail & Wholesale Mktg. 1 0.1 b
Total Projected Capex, 1999 - 2004: $11.9 Billion
Notes:
37
[Dominion Resources Logo] [CNG Logo]
"Show Me the Money"
How we expect to create more shareholder
value together than we can alone
Current Dominion Resources Shareholder Perspective
D-Stand Alone D-Combined with CNG
------------- -------------------
[Bar charts comparing stand alone "Target" price to combined "Target" price as
reflected in the following chart]
Recent Price "Target"(1) Recent Price "Target"(2)
------------ ----------- ------------ -----------
$42.25 $72.50 (71% total $42.25 $99.00 (134% total
shareholder return; shareholder return;
CAGR =9%) CAGR = 15%)
(1) Includes reinvested dividends and projected stock price based on Zack's EPS
estimate (2004) times P/E multiple of 13.2
(2) Includes reinvested dividends and projected stock price based on Zack's EPS
estimate (2004) + merger synergies times P/E multiple of 16.4
Notes:
38
[Dominion Resources Logo] [CNG Logo]
"Show Me the Money"
How we expect to create more shareholder
value together than we can alone
Current CNG Shareholder Perspective
CNG-Stand Alone CNG-Combined with D
--------------- -------------------
[Bar charts comparing stand alone "Target" price to combined "Target" price as
reflected in the following chart]
Recent Price "Target"(1) Recent Price "Target"(2)
------------ ----------- ------------ -----------
$58.75 $115.50 (97% total $58.75 $146.50 (149% total
shareholder return; shareholder return;
CAGR = 12%) CAGR = 16%)
(1) Includes reinvested dividends and projected stock price based on Zack's EPS
estimate (2004) times P/E multiple of 16.4
(2) Includes reinvested dividends and projected stock price based on Zack's EPS
estimate (2004) + merger synergies times P/E multiple of 16.4
Notes:
39
[Dominion Resources Logo] [CNG Logo]
Linking Employee Compensation
to Shareholder Value
- --------------------------------------------------------------------------------
. New stock option incentive program
. We will increase insider ownership
Notes:
40
[Dominion Resources Logo] [CNG Logo]
Stock Options
- --------------------------------------------------------------------------------
Options
-------
Officers 5,529,000
Managers 1,025,000
Outside Directors 65,000
Total 6,619,000
Notes:
41
[Dominion Resources Logo] [CNG Logo]
Employee Comment
on new Stock Option Incentive Program
- --------------------------------------------------------------------------------
"It doesn't take a rocket scientist to figure out that for every 10 cents per
share we can make our earnings increase, we can make the stock go up a buck or
two. And that will put money in my pocket. I like that and I'm going to look
hard for ways to help make it happen."
Craig Ivey
Manager - Distribution Operations
Northwest Region
Virginia Power
Notes:
42
[Dominion Resources Logo] [CNG Logo]
Internal Policy Memorandum
Encouraging an Increase in Ownership
- --------------------------------------------------------------------------------
"As elected officers, we are required to act and think like owners. I believe
it's vitally important to align our personal wealth with the wealth of
shareholders through share ownership above and beyond the company savings plan.
. .I'm sure you will agree with me."
Thos. E. Capps
Memorandum to Officers
January 27, 1999
Notes:
43
[Dominion Resources Logo] [CNG Logo]
"A Marriage Made In Heaven"
Notes:
44
APPENDIX
. May 21, 1999 blast fax on the DRI-CNG merger business plan
Notes:
45
[Dominion Resources Letterhead]
May 21, 1999
To the Financial Community:
DRI-CNG Merger:
---------------
Revised Merger Business Plan
----------------------------
Dominion Resources and Consolidated Natural Gas filed the Joint Proxy
Statement/Prospectus of form S-4 with the Securities and Exchange Commission
today. The revised financial assumptions for the merger business plan are
summarized below and are detailed in the attachments to this blast-fax.
\
Expected EPS-------------------------
/
2000 2001 2002 2003 2004
---- ---- ---- ---- ----
Original Merger Business Plan $3.10 $3.37 $3.63 $3.84 $4.15
Revised Merger Business Plan $3.31 $3.48 $3.89 $4.22 $4.66
----- ----- ----- ----- -----
Net Change $ .21 $ .11 $ .26 $ .38 $ .51
This blast-fax contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934. The forward-looking statements are
subject to various risks and uncertainties. Discussion of factors that could
cause actual results to differ materially from management's projections,
forecasts, estimates and expectations may include factors that are beyond the
company's ability to control or estimate precisely, such as estimates of future
market conditions and the behavior of other market participants. Other factors
include, but are not limited to, weather conditions, economic conditions in the
company's service territory, fluctuations in energy-related commodity prices,
conversion activity, other marketing efforts and other uncertainties. Other risk
factors are detailed from time to time in the company's SEC reports.
The information provided in this blast-fax is for purposes of providing analysts
and investors general guidance and a framework for modeling the
1
combined entity created by the Dominion Resources - Consolidated Natural Gas
merger. Certain third party assumptions and estimates, such as First Call and
Zack's earnings estimates, are provided for your convenience and are deemed to
be within an acceptable range of reasonableness, but are not endorsed by
Dominion Resources or Consolidated Natural Gas.
Users of the information provided in this blast-fax should take this information
as general guidance only and apply their own professional judgement in assessing
the reasonableness of the modeling inputs and assumptions. In addition, this
information should be used in conjunction with the information contained in the
Joint Proxy Statement/Prospectus on Form S-4, filed May 21, 1999.
Contacts: Thomas P. Wohlfarth 804-819-2150
Suzette M. S. Mata 804-819-2154
Joseph G. O'Hare 804-819-2156
2
Dominion Resources - Consolidated Natural Gas Merger Attachment
Reconciliation of Expected Earnings Per Share Page 1 of 7
Original v. Revised Merger Business Plans
Expected Operating EPS-------------------
2000 2001 2002 2003 2004
---- ---- ---- ---- ----
1 Original Merger Business Plan 3.10 3.37 3.63 3.84 4.15
2 SFAS71 Accretion (1) 0.06 0.07 0.06 0.06 0.06
3 Updated Oil & Gas Price Assumptions (2) 0.09 0.12 0.16 0.18 0.18
4 Divestiture of Dominion Capital (3) - (0.26) (0.28) (0.29) (0.31)
5 Other (reduced shares, net of interest expense) 0.06 0.18 0.32 0.43 0.58
------- ------- ------- ------- -------
6 Revised Merger Business Plan 3.31 3.48 3.89 4.22 4.66
7 Net Accretion to Original Business Plan 0.21 0.11 0.26 0.38 0.51
Notes:
General note: reconciling Items 2 - 4 are based on expected number of shares
outstanding under original merger business plan (340 million shares).
(1) Going forward earnings accretion resulting from discontinuation of SFAS
No. 71 in the 1st quarter of 1999. Please refer to the Form 8-K filed in March
of 1999 by Dominion Resources and the company's 1st quarter 10-Q.
(2) Revised price deck is based on third party estimates.
(3) Reflects loss of earnings contribution from Dominion Capital. Benefit of
cash proceeds from sale is included in Item 5, "Other".
Financial Assumptions Attachment
Page 2 of 7
DRI/CNG Combined
Proforma Cash Flow
1999 2000 2001 2002 2003 2004 CAGR
---- ---- ---- ---- ---- ---- ----
Net Income (First Call/Zacks plus synergies) $925 $770 $835 $935 $1,015 $1,120
Depreciation & Amortization $1,080 $1,250 $1,285 $1,385 $1,435 $1,475
------ ------ ------ ------ ------ ------
Operating Cash Flow $2,005 $2,020 $2,120 $2,320 $2,450 $2,595
Cap Ex-Regulated Businesses(1) $1,025 $995 $1,000 $865 $795 $795
Cap Ex-Growth Businesses $1,245 $1,340 $1,020 $925 $955 $985
Cash Flow Before Dividends ($265) ($315) $100 $530 $700 $815
& Financing
Dividends (Based on Dividend Rate if $2.58/share) $690 $625 $620 $620 $620 $620
Cash Flow Before Financing ($955) ($940) ($520) ($90) $80 $195
Per Share Figure (2)
Earnings $3.05 $3.31 $3.48 $3.89 $4.22 $4.66 8.8%
Operating Cash Flow $6.72 $8.34 $8.83 $9.65 $10.19 $10.80 9.9%
Dividend payout ratio 84% 81% 74% 66% 61% 55%
Capital Structure (as of 12/31)
Debt $14,855 $11,495 $12,015 $12,105 $12,025 $11,830
Preferred & Mandatory Convertibles $1,075 $1,555 $1,555 $1,555 $1,555 $895
Common Equity(3) $7,675 $7,720 $7,935 $8,250 $8,645 $9,805
Total Capitalization $23,605 $20,770 $21,505 $21,910 $22,225 $22,530
Ratios:
Debt 62.9% 55.3% 55.9% 55.2% 54.1% 52.5%
Preferred & Mandatory Convertibles 4.6% 7.5% 7.2% 7.1% 7.0% 4.0%
Equity 32.5% 37.2% 36.9% 37.7% 38.9% 43.5%
Notes:
1- Capital to maintain regulated businesses
2- Earnings and Cash Flow per Share and Dividend Payout Ratio for 1999 are for
DRI Stand-Alone
3- No new equity
Financial Assumptions Attachment
Page 3 of 7
Street Estimates Prior to Merger Announcement
- ---------------------------------------------
EPS: 1999 2000 2001 2002 2003 2004
- ---- ---- ---- ---- ---- ---- ----
DRI $2.99 $3.32 $3.43 $3.55 $3.66 $3.79
CNG $3.53 $3.99 $4.33 $4.95 $5.22 $5.66
Updates to Street Estimates
DRI
SFAS 71 Accretion $7 $21 $24 $22 $22 $22
Improved Oil and Gas Prices $5 $13 $14 $17 $18 $18
CNG
Improved Oil and Gas Prices $4 $18 $26 $37 $42 $42
Based on First Call consensus for 1999 and 2000 prior to merger announcement,
and Zack's 5-year growth estimate for 2001 and beyond, also prior to
announcement.
Net Income 1999 2000 2001 2002 2003 2004
- ---------- ---- ---- ---- ---- ---- ----
DRI:
EPS $3.05 $3.50 $3.63 $3.75 $3.87 $4.00
Shares Outstanding 192.0 192.0 192.0 192.0 192.0 192.0
Net Income $585 $670 $695 $720 $745 $765
CNG:
EPS $3.57 $4.17 $4.60 $5.33 $5.66 $6.10
Shares Outstanding 95.6 95.6 95.6 95.6 95.6 95.6
Net Income $340 $400 $440 $510 $540 $585
Financial Assumptions Attachment
Page 4 of 7
Net Income by Business Segment
- ------------------------------
DRI: 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
Virginia Power $420 $470 $485 $500 $510 $525
Wholesale Marketing $20 $25 $25 $25 $25 $25
Dominion Energy:
E&P $45 $65 $80 $85 $90 $95
Power Generation $20 $15 $15 $15 $20 $20
Dominion Capital $75 $90 $90 $95 $100 $105
Corporate/Other $5 $5 $0 $0 $0 ($5)
-- -- -- -- -- ---
Total DRI Net Income $585 $670 $695 $720 $745 $765
CNG:
Gas Distribution $145 $150 $155 $160 $165 $180
Gas Transmission $120 $120 $125 $130 $135 $140
E&P $85 $115 $130 $170 $180 $200
Retail Marketing $0 $5 $5 $10 $15 $25
Corporate/Other ($10) $10 $25 $40 $45 $40
---- --- --- --- --- ---
Total CNG Net Income $340 $400 $440 $510 $540 $585
Combined Total, Before Synergies
Regulated $685 $740 $765 $790 $810 $845
E&P $130 $180 $210 $255 $270 $295
Power Generation $20 $15 $15 $15 $20 $20
Retail & Wholesale Marketing $20 $30 $30 $35 $40 $50
Capital/Corporate/Other $70 $105 $115 $135 $145 $140
--- ---- ---- ---- ---- ----
Total Combined Net Income, Before Synergies $925 $1,070 $1,135 $1,230 $1,285 $1,350
Financial Assumptions Attachment
Page 5 of 7
Depreciation by Business Segment
- --------------------------------
DRI: 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
Virginia Power $570 $580 $595 $620 $650 $670
Wholesale Marketing $0 $0 $0 $0 $0 $0
Dominion Energy:
E&P $75 $75 $75 $85 $95 $105
Power Generation $35 $45 $40 $45 $50 $60
Dominion Capital $25 $25 $25 $25 $25 $30
Corporate/Other $0 $0 $0 $0 $0 $0
-- -- -- -- -- --
Total DRI Depreciation $705 $725 $735 $775 $820 $865
CNG:
Gas Distribution $75 $80 $85 $85 $90 $90
Gas Transmission $60 $65 $65 $70 $70 $70
E&P $220 $235 $245 $300 $295 $300
Retail Marketing $0 $0 $0 $0 $0 $0
Corporate/Other $10 $15 $15 $20 $25 $15
--- --- --- --- --- ---
Total CNG Depreciation $365 $395 $410 $475 $480 $475
Capex by Business Segment
- -------------------------
DRI: 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
Virginia Power $840 $795 $800 $665 $585 $585
Wholesale Marketing $0 $0 $0 $0 $0 $0
Dominion Energy:
E&P $215 $205 $225 $145 $165 $165
Power Generation $125 $150 $115 $120 $135 $135
Dominion Capital $395 $375 $105 $60 $110 $105
Corporate/Other $5 $0 $0 $0 $0 $0
-- -- -- -- -- --
Total DRI Capex $1,580 $1,525 $1,245 $990 $995 $990
CNG:
Gas Distribution $130 $120 $120 $120 $120 $120
Gas Transmission $55 $80 $80 $80 $90 $90
E&P $370 $475 $490 $525 $545 $575
Retail Marketing $0 $0 $0 $0 $0 $0
Corporate/Other $135 $85 $85 $85 $90 $90
---- --- --- --- --- ---
Total CNG Capex $690 $760 $775 $810 $845 $875
Financial Assumptions Attachment
Page 6 of 7
Cost Reductions and Revenue Enhancements
- ----------------------------------------
2000 2001 2002 2003 2004
---- ---- ---- ---- ----
Pre-Tax Synergies:
Regulate Cost Reductions $15 $35 $40 $40 $45
E&P Enhancements $10 $25 $25 $25 $30
New Electric Generation $0 $10 $15 $35 $35
Wholesale Gas & Electricity $15 $30 $30 $30 $30
Retail Gas & Electricity $15 $25 $40 $60 $120
--- --- --- --- ----
Total Pre-Tax Synergies $55 $125 $150 $190 $260
Impact of Revised Merger
Additional Interest Expense, Transaction Debt ($280) ($300) ($300) ($300) ($300)
Cost of Financing Synergies & Add'l Interest & Dividends ($5) ($15) ($30) ($25) ($25)
Reduced Interest from Asset Sale Proceeds $0 $55 $55 $60 $60
Total Additional Interest Expense ($285) ($260) ($275) ($265) ($265)
Goodwill Amortization:
Purchase Price ($66.60 x 95.6 mil shares) $6,367
CNG Book Value $2,400
Total Goodwill $3,967
Annual Amortization(33 yrs) ($120) ($120) ($120) ($120) ($120)
Transition Costs ($50) $0 $0 $0 $0
---- -- -- -- --
Net Pre-Tax Merger Impacts ($400) ($255) ($245) ($195) ($125)
Less: Tax (@35%, excluding Goodwill) $100 $45 $45 $25 $0
Less: Loss Net Income from Sale of Dominion Capital $0 ($90) ($95) ($100) ($105)
-- ---- ---- ----- -----
Net Income Impact ($300) ($300) ($295) ($270) ($230)
Combined Financials
- -------------------
2000 2001 2002 2003 2004
---- ---- ---- ---- ----
Net Income $770 $835 $935 $1,015 $1,120
Transition Costs $33
Operating Earnings $803 $835 $935 $1,015 $1,120
Shares Outstanding 242 240 240 240 240
EPS (Operating) $3.31 $3.48 $3.89 $4.22 $4.66
Dividend Rate $2.58 $2.58 $2.58 $2.58 $2.58
Dividend Payout Ratio 78% 74% 66% 61% 55%
Financial Assumptions Attachment
Page 7 of 7
Combined Financial Details
Net Income 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
Regulated Businesses $685 $750 $790 $815 $835 $870
E&P $130 $175 $210 $255 $270 $290
Electric Generation $20 $15 $20 $25 $40 $40
Retail & Wholesale Marketing $20 $50 $65 $80 $100 $150
DCI, Corporate, Other (1) $70 $(220) $(250) ($240) ($230) ($230)
--- ------ ------ ------ ------ ------
Total Net Income $925 $770 $835 $935 $1,015 $1,120
Capex
Regulated Businesses $1,025 $995 $1,000 $865 $795 $795
E&P $585 $680 $715 $670 $710 $740
Electric Generation $125 $180 $200 $150 $135 $135
Retail & Wholesale Marketing $0 $20 $20 $20 $20 $20
DCI, Corporate, Other $535 $460 $85 $85 $90 $90
---- ---- --- --- --- ---
Total Capex $2,270 $2,335 $2,020 $1,790 $1,750 $1,780
(1) Includes impact of interest on acquisition debt, goodwill amortization, and
sale of Dominion Capital