SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) March 9, 1998
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CONECTIV
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(Exact Name of Registrant as Specified in Charter)
Delaware I-13895 51-0377417
- ---------------------------- ------------ -------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
800 King Street, P.O. Box 231, Wilmington, Delaware 19899
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 302-429-3114
------------
None
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(Former Name or Former Address, if Changed Since Last Report)
Item 2. Acquisition or Disposition of Assets
On August 12, 1996, Delmarva Power & Light Company (Delmarva) and Atlantic
Energy, Inc. (Atlantic) announced plans to merge. Final regulatory approvals
were obtained on February 27, 1998, and the merger became effective
March 1, 1998.
Prior to the merger, Atlantic was an investor-owned holding company which owned
Atlantic City Electric Company (ACE), an electric utility, and subsidiaries
engaged in nonutility businesses. ACE serves approximately 481,000 customers
in a 2,700 square mile area in southern New Jersey. Atlantic's 1997 operating
revenues and net income were $1,102.4 million and $74.4 million, respectively,
and its total assets were $2,723.9 million as of December 31, 1997. Atlantic's
assets consist principally of electric generating, transmission, and
distribution plant and those assets will continue to be used in the electric
business.
Conectiv, a corporation formed to accomplish the merger, holds the common stock
of Delmarva and ACE, and is a registered holding company under the Public
Utility Holding Company Act of 1935 as of March 1, 1998. Each outstanding
share of Delmarva's common stock, par value $2.25 per share, is being exchanged
for one share of Conectiv's common stock, par value $0.01 per share. Each
share of Atlantic's common stock, no par value per share, is being exchanged
for 0.75 of one share of Conectiv's common stock and 0.125 of one share of
Conectiv's Class A common stock, par value $0.01 per share. Class A common
stock gives holders of Atlantic common stock a proportionately greater
opportunity to share in the growth prospects of, and a proportionately greater
exposure to the uncertainties associated with the electric utility business of
ACE. Earnings applicable to Class A common stock will be equal to 30% of the
net of (1) earnings attributable to ACE's regulated electric utility business,
as the business existed on August 9, 1996, less (2) $40 million per year.
Earnings applicable to Conectiv common stock will be the consolidated earnings
of Conectiv less earnings applicable to Class A common stock.
The merger will be accounted for under the purchase method of accounting, with
Delmarva as the acquirer. The total consideration being paid to Atlantic's
common stockholders (in the form of Conectiv common stock and Class A common
stock), as measured by the average daily closing market price of Atlantic's
common stock for the three trading days immediately preceding and the three
trading days immediately following the public announcement of the merger, is
$921.0 million. The consideration paid plus estimated acquisition costs and
liabilities assumed in connection with the merger are expected to exceed the
net book value of Atlantic's net assets by approximately $200.5 million, which
will be recorded as goodwill. The actual amount of goodwill recorded will be
based on Atlantic's net assets as of the merger date and, accordingly, will
vary from the preceding estimate which is based on Atlantic's net assets as of
December 31, 1997. The goodwill will be amortized over 40 years.
2
Item 5. Pursuant to the Merger and Reorganization of Delmarva Power &
Light Company and Atlantic City Energy Company under the Conectiv holding
company which was completed on March 1, 1998, the Board of Directors of the
Company have been changed. The following individuals have been elected as
Directors of the Company to serve until his or her successor is appointed
or his or her earlier resignation or removal.
DIRECTORS:
Howard E. Cosgrove Director/Chairman
Richard B. McGlynn Director
Harold J. Raveche Director
Michael G. Abercrombie Director
R. Franklin Balotti Director
Weston E. Nellius Director
Cyrus H. Holley Director
Jerrold L. Jacobs Director
Sarah I. Gore Director
Michael B. Emery Director
Robert D. Burris Director
Bernard J. Morgan Director
Audrey K. Doberstein Director
Kathleen MacDonnell Director
The following individuals have been elected by the Directors of the Company
to the offices set forth opposite their respective names.
OFFICERS:
Howard E. Cosgrove Chief Executive Officer
Jerrold L. Jacobs Vice Chairman
Meredith I. Harlacher, Jr. President and Chief Operating
Officer
Barbara S. Graham Senior Vice President and Chief
Financial Officer
Barry R. Elson Executive Vice President
Thomas S. Shaw Executive Vice President
Louis M. Walters Treasurer and Assistant Secretary
James E. Franklin II Chief Legal Officer and Secretary
James P. Lavin Controller
3
Item 7. Financial Statements and Exhibits
Listed below are the financial statements, pro forma financial information and
exhibits filed as a part of this report.
(a) Financial statements of businesses acquired
Atlantic's consolidated financial statements listed below were filed with
Atlantic's Form 8-K dated March 3, 1998, and are incorporated herein by
reference.
Consolidated Statements of Income for the three years ended December 31, 1997
Consolidated Statements of Cash Flows for the three years ended
December 31, 1997
Consolidated Balance Sheets as of December 31, 1997 and 1996
(b) Pro forma financial information
The following unaudited pro forma financial information is included in this
report on Form 8-K:
Pro Forma Combined Conectiv Balance Sheet as of December 31, 1997
Pro Forma Combined Conectiv Statement of Income for the year ended
December 31, 1997
Notes to Pro Forma Combined Conectiv Financial Statements
Delmarva Power & Light Company Adjusted Consolidated Balance Sheet as of
December 31, 1997
Atlantic Energy, Inc. Adjusted Consolidated Balance Sheet as of
December 31, 1997
Delmarva Power & Light Company Adjusted Income Statement for the year ended
December 31, 1997
Atlantic Energy, Inc. Adjusted Income Statement for the year ended
December 31, 1997
Notes to Adjusted Consolidated Financial Statements
Unaudited Pro Forma Combined Financial Statements
The following unaudited pro forma combined financial statements combine the
historical balance sheets and statements of operations of Delmarva and Atlantic
to give effect to the merger discussed in Item 2 under the purchase method of
accounting and the assumptions set forth in the notes thereto. The unaudited
pro forma combined balance sheet as of December 31, 1997, assumes that the
merger was consummated on December 31, 1997. The unaudited pro forma combined
statement of income for the year ended December 31, 1997, assumes that the
merger was consummated on January 1, 1997. The pro forma statement of income
excludes an expected one-time charge of approximately $55 million to $60
million ($33 million to $36 million after taxes) related to the merger for an
enhanced retirement offer, other employee separation costs, and other
merger-related costs. In addition, a $23.6 million ($15.6 million after taxes)
charge for the termination of employee benefit plans (due to the merger)
recorded by Atlantic in December 1997 has been excluded from the pro forma
statement of income. The pro forma financial statements also do not reflect
any cost savings or other synergies anticipated as a result of the merger. The
pro forma information is not necessarily indicative of the results that would
have occurred in 1997, or that will occur in the future. In the opinion of
management, all adjustments necessary to present pro forma financial statements
have been made.
4
CONECTIV
PRO FORMA COMBINED BALANCE SHEETS
DECEMBER 31, 1997
(Dollars in Thousands)
(Unaudited)
ASSETS
Delmarva Atlantic Pro Forma Conectiv
As Adjusted As Adjusted Adjustments Pro Forma
----------- ----------- ------------ -----------
Utility Plant and Nonutility Property, At Cost
Electric utility plant $3,008,442 $2,590,890 $ - $5,599,332
Gas utility plant 241,580 - - 241,580
Common utility plant 152,232 - - 152,232
---------- ---------- ----------- ----------
3,402,254 2,590,890 - 5,993,144
Less: Accumulated depreciation 1,370,726 934,235 - 2,304,961
---------- ---------- ----------- ----------
Net utility plant in service 2,031,528 1,656,655 - 3,688,183
Construction work-in-progress 93,017 95,120 - 188,137
Leased property, net 32,258 39,730 - 71,988
Nonutility property, net 74,811 105,356 - 180,167
Goodwill, net 92,602 - 200,535 (f) 293,137
---------- ---------- ----------- ----------
2,324,216 1,896,861 200,535 4,421,612
---------- ---------- ----------- ----------
Investments
Investment in leveraged leases 46,375 80,448 - 126,823
Funds held by trustee 48,086 92,613 - 140,699
Other investments 9,500 42,896 - 52,396
---------- ---------- ----------- ----------
103,961 215,957 - 319,918
---------- ---------- ----------- ----------
Current Assets
Cash and cash equivalents 35,339 17,638 - 52,977
Accounts receivable 197,561 139,960 - 337,521
Deferred energy costs 18,017 27,424 - 45,441
Inventories, at average cost:
Fuel (coal, oil, and gas) 37,425 29,242 - 66,667
Materials and supplies 40,518 35,605 - 76,123
Prepayments 11,255 3,804 - 15,059
Other - 5,959 - 5,959
---------- ---------- ----------- ----------
340,115 259,632 - 599,747
---------- ---------- ----------- ----------
Deferred Charges and Other Assets
Unrecovered purchased power costs - 66,264 - 66,264
Deferred recoverable income taxes 88,683 85,858 - 174,541
Unrecovered state excise taxes - 45,154 - 45,154
Deferred debt refinancing costs 18,760 30,002 - 48,762
Deferred other post employee benefit costs - 37,476 - 37,476
Other regulatory assets 31,004 24,637 - 55,641
Prepaid employee benefit costs 58,111 8,390 12,110 (g) 78,611
Unamortized debt expense 12,911 14,945 - 27,856
Other 36,944 38,708 (21,800) (i) 53,852
---------- ---------- ----------- ----------
246,413 351,434 (9,690) 588,157
---------- ---------- ----------- ----------
Total Assets $3,014,705 $2,723,884 $ 190,845 $5,929,434
========== ========== =========== ==========
The accompanying notes to the unaudited pro forma combined balance sheet and
statements of income are an integral part of this statement.
5
CONECTIV
PRO FORMA COMBINED BALANCE SHEETS
DECEMBER 31, 1997
(Dollars in Thousands)
(Unaudited)
CAPITALIZATION AND LIABILITIES
Delmarva Atlantic Pro Forma Conectiv
As Adjusted As Adjusted Adjustments Pro Forma
----------- ----------- ----------- -----------
Capitalization
Common stock $ 139,116 $ 563,460 $ (701,570) (a) $ 1,006
Class A common stock - - 66 (a) 66
Additional paid-in capital - common stock 526,812 - 936,256 (b) 1,463,068
Additional paid-in capital - Class A common stock - - 107,135 (b) 107,135
Retained earnings 300,757 221,623 (255,431) (d) 266,949
----------- ----------- ----------- -----------
966,685 785,083 86,456 1,838,224
Treasury shares, at cost (11,687) - 11,687 (e) -
Unearned compensation (502) - 502 (k) -
----------- ----------- ----------- -----------
Total common stockholders' equity 954,496 785,083 98,645 1,838,224
Preferred stock not subject to mandatory redemption 89,703 - (89,703) (p) -
Preferred stock of subsidiaries:
Not subject to mandatory redemption - 30,000 89,703 (p) 119,703
Subject to mandatory redemption 70,000 93,950 - 163,950
Long-term debt 983,672 889,744 - 1,873,416
----------- ----------- ------------ -----------
2,097,871 1,798,777 98,645 3,995,293
----------- ----------- ------------ -----------
Current Liabilities
Short-term debt 23,254 55,675 - 78,929
Long-term debt due within one year 33,318 147,566 - 180,884
Variable rate demand bonds 71,500 - - 71,500
Accounts payable 103,607 65,369 - 168,976
Taxes accrued 10,723 6,049 (206) (k) 16,566
Interest accrued 19,902 20,116 - 40,018
Dividends declared 23,775 21,215 - 44,990
Current capital lease obligation 12,516 653 - 13,169
Deferred income taxes, net (776) 1,888 - 1,112
Other 35,819 23,995 98,500 (h)(i) 158,314
----------- ----------- ------------ -----------
333,638 342,526 98,294 774,458
----------- ----------- ------------ -----------
Deferred Credits and Other Liabilities
Deferred income taxes, net 492,792 439,267 (52,342) (l) 879,717
Deferred investment tax credits 39,942 44,043 - 83,985
Long-term capital lease obligations 19,877 39,077 - 58,954
Postretirement obligations - 37,476 46,248 (g) 83,724
Other 30,585 22,718 - 53,303
----------- ----------- ------------ -----------
583,196 582,581 (6,094) 1,159,683
----------- ----------- ------------ -----------
Total Capitalization and Liabilities $3,014,705 $2,723,884 $ 190,845 $5,929,434
=========== =========== ============ ===========
The accompanying notes to the unaudited pro forma combined balance sheet and
statements of income are an integral part of this statement.
6
CONECTIV
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
Delmarva Atlantic Pro Forma Conectiv
As Adjusted As Adjusted Adjustments Pro Forma
----------- ------------ ----------- -----------
Operating Revenues
Electric $1,092,144 $1,061,986 $ - $2,154,130
Gas 204,057 - - 204,057
Other services 127,301 40,374 - 167,675
----------- ----------- ----------- ----------
1,423,502 1,102,360 - 2,525,862
----------- ----------- ----------- ----------
Operating Expenses
Electric fuel and purchased energy 416,640 293,457 - 710,097
Gas purchased 153,027 - - 153,027
Other services' cost of sales 85,192 - - 85,192
Purchased electric capacity 28,470 197,386 - 225,856
Termination of employee benefit plans due to merger - 23,559 (23,559) (q) -
Operation and maintenance 331,770 197,246 - 529,016
Depreciation and amortization 136,340 94,480 5,013 (j) 235,833
State excise taxes - 103,991 - 103,991
Other taxes 37,634 3,038 - 40,672
----------- ----------- ----------- -----------
1,189,073 913,157 (18,546) 2,083,684
----------- ----------- ----------- -----------
Operating Income 234,429 189,203 18,546 442,178
----------- ----------- ----------- -----------
Other Income
Allowance for equity funds used
during construction 1,337 815 - 2,152
Other income 28,187 14,598 - 42,785
---------- ----------- ----------- -----------
29,524 15,413 - 44,937
---------- ----------- ----------- -----------
Interest Expense
Interest charges 83,398 70,619 - 154,017
Allowance for borrowed funds used
during construction and capitalized interest (2,996) (1,003) - (3,999)
----------- ----------- ----------- -----------
80,402 69,616 - 150,018
----------- ----------- ----------- -----------
Preferred Stock Dividend
Requirements of Subsidiaries 5,687 10,596 4,491 (p) 20,774
----------- ----------- ----------- -----------
Income Before Income Taxes 177,864 124,404 14,055 316,323
Income Taxes 72,155 49,999 8,246 (q) 130,400
----------- ----------- ----------- -----------
Net Income 105,709 74,405 5,809 185,923
Dividends on Preferred Stock 4,491 - (4,491) (p) -
----------- ----------- ----------- -----------
Earnings Applicable to Common Stock:
Common stock 101,218 74,405 (5,618) 170,005
Class A common stock - - 15,918 (m) 15,918
----------- ----------- ----------- -----------
$ 101,218 $ 74,405 $ 10,300 $ 185,923
=========== =========== =========== ===========
Average common shares outstanding (000):
Common stock 61,122 52,280 (12,902) (n) 100,500
Class A common stock - - 6,563 (n) 6,563
Basic and diluted earnings per average share
outstanding of:
Common stock $ 1.66 $ 1.42 $ - $ 1.69
Class A common stock $ - $ - $ - $ 2.43
Dividends declared per share of:
Common stock $ 1.54 $ 1.54 $ - $ 1.54
Class A common stock $ - $ - $ - $ 3.20
The accompanying notes to the unaudited pro forma combined balance sheet and
statements of income are an integral part of this statement.
7
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(a) Adjustments to record the estimated par value at $0.01 per share of
Conectiv Common Stock and Conectiv Class A Common Stock to be issued and
outstanding. The number of shares of Conectiv stock was estimated using
the number of Delmarva and Atlantic Common Stock shares outstanding as of
December 31, 1997. Each outstanding share of Delmarva Common Stock was
converted into one share of Conectiv Common Stock and each outstanding
share of Atlantic Common Stock was converted into 0.75 of one share of
Conectiv Common Stock plus 0.125 of one share of Conectiv Class A Common
Stock. The adjustments are summarized below.
As of December 31, 1997
-----------------------
Common Stock:
- -------------
Number of Atlantic Common Stock shares outstanding 52,504,479
Conversion Ratio 0.75
------------
Number of Common Stock shares to be issued to
Atlantic Common Stockholders 39,378,359
Number of Common Stock shares to be issued to
Delmarva Common Stockholders (Equal to the
number of Delmarva Common Stock shares outstanding) 61,210,262
------------
Total number of Common Stock shares to be issued 100,588,621
Par value per share $0.01
------------
(In Thousands of Dollars)
Adjusted par value of total number of Common Stock shares
to be issued $1,006
Delmarva's Common Stock, as previously reported (139,116)
Atlantic's Common Stock, as previously reported (563,460)
------------
Adjustment to Common Stock $(701,570)
============
Class A Common Stock:
- ---------------------
Number of Atlantic Common Stock shares outstanding 52,504,479
Conversion Ratio 0.125
------------
Number of Class A Common Stock shares to be issued to
Atlantic Common Stockholders 6,563,060
Par value per share $0.01
------------
Par value (In Thousands of Dollars) $66
============
8
(b) Adjustments to record additional paid-in-capital to reflect the following:
As of December 31, 1997
-----------------------
Additional Paid-In-Capital--Common Stock:
Cancellation of the Delmarva Treasury Stock cost
in excess of par value $(10,294)
Adjustment to par value of Delmarva Common Stock outstanding 137,111
Consideration to be paid to Atlantic's Common Stockholders in
the form of Conectiv Common Stock in excess of par value 813,439
Estimated registration and issuance costs (4,000)
---------
$936,256
=========
Additional Paid-In-Capital--Class A Common Stock:
Consideration to be paid to Atlantic's Common Stockholders in the
form of Conectiv Class A Common Stock in excess of par value $107,135
=========
(c) The total consideration to be paid to the Atlantic Common Stockholders was
measured by the average daily closing market price of Atlantic's Common
Stock for the three trading days immediately preceding and following the
public announcement of the Merger Agreement on August 12, 1996.
Delmarva's Common Stockholders will receive one share of Conectiv Common
Stock for each share of Delmarva Common Stock. Therefore, the average
daily market price of Delmarva's Common Stock for the same period was used
to measure the market value of Conectiv Common Stock to be paid to
Atlantic's Common Stockholders. Delmarva's average market price per share
was multiplied by the Atlantic conversion ratio for Conectiv Common Stock
to determine the estimated market value per share of Atlantic Common Stock
attributed to Conectiv Common Stock. This market value per share was
multiplied by the number of Atlantic Common Stock shares outstanding at
December 31, 1997 to estimate the consideration to be paid to Atlantic
Common Stockholders in the form of Conectiv Common Stock.
The difference between the total compensation to be paid to Atlantic's
Common Stockholders and the portion attributed to Conectiv Common Stock
was attributed to Conectiv Class A Common Stock.
The schedules below show the calculation of the total consideration to be
paid to Atlantic's Common Stockholders and the allocation of the total
consideration to be paid between Conectiv Common Stock and Conectiv Class A
Common Stock:
Amounts
--------
Average market price per share of Atlantic Common Stock used
to determine consideration to be paid $17.542
Number of Atlantic Common Stock shares outstanding as of
December 31, 1997 52,504,479
----------
Total consideration to be paid to Atlantic Common Stockholders
(In Thousands of Dollars) $921,034
==========
9
Amounts
-------
Average market price per share of Delmarva Common Stock
for the same period $20.667
Conversion ratio of Conectiv Common Stock for each share of
Atlantic Common Stock 0.75
----------
Estimated market value per share of Atlantic Common Stock
attributed to Conectiv Common Stock $15.50025
Number of Atlantic Common Stock shares outstanding as of
December 31, 1997 52,504,479
----------
Consideration to be paid to Atlantic's Common Stockholders in
the form of Conectiv Common Stock (In Thousands of Dollars) $813,833
----------
(In Thousands of Dollars)
-------------------------
Total consideration to be paid to Atlantic Common Stockholders $921,034
Portion of total consideration attributed to Conectiv
Common Stock 813,833
----------
Portion of total consideration attributed to Conectiv Class A
Common Stock $107,201
==========
(d) Adjustments to retained earnings as follows:
Amounts
---------------------
(Dollars in Thousands)
Eliminate retained earnings of Atlantic $(221,623)
Charges to expense of $56.8 million ($33.5 million
after tax) principally for nonrecurring employee
separation costs related to Delmarva employees
[see note (h)] (33,512)
Charge to expense to eliminate unearned income [see Note (k)] (296)
----------
Total adjustment $(255,431)
==========
(e) Adjustment to reflect the cancellation of the Delmarva treasury stock as a
condition of the merger.
10
(f) The schedule below shows the calculation of the cost of acquiring Atlantic
and the allocation of the total acquisition cost to identifiable tangible
and intangible assets and liabilities.
Cost of Acquiring Atlantic Amounts
-------------------------- ----------------------
(Dollars in Thousands)
Consideration to be paid to Atlantic's Common
Stockholders [see Note (c)] $921,034
Add: Estimated direct costs of acquisition to be
incurred by Delmarva 24,700
Less: Registration and issuance costs (4,000)
-----------
Total acquisition cost $941,734
===========
Less assets acquired:
Electric utility plant - net $1,791,505
Investments and nonutility property 321,313
Current assets 259,632
Deferred debits 351,434
-----------
Total assets acquired $2,723,884
===========
Add liabilities acquired:
Preferred stock of subsidiaries $123,950
Long-term debt 889,744
Current liabilities 342,526
Deferred credits and other liabilities 582,581
-----------
Total liabilities acquired $1,938,801
===========
Costs incurred and liabilities assumed in connection with
the merger $ 43,884
-----------
Cost in excess of net assets acquired $200,535
===========
The fair value of the utility assets of Atlantic is their book value due to
the ratemaking process. Utility assets are recognized for ratemaking
purposes at their book values in determining utility revenue requirements.
Accordingly, the economic substance is that fair value of the utility
assets is their book value.
(g) Adjustments to record additional pension prepayment ($12.1 million) and
postretirement benefit liabilities ($46.3 million), assumed in the
acquisition of Atlantic in accordance with Statements of Financial
Accounting Standards (SFAS) Nos. 87 and 106.
(h) Adjustment to record an estimated liability of $38.8 million for employee
separation and relocation costs and facilities integration costs related to
Atlantic's employees and facilities and an estimated liability of $56.8
million, which will be expensed, principally for employee separation costs
related to Delmarva. The Unaudited Pro Forma Combined Statement of Income
for the year ended December 31, 1997 does not reflect expected nonrecurring
estimated expenses of $56.8 million before taxes ($33.5 million after
taxes), principally for employee separation costs related to Delmarva.
11
(i) Adjustment to record the estimated direct costs of the merger of $24.7
million. These costs are included in the cost to acquire Atlantic.
As of December 31, 1997
-----------------------
(Dollars in Thousands)
Other current liabilities $2,900
Deferred debits $(21,800)
(j) Adjustment to reflect the amortization of goodwill acquired over forty (40)
years.
(k) Adjustment to recognize a pretax expense of $0.5 million to eliminate
unearned and deferred compensation costs payable under employee incentive
plans at the time of the merger. The adjustment is summarized below:
As of December 31, 1997
-----------------------
(Dollars in Thousands)
Decrease in retained earnings:
Delmarva $(296)
Accrued tax benefit:
Delmarva (206)
------
Eliminate unearned and deferred compensation $502
======
The Unaudited Pro Forma Combined Statement of Income for the year ended
December 31, 1997 does not reflect the nonrecurring estimated expense of
$0.5 million before taxes ($0.3 million after taxes).
(l) Adjustment to record additional deferred income taxes for the following
temporary differences:
(Dollars in Thousands)
Temporary Deferred
Differences Income Taxes
----------- ------------
Additional pension prepayment [see note (g)] 12,110 (4,238)
Additional postretirement benefit liabilities
[see Note (g)] 46,248 16,187
Liabilities for employee separation,
relocation, and retraining costs and
facilities integration cost s[see Note (h)] 95,600 36,867
Liability for a portion of DP&L direct
acquisition costs that are deemed to be tax
deductible [see Note (i)] 8,600 3,526
--------
Total deferred income taxes $52,342
========
In accordance with SFAS No. 109, deferred income taxes were not recorded
on goodwill for which the amortization is not deductible for tax purposes.
12
(m) Adjustment to present earnings applicable to the Class A Common Stock.
The Class A Common Stock is intended to reflect the growth prospects and
regulatory environment of Atlantic's regulated electric utility business.
The shares of Class A Common Stock to be received by holders of Atlantic
Common Stockholders represent, in aggregate, a 30% interest in any earnings
of Atlantic's regulated electric utility business in excess of $40 million
per year.
The calculation of the pro forma earnings applicable to the Class A Common
Stock for the year ended December 31, 1997 is shown below (in thousands):
Atlantic City Electric Company (ACE) and
Subsidiary Income Available for Common
Stockholders $80,926
Add: Termination of employee benefit plans due to merger 15,600
Less: Net Earnings of Nonutility Activities Specifically
Excluded (3,466)
Less: Fixed Amount of $40 Million per Year (40,000)
--------
Subtotal 53,060
Percentage Applicable to Class A Common Stock 30%
--------
Earnings Applicable to Class A Common Stock $15,918
========
(n) Adjustments to decrease the weighted average number of Common Stock shares
outstanding based on the conversion ratio of 0.75 to 1 of Conectiv Common
Stock to be issued to holders of Atlantic Common Stock and reflect the
issuance of Class A Common Stock shares to holders of Atlantic Common
Stock. The number of shares of Conectiv Common Stock and Class A Common
Stock estimated to be issued to holders of Atlantic Common Stock for the
acquisition were deemed to be issued and outstanding for the entire period.
(o) The Merger Agreement provides, subject to certain conditions, that the
dividends declared and paid on the Class A Common Stock will be maintained
at a level of $3.20 per share per annum from the Effective Date until the
earlier of July 1, 2001 or the end of the twelfth calendar quarter
following the calendar quarter in which the Effective Date occurs.
Thereafter, it is the intention of Conectiv, subject to certain conditions,
to pay annual dividends on the Class A Common Stock in an aggregate amount
(including the amount credited to the Intergroup Interest as provided in
the Conectiv Charter) equal to 90% of Conectiv Net Income Attributable to
the Atlantic Utility Group. The Merger Agreement further provides that if
and to the extent that the annual dividends paid on the Class A Common
Stock during the Initial Period (including the aforesaid amount) shall have
exceeded 100% of Conectiv Net Income Attributable to the Atlantic Utility
Group during such period, the Conectiv Board may consider such fact in
determining the appropriate annual dividend rate on the Class A Common
Stock following the Initial Period.
The pro forma Class A Common Stock dividends per share exceed the pro forma
Class A Common Stock earnings per share for the year ended December 31,
1997.
(p) Adjustment to reflect Delmarva's preferred stock as preferred stock
of a subsidiary.
13
(q) Adjustment to eliminate nonrecurring charge for "Termination of employee
benefit plans due to merger."
(r) As necessary for fair presentation of the pro forma financial statements,
amounts previously reported by Atlantic and Delmarva have been reclassified
for consistency of presentation. The following schedules show the amounts
reclassified.
14
DELMARVA POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(Dollars in Thousands)
(Unaudited)
ASSETS
Reported Reclass Adjusted
Amount Adjustments Amount
----------- ----------- -----------
Utility Plant and Nonutility Property, At Cost
Electric utility plant $3,010,060 $ (1,618) (1) $3,008,442
Gas utility plant 241,580 - 241,580
Common utility plant 154,791 (2,559) (1) 152,232
----------- ----------- ----------
3,406,431 (4,177) 3,402,254
Less: Accumulated depreciation 1,373,676 (2,950) (1) 1,370,726
----------- ----------- ----------
Net utility plant in service 2,032,755 (1,227) 2,031,528
Construction work-in-progress 93,017 - 93,017
Leased property, net 31,031 1,227 (1) 32,258
Nonutility property, net 74,811 - 74,811
Goodwill, net 92,602 - 92,602
----------- ----------- ----------
2,324,216 - 2,324,216
Investments ----------- ----------- ----------
Investment in leveraged leases 46,375 - 46,375
Funds held by trustee 48,086 - 48,086
Other investments 9,500 - 9,500
----------- ----------- ----------
103,961 - 103,961
----------- ----------- ----------
Current Assets
Cash and cash equivalents 35,339 - 35,339
Accounts receivable 197,561 - 197,561
Deferred energy costs 18,017 - 18,017
Inventories, at average cost:
Fuel (coal, oil, and gas) 37,425 - 37,425
Materials and supplies 40,518 - 40,518
Prepayments 11,255 - 11,255
Deferred income taxes, net 776 (776) (3) -
----------- ----------- ----------
340,891 (776) 340,115
----------- ----------- ----------
Deferred Charges and Other Assets
Deferred recoverable income taxes 88,683 - 88,683
Deferred debt refinancing costs 18,760 - 18,760
Other regulatory assets - 31,004 (2) 31,004
Prepaid employee benefit costs 58,111 - 58,111
Unamortized debt expense 12,911 - 12,911
Other 67,948 (31,004) (2) 36,944
----------- ----------- ----------
246,413 - 246,413
----------- ----------- ----------
Total Assets $3,015,481 $ (776) $3,014,705
=========== =========== ==========
The accompanying Notes to the Consolidated Financial Statements are an
integral part of this statement.
15
DELMARVA POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(Dollars in Thousands)
(Unaudited)
CAPITALIZATION AND LIABILITIES
Reported Reclass Adjusted
Amount Adjustments Amount
------------ ----------- -----------
Capitalization
Common stock $ 139,116 $ - $ 139,116
Additional paid-in capital - common stock 526,812 - 526,812
Retained earnings 300,757 - 300,757
----------- ----------- -----------
966,685 - 966,685
Treasury shares, at cost (11,687) - (11,687)
Unearned compensation (502) - (502)
----------- ----------- -----------
Total common stockholders' equity 954,496 - 954,496
Preferred stock not subject to mandatory redemption 89,703 - 89,703
Preferred stock of subsidiaries:
Subject to mandatory redemption 70,000 - 70,000
Long-term debt 983,672 - 983,672
----------- ----------- -----------
2,097,871 - 2,097,871
----------- ----------- -----------
Current Liabilities
Short-term debt 23,254 - 23,254
Long-term debt due within one year 33,318 - 33,318
Variable rate demand bonds 71,500 - 71,500
Accounts payable 103,607 - 103,607
Taxes accrued 10,723 - 10,723
Interest accrued 19,902 - 19,902
Dividends declared 23,775 - 23,775
Current capital lease obligation 12,516 - 12,516
Deferred income taxes, net - (776) (3) (776)
Other 35,819 - 35,819
----------- ----------- -----------
334,414 (776) 333,638
----------- ----------- -----------
Deferred Credits and Other Liabilities
Deferred income taxes, net 492,792 - 492,792
Deferred investment tax credits 39,942 - 39,942
Long-term capital lease obligations 19,877 - 19,877
Other 30,585 - 30,585
----------- ----------- -----------
583,196 - 583,196
----------- ----------- -----------
Total Capitalization and Liabilities $3,015,481 $ (776) $3,014,705
=========== =========== ===========
The accompanying Notes to the Consolidated Financial Statements are an
integral part of this statement.
16
ATLANTIC ENERGY, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(Dollars in Thousands)
(Unaudited)
ASSETS
Reported Reclass Adjusted
Amount Adjustments Amount
---------- ----------- -----------
Utility Plant and Nonutility Property, At Cost
Electric utility plant in service $2,585,286 $ 5,604 (4) $2,590,890
---------- ----------- -----------
2,585,286 5,604 2,590,890
Less: Accumulated depreciation 934,235 - 934,235
---------- ----------- -----------
Net electric utility plant in service 1,651,051 5,604 1,656,655
Construction work-in-progress 95,120 - 95,120
Land Held for Future Use 5,604 (5,604) (4) -
Nonutility property, net 105,356 - 105,356
Leased property, net 39,730 - 39,730
---------- ----------- -----------
1,896,861 - 1,896,861
---------- ----------- -----------
Investments
Investment in leveraged leases 80,448 - 80,448
Funds held by trustee 81,650 10,963 (5) 92,613
Other investments 53,859 (10,963) (5) 42,896
---------- ----------- -----------
215,957 - 215,957
---------- ----------- -----------
Current Assets
Cash and cash equivalents 17,224 414 (6) 17,638
Accounts receivable 103,045 36,915 (7) 139,960
Unbilled revenues 36,915 (36,915) (7) -
Deferred energy costs 27,424 - 27,424
Inventories, at average cost:
Fuel (coal, oil, and gas) 29,242 - 29,242
Materials and supplies 20,893 14,712 (6) 35,605
Working funds 15,126 (15,126) (6) -
Prepayments 3,804 - 3,804
Deferred income taxes, net - - -
Other 14,349 (8,390) (8) 5,959
---------- ----------- -----------
268,022 (8,390) 259,632
---------- ----------- -----------
Deferred Charges and Other Assets
Unrecovered purchased power costs 66,264 - 66,264
Deferred recoverable income taxes 85,858 - 85,858
Unrecovered state excise taxes 45,154 - 45,154
Deferred debt refinancing costs 44,947 (14,945) (9) 30,002
Deferred other post employee benefit costs 37,476 - 37,476
Other regulatory assets 24,637 - 24,637
Prepaid employee benefit costs - 8,390 (8) 8,390
Unamortized debt expense - 14,945 (9) 14,945
Other 38,708 - 38,708
---------- ----------- -----------
343,044 8,390 351,434
---------- ----------- -----------
Total Assets $2,723,884 $ - $2,723,884
========== =========== ==========
The accompanying Notes to the Consolidated Financial Statements are
an integral part of this statement.
17
ATLANTIC ENERGY, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(Dollars in Thousands)
(Unaudited)
CAPITALIZATION AND LIABILITIES
Reported Reclass Adjusted
Amount Adjustments Amount
---------- ----------- -----------
Capitalization
Common stock $ 563,460 $ - $ 563,460
Retained earnings 221,623 - 221,623
---------- ----------- ----------
785,083 - 785,083
Unearned compensation - - -
---------- ----------- ---------
Total common stockholders' equity 785,083 - 785,083
Preferred stock of subsidiaries:
Not subject to mandatory redemption 30,000 - 30,000
Subject to mandatory redemption 103,950 (10,000) (10) 93,950
Long-term debt 879,744 10,000 (10) 889,744
---------- ----------- ----------
1,798,777 - 1,798,777
---------- ----------- ----------
Current Liabilities
Short-term debt 55,675 - 55,675
Long-term debt due within one year 147,566 - 147,566
Accounts payable 65,369 - 65,369
Taxes accrued 6,049 - 6,049
Interest accrued 20,116 - 20,116
Dividends declared 21,215 - 21,215
Current capital lease obligation 653 - 653
Deferred income taxes, net 1,888 - 1,888
Other 23,995 - 23,995
---------- ----------- ----------
342,526 - 342,526
---------- ----------- ----------
Deferred Credits and Other Liabilities
Deferred income taxes, net 439,267 - 439,267
Deferred investment tax credits 44,043 - 44,043
Long-term capital lease obligations 39,077 - 39,077
Postretirement obligations 37,476 - 37,476
Other 22,718 - 22,718
---------- ----------- ----------
582,581 - 582,581
---------- ----------- ----------
Total Capitalization and Liabilities $2,723,884 $ - $2,723,884
========== =========== ==========
The accompanying Notes to the Consolidated Financial Statements are an
integral part of this statement.
18
DELMARVA POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
Reported Reclass Adjusted
Amount Adjustments Amount
----------- ----------- -----------
Operating Revenues
Electric $1,092,144 $ - $1,092,144
Gas 204,057 - 204,057
Other services 127,301 - 127,301
----------- ----------- -----------
1,423,502 - 1,423,502
----------- ----------- -----------
Operating Expenses
Electric fuel and purchased energy 416,640 - 416,640
Gas purchased 153,027 - 153,027
Other services' cost of sales 85,192 - 85,192
Purchased electric capacity 28,470 - 28,470
Operation and maintenance 331,770 - 331,770
Depreciation and amortization 136,340 - 136,340
Other taxes 37,634 - 37,634
----------- ----------- -----------
1,189,073 - 1,189,073
----------- ----------- -----------
Operating Income 234,429 - 234,429
----------- ----------- -----------
Other Income
Allowance for equity funds used
during construction 1,337 - 1,337
Other income 28,187 - 28,187
----------- ----------- -----------
29,524 - 29,524
----------- ----------- -----------
Interest Expense
Interest charges 83,398 - 83,398
Allowance for borrowed funds used
during construction and capitalized interest (2,996) - (2,996)
----------- ----------- -----------
80,402 - 80,402
Preferred Stock Dividend ----------- ----------- -----------
Requirements of Subsidiaries 5,687 - 5,687
----------- ----------- -----------
Income Before Income Taxes 177,864 - 177,864
Income Taxes 72,155 - 72,155
----------- ----------- -----------
Net Income 105,709 - 105,709
Dividends on Preferred Stock 4,491 - 4,491
----------- ----------- -----------
Earnings Applicable to Common Stock $ 101,218 $ - $ 101,218
=========== =========== ===========
Average shares outstanding (000): 61,122 61,122
Basic and diluted earnings per average share $ 1.66 $ - $ 1.66
Dividends declared $ 1.54 $ - $ 1.54
The accompanying Notes to the Consolidated Financial Statements are an
integral part of this statement.
19
ATLANTIC ENERGY, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
Reported Reclass Adjusted
Amount Adjustments Amount
----------- ----------- -----------
Operating Revenues
Electric $1,061,986 $ - $1,061,986
Other services 40,374 - 40,374
----------- ----------- -----------
1,102,360 - 1,102,360
----------- ----------- -----------
Operating Expenses
Electric fuel and purchased energy 293,457 - 293,457
Other services' cost of sales - - -
Purchased electric capacity 197,386 - 197,386
Termination of employee benefit plans due to merger 23,559 - 23,559
Operation and maintenance 203,198 (5,952) (11,12) 197,246
Depreciation and amortization 83,950 10,530 (12) 94,480
State excise taxes 103,991 - 103,991
Other taxes 7,616 (4,578) (11) 3,038
----------- ----------- -----------
913,157 - 913,157
----------- ----------- -----------
Operating Income 189,203 - 189,203
----------- ----------- -----------
Other Income
Allowance for equity funds used
during construction 815 - 815
Other income 14,598 - 14,598
----------- ----------- -----------
15,413 - 15,413
----------- ----------- -----------
Interest Expense
Interest charges 70,619 - 70,619
Allowance for borrowed funds used
during construction and capitalized interest (1,003) - (1,003)
----------- ----------- -----------
69,616 - 69,616
----------- ----------- -----------
Preferred Stock Dividend
Requirements of Subsidiaries 10,596 - 10,596
----------- ----------- -----------
Income Before Income Taxes 124,404 - 124,404
Income Taxes 49,999 - 49,999
----------- ----------- -----------
Net Income $ 74,405 $ - $ 74,405
=========== =========== ===========
Average shares outstanding (000) 52,280 - 52,280
Basic and diluted earnings per average share $ 1.42 $ - $ 1.42
Dividends declared $ 1.54 $ - $ 1.54
The accompanying Notes to the Consolidated Financial Statements are an
integral part of this statement.
20
NOTES TO ADJUSTED CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands)
(1) Transfer capital leases, net to "Leased property, net."
(2) Transfer regulatory assets from "Other" to "Other regulatory assets."
(3) Transfer "Deferred income taxes, net" to current liabilities.
(4) Transfer "Land held for future use" to "Electric utility plant in
service."
(5) Transfer $10,963 for Investment in Bond Escrow Trust from "Other
investments" to "Funds held by trustee."
(6) Transfer "Working funds" to "Cash" and to "Materials and supplies",
as appropriate.
(7) Transfer "Unbilled revenues" to "Accounts receivable."
(8) Transfer prepaid pension cost to "Deferred Charges and Other Assets."
(9) Transfer unamortized debt costs from "Deferred debt refinancing
costs" to "Unamortized debt expense."
(10) Reclassification to reflect post-balance sheet refinancings in
accordance with SFAS No. 6.
(11) Transfer payroll taxes from "Other taxes" to "Operation and
maintenance".
(12) Transfer nuclear decommissioning costs from "Operation and
maintenance" to "Depreciation and amortization".
21
Exhibits
- ---------
Exhibit 3(a) Restated Certificate of Incorporation of Conectiv.
Exhibit 3(b) Certificate of Merger of Atlantic Energy, Inc. into Conectiv,
Inc. filed in Delaware.
Exhibit 3(c) Section 102(a) certificate to change name from Conectiv, Inc. to
Conectiv filed in Delaware.
Exhibit 3(d) Certificate of Merger of Atlantic Energy, Inc. into Conectiv,
Inc. filed in New Jersey.
Exhibit 3(e) Certificate of Merger of DS Sub into Delmarva Power & Light
Company filed in Delaware.
Exhibit 3(f) By-laws of Conectiv.
Exhibit 99(a) Letter to the Financial Community.
22
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 hereunto duly authorized.
Conectiv
------------
(Registrant)
Date: March 6, 1998 /s/ Barbara S. Graham
---------------------
Barbara S. Graham
Senior Vice President and
Chief Financial Officer
23
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 hereunto duly authorized.
Conectiv
------------
(Registrant)
Date: March 9, 1998 /s/ Barbara S. Graham
---------------------
Barbara S. Graham
Senior Vice President and
Chief Financial Officer
24