<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
--------------
Commission file number 1-13895
CONECTIV
--------
(Exact name of registrant as specified in its charter)
Delaware 51-0377417
------------------------- ------------
(States of incorporation) (I.R.S. Employer
Identification No.)
800 King Street, P.O. Box 231, Wilmington, Delaware 19899
--------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 302-429-3114
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 31, 1998
------------------------------------- -----------------------------
Common Stock, $0.01 par value Shares 100,974,843
Class A Common Stock, $0.01 par value Shares 6,560,612
<PAGE>
CONECTIV
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Table of Contents
-----------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information:
Consolidated Statements of Income for the three
months ended March 31, 1998 and 1997 1
Consolidated Balance Sheets as of March 31, 1998
and December 31, 1997 2-3
Consolidated Statements of Cash Flows for the
three months ended March 31, 1998 and 1997 4
Consolidated Statement of Changes in Common
Stockholders' Equity 5
Notes to Consolidated Financial Statements 6-13
Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-21
Part II. Other Information and Signature 22-26
</TABLE>
i
<PAGE>
PART I. FINANCIAL INFORMATION
CONECTIV
--------
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
OPERATING REVENUES
Electric $ 354,128 $ 262,603
Gas 115,785 56,117
Other services 33,678 27,359
---------- ----------
503,591 346,079
---------- ----------
OPERATING EXPENSES
Electric fuel and purchased energy 137,254 102,842
Gas purchased 98,628 35,753
Other services' cost of sales 23,688 20,740
Purchased electric capacity 20,943 6,977
Employee separation and other merger-related costs 40,623 -
Operation and maintenance 103,536 74,000
Depreciation 43,891 33,395
Taxes other than income taxes 12,865 9,222
---------- ----------
481,428 282,929
---------- ----------
OPERATING INCOME 22,163 63,150
---------- ----------
OTHER INCOME
Allowance for equity funds used
during construction 332 -
Other income 2,515 1,531
---------- ----------
2,847 1,531
---------- ----------
INTEREST EXPENSE
Interest charges 26,355 20,621
Allowance for borrowed funds used during
construction and capitalized interest (764) (1,120)
---------- ----------
25,591 19,501
---------- ----------
PREFERRED STOCK DIVIDEND
REQUIREMENTS OF SUBSIDIARIES 3,323 2,637
---------- ----------
INCOME / (LOSS) BEFORE INCOME TAXES (3,904) 42,543
INCOME TAXES 74 17,965
---------- ----------
NET INCOME / (LOSS) $ (3,978) $ 24,578
========== ==========
EARNINGS / (LOSS) APPLICABLE TO COMMON STOCK
Common stock $ (4,136) $ 24,578
Class A common stock 158 -
---------- ----------
$ (3,978) $ 24,578
========== ==========
COMMON STOCK
Average shares outstanding (000)
Common stock 74,684 60,856
Class A common stock 6,561 -
Earnings / (Loss) per average share--basic and diluted
Common stock ($0.06) $0.40
Class A common stock $0.02 -
Dividends declared per share
Common stock $0.385 $0.385
Class A common stock $0.80 -
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-1-
<PAGE>
CONECTIV
--------
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- ------------
ASSETS
-------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 66,995 $ 35,339
Accounts receivable 325,618 197,561
Inventories, at average cost:
Fuel (coal, oil, and gas) 55,003 37,425
Materials and supplies 63,824 40,518
Prepayments 7,952 11,255
Deferred energy costs 25,209 18,017
Deferred income taxes, net 2,864 776
------------- ------------
547,465 340,891
------------- ------------
INVESTMENTS
Investment in leveraged leases 122,910 46,375
Funds held by trustee 151,551 48,086
Other investments 65,301 9,500
------------- ------------
339,762 103,961
------------- ------------
PROPERTY, PLANT, and EQUIPMENT
Electric utility plant 5,600,356 3,010,060
Gas utility plant 243,243 241,580
Common utility plant 155,845 154,791
------------- ------------
5,999,444 3,406,431
Less: Accumulated depreciation 2,370,924 1,373,676
------------- ------------
Net utility plant in service 3,628,520 2,032,755
Construction work-in-progress 206,744 93,017
Leased nuclear fuel, at amortized cost 65,497 31,031
Nonutility property, net 177,029 74,811
Goodwill, net 343,943 92,602
------------- ------------
4,421,733 2,324,216
------------- ------------
DEFERRED CHARGES AND OTHER ASSETS
Unrecovered purchased power costs 61,775 -
Deferred recoverable income taxes 172,766 88,683
Unrecovered New Jersey state excise tax 42,764 -
Deferred debt refinancing costs 47,573 18,760
Deferred other postretirement benefit costs 36,851 -
Prepaid employee benefit costs 49,912 58,111
Unamortized debt expense 27,892 12,911
Other 108,534 67,948
------------- ------------
548,067 246,413
------------- ------------
TOTAL ASSETS $ 5,857,027 $ 3,015,481
============= ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-2-
<PAGE>
CONECTIV
--------
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ -------------
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
------------------------------
CURRENT LIABILITIES
Short-term debt $ 185,547 $ 23,254
Long-term debt and preferred stock due within one year 51,921 33,318
Variable rate demand bonds 102,500 71,500
Accounts payable 124,037 103,607
Taxes accrued 27,761 10,723
Interest accrued 39,712 19,902
Dividends payable 45,898 23,775
Current capital lease obligation 13,081 12,516
Accrued employee separation and
other merger-related costs 42,309 -
Other 84,025 35,819
-------------- --------------
716,791 334,414
-------------- --------------
DEFERRED CREDITS AND OTHER LIABILITIES
Other postretirement benefits obligation 106,153 -
Deferred income taxes, net 874,552 492,792
Deferred investment tax credits 82,711 39,942
Long-term capital lease obligation 54,683 19,877
Other 53,366 30,585
-------------- --------------
1,171,465 583,196
-------------- --------------
CAPITALIZATION
Common stock: per share par value--$0.01 in 1998, and
$2.25 in 1997; 150,000,000 shares authorized; shares
outstanding--100,947,843 in 1998, and 61,210,262 in 1997 1,012 139,116
Class A common stock, $0.01 par value;
10,000,000 shares authorized; shares outstanding--
6,560,612 in 1998, None in 1997 66 -
Additional paid-in capital--common stock 1,474,454 526,812
Additional paid-in capital--Class A common stock 107,095 -
Retained earnings 252,614 300,757
-------------- --------------
1,835,241 966,685
Treasury shares, at cost:
221,528 shares in 1998; 619,237 shares in 1997 (4,580) (11,687)
Unearned compensation (545) (502)
-------------- --------------
Total common stockholders' equity 1,830,116 954,496
Preferred stock of subsidaries:
Not subject to mandatory redemption 119,702 89,703
Subject to mandatory redemption 163,950 70,000
Long-term debt 1,855,003 983,672
-------------- --------------
3,968,771 2,097,871
-------------- --------------
TOTAL CAPITALIZATION AND LIABILITIES $ 5,857,027 $ 3,015,481
============== ==============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-3-
<PAGE>
CONECTIV
--------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (3,978) $ 24,578
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 46,356 34,870
Allowance for equity funds used during construction (332) -
Investment tax credit adjustments, net (852) (640)
Deferred income taxes, net 2,169 (1,966)
Net change in:
Accounts receivable 4,003 (13,555)
Inventories 11,726 3,753
Accounts payable (4,236) (6,229)
Other current assets & liabilities (1) 8,219 30,977
Accrued employee separation and other merger-related costs 39,027 -
Gain on sale of nonutility asset (1,246) -
Other, net (7,740) (630)
---------- ----------
Net cash provided by operating activities 93,116 71,158
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired 12,264 (11,388)
Capital expenditures (30,346) (37,243)
Sale of nonutility asset 5,617 -
Deposits to nuclear decommissioning trust funds (2,659) (1,060)
Other, net 1,006 133
---------- ----------
Net cash used by investing activities (14,118) (49,558)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid (23,606) (23,329)
Issuances: Long-term debt 33,000 124,200
Common stock 63 6,362
Redemption: Long-term debt (158,532) (696)
Common stock (1,983) (23)
Principal portion of capital lease payments (2,465) (1,475)
Net change in short-term debt 106,625 (118,278)
Cost of issuances and refinancings (444) (2,035)
---------- ----------
Net cash used by financing activities (47,342) (15,274)
---------- ----------
Net change in cash and cash equivalents 31,656 6,326
Cash and cash equivalents at beginning of period 35,339 36,533
---------- ----------
Cash and cash equivalents at end of period $ 66,995 $ 42,859
========== ==========
</TABLE>
(1) Other than debt and deferred income taxes classified as current.
See accompanying Notes to Consolidated Financial Statements.
-4-
<PAGE>
CONECTIV
--------
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Additional
Par Value paid-in Capital
-------------------- ----------------------
Class A Class A Unearned
Common Common Common Common Retained Treasury Compen-
Stock Stock Stock Stock Earnings Stock sation Total
--------- ------- ---------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997 $ 139,116 $ 526,812 $300,757 $(11,687) $(502) $ 954,496
Net loss (3,978) (3,978)
Common stock issued for:
Stock options 7 56 63
Business acquisitions 9,090 9,090
Common stock issued for:
Atlantic common stock 394 66 813,135 107,095 920,690
DPL common stock 618 665,423 (4,580) (502) 660,959
Common stock issuance costs (4,106) (4,106)
DPL common stock canceled (139,123) (526,918) 4,580 502 (660,959)
Common stock dividends:
Common stock (38,917) (38,917)
Class A common stock (5,248) (5,248)
Reacquired stock and other 52 (1,983) (43) (1,974)
--------- ------- ---------- --------- -------- --------- --------- ---------
March 31, 1998 $ 1,012 $66 $1,474,454 $107,095 $252,614 $ (4,580) $(545) $1,830,116
--------- ------- ---------- --------- -------- --------- --------- ---------
</TABLE>
NUMBER OF COMMON SHARES ISSUED AND OUTSTANDING
- ----------------------------------------------
<TABLE>
<CAPTION>
Common Common Common Class A
Stock Treasury Stock Common
Issued Stock Outstanding Stock
---------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
December 31, 1997 61,829,499 (619,237) 61,210,262
Common stock issued for:
Stock options 3,200 3,200
Business acquisitions 488,473 488,473
Common stock and Class A
common stock issued for
Atlantic common stock 39,363,672 39,363,672 6,560,612
DPL common stock 61,832,699 61,832,699
DPL common stock canceled (61,832,699) (61,832,699)
Reacquired stock and other (90,764) (90,764)
---------------- ------------- --------------- --------------
March 31, 1998 101,196,371 (221,528) 100,974,843 6,560,612
---------------- ------------- --------------- --------------
</TABLE>
-5-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. FINANCIAL STATEMENT PRESENTATION
--------------------------------
The consolidated financial statements include the accounts of Conectiv and its
wholly-owned subsidiaries. Conectiv's primary subsidiaries are Atlantic City
Electric Company (ACE), Delmarva Power & Light Company (DPL), Atlantic Energy
Enterprises (AEE), Conectiv Services, Inc. (CSI), Conectiv Communications, Inc.
(CCI), and Delmarva Capital Investments, Inc. The statements reflect all
adjustments necessary in the opinion of Conectiv's management for a fair
presentation of interim results. The statements should be read in conjunction
with DPL's 1997 Report on Form 10-K and Part II of this Report on Form 10-Q for
additional relevant information.
Preferred stock dividends on preferred stock of DPL for the prior reporting
period have been reclassified to Preferred Stock Dividend Requirements of
Subsidiaries, resulting in a deduction before (rather than after) net income.
This reclassification reflects the current legal structure in which DPL is a
subsidiary of Conectiv. See Note 2 to the Consolidated Financial Statements.
2. MERGER WITH ATLANTIC ENERGY, INC.
---------------------------------
As previously reported, on March 1, 1998, DPL merged with Atlantic Energy, Inc.
(Atlantic). Prior to the merger transactions (the Merger) which formed
Conectiv--a new holding company, Atlantic owned ACE--an electric utility serving
the southern one-third of New Jersey, and AEE (which owns nonutility
subsidiaries). As a result of the Merger, Atlantic was merged out of existence,
and Conectiv owns ACE, AEE, DPL, and the nonutility subsidiaries formerly held
by DPL.
In accordance with the terms of the Merger, DPL common stockholders received one
share of Conectiv common stock in exchange for each share of DPL common stock,
and Atlantic common stockholders received 0.75 of one share of Conectiv common
stock and 0.125 of one share of Conectiv Class A common stock in exchange for
each share of Atlantic common stock. Atlantic stockholders and DPL stockholders
received 39,363,672 and 61,832,699 shares of Conectiv common stock,
respectively, of which 221,528 are classified as treasury shares, resulting in
100,974,843 outstanding shares of Conectiv common stock. Atlantic stockholders
received 6,560,612 shares of Conectiv Class A common stock. See Note 5 to the
Consolidated Financial Statements for information concerning Conectiv Class A
common stock and the apportionment of earnings between Conectiv Class A common
stock and Conectiv common stock.
The Merger was accounted for under the purchase method of accounting, with DPL
as the acquirer. Based on the Merger date of March 1, 1998, the Consolidated
Statement of Income for the three months ended March 31, 1998 includes one month
(March 1998) of results of operations for ACE and AEE.
-6-
<PAGE>
The total consideration paid to Atlantic's common stockholders, 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, was $920.7 million. As shown
below, $236.9 million of goodwill was recorded in connection with the Merger and
is being amortized over 40 years.
<TABLE>
<CAPTION>
COMPUTATION OF GOODWILL
------------------------
($ in thousands)
<S> <C>
Total consideration paid to Atlantic
common stockholders $ 920,690
Additional liabilities recognized, net of tax,
for pension and other post-retirement benefits 33,506
Direct Merger costs including Atlantic employee
separation costs, net of tax 51,779
----------
Subtotal 1,005,975
Fair value of Atlantic's net assets 769,027
----------
Goodwill $ 236,948
==========
</TABLE>
-7-
<PAGE>
The effect on Conectiv's Consolidated Balance Sheet of Atlantic's March 1, 1998
balances and Merger-related adjustments, excluding DPL's employee separation
costs, is shown below.
<TABLE>
<CAPTION>
ASSETS CAPITALIZATION AND LIABILITIES
------ ------------------------------
CURRENT ASSETS CURRENT LIABILITIES
<S> <C> <C> <C>
Cash and cash equivalents $ 26,517 Short-term debt $ 30,200
Accounts receivable 123,288 Long-term debt and preferred stock
Fuel inventory 28,075 due in one year 18,575
Materials and supplies inventory 20,283 Variable rate demand bonds 31,000
Prepayments 3,287 Accounts payable 19,017
Deferred energy costs 23,152 Taxes accrued 3,385
----------- Interest accrued 17,425
224,602 Current capital lease obligation 592
----------- Accrued employee separation and
other Merger-related costs 31,311
Other 63,516
----------
215,021
INVESTMENTS ----------
Investment in leveraged leases 80,590
Funds held by trustee 96,676
Other investments 52,770
-----------
230,036
-----------
DEFERRED CREDITS AND OTHER
LIABILITIES
PROPERTY, PLANT and EQUIPMENT Other postretirement benefits obligation 100,515
Electric utility plant 2,575,588 Deferred income taxes, net 394,852
Less: Accumulated depreciation 956,063 Deferred investment tax credits 43,621
----------- Long-term capital lease obligation 36,597
Net utility plant in service 1,619,525 Other 20,069
Construction work-in-progress 110,127 ----------
Leased nuclear fuel, at amortized cost 36,376 595,654
Nonutility property, net 100,905
Goodwill, net 236,948
-----------
2,103,881
-----------
DEFERRED CHARGES AND OTHER ASSETS CAPITALIZATION
Unrecovered purchased power costs 63,273 Common stock 394
Deferred recoverable income taxes 85,858 Class A common stock 66
Unrecovered state excise tax 43,560 Additional paid-in capital--common stock 809,029
Deferred debt refinancing costs 29,621 Additional paid-in capital--Class A
Deferred other postretirement costs 38,434 common stock 107,095
Prepaid employee benefit costs (806) ----------
Unamortized debt expense 15,247 Total common stockholders' equity 916,584
Other 39,156 Preferred stock of subsidiaries:
----------- Not subject to mandatory redemption 30,000
314,343
----------- Subject to mandatory redemption 93,950
Long-term debt 1,021,653
----------
2,062,187
----------
TOTAL ASSETS $ 2,872,862 TOTAL CAPITALIZATION AND LIABILITIES $2,872,862
=========== ==========
</TABLE>
-8-
<PAGE>
PRO FORMA INFORMATION (UNAUDITED)
- ---------------------------------
Pro forma unaudited financial information for Conectiv on a consolidated basis,
giving effect to the Merger as if it had occurred at the beginning of both
periods presented, is shown below. The pro forma information has not been
adjusted to exclude the charge to earnings for employee separation and other
Merger-related costs incurred by DPL which reduced operating income, net income,
and earnings applicable to common stock by $40.6 million, $24.6 million, and
$24.6 million, respectively. See Note 4 to the Consolidated Financial
Statements for additional information concerning this Merger-related charge to
earnings. The pro forma information presented below is not necessarily
indicative of the results that would have occurred, or that will occur in the
future.
<TABLE>
<CAPTION>
Three Months Ended
March 31
(Dollars in Thousands except ---------------------
per share amounts) 1998 1997
- ---------------------------------------------------------------------
<S> <C> <C>
Operating Revenues $668,776 $581,478
Operating Income $ 43,445 $108,691
Net Income (Loss) $ (1,598) $ 42,138
Earnings (Loss) Applicable to Common Stock:
Common stock $ (1,909) $ 39,498
Class A common stock $ 311 $ 2,640
Average common shares outstanding (000)
Common stock 101,005 101,005
Class A common stock 6,561 6,561
Basic and Diluted Earnings (Loss) per average
share outstanding of:
Common stock $ (0.02) $ 0.39
Class A common stock $ 0.05 $ 0.40
</TABLE>
3. RATE MATTERS
------------
ACE and DPL are sharing with their customers a portion of the net cost savings
expected to result from the Merger through reduced electric and gas retail
customer base rates. ACE's total Merger-related electric base rate decrease of
$15.7 million is being phased-in as follows: (1) $5.0 million effective January
1, 1998 coincident with a $5.0 million increase for recovery of other
postretirement benefit costs; (2) $9.9 million effective March 1, 1998, and (3)
$0.8 million effective January 1, 1999. DPL's total Merger-related base rate
decrease of $13.0 million is being phased-in as follows: (1) $11.5 million
effective March 1, 1998, (2) $1.1 million effective March 1, 1999, and (3) $0.4
million March 1, 2000.
-9-
<PAGE>
4. EMPLOYEE SEPARATION AND OTHER MERGER-RELATED COSTS
--------------------------------------------------
In the first quarter of 1998, Conectiv recorded the financial effects of
enhanced retirement offers (ERO) and other employee separation programs utilized
to achieve workforce reductions concurrent with the Merger. On a combined
basis, DPL and Atlantic had approximately 4,600 employees prior to the Merger.
The employee separation programs are expected to reduce the number of employees
by approximately 950, of which about 450 employee separations have actually
occurred. The costs for Atlantic employees under Statement of Financial
Accounting Standards (SFAS) No. 88, "Employers' Accounting for Settlement and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and
relocation costs were $51.9 million ($31.2 million after taxes). These costs
were capitalized as costs of the merger. Similar employee-related costs for DPL
employees and other Merger related costs totaling $40.6 million ($24.6 million
after tax or $0.33 per common share) were charged to operating expenses. The
charge to expense was reduced by a net $32.5 million gain from curtailments and
settlements of pension and other postretirement benefits, which was recognized
under SFAS No. 88 based on actual settlements through March 31, 1998.
Settlements of pension obligations with employees after March 31, 1998 are
expected to result in additional settlement gains ranging from $7 million to $23
million, which will be recorded during the remainder of 1998.
As of March 31, 1998, $17.1 million of the $92.5 million of costs discussed
above for DPL and Atlantic had been paid, and the remaining amounts were
classified in the balance sheet as follows: (1) $37.3 million--current
liabilities; (2) $4.8 million--other long-term liabilities; (3) $24.6 million--
other postretirement benefit obligation, and (4) $8.7 million--a reduction of
prepaid employee benefits costs.
5. CONECTIV CLASS A COMMON STOCK
-----------------------------
Conectiv Class A common stock gives its holders 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 Conectiv Class A common stock are 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 are the consolidated
earnings of Conectiv less earnings applicable to Conectiv Class A common stock.
Presented on the following page is summarized ACE financial information and the
calculation of earnings applicable to Conectiv Class A common stock. The ACE
income statement amounts are for the one month ended March 31, 1998, the period
included in the Consolidated Conectiv Statement of Income for the three months
ended March 31, 1998 under the purchase method of accounting.
-10-
<PAGE>
SUMMARIZED FINANCIAL INFORMATION OF ATLANTIC CITY ELECTRIC COMPANY
- ------------------------------------------------------------------
(Dollars in Thousands)(unaudited)
<TABLE>
<CAPTION>
ONE MONTH
INCOME STATEMENT INFORMATION MARCH 1998
---------------------------- ----------
<S> <C>
Operating Revenues $ 75,708
Operating Loss (1) $ (39,590)
Net Loss (1) $ (27,380)
March 31,
BALANCE SHEET INFORMATION 1998
------------------------- --------
Current assets $ 212,153
Noncurrent assets 2,181,673
----------
Total assets $2,393,826
==========
Current liabilities $ 178,796
Noncurrent liabilities 1,350,475
Preferred stock 123,950
Common shareholders' equity 740,605
----------
Total capitalization and liabilities $2,393,826
==========
</TABLE>
COMPUTATION OF EARNINGS (LOSS) APPLICABLE TO CONECTIV CLASS A COMMON STOCK
- --------------------------------------------------------------------------
(Dollars in Thousands)(unaudited)
<TABLE>
<CAPTION>
ONE MONTH
MARCH 1998
----------
<S> <C>
Net Loss of ACE (1) $ (27,380)
Add: Employee separation and other
Merger-related costs (1) 30,946
Net loss of nonutility activities specifically excluded 293
Less: 1/12 of fixed amount of $40 million per year 3,333
----------
Subtotal 526
Percentage applicable to Conectiv Class A common stock 30%
----------
Earnings applicable to Conectiv Class A common stock $ 158
----------
</TABLE>
(1) Employee separation and other Merger-related costs for ACE reduced ACE's
operating income by $51.5 million and net earnings by $30.9 million. In
the Consolidated Conectiv Financial Statements, these costs were
capitalized as costs of the merger, as discussed in Note 4 to the
Consolidated Financial Statements.
-11-
<PAGE>
6. DEBT
----
In January 1998, DPL issued $33.0 million of 6.81% unsecured Medium-Term Notes
which mature in 20 years. On the consolidated balance sheet as of December 31,
1997, $25.4 million of short-term debt was reclassified to long-term debt to
recognize the amount of short-term debt refinanced with the Medium-Term Notes.
In March 1998, Conectiv borrowed $165 million on a short-term basis under its
$500 million revolving credit facilities. The weighted average interest rate on
the $165 million short-term borrowing was 6.0% as of March 31, 1998. The
proceeds were primarily used as follows: (1) $53.5 million was used to repay the
balance outstanding under Atlantic's revolving credit and term loan facility;
(2) $92.2 million was used to repay the balance outstanding under the revolving
credit and term loan facility of Atlantic Thermal Systems, Inc. (an AEE
subsidiary); and (3) $12.5 million was used to repay the balance outstanding
under the revolving credit and term loan facility of ATE Investment Inc. (an AEE
subsidiary).
7. CONTINGENCIES
-------------
Environmental Matters
- ---------------------
Conectiv is subject to regulation with respect to the environmental effects of
its operations, including air and water quality control, solid and hazardous
waste disposal, and limitation on land use by various federal, regional, state,
and local authorities. The disposal of hazardous substances can result in costs
to clean up facilities found to be contaminated due to past disposal practices.
Federal and state statutes authorize governmental agencies to compel responsible
parties to clean up certain abandoned or uncontrolled hazardous waste sites.
Conectiv's current liabilities as of March 31, 1998 and December 31, 1997
included $2 million for potential clean-up and other costs related to federal
and state superfund sites at which Conectiv is a potentially responsible party
or alleged to be a third party contributor. Conectiv does not expect such
future costs to have a material effect on its financial position or results of
operations.
Nuclear Insurance
- -----------------
In conjunction with Conectiv's subsidiaries' (DPL and ACE) ownership interests
in the Peach Bottom Atomic Power Station (Peach Bottom), Salem Nuclear
Generating Station (Salem), and the Hope Creek Nuclear Generating Station (Hope
Creek), Conectiv could be assessed for a portion of any third-party claims
associated with an incident at any commercial nuclear power plant in the United
States. Under the provisions of the Price Anderson Act, if third-party claims
relating to such an incident exceed $200 million (the amount of primary
insurance), Conectiv could be assessed up to $51.3 million on an aggregate basis
for such third-party claims. In addition, Congress could impose a revenue-
raising measure on the nuclear industry to pay such claims.
The co-owners of Peach Bottom, Salem, and Hope Creek maintain property insurance
coverage of approximately $2.8 billion for each unit for loss or damage to the
units, including coverage for decontamination expense and premature
decommissioning. In addition, Conectiv is a member of an industry mutual
insurance company, which provides replacement power cost coverage in the event
of a major accidental outage at a nuclear power plant. Under these coverages,
Conectiv is subject to potential retrospective loss experience assessments of up
to $8.9 million on an aggregate basis.
-12-
<PAGE>
8. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
-------- --------
<S> <C> <C>
Cash paid for
(Dollars in thousands)
Interest, net of amounts capitalized $22,093 $12,335
Income taxes, net of refunds $ 106 $ 4,558
</TABLE>
See Note 2 to the Consolidated Financial Statements for information concerning
the issuance of Conectiv common stock and Conectiv Class A common stock in
exchange for DPL and Atlantic common stock.
9. STOCKHOLDERS RIGHTS PLAN
------------------------
Conectiv announced on April 23, 1998, that its Board of Directors adopted a
Stockholders Rights Plan in which preferred stock purchase rights will be
distributed as a dividend at the rate of one Right for each share of Common
Stock and one Right for each share of Class A Common Stock held as of the close
of business on May 11, 1998. The rights expire in 10 years.
The Rights are designed to guard against partial tender offers and other abusive
or unfair tactics that might be used in an attempt to gain control of the
Company without paying all stockholders a fair price for their shares. The
Rights Plan will not prevent takeovers, but is designed to deter coercive,
abusive, or unfair takeover tactics and to encourage anyone attempting to
acquire the Company to first negotiate with the Board.
Each Right would, after the rights become exercisable, entitle such holder to
purchase from Conectiv one one-hundredth of one share of Series One Junior
Preferred Stock or one one-hundredth of one share of Series Two Junior Preferred
Stock at an initial price of $65. The Rights will be exercisable only if a
person or group acquires beneficial ownership of 15% or more of the aggregate
voting power represented by the Company's outstanding securities (i.e. becomes
an "Acquiring Person" as defined in the Rights Plan) or commences a tender or
exchange offer to acquire beneficial ownership of 15% or more of the aggregate
voting power represented by the Company's outstanding securities. Conectiv
generally will be entitled to redeem the Rights at $.01 per Right at any time
before a person or group becomes an Acquiring Person.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
MERGER WITH ATLANTIC
- --------------------
As discussed in Note 2 to the Consolidated Financial Statements, on March 1,
1998, DPL merged with Atlantic Energy, Inc. (Atlantic). Prior to the merger
transactions (the Merger) which formed Conectiv--a new holding company, Atlantic
owned ACE--an electric utility serving the southern one-third of New Jersey, and
AEE (which owns nonutility subsidiaries). As a result of the Merger, Atlantic
was merged out of existence, and Conectiv owns ACE, AEE, DPL, and the nonutility
subsidiaries formerly held by DPL.
In accordance with the terms of the Merger, DPL common stockholders received one
share of Conectiv common stock in exchange for each share of DPL common stock,
and Atlantic common stockholders received 0.75 of one share of Conectiv common
stock and 0.125 of one share of Conectiv Class A common stock in exchange for
one share of Atlantic common stock.
Under the purchase method of accounting, with DPL as the acquirer, the
Consolidated Statement of Income for the three months ended March 31, 1998
includes one month (March 1998) of results of operations for ACE and AEE.
EARNINGS SUMMARY
- ----------------
Conectiv recorded a charge to earnings for DPL employee separation costs and
other Merger-related costs in the first quarter of 1998 which reduced operating
income, net income, earnings applicable to common stock, and earnings per common
share by $40.6 million, $24.6 million, $24.6 million and $0.33, respectively.
The Merger-related charge reflects certain costs associated with achieving
estimated Merger-related cost savings of $500 million over the next 10 years.
Conectiv is committed to aggressively pursuing these Merger-related synergies,
with continued emphasis on productivity and lower overall costs.
In the first quarter of 1998, Conectiv had a $4.1 million or $0.06 per common
share net loss on 74,684,000 average common shares. Excluding the Merger-related
charge, earnings applicable to common stock were $20.5 million or $0.27 per
share. In comparison, earnings applicable to common stock and earnings per
common share in the first quarter of 1997 were $24.6 million and $0.40,
respectively, on average common shares of 60,856,000. The average number of
common shares outstanding increased due to the issuance of 39,363,672 common
shares to Atlantic shareholders on March 1, 1998.
The $0.13 decline in adjusted earnings per common share was primarily due to
very mild weather during the 1998 winter heating season, which caused sales to
electric and gas utility customers to decline (excluding the one month of
operating results for ACE). Sales to DPL residential electric and gas customers
decreased 4% and 10%, respectively, reflecting 14% fewer heating degree days
than the first quarter of last year. The sales decrease was mitigated by
incremental sales from continued economic and customer growth. Additionally,
although utility operation and maintenance expenses (excluding ACE
-14-
<PAGE>
and the Merger-related charge) were relatively flat, ongoing investment in
Conectiv's non-regulated businesses caused operation and maintenance expenses to
increase. The higher number of shares outstanding also unfavorably affected
earnings per common share.
Earnings available for Conectiv Class A common stock were $158,000 or $0.02 per
Conectiv Class A common share, based on 6,560,612 average shares. For
additional information, see Note 5 to the Consolidated Financial Statements.
ELECTRIC UTILITY INDUSTRY RESTRUCTURING
- ---------------------------------------
For background information concerning the restructuring of the electric utility
industry in New Jersey refer to page 3 of ACE's 1997 Report on Form 10-K.
Updates to previously disclosed information are shown below.
. Restructuring hearings began on April 27, 1998 and are scheduled to be
completed by May 22, 1998. The New Jersey Board of Public Utilities (BPU)
is expected to issue a final order during this summer. Currently, the BPU
does not have the legal authority to enact a restructuring plan without
legislative changes. Implementation of a restructuring plan had been
planned for October 1998, but is now more likely to occur in early- to mid-
1999.
. With respect to information previously filed by ACE concerning stranded
costs and unbundled rates, the Office of Administrative Law (OAL) is
expected to render a decision by May 15, 1998. The OAL's decision will then
be sent to the BPU for review.
For background information concerning the restructuring of the electric utility
industry in Delaware, Maryland, and Virginia, refer to page I-2 and page II-4 of
DPL's 1997 Report on Form 10-K. Updates to previously disclosed information are
shown below.
. On January 27, 1998, the Delaware Public Service Commission (DPSC)
submitted its report on electric utility industry restructuring to the
Delaware General Assembly. To date, the DPSC has not been able to secure a
sponsor for its proposal. On April 8, 1998, House Bill 570, the Electric
Restructuring Act of 1998 (HB 570) was introduced. HB 570 has the support
of the newly-formed Alliance for Fair Electric Competition Today, which is
an alliance of small businesses, low-income groups, industry, trade groups,
the Delaware Electric Cooperative, the Delaware electric municipalities and
DPL. HB 570, while reflecting many of the DPSC's recommendations, makes it
unnecessary to deal with litigious issues such as stranded costs,
divestiture, securitization and exit fees.
The key provisions of HB 570 are as follows:
DPL's customers would have choice on July 1, 1999 and the Delaware
Electric Cooperative's customers would have choice on January 1, 2000.
The electric municipalities would not be regulated by the DPSC and
would set their own dates for customer choice.
-15-
<PAGE>
Rates would be frozen for three years. The DPSC would establish a
specific retail market price "shopping credit" (a credit to the
customer's price per kilowatthour), enabling customers to shop for
their energy supplier.
The difference between the "shopping credit" for the retail market
price and the amount for energy supply in current rates (that are
frozen for three years), would be included in the delivery charge
during the transition period. This provides a mechanism for recovering
stranded costs.
. In Maryland, various parties have continued to work on resolving
implementation issues. Filings concerning electric utilities' stranded
costs and unbundled rates are due to the Maryland Public Service Commission
by July 1, 1998.
. On April 15, 1998, the Governor of Virginia signed into law a bill which
establishes a schedule for Virginia's transition to retail competition in
the electric utility industry. The schedule requires that the transition to
retail competition commence on January 1, 2002 and that full retail
competition commence on January 1, 2004. The bill also allows for the full
recovery of just and reasonable net stranded costs.
ELECTRIC REVENUES
- -----------------
Details of the changes in the various components of electric revenues for the
first quarter of 1998 compared to the first quarter of 1997 are shown below
(dollars in millions):
<TABLE>
<CAPTION>
Consolidated
Conectiv ACE DPL
------------ ------- -------
<S> <C> <C> <C>
Non-fuel (Base Rate) Revenues $45.9 $44.7 $ 1.2
Fuel Revenues 20.6 26.8 (6.2)
Interchange Delivery Revenues (6.3) 2.2 (8.5)
Merchant Revenues 31.3 2.0 29.3
------------ ------- -------
Total $91.5 $75.7 $15.8
============ ======= =======
</TABLE>
Consolidated Conectiv electric revenues increased by $91.5 million, from $262.6
million for the first quarter of 1997 to $354.1 million for the first quarter of
1998. As shown in the table above, $75.7 million of the $91.5 million increase
in Conectiv's total electric revenues was due to electric revenues realized by
ACE in March 1998. The $45.9 million increase in Conectiv's non-fuel electric
revenues, which includes $44.7 million from ACE's March 1998 operations, was
adversely impacted by the very mild winter weather. Merger-related customer rate
decreases also lowered Conectiv's non-fuel electric revenues ($2.0 million based
on the decrease in customer rates on March 1, 1998 as discussed in Note 3 to the
Consolidated Financial Statements). Conectiv's retail electric sales increased
21% principally due ACE's electric kilowatthour (kWh) sales. The addition of
ACE's customer base roughly doubled the number of electric customers served.
DPL's non-fuel electric revenues increased $1.2 million despite the milder
winter weather and the Merger-related rate decrease. The increase was due to
additional revenues from storm restoration work in New England and kWh sales
resulting from economic and customer growth.
-16-
<PAGE>
Fuel and interchange revenues generally do not affect net income due to ACE's
Levelized Energy Clause (LEC), as discussed on page 51 of ACE's 1997 Report on
Form 10-K, and due to DPL's fuel adjustment clauses, as discussed on page II-9
of DPL's 1997 Report on Form 10-K.
Electric merchant revenues from off-system, unregulated sales increased by $31.3
million mainly because DPL's merchant group has increased its operations
substantially since the first quarter of 1997, when the group was in the start-
up phase. Due to the nature of the product sold (a bulk commodity) and
competitive markets, the margin from merchant revenues in excess of related
energy costs is relatively small.
GAS REVENUES
- ------------
Total gas revenues increased by $59.7 million from $56.1 million to $115.8
million. Details of the changes in the various components of gas revenues for
the first quarter of 1998 compared to the first quarter of 1997 are shown below
(dollars in millions):
<TABLE>
<S> <C>
Non-fuel (Base Rate) Revenues $ (1.8)
Fuel Revenues (2.1)
Merchant Revenues 63.6
------
Total $ 59.7
======
</TABLE>
The decreases shown above for non-fuel and fuel gas revenues were primarily due
to a 10% decline in residential gas sales from milder winter weather. The
weather-related gas revenue decrease was partly offset by additional gas
revenues from a 2.2% increase in the average number of gas customers.
Gas merchant revenues increased $63.6 million primarily due to higher off-system
gas sales resulting from a substantial increase in DPL's merchant operations
since start-up last year. Similar to electric merchant revenues, the margin
provided by gas merchant revenues in excess of related purchased gas costs is
relatively small due to the competitive nature of bulk commodity sales.
OTHER SERVICES REVENUES
- -----------------------
Other service revenues were comprised of the following:
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------
(Dollars in millions) 1998 1997
-------------------
<S> <C> <C>
HVAC $20.3 $13.5
Operation of power plants 5.5 4.9
Thermal systems (1) 2.0
Landfill and waste hauling (2) 2.8
Other 5.9 6.2
------------------
Total $33.7 $27.4
==================
</TABLE>
(1) Revenues from Conectiv Thermal Systems, Inc. (formerly Atlantic Thermal
Systems, Inc.), a subsidiary of AEE.
(2) Landfill and waste hauling operations were sold in the fourth quarter of
1997.
-17-
<PAGE>
As shown in the preceding table, other services revenues increased $6.3 million
principally due to higher revenues from heating, ventilation, and air
conditioning (HVAC) operations. HVAC revenues increased due to business
acquisitions, partly offset by the unfavorable impact of milder winter weather
on revenues. Although telecommunications revenues from Conectiv Communications,
Inc. (CCI) were immaterial in the first quarter of 1998, CCI has sold 6,800
phone lines and activated 3,000 access lines in Delaware and Pennsylvania. CCI
has been working with the incumbent local exchange carrier to resolve certain
issues and reduce the time required to activate lines.
OPERATING EXPENSES
- ------------------
Electric Fuel and Purchased Energy
Electric fuel and purchased energy expenses increased from $102.8 million to
$137.3 million primarily due to ACE's electric operations for March 1998 and
increased energy purchased for electric merchant sales, partly offset by lower
kWh output for interchange deliveries and on-system sales.
Gas Purchased
Gas purchased increased from $35.8 million to $98.6 million mainly due to larger
volumes of gas purchased for resale off-system, partly offset by lower volumes
of gas purchased for sale on-system due to the milder winter weather.
Purchased Electric Capacity
The $14.0 million increase in purchased electric capacity included approximately
$13.4 million of ACE's purchased capacity costs which are recovered through the
LEC.
Employee Separation and Other Merger-Related Costs
Employee-separation costs for DPL employees and other Merger related costs
totaling $40.6 million ($24.6 million after tax or $0.33 per common share) were
charged to operating expenses. The charge to expense was reduced by a net $32.5
million gain from curtailments and settlements of pension and other
postretirement benefits, which was recognized under SFAS No. 88 based on actual
settlements through March 31, 1998. Settlements of pension obligations with
employees after March 31, 1998 are expected to result in additional settlement
gains ranging from $7 million to $23 million, which will be recorded in 1998.
Operation and Maintenance Expenses
Operation and maintenance expenses for DPL's utility operations were relatively
flat due to cost containment measures. The $29.5 million increase in operation
and maintenance expenses was due to $18.8 million from ACE's March 1998 electric
operations, with the balance attributable to nonutility businesses. The
increase in nonutility operation and maintenance expenses was principally due to
a higher level of HVAC business activity and start-up costs for the
telecommunications business.
Depreciation and Taxes Other than Income Taxes
Depreciation and taxes other than income taxes increased mainly due to ACE's
March 1998 operating results.
-18-
<PAGE>
FINANCING COSTS
- ---------------
Financing costs reflected in the consolidated income statement include interest
charges, allowance for funds used during construction (AFUDC), dividends on
preferred securities of subsidiary trusts, and dividends on preferred stock.
Excluding a $5.3 million increase attributed to ACE and AEE operating results
for March 1998, financing costs increased $1.1 million due to financing for
ongoing investments in utility and nonutility assets.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided by operating activities was $93.1 million for the first
quarter of 1998 compared to $71.2 million for the first quarter of 1997. The
increase was primarily due to cash flow from ACE's March 1998 operating
activities.
Capital expenditures were $30.3 million for the first quarter of 1998 compared
to $37.2 million for the first quarter of 1997, respectively. The $6.9 million
decrease was primarily due to the timing of planned capital expenditures.
As shown on the cash flow statement, "acquisition of businesses, net of cash
acquired" provided a $12.3 million cash inflow for the three months ended March
31, 1998 due to cash acquired in the Merger, partly offset by cash paid for
direct Merger costs capitalized and acquisitions of nonutility businesses. In
March 1998, Conectiv acquired Petron Oil Corporation, a Pennsylvania distributor
of fuel oil, gasoline, and other related energy products. This acquisition
strengthened Conectiv's position as a major provider of energy and energy-
related products in the Mid-Atlantic region.
As result of the Merger transactions, total assets increased from $3.0 billion
to $5.9 billion, primarily due to $2.1 billion of ACE and AEE property, plant,
and equipment. The increase in total assets includes $236.9 million of goodwill
recorded under the purchase method of accounting, which will be amortized over
40 years. Total long-term capitalization increased from $2.1 billion to $4.0
billion, primarily due to ACE and AEE's capital structures consolidated in the
balance sheet. As shown below, the composition of the long-term capital
structure (including variable rate demand bonds) on a percentage basis changed
minimally due to the Merger.
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Common stockholders' equity 45.0% 44.0%
Preferred stock
Not subject to mandatory redemption 2.9% 4.1%
Subject to mandatory redemption 4.0% 3.2%
Long-term debt and variable rate demand bonds 48.1% 48.7%
</TABLE>
See Note 2 to the Consolidated Financial Statements for a detailed explanation
of the impact of the Merger on the consolidated balance sheet.
-19-
<PAGE>
Dividends payable increased from $23.8 million to $45.9 million primarily due to
declared dividends payable on Conectiv common stock and Conectiv Class A common
stock which was issued to Atlantic stockholders in conjunction with the Merger.
In January 1998, DPL issued $33.0 million of 6.81% unsecured Medium-Term Notes
which mature in 20 years. On the consolidated balance sheet as of December 31,
1997, $25.4 million of short-term debt was reclassified to long-term debt to
recognize the amount of short-term debt refinanced with the Medium-Term Notes.
In March 1998, Conectiv borrowed $165 million on a short-term basis under its
$500 million revolving credit facilities. Borrowings under this credit facility
may be rolled over into new borrowings. The $165 million in proceeds were
primarily used to repay $158.2 million in outstanding balances under revolving
credit and term loan facilities of Atlantic ($53.5 million) and subsidiaries of
AEE ($104.7 million). The repayment of the $158.2 million of outstanding
balances of revolving credit and term loan facilities is shown on the cash flow
statement as a redemption of long-term debt.
Conectiv's ratio of earnings to fixed charges under the SEC Method are shown
below. The previously reported ratios of earnings to fixed charges have been
restated to include in fixed charges the preferred stock dividends which were
reclassified to preferred stock dividend requirements of subsidiaries on the
Consolidated Statement of Income. See Note 1 to the Consolidated Financial
Statements for additional information.
<TABLE>
<CAPTION>
12 Months
Ended Year Ended December 31,
March 31, -------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges (SEC Method) (1) 2.10 2.63 2.83 2.92 2.85
</TABLE>
(1) Excluding the Merger-related charge discussed in Note 2 to the
Consolidated Financial Statements, which decreased pre-tax income by
$40.6 million, the ratio of earnings to fixed charges was 2.46.
FORWARD-LOOKING STATEMENTS
- --------------------------
The Private Securities Litigation Reform Act of 1995 (Litigation Reform Act)
provides a "safe harbor" for forward-looking statements to encourage such
disclosures without the threat of litigation, provided those statements are
identified as forward-looking and are accompanied by meaningful, cautionary
statements identifying important factors that could cause the actual results to
differ materially from those projected in the statement. Forward-looking
statements have been made in this report. Such statements are based on
management's beliefs as well as assumptions made by and information currently
available to management. When used herein, the words "will," "anticipate,"
"estimate," "expect," "objective," and similar expressions are intended to
identify forward-looking statements. In addition to any assumptions and other
factors referred to specifically in connection with such forward-looking
statements, factors that could cause actual results to differ materially from
those contemplated in any forward-looking statements include, among others, the
following: deregulation and the unbundling of energy supplies and services; an
increasingly competitive energy marketplace; sales retention and growth; federal
and state regulatory
-20-
<PAGE>
actions; future litigation results; costs of construction; operating
restrictions; increased costs and construction delays attributable to
environmental regulations; nuclear decommissioning and the availability of
reprocessing and storage facilities for spent nuclear fuel; and credit market
concerns. Conectiv undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. The foregoing review of factors pursuant to the Litigation
Reform Act should not be construed as exhaustive or as any admission regarding
the adequacy of disclosures made by Conectiv prior to the effective date of the
Litigation Reform Act.
-21-
<PAGE>
PART II. OTHER INFORMATION
--------------------------
ITEM 5. OTHER INFORMATION
- -------------------------
Salem Nuclear Generating Station
- --------------------------------
After receiving authorization from the Nuclear Regulatory Commission, Public
Service Electric and Gas returned Salem Unit 1 to service on April 17, 1998.
The unit's restart marked the end of a prolonged outage which began in the
second quarter of 1995, and resulted in replacement of the unit's steam
generators and improvements in operations, maintenance, and safety.
Delaware Electric Fuel Adjustment Clause Proceeding
- ---------------------------------------------------
In DPL's 1998 Delaware fuel case, now before a Hearing Examiner, the DPSC Staff
has proposed a disallowance of approximately $5.05 million based on the DPSC
Staff's view that a power purchase agreement between DPL and PECO Energy should
not have been entered into in 1994 and is higher-priced than DPL's average fuel
costs. DPL will assert that no disallowance is appropriate based on the
applicable legal standard in Delaware and what was reasonably known about market
prices in 1994. DPL believes it has a strong legal defense, but cannot predict
the outcome of the proceeding. Prior litigation in 1996 involving this power
purchase agreement resulted in an unfavorable ruling by a different Hearing
Examiner, which ruling was neither adopted nor rejected by the full DPSC, which
deferred the issues for later review. If the current proceeding is litigated to
its conclusion, a final order of the DPSC would be expected in the late summer
or early fall.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
EXHIBITS
- --------
Exhibit 12, Ratio of Earnings to Fixed Charges
Exhibit 27, Financial Data Schedule
REPORTS ON FORM 8-K
- -------------------
On March 6, 1998, Conectiv filed a Form 8-K which included pro forma Conectiv
financial statements and related notes. On March 9, 1998, Conectiv filed a Form
8-K/A amending the Report on Form 8-K filed on March 6, 1998.
On April 23, 1998, Conectiv filed a Form 8-K to announce the adoption of a
Stockholders' Rights Plan.
-22-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Conectiv
------------
(Registrant)
Date: May 14, 1998 /s/ B. S. Graham
------------ -------------------------------------
B. S. Graham, Senior Vice President
and Chief Financial Officer
-23-
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Number
------ ------
Ratio of earnings to fixed charges 12 25
Financial Data Schedule 27 26
-24-
<PAGE>
Exhibit 12
CONECTIV
--------
Ratio of Earnings to Fixed Charges
----------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
12 Months
Ended March 31,
1998 1997 1996 1995 1994
---------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net income $ 72,662 $101,218 $107,251 $107,546 $ 98,940
-------- -------- -------- -------- --------
Income taxes 54,264 72,155 78,340 75,540 67,613
-------- -------- -------- -------- --------
Fixed charges:
Interest on long-term debt 84,296 78,350 69,329 65,572 61,128
Other interest 13,572 12,835 12,516 10,353 9,336
Preferred stock dividend
requirements of subsidiaries 10,864 10,178 10,326 9,942 9,370
-------- -------- -------- -------- --------
Total fixed charges 108,732 101,363 92,171 85,867 79,834
-------- -------- -------- -------- --------
Nonutility capitalized interest (132) (208) (311) (304) (256)
-------- -------- -------- -------- --------
Earnings before income taxes
and fixed charges $235,526 $274,528 $277,451 $268,649 $246,131
======== ======== ======== ======== ========
Total fixed charges shown above $108,732 $101,363 $ 92,171 $ 85,867 $ 79,834
Increase preferred stock dividend
requirements of subsidiaries to
a pre-tax amount 3,507 3,065 6,025 6,243 6,578
-------- -------- -------- -------- --------
Fixed charges for ratio computation $112,239 $104,428 $ 98,196 $ 92,110 $ 86,412
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 2.10 2.63 2.83 2.92 2.85
---- ---- ---- ---- ----
</TABLE>
For purposes of computing the ratio, earnings are net income plus income taxes
and fixed charges, less nonutility capitalized interest. Fixed charges consist
of interest on long- and short-term debt, amortization of debt discount,
premium, and expense, preferred stock dividend requirements of subsidiaries, and
interest on leases. Preferred dividend requirements for purposes of computing
the ratio have been increased to an amount representing the pre-tax earnings
which would be required to cover such dividend requirements.
-25-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME FROM THE COMPANY'S 1ST
QUARTER 1998 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,628,520
<OTHER-PROPERTY-AND-INVEST> 516,791
<TOTAL-CURRENT-ASSETS> 547,465
<TOTAL-DEFERRED-CHARGES> 548,067
<OTHER-ASSETS> 616,184
<TOTAL-ASSETS> 5,857,027
<COMMON> 1,078
<CAPITAL-SURPLUS-PAID-IN> 1,581,549
<RETAINED-EARNINGS> 252,614
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,830,116
163,950
119,702
<LONG-TERM-DEBT-NET> 1,855,003
<SHORT-TERM-NOTES> 185,547
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 41,921
10,000
<CAPITAL-LEASE-OBLIGATIONS> 54,683
<LEASES-CURRENT> 13,081
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,583,024
<TOT-CAPITALIZATION-AND-LIAB> 5,857,027
<GROSS-OPERATING-REVENUE> 503,591
<INCOME-TAX-EXPENSE> 74
<OTHER-OPERATING-EXPENSES> 481,428
<TOTAL-OPERATING-EXPENSES> 481,502
<OPERATING-INCOME-LOSS> 22,089
<OTHER-INCOME-NET> 2,847
<INCOME-BEFORE-INTEREST-EXPEN> 24,936
<TOTAL-INTEREST-EXPENSE> 28,914
<NET-INCOME> (3,978)
0
<EARNINGS-AVAILABLE-FOR-COMM> (3,978)
<COMMON-STOCK-DIVIDENDS> 44,165
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 93,116
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
