SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 10, 1997
----------------
Dominion Resources, Inc.
(Exact name of registrant as specified in its charter)
Virginia 1-8489 54-1229715
(State or other jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification No.)
P. O. Box 26532, 901 East Byrd Street, Richmond, Virginia 23261-6532
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 775-5700
--------------
- ---------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
1. The required audited financial statements of East
Midlands Electricity, plc (East Midlands) as of 31 March 1996
and 1995 and for each of the three years in the period ended 31
March 1996, together with the report of the auditors, are
included in East Midlands Annual Report and Accounts for the
year ended 31 March 1996 attached hereto as Exhibit 99.1 and are
incorporated by reference herein.
2. The required unaudited condensed consolidated financial
statements and related footnotes of East Midlands as of 30
September 1996 and 1995 and for each of the six month periods
then ended are attached hereto as Exhibit 99.2 and are
incorporated by reference herein.
(b) Pro Forma Financial Information.
The required unaudited proforma condensed consolidated
financial statements and related footnotes of East Midlands as
of 30 September 1996 and for the year ended 31 December 1995 and
the nine-months ended 30 September 1996 are attached hereto as
Exhibit 99.3 and are incorporated by reference herein.
(c) Exhibits
23 - Consent of Deloitte & Touche LLP (independent public
accountants)
99.1 - East Midlands Electricity, plc Annual Report and
accounts for the year ended 31 March 1996
99.2 - East Midlands Electricity, plc unaudited financial
statements for the period ended 30 September 1996.
99.3 - East Midlands Electricity, plc unaudited pro forma
condensed consolidated financial statements and related
footnotes as of 30 September 1996.
99.4 - Pound 700 million Revolving Credit Agreement dated
January 30, 1997 among Dominion Resources, DR Nottingham
Investments, various lending institutions and Union Bank
of Switzerland, New York Branch, as Administrative Agent.
Pursuant to Item 601(b) (4) (v) of Regulation S-K, in lieu
of filing a copy of such agreement, Dominion Resources
agrees to furnish a copy of such agreement to the
Commission upon request.
<PAGE>
SIGNATURES
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.
DOMINION RESOURCES, INC.
Registrant
BY: L. R. ROBERTSON
--------------------------
L. R. Robertson
Executive Vice President
(Chief Financial Officer)
Date: March 20, 1997
EXHIBIT 23
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statement File No.
333-02769 of Dominion Resources, Inc. on Form S-3, Registration Statement File
No. 33-62705 of Dominion Resources, Inc. on Form S-8, Registration Statement
File No. 333-02733 of Dominion Resources, Inc. on Form S-8, and Registration
Statement File No. 333-09167 of Dominion Resources, Inc. on Form S-8 of our
report dated 12 March 1997, appearing in this Current Report on Form 8-K, as
amended, of Dominion Resources, Inc. dated March 20, 1997.
Deloitte & Touche
Chartered Accountants
London, England
20 March 1997
EXHIBIT 99.1
EAST MIDLANDS ELECTRICITY PLC
Report and Financial Statements
31 March 1996
Deloitte & Touche
Hill House
1 Little New Street
London EC4A 3TR
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
TABLE OF CONTENTS
Page
Directors' statement of responsibilities 3
Auditors' report 4
Consolidated profit and loss account 5
Consolidated balance sheet 8
Statement of total group recognised gains and losses 9
Consolidated cash flow statement 11
Notes to the accounts 13
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
DIRECTORS' STATEMENT OF RESPONSIBILITIES
The directors are required to present for each accounting period financial
statements which comply with the provisions of the Companies Act 1985 and give a
true and fair view of the state of affairs of the group and the company as at
the end of the accounting period and of the profit or loss for that period. In
preparing the financial statements the directors are required to select suitable
accounting policies, supported by reasonable and prudent judgements and
estimates and to ensure that these are consistently applied and that applicable
accounting standards have been followed.
The directors are required to prepare the financial statements on the going
concern basis unless it is inappropriate to presume that the group will continue
in business. The directors are also responsible for the group's system of
internal financial control, maintaining adequate accounting records and for
safeguarding the assets of the group and for taking reasonable steps to prevent
and detect fraud and other irregularities.
The directors confirm their compliance with these requirements.
<PAGE>
AUDITORS' REPORT
To the Directors of
East Midlands Electricity plc
We have audited the accompanying consolidated balance sheets of East
Midlands Electricity plc and subsidiaries as at 31 March 1996 and 1995 and
the related consolidated profit and loss accounts, statements of total group
recognised gains and losses, reconciliation of movements in equity
shareholders' funds, and consolidated cash flow statements for the years
ended 31 March 1996, 1995 and 1994, all expressed in pounds sterling, which
have been prepared under the historical cost convention, as modified
by the revaluation of certain fixed assets, and the accounting principles
set out in the notes to the consolidated financial statements.
Respective responsibilities of directors and auditors
As described on page 3, these financial statements are the responsibility of
the company's directors. It is our responsibility to form an independent
opinion, based on our audits, on these financial statements and to report
our opinion to you.
Basis of opinion
We conducted our audit in accordance with generally accepted auditing
standards in the United Kingdom. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether caused by
fraud or other irregularity or error. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosure in the financial
statements. An audit also includes an assessment of the significant
estimates made by the directors and of whether the accounting policies are
appropriate to the company's and the groups' circumstances, consistently
applied and adequately disclosed, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
Opinion
In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the financial position of East
Midlands Electricity plc and subsidiaries as at 31 March 1996 and 1995 and
the results of their operations and their cash flows for the three years
ended 31 March 1996 in conformity with generally accepted accounting
principles in the United Kingdom (which differ in certain material respects
from accounting principles generally accepted in the United States of
America - see note 31).
Deloitte & Touche
Chartered Accountants
Hill House
1 Little New Street
London EC4A 3TR
United Kingdom
12 March 1997
4
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Year ended 31 March
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------
Note NGG Excluding
Total (Note 6) NGG
(pound)m (pound)m (pound)m (pound)m (pound)m
<S> <C>
TURNOVER
Continuing operations 2 1,176.0 (105.3) 1,281.3 1,308.1 1,340.5
Discontinued operations 18.5 - 18.5 60.9 104.0
---------- ----------- ---------- ---------- -----------
Total turnover 1,194.5 (105.3) 1,299.8 1,369.0 1,444.5
========== =========== ========== ========== ===========
OPERATING PROFIT:
Continuing operations excluding
exceptional core business
restructuring costs 2 105.8 (102.2) 208.0 204.9 192.6
Exceptional core business
restructuring costs 5 (21.2) - (21.2) - -
---------- ----------- ---------- ---------- -----------
Continuing operations 4 84.6 (102.2) 186.8 204.9 192.6
Discontinued operations 1.1 - 1.1 (5.5) (9.8)
Utilisation of fundamental
restructuring provisions 5 0.7 - 0.7 8.5 -
---------- ----------- ---------- ---------- -----------
Discontinued operations 4 1.8 - 1.8 3.0 (9.8)
---------- ----------- ---------- ---------- -----------
Total operating profit/(loss) 86.4 (102.2) 188.6 207.9 182.8
EXCEPTIONAL ITEMS 5
Losses incurred in connection with
discontinued operations (4.0) - (4.0) (4.6) -
Utilisation of fundamental
restructuring provisons 4.0 - 4.0 4.6 -
---------- ----------- ---------- ---------- ---------
- - - - -
Provision in respect of continuing
operations - - - - (57.4)
Provision in respect of
discontinued operations - - - (12.0) (72.1)
Release of fundamental
restructuring provision 11.4 - 11.4 12.4 -
Surplus on disposal of
discontinued operations 20.0 - 20.0 - -
---------- ----------- ---------- ---------- ---------
Total exceptional items 31.4 - 31.4 0.4 (129.5)
Share of profits (losses) of
associated undertakings - 2.6 (0.9) (2.2)
----------
2.6
</TABLE>
5
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Year ended 31 March
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------
Note Total NGG Excluding
(Note 6) NGG
(pound)m (pound)m (pound)m (pound)m (pound)m
<S> <C>
Dividends from The National Grid
Group plc (NGG) 175.5 175.5 - 17.0 15.8
Other income from fixed asset
investments 1.5 - 1.5 - -
---------- ----------- ---------- ---------- ---------
PROFIT ON ORDINARY ACTIVITIES
BEFORE INTEREST AND TAXATION 7 297.4 73.3 224.1 224.4 66.9
Net interest payable 10 (9.9) - (9.9) (10.4) (15.7)
---------- ---------- ---------- ---------- ----------
PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION 287.5 73.3 214.2 214.0 51.2
Tax on profit on ordinary
activities 11 (49.8) 14.0 (63.8) (49.3) (23.5)
---------- ---------- ---------- ---------- ----------
PROFIT FOR THE FINANCIAL YEAR 237.7 87.3 150.4 164.7 27.7
DIVIDENDS 12
Ordinary dividends (62.3) - (62.3) (56.0) (49.7)
Special dividend (238.6) - (238.6) (186.5) -
Distribution of NGG shares (292.5) (292.5) - - -
---------- ---------- ---------- ---------- ----------
Total dividends (593.4) (292.5) (300.9) (242.5) (49.7)
---------- ---------- ---------- ---------- ----------
TRANSFERRED FROM
RESERVES 24 (355.7) (205.2) (150.5) (77.8) (22.0)
========== ========== ========== ========== ==========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
EAST MIDLANDS ELECTRICITY PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Year ended 31 March
EARNINGS PER SHARE 13 Pence per Pence per Pence per Pence per Pence per
share share share share share
<S> <C>
Earnings per share before
exceptional items 78.7 - 78.7 71.8 58.0
Earnings per share relating to NGG
after tax 45.0 45.0 - 6.5 5.7
Other exceptional items, after tax 12.3 - 12.3 0.2 (51.0)
------ ------ ------ ------ ------
Earnings per share - nil basis 136.0 45.0 91.0 78.5 12.7
Advance corporation tax written off 11 (13.4) - (13.4) - -
------ ------ ------ ------ ------
Earnings per share - net basis 122.6 45.0 77.6 78.5 12.7
====== ====== ====== ====== ======
</TABLE>
7
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
CONSOLIDATED BALANCE SHEET
As at 31 March
<TABLE>
<CAPTION>
Note 1996 1995
(pound)m (pound)m
<S> <C>
FIXED ASSETS
Intangible assets 14 765.7 745.1
Investments 15 18.2 78.7
-------- --------
783.9 823.8
======== ========
CURRENT ASSETS
Stocks 16 7.6 9.2
Debtors - due within one year 17 127.5 208.2
- due after more than one year 18.8 7.6
Current asset investments 18 109.2 39.0
Cash at bank and in hand 8.2 6.7
-------- --------
271.3 270.7
CREDITORS: amounts falling due
within one year 19 (346.8) (310.5)
-------- --------
NET CURRENT (LIABILITIES) ASSETS (75.5) (39.8)
-------- --------
TOTAL ASSETS LESS CURRENT LIABILITIES
708.4 784.0
CREDITORS: amounts falling due after
more than one year 20 (253.0) (154.8)
Provisions for liabilities and charges 22 (64.0) (56.7)
-------- --------
NET ASSETS 391.4 572.5
======== ========
CAPITAL AND RESERVES
Called up share capital 23 112.7 109.8
Share premium account 24 11.0 3.1
Capital redemption reserve 24 0.1 0.1
Revaluation reserve 24 - 65.5
Profit and loss account 24 267.6 394.0
-------- --------
EQUITY SHAREHOLDERS' FUNDS 391.4 572.5
======== ========
</TABLE>
8
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
STATEMENT OF TOTAL GROUP RECOGNISED GAINS AND LOSSES
Year ended 31 March
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------
NGG Excluding
Total (Note 6) NGG
(pound)m (pound)m (pound)m (pound)m (pound)m
<S> <C>
Profit for the financial year 237.7 87.3 150.4 164.7 27.7
Surplus on revaluation of investment in NGG 212.9 212.9 - - -
Capital gains tax (49.1) (49.1) - - -
------ ------ ------ ------ ------
Total recognised gains and losses 401.5 251.1 150.4 164.7 27.7
====== ====== ====== ====== ======
</TABLE>
The investment in NGG was revalued as at 1 October 1995 and the surplus arising
was subsequently realised on the distribution and listing of NGG in December
1995.
NOTES OF HISTORICAL COST PROFITS AND LOSSES
Year ended 31 March
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------
NGG Excluding
Total (Note 6) NGG
(pound)m (pound)m (pound)m (pound)m (pound)m
<S> <C>
Reported profit on ordinary activities before
taxation 287.5 73.3 214.2 214.0 51.2
Gain realised on disposal of shares in NGG 278.1 278.1 - - -
-------- -------- -------- ------- -------
Historical cost profit on ordinary activities
before taxation 565.6 351.4 214.2 214.0 51.2
======== ======== ======== ======== =======
Historical cost (loss) profit for the year
transferred (from) to reserves after
taxation and dividends (126.7) 23.8 (150.5) (77.8) (22.0)
=========== ======== ======== ======== =======
</TABLE>
9
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS
Year ended 31 March
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------
NGG Excluding
Total (Note 6) NGG
(pound)m (pound)m (pound)m (pound)m (pound)m
<S> <C>
Profit for the financial year 237.7 87.3 150.4 164.7 27.7
Ordinary dividends (62.3) - (62.3) (56.0) (49.7)
Special dividend (238.6) - (238.6) (186.5) -
Distribution of NGG shares (292.5) (292.5) - - -
--------- ---------- --------- --------- ---------
(355.7) (205.2) (150.5) (77.8) (22.0)
Surplus on revaluation of investment in NGG 212.9 212.9 - - -
Capital gains tax (49.1) (49.1) - - -
Proceeds from shares issued during the year 10.8 - 10.8 1.5 2.3
Acquisition of fractional share entitlements - - - (0.5) -
Goodwill transferred to profit and loss account - - - - 31.5
--------- ---------- --------- --------- --------
Net reduction in equity shareholders' funds (181.1) (41.4) (139.7) (76.8) 11.8
Equity shareholders' funds at 1 April 572.5 ========== ========= 649.3 637.5
--------- --------- --------
Equity shareholders' funds at 31 March 391.4 572.5 649.3
========= ========= ========
Equity shareholders' funds comprise called up share capital and reserves.
</TABLE>
10
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 March
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------
Note NGG Excluding
Total (Note 6) NGG
(pound)m (pound)m (pound)m (pound)m (pound)m
<S> <C>
Net cash inflow (outflow) from operating
activities 26 185.7 (68.6) 254.3 207.5 353.8
Returns on investments and servicing of
finance
Interest received 10.4 - 10.4 9.0 16.4
Interest paid (19.7) - (19.7) (20.6) (31.9)
Dividends received from NGG 113.7 113.7 - 13.2 11.1
Distribution from PSB Holding Limited 48.0 48.0 - - -
Dividends and other income received from
other fixed assets investments 0.7 - 0.7 - -
Special dividends paid (239.7) - (239.7) (185.4) -
Other dividends paid (58.3) - (58.3) (51.2) (44.7)
------- ------ -------- ------- -------
Net cash (outflow) inflow from returns
on investments and servicing of finance
(144.9) 161.7 (306.6) (235.0) (49.1)
Taxation
ACT on special dividends - - - (46.6) -
ACT on distribution of NGG shares (53.4) (53.4) - - -
Other corporation tax paid (0.2) - (0.2) (29.6) (30.0)
------- ------- -------- ------- -------
Tax paid (53.6) (53.4) (0.2) (76.2) (30.0)
Investing activities
Purchase of tangible fixed assets (104.5) - (104.5) (101.1) (148.8)
Customers' contributions to tangible
fixed assets 25.0 - 25.0 24.6 24.5
Sale of tangible fixed assets 3.0 - 3.0 2.7 9.3
Purchase of shares in NGG (14.4) (14.4) - - -
Investment in own shares 23 (10.3) - (10.3) - -
Options exercised through ESOP 23 8.3 - 8.3 - -
Disposal of business 25 38.3 - 38.3 - -
Net redemption (purchase) of other fixed
asset investments 0.1 - 0.1 0.3 (22.6)
Purchase of current asset investments 27 (1.8) - (1.8) (16.0) -
-------- -------- ------- -------- --------
Net cash outflow from investing
activities (56.3) (14.4) (41.9) (89.5) (137.6)
-------- -------- ------- -------- --------
</TABLE>
11
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 March
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------
Note NGG Excluding
Total (Note 6) NGG
(pound)m (pound)m (pound)m (pound)m (pound)m
<S> <C>
Net cash (outflow) inflow before
financing 28 (69.1) 25.3 (94.4) (193.2) 137.1
Financing
Proceeds from shares issued during the
year 10.8 - 10.8 1.5 2.3
Acquisition of fractional share
entitlements - - - (0.5) -
Issue of Eurobonds 100.0 - 100.0 - -
Repayment of Government debenture - - - (47.0) (50.0)
Net (outflow) inflow from bank and other
loans (46.2) - (46.2) 66.5 (10.1)
--------- --------- --------- --------- ---------
Net cash inflow (outflow) from financing
64.6 - 64.6 20.5 (57.8)
--------- --------- --------- --------- ---------
(Decrease) increase in cash and cash
equivalents 27 (4.5) 25.3 (29.8) (172.7) 79.3
========= ========= ========= ========= =========
</TABLE>
12
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
1. ACCOUNTING POLICIES
These financial statements have been prepared in accordance with
applicable accounting standards generally accepted in the United Kingdom
(which differ in certain material respects from accounting principles
generally accepted in the United States of America - see note 31). The
particular accounting policies adopted are described below.
Basis of preparation
The financial statements have been prepared under the historical cost
convention, as modified by the valuation of certain fixed assets. The
consolidated financial statements incorporate the results of the company
and all its subsidiary and associated undertakings.
Accounting for acquisitions, disposals and goodwill
The results of companies and businesses acquired are dealt with in the
group accounts from the date of acquisition. Adjustments are made on
acquisition to restate the reported net assets acquired to their fair
value to the group. Purchased goodwill, being the excess of the
acquisition cost over the fair value of the assets acquired, is written
off to reserves at the time of acquisition. A business which is sold or
closed is classified as discontinued if its sale or closure has a
material effect on the nature and focus of the group's operations,
represents a material reduction in the group's operating facilities, and
is completed prior to the date of approval of the financial statements.
Goodwill which has suffered a permanent diminution in value or which
relates to a discontinued business is reinstated in the balance sheet
from reserves and then written off through the profit and loss account.
Turnover
Electricity turnover represents the value of electricity supplied and
charges for electricity distributed during the year, exclusive of value
added tax, including estimates of the sales value of units supplied and
charges for electricity distributed to consumers between the date of the
last meter reading and the year end.
Where there is an over recovery of distribution or supply business
revenues against the regulated maximum allowable amount, revenues are
deferred equivalent to the over recovered amount. The deferred amount is
deducted from turnover and included in creditors within accruals and
deferred income. Where there is an under recovery, no anticipation of any
future recovery is made.
Other turnover represents the sale value of contract work performed in
the year, and the invoice value of other goods sold and services
provided, exclusive of value added tax.
Research and development
Expenditure on research and development is written off to the profit and
loss account in the year in which it is incurred.
Contributions to pension funds
Pension costs are calculated as a substantially level percentage of
pensionable salary and are charged to the profit and loss account so as
to spread the cost of pensions over employees' working lives with the
group.
Leases
Rental costs under operating leases are charged to the profit and loss
account in the period in which they are incurred.
13
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
1. ACCOUNTING POLICIES (continued)
Tangible fixed assets
Tangible fixed assets, other than investment properties, are stated at
cost less depreciation and customers' contributions were applicable. Cost
includes attributable labour and overheads. The charge for depreciation
is calculated to write off these assets over their estimated useful
lives. Provision is made for permanent diminution in value where such
diminution occurs. The lives of each major class of depreciable asset are
as follows:
Distribution network assets - 40 years
Depreciation is charged at 3% for 20 years, followed by 2% for the
remaining 20 years. Customers' contributions are credited to the profit
and loss account over a 40 year period at a rate of 3% for the first 20
years, followed by 2% for the remaining 20 years.
Other assets
Building - freehold - Up to 60 years
- leasehold - Lower of lease period or 60 years.
Plant, machinery, fixtures and
equipment - Up to 10 years
Vehicles and mobile plant - Up to 10 years
No depreciation is charged on land or assets in the course of
construction.
Investment properties
In accordance with Statement of Standard Accounting Practice No.
19, investment properties are revalued annually and the aggregate
surplus or deficit is transferred to revaluation reserve.
The Companies Act requires all properties to be depreciated. However,
this requirement conflicts with the generally accepted accounting
principle set out in SSAP19. By the adoption of SSAP19 the investment
properties have not been depreciated, but in the opinion of the directors
this is not material to the financial statements and therefore does not
have any effect on the true and fair view.
Property clawback
HM Government is entitled to a proportion of any gain realised by the
company on certain property disposals made up to 31 March 2000. Full
provision for clawback liabilities is made as soon as any disposal
decision is taken.
Investments
In the consolidated accounts, shares in associated undertakings are
accounted for using the equity method of accounting. The consolidated
profit and loss account includes the group's share of the pre-tax results
and attributable taxation of the associated undertakings. In the
consolidated balance sheet, the shares in associated undertakings are
shown at the group's share of their net assets, less provisions. Other
fixed asset investments are stated at cost less provisions for permanent
diminution in value. Current asset investments are stated at the lower of
cost and net realisable value.
Employee share ownership plan (ESOP)
The consolidated accounts include the accounts of the East Midlands
Electricity ESOP. Shares held by the ESOP are included in fixed asset
investments at their issue price.
14
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
1. ACCOUNTING POLICIES (continued)
Stocks
Stocks are valued at the lower of cost and net realisable value. The
valuation of work in progress is based on the cost of labour plus
appropriate production overheads and the cost of materials.
Deferred taxation
Deferred taxation arises in respect of items where there is a timing
difference between their treatment for accounting purposes and their
treatment for taxation purposes. Provision for deferred taxation, using
the liability method, is made to the extent that it is probable that the
liability or asset will crystallise in the foreseeable future.
Restructuring
Provision is made when the group becomes demonstrably committed to a
restructuring programme.
2. SEGMENTAL ANALYSIS
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C>
Turnover (pound)m (pound)m (pound)m
Underlying supply 1,166.8 1,180.0 1,244.4
Exceptional items re NGG (note 6) (105.3) - -
Total electricity supply 1,061.5 1,180.0 1,244.4
--------- -------- ---------
Underlying distribution 371.3 392.5 372.6
--------- -------- ---------
EME Contracting 34.9 34.5 -
Sterling Gas Marketing 8.6 10.4 -
Other activities and internal charges (300.3) (309.3) (276.5)
--------- -------- ---------
Continuing operations 1,176.0 1,308.1 1,340.5
Discontinued operations 18.5 60.9 104.0
--------- -------- ---------
Turnover 1,194.5 1,369.0 1,444.5
========= ======== =========
</TABLE>
15
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
2. SEGMENTAL ANALYSIS (continued)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C>
Operating profit (pound)m (pound)m (pound)m
Underlying supply 28.5 25.1 26.3
Exceptional items re NGG (note 6) (95.7) - -
Exceptional restructuring (3.5) - -
--------- -------- --------
Total electricity supply (70.7) 25.1 26.3
--------- -------- --------
Underlying distribution 178.0 181.5 169.9
Exceptional restructuring (17.7) - -
--------- -------- --------
Total electricity distribution 160.3 181.5 169.9
--------- -------- --------
EME Contracting 0.1 (0.6) -
Sterling Gas Marketing (0.4) - -
Exceptional items re NGG (note 6) (6.5) - -
Other activities and internal charges 1.8 (1.1) (3.6)
--------- -------- --------
Continuing operations 84.6 204.9 192.6
Discontinued operations 1.1 (5.5) (9.8)
Utilisation of fundamental
restructuring provisions (note 5) 0.7 8.5 -
--------- -------- --------
Operating profit 86.4 207.9 182.8
========= ======== ========
</TABLE>
16
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
2. SEGMENTAL ANALYSIS (continued)
<TABLE>
<CAPTION>
Net assets 1996 1995 1994
(pound)m (pound)m (pound)m
<S> <C>
Underlying supply (34.0) (59.5) (51.2)
Exceptional items re NGG (note 6) (31.3) - -
Exceptional restructuring (3.5) - -
--------- --------- ---------
Total electricity supply (68.8) (59.5) (51.2)
--------- --------- ---------
Underlying distribution 762.8 750.9 715.1
Exceptional restructuring (17.7) - -
--------- --------- ---------
Total electricity distribution 745.1 750.9 715.1
--------- --------- ---------
EME Contracting 1.6 1.8 0.2
Sterling Gas Marketing (0.3) (0.6) 0.6
Exceptional items re NGG (note 6) 37.1 - -
Other activities and internal charges 30.3 (27.4) (46.1)
Non allocated net (liabilities) assets (356.8) (112.6) 18.8
--------- --------- ---------
Continuing operations 388.2 552.6 637.4
Discontinued operations 3.2 19.9 11.9
--------- --------- ---------
NET ASSETS 391.4 572.5 649.3
========= ========= =========
</TABLE>
Non allocated net (liabilities) assets include items such as dividends,
tax, fixed asset investments and financing which cannot be apportioned to
separate segments.
17
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
3. REGULATORY ADJUSTMENT FACTORS
The cumulative (over) under recoveries of maximum allowable regulated
charges were:
<TABLE>
<CAPTION>
1996 1995 1994
(pound)m (pound)m (pound)m
<S> <C>
Distribution (13.5) 3.0 (3.5)
Supply (10.1) (26.8) (22.9)
========= ========= =========
</TABLE>
4. TRADING RESULTS
<TABLE>
<CAPTION>
Continuing
--------------------------------------------------------
<S> <C>
Total Dis- Total NGG Core Underlying
continued (Note 6) Business
Restruc
turing
(pound)m (pound)m (pound)m (pound)m (pound)m (pound)m
1996
Turnover 1,194.5 18.5 1,176.0 (105.3) - 1,281.3
Cost of sales (870.9) (11.8) (859.1) 9.6 - (868.7)
--------- --------- --------- --------- --------- ---------
Gross profit (loss) 323.6 6.7 316.9 (95.7) - 412.6
Distribution costs (94.4) (1.9) (92.5) - - (92.5)
Administrative expenses (143.5) (3.7) (139.8) (6.5) (21.2) (112.1)
Utilisation of fundamental
restructuring 0.7 0.7 - - - -
--------- --------- --------- --------- --------- ---------
Operating profit (loss) 86.4 1.8 84.6 (102.2) (21.2) 208.0
========= ========= ========= ========= ========= =========
1995
Turnover 1,369.0 60.9 1,308.1 - - 1,308.1
Cost of sales (917.9) (44.1) (873.8) - - (873.8)
--------- --------- --------- --------- --------- ---------
Gross profit/(loss) 451.1 16.8 434.3 - - 434.3
Distribution costs (108.9) (4.2) (104.7) - - (104.7)
Administrative expenses (142.8) (18.1) (124.7) - - (124.7)
Utilisation of fundamental
restructuring provisions
(note 5) 8.5 8.5 - - - -
--------- --------- --------- --------- --------- ---------
Operating profit 207.9 3.0 204.9 - - 204.9
========= ========= ========= ========= ========= =========
</TABLE>
18
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
4. TRADING RESULTS (continued)
<TABLE>
<CAPTION>
Total Discontinued Continuing
pound)m (pound)m (pound)m
<S> <C>
1994
Turnover 1,444.5 104.0 1,340.5
Cost of sales (1,046.1) (86.6) (959.5)
--------- ---------- ----------
Gross profit 398.4 17.4 381.0
Distribution costs (108.4) (7.8) (100.6)
Administrative expenses (107.2) (19.4) (87.8)
--------- ---------- ----------
Operating profit (loss) 182.8 (9.8) 192.6
========= ========== ==========
</TABLE>
The comparative amounts have been reclassified to reflect discontinued
operations and analysis of costs.
19
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
5. EXCEPTIONAL ITEMS
Exceptional core business restructuring costs are in respect of the
implementation of the restructuring announced in November 1995 and the
changes required in anticipation of the extension of competition in 1998.
Non operating exceptional costs all relate to discontinued activities and
comprise.
FUNDAMENTAL RESTRUCTURING CHARGES
<TABLE>
<CAPTION>
1994
------------------------------------------
Cont- Dis-
1996 1995 inuing continued Total
(pound)m (pound)m (pound)m (pound)m (pound)m
<S> <C>
Goodwill - - (11.7) (19.8) (31.5)
Provisions for future costs - (5.2) (25.0) (24.5) (49.5)
Permanent diminution in value of
assets - (6.8) (20.7) (27.8) (48.5)
-------- -------- --------- ---------- ---------
- (12.0) (57.4) (72.1) (129.5)
======== ======== ========= ========== =========
1996 1995 1994
(pound)m (pound)m (pound)m
Movements in fundamental restructuring
provisions
Operating losses charged 0.7 8.5 -
Utilisation of provisions in
connection with discontinued 4.0 4.6 -
activities
Release of provisions no longer 11.4 12.4 -
required
--------- --------- ---------
Total movement in fundamental
restructuring provisions 16.1 25.5 -
========= ========= =========
</TABLE>
The programme to dispose of non-core businesses was completed
during the year with the sale of Ambassador Security Group plc on 30
June 1995 and of the trade and assets of Furse Specialist Contracting
(formerly emco Furse) on 1 July 1995 and on 6 December 1995 of W J
Furse & Co Limited. These businesses have all been classified as
discontinued operations in these financial statements, in accordance
with Financial Standard No 3, Reporting Financial Performance.
Comparative amounts have been restated accordingly. Further details of
the disposals are given in note 25.
Group operating profit is stated after utilising provisions of
(pound)0.4m in respect of operating losses of Ambassador Security Group
plc and (pound)0.3m in respect of operating losses of discontinued emco
divisions. The surpluses of (pound)8.0m on disposal of Ambassador
Security Group plc and (pound)12.0m from W J Furse & Co Limited have been
credited to the profit and loss account. In addition closure costs of
(pound)4.0m incurred in the period in respect of discontinued operations
have been charged directly to provisions.
The taxation credit relating to the non-operating exceptional items
amounts to (pound)8.7.
20
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
6. THE NATIONAL GRID GROUP PLC (NGG)
At an Extraordinary General Meeting held on 8 December 1995 shareholders
approved the distribution in specie of the company's interest in NGG, the
holding company of The National Grid Plc, which owns and operates the
high voltage electricity transmission system in England and Wales.
The major transactions associated with the distribution are as follows:
o Each East Midlands Electricity shareholder received 0.713 NGG shares
for each East Midlands Electricity share they held on 8 December
1995, rounded down to the nearest whole number of shares.
o East Midlands Electricity domestic customers received a one-off
discount of (pound)54.60 (including VAT credit) during the early part
of 1996.
o The company received a number of one-off dividends from NGG as part
of its capital reorganisation prior to flotation, including a specie
dividend of approximately 8.3% of the shares of PSB Holding Limited,
the holding company of First Hydro Limited, which owned and operated
two pumped storage power stations in Wales.
o The company received an interim dividend from NGG of (pound)7.3%
(including associated tax credit).
o Subsequent to the distribution, First Hydro Limited was sold by PSB
Holding Limited and PSB Holding Limited entered into a members
voluntary liquidation. An initial distribution of (pound)48.0m was
paid by the liquidator on 4 March 1996 and a further (pound)3.2 is
included in current asset investments.
21
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
6. THE NATIONAL GRID GROUP PLC (NGG) (continued)
The financial effects of these changes on East Midlands Electricity are
summarised below:
<TABLE>
<CAPTION>
Statement
of
Profit and recognised Net
loss gains and reserve
account losses movement
1996 (pound)m (pound)m (pound)m
<S> <C>
Turnover rebate (105.3)
Cost of sales adjustment due to effect
of rebate on fossil fuel levy 9.6
--------
(95.7)
Transaction costs (6.5)
--------
Net charge to operating results (102.2)
--------
Dividends received from NGG:
Specie dividend of shares in PSB Holding Limited 51.2
Interim dividend 7.3
Other dividends 117.0
--------
175.5
--------
Tax relief on operating items 33.7
Tax credits on franked dividends received (19.7)
--------
14.0
--------
Profit for the financial year 87.3 87.3 87.3
Revaluation of shareholding in NGG to flotation value - 212.9 212.9
Capital gains tax, before offset of
available capital losses - (49.1) (49.1)
Distribution to shareholders (292.5) - (292.5)
-------- -------- --------
Total (205.2) 251.1 (41.4)
======== ======== ========
</TABLE>
Prior to the distribution, the company's shareholding in NGG comprised
141,473,684 ordinary shares of 10p each. This holding was revalued, as at
1 October 1995, at (pound)2.07 per share, being the share price on the
opening day of trading, 11 December 1995. The distribution to
shareholders comprised 141,316,883 shares in NGG and the remaining
156,801 shares were retained. A further 128,424 shares in NGG are held by
the ESOP.
Net cash receipts arising from transactions associated with NGG in the
year comprised (pound)9.1m received in respect of the final dividend for
1995, and (pound)16.2m in respect of transactions associated with the
distribution.
22
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
7. PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST AND TAXATION
<TABLE>
<CAPTION>
1996 1995 1994
(pound)m (pound)m (pound)m
<S> <C>
Profit on ordinary activities before
interest and taxation is stated
after charging (crediting)
Exceptional core business
restructuring costs 21.2 - -
Items relating to the distribution of
NGG shares (note 6) (73.3) - -
Fundamental restructuring charges
(note 5) - 12.0 129.5
Net release of fundamental
restructuring provisions (note 5) (11.4) (12.4) -
Employee costs (note 8) 89.6 110.4 132.0
Depreciation 44.8 47.5 42.6
Operating lease rentals 5.2 7.1 6.5
Research and development 0.5 1.1 1.3
Auditors' remuneration 0.1 0.1 0.2
Fees paid to group auditors for other
services 0.2 0.3 0.5
======= ======= =======
</TABLE>
8. EMPLOYEES
<TABLE>
<CAPTION>
1996 1995 1994
(pound)m (pound)m (pound)m
<S> <C>
Total employee costs during the year amounted to:
Salaries 104.5 120.6 144.2
Social security costs 8.7 10.5 13.2
Other pension costs 10.8 12.6 13.8
------- ------- -------
124.0 143.7 171.2
Less
Capitalised within fixed assets (33.4) (30.0) (37.0)
Seconded to Homepower Retail Limited (1.0) (3.3) (2.2)
------- ------- -------
Charge to the profit and loss account 89.6 110.4 132.0
======= ======= =======
23
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
</TABLE>
<TABLE>
<CAPTION>
The average number of employees during the year was :
<S> <C>
Industrial 2,376 3,005 3,770
Non-industrial 2,723 3,453 4,144
-------- -------- --------
5,099 6,458 7,914
Less seconded to Homepower Retail Limited (48) (307) (324)
-------- -------- --------
5,051 6,151 7,590
======== ======== ========
</TABLE>
9. DIRECTORS
<TABLE>
<CAPTION>
1996 1995 1994
(pound)m (pound)m (pound)m
<S> <C>
Employee costs include the following
amounts in respect of emoluments to
directors
Fees 200.9 167.0 157.6
Additional remuneration - 61.8 -
Basic salaries 617.0 599.6 747.4
Benefits in kind 63.6 61.4 69.0
Participation in performance related
reward scheme 370.2 349.1 139.7
Pension contributions 46.3 47.7 67.1
Compensation for loss of office - - 99.3
-------- -------- --------
1,298.0 1,286.6 1,280.1
======== ======== ========
</TABLE>
As a result of the distribution by the company to its shareholders of its
investment in NGG (note 6), the directors received, in total, shares in NGG to
the value of (pound)207,206. Total directors' emoluments were (pound)1,505,177
(1995: (pound)1,286,638 and 1994: (pound)1,280,100).
24
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
9. DIRECTORS (continued)
<TABLE>
<CAPTION>
1996 1995
Total Total
(pound) (pound)
<S> <C>
Nigel Rudd 75,000 75,000
Norman Askew 349,328 340,192
Bob Davies 281,003 275,315
Jim Keohane 208,013 203,594
Keith Stanyard 209,063 205,230
Chris Boon 38,022 -
Nicholas Corah 73,931 99,630
Sir Robert Gumm 11,491 26,208
Alan Schroeder 26,120 26,137
Gareth Cooper 26,000 15,167
John Harris - 20,165
--------- ---------
1,297,971 1,286,638
========= =========
</TABLE>
The above amounts were payable to the directors by the company. In
addition as a result of the distribution by the company to its
shareholders of its investment in NGG, on the exercise of options
over shares in the company, shares in NGG to the value of(pound)147,626
were received by Norman Askew,(pound)54,628 by Jim Keohane and
(pound)4,952 by Keith Stanyard. The chairman Nigel Rudd, received
remuneration of(pound)75,000. In 1995 he received a total
of(pound)75,000 of which(pound)68,750 was in respect of his service as
chairman for the 11 month period following his appointment to that
post on 1 May 1994. John Harris, who held the post in April 1994,
received(pound)17,767. Norman Askew, who was the highest paid director
in both years, received remuneration of(pound)342,254 (1995
(pound)332,512) together with NGG shares of(pound)147,626 (1995 Nil).
The remuneration of other directors, excluding pension contributions
falls into the following bandings;
25
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
9. DIRECTORS (continued)
<TABLE>
<CAPTION>
1996 1995
No. No.
<S> <C>
(pound)10,001 -(pound)15,000 1 -
(pound)15,001 -(pound)20,000 - 1
(pound)25,001 -(pound)30,000 2 2
(pound)35,001 -(pound)40,000 1 -
(pound)70,001 -(pound)75,000 1 1
(pound)95,001 -(pound)100,000 - 1
(pound)185,001 -(pound)190,000 - 1
(pound)190,001 -(pound)195,000 - 1
(pound)195,001 -(pound)200,000 1 -
(pound)245,001 -(pound)250,000 1 -
(pound)265,001 -(pound)270,000 - 1
(pound)270,001 -(pound)275,000 1 -
</TABLE>
The interest of the directors in office at 31 March 1996 together with
those of their families, in the share capital of East Midlands
Electricity plc as at 31 March 1996, 1995 and 1994 are set out below. The
number of ordinary shares includes those held in trust under the
company's profit sharing scheme. The options to purchase fully paid
ordinary shares were granted under the company's employee sharesave and
executive share options schemes, which are described in note 23.
10. NET INTEREST PAYABLE
<TABLE>
<CAPTION>
1996 1995 1994
(pound)m (pound)m (pound)m
<S> <C>
Interest payable and similar charges
Bank loans, overdrafts and other loans wholly
repayable within five years 1.4 2.6 13.7
Other loans 18.6 18.0 18.0
Interest receivable and similar income (10.1) (10.2) (16.0)
------- ------- -------
9.9 10.4 15.7
======= ======= =======
</TABLE>
26
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
11. TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------
Total NGG Excluding
(Note 6) NGG
(pound)m (pound)m (pound)m (pound)m
<S> <C>
The group taxation charge comprises:
UK corporation tax at 33% (1995 and
1994 - 33%) 52.3 15.4 36.9 52.9 50.5
Tax credits on franked investment
income 19.7 19.7 - 3.4 3.3
Deferred taxation 6.0 - 6.0 12.5 (22.5)
Associated undertakings 0.1 - 0.1 - 0.2
Adjustment to taxation in respect of
prior year profits (5.2) - (5.2) (19.5) (8.0)
Advance corporation tax written off 26.0 - 26.0 - -
--------- ------- ------- -------- --------
Total taxation charge for the year 98.9 35.1 63.8 49.3 23.5
========= ======= ======= ======== ========
Charged to:
Profit and loss account 49.8 (14.0) 63.8 49.3 23.5
Statement of recognised gains and
losses 49.1 49.1 - - -
--------- ------- ------- -------- --------
Total taxation charge for the year 98.9 35.1 63.8 49.3 23.5
========= ======= ======= ======== ========
</TABLE>
The tax charge for the year includes the gain on the NGG distribution.
It has been decreased principally by the tax effect of net timing
differences for which no deferred tax has been recognised and the benefit
of capital losses that have crystallised in the year.
Advance corporation tax, in respect of the special dividend, has been
written off to the extent that the directors do not anticipate its
recovery against taxable profits prior to 31 March 1997.
27
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
12. DIVIDENDS
<TABLE>
<CAPTION>
1996 1995 1994
(pound)m (pound)m (pound)m
<S> <C>
Interim paid 9.2p (1995: 8.6p and
1994: 68p) per share 17.8 16.6 14.8
Final proposed 22.4p (1995: 20.4p
and 1994: 15.9p) per share 44.5 39.4 34.9
Special dividend 120.0p per share
(1995: 85.0p per share) 238.6 186.5 -
Specie dividend of shares in NGG 292.5 - -
-------- -------- -------
593.4 242.5 49.7
======== ======== ======
</TABLE>
1996 interim, final proposed and special dividends, and 1995 interim and
final proposed dividends are per 56 9/11p share. 1995 special dividend,
and 1994 interim and final proposed dividends are per 50p share.
13. EARNINGS PER SHARE
The calculation of earnings per share, on the net basis, is based on
earnings of (pound)237.7m (1995: (pound)164.7m and 1994: (pound)27.7m)
and a weighted average of 193.9m (1995: 209.9m and 1994: 218.6m) ordinary
shares in issue and ranking for dividend during the year. In calculating
the weighted average number of ordinary shares in issue, shares held
under the Employee Share Ownership Plan (ESOP) established on 4 July 1995
have been excluded as the rights to ordinary dividends on these shares
have been waived by the ESOP Trustee.
Earnings per share, on the nil basis, is calculated on earnings of
(pound)263.7m. This excludes the advance corporation tax written off.
Earnings per share before exceptional items is stated in order to
indicate the effects, in the respective periods, of core business
restructuring, transactions relating to NGG, and other exceptional items.
28
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
14. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
Plant,
machinery, Vehicles
fixtures and Less:
Distribution Land and and mobile customers'
network buildings equipment plant contributions Total
(pound)m (pound)m (pound)m (pound)m (pound)m (pound)m
<S> <C>
Cost
At 1 April 1995 1,209.2 52.1 125.9 18.1 252.5 1,152.8
Additions 81.0 4.4 14.6 4.5 25.0 79.5
Business disposals - (3.1) (48.4) (0.5) - (52.0)
Disposals (3.0) (1.5) (10.7) (4.8) (0.1) 19.9
------------- ------- ------- ------ ------- --------
At 31 March 1996 1,287.2 51.9 81.4 17.3 277.4 1,160.4
============ ======= ======= ===== ======= ========
Depreciation
At 1 April 1995 372.9 11.8 66.5 7.9 51.4 407.7
Provision for the year 33.0 0.9 14.5 3.8 7.4 44.8
Business disposals - (0.3) (37.8) (0.4) - (38.5)
Disposals (2.9) (1.0) (10.7) (4.8) (0.1) (19.3)
------------- ------- ------- ------ ------- --------
At 31 March 1996 403.0 11.4 32.5 6.5 58.7 394.7
============ ======= ======= ===== ======= ========
Net book value
At 31 March 1996 884.2 40.5 48.9 10.8 218.7 765.7
============ ======= ======= ===== ======= ========
At 31 March 1995 836.3 40.3 59.4 10.2 201.1 745.1
============ ======= ======= ===== ======= ========
</TABLE>
The net book value of land and buildings, which excludes those forming
part of the distribution network, comprises:
<TABLE>
<CAPTION>
1996 1995
(pound)m (pound)m
<S> <C>
Freehold 40.2 39.2
Short leasehold 0.3 0.9
Long leasehold - 0.2
------- -------
40.5 40.3
======= ========
</TABLE>
29
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
14. TANGIBLE FIXED ASSETS (continued)
Tangible fixed assets include the following, which are not depreciated:
<TABLE>
<CAPTION>
1996 1995
(pound)m (pound)m
<S> <C>
Assets in the course of construction 98.2 113.3
Land 8.5 8.5
Investment properties 4.5 4.5
======= ========
</TABLE>
15. FIXED ASSET INVESTMENTS
<TABLE>
<CAPTION>
1996 1995
(pound)m (pound)m
<S> <C>
Interests in associated undertakings 15.4 13.0
The National Grid Group plc 0.6 65.5
Investment in own shares 2.0 -
Other investments 0.2 0.2
------- -------
18.2 78.7
======= =======
<CAPTION>
(pound)m
<S> <C>
Associated undertakings
Cost
At 1 April 1995 23.1
Additions 0.4
Disposals (0.5)
Written off (15.5)
----------
At 31 March 1996 7.5
==========
Provisions
At 1 April 1995 (15.5)
Written off 15.5
---------
At 31 March 1996 -
=========
Share of profits of associates
At 1 April 1995 5.4
Share of profits after taxation 2.5
----------
At 31 March 1996 7.9
==========
Net book value
At 31 March 1996 15.4
=========
At 31 March 1995 13.0
=========
</TABLE>
30
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
15. FIXED ASSET INVESTMENTS (continued)
Corby Power Limited
The company holds 40% of the ordinary share capital of Corby Power
Limited (CPL), which owns a 350MW gas fired power station which became
operational in March 1994. The other shareholders in CPL are Electricity
Supply Board International Consultants Limited, a subsidiary of
Electricity Supply Board of Ireland (20%), and Hawker Siddeley Power
(Corby) Limited, a subsidiary of BTR plc (40%).
On 30 June 1995, CPL was served with a writ issued by Hawker Siddeley
Power Engineering Limited (HSPE) claiming the sum of (pound)43.7m. The
claim relates to the repayment of liquidated damages, cost increases,
release of retentions and electricity sold during the commissioning phase
of the Corby power station built under contract by HSPE. The directors
have been informed by the directors of CPL that, having considered the
claim and taken legal and technical advice, the directors of CPL believe
that CPL has a good defence to the claim. Accordingly, no further
provision has been made in its latest accounts, which relate to its
financial year ended 30 September 1995. CPL has submitted a defence to
the writ of the High Court and legal proceedings have commenced.
The directors of East Midlands Electricity plc are of the opinion that
the amount at which the investment in CPL is included in the group
balance sheet is appropriate.
At 31 March 1996 Corby Power Limited had non-recourse loan financing
liabilities of (pound)171.4m (1995: (pound)177.7m). The company has
entered into a contract for differences expiring on 1 October 2008 with
Corby Power Limited, covering the purchase of generated electricity,
transactions under which are reflected in these financial statements.
The National Grid Group plc
<TABLE>
<CAPTION>
(pound)m
<S> <C>
Cost or valuation
At 1 April 1995 65.5
Additions 14.4
Revaluation 212.9
Distribution to shareholders (292.5)
Specie dividends received on own
shares held by ESOP 0.3
-------
At 31 March 1996 0.6
=======
<CAPTION>
Investment in own shares
<S> <C>
(pound)m
At option strike prices (note 23)
At 1 April 1995 -
Issued to ESOP Trustee 10.3
Options exercised through ESOP (8.3)
---------
At 31 March 1996 2.0
=========
</TABLE>
The investment in the company's own shares at 31 March 1996 comprised
459,249 ordinary shares at a nominal value of(pound)260,937.
31
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
16. STOCKS
<TABLE>
<CAPTION>
1996 1995
(pound)m (pound)m
<S> <C>
Raw materials and consumables 3.4 4.1
Work in progress 4.2 3.8
Finished goods and goods held for resale - 1.3
------- --------
7.6 9.2
======= ========
</TABLE>
17. DEBTORS
<TABLE>
<CAPTION>
1996 1995
(pound)m (pound)m
<S> <C>
Amounts falling due within one year
Trade debtors 103.6 172.5
Amounts owed by associated undertakings 0.5 4.0
Other debtors 18.5 11.5
Prepayments and accrued income 0.4 1.1
Deferred tax asset (note 22) 4.0 10.0
Dividends receivable 0.5 9.1
-------- ---------
127.5 208.2
======== =========
Amounts falling due after more than one
year
Advance corporation tax recoverable 16.8 7.6
Other debtors 2.0 -
------- --------
18.8 7.6
------- --------
146.3 215.8
======= ========
</TABLE>
18. CURRENT ASSET INVESTMENTS
<TABLE>
<CAPTION>
1996 1995
(pound)m (pound)m
<S> <C>
Unlisted
Investment in PSB Holding Limited (note 6) 3.2 -
Money market deposits 93.6 23.0
Listed
Bonds and certificates of deposit 12.4 16.0
-------- -------
109.2 39.0
========= =======
</TABLE>
The market value of the listed investments at 31 March 1996 and 31
March 1995 did not differ significantly from the amounts at which they
are stated above.
32
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
19. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1996 1995
(pound)m (pound)m
<S> <C>
Bank loans and overdrafts 76.9 6.2
Other loans 22.0 67.4
Payments received on account 1.8 2.9
Trade creditors 101.7 113.4
Other creditors 3.6 3.0
Corporation tax 42.2 13.6
Other taxation and social security 3.7 4.9
Accruals and deferred income 50.2 57.3
Dividends payable 0.3 2.4
Proposed dividends 44.4 39.4
------- -------
346.8 310.5
======= =======
</TABLE>
20. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1996 1995
(pound)m (pound)m
<S> <C>
Eurobonds 2016 150.0 150.0
Eurobonds 2006 100.0 -
Bank loans - 0.2
Other loans - 0.1
Accruals and deferred income 3.0 4.5
------- -------
253.0 154.8
======= =======
</TABLE>
33
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
21. BORROWINGS
<TABLE>
<CAPTION>
1996 1995
(pound)m (pound)m
<S> <C>
Eurobonds 2016 150.0 150.0
Eurobonds 2006 100.0 -
Bank loans - 0.7
Other loans 22.0 67.5
Accruals and deferred income 76.9 5.7
------ -------
348.9 223.9
====== =======
Analysis of repayments
Within one year
Cash equivalents 76.9 5.7
Other 22.0 67.9
Between one and two years - 0.3
Over five years 250.0 150.0
----- -----
348.9 223.9
===== =====
</TABLE>
Eurobonds 2006
On 20 March 1996, the company issued (pound)100m of unsecured 8.375%
bonds, which are repayable at par on 20 March 2006 unless previously
redeemed, at the company's option, at a market linked premium to issue
price. The net proceeds of the issue were received on 20 March 1996 and
have been used for corporate purposes.
Eurobonds 2016
The 12% Eurobonds, which are unsecured, were issued on 13 March 1991.
They are repayable at par on 25 March 2016, unless previously redeemed,
at the company's option, at a market linked premium to issue price.
<TABLE>
<CAPTION>
1996 1995
(pound)m (pound)m
<S> <C>
Net borrowings
Borrowings 348.9 223.9
Money market investments and deposits (106.0) (39.0)
Cash at bank and in hand (8.2) (6.7)
------- ------
234.7 178.2
======= ======
</TABLE>
34
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
22. PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
Restructuring Other Total
(pound)m (pound)m (pound)m
<S> <C>
At 1 April 1995 37.6 19.1 56.7
Applied during the year (7.2) (3.8) (11.0)
Released to profit and loss account (11.7) - (11.7)
Charged to profit and loss account 27.0 3.0 30.0
-------- -------- --------
At 31 March 1996 45.7 18.3 64.0
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1996 1995
------------------------------ ------------------------------
Full Full
potential Liability potential Liability
liability (asset) liability (asset)
(asset) recognised (asset) recognised
(pound)m (pound)m (pound)m (pound)m
<S> <C>
Accelerated capital allowances 187.6 - 184.9 -
Capital gains deferred by roll-over
relief 3.8 1.0 - -
Other timing differences (24.0) (5.0) (18.4) (10.0)
ACT available for future offset (26.0) - - -
-------- ------- ------- -------
141.4 (4.0) 166.5 (10.0)
======== ======= ======= =======
</TABLE>
Deferred taxation has been calculated at the corporation tax rate of 33%
(1995: 33%).
23. CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
1996 1995 1996 1995
Number Number
Ordinary shares of 56 9/11 p each 000's 000's (pound)m (pound)m
<S> <C>
Authorised 264,000 264,000 150.0 150.0
Number
000's (pound)m
Allotted and fully paid
At 31 March 1995 193,281 109.8
Options exercised 212 0.1
Issued to ESOP Trustee 4,888 2.8
-------- ---------
At 31 March 1996 198,381 112.7
======== =========
</TABLE>
35
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
23. CALLED UP SHARE CAPITAL (continued)
Share options
212,229 ordinary shares were issued in the early part of the year in
respect of share option entitlements exercised by present or former
employees and executives or their beneficiaries under the terms of the
company's share option schemes described below. On 4 July 1995, the
company established an Employee Share Ownership Plan (ESOP) and entered
into a loan arrangement under which the company lent (pound)10.3m to the
ESOP Trustee for the purchase of 4,888,011 of the company's ordinary
shares, equivalent to the number of options then outstanding, at the
relevant option prices. These shares were to be made available to option
holders, on the exercise of valid option rights, according to the terms
of the relevant option schemes.
The company received (pound)0.5m directly in respect of the ordinary
share options and (pound)10.3m in respect of the shares issued to the
ESOP Trustee. (pound)8.3m was received by the ESOP Trustee in respect of
options on 4,428,762 shares exercised under the ESOP arrangements, and
applied to reduce the loan due to the company. At 31 March 1996 the ESOP
Trustee held 459,249 shares and owed (pound)2.0m to the company.
Under the terms of the ESOP Trust Deed, the ESOP Trustee is indemnified
in respect of any costs, expenses, losses or other shortfalls in assets
arising from the business of the trust.
The particular schemes in operation are described below.
(i) Employee sharesave schemes
Under the terms of the sharesave schemes certain employees, who
have entered into an Inland Revenue approved Save As You Earn
(SAYE) contract for a period of five years, are granted options to
purchase ordinary shares in the company.
At 31 March 1996 the number of outstanding options covered by the
first sharesave scheme stood at 11,552 (1995: 4,421,990) with an
option price of (pound)1.75. These options are normally
exercisable until 31 August 1996.
A second sharesave scheme was launched in March 1996 and 4,486,729
shares were granted under option on 4 April 1996 to 73% of the
employees. The options are exercisable on 1 June 2001.
36
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
23. CALLED UP SHARE CAPITAL (continued)
(ii) Executive share option scheme
Under the terms of the executive share option scheme 19 directors
and managers hold options to purchase ordinary shares of 56 9/11
each in the company. The options are exercisable not later than
ten years and normally not earlier than three years from the date
of grant. Details of the options are as follows:
<TABLE>
<CAPTION>
Number of options
---------------------------------
Exercise
Date of grant price Exercised Lapsed 1996 1995
<S> <C>
December 1991 303p 88,250 - 35,000 123,250
June 1992 358p 16,750 - - 16,750
December 1992 406p 178,500 - - 178,500
December 1992 410p - - 19,000 19,000
December 1993 637p 32,250 14,250 215,750 262,250
</TABLE>
24. RESERVES
<TABLE>
<CAPTION>
Share Capital Profit
premium redemption Revaluation and loss
account reserve reserve account Total
(pound)m (pound)m (pound)m (pound)m (pound)m
<S> <C>
At 1 April 1995 3.1 0.1 65.5 394.0 462.7
Premium on shares issued during
the year 7.9 - - - 7.9
Revaluation of NGG - - 212.9 - 212.9
Capital gains tax - - (49.1) - (49.1)
Transfer on distribution and
listing of NGG - - (229.3) 229.3 -
Retained loss for the financial
year - - - (355.7) (355.7)
--------- -------- --------- --------- -----------
At 31 March 1996 11.0 0.1 - 267.6 278.7
========= ======== ========= ========= ===========
</TABLE>
The profit for the year attributable to shareholders dealt with in the
financial accounts of the company was (pound)225.1m (1995:
(pound)160.1m and 1994: (pound)21.0m). As permitted by section 230 of
the Companies Act 1985, the company has not presented its own profit and
loss account.
The amount of (pound)229.3m in revaluation reserve arising as explained
in note 6, was realised on 11 December 1995 when the company's investment
in NGG was distributed and the listing of NGG shares became effective,
and transferred to realised reserves.
37
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
25. DISPOSALS
During the year the group sold Ambassador Security Group plc and the
trade and assets of Furse Specialist Contracting and of W J Furse & Co
Limited.
<TABLE>
<CAPTION>
Ambassador FSC W J Furse Total
(pound)m (pound)m (pound)m (pound)m
<S> <C>
Net assets sold
Tangible fixed assets 9.3 0.2 4.0 13.5
Stocks 0.5 0.3 2.1 2.9
Debtors 3.9 0.9 4.5 9.3
Creditors (5.7) (0.5) (2.4) (8.6)
Cash at bank and in hand 0.1 - - 0.1
Other loans - - (0.2) (0.2)
----------- -------- -------- --------
Net assets sold 8.1 0.9 8.0 17.0
=========== ======== ======== ========
Cash proceeds 17.0 0.5 20.7 38.2
Costs associated with disposals (0.9) (0.1) (0.7) (1.7)
Release of fundamental
restructuring provision - 0.5 - 0.5
----------- -------- -------- --------
Net proceeds 16.1 0.9 20.0 37.0
----------- -------- -------- --------
Surplus on disposals 8.0 - 12.0 20.0
=========== ======== ======== ========
Cash proceeds above 17.0 0.5 20.7 38.2
Cash at bank and in hand disposed
of (0.1) - - (0.1)
Other loans disposed of - - 0.2 0.2
----------- -------- -------- --------
Net cash inflow in respect of
disposals 16.9 0.5 20.9 38.3
========== ======== ======== =======
</TABLE>
The businesses sold were originally acquired by the group in the
financial year ended 31 March 1992. Goodwill arising was charged to
reserves in that year. In the accounts for the financial year ended
31 March 1994 it was reinstated and written off through the profit and
loss account for that year as a part of the exceptional charge for
fundamental restructuring.
The above businesses contributed (pound)7.5m in the year to the group's
net operating cash flows and utilised (pound)2.1m for capital
expenditure.
38
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
26. RECONCILIATION OF OPERATING PROFIT (LOSS) TO NET CASH INFLOW (OUTFLOW)
FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------------
Total NGG Excluding
(Note 6) NGG
(pound)m (pound)m (pound)m (pound)m (pound)m
<S> <C>
Operating profit (loss) 86.4 (102.2) 188.6 207.9 182.8
Depreciation charges 44.8 - 44.8 47.5 42.6
Profit on disposal of tangible fixed (2.4) - (2.4) (0.9) (0.7)
assets
(Increase) decrease in stocks* (1.3) - (1.3) 0.7 9.7
Decrease (increase) in debtors* 54.5 34.4 20.1 (20.9) 62.6
Decrease in creditors* (13.8) (0.8) (13.0) (2.4) 61.8
Increase in provisions* 23.0 - 23.0 2.1 2.5
---------- ----------- -------- ------- ---------
Net cash inflow (outflow) from
operating activities before
exceptional costs 191.2 (68.6) 259.8 234.0 361.3
Net cash outflow relating to
fundamental restructuring (5.5) - (5.5) (26.5) (7.5)
---------- ----------- -------- ------- ---------
Net cash inflow (outflow) from
operating activities 185.7 (68.6) 254.3 207.5 353.8
========== =========== ======== ======= =========
</TABLE>
*Excludes movement related to fundamental restructuring as follows:
<TABLE>
<S> <C>
Profit on disposal of tangible fixed
assets - - - 0.3 -
Stocks - - - 1.5 -
Debtors - - - 3.4 -
Creditors - - - (11.4) -
Provisions (5.5) - (5.5) (20.3) (7.5)
---------- ----------- -------- ------- ---------
(5.5) - (5.5) (26.5) (7.5)
========== =========== ======== ======= =========
</TABLE>
Changes in stocks, debtors, creditors and provisions also exclude
movements relating to disposals as summarised in note 25.
39
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
27. ANALYSIS OF CASH AND CASH EQUIVALENTS AS SHOWN IN THE BALANCE SHEET
<TABLE>
<CAPTION>
Increase (decrease) in year
---------------------------------------
1996 1995 1996 1995 1994
(pound)m (pound)m (pound)m (pound)m (pound)m
<S> <C>
Cash at bank and in hand 8.2 6.7 1.5 2.4 0.8
Money market investments and deposits
106.0 39.0 67.0 (157.9) 75.2
Bank overdrafts (76.9) (5.7) (71.2) (1.2) 3.3
---------- --------- -------- -------- ---------
37.3 40.0 (2.7) (156.7) 79.3
Less: deposits exceeding three months
to maturity when acquired (17.8) (16.0) (1.8) (16.0) -
---------- --------- -------- -------- ---------
19.5 24.0 (4.5) (172.7) 79.3
========= ========= ======== ======== =========
</TABLE>
28. ANALYSIS OF CHANGES IN FINANCING DURING THE YEAR
<TABLE>
<CAPTION>
Share capital and capital reserves Loans (excluding cash equivalents)
--------------------------------------- ---------------------------------------
1996 1995 1994 1996 1995 1994
(pound)m (pound)m (pound)m (pound)m (pound)m (pound)m
<S> <C>
At 1 April 113.0 111.5 109.2 218.2 198.7 258.8
Proceeds from
shares issued
during the year 10.8 1.5 2.3 - - -
Repayment of
government
debenture - - - - (47.0) (50.0)
Issue of Eurobonds - - - 100.0 - -
Net cash (outflow)
inflow from bank
and other loans - - - (46.2) 66.5 (10.1)
------- -------- ------- ------- -------- ---------
At 31 March 123.8 113.0 111.5 272.0 218.2 198.7
======== ======== ====== ======= ======== ========
</TABLE>
40
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
29. PENSION SCHEMES
The majority of the employees of the company and its subsidiaries (the
group) are members of the Electricity Supply Pension Scheme (ESPS), which
provides retirement and death benefits to employees throughout the
electricity supply industry. The group's section of the ESPS is closed to
new entrants. The East Midlands Electricity Pension Plan (EMEPP) provides
retirement and death benefits for employees of the group not in
membership of the ESPS. Both the ESPS and the EMEPP are funded defined
benefit schemes providing pensions and related benefits based on final
pensionable pay. The assets of both schemes are held in trustee
administered funds separate from the finances of the company.
The last actuarial valuation of the group's sector of the ESPS was
carried out by Bacon & Woodrow, consulting actuaries, as at 31 March
1995. The attained age method was used for this assessment and the
principal actuarial assumptions adopted were that the investment return
would on average exceed the rate of increase in members' earnings by 2%
per annum and that present and future pension would increase at a rate of
5% per annum.
The valuation showed that the actuarial value of the assets of the
group's section of the scheme, as at 31 March 1995, represented 106.7% of
the actuarial value of the accrued benefits. After allowing for benefit
improvements granted following the valuation and the provision made from
surplus to cover contingencies and anticipated short term early
retirement costs, this reduced to 100%. The past service benefits include
all benefits for pensioners and other former members as well as benefits
based on service completed to date for active members, allowing for
future salary rises.
The total market value of the assets of the scheme, as at 31 March 1995,
was (pound)12,482.8m of which (pound)568.3m relates to the member and
beneficiaries of the group.
The pension cost to the group for the year was (pound)10.8m (1995:
(pound)12.6m and 1994: (pound)13.8m).
A small proportion of the pension cost (approximately 5%) relates to the
EMEPP. This has been assessed on the basis of the latest actuarial
assessment of the plan by its actuaries, William M Mercer Limited, as at
31 March 1995. The total market value of the assets of the plan at that
date was (pound)6.2m.
As well as the approved funded schemes, the company provides benefits on
an unfunded unapproved basis to certain senior employees whose approved
pension benefits are limited by the operation of the Earnings Cap imposed
by the Finance Act 1989. The cost of these benefits has been assessed by
William M Mercer Limited at (pound)0.2m (1995: (pound)0.3m). The
accumulated cost as at 31 March 1996 was (pound)0.7m.
41
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
30. COMMITMENTS
<TABLE>
<CAPTION>
1996 1995
(pound)m (pound)m
<S> <C>
Fixed asset expenditure commitments
In respect of contracts placed 34.0 16.3
======= ===========
Operating lease commitments
Annual commitments under operating leases expire as follows:
Land and buildings
Within one year - 0.1
In the second to fifth years inclusive - 0.4
After five years 0.6 0.8
------- -----------
0.6 1.3
======= ===========
Other
Within one year 0.4 1.2
In the second to fifth year 2.0 4.0
------- -----------
2.4 5.2
======= ===========
</TABLE>
31. SUMMARY OF DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
IN THE UNITED KINGDOM AND THE UNITED STATES OF AMERICA
The financial statements are prepared in accordance with generally
accepted accounting principles in the United Kingdom ("UK GAAP"), which
differ in certain material respects from those generally accepted
accounting principles in the United States of America ("US GAAP"). The
differences that are material to East Midlands Electricity relate to the
following items and the necessary adjustments are shown in the tables
that follow:
Accounting for the National Grid transactions
In October 1995, the shareholders of the National Grid Group, consisting
of the 12 regional electricity companies ("RECs") and Her Majesty's
Government (owning one special share) agreed to seek a listing for the
NGG shares on the London Stock Exchange. As part of the agreement among
the shareholders of NGG, each REC agreed to provide a one-off discount to
each of their respective domestic customers (see note 6) and, in order to
compensate the RECs for the cost of the discount and other costs
associated with the listing, NGG paid a special dividend shortly before
the listing.
Under UK GAAP, the discount was reported as a deduction of turnover and
the special dividend was included in dividends from fixed asset
investments. Under US GAAP, the discount and dividend would have been
recorded on a net basis in the income statement.
Discontinued Operations
Under UK GAAP, turnover and operating profit must be analysed between
continuing operations, acquisitions and discontinued operations on the
face of the profit and loss account, with the remaining statutory
headings to operating profit shown in the notes. Under US GAAP, financial
statement for all periods presented are restated such that operating
activity related to discontinued operations is shown as a single amount
below income from operations.
42
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
31. SUMMARY OF DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED KINGDOM AND THE UNITED STATES OF AMERICA
(continued)
Deferred Taxation
Under UK GAAP, deferred taxation is provided at the rates at which the
taxation is expected to become payable. No provision is made for amounts
which are not expected to become payable in the foreseeable future. Under
US GAAP, deferred taxation is provided on all temporary differences under
the asset and liability method at rates at which the taxation would be
payable in the relevant future years.
Dividends from fixed asset investments
Under UK GAAP, dividends from the National Grid Group and other fixed
asset investments have been recorded in the profit for the year to which
they pertain. Under US GAAP, dividends are recorded in the financial
statements of the year in which they are declared.
Dividends payable
Under UK GAAP, dividends are recorded in the financial statements for the
year to which they pertain. Under US GAAP, dividends are recorded in the
financial statements in the period in which they are declared.
Marketable equity securities
Under UK GAAP, investments in equity securities held as fixed asset
investments are carried at cost. Fixed asset investments may be revalued
if, in the directors' opinion, such a revaluation is necessary to give a
true and fair view of its financial condition. Such revaluations increase
or decrease the reported value of the investment and are reported as a
separate component of equity shareholders' funds. Under US GAAP,
investments in equity securities would have been classified as
available-for-sale securities and valued at market price with unrealised
gains or losses excluded from earnings and reported as a separate
component of shareholders' equity. If the fair value of an investment is
not readily determinable, the investment is reported at its original
cost.
Stock-based compensation expense
Under UK GAAP, on the granting of share options, no amounts are normally
attributed to employee remuneration. Under US GAAP, upon the granting of
share options to employees, the employer recognises as employee
compensation the difference between the market value of the shares on the
date of grant and the amount the employees are required to pay.
Pension Costs
Under both UK GAAP and US GAAP, pension costs are provided so as to
provide for future pension liabilities. However, there are differences in
the prescribed methods of valuation which give rise to GAAP adjustments
to the pension cost and the pension prepayment.
Investments in own shares
Under UK GAAP, the cost of shares in the company purchased by the ESOP
Trustee is included in current asset investments. Under US GAAP, this
amount is reported as a deduction to shareholders' equity.
43
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
31. SUMMARY OF DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED KINGDOM AND THE UNITED STATES OF AMERICA
(continued)
Statement of Cash Flows
The group's statement of cash flows is prepared in accordance with UK
Financial Reporting Standard 1 (FRS 1), the objectives and principles of
which are similar to those set out in US GAAP under Statement of
Financial Accounting Standard No. 95, "Statement of Cash Flows" (SFAS
95). The significant differences between FRS 1 and SFAS 95 relate to
classification. Under FRS1, a reconciliation of profit from operations to
flows from operating activities is presented in a note, and cash paid for
interest and income taxes are presented separately from cash flows from
operating activities. Under SFAS 95, cash flows from operating activities
are based on net profit, include interest and income taxes, and are
presented on the face of the statement. UK GAAP requires cash and cash
equivalents to be presented net of overdrafts, SFAS 95 treats overdrafts
within financing activities.
The approximate effect of the differences between UK GAAP and US GAAP on
profit for the financial year, equity shareholders' funds and total
assets are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(pound)m (pound)m (pound)m
<S> <C>
Profit for the financial year under UK GAAP 237.7 164.7 27.7
Items increasing (decreasing) profit:
Discontinued operations (22.2) 6.0 108.3
Deferred taxation (11.8) (21.1) (8.3)
Dividends from fixed asset investments 11.3 (0.5) (1.3)
Stock-based compensation (0.6) (0.6) (0.6)
Pension costs 6.2 2.5 0.8
------- -------- ---------
Income from continuing operations under US GAAP 220.6 151.0 126.6
Income (loss) from discontinued operations under US
GAAP 22.2 (6.0) (108.3)
------- -------- ---------
Net income under US GAAP 242.8 145.0 18.3
======= ======== =========
</TABLE>
44
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES TO THE ACCOUNTS
Year ended 31 March 1996
31. SUMMARY OF DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED KINGDOM AND THE UNITED STATES OF AMERICA
(continued)
<TABLE>
<CAPTION>
1996 1995
(pound)m (pound)m
<S> <C>
Equity shareholders' funds under UK GAAP 391.4 572.5
Items increasing (decreasing) shareholders' equity:
Deferred taxation (150.2) (138.4)
Dividends from fixed asset investments - (11.3)
Dividends payable 44.4 39.4
Pension costs 6.9 0.7
Investment in own shares (2.0) -
--------- ----------
Stockholders' equity under US GAAP 290.5 462.9
========= =========
<CAPTION>
1996 1995
(pound)m (pound)m
<S> <C>
Total assets under UK GAAP 1,055.2 1,094.5
Items increasing (decreasing) shareholders' equity:
Deferred taxation (4.0) (10.0)
Dividends from fixed asset investments - (11.3)
Pension costs 6.9 0.7
Investment in own shares (2.0) -
Other (16.8) (7.6)
------- ---------
Total assets under US GAAP 1,039.3 1,066.3
======= =========
</TABLE>
45
EXHIBIT 99.2
EAST MIDLANDS ELECTRICITY PLC
SUMMARY GROUP PROFIT AND LOSS ACCOUNT
SIX MONTHS ENDED 30 SEPTEMBER 1996
<TABLE>
<CAPTION>
Unaudited Audited
Six months to 12 months to 31
30 September March
1996
(excluding NGG
1996 1995 - note 1)
Note (pound)m (pound)m (pound)m
<S> <C>
TURNOVER 2 563.3 582.0 1,299.8
--------- ------------ -----------------
OPERATING PROFIT 2 85.2 94.9 188.6
Release of fundamental restructuring provisions - - 11.4
Surplus on disposal of discontinued operations 1.0 8.0 20.0
Share of profits of associated undertakings 1.3 0.9 2.6
Income from other fixed asset investments 2.8 - 1.5
Net interest payable (10.3) (7.1) (9.9)
--------- ------------ -----------------
PROFIT BEFORE TAXATION 80.0 96.7 214.2
Taxation based on profits for the period 3 (19.6) (24.2) (37.8)
Advance corporation tax written off - (26.0) (26.0)
--------- ------------ -----------------
PROFIT ATTRIBUTABLE TO
SHAREHOLDERS 60.4 46.5 150.4
Ordinary dividend - (17.8) (62.3)
Special dividend - (238.1) (238.6)
--------- ------------ -----------------
AMOUNT TRANSFERRED TO (FROM)
RESERVES 60.4 (209.4) (150.5)
========= ============ =================
pence pence pence
EARNINGS PER SHARE, BEFORE EXCEPTIONAL
ITEMS 4
30.0 33.4 78.7
Exceptional items, after tax 0.5 4.1 12.3
--------- ------------ -----------------
EARNINGS PER SHARE - NIL BASIS 30.5 37.5 91.0
Advance Corporation Tax written off - (13.5) (13.4)
--------- ------------ -----------------
EARNINGS PER SHARE - NET BASIS 30.5 24.0 77.6
========= ============ =================
5 - 9.2 31.6
DIVIDENDS PER SHARE
SPECIAL DIVIDENDS PER SHARE - 120.0 120.0
========= ============ =================
</TABLE>
1
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
SUMMARY GROUP BALANCE SHEET
AS AT 30 SEPTEMBER 1996
<TABLE>
<CAPTION>
Unaudited Audited
30 September 31 March
1996 1995 1996
(pound)m (pound)m (pound)m
<S> <C>
FIXED ASSETS 814.2 836.5 783.9
------- ------- --------
CURRENT ASSETS 220.5 367.1 271.3
CREDITORS: AMOUNTS FALLING DUE
WITHIN ONE YEAR (277.2) (621.0) (346.8)
------- ------- --------
NET CURRENT LIABILITIES (56.7) (253.9) (75.5)
------- ------- --------
TOTAL ASSETS LESS CURRENT
LIABILITIES
757.5 582.6 708.4
CREDITORS: AMOUNTS FALLING DUE AFTER
MORE THAN ONE YEAR
(252.2) (154.1) (253.0)
PROVISION FOR LIABILITIES AND
CHARGES (53.5) (54.6) (64.0)
------- ------- --------
NET ASSETS 451.8 373.9 391.4
======= ======= ========
CAPITAL AND RESERVES 451.8 373.9 391.4
======= ======= ========
</TABLE>
<PAGE>
2
EAST MIDLANDS ELECTRICITY PLC
SUMMARY GROUP CASH FLOW STATEMENT
SIX MONTHS ENDED 30 SEPTEMBER 1996
<TABLE>
<CAPTION>
Unaudited Audited
6 months to 12 months to
30 September 31 March
1996 1995 1996
Note (pound)m (pound)m (pound)m
<S> <C>
CASH FLOW FROM OPERATING ACTIVITIES
EXCLUDING NGG DISTRIBUTION 6 163.4 181.4 254.3
Returns on investments and servicing of finance 3.6 2.8 (8.6)
Taxation excluding NGG distribution (55.3) 24.9 (0.2)
Purchase of tangible fixed assets (61.2) (46.4) (104.5)
Customers' contribution to tangible fixed assets 10.0 11.6 25.0
Acquisitions and disposals 1.5 19.0 39.4
Equity dividends paid - (2.1) (298.0)
Cash flows relating to NGG 7 10.7 - 25.3
-------- ------- -------
NET CASH INFLOW (OUTFLOW) BEFORE USE OF LIQUID
RESOURCES AND FINANCING 8 72.7 191.2 (67.3)
Management of liquid resources 8 15.1 (124.4) (67.0)
Financing 8 (22.0) (66.8) 64.6
-------- ------- -------
INCREASE (DECREASE) IN CASH 8 65.8 - (69.7)
======== ======= =======
OPENING NET DEBT 8 (234.7) (178.2) (178.2)
Net cash inflow (outflow) before use of liquid
resources and financing 72.7 191.2 (67.3)
Cash inflow from the issue of shares - 0.5 10.8
-------- ------- -------
INCREASE (DECREASE) IN NET FUNDS 8 72.7 191.7 (56.5)
-------- ------- -------
CLOSING NET (DEBT) FUNDS 8 (162.0) 13.5 (234.7)
======== ======= =======
</TABLE>
The presentation of cash flow information for comparative purposes has been
revised as explained in Note 1.
3
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES
1. BASIS OF PREPARATION
The interim accounts for the six months to 30 September 1996, and
comparative amounts to 30 September 1995, which are unaudited, have
been prepared under the historical cost convention, as modified by the
valuation of certain fixed asset investments. The accounting policies
are consistent with those applied for the year ended 31 March 1996.
The financial information contained in this interim statement does not
amount to statutory accounts within the meaning of Section 240 of the
Companies Act 1985. Amounts shown for the year ended 31 March 1996 are
consistent with the full audited accounts for that year, which have
been delivered to the Registrar of Companies, except that, to aid
comparison, amounts shown in the profit and loss account exclude
transactions which arose as a result of the distribution of the
company's interest in NGG, which took place in December 1995. A
revised presentation of cash flow information for the current and
prior periods has been adopted following the issue of FRS1 (Revised
1996) - Cash Flow Statements by the Accounting Standards Board in
October 1996.
The auditors' report on the full accounts for the year ended 31 March
1996 was unqualified and did not include a statement under section
237(2) or (3) of the Companies Act 1985.
2. SEGMENTAL ANALYSIS
<TABLE>
<CAPTION>
Unaudited Audited
Six months to 12 months to
30 September 31 March
1996
1996 1995 (excluding NGG)
TURNOVER (pound)m (pound)m (pound)m
<S> <C>
Supply excluding NGG 503.4 505.3 1,166.8
Underlying distribution 163.1 180.7 371.3
EME Contracting 18.5 16.9 34.9
Sterling Gas Marketing 2.2 3.4 8.6
Other activities and internal charges (123.9) (138.9) (300.3)
------- ------- --------
Continuing operations 563.3 567.4 1,281.3
Discontinued operations - 14.6 18.5
------- ------- --------
GROUP EXCLUDING NGG 563.3 582.0 1,299.8
======= ======= ========
</TABLE>
<PAGE>
4
EAST MIDLANDS ELECTRICITY PLC
NOTES
<TABLE>
<CAPTION>
Unaudited Audited
Six months to 12 months to
30 September 31 March
1996
1996 1995 (excluding NGG)
OPERATING PROFIT (LOSS) (pound)m (pound)m (pound)m
<S> <C>
Underlying supply 16.5 13.0 28.5
Exceptional restructuring - - (3.5)
------- ------ -------
Supply excluding NGG 16.5 13.0 25.0
------- ------ -------
Underlying distribution 68.4 80.7 178.0
Exceptional restructuring - - (17.7)
------- ------ -------
Total electricity distribution 68.4 80.7 160.3
------- ------ -------
EME Contracting 0.2 - 0.1
Sterling Gas Marketing (0.4) (0.2) (0.4)
Other activities and internal charges 0.5 0.2 1.8
------- ------ -------
Continuing operations 85.2 93.7 186.8
Discontinued operations - 0.3 1.1
Utilisation of fundamental restructuring provisions - 0.9 0.7
------- ------ -------
GROUP EXCLUDING NGG 85.2 94.9 188.6
======= ====== =======
</TABLE>
3. TAXATION
Taxation is based on the profits for the six month period on the basis
of the estimated effective tax rate for the year ending 31 March 1997
after taking into account the effect of prior year adjustments and
ACT. No account has been taken of tax changes proposed by the
Chancellor of the Exchequer in his recent Budget speech.
4. EARNINGS PER SHARE
The calculation of earnings per share, on the net basis, for the six
months ended 30 September 1996 is based on earnings of (pound)60.4
(1995: (pound)46.5m) and a weighted average of 197.9m (1995: 193.4m)
ordinary shares in issue and ranking for dividend during the period.
5. DIVIDEND
No interim dividend is proposed.
5
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES
6. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW
FROM OPERATING ACTIVITIES EXCLUDING NGG
<TABLE>
<CAPTION>
Unaudited Audited
6 months to 12 months to
30 September 31 March
1996 1995 1996
(pound)m (pound)m (pound)m
<S> <C>
Operating profit 85.2 94.9 188.6
Depreciation 21.4 23.3 44.8
Loss (profit) on disposal of tangible fixed assets 0.3 (1.0) (2.4)
Decrease in working capital 67.0 66.8 5.8
(Decrease) increase in provisions (7.4) 1.2 23.0
------ ------ ------
Net cash inflow from operating activities before effects
of fundamental restructuring 166.5 185.2 259.8
Net cash outflow in respect of fundamental restructuring (3.1) (3.8) (5.5)
------ ------ ------
Net cash inflow from operating activities excluding NGG 163.4 181.4 254.3
====== ====== ======
</TABLE>
7. THE NATIONAL GRID GROUP PLC (NGG)
Full details of the distribution to shareholders in December 1995
of the company's interest in NGG are given in the Annual Report and
Accounts for the financial year ended 31 March 1996.
Group cash flows relating to NGG were as follows:
<TABLE>
<CAPTION>
Unaudited Audited
6 months to 12 months to
30 September 31 March
1996 1995 1996
(pound)m (pound)m (pound)m
<S> <C>
Net cash outflow from operating activities (29.0) - (68.6)
Dividends received from NGG - - 113.7
Distributions received from PSB Holding Limited 5.9 - 48.0
Repayment (payment) of Advance Corporation Tax 33.8 - (53.4)
Purchase of shares in NGG - - (14.4)
------- ------ ------
Net cash inflow relating to NGG 10.7 - 25.3
======= ====== ======
</TABLE>
6
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES
8. ANALYSIS OF NET DEBT
<TABLE>
<CAPTION>
At 1 CASH AT 30
April FLOW SEPTEMBER
1996 1996
(pound)m (pound)m (pound)m
<S> <C>
Cash at bank and in hand 8.2 (7.3) 0.9
Bank overdrafts (76.9) 73.1 (3.8)
-------- ------ -------
(68.7) 65.8 (2.9)
Eurobonds (250.0) - (250.0)
Other loans (22.0) 22.0 -
-------- ------ -------
Debt (272.0) 22.0 (250.0)
-------- ------ -------
Current asset investments 106.0 (15.1) 90.9
-------- ------ -------
Net debt (234.7) 72.7 (162.0)
======== ====== =======
</TABLE>
9. SUMMARY OF DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED KINGDOM AND THE UNITED STATES OF AMERICA
The financial statements are prepared in accordance with generally
accepted accounting principles in the United Kingdom ("UK GAAP"),
which differ in certain material respects from those generally
accepted accounting principles in the United States of America ("US
GAAP"). The differences that are material to East Midlands Electricity
relate to the following items and the necessary adjustments are shown
in the tables that follow:
<TABLE>
<CAPTION>
Unaudited Audited
6 months to 12 months to
30 September 31 March
1996 1995 1996
(pound)m (pound)m (pound)m
<S> <C>
PROFIT ATTRIBUTABLE TO SHAREHOLDERS
UNDER UK GAAP 60.4 46.5 237.7
Items increasing (decreasing) profit:
Discontinued operations (0.7) (6.2) (22.2)
Deferred taxation (8.8) 13.8 (11.8)
Dividends from fixed asset investments - 11.3 11.3
Stock-based compensation - (0.3) (0.6)
Pension costs 2.2 3.1 6.2
------- ------ -------
</TABLE>
EAST MIDLANDS ELECTRICITY PLC
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
NOTES
Income from continuing operations under
US GAAP 53.1 68.2 220.6
Income from discontinued operations
under US GAAP 0.7 6.2 22.2
------- ------ -------
NET INCOME UNDER US GAAP 53.8 74.4 242.8
======= ====== =======
</TABLE>
8
<PAGE>
EAST MIDLANDS ELECTRICITY PLC
NOTES
<TABLE>
<CAPTION>
Unaudited Audited
30 September 31 March
1996 1995 1996
(pound)m (pound)m (pound)m
<S> <C>
CAPITAL AND RESERVES UNDER UK GAAP 451.8 373.9 391.4
Items increasing (decreasing) shareholders' equity:
Deferred taxation (159.0) (124.6) (150.2)
Dividends payable - 255.9 44.4
Pension costs 9.1 3.8 6.9
Investment in own shares (2.0) (10.3) (2.0)
------ ------ ------
SHAREHOLDERS' EQUITY UNDER US GAAP 299.9 498.7 290.5
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Unaudited Audited
30 September 31 March
1996 1995 1996
(pound)m (pound)m (pound)m
<S> <C>
TOTAL ASSETS UNDER UK GAAP 1,034.7 1,203.6 1,055.2
Items increasing (decreasing) shareholders' equity:
Deferred taxation (6.0) (10.0) (4.0)
Pension costs 9.1 3.8 6.9
Investment in own shares (2.0) (10.3) (2.0)
Other (16.8) (45.5) (16.8)
-------- -------- --------
TOTAL ASSETS UNDER US GAAP 1,019.0 1,141.6 1,039.3
======== ======== ========
</TABLE>
9
EXHIBIT 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS AND STATEMENTS OF INCOME
The unaudited pro forma condensed consolidated statements of income and balance
sheet required by Item 7 (b) are filed as part of this Form 8-K. The pro forma
results give effect to the acquisition of East Midlands accounted for under the
purchase method of accounting for the nine months ended September 30, 1996 and
the twelve months ended December 31, 1995 as if the transaction has been
consummated at the beginning of the periods presented for the unaudited pro
forma condensed consolidated statements of income and at the end of the period
presented for the pro forma condensed consolidated balance sheets. The unaudited
pro forma condensed consolidated statements of income for the nine months ended
September 30, 1996 include the results of operations of East Midlands for that
period. Consequently, revenues of approximately $612.2 million and income from
continuing operations after tax of approximately $67.8 million of East Midlands
for the three month period ended March 31, 1996, have been included in both
periods presented.
The unaudited pro forma condensed consolidated statements of income and balance
sheets are based upon preliminary fair value allocations related to the purchase
of East Midlands. The allocations are subject to revision after more detailed
analyses, appraisals and evaluations are completed. DRI and East Midlands expect
to finalize its fair value assessment in the year following the the acquisition.
Accordingly, the final purchase price allocation may differ from the pro forma
amouts set forth herein.
The condensed historical balance sheets and statements of income for each
company and the pro forma consolidated financial statements for each company
have been prepared in accordance with United States Generally Accepted
Accounting Principles. The pro forma information is presented for illustrative
purposes only and is not necessarily indicative of the operating results that
would have occurred if the East Midlands acquisition had taken place at the
beginning of the period specified, nor is it necessarily indicative of future
operating results. Pro forma financial statements were converted at the
translation rate of 1.00 pound : $1.65, which was the prevailing rate of
exchange at the close of business on November 5, 1996, the business day prior to
the announcement of the Offer.
The unaudited pro forma condensed consolidated statements of income and balance
sheets should be read in conjunction with the consolidated financial statements
of DRI and the related notes thereto included in DRI's Combined Annual Report on
Form 10-K for the year ended December 31, 1995 and DRI's Combined Quarterly
Report on Form 10-Q for the quarters ended March 31, 1996, June 30, 1996 and
September 30, 1996, as well as the financial statements of East Midlands,
prepared in accordance with generally accepted accounting principles in the
United Kingdom, for the fiscal year ended March 31, 1996 and the six months
ended September 30, 1996 and notes thereto included in Item 7 (a) to this
Current Report on Form 8-K.
<PAGE>
DOMINION RESOURCES, INC.
UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(in millions, except earnings per common share data)
<TABLE>
<CAPTION>
DRI EAST PRO FORMA PRO FORMA
MIDLANDS ADJUSTMENTS CONSOLIDATED
INCOME
-------- -------- ----------- ------------
<S> <C>
REVENUES $3,647.0 $1,541.6 $ - $5,188.6
OPERATING EXPENSES
Operating, maintenance and
other expenses 2,244.8 1,240.6 3,485.4
Depreciation and amortization 456.7 55.1 52.7 d 564.5
Restructuring 29.2 - 29.2
-------- -------- ------ --------
Total 2,730.7 1,295.7 52.7 4,079.1
-------- -------- ------ --------
OPERATING INCOME 916.3 245.9 (52.7) 1,109.5
OTHER INCOME (EXPENSE)
Interest charges, net (293.5) (20.0) (109.2) e (422.7)
Other (23.6) 9.2 (14.4)
-------- -------- ------ --------
INCOME FROM CONTINUING
OPERATIONS BEFORE TAX 599.2 235.1 (161.9) 672.4
PROVISION FOR INCOME TAXES (192.6) (79.7) 42.0 f (230.3)
-------- -------- ------ --------
NET INCOME FROM CONTINUING
OPERATIONS FOR COMMON STOCK $ 406.6 $ 155.4 $(119.9) $ 442.1
======== ======== ======= ========
EARNINGS PER COMMON SHARE-
CONTINUING OPERATIONS $ 2.29 $ 2.49
======== ========
WEIGHTED AVERAGE
COMMON SHARE OUTSTANDING 177.6 177.6
======== ========
</TABLE>
See notes to unaudited condensed consolidated pro forma financial data
<PAGE>
DOMINION RESOURCES, INC.
UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except earnings per common share data)
<TABLE>
<CAPTION>
DRI EAST PRO FORMA PRO FORMA
MIDLANDS ADJUSTMENTS CONSOLIDATED
TWELVE MOS. TWELVE MOS. TWELVE MOS.
ENDED ENDED ENDED
DECEMBER 31, MARCH 31, DECEMBER 31,
1995 1996 1995
------------ ----------- ------------ ------------
<S> <C>
REVENUES $4,651.7 $2,114.1 $ - $6,765.8
OPERATING EXPENSES
Operating, maintenance and
other expenses 2,951.2 1,725.2 4,676.4
Depreciation and amortization 551.0 71.4 70.3 d 692.7
Restructuring 121.5 121.5
-------- -------- ------- --------
Total 3,623.7 1,796.6 70.3 5,490.6
-------- -------- ------- --------
OPERATING INCOME 1,028.0 317.5 (70.3) 1,275.2
OTHER INCOME (EXPENSE)
Interest charges, net (381.7) (16.3) (145.6) e (543.6)
Other (39.2) 146.4 (115.8) g (8.6)
-------- -------- ------- --------
INCOME FROM CONTINUING
OPERATIONS BEFORE TAX 607.1 447.6 (331.7) 723.0
PROVISION FOR INCOME TAXES (182.1) (83.5) 67.3 f (198.3)
-------- -------- ------- --------
NET INCOME FROM CONTINUING
OPERATIONS FOR COMMON STOCK $ 425.0 $ 364.1 $(264.4) $ 524.7
======== ======== ======= ========
EARNINGS PER COMMON SHARE-
CONTINUING OPERATIONS $ 2.45 $ 3.02
======== ========
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 173.8 173.8
======== ========
</TABLE>
See notes to unaudited condensed consolidated pro forma financial data
<PAGE>
<TABLE>
<CAPTION>
DOMINION RESOURCES, INC.
UNAUDITED PROFORMA CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1996
(in millions)
DRI EAST PRO FORMA PRO FORMA
MIDLANDS ADJUSTMENTS BALANCE
SHEET
<S> <C>
ASSETS
Current Assets $ 1,355.0 $ 333.0 $ - $ 1,688.0
Investments 1,487.5 30.4 1,517.9
Property, plant and equipment 10,532.9 1,309.8 353.6 a 12,196.3
Goodwill and other intangibles 1,842.2 a,d 1,842.2
Deferred Charges and Other 1,120.3 8.3 46.4 a 1,175.0
--------- -------- -------- ---------
TOTAL ASSETS $14,495.7 $1,681.4 $2,242.2 $18,419.3
========= ======== ======== =========
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities $ 1,381.9 $ 429.7 $ - $ 1,811.6
Long-term debt 4,920.3 412.5 2,242.7 b 7,652.4
76.9 a
Deferred credits and other liabilities 2,460.0 344.4 417.4 a,h 3,221.8
Shareholders' equity
Preferred stock 824.0 824.0
Common stock 3,412.7 294.5 (294.5) c 3,412.7
Retained earnings 1,487.8 200.3 (200.3) c 1,487.8
Other 9.0 9.0
-------- -------- -------- ---------
Total 5,733.5 494.8 (494.8) 5,733.5
-------- -------- -------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $14,495.7 $1,681.4 $2,242.2 $18,419.3
========= ======== ======== =========
</TABLE>
See notes to unaudited condensed consolidated pro forma financial data
<PAGE>
Notes to Pro Forma Condensed Combined Unaudited Financial Data
The pro forma adjustments to reflect the effect of the East
Midlands acquisition are as follows:
a. The adjustments which have been made to the assets and liabilities of
East Midlands to reflect the effect of the acquisition accounted for as a
purchase business combination, determined as if the acquisition occurred
on September 30, 1996, are as follows (in millions):
Property and plant $ 353.6
Goodwill 1,842.2
Deferred taxes 46.4
Other liabilities (54.4)
Accrued preacquistion contingencies (363.0)
Long term debt (76.9)
---------
Net increase in assets and liabilities $ 1747.7
Included in accrued preacquisition contingencies are reserves for
contingent liabilities existing at East Midlands at the time of
acquisition relating to a contract that East Midlands had entered into
relating to the purchase of approximately 350MW of capacity from a 40%
owned related party, Corby Power Limited, that expires on October 1, 2008.
The contract sets prices that move in line with certain indices and fuel
costs. Contract prices are expected to exceed those paid by East Midlands
to the electricity pool which is operated by The National Grid Group.
b. The cash which was used to finance the acquisition of East Midlands,
including estimated transaction costs, has been presented in the pro forma
adjustments as additional indebtedness incurred as follows in millions:
Increased borrowings from 1997 Revolving Credit Agreement $ 1,155.0
Increased borrowings from 1997 Short-term Credit Agreement 1,066.2
Increased borrowings from Loan Notes 21.5
-----------
Total $ 2,242.7
Payments to shareholders $ 2,194.6
Other direct transaction and financing costs 48.1
-----------
Total Purchase Price $ 2,242.7
c. The historical common stock and retained earnings of East Midlands
has been eliminated.
d. Depreciation and amortization expense has been increased for the
step-up in basis of property and plant acquired and the increase in
amortization expense of goodwill recorded in connection with the
acquisition of East Midlands. The policy of DRI is to provide depreciation
and amortization expense over the estimated remaining useful life of the
identifiable assets and to periodically assess the carrying value of such
assets for possible impairment in accordance with Statement of Financial
Accounting Standard No. 121.
The fair value of property and equipment is depreciated using a systematic
method, which approximates the straight line method, over the remaining
portion (between 1 and 60 years) of the original asset lives (between 3
and 60 years).
<PAGE>
Amortization of the excess of purchase price over the net assets acquired
is recorded using the straight line method over 40 years.
e. Reflects interest expense on indebtedness incurred or to be incurred
pursuant to the 1997 Revolving Credit Agreement, the 1997 Short-Term
Credit Agreement, and the Loan Notes used to finance the acquisition. The
interest expense on indebtedness incurred to finance the acquisition is at
variable rates and has been computed at the weighted average of 6.493%
effective during March 1997.
f. The pro forma income statements have been adjusted to include the
estimated income tax effects of the adjustments resulting from the
acquisition using a statutory tax rate of 33%.
g. East Midlands historical Statement of Earnings for the year ended March
31, 1996, has been adjusted to eliminate one time non-recurring income and
expense of $289.6 million and $173.7 million, respectively. This income
and expense is attributable to the receipt of shares of the National Grid
Group plc and associated dividend income and related customer discounts.
h. The Labour Party has asserted that, if they are elected at the next
General Election, which will be held on May 1, 1997, they will seek to
introduce a "windfall" assessment to be levied on the privatized utilities
including East Midlands. The basis for such a potential assessment is
unknown but, if introduced, such assessment could be substantial.
