UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. ____)*
The Energy Group PLC
- --------------------------------------------------------------------------------
(Name of Issuer)
Ordinary Shares of 10p Each
- --------------------------------------------------------------------------------
(Title of Class of Securities)
292691 10 2
-------------------------------------------------------
(CUSIP Number)
Richard T. O'Brien
PacifiCorp
Port of Portland Building, Suite 1600
700 NE Multnomah
Portland, Oregon 97232
(503) 731-2000
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
March 2, 1998
-------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box. [ ]
Check the following box if a fee is being paid with the statement. [ ]
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter the
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
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<PAGE>
SCHEDULE 13D
------------
CUSIP No. 292691 10 2 Page 2 of 6 Pages
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
PacifiCorp
93-0246090
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2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [ ]
3) SEC USE ONLY _____________________________________________________________
4) SOURCE OF FUNDS
AF, BK
--------------------------------------------------------------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
6) CITIZENSHIP OR PLACE OF ORGANIZATION
Oregon
--------------------------------------------------------------------------
7) SOLE VOTING POWER
NUMBER OF 45,987,079
--------------------------------------------------
SHARES
8) SHARED VOTING POWER
BENEFICIALLY
OWNED BY --------------------------------------------------
EACH 9) SOLE DISPOSITIVE POWER
REPORTING 45,987,079
--------------------------------------------------
PERSON
10) SHARED DISPOSITIVE POWER
WITH
--------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
45,987,079
--------------------------------------------------------------------------
12) CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
--------------------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.8%
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14) TYPE OF REPORTING PERSON*
CO
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2 of 6
<PAGE>
SCHEDULE 13D
------------
CUSIP No. 292691 10 2 Page 3 of 6 Pages
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
PacifiCorp Acquisitions
98-0173776
--------------------------------------------------------------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [ ]
3) SEC USE ONLY _____________________________________________________________
4) SOURCE OF FUNDS
AF, BK
--------------------------------------------------------------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
6) CITIZENSHIP OR PLACE OF ORGANIZATION
England and Wales
--------------------------------------------------------------------------
7) SOLE VOTING POWER
NUMBER OF 45,987,079
--------------------------------------------------
SHARES
8) SHARED VOTING POWER
BENEFICIALLY
OWNED BY --------------------------------------------------
EACH 9) SOLE DISPOSITIVE POWER
REPORTING 45,987,079
--------------------------------------------------
PERSON
10) SHARED DISPOSITIVE POWER
WITH
--------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
45,987,079
--------------------------------------------------------------------------
12) CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
--------------------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.8%
--------------------------------------------------------------------------
14) TYPE OF REPORTING PERSON*
CO
--------------------------------------------------------------------------
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<PAGE>
Item 1. Security and Issuer
This Statement relates to Ordinary Shares of 10p each (the "Energy Group
Shares"), of The Energy Group PLC, a corporation organized under the laws of
England and Wales ("TEG"). TEG's principal executive offices are located at 117
Piccadilly, London W1V 9FJ, England.
Item 2. Identity and Background
This Statement is filed by PacifiCorp, a corporation organized under the
laws of Oregon, and PacifiCorp Acquisitions, a corporation organized under the
laws of England and Wales and an indirect wholly-owned subsidiary of PacifiCorp,
each of whose business address is Port of Portland Building, Suite 1600, 700 NE
Multnomah, Portland, Oregon 97232. PacifiCorp's principal business is retailing
energy to customers in the United States and Australia. It is the largest
investor-owned bulk power marketer in the western United States and is an active
electricity and gas marketer in the eastern United States. PacifiCorp
Acquisitions was formed for the purpose of making the offer to purchase all
outstanding Energy Group Shares and American Depository Shares ("Energy Group
ADSs"), each representing four Energy Group Shares and evidenced by American
Depository Receipts, as set forth in the offer to purchase dated February 6,
1998 (the "Offer to Purchase"). During the past five years, neither PacifiCorp
nor PacifiCorp Acquisitions has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors), and neither has been a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or finding any
violation with respect to such laws.
Set forth under the caption "Directors and Executive Officers of
PacifiCorp Acquisitions and PacifiCorp" in Appendix IV to the Offer to Purchase,
which is included as Exhibit 7.1 hereto and incorporated herein by reference,
are the names, principal occupations and business addresses of the executive
officers and directors of PacifiCorp and PacifiCorp Acquisitions. Each executive
officer and director is a citizen of the United States of America. During the
past five years, none of the executive officers or directors has been convicted
in a criminal proceeding (excluding traffic violations or similar misdemeanors),
or been a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, federal or state securities laws or finding
any violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration
PacifiCorp Acquisitions paid 820 pence per Energy Group Share for a
total aggregate amount of (pound)377,094,047.80. These funds were obtained from
the existing cash balances of PacifiCorp Group Holdings Company, a wholly-owned
subsidiary of PacifiCorp and an indirect parent of PacifiCorp Acquisitions.
Item 4. Purpose of Transaction
The purpose of the acquisition of the Energy Group Shares was to
facilitate PacifiCorp Acquisitions' offer to purchase all outstanding Energy
Group Shares and Energy Group ADSs as described in the Offer to Purchase, which
is attached hereto as Exhibit 7.1 and incorporated herein by reference. Certain
plans or proposals of PacifiCorp Acquisitions are described under the captions
"Financing Arrangements", "Compulsory acquisition", "Certain consequences of the
Offer" and "Legal and regulatory matters" in Appendix V of the Offer to Purchase
and are incorporated herein by reference.
4 of 6
<PAGE>
Item 5. Interest in Securities of the Issuer
(a) - (c) On March 2, 1998, PacifiCorp Acquisitions acquired 45,987,079
Energy Group Shares at 820 pence per share, representing approximately 8.8
percent of the outstanding share capital of TEG. PacifiCorp Acquisitions has the
sole power to direct the vote or disposition of the Energy Group Shares subject
to the control of its ultimate parent company, PacifiCorp.
(d) Not applicable.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to
Securities of the Issuer
The information set forth under the captions "Rule 10b-13 Exemption" on
page 2 of the Offer to Purchase, "Recommendation of the Offer" in the Letter
from the Chairman of TEG contained in the Offer to Purchase as well as the
information set forth under the captions "Irrevocable undertakings", "Background
to the Offer", "Shareholdings and dealings", "Stock Exchange quotations, market
price data and principal purchases" and "Legal and regulatory matters--US
antitrust laws" in Appendix V to the Offer to Purchase is incorporated herein by
reference. Except as set forth under those captions, neither PacifiCorp nor
PacifiCorp Acquisitions, nor to the best knowledge of PacifiCorp or PacifiCorp
Acquisitions, any of the persons listed under the caption "Directors and
Executive Officers of PacifiCorp Acquisitions and PacifiCorp" in Appendix IV to
the Offer to Purchase, has any contract, arrangement, understanding or
relationship (whether or not legally enforceable) with any other person with
respect to any Energy Group Securities (including, but not limited to, any
contract, arrangement, understanding or relationship concerning the transfer or
the voting of any such securities, joint ventures, loan or option arrangements,
puts or calls, guaranties of loans, guaranties against loss, or the giving or
withholding of proxies).
Item 7. Material to be Filed as Exhibits
The following documents are filed as exhibits:
7.1 Offer to Purchase dated February 6, 1998.
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<PAGE>
Signature
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Date: March 12, 1998 PACIFICORP
By: W.E. PERESSINI
-------------------------------------
W.E. Peressini
Vice President and
Treasurer
PACIFICORP ACQUISITIONS
By: W.E. PERESSINI
-------------------------------------
W.E. Peressini
Deputy Chief Finance Officer
6 of 6
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit No. Description Page No.
- ----------- ----------- ----------
7.1 Offer to Purchase dated February 6, 1998.
Exhibit 7.1
[LOGO]
RENEWED RECOMMENDED CASH OFFER
FOR
THE ENERGY GROUP PLC
<PAGE>
PACIFICORP
RENEWED RECOMMENDED CASH OFFER
FOR
THE ENERGY GROUP PLC
765 PENCE PER ENERGY GROUP SHARE
L30.60 PER ENERGY GROUP ADS
The Offer:
- - represents:
- a premium of approximately 17 per cent. to the Closing Price of 652 pence
of an Energy Group Share on 18 December 1997, the day immediately prior
to the clearance of the Previous Offer by the President of the Board of
Trade, and
- a premium of approximately 36 per cent. to the Closing Price of 561.5
pence of an Energy Group Share on 9 June 1997, the day before the
announcement by The Energy Group that it was involved in talks with
PacifiCorp in relation to the Previous Offer
- - includes a Loan Note Alternative
IF YOU HAVE ANY QUESTIONS ON THE OFFER, PLEASE CALL THE SHAREHOLDER HELPLINES ON
0845 603 9218 (UK) OR 1-800-733-8481 EXT. 475 (US). IF YOU HAVE ANY QUESTIONS
REGARDING THE ACCEPTANCE FORM, PLEASE CALL THE UK RECEIVING AGENT ON 0181 639
2166 OR THE US DEPOSITARY ON 1-800-733-8481 EXT. 475.
<PAGE>
OFFER TO PURCHASE DATED 6 FEBRUARY 1998
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
WHEN CONSIDERING WHAT ACTION YOU SHOULD TAKE, YOU ARE RECOMMENDED IMMEDIATELY TO
SEEK YOUR OWN FINANCIAL ADVICE FROM YOUR STOCKBROKER, BANK MANAGER, SOLICITOR,
ACCOUNTANT OR OTHER INDEPENDENT FINANCIAL ADVISER AUTHORISED UNDER THE FINANCIAL
SERVICES ACT 1986.
If you have sold or otherwise transferred all your Energy Group Securities,
please send this document, together with the accompanying documents (but NOT the
Form of Acceptance if it is personalised), as soon as possible, to the purchaser
or transferee, or to the stockbroker, bank or other agent through whom the sale
or transfer was effected for onward transmission to the purchaser or transferee.
HOWEVER, SUCH DOCUMENTS SHOULD NOT BE FORWARDED OR TRANSMITTED IN OR INTO
CANADA, AUSTRALIA OR JAPAN.
Goldman Sachs International, which is regulated in the United Kingdom by The
Securities and Futures Authority Limited, is acting for PacifiCorp Acquisitions
and PacifiCorp and for no one else in connection with the Offer and will not be
responsible to anyone other than PacifiCorp Acquisitions and PacifiCorp for
providing the protections afforded to its customers or for giving advice in
relation to the Offer. Goldman Sachs International is acting through Goldman,
Sachs & Co. for the purposes of making the Offer in and into the United States.
Lazard and Morgan Stanley & Co. Limited, which are regulated in the United
Kingdom by The Securities and Futures Authority Limited, are acting for The
Energy Group and for no one else in connection with the Offer and will not be
responsible to anyone other than The Energy Group for providing the protections
afforded to their customers or for giving advice in relation to the Offer.
- --------------------------------------------------------------------------------
[LOGO]
RECOMMENDED CASH OFFER
by
GOLDMAN SACHS INTERNATIONAL
ON BEHALF OF
PACIFICORP ACQUISITIONS
A WHOLLY-OWNED SUBSIDIARY OF PACIFICORP
for
THE ENERGY GROUP PLC
- ---------------------------------------------------------
A letter of recommendation from the Chairman of The Energy Group is set out on
pages 5 to 6 of this document.
The Initial Offer Period will expire at 10.00 p.m. (London time), 5.00 p.m. (New
York City time) on 9 March 1998, unless extended. At the conclusion of the
Initial Offer Period, including any extension thereof, if all the Conditions of
the Offer have been satisfied, fulfilled or, where permitted, waived, the Offer
will be extended for a Subsequent Offer Period of at least 14 calendar days.
Holders of Energy Group Securities will have withdrawal rights during the
Initial Offer Period, including any extension thereof, but not during the
Subsequent Offer Period.
COMPLETED ACCEPTANCE FORMS SHOULD BE RETURNED AS SOON AS POSSIBLE, BUT, IN ANY
EVENT, SO AS TO BE RECEIVED BY NO LATER THAN 10.00 P.M. (LONDON TIME), 5.00 P.M.
(NEW YORK CITY TIME) ON 9 MARCH 1998. THE PROCEDURE FOR ACCEPTANCE OF THE OFFER
IS SET OUT ON PAGES 14 TO 16 OF THIS DOCUMENT AND IN THE ACCOMPANYING ACCEPTANCE
FORM.
The Offer is not being made, directly or indirectly, in or into Canada,
Australia or Japan. Accordingly, neither this document nor Acceptance Forms are
to be mailed or otherwise distributed or sent in or into Canada, Australia or
Japan.
The Loan Notes to be issued pursuant to the Offer have not been, and will not
be, registered under the United States Securities Act of 1933, as amended, or
under any relevant securities laws of any state or district of the United
States, will not be the subject of a prospectus under the securities laws of any
province of Canada and will not be registered under any relevant securities laws
of any other country. The Loan Notes are not being offered, sold or delivered,
directly or indirectly, in or into the United States, Canada, Australia or
Japan.
<PAGE>
APPLICABLE DISCLOSURE REQUIREMENTS
The Offer is made for securities of a UK company and, while the Offer is
subject to UK and US disclosure requirements, US investors should be aware that
this document has been prepared in accordance with UK format and style, which
differs from US format and style. In particular, the Appendices to this document
contain information concerning the Offer responsive to US disclosure
requirements that may be material and has not been summarised elsewhere. In
addition, the summary financial statements of The Energy Group herein have been
prepared in accordance with UK GAAP, and thus may not be comparable to financial
statements of US companies.
REDUCTION OF THE ACCEPTANCE CONDITION
The Offer is conditional, amongst other things, on valid acceptances being
received (and not, where permitted, withdrawn) by the Initial Closing Date in
respect of not less than 90 per cent. in nominal value of Energy Group
Securities to which the Offer relates, or such lesser percentage as PacifiCorp
Acquisitions may decide, provided that such Condition (the "Acceptance
Condition") shall not be satisfied unless PacifiCorp Acquisitions and its
wholly-owned subsidiaries shall have acquired or agreed to acquire, whether
pursuant to the Offer or otherwise, Energy Group Securities carrying in the
aggregate more than 50 per cent. of the voting rights then exercisable at
general meetings of The Energy Group. PacifiCorp Acquisitions expects that it
will reduce the percentage of Energy Group Securities required to satisfy the
Acceptance Condition at some time prior to all the Conditions being satisfied,
fulfilled or, where permitted, waived. At least five Business Days prior to any
such reduction, PacifiCorp Acquisitions will announce that it has reserved the
right so to reduce the Acceptance Condition. PacifiCorp Acquisitions will not
make such an announcement unless it believes there is a significant possibility
that sufficient Energy Group Securities will be tendered to permit the
Acceptance Condition to be satisfied at such reduced level. Holders of Energy
Group Securities who are not willing to accept the Offer if the Acceptance
Condition is reduced to the minimum permitted level should either not accept the
Offer until the Subsequent Offer Period or be prepared to withdraw their
acceptances promptly following an announcement by PacifiCorp Acquisitions of its
reservation of the right to reduce the Acceptance Condition.
RULE 10B-13 EXEMPTION
In accordance with normal UK practice, PacifiCorp Acquisitions or its
nominees or brokers (acting as agents for PacifiCorp Acquisitions) or another
subsidiary of PacifiCorp may make certain purchases of Energy Group Securities
outside the United States during the period in which the Offer remains open for
acceptance and affiliates of Goldman Sachs International and Morgan Stanley will
continue to act as market makers and principal traders for Energy Group Shares
on the London Stock Exchange pursuant to relief granted by the SEC staff from
Rule 10b-13 under the Exchange Act. For further details on this relief, see
paragraph 3 of Appendix V ("Stock Exchange quotations, market price data and
principal purchases") below.
OFFER IN THE UNITED STATES
The Offer is being made in the United States by Goldman Sachs International
acting through Goldman, Sachs & Co. References in this document to the Offer
being made by Goldman Sachs International should be read accordingly.
CONVERSION OF CASH CONSIDERATION INTO US DOLLARS
Holders of Energy Group Shares may receive US dollars instead of pounds
sterling on the basis described in paragraph 15(f) of the letter from Goldman
Sachs International included in this document. Holders of Energy Group ADSs
evidenced by Energy Group ADRs, unless they elect to receive pounds
2
<PAGE>
sterling, will receive US dollars on the basis described in the same paragraph.
The attention of all holders of Energy Group Securities is drawn to the
description in that paragraph of the mechanism for converting pounds sterling
into US dollars and of the exchange rate risks attached thereto.
FINANCIAL INFORMATION
The extracts from the consolidated financial statements of, and other
information relating to, PacifiCorp appearing in this document are presented in
US dollars and have been prepared in accordance with US GAAP. US GAAP differs in
certain respects from UK GAAP.
RULE 8 NOTICES
Any person who, alone or acting together with any other person(s) pursuant
to any agreement or any understanding (whether formal or informal) to acquire or
control securities of The Energy Group, owns or controls, or becomes the owner
or controller, directly or indirectly, of one per cent. or more of any class of
securities of The Energy Group is generally required under the provisions of
Rule 8 of the City Code to notify the London Stock Exchange and the Panel of
every dealing in such securities during the Initial Offer Period. Dealings by
The Energy Group or its "associates" (within the meaning of the City Code) in
any class of securities of The Energy Group during the Initial Offer Period must
also be so disclosed. Please consult your financial adviser immediately if you
believe this Rule may be applicable to you.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Letter from the Chairman of The Energy Group.............................................................. 5
Letter from Goldman Sachs International................................................................... 7
Appendix I: Conditions and Further Terms of the Offer..................................................... I-1
Part A: Conditions of the Offer....................................................................... I-1
Part B: Further Terms of the Offer.................................................................... I-7
1. Acceptance Period................................................................................. I-7
2. Announcements..................................................................................... I-8
3. Rights of withdrawal.............................................................................. I-9
4. The Loan Note Alternative......................................................................... I-10
5. Effect of elections............................................................................... I-11
6. Revisions of the Offer and/or the Loan Note Alternative........................................... I-11
7. General........................................................................................... I-12
8. Overseas shareholders............................................................................. I-13
9. Procedures for tendering Energy Group ADSs........................................................ I-15
10. Procedures for tendering Energy Group Shares...................................................... I-18
11. Forms of Acceptance............................................................................... I-21
12. Certain provisions concerning acceptances......................................................... I-25
13. Substitute Acceptance Forms....................................................................... I-26
14. Settlement........................................................................................ I-26
15. Currency of consideration......................................................................... I-26
Appendix II: Summary of the Terms of the Loan Notes....................................................... II-1
Appendix III: Financial and Other Information on the TEG Group............................................ III-1
Appendix IV: Financial and Other Information on PacifiCorp Acquisitions and PacifiCorp.................... IV-1
Appendix V: Additional Information........................................................................ V-1
1. Responsibility.................................................................................... V-1
2. Directors......................................................................................... V-1
3. Stock Exchange quotations, market price data and principal purchases.............................. V-1
4. Shareholdings and dealings........................................................................ V-3
5. Irrevocable undertakings.......................................................................... V-8
6. Service agreements of the directors of The Energy Group and related matters....................... V-8
7. Other information................................................................................. V-11
8. Material contracts................................................................................ V-12
9. Background to the Offer........................................................................... V-14
10. Financing arrangements............................................................................ V-16
11. Compulsory acquisition............................................................................ V-20
12. Certain consequences of the Offer................................................................. V-21
13. Legal and regulatory matters...................................................................... V-22
14. United Kingdom taxation........................................................................... V-25
15. United States federal income taxation............................................................. V-27
16. Fees and expenses................................................................................. V-28
17. Sources of information and bases of calculation................................................... V-29
18. Documents available for inspection................................................................ V-30
Appendix VI: Definitions.................................................................................. VI-1
</TABLE>
4
<PAGE>
LETTER FROM THE CHAIRMAN OF THE ENERGY GROUP
[LOGO]
6 February 1998
TO HOLDERS OF ENERGY GROUP SECURITIES AND, FOR INFORMATION ONLY, TO PARTICIPANTS
IN THE ENERGY GROUP SHARE SCHEMES
Dear Shareholder or ADS holder
RECOMMENDED CASH OFFER ON BEHALF OF PACIFICORP ACQUISITIONS FOR THE ENERGY
GROUP
On 13 June 1997, your board and the board of PacifiCorp announced the terms
of a recommended cash offer for The Energy Group. That offer lapsed when it was
referred to the Monopolies and Mergers Commission on 1 August 1997. The
acquisition of The Energy Group by PacifiCorp was subsequently cleared by the
President of the Board of Trade on 19 December 1997.
On 3 February 1998 your board and the board of PacifiCorp announced the
terms of a new recommended cash offer for The Energy Group to be made on behalf
of PacifiCorp Acquisitions, a wholly-owned subsidiary of PacifiCorp. This letter
sets out the background to the new Offer and the reasons why your board is
recommending all holders of Energy Group Securities to accept it. The formal
Offer, which is subject to the conditions set out in Part A of Appendix I to
this document, is contained in the letter from Goldman Sachs International on
pages 7 to 19 of this document.
1 TERMS OF THE OFFER
The Offer values the equity of The Energy Group at approximately L4,055
million (assuming the exercise in full of all outstanding options and the
vesting of all outstanding awards under the Energy Group Share Schemes). The
Offer represents a premium of approximately 17 per cent. to the Closing Price of
652 pence per Energy Group Share on 18 December 1997, the day immediately prior
to the clearance of the Previous Offer by the President of the Board of Trade,
and a premium of approximately 36 per cent. to the Closing Price of 561.5 pence
of an Energy Group Share on 9 June 1997, the day before the announcement by The
Energy Group that it was involved in talks with PacifiCorp in relation to the
Previous Offer.
The Offer is being made on the following basis:
<TABLE>
<S> <C>
FOR EACH ENERGY GROUP SHARE 765 PENCE; AND
FOR EACH ENERGY GROUP ADS L30.60
</TABLE>
As an alternative to some or all of the cash consideration receivable under
the Offer, holders of Energy Group Shares who accept the Offer (apart from US
citizens or residents and certain other overseas persons) may elect to receive
Loan Notes instead of cash on the following basis:
<TABLE>
<S> <C>
FOR EVERY L1 OF CASH CONSIDERATION L1 NOMINAL OF LOAN NOTES
</TABLE>
A summary of the tax effects for holders of Energy Group Shares resident for
tax purposes in the UK who accept the Offer is set out in paragraph 14 of
Appendix V ("United Kingdom taxation") below. A summary of the tax effects for
holders of Energy Group Securities who are citizens or residents of the US,
5
<PAGE>
US domestic corporations or otherwise taxed as United States residents is set
out in paragraph 15 of Appendix V ("United States federal income taxation")
below.
2 BACKGROUND TO AND REASONS FOR THE OFFER
As we stated at the time of the Previous Offer, the combination of The
Energy Group and PacifiCorp will create a group with the scale and scope of
operations to compete more effectively in international energy markets. The
combined entity will also benefit from the skills that we have acquired from
operating in the deregulated energy environment in the UK. Your board continues
to believe that the combination will allow The Energy Group's strategy to be
pursued within a larger group which will benefit both customers and employees of
The Energy Group.
As previously announced, your board has received approaches from each of
Nomura International plc and Texas Utilities Co. expressing an interest in
acquiring The Energy Group. Both parties have had access to management and have
been provided with certain information about the TEG Group. No offer has been
received from either party and it is uncertain whether any such offer will be
received.
In considering the renewed Offer from PacifiCorp Acquisitions, your board
compared the benefits to shareholders of realising an immediate premium on their
investment (having regard to the level at which Energy Group Securities would be
likely to trade in the absence of bid speculation) with the benefits to them of
remaining as shareholders in The Energy Group as an independent company.
Following such consideration and taking into account discussions with other
potential offerors and the advice of its financial advisers as described below,
your board unanimously agreed to recommend the Offer.
3 DIRECTORS, MANAGEMENT AND EMPLOYEES
PacifiCorp Acquisitions has given assurances to the board of The Energy
Group that the existing employment rights, including pension rights, of all
directors, management and employees of the TEG Group, will be fully safeguarded.
Your attention is also drawn to paragraph 9 of the accompanying letter from
Goldman Sachs International.
4 ACTION TO BE TAKEN TO ACCEPT THE OFFER
The procedure for acceptance of the Offer is set out on pages 14 to 16 of
this document and in the Acceptance Form. The Initial Closing Date will be 10.00
p.m. (London time), 5.00 p.m. (New York City time), on 9 March 1998, unless
extended.
5 HELPLINES FOR THE OFFER
If you have any questions on the Offer, please call the shareholder
helplines on 0845 603 9218 (UK) or 1-800-733-8481 ext. 475 (US). If you have any
questions regarding the Acceptance Form, please call the UK Receiving Agent on
0181 639 2166 or the US Depositary on 1-800-733-8481 ext. 475.
6 RECOMMENDATION OF THE OFFER
The board of The Energy Group, which has been so advised by Lazard and
Morgan Stanley, its financial advisers, considers the terms of the Offer to be
fair and reasonable. In providing advice to the board of The Energy Group,
Lazard and Morgan Stanley have taken account of the board's commercial
assessment. Accordingly, the directors of The Energy Group unanimously recommend
all holders of Energy Group Shares and Energy Group ADSs to accept the Offer, as
they have irrevocably undertaken to do in respect of their personal holdings of
96,000 Energy Group Shares and 1,550 Energy Group ADSs.
Yours faithfully
DEREK C. BONHAM
Chairman
Registered in England and Wales No. 3257256. Registered Office: 117 Piccadilly,
London W1V 9FJ
6
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs International, Peterborough Court, 133 Fleet Street,
London EC4A 2BB, England Tel: 0171-774 1000,
Telex: 94015777, Cable: GOLDSACHS LONDON
[LOGO]
- --------------------------------------------------------------------------------
6 February 1998
TO HOLDERS OF ENERGY GROUP SECURITIES AND, FOR INFORMATION ONLY, TO PARTICIPANTS
IN THE ENERGY GROUP SHARE SCHEMES
Dear Sir/Madam
RECOMMENDED CASH OFFER BY GOLDMAN SACHS INTERNATIONAL
ON BEHALF OF PACIFICORP ACQUISITIONS FOR THE ENERGY GROUP
1 INTRODUCTION
On 13 June 1997, the boards of PacifiCorp and The Energy Group announced the
terms of a recommended cash offer to be made by Goldman Sachs International on
behalf of PacifiCorp Acquisitions for all issued and to be issued Energy Group
Securities. The Previous Offer was referred to the Monopolies and Mergers
Commission on 1 August 1997. The acquisition of The Energy Group by PacifiCorp
was subsequently cleared by the President of the Board of Trade on 19 December
1997.
On 3 February 1998 the boards of PacifiCorp and The Energy Group announced
the terms of the Offer. This letter contains the formal Offer. Your attention is
drawn to the letter from the Chairman of The Energy Group, which contains the
recommendation of the directors of The Energy Group, set out on pages 5 to 6 of
this document.
The Offer and this document are subject to the applicable requirements of
both the UK City Code and US federal securities laws.
2 THE OFFER
On behalf of PacifiCorp Acquisitions, we hereby offer to purchase, upon the
terms and subject to the Conditions set out in this document and in the relevant
Acceptance Form, all outstanding Energy Group Securities, for 765 pence in cash
per Energy Group Share and L30.60 in cash per Energy Group ADS, together with
the benefit of the Loan Note Alternative referred to in paragraph 4 below and
the right to elect to receive the consideration in US dollars set out in
paragraph 15 below.
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The Offer values the equity of The Energy Group at approximately L4,055
million (assuming the exercise in full of all outstanding options and the
vesting of all outstanding awards under the Energy Group Share Schemes) and
represents a premium of approximately 17 per cent. to the Closing Price of 652
pence per Energy Group Share on 18 December 1997, the day immediately prior to
the clearance of the Previous Offer by the President of the Board of Trade and a
premium of approximately 36 per cent. to the Closing Price of 561.5 pence of an
Energy Group Share on 9 June 1997, the day before the announcement by The Energy
Group that it was involved in talks with PacifiCorp in relation to the Previous
Offer.
Energy Group Securities will be acquired under the Offer fully paid and free
from all liens, charges, equities, encumbrances and other interests and together
with all rights now and hereafter attaching thereto, including, without
limitation, the right to receive and retain all dividends, interest and other
distributions (if any) declared, made or paid on or after 3 February 1998, the
date on which the Offer was announced.
TO ACCEPT THE OFFER YOU SHOULD RETURN THE RELEVANT ACCEPTANCE FORM AS SOON
AS POSSIBLE AND, IN ANY EVENT, SO AS TO BE RECEIVED BY THE UK RECEIVING AGENT OR
THE US DEPOSITARY NO LATER THAN 10.00 P.M. (LONDON TIME), 5.00 P.M. (NEW YORK
CITY TIME) ON 9 MARCH 1998. THE PROCEDURE FOR ACCEPTANCE OF THE OFFER IS SET OUT
IN PARAGRAPH 13 ("PROCEDURE FOR ACCEPTANCE OF THE OFFER") BELOW, IN PARAGRAPHS
9, 10 AND 11 OF PART B OF APPENDIX I BELOW AND IN THE ACCOMPANYING ACCEPTANCE
FORM.
3 TERMS AND CONDITIONS OF THE OFFER
The Offer is subject to the further terms and Conditions set out in Appendix
I below. The following summary of certain of the terms and Conditions of the
Offer is subject to and qualified in its entirety by reference to Appendix I
below.
The Offer is conditional on, amongst other things, valid acceptances being
received (and not, where permitted, withdrawn) by the Initial Closing Date in
respect of not less than 90 per cent. in nominal value of Energy Group
Securities to which the Offer relates (the "90 per cent. threshold"), or such
lesser percentage as PacifiCorp Acquisitions may decide, provided that the
Acceptance Condition shall not be satisfied unless PacifiCorp Acquisitions and
its wholly-owned subsidiaries shall have acquired or agreed to acquire (in
accordance with the requirements of Notes 4 to 6 of Rule 10 of the City Code, to
which reference is made in paragraph 12(b) of Part B of Appendix I below),
whether pursuant to the Offer or otherwise, Energy Group Securities carrying in
the aggregate more than 50 per cent. of the voting rights then exercisable at
general meetings of The Energy Group. If the 90 per cent. threshold is satisfied
before the Initial Closing Date, the Acceptance Condition (subject to any
permitted reduction in the acceptance threshold) must continue to be satisfied
on the Initial Closing Date, by reference to the facts then subsisting.
PacifiCorp Acquisitions expects that it will reduce the percentage of Energy
Group Securities required to satisfy the Acceptance Condition at some time prior
to all the Conditions being satisfied, fulfilled or, where permitted, waived. At
least five Business Days prior to any reduction in the percentage of Energy
Group Securities required to satisfy the Acceptance Condition, PacifiCorp
Acquisitions will announce that it has reserved the right so to reduce the
Acceptance Condition. PacifiCorp Acquisitions will not make such an announcement
unless it believes there is a significant possibility that sufficient Energy
Group Securities will be tendered to permit the Acceptance Condition to be
satisfied at such reduced level. Holders of Energy Group Securities who are not
willing to accept the Offer if the Acceptance Condition is reduced to the
minimum permitted level should either not accept the Offer until the Subsequent
Offer Period or be prepared to withdraw their acceptances promptly following an
announcement by PacifiCorp Acquisitions of its reservation of the right to
reduce the Acceptance Condition.
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The Initial Offer Period will expire at 10.00 p.m. (London time), 5.00 p.m.
(New York City time), on 9 March 1998, unless extended. At the conclusion of the
Initial Offer Period, including any extension thereof, if all Conditions have
been satisfied, fulfilled or, where permitted, waived, the Offer will be
extended for a Subsequent Offer Period of at least 14 calendar days. Holders of
Energy Group Securities will have the right to withdraw their acceptances of the
Offer during the Initial Offer Period, but not during the Subsequent Offer
Period, except in certain limited circumstances. PacifiCorp Acquisitions
reserves the right (but will not be obliged) at any time to extend the Initial
Offer Period, provided that PacifiCorp Acquisitions may not extend the Initial
Offer Period beyond 7 April 1998 without the consent of the Panel. PacifiCorp
Acquisitions reserves the right, if appropriate, to seek the Panel's approval to
extend the final date for expiry of the Initial Offer Period to 28 April 1998,
or such later date as the Panel may agree. PacifiCorp Acquisitions may terminate
any extension of the Initial Offer Period (other than an extension required by
the City Code or the Exchange Act) prior to its scheduled expiry if all
Conditions have been satisfied, fulfilled or, where permitted, waived. In that
case, the Initial Offer Period and, consequently, withdrawal rights, except in
certain limited circumstances, will terminate immediately.
If all of the Conditions are satisfied, fulfilled or, where permitted,
waived within the time permitted, payment for tendered Energy Group Securities
will be made as provided in paragraph 15 ("Settlement") below.
If all Conditions are satisfied, fulfilled or, where permitted, waived and
PacifiCorp Acquisitions acquires or contracts to acquire, pursuant to the Offer
or otherwise, at least 90 per cent. in nominal value of Energy Group Securities
to which the Offer relates, it will be entitled to and intends to acquire the
remaining Energy Group Securities on the same terms as the Offer pursuant to and
subject to sections 428 to 430F (inclusive) of the Companies Act. See paragraph
11 of Appendix V ("Compulsory acquisition") below.
If all Conditions are satisfied, fulfilled or, where permitted, waived and
PacifiCorp acquires or contracts to acquire, pursuant to the Offer or otherwise,
Energy Group Securities giving it more than 75 per cent. of voting rights at
general meetings of The Energy Group, but PacifiCorp Acquisitions is not in a
position to effect the compulsory acquisition of all outstanding Energy Group
Securities in accordance with the sections of the Companies Act referred to
above, PacifiCorp Acquisitions intends to seek to procure an application by The
Energy Group to the London Stock Exchange for Energy Group Shares to be delisted
and an application by The Energy Group to the New York Stock Exchange for Energy
Group ADSs to be delisted. PacifiCorp Acquisitions further intends that, subject
to the London Stock Exchange delisting taking place, it will seek to procure the
transfer of Peabody's US coal operations (except Lee Ranch Coal Company) to
PacifiCorp Acquisitions' fellow subsidiary, Powercoal, and to procure the giving
of financial assistance by members of the TEG Group to PacifiCorp Acquisitions
and other members of the PacifiCorp Group, subject to compliance, where
necessary, with the "whitewash" procedures set out in sections 155 to 158 of the
Companies Act. For further details, see paragraph 10 of Appendix V ("Financing
arrangements") below.
4 THE LOAN NOTE ALTERNATIVE
A Loan Note Alternative is available to holders of Energy Group Shares
(other than persons who are citizens or residents of the United States and
certain other overseas shareholders) who validly accept the Offer, on the basis
of L1 nominal of Loan Notes for every L1 of cash that they would otherwise
receive under the Offer, subject to aggregate valid elections being received on
or before the date on which all the Conditions are satisfied, fulfilled or
waived, as applicable, for in excess of L1 million nominal value of Loan Notes.
If insufficient elections are received, holders of Energy Group Shares who
validly accept the Offer and elect for the Loan Note Alternative will instead
receive cash in accordance with the terms of the Offer. Subject as aforesaid,
the Loan Note Alternative will remain open as long as the Offer is open for
acceptance. Where an Energy Group shareholder elects or is deemed to have
elected for the Loan Note Alternative in respect of all the Energy Group Shares
for which he has accepted the Offer, fractional
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entitlements to Loan Notes will be disregarded and not paid. The Loan Notes will
bear interest at a rate per annum which is 0.5 per cent below LIBOR.
Goldman Sachs International has advised that, based on market conditions on
2 February 1998 (the latest practicable date prior to the publication of this
document), in its opinion, if the Loan Notes had then been in issue, the value
of each L1 nominal of Loan Notes would have been approximately 98 pence.
In considering the Loan Note Alternative, holders of Energy Group Shares
should note that the obligations of PacifiCorp Acquisitions are not guaranteed
or secured.
A summary of the terms of the Loan Notes is set out in Appendix II below.
5 REGULATION
The Offer is subject to certain regulatory consents and confirmations being
obtained.
Prior to the referral of the Previous Offer to the Monopolies and Mergers
Commission, PacifiCorp agreed to give certain assurances in respect of Eastern
Electricity plc to the DGES and the Monopolies and Mergers Commission, in
clearing the Previous Offer, assumed that these would still apply if PacifiCorp
renewed the Previous Offer. PacifiCorp has confirmed that these assurances will
be formally given by PacifiCorp to OFFER to take effect from completion of the
Acquisition.
The Offer is subject to the US HSR Act. In the course of complying with such
Act in connection with the Previous Offer, the US Federal Trade Commission (the
"FTC") requested additional information from PacifiCorp. Following receipt of
such information, the FTC staff requested that PacifiCorp and The Energy Group
take certain actions. PacifiCorp and The Energy Group have agreed with the FTC
staff on the form of a consent order by the FTC that would, among other things,
require divestiture of a subsidiary of the Energy Group that owns two mines in
Arizona. The consent order is awaiting acceptance by the FTC. If the consent
order is accepted by the FTC, it will be subjected to a 60-day public comment
period after which the consent order will be served upon the parties unless the
FTC determines otherwise. The consent order will become final upon service. The
US HSR Act waiting period will expire upon the earlier of the acceptance of the
consent order for public comment by the FTC and 11.59 pm on 19 February 1998.
PacifiCorp has agreed that it will not invoke either Condition (d) or (e) even
if the FTC amends the terms of the form of the consent order agreed with the FTC
staff.
Further details of regulatory issues applicable to the Offer are set out in
paragraph 13 of Appendix V ("Legal and regulatory matters") below.
6 INFORMATION ON THE PACIFICORP GROUP
PacifiCorp, one of the lowest-cost electricity producers in the United
States, is a multinational energy company based in Portland, Oregon. PacifiCorp
serves approximately 1.4 million retail customers in Oregon, Washington,
California, Montana, Idaho, Utah and Wyoming. PacifiCorp is the largest
investor-owned bulk power marketer in the western United States and is an active
electricity and gas marketer in the eastern United States.
PacifiCorp operates one of the largest open-access transmission systems in
the United States with over 150 access points across 15,000 circuit miles and,
together with its affiliates, has generating capacity of over 10,000 megawatts.
It is the twelfth largest coal producer in the United States, producing 22.6
million tonnes in 1996. In 1996, the average electricity production costs at its
coal-fired plants were 25 per cent. lower than the US national average.
PacifiCorp also has substantial operations in Australia through Powercor,
the largest electricity distribution business in Victoria and its 19.9 per cent.
partnership interest in the Hazelwood power generating station and associated
mine.
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PacifiCorp is listed on the New York and Pacific Stock Exchanges under the
symbol "PPW". For the year ended 31 December 1997, PacifiCorp reported earnings
on common stock of $451 million, or $1.52 per share, excluding asset sale gains
and a series of special charges and other adjustments recorded in 1997. As at
the close of trading on the New York Stock Exchange on 30 January 1998,
PacifiCorp had a market capitalization of approximately $6.9 billion.
PacifiCorp Acquisitions, a wholly-owned subsidiary of PacifiCorp, is an
unlimited company registered in England and Wales incorporated on 9 June 1997
for the purpose of making the Previous Offer.
Further information on the PacifiCorp Group is set out in Appendix IV below.
7 INFORMATION ON THE ENERGY GROUP
The Energy Group is a diversified international energy group which includes
Peabody, the world's largest private producer of coal, and Eastern, one of the
leading integrated electricity and gas groups in the United Kingdom.
Peabody, the largest producer of coal in the United States, operates 25
underground and surface mines in the United States and three surface mines in
Australia:
- As at 31 March 1997, Peabody owned or controlled 9.5 billion tons of
proven and probable coal reserves;
- In the six months ended 31 March 1997, Peabody sold 81.4 million tons of
coal worldwide and had an estimated 14.4 per cent. of the US market; and
- Peabody Australia, one of the 10 largest coal producers in Australia, has
interests in four surface mines in New South Wales, three of which are
currently in operation. Peabody's equity share of the coal sales of these
mines amounted to 3.5 million tons in the six months ended 31 March 1997
and its equity share of the proven and probable reserves associated with
these mines as at 31 March 1997 amounted to 466 million tons.
Through Eastern, The Energy Group is one of the leading integrated
electricity and gas groups in the United Kingdom and is involved in a wide range
of operations:
- Eastern Generation, the fourth largest generator of electricity in Great
Britain, currently owns, operates or has an interest in eight power
stations, representing approximately 10 per cent. of the United Kingdom's
total registered generating capacity as at 31 March 1997.
- Eastern Power & Energy Trading manages for the TEG Group the price and
volume risks associated with the generation, wholesaling and sale to end
users of electricity. These exposures are managed by trading its contract
portfolio and by bidding Eastern's generation output into the Electricity
Pool. It also has small equity interests in three natural gas-producing
fields in the North Sea.
- Eastern Natural Gas is one of the largest suppliers of natural gas in the
United Kingdom after Centrica plc.
- Eastern Electricity is the largest supplier and distributor of electricity
in England and Wales, with over three million customers and an authorised
area covering approximately 20,300 sq. km. in the east of England and
parts of north London.
The TEG Group also includes Citizens Power, one of the leading US power
marketing firms, which was acquired by The Energy Group in May 1997. Its
headquarters are in Boston and it has field offices in Milwaukee, Denver and
Toronto. Certain proposals relating to Citizens Power, to take effect upon
completion of the Offer, are described in paragraph 13(d) of Appendix V below.
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The Energy Group's results for the nine months ended 31 December 1997 were
announced on 3 February 1998 and are set out in Appendix III to this document,
together with further financial information on The Energy Group. On a pro forma
basis for the year ended 31 March 1997, The Energy Group reported consolidated
turnover of L4,460 million and consolidated net income of L286 million.
8 FINANCING
PacifiCorp Acquisitions has arranged appropriate financing in connection
with the Offer. Other wholly-owned subsidiaries of PacifiCorp Group Holdings
Company have arranged their own funding to assist in PacifiCorp Acquisitions'
financing of the Offer. Details of the financing arrangements for the Offer are
set out in paragraph 10 of Appendix V ("Financing arrangements") below.
9 EMPLOYEE MATTERS AND SHARE SCHEMES
(a) Directors, management and employees
PacifiCorp Acquisitions has given assurances to the board of The Energy
Group that the existing employment rights, including pension rights, of all
directors, management and employees of the TEG Group, will be fully safeguarded.
PacifiCorp looks forward to working with employees of the TEG Group.
PacifiCorp has stated that, subject to the Offer becoming or being declared
unconditional in all respects, it intends to invite Mr Derek Bonham and Mr John
Devaney to join the board of directors of PacifiCorp. Mr Frederick Buckman will
remain as a director and President and Chief Executive Officer of the Combined
Group.
In addition, PacifiCorp intends, subject to approval of the PacifiCorp board
of directors, to invite Mr Bonham, Mr Devaney, Mr Eric Anstee and Mr Irl
Engelhardt to join PacifiCorp senior executives, Mr Buckman, Mr Verl Topham, Mr
Dennis Steinberg and Mr Richard O'Brien to form part of a management committee
to co-ordinate the activities of the Combined Group and, except in the case of
Mr Bonham, to take up certain executive positions within the Combined Group.
Although these intentions have been discussed in general terms, no specific
terms or conditions have yet been agreed. None of Messrs Bonham, Devaney, Anstee
or Engelhardt will enter into any further discussions with PacifiCorp (or any
person acting in concert with it) concerning their personal positions unless and
until, at the earliest, the Offer becomes or is declared unconditional in all
respects.
(b) The Energy Group Share Schemes
The Offer will extend to any fully paid Energy Group Shares which are
unconditionally allotted or issued while the Offer is open for acceptance,
including those unconditionally allotted or issued pursuant to the exercise of
options or vesting of awards under the Energy Group Share Schemes.
Appropriate proposals will be made to participants in the Energy Group Share
Schemes in due course. In relation to the Energy Group Sharesave Scheme, it is
anticipated that, as an additional alternative to the rights provided under the
rules of that scheme, participants will be offered an opportunity to surrender
their existing options in consideration for a cash sum, calculated by reference
to the difference between 765 pence and the exercise price of their options
multiplied by the number of Energy Group Shares that they could have acquired
with their total savings contributions (together with any interest payable
thereon) under the Energy Group Sharesave Scheme up to the date the Offer
becomes or is declared unconditional in all respects, plus a further six months'
savings contributions.
10 UK TAXATION
PacifiCorp Acquisitions has been advised that, under UK legislation and
Inland Revenue practice current at the date of this document, the taxation
treatment of acceptance of the Offer and the Loan Note
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Alternative for holders of Energy Group Shares who are the beneficial owners of
their Energy Group Shares, hold their Energy Group Shares as an investment
(otherwise than under a personal equity plan), and are resident or ordinarily
resident in the UK for tax purposes will, in summary, be as follows:
(A) TAXATION OF CHARGEABLE GAINS
Liability to UK taxation on chargeable gains ("CGT") will depend on the
particular circumstances of holders of Energy Group Shares and on the form of
consideration received.
CASH
To the extent that a holder of Energy Group Shares receives cash under the
Offer, this will constitute a disposal, or part disposal, of his Energy Group
Shares for CGT purposes. Such a disposal, or part disposal, may, depending on
that shareholder's individual circumstances, give rise to a liability to CGT.
LOAN NOTES
A holder of Energy Group Shares who, together with persons connected with
him, holds not more than five per cent. of the issued share capital of The
Energy Group, will not be treated as making a disposal to the extent that he
elects for and receives Loan Notes by way of consideration. In the case of a
holder of Energy Group Shares who, together with persons connected with him,
holds more than five per cent. of the issued share capital of The Energy Group,
this treatment is subject to the Inland Revenue granting clearance under section
138 of the Taxation of Chargeable Gains Act 1992. Although such clearance has
been applied for, the Inland Revenue has not yet formally replied. In the case
of shareholders within the charge to UK corporation tax, indexation relief will
not accrue on the Loan Notes.
A subsequent disposal of Loan Notes (including their redemption or
repayment) may give rise to a chargeable event for CGT purposes.
(B) TAXATION OF INTEREST
Payments of interest on the Loan Notes will be made subject to the deduction
of UK income tax at the lower rate (currently 20 per cent.). Payments of
interest may also be subject to US federal income tax in certain circumstances.
FURTHER INFORMATION ON UK TAX LAW AND PRACTICE CURRENT AT THE DATE OF THIS
DOCUMENT IS CONTAINED IN PARAGRAPH 14 OF APPENDIX V ("UNITED KINGDOM TAXATION")
BELOW. FURTHER INFORMATION ON US FEDERAL INCOME TAX CURRENT AT THE DATE OF THIS
DOCUMENT IS CONTAINED IN PARAGRAPH 15 OF APPENDIX V ("UNITED STATES FEDERAL
INCOME TAXATION") BELOW.
ANY HOLDER OF ENERGY GROUP SECURITIES WHO IS IN ANY DOUBT ABOUT HIS OWN TAX
POSITION OR WHO IS SUBJECT TO TAXATION IN ANY JURISDICTION OTHER THAN THE UK OR
THE US IS STRONGLY RECOMMENDED TO CONSULT HIS INDEPENDENT PROFESSIONAL ADVISER
IMMEDIATELY.
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APPENDIX I
CONDITIONS AND FURTHER TERMS OF THE OFFER
PART A
CONDITIONS OF THE OFFER
The Offer, which is being made by Goldman Sachs International on behalf of
PacifiCorp Acquisitions, will comply with the rules and regulations of the City
Code and with US federal securities laws (except to the extent that exemptive
relief has been granted by the SEC) and the rules and regulations made
thereunder, is governed by English law and is subject to the jurisdiction of the
courts of England and the following Conditions:
(a)
(i) valid acceptances being received (and not, where permitted, withdrawn)
by not later than 10.00 p.m. (London time), 5.00 p.m. (New York City
time) on 9 March 1998 (or such later time(s) and/ or date(s) as
PacifiCorp Acquisitions may, subject to the rules and regulations of the
City Code, decide) in respect of not less than 90 per cent. in nominal
value of Energy Group Securities to which the Offer relates (the "90 per
cent. threshold"), or such lesser percentage as PacifiCorp Acquisitions
may decide, provided that this Condition shall not be satisfied unless
PacifiCorp Acquisitions and its wholly-owned subsidiaries shall have
acquired or agreed to acquire, whether pursuant to the Offer or
otherwise, Energy Group Securities carrying in aggregate more than 50 per
cent. of the voting rights then exercisable at general meetings of The
Energy Group. For the purposes of this Condition: (i) any Energy Group
Securities which have been unconditionally allotted shall be deemed to
carry the voting rights they will carry upon being entered in the
register of members of The Energy Group; (ii) the expression "Energy
Group Securities to which the Offer relates" shall be construed in
accordance with sections 428 to 430F of the Companies Act; and (iii)
valid acceptances shall be treated as having been received in respect of
any Energy Group Shares which PacifiCorp Acquisitions shall, pursuant to
section 429(8) of the Companies Act, be treated as having acquired or
contracted to acquire by virtue of acceptances of the Offer; and
(ii) if the 90 per cent. threshold shall have been satisfied before the
Offer becomes or is declared unconditional in all respects, Condition
(a)(i) remaining satisfied as at the time when the Offer becomes or is
declared unconditional in all other respects, by reference to the facts
then subsisting;
(b) PacifiCorp Acquisitions being reasonably satisfied that the acquisition of
Energy Group Securities pursuant to the Offer will not subject PacifiCorp
Acquisitions to regulation, or PacifiCorp Acquisitions will be exempt from
regulation, under the US Public Utility Holding Company Act of 1935;
(c) FERC shall have issued an order on terms reasonably acceptable to PacifiCorp
Acquisitions approving the sale of the FERC-jurisdictional assets of
Citizens Power and Peabody Investments, Inc. to a third party;
(d) no relevant authority having intervened in a way which would be likely, or
having failed to institute or implement any action the failure of which
would be likely (to an extent which is, in the case of (i) to (iv) below,
material in the context of the PacifiCorp Acquisitions Group or of the TEG
Group or of the financing of the Offer):
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(i) to require, prevent or delay the divestiture or materially alter the
terms of any proposed divestiture by PacifiCorp Acquisitions or The
Energy Group or any member of the PacifiCorp Acquisitions Group or the
wider TEG Group of all or any portion of their respective businesses,
assets or properties or impose any limitation on the ability of any of
them to conduct any of their respective businesses or to own any of their
respective assets or property or any part thereof;
(ii) to impose any limitation on the ability of any member of the PacifiCorp
Acquisitions Group or the wider TEG Group to acquire, or to hold or to
exercise effectively, directly or indirectly, any rights of ownership in
respect of shares in, or management control over, any member of the wider
TEG Group;
(iii) otherwise adversely to affect the financial or trading position of any
member of the PacifiCorp Acquisitions Group or the wider TEG Group;
(iv) to make the Offer or its implementation or the acquisition or the
proposed acquisition of any Energy Group Shares or Energy Group ADSs or
control of The Energy Group by any member of the PacifiCorp Acquisitions
Group void, illegal and/or unenforceable, or otherwise, directly or
indirectly, to restrain, restrict, prohibit, delay or otherwise interfere
with the implementation thereof, or impose additional conditions or
obligations with respect thereto, or otherwise challenge or hinder any
thereof;
(v) to result in a delay in the ability of any member of the PacifiCorp
Acquisitions Group, or render any such person unable, to acquire some or
all of the Energy Group Shares or Energy Group ADSs or require or prevent
or materially delay divestiture by any such person of any such
securities; or
(vi) to require any member of the PacifiCorp Acquisitions Group or the wider
TEG Group to offer to acquire any shares or other securities (or the
equivalent) in any member of the wider TEG Group owned by any third
party;
and all applicable waiting and other time periods during which any relevant
authority could, in respect of the Offer or the acquisition or proposed
acquisition of any Energy Group Shares or Energy Group ADSs or control of
The Energy Group by PacifiCorp Acquisitions, intervene having expired,
lapsed or terminated;
(e) all necessary filings having been made, all regulatory and statutory
obligations having been complied with, all appropriate waiting periods under
any applicable legislation or regulations of any jurisdiction having
expired, lapsed or terminated in each case in respect of the Offer or the
acquisition of any shares or other securities in, or control of, The Energy
Group by any member of the PacifiCorp Acquisitions Group and all
authorisations and determinations necessary or appropriate in any
jurisdiction for or in respect of the Offer (including, without limitation,
its implementation and financing) or proposed acquisition of any shares or
other securities in, or control of, The Energy Group by any member of the
PacifiCorp Acquisitions Group or in relation to the affairs of any member of
the PacifiCorp Acquisitions Group or the wider TEG Group having been
obtained in terms and in a form reasonably satisfactory to PacifiCorp
Acquisitions from all relevant authorities or (without prejudice to the
generality of the foregoing) from any persons or bodies with whom any member
of the PacifiCorp Acquisitions Group or the wider TEG Group, as the case may
be, has entered into contractual arrangements and such authorisations and
determinations together with all material authorisations and determinations
necessary or appropriate for any member of the PacifiCorp Acquisitions Group
or the wider TEG Group to carry on a business which is material in the
context of the PacifiCorp Acquisitions Group or the TEG Group as a whole or
of the financing of the Offer remaining in full force and effect and all
filings necessary for such purpose having been made and there being no
notice or intimation of any intention to revoke or not to renew any of the
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same and all necessary statutory or regulatory obligations in all relevant
jurisdictions having been complied with;
(f) PacifiCorp Acquisitions not having discovered (other than by virtue of the
same having been disclosed to it prior to 3 February 1998 by any member of
the TEG Group) any provision of any agreement, arrangement, licence or other
instrument to which any member of the wider TEG Group is a party or by or to
which any member of the wider TEG Group or any part of its assets may be
bound, entitled or subject which would be likely, as a result of the Offer,
the proposed acquisition by PacifiCorp Acquisitions of any shares in, or
change in the control or management of, The Energy Group or otherwise, to
result in (to an extent which is material in the context of the PacifiCorp
Acquisitions Group or the wider TEG Group as a whole or of the financing of
the Offer):
(i) any moneys borrowed by or any other indebtedness, actual or contingent,
of any member of the wider TEG Group being or becoming repayable or
capable of being declared repayable immediately or prior to its stated
maturity, or the ability of any such member to borrow moneys or incur any
indebtedness being withdrawn or inhibited;
(ii) any such agreement, arrangement, licence or instrument being terminated
or adversely modified or any obligation or liability arising or any
action being taken or arising thereunder;
(iii) the rights, liabilities, obligations or interests of any member of the
wider TEG Group under any such arrangement, agreement, licence or
instrument or the interests or business of any such member in or with any
other person, firm, company or body (or any arrangements relating to any
such interests or business) being terminated or adversely modified or
affected;
(iv) any assets or interests of any such member being or becoming liable to
be disposed of or charged, or any right arising under which any such
asset or interest is required or is likely to be required to be disposed
of or charged, in each case other than in the ordinary course of
business;
(v) the creation of any mortgage, charge or other security interest over the
whole or any part of the business, property or assets of any member of
the wider TEG Group or any such security interest, whenever arising or
having arisen, becoming enforceable;
(vi) the creation of liabilities for any member of the wider TEG Group other
than in the ordinary course of business; or
(vii) the financial or trading position of any member of the wider TEG Group
being prejudiced or adversely affected;
(g) PacifiCorp Acquisitions not having discovered, save as publicly announced in
accordance with the Listing Rules prior to 3 February 1998 or as otherwise
disclosed to it prior to that date by any member of the TEG Group, that any
member of the wider TEG Group has, since 30 September 1997 to an extent
which is material in the context of the TEG Group as a whole or of the
financing of the Offer:
(i) save to any member of the TEG Group and, save for the issue of Energy
Group Securities on the exercise of options granted under any of the
Energy Group Share Schemes prior to 3 February 1998, issued or agreed to
issue or authorised or proposed the issue of additional shares of any
class, or of securities convertible into, or rights, warrants or options
to subscribe for or acquire, any such shares or convertible securities or
redeemed, purchased or reduced any part of its share capital;
(ii) recommended, declared, paid or made or proposed to recommend, declare,
pay or make any bonus, dividend or other distribution in respect of the
share capital of The Energy Group;
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(iii) merged with any body corporate or acquired or disposed of or
transferred, mortgaged or charged or created any security interest over
any assets or any right, title or interest in any assets (including
shares and trade investments) or authorised or proposed or announced any
intention to propose a merger, demerger, acquisition, disposal, transfer,
mortgage, charge or security interest (in each case, other than in the
ordinary course of business);
(iv) made or authorised or proposed or announced an intention to propose any
change in its share or loan capital save for options granted under any of
the Energy Group Share Schemes prior to 3 February 1998 and for any
Energy Group Securities allotted upon exercise of such options;
(v) issued, authorised or proposed or announced an intention to propose the
issue of any debentures or (save in the ordinary course of business)
incurred or increased any indebtedness or contingent liability;
(vi) otherwise than in the ordinary course of business, entered into any
contract, reconstruction, amalgamation, commitment or other transaction
or arrangement or (save for changes in remuneration notified to
PacifiCorp Acquisitions prior to 3 February 1998) changed the terms of
any contract with any director of The Energy Group;
(vii) save in the ordinary course of business, entered into or varied any
contract, transaction or commitment (whether in respect of capital
expenditure or otherwise) which is of a long-term, onerous or unusual
nature or magnitude or which involves or could involve an obligation of
such a nature or magnitude;
(viii) waived or compromised any claim otherwise than in the ordinary course
of business;
(ix) taken any corporate action or had any order made for its winding-up,
dissolution or reorganisation or for the appointment of a receiver,
administrator, administrative receiver, trustee or similar officer of all
or any of its assets or revenues; or
(x) entered into any contract, commitment, agreement or arrangement or
passed any resolution with respect to, or announced an intention to, or
to propose to effect, any of the transactions, matters or events referred
to in this Condition;
(h) since 30 September 1997, save as publicly announced in accordance with the
Listing Rules prior to 3 February 1998 or as otherwise disclosed to
PacifiCorp Acquisitions prior to that date by any member of the TEG Group,
none of the following having occurred to an extent which is material in the
context of the wider TEG Group as a whole or of the financing of the Offer:
(i) adverse change or deterioration in the business, assets, financial or
trading position of any member of the wider TEG Group;
(ii) litigation or arbitration proceedings, prosecution or other legal
proceedings having been instituted or threatened in writing by or against
or remaining outstanding against any member of the wider TEG Group or to
which any member of the wider TEG Group is a party (whether as plaintiff,
defendant or otherwise) and any investigation by any relevant authority
against, or in respect of any member of the wider TEG Group having been
threatened in writing, announced or instituted or remaining outstanding
by, against or in respect of any member of the wider TEG Group; and
(iii) a contingent or other liability of any member of the wider TEG Group
having arisen which would be likely adversely to affect any member of the
wider TEG Group;
(i) PacifiCorp Acquisitions not having discovered:
(i) that any financial, business or other information which has been
publicly disclosed at any time by or on behalf of any member of the wider
TEG Group is materially misleading, contains a
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material misrepresentation of fact or omits to state a fact necessary to
make the information contained therein not misleading and which in any
such case is material in the context of the wider TEG Group taken as a
whole or of the financing of the Offer; or
(ii) that any member of the wider TEG Group was, at the date of the Energy
Group Listing Particulars, or has, outside the ordinary course of
business since that date, become subject to any liability (contingent or
otherwise) which is not disclosed or referred to in the Energy Group
Listing Particulars and which is material in the context of the wider TEG
Group taken as a whole or of the financing of the Offer; and
(j) save as publicly announced in accordance with the Listing Rules prior to 3
February 1998 or as otherwise disclosed to it prior to that date by any
member of the TEG Group, PacifiCorp Acquisitions not having discovered:
(i) that any past or present member of the wider TEG Group has not complied
with all applicable legislation or regulations of any jurisdiction with
regard to the disposal, discharge, spillage, leak or emission of any
waste or hazardous substance or any substance likely to impair the
environment or harm human health, which non-compliance or any other
disposal, discharge, spillage, leak or emission which has occurred would
be likely to give rise to any liability (whether actual or contingent) on
the part of any member of the wider TEG Group and which is material in
the context of the wider TEG Group taken as a whole or of the financing
of the Offer; or
(ii) that there is, or is likely to be, any liability (whether actual or
contingent) to make good, repair, reclaim, remediate, reinstate or clean
up property now or previously owned, occupied or made use of by any past
or present member of the wider TEG Group under any legislation,
regulation, notice, circular or order of any relevant authority relating
to the protection of or enhancement of the environment and which is
material in the context of the wider TEG Group taken as a whole or of the
financing of the Offer.
For the purposes of these Conditions: (a) "relevant authority" means any
government, government department or governmental, quasi-governmental,
supranational, statutory or regulatory body, court, trade agency, professional
association or institution or environmental body in any jurisdiction; (b) a
relevant authority shall be regarded as having "intervened" if it has
instituted, implemented or threatened to take any action, proceedings, suit,
investigation or enquiry or reference, or made, enacted or proposed any statute,
regulation, decision or order and "intervene" shall be construed accordingly;
(c) "authorisations" means authorisations, orders, grants, recognitions,
certifications, confirmations, consents, licences, clearances, permissions and
approvals; (d) the "wider TEG Group" means The Energy Group and its subsidiary
undertakings, associated undertakings and any other undertakings in which The
Energy Group and such undertakings (aggregating their interests) have a
substantial interest; and (e) the "PacifiCorp Acquisitions Group" means
PacifiCorp Group Holdings Company and its subsidiary undertakings, associated
undertakings and any other undertaking in which PacifiCorp Group Holdings
Company and such undertakings (aggregating their interests) have a substantial
interest and, for these purposes, "subsidiary undertaking", "associated
undertaking", "holding company" and "undertaking" have the meanings given by the
Companies Act (but for this purpose ignoring paragraph 20(1)(b) of Schedule 4A
of the Companies Act) and "substantial interest" means a direct or indirect
interest in 20 per cent. or more of the equity capital of an undertaking.
PacifiCorp Acquisitions will not invoke either of Conditions (d) or (e) in
respect of:
(a) the DGES seeking or indicating that it is his intention to seek:
(i) modifications to any of Eastern's licences under the Electricity Act
1989; or
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(ii) undertakings or assurances from any member of the PacifiCorp
Acquisitions Group or the TEG Group,
in either case provided that such modifications, undertakings or assurances
substantially reflect the assurances proposed by the DGES to PacifiCorp
Acquisitions in connection with the referral of the Previous Offer to the
Monopolies and Mergers Commission (as the same are described in the
Monopolies and Mergers Commission Report relating to the Previous Offer
published on 19 December 1997) or are otherwise reasonably satisfactory to
PacifiCorp Acquisitions; or
(b) any action taken or order made by the FTC or the failure to obtain any
approval or order from the FTC.
PacifiCorp Acquisitions reserves the right to waive all or any of the above
Conditions, in whole or in part, except Condition (a). Conditions (b) to (j)
inclusive, if not, where applicable, waived, must be fulfilled or satisfied by
the Initial Closing Date. Subject thereto, if Condition (a)(i) is satisfied
prior to the Initial Closing Date, Conditions (b) to (j) inclusive if not, where
applicable, waived, must be fulfilled or satisfied, (i) if Condition (a)(i) is
satisfied at a level below the 90 per cent. threshold described in Condition
(a)(i), by the date on which Condition (a)(i) is so satisfied, or (ii) if
Condition (a)(i) is satisfied at a level at or above such 90 per cent.
threshold, by the end of the twenty-first day (or such later day as the Panel
may agree) after whichever is the later of the time of satisfaction of Condition
(a)(i) and 9 March 1998, but, subject thereto, PacifiCorp Acquisitions shall be
under no obligation to waive or treat as satisfied any Condition by a date
earlier than the latest date for the satisfaction thereof, notwithstanding that
the other Conditions may at such earlier date have been waived or fulfilled and
that there are at such earlier date no circumstances indicating that any of such
Conditions may not be capable of fulfilment.
If PacifiCorp Acquisitions is required by the Panel to make an offer for
Energy Group Securities under the provisions of Rule 9 of the City Code,
PacifiCorp Acquisitions may make such alterations to the above Conditions,
including Condition (a), as are necessary to comply with the provisions of Rule
9.
The Offer will lapse if the Acquisition is referred to the Monopolies and
Mergers Commission before the Initial Closing Date.
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PART B
FURTHER TERMS OF THE OFFER
The following further terms apply, where the context permits, to the Offer.
1 ACCEPTANCE PERIOD
(a) The Offer will initially be open until 10.00 p.m. (London time), 5.00 p.m.
(New York City time) on 9 March 1998. PacifiCorp Acquisitions expressly
reserves the right (but will not be obliged) at any time or from time to
time to extend the Offer after the Initial Closing Date and, in such event,
will make a public announcement of such extension in the manner described in
paragraph 2 below and give oral or written notice of such extension to the
UK Receiving Agent and the US Depositary. PacifiCorp Acquisitions may
terminate any such extension (other than an extension required by the City
Code or US federal securities laws and the rules and regulations thereunder)
prior to its scheduled expiry if all Conditions have been satisfied or,
where permitted, waived. If all Conditions have not been satisfied or, where
permitted, waived by PacifiCorp Acquisitions by 10.00 p.m. (London time),
5.00 p.m. (New York City time) on the Initial Closing Date, PacifiCorp
Acquisitions currently intends to extend the Offer until such time as all
Conditions have been satisfied or, where permitted, waived. There can be no
assurance, however, that PacifiCorp Acquisitions will, in such
circumstances, extend the Offer and, if no such extension is made, the Offer
will lapse on the Initial Closing Date and no Energy Group Securities will
be purchased pursuant to the Offer.
(b) Although no revision is envisaged, if the Offer is revised, the Initial
Offer Period will be extended, if necessary, for a period of at least 14
calendar days from the date of posting of the revised Offer to holders of
Energy Group Securities. Except with the consent of the Panel, no revision
of the Offer may be made after 24 March 1998.
(c) The Initial Offer Period cannot (except with the consent of the Panel) be
extended beyond midnight (London time), 7.00 p.m. (New York City time) on 7
April 1998 (or any earlier time and/or date beyond which PacifiCorp
Acquisitions has stated that the Offer will not be extended and in respect
of which it has not withdrawn that statement). If all Conditions are not
satisfied or, where permitted, waived at such time (taking account of any
prescribed extension of the Initial Offer Period), the Offer will lapse in
the absence of a competing bid and/or unless the Panel agrees otherwise. If
the Offer lapses for any reason, the Offer shall cease to be capable of
further acceptance and PacifiCorp Acquisitions and holders of Energy Group
Securities shall cease to be bound by prior acceptances. PacifiCorp
Acquisitions reserves the right, if appropriate, to seek the Panel's
approval to extend the final date for expiry of the Initial Offer Period to
28 April 1998, or such later date as the Panel may agree. Except with the
consent of the Panel, PacifiCorp Acquisitions may not, for the purposes of
determining whether the Acceptance Condition has been satisfied, take into
account acceptances or purchases of Energy Group Securities made after 1.00
p.m. (London time), 8.00 a.m. (New York City time) on 7 April 1998 (or any
other time or date beyond which PacifiCorp Acquisitions has stated that the
Offer will not be extended and in respect of which it has not withdrawn that
statement) or such later time and/or date as PacifiCorp Acquisitions, with
the permission of the Panel, may determine.
(d) If all Conditions are satisfied, fulfilled or, where applicable, waived and
the Initial Offer Period expires, the Offer will remain open for acceptance
for the Subsequent Offer Period of not less than 14 calendar days from the
expiry of the Initial Offer Period. If it is stated that the Offer will
remain open until further notice, then not less than 14 calendar days'
notice will be given prior to the closing of the Subsequent Offer Period.
(e) If a competitive situation arises after a no extension and/or a no increase
statement has been made by or on behalf of PacifiCorp Acquisitions in
relation to the Offer, PacifiCorp Acquisitions may, if it has
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specifically reserved the right to do so at the same time as such statement
is made (or otherwise with the consent of the Panel), withdraw such
statement and be free to extend the Offer if it announces such withdrawal
within four Business Days after the announcement of the competing offer and
gives notice to the holders of Energy Group Securities to that effect in
writing or (in the case of holders of Energy Group Securities with
registered addresses outside the United Kingdom or the United States or whom
PacifiCorp Acquisitions knows to be nominees, trustees or custodians holding
Energy Group Securities for such persons) by announcement in the United
Kingdom and in the United States at the earliest opportunity. PacifiCorp
Acquisitions may choose not to be bound by the terms of a no extension
and/or a no increase statement if it would otherwise prevent the posting of
an increased or improved Offer, (i) if it has reserved the right to do so,
and the increased or improved Offer is recommended for acceptance by the
board of directors of Energy Group or (ii) with the consent of the Panel.
(f) For the purposes of determining whether the Acceptance Condition has been
satisfied, PacifiCorp Acquisitions will not be bound (unless otherwise
required by the Panel) to take into account any Energy Group Securities
which have been issued or unconditionally allotted, or which arise as the
result of the exercise of conversion rights, before that determination takes
place, unless written notice containing relevant details of the allotment,
issue or conversion has been received from The Energy Group or its agents
before that time by PacifiCorp Acquisitions or IRG plc or Continental Stock
Transfer & Trust Company on behalf of PacifiCorp Acquisitions at one of the
addresses specified at the end of this document. Notification by telex or
facsimile or other electronic transmission will not be sufficient.
(g) In accordance with an SEC exemptive order received by PacifiCorp
Acquisitions, at least five Business Days prior to any reduction in the
percentage of Energy Group Securities required to satisfy the Acceptance
Condition, PacifiCorp Acquisitions will announce that it has reserved the
right so to reduce the Acceptance Condition. PacifiCorp Acquisitions will
not make such an announcement unless PacifiCorp Acquisitions believes there
is a significant possibility that sufficient Energy Group Securities will be
tendered to permit the Acceptance Condition to be satisfied at such reduced
level. Holders of Energy Group Securities who are not willing to accept the
Offer if the Acceptance Condition is reduced to the minimum permitted level
should either not accept the Offer until the Subsequent Offer Period or be
prepared to withdraw their acceptance promptly following an announcement by
PacifiCorp Acquisitions of its reservation of the right to reduce the
Acceptance Condition.
2 ANNOUNCEMENTS
(a) Without prejudice to paragraph 3 ("Rights of withdrawal") below, by 8.30
a.m. (London time) in the United Kingdom and 8.30 a.m. (New York City time)
in the United States on the Business Day (the "relevant day") next following
the day on which the Offer is due to expire or on which all Conditions
become or are declared to have been satisfied, fulfilled or, where
applicable, waived or on which the Offer is revised or extended (or such
later time and/or date as the Panel may agree), PacifiCorp Acquisitions will
make an appropriate announcement and inform the London Stock Exchange and
the Dow Jones News Service, respectively, of the position regarding the
Offer. Such announcements will (unless otherwise permitted by the Panel)
also state the total number of Energy Group Securities and rights over
Energy Group Securities (as nearly as practicable):
(i) for which acceptances of the Offer have been received (showing the
extent, if any, to which such acceptances have been received from persons
acting or deemed to be in concert with PacifiCorp Acquisitions);
(ii) acquired or agreed to be acquired by or on behalf of PacifiCorp
Acquisitions and any person acting or deemed to be in concert with
PacifiCorp Acquisitions;
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(iii) held prior to the Initial Offer Period by or on behalf of PacifiCorp
Acquisitions and any persons acting or deemed to be in concert with it;
and
(iv) for which acceptances of the Offer have been received from persons
acting in concert with PacifiCorp Acquisitions;
and will specify the percentages of Energy Group Securities represented by
each of these figures.
In computing the numbers of Energy Group Securities represented by
acceptances and/or purchases for the above purposes, only those acceptances
and/or purchases permitted to be counted towards fulfilling the Acceptance
Condition in accordance with paragraph 12 ("Certain provisions concerning
acceptances") below shall be included in the totals.
(b) Any decision to extend the Initial Offer Period may be made at any time up
to, and will be announced not later than, 8.30 a.m. (London time) in the
United Kingdom and 8.30 a.m. (New York City time) in the United States on
the relevant day (or such later time and/or date as the Panel may agree) and
the announcement will state the next expiry date of the Initial Offer
Period.
(c) References to the making of an announcement by or on behalf of PacifiCorp
Acquisitions include the release of an announcement by PacifiCorp
Acquisitions, by public relations consultants retained by PacifiCorp
Acquisitions, or by Goldman Sachs International, to the press and the
delivery by hand or telephone, facsimile or telex transmission or other
electronic transmission of an announcement to the London Stock Exchange and
the Dow Jones News Service, as the case may be. An announcement made
otherwise than to the London Stock Exchange will be notified simultaneously
to the London Stock Exchange.
(d) Without limiting the manner in which PacifiCorp Acquisitions may choose to
make any public announcement and, subject to PacifiCorp Acquisitions'
obligations under applicable law (including Rules 14(d)-4(c) and 14d-6(d)
under the Exchange Act relating to PacifiCorp Acquisitions' obligation to
disseminate promptly public announcements concerning material changes to the
Offer), PacifiCorp Acquisitions will have no obligation to publish,
advertise or otherwise communicate any such public announcement other than
by making a release to the London Stock Exchange and the Dow Jones News
Service.
3 RIGHTS OF WITHDRAWAL
(a) Except as otherwise provided in this paragraph, tenders of Energy Group
Securities and elections are irrevocable. Energy Group Securities tendered
pursuant to the Offer may be withdrawn pursuant to the procedures set out
below at any time during the Initial Offer Period and in certain other
circumstances described below. Energy Group Securities tendered during the
Initial Offer Period and not validly withdrawn prior to the Initial Closing
Date, and Energy Group Securities tendered during the Subsequent Offer
Period, may not be withdrawn. Holders of Energy Group Securities will not
have withdrawal rights during the Subsequent Offer Period, except in certain
limited circumstances described below.
(b) If PacifiCorp Acquisitions, having announced that the Acceptance Condition
has been satisfied, fails by 3.30 p.m. (London time), 10.30 a.m. (New York
City time) on the relevant day (or such later time or date as the Panel may
agree) to comply with any of the relevant requirements relating to the Offer
specified in paragraph 2(a) of this Part B of Appendix I above, an accepting
holder of Energy Group Securities may immediately after that time withdraw
his acceptance of the Offer by written notice given by post or by hand to
New Issues Department, IRG plc, PO Box 166, Bourne House, 34 Beckenham Road,
Beckenham, Kent BR3 4TH receiving such notice on behalf of PacifiCorp
Acquisitions. This right of withdrawal may be terminated not less than eight
days after the relevant day by PacifiCorp Acquisitions confirming, if that
be the case, that the Offer is still unconditional and complying with the
other relevant requirements relating to the Offer specified in paragraph
2(a) of
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this Part B of Appendix I above. If any such confirmation is given, the
first period of 14 days referred to in paragraph 1(b) of this Part B of
Appendix I above will run from the date of that confirmation and compliance.
(c) If a no extension and/or a no increase statement is withdrawn in accordance
with paragraph 1(e) of this Part B of Appendix I above, any acceptance of
the Offer made after the date of that statement may be withdrawn thereafter
in the manner referred to in paragraph 3(b) of this Part B of Appendix I
above, for a period of eight days following the date on which the notice of
the withdrawal of such statement is posted to holders of Energy Group
Securities.
(d) To be effective, a written notice of withdrawal must be received on a timely
basis by the party (either the UK Receiving Agent or the US Depositary) to
whom the Acceptance Form was originally sent and must specify the name of
the person who has tendered the Energy Group Securities, the number of
Energy Group Securities to be withdrawn and (if certificates have been
tendered) the name of the registered holder of the relevant Energy Group
Securities, if different from the name of the person who tendered such
Energy Group Securities.
(e) In respect of Energy Group ADSs, if Energy Group ADRs have been delivered or
otherwise identified to the US Depositary, then, prior to the physical
release of such Energy Group ADRs, the serial numbers shown on such Energy
Group ADRs must be submitted and, unless the Energy Group ADSs evidenced by
such Energy Group ADRs have been tendered by an Eligible Institution or by
means of a Letter of Transmittal, the signatures on the notice of withdrawal
must be guaranteed by an Eligible Institution. If interests in Energy Group
ADSs evidenced by Energy Group ADRs have been delivered pursuant to the
procedures for book-entry transfer set out in paragraph 9 of this Part B of
Appendix I below, any notice of withdrawal must also specify the name and
number of the account at the appropriate Book-Entry Transfer Facility to be
credited with the withdrawn Energy Group ADSs and must otherwise comply with
such Book-Entry Transfer Facility's procedures.
(f) Withdrawals of tendered Energy Group Securities may not be rescinded
(without PacifiCorp Acquisitions' consent) and any Energy Group Securities
properly withdrawn and not properly retendered will thereafter be deemed not
validly tendered for the purposes of the Offer. Withdrawn Energy Group
Securities may be subsequently re-tendered, however, by following one of the
procedures described in either paragraph 9 or paragraph 10 of this Part B of
Appendix I below, as the case may be, at any time whilst the Offer remains
open.
(g) All questions as to the validity (including time of receipt) of any notice
of withdrawal will be determined by PacifiCorp Acquisitions, whose
determination (except as required by the Panel) will be final and binding.
None of PacifiCorp Acquisitions, The Energy Group, Goldman Sachs
International, the US Depositary, the UK Receiving Agent or any other person
will be under any duty to give notification of any defects or irregularities
in any notice of withdrawal or incur any liability for failure to give such
notification.
4 THE LOAN NOTE ALTERNATIVE
(a) The Loan Note Alternative is conditional upon all Conditions becoming or
being declared satisfied, fulfilled or, where permitted, waived.
(b) No election for the Loan Note Alternative will be valid unless both a valid
acceptance of the Offer and a valid election for the Loan Note Alternative,
duly completed in all respects and accompanied by, if appropriate, all
relevant share certificates and/or other document(s) of title, are duly
received by the time and date on which the Loan Note Alternative closes.
(c) If any acceptance of the Offer which includes an election for the Loan Note
Alternative is not, and is not deemed to be, valid or complete in all
respects at such time, such election shall for all purposes be void and the
holder(s) of Energy Group Shares purporting to make such election shall not,
for
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any purpose, be entitled to receive the Loan Note Alternative, but any such
acceptance which is otherwise valid shall be deemed to be an acceptance of
the Offer (without the Loan Note Alternative) for the number of Energy Group
Shares which are the subject of the acceptance and the holder(s) of Energy
Group Shares will, on the Offer becoming unconditional in all respects, be
entitled to receive the cash consideration due under the Offer.
(d) The Loan Note Alternative will remain open for acceptance for as long as the
Offer remains open for acceptance.
(e) The Loan Note Alternative is not available to any holder of Energy Group
Securities who is a citizen or resident of the United States.
5 EFFECT OF ELECTIONS
(a) The insertion of a number in Box 2 on the Form of Acceptance shall, subject
to the other terms of the Offer, be treated in respect of the relevant
number of Energy Group Shares as an election for the Loan Note Alternative
described in paragraph 4 of this Part B of Appendix I above.
(b) An election will not be valid unless the Form of Acceptance is completed
correctly in all respects and is received in accordance with paragraph 10
("Procedures for tendering Energy Group Shares") below.
(c) To allow PacifiCorp Acquisitions to pay interest on the Loan Notes without
withholding US income tax, beneficial owners of Loan Notes must certify that
they are not US persons for purposes of US federal income tax laws (see
paragraph 15(b) of Appendix V below).
6 REVISIONS OF THE OFFER AND/OR THE LOAN NOTE ALTERNATIVE
(a) Although no revision of the Offer is envisaged, if the Offer (in its
original or any previously revised form(s)) is revised (either in its terms
or Conditions or in the value or form of the consideration offered or
otherwise) and any such revision represents, on the date on which such
revision is announced (on such basis as Goldman Sachs International may
consider appropriate) an improvement (or no diminution) in the value of the
consideration under the Offer as so revised compared with the value of the
consideration previously offered, the benefit of the revised Offer will,
subject as provided in this paragraph 6 below, be made available to holders
of Energy Group Securities who have accepted the Offer in its original or
any previously revised form(s) and not validly withdrawn such acceptance
(hereinafter called a "Previous Acceptor"). The acceptance by or on behalf
of a Previous Acceptor of the Offer in its original or any previously
revised form(s) shall, subject as provided in this paragraph 6 and in
paragraph 9 or paragraph 10 of Part B of this Appendix I below, be deemed to
be an acceptance of the Offer as so revised and shall constitute the
appointment of any director of PacifiCorp Acquisitions or of Goldman Sachs
International as his attorney and/or agent with authority to accept any such
revised Offer on behalf of such Previous Acceptor and to make such elections
as those made by the Previous Acceptor in relation to the Offer in the
Acceptance Form previously executed by him or on his behalf and to execute
on behalf of and in the name of such Previous Acceptor all such further
documents and take such further actions (if any) as may be required to give
effect to such acceptances and/or elections. In making any such acceptance
or making any such election, the attorney and/or agent will take into
account the nature of any previous acceptances and/or elections made by or
on behalf of the Previous Acceptor and such other facts or matters as he may
reasonably consider relevant.
(b) The authorities conferred by paragraph 6(a) of Part B of this Appendix I
above shall not be exercised by any director of PacifiCorp Acquisitions or
of Goldman Sachs International, as the case may be, if, as a result thereof,
the Previous Acceptor would thereby receive less in cash than he would have
received as a result of his acceptance of the Offer (in its original or any
previously revised form(s)) in
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the form in which it was originally accepted by him and the exercise of the
powers of attorney so conferred by paragraph 6(a) of Part B of this Appendix
I above of any such Previous Acceptor shall be ineffective to the extent
that such Previous Acceptor shall lodge, within 14 calendar days of the
posting of the document pursuant to which the improved consideration
referred to in paragraph 6(a) of Part B of this Appendix I above is made
available to holders of Energy Group Securities, an Acceptance Form validly
accepting the Offer in which he validly elects to receive the consideration
receivable by him in some other manner than that set out in his original
acceptance.
(c) PacifiCorp Acquisitions reserves the right (subject to paragraph 6(a) of
this Part B of this Appendix I above) to treat an executed Acceptance Form
relating to the Offer (in its original or any previously revised form(s))
which is received (or dated) after the announcement or issue of the Offer in
any revised form as a valid acceptance and/or election of the revised Offer
and such acceptance shall constitute an authority in the terms of paragraph
6(a) of Part B of this Appendix I above, MUTATIS MUTANDIS, on behalf of the
relevant holder of Energy Group Securities.
7 GENERAL
(a) If the Offer lapses, pursuant to the City Code, neither PacifiCorp
Acquisitions nor any person acting or deemed to be acting in concert with
PacifiCorp Acquisitions for the purpose of the Offer nor any of their
respective affiliates may make an offer (whether inside or outside the
United Kingdom) for Energy Group Securities for a period of one year
following the date of such lapse, except with the permission of the Panel.
(b) Except with the consent of the Panel, settlement of the consideration to
which any holder of Energy Group Securities is entitled under the Offer will
be implemented in full in accordance with the terms of the Offer without
regard to any lien, right of set-off, counterclaim or other analogous right
to which PacifiCorp Acquisitions may otherwise be, or claim to be, entitled
as against such holder of Energy Group Securities. Consideration due to a
holder of Energy Group Securities who validly accepts the Offer will (except
with the consent of the Panel) be despatched not later than 14 calendar days
after the later of the Initial Closing Date and the date of receipt of a
valid and complete acceptance from such holder of Energy Group Securities.
Cash consideration will be settled as described in paragraph 14
("Settlement") below.
(c) Any omission or failure to despatch this document, the Acceptance Form, any
other document relating to the Offer and/or any notice required to be
despatched under the terms of the Offer to, or any failure to receive the
same by, any person to whom the Offer is made or should be made shall not
invalidate the Offer in any way. Subject to the provisions of paragraph 8
("Overseas shareholders") below, the Offer extends to any such persons to
whom this document, the Acceptance Form, and/or any related offering
document may not have been despatched or who may not receive such documents
and such persons may collect copies of those documents from Goldman Sachs
International.
(d) All powers of attorney, appointment of agents and authorities on the terms
conferred by or referred to in this Appendix I or in the Acceptance Form are
given by way of security for the performance of the obligations of the
holder of Energy Group Securities concerned and are irrevocable in
accordance with section 4 of the Powers of Attorney Act 1971, except in the
circumstances where the donor of such power of attorney or authority is
entitled to withdraw his acceptance in accordance with paragraph 3 ("Rights
of withdrawal") above and duly does so.
(e) If all Conditions are satisfied, fulfilled or, where permitted, waived and
PacifiCorp Acquisitions acquires or contracts to acquire, pursuant to the
Offer or otherwise, at least 90 per cent. in value of the Energy Group
Securities to which the Offer relates before the end of the period of four
months beginning with the date of the Offer, it will be entitled to and
intends to acquire the remaining Energy
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Group Shares on the same terms as the Offer pursuant to and subject to
sections 428 to 430F (inclusive) of the Companies Act.
If all Conditions are satisfied, fulfilled or, where permitted, waived and
PacifiCorp Acquisitions acquires or contracts to acquire, pursuant to the
Offer or otherwise, Energy Group Securities giving it more than 75 per cent.
of voting rights at general meetings of The Energy Group, but PacifiCorp
Acquisitions is not in a position to effect the compulsory acquisition of
all outstanding Energy Group Securities in accordance with the relevant
procedures and time limits of the Companies Act referred to above,
PacifiCorp Acquisitions intends to seek to procure the making of an
application by The Energy Group to the London Stock Exchange for Energy
Group Shares to be delisted and the making of an application by The Energy
Group to the New York Stock Exchange for Energy Group ADSs to be delisted.
PacifiCorp Acquisitions further intends that, subject to the London Stock
Exchange delisting taking place, it will seek to procure the transfer of
Peabody's US coal operations (except Lee Ranch Coal Company) to PacifiCorp
Acquisitions' fellow subsidiary, Powercoal, and to procure the giving of
financial assistance by members of the TEG Group to PacifiCorp Acquisitions
and other members of the PacifiCorp Group, subject to compliance, where
necessary, with the "whitewash" procedures set out in sections 155 to 158 of
the Companies Act. For further details, see paragraph 10 of Appendix V
("Financing arrangements") below.
(f) PacifiCorp Acquisitions and Goldman Sachs International reserve the right
to notify any matter, including the making of the Offer, to all or any
holders of Energy Group Securities with a registered address outside the
United Kingdom and the United States, or whom PacifiCorp Acquisitions knows
to be a custodian, trustee or nominee holding Energy Group Securities for
persons in Canada, Australia or Japan, by announcement in the United Kingdom
to the London Stock Exchange and in the United States to the Dow Jones News
Service or in any other appropriate manner, or by paid advertisement in a
newspaper published and circulated in the United Kingdom and the United
States, in which event such notice will be deemed to have been sufficiently
given, notwithstanding any failure by any such holders of Energy Group
Securities to receive or see such notice. All references in this document to
notice in writing by or on behalf of PacifiCorp Acquisitions will be
construed accordingly. No such document will be sent to an address in
Canada, Australia or Japan.
(g) The Offer is being extended by means of an advertisement to be inserted in
the Financial Times (United Kingdom version only) on 6 February 1998 to all
persons to whom this document or an Acceptance Form may not be despatched
(or by whom such documents may not be received) who hold or are entitled to
have allotted or issued to them Energy Group Securities.
(h) The terms, provisions, instructions and authorities contained in the Form of
Acceptance constitute part of the terms of the Offer. Words and expressions
defined in this document have the same meanings when used in the Form of
Acceptance, unless the context otherwise requires.
(i) References to a holder of Energy Group Securities include references to the
person or persons executing any Acceptance Form and in the event of more
than one person executing an Acceptance Form, such references will apply to
them jointly and severally.
8 OVERSEAS SHAREHOLDERS
(a) The making of the Offer in, or to certain persons who are citizens,
residents or nationals of, jurisdictions outside the United Kingdom or
United States (and the availability of Loan Notes to such persons and
citizens or residents of the United States) may be prohibited or affected by
the laws of the relevant overseas jurisdiction. Holders of Energy Group
Securities who are citizens, residents or nationals of jurisdictions outside
the United Kingdom and the United States (and, in the case of Loan Notes,
the United Kingdom only) should inform themselves about and observe any
applicable legal requirements. It is the responsibility of any such holder
of Energy Group Securities wishing to accept the Offer or the Loan Note
Alternative to satisfy himself as to the full observance of the laws of
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the relevant jurisdiction in connection therewith, including the obtaining
of any governmental, exchange control or other consents which may be
required, compliance with other necessary formalities and the payment of any
issue, transfer or other taxes or duties in such jurisdiction. Any such
holder of Energy Group Securities will also be responsible for payment of
any issue, transfer or other taxes or duties or other requisite payments due
in such jurisdiction by whomsoever payable and PacifiCorp Acquisitions and
Goldman Sachs International and any person acting on their behalf shall be
entitled to be fully indemnified and held harmless by such holder of Energy
Group Securities for any issue, transfer or other taxes or duties as
PacifiCorp Acquisitions and Goldman Sachs International or such person may
be required to pay.
(b) In particular, the Offer is not being made, directly or indirectly, in or
into Canada, Australia or Japan, or by use of the mails or any means or
instrumentality (including, without limitation, facsimile transmission,
telex or telephone) of interstate or foreign commerce of, or any facilities
of a national securities exchange of, any of these jurisdictions.
Accordingly, copies of this document, the Acceptance Form and any related
offer documents are not being mailed or otherwise distributed or sent in or
into Canada, Australia or Japan. Persons receiving such documents
(including, without limitation, custodians, nominees and trustees) must not
distribute, send or mail them in, into or from Canada, Australia or Japan or
use any such means, instrumentality or facilities in connection with the
Offer, and doing so may render invalid any related purported acceptance of
the Offer. Persons wishing to accept the Offer must not use the Canadian,
Australian or Japanese mails or any such means, instrumentality or
facilities for any purpose directly or indirectly related to acceptance of
the Offer. Envelopes containing the Acceptance Form must not be postmarked
in Canada, Australia or Japan or otherwise despatched from these
jurisdictions and all acceptors must provide addresses outside Canada,
Australia and Japan for the receipt of the consideration to which they are
entitled under the Offer and which is despatched by post or for the return
of the Acceptance Form and (in relation to Energy Group Shares in
certificated form) any Energy Group Share certificate(s) and/or other
document(s) of title.
(c) The provisions of this paragraph 8 and/or other terms of the Offer relating
to overseas holders of Energy Group Securities may be waived, varied or
modified as regards specific holders of Energy Group Securities or on a
general basis by PacifiCorp Acquisitions in its absolute discretion.
References in this paragraph 8 to holders of Energy Group Securities shall
include references to the person or persons executing an Acceptance Form
and, in the event of more than one person executing an Acceptance Form, the
provisions of this paragraph 8 shall apply to them jointly and severally.
(d) The Loan Notes to be issued pursuant to the Loan Note Alternative have not
been, and will not be, registered under the Securities Act or under any
relevant securities law of any state or district of the United States and
will not be the subject of a prospectus under the securities laws of any
province of Canada. In addition, no steps have been taken, or will be taken,
to enable the Loan Notes to be offered in Japan in compliance with
applicable securities laws of Japan and no prospectus in relation to the
Loan Notes has been, or will be, lodged with or registered by the Australian
Securities Commission, nor will the Loan Notes be registered under any
relevant securities laws of any other country. PacifiCorp Acquisitions will
not authorise the delivery of any document(s) of title in respect of any
Loan Notes falling to be allotted pursuant to the Offer to any address in
the United States, Canada, Australia or Japan or to any person who is, or
whom PacifiCorp Acquisitions has reason to believe is, a citizen or resident
of the United States or a person in Canada, Australia or Japan or who, by
completing Box 8 of the Form of Acceptance or otherwise, does not give the
warranty set out in paragraph 11(l) of this Part B of Appendix I. Any holder
of Energy Group Securities accepting the Offer who is a citizen or resident
of the United States or a person in Canada, Australia or Japan or who does
not give such warranty shall be deemed not to have accepted the Loan Note
Alternative.
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9 PROCEDURES FOR TENDERING ENERGY GROUP ADSS
(a) If you are a holder of Energy Group ADSs evidenced by Energy Group ADRs, you
will have also received a Letter of Transmittal and Notice of Guaranteed
Delivery for use in connection with the Offer. This section should be read
together with the instructions on the Letter of Transmittal. The provisions
of this section shall be deemed to be incorporated in, and form a part of,
the relevant Letter of Transmittal. The instructions printed on the relevant
Letter of Transmittal shall be deemed to form part of the terms of the
Offer.
(b) For a holder of Energy Group ADSs evidenced by Energy Group ADRs to tender
such Energy Group ADSs validly pursuant to the Offer, either:
(i) a properly completed and duly executed Letter of Transmittal, together
with any required signature guarantees and any other required documents,
must be received by the US Depositary at one of its addresses set forth
on the back cover of this document and the Energy Group ADRs evidencing
such Energy Group ADSs must be either received by the US Depositary at
one of such addresses or delivered pursuant to the procedures for
book-entry transfers set out below (and a confirmation of receipt of such
transfer received by the US Depositary); or
(ii) such holder must comply with the "Guaranteed Delivery" (as set forth in
paragraph 9(h) below).
The Offer in respect of Energy Group ADSs evidenced by Energy Group ADRs
shall be validly accepted by delivery of a Letter of Transmittal, the
relevant Energy Group ADRs evidencing Energy Group ADSs and other required
documents to the US Depositary by holders of Energy Group ADSs (without any
further action by the US Depositary), subject to the terms and Conditions
set out in the Letter of Transmittal. The acceptance of the Offer by a
tendering holder of Energy Group ADSs evidenced by Energy Group ADRs
pursuant to the procedures described above, subject to the withdrawal rights
described below, will be deemed to constitute a binding agreement between
such tendering holder of Energy Group ADSs and PacifiCorp Acquisitions upon
the terms and subject to the Conditions of the Offer. IF AN ENERGY GROUP ADR
EVIDENCING AN ENERGY GROUP ADS HAS BEEN TENDERED BY A HOLDER OF ENERGY GROUP
ADSS, THE ENERGY GROUP SHARES REPRESENTED BY SUCH ENERGY GROUP ADSS MAY NOT
BE TENDERED INDEPENDENTLY. A LETTER OF TRANSMITTAL AND OTHER REQUIRED
DOCUMENTS CONTAINED IN AN ENVELOPE POSTMARKED IN CANADA, JAPAN OR AUSTRALIA
OR OTHERWISE APPEARING TO PACIFICORP ACQUISITIONS OR ITS AGENTS TO HAVE BEEN
SENT FROM CANADA, JAPAN OR AUSTRALIA MAY BE REJECTED AS INVALID.
(C) BOOK-ENTRY TRANSFER
The US Depositary will establish an account at the Book-Entry Transfer
Facilities with respect to interests in Energy Group ADSs evidenced by
Energy Group ADRs held in book-entry form for the purposes of the Offer
within two Business Days from the date of this document. Any financial
institution that is a participant in any of the Book-Entry Transfer
Facility's systems may make book-entry delivery of interests in Energy Group
ADSs by causing a Book-Entry Transfer Facility to transfer such interests in
Energy Group ADSs into the US Depositary's account at such Book-Entry
Transfer Facility in accordance with that Book-Entry Transfer Facility's
procedure for such transfer. Although delivery of interests in Energy Group
ADSs evidenced by Energy Group ADRs may be effected through book-entry
transfer into the US Depositary's account at a Book-Entry Transfer Facility,
either:
(i) the Letter of Transmittal, properly completed and duly executed,
together with any required signature guarantees; or
(ii) an Agent's Message (as defined below),
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<PAGE>
and, in either case, any other required documents must in any case be
transmitted to, and received by, the US Depositary at one of its addresses
set forth on the back cover of this document before Energy Group ADSs
evidenced by Energy Group ADRs will be either counted as a valid acceptance,
or purchased, or such holder must comply with the Guarantee Delivery
Procedures described below. The term "Agent's Message" means a message
transmitted by a Book-Entry Transfer Facility to, and received by, the US
Depositary and forming a part of a Book-Entry Confirmation that states that
such Book-Entry Transfer Facility has received an express acknowledgment
from the participant in such Book-Entry Transfer Facility tendering the
interests in Energy Group ADSs that such participant has received and agrees
to be bound by the terms of the Letter of Transmittal and that PacifiCorp
Acquisitions may enforce such agreement against the participant. Delivery of
documents to a Book-Entry Transfer Facility does not constitute delivery to
the US Depositary.
(D) METHOD OF DELIVERY
The method of delivery of Energy Group ADRs, the Letters of Transmittal and
all other required documents is at the option and risk of the tendering
holder of Energy Group ADSs. Energy Group ADSs will be deemed delivered only
when the Energy Group ADRs representing such Energy Group ADSs are actually
received by the US Depositary (including in the case of a book-entry
transfer, by Book-Entry Confirmation). If delivery is by mail, registered
mail with return receipt requested, properly insured, is recommended. In all
cases, sufficient time should be allowed to ensure timely delivery. No
acknowledgment of receipt of any Letter of Transmittal or other required
documents will be given by, or on behalf of, PacifiCorp Acquisitions.
(E) SIGNATURE GUARANTEES
No signature guarantee is required on the Letter of Transmittal if:
(i) the Letter of Transmittal is signed by the registered holder of the
Energy Group ADSs tendered therewith and such registered holder has not
completed either the Box entitled "Special Payment Instructions" or the
Box entitled "Special Delivery Instructions" in the Letter of
Transmittal; or
(ii) such Energy Group ADSs are tendered for the account of an Eligible
Institution.
In all other cases all signatures on Letters of Transmittal must be
guaranteed by an Eligible Institution. See Instruction 1 on the Letter of
Transmittal.
(F) ENERGY GROUP ADSS AND ADRS
If the Energy Group ADSs are registered in the name of a person other than
the person who signs the Letter of Transmittal, then the tendered Energy
Group ADRs must be endorsed or accompanied by appropriate stock powers,
signed exactly as the name or names of the registered owner or owners appear
on the Energy Group ADRs, with the signatures on the Energy Group ADRs or
stock powers guaranteed as aforesaid. See Instructions 1 and 5 on the Letter
of Transmittal.
(G) PARTIAL ACCEPTANCES
If fewer than all of the Energy Group ADSs evidenced by any Energy Group ADRs
delivered to the US Depositary are to be tendered, the holder thereof should
so indicate in the Letter of Transmittal by filling in the number of Energy
Group ADSs which are to be tendered in the box entitled "Number of ADSs
Tendered". In such case, a new Energy Group ADR for the remainder of the
Energy Group ADSs represented by the former Energy Group ADR will be sent to
the person(s) signing such Letter of Transmittal (or delivered as such
person properly indicates thereon) as promptly as practicable following the
date the tendered Energy Group ADSs are purchased. All Energy Group ADSs
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delivered to the US Depositary will be deemed to have been tendered unless
otherwise indicated. See Instruction 4 to the Letter of Transmittal. In the
case of partial tenders, Energy Group ADSs not tendered will not be reissued
to a person other than the registered holder.
(H) GUARANTEED DELIVERY
(i) If a holder of Energy Group ADSs evidenced by Energy Group ADRs desires
to tender Energy Group ADSs pursuant to the Offer and the Energy Group
ADRs evidencing such Energy Group ADSs are not immediately available or
the procedures for book-entry transfer cannot be completed on a timely
basis, or if time will not permit all required documents to reach the US
Depositary prior to the expiry of the Subsequent Offer Period, such
holder's tender of Energy Group ADSs may be effected if all the following
conditions are met (the "Guaranteed Delivery Procedures"):
(aa) such tender is made by or through an Eligible Institution;
(bb) a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form provided by PacifiCorp
Acquisitions is received by the US Depositary, as provided below,
prior to the expiry of the Subsequent Offer Period; and
(cc) the Energy Group ADRs evidencing all tendered Energy Group ADSs
(or, in the case of interests in Energy Group ADSs held in
book-entry form, timely confirmation of the book-entry transfer of
such interests in Energy Group ADSs into the US Depositary's
account at a Book-Entry Transfer Facility as described above),
together with a properly completed and duly executed Letter of
Transmittal with any required signature guarantees and any other
documents required by the Letter of Transmittal, are received by
the US Depositary within three Business Days after the date of
execution of such Notice of Guaranteed Delivery.
(ii) The Notice of Guaranteed Delivery may be delivered by hand or mailed to
the US Depositary and must include a signature guarantee by an Eligible
Institution in the form set out in such Notice of Guaranteed Delivery.
(iii) Receipt of a Notice of Guaranteed Delivery will not be treated as a
valid acceptance for the purpose of satisfying the Acceptance Condition.
To be counted towards satisfaction of this requirement, Energy Group ADRs
evidencing Energy Group ADSs referred to in the Notice of Guaranteed
Delivery must, prior to the Initial Closing Date, be received by the US
Depositary (or, in the case of interests in Energy Group ADSs evidenced
by Energy Group ADRs held in book-entry form, timely confirmation of a
book-entry transfer of such interests in Energy Group ADSs into the US
Depositary's account at a Book-Entry Transfer Facility pursuant to the
procedure set out above), together with a duly executed Letter of
Transmittal with any required signature guarantees (or, in the case of a
book-entry transfer, an Agent's Message) and any other required
documents.
(I) OTHER REQUIREMENTS
By executing the Letter of Transmittal as set out above, the tendering holder
of Energy Group ADSs evidenced by Energy Group ADRs will agree that
effective from and after the date all Conditions are satisfied or, where
permitted, waived:
(i) PacifiCorp Acquisitions shall be entitled to direct the exercise of any
votes attaching to any Energy Group Shares represented by Energy Group
ADSs, in respect of which the Offer has been accepted or is deemed to
have been accepted and any other rights and privileges attaching to such
Energy Group Shares, including any right to requisition a general meeting
of Energy Group or of any class of its shareholders; and
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(ii) the execution of the Letter of Transmittal and its delivery to the US
Depositary will constitute:
(aa) an authority to The Energy Group or its agents from the tendering
holder of Energy Group ADSs to send any notice, circular, warrant,
document or other communication, which may be sent to him as a
holder of Energy Group ADSs, to PacifiCorp Acquisitions at its
registered office;
(bb) an authority to PacifiCorp Acquisitions or its agent to sign any
consent to short notice of a general meeting or separate class
meeting on behalf of the tendering holder of Energy Group ADSs
and/or to execute a form of proxy in respect of such Energy Group
ADSs appointing any person nominated by PacifiCorp Acquisitions to
attend general meetings or separate class meetings of The Energy
Group or its members (or any of them) (or any adjournments
thereof) and to exercise the votes attaching to such Energy Group
ADSs on the holders' behalf; and
(cc) the agreement of the tendering holder of Energy Group ADSs not to
exercise any of such rights without the consent of PacifiCorp
Acquisitions and the irrevocable undertaking of the tendering
holder of Energy Group ADSs not to appoint a proxy for or to
attend general meetings or separate class meetings.
(j) If the Offer lapses, all documents tendered will be returned within 14
calendar days thereafter at the risk of the holder of Energy Group
Securities concerned.
(k) If you are a holder of Energy Group ADSs and are in any doubt about the
procedure for acceptance, please telephone the Information Agent toll free
on 1-800-733-8481, ext. 475.
10 PROCEDURES FOR TENDERING ENERGY GROUP SHARES
(a) Holders of Energy Group Shares will have received with this document a Form
of Acceptance. This section should be read together with the Form of
Acceptance. The provisions of this section shall be deemed to be
incorporated in, and to form a part of, the Form of Acceptance. The
instructions printed on the Form of Acceptance shall be deemed to form part
of the terms of the Offer.
If a holder of Energy Group Shares holds Energy Group Shares in both
certificated and uncertificated form, he should complete a separate Form of
Acceptance for each holding. Similarly, such holder should complete a
separate Form of Acceptance for Energy Group Shares held in uncertificated
form, but under different member account IDs, and for Energy Group Shares
held in certificated form, but under different designations.
(b) To accept the Offer, any holder of Energy Group Shares, including any person
in the US who holds Energy Group Shares, wishing to accept the Offer in
respect of all or any portion of such holder's Energy Group Shares, should
complete Box 1 and, if such holder's Energy Group Shares are in CREST, Box
5, and sign Box 6 on the Form of Acceptance in accordance with the
instructions printed on it. All holders of Energy Group Shares who are
individuals should sign the Form of Acceptance in the presence of a witness
who should also sign Box 6 in accordance with the instructions printed on
it. Unless witnessed, an acceptance will not be valid.
(c) An accepting holder of Energy Group Shares should return the completed,
signed and witnessed Form of Acceptance, whether or not such Energy Group
Shares are in CREST, to the UK Receiving Agent or US Depositary. The
completed Form of Acceptance, together, if such holder's Energy Group Shares
are in certificated form, with his share certificate(s) and/or other
document(s) of title, must be lodged with the UK Receiving Agent or the US
Depositary, as soon as possible, but in any event so as to arrive not later
than 10.00 p.m. (London time), 5.00 p.m. (New York City time) on 9 March
1998. If you have any questions as to how to complete the Form of
Acceptance, please contact the UK Receiving Agent on 0181 639 2166 or the US
Depositary on 1-800 733 8481 ext. 475.
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A person in the US who holds Energy Group Shares may submit the Form of
Acceptance, together with his share certificate(s) and/or other document(s)
of title, to the US Depositary, who will receive such Form(s) of Acceptance
and certificate(s) and/or other document(s) of title on behalf of the UK
Receiving Agent. A Form of Acceptance contained in an envelope postmarked
Canada, Japan or Australia or otherwise appearing to PacifiCorp Acquisitions
or its agents to have been sent from Canada, Japan or Australia may be
rejected as invalid.
(d) If Energy Group Shares are in uncertificated form, the holder should insert
in Box 5 of the Form of Acceptance the participant ID and member account ID
under which such Energy Group Shares are held by him in CREST and otherwise
complete and return the Form of Acceptance as described above. In addition,
such holder should take (or procure to be taken) the action set out below to
transfer the Energy Group Shares in respect of which he wishes to accept the
Offer to an escrow balance, specifying IRG plc (in its capacity as a CREST
participant under the participant ID referred to below) as the escrow agent,
as soon as possible and in any event so that the transfer to escrow settles
not later than 10.00 p.m. (London time), 5.00 p.m. (New York City time) on 9
March 1998.
(e) If the holder of such Energy Group Shares is a CREST sponsored member, he
should refer to his CREST sponsor before taking any action. Such holder's
sponsor will be able to confirm details of his participant ID and the member
account ID under which his Energy Group Shares are held. In addition, only
his CREST sponsor will be able to send the TTE instruction to CRESTCo in
relation to his Energy Group Shares.
(f) The holder of such Energy Group Shares should send (or, if he is a CREST
sponsored member, procure that his CREST sponsor sends) a TTE instruction to
CRESTCo which must be properly authenticated in accordance with CRESTCo's
specifications and which must contain, in addition to the other information
that is required for a TTE instruction to settle in CREST, the following
details:
(i) the number of Energy Group Shares to be transferred to an escrow
balance;
(ii) the member account ID of such holder of Energy Group Shares. This must
be the same member account ID as the member account ID that is inserted
in Box 5 of the Form of Acceptance;
(iii) the participant ID of such holder of Energy Group Shares. This must be
in the same participant ID as the participant ID that is inserted in Box
5 of the Form of Acceptance;
(iv) the participant ID of the escrow agent (the UK Receiving Agent in its
capacity as a CREST Receiving Agent). This is RA10;
(v) the member account ID of the escrow agent. This is ENERGY;
(vi) the Form of Acceptance Reference Number. This is the Form of Acceptance
Reference Number that appears next to Box 5 on page 3 of the Form of
Acceptance. This Reference Number should be inserted in the first eight
characters of the shared note field on the TTE instruction. Such
insertion will enable the UK Receiving Agent to match the transfer to
escrow to your Form of Acceptance. The holder of such shares should keep
a separate record of this Form of Acceptance Reference Number for future
reference;
(vii) the Intended Settlement Date. This should be as soon as possible and
in any event not later than 9 March 1998;
(viii) the Corporate Action ISIN. This is GB0003132478;
(ix) the Corporate Action Number for the Offer. This is allocated by CRESTCo
and can be found by viewing the relevant Corporate Action Details in
CREST; and
(x) input with Standard Delivery instruction of 80.
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(g) After settlement of the TTE instruction, such holder of Energy Group Shares
will not be able to access the Energy Group Shares concerned in CREST for
any transaction or charging purposes. If the Conditions are satisfied,
fulfilled or, where permitted, waived, the escrow agent will transfer the
Energy Group Shares concerned to itself in accordance with paragraph 11(d)
of this Part B of Appendix I below.
(h) Such holder of Energy Group Shares is recommended to refer to the CREST
Manual published by CRESTCo for further information on the CREST procedures
outlined above. For ease of processing, such holder is requested, wherever
possible, to ensure that a Form of Acceptance relates to only one transfer
to escrow.
(i) If no Form of Acceptance Reference Number, or an incorrect Form of
Acceptance Reference Number, is included on the TTE instruction, PacifiCorp
Acquisitions may treat any amount of Energy Group Shares transferred to an
escrow balance in favour of the escrow agent specified above from the
participant ID and member account ID identified in the TTE instruction as
relating to any Form(s) of Acceptance which relate(s) to the same member
account ID and participant ID (up to the amount of Energy Group Shares
inserted or deemed to be inserted on the Form(s) of Acceptance concerned).
(j) Such holder of Energy Group Shares should note that CRESTCo does not make
available special procedures, in CREST, for any particular corporate action.
Normal system timings and limitations will therefore apply in connection
with a TTE instruction and its settlement. Such holder should therefore
ensure that all necessary action is taken by him (or by his CREST sponsor)
to enable a TTE instruction relating to his Energy Group Shares to settle
prior to 10.00 p.m. (London time), 5.00 p.m. (New York City time) on 9 March
1998. In this connection such holder is referred in particular to those
sections of the CREST Manual concerning practical limitations of the CREST
system and timings.
(k) PacifiCorp Acquisitions will make an appropriate announcement if any of the
details contained in this paragraph 10 alter for any reason.
(l) Normal CREST procedures (including timings) apply in relation to any Energy
Group Shares that are, or are to be, converted from uncertificated to
certificated form, or from certificated to uncertificated form, during the
course of the Offer (whether any such conversion arises as a result of a
transfer of Energy Group Shares or otherwise). Holders of Energy Group
Shares who are proposing so to convert any Energy Group Shares are
recommended to ensure that the conversion procedures are implemented in
sufficient time to enable the person holding or acquiring the Energy Group
Shares as a result of the conversion to take all necessary steps in
connection with an acceptance of the Offer (in particular, as regards
delivery of share certificate(s) or other documents of title or transfers to
an escrow balance as described above) prior to 10.00 p.m. (London time),
5.00 p.m. (New York City time) on 9 March 1998.
(m) If the share certificate(s) and/or other document(s) of title is/are not
readily available or is/are lost, the Form of Acceptance should nevertheless
be completed, signed and returned as stated above to the UK Receiving Agent
or the US Depositary so as to be received as soon as possible, but in any
event no later than 10.00 p.m. (London time), 5.00 p.m. (New York City time)
on 9 March 1998 together with any share certificate(s) and/or other
document(s) of title that is/are available, accompanied by a letter stating
that the balance will follow or that one or more share certificate(s) and/or
other document(s) of title have been lost and the certificate(s) and/or
other document(s) of title should be forwarded as soon as possible
thereafter. If the share certificate(s) and/or other document(s) of title
are lost, the accepting holder should request the registrar of The Energy
Group (Lloyds Bank Registrars, The Causeway, Goring-by-Sea, Worthing, West
Sussex BN99 6DA) to send him a letter of indemnity for completion in
accordance with the instructions given. When completed,
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the letter of indemnity must be lodged with the UK Receiving Agent or the US
Depositary, in accordance with instructions given, in support of the Form of
Acceptance.
(n) Subject to the City Code, PacifiCorp Acquisitions reserves the right to
treat as valid in whole or in part any acceptance of the Offer which is not
entirely in order or in the correct form or which is not accompanied by (as
applicable) the relevant transfer to escrow or the relevant share
certificate(s) and/or other document(s) of title or which is received by it
at a place or places other than as set out in this document or the
Acceptance Forms. In that event, the consideration under the Offer will be
despatched only when the acceptance is entirely in order and (as applicable)
the relevant transfer to escrow or the relevant share certificate(s) and/or
other document(s) of title or indemnity satisfactory to PacifiCorp
Acquisitions has/have been received.
(o) If the Offer lapses, all documents lodged for acceptance will be returned
within 14 calendar days thereafter at the risk of the holder of Energy Group
Shares concerned.
(p) No acknowledgment of receipt of any Form of Acceptance, share certificate(s)
and/or other document(s) of title will be given by, or on behalf of,
PacifiCorp Acquisitions. The method of delivery of share certificate(s)
and/or other document(s) of title for Energy Group Shares and all other
required documents is at the option and risk of the accepting holder of
Energy Group Shares. In all cases, sufficient time should be allowed to
ensure timely delivery and in any event to ensure delivery by 10.00 p.m.
(London time), 5.00 p.m. (New York City time) on 9 March 1998.
(q) Any holder of Energy Group Shares who is in any doubt as to the procedure
for acceptance should contact the UK Receiving Agent by telephone on 0181
639 2166. Such holder is also reminded that, if he is a CREST sponsored
member, he should contact his CREST Sponsor before taking any action.
11 FORMS OF ACCEPTANCE
Each holder of Energy Group Shares by whom, or on whose behalf, a Form of
Acceptance is executed and lodged with the UK Receiving Agent or US Depositary
(subject to the rights of withdrawal set forth in this document) undertakes,
represents, warrants to and agrees with PacifiCorp Acquisitions, Goldman Sachs
International, Independent Registrars Group Limited and Continental Stock
Transfer & Trust Company (so as to bind such holder and his personal or legal
representatives, heirs, successors and assigns) to the following effect:
(a) that execution of the Form of Acceptance and its delivery to the UK
Receiving Agent or US Depositary constitutes (i) an acceptance of the Offer
in respect of the number of Energy Group Shares inserted or deemed to have
been inserted in Box 1 of the Form of Acceptance; (ii) an election under the
Loan Note Alternative in respect of the number of Energy Group Shares
inserted, or deemed to be inserted, in Box 2 of the Form of Acceptance; and
(iii) an undertaking to execute any further documents and give any further
assurances which may be required to enable PacifiCorp Acquisitions to obtain
the full benefit of paragraph 10 of this Part B of Appendix I above and this
paragraph 11 and/or to perfect any of the authorities expressed to be given
hereunder on and subject to the terms and Conditions set out or referred to
in this document and the Form of Acceptance;
(b) that such holder has full power and authority to tender, sell, assign or
transfer the Energy Group Shares in respect of which the Offer is accepted
or deemed to be accepted (together with all rights attaching to them) and
when the same are transferred to PacifiCorp Acquisitions pursuant to the
terms of the Offer, PacifiCorp Acquisitions will acquire such Energy Group
Shares fully paid and free from all liens, charges, equities, encumbrances
and other interests and together with all rights now
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or hereafter attaching thereto, including, without limitation, the right to
receive and retain all dividends, interest and other distributions, if any,
declared, made or paid on or after 3 February 1998 (the date on which the
Offer was announced);
(c) that the execution of the Form of Acceptance and its delivery to the UK
Receiving Agent or US Depositary constitutes, subject to the Conditions
being satisfied, fulfilled or, where permitted, waived and to the holder of
Energy Group Shares not having validly withdrawn his acceptance and as
security for its obligations to PacifiCorp Acquisitions under paragraph
11(a)(iii) above, the irrevocable appointment of any director of, or other
person nominated by, PacifiCorp Acquisitions to act on its behalf as such
holder's attorney and agent ("attorney"), and an irrevocable instruction to
the attorney, to complete and execute all or any forms of transfer and/or
such other documents at the attorney's discretion in relation to the Energy
Group Shares referred to in paragraph 11(a) above in favour of PacifiCorp
Acquisitions or such other person or persons as PacifiCorp Acquisitions may
direct and to deliver such forms of transfer and/or other documents at the
attorney's discretion together with the share certificate(s) and/or other
document(s) of title relating to such Energy Group Shares for registration
within six months of their purchase and to do all such other acts and things
as may in the opinion of such attorney be necessary or expedient for the
purpose of, or in connection with, the acceptance of the Offer and to vest
in PacifiCorp Acquisitions or its nominees the Energy Group Shares to which
such Form of Acceptance relates as aforesaid;
(d) that the execution of the Form of Acceptance and its delivery to the UK
Receiving Agent or US Depositary constitutes, subject to the Conditions
being satisfied, fulfilled or, where permitted, waived, an irrevocable
authority and request:
(i) to transfer to PacifiCorp Acquisitions (or to such other person or
persons as PacifiCorp Acquisitions or its agents may direct) by means of
CREST all or any of the Relevant Energy Group Shares (as defined below)
(but not exceeding the number of Energy Group Shares in respect of which
the Offer is accepted or deemed to be accepted);
(ii) if the Conditions are not satisfied, fulfilled or, where permitted,
waived, to give instructions to CRESTCo, immediately after the lapsing of
the Offer (or within such longer period as the Panel may permit, not
exceeding 14 days of the lapsing of the Offer), to transfer all Relevant
Energy Group Shares to the original available balance of the accepting
holder of Energy Group Shares. "Relevant Energy Group Shares" means
Energy Group Shares in uncertificated form and in respect of which a
transfer or transfers to escrow has or have been effected pursuant to the
procedures described in paragraphs 10(d) to 10(l) of this Part B of
Appendix I above and where the transfer(s) to escrow was or were made in
respect of Energy Group Shares held under the same member account ID and
participant ID as the member account ID and participant ID relating to
the Form of Acceptance concerned (but irrespective of whether or not any
Form of Acceptance Reference Number, or a Form of Acceptance Reference
Number corresponding to that appearing on the Form of Acceptance
concerned, was included in the TTE instruction concerned);
(iii) to The Energy Group or its agents to procure the registration of the
transfer of the Energy Group Shares in certificated form pursuant to the
Offer and the delivery of the share certificate(s) and/ or other
document(s) of title in respect of them to PacifiCorp Acquisitions or as
it may direct;
(iv) if the Energy Group Shares concerned are in certificated form, or if
either of the provisos to sub-paragraph (v) of this paragraph 11(d)
apply, to PacifiCorp Acquisitions or its agents to procure the despatch
by post (or by such other methods as may be approved by the Panel) of a
cheque drawn on a branch of a UK clearing bank for any cash to which an
accepting Energy Group shareholder is entitled, at the risk of such
shareholder, to the person or agent whose name and address outside
Canada, Australia and Japan is set out in Box 7 of the Form of
Acceptance, or if no name and address is set out in Box 7, to the
first-named holder at his registered address
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outside Canada, Australia or Japan as set out in Box 3 (or, if
applicable, Box 4) on the Form of Acceptance together with a cheque for
any cash payable to such holder of Energy Group Shares in respect of
fractional entitlements;
(v) if the Energy Group Shares concerned are in uncertificated form, to
PacifiCorp Acquisitions or its agents to procure the creation of an
assured payment obligation in favour of the holder of Energy Group
Shares' payment bank in accordance with the CREST assured payment
arrangements in respect of the cash consideration to which such
shareholder is entitled, provided that (aa) PacifiCorp Acquisitions may
(if, for any reason, it wishes to do so) determine that all or any part
of any such cash consideration shall be paid by cheque despatched by post
and/or that all or any of such Energy Group Shares shall be issued in
certificated form and (bb) if the Energy Group shareholder concerned is a
CREST member whose registered address is in Canada, Australia or Japan,
any cash consideration to which such shareholder is entitled shall be
paid by cheque despatched by post, and in either of such cases,
sub-paragraph (iii) of this paragraph 11(d) shall apply; and
(vi) to PacifiCorp Acquisitions or its agent(s) to record and act upon any
instructions with regard to payment or notices which have been recorded
in the records of The Energy Group in respect of such holder of Energy
Group Shares as if such instructions had been given in respect of his
entitlement to Loan Notes (if any);
(e) that subject to the Offer becoming or being declared wholly unconditional
(or if the Offer will become unconditional in all respects or lapses
immediately upon the outcome of the resolution in question) or if the Panel
otherwise gives its consent and pending registration:
(i) PacifiCorp Acquisitions or its agents shall be entitled to direct the
exercise of any votes attaching to any Energy Group Securities in respect
of which the Offer has been accepted or is deemed to have been accepted
and any of the rights and privileges attaching to such Energy Group
Securities including the right to requisition a general meeting of The
Energy Group or of any class of its securities; and
(ii) the execution of the Form of Acceptance and its delivery to the UK
Receiving Agent or US Depositary shall constitute:
(aa) an authority to The Energy Group or its agents from such holder to
send any notice, circular, warrant, document or other
communication, which may be required to be sent to him or her as a
shareholder of The Energy Group, to PacifiCorp Acquisitions at its
registered office;
(bb) an authority to PacifiCorp Acquisitions or its agents to sign any
consent to short notice of a general meeting or separate class
meeting on his behalf and/or to execute a form of proxy in respect
of such Energy Group Shares appointing any person nominated by
PacifiCorp Acquisitions to attend general meetings and separate
class meetings of The Energy Group or its members (or any of them)
(or any adjournment of them) and to exercise the votes attaching to
such Energy Group Shares on his behalf; and
(cc) the agreement of such holder not to exercise any of such rights
without the consent of PacifiCorp Acquisitions and the irrevocable
undertaking of such holder not to appoint a proxy for or to attend
general meetings or separate class meetings;
(f) that such holder will deliver, or procure the delivery to the UK Receiving
Agent or US Depositary of, his share certificates and/or other documents of
title in respect of the Energy Group Shares in certificated form referred to
in paragraph 11(a) above, or an indemnity acceptable to PacifiCorp
Acquisitions in lieu thereof, as soon as possible and in any event within
six months of the purchase of such Energy Group Shares;
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(g) that such holder will take (or procure to be taken) the action necessary to
transfer all Energy Group Shares in respect of which the Offer has been
accepted or is deemed to have been accepted held by him in uncertificated
form to an escrow balance as soon as possible and in any event so that the
transfer to escrow settles within two months of the Offer becoming
unconditional in all respects;
(h) that if, for any reason, any Energy Group Shares in respect of which a
transfer to an escrow balance has been effected are converted to
certificated form, he will immediately deliver or procure the immediate
delivery of, the share certificate(s) and/or other document(s) of title in
respect of all such Energy Group Shares as so converted to IRG plc at one of
its addresses set out at the back of this document;
(i) that the creation of an assured payment obligation in favour of his payment
bank in accordance with the CREST assured payments arrangements as referred
to in paragraph 11(d)(v) of this Part B of Appendix I above shall, to the
extent of the obligation so created, discharge in full any obligation of
PacifiCorp Acquisitions and/or Goldman Sachs International to pay to him the
cash consideration to which he is entitled pursuant to the Offer;
(j) that the terms and Conditions contained in this document shall be deemed to
be incorporated in, and form part of, the Form of Acceptance, which shall be
read and construed accordingly;
(k) that such holder agrees to do all such acts and things as shall be
necessary, and execute any additional documents deemed by PacifiCorp
Acquisitions to be desirable, to complete the purchase and transfer of the
Energy Group Shares and to vest in PacifiCorp Acquisitions or its nominees
the Energy Group Shares aforesaid and all such acts and things as may be
necessary or expedient to enable the UK Receiving Agent to perform its
functions as escrow agent for the purposes of the Offer;
(l) that unless "Yes" is put in Box 8 on the Form of Acceptance, such holder:
(i) has not received or sent copies of this document or any Acceptance
Forms or any related documents in, into or from Canada, Japan or
Australia and has not otherwise utilised in connection with the Offer,
directly or indirectly, the Canadian, Australian or Japanese mails or any
means or instrumentality (including, without limitation, facsimile
transmission, telex and telephone) of interstate or foreign commerce, or
any facilities of a national securities exchange, of Canada, Australia or
Japan;
(ii) is accepting the Offer from outside Canada, Japan or Australia; and
(iii) is not an agent or fiduciary acting on a non-discretionary basis for a
principal, unless such agent or fiduciary is an authorised employee of
such principal or such principal has given any instructions with respect
to the Offer from outside Canada, Japan or Australia;
(m) that the execution of the Form of Acceptance constitutes an authority to
PacifiCorp Acquisitions and its agent in the terms of paragraph 6(a) of this
Part B of Appendix I above;
(n) that such holder agrees and acknowledges that he is not a customer (as
defined in the rules of The Securities and Futures Authority Limited) of
Goldman Sachs International, Lazard or Morgan Stanley in connection with the
Offer;
(o) that such holder agrees to ratify each and every act or thing which may be
done or effected by any director of, or other person nominated by,
PacifiCorp Acquisitions or their respective agents, as the case may be, in
the exercise of any of his powers and/or authorities hereunder;
(p) that if any provision of this paragraph 11 shall be unenforceable or invalid
or shall not operate so as to afford PacifiCorp Acquisitions or the UK
Receiving Agent or the US Depositary or their respective agents the benefit
of the authority expressed to be given herein, he shall with all practicable
speed
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do all such acts and things and execute all such documents that may be
required to enable those persons to secure the full benefits of this
section;
(q) that the execution of the Form of Acceptance constitutes the submission of
such holder, in relation to all matters arising out of the Offer and the
Form of Acceptance, to the jurisdiction of the Courts of England;
(r) that on execution of a Form of Acceptance, it shall take effect as a Deed;
and
(s) that, if such holder elects for the Loan Note Alternative (in whole or in
part), he is not a citizen or resident of the United States, nor acting on
behalf of such person.
DELIVERY OF THE FORM OF ACCEPTANCE AND CERTIFICATES REPRESENTING ENERGY
GROUP SHARES AND/OR OTHER DOCUMENTS OF TITLE TO THE US DEPOSITARY WILL
CONSTITUTE DELIVERY OF THEM TO THE UK RECEIVING AGENT FOR THE PURPOSES OF
PARAGRAPH 10 OF THIS PART B OF APPENDIX I ABOVE AND THIS PARAGRAPH.
12 CERTAIN PROVISIONS CONCERNING ACCEPTANCES
(a) Without prejudice to the right reserved by PacifiCorp Acquisitions to treat
Acceptance Forms as valid even though not entirely in order or not
accompanied by, where Energy Group Shares are in certificated form, the
relevant share certificates and/or other documents of title, or not
accompanied by the relevant transfer to escrow, except as otherwise agreed
by the Panel:
(i) an acceptance of the Offer will only be counted towards fulfilling the
Acceptance Condition if the requirements of Note 4 and, if applicable,
Note 6 to Rule 10 of the City Code are satisfied in respect of such
acceptance. For additional information on Note 4 and Note 6 to Rule 10 of
the City Code, see paragraph 12(b) below;
(ii) a purchase of Energy Group Securities by PacifiCorp Acquisitions or its
nominee(s) (or a person acting in concert with PacifiCorp Acquisitions or
its nominee(s)) will only be counted towards fulfilling the Acceptance
Condition if the requirements of Note 5 and, if applicable, Note 6 to
Rule 10 of the City Code are satisfied in respect of such purchase. For
additional information on Note 5 and Note 6 to Rule 10 of the City Code,
see paragraph 12(b) below; and
(iii) the Acceptance Condition will not be declared satisfied until the UK
Receiving Agent has issued a certificate to PacifiCorp Acquisitions (or
its agent) which states the number of Energy Group Securities in respect
of which acceptances have been received which comply with paragraph (i)
above and the number of Energy Group Securities otherwise acquired,
whether before or during the Initial Offer Period, which comply with
paragraph 12(a)(ii) above.
(b) Notes 4 to 6 to Rule 10 of the City Code contain detailed provisions for
verifying which acceptances and purchases may be counted towards fulfilling
the Acceptance Condition or in determining whether the Acceptance Condition
has been fulfilled and are principally concerned to ensure that the acceptor
is the registered owner of the securities which he is tendering. The
principal requirements of Notes 4 to 6 to Rule 10 are that any Acceptance
Form must be completed to a suitable standard (i.e. it must constitute a
transfer or a valid and irrevocable appointment of PacifiCorp Acquisitions
or some person on its behalf or as agent or attorney for the purpose of
executing a transfer) and it must be accompanied by, where Energy Group
Shares are in certificated form, the appropriate share certificate or other
documents of title and, in all cases, any relevant supporting documentation
(such as powers of attorney). Immediately prior to the satisfaction of the
Acceptance Condition, the UK Receiving Agent will issue a certificate to
PacifiCorp Acquisitions stating the number of Energy Group Securities
tendered and not validly withdrawn pursuant to the Offer and the number of
Energy Group Securities otherwise acquired, on or before the Initial Closing
Date as the case may be, in compliance with the provisions referred to in
paragraph 12(a) above. Copies of such certificates will be sent to the Panel
as soon as possible after they are issued.
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(c) Subject to the City Code, PacifiCorp Acquisitions reserves the right to
treat as valid in whole or in part any acceptance of the Offer which is not
entirely in order or which is not accompanied by the (as applicable)
relevant transfer to escrow or the relevant share certificate(s) and/or
other document(s) of title or which is received by it at a place or places
other than set out in this document or the Acceptance Form. In that event,
no payment of cash or issue of Loan Notes under the Offer will be made until
after the relevant transfer to escrow has settled or (as applicable) the
relevant share certificate(s) and/or other document(s) of title or
indemnities satisfactory to PacifiCorp Acquisitions have been received.
13 SUBSTITUTE ACCEPTANCE FORMS
The holders of Energy Group Securities have been sent with this document
either a Letter of Transmittal (accompanied by a Notice of Guaranteed
Delivery) and/or a Form of Acceptance. All holders of Energy Group ADSs have
been sent a Letter of Transmittal and a Notice of Guaranteed Delivery, which
they must use to tender their Energy Group ADSs and accept the Offer. All
holders of Energy Group Shares, including persons in the US who hold Energy
Group Shares, have been sent a Form of Acceptance, which they must use to
tender their Energy Group Shares and accept the Offer. Should any holder of
Energy Group Securities receive an incorrect form with which to accept the
Offer or require any additional forms, that person should contact the UK
Receiving Agent or the US Depositary at the addresses set out at the end of
this document, who will provide the appropriate forms.
14 SETTLEMENT
Subject to the satisfaction, fulfilment or, where permitted, waiver of all
Conditions (except as provided in paragraph 8 of this Part B of Appendix I
in the case of certain overseas holders of Energy Group Securities),
settlement of the consideration to which any holder of Energy Group
Securities is entitled under the Offer will be effected (i) in the case of
acceptances received, complete in all respects, by the Initial Closing Date,
within 14 days of such date, or (ii) in the case of acceptances of the Offer
received, complete in all respects, after such date, but while the Offer
remains open for acceptance, within 14 days of such receipt, in the
following manner:
(A) ENERGY GROUP SHARES IN UNCERTIFICATED FORM (THAT IS, IN CREST)
Where an acceptance relates to Energy Group Shares in uncertificated form,
the cash consideration to which the accepting holder of Energy Group Shares
is entitled will be paid by means of CREST by PacifiCorp Acquisitions
procuring the creation of an assured payment obligation in favour of such
accepting holder's payment bank in respect of the cash consideration due, in
accordance with the CREST assured payment arrangements. Loan Notes will be
despatched by first class post (or by such other method as may be approved
by the Panel). PacifiCorp Acquisitions reserves the right to settle all or
any part of the consideration referred to in this paragraph, for all or any
accepting holders of Energy Group Securities, in the manner referred to in
paragraph 14(b) below, if, for any reason, it wishes to do so.
(B) ENERGY GROUP SECURITIES IN CERTIFICATED FORM
Where an acceptance relates to Energy Group Securities in certificated form,
cheques for cash due or Loan Notes will be despatched by first class post
(or by such other method as may be approved by the Panel).
15 CURRENCY OF CASH CONSIDERATION
Instead of receiving cash consideration in pounds sterling, holders of
Energy Group Shares who so wish may receive US dollars on the following basis:
the cash amount payable in pounds sterling to which
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such holder would otherwise be entitled pursuant to the terms of the Offer will
be converted, without charge, from pounds sterling to US dollars at the exchange
rate obtainable by the relevant payment agent (either the UK Receiving Agent or
the US Depositary) on the spot market in London at approximately noon (London
time) on the date the cash consideration is made available by PacifiCorp
Acquisitions to the relevant payment agent for delivery in respect of the
relevant Energy Group Shares. A holder of Energy Group Shares may receive such
amount on the basis set out above only in respect of the whole of his holding of
Energy Group Shares in respect of which he accepts the Offer. Holders of Energy
Group Securities may not elect to receive pounds sterling and US dollars. Unless
they elect to receive pounds sterling, holders of Energy Group ADSs will receive
consideration converted into US dollars as described above, as if such holders
of Energy Group ADSs had elected to receive dollars. Consideration in US dollars
may be inappropriate for holders of Energy Group Shares other than persons in
the US and holders of Energy Group ADSs.
THE ACTUAL AMOUNT OF US DOLLARS RECEIVED WILL DEPEND UPON THE EXCHANGE RATE
PREVAILING ON THE BUSINESS DAY ON WHICH FUNDS ARE MADE AVAILABLE TO THE RELEVANT
PAYMENT AGENT BY PACIFICORP ACQUISITIONS. HOLDERS OF ENERGY GROUP SECURITIES
SHOULD BE AWARE THAT THE US DOLLAR/POUNDS STERLING EXCHANGE RATE WHICH IS
PREVAILING AT THE DATE ON WHICH AN ELECTION IS MADE TO RECEIVE DOLLARS AND ON
THE DATES OF DESPATCH AND RECEIPT OF PAYMENT MAY BE DIFFERENT FROM THAT
PREVAILING ON THE BUSINESS DAY ON WHICH FUNDS ARE MADE AVAILABLE TO THE RELEVANT
PAYMENT AGENT BY PACIFICORP ACQUISITIONS. IN ALL CASES, FLUCTUATIONS IN THE US
DOLLAR/POUNDS STERLING EXCHANGE RATE ARE AT THE RISK OF ACCEPTING HOLDERS OF
ENERGY GROUP SECURITIES WHO ELECT OR ARE TREATED AS HAVING ELECTED TO RECEIVE
THEIR CONSIDERATION IN US DOLLARS. NEITHER PACIFICORP ACQUISITIONS NOR ANY OF
ITS ADVISERS OR AGENTS SHALL HAVE RESPONSIBILITY WITH RESPECT TO THE ACTUAL
AMOUNT OF CASH CONSIDERATION PAYABLE OTHER THAN IN POUNDS STERLING.
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APPENDIX II
SUMMARY OF THE TERMS OF THE LOAN NOTES
The Floating Rate Unsecured Loan Notes 2004 of PacifiCorp Acquisitions will
be created by a resolution of the Board or a duly authorised committee thereof
and will be constituted by a Loan Note Instrument (the "Loan Note Instrument")
executed as a deed by PacifiCorp Acquisitions. The Loan Notes will not be
guaranteed. The issue of the Loan Notes is conditional on all Conditions being,
where applicable, waived, fulfilled or satisfied. Loan Notes will be issued only
if the aggregate valid elections for the Loan Note Alternative received on or
before the date on which all Conditions are so waived, fulfilled or satisfied,
as applicable, will result in PacifiCorp Acquisitions issuing in excess of L1
million nominal value of Loan Notes. The Loan Note Alternative is not available
to any person who is a citizen or resident of the United States and certain
other jurisdictions. The Loan Note Instrument will contain provisions, INTER
ALIA, substantially to the effect set out below.
1 The Loan Notes will be issued by PacifiCorp Acquisitions in amounts and
integral multiples of L1 in nominal amount only and will constitute
unsecured obligations of PacifiCorp Acquisitions. No payment will be made in
respect of any amount payable of less than L1. The Loan Note Instrument will
not contain any restrictions on borrowing, disposals or charging of assets
by PacifiCorp Acquisitions.
2 Interest on the Loan Notes will be payable (subject to any requirement to
deduct income tax therefrom) semi-annually in arrear on 30 June and 31
December in each year or, if such a day is not a Business Day, on the
immediately preceding Business Day ("interest payment dates") except that
the first payment of interest on the Loan Notes will be made on 31 December
1998 in respect of the period from and including the date of issue of the
relevant Loan Note up to but excluding 31 December 1998. The period from and
including the date of issue of the relevant Loan Note up to but excluding 31
December 1998 and the period from and including that date or any subsequent
interest payment date up to but excluding the next following interest
payment date is herein called an "interest period".
3(A) The rate of interest on the Loan Notes for each interest period will be the
rate per annum which is 0.5 per cent. below LIBOR. "LIBOR" means the
arithmetic mean (rounded down, if necessary, to four decimal places) of the
respective rates which are quoted as of 11.00 a.m. (London time) on the
first Business Day of the interest period on the "LIBP" page on the Reuter
Monitor Money Rate Service (or such other page or service as may replace it
for the purpose of displaying London inter-bank sterling offered rates of
leading reference banks) as being the interest rates offered in the London
inter-bank market for six month sterling deposits but:
(i) if only two or three such offered quotations appear, the relevant
arithmetic mean (rounded as mentioned above) shall be determined on the
bases of those offered quotations; and
(ii) if no, or only one, such offered quotation appears, the relevant
arithmetic mean (rounded as mentioned above) shall be determined instead
on the basis of the respective rates (as quoted to PacifiCorp
Acquisitions at its request) at which each of Barclays Bank PLC and
National Westminster Bank plc is offering six month sterling deposits to
prime banks in the London inter-bank market at or about 11.00 a.m.
(London time) on the first Business Day of the relevant interest period.
(B) If LIBOR cannot be established in accordance with the provisions of
paragraph 3(a) above for any interest period, the rate of interest on the
Loan Notes for such interest period shall be the same as that applicable to
the Loan Notes during the previous interest period, unless in such case such
other prime bank in the London inter-bank market as PacifiCorp Acquisitions
shall reasonably select for
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the purpose shall have been prepared to offer a rate as aforesaid, in which
case the rate of interest in respect of the relevant interest period shall
be the rate so offered.
(C) Each instalment of interest shall be calculated on the basis of a 365 day
year (or a 366 day year in the case of a leap year) and the number of days
elapsed in the relevant interest period.
4 A holder of Loan Notes (a "Noteholder") shall be entitled to require
PacifiCorp Acquisitions to repay the whole (whatever the amount) or any part
(being any integral amount of L1) of the principal amount of his holding of
Loan Notes at par, together with accrued interest (subject to any
requirement to deduct income tax therefrom) up to but excluding the date of
repayment, on any interest payment date, from and including 31 December 1998
and thereafter on any interest payment date falling prior to 31 December
2004 by giving not less than 30 days' prior notice in writing to the
registrars of PacifiCorp Acquisitions accompanied by the certificate(s) for
all the Loan Notes to be repaid and notice of redemption (duly completed) in
the prescribed form on the Loan Notes to be repaid.
5 If at any time the principal amount of all Loan Notes outstanding is 20 per
cent. or less of the total nominal amount of Loan Notes issued in connection
with the Offer, PacifiCorp Acquisitions shall have the right, on giving the
remaining Noteholders not less than 30 days' notice in writing expiring on
31 December 1998 or any subsequent interest payment date, to redeem all (but
not some only) of the outstanding Loan Notes at par together with accrued
interest thereon (subject to any requirement to deduct income tax therefrom)
up to but excluding the date of redemption.
6 Any Loan Notes not previously repaid, redeemed or purchased will be repaid in
full at par on 31 December 2004, together with accrued interest thereon
(subject to any requirement to deduct income tax therefrom) up to and
excluding that date.
7 Any Loan Notes repaid, purchased or redeemed will be cancelled and shall not
be available for re-issue.
8 The Noteholders will have power by extraordinary resolution of the
Noteholders passed in accordance with the provisions of the Loan Note
Instrument or by resolution in writing signed by holders of not less than 75
per cent. of the outstanding Loan Notes, INTER ALIA, to sanction any
modification, abrogation or compromise of or arrangement in respect of their
rights against PacifiCorp Acquisitions and to assent to any amendment in
respect of their rights against PacifiCorp Acquisitions and to assent to any
amendment of the provisions of the Loan Note Instrument (but in each case
subject to the consent of PacifiCorp Acquisitions). PacifiCorp Acquisitions
may, with the consent of its financial advisers, amend the provisions of the
Loan Note Instrument, without such sanction or consent, if such amendment is
of a formal, minor or technical nature or to correct a manifest error.
9 Each Noteholder will have the right to acquire (by subscription at a nominal
value of an amount up to or equal to such Noteholder's holding of Notes)
additional loan notes to be issued by a subsidiary of PacifiCorp
Acquisitions (the "Additional Notes") on terms and conditions substantially
the same as those applicable to the Loan Notes, except as follows:
(A) the Additional Notes will not be issued before 31 December 2003;
(B) the rate of interest on the Additional Notes will be 1.5 per cent. below the
rate per annum described in paragraph 3(a) above; and
(C) the Additional Notes will not carry any right to acquire any additional
securities.
10 Each Noteholder shall be entitled to require all or part (being L1 nominal
amount or any integral multiple thereof) of the Loan Notes held by him to be
repaid at par together with accrued interest (subject to any requirement to
deduct any income tax therefrom) if:
II-2
<PAGE>
(A) any principal or interest on any of the Loan Notes held by that Noteholder
shall fail to be paid in full within 30 days after the due date for payment
thereof; or
(B) an order is made or an effective resolution is passed for the winding-up or
dissolution of PacifiCorp Acquisitions (other than for the purposes of a
solvent reconstruction or a solvent amalgamation or a members' voluntary
winding-up on terms previously approved by extraordinary resolution of the
Noteholders); or
(C) an encumbrancer takes possession of, or a trustee, receiver, administrator
or similar officer is appointed or an administration order is made in
respect of, the whole or substantially the whole of the undertaking of
PacifiCorp Acquisitions and such person has not been paid out or discharged
within 30 days.
11 PacifiCorp Acquisitions shall be entitled at any time to purchase any Loan
Notes at any price by tender (available to all Noteholders alike), private
treaty or otherwise by agreement with the relevant Noteholder(s).
12 The Loan Notes will contain provisions entitling PacifiCorp Acquisitions,
without the consent of Noteholders, to substitute any of its subsidiaries or
any holding company or subsidiaries of such holding company resident in the
UK for tax purposes (other than Eastern or any of its subsidiaries) as the
principal debtor under the Loan Note Instrument and the Loan Notes or to
require all or any of the Noteholders to exchange their Loan Notes for loan
notes issued on the same terms MUTATIS MUTANDIS by any such company provided
that (a) PacifiCorp Acquisitions guarantees such company's obligations
thereunder; and (b) following such substitution or exchange, the Loan Notes
or (as the case may be) such loan notes shall not contain a provision
equivalent to this paragraph 12. References to PacifiCorp Acquisitions in
this summary shall be construed accordingly. PacifiCorp Acquisitions' right
to require substitution of such company as principal debtor (but not the
right to require exchange of the Loan Notes) will be exercisable only if
prior clearance has been obtained from the Inland Revenue to the effect that
the substitution will not be treated as a disposal of the Loan Notes for the
purposes of United Kingdom taxation of chargeable gains and PacifiCorp
Acquisitions' right to require such an exchange will be exercisable only if
the exchange will fall within section 135 of the Taxation of Chargeable
Gains Act 1992, and to the extent relevant, clearance has been received from
the Inland Revenue under section 138 of that Act in respect of the exchange.
13 The Loan Notes will be evidenced by certificates, will be registered and will
be transferable in integral multiples of L1 in excess of that amount,
provided that transfers of Loan Notes will not be registered while the
register of Noteholders is closed.
14 No application has been made or is intended to be made to any stock exchange
or other dealing service for the Loan Notes to be listed or otherwise
traded.
15 The Loan Notes and the Loan Note Instrument will be governed by and construed
in accordance with English law.
II-3
<PAGE>
APPENDIX III
FINANCIAL AND OTHER INFORMATION
ON THE TEG GROUP
1. RESULTS FOR THE NINE MONTHS ENDED 31 DECEMBER 1997.
The text on pages III-1 to III-5 is a reproduction of the announcement made
by The Energy Group on 3 February 1998:
"THE ENERGY GROUP -- THIRD QUARTER RESULTS
FINANCIAL HIGHLIGHTS
- TURNOVER AT L3.4 BILLION UP 10%
- OPERATING PROFIT UP 15%
The Energy Group PLC today announces its results for the period 1 October 1997
to 31 December 1997. The results for the quarter have been compared to the pro
forma operating results for the equivalent period in 1996 of certain of the
businesses which were previously reported as part of Hanson PLC.
FINANCIAL RESULTS
Group turnover for the nine months to 31 December 1997 was L3,390 million, an
increase of 10 per cent on the same period last year (pro forma 1996: L3,084
million) Operating profit for the nine month period was L379 million up 15 per
cent (pro forma 1996: L330 million), before exceptional costs associated with
the PacifiCorp bid and restructuring charges. Pre-exceptional earnings per share
for this period were 40.0p.
TRADING
COAL
Third quarter turnover declined slightly to L323 million (pro forma 1996:
L325 million) mainly due to adverse exchange rate movements. Operating profit
rose 8 per cent to L27 million (pro forma 1996: L25 million). Peabody sold 40
million tons (1996: 41 million tons) of steam and metallurgical coal during the
quarter and its steam coal products continue to fuel approximately 9 per cent of
all electricity produced by US electricity companies.
POWER
Third quarter turnover was up 17 per cent to L1,005 million (pro forma L860
million) and operating profit rose 88 per cent to L107 million (pro forma 1996:
L57 million). This substantial improvement reflects an excellent performance
from our trading activities including Citizens Power and the UK coal-fired power
stations. The new gas-fired power station at King's Lynn was fully commissioned
in December and Eastern's gas and electricity retail business has also shown an
upturn, reflecting improved margins.
III-1
<PAGE>
NETWORKS
Third quarter turnover rose 9 per cent to L139 million (pro forma L127
million) with operating profit increasing 18 per cent to L66 million (pro forma
1996: L56 million). These improved results are mainly due to property disposal
and other one-off profits. The underlying networks business was broadly flat,
reflecting continuing regulatory price reductions, offset by cost reductions.
Derek Bonham, Chairman said: "These results demonstrate the strengths of The
Energy Group's businesses. The increases in profit in our three sectors are very
encouraging. With our mix of generating capacity this was always going to be a
good quarter for us.
Today we have announced the terms of a recommended renewed offer by
PacifiCorp for The Energy Group. Together we can create a group with the scale
and scope of operations to compete more effectively in international energy
markets. Detailed terms of the offer will be mailed to our shareholders
shortly."
III-2
<PAGE>
UNAUDITED FINANCIAL RESULTS
THIRD QUARTER ENDED 31 DECEMBER 1997
<TABLE>
<CAPTION>
PRO FORMA 3 PRO FORMA 9
3 MONTHS TO 31 MONTHS TO 31 9 MONTHS TO 31 MONTHS TO 31
DECEMBER 1997 DECEMBER 1996 DECEMBER 1997 DECEMBER 1996
LMN LMN LMN LMN
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
TURNOVER
Coal (Note 1).................................... 323 325 1,014 1,058
Power............................................ 1,005 860 2,253 1,946
Networks......................................... 139 127 354 331
Other............................................ 5 4 18 19
Intra-group...................................... (89) (101) (249) (270)
----- ----- ----- -----
1,383 1,215 3,390 3,084
----- ----- ----- -----
OPERATING PROFIT
Coal (Note 1).................................... 27 25 112 113
Power............................................ 107 57 138 96
Networks......................................... 66 56 147 134
Other (Note 2)................................... (8) (4) (18) (13)
----- ----- ----- -----
PRE-EXCEPTIONAL OPERATING PROFIT................. 192 134 379 330
Bid-related costs (Note 3)....................... (1) -- (10) --
Restructuring and re-organisation costs (Note
3)............................................. -- -- (7) --
----- ----- ----- -----
TOTAL OPERATING PROFIT........................... 191 134 362 330
----- ----- -----
Net interest and similar charges................. (103)
-----
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION.... 259
Taxation charge for the period on results........ (66)
-----
193
Windfall tax..................................... (112)
-----
Profit on ordinary activities after taxation..... 81
Dividends........................................ (41)
-----
Profit retained for the period................... 40
-----
Earnings per ordinary share (Note 4)
Pre-exceptional.................................. 40.0
Basic............................................ 15.7
</TABLE>
Notes
(1) Turnover and operating profit for coal include the results for contract
restructuring.
(2) Pro forma adjustments have been made to the figures to 31 December 1996 in
respect of the additional administration costs that arose following the
demerger. The directors estimate that such costs amount to approximately L15
million per annum.
(3) Exceptional costs in the nine months ended 31 December 1997 relate to L7
million of restructuring costs within the Power segment and bid-related
costs of Ll0 million, of which Ll million arose in the quarter ended 31
December 1997.
(4) The earnings per share for the 9 months ended 31 December 1997 are based on
the profits for that period and on 516,756,926 shares which excludes the
4,100,891 shares held by The Energy Group Employee Benefit Trust, which has
waived the right to dividends on the shares it holds.
III-3
<PAGE>
UNAUDITED FINANCIAL RESULTS
THIRD QUARTER ENDED 31 DECEMBER 1997
<TABLE>
<CAPTION>
PRO FORMA 3 PRO FORMA 9
3 MONTHS TO 31 MONTHS TO 31 9 MONTHS TO 31 MONTHS TO 31
DECEMBER 1997 DECEMBER 1996 DECEMBER 1997 DECEMBER 1996
$MN $MN $MN $MN
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
TURNOVER
Coal (Note 2).................................... 532 535 1,670 1,743
Power............................................ 1,656 1,417 3,712 3,206
Networks......................................... 229 209 583 545
Other............................................ 8 7 30 31
Intra-group...................................... (147) (166) (410) (444)
----- ----- ----- -----
2,278 2,002 5,585 5,081
----- ----- ----- -----
OPERATING PROFIT
Coal (Note 2).................................... 44 41 185 186
Power............................................ 176 94 227 158
Networks......................................... 109 92 242 221
Other (Note 3)................................... (13) (6) (30) (21)
----- ----- ----- -----
PRE-EXCEPTIONAL OPERATING PROFIT................. 316 221 624 544
Bid-related costs (Note 4)....................... (2) -- (16) --
Restructuring and re-organisation costs (Note
4)............................................. -- -- (12) --
----- ----- ----- -----
TOTAL OPERATING PROFIT........................... 314 221 596 544
----- ----- -----
Net interest and similar charges................. (169)
-----
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION.... 427
Taxation charge for the period on results........ (109)
-----
318
Windfall tax..................................... (185)
-----
Profit on ordinary activities after taxation..... 133
Dividends........................................ (67)
-----
Profit retained for the period................... 66
-----
Earnings per ordinary ADS (Note 5)
Pre-exceptional.................................. 2.64
Basic............................................ 1.03
</TABLE>
Notes
(1) The above US$ figures have been translated at the average exchange rate for
the nine months to 31 December 1997 of $1.6474 to the L.
(2) Turnover and operating profit for coal include the results for contract
restructuring.
(3) Pro forma adjustments have been made to the figures to 31 December 1996 in
respect of the additional administration costs that arose following the
demerger. The directors estimate that such costs amount to approximately $25
million per annum.
III-4
<PAGE>
(4) Exceptional costs in the nine months ended 31 December 1997 relate to $12
million of restructuring costs within the Power segment and bid-related
costs of $16 million, of which $2 million arose in the quarter ended 31
December 1997.
(5) The earnings per ADS for the 9 months ended 31 December 1997 are based on
the profits for that period and on 516,756,926 shares which excludes the
4,100,891 shares held by The Energy Group Employee Benefit Trust, which has
waived the right to dividends on the shares it holds. One ADS is equivalent
to four ordinary shares."
2. RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 1997.
The figures on pages III-5 to III-32 have been extracted from the audited
financial statements of The Energy Group for the six months ended 31 March 1997,
but do not themselves constitute statutory accounts within the meaning of the
Companies Act. The Energy Group's auditors made a report under Section 235 of
the Companies Act on those financial statements which was unqualified and did
not contain a statement under Section 237(2) to (4) of the Companies Act.
Statutory accounts have been delivered to the Registrar of Companies for that
period.
THE ENERGY GROUP PLC--CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS ENDED 31 MARCH 1997
<TABLE>
<CAPTION>
NOTE 1997
----- ---------
<S> <C> <C>
LM
Turnover......................................................................................... 1 2,519
Costs and overheads less other income............................................................ 3 (2,222)
---------
Operating profit................................................................................. 1 297
Net interest payable and similar charges......................................................... 5 (37)
---------
Profit on ordinary activities before taxation.................................................... 260
Taxation charge for period....................................................................... 7 (81)
---------
Profit on ordinary activities after taxation..................................................... 179
Dividend......................................................................................... 6 (29)
---------
Profit retained for the period................................................................... 17 150
---------
---------
Earnings per ordinary share:
Pre-exceptional.............................................................................. 8 38.2p
Basic........................................................................................ 8 34.5p
</TABLE>
III-5
<PAGE>
THE ENERGY GROUP PLC--BALANCE SHEETS
AS AT 31 MARCH 1997
<TABLE>
<CAPTION>
GROUP COMPANY
NOTE 1997 1997
----- --------- -------------
<S> <C> <C> <C>
LMN LMN
FIXED ASSETS
Tangible fixed assets................................................................ 9 3,910 --
Investments.......................................................................... 10 72 63
--------- ---
3,982 63
--------- ---
CURRENT ASSETS
Stocks............................................................................... 11 256 --
Debtors.............................................................................. 12 1,359 50
Investments.......................................................................... 10 10 --
Short-term deposits.................................................................. 13 753 --
Cash................................................................................. 13 385 40
--------- ---
2,763 90
--------- ---
CREDITORS--DUE WITHIN ONE YEAR
Short-term borrowings................................................................ 14 (738) --
Overdrafts........................................................................... 14 (61) --
Other creditors...................................................................... 14 (948) (45)
--------- ---
(1,747) (45)
--------- ---
NET CURRENT ASSETS................................................................... 1,016 45
--------- ---
TOTAL ASSETS LESS CURRENT LIABILITIES................................................ 4,998 108
CREDITORS--DUE AFTER ONE YEAR........................................................ 14 (1,655) --
PROVISIONS FOR LIABILITIES AND CHARGES............................................... 15 (1,498) --
--------- ---
NET ASSETS........................................................................... 1,845 108
--------- ---
--------- ---
CAPITAL AND RESERVES
Called up share capital.............................................................. 16 52 52
Other reserves....................................................................... 17 639 --
Profit and loss account.............................................................. 17 1,154 56
--------- ---
EQUITY SHAREHOLDERS' FUNDS........................................................... 1,845 108
--------- ---
--------- ---
</TABLE>
Included within Group debtors are amounts recoverable after more than one
year of L561 million (Company L7 million).
III-6
<PAGE>
THE ENERGY GROUP PLC--CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 31 MARCH 1997
<TABLE>
<CAPTION>
NOTE
-----
LMN LMN
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES........................................................ 20 346
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received.......................................................................... 29
Interest paid.............................................................................. (83)
Dividends received from investments........................................................ 1
---
(53)
TAXATION................................................................................... (23)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets.......................................................... (133)
Purchase of investments.................................................................... (39)
Sale of tangible fixed assets.............................................................. 4
Sale of investments........................................................................ 12
---
(156)
ACQUISITION
Purchase of subsidiary undertaking......................................................... 18 (20)
---
CASH FLOW BEFORE USE OF LIQUID RESOURCES AND FINANCING..................................... 94
MANAGEMENT OF LIQUID RESOURCES
Net cash placed on short-term deposit...................................................... 22 (753)
FINANCING
Net new short-term borrowings.............................................................. 22 149
Debt due beyond a year:
New secured loan repayable within 5 years.................................................. 22 907
Repayment of amounts borrowed.............................................................. 22 (118)
---
938
---
INCREASE IN CASH IN THE PERIOD............................................................. 22 279
---
</TABLE>
III-7
<PAGE>
BASIS OF CONSOLIDATION AND PRESENTATION OF FINANCIAL INFORMATION FOR THE SIX
MONTHS ENDED 31 MARCH 1997
The Company was incorporated as a private limited company on 1 October 1996
as The Energy Group Limited and was re-registered as a public limited company
under the name The Energy Group PLC on 6 December 1996.
The Group financial statements consolidate the financial statements of the
Company and its subsidiary undertakings, comprising the demerged energy-related
businesses of Hanson.
In accordance with an agreement dated 27 January 1997 (the "Demerger
Agreement") providing for the demerger of these businesses, Hanson transferred
the entire issued share capital of Rollalong to the Company on 24 February 1997.
At that date Rollalong owned or had contracted to acquire all of the
energy-related businesses of Hanson. The consideration for this transfer was
satisfied by the issue to Hanson shareholders of ordinary shares in the Company,
credited as fully paid, as a dividend in specie.
Rollalong acquired the various subsidiary undertakings, other than Peabody
Holding, as a result of internal reorganisations within Hanson at various dates
between 30 September 1996 and 27 January 1997. Peabody Holding and its
subsidiary undertakings were transferred to a subsidiary undertaking of
Rollalong on 7 March 1997.
The transactions provided for under the Demerger Agreement, together with
the transfer of Peabody Holding, are referred to as the "Demerger Transactions".
The financial statements are presented under merger accounting principles,
as if Rollalong and its subsidiary undertakings had been owned and controlled by
the Company throughout the period or, in the case of those acquired or disposed
of subsequent to the Demerger Transactions, from or up to the date control
passed, as appropriate.
Some individual elements of both the reorganisation under Rollalong and the
Demerger Transactions do not satisfy all of the conditions for merger accounting
to be permitted in accordance with Financial Reporting Standard 6 and Schedule
4A to the Companies Act, both of which would require such elements to be
accounted for using acquisition principles.
The adoption of acquisition accounting principles for any part of the
reorganisation under Rollalong or the Demerger Transactions would have required:
the restatement to fair value of certain assets and liabilities; the recognition
of goodwill which, in some cases, would not be representative of that arising
had the transfers been conducted at arm's length; and the inclusion of the
results of certain businesses only from the various arbitrary dates on which the
relevant transfers took place within the Company's accounts. As a result of the
foregoing, the Directors consider that to apply acquisition accounting would
fail to give a true and fair view of the Group's state of affairs and results
since the shareholders have had a continuing interest in the energy-related
businesses of Hanson following the demerger. Accordingly, the Directors consider
that the Demerger Transactions, taken as a whole, require the adoption of merger
accounting principles in order to show a true and fair view, having regard to
section 226(5) of the Companies Act. No quantification has been given of the
effects of the departure because to do so would be misleading.
In the Company's financial statements its investment in Rollalong is stated
at the nominal value of shares issued. As permitted by sections 131 and 133 of
the Companies Act, no premium has been recorded on those ordinary shares issued.
On consolidation the difference between the nominal value of the Company's
shares issued and the amount of share capital and share premium of Rollalong has
been credited to a merger reserve.
III-8
<PAGE>
PRINCIPAL ACCOUNTING POLICIES USED IN THE PREPARATION OF FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED 31 MARCH 1997
The consolidated financial statements have been prepared in accordance with
applicable UK Accounting Standards. The principal accounting policies, which
have been applied consistently throughout the period, are set out below.
ACCOUNTING CONVENTION
The financial statements have been prepared in accordance with the
historical cost convention.
ACCOUNTING FOR ACQUISITIONS
Other than in respect of the Demerger Transactions, the results of acquired
companies and businesses are dealt with in the financial statements from the
date of acquisition. On the acquisition of a company or business, fair values
reflecting conditions at the date of acquisition are attributed to the
identifiable tangible assets and liabilities acquired. Where the consideration
paid exceeds the fair value of the net tangible assets acquired, the difference
is treated as goodwill and is set off against reserves in the acquisition
period.
ASSOCIATED UNDERTAKINGS
Investments which are not subsidiary undertakings and over which the Group
exercises significant influence (other than those which are unincorporated joint
ventures) have been accounted for as associated undertakings using the equity
method of accounting. Where the Group has an interest in an unincorporated joint
venture or a partnership, such interest has been accounted for as follows:
(i) where all of the venturers share in common the benefits and risks of
the entire venture, the Group's interest is accounted for using the equity
method of accounting.
(ii) Where each venturer has its own separate interest in the benefits and
risks, the Group's interest is accounted for using proportional consolidation on
a line-by-line basis.
TURNOVER
Coal sales revenue is recognized at the time of shipment. Electricity and
gas sales include an estimated accrual for the value of electricity and gas
consumed by customers between the date of their last meter reading and the
period end. Turnover is stated exclusive of UK value added tax, but inclusive of
related US coal production duties and UK fossil fuel levy.
TANGIBLE FIXED ASSETS
(A) CAPITALIZATION
Tangible fixed assets are stated at cost less accumulated depreciation.
Interest costs relating to the construction or development of production
facilities are capitalised during the pre-production period. Interest costs
incurred after production has commenced are expensed.
Costs incurred to increase the productive capacity of a mine or gas field
are capitalised. Costs incurred to maintain the productive capacity of a coal
mine or gas field are expensed.
III-9
<PAGE>
(B) DEPRECIATION AND DEPLETION
Buildings and improvements at coal mines are depreciated over the expected
productive life of the mine from the date that full production commences.
Depletion of coal and gas reserves is charged on a unit-of-production basis,
based on an assessment of available and proven reserves respectively.
Freehold land is not depreciated.
Depreciation of assets other than freehold land, coal and gas reserves and
buildings and improvements at coal mines is charged as follows:
<TABLE>
<S> <C>
Electricity generating station 30 years
assets
Electricity distribution system 40 years at a rate of 3 per cent. per annum for first 20
assets years and 2 per cent. per annum for remaining 20 years
Freehold buildings up to 60 years
Leasehold buildings shorter of 60 years and remaining period of lease
Telecommunications network 10 to 40 years
assets
Plant, equipment and motor 2 to 49 years
vehicles
</TABLE>
(C) ASSETS HELD UNDER LEASES
Assets held under finance leases are included within fixed assets at the
capitalised value of future minimum lease payments and are depreciated over the
shorter of their lease period and their useful life. The capital element of the
future payments is treated as a liability and the interest element is charged to
the profit and loss account so as to reflect a constant annual rate of interest
on the remaining balance of the outstanding obligation.
Rentals paid on operating leases are charged to the profit and loss account
on a straight line basis over the shorter of the lease period and the useful
life of the leased asset.
(D) IMPAIRMENT
At each financial period end, an assessment is made of the recoverability of
the balance sheet carrying values of coal and gas assets. This assessment is
made individually at the lowest operational level at which income and cash flows
are monitored as a separate unit. A reduction in carrying value is triggered
when the current book value of such a unit of assets exceeds the undiscounted
future cash flows. Where shortfalls in cash flows compared with carrying values
arise, the assets are written down to fair value, determined usually by
discounted future cash flows generated from the assets.
(E) RECLAMATION, RESTORATION AND ABANDONMENT COSTS
Provision is made for surface reclamation and restoration costs in respect
of coal mines and for abandonment costs in respect of gas fields in accordance
with local conditions and requirements on the basis of costs estimated at the
balance sheet date. The costs are charged to accounting periods on a unit-of-
production basis for gas assets and over the life of the mine for coal.
III-10
<PAGE>
(F) ENVIRONMENTAL COSTS AND OBLIGATIONS
Costs incurred in respect of environmental protection are capitalised if
they provide future economic benefits for the related production facility.
Liabilities for environmental clean-up costs are recognized when clean-ups are
probable and the associated costs can be estimated reasonably.
(G) CUSTOMER CONTRIBUTIONS
Customer contributions to electricity distribution system assets are
credited to the profit and loss account over a 40 year period at a rate of 3 per
cent. per annum for the first 20 years followed by 2 per cent. per annum for the
following 20 years. The unamortised amount of these contributions is deducted
from tangible fixed assets.
(H) DISPOSAL OF FIXED ASSETS
HM Government is entitled to a proportion of any gain realised by Eastern on
certain property disposals made up to 31 March 2000. A provision for clawback in
respect of such disposals is made to the extent that it is probable that a
liability will crystallise. Such a liability would crystallise when an actual or
deemed disposal occurs.
STOCKS
Stocks are stated at the lower of cost and net realisable value. Cost
includes labour, supplies, equipment and an appropriate proportion of operating
and overhead costs.
INVESTMENTS
Fixed asset investments are stated at cost or directors' valuation less
provisions for permanent diminutions in value. Current asset investments are
stated at the lower of cost and net realisable value. Investment income is
included in the financial statements of the period to which it relates.
FOREIGN CURRENCIES
Transactions in foreign currencies are recorded at the exchange rates ruling
at the date of the transactions. Monetary assets and liabilities denominated in
foreign currencies are translated at the rates of exchange ruling at the balance
sheet date. All differences on translation are taken to the profit and loss
account.
Average rates of exchange ruling during the period are used to translate the
profit and loss accounts of overseas subsidiary and associated undertakings. The
balance sheets of overseas subsidiary undertakings are translated at rates
ruling at the balance sheet date. Differences on translation arising from
changes in the sterling value of overseas net assets, together with the
differences between profit and loss accounts translated at average rates and at
balance sheet rates, are shown as a movement on reserves and in the statement of
recognised gains and losses.
Other exchange rate differences are dealt with in the profit and loss
account for the period.
DEFERRED TAXATION
Deferred taxation is provided using the liability method in respect of
timing differences except where the liability or asset is not expected to
crystallise in the foreseeable future. No deferred tax asset is recognised
corresponding to liabilities provided for in respect of post-retirement
healthcare benefits. Provision is not made for additional taxation which might
be payable if profits retained by overseas companies were distributed as
dividends.
III-11
<PAGE>
HEALTHCARE AND OTHER OBLIGATIONS TO EMPLOYEES
The Group provides healthcare and other benefits, including workers'
compensation benefits, to certain qualifying employees and former employees of
the Peabody companies and their dependants under the provisions of various
benefit plans or as required by US state or federal law. These benefits are
accrued and charged to the profit and loss account over the expected service
lives of the employees with the exception of pneumoconiosis ("black lung")
benefits in respect of employees ceasing employment prior to 1 July 1973, which
are accounted for as payments are made. Pneumoconiosis benefits in respect of
employees ceasing employment after 30 June 1973 are estimated actuarially; the
last actuarial review was performed as at 1 October 1996. Other workers'
compensation benefits are also assessed actuarially.
PENSION COSTS
The Group operates retirement benefit schemes in the UK, the USA and
Australia, in accordance with local regulation and custom. The assets of the
schemes are held in separate funds administered by trustees.
The costs of providing pensions are charged to the profit and loss account
over employees' service lives. The pension costs relating to those schemes which
provide defined benefits are assessed in accordance with the advice of qualified
actuaries.
NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31 MARCH 1997
1. OPERATING PROFIT, TURNOVER AND CAPITAL EMPLOYED BY SEGMENT
<TABLE>
<CAPTION>
1997
---------------------------------------
OPERATING CAPITAL
PROFIT TURNOVER EMPLOYED
LM LM LM
------------- ----------- -----------
<S> <C> <C> <C>
By activity:
Coal.......................................................................... 66 647 1,370
Power......................................................................... 129 1,801 1,117
Networks...................................................................... 122 274 1,063
Other......................................................................... -- 9 8
Intra-Group trading........................................................... -- (212) --
--- ----- -----
317 2,519 3,558
Exceptional restructuring and reorganisation costs............................ (20) -- --
--- ----- -----
297 2,519 3,558
--- ----- -----
--- ----- -----
</TABLE>
Power turnover includes gas sales of L251 million in the period. All
intra-group trading represents charges from the Networks business to the Power
business, at market rates, for use of the distribution system.
III-12
<PAGE>
1. OPERATING PROFIT, TURNOVER AND CAPITAL EMPLOYED BY SEGMENT (CONTINUED)
<TABLE>
<CAPTION>
1997
---------------------------------------
OPERATING CAPITAL
PROFIT TURNOVER EMPLOYED
LM LM LM
------------- ----------- -----------
<S> <C> <C> <C>
By geographical location:
United Kingdom................................................................ 228 1,853 2,166
USA........................................................................... 52 574 1,148
Australia..................................................................... 14 74 226
Other......................................................................... 3 18 18
--- ----- -----
297 2,519 3,558
--- ----- -----
--- ----- -----
</TABLE>
The above analysis shows the geographical segments from which goods and
services are supplied.
<TABLE>
<CAPTION>
1997
LM
---------
<S> <C>
Turnover by geographical destination:
United Kingdom........................................................................................... 1,861
North and South America.................................................................................. 542
Rest of Europe........................................................................................... 42
Asia/Pacific............................................................................................. 74
---------
2,519
---------
---------
</TABLE>
The contribution from the acquisition during the period is shown in note 18.
2. CAPITAL EMPLOYED RECONCILIATION
<TABLE>
<CAPTION>
1997
LM
---------
<S> <C>
Shareholders' funds...................................................................................... 1,845
Current and deferred taxes............................................................................... 285
Dividend................................................................................................. 29
Net debt, investments and non-operating assets........................................................... 1,399
---------
Capital employed as per note 1........................................................................... 3,558
---------
---------
</TABLE>
III-13
<PAGE>
3. COSTS AND OVERHEADS LESS OTHER INCOME
<TABLE>
<CAPTION>
1997
LM
---------
<S> <C>
Changes in stocks of finished goods and work in progress................................................. (10)
Raw materials and consumables............................................................................ 1,334
Employment costs (note 4)................................................................................ 220
Depreciation............................................................................................. 64
Depletion................................................................................................ 36
Exceptional restructuring and reorganisation cost........................................................ 20
Production taxes......................................................................................... 70
Other operating charges less other income................................................................ 488
---------
2,222
---------
---------
</TABLE>
Included above are costs and overheads within Teplarny Brno of L15 million.
Exceptional restructuring and reorganisation costs reflect full provision
for the re-opening of Eastern's voluntary severance scheme in its Networks
business.
<TABLE>
<CAPTION>
1997
LM
-----
<S> <C>
Included above
Operating lease rental..................................................................................... 138
Research and development................................................................................... --
</TABLE>
<TABLE>
<CAPTION>
1997
LM
-----
<S> <C>
Remuneration paid to auditors for audit services worldwide................................................. 1
Fees for non-audit services paid to Ernst & Young within the UK............................................ 6
Fees for non-audit services paid to Ernst & Young outside the UK and to other auditors..................... 2
</TABLE>
Non-audit services mainly relate to the demerger and acquisitions, taxation
and regulatory advice and information technology services. Payments to auditors
for audit and non-audit services are reviewed by the Audit Committee and
approved by the Board.
III-14
<PAGE>
4. DIRECTORS AND EMPLOYEES
<TABLE>
<CAPTION>
1997
LM
---------
<S> <C>
Employment costs:
Aggregate gross wages and salaries.................................................................... 208
Employers' social security costs...................................................................... 14
Post-retirement benefits.............................................................................. 17
Pension costs (note 24)............................................................................... 10
---------
249
Less: amounts capitalised............................................................................. (29)
---------
Charged to profit and loss account...................................................................... 220
---------
---------
Average number of persons employed by the Group: 1997
United Kingdom.......................................................................................... 6,770
USA..................................................................................................... 6,549
Australia............................................................................................... 1,120
Other................................................................................................... 669
---------
15,108
---------
---------
</TABLE>
The total number of employees at 31 March 1997 was 15,025.
5. NET INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
1997
LM
-----
<S> <C>
Interest payable
Bank loans................................................................................................. 42
Other loans................................................................................................ 35
--
Total payable (including L3 million relating to finance leases)............................................ 77
Interest receivable........................................................................................ (35)
Interest capitalised....................................................................................... (5)
--
Net Interest payable and similar charges................................................................... 37
--
</TABLE>
6. DIVIDEND
<TABLE>
<CAPTION>
PENCE PER 1997
SHARE LM
------------- -----
<S> <C> <C>
Dividend payable on 4 July 1997............................................................... 5.5p 29
</TABLE>
Prior to demerger the businesses comprising the Group were owned by Hanson
and appropriations of cash and other assets have been treated as diminutions in
net assets.
III-15
<PAGE>
7. TAXATION
<TABLE>
<CAPTION>
1997
-----------------------------------------------
BEFORE
EXCEPTIONAL EXCEPTIONAL
ITEMS ITEMS TOTAL
LM LM LM
----------------- --------------- -----
<S> <C> <C> <C>
UK:
Corporation tax at 33%......................................................... 69 (1) 68
Deferred tax................................................................... 2 -- 2
-- -- --
71 (1) 70
Overseas:
Current tax.................................................................... 7 -- 7
Deferred....................................................................... 4 -- 4
-- -- --
82 (1) 81
-- -- --
-- -- --
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of effective tax rate after exceptional items:
%
---------
Statutory UK corporation tax rate.................................................... 33.0
<S> <C>
Non-deductible and non-taxable items................................................. 4.7
Tax rate differences................................................................. 1.6
Exceptional item..................................................................... 2.1
Group relief......................................................................... (10.2)
---------
Effective tax rate................................................................... 31.2
---------
---------
</TABLE>
8. EARNINGS PER ORDINARY SHARE
<TABLE>
<CAPTION>
1997
LM
---------
<S> <C>
Net profit for the period before exceptional items....................................................... 198
Exceptional items after tax.............................................................................. (19)
---------
Net profit for the period................................................................................ 179
---------
---------
Earnings per ordinary share before exceptional items..................................................... 38.2p
Loss per ordinary share on exceptional items............................................................. (3.7)p
---------
Earnings per ordinary share.............................................................................. 34.5p
---------
---------
</TABLE>
The earnings per ordinary share for the six months ended 31 March 1997 are
calculated on the basis of 518,607,817 ordinary shares. This excludes the
2,250,000 shares held by The Energy Group Employee Benefit Trust which has
waived its right to dividends on the shares it holds.
The effect on earnings per ordinary share of the issue of shares under
option (see note 16) would not be material. Earnings per ordinary share before
exceptional items have been calculated to show the impact of exceptional items
on the results, as such items can have a distorting effect on earnings from year
to year and therefore warrant separate consideration.
III-16
<PAGE>
9. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
PLANT,
EQUIPMENT
LAND AND COAL AND DISTRIBUTION GENERATING AND MOTOR
BUILDINGS GAS ASSETS SYSTEM STATIONS VEHICLES
GROUP LM LM LM LM LM
- ------------------------------------------------- --------------- ------------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Cost:
As at 1 October 1996............................. 75 2,466 987 354 1,096
Exchange adjustments............................. -- (116) -- -- (45)
Acquisitions..................................... -- -- -- 36 7
Additions........................................ 14 21 48 13 54
Disposals and other.............................. -- (75) (3) (1) (44)
--
----- ----- --- -----
As at 31 March 1997.............................. 89 2,296 1,032 402 1,068
--
----- ----- --- -----
Accumulated deprecation and depletion:
As at 1 October 1996............................. 2 389 39 7 566
Exchange adjustments............................. -- (19) -- -- (26)
Charge for the period............................ 1 36 20 -- 43
Disposals and other.............................. -- (20) -- (1) (60)
--
----- ----- --- -----
As at 3l March l997.............................. 3 386 59 6 523
--
----- ----- --- -----
Net book value:
As at 1 October 1996............................. 73 2,077 948 347 530
--
----- ----- --- -----
As at 31 March 1997.............................. 86 1,910 973 396 545
--
----- ----- --- -----
<CAPTION>
TOTAL
GROUP LM
- ------------------------------------------------- ---------
<S> <C>
Cost:
As at 1 October 1996............................. 4,978
Exchange adjustments............................. (161)
Acquisitions..................................... 43
Additions........................................ 150
Disposals and other.............................. (123)
---------
As at 31 March 1997.............................. 4,887
---------
Accumulated deprecation and depletion:
As at 1 October 1996............................. 1,003
Exchange adjustments............................. (45)
Charge for the period............................ 100
Disposals and other.............................. (81)
---------
As at 3l March l997.............................. 977
---------
Net book value:
As at 1 October 1996............................. 3,975
---------
As at 31 March 1997.............................. 3,910
---------
</TABLE>
The net book value of land and buildings as at 31 March 1997 comprised
freeholds of L85 million (1 October 1996 L72 million), long leaseholds of L1
million (1 October 1996 L1 million) and short leaseholds of Lnil (1 October 1996
Lnil).
Coal and gas assets at 31 March 1997 included natural gas assets with a cost
of L40 million (1 October 1996 L35 million), accumulated depletion of L8 million
(1 October 1996 L2 million) and net book value of L32 million (1 October 1996
L33 million).
Capitalised interest at 31 March 1997 included within fixed assets amounted
to L13 million (1 October 1996 L8 million).
The cost of distribution system fixed assets at 31 March 1997 is shown net
of customer contributions of L359 million (1 October 1996 L343 million). The net
book value of customer contributions at 31 March 1997 was L267 million (1
October 1996 L256 million).
Other movements consist mainly of the change in treatment of Black Beauty
Coal Company which is described in note 10.
Assets in the course of construction at 31 March 1997 amounted to L298
million (1 October 1996 L310 million).
III-17
<PAGE>
9. TANGIBLE FIXED ASSETS (CONTINUED)
Generating stations included assets held under finance leases as follows:
<TABLE>
<CAPTION>
31 MARCH 1997
LM
-------------------
<S> <C>
Cost............................................................................................. 128
Accumulated depreciation......................................................................... (14)
---
Net book value................................................................................... 114
---
</TABLE>
10. INVESTMENTS
<TABLE>
<CAPTION>
UNLISTED INVESTMENTS
------------------------------
ASSOCIATED INVESTMENT IN
UNDERTAKINGS OTHER OWN SHARES
FIXED ASSET INVESTMENTS LM LM LM
- ------------------------------------------------------------------- ----------------- ----------- -------------------
<S> <C> <C> <C>
Group
As at 1 October 1996............................................... 5 12 --
Adjustment......................................................... 25 -- --
Acquisitions....................................................... -- 2 --
Additions.......................................................... -- 28 11
Share of retained profit........................................... 1 -- --
Disposals.......................................................... -- (12) --
-- -- --
As at 31 March 1997................................................ 31 30 11
-- -- --
<CAPTION>
TOTAL
FIXED ASSET INVESTMENTS LM
- ------------------------------------------------------------------- -----
<S> <C>
Group
As at 1 October 1996............................................... 17
Adjustment......................................................... 25
Acquisitions....................................................... 2
Additions.......................................................... 39
Share of retained profit........................................... 1
Disposals.......................................................... (12)
--
As at 31 March 1997................................................ 72
--
</TABLE>
The investment in own shares represents The Energy Group Employee Benefit
Trust's investment in the company's shares (see note 16),
Following a detailed consideration of the nature of the joint venture
agreement governing Black Beauty Coal Company ("BBCC"), the Group's interest in
that operation is now accounted for on an equity accounting basis, rather than
the proportional consolidation basis which had historically been applied. This
change in treatment better reflects the nature of the Group's interest in the
operation, its revenues and its assets. A summary of the effect of this change
in accounting treatment on the Group balance sheet is shown below:
<TABLE>
<CAPTION>
GROUP'S SHARE OF
BBCC'S BALANCE SHEET
----------------------------
AS AT AS AT
31 MARCH 1 OCTOBER
1997 1996
LM LM
------------- -------------
<S> <C> <C>
Tangible fixed assets..................................................................... 44 41
Working capital........................................................................... 43 37
Net debt.................................................................................. (62) (53)
-- --
Group's share of net assets............................................................... 25 25
-- --
</TABLE>
Each of the individual items in the summarised BBCC balance sheet at 1
October 1996 was included within the Group balance sheet as at 1 October 1996
under proportional consolidation. During the six month period ended 31 March
1997 adjustments have been made to remove these items due to the change in
treatment. The above BBCC balance sheet analysis as at 31 March 1997 is purely
for information purposes as it is only the Group's share of the net assets of
BBCC which is included within
III-18
<PAGE>
10. INVESTMENTS (CONTINUED)
the consolidated balance sheet under "Fixed Asset Investments-Associated
Undertakings". The balance at the start of the period is shown as an adjustment
in the above table of fixed asset investments.
The principal associated undertaking at 31 March 1997 was:
<TABLE>
<CAPTION>
SHARE
FINANCIAL CAPITAL PRE-TAX %
COUNTRY YEAR END AND RESERVES PROFIT OWNED
----------- ---------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Black Beauty Coal Company.......................... USA 31 December L74m L6m 33
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT IN OWN SUBSIDIARY
SHARES UNDERTAKINGS NET
LM LM LM
------------------- ----------------- ---
<S> <C> <C> <C>
Company
As at 1 October 1996........................................................ -- -- --
Additions and acquisitions on demerger...................................... -- 52 52
Investment in own shares.................................................... 11 -- 11
-- -- --
As at 31 March 1997......................................................... 11 52 63
-- -- --
</TABLE>
<TABLE>
<CAPTION>
GROUP
1997
LM
-----------
<S> <C>
Current asset investments
Unlisted.................................................................................................. 10
--
</TABLE>
11. STOCKS
<TABLE>
<CAPTION>
GROUP
1997
LM
-----------
<S> <C>
Raw materials and consumables............................................................................. 118
Work in progress.......................................................................................... 66
Finished stock and items for resale....................................................................... 72
---
256
---
</TABLE>
III-19
<PAGE>
12. DEBTORS
<TABLE>
<CAPTION>
GROUP COMPANY
1997 1997
LM LM
--------- ---------------
<S> <C> <C>
Due within one year:
Trade debtors.............................................................................. 647 --
Amounts owed by subsidiary undertakings.................................................... -- 42
Other debtors and prepayments.............................................................. 151 1
--
---------
798 43
--
---------
Due after one year:
Trade debtors.............................................................................. 6 --
Royalties receivable and other debtors..................................................... 232 --
Advance corporation tax recoverable........................................................ 91 7
Operating lease prepayments................................................................ 232 --
--
---------
561 7
--
---------
1,359 50
--
--
---------
---------
</TABLE>
13. CASH AND SHORT-TERM DEPOSITS
<TABLE>
<CAPTION>
GROUP COMPANY
1997 1997
LM LM
--------- ---------------
<S> <C> <C>
Short-term deposits.......................................................................... 753 --
Cash......................................................................................... 385 40
--
---------
1,138 40
--
---------
</TABLE>
L408 million of the short-term deposits has been used to cash-collateralise
existing future obligations to certain banks in respect of the funding of the
operating leases of power stations leased from National Power.
III-20
<PAGE>
14. CREDITORS
<TABLE>
<CAPTION>
GROUP COMPANY
1997 1997
LM LM
--------- ---------------
<S> <C> <C>
Amounts falling due within one year:
Short-term loans and commercial paper.................................. 732 --
Finance leases......................................................... 6 --
Bank overdrafts........................................................ 61 --
Trade creditors........................................................ 376 1
Corporation tax........................................................ 105 7
Other taxation and social security..................................... 20 --
Other creditors........................................................ 148 5
Accruals and deferred income........................................... 270 --
Amounts owed to subsidiary undertakings................................ -- 3
Dividend proposed...................................................... 29 29
--
---------
1,747 45
--
--
---------
---------
</TABLE>
Weighted average interest rates as at 31 March 1997 on bank overdrafts were
12.8%, and on short-term loans and commercial paper 6.5%.
<TABLE>
<CAPTION>
GROUP
1997
LM
---------
<S> <C>
Amounts falling due after more than one year:
Loans not wholly repayable within 5 years:
$300 million 5% subordinated income note 2006.................................... 170
L350 million 8.375% bonds due 2004............................................... 348
L200 million 8.5% bonds due 2025................................................. 197
---------
715
Other loans repayable within 5 years................................................. 791
Net obligations under finance leases................................................. 149
---------
1,655
---------
---------
</TABLE>
L100 million of the L350 million 8.375% bonds has been converted into
floating rate debt by way of interest rate swaps expiring in 2004. As at 31
March 1997, the weighted average interest rate payable was 7.4%. Amounts shown
above for bonds are net of unamortised issue costs.
<TABLE>
<CAPTION>
GROUP
1997
LM
---------
<S> <C>
Long term debt is repayable as follows:
Years ending 31 March
1999............................................................................. 227
2000............................................................................. 243
2001............................................................................. 261
2002............................................................................. 149
Thereafter......................................................................... 775
---------
1,655
---------
---------
</TABLE>
III-21
<PAGE>
14. CREDITORS (CONTINUED)
The Group is exposed to loss in the event of non-performance by banks under
currency swap and interest rate protection agreements described above. The
extent of this exposure varies with the prevailing interest and currency rates
and was not material throughout the period. No single bank is party to more than
L235 million nominal value of such agreements. The Group does not anticipate
non-performance by any of its counterparties.
Obligations of commercial banks under standby letters of credit totalled
L135 million.
15. PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
HEALTHCARE RECLAMATION
AND OTHER AND
OBLIGATIONS ENVIRONMENTAL DEFERRED
TO EMPLOYEES OBLIGATIONS TAXATION OTHER TOTAL
LM LM LM LM LM
----------------- ----------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
As at 1 October 1996................................. 899 285 192 181 1,557
Exchange adjustments................................. (43) (14) (9) (1) (67)
Utilised in period................................... (34) (13) (7) (15) (69)
Provided in period................................... 26 22 4 25 77
--- --- --- --- ---------
As at 31 March 1997.................................. 848 280 180 190 1,498
--- --- --- --- ---------
</TABLE>
The provided and unprovided liabilities for deferred taxation at 31 March
1997 were as follows:
<TABLE>
<CAPTION>
AMOUNTS AMOUNTS
PROVIDED UNPROVIDED
1997 1997
LM LM
------------- -------------
<S> <C> <C>
Excess of capital allowances............................................................. 87 753
Post-retirement healthcare benefits...................................................... -- (215)
Other timing differences................................................................. 93 (220)
--- ---
180 318
--- ---
--- ---
</TABLE>
16. SHARE CAPITAL
The share capital of the Company at 31 March 1997 was:
<TABLE>
<CAPTION>
ALLOTTED
CALLED-UP AND
AUTHORISED FULLY PAID
LM LM
--------------- -------------------
<S> <C> <C>
Ordinary shares (10p each)....................................... 100 52
--
--
---
---
</TABLE>
(a) On incorporation, the Company had an authorised share capital of L50,000
divided into 5,000,000 ordinary shares of 1p each, of which two fully paid
shares were issued to the subscribers.
(b) On 4 December 1996, 4,999,998 ordinary shares of 1p each in the authorised
but unissued share capital were redesignated as redeemable preference shares
of 1p each and issued for cash at par.
(c) On 22 January 1997 the authorised share capital was increased from L50,000
to L100 million by the creation of a further 9,995,000,000 ordinary shares
of 1p each.
(d) On 21 February 1997 the 4,999,998 preference shares of 1p each were redeemed
at par and redesignated as ordinary shares of 1p each in the authorised
share capital.
III-22
<PAGE>
16. SHARE CAPITAL (CONTINUED)
(e) On 24 February 1997:
(i) 5,208,578,160 ordinary shares of 1p each were issued, credited as fully
paid, to Hanson shareholders as a specie dividend to effect the demerger;
(ii) 8 ordinary shares of 1p each were issued at par, for cash; and
(iii) immediately on listing on the London Stock Exchange every 10 ordinary
shares of 1p each in the authorised and issued share capital were
consolidated into one ordinary share of 10p so that the authorised share
capital became L100 million divided into 1,000,000,000 ordinary shares of
10p each and the issued share capital became L52.1 million divided into
520,857,817 ordinary shares of 10p each.
(f) At 31 March 1997 a total of 9,506,511 ordinary shares with a nominal value
of L0.9 million were reserved for issue as follows:
(i) 1,598,538 shares in respect of contingent awards under the Company's
long term incentive plan. Subject to the requisite performance conditions
being met, this maximum number of shares will vest in February or March
2000;
(ii) 871,797 shares in respect of options under the Sharesave Scheme
exercisable from April to September 2000 at a subscription price of 465p
per share;
(iii) 5,168,260 shares in respect of options under the Sharesave Scheme
exercisable from April to September 2002 at a subscription price of 438p
per share;
(iv) 1,624,572 shares in respect of options issued under the Executive Share
Option Scheme exercisable from February 2000 to February 2007 at a
subscription price of 547.5p per share; and
(v) 243,344 shares in respect of contingent rights under the Company's
special bonus arrangement. Subject to the requisite performance
conditions being met, the shares will vest in June or July 1998.
The Energy Group Employee Benefit Trust has been established to acquire
ordinary shares in the Company, by subscription or purchase, with funds provided
by the Company to satisfy rights to shares arising on the exercise of share
options and on the vesting of performance-related share awards. At 31 March 1997
the trust had acquired 2,250,000 ordinary shares at a cost of L10.7 million,
financed by interest-free loans from the Company, which at the balance sheet
date totalled L15 million. Since 31 March 1997 the trust has acquired a further
1,850,891 ordinary shares at a cost of L9.3 million and a further interest-tree
loan of L5 million has been made to the trust. The trust has waived its right to
dividends on the ordinary shares held by it.
III-23
<PAGE>
17. RESERVES
<TABLE>
<CAPTION>
PROFIT AND OTHER TOTAL
LOSS ACCOUNT RESERVES 1997
GROUP LM LM LM
- ------------------------------------------------------------------------------- --------------- ----------- ---------
<S> <C> <C> <C>
As at 1 October 1996
Actual invested capital...................................................... 1,056 1,129 2,185
Pro forma adjustments........................................................ -- (383) (383)
----- ----- ---------
Pro forma invested capital................................................... 1,056 746 1,802
Increase in net debt........................................................... -- (42) (42)
Issue of share capital......................................................... -- (52) (52)
Other movements................................................................ -- (13) (13)
Exchange fluctuation on foreign net investments................................ (52) -- (52)
Profit retained for the period................................................. 150 -- 150
----- ----- ---------
As at 31 Match 1997............................................................ 1,154 639 1,793
----- ----- ---------
----- ----- ---------
</TABLE>
The pro forma invested capital reflects the figures included within the
Energy Group Listing Particulars.
No goodwill arose on the acquisition of the Group's interest in Teplarny
Brno.
The cumulative amount of goodwill resulting from acquisitions prior to 31
March 1997, net of goodwill attributable to subsidiary undertakings or
businesses disposed of prior to 31 March 1997, amounted to L1,147 million
derived by calculating the amount of historical goodwill in the currency of
acquisition at period end rates of exchange. This has been set off against
merger reserve and the net amount reported as other reserves.
Included in the consolidated reserves above was L1 million in respect of
associated undertakings, all of which arose in the period ended 31 March 1997.
There are no significant statutory or contractual restrictions on the
distribution of current profits of subsidiary or associated undertakings:
undistributed profits of prior years are, in the main, permanently employed in
the businesses of these companies. The undistributed profits of Group companies
overseas may be liable to overseas taxes and/or UK taxation (after allowing for
double taxation relief) if they were to be distributed as dividends.
<TABLE>
<CAPTION>
PROFIT AND
LOSS ACCOUNT
1997
COMPANY LM
- --------------------------------------------------------------------------------------------------- -----------------
<S> <C>
As at 1 October 1996............................................................................... --
Profit retained for the period..................................................................... 56
--
As at 31 March 1997................................................................................ 56
--
--
</TABLE>
As permitted by section 230 of the Companies Act, the Company has not
presented its own profit and loss account. The profit for the period dealt with
in the financial statements of the Company was L85 million. After the proposed
dividend of L29 million, the retained profit for the period was L56 million.
18. ACQUISITIONS AND DISPOSALS
During the period the Group acquired 52.8% of the issued share capital of
Teplarny Brno, a heating and generation company based in the Czech Republic. For
the period since acquisition, turnover of
III-24
<PAGE>
18. ACQUISITIONS AND DISPOSALS (CONTINUED)
L18 million and operating profit of L3 million in respect of this acquisition
are included within the consolidated profit and loss account. The total purchase
consideration for the acquisition of this 52.8% interest was L21 million. Its
operating assets and liabilities were as follows:
<TABLE>
<CAPTION>
BOOK VALUE ADJUSTMENTS FAIR VALUE
LM LM LM
----------------- ----------------- ---------------
<S> <C> <C> <C>
Tangible fixed asset..................................................... 33 10 43
Fixed asset investments.................................................. 2 -- 2
Working capital.......................................................... (4) (2) (6)
Cash..................................................................... 1 -- 1
-- -- --
32 8 40
-- -- --
-- -- --
Cash consideration....................................................... 21
Minority interest........................................................ 19
--
40
--
--
</TABLE>
The net cash flow for the acquisition was:
<TABLE>
<CAPTION>
LM
-------------
<S> <C> <C> <C>
Cash consideration....................................................... 21
Cash acquired............................................................ (1)
--
Net cash paid............................................................ 20
--
--
</TABLE>
Fair value adjustments were made to the book value of the assets and
liabilities of the above acquisition to bring them into alignment with the
Company's accounting policies and to adjust where applicable the carrying values
of certain assets and liabilities.
The above figures reflect a preliminary allocation of the purchase
consideration to the net assets and liabilities of the acquisition made in the
period. The preliminary allocation will be reviewed based on additional
information up to 31 March 1998. The directors do not believe that any net
adjustments resulting from such a review would have a material adverse effect on
the Group.
For the year prior to acquisition, Teplarny Brno reported profit after tax
of L4 million.
The Group made no significant disposals during the period.
19. FINANCIAL COMMITMENTS
(a) Capital commitments of the Group as at 31 March 1997 were as follows:
<TABLE>
<CAPTION>
LM
---------
<S> <C>
Contracted but not provided for............................................................................ 146
---
---
</TABLE>
III-25
<PAGE>
19. FINANCIAL COMMITMENTS (CONTINUED)
(b) Gas "take or pay" contracts
There are various types of contract for the purchase of gas. Almost all
include "take or pay" obligations, under which the buyer agrees to pay for a
minimum quantity of gas in a year. In order to help meet the expected needs of
its wholesale and retail customers, Eastern has entered into a range of gas
purchase contracts. As at 31 March 1997 the commitments under long-term gas
purchase contracts amounted to an estimated L2.2 billion covering periods up to
18 years forward.
(c) The future minimum rental commitments as at 31 March 1997 under finance
leases and non-cancellable operating leases, together with the present value of
minimum lease payments under finance leases were as follows:
<TABLE>
<CAPTION>
OPERATING FINANCE
LEASES LEASES
LM LM
------------- -----------
<S> <C> <C>
Year ending 31 March
1998...................................................................................... 22 16
1999...................................................................................... 66 19
2000...................................................................................... 62 20
2001...................................................................................... 38 18
2002...................................................................................... 36 17
Thereafter.................................................................................. 120 121
--- ---
Total minimum lease payments................................................................ 344 211
---
Less amount representing interest........................................................... (56)
---
Present value of minimum lease commitments.................................................. 155
---
</TABLE>
The majority of the operating lease commitments relate to coal-fired power
stations. Additional payments of approximately L6 per megawatt hour (indexed)
linked to output levels from these stations are payable for between the first
five and seven years of their operation by the Group.
(d) The annual commitments under non-cancellable operating leases at 31
March 1997 were:
<TABLE>
<CAPTION>
LAND AND
BUILDINGS OTHER
LM LM
--------------- -----------
<S> <C> <C>
Leases expiring:
Within one year........................................................................... -- --
Within two to five years.................................................................. 2 5
After five years.......................................................................... 1 14
--- ---
3 19
--- ---
</TABLE>
III-26
<PAGE>
20. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING
ACTIVITIES
<TABLE>
<CAPTION>
1997
LM
-----
<S> <C>
Operating profit before exceptional item................................................................... 317
Depreciation and depletion................................................................................. 100
Profit on sales of tangible fixed assets................................................................... (3)
Share of profit of associated undertakings................................................................. (2)
Increase in investments.................................................................................... (2)
Increase in stocks......................................................................................... (8)
Increase in debtors........................................................................................ (83)
Increase in creditors...................................................................................... 50
Provisions................................................................................................. (23)
---
Net cash inflow from operating activities.................................................................. 346
---
</TABLE>
21. ANALYSIS OF CHANGES IN FINANCING
<TABLE>
<CAPTION>
SHARE LOANS AND CURRENT CURRENT
CAPITAL FINANCE LEASES DEBENTURE LOANS BANK LOANS
LM LM LM LM
----------- --------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Balance as at 1 October 1996............................ -- 945 154 14
Pro forma additional net debt at 1 October 1996......... -- -- -- 381
--- ----- --- ---
Pro forma balance at 1 October 1996..................... -- 945 154 395
Non-cash demerger share issue........................... 52 -- -- --
Additional debt on demerger............................. -- -- -- 42
Exchange movements...................................... -- (12) (9) --
Cash inflow (outflow) from financing.................... -- 789 (113) 262
Other movements......................................... -- (54) -- (6)
Current loan reallocations.............................. -- (13) 13 --
--- ----- --- ---
Balance as at 31 March 1997............................. 52 1,655 45 693
--- ----- --- ---
</TABLE>
The pro forma balance at 1 October 1996 reflects the figures included within
the Energy Group Listing Particulars. Other movements principally comprise the
debt of BBCC which is now accounted for on an equity accounting basis (see note
10).
III-27
<PAGE>
22. ANALYSIS OF CHANGES IN NET DEBT
<TABLE>
<CAPTION>
PRO FORMA AS AT ADDITIONAL DEBT OTHER EXCHANGE
1 OCTOBER 1996 ON DEMERGER CASH FLOW MOVEMENTS MOVEMENTS
LM LM LM LM LM
----------------- ----------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Cash......................... 173 -- 221 (1) (8)
Overdrafts................... (119) -- 58 -- --
---
279
---
Debt due after 1 year........ (945) -- (789) 67 12
Debt due within 1 year....... (549) (42) (149) (7) 9
---
(938)
---
Short-term deposits.......... -- -- 753 -- --
------ --- --- --- ---
(1,440) (42) 94 59 13
------ --- --- --- ---
<CAPTION>
AS AT
31 MARCH 1997
LM
---------------
<S> <C>
Cash......................... 385
Overdrafts................... (61)
Debt due after 1 year........ (1,655)
Debt due within 1 year....... (738)
Short-term deposits.......... 753
------
(1,316)
------
</TABLE>
The pro forma net debt at 1 October 1996 reflects the figures included
within the Energy Group Listing Particulars. Other movements principally arise
from the change in accounting treatment of the Group's interest in Black Beauty
Coal Company.
23. RECONCILIATION OF NET CASH FLOW MOVEMENT TO MOVEMENT IN NET DEBT (NOTE 22)
<TABLE>
<CAPTION>
1997
LM
---------
<S> <C>
Net cash inflow in the period........................................................................... 279
Increase in liquid cash resources....................................................................... 753
Change in debt resulting from cash flows................................................................ (938)
---------
94
Additional debt on demerger............................................................................. (42)
Other movements......................................................................................... 59
Exchange movements...................................................................................... 13
---------
Movement in net debt in the period...................................................................... 124
Opening pro forma net debt.............................................................................. (1,440)
---------
Closing net debt........................................................................................ (1,316)
---------
</TABLE>
Other financing movements principally arise from the change in accounting
treatment of the Group's interest in Black Beauty Coal Company.
24. PENSIONS AND OTHER POST-RETIREMENT BENEFITS
PENSIONS
The Group participates in several defined benefit pension plans in the UK,
the USA and Australia which cover the majority of employees. The benefits for
these plans are based primarily on years of credited service and final average
pensionable pay as defined under the respective plan provisions.
The total cost of all pensions of the Group in the six months ended 31 March
1997 was L10 million.
In the USA, Peabody sponsors four main defined benefit pension plans. With
the exception of one plan, assets are set aside in separate trustee-administered
funds. Each of these plans is assessed annually by independent qualified
actuaries using the projected unit method, the latest valuation being
III-28
<PAGE>
24. PENSIONS AND OTHER POST-RETIREMENT BENEFITS (CONTINUED)
as at 30 September 1996. In addition, Peabody participates in two multi-employer
plans. In these plans, the assets contributed by the participating employers are
aggregated and the contributions payable are determined by independent qualified
actuaries in accordance with industry-wide agreements. Peabody also has a number
of defined contribution plans. Costs relating to the multi-employer and the
defined contribution plans are recognised as incurred.
In the UK, the majority of Eastern employees are members of the ESPS which
provides pensions of a defined benefit nature for employees throughout the
Electricity Supply Industry. The ESPS operates on the basis that there is no
cross-subsidy between employers and the financing of Eastern's pensions
liabilities is therefore independent of the experience of other participating
employers. The assets of the ESPS are held in a separate trustee-administered
fund.
The pension cost relating the Eastern section of the ESPS is assessed in
accordance with the advice of independent qualified actuaries using the
projected unit method. The latest actuarial valuation was carried out as at 31
March 1995.
The total market value of the assets of the US plans, excluding the
multi-employer and defined contribution plans, was L255 million as at 30
September 1996. The market value of the assets of Eastern's section of the ESPS
was L681 million as at 31 March 1995.
The assumptions which had the most significant effect on the results of the
valuations were that the rate of investment return would exceed salary increases
(exclusive of merit awards) by 2 1/2% per annum for the UK plans and by an
average of 3 1/2% per annum in the USA, and with investment returns in the UK
being assumed to exceed future pension increases by 4% per annum. The actuarial
value of the assets was sufficient to cover 104% of the benefits that had
accrued to members in the UK and 98% in the USA.
Provisions for liabilities and charges (note 15) include a provision of L4
million representing the excess of the accumulated amount charged against the
Group's profits in respect of pension costs over the contributions paid to the
plans concerned.
POST-RETIREMENT HEALTHCARE
The Group also provides post-retirement healthcare and life assurance
benefits under plans mainly in the USA to certain groups of its retired and
active employees.
As at 31 March 1997 the accumulated post-retirement benefit obligation
excluding pensions, as assessed by independent qualified actuaries, for retirees
and the obligation for prior service costs of currently active employees is
approximately L576 million. The charge for the six months ended 31 March 1997
has been accrued based upon actuarial calculations determined in accordance with
required accounting standards. This resulted in the recognition of service costs
for benefits earned during the year of approximately L2 million, and interest
cost on accumulated benefit obligations of approximately L21 million. The
actuarial assumptions used to estimate the obligations vary according to the
claims experience and economic conditions relevant to each plan. It has been
assumed that the annual per capita cost of benefits will increase 6%--8%
depending on claims experience and economic conditions relevant to each plan.
This rate is assumed to decrease 1/2% a year to 5%. The weighted average
discount rate used in determining the accumulated post-retirement benefit
obligation was 7 1/2% as at 31 March 1997.
25. CONTINGENT LIABILITIES
Certain properties in the USA in which the Group has, or had, an interest
are subject to actual or potential environmental claims. The directors have made
a L42 million provision, included in provisions
III-29
<PAGE>
25. CONTINGENT LIABILITIES (CONTINUED)
for reclamation and environmental obligations (note 15), in relation to these
claims, but significant uncertainty exists as to whether these claims will be
pursued against the Group in all cases and, where they are pursued, the amount
of the eventual costs and liabilities.
Following its election to government in the UK, the Labour Party has
reaffirmed its intention to impose a one-off "windfall levy" on regulated
industries in the UK. It is not possible to predict the amount of any such levy,
but, if imposed, such levy could be substantial.
In February 1997 final determinations were made against The National Grid
Company plc ("National Grid") and its group trustees by the Pensions Ombudsman
on complaints by two pensioners in National Grid's section of the ESPS relating
to the use of the surplus arising under the actuarial valuation of the National
Grid section as at 31 March 1992 to meet certain additional costs arising from
the payment of pensions on early retirement pursuant to reorganisation or
redundancy and certain additional contributions. These determinations were set
aside by the High Court on 10 June 1997 and the arrangements made by National
Grid and its trustees in dealing with its section's surplus were confirmed,
although leave to appeal to the Court of Appeal has been granted to the two
pensioners. If a similar complaint were to be made against Eastern in relation
to its use of actuarial surplus in its section of the ESPS, it would resist it,
ultimately through the courts. However, if a determination were finally to be
made against it and upheld by the courts, Eastern could have a potential
liability to repay to its section of the ESPS an amount estimated by the
directors to be up to L75 million (exclusive of any applicable interest
charges).
The Group is subject to business risks which are actively managed against
exposures. A list of risk factors was described in the Energy Group Listing
Particulars.
III-30
<PAGE>
THE ENERGY GROUP PLC--PRO FORMA CONSOLIDATED PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA SIX MONTHS SIX MONTHS
PRO FORMA YEAR ENDED YEAR ENDED ENDED ENDED
NOTE 31 MAR 1997 30 SEPT 1996 31 MAR 1997 31 MAR 1996
----------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
LMN LMN LMN LMN
TURNOVER
Coal...................................... 1,452 1,461 647 656
Power..................................... 2,887 2,178 1,801 1,092
Networks.................................. 478 482 274 278
Other..................................... 24 24 9 9
Intra-group............................... (381) (378) (212) (209)
------ ------ ------ ------
4,460 3,767 2,519 1,826
------ ------ ------ ------
OPERATING PROFIT
Coal...................................... 154 154 66 66
Power..................................... 168 83 129 44
Networks.................................. 200 211 122 133
Other..................................... (2) (2) -- --
------ ------ ------ ------
PRE-EXCEPTIONAL OPERATING PROFIT.......... 520 446 317 243
Restructuring and reorganisation costs.... (2) (20) (20)
National Grid Group flotation............. (3) 44 44
------ ------ ------ ------
TOTAL OPERATING PROFIT.................... 500 490 297 287
Profit on disposal of First Hydro......... (4) 25 25
Net interest payable and similar
charges................................. (5) (88) (68) (37) (33)
------ ------ ------ ------
PROFIT ON ORDINARY ACTIVITIES BEFORE
TAXATION................................ 412 447 260 279
Taxation charge for the period............ (6) (126) (137) (81) (89)
------ ------ ------ ------
PROFIT ON ORDINARY ACTIVITIES AFTER
TAXATION................................ 286 310 179 190
------ ------ ------ ------
EARNINGS PER SHARE
Pre-exceptional........................... (7) 58.8p 51.8p 38.2p 28.8p
Basic..................................... (7) 55.1p 59.5p 34.5p 36.5p
</TABLE>
Notes to the above pro forma consolidated profit and loss account are shown on
page III-33.
III-31
<PAGE>
NOTES TO THE PRO FORMA CONSOLIDATED PROFIT AND LOSS ACCOUNT
(1) The pro forma information for the year ended 30 September 1996 has been
extracted from the Listing Particulars issued during January 1997 in respect
of the demerger. This assumed additional net debt of L381 million arising as
a result of the demerger, together with an average interest rate of 6.2 per
cent.
(2) Restructuring and reorganisation costs relate to the re-opening of Eastern's
voluntary severance scheme.
(3) National Grid Group flotation relates to an interim dividend of L11 million
and special dividends (net of associated costs) totalling L165 million
received in connection with the flotation of the National Grid Group.
Amounts credited to electricity customers in the form of a discount on
electricity bills connected with this flotation totalled L132 million.
(4) Profit on disposal of First Hydro arose on the disposal of the Group's
interest in the pumped storage business of National Grid Group.
(5) Pro forma net interest payable and similar charges for the year ended 31
March 1997 are based on the actual interest charges borne by the individual
operating entities which now comprise the Group, increased for an additional
pro forma interest charge calculated as 7.5 per cent. of the actual
additional net debt allocated to the Group by Hanson on demerger.
Pro forma net interest payable and similar charges for the six months ended
31 March 1996 are calculated on a similar basis, but incorporating an
additional pro forma interest charge based on the additional net debt and
average interest rate assumed in the Listing Particulars.
(6) Pro forma tax charge for the year ended 31 March 1997 has been calculated at
the same effective rate before exceptional items as that which existed for
the six months ended 31 March 1997.
Pro forma tax charge for the six months ended 31 March 1996 has been
calculated at the same effective rate before exceptional items as that
assumed in the pro forma tax charge for the year ended 30 September 1996.
(7) The pro forma earnings per share for the six months ended 31 March 1996 have
been calculated on the pro forma profit for the period and on 520,857,817
shares, being the number of ordinary shares assumed in the Listing
Particulars.
The actual earnings per share for the six months ended 31 March 1997 and the
pro forma earnings per share for the year ended 31 March 1997 are based on
the respective actual and pro forma profits for the relevant periods and on
518,607,817 shares which excludes the 2,250,000 shares held by The Energy
Group Employee Benefit Trust, which has waived its right to dividends on the
shares it holds.
(8) No pro forma adjustments have been made for additional annual administration
costs that are expected to arise following the demerger. The directors
estimate that such costs will amount to approximately L15 million per annum.
III-32
<PAGE>
UNAUDITED PRO FORMA COMBINED PROFIT AND LOSS ACCOUNT AND STATEMENT OF NET
ASSETS.
The text on pages III-33 to III-35 has been extracted from pages 62 and 63
of the Energy Group Listing Particulars:
"UNAUDITED PRO FORMA COMBINED PROFIT AND LOSS ACCOUNT
The pro forma combined profit and loss account of the Group for the year
ended 30 September 1996 is as follows:
<TABLE>
<CAPTION>
NOTE HISTORICAL ADJUSTMENTS PRO FORMA
----- ----------- --------------- -----------
<S> <C> <C> <C> <C>
LMN LMN LMN
Turnover before special discount.................................... 3,767 -- 3,767
Costs and overheads less other income............................... (3,321) -- (3,321)
----------- --- -----------
Operating profit before exceptional items........................... 446 -- 446
National Grid Group flotation....................................... 44 -- 44
----------- --- -----------
Operating profit.................................................... 490 -- 490
Profit on disposal of First Hydro................................... 25 -- 25
Net interest........................................................ (1) (43) (25) (68)
----------- --- -----------
Profit on ordinary activities before taxation....................... 472 (25) 447
Taxation............................................................ (2) (115) (22) (137)
----------- --- -----------
Profit for the year................................................. 357 (47) 310
----------- --- -----------
----------- --- -----------
Earnings per share.................................................. (4) 68.5p 59.5p
----------- -----------
----------- -----------
Adjusted earnings per share......................................... 60.8p 51.8p
----------- -----------
----------- -----------
</TABLE>
Notes
(1) The adjustment to interest reflects the drawdown of L381 million under the
Group's principal banking facilities. Additional interest expense has been
calculated thereon at an effective rate of 6.2 per cent. based on three
month LIBOR at 30 September 1996 together with the margin payable under such
facilities. A change of 1/8 per cent. in the effective rate would change the
interest expense by less than L1 million per annum.
(2) The pro forma taxation adjustment has been calculated to reflect the impact
of the adjusted interest charge resulting from the change in the capital
structure of the Group following the Demerger (L8 million) and after
allowing for Group relief surrendered (L30 million) for nil consideration by
other Hanson Group companies.
(3) No adjustment has been made for additional annual administration costs that
are expected to arise following the Demerger. The Directors estimate that
such costs will amount to approximately L15 million per annum.
(4) Pro forma earnings per share have been calculated on the basis of the pro
forma profit for the year and on 521 million shares, being the expected
minimum number of Energy ordinary shares in issue at Admission. Adjusted pro
forma earnings per share are based on the same number of shares and the
profit for the year after excluding the items relating to the National Grid
Group flotation, the profit on disposal of the Group's interest in First
Hydro and related taxation.
III-33
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF NET ASSETS
The pro forma combined statement of net assets of the Group, based on its
combined balance sheet as at 30 September 1996, is as follows:
<TABLE>
<CAPTION>
PRO
NOTE HISTORICAL ADJUSTMENTS FORMA
----- ----------- --------------- ---------
<S> <C> <C> <C> <C>
LMN LMN LMN
FIXED ASSETS
Tangible.............................................................. 3,975 -- 3,975
Investments........................................................... 17 -- 17
----------- --- ---------
3,992 -- 3,992
----------- --- ---------
CURRENT ASSETS
Stocks................................................................ 254 -- 254
Amounts owed by Hanson Group.......................................... (1) 2 (2) --
Debtors falling due after one year.................................... 536 -- 536
Debtors falling due within one year................................... 763 -- 763
Investments........................................................... 8 -- 8
Cash at bank and in hand.............................................. (2) 173 -- 173
----------- --- ---------
1,736 (2) 1,734
----------- --- ---------
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Bank and other borrowings......................................... (2) (287) (381) (668)
Other creditors................................................... (754) -- (754)
----------- --- ---------
(1,041) (381) (1,422)
----------- --- ---------
NET CURRENT ASSETS.................................................... 695 (383) 312
----------- --- ---------
TOTAL ASSETS LESS CURRENT LIABILITIES................................. 4,687 (383) 4,304
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Long-term debt and finance leases................................. (2) (945) -- (945)
Provision for liabilities and charges............................. (1,557) -- (1,557)
----------- --- ---------
NET ASSETS............................................................ 2,185 (383) 1,802
----------- --- ---------
----------- --- ---------
</TABLE>
Net cash/(debt) is analysed as follows:
<TABLE>
<CAPTION>
PRO
HISTORICAL ADJUSTMENTS FORMA
----------- --------------- ---------
<S> <C> <C> <C>
LMN LMN LMN
Cash at bank and in hand...................................................... 173 -- 173
----------- --- ---------
Bank and other borrowings due within one year................................. (287) (381) (668)
Bank borrowings and loan notes due after one year............................. (945) -- (945)
----------- --- ---------
GROSS DEBT.................................................................... (1,232) (381) (1,613)
----------- --- ---------
NET DEBT...................................................................... (1,059) (381) (1,440)
----------- --- ---------
----------- --- ---------
</TABLE>
Notes:
(1) Immediately prior to the Demerger, net amounts owed by the Hanson Group
(other than the Relevant Peabody Debt, which will be settled before
completion of the Peabody Holding Transaction) will be settled.
(2) Under the Demerger Agreement, the Group is to assume additional borrowings
which on a pro forma basis as at 30 September 1996 would increase the
Group's net bank and other borrowings to
III-34
<PAGE>
L1,440 million. The adjustment shown above gives effect to the draw down of
L381 million under the New Credit Facility.
(3) In addition to the adjustment for the draw down of L381 million referred to
above, further adjustments have been agreed between the Company and Hanson
in respect of the period since 30 September 1996, reflecting principally the
Group's contribution towards the dividend paid by Hanson on 10 January 1997.
These adjustments amount to L30 million, as a result of which the total
amount expected to be drawn down under the New Credit Facility after
completion of the Demerger Transactions is approximately L411 million.
(4) No adjustments have been made to reflect trading since 30 September 1996."
4. COMBINED FINANCIAL INFORMATION.
The combined financial information on pages III-35 to III-60 has been
extracted from the ACCOUNTANTS' REPORTS--SECTION 1: THE GROUP contained in Part
4 of the Energy Group Listing Particulars.
"Basis of Preparation
The combined financial information has been prepared to show the performance
of the Group for the three years ended 30 September 1996 as if it had been in
existence from 1 October 1993 as described below. It is based on the audited
annual financial returns submitted to Hanson for consolidation purposes in
respect of Eastern, Peabody and the infrastructure companies. Peabody and the
infrastructure companies were wholly-owned by Hanson throughout the period.
Eastern was acquired by Hanson on 18 September 1995.
(i) The combined financial information has been prepared using merger
accounting principles as if the companies and businesses comprising the
Group had been part of the Group for all periods presented, or, in the
case of those acquired or disposed of by Hanson during this period, from
or up to the date control passed, as appropriate. In order for the Group
accounts to show a true and fair view, this basis of accounting will be
used following the Demerger.
Some individual elements of the reorganisation under Rollalong and of the
Demerger Transactions have been or will be for cash consideration. Such
individual elements do not satisfy all of the conditions for merger
accounting to be permitted in accordance with UK Financial Reporting
Standard 6 and Schedule 4A to the Companies Act 1985 (the "Companies
Act"), which would require such transfers to be accounted for using
acquisition accounting principles.
The Directors took account of the continuity of ownership under Hanson of
all of its energy-related businesses that will form the Group following
completion of the Demerger Transactions and considered that the Demerger
Transactions, taken as a whole, required the adoption of merger
accounting principles in order to show a true and fair view in accordance
with section 226(5) of the Companies Act.
The adoption of acquisition accounting principles for some individual
elements of the reorganisation under Rollalong and of the Demerger
Transactions would have required: the restatement at fair value of
certain assets and liabilities transferred; the recognition of goodwill
which, in some cases, would not be representative of that arising had the
transfers been conducted at arm's length; and the inclusion of the
results of certain businesses only from the various arbitrary dates
chosen for the transfers. As a result of the foregoing, in the opinion of
the directors, combined financial information using different bases of
accounting would not give a true and fair view. No quantification has
been given of the effects of this departure because to do so would be
misleading.
(ii) Although Eastern was acquired by Hanson on 18 September 1995, its
results and cash flows have been included in the combined financial
information based on an effective acquisition
III-35
<PAGE>
date of 30 September 1995. The results and cash flows for the period 19
to 30 September 1995 are not material.
(iii) Transactions and balances owing between companies and businesses
forming part of the Group have been eliminated.
(iv) Interest income and expense are based on amounts recorded in the
historical financial returns submitted to Hanson in respect of the
companies and businesses forming part of the Group. No adjustments have
been made to reflect the capital structure of the Group as it will be
following the Demerger and, as such, the historical level of interest
income and expense may not be representative of such amounts following
the Demerger.
(v) Taxation charges and liabilities are based on amounts recorded in the
historical financial returns submitted to Hanson in respect of the
companies and businesses forming part of the Group, except that
adjustments have been made, where appropriate, to provide for deferred
tax liabilities consequent upon the Group being on a stand-alone basis
following Demerger. Prior to the Demerger and in previous accounting
periods, there have been various tax-sharing arrangements between Hanson,
those subsidiaries that will form part of the Group after the Demerger
and other Hanson subsidiaries. These arrangements have had the effect
that tax charges shown in the combined financial information may not be
representative of tax charges that will be incurred following the
Demerger.
PRINCIPAL ACCOUNTING POLICIES
The combined financial information has been prepared in accordance with
applicable UK Accounting Standards. The principal accounting policies, which
have been applied consistently for all periods, are set out below.
ACCOUNTING CONVENTION
The combined financial information has been prepared in accordance with the
historical cost convention.
ACCOUNTING FOR ACQUISITIONS
The results of acquired companies and businesses are dealt with in the
combined financial information from the date of acquisition. On the acquisition
of a company or business, fair values reflecting conditions at the date of
acquisition are attributed to the identifiable tangible assets and liabilities
acquired. Where the consideration paid exceeds the fair value of the net
tangible assets acquired, the difference is treated as goodwill and is set off
against invested capital in the acquisition period.
ASSOCIATED UNDERTAKINGS
Investments that are not subsidiary undertakings but in which the Group has
a long-term interest of between 20 per cent. and 50 per cent. of the equity and
over which the Group exercises significant influence (other than those which are
joint ventures) have been accounted for as associated companies using the equity
method of accounting. Where the Group has an interest in an unincorporated joint
venture or a partnership, such interest has been accounted for using
proportional consolidation on a line-by-line basis.
TURNOVER
Coal sales revenue is recognised at the time of shipment. Electricity and
gas sales represent consumption by the customer during the year including an
estimated accrual for the value of electricity and gas consumed by customers
between the date of their last meter reading and the year end.
III-36
<PAGE>
Turnover is stated exclusive of UK value added tax but inclusive of related US
coal production duties and UK fossil fuel levy.
TANGIBLE FIXED ASSETS
(A) CAPITALISATION
Tangible fixed assets are stated at cost or valuation less accumulated
depreciation.
Interest costs relating to the construction or development of production
facilities are capitalised during the pre-production period. Interest costs
incurred after production has commenced are expensed.
Costs incurred to increase the productive capacity of a coal mine or gas
field are capitalised. Costs incurred to maintain the productive capacity of a
coal mine or gas field are expensed.
(B) DEPRECIATION AND DEPLETION
Buildings and improvements at coal mines are depreciated over the expected
productive life of the mine from the date that full production commences.
Depletion of coal and gas reserves is charged on a unit-of-production basis,
based on an assessment of available and proven reserves respectively.
Freehold land is not depreciated.
Depreciation of assets other than freehold land, coal and gas reserves and
buildings and improvements at coal mines is charged as follows:
<TABLE>
<S> <C>
Electricity generating system assets 30 years
Electricity distribution system assets 40 years at a rate of 3 per cent. per annum
for first 20 years and 2 per cent. per annum
for remaining 20 years
Freehold buildings up to 60 years
Leasehold buildings shorter of 60 years and remaining period of
lease
Telecommunications network 10 to 40 years
Plant, equipment and motor vehicles 2 to 49 years
</TABLE>
(C) ASSETS HELD UNDER LEASES
Assets held under finance leases are included within fixed assets at the
capitalised value of future minimum lease payments and are depreciated over the
shorter of their lease period and their useful life. The capital element of the
future payments is treated as a liability and the interest element is charged to
the profit and loss account so as to reflect a constant annual rate of interest
on the remaining balance of the outstanding obligation.
Rentals paid on operating leases are charged to the profit and loss account
on a straight-line basis over the shorter of the lease period and the useful
life of the leased asset.
(D) IMPAIRMENT
At each financial year end, an assessment is made of the recoverability of
the balance sheet carrying values of coal and gas assets. This assessment is
made individually at the lowest operational level at which income and cash flows
are monitored as a separate unit. A reduction in carrying value is triggered
when the current book value of such a unit of assets exceeds the undiscounted
future cash
III-37
<PAGE>
flows. Where shortfalls in cash flows compared with carrying values arise, the
assets are written down to fair value, determined usually by discounted future
cash flows from the assets.
(E) RECLAMATION, RESTORATION AND ABANDONMENT COSTS
Provision is made for surface reclamation and restoration costs in respect
of coal mines and for abandonment costs in respect of gas fields in accordance
with local conditions and requirements on the basis of costs estimated at the
balance sheet date. The costs are charged to accounting periods on a
unit-of-production basis for gas assets and over the life of the mine for coal.
(F) ENVIRONMENTAL COSTS AND OBLIGATIONS
Costs incurred in respect of environmental protection are capitalised if
they provide future economic benefit from the related production facility.
Liabilities for environmental clean-up costs are recognised when clean-ups are
probable and the associated costs can be estimated reasonably.
(G) CUSTOMERS' CONTRIBUTIONS
Customer contributions to electricity distribution system assets are
credited to the profit and loss account over a 40-year period at a rate of 3 per
cent. per annum for the first 20 years followed by 2 per cent. per annum for the
following 20 years. The unamortised amount of these contributions is shown as a
deduction from tangible fixed assets.
(H) DISPOSAL OF FIXED ASSETS
HM Government is entitled to a proportion of any gain realised by Eastern on
certain property disposals made up to 31 March 2000. A provision for clawback in
respect of such disposals is made to the extent that it is probable that a
liability would crystallise. Such a liability would crystallise when an actual
or deemed disposal occurs.
STOCKS
Stocks are stated at the lower of cost and net realisable value. Cost
includes labour, supplies, equipment and an appropriate proportion of operating
and overhead costs.
INVESTMENTS
Fixed asset investments are stated at cost or Directors' valuation less
provisions for permanent diminutions in value. Current asset investments are
stated at the lower of cost and net realisable value. Investment income is
included in the accounts of the year in which it is receivable.
FOREIGN CURRENCIES
Transactions in foreign currencies are recorded at the exchange rates ruling
at the date of the transactions. Monetary assets and liabilities denominated in
foreign currencies are translated at the rates of exchange ruling at the balance
sheet date. All differences on translation are taken to the profit and loss
account.
Average rates of exchange ruling during the period are used to translate the
profit and loss accounts of overseas subsidiary and associated undertakings. The
balance sheets of overseas subsidiary undertakings are translated at rates
ruling at the balance sheet date. Differences on translation arising from
changes in the sterling value of overseas net assets, together with the
differences between profit and loss accounts translated at average rates and at
balance sheet rates, are shown as a movement in invested capital and in the
statement of recognised gains and losses. Other exchange rate differences are
dealt with in the profit and loss account for the period.
III-38
<PAGE>
DEFERRED TAXATION
Deferred taxation is provided on the liability method in respect of timing
differences except where the liability or asset is not expected to crystallise
in the foreseeable future. No deferred tax asset is recognised corresponding to
liabilities provided for in respect of post-retirement healthcare benefits.
Provision is not made for additional taxation which might be payable if profits
retained by overseas companies were distributed as dividends.
HEALTHCARE AND OTHER OBLIGATIONS TO EMPLOYEES
The TEG Group provides healthcare and other benefits, including workers'
compensation benefits, to certain qualifying employees and former employees of
the Peabody companies and their dependants under the provisions of various
benefit plans or as required by US state or federal law. These benefits are
accrued and charged to the profit and loss account over the expected service
lives of the employees with the exception of pneumoconiosis (black lung)
benefits in respect of employees ceasing employment prior to 1 July 1973, which
are accounted for as payments are made. Pneumoconiosis benefits in respect of
employees ceasing employment after 30 June 1973 are estimated actuarially; the
last actuarial review was performed as at 1 October 1995. Other workers'
compensation benefits are also assessed actuarially.
PENSION COSTS
The Group operates retirement benefit schemes in the UK, the US and
Australia, in accordance with local regulations and custom. The assets of the
schemes are held in separate funds administered by trustees.
The cost of providing pensions is charged to the combined profit and loss
account over employees' service lives. The pension costs relating to those
schemes which provide defined benefits are assessed in accordance with the
advice of qualified actuaries.
III-39
<PAGE>
COMBINED PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED 30 SEPTEMBER
-------------------------------
<S> <C> <C> <C> <C>
NOTE 1994 1995 1996
----------- --------- --------- ---------
<CAPTION>
LMN LMN LMN
<S> <C> <C> <C> <C>
Turnover..................................................................... 1,247 1,446 3,635
Add: Special discount........................................................ -- -- 132
--------- --------- ---------
Turnover before special discount............................................. 1 1,247 1,446 3,767
Costs and overheads less other income........................................ 2 (1,148) (1,311) (3,321)
--------- --------- ---------
Operating profit before National Grid Group flotation........................ 99 135 446
National Grid Group flotation
dividends receivable..................................................... 4 -- -- 176
special discount......................................................... 4 -- -- (132)
--------- --------- ---------
Operating profit............................................................. 1 99 135 490
Profit on disposal of First Hydro............................................ 4 -- -- 25
Net interest................................................................. 5 (14) (11) (43)
--------- --------- ---------
Profit on ordinary activities before taxation................................ 85 124 472
Taxation..................................................................... 6 (17) (56) (115)
--------- --------- ---------
Profit for the year.......................................................... 68 68 357
--------- --------- ---------
--------- --------- ---------
Earnings per share........................................................... 7 13.1p 13.1p 68.5p
--------- --------- ---------
--------- --------- ---------
Adjusted earnings per share.................................................. 7 13.1p 13.1p 60.8p
--------- --------- ---------
--------- --------- ---------
</TABLE>
The net interest expense and taxation shown above were affected
significantly by the financing and taxation arrangements of Hanson Group.
Accordingly, the amounts of those items included above may not be representative
of those that may arise following the Demerger. The results of Eastern are
included from 1 October 1995. The results of Peabody Holding are included for
the three years ended 30 September 1996 as disclosed in Note 1.
COMBINED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES:
<TABLE>
<CAPTION>
YEAR ENDED
30 SEPTEMBER
-------------------------------------
<S> <C> <C> <C>
1994 1995 1996
----- ----- -----
<CAPTION>
LMN LMN LMN
<S> <C> <C> <C>
Profit for the year......................................................................... 68 68 357
Currency differences on foreign net investments............................................. (29) -- 20
-- --
---
Total recognised gains relating to the year................................................. 39 68 377
-- --
-- --
---
---
</TABLE>
III-40
<PAGE>
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
-------------------------------
<S> <C> <C> <C> <C>
NOTE 1994 1995 1996
----------- --------- --------- ---------
<CAPTION>
LMN LMN LMN
<S> <C> <C> <C> <C>
FIXED ASSETS
Tangible assets.............................................................. 8 2,190 3,774 3,975
Investments.................................................................. 9 6 37 17
--------- --------- ---------
2,196 3,811 3,992
--------- --------- ---------
CURRENT ASSETS
Stocks....................................................................... 10 120 161 254
Amounts due from the Hanson Group............................................ 196 12 2
Debtors
amounts falling due after one year......................................... 11 164 189 536
amounts falling due within one year........................................ 11 237 579 763
Investments.................................................................. 12 -- 547 8
Short-term deposits.......................................................... -- 264 --
Cash at bank and in hand..................................................... 106 79 173
--------- --------- ---------
823 1,831 1,736
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR............................... 13 (451) (862) (1,041)
--------- --------- ---------
NET CURRENT ASSETS........................................................... 372 969 695
--------- --------- ---------
TOTAL ASSETS LESS CURRENT LIABILITIES........................................ 2,568 4,780 4,687
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR...................... 13 (224) (911) (945)
PROVISIONS FOR LIABILITIES AND CHARGES....................................... 14 (1,372) (1,761) (1,557)
--------- --------- ---------
972 2,108 2,185
--------- --------- ---------
--------- --------- ---------
INVESTED CAPITAL............................................................. 15 972 2,108 2,185
--------- --------- ---------
--------- --------- ---------
</TABLE>
Amounts due from Hanson Group, investments, cash balances and borrowings may
not be representative of the financial position of the Group following the
Demerger. The net assets of Eastern are included as at 30 September 1995 and
1996. The net assets of Peabody Holding, further details of which are disclosed
in Note 1, are included at each of the dates shown above.
III-41
<PAGE>
COMBINED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED 30 SEPTEMBER
-------------------------------
<S> <C> <C> <C> <C>
NOTE 1994 1995 1996
----------- --------- --------- ---------
<CAPTION>
LMN LMN LMN
<S> <C> <C> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES........................................ 20 143 402 12
--- --- ---------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
National Grid Group flotation.................................................... -- -- 44
Interest paid.................................................................... (19) (11) (33)
--- --- ---------
(19) (11) 11
--- --- ---------
TAXATION
Tax paid......................................................................... (5) (4) (128)
--- --- ---------
INVESTING ACTIVITIES
Payments to acquire tangible fixed assets........................................ 8 (133) (140) (374)
Receipts from sales of tangible fixed assets..................................... 76 31 29
Sale of investments.............................................................. -- -- 235
Purchase of subsidiary undertakings.............................................. 21 -- 36 (2,495)
--- --- ---------
NET CASH OUTFLOW FROM INVESTING ACTIVITIES....................................... (57) (73) (2,605)
--- --- ---------
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING....................................... 62 314 (2,710)
--- --- ---------
FINANCING
Increase/(decrease) in borrowings................................................ 21 27 (20) 128
Changes in invested capital from cash funding.................................... 15 (61) (57) 2,290
--- --- ---------
Net cash (outflow)/inflow from financing......................................... (34) (77) 2,418
--- --- ---------
Net cash inflow/(outflow) after financing........................................ 22 28 237 (292)
--- --- ---------
--- --- ---------
</TABLE>
The returns on investments and servicing of finance, taxation and financing
cash flows shown above were affected significantly by the financing and taxation
arrangements of the Hanson Group. Accordingly, the cash flows of those items
included above may not be representative of those that may arise following the
Demerger. The cash flows of Eastern are included from 1 October 1995. The cash
flows for Peabody Holding are included for the three years ended 30 September
1996.
III-42
<PAGE>
NOTES TO THE COMBINED FINANCIAL INFORMATION
1 SEGMENTAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED 30 SEPTEMBER
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996
---------------------------- ---------------------------- -----------
<CAPTION>
OPERATING OPERATING
TURNOVER PROFIT/(LOSS) TURNOVER PROFIT/(LOSS) TURNOVER
----------- --------------- ----------- --------------- -----------
LMN LMN LMN LMN LMN
<S> <C> <C> <C> <C> <C>
By activity:
Coal....................................... 1,217 102 1,418 160 1,461
Power...................................... -- -- -- -- 2,178
Networks................................... -- -- -- -- 482
Other...................................... 30 (3) 28 (25) 24
Intra-group trading........................ -- -- -- -- (378)
----- --- ----- --- -----
1,247 99 1,446 135 3,767
Exceptional items
National Grid Group flotation.............. -- -- -- -- (132)
----- --- ----- --- -----
1,247 99 1,446 135 3,635
----- --- ----- --- -----
----- --- ----- --- -----
<CAPTION>
<S> <C>
OPERATING
PROFIT/(LOSS)
---------------
LMN
<S> <C>
By activity:
Coal....................................... 154
Power...................................... 83
Networks................................... 211
Other...................................... (2)
Intra-group trading........................ --
---
446
Exceptional items
National Grid Group flotation.............. 44
---
490
---
---
</TABLE>
Power turnover includes gas sales of L258 million in the year ended 30
September 1996.
All intra-group trading represent charges, at market rates, for use of the
distribution system from the Networks business to the Power business.
<TABLE>
<CAPTION>
YEAR ENDED 30 SEPTEMBER
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996
---------------------------- ---------------------------- -----------
<CAPTION>
OPERATING OPERATING
TURNOVER PROFIT TURNOVER PROFIT/(LOSS) TURNOVER
----------- --------------- ----------- --------------- -----------
LMN LMN LMN LMN LMN
<S> <C> <C> <C> <C> <C>
By geographical location:
United Kingdom................................ 22 6 22 (31) 2,303
US............................................ 1,108 66 1,297 141 1,317
Australia..................................... 117 27 127 25 147
--
----- ----- --- -----
1,247 99 1,446 135 3,767
Exceptional items
National Grid Group flotation................. -- -- -- -- (132)
--
----- ----- --- -----
1,247 99 1,446 135 3,635
--
--
----- ----- --- -----
----- ----- --- -----
<CAPTION>
<S> <C>
OPERATING
PROFIT
-------------
LMN
<S> <C>
By geographical location:
United Kingdom................................ 293
US............................................ 125
Australia..................................... 28
---
446
Exceptional items
National Grid Group flotation................. 44
---
490
---
---
</TABLE>
The above analysis of turnover shows the geographical segments from which
goods and services are supplied.
III-43
<PAGE>
1 SEGMENTAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED 30 SEPTEMBER
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
<CAPTION>
LMN LMN LMN
<S> <C> <C> <C>
Turnover by geographical destination:
United Kingdom..................................................................... 27 34 2,183
North and South America............................................................ 1,053 1,197 1,218
Rest of Europe..................................................................... 35 57 62
Asia/Pacific....................................................................... 132 158 172
--------- --------- ---------
1,247 1,446 3,635
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994 1995 1996
---------------------- ---------------------- ----------------------
<CAPTION>
TOTAL CAPITAL TOTAL CAPITAL TOTAL CAPITAL
ASSETS EMPLOYED ASSETS EMPLOYED ASSETS EMPLOYED
--------- ----------- --------- ----------- --------- -----------
LMN LMN LMN LMN LMN LMN
<S> <C> <C> <C> <C> <C> <C>
By activity:
Coal................................................... 2,933 1,277 3,004 1,399 3,102 1,440
Power.................................................. -- -- 608 273 1,317 889
Networks............................................... -- -- 1,149 1,008 1,192 1,089
Other.................................................. 86 (7) 69 (23) 30 (4)
--------- ----- --------- ----- --------- -----
3,019 1,270 4,830 2,657 5,641 3,414
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
By geographical location:
United Kingdom......................................... 44 7 1,780 1,283 2,520 1,981
US..................................................... 2,685 1,048 2,723 1,154 2,727 1,226
Australia.............................................. 290 215 327 220 394 207
--------- ----- --------- ----- --------- -----
3,019 1,270 4,830 2,657 5,641 3,414
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
</TABLE>
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
<CAPTION>
LMN LMN LMN
<S> <C> <C> <C>
Total assets are reconciled to the combined balance sheet as follows:
Assets analysed by activity........................................................ 3,019 4,830 5,641
Unallocated cash, investments and other assets..................................... -- 812 87
--------- --------- ---------
Total assets........................................................................... 3,019 5,642 5,728
--------- --------- ---------
--------- --------- ---------
</TABLE>
III-44
<PAGE>
1 SEGMENTAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
<CAPTION>
LMN LMN LMN
<S> <C> <C> <C>
Capital employed is reconciled to invested capital as follows:
Capital employed by activity.......................................................... 1,270 2,657 3,414
Current and deferred taxes........................................................ (99) (303) (147)
Borrowings less cash, investments and other unallocated assets and liabilities.... (199) (246) (1,082)
--------- --------- ---------
Invested capital...................................................................... 972 2,108 2,185
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED 30 SEPTEMBER
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996
-------------------------------- -------------------------------- ---------------
<CAPTION>
DEPRECIATION DEPRECIATION
CAPITAL AND CAPITAL AND CAPITAL
EXPENDITURE DEPLETION EXPENDITURE DEPLETION EXPENDITURE
--------------- --------------- --------------- --------------- ---------------
LMN LMN LMN LMN LMN
<S> <C> <C> <C> <C> <C>
By activity:
Coal............................ 133 113 140 119 98
Power........................... -- -- -- -- 134
Networks........................ -- -- -- -- 142
--- --- --- --- ---
133 113 140 119 374
--- --- --- --- ---
--- --- --- --- ---
<CAPTION>
<S> <C>
DEPRECIATION
AND
DEPLETION
---------------
LMN
<S> <C>
By activity:
Coal............................ 121
Power........................... 15
Networks........................ 61
---
197
---
---
</TABLE>
Included within Coal above are the following amounts in respect of Peabody
Holding which is expected to be transferred to the Group on 7 March 1997:
<TABLE>
<CAPTION>
YEAR ENDED 30 SEPTEMBER
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
<CAPTION>
LMN LMN LMN
<S> <C> <C> <C>
Turnover............................................................................... 1,051 1,234 1,255
Operating profit....................................................................... 46 107 101
Capital expenditure.................................................................... 64 98 69
Depreciation and depletion............................................................. 89 99 104
</TABLE>
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
<CAPTION>
LMN LMN LMN
<S> <C> <C> <C>
Total assets........................................................................... 2,389 2,408 2,422
Capital employed....................................................................... 648 668 949
</TABLE>
III-45
<PAGE>
2 COSTS AND OVERHEADS LESS OTHER INCOME
<TABLE>
<CAPTION>
YEAR ENDED 30 SEPTEMBER
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
<CAPTION>
LMN LMN LMN
<S> <C> <C> <C>
Changes in stocks of finished goods and work in progress............................... (6) (18) (19)
Raw materials and consumables.......................................................... 194 232 1,983
Employment costs (Note 3).............................................................. 304 321 411
Depreciation........................................................................... 60 58 128
Depletion.............................................................................. 53 61 69
Restructuring and reorganisation....................................................... -- 29 (29)
Other acquisition related costs of Eastern............................................. -- -- 31
Production taxes....................................................................... 113 138 162
Other operating charges less other income.............................................. 430 490 585
--------- --------- ---------
1,148 1,311 3,321
--------- --------- ---------
--------- --------- ---------
</TABLE>
The reorganisation provision created on the acquisition of Eastern in 1995
of L29 million is no longer deemed necessary and has been reversed in 1996. A
deferred tax asset of L11 million, recognised in 1995 to reflect the taxation
relief in respect of this provision, has also been reversed in 1996.
Other operating charges less other income for the year ended 30 September
1996 includes operating lease rentals payable of L77 million (1995 L20 million,
1994 L20 million) primarily in respect of plant and machinery and a credit of
L15 million, part of a L42 million reduction in the Group's provision relating
to an UMWA Combined Fund established under the Coal Mine Retiree Health Benefit
Act of 1992, which is being released over three years commencing in 1996.
<TABLE>
<CAPTION>
YEAR ENDED 30 SEPTEMBER
-------------------------------------
<S> <C> <C> <C>
1994 1995 1996
----------- ----- -----
<CAPTION>
LMN LMN LMN
<S> <C> <C> <C>
Audit fees.................................................................................. 0.4 0.4 0.8
Non-audit fees payable to Ernst & Young in the UK........................................... -- -- 7.3
</TABLE>
III-46
<PAGE>
3 EMPLOYEES
<TABLE>
<CAPTION>
YEAR ENDED
30 SEPTEMBER
-------------------------------------
<S> <C> <C> <C>
1994 1995 1996
----- ----- -----
<CAPTION>
LMN LMN LMN
<S> <C> <C> <C>
(A) EMPLOYMENT COSTS
Wages and salaries.......................................................................... 270 288 411
Employers' social security costs............................................................ 20 20 28
Pension costs (note 19)..................................................................... 14 13 17
--- --- ---
304 321 456
Less: amounts capitalised................................................................... -- -- (45)
--- --- ---
Charged to profit and loss account.......................................................... 304 321 411
--- --- ---
--- --- ---
</TABLE>
(B) NUMBERS EMPLOYED
The average number of persons employed by the Group was:
<TABLE>
<CAPTION>
NUMBER NUMBER NUMBER
----------- ----------- -----------
<S> <C> <C> <C>
United Kingdom..................................................................... 193 201 6,195
US................................................................................. 7,442 7,336 6,824
Australia.......................................................................... 1,054 1,069 1,098
----- ----- -----------
8,689 8,606 14,117
----- ----- -----------
----- ----- -----------
</TABLE>
The average number of persons employed by the Group by activity was:
<TABLE>
<CAPTION>
1994 1995 1996
NUMBER NUMBER NUMBER
----------- ----------- -----------
<S> <C> <C> <C>
Coal............................................................................... 8,488 8,399 7,916
Power.............................................................................. -- -- 1,630
Networks........................................................................... -- -- 4,370
Other.............................................................................. 201 207 201
----- ----- -----------
8,689 8,606 14,117
----- ----- -----------
----- ----- -----------
</TABLE>
4 EXCEPTIONAL ITEMS
During 1996, the Group received an interim dividend of L11 million and
special dividends (net of associated costs) totalling L165 million connected
with the flotation of The National Grid Group plc ("National Grid Group").
Amounts credited to electricity customers in the form of a discount on
electricity bills connected with this flotation totalled L132 million.
The profit on disposal of First Hydro of L25 million in 1996 arose on the
disposal of the Group's interest in the pumped storage business of National Grid
Group.
5 NET INTEREST
A significant proportion of the Group's cash and bank balances and borrowing
requirements were transferred to, or provided by, the Hanson Group. No interest
was received or paid on the amounts so transferred or provided.
III-47
<PAGE>
5 NET INTEREST (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
30 SEPTEMBER
-------------------------------------
<S> <C> <C> <C>
1994 1995 1996
----- ----- -----
<CAPTION>
LMN LMN LMN
<S> <C> <C> <C>
Interest expense
On loans wholly repayable within five years............................................. 7 5 68
On other loans.......................................................................... 10 10 20
Interest capitalised........................................................................ -- -- (8)
-- -- --
17 15 80
Interest income............................................................................. (3) (4) (37)
-- -- --
Net interest expense........................................................................ 14 11 43
-- -- --
-- -- --
</TABLE>
Included in interest payable is L7 million relating to finance leases for
the year ended 30 September 1996.
6 TAXATION CHARGE/(CREDIT)
<TABLE>
<CAPTION>
YEAR ENDED
30 SEPTEMBER
-------------------------------------
<S> <C> <C> <C>
1994 1995 1996
----- ----- -----
<CAPTION>
LMN LMN LMN
<S> <C> <C> <C>
UNITED KINGDOM
Corporation tax at 33 per cent.............................................................. -- -- 3
Adjustment in respect of previous years..................................................... -- -- (15)
Advance corporation tax written off......................................................... 1 -- --
Deferred taxation........................................................................... -- (11) 22
Tax credit on franked investment income..................................................... -- -- 29
-- --
---
1 (11) 39
OVERSEAS
Current taxation............................................................................ 21 25 19
Deferred taxation........................................................................... (5) 42 57
-- --
---
Charge for the period....................................................................... 17 56 115
-- --
-- --
---
---
This taxation charge for the period has been reduced by the following amounts arising from
group relief surrendered for nil consideration by other Hanson Group companies............ -- -- 30
-- --
-- --
---
---
</TABLE>
If full provision had been made for deferred tax for the year ended 30
September 1996, the tax charge would have increased by L31 million (1995 Lnil,
1994 reduced by L6 million) being L32 million in respect of capital allowances
in excess of depreciation less L1 million in respect of other timing
differences. As a result of the stand-alone basis of providing for deferred tax,
the charge for deferred tax shown above has been increased by L57 million for
the year ended 30 September 1996 (1995 L42 million, 1994 reduced by L5 million).
As a result of the surrender of group relief for nil consideration, together
with the taxation effects of the National Grid Group flotation, the tax charge
shown is not representative of the charge that may arise following the Demerger
Transactions.
III-48
<PAGE>
6 TAXATION CHARGE/(CREDIT) (CONTINUED)
A reconciliation of the tax charge at the UK statutory rate of corporation
tax to the actual tax charge is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
30 SEPTEMBER
-------------------------------------
<S> <C> <C> <C>
1994 1995 1996
----- ----- -----
<CAPTION>
LMN LMN LMN
<S> <C> <C> <C>
Profit before taxation...................................................................... 85 124 472
--
--
--- ---
--- ---
Notional UK corporation tax at 33 per cent.................................................. 28 41 156
Permanent differences....................................................................... (4) (20) (4)
Timing differences.......................................................................... (4) 3 (31)
Free group relief........................................................................... -- -- (30)
Effect of overseas tax rates................................................................ (3) 32 39
Adjustments in respect of prior years....................................................... -- -- (15)
--
--- ---
Actual tax charge........................................................................... 17 56 115
--
--
--- ---
--- ---
</TABLE>
7 EARNINGS PER SHARE
Earnings per share are based on the profit for the year in each year and on
521 million ordinary shares, being the expected minimum number of ordinary
shares in the Company which will be issued in respect of the Demerger. Adjusted
earnings per share are based on the same number of shares and the profit for the
year after excluding the items relating to the National Grid Group flotation,
the profit on disposal of First Hydro and the related taxation as follows:
<TABLE>
<CAPTION>
YEAR ENDED
30 SEPTEMBER
-------------------------------------
<S> <C> <C> <C>
1994 1995 1996
----- ----- -----
<CAPTION>
LMN LMN LMN
<S> <C> <C> <C>
Profit for the year as reported............................................................. 68 68 357
Adjusted for
National Grid Group flotation........................................................... -- -- (44)
Profit on disposal of First Hydro....................................................... -- -- (25)
Related taxation........................................................................ -- -- 29
-- --
---
Profit as adjusted.......................................................................... 68 68 317
-- --
-- --
---
---
</TABLE>
III-49
<PAGE>
8 TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
PLANT,
COAL EQUIPMENT
LAND AND AND GAS DISTRIBUTION GENERATING AND MOTOR
BUILDINGS ASSETS SYSTEM STATIONS VEHICLES
------------- ----------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
LMN LMN LMN LMN LMN
COST
As at 1 October 1993............................... -- 2,298 -- -- 832
Exchange adjustments............................... -- (99) -- -- (26)
Additions.......................................... -- 55 -- -- 77
Disposals.......................................... -- (101) -- -- (52)
--
----- --- --- -----
As at 30 September 1994............................ -- 2,153 -- -- 831
Exchange adjustments............................... -- (5) -- -- --
Additions.......................................... -- 36 -- -- 104
Acquisitions....................................... 78 228 904 261 118
Disposals.......................................... -- (30) -- -- (72)
--
----- --- --- -----
As at 30 September 1995............................ 78 2,382 904 261 981
Exchange adjustments............................... -- 35 -- -- 18
Additions.......................................... 14 55 83 93 129
Disposals.......................................... (17) (6) -- -- (32)
--
----- --- --- -----
As at 30 September 1996............................ 75 2,466 987 354 1,096
--
--
----- --- --- -----
----- --- --- -----
ACCUMULATED DEPRECIATION AND DEPLETION
As at 1 October 1993............................... -- 289 -- -- 505
Exchange adjustments............................... -- (14) -- -- (18)
Charge for the year................................ -- 53 -- -- 60
Disposals.......................................... -- (34) -- -- (47)
--
----- --- --- -----
As at 30 September 1994............................ -- 294 -- -- 500
Exchange adjustments............................... -- (2) -- -- --
Charge for the year................................ -- 61 -- -- 58
Disposals.......................................... -- (23) -- -- (56)
--
----- --- --- -----
As at 30 September 1995............................ -- 330 -- -- 502
Exchange adjustments............................... -- 6 -- -- 10
Charge for the year................................ 2 69 39 7 80
Disposals.......................................... -- (16) -- -- (26)
--
----- --- --- -----
As at 30 September 1996............................ 2 389 39 7 566
--
--
----- --- --- -----
----- --- --- -----
NET BOOK VALUE
As at 1 October 1993............................... -- 2,009 -- -- 327
--
--
----- --- --- -----
----- --- --- -----
As at 30 September 1994............................ -- 1,859 -- -- 331
--
--
----- --- --- -----
----- --- --- -----
As at 30 September 1995............................ 78 2,052 904 261 479
--
--
----- --- --- -----
----- --- --- -----
As at 30 September 1996............................ 73 2,077 948 347 530
--
--
----- --- --- -----
----- --- --- -----
<CAPTION>
TOTAL
---------
<S> <C>
LMN
COST
As at 1 October 1993............................... 3,130
Exchange adjustments............................... (125)
Additions.......................................... 132
Disposals.......................................... (153)
---------
As at 30 September 1994............................ 2,984
Exchange adjustments............................... (5)
Additions.......................................... 140
Acquisitions....................................... 1,589
Disposals.......................................... (102)
---------
As at 30 September 1995............................ 4,606
Exchange adjustments............................... 53
Additions.......................................... 374
Disposals.......................................... (55)
---------
As at 30 September 1996............................ 4,978
---------
---------
ACCUMULATED DEPRECIATION AND DEPLETION
As at 1 October 1993............................... 794
Exchange adjustments............................... (32)
Charge for the year................................ 113
Disposals.......................................... (81)
---------
As at 30 September 1994............................ 794
Exchange adjustments............................... (2)
Charge for the year................................ 119
Disposals.......................................... (79)
---------
As at 30 September 1995............................ 832
Exchange adjustments............................... 16
Charge for the year................................ 197
Disposals.......................................... (42)
---------
As at 30 September 1996............................ 1,003
---------
---------
NET BOOK VALUE
As at 1 October 1993............................... 2,336
---------
---------
As at 30 September 1994............................ 2,190
---------
---------
As at 30 September 1995............................ 3,774
---------
---------
As at 30 September 1996............................ 3,975
---------
---------
</TABLE>
The net book value of land and buildings at 30 September 1996 comprises
freeholds of L72 million (1995 L77 million, 1994 Lnil), long leaseholds of L1
million (1995 L1 million, 1994 Lnil) and short leaseholds of Lnil (1995 Lnil,
1994 Lnil).
III-50
<PAGE>
8 TANGIBLE FIXED ASSETS (CONTINUED)
Coal and gas assets at 30 September 1996 include natural gas assets with a
cost of L35 million (1995 L17 million, 1994 Lnil), accumulated depletion of L2
million (1995 Lnil, 1994 Lnil) and net book value of L33 million (1995 L17
million, 1994 Lnil).
Plant, equipment and motor vehicles at 30 September 1996 include assets
relating to the coal business with a cost of L931 million (1995 L888 million,
1994 L820 million), accumulated depreciation of L540 million (1995 L502 million,
1994 L500 million) and net book value of L391 million (1995 L386 million, 1994
L320 million).
Capitalised interest at 30 September 1996 included within fixed assets
amounts to L8 million (1995 Lnil, 1994 Lnil).
The cost of distribution system fixed assets at 30 September 1996 is shown
net of customer contributions of L343 million (1995 L308 million, 1994 Lnil).
The net book value of customer contributions at 30 September 1996 was L256
million (1995 L230 million, 1994 Lnil).
Assets in the course of construction at 30 September 1996 amounted to L310
million (1995 L176 million, 1994 Lnil).
Generating stations include assets held under finance leases as follows:
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
-------------------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
LMN LMN LMN
Cost........................................................................................ -- 120 128
Accumulated depreciation.................................................................... -- -- (12)
--- --- ---
Net book value.............................................................................. -- 120 116
--- --- ---
--- --- ---
</TABLE>
9 FIXED ASSET INVESTMENTS
<TABLE>
<CAPTION>
LOANS TO UNLISTED
ASSOCIATES INVESTMENTS TOTAL
--------------- ----------------- -----
<S> <C> <C> <C>
LMN LMN LMN
As at 1 October 1993........................................................... -- 5 5
Share of retained profit/(loss)................................................ -- 1 1
-- -- --
As at 30 September 1994........................................................ -- 6 6
Acquisitions................................................................... 16 15 31
-- -- --
As at 30 September 1995........................................................ 16 21 37
Disposals...................................................................... (16) (4) (20)
-- -- --
As at 30 September 1996........................................................ -- 17 17
-- -- --
-- -- --
</TABLE>
III-51
<PAGE>
10 STOCKS
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
-------------------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
LMN LMN LMN
Raw materials and consumables............................................................... 52 65 152
Work in progress............................................................................ 20 48 52
Finished stock and items for resale......................................................... 48 48 50
--- --- ---
120 161 254
--- --- ---
--- --- ---
</TABLE>
11 DEBTORS
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
-------------------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
LMN LMN LMN
Amounts falling due after more than one year
Advance corporation tax recoverable..................................................... -- 12 84
Royalties receivable and other debtors.................................................. 164 177 182
Operating lease prepayments............................................................. -- -- 270
--- --- ---
164 189 536
--- --- ---
--- --- ---
Amounts falling due within one year
Trade debtors........................................................................... 167 483 502
Other debtors and prepayments........................................................... 70 96 261
--- --- ---
237 579 763
--- --- ---
--- --- ---
</TABLE>
12 CURRENT ASSET INVESTMENTS
Current asset investments at 30 September 1995 include the Group's
investment in National Grid Group of L393 million, which was distributed to
Hanson during 1996 as a dividend in specie.
13 CREDITORS
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
-----------------------------------
1994 1995 1996
----- ----- ---------
<S> <C> <C> <C>
LMN LMN LMN
Amounts falling due within one year
Bank overdrafts....................................................................... -- -- 119
Short-term loans...................................................................... 33 7 14
Commercial paper...................................................................... 54 61 144
Finance leases........................................................................ -- -- 10
Trade creditors....................................................................... 90 288 313
Corporation tax....................................................................... 12 115 39
Other taxation and social security.................................................... 32 43 61
Other creditors....................................................................... 8 105 49
Accruals and deferred income.......................................................... 222 243 292
--- --- ---------
451 862 1,041
--- --- ---------
--- --- ---------
</TABLE>
III-52
<PAGE>
13 CREDITORS (CONTINUED)
Weighted average interest rates at 30 September 1996 on bank overdrafts were
7.4 per cent., short-term loans 7.5 per cent. and commercial paper 7.1 per cent.
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
-------------------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
LMN LMN LMN
Amounts falling due after more than one year
Loans not wholly repayable within 5 years
$300 million 5% subordinated income note 2006 (1994 $320 million,
1995 $310 million).................................................................. 203 196 192
L350 million 8.375% bonds 2004........................................................ -- 347 347
L200 million 8.5% bonds 2025.......................................................... -- 197 197
--- --- ---
203 740 736
Other loans repayable within 5 years.................................................... 21 27 56
Net obligations under finance leases.................................................... -- 144 153
--- --- ---
224 911 945
--- --- ---
--- --- ---
</TABLE>
L100 million of the L350 million 8.375 per cent. bonds has been converted
into floating rate debt by way of interest rate swaps expiring in 2004. At 30
September 1996, the weighted average interest rate payable was 5.7 per cent.
(1995 6.6 per cent.). Amounts shown above for bonds are net of unamortised issue
costs.
Long-term debt and finance leases are repayable as at 30 September 1996 as
follows:
<TABLE>
<CAPTION>
LMN
<S> <C>
1998....................................................................................................... 29
1999....................................................................................................... 32
2000....................................................................................................... 43
2001....................................................................................................... 28
2002....................................................................................................... 26
thereafter................................................................................................. 787
---
945
---
---
</TABLE>
Long-term debt and finance leases are denominated in the following
currencies:
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
-------------------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
LMN LMN LMN
Sterling.................................................................................... -- 688 689
US dollars.................................................................................. 224 223 248
Australian dollars.......................................................................... -- -- 8
--- --- ---
224 911 945
--- --- ---
--- --- ---
</TABLE>
III-53
<PAGE>
14 PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
HEALTH CARE AND RECLAMATION AND
OBLIGATIONS TO ENVIRONMENTAL DEFERRED
EMPLOYEES OBLIGATIONS TAXATION OTHERS TOTAL
------------------- ------------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
LMN LMN LMN LMN LMN
As at 1 October 1993........................... 966 378 101 68 1,513
Exchange adjustments........................... (49) (20) (5) (2) (76)
Utilised in year............................... (84) (38) (4) (8) (134)
Provided/(released) in year.................... 84 (8) (5) 2 73
Acquisitions................................... -- (3) -- (1) (4)
--- --- --- --- ---------
As at 30 September 1994........................ 917 309 87 59 1,372
Exchange adjustments........................... (3) (1) (2) -- (6)
Utilised in year............................... (68) (43) -- (29) (140)
Provided/(released) in year.................... 65 23 42 36 166
Acquisitions................................... 8 17 86 258 369
--- --- --- --- ---------
As at 30 September 1995........................ 919 305 213 324 1,761
Exchange adjustments........................... 12 4 1 -- 17
Utilised in year............................... (80) (43) 7 (62) (178)
Provided/(released) in year.................... 48 19 57 (4) 120
Acquisition adjustment (Note 16)............... -- -- (86) (77) (163)
--- --- --- --- ---------
As at 30 September 1996........................ 899 285 192 181 1,557
--- --- --- --- ---------
--- --- --- --- ---------
</TABLE>
Deferred tax provided as at 30 September 1996 includes L142 million (1995
L119 million, 1994 liabilities reduced by L7 million) in respect of liabilities
recognised by the Group, consequent upon being on a stand-alone basis following
Demerger. The provided and unprovided liabilities to deferred taxation were as
follows:
<TABLE>
<CAPTION>
AMOUNTS PROVIDED AMOUNTS
UNPROVIDED
AS AT 30 SEPTEMBER AS AT 30
SEPTEMBER
-------------------- ---------
1994 1995 1996 1994
----- ----- ----- ---------
<S> <C> <C> <C> <C>
LMN LMN LMN LMN
Excess of capital allowances................................................. 27 82 100 543
Post retirement healthcare benefits.......................................... -- -- -- (209)
Other timing differences..................................................... 60 45 92 (194)
--
--- --- ---
87 127 192 140
Acquisitions
Excess of capital allowances................................................. -- -- -- --
Other timing differences..................................................... -- 86 -- --
--
--- --- ---
87 213 192 140
--
--
--- --- ---
--- --- ---
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
LMN LMN
Excess of capital allowances................................................. 543 803
Post retirement healthcare benefits.......................................... (220) (226)
Other timing differences..................................................... (183) (200)
--- ---
140 377
Acquisitions
Excess of capital allowances................................................. 228 --
Other timing differences..................................................... (22) --
--- ---
346 377
--- ---
--- ---
</TABLE>
III-54
<PAGE>
15 INVESTED CAPITAL
Invested capital represents the total investment and long-term funding of
the Group by the Hanson Group. A reconciliation of movements in invested capital
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED 30 SEPTEMBER
---------------------------------
1994 1995 1996
----- --------- ---------
<S> <C> <C> <C>
LMN LMN LMN
Profit for the year.................................................................... 68 68 357
Other net recognised gains/(losses) relating to the year............................... (29) -- 20
Increases/(decreases) in funding by Hanson
Cash............................................................................... (61) (57) 2,290
Non-cash........................................................................... 95 2,493 (2,418)
Dividend in specie of investment in National Grid Group............................ -- -- (393)
Goodwill (set off)/write back.......................................................... -- (1,368) 221
--- --------- ---------
Net addition to invested capital....................................................... 73 1,136 77
Opening invested capital............................................................... 899 972 2,108
--- --------- ---------
Closing invested capital............................................................... 972 2,108 2,185
--- --------- ---------
--- --------- ---------
</TABLE>
The total amount of goodwill set off against invested capital at 30
September 1996 is L1,147 million (1995 L1,368 million, 1994 Lnil).
16 ACQUISITIONS
There were no significant acquisitions in the year ended 30 September 1994
and the year ended 30 September 1996.
Eastern was acquired by Hanson on 18 September 1995. As explained above,
Eastern has been included in the combined balance sheet of the Group as at 30
September 1995 and in its results from 1 October 1995. The Caballo and Rawhide
mines were acquired by Peabody on 1 November 1994.
The operating assets and liabilities of Eastern and the Caballo and Rawhide
mines together with the fair value adjustments were as follows:
<TABLE>
<CAPTION>
CABALLO
EASTERN AND RAWHIDE 1995 1996
BOOK MINES TOTAL TOTAL TOTAL TOTAL
VALUE BOOK VALUE BOOK VALUE ADJUSTMENTS FAIR VALUE ADJUSTMENTS
----------- ----------------- ------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
LMN LMN LMN LMN LMN LMN
Fixed assets..................... 1,106 124 1,230 359 1,589 --
Stock............................ 12 10 22 -- 22 --
Debtors.......................... 379 2 381 (13) 368 13
Cash............................. 264 -- 264 -- 264 --
Unlisted investments............. 284 -- 284 295 579 44
Creditors........................ (392) (10) (402) (17) (419) 17
Loans and finance leases......... (688) -- (688) -- (688) --
Provisions for liabilities and
charges........................ (129) (11) (140) (220) (360) 147
----- --- ----- --- ----------- ---
836 115 951 404 1,355 221
----- --- ----- --- ----------- ---
----- --- ----- --- ----------- ---
Consideration (Eastern L2,496 million; Caballo and Rawhide L227 million).........................
2,723
Goodwill (Eastern)............................................................................... (1,368)
-----------
1,355
-----------
-----------
<CAPTION>
1996
TOTAL
FAIR VALUE
-----------
<S> <C>
LMN
Fixed assets..................... 1,589
Stock............................ 22
Debtors.......................... 381
Cash............................. 264
Unlisted investments............. 623
Creditors........................ (402)
Loans and finance leases......... (688)
Provisions for liabilities and
charges........................ (213)
-----------
1,576
-----------
-----------
Consideration (Eastern L2,496 mil
2,723
Goodwill (Eastern)............... (1,147)
-----------
1,576
-----------
-----------
</TABLE>
III-55
<PAGE>
16 ACQUISITIONS (CONTINUED)
The following fair value adjustments relating to Eastern and the Caballo and
Rawhide mines were made to the book values of the assets and liabilities
acquired:
<TABLE>
<CAPTION>
CABALLO
AND
RAWHIDE 1995 1996 1996
EASTERN MINES TOTAL EASTERN TOTAL
----------- ------------- --------- ----------- -----
<S> <C> <C> <C> <C> <C>
LMN LMN LMN LMN LMN
Tangible fixed assets.............................................. 242 117 359 -- 359
Unlisted investments............................................... 295 -- 295 44 339
Debtors............................................................ (13) -- (13) 13 --
Liabilities in respect of purchase contracts....................... (129) -- (129) 61 (68)
Creditors.......................................................... (17) -- (17) 17 --
Deferred tax....................................................... (86) -- (86) 86 --
Other liabilities.................................................. -- (5) (5) -- (5)
--- --- --- --- ---
292 112 404 221 625
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
Goodwill arising at the time of acquisition of Eastern of L1,368 million has
been reduced in 1996 by L221 million principally as a result of the release of
provisions no longer considered necessary.
17 CONTINGENT LIABILITIES
Certain properties in the US in which the Group has or has had an interest
are subject to actual or potential environmental claims. The Directors have made
a L44 million provision, included in provisions for reclamation and
environmental obligations (Note 14), in relation to these claims, but
significant uncertainty exists as to whether these claims will be pursued
against the Group in all cases and, where they are pursued, the amount of the
eventual costs and liabilities. In the event that future costs and liabilities
are in excess of amounts accrued, the Directors do not anticipate that they will
have a material adverse effect on the combined results of operations, financial
position or liquidity of the Group.
The next general election in the UK must be held by no later than 22 May
1997. The Labour Party has announced that, if it is elected to office at that
election, it will impose a one-off "windfall levy" on profits of the privatised
utilities. It is not possible to predict the amount of any such levy, but, if
imposed, such levy could be substantial.
In December 1996, a provisional ruling was made against National Grid Group
and its Group Trustees by the Pensions Ombudsman on a complaint by two
pensioners in the National Grid Group's section of the Electricity Supply Scheme
("ESPS") relating to the use of the surplus arising under the actuarial
valuation of the National Grid Group section as at 31 March 1992 to meet certain
additional costs arising from the payment of pensions on early retirement
pursuant to reorganisation or redundancy and certain additional contributions.
This ruling is under appeal. If a similar complaint were to be made against
Eastern in relation to its use of actuarial surplus in its section of the ESPS,
it would resist it, ultimately through the courts. However, if an equivalent
determination were finally to be made against it and upheld by the courts,
Eastern could have a potential liability to repay to its part of that scheme an
amount estimated by the directors to be up to L75 million (exclusive of any
applicable interest charges).
III-56
<PAGE>
18 FINANCIAL COMMITMENTS
(a) Capital commitments of the Group were as follows:
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
-------------------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
LMN LMN LMN
Contracted but not provided for............................................................. 49 110 83
Authorised but not contracted for........................................................... -- 30 164
--
--- ---
49 140 247
--
--
--- ---
--- ---
</TABLE>
(b) Gas take or pay contracts
There are various types of contracts for the purchase of gas. Almost all
include "take or pay" obligations under which the buyer agrees to pay for a
minimum quantity of gas in a year. In order to help meet the expected needs of
its wholesale and retail customers, Eastern has entered into a range of purchase
contracts. As at 30 September 1996 the commitments under long-term gas purchase
contracts amounted to an estimated L2.3 billion (1995 L1.4 billion) covering
periods up to 18 years forward. The directors do not consider it likely, on the
basis of the Group's current expectations of demand from its customers as
compared with its take or pay obligations under such purchase contracts, that
any material payments will become due from the Group in the foreseeable future
for gas not taken.
(c) The future minimum rental commitments at 30 September 1996, under
finance leases and non-cancellable operating leases, together with the present
value of minimum lease payments under finance leases were as follows:
<TABLE>
<CAPTION>
OPERATING FINANCE
YEAR ENDED 30 SEPTEMBER LEASES LEASES
- -------------------------------------------------------------------------------------------- ------------- -----------
<S> <C> <C>
LMN LMN
1997........................................................................................ 40 16
1998........................................................................................ 51 16
1999........................................................................................ 50 16
2000........................................................................................ 87 16
2001........................................................................................ 86 16
thereafter.................................................................................. 389 139
--- ---
Total minimum lease payments................................................................ 703 219
---
---
Less amount representing interest........................................................... (56)
---
Present value of minimum lease payments..................................................... 163
---
---
</TABLE>
The majority of the operating lease commitments relate to coal-fired power
stations. Additional payments of approximately L6 per megawatt hour (indexed)
linked to output levels from these stations are payable for between the first
five and seven years of their operation by the Group.
(d) The annual commitments under non-cancellable operating leases at 30
September 1996 were:
<TABLE>
<CAPTION>
LAND AND
BUILDINGS OTHER
------------- -----------
<S> <C> <C>
LMN LMN
Leases expiring
Within one year........................................................................... -- --
Within two to five years.................................................................. -- 9
After five years.......................................................................... 2 29
--- ---
2 38
--- ---
--- ---
</TABLE>
III-57
<PAGE>
19 PENSION AND POST-RETIREMENT HEALTHCARE
PENSIONS
The Group participates in several defined benefit pension plans in the UK,
the US and Australia which cover the majority of employees. The benefits for
these plans are based primarily on years of credited service and final average
pensionable pay as defined under the respective plan provisions.
The total cost of all pensions of the Group in the years ended 30 September
1994, 1995 and 1996, was L14 million, L13 million and L17 million, respectively.
The latter amount includes L4 million relating to UK employees and L10 million
in respect of additional one-off cash retirement costs for US employees.
In the US, Peabody sponsors four main defined benefit pension plans. With
the exception of one plan, assets are set aside in separate trustee-administered
funds. Each of these plans is assessed annually by independent qualified
actuaries, the latest valuations being as at 30 September 1996. In addition,
Peabody participates in two multi-employer plans. In these plans, the assets
contributed by the participating employers are aggregated and the contributions
payable are determined by independent qualified actuaries in accordance with
industry-wide agreements. Peabody also has a number of defined contribution
plans. Costs relating to the multi-employer and the defined contribution plans
are recognised as incurred.
In the UK, the majority of Eastern employees are members of the ESPS which
provides pensions of a defined benefit nature for employees throughout the
Electricity Supply Industry. The ESPS operates on the basis that there is not
cross-subsidy between employers and the financing of Eastern's pension
liabilities is therefore independent of the experience of other participating
employers. The assets of the ESPS are held in a separate trustee-administered
fund.
The pension cost relating to the Eastern part of the ESPS is assessed in
accordance with the advice of independent qualified actuaries using the
projected unit method. The latest actuarial valuation was carried out as at 31
March 1995.
The total market value of the assets of the US plans, excluding the
multi-employer and defined contribution plans, was L255 million as at 30
September 1996. The market value of the assets of Eastern's section of the ESPS
was L681 million at 31 March 1995.
The assumptions which had the most significant effect on the results of the
valuations were that the rate of investment return would exceed salary increases
(exclusive of merit awards) by 2 1/2 per cent. per annum for the UK plans and by
an average 3 1/2 per cent. per annum in the US, and with investment returns in
the UK being assumed to exceed future pension increases by 4 per cent. per
annum. The actuarial value of the assets was sufficient to cover 104 per cent.
of the benefits that had accrued to members in the UK and 91 per cent. in the
US.
Provisions for liabilities and charges (Note 14) include a prepayment of L1
million (provision of L1 million at 30 September 1994 and L10 million at 30
September 1995) representing the excess of the contributions paid to the plans
concerned over the accumulated amount charged against the Group's profits in
respect of pension costs.
POST-RETIREMENT HEALTHCARE
The Group also provides post-retirement healthcare and life assurance
benefits under plans mainly in the US to certain groups of its retired and
active employees.
III-58
<PAGE>
20 RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING
ACTIVITIES
<TABLE>
<CAPTION>
YEAR ENDED 30 SEPTEMBER
-----------------------------------
1994 1995 1996
----- ----- ---------
<S> <C> <C> <C>
LMN LMN LMN
Operating profit before National Grid Group flotation...................................... 99 135 446
Depreciation and depletion................................................................. 113 119 197
Profit on sale of fixed assets............................................................. (4) (8) (16)
Increase in stocks......................................................................... (11) (19) (93)
(Increase)/decrease in debtors............................................................. (62) 197 (94)
Operating lease prepayments................................................................ -- -- (342)
Increase/(decrease) in creditors........................................................... 60 (6) 36
Decrease in provisions and other long-term creditors....................................... (52) (16) (122)
--- --- ---
Net cash inflow from operating activities.................................................. 143 402 12
--- --- ---
--- --- ---
</TABLE>
21 ANALYSIS OF CHANGES IN FINANCING
<TABLE>
<CAPTION>
LONG-TERM LOANS CURRENT LOANS
AND FINANCE LEASE AND NOTES
OBLIGATIONS PAYABLE TOTAL
--------------------- ----------------- ---------
<S> <C> <C> <C>
LMN LMN LMN
As at 1 October 1993................................................. 245 51 296
Exchange adjustments................................................. (12) -- (12)
Cash (outflow)/inflow from financing................................. (9) 36 27
--- --- ---------
As at 30 September 1994.............................................. 224 87 311
Exchange adjustments................................................. (1) 1 --
Cash inflow/(outflow) from financing................................. -- (20) (20)
Loans and finance lease obligations of Eastern....................... 688 -- 688
--- --- ---------
As at 30 September 1995.............................................. 911 68 979
Exchange adjustments................................................. 3 3 6
Cash inflow from financing........................................... 31 97 128
--- --- ---------
As at 30 September 1996.............................................. 945 168 1,113
--- --- ---------
--- --- ---------
</TABLE>
In 1996, the Group distributed its shareholding in National Grid Group to
Hanson as a dividend in specie of L393 million which is reflected in invested
capital.
Analysis of net inflow/(outflow) of cash and cash equivalents in respect of
the acquisition of subsidiaries:
<TABLE>
<CAPTION>
YEAR ENDED 30 SEPTEMBER
---------------------------------
1994 1995 1996
----- --------- ---------
<S> <C> <C> <C>
LMN LMN LMN
Cash consideration for Eastern........................................................... -- (1) (2,495)
Cash consideration for the Caballo and Rawhide mines..................................... -- (227) --
Deposits acquired on acquisition of Eastern.............................................. -- 264 --
--- --- ---------
-- 36 (2,495)
--- --- ---------
--- --- ---------
</TABLE>
III-59
<PAGE>
22 ANALYSIS OF CHANGES IN CASH AND CASH EQUIVALENTS AND DEPOSITS
<TABLE>
<CAPTION>
CASH AND
SHORT-TERM
DEPOSITS OVERDRAFTS TOTAL
------------- ------------- ---------
<S> <C> <C> <C>
LMN LMN LMN
As at 1 October 1993............................................................. 79 -- 79
Exchange adjustments............................................................. (1) -- (1)
Net cash inflow.................................................................. 28 -- 28
--- --- ---
As at 30 September 1994.......................................................... 106 -- 106
Net cash inflow.................................................................. 237 -- 237
--- --- ---
As at 30 September 1995.......................................................... 343 -- 343
Exchange adjustments............................................................. 3 -- 3
Net cash outflow................................................................. (173) (119) (292)
--- --- ---
As at 30 September 1996.......................................................... 173 (119) 54"
--- --- ---
--- --- ---
</TABLE>
5. DEFINITIONS
In this Appendix III, the following definitions apply in addition to the
definitions set out in Appendix VI below:
<TABLE>
<S> <C>
"ADMISSION" the admission of Energy Group Shares to the Official List
of the London Stock Exchange, which became effective on 24
February 1997
"COMPANY" The Energy Group PLC
"ESPS" The Electricity Supply Pension Scheme
"GROUP" The Energy Group PLC and its subsidiary undertakings as
constituted immediately after the completion of all the
Demerger Transactions save in relation to the results for
the nine months ended 31 December 1997 where references to
the "Group" mean The Energy Group PLC and its subsidiary
undertakings as at that date
"HANSON GROUP" (a) in relation to any period prior to the Demerger,
Hanson and its subsidiary undertakings from time to time
(including the Group other than the Company); or (b) in
relation to any period after the Demerger, Hanson and its
subsidiary undertakings (excluding the Group)
"INFRASTRUCTURE COMPANIES" Rollalong Limited, Consolidated Gold Fields Limited, Major
Insurance Company Limited and various other subsidiaries
and intermediate holding companies and non-trading
companies that were wholly-owned by Hanson prior to the
Demerger
"NEW CREDIT FACILITY" the facility referred to in paragraph 8(b)(iv) of Appendix
V ("Material Contracts") below
"RELEVANT PEABODY DEBT" an amount of approximately $1,817 million plus interest
from 16 January 1997 owed by members of the Hanson Group
to members of the Group at the Demerger Date
</TABLE>
III-60
<PAGE>
APPENDIX IV
FINANCIAL AND OTHER INFORMATION ON PACIFICORP
ACQUISITIONS AND PACIFICORP
1 NATURE OF BUSINESS OF PACIFICORP ACQUISITIONS AND PACIFICORP
PacifiCorp is a US electric utility, headquartered in Portland, Oregon, that
conducts a retail electric utility business through Pacific Power & Light
Company and Utah Power & Light Company and engages in competitive power
production and sales on a wholesale basis under the name PacifiCorp.
PacifiCorp's US electric operations serve approximately 1.4 million retail
customers in service territories aggregating approximately 153,000 square miles
in portions of seven states in the western United States: Utah, Oregon, Wyoming,
Washington, Idaho, California and Montana.
PacifiCorp Group Holdings Company (formerly, PacifiCorp Holdings, Inc.), a
wholly owned subsidiary of PacifiCorp, holds the stock of subsidiaries
conducting businesses not regulated as US electric utilities. Historically,
PacifiCorp Group Holdings Company's principal subsidiaries were engaged in
telecommunications, mining and resource development and financial services. In
recent years, PacifiCorp Group Holdings Company reduced the size and scope of
its financial services operations and sold its mining and resource development
subsidiary. In connection with the financing of the Offer, PacifiCorp Group
Holdings Company sold Pacific Telecom, Inc., its telecommunications subsidiary,
to Century Telephone Enterprises, Inc. on 1 December 1997 for $1.5 billion in
cash plus the assumption of debt, and Pacific Generation Company, its
independent power production and cogeneration subsidiary, to NRG Energy, Inc. on
5 November 1997 for $150 million. At the present time, PacifiCorp Group Holdings
Company's principal subsidiaries are engaged primarily in international power
production, distribution and marketing, domestic power marketing and natural gas
storage and marketing.
PacifiCorp Group Holdings Company indirectly owns 100 per cent. of Powercor
Australia Limited, an Australian electric distribution company. Powercor serves
approximately 550,000 customers in suburban Melbourne and the western and
central regions of the State of Victoria in southeast Australia. PacifiCorp
Group Holdings Company indirectly owns a 19.9 per cent. partnership interest in
the 1,600 megawatt Hazelwood brown coal-fired generating station and adjacent
brown coal mine located in Victoria, Australia.
On 15 April 1997, PacifiCorp Group Holdings Company, through a wholly-owned
subsidiary, acquired all of the share capital of TPC Corporation, a natural gas
gathering, processing, storage and marketing company based in Houston, Texas,
for approximately $265 million in cash and assumed debt of approximately $140
million. TPC Corporation sold its natural gas gathering and processing systems
to a subsidiary of El Paso Energy Corporation on 2 December 1997 for $196.5
million.
PacifiCorp Acquisitions, an English unlimited company and wholly-owned
subsidiary of PacifiCorp Finance (UK) Limited, was incorporated for the purpose
of making the Previous Offer and has not conducted any unrelated activities
since its incorporation. PacifiCorp Finance (UK) Limited is an English private
limited company and wholly-owned subsidiary of PacifiCorp Services Limited.
PacifiCorp Services Limited is an English private limited company and
wholly-owned subsidiary of PacifiCorp EnergyCo, which, in turn, is an English
unlimited company and wholly-owned subsidiary of PacifiCorp Group Holdings
Company. PacifiCorp Group Holdings Company also wholly owns PacifiCorp Powercoal
LLC, an Oregon limited liability company. PacifiCorp Finance (UK) Limited,
PacifiCorp Services Limited, PacifiCorp EnergyCo and PacifiCorp Powercoal LLC
were all organised in connection with structuring the financing for the Previous
Offer. See paragraph 10 of Appendix V ("Financing arrangements") below.
IV-1
<PAGE>
2 DIRECTORS AND EXECUTIVE OFFICERS OF PACIFICORP ACQUISITIONS AND PACIFICORP
Set forth in the table below are the names and present principal occupations
or employments, and the material occupations, positions, offices, and
employments during the past five years, for the directors and executive officers
of PacifiCorp Acquisitions and PacifiCorp, and the name, principal business and
address for any corporation or other organisation in which such employment is
carried on. Each person listed below is of United States citizenship, and,
unless otherwise indicated, positions have been held for the past five years.
Directors are identified by the year in which such person became a director in
parentheses. The address of the corporation or other organisation for which a
listed individual's principal occupation is conducted is set forth at the first
place at which the name of such corporation or other organisation appears in
this paragraph 2.
<TABLE>
<CAPTION>
PACIFICORP ACQUISITIONS
<S> <C>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AND RESIDENCE (AND PRINCIPAL BUSINESS); MATERIAL POSITIONS HELD
OR BUSINESS ADDRESS DURING PAST FIVE YEARS
Frederick W. Buckman (1997) President and Chief Executive Officer of PacifiCorp (since
PacifiCorp February 1994); Chairman of PacifiCorp Group Holdings
700 NE Multnomah, Suite 1600 Company (since 1994); Chairman of PacifiCorp Acquisitions
Portland, Oregon 97232 (since June 1997); President and Chief Executive Officer
(1992-1994) and President and Chief Operating Officer
(1988-1991) of Consumers Power Company, Jackson, Michigan
Richard T. O'Brien (1997) Senior Vice President and Chief Financial Officer (since
PacifiCorp 1995) and Vice President (1993-1995) of PacifiCorp;
President and Chief Executive Officer (since January 1998)
and Senior Vice President (1993-1998) and Chief Financial
Officer (since 1996) of PacifiCorp Group Holdings Company;
Chief Financial Officer (1992-1993) and Vice President and
Treasurer (1989-1992) of NERCO, Inc., a former mining and
resource subsidiary of PacifiCorp; Chief Financial Officer
of PacifiCorp Acquisitions (since June 1997)
Dennis P. Steinberg (1997) Senior Vice President (since 1994) and Vice President
PacifiCorp (1990-1994) of PacifiCorp
Verl R. Topham (1997) Senior Vice President and General Counsel of PacifiCorp
PacifiCorp (since May 1994); Senior Vice President and General
One Utah Center, Suite 2300 Counsel of PacifiCorp Group Holdings Company (since 1995);
201 South Main President of Utah Power & Light Company (1990-1994)
Salt Lake City, Utah 84140
</TABLE>
IV-2
<PAGE>
<TABLE>
<CAPTION>
PACIFICORP ACQUISITIONS
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AND RESIDENCE (AND PRINCIPAL BUSINESS); MATERIAL POSITIONS HELD
OR BUSINESS ADDRESS DURING PAST FIVE YEARS
<S> <C>
William E. Peressini (1997) Vice President (since 1996) and Treasurer (since 1994) of
PacifiCorp PacifiCorp; Treasurer of PacifiCorp Group Holdings Company
(since 1994); Executive Vice President of PacifiCorp
Financial Services, Inc. (1992-1994); Senior Vice
President and Chief Financial Officer of PacifiCorp
Financial Services, Inc. (1989-1992); Deputy Chief
Financial Officer of PacifiCorp Acquisitions (since June
1997)
Michael J. Pittman (1997) Vice President (since 1993) and Assistant Vice President
Pacific Power & Light Company (1990-1993) of PacifiCorp
1500 Public Service Building
Portland, Oregon 97204
Thomas J. Imeson (1997) Vice President of PacifiCorp
PacifiCorp
</TABLE>
IV-3
<PAGE>
<TABLE>
<CAPTION>
PACIFICORP
<S> <C>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AND RESIDENCE (AND PRINCIPAL BUSINESS); MATERIAL POSITIONS HELD
OR BUSINESS ADDRESS DURING PAST FIVE YEARS
W. Charles Armstrong (1996) Independent Consultant (since 1997); Former Chief
RR, Box 1074, East Sound, Wash- Executive Officer, Bank of America Oregon (1992-1996)
ington 98245-9409
Kathryn A. Braun (1994) Executive Vice President, Western Digital Corporation
Western Digital Corporation
8105 Irvine Center Drive
Irvine, California 92718
Frederick W. Buckman (1994) (See above)
PacifiCorp
C. Todd Conover (1991) President and Chief Executive Officer, The Vantage
The Vantage Company Company, a business consulting firm, Los Altos,
101 First Street, Suite 670 California; General Manager, Finance Industry Group,
Los Altos, California 94022 Tandem Computers Incorporated, a computer manufacturing
company (January 1994-May 1995); President and Chief
Executive Officer, Central Banks of Colorado (1991-1992)
Nolan E. Karras (1993) Investment Advisor, Karras & Associates, Inc., an
Karras & Associates, Inc. investment advisory firm
4695 South 1900 West #3
Roy, Utah 84067
Keith R. McKennon (1990) Chairman of the Board of PacifiCorp (since 1994); formerly
PacifiCorp Chairman (1992-1994) and Chief Executive Officer
(1992-1993), Dow Corning Corporation, Midland, Michigan
Robert G. Miller (1994) Chairman of the Board and Chief Executive Officer of Fred
Fred Meyer, Inc. Meyer, Inc., a retail merchandising chain
3800 SE 22nd
Portland, Oregon 97202
Alan K. Simpson (1997) Former Wyoming US Senator
1201 Sunshine Avenue,
Cody, Wyoming 82414
Verl R. Topham (1994) (See above)
PacifiCorp
Don M. Wheeler (1989) Chairman and Chief Executive Officer, ICM Equipment Com-
ICM Equipment Company pany, a materials handling and equipment company (since
4899 West 2100 South 1996); formerly Chairman, Chief Executive Officer,
Salt Lake City, Utah 84120 President and General Manager of Wheeler Machinery Company
(1955-1996)
Nancy Wilgenbusch (1986) President, Marylhurst College
Marylhurst College
Marylhurst, Oregon 97036
</TABLE>
IV-4
<PAGE>
<TABLE>
<CAPTION>
PACIFICORP
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AND RESIDENCE (AND PRINCIPAL BUSINESS); MATERIAL POSITIONS HELD
OR BUSINESS ADDRESS DURING PAST FIVE YEARS
<S> <C>
Peter I. Wold (1995) President, Wold Oil & Gas Company, an oil and gas explora-
Wold Oil & Gas Company tion and production company
139 West Second Street,
Suite 200
Casper, Wyoming 82602
Donald A. Bloodworth Vice President of PacifiCorp (since November 1997),
PacifiCorp formerly with Air Touch Cellular (April 1997-November
1997); controller of PacifiCorp (August 1996-April 1997);
Vice President, Regulatory Requirements and Controller,
Pacific Telecom, Inc. (May 1993-August 1996); and
Assistant Treasurer of PacifiCorp (February 1992-May 1993)
John A. Bohling Senior Vice President of PacifiCorp (since 1993);
PacifiCorp Executive Vice President of Pacific Power & Light Company
(1991-1993)
William C. Brauer Senior Vice President (since 1996) and Vice President
PacifiCorp (1992-1996) of PacifiCorp
One Utah Center, Suite 2300,
201 South Main Street,
Salt Lake City, Utah 84140
Shelley R. Faigle Senior Vice President (since 1993) and Vice President
Pacific Power & Light Company (1992-1993) of PacifiCorp; Vice President (1989-1992) of
1500 Public Service Building Pacific Power & Light Company
Portland, Oregon 97204
James H. Huesgen Vice President and Controller of PacifiCorp (since
PacifiCorp November 1997); Executive Vice President and Chief
Financial Officer of Pacific Telecom, Inc. (1989-1997);
Controller of PacifiCorp Group Holdings Company (since
January 1998)
Paul G. Lorenzini Senior Vice President of PacifiCorp (since 1994);
Pacific Power & Light Company President (1992-1994) and Executive Vice President
(1989-1992) of Pacific Power & Light Company
Richard T. O'Brien (See above)
PacifiCorp
Michael J. Pittman (See above)
Pacific Power & Light Company
Daniel L. Spalding Chairman and Chief Executive Officer of Powercor Australia
Powercor Australia Limited Limited (since 1995); Senior Vice President (since 1992)
Level 3, 77 Southbank Blvd. and Vice President (1987-1992) of PacifiCorp
Southbank, Victoria 3006,
Australia
Dennis P. Steinberg (See above)
PacifiCorp
</TABLE>
IV-5
<PAGE>
<TABLE>
<CAPTION>
PACIFICORP
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AND RESIDENCE (AND PRINCIPAL BUSINESS); MATERIAL POSITIONS HELD
OR BUSINESS ADDRESS DURING PAST FIVE YEARS
<S> <C>
Thomas J. Imeson (See above)
PacifiCorp
Sally A. Nofziger (See above)
PacifiCorp
William E. Peressini (See above)
PacifiCorp
</TABLE>
3 REGISTERED/PRINCIPAL OFFICES
PACIFICORP ACQUISITIONS
The registered office of PacifiCorp Acquisitions is One Silk Street, London
EC2Y 8HQ, United Kingdom.
PACIFICORP
The principal executive offices of PacifiCorp are located at 700 NE
Multnomah Street, Portland, Oregon 97232, United States.
4 RESULTS FOR YEAR ENDED 31 DECEMBER 1997
The text contained in this section of the document has been extracted from
the press release issued by PacifiCorp on 27 January 1998:
"PORTLAND, Oregon--PacifiCorp (NYSE: PPW) today reported earnings on common
stock of $451 million, or $1.52 per share, excluding asset sale gains and a
series of special charges and other adjustments recorded in 1997 (see chart
following). The Company recorded asset sale gains in 1997 totaling $395 million,
or $1.33 per share, and special charges and other adjustments totaling $205
million, or $0.69 per share. Total reported earnings on common stock was $2.16
per share for the year.
In 1996, PacifiCorp reported earnings on common stock of $475 million, or
$1.62 per share.
Fourth quarter 1997 earnings on common stock were $118 million, or $0.39 per
share, excluding asset sale gains, special charges and other adjustments. The
Company recorded asset sale gains of $395 million, or $1.33 per share and
special charges and other adjustments totaling $144 million, or $0.48 per share,
in the fourth quarter of 1997. Total reported earnings on common stock was $1.24
per share for the quarter.
In the fourth quarter of 1996, PacifiCorp reported earnings on common stock
of $127 million, or $0.42 per share.
The earnings contribution from the Company's Domestic Electric Operations
totaled $297 million in 1997, excluding special charges and other adjustments.
The 1996 earnings contribution from Domestic Electric Operations was $342
million. The $45 million decline in earnings contribution was attributable to
higher depreciation, outside services, and employee related costs.
On January 12, 1998, the Company announced a series of initiatives aimed at
reducing costs in its domestic electric business. These initiatives include
workforce reductions, closure of the Company's Glenrock coal mine and certain
asset write-offs.
Earnings from the Company's Australian electric operations increased to $54
million in 1997, from $32 million in 1996. This increase was attributable to
renegotiations of Tariff H industrial contracts, decreased maintenance costs and
lower interest expense.
IV-6
<PAGE>
"Despite growth in our Australian electric distribution business and
substantial increases in domestic wholesale electricity sales, higher costs in
our domestic electric business have resulted in the Company's earnings being
significantly below our expectations for the year," said Fred Buckman,
PacifiCorp's President and Chief Executive Officer. "The initiatives we
announced earlier this month are a direct attempt to improve the cost profile of
our domestic electric business. We are continuing to seek additional ways to
both reduce costs and add new revenue sources in an effort to improve our
earnings outlook."
In December of 1997, PacifiCorp completed the sale of its telecommunications
subsidiary, Pacific Telecom, Inc. (PTI), to Century Telephone Enterprises, Inc.
This business was reported as a discontinued operation during 1997.
During 1997, PacifiCorp actively sought to acquire The Energy Group PLC. On
December 19, 1997, the Company received unconditional approval from the U.K.
government to proceed with the transaction. However, approval from the U.S.
Federal Trade Commission has not yet been received.
IV-7
<PAGE>
1997 EARNINGS OVERVIEW
<TABLE>
<CAPTION>
ITEM (MILLIONS EXCEPT EPS) PRE-TAX NET INCOME EPS SEGMENT
- --------------------------------------- --------- ----------- --------- ---------------------------------------
<S> <C> <C> <C> <C>
Reported Earnings Contribution......... $ 640.9 $ 2.16
Adjustments (Location in Statements):
ASSET SALE GAINS
PTI Sale Gain (Discontinued Ops)....... (669.8) (365.1) (1.23) Telecommunications
PGC Sale Gain (Other Income)........... (56.5) (30.0) (0.10) Other Operations
--------- ----------- ---------
Total Asset Sales Gains................ (726.3) (395.1) (1.33)
--------- ----------- ---------
SPECIAL CHARGES:
Glenrock Closure....................... 64.4 39.9 0.14 Domestic Electric
Deferred Regulatory Pension cost....... 86.9 53.9 0.18
Valuation charges on IT systems........ 19.1 11.9 0.04
--------- ----------- ---------
Total Special Charges.................. 170.4 105.7 0.36
--------- ----------- ---------
--------- ----------- ---------
OTHER ADJUSTMENTS:
Depreciation rate changes Domestic Electric
(Depreciation)....................... 17.0 10.2 0.03
Reserve for uncollectibles (Other Domestic Electric
Operations & Maint.)................. 10.0 6.2 0.02
Industrial Billing Adjustments Domestic Electric
(Revenues)........................... 5.6 3.5 0.01
SAP process re-engineering (Admin. & Domestic Electric & Australia
General)............................. 13.8 8.6 0.03
Tariff H Contract Adjustments Australia
(Revenues)........................... (15.4) (9.6) (0.03)
Foreign Currency Option Loss (Other Other Operations
Expense)............................. 105.6 64.5 0.22
Regulatory Asset Impairments Domestic Electric
(Extraordinary Item)................. 25.6 16.0 0.05
--------- ----------- ---------
Adjusted Earnings and EPS.............. $ 450.9 $ 1.52
----------- ---------
----------- ---------
</TABLE>
DOMESTIC ELECTRIC OPERATIONS
EARNINGS CONTRIBUTION
Domestic Electric Operations reported earnings contribution of $166 million,
or $0.56 per share, in 1997, compared to $342 million, or $1.17 per share, in
1996. Domestic Electric's 1997 earnings contribution was $297 million, or $1.00
per share, before special charges and other adjustments of $132 million after
tax.
REVENUES
Total 1997 Domestic Electric revenues increased $715 million, or 24 percent,
from 1996 to $3,700 million primarily from the increased wholesale revenues of
$689 million, or 93 percent. Retail revenues were $2,200 million in 1997,
approximately equal to 1996.
IV-8
<PAGE>
Residential revenues were up $13 million, or 2 percent, to $814 million.
Growth in the average number of residential customers of 3 percent added $20
million to revenues. Price increases in Oregon, effective July 1996, added $9
million in 1997, offset in part by price decreases of $4 million in Utah that
became effective April 1997. Declines in customer usage, primarily attributable
to weather, reduced revenues $14 million in 1997 compared to 1996.
Commercial revenues increased $18 million, or 3 percent, to $641 million.
This increase was attributable to a 3 percent growth in average number of
customers in Utah and Oregon.
Industrial revenues decreased $9 million, or 1 percent, to $710 million.
Increased customer usage added revenues of $6 million in Eastern Wyoming and $4
million in Oregon. However, this was more than offset by reduced revenues of $8
million from lower usage by irrigation customers and $6 million of unfavorable
billing adjustments in the first quarter 1997 resulting from the implementation
of the new customer service system in late 1996.
During 1997, the active wholesale market led to an increase in revenues of
$689 million, or 93 percent, to a record $1,400 million. Energy volumes
increased 99 percent, driven by a $589 million increase in short-term firm and
spot market sales. Sales prices for short-term firm and spot market sales
averaged $20 per mWh in 1997, compared to $15 per mWh in 1996, resulting in $80
million in additional revenues. Increased long-term firm contract volumes added
$14 million to wholesale revenues.
OPERATING EXPENSE
Operating expenses increased $984 million, or 46 percent, to $3,100 million,
attributable to a significant increase in purchased power costs, special
charges, and higher depreciation and administrative costs.
Purchased power expenses increased $678 million to $1,300 million, more than
double last year, and was attributable to the growth of the Company's wholesale
business. Short-term firm and spot market purchases totaled 45.6 million mWh in
1997, nearly three times the level of 1996 purchases, adding $570 million to
purchased power expenses. Short-term firm and spot market purchase prices
averaged $19 per mWh in 1997 compared to $13 per mWh in 1996, a 46 percent
increase, adding $76 million to purchased power expenses.
Net power costs in 1997 were $6.99 per mWh, compared to $7.20 per mWh in
1996, a 3 percent decrease. Electric operations net power cost represents the
net cost to serve the Company's retail customers on a mWh basis. This is
measured by the sum of fuel, purchased power and wheeling expense, less
wholesale power and wheeling revenues. The decrease in net power cost was
attributable to increased hydro generation which displaced higher cost
resources, reduced system losses and improved margins from higher short-term and
spot market sales, offset in part by increased fuel costs.
Other operations and maintenance expense increased $26 million, to $470
million in 1997. Included in this 6 percent increase was $11 million of higher
plant maintenance and tree trimming, and a $10 million special reserve provision
for uncollectible accounts resulting from issues related to the strengthening of
the payment treatment processes in the new customer billing system implemented
late last year.
Depreciation and amortization expense increased $46 million, or 13 percent,
to $389 million in 1997. The Company completed a depreciation study of its fixed
assets and has filed with the appropriate regulatory bodies for approval to
increase its annual depreciation rates. As part of the study, the Company
recorded charges of $17 million in the fourth quarter to reflect the new higher
depreciation rates. An additional $26 million in depreciation is attributable to
increased plant in service, the new customer service system and a full year of
operations at the Hermiston plant.
IV-9
<PAGE>
Administrative and general expenses increased $53 million to $325 million in
1997, a 19 percent increase over 1996. This increase was primarily the result of
higher outside services of $18 million, expensing process re-engineering costs
of $10 million, in accordance with new accounting rules, relating to the
Company's new SAP software operating environment, and increased employee related
costs of $20 million, primarily attributable to the Company's significant
increase in its marketing activities in the wholesale markets.
SPECIAL CHARGES
During the fourth quarter of 1997, Domestic Electric Operations recorded in
operating income certain special charges totaling $170 million pre-tax. These
special charges included $64 million for the Glenrock mine closure, $87 million
for the write-off of deferred regulatory pension assets and $19 million for the
valuation impairment of certain information systems assets.
OTHER INCOME/EXPENSE
Domestic Electric interest expense increased $27 million, or 9 percent, to
$319 million in 1997. This increase was attributable to higher debt balances as
a result of the Hermiston plant acquisition in July 1996 and capital
contributions to PacifiCorp Holdings, Inc. relating to the acquisition of TPC
Corporation (TPC) in April 1997. Other income increased $7 million in 1997
primarily as a result of increased sales of emission allowances.
As previously reported, the Company's 1997 results included an extraordinary
charge of $16 million, or $0.05 per share ($26 million pre-tax), related to its
decision to record a valuation allowance for regulatory assets pertaining to
generation resources allocable to its operations in California and Montana. The
decision to impair these assets is based primarily on recent regulatory and
legislative actions in those states that have mandated customer choice of
electric supplier and eliminated cost-based regulation for the generation
portion of the electricity business. Regulatory assets represent costs incurred
in the past that have been deferred under regulatory accounting practices for
future recovery. Because of the potential regulatory and legislative actions in
its other states jurisdictions, the Company may have additional regulatory asset
write-offs and charges for impairment of long-lived assets in future periods.
AUSTRALIAN ELECTRIC OPERATIONS
FOR THE YEAR (IN MILLIONS):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
POWERCOR:
Revenue..................................................................... $ 716 $ 659
Purchased power............................................................. (309) (305)
Depreciation and amortization............................................... (67) (72)
Other operating expenses.................................................... (189) (155)
--------- ---------
Income from operations...................................................... 151 127
Interest expense and other.................................................. (62) (75)
--------- ---------
Income before income taxes.................................................. 89 52
Income taxes................................................................ (33) (19)
--------- ---------
POWERCOR EARNINGS CONTRIBUTION.............................................. 56 33
HAZELWOOD NET LOSS.......................................................... (2) (1)
--------- ---------
AUSTRALIAN ELECTRIC OPERATIONS CONTRIBUTION................................. $ 54 $ 32
--------- ---------
--------- ---------
</TABLE>
IV-10
<PAGE>
EARNINGS CONTRIBUTION
In 1997, Australian Electric Operations contributed earnings of $54 million,
or $0.18 per share, compared to the 1996 results of $32 million, or $0.11 per
share. The 1997 earnings included adjustments associated with renegotiating
certain Tariff H industrial customer contracts that added $10 million, or $0.03
per share.
POWERCOR REVENUES
Powercor reported 1997 revenues of $716 million, a $57 million increase, or
9 percent, over the prior year. The increase was attributable to higher energy
sales volumes of 2,734 million kWh, or 33 percent. Powercor continued to
increase market share in the contestable markets of Victoria and New South Wales
outside Powercor's franchise area and added 2,843 million kWh and $100 million
of revenue in 1997. Powercor now holds an estimated 42 percent of the
contestable markets in Victoria and 13 percent in New South Wales.
Revenue from inside Powercor's franchise area decreased $47 million, or 8
percent, to $539 million. Lower average realized prices reduced revenues by $39
million. Energy volumes decreased 108 million kWh, or $8 million, due to
customers lost from the effect of contestability in Powercor's franchise area.
The currency exchange rate for converting Australian dollars to United
States dollars was 0.744 in 1997 compared to 0.783 in 1996, a 5 percent decrease
for the year. The effect of the exchange rate fluctuation significantly lowered
revenues by $33 million and expenses by $31 million during 1997.
POWERCOR OPERATING EXPENSES
Purchased power expenses increased $4 million, or 1 percent, to $309
million. Volumes of purchased power increased 2,734 million kWh, or 33 percent,
adding $101 million to costs, offset in part by lower pool power prices that
reduced purchased power costs by $97 million. Purchased power prices averaged
$28 per mWh in 1997, compared to $37 per mWh in 1996.
Other operating expenses increased $34 million, or 22 percent, to $189
million. Increased sales to contestable customers outside Powercor's franchised
area resulted in higher network and grid fees of $52 million. This was partially
offset by higher network revenues of $15 million from customers inside
Powercor's franchise area that are serviced by other energy suppliers and a
decrease in maintenance expenses of $17 million attributable to increased
productivity and cost reduction efforts. Administrative and general expenses
increased $14 million due to higher outside services of $10 million and
expensing process re-engineering costs of $4 million relating to the new SAP
software operating environment in accordance with new accounting rules.
HAZELWOOD
For 1997, the Company recorded an after tax loss of $2 million on its 19.9
percent ownership interest in the Hazelwood Power Station, a coal-fired
generating station and associated coal mine in Victoria, Australia, as compared
to a loss of $1 million in 1996. Hazelwood was purchased in September 1996.
TELECOMMUNICATIONS
On December 1, 1997, the Company completed the sale of PTI to Century
Telephone Enterprises, Inc. for $1.5 billion in cash, plus the assumption of PTI
debt. The Company realized an after tax gain of $365 million, or $1.23 per
share. For the eleven months of 1997, PTI reported net income of $89 million or
$0.30 per share, compared to $75 million, or $0.25 per share, for the entire
year of 1996.
IV-11
<PAGE>
OTHER OPERATIONS
The Company's other operations reported net losses of $17 million, or $0.06
per share, compared to earnings of $27 million, or $0.09 in 1996, a $44 million
decrease, or $0.15 per share.
In the third quarter of 1997, the Company recorded an after tax loss of $65
million, or $0.22 per share, associated with the closing of foreign exchange
positions related to the Company's tender offer for The Energy Group PLC (TEG).
As previously reported, the Company purchased the foreign exchange positions to
hedge risk of exchange rate fluctuations associated with its recommended offer
for TEG. On August 1, the tender offer lapsed and the Company closed the foreign
exchange position as required by its hedging policies.
The Company estimates that it has incurred approximately $60 million of
other costs related to the TEG transaction for bank fees, legal expenses and
other related costs. These costs have been deferred because the Company expects
to make a new bid for TEG. It is possible that the outcome of the potential
transaction will be known before the Company files its 1997 financial statements
with the Securities and Exchange Commission in March. If it is an unsuccessful
outcome, the Company will adjust its 1997 reported earnings to reflect the after
tax write off of the deferred costs of approximately $38 million, or $0.13 per
share.
On November 5, 1997, the Company completed the sale of its independent power
subsidiary, Pacific Generation Company (PGC), to NRG Energy, Inc. for
approximately $150 million in cash resulting in a gain of $30 million, or $0.10
per share.
PacifiCorp Power Marketing, Inc. (PPM), the Company's eastern wholesale
energy trading company, completed its first full year of operations with
revenues of $913 million and reported a net loss of $2 million. TPC, the
Company's natural gas marketing and storage company acquired in April of this
year, reported revenues of $816 million and a net loss of $6 million for the
year.
The Company's other unregulated businesses and equity investments reported
1997 earnings of $25 million, compared to $35 million in 1996, a decrease of $10
million, or $0.03 per share.
Other after-tax interest expense for 1997 increased $7 million over 1996 due
to higher debt balances resulting primarily from the Hazelwood acquisition.
Interest income increased $7 million from temporary cash investments as a result
of the late 1997 asset sales. Income taxes were benefited $6 million by
favorable state tax adjustments in 1997.
IV-12
<PAGE>
FOURTH QUARTER 1997 EARNINGS ANALYSIS
DOMESTIC ELECTRIC OPERATIONS
EARNINGS CONTRIBUTION
For the fourth quarter of 1997, Domestic Electric Operations reported a
total net loss before extraordinary item of $59 million, or $0.20 per share,
compared to earnings of $93 million, or $0.32 per share, in the last quarter of
1996. Excluding the special charges and other adjustments, the 1997 fourth
quarter earnings were $70 million, or $0.23 per share.
Domestic Electric reported an operating loss of $7 million in the last
quarter 1997, a decline of $242 million from the same period in 1996. This
decrease resulted from special charges, higher depreciation expense and
increased general and administrative expenses in 1997.
REVENUES
Domestic Electric Operations revenue increased $297 million in the quarter,
or 36 percent, to $1,100 million, primarily from increased wholesale revenues of
$303 million. Retail revenues were flat with a slight increase in energy volumes
of 360 million kWh, or 3 percent.
Residential revenues were $225 million on energy sales of 3.6 million kWh,
up slightly from the prior year. Growth in the average number of residential
customers of 3 percent, primarily in Utah and Oregon, added $5 million to
revenue. This increase was offset by price decreases of $1 million in the
Company's Utah jurisdiction and by declining customer usage of $4 million, which
was largely attributable to weather.
Commercial revenues grew by $2 million, or 1 percent, to $166 million on a 2
percent increase in energy sales. Growth in the average number of customers of 2
percent added $3 million to revenues, while decreased prices in Utah lowered
revenues by $1 million.
Industrial revenues decreased $2 million, or 1 percent, to $172 million. The
decrease was attributable to a contract amendment of $2 million and lower prices
in Utah of $1 million, offset in part by increased energy sales of 252 million
kWh that added $3 million to revenue.
Wholesale revenues increased $303 million, to $534 million, on a 128 percent
increase in energy sales. Increased short-term firm and spot market energy sales
volumes added $269 million. Short-term firm and spot market sales prices
averaged $23 per mWh in 1997, compared to $18 per mWh for the same period in
1996. The increased prices added $28 million in revenues. Increased long-term
firm contract volumes added $2 million to wholesale revenues for the quarter.
OPERATING EXPENSES
Total operating expenses increased $539 million, or 90 percent, to $1,100
million in the quarter, primarily attributable to higher purchased power
expenses, special charges, and higher depreciation and administrative costs.
Purchased power expenses for the fourth quarter of 1997 increased $308
million, to $510 million. Short-term firm and spot market energy purchases were
up $274 million, or 12.2 million mWh, more than three times the amount of
purchases in the same period of 1996. Short-term firm and spot market purchase
prices averaged $23 per mWh in the quarter versus $18 per mWh in the fourth
quarter of 1996. The increase in purchased power costs included $26 million
related to increased prices.
Fuel expense for the quarter was down $12 million, or 9 percent, to $115
million. This decrease was attributable to reduced generation of 747 million
kWh, or 5 percent, and lower average fuel costs of $5
IV-13
<PAGE>
million. The Company's hydro generation resources were 153 million kWh, or 11
percent, above the same period in 1996.
Net power costs in the quarter were $7.53 per mWh, compared to $8.23 per mWh
in the fourth quarter of 1996, a 9 percent decrease. The decrease in net power
cost was attributable to increased hydro generation which displaced higher cost
resources, reduced system losses and improved margins from higher short-term and
spot market sales.
Other operations and maintenance expense increased $8 million, or 7 percent,
to $125 million in the fourth quarter of 1997. This increase was attributable to
a $10 million special reserve provision for uncollectible accounts resulting
from issues related to the strengthening of the payment treatment process in the
new customer billing system implemented late last year.
Depreciation and amortization expense increased $28 million, or 31 percent,
to $117 million. The increase was attributed to a $17 million charge in the
quarter to reflect higher depreciation rates and $9 million for increased plant
in service.
Administrative and general expenses increased $36 million, or 56 percent, to
$100 million. This increase was attributable to $10 million of process
re-engineering costs relating to the Company's new SAP software operating
environment, higher outside services of $8 million, increased employee related
costs of $11 million primarily related to the significant increase in the
wholesale markets and software expenses of $5 million.
SPECIAL CHARGES
During the fourth quarter of 1997, Domestic Electric Operations recorded in
operating income certain special charges totaling $170 million pre-tax. These
special charges included $64 million for the Glenrock mine closure, $87 million
for the write-off of deferred regulatory pension assets and $19 million for the
valuation impairment of certain information systems assets.
OTHER INCOME/EXPENSE
Electric interest expense increased $9 million, or 12 percent, to $83
million. The increase was attributable to higher debt balances as the result of
increased capital contributions to PacifiCorp Holdings, Inc. relating to the
acquisition of TPC in the second quarter of 1997. Domestic Electric income tax
expense declined $90 million, resulting in a tax benefit of $32 million in 1997
due to the level of pre-tax losses in the quarter.
The Company's 1997 fourth quarter results included an extraordinary charge
of $16 million, or $0.05 per share, ($26 million pre-tax) related to the
valuation allowance for regulatory generation assets allocable to its operations
in California and Montana.
IV-14
<PAGE>
AUSTRALIAN ELECTRIC OPERATIONS
FOURTH QUARTER RESULTS (IN MILLIONS):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
POWERCOR:
Revenues.................................................................. $ 169 $ 181
Purchased power........................................................... (73) (84)
Depreciation and amortization............................................. (15) (18)
Other operating expenses.................................................. (51) (46)
--------- ---------
Income from operations.................................................... 30 33
Interest expense and other................................................ (13) (17)
--------- ---------
Income before income taxes................................................ 17 16
Income taxes.............................................................. (7) (6)
--------- ---------
POWERCOR EARNINGS CONTRIBUTION............................................ 10 10
HAZELWOOD NET LOSS........................................................ (1) (1)
--------- ---------
AUSTRALIAN ELECTRIC OPERATIONS CONTRIBUTION............................... $ 9 $ 9
--------- ---------
--------- ---------
</TABLE>
EARNINGS CONTRIBUTION
Australian Electric Operations contributed $9 million, or $0.03 per share,
in the fourth quarters of 1997 and 1996.
POWERCOR REVENUES
Powercor's revenues decreased $12 million, or 7 percent, to $169 million.
The decrease was attributable to lower average realized prices, offset in part
by increased energy sales volumes of 751 million kWh, or 32 percent.
Energy volumes to contestable customers outside Powercor's franchise area
were up 835 million kWh and added $22 million to revenue due to customer gains
in Victoria and New South Wales. This included increased energy volumes for
customers in Victoria of 228 million kWh that added $1 million to revenue, and
energy volumes for new customers in New South Wales of 607 million kWh that
added $21 million to revenue.
Revenue inside Powercor's franchise area from franchise and contestable
customers decreased $26 million, or 17 percent, to $121 million. Lower average
realized prices reduced revenue by $19 million and decreased energy volumes of
84 million kWh reduced revenues by $7 million, including $4 million as a result
of customers lost due to the effects of contestability in Powercor's franchise
area in 1997. The fourth quarter of 1997 included adjustments associated with
certain Tariff H industrial contracts that added $3 million to revenues.
The currency exchange rate for converting Australian dollars to United
States dollars was 0.692 in the fourth quarter 1997 compared to 0.796 in 1996, a
13 percent decrease in the quarter. The effect of the exchange rate fluctuation
lowered revenues by $24 million and costs by $23 million during the fourth
quarter of 1997.
POWERCOR OPERATING EXPENSES
Purchased power expense decreased $11 million, or 13 percent, to $73
million. Lower pool prices reduced power costs by $39 million, offset in part by
a 32 percent increase in purchased power volumes
IV-15
<PAGE>
that added $27 million to costs. Purchased power prices averaged $24 per mWh in
the fourth quarter of 1997, compared to $36 per mWh in 1996.
Other operating expenses increased $5 million, or 11 percent, to $51
million. Increased sales to contestable customers outside Powercor's franchise
area resulted in higher network and grid fees of $13 million. This was offset in
part by higher network revenues of $5 million from customers inside Powercor's
franchise area serviced by other energy suppliers. Administrative expenses
increased $8 million expensing process re-engineering costs of $4 million, in
accordance with new accounting rules, relating to the new SAP software operating
environment and higher outside services expenses. Maintenance expenses decreased
$13 million attributable to increased productivity and cost reduction efforts.
Interest expense and other decreased $4 million, or 24 percent, to $13
million, due to lower average interest rates and debt balances.
HAZELWOOD
The Company recorded an after tax loss of $1 million in the fourth quarters
of 1997 and 1996 on its 19.9 percent ownership interest in the Hazelwood Power
Station.
TELECOMMUNICATIONS
As previously discussed, the Company completed the sale of PTI to Century
Telephone Enterprises, Inc. for $1.5 billion in cash, plus the assumption of
PTI's debt and recorded an after tax gain of $365 million, or $1.23 per share.
For the two months prior to the sale PTI reported net income of $25 million, or
$0.08 per share, compared to $21 million, or $0.06 per share, for the entire
fourth quarter of 1996.
OTHER BUSINESSES
In the fourth quarter of 1997, the Company's other operations reported
earnings of $45 million, or $0.15 per share, compared to $4 million, or $0.01 in
1996. During the quarter, the sale of PGC to NRG Energy, Inc. resulted in a gain
of $30 million, or $0.10 per share.
PPM reported a loss of $1 million in the fourth quarter of 1997 compared to
break even results last year. PPM's fourth quarter revenues increased $252
million to $260 million on increased energy trading activities. TPC reported a
loss of $4 million on revenues of $405 million in the fourth quarter of 1997.
For its other unregulated businesses, the Company reported earnings of $13
million in the fourth quarter of 1997, as compared to $9 million in 1996.
Interest income increased $5 million over the fourth quarter of 1996
primarily due to increased temporary cash investments from the sales of PTI and
PGC. Income taxes were benefited by $6 million of favorable state tax
adjustments in 1997.
IV-16
<PAGE>
PACIFICORP
AND ITS CONSOLIDATED SUBSIDIARIES
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
3 MONTHS ENDED
DECEMBER 31
--------------------- $ %
1997 1996 (1) CHANGE CHANGE
---------- --------- --------- -----------
<S> <C> <C> <C> <C>
REVENUES
Domestic Electric Operations (See next page).................... $1,129,400 $ 832,800 $ 296,600 36
Australian Electric Operations (See next page).................. 169,300 181,200 (11,900) (7)
Other Operations (2)............................................ 706,800 37,800 669,000 *
---------- --------- --------- ---
TOTAL....................................................... 2,005,500 1,051,800 953,700 91
---------- --------- --------- ---
EXPENSES
Domestic Electric Operations (See next page).................... 1,136,700 598,200 538,500 90
Australian Electric Operations.................................. 139,100 147,600 (8,500) (6)
Other Operations (2)............................................ 691,600 12,300 679,300 *
---------- --------- --------- ---
TOTAL....................................................... 1,967,400 758,100 1,209,300 *
---------- --------- --------- ---
INCOME FROM OPERATIONS
Domestic Electric Operations.................................... (7,300) 234,600 (241,900) (103)
Australian Electric Operations.................................. 30,200 33,600 (3,400) (10)
Other Operations (2)............................................ 15,200 25,500 (10,300) (40)
---------- --------- --------- ---
TOTAL....................................................... 38,100 293,700 (255,600) (87)
Interest expense.................................................... 107,900 106,000 1,900 2
Other (income) expense.............................................. (67,000) 13,100 (80,100) *
---------- --------- --------- ---
Income from continuing operations before income taxes............... (2,800) 174,600 (177,400) (102)
Income taxes........................................................ (2,900) 62,300 (65,200) (105)
---------- --------- --------- ---
Income from continuing operations before extraordinary item......... 100 112,300 (112,200) (100)
Discontinued operations (3)......................................... 389,800 20,600 369,200 *
Extraordinary item (4).............................................. (16,000) -- (16,000) *
---------- --------- --------- ---
NET INCOME.......................................................... 373,900 132,900 241,000 *
Preferred dividend requirement...................................... 4,800 5,500 (700) (13)
---------- --------- --------- ---
EARNINGS CONTRIBUTION ON COMMON
STOCK (5)
Domestic Electric Operations.................................... (58,800) 93,000 (151,800) *
Australian Electric Operations.................................. 9,300 9,400 (100) (1)
Other Operations (2)............................................ 44,800 4,400 40,400 *
---------- --------- --------- ---
Continuing operations............................................... (4,700) 106,800 (111,500) (104)
Discontinued operations (3)......................................... 389,800 20,600 369,200 *
Extraordinary item (4).............................................. (16,000) -- (16,000) *
---------- --------- --------- ---
TOTAL....................................................... $ 369,100 $ 127,400 $ 241,700 *
---------- --------- --------- ---
---------- --------- --------- ---
Average common shares outstanding................................... 296,719 294,897 1,822 1
EARNINGS PER COMMON SHARE
Domestic Electric Operations.................................... $ (0.20) $ 0.32 $ (0.52) *
Australian Electric Operations.................................. 0.03 0.03 -- --
Other Operations (2)............................................ 0.15 0.01 0.14 *
---------- --------- --------- ---
Continuing operations............................................... (0.02) 0.36 (0.38) (106)
Discontinued operations (3)......................................... 1.31 0.06 1.25 *
Extraordinary item (4).............................................. (0.05) -- (0.05) *
---------- --------- --------- ---
TOTAL (6)................................................... $ 1.24 $ 0.42 $ 0.82 *
---------- --------- --------- ---
---------- --------- --------- ---
Dividends paid per common share..................................... $ 0.27 $ 0.27 $ -- --
---------- --------- --------- ---
---------- --------- --------- ---
</TABLE>
- ------------------------
* Not a meaningful number.
(See accompanying notes)
IV-17
<PAGE>
PACIFICORP
AND ITS CONSOLIDATED SUBSIDIARIES
SUMMARY FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
3 MONTHS ENDED
DECEMBER 31
--------------------- $ %
1997 1996 CHANGE CHANGE
---------- --------- --------- -------------
<S> <C> <C> <C> <C>
DOMESTIC ELECTRIC REVENUES (In thousands)
Residential..................................................... $ 225,400 $ 224,900 $ 500 --
Commercial...................................................... 166,000 164,000 2,000 1
Industrial...................................................... 172,400 174,000 (1,600) (1)
Other........................................................... 7,600 8,300 (700) (8)
---------- --------- --------- ---
Retail Sales................................................ 571,400 571,200 200 --
Wholesale sales................................................. 534,200 231,300 302,900 131
Other........................................................... 23,800 30,300 (6,500) (21)
---------- --------- --------- ---
TOTAL....................................................... $1,129,400 $ 832,800 $ 296,600 36
---------- --------- --------- ---
---------- --------- --------- ---
DOMESTIC ELECTRIC ENERGY SALES
(Millions of kWh)
Residential..................................................... 3,608 3,559 49 1
Commercial...................................................... 3,057 2,997 60 2
Industrial...................................................... 5,202 4,950 252 5
Other........................................................... 159 160 (1) (1)
---------- --------- --------- ---
Retail Sales................................................ 12,026 11,666 360 3
Wholesale sales................................................. 21,687 9,499 12,188 128
---------- --------- --------- ---
TOTAL....................................................... 33,713 21,165 12,548 59
---------- --------- --------- ---
---------- --------- --------- ---
DOMESTIC ELECTRIC EXPENSES (In thousands)
Fuel............................................................ 114,900 126,400 (11,500) (9)
Purchased power................................................. 510,000 201,700 308,300 *
Other operations and maintenance................................ 124,800 117,000 7,800 7
Depreciation and amortization................................... 117,000 89,200 27,800 31
Administrative and general...................................... 99,600 63,900 35,700 56
Special charges................................................. 170,400 -- 170,400 *
---------- --------- --------- ---
TOTAL....................................................... 1,136,700 598,200 538,500 90
---------- --------- --------- ---
---------- --------- --------- ---
AUSTRALIAN ELECTRIC REVENUES (In thousands)
Residential..................................................... $ 52,900 $ 58,900 $ (6,000) (10)
Commercial...................................................... 58,100 50,400 7,700 15
Industrial...................................................... 54,800 59,700 (4,900) (8)
---------- --------- --------- ---
Retail Sales................................................ 165,800 169,000 (3,200) (2)
Other........................................................... 3,500 12,200 (8,700) (71)
---------- --------- --------- ---
TOTAL....................................................... $ 169,300 $ 181,200 $ (11,900) (7)
---------- --------- --------- ---
---------- --------- --------- ---
AUSTRALIAN ELECTRIC ENERGY SALES
(Millions of kWh)
Residential..................................................... 623 604 19 3
Commercial...................................................... 1,068 658 410 62
Industrial...................................................... 1,380 1,058 322 30
---------- --------- --------- ---
TOTAL....................................................... 3,071 2,320 751 32
---------- --------- --------- ---
---------- --------- --------- ---
</TABLE>
(See accompanying notes)
IV-18
<PAGE>
PACIFICORP
AND ITS CONSOLIDATED SUBSIDIARIES
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
12 MONTHS ENDED
DECEMBER 31
---------------------- $ %
1997 1996(1) CHANGE CHANGE
---------- ---------- --------- -------------
<S> <C> <C> <C> <C>
REVENUES
Domestic Electric Operations (See next page)................... $3,706,900 $2,991,800 $ 715,100 24
Australian Electric Operations (See next page)................. 716,200 658,800 57,400 9
Other Operations (2)........................................... 1,854,900 153,100 1,701,800 *
---------- ---------- --------- ---
TOTAL...................................................... 6,278,000 3,803,700 2,474,300 65
---------- ---------- --------- ---
EXPENSES
Domestic Electric Operations (See next page)................... 3,105,600 2,122,000 983,600 46
Australian Electric Operations................................. 565,700 531,400 34,300 6
Other Operations (2)........................................... 1,804,200 63,900 1,740,300 *
---------- ---------- --------- ---
TOTAL...................................................... 5,475,500 2,717,300 2,758,200 102
---------- ---------- --------- ---
INCOME FROM OPERATIONS
Domestic Electric Operations................................... 601,300 869,800 (268,500) (31)
Australian Electric Operations................................. 150,500 127,400 23,100 18
Other Operations (2)........................................... 50,700 89,200 (38,500) (43)
---------- ---------- --------- ---
TOTAL...................................................... 802,500 1,086,400 (283,900) (26)
Interest expense................................................... 439,500 415,000 24,500 6
Other (income) expense............................................. 28,100 4,800 23,300 *
---------- ---------- --------- ---
Income from continuing operations before income taxes.............. 334,900 666,600 (331,700) (50)
Income taxes 109,500 236,400 (126,900) (54)
---------- ---------- --------- ---
Income from continuing operations before extraordinary item........ 225,400 430,200 (204,800) (48)
Discontinued operations (3)........................................ 454,300 74,700 379,600 *
Extraordinary item (4)............................................. (16,000) -- (16,000) *
---------- ---------- --------- ---
NET INCOME......................................................... 663,700 504,900 158,800 31
Preferred dividend requirement..................................... 22,800 29,800 (7,000) (23)
---------- ---------- --------- ---
EARNINGS CONTRIBUTION ON COMMON STOCK (5)
Domestic Electric Operations................................... 165,500 341,500 (176,000) (52)
Australian Electric Operations................................. 54,200 31,900 22,300 70
Other Operations (2)........................................... (17,100) 27,000 (44,100) *
---------- ---------- --------- ---
Continuing operations.............................................. 202,600 400,400 (197,800) (49)
Discontinued operations (3)........................................ 454,300 74,700 379,600 *
Extraordinary item (4)............................................. (16,000) -- (16,000) *
---------- ---------- --------- ---
TOTAL...................................................... $ 640,900 $ 475,100 $ 165,800 35
---------- ---------- --------- ---
---------- ---------- --------- ---
Average common shares outstanding.................................. 296,094 292,424 3,670 1
EARNINGS PER COMMON SHARE
Domestic Electric Operations................................... $ 0.56 $ 1.17 $ (0.61) (52)
Australian Electric Operations................................. 0.18 0.11 0.07 64
Other Operations (2)........................................... (0.06) 0.09 (0.15) *
---------- ---------- --------- ---
Continuing operations.............................................. 0.68 1.37 (0.69) (50)
Discontinued operations (3)........................................ 1.53 0.25 1.28 *
Extraordinary item (4)............................................. (0.05) -- (0.05) *
---------- ---------- --------- ---
TOTAL (6).................................................. $ 2.16 $ 1.62 $ 0.54 33
---------- ---------- --------- ---
---------- ---------- --------- ---
Dividends paid per common share.................................... $ 1.08 $ 1.08 $ -- --
---------- ---------- --------- ---
---------- ---------- --------- ---
</TABLE>
- ------------------------
* Not a meaningful number.
(See accompanying notes)
IV-19
<PAGE>
PACIFICORP
AND ITS CONSOLIDATED SUBSIDIARIES
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
12 MONTHS ENDED
DECEMBER 31
---------------------- $ %
1997 1996 CHANGE CHANGE
---------- ---------- --------- -------------
<S> <C> <C> <C> <C>
DOMESTIC ELECTRIC REVENUES (In thousands)
Residential.................................................... $ 814,000 $ 801,400 $ 12,600 2
Commercial..................................................... 640,900 623,300 17,600 3
Industrial..................................................... 709,900 719,300 (9,400) (1)
Other.......................................................... 31,700 32,500 (800) (2)
---------- ---------- --------- ---
Retail Sales............................................... 2,196,500 2,176,500 20,000 1
Wholesale sales................................................ 1,428,000 738,800 689,200 93
Other.......................................................... 82,400 76,500 5,900 8
---------- ---------- --------- ---
TOTAL...................................................... $3,706,900 $2,991,800 $ 715,100 24
---------- ---------- --------- ---
---------- ---------- --------- ---
DOMESTIC ELECTRIC ENERGY SALES
(Millions of kWh)
Residential.................................................... 12,902 12,819 83 1
Commercial..................................................... 11,868 11,497 371 3
Industrial..................................................... 20,674 20,332 342 2
Other.......................................................... 705 640 65 10
---------- ---------- --------- ---
Retail Sales............................................... 46,149 45,288 861 2
Wholesale sales................................................ 59,143 29,665 29,478 99
---------- ---------- --------- ---
TOTAL...................................................... 105,292 74,953 30,339 40
---------- ---------- --------- ---
---------- ---------- --------- ---
DOMESTIC ELECTRIC EXPENSES (In thousands)
Fuel........................................................... 454,200 443,000 11,200 3
Purchased power................................................ 1,296,500 618,700 677,800 110
Other operations and maintenance............................... 470,000 444,200 25,800 6
Depreciation and amortization.................................. 389,100 343,400 45,700 13
Administrative and general..................................... 325,400 272,700 52,700 19
Special charges................................................ 170,400 -- 170,400 *
---------- ---------- --------- ---
TOTAL...................................................... 3,105,600 2,122,000 983,600 46
---------- ---------- --------- ---
---------- ---------- --------- ---
AUSTRALIAN ELECTRIC REVENUES
(In thousands)
Residential.................................................... $ 239,200 $ 239,400 $ (200) --
Commercial..................................................... 207,900 165,500 42,400 26
Industrial..................................................... 236,200 223,700 12,500 6
---------- ---------- --------- ---
Retail Sales............................................... 683,300 628,600 54,700 9
Other.......................................................... 32,900 30,200 2,700 9
---------- ---------- --------- ---
TOTAL...................................................... $ 716,200 $ 658,800 $ 57,400 9
---------- ---------- --------- ---
---------- ---------- --------- ---
AUSTRALIAN ELECTRIC ENERGY SALES
(Millions of kWh)
Residential.................................................... 2,683 2,608 75 3
Commercial..................................................... 3,082 1,926 1,156 60
Industrial..................................................... 5,279 3,776 1,503 40
---------- ---------- --------- ---
TOTAL...................................................... 11,044 8,310 2,734 33
---------- ---------- --------- ---
---------- ---------- --------- ---
</TABLE>
(See accompanying notes)
IV-20
<PAGE>
PACIFICORP
AND ITS CONSOLIDATED SUBSIDIARIES
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER DECEMBER $ %
1997 1996 CHANGE CHANGE
---------- ----------- --------- -------------
<S> <C> <C> <C> <C>
CONSOLIDATED CAPITALIZATION
Common equity................................................ $4,332,000 $ 4,032,000 $ 300,000 7
Preferred stock.............................................. 241,000 314,000 (73,000) (23)
Preferred securities of trust holding solely PacifiCorp
debentures................................................. 340,000 210,000 130,000 62
Long-term debt............................................... 4,415,000 4,829,000 (414,000) (9)
Short-term debt.............................................. 555,000 903,000 (348,000) (39)
---------- ----------- --------- ---
TOTAL.................................................... $9,883,000 $10,288,000 $(405,000) (4)
---------- ----------- --------- ---
---------- ----------- --------- ---
</TABLE>
- ------------------------
(1) Certain amounts from the prior year have been reclassified to conform with
the 1997 method of presentation. Reclassification had no effect on
previously reported consolidated net income.
(2) Other Operations includes the operations of PacifiCorp Financial Services,
Inc., Pacific Generation Company (sold Nov. 1, 1997), TPC Corporation and
PacifiCorp Power Marketing, as well as activities of PacifiCorp Holdings,
Inc.
(3) Represents the discontinued operations of Pacific Telecom, Inc., a
telecommunications subsidiary.
(4) Extraordinary charges for unrecoverability of regulatory assets in
California and Montana.
(5) Earnings contribution on common stock by segment:
(a) Does not reflect elimination for interest on intercompany borrowing
arrangements.
(b) Includes income taxes on a separate company basis, with any benefit or
detriment of consolidation reflected in Other Operations.
(c) Amounts are net of preferred dividend requirements and minority
interest.
(6) Basic earnings per share is equivalent to fully diluted earnings per share."
5 FINANCIAL STATEMENTS
The financial information for the three years ended 31 December 1996
relating to PacifiCorp contained in this section of the document has been
extracted from the published audited financial statements of PacifiCorp for each
of these years. The financial information for the nine months ended 30 September
1996 and 1997 has been extracted from the unaudited published financial
statements of PacifiCorp for those periods. PacifiCorp's accounting policies
conform to US GAAP. Additional financial and other information for PacifiCorp
can be obtained from PacifiCorp's reports filed pursuant to the Exchange Act.
The information contained herein is qualified in its entirety by reference to
PacifiCorp's Annual Report on Form 10-K for the year ended 31 December 1996 and
PacifiCorp's Quarterly Reports on Form 10-Q for the quarters ended 31 March, 30
June and 30 September 1997. PacifiCorp's reports can be inspected and copied at
the public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, NW, Washington, DC 20549 and at the following Regional Offices of the
SEC: 7 World Trade Center, Suite 1300, New York, NY 10048; and 500 West Madison
Street, Suite 1400, Chicago, IL 60661. Copies of such material can also be
obtained by mail from the Public Reference Section of the SEC at 450 Fifth
Street, NW, Washington, DC 20549, at prescribed rates. In addition, such
material may be inspected and copied at the offices of the NYSE, 20 Broad
Street, New York, NY 10005. Copies of such material can also be obtained by
writing to PacifiCorp Investor Relations, at 700 NE Multnomah Street, Portland,
OR 97232, United States.
IV-21
<PAGE>
PACIFICORP
STATEMENTS OF CONSOLIDATED INCOME AND RETAINED EARNINGS
(MILLIONS OF US DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES..................................................................... $ 4,293.8 $ 3,416.9 $ 3,498.0
---------- ---------- ----------
EXPENSES
Operations............................................................... 1,782.4 1,259.4 1,391.8
Maintenance.............................................................. 308.5 281.0 292.3
Administrative and general............................................... 308.5 254.9 244.6
Depreciation and amortisation............................................ 530.4 445.6 424.3
Taxes, other than income taxes........................................... 118.9 120.1 122.7
---------- ---------- ----------
Total................................................................ 3,048.7 2,361.0 2,475.7
---------- ---------- ----------
INCOME FROM OPERATIONS....................................................... 1,245.1 1,055.9 1,022.3
---------- ---------- ----------
Interest Expense and Other
Interest expense......................................................... 465.7 378.7 334.5
Interest capitalised..................................................... (11.9) (15.1) (14.5)
Minority interest and other.............................................. 2.5 (51.5) (15.5)
---------- ---------- ----------
Total................................................................ 456.3 312.1 304.5
---------- ---------- ----------
Income before income taxes................................................... 788.8 743.8 717.8
Income taxes................................................................. 283.9 238.8 249.8
---------- ---------- ----------
NET INCOME................................................................... 504.9 505.0 468.0
Retained Earnings, January 1................................................. 632.4 474.3 351.3
CASH DIVIDENDS DECLARED
Preferred stock.......................................................... (29.1) (38.4) (39.6)
Common stock per share of $1.08.......................................... (317.9) (306.6) (305.4)
Preferred stock retired.................................................. (7.5) (1.9) --
---------- ---------- ----------
Retained Earnings, December 31............................................... $ 782.8 $ 632.4 $ 474.3
---------- ---------- ----------
---------- ---------- ----------
Earnings on Common Stock (Net income less preferred dividend requirement).... $ 475.1 $ 466.3 $ 428.3
Average number of common shares outstanding (Thousands)...................... 292,424 284,272 282,912
Earnings per Common Share.................................................... $ 1.62 $ 1.64 $ 1.51
</TABLE>
See accompanying Notes to Consolidated Financial Statements
IV-22
<PAGE>
PACIFICORP
STATEMENTS OF CONSOLIDATED CASH FLOWS
(MILLIONS OF US DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEAR
----------------------------------
<S> <C> <C> <C>
1996 1995 1994
---------- ----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................... $ 504.9 $ 505.0 $ 468.0
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization........................................ 552.0 466.2 472.5
Deferred income taxes and investment tax credits--net................ 48.4 62.5 (7.5)
Minority interest and other.......................................... (33.3) (28.6) 23.6
Accounts receivable and prepayments.................................. (171.2) (71.5) 5.4
Materials, supplies, fuel stock and inventory........................ 31.9 (8.6) 11.8
Accounts payable and accrued liabilities............................. 144.6 (13.0) (11.7)
---------- ----------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................................... 1,077.3 912.0 962.1
---------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction............................................................. (650.8) (578.6) (788.7)
Operating companies and assets acquired.................................. (199.4) (2,002.1) (5.9)
Investments in and advances to affiliated companies--net................. (153.5) (138.4) (9.5)
Proceeds from sales of assets............................................ 55.1 377.0 381.6
Proceeds from sales of finance assets and principal payments............. 55.8 36.6 109.1
Other.................................................................... (10.5) (27.4) (26.7)
---------- ----------- ---------
NET CASH USED IN INVESTING ACTIVITIES........................................ (903.3) (2,332.9) (340.1)
---------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Changes in short-term debt............................................... (319.6) 581.5 (98.7)
Proceeds from long-term debt............................................. 669.4 1,530.8 246.6
Proceeds from issuance of common stock................................... 221.3 .4 57.2
Proceeds from issuance of preferred securities of Trust holding solely
PacifiCorp debentures.................................................. 209.6 -- --
Dividends paid........................................................... (346.4) (346.5) (344.8)
Repayments of long-term debt............................................. (341.1) (285.8) (448.5)
Redemptions of capital stock............................................. (221.6) (2.6) --
Other.................................................................... (50.0) (58.0) (41.7)
---------- ----------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.......................... (178.4) 1,419.8 (629.9)
---------- ----------- ---------
Decrease in Cash and Cash Equivalents........................................ (4.4) (1.1) (7.9)
Cash and Cash Equivalents at Beginning of Year............................... 22.2 23.3 31.2
---------- ----------- ---------
Cash and Cash Equivalents at End of Year..................................... $ 17.8 $ 22.2 $ 23.3
---------- ----------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for Interest (net of amount capitalized)....... $ 505.7 $ 407.7 $ 399.4
Income taxes............................................................. 207.9 185.5 225.6
Non-cash financing activities
8.55% Junior subordinated debentures exchanged for 2,233,037 shares of
$1.98 No Par Serial Preferred Stock.................................... -- 55.9 --
</TABLE>
See accompanying Notes to Consolidated Financial Statements
IV-23
<PAGE>
PACIFICORP
CONSOLIDATED BALANCE SHEETS
(MILLIONS OF US DOLLARS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
<S> <C> <C>
1996 1995
----------- -----------
Current Assets
Cash and cash equivalents.......................................................... $ 17.8 $ 22.2
Accounts receivable less allowance for doubtful accounts: 1996/$8.6 and
1995/$7.4........................................................................ 718.6 545.0
Materials, supplies and fuel stock at average cost................................. 188.7 212.1
Inventory.......................................................................... 55.2 62.8
Other.............................................................................. 78.2 70.1
----------- -----------
TOTAL CURRENT ASSETS................................................................... 1,058.5 912.2
Property, Plant and Equipment
Domestic Electric Operations
Production..................................................................... 4,659.2 4,420.0
Transmission................................................................... 2,069.2 2,042.5
Distribution................................................................... 3,029.7 2,829.9
Other.......................................................................... 1,687.9 1,655.7
Construction work in progress.................................................. 252.8 310.0
----------- -----------
TOTAL DOMESTIC ELECTRIC OPERATIONS............................................. 11,698.8 11,258.1
Australian Electric Operations..................................................... 1,361.9 1,302.8
Telecommunications................................................................. 1,670.0 1,606.9
Other Operations................................................................... 68.8 65.0
Accumulated depreciation and amortization.......................................... (4,583.8) (4,280.5)
----------- -----------
TOTAL PROPERTY, PLANT AND EQUIPMENT--NET........................................... 10,215.7 9,952.3
Other Assets
Investments in and advances to affiliated companies................................ 358.9 187.9
Intangible assets--net............................................................. 870.5 743.2
Regulatory assets--net............................................................. 1,017.4 1,060.3
Finance note receivable............................................................ 214.6 217.5
Finance assets--net................................................................ 425.6 453.7
Real estate investments............................................................ 217.0 179.8
Deferred charges and other......................................................... 256.3 308.3
----------- -----------
TOTAL OTHER ASSETS................................................................. 3,360.3 3,150.7
----------- -----------
TOTAL ASSETS........................................................................... $ 14,634.5 $ 14,015.2
----------- -----------
----------- -----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
IV-24
<PAGE>
PACIFICORP
CONSOLIDATED BALANCE SHEETS
(MILLIONS OF US DOLLARS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
<S> <C> <C>
1996 1995
----------- -----------
Current Liabilities
Long-term debt currently maturing.................................................. $ 235.6 $ 206.1
Notes payable and commercial paper................................................. 701.5 1,021.1
Accounts payable................................................................... 469.7 345.3
Taxes, interest and dividends payable.............................................. 303.5 256.4
Customer deposits and other........................................................ 152.6 176.0
----------- -----------
TOTAL CURRENT LIABILITIES.............................................................. 1,862.9 2,004.9
Deferred Credits
Income taxes....................................................................... 1,953.1 1,910.1
Investment tax credits............................................................. 148.4 159.2
Other.............................................................................. 758.9 786.2
----------- -----------
TOTAL DEFERRED CREDITS................................................................. 2,860.4 2,855.5
Minority Interest...................................................................... 31.9 23.0
Long-Term Debt......................................................................... 5,323.8 4,968.2
Guaranteed Preferred Beneficial Interests in Company's Junior Subordinated
Debentures........................................................................... 209.7 --
Preferred Stock Subject to Mandatory Redemption........................................ 178.0 219.0
Preferred Stock........................................................................ 135.5 311.5
Common Equity
Common shareholders' capital shares authorised 750,000,000; shares outstanding:
1996/295,139,753 and 1995/284,276,709............................................ 3,236.8 3,012.9
Retained earnings.................................................................. 782.8 632.4
Cumulative currency translation adjustment......................................... 12.7 --
Guarantees of Employee Stock Ownership Plan borrowings............................. -- (12.2)
----------- -----------
TOTAL COMMON EQUITY.................................................................... 4,032.3 3,633.1
----------- -----------
Commitments and Contingencies (See Notes 9 and 10)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................................. $ 14,634.5 $ 14,015.2
----------- -----------
----------- -----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
IV-25
<PAGE>
PACIFICORP
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The following notes regarding significant accounting policies together with
other information in the notes to the financial statements which is of major
relevance to an appreciation of PacifiCorp's financial information have been
extracted from the published financial statements of PacifiCorp for the three
years ended December 31, 1996.
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements of PacifiCorp (the "Company") include
its integrated domestic electric utility operating divisions of Pacific Power
and Utah Power and its wholly owned and majority owned subsidiaries. Major
subsidiaries, all of which are wholly owned, are: PacifiCorp Holdings, Inc.
("Holdings"), which holds all of the Company's nonintegrated electric utility
investments, including Powercor Australia Limited ("Powercor"), an Australian
electricity distributor purchased December 12, 1995; Pacific Telecom, Inc.
("PTI"), a telecommunications operation (formerly 87% owned, see Note 14); and
PacifiCorp Financial Services, Inc., a financial services business. Together
these businesses are referred to herein as the Companies. Significant
intercompany transactions and balances have been eliminated.
Investments in and advances to affiliated companies represent investments in
unconsolidated affiliated companies carried on the equity basis, which
approximates the Company's equity in their underlying net book value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
REGULATION
Accounting for the domestic utility businesses conforms with generally
accepted accounting principles as applied to regulated public utilities and as
prescribed by agencies and the commissions of the various locations in which the
utility businesses operate. The Company prepares its financial statements as
they relate to Domestic Electric Operations and Telecommunications in accordance
with Statement of Financial Accounting Standards ("SFAS") 71, "Accounting for
the Effects of Certain Types of Regulation." See Note 2.
ASSET IMPAIRMENTS
Effective January 1, 1996, the Company adopted SFAS 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
This Statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Company evaluated all its assets based upon SFAS 121
and within the context of SFAS 71 for its regulated operations and concluded
that no material adjustments were required. See Note 2.
IV-26
<PAGE>
PACIFICORP
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED):
CASH AND CASH EQUIVALENTS
For the purposes of these financial statements, the Company considers all
liquid investments with original maturities of three months or less to be cash
equivalents.
FOREIGN CURRENCY TRANSLATION
Financial statements for foreign subsidiaries are translated into United
States dollars at end of period exchange rates as to assets and liabilities and
weighted average exchange rates as to revenues and expenses. The resulting
exchange gains or losses are accumulated in the "cumulative currency translation
adjustment" account, a component of common equity. All significant gains and
losses resulting from foreign currency transactions are included in income.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at original cost of contracted
services, direct labor and material, interest capitalized during construction
and indirect charges for engineering, supervision and similar overhead items.
The cost of depreciable utility properties retired, including the cost of
removal, less salvage, is charged to accumulated depreciation.
DEPRECIATION AND AMORTIZATION
At December 31, 1996, the average depreciable life of property, plant and
equipment by category was: Domestic Electric Operations--Production, 41 years;
Transmission, 42 years; Distribution, 30 years; Other, 18 years; Australian
Electric Operations, 21 years; and Telecommunications, 16 years.
Depreciation and amortization is generally computed by the straight-line
method over the estimated economic useful lives of the related assets after
giving effect to requirements as prescribed by the Company's various regulatory
jurisdictions. Provisions for depreciation (excluding amortization of capital
leases) in the domestic electric, Australian electric and telecommunications
businesses were 3.6%, 3.5% and 3.4% of average depreciable assets in 1996, 1995
and 1994, respectively.
MINE RECLAMATION AND CLOSURE COSTS
The Company expenses current mine reclamation costs and accrues for
estimated final mine reclamation and closure costs using the units-of-production
method.
INVENTORY VALUATION
Inventories are generally valued at the lower of average cost or market.
INTANGIBLE ASSETS
Intangible assets consist of: license and other intangible costs relating to
Australian Electric Operations ($460 million and $32 million, respectively, in
1996 and $312 million and $30 million, respectively, in 1995); franchises of
local exchange and cellular companies ($397 million in 1996 and $398 million in
1995); and excess cost over net assets of businesses acquired ($43 million in
1996 and 1995). These
IV-27
<PAGE>
PACIFICORP
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED):
costs are offset by accumulated amortization ($62 million in 1996 and $40
million in 1995). Intangible assets are generally being amortized over 40 years.
FINANCE ASSETS
Finance assets consist of finance receivables, leveraged leases and
operating leases and are not significant to the Company in terms of revenue, net
income or assets. The Company's leasing operations consist principally of
leveraged aircraft leases. Investments in finance assets are net of allowances
for credit losses and accumulated impairment charges of $63 million and $71
million at December 31, 1996 and 1995, respectively.
DERIVATIVES
Gains and losses on hedges of existing assets and liabilities are included
in the carrying amounts of those assets or liabilities and are recognized in
income as part of those carrying amounts. Gains and losses related to hedges of
anticipated transactions and firm commitments are deferred on the balance sheet
and recognized in income when the transaction occurs.
INTEREST CAPITALIZED
Costs of debt applicable to domestic utility properties are capitalized
during construction. Generally, the composite capitalization rates were 5.7% for
1996, 6.2% for 1995 and 4.7% for 1994.
INCOME TAXES
The Company uses the liability method of accounting for deferred income
taxes. Deferred tax liabilities and assets reflect the expected future tax
consequences, based on enacted tax law, of temporary differences between the tax
bases of assets and liabilities and their financial reporting amounts.
Investment tax credits for regulated operations in the United States are
deferred and amortized to income over the average estimated lives of the
properties. All other investment tax credits are recognized when utilized.
Provision is made for U.S. income taxes on the undistributed earnings of the
Company's international businesses.
REVENUE RECOGNITION
The Company accrues estimated unbilled revenues for electric services
provided after cycle billing to month-end.
PTI participates with other telephone companies in access revenue pools for
certain interstate and intrastate revenues, which are initially recorded based
on estimates.
IV-28
<PAGE>
PACIFICORP
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED):
PREFERRED STOCK RETIRED
Amounts paid in excess of the net carrying value of preferred stock retired
are amortized in accordance with regulatory orders.
RECLASSIFICATION
Certain amounts from prior years have been reclassified to conform with the
1996 method of presentation. These reclassifications had no effect on previously
reported consolidated net income.
NOTE 2 ACCOUNTING FOR THE EFFECTS OF REGULATION
Regulated utilities have historically applied the provisions of SFAS 71
which is based on the premise that regulators will set rates that allow for the
recovery of a utility's costs, including cost of capital. Accounting under SFAS
71 is appropriate as long as: rates are established by or subject to approval by
independent, third-party regulators; rates are designed to recover the specific
enterprise's cost-of-service; and in view of demand for service, it is
reasonable to assume that rates are set at levels that will recover costs and
can be collected from customers. In applying SFAS 71, the Company must give
consideration to changes in the level of demand or competition during the cost
recovery period. In accordance with SFAS 71, the Company's domestic utility
operations capitalize certain costs, regulatory assets, in accordance with
regulatory authority whereby those costs will be expensed and recovered in
future periods. Regulatory assets-net at December 31, 1996 and 1995 included the
following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
<S> <C> <C>
1996 1995
------------- ----------
<CAPTION>
MILLIONS OF US DOLLARS
<S> <C> <C>
Deferred taxes--net......................................................... $ 670.6 $ 687.1
Deferred pension costs...................................................... 102.9 116.8
Demand-side resource costs.................................................. 118.8 110.0
Unamortized net loss on reacquired debt..................................... 68.4 71.8
Unrecovered Trojan Plant and regulatory study costs......................... 26.8 28.4
Various other costs......................................................... 29.9 46.2
------------- ----------
Total................................................................... $ 1,017.4 $ 1,060.3
------------- ----------
------------- ----------
</TABLE>
If the Company, at some point in the future, determines that all or a
portion of the domestic utility operations no longer meet the criteria for
continued application of SFAS 71, the Company would be required to adopt the
provisions of SFAS 101, "Regulated Enterprises--Accounting for the
Discontinuation of Application of FASB Statement No. 71." Adoption of SFAS 101
would require the Company to write off the regulatory assets and liabilities
relating to those operations not meeting SFAS 71 requirements.
The utility industry will also be impacted by the application of SFAS 121 as
a result of deregulation. This accounting statement requires the recognition of
impairment on long-lived assets when book values exceed expected future cash
flows. Integral parts of future cash flow estimates include estimated future
prices to be received, the expected future cash cost of operations, sales and
load growth forecasts and the nature of any legislative cost recovery
mechanisms.
IV-29
<PAGE>
PACIFICORP
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 2 ACCOUNTING FOR THE EFFECTS OF REGULATION -- (CONTINUED):
Restructuring bills are being considered in all states in which the Company
provides retail service. The Company expects any legislation passed to provide
an opportunity to recover costs which have been placed at risk.
NOTE 3 SHORT-TERM DEBT AND BORROWING ARRANGEMENTS
The Companies' short-term debt and borrowing arrangements were as follows:
<TABLE>
<CAPTION>
DECEMBER 31 FOR THE YEAR
-------------------------- ----------------------------
<S> <C> <C> <C> <C>
AVERAGE AVERAGE
INTEREST AVERAGE INTEREST
BALANCE RATE(A) OUTSTANDING RATE(B)
----------- ------------- ------------- -------------
<CAPTION>
MILLIONS OF US DOLLARS
<S> <C> <C> <C> <C>
1996
PacifiCorp...................................................... $ 549.3 5.6% $ 424.4 5.4%
Subsidiaries.................................................... 152.2 5.6 287.2 5.6
1995
PacifiCorp...................................................... $ 479.9 5.9% $ 407.2 5.9%
Subsidiaries.................................................... 541.2 6.1 180.0 6.2
1994
PacifiCorp...................................................... $ 433.0 6.0% $ 372.8 4.5%
Subsidiaries.................................................... 21.7 7.5 95.0 4.6
</TABLE>
- ------------------------
(a) Computed by dividing the total interest on principal amounts outstanding at
the end of the period by the weighted daily principal amounts outstanding.
(b) Computed by dividing the total interest expense for the period by the
average daily principal amount outstanding for the period.
At December 31, 1996, PacifiCorp's commercial paper and bank line borrowings
were supported by revolving credit agreements totaling $700 million. At December
31, 1996, subsidiaries had committed bank revolving credit agreements totaling
$2.1 billion.
The Companies have the intent and ability to support short-term borrowings
through various revolving credit agreements on a long-term basis. At December
31, 1996, PacifiCorp had $123 million and subsidiaries had $1.1 billion of
short-term debt classified as long-term. Consolidated commitment fees were
approximately $2 million in 1996 and 1995 and $3 million in 1994.
IV-30
<PAGE>
PACIFICORP
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 4 LONG-TERM DEBT
The Company's long-term debt was as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
<S> <C> <C>
1996 1995
---------- ----------
<CAPTION>
MILLIONS OF US DOLLARS
<S> <C> <C>
PacifiCorp
First mortgage and collateral trust bonds
Maturing 1997 through 2001/5.9%-9.5% (a)............................................. $ 946.5 $ 1,112.1
Maturing 2002 through 2006/6.1%-9%................................................... 601.0 519.8
Maturing 2007 through 2011/6.6%-9.2%................................................. 235.8 237.5
Maturing 2012 through 2016/7.3%-8.8%................................................. 172.9 175.6
Maturing 2017 through 2021/8.4%-8.5%................................................. 38.1 38.4
Maturing 2022 through 2026/6.7%-8.6%................................................. 441.5 341.5
Guaranty of pollution control revenue bonds
5.6%-5.7% due 2021 through 2023 (b).................................................. 71.2 71.2
Variable rate due 2013 through 2024 (b)(c)........................................... 216.5 216.5
Variable rate due 2005 through 2030 (c).............................................. 450.7 456.6
Funds held by trustees............................................................... (12.1) (12.4)
8.4%-8.6% Junior subordinated debentures due 2025 through 2035......................... 175.8 175.8
Commercial paper (c)(e)................................................................ 123.4 200.0
Other.................................................................................. 28.1 31.3
---------- ----------
Total.................................................................................. 3,489.4 3,563.9
Less current maturities................................................................ 203.8 176.8
---------- ----------
Total.................................................................................. 3,285.6 3,387.1
---------- ----------
Subsidiaries
2%-11.8% First mortgage notes and bonds maturing through 2028.......................... 139.3 143.2
6.8%-10.2% Notes due through 2020...................................................... 291.2 59.8
Australian bank bill borrowings (d)(e)................................................. 922.3 896.2
Commercial paper and committed bank lines (c)(e)....................................... 185.0 75.0
Variable rate notes due through 2007 (c)............................................... 35.8 42.0
6.6%-9.4% Medium-term notes due through 2008........................................... 323.5 223.5
4.5%-11% Nonrecourse debt due through 2031............................................. 170.8 155.9
Other.................................................................................. 2.1 14.8
---------- ----------
Total.................................................................................. 2,070.0 1,610.4
Less current maturities................................................................ 31.8 29.3
---------- ----------
Total.................................................................................. 2,038.2 1,581.1
---------- ----------
Total.................................................................................... $ 5,323.8 $ 4,968.2
---------- ----------
---------- ----------
</TABLE>
- ------------------------
(a) Includes $50 million of 9.4% bonds issued to secure obligations under an
equivalent 10-year yen loan. A currency swap converted the fixed rate yen
liability to a floating rate U.S. dollar liability based on six-month LIBOR
plus .02% (interest rate 5.9% at December 31, 1996).
IV-31
<PAGE>
PACIFICORP
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 4 LONG-TERM DEBT -- (CONTINUED):
(b) Secured by pledged first mortgage and collateral trust bonds generally at
the same interest rates, maturity dates and redemption provisions as the
secured pollution control revenue bonds.
(c) Interest rates fluctuate based on various rates, primarily on certificate of
deposit rates, interbank borrowing rates, prime rates or other short- term
market rates.
(d) Interest rates fluctuate based on Australian Bank Bill Acceptance Rates. The
loan agreement requires that at least 50% of the borrowings must be hedged
against variations in interest rates. Approximately $630 million was hedged
at December 31, 1996 at an average rate of 7.6% and for an average life of
4.4 years.
(e) The Companies have the ability to support short-term borrowings and current
debt being refinanced on a long-term basis through revolving lines of credit
and, therefore, based upon management's intent, have classified $1.2 billion
of short-term debt as long-term debt.
Approximately $7 billion of the assets of the Companies secure long-term
debt and capital lease obligations. First mortgage and collateral trust bonds of
the Company may be issued in amounts limited by Domestic Electric Operations'
property, earnings and other provisions of the mortgage indenture.
The junior subordinated debentures are unsecured obligations of the Company
and are subordinated to the Company's first mortgage bonds, pollution control
revenue bonds, commercial paper, bank debt, capital lease obligations and any
future senior indebtedness.
Nonrecourse long-term notes are secured by assignment of related finance
receivables, asset security interests and cash flows from operating leases. The
noteholders have no additional recourse to the Companies.
The annual maturities of long-term debt and redeemable preferred stock
outstanding are $236 million, $241 million, $353 million, $1.1 billion and $622
million in 1997 through 2001, respectively.
NOTE 5 GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S JUNIOR
SUBORDINATED
DEBENTURES
On June 11, 1996, PacifiCorp Capital I, a wholly owned subsidiary trust of
the Company (the "Trust"), issued, in a public offering, 8,680,000 of its 8 1/4%
Company Obligated Mandatorily Redeemable Preferred Securities (the "Preferred
Securities"), representing preferred undivided beneficial interests in the
assets of the Trust, with a liquidation preference of $25 per Preferred
Security. The sole assets of the Trust are $224 million, in aggregate principal
amount, of the Company's 8 1/4% Junior Subordinated Deferrable Interest
Debentures, Series C, due June 30, 2036 and certain rights under a related
guarantee by the Company. The Company's guarantee of the Preferred Securities,
considered together with the other obligations of the Company with respect to
Preferred Securities, constitutes a full and unconditional guarantee by the
Company of the Trust's obligations with respect to the Preferred Securities.
IV-32
<PAGE>
PACIFICORP
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 6 COMMON AND PREFERRED STOCK
<TABLE>
<CAPTION>
THOUSANDS OF SHARES
---------------------- COMMON
SHARES SHARES SHARE-
COMMON PREFERRED HOLDERS'
STOCK STOCK CAPITAL
--------- ----------- -----------
<S> <C> <C> <C>
MILLIONS OF
US DOLLARS
At January 1, 1994............................................................ 281,021 10,532 $ 2,953.4
Sales through Dividend Reinvestment and Stock Purchase Plan................. 2,194 -- 38.0
Sales through Employees' Stock Plans........................................ 1,036 -- 19.2
--------- ----------- -----------
At December 31, 1994.......................................................... 284,251 10,532 3,010.6
Sales through Employees' Stock Plans........................................ 26 -- .4
Junior subordinated debentures exchanged for preferred stock................ -- (2,233) 1.9
--------- ----------- -----------
At December 31, 1995.......................................................... 284,277 8,299 3,012.9
Sales to public............................................................. 8,790 -- 177.8
Sales through Dividend Reinvestment and Stock Purchase Plan................. 2,073 -- 43.2
Redemptions and repurchases................................................. -- (2,342) 2.9
--------- ----------- -----------
At December 31, 1996.......................................................... 295,140 5,957 $ 3,236.8
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
At December 31, 1996, there were 28,905,056 authorized but unissued shares
of common stock reserved for issuance under the Dividend Reinvestment and Stock
Purchase Plan and the Employee Savings and Stock Ownership Plans and for sales
to the public. Eligible employees under the employee plans may direct their
pretax elective contributions into the purchase of the Company's common stock.
The Company makes matching contributions, equal to a percentage of employee
contributions, which are invested in the Company's common stock. Employee
contributions eligible for matching contributions are limited to 6% of
compensation.
Generally, preferred stock is redeemable at stipulated prices plus accrued
dividends, subject to certain restrictions. Upon involuntary liquidation, all
preferred stock is entitled to stated value or a specified preference amount per
share plus accrued dividends.
IV-33
<PAGE>
PACIFICORP
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 6 COMMON AND PREFERRED STOCK -- (CONTINUED)
PREFERRED STOCK OUTSTANDING
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------
1996 1996 1995 1995
SERIES SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
THOUSANDS OF SHARES/
MILLIONS OF US DOLLARS
Subject to Mandatory Redemption
No Par Serial Preferred, ($100 stated value)
16,000 Shares Authorized
$7.12................................................................. 30 $ 3.0 440 $ 44.0
7.70................................................................. 1,000 100.0 1,000 100.0
7.48................................................................. 750 75.0 750 75.0
----- --------- ----- ---------
Total............................................................. $ 178.0 $ 219.0
--------- ---------
--------- ---------
Not Subject to Mandatory Redemption
No Par Serial Preferred ($25 stated value)
$1.16................................................................. 193 $ 4.8 193 $ 4.8
1.18................................................................. 420 10.5 420 10.5
1.28................................................................. 381 9.5 381 9.5
1.76................................................................. -- -- 394 9.8
1.98................................................................. -- -- 502 12.6
2.13................................................................. -- -- 666 16.7
1.98, Series 1992.................................................... 2,767 69.1 2,767 69.1
Auction Rate ($100,000 stated value).................................. -- -- 1 100.0
Serial Preferred $100 Stated Value Per Share,
3,500 Shares Authorized
4.52%................................................................ 2 .2 2 .2
4.56................................................................. 85 8.5 85 8.5
4.72................................................................. 70 7.0 70 7.0
5.00................................................................. 42 4.2 42 4.2
5.40................................................................. 66 6.6 66 6.6
6.00................................................................. 6 .6 6 .6
7.00................................................................. 18 1.8 18 1.8
7.96................................................................. -- -- 135 13.5
8.92................................................................. -- -- 69 6.9
9.08................................................................. -- -- 165 16.5
5% Preferred, $100 Stated Value, 127 Shares Authorized and Outstanding.... 127 12.7 127 12.7
----- --------- ----- ---------
Total............................................................. $ 135.5 $ 311.5
--------- ---------
--------- ---------
</TABLE>
Mandatory redemption requirements at stated value plus accrued dividends on
No Par Serial Preferred Stock are as follows: beginning in 1997, 15,000 shares
of the $7.12 series are redeemable annually; the $7.70 series is redeemable in
its entirety on August 15, 2001; and 37,500 shares of the
IV-34
<PAGE>
PACIFICORP
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 6 COMMON AND PREFERRED STOCK -- (CONTINUED)
$7.48 series are redeemable on each June 15 from 2002 through 2006, with all
shares outstanding on June 15, 2007 redeemable on that date. If the Company is
in default in its obligation to make any future redemptions on the $7.12 series
or the $7.48 series, it may not pay cash dividends on common stock.
NOTE 7 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company seeks to reduce net income and cash flow exposure to changing
interest and currency exchange rates and commodity price risks through the use
of derivative financial instruments.
The Company's participation in derivative transactions involves instruments
that have a close correlation with its portfolio of liabilities, thereby
managing its risk. Derivatives have been designed for hedging purposes and are
not held or issued for speculative purposes.
NOTIONAL AMOUNTS AND CREDIT EXPOSURE OF DERIVATIVES--The notional amounts of
derivatives summarized below do not represent amounts exchanged and, therefore,
are not a measure of the exposure of the Company through its use of derivatives.
The amounts exchanged are calculated on the basis of the notional amounts and
other terms of the derivatives, which relate to interest rates, exchange rates
or other indexes.
IV-35
<PAGE>
PACIFICORP
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 7 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT -- (CONTINUED):
The Company is exposed to credit-related losses in the event of
nonperformance by counterparties to financial instruments, but it does not
expect any counterparties to fail to meet their obligations given their high
credit ratings. The Company's credit policy provides that counterparties satisfy
minimum credit ratings. The credit exposure of interest rate, foreign exchange
and forward contracts is represented by the fair value of contracts with a
positive fair value at the reporting date.
INTEREST RATE RISK MANAGEMENT--The Company enters into various types of
interest rate contracts in managing its interest rate risk, as indicated in the
following table:
<TABLE>
<CAPTION>
NOTIONAL AMOUNT
--------------------
DECEMBER 31
--------------------
1996 1995
--------- ---------
<S> <C> <C>
MILLIONS OF US
DOLLARS
Interest rate swaps...................................................... $ 846.4 $ 219.9
Interest rate collars purchased.......................................... 52.0 --
Interest rate futures and forwards....................................... 60.0 --
</TABLE>
The Company uses interest rate swaps, collars, futures and forwards to
adjust the characteristics of its liability portfolio from variable to fixed
interest rates, allowing the Company to establish a mix of fixed or variable
interest rates on its outstanding debt. Additionally, under terms of the
variable rate Australian bank bill borrowings, Australian Electric Operations is
required to obtain a fixed interest rate, via financial derivatives, on at least
50% of the principal outstanding.
Under the various swap agreements, the Company agrees with other parties to
exchange, at specified intervals, the difference between fixed-rate and
floating-rate interest amounts calculated by reference to an agreed notional
principal amount. The following table indicates the weighted-average interest
rates of the swaps. Average variable rates are based on rates implied in the
yield curve at December 31; these may change significantly, affecting future
cash flows. Swap contracts are principally between one and fifteen years in
duration.
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Pay-fixed swaps
Average pay rate........................................................ 7.7% 7.7%
Average receive rate.................................................... 5.6 4.4
</TABLE>
Interest rate futures and forward contracts are generally used by Australian
Electric Operations to mitigate variable interest rate exposure on Australian
bank bill borrowings and are usually settled in cash. The futures and forwards
are accounted for as hedges of the Australian bank bill borrowings.
Additionally, Australian Electric Operations purchases interest rate collar
agreements. The collar agreements entitle the Company to receive from the
counterparties the amounts, if any, by which the Australian bank bill borrowings
interest payments exceed 8.75% and the Company would pay the counterparties if
interest payments fall below 6.5%-6.8%.
IV-36
<PAGE>
PACIFICORP
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 7 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT -- (CONTINUED):
FOREIGN EXCHANGE RISK MANAGEMENT--At December 31, 1996, the Company held a
foreign currency exchange agreement, which provides for the exchange of $50
million for 7.4 billion yen to meet a 1997 yen-denominated obligation of an
equivalent amount. In addition, at December 31, 1996, Holdings held three
combined interest rate and currency swaps that terminate in 2002, with an
aggregate notional amount of $291 million to hedge a portion of the exposure to
fluctuations in the Australian dollar relating to its investment in Powercor.
The interest rate portions of the three swaps, which also were designated as
a hedge of Holdings' investment in Powercor, were effectively offset in 1997 by
the purchase of a swap transaction with approximately the same terms. The net
amount of the swaps should not have a significant impact on future net income.
COMMODITY RISK MANAGEMENT--The Company has utilized electricity forward
contracts (referred to as "contracts for differences") to hedge exposure to
electricity price risk on anticipated transactions or firm commitments in its
Australian Electric Operations. Under these forward contracts, the Company
receives or makes payment based on a differential between a contracted price and
the actual spot market of electricity. Additionally, electricity futures
contracts are utilized to hedge Domestic Electric Operations' excess or shortage
of net electricity for future months.
At December 31, 1996, Australian Electric Operations had 23 forward
contracts with electricity generation companies on notional quantities amounting
to approximately 26.8 million MWh through December 31, 2000. The average fixed
price to be paid by Australian Electric Operations was $28.75 per MWh compared
to the average price of similar contracts at December 31, 1996 of $27.46.
At December 31, 1996, Domestic Electric Operations had 67 NYMEX futures
contracts to sell electricity with notional quantities amounting to
approximately 49,300 MWh all expiring in 1997. The average fixed price to be
received by Domestic Electric Operations was $19.33 per MWh compared to the
NYMEX average spot market price of $15.78 per MWh.
TRADING ACTIVITIES--During 1996 a subsidiary of Holdings began to trade
electricity related products. Such transactions involved the physical delivery
of electricity and are accounted for as revenue or purchased power upon delivery
and, at December 31, 1996, amounted to a net purchase position of 1,200 MWh. As
additional markets for electricity-related products develop, including
derivative products, the Company anticipates that this activity will expand.
IV-37
<PAGE>
PACIFICORP
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 8 FAIR VALUE OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
(MILLIONS OF US (MILLIONS OF US
DOLLARS) DOLLARS)
---------------------- ----------------------
<S> <C> <C> <C> <C>
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
Long-term debt.................................................. $ 5,536.6 $ 5,621.5 $ 5,134.4 $ 5,370.5
Preferred securities of Trust holding solely PacifiCorp
debentures.................................................... 209.7 210.9 -- --
Preferred stock subject to mandatory redemption................. 178.0 195.8 219.0 240.3
Derivatives relating to
Currency.................................................... (21.5) (21.5) -- (1.4)
Interest.................................................... (10.8) (52.5) -- (35.4)
Electricity futures......................................... -- .2 -- --
</TABLE>
The carrying value of cash and cash equivalents, receivables, payables,
accrued liabilities and short-term borrowings approximates fair value because of
the short-term maturity of these instruments. The fair value of the finance note
receivable approximates its carrying value at December 31, 1996.
The fair value of the Company's long-term debt has been estimated by
discounting projected future cash flows, using the current rate at which similar
loans would be made to borrowers with similar credit ratings and for the same
maturities. Current maturities of long-term debt were included and capital lease
obligations were excluded. The fair value of the Preferred Securities was based
on closing market prices and the fair value of redeemable preferred stock was
based on bid prices from an investment bank.
The fair value of interest rate derivatives, currency swaps and electricity
futures is the estimated amount the Company would have to pay to terminate the
agreements, taking into account current interest and currency exchange rates,
electricity market prices and the current creditworthiness of the agreement
counterparties. It is not practicable to determine the fair value of the forward
contracts held by Australian Electric Operations because of the limited number
of transactions entered into for long-term forward contracts and the inactive
trading in the electricity spot market.
NOTE 9 LEASES
The Companies lease certain properties under leases with various expiration
dates and renewal options. Rentals on lease renewals are subject to negotiation.
Certain leases provide for options to purchase at fair market value. The
Companies are also committed to pay all taxes, expenses of operation (other than
depreciation) and maintenance applicable to the leased property.
Net rent expense for the years ended December 31, 1996, 1995 and 1994 was
$29 million, $50 million and $59 million, respectively.
Future minimum lease payments under non-cancellable operating leases are $20
million, $14 million, $7 million, $5 million and $4 million for 1997 through
2001, respectively.
IV-38
<PAGE>
PACIFICORP
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 10 COMMITMENTS AND CONTINGENCIES
CONSTRUCTION AND OTHER
Construction and acquisitions are estimated at $1 billion for 1997. As a
part of these programs, substantial commitments have been made.
The Company is subject to numerous environmental laws including: the Federal
Clean Air Act, as enforced by the Environmental Protection Agency and various
state agencies; the 1990 Clean Air Act Amendments; the Endangered Species Act as
it relates to certain potentially endangered species of salmon; the
Comprehensive Environmental Response, Compensation and Liability Act, relating
to environmental cleanups; along with the Federal Resource Conservation and
Recovery Act and the Clean Water Act relating to water quality. These laws could
potentially impact future operations. For those contingencies identified at
December 31, 1996, principally the Superfund sites where the Company has been or
may be designated as a potentially responsible party and violations under the
Clean Air Act, future costs associated with the disposition of these matters are
not expected to be material to the Company's consolidated financial statements.
The Company's mining operations are subject to reclamation and closure
requirements. The Company monitors these requirements and periodically revises
its cost estimates to meet existing legal and regulatory requirements of the
various jurisdictions in which it operates. Costs for reclamation are accrued
using the units-of-production method such that estimated final mine reclamation
and closure costs are fully accrued at completion of mining activities. This is
consistent with industry practices and, the Company believes its reclamation
obligations are adequately provided for.
The Company and its subsidiaries are parties to various legal claims,
actions and complaints, certain of which involve material amounts. Although the
Company is unable to predict with certainty whether or not it will ultimately be
successful in these legal proceedings or, if not, what the impact might be,
management currently believes that disposition of these matters will not have a
materially adverse effect on the Company's consolidated financial statements.
IV-39
<PAGE>
PACIFICORP
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 10 COMMITMENTS AND CONTINGENCIES -- (CONTINUED):
JOINTLY OWNED PLANTS
At December 31, 1996, Domestic Electric Operations' participation in jointly
owned plants was as follows:
<TABLE>
<CAPTION>
ELECTRIC PLANT CONSTRUCTION
OPERATIONS' IN ACCUMULATED WORK IN
SHARE SERVICE DEPRECIATION PROGRESS
--------------- --------- ------------- ---------------
<S> <C> <C> <C> <C>
MILLIONS OF US DOLLARS
Centralia................................................. 47.5% $ 178.1 $ 108.0 $ 4.2
Jim Bridger Units 1, 2, 3 and 4........................... 66.7 789.7 308.1 2.2
Trojan (a)................................................ 2.5 -- -- --
Colstrip Units 3 and 4.................................... 10.0 203.4 63.2 1.1
Hunter Unit 1............................................. 93.8 260.2 100.9 .8
Hunter Unit 2............................................. 60.3 187.6 66.4 1.3
Wyodak.................................................... 80.0 303.9 96.6 1.8
Craig Station Units 1 and 2............................... 19.3 150.0(b) 56.9 1.1
Hayden Station Unit 1..................................... 24.5 17.1(b) 10.6 1.1
Hayden Station Unit 2..................................... 12.6 17.0(b) 9.9 0.8
Hermiston (c)............................................. 50.0 164.9 3.4 --
</TABLE>
- ------------------------
(a) Plant, inventory, fuel and decommissioning costs totaling $27 million
relating to the Trojan Plant, were included in regulatory assets-net at
December 31, 1996.
(b) Excludes unallocated acquisition adjustments of $119 million.
(c) Additionally, the Company has contracted to purchase the remaining 50% of
the output of the plant.
Under the joint agreements, each participating utility is responsible for
financing its share of construction, operating and leasing costs. Domestic
Electric Operations' portion is recorded in its applicable operations,
maintenance and tax accounts.
PURCHASED POWER
Domestic Electric Operations manages its energy resource requirements by
integrating long-term firm, short-term and spot market purchases with its own
generating resources to economically dispatch the system and meet commitments
for wholesale sales, including sales contracts with minimum payment
requirements, and retail load growth. As part of its energy resource portfolio,
Domestic Electric Operations acquires power through long-term purchases and/or
exchange agreements which require minimum fixed payments of $298 million in
1997, $294 million in 1998 and 1999, $291 million in 2000 and $252 million in
2001.
These contracts include agreements with the Bonneville Power Administration,
the Hermiston Plant and a number of cogenerating facilities.
Excluded from the minimum fixed annual payments above, are commitments to
purchase power from several hydroelectric projects under long-term arrangements
with public utility districts. These purchases are made on a "cost-of-service"
basis for a stated percentage of project output and for a like percentage of
project annual costs (operating expenses and debt service). These costs are
included in
IV-40
<PAGE>
PACIFICORP
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 10 COMMITMENTS AND CONTINGENCIES -- (CONTINUED):
operations expense. Domestic Electric Operations is required to pay its portion
of the debt service, whether or not any power is produced. The arrangements
provide for nonwithdrawable power and the majority also provide for additional
power, withdrawable by the districts upon one to five years' notice. For 1996,
such purchases approximated 3.5% of energy requirements.
At December 31, 1996, Domestic Electric Operations' share of long-term
arrangements with public utility districts was as follows:
<TABLE>
<CAPTION>
YEAR CONTRACT CAPACITY PERCENTAGE ANNUAL
GENERATING FACILITY EXPIRES (KW) OF OUTPUT COSTS(A)
- ------------------------------------------ --------------- --------- ------------- -----------
<S> <C> <C> <C> <C>
Wanapum................................... 2009 155,444 18.7% $ 5.0
Priest Rapids............................. 2005 109,602 13.9 3.7
Rocky Reach............................... 2011 64,297 5.3 2.4
Wells..................................... 2018 59,617 7.7 1.9
--------- -----
Total................................. 388,960 $ 13.0
--------- -----
--------- -----
</TABLE>
- ------------------------
(a) Annual costs, in millions of US dollars, include debt service of $6 million.
The Company has a 4% interest in the Intermountain Power Project
("Project"), located in central Utah. The Company and the City of Los Angeles
have agreed that the City will purchase capacity and energy from Company plants
equal to the Company's 4% entitlement of the Project at a price equivalent to 4%
of the expenses and debt service of the Project.
IV-41
<PAGE>
PACIFICORP
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 11 INCOME TAXES
The Company's combined federal and state effective income tax rate was 36%
in 1996, 32% in 1995 and 35% in 1994. The difference between taxes calculated as
if the statutory federal tax rate of 35% was applied to income before income
taxes and the recorded tax expense is reconciled as follows:
<TABLE>
<CAPTION>
FOR THE YEAR
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
<CAPTION>
MILLIONS OF US DOLLARS
<S> <C> <C> <C>
Computed Federal Income Taxes...................................................... $ 276.1 $ 260.3 $ 251.2
Increase (Reduction) in Tax Resulting from
Depreciation differences....................................................... 12.8 9.7 8.4
Investment tax credits......................................................... (11.0) (12.3) (15.5)
Excess of tax over book stock basis............................................ (1.0) (24.4) (1.4)
Audit settlement............................................................... .5 (16.8) --
Affordable housing credits..................................................... (10.6) (8.4) (8.2)
Other items capitalized and miscellaneous differences.......................... (5.3) 4.8 .7
--------- --------- ---------
Total...................................................................... (14.6) (47.4) (16.0)
--------- --------- ---------
Federal Income Tax................................................................. 261.5 212.9 235.2
State Income Tax, Net of Federal Income Tax Benefit................................ 22.4 25.9 14.6
--------- --------- ---------
Total Income Tax Expense........................................................... $ 283.9 $ 238.8 $ 249.8
--------- --------- ---------
--------- --------- ---------
</TABLE>
IV-42
<PAGE>
PACIFICORP
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 11 INCOME TAXES: -- (CONTINUED):
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEAR
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
<CAPTION>
MILLIONS OF US DOLLARS
<S> <C> <C> <C>
Current
Federal........................................................................ $ 207.5 $ 152.2 $ 222.7
State.......................................................................... 28.0 23.1 34.6
Foreign........................................................................ -- 1.0 --
--------- --------- ---------
Total...................................................................... 235.5 176.3 257.3
--------- --------- ---------
Deferred
Federal........................................................................ 43.7 56.5 17.8
State.......................................................................... 7.6 17.3 (9.8)
Foreign........................................................................ 8.1 1.0 --
--------- --------- ---------
Total...................................................................... 59.4 74.8 8.0
--------- --------- ---------
Investment Tax Credits............................................................. (11.0) (12.3) (15.5)
--------- --------- ---------
Total Income Tax Expense........................................................... $ 283.9 $ 238.8 $ 249.8
--------- --------- ---------
--------- --------- ---------
</TABLE>
The tax effects of significant items comprising the Company's net deferred
tax liability were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
<S> <C> <C>
1996 1995
---------- ----------
<CAPTION>
MILLIONS OF US DOLLARS
<S> <C> <C>
Deferred Tax Liabilities
Property, plant and equipment........................................................ $ 1,306.8 $ 1,213.1
Regulatory assets.................................................................... 733.6 756.8
Other deferred liabilities........................................................... 30.7 52.5
Deferred Tax Assets
Regulatory liabilities............................................................... (63.0) (69.7)
Book reserves not deductible for tax................................................. (55.0) (42.6)
---------- ----------
Net Deferred Tax Liability............................................................... $ 1,953.1 $ 1,910.1
---------- ----------
---------- ----------
</TABLE>
During 1995, the Company and the Internal Revenue Service (the "IRS") agreed
on a settlement of all issues related to the IRS examination of the Company's
federal income tax returns for the years 1983 through 1988, including matters
relating to the Company's abandonment of its 10% interest in Washington Public
Power Supply System Unit No. 3.
During 1996, the Company received an examination report for 1989 and 1990
proposing adjustments that would increase income tax by $11 million. The Company
filed a protest of certain proposed adjustments on July 30, 1996. The Company's
1991, 1992 and 1993 federal income tax returns are currently under examination
by the IRS.
IV-43
<PAGE>
PACIFICORP
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 11 INCOME TAXES: -- (CONTINUED):
Financial Services acquires housing projects that qualify for the low-income
housing credit established as part of the Tax Reform Act of 1986 to provide an
incentive for the development and preservation of privately owned affordable
rental housing. Annual tax benefits scheduled to be received from these projects
are expected to be $13 million, $12 million, $11 million, $7 million and $6
million for 1997 through 2001, respectively.
NOTE 12 RETIREMENT PLANS
The Companies have pension plans covering substantially all of their
employees. Benefits under plans in the United States are generally based on the
employee's years of service and average monthly pay in the 60 consecutive months
of highest pay out of the last 120 months, with adjustments to reflect benefits
estimated to be received from Social Security. Pension costs are funded annually
by no more than the maximum amount of pension expense which can be deducted for
federal income tax purposes. Unfunded prior service costs are amortized over the
remaining service period of employees expected to receive benefits. At December
31, 1996, plan assets were primarily invested in common stocks, bonds and U.S.
government obligations.
All permanent employees of Powercor engaged prior to October 4, 1994 are
members of Divisions B or C of the Superannuation Fund ("Fund") which provides
defined benefits in the form of pensions (Division B) or lump sums (Division C).
Both defined benefit Funds are closed to new members. Division B members
contribute at 6% of superannuation salary, and Division C members can contribute
at 0, 3, or 6%. During 1996, contributions were made to the Fund at the rate of
9.25% for the defined benefit.
Net pension cost is summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEAR
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
<CAPTION>
MILLIONS OF US DOLLARS
<S> <C> <C> <C>
Service cost--benefits earned......................................................... $ 35.5 $ 24.4 $ 26.4
Interest cost on projected benefit obligation......................................... 89.0 80.1 74.1
Actual (gain) loss on plan assets..................................................... (79.9) (153.5) 4.9
Net amortization and deferral......................................................... 9.3 100.5 (59.7)
Regulatory deferral (a)............................................................... 14.2 29.4 .7
--------- --------- ---------
Net Pension Cost...................................................................... $ 68.1 $ 80.9 $ 46.4
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(a) Domestic Electric Operations has received accounting orders from its primary
and certain other regulatory authorities to defer the difference between
pension cost as determined in accordance with SFAS 87 and 88 and that
determined for funding purposes. See Note 2.
IV-44
<PAGE>
PACIFICORP
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 12 RETIREMENT PLANS -- (CONTINUED):
The funded status, net pension liability and significant assumptions are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
<S> <C> <C>
1996 1995
-------------- ----------
<CAPTION>
MILLIONS OF US DOLLARS
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefit obligation............................................................ $ 1,045.5 $ 1,033.9
Accumulated benefit obligation....................................................... 1,120.8 1,090.1
Projected benefit obligation......................................................... 1,270.7 1,262.1
Plan assets at fair value............................................................ 1,042.5 895.6
-------------- ----------
Projected benefit obligation in excess of plan assets................................ 228.2 366.5
Unrecognized prior service cost...................................................... (11.9) (9.8)
Unrecognized net loss................................................................ (65.5) (104.0)
Unrecognized net obligation.......................................................... (7.5) (89.5)
Minimum liability adjustment......................................................... 2.9 65.2
-------------- ----------
Net Pension Liability................................................................ $ 146.2 $ 228.4
-------------- ----------
Discount rate........................................................................ 7.25%-7.5% 7.25%
Expected long-term rate of return on assets.......................................... 8.5%-9% 8.5%-9%
Rate of increase in compensation levels.............................................. 4.5%-6% 5%-6%
</TABLE>
Domestic Electric Operations offered early retirement incentive programs in
1987 and 1990. Included in the table above is the present value of all future
termination benefits provided of $58 million. Domestic Electric Operations
received regulatory accounting orders to defer early retirement costs as a
regulatory asset to be amortized through the year 2020. See Note 2.
NOTE 13 OTHER POST-RETIREMENT BENEFITS
Domestic Electric Operations and Telecommunications provide health care and
life insurance benefits through various plans for their eligible retirees on a
basis substantially similar to those who are active employees. The cost of
postretirement benefits is accrued over the active service period of employees.
The transition obligation represents the unrecognized prior service cost and is
being amortized over a period of 20 years. For those employees retired at
January 1, 1993, the Company funds postretirement benefit expense on a
pay-as-you-go basis. For those employees retiring after January 1, 1993, the
Company funds postretirement benefit expense through a combination of funding
vehicles. The Company funded $38 million and $40 million of postretirement
benefit expense during 1996 and 1995, respectively. These funds are invested in
common stocks, bonds and U.S. government obligations.
IV-45
<PAGE>
PACIFICORP
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 13 OTHER POST-RETIREMENT BENEFITS -- (CONTINUED):
The net periodic post retirement benefit cost is summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEAR
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
<CAPTION>
MILLIONS OF US DOLLARS
<S> <C> <C> <C>
Service cost--benefits earned........................................................ $ 9.6 $ 8.3 $ 9.5
Interest cost on accumulated postretirement benefit obligation....................... 27.8 32.6 30.7
Amortization of transition obligation................................................ 14.3 15.7 16.3
Regulatory deferral.................................................................. 3.4 (4.5) (5.2)
Net asset gain (loss) during the period deferred for future recognition.............. 3.7 3.7 (4.4)
Actual return on plan assets......................................................... (14.5) (10.7) .3
--------- --------- ---------
Net Periodic Postretirement Benefit Cost............................................. $ 44.3 $ 45.1 $ 47.2
--------- --------- ---------
--------- --------- ---------
The accumulated postretirement benefit obligation ("APBO") was as follows:
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
<S> <C> <C>
1996 1995
-------------- ----------
<CAPTION>
MILLIONS OF US DOLLARS
<S> <C> <C>
Retirees and dependents.............................................................. $ 209.5 $ 267.7
Fully eligible active plan participants.............................................. 22.2 23.5
Other active plan participants....................................................... 160.8 174.5
-------------- ----------
APBO................................................................................. 392.5 465.7
Plan assets at fair value............................................................ 166.2 117.4
-------------- ----------
APBO in excess of plan assets........................................................ 226.3 348.3
Unrecognized prior service cost .5 .6
Unrecognized transition obligation................................................... (251.0) (266.7)
Unrecognized net gain (loss)......................................................... 48.2 (50.1)
-------------- ----------
Accrued Postretirement Benefit Obligation............................................ $ 24.0 $ 32.1
-------------- ----------
-------------- ----------
Discount rate........................................................................ 7.5% 7.25%
Estimated long-term rate of return on assets......................................... 9% 8.8%-9%
Initial health care cost trend rate--under 65........................................ 8.8%-11% 11%
Initial health care cost trend rate--over 65......................................... 8.4%-10.5% 10%
Ultimate health care cost trend rate................................................. 4.5% 4.5%
</TABLE>
The assumed health care cost trend rates gradually decrease over eight
years. The health care cost trend rate assumptions have a significant effect on
the amounts reported. Increasing the assumed health care cost trend rate by one
percentage point would have increased the APBO as of December 31, 1996 by $29
million, and the annual net periodic postretirement benefit costs by $3 million.
NOTE 14 ACQUISITIONS AND DISPOSITIONS
In September 1996, a consortium, known as the Hazelwood Power Partnership,
purchased a 1,600 megawatt, coal-fired generating station and associated coal
mine in Victoria, Australia for approximately
IV-46
<PAGE>
PACIFICORP
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 14 ACQUISITIONS AND DISPOSITIONS -- (CONTINUED):
$1.9 billion. The consortium financed the acquisition of the Hazelwood plant and
mine with approximately $858 million in equity contributions from the partners
and $1 billion of nonrecourse borrowings at the partnership level. Holdings,
which has a 19.9% interest in the partnership, financed its $145 million portion
of the equity investment and the associated $12 million advance with long-term
borrowings in the United States. The other partners in the partnership are
subsidiaries of National Power PLC (51.9%), Destec Energy (20%) and Commonwealth
Bank Group of Australia (8.2%).
On December 12, 1995, Holdings purchased Powercor, an electricity
distributor in Australia, for approximately $1.6 billion in cash. Powercor's
service territory includes a portion of suburban Melbourne and the western and
central regions of the State of Victoria. Powercor currently has approximately
547,000 customers. The acquisition was accounted for as a purchase and the
results of operations of Powercor have been included in the consolidated
financial statements since December 12, 1995.
On September 27, 1995, holders of a majority of the 5.3 million shares of
outstanding common stock held by minority shareholders of PTI voted in favor of
the merger of a wholly owned subsidiary of Holdings into PTI. Shareholders
tendering shares pursuant to the merger were paid a total of $131 million, or
$30 per share, and an accrued liability of $28 million was established to cover
estimated amounts payable to dissenters.
During 1995, PTI purchased certain rural telephone exchange assets in
Colorado, Washington and Oregon for approximately $376 million.
On August 7, 1995, PTI closed the sale of the stock of Alascom, Inc.
("Alascom") to AT&T Corp. ("AT&T"), in a transaction providing $366 million in
proceeds. Under terms of the agreement, AT&T paid $291 million in cash for the
Alascom stock and for settlement of all past cost study issues. AT&T agreed to
allow PTI to retain a $75 million transition payment made by AT&T to Alascom in
July 1994. AT&T made a down payment of $30 million to PTI upon signing the stock
purchase agreement in October 1994. The remaining $261 million was paid when the
transaction closed. The Company recognized an after-tax gain of $37 million from
the sale of Alascom.
Summarized income statement data for Alascom are as follows:
<TABLE>
<CAPTION>
7 MONTHS
ENDED JULY 31, FOR THE YEAR
1995 1994
--------------- -------------
<S> <C> <C>
MILLIONS OF US DOLLARS
(UNAUDITED)
Revenues........................................................................... $ 193.1 $ 343.5
Income from operations............................................................. 36.9 80.7
</TABLE>
NOTE 15 SUBSEQUENT EVENTS
On March 4, 1997, the Utah Legislature passed a bill which creates a
legislative task force to study stranded cost issues and the timing of customer
choice. The bill freezes rates at January 31, 1997 levels until 60 days
following the conclusion of the 1998 legislative general session. The PSC is
precluded from holding any hearings on rate changes during the freeze period.
The Company has committed to reduce prices to Utah customers by $12 million
annually on approximately May 1, 1997.
IV-47
<PAGE>
PACIFICORP
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 15 SUBSEQUENT EVENTS -- (CONTINUED):
On March 11, 1997, Holdings entered into an agreement to acquire TPC
Corporation, a natural gas gathering, processing, storage and marketing company.
The acquisition is expected to cost approximately $288 million in cash plus
assumed debt of approximately $149 million.
NOTE 16 SELECTED FINANCIAL AND SEGMENT INFORMATION
<TABLE>
<CAPTION>
FOR THE YEAR
----------------------------------
<S> <C> <C> <C>
1996 1995 1994
---------- ---------- ----------
<CAPTION>
MILLIONS OF US DOLLARS
<S> <C> <C> <C>
REVENUES
Domestic Electric Operations............................................. $ 2,960.8 $ 2,616.1 $ 2,647.8
Australian Electric Operations........................................... 658.8 25.9 --
Telecommunications....................................................... 521.1 640.1 696.5
Other Operations (a)..................................................... 153.1 134.8 153.7
---------- ---------- ----------
Total................................................................ $ 4,293.8 $ 3,416.9 $ 3,498.0
---------- ---------- ----------
---------- ---------- ----------
INCOME FROM OPERATIONS
Domestic Electric Operations............................................. $ 869.8 $ 800.9 $ 819.3
Australian Electric Operations........................................... 127.4 5.5 --
Telecommunications....................................................... 158.7 165.3 164.7
Other Operations (a)..................................................... 89.2 84.2 38.3
---------- ---------- ----------
Total................................................................ $ 1,245.1 $ 1,055.9 $ 1,022.3
---------- ---------- ----------
---------- ---------- ----------
Net Income (Loss)............................................................ $ 504.9 $ 505.0 $ 468.0
EARNINGS CONTRIBUTION (LOSS) ON COMMON STOCK
Continuing operations
Domestic Electric Operations............................................. $ 341.5 $ 276.4 $ 339.8
Australian Electric Operations........................................... 30.1 .7 --
Telecommunications....................................................... 74.7 103.0 70.5
Other Operations (a)..................................................... 28.8 86.2 18.0
---------- ---------- ----------
Total................................................................ $ 475.1 $ 466.3 $ 428.3
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
IV-48
<PAGE>
PACIFICORP
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 16 SELECTED FINANCIAL AND SEGMENT INFORMATION -- (CONTINUED):
<TABLE>
<CAPTION>
FOR THE YEAR
----------------------------------
1996 1995 1994
---------- ---------- ----------
MILLIONS OF US DOLLARS
<S> <C> <C> <C>
IDENTIFIABLE ASSETS
Domestic Electric Operations............................................. $ 9,864 $ 9,599 $ 9,372
Australian Electric Operations........................................... 2,065 1,751 --
Telecommunications....................................................... 1,592 1,599 1,378
Other Operations (a)..................................................... 1,114 1,066 1,096
CAPITAL SPENDING
Domestic Electric Operations............................................. $ 595 $ 455 $ 638
Australian Electric Operations........................................... 226 1,591 --
Telecommunications....................................................... 127 498 153
Other Operations (a)..................................................... 56 175 13
DEPRECIATION AND AMORTIZATION
Domestic Electric Operations............................................. $ 343 $ 320 $ 302
Australian Electric Operations........................................... 72 3 --
Telecommunications....................................................... 107 86 66
Other Operations (a)..................................................... 9 10 18
</TABLE>
- ------------------------
(a) Other Operations includes the operations of PacifiCorp Financial Services,
Inc., Pacific Generation Company, and several start-up-phase ventures, as
well as the activities of PacifiCorp Holdings, Inc., including financing
costs.
IV-49
<PAGE>
UNAUDITED FINANCIAL INFORMATION FOR THE NINE MONTHS
ENDED 30 SEPTEMBER 1996 AND 1997
PACIFICORP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
----------- ----------- ----------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES..................................................... $ 2,010.6 $ 1,011.9 $ 4,272.5 $ 2,751.9
----------- ----------- ----------- -----------
EXPENSES
Operations............................................... 1,464.0 464.2 2,700.0 1,211.9
Maintenance.............................................. 49.9 49.2 164.6 158.9
Administrative and general............................... 74.9 69.3 225.0 194.4
Depreciation and amortization............................ 114.9 106.1 338.9 313.4
Taxes, other than income taxes........................... 25.8 25.8 79.6 80.6
----------- ----------- ----------- -----------
Total................................................ 1,729.5 714.6 3,508.1 1,959.2
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS....................................... 281.1 297.3 764.4 792.7
----------- ----------- ----------- -----------
INTEREST EXPENSE AND OTHER
Interest expense......................................... 112.8 103.1 331.6 309.0
Interest capitalized..................................... (3.5) (2.4) (9.7) (8.9)
Other expense--net....................................... 109.2 3.6 104.8 0.6
----------- ----------- ----------- -----------
Total................................................ 218.5 104.3 426.7 300.7
----------- ----------- ----------- -----------
Income from continuing operations before income taxes........ 62.6 193.0 337.7 492.0
Income tax expense........................................... 15.7 70.4 112.4 174.1
----------- ----------- ----------- -----------
Income from continuing operations............................ 46.9 122.6 225.3 317.9
Discontinued Operations (less applicable income tax expense):
1997/$16.6 and $41.8, 1996/$13.0 and $34.7................... 27.1 20.3 64.5 54.1
----------- ----------- ----------- -----------
NET INCOME................................................... 74.0 142.9 289.8 372.0
RETAINED EARNINGS BEGINNING OF PERIOD........................ 827.7 685.0 782.8 632.4
Cash dividends declared Preferred stock...................... (5.5) (5.7) (16.6) (23.5)
Common stock per share: 1997 and 1996/$.27 and $.81...... (80.1) (79.5) (239.9) (238.2)
Preferred stock retired.................................. -- (7.5) -- (7.5)
----------- ----------- ----------- -----------
RETAINED EARNINGS END OF PERIOD.............................. $ 816.1 $ 735.2 $ 816.1 $ 735.2
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
EARNINGS ON COMMON STOCK (Net income less preferred dividend
requirement)................................................. $ 68.2 $ 136.6 $ 271.8 $ 347.7
Average number of common shares outstanding (Thousands)...... 296,347 294,396 295,884 291,594
EARNINGS PER COMMON SHARE
Continuing operations.................................... $ 0.14 $ 0.39 $ 0.70 $ 1.00
Discontinued operations.................................. 0.09 0.07 0.22 0.19
----------- ----------- ----------- -----------
Total................................................ $ 0.23 $ 0.46 $ 0.92 $ 1.19
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
IV-50
<PAGE>
PACIFICORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations....................................................... $ 225.3 $ 317.9
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization....................................................... 351.5 326.0
Deferred income taxes and investment tax credits--net............................... 20.7 18.1
Other............................................................................... 82.8 (0.7)
Accounts receivable and prepayments................................................. (225.6) (67.9)
Materials, supplies, fuel stock and inventory....................................... (10.1) 9.3
Accounts payable and accrued liabilities............................................ 168.8 106.4
--------- ---------
Net cash provided by continuing operations.................................................. 613.4 709.1
Net cash provided by (used in) discontinued operations...................................... (3.7) 36.8
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES................................................... 609.7 745.9
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction............................................................................ (440.2) (377.2)
Investments in and advances to affiliated companies--net................................ (43.5) (145.9)
Operating companies and assets acquired................................................. (293.7) (176.8)
Proceeds from sales of assets........................................................... 2.5 28.8
Proceeds from sales of finance assets and principal payments............................ 52.6 61.8
Other................................................................................... (37.2) (14.6)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES....................................................... (759.5) (623.9)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Changes in short-term debt.............................................................. 23.8 (200.6)
Proceeds from long-term debt............................................................ 742.4 429.1
Proceeds from issuance of common stock.................................................. 29.1 210.7
Proceeds from issuance of Trusts holding solely PacifiCorp debentures preferred
securities.............................................................................. 130.7 210.1
Dividends paid.......................................................................... (256.0) (261.5)
Repayments of long-term debt............................................................ (373.3) (246.6)
Redemptions of preferred stock.......................................................... (72.2) (223.8)
Other................................................................................... (65.0) (43.4)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES......................................... 159.5 (126.0)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................................ 9.7 (4.0)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................................ 8.4 15.8
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................................. $ 18.1 $ 11.8
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for Interest (net of amount capitalized).................... $ 382.9 $ 350.1
Income taxes............................................................................ 115.2 150.6
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
IV-51
<PAGE>
PACIFICORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(MILLIONS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------- --------------
<S> <C> <C>
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents.................................................... $ 18.1 $ 8.4
Accounts receivable less allowance for doubtful accounts: 1997/$10.0 and
1996/$8.5.................................................................... 915.1 620.9
Materials, supplies and fuel stock at average cost........................... 190.8 181.3
Net assets of discontinued operations........................................ 803.5 779.5
Other........................................................................ 46.9 71.8
-------------- --------------
TOTAL CURRENT ASSETS......................................................... 1,974.4 1,661.9
PROPERTY, PLANT AND EQUIPMENT
Domestic Electric Operations................................................. 11,997.8 11,698.8
Australian Electric Operations............................................... 1,292.4 1,361.9
Other Operations............................................................. 262.1 68.8
Accumulated depreciation and amortization.................................... (4,125.9) (3,862.4)
-------------- --------------
TOTAL PROPERTY, PLANT AND EQUIPMENT--NET......................................... 9,426.4 9,267.1
OTHER ASSETS
Investments in and advances to affiliated companies.......................... 388.1 253.9
Intangible assets--net....................................................... 567.3 480.7
Regulatory assets--net....................................................... 1,008.4 1,022.8
Finance note receivable...................................................... 212.1 214.6
Finance assets--net.......................................................... 420.9 425.6
Real estate investments...................................................... 239.9 217.0
Deferred charges and other................................................... 358.5 268.7
-------------- --------------
TOTAL OTHER ASSETS............................................................... 3,195.2 2,883.3
-------------- --------------
TOTAL ASSETS..................................................................... $ 14,596.0 $ 13,812.3
-------------- --------------
-------------- --------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
IV-52
<PAGE>
PACIFICORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(MILLIONS OF DOLLARS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------- --------------
<S> <C> <C>
(UNAUDITED)
CURRENT LIABILITIES
Long-term debt currently maturing............................................ $ 627.8 $ 219.8
Notes payable and commercial paper........................................... 707.4 683.5
Accounts payable............................................................. 602.7 477.5
Taxes, interest and dividends payable........................................ 344.7 290.8
Customer deposits and other.................................................. 182.3 83.7
-------------- --------------
TOTAL CURRENT LIABILITIES........................................................ 2,464.9 1,755.3
DEFERRED CREDITS
Income taxes................................................................. 1,816.7 1,801.0
Investment tax credits....................................................... 137.2 143.2
Other........................................................................ 660.4 713.2
-------------- --------------
TOTAL DEFERRED CREDITS........................................................... 2,614.3 2,657.4
MINORITY INTEREST................................................................ 15.1 14.7
LONG-TERM DEBT................................................................... 4,859.6 4,829.4
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S JUNIOR SUBORDINATED
DEBENTURES....................................................................... 340.4 209.7
PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION.................................. 175.0 178.0
PREFERRED STOCK.................................................................. 66.4 135.5
COMMON EQUITY
Common shareholders' capital shares authorized 750,000,000; shares
outstanding: 1997/296,537,648 and 1996/295,139,753........................... 3,266.1 3,236.8
Retained earnings............................................................ 816.1 782.8
Cumulative currency translation adjustment................................... (21.9) 12.7
-------------- --------------
TOTAL COMMON EQUITY.............................................................. 4,060.3 4,032.3
-------------- --------------
COMMITMENTS AND CONTINGENCIES (SEE NOTE 5)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....................................... $ 14,596.0 $ 13,812.3
-------------- --------------
-------------- --------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
IV-53
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1997
1. FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements as of
September 30, 1997 and December 31, 1996 and for the periods ended September 30,
1997 and 1996, in the opinion of management, include all adjustments,
constituting only normal recording of accruals, necessary for a fair
presentation of financial position, results of operations and cash flows for
such periods. A significant part of the business of PacifiCorp (the "Company")
is of a seasonal nature; therefore, results of operations for the periods ended
September 30, 1997 and 1996 are not necessarily indicative of the results for a
full year. These condensed consolidated financial statements should be read in
conjunction with the financial statements and related notes incorporated by
reference in the Company's 1996 Annual Report on Form 10-K.
The condensed consolidated financial statements of the Company include its
integrated domestic electric utility operating divisions of Pacific Power and
Utah Power and its wholly owned and majority owned subsidiaries. Major
subsidiaries, all of which are wholly owned, are: PacifiCorp Holdings, Inc.
("Holdings"), which holds all of the Company's nonintegrated electric utility
investments, including Powercor Australia Limited ("Powercor"), an Australian
electricity distributor; PacifiCorp Financial Services, Inc. ("PFS"), a
financial services business; and PacifiCorp Power Marketing, Inc. ("PPM"),
engaged in wholesale power trading in the eastern energy markets. On April 15,
1997, Holdings acquired 100% of TPC Corporation ("TPC"), a natural gas
gathering, processing, storage and marketing company. Together these businesses
are referred to herein as the Companies. Significant intercompany transactions
and balances have been eliminated.
The Company also owns a telecommunications operation, Pacific Telecom, Inc.
("PTI"). The Company has agreed to the disposal of this operation. See Note 3.
The Company disposed of Pacific Generation Company ("PGC") on November 1, 1997,
and has agreed to the disposal of the natural gas gathering and processing
assets of TPC. See Note 4. In addition, the Company has announced its intention
to sell certain other assets held by its financial services business.
Investments in and advances to affiliated companies represent investments in
unconsolidated affiliated companies carried on the equity basis, which
approximates the Company's equity in their underlying net book value.
Certain amounts from the prior period have been reclassified to conform with
the 1997 method of presentation. These reclassifications had no effect on
previously reported consolidated net income.
2. PROPOSED ACQUISITION
On June 13, 1997, PacifiCorp announced a cash tender offer by PacifiCorp
Acquisitions, a wholly owned subsidiary of Holdings, for The Energy Group PLC
("TEG") in a transaction valued at approximately $9.6 billion in debt and
equity. TEG is a diversified international energy group with operations in the
United Kingdom (the "U.K."), the United States and Australia and includes
Peabody Holding Company, Inc., the world's largest private producer of coal, and
Eastern Group PLC, one of the leading integrated electricity and gas groups in
the U.K. On August 1, 1997, the U.K. Secretary of State for Trade and Industry
referred the proposed acquisition of TEG to the Monopolies and Mergers
Commission (the "MMC"). The MMC is required to investigate whether the
acquisition operates or may be expected to operate against the public interest
and has stated its intent to deliver its report to the Secretary of State by
November 21, 1997. The Company is cooperating fully with the MMC's
investigation. The TEG
IV-54
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1997
2. PROPOSED ACQUISITION (CONTINUED)
acquisition also remains subject to antitrust review in the United States. The
Company is in the process of responding to a second request for information from
the Federal Trade Commission. Any recommend offer by the Company to acquire TEG
will also require approval of TEG's Board of Directors.
As required under the rules of the U.K. Takeover Code, the Company was
required to demonstrate that it had both adequate committed financing and the
appropriate amount of sterling to eliminate the risk of exchange rate changes
between the offer announcement date and the expected closing date. As a result,
the Company entered into 1.45 billion pounds of foreign exchange contracts to
lock-in a strike price of approximately $1.64 per pound sterling.
Under the terms of the original tender offer, the referral by the U.K.
Secretary of State caused the tender offer to lapse. As a result, the financing
facilities associated with the TEG acquisition terminated and the Company
initiated steps to unwind its foreign exchange positions consistent with its
policies on derivatives. As a result of the termination of these foreign
exchange positions and initial option costs, the Company realized an after-tax
loss of approximately $65 million, or $0.22 per share, in the third quarter of
1997. Generally accepted accounting principles require all costs related to
currency hedge positions entered into in anticipation of an acquisition be
expensed in the period incurred whether or not the Company is successful in
completing the transaction.
Additionally, the Company estimates it has incurred approximately $60
million of other costs related to the TEG transaction for bank commitment and
facility fees, legal expenses and other related costs. These costs have been
deferred because the Company expects to make a new bid for TEG, if allowed. As
mentioned above, there is risk that a transaction with TEG will not occur. If it
becomes likely that the transaction will not occur or significant uncertainty
arises, the Company will write off these transaction costs as a charge to
income.
3. DISCONTINUED OPERATIONS
On June 13, 1997, the Company announced the planned sale of its wholly owned
telecommunications subsidiary, PTI, to Century Telephone Enterprises, Inc.
("Century") for $1.5 billion in cash plus the assumption of PTI's debt. The sale
of PTI is subject to regulatory approvals in certain of the states in which it
does business. Approval from the Federal Communications Commission was received
on October 10, 1997. The sale of PTI is expected to close in the fourth quarter
of 1997 at which time the Company expects to recognize an after-tax gain of
approximately $370 million, or $1.25 per share.
The net assets, operating results and cash flows of PTI have been classified
as discontinued operations for all periods presented in the condensed financial
statements and notes.
IV-55
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1997
3. DISCONTINUED OPERATIONS (CONTINUED)
Summarized results for PTI were as follows:
<TABLE>
<CAPTION>
THREE-MONTH NINE-MONTH
PERIODS ENDED PERIODS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
--------- --------- --------- ---------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Revenues................................................................ $ 154.0 $ 136.6 $ 416.2 $ 386.2
--------- --------- --------- ---------
Income from discontinued operations before income taxes................. $ 43.7 $ 33.3 $ 106.3 $ 88.8
Income taxes............................................................ 16.6 13.0 41.8 34.7
--------- --------- --------- ---------
Income from discontinued operations..................................... $ 27.1 $ 20.3 $ 64.5 $ 54.1
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
4. SALES OF SUBSIDIARIES
On November 1, 1997, the Company completed the sale of PGC to NRG Energy,
Inc. for $151 million in cash. An after-tax gain on the sale of approximately
$30 million, or $0.10 per share, will be recognized in the fourth quarter of
1997. On October 28, 1997, TPC reached an agreement to sell all of the capital
stock of three subsidiaries that hold its natural gas gathering and processing
assets to El Paso Field Services Company for $195 million in cash. The sale of
the natural gas gathering and processing assets of TPC is subject to certain
conditions, including the expiration or termination of all applicable waiting
periods under the Hart-Scott-Rodino Act, and is expected to close in the fourth
quarter of 1997. Holdings acquired the outstanding common stock of TPC in a cash
tender offer in April this year and, under purchase accounting rules, no gain or
loss will be recognized on the sale.
5. CONTINGENT LIABILITIES
The Company is subject to numerous environmental laws including: the Federal
Clean Air Act, as enforced by the Environmental Protection Agency and various
state agencies; the 1990 Clean Air Act Amendments; the Endangered Species Act as
it relates to certain potentially endangered species of salmon; the
Comprehensive Environmental Response, Compensation and Liability Act, relating
to environmental cleanups; along with the Federal Resource Conservation and
Recovery Act and the Clean Water Act relating to water quality. These laws could
potentially impact future operations. Future costs associated with the
disposition of contingencies identified at December 31, 1996 are not expected to
be material to the Company's consolidated financial statements. These matters
include the Superfund sites where the Company has been or may be designated as a
potentially responsible party and Clean Air Act matters.
The Company's mining operations are subject to reclamation and closure
requirements. The Company monitors these requirements and periodically revises
its cost estimates to meet existing legal and regulatory requirements of the
various jurisdictions in which it operates. Costs for reclamation are accrued
using the units-of-production method such that estimated final mine reclamation
and closure costs are fully accrued at completion of mining activities. This is
consistent with industry practices, and the Company believes that it has
adequately provided for its reclamation obligations.
IV-56
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1997
5. CONTINGENT LIABILITIES (CONTINUED)
The Company and its subsidiaries are parties to various legal claims,
actions and complaints, certain of which involve material amounts. Although the
Company is unable to predict with certainty whether or not it will ultimately be
successful in these legal proceedings or, if not, what the impact might be,
management currently believes that disposition of these matters will not have a
materially adverse effect on the Company's consolidated financial statements.
The Company's 1991, 1992 and 1993 federal income tax returns are currently
under examination by the Internal Revenue Service (the "IRS"). The Company has
received an examination report for 1989 and 1990 proposing adjustments that
would increase income tax by $11 million. The Company filed a protest of certain
proposed adjustments on July 30, 1996 and is currently holding discussions with
the Appeals Division of the IRS.
6. GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S JUNIOR
SUBORDINATED DEBENTURES
On August 4, 1997, PacifiCorp Capital II, a wholly owned subsidiary trust of
the Company (the "Trust"), issued, in a public offering, 5,400,000 of its 7.70%
Trust Preferred Securities, Series B (the "Preferred Securities"), representing
preferred undivided beneficial interests in the assets of the Trust, with a
liquidation amount of $25 per Preferred Security. The sole assets of the Trust
are $139 million, in aggregate principal amount, of the Company's Series D
Debentures due September 30, 2027, and certain rights under a related guarantee
by the Company. The Company's guarantee of the Preferred Securities, considered
together with the other obligations of the Company with respect to Preferred
Securities, constitutes a full and unconditional guarantee by the Company of the
Trust's obligations with respect to the Preferred Securities.
7. STOCK INCENTIVE PLAN
During 1997, the Company formalized a plan under which selected employees,
officers and directors and selected nonemployee agents, consultants, advisors
and independent contractors may be granted options to purchase the Company's
common stock. Options generally become exercisable in three equal installments
on each of the first through third anniversaries of the grant date and have a
maximum term of ten years. As of September 30, 1997, options have been granted
to 193 officers and employees. Under the plan, 1,322,500 options were granted on
June 3, 1997 and 193,500 options were granted on August 12, 1997 at prices of
$19.75 and $21.25, respectively. These options to purchase the Company's common
stock were issued at 100% of market price on the dates the options were granted.
None of the options were exercisable as of September 30, 1997. The Company
applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in accounting for its plan.
Accordingly, no compensation expense has been recognized for its stock-based
compensation plan.
IV-57
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1997
8. NEW ACCOUNTING PRONOUNCEMENT ISSUED BUT NOT ADOPTED
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
public enterprises reporting information about operating segments in annual
financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. This Statement is
effective for fiscal years beginning after December 15, 1997. Management is
assessing the disclosure implications of this Statement.
IV-58
<PAGE>
APPENDIX V
ADDITIONAL INFORMATION
1 RESPONSIBILITY
(a) The directors of PacifiCorp Acquisitions, whose names are set out in
paragraph 2(a) of this Appendix V, accept responsibility for the information
contained in this document other than information relating to The Energy
Group, the TEG Group and the directors of The Energy Group and their
immediate families. To the best of the knowledge and belief of the directors
of PacifiCorp Acquisitions (who have taken all reasonable care to ensure
that such is the case), the information contained in this document for which
they are responsible is in accordance with the facts and does not omit
anything likely to affect the import of such information.
(b) The directors of The Energy Group, whose names are set out in paragraph 2(b)
of this Appendix V, accept responsibility for the information contained in
this document relating to The Energy Group, the TEG Group and the directors
of The Energy Group and their immediate families. To the best of the
knowledge and belief of the directors of The Energy Group (who have taken
all reasonable care to ensure that such is the case), the information
contained in this document for which they are responsible is in accordance
with the facts and does not omit anything likely to affect the import of
such information.
2 DIRECTORS
(a) The directors of PacifiCorp Acquisitions are:
<TABLE>
<S> <C>
Frederick W. Buckman -Chairman
Richard T. O'Brien -Chief Financial Officer
William E. Peressini -Deputy Chief Financial Officer
Dennis P. Steinberg
Verl R. Topham
Thomas J. Imeson
Michael J. Pittman
</TABLE>
(b) The directors of The Energy Group are:
<TABLE>
<S> <C>
Derek C. Bonham -Chairman
John F. Devaney -Chief Executive--Eastern
Irl F. Engelhardt -Chief Executive--Peabody
Eric E. Anstee -Finance Director
Baroness Hogg -Non-executive director
David P. Nash -Non-executive director
John Neerhout, Jr. -Non-executive director
</TABLE>
3 STOCK EXCHANGE QUOTATIONS, MARKET PRICE DATA AND PRINCIPAL PURCHASES
The following table shows the Closing Price for Energy Group Shares and the
closing sale price on the New York Stock Exchange for Energy Group ADSs on the
first dealing day of each of the six months immediately prior to the date of
this document, on 23 January 1998 (the last Business Day before the
V-1
<PAGE>
commencement of the Offer period) and on 2 February 1998 (the latest practicable
date prior to the publication of this document):
<TABLE>
<CAPTION>
ENERGY
GROUP ENERGY
SHARES GROUP
DATE (PENCE) ADSS ($)
<S> <C> <C>
1 August 1997 624 40 1/2
1 September 1997 628 40 1/16
1 October 1997 652 1/2 41 13/16
3 November 1997 611 1/2 40 13/16
1 December 1997 634 1/2 42 9/16
2 January 1998 677(xd) 44 1/2
23 January 1998 685 1/2 45 3/8
2 February 1998 754 49 5/16
</TABLE>
Energy Group Shares have been listed and traded on the London Stock Exchange
and Energy Group ADSs have been listed and traded on the New York Stock Exchange
since 24 February 1997. The following table sets out, for the periods indicated,
(i) the reported closing highest and lowest mid-price quotations for Energy
Group Shares on the London Stock Exchange as derived from the Daily Official
List of the London Stock Exchange and (ii) the high and low closing sales prices
for Energy Group ADSs on the New York Stock Exchange as obtained from the New
York Stock Exchange. Each Energy Group ADS represents four Energy Group Shares.
For current price information, holders of Energy Group Shares and Energy Group
ADSs are urged to consult publicly available sources.
<TABLE>
<CAPTION>
ENERGY GROUP
ENERGY GROUP
SHARES (PENCE)
ADSS ($)
-------------------- --------------------
PERIOD HIGH LOW HIGH LOW
- ----------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
24 February to 31 March 1997 inclusive (1st quarter) 568 1/2 466 1/2 36 1/8 29 1/4
1 April to 30 June 1997 inclusive (2nd quarter) 648 486 42 3/4 31 3/8
1 July to 30 September 1997 inclusive (3rd quarter) 658 1/2 617 43 11/16 39 1/4
1 October to 31 December 1997 inclusive (4th quarter) 679 1/2 606 45 3/16 40 1/4
1 January to 2 February 1998 inclusive (1st quarter) 754 676 49 5/16 43 13/16
</TABLE>
In accordance with normal UK practice, PacifiCorp Acquisitions or its
nominees or brokers (acting as agents for PacifiCorp Acquisitions) or a
subsidiary of PacifiCorp (other than PacifiCorp Acquisitions) may make certain
purchases of Energy Group Securities outside the United States during the period
in which the Offer remains open for acceptance, and affiliates of Goldman Sachs
International and Morgan Stanley will continue to act as market makers and
principal traders for Energy Group Shares on the London Stock Exchange, pursuant
to relief granted by the SEC staff from Rule 10b-13 under the Exchange Act. In
accordance with the terms of this relief, among other things, (i) such purchases
may not be effected within the United States, (ii) information regarding such
purchases must be disclosed in the United States by press release to the extent
disclosure is required pursuant to the City Code, and (iii) PacifiCorp
Acquisitions and any such other persons must comply with any applicable rules of
UK regulatory organisations.
V-2
<PAGE>
4 SHAREHOLDINGS AND DEALINGS
In this paragraph:
"DISCLOSURE PERIOD" means the period commencing 26 January 1997 (the date 12
months prior to the commencement of the Offer period) and ending on 2 February
1998 (the latest practicable date prior to the publication of this document);
"RELEVANT SECURITIES" means Energy Group Securities, including any
securities convertible into, rights to subscribe for, or options (including
traded options) in respect of, or derivatives referenced to, such Energy Group
Securities;
"ARRANGEMENT" includes indemnity or option arrangements, and any agreement
or understanding, formal or informal, of whatever nature which may be an
inducement to deal or refrain from dealing; and
"ASSOCIATE" means, in relation to The Energy Group, any member of the TEG
Group and any associated company of any member of the TEG Group, their banks and
financial and other professional advisers (including stockbrokers), including
persons controlling, controlled by or under the same control as such banks or
financial or other professional advisers, their directors and such directors'
close relatives and related trusts and their pension funds.
(A) SHAREHOLDINGS AND DEALINGS IN PACIFICORP SECURITIES
Neither The Energy Group nor any of the directors of The Energy Group or
member of their immediate families, owns or controls or (in the case of the
directors of The Energy Group and their immediate families) is directly or
indirectly interested in any securities in PacifiCorp or any securities
convertible into, rights to subscribe for, or options (including traded options)
in respect of, or derivatives referenced to, any such securities, nor has any
such person dealt for value therein during the disclosure period.
(B) SHAREHOLDINGS AND DEALINGS IN ENERGY GROUP SECURITIES
(I) PACIFICORP
Details of holdings as at the close of business on 2 February 1998 (being
the latest practicable date prior to the publication of this document):
(aa) PacifiCorp Master Retirement Trust, an independently managed pension
fund of the PacifiCorp Group, beneficially owned 241,589 Energy Group
Shares;
(bb) the following dealings for value in Energy Group Shares by PacifiCorp
Master Retirement Trust have taken place during the disclosure period:
-- acquisition of 47,300 Energy Group Shares in February 1997 pursuant
to the Demerger;
-- purchase of 10,572 Energy Group Shares on 10 June 1997 at L5.75 per
share;
-- purchase of 68,717 Energy Group Shares on 11 June 1997 at L6.55 per
share; and
-- purchase of 115,000 Energy Group Shares on 14 October 1997 at L6.59
per share;
V-3
<PAGE>
(cc) the following persons deemed to be acting in concert with PacifiCorp
Acquisitions owned or controlled the following Energy Group Securities:
<TABLE>
<S> <C> <C>
NUMBER OF ENERGY TYPE OF ENERGY
NAME GROUP SECURITIES GROUP SECURITIES
CIN Management 6,517,433 Energy Group Shares
Goldman, Sachs & Co.
Discretionary customer
accounts 72,000 Energy Group Shares
Goldman, Sachs & Co.
Discretionary customer
accounts 175,581 Energy Group ADSs
</TABLE>
(dd) the following dealings for value in Energy Group Securities by persons
deemed to be acting in concert with PacifiCorp Acquisitions have taken
place during the disclosure period:
ENERGY GROUP SHARES
<TABLE>
<CAPTION>
NUMBER OF
RELEVANT
ENERGY
NATURE OF GROUP NATURE OF
NAME TRANSACTION DATE SECURITIES PRICE NAME TRANSACTION DATE
- ----------------------- ----------- ----------- ----------- ----------- ----------------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Goldman, Sachs & Co. Buy 25.06.97 13,700 $10.69 Goldman, Sachs & Co. Sell 28.05.97
Goldman, Sachs & Co. Sell 25.06.97 13,700 L6.41 Goldman, Sachs & Co. Buy 10.06.97
Goldman, Sachs & Co. Buy 11.07.97 20,000 $10.90 Goldman, Sachs & Co. Sell 10.06.97
Goldman, Sachs & Co. Sell 11.07.97 20,000 L6.45 CIN Management Buy 01.04.97
Goldman, Sachs & Co. Buy 09.10.97 3,400 $10.47 CIN Management Buy 02.04.97
Goldman, Sachs & Co. Sell 09.10.97 3,400 L6.45 CIN Management Buy 03.04.97
Goldman, Sachs & Co. Buy 16.12.97 2,300 $10.54 CIN Management Buy 07.04.97
Goldman, Sachs & Co. Sell 16.12.97 2,300 L6.46 CIN Management Buy 08.04.97
Goldman, Sachs & Co. Buy 14.05.97 120,700 L5.31 CIN Management Buy 09.04.97
Goldman, Sachs & Co. Sell 14.05.97 5,700 $8.75 CIN Management Buy 10.04.97
Goldman, Sachs & Co. Sell 14.05.97 115,000 $8.85 CIN Management Buy 21.04.97
Goldman, Sachs & Co. Buy 16.05.97 13,700 L5.38 CIN Management Buy 28.04.97
Goldman, Sachs & Co. Sell 16.05.97 13,700 $8.82 CIN Management Buy 01.05.97
Goldman, Sachs & Co. Buy 28.05.97 1,000 $9.21 CIN Management Buy 09.05.97
<CAPTION>
NUMBER OF
RELEVANT
ENERGY
GROUP
NAME SECURITIES PRICE
- ----------------------- ----------- -----------
<S> <C> <C>
Goldman, Sachs & Co. 1,000 L5.65
Goldman, Sachs & Co. 2,856 L5.63
Goldman, Sachs & Co. 2,856 L5.63
Goldman, Sachs & Co. 14,745 L4.99
Goldman, Sachs & Co. 200,000 L5.06
Goldman, Sachs & Co. 100,000 L5.00
Goldman, Sachs & Co. 350,000 L5.06
Goldman, Sachs & Co. 250,000 L5.04
Goldman, Sachs & Co. 100,000 L5.01
Goldman, Sachs & Co. 100,000 L4.90
Goldman, Sachs & Co. 100,000 L5.02
Goldman, Sachs & Co. 250,000 L4.94
Goldman, Sachs & Co. 14,661 L4.89
Goldman, Sachs & Co. 250,000 L5.23
</TABLE>
V-4
<PAGE>
ENERGY GROUP ADSS
<TABLE>
<CAPTION>
NUMBER OF
RELEVANT
ENERGY
NATURE OF GROUP
NAME TRANSACTION DATE SECURITIES PRICE
- ----------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Goldman, Sachs & Co. Buy 09.12.97 50,000 L42.10
Goldman, Sachs & Co. Buy 09.12.97 10,000 $42.06
Goldman, Sachs & Co. Sell 09.12.97 50,000 L25.62
Goldman, Sachs & Co. Sell 09.12.97 10,000 L25.58
Goldman, Sachs & Co. Buy 10.12.97 25,000 $42.00
Goldman, Sachs & Co. Buy 10.12.97 22,500 $42.02
Goldman, Sachs & Co. Sell 10.12.97 22,500 L25.49
Goldman, Sachs & Co. Sell 10.12.97 25,000 L25.52
Goldman, Sachs & Co. Buy 11.12.97 25,000 $42.13
Goldman, Sachs & Co. Buy 11.12.97 25,000 $42.16
Goldman, Sachs & Co. Sell 11.12.97 25,000 L25.52
Goldman, Sachs & Co. Sell 11.12.97 25,000 L25.54
Goldman, Sachs & Co. Buy 12.12.97 75,000 $42.49
Goldman, Sachs & Co. Sell 12.12.97 75,000 L25.64
Goldman, Sachs & Co. Buy 26.03.97 31,100 $31.75
Goldman, Sachs & Co. Buy 26.03.97 15,000 $31.88
Goldman, Sachs & Co. Sell 26.03.97 16,100 L19.62
Goldman, Sachs & Co. Sell 26.03.97 30,000 L19.55
Goldman, Sachs & Co. Buy 27.03.97 1,100 $32.63
Goldman, Sachs & Co. Buy 27.03.97 22,900 $32.75
Goldman, Sachs & Co. Sell 27.03.97 24,000 L20.12
Goldman, Sachs & Co. Buy 31.03.97 600 $32.13
Goldman, Sachs & Co. Sell 01.04.97 600 $32.75
Goldman, Sachs & Co. Buy 03.04.97 25,000 $32.50
Goldman, Sachs & Co. Sell 03.04.97 25,000 L19.80
Goldman, Sachs & Co. Buy 07.04.97 100 $32.38
Goldman, Sachs & Co. Sell 08.04.97 100 $32.13
Goldman, Sachs & Co. Buy 10.04.97 10,000 $31.88
Goldman, Sachs & Co. Buy 10.04.97 102,500 $31.75
Goldman, Sachs & Co. Sell 10.04.97 10,000 L19.72
Goldman, Sachs & Co. Sell 10.04.97 40,000 L19.60
Goldman, Sachs & Co. Sell 10.04.97 62,500 L19.67
Goldman, Sachs & Co. Buy 11.04.97 11,250 $31.88
Goldman, Sachs & Co. Buy 11.04.97 120,000 $31.75
Goldman, Sachs & Co. Sell 11.04.97 12,500 L19.59
Goldman, Sachs & Co. Sell 11.04.97 18,750 L19.62
Goldman, Sachs & Co. Sell 11.04.97 50,000 L19.67
Goldman, Sachs & Co. Sell 11.04.97 50,000 L19.58
Goldman, Sachs & Co. Buy 14.04.97 35,100 $32.13
Goldman, Sachs & Co. Buy 14.04.97 19,800 $32.25
Goldman, Sachs & Co. Sell 14.04.97 4,900 $32.25
Goldman, Sachs & Co. Sell 14.04.97 25,000 L19.88
Goldman, Sachs & Co. Sell 14.04.97 25,000 L19.90
Goldman, Sachs & Co. Buy 15.04.97 25,000 $32.75
Goldman, Sachs & Co. Sell 15.04.97 25,000 L20.22
Goldman, Sachs & Co. Sell 17.04.97 10,000 $32.38
<CAPTION>
NUMBER OF
RELEVANT
ENERGY
NATURE OF GROUP
NAME TRANSACTION DATE SECURITIES PRICE
- ----------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Goldman, Sachs & Co. Buy 18.04.97 12,500 $32.50
Goldman, Sachs & Co. Sell 18.04.97 12,500 L19.95
Goldman, Sachs & Co. Buy 21.04.97 12,500 $32.50
Goldman, Sachs & Co. Buy 21.04.97 12,500 $32.25
Goldman, Sachs & Co. Buy 21.04.97 10,000 L20.00
Goldman, Sachs & Co. Sell 21.04.97 12,500 L19.92
Goldman, Sachs & Co. Sell 21.04.97 12,500 $32.63
Goldman, Sachs & Co. Buy 22.04.97 1,500 $32.00
Goldman, Sachs & Co. Buy 22.04.97 16,250 $32.25
Goldman, Sachs & Co. Sell 22.04.97 12,500 L19.71
Goldman, Sachs & Co. Sell 23.04.97 5,250 $31.88
Goldman, Sachs & Co. Buy 28.04.97 20,000 L19.40
Goldman, Sachs & Co. Sell 28.04.97 20,000 $31.50
Goldman, Sachs & Co. Buy 02.05.97 72,700 $31.63
Goldman, Sachs & Co. Sell 02.05.97 5,000 L19.62
Goldman, Sachs & Co. Sell 02.05.97 12,700 $31.63
Goldman, Sachs & Co. Sell 02.05.97 10,000 L19.59
Goldman, Sachs & Co. Sell 02.05.97 20,000 L19.61
Goldman, Sachs & Co. Sell 02.05.97 25,000 L19.62
Goldman, Sachs & Co. Buy 08.05.97 25,000 $32.88
Goldman, Sachs & Co. Sell 08.05.97 25,000 L20.32
Goldman, Sachs & Co. Buy 09.05.97 34,600 $33.88
Goldman, Sachs & Co. Buy 09.05.97 25,000 $34.00
Goldman, Sachs & Co. Sell 09.05.97 4,000 L20.89
Goldman, Sachs & Co. Sell 09.05.97 25,000 L20.91
Goldman, Sachs & Co. Sell 09.05.97 30,000 L20.95
Goldman, Sachs & Co. Buy 14.05.97 5,500 L21.33
Goldman, Sachs & Co. Buy 14.05.97 6,000 $34.63
Goldman, Sachs & Co. Buy 14.05.97 19,000 $34.88
Goldman, Sachs & Co. Buy 14.05.97 44,300 $35.00
Goldman, Sachs & Co. Sell 14.05.97 5,500 $34.63
Goldman, Sachs & Co. Sell 14.05.97 14,500 L21.33
Goldman, Sachs & Co. Sell 14.05.97 25,000 L21.25
Goldman, Sachs & Co. Sell 14.05.97 30,000 L21.37
Goldman, Sachs & Co. Buy 19.05.97 4,400 $34.88
Goldman, Sachs & Co. Buy 19.05.97 40,600 $35.00
Goldman, Sachs & Co. Sell 19.05.97 20,000 L21.37
Goldman, Sachs & Co. Sell 19.05.97 25,000 L21.38
Goldman, Sachs & Co. Buy 22.05.97 28,700 $36.50
Goldman, Sachs & Co. Sell 22.05.97 3,700 L22.35
Goldman, Sachs & Co. Sell 22.05.97 4,100 L22.37
Goldman, Sachs & Co. Sell 22.05.97 10,000 L22.36
Goldman, Sachs & Co. Sell 22.05.97 10,900 L22.45
Goldman, Sachs & Co. Buy 30.05.97 25,000 $35.75
Goldman, Sachs & Co. Sell 30.05.97 25,000 L21.82
</TABLE>
V-5
<PAGE>
(II) THE ENERGY GROUP
(aa) At the close of business on 2 February 1998 (the latest practicable
date prior to the publication of this document), the interests of the
directors of The Energy Group and their immediate families, all of which
are beneficial (unless stated otherwise), in Energy Group Securities,
which have been notified to The Energy Group under sections 324 and 328
of the Companies Act or which were required to be entered in the register
of directors' interests maintained under the provisions of section 325 of
the Companies Act, are set out below:
<TABLE>
<CAPTION>
CONDITIONAL AWARD
OF ENERGY GROUP
SHARES UNDER THE
ENERGY GROUP
LONG-TERM
ENERGY GROUP INCENTIVE PLAN
DIRECTOR SHARES ("LTIP")(1) CONDITIONAL
AWARD OF ENERGY
GROUP SHARES
UNDER THE
ENERGY GROUP
SPECIAL
ADDITIONAL BONUS
SCHEME(2)
<S> <C> <C> <C>
Derek C. Bonham 90,870 64,285 21,428
John F. Devaney 5,000 50,000 16,666
Irl F. Engelhardt 10,844 48,292 16,097
Eric E. Anstee 5,000 35,714 11,904
David P. Nash 2,000 -- --
</TABLE>
(1) Under the terms of the LTIP, certain executives are granted
performance-related awards of Energy Group Shares up to a maximum market value
of 75 per cent. of base salary each year. The first awards, granted in February
1997, require the achievement of a total shareholder return over the relevant
performance period which is greater than the return achieved by at least half of
the constituents of the FTSE 100 Index for the awards to vest. 30 per cent. of
the awards will vest if The Energy Group achieves a total shareholder return
greater than that achieved by 50 per cent. of the comparator group, with all the
awards vesting if the total shareholder return is greater than that achieved by
80 per cent. of the comparator group over the performance period. Awards will
vest proportionately if total shareholder return falls between these two points.
In the event of a change of control of The Energy Group, the performance period
for outstanding awards will be foreshortened to the date of the change of
control.
(2) In recognition of the fact that the first awards under the LTIP were not due
to vest, in the absence of special circumstances, until the expiration of a
three year performance period, a special additional bonus scheme for certain
executives was established. Under this arrangement, if earnings of the TEG Group
increased by RPI plus 6 per cent. or more in each of the years ending 31 March
1998 and 1999, participants would be entitled to receive an award of Energy
Group Shares, valued at the beginning of the respective year, equal to 25 per
cent. of base salary for that year. These awards are payable in cash, rather
than Energy Group Shares, following a change of control of The Energy Group.
(bb)In addition to the beneficial interests in Energy Group Securities set
out above, the executive directors of The Energy Group are for the purposes
of the Companies Act regarded as interested in the 4,069,816 Energy Group
Shares held by The Energy Group Employee Benefit Trust (the "Trust"). These
are technical interests in shares, and it is not expected that any of the
executive directors will be entitled to receive from the Trust a greater
number of shares than that to which he is entitled on exercise of options
or the vesting of outstanding awards under the Energy Group Share Schemes;
V-6
<PAGE>
OPTIONS ISSUED PURSUANT TO THE ENERGY GROUP SHARESAVE SCHEME(1)
<TABLE>
<S> <C> <C> <C> <C>
DIRECTOR DATE OF GRANT NUMBER OF EXERCISE EXERCISE PERIOD
ENERGY PRICE (P)
GROUP
SHARES
Derek C. Bonham 25.03.97 2,363 438 4/2002 to 9/2002
John F. Devaney 25.03.97 3,938 438 4/2002 to 9/2002
Eric E. Anstee 25.03.97 3,150 438 4/2002 to 9/2002
Eric E. Anstee 25.03.97 419 465 4/2000 to 9/2000
</TABLE>
(1) Under the Energy Group Sharesave Scheme, options over Energy Group Shares
may be granted at a price equivalent to not less than 80 per cent. of the market
value of Energy Group Shares at the time when participation in the scheme is
offered, and are normally exercisable three or five years after the date of
grant.
(cc) At the close of business on 2 February 1998 (being the latest
practicable date prior to the publication of this document): Morgan
Stanley Capital (Luxembourg) SA held 77,952 Energy Group Shares; Dean
Witter Inter-Capital held 1,225,000 Energy Group Shares; Morgan Stanley
Asset Management Inc. held 4 Energy Group Shares and 57,514 Energy Group
ADSs; Van Kampen American Capital Inc. held 80,000 Energy Group ADSs; and
person(s) whose investments are managed on a discretionary basis by
Cazenove Suisse S.A. held 390 Energy Group Shares;
(dd) The following dealings for value in Energy Group Securities by the
directors of The Energy Group and members of their immediate families
have taken place during the disclosure period:
<TABLE>
<S> <C> <C> <C> <C> <C>
DIRECTOR NATURE OF DATE NUMBER OF TYPE OF PRICE PER
TRANSACTION ENERGY GROUP ENERGY GROUP SECURITY
SECURITIES SECURITIES
John F. Devaney Purchase 26.02.97 5,000 Ordinary 541p
Irl F. Engelhardt Purchase 11.03.97 1,875 ADSs $34.00
Eric E. Anstee Purchase 26.02.97 5,000 Ordinary 539p
David P. Nash Purchase 09.04.97 2,000 Ordinary 501p
</TABLE>
V-7
<PAGE>
(ee) Save as disclosed above:
(1) neither PacifiCorp Acquisitions, nor any director of PacifiCorp
Acquisitions or any member of his immediate family or his related
trusts, nor any person acting in concert with PacifiCorp
Acquisitions, nor any person who prior to the publication of this
document committed himself to accept the Offer, owns or controls or
(in the case of a director of PacifiCorp Acquisitions) is interested
in any relevant securities, nor has any such person dealt for value
in such securities during the disclosure period;
(2) neither The Energy Group, nor any director of The Energy Group or any
member of his immediate family or his related trusts, owns or
controls or (in the case of a director of The Energy Group) is
interested in any relevant securities, nor has any such person dealt
for value in such securities during the disclosure period;
(3) neither any subsidiary of The Energy Group, nor any pension fund of
any member of the TEG Group, nor any bank, financial or other
professional adviser to The Energy Group (including stockbrokers but
excluding exempt market-makers), including any person controlling,
controlled by or under the same control as any such bank, financial
or other professional adviser nor any person whose investments are
managed on a discretionary basis by a fund manager (other than an
exempt fund manager) connected with The Energy Group owns or controls
any relevant securities, nor has any such person dealt for value
therein during the Offer period;
(4) neither PacifiCorp Acquisitions nor any person acting in concert with
PacifiCorp Acquisitions has any arrangement with any person in
relation to relevant securities; and
(5) neither The Energy Group nor any associate of The Energy Group has
any arrangement with any person in relation to relevant securities.
5 IRREVOCABLE UNDERTAKINGS
Certain of the directors of The Energy Group have given irrevocable
undertakings to accept or procure acceptance of the Offer in respect of their
personal holdings of Energy Group Securities. Details of Energy Group Securities
subject to those undertakings are as follows:
<TABLE>
<S> <C> <C>
DIRECTOR ENERGY GROUP SHARES ENERGY GROUP ADSS
Derek C. Bonham 84,000 --
John F. Devaney 5,000 --
Irl F. Engelhardt -- 1,550
Eric E. Anstee 5,000 --
David P. Nash 2,000 --
</TABLE>
Pursuant to the undertakings, the directors have covenanted, subject to
their fiduciary duties as directors, (i) in the announcement of the Offer and in
this document, to recommend all shareholders of The Energy Group to accept the
Offer, (ii) to co-operate with The Energy Group in the production of this
document and, among other things, the information required by Rules 24 and 25 of
the City Code and to take responsibility for the information in this document
relating to The Energy Group, its directors, their close families and any
related companies and trusts in the terms required or permitted by Rule 19.2 of
the City Code, and (iii) not to solicit any general offer for Energy Group
Shares or any other class of its shares from any third party or any proposal for
a merger of The Energy Group with any other entity.
6 SERVICE AGREEMENTS OF THE DIRECTORS OF THE ENERGY GROUP AND RELATED MATTERS
All executive directors of The Energy Group (other than Mr Engelhardt)
entered into service agreements with The Energy Group at the time of its
demerger from Hanson. Mr Engelhardt's service
V-8
<PAGE>
agreement is with Peabody Holding. Mr Engelhardt's contract was entered into in
1987, and was amended on 27 January 1997 with effect from 24 February 1997 in
the context of the Demerger. Details of the service agreements of the directors
of The Energy Group are as follows:
<TABLE>
<S> <C> <C>
DIRECTOR DATE BASIC ANNUAL SALARY
Derek C. Bonham 27 January 1997 L450,000
John F. Devaney 27 January 1997 L350,000
Irl F. Engelhardt 16 September 1987 $550,000
Eric E. Anstee 27 January 1997 L250,000
</TABLE>
Each of the executive directors' service agreements (other than that of Mr
Engelhardt, who is resident and works in the US) is terminable either by The
Energy Group giving 52 weeks' notice or the executive director giving 26 weeks'
notice, unless there is a change of control in The Energy Group within two years
after 24 February 1997, in which case the period of notice required to be given
by The Energy Group increases to 104 weeks until 12 months after the date of the
relevant change of control when that notice period reverts to 52 weeks. Mr
Bonham's service agreement expires on his 60th birthday, those of Messrs Devaney
and Anstee on their respective 63rd birthdays and that of Mr Engelhardt on his
65th birthday.
On a change of control of The Energy Group and if (a) either The Energy
Group summarily terminates the employment of any of the executive directors
(other than Mr. Engelhardt) (other than for cause), directly or indirectly in
connection with that change of control, within 12 months or (b) any such
executive director terminates his employment within 12 months of a change of
control by giving The Energy Group 28 days' notice, then that director is
entitled to:
(a) payment of a sum equivalent to gross salary for a period equal to the
notice period required to be given by The Energy Group;
(b) cash compensation in respect of contractual benefits (or, at The Energy
Group's option, a continuation of those contractual benefits) for such
period;
(c) (save in the case of Mr Bonham) cash compensation (or at The Energy
Group's option, augmentation) in respect of loss of pension entitlement
(including unfunded retirement benefits) for a two year period; and
(d) compensation for loss of expectation of annual bonuses calculated over
the applicable notice period by reference to salary at that time.
Peabody Holding may terminate Mr Engelhardt's service agreement without
cause, by giving 90 days' notice. In such event, Mr Engelhardt would be entitled
to:
(a) a payment of a sum equivalent to gross salary for a 30 month period
(either in a lump sum or on a semi-monthly basis at Mr Engelhardt's
option);
(b) the provision of contractual benefits and executive perquisites for a 30
month period;
(c) pension entitlement for a 30 month period;
(d) the matching amount under the Peabody savings plans for a 30 month
period; and
(e) annual cash payments by way of compensation for loss of expectation of
annual bonus, equivalent to three payments of 75 per cent. of base salary
in the immediately preceding year on each 1 March in the three years
following the termination date.
In the event of termination of Mr Engelhardt's service agreement, Peabody
Holding will also provide an office and executive secretarial support during the
30 month period. In lieu of providing 90 days' notice, Peabody Holding may
provide compensation, pension and all other benefits for such 90 day period.
V-9
<PAGE>
Each of the executive directors is entitled to participate in the LTIP and
the Energy Group Sharesave Scheme, except that Mr Engelhardt is entitled to
participate in a Peabody Savings Plan and an unfunded supplemental savings plan
and is not entitled to participate in the Energy Group Sharesave Scheme. Details
of the directors' interests in Energy Group Securities under each of these
arrangements are set out in paragraph 4.1 above. In addition, each of the
executive directors is entitled to certain other benefits in kind, including the
provision of a fully expensed motor car and medical insurance.
In recognition of the fact that the first awards under the LTIP were not
scheduled to vest (in the absence of a change of control) until after the
expiration of the applicable three-year performance period, each of the
executive directors is eligible to participate in a special additional bonus
scheme. Under this arrangement, if the earnings of the TEG Group increase by a
factor equal to or exceeding RPI plus 6 per cent. in the years ending 31 March
1998 and 31 March 1999 respectively, compared to the preceding year,
participants will be entitled to receive an amount of Energy Group Shares valued
as at the beginning of that year equal to 25 per cent. of their base salary in
respect of each such year. Details of the executive directors' interests in
Energy Group Shares under this arrangement are set out in paragraph 4(b)(ii)
above.
In the event of a change of control of The Energy Group and a continuation
of their service agreements until The Energy Group's accounting reference date
in 1999, each of the executive directors is entitled to payment under the
special additional bonus scheme referred to above in respect of each year in
cash. In the event of a change of control of The Energy Group and the
termination of their service agreements prior to The Energy Group's accounting
reference date in 1999, each of the executive directors is entitled to payment
under the special additional bonus scheme referred to above in respect of each
year in cash, calculated by reference to their base salary on termination.
Each of the executive directors is entitled to participate in an annual
bonus scheme based upon the achievement of annual profit targets prescribed by
the remuneration committee of The Energy Group. These targets relate to:
(a) in the case of Messrs Bonham and Anstee, the profits of the TEG Group
taken as a whole;
(b) in the case of Mr Devaney, 50 per cent. of the profits of the TEG Group
taken as a whole and 50 per cent. of the profits of Eastern;
(c) in the case of Mr Engelhardt, 50 per cent. of the profits of the TEG
Group taken as a whole and 50 per cent. of the profits of Peabody.
Payments under the annual bonus scheme are capped at 50 per cent. of the
base salary for each of Messrs Bonham, Anstee and Devaney and 75 per cent. of
base salary in the case of Mr. Engelhardt. However, each of Messrs Bonham,
Anstee and Devaney may elect to take their bonus in whole or in part on a
deferred basis in Energy Group Shares in lieu of cash, and if they do so and
remain in employment with the TEG Group for a further three years, they would
receive, three years after the cash bonus would otherwise be payable, Energy
Group Shares equal to a maximum of 66.7 per cent. of base salary (the number of
such shares being calculated at the date when the cash bonus would otherwise
have been paid). Share elections were made by each of Messrs Bonham, Anstee and
Devaney in relation to their bonuses for the year ending 31 March 1998. Such
elections will, however, cease to have effect upon a change of control of The
Energy Group and payments will be made (without enhancement) in cash.
Save as set out in this paragraph 6, there are no service agreements between
any of the directors of The Energy Group and any member of the TEG Group which
have unexpired terms exceeding one year and save as aforesaid, no such service
agreements have been entered into or amended since 27 January 1997 (the date on
which the current arrangements were put in place).
V-10
<PAGE>
7 OTHER INFORMATION
(a) PacifiCorp Acquisitions has given assurances to the board of The Energy
Group that the existing employment rights, including pension rights, of all
directors, management and employees of the TEG Group, will be fully
safeguarded. PacifiCorp looks forward to working with employees of the TEG
Group.
PacifiCorp has stated that, subject to the Offer becoming or being declared
unconditional in all respects, it intends to invite Mr Derek Bonham and Mr
John Devaney to join the board of directors of PacifiCorp. Mr Frederick
Buckman will remain as a director and President and Chief Executive Officer
of the Combined Group.
In addition, PacifiCorp intends, subject to approval of the PacifiCorp board
of directors, to invite Mr Bonham, Mr Devaney, Mr Eric Anstee and Mr Irl
Engelhardt to joint PacifiCorp senior executives, Mr Buckman, Mr Verl
Topham, Mr Dennis Steinberg and Mr Richard O'Brien to form part of a
management committee to co-ordinate the activities of the Combined Group
and, except in the case of Mr Bonham, to take up certain executive positions
within the Combined Group.
Although these intentions have been discussed in general terms, no specific
terms or conditions have yet been agreed. None of Messrs Bonham, Devaney,
Anstee or Engelhardt will enter into any further discussions with PacifiCorp
(or any person acting in concert with it) concerning their personal
positions unless and until, at the earliest, the Offer becomes or is
declared unconditional in all respects.
Save as disclosed in this document there is no agreement, arrangement or
understanding (including any compensation arrangement) between PacifiCorp
Acquisitions or any person acting in concert with it for the purposes of the
Offer and any of the directors, recent directors, shareholders or recent
shareholders of The Energy Group having any connection with or dependence
upon, or which is conditional on, the outcome of the Offer.
(b) No proposal exists in connection with the Offer for any payment or other
benefit to be made or given by PacifiCorp Acquisitions or any person acting
in concert with it for the purpose of the Offer to any director of The
Energy Group as compensation for loss of office or as consideration for or
in connection with his retirement from office.
(c) There is no agreement, arrangement or understanding whereby the beneficial
ownership of any of the Energy Group Securities to be acquired pursuant to
the Offer will be transferred to any other person.
(d) Goldman Sachs International, Lazard and Morgan Stanley have given and not
withdrawn their respective written consents to the issue of this document
with the references to their names, including, in the case of Goldman Sachs
International, the reference to its valuation of the Loan Notes, in the form
and context in which they appear. Goldman Sachs International, Lazard and
Morgan Stanley are regulated in the United Kingdom by The Securities and
Futures Authority Limited.
(e) Save as disclosed in this document, there has been no material change in the
financial or trading position of PacifiCorp since 31 December 1996 or the
financial or trading position of The Energy Group since 31 March 1997.
(f) Goldman Sachs International is satisfied that the financial resources
necessary to implement the Offer in full are available to PacifiCorp
Acquisitions.
V-11
<PAGE>
8 MATERIAL CONTRACTS
(a) In addition to the financing arrangements referred to in paragraph 10 below,
the following contracts, not being contracts entered into in the ordinary
course of business, have been entered into by PacifiCorp and its
subsidiaries, including PacifiCorp Acquisitions, since 26 January 1996
(being two years prior to the commencement of the Offer period) and are or
may be material:
(i) an agreement, dated 11 June 1997, by and between PacifiCorp Group
Holdings Company, Pacific Telecom, Inc. (a wholly-owned subsidiary of
PacifiCorp Group Holdings Company), Century Telephone Enterprises, Inc.,
and Century Cellunet, Inc. (a wholly-owned subsidiary of Century
Telephone Enterprises, Inc.), pursuant to which Century Cellunet, Inc.
purchased from Pacific Telecom, Inc. the stock of Pacific Telecom
Cellular, Inc. and of Pacific Telecom Cellular of Alaska, Inc.
(collectively, the "Cellular Stock"), and Century Telephone Enterprises,
Inc. purchased the stock of Pacific Telecom, Inc. PacifiCorp Group
Holdings Company received $1.523 billion in cash (including the $240
million paid by Century Cellunet, Inc. for the Cellular Stock, which
amount was distributed to PacifiCorp Group Holdings Company in the form
of a dividend immediately prior to the closing of the sale of stock of
Pacific Telecom, Inc.);
(ii) an agreement and plan of merger dated as of 11 March 1997 by and among
TPC Corporation, PacifiCorp Group Holdings Company and Power Acquisition
Company, entered into in connection with the cash tender offer by Power
Acquisition Company for all the outstanding shares of capital stock of
TPC Corporation at a purchase price of $13.41 per share; and
(iii) an agreement, dated 10 October 1997, by and between NRG Energy, Inc.
and PacifiCorp Group Holdings Company, pursuant to which PacifiCorp Group
Holdings Company sold its independent power subsidiary, Pacific
Generation Company, to NRG Energy, Inc. for cash consideration of
approximately $133 million.
(b) The following contracts, not being contracts entered into in the ordinary
course of business, have been entered into by The Energy Group or its
subsidiaries since 26 January 1996 (being two years prior to the
commencement of the Offer period) and are or may be material:
(i) an agreement dated 27 January 1997 between (1) Hanson and (2) The
Energy Group (the "Demerger Agreement") pursuant to which the parties
agreed the terms on which The Energy Group would be demerged from Hanson.
The Demerger Agreement provided for the repayment of certain
inter-company debt prior to the Demerger and contains certain provisions
under which each of the parties agreed after the Demerger to transfer or
assign its interest (if any) in any assets belonging to the other party
for no consideration. Each of Hanson and The Energy Group also agreed
that it would use all reasonable endeavours after the Demerger to obtain
a full and effective release of each member of the other's group from any
guarantees, indemnities, counter-indemnities and letters of comfort (if
any) which the other's group may have given in respect of its group.
Hanson and The Energy Group have also agreed under the terms of the
Demerger Agreement to enter into various ancillary arrangements including
arrangements relating to indemnification against certain tax liabilities;
(ii) an indemnification agreement under the terms of which the TEG Group
agreed to indemnify Hanson against all "TEG Liabilities" as therein
defined, being, broadly, all liabilities (other than tax, which was dealt
with in other documents and liabilities arising from transactions in the
ordinary course of business) past, present or future of any of the
businesses or assets acquired by the TEG Group pursuant to the Demerger
including (except as expressly otherwise provided) any former businesses
or assets of any companies within the TEG Group. Hanson likewise agrees
to indemnify the TEG Group against all "Hanson Liabilities" as therein
defined being, broadly, all liabilities (other than tax, which was dealt
with in other documents and liabilities arising from transaction in the
ordinary course of business) past, present or future of
V-12
<PAGE>
Hanson and any subsidiary past, present or future of Hanson other than
the "TEG Parties" (as therein defined);
(iii) a stock purchase agreement dated as of 24 February 1997 between (1)
Peabody US Holdings Inc. ("PUSH"), (2) GFAC International Holdings Inc.
("GFAC"), (3) Hanson and (4) The Energy Group pursuant to which PUSH sold
and GFAC purchased the entire issued share capital of Peabody Holding for
a cash consideration of $1,637.5 million;
(iv) an agreement dated 5 August 1996 between (1) The Energy Group, (2)
Citibank International plc (as Agent), (3) Barclays Bank PLC and Midland
Bank plc (as Arrangers) and (4) the Banks named therein relating to
L1,000 million revolving credit facilities for the purposes of repaying
certain outstanding indebtedness to Hanson and certain of its
subsidiaries and for the general corporate purposes of The Energy Group
and its subsidiaries;
(v) (a) a deed of assignment of rents dated 28 October 1996 between Eastern
Merchant Properties Limited ("EMPL"), Eastern Group Finance Limited and
Barclays Bank PLC for itself and as agent for others by which for a
period of five years the rights of EMPL to receive the rental income for
those years in relation to the leased power station facilities at
Drakelow C, High Marnham, Ironbridge, Rugeley B and West Burton were
assigned for a capital payment equal to the discounted aggregate value of
the rental stream (approximately L1,097 million) and, in certain
tax-related or default-related events, assignee banks have the right to
sell (and at any time EMPL has the right to require the banks to sell)
their participations in the rental receivables then outstanding to a
buyer recommended by the Guarantors (as defined therein); and (b) a deed
of guarantee and indemnity dated 28 October 1996 by which Eastern Group
plc and Eastern Generation Limited provided a guarantee and indemnities
and certain undertakings and other provisions containing protections in
favour of the assignee banks and their sub-participants in respect of
certain claims, liabilities and losses;
(vi) a standby facility agreement dated 28 October 1996 between Eastern
Group plc and Eastern Generation Limited as guarantors, EMPL and Eastern
Merchant Generation Limited ("EMGL") as obligors, The Industrial Bank of
Japan, Limited ("IBJ") as arranger and as agent for the financial
institutions listed therein as lenders, and such lenders, whereby the
lenders have agreed to make available committed funds for general
corporate purposes subject to a maximum availability of L1,050 million,
less amounts advanced by the lenders under certain participation
agreements in respect of the participation by the lenders in the rights
and obligations of the assigned banks under the documentation described
in (v) above; and
(vii) agreements relating to the securing of EMPL's obligations for the
payment by it under an irrevocable payment direction deed of part of
certain deferred lease premiums payable under EMPL's lease of three of
the properties referred to in (v) above and the variation of the terms of
a facility agreement dated 1 July 1996, as amended and restated on 8
August 1996, between EMGL, EMPL, Eastern Electricity plc, IBJ (as
arranger and as agent for the banks and participants listed therein), and
such banks and participants, by the cash-collateralisation of such
deferred lease premiums and accrued interest, in the aggregate amount of
L408 million, and the variation of the guarantee thereof, such agreements
comprising: (i) three charges on cash dated 28 October 1996 from EMPL in
favour of IBJ, The Bank of Nova Scotia and Societe Generale; and (ii) a
deferred premium settlement deed dated 28 October 1996 between EMPL,
EMGL, Eastern Electricity plc, IBJ for itself and as agent and arranger,
and the banks and the participants named therein, containing the terms on
which the irrevocable payment direction deed and the facility agreement
referred to above were agreed to be varied.
V-13
<PAGE>
9 BACKGROUND TO THE OFFER
In January 1996, Hanson announced its intention to demerge its respective
chemical, tobacco and energy interests. Beginning in the last quarter of 1996,
as part of its ongoing strategic review, PGHC began to focus increasingly on the
possibility of a combination with or acquisition of the energy businesses of
Hanson as one of the more promising of the various possible transactions it was
considering. In January 1997, the PacifiCorp Group engaged Goldman, Sachs & Co.
as its financial adviser with respect to evaluating any potential transaction
involving the energy businesses of Hanson. Shortly thereafter, PGHC, together
with the legal and financial advisers and consultants to the PacifiCorp Group
began its due diligence review of publicly available information with respect to
The Energy Group, including a review of the Energy Group Listing Particulars.
Previously, at a meeting in December 1996 between Frederick W. Buckman,
President and Chief Executive Officer of PacifiCorp, and Irl F. Engelhardt,
Chief Executive Officer of Peabody, who have known each other and have met from
time to time since 1994, Mr Buckman expressed a general desire to pursue
opportunities with Hanson. Mr Engelhardt informed Mr Buckman that Hanson was
committed to the proposed demerger of The Energy Group and had no intention of
entering into discussions with any party in relation to the possible disposal of
the energy businesses of Hanson.
On 24 February 1997, Hanson demerged The Energy Group, a newly-formed public
limited company incorporated under the laws of England and Wales to hold the
international energy businesses of Hanson.
On 3 April 1997, Mr Buckman contacted Derek Bonham, Chairman of The Energy
Group, suggesting that they meet to discuss items of mutual interest to their
respective companies, and they agreed to meet in New York on 17 April 1997. On 9
April 1997, while touring the United States in order to introduce John F.
Devaney, Chief Executive of Eastern, to a number of utility chief executive
officers, Mr Devaney and Mr Engelhardt met with Mr Buckman and other senior
executives of PacifiCorp, but did not have any substantive discussions relating
to any proposed transaction, although the scheduled meeting with Mr Bonham was
noted.
On 17 April 1997, a meeting was held, attended by Mr Buckman and Richard T.
O'Brien, Senior Vice President and Chief Financial Officer of PacifiCorp, and Mr
Bonham and Eric E. Anstee, Finance Director of The Energy Group. Mr Buckman
proposed that the companies examine ways that they might combine, including a
merger or an acquisition of one party by the other, and the parties agreed to
speak further at a later date.
On 29 April 1997, Mr Buckman and Mr Bonham met again and discussed the
possibility of a recommended offer by PGHC for The Energy Group, but failed to
agree on valuation.
On 8 and 9 May 1997, senior executives of PGHC, together with
representatives of the PacifiCorp Group's financial adviser, Goldman, Sachs &
Co., and The Energy Group, together with representatives of Morgan Stanley, met
to discuss a possible offer for The Energy Group, again failing to reach an
agreement, but narrowing the difference on price between them. The parties
concluded that further discussions would be worthwhile, and PacifiCorp and The
Energy Group executed a confidentiality and mutual standstill agreement on 9 May
1997. That agreement provided that PacifiCorp and The Energy Group would deal
with each other exclusively for a period of 28 days, subject to the fiduciary
duties of each company's directors.
V-14
<PAGE>
Over the course of the subsequent weeks, PGHC proceeded to complete its due
diligence review and to resolve with The Energy Group substantially all the
outstanding issues in relation to a possible offer, other than price.
On 6 June 1997, Mr Buckman proposed a price per share of 690 pence (without
provision for a dividend). Mr Bonham agreed to put the matter to his board. On 9
June 1997, the board of directors of The Energy Group met to consider the
discussions that had taken place with PacifiCorp.
On 10 June 1997, the boards of directors of PacifiCorp and PGHC met to
consider making an offer for all the outstanding Energy Group Securities upon
terms presented to the boards of directors by senior executives of PGHC and its
legal and financial advisers. Senior executives of PGHC reviewed the terms of
the proposed offer with the respective boards of directors and reported on the
due diligence examination of the TEG Group conducted by the counsel, consultants
and advisers of PGHC. Subject to agreement as to price and the finalisation of
banking facilities, the board of directors of PacifiCorp approved a resolution
supporting the making of the Previous Offer and the board of directors of PGHC
approved the making of the Previous Offer.
On 10 June 1997, following discussion with the Panel, The Energy Group
issued a press release announcing that it was in talks with PacifiCorp which
might lead to a recommended cash offer for The Energy Group and that, if such an
offer were to be made, it would be expected to be at a premium of about 20 per
cent. to that day's Closing Price of 580 pence per Energy Group Share.
On 11 June 1997, subject to agreement as to the offer price and the
finalisation of banking facilities, the board of directors of PacifiCorp
Acquisitions approved the Previous Offer.
On the same day, Mr O'Brien sent a letter to The Energy Group containing an
offer at a price of 690 pence per Energy Group Share, plus a dividend of 5.5
pence (net) per Energy Group Share, subject to (i) the board of directors of The
Energy Group unanimously recommending such offer, (ii) PacifiCorp Acquisitions
finalising its banking facilities and (iii) those directors of The Energy Group
who had personal holdings of Energy Group Securities irrevocably undertaking to
accept such offer. Later that day, PGHC was informed that the board of directors
of The Energy Group, having been so advised by Lazard and Morgan Stanley, its
financial advisers, had unanimously concluded that the terms of the Previous
Offer were fair and reasonable and had decided to recommend that all holders of
Energy Group Shares and Energy Group ADSs accept the Previous Offer. In
providing advice to the board of The Energy Group, Lazard and Morgan Stanley
took account of the board's commercial assessment of the Previous Offer. In
addition, those directors of The Energy Group who had personal holdings of
Energy Group Securities agreed to enter into irrevocable undertakings to accept
the Previous Offer in respect of those holdings of 116,385 Energy Group Shares
and 1,550 Energy Group ADSs.
Following finalisation of the financing arrangements and execution of the
irrevocable undertakings referred to above, the parties issued a press release
publicly announcing the Previous Offer on 13 June 1997.
Following the June announcement of the Previous Offer and up to the
announcement of the Offer, the respective executives and legal and financial
advisers of The Energy Group and PacifiCorp worked together in connection with
the preparation of the offer documentation and the making of the requisite
regulatory submissions and applications, including submissions and applications
to the DGES, the Office of Fair Trading, FERC, the Foreign Investment Review
Board of Australia, the United States Federal Trade Commission and the United
States Department of Justice. In addition, the respective executives and legal
and financial advisers of The Energy Group and PacifiCorp worked jointly to
respond to the inquiries of the regulators reviewing the proposed offer,
including OFFER, the Office of Fair Trading and the United States Federal Trade
Commission. In addition, the executive and legal advisers of The Energy Group
provided responses to additional due diligence requests of PacifiCorp and its
lenders submitted in connection with the arrangement of the financing described
in paragraph 10 below.
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On 1 August 1997, the Previous Offer lapsed, in accordance with its terms,
when it was referred to the Monopolies and Mergers Commission by the President
of the Board of Trade in the United Kingdom.
On 19 December 1997, the President of the Board of Trade granted
unconditional approval allowing PacifiCorp to make a new bid for The Energy
Group.
On 13 and 14 January 1998, the senior executives of PacifiCorp and The
Energy Group met in London to discuss the possibility of PacifiCorp making a new
bid for The Energy Group. In that context, the corporate strategy of the
Enlarged Group and the roles and duties of the respective senior executives in
the management of the Enlarged Group were also discussed.
On 28 January 1998, Mr. Buckman and Mr. Bonham, initially meeting alone, and
then later joined by Mr. O'Brien and Mr. Anstee, met in New York City to discuss
valuation of the Offer. Proposed valuations of the Offer discussed at the
meeting ranged from a price of 740 pence to 775 pence per Energy Group Share,
but no agreement on valuation was reached. On 29 January 1998, Mr. Buckman and
Mr. Bonham met again to discuss valuation and Mr. Buckman proposed a price of
765 pence per Energy Group Share, subject to (i) the board of directors of
PacifiCorp approving the proposed terms of the Offer, (ii) the board of
directors of The Energy Group unanimously recommending the Offer, (iii)
finalisation of the financing arrangements described in paragraph 10 below and
(iv) those directors of The Energy Group who had personal holdings of Energy
Group Securities irrevocably undertaking to accept the Offer. Mr Bonham agreed
to put the matter to the board of directors of The Energy Group.
On 29 January 1998, the board of directors of PacifiCorp Acquisitions
approved the Offer subject to agreement as to the offer price, approval by the
board of PGHC of the making of the Offer and the finalisation of banking
facilities.
On 30 January 1998, the boards of directors of PacifiCorp and PGHC met to
consider making an offer for all the outstanding Energy Group Securities upon
terms presented to the boards of directors by senior executives of PGHC and its
legal and financial advisers. Senior executives of PGHC reviewed the terms of
the proposed offer with the respective boards of directors and reported on the
due diligence examination of the TEG Group conducted by the counsel, consultants
and advisers of PGHC. Subject to agreement as to price and the finalisation of
banking facilities, the board of directors of PacifiCorp approved a resolution
supporting the making of the Offer and the board of directors of PGHC approved
the making of the Offer.
Late on 2 February 1998, PGHC was informed that the board of directors of
The Energy Group, having been so advised by Lazard and Morgan Stanley, its
financial advisers, considered the terms of the Offer to be fair and reasonable
and had decided to recommend that all holders of Energy Group Shares and Energy
Group ADSs accept the Offer. In providing advice to the board of The Energy
Group, Lazard and Morgan Stanley took account of the board's commercial
assessment. In addition, those directors of The Energy Group who had personal
holdings of Energy Group Securities agreed to enter into irrevocable
undertakings to accept the Offer in respect of their personal holdings totalling
96,000 Energy Group Shares and 1,550 Energy Group ADSs.
Following finalisation of the financing arrangements and execution of the
irrevocable undertakings referred to above, the parties issued a press release
publicly announcing the Offer on 3 February 1998.
10 FINANCING ARRANGEMENTS
(A) GENERAL
PacifiCorp Acquisitions estimates that the total amount of funds necessary
to purchase pursuant to the Offer all Energy Group Securities that are
outstanding, and to pay estimated fees and expenses of the Offer including the
costs of any proposals made to participants in the Energy Group Share Schemes,
will be approximately L4,142 million. The funds needed for these purposes will
principally come from existing cash balances of PGHC and from the proceeds of
borrowings under three bank credit facilities described below, namely, the
PacifiCorp Acquisitions Facility, the Powercoal Facility and the EnergyCo
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Facility (collectively, the "Facilities"). Payments of interest and principal on
the Facilities will be funded partly out of income received by the PacifiCorp
Group from its investment in the TEG Group and partly from sources within the
PacifiCorp Group. To the extent that the loans under the Facilities are made to
PacifiCorp EnergyCo ("EnergyCo") and/or to PacifiCorp Powercoal LLC
("Powercoal"), those companies will assist PacifiCorp Acquisitions in funding
the Offer by making available to PacifiCorp Acquisitions, directly or
indirectly, the requisite part of such proceeds, net of expenses. This will be
done by a combination of capital contributions to PacifiCorp Acquisitions and
its intermediate holding companies, and inter-company loans directly or
indirectly to PacifiCorp Acquisitions from its direct and indirect holding
companies, and from Powercoal.
Each of the Facilities contains conditions, representations and warranties,
undertakings and financial covenants and events of default and other provisions
customarily required for similar financings. Such covenants include, among other
things, (i) agreements not to alter certain terms of the Offer including,
without limitation, agreement not to reduce the Acceptance Condition without
lender consent, (ii) agreements to cause the entities (other than Lee Ranch Coal
Company) holding Peabody's US coal operations (the "Peabody Subsidiaries"), as
well as PacifiCorp Power Marketing, Inc. ("PPM") and Citizens Power LLC, to be
transferred to Powercoal within 270 days of the initial borrowing under the
Facilities, (iii) agreements to repay certain indebtedness of certain members of
the PacifiCorp Group and the TEG Group within specified time periods, (iv)
negative pledges, (v) restrictions on sales of assets and incurrence of debt,
(vi) restrictions on payments of dividends and intercompany and subordinated
debt and (vii) restrictions on mergers. Such events of default include, among
other things, (a) failure to make payments under other indebtedness, (b)
defaults under other material indebtedness which permit acceleration of such
other material indebtedness and (c) changes of control of certain members of the
PacifiCorp Group. A breach of any such condition, representation, warranty,
undertaking or covenant or the occurrence of an event of default may, amongst
other things, result in the commitments under the relevant Facilities being
terminated and/or the amounts then outstanding under the relevant Facility
becoming or being declared immediately due and payable in whole or in part
(except, generally, during an initial period when only the breach of limited
conditions and representations or the occurrence of certain insolvency related
events of default will result in such commitments being terminated or not
funded).
The Powercoal Facility and the EnergyCo Facility provide for a commitment
denominated in US dollars. To ensure that PacifiCorp Acquisitions will have
sufficient pounds sterling available to purchase all outstanding Energy Group
Securities and to satisfy other obligations denominated in pounds sterling in
case of a change in the dollar/pound exchange rate, the PacifiCorp Group has
entered, and will enter, into option contracts which give the PacifiCorp Group
the right to purchase pounds sterling at fixed prices.
(B) PACIFICORP ACQUISITIONS FACILITY
A facility agreement dated 3 February 1998 (the "PacifiCorp Acquisitions
Facility Agreement") has been entered into by (i) PacifiCorp Services Limited,
PacifiCorp Finance (UK) Limited and PacifiCorp Acquisitions as guarantors, (ii)
PacifiCorp Acquisitions as borrower, (iii) Citibank, N.A., Goldman Sachs
International and J.P. Morgan Securities Ltd. as arrangers, (iv) Citibank, N.A.,
Goldman Sachs Credit Partners L.P. and Morgan Guaranty Trust Company of New York
as original lenders, (v) Citibank International plc as facility agent and (vi)
Citibank, N.A., as security agent and LC Bank, relating to a L2,275 million term
loan facility (the "PacifiCorp Acquisitions Term Loan Facility") and a L450
million revolving credit facility (the "PacifiCorp Acquisitions Revolving Loan
Facility") (together, the "PacifiCorp Acquisitions Facility"). The PacifiCorp
Acquisitions Term Loan Facility is available for, INTER ALIA, (a) acquiring
Energy Group Securities, (b) refinancing certain outstanding indebtedness of the
TEG Group and (c) payment of costs incurred in connection with the Offer,
provided that the maximum amount of such facility that may be used to acquire
Energy Group Securities is L1,820 million. The PacifiCorp Acquisitions Revolving
Loan Facility is available for, INTER ALIA, (a) refinancing certain outstanding
indebtedness of the TEG Group and (b) the general corporate purposes of
PacifiCorp Acquisitions and its subsidiaries.
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The PacifiCorp Acquisitions Term Loan Facility consists of a two tranche
sterling term loan facility. The PacifiCorp Acquisitions Revolving Loan Facility
consists of a multicurrency advance and letter of credit facility. The final
maturity date of the PacifiCorp Acquisitions Facility is 3 February 2003.
Interest is calculated by reference to the London Inter-Bank offered rate
("LIBOR"), plus an applicable margin ranging from 0.50 per cent. to 1.30 per
cent. (depending on the level of gearing), and certain mandatory liquid asset
costs.
A debenture (the "Debenture") dated 3 February 1998 between PacifiCorp
Services Limited, PacifiCorp Finance (UK) Limited, PacifiCorp Acquisitions (the
"Chargors") and Citibank, N.A. as security agent provides that borrowings under
the PacifiCorp Acquisitions Facility Agreement (i) are secured by way of a
charge on the shares of PacifiCorp Finance (UK) Limited and PacifiCorp
Acquisitions and (ii) once members of the TEG Group are able to provide
financial assistance (as discussed in paragraph 10(e) below under "Proposed
reorganisation of coal operations"), will be guaranteed by The Energy Group,
Rollalong Limited, Rollalong Hire Limited, Eastern Group PLC and Peabody
Investments Inc. (the "Additional Chargors") and secured by way of a charge on
the shares of their directly-held subsidiaries. The Debenture also creates a
first floating charge on all the undertakings and assets of the Chargors and
Additional Chargors, with certain initial exceptions. The PacifiCorp
Acquisitions Facility Agreement also provides that, under certain circumstances,
The Energy Group and its subsidiaries may become direct borrowers thereunder.
(C) POWERCOAL FACILITY
A credit agreement dated as of 3 February 1998 (the "Powercoal Agreement")
has been entered into by (i) Powercoal as borrower, (ii) Citibank, N.A., Goldman
Sachs Credit Partners, L.P. and Morgan Guaranty Trust Company of New York, as
initial lenders, (iii) Citibank, N.A., as paying agent, swingline lender and
issuing bank, and (iv) Citicorp USA, Inc., as collateral agent, relating to a
$1,286 million two-tranche term loan facility (the "Powercoal Term Loan
Facility") and a $800 million revolving credit facility (the "Powercoal
Revolving Credit Facility") (together, the "Powercoal Facility") with a
sub-limit of $300 million for loans outstanding thereunder and a sub-limit of
$650 million for letters of credit issued thereunder . The Powercoal Term Loan
Facility, together with the proceeds of an equity contribution received by
Powercoal from PGHC, is available to fund loans (the "Powercoal/PA Loans") by
Powercoal to PacifiCorp Acquisitions and to pay fees and expenses related to the
Offer. The Powercoal/PA Loans will be evidenced by a loan note issued by
PacifiCorp Acquisitions in favour of Powercoal. The proceeds of the Powercoal/PA
Loans will be used by PacifiCorp Acquisitions to finance the Offer and to
refinance certain indebtedness of TEG and its subsidiaries. The Powercoal
Revolving Credit Facility is available to (i) refinance certain existing
indebtedness of the TEG Group and (ii) fund the general corporate purposes of
Powercoal and its subsidiaries.
Loans incurred under the Powercoal Term Loan Facility are to be repaid in
quarterly instalments over approximately six years in the case of borrowings
under one tranche of the Powercoal Term Loan Facility ("Tranche A Loans") and
seven years and six months, in the case of borrowings under the second tranche
("Tranche B Loans"). The final maturity date of the revolving credit facility is
3 February 2004. Interest on Tranche A Loans and loans under the Powercoal
Revolving Credit Facility is calculated, at the option of Powercoal, by
reference to (i) LIBOR plus an applicable margin ranging from 0.75 per cent. to
2.75 per cent., depending on the leverage ratio of Powercoal and its
consolidated subsidiaries as at the end of its most recent fiscal quarter (the
"Applicable Leverage Ratio") or (ii) a Base Rate (which is the greatest of an
announced Prime Rate and certain customary market rates) plus an applicable
margin ranging from zero to 1.75 per cent., depending on the Applicable Leverage
Ratio. Interest on Tranche B Loans is calculated by reference to (i) LIBOR plus
an applicable margin ranging from 2.00 per cent. to 3.25 per cent., depending on
the Applicable Leverage Ratio or (ii) the Base Rate plus an applicable margin
ranging from 1.00 per cent. to 2.25 per cent., depending on the Applicable
Leverage Ratio.
As a condition to the funding of the Powercoal Facility, PGHC will cause to
be transferred to Powercoal all of the stock of TPC Corporation ("TPC"), PGHC's
natural gas marketing subsidiary, and
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will make a cash equity contribution to Powercoal of not less than $373 million.
The Powercoal Facility initially will be guaranteed by TPC, and secured by (i)
all of the outstanding stock of each direct and indirect subsidiary of
Powercoal, including TPC, and certain of their subsidiaries, if any, and (ii)
the note evidencing the Powercoal/PA Loan. Additionally, following the transfer
of the Peabody Subsidiaries to Powercoal as described in paragraph 10(e) below
under "Proposed reorganisation of coal operations", the Powercoal Facility will
be secured by the stock of Peabody Holding and certain of its subsidiaries and
Peabody Holding and certain of its subsidiaries will guarantee Powercoal's
obligations under the Powercoal Facility.
(D) ENERGYCO FACILITY
A credit agreement dated as of 3 February 1998 (the "EnergyCo Agreement")
has been entered into by (i) PGHC as guarantor, (ii) PacifiCorp EnergyCo
("EnergyCo") as borrower, (iii) Citibank, N.A., Goldman Sachs Credit Partners,
L.P. and Morgan Guaranty Trust Company of New York, as initial lenders, (iv)
Citibank, N.A., as paying agent and as issuing bank, and (v) Citicorp USA, Inc.,
as collateral agent, relating to a $1,500 million (or the sterling equivalent)
term loan facility (the "EnergyCo Term Loan Facility") and a $400 million (or
the sterling equivalent) revolving credit facility (the "EnergyCo Revolving
Credit Facility") (together, the "EnergyCo Facility"). The proceeds of the
EnergyCo Term Loan Facility is available to provide PacifiCorp Acquisitions,
through certain of EnergyCo's subsidiaries, with funds to finance, in part, the
Offer and to pay fees and expenses related to the Offer. The EnergyCo Revolving
Credit Facility also is available for the ordinary working capital needs of
EnergyCo, PGHC and their respective subsidiaries.
The final maturity date of the EnergyCo Facility is 18 months after the date
of the initial borrowing under the facility. Interest on loans under the
EnergyCo Facility is calculated, at the option of EnergyCo, by reference to (i)
LIBOR plus an applicable margin of either 2.25 per cent. or 2.75 per cent.,
depending on the credit ratings of the EnergyCo Facility on the date of the
initial borrowing under the facility (the "Applicable Rating") or (ii) a Base
Rate (which is the greatest of an announced Prime Rate and certain customary
market rates) plus an applicable margin of either 1.25 per cent. or 1.75 per
cent., depending on the Applicable Rating.
As a condition to the funding of the EnergyCo Facility, PGHC will make a
cash equity contribution to EnergyCo of approximately $606 million. EnergyCo's
obligations under the EnergyCo Facility will be guaranteed by PGHC. If PGHC
transfers the capital stock of EnergyCo to a newly formed subsidiary, such
subsidiary will also guarantee EnergyCo's obligations under the EnergyCo
Facility. The EnergyCo Facility will be secured by (i) the pledge of (a) all of
the outstanding stock of EnergyCo and any other subsidiary of PGHC that may in
the future own capital stock of EnergyCo, (b) all of PGHC's member interests in
Powercoal, (c) PGHC's participation interest in a certain note (the "Spring
Creek Note") in the principal amount of $225 million from Spring Creek Coal
Company, and (d) certain other assets, and (ii) the pledge by two subsidiaries
of PGHC of all of the membership interests in the subsidiary that holds PGHC's
Australian operations.
(E) PROPOSED REORGANISATION OF COAL OPERATIONS
Following the purchase of Energy Group Securities in the Offer, PacifiCorp
Acquisitions has agreed to procure the transfer of the Peabody Subsidiaries to
Powercoal. The transfer of the Peabody Subsidiaries is intended primarily to
segregate the Enlarged Group's coal interests from its interests in electricity
generation and distribution, and, in so doing, achieve a more efficient
financing and operating structure. Such transfer is required by the terms of the
PacifiCorp Acquisitions Facility, the EnergyCo Facility and the Powercoal
Facility to take place within 270 days of the initial borrowing under either of
those facilities. To effect the transfer, PacifiCorp Acquisitions will first
acquire the Peabody Subsidiaries from another TEG Group subsidiary in exchange
for an unsecured subordinated interest bearing five-year note containing
commercially reasonable terms and valued at an amount not materially less than
the then fair market value of the Peabody Subsidiaries. PacifiCorp Acquisitions
will then transfer the Peabody Subsidiaries to Powercoal in exchange for the
cancellation of the Powercoal/PA Loan.
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Following the purchase of Energy Group Securities in the Offer, Peabody
Investments, Inc. may sell or transfer Citizens Power to PGHC or a subsidiary
thereof. It will also form a new US subsidiary, to which it will contribute Gold
Fields Mining Company (which owns Lee Ranch Coal Company) in return for equity.
Each of the PacifiCorp Acquisitions Facility, the EnergyCo Facility and the
Powercoal Facility includes a condition that PacifiCorp Acquisitions may not
reduce the percentage of Energy Group Securities required to satisfy the
Acceptance Condition without the consent of a majority of the lending banks in
each such Facility (including the 3 original lenders), which consent may not be
unreasonably withheld or delayed if it is shown to the reasonable satisfaction
of such lenders that PacifiCorp Acquisitions will achieve acceptances sufficient
to enable it to give notice under section 429 of the Companies Act (the
"Compulsory Acquisition Procedure") in relation to the Energy Group Securities
to which the Offer relates. See paragraph 11 of this Appendix V ("Compulsory
acquisition") below.
If all Conditions are satisfied, fulfilled or, where permitted, waived and
PacifiCorp Acquisitions effects the Compulsory Acquisition Procedure in respect
of all outstanding Energy Group Securities in accordance with the relevant
procedures and time limits described in sections 428 to 430F of the Companies
Act (thereby causing The Energy Group to become a wholly-owned subsidiary of
PacifiCorp Acquisitions), PacifiCorp Acquisitions will be required to procure
the transfer of the Peabody Subsidiaries to Powercoal, on the basis indicated
above, and to procure that certain other steps are taken which may involve the
provision of financial assistance by members of the TEG Group to members of the
PacifiCorp Group (subject to compliance, where necessary, with the procedures
set out in sections 155 to 158 of the Companies Act (the so-called "whitewash"
procedures, which are referred to in more detail below)).
If all Conditions are satisfied, fulfilled or, where permitted, waived and
PacifiCorp Acquisitions acquires or contracts to acquire, pursuant to the Offer
or otherwise, Energy Group Securities giving it more than 75 per cent. of voting
rights at general meetings of The Energy Group, but PacifiCorp Acquisitions is
not in a position to effect the Compulsory Acquisition Procedure in respect of
all outstanding Energy Group Securities in accordance with the relevant
procedures and time limits of the Companies Act referred to above, PacifiCorp
Acquisitions intends to seek to procure the making of an application by The
Energy Group to the London Stock Exchange for the Energy Group Shares to be
delisted and the making of an application by The Energy Group to the New York
Stock Exchange for Energy Group ADSs to be delisted. PacifiCorp Acquisitions
further intends that, subject to the London Stock Exchange delisting taking
place, it will procure the transfer of the Peabody Subsidiaries to Powercoal and
the provision of financial assistance by members of the TEG Group, as described
in the previous paragraph, subject to compliance, where necessary, with the
whitewash procedures.
In order to operate the whitewash procedures, it would be necessary to
procure the passing of special resolutions of The Energy Group and, depending on
the circumstances, of appropriate subsidiaries, and to satisfy certain other
requirements set out in the Companies Act. Such requirements are designed to
protect creditors and shareholders of the TEG Group. If PacifiCorp Acquisitions
acquires Energy Group Securities giving it 75 per cent. or more of the voting
rights at general meetings of The Energy Group, it will have sufficient votes to
approve such special resolutions. PacifiCorp Acquisitions also expects to be
able to satisfy the other statutory requirements. The Companies Act gives
dissenting shareholders (constituting specified minimum numbers or proportions
of shareholders) the right to apply to court for cancellation of the special
resolution required by the whitewash procedures.
11 COMPULSORY ACQUISITION
If, within four months after the date of this document, as a result of the
Offer or otherwise, PacifiCorp Acquisitions acquires or contracts to acquire
Energy Group Shares representing at least 90 per cent. in value of Energy Group
Shares to which the Offer relates, then (a) PacifiCorp Acquisitions will be
entitled and intends to effect the compulsory acquisition procedures provided
for in sections 428 to 430F of the Companies Act to compel the purchase of any
outstanding Energy Group Shares on the same terms as provided in the Offer in
accordance with the relevant procedures and time limits described in such Act,
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and (b) a holder of Energy Group Shares may require PacifiCorp Acquisitions to
purchase his Energy Group Shares on the same terms as provided in the Offer in
accordance with the relevant procedures and time limits described in section
430A of the Companies Act.
If for any reason the above-mentioned compulsory acquisition procedures are
not invoked, PacifiCorp Acquisitions will evaluate other alternatives to obtain
the remaining Energy Group Shares not purchased pursuant to the Offer or
otherwise. Such alternatives could include acquiring additional Energy Group
Securities in the open market, in privately negotiated transactions, through
another offer to purchase, by means of a scheme of arrangement under the
Companies Act or otherwise. Any such additional acquisitions could be for a
consideration greater or less than, or equal to, the consideration for Energy
Group Securities under the Offer. However, under the City Code, except with the
consent of the Panel, PacifiCorp Acquisitions may not acquire any Energy Group
Securities on better terms than those of the Offer within six months of the
termination of the Offer if PacifiCorp Acquisitions, together with any persons
acting in concert with it (as defined by the City Code), holds shares carrying
more than 50 per cent. of the voting rights normally exercisable at general
meetings of The Energy Group.
Holders of Energy Group Securities do not have appraisal rights as a result
of the Offer. However, in the event that the compulsory acquisition procedures
referred to above are available to PacifiCorp Acquisitions, holders of Energy
Group Securities whose Energy Group Securities have not been purchased pursuant
to the Offer will have certain rights to object under section 430C of the
Companies Act.
12 CERTAIN CONSEQUENCES OF THE OFFER
(A) MARKET EFFECT
The purchase of Energy Group Securities pursuant to the Offer will reduce
the number of holders of Energy Group Securities and the number of the Energy
Group Securities that might otherwise trade publicly and, depending upon the
number of Energy Group Securities so purchased, could adversely affect the
liquidity and market value of the remaining Energy Group Securities held by the
public. In addition, Energy Group Shares will cease to be listed on the London
Stock Exchange and Energy Group ADSs will cease to be listed on the New York
Stock Exchange if PacifiCorp Acquisitions completes the compulsory acquisition
procedures referred to in paragraph 11 above. Moreover, in the circumstances
referred to in paragraph 10(e) ("Proposed reorganisation of coal operations")
above, PacifiCorp Acquisitions intends to seek the delisting of the Energy Group
Shares from the London Stock Exchange and intends to seek the delisting of the
Energy Group ADSs from the New York Stock Exchange. If PacifiCorp Acquisitions
does not seek such delistings in those circumstances, the Energy Group
Securities may nevertheless no longer be eligible for continued listing on such
exchanges.
(B) PUBLIC AVAILABILITY OF INFORMATION
In the event that Energy Group Shares continue to be listed on the London
Stock Exchange following the purchase of Energy Group Securities pursuant to the
Offer, holders of Energy Group Shares who have not tendered their Energy Group
Shares pursuant to the Offer will continue to receive the same financial and
other information from The Energy Group that The Energy Group presently is
required by the rules of the London Stock Exchange to send to such holders. If
Energy Group Shares are no longer listed on the London Stock Exchange following
the Offer, The Energy Group would no longer be required by those rules to make
publicly available such financial and other information.
Energy Group ADSs currently are registered under the Exchange Act.
Registration of such Energy Group ADSs may be terminated upon application of The
Energy Group to the SEC if Energy Group ADSs are neither listed on a national
securities exchange nor held by 300 or more beneficial owners in the US.
Termination of registration of Energy Group ADSs under the Exchange Act would
substantially reduce the information required to be furnished by The Energy
Group to holders of Energy Group ADSs and to the SEC and would make certain
provisions of the Exchange Act, such as the requirements of Rule 13e-3
thereunder with respect to "going private" transactions, no longer applicable to
The Energy Group. Furthermore, "affiliates" of The Energy Group and persons
holding "restricted securities" of The Energy
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Group may be deprived of the ability to dispose of such securities pursuant to
Rule 144 promulgated under the Securities Act. If, as a result of the purchase
of Energy Group ADSs pursuant to the Offer and prior to completing the
compulsory acquisition procedures referred to in paragraph 9 above, The Energy
Group is not required to maintain registration of Energy Group ADSs under the
Exchange Act, PacifiCorp Acquisitions intends to cause The Energy Group to apply
for termination of such registration. If registration of Energy Group ADSs is
not terminated prior to completion of the aforementioned compulsory acquisition
procedures, then Energy Group ADSs will cease trading on the New York Stock
Exchange and the registration of Energy Group ADSs under the Exchange Act would
be terminated following completion of the aforementioned compulsory acquisition
procedures.
(C) MARGIN SECURITIES
Energy Group ADSs currently are "margin securities" under the regulations of
the Board of Governors of the US Federal Reserve System, which status has the
effect, among other things, of allowing US brokers to extend credit on the
collateral of Energy Group ADSs for purposes of buying, carrying and trading in
securities ("Purpose Loans"). Depending on factors such as the number of holders
of record of Energy Group ADSs and the number and market value of publicly held
Energy Group ADSs following the purchase of Energy Group Securities pursuant to
the Offer, it is possible that Energy Group ADSs would no longer be eligible for
listing on the New York Stock Exchange. As a result, Energy Group ADSs might no
longer constitute margin securities and, therefore, could no longer be used as
collateral for Purpose Loans made by US brokers.
13 LEGAL AND REGULATORY MATTERS
(A) GENERAL
Except as set out herein and other than the requirement to comply with the
Panel's requirements in relation to the City Code and with US securities laws,
PacifiCorp Acquisitions is not aware of (i) any licence or regulatory permit
that appears to be material to the business of the TEG Group taken as a whole,
which might be adversely affected by PacifiCorp Acquisitions' acquisition of
Energy Group Securities as contemplated herein, or (ii) any approval or other
action by any domestic or foreign governmental, administrative or regulatory
agency or authority that appears to be material to the TEG Group taken as a
whole, and required for the acquisition or ownership of Energy Group Securities
by PacifiCorp Acquisitions as contemplated herein. Should any such approval or
other action be required, PacifiCorp Acquisitions currently contemplates that
such approval or other action would be sought. There can be no assurance that
any such approval or other action, if needed, would be obtained without
substantial conditions being attached thereto or that failure to obtain any such
approval or other action might not result in consequences adverse to The Energy
Group's business.
(B) UK REGULATION
The Offer gives rise to a merger situation qualifying for investigation
under section 75 of the Fair Trading Act 1973. Eastern and its subsidiary
companies hold licences issued under the Electricity Act 1989 and are regulated
by OFFER. The Previous Offer made by PacifiCorp Acquisitions for The Energy
Group on 30 June 1997 was subject to an investigation by the Monopolies and
Mergers Commission. The Monopolies and Mergers Commission found that the
Previous Offer was expected not to operate against the public interest in the
light of certain assurances agreed with the DGES. The President of the Board of
Trade confirmed on 19 December 1997 that in an offer for The Energy Group, she
would expect PacifiCorp to honour the assurances it had agreed. PacifiCorp has
agreed to do so.
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(C) US ANTITRUST LAWS
The Offer is subject to the US HSR Act, which provides that certain
acquisition transactions may not be consummated until certain information has
been furnished to the Antitrust Division of the Department of Justice (the
"Antitrust Division") and the Federal Trade Commission (the "FTC"). Pursuant to
the US HSR Act, PacifiCorp filed a Notification and Report Form relating to the
Previous Offer with the Antitrust Division and the FTC on 1 July 1997. No
additional filing is required under the US HSR Act with respect to the Offer. On
16 July 1997, the FTC requested additional information from PacifiCorp which had
the effect of extending the waiting period under the US HSR Act until ten
calendar days after the date of substantial compliance with such request.
PacifiCorp certified that it substantially complied with the request for
information on December 19, 1997. The FTC staff has advised PacifiCorp that it
does not intend to contest that certification. However, PacifiCorp has agreed
with the FTC that it will not consummate the Offer until the earlier of 20
February 1998 and acceptance by the FTC of the Consent Order described in the
following paragraph, thereby effectively extending the waiting period under the
US HSR Act. On 30 January 1998, PacifiCorp provided the FTC with the notice
required to commence this final 20-day waiting period.
The FTC and the Antitrust Division frequently scrutinise the legality under
the US antitrust laws of transactions such as the proposed acquisition of Energy
Group Securities by PacifiCorp Acquisitions. Following its review of information
submitted under the US HSR Act, the FTC requested that PacifiCorp and The Energy
Group take certain actions to comply with US antitrust laws. PacifiCorp and The
Energy Group have agreed to the issuance of a consent order (the "Consent
Order") by the FTC which will, among other things, require PacifiCorp, if it
acquires control of The Energy Group, to divest Peabody Western Coal Company, a
subsidiary of The Energy Group that owns two coal mines in Arizona, no later
than nine months after the date (the "Acquisition Date") the PacifiCorp Group
acquires more than five per cent. of the Energy Group Securities, subject to
certain extensions. The Consent Order will also preclude Peabody from sharing
any non-public information obtained in its capacity as coal supplier to four
power plants with other entities in the Enlarged Group. If the Acquisition Date
does not occur within six months of the date the Consent Order becomes final,
PacifiCorp has agreed with the FTC to divest within one year of the date the
Consent Order becomes final all Energy Group Securities the PacifiCorp Group may
own in excess of $15 million. Whether or not the Acquisition Date occurs, the
Consent Order will expire thirty days after PacifiCorp notifies the FTC of the
abandonment of the Acquisition and sells all Energy Group Securities it may own
in excess of $15 million. If the Offer lapses, is withdrawn, or terminates,
PacifiCorp has agreed with The Energy Group to take the actions necessary to
cause the expiration of the Consent Order within 90 days thereafter.
The form of the Consent Order has been agreed with the staff of the FTC and
is awaiting acceptance by the FTC. If the Consent Order is accepted by the FTC
(expected to occur by 19 February 1998), the waiting period under the US HSR Act
will immediately expire and the Consent Order will be published for public
comment. Furthermore, PacificCorp has agreed that it will not invoke either
Condition (d) or (e) even if the FTC amends the terms of the form of the Consent
Order agreed with FTC staff. Following the required 60-day comment period, the
Consent Order will be served upon the parties unless the FTC determines
otherwise. The Consent Order will become final upon service.
Notwithstanding the agreement of PacifiCorp and The Energy Group to the
Consent Order, at any time before or after the purchase of Energy Group
Securities, the FTC or the Antitrust Division could take such action under the
US antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the purchase of Energy Group Securities pursuant to
the Offer, or seeking divestiture of Energy Group Securities purchased by
PacifiCorp Acquisitions or the divestiture of substantial assets of PacifiCorp,
The Energy Group or their respective subsidiaries. Private parties may also
bring legal action under the US antitrust laws in certain circumstances. There
can be no assurance that a challenge to the Offer on US antitrust grounds will
not be made or, if such a challenge is made, of the result.
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<PAGE>
(D) US POWER MARKETING REGULATION
Certain subsidiaries (the "Power Subsidiaries") of Citizens Power, an
indirect wholly-owned subsidiary of The Energy Group, are engaged in market-rate
based electric power marketing in the US or otherwise hold public utility assets
that are subject to the jurisdiction of the FERC. In a number of similar recent
situations, including the acquisition of Citizens Power by The Energy Group,
FERC has asserted that a transfer of control of a licensed power marketer
requires FERC approval under section 203 of the US Federal Power Act.
Accordingly, the FERC could assert that any transfer of control of the Power
Subsidiaries resulting from completion of the Offer requires FERC approval.
However, PacifiCorp and PacifiCorp Acquisitions have indicated to The Energy
Group that they do not desire to acquire control of the Power Subsidiaries. As a
result, Citizens Power has entered into a Memorandum of Understanding with
Lehman Brothers Holdings, Inc. ("Lehman") to sell the Power Subsidiaries to
Lehman, with such sale conditional only upon the completion of the Offer and
FERC approval. Application for approval of the sale of the Power Subsidiaries to
Lehman has been made to the FERC, and the Offer is conditional upon FERC
approval of such sale. In the event that all the Conditions are not satisfied,
fulfilled or, where permitted, waived, Citizens Power will retain the Power
Subsidiaries.
(E) AUSTRALIAN FOREIGN INVESTMENT REVIEW
The acquisition by PacifiCorp Acquisitions pursuant to the Offer of indirect
ownership of Peabody Australia's coal operations is subject to the Foreign
Acquisitions and Takeovers Act 1975 of Australia. Under that Act, the Treasurer
of Australia has broad powers to prohibit or place conditions on the acquisition
of interests in Australian business operations by foreign investors if such
acquisitions are found to be contrary to the national interest. If a
notification of a proposed acquisition is made to the Australian Foreign
Investment Review Board, the Treasurer is precluded from taking any action with
respect to the acquisition after the expiration of a 40-day review period,
although this period may be extended for up to 90 additional days. PacifiCorp
Acquisitions has notified the Foreign Investment Review Board of the proposed
acquisition.
(F) US COAL LEASING REQUIREMENTS
Both PacifiCorp and Peabody hold coal leases on properties owned by the
United States. The US Coal Leasing Act imposes limitations on the acreage that
any one affiliated group can lease from the United States. Upon consummation of
the Offer, the Enlarged Group's US coal lease holdings will exceed those acreage
limitations. Although PacifiCorp and Peabody have not yet identified the
specific leases to be relinquished or disposed of, PacifiCorp Acquisitions
believes the Enlarged Group will be able to relinquish or dispose of sufficient
leases to reduce its holdings below the applicable acreage limitations without
materially interfering with planned operations.
(G) US STATE TAKEOVER LAWS
A number of states of the US have adopted takeover laws and regulations
which purport, in varying degrees, to be applicable to attempts to acquire
securities of corporations which have substantial assets, shareholders,
principal executive offices or principal places of business in such states.
PacifiCorp Acquisitions believes that no such US state takeover statutes apply
to the Offer and PacifiCorp Acquisitions has not attempted to comply with any
such US state takeover statutes in connection with the Offer. PacifiCorp
Acquisitions reserves the right to challenge the validity or applicability of
any US state law allegedly applicable to the Offer and nothing in this document
nor any action taken in connection herewith is intended as a waiver of that
right. In the event that any US state takeover statute is asserted to be
applicable to the Offer and an appropriate court does not determine that such
law or regulation is not applicable to the Offer, PacifiCorp Acquisitions might
be required to file certain information with, or to receive approvals from, the
relevant US state authorities and might be unable to purchase Energy Group
Securities pursuant to the Offer or be delayed in continuing or consummating
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<PAGE>
the Offer. In such case, PacifiCorp Acquisitions may not be obliged to purchase
such Energy Group Securities.
(H) LAWS OF OTHER JURISDICTIONS
The Energy Group and certain of its subsidiaries conduct business in certain
countries in addition to the UK and the US where regulatory filings or approvals
may be required in connection with the Offer. Certain of such filings or
approvals, if required, may not be made or obtained prior to the expiry of the
Offer. There is no assurance that any such approvals would be obtained or that
adverse consequences to PacifiCorp's or The Energy Group's business might not
result from a failure to obtain such approvals or from conditions that might be
imposed in connection therewith.
14 UNITED KINGDOM TAXATION
THE FOLLOWING PARAGRAPHS, WHICH ARE INTENDED AS A GENERAL GUIDE ONLY, ARE
BASED ON CURRENT UK LEGISLATION AND INLAND REVENUE PRACTICE. THEY SUMMARISE
CERTAIN LIMITED ASPECTS OF THE UK TAXATION TREATMENT OF ACCEPTANCE OF THE OFFER
AND THE ELECTION FOR THE LOAN NOTE ALTERNATIVE, AND THEY RELATE ONLY TO THE
POSITION OF HOLDERS OF ENERGY GROUP SHARES WHO ARE THE BENEFICIAL OWNERS OF
THEIR ENERGY GROUP SHARES, WHO HOLD THEIR ENERGY GROUP SHARES AS AN INVESTMENT
(OTHERWISE THAN UNDER A PERSONAL EQUITY PLAN), AND (EXCEPT INSOFAR AS EXPRESS
REFERENCE IS MADE TO THE TREATMENT OF NON-UK RESIDENTS) WHO ARE RESIDENT OR
ORDINARILY RESIDENT IN THE UK FOR TAX PURPOSES. SHAREHOLDERS WHO ARE IN ANY
DOUBT AS TO THEIR TAXATION POSITION OR WHO ARE SUBJECT TO TAXATION IN ANY
JURISDICTION OTHER THAN THE UK, SHOULD CONSULT AN APPROPRIATE PROFESSIONAL
ADVISER.
(A) TAXATION OF CHARGEABLE GAINS
Liability to UK taxation on chargeable gains ("CGT") will depend on the
particular circumstances of holders of Energy Group Shares and on the form of
consideration received.
(I) CASH
To the extent that a holder of Energy Group Shares receives cash under the
Offer, this will constitute a disposal, or part disposal, of his Energy Group
Shares for CGT purposes. Such a disposal, or part disposal, may, depending on
that shareholder's individual circumstances, give rise to a liability to CGT.
(II) LOAN NOTES
A holder of Energy Group Shares who, together with persons connected with
him, holds not more than five per cent. of the issued share capital of The
Energy Group, will not be treated as making a disposal to the extent he elects
for and receives Loan Notes by way of consideration. In the case of a
shareholder who is an individual, the Loan Notes should not constitute
"qualifying corporate bonds" for tax purposes. Accordingly, any gain or loss
which would otherwise have arisen on a disposal of his Energy Group Shares will
be "rolled over" into the Loan Notes and the Loan Notes will be treated as the
same asset as his Energy Group Shares acquired at the same time and price as his
Energy Group Shares. Indexation relief will continue to accrue during the period
of ownership of the Loan Notes. In the case of a shareholder within the charge
to UK corporation tax, the Loan Notes will constitute "qualifying corporate
bonds" so that any gain or loss which would otherwise have arisen on a disposal
of its Energy Group Shares will be calculated and "held over" until it
subsequently disposes of the Loan Notes and indexation relief will not accrue on
the Loan Notes.
A holder of Energy Group Shares who, together with persons connected with
him, holds more than five per cent. of the issued share capital of The Energy
Group is advised that an application has been made for clearance under section
138 of the Taxation of Chargeable Gains Act 1992, but the Inland
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Revenue has not yet formally replied. Subject to the granting of this clearance,
any such holder of Energy Group Shares will be treated in the manner described
in the previous paragraph.
A subsequent disposal of Loan Notes (including their redemption or
repayment) may give rise to a chargeable event for CGT purposes.
(III) NON-UK RESIDENT HOLDERS OF ENERGY GROUP SECURITIES
Holders of Energy Group Securities who are not resident or ordinarily
resident for tax purposes in the UK may be liable to CGT on capital gains
realised on the disposal of their Energy Group Shares or Energy Group ADSs if
such shares or ADSs are used, held or acquired for the purposes of a trade,
profession or vocation carried on in the UK through a branch or agency or for
the purposes of such branch or agency. Such holders may be subject to foreign
taxation on any gain under local law.
(B) TAXATION OF LOAN NOTES--INCOME
(I) WITHHOLDING TAX
Payments of interest on the Loan Notes will be made subject to the deduction
of UK income tax at the lower rate (currently 20 per cent.) unless PacifiCorp
Acquisitions has been directed by the Inland Revenue, in respect of a particular
holding of Loan Notes, to make the payment free from deduction or subject to a
reduced rate of deduction (by virtue of relief under the terms of an applicable
double taxation agreement). Such a direction will only be made following an
application in the appropriate manner to the relevant tax authorities by the
holder of the relevant Loan Notes. Payments of interest may also be subject to
withholding of US federal income tax in certain circumstances. Please refer to
paragraph 15(b) below.
(II) INDIVIDUALS
Subject to the above, the gross amount of such interest will form part of
the recipient's income for the purposes of UK income tax, credit being allowed
for the tax withheld. Individuals who are taxable only at the lower or basic
rate will have no further tax to pay in respect of the interest. In certain
cases, holders of Loan Notes may be able to recover an amount in respect of the
credit from the Inland Revenue.
Under the "accrued income scheme" a transfer of Loan Notes may also give
rise to a charge to UK income tax in respect of an amount representing interest
on the Loan Notes which has accrued since the preceding interest payment date.
(III) CORPORATES
Holders of Loan Notes within the charge to UK corporation tax in respect of
the Loan Notes will generally bring into the charge to tax as income, interest
on, profits and gains arising from and fluctuations in the value of, the Loan
Notes in each accounting period broadly in accordance with the accounting
treatment of such holders authorised for this purpose.
(C) GENERAL
Special tax provisions may apply to holders of Energy Group Shares who have
acquired or acquire their Energy Group Shares by exercising options under the
Energy Group Share Schemes, including provisions imposing a charge to income
tax.
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(D) STAMP DUTY AND STAMP DUTY RESERVE TAX ("SDRT")
These comments are intended as a guide to the general position and do not
relate to persons such as intermediaries and persons connected with depositary
arrangements or clearance services, to whom special rules apply.
(I) ACCEPTANCE OF THE OFFER
No stamp duty or SDRT will be payable by holders of Energy Group Shares as a
result of accepting the Offer.
(II) LOAN NOTES
Under current Inland Revenue practice, no stamp duty or SDRT will be payable
on a transfer or sale of (or an agreement to transfer or sell) Loan Notes.
15 UNITED STATES FEDERAL INCOME TAXATION
(A) UNITED STATES RESIDENTS
The following paragraphs address certain United States federal income tax
consequences applicable to holders of Energy Group Securities that are citizens
or residents of the United States, United States domestic corporations or
otherwise taxable as United States residents. This summary is based on the
Internal Revenue Code of 1986, as amended (the "Code"), administrative
pronouncements, judicial decisions and existing and proposed Treasury
Regulations, changes to any of which (which may be retroactive) may affect the
tax consequences described herein. This summary assumes that the Energy Group
Securities have been held as capital assets. It does not address the tax
treatment of individuals who have received Energy Group Securities in connection
with employment, such as by the exercise of options granted to employees. This
summary also assumes that The Energy Group is not and has never been either a
passive foreign investment company or a controlled foreign corporation for US
federal income tax purposes. This summary does not discuss all tax consequences
that may be relevant to a holder of Energy Group Securities in the light of such
holder's particular circumstances or to holders subject to special rules, such
as certain financial institutions, regulated investment companies, insurance
companies, dealers in securities, exempt organisations, persons holding Energy
Group Securities as part of a hedge, straddle or conversion transaction and
holders that are residents of countries other than the United States or whose
functional currency is not the United States dollar.
In general, a holder of Energy Group Securities that sells such securities
pursuant to the Offer will, for United States federal income tax purposes,
recognise gain or loss equal to the difference between such holder's adjusted
tax basis in the Energy Group Securities transferred and the amount realized in
exchange therefor. Such gain or loss generally will be capital gain or loss.
Under the US Taxpayer Relief Act of 1997, an individual taxpayer who has held a
capital asset for more than 18 months generally will be taxed on gain from the
sale of that asset at a maximum rate of 20 per cent. A 28 per cent. maximum rate
generally applies to the sale of a capital asset held more than one year but not
more than 18 months. In addition, an accrual basis holder of Energy Group
Securities that sells such securities pursuant to the Offer and does not elect
to be treated as a cash basis taxpayer pursuant to the foreign currency exchange
regulations may have a foreign currency exchange gain or loss for United States
federal income tax purposes because of differences between the US dollars/pounds
sterling exchange rates prevailing on the date of sale and on the date of
payment. Any such currency gain or loss would be treated as ordinary income or
loss and would be in addition to gain or loss realised by the holder on the
disposition of Energy Group Securities pursuant to the Offer.
A holder of Energy Group Securities may be subject to US back-up federal
income tax withholding with respect to the cash payment if (i) the holder fails
to furnish a taxpayer identification number ("TIN")
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to the payer or establish an exemption from back-up withholding, (ii) the US
Internal Revenue Service notifies the payer that the TIN furnished by the holder
is incorrect, (iii) there has been a notified payee underreporting with respect
to interest or dividends described in section 3406(c) of the Code, or (iv) there
is a failure of the holder to certify under the penalty of perjury that the
holder is not subject to withholding as described in section 3406 of the Code.
To prevent back-up withholding on any cash payment delivered pursuant to the
Offer, each holder of Energy Group ADSs that accepts the Offer by means of the
Letter of Transmittal and each holder of Energy Group Shares that accepts the
Offer by sending the Form of Acceptance to the US Depositary must provide the US
Depositary with that holder's correct taxpayer identification number and certify
that the holder is not subject to US back-up federal income tax withholding by
completing the Substitute Form W-9 included in the Letter of Transmittal or Form
of Acceptance, or, if the holder is a non-resident alien or foreign entity for
US federal income tax purposes, establish an exemption from US back-up federal
income tax withholding by completing a Form W-8, Certificate of Foreign Status,
a copy of which is available, upon request, from either the US Depositary or the
US Internal Revenue Service.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS INTENDED TO
BE ONLY A SUMMARY OF THE PRINCIPAL UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS OF THE OFFER. EACH HOLDER OF ENERGY GROUP SECURITIES SHOULD
CONSULT THE HOLDER'S OWN TAX ADVISER CONCERNING THE UNITED STATES FEDERAL AND
APPLICABLE STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE OFFER.
(B) UNITED STATES TAX TREATMENT OF LOAN NOTES
For United States federal income tax purposes, PacifiCorp Acquisitions is
treated as part of a US domestic corporation. To prevent United States
withholding tax on interest payments on the Loan Notes, holders of Energy Group
Shares that elect for the Loan Note Alternative may be required to certify that
they are not US persons, on a US Internal Revenue Service Form W-8 or other
statement meeting the requirements of section 871(h) of the Code. Persons
holding beneficial interests in Loan Notes indirectly through other holders
(e.g., partners in a UK partnership) may be required to provide such
certification in order to prevent withholding on interest paid to the holder.
For holders of Energy Group Shares that elect for the Loan Note Alternative, but
that do not provide the appropriate certification, the gross amount of payments
of interest on Loan Notes will be subject to withholding of US federal income
tax at the rate of 30 per cent. for non-US holders. A US income tax treaty may
apply to reduce or eliminate withholding. To claim the benefit of a tax treaty,
the holder must provide certification as required by US Internal Revenue Service
regulations.
16 FEES AND EXPENSES
Pursuant to a letter from Goldman, Sachs & Co. dated 26 March 1997 and
addressed to PacifiCorp, as amended by the letter agreement, dated 23 January
1998 between them (together the "Engagement Letter"), Goldman, Sachs & Co. is
acting as financial adviser to PacifiCorp in connection with the Offer. Pursuant
to the terms of the Engagement Letter, Goldman, Sachs & Co. will receive
$13,320,000 as compensation for its services as financial adviser to PacifiCorp
together with reimbursement for its reasonable out of pocket expenses, assuming
that PacifiCorp acquires at least 50 per cent. of the Energy Group Securities or
50 per cent. of the assets of The Energy Group. In addition, PacifiCorp has
agreed to indemnify Goldman, Sachs & Co. and its affiliates including Goldman
Sachs International and certain others against, inter alia, certain losses and
expenses arising out of the engagement or performance by Goldman, Sachs & Co. of
its duties to advise and assist PacifiCorp in connection with the Offer,
including liabilities under the US federal securities laws.
The various capacities in which Goldman, Sachs & Co. and its affiliates have
acted in connection with the Offer and the transactions contemplated thereby
include arranger in connection with the bank facilities described in paragraph
10 of this Appendix V. Pursuant to the terms of the Engagement Letter,
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PacifiCorp shall offer Goldman, Sachs & Co. (i) the right to participate in and
be considered for the position of lead manager or lead placement agent on any
public or private offerings of debt securities relating to the Offer and the
transactions contemplated thereby which are rated less than investment grade and
occur within one year of the consummation of the Offer; (ii) the right to
participate in and be considered for the position of lead manager or lead
placement agent in any public or private offerings of debt securities of Eastern
within one year of the consummation of the Offer; and (iii) the right to act as
lead manager or lead placement agent in any public or private offerings of
common equity by PacifiCorp occurring within one year after the Offer and the
transactions contemplated thereby. In connection with the foregoing, if Goldman,
Sachs & Co. agrees to act in such capacity, it will enter into an appropriate
form of underwriting, placement agency, engagement or other agreement relating
to the type of transaction involved and containing customary terms and
conditions, including customary fee provisions and provisions relating to
indemnity.
Pursuant to a letter dated 3 February 1998 (the "US Dealer Manager
Agreement"), PacifiCorp Acquisitions and PGHC, have retained Goldman, Sachs &
Co., as US Dealer Manager for the Offer in the United States to perform those
services in connection with the Offer as are customarily performed in the United
States by investment banking concerns acting as dealer manager in connection
with offers of a like nature. Goldman, Sachs & Co. will not receive additional
compensation for acting in this capacity. Under the terms of the US Dealer
Manager Agreement, PGHC has agreed to indemnify Goldman, Sachs & Co. and certain
other persons against certain liabilities and expenses which may be incurred in
connection with the Offer including liabilities under the US federal securities
laws.
PacifiCorp Acquisitions has retained IRG plc as the UK Receiving Agent,
Continental Stock Transfer & Trust Company as the US Depositary, and Shareholder
Communications Corporation as the Information Agent. PacifiCorp Acquisitions
will pay the UK Receiving Agent, the US Depositary and the Information Agent
reasonable and customary compensation for their services in connection with the
Offer, together with reimbursement of out of pocket expenses. PacifiCorp will
indemnify the US Depositary and the Information Agent against certain
liabilities and expenses in connection therewith, including liabilities under
the US federal securities laws. Brokers, dealers, commercial banks and trust
companies will be reimbursed by PacifiCorp for customary mailing and handling
expenses incurred by them in forwarding material to their customers.
PacifiCorp and PacifiCorp Acquisitions will not pay any fees or commissions
to any broker or dealer or any other person for soliciting acceptances of the
Offer (other than to Goldman Sachs International, Goldman, Sachs & Co., and the
Information Agent, as described above).
Lazard and Morgan Stanley are acting as The Energy Group's financial
advisers in connection with the Offer. Pursuant to a letter agreement dated 5
June 1997 between The Energy Group and Lazard, The Energy Group made an initial
payment to Lazard of L1.5 million upon announcement of the Previous Offer, a
further fee of L1.0 million upon announcement of this Offer and has agreed to
pay an additional fee of L5.8 million upon the Offer becoming wholly
unconditional. Pursuant to a letter agreement dated 27 May 1997 between The
Energy Group and Morgan Stanley, The Energy Group made initial payments to
Morgan Stanley totalling L3.4 million relating to the Previous Offer and has
agreed to pay an additional fee of L7.6 million upon the Offer becoming wholly
unconditional. Each letter agreement further provides that The Energy Group will
reimburse Lazard and Morgan Stanley for their respective out-of-pocket expenses,
and indemnify Lazard and Morgan Stanley, respectively, against certain expenses
and liabilities in connection with their engagement.
17 SOURCES OF INFORMATION AND BASES OF CALCULATION
(a) The value of the fully diluted share capital of The Energy Group is based
upon 520,857,817 Energy Group Shares in issue on 2 February 1998 and
9,228,858 Energy Group Shares which could fall to
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be issued on exercise in full of options and vesting of all outstanding
awards granted under the Energy Group Share Schemes.
(b) The pro forma financial information in respect of The Energy Group for the
year ended 31 March 1996 is taken from the unaudited pro forma profit and
loss accounts set out in The Energy Group's report and accounts for the six
months ended 31 March 1997.
(c) References in this document to "tons" are to short tons equal to 2,000
pounds.
18 DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the documents listed below may be inspected at the offices of
Linklaters & Paines, One Silk Street, London EC2Y 8HQ (such address also being
the registered office of PacifiCorp Acquisitions) during usual business hours on
any weekday (Saturdays, Sundays and public holidays excepted) whilst the Offer
remains open for acceptance:
(a) the Memorandum and Articles of Association of PacifiCorp Acquisitions;
(b) the Memorandum and Articles of Association of The Energy Group;
(c) the audited financial statements of PacifiCorp for the three years ended
31 December 1996, together with the notes thereto;
(d) the Energy Group Listing Particulars, the audited consolidated accounts
of The Energy Group for the six months ended 31 March 1997 and The Energy
Group's third quarter results for the nine months ended 31 December 1997;
(e) the irrevocable undertakings referred to in paragraph 5 above;
(f) the service agreements referred to in paragraph 6 above;
(g) the consents referred to in paragraph 7(d) above;
(h) the material contracts referred to in paragraph 8 above;
(i) documentation relating to the financing arrangements detailed in
paragraph 10 above; and
(j) the Loan Note Instrument in substantially final form.
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APPENDIX VI
DEFINITIONS
The following definitions apply throughout this document, unless the context
otherwise requires:
<TABLE>
<S> <C>
"ACCEPTANCE CONDITION" the Condition as to acceptances set out in paragraph (a)
of Part A of Appendix I
"ACCEPTANCE FORM" the Form of Acceptance and, with respect to holders of
Energy Group ADSs only, the Letter of Transmittal and
Notice of Guaranteed Delivery accompanying this document
"ACQUISITION" the proposed acquisition of The Energy Group pursuant to
the Offer
"BOARD" OR "DIRECTORS" the directors of PacifiCorp Acquisitions
"BOOK-ENTRY CONFIRMATION" the confirmation of a book-entry transfer of Energy Group
ADSs into the US Depositary's account at a Book-Entry
Transfer Facility
"BOOK-ENTRY TRANSFER each of The Depository Trust Company and the Philadelphia
FACILITY" Depository Trust Company, together the "Book-Entry
Transfer Facilities"
"BUSINESS DAY" has the meaning given to it in Rule 14d-1 under the
Exchange Act
"CANADA" Canada, its provinces, territories and all areas subject
to its jurisdiction and any political sub-division thereof
"CERTIFICATED" OR "IN a share or other security which is not in uncertificated
CERTIFICATED FORM" form
"CITIZENS POWER" Citizens Power LLC, previously named Citizens Lehman Power
L.L.C.
"CITY CODE" The City Code on Takeovers and Mergers of the UK
"CLOSING PRICE" the mid-price quotation of an Energy Group Share as
derived from the London Stock Exchange Daily Official List
"COMPANIES ACT" the Companies Act 1985 (as amended) of England and Wales
"CONDITIONS" the conditions of the Offer described in Part A of
Appendix I and "Condition" means any one of them
"CREST" the relevant system (as defined in the Regulations) in
respect of which by CRESTCo is the Operator (as defined in
the Regulations)
"CRESTCO" CRESTCo Limited
"CREST MEMBER" a person who has been admitted by CRESTCo as a system-
member (as defined in the Regulations)
"CREST PARTICIPANT" a person who is, in relation to CREST, a
system-participant (as defined in the Regulations)
</TABLE>
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<TABLE>
<S> <C>
"CREST SPONSOR" a CREST participant admitted to CREST as a sponsored
member
"CREST SPONSORED MEMBER" a CREST member admitted to CREST as a sponsored member
"DEALER MANAGER" Goldman, Sachs & Co., in its capacity as dealer manager
for the Offer in the US
"DEMERGER" the demerger by Hanson of The Energy Group
"DEMERGER AGREEMENT" the agreement dated 27 January 1997 between Hanson and The
Energy Group relating to the Demerger
"DEMERGER DATE" 24 February 1997
"DEMERGER TRANSACTIONS" the transactions described in the Demerger Agreement,
pursuant to which The Energy Group became the holding
company of the TEG Group, as then constituted, and the
Peabody Holding Transaction
"DEPOSIT AGREEMENT" the deposit agreement between The Energy Group, Citibank,
N.A. and the holders, from time to time, of Energy Group
ADSs
"DGES" The Director General of Electricity Supply of the UK
"EASTERN" Eastern Group plc and/or its subsidiaries or any of them
from time to time as the context may require
"ELECTRICITY POOL" the electricity trading market in England and Wales
"ELIGIBLE INSTITUTION" a financial institution (including most banks, savings and
loan associations and brokerage houses) which is a
participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Program, or
the Stock Exchange Medallion Program
"ENERGY GROUP ADRS" American Depositary Receipts evidencing Energy Group ADSs
"ENERGY GROUP ADSS" American Depositary Shares issued in respect of Energy
Group Shares, each representing four Energy Group Shares,
as evidenced by Energy Group ADRs
"ENERGY GROUP LISTING the listing particulars relating to The Energy Group dated
PARTICULARS" OR "LISTING 27 January 1997, published in accordance with the Listing
PARTICULARS" Rules
"ENERGY GROUP SECURITIES" Energy Group Shares and Energy Group ADSs
"ENERGY GROUP SHARES" shares of 10p each in the share capital of The Energy
Group
"ENERGY GROUP SHARE SCHEMES" the Energy Group Executive Share Option Scheme, the Energy
Group Sharesave Scheme, the Energy Group Long-term
Incentive Plan and the Energy Group Special Additional
Bonus Scheme
"ENLARGED GROUP" the PacifiCorp Group as enlarged by the acquisition of The
Energy Group
</TABLE>
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<TABLE>
<S> <C>
"EXCHANGE ACT" the US Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder
"FERC" the US Federal Energy Regulatory Commission
"FIRST HYDRO" the pumped storage business of National Grid Group
"FORM OF ACCEPTANCE" the form of acceptance, election and authority relating to
the Offer accompanying this document for use by holders of
Energy Group Shares (but not by holders of Energy Group
ADSs)
"GUARANTEED DELIVERY the guaranteed delivery procedures for Energy Group ADSs
PROCEDURES" set out in paragraph 9 of Part B of Appendix I
"HANSON" Hanson PLC
"HANSON GROUP" Hanson and its subsidiary undertakings from time to time
"INFORMATION AGENT" Shareholder Communications Corporation, in its capacity as
information agent for the Offer
"INITIAL CLOSING DATE" 10.00 p.m. (London time), 5.00 p.m. (New York City time)
on 9 March 1998, unless and until PacifiCorp Acquisitions,
in its discretion, shall have extended the Offer, in which
case the term "Initial Closing Date" shall mean the latest
time and date at which the Offer, as so extended by
PacifiCorp Acquisitions, will expire or, if earlier, the
time at which the Offer becomes or is declared wholly
unconditional
"INITIAL OFFER PERIOD" the period from the date of this document to and including
the Initial Closing Date
"LAZARD" Lazard Brothers & Co., Limited and Lazard Freres & Co.
Limited
"LETTER OF TRANSMITTAL" the letter of transmittal relating to the Offer
accompanying this document for use by holders of Energy
Group ADSs
"LIBOR" the London Inter-Bank Offered Rate, determined in
accordance with the terms of the Loan Notes, a summary of
which is set out in Appendix II
"LISTING RULES" the Listing Rules of the London Stock Exchange
"LOAN NOTE ALTERNATIVE" the alternative under which holders of Energy Group Shares
who validly accept the Offer will be entitled to elect to
receive Loan Notes instead of the cash consideration
otherwise payable to them
"LOAN NOTES" the Floating Rate Unsecured Loan Notes 2004 of PacifiCorp
Acquisitions, to be issued pursuant to the Loan Note
Alternative
"LONDON STOCK EXCHANGE" London Stock Exchange Limited
"MEMBER ACCOUNT ID" the identification code or number attached to any member
account in CREST
"MORGAN STANLEY" Morgan Stanley & Co. Limited
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VI-3
<PAGE>
<TABLE>
<S> <C>
"NATIONAL GRID GROUP" The National Grid Group plc
"NATIONAL POWER" National Power plc
"OFFER" the Office of Electricity Regulation of the UK
"OFFER" the renewed offer made by Goldman Sachs International on
behalf of PacifiCorp Acquisitions to acquire the Energy
Group Securities as set out in this document including,
where the context permits and/or requires, the Loan Note
Alternative and any subsequent revision, variation,
extension or renewal of such offer or such alternative
"PACIFICORP GROUP" PacifiCorp and its subsidiaries and subsidiary
undertakings and, where the context permits, each of them
"PANEL" The Panel on Takeovers and Mergers of the UK
"PARTICIPANT ID" the identification code or membership number used in CREST
to identify a particular CREST member or other CREST
participant
"PEABODY" Peabody Holding, Lee Ranch Coal Company and Peabody
Australia
"PEABODY AUSTRALIA" Peabody Resources Limited and its subsidiaries, the
Australian operations of Peabody
"PEABODY HOLDING" Peabody Holding Company, Inc. and its subsidiaries
"PEABODY HOLDING TRANSACTION" the transaction whereby Peabody US Holding Inc., a
subsidiary of Hanson, transferred to GFAC International
Holdings Inc. the entire issued share capital of Peabody
Holding for a cash sum of US$1,637.5 million
"PGHC" PacifiCorp Group Holdings Company (formerly PacifiCorp
Holdings, Inc.)
"POWERCOAL" PacifiCorp Powercoal, LLC, a wholly-owned subsidiary of
PGHC
"POWERGEN" PowerGen plc
"PREVIOUS OFFER" the offer made by Goldman Sachs International on behalf of
PacifiCorp Acquisitions to acquire The Energy Group as
announced on 13 June 1997 and set out in the Previous
Offer document dated 30 June 1997
"REGULATIONS" the Uncertificated Securities Regulations 1995 (SI 1995
No. 95/3272)
"ROLLALONG" Rollalong Limited and, where the context permits, its
subsidiary, Rollalong Hire Limited
"SEC" the US Securities and Exchange Commission
"SECURITIES ACT" the US Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder
</TABLE>
VI-4
<PAGE>
<TABLE>
<S> <C>
"SUBSEQUENT OFFER PERIOD" the period following the Initial Closing Date during which
the Offer remains open for acceptance
"TEG GROUP" The Energy Group and its subsidiaries and subsidiary
undertakings and, where the context permits, each of them
"TFE INSTRUCTION" a Transfer from Escrow instruction (as defined by the
CREST Manual issued by CRESTCo)
"THE ENERGY GROUP" The Energy Group PLC
"TTE INSTRUCTION" a Transfer to Escrow instruction (as defined by the CREST
Manual issued by CRESTCo)
"UK" OR "UNITED KINGDOM" the United Kingdom of Great Britain and Northern Ireland
"UK GAAP" UK generally accepted accounting principles
"UK RECEIVING AGENT" IRG plc, in its capacity as UK receiving agent to the
Offer
"UNCERTIFICATED" OR "IN recorded on the relevant register of the share or security
UNCERTIFICATED FORM" concerned as being held in uncertificated form in CREST,
and title to which, by virtue of the Regulations, may be
transferred by means of CREST
"UNITED STATES" OR "US" the United States of America, its territories and
possessions, any State of the United States and the
District of Columbia, and all other areas subject to its
jurisdiction
"US DEPOSITARY" Continental Stock Transfer & Trust Company, in its
capacity as US depositary
"US GAAP" US generally accepted accounting principles
"US HSR ACT" the US Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations
promulgated thereunder
"L", OR "POUNDS STERLING" OR the lawful currency of the United Kingdom
"PENCE"
"$" OR "US DOLLAR" the lawful currency of the United States
</TABLE>
VI-5
<PAGE>
ACCEPTANCES IN RESPECT OF ENERGY GROUP SHARES
Duly completed Forms of Acceptance, accompanied by certificates in respect
of Energy Group Shares and/or other documents of title, should be delivered to
the UK Receiving Agent or the US Depositary at one of the addresses set out
below.
The UK Receiving Agent for the Offer is:
New Issues Department,
IRG plc
For Information Call:
0181 639 2166
<TABLE>
<S> <C>
By Mail: By Hand:
PO Box 166, 23 Ironmonger Lane,
Bourne House, London EC2
34 Beckenham Road,
Beckenham
Kent BR3 4TH
</TABLE>
ACCEPTANCES IN RESPECT OF ENERGY GROUP ADSS
Manually signed facsimile copies of the Letter of Transmittal will be
accepted. The Letter of Transmittal, Energy Group ADRs and any other required
documents should be sent or delivered by each holder of Energy Group ADSs or his
broker, dealer, commercial bank, trust company or other nominee to the US
Depositary at one of its addresses set out below.
The US Depositary for the Offer is:
Continental Stock Transfer & Trust Company
For Information Call:
1-800 733 8481 ext. 475
Facsimile Transmission:
(for Eligible Institutions Only)
(212) 248-8495
<TABLE>
<S> <C>
By Mail By Hand or Overnight Courier:
Continental Stock Transfer & Continental Stock Transfer &
Trust Company Trust Company
c/o Shareholder Communications c/o Shareholder Communications
Corporation Corporation
17 State Street, 24th Floor 17 State Street, 24th Floor
New York, NY 10004 New York, NY 10004
Attn: Tenders & Exchanges Attn: Tenders & Exchanges
</TABLE>
ADDITIONAL INFORMATION
Any questions or requests for assistance or additional copies of the Offer
to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery or
the Form of Acceptance may be directed to Goldman Sachs International, the
Dealer Manager or the Information Agent at their respective addresses and
telephone numbers listed below, or to the US Depositary or the UK Receiving
Agent at their respective addresses and telephone numbers mentioned above. You
may also contact your local broker, dealer, commercial bank or trust company or
other nominee for assistance concerning the Offer.
The Information Agent for the Offer is:
Shareholder Communications Corporation
17 State Street
27th Floor
New York, New York 10004
Call Toll Free: 1-800-733-8481, ext. 475
The Offer is being made on behalf of PacifiCorp Acquisitions by:
Goldman Sachs International
Peterborough Court
133 Fleet Street
London EC4A 2BB
0171 774 1000
The Dealer Manager for the Offer is:
Goldman, Sachs & Co.
85 Broad Street
New York
New York 10004
(212) 902 1000 within New York City
1-800-323-5678 (Toll Free) outside New York City
