SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) May 18, 1995
POTOMAC ELECTRIC POWER COMPANY
(Exact name of registrant as specified in its charter)
District of Columbia and Virginia 1-1072 53-0127880
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation) File Number) Identification No.)
1900 Pennsylvania Avenue, N. W., Washington, D. C. 20068
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (202) 872-2456
PEPCO
Form 8-K
Item 5. Other Events.
On May 18, 1995, Potomac Capital Investment Corporation ("PCI"), a wholly
owned non-utility subsidiary of Potomac Electric Power Company ("PEPCO"),
adopted a plan to exit the aircraft leasing business. The plan, which was
developed following a comprehensive review of the business, is designed to
preserve value by providing for an orderly withdrawal from the aircraft leasing
business.
Under the plan, PCI will make no new investments in the aircraft leasing
business. In addition, 13 aircraft (seven L-1011 aircraft, two F-28-4000
aircraft, one A-300 aircraft, two B747-200 aircraft and one B747-200F
aircraft) have been designated for sale. These aircraft are not under lease
or are subject to short-term, usage-based leases or leases that will expire in
the near term. PCI will seek to accomplish these sales over the next 18 to 24
months. In this connection, the book value of these aircraft (which currently
is approximately $295 million) is being reduced to an estimated net realizable
value of approximately $105 million. After taking into account the
elimination of a previously-established reserve of approximately $22 million
for future repair and maintenance expenditures and other minor adjustments,
the result will be an immediate, noncash charge to PCI's after-tax earnings
(and after-tax consolidated PEPCO earnings) of approximately $110 million for
the second quarter of 1995. There will be no future depreciation of, or
accrual for repair and maintenance expenditures with respect to, these
aircraft.
In accordance with the plan, PCI will continue to hold and closely
monitor the remainder of its aircraft leasing portfolio, with the objective of
identifying future opportunities for sale or other disposition of these
investments on favorable terms. Included in this portion of the portfolio are
six wholly owned aircraft (three DC-10-30 aircraft and three B747-200
aircraft) and two DC-10-30 aircraft held by partnerships in which PCI has a
50% interest, all of which are under long-term operating leases to Continental
Airlines or United Airlines. The depreciation on each of these aircraft is
being increased in order to achieve book values at lease expiration that will
correspond to the anticipated residual values. The effect of this revised
depreciation, coupled with the elimination of further depreciation on the
aircraft designated for sale, will result in higher depreciation charges
through 1997, and lower depreciation charges thereafter, as compared to the
depreciation charges that PCI would have incurred in the absence of the plan.
No adjustments are being made with respect to the remainder of PCI's aircraft
leasing portfolio, which consists of twelve full or partial interests in
aircraft under leveraged leases or direct finance leases (one DC-10-30
aircraft, three MD-82 aircraft, four B737-300 aircraft, two 747-300 aircraft,
one B757-200 aircraft and one MD-11F aircraft).
The decision to exit the aircraft leasing business is based on an
accumulation of factors which has led PCI to conclude that the business no
longer is consistent with PCI's goal of providing a stable supplement to
PEPCO
Form 8-K
PEPCO's utility earnings. These factors include the recent inability to
secure satisfactory leases for certain aircraft returned by prior lessees, the
continuing difficulties and credit risks associated with certain lessees,
including TWA and Continental Airlines, and PCI's evaluation of the prospects
for its aircraft lease portfolio and the airline industry in general.
PCI has two aircraft under a master lease agreement which are not carried
on its balance sheet. Separate from the plan, as a result of differences
between the guaranteed residual value and the expected market value of these
aircraft at the end of the initial term of the master lease agreement, PCI,
following generally accepted accounting principles, is recording monthly a
charge against earnings of approximately $2.7 million over the seven-month
period ending September 1995.
Item 7. Financial Statements, Pro-Forma Financial Information and
Exhibits.
Exhibits
Exhibit No. Description of Exhibit Reference
99 Press Release of Potomac
Electric Power Company,
dated May 19, 1995...............Filed herewith.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Potomac Electric Power Company
(Registrant)
/s/ H. Lowell Davis
By ___________________________
H. Lowell Davis
Vice Chairman and
Chief Financial Officer
May 19, 1995
DATE
FOR IMMEDIATE RELEASE CONTACT: Nancy Moses
May 19, 1995 202-872-2680
PEPCO Investment Subsidiary Announces
Plan To End Investment In Aircraft Leasing Business
Potomac Capital Investment Corporation (PCI), a wholly-owned non-utility
subsidiary of Potomac Electric Power Company (PEPCO), today announced that it
has adopted a plan to end its investment in the aircraft equipment leasing
business. The plan, announced by H. Lowell Davis, Chief Executive Officer of
PCI and Vice Chairman and Chief Financial Officer of PEPCO, was developed
after a comprehensive review of PCI's aircraft leasing business.
Davis said the plan is designed to preserve value by providing an
orderly exit from the aircraft leasing business. It calls for no new
investment in this business and the sale over the next 18 to 24 months of 13
aircraft which are currently not on leases or are under leases expiring in the
near term. The remainder of PCI's aircraft leasing portfolio consists of
equipment on long term lease. PCI will decide on a case-by-case basis whether
to sell or hold these investments to lease expiration, depending on future
conditions and opportunities. PCI will take a one-time, after-tax charge of
$110 million in connection with the overall plan.
"Adoption of this plan will have no effect on PEPCO's dividend policy.
This is a non-cash charge against PCI earnings," said Davis. "By ending this
portion of PCI's investment program, we eliminate problems that have
contributed to investor uncertainties and lower than satisfactory investment
returns." He added that the PCI action would have no impact on electric
utility earnings or electric rates. "Since the inception of PCI in late 1983,
there has been a complete separation of utility and non-utility operations,
and electricity prices are determined solely on the basis of utility
operations."
Davis said that the airline industry has experienced a prolonged
negative cycle in the 1990s. "Although there are some limited signs of
correction and recovery, major uncertainties persist, and we have concluded
that this line of business is no longer consistent with our goal of providing
a stable supplement to utility earnings."
During the 1980s, PEPCO made equity capital investments in PCI totaling
approximately $145 million. Since its inception in 1983, PCI has contributed
approximately $240 million to PEPCO's consolidated earnings and has paid
dividends totaling $100 million to PEPCO.
In addition to its aircraft leasing portfolio, which has a book value of
about $620 million following the non-recurring charge, PCI has an investment
of approximately $115 million in electric power projects. PCI intends to
continue such electric power-related investments. Other PCI investments
include a $500 million portfolio of investment grade marketable preferred
stock securities, along with real estate in the Washington, D.C. metropolitan
area and other smaller investments.
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