[LOGO]
NOTICE OF 1996
ANNUAL MEETING,
PROXY STATEMENT AND
1995 ANNUAL REPORT TO
SHAREHOLDERS
MARCH 15, 1996
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TABLE OF CONTENTS
Proxy Statement Page
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Notice of Annual Meeting ........................................... 1
Voting Securities .................................................. 2
[ ] Nominees for Election ...................................... 3
Stock Ownership of Directors and Officers .................. 6
Board and Committee Meetings ............................... 6
Director Compensation ...................................... 8
Executive Compensation
o Personnel & Benefits Committee Report ................... 9
o Summary Compensation Table .............................. 14
o Performance Graph ....................................... 16
o Employment Agreements ................................... 16
o Pension Plans ........................................... 17
[ ] Approval of Employee Stock Purchase Plan ................... 18
[ ] Ratification of the Appointment of Independent Auditors .... 20
Section 16 Compliance ...................................... 21
Future Proposals of Shareholders ........................... 21
1995 Annual Report to Shareholders ......................... Appendix A
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[ ] Matters to be voted on at the meeting.
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ATLANTIC ENERGY, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Dear Shareholder:
The Annual Meeting of Shareholders of Atlantic Energy, Inc. (the "Company")
will be held in the Atlantic City Ballroom of Harrah's Casino Hotel, 777
Harrah's Boulevard, Atlantic City, New Jersey, on Wednesday, April 24, 1996, at
3:00 p.m. for the following purposes:
1. To elect a Board of Directors of nine members to hold office for one
year and until their successors have been elected and qualified.
2. To approve the Atlantic Energy, Inc. and Subsidiaries Employee Stock
Purchase Plan.
3. To ratify the appointment of Deloitte & Touche LLP as independent
auditors for the year ending December 31, 1996.
4. To transact any other business as may properly come before the
meeting, or any adjournments thereof.
PLEASE NOTE THAT THE 1995 ANNUAL REPORT TO SHAREHOLDERS APPEARS AS APPENDIX
A TO THIS PROXY STATEMENT.
To assure your representation at the meeting please sign, date and return
your proxy card in the enclosed envelope that requires no postage if mailed in
the United States. Directors and officers will be available to talk individually
with shareholders before and after the meeting.
Harrah's Casino Hotel is fully accessible to disabled persons. We will
provide sign interpretation for our hearing-impaired shareholders. Special
seating will be available for shareholders using wheelchairs.
IF YOU ARE UNABLE TO ATTEND, PLEASE PROMPTLY RETURN YOUR PROXY CARD SO THAT
YOUR SHARES WILL BE REPRESENTED AT THE MEETING.
By Order of the Board of Directors,
[SIGNATURE]
E. D. Huggard
Chairman
March 15, 1996
PLEASE NOTE: Again this year there will be a Shareholders' Help Desk
located in the Atlantic City Ballroom to answer your questions and provide
information regarding share transfer, dividend payments and the Dividend
Reinvestment and Stock Purchase Plan.
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PROXIES AND SOLICITATION
This proxy statement and accompanying proxy card were first mailed to
shareholders on or about March 15, 1996.
Your proxy is solicited on behalf of the Board of Directors of the Company.
If your executed proxy card is returned in advance of the meeting and is not
revoked, the shares it represents will be voted in the manner directed. If no
direction is given, your proxy will be voted for items 1, 2, and 3. Your proxy
may be revoked in writing prior to its exercise. Under New Jersey law, the
presence at the meeting of a shareholder who has given a proxy does not revoke
the proxy unless the shareholder files written notice of such revocation with
the secretary of the meeting prior to the voting of the proxy.
Other than the election of Directors, which requires a plurality of the
votes cast, each matter to be submitted to the shareholders requires the
affirmative vote of the majority of the votes cast at the meeting. For purposes
of determining the number of votes cast with respect to a particular matter,
only votes cast "for" or "against" are included. Abstentions and broker
non-votes are counted only for purposes of determining whether a quorum is
present at the meeting.
The solicitation of proxies will be made at the expense of the Company.
Proxies will be solicited primarily by mail and may be solicited personally and
by telephone. The Company will reimburse banks and brokerage firms for their
expenses in forwarding proxy material. The principal executive offices of
Atlantic Energy, Inc. are located at 6801 Black Horse Pike, Egg Harbor Township,
New Jersey 08234-4130.
VOTING SECURITIES
Record holders of Common Stock at the close of business March 4, 1996 will
be entitled to vote at the meeting. At the close of business on March 4, 1996,
there were 52,705,284 shares of Common Stock outstanding. Holders of shares of
Common Stock are entitled to one vote per share of Common Stock.
ELECTION OF DIRECTORS
At the meeting, nine Directors are to be elected for a term of one year and
until their successors have been elected and qualified. Each of the nominees was
elected as a Director at the 1995 Annual Meeting of Shareholders. Mr. Huggard
will not stand for reelection at the 1996 Annual Meeting of Shareholders.
IT IS INTENDED THAT SHARES REPRESENTED BY THE PROXIES SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS WILL BE VOTED IN FAVOR OF THE ELECTION OF THE PERSONS
LISTED. The management knows of no reason why any nominee for Director would be
unavailable. If any nominee should become unavailable, the proxy may be voted
for a substitute nominee.
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NOMINEES FOR ELECTION
Director
of the Company
or Atlantic City
Name, Age, Principal Occupation and Electric Company
Business Experience Past Five Years Since
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JOS. MICHAEL GALVIN, JR., 50, President and Chief Executive
[PHOTO] officer of South Jersey Health Corporation, The Memorial Hospital of
Salem County, Salem, NJ. Director of Woodstown National Bank and
Center for Health Affairs ........................................... 1978
Other Information: Mr. Galvin is Chairman of the Personnel & Benefits Committee
and a member of the Wholesale Committee of the Board of Directors. He is also a
director of Atlantic Energy Enterprises, Inc.
GERALD A. HALE, 68, President of Hale Resources, Inc., Summit, NJ, a
health care, industrial/natural resource investment and management
[PHOTO] company. General Manager of HHH Investment Company, LLC. Director of
New Jersey Manufacturers Insurance Company, New Jersey Business and
Industry Association and Hoke, Inc. ................................. 1983
Other Information: Mr. Hale is a member of the Personnel & Benefits and Retail
Committees of the Board of Directors. He is also Chairman of Atlantic Energy
Enterprises, Inc.
MATTHEW HOLDEN, JR., 64, Professor of Government & Foreign Affairs,
[PHOTO] University of Virginia, Charlottesville, VA. Economic and political
consultant, arbitrator. Prior to 1982, Commissioner, Federal Energy
Regulatory Commission and Wisconsin Public Service Commission ....... 1981
Other Information: Mr. Holden is Chairman of the Audit Committee and a member of
the Personnel & Benefits and Wholesale Committees of the Board of Directors.
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<TABLE>
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Director
of the Company
or Atlantic City
Name, Age, Principal Occupation and Electric Company
Business Experience Past Five Years Since
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CYRUS H. HOLLEY, 59, President of Management Consulting Services,
[PHOTO] Grapevine, TX. Director and Chief Executive Officer of Oakmont
Enterprises, Grapevine, TX. Director of UGI Corporation and Kerns Oil
& Gas Company ....................................................... 1990
Other Information: Mr. Holley is Chairman of the Wholesale Committee and a
member of the Personnel & Benefits Committee of the Board of Directors. He is
also a director of Atlantic Energy Enterprises, Inc.
JERROLD L. JACOBS, 56, Director, President and Chief Executive Officer
[PHOTO] of the Company and Chairman and Chief Executive Officer of Atlantic
City Electric Company. Former Vice President of the Company and
President of Atlantic City Electric Company ......................... 1990
Other Information: Mr. Jacobs is an ex-officio member of all committees of the
Board of Directors except the Audit and Personnel & Benefits Committees. He is
also a director of Atlantic Energy Enterprises, Inc.
KATHLEEN MacDONNELL, 47, Corporate Vice President of Campbell Soup
Company, Camden, NJ. President, Frozen Foods Group, of Campbell Soup
[PHOTO] Company. Director of the Campbell/Nakano Joint Venture and the
American Frozen Food Institute. Former Sector Vice President, Prepared
Foods, and Sector Vice President, Grocery, of Campbell Soup
Company ............................................................. 1993
Other Information: Ms. MacDonnell is Chairwoman of the Retail Committee and a
member of the Audit and Personnel & Benefits Committees of the Board of
Directors.
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<CAPTION>
Director
of the Company
or Atlantic City
Name, Age, Principal Occupation and Electric Company
Business Experience Past Five Years Since
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RICHARD B. McGLYNN, 57, Attorney. Vice President and General Counsel
of United Water Resources, Inc., Harrington Park, NJ. Former Partner
[PHOTO] in the law firm of LeBoeuf, Lamb, Greene & MacRae and Former Partner
in the law firm of Stryker, Tams & Dill ............................. 1986
Other Information: Mr. McGlynn is a member of the Finance & Public Policy,
Personnel & Benefits and Retail Committees of the Board of Directors.
BERNARD J. MORGAN, 59, Financial Investor, Southampton, PA. Director
of FormMaker Software, Inc., Atlanta, GA. Former Vice Chairman of
First Fidelity Bancorporation, NJ/PA, Former Vice Chairman, President,
[PHOTO] Chief Executive Officer and Chief Operating Officer of Fidelcor, Inc.
Former Chairman, Deputy Chairman, Chief Executive Officer, President
and Chief Operating Officer of Fidelity Bank, N.A. .................. 1988
Other Information: Mr. Morgan is Chairman of the Finance & Public Policy
Committee and a member of the Audit Committee. He is also a director of Atlantic
Energy Enterprises, Inc.
HAROLD J. RAVECHE, 52, President of Stevens Institute of Technology,
Hoboken, NJ. Director of National Westminster Bancorp, Inc. and member
[PHOTO] of the U.S. Council on Competitiveness and Business Executives for
National Security. Former Dean of Science, Rensselaer Polytechnic
Institute ........................................................... 1990
Other Information: Mr. Raveche is a member of the Audit, Finance & Public
Policy, Retail and Wholesale Committees of the Board of Directors.
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STOCK OWNERSHIP OF DIRECTORS AND OFFICERS
The following table sets forth the beneficial ownership of Common Stock
of the Company of all directors and nominees, four executive officers, and all
directors and officers as a group as of December 31, 1995.
Beneficial Ownership
(Shares of Common
Name Stock) (1)
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Jos. Michael Galvin, Jr. (a) ...................... 9,364
Gerald A. Hale .................................... 5,912
Matthew Holden, Jr. ............................... 4,797
Cyrus H. Holley ................................... 4,850
E. Douglas Huggard (b) ............................ 26,241
Jerrold L. Jacobs (c) ............................. 53,655
Kathleen MacDonnell ............................... 2,577
Richard B. McGlynn (d) ............................ 3,490
Bernard J. Morgan ................................. 4,350
Harold J. Raveche ................................. 3,155
Michael J. Chesser ................................ 29,794
Meredith I. Harlacher, Jr. (e) .................... 30,873
Scott B. Ungerer .................................. 3,828
Marilyn T. Powell ................................. 3,106
All Directors and Officers as a Group
(18 individuals) ................................ 243,164
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(1) Each of the individuals listed beneficially owned less than 1% of the
Company's outstanding Common Stock.
(a) Share ownership shown for Mr. Galvin includes 4,725 shares beneficially
held in a trust.
(b) Share ownership shown for Mr. Huggard excludes 3,006 shares held by his
spouse.
(c) Share ownership shown for Mr. Jacobs includes 4,441 shares held jointly
with his spouse and 176 shares held in a custodial account for his child.
(d) Share ownership shown for Mr. McGlynn includes 200 shares held in a pension
trust of which Mr. McGlynn is the trustee.
(e) Share ownership for Mr. Harlacher includes 5,872 shares held jointly with
his spouse.
MEETINGS OF THE BOARD OF DIRECTORS AND OF COMMITTEES OF THE BOARD
During 1995, 13 regular meetings of the Board of Directors were held as
well as three (3) strategic planning sessions. During 1995, the committees of
the Board of Directors met as follows:
No. of
Committee Meetings
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Audit ........................................ 5
Retail ....................................... 4
Wholesale .................................... 4
Finance & Public Policy ...................... 3
Personnel & Benefits ......................... 6
FUNCTIONS OF AUDIT COMMITTEE ARE AS FOLLOWS:
1. Recommends each year to the Board, the appointment of an independent
auditing firm for the Company.
2. Reviews the scope, magnitude and cost of audit and non-audit services
to be performed by independent auditors and makes recommendations to
the Board for approval of such services.
3. Reviews accounting, financial and operating controls with independent
auditors, internal auditors and management.
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4. Reviews periodic and annual audit reports of internal auditors and
independent auditors, meets independently with each and with
management, and ascertains whether the recommendations of the
independent auditors have been implemented.
5. Reviews annual financial reports with the independent auditors prior
to release.
6. Reviews and makes recommendations concerning security measures
required to protect vital records of the Company.
7. Inquires about any aspect of the business of the Company, whenever it
deems such desirable, to help ensure employees comply with local,
state and federal laws and regulations and with the Company's Code of
Ethics and Business Conduct Policy.
FUNCTIONS OF PERSONNEL & BENEFITS COMMITTEE ARE AS FOLLOWS:
1. Reviews and makes recommendations to the Board with respect to
selection of officers of Atlantic Energy, Inc. and Atlantic City
Electric Company.
2. Reviews the performance of officers of Atlantic Energy, Inc., Atlantic
City Electric Company and the President of Atlantic Energy
Enterprises, Inc. and recommends to the Board appropriate compensation
levels.
3. Reviews the compensation paid to outside Directors of the Board of
Directors of the Company and Atlantic Energy Enterprises, Inc. and
makes recommendations for adjustments.
4. Monitors the Chief Executive Officer's program of executive
development and plans for officer succession at Atlantic Energy, Inc.
and Atlantic City Electric Company, monitors the management plan of
organization and makes recommendations to the Board as required.
5. Identifies prospective Director candidates, establishes procedures for
shareholders to recommend director candidates and recommends to the
Board nominees for election.
6. Considers and makes recommendations to the Board regarding all
retirement plans, including the retirement policy for directors, and
post employment benefit plans.
7. Reviews and makes recommendations regarding the adequacy of all forms
of insurance coverage for the Company.
8. Reviews the funding status of the nuclear plant decommissioning trust
of Atlantic City Electric Company.
The Personnel & Benefits Committee (the "Committee") will consider nominees
for Director recommended by shareholders. To be considered by the Committee, any
nomination should be submitted to the Secretary, Atlantic Energy, Inc., 6801
Black Horse Pike, Egg Harbor Township, NJ 08234, no later than ninety days prior
to the 1997 Annual Meeting of Shareholders and should include the following
information: (a) as to each nominee whom the shareholder proposes to nominate,
(i) the name, age, business address and residence address of the nominee, (ii)
any other information concerning the nominee that would be required, under the
rules of the Securities and Exchange Commission, in a proxy statement soliciting
proxies for the election of such nominee, (iii) the consent of the nominee to
serve as a director, and (b) as to the shareholder giving the suggestion, (i)
the name, business address and residence address of the shareholder, (ii) a
statement that the shareholder is a shareholder of record, entitled to vote at
the meeting, and intends to nominate each nominee in person or by proxy and
(iii) a description of all arrangements or understandings among shareholder and
each nominee and any other persons (naming such persons) pursuant to which the
nomination is made by the shareholder.
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DIRECTOR COMPENSATION
1995 COMPENSATION
During 1995, non-employee Directors received fees in accordance with the
following compensation schedule:
Retainer Fee ..................................... $20,000 Annually
Board Meeting Fee ................................ 1,000 Per Meeting Attended
Committee Meeting Fee* (if held same day as
Board meeting) ................................. 1,000 Per Meeting Attended
Committee Meeting Fee* (if held other than
Board meeting date) ............................ 1,150 Per Meeting Attended
Committee or Board Meeting Fee via Telephone ..... 150 Per Conference
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* Paid to committee members only.
Actual receipt of such amounts may be deferred, with interest, until a time
selected by the non-employee Director.
In 1995, each non-employee Director received a per meeting fee of $1,000
for attendance at strategic planning sessions with management and staff of the
Company and its subsidiaries. In 1995, Messrs. Galvin, Hale, Holden, Holley,
Huggard, Morgan, and Raveche and Ms. MacDonnell each received $3,000, and Mr.
McGlynn received $2,000 for attendance at such sessions.
In 1995, four non-employee Directors were elected Directors of Atlantic
Energy Enterprises, Inc. ("AEE"), a holding company formed to own the shares of
capital stock of all of the Company's nonutility subsidiaries. Non-employee
directors receive a per meeting fee of $1,000 for attendance at meetings of the
Board of Directors of AEE. Ten AEE board meetings were held in 1995. Messrs.
Galvin, Hale, Holley and Morgan each received $10,000 for attendance at such
meetings.
RIGHT TO RECEIVE STOCK OPTIONS IN LIEU OF RETAINER
Pursuant to the Equity Incentive Plan ("EIP") no later than June 30 of each
year, a non-employee Director may elect to receive an option to purchase Common
Stock in lieu of all or a portion of the non-employee Director's annual cash
retainer for the following year. The number of shares subject to option is
determined pursuant to the following formula:
number of shares = amount of retainer foregone
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50% of fair market value of shares
on first business day of the year
Non-employee Directors who elect to receive stock options in lieu of
retainer will pay 100% of the fair market value of the Company's Common Stock
when the foregone compensation is added to the exercise price. In 1996, no
options in lieu of retainer will be issued.
DIRECTOR RETIREMENT PLAN
The Company has established a retirement plan for non-employee Directors
("Director Retirement Plan"). Under the Director Retirement Plan each
non-employee Director who has five years of service is eligible to receive
benefits for the longer of life or the full number of years the non-employee
Director served on the Board. Non-employee Directors who satisfy the service
requirement receive an annual benefit starting in the year they terminate
service. The annual benefit equals 100% of the annual retainer in effect in the
year in which the non-employee Director ended service, less 10% for each year
less than ten years of total service as a non-employee Director. In the event of
the death of an eligible non-employee Director prior to receiving payments for
the number of full years of his or her service, the designated beneficiary of
such non-employee Director shall be entitled to a lump-sum payment equal to the
difference between the amount the non-employee Director has already received and
the amount that would have been received if payments were made for the full
number of years of the non-employee Director's service. In 1995, the Director
Retirement Plan was amended to provide that in the event of a change of control
of the Company (as defined on Page 20 under "Employee Stock Purchase Plan"), any
non-employee Director having less than five years of service will be deemed to
have served for five years to satisfy the service requirement; and in such event
for all Directors, the net present value of the annual benefit will be
calculated in accordance with the terms of the Director Restricted Stock Plan
and payable in a lump sum.
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RESTRICTED STOCK PLANS
Shares of restricted stock are granted to non-employee Directors to enhance
recruitment and retention of highly qualified individuals and to strengthen the
commonality of interests between non-employee Directors and shareholders.
Under the EIP, approved by shareholders in 1994, each non-employee Director
receives a grant of 1,000 shares every five years, subject to certain
restrictions. In 1995, three non-employee Directors each received a grant under
the EIP of 1,000 shares subject to restriction. On December 31 of each year of
the five-year period, 200 of the 1,000 shares vest. While a non-employee
Director serves as an active member of the Board of Directors, certificates are
held by the Company. If a non-employee Director terminates service because of
death, disability, retirement from the Board at age 70 or later, or upon failure
to be re-elected after being nominated, all shares (vested and nonvested) are
delivered to him/her or his/her designated beneficiary, free of restrictions.
Non-employee Directors who terminate service for other reasons are delivered
only shares that have vested. Commencing on the date of grant, each non-employee
Director has the right to vote such shares of Common Stock. Dividends paid on
the shares are reinvested in additional shares of common stock and subject to
the same restrictions as the initial grant.
Grants under the EIP commence in the year following a non-employee
Director's full vesting in grants previously received by each non-employee
Director under the Director Restricted Stock Plan (the "DRSP"). The DRSP was
terminated in 1994. The DRSP provided for the one-time grant of 2,000 shares,
subject to certain restrictions, to each non-employee Director. Outstanding
grants under the DRSP remain in effect and vest at the rate of 200 shares per
year for the applicable 10-year period. The restrictions on shares granted under
the DRSP are identical to the EIP described above.
The stock ownership reported for each non-employee Director includes shares
granted to them and subject to forfeiture under the EIP and DRSP.
PERSONNEL & BENEFITS COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
KEY COMPENSATION POLICIES
The executive compensation policies adopted by the Committee are designed
to achieve three objectives:
o To create a pay-for-performance linkage that makes a significant
portion of the total compensation opportunity for executive officers,
including the CEO, dependent on achieving key performance objectives
set at the corporate, business unit (for unit executives) and
individual executive levels.
o To structure the total compensation package so that it provides a
median level of pay in comparison to industry practice when results
approximate industry average, while paying significantly above or
below these market levels when performance falls significantly above
or below the industry average, respectively.
o To structure the incentive components of compensation for executive
officers, including the CEO, so that the creation of long-term
shareholder value is the primary focus of incentive opportunity.
(Note: the term executive officers refers to the individuals listed in Table
1--Summary Compensation Table on page 14 of this proxy statement.)
To achieve these objectives, the Company follows a total compensation
philosophy in its approach to executive compensation, including compensation
paid to the CEO. Total compensation is comprised of three primary elements: base
salary, an annual incentive award ("bonus") and a long-term equity based
incentive. Executive officers' total compensation is significantly at risk based
upon the financial performance of the Company. If the performance of the Company
fails to meet certain predetermined criteria and specific numeric goals, the
opportunity to earn incentive compensation is significantly reduced.
COMPENSATION PROGRAMS
The Committee approves the compensation paid to the executive officers of
the Company, including the CEO, who are also officers of Atlantic City Electric
Company through a "Utility Compensation Program" adopted by the Committee in
1994. The Committee also approves the compensation paid to an executive officer
of the Company who
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serves as the President and Chief Operating Officer (the "COO") of AEE through
an "Enterprise Compensation Program" adopted by AEE's Board of Directors in 1995
and approved by the Committee in 1996. Both compensation programs incorporate
the strategic compensation principles noted above. The relative mix of base
salary, bonus and long-term incentive awards provided in the Enterprise
Compensation Program differs significantly from the mix provided in the Utility
Compensation Program, with the Enterprise Compensation Program placing a greater
emphasis on at-risk compensation.
COMPETITIVE COMPENSATION
Utility Compensation Program
Each year, target levels of executive compensation, including compensation
paid to the CEO, are approved by the Committee. These target levels are
equivalent to the median compensation levels for comparable executive positions
among a panel of 14 similar revenue and asset-sized electric utilities in the
eastern United States. This panel is referred to as the peer group which is
subject to adjustment as a result of mergers or acquisitions. Target levels are
established annually for base salaries and for bonus awards based on median
target award levels of the peer group supplemented by median data from the
Edison Electric Institute's ("EEI") executive compensation survey covering
comparable size utilities in the eastern U.S. EEI survey data are used where
matches to comparable positions require this supplemental data. Every two years,
target award levels are reviewed for new long-term performance incentive grants
based on long-term incentive grant practices within the peer group.
Enterprise Compensation Program
Target levels for executive compensation paid to the President and COO of
AEE are approved by the Committee. Beginning in 1995 and each year thereafter,
these target levels are equivalent to the median and mean compensation and
benefits practices for comparable executive positions within a survey group of
companies in the nonutility energy services industry that have annual revenues
and a total number of employees similar to AEE. Target levels are established
annually for base salaries and bonus. Every two years, target award levels are
reviewed for long-term performance incentive grants that relate to the
performance of AEE based on long-term incentive grant practices within the
survey group.
PERFORMANCE BASED COMPENSATION
The Company's compensation strategy places heavy emphasis on rewarding
performance. To this end, the Committee approves objective short-term and
long-term performance criteria and specific numeric goals specific to the
Utility Compensation Program and the Enterprise Compensation Program that are
clearly linked to the creation of shareholder value. Actual results are measured
against goals and awards are funded according to established formulas.
The performance graph on page 16 compares the cumulative total return to
shareholders of the Company to that of the peer group.
BASE SALARIES
HOW BASE SALARIES ARE DETERMINED
Utility Compensation Program
Base salary guidelines for the executive officers of the Company, including
the CEO, who are also officers of Atlantic City Electric Company are based on
the salaries paid to executive officers in positions with responsibilities
similar to the Company's positions. Using median market data from the peer group
and the EEI survey, a competitive salary range is assigned to each executive
position. Within these ranges, a "market" salary level is defined for each
position that approximates the median survey data. Executive officers, including
the CEO, can progress up to a market salary level through demonstrated full
proficiency in their basic position and progress further in the salary range
through continued growth in critical leadership competencies and success in
contributing to stretch financial and operating goals for the business.
Adjustments to base salary are generally considered each December. The size
of any base salary adjustment for each individual executive officer, other than
the CEO, is recommended by the CEO to the Committee on the basis of individual
performance evaluations. Executive officers are assessed on their relative
achievement of objectives assigned to them for the period, their demonstrated
leadership competencies and managerial effectiveness and other
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applicable corporate and business unit accomplishments. The CEO's performance
evaluation is conducted by the Committee and reviewed by the full Board. The
CEO's performance is assessed on demonstrated leadership competencies and
accomplishments in other critical areas that include strategic planning,
organizational restructuring, succession planning, communications internal and
external to the Company and the overall financial and operating performance of
the Company and its subsidiaries.
In July 1995, the Committee made adjustments to the base salaries of the
executive officers, including the CEO. Such adjustments had been delayed since
December 1994 pending the results of certain strategic initiatives that began
late in 1994 and continued into 1995. The base salary adjustments were adopted
retroactive to January 1, 1995 in accordance with the conditions previously
established by the Committee.
Enterprise Compensation Program
The base salary element of the Enterprise Compensation Program reinforces
the development of critical leadership competencies necessary for AEE's success
within the context of market-based ranges. Beginning in 1995, the base salary
for the executive officer of the Company who serves as the President and COO of
AEE was determined based on a competitive survey of the salaries paid to
executives with comparable responsibilities in similar-sized companies in the
nonutility energy services industry. Using this market data, a broadband salary
range is established. In this salary broadband policy, similar to the utility
base salary approach, executive officers can progress up to a "market" salary
level through demonstrated full proficiency in their basic position and progress
further in the salary range through continued growth in critical leadership
competencies and success in contributing to stretch financial and operating
goals for the business.
Any adjustment to the base salary of the President and COO of AEE is
recommended by the CEO to the Committee. An adjustment to the base salary of the
President and COO of AEE was considered in December 1994 and made effective in
January 1995 prior to the adoption of the Enterprise Compensation Program. This
base salary adjustment was recommended by the CEO to the Committee on the basis
of an individual performance evaluation and the relative achievement of assigned
business goals.
ANNUAL INCENTIVE (BONUS) COMPENSATION
Utility Compensation Program
The Executive Annual Incentive Plan is designed to provide executive
officers, including the CEO, who are also officers of Atlantic City Electric
Company with the opportunity to earn annual bonuses equivalent to median
competitive practices when performance matches targeted goals and to increase or
decrease significantly from target levels when performance similarly falls above
or below the target goals.
The amount of bonus paid to executive officers other than the CEO is based
on the achievement of corporate performance indicators. If the corporate
performance indicators are met, the amount of bonus paid may be further modified
by business unit specific goal achievement and individual performance rating.
The amount of bonus paid to the CEO is determined solely by the achievement of
corporate performance indicators.
For 1995, the target corporate performance indicators and relative
weighting of each criteria at the target level were:
o 55% related to earnings per share of the Company's Common Stock;
o 10% related to Atlantic City Electric Company lost time accident
record;
o 25% related to cash flow per share of the Company's Common Stock;
and
o 10% related to Atlantic City Electric Company customer satisfaction
index.
In 1995, the Company did not achieve the target level for any of the four
performance criteria. In 1995 no bonuses were paid to the executive officers
including the CEO under the Executive Annual Incentive Plan. One executive
officer received a one-time, lump-sum payment in recognition of the achievement
of personal goals that had been established as a condition of the executive's
employment.
HOW BONUS AMOUNTS ARE DETERMINED
At the beginning of each year, a target level bonus pool is established.
The bonus pool is determined by applying a predetermined target award percentage
to the salary range mid-point of each executive officer, including the CEO.
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In 1995, the percentages applied to the applicable range mid-points ranged from
20%-30%. These predetermined percentages represent the median compensation
practices of the peer group supplemented by EEI survey data. Beginning in 1996,
the predetermined percentages will be applied to actual salaries paid to the
executive officers including the CEO. The results are summed and the target
bonus pool amount is established. At the end of the year, a performance-adjusted
bonus pool is calculated by adjusting the target bonus pool upward or downward
based on the achievement of corporate performance indicators. The amount of
bonus paid to the CEO is based solely on the relative achievement of corporate
performance indicators. The amount of bonus paid to executive officers, other
than the CEO, is based on the achievement of corporate performance indicators
and may be further modified by the relative achievement of business unit goals
and individual performance ratings. The total amount of bonuses paid out may,
with the approval of the Committee, exceed the amount of the
performance-adjusted bonus pool if business unit performance and personal
performance results are exceptional. In 1995, none of the performance adjusted
bonus pool was paid out.
At the discretion of the Committee, any bonus allocation may be paid in any
combination of cash and restricted stock.
Enterprise Compensation Program
The bonus portion of the Enterprise Compensation Program provides for
incentive opportunities linked to attainment of AEE business plan goals
emphasizing creation of value for Company shareholders and achievement of key
financial milestones for the start-up business. For this purpose target award
funding is linked to business plan targets for AEE. In the overall program
design, this funded award amount can be modified up or down according to
individual performance factors. The bonus award earned by the President and COO
of AEE for actual performance results achieved in 1995 was linked entirely to
specific numeric goals related to AEE's fiscal year results. Beginning in 1996,
the bonus opportunity for the President and COO of AEE will also include a
component linked to the annual performance of the Company.
For 1995, the incentive performance criteria and relative weighting of each
criteria at the target level for the President and COO of AEE were:
o 50% related to the increase in net present value of
investments/acquisitions; and
o 50% related to free cash flow generated from operations less cash
investments made during the year.
For 1995, actual performance exceeded the target performance goals,
resulting in award funding at 150% of the target size for the President and COO
of AEE. This funded amount was not further modified for individual performance
factors.
LONG-TERM INCENTIVE COMPENSATION
Utility Compensation Program
The Company uses an equity-based long-term incentive program, Equity
Incentive Plan ("EIP"), to link a major portion of executive compensation
directly to the creation of shareholder value. This linkage is accomplished
through the granting of stock options, where the award value is based solely on
share price appreciation, and the granting of performance-vested restricted
stock, where the performance requirements reflect shareholder value creation.
The EIP uses three-year cycles to measure actual results against targeted
performance. In addition, the EIP is structured to emphasize the accumulation of
significant share ownership by management that the Committee believes is an
incentive for executive officers to make decisions as owners. Pursuant to the
EIP, the first grants of shares subject to restriction and stock options were
made in 1994 with subsequent grants scheduled to occur every two years.
STOCK OPTIONS
The value of stock options is entirely dependent on the share price
appreciation of the Company's stock from the date of grant to the exercise of
the option.
PERFORMANCE-VESTED RESTRICTED STOCK
Grants of stock subject to restriction will be earned if, and only if,
certain long-term performance criteria are met. One half (50%) of the shares
subject to restriction may be earned and vested if, over a three-year period
ending January 1, 1997, (known as a performance cycle), total shareholder return
(stock price appreciation plus reinvested divi-
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<PAGE>
dends) equals the median or better of the total shareholder return achieved by
the peer group. The other half of shares subject to restriction may be earned if
cumulative return on shareholder equity over the same performance cycle is at a
preapproved standard or better. The earned award level can increase up to 100%
of the total shares granted subject to restriction if total shareholder return
and cumulative return on shareholder equity reach higher goal levels
pre-established by the Committee. Executive officers, including the CEO, are
entitled to vote the stock upon grant. Dividends earned on the restricted shares
are reinvested and subject to the same performance requirements as the
associated grant over the same three-year performance cycle.
Enterprise Compensation Program
The long-term incentive portion of the Enterprise Compensation Program
divides the incentive opportunity for AEE executives between a portion granted
under the Company's EIP (as described above) and a portion that can be earned
under the Enterprise Compensation Program upon the achievement of long-term
goals. Under this structure, the President and COO of AEE receives one-fourth of
his total long-term incentive opportunity through share grants subject to
Company performance and stock options issued pursuant to the EIP. The remaining
three-fourths of his total long-term incentive opportunity is provided through
grants of AEE "phantom stock." Phantom stock is a hypothetical share of stock
whose value is contingent on achievement of strategic performance goals by AEE.
Grants of phantom stock will be considered every two years, with grants vesting
at the end of a four-year performance cycle, except in the case of accelerated
vesting at death, total disability or a change of control. Shares of phantom
stock have no value until the completion of the applicable performance cycle.
The size of the combined grant opportunity is based on median market practice
for comparable executive positions within a surveyed group of nonutility energy
services companies. Grant guidelines for each grant cycle are established with
reference to both a target share value and target achievement levels for each
pre-established performance criteria. For the initial grant covering fiscal
years 1995 through 1998, the two established performance criteria are:
o cumulative contribution to earnings per share over a four-year
performance cycle, and
o average annual net cash flow return on invested equity (in excess of a
risk-free rate of return) over the same four-year cycle.
INDEPENDENCE OF THE COMMITTEE
The Committee consists of six outside Directors as defined under Section
162(m) of the Internal Revenue Code.
The Committee is responsible for developing and administering the policies
that govern the total compensation program for executive officers, including the
CEO. The Committee also administers the EIP and the Enterprise Compensation
Program for all participants, including the awards to the executive officers of
the Company and its subsidiaries. The Committee determines the performance
criteria and specific numeric goals for bonus and long-term incentive
compensation to be paid to executive officers, including the CEO.
The Committee utilizes the services of a qualified compensation consultant
in connection with its annual review of the competitiveness and effectiveness of
the executive compensation program.
POLICY ON DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code limits the tax deduction to $1
million for compensation paid to each of the executive officers listed on page
14. The Committee has carefully reviewed the requirements of Section 162(m) and
intends to comply with its requirements. Qualifying performance-based
compensation is not subject to the deduction limit if certain requirements are
met. In 1995, all compensation paid to the executive officers was deductible.
For 1996, the Committee does not contemplate that there will be nondeductible
compensation.
Personnel & Benefits Committee
Jos. Michael Galvin, Jr., Chairman
Gerald A. Hale
Matthew Holden, Jr.
Cyrus H. Holley
Kathleen MacDonnell
Richard B. McGlynn
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<TABLE>
<CAPTION>
TABLE 1--SUMMARY COMPENSATION TABLE
Long-term Compensation
-----------------------------------
Annual Compensation Awards Payouts
------------------------------------------------------------------------
Other
Annual Restricted Securities All Other
Compen- Stock Underlying LTIP Compen-
Name And Principal Position Year Salary Bonus Sation(1) ($)(2) Options(#) Payouts Sation(3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. L. Jacobs 1995 $435,000 -- $25,528 -- -- -- 13,050
President and Chief Executive 1994 390,583 $120,100 19,895 760,500 36,000 -- 11,718
Officer of the Company and 1993 284,670 70,400 10,575 154,509 -- -- 8,540
Chairman and Chief Executive
Officer of Atlantic City
Electric Company
- -----------------------------------------------------------------------------------------------------------------------------
M. J. Chesser 1995 262,000 -- 7,039 -- -- -- 7,240
Senior Vice President of the 1994 200,000 89,500 143,899 482,579 18,300 -- 6,000
Company and President and 1993 -- -- -- -- -- -- --
Chief Operating Officer of
Atlantic City Electric Company
- -----------------------------------------------------------------------------------------------------------------------------
M. I. Harlacher, Jr. 1995 205,133 -- 10,070 -- -- -- 6,154
Vice President, Power System 1994 181,100 58,500 9,167 312,650 14,800 -- 5,433
of the Company and Senior 1993 175,067 43,100 7,358 112,009 -- -- 5,252
Vice President, Power System
of Atlantic City Electric
Company
- -----------------------------------------------------------------------------------------------------------------------------
S. B. Ungerer 1995 140,000 84,000 3,596 -- -- -- 3,500
Vice President, Energy 1994 115,163 32,200 1,896 59,150 2,800 -- 775
Enterprises of the Company 1993 -- -- -- -- -- -- --
and President and Chief
Operating Officer of Atlantic
Energy Enterprises, Inc.
- -----------------------------------------------------------------------------------------------------------------------------
M. T. Powell (4) 1995 173,856 22,000 60,995 -- -- -- 5,216
Vice President, Marketing of 1994 -- -- -- -- -- -- --
the Company and Senior Vice 1993 -- -- -- -- -- -- --
President, Marketing of
Atlantic City Electric
Company
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes dividends paid on shares of restricted stock under the Long-Term
Incentive Plan ("LTIP") and tax reimbursement payments. The amount reported
for Mr. Chesser in 1994 also includes $74,401 for relocation expenses. The
amount reported for Ms. Powell in 1995 also includes $32,577 for relocation
expenses. The amount reported for Mr. Ungerer in 1995 is an automobile
allowance and in 1994 includes $1,100 paid in lieu of a matching 401(k)
contribution.
(2) Dollar value of restricted stock awards are based on market price on the
date of the award. The aggregate number of shares of stock held subject to
restriction and its market value based on the per share closing price of
$19.25 on December 29, 1995 are: Mr. Jacobs 42,773 shares/$823,380; Mr.
Chesser 22,871 shares/$440,267; Mr. Harlacher 19,170 shares/$369,023; Mr.
Ungerer 2,800 shares/$53,900; and Ms. Powell 2,800 shares/$53,900.
(3) "ALL OTHER COMPENSATION" consists of contributions by Atlantic City
Electric Company and Atlantic Energy Enterprises, Inc in 1995 under the
Atlantic Electric 401(k) Savings and Investment Plan-A ("401(k) Plan"), a
defined contribution plan and a Company matching contribution made pursuant
to the Company's Deferred Compensation Plan for Employees ("DCP"), a
non-qualified deferred compensation plan. In 1995, the amount shown for 1)
Mr. Jacobs includes a $4,620 contribution to the 401(k) Plan and a $8,430
contribution to
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<PAGE>
the DCP; 2) Mr. Chesser includes a $4,620 contribution to the 401(k) Plan
and a $2,620 contribution to the DCP; 3) Mr. Harlacher includes a $4,620
contribution to the 401(k) Plan and a $1,543 contribution to the DCP; 4)
Mr. Ungerer includes a $3,500 contribution to the 401(k) Plan and 5) Ms.
Powell includes a $4,173 contribution to the 401(k) Plan and a $1,043
contribution to the DCP.
(4) Ms. Powell became an officer of the Company on November 9, 1995. In 1995,
Ms. Powell received a one-time, lump-sum payment in recognition of the
achievement of personal goals established as a condition of employment.
TABLE 2--AGGREGATED FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-money Options
Options at FY-End(#) at FY_End($)
- --------------------------------------------------------------------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
---- ------------- -------------
J. L. Jacobs 0/36,000 --
M. J. Chesser 0/18,300 --
M. I. Harlacher, Jr. 0/14,800 --
S. B. Ungerer 0/2,800 --
M. T. Powell 0/2,800 --
- --------------------------------------------------------------------------------
15
<PAGE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG ATLANTIC ENERGY, INC., THE S&P 500 INDEX AND A PEER GROUP
*$100 invested on 12/31/90 in stock or index--including reinvestment of
dividends. Fiscal year ended December 31.
--GRAPHICAL REPRESENTATION OF DATA TABLE BELOW--
Cumulative Total Return
---------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
ATLANTIC ENERGY, INC. 131 158 159 140 166
PEER GROUP 132 148 163 140 193
S&P 500 130 140 155 157 215
The above graph compares the performance of Atlantic Energy, Inc. with that
of the S&P 500 Index and a peer group of utility companies with the investment
weighted based on market capitalization. The peer group is comprised of the
following companies:
Boston Edison Company, Central Hudson Gas & Electric Corp., Central Maine
Power Company, Commonwealth Energy System, Delmarva Power & Light Co., DPL Inc.,
DQE Inc., New York State Electric & Gas Corporation, Orange & Rockland
Utilities, Incorporated, Potomac Electric Power Company, Rochester Gas &
Electric Corp., SCANA Corporation, UGI Corporation and United Illuminating
Company.
EMPLOYMENT AGREEMENTS
In 1995, the Company entered into employment agreements with each of the
executive officers listed in Table 1--Summary Compensation Table on page 14.
Such agreements supersede any other agreements existing between the executive
officers and the Company. The agreements provide for an initial two-year
Employment Period that may be automatically renewed for two years. Under the
terms of the agreements each executive officer is entitled to receive 1) a base
salary, 2) incentive compensation at the discretion of the Board of Directors
based upon the recommendation of the Committee, and 3) any other benefits that
are available from time to time to officers of the Company through the
Employment Period. The agreements also provide that if the employment of the
executive officer is terminated by the Company (or, under certain circumstances,
by the executive officer) following a change in control of the Company (defined
to include, among other things, the acquisition by any person of 20% or more of
the voting power of the Company's Common Stock or the disposition of
substantially all the assets of the Company), the executive officer will receive
(a) the executive officer's full base salary through the date of termination,
(b) a cash amount from the Company equal to three times the sum of (x) the
executive officer's annual base salary and (y) the higher of the bonus paid to
the executive for the most recent fiscal year or the target bonus for the
current fiscal year
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<PAGE>
(the "Minimum Bonus Amount"), (c) the prorated portion of the executive
officer's unpaid Minimum Bonus Amount, (d) any other amounts otherwise payable
in respect of the Company's otherwise applicable long-term incentive
compensation and equity plans and programs, and (e) all vested amounts or
benefits owing to the executive officer under the Company's otherwise applicable
employee benefit plans and programs. In addition, the executive officer will be
entitled to continue to participate in the Company's employee and executive
pension, welfare and fringe benefit plans excluding supplemental retirement
benefits. For purposes of calculating the executive officer's retirement
benefit, three years will be added to both the executive officer's age and
service with the Company. The agreements further provide that if the payments
described above constitute "excess parachute payments" under applicable
provisions of the Internal Revenue Code and related regulations, the Company
will pay the executive officer an additional amount sufficient to place the
executive in the same after-tax financial position the executive would have been
in if the executive had not incurred the excise tax imposed under Section 4999
of the Internal Revenue Code in respect of excess parachute payments. The
agreement with J. L. Jacobs establishes an opportunity at the election of J. L.
Jacobs to enter into a consulting arrangement with the Company for a term of two
years with compensation at $130,000 annually to commence on the date following
his retirement, but not before December 1, 1996.
PENSION PLANS
The following table describes the combined estimated annual retirement
benefit payable under the Retirement Plan that is qualified under Section 401(a)
of the Internal Revenue Code ("Qualified Plan") and the Excess Benefit
Retirement Income Program ("Excess Plan"). The Internal Revenue Code places
certain limitations on the amount of pension benefits that may be paid under the
Qualified Plan. Any benefits payable in excess of those limitations will be paid
under the Excess Plan. In 1995, the Excess Plan was amended to provide for
immediate vesting of benefits in the event of a change of control of the
Company. The estimated retirement benefits paid to an employee assume a straight
life annuity to the employee, retirement at age 65, the average of the highest
earnings in five of the ten years preceding retirement and years of service
specified.
The credited full years of service at December 31, 1995 under the
Retirement Plan are as follows for the individuals named in the Summary
Compensation Table: Mr. Jacobs--34 years; Mr. Chesser--two years, Mr.
Harlacher--30 years and Ms. Powell--one year. Mr. Ungerer's participation in the
Retirement Plan was terminated in 1994, the year he became affiliated with
Atlantic Energy Enterprises, Inc. Mr. Ungerer's credited full years of service
under the Retirement Plan, reflecting his term of employment with Atlantic City
Electric Company, is 14 years.
TABLE 5--PENSION PLAN TABLE
Years of Service
--------------------------------------------------------------
Remuneration 25 30 35 40 45
- ------------ -- -- -- -- --
$130,000 $ 52,000 $ 62,000 $ 73,000 $ 83,000 $ 94,000
190,000 76,000 91,000 106,000 122,000 137,000
250,000 100,000 120,000 140,000 160,000 180,000
310,000 124,000 149,000 174,000 198,000 223,000
370,000 148,000 178,000 207,000 237,000 266,000
430,000 172,000 206,000 241,000 275,000 310,000
490,000 196,000 235,000 274,000 314,000 353,000
550,000 220,000 264,000 308,000 352,000 396,000
Compensation covered for the executive officers named in Table 1--Summary
Compensation Table onpage 14 is the same as the total salary and bonus shown in
that table. Employees, including executive officers, may elect lump-sum
distributions in lieu of the receipt of annual retirement benefits.
In addition, the Company maintains a Supplemental Executive Retirement Plan
("SERP") for certain Qualified Executives of the Company. The SERP, which has
been in effect since January 1983, provides at age 60 and retirement: 1) the
annual payment of 25% of final compensation for the longer of 15 years or life
and 2) the one time payment of 75% of final compensation in the year of death.
For purposes of the SERP, "final compensation" is an
17
<PAGE>
amount equal to the executive officer's then annual base salary rate plus the
average of the two most recent years' bonuses. Qualified Executives after five
(5) years are fully vested in the SERP. The Board may commence payout of SERP
retirement benefits at any time after the Qualified Executive has attained age
55 and retired. Qualified Executives may elect lump-sum distribution in lieu of
the receipt of annual payments. The Plan provides for the Company to gross up
for federal and state taxes on the SERP payments. In 1995, the SERP was amended
to provide for immediate vesting of benefits in the event of a change of control
of the Company. Approximately twenty-three (23) former and current officers of
Atlantic City Electric Company, including three (3) of the executive officers
named in Table 1--Summary Compensation Table, participate in the SERP.
Participation in the SERP is limited to these individuals. Annual benefits
payable to Qualified Executives who are participants in the SERP, based on
current base salary rates and bonuses for the years ended December 31, 1994 and
1995, would upon retirement, be as follows: Mr. Jacobs $125,013; Mr. Chesser
$77,188 and Mr. Harlacher, $59,263. These amounts are in addition to the amounts
shown in the Pension Plan Table above. In 1995, the Board of Directors adopted
the Supplemental Executive Retirement Plan II (the "SERP II"). Qualified
Executives who are not participants in the SERP will receive benefits under the
SERP II. Qualified Executives after five (5) years are 50% vested with vesting
increasing each year until the 10th year of service at which time the Qualified
Executive will be 100% vested. At age 55 and older and subject to the vesting
provisions, retirement benefits in an amount equal to 60% of final compensation
(as defined above) will be available to a Qualified Executive or his/her
designated beneficiary for the longer of 15 years or life. Retirement benefits
paid to a Qualified Executive pursuant to SERP II will be reduced by any
benefits received from certain other retirement plans, and further reduced if
the Qualified Executive retires before age 60. In any event, benefits paid to a
Qualified Executive pursuant to SERP II shall not exceed 25% of the Qualified
Executive's final compensation. For Qualified Executives having less than five
years of service, SERP II benefits will vest immediately at the five year level
in the event of a change of control of the Company. In the event of death while
still employed by the Company, the designated beneficiary of the Qualified
Executive shall receive proceeds of a life insurance policy in an amount equal
to three times the final compensation of the Qualified Executive. SERP II also
provides for benefits in the event a Qualified Executive becomes disabled. One
executive officer named in Table I--Summary Compensation Table is a participant
in the SERP II. Based on current base salary rates and bonuses for the years
ended December 31, 1994 and 1995, the benefits paid to Ms. Powell would, upon
retirement, be $50,788.
APPROVAL OF THE ATLANTIC ENERGY, INC. AND SUBSIDIARIES
EMPLOYEE STOCK PURCHASE PLAN
The Atlantic Energy, Inc. and Subsidiaries (the "Company") Employee Stock
Purchase Plan (the "Plan") was approved by the Company's Board of Directors on
February 8, 1996 and is being submitted to shareholders for approval at the
April 24, 1996 Annual Meeting. The Plan provides for the granting of rights to
purchase up to 400,000 shares of the Company's Common Stock to eligible
employees of the Company.
The Plan is intended to promote the interests of the Company and its
shareholders by providing eligible employees with additional incentives to
encourage equity ownership in the Company in order to increase their proprietary
interest in and promote the continued success of the Company. Under the Plan,
eligible employees will be permitted to purchase shares of the Company's Common
Stock at a price which is less than the current market price thereof.
The Plan will be administered by the Personnel & Benefits Committee (the
"Committee") of the Board of Directors of the Company consisting of members of
the Board who are disinterested persons under Rule 16(b)(3) of the Securities
Exchange Act of 1934, as amended from time to time, (the "1934 Act"). The
Committee shall have the discretionary authority to regulate and interpret the
Plan's provisions.
Employees of the Company who meet the eligibility requirements ("Eligible
Employees") may participate in the Plan. The eligibility requirements are: (1) a
regular full-time employee must complete at least one Hour of Service no later
than 14 calendar days prior to the Offering Commencement Date; (2) an employee
who is not a regular, full-time employee must complete 1,000 Hours of Service
during the twelve consecutive-month period beginning on the date he or she first
performs an Hour of Service and ending no later than 14 calendar days prior to
the Offering Commencement Date. No employee may be granted the right to
participate in the Plan: (i) if immediately after the grant such employee would
own Common Stock, and/or hold options to purchase Common Stock possessing 5% or
more of the total combined voting power or value of all classes of Common Stock
of the Company; (ii) if his or her rights to purchase Common Stock under all
employee stock purchase plans of the Company would accrue at a rate that
18
<PAGE>
exceeds $25,000 in fair market value of the Common Stock for each calendar year
in which such option is outstanding. Approximately 1,500 employees are eligible
to participate in the Plan.
Employees will be provided with the opportunity to enroll in the Plan once
each year. The Plan will be implemented in four Offering Periods beginning on
the 15th day of August in each of the years 1996, 1997, 1998 and 1999 with each
Offering Period ending on August 14 of the following year. The beginning day of
each Offering Period is known as the Offering Commencement Date and the final
day of each Offering Period is known as the Purchase Date.
Eligible Employees may accumulate funds to purchase Common Stock under the
Plan by authorizing the Company to deduct an amount from each paycheck and
deposit that amount in an interest earning account, ("Employee Account"). An
Eligible Employee may not change the amount withheld from such employee's
compensation or make separate cash deposits to his or her Employee Account. All
payroll deductions received and held by the Company under this Plan may be used
by the Company for any corporate purpose and the Company shall not be obligated
to segregate such payroll deductions. On the Purchase Date, the Company may
apply all or a portion of the total amount of deposits made to an Employee
Account, but without interest earned thereon, to the purchase of shares of
Common Stock. Interest earned will be distributed in cash to the Eligible
Employee.
The maximum number of shares of Common Stock an Eligible Employee may
purchase in an Offering Period under the Plan is a number equal to (1) a dollar
amount designated by the Eligible Employee not in excess of 10% of such
employee's Annual Base Compensation divided by 85% of the market value of the
Common Stock of the Company on the applicable Offering Commencement Date, or (2)
a percentage designated by the Eligible Employee equal to the Annual Base
Compensation not in excess of 10%, (i) multiplied by such employee's Annual Base
Compensation, (ii) divided by 85% of the market value of the Common Stock of the
Company on the applicable Offering Commencement Date. Such determination shall
be at the discretion of the Committee.
The purchase price per share of Common Stock under the Plan will be
pursuant to law, the lesser of (1) 85% of the market value of a share of Common
Stock on the Offering Commencement Date, or (2) 85% of the market value of a
share of Common Stock on the Purchase Date. For this purpose, the market value
of a share of Common Stock will be equal to the high and low selling price of
the stock as reported by the "New York Stock Exchange--Composite Transactions"
("NYSE") published in The Wall Street Journal, or if no trading of Common Stock
occurs on the NYSE on that day, the nearest prior business day on which trading
occurred.
The Common Stock purchased by each Eligible Employee will be considered to
be issued and outstanding, but may be subject to certain restrictions, as of the
close of business on the Purchase Date. The stock offered under the Plan shall
consist in whole or in part of (1) authorized but unissued shares of Common
Stock of the Company, or (2) shares issued and thereafter acquired by the
Company. On December 29, 1995, the closing price on the NYSE was $19.25.
An Eligible Employee may elect to terminate his or her participation in the
Plan during an Offering Period by providing appropriate written notice to the
Company. Upon such notice, payroll deductions credited to the Employee's Account
will be refunded, without interest, to the employee.
Upon termination of employment for a reason other than retirement or death,
participation in the Plan shall terminate immediately and within a reasonable
time thereafter, the employee shall be paid all funds, without interest, then
credited to his or her Employee Account. Upon termination of employment due to
retirement or death, the employee or employee's beneficiary may elect to (1)
withdraw all payroll deductions, without interest, or (2) exercise the option
for the purchase of stock on the Purchase Date next following the date of
retirement or death, whichever is applicable, for the purchase of the number of
whole shares of stock which the accumulated payroll deductions, without
interest, in the Employee's Account at the date of retirement or death will
purchase at the applicable option price.
Neither payroll deductions plus interest, if any, credited to an Eligible
Employee's Employee Account nor any rights with regard to the exercise of an
option to receive stock under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way by such employee other than by will or the laws
of descent and distribution. No Eligible Employee will, by reason of
participation in the Plan, have any rights as a stockholder of the Company until
such employee acquires shares of the Common Stock. The Committee may, in its
discretion, require that any shares purchased pursuant to the Plan be subject to
certain restrictions regarding the sale of such shares. Under such
19
<PAGE>
restrictions, Eligible Employees may not be permitted to sell, transfer, pledge
or assign shares purchased under the Plan for a period of not more than one year
from the Purchase Date. The Committee has determined that shares acquired on the
Purchase Date of the first Offering Period will be subject to a one-year
restriction period. Nothing in the Plan confers upon any participant any right
to continue in the employment of the Company or its subsidiaries.
It is the intention of the Company to have the Plan qualify as an "employee
stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as
amended, that governs employee stock purchase plans. The provisions of the Plan
shall be construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code. An employee will
not be deemed to have received any compensation for federal income tax purposes
at the time of the grant or exercise of an option under the Plan. If an employee
exercises an option under the Plan and does not dispose of the shares thus
acquired until more than two years after the date the option was granted, profit
(other than the 15% discount) realized upon such disposition will be taxed as a
long-term capital gain. In such case, the Company will not be entitled to a
deduction for federal income tax purposes in connection with either the grant or
the exercise of the option. Whenever an employee sells the shares or dies, the
15% discount in the option price will be taxed as ordinary income.
The Committee may amend, alter, or discontinue or suspend the Plan or alter
or amend any and all terms of participation at any time but no amendment,
alteration, discontinuance or suspension shall be made that would impair the
rights of an Eligible Employee without such employee's consent or which, without
approval of shareholders, would (1) increase the total number of shares reserved
for the purpose of the Plan or the maximum number of shares that each Eligible
Employee can elect to purchase; (2) extend the maximum term of an Offering
Period under the Plan beyond 12 months; (3) decrease either the option price or
change the pricing terms; (4) materially expand the requirements as to
eligibility for employees; (5) materially increase benefits under the Plan
within the meaning of Rule 16(b)(3) under the 1934 Act to the extent that rule
is applicable.
If, while any options are outstanding under the Plan, the outstanding
shares of Common Stock of the Company have increased, decreased, changed into or
been exchanged for a different number or kind of shares or securities of the
Company through reorganization, merger, recapitalization, reclassification,
stock split, reverse stock split, or similar transaction, appropriate and
proportionate adjustments may be made by the Committee in the number and/or kind
of shares that are subject to purchase under outstanding options and on the
option exercise price or prices applicable to such outstanding options.
In the event of a "change of control" (as defined below) of the Company,
each Eligible Employee will be entitled to receive at the next Purchase Date
upon the exercise of such option for each share as to which such option shall be
exercised, the cash, securities and/or property that a holder of one share of
the Common Stock was entitled to receive upon and at the time of such
transaction. For purposes of the Plan, a "change of control" shall occur (i) if
any person or group becomes the beneficial owner of securities of the Company
representing 20 percent or more of the combined voting power of the Company's
then outstanding securities; or (ii) when, during any period of 24 consecutive
months during the existence of the Plan, the individuals who, at the beginning
of such period, constitute the Board of Directors cease for any reason other
than death to constitute at least a majority thereof; or (iii) the occurrence of
a transaction requiring shareholder approval for the acquisition of the Company
by an entity other than the Company or a subsidiary through purchase of assets,
or by merger or otherwise.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE ATLANTIC
ENERGY, INC. AND SUBSIDIARIES EMPLOYEE STOCK PURCHASE PLAN.
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed Deloitte & Touche LLP as independent auditors of the Company for the
year ending December 31, 1996. Representatives of Deloitte & Touche LLP will be
present at the Annual Meeting, will be available to respond to appropriate
questions and will have the opportunity to make a statement if they so desire.
Although not required, the Board of Directors proposes to submit at the
meeting a proposal that the appointment of Deloitte & Touche LLP be ratified. If
the shareholders do not ratify the appointment of Deloitte & Touche LLP, the
selection of independent auditors will be reconsidered and made by the Board of
Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
SELECTION OF DELOITTE & TOUCHE LLP.
20
<PAGE>
SECTION 16 COMPLIANCE
The Company believes that during the preceding year its executive officers
and directors have complied with all Section 16 filing requirements with the
exception of two INITIAL STATEMENT OF BENEFICIAL OWNERSHIP OF SECURITIES (Form
3) filings. Such filings advise the Securities and Exchange Commission of the
election of an officer or director of the Company and his/her beneficial
ownership of securities issued by the Company. The forms were inadvertently
filed late on behalf of Mr. Michael J. Barron, an officer of the Company and Mr.
Frank F. Frankowski, a former officer of the Company. In addition, certain
information reported in the 1995 ANNUAL STATEMENT OF CHANGES IN BENEFICIAL
OWNERSHIP (Form 5) filed on behalf of Mr. Galvin, a Director of the Company
includes a late report of eight transactions that occurred over a two-year
period in 1993 and 1994. Each transaction relates to a trust established by Mr.
Galvin's employer and includes one open market purchase of 166 shares, one
transfer of previously reported shares and six transactions involving 217 shares
purchased pursuant to the operation of the Company's Dividend Reinvestment and
Stock Purchase Plan.
FUTURE PROPOSALS OF SHAREHOLDERS
To be included in the proxy materials for the 1997 Annual Meeting of
Shareholders, any shareholder proposal intended to be submitted for action at
that meeting must be received by the Secretary, Atlantic Energy, Inc., 6801
Black Horse Pike, Egg Harbor Township, NJ 08234-4130 on or before November 15,
1996.
Shareholders wishing to nominate directors or bring business before the
meeting must provide written notice to the Secretary of the Company by personal
delivery or U.S. mail not later than ninety (90) days prior to the 1997 Annual
Meeting of Shareholders. Such notice must 1) describe the business matter to be
brought before the meeting and the reasons for conducting such business at the
annual meeting; 2) the name and address of the shareholder proposing such
business; 3) the number of shares of Common Stock owned by the shareholder, and
4) any material interest of the shareholder in such business.
OTHER MATTERS
The Company has mailed a 1995 Annual Report to Shareholders and a proxy
card together with this proxy statement to all shareholders of record and
persons who, according to the records of the Company, hold shares of Common
Stock in the Dividend Reinvestment and Stock Purchase Plan or Employee Stock
Ownership Plan but do not own any other shares at the close of business on March
4, 1996.
The Board of Directors does not intend to bring before the meeting any
business other than the matters referred to in this proxy statement, and at the
date of this proxy statement, the Board of Directors is not aware that any other
matters are to be presented for action at the meeting. However, if any other
matters properly come before the meeting, or any adjournments thereof, the
persons named in the accompanying proxy card will vote in accordance with their
discretion on such matters.
UPON RECEIPT OF A WRITTEN REQUEST OF A BENEFICIAL OWNER OF SECURITIES
ENTITLED TO VOTE AT THE MEETING, THE COMPANY WILL PROVIDE, WITHOUT CHARGE, A
COPY OF ITS FORM 10-K ANNUAL REPORT AFTER IT IS FILED, ON OR BEFORE MARCH 31,
1996, WITH THE SECURITIES AND EXCHANGE COMMISSION. THE REQUEST SHOULD BE
DIRECTED TO INVESTOR RECORDS, ATLANTIC ENERGY, INC., P.O. BOX 1334, 6801 BLACK
HORSE PIKE, PLEASANTVILLE, NEW JERSEY 08232.
21
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
ATLANTIC ENERGY, INC.
1995 ANNUAL REPORT
TO SHAREHOLDERS
APPENDIX A
<PAGE>
TABLE OF CONTENTS
1995 Annual Report to Shareholders Page
- ---------------------------------- ----
Report of Management ................................................ A-1
Report of the Audit Committee ....................................... A-2
Independent Auditors' Report ........................................ A-3
Consolidated Balance Sheet .......................................... A-4
Consolidated Statement of Income .................................... A-6
Consolidated Statement of Cash Flows ................................ A-7
Consolidated Statement of Changes in Common Shareholders' Equity .... A-8
Notes to Consolidated Financial Statements .......................... A-9
Management's Discussion and Analysis of Financial Condition
and Results of Operations ......................................... A-25
Investor Information ................................................ A-32
Selected Financial Data 1995-1991 ................................... A-34
Directors of Atlantic Energy, Inc. .................................. A-35
Officers of Atlantic Energy, Inc. and Subsidiaries .................. A-36
<PAGE>
REPORT OF MANAGEMENT
The management of Atlantic Energy, Inc. and its subsidiaries (the Company)
is responsible for the preparation of the financial statements presented in this
Annual Report. The financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management made informed judgments and estimates, as necessary, relating to
events and transactions reported.
Management has established a system of internal accounting and financial
controls and procedures designed to provide reasonable assurance as to the
integrity and reliability of financial reporting. In any system of financial
reporting controls, inherent limitations exist. Management continually examines
the effectiveness and efficiency of this system, and actions are taken when
opportunities for improvement are identified. Management believes that, as of
December 31, 1995, the system of internal accounting and financial controls over
financial reporting is effective. Management also recognizes its responsibility
for fostering a strong ethical climate in which the Company's affairs are
conducted according to the highest standards of corporate conduct. This
responsibility is characterized and reflected in the Company's code of ethics
and business conduct policy.
The financial statements have been audited by Deloitte & Touche LLP,
Certified Public Accountants. Deloitte & Touche provides objective, independent
audits as to management's discharge of its responsibilities insofar as they
relate to the fairness of the financial statements. Their audits are based on
procedures believed by them to provide reasonable assurance that the financial
statements are free of material misstatement.
The Company's internal auditing function conducts audits and appraisals of
the Company's operations. It evaluates the system of internal accounting,
financial and operational controls and compliance with established procedures.
Both the external auditors and the internal auditors periodically make
recommendations concerning the Company's internal control structure to
management and the Audit Committee of the Board of Directors. Management
responds to such recommendations as appropriate in the circumstances. None of
the recommendations made for the year ended December 31, 1995 represented
significant deficiencies in the design or operation of the Company's internal
control structure.
[SIGNATURE]
JERROLD L. JACOBS
President and Chief Executive Officer
[SIGNATURE]
MICHAEL J. BARRON
Vice President and Chief Financial Officer
February 2, 1996
A-1
<PAGE>
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors is comprised solely of
independent directors. The members of the Committee are: Matthew Holden, Jr.,
Kathleen MacDonnell, Bernard J. Morgan and Harold J. Raveche. The Committee held
five meetings during 1995.
The Committee oversees the Company's financial reporting process on behalf
of the Board of Directors. In fulfilling its responsibility, the Committee
recommended to the Board of Directors, subject to shareholder ratification, the
selection of the Company's independent auditors, Deloitte & Touche LLP. The
Committee discussed with the Company's internal auditors and Deloitte & Touche
the overall scope of and specific plans for their respective activities
concerning the Company. The Committee meets regularly with the internal and
external auditors, without management present, to discuss the results of their
activities, the adequacy of the Company's system of accounting, financial and
operational controls and the overall quality of the Company's financial
reporting. The meetings are designed to facilitate any private communication
with the Committee desired by the internal and external auditors. No significant
actions by the Committee were required during the year ended December 31, 1995
as a result of any communications conducted.
[SIGNATURE]
MATTHEW HOLDEN, JR.
Chairman, Audit Committee
February 2, 1996
A-2
<PAGE>
[DELOITTE LOGO]
INDEPENDENT AUDITORS' REPORT
Deloitte & Touche LLP
Certified Public Accountants
Two Hilton Court
Parsippany, New Jersey 07054
To the Shareholders and the Board of Directors
of Atlantic Energy, Inc.:
We have audited the accompanying consolidated balance sheets of Atlantic
Energy, Inc. and subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of income, changes in common shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Atlantic Energy, Inc. and its
subsidiaries at December 31, 1995 and 1994 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.
[SIGNATURE]
February 2, 1996
A-3
<PAGE>
ATLANTIC ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(THOUSANDS OF DOLLARS)
ASSETS
December 31,
----------------------------
1995 1994
---------- ----------
Electric Utility Plant:
In Service:
Production ..................................... $1,187,169 $1,151,661
Transmission ................................... 366,242 357,389
Distribution ................................... 691,830 659,619
General ........................................ 183,935 180,204
---------- ----------
Total In Service ................................ 2,429,176 2,348,873
Less Accumulated Depreciation ................... 794,479 725,999
---------- ----------
Net ............................................. 1,634,697 1,622,874
Construction Work in Progress ................... 119,270 110,078
Land Held for Future Use ........................ 6,941 6,941
Leased Property--Net ............................ 40,878 42,030
---------- ----------
Electric Utility Plant--Net ..................... 1,801,786 1,781,923
---------- ----------
Investments and Nonutility Property:
Investment in Leveraged Leases .................. 78,959 78,216
Nuclear Decommissioning Trust Fund .............. 61,802 52,004
Nonutility Property and Equipment--Net .......... 22,743 18,163
Other Investments and Funds ..................... 52,780 28,940
---------- ----------
Total Investments and Nonutility Property ....... 216,284 177,323
---------- ----------
Current Assets:
Cash and Temporary Investments .................. 5,691 5,114
Accounts Receivable:
Utility Service ................................ 66,099 54,554
Miscellaneous .................................. 17,477 14,067
Allowance for Doubtful Accounts ................ (3,300) (3,300)
Unbilled Revenues ............................... 41,515 32,070
Fuel (at average cost) .......................... 25,459 28,030
Materials and Supplies (at average cost) ........ 25,434 27,823
Working Funds ................................... 14,421 14,475
Deferred Energy Costs ........................... 31,434 10,999
Deferred Income Taxes ........................... -- 12,264
Prepaid Excise Tax .............................. 10,753 5,287
Other ........................................... 13,339 6,596
---------- ----------
Total Current Assets ............................ 248,322 207,979
---------- ----------
Deferred Debits:
Unrecovered Purchased Power Costs ............... 99,817 115,538
Recoverable Future Federal Income Taxes ......... 85,858 85,854
Unrecovered State Excise Taxes 64,274 73,834
Unamortized Debt Costs .......................... 39,004 38,184
Other Regulatory Assets ......................... 54,568 47,055
Other ........................................... 10,983 17,865
---------- ----------
Total Deferred Debits ........................... 354,504 378,330
---------- ----------
Total Assets .................................... $2,620,896 $2,545,555
========== ==========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
A-4
<PAGE>
ATLANTIC ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(THOUSANDS OF DOLLARS)
LIABILITIES AND CAPITALIZATION
December 31,
----------------------------
1995 1994
---------- ----------
Capitalization:
Common Shareholders' Equity:
Common Stock, no par value; 75,000,000 shares
authorized; issued and outstanding:
1995--52,531,878; 1994--54,155,245 ............... $ 563,436 $ 593,475
Retained Earnings ................................. 249,741 249,181
---------- ----------
Total Common Shareholders' Equity ................. 813,177 842,656
Preferred Stock:
Not Subject to Mandatory Redemption .............. 40,000 40,000
Subject to Mandatory Redemption .................. 114,750 149,250
Long Term Debt .................................... 829,856 778,288
---------- ----------
Total Capitalization (excluding current portion) .. 1,797,783 1,810,194
---------- ----------
Current Liabilities:
Preferred Stock Redemption Requirement ............ 22,250 12,250
Long Term Debt .................................... 65,247 1,000
Short Term Debt ................................... 30,545 8,600
Accounts Payable .................................. 60,858 66,080
Taxes Accrued ..................................... 3,450 10,409
Interest Accrued .................................. 20,315 19,168
Dividends Declared ................................ 23,490 24,681
Accrued Employee Separation Costs ................. 7,488 26,600
Deferred Income Taxes ............................. 2,569 --
Other ............................................. 20,554 19,813
---------- ----------
Total Current Liabilities ......................... 256,766 188,601
---------- ----------
Deferred Credits and Other Liabilities:
Deferred Income Taxes ............................. 425,875 412,574
Deferred Investment Tax Credits ................... 49,112 51,646
Capital Lease Obligations ......................... 40,227 41,111
Other ............................................. 51,133 41,429
---------- ----------
Total Deferred Credits and Other Liabilities ...... 566,347 546,760
---------- ----------
Commitments and Contingencies (Note 10)
Total Liabilities and Capitalization .............. $2,620,896 $2,545,555
========== ==========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
A-5
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(THOUSANDS OF DOLLARS)
For the Years Ended December 31,
----------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Operating Revenues--Electric ........................................... $953,137 $913,039 $865,675
-------- -------- --------
Operating Expenses:
Energy ................................................................ 191,766 210,891 159,438
Purchased Capacity .................................................... 190,570 130,929 110,781
Operations ............................................................ 152,060 156,409 162,151
Maintenance ........................................................... 34,379 37,568 45,360
Depreciation and Amortization ......................................... 78,461 73,344 67,950
State Excise Taxes .................................................... 102,811 97,072 104,280
Federal Income Taxes .................................................. 45,876 42,529 45,277
Other Taxes ........................................................... 8,677 10,757 10,854
-------- -------- --------
Total Operating Expenses ............................................ 804,600 759,499 706,091
-------- -------- --------
Operating Income ....................................................... 148,537 153,540 159,584
-------- -------- --------
Other Income and Expense:
Allowance for Equity Funds Used During Construction ................... 817 3,634 2,368
Employee Separation Costs, net of tax benefit of $9,265 ............... -- (17,335) --
Litigation Settlement, net of tax benefit of $1,321 ................... -- -- (2,564)
Other--Net ............................................................ 8,241 8,678 12,884
-------- -------- --------
Total Other Income and Expense ...................................... 9,058 (5,023) 12,688
-------- -------- --------
Income Before Interest Charges ......................................... 157,595 148,517 172,272
-------- -------- --------
Interest Charges:
Interest on Long Term Debt ............................................ 60,329 57,346 59,385
Other Interest Expense ................................................ 2,550 1,114 1,633
-------- -------- --------
Total Interest Charges .............................................. 62,879 58,460 61,018
Allowance for Borrowed Funds Used During Construction ................. (1,679) (2,772) (1,448)
-------- -------- --------
Net Interest Charges ................................................... 61,200 55,688 59,570
-------- -------- --------
Less Preferred Stock Dividend Requirements of Subsidiary ............... 14,627 16,716 17,405
-------- -------- --------
Net Income ............................................................. $ 81,768 $ 76,113 $ 95,297
======== ======== ========
Average Number of Shares of Common Stock Outstanding
(in thousands) ........................................................ 52,815 54,149 52,888
Per Common Share:
Earnings .............................................................. $1.55 $1.41 $1.80
Dividends Declared .................................................... $1.54 $1.54 $1.535
Dividends Paid ........................................................ $1.54 $1.54 $1.53
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
A-6
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
For the Years Ended December 31,
----------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows Of Operating Activities:
Net Income ........................................................ $ 81,768 $ 76,113 $ 95,297
Deferred Purchased Power Costs .................................... 15,721 14,920 (6,050)
Deferred Energy Costs ............................................. (20,435) (3,819) (15,269)
Preferred Stock Dividend Requirements ............................. 14,627 16,716 17,405
Depreciation and Amortization ..................................... 78,461 73,344 67,950
Deferred Income Taxes--Net ........................................ 25,946 17,863 20,901
Unrecovered State Excise Taxes .................................... 9,560 (40,128) (33,706)
Employee Separation Costs ......................................... (19,112) 26,600 --
Net (Increase) Decrease in Other Working Capital .................. (43,068) (21,472) 30,088
Other--Net ........................................................ 4,893 (2,457) 1,534
-------- -------- --------
Net Cash Provided by Operating Activities ......................... 148,361 157,680 178,150
--------- --------- ---------
Cash Flows Of Investing Activities:
Utility Construction Expenditures ................................. (100,904) (119,961) (138,111)
Leased Property ................................................... (10,446) (10,713) (9,946)
Decommissioning Trust Fund Deposits ............................... (6,424) (6,424) (6,424)
Other--Net ........................................................ (22,596) (11,276) (9,832)
--------- --------- ---------
Net Cash Used by Investing Activities ............................. (140,370) (148,374) (164,313)
--------- --------- ---------
Cash Flows Of Financing Activities:
Proceeds from Long Term Debt ...................................... 168,904 54,572 464,633
Retirement and Maturity of Long Term Debt ......................... (57,489) (42,664) (370,541)
Increase (Decrease) in Short Term Debt ............................ 21,945 8,600 (14,600)
Proceeds from Common Stock Issued ................................. -- 10,289 16,208
Repurchase of Common Stock ........................................ (29,626) (3,909) --
Redemption of Preferred Stock ..................................... (24,500) (24,500) (5,469)
Dividends Declared on Preferred Stock ............................. (14,627) (16,716) (17,405)
Dividends Declared on Common Stock ................................ (81,088) (75,829) (67,259)
Other--Net ........................................................ 9,067 12,330 8,584
--------- --------- ---------
Net Cash (Used) Provided by Financing Activities .................. (7,414) (77,827) 14,151
--------- --------- ---------
Net Increase (Decrease) in Cash and Temporary Investments .......... 577 (68,521) 27,988
Cash and Temporary Investments, beginning of year .................. 5,114 73,635 45,647
--------- --------- ---------
Cash and Temporary Investments, end of year ........................ $ 5,691 $ 5,114 $ 73,635
========= ========= =========
Supplemental Schedule of Payments:
Interest .......................................................... $ 61,160 $ 62,855 $ 52,765
Income taxes $ 30,769 $ 23,374 $ 19,565
Noncash Financing Activities:
Common Stock issued under stock plans ............................. $ 137 $ 7,652 $ 14,088
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
A-7
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN
COMMON SHAREHOLDERS' EQUITY
(THOUSANDS OF DOLLARS)
Common Retained
Shares Stock Earnings
---------- -------- --------
<S> <C> <C> <C>
Balance, December 31, 1992 .................... 52,198,624 $549,147 $242,768
Common Stock issued ........................... 1,308,162 30,296
Net Income .................................... 95,297
Capital stock expense of subsidiary ........... (169)
Dividends on Common Stock ..................... (81,347)
---------- -------- --------
Balance, December 31, 1993 .................... 53,506,786 579,443 256,549
Common Stock issued ........................... 870,159 17,941
Common Stock repurchased ...................... (221,700) (3,909)
Net Income .................................... 76,113
Dividends on Common Stock ..................... (83,481)
---------- -------- --------
Balance, December 31, 1994 .................... 54,155,245 593,475 249,181
---------- -------- --------
Common Stock issued* .......................... 1,633 (413)
Common Stock repurchased ...................... (1,625,000) (29,626)
Net Income .................................... 81,768
Dividends on Common Stock ..................... (81,208)
---------- -------- --------
Balance, December 31, 1995 .................... 52,531,878 $563,436 $249,741
========== ======== ========
</TABLE>
- ----------
* Included in Common Stock issued are amounts associated with adjustments made
for employee stock plans.
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
A-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Organization--Atlantic Energy, Inc. (the Company, AEI or parent) is the
parent of Atlantic City Electric Company (ACE) and Atlantic Energy Enterprises,
Inc. (AEE), which are wholly-owned subsidiaries. ACE is a public utility
primarily engaged in the generation, transmission, distribution and sale of
electric energy. ACE's service territory encompasses approximately 2,700 square
miles within the southern one-third of New Jersey with the majority of customers
being residential and commercial. ACE, with its wholly-owned subsidiary that
operates certain generating facilities, is the principal subsidiary within the
consolidated group. On January 1, 1995, AEI transferred direct ownership of its
existing nonutility companies to AEE. AEE is a holding company which is
responsible for the management of the investments in the nonutility companies
consisting of: Atlantic Generation, Inc. (AGI), Atlantic Southern Properties,
Inc. (ASP), ATE Investment, Inc. (ATE), Atlantic Thermal Systems, Inc. (ATS),
CoastalComm, Inc. (CCI) and Atlantic Energy Technology, Inc. (AET). AGI and its
wholly-owned subsidiaries are engaged in the development, acquisition, ownership
and operation of cogeneration power projects. AGI's activities, through its
subsidiaries, are represented by partnership interests in three cogeneration
facilities located in New Jersey and New York. ASP owns and manages a commercial
office and warehouse facility located in southern New Jersey. ATE provides funds
management and financing to affiliates and manages a portfolio of investments in
leveraged leases for equipment used in the airline and shipping industries. ATS
and its wholly-owned subsidiaries are engaged in the development and operation
of thermal heating and cooling systems. AET is presently concluding the affairs
of its subsidiary, which is its sole investment and only activity. CCI was
formed in November 1995 and manages investments in telecommunication technology.
AEE also has a 50% equity interest in a limited liability company which provides
energy management services, including natural gas supply, transportation and
marketing.
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. ACE and AEE
consolidate their respective subsidiaries. Ownership interests in other
entities, between 20% and 50%, where control is not evident, are accounted for
using the equity method by recognizing a proportionate share of the results of
operations of that investment. The results of operations of the nonutility
companies are not significant to the results of the Company and are classified
under Other Income in the Consolidated Statement of Income.
Regulation--The accounting policies and rates of service for ACE are
subject to the regulations of the New Jersey Board of Public Utilities (BPU) and
in certain respects to the Federal Energy Regulatory Commission (FERC). ACE
follows generally accepted accounting principles (GAAP) and financial reporting
requirements employed by all industries as specified by the Financial Accounting
Standards Board (FASB) and the Securities and Exchange Commission (SEC).
However, accounting for rate regulated industries may depart from GAAP applied
by other industries as permitted by Statement of Financial Accounting Standards
No. 71 (SFAS No. 71). SFAS No. 71 provides guidance on circumstances where the
economic effect of a regulator's decision warrants different applications of
GAAP as a result of the ratemaking process. In setting rates, a regulator may
provide recovery of an incurred cost in a year or years other than the year the
cost is incurred. As permitted by SFAS No. 71, costs ordered by a regulator to
be deferred or capitalized for future recovery are recorded as a regulatory
asset because the regulator's rate action provides reasonable assurance of
future economic benefits attributable to these costs. In a non-rate regulated
industry, such costs may be charged to expense in the year incurred. SFAS No. 71
further specifies that a regulatory liability is recorded when a regulator
orders a refund to customers of revenues previously collected, or when existing
rates provide for recovery of future costs not yet incurred. Such treatment is
not afforded to non-rate regulated companies. When collection of regulatory
assets or relief of regulatory liabilities is no longer probable, the assets and
liabilities are applied to income in the year that the assessment is made.
Specific regulatory assets and liabilities that have been recorded are discussed
elsewhere in the notes to the consolidated financial statements.
Electric Operating Revenues--Revenues are recognized when electric energy
services are rendered, and include estimates for amounts unbilled at the end of
the year for energy used by customers subsequent to the last bill rendered for
the calendar year.
Nuclear Fuel--Fuel costs associated with ACE's participation in
jointly-owned nuclear generating stations, including spent nuclear fuel disposal
costs, are charged to Energy expense based on the units of thermal energy
produced.
A-9
<PAGE>
Electric Utility Plant--Property is stated at original cost. Generally, the
plant is subject to a first mortgage lien. The cost of property additions,
including replacement of units of property and betterments, is capitalized.
Included in certain property additions is an Allowance for Funds Used During
Construction (AFDC), which is defined in the applicable regulatory system of
accounts as the cost, during the period of construction, of borrowed funds used
for construction purposes and a reasonable rate on other funds when so used.
AFDC has been calculated using a semi-annually compounded rate of 8.25% since
August 1, 1993. The AFDC rate was 8.95% prior to this date. Property and
equipment of the nonutility companies are not significant.
Depreciation--ACE provides for straight-line depreciation based on:
transmission and distribution property--estimated remaining life; nuclear
property--remaining life of the related plant operating license in existence at
the time of the last base rate case; other depreciable property--estimated
average service life. The overall composite rate of depreciation was 3.3% for
the last three years. Accumulated depreciation is charged with the cost of
depreciable property retired together with removal costs less salvage and other
recoveries. Depreciation for the nonutility companies is not significant.
Nuclear Plant Decommissioning Reserve--A reserve for decommissioning costs
is presented as a component of accumulated depreciation and amounted to $60.9
million and $51.1 million at December 31, 1995 and 1994, respectively.
The SEC has questioned certain accounting practices employed by the
electric utility industry concerning decommissioning costs for nuclear
generating facilities. The FASB is currently reviewing this issue within the
broad context of removal costs relative to all industries. At this time, the
Company cannot predict what future accounting practices may be required by the
FASB and SEC concerning this issue, or the impact on future financial
statements, that any new accounting practices may have.
Deferred Energy Costs--As approved by the BPU, ACE has a Levelized Energy
Clause (LEC) through which energy and energy-related costs (energy) are charged
to customers. LEC rates are based on projected energy costs and prior period
underrecoveries or overrecoveries. Generally, energy costs are recovered through
levelized rates over the period of projection, which is usually a 12-month
period. In any period, the actual amount of LEC revenues recovered from
customers may be greater or less than the recoverable amount of energy costs
incurred in that period. Energy expense is adjusted to match the associated LEC
revenues. Any underrecovery (an asset representing energy costs incurred that
are to be collected from customers) or overrecovery (a liability representing
previously collected energy costs to be returned to customers) of costs is
deferred on the Consolidated Balance Sheet as Deferred Energy Costs. These
deferrals are recognized in the Consolidated Statement of Income as Energy
expense during the period in which they are subsequently included in the LEC.
ACE may elect to forgo recovery of certain amounts of otherwise recoverable
energy costs. Such amounts are expensed.
Income Taxes--Deferred Federal and state income taxes are provided on all
significant temporary differences between book bases and tax bases of assets and
liabilities, transactions that reflect taxable income in a year different than
book income, and tax carryforwards. Investment tax credits previously used for
income tax purposes have been deferred on the Consolidated Balance Sheet and are
recognized in book income over the life of the related property. The Company and
its subsidiaries file a consolidated Federal income tax return. Income taxes are
allocated to each of the companies within the consolidated group based on the
separate return method.
Earnings Per Common Share--This is computed based upon the weighted average
number of common shares outstanding during the year. Common stock equivalents
exist but are not included in the computation of earnings per share because they
are currently antidilutive.
Financial Instruments--A number of items within Current Assets and Current
Liabilities on the Consolidated Balance Sheet are considered to be financial
instruments because they are cash or are to be settled in cash. Due to their
short term nature, the carrying values of these items approximate their fair
market values. Accounts Receivable--Utility Service and Unbilled Revenues are
subject to concentration of credit risk because they pertain to utility service
conducted within a fixed geographic region. Investments in Leveraged Leases are
subject to concentration of credit risk because they are exclusive to a small
number of parties within two industries. The Company has recourse to the
affected assets under lease. These leased assets are of general use within their
respective industries.
Other--Debt premium, discount and expenses of ACE are amortized over the
life of the related debt. Temporary investments considered as cash equivalents
for Consolidated Statement of Cash Flows purposes represent purchases
A-10
<PAGE>
of highly liquid debt instruments maturing in three months or less. ACE's
weighted daily average interest rate on short term debt was 6.3% for 1995 and
4.4% for 1994. AEI's weighted daily average interest rate on its short term debt
was 6.3% for 1995. There was no short term debt for AEI in 1994.
The preparation of financial statements in conformity with GAAP requires
management at times to make certain judgments, estimates and assumptions that
affect amounts and matters reported at the year end dates and for the annual
periods presented. Actual results could differ from those estimates. Any change
in the judgments, estimates and assumptions used, which in management's opinion
would have a significant effect on the financial statements, will be reported
when management becomes aware of such changes.
New Accounting Standards--The FASB issued two new statements in
1995--Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" and Statement No. 123 "Accounting for
Stock-Based Compensation". Both statements are effective for the Company in
1996. Statement No. 121 primarily concerns accounting for the impairment and
disposal of property, plant and equipment. Statement No. 123 permits a fair
value-based method to account for stock-based compensation as an alternative to
the intrinsic value-based method that is currently permitted. The Company
currently employs stock-based compensation which has not had a material impact
on the financial statements. Should the Company elect to continue to use the
intrinsic value-based method to account for stock-based compensation, the
statement requires, if material, certain disclosures as if the fair value-based
method was used. The Company has not yet fully assessed the impacts on its
financial statements of the requirements of these new accounting standards.
Certain prior year amounts have been reclassified to conform to the current
year reporting of these items.
NOTE 2. INCOME TAXES
The components of Federal income tax expense for the years ended December
31 are as follows:
<TABLE>
<CAPTION>
(000) 1995 1994 1993
---- ------- ------- -------
<S> <C> <C> <C>
Current ........................................................ $20,483 $19,729 $25,349
Deferred ....................................................... 25,993 17,414 20,247
Investment Tax Credits Recognized on Leveraged Leases .......... (28) -- (12)
------- ------- -------
Total Federal Income Tax Expense ............................... 46,448 37,143 45,584
Less Amounts in Other Income ................................... 572 (5,386) 307
------- ------- -------
Federal Income Taxes in Operating Expenses ..................... $45,876 $42,529 $45,277
======= ======= =======
</TABLE>
A reconciliation of the expected Federal income taxes compared to the
reported Federal income tax expense computed by applying the statutory rate for
the years ended December 31 follows:
<TABLE>
<CAPTION>
(000) 1995 1994 1993
---- ------- ------- -------
<S> <C> <C> <C>
Statutory Federal Income Tax Rate .............................. 35% 35% 35%
Income Tax Computed at the Statutory Rate ...................... $49,995 $45,490 $55,400
Plant Basis Differences ........................................ 1,307 (27) (5,171)
Amortization of Investment Tax Credits ......................... (2,562) (2,534) (2,546)
Tax Adjustments ................................................ (897) (4,097) (2,071)
Other-Net ...................................................... (1,395) (1,689) (28)
------- ------- -------
Total Federal Income Tax Expense ............................... $46,448 $37,143 $45,584
======= ======= =======
Effective Federal Income Tax Rate .............................. 33% 29% 30%
</TABLE>
State income tax expense is not significant.
A-11
<PAGE>
Items comprising deferred tax balances as of December 31 are as follow:
<TABLE>
<CAPTION>
(000) 1995 1994
----- -------- --------
<S> <C> <C>
Deferred Tax Liabilities:
Plant Basis Differences ..................................... $316,834 $304,476
Leveraged Leases ............................................ 71,180 61,409
Unrecovered Purchased Power Costs ........................... 28,209 33,557
State Excise Taxes .......................................... 22,527 25,842
Other ....................................................... 32,825 24,732
-------- --------
Total Deferred Tax Liabilities ............................ 471,575 450,016
-------- --------
Deferred Tax Assets:
Deferred Investment Tax Credits ............................. 26,511 27,879
Employee Separation Costs ................................... 2,621 6,932
Other ....................................................... 13,999 15,245
-------- --------
Total Deferred Tax Assets ................................. 43,131 50,056
-------- --------
Total Deferred Taxes-Net .................................. $428,444 $399,960
======== ========
</TABLE>
At December 31, 1995 and 1994, deferred tax assets exist for cumulative
state income tax net operating loss (NOL's) carryforwards. Valuation allowances
of virtually the same amounts have been recorded. The effects of the state NOL's
and associated valuation allowances are not material to consolidated results of
operations and financial position. At December 31, 1995, unexpired state NOL's
amount to approximately $72 million, with expiration dates from 1996 through
2002.
At December 31, 1995 there was an estimated remaining Federal Alternative
Minimum Tax (AMT) credit of approximately $7 million. The AMT credit is
available for an indefinite carryforward period against future Federal income
tax payable, to the extent that the regular Federal income tax payable exceeds
future AMT payable. The AMT is included with the tax effects of leveraged
leases.
Deferred tax costs associated with additional deferred tax liabilities
resulting from a prior year accounting change are recorded on the Consolidated
Balance Sheet as Recoverable Future Federal Income Taxes. This recognition is
given for the probable amount of revenue to be collected from ratepayers for
these additional taxes to be paid in future years.
NOTE 3. RATE MATTERS OF ACE
ENERGY CLAUSE PROCEEDINGS
CHANGES IN LEVELIZED ENERGY CLAUSE RATES
1993--1995
Amount Amount
Date Requested Granted Date
Filed (millions) (millions) Effective
----- ---------- ---------- ---------
3/93 $14.2 $10.9 10/93
2/94 63.0 55.0 7/94
4/95 37.0 37.0 7/95
ACE's Levelized Energy Clause (LEC) is subject to annual review by the BPU.
In March 1993, ACE filed a petition with the BPU requesting a $14.2 million
increase in LEC revenues for the June 1, 1993 through May 31, 1994 LEC period.
Effective for service rendered on and after October 1, 1993, the BPU approved an
increase of $10.9 million. The request was reduced primarily to return to
customers an additional 25%, or $3.8 million, of a $15.5 million litigation
settlement with the operator of the Peach Bottom Atomic Power Station.
A-12
<PAGE>
On February 8, 1994, ACE filed a petition with the BPU requesting an
increase in LEC revenues of $63 million for the period June 1, 1994 through May
31, 1995. The increase was primarily due to the additional costs incurred from
two new independent power producers (IPPs) scheduled to begin commercial
operation during the 1994/1995 LEC period. The requested amount was reduced by
$84 million as a result of the utilization of $56 million of current base rate
revenues associated with a utility power purchase contract expiring in May 1994
and the Southern New Jersey Economic Initiative (SNJEI), an ACE initiative that
forgoes the recovery of $28 million of energy costs that ACE will incur during
the LEC period. On November 30, 1994, the BPU rendered its final decision
approving the continuation of a provisional LEC rate increase of $55 million
that had been in effect since July 26, 1994.
On April 17, 1995, ACE filed a petition with the BPU requesting a $37
million increase in LEC revenues for the period June 1, 1995 through May 31,
1996. This filing represents the first that includes a full year of costs for
capacity and energy with all four of the IPPs with which ACE is under contract.
The requested amount had been reduced by ACE from $67.6 million by forgoing $10
million in LEC revenues under the SNJEI and deferring $20.6 million of LEC costs
that ACE will incur during the 1995/1996 LEC period for recovery in a future LEC
period. Effective July 7, 1995, the BPU approved a provisional increase of $37
million effective for service rendered on and after July 7, 1995. On November
15, 1995, the Administrative Law Judge (ALJ) recommended that the provisional
rates be made final. On December 1, 1995, the Ratepayer Advocate, the BPU Staff
and ACE agreed to a stipulation recommending that the ALJ's findings be accepted
by the BPU. A final decision is expected from the BPU by the end of March 1996.
OTHER RATE PROCEEDINGS
In November 1993, ACE filed a petition with the BPU requesting that
hotel-casino customers be permitted to take service under rate schedules offered
to all other commercial and industrial customers. On June 23, 1994, the BPU
approved the request. Prior to BPU approval, hotel-casino customers were served
under the Hotel Casino Service rate schedule, the highest rate for service of
all ACE's service classes. Effective July 1, 1994, all hotel-casino customers
began taking service under a general service rate schedule. The effect of this
change was not material to the results of operations.
On September 14, 1994, the BPU issued an order supporting the investigation
of the double recovery of capacity costs from nonutility generation projects.
This issue relates to the Ratepayer Advocate's allegation that ACE, along with
other New Jersey electric utility companies, is recovering cogeneration capacity
costs concurrently in base rates and LEC rates. The order confirmed the
establishment of a generic proceeding to review the nonutility capacity cost
recovery methodology and ordered that the matter be reviewed in a two phase
proceeding. The scope of the issues to be resolved during the first phase of the
proceeding include: 1) the determination of the existence, or lack of existence,
of the double recovery as a result of the traditional LEC pass-through of
nonutility generation capacity costs; 2) the quantification of any double
recovery found to exist for each utility for the relevant periods; 3) a
determination of an appropriate remedy or adjustment if double recovery is found
to occur and the periods of time over which an adjustment would be applicable.
Following the conclusion of the first phase of the proceeding, the BPU, in the
second phase, will render a final decision regarding the specific findings of
the Office of Administrative Law and address the broader issues relating to the
appropriate prospective purchase power capacity cost recovery methods. In
September 1995, the Ratepayer Advocate filed testimony that claims ACE's
overrecovery of capacity costs for the four-year period June 1991 through May
1995 is $46 million. The Ratepayer Advocate also filed testimony supporting
similar claims for other New Jersey electric utilities. In December 1995, ACE
and the other electric utilities filed testimony rebutting the Ratepayer
Advocate's claims. Litigation is expected to continue in 1996; the BPU's final
decision is not expected until the latter part of 1996. At this time, ACE cannot
predict the outcome of this proceeding and cannot estimate the impact that the
double recovery issue may have on future rates.
A-13
<PAGE>
NOTE 4. RETIREMENT BENEFITS
PENSION
ACE has a noncontributory defined benefit pension plan covering
substantially all of its employees and those of its wholly-owned subsidiary.
Benefits are based on an employee's years of service and average final pay.
ACE's policy is to fund pension costs within the guidelines of the minimum
required by the Employee Retirement Income Security Act and the maximum
allowable as a tax deduction. Each company is allocated its participative share
of plan costs and contributions.
Net periodic pension costs include:
<TABLE>
<CAPTION>
(000) 1995 1994 1993
----- ------- ------- -------
<S> <C> <C> <C>
Service cost-benefits earned during the period ................ $ 6,363 $ 6,871 $ 7,196
Interest cost on projected benefit obligation ................. 14,794 15,390 16,016
Actual return on plan assets .................................. (44,067) (860) (23,200)
Other-net ..................................................... 28,379 (16,885) 5,496
------- ------- -------
Net periodic pension costs .................................... $ 5,469 $ 4,516 $ 5,508
======= ======= =======
</TABLE>
Of these costs, $3.0 million were charged to operating expense in both 1995
and 1994 and $5.2 million in 1993. The remaining costs, which are associated
with construction labor, were charged to the cost of new utility plant. Actual
return on plan assets and other-net for 1995 primarily reflect the favorable
market conditions from the investment of plan assets and expected returns versus
the unfavorable market conditions in 1994.
A reconciliation of the funded status of the plan as of December 31 is as
follows:
(000) 1995 1994
----- -------- --------
Fair value of plan assets ........................... $212,000 $190,200
Projected benefit obligation ........................ 213,470 206,742
-------- --------
Plan assets less than projected benefit obligation .. (1,470) (16,542)
Unrecognized net transition asset ................... (1,550) (1,722)
Unrecognized prior service cost ..................... 282 306
Unrecognized net loss ............................... 10,006 24,106
-------- --------
Prepaid pension cost ................................ $ 7,268 $ 6,148
======== ========
Accumulated benefit obligation:
Vested benefits ................................... $169,044 $166,602
Nonvested benefits ................................ 3,413 485
-------- --------
Total ........................................... $172,457 $167,087
======== ========
At December 31, 1995, approximately 65% of plan assets were invested in
equity securities, 21% in fixed income securities and 14% in other investments.
The assumed rates used in determining the actuarial present value of the
projected benefit obligation at December 31 were as follows:
1995 1994
---- ----
Weighted average discount ........................ 7.0% 7.5%
Anticipated increase in compensation ............. 3.5% 3.5%
The assumed long term rate of return on plan assets was 8.5% for both 1995
and 1994.
OTHER POSTRETIREMENT BENEFITS
ACE and its subsidiary provide certain health care and life insurance
benefits for retired employees and their eligible dependents. Substantially all
employees may become eligible for these benefits if they reach retirement age
while working for the companies. Benefits are provided through insurance
companies and other plan providers whose premiums and related plan costs are
based on the benefits paid during the year. ACE has a tax qualified trust to
fund these benefits. Each company is allocated its participative share of plan
costs and contributions.
A-14
<PAGE>
Net periodic other postretirement benefit costs include:
<TABLE>
<CAPTION>
(000) 1995 1994 1993
- ----- ------- ------- -------
<S> <C> <C> <C>
Service cost-benefits attributed to service during the period ........ $ 2,891 $ 3,817 $ 3,045
Interest cost on accumulated postretirement benefits obligation ...... 8,107 8,450 7,133
Actual return on plan assets ......................................... (1,437) 100 (255)
Amortization of unrecognized transition obligation ................... 3,893 3,893 3,893
Other-net ............................................................ 404 (700) (711)
------- ------- -------
Net periodic other postretirement cost ............................... $13,858 $15,560 $13,105
======= ======= =======
</TABLE>
These costs were allocated as follows:
<TABLE>
<CAPTION>
(millions) 1995 1994 1993
- ---------- ---- ---- ----
<S> <C> <C> <C>
Operating expense .................................................... $5.0 $5.6 $3.3
New utility plant-associated with construction labor ................. .6 .2 1.7
Regulatory asset ..................................................... 8.3 9.8 8.1
</TABLE>
The regulatory asset represents the amount of cost recognized in excess of
the amount of cost currently recovered in rates. These excess costs are deferred
as authorized by an accounting order of the BPU pending future recovery through
rates.
A reconciliation of the funded status of the plan as of December 31 is as
follows:
<TABLE>
<CAPTION>
(000) 1995 1994
- ----- -------- --------
<S> <C> <C>
Accumulated benefits obligation:
Retirees .......................................................... $ 64,516 $ 43,265
Fully eligible active plan participants ........................... 6,954 18,010
Other active plan participants .................................... 33,649 60,588
-------- --------
Total accumulated benefits obligation ............................ 105,119 121,863
Less fair value of plan assets ..................................... 16,500 14,700
-------- --------
Accumulated benefits obligation in excess of plan assets ........... 88,619 107,163
Unrecognized net loss .............................................. (15,335) (19,223)
Unamortized unrecognized transition obligation ..................... (47,057) (70,075)
-------- --------
Accrued other postretirement benefits cost obligation .............. $ 26,227 $ 17,865
======== ========
</TABLE>
The accumulated benefit obligation for retirees and other active plan
participants for 1995 reflect the impact of ACE's workforce reduction program
and a lower discount rate effective in 1995. The unamortized unrecognized
transition obligation for 1995 was reduced by certain changes to the plan.
At December 31, 1995, approximately 80% of plan assets were invested in
fixed income securities and 20% in other investments.
The assumed health care costs trend rate for 1996 is 9% and is assumed to
evenly decline to an ultimate constant rate of 5% in the year 2001 and
thereafter. If the assumed health care costs trend rate was increased by 1% in
each future year, the aggregate service and interest costs of the 1995 net
periodic benefits cost would increase by $1.8 million, and the accumulated
postretirement benefits obligation at December 31, 1995 would increase by $12.1
million. The weighted average discount rate assumed in determining the
accumulated benefits obligation was 7% for 1995 and 7.5% for 1994. The assumed
long term return rate on plan assets was 7% for both 1995 and 1994.
NOTE 5. JOINTLY-OWNED GENERATING STATIONS
ACE owns jointly with other utilities several electric production
facilities. ACE is responsible for its pro-rata share of the costs of
construction, operation and maintenance of each facility.
The amounts shown represent ACE's share of each facility at, or for the
year ending, December 31, including AFDC as appropriate.
A-15
<PAGE>
<TABLE>
<CAPTION>
Peach Hope
Keystone Conemaugh Bottom Salem Creek
-------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Energy Source Coal Coal Nuclear Nuclear Nuclear
Company's Share (%/MWs) 2.47/42.3 3.83/65.4 7.51/157.0 7.41/164.0 5.00/52.0
Electric Plant in Service (000):
1995 .................................... $ 12,719 $ 35,371 $128,398 $214,306 $239,499
1994 .................................... 11,293 26,607 125,003 206,804 238,980
Accumulated Depreciation (000):
1995 .................................... $ 3,277 $ 6,445 $ 58,870 $ 84,611 $ 60,998
1994 .................................... $ 3,180 6,237 55,190 79,898 53,746
Construction Work in Progress (000):
1995 .................................... $ 442 $ 873 $ 11,056 $ 11,198 $ 655
1994 .................................... 1,216 2,649 11,002 8,727 387
Operations and Maintenance Expenses
(including fuel) (000):
1995 .................................... $ 5,143 $ 7,252 $ 29,647 $ 28,306 $ 10,360
1994 .................................... 5,085 7,211 29,530 27,731 10,471
1993 .................................... 5,323 6,855 31,479 27,021 9,764
Working Funds (000):
1995 .................................... $ 44 $ 69 $ 4,505 $ 5,782 $ 1,919
1994 .................................... 44 69 5,051 5,199 2,013
Generation (MWHr):
1995 .................................... 285,899 451,211 1,232,921 334,572 352,316
1994 .................................... 257,561 419,313 1,214,776 836,725 355,390
1993 .................................... 293,876 416,263 1,043,485 840,043 440,118
</TABLE>
ACE provides financing during the construction period for its share of the
jointly-owned facilities and includes its share of direct operations and
maintenance expenses in the Consolidated Statement of Income. Additionally, ACE
provides an amount of working funds to the operators of the facilities to fund
operational needs.
The decrease in Salem's generation is due to both units being taken out of
service in May and June 1995, respectively, by its operator Public Service
Electric and Gas Company, pending review and resolution of certain equipment and
management issues. (See Note 10 for further information).
NOTE 6. NONUTILITY COMPANIES
Principal assets of each of the subsidiary companies of AEE at December 31,
1995 are: AGI--investments of approximately $30.6 million in cogeneration
facilities; ASP--commercial real estate site with a net book value of $10.1
million; ATE--leveraged lease investments of $79.0 million; ATS--construction
costs in thermal heating and cooling projects of $11.9 million. In November
1995, CCI was formed to invest in telecommunication systems. In December 1995,
CCI invested $5.2 million in such business opportunities. Other financial
information regarding the subsidiary companies is as follows:
<TABLE>
<CAPTION>
Net Worth Net Income (Loss)
--------------------- -----------------------------------
Company 1995 1994 1995 1994 1993
(000) ------- ------- ------ ------ ------
----
<S> <C> <C> <C> <C> <C>
AGI .................................. $26,082 $23,610 $2,513 $ 2,959 $4,459
ASP .................................. 2,334 3,175 (841) (1,956) (347)
ATE .................................. 9,399 9,449 (50) 266 (777)
ATS .................................. 2,187 2,577 (213) (327) --
CCI .................................. 5,258 -- -- -- --
</TABLE>
AGI's results in each year primarily reflect the equity in earnings of
cogeneration facilities in which AGI has an ownership interest.
ASP's results in each year reflect vacancy in its commercial site due to
generally poor market conditions in commercial real estate. Additionally, 1994
included a net after tax write-down of the carrying value of the commercial site
of $1.7 million.
A-16
<PAGE>
ATE's 1995 results reflect increased interest expense associated with its
revolving credit and term loan agreement. 1993 results reflect adjustments in
income taxes.
ATS's results for 1995 and 1994 reflect administrative and general costs in
the development of operations, while construction of heating and cooling systems
are underway. Operating expenses were offset in part in 1995 by revenues
generated from the operation and maintenance of heating and cooling facilities.
AEI and AEE parent-only operations, excluding equity in the results of
subsidiary companies, generally reflect administrative and general expenses in
the management of their respective subsidiaries. AEI's results were losses of
$1.6 million in 1995, $543 thousand in 1994 and $183 thousand in 1993. AEI's
1995 results reflect interest charges associated with a line of credit
established to fund repurchases of common stock and certain affiliate capital
needs. AEE's 1995 results were a loss of $2.4 million.
NOTE 7. CUMULATIVE PREFERRED STOCK OF ACE
ACE has authorized 799,979 shares of Cumulative Preferred Stock, $100 Par
Value, two million shares of No Par Preferred Stock and three million shares of
Preference Stock, No Par Value. Information relating to outstanding shares at
December 31 is shown in the table below.
<TABLE>
<CAPTION>
Current
1995 1995 Optional
Par --------------------- -------------------- Redemption
Series Value Shares (000) Shares (000) Price
------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Not Subject to Mandatory
Redemption:
4% ............................ $100 77,000 $ 7,700 77,000 $ 7,700 $105.50
4.10% ......................... 100 72,000 7,200 72,000 7,200 101.00
4.35% ......................... 100 15,000 1,500 15,000 1,500 101.00
4.35% ......................... 100 36,000 3,600 36,000 3,600 101.00
4.75% ......................... 100 50,000 5,000 50,000 5,000 101.00
5% ............................ 100 50,000 5,000 50,000 5,000 100.00
7.52% ......................... 100 100,000 10,000 100,000 10,000 101.88
-------- --------
Total ........................ $ 40,000 $ 40,000
======== ========
Subject to Mandatory
Redemption:
$8.25 ......................... None 50,000 $ 5,000 55,000 $ 5,500 104.45
$8.53 ......................... None 120,000 12,000 360,000 36,000 101.00
$8.20 ......................... None 500,000 50,000 500,000 50,000 --
$7.80 ......................... None 700,000 70,000 700,000 70,000 --
-------- --------
Total ........................ 137,000 161,500
Less portion due within
one year ...................... 22,250 12,250
-------- --------
Total ........................ $114,750 $149,250
======== ========
</TABLE>
Cumulative Preferred Stock Not Subject to Mandatory Redemption is
redeemable solely at the option of ACE.
On November 1 of each year, 2,500 shares of the $8.25 No Par Preferred
Stock must be redeemed through the operation of a sinking fund at a redemption
price of $100 per share. ACE may redeem not more than an additional 2,500 shares
on any sinking fund date without premium. ACE redeemed 5,000 shares in each of
the years 1995and 1994.
On November 1 of each year, 120,000 shares of the $8.53 No Par Preferred
Stock must be redeemed through the operation of a sinking fund at a redemption
price of $100 per share. At the option of ACE, not more than an additional
120,000 shares may be redeemed on any sinking fund date without premium. ACE
redeemed 240,000 shares in each of the years 1995 and 1994. ACE redeemed the
remainder of this series at a price of $101.00 in February 1996.
Beginning August 1, 1996 and annually thereafter, 100,000 shares of the
$8.20 No Par Preferred Stock must be redeemed through the operation of a sinking
fund at a redemption price of $100 per share. At the option of ACE, not more
than an additional 100,000 shares may be redeemed on any sinking fund date
without premium. This series is not refundable prior to August 1, 2000.
A-17
<PAGE>
Beginning May 1, 2001 and annually through 2005, 115,000 shares of $7.80 No
Par Preferred Stock must be redeemed through the operation of a sinking fund at
a redemption price of $100 per share. On May 1, 2006, the remaining shares
outstanding must be redeemed at $100 per share. ACE has the option to redeem up
to an additional 115,000 shares without premium on each May 1 through 2005. This
series is not refundable prior to May 1, 2006.
At December 31, 1995, the minimum annual sinking fund requirements of the
Cumulative Preferred Stock Subject to Mandatory Redemption for the next five
years are $22.25 million in 1996 and $10.25 million in each of the years 1997
through 2000.
Cumulative Preferred Stock of ACE is not widely held and trades
infrequently. The estimated aggregate fair market value of ACE's outstanding
Cumulative Preferred Stock at December 31, 1995 and 1994 was approximately $172
million and $185 million, respectively. The fair market value has been
determined using market information available from actual trades of similar
instruments of companies with similar credit quality and rate.
NOTE 8. LONG TERM DEBT
<TABLE>
<CAPTION>
Maturity
Date 1995 1994
Series -------- ---- ----
(000)
- -----
<S> <C> <C> <C>
5-1/8% First Mortgage Bonds ....................................... 2/1/1996 $ 9,980 $ 9,980
Medium Term Notes Series B (6.28%) ................................ 1998 56,000 56,000
Medium Term Notes Series A (7.52%) ................................ 1999 30,000 30,000
Medium Term Notes Series B (6.83%) ................................ 2000 46,000 46,000
Medium Term Notes Series C (6.86%) ................................ 2001 40,000 --
7-1/2% First Mortgage Bonds ....................................... 4/1/2002 20,000 20,000
Medium Term Notes Series C (7.02%) ................................ 2002 30,000 --
Medium Term Notes Series B (7.18%) ................................ 2003 20,000 20,000
7-3/4% First Mortgage Bonds ....................................... 6/1/2003 29,976 29,976
Medium Term Notes Series A (7.98%) ................................ 2004 30,000 30,000
Medium Term Notes Series B (7.125%) ............................... 2004 28,000 28,000
Medium Term Notes Series C (7.15%) ................................ 2004 9,000 --
Medium Term Notes Series B (6.45%) ................................ 2005 40,000 40,000
6-3/8% Pollution Control .......................................... 12/1/2006 2,500 2,500
Medium Term Notes Series C (7.15%) ................................ 2007 1,000 --
Medium Term Notes Series B (6.76%) ................................ 2008 50,000 50,000
Medium Term Notes Series C (7.25%) ................................ 2010 1,000 --
10-1/2% Pollution Control Series B ................................ 7/15/2012 -- 850
6-5/8% First Mortgage Bonds ....................................... 8/1/2013 75,000 75,000
7-3/8% Pollution Control Series A ................................. 4/15/2014 18,200 18,200
Medium Term Notes Series C (7.63%) ................................ 2014 7,000 --
Medium Term Notes Series C (7.68%) ................................ 2015 15,000 --
Medium Term Notes Series C (7.68%) ................................ 2016 2,000 --
8-1/4% Pollution Control Series A ................................. 7/15/2017 4,400 4,400
9-1/4% First Mortgage Bonds ....................................... 10/1/2019 -- 53,857
6.80% Pollution Control Series A .................................. 3/1/2021 38,865 38,865
7% First Mortgage Bonds ........................................... 9/1/2023 75,000 75,000
5.60% Pollution Control Series A .................................. 11/1/2025 4,000 4,000
7% First Mortgage Bonds ........................................... 8/1/2028 75,000 75,000
6.15% Pollution Control Series A .................................. 6/1/2029 23,150 23,150
7.20% Pollution Control Series A .................................. 11/1/2029 25,000 25,000
7% Pollution Control Series B ..................................... 11/1/2029 6,500 6,500
-------- --------
Total ........................................................... 812,571 762,278
-------- --------
Debentures:
5-1/4% ............................................................ 2/1/1996 2,267 2,267
7-1/4% ............................................................ 5/1/1998 2,619 2,619
-------- --------
Total ........................................................... 4,886 4,886
-------- --------
Unamortized Premium and Discount--Net ............................. (2,854) (3,876)
-------- --------
Total Long Term Debt of ACE ....................................... 814,603 763,288
Long Term Debt of AEI ............................................. 34,500 --
Long Term Debt of ATE ............................................. 33,500 16,000
Long Term Debt of ATS ............................................. 12,500 --
Less Portion Due within One Year .................................. 65,247 1,000
-------- --------
$829,856 $778,288
======== ========
</TABLE>
A-18
<PAGE>
Medium Term Notes have varying maturity dates and are shown with the
weighted average interest rate of the related issues within the year of
maturity.
In 1995, ACE redeemed its 10-1/2% Pollution Control Bonds Series B due
7/15/2012 and the remaining outstanding principal amount of its 9-1/4% First
Mortgage Bonds due 10/1/2019. The aggregate cost of these redemptions was $2.6
million, net of related Federal income taxes.
Sinking fund deposits are required for retirement of First Mortgage Bonds,
6-3/8% Pollution Control Series due 2006 annually beginning December 1, 1997 in
amounts sufficient to redeem $75 thousand principal amount. Sinking fund
deposits are also required for retirement of 7-1/4% Debentures annually on May
1 through 1997 in amounts sufficient to redeem $100 thousand principal amount.
ACE may, at its option, redeem an additional $100 thousand annually. Through
December 31, 1995, ACE acquired and cancelled $81 thousand principal amount of
the 7-1/4% Debentures, which will be used to satisfy its requirements for 1996.
Certain series of First Mortgage Bonds contain provisions for deposits of cash
or certification of bondable property currently amounting to $100 thousand,
which ACE may elect to satisfy through property additions. For the next five
years, the annual amount of scheduled maturities and sinking fund requirements
of ACE's long term debt are $12.266 million in 1996, $175 thousand in 1997,
$58.575 million in 1998, $30.075 million in 1999 and $46.075 million in 2000.
ACE's long term debt securities are not widely held and generally trade
infrequently. The estimated aggregate fair market value of ACE's outstanding
long term debt at December 31, 1995 and 1994 was $851 million and $693 million,
respectively. The fair market value has been determined based on quoted market
prices for the same or similar debt issues or on debt instruments of companies
with similar credit quality, coupon rates and maturities.
In September 1995, AEI established a $75 million revolving credit and term
loan facility. The revolver is comprised of a 364-day senior revolving credit
facility in the amount of $35 million and a three-year senior revolving credit
facility in the amount of $40 million. Interest rates on borrowings will be
based on senior debt ratings and on the borrowing option selected by the
Company. As of December 31, 1995, AEI had $34.5 million outstanding. This
facility can be used to fund further acquisitions of Company Common Stock and
for other general corporate purposes.
Long term debt of ATE consists of $15 million of 7.44% Senior Notes due
1999. The estimated fair market value of these Notes at December 31, 1995 and
1994 was approximately $16 million and $14 million, respectively, based on debt
instruments of companies with similar credit quality, coupon rates and
maturities. Also, ATE has a revolving credit and term loan agreement which
provides for borrowings of up to $25 million during successive revolving credit
and term loan periods through June 1996. There were $18.5 million in borrowings
outstanding under this agreement at December 31, 1995. Commitment fees on the
unused credit line were not significant.
On December 13, 1995, ATS through a partnership arrangement borrowed from
the New Jersey Economic Development Authority (EDA) $12.5 million from the
proceeds of bonds issued by the EDA. The bonds have an initial interest rate of
3.70%. Availability of the borrowed funds for their intended use and the
ultimate term of the borrowing are subject to certain conditions. Satisfaction
of these conditions and use of the funds are expected in 1996.
NOTE 9. COMMON SHAREHOLDERS' EQUITY
In addition to public offerings, Common Stock may be issued through the
Dividend Reinvestment and Stock Purchase Plan (DRP), ACE benefit plans (ACE
plans) and the Equity Incentive Plan (EIP). The number of shares of Common Stock
issued (forfeited), and the number of shares reserved for issuance at December
31, 1995, wereas follows:
<TABLE>
<CAPTION>
1995 1994 1993 Reserved
---- ---- ---- --------
<S> <C> <C> <C> <C>
DRP ......................................... -- 699,493 1,300,129 723,975
ACE Plans ................................... (7,601) (5,046) 8,033 148,639
EIP ......................................... 9,234 175,712 -- 615,054
----- ------- ---------
Total ..................................... 1,633 870,159 1,308,162
===== ======= =========
</TABLE>
Eligible participants of the EIP are officers, general managers and
nonemployee directors of the Company and its subsidiaries. Under the EIP,
nonemployee director participants are entitled to receive a grant of 1,000
shares of restricted stock. Restrictions on these grants expire over a five-year
period. Employee participants may be awarded shares of restricted Common Stock,
stock options and other Common Stock-based awards. Actual awards of
A-19
<PAGE>
restricted shares are based on attainment of certain Company performance
criteria within a three-year period. Restrictions lapse upon actual award at the
end of the three-year performance period. Shares not awarded are forfeited.
Dividends earned on restricted stock issued through the EIP are invested in
additional restricted stock under the EIP which is subject to the same award
criteria.
Activity in the EIP, initiated in April 1994, was as follows:
Restricted Option
Shares Options Price
------ ------ ------
Issued/Granted ....................... 175,712 167,300 21.125
------- -------
Balance, December 31, 1994 ........... 175,712 167,300
Issued/Granted ....................... 24,435 6,387 21.125
Forfeited ............................ (7,587) (6,700) 21.125
------- -------
Balance, December 31, 1995 ........... 192,560 166,987
======= =======
The 1995 restricted shares granted include 7,614 shares purchased on the
open market from reinvestment of dividends on EIP shares outstanding.
Stock options granted are nonqualified and are exercisable 3 years after
but within 10 years from the date of grant. Stock options are priced at an
amount at least equal to 100% of the fair market value of the related Common
Stock at the date of grant. No options were eligible to be exercised in 1995 or
1994.
The Company has a program to reacquire up to three million shares of the
Company's Common Stock outstanding. There is no schedule or specific share price
target associated with the reacquisitions. The authorized number of shares is
not to be affected. During 1995, the Company reacquired and cancelled 1,625,000
shares for a total cost of $29.6 million with prices ranging from $17.625 to
$18.875 per share. At December 31, 1995, the Company has reacquired and
cancelled 1,846,700 shares of its common stock at a total cost of $33.5 million.
NOTE 10. COMMITMENTS AND CONTINGENCIES
CONSTRUCTION PROGRAM
Cash construction expenditures for 1996 are estimated to be approximately
$192 million.
INSURANCE PROGRAMS
Nuclear
ACE is a member of certain insurance programs that provide coverage for
decontamination and property damage to members' nuclear generating plants.
Facilities at the Peach Bottom, Salem and Hope Creek stations are insured
against property damage losses up to $2.75 billion per site under these
programs.
In addition, ACE is a member of an insurance program which provides
coverage for the cost of replacement power during prolonged outages of nuclear
units caused by certain specific conditions. The insurer for nuclear extra
expense insurance provides stated value coverage for replacement power costs
incurred in the event of an outage at a nuclear unit resulting from physical
damage to the nuclear unit. The stated value coverage is subject to a deductible
period of the first 21 weeks of any outage. Limitations of coverage include, but
are not limited to, outages 1) not resulting from physical damage to the unit,
2) resulting from any government mandated shutdown of the unit, 3) resulting
from any gradual deterioration, corrosion, wear and tear, etc. of the unit, 4)
resulting from any intentional acts committed by an insured and 5) resulting
from certain war risk conditions. Under the property and replacement power
insurance programs, ACE could be assessed retrospective premiums in the event
the insurers' losses exceed their reserves. As of December 31, 1995, the maximum
amount of retrospective premiums ACE could be assessed for losses during the
current policy year was $6.4 million under these programs.
The Price-Anderson provisions of the Atomic Energy Act of 1954, as amended
by the Price-Anderson Amendments Act of 1988, govern liability and
indemnification for nuclear incidents. All nuclear facilities could be assessed,
after exhaustion of private insurance, up to $79.275 million each reactor per
incident, payable at $10 million per year. Based on its ownership share of
nuclear facilities, ACE could be assessed up to an aggregate of $27.6 million
per incident. This amount would be payable at an aggregate of $3.48 million per
year, per incident.
A-20
<PAGE>
Other
ACE's comprehensive general liability insurance provides pollution
liability coverage, subject to certain terms and limitations for environmental
costs incurred in the event of bodily injury or property damage resulting from
the discharge or release of pollutants into or upon the land, atmosphere or
water. Limitations of coverage include any pollution liability 1) resulting
subsequent to the disposal of such pollutants, 2) resulting from the operation
of a storage facility of such pollutants, 3) resulting in the formation of acid
rain, 4) caused to property owned by an insured and 5) resulting from any
intentional acts committed by an insured.
NUCLEAR PLANT DECOMMISSIONING
ACE has a trust to fund the future costs of decommissioning each of the
five nuclear units in which it has an ownership interest. The current annual
funding amount, as authorized by the BPU, totals $6.4 million and is provided
for in rates charged to customers. The funding amount is based on estimates of
the future cost of decommissioning each of the units, the dates that
decommissioning activities are expected to begin and return to be earned by the
assets of the fund. The present value of ACE's nuclear decommissioning
obligation, based on costs adopted by the BPU in 1991 and restated in 1995
dollars, is $157 million. Decommissioning activities as approved by the BPU were
expected to begin in 2006 and continue through 2032. ACE will seek to adjust
these estimates and the level of rates collected from customers in future BPU
proceedings to reflect changes in decommissioning cost estimates and the
expected levels of inflation and interest to be earned by the assets in the
trust. The total estimated value of the trust at December 31, 1995, inclusive of
the present value of future funding, based on current annual funding amounts and
expected decommissioning dates approved by the BPU, is approximately $131
million, without earnings on or appreciation of the fund assets. As of December
31, 1995, the market value of the trust approximated the book value. In
accordance with BPU requirements, updated site specific studies are underway.
Amounts to be recognized and recovered in rates based on the updated studies are
not presently determinable.
PURCHASED CAPACITY AND ENERGY ARRANGEMENTS
ACE arranges with various providers of bulk energy to obtain sufficient
supplies of energy to satisfy current and future energy requirements of the
company. Arrangements may be for generating capacity and associated energy or
for energy only. Terms of the arrangements vary in length to enable ACE to
optimally manage its supply portfolio in response to changing near and long term
market conditions. At December 31, 1995, ACE has contracted for 707 megawatts
(MW's) of purchased capacity with terms remaining of 3 to 29 years.
Additionally, ACE has contracted for capacity of 125 MW's commencing in 1998 for
2 years and for 175 MW's commencing in 1999 for 10 years. Information regarding
these arrangements relative to ACE was as follows:
1995 1994 1993
---- ---- ----
As a % of Capacity (year end) ............. 30% 29% 23%
As a % of Generation ...................... 52% 48% 46%
Capacity charges (millions) ............... $190.6 $130.9 $110.8
Energy charges (millions) ................. $135.4 $128.6 $98.3
Amounts for purchased capacity are shown on the Consolidated Statement of
Income as Purchased Capacity. Of these amounts, charges of certain nonutility
providers are recoverable through the LEC, which amounted to $162.7 million,
$77.0 million and $30.2 million in 1995, 1994 and 1993, respectively. Future
purchases of energy and payments for purchased capacity and energy under
contracts with remaining terms in excess of one year from December 31, 1995
generally are contingent upon provider performance and availability, and as such
are not presently determinable.
ENVIRONMENTAL MATTERS
The provisions of Title IV of the Clean Air Act Amendments of 1990 (CAAA)
will require, among other things, phased reductions of sulfur dioxide (SO2)
emissions by 10 million tons per year, a limit on SO2 emissions nationwide by
the year 2000 and reductions in emissions of nitrogen oxides (NOx) by
approximately 2 million tons per year. ACE's wholly-owned B.L. England Units 1
and 2 and its jointly-owned Conemaugh Station Units 1 and 2 are in compliance
with Phase I requirements as the result of recent installation of scrubbers at
each station. All of ACE's other fossil-fuel steam generating units are affected
by Phase II (2000) of the CAAA. A compliance plan for these
A-21
<PAGE>
units initially estimates capital expenditures of approximately $10 million in
1996 through 2000. The jointly-owned Keystone Station is impacted by the SO2
and NOx provisions of Title IV of the CAAA during Phase II. The Keystone owners
plan to primarily rely on emission allowances to comply with the CAAA through
the year 2000.
OTHER
ACE is a 7.41% owner of the Salem Nuclear Generating Station (Salem)
operated by Public Service Electric & Gas Company (PS). Salem Units 1 and 2 were
taken out of service on May 16, 1995 and June 7, 1995, respectively. Unit 2 is
expected to return to service in the third quarter of 1996. A thorough
assessment of the equipment and management issues that have affected the
operation of the unit and station are being resolved and necessary corrections
are being made to assure safe and reliable operation over the long term. Unit 1
is undergoing extended testing of its steam generation equipment and its return
has been delayed to an indefinite period. ACE's expenses associated with restart
activities totalled $2.6 million for 1995 and are estimated to be $5.6 million
for 1996. The additional incremental cost of replacement power during the
outages is approximately $1.4 million per month.
ACE is a 5% owner in the Hope Creek Nuclear Generating Station (Hope Creek)
also operated by PS. Hope Creek went into a scheduled refueling and maintenance
outage on November 11, 1995 which has been extended to correct maintenance and
performance problems. The unit is expected to return to service in March 1996.
The incremental replacement power costs associated with the Hope Creek outage is
approximately $400 thousand per month.
ACE is subject to a performance standard for its five jointly-owned nuclear
units. This standard is used by the BPU in determining recovery of replacement
energy costs. The standard establishes a target aggregate capacity factor within
a zone of reasonable performance to be achieved by the units. Underperformance
results in penalties. Penalties incurred are not permitted to be recovered from
customers and are charged against income. For 1995, ACE recorded $845 thousand
after tax for a performance penalty because the aggregate capacity factor of
ACE's nuclear units was below the reasonable performance zone as a result of the
Salem outage noted above.
In December 1994, ACE recorded the costs of an employee separation program
in the amount of $17.3 million, net of tax of $9.3 million, or $.32 in earnings
per share. This program was initiated so that ACE could be better positioned for
the more competitive environment within the electric industry. The balance of
the accrued separation costs on the Consolidated Balance Sheet at December 31,
1995 is $7.5 million compared to $26.6 million at December 31, 1994. ACE expects
payments in settlement of this obligation to be substantially completed by the
end of 1996.
The Energy Policy Act of 1992 permits the Federal government to assess
investor-owned electric utilities that have ownership interests in nuclear
generating facilities. The assessment funds the decontamination and
decommissioning of three Federally operated nuclear enrichment facilities. Based
on its ownership in five nuclear generating units, ACE has a liability of $6.0
million and $6.6 million at December 31, 1995 and 1994, respectively, for its
obligation to be paid over the next 12 years. ACE has an associated regulatory
asset of $6.4 million and $7.2 million at December 31, 1995 and 1994,
respectively. Amounts are currently being recovered in rates for this liability
and the regulatory asset is concurrently being amortized to expense based on the
annual assessment billed by the Federal government.
In March 1995, FERC issued a Notice of Proposed Rulemaking regarding
several key electric utility industry issues such as transmission access,
transmission pricing and recovery guidelines for stranded costs stemming from
wholesale transactions. The focus of the proposal is to establish policies that
will provide a structure to facilitate more competitive wholesale electric power
markets. What is being proposed is a departure from the existing regulatory
framework. FERC is considering comments on the proposal submitted by ACE and
other members of the industry, as well as other interested parties. Associated
with the FERC proposal are structural initiatives by the BPU concerning New
Jersey electric regulation and by the regional power pool in which ACE
participates regarding bulk power transmission and generation dispatch within
the region. At this time, the Company cannot predict the outcomes of these
sweeping initiatives and the impacts on the Company that may ensue. The Company
is taking an active role in the development of these issues.
A-22
<PAGE>
NOTE 11. REGULATORY ASSETS AND LIABILITIES
Costs incurred by ACE that have been permitted by the BPU to be deferred
for recovery in rates in more than one year, or for which future recovery is
probable, are recorded as regulatory assets. Regulatory assets are amortized to
expense over the period of recovery. Total regulatory assets at December 31 are
as follows:
<TABLE>
<CAPTION>
Recovery
(000) 1995 1994 Period*
- ----- -------- -------- -------
<S> <C> <C> <C>
Recoverable Future Federal Income Taxes (see Note 2) ................. $ 85,858 $ 85,854 (A)
Unrecovered Purchased Power Costs:
Capacity Costs ..................................................... 80,598 95,878 5 years
Contract Renegotiation Costs ....................................... 19,219 19,660 19 years
Unrecovered State Excise Taxes ....................................... 64,274 73,834 7 years
Unamortized Debt Costs--Refundings ................................... 33,110 32,227 1-29 years
Deferred Energy Costs (see Note 1) ................................... 31,434 10,999 (B)
Other Regulatory Assets:
Postretirement Benefits Other Than Pensions (see Note 4) ........... 26,227 17,865 (A)
Asbestos Removal Costs ............................................. 9,356 9,625 34 years
Decommissioning/Decontaminating Federally-owned Nuclear
Units (See Note 10) .............................................. 6,404 7,231 13 years
Other .............................................................. 12,581 14,379
-------- --------
$369,061 $367,552
======== ========
</TABLE>
- ----------
* From December 31, 1995.
(A) Pending future recovery.
(B) Recovered over annual LEC period.
Unrecovered Purchased Power Capacity Costs represent deferrals of prior
capacity costs then in excess of levelized revenues associated with a certain
long term capacity arrangement. Levelized revenues have since been greater than
costs, permitting the deferred costs to be amortized to expense. Contract
Renegotiation Costs were incurred through renegotiation of a long term capacity
and energy contract with a certain independent power producer. Unrecovered State
Excise Taxes represent additional amounts paid as a result of prior legislative
changes in the computation of state excise taxes. Unamortized Debt Costs
associated with debt reacquired by refundings are amortized over the life of the
related new debt. Asbestos Removal Costs were incurred to remove asbestos
insulation from a wholly-owned generating station. Within Other are certain
amounts being recovered over a period of two to six years.
No regulatory liabilities existed at December 31, 1995 and 1994.
NOTE 12. LEASES
ACE leases from others various types of property and equipment for use in
its operations. Certain of these lease agreements are capital leases consisting
of the following at December 31:
(000) 1995 1994
- ----- ------- -------
Production plant .................................. $ 9,097 $13,521
Less accumulated amortization ..................... 6,810 9,707
------- -------
Net ............................................... 2,287 3,814
Nuclear fuel ...................................... 38,591 38,216
------- -------
Leased property--net .............................. $40,878 $42,030
======= =======
ACE has a contractual obligation to obtain nuclear fuel for the Salem, Hope
Creek and Peach Bottom stations. The asset and related obligation for the leased
fuel are reduced as the fuel is burned and are increased as additional fuel
purchases are made. No commitments for future payments beyond satisfaction of
the outstanding obligation exist. Operating expenses for 1995, 1994 and 1993
include leased nuclear fuel costs of $11.2 million, $14.1 million and $13.9
million, respectively, and rentals and lease payments for all other capital and
operating leases of $3.9 million,
A-23
<PAGE>
$5.3 million and $4.8 million, respectively. Future minimum rental payments for
all noncancellable lease agreements are not significant to ACE's operations.
Rental charges of nonutility companies are not significant.
ATE is the lessor in five leveraged lease transactions consisting of three
aircraft and two containerships with total respective costs of approximately
$168 million and $76 million. Remaining lease terms for all leases approximate
15 to 16 years. The Company's equity participation in the leases range from 22%
to 32%. Funding of the investment in the leveraged lease transactions is
comprised of equity participation by ATE and financing provided by third parties
as long term debt without recourse to ATE. The lease transactions provide
collateral for such third parties, including a security interest in the leased
equipment. Net investment in leveraged leases at December 31 was as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Rentals receivable (net of principal and interest on nonrecourse debt) .............. $ 50,955 $ 51,012
Estimated residual values ........................................................... 53,435 53,435
Unearned and deferred income ........................................................ (25,431) (26,232)
-------- --------
Investment in leveraged leases ...................................................... 78,959 78,215
Deferred taxes arising from leveraged leases ........................................ (71,064) (61,409)
-------- --------
Net investment in leveraged leases .................................................. $ 7,895 $ 16,806
======== ========
</TABLE>
NOTE 13. QUARTERLY FINANCIAL RESULTS (UNAUDITED)
Quarterly financial data, reflecting all adjustments necessary in the
opinion of management for a fair presentation of such amounts, are as follows:
<TABLE>
<CAPTION>
Operating Operating Net Dividends
Revenues Income Income Earnings Paid
Quarter (000) (000) (000) Per Share Per Share
- ------- -------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
1995
1st $218,626 $ 27,584 $11,469 $ .21 $.385
2nd 206,232 27,771 10,568 .20 .385
3rd 302,685 66,482 48,745 .93 .385
4th 225,594 26,700 10,986 .21 .385
Annual $953,137 $148,537 $81,768 $1.55 $1.54
======== ======== ======= ===== =====
1994
1st $232,098 $ 39,712 $22,862 $ 43 $.385
2nd 205,822 30,427 16,798 .31 .385
3rd 272,708 58,431 46,323 .85 .385
4th 202,410 24,969 (9,871) (.18) .385
Annual $913,039 $153,540 $76,113 $1.41 $1.54
======== ======== ======= ===== =====
</TABLE>
Individual quarters may not add to the total due to rounding, and the
effect on earnings per share of changing average number of common shares
outstanding.
Third quarter results generally exceed those of other quarters due to
increased sales and higher residential rates for ACE.
Net income in 1994 includes special charges aggregating $20.4 million,
after tax of $10.9 million, or $.37 per share, recorded in Other Income during
the fourth quarter of 1994. These special charges consisted of costs of a
workforce reduction, write-off of certain deferred costs and a write-down in
carrying value of certain property.
A-24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL SUMMARY
Consolidated operating revenues for 1995, 1994 and 1993 were $953.1
million, $913.0 million and $865.7 million, respectively. The increase in 1995
revenue over 1994 largely reflects a provisional increase in annual Levelized
Energy Clause (LEC) revenues of $37.0 million granted in July 1995 and an
increase in unbilled revenues. The increase in 1994 revenue from 1993 was
primarily due to an increase of $55.0 million in LEC revenues effective July
1994, accompanied by an increase in sales of energy.
Consolidated earnings per share for 1995 were $1.55 on net income of $81.8
million, compared with $1.41 on net income of $76.1 million in 1994 and $1.80 on
net income of $95.3 million in 1993. The 1994 and 1993 earnings include
reductions of $.37 and $.10 for special charges, respectively. Excluding the
1994 special charges, 1995 earnings per share decreased from 1994 primarily due
to reduced sales of energy. Contributions to consolidated earnings per share
were as follows:
1995 1994 1993
---- ---- ----
Utility ................. $1.59 $1.41 $1.73
Nonutility .............. (.04) -- .07
The quarterly dividend paid on Common Stock was $.385 per share, or an
annual rate of $1.54 per share. Information with respect to Common Stock is as
follows:
1995 1994 1993
---- ---- ----
Dividends Paid Per Share ............ $ 1.54 $ 1.54 $ 1.53
Book Value Per Share ................ $15.48 $15.56 $15.62
Annualized Dividend Yield ........... 8.0% 8.7% 7.0%
Return on Average Common Equity ..... 9.9% 9.1% 11.7%
Total Return (Dividends paid
plus change in share price) ....... 18.0% (11.9)% 0.6%
Market to Book Value ................ 124% 113% 139%
Price/Earnings Ratio ................ 12 13 12
Year End Closing Price--NYSE ........ $19.25 $17.63 $21.75
LIQUIDITY AND CAPITAL RESOURCES
Atlantic Energy, Inc.
Atlantic Energy, Inc. (AEI, Company or parent) is the parent of Atlantic
City Electric Company (ACE) and Atlantic Energy Enterprises, Inc. (AEE), which
are wholly-owned subsidiaries. The Company's cash flows are dependent on the
cash flows of its subsidiaries, primarily ACE.
Principal cash inflows of the Company were as follows:
1995 1994 1993
---- ---- ----
(millions)
Dividends from ACE ....................... $81.2 $83.2 $81.3
Credit Facility .......................... 34.5 -- --
Dividend Reinvestment and Stock
Purchase Plan .......................... -- 6.7 16.2
In September 1995, AEI established a $75 million revolving credit and term
loan facility. The revolver is comprised of a 364-day senior revolving credit
facility in the amount of $35 million and a three-year senior revolving credit
facility in the amount of $40 million. Interest rates on borrowings will be
based on senior debt ratings and on the borrowing option selected by the
Company. As of December 31, 1995, AEI had $34.5 million outstanding. This
facility can be used to fund further acquisitions of Company Common Stock and
for other general corporate purposes.
A-25
<PAGE>
Principal cash outflows of the Company were as follows:
1995 1994 1993
----- ----- -----
(millions)
Dividends to Shareholders .............. $81.2 $83.2 $81.3
Advances and Capital Contributions
to Subsidiaries* ...................... (6.7) 25.6 29.8
Common Stock Reacquisitions ............ 29.6 3.9 --
Loans to Subsidiaries .................. 7.5 -- --
- --------------
* Net of repayments.
The Company has a program to reacquire up to three million shares of the
Company's Common Stock outstanding. There is no schedule or specific share price
target associated with the reacquisitions. The authorized number of shares is
not to be affected. During 1995, the Company reacquired and cancelled 1,625,000
shares for a total cost of $29.6 million with prices ranging from $17.625 to
$18.875 per share. At December 31, 1995, the Company has reacquired and
cancelled 1,846,700 shares of its Common Stock at a total cost of $33.5 million.
Current year Dividends Declared on Common Stock as presented on the
Consolidated Statement of Cash Flows includes the effects of market purchases of
Common Stock with reinvested dividends as instituted since July 1994. Prior to
this, funds were available to the Company from the issuance of original shares
through optional cash purchases and reinvested dividends.
Agreements between the Company and its subsidiaries provide for allocation
of tax liabilities and benefits generated by the respective subsidiaries. A
separate credit support agreement exists between the Company and ATE.
Atlantic City Electric Company
ACE is a public utility primarily engaged in the generation, transmission,
distribution and sale of electric energy. ACE's service territory encompasses
approximately 2,700 square miles within the southern one-third of New Jersey
with the majority of customers being residential and commercial. ACE, with its
wholly-owned subsidiary that operates certain generating facilities, is the
principal subsidiary within the consolidated group. Cash construction
expenditures for 1993-1995 amounted to $359.0 million and included expenditures
for upgrades to existing transmission and distribution facilities and compliance
with provisions of the Clean Air Act Amendments (CAAA) of 1990. ACE's current
estimate of cash construction expenditures for 1996-1998 is $255 million. These
estimated expenditures reflect necessary improvements to generation,
transmission and distribution facilities.
ACE also utilizes cash for mandatory redemptions of Preferred Stock and
maturities and redemption of long term debt. Optional redemptions of securities
are reviewed on an ongoing basis with a view toward reducing the overall cost of
capital. Redemptions of Preferred Stock (at par or stated value) for the period
were as follows:
1995 1994 1993
------ ------- ------
Preferred Stock (Series)
9.96% (Shares) ............... -- -- 48,000
$8.53 (Shares) ............... 240,000 240,000 --
$8.25 (Shares) ............... 5,000 5,000 5,000
Aggregate Amount (000) ......... $24,500 $24,500 $5,300
A-26
<PAGE>
First Mortgage Bonds redeemed, acquired and retired or matured in the
period 1993-1995 were as follows:
Principal
Date Series Amount (000) Price(%)
---- ------ ------------ --------
October 1995 .............. 9 1/4% due 2019 $ 53,857 105.15
October 1995 .............. 10 1/2% due 2014 850 101.00
November 1994 ............. 7 5/8% due 2005 6,500 100.00
June 1994 ................. 10 1/2% due 2014 23,150 102.00
Various 1994 Dates ........ 9 1/4% due 2019 11,910 105.38*
September 1993 ............ 9 1/4% due 2019 69,233 110.95*
September 1993 ............ 8 7/8% due 2016 125,000 104.80
March 1993 ................ 8 7/8% due 2000 19,000 102.41
March 1993 ................ 8% due 2001 27,000 102.53
March 1993 ................ 8% due 1996 95,000 100.91
March 1993 ................ 4 3/8% due 1993 9,540 100.00
- -----------
* Average price.
Scheduled debt maturities and sinking fund requirements aggregate $113.8
million for 1996-1998.
On or before April 1 of each year, ACE and other New Jersey utilities are
required to pay excise taxes to the State of New Jersey. In March 1995, ACE paid
$98.7 million funded through the issuance of short term debt. In 1994 and 1993,
ACE paid an additional $50 million and $45 million, respectively, for the
accelerated payment of one year's tax due as required by amended state law.
These accelerated payments are being recovered through rates.
During 1995, ACE made $19.1 million in payments related to its workforce
reduction program. ACE expects payments and settlement of the remaining
obligation for this program of $7.5 million to be substantially completed by the
end of 1996.
On an interim basis, ACE finances construction costs and other capital
requirements in excess of internally generated funds through the issuance of
unsecured short term debt consisting of commercial paper and borrowings from
banks. As of December 31, 1995, ACE has arranged for lines of credit of $150
million of which $119.5 million was available. Permanent financing by ACE is
undertaken by the issuance of long term debt and Preferred Stock, and at times
from capital contributions by AEI. ACE's nuclear fuel requirements associated
with its jointly-owned units have been financed through arrangements with a
third party.
A summary of the issue and sale of ACE's long term debt for 1993-1995 is as
follows:
1995 1994 1993
---- ---- ----
(millions)
First Mortgage Bonds ............ -- -- $225
Medium Term Notes ............... $105 -- 240
Pollution Control Bonds ......... -- $55 4
The proceeds from these financings were used to refund higher cost debt and
for construction purposes. During 1996-1998, ACE may issue up to $150 million in
new long term debt to be used for construction and repayment of short term debt.
The provisions of ACE's charter, mortgage and debenture agreements can limit, in
certain cases, the amount and type of additional financing which may be used. At
December 31, 1995, ACE estimates additional funding capacities of $288 million
of First Mortgage Bonds, or $490 million of Preferred Stock, or $413 million of
unsecured debt. These amounts are not necessarily additive.
Atlantic Energy Enterprises, Inc.
On January 1, 1995, AEI transferred direct ownership of its existing
nonutility companies to AEE. AEE is a holding company which is responsible for
the management of the investments in the nonutility companies consisting of:
Atlantic Generation, Inc. (AGI); Atlantic Southern Properties, Inc. (ASP); ATE
Investment, Inc. (ATE); Atlantic Thermal Systems, Inc. (ATS); CoastalComm, Inc.
(CCI) and Atlantic Energy Technology, Inc. (AET). Also, AEE has a 50% equity
interest in a limited liability company which provides energy management
services, including natural gas supply, transportation and marketing. Management
of the nonutility companies has developed a five-year
A-27
<PAGE>
business strategy to expand operations and improve its financial performance.
AEE's business strategy reflects the potential investment of approximately $400
million over the next five years.
Atlantic Generation, Inc.
AGI and its wholly-owned subsidiaries are engaged in the development,
acquisition, ownership and operation of cogeneration power projects. AGI's
activities through its subsidiaries are primarily represented by partnership
interests in three cogeneration facilities located in New Jersey and New York.
At December 31, 1995, total investments in these partnerships amounted to $30.6
million. Cash outlays for capital investments by AGI for 1993-1995 totaled $7.5
million. AGI obtained the funds for its investments through capital
contributions from AEI.
Atlantic Southern Properties, Inc.
ASP owns and manages a 280,000 square-foot commercial office and warehouse
facility located in southern New Jersey with a net book value of $10.1 million
at December 31, 1995. This investment has been funded by capital contributions
from AEI and borrowings under a loan agreement with ATE.
ATE Investment, Inc.
ATE provides funds management and financing to affiliates and manages a
portfolio of investments in leveraged leases. ATE has invested $79.0 million in
leveraged leases of three commercial aircraft and two containerships. ATE
obtained funds for its business activities and loans to affiliates through
capital contributions from AEI and external borrowings. These borrowings include
$15 million principal amount of 7.44% Senior Notes due 1999 and a revolving
credit and term loan facility of up to $25 million. At December 31, 1995, $18.5
million was outstanding under this facility. ATE's cash flows are provided from
lease rental receipts and realization of tax benefits generated by the leveraged
leases. ATE has notes receivable, including interest, outstanding with ASP which
totaled $9.4 million at December 31, 1995. ATE has established a $10 million
revolving credit agreement with ATS of which $522 thousand was receivable,
including interest, from ATS at December 31, 1995. ATE has established credit
arrangements with AEE, of which $9.6 million was receivable, including interest,
from AEE at December 31, 1995.
Atlantic Thermal Systems, Inc.
ATS and its wholly-owned subsidiaries are engaged in the development and
operation of thermal heating and cooling systems. ATS has invested $11.9 million
as of December 31, 1995. ATS is authorized to make $88 million in capital
expenditures related to a district heating and cooling system to serve the
business and casino district in Atlantic City, New Jersey. ATS has obtained
funds for its project development through loans from AEI and has established a
$10 million revolving credit agreement with ATE. Additional funding for the
project is expected from $12.5 million borrowed from the proceeds of bonds
issued by the New Jersey Economic Development Authority with an initial rate of
interest of 3.70%. These funds are currently restricted in trust pending
resolution of certain loan conditions. Satisfaction of these conditions and use
of the funds is expected in 1996.
CoastalComm, Inc.
Formed in November 1995, CCI invested $5.2 million in a joint venture
pursuing telecommunication technology.
Atlantic Energy Technology, Inc.
AET is currently concluding the affairs of its subsidiary, which is its
sole investment. The net investment in this subsidiary is nominal. Provisions
for the write down of this investment to its current book value had been made in
prior years. There are no future plans for investment activity at this time by
AET.
RESULTS OF OPERATIONS
Operating results are dependent upon the performance of the subsidiaries,
primarily ACE. Since ACE is the principal subsidiary within the consolidated
group, the operating results presented in the Consolidated Statement of Income
are those of ACE, after elimination of transactions among members of the
consolidated group. Results of the nonutility companies are reported in Other
Income.
A-28
<PAGE>
Revenues
Operating Revenues--Electric increased 4.4% and 5.5% in 1995 and 1994,
respectively. Components of the overall changes are shown as follows:
1995 1994
------ -----
(millions)
Levelized Energy Clause .................... $ 49.2 $30.3
Kilowatt-hour Sales ........................ (10.0) 9.6
Unbilled Revenues .......................... 16.6 (7.3)
Sales for Resale ........................... (11.9) 17.8
Other ...................................... (3.8) (3.0)
------ -----
Total .................................... $ 40.1 $47.4
====== =====
LEC revenues increased in 1995 due to a provisional rate increase of $37.0
million in July 1995 and a $55 million increase in July 1994. Changes in
kilowatt-hour sales are discussed under "Billed Sales to Ultimate Utility
Customers." Overall, the combined effects of changes in rates charged to
customers and kilowatt-hour sales resulted in increases of 5.9% and 3.1% in
revenues per kilowatt-hour in 1995 and 1994, respectively. The changes in
Unbilled Revenues are a result of the amount of kilowatt-hours consumed by, but
not yet billed to, ultimate customers at the end of the respective periods,
which are affected by weather and economic conditions, and the corresponding
price per kilowatt-hour. The changes in Sales for Resale are a function of ACE's
energy mix strategy, which in turn is dependent upon ACE's needs for energy, the
energy needs of other utilities participating in the regional power pool of
which ACE is a member, and the sources and prices of energy available. The
decline in the 1995 Sales for Resale reflects a decrease in the demand of the
power pool, the decline in market prices and a reduction in excess energy
sources when compared to the previous year. The decrease in supplemental excess
energy sources reflect the expiration of a 200 megawatt purchase capacity
arrangement in May 1994, and expiration of other short term purchase contracts.
The increase in Sales for Resale for 1994 was the result of being able to meet
the demands of the regional power pool due to the extreme weather conditions
during the first six months of 1994.
Billed Sales to Ultimate Utility Customers
Changes in kilowatt-hour sales are generally due to changes in the average
number of customers and average customer use, which is affected by economic and
weather conditions. Energy sales statistics, stated as percentage changes from
the previous year, are shown as follows:
<TABLE>
<CAPTION>
1995 1994
Avg Avg # Avg Avg #
Customer Class Sales Use Of Cust Sales Use Of Cust
- -------------- ----- --- ------- ----- --- -------
<S> <C> <C> <C> <C> <C> <C>
Residential (2.0)% (3.1)% 1.2% 1.5% .4% 1.1%
Commercial 1.4 (.1) 1.5 2.6 .5 2.1
Industrial (7.4) (9.0) 1.7 (2.9) (3.8) .9
Total (1.4) (2.6) 1.2 1.3 -- 1.2
</TABLE>
The 1995 decrease in total sales was attributed to weather conditions that
led to below normal electricity consumption for a majority of the year and a
decreased number of billing days in 1995 compared to 1994. The 1994 increase in
total sales was due to an increase in the number of billing days in 1994
compared to 1993 and, to a lesser extent, weather. The Commercial sector
experienced continued growth during 1995 due to sales increases across all the
major commercial subsectors. Commercial growth in both years benefitted from
night lighting programs. The sales declines in the Industrial sector are
primarily related to the impact of two former customers taking energy service
from independent power producers commencing in June 1994 and January 1995.
Costs and Expenses
Total Operating Expenses increased 5.9% and 7.6% in 1995 and 1994,
respectively. Included in these expenses are the costs of energy, purchased
capacity, operations, maintenance, depreciation and taxes.
Energy expense reflects cost incurred for energy needed to meet load
requirements, various energy supply sources used and operation of the LECs.
Changes in costs reflect the varying availability of low-cost generation from
A-29
<PAGE>
ACE-owned and purchased energy sources, and the corresponding unit prices of the
energy sources used, as well as changes in the needs of other utilities
participating in the Pennsylvania-New Jersey-Maryland Interconnection power
pool. The cost of energy is recovered from customers primarily through the
operation of the LEC. Excluding the effects of the SNJEI (discussed below),
earnings generally are not affected by energy costs because these costs are
adjusted to match the associated LEC revenues. In any period, the actual amount
of LEC revenue recovered from customers may be greater or less than the actual
amount of energy cost incurred in that period. Such respective overrecovery or
underrecovery of energy costs is recorded on the Consolidated Balance Sheet as a
liability or an asset as appropriate. Amounts in the balance sheet are
recognized in the Consolidated Statement of Income within Energy expense during
the period in which they are subsequently recovered through the LEC. ACE was
underrecovered by $31.4 million and by $11 million at December 31, 1995 and
1994, respectively. The increase in 1995 is due to the combination of the
election to defer recovery of $20.6 million of recoverable fuel costs, lower
than projected kilowatt-hour sales and greater than projected purchased fuel as
replacement for Salem Station generation.
As a result of implementing the Southern New Jersey Economic Initiative
(SNJEI), ACE is forgoing the recovery of energy costs in LEC rates in the amount
of $10.0 million and $28.0 million for the 1995 and 1994 LEC periods,
respectively. After tax net income has been reduced by $12.2 million and $10.1
million due to the effects of the initiative for 1995 and 1994, respectively.
Energy expense decreased 9.0% in 1995 primarily due to the increase in
underrecovered fuel costs, offset in part by the effects of the SNJEI referred
to above. In 1994, Energy expense increased 32.7% due to the SNJEI and the
increase in the levelized energy clause that reduced underrecovered fuel costs.
Production-related energy costs for 1995 decreased 1.9% due to reduced
generation. The average unit cost of energy decreased to 2.02 cents per
kilowatt-hour in 1995 compared to 2.04 cents per kilowatt-hour in 1994.
Production-related energy costs for 1994 increased by 19.9% due to increased
overall generation and the high cost of energy from additional nonutility
sources. The 1993 cost per kilowatt-hour was 1.82 cents.
Purchased Capacity expense reflects entitlement to generating capacity
owned by others. Purchased Capacity expense increased 45.5% and 18.2% in 1995
and 1994, respectively. The increases reflect additional contract capacity
supplied by nonutility power producers in each year.
Operations expense decreased 2.8% and 3.5% in 1995 and 1994, respectively.
These decreases reflect the benefits of ACE's restructuring programs, initiated
in 1993 and 1994. The 1995 decrease was offset in part by the additional costs
associated with Salem Station restart activities. Net after tax savings
approximated $8 million in 1995 related to the workforce reduction recorded in
1994. Employee separations throughout ACE of approximately 300 employees largely
occurred on March 1, 1995. The original estimate of net after tax savings of $10
million was based on a full-year assessment. Maintenance expense decreased 8.5%
and 17.2% in 1995 and 1994, respectively, due to cost saving measures.
Depreciation and Amortization expense increased 7.0% and 7.9% in 1995 and
1994, respectively, as a result of continued increases in ACE's depreciable
electric plant in service.
State Excise Taxes expense increased 5.9% in 1995 due to an increase in the
tax base used to calculate the tax in comparison to the 1994 tax base. In 1994,
State Excise Taxes expense decreased 6.9% relative to the higher tax assessment
in 1993.
Federal Income Taxes increased 7.9% in 1995 and decreased 6.1% in 1994 as a
result of the level of taxable income during those periods.
Employee Separation costs is the provision by ACE in 1994 for the reduction
of its workforce. Other-Net within Other Income (Expense) decreased in 1994 due
to the net after-tax impacts of the write-off of deferred nuclear study costs of
$1.4 million and the write-down of the carrying value of ASP's commercial
property of $1.7 million. The Litigation Settlement for 1993 represents an
additional allocation to customers of the proceeds from the 1992 settlement
associated with the Peach Bottom Station shut down in prior years.
Interest on Long Term Debt increased 5.2% in 1995 due to increased amounts
of debt outstanding during the year. In 1994, interest on long term debt
decreased 3.4% due to refunding of higher cost debt. At December 31, 1995, 1994
and 1993, ACE's embedded cost of long term debt was 7.5%, 7.6% and 7.8%,
respectively.
Preferred Stock Dividend Requirements decreased 12.5% and 4% in 1995 and
1994, respectively, as a result of continuing mandatory and optional
redemptions. Embedded cost of Preferred Stock as of December 31, 1995, 1994 and
1993 was 7.4%, 7.6% and 7.7%, respectively.
A-30
<PAGE>
OUTLOOK
Over the next five years, AEI will devote considerable resources to the
development of energy-related businesses and markets. AEE's business plan calls
for additional investments of $400 million. AEE's investment strategy will
further its long term objectives of becoming a wholesale energy supplier and
aggregator as well as a provider of energy services for its customers. AEE also
expects to make additional investments in energy-related technologies and
services while continuing to pursue strategic business alliances and services
that will support its growth and financial performance. AEE's business plan
indicates a positive contribution to earnings in 1996.
Throughout this period, however, ACE's utility business will continue to be
the primary factor influencing the Company's overall financial performance.
Factors such as regional economic trends, abnormal weather conditions and
inflation will continue to be important determinants of ACE's financial
performance. However, continued competition from independent power producers and
the anticipated deregulation of the electric utility industry are becoming the
most critical strategic factors for ACE.
Fundamental changes in the industry have led to the emergence of
significant competitive issues for ACE, including heightened competition in the
wholesale bulk power market, the growth of the independent power industry and
the pressure to offer more competitive rates to customers.
ACE is closely monitoring deregulation of the industry on both a state and
Federal level. The Federal Energy Regulatory Commissions' (FERC) on-going
rulemaking proceeding is proposing changes to rules governing transmission
access and pricing. FERC is also establishing guidelines for recovery of
stranded costs and investments stemming from wholesale transactions. In response
to FERC's initiative, the power pool in which ACE participates has proposed
significant changes to its structure and operation.
State jurisdictions across the country, including New Jersey, are closely
examining the issues surrounding deregulation or are creating new regulations
designed to foster a more competitive industry. ACE is playing an active role in
The New Jersey Board of Public Utilities' (BPU) on-going Energy Master Plan
proceeding. Among other things, the proceeding is investigating the extent to
which utilities, in a competitive environment, may be threatened with the
inability to recover investments or long term commitments prudently made, and
placed into rates under traditional ratemaking regulations. To date, the BPU has
made no formal policy pronouncement regarding deregulation or the recovery of
stranded commitments.
In anticipation of heightened competition in energy markets, ACE is
pursuing a number of initiatives designed to strengthen its position in the
marketplace. The cost of ACE's power supply, including the cost of power
purchased from independent power producers, along with its retail prices are
expected to be critical success factors in a competitive marketplace. ACE is
focusing on cost and rate control measures as well as the development of new
energy-related products and services. To allow for more flexibility and closer
cost control, ACE transferred its production operations to its subsidiary,
Deepwater Operating Company, on January 1, 1996. Alternate pricing mechanisms
and long term discount power contracts are being explored as a means of
retaining key customers that are at risk of leaving ACE's system. While any such
discounts are intended to have a long term beneficial impact, they could have a
detrimental effect on ACE's operating revenues and net income in the short term.
ACE's net income and its levelized energy adjustment rates may be affected
by the operational performance of nuclear generating facilities and a
BPU-mandated nuclear unit performance standard. Net income may also be affected
by significant changes in the decommissioning costs associated with the nuclear
units. At this time, it is not known what impact there may be on future
operations and financial condition associated with the uncertain status of Salem
Station Unit 1.
The electric utility industry continues to be capital intensive. ACE has
lowered its planned construction budget to $398 million for 1996-2000, with an
expected reduction in its external cash requirements. ACE's ability to generate
cash flows or access the capital markets to fund capital requirements will be
affected by competitive pressures on revenues and net income, as well as
regulatory initiatives and rate developments.
The FASB issued two new statements in 1995--Statement No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" and Statement No. 123 "Accounting for Stock-Based Compensation". Both
statements are effective for the Company in 1996. Statement No. 121 primarily
concerns accounting for the impairment and disposal of property, plant and
equipment. Statement No. 123 permits a fair value-based method to account for
stock-based compensation as an alternative to the intrinsic value-based
A-31
<PAGE>
method currently permitted. The Company currently employs stock-based
compensation which has not had a material impact on the financial statements.
The Company has not yet fully assessed the impacts on its financial statements
of the requirements of these new accounting standards.
INFLATION
Inflation affects the level of operating expenses and also the cost of new
utility plant placed in service. Traditionally, the rate making practices that
have applied to ACE have involved the use of historical test years and the
actual cost of utility plant. However, the ability to recover increased costs
through rates, whether resulting from inflation or otherwise, depends upon both
market circumstances and the frequency, timing and results of rate case
decisions.
- -------------------------------------------------------------------------------
INVESTOR INFORMATION
Where should I send inquiries concerning my investment in Atlantic Energy or
Atlantic Electric?
The company serves as recordkeeping agent, dividend disbursing agent and
also as transfer agent for common stock and Atlantic Electric's preferred stock.
Correspondence concerning such matters as the replacement of dividend checks or
stock certificates, address changes, dividend reinvestment and stock purchase
plan inquiries or any general information about the company should be addressed
to:
Atlantic Energy, Inc.
Investor Records
6801 Black Horse Pike
P.O. Box 1334
Pleasantville, New Jersey 08232
Telephone (609) 645-4506 or (609) 645-4507
Effective February 1, 1996, the role of transfer agent for common stock
will be shared with Continental Stock Transfer & Trust Company. Requests for the
transfer of common stock certificates should be forwarded to:
Continental Stock Transfer & Trust Company
2 Broadway, 19th Floor
New York, NY 10004
Telephone (212) 509-4000
Preferred stockholders should continue to contact Atlantic Energy with
regard to the transfer of their stock.
When are dividends paid?
The proposed record dates and payable dates are as follows:
Record Dates Payable Dates
------------ -------------
March 25, 1996 April 15, 1996
June 24, 1996 July 15, 1996
September 23, 1996 October 5, 1996
December 23, 1996 January 15, 1997
The following table indicates dividends paid per share in 1995 and 1994 on
common stock:
1995 1994
---- ----
First Quarter ..................... $.385 $.385
Second Quarter .................... .385 .385
Third Quarter ..................... .385 .385
Fourth Quarter .................... .385 .385
----- -----
Annual Total ...................... $1.54 $1.54
===== =====
Dividend checks are mailed to reach shareholders approximately on the
payment date. If a dividend check is not received within 10 days of the payment
date, or if one is lost or stolen, contact Investor Records.
A-32
<PAGE>
Dividends paid on common stock in 1995 and 1994 were fully taxable. Some
state and local governments may impose personal property taxes on shares held in
certain corporations. Shareholders residing in those states should consult their
tax advisors with regard to personal property tax liability.
Who is the trustee and interest paying agent for Atlantic Electric's bonds and
debentures?
First mortgage bond recordkeeping and interest disbursing are performed by
The Bank of New York, 101 Barclay Street, New York, New York 10286. Debenture
recordkeeping and interest disbursing are performed by First Fidelity Bank, N.A.
765 Broad Street, Newark, New Jersey 07102.
Does the Company have a Dividend Reinvestment and Stock Purchase Plan ("Plan")?
Yes. The Plan allows shareholders of record and interested investors to
automatically invest their cash dividend and/or optional cash payments in shares
of the company's common stock. Other services available to Plan participants
include certificate safekeeping and automatic investment. Holders of record of
common stock or interested investors wishing to enroll in the Plan should
contact Investor Records at the address listed. In addition, shareholders whose
stock is held in a brokerage account may be able to participate in the Plan.
These shareholders should contact their broker or Investor Records for more
information.
Where is the Company's stock listed?
Common stock is listed on the New York Stock Exchange. The trading symbol
of the company's common stock is ATE; however, newspaper listings generally use
AtlEnrg or AtlanEngy.
The high and low sale prices of the common stock reported in the Wall
Street Journal as New York Stock Exchange--Composite Transactions for the
periods indicated were as follows:
1995 1994
------------------- -------------------
High Low High Low
------- ------- ------- -------
First Quarter ............... $19.000 $17.750 $21.750 $19.875
Second Quarter .............. 19.625 17.875 21.500 16.375
Third Quarter ............... 19.875 18.125 19.625 16.125
Fourth Quarter .............. 20.125 19.000 18.250 16.000
Is additional information about the company available?
The annual report to the Securities and Exchange Commission on Form 10-K
and other reports containing financial data are available to shareholders.
Specific requests should be addressed to:
Atlantic Electric
Financial Services Department
6801 Black Horse Pike
Egg Harbor Township, New Jersey 08234-4130
Telephone (609) 645-4483 or (609) 645-4518
FAX (609) 645-4132
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<PAGE>
SELECTED FINANCIAL DATA 1995-1991
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating Revenues (000) ................... $ 953,137 $ 913,039 $ 865,675 $ 816,825 $ 808,374
Net Income (000) ........................... $ 81,768 $ 76,113* $ 95,297 $ 86,210 $ 85,635
Earnings per Average Common Share .......... $ 1.55 $ 1.41* $ 1.50 $ 1.67 $ 1.75
Total Assets (Year-end) (000) .............. $2,620,896 $2,545,555 $2,487,508 $2,219,338 $2,151,416
Long-Term Debt and Cumulative
Preferred Stock Subject to Mandatory
Redemption (Year-end) (000) .............. $1,019,603 $ 940,788 $ 952,101 $ 842,236 $ 807,347
Capital Lease Obligations
(Year-end) (000) ......................... $ 40,886 $ 42,030 $ 45,268 $ 49,303 $ 53,093
Dividends Declared on Common Stock ......... $ 1.54 $ 1.54 $ 1.535 $ 1.515 $ 1.495
Common Shareholders (Year-end) ............. 48,683 48,850 47,832 46,524 43,802
- --------------
<FN>
* Reflects special charges, primarily for employee separation costs.
</FN>
</TABLE>
A-34
<PAGE>
DIRECTORS OF ATLANTIC ENERGY, INC.
As of December 31, 1995
JOS. MICHAEL GALVIN, JR.
President and Chief Executive Officer of South Jersey Health Corporation, The
Memorial Hospital of Salem County, Salem, NJ. Director of Woodstown National
Bank and Center for Health Affairs.
GERALD A. HALE
President of Hale Resources, Inc., Summit, NJ, a health care, industrial/natural
resource investment and management company. General Manager of HHH Investment
Company, LLC. Director of New Jersey Manufacturers Insurance Company, New Jersey
Business and Industry Association and Hoke, Inc.
MATTHEW HOLDEN, JR.
Professor of Government & Foreign Affairs, University of Virginia,
Charlottesville, VA. Economic and political consultant, arbitrator. Prior to
1982, Commissioner, Federal Energy Regulatory Commission and Wisconsin Public
Service Commission.
CYRUS H. HOLLEY
President of Management Consulting Services, Grapevine, TX. Director and Chief
Executive Officer of Oakmont Enterprises, Grapevine, TX. Director of UGI
Corporation and Kerns Oil & Gas Company.
E. DOUGLAS HUGGARD
Chairman of the Board of Atlantic Energy. Retired Chief Executive Officer of
Atlantic Energy and Retired Chairman and Chief Executive Officer of Atlantic
Electric. Former President and Chief Operating Officer of Atlantic Energy and
Atlantic Electric.
JERROLD L. JACOBS
Director, President and Chief Executive Officer of Atlantic Energy and Chairman
and Chief Executive Officer of Atlantic Electric. Former Vice President of
Atlantic Energy and President of Atlantic Electric.
KATHLEEN MACDONNELL
Corporate Vice President of Campbell Soup Company, Camden, NJ. President, Frozen
Foods Group, of Campbell Soup Company. Director of the Campbell/Nakano Joint
Venture and the American Frozen Food Institute. Former Sector Vice President,
Prepared Foods, and Sector Vice President, Grocery, of Campbell Soup Company.
RICHARD B. MCGLYNN
Attorney. Vice President and General Counsel of United Water Resources, Inc.,
Harrington Park, NJ. Former Partner in the law firm of LeBoeuf, Lamb, Greene &
MacRae and Former Partner in the law firm of Stryker, Tams & Dill.
BERNARD J. MORGAN
Financial Investor, Southampton, PA. Director of FormMaker Software, Inc.,
Atlanta, GA. Former Vice Chairman of First Fidelity Bancorporation, NJ/PA,
Former Vice Chairman, President, Chief Executive Officer and Chief Operating
Officer of Fidelcor, Inc. Former Chairman, Deputy Chairman, Chief Executive
Officer, President and Chief Operating Officer of Fidelity Bank, N.A.
HAROLD J. RAVECHE
President of Stevens Institute of Technology, Hoboken, NJ. Director of National
Westminster Bancorp, Inc. and member of the U.S. Council on Competitiveness and
Business Executives for National Security. Former Dean of Science, Rensselaer
Polytechnic Institute.
A-35
<PAGE>
OFFICERS OF ATLANTIC ENERGY, INC. AND SUBSIDIARIES
(Age/Years of Service) As of December 31, 1995
JERROLD L. JACOBS (56/34)
President and Chief Executive Officer of Atlantic Energy Director of Atlantic
Energy, Atlantic Electric and Atlantic Energy Enterprises Chairman and Chief
Executive Officer of Atlantic Electric
Mr. Jacobs was elected president & chief executive officer of Atlantic Energy in
1993 and has also held the position of chairman & chief executive officer of
Atlantic Electric since 1993. He has also held the positions of president, chief
operating officer and executive vice president of Atlantic Electric. Mr. Jacobs
joined Atlantic Electric in 1961 as an engineer.
MICHAEL J. CHESSER (47/2)
Senior Vice President of Atlantic Energy President and Chief Operating Officer
of Atlantic Electric Director of Atlantic Electric and Atlantic Energy
Enterprises
Mr. Chesser was elected to his current position in 1995. He jointed Atlantic
Energy in 1994 as vice president as well as executive vice president and chief
operating officer of Atlantic Electric. Prior to joining Atlantic Energy, he was
an executive with Baltimore Gas & Electric, where he served as vice
president-marketing & gas operations.
MICHAEL J. BARRON (46/1)
Vice President and Chief Financial Officer of Atlantic Energy Senior Vice
President and Chief Financial Officer of Atlantic Electric
Mr. Barron joined Atlantic Energy in 1995. He previously served as vice
president and treasurer of Maxus Energy Corporation, Dallas, Texas.
JAMES E. FRANKLIN II (49/2)
Vice President, Secretary and General Counsel of Atlantic Energy
Secretary of Atlantic Energy Enterprises Director, Senior Vice President,
Secretary and General Counsel of Atlantic Electric
Mr. Franklin joined Atlantic Energy in 1994 as general counsel and was named to
his current positions in 1995. He was previously a senior partner with the law
firm of Megargee, Youngblood, Franklin & Corcoran, P.A. where he represented
Atlantic Energy in the capacity of external legal counsel.
MEREDITH I. HARLACHER, JR. (53/30)
Vice President of Atlantic Energy
Director of Atlantic Electric
Senior Vice President-Power System of Atlantic Electric
Mr. Harlacher has served as vice president of Atlantic Energy and senior vice
president of Atlantic Electric since 1987. He was named senior vice
president-power system in 1995. He most recently served as senior vice
president-energy supply. He joined Atlantic Electric in 1965 as an engineer.
HENRY K. LEVARI, JR. (47/24)
Vice President of Atlantic Energy
Director of Atlantic Electric
Senior Vice President-External Affairs of Atlantic Electric
Mr. Levari has served as vice president of Atlantic Energy and senior vice
president of Atlantic Electric since 1991. Mr. Levari was named senior vice
president-external affairs in 1995. Prior to his current position he served as
senior vice president-customer operations. He jointed Atlantic Electric in 1971
as an engineer.
MARILYN T. POWELL (48/2)
Vice President of Atlantic Energy
Senior Vice President-Marketing of Atlantic Electric
Mrs. Powell was elected to her current position in 1995. She joined Atlantic
Electric in 1994 as vice president-marketing. She previously served as IBM's
director of marketing process for its U.S. unit.
SCOTT B. UNGERER (36/14)
Vice President of Atlantic Energy
Director of Atlantic Energy Enterprises (AEE) and all AEE subsidiaries
President and Chief Operating Officer of Atlantic Energy Enterprises
President of ATE Investment, Atlantic Energy Technology, Atlantic Southern
Properties and CoastalComm Member of the operating committee for Atlantic CNRG
Services, LLC
Mr. Ungerer was named vice president of Atlantic Energy in 1994, and president
and chief operating officer of Atlantic Energy Enterprises in 1995. He
previously served in various executive positions in Atlantic Energy's nonutility
companies and held various management positions at Atlantic Electric. He joined
Atlantic Electric in 1980 as an engineer.
A-36
<PAGE>
LOUIS M. WALTERS (43/17)
Treasurer of Atlantic Energy
Vice President, Treasurer and Assistant Secretary of
Atlantic Electric
Certified Public Accountant
Mr. Walters was named to his current position in 1995. He has served as vice
president-treasurer of Atlantic Electric since 1993. He previously served as
general manager-treasury and finance of Atlantic Electric. He joined Atlantic
Electric in 1978 as an accountant.
FRANK E. DICOLA (48/2)
Vice President and Treasurer of Atlantic Energy Enterprises (AEE)
Director of all AEE subsidiaries
President of Atlantic Thermal Systems
Treasurer of ATE Investment, Atlantic Energy Technology, Atlantic Generation,
Atlantic Southern Properties and CoastalComm
Member of the operating committee for Atlantic CNRG Services, LLC
Secretary of Atlantic Generation
Mr. DiCola was named to his position in 1995. He joined Atlantic Thermal Systems
as president in 1994. He was previously with Cogeneration Partners of America
where he served as president.
ERNEST L. JOLLY (43/15)
Vice President-Atlantic Transformation of Atlantic Electric
Mr. Jolly was elected vice president of Atlantic Electric in 1992 and was named
to his current position in 1994. He previously served as vice president-external
affairs. He jointed Atlantic Electric in 1980 as an engineer.
J. DAVID MCCANN (44/23)
Vice President-Strategic Customer Support of Atlantic Electric
Mr. McCann was named to his current position in 1994. He has served as a vice
president of Atlantic Electric since 1985. Prior to his current assignment, he
served as vice president-engineering & construction services of Atlantic
Electric. He joined Atlantic electric in 1972 as an engineer.
HENRY C. SCHWEMM, JR. (54/26)
Vice President-Power Generation & Fuels Management of Atlantic Electric
Mr. Schwemm was named to his current position in 1993. He previously served as
vice president-production of Atlantic Electric. He joined Atlantic Electric in
1969 as an engineer.
JAMES C. WELLER (46/2)
Vice President and Assistant Secretary of Atlantic Energy Enterprises (AEE) and
Director of all AEE subsidiaries
President of Atlantic Generation
Secretary of ATE Investment, Atlantic Energy
Technology, Atlantic Southern Properties, Atlantic Thermal Systems and
CoastalComm
Treasurer of Atlantic Thermal Systems
Mr. Weller was named to his current position in 1995. He joined Atlantic
Generation, Inc. as president in 1994. He previously held the position of vice
president-engineering and project development for Cogeneration Partners of
America.
A-37
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE LISTED PROPOSALS
SIGNATURE(S)___________________________________________________________________
[ ] I plan to attend the meeting on April 24, 1996
[ ] CHECK BOX TO ELIMINATE SENDING FUTURE
ANNUAL REPORTS FOR THIS ACCOUNT.
DATE _______________ , 1996
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THE RIGHT. EACH JOINT OWNER MUST
SIGN. WHEN SIGNING AS TRUSTEE, GUARDIAN, EXECUTOR, ADMINISTRATOR OR CORPORATE
OFFICER, PLEASE GIVE FULL TITLE.
ACCOUNT NO.
- -------------------------------------------------------------------------------
TEAR HERE TEAR HERE
[LOGO]
{PHOTO] March 18, 1996
E. D. Huggard
Chairman Of The Board Of Directors
YOU ARE CORDIALLY INVITED TO JOIN US AT THE 1996 ANNUAL MEETING OF SHAREHOLDERS
OF ATLANTIC ENERGY, INC. THIS YEAR THE MEETING WILL BE HELD IN THE ATLANTIC CITY
BALLROOM OF HARRAH'S CASINO HOTEL, 777 HARRAH'S BOULEVARD, IN ATLANTIC CITY, NEW
JERSEY, ON WEDNESDAY, APRIL 24, 1996, STARTING AT 3:00 P.M. I HOPE YOU WILL BE
ABLE TO ATTEND. AT THE MEETING, IN ADDITION TO CONSIDERING AND ACTING ON THE
MATTERS DESCRIBED IN THE ATTACHED PROXY STATEMENT, A CURRENT REPORT ON THE
BUSINESS OPERATIONS OF THE COMPANY AND ITS SUBSIDIARIES WILL BE GIVEN.
IT IS IMPORTANT THAT YOUR SHARES BE VOTED WHETHER OR NOT YOU PLAN TO BE PRESENT
AT THE MEETING. YOU SHOULD SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES
ON THE PROXY FORM ABOVE AND DATE, SIGN AND RETURN YOUR PROXY FORM IN THE
ENCLOSED, POSTPAID RETURN ENVELOPE AS PROMPTLY AS POSSIBLE. IF YOU DATE, SIGN
AND RETURN YOUR PROXY FORM WITHOUT SPECIFYING YOUR CHOICES, YOUR SHARES WILL BE
VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF YOUR DIRECTORS.
I WELCOME YOUR COMMENTS AND SUGGESTIONS. TIME WILL BE PROVIDED DURING THE
MEETING FOR YOUR QUESTIONS. FOR YOUR CONVENIENCE, DIRECTIONS TO THE MEETING SITE
HAVE BEEN PRINTED ON THE REVERSE SIDE OF THIS LETTER. I LOOK FORWARD TO SEEING
YOU.
Sincerely,
E.D. HUGGARD
<PAGE>
DIRECTIONS TO HARRAH'S CASINO HOTEL
FROM NEW YORK: Take the New Jersey Turnpike to Exit 11 (Garden State Parkway).
Take the Garden State Parkway South to Exit 40 (White Horse Pike - Route 30).
Take Route 30 East and follow the signs for Brigantine. Exit Route 30 at Dr.
Martin Luther King Blvd. (Illinois Ave.). Follow the signs to Harrah's.
(approximately 2 hours 20 minutes)
FROM PHILADELPHIA: Take the Ben Franklin or the Walt Whitman Bridge to the North
South Freeway (Route 42). Take the North South Freeway to the Atlantic City
Expressway. Take the Atlantic City Expressway to Exit 9 (Brigantine). Follow
Delilah Road (646) to Route 30 East. Exit Route 30 East at Dr. Martin Luther
King Blvd. (Illinois Ave.). Follow the signs to Harrah's. (approximately 65
minutes)
FROM BALTIMORE/WASHINGTON, D.C.: Take I-95 North to the Walt Whitman Bridge to
the North South Freeway (Route 42). Take the North South Freeway to the Atlantic
City Expressway. Take the Atlantic City Expressway to Exit 9 (Brigantine).
Follow Delilah Road (646) to Route 30 East. Exit Route 30 East at Dr. Martin
Luther King Blvd. (Illinois Ave.) Follow the signs to Harrah's. (approximately 3
hours 45 minutes from Washington, D.C.)
FROM THE SOUTH: Take the Garden State Parkway North to Exit 38 (Atlantic City
Expressway). Take the Atlantic City Expressway straight into Atlantic City. At
the end of the Expressway, turn left onto Arctic Avenue and drive to Dr.Martin
Luther King Blvd. (Illinois Ave.) where you will turn left again. Follow the
signs to Harrah's.
- -------------------------------------------------------------------------------
The undersigned appoints(s) J. M. Galvin, Jr., E. D. Huggard, and J. L.
Jacobs or any of them, proxies with full power of substitution to vote all of
the shares of Atlantic Energy, Inc. Common Stock, which the undersigned is
entitled to vote at the Annual Meeting of Shareholders to be held on April 24,
1996 or any adjournments thereof.
1. ELECTION OF DIRECTORS nominees below:
Jos. Michael Galvin, Jr.; Gerald A. Hale; Matthew Holden, Jr.; Cyrus H. Holley;
Jerrold L. Jacobs; Richard B. McGlynn; Kathleen MacDonnell; Bernard J. Morgan
and Harold J. Raveche.
[ ] FOR [ ] AGAINST FOR ALL NOMINEES EXCEPT: ____________
2. To approve the Atlantic Energy, Inc. and Subsidiaries Employee Stock
Purchase Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To ratify the appointment of Deloitte & Touche LLP as independent
auditors the year ending December 31, 1996.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ABOVE PROPOSALS.
4. To transact any other business as may properly come before the meeting,
or any adjournments thereof.
PLEASE DATE AND SIGN THE REVERSE SIDE
ATLANTIC ENERGY, INC.
AND SUBSIDIARIES
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE ONE - DEFINITIONS
Whenever used in this document, the following terms shall have
the respective meanings set forth below, unless a different meaning is plainly
required by the context:
1.0 Definitions
1.1 "Annual Base Compensation" means, with respect to a full-time Employee,
the Employee's Base Salary or 2,080 times the Employee's Base Hourly
Rate, whichever is applicable, in effect on the date two months before
the first Offering Commencement Date. "Annual Base Compensation" means,
with respect to a non-full-time Employee, the amount equal to his or
her Base Hourly Rate in effect on the date two months before the first
Offering Commencement Date multiplied by the number of Hours of Service
compensated during the 12-month period immediately preceding the date
two months before the first date of the applicable Offering Period.
1.2 "Base Salary" means the annual salary rate received by an Employee,
whose compensation is determined on a salaried basis, as remuneration
for services performed exclusive of payments for overtime, lump sums in
lieu of "Base Salary" increases, shift premiums, bonuses paid in cash
or stock and other special payments, commissions and other incentive
payments.
1.3 "Base Hourly Rate" means the hourly rate of pay received by an Employee
whose compensation is determined on a non-salaried basis, as
remuneration for services performed, exclusive of payments for
overtime, lump sums in lieu of "Base Hourly Rate" increases, shift
premiums, bonuses paid in cash or stock and other special payments,
commissions and other incentive payments.
1.4 "Board of Directors" means the Board of Directors of Atlantic Energy,
Inc.
1.5 "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
1.6 "Committee" means the Personnel & Benefits Committee, or any successor
committee, of the Board of Directors.
1.7 "Common Stock" means any authorized share of ownership of Atlantic
Energy, Inc. represented by a common stock certificate or any other
appropriate instrument evidencing the same.
1
<PAGE>
1.8 "Company" means Atlantic Energy, Inc. and any present or future
corporation that (i) would be a subsidiary corporation of Atlantic
Energy, Inc. as that term is defined in ss.423 of the Code and (ii) is
designated as a participant in the Plan by the Committee, or any
successor corporation.
1.9 "Eligible Employee" means any Employee who meets the eligibility
criteria set forth in ss.3.0.
1.10 "Employee" means any person in the employ of an Employer.
1.11 "Employee Account" means the account to which a Participant's payroll
deduction and interest, if any, will be credited.
1.12 "Employer" means Atlantic Energy, Inc. and all of its directly or
indirectly owned subsidiary companies including but not limited to
Atlantic City Electric Company, Atlantic Energy Enterprises, Inc.,
Deepwater Operating Company, Atlantic Generation, Inc., Atlantic
Thermal Systems, Inc., Atlantic Southern Properties, Inc., ATE
Investment, Inc., Atlantic Energy Technology, Inc., Atlantic CNRG
Services, LLC. and CoastalComm, Inc.
1.13 "Hour of Service" means (i) each hour for which an Employee is directly
or indirectly compensated or entitled to compensation by the Employer
for the performance of duties; (ii) each hour for which an Employee is
directly or indirectly compensated or entitled to compensation by the
Employer on account of a period of time during which no duties are
performed (such as vacation, holidays, sickness, disability, layoff,
jury duty, military duty or leave of absence); (iii) each hour for
which back pay is awarded or agreed to by the Employer without regard
to mitigation. The same Hours of Service shall not be credited both
under (i) or (ii), as the case may be, and (iii).
1.14 "1934 Act" means the Securities Exchange Act of 1934, as amended from
time to time.
1.15 "Offering Commencement Date" means the first day of the Offering
Period.
1.16 "Offering Period" means the 12-month term that an offering under the
Plan exists pursuant to Article Four.
1.17 "Participant" means an Eligible Employee who elects to participate in
the Plan.
1.18 "Plan" means the stock purchase plan know as the "Atlantic Energy, Inc.
and Subsidiaries Employee Stock Purchase Plan" as amended from time to
time.
2
<PAGE>
1.19 "Purchase Date" means the last day of an Offering Period.
ARTICLE TWO - PURPOSE
2.0 Purpose
The Atlantic Energy, Inc. and Subsidiaries (the "Company")
Employee Stock Purchase Plan (the "Plan") is intended to encourage
equity ownership in the Company by Eligible Employees in order to
increase their proprietary interest in and promote the continued
success of the Company. It is the intention of the Company to have the
Plan qualify as an "employee stock purchase plan" under ss.423 of the
Internal Revenue Code of 1986, as amended (the "Code"). The provisions
of the Plan shall be construed so as to extend and limit participation
in a manner consistent with the requirements of that section of the
Code.
ARTICLE THREE - ELIGIBILITY AND PARTICIPATION
3.0 Eligibility
A regular, full-time Employee shall become an Eligible Employee
upon his or her completion of one Hour of Service that must occur no
later than 14 calendar days prior to the Offering Commencement Date. An
employee who is not a regular, full-time Employee shall become an
Eligible Employee upon completion of 1,000 Hours of Service during the
twelve consecutive-month period commencing on the date he or she first
performs an Hour of Service and ending no later than 14 calendar days
prior to the Offering Commencement Date. If such Employee does not
complete 1,000 Hours of Service during such twelve-month period, then
the Employee would become an Eligible Employee upon completion of 1,000
Hours of Service during a subsequent twelve consecutive-month period.
Approximately 1,500 Employees are eligible to participate in the Plan.
3.1 Participation
An Eligible Employee may become a Participant by completing an
authorization for a payroll deduction on the form provided by the
Company and filing it with the Office of the Treasurer of the Company
on or before the date set therefor by the Committee, which date shall
be prior to the Offering Commencement Date for the Offering Period.
Payroll deductions for an Eligible Employee shall commence in the first
regular pay period following the applicable Offering Commencement Date
and shall end in the pay period immediately preceding the Purchase Date
unless sooner terminated by the Eligible Employee as provided in
Article Eight.
3
<PAGE>
3.2 Limitations to Participation
Notwithstanding any provisions of the Plan to the contrary, no Employee
shall be granted an option to participate in the Plan: (i) if,
immediately after the grant, such Employee would own Common Stock,
and/or hold options to purchase Common Stock, possessing 5% or more of
the total combined voting power or value of all classes of Common Stock
of the Company, (for purposes of this Section, the rules of ss.423(d)
of the Code shall apply in determining Common Stock ownership of any
Employee); (ii) which permits his or her rights to purchase Common
Stock under all employee stock purchase plans of the Company to accrue
at a rate that exceeds $25,000 in fair market value of the Common Stock
(determined at the time such option is granted) for each calendar year
in which such option is outstanding.
ARTICLE FOUR - OFFERINGS UNDER THE PLAN
4.0 Annual Offerings
The Plan will be implemented in four (4) Offering Periods
beginning on the 15th day of August in each of the years 1996, 1997,
1998 and 1999, with each Offering Period ending on August 14, of the
following year. The maximum number of shares of Common Stock issued in
the respective years shall be:
Maximum Number of
Offering Period Shares to be Issued
- --------------------------------- ---------------------------------------
August 15, 1996 - August 14, 1997 100,000
August 15, 1997 - August 14, 1998 100,000 plus unissued shares from the
prior Offering Period
August 15, 1998 - August 14, 1999 100,000 plus unissued shares from prior
Offering Periods
August 15, 1999 - August 14, 2000 100,000 plus unissued shares from prior
Offering Periods
ARTICLE FIVE - GRANTING OF OPTIONS
5.0 Number of Option Shares
On the Offering Commencement Date a Participant shall be
deemed to have been
4
<PAGE>
granted an option to purchase a maximum number of shares of Common
Stock of the Company equal to an amount determined as follows: a) a
dollar amount designated by the employee not in excess of 10% of the
Participant's Annual Base Compensation i) divided by 85% of the market
value of the Common Stock of the Company (as defined in ss.5.1 below)
on the applicable Offering Commencement Date or 2) an amount equal to
(i) that percentage of the Participant's Annual Base Compensation that
he or she has elected to have withheld (but not in excess of 10%) (ii)
multiplied by the Participant's Annual Base Compensation, (iii) divided
by 85% of the market value of the Common Stock of the Company (as
defined in ss.5.1 below) on the applicable Offering Commencement Date.
Such method of determination shall be at the discretion of the Company.
5.1 Option Price
The option price of stock purchased with payroll deductions made
during an Offering Period for a Participant therein shall be the lower
of: (i) 85% of the market value of the Common Stock, which is the
average of the high and low selling price of the stock on the Offering
Commencement Date as reported by the "NYSE-Composite Transactions"
published in The Wall Street Journal, or the nearest prior business day
on which trading occurred on the New York Stock Exchange or (ii) 85% of
the market value of the Common Stock, which is the average of the high
and low selling price of the stock on the Purchase Date or the nearest
prior business day on which trading occurred on the New York Stock
Exchange. If the Common Stock of the Company is not admitted to trading
on any of the aforesaid dates for which the high and low selling prices
of the stock are to be determined, then reference shall be made to the
fair market value of the stock on that date, as determined on such
basis as shall be established or specified for the purpose by the
Committee. On December 29, 1995 the closing price of the stock on the
NYSE was $19.25.
ARTICLE SIX - EXERCISE OF OPTION
6.0 Automatic Exercise
Unless a participant gives written notice to the Company as
hereinafter provided, his or her option to purchase shares of Common
Stock through payroll deductions made during any Offering Period will
be deemed to have been exercised automatically on the Purchase Date
applicable to such Offering Period for the purchase of the number of
whole shares of Common Stock which the accumulated payroll deductions
credited to his or her Employee Account at that time will purchase at
the applicable option price (but not in excess of the number of shares
for which options have been granted to the employee pursuant to ss.5.0
hereof), and any excess in his or her Employee Account at that time
will be returned as soon as practicable following the Purchase Date.
5
<PAGE>
6.1 Fractional Shares
Fractional shares will not be issued under the Plan and any
accumulated payroll deductions that would have been used to purchase
fractional shares will be returned to a Participant as soon as
practicable following the Purchase Date.
6.2 Transferability of Option
During a Participant's lifetime, options held by such Participant
shall be exercisable only by that Participant.
6.3 Delivery of Instrument
Common Stock to be delivered to a Participant under the Plan will
be delivered in "book-entry" form. Such Common Stock may be subject to
certain restrictions as described ss.7.5. As promptly as practicable
after the Purchase Date of each Offering Period, the Company will
provide to each participant an appropriate instrument representing the
stock purchased upon exercise of his or her option. A Participant may
request a common stock certificate to be issued in his or her name by
completing the appropriate authorization.
6.4 Expiration of Option
In no event may any option granted pursuant to the Plan be
exercised after the expiration of (i) three (3) years from the date
such option is granted if the option price is not less than 85% of the
fair market value of the stock at the time of the exercise of the
option, or (ii) 27 months from the date such option is granted if the
option price is not determinable in the manner described in (i) above.
ARTICLE SEVEN - COMMON STOCK OFFERED UNDER THE PLAN
7.0 Stock
The stock offered under the Plan shall consist in whole or in part
of (i) authorized but unissued shares of Common Stock of the Company,
or (ii) shares issued and thereafter acquired by the Company.
7.1 Maximum Number of Shares
The maximum number of shares that shall be issued under the Plan,
subject to adjustment upon changes in capitalization of the Company as
provided in Article Fourteen shall be 100,000 in each Offering Period
plus, beginning with the Offering Period starting on August 15, 1997,
all unissued shares from prior Offering Periods, but
6
<PAGE>
not to exceed 400,000 shares for all Offering Periods. If the total
number of shares for which options are exercised on any Purchase Date
in accordance with ss.6.0 exceeds the maximum number of shares for the
applicable offering, the Company shall make a prorata allocation of the
shares available for delivery and distribution in as nearly a uniform
manner as shall be practicable and as it shall determine to be
equitable, and the balance of payroll deductions, plus interest,
credited to each Employee Account shall be returned to him or her as
promptly as possible.
7.2 Effects of Termination by Participants
If an Eligible Employee's participation under the Plan for any
reason ends or is terminated and the shares that are subject to an
option are not purchased, the unpurchased shares of Common Stock shall
again be available for offering under the Plan.
7.3 Participant's Interest in Option Stock
The participant will have no ownership interest in stock covered
by his or her option until such option has been exercised. No
adjustment will be made for dividends or other rights for which the
record date is prior to the date of issuance.
7.4 Registration of Common Stock
Common Stock to be delivered to a participant under the Plan will
be registered in the name of the participant, or, if the participant so
directs, by written notice to the Office of the Treasurer of the
Company prior to the Purchase Date applicable thereto, in the names of
the participant and one such other person as may be designated by the
participant, as joint tenants with rights of survivorship or to the
extent permitted by applicable law.
7.5 Restrictions on Exercise
The Committee may, in its discretion, require that any shares
purchased pursuant to the Plan be subject to certain restrictions
regarding the sale of such shares. Under such restrictions,
Participants may not be permitted to sell, transfer, pledge or assign
shares purchased under the Plan for a period of not more than one year
from the Purchase Date.
The Board of Directors may, in its discretion, require as
conditions to the exercise of any option that the shares of Common
Stock reserved for issuance upon the exercise of the option shall have
been duly listed, upon official notice of issuance, upon a stock
exchange, and that either (i) a Registration Statement under the
Securities Act of 1933, as amended, with respect to said shares, shall
be effective or (ii) the participant shall have represented at the time
of purchase, in form and substance satisfactory to the Company, that it
is his or her intention to purchase the shares for investment and not
for resale or distribution.
7
<PAGE>
ARTICLE EIGHT - WITHDRAWAL FROM THE PLAN AND TERMINATION OF
EMPLOYMENT
8.0 Withdrawal of Account
A Participant may withdraw payroll deductions credited to his or
her Employee Account under the Plan at any time (except in no event
will withdrawals be permitted in the three business days prior to the
Purchase Date) upon receipt of written notice to the Office of the
Treasurer of the Company. All of the Participant's payroll deductions,
without interest, credited to the Employee Account will be paid
promptly after receipt of notice of withdrawal, and no further payroll
deduction will be made from the Participant's pay during the Offering
Period. As to the Participants who are subject to Section 16 of the
1934 Act, (generally officers of Atlantic Energy, Inc.), the right of
participation in the Plan subsequent to withdrawal shall be governed by
the limitations imposed upon each Participant under the 1934 Act.
8.1 Effect on Subsequent Participation
A Participant's withdrawal during any Offering Period will not
have any effect upon his or her eligibility to participate in any
succeeding Offering Periods or in any similar plan that may hereafter
be adopted by the Company.
8.2 Termination of Employment
Upon termination of a Participant's employment during the Offering
Period for a reason other than retirement or death, participation in
the Plan shall terminate immediately and within a reasonable time
thereafter, the Eligible Employee shall be paid all funds, without
interest, then credited to his or her Employee Account.
8.3 Termination of Employment due to Retirement
Upon termination of a Participant's employment during the Offering
Period due to retirement, the Participant shall have the right to
elect, by written notice given to the Office of the Treasurer, prior to
the earlier of the Purchase Date or the expiration of a period of 90
days commencing from the date of retirement either (i) to withdraw all
of the payroll deductions, without interest, credited to the
Participant's Employee Account under the Plan or (ii) to exercise the
Participant's option for the purchase of Common Stock on the Purchase
Date next following the date of the Participant's retirement for the
purchase of the number of whole shares of Common Stock which the
accumulated payroll deductions, without interest, in the Participant's
Employee Account at the date of the Participant's retirement will
purchase at the applicable option price, and any excess in
8
<PAGE>
such Employee Account will be returned to the Participant as soon as
practicable.
In the event that no such written notice of election shall be duly
received by the Office of the Treasurer of the Company, the Participant
shall automatically be deemed to have elected, pursuant to (ii) above,
to exercise the Participant's option.
8.4 Termination of Employment due to Death
Upon termination of a Participant's employment during the Offering
Period due to death, the Participant's beneficiary (as defined in
Article Twelve) shall have the right to elect, by written notice given
to the Office of Treasurer, prior to the earlier of the Purchase Date
or the expiration of a period of 90 days commencing from the date of
the Participant's death either (i) to withdraw all of the payroll
deductions, without interest, credited to the Participant's Employee
Account under the Plan, or (ii) to exercise the Participant's option
for the purchase of stock on the Purchase Date next following the date
of the Participant's death for the purchase of the number of whole
shares of stock which the accumulated payroll deductions, without
interest, in the Participant's Employee Account at the date of the
Participant's death will purchase at the applicable option price, and
any excess in such account will be returned to said beneficiary,
without interest.
In the event that no such written notice of election shall be duly
received by the Office of the Treasurer of the Company, the beneficiary
shall automatically be deemed to have elected, pursuant to (ii) above,
to exercise the Participant's option.
8.5 Leave of Absence
If a Participant is granted a leave of absence, such Participant
shall have the right to elect (i) to withdraw without interest, the
balance in his or her Employee Account pursuant to ss.8.0, (ii) to
discontinue contributions to the Plan and forfeit any interest earned
but remain a Participant in the Plan, or (iii) remain a participant in
the Plan during such leave of absence, authorizing deductions to be
made from any payments by the company to the Participant during such
leave of absence.
ARTICLE NINE - PAYROLL DEDUCTIONS
9.0 Amount of Payroll Deduction
An Eligible Employee shall authorize the Employer in writing to
withhold funds from his or her compensation throughout the 12-month
Offering Period not in excess of 10% of the Eligible Employee's Annual
Base Compensation. Such amounts are subject to the limitations set
forth in ss.3.2. Such amounts will be sufficient to accumulate over the
term of the Offering Period the aggregate purchase price of the shares
which the
9
<PAGE>
Eligible Employee has elected the option to purchase pursuant to the
Plan.
9.1 Employee Account
Funds withheld from a Participant's compensation shall be credited
to the Participant's Employee Account established under the Plan. A
Participant may not make any separate cash payment into such account.
9.2 Changes in Payroll Deduction
A Participant may not increase or decrease the amount withheld
from the Participant's compensation or make other deposits to his or
her Employee Account. A Participant may discontinue participation in
the Plan as provided in Article Eight and only shall be permitted to
withdraw and be paid any funds accumulated in the Employee Account
pursuant to the terms of the Plan.
9.3 Use of Funds
All payroll deductions received or held by the Company under this
Plan may be used by the Company for any corporate purpose and the
Company shall not be obligated to segregate such payroll deductions.
9.4 Underfunded Status of Employee Account
If for any reason other than that set forth in ss.8.3, ss.8.4 and
ss.8.5 herein, the balance in a Participant's Employee Account on the
Purchase Date is less than the aggregate purchase price of the shares
which the Participant has elected the option to purchase pursuant to
the Plan, the Participant's option will be exercised on the Purchase
Date for the number of whole shares of Common Stock which the
accumulated payroll deductions, without interest, in the Participant's
Employee Account will purchase at the applicable option price, and any
excess will be returned to the Participant as soon as practicable.
ARTICLE TEN - INTEREST
10.0 Payment of Interest
Except as otherwise provided, interest shall be paid during the
term of the Offering Period on funds credited to each Employee Account
at the dividend rate in effect on June 30 in each of the Offering
Periods and made available to depositors holding a share savings
account with the Atlantic City Electric Company Employees' Federal
Credit Union. Interest will be compounded daily on the average daily
balance of each Employee Account beginning on the Offering Commencement
Date and ending on the last business
10
<PAGE>
day preceding the Purchase Date. Interest will cease to accrue on the
Purchase Date and will be distributed to the Participant as soon as
practicable after the Purchase Date. The Committee may determine that
interest shall be paid on the Employee Account on any other basis the
Committee deems appropriate.
ARTICLE ELEVEN - ADMINISTRATION
11.0 Personnel & Benefits Committee
The Plan shall be administered by the Personnel & Benefits
Committee of the Board of Directors. Members of the Committee shall be
Directors who are disinterested persons under Rule 16(b)(3) promulgated
under the 1934 Act and successor rules. The Committee may employ
agents, attorneys, compensation experts, accountants or other persons
(who also may be Employees of the Employer) and allocate or delegate to
them powers, rights, and duties, all as the Committee may consider
necessary or advisable to properly carry out the administration of the
Plan. The Committee may adopt rules and regulations as it deems
appropriate to assist in administering and enforcing the Plan.
The Committee shall have the discretionary authority to regulate
and interpret the Plan's provisions. The interpretation and
construction by the Committee of any provisions of the Plan, the terms
and conditions of an offering and of Employee participation and any
determination by the Committee pursuant to any provision of the Plan
shall be final and conclusive.
No member of the Board of Directors shall be liable for any action
or determination made in good faith under the Plan.
ARTICLE TWELVE - DESIGNATION OF BENEFICIARY
12.0 Designation of Beneficiary
A Participant may file a written designation of beneficiary who is
to receive any stock and/or cash. Such designation of beneficiary may
be changed by the Participant at any time by written notice to the
Office of the Treasurer. Upon the death of a Participant and upon
receipt by the Company of proof of identity and existence at the
Participant's death of a beneficiary validly designated by the
Participant under the Plan, the Company shall deliver such stock and/or
cash to such beneficiary. In the event of death of a Participant and in
the absence of a beneficiary validly designated under the Plan who is
living at the time of the Participant's death, the Company shall
deliver such stock and/or cash to the any beneficiary designated by the
Participant under the Atlantic City Electric Company Retirement Plan,
("Retirement Plan") or if the Participant is an Employee of an
affiliate any retirement plan of an such affiliate. If no beneficiary
has been designated under the Retirement Plan or any retirement plan of
an affiliate, the Company shall
11
<PAGE>
deliver such stock and/or cash to the executor or administrator of the
estate of the Participant, or if no such executor or administrator has
been appointed (to the knowledge of the Company), the Company, in its
discretion, may deliver such stock and/or cash to the spouse or to any
one or more dependents of the Participant as the Company may designate.
No beneficiary shall, prior to the death of the Participant by whom he
or she has been designated, acquire any interest in the stock or cash
credited to the Participant under the Plan.
12
<PAGE>
ARTICLE THIRTEEN - TRANSFERABILITY AND ASSIGNABILITY
13.0 Restrictions on Transferability and Assignability
Neither payroll deductions plus interest, if any, credited to a
Participant's Employee Account nor any rights with regard to the
exercise of an option to receive stock under the Plan may be assigned,
transferred, pledged or otherwise disposed of in any way by the
Participant other than by will or the laws of descent and distribution.
Any such attempted assignment, transfer, pledge or other disposition
shall be without effect, except that the Company may treat such act as
an election to withdraw funds in accordance with ss.8.0. No right of
any Employee to purchase stock pursuant to an offering made under the
Plan shall be subject to any obligation or liability of the Participant
or have a lien imposed upon it. During the lifetime of a Participant,
the shares that he or she is entitled to purchase under the Plan may be
purchased only by the Participant.
Shares purchased pursuant to the Plan by a Participant who is
subject to short swing profit liability under Section 16(b) of the 1934
Act cannot be transferred for at least six months from the date of
acquisition.
ARTICLE FOURTEEN - ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
14.0 Recapitalization
If, while any options are outstanding, the outstanding shares of
Common Stock of the Company have increased, decreased, changed into or
been exchanged for a different number or kind of shares or securities
of the Company through reorganization, merger, recapitalization,
reclassification, stock split, reverse stock split or similar
transaction, appropriate and proportionate adjustments may be made by
the Committee in the number and/or kind of shares that are subject to
purchase under outstanding options and on the option exercise price or
prices applicable to such outstanding options. In addition, in any such
event, the number and/or kind of shares that may be offered as
described in Article Four hereof shall also be proportionately
adjusted. No adjustments shall be made for stock dividends.
ARTICLE FIFTEEN - DISSOLUTION OR CHANGE IN CONTROL OF
CORPORATION
15.0 Dissolution or Change in Control
Upon the dissolution or liquidation of the Company, or upon
"Change of Control" as hereinafter defined, the holder of each option
then outstanding under the Plan will thereafter be entitled to receive
at the next Purchase Date upon the exercise of such option
13
<PAGE>
for each share as to which such option shall be exercised, the cash,
securities and/or property that a holder of one share of the Common
Stock was entitled to receive upon and at the time of such transaction
(which shall in no event be less than 85% of the Fair Market Value, as
required by Section 423 of the Code). The Board of Directors shall take
such steps in connection with such transactions as they shall deem
necessary to assure that the provisions of this ss.15.0 shall
thereafter be applicable in relation to the said cash, securities
and/or property as to which such holder of such option might thereafter
be entitled to receive.
"Change of Control" of the Company shall occur (i) if any "person"
as defined in Section 3(a)(9) of the 1934 Act and as used in Section
13(d) and 14(d) thereof, including a "group" as defined in Section
13(d) of the 1934 Act but excluding the Company and any Subsidiary and
any employee benefit plan sponsored or maintained by the Company or any
Subsidiary (including any trustee of such plan acting as trustee),
directly or indirectly becomes the "beneficial owner," as defined in
Rule 13(d)(3) under the 1934 Act, of securities of the Company
representing 20 percent or more of the combined voting power of the
Company's then outstanding securities; or (ii) when, during any period
of 24 consecutive months during the existence of the Plan, the
individuals who, at the beginning of such period, constitute the Board
of Directors (the "Incumbent Directors") cease for any reason other
than death to constitute at least a majority thereof, provided however
that a director who was not a director at the beginning of such
24-month period shall be deemed to have satisfied such 24-month
requirement (and be an Incumbent Director) if such director was elected
by, or on the recommendation of or with the approval of, at least
two-thirds of the directors who then qualified as Incumbent Directors
either actually (because they were directors at the beginning of such
24-month period) or by prior operation of this ss.15.0; or (iii) the
occurrence of a transaction requiring stockholder approval for the
acquisition of the Company by an entity other than the Company or a
subsidiary through purchase of assets, or by merger or otherwise.
ARTICLE SIXTEEN - REQUIRED APPROVALS
16.0 Effective Date
The Plan was adopted by the Board of Directors on February 8, 1996
and shall become effective on April 24, 1996 subject to the approval of
shareholders of the majority vote of the votes cast at the Annual
Meeting of Shareholders to be held on April 24, 1996, at which a quorum
representing the majority of all outstanding voting stock is, either in
person or by proxy, present and voting on the Plan.
14
<PAGE>
ARTICLE SEVENTEEN - TERMINATION OF AND AMENDMENTS TO THE PLAN
17.0 Termination and Amendments
The Committee may amend, alter, or discontinue or suspend the Plan
or alter or amend any and all terms of participation in an offering
made thereunder at any time but no amendment, alteration,
discontinuance or suspension shall be made that would impair the rights
of a Participant without the Participant's consent or which, without
approval of the Company's stockholders would (i) increase the total
number of shares reserved for the purpose of the Plan or the maximum
number of shares that each Participant can elect to purchase as a
result of participation in any offering under the Plan; (ii) extend the
maximum term of an Offering Period under the Plan beyond 12 months;
(iii) decrease either the option price or change the pricing terms
specified in ss.5.1; (iv) materially expand the requirements as to
eligibility for Employees under the Plan; and (v) materially increase
benefits under the Plan within the meaning of Rule 16(b)(3) under the
1934 Act to the extent that rule is applicable.
ARTICLE EIGHTEEN - RIGHTS TO EMPLOYMENT
18.0 No Employment Rights
The Plan does not, directly or indirectly, create any right for
the benefit of any Employee or class of Employees to purchase any
shares under the Plan, or create in any Employee or class of Employees
any right with respect to continuation of employment by the Company,
and it shall not be deeded to interfere in any way with the Company's
right to terminate or otherwise modify an Employee's employment at any
time.
ARTICLE NINETEEN - EXPENSES
19.0 Expenses
All expenses of administering the Plan shall be borne by the
Company.
ARTICLE TWENTY - CONFORMANCE WITH TAX LAWS
20.0 Section 423
The Plan and all offerings thereunder shall conform to the
requirement of Code ss.423 that governs employee stock purchase plans.
Should any of the terms of the Plan or offerings be found not in
conformity with the terms of Code ss.423, those terms shall be
15
<PAGE>
invalid and shall be omitted from the Plan or the offering but the
remaining terms of the Plan shall not be affected.
ARTICLE TWENTY-ONE - WITHHOLDING
21.0 Withholding
Any amounts to be paid or shares to be delivered under the Plan
shall be reduced by any sums required to be withheld by the Company
under federal, state and local tax withholding laws.
ARTICLE TWENTY-TWO - GOVERNING LAW
22.0 Applicable Law
The Plan and the terms and conditions of participation in the
Plan, shall be construed and administered according to the laws of the
State of New Jersey to the extent that those laws are not preempted by
the laws of the United States of America.
ARTICLE TWENTY-THREE - OTHER PLANS
23.0 Other Plans
Nothing contained in this Plan shall prevent the Company from
establishing other benefit plans in which Employees thereof may also
participate.
16
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
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<EARNINGS-AVAILABLE-FOR-COMM> 81,768
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