<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
--------------
Commission file number 1-3559
ATLANTIC CITY ELECTRIC COMPANY
------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 21-0398280
---------- ----------
(States of incorporation) (I.R.S. Employer
Identification No.)
800 King Street, P.O. Box 231 Wilmington, Delaware 19899
-------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 302-429-3114
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of May 14, 1998 Conectiv owns all of the 18,320,937 outstanding shares of
Common Stock of Atlantic City Electric Company.
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY, INC.
------------------------------------
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information:
Consolidated Statements of Income for the three
months ended March 31, 1998 and 1997 1
Consolidated Balance Sheets as of March 31, 1998
and December 31, 1997 2-3
Consolidated Statements of Cash Flows for the
three months ended March 31, 1998 and 1997 4
Notes to Consolidated Financial Statements 5-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
Part II. Other Information and Signature 12-17
</TABLE>
i
<PAGE>
PART 1. FINANCIAL INFORMATION
ATLANTIC CITY ELECTRIC COMPANY, INC.
------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1998 1997
---- ----
<S> <C> <C>
OPERATING REVENUES
Electric $237,429 $241,493
Other services 520 1,929
-------- --------
237,949 243,422
-------- --------
OPERATING EXPENSES
Electric fuel and purchased energy 72,912 61,857
Purchased electric capacity 47,926 48,255
Employee separation & Merger-related costs 51,479 -
Operation and maintenance 45,817 35,813
Cost of sales - Other services 4,220 1,895
Depreciation 22,927 20,562
Taxes other than income taxes 10,491 27,662
-------- --------
255,772 196,044
-------- --------
OPERATING (LOSS) INCOME (17,823) 47,378
-------- --------
OTHER INCOME
Allowance for equity funds used
during construction 143 264
Other income 1,461 1,472
-------- --------
1,604 1,736
-------- --------
INTEREST EXPENSE
Interest charges 15,537 15,814
Allowance for borrowed funds used during
construction and capitalized interest (250) (262)
-------- --------
15,287 15,552
-------- --------
DIVIDENDS ON PREFERRED SECURITIES
OF A SUBSIDIARY TRUST 1,444 1,444
-------- --------
(LOSS) INCOME BEFORE INCOME TAXES (32,950) 32,118
INCOME TAXES (12,213) 11,747
-------- --------
NET (LOSS) INCOME (20,737) 20,371
DIVIDENDS ON PREFERRED STOCK 1,000 1,410
-------- --------
(LOSS) EARNINGS APPLICABLE TO COMMON STOCK $(21,737) $ 18,961
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
1
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY, INC.
------------------------------------
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------------- ----------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 24,057 $ 20,765
Accounts receivable 117,823 126,148
Inventories, at average cost:
Fuel (coal and oil) 20,450 22,670
Material and supplies 22,396 20,893
Emission allowances 6,489 6,489
Prepayments 1,052 7,753
Deferred energy costs 19,886 27,424
---------- ----------
212,153 232,142
---------- ----------
NONUTILITY PROPERTY AND INVESTMENTS
Nonutility property, net 8,390 8,517
Funds held by trustee 87,108 83,977
Other investments 109 9
---------- ----------
95,607 92,503
---------- ----------
UTILITY PLANT, AT ORIGINAL COST
Electric 2,589,592 2,591,825
Less: Accumulated depreciation 963,151 945,921
---------- ----------
Net utility plant in service 1,626,441 1,645,904
Construction work-in-progress 115,954 106,806
Leased property, net 35,730 38,795
---------- ----------
1,778,125 1,791,505
--------- ----------
DEFERRED CHARGES AND OTHER ASSETS
Unrecovered other post-retirement employee benefit costs 36,851 37,476
Unamortized debt costs 13,653 13,416
Deferred debt refinancing costs 29,464 30,002
Deferred recoverable income taxes 85,858 85,858
Unrecovered purchased power costs 61,775 66,264
Unrecovered state excise taxes 42,764 45,154
Prepaid pension 6,368 7,609
Other 31,208 34,826
---------- ----------
307,941 320,605
---------- ----------
TOTAL ASSETS $2,393,826 $2,436,755
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY, INC.
------------------------------------
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------------- ---------------
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
------------------------------
CURRENT LIABILITIES
Short-term debt $ 18,200 $ 55,675
Long-term debt due within one year 8,575 -
Preferred Stock due within one year 10,000 -
Accounts payable 20,757 19,665
Taxes accrued 2,249 5,922
Interest accrued 14,410 19,562
Dividends declared 21,407 21,215
Current capital lease obligation 561 653
Employee separation & Merger-related
accrued costs 25,908 -
Other 56,729 59,188
---------- ----------
178,796 181,880
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes, net 352,652 362,213
Deferred investment tax credits 43,409 44,043
Long-term capital lease obligation 35,920 39,077
Accrued other post-retirement employee benefit costs 48,685 37,476
Other 20,471 21,339
---------- ----------
501,137 504,148
---------- ----------
CAPITALIZATION
Common stock 54,963 54,963
Additional paid-in capital 492,872 493,161
Retained earnings 192,770 234,909
---------- ----------
Total common shareholder's equity 740,605 783,033
Preferred stock subject to mandatory redemption 23,950 33,950
Preferred stock not subject to mandatory redemption 30,000 30,000
Company obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely Company debentures 70,000 70,000
Long-term debt 849,338 833,744
---------- ----------
1,713,893 1,750,727
---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES $2,393,826 $2,436,755
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY, INC.
------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $(20,737) $ 20,371
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 22,927 20,562
Investment tax credit adjustments, net (634) (634)
Deferred income taxes, net (9,561) (1,569)
Prepaid Excise Taxes - (68,758)
Unrecovered purchased power costs 4,489 4,280
Unrecovered state excise taxes 2,390 2,390
Employee separation & Merger-related costs 43,238 -
Net change in:
Accounts receivable 8,325 4,209
Inventories 717 2,003
Accounts payable 1,092 (13,208)
Other current assets & liabilities 4,951 (7,626)
Other, net 332 5,488
-------- --------
Net cash provided (used) by operating activities 57,529 (32,492)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (16,915) (19,313)
Nuclear decommissioning trust fund deposits (1,606) (1,606)
Other, net 7,637 (1,312)
-------- --------
Net cash used by investing activities (10,884) (22,231)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends: Common (20,404) (20,214)
Preferred (1,000) (1,410)
Issuances: Long-term debt 85,000 15,000
Redemptions: Long-term debt (50,000) -
Net change in short-term debt (53,900) 62,550
Other, net (3,049) (1,775)
-------- --------
Net cash (used) provided by financing activities (43,353) 54,151
-------- --------
Net change in cash and cash equivalents 3,292 (572)
Cash and cash equivalents at beginning of period 20,765 7,927
-------- --------
Cash and cash equivalents at end of period $ 24,057 $ 7,355
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. FINANCIAL STATEMENT PRESENTATION
--------------------------------
The consolidated financial statements include the accounts of Atlantic City
Electric Company (the Company) and its wholly-owned subsidiary. The statements
reflect all adjustments necessary in the opinion of the Company for a fair
presentation of interim results. They should be read in conjunction with the
Company's 1997 Annual Report on Form 10-K and Part II of this report on
Form 10-Q for additional relevant information.
Certain reclassifications, not affecting net income, have been made to conform
amounts for the three months ended March 31, 1997 to the current presentation.
Primarily, the operating results of nonutility activities were reclassified from
"Other Income" into other classifications within the income statement. Revenues
from "Other services" includes revenues from these nonutility activities of the
Company. Reclassifications have also been made within the balance sheet to
conform to current year reporting.
2. MERGER WITH DELMARVA POWER & LIGHT COMPANY
------------------------------------------
As previously reported, on March 1, 1998, Atlantic Energy, Inc. (AEI) merged
with Delmarva Power & Light Company (DPL). Prior to the merger transactions
(the Merger) which formed Conectiv--a holding company, AEI owned the Company and
Atlantic Energy Enterprises (AEE). As a result of the Merger, AEI was merged
out of existence, and Conectiv owns the Company, AEE, DPL, and the nonutility
subsidiaries formerly held by DPL.
The merger was accounted for under the purchased method as a tax-free, stock-
for-stock transaction with DP&L as the acquirer. Under the terms of the
agreement, AEI shareholders received 0.75 shares of Conectiv's common stock and
0.125 shares of Conectiv's Class A common stock for each share of AEI stock
held. DP&L shareholders received one share of Conectiv's common stock for each
share of DP&L common stock held.
Under the terms of the Board of Public Utilities (BPU) approval of the merger,
approximately 75% or $15.75 million of the Company's total average projected
merger savings will be returned to the Company's customers for an overall
merger-related customer rate reduction of 1.7%.
In the first quarter of 1998, the Company recorded the financial effects of
enhanced retirement offers and other employee separation programs utilized to
achieve workforce reductions concurrent with the merger. The Company expects a
reduction of approximately 450 positions, of which about 175 employee
separations have actually occurred. The employee separation programs and other
merger-related costs resulted in a $51.5 million pre-tax charge to expense (or
$30.9 million after taxes). The pre-tax expenses are shown on the Consolidated
Statements of Income as "Employee separation & Merger-related costs." As of
March 31, 1998, $8.2 million of the $51.5 million expense had been paid, $25.9
million was reflected as a current liability, $11.7 million increased the
liability for other post-retirement benefits and $5.7 million was included in
other balance sheet classifications.
5
<PAGE>
3. DEBT
----
On January 7, 1998 the Company issued $85 million in secured medium term notes
with maturities of 5 to 8 years and interest rates of 6.00% to 6.19%. The
proceeds were primarily used to redeem $50 million in medium term notes, due
January 1998 with interest rates of 6.35% and 6.37%, and short-term debt.
4. RATES
-----
As previously disclosed in Note 4 to the Consolidated Financial Statements of
the Company's Annual Report on Form 10-K, the Company's electric base rates were
reduced by $15.75 million for expected merger-related costs savings passed on to
the Company's customers, effective with the merger. This decrease, offset in
part by a $5.0 million rate increase for recovery of expenses associated with
post-retirement benefits other than pensions, resulted in a $10.75 million
reduction of electric base rate revenues beginning March 1, 1998.
5. CONTINGENCIES
-------------
Environmental Matters
- ---------------------
The Company is subject to regulation with respect to the environmental effects
of its operations, including air and water quality control, solid and hazardous
waste disposal, and limitation on land use by various federal, regional, state,
and local authorities. The disposal of hazardous substances can result in costs
to clean up facilities found to be contaminated due to past disposal practices.
Federal and state statutes authorize governmental agencies to compel responsible
parties to clean up certain abandoned or uncontrolled hazardous waste sites. The
Company does not expect such future costs to have a material effect on its
financial position or results of operations.
Insurance Programs
- ------------------
Nuclear
- -------
The Company is a member of certain insurance programs that provide coverage for
contamination and property damage to members' nuclear generating plants.
Facilities at Peach Bottom, Salem, and Hope Creek stations are insured against
property damage losses up to $2.8 billion per site under these programs.
In addition, the Company 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 premium for this coverage is
subject to retrospective assessment for adverse loss experience. The maximum
amount of retroactive premiums the Company could be assessed for losses during
the current policy year is $4.4 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 $79.28 million, per reactor, per
incident, payable at $10 million per year. Based on its ownership 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.
6
<PAGE>
6. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
Cash paid for: 1998 1997
---- ----
<S> <C> <C>
(dollars in thousands)
Interest, net of amounts capitalized $20,717 $18,514
Income taxes, net of refunds - $ 3,373
</TABLE>
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
EARNINGS SUMMARY
- ----------------
The Company's operations resulted in a net loss of $21.7 million for the three
months ended March 31, 1998 compared to net income of $19.0 million for the
three months ended March 31, 1997. Merger-related charges decreased after tax
earnings by $30.9 million. Excluding the merger-related charges, the Company
earned $9.2 million, a $9.8 million decrease compared to the same period of the
previous year. The decrease was primarily due to milder winter weather's
adverse effect on electric sales and increased operations and maintenance
expenses.
MERGER IMPACT
- -------------
As previously reported, on March 1, 1998, Atlantic Energy, Inc. (AEI) merged
with Delmarva Power & Light Company (DPL). Prior to the merger transactions
(the Merger) which formed Conectiv--a holding company, AEI owned the Company and
Atlantic Energy Enterprises (AEE). As a result of the Merger, AEI was merged
out of existence, and Conectiv owns the Company, AEE, DPL, and the nonutility
subsidiaries formerly held by DPL.
Under the terms of the Board of Public Utilities (BPU) approval of the merger,
approximately 75% or $15.75 million of the Company's total average projected
merger savings will be returned to the Company's customers for an overall
merger-related customer rate reduction of 1.7%. The balance of merger related
savings realized will positively impact earnings of the Company.
In the first quarter of 1998, the Company recorded the financial effects of
enhanced retirement offers and other employee separation programs utilized to
achieve workforce reductions concurrent with the merger. The Company expects a
reduction of approximately 450 positions. The employee separation programs and
other merger-related costs resulted in a $51.5 million pre-tax charge to expense
(or $30.9 million after taxes). The pre-tax expenses are shown on the
Consolidated Statements of Income as "Employee separation & Merger-related
costs." As of March 31, 1998, $8.9 million of the $51.5 million expense had been
paid, $25.9 million was reflected as a current liability, $11.7 million
increased the liability for other post-retirement benefits and $5.0 million was
in other balance sheet classifications.
ELECTRIC UTILITY INDUSTRY RESTRUCTURING AND STRANDED COSTS
- ----------------------------------------------------------
For background information concerning restructuring the electric utility
industry in New Jersey refer to page 3 of the Company's 1997 Report on Form 10-
K. Updates to previously disclosed information are shown below.
. Restructuring hearings began on April 27, 1998 and are scheduled to be
completed by May 22, 1998. The BPU is expected to issue a final order
during this summer. Currently, the BPU does not have the legal
authority to enact a restructuring plan without legislative changes.
Implementation of a restructuring plan had been planned for October
1998, but is now more likely to occur in early-to mid-1999.
. With respect to information previously filed by the Company concerning
stranded costs and unbundled rates, the Office of Administrative Law
(OAL) is expected to render a decision by May 15, 1998. The OAL's
decision will then be sent to the BPU for review.
8
<PAGE>
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities was $57.5 million for the three months
ended March 31, 1998 compared to cash usage of $32.5 million for the three
months ended March 31, 1997. The $90.0 million increase in net cash provided
by operating activities was primarily due to changes in New Jersey law related
to taxation of sales of electricity, which among other things, eliminated the
annual prepayment of state excise tax in March 1998. In March 1997, the Company
prepaid $91.1 million of state excise taxes.
On an interim basis, the Company 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 notes from banks.
As of March 31, 1998, the Company had authority to issue $150 million in
short-term debt.
On January 7, 1998, the Company issued $85 million in secured medium term notes
with maturities of 5 to 8 years and interest rates of 6.00% to 6.19%. The
proceeds were primarily used to redeem $50 million in medium term notes, due
January 1998 with interest rates of 6.35% and 6.37%, and short-term debt.
During the first quarter of 1998, the Company repaid $53.9 million of short-term
debt with internally generated funds and proceeds from the medium term notes
issuance.
RESULTS OF OPERATIONS:
- ---------------------
Electric Revenues
Details of the changes in the various components of electric revenues for the
three months ended March 31, 1998, as compared to the same period in 1997 are
shown below (dollars in millions):
<TABLE>
<CAPTION>
Three Months
Variance
--------
<S> <C>
Non-fuel (Base Rate) Revenues $(15.7)
Fuel Revenues (0.2)
Interchange Revenues (5.9)
Merchant Revenues 17.7
-----
Total $ (4.1)
======
</TABLE>
Electric non-fuel revenues decreased $15.7 million for the three month period
primarily due to changes in New Jersey tax law related to sales of electricity,
eliminating the gross receipts and franchise tax, and expanding the state sales
and use tax to sales of electric power (see Note 2 of the Consolidated Financial
Statements of the Company's 1997 Annual Report on Form 10-K for further
details). The sales and use tax reduced Base Rate revenues by $10.5 million for
the three months ended March 31, 1998 because amounts billed to customers for
this tax are recorded as a current liability instead of revenues. This revenue
reduction did not affect earnings due to a corresponding $10.5 million decrease
in taxes other than income taxes. As previously disclosed in Note 4 of the
Consolidated Financial Statements of the Company's 1997 Annual Report on
Form 10-K, Base Rate revenues were also reduced by the merger-related costs
savings passed on to the Company's customers effective with the merger. This
decrease, offset in part by a rate increase for recovery of expenses associated
with post-retirement benefits other than pensions, reduced Base Rate revenues an
additional $1.0 million.
Total kilowatt-hour (kWh) sales for the three months were virtually unchanged
from the same period of the previous year, due primarily to significantly milder
weather for the current period, which offset additional kWh sales attributable
to economic growth and other factors.
9
<PAGE>
Merchant revenues, which represent bulk power sales and are not subject to price
regulation, increased $17.7 million, reflecting the Company's continued
development of this new business opportunity. The margin provided by the
wholesale market revenues in excess of the related energy costs is relatively
small due to the competitive nature of bulk power sales.
Other Services Revenues
- -----------------------
Other services revenue represents the Company's initiative to enter the non-
regulated marketplace with a variety of energy related services, including
energy management services.
Electric Fuel and Purchased Energy Expenses
- -------------------------------------------
Electric fuel and purchased energy expenses increased $11.1 million for the
three month period, due to the increased energy purchases related to wholesale
market sales and increased recognition of energy expenses pursuant to the
Company's Levelized Energy Clause.
For the three months ended March 31, 1998, the Company's output for load within
its service territory was provided by 28.6% coal generation, 45.8% net purchased
power, 1.2% oil and gas generation and 24.4% nuclear generation.
Merger-Related Separation Expenses
- ----------------------------------
Merger-related employee separation, benefit, relocation and retirement expenses
of $51.5 million were recorded in March 1998. See Note 2 of the Consolidated
Financial Statements for further details on the merger and merger-related
expenses.
Operation and Maintenance Expenses
- ----------------------------------
Operation and maintenance expenses increased $10.0 million for the three-month
period, primarily due to increased operations and maintenance expenses at Salem
Station and certain indirect merger-related expenses.
Taxes Other Than Income Taxes
- -----------------------------
Taxes other than income taxes decreased $17.2 million for the three month
period, due primarily to the changes in the New Jersey tax laws discussed in
"Electric Revenues," eliminating the state gross receipts and franchise tax.
Earnings were not affected by this decrease due to related changes in electric
revenues and income tax expense resulting from the tax law change.
10
<PAGE>
Ratio of Earnings to Fixed Charges
- ----------------------------------
The Company's ratios of earnings to fixed charges and earnings to fixed charges
and preferred stock dividends under the SEC Method are shown below:
<TABLE>
<CAPTION>
12 Months
Ended Year Ended December 31,
March 31, -----------------------------------------------
1998 1997 1996 1995 1994 1993
---------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to:
Fixed Charges (1) 2.34 2.83 2.58 3.17 3.05 3.37
Fixed Charges and Preferred
Stock Dividends (1) 2.10 2.57 2.14 2.42 2.25 2.46
</TABLE>
(1) For the 12 months ended March 31, 1998, excluding the pre-tax $51.5 million
charge for employee separation and other merger-related costs, the ratio of
earnings to fixed charges is 3.04 and the ratio of earnings to fixed
charges and preferred dividends is 2.72.
Under the SEC Method, earnings, including AFUDC, have been computed by adding
income taxes and fixed charges to net income. Fixed charges include gross
interest expense, the estimated interest component of rentals, and dividends on
preferred securities of a subsidiary trust. For the ratio of earnings to fixed
charges and preferred stock dividends, preferred stock dividends represent
annualized preferred stock dividend requirements multiplied by the ratio that
pre-tax income bears to net income.
FORWARD-LOOKING STATEMENTS
- --------------------------
The Private Securities Litigation Reform Act of 1995 (Litigation Reform Act)
provides a "safe harbor" for forward looking statements to encourage such
disclosure without the threat of litigation, provided those statements are
identified as forward-looking and are accompanied by meaningful, cautionary
statements identifying important factors that could cause the actual results to
differ materially from those projected in the statement. Forward-looking
statements have been made in this report. Such statements are based on
management's beliefs, as well as, assumptions made by and information currently
available to management. When used herein, the words "will", "anticipate",
"estimate", "expect", "objective" and similar expressions are intended to
identify forward-looking statements. In addition to any assumptions and other
factors referred to specifically in connection with such forward-looking
statements, factors that could cause actual results to differ materially from
those contemplated in any forward-looking statements include, among others, the
following: deregulation and the unbundling of energy supplies and services; an
increasingly competitive energy marketplace; sales retention and growth; federal
and state regulatory actions; costs of construction; operating restrictions;
increased cost and construction delays attributable to environmental
regulations; nuclear decommissioning and the availability of reprocessing and
storing facilities for spent nuclear fuel; and credit market concerns. The
Company undertakes no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise. The foregoing review of factors pursuant to the Litigation Reform Act
should not be construed as exhaustive or as any admission regarding the adequacy
of disclosures made by the Company prior to the effective date of the Litigation
Reform Act.
11
<PAGE>
PART II. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS
- -------------------------
Atlantic County Landfill Clean-up Site
- --------------------------------------
As previously reported in the Company's 1997 Annual Report on Form 10-K, the
Company has been identified as one of a number of parties allegedly responsible
for the placement of certain hazardous substances in a landfill in Atlantic
County, New Jersey. Although a remedial action work plan has not been completed
to date, the Company now foresees additional future contributions for clean-up
of this site to be approximately $850,000. It is not anticipated that any
additional future contributions, if any, would be significant.
ITEM 5. OTHER INFORMATION
- -------------------------
Salem Nuclear Generating Station
- --------------------------------
After receiving authorization from the Nuclear Regulatory Commission, Public
Service Electric and Gas returned Salem Unit 1 to service on April 17, 1998.
The unit's restart marked the end of a prolonged outage which began in the
second quarter of 1995, and resulted in replacement of the unit's steam
generators and improvements in operations, maintenance, and safety.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
Exhibits
- --------
Exhibit 12-A, Computation of Ratio of Earnings to Fixed Charges
Exhibit 12-B, Computation of Ratio of Earnings to Fixed Charges and Preferred
Dividends
Exhibit 27, Financial Data Schedule
Reports On Form 8-K
- -------------------
On February 27, 1998 the Company filed an 8-K announcing that the SEC had
approved the merger between AEI and DP&L.
On March 3, 1998 the Company filed an 8-K which included Items 6, 7 and 8 of the
Company's 1997 Form 10-K.
On March 5, 1998 the Company filed an 8-K which reported the change in control,
change in auditors and the effective date of the merger.
12
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Atlantic City Electric Company
------------------------------
(Registrant)
Date: May 14, 1998 /s/ B. S. Graham
------------ -----------------------------------------
B. S. Graham, Senior Vice President
and Chief Financial Officer
13
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Number
------- ------
<S> <C> <C>
Computation of ratio of earnings to fixed charges 12-A 15
Computation of ratio of earnings to fixed charges
and preferred dividends 12-B 16
Financial Data Schedule 27 17
</TABLE>
14
<PAGE>
Exhibit 12-A
Atlantic City Electric Company
Ratio of Earnings to Fixed Charges
----------------------------------
(Dollars in Thousands)
----------------------
<TABLE>
<CAPTION>
12 Months
Ended
March 31, Year Ended December 31,
-------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 52,479 $ 85,747 $ 75,017 $ 98,752 $ 93,174 $ 108,026
------------- ------------- ------------- ------------- ------------- -------------
Income taxes 46,616 50,442 36,958 48,277 36,130 45,893
------------- ------------- ------------- ------------- ------------- -------------
Fixed charges:
Interest on long-term debt
including amortization of
discount, premium and
expense 63,969 64,501 64,847 62,879 58,460 61,018
Other interest 3,579 3,574 4,019 4,364 4,148 3,884
Preferred dividend require-
ments of subsidiary
trust 5,775 5,775 1,428 - - -
------------- ------------- ------------- ------------- ------------- -------------
Total fixed charges 73,323 73,850 70,294 67,243 62,608 64,902
------------- ------------- ------------- ------------- ------------- -------------
Nonutility capitalized interest (1,186) (1,215) (1,091) (1,372) (1,028) (871)
------------- ------------- ------------- ------------- ------------- -------------
Earnings before income taxes
and fixed charges $ 171,232 $ 208,824 $ 181,178 $ 212,900 $ 190,884 $ 217,950
============= ============= ============= ============= ============= =============
Ratio of earnings to fixed charges 2.34 2.83 2.58 3.17 3.05 3.37
</TABLE>
For purposes of computing the ratio, earnings are net income plus income taxes
and fixed charges, less nonutility capitalized interest. Fixed charges consist
of interest on long- and short-term debt, amortization of debt discount,
premium, and expense, dividends on preferred securities of a subsidiary trust,
and the interest factor associated with the Company's major leases.
15
<PAGE>
Exhibit 12-B
Atlantic City Electric Company
Ratio of Earnings to Fixed Charges and Preferred Dividends
----------------------------------------------------------
(Dollars in Thousands)
----------------------
<TABLE>
<CAPTION>
12 Months
Ended
March 31, Year Ended December 31,
-------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 52,479 $ 85,747 $ 75,017 $ 98,752 $ 93,174 $ 108,026
------------- ------------- ------------- ------------- ------------- -------------
Income taxes 46,616 50,442 36,958 48,277 36,130 45,893
------------- ------------- ------------- ------------- ------------- -------------
Fixed charges:
Interest on long-term debt
including amortization of
discount, premium and
expense 63,969 64,501 64,847 62,879 58,460 61,018
Other interest 3,579 3,574 4,019 4,364 4,148 3,884
Preferred dividend require-
ments of susidiary
trust 5,775 5,775 1,428 - - -
------------- ------------- ------------- ------------- ------------- -------------
Total fixed charges 73,323 73,850 70,294 67,243 62,608 64,902
------------- ------------- ------------- ------------- ------------- -------------
Nonutility capitalized interest (1,186) (1,215) (1,091) (1,372) (1,028) (871)
------------- ------------- ------------- ------------- ------------- -------------
Earnings before income taxes
and fixed charges $ 171,232 $ 208,824 $ 181,178 $ 212,900 $ 190,884 $ 217,950
============= ============= ============= ============= ============= =============
Fixed charges 73,323 73,850 70,294 67,243 62,608 64,902
Preferred dividend requirement 8,264 7,506 14,214 20,839 22,212 23,723
------------- ------------- ------------- ------------- ------------- -------------
$ 81,587 $ 81,356 $ 84,508 $ 88,082 $ 84,820 $ 88,625
============= ============= ============= ============= ============= =============
Ratio of earnings to fixed charges 2.10 2.57 2.14 2.42 2.25 2.46
</TABLE>
For purposes of computing the ratio, earnings are net income plus income taxes
and fixed charges, less nonutility capitalized interest. Fixed charges consist
of interest on long- and short-term debt, amortization of debt discount,
premium, and expense, dividends on preferred securities of a subsidiary trust,
and the interest factor associated with the Company's major leases. Preferred
dividend requirements represent annualized preferred dividend requirements
multiplied by the ratio that pre-tax income bears to net income.
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME FROM THE COMPANY'S 1ST
QUARTER 1998 10-Q AS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,778,125
<OTHER-PROPERTY-AND-INVEST> 95,607
<TOTAL-CURRENT-ASSETS> 212,153
<TOTAL-DEFERRED-CHARGES> 307,941
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,393,826
<COMMON> 54,963
<CAPITAL-SURPLUS-PAID-IN> 492,872
<RETAINED-EARNINGS> 192,770
<TOTAL-COMMON-STOCKHOLDERS-EQ> 740,605
23,950
100,000
<LONG-TERM-DEBT-NET> 849,338
<SHORT-TERM-NOTES> 18,200
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 8,575
10,000
<CAPITAL-LEASE-OBLIGATIONS> 35,920
<LEASES-CURRENT> 561
<OTHER-ITEMS-CAPITAL-AND-LIAB> 606,677
<TOT-CAPITALIZATION-AND-LIAB> 2,393,826
<GROSS-OPERATING-REVENUE> 237,949
<INCOME-TAX-EXPENSE> (12,213)
<OTHER-OPERATING-EXPENSES> 255,772
<TOTAL-OPERATING-EXPENSES> 243,559
<OPERATING-INCOME-LOSS> (5,610)
<OTHER-INCOME-NET> 1,604
<INCOME-BEFORE-INTEREST-EXPEN> (4,006)
<TOTAL-INTEREST-EXPENSE> 16,731
<NET-INCOME> (20,737)
1,000
<EARNINGS-AVAILABLE-FOR-COMM> (21,737)
<COMMON-STOCK-DIVIDENDS> 20,404
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 57,529
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
