Pepco Holdings Reports Third-Quarter 2005 Earnings; Conference Call Scheduled
Thursday, November 03, 2005
November 3, 2005
Pepco Holdings, Inc. (NYSE: POM) today reported third-quarter 2005 consolidated earnings of $170.1 million, or 90 cents per share, compared to $111.0 million, or 64 cents per share, in the third quarter of 2004. Excluding special items (as described below), earnings for the third quarter of 2005 would have been $137.7 million, or 73 cents per share, compared to $118.7 million, or 68 cents per share, in the third quarter of 2004. The weighted average shares outstanding for the third quarter of 2005 were 189.2 million compared to 175.2 million for the third quarter of 2004, which resulted in 7 cents per share of dilution in earnings for the current period.
The earnings increase, excluding special items, for the third quarter of 2005 as compared to the 2004 quarter was driven primarily by higher power delivery sales resulting from warmer weather, higher earnings at Conectiv Energy and Pepco Energy Services, driven by higher generation output, and lower interest expense. Partially offsetting these increases were lower Standard Offer Service margins due to increased customer migration.
"Our third-quarter results reflect the benefit of warmer weather impacting both the utility and competitive energy businesses. Each of our utilities set a record for peak electric usage as a result of the warmer weather. Our transmission and distribution systems handled the increase in load well, demonstrating our focus on reliability and PHI's commitment to invest in our core business," said Dennis R. Wraase, Chairman, President and Chief Executive Officer. "We continue to make significant progress towards our debt reduction goal. So far this year we have paid down about $245 million of debt, which brings our net debt reduction since 2003 to approximately $975 million. We are very pleased with the progress we have made to strengthen the balance sheet."
For the nine months ended Sept. 30, 2005, consolidated earnings were $289.6 million, or $1.53 per share, compared to $252.6 million, or $1.46 per share, for the same period in the prior year. Excluding special items, earnings for the nine months ended Sept. 30, 2005 would have been $252.1 million, or $1.33 per share, compared to $239.2 million, or $1.38 per share, for the first nine months of 2004. The weighted average shares outstanding for the nine months ended Sept. 30, 2005 were 188.8 million compared to 173.1 million for the same period in the prior year, which resulted in 14 cents per share of dilution in earnings for the current period.
The increase in earnings, excluding special items, for the nine months ended Sept. 30, 2005 compared to the same period in the prior year was driven primarily by higher power delivery sales resulting from warmer weather, higher earnings at Pepco Energy Services, driven by higher retail sales and generation output, and lower interest expense. Partially offsetting these increases were changes in estimated unbilled revenue recorded by Delmarva Power and Atlantic City Electric in the second quarter of 2005, lower Standard Offer Service margins due to increased customer migration, and lower earnings at Conectiv Energy primarily due to lower Full Requirements Load Service earnings.
- Power Delivery electric sales were 15,358 gigawatt hours (Gwhs) in the third quarter of 2005 compared to 14,028 Gwhs for the same period last year. Cooling degree days increased by 33.9% for the three months ended Sept. 30, 2005 as compared to the same period in 2004.
- Conectiv Energy's total generating output was 2,382 Gwhs in the third quarter of 2005 compared to 1,220 Gwhs in the third quarter of 2004. The increase resulted primarily from warmer weather and load growth.
- Conectiv Energy's gross margin (defined as revenue less cost of goods sold) on merchant generation was $100.0 million in the third quarter of 2005, compared to $64.2 million in the third quarter of 2004. The increase resulted primarily from increased generating output.
- Conectiv Energy's gross margin on Full Requirements Load Service was $(11.1) million in the third quarter of 2005, compared to $16.5 million in the third quarter of 2004. The decrease was driven by higher energy costs used to supply the load.
- Pepco Energy Services had retail electricity sales of 3,743 Gwh in the third quarter of 2005, up from retail sales of 2,562 Gwh in the third quarter of 2004. This increase primarily reflects the acquisition of additional commercial and industrial customer loads.
- On Sept. 1, 2005, Delmarva Power filed a base rate case in Delaware seeking approval of an annual rate increase of approximately $5.1 million ($1.6 million in distribution base rates and $3.5 million in supply rates). A decision is expected by May 1, 2006.
- On Sept. 20, 2005, the Delaware Public Service Commission approved the settlement reached in the Delaware Standard Offer Service (SOS) proceeding. The Delaware Public Service Commission previously determined that SOS should be provided by Delmarva Power using a wholesale bidding approach. The settlement provides for the company to recover its costs associated with providing SOS and earn a margin. A key component of this margin is a fixed annual amount of $2.75 million. Customers will be served under the provisions of the approved settlement beginning May 1, 2006.
- On Sept. 15, 2005, Pepco redeemed prior to maturity $75 million of 7.375% first mortgage bonds due 2025. Proceeds from the June issuance of 5.40% senior secured notes were used to fund this redemption.
- On Oct. 27, 2005, DPL called 35,000 shares of its 6.75% Preferred Stock ($100 par value) for redemption on December 1, 2005 at par.
- On Aug. 25, 2005, Pepco closed on the sale of excess non-utility land located at Buzzard Point in the District of Columbia. The sale price of the land was $75 million. The transaction produced an after-tax gain of $40.7 million.
Further details regarding changes in consolidated earnings between 2005 and 2004 can be found in the following schedules. Additional information regarding financial results and recent regulatory events can be found in the Pepco Holdings, Inc. Form 10-Q for the quarter ended Sept. 30, 2005 as filed with the Securities and Exchange Commission, which is available at www.pepcoholdings.com/investors.
PHI's earnings for the third quarter of 2005 determined in accordance with Generally Accepted Accounting Principles (GAAP) include the following special items which management believes are not representative of the company's core business operations:
- After-tax earnings of $40.7 million, or 22 cents per share, related to the gain associated with the sale of the Buzzard Point non-utility land and
- After-tax charges of $8.3 million, or 5 cents per share, related to the increase in income tax expense for the interest accrued on the potential impact of the IRS Revenue Ruling on mixed service costs (IRS Revenue Ruling 2005-53).
GAAP earnings for the third quarter of 2004 included the following special item:
- After-tax charges of $7.7 million, or 4 cents per share, related to the early payment of Conectiv Energy's Bethlehem debt.
In addition to the items listed above for the third quarter of 2005, PHI's GAAP earnings for the nine months ended Sept. 30, 2005 include the following special item:
- After-tax earnings of $5.1 million, or 3 cents per share, related to the Atlantic City Electric base rate case proceedings settlement.
In addition to the items listed above for the third quarter of 2004, GAAP earnings for the nine months ended Sept. 30, 2004 included the following special items:
- After-tax earnings of $13.2 million, or 7 cents per share, related to the impact of changes in local tax regulations that were retroactive to 2001;
- After-tax earnings of $8.6 million, or 5 cents per share, related to a gain on the condemnation settlement associated with the transfer of Vineland distribution assets;
- After-tax earnings of $6.6 million, or 4 cents per share, related to the disposition of a joint venture associated with the Vineland co-generation facility; and
- After-tax charges of $7.3 million, or 4 cents per share, related to the impairment of the Starpower investment.
CONFERENCE CALL FOR INVESTORS
Pepco Holdings Inc. will host a conference call to discuss third quarter results on Friday, Nov. 4th at 10:00 a.m. E.S.T. Investors, members of the media and other interested persons may access the conference call on the Internet at http://www.pepcoholdings.com/investors or by calling 1-800-798-2801 before 9:55 a.m. The pass code for the call is 80275357. International callers may access the call by dialing 1-617-614-6205, using the same pass code, 80275357. An on-demand replay will be available for seven days following the call. To hear the replay, dial 1-888-286-8010 and enter pass code 88221069. International callers may access the replay by dialing 1-617-801-6888 and entering the same pass code 88221069. An audio archive will be available at PHI's Web site, http://www.pepcoholdings.com/investors/index_financialrelease.html.
Note: If any non-GAAP financial information (as defined by the Securities and Exchange Commission in Regulation G) is used during the quarterly earnings conference call, a presentation of the most directly comparable GAAP measure and a reconciliation of the differences will be available at http://www.pepcoholdings.com/investors/index_financialrelease.html.
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Media Contact: Robert Dobkin (202) 872-2680
Investor Contact: Anthony Kamerick (202) 872-2056
About PHI: Pepco Holdings, Inc., headquartered in Washington, D.C., delivers electricity and natural gas to about 1.8 million customers in Delaware, the District of Columbia, Maryland, New Jersey and Virginia, through its subsidiaries Pepco, Delmarva Power and Atlantic City Electric. PHI also provides competitive wholesale generation services through Conectiv Energy and retail energy products and services through Pepco Energy Services.
Forward-Looking Statements: Except for historical statements and discussions, the statements in this news release constitute "forward-looking statements" within the meaning of federal securities law. These statements contain management's beliefs based on information currently available to management and on various assumptions concerning future events. Forward-looking statements are not a guarantee of future performance or events. They are subject to a number of uncertainties and other factors, many of which are outside the company's control. Factors that could cause actual results to differ materially from those in the forward-looking statements herein include general economic, business and financing conditions; availability and cost of capital; changes in laws, regulations or regulatory policies; weather conditions; competition; governmental actions; and other presently unknown or unforeseen factors. These uncertainties and factors could cause actual results to differ materially from such statements. PHI disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This information is presented solely to provide additional information to further understand the results and prospects of PHI.