Form 8-K/A

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 8-K/A

(Amendment No. 1)

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): June 6, 2018

 

 

Dominion Energy, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Virginia   001-08489   54-1229715

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

120 Tredegar Street

Richmond, Virginia

  23219
(Address of Principal Executive Office)   (Zip Code)

Registrant’s telephone number, including area code: (804) 819-2000

Not Applicable

(Former name or address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below)

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging Growth Company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


EXPLANATORY NOTE

On June 6, 2018, immediately preceding the filing of this Current Report on Form 8-K/A, Dominion Energy Inc. (“Dominion Energy”) filed a Current Report on Form 8-K to recast the consolidated financial statements and other information previously included in its Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission on February 27, 2018. As disclosed in its Quarterly Report on Form 10-Q for the period ended March 31, 2018, effective January 1, 2018, Dominion Energy adopted revised accounting guidance pertaining to certain net periodic pension and other postretirement benefit costs, restricted cash and equivalents and certain distributions from equity method investees that required retrospective application.

Previously, on May 4, 2018, Dominion Energy filed a Current Report on Form 8-K to provide certain financial statements of SCANA Corporation (“SCANA”) and to provide updated unaudited pro forma financial information of Dominion Energy in connection with its anticipated acquisition of SCANA. Such pro forma financial information included, among other things, an unaudited pro forma consolidated statement of income for the year ended December 31, 2017 (the “2017 Pro Forma Consolidated Statement of Income”).

This amended report is being filed to provide updated unaudited consolidated pro forma financial information of Dominion Energy that incorporates a recast of the 2017 Pro Forma Consolidated Statement of Income, as well as certain pro forma adjustments to conform SCANA’s accounting for certain net periodic pension and other postretirement benefit costs in its consolidated statement of income for the year ended December 31, 2017 to the methodology used by Dominion Energy in its recast financial statements filed on June 6, 2018.

 

Item 9.01 Financial Statement and Exhibits.

(a)     Financial Statements of Businesses Acquired.*

* — Note: Business has not yet been acquired. Financial statements were provided in Dominion Energy Inc.’s prior filing pursuant to Rule 3-05 of Regulation S-X in connection with a probable business combination.

Unaudited Condensed Consolidated Financial Statements of SCANA Corporation at March 31, 2018 and for the three months ended March 31, 2018 and 2017, together with the related notes to the financial statements, listed as Exhibit 99.1 and incorporated herein by reference.

(b)     Pro Forma Financial Information.

Unaudited Pro Forma Consolidated Financial Statements of Dominion Energy, Inc. at and for the three months ended March 31, 2018, a copy of which is filed as Exhibit 99.2 hereto and incorporated herein by reference.

(c)     Exhibits.

 

Exhibit

Number

  

Description

99.1    Unaudited Condensed Consolidated Financial Statements of SCANA Corporation at March  31, 2018 and for the three months ended March 31, 2018 and 2017, together with the related notes to the financial statements (incorporated by reference from Item 1. Financial Statements, SCANA Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, filed May 1, 2018, File No.  1-8809). SCANA Corporation’s Quarterly Report is included in a combined filing with the Quarterly Report of South Carolina Electric  & Gas Company; information related to such affiliated entity is not considered to be a component of the Unaudited Financial Statements of SCANA Corporation.
99.2    Unaudited Pro Forma Consolidated Financial Statements of Dominion Energy, Inc. at March 31, 2018 and for the three months ended March 31, 2018 (as updated June 6, 2018; filed herewith).


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amended report to be signed on its behalf by the undersigned hereunto duly authorized.

 

DOMINION ENERGY, INC.
Registrant

/s/ Michele L. Cardiff

Name:

 

Michele L. Cardiff

Title:

 

Vice President, Controller and Chief

Accounting Officer

Date: June 6, 2018

EX-99.2

Exhibit 99.2

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The unaudited pro forma consolidated financial statements of Dominion Energy, Inc. (Dominion Energy) consist of a condensed consolidated balance sheet at March 31, 2018, consolidated statement of income for the three months ended March 31, 2018 and a consolidated statement of income for the year ended December 31, 2017, which reflect Dominion Energy’s anticipated acquisition of SCANA Corporation (SCANA), expected to occur by the end of 2018. The unaudited pro forma consolidated financial statements included herein have been derived from the following historical financial statements:

 

    the audited financial statements of Dominion Energy for the year ended December 31, 2017;

 

    the unaudited interim financial statements of Dominion Energy for the three months ended March 31, 2018;

 

    the audited financial statements of SCANA for the year ended December 31, 2017; and

 

    the unaudited interim financial statements of SCANA for the three months ended March 31, 2018.

On January 2, 2018, Dominion Energy entered into an Agreement and Plan of Merger (the merger agreement) with SCANA, which provides for a stock-for-stock merger in which SCANA shareholders would receive 0.6690 of a share of Dominion Energy common stock for each share of SCANA common stock. Following completion of the merger, SCANA would operate as a wholly-owned subsidiary of Dominion Energy.

The pro forma adjustments have been prepared as if the acquisition of SCANA occurred on March 31, 2018 in the case of the unaudited pro forma condensed consolidated balance sheet and on January 1, 2017 in the case of the unaudited pro forma consolidated statements of income. The unaudited pro forma consolidated financial statements should be read in conjunction with the related notes, which are included herein, the financial statements and notes included in Dominion Energy’s Annual Report on Form 10-K for the year ended December 31, 2017, as updated in its Current Report on Form 8-K, filed on June 6, 2018, and Quarterly Report on Form 10-Q for the three months ended March 31, 2018, and the financial statements and notes included in SCANA’s Annual Report on Form 10-K for the year ended December 31, 2017 and Quarterly Report on Form 10-Q for the three months ended March 31, 2018.

The unaudited pro forma consolidated financial statements do not necessarily reflect what Dominion Energy’s financial position and results of operations would have been if it had owned SCANA during the periods presented. In addition, they are not necessarily indicative of its future results of operations or financial condition. The assumptions and adjustments give pro forma effect to events, described below, that are (i) directly attributable to Dominion Energy’s acquisition of SCANA, (ii) factually supportable, and (iii) with respect to the unaudited pro forma consolidated statements of income, expected to have a continuing impact on Dominion Energy. The actual adjustments may differ from the pro forma adjustments.

The unaudited pro forma consolidated financial statements give effect to Dominion Energy’s acquisition of SCANA for total consideration consisting of the right to receive 0.6690 of a share of Dominion Energy common stock for each share of SCANA common stock. While additional financing, either through the issuance of common stock or debt, may be required by Dominion Energy to fund certain provisions proposed to the Public Service Commission of South Carolina (SCPSC) in connection with the merger agreement, such financing transactions have not been reflected in the unaudited pro forma consolidated financial statements due to the uncertainty of such plans at this point in time.

 

1


DOMINION ENERGY, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

AT MARCH 31, 2018

 

     Dominion Energy     SCANA     Pro Forma
Adjustments
         Dominion
Energy Pro
Forma
 
(millions)                              
ASSETS            

Current Assets

           

Cash and cash equivalents

   $ 189     $ 199     $ —          $ 388  

Customer receivables

     1,615       568       (7   (q)      2,176  

Other receivables

     136       286       —            422  

Inventories

     1,367       284       —            1,651  

Other

     974       110       —            1,084  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total current assets

     4,281       1,447       (7        5,721  
  

 

 

   

 

 

   

 

 

      

 

 

 

Investments

           

Nuclear decommissioning trust funds

     5,060       133       —            5,193  

Investment in equity method affiliates

     1,638       22       —            1,660  

Other

     334       152       —            486  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total investments

     7,032       307       —            7,339  
  

 

 

   

 

 

   

 

 

      

 

 

 

Property, Plant and Equipment

           

Property, plant and equipment

     75,632       16,449       252     (n)      92,196  
         (137   (f)   

Accumulated depreciation, depletion and amortization

     (21,503     (5,697     137     (f)      (27,063
  

 

 

   

 

 

   

 

 

      

 

 

 

Total property, plant and equipment, net

     54,129       10,752       252          65,133  
  

 

 

   

 

 

   

 

 

      

 

 

 

Deferred Charges and Other Assets

           

Goodwill

     6,405       210       666     (g)      7,281  

Regulatory assets

     2,698       5,578       (666   (e)      7,610  

Other

     2,809       290       144     (i)      3,243  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total deferred charges and other assets

     11,912       6,078       144          18,134  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total assets

   $ 77,354     $ 18,584     $ 389        $ 96,327  
  

 

 

   

 

 

   

 

 

      

 

 

 

 

2


DOMINION ENERGY, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

AT MARCH 31, 2018

 

     Dominion Energy     SCANA     Pro Forma
Adjustments
          Dominion
Energy Pro
Forma
 
(millions)                               
LIABILITIES AND EQUITY           

Current Liabilities

          

Securities due within one year

   $ 3,603     $ 727     $ —         $ 4,330  

Short-term debt

     2,713       248       —           2,961  

Accounts payable

     702       266       59       (b     1,020  
         (7     (q  

Regulatory liabilities

     408       116       1,300       (c     1,962  
         138       (d  

Other

     1,913       418       64       (j     2,436  
         31       (h  
         6       (n  
         4       (k  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total current liabilities

     9,339       1,775       1,595         12,709  
  

 

 

   

 

 

   

 

 

     

 

 

 

Long-Term Debt

          

Long-term debt

     25,759       6,001       51       (l     31,816  
         5       (l  

Junior subordinated notes

     3,980       —         —           3,980  

Remarketable subordinated notes

     1,381       —         —           1,381  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total Long-term debt

     31,120       6,001       56         37,177  
  

 

 

   

 

 

   

 

 

     

 

 

 

Deferred Credits and Other Liabilities

          

Deferred income taxes and investment tax credits

     4,719       1,315       (382     (o     5,652  

Regulatory liabilities

     6,977       3,008       (1,094     (c     9,328  
         437       (d  

Other

     5,157       1,141       246       (n     6,571  
         16       (k  
         11       (j  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total deferred credits and other liabilities

     16,853       5,464       (766       21,551  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities

     57,312       13,240       885         71,437  
  

 

 

   

 

 

   

 

 

     

 

 

 

Commitments and Contingencies

          

Equity

          

Common stock - no par

     10,316       2,389       (2,389     (m     16,318  
         6,002       (a  

Retained earnings

     8,924       2,997       (2,997     (m     7,770  
         (666     (e  
         (575     (d  
         (206     (c  
         (59     (b  
         (20     (k  
         (13     (h  
         385       (o  

Accumulated other comprehensive loss

     (1,551     (42     42       (p     (1,551
  

 

 

   

 

 

   

 

 

     

 

 

 

Total common shareholders’ equity

     17,689       5,344       (496       22,537  
  

 

 

   

 

 

   

 

 

     

 

 

 

Noncontrolling interests

     2,353       —         —           2,353  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total equity

     20,042       5,344       (496       24,890  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities and equity

   $ 77,354     $ 18,584     $ 389       $ 96,327  
  

 

 

   

 

 

   

 

 

     

 

 

 

 

3


DOMINION ENERGY, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2018

 

     Dominion
Energy
     SCANA      Pro Forma
Adjustments
    Dominion
Energy Pro
Forma
 
(millions, except per share amounts)                           

Operating Revenue

   $ 3,466      $ 1,180      $ 11     (j)    $ 4,640  
           (17 )  (q)   
  

 

 

    

 

 

    

 

 

   

 

 

 

Operating Expenses

          

Electric fuel and other energy-related purchases

     744        208        (2 )  (q)      950  

Purchased electric capacity

     14        3        —         17  

Purchased gas

     340        406        (15 )  (q)      731  

Other operations and maintenance

     796        201        —         997  

Impairment loss

     —          4        —         4  

Depreciation, depletion and amortization

     498        99        9     (i)      606  

Other taxes

     199        70        —         269  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total operating expenses

     2,591        991        (8     3,574  
  

 

 

    

 

 

    

 

 

   

 

 

 

Income from operations

     875        189        2       1,066  
  

 

 

    

 

 

    

 

 

   

 

 

 

Other income

     100        128        —         228  

Interest and related charges

     314        97        (5 )  (l)      406  
           —       (l)   
  

 

 

    

 

 

    

 

 

   

 

 

 

Income from operations including noncontrolling interests before income tax expense

     661        220        7       888  

Income tax expense

     135        51        2     (o)      188  
  

 

 

    

 

 

    

 

 

   

 

 

 

Net Income Including Noncontrolling Interests

     526        169        5       700  

Noncontrolling Interests

     23        —          —         23  
  

 

 

    

 

 

    

 

 

   

 

 

 

Net Income Attributable to Dominion Energy

   $ 503      $ 169      $ 5     $ 677  
  

 

 

    

 

 

    

 

 

   

 

 

 

Average shares of common stock outstanding - basic

     650.5        142.9        (47.3 )  (s)      746.1  

Average shares of common stock outstanding - diluted

     650.5        142.9        (47.3 )  (s)      746.1  

Earnings Per Common Share - Basic

   $ 0.77      $ 1.18        $ 0.91  

Earnings Per Common Share - Diluted

   $ 0.77      $ 1.18        $ 0.91  

 

4


DOMINION ENERGY, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME

FOR THE YEAR ENDED DECEMBER 31, 2017

 

     Dominion
Energy
    SCANA     Pro Forma
Adjustments
          Dominion
Energy Pro
Forma
 
(millions, except per share amounts)                               

Operating Revenue

   $ 12,586     $ 4,407     $ 64       (j   $ 16,998  
         (59     (q  
  

 

 

   

 

 

   

 

 

     

 

 

 

Operating Expenses

          

Electric fuel and other energy-related purchases

     2,301       661       (8     (q     2,954  

Purchased electric capacity

     6       13       —           19  

Purchased gas

     701       1,156       (51     (q     1,806  

Other operations and maintenance

     3,068       737       (9     (r     3,796  

Impairment loss

     —         1,118       —           1,118  

Depreciation, depletion and amortization

     1,905       382       46       (i     2,333  

Other taxes

     668       264       —           932  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total operating expenses

     8,649       4,331       (22       12,958  
  

 

 

   

 

 

   

 

 

     

 

 

 

Income from operations

     3,937       76       27         4,040  
  

 

 

   

 

 

   

 

 

     

 

 

 

Other income

     358       56       (9     (r     405  

Interest and related charges

     1,205       363       (19     (l     1,548  
         (1     (l  
  

 

 

   

 

 

   

 

 

     

 

 

 

Income (loss) from operations including noncontrolling interests before income tax expense (benefit)

     3,090       (231     38         2,897  

Income tax expense (benefit)

     (30     (112     15       (o     (127
  

 

 

   

 

 

   

 

 

     

 

 

 

Net Income (Loss) Including Noncontrolling Interests

     3,120       (119     23         3,024  

Noncontrolling Interests

     121       —         —           121  
  

 

 

   

 

 

   

 

 

     

 

 

 

Net Income (Loss) Attributable to Dominion Energy

   $ 2,999     $ (119   $ 23       $ 2,903  
  

 

 

   

 

 

   

 

 

     

 

 

 

Average shares of common stock outstanding - basic

     636.0       142.9       (47.3     (s     731.6  

Average shares of common stock outstanding - diluted

     636.0       142.9       (47.3     (s     731.6  

Earnings (Loss) Per Common Share - Basic

   $ 4.72     $ (0.83       $ 3.97  

Earnings (Loss) Per Common Share - Diluted

   $ 4.72     $ (0.83       $ 3.97  

 

5


DOMINION ENERGY, INC.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

The unaudited pro forma consolidated financial statements included herein have been derived from the following historical financial statements:

 

    the audited financial statements of Dominion Energy for the year ended December 31, 2017;

 

    the unaudited interim financial statements of Dominion Energy for the three months ended March 31, 2018;

 

    the audited financial statements of SCANA for the year ended December 31, 2017; and

 

    the unaudited interim financial statements of SCANA for the three months ended March 31, 2018.

On January 2, 2018, Dominion Energy entered into the merger agreement with SCANA, which provides for a stock-for-stock merger in which SCANA shareholders would receive 0.6690 of a share of Dominion Energy common stock for each share of SCANA common stock. Following completion of the merger, SCANA would operate as a wholly-owned subsidiary of Dominion Energy.

The pro forma adjustments have been prepared as if the acquisition of SCANA occurred on March 31, 2018, in the case of the unaudited pro forma condensed consolidated balance sheet and on January 1, 2017, in the case of the unaudited pro forma consolidated statements of income for the year ended December 31, 2017 and for the three months ended March 31, 2018. The adjustments give pro forma effect to events that are (i) directly attributable to Dominion Energy’s acquisition of SCANA, (ii) factually supportable, and (iii) with respect to the unaudited pro forma consolidated statements of income, expected to have a continuing impact on Dominion Energy. The adjustments are based on currently available information and certain estimates and assumptions, and therefore the actual effects of these transactions will differ from the pro forma adjustments. However, management believes that the assumptions used provide a reasonable basis for presenting the significant effects of the transaction, and that the pro forma adjustments in the unaudited pro forma consolidated financial statements give appropriate effect to the assumptions. The effects on the unaudited pro forma consolidated financial statements of the transaction described above are more fully described in Note 4.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies followed in preparing the unaudited pro forma consolidated financial statements are those used by Dominion Energy as set forth in the audited historical financial statements and notes of Dominion Energy included in its Annual Report on Form 10-K for the year ended December 31, 2017, as updated in its Current Report on Form 8-K, as filed on June 6, 2018, and in the unaudited historical interim financial statements and notes of Dominion Energy included in its Quarterly Report on Form 10-Q for the three months ended March 31, 2018, as filed. The unaudited pro forma consolidated financial statements reflect any adjustments known at this time to conform SCANA’s historical financial information to Dominion Energy’s significant accounting policies based on Dominion Energy’s review of SCANA’s summary of significant accounting policies, as disclosed in the SCANA historical financial statements incorporated by reference, and preliminary discussions with SCANA’s management. Upon completion of the merger and a more comprehensive comparison and assessment, additional differences may be identified.

 

6


NOTE 3. PRELIMINARY PURCHASE PRICE AND PRELIMINARY PURCHASE PRICE ALLOCATION

Preliminary Purchase Price

The merger agreement provides that each outstanding share of SCANA common stock will be converted into the right to receive 0.6690 of a share of Dominion Energy common stock.

The fair value of the purchase consideration expected to be transferred on the closing date includes the value of the estimated equity consideration (including the value attributable to the consideration transferred of replacement stock compensation awards). The fair value per share of Dominion Energy common stock was assumed for pro forma purposes to be $62.77 per share, which was the closing price of Dominion Energy’s common stock on June 5, 2018, and may change significantly between these unaudited pro forma consolidated financial statements and the closing of the acquisition. The accompanying unaudited pro forma condensed consolidated balance sheet reflects an estimated preliminary purchase price of approximately $6.0 billion.

The preliminary purchase price for the merger is estimated as follows:

 

(millions, except exchange ratio and closing price)       

SCANA shares outstanding at March 31, 2018

     142.9  

Exchange ratio (per SCANA share)

     0.6690  
  

 

 

 

Estimated total shares Dominion Energy common stock to be issued

     95.6  

Closing price of Dominion Energy common stock on June 5, 2018

     62.77  
  

 

 

 

Estimated equity portion of purchase price

   $ 6,002  

Estimated equity compensation

   $ 18  
  

 

 

 

Total estimated purchase price

   $ 6,020  
  

 

 

 

Preliminary Purchase Price Allocation

Under the acquisition method of accounting, the identifiable assets acquired and liabilities assumed of SCANA are recorded at fair value on the acquisition date and added to those of Dominion Energy. The pro forma adjustments included herein are preliminary and based on estimates of the fair value and useful lives of the assets acquired and liabilities assumed and have been prepared to illustrate the estimated effect of the acquisition between Dominion Energy and SCANA. Significant portions of SCANA’s operations are subject to the rate-setting authority of the Federal Energy Regulatory Commission, SCPSC or the North Carolina Utilities Commission. The carrying values of the assets and liabilities subject to regulatory accounting under U.S. generally accepted accounting princples, including property, plant and equipment, are considered to approximate the fair values. A fair value adjustment has not been included for SCANA’s pension and other postretirement benefit obligations, which could vary by a significant amount due to potential changes in discount rates, return on plan assets or other assumptions surrounding the determination of these obligations. At this time, Dominion Energy management does not have sufficient information to record any adjustments to measure legal contingencies at fair value or at a reasonably estimable amount. The final purchase price allocation is dependent upon certain valuation and other studies that have not yet been completed. The final determination of the purchase price allocation, upon the consummation of the acquisition, will be based on the net assets acquired as of that date and will depend on a number of factors, which cannot be predicted with any certainty at this time. The purchase price allocation may change materially based on the receipt of more detailed information. Accordingly, the pro forma purchase price allocation is preliminary and is subject to further adjustment as additional information becomes available and as additional analyses and final valuations are completed. There can be no assurance that these additional analyses and final valuations will not result in significant changes to the estimates of fair value set forth below.

 

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The following table provides a summary of the preliminary allocation of the estimated purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed of SCANA, based on SCANA’s consolidated balance sheet at March 31, 2018, with all excess value over consideration paid recorded as goodwill.

 

(millions)       

Total current assets

   $ 1,447  

Investments

     307  

Property, plant and equipment

     10,752  

Goodwill

     876  

Regulatory assets

     5,578  

Other deferred charges and other assets, including intangible assets

     434  
  

 

 

 

Total assets

     19,394  
  

 

 

 

Total current liabilities

     1,839  

Long-term debt

     6,057  

Deferred tax liabilities

     1,318  

Regulatory liabilities

     3,008  

Other deferred credits and other liabilities

     1,152  
  

 

 

 

Total liabilities

     13,374  
  

 

 

 

Total estimated purchase price

   $ 6,020  
  

 

 

 

NOTE 4. PRO FORMA ADJUSTMENTS AND ASSUMPTIONS

The following transactions are directly attributable to Dominion Energy’s acquisition of SCANA.

 

(a) Reflects the issuance of 95.6 million shares of Dominion Energy common stock to SCANA shareholders as consideration for the acquisition. The number of shares of Dominion Energy common stock was calculated based on 142.9 million shares of SCANA common stock outstanding at March 31, 2018 multiplied by the 0.6690 exchange ratio per the merger agreement. Based on the closing price of Dominion Energy’s common stock at June 5, 2018 of $62.77, such consideration is calculated to have a value of $6.0 billion, as shown in Note 3 above.

 

(b) Reflects the accrual of $59 million in estimated transaction costs associated with the acquisition of SCANA by Dominion Energy, including audit, legal and advisory fees.

 

(c) Reflects an up-front, one-time rate credit totaling $1.3 billion to all current retail electric service customers of South Carolina Electric & Gas Company (SCE&G) to be paid within 90 days of the closing of the merger, as proposed to the SCPSC, through the reclassification of $1.1 billion of an existing regulatory liability from noncurrent to current and the accrual of an additional $206 million to current regulatory liabilities. The impact of this up-front, one-time rate credit has not been reflected in the unaudited pro forma consolidated statements of income as the $206 million charge is nonrecurring.

 

(d) Reflects the accrual of a $575 million refund of amounts previously collected from retail electric customers of SCE&G to be credited over an estimated eight-year period following the merger, as proposed to the SCPSC. The allocation between current and noncurrent regulatory liabilities has been determined based on the expected portion to be credited to customer bills. The impact of this refund has not been reflected in the unaudited pro forma consolidated statements of income as the $575 million charge is nonrecurring.

 

(e) Reflects the write-down of $666 million of existing regulatory assets associated with the New Nuclear Development Project under which SCANA and the South Carolina Public Service Authority undertook to construct two Westinghouse AP1000 Advanced Passive Safety nuclear units in Jenkinsville, South Carolina which SCE&G will not seek recovery of following the merger, as proposed to the SCPSC. The impact of this write-down has not been reflected in the unaudited pro forma consolidated statements of income as the $666 million charge is nonrecurring.

 

(f) Reflects the presentation of nonregulated property, plant and equipment at estimated fair value and the removal of historical accumulated depreciation. For the purposes of the preliminary purchase price allocation in Note 3, the estimated fair value is equal to the carrying value.

 

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(g) Reflects the excess of Dominion Energy’s consideration paid of approximately $876 million over the amount of identifiable assets and liabilities assumed in the transaction (goodwill) as shown in Note 3 above. In addition, this reflects the removal of SCANA’s previously recorded goodwill.

 

(h) Reflects the estimated settlement of all outstanding SCANA equity compensation awards at the time of the merger, calculated based on an estimated share price of $41.99, which is 0.6690 percent of the share price of Dominion Energy’s common stock at closing on June 5, 2018 of $62.77, and allocated between compensation considered to be service provided prior to the merger ($18 million) and expense to be recognized after the merger ($13 million). The impact of this charge has not been reflected in the unaudited pro forma consolidated statements of income as it is nonrecurring.

 

(i) Reflects an intangible asset for the value of customer relationships estimated to be $144 million with a weighted average useful life of approximately three years included within the preliminary purchase price allocation in Note 3. Amortization is based on the expected pattern of economic benefit, estimated to be $46 million, $31 million, $21 million, $14 million and $10 million over the five-year period following the acquisition. Estimated amortization of this asset is $9 million for the three months ended March 31, 2018 and $46 million for the year ended December 31, 2017.

 

(j) Reflects a contract liability for the unfavorable terms of an existing contract estimated to be $75 million with a 14-month useful life included within the preliminary purchase price allocation in Note 3. Estimated amortization of this liability is $11 million for the three months ended March 31, 2018 and $64 million for the year ended December 31, 2017.

 

(k) Reflects an increase in current liabilities for incremental charitable contributions committed to by Dominion Energy under the terms of the merger agreement of $20 million, $4 million of which is considered a current liability. The impact of this charge has not been reflected in the unaudited pro forma consolidated statements of income as it is nonrecurring.

 

(l) Reflects the fair value adjustment of long-term debt of $51 million, on a weighted average maturity of approximately three years, and the write-off of $5 million of unamortized debt issuance costs included within the preliminary purchase price allocation in Note 3. Estimated amortization of the fair value premium, and the elimination of the recorded debt issuance cost amortization, is $5 million and less than $1 million for the three months ended March 31, 2018, and $19 million and $1 million for the year ended December 31, 2017, respectively.

 

(m) Reflects the elimination of SCANA’s historical shareholders’ equity.

 

(n) This pro forma adjustment conforms SCANA’s accounting for asset retirement obligations, which we refer to as AROs, to the methodology used by Dominion Energy. The cash flows used to measure Dominion Energy’s pipeline AROs reflect the cost and timing of activities legally required to retire component sections of pipeline as they are removed from service. The cash flows previously used to measure SCANA’s pipeline AROs are those legally required to retire the entire pipeline system at one point in time. As a result of this change in accounting estimate, Dominion Energy recorded an increase of $252 million to property, plant and equipment and increases of $6 million and $246 million to current and noncurrent other liabilities, respectively.

 

(o) Reflects income taxes on pro forma adjustments based on an estimated statutory tax rate of 25.0% for the unaudited pro forma condensed consolidated balance sheet and the unaudited pro forma consolidated statement of income for the three months ended March 31, 2018 and an estimated statutory tax rate of 38.3% for the unaudited pro forma consolidated statement of income for the year ended December 31, 2017. The unaudited pro forma condensed consolidated balance sheet includes adjustments related to the preliminary purchase price allocation ($3 million) and related to pro forma adjustment impacting retained earnings ($385 million).

 

(p) Reflects the elimination of SCANA’s historical accumulated other comprehensive loss.

 

(q) Reflects the elimination of transactions between Dominion Energy and SCANA, primarily for the purchase and sale of natural gas transportation, included in each company’s historical financial statements.

 

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(r) This pro forma adjustment conforms SCANA’s accounting for certain net periodic pension and other postretirement benefit costs to the methodology used by Dominion Energy. The January 2018 retrospective adoption by Dominion Energy of revised accounting guidance for certain net periodic pension and other postretirement benefit costs requires that the service cost component of net periodic pension and other postretirement benefit costs be classified in the same line item as other compensation costs arising from services rendered by employees, while all other components of net periodic pension and other postretirement benefit costs are classified outside of income from operations. As a result, Dominion Energy recorded corresponding decreases to other operations and maintenance expense and other income in the consolidated statement of income for the year ended December 31, 2017. These adjustments are incorporated in the Dominion Energy financial information included in the unaudited pro forma consolidated statement of income for the year ended December 31, 2017. While SCANA has also adopted the revised accounting guidance (effective January 2018), it has not yet reflected adjustments in its consolidated statement of income for the year ended December 31, 2017.

 

(s) Reflects the elimination of the SCANA common stock offset by the issuance of 95.6 million shares of Dominion Energy common stock as discussed in tickmark (a).

 

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