DOMINION ENERGY, INC - FORM 8-K - EX-99.2

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8-K - FORM 8-K - DOMINION ENERGY, INC	d540148d8k.htm

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 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.

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			930		(g	)		7,545
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			408					18,398

Total assets	$	77,354		$	18,584		$	653				$	96,591

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			123			1,300		(c	)		1,969
								138		(d	)
Other		1,913			411			64		(j	)		2,430
								32		(h	)
								6		(n	)
								4		(k	)

Total current liabilities		9,339			1,775			1,596					12,710

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			886					71,438

Commitments and Contingencies
Equity
Common stock - no par		10,316			2,389			(2,389	)	(m	)		16,581
								6,265		(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			(233	)				22,800

Noncontrolling interests		2,353			—			—					2,353

Total equity		20,042			5,344			(233	)				25,153

Total liabilities and equity	$	77,354		$	18,584		$	653				$	96,591

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	)	(r	)		746.1
Average shares of common stock outstanding - diluted		650.5		142.9		(47.3	)	(r	)		746.1
Earnings Per Common Share - Basic	$	0.77	$	1.18						$	0.91
Earnings Per Common Share - Diluted	$	0.77	$	1.18						$	0.91

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		2,875			737			—					3,612
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		8,456			4,331			(13	)				12,774

Income from operations		4,130			76			18					4,224

Other income		165			56			—					221
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	)	(r	)		731.6
Average shares of common stock outstanding - diluted		636.0			142.9			(47.3	)	(r	)		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

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 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.

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 $65.53 per share, which was the closing price of Dominion Energy’s common stock on May 3, 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 $6.3 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 May 3, 2018		65.53

Estimated equity portion of purchase price	$	6,265
Estimated equity compensation	$	19

Total estimated purchase price	$	6,284

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 North Carolina Utilities Commission. The carrying values of the assets and liabilities subject to regulatory accounting under U.S. generally accepted accounting principles, 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.

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		1,140
Regulatory assets		5,578
Other deferred charges and other assets, including intangible assets		434

Total assets		19,658

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	$	6,284

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 May 3, 2018 of $65.53 , such consideration is calculated to have a value of $6.3 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 (2) 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.

(g)	Reflects the excess of Dominion Energy’s consideration paid of approximately $1.1 billion 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 $43.84, which is 0.6690 percent of the share price of Dominion Energy’s common stock at closing on May 3, 2018 of $65.53, and allocated between compensation considered to be service provided prior to the merger ($19 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.

(r)	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).

DOMINION ENERGY, INC - FORM 8-K - EX-99.2 - May 4, 2018

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