UNITED STATES
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, 2000
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________.
Commission file number 333-86243
CP&L ENERGY, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-2155481
-------------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
411 Fayetteville Street, Raleigh, North Carolina 27601-1748
------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
919-546-6111
(Registrant's telephone number, including area code)
CP&L HOLDINGS, INC.
(Former name, former address and former fiscal year,
if changed since last report)
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 .
As of April 30, 2000, there were 100 total shares of common stock, no par value,
oustanding.
<PAGE>
EXPLANATORY NOTE:
Carolina Power & Light Company (CP&L) is in the process of converting to a
holding company structure, in which it would become a subsidiary of CP&L Energy,
Inc. (the Company). CP&L's shareholders approved the contemplated holding
company structure on October 20, 1999. The transaction also requires the
approval of various regulatory authorities. Upon conversion to a holding company
structure, each share of CP&L's common stock will automatically be exchanged for
one share of common stock of the Company.
On September 15, 1999, CP&L filed an application with the Nuclear Regulatory
Commission for consent to the indirect transfer of control of its nuclear plant
operating licenses to the Company. This application was approved on December 31,
1999.
On October 15, 1999, CP&L filed an application with the North Carolina Utilities
Commission to approve the transfer of ownership of CP&L, Interpath
Communications Inc., and North Carolina Natural Gas Corporation to the Company.
Action is expected by the end of the second quarter of 2000.
On October 18, 1999, CP&L filed an application with the Securities and Exchange
Commission (the SEC) for approval of the Company's acquisition of voting
securities giving it control over CP&L and NCNG. Action is expected by the end
of the second quarter of 2000.
On October 20, 1999, CP&L filed an application with the Public Service
Commission of South Carolina (SCPSC) to approve the transfer of CP&L and
Interpath Communications Inc. to the Company. The SCPSC issued an order
approving the application on March 6, 2000.
On October 25, 1999, CP&L filed an application with the Federal Energy
Regulatory Commission for approval of the proposed reorganization of CP&L
related to the establishment of the Company. This application was approved on
December 23, 1999.
------------------------------
This Form 10-Q is being filed to satisfy the requirements of Section 15(d) under
the Securities Act of 1933, as amended. The Company has no business operations
and other than the Company's parent, CP&L, no shareholders. Accordingly, the
information required by the Form 10-Q would not be meaningful and has been
omitted. In lieu of such information, included herewith as Attachment A is
CP&L's Form 10-Q for the quarter ended March 31, 2000. Immediately after the
consummation of the share exchange, the Company's financial statements and other
information will be substantially similar to that of CP&L immediately prior to
the consummation of the share exchange.
For more information on the Company and the contemplated conversion of CP&L to a
holding company structure, please review the Registration Statement of the
Company (previously CP&L Holdings, Inc.) on Form S-4 (333-86243) filed with the
SEC on August 31, 1999.
2
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) 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.
CP&L Energy, Inc.
Date: 4/12/00 (Registrant)
-----------
By:/s/ Peter M. Scott, III
-----------------------
Peter M. Scott, III
Executive Vice President, Chief
Financial Officer and Principal
Accounting Officer
3
<PAGE>
ATTACHMENT A
CAROLINA POWER & LIGHT COMPANY'S FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000.
4
<PAGE>
UNITED STATES
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, 2000
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from______ to______ .
Commission file number 1-3382
------
CAROLINA POWER & LIGHT COMPANY
------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-0165465
-------------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
411 Fayetteville Street, Raleigh, North Carolina 27601-1748
------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
919-546-6111
------------
(Registrant's telephone number, including area code)
NONE
----
(Former name, former address and former fiscal year, if changed since last
report)
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 .
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock (Without Par
Value) shares outstanding at April 30, 2000: 159,636,055.
1
<PAGE>
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
------------------------------------------
The matters discussed throughout this Form 10-Q that are not historical
facts are forward-looking and, accordingly, involve estimates,
projections, goals, forecasts, assumptions, risks and uncertainties
that could cause actual results or outcomes to differ materially from
those expressed in the forward-looking statements.
Examples of forward-looking statements discussed in this Form 10-Q,
PART 1, ITEM 2, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS", include, but are not limited to,
statements under the heading "Other Matters" concerning the effects of
electric utility industry restructuring.
Any forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update
any forward-looking statement or statements to reflect events or
circumstances after the date on which such statement is made.
Examples of factors that should be considered with respect to any
forward-looking statements made throughout this document include, but
are not limited to, the following: Governmental policies and regulatory
actions (including those of the Federal Energy Regulatory Commission,
the Environmental Protection Agency, the Nuclear Regulatory Commission,
the Department of Energy, the North Carolina Utilities Commission and
the Public Service Commission of South Carolina); general industry
trends; operation of nuclear power facilities; availability of nuclear
waste storage facilities; nuclear decommissioning costs; changes in the
economy of areas served by the Company; legislative and regulatory
initiatives that impact the speed and degree of industry restructuring;
ability to obtain adequate and timely rate recovery of costs, including
potential stranded costs arising from industry restructuring;
competition from other energy suppliers; the success of the Company's
subsidiaries; weather conditions and catastrophic weather-related
damage; market demand for energy; inflation; capital market conditions;
the proposed share exchange with Florida Progress Corporation; failure
of the potential benefits of the Company's conversion to a holding
company structure to materialize; cash flows derived from the synthetic
fuel plant; unanticipated changes in operating expenses and capital
expenditures and legal and administrative proceedings. All such factors
are difficult to predict, contain uncertainties that may materially
affect actual results, and may be beyond the control of the Company.
New factors emerge from time to time and it is not possible for
management to predict all of such factors, nor can it assess the effect
of each such factor on the Company.
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ------- --------------------
- --------------------------------------------------------------------------------
CAROLINA POWER & LIGHT COMPANY
(ORGANIZED UNDER THE LAWS OF NORTH CAROLINA)
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
MARCH 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
Three Months Ended
March 31
(In thousands except per share amounts) 2000 1999
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING REVENUES
Electric $ 779,908 $ 738,559
Natural gas 72,098 -
Diversified businesses 25,134 24,343
- --------------------------------------------------------------------------------------------------------------
Total Operating Revenues 877,140 762,902
- --------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Fuel used in electric generation 160,387 138,964
Purchased power 70,259 85,222
Gas purchased for resale 43,898 -
Other operation and maintenance 198,227 142,967
Depreciation and amortization 132,489 120,556
Taxes other than on income 37,334 36,001
Harris Plant deferred costs, net 5,281 1,524
Diversified businesses 44,155 38,307
- --------------------------------------------------------------------------------------------------------------
Total Operating Expenses 692,030 563,541
- --------------------------------------------------------------------------------------------------------------
OPERATING INCOME 185,110 199,361
- --------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest income 3,263 2,293
Other, net 4,295 (6,949)
- --------------------------------------------------------------------------------------------------------------
Total Other Income (Expense) 7,558 (4,656)
- --------------------------------------------------------------------------------------------------------------
INTEREST CHARGES
Long-term debt 50,072 42,401
Other interest charges 5,001 2,761
Allowance for borrowed funds used during construction (4,606) (1,828)
- --------------------------------------------------------------------------------------------------------------
Net Interest Charges 50,467 43,334
- --------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 142,201 151,371
INCOME TAXES 56,198 59,159
- --------------------------------------------------------------------------------------------------------------
NET INCOME 86,003 92,212
PREFERRED STOCK DIVIDEND REQUIREMENTS (742) (742)
- --------------------------------------------------------------------------------------------------------------
EARNINGS FOR COMMON STOCK $ 85,261 $ 91,470
==============================================================================================================
AVERAGE COMMON SHARES OUTSTANDING 153,054 144,293
BASIC AND DILUTED EARNINGS PER COMMON SHARE $ 0.56 $ 0.63
DIVIDENDS DECLARED PER COMMON SHARE $ 0.515 $ 0.500
==============================================================================================================
See Supplemental Data and Notes to Consolidated Interim Financial Statements.
</TABLE>
3
<PAGE>
Carolina Power & Light Company
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 December 31
(In thousands) 2000 1999
- -------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
UTILITY PLANT
Electric utility plant in service $10,701,751 $ 10,633,823
Gas utility plant in service 362,259 354,773
Accumulated depreciation (5,109,441) (4,975,405)
- -------------------------------------------------------------------------------------------------------------
Utility plant in service, net 5,954,569 6,013,191
Held for future use 7,105 11,282
Construction work in progress 667,735 536,017
Nuclear fuel, net of amortization 204,641 204,323
- -------------------------------------------------------------------------------------------------------------
Total Utility Plant, Net 6,834,050 6,764,813
- -------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents 36,544 79,871
Accounts receivable 415,534 446,367
Taxes receivable - 3,770
Inventory 244,264 247,913
Deferred fuel cost 72,524 81,699
Prepayments 17,997 42,631
Other current assets 97,157 177,082
- -------------------------------------------------------------------------------------------------------------
Total Current Assets 884,020 1,079,333
- -------------------------------------------------------------------------------------------------------------
DEFERRED DEBITS AND OTHER ASSETS
Income taxes recoverable through future rates 228,814 229,008
Abandonment costs 1,657 1,675
Harris Plant deferred costs 51,595 56,142
Unamortized debt expense 10,612 10,924
Nuclear decommissioning trust funds 397,007 379,949
Diversified business property, net 258,174 239,982
Miscellaneous other property and investments 252,591 252,454
Goodwill, net 285,271 288,970
Other assets and deferred debits 175,954 190,769
- -------------------------------------------------------------------------------------------------------------
Total Deferred Debits and Other Assets 1,661,675 1,649,873
- -------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 9,379,745 $ 9,494,019
=============================================================================================================
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock equity $ 3,429,833 $ 3,412,647
Preferred stock - redemption not required 59,376 59,376
Long-term debt, net 3,028,807 3,028,561
- -------------------------------------------------------------------------------------------------------------
Total Capitalization 6,518,016 6,500,584
- -------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt - 197,250
Accounts payable 253,646 269,053
Taxes accrued 91,597 -
Interest accrued 28,585 47,607
Dividends declared 81,133 80,939
Notes payable 180,140 168,240
Other current liabilities 144,578 130,036
- -------------------------------------------------------------------------------------------------------------
Total Current Liabilities 779,679 893,125
- -------------------------------------------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes 1,608,461 1,632,778
Accumulated deferred investment tax credits 201,105 203,704
Other liabilities and deferred credits 272,484 263,828
- -------------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 2,082,050 2,100,310
- -------------------------------------------------------------------------------------------------------------
TOTAL CAPITALIZATION AND LIABILITIES $ 9,379,745 $ 9,494,019
=============================================================================================================
SCHEDULES OF COMMON STOCK EQUITY
(In thousands)
Common stock (without par value, authorized 200,000,000, issued and
outstanding 159,623,510 and 159,599,650 shares, respectively) $ 1,749,022 $ 1,746,249
Unearned ESOP common stock (131,851) (140,153)
Capital stock issuance expense (816) (794)
Retained earnings 1,813,478 1,807,345
- -------------------------------------------------------------------------------------------------------------
Total Common Stock Equity $ 3,429,833 $ 3,412,647
=============================================================================================================
See Supplemental Data and Notes to Consolidated Interim Financial Statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Carolina Power & Light Company
STATEMENTS OF CASH FLOWS Three Months Ended
March 31
(In thousands) 2000 1999
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 86,003 $ 92,212
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 153,785 143,371
Harris Plant deferred costs 4,547 614
Deferred income taxes (31,040) (17,398)
Investment tax credit (2,599) (2,550)
Deferred fuel cost 7,459 407
Net (increase) decrease in receivables, inventories,
prepaid expense and other current assets 140,788 (8,432)
Net increase in payables and accrued expenses 70,011 51,062
Other 55,078 48,820
- -----------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 484,032 308,106
- -----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Gross property additions (231,657) (169,066)
Nuclear fuel additions (25,252) (27,134)
Contributions to nuclear decommissioning trust (10,275) (10,283)
Net cash flow of company-owned life insurance program 13 (121)
Investment in non-utility activities (26,603) (64,934)
- -----------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (293,774) (271,538)
- -----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt - 400,970
Net increase (decrease) in short-term indebtedness 11,900 (262,250)
Net increase (decrease) in outstanding payments 31,553 (86,306)
Retirement of long-term debt (197,365) (1,636)
Dividends paid on common and preferred stock (79,673) (72,955)
Other - 331
- -----------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (233,585) (21,846)
- -----------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (43,327) 14,722
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 79,871 28,872
- -----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 36,544 $ 43,594
===========================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period - interest $ 68,061 $ 53,019
income taxes $ 1,389 $ 1,156
===========================================================================================================
See Supplemental Data and Notes to Consolidated Interim Financial Statements.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Carolina Power & Light Company
SUPPLEMENTAL DATA Three Months Ended
March 31
2000 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING REVENUES (IN THOUSANDS)
Electric
Retail $ 634,667 $ 602,263
Wholesale 129,691 121,289
Miscellaneous revenue 15,550 15,007
- ------------------------------------------------------------------------------------------------------------
Total Electric 779,908 738,559
Natural gas 72,098 -
Diversified businesses 25,134 24,343
- ------------------------------------------------------------------------------------------------------------
Total Operating Revenues $ 877,140 $ 762,902
============================================================================================================
ENERGY SALES
ELECTRIC (MILLIONS OF kWh)
Retail
Residential 3,890 3,662
Commercial 2,512 2,433
Industrial 3,423 3,284
Other retail 346 312
- ------------------------------------------------------------------------------------------------------------
Total retail 10,171 9,691
Wholesale 3,707 3,270
- ------------------------------------------------------------------------------------------------------------
TOTAL ELECTRIC 13,878 12,961
- ------------------------------------------------------------------------------------------------------------
============================================================================================================
NATURAL GAS DELIVERED (THOUSANDS OF dt) 17,344 -
============================================================================================================
ENERGY SUPPLY (MILLIONS OF kWh)
Generated - coal 7,460 6,552
nuclear 5,664 5,740
hydro 176 210
combustion turbines 34 20
Purchased 1,032 928
- ------------------------------------------------------------------------------------------------------------
Total Energy Supply (Company Share) 14,366 13,450
============================================================================================================
DETAIL OF INCOME TAXES (IN THOUSANDS)
Income tax expense (credit) - current $ 89,837 $ 79,107
deferred (31,040) (17,398)
investment tax credit (2,599) (2,550)
- ------------------------------------------------------------------------------------------------------------
TOTAL INCOME TAX EXPENSE $ 56,198 $ 59,159
============================================================================================================
See Notes to Consolidated Interim Financial Statements.
</TABLE>
6
<PAGE>
Carolina Power & Light Company
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
--------------------------------------
A. Organization. Carolina Power & Light Company (the Company) is
a public service corporation primarily engaged in the
generation, transmission, distribution and sale of electricity
in portions of North and South Carolina and the transmission,
distribution and sale of natural gas in portions of North
Carolina.
B. Basis of Presentation. These consolidated interim financial
statements should be read in conjunction with the Company's
consolidated financial statements included in the Company's
1999 Annual Report on Form 10-K. The amounts are unaudited
but, in the opinion of management, reflect all adjustments
necessary to fairly present the Company's financial position
and results of operations for the interim periods. Due to
temperature variations between seasons of the year and the
timing of outages of electric generating units, especially
nuclear-fueled units, the results of operations for interim
periods are not necessarily indicative of amounts expected for
the entire year. Certain amounts for 1999 have been
reclassified to conform to the 2000 presentation, with no
effect on previously reported net income or common stock
equity.
In preparing financial statements that conform with generally
accepted accounting principles, management must make estimates
and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities
at the date of the financial statements and amounts of
revenues and expenses reflected during the reporting period.
Actual results could differ from those estimates.
On July 15, 1999, the Company completed the acquisition of
North Carolina Natural Gas Corporation (NCNG). The acquisition
was accounted for as a purchase and, accordingly, the
operating results of NCNG have been included in the Company's
consolidated financial statements since the date of
acquisition.
2. FLORIDA PROGRESS CORPORATION
----------------------------
The Company, Florida Progress Corporation (FPC), a Florida corporation,
and CP&L Energy, Inc. (CP&L Energy), a North Carolina corporation and
wholly owned subsidiary of the Company, formerly known as CP&L
Holdings, Inc. entered into an Amended and Restated Agreement and Plan
of Share Exchange dated as of August 22, 1999, amended and restated as
of March 3, 2000 (the "Amended Agreement").
Under the terms of the Amended Agreement, all outstanding shares of
common stock, no par value, of FPC common stock would be acquired by
CP&L Energy in a statutory share exchange with an approximate value of
$5.0 billion, which is subject to change based on CP&L Energy's stock
price and on the value of the contingent value obligations (CVO)
discussed below. Each share of FPC common stock, at the election of the
holder, will be exchanged for (i) $54.00 in cash and one CVO, or (ii)
the number of shares of common stock, no par value, of CP&L Energy
equal to the ratio determined by dividing $54.00 by the average of the
closing sale price per share of CP&L Energy common stock (Final Stock
Price), as reported on the New York Stock Exchange composite tape for
the twenty consecutive trading days ending with the fifth trading day
immediately preceding the closing date for the exchange, and one CVO,
or (iii) a combination of cash and CP&L Energy common stock, and one
CVO; provided, however, that shareholder elections shall be subject to
allocation and proration to achieve a mix of the aggregate exchange
consideration that is 65% cash and 35% common stock. The number of
shares of CP&L Energy common stock that will be issued as stock
consideration will vary if the Final Stock Price is within a range of
$37.13 to $45.39, but not outside that range. Thus, the maximum number
of shares of CP&L Energy common stock into which one share of FPC
common stock could be exchanged would be 1.4543 and the minimum would
be 1.1897. FPC shareholders will receive one CVO for each share of FPC
stock owned. Each CVO will represent the right to receive contingent
payments that may be made by CP&L Energy based on certain cash flows
that may be derived from future operations of four synthetic fuel
plants currently owned by FPC. In conjunction with this proposed share
exchange, CP&L Energy plans to issue debt to fund the cash portion of
the exchange.
The transaction has been approved by the Boards of Directors of FPC,
the Company and CP&L Energy. Consummation of the exchange is subject to
the satisfaction or waiver of certain closing conditions including,
among others, the approval by the shareholders of FPC and the approval
of the issuance of CP&L Energy common stock in the exchange by the
shareholders of the Company or CP&L Energy; the approval or regulatory
review by the Federal Energy Regulatory Commission (FERC), the
Securities and Exchange Commission (SEC), the Nuclear Regulatory
Commission (NRC), the North Carolina Utilities Commission (NCUC), and
certain other federal and
7
<PAGE>
state regulatory bodies; the expiration or early termination of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976; and other customary closing conditions. In addition, FPC's
obligation to consummate the exchange is conditioned upon the Final
Stock Price being not less than $30.00. Both the Company and FPC have
agreed to certain undertakings and limitations regarding the conduct of
their respective businesses prior to the closing of the transaction.
The transaction is expected to be completed in the fall of 2000.
Either party may terminate the Amended Agreement under certain
circumstances, including if the exchange has not been consummated on or
before December 31, 2000; provided that if certain conditions have not
been satisfied on December 31, 2000, but all other conditions have been
satisfied or waived then such date shall be June 30, 2001. In the event
that FPC or the Company terminate the Amended Agreement in certain
limited circumstances, FPC would be required to pay the Company a
termination fee of $150 million, plus the Company's reasonable
out-of-pocket expenses which are not to exceed $25 million in the
aggregate.
On January 31, 2000, applications were filed with the NRC seeking
approval of the change in control of FPC that will result from the
share exchange. On February 3, 2000, CP&L Energy filed an application
with the NCUC for authorization of the share exchange with FPC and the
issuance of common stock in connection with the transaction. On
February 3, 2000, CP&L Energy and FPC filed a joint application with
the FERC requesting approval of the share exchange. On March 14, 2000,
CP&L Energy and FPC filed an application with the SEC requesting
approval of the share exchange under the Public Utility Holding Company
Act. The Company cannot predict the outcome of these matters.
3. FINANCIAL INFORMATION BY BUSINESS SEGMENT
-----------------------------------------
The Company provides services through the following business segments:
electric, natural gas and other.
The electric segment generates, transmits, distributes and sells
electric energy in portions of North and South Carolina. Electric
operations are subject to the rules and regulations of the FERC, the
NCUC and the Public Service Commission of South Carolina (SCPSC).
The natural gas segment transmits, distributes and sells gas in
portions of North Carolina. Gas operations are subject to the rules and
regulations of the NCUC.
The other segment primarily includes telecommunication services, energy
management services, propane and miscellaneous non-regulated
activities.
For reportable segments presented in the accompanying table, segment
earnings (losses) before taxes include intersegment sales accounted for
at prices representative of unaffiliated party transactions.
8
<PAGE>
(in thousands)
<TABLE>
<CAPTION>
NATURAL SEGMENT
ELECTRIC GAS OTHER ELIMINATIONS TOTALS
==================================================================================================================
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED 3/31/00
Revenues
Unaffiliated $779,908 $71,968 $25,134 - $877,010
Intersegment - 130 8,401 (8,401) 130
-------------------------------------------------------------------------
Total Revenues $779,908 $72,098 $33,535 $(8,401) $877,140
Depreciation and Amortization $127,804 $4,685 $5,762 - $138,251
Net Interest Charges $50,652 $1,714 $337 $(1,899) $50,804
Earnings(Losses) Before Taxes $147,160 $14,386 $(19,327) $(18) $142,201
Total Segment Assets $8,558,136 $542,992 $388,706 $(110,089) $9,379,745
Capital and Investment
Expenditures $224,860 $9,812 $23,588 - $258,260
==================================================================================================================
<CAPTION>
NATURAL SEGMENT
ELECTRIC GAS OTHER ELIMINATIONS TOTALS
==================================================================================================================
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED 3/31/99
Revenues
Unaffiliated $738,559 - $24,343 - $762,902
Intersegment - - 6,561 (6,561) -
-------------------------------------------------------------------------
Total Revenues $738,559 - $30,904 $(6,561) $762,902
Depreciation and Amortization $120,556 - $4,101 - $124,657
Net Interest Charges $43,334 - $404 - $43,738
Earnings(Losses) Before Taxes $169,122 - $(17,727) $(24) $151,371
Total Segment Assets $8,216,225 - $251,148 $(2,421) $8,464,952
Capital and Investment
Expenditures $134,485 - $99,516 - $234,001
==================================================================================================================
<CAPTION>
RECONCILIATION OF FINANCIAL INFORMATION BY BUSINESS SEGMENT TO CONSOLIDATED FINANCIAL
STATEMENTS:
DEPRECIATION AND AMORTIZATION
(in thousands)
SEGMENT
PERIOD TOTALS ADJUSTMENTS CONSOLIDATED TOTALS
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Three months ended 3/31/00 $138,251 $(5,762) $132,489
Three months ended 3/31/99 $124,657 $(4,101) $120,556
---------------------------------------------------------------------------------------------------
<CAPTION>
NET INTEREST CHARGES
(in thousands)
SEGMENT
PERIOD TOTALS ADJUSTMENTS CONSOLIDATED TOTALS
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Three months ended 3/31/00 $50,804 $(337) $50,467
Three months ended 3/31/99 $43,738 $(404) $43,334
---------------------------------------------------------------------------------------------------
</TABLE>
Adjustments to depreciation and amortization expense consist of
expenses related to the other segments that are included in diversified
business operating expenses on a consolidated basis. Adjustments to
interest expense consist of expenses related to the other segments that
are included in other, net on a consolidated basis.
9
<PAGE>
4. FINANCING ACTIVITIES
--------------------
During the three months ended March 31, 2000, the Company retired
$47.25 million principal amount of non-interest bearing Promissory
Notes, Series 1993A, which matured on January 15, 2000 and $150 million
principal amount of First Mortgage Bonds, 6-1/8% Series, which matured
on February 1, 2000.
On April 11, 2000, the Company issued $300 million principal amount of
Senior Notes, 7.50% Series Due April 1, 2005.
5. NUCLEAR DECOMMISSIONING
-----------------------
In the Company's retail jurisdictions, provisions for nuclear
decommissioning costs are approved by the NCUC and the SCPSC and are
based on site-specific estimates that include the costs for removal of
all radioactive and other structures at the site. In the wholesale
jurisdiction, the provisions for nuclear decommissioning costs are
based on amounts agreed upon in applicable rate agreements. Based on
the site-specific estimates discussed below, and using an assumed
after-tax earnings rate of 7.75% and an assumed cost escalation rate of
4%, current levels of rate recovery for nuclear decommissioning costs
are adequate to provide for decommissioning of the Company's nuclear
facilities.
The Company's most recent site-specific estimates of decommissioning
costs were developed in 1998, using 1998 cost factors, and are based on
prompt dismantlement decommissioning, which reflects the cost of
removal of all radioactive and other structures currently at the site,
with such removal occurring shortly after operating license expiration.
These estimates, in 1998 dollars, are $281.5 million for Robinson Unit
No. 2, $299.6 million for Brunswick Unit No. 1, $298.7 million for
Brunswick Unit No. 2 and $328.1 million for the Harris Plant. The
estimates are subject to change based on a variety of factors
including, but not limited to, cost escalation, changes in technology
applicable to nuclear decommissioning and changes in federal, state or
local regulations. The cost estimates exclude the portion attributable
to North Carolina Eastern Municipal Power Agency (Power Agency), which
holds an undivided ownership interest in the Brunswick and Harris
nuclear generating facilities. Operating licenses for the Company's
nuclear units expire in the year 2010 for Robinson Unit No. 2, 2016 for
Brunswick Unit No. 1, 2014 for Brunswick Unit No. 2 and 2026 for the
Harris Plant.
The Financial Accounting Standards Board is proceeding with its project
regarding accounting practices related to obligations associated with
the retirement of long-lived assets, and a revised exposure draft of a
proposed accounting standard was issued during the first quarter of
2000. It is uncertain what effects this draft may ultimately have on
the Company's accounting for nuclear decommissioning and other
retirement costs.
6. COMMITMENTS AND CONTINGENCIES
-----------------------------
Contingencies existing as of the date of these statements are described
below. No significant changes have occurred since December 31, 1999,
with respect to the commitments discussed in Note 16 of the financial
statements included in the Company's 1999 Annual Report on Form 10-K.
Contingencies
1) Applicability of SFAS-71. As a regulated entity, the Company
is subject to the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of
Certain Types of Regulation" (SFAS-71). Accordingly, the
Company records certain assets and liabilities resulting from
the effects of the ratemaking process, which would not be
recorded under generally accepted accounting principles for
unregulated entities. The Company's ability to continue to
meet the criteria for application of SFAS-71 may be affected
in the future by competitive forces, deregulation and
restructuring in the electric utility industry. In the event
that SFAS-71 no longer applied to a separable portion of the
Company's operations, related regulatory assets and
liabilities would be eliminated unless an appropriate
regulatory recovery mechanism is provided. Additionally, these
factors could result in an impairment of electric utility
plant assets as determined pursuant to Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." The Company's net regulatory assets totaled $398 million
and $414 million as of March 31, 2000 and December 31, 1999,
respectively.
10
<PAGE>
2) Claims and Uncertainties.
a) The Company is subject to federal, state and local
regulations addressing air and water quality, hazardous and
solid waste management and other environmental matters.
Various organic materials associated with the production of
manufactured gas, generally referred to as coal tar, are
regulated under various federal and state laws. There are
several manufactured gas plant (MGP) sites to which the
electric utility and gas utility have some connection. In this
regard, both the electric utility and gas utility, along with
others, are participating in a cooperative effort with the
North Carolina Department of Environment and Natural
Resources, Division of Waste Management (DWM). The DWM has
established a uniform framework to address MGP sites. The
investigation and remediation of specific MGP sites will be
addressed pursuant to an Administrative Orders on Consent
(AOC) between the DWM and the potentially responsible party or
parties. Both the electric utility and gas utility have signed
an AOC to investigate and remediate certain sites. Both the
electric utility and the gas utility continue to identify
parties connected to individual MGP sites, and to determine
their relative relationship to other parties at those sites
and the degree to which they will undertake efforts with
others at individual sites. The Company does not expect the
costs associated with these sites to be material to the
consolidated results of operations or financial position of
the Company.
The Company is periodically notified by regulators such as the
North Carolina Department of Environment and Natural
Resources, the South Carolina Department of Health and
Environmental Control, and the U.S. Environmental Protection
Agency (EPA) of its involvement or potential involvement in
sites, other than MGP sites, that may require investigation
and/or remediation. Although the Company may incur costs at
the sites about which it has been notified, based upon the
current status of the sites, the Company does not expect those
costs to be material to the consolidated results of operations
or financial position of the Company.
The EPA has been conducting an enforcement initiative related
to a number of coal-fired utility power plants in an effort to
determine whether modifications at those facilities were
subject to New Source Review requirements or New Source
Performance Standards under the Clean Air Act. The Company has
been asked to provide information to the EPA as part of this
initiative and has cooperated in providing the requested
information. The EPA has initiated enforcement actions, which
may have potentially significant penalties, against other
companies that have been subject to this initiative. The
Company cannot predict the outcome of this matter.
The EPA published a final rule approving petitions under
section 126 of the Clean Air Act which requires certain
sources to make reductions in nitrogen oxide emissions by
2003. The Company's fossil-fueled electric generating plants
are included in these petitions. The Company and other states
are participating in litigation challenging the EPA's action.
The Company cannot predict the outcome of this matter.
b) As required under the Nuclear Waste Policy Act of 1982, the
Company entered into a contract with the U.S. Department of
Energy (DOE) under which the DOE agreed to begin taking spent
nuclear fuel by no later than January 31, 1998. All similarly
situated utilities were required to sign the same standard
contract.
In April 1995, the DOE issued a final interpretation that it
did not have an unconditional obligation to take spent nuclear
fuel by January 31, 1998. In Indiana & Michigan Power v. DOE,
the Court of Appeals vacated the DOE's final interpretation
and ruled that the DOE had an unconditional obligation to
begin taking spent nuclear fuel. The Court did not specify a
remedy because the DOE was not yet in default.
After the DOE failed to comply with the decision in Indiana &
Michigan Power v. DOE, a group of utilities (including the
Company) petitioned the Court of Appeals in Northern States
Power (NSP) v. DOE, seeking an order requiring the DOE to
begin taking spent nuclear fuel by January 31, 1998. The DOE
took the position that their delay was unavoidable, and the
DOE was excused from performance under the terms and
conditions of the contract. The Court of Appeals did not order
the DOE to begin taking spent nuclear fuel, stating that the
utilities had a potentially adequate remedy by filing a claim
for damages under the contract.
After the DOE failed to begin taking spent nuclear fuel by
January 31, 1998, a group of utilities (including the Company)
filed a motion with the Court of Appeals to enforce the
mandate in NSP v. DOE. Specifically, the utilities asked the
Court to permit the utilities to escrow their waste fee
payments, to order the DOE not to use the waste fund to pay
damages to the utilities, and to order the DOE to establish a
schedule for disposal of spent nuclear fuel. The Court denied
this motion based primarily on the grounds that a review of
the matter was premature, and that some of the requested
remedies fell outside of the mandate in NSP v. DOE.
11
<PAGE>
Subsequently, a number of utilities each filed an action for
damages in the Court of Claims and before the Court of
Appeals. The Company is in the process of evaluating whether
it should file a similar action for damages. In NSP v. U.S.,
the Court of Claims decided that NSP must pursue its
administrative remedies instead of filing an action in the
Court of Claims. NSP has filed an interlocutory appeal to the
Court of Appeals based on NSP's position that the Court of
Claims has jurisdiction to decide that matter. A group of
utilities (including the Company) has submitted an amicus
brief in support of NSP's position.
The Company also continues to monitor legislation that has
been introduced in Congress which might provide some limited
relief. The Company cannot predict the outcome of this matter.
With certain modifications and additional approval by the NRC,
the Company's spent fuel storage facilities will be sufficient
to provide storage space for spent fuel generated on the
Company's system through the expiration of the current
operating licenses for all of the Company's nuclear generating
units. Subsequent to the expiration of these licenses, dry
storage may be necessary. The Company has initiated the
process of obtaining the additional NRC approval.
c) In the opinion of management, liabilities, if any, arising
under other pending claims would not have a material effect on
the financial position and results of operations of the
Company.
7. SUBSEQUENT EVENT
----------------
On May 3, 2000, the Company signed a letter of intent with Bain
Capital, Inc. (Bain), a private equity fund, to form a new company.
Under the agreement, the Company and Bain will each invest $50 million
of new equity, in addition to an investment by the Company of the
Application Service Provider assets of Interpath Communications, Inc.
Upon completion of the transaction, the Company will own 35% and Bain
will own 65% of the newly formed company.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000,
AS COMPARED WITH THE CORRESPONDING PERIOD ONE YEAR EARLIER
----------------------------------------------------------
Business segment earnings and the factors affecting them are discussed
below.
Electric
--------
The fluctuations in electric operating revenues for the three months
ended March 31, 2000 as compared to last year were affected by the
following factors (in millions):
Customer growth/changes in usage patterns* $ 29
Industrial Sales 7
Weather 5
Price (6)
Sales to Power Agency 5
Sales to other utilities 1
----
Total $ 41
====
*Customer growth/changes in usage patterns excludes
industrial customers.
The increase in customer growth/changes in usage patterns component of
revenues reflects continued growth in the number of customers served by
the Company and increased sales to all customer classes. Industrial
sales experienced an overall increase primarily related to the textile
industry, while continuing to be negatively affected by the downturn in
the chemical industry. The increase in the weather component of
revenues is the result of favorable temperatures in the current period
compared to the corresponding prior period. The price-related decrease
is due to capacity pricing changes between the Company and the North
Carolina Electric Membership Corporation that took effect January 1,
2000, and the effects of real-time pricing rate participation by
industrial customers. The increase in revenue related to sales to Power
Agency is due to more favorable temperatures and to the decreased
availability of generating units that are jointly owned by the Company
and Power Agency.
The increase in fuel used for electric generation is primarily due to
an increase in generation and deferred fuel adjustments.
Purchased power decreased primarily due to the expiration in mid-1999
of the Company's long-term purchase power agreement with Duke Energy
Other operation and maintenance expense increased during the three
months ended March 31, 2000 due to restoration costs associated with
the severe winter storm and record breaking snowfall in January, the
timing of plant outages, increased general and administrative expenses
and the effects of emission allowances which the Company began to
expense in January 2000. These allowances were acquired to meet the
Clear Air Act emission requirements.
Natural Gas
-----------
On July 15, 1999, the Company completed the acquisition of North
Carolina Natural Gas Corporation (NCNG), now operating as a wholly
owned subsidiary. The acquisition was accounted for as a purchase and,
accordingly, the operating results of NCNG have been included in the
Company's financial results since the date of acquisition. Natural gas
revenues totaled $72.1 million, while gas purchased for resale totaled
$43.9 million and other operation and maintenance expenses totaled $7.5
million. NCNG's natural gas operations contributed $15.3 million of
operating income.
Other
-----
The change in operating revenues of diversified business operations was
due to several factors. Revenues decreased due to the sale, in
mid-1999, of SRS's lighting division. Operating revenues related to
SRS's continuing business increased, and revenues in the current period
include the results of NCNG's diversified operations, primarily its
propane business. Operating expenses increased primarily due to the
business expansion program at Interpath and the addition of NCNG's
diversified operations. This increase was partially offset by a decline
in SRS's expenses due to the sale of the lighting division and improved
operational performance.
13
<PAGE>
MATERIAL CHANGES IN LIQUIDITY AND CAPITAL RESOURCES
FOR THE THREE MONTHS ENDED MARCH 31, 2000
-----------------------------------------
Cash Flow and Financing
-----------------------
ISSUANCES OF BONDS, PREFERRED STOCK AND DEBENTURES
--------------------------------------------------
On April 11, 2000, the Company issued $300 million principal amount of
Senior Notes, 7.50% Series Due April 1, 2005. The net proceeds from the
issuance were used to reduce the outstanding balance of commercial
paper and other short-term indebtedness, and for general corporate
purposes.
REDEMPTIONS/RETIREMENTS OF BONDS, PREFERRED STOCK AND DEBENTURES
----------------------------------------------------------------
i. The retirement on January 15, 2000 of $47.25 million principal
amount of non-interest bearing Promissory Notes, Series 1993A,
which matured on that date.
ii. The retirement on February 1, 2000 of $150 million principal
amount of First Mortgage Bonds, 6-1/8% Series, which matured on
that date.
CREDIT FACILITIES
-----------------
As of March 31, 2000, the Company's revolving credit facilities totaled
$750 million, all of which are long-term agreements supporting its
commercial paper borrowings and other short-term indebtedness. The
Company is required to pay minimal annual commitment fees to maintain
its credit facilities. Consistent with management's intent to maintain
its commercial paper, pollution control revenue refunding bonds
(pollution control bonds) and other short-term indebtedness on a
long-term basis, and as supported by its long-term revolving credit
facilities, the Company included in long-term debt commercial paper,
pollution control bonds and other short-term indebtedness of $750
million at March 31, 2000 and December 31, 1999.
CREDIT RATINGS
--------------
The Company's First Mortgage Bonds are currently rated "A2" by Moody's
Investors Service, "A" CreditWatch with negative implications by
Standard and Poor's and "A+" Rating Watch-Down by Duff and Phelps.
Moody's Investors Service, Standard and Poor's and Duff and Phelps have
rated the Company's commercial paper and extendible notes "P-1", "A-1"
and "D-1", respectively. Moody's Investors Service and Standard and
Poor's have rated the Company's extendible commercial notes "P-1" and
"A-1", respectively.
OTHER MATTERS
-------------
Florida Progress Corporation
----------------------------
The Company, Florida Progress Corporation (FPC), a Florida corporation,
and CP&L Energy, Inc. (CP&L Energy), a North Carolina corporation and
wholly owned subsidiary of the Company, formerly known as CP&L
Holdings, Inc. entered into an Amended and Restated Agreement and Plan
of Share Exchange dated as of August 22, 1999, amended and restated as
of March 3, 2000 (the "Amended Agreement").
Under the terms of the Amended Agreement, all outstanding shares of
common stock, no par value, of FPC common stock would be acquired by
CP&L Energy in a statutory share exchange with an approximate value of
$5.0 billion, which is subject to change based on CP&L Energy's stock
price and on the value of the contingent value obligations (CVO)
discussed below. Each share of FPC common stock, at the election of the
holder, will be exchanged for (i) $54.00 in cash and one CVO, or (ii)
the number of shares of common stock, no par value, of CP&L Energy
equal to the ratio determined by dividing $54.00 by the average of the
closing sale price per share of CP&L Energy common stock (Final Stock
Price), as reported on the New York Stock Exchange composite tape for
the twenty consecutive trading days ending with the fifth trading day
immediately preceding the closing date for the exchange, and one CVO,
or (iii) a combination of cash and CP&L Energy common stock, and one
CVO; provided, however, that shareholder elections shall be subject to
allocation and proration to achieve a mix of the aggregate exchange
consideration that is 65% cash and 35% common stock. The number of
shares of CP&L Energy common stock that will be issued as stock
consideration will vary if the Final Stock Price is within a range of
$37.13 to $45.39, but not outside that range. Thus, the maximum number
of shares of CP&L Energy common stock into which one share of FPC
common stock could be exchanged would be 1.4543 and the minimum would
be 1.1897.
14
<PAGE>
FPC shareholders will receive one CVO for each share of FPC stock
owned. Each CVO will represent the right to receive contingent payments
that may be made by CP&L Energy based on certain cash flows that may be
derived from future operations of four synthetic fuel plants currently
owned by FPC. In conjunction with this proposed share exchange, CP&L
Energy plans to issue debt to fund the cash portion of the exchange.
The transaction has been approved by the Boards of Directors of FPC,
the Company and CP&L Energy. Consummation of the exchange is subject to
the satisfaction or waiver of certain closing conditions including,
among others, the approval by the shareholders of FPC and the approval
of the issuance of CP&L Energy common stock in the exchange by the
shareholders of the Company or CP&L Energy; the approval or regulatory
review by the Federal Energy Regulatory Commission (FERC), the SEC, the
Nuclear Regulatory Commission (NRC), the North Carolina Utilities
Commission (NCUC), and certain other federal and state regulatory
bodies; the expiration or early termination of the waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976; and other
customary closing conditions. In addition, FPC's obligation to
consummate the exchange is conditioned upon the Final Stock Price being
not less than $30.00. Both the Company and FPC have agreed to certain
undertakings and limitations regarding the conduct of their respective
businesses prior to the closing of the transaction. The transaction is
expected to be completed in the fall of 2000.
Either party may terminate the Amended Agreement under certain
circumstances, including if the exchange has not been consummated on or
before December 31, 2000; provided that if certain conditions have not
been satisfied on December 31, 2000, but all other conditions have been
satisfied or waived then such date shall be June 30, 2001. In the event
that FPC or the Company terminate the Amended Agreement in certain
limited circumstances, FPC would be required to pay the Company a
termination fee of $150 million, plus the Company's reasonable
out-of-pocket expenses which are not to exceed $25 million in the
aggregate.
On January 31, 2000, applications were filed with the NRC seeking
approval of the change in control of FPC that will result from the
share exchange. On February 3, 2000, CP&L Energy filed an application
with the NCUC for authorization of the share exchange with FPC and the
issuance of common stock in connection with the transaction. On
February 3, 2000, CP&L Energy and FPC filed a joint application with
the FERC requesting approval of the share exchange. On March 14, 2000,
CP&L Energy and FPC filed an application with the SEC requesting
approval of the share exchange under the Public Utility Holding Company
Act. The Company cannot predict the outcome of these matters.
Competition
-----------
WHOLESALE COMPETITION
---------------------
To assist in the development of wholesale competition, the FERC, in
1996, issued standards for wholesale wheeling of electric power through
its rules on open access transmission and stranded costs and on
information systems and standards of conduct (Orders 888 and 889). The
rules require all transmitting utilities to have on file an open access
transmission tariff, which contains provisions for the recovery of
stranded costs and numerous other provisions that could affect the sale
of electric energy at the wholesale level. The Company filed its open
access transmission tariff with the FERC in mid-1996. Shortly
thereafter, Power Agency and other entities filed protests challenging
numerous aspects of the Company's tariff and requesting that an
evidentiary proceeding be held. The FERC set the matter for hearing and
set a discovery and procedural schedule. In July 1997, the Company
filed an offer of settlement in this matter. The administrative law
judge certified the offer to the full FERC in September 1997. The offer
is pending before the FERC. In February 2000, the FERC issued a basket
order for several utilities including the Company to file a compliance
filing stating whether there were any remaining undisputed issues
surrounding the Company's open access transmission tariff. On May 1,
2000, the Company made the compliance filing setting forth the
remaining undisputed issues and a plan for settling those issues. The
Company will make an additional compliance filing on June 8, 2000 to
report the status of negotiations with the remaining intervenors. The
Company cannot predict the outcome of this matter.
On December 20, 1999, the FERC issued a rule on Regional Transmission
Organizations (RTO) that sets forth four minimum characteristics and
eight functions for transmission entities, including independent system
operators and transmission companies, to become FERC-approved RTOs. The
rule states that public utilities that own, operate or control
interstate transmission facilities must file by October 15, 2000,
either a proposal to participate in an RTO or an alternative filing
describing efforts and plans to participate in an RTO. The Company
plans to participate in an RTO and anticipates complying with this
filing requirement.
15
<PAGE>
NORTH CAROLINA ACTIVITIES
-------------------------
On April 3, 2000, the 29-member commission established in 1997 by the
North Carolina General Assembly to evaluate the future of electric
service in North Carolina, unanimously approved recommendations to the
General Assembly regarding electricity deregulation in North Carolina.
Included among these recommendations are the following: (1) full
competition should begin no later than January 1, 2006; (2) up to 50
percent of each power supplier's customer load, equally proportioned
among customer classes, should be allowed to choose an alternative
electric supplier as of January 1, 2005; (3) the initial phase of
stranded cost recovery, accomplished through a rate freeze at current
rates, should last until December 31, 2004; (4) the North Carolina
Utilities Commission (NCUC) should establish rates for the year 2005
and establish any remaining stranded cost recovery charges; and (5) for
any investor-owned utilities with stranded cost recovery after December
31, 2004, the NCUC should conduct a one-time true-up of remaining
stranded costs by July 1, 2007, at which time the NCUC may
prospectively adjust the continuing level of stranded cost recovery, as
appropriate. The study commission did not make any recommendation
concerning the assets or indebtedness of the municipal power agencies
in North Carolina. The study commission is expected to meet to approve
its report to the General Assembly, including these recommendations, in
May, and to submit its report during the General Assembly's 2000
session. The study commission will recommend specific legislation to
the 2001 General Assembly, and where necessary, the 2003 General
Assembly, to address the above recommendations as well as other issues,
including consumer protection, the environment and alternative energy,
and taxation. The Company cannot predict the outcome of this matter.
FEDERAL ACTIVITIES
------------------
A draft bill regarding electric industry restructuring passed the House
Commerce Subcommittee on October 27, 1999, and is now pending before
the full Commerce Committee. The Senate Energy & Natural Resources
Committee held a series of hearings in April on electric restructuring
issues. The chairman of the committee has announced his intention to
begin markup of a bill in May, in an effort to craft a bill from the
various bills introduced to date. The chairman has indicated his
intention to report a bill by the July 4 recess. The Company cannot
predict the outcome of this matter.
COMPANY ACTIVITIES
-------------------
In December 1998, the Company entered into an agreement to purchase all
of the output of a combustion turbine project to be built, owned and
operated by Broad River Energy, LLC (BRE), in Cherokee County, South
Carolina. In conjunction with this agreement, the Company agreed to
provide bridge financing to BRE under a Financing Term Sheet. In March
2000, the Financing Term Sheet agreement was settled upon the Company's
receipt of final payment from BRE.
In October 1999, the Company and the Albemarle-Pamlico Economic
Development Corporation (APEC) announced their intention to build an
850-mile, $197.5 million, natural gas transmission and distribution
system to 14 currently unserved counties in eastern North Carolina. The
Company will operate both the transmission and distribution systems,
and APEC will help ensure that the new facilities are built in the most
advantageous locations to promote development of the economic base in
the region. In conjunction with this proposal, the Company and APEC
filed a joint request with the NCUC for $186 million of a $200 million
state bond package established for natural gas infrastructure. If
granted, these funds will be used to pay for the portion of the project
that likely could not be recovered from future gas customers through
rates. On April 10, 2000, the Company and APEC executed an operating
agreement creating Eastern North Carolina Natural Gas, LLC, a limited
liability company, which will be the local distribution natural gas
company serving the 14 counties in question. CP&L and APEC will be the
joint owners. The operations of Eastern North Carolina Natural Gas, LLC
will be subject to the rules and regulations of the NCUC. On April 12,
2000, the NCUC held hearings on the joint funding request filed by the
Company and APEC. An order is expected in mid-2000. The Company cannot
predict the outcome of this matter.
On April 7, 2000, the Company announced the execution of an agreement
to purchase 75 million cubic feet per day of firm gas transportation to
be provided through the Williams Energy's Sundance expansion project on
its Transcontinental Interstate Pipeline. This service will be used,
beginning in mid-2002, to supply the 30-inch Sandhills natural gas
pipeline, which the Company announced in December 1999 it would build
in North Carolina from Iredell County to Richmond County. The agreement
is contingent upon FERC approval and both parties can terminate if
Transco fails to commence service by April 3, 2003. The Company cannot
predict the outcome of this matter.
In April 2000, the Company signed a 5-1/2 year agreement with Duke
Power Co., whereby the Company will provide peaking generation
capacity. The Company will provide 300 MW of capacity for the first 11
months of the contract, beginning July 1, 2000, and will provide 150 MW
for the remainder of the contract.
16
<PAGE>
Transition to Holding Company Structure
---------------------------------------
The Company is in the process of converting to a holding company
structure in which the Company would become a subsidiary of a newly
formed holding company. This conversion will offer certain advantages
as the Company continues to confront the rapidly changing environment
facing electric utilities. The holding company structure would allow
greater organizational flexibility, including a clearer separation of
regulated businesses from each other and from unregulated businesses
such as energy services, telecommunications and electric generation
projects for wholesale markets. The ability to conduct financing
activities at the holding company level without the need for state
regulatory approvals will enable the Company to satisfy financing needs
more quickly and efficiently.
The Company's shareholders approved the contemplated holding company
structure on October 20, 1999. The transaction also requires the
approval of various regulatory authorities. Upon conversion to a
holding company structure, each share of the Company's common stock
will automatically be exchanged for one share of common stock of the
new holding company.
On September 15, 1999, the Company filed an application with the NRC
for consent to indirectly transfer control of its nuclear plant
operating licenses to the newly formed holding company. This
application was approved on December 31, 1999.
On October 15, 1999, the Company filed an application with the NCUC to
approve the transfer of ownership of the Company, Interpath and NCNG to
the newly formed holding company. Action is expected by the end of the
second quarter of 2000.
On October 18, 1999, the Company filed an application with the SEC for
approval which allows the holding company to acquire voting securities
resulting in control over the Company and NCNG. Action is expected by
the end of the second quarter of 2000.
On October 20, 1999, the Company filed an application with the SCPSC to
approve the transfer of the Company and Interpath to the newly formed
holding company. The SCPSC issued an order approving the application on
March 6, 2000.
On October 25, 1999, the Company filed an application with the FERC for
approval of the proposed reorganization of the Company related to the
establishment of the new holding company. This application was approved
on December 23, 1999.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
-------------------------------------------------------------------
The Company has certain market risks inherent in the Company's
financial instruments, which arise from transactions entered into in
the normal course of business. The Company's primary exposures are
changes in interest rates with respect to long-term debt and commercial
paper, and fluctuations in the return on marketable securities with
respect to its nuclear decommissioning trust funds. The Company's
exposure to return on marketable securities for the decommission trust
funds has not changed materially since December 31, 1999. The exposure
to changes in interest rates from the Company's long-term debt and
commercial paper at March 31, 2000 was not materially different than at
December 31, 1999. The total fixed rate debt at March 31, 2000 was
$1.726 billion, with an average interest rate of 7.12%. The total
commercial paper and extendible notes outstanding at March 31, 2000 was
$375 million, with an average interest rate of 6.07%, and $500 million,
with an average interest rate of 6.26%, respectively.
17
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
--------------------------
Legal aspects of certain matters are set forth in Part I, Item 1 Notes
to the Consolidated Interim Financial Statements, Note 6: Commitments
and Contingencies.
Item 2. Changes in Securities and Use of Proceeds
--------------------------------------------------
RESTRICTED STOCK AWARDS:
(a) Securities Delivered. On January 28, 2000, March 21, 2000 and May
8, 2000, 5,100, 40,000 and 32,700 restricted shares, respectively of
the Company's Common Shares were delivered to certain key employees
pursuant to the terms of the Company's 1997 Equity Incentive Plan
(Plan), which was approved by the Company's shareholders on May 7,
1997. Section 9 of the Plan provides for the granting of Restricted
Stock by the Personnel, Executive Development and Compensation
Committee (currently the Committee on Organization and Compensation),
(the Committee) to key employees of the Company. The Common Shares
delivered pursuant to the Plan were acquired in market transactions
directly for the accounts of the recipients and do not represent newly
issued shares of the Company.
(b) Underwriters and Other Purchasers. No underwriters were used in
connection with the delivery of Common Shares described above. The
Common Shares were delivered to certain key employees of the Company.
The Plan defines "key employees" as an officer or other employee of the
Company who, in the opinion of the Committee, can contribute
significantly to the growth and profitability of, or perform services
of major importance to, the Company.
(c) Consideration. The Common Shares were delivered to provide an
incentive to the employee recipients to exert their utmost efforts on
the Company's behalf and thus enhance the Company's performance while
aligning the employee's interest with those of the Company's
shareholders.
(d) Exemption from Registration Claimed. The Common Shares described in
this Item were delivered on the basis of an exemption from registration
under Section 4(2) of the Securities Act of 1933. Receipt of the Common
Shares required no investment decision on the part of the recipients.
All award decisions were made by the Committee, which consists entirely
of non-employee directors.
STRATEGIC RESOURCE SOLUTIONS CORP.:
(a) Securities Delivered. On April 17, 2000, the Company issued 12,545
shares of its Common Stock (Common Shares) in connection with the June
5, 1997 merger of Knowledge Builders, Inc. (KBI) into a wholly-owned
subsidiary of the Company (CaroCapital, Inc., a North Carolina
Enterprise Corporation since renamed Strategic Resource Solutions
Corp.) Of these, 11,603 shares were issued as post-closing merger
consideration to the former holders of KBI common stock for KBI shares
that were canceled in the merger. The remaining 942 shares were issued
as incentive compensation payments based upon the 1999 performance of
SRS and its subsidiaries arising under incentive compensation
agreements entered into pursuant to the merger with KBI.
(b) Underwriters and Other Purchasers. No underwriters were used in
connection with this issuance of Common Shares. The Common Shares were
issued (A) as merger consideration to former holders of KBI common
stock whose KBI shares were canceled in the merger and (B) as incentive
compensation payments to certain SRS employees based upon the 1999
performance of SRS.
(c) Consideration. The consideration for 11,603 of the Common Shares
issued was the cancellation of former shares of KBI in the merger. The
other 942 Common Shares were issued as compensation pursuant to certain
incentive compensation award agreements.
(d) Exemption from Registration Claimed. The Common Shares described
above were issued on the basis of an exemption from registration under
Section 4(2) of the Securities Act of 1933. The Common Shares were
issued to a limited number of persons and subjected to restrictions on
resale appropriate for private placements, and appropriate disclosure
was made to all persons to whom Common Shares were issued.
ACQUISITION OF CAROLINA ENVIRONMENTAL SYSTEMS, INC. AND PALMETTO
CONTROLS GROUP, INC.
(a) Securities Sold. On May 3, 2000, 69,617 shares of the Company's Common
Stock (Common Shares) that had recently been purchased in the open
market by the Company's wholly-owned subsidiary, Strategic Resource
Solutions Corp., a North Carolina Enterprise Corporation (SRS) were
delivered by SRS as part of the consideration for the purchase, on
April 14, 2000, of substantially all of the assets of Carolina
Environmental Systems, Inc. (CES) and Palmetto Controls Group, Inc
(Palmetto). In addition, within six months of the of the closing, SRS
is obligated to deliver to CES and Palmetto additional Common Shares
having a market value of $150,000, if certain financial performance
objectives for the transition period are met. Finally, SRS is obligated
to deliver to CES and Palmetto additional Common Shares having a market
value of $200,000 within a year after the closing, subject to claims or
reductions in the purchase price described in the provisions of the
asset purchase agreement that establish a contingency reserve of
$200,000 with which to pay such claims and reductions. These Common
Shares delivered, or to be delivered, by SRS pursuant to the asset
purchase agreement were or will be acquired in market transactions, and
do not represent newly-issued shares of the Company.
(b) Underwriters and Other Purchasers. No underwriters were used in
connection with the transactions identified above. CES and Palmetto
were the only recipients of the Common Shares.
(c) Consideration. The consideration for the Common Shares was the delivery
of certain assets of CES and Palmetto pursuant to the asset purchase
agreement.
(d) Exemption from Registration Claimed. The Common Shares described in
this Item were delivered on the basis of an exemption from registration
under Section 4(2) of the Securities Act of 1933. The Common Shares
were received by two corporations and are subject to restrictions on
resale typical for private placements. Appropriate disclosure was made
to the recipients of the Common Shares.
18
<PAGE>
Item 5. Other Information
--------------------------
SYNTHETIC FUEL PLANT
On April 25, 2000, the Company purchased a 90 percent ownership
interest in a synthetic fuel plant located at the Powell Mountain mine
site in Virginia. The synthetic fuel plant was previously wholly owned
by a subsidiary of Florida Progress Corporation. The Company is
currently in negotiations to purchase a 90 percent ownership interest
in a second plant.
INTERPATH AGREEMENTS
On May 3, 2000, the Company signed a letter of intent with Bain
Capital, Inc. (Bain), a private equity fund, to form a new company.
Under the agreement, the Company and Bain will each invest $50 million
of new equity, in addition to an investment by the Company of the
Application Service Provider assets of Interpath Communications, Inc.
Upon completion of the transaction, the Company will own 35% and Bain
will own 65% of the newly formed company.
On May 3, 2000, the Company also entered into a capacity sharing and
marketing agreement with Progress Telecom, a wholly owned fiber optic
based subsidiary of Florida Progress Corporation, utilizing the fiber
optic network assets of Interpath. Upon completion of the previously
announced merger agreement between the Company and Florida Progress
Corporation, the two fiber optic subsidiaries will be combined and will
operate as Progress Telecom.
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) See EXHIBIT INDEX
(b) Reports on Form 8-K filed during or with respect to the quarter:
The Company filed a Current Report on Form 8-K on April 20,
2000, detailing the April 11, 2000 issuance of $300 million
principal amount of Senior Notes, 7.50% Series Due April 1,
2005 under Item 5 of the Report. Exhibits related to the
issuance were listed under Item 7 of the Report.
19
<PAGE>
SIGNATURES
----------
Pursuant to 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.
CAROLINA POWER & LIGHT COMPANY
------------------------------------
(Registrant)
By /s/ Peter M. Scott III
-------------------------------------
Peter M. Scott III
Executive Vice President and
Chief Financial Officer
By /s/ Robert H. Bazemore, Jr.
-------------------------------------
Robert H. Bazemore, Jr.
Vice President and Controller
(Chief Accounting Officer)
Date: May 12, 2000
20
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
27 Financial Data Schedule
21
<PAGE>
EX-27.1
FINANCIAL DATA SCHEDULE
ARTICLE UT
LEGEND
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2000) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
MULTIPLIER 1,000
PERIOD-TYPE 3-MOS
FISCAL-YEAR-END DEC-31-2000
PERIOD-END MAR-31-2000
BOOK-VALUE PER-BOOK
TOTAL-NET-UTILITY-PLANT $6,834,050
OTHER-PROPERTY-AND-INVEST $510,765
TOTAL-CURRENT-ASSETS $884,020
TOTAL-DEFERRED-CHARGES $292,678
OTHER-ASSETS $858,232
TOTAL-ASSETS $9,379,745
COMMON $1,617,171
CAPITAL-SURPLUS-PAID-IN ($816)
RETAINED-EARNINGS $1,813,478
TOTAL-COMMON-STOCKHOLDERS-EQ $3,429,833
PREFERRED-MANDATORY $0
PREFERRED $59,376
LONG-TERM-DEBT-NET $3,028,807
SHORT-TERM-NOTES $180,140
LONG-TERM-NOTES-PAYABLE $0
COMMERCIAL-PAPER-OBLIGATIONS $0
LONG-TERM-DEBT-CURRENT-PORT $0
PREFERRED-STOCK-CURRENT $0
CAPITAL-LEASE-OBLIGATIONS $0
LEASES-CURRENT $0
OTHER-ITEMS-CAPITAL-AND-LIAB $2,681,589
TOT-CAPITALIZATION-AND-LIAB $9,379,745
GROSS-OPERATING-REVENUE $877,140
INCOME-TAX-EXPENSE $56,198
OTHER-OPERATING-EXPENSES $692,030
TOTAL-OPERATING-EXPENSES $748,228
OPERATING-INCOME-LOSS $128,912
OTHER-INCOME-NET $7,558
INCOME-BEFORE-INTEREST-EXPEN $136,470
TOTAL-INTEREST-EXPENSE $50,467
NET-INCOME $86,003
PREFERRED-STOCK-DIVIDENDS ($742)
EARNINGS-AVAILABLE-FOR-COMM $85,261
COMMON-STOCK-DIVIDENDS $79,129
TOTAL-INTEREST-ON-BONDS $33,869
CASH-FLOW-OPERATIONS $484,032
EPS-BASIC 0.56
EPS-DILUTED 0.56
