FS-9
UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL INFORMATION
On June 19, 2000, Carolina Power & Light common stock was exchanged for
CP&L Energy common stock on a one-for-one basis. The following pro forma
financial information should be read in conjunction with the consolidated
financial statements including the notes thereto of CP&L Energy, Carolina Power
& Light and Florida Progress that are incorporated by reference in the Form U-1.
The unaudited pro forma information is presented for illustration purposes only
in accordance with the assumptions set forth below; is not necessarily
indicative of the operating results or financial position that would have
occurred had the share exchange been consummated; nor is it necessarily
indicative of future operating results or financial position of the combined
enterprise. The unaudited pro forma combined financial information does not
contain any adjustments to reflect cost savings or other benefits anticipated as
a result of the share exchange and integration of the companies, nor does it
contain anticipated integration costs. In addition, the unaudited pro forma
combined financial information does not reflect the potential effects of the
contingent value obligations, described elsewhere in the Form U-1, due to the
uncertainties about what amounts, if any, will be paid under the contingent
value obligation agreement.
The following unaudited pro forma combined condensed balance sheet
presents, under the purchase method of accounting for business combinations, the
combined consolidated balance sheets of CP&L Energy and Florida Progress as of
June 30, 2000, giving effect to the share exchange as if it had been consummated
on that date. If and when the share exchange is consummated, it is possible that
other changes may be required to the combined financial statements to implement
the purchase method of accounting for this combination.
The following unaudited pro forma combined condensed statement of income
presents, under the purchase method of accounting for business combinations, the
combined consolidated statements of income of CP&L Energy and Florida Progress
for the twelve months ended June 30, 2000, giving effect to the share exchange
as if it had been consummated on July 1, 1999, using purchase accounting
adjustments calculated as of June 30, 2000.
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 2000
<TABLE>
<CAPTION>
CP&L FLORIDA PROGRESS PRO FORMA PRO FORMA
(in millions) (AS REPORTED)(2) (AS RECLASSIFIED)(2) ADJUSTMENTS COMBINED(1)
---------------- -------------------- ------------ ------------
ASSETS
<S> <C> <C> <C> <C>
UTILITY PLANT
Utility plant, at cost $ 11,923.4 $ 7,007.2 $ - $ 18,930.6
Accumulated depreciation (5,246.2) (3,476.8) - (8,723.0)
Nuclear fuel, net of amortization 193.3 51.0 - 244.3
------------ ------------ ------------ ------------
Total Utility Plant, Net 6,870.5 3,581.4 - 10,451.9
------------ ------------ ------------ ------------
CURRENT ASSETS
Cash and cash equivalents 29.5 9.4 - 38.9
Accounts receivable, net 501.5 494.0 - 995.5
Inventory 272.5 462.3 - 734.8
Prepayments and other current assets 241.9 199.9 - 441.8
------------ ------------ ------------ ------------
Total Current Assets 1,045.4 1,165.6 - 2,211.0
------------ ------------ ------------ ------------
GOODWILL 341.7 169.1 3,118.6 (3) 3,629.4
DEFERRED DEBITS AND OTHER ASSETS 1,514.0 1,730.3 - 3,244.3
------------ ------------ ------------ ------------
TOTAL ASSETS $ 9,771.6 $ 6,646.4 $ 3,118.6 $ 19,536.6
============ ============ ============ ============
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock $ 1,747.6 $ 1,274.2 $ 403.1 (4b) $ 3,424.9
Other stockholders' equity 1,712.5 818.3 (818.3)(4b) 1,712.5
------------ ------------ ------------ ------------
Total common stock equity 3,460.1 2,092.5 (415.2) 5,137.4
Preferred stock - redemption not required 59.4 33.5 - 92.9
Company - obligated mandatorily
redeemable preferred securities - 300.0 - 300.0
Long-term debt, net 3,084.0 2,132.0 3,461.4 (5a) 8,677.4
------------ ------------ ------------ ------------
Total Capitalization 6,603.5 4,558.0 3,046.2 14,207.7
------------ ------------ ------------ ------------
CURRENT LIABILITIES
Accounts payable 269.3 291.1 41.4 (8) 601.8
Notes payable 114.6 226.0 - 340.6
Current portion of long-term debt 388.5 188.2 - 576.7
Other current liabilities 345.3 320.3 31.0 (8) 696.6
------------ ------------ ------------ ------------
Total Current Liabilities 1,117.7 1,025.6 72.4 2,215.7
------------ ------------ ------------ ------------
DEFERRED CREDITS AND OTHER LIABILITIES 2,050.4 1,062.8 - 3,113.2
------------ ------------ ------------ ------------
TOTAL CAPITALIZATION AND LIABILITIES $ 9,771.6 $ 6,646.4 $ 3,118.6 $ 19,536.6
============ ============ ============ ============
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Information.
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
CP&L FLORIDA PROGRESS PRO FORMA PRO FORMA
(in millions except per share data) (AS REPORTED)(2) (AS RECLASSIFIED)(2) ADJUSTMENTS COMBINED(1)
------------------- -------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Electric $ 3,224.7 $ 2,713.5 $ - $ 5,938.2
Natural gas 246.3 - - 246.3
Diversified businesses 130.3 1,378.5 - 1,508.8
------------ ------------ ------------ ------------
3,601.3 4,092.0 - 7,693.3
------------ ------------ ------------ ------------
OPERATING EXPENSES
Fuel, operation and maintenance 1,334.7 1,085.0 - 2,419.7
Purchased power and other 495.5 719.5 - 1,215.0
Gas purchases for resale 171.2 - - 171.2
Depreciation and amortization 520.5 351.3 74.9 (3c) 946.7
Diversified businesses 196.4 1,360.2 - 1,556.6
------------ ------------ ------------ ------------
Total operating expenses 2,718.3 3,516.0 74.9 6,309.2
------------ ------------ ------------ ------------
OPERATING INCOME 883.0 576.0 (74.9) 1,384.1
OTHER INCOME (EXPENSE) (7.8) 15.7 - 7.9
------------ ------------ ------------ ------------
INCOME BEFORE INTEREST CHARGES
AND INCOME TAXES 875.2 591.7 (74.9) 1,392.0
DISTRIBUTIONS ON COMPANY-OBLIGATED
MANDATORILY REDEEMABLE PREFERRED
SECURITIES - 21.3 - 21.3
INTEREST CHARGES, NET 195.4 177.4 259.6 (5b) 632.4
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 679.8 393.0 (334.5) 738.3
INCOME TAXES 261.7 35.9 (103.8) (7) 193.8
------------ ------------ ------------ ------------
NET INCOME $ 418.1 $ 357.1 $ (230.7) $ 544.5
============ ============ ============ ============
AVERAGE COMMON SHARES OUTSTANDING
Basic 152.7 98.5 202.8
Diluted 153.0 98.7 203.3
BASIC EARNINGS PER COMMON SHARE $ 2.74 $ 3.63 $ 2.68
============ ============ ============
DILUTED EARNINGS PER COMMON SHARE $ 2.73 $ 3.62 $ 2.68
============ ============ ============
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Information.
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(1) THE SHARE EXCHANGE
The share exchange will be accounted for under the purchase method of
accounting for business combinations. The unaudited pro forma combined
condensed financial information does not give effect to any restructuring
costs, nor any potential cost savings or other benefits that could result
from the share exchange. CP&L Energy is in the process of developing its
plan to integrate the operations of Florida Progress. There were no
material intercompany transactions among CP&L Energy, Carolina Power &
Light and Florida Progress during the periods presented that require
elimination.
(2) RECLASSIFICATIONS
These columns represent historical results of operations and financial
position of the respective companies, in condensed formats. Certain
reclassifications have been made to Florida Progress' historical results to
conform with CP&L Energy's presentation. Immaterial reclassifications were
made to Florida Progress' income statement for the presentation of
allowance for funds used during construction. On the balance sheet, Florida
Progress' non-electric property, plant and equipment has been reclassified
to "Deferred Debits and Other Assets".
(3) PURCHASE PRICE ALLOCATION
The fair value of the consideration exchanged to acquire Florida Progress
common stock will be determined at the closing date and will be allocated
to the assets and liabilities of Florida Progress based on their estimated
fair values. A preliminary allocation of the purchase price has been
presented in the unaudited pro forma combined condensed financial
information in which the fair value of the identifiable net tangible assets
of Florida Progress is assumed to equal the net book value of such assets.
The excess of consideration over the fair value of the identifiable net
tangible assets has been preliminarily allocated to goodwill as follows (in
millions):
Consideration exchanged for Florida Progress common stock (a) $ 5,139.7
Plus: Estimated transaction costs (b) 17.4
---------
Total estimated purchase price 5,157.1
Less: Estimated fair value of Florida Progress' identifiable net
assets on June 30, 2000 1,869.4
---------
Total estimated goodwill $ 3,287.7
<PAGE>
In addition, goodwill was decreased by Florida Progress' historical goodwill of
$169.1 million, as required under the purchase accounting method.
(a) The estimated consideration and purchase price allocation used for pro
forma purposes are based on (1) 65% of the outstanding shares of
Florida Progress common stock being exchanged for $54 per share in
cash and (2) 35% of the outstanding shares of Florida Progress common
stock being exchanged for CP&L Energy common stock, with 1.4543 shares
of CP&L Energy common stock issued for each share of Florida Progress
common stock. As discussed more fully in Note 6 below, the exchange
ratio of 1.4543 corresponds to an average CP&L Energy share price of
$33.434. The estimated consideration does not reflect the potential
effects of the contingent value obligations, described elsewhere in
the Form U-1, due to the uncertainties about what amounts, if any,
will be paid under the contingent value obligation agreement. If these
effects were known, the estimated consideration, goodwill and goodwill
amortization would increase accordingly.
(b) Transaction costs primarily include investment banking fees and other
professional fees.
(c) A valuation of net assets has not been performed and, therefore, for
pro forma purposes, the fair value of the identifiable net tangible
assets of Florida Progress is assumed to equal the net book value of
such assets. A pro forma adjustment has been made for the twelve
months ended June 30, 2000 to reflect estimated amortization expense
on the goodwill resulting from the acquisition and to eliminate
Florida Progress' historical amortization of goodwill. Goodwill is
amortized over an estimated useful life of 40 years. If a portion of
goodwill were assigned to net assets that have lives less than 40
years, or if the estimated life of goodwill were less than 40 years,
pro forma goodwill amortization expense would increase, with a
corresponding decrease in pro forma earnings per share.
(4) STOCK CONSIDERATION
(a) In the share exchange, 65% of the outstanding shares of Florida
Progress common stock will be exchanged for cash consideration of
$54.00 per share. 35% of Florida Progress common stock will be
converted into a number of shares of CP&L Energy common stock based on
the exchange ratio to be determined in the manner described in Note 6
below. Based on the average closing price of CP&L Energy common stock
<PAGE>
on the New York Stock Exchange for the twenty trading day period ended
on June 23, 2000, which was $33.434, CP&L Energy would issue
approximately 50.196 million shares in the transaction for 35% of
Florida Progress common stock outstanding on June 30, 2000. The
unaudited pro forma net earnings per share reflect the
weighted-average number of shares of CP&L Energy common stock that
would have been outstanding if the share exchange had occurred at the
beginning of the period presented, with conversion of each Florida
Progress share not exchanged for cash into 1.4543 shares of CP&L
Energy common stock, as provided in the exchange agreement and
discussed in Note 6 below.
(b) Pro forma adjustments have been made as of June 30, 2000 to: (1)
reflect the issuance of approximately 50.196 million shares of CP&L
Energy common stock to be exchanged together with cash of
approximately $3.461 billion for all of the outstanding shares of
Florida Progress common stock (based on the number of shares of
Florida Progress common stock outstanding on June 30, 2000) and (2)
eliminate the shareholders' equity accounts of Florida Progress.
(5) CASH CONSIDERATION
(a) A pro forma adjustment has been made to reflect the approximate $3.461
billion cash consideration that CP&L Energy will use to fund the
purchase price of 65% of the Florida Progress common stock, assuming
such cash consideration was funded through the issuance of long-term
debt. The remaining exchange consideration was assumed to be comprised
of CP&L Energy common stock.
(b) A pro forma adjustment has been made to reflect increased interest
expense resulting from the issuance of approximately $3.461 billion of
long-term debt to fund part of the Florida Progress purchase price, as
if such issuance had occurred on July 1, 1999 and assuming a weighted-
average annual interest rate of 7.5%. That average interest rate
reflects the best estimate available for the debt facilities expected
to be issued in conjunction with the acquisition. If the average
interest rate changed by 1/8%, pro forma net income would change by
approximately $2.6 million on an annual basis.
(6) EXCHANGE RATIO
As provided for in the exchange agreement, Florida Progress shareholders
will be permitted to elect either CP&L Energy common stock or cash, with
the total cash consideration fixed at 65% percent and the total stock
consideration fixed at 35%. Shareholder elections will be prorated to the
extent necessary to maintain this mix of consideration. Under the exchange
agreement's collar mechanism, if CP&L Energy's average closing price per
<PAGE>
share for the twenty trading day period ending on the fifth trading day
prior to the share exchange is either higher than $45.39 or lower than
$37.13, the portion of the purchase price payable in CP&L Energy shares
would be determined based upon a fixed exchange ratio calculated at such
prices. Based upon the average closing price per share of CP&L Energy
common stock on the New York Stock Exchange for the twenty trading day
period ended on June 23, 2000 (which is calculated as if the share exchange
were on June 30, 2000) of $33.434, the fixed exchange ratio would be 1.4543
shares of CP&L Energy common stock for each share of Florida Progress
common stock not exchanged for cash (which is the maximum exchange ratio),
and CP&L Energy would issue approximately 50.196 million shares in this
transaction based on the number of shares of Florida Progress common stock
outstanding as of June 30, 2000. Any decrease in the exchange ratio will
cause a corresponding increase in the pro forma earnings per share amounts.
For example, the table below shows the pro forma combined earnings per
share amounts that would result from the minimum exchange ratio.
Twelve Months Ended
June 30, 2000
-------------------
Exchange ratio 1.189.7
---------
Basic and diluted earnings per share $ 2.81
(7) INCOME TAXES
A pro forma adjustment has been made for the twelve months ended June 30,
2000 to reflect the tax effect of the pro forma adjustments using CP&L
Energy's statutory tax rate of approximately 40%. Goodwill created by the
share exchange is nondeductible for tax purposes.
(8) CURRENT LIABILITIES
A pro forma adjustment has been made for accounts payable associated with
the transaction, such as investment banker fees, legal fees and other
professional fees. A pro forma adjustment also has been made to other
current liabilities for amounts due, under the long-term incentive plans
maintained by Florida Progress and its subsidiaries and under the Florida
Progress phantom stock plan for non-employee directors, upon a change in
control of Florida Progress. No adjustments have been made for severance
benefits that may be received by officers of Florida Progress in the event
they are terminated following a change in control. The potential amount of
these payments is set forth under "The Share Exchange - Interests of
Florida Progress Directors and Officers in the Share Exchange."
