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 September 30, 1999
------------------
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 . No X .
---- ----
As of November 15, 1999, 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 necessary approvals from various
regulatory authorities are expected by the end of the second quarter of 2000.
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.
Neither CP&L nor the Company can predict the outcome of this matter.
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. Neither CP&L nor the Company
can predict the outcome of this matter.
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 September 30, 1999. 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: 3/28/00 (Registrant)
By: /s/ Robert B. McGehee
---------------------
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 SEPTEMBER 30, 1999.
4
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 September 30, 1999
------------------
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 October 31, 1999: 159,589,744.
<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 and the outcome of the Company's Year 2000 compliance efforts.
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; ability of the Company and its
suppliers and customers to successfully address Year 2000 readiness issues;
weather conditions; catastrophic weather, such as hurricanes and flooding, and
the related-damage; market demand for energy; inflation; capital market
conditions; the success of the Company's diversified businesses; the proposed
merger with Florida Progress Corporation; 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
(NOT AUDITED BY INDEPENDENT AUDITORS)
SEPTEMBER 30, 1999
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands except per share amounts) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Electric $ 947,233 $ 946,188 $ 2,419,791 $ 2,434,635
Natural gas 48,041 - 48,041 -
Diversified businesses 29,482 18,103 82,648 40,093
- -----------------------------------------------------------------------------------------------------------
Total Operating Revenues 1,024,756 964,291 2,550,480 2,474,728
OPERATING EXPENSES
Fuel used in electric generation 161,495 162,925 443,377 442,630
Purchased power 120,938 113,323 303,121 301,375
Gas purchased for resale 38,026 - 38,026 -
Other operation and maintenance 183,576 144,033 491,362 466,433
Depreciation and amortization 126,447 121,377 368,287 366,987
Taxes other than on income 39,419 39,798 110,089 109,249
Harris Plant deferred costs, net 1,970 1,644 5,458 5,451
Diversified businesses 43,922 26,655 125,018 74,206
- -----------------------------------------------------------------------------------------------------------
Total Operating Expenses 715,793 609,755 1,884,738 1,766,331
- -----------------------------------------------------------------------------------------------------------
OPERATING INCOME 308,963 354,536 665,742 708,397
- -----------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest income 2,303 1,536 6,866 6,010
Other, net (16,447) (5,241) (31,693) (16,665)
- -----------------------------------------------------------------------------------------------------------
Total Other Income (Expense) (14,144) (3,705) (24,827) (10,655)
- -----------------------------------------------------------------------------------------------------------
INCOME BEFORE INTEREST CHARGES AND INCOME TAXES 294,819 350,831 640,915 697,742
- -----------------------------------------------------------------------------------------------------------
INTEREST CHARGES
Long-term debt 45,926 42,437 132,320 129,257
Other interest charges 3,060 3,050 8,863 8,380
Allowance for borrowed funds used during construction (2,976) (2,108) (7,768) (5,006)
- -----------------------------------------------------------------------------------------------------------
Net Interest Charges 46,010 43,379 133,415 132,631
- -----------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 248,809 307,452 507,500 565,111
INCOME TAXES 100,955 121,428 204,275 227,047
- -----------------------------------------------------------------------------------------------------------
NET INCOME 147,854 186,024 303,225 338,064
PREFERRED STOCK DIVIDEND REQUIREMENTS 742 742 2,225 2,225
- -----------------------------------------------------------------------------------------------------------
EARNINGS FOR COMMON STOCK $ 147,112 $ 185,282 $ 301,000 $ 335,839
- -----------------------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING 151,581 144,001 146,807 143,887
BASIC EARNINGS PER COMMON SHARE $ 0.97 $ 1.29 $ 2.05 $ 2.33
DILUTED EARNINGS PER COMMON SHARE $ 0.97 $ 1.28 $ 2.05 $ 2.33
DIVIDENDS DECLARED PER COMMON SHARE $ 0.500 $ 0.485 $ 1.500 $ 1.455
</TABLE>
See Supplemental Data and Notes to Consolidated Interim Financial Statements.
3
<PAGE>
<TABLE>
<CAPTION>
Carolina Power & Light Company
BALANCE SHEETS September 30 December 31
(In thousands) 1999 1998 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
UTILITY PLANT
Electric utility plant in service $ 10,571,157 $ 10,238,675 $ 10,280,638
Gas utility plant in service 352,571 - -
Accumulated depreciation (4,898,618) (4,436,187) (4,496,632)
- ------------------------------------------------------------------------------------------------------
Utility plant in service, net 6,025,110 5,802,488 5,784,006
Held for future use 11,984 11,886 11,984
Construction work in progress 475,967 255,005 306,866
Nuclear fuel, net of amortization 185,874 205,881 196,684
- ------------------------------------------------------------------------------------------------------
Total Utility Plant, Net 6,698,935 6,275,260 6,299,540
- ------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents 76,651 24,571 28,872
Accounts receivable 482,474 498,632 406,418
Taxes receivable - - 21,000
Inventory 230,498 201,565 224,701
Deferred fuel cost 79,623 42,240 42,647
Prepayments 16,051 10,769 18,446
Other current assets 146,603 65,191 58,772
- ------------------------------------------------------------------------------------------------------
Total Current Assets 1,031,900 842,968 800,856
- ------------------------------------------------------------------------------------------------------
DEFERRED DEBITS AND OTHER ASSETS
Income taxes recoverable through future rates 240,059 290,278 277,894
Abandonment costs 5,372 19,531 16,083
Harris Plant deferred costs 57,253 61,134 60,021
Unamortized debt expense 16,546 32,348 27,010
Nuclear decommissioning trust funds 358,707 298,280 310,702
Miscellaneous other property and investments 420,923 269,636 294,678
Goodwill 288,835 58,670 64,952
Other assets and deferred debits 176,593 213,827 195,670
- ------------------------------------------------------------------------------------------------------
Total Deferred Debits and Other Assets 1,564,288 1,243,704 1,247,010
- ------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 9,295,123 $ 8,361,932 $ 8,347,406
- ------------------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock equity $ 3,410,638 $ 2,957,164 $ 2,949,305
Preferred stock - redemption not required 59,376 59,376 59,376
Long-term debt, net 2,800,068 2,535,409 2,614,414
- ------------------------------------------------------------------------------------------------------
Total Capitalization 6,270,082 5,551,949 5,623,095
- ------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt 150,000 73,172 53,172
Accounts payable 314,748 224,491 265,163
Taxes accrued 90,503 124,659 -
Interest accrued 29,610 29,360 39,941
Dividends declared 78,579 72,206 74,400
Notes payable 100,000 - -
Other current liabilities 139,065 106,237 108,824
- ------------------------------------------------------------------------------------------------------
Total Current Liabilities 902,505 630,125 541,500
- ------------------------------------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes 1,642,591 1,671,677 1,678,924
Accumulated deferred investment tax credits 206,303 214,374 211,822
Other liabilities and deferred credits 273,642 293,807 292,065
- ------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 2,122,536 2,179,858 2,182,811
- ------------------------------------------------------------------------------------------------------
TOTAL CAPITALIZATION AND LIABILITIES $ 9,295,123 $ 8,361,932 $ 8,347,406
- ------------------------------------------------------------------------------------------------------
SCHEDULES OF COMMON STOCK EQUITY
(In thousands)
Common stock (without par value, authorized $ 1,745,521 $ 1,372,267 $ 1,374,773
200,000,000, issued and outstanding
159,589,744, 151,330,894 and 151,337,503
shares, respectively)
Unearned ESOP common stock (142,077) (154,356) (152,979)
Capital stock issuance expense (793) (790) (790)
Retained earnings 1,807,987 1,740,043 1,728,301
- ------------------------------------------------------------------------------------------------------
Total Common Stock Equity $ 3,410,638 $ 2,957,164 $ 2,949,305
- ------------------------------------------------------------------------------------------------------
</TABLE>
See Supplemental Data and Notes to Consolidated Interim Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
Carolina Power & Light Company
STATEMENTS OF CASH FLOWS Three Months Ended Nine Months Ended
September 30 September 30
(In thousands) 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 147,854 $ 186,024 $ 303,225 $ 338,064
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 150,114 145,655 437,019 435,702
Harris Plant deferred costs 1,088 704 2,767 2,591
Deferred income taxes 2,363 (8,193) (30,442) (44,795)
Investment tax credit (2,599) (2,551) (7,699) (7,654)
Deferred fuel credit (35,212) (16,326) (36,977) (21,610)
Net (increase) decrease in receivables, inventories,
prepaid expenses and other current assets (63,323) 11,216 (133,184) (129,176)
Net increase (decrease) in payables and accrued 38,664 29,217 94,096 123,228
expenses
Other 33,970 40,631 61,050 37,584
- --------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 272,919 386,377 689,855 733,934
- --------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Gross property additions (219,093) (124,512) (528,097) (296,310)
Nuclear fuel additions (22,145) (24,796) (54,718) (96,079)
Contributions to nuclear decommissioning trust (7,712) (7,720) (25,707) (25,659)
Net cash flow of company-owned life insurance program 182 119 (6,668) (2,405)
Investment in non-utility activities (32,517) (32,899) (139,062) (72,954)
- --------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (281,285) (189,808) (754,252) (493,407)
- --------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt - 2,789 400,970 3,790
Net increase (decrease) in short-term notes payable 100,000 - 100,000 -
Net increase (decrease) in commercial paper classified as
long-term debt 82,750 2,000 (62,000) 166,400
Retirement of long-term debt (111,608) (146,513) (113,291) (187,989)
Dividends paid on common and preferred stock (73,139) (70,620) (219,358) (211,960)
Other 3,835 10 3,979 (623)
- --------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 1,838 (212,334) 110,300 (230,382)
- --------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,528) (15,765) 45,903 10,145
INCREASE IN CASH FROM ACQUISITION (SEE NONCASH ACTIVITIES) 1,876 - 1,876 -
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 81,303 40,336 28,872 14,426
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 76,651 $ 24,571 $ 76,651 $ 24,571
- --------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period - interest $ 65,951 $ 57,868 $ 147,321 $ 148,995
income taxes $ 65,080 $ 67,232 $ 174,573 $ 194,026
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
NONCASH ACTIVITIES
In July 1999, the Company purchased all outstanding shares of North Carolina
Natural Gas Corporation (NCNG). In conjunction with the purchase of NCNG, the
Company issued approximately $360 million in common stock.
See Supplemental Data and Notes to Consolidated Interim Financial Statements.
5
<PAGE>
Carolina Power & Light Company
SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES (IN THOUSANDS)
ELECTRIC
Retail $ 754,985 $ 772,029 $ 1,937,404 $ 1,963,361
Wholesale 172,127 154,703 430,247 418,478
Miscellaneous revenue 20,121 19,456 52,140 52,796
- ----------------------------------------------------------------------------------------------------
TOTAL ELECTRIC 947,233 946,188 2,419,791 2,434,635
Natural gas 48,041 - 48,041 -
Diversified businesses 29,482 18,103 82,648 40,093
- ----------------------------------------------------------------------------------------------------
TOTAL OPERATING REVENUES $ 1,024,756 $ 964,291 $ 2,550,480 $ 2,474,728
- ----------------------------------------------------------------------------------------------------
ENERGY SALES
ELECTRIC (MILLIONS OF KWH)
Retail
Residential 4,001 4,074 10,417 10,380
Commercial 3,221 3,189 8,342 8,187
Industrial 3,711 3,843 10,822 11,226
Other retail 410 405 1,048 1,037
- ----------------------------------------------------------------------------------------------------
Total Retail 11,343 11,511 30,629 30,830
Wholesale 4,166 3,939 11,208 11,256
- ----------------------------------------------------------------------------------------------------
TOTAL ELECTRIC 15,509 15,450 41,837 42,086
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
NATURAL GAS (THOUSANDS OF DT) 12,737 - 12,737 -
- ----------------------------------------------------------------------------------------------------
ELECTRIC ENERGY SUPPLY (MILLIONS OF KWH)
Generated - coal 8,224 7,889 21,616 21,454
nuclear 5,598 5,865 16,743 16,523
hydro 80 73 435 714
combustion turbines 355 212 422 371
Purchased 1,890 1,907 4,210 4,478
- ----------------------------------------------------------------------------------------------------
TOTAL ELECTRIC ENERGY SUPPLY (COMPANY SHARE) 16,147 15,946 43,426 43,540
- ----------------------------------------------------------------------------------------------------
DETAIL OF INCOME TAXES (IN THOUSANDS)
Income tax expense (benefit) - current $ 101,191 $ 132,172 $ 242,416 $ 279,496
deferred 2,363 (8,193) (30,442) (44,795)
investment (2,599) (2,551) (7,699) (7,654)
tax credit
- ----------------------------------------------------------------------------------------------------
TOTAL INCOME TAX EXPENSE $ 100,955 $ 121,428 $ 204,275 $ 227,047
- ----------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Interim Financial Statements.
6
<PAGE>
Carolina Power & Light Company
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
--------------------------------------
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.
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 1998 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
1998 have been reclassified to conform to the 1999 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.
2. FLORIDA PROGRESS CORPORATION MERGER
-----------------------------------
On August 22, 1999, the Company and Florida Progress Corporation (FPC),
a Florida corporation, entered into an agreement and Plan of Exchange
(the Agreement) among the Company, FPC and CP&L Holdings, Inc.
(Holdco), a North Carolina corporation and wholly-owned subsidiary of
the Company. The Company is currently in the process of creating a
holding company structure with Holdco as the holding company.
Under the terms of the Agreement, all outstanding shares of common
stock, no par value, of FPC common stock would be acquired by Holdco in
a statutory share exchange. Each share of FPC common stock, at the
election of the holder, will be exchanged for (i) $54.00 in cash, or
(ii) the number of shares of common stock, no par value, of Holdco
equal to the ratio determined by dividing $54.00 by the average of the
closing sale price per share of Holdco 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, or (iii) a
combination of cash and Holdco common stock; 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 Holdco 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 Holdco common stock into
which one share of FPC common stock could be exchanged would be 1.4543,
and the minimum would be 1.1897.
The transaction has been approved by the Board of Directors of FPC and
the Company. Consummation of the exchange is subject to the
satisfaction or waiver of certain closing conditions, including among
others, the approval of shareholders of FPC and the approval by the
shareholders of Holdco of the issuance of Holdco common stock in the
exchange, the approval or regulatory review by the Federal Energy
Regulatory Commission (FERC), the Securities and Exchange Commission,
the Nuclear Regulatory Commission, 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 by the end of 2000.
7
<PAGE>
Either party may terminate the 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 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.
3. NCNG ACQUISITION
On July 15, 1999, the Company completed the previously-announced
acquisition of North Carolina Natural Gas Corporation (NCNG) for a
purchase price of approximately $364 million. Each outstanding share of
NCNG common stock was converted into the right to receive 0.8054 shares
of Company common stock, resulting in the issuance of approximately 8.3
million shares of Company common stock. The merger has been 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. The excess of the aggregate purchase price
over the fair value of net assets acquired of approximately $240
million, based on preliminary estimates of fair values, has been
recorded as goodwill of the acquired business and is being amortized
primarily over a period of 40 years. The Company does not believe that
the final purchase price allocation will differ significantly from the
preliminary purchase price allocation recorded at September 30, 1999.
NCNG, operating as a wholly-owned subsidiary of the Company, is engaged
in the transmission and distribution of natural gas. These gas services
are provided under regulated rates to approximately 178,000 customers
in eastern and south central North Carolina.
In conjunction with the merger, the Company and NCNG signed a joint
stipulation agreement with the Public Staff of the NCUC in which the
Company agreed to cap base retail electric rates, exclusive of fuel
costs, with limited exceptions, through December 2004, and NCNG agreed
to cap margin rates for gas sales and transportation services, with
limited exceptions, through November 1, 2003. Management is of the
opinion that this agreement will not have a material adverse effect on
the consolidated results of operations or financial position of the
Company.
4. 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 North and South
Carolina. These electric operations are subject to the rules and
regulations of the FERC, the NCUC and the Public Service Commission of
South Carolina (PSC).
The natural gas segment transmits, distributes and sells gas in
portions of North Carolina. These gas operations are subject to the
rules and regulations of the NCUC.
The other segments primarily include telecommunication services, energy
management and lighting services, propane and other non-regulated
activities.
For reportable segments presented in the accompanying table, segment
earnings (losses) before taxes includes intersegment sales accounted
for at prices representative of unaffiliated party transactions.
8
<PAGE>
(in thousands of dollars)
<TABLE>
<CAPTION>
NATURAL SEGMENT
ELECTRIC GAS OTHER ELIMINATIONS TOTALS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED 9/30/99
Revenues
Unaffiliated $ 947,233 $ 48,041 $ 29,482 $ - $ 1,024,756
Intersegment - 991 7,450 (8,441) -
-------------------------------------------------------------------------------
Total Revenues $ 947,233 $ 49,032 $ 36,932 $ (8,441) $ 1,024,756
Depreciation and Amortization $ 121,953 $ 4,494 $ 4,473 - $ 130,920
Interest Expense $ 45,698 $ 1,390 $ 287 $ (1,078) $ 46,297
Earnings(Losses) Before Taxes $ 273,366 (3,139) $ (21,418) - $ 248,809
Total Segment Assets $ 8,566,862 $ 548,283 $ 313,863 $ (133,885) $ 9,295,123
Capital and Investment
Expenditures $ 207,364 $ 14,864 $ 29,382 - $ 251,610
=================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
NATURAL SEGMENT
ELECTRIC GAS OTHER ELIMINATIONS TOTALS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED 9/30/98
Revenues
Unaffiliated $ 946,188 - $ 18,103 $ - $ 964,291
Intersegment - - 5,899 (5,899) -
--------------------------------------------------------------------------------
Total Revenues $ 946,188 - $ 24,002 $ (5,899) $ 964,291
Depreciation and Amortization $ 121,377 - $ 771 $ 122,148
Interest Expense $ 43,388 - $ 42 $ (9) $ 43,421
Earnings(Losses) Before Taxes $ 319,844 - $ (12,392) - $ 307,452
Total Segment Assets $ 8,207,643 - $ 164,149 $ (9,860) $ 8,361,932
Capital and Investment
Expenditures $ 133,703 - $ 23,708 - $ 157,411
=================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
NATURAL SEGMENT
ELECTRIC GAS OTHER ELIMINATIONS TOTALS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NINE MONTHS ENDED 9/30/99
Revenues
Unaffiliated $ 2,419,791 $ 48,041 $ 82,648 $ - $ 2,550,480
Intersegment - 991 20,157 (21,148) -
--------------------------------------------------------------------------------
Total Revenues $ 2,419,791 $ 49,032 $ 102,805 $ (21,148) $ 2,550,480
Depreciation and Amortization $ 363,793 $ 4,494 $ 13,666 - $ 381,953
Interest Expense $ 133,103 $ 1,390 $ 1,067 $ (1,078) $ 134,482
Earnings(Losses) Before Taxes $ 567,335 $ (3,139) $ (56,696) - $ 507,500
Total Segment Assets $ 8,566,862 $548,283 $ 313,863 $ (133,885) $ 9,295,123
Capital and Investment
Expenditures $ 534,801 $ 14,864 $ 117,494 - $ 667,159
=================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
NATURAL SEGMENT
ELECTRIC GAS OTHER ELIMINATIONS TOTALS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NINE MONTHS ENDED 9/30/98
Revenues
Unaffiliated $2,434,635 - $ 40,093 $ - $ 2,474,728
Intersegment - - 15,406 (15,406) -
--------------------------------------------------------------------------------
Total Revenues $2,434,635 - $ 55,499 $ (15,406) $ 2,474,728
Depreciation and Amortization $ 366,987 - $ 3,338 - $ 370,325
Interest Expense $ 132,828 - $ 87 $ (197) $ 132,718
Earnings(Losses) Before Taxes $ 613,101 - $ (47,990) - $ 565,111
Total Segment Assets $8,207,643 - $ 164,149 $(9,860) $ 8,361,932
Capital and Investment
Expenditures $ 325,871 - $ 43,393 - $ 369,264
=================================================================================================================
</TABLE>
<PAGE>
RECONCILIATION OF FINANCIAL INFORMATION BY BUSINESS SEGMENT TO CONSOLIDATED
FINANCIAL STATEMENTS:
DEPRECIATION AND AMORTIZATION
(in thousands of dollars)
SEGMENT
PERIOD TOTALS ADJUSTMENTS CONSOLIDATED TOTALS
- -----------------------------------------------------------------------------
Three months ended 9/30/99 $ 130,920 $ (4,473) $ 126,447
Three months ended 9/30/98 $ 122,148 $ (771) $ 121,377
Nine months ended 9/30/99 $ 381,953 $ (13,666) $ 368,287
Nine months ended 9/30/98 $ 370,325 $ (3,338) $ 366,987
- -----------------------------------------------------------------------------
INTEREST EXPENSE
(in thousands of dollars)
SEGMENT
PERIOD TOTALS ADJUSTMENTS CONSOLIDATED TOTALS
- -----------------------------------------------------------------------------
Three months ended 9/30/99 $ 46,297 $ (287) $ 46,010
Three months ended 9/30/98 $ 43,421 $ (42) $ 43,379
Nine months ended 9/30/99 $ 134,482 $ (1,067) $ 133,415
Nine months ended 9/30/98 $ 132,718 $ (87) $ 132,631
- -----------------------------------------------------------------------------
Adjustments to Depreciation and Amortization and Interest Expense
consist of expenses related to the other segment which are included in
diversified business operating expenses on a consolidated basis.
5. HURRICANE RESTORATION COSTS
---------------------------
Included in the Company's Statements of Income for the current periods
is approximately $30 million of maintenance expense incurred as a
result of the damage caused by Hurricane Dennis and Hurricane Floyd. In
addition, the Company estimates that restoring its system resulted in
capital expenditures of approximately $36 million, for a total
estimated cost of approximately $66 million. On October 11, 1999, the
Company proposed to the North Carolina Utilities Commission (NCUC) a
plan that would allow deferral of hurricane-related maintenance
expenses, with amortization over the next three years. The Company
cannot predict the outcome of this matter.
6. NUCLEAR DECOMMISSIONING
-----------------------
In the Company's retail jurisdictions, provisions for nuclear
decommissioning costs are approved by the NCUC and the PSC 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 $279.8 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, 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 an exposure draft of a
proposed
10
<PAGE>
accounting standard is expected to be issued during the first quarter
of 2000. It is uncertain when the final statement will be issued and
what effects it may ultimately have on the Company's accounting for
nuclear decommissioning and other retirement costs.
7. COMMITMENTS AND CONTINGENCIES
------------------------------
Contingencies existing as of the date of these statements are described
below. No significant changes have occurred since December 31, 1998,
with respect to the commitments discussed in Note 12 of the financial
statements included in the Company's 1998 Annual Report on Form 10-K.
A. 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 regulatory assets
related to electric operations totaled $427 million, $464 million and
$480 million as of September 30, 1999 and 1998 and December 31, 1998,
respectively.
B. 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 Company, NCNG, and certain entities
that were later merged into the Company had some connection. In this
regard, the Company and NCNG, along with others, is participating in a
cooperative effort with the North Carolina Department of Environment
and Natural Resources, Division of Waste Management (DWM), which has
established a uniform framework to address MGP sites. The investigation
and remediation of specific MGP sites will be addressed pursuant to one
or more Administrative Orders on Consent (AOC) between the DWM and the
potentially responsible party or parties. The Company and NCNG have
signed AOCs to investigate certain sites in which investigation
includes the completion of interim remedial measures where appropriate
and anticipate signing AOCs to remediate sites as well. The Company and
NCNG continue to identify parties connected to individual MGP sites,
and to determine the relative relationship of the Company and NCNG to
other parties at those sites and the degree to which the Company and
NCNG will undertake efforts with others at individual sites. The
Company does not expect the costs associated with these sites to be
material to the financial position and results of operations of the
Company.
The Company and NCNG are 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
United States Environmental Protection Agency of its involvement or
potential involvement in several sites, other than MGP sites, that may
require investigation and/or remediation. Although the Company may
incur costs at these sites, based upon the current status of the sites,
the Company does not expect those costs to be material to the results
of operations of the Company.
The United States Environmental Protection Agency (EPA) has been
conducting an enforcement initiative related to a number of coal-fired
power plants in an effort to determine whether modifications
11
<PAGE>
at those facilities were subject to New Source Review requirements or
New Source Performance Standards under the Clean Air Act. The Company
has recently been asked to provide information to the EPA as part of
this initiative, and will seek to cooperate in providing the requested
information as it deems appropriate. 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 Company carries a liability for the estimated costs associated with
certain remedial activities. This liability is not material to the
financial position of the Company.
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 of 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 U.S. 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 U.S. 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. 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 issued an order
which precluded DOE from treating the delay as an unavoidable delay.
However, 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 U.S. 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.
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. United States, the United States 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 U.S. Court of Appeals based on NSP's position that the
Court of Claims has jurisdiction to decide the 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.
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.
8. EARNINGS PER COMMON SHARE
-------------------------
Restricted stock awards and contingently issuable shares had a dilutive
effect on earnings per share and increased the weighted-average number
of common shares outstanding for dilutive purposes by 292,987 and
283,547 for the three and nine months ended September 30, 1999,
respectively, and by 274,825 and 248,026
12
<PAGE>
for the three and nine months ended September 30, 1998, respectively.
The weighted-average number of common shares outstanding for dilutive
purposes was 151.9 million and 147.1 million for three and nine months
ended September 30, 1999, respectively, and 144.3 million and 144.1
million for the three and nine months ended September 30, 1998,
respectively.
13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999,
AS COMPARED WITH THE CORRESPONDING PERIODS ONE YEAR EARLIER
-----------------------------------------------------------
Operating Revenues - Electric
- -----------------------------
For the three and nine months ended September 30, 1999, electric operating
revenues were affected by the following factors (in millions):
Three Months Nine Months
------------ -----------
Price $ (13) $ (28)
Customer growth/changes in usage patterns (6) 26
Weather (3) (21)
Sales to other utilities 20 7
Sales to North Carolina Eastern Municipal Power Agency 2 2
Other 1 (1)
- ---
Total $ 1 $ (15)
= ====
During the three- and nine-month periods, the price component of revenues was
negatively impacted by the effect of real-time pricing on sales to industrial
customers and changes in the price structure of the contract between the Company
and North Carolina Electric Membership Corporation. The decrease in the customer
growth and changes in usage patterns component of revenue for the three-month
period reflects a decline in residential and industrial sales. The decline in
residential sales is primarily attributable to the outages resulting from two
hurricanes. The customer growth and changes in usage patterns component
increased for the nine-month period reflecting the continued growth in
residential and commercial customers. While residential and commercial sales
increased, industrial sales have continued to decrease, primarily reflecting a
decline in the chemical and textile industries. The decrease in the weather
component of revenue for both periods is the result of milder than normal
temperatures in the current periods as compared to prior periods. The increase
in sales to other utilities for the three-month period is due to an increase in
the volume of sales as well as the volatile wholesale market in the prior
period. For the nine-month period, the increase in sales to other utilities is
attributable to the volatile wholesale market in the prior period. This increase
was partially offset by the expiration of long-term sales agreements.
Operating Expenses - Electric and Natural Gas
- ---------------------------------------------
Other operation and maintenance expense increased for the three-and nine-months
ended September 30, 1999 primarily due to storm restoration expenses incurred in
September 1999 as a result of Hurricane Dennis and Hurricane Floyd, an increase
in administrative and general expenses, and the acquisition of North Carolina
Natural Gas Corporation (NCNG).
For the three- and nine-month periods, other operation and maintenance expense
includes approximately $30 million of maintenance expense incurred as a result
of the damage caused by Hurricane Dennis and Hurricane Floyd. In addition, the
Company estimates that restoring its system resulted in capital expenditures of
approximately $36 million, for a total estimated cost of approximately $66
million. On October 11, 1999, the Company proposed to the North Carolina
Utilities Commission (NCUC) a plan that would allow deferral of
hurricane-related maintenance expenses, with amortization over the next three
years. The Company cannot predict the outcome of this matter.
Natural Gas Operations
- ----------------------
The results of NCNG, a wholly-owned subsidiary, are included in the Company's
financial results for the current quarter. For the three-month period, NCNG's
operating results are consistent with seasonal business patterns.
14
<PAGE>
Diversified Business Operations
- -------------------------------
Operating revenues and expenses of diversified business operations primarily
reflect the results of two of the Company's subsidiaries, Strategic Resource
Solutions Corp. (SRS) and Interpath Communications, Inc. (Interpath). The
increase in revenues for the three- and nine-month periods is attributable to
the rapid increase in the customer base of both subsidiaries. The increase in
operating expenses for both periods is primarily due to Interpath's business
expansion program. SRS's operating expenses did not increase significantly due
to cost cutting measures implemented during 1998 and 1999.
MATERIAL CHANGES IN LIQUIDITY AND CAPITAL RESOURCES
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------------------
Cash Flow and Financing
- -----------------------
In September 1999, the Company established a $150 million extendible commercial
notes program. As of September 30, 1999 , the Company had issued and outstanding
$100 million of extendible commercial notes. Included in financing for the
nine-month period is the issuance in March 1999 of $400 million principal amount
of Senior Notes, 5.95% Series due March 1, 2009. The proceeds of these issuances
were used to reduce commercial paper borrowings and for other general corporate
purposes
In October 1999, the Company issued $500 million of unsecured Extendible Notes
with a final maturity of October 28, 2009, and an initial reset period from
October 28, 1999 to July 28, 2000 at an interest rate to be reset and payable on
a monthly basis at a rate equal to the one month LIBOR plus a spread of .33%.
The net proceeds from this issuance were used to reduce commercial paper
borrowings and other short-term indebtedness.
The proceeds from commercial paper borrowings and/or internally generated funds
financed the retirement on July 1, 1999 of $50 million principal amount of First
Mortgage Bonds, Medium Term Notes, 7.15% Series B, which matured on that date.
As of September 30, 1999, the Company's revolving credit facilities totaled $750
million, all of which are long-term agreements supporting its commercial paper
borrowings. 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 on a long-term basis, and as supported by its long-term
revolving credit facilities, the Company included in long-term debt all
commercial paper outstanding of approximately $420 million, $412 million and
$488 million as of September 30, 1999, September 30, 1998 and December 31, 1998,
respectively.
The Company's First Mortgage Bonds are currently rated "A2" by Moody's Investors
Service, "A" by Standard and Poor's and "A+" by Duff and Phelps. Moody's
Investors Service, Standard and Poor's and Duff and Phelps have rated the
Company's commercial paper "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. Moody's Investors Service and
Standard and Poor's have rated the Company's extendible notes "P-1" and A-1",
respectively.
OTHER MATTERS
-------------
Florida Progress Corporation Merger
On August 22, 1999, the Company and Florida Progress Corporation (FPC), a
Florida corporation, entered into an agreement and Plan of Exchange (the
Agreement) among the Company, FPC and CP&L Holdings, Inc. (Holdco), a North
Carolina corporation and wholly-owned subsidiary of the Company. The Company is
currently in the process of creating a holding company structure with Holdco as
the holding company.
Under the terms of the Agreement, all outstanding shares of common stock, no par
value, of FPC common stock would be acquired by Holdco in a statutory share
exchange. Each share of FPC common stock, at the election of the holder, will be
exchanged for (i) $54.00 in cash, or (ii) the number of shares of common
15
<PAGE>
stock, no par value, of Holdco equal to the ratio determined by dividing $54.00
by the average of the closing sale price per share of Holdco 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, or (iii) a combination of cash and
Holdco common stock; 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
Holdco 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 Holdco common stock into which one
share of FPC common stock could be exchanged would be 1.4543 and the minimum
would be 1.1897.
The transaction has been approved by the Board of Directors of FPC and the
Company. Consummation of the exchange is subject to the satisfaction or waiver
of certain closing conditions, including among others, the approval of
shareholders of FPC and the approval by the shareholders of Holdco of the
issuance of Holdco common stock in the exchange, the approval or regulatory
review by the Federal Energy Regulatory Commission (FERC), the Securities and
Exchange Commission, the Nuclear Regulatory Commission, the 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 by the
end of 2000.
Either party may terminate the 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 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.
NCNG Merger
- -----------
On July 15, 1999, the Company completed the previously-announced acquisition of
North Carolina Natural Gas Corporation (NCNG) for a purchase price of
approximately $364 million. Each outstanding share of NCNG common stock was
converted into the right to receive 0.8054 shares of Company common stock,
resulting in the issuance of approximately 8.3 million shares of Company common
stock. The merger has been 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. The excess of the aggregate
purchase price over the fair value of net assets acquired of approximately $240
million, based on preliminary estimates of fair values, has been recorded as
goodwill of the acquired business and is being amortized primarily over a period
of 40 years. The Company does not believe that the final purchase price
allocation will differ significantly from the preliminary purchase price
allocation recorded at September 30, 1999.
NCNG, operating as a wholly-owned subsidiary of the Company, is engaged in the
transmission and distribution of natural gas. These gas services are provided
under regulated rates to approximately 178,000 customers in eastern and south
central North Carolina.
In conjunction with the merger, the Company and NCNG signed a joint stipulation
agreement with the Public Staff of the NCUC in which the Company agreed to cap
base retail electric rates, exclusive of fuel costs, with limited exceptions,
through December 2004, and NCNG agreed to cap margin rates for gas sales and
transportation services, with limited exceptions, through November 1, 2003.
Management is of the opinion that this agreement will not have a material
adverse effect on the consolidated results of operations or financial position
of the Company.
16
<PAGE>
Competition
- -----------
WHOLESALE COMPETITION
- ---------------------
On May 13, 1999, the FERC issued a Notice of Proposed Rulemaking (NOPR) on
Regional Transmission Organizations (RTOs). This NOPR proposes to set minimum
characteristics and functions for transmission entities, including independent
system operators and transmission companies, to become FERC-approved RTOs. The
NOPR does not require RTO membership for all utilities by a certain date. The
FERC is expected to issue a final rule in December of this year. The Company
submitted initial comments regarding the NOPR on August 23, 1999. The Company
continues to evaluate the potential effects of this NOPR. The Company cannot
predict the outcome of this matter.
NORTH CAROLINA ACTIVITIES
- -------------------------
In May 1999, the North Carolina General Assembly approved legislation that
expanded from 23 to 29 members the study commission it established to evaluate
the future of electric service in the state. All 29 study commission members
have been appointed. The study commission conducted several meetings in October
to discuss the reports regarding deregulation issues prepared by the Research
Triangle Institute at the request of the study commissions. During those
meetings, several entities, including the Company and Duke Energy, presented
proposals for addressing the nearly $6 billion debt of North Carolina's
Municipal Power Agencies. The study commission intends to make its final report
to the North Carolina General Assembly during 2000. The Company cannot predict
the outcome of this matter.
SOUTH CAROLINA ACTIVITIES
- -------------------------
The 1999 session of the South Carolina General Assembly adjourned in June 1999,
without approving any legislation regarding electric industry restructuring. The
South Carolina General Assembly is expected to continue considering the electric
industry restructuring bills that were introduced this year during its 2000
legislative session. The Company cannot predict the outcome of this matter.
However, the South Carolina Senate Task Force on Electric Deregulation and the
South Carolina House Public Utility Subcommittee have continued to meet to study
the issue of deregulation while the legislature was not in session.
FEDERAL ACTIVITIES
- ------------------
Over 20 bills have been introduced in Congress regarding electric industry
restructuring this year. A draft bill passed the House Commerce Subcommittee on
October 27, 1999. This bill will proceed to full Commerce Committee
consideration in the first quarter of 2000 where it is expected to be
significantly changed. The Company cannot predict the outcome of this matter.
COMPANY ACTIVITIES
- -------------------
The Company recently signed two off-system wholesale peaking power agreements.
These include a five-year agreement with Municipal Electric Authority of Georgia
(MEAG) in which MEAG will receive the full output of a 160 MW combustion turbine
owned and operated by Monroe Power Company, a wholly-owned subsidiary of the
Company. Headquartered in Atlanta, MEAG represents 48 municipal electric
utilities in Georgia and is part owner of four generating facilities and the
Georgia Integrated Transmission System. In an agreement with Santee Cooper, the
Company will provide up to 150 MW of additional peaking power for a one-year
term to help meet the increasing demand in Santee Cooper's service area.
On October 25, 1999, the Company and Albemarle-Pamlico Economic Development
Corporation (APEC) announced their intention to build an 850-mile natural gas
transmission and distribution system to 14 currently unserved counties in
eastern North Carolina. The proposal states that the Company will own and
operate both the transmission and distribution systems, while 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 from a $200 million state bond package established for clean water and
natural gas infrastructure. These funds will be used to pay for the
17
<PAGE>
portion of the project that likely could not be recovered from eventual gas
customers through rates. The Company plans to invest an additional $11.5
million, thus bringing the total cost of the project to $197.5 million. As
proposed, the project is scheduled to be completed in 2003.
The Company and Southern Natural Gas Company, a subsidiary of SONAT, Inc., have
delayed the planned-in-service date of the Palmetto Interstate Pipeline. In
conjunction with this delay, on-going route selection and survey activities have
been suspended. Since the announcement of the Palmetto Interstate Pipeline in
March, two other competing pipeline projects have been proposed. The delay will
allow the Company to analyze those alternatives. The Company cannot predict the
outcome of this matter.
Year 2000
- ---------
BACKGROUND
- ----------
The Company has achieved its goal of Year 2000 readiness. "Year 2000 ready"
means that critical systems, devices, applications or business relationships
have been evaluated and are expected to be suitable for continued use into and
beyond the Year 2000, or contingency plans are in place. Critical systems are
defined as those that (i) directly relate to the safe and reliable generation
and delivery of electricity and (ii) support the Company's ability to provide
high-quality customer service.
The Company began addressing the Year 2000 issue in 1994 by beginning to assess
its business computer systems, such as general ledger, payroll, customer billing
and inventory control. The majority of these systems were corrected and have
been running in the Company's day-to-day computing environment since 1996. Also,
by the mid-1990s, two major accounting systems were replaced with systems that
were designed to be Year 2000 ready. The Company has addressed the remaining
business systems and will conduct supplementary testing, as appropriate.
During mid-1997, a Corporate Year 2000 Project was established to provide
leadership and direction to the Year 2000 efforts throughout the Company and its
subsidiaries. Also, the project scope was expanded to include "embedded" systems
(such as process control computers, chart recorders, data loggers, calibration
equipment and chemical analysis equipment), end-user computing hardware and
software (including personal computers, spreadsheets, word processing and other
personal and workgroup applications), plant and corporate facilities (such as
security systems, elevators and heating and cooling systems) and business
relationships with key suppliers and customers.
The Company has used a multi-step approach in conducting its Year 2000 Project.
These steps are: inventory, assessment, remediation and testing, and contingency
planning. The first step, an inventory of all systems and devices with potential
Year 2000 problems, was completed in January 1998. The next step, completed in
the first half of 1998, was to conduct an initial assessment of the inventory to
determine the state of its Year 2000 readiness. As part of the assessment phase,
remediation strategies were identified and remediation cost estimates were
developed. The Company has utilized both internal and external resources to
remediate and test for Year 2000 readiness. The Company's primary approach has
been for the Corporate Year 2000 Program Office to provide overall leadership
and direction and assign responsibility to individual departments and business
units for Year 2000 readiness in their respective areas. Staffing decisions
regarding the labor required to complete the project have been made at the
department/business unit level. Several hundred of the Company's employees as
well as contract personnel have been used on this effort. Vendor labor has also
been occasionally used.
Several external reviews of the project have been conducted to validate the
reliability of risk and cost estimates as well as work processes and work
products. These have included project reviews by two consulting firms, an
embedded systems audit by an engineering firm and a legal review by an external
law firm. In addition, the Company is actively conducting formal communications
with the suppliers and customers with which it has active contracts to determine
the extent to which the Company is vulnerable to those third parties' failure to
remediate their own Year 2000 issues. The Company ranked its vendors and
suppliers to identify those considered to be critical. Those identified as
critical include telecommunications providers, fuel suppliers (nuclear, coal,
natural gas and other), transportation carriers, vendors of certain nuclear
systems and components, vendors of fossil power plant digital control systems
and financial services suppliers. The Company cannot predict the outcome of
other companies' remediation efforts.
COSTS
- -----
18
<PAGE>
As of September 30, 1999, the total remaining cost of the Year 2000 Project is
estimated at $3.6 million. To date, the Company has incurred and expensed
approximately $15.7 million related to the inventory, assessment and remediation
of non-compliant systems, equipment and applications. The remaining $3.6 million
budgeted for the Year 2000 Project includes the following expenditures: $1.3
million for meters to be installed during the remainder of 1999, $.6 million for
compliance efforts at subsidiaries of the Company, $.7 million for remaining
project costs to be incurred during the balance of 1999 and into 2000, and $1
million for Year 2000 readiness contingencies. The costs of the project and the
date on which the Company plans to complete the Year 2000 modifications are
based on management's best estimates, which were derived using assumptions of
future events including the continued availability of certain resources, third
parties' Year 2000 readiness and other factors.
RISK ASSESSMENT
- ---------------
At this time, the Company believes its most reasonably likely worst case
scenario is that key customers could experience significant reductions in their
power needs due to their own Year 2000 issues. The Company is conducting
informal meetings with its largest wholesale, industrial and commercial
customers and is holding information sharing forums to gather information on
Year 2000 readiness. Based on the information provided through these contacts,
the Company has not identified any major customer that appears to be at
significant risk of not being Year 2000 ready. For this reason, the Company does
not believe that this scenario is likely to occur. Nonetheless, the Company has
assessed the effect of such a scenario by using current financial data. That
data indicates that if the Company's twenty key industrial customers experienced
significant reduced power needs for a period of one month, the Company's
revenues would decrease by approximately 6% for that month.
An alternative worst-case scenario includes the effect of cascading disruptions
caused by other entities whose electrical systems are connected to the
Company's. The Company has assessed the risk of this scenario, believes that its
contingency plans would mitigate the long-term occurrence of such a scenario,
and does not expect that it would have a material adverse effect on its
financial position and results of operations.
CONTINGENCY PLANS
- -----------------
Contingency plans have been prepared to help ensure that the Company's critical
business processes will continue to function on January 1, 2000 and beyond. The
Company's contingency plans are structured to address both remediation of
systems and their components and overall business operating risk. These plans
are intended to mitigate internal risks, as well as potential risks in the
supply chain of the Company's suppliers and customers. The Company's contingency
plans were developed by June 30, 1999 in accordance with the target dates
established by the Nuclear Regulatory Commission and the North American Electric
Reliability Council (NERC).
The Company has developed contingency plans to mitigate the risk associated with
the failure of critical vendors or suppliers. Based on the Company's on-going
assessment of the risk of non-compliance, the Company will take action up to and
including entering into a business relationship with an alternate vendor or
supplier.
One of the Company's emergency contingency plans specifically addresses
emergency scenarios that may arise due to the fact that electric utility systems
throughout the southeast region of the United States are interconnected. The
Company has been working actively with the NERC and the Southeastern Electric
Reliability Council to address the issue of overall grid reliability and
protection. In order to mitigate the risk of cascading regional electric
failures, the Company can, as a last resort, isolate its transmission system
either automatically or manually. The Company's emergency readiness contingency
plan includes the performance of regular training exercises that include
simulated disaster recovery scenarios. As part of its Year 2000 contingency
planning, the Company has reviewed its disaster recovery scenarios to identify
those that can be used specifically for Year 2000 readiness training.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
For the three months ended September 30, 1999, the Company's market risk
exposure was affected by the issuance of $100 million of 5.43% Extendible
Commercial Notes. During the nine months ended September 30, 1999, the Company's
exposure was also affected by the issuance of $400 million principal amount of
Senior Notes, 5.95% Series due March 1, 2009. Total fixed rate long-term debt at
September 30, 1999 was $1.924 billion, with an average interest rate of 7.01%.
Related to the issuance of the Senior Notes, the Company settled its interest
rate lock, receiving approximately $9.7 million which will reduce interest
expense over the 10-year debt term. Total
19
<PAGE>
commercial paper outstanding at September 30, 1999 was approximately $420
million, with an average interest rate of 5.30%.
20
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
Legal aspects of certain matters are set forth in Part I, Item I Notes to the
Consolidated Interim Financial Statements, Note 7: Commitments and
Contingencies.
Item 2. Changes in Securities and Use of Proceeds
- -------------------------------------------------
STRATEGIC RESOURCE SOLUTIONS CORP.
(a) Securities Issued. On August 9, 1999, the Company issued 4,239 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, 3,903 shares were issued as
post-closing merger consideration to the former holders of KBI common stock for
KBI shares that were converted in the merger. The remaining 336 shares were
issued as incentive compensation payments based upon the 1998 performance of SRS
and its subsidiaries arising under incentive compensation agreements entered
into pursuant to the merger agreement with KBI.
On November 9, 1999, the Company issued an additional 9,906 shares of its Common
Stock in connection with the merger to former holders of options to purchase KBI
common stock as consideration for the cancellation of those options.
(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
converted in the merger, (B) as incentive compensation payments to certain SRS
employees based upon the 1998 performance of SRS, and (C) to former holders of
options to purchase KBI common stock as consideration for the cancellation of
those options.
(c) Consideration. The consideration for 3,903 of the Common Shares issued on
August 9, 1999 was the conversion of former shares of KBI in the merger. The
other 336 Common Shares issued on that date were issued as compensation pursuant
to certain incentive compensation award agreements. The consideration for the
9,906 shares issued on November 9,1999 was the cancellation of the KBI options
(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
RESTRICTED STOCK AWARDS:
(a) Securities Delivered. On July 21, 1999 and October 6, 1999, 10,400 shares
and 42,900 shares, respectively, of the Company's Common Shares were delivered
to certain key employees of the Company 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
employee" 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
each employee recipient 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.
21
<PAGE>
(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.
Item 5. Other Information
- -------------------------
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 offers 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. This structure would also offer greater
financing flexibility, because the holding company would not be required to
obtain utility commission approval each time it seeks to issue securities to
raise cash or as consideration in acquisitions.
The Company's shareholders approved the contemplated holding company structure
on October 20, 1999. The necessary approvals from various regulatory authorities
are expected by the end of the first quarter of 2000. 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 Nuclear
Regulatory Commission for consent to indirect transfer of control of its nuclear
plant operating licenses to the newly formed holding company. The company cannot
predict the outcome of this matter.
On October 15, 1999 the Company filed an application with the North Carolina
Utilities Commission to approve the transfer of ownership of the Company,
Interpath Communications Inc., and North Carolina Natural Gas Corporation (NCNG)
to the newly formed holding company. On October 20, 1999 an identical filing was
made with the Public Service Commission of South Carolina. The Company cannot
predict the outcome of these proceedings.
On October 18, 1999, the Company filed an application with the Securities and
Exchange Commission for approval of the holding company's acquisition of voting
securities giving it control over the Company and NCNG. The Company cannot
predict the outcome of this matter.
On October 25, 1999, the Company filed an application with the Federal Energy
Regulatory Commission for approval of the proposed reorganziation of the Company
related to the establishment of the new holding company. The Company cannot
predict the outcome of this matter.
BROAD RIVER ENERGY LLC
- ----------------------
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. This financing will be used by BRE to (i) make payments to
Duke Energy in connection with certain electrical interconnection agreements,
(ii) purchase two generator step up transformers and (iii) acquire land for the
Broad River Energy Center Project. Under the terms of this agreement, the
Company agreed to loan BRE up to $20.5 million that will be due on July 1, 2000.
In addition, in August of 1999 the Company agreed to loan Broad River Investors,
LLC up to $84.5 million that will be due on July 1, 2000 to finance the purchase
of the combustion turbines for the project. Interest on each of the loans is
LIBOR plus a spread of 1%.
INTERPATH COMMUNICATIONS, INC.
- -----------------------------
The Company is currently examining strategic options regarding continued
ownership of Interpath and expects to announce its intentions later this year.
22
<PAGE>
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 dated July 22,
1999, reporting under Item 5 the July 15, 1999 completion of
the Company's acquisition of NCNG. Exhibits related to the
issuance were listed under Item 7 of the Report.
The Company filed a Current Report on Form 8-K dated August
23, 1999, reporting under Item 5 the general terms of the
Agreement and Plan of Exchange entered into by the Company and
Florida Progress Corporation. Exhibits related to the issuance
were listed under Item 7 of the Report.
The Company filed a Current Report on Form 8-K dated August
30, 1999, reporting under Item 5 the filing of the Agreement
and Plan of Exchange entered into by the Company and Florida
Progress Corporation on August 22, 1999. Exhibits related to
the issuance were listed under Item 7 of the Report.
The Company filed a Current Report on Form 8-K dated October
25, 1999, reporting Under Item 5 the Underwriting Agreement,
Indenture, Remarketing Agreement, and Calculation Agency
Agreement entered into by the Company in connection with the
offering of Extendible Notes. Exhibits to the issuance were
listed under Item 7 of the Report.
23
<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/ Glenn E. Harder
----------------------------
Glenn E. Harder
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
By /s/ Larry M. Smith
---------------------------
Larry M. Smith
Vice President and Controller
(Chief Accounting Officer)
Date: November 12, 1999
24
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
27 Financial Data Schedule
25
<PAGE>
EX-27
Financial Data Schedule
ARTICLE UT
LEGEND
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
(CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1999) AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
MULTIPLIER 1,000
PERIOD-TYPE 9-MOS
FISCAL-YEAR-END DEC-31-1998
PERIOD-END SEP-30-1999
BOOK-VALUE PER-BOOK
TOTAL-NET-UTILITY-PLANT $6,698,935
OTHER-PROPERTY-AND-INVEST $420,923
TOTAL-CURRENT-ASSETS $1,031,900
TOTAL-DEFERRED-CHARGES $319,230
OTHER-ASSETS $824,135
TOTAL-ASSETS $9,295,123
COMMON $1,603,444
CAPITAL-SURPLUS-PAID-IN ($793)
RETAINED-EARNINGS $1,807,987
TOTAL-COMMON-STOCKHOLDERS-EQ $3,410,638
PREFERRED-MANDATORY $0
PREFERRED $59,376
LONG-TERM-DEBT-NET $2,800,068
SHORT-TERM-NOTES $100,000
LONG-TERM-NOTES-PAYABLE $0
COMMERCIAL-PAPER-OBLIGATIONS $0
LONG-TERM-DEBT-CURRENT-PORT $150,000
PREFERRED-STOCK-CURRENT $0
CAPITAL-LEASE-OBLIGATIONS $0
LEASES-CURRENT $0
OTHER-ITEMS-CAPITAL-AND-LIAB $2,775,041
TOT-CAPITALIZATION-AND-LIAB $9,295,123
GROSS-OPERATING-REVENUE $2,550,480
INCOME-TAX-EXPENSE $204,275
OTHER-OPERATING-EXPENSES $1,884,738
TOTAL-OPERATING-EXPENSES $2,089,013
OPERATING-INCOME-LOSS $665,742
OTHER-INCOME-NET ($24,827)
INCOME-BEFORE-INTEREST-EXPEN $436,640
TOTAL-INTEREST-EXPENSE $133,415
NET-INCOME $303,225
PREFERRED-STOCK-DIVIDENDS ($2,225)
EARNINGS-AVAILABLE-FOR-COMM $301,000
COMMON-STOCK-DIVIDENDS $221,312
TOTAL-INTEREST-ON-BONDS $101,642
CASH-FLOW-OPERATIONS $689,855
EPS-BASIC $2.05
EPS-DILUTED $2.05
