UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
------------------
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
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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
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(Address of principal executive offices) (Zip Code)
919-546-6111
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(Registrant's telephone number, including area code)
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(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, 1997: 150,340,394.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
Reference is made to the attached Appendix containing the Consolidated
Interim Financial Statements for the periods ended September 30, 1997.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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RESULTS OF OPERATIONS
For the Three, Nine and Twelve Months Ended September 30, 1997,
As Compared With the Corresponding Periods One Year Earlier
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Operating Revenues
--------------------
For the three, nine and twelve months ended September 30, 1997,
operating revenues were affected by the following factors (in millions):
Three Nine Twelve
Months Months Months
------ ------ ------
Customer Growth / Changes In
Usage Patterns ................................. $ 61 $ 103 $ 124
Weather ........................................ 21 (70) (92)
Price .......................................... (21) (32) (35)
Power Agency ................................... (1) (22) (24)
NCEMC Load Loss ................................ -- -- (24)
Sales to Other Utilities ....................... 14 7 9
Other .......................................... 1 2 4
- ------------------------------------------------ ----- ----- -----
Total ..................................... $ 75 $ (12) $ (38)
===== ====== ======
The increase in the customer growth / changes in usage patterns
component of revenue for all comparison periods is primarily a result of
economic growth within the Company's service territory. The increase in the
weather component of revenue for the three months ended September 30, 1997
reflects a return to more normal temperatures in the current period. The
decrease in the weather component of revenue for the nine and twelve months
ended September 30, 1997, is the result of milder than normal temperatures in
the current periods as compared to more extreme weather patterns in the prior
periods. Both the customer growth / changes in usage patterns and weather
components of revenue were impacted by lost revenues caused by Hurricanes Fran
and Bertha in the prior periods. For all comparison periods, part of the
decrease in the price component of revenue is attributable to a decrease in the
fuel cost component of revenue, along with the impact of changes to the Power
Coordination Agreement between the Company and North Carolina Electric
Membership Corporation (NCEMC), which became effective in January 1997. The
decrease in revenue related to sales to North Carolina Eastern Municipal Power
Agency (Power Agency) for the nine- and twelve-month periods is primarily due to
the impacts of milder weather, along with the increased availability in the
current period of generating units owned jointly by the Company and Power
Agency. Beginning in January 1996, NCEMC replaced 200 MW of load capacity it
formerly purchased from the Company with power purchases from another supplier.
The increase in revenues from sales to other utilities for all comparison
periods reflects the Company's increased bulk power marketing efforts.
Operating Expenses
------------------
The change in purchased power for all periods includes increased
purchases from other utilities resulting from the Company's more active
participation in bulk power marketing. These increases were offset to varying
extents by decreases in purchased power as a result of amendments to electric
purchase power agreements between the Company and Cogentrix of North Carolina,
Inc. and Cogentrix Eastern Carolina Corporation, which became effective in
September 1996.
Other operation and maintenance expense for all prior periods includes
Hurricane Fran expenses of $29.8 million. The Company received approval from the
North Carolina Utilities Commission (NCUC) to defer total accumulated expenses
of approximately $40 million associated with Hurricane Fran and amortize them
over a 40-month period. These expenses were deferred during the fourth quarter
of 1996. Excluding the impact of Hurricane Fran, other operation and maintenance
expense decreased $13.5 million and $14.5 million for the three and nine months
ended September 30, 1997, respectively. The three-month decrease is primarily a
result of the timing of plant outages. In the prior three-month period, there
were higher expenses associated with nuclear plant outages as compared to the
current period. The decrease for the nine-month period is partially a result of
decreased severance-related costs in the current period. Both comparison periods
also reflect the Company's continued cost reduction efforts, particularly the
consolidation of customer service functions, and the impact of Hurricane Bertha
striking the Company's service territory in July 1996.
Other operation and maintenance expense increased $11.9 million for the
twelve-month period ended September 30, 1997, excluding the impact of Hurricane
Fran expenses incurred in the prior period and the subsequent deferral of all
Hurricane Fran expenses in the current period. This increase is primarily a
result of increased outage expense incurred during the current period. In the
current twelve-month period there were several major fossil and nuclear plant
outages that resulted in higher expense as compared to the prior period.
Partially offsetting these expenses were the Company's continued cost reduction
efforts and the impacts of severance-related costs and Hurricane Bertha, as
discussed above.
In December 1996, the NCUC authorized the Company to accelerate
amortization of certain regulatory assets over a three-year period beginning
January 1, 1997. In March 1997, the South Carolina Public Service Commission
(SCPSC) approved a similar plan for the Company to accelerate the amortization
of certain regulatory assets, including plant abandonment costs related to the
Harris Nuclear Plant, over a three-year period beginning January 1, 1997.
Depreciation and amortization for the three, nine and twelve months ended
September 30, 1997, includes approximately $17 million, $51 million, and $51
million, respectively, related to accelerated amortization of these regulatory
assets. The increase in depreciation and amortization expense for the three,
nine and twelve months ended September 30, 1997, also reflects amortization of
deferred expenses associated with Hurricane Fran of approximately $3 million, $9
million and $13 million, respectively, in the current periods.
Income tax expense increased $33 million for the three-month period
primarily due to an increase in pre-tax operating income. For the nine- and
twelve-month periods, income tax expense decreased $28.3 and $50.4 million,
respectively due to a reduction in pre-tax operating income, as well as the
impact of current and prior period tax provision adjustments recorded for
potential audit issues in open tax years.
<PAGE>
Other Income
------------
Allowance for equity funds used during construction decreased for the
nine and twelve months ended September 30, 1997, in accordance with the
application of the formula prescribed by the Federal Energy Regulatory
Commission. During the current periods, a greater proportion of the total
allowance for funds used during construction was credited to interest charges as
allowance for borrowed funds used during construction.
Interest income increased for all periods primarily as a result of
interest income of $1.3 million, $10.0 million and $10.0 million recorded during
the three, nine and twelve months ended September 30, 1997, respectively,
related to an income tax refund.
The change in other income, net, for the three, nine and twelve months
ended September 30, 1997, includes losses in the current periods for certain
non-regulated investments which are in the start-up phases and decreases in
certain income items, none of which is individually significant. Offsetting
these decreases in the current twelve-month period, was an adjustment of $22.9
million to the unamortized balance of abandonment costs related to the Harris
Nuclear Plant. See additional discussion of the abandonment adjustment in the
Retail Rate Matters section of OTHER MATTERS.
Interest Charges
------------------
Interest charges on long-term debt decreased for all reported periods
primarily due to reduced long-term debt balances. Also contributing to the
decrease in interest charges for the twelve-month period were refinancings of
long-term debt with lower interest cost commercial paper borrowings.
MATERIAL CHANGES IN LIQUIDITY AND CAPITAL
RESOURCES From December 31, 1996, to
September 30, 1997
and From September 30, 1996, to September 30, 1997
----------------------------------------------------
Capital Requirements
----------------------
During the nine- and twelve-month periods ended September 30, 1997, the
Company financed redemptions or retirements of long-term debt totaling $60
million and $135 million, respectively, from the issuance of short-term debt
and/or internally generated funds.
On July 1, 1997, the Company redeemed all 500,000 shares of $7.72
Serial Preferred Stock and all 350,000 shares of $7.95 Serial Preferred Stock,
both at a redemption price of $101 per share. The redemptions were funded with
additional commercial paper borrowings and/or internally generated funds.
On August 26, 1997, the Company issued $200 million of First Mortgage
Bonds. The net proceeds from this issuance were used to reduce the outstanding
balance of commercial paper and other short-term debt and for other general
corporate purposes. There were no other long-term debt issuances during the nine
and twelve months ended September 30, 1997.
On September 30, 1997, the Company terminated a $70 million long-term
revolving credit facility. As of October 1, 1997, the Company's revolving credit
facilities totaled $615 million, consisting of long-term agreements totaling
$515 million and a $100 million short-term agreement. The Company is required to
pay minimal annual commitment fees to maintain its credit facilities.
<PAGE>
The Company's capital structure as of September 30 was as follows:
1997 1996
---- ----
Common Stock Equity ............. 53.40% 50.75%
Long-term Debt .................. 45.47% 46.53%
Preferred Stock ................. 1.13% 2.72%
The Company's First Mortgage Bonds are currently rated "A2" by Moody's
Investors Service, "A" by Standard & Poor's and "A+" by Duff & Phelps. Moody's
Investors Service, Standard & Poor's and Duff & Phelps have rated the Company's
commercial paper "P-1," "A-1" and "D-1," respectively.
OTHER MATTERS
Retail Rate Matters
-------------------
A petition was filed in July 1996 by the Carolina Industrial Group for
Fair Utility Rates (CIGFUR) with the NCUC, requesting that the NCUC conduct an
investigation of the Company's base rates or treat its petition as a complaint
against the Company. The petition alleged that the Company's return on equity
(which was authorized by the NCUC in the Company's last general rate proceeding
in 1988) and earnings are too high. In December 1996, the NCUC issued an order
denying CIGFUR's petition and stating that it tentatively found no reasonable
grounds to proceed with CIGFUR's petition as a complaint. In January 1997,
CIGFUR filed its Comments and Motion for Reconsideration to which the Company
responded. On February 6, 1997, the NCUC issued an order denying CIGFUR's Motion
for Reconsideration. On February 25, 1997, CIGFUR filed a Notice of Appeal of
the NCUC's decision with the North Carolina Court of Appeals. The Company filed
its brief in this matter on July 18, 1997. Oral argument before the North
Carolina Court of Appeals is scheduled for November 19, 1997. The Company cannot
predict the outcome of this matter.
In December 1996, the Company filed a proposal with the SCPSC to
accelerate amortization of certain regulatory assets, including plant
abandonment costs related to the Harris Nuclear Plant, over a three-year period
beginning January 1, 1997. In anticipation of approval of the proposal in 1997,
the unamortized balance of plant abandonment costs related to the Harris Nuclear
Plant was adjusted in 1996 to reflect the present value impact of the shorter
recovery period. This adjustment resulted in an increase in income of
approximately $14 million, after tax, in the fourth quarter of 1996. On March
20, 1997, the SCPSC approved the Company's accelerated amortization proposal.
Competition
-----------
On April 17, 1997, the North Carolina General Assembly approved
legislation establishing a 23-member study commission to evaluate the future of
electric service in the state. In October 1997, the North Carolina Senate and
the North Carolina House of Representatives appointed twelve state legislators,
two residential customers, two industrial customers, one commercial customer and
one power marketer to the study commission. Also in October 1997, the Governor
of North Carolina appointed an environmentalist to the study commission. The
study commission also includes a representative from each of the four major
power suppliers in the state: the Company, Duke Energy, NCEMC and ElectriCities.
The commission will examine a wide range of issues related to the cost and
delivery of electric service, including the issue of customer choice of electric
providers, and will make an interim report to the 1998 General Assembly and a
final report in 1999. The study commission's first meeting was held on November
4, 1997. The Company cannot predict the outcome of this matter.
Also on April 17, 1997, a bill was introduced in the North Carolina
House of Representatives calling for retail electric competition. The bill would
require that residential customers be able to choose their provider by October
1, 1998, commercial customers by January 1, 1999, and industrial customers by
July 1, 1999. The Company cannot predict the outcome of this matter.
On February 6, 1997, representatives in the South Carolina General
Assembly introduced a bill calling for a transition to full competition in the
electric utility industry beginning in 1998. No action was taken on this bill.
In addition, by letter dated May 6, 1997, the Speaker of the South Carolina
House of Representatives requested that the SCPSC prepare a proposal for the
deregulation and restructuring of electricity in South Carolina, with a report
date of January 31, 1998. The SCPSC requested and received comments, including
those filed by the Company, on deregulation and invited interested parties to
make presentations on August 19, 1997. The Company and other interested parties
made presentations regarding deregulation to the SCPSC August 19 through August
21, 1997. The South Carolina General Assembly's Utility Subcommittee has
completed six hearings around the state in order to receive citizen input on the
deregulation issue. The subcommittee will continue to meet regarding
deregulation. The Company cannot predict the outcome of this matter.
Numerous bills have been introduced in both the House and Senate of the
105th Congress concerning the restructuring of the electric utility industry.
There is little consensus among key provisions of the various bills. Some bill
sponsors have held workshops and hearings to discuss various aspects of
restructuring. No legislation has been passed to date in this session. More
restructuring-related bills are expected to be introduced later in the session.
The Company cannot predict the outcome of these matters.
In anticipation of the emergence of deregulation in the electric
utility industry, the Company will internally organize into separate business
units in early 1998. The business units will include Energy Supply, Energy
Delivery and Retail Sales and Services. The focus of these business units will
be to create a corporate culture that is necessary to compete in a deregulated
environment.
Impact of New Accounting Standard
---------------------------------
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
(SFAS-128), which changed the previous standards on computing and presenting
earnings per share. SFAS-128 is effective for fiscal years ending after December
15, 1997; earlier application is not permitted. The Company does not expect the
adoption of SFAS-128 to have a material impact on its financial statements.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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Legal aspects of certain matters are set forth in Item 5 below.
Item 2. Changes in Securities
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(a) Securities Delivered. On October 30, 1997, 301,087 shares of
---------------------
the Company's common stock (Common Shares) that had been
recently purchased in the open market by the Company's
wholly-owned subsidiary, Strategic Resource Solutions Corp.,
a North Carolina Enterprise Corporation (SRS), were
exchanged by SRS for all of the outstanding shares of
Diversified Control Systems, Inc., a North Carolina
corporation (DCS). SRS is obligated to deliver additional
Common Shares having a market value (calculated according to
a formula in the exchange agreement) of $500,000 if DCS
meets certain financial performance objectives by December
31, 1997. All Common Shares delivered by SRS pursuant to the
exchange agreement have been or will be acquired in market
transactions, and do not represent newly-issued shares of
the Company.
(b) Underwriters and Other Purchasers. No underwriters were used
----------------------------------
in connection with the share exchange transactions
identified above. The recipients of the Common Shares were
the shareholders of DCS, who all agreed to exchange their
DCS shares for Common Shares pursuant to the exchange
agreement.
(c) Consideration. The consideration for the Common Shares was
--------------
the exchange of all outstanding shares of DCS stock pursuant
to the exchange agreement.
(d) Exemption from Registration Claimed. The Common Shares
---------------------------------------
described in this Item were delivered on the basis of an
exemption from registration under Section 4(2) of the
Securities Act of 1933. The Common Shares were received by a
limited number of individuals and are subject to
restrictions on resale typical for private placements.
Appropriate disclosure was made to all persons receiving
Common Shares in the exchange with SRS.
Item 3. Defaults upon Senior Securities )
- ------- ------------------------------- ) Not applicable for the quarter
) ended September 30, 1997.
Item 4. Submission of Matters to a Vote )
- ------- of Security Holders )
-------------------------------
<PAGE>
Item 5. Other Information
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1. (Reference is made to the Company's 1996 Form 10-K,
Generating Capability, paragraph 3.e., page 4.) With regard
to the Asheville Combustion Turbine Project, a Certificate
of Public Convenience and Necessity was issued by the North
Carolina Utilities Commission (NCUC) on August 1, 1997, to
construct a 160 MW combustion turbine unit. On August 15,
1997, the Company contracted with General Electric Company
to manufacture and install this combustion turbine unit. The
expected in-service date is June 1999.
2. (Reference is made to the Company's 1996 Form 10-K,
Competition and Franchises, paragraph 1.b., page 6.) By
order issued September 23, 1997, the NCUC requested
additional comments from interested parties regarding: the
matters raised in the parties' initial and reply comments
filed in Docket No. E-100, Sub 78; general industry trends
related to industry restructuring; and the parties' actual
experience under FERC Orders 888 and 889. The initial
comments are due on November 26, 1997, and reply comments
are due on December 17, 1997. The Company cannot predict the
outcome of this matter.
3. (Reference is made to the Company's 1996 Form 10-K,
Competition and Franchises, paragraph 1.b., page 6.
Reference is also made to the Company's Form 10-Q for the
quarter ended March 31, 1997, Item 5, paragraph 1. Reference
is also made to the Company's Form 10-Q for the quarter
ended June 30, 1997, Item 5, paragraph 3.) With regard to
the 23-member deregulation study commission established by
the North Carolina General Assembly, in October 1997, the
North Carolina Senate and North Carolina House of
Representatives appointed twelve state legislators, two
residential customers, two industrial customers, one
commercial customer and one power marketer to the study
commission. The Governor of North Carolina appointed an
environmentalist to the study commission. The study
commission also includes a representative from each of the
four major power suppliers in the state: the Company, Duke
Energy, North Carolina Electric Membership Corporation and
ElectriCities. The study commission's first meeting was held
on November 4, 1997.
Interested parties, including the Company, made
presentations regarding deregulation to the South Carolina
Public Service Commission (SCPSC) August 19 through August
21, 1997. The South Carolina General Assembly's Utility
Subcommittee has completed six hearings around the state in
order to receive citizen input on the deregulation issue.
The subcommittee will continue to meet regarding
deregulation.
The Company cannot predict the outcome of these matters.
4. (Reference is made to the Company's 1996 Form 10-K,
Financing Program, paragraph 3, page 11.) Issuance of Bonds,
Preferred Stock and Debentures were as follows:
The issuance on August 26, 1997, of $200 million
principal amount of First Mortgage Bonds, 6.80%
Series due on August 15, 2007. The net proceeds of
approximately $199 million were used to reduce the
outstanding balance of commercial paper and other
short-term debt and for other general corporate
purposes.
<PAGE>
5. (Reference is made to the Company's 1996 Form 10-K,
Financing Program, paragraph 4, page 11.) Retirements and
redemptions during 1997 were as follows:
The full redemption on July 1, 1997, of 500,000
shares of Serial Preferred Stock, $7.72 Series, at
a redemption price of $101.00 per share.
The full redemption on July 1, 1997, of 350,000
shares of Serial Preferred Stock, $7.95 Series, at
a redemption price of $101.00 per share.
6. (Reference is made to the Company's 1996 Form 10-K,
Financing Program, paragraph 5, page 11.) On September 30,
1997, the Company terminated a $70 million long-term
revolving credit facility. As of October 1, 1997, the
Company's credit facilities totaled $615 million, consisting
of $515 million in long-term agreements and a $100 million
short-term agreement. The Company is required to pay minimal
annual commitment fees to maintain its credit facilities.
7. (Reference is made to the Company's 1996 Form 10-K, Retail
Rate Matters, paragraph 2, page 12. Reference is also made
to the Company's Form 10-Q for the quarter ended June 30,
1997, Item 5, paragraph 4.) With regard to the filing by
Carolina Industrial Group for Fair Utility Rates (CIGFUR) of
a Notice of Appeal with the North Carolina Court of Appeals,
oral argument before the North Carolina Court of Appeals is
scheduled for November 19, 1997. The Company cannot predict
the outcome of this matter.
8. (Reference is made to the Company's 1996 Form 10-K, Retail
Rate Matters, paragraph 3, page 13.) With regard to
Integrated Resource Planning (IRP), on September 16, 1997,
the NCUC issued an order soliciting comments from interested
parties regarding streamlining or otherwise refining the IRP
process. Initial comments were filed by the Company on
October 30, 1997, and reply comments are due December 1,
1997. The Company cannot predict the outcome of this matter.
9. (Reference is made to the Company's 1996 Form 10-K, Retail
Rate Matters, paragraph 4, page 13. Reference is also made
to the Company's Form 10-Q for the quarter ended June 30,
1997, Item 5, paragraph 5.) With regard to the annual NCUC
fuel factor hearing on August 5, 1997, the NCUC issued a
final order approving the billing fuel factor of 1.097
cents/kwh on September 8, 1997. This new factor became
effective on September 15, 1997.
10. (Reference is made to the Company's 1996 Form 10-K,
Environmental Matters, paragraph 2, page 15. Reference is
also made to the Company's Form 10-Q for the quarter ended
June 30, 1997, Item 5, paragraph 7.) With regard to the
Clean Air Act matters, the Environmental Protection Agency
(EPA) has recently issued a rulemaking to implement the
Ozone Transport Assessment Group's recommendations regarding
utility Nitrogen Oxide (NOx) emissions. Northeastern states
are petitioning the EPA for additional NOx controls. The
Company cannot predict the outcome of this matter.
11. (Reference is made to the Company's 1996 Form 10-K,
Environmental Matters, paragraph 3.c., page 16.) With regard
to the Seaboard Chemical Corporation in Jamestown, North
Carolina, on August 22, 1997, the Company joined with other
members of the Seaboard Group II in entering into an
Administrative Order on Consent to undertake a feasibility
study. The Company cannot predict the outcome of this
matter.
<PAGE>
12. (Reference is made to the Company's 1996 Form 10-K,
Environmental Matters, paragraph 3.d., page 17.) With regard
to the Crown Cork & Seal Company and Clark Equipment Company
lawsuit seeking contribution from the Company in connection
with the Macon-Dockery site, on April 11, 1997, the United
States District Court for the Middle District of North
Carolina granted the plaintiffs' motion for a voluntary
dismissal without prejudice. The Company anticipates that
this lawsuit will be refiled shortly. The Company cannot
predict the outcome of this matter.
13. (Reference is made to the Company's 1996 Form 10-K,
Environmental Matters, paragraph 3.f., page 17.) With regard
to the Cherokee Oil Company sites in Charlotte, North
Carolina, on October 10, 1997, a partial consent decree
resolving the Company's liability at the site was entered
with the United States District Court for the Western
District of North Carolina. The costs associated with this
site are not material to the results of operations of the
Company.
14. (Reference is made to the Company's 1996 Form 10-K,
Environmental Matters, paragraph 4, page 17.) With regard to
Wilmington Oil Terminal, the North Carolina Department of
Environment and Natural Resources, (formerly the North
Carolina Department of Environment, Health and Natural
Resources), approved the corrective action plan
modifications for natural attenuation and degradation of
petroleum residuals in the groundwater. The costs associated
with this site are not material to the results of operations
of the Company.
15. (Reference is made to the Company's 1996 Form 10-K, Nuclear
Matters, paragraph 2, page 18.) With regard to high-level
radioactive waste disposal and fees paid by the Company to
the Department of Energy (DOE), by order issued August 20,
1997, the NCUC requested comments from interested parties
regarding the utilities' spent fuel storage and disposal
activities and costs and the reasonableness of the utilities
continuing to pay a disposal fee to the DOE after January
31, 1998. Initial comments were filed by the Company and
other interested parties on September 30, 1997. Reply
comments were filed on October 21, 1997. The Company cannot
predict the outcome of this matter.
In October of 1997, the U.S. House of Representatives voted
307 to 120 in favor of legislation calling for the
construction of an interim nuclear waste storage site in
Nevada by 2002. A similar waste bill was approved by the
U.S. Senate in April of 1997. The Company cannot predict the
outcome of this matter.
16. (Reference is made to the Company's 1996 Form 10-K, Other
Matters, paragraph 5, page 25.) With regard to CaroNet, LLC
and its applications to provide competing local telephone
service and to provide intrastate long distance service in
North Carolina, the NCUC granted CaroNet, LLC Certificates
of Public Convenience and Necessity to provide these
services on April 10, 1997 and September 11, 1997,
respectively.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits Filed:
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K filed during or with respect to the
quarter:
The Company filed a Form 8-K on August 28, 1997 regarding
the August 26, 1997 issuance of $200 million principal
amount of First Mortgage Bonds, 6.80% Series due August 15,
2007.
<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
By /s/ Bonnie V. Hancock
-------------------------------
Bonnie V. Hancock
Vice President and Controller
(and Principal Accounting Officer)
Date: November 12, 1997
<TABLE>
<CAPTION>
Appendix A
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Carolina Power & Light Company
(ORGANIZED UNDER THE LAWS OF NORTH CAROLINA)
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(NOT AUDITED BY INDEPENDENT AUDITORS)
SEPTEMBER 30, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF INCOME
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
<S> <C> <C> <C> <C> <C> <C>
(In thousands except per share amounts) 1997 1996 1997 1996 1997 1996
------------------------------------------------------------------------------------------------------------------------------
Operating Revenues $ 906,841 $ 831,590 $ 2,288,948 $ 2,301,143 $ 2,983,519 $ 3,021,994
------------------------------------------------------------------------------------------------------------------------------
Operating Expenses
Fuel 145,524 141,139 397,774 391,660 521,165 512,778
Purchased power 120,242 108,621 294,406 320,298 386,662 420,904
Other operation and maintenance 152,801 196,123 494,610 538,886 685,864 733,579
Depreciation and amortization 119,590 94,283 358,590 280,169 465,348 372,110
Taxes other than on income 36,761 37,364 105,286 110,020 135,744 141,178
Income tax expense 115,213 82,123 198,078 226,390 241,452 291,832
Harris Plant deferred costs, net 5,429 7,812 19,173 20,201 25,687 27,372
------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 695,560 667,465 1,867,917 1,887,624 2,461,922 2,499,753
------------------------------------------------------------------------------------------------------------------------------
Operating Income 211,281 164,125 421,031 413,519 521,597 522,241
------------------------------------------------------------------------------------------------------------------------------
Other income
Allowance for equity funds used during
construction 2 4 118 2,226 (2,097) 2,905
Income tax credit 4,789 5,488 9,914 14,319 9,443 22,327
Harris Plant carrying costs 1,107 1,530 3,610 5,888 5,021 7,811
Interest income 3,227 689 15,412 2,864 16,610 4,117
Other income, net (6,695) 2,374 (11,173) 14,372 11,795 9,642
------------------------------------------------------------------------------------------------------------------------------
Total Other Income 2,430 10,085 17,881 39,669 40,772 46,802
------------------------------------------------------------------------------------------------------------------------------
Income Before Interest Charges 213,711 174,210 438,912 453,188 562,369 569,043
------------------------------------------------------------------------------------------------------------------------------
Interest Charges
Long-term debt 40,630 42,408 121,778 130,437 163,962 177,000
Other interest charges 6,191 3,833 16,508 15,738 19,925 19,307
Allowance for borrowed funds used during
construction (939) (1,190) (3,754) (3,148) (7,014) (4,129)
------------------------------------------------------------------------------------------------------------------------------
Net Interest Charges 45,882 45,051 134,532 143,027 176,873 192,178
------------------------------------------------------------------------------------------------------------------------------
Net Income 167,829 129,159 304,380 310,161 385,496 376,865
Preferred Stock Dividend Requirements (2,167) (2,402) (5,310) (7,206) (7,713) (9,609)
------------------------------------------------------------------------------------------------------------------------------
Earnings for Common Stock $ 165,662 $ 126,757 $ 299,070 $ 302,955 $ 377,783 $ 367,256
------------------------------------------------------------------------------------------------------------------------------
Average Common Shares Outstanding 143,800 143,738 143,591 143,724 143,522 143,881
Earnings per Common Share $ 1.15 $ 0.88 $ 2.08 $ 2.11 $ 2.63 $ 2.55
Dividends Declared per Common Share $ 0.470 $ 0.455 $ 1.410 $ 1.365 $ 1.880 $ 1.820
---------------------------------------------------------------------------------------------------------------------------------
See Supplemental Data and Notes to Consolidated Interim
Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Carolina Power & Light Company
BALANCE SHEETS September 30 December 31
<S> <C> <C> <C>
(In thousands) 1997 1996 1996
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Electric Utility Plant
Electric utility plant in service $ 10,039,131 $ 9,659,303 $ 9,783,442
Accumulated depreciation (4,057,913) (3,721,581) (3,796,645)
- -----------------------------------------------------------------------------------------------------------------------------------
Electric utility plant in service, net 5,981,218 5,937,722 5,986,797
Held for future use 12,734 12,752 12,127
Construction work in progress 155,098 215,329 196,623
Nuclear fuel, net of amortization 184,643 183,178 204,372
- -----------------------------------------------------------------------------------------------------------------------------------
Total Electric Utility Plant, Net 6,333,693 6,348,981 6,399,919
- -----------------------------------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents 14,736 18,020 10,941
Accounts receivable 396,167 344,753 384,318
Fuel 46,715 43,478 60,369
Materials and supplies 130,604 127,644 122,809
Deferred fuel cost (credit) 11,260 (8,754) (4,339)
Prepayments 59,273 55,041 65,794
Other current assets 43,271 32,014 27,808
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 702,026 612,196 667,700
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
Income taxes recoverable through future rates 342,976 384,325 384,336
Abandonment costs (Note 4) 45,461 46,559 65,863
Harris Plant deferred costs 67,834 88,500 83,397
Unamortized debt expense 53,767 71,201 69,956
Miscellaneous other property and investments 393,320 454,796 489,334
Other assets and deferred debits 215,030 175,099 204,357
- -----------------------------------------------------------------------------------------------------------------------------------
Total Deferred Debits and Other Assets 1,118,388 1,220,480 1,297,243
- -----------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 8,154,107 $ 8,181,657 $ 8,364,862
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES
Capitalization
Common stock equity $ 2,805,515 $ 2,682,931 $ 2,690,454
Preferred stock - redemption not required (Note 3) 59,376 143,801 143,801
Long-term debt, net (Note 3) 2,389,251 2,459,445 2,525,607
- -----------------------------------------------------------------------------------------------------------------------------------
Total Capitalization 5,254,142 5,286,177 5,359,862
- -----------------------------------------------------------------------------------------------------------------------------------
Current Liabilities
Current portion of long-term debt 188,529 138,345 103,345
Notes payable - 3,640 64,885
Accounts payable 160,344 194,810 375,216
Taxes accrued 134,257 176,160 -
Interest accrued 33,810 36,055 39,436
Dividends declared 69,901 71,386 73,469
Other current liabilities 96,950 71,236 74,668
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 683,791 691,632 731,019
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 1,743,092 1,733,013 1,827,693
Accumulated deferred investment tax credits 224,587 234,873 232,262
Other liabilities and deferred credits 248,495 235,962 214,026
- -----------------------------------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 2,216,174 2,203,848 2,273,981
- -----------------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 6)
Total Capitalization and Liabilities $ 8,154,107 $ 8,181,657 $ 8,364,862
- -----------------------------------------------------------------------------------------------------------------------------------
SCHEDULES OF COMMON STOCK EQUITY
(In thousands)
Common stock $ 1,371,520 $ 1,369,963 $ 1,366,100
Unearned ESOP common stock (165,805) (178,514) (178,514)
Capital stock issuance expense (790) (790) (790)
Retained earnings 1,600,590 1,492,272 1,503,658
- -----------------------------------------------------------------------------------------------------------------------------------
Total Common Stock Equity $ 2,805,515 $ 2,682,931 $ 2,690,454
- -----------------------------------------------------------------------------------------------------------------------------------
See Supplemental Data and Notes to Consolidated Interim Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Carolina Power & Light Company
STATEMENTS OF CASH FLOWS Three Months Ended Nine Months Ended Twelve Months Ended
(In thousands) September 30 September 30 September 30
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 167,829 $ 129,159 $ 304,380 $ 310,161 $ 385,496 $ 376,865
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 141,085 114,076 420,038 342,359 524,187 454,317
Harris Plant deferred costs 4,322 6,282 15,563 14,313 20,666 19,561
Deferred income taxes (16,507) (9,023) (57,788) 18,242 54,788 102,934
Investment tax credit (2,558) (2,611) (7,675) (7,834) (10,286) (9,520)
Allowance for equity funds used during
construction (2) (4) (118) (2,226) 2,097 (2,905)
Deferred fuel cost (credit) (16,362) (8,806) (15,599) (18,742) (20,014) (26,707)
Net (increase) decrease in receivables,
inventories and prepaid expense (50,849) 17,133 (86,366) (18,152) (133,007) (22,183)
Net increase (decrease) in payables and
accrued expenses 104,574 103,497 37,510 114,184 (72,003) 43,969
Miscellaneous 29,740 53,496 200,697 79,730 185,820 80,827
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 361,272 403,199 810,642 832,035 937,744 1,017,158
- -----------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Gross property additions (103,931) (80,480) (277,344) (249,980) (396,672) (325,017)
Nuclear fuel additions (16,474) (28,705) (50,278) (64,603) (72,940) (74,705)
Contributions to external decommissioning trust (7,556) (7,515) (25,577) (25,535) (30,725) (30,095)
Contributions to retiree benefit trusts - - (21,096) (24,700) (21,096) (24,700)
Allowance for equity funds used during construction 2 4 118 2,226 (2,097) 2,905
Miscellaneous 2,992 (4,919) 1,785 (23,485) (2,776) (30,265)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (124,967) (121,615) (372,392) (386,077) (526,306) (481,877)
- -----------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from issuance of long-term debt (Note 3) 199,075 - 199,075 276,257 272,818 276,300
payable (maturity less than 90 days) (93,900) (77,109) (62,224) 3,640 (74,722) 60,383
Retirement of long-term debt (191,020) (106,613) (252,447) (498,088) (222,169) (522,137)
Retirement of preferred stock (Note 3) (85,850) - (85,850) - (85,850) -
Purchase of Company common stock - (14,472) (23,418) (21,068) (27,558) (78,111)
Dividends paid on common and preferred stock (70,260) (67,818) (209,591) (203,168) (277,241) (268,564)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (241,955) (266,012) (434,455) (442,427) (414,722) (532,129)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (5,650) 15,572 3,795 3,531 (3,284) 3,152
Cash and Cash Equivalents at Beginning of the Period 20,386 2,448 10,941 14,489 18,020 14,868
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of the Period $ 14,736 $ 18,020 $ 14,736 $ 18,020 $ 14,736 $ 18,020
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the period - interest $ 48,616 $ 51,310 $ 138,653 $ 154,700 $ 178,344 $ 204,806
income taxes $ 36,599 $ 8,360 $ 133,893 $ 48,750 $ 226,493 $ 161,302
Noncash Activities
In June 1997, Strategic Resource Solutions Corp. (formerly CaroCapital, Inc.), a wholly-owned subsidiary, purchased all remaining
shares of Knowledge Builders, Inc. (KBI). In connection with the purchase of KBI, the Company issued $20.5 million in common stock
and paid $1.9 million in cash. See Note 5.
- ------------------------------------------------------------------------------------------------------------------------------------
See Supplemental Data and Notes to Consolidated Interim Financial
Statements.
</TABLE>
<TABLE>
<CAPTION>
Carolina Power & Light Company
SUPPLEMENTAL DATA Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands)
Residential $ 310,251 $ 279,468 $ 750,113 $ 768,131 $ 974,134 $ 999,794
Commercial 193,713 176,561 493,684 478,477 643,087 627,484
Industrial 206,230 200,371 561,735 542,600 740,723 722,688
Government and municipal 21,766 18,651 58,667 57,676 76,382 76,861
Power Agency contract requirements 28,672 30,101 57,418 78,975 75,238 99,276
NCEMC 68,666 65,141 169,365 189,571 214,447 256,794
Other wholesale 23,041 21,196 67,301 63,091 91,672 83,837
Other utilities 40,314 26,497 89,158 82,606 111,629 102,741
Miscellaneous revenue 14,188 13,604 41,507 40,016 56,207 52,519
- ------------------------------------------------------------------------------------------------------------------------------------
Total Operating Revenues $ 906,841 $ 831,590 $ 2,288,948 $ 2,301,143 $ 2,983,519 $ 3,021,994
- ------------------------------------------------------------------------------------------------------------------------------------
Energy Sales (millions of kWh)
Residential 3,697 3,288 9,416 9,736 12,290 12,716
Commercial 2,984 2,682 7,612 7,339 9,889 9,599
Industrial 3,953 3,750 11,345 10,775 15,027 14,411
Government and municipal 379 323 989 978 1,274 1,293
Power Agency contract requirements 779 693 1,619 2,078 2,064 2,649
NCEMC 1,359 1,122 3,131 3,075 4,004 4,343
Other wholesale 484 464 1,531 1,447 2,097 1,940
Other utilities 1,339 1,139 3,524 3,791 4,632 4,716
- ------------------------------------------------------------------------------------------------------------------------------------
Total Energy Sales 14,974 13,461 39,167 39,219 51,277 51,667
- ------------------------------------------------------------------------------------------------------------------------------------
Energy Supply (millions of kWh)
Generated - coal 7,424 6,999 18,683 19,026 24,517 24,871
nuclear 5,491 4,806 16,106 15,290 21,100 20,338
hydro 105 150 677 673 886 898
combustion turbines 95 27 145 56 156 58
Purchased 2,251 1,985 4,832 5,709 6,418 7,516
- ------------------------------------------------------------------------------------------------------------------------------------
Total Energy Supply (Company Share) 15,366 13,967 40,443 40,754 53,077 53,681
- ------------------------------------------------------------------------------------------------------------------------------------
Detail of Income Taxes (in thousands)
Included in Operating Expenses
Income tax expense (credit) - current $ 134,217 $ 94,214 $ 264,040 $ 219,234 $ 206,756 $ 203,807
deferred (16,446) (9,480) (58,287) 14,990 44,982 97,545
investment tax
credit adjustments (2,558) (2,611) (7,675) (7,834) (10,286) (9,520)
- ------------------------------------------------------------------------------------------------------------------------------------
Subtotal 115,213 82,123 198,078 226,390 241,452 291,832
- ------------------------------------------------------------------------------------------------------------------------------------
Harris Plant deferred costs - investment tax
credit adjustments (30) (74) (130) (223) (193) (297)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Included in Operating Expenses 115,183 82,049 197,948 226,167 241,259 291,535
- ------------------------------------------------------------------------------------------------------------------------------------
Included in Other Income
Income tax expense (credit) - current (4,728) (5,945) (10,413) (17,571) (19,249) (27,717)
deferred (61) 457 499 3,252 9,806 5,390
- ------------------------------------------------------------------------------------------------------------------------------------
Total Included in Other Income (4,789) (5,488) (9,914) (14,319) (9,443) (22,327)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income Tax Expense $ 110,394 $ 76,561 $ 188,034 $ 211,848 $ 231,816 $ 269,208
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATISTICS
Ratio of earnings to fixed charges 4.11 4.05
Return on average common stock equity 13.79% 13.87%
Book value per common share $ 19.51 $ 18.71
<PAGE>
Capitalization ratios
Common stock equity 53.40% 50.75%
Preferred stock - redemption not required 1.13 2.72
Long-term debt, net 45.47 46.53
- ------------------------------------------------------------------------------------------------------------------------------------
Total 100.00% 100.00%
- ------------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Interim Financial
Statements.
</TABLE>
Carolina Power & Light Company
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
--------------------------------------
A. Organization. Carolina Power & Light Company (the Company) is a public
------------
service corporation primarily engaged in the generation, transmission,
distribution and sale of electricity in portions of North and South
Carolina. The Company has no other material segments of business.
B. Basis of Presentation. These consolidated interim financial statements
---------------------
are prepared in conformity with the accounting principles reflected in
the financial statements included in the Company's 1996 Annual Report
on Form 10-K. Due to temperature variations between seasons of the
year and the timing of outages of electric generating units,
especially nuclear-fueled units, the amounts reported in the
Statements of Income for periods of less than twelve months are not
necessarily indicative of amounts expected for the year. 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. Certain
amounts for 1996 have been reclassified to conform to the 1997
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. NUCLEAR DECOMMISSIONING
-------------------------
In the Company's retail jurisdictions, provisions for nuclear
decommissioning costs are approved by the North Carolina Utilities
Commission (NCUC) and the South Carolina Public Service Commission
(SCPSC) and are based on site-specific estimates that include the
costs for removal of all radioactive and other structures at the site.
In the wholesale jurisdiction, the provisions for nuclear
decommissioning costs are based on amounts agreed upon in applicable
rate agreements. Based on the site-specific estimates discussed below,
and using an assumed after-tax earnings rate of 8.5% 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 1993, using 1993 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 1993 dollars, are $257.7 million for
Robinson Unit No. 2, $235.4 million for Brunswick Unit No. 1, $221.4
million for Brunswick Unit No. 2 and $284.3 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.
<PAGE>
Carolina Power & Light Company
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
The Financial Accounting Standards Board (the Board) has reached
several tentative conclusions with respect to its project regarding
accounting practices related to closure and removal of long-lived
assets. The primary conclusions as they relate to nuclear
decommissioning are: 1) the cost of decommissioning should be
accounted for as a liability and accrued as the obligation is
incurred; 2) recognition of a liability for decommissioning results in
recognition of an increase to the cost of the plant; 3) the
decommissioning liability should be measured based on discounted cash
flows using a risk-free rate; and 4) decommissioning trust funds
should not be offset against the decommissioning liability. It is
uncertain what impacts the final statement may ultimately have on the
Company's accounting for nuclear decommissioning and other closure and
removal costs. The Board has announced that the effective date would
be no earlier than 1998.
3. CAPITALIZATION
--------------
A. Preferred Stock Redemption. On July 1, 1997, the Company redeemed all
--------------------------
500,000 shares of $7.72 Serial Preferred Stock and all 350,000 shares
of $7.95 Serial Preferred Stock, both at a redemption price of $101
per share. The redemptions were funded with additional commercial
paper borrowings and/or internally generated funds.
B. Long-Term Debt. On August 26, 1997, the Company issued $200 million
---------------
principal amount of First Mortgage Bonds, 6.80% Series due August 15,
2007.
See Common Stock issuance information in "Note 5" below.
4. RETAIL RATE MATTERS
--------------------
A petition was filed in July 1996 by the Carolina Industrial Group for
Fair Utility Rates (CIGFUR) with the NCUC requesting that the NCUC
conduct an investigation of the Company's base rates or treat its
petition as a complaint against the Company. The petition alleged that
the Company's return on equity (which was authorized by the NCUC in
the Company's last general rate proceeding in 1988) and earnings are
too high. In December 1996, the NCUC issued an order denying CIGFUR's
petition and stating that it tentatively found no reasonable grounds
to proceed with CIGFUR's petition as a complaint. In January 1997,
CIGFUR filed its Comments and Motion for Reconsideration to which the
Company responded. On February 6, 1997, the NCUC issued an order
denying CIGFUR's Motion for Reconsideration. On February 25, 1997,
CIGFUR filed a Notice of Appeal of the NCUC's decision with the North
Carolina Court of Appeals. The Company filed its brief in this matter
on July 18, 1997. Oral argument before the North Carolina Court of
Appeals is scheduled for November 19, 1997. The Company cannot predict
the outcome of this matter.
In December 1996, the Company filed a proposal with the SCPSC to
accelerate amortization of certain regulatory assets, including plant
abandonment costs related to the Harris Plant, over a three-year
period beginning January 1, 1997. This accelerated amortization will
reduce income by approximately $13 million, after tax, in each of the
three years. In anticipation of approval of the proposal in 1997, the
unamortized balance of plant abandonment costs related to the Harris
Plant was adjusted in 1996 to reflect the present value impact of the
shorter recovery period. This adjustment resulted in an increase in
income of approximately $14 million, after tax, in the fourth quarter
of 1996. On March 20, 1997, the SCPSC approved the Company's
accelerated amortization proposal.
<PAGE>
Carolina Power & Light Company
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
5. PURCHASE OF KNOWLEDGE BUILDERS, INC. (KBI)
--------------------------------------------------
On May 6, 1997, CaroCapital, Inc. (CaroCapital), a wholly owned
subsidiary of the Company, entered into a merger agreement pursuant to
which KBI was merged into CaroCapital. KBI is an energy-management
software and control systems company in which CaroCapital purchased a
40% equity interest in 1996. In connection with the merger, the
remaining KBI stock was exchanged for common stock of the Company
according to a market value formula. The merger resulted in the
issuance of approximately 604,000 shares of the Company's common stock
(valued at $20.5 million) and a cash payment of $1.9 million. The
merger agreement also provided for incentive payments based on
CaroCapital's future results of operations. If earned, these
additional payments will be made primarily in shares of the Company's
common stock. The merger was completed on June 5, 1997. Following the
completion of the merger, CaroCapital was renamed Strategic Resource
Solutions Corp., a North Carolina Enterprise Corporation.
6. COMMITMENTS AND CONTINGENCIES
-----------------------------
Contingencies existing as of the date of these statements are
described below. No significant changes have occurred since December
31, 1996, with respect to the commitments discussed in Note 11 of the
financial statements included in the Company's 1996 Annual Report to
Shareholders.
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 non-regulated entities. The continued
applicability of SFAS-71 will require further evaluation as
competitive forces, deregulation and restructuring take effect in the
electric utility industry. In the event that SFAS-71 no longer applied
to certain regulatory assets and liabilities, those assets and
liabilities would be eliminated. At September 30, 1997, the Company's
regulatory assets totaled $590.9 million. Additionally, the factors
discussed above 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."
B. Claims and Uncertainties. 1) 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 and certain entities that
were later merged into the Company had some connection. In this
regard, the Company, along with others, is participating in a
cooperative effort with the North Carolina Department of Environment
and Natural Resources, Division of Waste Management (DWM) to establish
a uniform framework for addressing these MGP sites. The investigation
and remediation of specific MGP sites will be addressed pursuant to
one or more Administrative Orders on Consent between the DWM and the
potentially responsible party or parties. The Company continues to
investigate the identities of parties connected to individual MGP
sites, the relative relationships of the Company and other parties to
those sites and the degree to which the Company will undertake shared
voluntary efforts with others at individual sites.
<PAGE>
Carolina Power & Light Company
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
The Company has been notified by regulators of its involvement or
potential involvement in several sites, other than MGP sites, that
require remedial action. Although the Company cannot predict the
outcome of these matters, it does not expect costs associated with
these sites to be material to the results of operations of the
Company.
The Company carries a liability for the estimated costs associated
with certain remedial activities at certain MGP and other sites. This
liability is not material to the financial position of the Company.
Due to uncertainty regarding the extent of remedial action that will
be required and questions of liability, the cost of remedial
activities at certain MGP sites is not currently determinable. The
Company cannot predict the outcome of these matters.
2) 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 dispose of the Company's spent nuclear
fuel. The Company cannot predict whether the DOE will be able to
perform its contractual obligations and provide interim storage or
permanent disposal repositories for spent nuclear fuel and/or
high-level radioactive waste materials on a timely basis.
With certain modifications, the Company's spent fuel storage
facilities are sufficient to provide storage space for spent fuel
generated on the Company's system through the expiration of the
current operating licenses for all of the Company's nuclear generating
units. Subsequent to the expiration of these licenses, dry storage may
be necessary.
3) In the opinion of management, liabilities, if any, arising under
other pending claims would not have a material effect on the financial
position, results of operations or cash flows of the Company.
7. IMPACT OF NEW ACCOUNTING STANDARD
-----------------------------------
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share," (SFAS-128), which changed the previous standards on computing
and presenting earnings per share. SFAS-128 is effective for fiscal
years ending after December 15, 1997; earlier application is not
permitted. The Company does not expect the adoption of SFAS-128 to
have a material impact on its financial statements.
Exhibit No. Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM (CONSOLIDATED INTERIM FINANCIAL STATEMENTS AS OF SEPTEMBER 30,
1997) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000017797
<NAME> CAROLINA POWER & LIGHT COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $6,333,693
<OTHER-PROPERTY-AND-INVEST> $393,320
<TOTAL-CURRENT-ASSETS> $702,026
<TOTAL-DEFERRED-CHARGES> $510,038
<OTHER-ASSETS> $215,030
<TOTAL-ASSETS> $8,154,107
<COMMON> $1,205,715
<CAPITAL-SURPLUS-PAID-IN> ($790)
<RETAINED-EARNINGS> $1,600,590
<TOTAL-COMMON-STOCKHOLDERS-EQ> $2,805,515
$0
$59,376
<LONG-TERM-DEBT-NET> $2,389,251
<SHORT-TERM-NOTES> $0
<LONG-TERM-NOTES-PAYABLE> $0
<COMMERCIAL-PAPER-OBLIGATIONS> $0
<LONG-TERM-DEBT-CURRENT-PORT> $188,529
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<CAPITAL-LEASE-OBLIGATIONS> $0
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<OTHER-ITEMS-CAPITAL-AND-LIAB> $2,711,436
<TOT-CAPITALIZATION-AND-LIAB> $8,154,107
<GROSS-OPERATING-REVENUE> $2,288,948
<INCOME-TAX-EXPENSE> $198,078
<OTHER-OPERATING-EXPENSES> $1,669,839
<TOTAL-OPERATING-EXPENSES> $1,867,917
<OPERATING-INCOME-LOSS> $421,031
<OTHER-INCOME-NET> $17,881
<INCOME-BEFORE-INTEREST-EXPEN> $438,912
<TOTAL-INTEREST-EXPENSE> $134,532
<NET-INCOME> $304,380
$5,310
<EARNINGS-AVAILABLE-FOR-COMM> $299,070
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<TOTAL-INTEREST-ON-BONDS> $121,778
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<EPS-PRIMARY> 2.08
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</TABLE>