UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 1-3382
CAROLINA POWER & LIGHT COMPANY
(Exact name of registrant as specified in its charter)
North Carolina 56-0165465
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
411 Fayetteville Street, Raleigh, North Carolina 27601-1748
(Address of principal executive offices) (Zip Code)
919-546-6111
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock (Without Par
Value) shares outstanding at April 30, 1998: 151,340,394.
<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 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" about the effect of deregulation and the outcome of the
Year 2000 compliance.
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 South Carolina Public Service
Commission); general industry trends; operation of nuclear power facilities;
nuclear storage facilities; nuclear decommissioning costs; general economic
growth; weather conditions and catastrophic weather-related damage;
deregulation; market demand for energy; inflation; capital market conditions;
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.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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Carolina Power & Light Company
(ORGANIZED UNDER THE LAWS OF NORTH CAROLINA)
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
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STATEMENTS OF INCOME
Three Months Ended Twelve Months Ended
March 31 March 31
<S> <C> <C> <C> <C>
(In thousands except per share amounts) 1998 1997 1998 1997
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Operating Revenues $ 752,296 $ 716,084 $ 3,060,301 $ 2,928,214
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Operating Expenses
Fuel 143,803 133,268 544,803 510,752
Purchased power 85,341 81,619 391,018 388,184
Other operation and maintenance 156,794 155,963 662,297 716,703
Depreciation and amortization 122,012 118,872 484,790 413,321
Taxes other than on income 34,880 35,006 139,352 136,921
Income tax expense 69,601 61,029 261,620 253,698
Harris Plant deferred costs, net 1,778 7,565 18,509 26,216
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Total Operating Expenses 614,209 593,322 2,502,389 2,445,795
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Operating Income 138,087 122,762 557,912 482,419
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Other Income (Expense)
Allowance for equity funds used during
construction 3 61 (58) (963)
Income tax credit 10,518 3,086 26,764 12,520
Harris Plant carrying costs 966 1,308 4,284 6,798
Interest income 3,437 1,669 20,103 4,598
Other income, net (22,419) (1,992) (39,702) 29,150
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Total Other Income (Expense) (7,495) 4,132 11,391 52,103
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Income Before Interest Charges 130,592 126,894 569,303 534,522
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Interest Charges
Long-term debt 42,822 40,710 165,580 168,655
Other interest charges 2,610 5,412 15,941 17,655
Allowance for borrowed funds used during
construction (1,411) (1,490) (4,844) (6,981)
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Net Interest Charges 44,021 44,632 176,677 179,329
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Net Income 86,571 82,262 392,626 355,193
Preferred Stock Dividend Requirements (742) (2,402) (4,392) (9,609)
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Earnings for Common Stock $ 85,829 $ 79,860 $ 388,234 $ 345,584
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Average Common Shares Outstanding 143,766 143,495 143,712 143,589
Basic and Diluted Earnings per Common Share $ 0.60 $ 0.56 $ 2.70 $ 2.41
Dividends Declared per Common Share $ 0.485 $ 0.470 $ 1.910 $ 1.850
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See Supplemental Data and Notes to Consolidated Interim Financial Statements.
</TABLE>
<TABLE>
Carolina Power & Light Company
BALANCE SHEETS March 31 December 31
<S> <C> <C> <C>
(In thousands) 1998 1997 1997
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ASSETS
Electric Utility Plant
Electric utility plant in service $ 10,157,190 $ 9,856,889 $ 10,113,334
Accumulated depreciation (4,272,202) (3,883,684) (4,181,417)
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Electric utility plant in service, net 5,884,988 5,973,205 5,931,917
Held for future use 12,019 14,176 12,255
Construction work in progress 170,595 177,566 158,347
Nuclear fuel, net of amortization 223,235 194,501 190,991
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Total Electric Utility Plant, Net 6,290,837 6,359,448 6,293,510
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Current Assets
Cash and cash equivalents 33,845 24,901 14,426
Accounts receivable 381,846 312,917 406,872
Fuel 71,677 68,242 47,551
Materials and supplies 140,661 126,813 136,253
Deferred fuel cost (credit ) 14,052 (13,953) 20,630
Prepayments 63,014 67,756 62,040
Other current assets 13,055 29,226 47,034
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Total Current Assets 718,150 615,902 734,806
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Deferred Debits and Other Assets
Income taxes recoverable through future rates 315,932 370,444 328,818
Abandonment costs 31,536 59,161 38,557
Harris Plant deferred costs 62,914 77,139 63,727
Unamortized debt expense 43,046 64,581 48,407
Nuclear decommissioning trust funds 273,131 158,755 245,523
Miscellaneous other property and investments 249,401 343,007 256,291
Other assets and deferred debits 265,486 206,245 211,089
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Total Deferred Debits and Other Assets 1,241,446 1,279,332 1,192,412
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Total Assets 8,250,433 8,254,682 8,220,728
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CAPITALIZATION AND LIABILITIES
Capitalization
Common stock equity $ 2,835,989 $ 2,716,166 $ 2,818,807
Preferred stock - redemption not required 59,376 143,801 59,376
Long-term debt, net 2,449,127 2,524,942 2,415,656
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Total Capitalization 5,344,492 5,384,909 5,293,839
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Current Liabilities
Current portion of long-term debt 208,075 43,436 207,979
Short-term debt - 149,200 -
Accounts payable 196,062 150,097 290,352
Taxes accrued 92,521 76,612 13,666
Interest accrued 32,539 32,020 43,620
Dividends declared 72,236 73,969 72,266
Other current liabilities 94,489 81,291 102,943
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Total Current Liabilities 695,922 606,625 730,826
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Deferred Credits and Other Liabilities
Accumulated deferred income taxes 1,711,620 1,799,860 1,722,908
Accumulated deferred investment tax credits 219,477 229,703 222,028
Other liabilities and deferred credits 278,922 233,585 251,127
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Total Deferred Credits and Other Liabilities 2,210,019 2,263,148 2,196,063
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Commitments and Contingencies (Notes 2, 3 and 4)
Total Capitalization and Liabilities 8,250,433 8,254,682 8,220,728
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SCHEDULES OF COMMON STOCK EQUITY
Common stock $ 1,367,110 $ 1,371,548 $ 1,371,520
Unearned ESOP common stock (160,184) (170,688) (165,804)
Capital stock issuance expense (790) (790) (790)
Retained earnings 1,629,853 1,516,096 1,613,881
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Total Common Stock Equity $ 2,835,989 $ 2,716,166 $ 2,818,807
- ------------------------------------------------------------------------------------------------------------------------------
See Supplemental Data and Notes to Consolidated Interim Financial Statements.
</TABLE>
<TABLE>
Carolina Power & Light Company
STATEMENTS OF CASH FLOWS
Three Months Ended Twelve Months Ended
March 31 March 31
<S> <C> <C> <C> <C>
(In thousands) 1998 1997 1998 1997
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Operating Activities
Net income $ 86,571 $ 82,262 $ 392,626 $ 355,193
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 145,161 140,358 570,015 473,933
Harris Plant deferred costs 812 6,257 14,225 19,418
Deferred income taxes (23,457) (25,819) (64,184) 90,374
Investment tax credit (2,552) (2,558) (10,226) (10,392)
Deferred fuel cost (credit) 6,578 9,614 (28,005) (2,134)
Net (increase) decrease in receivables, inventories
and prepaid expenses (22,432) (16,813) (116,835) (66,031)
Net increase (decrease) in payables and accrued
expenses 43,230 (23,345) 60,161 (59)
Miscellaneous (13,131) 23,784 22,276 37,395
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Net Cash Provided by Operating Activities 220,780 193,740 840,053 897,697
- ---------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Gross property additions (77,334) (75,547) (323,992) (356,377)
Nuclear fuel additions (56,104) (21,616) (95,997) (82,808)
Contributions to external decommissioning trust (10,251) (10,298) (30,679) (30,683)
Contributions to retiree benefit trusts - (21,096) - (21,096)
Net cash flow of company-owned life insurance program 273 837 137,944 47,357
Miscellaneous (19,971) (8,285) (66,419) (24,117)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (163,387) (136,005) (379,143) (467,724)
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Financing Activities
Proceeds from issuance of long-term debt - - 199,075 -
Net increase (decrease) in short-term debt
(maturity less than 90 days) - 86,976 (149,200) 74,478
Net increase (decrease) in commercial paper classified as
long-term debt 34,130 - (69,970) 84,443
Retirement of long-term debt (1,476) (61,427) (43,459) (273,733)
Redemption of preferred stock (85,850)
Purchase of Company common stock (23,418) (23,288)
Dividends paid on common and preferred stock (70,628) (69,324) (279,144) (272,574)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (37,974) (43,775) (451,966) (410,674)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 19,419 13,960 8,944 19,299
Cash and Cash Equivalents at Beginning of the Period 14,426 10,941 24,901 5,602
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of the Period $ 33,845 $ 24,901 $ 33,845 $ 24,901
- ---------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the period - interest $ 55,957 $ 53,101 $ 174,367 $ 192,290
income taxes $ 6,070 $ 804 $ 294,959 $ 141,499
Noncash Activities
In June 1997, Strategic Resource Solutions Corp., 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 Supplemental Data and Notes to Consolidated Interim Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Carolina Power & Light Company
SUPPLEMENTAL DATA Three Months Ended Twelve Months Ended
March 31 March 31
<S> <C> <C> <C> <C>
1998 1997 1998 1997
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Operating Revenues (in thousands)
Residential $ 259,136 $ 248,383 $ 997,588 $ 956,256
Commercial 153,540 149,639 652,340 625,941
Industrial 166,466 170,892 733,659 729,236
Government and municipal 18,620 19,438 76,331 74,771
Power Agency contract requirements 18,658 9,119 80,858 80,461
NCEMC 56,529 54,220 228,260 218,736
Other wholesale 23,492 25,321 90,255 90,879
Other utilities 39,689 25,579 143,195 96,959
Miscellaneous revenue 16,166 13,493 57,815 54,975
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Total Operating Revenues $ 752,296 $ 716,084 $ 3,060,301 $ 2,928,214
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Energy Sales (millions of kWh)
Residential 3,438 3,268 12,658 12,070
Commercial 2,358 2,287 10,082 9,580
Industrial 3,479 3,515 15,038 14,637
Government and municipal 314 325 1,283 1,253
Power Agency contract requirements 398 379 2,090 2,132
NCEMC 989 946 4,216 3,803
Other wholesale 529 568 2,081 2,101
Other utilities 1,954 1,160 6,328 4,487
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Total Energy Sales 13,459 12,448 53,776 50,063
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Energy Supply (millions of kWh)
Generated - coal 6,786 5,410 26,922 23,126
nuclear 5,589 5,873 21,406 21,478
hydro 375 318 856 888
combustion turbines 19 2 206 56
Purchased 1,156 1,214 6,260 6,611
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Total Energy Supply (Company Share) 13,925 12,817 55,650 52,159
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Detail of Income Taxes (in thousands)
Included in Operating Expenses
Income tax expense (credit) - current $ 95,024 $ 88,707 $ 338,195 $ 184,553
deferred (22,871) (25,120) (66,349) 79,537
investment tax credit
adjustments (2,552) (2,558) (10,226) (10,392)
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Subtotal 69,601 61,029 261,620 253,698
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Harris Plant deferred costs - investment tax credit
adjustments - (60) (91) (272)
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Total Included in Operating Expenses 69,601 60,969 261,529 253,426
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Included in Other Income
Income tax expense (credit) - current (9,932) (2,387) (28,929) (23,357)
deferred (586) (699) 2,165 10,837
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Total Included in Other Income (10,518) (3,086) (26,764) (12,520)
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Total Income Tax Expense $ 59,083 $ 57,883 $ 234,765 $ 240,906
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FINANCIAL STATISTICS
Ratio of earnings to fixed charges 4.22 3.95
Return on average common stock equity 14.05% 12.91%
Book value per common share $ 19.73 $ 18.91
Capitalization ratios
Common stock equity 53.06% 50.44%
Preferred stock - redemption not required 1.11 2.67
Long-term debt, net 45.83 46.89
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Total 100.00% 100.00%
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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 should be read in onjunction with the Company's
consolidated financial statements included in the Company's
1997 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 1997 have been
reclassified to conform to the 1998 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 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 $258 million for Robinson Unit
No. 2, $235 million for Brunswick Unit No. 1, $221 million for
Brunswick Unit No. 2 and $284 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 has reached several tentative
conclusions with respect to its project regarding accounting practices
related to obligations associated with the retirement of long-lived
assets (formerly referred to as liabilities for closure and removal of
long-lived assets). It is uncertain when the final statement will be
issued and what impacts it may ultimately have on the Company's
accounting for nuclear decommissioning and other retirement costs.
3. 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. In February 1997, the NCUC issued an order denying CIGFUR's
Motion for Reconsideration. CIGFUR filed a Notice of Appeal of the NCUC
Order with the North Carolina Court of Appeals. The Company filed its
brief in this matter in July 1997, and oral argument was held before
the North Carolina Court of Appeals in November 1997. The Company
cannot predict the outcome of this matter.
4. COMMITMENTS AND CONTINGENCIES
Contingencies existing as of the date of these statements are described
below. No significant changes have occurred since December 31, 1997,
with respect to the commitments discussed in Note 11 of the financial
statements included in the Company's 1997 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." At March 31, 1998, the Company's regulatory assets
totaled $525 million.
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), 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 has signed AOC's to investigate
certain sites. 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
efforts with others at individual sites. The Company does not
expect these costs to be material to the financial position of
the Company.
The Company has been notified by regulators of its involvement
or potential involvement in several sites, other than MGP
sites, that may 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
financial position of the Company.
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.
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 by January 31, 1998. The DOE
defaulted on its January 31, 1998, obligation to begin taking
spent nuclear fuel, and a group of utilities, including the
Company, is considering measures to force the DOE to take
spent nuclear fuel or to pay damages from monies other than
the Nuclear Waste Fund. The Company cannot predict the outcome
of this matter.
With certain modifications, the Company's spent fuel storage
facilities will be sufficient to provide storage space for
spent fuel generated on the Company's system through the
expiration of the current operating licenses for all of the
Company's nuclear generating units. Subsequent to the
expiration of these licenses, dry storage may be necessary.
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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
For the Three and Twelve Months Ended March 31, 1998,
As Compared With the Corresponding Periods One Year Earlier
Operating Revenues
For the three and twelve months ended March 31, 1998, operating revenues were
affected by the following factors (in millions):
Three Months Twelve Months
Customer growth/changes in usage patterns $ 7 $ 126
Sales to other utilities 14 46
Price (8) (43)
Weather 11 -
Sales to Power Agency 9 -
Other 3 3
- -
Total $ 36 $ 132
== ===
The increase in the customer growth/changes in usage patterns component of
revenue for both comparison periods reflects continued growth in the number of
customers served by the Company. Sales to other utilities increased in both
comparison periods as a result of the Company's active pursuit of opportunities
in the wholesale power market. The price-related decrease for the three months
ended March 31, 1998, is primarily attributable to a decrease in the fuel cost
component of revenue. The price-related decrease for the twelve months ended
March 31, 1998, is due to a combination of a decrease in the fuel cost component
of revenue and changes to the Power Coordination Agreement, which were effective
January 1, 1997, between the Company and North Carolina Electric Membership
Corporation . The increase in the weather component of revenue for the three
months ended March 31, 1998, was due to colder weather in the current period,
although temperatures were significantly milder than normal. For the twelve
months ended March 31, 1997, both the customer growth/changes in usage patterns
and weather components of revenue were affected by lost revenues caused by
Hurricanes Fran and Bertha. The increase in revenue related to sales to North
Carolina Eastern Municipal Power Agency (Power Agency) for the three months
ended March 31, 1998, is primarily due to year-to-year differences in the timing
of supplemental capacity adjustments.
Operating Expenses
Fuel expense increased for both periods primarily due to an increase in
generation of approximately 10% and 8.4% for the three months and twelve months
ended March 31, 1998, respectively. The increase for both periods is related to
a change in the generation mix, with an increase in fossil generation and a
decrease in nuclear generation.
Other operation and maintenance expense decreased for the twelve months ended
March 31, 1998, reflecting the Company's continued cost reduction efforts. Also
contributing to the decrease were lower expenses resulting from fewer fossil
outages during the current period.
Depreciation and amortization increased approximately $71 million for the twelve
months ended March 31, 1998, of which approximately $51 million was a result of
the accelerated amortization of certain regulatory assets, and approximately $5
million resulted from the amortization of deferred operation and maintenance
expenses associated with Hurricane Fran, in accordance with orders from the
commissions in the Company's retail jurisdictions.
Income tax expense increased for the three- and twelve-month periods primarily
due to an increase in pretax operating income. For the twelve-month period, the
increase in income tax expense was partially offset by the effects of tax
provision adjustments recorded for potential audit issues in open tax years.
Harris Plant deferred costs, net decreased for both comparison periods primarily
due to the completion, in late 1997, of the amortization of the Harris Plant
phase-in costs related to the North Carolina retail jurisdiction.
Other Income
The income tax credit (i.e., income tax benefit) related to other income
increased for both comparison periods primarily as a result of a decrease in
other income.
Interest income increased for both comparison periods primarily as a result of
tax refund-related interest income.
Other income, net decreased for the three-month period primarily due to losses
incurred on certain diversified investments which are in start-up phases. For
the twelve-month period, the decrease in other income, net was partially
attributable to losses incurred on those diversified investments. In addition,
the decrease in the twelve-month period was due to an adjustment of $23 million
to the unamortized balance of abandonment costs related to the Harris Plant,
which had increased other income in the prior period.
Interest Charges
Net interest charges decreased for both reported periods primarily as a result
of a decrease in commercial paper borrowings. This decrease was partially offset
by an increase in interest due to the issuance of $200 million principal amount
of first mortgage bonds in August 1997.
Preferred Stock Dividend Requirements
The decrease in the preferred stock dividend requirements for both periods is
the result of the redemption of two preferred stock series in July 1997.
MATERIAL CHANGES IN LIQUIDITY AND CAPITAL RESOURCES
From December 31, 1997 to March 31, 1998
and From March 31, 1997 to March 31, 1998
Cash Flow and Financing
The proceeds from commercial paper borrowings and/or internally generated funds
financed the retirement of long-term debt totaling $40 million during the twelve
months ended March 31, 1998.
In July 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, at a redemption
price of $101 per share. The redemptions were funded with additional commercial
paper borrowings and/or internally generated funds.
In August 1997, the Company issued $200 million principal amount of first
mortgage bonds. The net proceeds from the 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 twelve months ended March 31, 1998.
As of March 31, 1998, the Company's revolving credit facilities totaled $515
million, substantially all of which are long-term agreements supporting its
commercial paper borrowings. In addition, on April 1, 1998 the Company entered
into a new $150 million short-term revolving credit agreement. The Company is
required to pay minimal annual commitment fees to maintain its credit
facilities. Consistent with management's intent to maintain a portion of 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 $280 million
and $350 million of commercial paper outstanding as of March 31, 1998 and 1997,
respectively.
The Company's capital structure as of March 31 was as follows:
1998 1997
---- ----
Common Stock Equity 53.06% 50.44%
Long-term Debt, net 45.83% 46.89%
Preferred Stock 1.11% 2.67%
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.
OTHER MATTERS
Competition
North Carolina Activities
The study commission established to evaluate the future of electric service in
North Carolina continued to meet and hold public hearings around the state. The
Company participated in the commission's meetings and filed comments with the
commission on March 31, 1998. The commission has retained consultants to conduct
analyses and studies concerning various deregulation issues, including stranded
costs, state and local tax implications and electric rate comparisons. These
projects are in progress and are scheduled to be completed over the next six
months. The commission will make an interim report, summarizing its activities,
to the 1998 North Carolina General Assembly. The commission's final report is
due in 1999. The Company cannot predict the outcome of this matter.
South Carolina Activities
In January 1998, the South Carolina Public Service Commission (SCPSC) rejected a
power marketer's petition requesting that the SCPSC bypass the South Carolina
General Assembly and open South Carolina's electricity markets to competition by
1999. The South Carolina General Assembly's House Utility Subcommittee continues
to meet and discuss the deregulation issue. The Company cannot predict the
outcome of this matter.
Federal Activities
In January 1998, the Internal Revenue Service ruled that public power systems
can compete in deregulated markets without jeopardizing the tax-exempt status of
their existing debt. In March 1998, the Clinton Administration unveiled its
recommended guidelines for bringing competition and customer choice to the
electric industry. Key provisions would accomplish the following: encourage
states to begin retail competition by 2003, but allow them to "opt out" if they
determine they would be better off under the current regulated system or a
different plan; allow utilities to recover their legitimate stranded costs;
triple the use of renewable energy, such as solar and wind, by mandating that at
least 5.5 percent of the nation's electricity be from renewable sources
(excluding hydro) by 2010; and impose consumer labeling standards, requiring
electricity suppliers to disclose information about their pricing, generation
mix and plant emissions. In April 1998, the national trade associations of rural
electric co-ops and public power interests requested that the federal government
impose a two-year hold on mergers between electric utilities. Congressional
discussion of deregulation is expected to continue during 1998; however, it is
uncertain whether Congress will pass legislation regarding deregulation this
year. The Company cannot predict the outcome of this matter.
Year 2000 Computer Issues
The Company initiated steps in 1994 to bring its computer systems into Year 2000
compliance. Only a few of the Company's core business applications remain to be
converted. All remaining computer systems, including equipment and devices
containing microprocessors, are being evaluated and will be converted or
replaced if necessary. The estimated costs to be incurred are expected to be
determined in 1998.
The Year 2000 issue may affect other entities with which the Company transacts
business. During the second quarter of 1998, the Company will be initiating
company-wide efforts to evaluate whether these entities will be compliant and
identify contingency plans to be put in place to counteract the adverse
consequences of any entity's failure to adequately address these issues. The
Company cannot predict the outcome of these matters.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Legal aspects of certain matters are set forth in Part I, Item 1, Notes 3 and 4
of the Company's financial statements.
Item 2. Changes in Securities and Use of Proceeds
ACQUISITION OF PARKE INDUSTRIES, INCORPORATED:
(a) Securities Delivered. On February 11, 1998, 19,496 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 delivered by SRS as part of
the consideration for the purchase of certain assets of Parke Industries,
Incorporated, a California corporation (Parke). In addition, on each of the
first three anniversaries of the closing, SRS is obligated to deliver to Parke
additional Common Shares having a market value of $450,000. Finally, SRS is
obligated to deliver to Parke additional Common Shares, in amounts that cannot
currently be determined, if certain financial performance objectives for the
years 1998 through 2000 are met. These Common Shares delivered, or to be
delivered, by SRS pursuant to the Parke asset purchase agreement were or will be
acquired in market transactions, and do not represent newly-issued shares of the
Company.
(b) Underwriters and Other Purchasers. No underwriters were used in connection
with the transactions identified above. Parke was the only recipient of the
Common Shares.
(c) Consideration. The consideration for the Common Shares was the delivery of
certain assets of Parke pursuant to the asset purchase agreement.
(d) Exemption from Registration Claimed. The Common Shares described in this
Item were delivered on the basis of an exemption from registration under Section
4(2) of the Securities Act of 1933. The Common Shares were received by one
corporation and are subject to restrictions on resale typical for private
placements.
Appropriate disclosure was made to the recipient of the Common Shares.
RESTRICTED STOCK AWARDS:
(a) Securities Delivered. On January 22, 1998 and February 20, 1998, 220,600
shares and 16,000 shares, respectively, of the Company's Common Shares were
delivered to certain key employees pursuant to the terms of the Company's 1997
Equity Incentive Plan (Plan), which was approved by the Company's shareholders
on May 7, 1997. Section 9 of the Plan provides for the granting of Restricted
Stock by the Personnel, Executive Development and Compensation Committee (now
known as 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 his utmost efforts on the Company's behalf and
thus enhance the Company's performance while aligning the employee's interest
with those of the Company's shareholders.
(d) Exemption from Registration Claimed. The Common Shares described in this
Item were delivered on the basis of an exemption from registration under Section
4(2) of the Securities Act of 1933. Receipt of the Common Shares required no
investment decision on the part of the recipients. All award decisions were made
by the Committee, which consists entirely of non-employee directors.
DIVERSIFIED CONTROL SYSTEMS, INC., STOCK AWARDS:
(a) Securities Delivered. On March 12, 1998, 12,072 shares of the Company's
Common Shares that had been purchased in the open market by SRS were delivered
by SRS to former shareholders of Diversified Control Systems, Inc., a North
Carolina corporation (DCS). The Common Shares were delivered pursuant to a
October 30, 1997 Agreement of Reorganization and Share Exchange (the Exchange
Agreement) pursuant to which SRS acquired all of the outstanding shares of DCS.
These shares were delivered because DCS met certain financial performance
objectives set forth in the Exchange Agreement. All Common Shares delivered by
SRS pursuant to the Exchange Agreement were 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 former 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. Adequate disclosure was made to all persons receiving Common
Shares in the exchange with SRS.
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:
NONE
<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/ Bonnie V. Hancock
-------------------
Bonnie V. Hancock
Vice President and Controller
(Chief Accounting Officer)
Date: May 15, 1998
EXHIBIT INDEX
Exhibit Number Description
10 Carolina Power & Light Company Restricted
Stock Agreement, as approved January 7, 1998,
pursuant to the Company's 1997 Equity
Incentive Plan.
27 Financial Data Schedule
Carolina Power & Light
Restricted Stock Agreement
This Agreement is made as of the day of , , between
----- ----------- ----------
Carolina Power & Light Company, a North Carolina corporation (the "Company"),
and , an executive with the Company (the "Employee").
----------------------
WHEREAS, the Board of Directors and shareholders of the Company have approved
and adopted the Carolina Power & Light Company 1997 Equity Incentive Plan (the
"Plan");
WHEREAS, Section 9 of the Plan provides for the granting of Restricted Stock by
the Personnel, Executive Development, and Compensation Committee of the
Company's Board of Directors (now known as the Committee on Organization and
Compensation, hereinafter the "Committee") to key employees of the Company; and
WHEREAS, the Company desires to provide an incentive to the Employee so that he
will exert his utmost efforts on the Company's behalf and thus enhance the
Company's performance while aligning the Employee's interests with the interests
of the Company's shareholders.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, agree
as follows:
1. Grant of Shares Subject to Restrictions. The Employee is granted
--------------------------------------- ------
shares of Company common Stock (the "Restricted Stock"). The Restricted
Stock is granted under the Plan, and is subject to the terms and
conditions of the Plan and this Agreement. Capitalized terms not
defined herein shall have the meanings ascribed thereto in the Plan. In
accordance with Section 12 of the Plan, the Committee has determined
that the grant of Restricted Stock under this Agreement is not intended
to qualify for the exemption for performance-based compensation under
Section 162(m) of the Code. The Restricted Stock granted hereunder is a
matter of separate inducement and is not in lieu of salary or any other
compensation for Employee's services. Both parties acknowledge that the
"Grant Date" for the Restricted Stock shall be the date of this
Agreement, which is first specified above.
2. Restrictions. Employee hereby agrees that until such restrictions are
------------
removed, as herein provided, he will not sell, assign, transfer,
exchange, hypothecate, pledge, encumber or otherwise dispose of the
Restricted Stock. Any attempt by the Employee to dispose of any shares
of the Restricted Stock in any such manner shall result in the
immediate forfeiture of such shares and any other shares then held by
the Company or the designated escrow agent on the Employee's behalf.
3. Lapse of Restrictions. Subject to Paragraph 4 below and applicable
----------------------
provisions of the Plan, the shares of Restricted Stock shall be subject
to restrictions on transferability. Said restrictions shall be removed
from such shares of Restricted Stock based upon the vesting schedule
set forth below:
(a) Shares of Restricted Stock shall become and remain
-----------
transferable on and after ;
-------------------------
(b) Shares of Restricted Stock shall become and remain
------------
transferable on and after ; and
----------------------
(c) Shares of Restricted Stock shall become and remain
------------
transferable on and after .
-----------------------
4. Termination of Employment. In the event of the Employee's death,
---------------------------
Disability, Early Retirement, Normal Retirement, or other termination
of employment for any reason, all Shares of Restricted Stock that are
still subject to restrictions under this Agreement shall be returned to
the Company as of the date of such termination and all such shares of
Restricted Stock shall be forfeited by the Employee as of the date of
such termination, except that the Committee, in its sole discretion,
may elect prior to, on, or after the date of such termination to waive
all or any portion of any restrictions remaining if said termination is
by virtue of the Employee's death, Disability, Early Retirement, Normal
Retirement, or involuntary termination without cause.
5. Acquisition and Possession of Restricted Stock. The Restricted Stock
-----------------------------------------------
granted hereunder shall be promptly acquired by the Company and a
certificate or certificates for such Shares shall be promptly provided
in the Employee's name. Unless as otherwise provided in this Paragraph
5, the Company shall hold the certificate or certificates for such
Shares until the date the restrictions on transferability are removed
in accordance with Paragraphs 3 and 4 above. The Committee may, in its
sole discretion and at any time prior to the date the restrictions on
transferability are removed in accordance with Paragraphs 3 and 4
above, require (i) that the stock certificate or certificates
representing such Shares shall be imprinted with a legend stating that
the shares represented thereby are the restricted shares subject to the
terms and conditions of this Agreement and, as such, may not be sold,
exchanged, transferred, pledged, hypothecated or otherwise disposed of
except in accordance with the terms of this Agreement, and if the
Committee makes such requirement, then each transfer agent for the
Common Stock shall be instructed to like effect with respect to such
Shares, and/or (ii) that the Employee shall, upon receipt of the
certificate or certificates therefor, deposit such instrument of
transfer, appropriately endorsed in blank, with an escrow agent
designated by the Committee, which may be the Company, under a deposit
agreement containing such terms and conditions as the Committee shall
approve, with the expenses of such escrow to be borne by the Company.
6. Rights to Dividends and Voting Rights. During the Period of Restriction
-------------------------------------
and prior to the removal of restrictions as set forth in Paragraphs 3
and 4 above, the Employee shall be the shareholder of all Shares
represented by the stock certificates, and shall be entitled to receive
all voting rights and dividends associated with the Restricted Stock as
with all other Company Common Stock shareholders, provided, however,
that the Shares shall be subject to the restrictions on transferability
set forth in Paragraphs 3 and 4 above.
7. Change in Control. The restrictions on all Restricted Stock granted
-----------------
pursuant to this Agreement shall be fully removed in the event of a
Change in Control as defined in the Plan, and the Employee shall take
full and unrestricted ownership of such Shares.
8. Capital Adjustments. If under Section 6.4 of the Plan the Employee, as
-------------------
the owner of the Shares of the Restricted Stock, shall be entitled to
new, additional or different shares of stock or securities, (i) the
Committee may require that the certificate or certificates for, or
other evidences of, such new, additional or different shares or
securities, together with a stock power or other instrument of transfer
appropriately endorsed, shall be (x) imprinted with a legend as
provided in Paragraph 5 above and/or (y) deposited by the Employee
under the deposit agreement provided for in Paragraph 5 above, and (ii)
such certificate or certificates for, or other evidences of, such new
additional or different Shares or securities, shall be subject to the
restrictions on transferability as provided in Paragraphs 3 and 4
above.
9. Taxes. By acceptance of this Agreement, the Employee agrees to
-----
reimburse the Company for any taxes required by any government to be
withheld or otherwise deducted and paid on the Employee's behalf by the
Company in respect of the Restricted Stock. In lieu thereof, the
Company shall have the right to withhold the amount of such taxes from
any other sums due or to become due from the Company to the Employee.
10. Waiver of Election. By acceptance of this Agreement, the Employee
-------------------
agrees to irrevocably waive his right to make an election (as permitted
under Section 83(b) of the Code) to include in gross income for the
taxable year in which the Restricted Stock is granted an amount equal
to the Fair Market Value of the Restricted Stock.
11. Compliance With Laws. If the Company, in its sole discretion, shall
---------------------
determine that it is necessary to comply with applicable securities
laws, the certificate or certificates representing any Shares delivered
to the Employee under this Agreement shall bear an appropriate legend
in form and substance, as determined by the Company, giving notice of
applicable restrictions on transfer under or with respect to such laws.
12. Registration of Securities. The Employee covenants and agrees with the
--------------------------
Company that if, with respect to any shares of Common Stock delivered
to the Employee pursuant to this Agreement, there does not exist a
Registration Statement on an appropriate form under the Securities Act
of l933, as amended (the "Act"), which Registration Statement shall
have become effective and shall include a prospectus that is current
with respect to the shares subject to this Agreement, then the Employee
shall execute a certificate to the Company indicating (i) that he takes
the shares for his own account and not with a view to the resale or
distribution thereof, (ii) that any subsequent offer for sale or sale
of any such shares shall be made either pursuant to (x) a Registration
Statement on an appropriate form under the Act, which Registration
Statement shall have become effective and shall be current with respect
to the shares being offered and sold, or (y) a specific exemption from
the registration requirements of the Act and any rules or regulations
thereunder and any applicable state securities laws and regulations,
but in claiming such exemption, the Employee shall, prior to any offer
for sale or sale of such shares, obtain a favorable written opinion
from counsel for or approved by the Company as to the applicability of
such exemption and (iii) that the Employee agrees that the certificate
or certificates evidencing such shares shall bear a legend to the
effect of the foregoing.
13. Priority of Documents. This Agreement is subject to all terms,
-----------------------
conditions, limitations and restrictions contained in the Plan, which
shall be controlling in the event of any conflicting or inconsistent
provisions.
14. No Employment Contract. This Agreement is not a contract of employment
----------------------
and the terms of the Employee's employment shall not be affected hereby
or by any agreement referred to herein except to the extent
specifically so provided herein or therein. Nothing herein shall be
construed to impose any obligation on the Company to continue the
Employee's employment, and it shall not impose any obligation on the
Employee's part to remain in the employ of the Company.
15. Company Information. Employee acknowledges and agrees that neither the
-------------------
Company, its shareholders nor its directors and officers has any duty
or obligation to disclose to the Employee any material information
regarding the business of the Company or affecting the value of the
Common Stock before or at the time of a termination of the employment
of the Employee by the Company, including, without limitation, any
information concerning plans for the Company to make a public offering
of its securities or to be acquired by or merged with or into another
firm or entity.
16. Deferral. The Employee may request the Committee to permit the Employee
--------
to irrevocably defer the receipt of any installment of his Restricted
Stock. Such request must be made by the Employee at least fifteen (15)
months in advance of the date that the restrictions on the affected
Shares are scheduled to lapse. Any such deferral and the method for
such deferral shall be at the sole discretion of the Committee, and is
not intended to qualify for the exception for performance-based
compensation under Section 162(m) of the Code.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and date set forth above.
Carolina Power & Light Company
By:
-------------------------------------
Charles W. Coker
Chairman, Committee on Organization and Compensation
ACCEPTED:
- ---------------------------
Employee
Date:
---------------------
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM (CONSOLIDATED INTERIM FINANCIAL STATEMENTS AS OF MARCH 31,
1998) 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $6,290,837
<OTHER-PROPERTY-AND-INVEST> $249,401
<TOTAL-CURRENT-ASSETS> $718,150
<TOTAL-DEFERRED-CHARGES> $453,428
<OTHER-ASSETS> $538,617
<TOTAL-ASSETS> $8,250,433
<COMMON> $1,206,926
<CAPITAL-SURPLUS-PAID-IN> ($790)
<RETAINED-EARNINGS> $1,629,853
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$0
$59,376
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<TOT-CAPITALIZATION-AND-LIAB> $8,250,433
<GROSS-OPERATING-REVENUE> $752,296
<INCOME-TAX-EXPENSE> $69,601
<OTHER-OPERATING-EXPENSES> $544,608
<TOTAL-OPERATING-EXPENSES> $614,209
<OPERATING-INCOME-LOSS> $138,087
<OTHER-INCOME-NET> ($7,495)
<INCOME-BEFORE-INTEREST-EXPEN> $130,592
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<NET-INCOME> $86,571
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<EARNINGS-AVAILABLE-FOR-COMM> $85,829
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