-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AT4oVbaaRYzMTrUe1R9EnMmcDb4ARhd+HJ7/VCZaFJcxH5enPlZmCCorY+akZXl1 V3xiWkLwLzZXVdptFKOvOA== 0000017797-98-000012.txt : 19980813 0000017797-98-000012.hdr.sgml : 19980813 ACCESSION NUMBER: 0000017797-98-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980812 SROS: NYSE SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAROLINA POWER & LIGHT CO CENTRAL INDEX KEY: 0000017797 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 560165465 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03382 FILM NUMBER: 98683040 BUSINESS ADDRESS: STREET 1: 411 FAYETTEVILLE ST CITY: RALEIGH STATE: NC ZIP: 27601 BUSINESS PHONE: 9195466111 10-Q 1 SECOND QUARTER 1998 FORM 10-Q 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 June 30, 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 -------------- (State or other jurisdiction of incorporation or organization) 56-0165465 ---------- (I.R.S. Employer Identification No.) 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 July 31, 1998: 151,330,894. 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" concerning the effects of deregulation and the outcome of the Company's Year 2000 Project. 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. PART I. FINANCIAL INFORMATION Item 1. Financial Statements - ------- -------------------- --------------------------------------------------------------------------------------------------------------------------- Carolina Power & Light Company (ORGANIZED UNDER THE LAWS OF NORTH CAROLINA) CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1998 --------------------------------------------------------------------------------------------------------------------------- STATEMENTS OF INCOME
Three Months Ended Six Months Ended Twelve Months Ended June 30 June 30 June 30 (In thousands except per share amounts) 1998 1997 1998 1997 1998 1997 - ------------------------------------------- --------- --------- ----------- ----------- ----------- ----------- Operating Revenues ........................ $ 736,151 $ 666,023 $ 1,488,447 $ 1,382,107 $ 3,130,429 $ 2,908,270 - ------------------------------------------- --------- --------- ----------- ----------- ----------- ----------- Operating Expenses Fuel .................................... 135,903 118,982 279,705 252,250 561,724 516,779 Purchased power ......................... 102,711 92,545 188,052 174,164 401,184 375,041 Other operation and maintenance ......... 165,607 185,846 322,400 341,809 642,058 729,186 Depreciation and amortization ........... 123,597 120,128 245,610 239,000 488,259 440,041 Taxes other than on income .............. 34,571 33,519 69,451 68,525 140,404 136,348 Income tax expense ...................... 58,231 21,836 127,832 82,865 298,015 208,361 Harris Plant deferred costs, net ........ 2,028 6,179 3,807 13,744 14,358 28,070 - ------------------------------------------- --------- --------- ----------- ----------- ----------- ----------- Total Operating Expenses ............ 622,648 579,035 1,236,857 1,172,357 2,546,002 2,433,826 - ------------------------------------------- --------- --------- ----------- ----------- ----------- ----------- Operating Income .......................... 113,503 86,988 251,590 209,750 584,427 474,444 - ------------------------------------------- --------- --------- ----------- ----------- ----------- ----------- Other Income (Expense) Allowance for equity funds used during construction 3 55 6 116 (110) (2,096) Income tax benefit ...................... 11,695 2,039 22,213 5,125 36,420 10,141 Harris Plant carrying costs ............. 954 1,195 1,920 2,503 4,043 5,444 Interest income ......................... 1,037 10,516 4,474 12,185 10,624 14,073 Other income, net ....................... (16,493) (2,486) (38,912) (4,478) (53,709) 20,863 - ------------------------------------------- --------- --------- ----------- ----------- ----------- ----------- Total Other Income (Expense) ........ (2,804) 11,319 (10,299) 15,451 (2,732) 48,425 - ------------------------------------------- --------- --------- ----------- ----------- ----------- ----------- Income Before Interest Charges ............ 110,699 98,307 241,291 225,201 581,695 522,869 - ------------------------------------------- --------- --------- ----------- ----------- ----------- ----------- Interest Charges Long-term debt .......................... 43,998 40,438 86,820 81,148 169,140 165,740 Other interest charges .................. 2,719 4,905 5,330 10,317 13,755 17,567 Allowance for borrowed funds used during construction (1,487) (1,325) (2,898) (2,815) (5,005) (7,264) - ------------------------------------------- --------- --------- ----------- ----------- ----------- ----------- Net Interest Charges ................ 45,230 44,018 89,252 88,650 177,890 176,043 - ------------------------------------------- --------- --------- ----------- ----------- ----------- ----------- Net Income ................................ 65,469 54,289 152,039 136,551 403,805 346,826 Preferred Stock Dividend Requirements ..... (741) (741) (1,483) (3,143) (4,391) (7,948) - ------------------------------------------- --------- --------- ----------- ----------- ----------- ----------- Earnings for Common Stock ................. $ 64,728 $ 53,548 $ 150,556 $ 133,408 $ 399,414 $ 338,878 - ------------------------------------------- --------- --------- ----------- ----------- ----------- ----------- Average Common Shares Outstanding ......... 143,892 143,475 143,829 143,485 143,816 143,506 Basic and Diluted Earnings per Common Share $ 0.45 $ 0.37 $ 1.05 $ 0.93 $ 2.78 $ 2.36 Dividends Declared per Common Share ....... $ 0.485 $ 0.470 $ 0.970 $ 0.940 $ 1.925 $ 1.865 - ------------------------------------------------------------------------------------------------------------------------- See Supplemental Data and Notes to Consolidated Interim Financial Statements.
Carolina Power & Light Company BALANCE SHEETS
June 30 December 31 (In thousands) ...................................... 1998 1997 1997 - ----------------------------------------------------- ------------ ------------ ------------ ASSETS Electric Utility Plant Electric utility plant in service ................. $ 10,199,995 $ 9,968,079 $ 10,113,334 Accumulated depreciation .......................... (4,358,703) (3,966,186) (4,181,417) - ----------------------------------------------------- ------------ ------------ ------------ Electric utility plant in service, net ..... 5,841,292 6,001,893 5,931,917 Held for future use ............................... 11,886 14,176 12,255 Construction work in progress ..................... 196,555 127,692 158,347 Nuclear fuel, net of amortization ................. 218,506 200,359 190,991 - ----------------------------------------------------- ------------ ------------ ------------ Total Electric Utility Plant, Net .......... 6,268,239 6,344,120 6,293,510 - ----------------------------------------------------- ------------ ------------ ------------ Current Assets Cash and cash equivalents ......................... 40,336 20,386 14,426 Accounts receivable ............................... 484,812 343,669 406,872 Fuel .............................................. 88,595 62,120 47,551 Materials and supplies ............................ 143,707 127,039 136,253 Deferred fuel cost (credit) ....................... 25,914 (5,102) 20,630 Prepayments ....................................... 52,182 54,197 62,040 Other current assets .............................. 18,881 40,271 47,034 - ----------------------------------------------------- ------------ ------------ ------------ Total Current Assets ....................... 854,427 642,580 734,806 - ----------------------------------------------------- ------------ ------------ ------------ Deferred Debits and Other Assets Income taxes recoverable through future rates ..... 302,904 356,700 328,818 Abandonment costs ................................. 24,397 52,345 38,557 Harris Plant deferred costs ....................... 61,839 72,156 63,727 Unamortized debt expense .......................... 37,712 59,205 48,407 Nuclear decommissioning trust funds ............... 286,301 168,731 245,523 Miscellaneous other property and investments ...... 253,380 212,417 256,291 Other assets and deferred debits .................. 293,946 222,331 211,089 - ----------------------------------------------------- ------------ ------------ ------------ Total Deferred Debits and Other Assets ..... 1,260,479 1,143,885 1,192,412 - ----------------------------------------------------- ------------ ------------ ------------ Total Assets ............................ $ 8,383,145 $ 8,130,585 $ 8,220,728 - ----------------------------------------------------- ------------ ------------ ------------ CAPITALIZATION AND LIABILITIES Capitalization Common stock equity ............................... $ 2,836,285 $ 2,705,823 $ 2,818,807 Preferred stock - redemption not required ......... 59,376 59,376 59,376 Long-term debt, net ............................... 2,581,325 2,525,808 2,415,656 - ----------------------------------------------------- ------------ ------------ ------------ Total Capitalization ....................... 5,476,986 5,291,007 5,293,839 - ----------------------------------------------------- ------------ ------------ ------------ Current Liabilities Current portion of long-term debt ................. 168,075 43,436 207,979 Current portion of preferred stock ................ - 84,425 - Short-term debt ................................... - 93,900 - Accounts payable .................................. 277,812 159,563 290,352 Taxes accrued ..................................... 46,431 28,108 13,666 Interest accrued .................................. 43,034 38,873 43,620 Dividends declared ................................ 72,101 71,727 72,266 Other current liabilities ......................... 99,451 78,494 102,943 - ----------------------------------------------------- ------------ ------------ ------------ Total Current Liabilities .................. 706,904 598,526 730,826 - ----------------------------------------------------- ------------ ------------ ------------ Deferred Credits and Other Liabilities Accumulated deferred income taxes ................. 1,689,799 1,784,344 1,722,908 Accumulated deferred investment tax credits ....... 216,925 227,145 222,028 Other liabilities and deferred credits ............ 292,531 229,563 251,127 - ----------------------------------------------------- ------------ ------------ ------------ Total Deferred Credits and Other Liabilities 2,199,255 2,241,052 2,196,063 - ----------------------------------------------------- ------------ ------------ ------------ Commitments and Contingencies (Notes 2, 3 and 4) Total Capitalization and Liabilities .... $ 8,383,145 $ 8,130,585 $ 8,220,728 - ----------------------------------------------------- ------------ ------------ ------------ SCHEDULES OF COMMON STOCK EQUITY (In thousands) Common stock ...................................... $ 1,369,636 $ 1,370,858 $ 1,371,520 Unearned ESOP common stock ........................ (157,306) (166,866) (165,804) Capital stock issuance expense .................... (790) (790) (790) Retained earnings ................................. 1,624,745 1,502,621 1,613,881 - ----------------------------------------------------- ------------ ------------ ------------ Total Common Stock Equity .................. $ 2,836,285 $ 2,705,823 $ 2,818,807 - ----------------------------------------------------- ------------ ------------ ------------ See Supplemental Data and Notes to Consolidated Interim Financial Statements.
Carolina Power & Light Company STATEMENTS OF CASH FLOWS Three Months Ended Six Months Ended Twelve Months Ended June 30 June 30 June 30 (In thousands) 1998 1997 1998 1997 1998 1997 - ------------------------------------------------------- --------- --------- --------- --------- --------- --------- Operating Activities Net income $ 65,469 $ 54,289 $ 152,039 $ 136,551 $ 403,805 $ 346,826 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 144,886 138,595 290,047 278,953 576,306 497,178 Harris Plant deferred costs 1,074 4,984 1,887 11,241 10,315 22,626 Deferred income taxes (13,145) (15,463) (36,602) (41,282) (61,866) 62,271 Investment tax credit (2,551) (2,558) (5,103) (5,117) (10,219) (10,339) Deferred fuel cost (credit) (11,862) (8,851) (5,284) 763 (31,016) (12,457) Net (increase) decrease in receivables, inventories and prepaid expenses (117,960) (18,703) (140,392) (35,517) (216,091) (65,025) Net increase (decrease) in payables and accrued expenses 50,781 (43,719) 94,011 (67,064) 154,661 (73,080) Miscellaneous 10,085 (3,998) (3,046) 19,786 36,361 6,188 - ------------------------------------------------------- --------- --------- --------- --------- --------- --------- Net Cash Provided by Operating Activities 126,777 104,576 347,557 298,314 862,256 774,188 - ------------------------------------------------------- --------- --------- --------- --------- --------- --------- Investing Activities Gross property additions (94,464) (64,578) (171,798) (140,125) (353,878) (339,933) Nuclear fuel additions (15,179) (12,189) (71,283) (33,805) (98,987) (85,172) Contributions to external decommissioning trust (7,688) (7,723) (17,939) (18,021) (30,644) (30,684) Contributions to retiree benefit trusts - - - (21,096) - (21,096) Net cash flow of company-owned life insurance program (2,797) 136,692 (2,524) 137,529 (1,545) 191,956 Miscellaneous (20,084) (12,568) (40,055) (20,851) (73,937) (32,542) - ------------------------------------------------------- --------- --------- --------- --------- --------- --------- Net Cash Provided by (Used in) Investing Activities (140,212) 39,634 (303,599) (96,369) (558,991) (317,471) - ------------------------------------------------------- --------- --------- --------- --------- --------- --------- Financing Activities Proceeds from issuance of long-term debt 1,001 - 1,001 - 200,076 - Net increase (decrease) in short-term debt (maturity less than 90 days) - (55,300) - 31,676 (93,900) (57,931) Net increase (decrease) in commercial paper classified as long-term debt 130,270 - 164,400 - 60,300 73,743 Retirement of long-term debt (40,000) - (41,476) (61,427) (83,459) (137,762) Redemption of preferred stock - - - - (85,850) - Purchase of Company common stock - (23,418) - (23,418) - (42,030) Dividends paid on common and preferred stock (70,712) (70,007) (141,340) (139,331) (279,849) (274,799) Miscellaneous (633) - (633) - (633) - - ------------------------------------------------------- --------- --------- --------- --------- --------- --------- Net Cash Provided by (Used in) Financing Activities 19,926 (148,725) (18,048) (192,500) (283,315) (438,779) - ------------------------------------------------------- --------- --------- --------- --------- --------- --------- Net Increase (Decrease) in Cash and Cash Equivalents 6,491 (4,515) 25,910 9,445 19,950 17,938 Cash and Cash Equivalents at Beginning of the Period 33,845 24,901 14,426 10,941 20,386 2,448 - ------------------------------------------------------- --------- --------- --------- --------- --------- --------- Cash and Cash Equivalents at End of the Period $ 40,336 $ 20,386 $ 40,336 $ 20,386 $ 40,336 $ 20,386 - ------------------------------------------------------- --------- --------- --------- --------- --------- --------- Supplemental Disclosures of Cash Flow Information Cash paid during the period - interest $ 35,170 $ 36,935 $ 91,127 $ 90,037 $ 172,601 $ 181,038 income taxes $ 120,724 $ 96,490 $ 126,794 $ 97,294 $ 319,193 $ 198,254 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.
Carolina Power & Light Company SUPPLEMENTAL DATA Three Months Ended Six Months Ended Twelve Months Ended June 30 June 30 June 30 1998 1997 1998 1997 1998 1997 ----------- ----------- ----------- ----------- ----------- ----------- Operating Revenues (in thousands) Residential $ 220,677 $ 191,479 $ 479,813 $ 439,862 $ 1,026,786 $ 943,351 ----------- ----------- ----------- ----------- ----------- ----------- Commercial 167,689 150,331 321,229 299,971 669,698 625,934 Industrial 185,951 184,613 352,417 355,505 734,997 734,864 Government and municipal 19,253 17,463 37,873 36,900 78,122 73,267 Power Agency contract requirements 24,156 19,627 42,814 28,746 85,387 76,666 NCEMC 48,435 46,480 104,964 100,700 230,215 210,923 Other wholesale 21,483 18,938 44,975 44,259 92,800 89,828 Other utilities 37,100 23,265 76,789 48,844 157,030 97,812 Miscellaneous revenue 11,407 13,827 27,573 27,320 55,394 55,625 ----------- ----------- ----------- ----------- ----------- ----------- Total Operating Revenues $ 736,151 $ 666,023 $ 1,488,447 $ 1,382,107 $ 3,130,429 $ 2,908,270 ----------- ----------- ----------- ----------- ----------- ----------- Energy Sales (millions of kWh) Residential 2,868 2,451 6,306 5,719 13,075 11,881 Commercial 2,640 2,342 4,999 4,629 10,380 9,587 Industrial 3,904 3,877 7,383 7,392 15,065 14,823 Government and municipal 318 284 632 610 1,316 1,219 Power Agency contract requirements 603 460 1,001 840 2,233 1,977 NCEMC 995 825 1,984 1,772 4,386 3,766 Other wholesale 528 480 1,057 1,047 2,130 2,078 Other utilities 1,321 1,026 3,274 2,185 6,623 4,433 ----------- ----------- ----------- ----------- ----------- ----------- Total Energy Sales 13,177 11,745 26,636 24,194 55,208 49,764 ----------- ----------- ----------- ----------- ----------- ----------- Energy Supply (millions of kWh) Generated - coal 6,779 5,850 13,565 11,260 27,851 24,092 nuclear 5,069 4,743 10,658 10,615 21,733 20,416 hydro 266 253 641 571 868 931 combustion turbines 140 48 159 50 299 88 Purchased 1,415 1,367 2,571 2,582 6,307 6,152 ----------- ----------- ----------- ----------- ----------- ----------- Total Energy Supply (Company Share) 13,669 12,261 27,594 25,078 57,058 51,679 ----------- ----------- ----------- ----------- ----------- ----------- Detail of Income Taxes (in thousands) Included in Operating Expenses Income tax expense (credit) - current $ 73,889 $ 41,115 $ 168,913 $ 129,823 $ 370,969 $ 166,753 deferred (13,107) (16,721) (35,978) (41,841) (62,735) 51,947 investment tax credit adjustments (2,551) (2,558) (5,103) (5,117) (10,219) (10,339) ----------- ----------- ----------- ----------- ----------- ----------- Subtotal 58,231 21,836 127,832 82,865 298,015 208,361 ----------- ----------- ----------- ----------- ----------- ----------- Harris Plant deferred costs - investment tax credit adjustments - (40) - (100) (51) (237) Total Included in Operating Expenses 58,231 21,796 127,832 82,765 297,964 208,124 ----------- ----------- ----------- ----------- ----------- ----------- Included in Other Income Income tax expense (credit) - current (11,657) (3,297) (21,589) (5,684) (37,289) (20,465) deferred (38) 1,258 (624) 559 869 10,324 ----------- ----------- ----------- ----------- ----------- ----------- Total Included in Other Income (11,695) (2,039) (22,213) (5,125) (36,420) (10,141) ----------- ----------- ----------- ----------- ----------- ----------- Total Income Tax Expense $ 46,536 $ 19,757 $ 105,619 $ 77,640 $ 261,544 $ 197,983 ----------- ----------- ----------- ----------- ----------- ----------- FINANCIAL STATISTICS Ratio of earnings to fixed charges 4.39 3.74 Return on average common stock equity 14.50 % 12.72 % Book value per common share $ 19.72 $ 18.82 Capitalization ratios Common stock equity 51.79 % 51.14 % Preferred stock - redemption not required 1.08 1.12 Long-term debt, net 47.13 47.74 ----------- ----------- Total 100.00 % 100.00 % ----------- ----------- - ----------------------------------------------------------------------------------------------------------------------------------- See Notes to Consolidated Interim Financial Statements.
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 conjunction 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 affects 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 June 30, 1998, the Company's regulatory assets totaled $493 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 and results of operations 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. The Company cannot predict the outcome of these matters. The Company carries a liability, in accordance with Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies", 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, has undertaken measures to force the DOE to take spent nuclear fuel and/or to pay damages. To date, the courts have rejected attempts to force DOE to take spent nuclear fuel. 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 and results of operations of the Company. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - ------- ----------------------------------------------------------------------- RESULTS OF OPERATIONS For the Three, Six and Twelve Months Ended June 30, 1998, As Compared With the Corresponding Periods One Year Earlier ----------------------------------------------------------- Operating Revenues ------------------ For the three, six and twelve months ended June 30, 1998, operating revenues were affected by the following factors (in millions): Three Months Six Months Twelve Months Weather $ 41 $ 51 $ 86 Customer growth/changes in usage patterns 24 32 115 Sales to other utilities 14 28 59 Price (11) (19) (47) Sales to Power Agency 4 14 9 Other (2) - - --- --- --- Total $ 70 $ 106 $ 222 == === ===
The increase in the weather component of revenue for all periods is the result of more favorable temperatures in the current periods as compared to prior periods. The increase in the customer growth/changes in usage patterns component of revenue for all comparison periods reflects continued growth in the number of customers served by the Company. For the twelve months ended June 30, 1997, both the weather and customer growth/changes in usage patterns components of revenue were affected by lost revenues caused by Hurricanes Fran and Bertha. Sales to other utilities increased in all comparison periods as a result of the Company's continued active pursuit of opportunities in the wholesale power market. The price-related decrease for the three months and six months ended June 30, 1998, is primarily attributable to a decrease in the fuel cost component of revenue. The price-related decrease for the twelve months ended June 30, 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. Operating Expenses ------------------ Fuel expense increased for all periods primarily due to an increase in generation of approximately 12.5%, 11.2% and 11.5% for the three, six and twelve months ended June 30, 1998, respectively. The increase in fuel expense for all periods is also related to a change in the generation mix, with an increase in fossil generation and a decrease in nuclear generation. These increases were partially offset by a decrease in fuel prices during all comparison periods. The increase in purchased power for the three- and twelve-month periods is primarily due to an increase in purchases from other utilities. The increase for the six-month period is due to a combination of increased purchases from other utilities and an increase in cogeneration. Other operation and maintenance expense decreased for all comparison periods reflecting the Company's continued cost reduction efforts. Also contributing to the decrease were lower expenses resulting from fewer fossil outages during the current periods. Depreciation and amortization increased approximately $48 million for the twelve months ended June 30, 1998, of which approximately $34 million was a result of the accelerated amortization of certain regulatory assets, and approximately $2 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 all comparison periods primarily due to an increase in pretax operating income. In addition, the increase for all comparison periods is due to tax provision adjustments recorded for potential audit issues in open tax years which decreased income tax expense in the prior periods. Harris Plant deferred costs, net decreased for all 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 benefit related to other income increased for all comparison periods primarily as a result of a decrease in other income. Interest income decreased for all comparison periods primarily as a result of a decrease in tax refund-related interest income recognized in the current periods. Other income, net decreased for the three, six and twelve-month periods primarily due to an increase in pre-tax start-up losses incurred by certain non-regulated subsidiaries of approximately $12 million, $25 million, and $36 million, respectively. Management has projected losses for these non-regulated subsidiaries as they evolve through start-up phases; however, the 1998 losses have been higher than management's expectations. Accordingly, the Company has initiated cost-cutting and revenue enhancing efforts at the subsidiaries to mitigate the effects of these losses. The decrease in the twelve-month period was also due to an adjustment of $23 million to the unamortized balance of abandonment costs related to the Harris Plant, which increased other income in the prior period. Interest Charges ---------------- Interest Charges related to long-term debt increased for all comparison periods primarily due to the issuance of $200 million principal amount of first mortgage bonds in August 1997. Other interest charges decreased for all reported periods primarily as a result of a decrease in commercial paper borrowings classified as short-term debt. Preferred Stock Dividend Requirements ------------------------------------- The decrease in the preferred stock dividend requirements for the six- and twelve-month 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 June 30, 1998 and From June 30, 1997 to June 30, 1998 --------------------------------------- Cash Flow and Financing ----------------------- The proceeds from commercial paper borrowings and/or internally generated funds financed the redemption or retirement of long-term debt totaling $40 million and $80 million during the six and twelve months ended June 30, 1998, respectively. 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. As of June 30, 1998, the Company's long-term revolving credit facilities, which support its commercial paper borrowings, totaled $750 million. The Company is required to pay minimal annual commitment fees to maintain its credit facilities. Consistent with management's intent to maintain all or 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 $410 million and $350 million of commercial paper outstanding as of June 30, 1998 and 1997, respectively. The Company's capital structure as of June 30 was as follows: 1998 1997 ---- ---- Common Stock Equity 51.79% 51.14% Long-term Debt, net 47.13% 47.74% Preferred Stock 1.08% 1.12% 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 ----------- Wholesale Competition --------------------- During the last week of June 1998, some wholesale power markets experienced sharp increases in prices. That upsurge in power costs was due, in part, to the unavailability of generating capacity and unusually hot weather in the midwestern portion of the country. The relatively sudden movement in wholesale power prices disrupted certain power transactions, including some to which the Company was a party. The Company anticipates volatility in the wholesale power market to increase during peak demand periods; however, the Company does not expect this volatility to have a material adverse affect on the Company's financial position and results of operations. North Carolina Activities ------------------------- The 23-member study commission established to evaluate the future of electric service in North Carolina issued an interim report to the 1998 North Carolina General Assembly (General Assembly) in June 1998. The report summarized the numerous fact-finding and educational activities and analytical projects the commission has initiated or completed since it began meeting in November 1997, but offered no judgments or recommendations. The commission will reconvene after the General Assembly ends its session this summer, and will make its final report during the General Assembly's 1999 session. The Company cannot predict the outcome of this matter. South Carolina Activities ------------------------- The South Carolina General Assembly ended its 1998 session without enacting any legislation regarding electric restructuring; however, the issue of electric restructuring is expected to be considered again during the 1999 legislative session, which will begin in January. The Company cannot predict the outcome of this matter. Federal Activities ------------------ At the federal level, deregulation legislation has not progressed out of committee. The Congress has not found common ground on the issue of electric industry restructuring. Some lawmakers advocate setting a federal deadline by which states must open their retail electricity markets to competition. Others argue that each state should be allowed to decide the issue. The Clinton Administration proposed a bill in June 1998 that encourages states to begin retail competition by 2003, but also provides states the option to maintain the status quo or pursue a different plan. The Company cannot predict the outcome of this matter. Year 2000 --------- Year 2000 Background -------------------- The Company's overall goal is to be Year 2000 ready. "Year 2000 ready" means that critical systems, devices, applications or business relationships have been evaluated and are expected to be suitable for continued use into and beyond the Year 2000, or contingency plans are in place. The Company began addressing the Year 2000 issue in 1994 by beginning to assess its business computer systems, such as general ledger, payroll, customer billing and inventory control. The majority of these systems have been corrected and running in the Company's day-to-day computing environment since 1996. Also, by the mid-1990s, two major accounting systems were replaced with systems that were designed to be Year 2000 ready. The Company plans to complete corrections to the remaining business systems by the end of 1998. During mid-1997 a Corporate Year 2000 Project was established to provide leadership and direction to the Year 2000 efforts throughout the Company and its subsidiaries. Also, the project scope was expanded to include "embedded' systems (such as process control computers, chart recorders, data loggers, calibration equipment and chemical analysis equipment), end-user computing hardware and software (including personal computers, spreadsheets, word processing and other personal and workgroup applications), plant and corporate facilities (such as security systems, elevators and heating and cooling systems) and business relationships with key suppliers and customers. The Company is using a multi-step approach in conducting its Year 2000 Project. These steps are: inventory, assessment, remediation and testing, and contingency planning. The first step, an inventory of all systems and devices with potential Year 2000 problems, was completed in January 1998. The next step, completed in March 1998, was to conduct an initial assessment of the inventory to determine the state of its Year 2000 readiness. As part of the assessment phase, remediation strategies were identified and remediation cost estimates were developed. The Company will utilize both internal and external resources to remediate and test for Year 2000 readiness. The Company has recently initiated formal communications with the suppliers with which it has active contracts to determine the extent to which the Company is vulnerable to those third parties' failure to remediate their own Year 2000 issue. The Company cannot predict the outcome of other companies' remediation efforts. Year 2000 Costs --------------- The Company currently plans to complete the Year 2000 Project by August 1999. The total remaining cost of the Year 2000 Project is estimated at $15 million. (This estimate excludes Year 2000 Project costs attributable to recent subsidiary acquisitions, which the Company does not expect to be material to the financial position and results of operations.) Approximately $6 million is for new software and hardware purchases and will be capitalized. The remaining $9 million will be expensed as incurred over the next two years. To date, the Company has incurred and expensed approximately $3 million related to the inventory, assessment and development of a Year 2000 Project remediation plan. The costs of the project and the date on which the Company plans to complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third parties' Year 2000 readiness and other factors. Risk Assessment --------------- At this time, the Company believes its most reasonably likely worst case scenario is that key customers could experience significant reductions in their power needs due to their own Year 2000 issues. Although the Company does not believe that this scenario will occur, it has assessed the effect of such a scenario by using current financial data. In the event that this scenario does occur, the Company does not expect that it would have a material adverse affect on the Company's financial position and results of operations. The Company believes a more likely scenario is a temporary disruption of service to its electric customers, including the effect of cascading disruptions caused by other entities whose electrical systems are connected to the Company's. The Company has assessed the risk of this scenario, and believes that its contingency plans would mitigate the long-term effect of such a scenario. In the event that a temporary disruption does occur, the Company does not expect that it would have a material adverse affect on its financial position and results of operations. Contingency Plans ----------------- Contingency plans will be prepared so that the Company's critical business processes can be expected to continue to function on January 1, 2000 and beyond. The Company's contingency plans will be structured to address both remediation of systems and their components and overall business operating risk. These plans are intended to mitigate both internal risks as well as potential risks in the supply chain of the Company's suppliers and customers. One of the Company's emergency contingency plans specifically addresses emergency scenarios that may arise due to the fact that electric utility systems throughout the southeast region of the United States are interconnected. The Company has been working actively with the North American Electric Reliability Council and the Southeastern Electric Reliability Council to address the issue of overall grid reliability and protection. The Company has the ability to isolate its transmission system either automatically or manually to mitigate the risk of cascading regional failures. The Company's emergency readiness contingency plan includes the performance of regular training exercises that include simulated disaster recovery scenarios. As part of its Year 2000 contingency planning, the Company will review its disaster recovery scenarios to identify those that can be used specifically for Year 2000 readiness training. New Accounting Standards ------------------------ In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities", effective for all fiscal quarters of fiscal years beginning after June 15, 1999. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires the recognition of all derivative instruments as assets or liabilities in the statement of financial position and measurement of those instruments at fair value. The accounting treatment of changes in fair value is dependent upon whether or not an instrument is designated as a hedge and, if so, the type of hedge. The Company has not fully analyzed the provisions of SFAS No. 133. Currently, the Company does not have a material position in derivative instruments. Item 3. Quantitative and Qualitative Disclosures About Market Risk ------- ---------------------------------------------------------- The Company's market risk exposure has not changed materially from the exposure as disclosed in the Company's 1997 Annual Report on Form 10-K. 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 INTELLIGENT SOLUTIONS, INC.: (a) Securities Delivered. Pursuant to an asset purchase agreement ---------------------- dated June 18, 1998, on June 29, 1998, 12,351 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 Intelligent Solutions, Inc., a Nevada corporation, (ISI). All Common Shares delivered by SRS pursuant to the ISI asset purchase 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 transactions identified above. ISI was the only recipient of the Common Shares. (c) Consideration. The consideration for the Common Shares was the -------------- delivery of certain assets of ISI 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 June 1, 1998 and August 3, 1998, 18,300 ---------------------- shares and 19,900 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. Item 4. Submission of Matters to a Vote of Security Holders ------- --------------------------------------------------- (a) The Annual Meeting of the Shareholders was held on May 13, 1998. (b) The meeting involved the election of one Class II director to serve a two-year term and three Class III directors to serve for three-year terms. Proxies for the meeting were solicited pursuant to Regulation 14, there was no solicitation in opposition to management's nominees as listed below, and all nominees were elected. (c) The total votes for the election of directors were as follows: Class II Votes For Votes Withheld -------- --------- -------------- (Term Expiring in 2000) Walter Y. Elisha 127,501,932 2,500,560 Class III Votes For Votes Withheld -------- --------- -------------- (Terms Expiring in 2001) William Cavanaugh III 126,403,489 3,599,003 Charles W. Coker 127,699,024 2,303,467 Estell C. Lee 127,654,798 2,347,694 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 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: August 12, 1998 EXHIBIT INDEX Exhibit Number Description 10(a) Resolutions of Board of Directors dated July 17, 1998, amending the Supplemental Executive Retirement Plan of Carolina Power & Light Company, effective January 1, 1999. 10(b) Amended Management Incentive Compensation Program of Carolina Power & Light Company, effective January 1, 1999, as amended by the Organization and Compensation Committee of the Board of Directors on July 17, 1998. 27 Financial Data Schedule EX-10 2 EXHIBIT 10(A) [Excerpts from Minutes of Meeting of Board of Directors July 17, 1998] AMENDMENT TO SUPPLEMENTAL SENIOR EXECUTIVE RETIREMENT PLAN Mr. Coker next referred to the recommendation of the Organization and Compensation Committee that the Company's Supplemental Senior Executive Retirement Plan (the "Plan") be amended and reviewed the details of the proposed amendment. He stated that, under ARTICLE VIII AMENDMENT AND TERMINATION, the Company has the right to amend the Plan. He stated that the Plan needed to be amended to provide for early retirement at age 55 instead of age 60, to make the Plan more consistent with other Company plans. An Amendment Two to the Plan was presented to the Board. Amendment Two was marked as Exhibit F to the minutes of the Board of Directors meeting and filed with and made a part of the minutes of the meeting. Amendment Two will allow early retirement at age 55 instead of age 60. Whereupon, after discussion and upon motion duly made and seconded, it was unanimously: RESOLVED, that Amendment Two to the Plan substantially in the form of Exhibit F to the minutes of this meeting, with such changes, if any, as the officers of the Company may deem advisable, be, and the same hereby is, ratified; and further RESOLVED, that the officers of the Company be, and hereby are, fully authorized and empowered to do any and all things and to take any and all actions in their judgment necessary or desirable in order to fully carry out, perform and make effective the matters and things covered by the foregoing resolution and the purposes and intent thereof. EXHIBIT___ TO BOARD OF DIRECTORS MEETING MINUTES AMENDMENT TWO TO SUPPLEMENTAL SENIOR EXECUTIVE RETIREMENT PLAN OF CAROLINA POWER & LIGHT COMPANY Pursuant to ARTICLE VIII AMENDMENT AND TERMINATION of the Supplemental Senior Executive Retirement Plan of Carolina Power & Light Company, as amended and restated September 21, 1994, and as subsequently amended by Amendment One effective July 1, 1997 (the "Plan"), the Board of Directors hereby further amends the Plan. The following changes to the Plan shall become effective on July 17, 1998. 1. In the third line of Section 4.02(a) of ARTICLE IV RETIREMENT BENEFITS, replace the phrase "after his attainment of age sixty (60) but prior to his Normal Retirement Date" with the phrase "after his attainment of age fifty-five (55) but prior to his Normal Retirement Date." 2. In the third line of Section 5.03 of ARTICLE V PRE-RETIREMENT DEATH BENEFITS, replace the phrase "after attaining age sixty (60) with ten (10) or more years of Service" with the phrase "after attaining age fifty-five (55) with ten (10) years of Service." 3. In the second line of Section 6.04(a) of ARTICLE VI SEVERANCE BENEFITS, replace the phrase "who dies after attaining age sixty (60)" with the phrase "who dies after attaining age fifty-five (55)." Except as amended herein, the Supplemental Senior Executive Retirement Plan of Carolina Power & Light Company shall continue in full force and effect. EX-10 3 EXHIBIT 10(B) EXHIBIT ____ TO THE ORGANIZATION AND COMPENSATION COMMITTEE MEETING MINUTES AMENDED MANAGEMENT INCENTIVE COMPENSATION PROGRAM OF CAROLINA POWER & LIGHT COMPANY EFFECTIVE JANUARY 1, 1999 TABLE OF CONTENTS Page ARTICLE I PURPOSE.................................1 ARTICLE II DEFINITIONS.............................1 ARTICLE III ADMINISTRATION..........................4 ARTICLE IV PARTICIPATION...........................5 ARTICLE V AWARDS..................................5 ARTICLE VI DISTRIBUTION AND DEFERRAL OF AWARDS.....9 ARTICLE VII TERMINATION OF EMPLOYMENT...............15 ARTICLE VIII MISCELLANEOUS...........................16 3 ARTICLE I PURPOSE The purpose of the Management Incentive Compensation Program (the "Program") of Carolina Power & Light Company (the "Company") is to promote the financial interest of the Company, including its growth, by (i) attracting and retaining executive officers and other management-level employees who can have a significant positive impact on the success of the Company; (ii) motivating such personnel to help the Company achieve annual incentive, performance and safety goals; (iii) motivating such personnel to improve their own as well as their business unit/work group's performance through the effective implementation of human resource strategic initiatives; and (iv) providing annual cash incentive compensation opportunities that are competitive with those of other major corporations. ARTICLE II DEFINITIONS The following definitions are applicable to the Program: 1. "Award": The benefit payable to a Participant hereunder, consisting of a Corporate Component and a Noncorporate Component. 2. "Company": Carolina Power & Light Company, a North Carolina corporation, and its corporate successors. 3. "Compensation Committee": The Organization and Compensation Committee of the Board of Directors of the Company. 4. "Corporate Factor": The factor determined by the Compensation Committee to be utilized in calculating the Corporate Component of an Award pursuant to Article V, Section 3.a. hereof, which can range from 0 to 1.5. 5. "Corporate Component": That portion of an Award based upon the overall performance of the Company, as determined in Article V, Section 3.a. hereof. 6. "Date of Retirement": The first day of the calendar month immediately following the Participant's Retirement. 7. "Noncorporate Component": That portion of an Award based upon the level of attainment of business unit/group, departmental, and individual Performance Measures, as provided in Article V, Section 3 .b. hereof, which can range from 0 to 1.5. 8. "Participant": An employee of the Company who is selected pursuant to Article IV hereof to be eligible to receive an Award under the Program. 9. "Performance Measure": A goal or goals established for measuring the performance of a business unit/group, department, or individual used for the purpose of computing the Noncorporate Component of an Award for a Participant. 10. "Performance Unit": A unit or credit, linked to the value of the Company's Common Stock under the terms set forth in Article VI hereof. 11. "Program": The Management Incentive Compensation Program of Carolina Power & Light Company as contained herein, and as it may be amended from time to time. 12. "Retirement": A Participant's termination of employment with the Company after having met the requirements for early, normal or postponed retirement under the Supplemental Retirement Plan of Carolina Power & Light Company. 13. "Salary": The compensation paid by the Company to a Participant in a relevant Year, consisting of regular or base compensation, such compensation being understood not to include bonuses, if any, or incentive compensation, if any. Provided, that such compensation shall not be reduced by any cash deferrals of said compensation made under any other plans or programs maintained by the Company. 14. "Section 16 Participants": Those Participants who are subject to the provisions of Section 16 of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Individuals who are subject to Section 16 of the 1934 Act include, without limitation, directors and certain officers of the Company, and any individual who beneficially owns more than ten percent of a class of the Company's equity securities registered under Section 12 of the 1934 Act. 15. "Senior Management Committee": The Senior Management Committee of the Company. 16. "Target Award Opportunity": The target for an Award under this Program as set forth in Section 2 of Article V hereof. 17. "Year": A calendar year. ARTICLE III ADMINISTRATION The Program shall be administered by the Chief Executive Officer of the Company. Except as otherwise provided herein, the Chief Executive Officer shall have sole and complete authority to (i) select the Participants; (ii) establish and adjust (either before or during the relevant Year) a Participant's Performance Measures, their relative percentage weight, and the performance criteria necessary for attainment of various performance levels; (iii) approve Awards; (iv) establish from time to time regulations for the administration of the Program; and (v) interpret the Program and make all determinations deemed necessary or advisable for the administration of the Program, all subject to its express provisions. Notwithstanding the foregoing, with respect to Participants who are at or above the Department Head level in the Company, the performance criteria and Awards shall be subject to the specific approval of the Compensation Committee. In addition, the Compensation Committee shall have the sole authority to determine the total payout under the Program up to a maximum of two percent (2%) of the Company's after-tax income for a relevant Year. A majority of the Compensation Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by a majority of the members of the Committee without a meeting, shall be the acts of such Committee. ARTICLE IV PARTICIPATION The Chief Executive Officer shall select from time to time the Participants in the Program for each Year from those employees of the Company who, in his opinion, have the capacity for contributing in a substantial measure to the successful performance of the Company that Year. No employee shall at any time have a right to be selected as a Participant in the Program for any Year nor, having been selected as a Participant for one Year, have the right to be selected as a Participant in any other Year. ARTICLE V AWARDS 1. Eligibility. In order for any Participant to be eligible to receive an Award, two conditions must be met. First, a contribution must be earned by one or more groups of employees under the corporate incentive feature of the Company's Stock Purchase-Savings Plan. Second, the Company must also meet minimum threshold performance levels for return on common equity, revenue per kilowatt hour, and other measures for the relevant Year as may be established by the Compensation Committee. Threshold performance for return on common equity and revenue per kilowatt hour is the weighted average of a peer group of utilities, consisting of all major utilities with nuclear and fossil generation in the eastern portion of the United States, averaged over the most recent three-year period. To satisfy threshold performance, the Company must be above the three-year average with respect to return on common equity and below the three-year average with respect to cost per kilowatt hour. 2. Target Award Opportunities. The following table sets forth Target Award Opportunities, expressed as a percentage of Salary, for various levels of participation in the Program: -------------------------------------- ----------------------------- Participation Target Award 0pportunities -------------------------------------- ----------------------------- Chief Executive Officer 60% -------------------------------------- ----------------------------- -------------------------------------- ----------------------------- Chief Operating Officer 60% -------------------------------------- ----------------------------- -------------------------------------- ----------------------------- Executive Vice Presidents 40% -------------------------------------- ----------------------------- -------------------------------------- ----------------------------- -------------------------------------- ----------------------------- -------------------------------------- ----------------------------- Senior Vice Presidents 35% -------------------------------------- ----------------------------- -------------------------------------- ----------------------------- Department Heads 25% -------------------------------------- ----------------------------- -------------------------------------- ----------------------------- Other Participants: Key Managers 20% Other Managers 15% -------------------------------------- ----------------------------- The Target Award Opportunity for the Chief Executive Officer shall be 60%; however, the Compensation Committee of the Board shall be authorized to change that amount from year to year, or to award an amount of compensation based on other considerations, in its complete discretion. 3. Award Components. Awards under the Program to which Participants are eligible consist of the sum of a Corporate Component and a Noncorporate Component. The portion of the Target Award Opportunities attributable to the Corporate Component and Noncorporate Component, respectively, for various levels of participation, is set forth in the following table: - ---------------------------- ------------- ---------------- Participants Corporate Noncorporate Component Component - ---------------------------- ------------- ---------------- Chief Executive Officer 100% - - ---------------------------- ------------- ---------------- - ---------------------------- ------------- ---------------- Chief Operating Officer 100% - - ---------------------------- ------------- ---------------- - ---------------------------- ------------- ---------------- Executive Vice Presidents 75% 25% - ---------------------------- ------------- ---------------- - ---------------------------- ------------- ---------------- Senior Vice Presidents 75% 25% - ---------------------------- ------------- ---------------- - ---------------------------- ------------- ---------------- Department Heads 50% 50% - ---------------------------- ------------- ---------------- - ---------------------------- ------------- ---------------- Other Participants 50% 50% - ---------------------------- ------------- ---------------- a. Corporate Component. The Corporate Component of an Award is based upon the overall performance of the Company. In the event the conditions set forth in Section 1 of Article V are met and the Compensation Committee, in its discretion, determines an appropriate Corporate Factor, that Corporate Factor shall be multiplied by the portion of a Participant's Target Award Opportunity attributable to the Corporate Component in order to determine the percentage of such Participant's Salary which will comprise the Corporate Component of his or her Award. Notwithstanding the foregoing, if the second condition set forth in Section 1 of Article V is not fully met, the Compensation Committee may nevertheless in its discretion determine an appropriate Corporate Factor and grant a Corporate Component of an Award to the Participants. b. Noncorporate Component. The Noncorporate Component of an Award for a Participant is based upon the level of attainment of business unit/group, departmental and individual Performance Measures. Performance Measures for each Participant and their relative weight are determined pursuant to authority granted in Article III hereof. (i) Performance Levels. There are three levels of performance related to each of a Participant's Performance Measures: outstanding, target, and threshold. The specific performance criteria for each level of a Participant's Performance Measures shall be set forth in writing prior to the beginning of an applicable Year, or within thirty (30) days after a Participant first becomes eligible to participate in the Program, and shall be determined pursuant to authority granted in Article III hereof. The payout percentages to be applied to each Participant's Target Award Opportunity are as follows: Performance Level Payout Percentage Outstanding 150% Target 100% Threshold 50% Payout percentages shall be adjusted for performance between the designated performance levels, provided, however, that performance which falls below the "Threshold" performance level results in a payout percentage of zero unless the Chief Executive Officer directs otherwise. (ii) Determination of Noncorporate Component. In order to determine a Participant's Noncorporate Component, if any, for a particular Year, the Chief Executive Officer initially shall determine the appropriate payout percentage for each of such Participant's Performance Measures. Thereafter, each payout percentage is multiplied by the percentage weight assigned to each such Performance Measure and the results added together. That aggregate amount is multiplied by the Participant's Target Award Opportunity for the Noncorporate Award Component for the respective Year and the result is multiplied by the Participant's Salary. (iii) Change of Job Status. Participants who change organizations during a Year will have their Noncorporate Component prorated based upon the Performance Measures achieved in each organization and the length of time served in each organization. In the discretion of the Chief Executive Officer employees may become Participants during a Year based on promotions and may receive an Award prorated based on the length of time served in the qualifying job and the Performance Measures achieved while in the qualifying job. 4. New Participants. For Participants selected after May 1, any Award that is earned during the Year of selection shall be pro rated based on the length of time served in the qualifying job. 5. Reduction of Award Amount. In the event of documented performance deficiencies of a Participant during a Year, the Chief Executive Officer, in his discretion, may reduce the Award payable to such Participant for such Year. 6. Example. Attached as Exhibit A and incorporated by reference is an example of the process by which an Award is granted hereunder. Said exhibit is intended solely as an example and in no way modifies the provisions of this Article V. ARTICLE VI DISTRIBUTION AND DEFERRAL OF AWARDS 1. Distribution of Awards. Unless a Participant elects to defer an award pursuant to the remaining provisions of this Article VI, awards under the Program earned during any Year shall be paid in cash in the succeeding Year, normally no later than March 15 of such succeeding Year. 2. Deferral Election. A Participant may elect to defer the Program Award he or she has earned for any Year by completing and submitting to the Vice President, Human Resources, a deferral election form by the later of (1) November 30 of the Year in which the Award is earned or (2) the thirtieth (30th) day after first becoming eligible to participate in the deferral election provisions of the Program; provided, however, that for the 1995 Plan Year, deferral elections shall be made by no later than November 30, 1995. Such election shall apply to the Participant's Award, if any, otherwise to be paid as soon as practicable after the Year during which it was earned. A Participant's deferral election may apply to 100%, 75%, 50%, or 25% of the Program Award; provided, however, that in no event shall the amount deferred be less than $1,000. The election to defer shall be irrevocable as to the Award earned during the particular Year. 3. Period of Deferral. At the time of a Participant's deferral election, a Participant must also select a distribution date. Subject to Section 6, the distribution date may be: (a) any date that is at least five (5) years subsequent to the date the Program Award would otherwise be payable, but not later than the second anniversary of the Participant's Date of Retirement; or (b) any date that is within two years following the Participant's Date of Retirement. Subject to Section 6, a Participant may extend the distribution date for one or more additional Year(s) by making a new deferral election at least one (1) year before the previously selected distribution date occurs; provided, however, that in no event shall the subsequent distribution date be a date that is more than two years beyond the Participant's Date of Retirement. 4. Performance Units. All Awards which are deferred under the Program shall be recorded in the form of Performance Units. Each Performance Unit is generally equivalent to a share of the Company's Common Stock. In converting the cash award to Performance Units, the number of Performance Units granted shall be determined by dividing the amount of the Award by 85% of the average value of the opening and closing price of a share of the Company's Common Stock on the last trading day of the month preceding the date of the Award. The Performance Units attributable to the 15% discount from the average value of the Company's Common Stock shall be referred to as the "Incentive Performance Units." The Incentive Performance Units and any adjustments or earnings attributable to those Performance Units shall be forfeited by the Participant if he or she terminates employment either voluntarily or involuntarily other than for death or retirement prior to five years from March 15 of the Year in which payment would have been made if the Award had not been deferred. 5. Program Accounts. A Program Deferral Account will be established on behalf of each Participant, and the number of Performance Units awarded to a Participant shall be recorded in each Participant's Program Deferral Account as of the first of the month coincident with or next following the month in which a deferral becomes effective. The number of Performance Units recorded in a Participant's Program Deferral Account shall be adjusted to reflect any splits or other adjustments in the Company's Common Stock, the payment of any cash dividends paid on the Company's Common Stock and the payment of Awards under this Program to the Participant. To the extent that any cash dividends have been paid on the Company's Common Stock, the number of Performance Units shall be adjusted to reflect the number of Performance Units that would have been acquired if the same dividend had been paid on the number of Performance Units recorded in the Participant's Program Deferral Account on the dividend record date. For purposes of determining the number of Performance Units acquired with such dividend, the average of the opening and closing price of the Company's Common Stock on the payment date of the Company's Common Stock dividend shall be used. Each Participant shall receive an annual statement of the balance of his Program Deferral Account, which shall include the Incentive Performance Units and associated earnings and adjustments that are subject to being forfeited as provided above. 6. Payment of Deferred Program Awards. Subject to Section 4 related to forfeiture of Incentive Performance Units, Deferred Program Awards shall be paid in cash beginning no later than the next April 1 following the distribution date or the deferred distribution date specified by the Participant in accordance with Section 3. To convert the Performance Units in a Participant's Program Deferral Account to a cash payment amount, Performance Units shall be multiplied by the average of the opening and closing price of the Company's Common Stock on the last trading day preceding the payment of the Deferred Program Award. Except as otherwise provided below, deferred amounts will be paid either in a single lump-sum payment or in up to five (5) annual payments. In the event that a Participant elects to receive the deferred Program Award in equal annual payments, the amount of the Award to be received in each year shall be determined as follows: (a) To determine the amount of the initial annual payment, the number of Performance Units in the Participant's Program Deferral Account will be divided by the total number of annual payments to be received, and the result will be multiplied by the average of the opening and closing price of the Company's Common Stock on the last trading day preceding the due date of the initial payment. (b) To determine the amount of each successive annual payment, the Program Deferral Account balance will be divided by the number of annual payments remaining, and the result will be multiplied by the average of the opening and closing price of the Company's Common Stock on the last trading day preceding the due date of the annual payment. 7. Termination of Employment/Effect on Deferral Election. If the employment of a Participant terminates prior to the last day of a Year for which a Program Award is determined, then any deferral election made with respect to such Program Award for such Year shall not become effective and any Program Award to which the Participant is otherwise entitled shall be paid as soon as practicable after the end of the Year during which it was earned, in accordance with paragraph 1 of this Article VI. 8. Termination of Employment/Acceleration of Deferral. Notwithstanding the foregoing, if a Participant terminates employment by reason other than death or Retirement, full payment of all amounts due to the Participant shall be accelerated and paid on the first day of the month following the date of termination. Incentive Performance Units shall be subject to forfeiture as provided in Section 4. 9. Financial Hardship Payments. In the event of a severe financial hardship occasioned by an emergency, including, but not limited to, illness, disability or personal injury sustained by the Participant or a member of the Participant's immediate family, a Participant may apply to receive a distribution earlier than initially elected. The Chief Executive Officer or his designee may, in his sole discretion, either approve or deny the request. The determination made by the Chief Executive Officer will be final and binding on all parties. If the request is granted, the payments will be accelerated only to the extent reasonably necessary to alleviate the financial hardship. Incentive Performance Units shall not be subject to early distribution under this Section 9 until five years from March 15 of the Year in which payment would have been made if the Award had not been deferred. 10. Death of a Participant. If the death of a Participant occurs before a full distribution of the Participant's Program Deferral Account is made, payment shall be made to the beneficiary designated by the Participant to receive such amounts in accordance with the schedule specified in the Participant's Deferral Election form. Said payment shall be made as soon as practical following notification that death has occurred. In the absence of any such designation, payment shall be made to the personal representative, executor or administrator of the Participant's estate. 11. Non-Assignability of Interests. The interests herein and the right to receive distributions under this Article VI may not be anticipated, alienated, sold, transferred, assigned, pledged, encumbered, or subjected to any charge or legal process, and if any attempt is made to do so, or a Participant becomes bankrupt, the interests of the Participant under this Article VI may be terminated by the Chief Executive Officer, which, in his sole discretion, may cause the same to be held or applied for the benefit of one or more of the dependents of such Participant or make any other disposition of such interests that he deems appropriate. 12. Unfunded Deferrals. Nothing in this Program, including this Article VI, shall be interpreted or construed to require the Company in any manner to fund any obligation to the Participants, terminated Participants or beneficiaries hereunder. Nothing contained in this Program nor any action taken hereunder shall create, or be construed to create, a trust of any kind, or a fiduciary relationship between the Company and the Participants, terminated Participants, beneficiaries, or any other persons. Any funds which may be accumulated in order to meet any obligation under this Program shall for all purposes continue to be a part of the general assets of the Company; provided, however, that the Company may establish a trust to hold funds intended to provide benefits hereunder to the extent the assets of such trust become subject to the claims of the general creditors of the Company in the event of bankruptcy or insolvency of the Company. To the extent that any Participant, terminated Participant, or beneficiary acquires a right to receive payments from the Company under this Program, such rights shall be no greater than the rights of any unsecured general creditor of the Company. ARTICLE VII TERMINATION OF EMPLOYMENT A Participant must be actively employed by the Company on the next January 1 immediately following the Year for which a Program Award is earned in order to be entitled to payment of the full amount of any Award for that Year. In the event the active employment of a Participant shall terminate or be terminated for any reason before the next January 1 immediately following the Year for which a Program Award is earned, such Participant shall receive his or her Award for the year, if any, in an amount that the Chief Executive Officer deems appropriate. ARTICLE VIII MISCELLANEOUS 1. Assignments and Transfers. The rights and interests of a Participant under the Program may not be assigned, encumbered or transferred except, in the event of the death of a Participant, by will or the laws of descent and distribution. 2. Employee Rights Under the Program. No Company employee or other person shall have any claim or right to be granted an Award under the Program or any other incentive bonus or similar Plan of the Company. Neither the Program, participation in the Program nor any action taken thereunder shall be construed as giving any employee any right to be retained in the employ of the Company. 3. Withholding. The Company shall have the right to deduct from all amounts paid in cash any taxes required by law to be withheld with respect to such cash payments. 4. Amendment or Termination. The Compensation Committee may in its sole discretion amend suspend or terminate the Program or any portion thereof at any time. 5. Governing Law. This Program shall be construed and governed in accordance with the laws of the state of North Carolina. 6. Effective Date. This Program, as amended, shall be effective as of December 10, 1997. 7. Entire Agreement. This document (including the exhibit attached hereto and any future amendments to said exhibit that may be made by the Chief Executive Officer) sets forth the entire Program. EXHIBIT A (to be supplied) DESIGNATION OF BENEFICIARY MANAGEMENT INCENTIVE COMPENSATION PROGRAM OF CAROLINA POWER & LIGHT COMPANY As provided in the Management Incentive Compensation Program of Carolina Power & Light Company, I hereby designate the following person as my beneficiary in the event of my death before a full distribution of my Deferral Account is made. PRIMARY BENEFICIARY: ------------------------------- ------------------------------- ------------------------------- CONTINGENT BENEFICIARY: ------------------------------- ------------------------------- ------------------------------- Any and all prior designations of one or more beneficiaries by me under the Management Incentive Compensation Program of Carolina Power & Light Company are hereby revoked and superseded by this designation. I understand that the primary and contingent beneficiaries named above may be changed or revoked by me at any time by filing a new designation in writing with the Company's Human Resources Department. DATE:__________________ SIGNATURE OF PARTICIPANT:_________________________________ The Participant named above executed this document in our presence on the date set forth above WITNESS: WITNESS: EX-27 4 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (CONSOLIDATED INTERIM FINANCIAL STATEMENTS AS OF JUNE 30, 1998) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JUN-30-1998 PER-BOOK $6,268,239 $253,380 $854,427 $426,852 $580,247 $8,383,145 $1,212,330 ($790) $1,624,745 $2,836,285 $0 $59,376 $2,581,325 $0 $0 $0 $168,075 $0 $0 $0 $2,738,084 $8,383,145 $1,488,447 $127,832 $1,109,025 $1,236,857 $251,590 ($10,299) $241,291 $89,252 $152,039 ($1,483) $150,556 $139,692 $67,166 $347,557 1.05 1.05
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